Option Funds Management Limited (receivers and managers appointed) as trustee for the Option SIV Real Estate Fund v Wenbo Zhao

1. [1]

   The plaintiffs commenced these proceedings to remove a caveat filed by the defendant, which was impeding the transfer of title upon settlement of the sale of certain real estate at Magenta on the Central Coast of New South Wales (“the Magenta property”). The plaintiffs are a mortgagor, the registered proprietor of the Magenta property and receivers appointed to the mortgagor by a first mortgagee to sell the property. Contracts for sale of the Magenta property were exchanged with a third party and the sale partially settled. The sale process completed on PEXA with some funds being paid to the plaintiffs and the balance of consideration being provided by vendor finance. But the transfer of title to the purchaser did not occur, being held up by the caveat. The plaintiffs hold some funds from the purchaser on settlement but are yet to transfer title to the Magenta property to the purchaser until the caveat is removed.

2. [2]

   The plaintiffs filed their Summons initiating these proceedings in the Equity Duty List of this Court on 27 October 2025 and sought an abridged time for service. The proceedings were heard in the Duty List on 3, 4 and 5 November 2025 subject to the exigencies of the list. The hearing was conducted over three days because the Court could not offer, in the Duty List, a single continuous hearing period and because the parties were seeking to file additional evidence and give references to additional authority as the hearing unfolded. The Court indicated to the parties that given the press of the Duty List it would not permit cross-examination, and the Court treated the objections to evidence as a matter of weight and took them into account when weighing the quality of evidence on both sides.

3. [3]

   During the hearing, the defendant conceded that the caveat was defective in form and filed a Cross Summons seeking judgment against the mortgagor, the first plaintiff, for $7,354,500 plus interest at 12.5% per annum and an injunction to restrain completion of the sale by the plaintiffs. The defendant/cross claimant now seeks an interlocutory injunction in support of its cross-claim. These reasons determine that interlocutory dispute.

4. [4]

   The present dispute is nested within a complex of relationships and transactions spanning almost 10 years. Both sides acknowledge that the decision to grant or refuse an interlocutory injunction here may in a practical sense determine the substance of the matter in issue. The Court therefore sets out the background relevant to the claims for final relief before determining the claim to interlocutory relief.

5. [5]

   The matter was carefully and efficiently argued by counsel and solicitors on both sides. Mr D. Cook SC, together with Mr R. Glasson of counsel, instructed by Luke Edward Whiffen of Hilton Bradley Lawyers, appeared for the plaintiffs. Ms J. Mee of counsel, instructed by Derek Xu of Jurisbridge Legal appeared for the defendant.

6. [6]

   The first plaintiff, the mortgagor, is Option Funds Management Ltd ACN 154 912 768 (Receivers and Managers Appointed) as Trustee for the Option SIV Real Estate Fund and will be referred to in these reasons as “OFM”. The second plaintiffs, Jason Tang and Ozem Kassem, who are registered liquidators, were appointed as the receivers and managers of OFM by the mortgagee. It is rarely necessary in these reasons to distinguish between the two plaintiffs who are generally referred to either as “OFM” or “the plaintiffs”. Occasionally where the difference matters, the second plaintiffs are referred to as “the Receivers”.

7. [7]

   The defendant/cross claimant, Mr Wenbo Zhao, is generally referred to throughout these reasons as Mr Zhao.

8. [8]

   The matter is urgent. Early in this interlocutory dispute the receivers undertook to hold a little under $2.7 million from the proceeds of sale, pending the outcome of this interlocutory dispute. Although even that sum is well short of Mr Zhao’s total money claim. The principal claimed is $7,354,500, which at an interest rate of 12.5 % accounts for an additional $919,312.50 annually. The claim made would appear to include interest accruing for a little over 10 years, which at simple interest would add at least $9,193,125 to the claim, which would then total $16,547,625. The interest on Mr Zhao’s claim therefore runs at the rate of $76,609.36 per month, or $2,553.65 per day.

9. [9]

   But this is only one side the transaction. The other outgoings being incurred by the mortgagee and by the purchaser of the Magenta property are substantial and are discussed later in these reasons. The matter has not been capable of being resolved by alternative dispute resolution.

10. [10]

    These reasons now set out a narrative of some facts relevant to the interlocutory issues. In such a hearing, the Court’s reasons cannot encompass all the relevant facts. Except where the facts are uncontentious, the Court’s narrative below should only be understood, and is mostly expressed, as a forecast of the kind of evidence that each party proposes to adduce at a final hearing. This narrative also includes many non-disputed facts. Otherwise, as the context indicates, these reasons only record the parties’ allegations. The title details of the land in question are identified in prayer 2 of the Summons and will in these reasons only be described as “the Magenta property”.

11. [11]

    The Magenta property consists of four parcels of relatively undeveloped land. The original registered proprietor of the Magenta property, Rich Sea Pty Ltd, proposed to develop it from early last decade. Rich Sea had three shareholders. They were a Mr Zheng Zhang, Ms Zhao (Mr Zhang’s mother-in-law) and a Mr Howard Cao. Two of the shareholders Mr Zhao and Mr Cao, were the directors of Rich Sea.

12. [12]

    Rich Sea was unable to meet its mortgage obligations to its mortgagee, CEG Securities Pty Ltd (“CEG”), which in 2015 sold the Magenta property to a joint venture of three corporate entities. These three joint-venture parties had been associated with Rich Sea. The three purchaser joint venturers were (a) the first plaintiff OFM as to 39% (a company controlled by Mr Cao), (b) Tung Chit Estate Investment Australia Pty Ltd as to 51% (an entity which provided most of the funding for the purchasing joint-venture and which took security for that funding over assets of OFM), and (c) Zao Brothers Investments Pty Ltd as to 10% (an entity which played little role in subsequent events).

13. [13]

    The relationships between these joint venturers was the subject of a dispute which was resolved by Kunc J recently in Option Funds Management Ltd v Tung Chit Real Estate Investment Australia Ltd [2025] NSWSC 1142. Kunc J determined that these parties were joint venturers rather than partners and that the receivers were validly appointed. His Honour’s judgment contains very helpful background to the dispute in the present proceedings and sets out the various legal agreements and financial arrangements between the parties. These reasons do not require this material to be identified in the same detail.

14. [14]

    The contract for sale by the mortgagee, CEG was not in the name of Rich Sea, but in the name of CEG, Rich Sea’s mortgagee. CEG was exercising its power of sale of the Magenta property to the joint venturers. The contract contained a clause (cl 45.1(a)) requiring the purchaser to grant a mortgage to the vendor to secure the payment of the balance of the purchase price.

15. [15]

    Mr Zhang was displeased with the mortgagee sale of the Magenta property to the joint-venture and commenced proceedings in 2015 against the three joint-venturers. He attempted in this litigation to set aside the mortgagee’s sale to the joint venturers. This litigation was ultimately resolved by two deeds, a “resolution deed” and a “settlement deed”. Neither of these deeds features prominently in the current issues for determination.

16. [16]

    The various transactions the subject of these proceedings arise out of the way the purchase price was paid by the joint venturers to the mortgagee, CEG, for their acquisition of the Magenta property. Mr Zhao contends that Mr Cao’s company, OFM, one of the joint venturers, did not pay its proportionate share of the purchase price for the sale of the Magenta land to the joint-venture. Mr Zhang further contends that the shortfall owed by OFM to Rich Sea is the sum of $7,354,500, which represents a 39% share of the Magenta property.

17. [17]

    CEG sold the Magenta property to the joint venturers for $28.4 million. But only $4 million was paid on settlement, an amount sufficient to pay out CEG as mortgagee. This left the balance of $24.4 million still owing to Rich Sea. The sale on these terms, leaving a substantial unpaid balance of the purchase price, allowed CEG to protect its own interests but left Rich Sea unpaid. Just how this is said to have come about and why the sale was structured in this way does not need to be examined in these reasons. There seems to be no contention on behalf of Mr Zhao that CEG sold the land at an undervalue. But there does seem to be contention that it was sold on terms disadvantageous to Rich Sea. But that is Rich Sea’s potential complaint and Rich Sea is now in liquidation.

18. [18]

    The deferred payment of the balance of the purchase price to Rich Sea was left to the joint venturers to address later. Two of the three joint venturers, Tung Chit and Zao Brothers, paid their respective proportionate share of the balance of the purchase price but OFM did not. Its share of the purchase price of $7,354,500 was left owing to Rich Sea; in substance Mr Zhao claims that OFM was given the benefit of continuing vendor finance from Rich Sea.

19. [19]

    The origin of the present contest is two disputed assignments of this debt of $7,354,500 said to be owing by OFM to Rich Sea (“the OFM – Rich Sea debt”), consequent upon the CEG mortgagee sale. Under the first contested assignment, Rich Sea allegedly transferred the OFM – Rich Sea debt to Mr Zhang. Under the second contested assignment Mr Zhang allegedly transferred the OFM – Rich Sea debt to the present defendant Mr Zhao. Mr Zhao claims that the two alleged assignments are documented in contemporaneous deeds, one in 2016 and one in 2017. Both Mr Zhang and Mr Zhao provide affidavit evidence in support of the existence of the OFM – Rich Sea debt and the two assignments. The affidavit evidence on both sides of this case is immensely detailed for an interlocutory hearing, and it is not practicable to cover it all in any detail in these reasons.

20. [20]

    This arrangement of OFM deferring its obligation to pay Rich Sea until a later time (possibly until after the Magenta land was developed) is said to have arisen from Mr Zhang’s and Mr Cao’s personal and business relationship which also led to the first assignment. A curious feature of the first assignment is that it is not expressed to be for any form of valuable consideration and there is little evidence of any consideration being paid to Rich Sea for Rich Sea’s assignment. If this first transaction were not supported by valuable consideration passing to Rich Sea, a possible question arises as to whether the assignment involved a breach of Mr Zhang’s director’s duties to Rich Sea.

21. [21]

    The inference of such a breach of duty might perhaps be neutralised if Rich Sea owed Mr Zhang a substantial sum (which might possibly be the case, as Mr Zhang seems to have been a founding investor in Rich Sea), which obligation was satisfied or released with the 2016 assignment. Mr Zhang sought to explain why Rich Sea assigned this obligation to him. He says an amount was separately owed by Rich Sea to him in relation to a foreign currency transaction. Ms Mee of counsel says there was consideration for the assignment which was releasing debts otherwise owed by Rich Sea to Mr Zhang. These debts are said to be of equivalent value to the OFM – Rich Sea debt. Proving the consideration for the assignment recorded in the 2016 Deed may in large degree depend upon Mr Zhang’s oral evidence.

22. [22]

    Finally, the second part of the two-step assignment is said to have been facilitated by Mr Zhao’s later intervention and his alleged payment of $3 million to Mr Zhang, as consideration for the second assignment. Mr Zhao and Mr Zhang say that the $3 million referred to in the 2017 Deed was paid in cash. Mr Zhao’s case is that Mr Zhang needed money and sold the debt for a discount of more than half its value and that Mr Zhao took on the risk of the debt not being recoverable. The plaintiffs say there is no objective evidence that this sum was actually paid. Proof of payment will depend upon the credibility of Mr Zhao and Mr Zhang. Ms Mee responds that in due course that evidence can be provided at the trial.

23. [23]

    The first contested deed of assignment of the OFM – Rich Sea debt is a "Deed of Agreement", which is said to have been made between Rich Sea and Mr Zhang in 2016 (“the 2016 Deed”). In different places the 2016 Deed bears different execution dates, namely 22 February 2016 and 22 June 2016. Ms Mee describes the date discrepancy as “sloppiness”, which will be a matter for trial. There will be a contest at final hearing as to the authenticity of the 2016 Deed and as to when it was executed. At this stage, the Court heard submissions about that foreshadowed contest as to authenticity.

24. [24]

    The 2016 Deed first recites that Rich Sea is the registered proprietor of the subject property (Recital A) and that Mr Zhang was a director and major shareholder of Rich Sea “around the time 2015” (Recital B). The 2016 Deed then sets out in Recitals C, D and E:

25. [25]

    An assignment clause in the 2016 Agreement (clause 2.1) provided for the assignment as follows:

26. [26]

    The second contested deed of assignment of the OFM – Rich Sea debt, which appears to be dated 20 June 2017, is entitled "Deed of Assignment of Debt" (“the 2017 Deed”). Like the 2016 Deed, the Court was told in submissions that the execution and provenance of the 2017 Deed will be a matter of contest at a final hearing of these proceedings.

27. [27]

    The 2017 Deed was apparently made between Mr Zhang as assignor of the debt and Mr Zhao as assignee, with OFM recorded as the debtor but not a party to the deed. The recitals of the 2017 Deed provided as follows:

28. [28]

    The operative parts of the 2017 Deed provided as follows:

29. [29]

    Although OFM was not a party to the 2017 Deed, a form of notice to OFM of the assignment in the 2017 Deed is available in evidence and is dated 21 June 2017. Whether this notice of assignment was communicated to OFM is another matter in contest at final hearing. The 21 June 2017 notice of assignment from Mr Zhang to OFM stated:

30. [30]

    OFM submits that the claim presently articulated on behalf of the defendant, Mr Zhao, only emerged at the time that the receivers were seeking to sell the Magenta property. Mr Zhao submits that this is when one would expect it to emerge. The receivers and Tung Chit say that they were unaware of any of the prior dealings reflected in the 2016 and the 2017 Deeds until the subject caveat was lodged on the Magenta property on behalf of Mr Zhao and are sceptical about the genuineness of the two deeds and the transactions they are said to represent.

31. [31]

    OFM and the receivers say that the inconsistencies and evidentiary gaps within the case made in support of the 2016 Deed and the 2017 Deed are so great that the Court should weigh the claims Mr Zhao makes as having little substance. These various inconsistencies and gaps are discussed below in the analysis of the parties’ various submissions.

32. [32]

    The next relevant event occurs in 2018, when Rich Sea was placed into liquidation. Mr Zhang proved in the liquidation for a debt in a sum close to the amount of the OFM – Rich Sea debt. Mr Zhao says that this was not the OFM – Rich Sea debt but the plaintiffs will contest this at a final hearing. The proof of debt Mr Zhang lodged in Rich Sea’s liquidation at least proves that the assignment reflected in the 2016 Deed did not release all the debts that Mr Zhang claimed that were owing to him by Rich Sea.

33. [33]

    The development of the Magenta property by the joint venturers became something of a financial disaster. Tung Chit had provided most of the funds for the joint venture. Tung Chit loaned money to OFM and the other joint venturers, taking first mortgage and other security over their interests in the joint venture, including the Magenta property through (a) a secured loan facility agreement dated 6 December 2019 with OFM as borrower and Tung Chit as financier, and (b) a general security agreement – all property (GSA) made the same day between OFM as grantor and Tung Chit as grantee.

34. [34]

    When the other joint venturers defaulted on these loans, Tung Chit acted on the default and on 27 August 2024 appointed receivers, the second plaintiffs, over all the property of the other joint venturers including the Magenta property. The receivers then marketed the Magenta property over several months. Their marketing resulted in a sale to Golden Stone Fund Pty Ltd (“Golden Stone”). The sale to Golden Stone was facilitated by Tung Chit providing vendor finance to Golden Stone. Mr Zhao alleges that the receivers’ sale to Golden Stone was at an undervalue and that the market testing process was insufficient, resulting in the price Golden Stone paid not representing market price. There is an association between Gold & Stone and Tung Chit. They have a common director, which fuels Mr Zhao’s contention that the sale might be at an undervalue. But the plaintiffs contend there was a full marketing campaign.

35. [35]

    Mr Zhao filed his caveat over the Magenta property between the making of the contract for sale to Golden Stone and the settlement of the sale. It was plainly bad in form. It claimed an interest that Mr Zhao had the benefit of what the caveat describes as a “resulting trust” over the Magenta property. The caveat is deficient in at least two ways. First it is inconsistent with the facts propounded in these proceedings by Mr Zhao, who does not assert the basis of a resulting trust: for example, he does not claim that he advanced consideration for the acquisition of the Magenta property by the joint venture. And secondly, it is inconsistent with the case that he now makes for an equitable interest in the Magenta property in his cross-claim. He now claims as final relief a declaration that he has an equitable mortgage over the Magenta property, based on clause 45.1(d) of the contract for sale from CEG not an equitable interest arising from a resulting trust.

36. [36]

    Authority makes clear that a caveat such as this, which claims an interest fundamentally different from that being articulated to the Court is bad and cannot be cured by the Court’s power of amendment in Real Property Act 1900 s 74L, should not be extended, but should be struck out: Sutherland v Vale [2008] NSWSC 759 at [10]-[12], Woodsman Pty Ltd v Jozic [2018] NSWSC 1311 at [11]-[17] and Comserv (No 210) Pty Ltd v Ristevski [2022] NSWSC 821 at [65].

37. [37]

    A contest about the caveat was ultimately avoided. Ms Mee rightly conceded that the caveat could not be defended. She sought to take the only course left available to her, to outflank the bad caveat with Mr Zhao’s cross claim. But as will be seen, the cross-claim’s prayer for a declaration that Mr Zhao is the assignee of an equitable mortgage or an equitable lien over the Magenta property raises its own difficulties. These must be examined before an injunction could be granted to restrain the completion of the sale of the Magenta property by a final transfer of title to Golden Stone.

38. [38]

    The sale to Golden Stone completed on PEXA but for the transfer of the title to Golden Stone, which has been precluded for now by the caveat.

39. [39]

    As a result of these events, both OFM and the Receivers commenced these proceedings by Summons on 25 October 2025. The plaintiffs sought Real Property Act 1900 s 74MA(2) relief that the defendant, Mr Zhang or his authorised agent withdraw the caveat against the Magenta properties within 24 hours and an order pursuant to Real Property Act s 74P that Mr Zhang pay compensation for loss occasioned by lodgement of the caveat, together with an order for costs.

40. [40]

    As earlier indicated initially Mr Zhang contested this relief but then ultimately conceded for the reasons indicated that the caveat was defective. He finally filed a cross-claim and sought interlocutory relief in support of the cross claim to restrain the completion of the sale of the Magenta property.

41. [41]

    Mr Zhao appeared in these proceedings on 28 October 2025 and the receivers undertook to the Court on 28 October 2025 that they would retain the amount of $2,685,079.15 (the deposit received from Golden Stone) in the bank account of the receivership. When the proceedings concluded after hearings on 3, 4 and 5 November 2025 the receivers’ undertaking was continued in exchange for the defendant/cross-claimant’s offering the usual undertaking as to damages.

42. [42]

    There was a suggestion at the hearing that Mr Zhao had filed another caveat over the Magenta property whilst these proceedings were pending in the Duty List. The Court made clear that had that occurred the Court would not accept that a separate hearing should take place in respect of the other caveat and that Mr Zhao was expected to bring forward all his arguments at the one time so that the Court could produce finality to this interlocutory dispute. The Court foreshadowed that, if necessary, it would restrain the filing of further caveats that might impair the completion of this sale. But it turned out that the additional caveat was just an attempt to rectify problems with the present defective caveat.

Analysis of the Issues

1. [43]

   The Court has power to grant interlocutory injunctions under Supreme Court Act 1970, s 66(4), on terms, if necessary, in any case where “it appears to the Court to be just or convenient”. The Court must consider whether the plaintiff’s case presents a serious question to be tried and whether the balance of convenience, hardship and related factors warrant the grant of an interlocutory injunction. The applicable principles in relation to the grant of interlocutory relief are discussed in more detail later in these reasons.

2. [44]

   This is an interlocutory hearing, not a final hearing. The Court will consider arranaging the earliest possible final hearing for these parties by placing it in the expedition list. In the meantime, the Court’s task is not to undertake a preliminary trial and to give or withhold interlocutory relief upon some forecast as to the ultimate result of the factual dispute between the parties, although the relative strengths of the parties’ cases are not irrelevant to the exercise of the Court’s discretion.

3. [45]

   The Court’s task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 when Sir John Donaldson MR said (at 894H – 895A):

4. [46]

   Later in the same judgment his Lordship further explained the Court’s duty in following terms (at 898E-898G):

5. [47]

   In deciding whether to grant an interlocutory injunction the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21–350] (“Equity Doctrines and Remedies”), discussing the requirements of the Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301 prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] – [71].

6. [48]

   Then, it becomes a matter of analysing if, in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21–350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important: Equity Doctrines and Remedies [21 – 375]. If any infringement of a plaintiff’s right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.

7. [49]

   In Kolback Securities Ltd v Epoch Mining (1987) 8 NSWLR 533; (1987) 11 ACLR 630 McLelland J (as His Honour then was) when considering what must be established for the grant of an interlocutory injunction when the restraint in question may have implications for the disposition of the proceedings at final hearing, said:

8. [50]

   As this authority requires, these reasons first consider whether there is a serious question to be tried, and then consider the balance of convenience.

9. [51]

   Mr Cook SC for the plaintiffs, challenges whether there is a serious question to be tried on Mr Zhao’s cross-claim. He submits that there are so many overwhelming and foreseeable difficulties with the case that the defendant/cross claimant proposes to present at a final hearing, that the Court should conclude at this stage that there is not a serious question to be tried. Mr Cook SC first points to some difficulties in Mr Zhao propounding 2016 Deed and the 2017 Deed. These are now set out.

10. [52]

    The two deeds name Mr Zhang incorrectly. The plaintiffs submit the deeds are therefore unlikely to be genuine contemporaneous documents. Mr Zhang confirms in his affidavit of 4 November 2025 that on and from 31 October 2014 he changed his name to “Zachary Chang”. His affidavit attaches a registration of his new name, effective from 31 October 2014.

11. [53]

    But although the 2016 Deed postdates Mr Zhang’s name change by no less than 16 months (the earliest disputed date of the 2016 Deed), Recital C of the 2016 Deed recites that “Zhang” agreed to “lend Option Funds Management the sum of $7,354,500.” The use of the name “Zhang” inconsistent with the name change having occurred to “Chang” as early as October 2014. OFM submits that it is puzzling and unexplained why Mr Zhang would use his former name in respect of a deed to which he was a party and the content over which presumably he had some control. The same inconsistency attends the 2017 deed executed more than 2 ½ years after the name change from Zhang to Chang.

12. [54]

    The plaintiffs submit that such a mistake is more compatible with an artificially created document than a genuine business transaction. One counter argument is that Mr Zhang may have continued to use his former name as a matter of habit some years after the change. Ms Mee points out that Mr Zheng has well explained his change of name and attached his passport. But this will be a matter for trial.

13. [55]

    The deeds do not create or record the security that Mr Zhao now propounds. The plaintiffs submit that the two deeds are not a good fit for genuine commercial transactions assigning the securities for which Mr Zhao now contends. For example, Recital D of the 2016 Deed recites an oral agreement for Mr Zhang to lend OFM the sum of $7,354,500. The 2016 Deed purports to assign to Mr Zhang an alleged oral debt, the OFM – Rich Sea debt. But the oral debt described in the 2016 Deed does not either refer to or expressly create a vendor’s lien or other security in any part of the Magenta property, a claim that is now part of Mr Zhao’s case.

14. [56]

    At best the 2016 Deed, clause 2 refers to the assignment being upon “all terms and conditions of the original loan”. Mr Zhao now submits that this oblique phraseology means that the assignment includes the existing security for the loan as well. Mr Zhao’s case is calling on these words to carry more weight than the plaintiffs can argue that they obviously bear. None of these words is particularly apt to include either an equitable mortgage or a vendor’s lien. They do not expressly refer to any security associated with the OFM – Rich Sea debt, which the objective observer might think was an essential consideration of a genuine commercial transaction of this type.

15. [57]

    In the 2017 Deed the words of assignment include the words “together with all advantage and benefit to be derived therefrom”. These words potentially suffer from the same vice as the 2016 Deed. The plaintiffs will argue at final hearing that they do not expressly refer to any charge, lien or other security for the debt. If the 2017 Deed was a genuine commercial transaction it might be expected that what was said to be a known and subsisting security at the time of the assignments would be mentioned, as they would be important integers in the transaction.

16. [58]

    Mr Zhao’s amendment to the cross-claim to plead in the alternative the assignment of a vendor’s lien adds another puzzle to assessing the authenticity of Mr Zhao’s claim. If what was truly being assigned was the equitable lien created by the mortgage back recorded in the contract of sale to Golden Stone, it is at least curious as to why both Recital C of the 2016 Deed and Recital B of the 2017 Deed describe Mr Zhang as making an “oral agreement” to lend $7,354,500 to OPM. Mr Zhao and Mr Zhang produce affidavit evidence of an oral agreement but whether their versions are acceptable will be a matter for trial.

17. [59]

    Mr Zhao can adduce evidence at final hearing to explain these omissions. Perhaps the relative informality of the parties’ dealings is one explanation. But Mr Zhao’s case is a difficult one on this issue. Mr Zhao would also face challenges in fielding a response that these assignments somehow included associated securities by drawing upon general doctrines of implication in contracts. The authorities do not support a general proposition of law that to give business efficacy to an agreement to assign a debt that it may be implied that an associated equitable lien is automatically also to be assigned: Cosgriff v McAra and Marchesi [2012] VSC 21 at [30].

18. [60]

    One of Mr Cook SC’s less effective arguments against the vendor’s lien is that it cannot bind Rich Sea because the original contract for sale to the joint venturers was executed by CEG. This argument comes up against Real Property Act 1900, s 58(2) which binds the mortgagor and registered proprietor to the mortgagee’s acts in selling the mortgaged property. The effect of the section is that notwithstanding execution by the mortgagee, CEG, Rich Sea was bound by the terms of contract.

19. [61]

    Mr Zhao’s claim on the OFM – Rich Sea debt that was assigned may possibly be statute barred. Mr Zhao submits it is not. Mr Zhang’s evidence in support of Mr Zhao’s claim is that an oral agreement was made in October 2015 that the loan would no longer be payable immediately but would only be payable once the development reached a particular stage. Mr Zhang’s evidence suggests that stage was only reached in 2022 when the debt became due and that they both orally agreed that in the meantime there would be interest payable on the loan of 12.5 % per month. Thus, it is said on behalf of Mr Zhao that the collection of the OFM – Rich Sea debt is not statute barred.

20. [62]

    But the plaintiffs point out that if that agreement was made as is claimed, then Recital C of the 2017 Deed is incompatible with it. The debt being assigned in the 2017 Deed is a debt of $7,354,500, which is identical to that said to be due in recital D and clause 2.1 of the 2016 Deed, which purports to have been executed at least 12 months earlier than the 2017 Deed. The debt being assigned in the 2017 Deed uncommercially did not reflect the additional interest that would have accrued at 12.5% between the 2016 Deed and the 2017 Deed. The plaintiffs submit with some force that if the two deeds each reflected a genuine commercial transaction between arms-length parties accrued interest of more than $900,000 is likely to have been mentioned in the 2017 Deed.

21. [63]

    Mr Zhao’s case that the debt is not statute barred depends upon Mr Zhang’s oral agreement deposed to by Mr Zhang whereby the date for repayment was extended and interest added. As Ms Mee points out, Mr Cao is also said to be a party to this agreement to extend the payment date and whether that is accepted may depend upon his credibility. This arrangement was said to have been made in 2016. Had such an agreement been made, the plaintiffs will argue that demand would have been made upon it in accordance with its amended terms but no such demand has been made. The answer to that from Mr Zhao appears to be that Mr Zhao was in regular contact with Mr Cao and that Mr Cao was representing OFM. Mr Zhao says that he did not make a formal demand because of those informal conversations with Mr Cao. This will be another issue for final hearing.

22. [64]

    Proof of notice to the debtor of the assignment made under the 2017 Deed is presently wanting. By Clause 1 of the 2017 Deed the assignor “hereby assigns, transfers and sets over unto the assignee” the debt. The document purporting to be the notice of assignment is dated 21 June 2017. But Mr Zhao’s evidence says that OFM received notice of both assignments. But those presently in charge of OFM say there is no record of its receipt. In a genuine commercial transaction to maximise the prospects of enforcing the assigned debt it might be expected Mr Zhao would contemporaneously serve notice of the assignment on OFM in conformity with Conveyancing Act 1919, s 12. This will be an issue for trial.

23. [65]

    Mr Zhang has made claims arguably inconsistent with the existence of the OFM – Rich Sea debt. Mr Zhang proved for a claim for almost the identical amount as the OFM – Rich Sea debt assigned debt in the winding up of Rich Sea. He alleged in his proof of debt in the winding up that Rich Sea owed him almost the same amount of money on an unsecured basis. Mr Zhang explains that they are different amounts, as they are, but they are extremely close. Mr Zhang says that this is in fact a separate loan. But if that is true there is little evidence of the substance of Mr Zhang’s other loan advance to Rich Sea.

24. [66]

    Finally, Mr Zhao’s case will encounter issues of indefeasibility and priorities. It is not necessary to fully elucidate such issues in this interlocutory judgment. But such issues are worthy of mention as they create yet more hurdles to surmount before a claim to an enforceable security of a vendor’s lien or an equitable mortgage over the proceeds can succeed.

25. [67]

    First, Mr Zhao’s caveat was lodged after the receivers exchanged contracts with Golden Stone but before registration of Golden Stone as registered proprietor consequent upon that sale. Golden Stone and Tung Chit claim to be bona fide purchasers for value without notice from the date of contract and entitled to the benefit of Real Property Act, s 43A the effect of which is to advance the time of the purchaser’s protection against notice to a time earlier than obtaining title by registration under Real Property Act, ss 42 and 43: Taleb v National Australia Bank Limited (2011) 82 NSWLR 489; [2011] NSWSC 1562 at [40] (“Taleb”). The caveat will be removed and is not itself now an obstacle to the present operation of Real Property Act, s 43A and the completion of the receivers’ sale to Golden Stone. Subject to contests about whether Tung Chit is a bona fide purchaser for value without notice, this doctrine may yet be a complete answer to Mr Zhao’s equitable claim.

26. [68]

    Ms Mee uses Taleb to argue that Real Property Act s 43A is not an answer to Mr Zhao’s claim, because the section does not operate where a purchaser does not have a registrable instrument due to there being a caveat preventing registration. Here she says there is a caveat preventing registration. This argument is not persuasive. The problem is that the caveat impeding registration is invalid and liable to be removed, as properly admitted by Ms Mee.

27. [69]

    Secondly, even if that hurdle is surmounted, and Mr Zhao establishes a prior equitable interest, it will not necessarily take priority over the equity claimed by Tung Chit under the GSA. The parties can anticipate a major priorities contest. Multiple failures to lodge caveats to notify of the interest now being claimed in the Magenta property have occurred. Each of Rich Sea until 2016, Mr Zhang between 2016 and 2017, and Mr Zhao after the 2017 Deed, have failed to lodge caveats to notify of this interest. None of these parties acted prudently to protect what is now claimed to be an equitable interest in the Magenta property. The receivers will argue at final hearing that Mr Zhao failed for well over seven years to act prudently in his own interests. His failure to do so will be deployed as another argument against the authenticity of the 2017 Deed but for present purposes his equitable interest may be assumed to have been established. Priority is not necessarily lost by not lodging a caveat, but the failure enters into the consideration of priorities: J & H Just Holdings Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, per Barwick CJ at 552.

28. [70]

    This Court does not seek to decide this interlocutory dispute on some forecast of the final course of the proceedings, based on inadequate evidence. The Court is conscious that what now seem like deficiencies in evidence can be rectified and explained by the time of a final hearing comes around. And it can be difficult to predict what evidence will be gathered and presented at a final hearing. Mr Zhao and Mr Zhang have had some time to gather further evidence.

29. [71]

    Moreover, the foregoing survey does not include every issue that can be foreshadowed in a final hearing. Nor does it fully canvass all the answers that Mr Zhao will deploy in response. Ms Mee has set some such answers out in her careful submissions in reply. But even taking all of these into account any objective assessment of this case must weigh it as one which faces many hurdles before it could win success. Mr Zhao has established a serious question to be tried but that case should be assessed as difficult for Mr Zhao to propound and presenting only a narrow and difficult path victory. It will be weighed by that assessment when the balance of convenience is considered.

30. [72]

    The balance of convenience in a situation such as this, where a caveat is impeding the settlement of a mortgagee sale would often be resolved by the receivers undertaking to retain the proceeds of the sale temporarily until the contest between the parties had resolved at final hearing. If Mr Zhao established his claimed equitable mortgage and that it had priority over Tung Chit’s security, then the Court would direct that the sale proceeds so retained be paid to him. If he was unsuccessful, the proceeds would be paid to Tung Chit.

31. [73]

    But assessing the balance of convenience is more complex in this case. The first complication is that even this kind of solution would impose a significant financial burden on Tung Chit. The sale to Golden Stone is of only one part of the Magenta property. The three joint venturers hold the Magenta property in separate parcels. The land that OFM owns, and over which Mr Zhao claims an equitable mortgage, was sold by the receivers to Golden Stone for $14 million. Whatever the quantum of Mr Zhao’s claim, he only has security over OFM’s land for $14 million.

32. [74]

    Mr Cook SC submits that an interlocutory injunction leading to a delayed final hearing in perhaps six months would be costly for Tung Chit. He postulates that the cost of capital for a developer such as Tung Chit can be inferred to be of the order of 10%, so that the cost to Tung Chit of setting aside that capital would be $1.4 million a year. He submits that there must be some delay – perhaps about six months even in the expedition list – in bringing this case onto final hearing and consequent judgment, given its complexities. The result of that, he submits is an effective financial detriment to Tung Chit of at least $600,000 for that delay.

33. [75]

    The financial consequences to Tung Chit are not as dire as Mr Cook SC submits, as Tung Chit has already reinvested much of this same capital in its vendor finance arrangement with Golden Stone. But it is a relevant consideration weighing against granting an injunction.

34. [76]

    The major factor on the balance of convenience favouring grant of an interlocutory injunction is the potential loss of Mr Zhao’s security rights. This is clearly very significant. But Mr Cook SC submits, as first mortgagee Tung Chit has a duty to account in respect of funds received by it or to be received by, consequent upon its mortgagee’s sale of OFM’s relevant interest in the Magenta property. If the caveat is lifted and settlement completed Mr Zhao still has a claim against Tung Chit for an account and a claim that it had priority over Tung Chit. Tung Chit adduces up-to-date evidence of its own balance sheet by an affidavit dated 4 November 2025, from its financial controller, Ying Sun. That evidence shows as at 30 September 2025, the end of the last quarter, Tung Chit had net assets of $7,276,052 comprised of total assets of $41,493,322 less the liabilities of $34,217,270. This represents an improvement in the company’s net asset position since June 2024, which was then $3,860,790. Moreover, Tung Chit has active business plans to be involved in the further development of the Magenta property and to use its balance sheet for that purpose. The plaintiffs submit from the relative strength of that balance sheet that although that Mr Zhao’s claim would become unsecured if the sale to Golden Stone is completed, such a claim, even if substantial, is likely to be substantially met.

35. [77]

    Tung Chit’s balance sheet on its own would not meet Mr Zhao’s claim at its highest but if Tung Chit continues to trade and invest it would probably be able to readily leverage its balance sheet to meet Mr Zhao’s claim if its financial circumstances do not change substantially. Thus, a factor weighing in the balance of convenience is that allowing the transaction to proceed does not mean the practical end of Mr Zhao’s rights on an unsecured basis.

36. [78]

    Another factor in the balance of convenience weighs significantly against granting an interlocutory injunction: the uncertain quality of Mr Zhao’s undertaking as to damages. Although invited on several occasions provide evidence as to the value of that undertaking, Mr Zhao has not done so. Nor has Mr Zhao offered to meet the ongoing funding shortfall of which the receivers complain. Nothing has been forthcoming to alleviate the financial disadvantages that the plaintiffs have identified will accrue to Tung Chit if an injunction is granted. Although it is not the precise situation presented to the Court here, Equity commonly requires a mortgagor, who seeks an equity restraining a mortgagee’s exercise of a power of sale, to pay the mortgaged sum into Court: Inglis v Commonwealth Bank of Australia (1971) 126 CLR 161. This is subject to exceptions where the mortgagee’s power of sale is impeached for example: Harvey v McWatters (1948) 49 SR (NSW) 173, at 178. Here Mr Zhao claims an equity with priority to that of Tung Chit. But if he is wrong in that claim his position is analogous to that of a mortgagor seeking to restrain a mortgagee with prior rights from exercising a power of sale. Mr Zhao’s failure to provide evidence of the value of his undertaking as to damages (in contrast to Tung Chit’s demonstrable financial position) is a substantial factor weighing against a grant of the interlocutory relief he seeks.

37. [79]

    Another related way for a party in Mr Zhao’s position to alleviate the consequences of granting an interlocutory injunction is to pay into Court the interest that would be occasioned by the delay in settlement which is likely to be caused by the injunction. But Mr Zhao has not offered to do this.

38. [80]

    Another factor weighing against granting the interlocutory injunction on the balance of convenience is that a failure to complete this sale paralyses the future development of the Magenta property pending the outcome of these proceedings. It is likely these proceedings would be expedited but there would still be a likely further six-months delay. There are development applications in place to develop the site. Once registration takes place there is a prospect that the project can begin to unfold. And Tung Chit wants to exchange parties who have been in default for many years with others who may add value to the land. The Magenta property will require further investment for the development to occur. Holding back the settlement will delay the possibility of wealth creation which in turn may provide a source for repaying any valid claim by Mr Zhao.

39. [81]

    Another factor weighing against granting the injunction requested is the continuing hardship it will create. Golden Stone has paid its deposit and accepted vendor finance from the receivers. Tung Chit earns some interest from the date of settlement. But as settlement is not yet complete Tung Chit is not yet earning interest. This delay in the receipt of interest risks creating further losses for Tung Chit on top of its existing losses in lending to the joint venturers.

40. [82]

    Golden Stone paid a deposit of a little under $3 million and is contractually obliged under the sale contract to it to pay interest on the basis that the sale is completed. Both Golden Stone and the receivers have done all that each can under this contract subject to the Court’s present decision. But several predictable issues are in play between Golden Stone and the receivers. Must Golden Stone pay interest on the vendor finance even if it does not have title? Are the receivers in breach of their agreement for sale for not giving title to Golden Stone and liable to damages to it? The financial uncertainty and hardship from these unresolved issues will continue if an interlocutory injunction is granted.

41. [83]

    Some of that hardship can be quantified. The evidence shows that total outgoings on the property amount to over $1 million per annum and that OFM’s 39% share of those costs is of the order of $400,000 per annum. Tung Chit already has accumulated losses of approximately $11.5 million in respect of its lending to OFM.

42. [84]

    The Court will dismiss Mr Zhao’s application for interlocutory relief but on terms that will give reasonable protection to Mr Zhao from suffering an injustice by reason of the dismissal. Mr Zhao may lose his priority over Tung Chit if the injunction is not granted and he would thereby suffered an injustice. But a combination of factors weigh against his application: the challenges in Mr Zhao’s case at final hearing, the potential for continuing financial losses accumulating for Tung Chit, the effective sterilisation of the development of the land by Golden Stone, the lack of evidence as to the quality of Mr Zhao’s undertaking as to damages and the probability that in place of Mr Zhao’s loss of prior security interest from dismissal of the application he will nevertheless still have substantial and acknowledged rights to account from Tung Chit, which is an entity of financial substance proportionate to Mr Zhao’s claim.

43. [85]

    But the Court considers that to reduce the risk of Mr Zhao suffering an injustice if he is successful in these proceedings that something can readily be done to make good the plaintiffs’ submissions that Tung Chit is a substantial company which will be good for Mr Zhao’s unsecured claim against it. This can be achieved by requiring the plaintiffs give 14 days’ notice of any proposed or foreseen substantial change to the capital structure of the mortgagee of the first plaintiff, including a change resulting in a reduction of its net assets and equity by more than 15% from its present capital structure. This can be in the form of an undertaking and can take many forms. For example, Tung Chit may already have to honour banking covenants of a similar kind, and an undertaking could be modelled on the form of those covenants. But it will be a condition of the dismissal of Mr Zhao’s application for an interlocutory injunction.

44. [86]

    It follows from these reasons that Mr Zhao’s caveat must be removed and that course is not opposed. But a formal order to that effect should be made. The caveat is sufficiently described in the Summons.

45. [87]

    It also follows from these reasons that Mr Zhao’s interlocutory application in support of his cross-claim should be dismissed. But this will be on the basis that pending the determination of these proceedings at final hearing the receivers shall give 14 days’ notice of any proposed substantial change to the capital structure of the mortgagee, Tung Chit, as has been discussed above. Although Tung Chit is not a party the present proceedings the Court infers from the way that argument has been advanced in the proceedings on behalf of the receivers that they are aware and likely to remain aware of the relevant financial affairs of Tung Chit. But if necessary, the requirement to give 14 days’ notice of any proposed or foreseen change to Tung Chit’s capital structure, as defined earlier, can be given directly to the Court a legal representative of Tung Chit. The parties may wish to discuss this. Liberty to apply will be granted should the parties wish to put submissions about the form of the orders and questions of costs.

46. [88]

    Given the consequences of this decision for the parties one or the other may wish to seek leave to appeal. To provide space for that to occur, so any appeal rights are not prejudiced, the Court will stay orders for removal of the caveat and dismissal of the injunction to Monday 1 December 2025 at 5 PM. The Court of Appeal’s motions list is held on a Monday, and this should give ample time for a motion for leave to appeal to be brought.

47. [89]

    The receivers’ undertaking to hold funds and Mr Zhao’s corresponding undertaking to damages should also expire on Monday 1 December 2025 at 5 PM. The Court’s present view is that the plaintiff’s obligation to give notice of any relevant substantial change in Tung Chit’s balance sheet is not so burdensome that an undertaking to damages in exchange for that is required.

48. [90]

    The ordinary costs order in an interlocutory application such as this would be that costs of this application be each party’s costs in the proceedings. But within the liberty to apply being granted, the parties’ rights to pursue a different costs outcome will be temporarily reserved.

49. [91]

    One or other party may need more precise orders than those now made to give full effect to these reasons. If either party seeks variation on that ground, the Court will grant liberty to apply until 4 PM on Thursday, 27 November 2025.

50. [92]

    For these reasons the Court makes the following orders and directions.

    1. (1)

       ORDER that the defendant/cross claimant’s caveat identified in the Summons be removed.

    2. (2)

       DISMISS the defendant/cross claimant’s application for an interlocutory injunction but upon the condition that pending the determination of these proceedings in a final hearing the plaintiffs shall give 14 days’ notice of any proposed or foreseen (due to changed trading conditions) substantial change to the capital structure of Tung Chit Estate Investment Australia Pty Ltd the mortgagee of the first plaintiff, including a change resulting in a reduction of its net assets by more than 15% from its present capital structure.

    3. (3)

       STAY the operation of orders (1) and (2) until 5 PM on Monday 1 December 2025.

    4. (4)

       ORDER that the costs of this application be each party’s costs in the proceedings which will come into effect only subject to order (5).

    5. (5)

       GRANT liberty to both parties to apply until 4 PM on Thursday, 27 November 2025 to vary these orders to give further effect to the Court’s reasons for decision, or to contest the coming into effect of order (4) as may be required by the parties.