Supreme Court New South Wales Medium Neutral Citation: Credit Suisse AG v Gu [2021] NSWSC 756 Hearing dates: On the papers Date of orders: 25 June 2021 Decision date: 25 June 2021 Jurisdiction: Common Law Before: Davies J Decision: 1. In respect to the documents produced by National Australia Bank Ltd, HSBC Bank Australia Ltd, Crown Melbourne Ltd, and the Department of Home Affairs pursuant to subpoenas issued by the eighth defendant referred to in the Annexure to the Amended Notice of Motion dated 9 June 2021 and in paragraph 9 and Exhibit "BW20" to the affidavit of Barry Wight sworn 22 June 2021, the eighth defendant and the liquidators be released from the implied undertaking that those documents be used only for the purposes of the present proceedings, such that the eighth defendant and the liquidators be permitted to use those documents for the purposes of the winding up of the companies specified in prayer 1 of the Amended Notice of Motion, including for investigating the affairs of each of the companies, taking any recovery action or bringing proceedings by the liquidators in the name of the companies. 2. No order as to the costs of the Amended Notice of Motion. Catchwords: CIVIL PROCEDURE – subpoenas – Harman undertaking – application by liquidators of a defendant to use subpoenaed documents for purposes associated with winding up of the defendant and associated companies – where no opposition from producing parties – where purposes associated with winding-up included the defence of the proceedings – applicant released from implied undertaking Legislation Cited: Corporations Act 2001 (Cth) s 588FB Cases Cited: Harman v Secretary of State for the Home Department [1983] 1 AC 280 Vickers v Commonwealth of Australia [2020] NSWSC 1762 Texts Cited: Nil Category: Procedural rulings Parties: Menghong (Michael) Gu (First Defendant) Great Lands Investment Pty Ltd (Second Defendant) Zhi Huang (Third Defendant) Ying Qin (Fourth Defendant) Zhenhua Zhang (Fifth Defendant) Po Hu (Sixth Defendant) Hongyun Liu (Seventh Defendant) I-Prosperity Pty Ltd (In Liquidation) (Eighth Defendant) Jing Spring Hill Pty Ltd (Ninth Defendant) Liyun Liu (Tenth Defendant) Representation: Counsel: F Tao (Eighth Defendant) On the papers Solicitors: Independent Legal Pty Ltd (Plaintiff) MJF Law (Third to Sixth Defendants) Norton Rose Fulbright (Eighth Defendant) Ashurst Australia (Tenth Defendant) File Number(s): 2020/313035 Publication restriction: Nil Judgment 1. These proceedings were commenced in the Possession List by filing a statement of claim on 2 November 2020. The plaintiff sought possession of land at 10 Superba Parade, Mosman, judgment against the first defendant in the sum of $6,023,362.08, the removal of caveats lodged on the property by the second to the ninth defendants, and an order concerning how the proceeds of sale of the property should be dealt with. 2. The first defendant was the borrower and mortgagor under a loan agreement with the plaintiff dated 20 March 2017. 3. Shortly prior to the commencement of the proceedings the plaintiff had, on 1 October 2020, appointed receivers and managers to the property. On about 18 November 2020 the receivers sold the property for $12,000,000. The plaintiff's secured debt was repaid and its mortgage discharged. The balance of the proceeds of $5,446,462.18 are held in a controlled monies account. The receivers have sought the parties' consent to withdraw their remuneration and legal fees from those funds, and for the balance of $5,287,560.97 to be paid into court. 4. The remainder of the proceedings concern a priorities dispute concerning the competing interests in the property of the remaining active defendants. 5. On 15 July 2020 Barry Wight, Jeremy Nipps and Alan Walker were appointed administrators of I-Prosperity Pty Ltd. They were also appointed as joint and several administrators of 11 other companies in the I-Prosperity Group. On 19 August 2020 those persons were appointed as liquidators of I-Prosperity and the other 11 companies. On 31 March 2021 Mr Walker resigned as a liquidator. 6. I-Prosperity was named as the eighth defendant in the proceedings, on the basis of a caveat it had lodged on the property on or about 21 August 2020 claiming an equitable interest in the land arising from a "purchase money resulting trust". 7. In March, April and May 2021 the liquidators of I-Prosperity issued subpoenas to National Australia Bank Ltd, HSBC Bank Australia Ltd, Crown Melbourne Ltd ("Crown"), and the Department of Home Affairs. Each of those parties produced documents in answer to the subpoenas. The third to the sixth defendants in the proceedings have also issued subpoenas, including a subpoena addressed to the Department of Home Affairs. 8. By an amended notice of motion filed 10 June 2021 the eighth defendant and its liquidators seek to be released from the implied Harman undertaking (Harman v Secretary of State for the Home Department [1983] 1 AC 280) in respect of documents specified in the annexure to the notice of motion, to enable the liquidators to use the documents for the purposes of the winding up of the eighth defendant and the other companies in the I-Prosperity Group. 9. Each of the producing parties has said that they do not oppose the release of the undertaking. 10. The relevant principles have been concisely stated by Ward CJ in Eq in Vickers v Commonwealth of Australia [2020] NSWSC 1762 as follows: [19] The relevant principles applicable on an application for release from the Harman undertaking were considered by me last year in Findex Group Ltd v iiNet Ltd [2019] NSWSC 1198 (Findex), to which reference was made by the plaintiff on the present application. [20] Relevantly, I note that the circumstances in which such an undertaking arises were considered by the High Court in Hearne v Street (2008) 235 CLR 125; [2008] HCA 36. There, Hayne, Heydon and Crennan JJ said (at [96]) that: … Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence. The types of material disclosed to which this principle applies include documents inspected after discovery, answers to interrogatories, documents produced on subpoena, documents produced for the purposes of taxation of costs, documents produced pursuant to a direction from an arbitrator, documents seized pursuant to an Anton Piller order, witness statements served pursuant to a judicial direction and affidavits … [footnotes omitted] [21] In Findex, I noted (at [42]) that the implied Harman undertaking has been characterised variously as an obligation; a duty; a formula; a rule; or a principle (referring by way of example to Alterskye v Scott [1948] 1 All ER 469 at 470-471 per Jenkins J; Prudential Assurance Co Ltd v Fountain Page Ltd [1991] 1 WLR 756 at 764; [1991] 3 All ER 878 at 885; and to the description of the implied undertaking in Harman v Secretary of State for the Home Department [1983] 1 AC 280 itself (at 308) per Lord Keith). It is not necessary here to repeat what I said in Findex at [43]ff as to the purpose of the undertaking. [22] The relevant factors to be taken into account when considering whether leave should be granted (any particular case where the Harman undertaking applies) to permit use in another set of proceedings (i.e., for a purpose other than the purpose of the proceedings in which the documents were obtained) were considered by Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 (Springfield Nominees) at 225: For "special circumstances" to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. ... But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding. [23] In Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; (2005) 218 ALR 283 (Liberty Funding), the Full Court of the Federal Court (Branson, Sundberg and Allsop JJ, as his Honour then was) made reference, with approval, to the above passage from Springfield Nominees. As I noted at [50] in Findex, their Honours there endorsed both the factors identified as relevant to the exercise of the Court's discretion and that the notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. [24] It should also be noted that in Australian Securities and Investments Commission (ASIC) v Marshall Bell Hawkins Ltd [2003] FCA 833 (ASIC v Marshall Bell Hawkins) Merkel J at [13] said that: 13 The requirements of specificity in respect of the documents to be used and the purpose for which they are to be used is appropriate because the implied undertaking should only be modified or released to the extent that it is in the interests of the administration of justice or in the public interest to do so: see Springfield Nominees at 225 and Moage Ltd (in liq) v Jagelman (2002) 43 ACSR 173 ("Moage") at 176. Thus, the modification or release should be no greater than is necessary or appropriate to meet the interests of the administration of justice or the public interest. Further, in determining whether to exercise its discretion to grant the modification or release sought, it will usually be necessary for the Court to identify with precision the documents to be released and the purpose of that release. [25] … [26] Finally, I note that in Sybron Corporation v Barclays Bank Plc [1985] Ch 299 at 326-327; [1984] 3 WLR 1055 it was said that: … However, I do not think it can be right, on an application such as the present, for the court to undertake an examination of the strength of the proposed action in which it is sought to use the documents. I accept that it must be open to the respondent to resist leave on the ground that the proposed action would represent an abuse of process or for one reason or another was bound to fail or ought to be struck out. The court would always I think refuse leave if persuaded that the proposed action was of that character. But that apart, I feel great doubt whether it could ever be appropriate to try to gauge the strength of the proposed action in order to decide whether or not to give leave to use discovered documents for the purposes of that action. If a proposed action is not shown to be an abuse of process or obviously unsustainable then prima facie a plaintiff is entitled to prosecute it. Whether leave to use discovered documents for the purposes of such an action should be granted should depend in my view on the nature of the first action, the circumstances in which discovery was given and the nature of the proposed new action. There may be some cases in which for the purposes of an application for leave; to use discovered documents some assessment of the strength of the case should be attempted, but where, as here, the case is of complexity I do not think it represents the right approach. 1. The documents produced by NAB and HSBC are account statements maintained by them in respect of accounts held with them by each of Menghong Gu (the first defendant), Yingzi Xu and Zhou Xiang Huang. In addition, NAB produced, pursuant to a second subpoena, account statements of a number of other companies in the I-Prosperity Group. 2. Messrs Gu and Huang are two of the key individuals within the I-Prosperity Group. Mr Gu was a director of all of the companies, and Mr Huang was the chief financial officer. They apparently left Australia on 26 July 2020 and have not been able to be contacted by the liquidators since that time. Ms Xu is the wife of Mr Gu. Investigations to date show that on occasions, funds were transferred to the company's bank accounts to an account in which Ms Xu was one of the account holders. She is apparently ordinarily resident in China. 3. The documents produced by Crown are records of transactions between Crown and each of Mr Gu, Mr Huang and Ms Xu, including details of their respective memberships with Crown. It appears from documents produced by Crown that hundreds of thousands of dollars, if not millions, have passed through the accounts held by Mr Gu and Mr Huang with Crown. Investigations suggest that some of the funds passing through those accounts with Crown may have been funds belonging to the companies. 4. The documents produced by the Department include records of Mr Gu's arrival and departure into and out of Australia, details of his application for permission to leave Australia during the COVID-19 pandemic, and details of his application to sponsor Ms Xu for a spouse visa. The liquidators believe that Mr Gu's travel records and the matters he refers to in his sponsorship application may assist in their investigations into his activities in the months prior to the companies going into administration. 5. The companies comprise part of the broader I-Prosperity Group. Its core business involved funds and investment management, dealing primarily in real estate assets for high net worth foreign investors, some of whom were within the Special Investor Visa Program regulated by Austrade. 6. The liquidators' investigations into the affairs of the companies and their financial position show that the companies' books and records are intermingled, which has significantly added to the complexity of the liquidators' investigations. Investigations to date indicate that substantial amounts of funds received from investors have been used by the I-Prosperity group and its various directors for purposes other than the specific investment purpose for which the funds were apparently provided. There is also evidence of a number of transactions, including with third parties, which may be deemed uncommercial transactions within the meaning of s 588FB of the Corporations Act 2001 (Cth), including certain payments made to the directors, in particular Mr Gu, and Mr Huang. 7. The liquidators say that their investigations have been limited, not only by the state of the company's books and records, but also by the fact that the liquidators have limited assets available to them to undertake the required work. Unless the liquidators are able to recover some of the funds, which appear to have been misappropriated from I-Prosperity and other companies in the I-Prosperity group, or to prosecute other causes of actions that may be available, it is unlikely that creditors will receive a return from the companies. 8. The liquidators expect that the documents produced on subpoena in the present proceedings are likely to contain information which may assist them in their investigation into the I-Prosperity Group's affairs. The liquidators consider that the documents may assist them in tracing the flow of payments from the companies to Messrs Gu and Huang and Ms Xu, which may lead to recovery of assets for the benefit of creditors of the I-Prosperity Group. 9. It is not without significance that the Corporations Act gives the liquidators powers to compel the production of documents through the public examination process. Since, however, the relevant persons are not within Australia and are not contactable, public examinations may not be feasible. Even if they were, issuing similar notices for production of the documents produced on subpoena would be an unnecessary duplication and waste of resources. 10. In circumstances where there is no opposition from the producing parties, where there is nothing in the documents produced in respect of which any claim of privilege could be made, and where any defence by the eighth defendant and its liquidators in the proceedings will involve some aspects of the same investigation that the liquidators would be making generally, I consider that special circumstances have been shown to justify releasing the eighth defendant and the liquidators from their implied undertaking in relation to the subpoenaed documents. 11. Accordingly, I make the following orders: 1. In respect to the documents produced by National Australia Bank Ltd, HSBC Bank Australia Ltd, Crown Melbourne Ltd, and the Department of Home Affairs pursuant to subpoenas issued by the eighth defendant referred to in the Annexure to the Amended Notice of Motion dated 9 June 2021 and in paragraph 9 and Exhibit "BW20" to the affidavit of Barry Wight sworn 22 June 2021, the eighth defendant and the liquidators be released from the implied undertaking that those documents be used only for the purposes of the present proceedings, such that the eighth defendant and the liquidators be permitted to use those documents for the purposes of the winding up of the companies specified in prayer 1 of the Amended Notice of Motion, including for investigating the affairs of each of the companies, taking any recovery action or bringing proceedings by the liquidators in the name of the companies. 2. No order as to the costs of the Amended Notice of Motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 June 2021