Zhang v Cao [2015] NSWSC 1291

Supreme Court New South Wales

Medium Neutral Citation: Zhang v Cao [2015] NSWSC 1291 Hearing dates: 31 August 2015 Date of orders: 31 August 2015 Decision date: 31 August 2015 Jurisdiction: Common Law Before: Beech-Jones J Decision: Ex parte relief granted. Catchwords: ASSET PRESERVATION ORDER – ex parte – no question of principle. Legislation Cited: - Corporations Act 1996 (Cth) – s 237 Category: Procedural and other rulings Parties: Zheng Zhang – First Plaintiff Rich Sea International Pty Ltd – Second Plaintiff Howard Hao Ting Cao – First Defendant CEG Direct Securities Pty Ltd – Second Defendant Zhao's Brothers Investment Pty Ltd – Third Defendant Option Funds Management Limited – Fourth Defendant Tung Chit Real Estate Investment Australia Pty Ltd – Fifth Defendant Representation: Counsel: P. Newton – Plaintiffs N/A Defendants

Solicitors: Yau & Wang – Plaintiffs N/A – Defendants File Number(s): 2015/255138

Judgment (revised from ex tempore) 1. This is an application for the abridgement of service of a summons. The substantive claim at the present is for an ex-parte application for an asset preservation order. The first plaintiff and the first defendant are directors of the second plaintiff. In short, the first plaintiff's claim is that the second defendant, which is the registered mortgagee of land that was at least owned at some point by the second plaintiff, has, without a proper basis, purported to execute a power of sale under the mortgage and transferred the property to the second to fifth defendants, which includes an entity associated with the first defendant. 2. It can be seen within that very brief summary that there are a number of possible causes of action, including not just an attack upon whether the power of sale came into force, but also upon the propriety of the actions of the first defendant in so affecting a company of which he was a director. 3. The asset preservation order seeks an order further restricting the transfer of property that has been transferred to the third to fifth defendants, as well as the exercise of any further power by the second defendant over the residual property that is owned by the second plaintiff. The principal concern is that if transfers are registered, then they will, prima facie, obtain the benefits of indefeasibility and so a later grant of relief which might vindicate the plaintiff's position may be rendered futile. 4. Two matters in particular should be noted. First, as one of the two directors of the second plaintiff, the first plaintiff does not, in his own right, have the legal capacity to bring the proceedings on its behalf. The summons seeks an order that he be granted leave to bring the proceedings on behalf of the second plaintiff under s 237 of the Corporations Act 1996 (Cth). It is obviously not possible to make that order on an ex-parte application of this kind. It simply suffices to state that there is, on the materials available, at least an arguable case for concluding that when that matter is finally litigated leave will be granted. 5. Second, consistent with his obligations to the Court, counsel for the plaintiff has drawn the Court's attention to the interaction between the terms of the General Security Agreement between the second plaintiff and the second defendant and the mortgage over the relevant land. 6. The mortgage confers upon the mortgagee a power in its "absolute discretion" to form an opinion as to whether an event of default has occurred. It is fair to say that there is likely to be an issue concerning the scope of that clause. The plaintiffs contend that, at a minimum, that clause would have to be exercised in good faith and otherwise at least have to have some proper basis. They contend that, in circumstances where the solicitors for the first plaintiff pointed out to the solicitor for the mortgagee that no control had been changed, they have an arguable case that the relevant discretion was not properly formed. That argument appears to have at least sufficient strength to support the order that I will make. 7. These very short reasons will be taken out, and when they are settled, will be provided to the solicitors for the plaintiff. Upon their receipt, they should provide them to the legal representatives of the defendants so far as they are known. 8. Accordingly, the Court will make the following orders, namely, orders one to seven in the Summons that has been filed in court. Further, upon the first plaintiff by his counsel giving the usual undertaking as to damages, the Court will make orders in the form of paragraphs 8(a) and 8(b) of the plaintiffs' Summons which will operate until 4:00pm on Thursday, 3 September 2015. Further, the Court will order that the plaintiffs' Summons be returnable at 10am on Thursday, 3 September 2015, before me.