Supreme Court New South Wales Medium Neutral Citation: In the matter of Gondon Five Pty Ltd [2016] NSWSC 1401 Hearing dates: 8 and 9 September 2016 Date of orders: 13 September 2016 Decision date: 13 September 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Refer para [53] Catchwords: EQUITY – equitable remedies – injunctions – whether freezing order should continue until hearing or further order – whether there is a good arguable case – personal claim to recover moneys advanced by way of loan – execution of agreement relating to that loan – agreement deliberately altered by plaintiff – prima facie, debt still due – removal and replacement of trustee – mere disagreements insufficient to justify removal – reasonable inference that those controlling trustee may not be able or willing to discharge duties with impartiality – trustee of company may not enforce its rights to recover loan – held, there is a good arguable case – whether there is risk of dissipation – defendants' conduct in inflicting economic damage on plaintiff or trust assets – unexplained ongoing expenditure of large round sums – held, reasonable apprehension that assets of trust may not be preserved – general discretionary considerations – prejudice and inconvenience of injunction relatively slight COSTS – where defendants made open offers – where it is presently unknown whether plaintiff has bettered offer – whether plaintiff acted unreasonably in rejecting offer Legislation Cited: (CTH) Corporations Act 2001, s 237 Cases Cited: Ninemia Martini Corporation v Trave Schiffahrtsgesellschaft GmbH [1984] 1 AllER 398 Westpac Bank Incorporation v McArthur [2007] NSWSC 1347 Category: Principal judgment Parties: Tracy Xiaowen Cui (plaintiff) Cui Family Asset Management Pty Limited (first defendant) Gondon Five Pty Limited (second defendant) Jinsong Cui (third defendant) Arise Constructions Pty Limited (fourth defendant) Representation: Counsel: K Andronos SC w J Clark (plaintiff) D Pritchard SC w L Chapman (defendants) Solicitors: W&H Lawyers Australia (plaintiff) Marsdens Law Group (defendants) File Number(s): 2016/ 254904 Judgment (ex tempore) Background 1. HIS HONOUR: Behind the corporate structures concerned in these proceedings, the three real protagonists are the children of Guojin Cui and the late Weidong Zheng, namely the plaintiff Tracy Xiaowen Cui, the third defendant Jinsong Cui and their younger sister Yolanda Cui, who is not a party to the proceedings in her personal capacity. As the parties appear content to use anglicised versions of their names, I trust that I may be forgiven also for doing so. 2. Save for Tracy – who came to Australia in or about 2007 – the remainder of the family migrated to Australia in 2011 and 2012. Between them, they have generated considerable wealth, through property development in China and in Australia. The first defendant Cui Family Asset Management Pty Limited ("CFAM") is the trustee of the Cui Family Trust; a discretionary family trust constituted in 2012 of which each of Tracy, Jinsong and Yolanda is a so-called prime beneficiary. That status does not confer on them any rights different from those of any other mere object of a discretionary trust, save that pursuant to cl 5 of the trust deed dated 19 September 2012, upon the vesting day, the trustee stands possessed of the trust fund and the income in trust for such of the beneficiaries and in such proportions as the trustee appoints, or if no such appointment was made before the vesting day, for the prime beneficiaries living on the vesting day as tenants in common in equal shares. In other words, the prime beneficiaries are in a sense the default beneficiaries on the vesting day, if the trustee has not exercised its discretion otherwise; in that event, they take equally between the three of them. 3. The appointor of the trust is Jinsong, who at least in that sense has practical control of the trust by reason of the power to remove and appoint the trustee. Jinsong is also the sole shareholder in the trustee company CFAM. Since June 2016, Yolanda has been the sole director of CFAM. Until his resignation in June 2016, their father Guojin was the sole director from June 2015, when he was appointed in place of Tracy, who until then had been the sole director. 4. Various members of the Cui family have advanced money to the trust to finance its activities. 5. As trustee of the trust, CFAM is the sole shareholder in the second defendant Gondon Five Pty Limited, which was incorporated as a special purpose vehicle to carry out a property development at North Ryde. Jinsong and Yolanda are the directors of Gondon Five. CFAM is also the sole shareholder in Australian Blue Mountains Group Pty Limited ("ABMG"), which owns the business name Blue Mountains Natural Spring Water and operates a spring water business. Tracy is the sole director of ABMG. CFAM is also the sole shareholder in Best and Less Paints Pty Limited ("B&LP"), which operates a paint retail business. Tracy is also the sole director of B&LP. As trustee, CFAM has advanced moneys to each of its subsidiaries to fund their activities. 6. Arise Constructions Pty Limited is a building company which was retained by Gondon Five to construct the development at North Ryde. Jinsong has been the sole shareholder in Arise Constructions since 22 October 2014. Prior to that date, Arise Constructions was a subsidiary of Arise Holdings Pty Limited, in which the shares are held equally by Jinsong and Tracy, and of which Yolanda is the sole director. 7. Gondon Five's North Ryde development is nearing completion, and sales of the units in it are underway. Many have been sold, and many of the sales completed. The main development loan from the National Australia Bank ("NAB") has been repaid. In his affidavit, Jinsong has stated that as Gondon Five is a special purpose vehicle for the purpose of the North Ryde development, upon a profit being realised, it will distribute its profits to its sole shareholder CFAM. As the sole shareholder in Gondon Five, CFAM is prima facie entitled to receive the profits by way of dividend or return of capital. It will be necessary in due course to say something about the projected profits. 8. On 24 August 2016, Tracy approached the Duty Judge and obtained leave to file an originating process in which she claims leave under (CTH) Corporations Act 2001, s 237, to bring proceedings on behalf of CFAM against Gondon Five in relation to a claim for repayment of a debt said to be due by Gondon Five to CFAM, and for oppression of the first defendant in its capacity as sole shareholder in Gondon Five. The originating process foreshadowed claims to recover some $8 million said to be due and owing by Gondon Five to CFAM, and an order that Gondon Five declare a dividend in favour of CFAM in respect of the whole of the profits from the North Ryde project. In addition, the originating process included personal claims by Tracy against CFAM for a debt of in excess of $10 million, and a claim for 50 % of the profit received or to be received by CFAM from Gondon Five (to which she asserts on entitlement by way of distribution under the trust). Further, the originating process contained a claim for an order removing CFAM as trustee and appointing Tracy, or some other fit and proper person, as trustee in its place. 9. By interlocutory process filed on the same day, Tracy sought a freezing and disclosure order against the defendants. Barrett AJA sitting as Duty Judge granted an ex parte freezing order prohibiting the defendants CFAM, Gondon Five and Jinsong from disposing of, dealing with or diminishing the value of their assets in Australia up to the unencumbered value of $39,318,689. The order contained the usual carve-outs and provisions. On 29 August 2016 when the proceedings were first returnable, the order was continued – subject to minor variations which are not presently relevant – until interlocutory hearing, which was then appointed to take place on 8 September 2016. On 8 and 9 September 2016 in the course of the interlocutory hearing, that order as varied was continued until today. 10. The essential issue is whether the freezing order should continue until the hearing or further order. If it is to continue, ancillary issues include the scope of the carve-outs for legal expenses and living expenses, and whether a disclosure order should be made. The parties were agreed that the substantive proceedings should continue on pleadings. 11. It was uncontroversial that on an application for a freezing (Mareva) order, the test involves three elements: first, whether there is a good arguable case, which is said to involve something more than a serious question to be tried, but not necessarily rising so high as a prima facie case; [1] secondly, whether there is a risk that absent an order the defendants' assets will be dissipated, so as to frustrate or defeat the plaintiff's claims; [2] and thirdly, general discretionary considerations. Good arguable case 1. Tracy propounded her causes of action as follows: first, a personal claim by her to recover moneys advanced by her by way of loan to CFAM; secondly, a claim by her for the removal and replacement of CFAM as trustee of the trust; and proposed derivative claims on behalf of CFAM against Gondon Five to recover moneys advanced by way of loan by CFAM to Gondon Five and to enforce its rights to the profits made by Gondon Five. Tracy Cui's claim 1. As to Tracy's personal claim to recover moneys advanced by way of loan, this was originally framed as a claim for some $10.23 million. However, it was accepted that this included a sum properly payable to Arise Holdings, and the claim was modified to $4.88 million. 2. The general ledger of CFAM as at 30 June 2015, which was produced by the defendants and became PX13, records as at 30 June 2015 that Tracy was owed a sum of $2,407,050. Tracy's evidence was to the effect that the dealings between the parties was such that her loan was repayable when the trust was in funds and capable of doing so, and that at least in practice that meant upon settlement of the sale of the North Ryde development apartments. 3. The defendants contended that any moneys advanced by Tracy to CFAM were offset by moneys that she had used to fund ABMG and B&LP. But as those were businesses owned indirectly by the trust, that is no answer. The same general ledger records as assets of the trust the amounts advanced to ABMG and B&LP. 4. Secondly, the defendants said that the debt to Tracy had been released, in consideration of an agreement to assign ABMG and B&LP to Tracy. In this respect and for subsequent purposes, it is necessary to refer in a little more detail to some of the dealings between the parties. On 16 October 2015, each of Tracy, Jinsong and Yolanda and Guojin executed a letter agreement dated 5 September 2015 agreeing to the allocation of four apartments (having an estimated total value of $4.045 million), from the North Ryde development to Tracy, and five apartments (having an estimated value of $3.724 million) to Jinsong, and providing also that once the project had been completely settled, any unsold apartments other than the nine reserved apartments should be evenly distributed between Tracy and Jinsong. 5. Between 9 and 11 December 2015, the same four signatories executed a letter agreement dated 8 December 2015, which relevantly provided that: 1. Upon settlement of the North Ryde project all the proceeds will be held in the control of a lawyer or accountant, and could not be appropriated without the signed authority of Tracy and Jinsong; 2. However, without their authority, and as a matter of first priority, the proceeds would be used to repay the development loan provided by the National Australia Bank; 3. That without further authority, the fund would be used to repay the loan from Golden Base of $5 million and interest, the loan from Henry Davis York (a reference to Lord Capital) and all the interest, and a $20 million RMB loan from Tian Yue Xiang Yuan Third Floor Project ("TYXY"); 4. Without further authority, the fund would be used to pay all tax for which Gondon Five was liable; 5. It was acknowledged that the total investments made by CFAM since establishment was $5 million in the North Ryde project, $2 million from the Son Yang project, and $3 million loan from TYXY; 6. That upon unanimous agreement of the four signatories, after settlement, $4 million of principal should be repaid to CFAM, which should be managed through an asset management firm, not to be used without the signed authority of the four parties, but to be used as a matter of priority to fund Guojin Cui's retirement, and to pay education expenses for children in the family. The creation of two tokens for management of the account, one to be held by Jinsong, and the other by Guojin, (and after his death by Tracy) was contemplated; 7. $1.8 million principal and interest would be repaid to Tracy, as also would be the principal and interest owed to Jinsong and Weidong, their mother; 8. Any residual amount would be allocated evenly between Tracy and Jinsong, and Tracy would use the profit allocated to her to repay all loans that had not been used for the North Ryde project (a reference to moneys applied to ABMG and B&LP). 1. It may be interposed that the NAB development loan has been repaid as contemplated by (2) above. As I understand it, in relation to (3), the Golden Base loan has also been repaid and the Lord Capital loan has been repaid as to principal but not yet interest. 2. Although the parties signed that agreement on 8 December 2015, they did not sign an additional agreement, which Tracy proffered and wanted signed, which in addition to requiring that she would use her "allocated profit" to repay debts and interest not spent on the North Ryde project – again apparently a reference to moneys advanced to ABMG and B&LP – would also have provided that Tracy had full discretion in dealing with the Blue Mountains Spring Water land – being land from which the water business was conducted, which had been acquired not in the name of the company or the trust, but in the name of Yolanda and Jinsong's wife – and also of ABMG and B&LP. It is clear enough that Tracy was desirous of obtaining for herself ABMG, the land from which it was conducted, and B&LP, and also that Jinsong was no longer supportive of the continuation of those businesses. 3. Tracy continued to press for the assignment of ABMG and B&LP to her, but Jinsong resisted it. On or about 4 March 2016, Tracy wrote out and executed a document stating: Any interest in the land of, and profits from the North Ryde project all belong to Jinsong Cui. I will repay by myself debts and interest not spent on the North Ryde project. 1. More or less contemporaneously with that, Tracy, Jinsong, Yolanda and Guojin executed a document which closely resembled – but with a notable difference – that which Tracy had proffered, but had not been executed in December. Relevantly, it provided: Tracy will be responsible for repaying all the loans plus interest she borrowed which were not used on the North Ryde project, including $2.5 million (currently being verified) which Blue Mountains Spring Water borrowed from the Cui foundation ... and the second loan of AUS$500, from Weidong that was used on the paint store ... the associated Blue Mountains Spring Water land property rights, the shareholder rights and the paint store, and Blue Mountains Spring Water will also be placed at the full disposal of Tracy. The other members of Cui family ... do not agree to the continuous operation of Blue Mountains Spring Water plant and the paint store, nor do they agree to domestic trade nor sales through agencies. All the liabilities and loses and legal liabilities incurred as a result of this will be worn by Tracy. From the date of signing this agreement, Tracy transfers to Guojin Cui the shareholder rights in Gondon Five and directorship, and from this point onward will not enter the premises in North Ryde ... without Jinsong's permission. 1. It appears clear that the significant difference between the December document and this document – the former referring to Tracy using her "allocated profit" to repay debts and interest, and the latter referring only to her "being responsible" for repaying the loans plus interest – was a deliberate one; and on the evidence as it stands – including that Tracy deposes that she produced the document at the meeting and printed it out from her email – indicates that she made the relevant change. 2. Tracy contends that the March 2016 agreement at least is impeachable on equitable grounds. There is certainly some evidence that suggests that her psychological condition was deteriorating then or not long after then, and there are certainly apparent aspects of improvidence in respect of the transaction. It seems likely that she was in a state of heightened emotion. Against that, it appears that she was very determined to acquire the water and paint business, and entered into this agreement voluntarily and intentionally. Ultimately, whether it can be impugned on equitable grounds cannot be foretold at this stage – it is arguable, but far from clear that it could be. 3. However, while it is at least arguable that the agreement acknowledged that Tracy forewent any interest in the land and profits from the North Ryde project, it does not in terms relinquish any loan due to her from CFAM. As the agreement is in the nature of a release, it would not ordinarily be construed more broadly than its terms required. At this stage, it does not self-evidently release any loan due to Tracy from CFAM. 4. The result is that on the face of the general ledger there is a debt due to Tracy of some $2.407 million, and it is by no means clear that that debt has been extinguished by the subsequent agreements of the parties. Accordingly, I think there is a good arguable case that Tracy is entitled to recover $2.407 million from CFAM. Removal and replacement of CFAM as trustee 1. I turn then to the second cause of action, for removal and replacement of CFAM as trustee. The Court does not lightly remove a trustee. The fundamental consideration is the welfare of the trust. Mere disagreement between a trustee and beneficiaries – particularly one of many potential discretionary beneficiaries – is usually insufficient to justify removal of the trustee. Ordinarily, a ground such as a proven breach of trust, or an inability or unwillingness to discharge the duties of the trustee with propriety and impartiality would be required. It was not however disputed that if, pending the hearing of a suit for removal of a trustee, it appeared that there was a risk of misapplication of and/or jeopardy to the trust assets in the meantime, the incumbent trustee could be restrained from dealing with them in order to protect the trust fund. 2. So far as is known, all the assets of significance of CFAM as trustee of the trust are its loans to and its shareholdings in its subsidiaries. It has countervailing liabilities, to those who have advanced funds to the trust. So far as the loan accounts are concerned, from the material to which the Court has been taken, it is possible only to use the general ledger as at 30 June 2015 to gain some impression of the financial position of CFAM. I have reviewed the general ledger, and taken the balance as at 30 June 2015 of each of the credit and debit loan accounts. Without referring to all of them, they include as assets moneys owed to CFAM by Gondon Five of $12,742,136; by Arise Constructions of $1,452,812; by B&LP of $824,685; by ABMG of $3,489,719; by Rong Chen of $584,269; and by Yolanda and Rong Chen jointly of $1,050,484. On the other side of the ledger, CFAM apparently owes Gondon Developments $728,954; Arise Holdings $5,127,600; Tracy $2,407,005; Qingzhu Zhang $1 million; Hui Wang $1,818,182; and Golden Base $5 million. I appreciate that since 30 June 2015, some of those liabilities have probably been repaid, but the net position – which represents net assets of $3,551,742. – would not be expected to change as a result. (That net position does not include the value of the shareholdings in Gondon Five, ABMG and B&LP.) 3. As originally advanced, the case for removal of CFAM was put on the basis that it was not prepared to carry into effect an alleged agreement for equal distribution of the profit from the North Ryde property between Jinsong and Tracy. However, an agreement between some of the objects of a discretionary trust and the trustee as to how the trust assets are to be dealt with cannot bind the trustee. Ultimately, the basis upon which the case was put was that CFAM was not prepared to enforce its rights to recover the loan from Gondon Five and enforce its entitlement to a dividend against Gondon Five; that it was not prepared to agree to distribute 50% of the profits to Tracy; and that it had demonstrated, through Jinsong and Yolanda who effectively controlled it, such hostility to Tracy that she could not be expected to have confidence in CFAM as trustee. Reference was made in particular to certain acts engaged in by Jinsong and Yolanda, which appear to have been calculated to sabotage the business of ABMG. 4. I have already referred to the March 2016 agreement. In distinction from its operation with respect to Tracy's loan and CFAM, that agreement plainly did purport to deal with the profits from the North Ryde project; but as I have said, there may be equitable grounds upon which that agreement could in due course be impugned. However, even if there be no valid agreement, Tracy has no legal right to any share of the profits from the North Ryde project. She has no right to insist that the trustee agree to pay her any particular share of those profits. Her entitlement at the highest is to due administration of the trust, and to have the trustee consider impartially whether or not to make such a distribution to her. Thus, in my view, Tracy has no arguable case that 50% of the profits should be distributed to her. 5. But it does not follow that she has no arguable case for the removal and replacement of the trustee. It is incumbent on the trustee to ensure that it gets in what it is entitled to, which in particular includes its loan to Gondon Five and its entitlement to the profits of Gondon Five. Through their interference with the business of ABMG – which was not seriously disputed, yet was unexplained, and demonstrates a high level of animus, and the wanton infliction of economic damage on Tracy and/or on trust assets – it is a reasonable inference that those controlling the trustee may not be able or willing to discharge their duties with impartiality so far as Tracy's position is concerned. That circumstance provides an arguable case for the replacement and removal of the trustee. There are no doubt many countervailing arguments, but it is not on this kind of application necessary to advert to them, as I am satisfied that a case for removal of the trustee is at least arguable. Proposed derivative action 1. I turn then to the proposed derivative action. I have already explained that as at 30 June 2015, CFAM was owed $12,742,136 by Gondon Five. The defendant says that has now been reduced to $7.8 million, but there is no evidentiary basis for that contention – one for which the defendants could surely have easily produced evidence, if it existed. 2. Although I repeatedly pressed for it, no real explanation was given as to how the loan would be repaid out of the available resources of Gondon Five. Jinsong in his affidavit deposes, in a way which confused assets and liabilities with income and expenditure, to the profit that was anticipated to be derived from the North Ryde project. Doing the best I can, the position seems to be as follows. After sale of the units which have been completed to date and the repayment of the NAB and the principal of the Lord Capital loan, there remains in the hands of Gondon Five assets, comprising units which have been sold but not settled and units which have not yet been sold, totalling in value approximately $45,195,944. Out of that, provision has to be made for repayment of the interest to Lord Capital of $900,000. Provision also needs to be made for legal expenses on the sale of those units which have not yet been sold (presumably, the legal expenses on the units the sale of which has been completed were paid upon completion of those sales). For the remaining 40 odd units, the sale of which has not yet been completed, it seems to me that allowance of $1,000 per unit, or a total of $50,000, would cover that. Provision also needs to be made for agents' commission on the remaining units (again, presumably, commission on the units the sale of which has already been completed was paid upon completion of those sales). Allowing commission at the generous rate of 3% on the remaining $45 million odd produces something in the order of $1,500,000. I will assume that no GST has yet been paid in respect of any of the sales, an assumption which is perhaps favourable to the defendants. However, I accept for present purposes that Mr Potter's proposed adjustments in respect of GST are appropriate. That means that not more than about $5 million in GST must be paid out of the remaining proceeds. Jinsong deposes that he expects income tax will have to be paid and that it will be at least $1 million. In the absence of any other evidence, I will accept his assessment of $1 million. 3. In the table annexed to Jinsong's affidavit, provision is made for many other expenses. However, most of them are expenses which must already have been paid and do not have to come out of the proceeds of the remaining units. For example, the purchase price of the land, adjustments on the purchase, stamp duty on the purchase contract, legal costs on the purchase, the construction costs payable to Arise, the foreign exchange loss, the interest on the loan facility, and many of the miscellaneous costs, will already have been incurred and paid, and are not payable out of the remaining $45 million. However, for the sake of amply covering the situation, I propose to allow a further $2 million as potentially payable out of the remaining proceeds of sale. 4. That means that the total amount potentially payable out of the proceeds is in the order of $10,450,000. When deducted from the $45 million odd, that leaves $35 million approximately available to repay the loan to CFAM, and to return capital by way of dividend or return of capital to the sole shareholder CFAM. Jinsong did not identify in his affidavit any other loan that remained outstanding and required repayment, and so I infer that there is none. 5. On that approach, it does not really matter whether the loan is $7.8 million or $12.7 million. To the extent that the loan is less than $12.7 million, that increases the amount returnable by way of dividend or return of capital, though there may be some taxation consequences. 6. Treating the loan at $12.7 million then results in the following: the net amount available after payment of the various prospective liabilities to which I have referred is $34,645,944; deducting the loan of $12,742,136 from that leaves $21,903,808 available for dividend or other return of capital to the sole shareholder. This is so different from any disclosure that has been made to date that it does found a significant concern as to whether there is a genuine intent on the part of CFAM and Gondon to maximise the return to CFAM. 7. I am not presently deciding the application for leave under Corporations Act, s 237. On such an application, it may be of some relevance that the status of Tracy is as a former director, while her real interest is as the mere object of a discretionary trust with no right beyond that of due administration. Nonetheless, the reluctance or inability of the defendants to explain how the CFAM loan would be repaid, the apparent discrepancy between what the defendant has been prepared to disclose and what seems to me to be likely to be available by way of return, coupled with the defendants' and in particular Jinsong's apparent determination to exclude Tracy from the profits, and their demonstrated preparedness wantonly to inflict economic injury on Tracy and/or the trust assets, is enough to give rise to concern that CFAM as trustee may not enforce its rights against Gondon. On any view, those rights are significant and substantial. Tracy's apparent agreement not to claim an entitlement to them may be impeachable, and in any event is unlikely to be binding on the trustee. It seems to me that it can at least be said that CFAM has viable causes of action against Gondon Five, and that Tracy may well obtain leave to prosecute them if the trustee is not removed. Risk of dissipation 1. I turn now to the risk of dissipation. Many of the matters advanced by the plaintiff in this respect not sustained. I am not prepared to infer that there is a risk of dissipation from the sale of the TYXY asset in China without Tracy's knowledge or consent, because it was registered in Jinsong's name, and there is a live dispute as to the beneficial interest in it. I do not accept that the loans from Qiu, Golden Base and Lord Capital were inadequately explained: although the original explanation in the affidavit was incomplete, it is clear that Jinsong and his wife were themselves making substantial contributions to Gondon Five at or about the time that those moneys were received. It just does not make sense that he would divert the proceeds of these loans when he was himself making such contributions, and it is not shown that he did divert the proceeds of any loan. The Lord Capital loan appears clearly enough to have retired other debts, including Qiu, Golden Base and other private lenders. The suggestion that $2.4 million was diverted to Arise Constructions was unsupportable on closer inspection of the documents. The repayment of Lord Capital not long after the freezing order was first made does not manifest a risk of dissipation. The Lord Capital loan was negotiated through a reputable firm of solicitors. It is hardly likely to have been a sham, and repaying legitimate obligations is not dissipation of assets; indeed, it may preserve assets by reducing the interest bill. 2. The suggestion that funds were being diverted to Jinsong's Epping project was also not established. Nor would I infer from the open offer that was made on behalf of the defendants any risk of dissipation. That they might not offer to preserve as much as the plaintiff thinks should be preserved does not mean that there is a risk that the assets will otherwise be dissipated. 3. Two things, however, are of some troubling nature. The first is that to which I have already referred: the wanton conduct of the defendants in inflicting economic damage on Tracy and/or on trust assets through their interference with the ABMG business and its contracts. The second is that there is evidence of substantial ongoing expenditure from the Gondon Five business account. The personal expenditure for the defence of an apprehended violence order is of itself de minimis, and expenditure of a proprietary company's funds on personal matters is not unusual in the context of private companies, and it may well be accounted for on loan account. But unexplained ongoing expenditure of large round sums from that account, at a time when the project is in the phase of selling assets, occasions some concern that Gondon Five's assets are in some jeopardy. General discretionary considerations 1. I turn to discretionary considerations. As it seems to me, the prejudice or inconvenience involved in the grant of an injunction is relatively slight. Gondon's creditors can still be paid. Its ordinary business expenditure, such as remains, can still be attended to. CFAM can be repaid and capital returned to it. 2. The only practical inconvenience or prejudice will be in preventing distributions of amounts received by CFAM to beneficiaries. Jinsong says he will incur detriment by being denied or delayed further opportunities to use any distribution to him to reinvest in property development. However, in my view, that can be addressed by appropriately framing any order to allow some distributions, while preserving sufficient funds to meet any reasonable claim of Tracy. Tracy's undertaking as to damages – which is proffered – may admittedly be of limited value, but its significance is much diminished when the countervailing prejudice appears slight. Additionally, the four units which she claims remain registered at this stage in the name of Gondon Five, and their existence provides some security, at least for the time being, in respect of her undertaking. To a lesser extent, the existence of her loan account in CFAM also provides some security or comfort. Conclusion 1. To summarise, it seems to me that Tracy has an arguable case to recover from CFAM her loan of $2.407 million. She has an arguable case for removal and replacement of CFAM as trustee, founded on apparent lack of impartiality. She has no arguable case – at least as presently formulated – against the third defendant Jinsong personally, and there is no evidence that trust assets can be traced into his hands, or that he is otherwise liable to her, and there is no basis for any injunction against him personally. 2. Although it is not the strongest case of risk of dissipation, there is a reasonable basis for apprehension that assets of the trust, including in particular its entitlements against Gondon, may not be preserved or pursued. There is no hardship in requiring Gondon Five not to adversely deal with its relevant assets; all that it will be required to do is to comply with what are in any event are its legal obligations. 3. Tracy has no claim to any particular share of the trust asset. Nor, for that matter, do any of the other beneficiaries. But in that trust resides the substantial wealth of the family. There is no basis for thinking that a trustee acting reasonably would distribute the whole of the trust assets to Tracy, and thus there is no reason to preserve or segregate the whole of the trust assets. As I have said, it seems to me that she does not have an arguable claim to half of them. While it is impossible, because of the discretionary nature of the trust, to predict what her claim is, the best guidance one can get is the default position under the trust deed of one-third upon the vesting date. 4. Accordingly, I propose to make orders in due course, the effect of which will be to restrain Gondon Five from dealing with its assets other than to pay its liabilities and expenses, and repay its loan and return capital to CFAM, and to restrain CFAM from dealing with the amounts it receives from Gondon Five to the extent of approximately one-third of what is likely to be the total of those amounts. 5. The interlocutory process also sought a disclosure order in respect of the sales of the units and detail as to the assets of the defendants. In the light of the form of the order that I propose to make, I do not see any requirement for disclosure at this stage of particular assets, and it seems to me that particulars of the sale of units have already been sufficiently provided. 6. From the assets referred to by Jinsong of $45,195,944, provision is to be made to potential liabilities already mentioned, totalling $10,450,000, leaving $34,645,944. From that, the CFAM loan of $12,742,136 is to be repaid. That leaves apparent equity of $21,903,808. Upon declaring a dividend of that equity or returning it to the shareholder by way of return of capital, it is likely that tax would be payable, and I provide for tax in the hands of CFAM at 30% on that sum, which is $6,571,142. That leaves a net receipt by CFAM of $15,332,666. That is to be added to the present net equity, which currently appears from the balance of creditor and debtor loans to be $3,551,742, the sum being $18,884,408. Tracy's notional one-third share of that is $6,294,803. To that is to be added the balance of her loan account of $2,407,050. The total is then $8,701,808. 7. However, in deciding how that can most fairly be protected without undue impact on the defendants, the preferable approach is to freeze the sum of $2,704,050, plus one third of any amount received by CFAM by way of repayment, dividend, or return of capital from Gondon Five. In the orders I have framed for counsels' consideration, I have adopted that approach. That means that if the assumptions I have made and figures I have calculated turn out to be wrong, adopting a one-third approach will still produce a proportionate result. 8. That leaves the difficulty that arises from the reserved units. The defendant submitted that the proceeds of the reserved units should be retained in the trust. The plaintiff opposed any such order being made, but did not herself seek any positive order in respect of the reserve units. The evidence would not enable me to rule at this stage whether or not she had made out a case of entitlement to their proceeds, but it seems to me that the only basis upon which she could legally receive them would be by distribution by CFAM to her of the proceeds of their sale as CFAM's assets are shares in Gondon Five, and not the units in Gondon Five's development. If the proceeds of the reserved units were paid to the plaintiff, it would effectively be on account of her beneficial interest or potential beneficial interest, and would reduce the amount to be preserved. Accordingly, it seems to me that the best way to address this is to provide that it is not a contravention of the order for CFAM to make such distributions to the plaintiff, and that if it does so, the amount to be preserved is reduced by the amount so distributed to her. 9. Finally, the defendants should understand that by preserving only one-third of the receipts from Gondon Five, that is not a permission to spend the remaining two-thirds however they please. The obligations of the first defendant as a trustee remain in place and in force, and the trust assets must be applied consistently with and according to those obligations. It is simply because preserving one-third will be sufficient to reasonably safeguard Tracy's rights that that course is being adopted, not as it were to grant a dispensation to do as they may please with the other two thirds. 10. In the light of those observations, I have formulated some draft orders which I will hand down to counsel for consideration. I should say that I think this approach makes clear that a carve-out would not be required as the other other two-thirds of whatever is received by CFAM is available for distribution. There should be liberty to apply in the event of any difficulty arising. Costs 1. The plaintiff has succeeded in obtaining interlocutory relief to the effect that she sought, but falling far short in quantum of that which was initially sought and of the ex parte order initially granted, and not at all against the third defendant. 2. The defendants made open offers on 2 September 2016 and again on 7 September – which did not comply with the rules in respect of offers of compromise and so do not automatically attract the consequences of such offers – to preserve $5 million of the proceeds of sale of the units at North Ryde, plus the net proceeds from the plaintiff's reserved units, the anticipated price of which was in excess of $4 million. Accepting that there would be some deductions from that $4 million, the total value of the defendant's offer when compared to the orders made is nonetheless in the order of a little under or around about $9 million, and closely comparable to that which I have notionally attributed to the orders I have made – although it will not be known until long after now whether in fact the plaintiff turns out to have done better or worse than the offer. 3. It is not desirable to leave resolution of an issue such as this until a much later date when it might be known whether or not the plaintiff has or has not in fact bettered the offer; it is far preferable to deal with the issue while it is fresh in everyone's mind, and in that case it has to be dealt with on the basis that the plaintiff may or may not have bettered the offer. 4. It seems to me that the real question is, did the plaintiff act unreasonably in not accepting the offer. That question might attract an affirmative answer even if the plaintiff had bettered it only slightly when the area involves as much approximation as this does. But in circumstances where there were, as I have referred, deficiencies in the explanation as to how CFAM's loan to Gondon Five would be repaid and how the available equity in Gondon Five was calculated, I do not think it can be said that the plaintiff acted unreasonably in not accepting those offers, made as they were on the first occasion only for a period of about two working days, and on the second occasion only on the eve of the hearing. 5. Both parties have acted reasonably in respect of this application. I do not see why the plaintiff should have the costs of the interlocutory application if she is ultimately unsuccessful nor why in that event she should not have to pay the defendants' costs. Costs will be costs in the proceedings. Orders 1. In lieu of the orders made on 26 August 2016, as subsequently varied, and upon the plaintiff by her counsel giving to the Court the usual undertaking as to damages, the Court orders that: (1) Until further order the second defendant Gondon Five be restrained from by itself, its servants and agents, alienating, encumbering or otherwise adversely dealing with the units at 1-9 Allengrove Crescent, North Ryde or the proceeds of their sale, otherwise than in selling and/or completing the sale of the units, paying proper adjustments on completion of any sale, paying legal expenses agents' commission and selling costs in respect of any such sale, paying to the relevant taxation authority any taxation liability properly payable, repaying to any lender the outstanding amount of its loan (where such repayment is made with the prior written agreement of the plaintiff), repaying to the first defendant CFAM the amount outstanding in respect of its loan, and remitting the balance to CFAM by way of dividend or return of capital. (2) Until further order the first defendant CFAM be restrained from by itself, its servants and agents, alienating, encumbering or otherwise adversely dealing with any amount received by it henceforth from Gondon Five, whether by way of loan repayment, dividend or return of capital, up to the total of $2,704,005 plus one-third of the amount so received ("the preserved sum"), provided that it is not a contravention of this order for CFAM to make repayments and/or distributions to the plaintiff, including from the proceeds of sale of any of the reserved units referred to in the letter agreement dated 5 September and executed 16 October 2015, and in the event that any such repayment or distribution is made to her, the preserved sum shall be reduced by the amount so paid or distributed to her. (3) The defendants notify the plaintiff's solicitors in writing of the amount and character of each payment made by Gondon Five to CFAM, whether by way of loan repayment, dividend or return of capital, forthwith upon such payment being made. (4) Costs of the interlocutory application be costs in the proceedings. 1. The Court further orders that: (5) The proceedings continue on pleadings. (6) The plaintiff file and serve a statement of claim within 14 days and pleading thereafter continue in accordance with the rules. (7) The proceedings be adjourned to 31 October 2016 in the Corporations Judge Directions List. (8) There be liberty to apply on 3 days' notice by arrangement with the Associate to Brereton J, including to vary these orders, any such notice to specify the issues to be raised and the relief to be sought. 1. These orders are to be entered forthwith. ********** Endnotes 1. See Ninemia Martini Corporation v Trave Schiffahrtsgesellschaft GmbH [1984] 1 AllER 398 at 404; and Westpac Bank Incorporation v McArthur [2007] NSWSC 1347 at [22]. 2. See Patterson v BTR Engineering Australia Pty Limited (1989) 18 NSWLR 319 at 321 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: 30 September 2016