District Court New South Wales Medium Neutral Citation: JD & S Project Pty Limited v Katcorp Constructions Pty Limited [2021] NSWDC 772 Hearing dates: 30 April 2021 Date of orders: 30 April 2021 Decision date: 30 April 2021 Jurisdiction: Civil Before: Neilson DCJ Decision: (1) I make the order in the schedule to the notice of motion filed; (2) The costs of the motion are reserved; and (3) I direct entry of the order forthwith. Catchwords: PRACTICE AND PROCEDURE – Freezing orders sought by plaintiff over assets of the defendant. Whether plaintiff has "good arguable case". Whether plaintiff has discharged onus of establishing a danger that the judgment it seeks to record may be frustrated by actions of defendant in meantime disposing of assets. Moving of evidentiary onus to defendant. Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Curtis v NID Pty Ltd [2010] FCA 1072 Downer EDI Engineering v Taralga Wind Farm Nominees No.2 [2014] NSWSC 971 Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) (No 3) [2020] NSWSC 974 Frigo v Culhaci [1998] NSWCA 88 The Niedersachsen [1984] 1 All ER 398 Texts Cited: Nil. Category: Procedural rulings Parties: Applicant – JD & S Project Pty Limited Respondent – Katcorp Constructions Pty Limited Representation: Applicant Hughes, D. Respondent Chan, L. File Number(s): 2020/00200880 Publication restriction: Nil. Judgment 1. HIS HONOUR: This is an application for a Mareva injunction. These proceedings arise out of a development by the defendant of 27 townhouses on pieces of land numbered 7 to 11 at College Crescent, St Ives. The development, as I understand it, also concerned pieces of land on College Crescent. 2. In late 2016, the defendant approached SBC Holdings Pty Ltd to develop this land. SBC Holdings Pty Ltd is described in an affidavit affirmed by one of the directors of the defendant on 3 February 2021 as being the "head contractor". On 20 January 2017, the defendant entered into a design and construct lump sum fixed price building contract with the head contractor. The contract price was $11,292,000 plus GST. The head contractor commenced construction on the site on 27 February 2017. 3. On or around 24 May 2018 at the request of the financier and the quantity surveyor, the defendant engaged Mr William Gereige to be its site manager onsite to monitor the work of the head contractor and its subcontractors as the development progressed. The site manager is generally referred to in other affidavits as "Bill". 4. The relevant representative of the head contractor onsite was Mr Bong Cheon Shin who was known as "Benjamin". According to the affidavit of the director of the defendant, Benjamin was the sole director of SBC Holdings Pty Ltd. It was the head contractor which engaged the plaintiff company to provide joinery work. The plaintiff was making things such as wardrobes, cabinets and for example, vanity units which were fitted into each of the units which were being constructed. 5. The plaintiff maintains that it has not been paid all of the amount to which it was entitled under its subcontract, namely $217,546. The claim currently before the Court is a liquidated claim in the sum of $327,150.70. The additional moneys comprise interest assessed at $109,604.70 plus filing fees and legal fees. 6. The claim is based on contract or promissory estoppel or quantum meruit. The contract relied upon is not the contract between SBC Holding Pty Ltd and the plaintiff but an oral contract between the plaintiff and the defendant. 7. The nature of the claim can be discerned from an affidavit of In Nyon Kim affirmed on 18 December 2020. Mr Kim is the sole director of the plaintiff company. He is generally known as James Kim. He describes his company as being the joinery subcontractor at the development site. 8. The plaintiff sent a progress claim payment demand numbered 2 to the head contractor on 7 September 2019. That was for the sum of $69,466. That payment claim was not honoured. On 26 October 2018, Mr Kim sent a notice of suspension bearing that date to the head contractor by email. 9. On or about 12 November 2018, Mr Kim received a phone call from Mr Joe Zhou. Mr Zhou's name is Yonghong Zhou and he is a director of the defendant, the one who affirmed the affidavit on 3 February 2021. I shall refer to Mr Zhou as Mr Zhou. Mr Kim states that Mr Zhou said words to this effect: "Don't worry about SBC not paying you. Please keep working. Trust me, I will pay you directly. I transferred another $30,000 to you." In fact, the defendant paid $30,000 to the plaintiff and a confirmation of such payment is attested to by Mr Kim. Of payment claim 2, $35,000 had earlier been paid directly by the defendant to the plaintiff. That was made on or about 29 October 2018. 1. [49] of Mr Kim's affidavit is this: "As a result of the last payment, the joinery subcontractor had received $65,000 of the $69,466 it was owed under PC2. I resumed the joinery works because I believed what Mr Zhou had told me during the conversation referred to in paragraph P46." 1. On 26 November 2018 according to Mr Kim's affidavit, he again telephoned Mr Zhao to request payment of the outstanding balance of PC2, namely $4,446. According to Mr Kim's affidavit, Mr Zhou said words to this effect: "Don't worry, Katcorp will pay the outstanding balance once it receives funds from its financier. Please keep working and we will pay you directly." Mr Kim then averred to the fact that he believed what he was told by Mr Zhou and continued working. 1. A third payment claim was delivered to the head contractor on or about 27 November 2018. That was for $94,446. On 19 December 2018, Mr Kim received a remittance notice showing that the defendant had paid to the plaintiff $30,000. Still payable under PC3 was the balance of that payment claim, namely $34,446 but the amount outstanding under PC2 of $4,446 was still unpaid. 2. According to [55] of Mr Kim's affidavit, despite the outstanding amount, he continued working on the development project "given that the Developer had actually made several direct payments to the joinery contractor". By "Developer" is meant the defendant and by the "joinery contractor" is meant the plaintiff. 3. According to Mr Kim's affidavit, on or about 15 January 2019, Mr Zhou telephoned him and asked him to commence work on another section of the project. Mr Kim raised with him the outstanding moneys. According to Mr Kim, Mr Zhou then said words to this effect: "I promise that Katcorp will pay you directly. We will be able to pay as soon as we receive funds from our financier. Please trust me and keep working." 1. In [58] of his affidavit, Mr Kim refers to a person he knew as Clint. That gentleman is in fact Tian Jian Hu, one of the directors of the defendant. Mr Hu visited the construction site about twice weekly. According to Mr Kim, Mr Hu on many occasions said words to him to the following effect: "Please keep working. I know that there has been some delays in making payments to your company, but as you know, Katcorp will pay all subcontractors directly, so you should not have to worry about the payment." 1. In early 2019, there were certain developments. Commencing at [59] of his affidavit, Mr Kim attests to this: "On or about 29 January 2019, I had a conversation onsite with a man named Bill who I knew worked for the developer. He said words to the effect: 'SBC is going to step aside from the doing the works. Please keep working. Me and the QS will manage the remaining project. Can you please send me and the QS all your outstanding invoices and details of the works remaining to be completed.' "60. I understood that the reference to 'QS' to be a reference to the Quantity Surveyor engaged by the developer's financier. I had met him onsite previously, and knew that his name was Mohamad Harake… 61. After that conversation, I sent an email to Mr Harake with the documents that Bill had asked that I send him…" 1. On or about 30 January 2019, the plaintiff sent payment claim 4 to both the head contractor and the Quantity Surveyor. I have been told from the Bar table and accept it was addressed to the head contractor. Mr Kim's affidavit then continues thus: "64. On or about 31 January 2019, while I was onsite, I observed a crowd of subcontractors outside the building office at the project site. I went to have a closer look. I observed a group of people including Mr Zhou, Mr Harake, Bill and Mr Shin in the office having a meeting. 65. A little later, Mr Zhou walked up to me and said words to the effect: 'SBC are not working on the project anymore. Subcontractors will not be affected by this. Please keep working. Katcorp will pay what you are owed by SBC, will pay you under your subcontract for the work you do in the future.'" Apparently, according to Mr Kim, Mr Zhou made contact with other subcontractors onsite, perhaps to the same effect. 1. On 5 February 2019, the plaintiff served payment claim 5 on both the head contractor and the Quantity Surveyor. However, it was wrongly dated 30 January 2019. Mr Kim's affidavit then continues in this fashion: "72. On or about 8 February 2019, I was contracted by Mr Harake, who said to me words to the effect: 'Can you please change your invoices to reflect the work's finished date less the amount already paid by SBC.' "73. In accordance with this request, I cancelled invoices 1397 and 1400 (which were PC4 and PC5), as well as the remaining balance under PC3, and issued tax invoice 1404 (PC6) in the sum of $92,080 and sent it to Mr Harake by email…" 1. A further payment claim that numbered 7 was issued on 18 February 2019. The plaintiff's claim essentially is for the sums claimed in payment claim 6 and payment claim 7. Clearly, the plaintiff's case is that there was an agreement struck between the plaintiff and the defendant that the plaintiff would still do the work required of it to be done on the development site but the person who would pay for that work would be the defendant. In the alternative, the plaintiff alleges promissory estoppel and in the alternative, quantum meruit. 2. The plaintiff's claims have been described by counsel for the defendant as "implausible". I cannot accept that. A property developer engaging in such a large project for the construction of 27 townhouses would be keen to have the work completed as quickly as possible in order to minimise the amount of interest paid on any moneys borrowed to finance the project and to obtain as quick a return on the moneys so invested in the hope of realising a substantial profit. If the head contractor were experiencing its own difficulties, one can readily understand the desire of the developer to keep the persons actually doing the work, subcontractors "onsite", to maintain good will with them so that they would continue doing the work in order that the construction should be carried out as smoothly as possible. Whether one relies upon a second contract or relies upon promissory estoppel, it would appear that, if one believes Mr Kim of course, that the defendant undertook to pay moneys which would otherwise have been payable by the head contractor to the defendant. I cannot describe the evidence as "implausible" at all. 3. The construction has been completed. Of the 27 townhouses, 25 have been sold. Two remain unsold but contracts for the sale of them have been exchanged. I am told that one contract for sale is due to be completed in May of this year and another in June of this year. I understand that the asking price for one of those townhouses was $1.6 million so one would expect the defendant developer to recover some $3 million by June of this year. 4. The plaintiff's case is listed for hearing on 20 July this year. The estimated length of the trial is four days but, in accordance with the normal experience of this Court, such an estimation is a gross underestimation. Fortunately for me, I should be sitting in crime at that time. In other words, the defendant can expect within the next two months to receive about $3 million and the hearing of the defendant's case would take place in July in three months' time and the quantum of the plaintiff's claim is about 11% of what the defendant should receive from the sale of the two yet uncompleted sales of townhouses. 5. The application for the Mareva injunction was made by notice of motion filed on 1 April this year. The relief sought is limited in that the freezing order requires the defendant not to remove from Australia or in any way dispose of or deal with or diminish the value of any of its assets in Australia up to the unencumbered value of the amount of the plaintiff's claim. It is not a worldwide freezing order, only a freezing order of limited assets in Australia. The exceptions to the order include paying the defendant's reasonable legal expenses and dealing with or disposing of any assets in the ordinary and proper course of business including paying business bona fide expenses and expenses that are otherwise properly incurred. The order as I said is a limited one. 6. Under Uniform Civil Procedure Rule 25.14, if the plaintiff can demonstrate a "good, arguable case" against the defendant, it is, as been described as, a low threshold, see Curtis v NID Pty Ltd [2010] FCA 1072 at [60]. It was so described by Ball J in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) (No 3) [2020] NSWSC 974 at [19]. In my view, the plaintiff does have such a good, arguable case against the defendant as was pointed out by Mustill J in The Niedersachsen [1984] 1 All ER 398 at 404: "a case which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a 50% chance of success." 1. The defendant exhorts me to exercise caution. Ms Chan on behalf of the defendant points out that a freezing order is a "exceptional" and "drastic" remedy which should not be granted lightly and referred me to Frigo v Culhaci [1998] NSWCA 88 and Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [5]. She pointed out that the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made, that in a practical sense it operates as a very tight "negative pledge" species of security over property to which a contempt sanction is attached. She invites me to exercise a degree of caution before I make an order of this kind and points out that the Court is obliged to scrutinise such applications. 2. I have carefully considered what she said in particular in her written submissions [6] to [8]. But I must point out that in the current case, the effect of the injunction would not have any greater life than about three months and the effect of the order would only affect 11% of moneys that the defendant will receive within the next two months. I should have pointed out earlier, but I do so now, that the two townhouses that are in the process of being sold are not encumbered by any mortgage or other charge. 3. The next hurdle facing the plaintiff is that the plaintiff as the moving party bears the onus of establishing that there is a danger that the judgment which it hopes to recover may be frustrated because there will be no funds available at the time judgment is entered in its favour to satisfy the judgment debt. In other words, the plaintiff fears that the funds that might become available to the defendant will be dissipated. In her written submissions, Ms Chan said this: 3. The general purpose of a freezing order is to prevent frustration or abuse of the process to the Court, not to provide security in respect of a judgment or order: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625 per Deane J; Sturesteps v Khoury (2019) NSWSC 943 at [11] per Pembroke J. Such orders are intended to prevent an unscrupulous defendant seeking to render himself or herself judgment‑proof: Frigo v Culhaci [1998] NSWCA 88. As Pembroke J remarked in Sturesteps v Khoury…(approved by Parker J in Moustrapha v Nelson (No 3) [2020] NSWSC 37 1263 at [88]): 'The only basis upon which we make asset preservation orders or grant Mareva injunction is to preserve the integrity of the process of the Court. Those orders are not a species of anticipatory execution.' 4. As Habersberger J similarly remarked in Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2012] VSC 147 at [41]: 'a plaintiff is not entitled to a freezing order simply because there is a danger the defendant's assets will be insufficient to meet the amount of the potential judgment. The relevant danger is that there is a risk that the defendants by their actions will prevent successful recovery against their assets.'" Ms Chan in her written submissions and orally has pointed out that there is no evidence before me of any dissipation of assets by the defendant. Equally, there is no evidence before me of what assets the defendant has or does not have. The defendant has remained particularly silent in that regard. 1. What I do know is this. The defendant has three directors. They are Mr Zhou to whom I have earlier referred who lives in Carlingford. They are Mr Hu to whom I have referred who lives in Ryde. The third is Mr Weixin Ouyang. The defendant has two shareholders. The first is J & H 128 Development Pty ltd. It has a paid‑up capital of $2. Both the $1 shares are owned by Mr Hu. The directors of that company are Mr Hu and Mr Zhou. The other shareholder in the defendant is IBMA Investments Pty Ltd. IBMA Investments Pty Ltd has a paid‑up share capital of $2 and its sole shareholder, director and secretary is Mr Weixin Ouyang. There is evidence that that company is a trustee for the IBMA Family Trust but I do not know who are the beneficiaries of that trust or what assets it holds. 2. The paid‑up share capital of the defendant is a princely sum of $162.19. There is no evidence before me as to how much the development actually cost including the land upon which it was built. I do know that there were 27 townhouses. I know that one of them was recently offered for sale at $1.6 million. The selling prices of the other townhouses that had been sold is not referred to in the evidence before me. However, I do know that the two sales yet to be completed are of units that are unincumbered and therefore, it appears likely that the financier has been repaid in full. 3. There is evidence that the defendant does not own any other real estate in the Commonwealth of Australia. That would indicate that there is no further development being currently undertaken. It is unknown to me whether the defendant wishes to carry out any further development. 4. However, it is common knowledge in our society that a developer will use a different corporate structure for each development and that there are many companies, for example, within the Meriton Group which have used one company for one development. 5. The only thing that I do know is that the three directors and beneficial owners of the defendant live in Sydney but were born in China and clearly have links or relationships to countries outside Australia. Initially, the defendant gave an undertaking for a freezing order in the amount of $220,000, that is, approximately the basal debt claimed by the plaintiff but that interim order expires at 5pm today and I inquired of Ms Chan whether her client was prepared to renew the undertaking but I was told that her client would not do so. 6. It would have been extremely easy for the defendant to put before me evidence as to the defendant's assets, for example, if it has a large bank account or the like. No attempt was made to do so. The applicant for this relief, the plaintiff, can only put before me such evidence as it has available to it. That evidence is the fact that the last real property that the defendant has are the two town houses in this development which has been completed which are about to be sold in May and June of this year. That, in my view, throws an evidentiary onus back on the defendant to establish that it does have assets with which it could meet any judgment recovered by the plaintiff. However, the defendant does not offer any such evidence. 7. In Downer EDI Engineering v Taralga Wind Farm Nominees No.2 [2014] NSWSC 971, the plaintiff obtained adjudications amounting in total to $6.85 million "in round figures". Judgment I understand was entered for the plaintiff for that sum. According to [3] of the judgment, the judgment debt was "in round figures" $6.478 million. The judgment remained unsatisfied. At [10], after pointing out that information requested by the plaintiff from the defendant had not been provided about the ability of the defendant to satisfy the judgment debt, his Honour said: "Indeed, although the matter came before me this afternoon on notice to [the defendant], and [the defendant] was represented by Mr Gracie of counsel, [the defendant] has not been in a position to offer either information or an undertaking in satisfaction of [the plaintiff's] request." Commencing at [19], his Honour said this: "19 The requirement that there be a danger does not require demonstrable proof that, absent the making of an order, assets will inevitably be disposed of or dealt with or diminished in value. It requires, in all the circumstances of the case, some rational basis for thinking that this might be so. That is why it is important to remind oneself of the exceptional nature of the order that is sought. 20 The general basis on which the question of danger is assessed requires that one ask whether there is a real risk that assets will be dealt with so as to prevent the satisfaction of the judgment that has been recovered. 21 If the assets had been identified, the question of risk would need to be assessed having regard to the nature of the assets and their susceptibility to disposal or other dealing, encumbering, and the like. Because there has been no disclosure of the assets, that test cannot be performed. ……… 23 The Court is therefore left with the situation that a judgment debtor, who has made no complaint as to the source of the judgment, has refused to indicate at least in open correspondence what are its intentions in relation to payment; has refused to indicate what assets (if any) are available to satisfy it; and has refused to undertake that it will not deal with those assets so as to prejudice the rights of the judgment creditor. 24 In those circumstances, and in the absence of any explanation for the stance taken (save the preference for commercial negotiations) I think it is possible to infer that there is a real risk that the assets will be disposed of, in such a way as to thwart Downer's rights." Of course, that case is quite different to the current one in that the plaintiff had actually recovered a judgment debt against the defendant. Here, the plaintiff hopes to recover a judgment debt from the defendant. However, the plaintiff has put before the Court what it knows of the defendant's assets and that discloses merely that they should receive within the next two months at least $3 million and the plaintiff's claim is for only 11% of that sum. 1. However, in those circumstances in my view, the evidentiary onus falls upon the defendant and the defendant has chosen not to put before me a scintilla of evidence as to its assets or the intentions of its directors and in my view, the plaintiff has discharged the onus upon it showing that there is a danger that the assets of the defendant will be distributed to its beneficial owners and thwart the ability of the plaintiff should it be successful in recovering the judgment debt. [Submissions re form of order] 1. The basal debt plus interest for two years at 5% amounts to $239,300. The interest rate claimed in the statement of claim is 30% which appears to me to be usurious but furthermore, hardly one that most people would agree to pay and perhaps represents some personal arrangement between SBC Holdings Pty Ltd and the plaintiff. It may be very difficult for the plaintiff to persuade the Court that the defendant, when it said what is alleged to have been said by agents of the defendant to Mr Kim, to have intended to incur the liability to pay interest at such a usurious rate. I therefore reduce the amount of the freezing order to $240,000. 2. I note that Mr Hughes of counsel on instructions from his client gave the usual undertaking as per annexure A to the freezing order sought. For those reasons, I make the order in the schedule to the notice of motion filed. It appears to me that the costs of the motion should abide the outcome of the proceedings. So the costs of the motion are reserved. 3. HUGHES: Your Honour, I seek that the order be entered forthwith as the other one expires shortly under an hour and a half. HIS HONOUR: I direct entry of the order forthwith. You can assume it has been entered. 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: 31 March 2022