Supreme Court New South Wales Medium Neutral Citation: Jiaqing Xu v Cao & Du Management Pty Ltd (No 2) [2024] NSWSC 1596 Hearing dates: 29 November 2024 Date of orders: 12 December 2024 Decision date: 12 December 2024 Jurisdiction: Common Law Before: Coleman J Decision: See [84]-[86] Catchwords: CIVIL PROCEDURE — Interim preservation — Freezing orders — continuation of freezing orders made by Duty Judge — where both elements for the making of a freezing order are satisfied — where matters taken into account which allow the Court to infer that the defendants are dishonestly dealing with assets Legislation Cited: Contracts Review Act 1980 (NSW) Family Law Act 1975 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Atlanta Building Pty Ltd v Abela [2024] NSWSC 1193 Australian Securities and Investment Commission v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814 Cao v ISPT Pty Ltd [2024] NSWCA 188 ISPT Pty Ltd and AWPF Management No. 2 Pty Ltd v Cao and Zhao [2023] NSWSC 1115 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 KR Properties Global Pty Ltd (CAN 602 693 729) t/as AK Properties Group (ABN 62 871 068 965) v Kazzi [2024] NSWCA 141 Samimi v Seyedabadi [2013] NSWCA 279 Jiaqing Xu v Cao & Du Management Pty Ltd & Anor [2024] NSWSC 1474 Category: Consequential orders Parties: Jiaqing Xu (Plaintiff) Cao & Du Management Pty Ltd (First defendant) Howard Hoa Ting Cao (Second defendant) Representation: Counsel: D Pritchard SC (Plaintiff) R Alkadamani (First and second defendants) Solicitors: Juris Cor Legal (Plaintiff) Independent Legal (First and second defendants) File Number(s): 2022/00078620 Publication restriction: Nil JUDGMENT Background 1. The plaintiff, Jiaqing Xu, has commenced these proceedings against Cao & Du Management Pty Ltd (the first defendant) and Howard Hao Ting Cao (the second defendant or Mr Cao) in respect of a dispute in which the plaintiff claims repayment of monies owed pursuant to a loan agreement dated 17 October 2016 (Loan Agreement). 2. The plaintiff alleges in these proceedings that by the Loan Agreement he lent to the first defendant the sum of $3,300,000. It was a term of the Loan Agreement that an amount of $6,600,000 was payable as the Repayment Amount on 31 October 2018. The second defendant guaranteed the first defendant's obligations under the Loan Agreement. 3. The plaintiff alleges that the defendants have breached their obligations under the Loan Agreement and claim payment of an amount slightly greater than $55 million, having regard to the default interest rate contained in the agreement. 4. The defendants have asserted that the Loan Agreement was a sham, the parties not intending by that agreement to create legal relations, rather, the amount of $3.3 million was paid by the plaintiff on behalf of other persons and parties to be an investment in a property development at Greenacre in New South Wales (the Greenacre Project). The defendants submit that the Loan Agreement is therefore unenforceable. 5. The defendants are also pursuing a cross-claim against the plaintiff and other parties who are involved in joint venture development at The Entrance, NSW, known as the Magenta Shores Project. The parties to the joint venture are the plaintiff's son-in-law, Kai-Ming Wong (Daniel), Daniel's brother Kai-Bun Wong (Henry) through Tung Chit Real Estate Investment Australia Pty Ltd (Tung Chit) as well as Option Funds Management Limited (Option Funds), in which Mr Cao is the director, as well as another company. The defendants say that, as at August 2016, there was an existing relationship between Mr Cao and Option Funds, and the Wong family and Tung Chit in relation to the Magenta Shores Project. In August 2016, it is asserted that Mr Cao informed the Wong family and Tung Chit of the Greenacre Project. 6. The cross-claim alleges that Daniel, Henry and/or Tung Chit engaged in misleading and deceptive conduct or unconscionable conduct with respect to the provision of the funds in the Greenacre Project, as well as making claims for estoppel, relief under the Contracts Review Act 1980 (NSW) and alleging that the Loan Agreement is void for illegality and the default interest rate is a penalty. 7. In summary, as I understand it, the cross-claimants assert that Daniel and Henry were acting as the agent of the plaintiff and the $3.3 million was advanced for the purposes of the Greenacre Project and would only be repaid upon completion and sale of the residential aspect of the development. The amount to be repaid was dependent upon the increase in value of units in a trust which was responsible for the development. The cross claimants allege that the Loan Agreement was entered into as a device so that Tung Chit (the entity with the interest in the Greenacre Project) would not be liable for capital gains tax on the anticipated gains from the investment in the Greenacre Project. It is alleged that it was represented that the Loan Agreement would not be enforced. Urgent Interim Relief and Application to Continue Orders 1. On 14 November 2024, the plaintiff sought urgent ex parte relief from Hamill J, sitting as the duty judge, in the nature of an asset preservation or "freezing" order. His Honour granted leave for the plaintiff to abridge the time for service. The matter returned to Court on 15 November 2024 when the first defendant, without admission, consented to an interim freezing order in favour of the plaintiff. Directions were made to have the matter ready for a contested interlocutory hearing with respect to continuation of the order to be held on 29 November 2024: Jiaqing Xu v Cao & Du Management Pty Ltd & Anor [2024] NSWSC 1474. 2. On 29 November 2024 the plaintiff moved on an Amended Notice of Motion filed 20 November 2024 seeking orders pursuant to the Uniform Civil Procedure Rules 2005 (NSW) rr 25.11, 25.12 and 25.13, and the Court's inherent jurisdiction for an extension of the freezing orders. 3. Initially, the plaintiff sought orders against Mr Cao (orders 1 and 2) and his wife Ms Ni Du (order 2A). At the hearing on 29 November, the Court was informed that the plaintiff had not been able to serve Ms Du. She was called three times outside of Court but did not appear. In those circumstances, the plaintiff did not press for relief against her. That included relief of the type in order 2 as Ms Du (together with Mr Cao) had an interest in the properties the subject of that order. For reasons which will become apparent, orders made in other proceedings in this Court mean that order 2 in the motion could not be made in any event. 4. It will be necessary to go into some detail of the evidence relied upon by each of the parties. In summary, the plaintiff submits that the freezing orders should be extended because: 1. He has a good arguable case (indeed a strong case) that the defendants owe him a debt of $6.6 million plus interest in accordance with the terms of the Loan Agreement; 2. The circumstances of the second defendant dealing with his assets, including by entering into a Binding Financial Agreement (BFA) under the Family Law Act 1975 (Cth) with his wife (which will be detailed below) demonstrate a real danger that he is disposing of assets so as not to be able to satisfy any judgment obtained against him if the proceedings are successful; and 3. The interests of justice favour the making of the order continuing the freezing orders. 1. The defendants' position is that no relief should be granted. It is conceded that the plaintiff has a good arguable case in respect to the $6.6 million but not any amount over and above that. The defendants submitted that there was nothing unusual in the context of the long-standing breakdown in the marriage of Mr Cao and Ms Du that they enter into a BFA. Further, it was submitted that the terms of the BFA evidenced a fair adjustment of the parties' assets rather than Mr Cao disposing of his assets. The defendants submitted that the plaintiff had not established any basis for a continuation of the relief. 2. The plaintiff, by his Senior Counsel, Mr Pritchard, offered to the Court the usual undertaking as to damages. 3. For the reasons below, I have reached the conclusion that a freezing order should be made. Relevant Legal Principles 1. The legal principles applicable as to whether a freezing order should be made are now well established. 2. These principles were recently summarised by McGrath J in Atlanta Building Pty Ltd v Abela [2024] NSWSC 1193 ("Atlanta Building") at [74]-[86] where his Honour said: [74] "The existing principles for whether a freezing order should be made are well established. [75] The power of court to make a freezing order falls within the inherent jurisdiction to make such orders as the court may determine to be appropriate to prevent the abuse or frustration of its process in relation to matters coming within its jurisdiction: Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, Gleeson CJ at 321 (with whom Meagher JA and Rogers AJA agreed); PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; [2015] HCA 36, French CJ, Kiefel, Bell, Gageler and Gordon JJ at [43]. The power to make a freezing order exists not to create additional rights but to enable a court to protect its process from abuse in relation to the enforcement of its orders: Jackson v Sterling Industries Ltd (1987) 162 CLR 612; [1987] HCA 23, Wilson and Dawson JJ at 619. [76] The court also has a statutory power to make freezing orders as a result of r 25.11 of the UCPR which provides: 25.11 Freezing order (cf Federal Court Rules Order 25A, rule 2) (1) The court may make an order (a freezing order), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets. [77] The primary object of a freezing order is to protect a prospective enforcement process and such an order is not granted to aid the cause of action which is asserted in the proceedings: PT Bayan, French CJ, Kiefel, Bell, Gageler and Gordon JJ at [46], citing Mercedes Benz AG v Leiduck [1996] AC 284, Lord Nicholls at 306. Further, the purpose of a freezing order is not to create security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action against them: Patterson, Gleeson CJ at 323, citing Jackson, Deane J at 625. These matters are emphasised in Practice Note SC Gen 14. [78] A freezing order is an exceptional or drastic remedy which should not be granted lightly: KR Properties Global Pty Ltd (t/as AK Properties Group) v Kazzi [2024] NSWCA 141, Mitchelmore JA at [15], citing Frigo v Culhaci [1998] NSWCA 88, Mason P, Sheller JA and Sheppard AJA at 6, Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18, Gaudron, McHugh, Gummow and Callinan JJ at [51] and Tomasetti v Brailey [2012] NSWCA 6, Campbell JA at [16]. In particular, as stated in Lake v Crawford (No 2) [2010] NSWSC 419, by Harrison J (as the Chief Judge at Common Law then was) at [15]: Practice Note SC Gen 14 provides in part that the purpose of a freezing order is to prevent frustration or abuse of the process of the Court, not to provide security in respect of a judgment or order. Such an order should be viewed as an extraordinary interim remedy because it can restrict the right to deal with assets even before judgment. Such orders are commonly granted ex parte. However, while the rules specifically contemplate that applications for freezing orders may be made ex parte, the exceptional nature of the order and its possible adverse consequences make it generally undesirable for an application to proceed in that way unless there are exceptional circumstances for doing so. [79] An applicant for a freezing order in advance of judgment must establish two elements: (1) there is a prima facie or good arguable case on the cause of action which is asserted; and (2) having regard to all the circumstances, there is a danger that a prospective judgment will be wholly or partly unsatisfied because the prospective judgment debtor absconds or the assets of the prospective judgment debtor are removed from Australia or disposed of, dealt with or diminished in value: Patterson, Gleeson CJ at 320–321 (with whom Meagher JA at 326 and Rogers AJA at 327 agreed); Tomasetti, Campbell JA at [14]; Samimi v Seyedabadi [2013] NSWCA 279, McColl JA at [68]–[72]. [80] The first element of a good arguable case is used "in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50 percent chance of success", and does not involve a premature trial of the action but is a preliminary appraisal of the plaintiff's case: Samimi, McColl JA at [69], citing Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG "The Niedersachsen" [1983] 1 WLR 1412; [1984] 1 All ER 398, Mustill J at 404. [81] The second element of the danger of an unsatisfied prospective judgment from the defendant absconding or dissipating assets must be proved by solid evidence beyond mere assertion, with the precise form of evidence depending on the particular case: Samimi, McColl JA at [73], citing Ninemia Maritime, Mustill J at 406. [82] There is no special standard of proof to obtain a freezing order and while it is not an essential ingredient of such an application, a prima facie case that the defendant has been dishonest in dealing with the subject matter of the plaintiff's claim will often give rise to a strong inference that the defendant will not, unless restrained, preserve the subject matter of the claim for the benefit of the plaintiff should it be successful in the action: Turner v Universal Home Loans Pty Ltd [2004] NSWSC 936, Palmer J at [20]. [83] It is not necessary for an applicant for a freezing order to show that the defendant has a positive intention of evading a judgment, and it is sufficient to show that the course on which the defendant proposes to embark is, objectively speaking, calculated to have that effect: Samimi, McColl JA at [74], citing Finn v Carelli [2007] NSWSC 261, Brereton J at [4]. [84] A freezing order is only warranted if there has been conduct on the part of the defendant which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments, or of being intended to do so, or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the defendant have been or will be dealt with in an irregular way: TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196, Barrett J at [26], citing Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146, Bryson J at [5]. [85] The mere fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process, and the mere prospect of impending insolvency is not a reason to grant a freezing order: Samimi, McColl JA at [74], citing Finn, Brereton J at [5]. [86] As the awarding of a freezing order is discretionary, the court must take into account and weigh considerations such as the expedition or delay with which the application was made and the balance of convenience: Patterson, Gleeson J at 323; Cardile, Gaudron, McHugh, Gummow and Callinan JJ at [53]; Samimi, McColl JA at [75]." The Plaintiff's Evidence 1. The plaintiff relied on the following material (subject to objections which were ruled upon at the hearing): 1. affidavit of Zheng Chu, solicitor, affirmed 13 November 2024 and the exhibit thereto; 2. affidavit of Jiaqing Xu affirmed 17 May 2023 and the exhibit thereto; 3. affidavits of Jiaqing Xu, Kai Bun Wong, Kai Ming Wong and Min Xu, all affirmed 19 November 2024. These affidavits, read in reply, sought to respond to matters raised in the defendant's evidence. These affidavits disputed parts of the defendant's case dealing with alleged conversations on WeChat and other matters disputing the defendant's case. They were read only to indicate the plaintiff's response to the defendant's case and not for the truth of the matters contained in them. It is not necessary to detail these matters; and 4. affidavit of Howard Hao Ting Cao, sworn 5 March 2024. As above, this affidavit was read only for the fact of making the affidavit and not for the truth of its contents. The Defendants' Evidence 1. The defendants relied on the following material (sometimes just parts of the affidavits and subject to objections which were ruled upon at the hearing): 1. The affidavit of Howard Hao Ting Cao, sworn 19 June 2024 2. The affidavit of Howard Hao Ting Cao, sworn 25 November 2024;; 3. The affidavit of Howard Hao Ting Cao, sworn 28 November 2024; 4. The affidavit of Howard Hao Ting Cao, sworn 29 November 2024; and 5. The affidavit of Lewis Robert Seelenmeyer, dated 25 November 2024, read subject to relevance. The Loan Agreement 1. The Loan Agreement is in evidence. Relevantly, it provides: 1. The Principal Sum of $3,300,000 was to be lent by the plaintiff to the first defendant as trustee of the C & D Family Trust within 5 days of a Drawdown Request from the first defendant; 2. The Repayment Amount was $6,600,000, comprising the Principal Sum and interest of $3,300,000; 3. The Repayment Amount was to be paid on the Expiry Date, being 31 October 2018 (a little over two years after entry into the Loan Agreement); 4. The Default Rate of Interest was 3% per calendar month payable on an event of default, being failure to repay the Repayment Amount on the Expiry Date or any other event of default as defined; 5. The second defendant guaranteed the obligations of the first defendant under the Loan Agreement. 1. On 11 October 2016, each of the first defendant by its director Mr Cao (as Borrower) and the second defendant Mr Cao personally (as Guarantor) signed declarations that they had received independent legal advice regarding the Loan Agreement, and after receiving that advice signed that Loan Agreement. These declarations were witnessed by a solicitor. 2. There is no dispute that: 1. The $3,300,000 was lent by the plaintiff and received by the first defendant; 2. The Repayment Amount was not paid by the first defendant on the Expiry Date or since; 3. From about 30 November 2018, the plaintiff through his lawyers made repeated demands on the defendants for repayment. 4. On or about 1 April 2019 an amount of $300,000 was paid by Option Holdings Pty Ltd (Option Holdings) to the plaintiff. This repayment was said to have been "authorised" by Mr Cao. The plaintiff said he did not know Option Holdings but assumed the amount had been paid on behalf of the first or second defendants; 5. By letter dated 17 February 2022 from HWL Ebsworth, lawyers for the plaintiff, a further demand was made on the first defendant as Borrower and second defendant as Guarantor for repayment of the Repayment Amount together with interest; 6. By letter dated 25 February 2022, Tzovaras Legal, on behalf of each of the defendants, wrote rejecting the demand for repayment stating that their "preliminary instructions" were that the defendants' position was that they were not liable for the interest claimed and the amount claimed has otherwise not fallen due for repayment. There was no mention of the Loan Agreement not being enforceable for the reasons now advanced by the defendants. 7. There has been no payment of the Repayment Amount, interest accrued nor, subject to (d) above, any other amount due under the Loan Agreement; The Defendants' Case 1. It is the defendants' case that the signing of the Loan Agreement must be considered in the context of the background of the relationship between the second defendant, Daniel, Henry and Tung Chit (a company of which they are in control). Those parties are parties to a joint venture in relation to a development at The Entrance in New South Wales known as the Magenta Shores Project. 2. The defendants say that the $3.3 million lent under the Loan Agreement was for the purposes of the development of another parcel of land at Greenacre. The defendants allege that Tung Chit, through Daniel and Henry, informed the second defendant that they would invest that amount in the Option Greenacre Property Fund which was developing the Greenacre Project. The defendants say that is what occurred. The defendants say that it was agreed that the repayment of that amount would be based on the increase or decrease in the value of 3.3 million units in the Option Greenacre Property Fund and any return of capital gain on the investment was payable at the completion of the residential development at Greenacre. It is alleged that an agreement in these terms was formed by the exchange of WeChat messages. 3. The defendants' case is that the Loan Agreement was put in place by Tung Chit through Henry and Daniel for the purposes of enabling Tung Chit to avoid paying capital gains tax on the anticipated gains on the Greenacre investment by disguising its investment as a loan from the plaintiff. That is because the plaintiff, as a foreign resident for tax purposes, would not be liable for income tax. The defendants' case is that there was no intention between the plaintiff (who never had any communications with the second defendant) and the first defendant or second defendant to create legal relations by way of the Loan Agreement. 4. As summarised above, there are also claims with respect to misrepresentations made in relation to the entry into the Loan Agreement, misleading and deceptive conduct, unconscionable conduct and estoppel. There is also a claim that the default interest provisions in the Loan Agreement are a penalty and unenforceable. Further and in the alternative, it is alleged the Loan Agreement is void and unenforceable due to illegality as it was entered into for the purpose of evading the repayment of tax. The Plaintiff Has a Good Arguable Case 1. As I have said, the defendants concede that the plaintiff has a good arguable case with respect to the $6.6 million said to be owing under the Loan Agreement. The defendants do not concede that there is a good arguable case for any amount over that or any amount being based on the default interest provisions of the Loan Agreement. As I understood that submission, this was because the default interest provisions of the Loan Agreement constitute a penalty and would be unenforceable. 2. Having conceded that there is a good arguable case with respect to the $6.6 million said to be owing under the Loan Agreement, I do not consider it is necessary to determine the strength of the arguable case of any additional amounts that may be owing under the Loan Agreement if the default interest provisions of the agreement apply. As Mr Pritchard SC submitted, a concession that there is a good arguable case with respect to the $6.6 million in effect is a concession that the Loan Agreement is enforceable. 3. Having regard to that concession, I do not consider it is necessary, nor am I able, to assess the strengths of the defendants' case on whether the default interest provisions in the Loan Agreement are a penalty. That argument can be run by the defendants at trial, but prima facie I consider having regard to the signed terms of the Loan Agreement and the certificate of independent legal advice that I have referred to that there is a good arguable case that the Loan Agreement and guarantee are enforceable. 4. I do not consider the Court can, nor having regard to the concession made by the defendants should, on this interlocutory application attempt to assess the strength of the defendants' arguments as to the circumstances of entry into the Loan Agreement. Importantly in this regard, it is not said by the defendants that the plaintiff had any communications at all with the second defendant or that he made any representations with respect to the entry into the Loan Agreement. There is an assertion that the representations made by Daniel and Henry were "on behalf of" the plaintiff but this is not a matter that can be determined on this application. In any event, it is more relevant to the cross-claim. 5. In my opinion, the plaintiff does have a good arguable case for the relief he seeks. The BFA 1. The evidence discloses that there have been marital difficulties between the second defendant and his wife Ms Du. There are contradictions and inconsistencies in the evidence as to when these marital difficulties first arose. For the purpose of this interlocutory application, it is not necessary to attempt to resolve these contradictions and inconsistencies. 2. Mr Cao and Ms Du were married in September 2007. They had a child together in 2013. At relevant times they lived together in their matrimonial home in a unit in Bathurst Street in Sydney (the Bathurst Street Property). 3. The various dates at which Mr Cao said that the marital difficulties commenced are either 2016 (in his affidavit sworn 25 November 2024) or 2023 (in his affidavits of 5 November 2023 and 5 March 2024). 4. In his affidavit sworn 25 November 2024, Mr Cao said that he and Ms Du separated but lived under the same roof from around November 2016 until October 2021. He said that he moved out of the Bathurst Street Property to a property in Liverpool Street and has lived there since that time although he spent some time until November 2022 at the Bathurst Street Property seeing his daughter. He said when he was at the Bathurst Street Property he slept in a separate bedroom. He said he has not slept at the Bathurst Street Property since November 2022. 5. He said that he and Ms Du had been discussing how their assets will be divided from around mid-2022. Mr Cao said that there was no rush to finalise this matter as he and Ms Du had, at that time, been separated already for six years. He said that in October or November 2022 he approached Mr Tzovaras, solicitor, to assist in formalising the financial aspects of the breakdown of his relationship with Ms Du. 6. There is in evidence of an email from Mr Tzovaras, solicitor, to Mr Cao dated 4 January 2023. That email attached a draft BFA. Relevantly, save for the issue of spousal maintenance, the terms of the respective obligations of Mr Cao and Ms Du as to their assets in that draft are in identical terms to the final BFA. Mr Cao says in his affidavit of 25 November 2024 that by at least early August 2023 the draft BFA had been prepared and Ms Du engaged a solicitor to assist her with its negotiation and execution. There is evidence of communications between Mr Tzovaras and a solicitor for Ms Du in August 2023 where Ms Du requested, and Mr Cao agreed, to include in the BFA provision for spouse maintenance of $6000 per month. Other minor amendments including additional corporate trustees were discussed. 7. The BFA was executed on 31 August 2023. 8. Relevantly, the BFA: 1. Recited that Mr Cao and Ms Du separated on about 30 November 2016 and had been living separately and apart since then; 2. Attached schedules detailing the property, financial resources and liabilities of each of Mr Cao and Ms Du, warranted by them to be full and frank disclosure of those matters; 3. Defines "Properties" as being the matrimonial property in Bathurst Street, and two investment properties in Sussex Street and Pitt Street; 4. Defined "Shares" as the shares held by Ms Du in the first defendant; 5. Prescribed the following matters to take place for the settlement of all financial matters between the parties: 3.2 Within 28 days of the parties' execution of this Financial Agreement [Ms Du] must: (a) resign as director of [the first defendant]'s; and (b) transfer the Shares to [Mr Cao]. 3.3 Simultaneous with the transfer of the Shares by [Ms Du] to [Mr Cao] pursuant to clause 3.2, [Mr Cao] must do all acts and things and execute all deeds, documents, instruments and writings as are necessary to transfer to [Ms Du] at his expense all of [Mr Cao's] right, title and interest in the Properties… 3.4 Other than the transfer of the Shares… pursuant to clause 3.2 (b), and the transfer of the Properties…pursuant to clause 3.3, each party shall be solely entitled to the exclusion of the other to all property in the possession of such party as at the date of this Financial Agreement, including all jewellery, furniture, furnishings and items of personal effects. 3.5 [Mr Cao] must pay to [Ms Du] monthly by way of spousal maintenance the amount of $6000 per month, the first payment to be made within 28 days of the parties' execution of this Agreement. 1. Schedule B to the BFA contains Mr Cao's assets, financial resources and liabilities. Relevantly, it contains a liability of Mr Cao as guarantor in the sum of $4,320,000 for ISPT Pty Ltd and Anor (as lessors) in relation to a lease by Beijing Roast Duck Sydney Pty Ltd (as the lessee). This liability was the subject of proceedings before this court in which Nixon J gave judgment on 14 September 2023: ISPT Pty Ltd and AWPF Management No. 2 Pty Ltd v Cao and Zhao [2023] NSWSC 1115. It also contains a liability as guarantor to the Loan Agreement in the sum of $25,350,000, noting that it was a "disputed guarantees (sic) claim the subject of defended Supreme Court of New South Wales proceedings". Schedule B indicates Mr Cao has a deficiency of assets over liabilities of $106,503,000. 2. Schedule C contains Ms Du's assets, financial resources and liabilities. Relevantly, it notes as an asset shares in the first defendant which is trustee for the C & D Family Trust. Those shares (which were to be transferred to Mr Cao under the BFA) were listed with a value of zero dollars. Schedule C shows the total net asset position for Ms Du of $3,732,000. 3. It can be observed that the obligations of Mr Cao and Ms Du to settle their financial arrangements are contained in clause 3 of the BFA. Leaving aside the obligation of Mr Cao to pay spousal maintenance, what was required was for Ms Du to resign as a director of the first defendant and transfer her shares in that company to Mr Cao within 28 days of signing the BFA. Simultaneously, Mr Cao was to do all things necessary, at his expense, to transfer his interest in the Properties. 4. The evidence also discloses that on 5 September 2024 Ms Du had lodged caveats over each of the Properties claiming the caveatable interest as being a mortgage. In relation to the Bathurst Street Property, there is evidence that Ms Du obtained a loan and mortgage with Commonwealth Bank of Australia and financed the discharge of the existing mortgage that had been jointly granted by her and Mr Cao. The Bathurst Street Property was transferred to Ms Du without monetary consideration on 22 October 2024. Other Events Before and After the BFA Relied on by the Plaintiff 1. The plaintiff points to several matters and events before and after the entry into the BFA on 31 August 2023 on which it relies to establish a real risk that the defendants are acting in a way so as to dispose of their assets. 2. First, he points to the commencement of these proceedings on 18 March 2022 seeking repayment of the $6.6 million due under the Loan Agreement, together with interest. 3. Second, the plaintiff notes that on 21 and 22 August 2023 there was a hearing in this Court before Nixon J in proceedings in respect to a lease for which Mr Cao was guarantor. The plaintiff notes (as I have mentioned above) that the BFA contains as a contingent liability of Mr Cao an amount of $4,320,000 under this guarantee. 4. Third, the plaintiff notes that on 31 August 2023, the date of the entry into the BFA, the defendants were due to file and serve their evidence in chief in these proceedings. That date was not met, and their evidence was not served until a later date. 5. Fourth, the plaintiff notes that on 14 September 2023 there was judgment in the proceedings before Nixon J whereby Mr Cao was ordered to pay the sum of $4,231,033.06. (An appeal from this judgment was dismissed by the Court of Appeal on 8 August 2024: Cao v ISPT Pty Ltd [2024] NSWCA 188). 6. Fifth, the evidence discloses that Ms Du has not as at the date of the hearing of this application transferred any of her shares in the first defendant to Mr Cao as she was obliged to within 28 days of entry into the BFA. She has told him she will not do so until he transfers his interest in the Properties to her. Notwithstanding the fact that she arguably has not performed her obligations under the BFA with respect to the transfer of the Shares, the plaintiff notes that nevertheless on 22 October 2024 Mr Cao transferred his interest in the Bathurst Street Property to Ms Du when he was not required to by the terms of the BFA. 7. Sixth, the plaintiff points to the fact that despite Mr Cao saying he has not stayed a night at the Bathurst Street Property since November 2022, he has sworn affidavits on 5 March 2024 and 19 June 2024 which have that property as his address. 8. Lastly, the plaintiff observes there has been no explanation given by Mr Cao as to why he entered into the BFA when he did (other than that they were "not in a great rush"). Nor has he given an explanation as to why he transferred the Bathurst Street Property to Ms Du when she had not complied with her obligations under the BFA, and he was not required to do so. This was particularly pertinent, it was submitted, knowing of the "temporal coincidence" (see Hamill J in his reasons on 15 November 2024 at [9]) of the transfer of the Bathurst Street Property and the proceedings before Nixon J in which Mr Cao was held liable for a sum over $4 million. The plaintiff submits he must have been concerned about that liability, it having been noted as a contingent liability in the BFA. 9. The plaintiff also referred to the absence of evidence from Mr Tzovaras, as the then solicitor for Mr Cao, as to the circumstances of the entry into the BFA. It was submitted that the Court would draw an inference that nothing Mr Tzovaras could have said would have assisted the defendants (see Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8). I do not consider this to be a significant factor in this matter. The facts indicate that Mr Tzovaras must have been involved in the drafting of the BFA from at least January 2023. True it is that these proceedings were by then well underway, but I do not consider any adverse inference that might be drawn by reason of him not being called to be significant. 10. It is a combination of these matters on which the plaintiff relies to submit that in all of the circumstances there is a danger that the prospective judgment he may obtain in these proceedings will be wholly or partly unsatisfied as the defendants are disposing of or dealing with their assets in the manner described. 11. I should add that originally the plaintiff submitted that the defendants needed to, but had not, established that the BFA was binding. As I understood the final submissions of the plaintiff, however, the plaintiff did not pursue that submission and was content, for the purposes of this application, for it to be assumed that the BFA was binding. The Defendants' Submissions - A Fair Exchange of Assets 1. The defendants submit that it is erroneous to consider the entry into the BFA and the transfer of the Bathurst Street property as an indication of Mr Cao dealing with the assets of the defendant in the manner suggested by the plaintiff. 2. First, the defendants submit that the evidence is that the marriage of Mr Cao and Ms Du had, on any view, been breaking down for some time. Counsel for the defendants submitted that it was a natural and usual consequence of the breakdown of a marriage for the parties to seek to enter into BFAs under the Family Law Act. The BFA had been first prepared in January 2023 and there had been negotiations just after the middle of that year with respect to the terms of it before it was finally agreed. 3. Second, counsel for the defendants submitted that on its terms, the BFA evidenced a fair adjustment of the assets of the parties to the marriage. It was not simply a case of Mr Cao disposing of his interest in the Properties and not receiving anything in return. That is because of the obligation on Ms Du to transfer to Mr Cao her shares in the first defendant. On the transfer occurring, Mr Cao would hold 100% of the shares in the company. As the first defendant was the trustee of a trust involved in the development of the Greenacre Project, Mr Cao therefore would have control over that trust and the distribution of its assets. 4. Counsel for the defendants referred to a significant amount of evidence that was placed before the Court as to the value of the Greenacre Project, now completed, to support a submission that the transfer of the Shares to Mr Cao would result in a significant financial benefit to him. Therefore, it was submitted, it could not be inferred that the entry into the BFA was for the purposes of the assets of the defendant being dealt with in a way which attracted the jurisdiction to make the freezing orders sought. 5. Counsel for the defendants referred to KR Properties Global Pty Ltd (CAN 602 693 729) t/as AK Properties Group (ABN 62 871 068 965) v Kazzi [2024] NSWCA 141, where Mitchelmore JA, at [71], referred to the decision of French J (as his Honour then was) in Australian Securities and Investment Commission v Carey (No 6) (2006) 153 FCR 509; [2006] FCA 814: [71] "… Counsel relied on the decision of French J in Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 for the proposition that where a discretionary trust is controlled by a trustee who is in truth the alter ego of a beneficiary, then a contingent interest may be identified because, in the words of French J at [36], "it is as good as certain that the beneficiary will receive the benefit of distributions of either income or capital or both". Counsel drew the Court's attention to a number of further authorities in which the reasoning of French J in Carey was applied to make freezing orders extending to a third party." 1. Counsel for the defendants submitted, therefore, that the control of the trustee company meant that Mr Cao would be able to access the assets. An undertaking was proffered that, until judgment, no steps would be taken to change the identity of the trustee. 2. It was submitted by the plaintiff that this line of argument by the defendants is misconceived. That is because, first, Ms Du is refusing to transfer the Shares to Mr Cao and has said she will not do so until the Properties are all transferred to her. In any event, on transfer of the Shares, Mr Cao would have control of the trustee company, not the assets of the trust (whatever those assets were). Indeed, it was pointed out that if the transfer of Mr Cao's interests in the Properties (which had some value after the repayment of the mortgagees) took place and he did receive the Shares, any judgment creditor would not be able to access the assets of the trust and the Shares are listed in the BFA as being worthless. In that sense, there was a clear dealing by Mr Cao which diminished the value of his assets. 3. I accept the plaintiff's submissions on this point. Even if Mr Cao did control all of the shares in the first defendant, the fact remains that the assets of the trust would not be available to satisfy any judgment against the defendants themselves. I do not regard the authorities referred to by the defendants to overcome this point. Even if the second defendant has control over the trustee, the trust assets can only be distributed in accordance with the terms of the trust and with the trustee acting bona fides in that regard. It is a discretionary trust and the second defendant is a beneficiary. Ms Du is also a beneficiary. I am not satisfied that the second defendant having control over the trustee means that the BFA results in him having assets which could satisfy any judgment debt obtained by the plaintiff in these proceedings. I do not consider it necessary in light of this finding to detail the evidence said to go to the value of the assets of the trust relevant to the Greenacre Project. 4. In any event, at the hearing another fact emerged which as a matter of practicality makes this point moot. That is that on 28 November 2024, orders were made in Equity Division proceedings in this Court between a Mr Guo, as plaintiff, and Option Holdings, Mr Cao, Ms Du and Westpac Banking Corporation as defendants (the Guo Proceedings). No details of the Guo Proceedings were disclosed, but it is apparent from the orders that they involved a guarantee given by Mr Cao to Mr Guo of some type of financial liability of Option Holdings. 5. The effect of those orders is that the Sussex and Pitt Street properties (being the two remaining Properties as defined in the BFA after the transfer of the Bathurst Street Property to Ms Du) are to be sold to satisfy the judgment debt in that case. The plaintiff in those proceedings has been appointed to sell them as if he was mortgagee. Her Honour made orders as to how the proceeds of the sales of the two properties were to be distributed. It is unclear whether there will be any amount left from the proceeds of sale after discharge of the mortgages, payment to Ms Du of her interest in the Properties and satisfaction of the amount owing by Mr Cao under the guarantee to that plaintiff. 6. The effect of those orders must be that Mr Cao will not be able to fulfill his obligation under the BFA to transfer his interest in the Properties to Ms Du. By reason of that (and of her prior refusal to do so until she had all three Properties) it can be inferred that she will not, therefore, transfer her interest in the Shares to Mr Cao. If that is right, he will not have control of the trustee company in any event. 7. I accept that these orders and the consequences of them do not inform Mr Cao's purpose of entry into the BFA. That is, I accept that whether Mr Cao had an intention to dispose of or dissipate his assets by entering into the BFA must be gleaned from the circumstances around that time (and perhaps steps taken after it pursuant to, or despite, its terms). However, whilst there had been disclosure of the existence of caveats over these properties by Mr Guo thereby preventing their transfer to Ms Du pursuant to the BFA, there was no prior disclosure of these proceedings in any of Mr Cao's affidavits until an affidavit sworn on 29 November 2024 (being the day of the interlocutory hearing). There was no explanation by Mr Cao for the failure to disclose these proceedings. Clearly these proceedings (and now the orders made) have an impact on the assets of the second defendant and the operation of the BFA. The existence of the proceedings and potentially the imminence of their finalisation should have been disclosed and I regard that as a matter I can take into account on this application as relevant to the honesty of Mr Cao. Evidence of Another Matter 1. I should for completeness also refer to one other matter which was raised on the evidence. That relates to the monthly transfer by the second defendant of $50,000 - $60,000 per month into an account in his name in China (see [162] of his affidavit sworn 25 November 2024). The second defendant said that amount is then transferred to Beijing Ze Fu Consulting and Investment Co Ltd, a company in China in which he has an interest, to meet that company's rent, trading and employee obligations. At [163] of the affidavit it is said if the freezing order is made, that company and its employees could be prejudiced, including by "causing issues in relation to [the company] meeting its monthly obligations and liabilities". 2. The plaintiff sought to rely on this as further evidence that the second defendant was dealing with his assets in a manner so as to enliven the power to make the freezing order. I accept this submission. 3. There was a question raised whether, on the evidence in [162] alone, it could be inferred that the amount referred to was money of either of the defendants. An attempt was made to lead evidence from the second defendant to clarify this matter, but I ruled it was inadmissible and rejected it. 4. It seems to me that on the evidence that is before the Court, an available inference is that the money transferred is that of the defendants. The evidence about these transfers was given in the section of the affidavit of the second defendant dealing with possible prejudice if the freezing order was made. The freezing order only impacts the assets of the first and second defendants. If the money transferred was not money of the first or second defendant in Australia or external to Australia, it is not caught by the freezing order. If, for example, the source of those monies is from a third party, it is not (and may not become) an asset of either of the defendants. On the basis of the evidence before me, however, absent any explanation with respect to the source of those funds, and noting they are sent to a personal account of the second defendant in China and then transferred to the other company, I can infer that that money may be an asset of the defendants. 5. There is no explanation on the evidence before me as to whether the money transferred is a loan, a gift, or is transferred to meet some other liability. Is there the Relevant Danger Regarding the Defendants' Assets? 1. I have formed the view that the plaintiff has established that there is a danger that any prospective judgment debt in favour of the plaintiff will be wholly or partly unsatisfied because the defendants have dealt with or are disposing of their assets. 2. In making this finding, I am conscious that there is no need for the plaintiff to prove that the defendant has a positive intention of evading any judgment, but it is sufficient to show that the course the defendants propose to embark on (or have embarked on) is calculated objectively to have that effect: Samimi v Seyedabadi [2013] NSWCA 279 at [74] per McColl JA. 3. In my opinion, the entry into the BFA in the circumstances I have described and then the transfer of the Bathurst Street Property to Ms Du when there was no obligation to do so, together with the evidence with respect to the "temporal coincidence" (to use Hamill J's expression) of the pending liability in the proceedings before Nixon J and the requirement to put on evidence in chief in these proceedings (which expose the defendants to a very significant liability) all objectively lead me to the apprehension that the defendants are embarking on a course to deal with their assets to frustrate the recovery of any possible judgment in these proceedings. This apprehension is re-enforced by the failure of the second defendant to give any, or any coherent, explanation for the entry into the BFA at the time it was signed. The evidence he seeks to rely on shows that there had been marital difficulties for a significant period of time and a draft BFA (in substantially identical terms to the final version) had been ready since January 2023. Yet it was not until August 2023, when the defendants were facing significant potential liabilities in these and other proceedings, that the BFA was finalised. He then transferred his interest in the Bathurst Street Property to Ms Du under cover of the BFA but when not obliged by its terms to do so. 4. I have also taken into account several matters which cause me to question the honesty of the second defendant. Those matters are the fact that, on his own case in answer to the plaintiff's claim under the Loan Agreement, he is a party to an agreement with the cross-defendants to defraud the Commonwealth of revenue of capital gains tax that may have been payable on realisation by the cross-defendants of their interest in the Greenacre Development. Whilst I make no findings about whether that has occurred or will occur, the very fact that the second defendant says he was willing to enter into such an agreement indicates he is willing to engage in dishonest and possibly unlawful behaviour. There is a not an insignificant level of irony in the defendants now asserting that the Loan Agreement is void for illegality. 5. I am also concerned about the failure of the second defendant to disclose until the day of the hearing the proceedings before Peden J which led to the orders made by her Honour on 28 November 2024. Those orders plainly impacted upon the assets of the second defendant and the provisions of the BFA. There was no explanation for the failure to disclose those other proceedings at an earlier time. 6. I regard these matters as meaning that the Court is more readily able to infer, and I do infer, that the conduct of the second defendant in acting in the manner he has in dealing with the assets of the defendants in an irregular way can reasonably be interpreted as indicating dishonesty. Discretionary Factors 1. The making of a freezing order is a drastic and exceptional remedy. I have not reached these conclusions lightly. 2. I must take into account discretionary factors which may tell against the making of the order. These include any prejudice to third parties and the balance of convenience. 3. There has been no delay in the plaintiff making this application. On learning of the transfer of the Bathurst Street Property and the entry into the BFA, it was brought promptly. 4. I do not accept that there is any prejudice that has been established on the evidence which would result from the making of an order. The matters raised in the defendants' written submissions about the conduct of the cross-defendants in removing Mr Cao as a director of Magenta Shores Development Pty Ltd do not relate to the plaintiff. Further, the delays by the plaintiff in meeting times set for evidentiary steps in these proceedings is not without more conduct of the type which would prevent him from obtaining relief he was otherwise entitled to. In any event, there have also been significant defaults by the defendants. 5. I did consider, having regard to the impact of the orders made by Peden J, whether there was any utility in granting the relief sought. However, as Mr Pritchard SC submitted, whilst the evidence disclosed the second defendant's interest in the Properties, and whilst the BFA disclosed he had a significant deficiency in assets over liabilities, possible impecuniosity of the defendant is no reason not to grant relief if it otherwise ought to be granted: Atlanta Building at [85] and the authorities there cited. 6. I consider the balance of convenience favours the granting of the relief sought. 7. I do note that some of the relief sought against the second defendant in Order 2 and in annexure B to the Amended Notice of Motion may not be able to be made having regard to the order of Peden J on 28 November in the Guo Proceedings (for example 7(1)(c) relating to the Properties). Conclusion and Orders 1. In the circumstances, I am satisfied the plaintiff is entitled to continuation of the freezing order against the defendants. The plaintiff should prepare short minutes of order reflecting these reasons. 2. I consider there is no reason why costs should not follow the event and those short minutes should reflect that view, unless either party seeks to address the Court on that issue. 3. I list the matter for directions at 9:30 am on 16 December 2024 when any issues arising in respect to the orders to be made can be ventilated. If the short minutes are agreed, they can be made in chambers and that date vacated. ********** 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: 12 December 2024