Winau Australia Pty Ltd v LCC Property Development Pty Ltd

1. [1]

   Before the Court is an application for injunctive relief restraining the Third Plaintiff (“183 Eastwood”) from disbursing monies currently paid into Court, save by placing such funds in a single bank account held in the name of 183 Eastwood or its solicitors on behalf of 183 Eastwood. The Applicants on the Motion, the Third to Fifth Defendants (“Ippin Textiles”, “Jia He Family Investments” and “M Wang Family” respectively, to whom I shall collectively refer as “the Applicants”), also seek an order restraining 183 Eastwood from encumbering or making any withdrawal or transfer from that account. The relief sought by the Motion is in the following terms:

2. [2]

   Mr M Young SC appeared for the Applicants and Mr F Lim, solicitor, appeared for the First to Third Plaintiffs and Respondents on the Motion, Winau Aust Pty Ltd (“Winau”), Shunjiyuan Investments Pty Ltd (“Shunjiyuan”) and 183 Eastwood (to whom I shall collectively refer as “the Respondents”).

3. [3]

   These protracted proceedings involve a dispute between a former registered proprietor of real property (183 Eastwood), an alleged fraudster who purported to be the sole director, secretary and shareholder of that corporate registered proprietor (Mr Scott Chan, the Second Defendant) and mortgagees who mistakenly believed they were dealing with the sole authorised officer of the corporate registered proprietor (the Applicants). These proceedings have come before the Court on several occasions (see Winau Aust Pty Ltd v LCC Property Development Pty Ltd [2019] NSWSC 499; Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors [2020] NSWSC 434 (“the April 2020 Judgment”); Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors (No 2) [2020] NSWSC 586 (“the May 2020 Judgment”)) and have also been the subject of a judgment in the Court of Appeal: see Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9.

4. [4]

   I shall summarise the procedural and factual history of this dispute before turning to the issues the subject of the present Motion:

   1. (1)

      183 Eastwood was incorporated on 31 July 2016 by a group of investors as a special purpose vehicle to purchase and develop property in the suburb of Eastwood, NSW. Mr Eric Naijing Lin and Mr John Tak Ching Lau were appointed as directors of 183 Eastwood and Mr Steven Ju was appointed as the company secretary. Messrs Lin and Lau also each held 50% of the shares in 183 Eastwood.

   2. (2)

      On 29 August 2016, the Eastwood Unit Trust (“the Trust”) was declared and settled. Eastwood 183 was appointed as the trustee of the Trust. The unitholders of the Trust included:

   3. (3)

      In September 2016, 183 Eastwood entered into three contracts for the sale of land, pursuant to which it purchased 179-183 Shaftsbury Road, Eastwood, NSW 2122 (“the Property”) for a total consideration of $7,500,000 from funds contributed by the Unit Holders. 183 Eastwood became the registered proprietor of the Property on 25 February 2017.

   4. (4)

      In October 2016, 183 Eastwood commenced its preparation for the development of the Property, upon which it intended to construct a multi-storey unit block. Eastwood 183 asserts that between October 2016 and the eventual sale of the Property in late 2018, it incurred the following debts:

   5. (5)

      On or about 22 January 2018, without the knowledge of 183 Eastwood’s officers, Mr Chan engaged Titan Lending Group Pty Ltd (“Titan”), a mortgage broker, to apply for a loan in the amount of $4,500,000 in the name of 183 Eastwood, notwithstanding that, at that time, he was not an officer or employee of 183 Eastwood. A loan approval was issued to Mr Chan later that day.

   6. (6)

      On or about 23 January 2018, Mr Chan engaged CK Consulting Pty Ltd (“CKC”), the Eighth Defendant, to prepare and lodge a Form 484 with ASIC. By that form, Mr Chan, through CKC, purported to inform ASIC that:

   7. (7)

      On 24 January 2018, Mr Chan opened a bank account with Westpac in the name of 183 Eastwood, again without the knowledge or consent of the true officers of 183 Eastwood. Prior to this date, the only bank account in the name of 183 Eastwood was held with St George. The only person with access to the Westpac account was Mr Chan.

   8. (8)

      On 25 January 2018, again, without the knowledge of the company’s true officers, Mr Chan instructed CKC to lodge a further Form 484 with ASIC, by which 183 Eastwood purported to inform ASIC that Messrs Lin and Lau had ceased to hold 50 ordinary shares in 183 Eastwood each, and that Mr Chan, from 25 January 2018, held 100 ordinary shares in 183 Eastwood. Also on that date, again without the knowledge of Messrs Lin, Lau and Ju, Mr Chan lodged an application with NSW Land Registry Services for replacement Certificates of Title for the Property. Those certificates were subsequently issued and made available to Mr Chan for collection, which he subsequently collected.

   9. (9)

      On or about 29 January 2018, Mr Chan executed mortgages over the Property (“the First Mortgage”) in favour of the Applicants which was intended to secure an advance of $4,000,000. That document was the subject of Kunc J’s decision in the April 2020 Judgment and the Court of Appeal’s decision in Ippin Textiles Pty Ltd v Winau Aust Pty Ltd [2021] NSWCA 9. I shall return to his Honour’s decision in the April 2020 Judgment and the Court of Appeal’s judgment later in these reasons.

   10. (10)

       Also on 29 January 2018, again without the knowledge of Messrs Lin, Lau or Ju, Mr Chan signed cheque directions purporting to be on behalf of 183 Eastwood authorising the payment by the Applicants of the available loan amount of $3,804,300 into the Westpac account. That amount was remitted into the Westpac account in two tranches; one on 31 January 2018 and the other on 5 February 2018. As these amounts were paid into the Westpac account, and neither 183 Eastwood nor its true officers had access to or control of that account, 183 Eastwood did not actually receive any funds advanced by the Applicants pursuant to the First Mortgage.

   11. (11)

       On or about 6 February 2018, the First Mortgage and the common provisions in relation thereto were registered. They are known as the “MCP”.

   12. (12)

       On 15 February 2018, 183 Eastwood became aware, through its accountant, that a caveat had been lodged by Capital Empire Pty Ltd against the Property, at which time 183 Eastwood engaged GEA Lawyers to conduct enquiries into the reason for Capital Empire Pty Ltd’s caveat.

   13. (13)

       Sometime on or between 19 February 2018 and 2 March 2018, Mr Chan (purportedly on behalf of 183 Eastwood) on the one hand, and Ippin Textiles and M Wang Family on the other (“the Second Mortgagees”), entered into a further loan agreement for the advance of $800,000. That loan was purportedly secured by second mortgages over the Property, in addition to a guarantee and indemnity by Mr Chan (“the Second Mortgage”). Unlike the First Mortgage, the Second Mortgage was not registered. The Respondents assert that Mr Chan (purporting to sign on behalf of 183 Eastwood) and the Second Mortgagees entered into the Second Mortgage on 19 February 2018. The Applicants, by contrast, assert that Mr Chan executed the Second Mortgage on 19 February 2018, yet the Second Mortgagees executed the Second Mortgage on 2 March 2018.

   14. (14)

       Messrs Lin, Lau and Ju first became aware of Mr Chan’s fraudulent mortgage of the Property on 22 February 2018 through GEA Lawyers.

   15. (15)

       Messrs Lin, Lau and Ju first became aware of the documents provided by Mr Chan to ASIC on 26 February 2018.

   16. (16)

       After becoming aware of Mr Chan’s fraud, Messrs Lin, Lau and Ju, and representatives of some of the Unit Holders, held meetings with Mr Chan at the offices of GEA Lawyers to ascertain, from Mr Chan, the extent of his fraud upon 183 Eastwood. Simultaneously, the Respondents were awaiting advice from GEA Lawyers as to the steps necessary to protect their interests in the Property.

   17. (17)

       On 2 March 2018, the sum of $760,900 was advanced by the Second Mortgagees to the Westpac bank account, pursuant to the Second Mortgage, $39,100 having been retained by the Second Mortgagees for pre-paid interest, fees and charges. The Respondents assert that neither 183 Eastwood, nor its true officers, actually received any funds pursuant to the Second Mortgage.

   18. (18)

       On 18 April 2018, Mr Rongjie Yuan, in his capacity as a director of Winau, and Mr Weiqi Chen, in his capacity as director of Shunjiyuan, lodged a caveat over the Property.

   19. (19)

       By May 2018, the Respondents had not obtained what they considered to be satisfactory advice from GEA Lawyers and accordingly engaged Mr Gang Wang of Herald Legal. Shortly thereafter, on 31 May 2018, the Respondents commenced proceedings in the Duty List of this Court seeking injunctive relief. The Plaintiffs were subsequently granted leave to file a Statement of Claim, which was filed on 12 November 2018. The Plaintiffs have since filed several amended versions of that Statement of Claim and the Court presently has before it a Second Further Amended Statement of Claim (“SFASOC”).

   20. (20)

       On 21 June 2018:

   21. (21)

       On 6 September 2018, the Applicants entered into a contract of sale with Rong Sheng Eastwood Pty Ltd (“Rong Sheng”) to sell the Property for a total consideration of $6,880,000. Rong Sheng became the registered proprietor of the Property on 12 November 2018.

   22. (22)

       On 31 January 2019, orders were made by Registrar Walton that the proceeds of sale of the Property were to be paid into Court. It is the amount paid pursuant to this order that is the subject of the present Motion.

   23. (23)

       On 22 March 2019, Mr Yuan was appointed as a director of 183 Eastwood. Jiajia Lin correspondingly resigned as a director on the same day.

   24. (24)

       On 12 August 2019, the Applicants filed an Amended Notice of Motion seeking, inter alia, summary dismissal of the Plaintiffs’ claim. At the hearing of that Motion, Kunc J “indicated to the parties that [he] had come to the view that the plaintiffs’ case on the construction of the Mortgages raised a triable issue”: see the April 2020 Judgment at [8(7)]. On that basis, and after consulting with the parties, his Honour made orders on 28 October 2019 pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the determination of a separate question concerning the construction of the First Mortgage and “the rights inter se of 183 Eastwood and the [Applicants] to the monies held in Court”: see the April 2020 Judgment at [9]. The separate question for consideration before his Honour was framed thus:

   25. (25)

       The orders made by his Honour on 28 October 2019 also contained the following relevant notation:

   26. (26)

       His Honour heard the parties on the separate question on 28 November 2019 and handed down judgment on 22 April 2020. In the April 2020 Judgment, his Honour relevantly held that the First Mortgage did not secure any advance to the Applicants and that the Respondents were entitled to the proceeds of sale of the Property.

   27. (27)

       Two days after the publication of the April 2020 Judgment, the solicitors for the Applicants approached his Honour seeking directions in relation to a proposed Notice of Motion pursuant to which the Applicants sought orders that the Court vary its judgment on account of what they considered to be the Court’s failure to consider the totality of the contentions advanced by the Applicants. In particular, it was contended that his Honour failed to have adequate regard to a submission put on behalf of the Applicants that “clause 2.3 of the MCP contained a freestanding acknowledgement of receipt by 183 Eastwood of the Principal Amount, which clause obtained the benefit of indefeasibility upon registration so that the Mortgages secured the Mortgagees’ right to repayment of the Principal Amount against the Lands”: see the May 2020 Judgment at [5]. By the May 2020 Judgment, his Honour rejected this submission and in doing so, held that (see the May 2020 Judgment at [7]):

   28. (28)

       On 26 June 2020, in giving effect to the April 2020 Judgment and May 2020 Judgment, his Honour made the following relevant orders:

   29. (29)

       Subsequent to the Applicants’ unsuccessful appeal of both the April 2020 Judgment and May 2020 Judgment, the matter was remitted to his Honour and, on 24 March 2021, the following relevant order was made:

   30. (30)

       Pursuant to his Honour’s order on 24 March 2021, the Respondents filed a Notice of Motion on 26 March 2021 seeking orders that the stay be lifted and that the funds held in Court be paid out to the Respondents forthwith.

   31. (31)

       The Respondents’ Notice of Motion was listed on 8 April 2021 before Kunc J in the Duty List, at which time the Applicants sought a further indulgence from the Court that orders be made staying the payment out of funds from Court to the Respondents until the determination of a Motion by which the Applicants were intending to seek injunctive relief restraining the Respondents’ use of those funds (that is, the present Motion). For reasons which I shall address later in this judgment, his Honour granted the indulgence and made the following relevant orders:

   32. (32)

       On 4 May 2021, pursuant to orders made by the Registrar on 8 April 2021, the Applicants filed a Defence to the SFASOC and a Cross-Claim, by which the Applicants seek relief against various parties, including the Respondents, in relation to the Second Mortgage. By the Cross-Claim, the Applicants seek the following relevant relief:

   33. (33)

       By their Cross-Claim, the Applicants advance the following alternative claims against the Respondents:

5. [5]

   In support of the Motion, the Applicants rely on an Affidavit of Yingsong Chen sworn on 30 March 2021 and an Affidavit of Kate Cooper sworn 16 April 2021. The Respondents rely on the Affidavits of Rongjie Yuan and Dominic Lim, both of which were affirmed on 23 April 2021.

6. [6]

   Prior to the hearing of the Motion, I received helpful written submissions from Mr Young SC and Mr Lim. I shall refer to Mr Young SC’s written submissions as “AWS” and his written submissions in reply as “ARWS”. I shall refer to Mr Lim’s written submissions as “RWS”.

7. [7]

   By the AWS and ARWS, Mr Young SC advanced three primary submissions:

   1. (1)

      Firstly, the Applicants have a “strong prima facie claim under the Second [Mortgage] to the proceeds of sale”: see AWS at [28].

   2. (2)

      Secondly, (see AWS at [30]):

   3. (3)

      Thirdly, the balance of convenience favours the orders sought in the Motion. In support of this submission, Mr Young SC quoted, and subsequently relied upon, the following passage from EnergyAustralia Yallourn Pty Ltd v Construction, Forestry, Mining and Energy Union [2013] FCA 360 per Murphy J (at [31]):

8. [8]

   Mr Lim’s submissions in defence of the Motion can be summarised thus:

   1. (1)

      The Second Mortgagees should not be permitted to resile from the Notation Agreement as it was recorded in a notation of the Court and entered into with knowledge of the matters now advanced by the Second Mortgagees, who were represented by solicitors and a barrister at the time. That they have now appreciated that there was another possible outcome of the proceedings is of no assistance to them (I shall refer to this as the “Notation Defence”). They should not therefore be permitted to advance the new claim based on the Second Mortgage and should not be granted any interlocutory relief preventing the distribution of funds.

   2. (2)

      As the Second Mortgagees’ claim is, at its highest, an in personam claim for unliquidated damages, the Applicants should not be granted the injunctive relief sought (see RWS [47]). In support of this submission, reliance was placed upon a number of cases relating to Mareva orders and, in particular, the judgment of Street CJ, Hope JA and Rogers AJA in Riley McKay Pty Ltd v McKay [1982] 1 NSWLR 264 (“Riley”), where their Honours said (at 270-271):

   3. (3)

      Any undertaking as to damages provided by the Applicants would be practically useless because those companies have a collective paid up capital of $111.00.

   4. (4)

      The claims made in the Cross-Claim are weak and unlikely to succeed.

   5. (5)

      There is no evidence before the Court which suggests that 183 Eastwood would dissipate the proceeds of sale upon its receipt of same, nor that if the proceeds of sale were remitted to 183 Eastwood, a judgment obtained by the Applicants against 183 Eastwood would be rendered nugatory.

   6. (6)

      The Applicants have come to court with unclean hands insofar as they:

9. [9]

   The submissions advanced by Mr Lim, which have been summarised in [8(2)] and [8(5)] above, proceed on the basis that the relief sought by the Applicants is in the nature of a Mareva order. Mr Young in ARWS contended that the relief sought by the Applicants is, properly construed, not relief in the nature of a Mareva order. For present purposes, it suffices to briefly set out Mr Young SC’s submission at [7] of ARWS on this issue:

10. [10]

    I accept Mr Young SC’s contention that the cases dealing with Mareva orders are not relevant to the estoppel case. If the estoppel case were to succeed, it would mean that the Second Mortgagees had an equitable mortgage over the Property and would be entitled to enforce that mortgage against the proceeds of sale that have been derived from the sale of the Property.

11. [11]

    Mr Young SC submitted that, for the following reasons, the Applicants should be permitted to resile from the Notation Agreement:

    1. (1)

       At 28 October 2019:

    2. (2)

       In agreeing to the separate question, the Second Mortgagees:

    3. (3)

       Further, although documents had been produced to the Second Mortgagees prior to 28 October 2019, which documents put the Second Mortgagees on notice of their potential claims against the Respondents pursuant to the Second Mortgage, the Second Mortgagees:

12. [12]

    It has been made clear that a notation is not an order of the Court and is not a matter from which a party can appeal: see, eg, Lavery-Fenelon v Nicholas [2014] NSWCA 342 per Basten JA at [11] (with whom Meagher JA concurred); and see Patakas v Bevan [2017] NSWSC 1592 (“Patakas v Bevan”).

13. [13]

    The question of whether the notation is binding and cannot be resiled from raises questions of the type adverted to in Harvey v Phillips (1956) 95 CLR 235, Seaton v Burnand [1900] AC 135 at 145 and Patakas v Bevan, and is not one that ought to be determined now but what must be recognised is that even if the estoppel argument advanced by the Second Mortgagees were otherwise accepted by the Court, an outcome of the Notation Defence adverse to the Second Mortgagees would preclude recovery by them of any of the proceeds from 183 Eastwood and I am of the view that 183 Eastwood has, at the very least, reasonable prospects of success on the Notation Defence.

14. [14]

    Thus, in endeavouring to assess the strength, or weakness, of the Applicant’s position, regard must be had not only to the estoppel argument, but also to the Notation Defence.

15. [15]

    The estoppel claim is not founded on any dealings between the Second Mortgagees and 183 Eastwood nor any information available to 183 Eastwood that the Second Mortgagees were about to make a further loan. The period of time under review is from 26 February 2018 to 2 March 2018 (five business days including both the start and end days).

16. [16]

    I note also that although the Applicants have put forward detailed evidence as to what the thinking of its officers was in relation to the Notation Agreement, they have not put any evidence on to the effect that a search of ASIC’s records was conducted by them or their solicitor in the period of 26 February 2018 to 2 March 2018. Mr Lim drew attention to the absence of any such evidence in his submissions (see RWS at [62]). Mr Young SC contended that the Applicants were not required to put forward all their evidence at this stage. Whilst I accept that is true at a general level, the estoppel point is so fundamental to the claim that is now brought over the funds in Court, that the absence of any evidence is important and even more so, when the Respondents have drawn attention to the lack of such evidence. Nor was there any evidence of a title search by the Second Mortgagees or their solicitors in the period of 26 February 2018 to 2 March 2018. If such evidence were available, it would assist in demonstrating the strength of the Second Mortgagees’ case and its absence inhibits acceptance that the claim has good prospects of success.

17. [17]

    In my view, the estoppel case has not been demonstrated to be strong at all and coupled with the Notation Defence, I think it is only, at best, an arguable case.

18. [18]

    There is another factor which I regard as very significant – the Second Mortgagees (and the other Applicant) accept that they would need to give an undertaking as to damages to obtain the injunction which the Second Mortgagees seek. Mr Lim has drawn attention to the fact that the Applicants have a total paid up capital of $111.00 and that those behind the Applicants are not willing to incur the risk of having to pay damage to the Respondents should the Second Mortgagees lose their claims. There is no evidence of any assets or funds from which the Applicants could meet any liability that is the subject of the proposed undertaking. This point was raised in the Respondents affidavits and in Mr Lim’s submissions. Mr Young SC accepted that the absence of any evidence is a factor to which the Court can have regard (an appropriate submission in my view: see, eg, Varley v Varley [2006] NSWSC 1025 at [56]) but he submits that it is not fatal. In IceTV Pty Ltd v Ross & Ors [2007] NSWSC 1232 at [6], Brereton J said:

19. [19]

    There is a further matter which is relevant in determining whether the Second Mortgagees should be able to prevent the funds being paid out to 183 Eastwood, namely, that the Applicants sold the Property over the objection of the Respondents. It is true that the Respondents did not oppose the sale proceeding with the net proceeds to be paid into Court, but that was after the Applicants, without the consent or knowledge of the Respondents, had entered into a binding agreement with a third-party purchaser without notice. As it turned out, the Applicants did not have a basis for enforcing their Mortgage (the First Mortgage) and the sale of the Property deprived 183 Eastwood of its Property and of the opportunity of developing the site. Had the Applicants not taken this course, but awaited a determination of the Court, the Respondents would still have the Property. The Respondents gave evidence, through Mr Yuan, of investment opportunities that have been lost since the sale of the Property: see Affidavit of Rongjie Yuan at [29]-[31].

20. [20]

    In my view, given the history of this matter, the absence of an effective undertaking would be sufficient to preclude the grant of injunctive relief, even if the Second Mortgagees had a strong prima facie case, but for the reasons I have indicated, that is not the position. Accordingly, in my view, the money held in the Court account should be paid out to 183 Eastwood.

21. [21]

    There is one limitation which I think should be placed upon the transfer of funds to 183 Eastwood (and which I raised during the hearing of the Motion) and it relates to the units currently held by LCC Property. I have noted earlier that LCC Property is agreed to be a company that Mr Chan controls. Winau and two other Unit Holders contend that LCC Property holds its units in the Trust for them. If they are unsuccessful, there will be an entitlement by LCC Property to whatever proceeds may be distributed to Unit Holders. The Applicants also have claims against LCC Property because of Mr Chan’s alleged fraud. They have a strong prima facie case to recover from Mr Chan and I think that it would be appropriate to preclude 183 Eastwood from distributing any of the proceeds to LCC Property until after the claims of the Respondents and the Applicants are heard and determined in these proceedings. The orders that I propose to make are:

    1. (1)

       The proceeds of sale of the property located at 179-183 Shaftsbury Road, Eastwood, NSW 2122 paid into Court, and any interest thereon accrued, is to be paid out to the Third Plaintiff; and

    2. (2)

       In the event that the Third Plaintiff intends to distribute any of the funds referred to in order 1 to the unitholders of the Eastwood Unit Trust, it shall give the Third to Fifth Defendants 14 days’ notice of such intention including details of to whom it is intended to pay the funds.

Costs

1. [22]

   It was agreed that the cost of this motion should be costs in the cause. I will make an order in those terms.