Xue v Xue; Xue v Xue

By initiating application filed on 23 May 2019, Haiying Lu (the wife) commenced proceedings in the Family Court of Australia against Keguang Xue (the husband) seeking orders which included orders for the division of the matrimonial property. By reason of the issues for determination, it is convenient to refer to the parties by their relationships with each other rather than by name.

On 10 January 2020, Shuqiang Xue (the father) commenced proceedings 2020/9036 in this Court against the husband and the wife, claiming judgment on the basis of $2.5 million said to have been advanced to the husband for the purchase of property at Lindfield which was intended to be the matrimonial home of the husband and the wife (the father’s proceedings). On the same day, Xiongbin Xue (the brother-in-law) commenced proceedings 2020/8992 in this Court against the husband and the wife claiming monies said to be owed under a loan contract with the husband for an advance of $5.2 million to be invested in a start-up company in China (the brother-in-law’s proceedings).

By notice of motion filed on 7 February 2020 in each proceeding, the wife sought an order for the transfer of the father’s proceedings and the brother-in-law’s proceedings to the Family Court pursuant to s 5(1)(b) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (the Act). The order sought was opposed by the father and the brother-in-law (the plaintiffs), for whom Mr Lawrance appeared. The husband, for whom Ms Chen appeared, neither consented to nor opposed the orders sought on the motion.

It was agreed, at least between the plaintiffs and the wife, that the wife was not required to put on her defence to the plaintiffs’ statements of claim until her motion for transfer had been determined. Neither the husband nor the wife has put on a defence to the statement of claim.

It was accepted by the plaintiffs that the wife was not a necessary party to the proceedings in this Court. Mr Lawrance informed me that she had been named as second defendant in order to give her notice of the proceedings and the opportunity to apply to transfer them if she was so advised. He confirmed that the plaintiffs were content to file a notice of discontinuance in respect of the wife, in the event that she no longer wished to be a party to these proceedings after the determination of the present notice of motion.

It is convenient to summarise the facts, in so far as they are revealed by the evidence. The summary is based on the present state of the evidence and is not intended to amount to final findings of fact.

The husband and wife were both born in 1982. The husband was engaged in business activities in China before he married the wife. According to his affidavit of 16 March 2020 (which was tendered by the wife in support of her notice of motion for transfer), his activities were as follows:

In the affidavit, the husband also deposed to his property interests and funds in China as follows:

The husband and the wife were married on 17 June 2004. They have two sons, born in 2005 and 2012 respectively.

On 23 January 2016, the husband and the wife arrived in Australia on a temporary Business Skills Innovation and Investment Visa (subclass 188). The husband was the primary visa applicant.

On 23 March 2015 the husband provided a statement of his assets and liabilities to the Department of Immigration for the purposes of establishing that he qualified for a visa. The statement showed that he had assets to the value of $5,527,978.06 which comprised cash on deposit in China and real estate in China and that he had no liabilities.

The husband set out the circumstances which led to the loan from his father the subject of the proceedings in this Court in his affidavit of 16 March 2020 as follows:

By agreement entitled “Contract of Loan Guarantee” dated 16 May 2016 the father agreed to lend to the husband the total sum of $2.5 million for the purchase of a property at Lindfield (the Lindfield property). The loan was for a term of 48 months commencing on 16 May 2016 and ending on 15 May 2020. The interest rate of the loan was 1.2% per month. There was provision in the written agreement for the wife to guarantee the loan but, as she did not sign the agreement, she is neither a party, nor bound by it. Clause 3 of the Contract of Loan Guarantee, the charging clause, relevantly provided:

The Contract of Loan Guarantee was signed by the husband and the father. According to the evidence, including business records, which was tendered on the notice of motion, the father advanced the following amounts to the husband pursuant to the agreement:

The husband has paid interest of $720,000 on 18 July 2018 (being interest for the first two years) and $100,000 on 9 May 2019, being interest for a further 3.33 months. Otherwise, the husband has made no payments.

On or about 24 July 2016, the husband and the wife arrived in Australia with their two sons.

In December 2016 the husband committed an offence of domestic violence against the wife as a result of which he was sentenced to a term of imprisonment of 10 months, 2 months of which were required to be served in custody. Upon his release, he lived separately from the wife as a consequence of an Apprehended Violence Order (AVO). He returned to China in November 2017 to look for business opportunities there. He continued to provide financial support to his family in Australia.

The AVO expired in December 2018, at which point, the wife travelled with their two sons to China to be reunited with the husband. On 1 February 2019, the family returned to Australia from China.

By oral loan agreement made on 9 February 2019, which was reduced to writing on 11 February 2019, the brother-in-law agreed to advance to the husband ¥25 million for a term of 10 months commencing on 11 February 2019 and ending on 10 December 2019 at an interest rate of 1.5% per month. It was a term of the agreement that the funds would be deposited into an account in the name of the husband at a nominated account at the China Merchants Bank. The husband agreed to charge all of his assets as security for the loan.

On 11 February 2019 and 12 February 2019, Ruihua Sun advanced the total sum of ¥25 million (in two amounts of ¥10 million and ¥15 million respectively) to the husband, pursuant to a loan agreement between him and the brother-in-law for that sum.

According to documents filed by the wife in the Family Court proceedings, the husband and the wife finally separated on 1 April 2019. As referred to above, there had been earlier periods of separation.

On 17 May 2019, the husband left Australia to return to China to look for business opportunities as he had been unemployed in Australia.

As referred to above, on 23 May 2019, the wife commenced the Family Court proceedings. The final order sought was that the net matrimonial pool be distributed between the parties in the proportion of 65% to 35% in her favour. She sought injunctive relief on an ex parte basis, which included the following order:

The next Court date listed on the Initiating Application was 25 June 2019. The rules of the Family Court required the husband to file a Response to the Initiating Application by 18 June 2019, being a date at least 7 days before the next Court date.

On 3 July 2019, Rees J of the Family Court made ex parte orders restraining the husband from withdrawing or reducing the $5 million which formed the requirement for the husband and wife’s visa application and restraining him from withdrawing any funds from any bank account held in his name or in the name of an associated company or trust. The husband was unaware of the proceeding until he was served with the orders made on 3 July 2019.

Directions were made by Rees J on 10 July 2019 for the filing of an affidavit by the husband.

On 2 August 2019, the husband filed his Response to Initiating Application in the Family Court. Also on that day, Rees J made orders by consent, which included a direction that the parties disclose their financial circumstances both in Australia and China.

On 29 August 2019 the brother-in-law lodged a caveat on the title of the Lindfield property, based on an interest in the land said to arise from the loan agreement made in February 2019. The basis for the caveat was the charging clause in the loan agreement.

On 9 September 2019, the father lodged a caveat on the title of the Lindfield property, based on an interest in the land said to arise from the loan agreement made on 16 May 2016. The basis for the caveat was the charging clause in the loan agreement. On 23 September 2019 further directions were made by consent for the filing of documents “by way of financial disclosure”.

On 24 September 2019 the husband filed a Financial Statement in the Family Court proceedings in which he said that he owed the father $3.12 million for the purchase of the Lindfield property and he owed the brother-in-law $5.9 million for an investment in a Chinese start-up company. He also said that he owed Ling Xue (the sister) and Xiuling Chen, the father’s sister (the aunt) ¥8.238 million. His Financial Statement sets out total assets of $10,463,200.35 and total liabilities of $12,797,516.37, of which the combined total of the monies said to be owing to the plaintiffs is $8,983,583.33 plus ongoing interest.

Further consent directions were made by Rees J on 13 November 2019.

As the husband did not repay the brother-in-law by the due date of 10 December 2019, the brother-in-law was unable to repay Mr Sun. On 9 March 2020, Mr Sun sent a letter of demand to the brother-in-law demanding repayment of ¥25 million together with interest of ¥4.875 million.

On 20 November 2019, the wife filed an Application in a Case in the Family Court proceedings seeking an order that the brother-in-law, the father and the sister be joined as parties to the proceedings.

By letter dated 3 December 2019, the wife’s solicitors sought particulars of the husband’s Financial Statement, including of the loans the subject of the proceedings in this Court. I was informed that the particulars have not yet been answered.

On 5 December 2019 the wife filed an Amended Initiating Application in the Family Court proceedings. The named respondents were the husband, the father, the brother-in-law and the sister. The orders sought included an order that the sister transfer to the husband the sum of $1.1 million and that the brother-in-law and the father remove their caveats from the title of the Lindfield property.

On 10 January 2020, the husband filed a Response to an Application in a Case in which he sought orders which included the dismissal of the wife’s Application in a Case (which sought joinder of the brother-in-law, the father and the sister).

On 6 February 2020, the wife filed an Application in a Case in which she sought an anti-suit injunction preventing the respondents (the husband, the father, the brother-in-law and the sister) from commencing or taking any step in proceedings to which the wife was a party, pending determination of the Family Court proceedings. She also sought an order pursuant to s 114 of the Family Law Act 1975 (Cth) restraining the plaintiffs and the sister from prosecuting or commencing any proceedings before this Court.

On 9 March 2020, the wife filed an Amended Application in a Case. She continued to press for the injunctive relief contained in the Application in a Case referred to above. Also on 9 March 2020, the wife filed a financial statement in which she assessed the total value of her assets to be $2,000 and the total amount of her liabilities to be $60,000.

On 16 March 2020, the husband filed a Response to an Application in a Case. The orders he sought included an order that the Family Court proceedings be stayed pending the disposal of the proceedings in the Supreme Court.

On 16 March 2020, the husband made the affidavit in the Family Court proceedings referred to above. Of the involvement of his family in his financial dealings he said:

Of his failure to make repayments on the loans from his father or brother-in-law, the husband deposed at [186]:

On 18 March 2020, the plaintiffs and the sister sought dismissal of the application to join them as parties.

In the meantime, as referred to above, the plaintiffs commenced these proceedings in this Court. The wife was named as a party in order to give her notice although it is accepted that she is not a necessary party to the proceedings, as she was not a party to the loan agreement with either plaintiff. Mr Lawrance indicated that, if she wishes to be removed as a party, the plaintiffs would be content to file a notice of discontinuance in respect of her. If the wife remains a party, she would be subject to issue estoppels and would be prevented from re-litigating in the Family Court an issue decided against her in this Court (Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198; [2001] NSWCA 142). If she chooses no longer to be a party, no issue estoppel could arise against her. In that latter event, she will not be prejudiced because she will not be bound by a judgment in this Court against the husband. However, the plaintiffs will, if they obtain judgments, obtain valuable rights, including to have the quantum of the debt fixed and his liability determined as well as the right to commence bankruptcy proceedings against the husband on the basis of the judgments.

On 20 March 2020, an interim hearing took place in the Family Court before Deputy Chief Justice McClelland. The Amended Application was stood over generally with liberty granted to apply. No request has yet been made to relist the application.

On 4 February 2020 the wife swore an affidavit in support of her notice of motion in this Court, parts of which were tendered by the plaintiffs. Of present relevance, she deposed:

It would appear, on the basis of this evidence, that the wife was unaware of the loan agreements or the transfers from the plaintiffs to the husband and does not accept that they were arms-length transactions. I note that in a letter dated 23 January 2020, which foreshadowed the notice of motion for transfer, the wife’s solicitors said to the husband’s solicitors:

However it does not appear that the wife presently has any basis to allege that they were shams. Mr Connor, who appeared for the wife, accepted, at the hearing of the notice of motion, that he could not put the hypothesis that the agreements were shams as any higher than a “mere possibility”.

The wife swore a further affidavit in support of her notice of motion on 21 April 2020. She deposed, in [4]:

In response to that affidavit, Ms Gong, in an affidavit affirmed on 27 April 2020, deposed that she was instructed that the father had not seen the document referred to in [4] of the wife’s affidavit and had not signed it.

Mr Matulich, the solicitor acting for the wife in the Family Court proceedings, has deposed in an affidavit filed in that court that it will be at least 12 months before the matter will be listed for call-over for a hearing date to be fixed and that it will be at least another 12 months before a hearing date is fixed “at best”. Ms Gong, the solicitor for the plaintiffs, deposed that it was likely that the hearing in this Court would take a day and obtain a hearing date this year.

Section 5(1) of the Act provides:

It was common ground that the proceedings in this Court would not have been incapable of being instituted in this Court but for any cross-vesting law. It was also common ground that the proceedings in this Court would not have been capable of being instituted in the Family Court but for any cross-vesting law or the Family Court’s accrued jurisdiction. It was also common ground that the proceedings in this Court do not give rise to any question relating to Commonwealth law. The parties accepted that the motion ought be determined by reference to the interests of justice in s 5(1)(b)(ii)(C) of the Act.

It was accepted on behalf of the husband on the basis of Fencott v Muller (1983) 152 CLR 570 at 608 (Mason, Murphy, Brennan and Deane JJ); [1983] HCA 12 that it was arguable that these proceedings would fall within the accrued jurisdiction of the Family Court. However, Mr Lawrance submitted that the only way the Family Court would actually have jurisdiction would be if there were a genuine allegation that the loans were sham transactions. Given Mr Lawrance’s acceptance that it is arguable that the Family Court would have accrued jurisdiction over the matters the subject of the proceedings in this Court, it is common ground that I have power to transfer the proceedings to that Court under s 5(1)(b) of the Act.

The principles are well established. It was accepted that the relevant proceedings for the purposes of s 5(1) of the Act are the proceedings in this Court. In determining where the interests of justice lie, the Court is to consider and identify the “natural” forum for the “relevant proceeding”. Brereton J, summarising the principles established in BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61, described the natural forum as the forum “in which, objectively judged it might be expected that the dispute would fall to be resolved, with its concomitant judicial advantages and disadvantages for each party, whatever they may be”: Valceski v Valceski (2007) 70 NSWLR 36; [2007] NSWSC 440 (Valceski) at [69].

On the face of it the money claims in this Court fall within this Court’s usual jurisdiction. The wife, though not a party to either of the loan agreements, is a party to the proceedings only because of the plaintiffs’ concern to alert her to the proceedings. Both of the loans were entered into before the final separation of the husband and the wife. The loan from the father to the husband was entered into in order to provide the funds for the purchase of the Lindfield property in which the husband and wife were to live when they took up residence in Sydney. There is documentary evidence to establish the advance of the funds by the father and the brother-in-law. It would appear, in any event, that the husband accepts that he is bound by the loan agreements, since he included the liabilities in his Financial Statement and has made payments pursuant to them. The payments only ceased by reason of the injunction granted by the Family Court on the wife’s application.

Although Mr Connor raised the possibility that the agreements were shams, there is no evidence to suggest that they were. Further, in order to make the allegation, it would be necessary for the wife to have a basis for alleging that none of the parties to the loan agreements, the husband, the father and the brother-in-law intended the agreements to operate according to their terms: Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802 (Diplock LJ), cited with approval in Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516; [2008] HCA 21 at [115] and [120] (Kirby J). Nor is there any basis to suppose (notwithstanding Mr Connor’s submission) that the proceedings in this Court are an abuse of process.

Mr Connor submitted that the wife would be forensically disadvantaged if the proceedings in this Court were not transferred to the Family Court. He contended that in this Court the plaintiffs would be required to prove the loan agreements and that the husband did not dispute those loan agreements. Thus the loan agreements could be established in this Court without contest. However, if the matter were determined in the Family Court, the husband would bear the onus of establishing his debts, which (on his case) included the amounts owing under the loan agreements. I do not consider this to be a particularly relevant matter since the loan agreements were in writing and the transfers made under them are supported by contemporaneous business records showing bank transfers. Thus whether they have to be proved in this Court by the plaintiffs or the husband in the Family Court, the prima facie evidence of the agreements and their performance has already been adduced in this motion.

The present case is to be distinguished from a case such as Valceski, where Brereton J found that the Family Court was the natural forum of proceedings commenced in the Equity Division. In that case, Bobby and Mick (his father) purchased a property as joint tenants in 1982. Both names were on the title because the bank refused to lend the money for its purchase to Bobby alone but Bobby repaid the loan on the property. Bobby married Betty in 1992. Throughout their marriage, they lived on a house on the property and paid all expenses associated with the property. In 2004 the parties (Bobby, Betty and Mick) entered into a deed whereby Mick agreed to transfer his interest in the property to Bobby and Betty agreed to acknowledge that Mick would still have a beneficial interest in the property in accordance with the contributions he had made to it. In 2006 Bobby and Betty separated. On 4 April 2006 Betty commenced proceedings in the Family Court. She claimed that the property constituted part of the matrimonial estate. On 5 December 2006 Mick and Angelina (his wife) commenced proceedings in the Equity Division. On 13 February 2017, Betty filed a notice of motion in this Court seeking transfer of the proceedings to the Family Court.

Brereton J analysed the effect of the Equity Division proceedings at [26] as follows:

At [27], his Honour summarised the three-stage approach applied in Family Court proceedings for the division of property: first, the pool of property of the parties to the marriage needs to be identified and valued; secondly, their respective financial and non-financial contributions to the property and to the welfare of the family are to be assessed; and, thirdly, the appropriate adjustment is to be made to reflect the means and needs of the parties to the marriage. His Honour found, at [76], that the issues in the Equity suit were a subset of those in the Family Court proceedings and that Mick and Angelina were already parties to the Family Court proceedings. He concluded that the present was a case in which “exactly the same issue will be litigated by two local courts” ([76]) but that only the Family Court could resolve the whole controversy between the parties. His Honour concluded at [78]:

His Honour, at [85] reiterated the last dot point in the following passage:

Mr Connor submitted that Valceski was on all fours with the present case. He relied on the circumstance that the determination of whether the plaintiffs were the husband’s creditors and had an interest in his property (as a result of the charging clauses in the loan agreements) had a substantial effect on the identification of the net matrimonial assets available for distribution in the Family Court proceedings. Mr Connor submitted that the plaintiffs would be made parties to the Family Court proceedings because of the caveats on the Lindfield property and also their involvement in the husband’s business dealings. He relied on the Family Court’s undoubted power to make orders against persons who were not parties to the marriage and referred to various provisions, including ss 90AE and 106B of the Family Law Act. He submitted that this Court did not have jurisdiction to hear the whole of the claim but that the Family Court did have such jurisdiction and that it was appropriate that all matters in issue between all parties to both proceedings ought be determined in one proceeding.

I am persuaded by Mr Lawrance that Valceski can be distinguished on several grounds. Whereas Brereton J considered the Family Court to be the natural forum for matters in issue in the Equity suit, I consider this Court to be the natural forum for the plaintiffs’ money claims. The loan agreements pre-dated the separation and were supported by signed documents and contemporaneous business records evidencing the transfers. What is in issue in the Family Court is the division of the assets of the parties, having regard to their respective contributions, whereas the only matter in issue (which might not be an issue at all) in the proceedings in this Court is the quantum of the amount owing under the loan agreements. It is also of significance that, unlike the claim in Valceski, the father does not claim a percentage share of the value of the Lindfield property by reason of the contribution made by his loan to the husband for its purchase. All that the father claims in these proceedings is judgment for the amount outstanding under the loan agreement together with interest. While this amount is said to be secured by reason of the charging clause in the loan agreement, his interest, if any, in the Lindfield property is to be measured by the amount outstanding under the loan agreement. Similarly, the brother-in-law’s interest, if any, in the Lindfield property, arises only by reason of the charging clause in the loan agreement and not by reason of an equity arising from his contribution.

There would be no prejudice to the wife in allowing the Supreme Court proceedings to proceed to judgment since she could cease to be a party and would, in that event, not be bound by any issue estoppel. Although it is difficult to discern that there is any basis for considering that either or both of the loan agreements was a sham, if the wife has a proper basis to put the legitimacy of the loan agreements in issue in these proceedings and pleads that allegation in her defence to the plaintiff’s statement of claim, this would plainly be a matter that could be taken into account in the Family Court in determining her application for an anti-suit injunction preventing the parties from participating in the proceedings in this Court pending determination of the Family Court proceedings. But for such an allegation, it is difficult to see on what basis the Family Court would grant an anti-suit injunction.

I am not persuaded that there is any basis to suggest that either of the plaintiffs has sought to use the occasion of the demise of the marriage between the husband and wife to assert his rights under the loan agreement. The proceedings in this Court were commenced because the husband breached the loan agreements by reason of the injunctions restraining him from withdrawing money from accounts to which he would otherwise have had access to make repayments. The relief sought in the two statements of claim is limited to a judgment sum and interest. Although Mr Lawrance accepted that a judgment in this Court would have the effect of quantifying, as between the plaintiffs and the husband, the caveated interest, no declaration that the plaintiffs have an interest in the Lindfield property is sought in the proceedings in this Court.

It cannot be said that the issue in the proceedings in this Court will be the same as any issue in the Family Court proceedings. Indeed, there is no basis for suggesting that there is any issue between the husband and the plaintiffs as to his indebtedness under the loan agreements or the quantum of that indebtedness since he has declared the loans in his Financial Statement filed in the Family Court. There is no basis in the evidence before me to support Mr Connor’s insinuation that the absence of dispute is collusive and amounts to an in-house family arrangement to remove matrimonial assets from the pool available for division between the parties to the marriage. Indeed, as referred to above, I understood him ultimately to accept that the prospect that the agreements were a sham was no more than a possibility at this stage. The wife’s evidence before me goes no higher than to depose that she was unaware of the loans.

Even if the plaintiffs are required to give evidence in the Family Court proceedings, it does not follow that they ought be made parties. It is not to the point that the plaintiffs might have engaged in business relationships with the husband in the past. If that were sufficient to make a person a party in Family Court proceedings, it would be necessary for a party’s business partners to be joined in such proceedings, which could not be the case. The liabilities of the husband under the loan agreement are a discrete matter of a kind usually determined in this Court: see, for example, Aspinall v Aqua Sports Pty Ltd [2018] NSWSC 706. Even if the plaintiffs, as seems inevitable, are made parties to the Family Court on the basis that the wife seeks a withdrawal of the caveats they have each lodged against the Lindfield property, this is a discrete issue, which could be dealt with by the Family Court in an efficient way and would not require the plaintiffs to be present throughout the whole of the Family Court proceedings: Murray Morgan Investments v Capma Pty Ltd [2016] NSWSC 264 at [17] (Hidden J).

The proceedings in this Court have a narrow ambit. There is a real prospect that they can be determined before the end of the year, particularly if the wife chooses not to be a party or does not raise an allegation that either agreement is a sham. The determination of the Family Court proceedings is still years away. Mr Sun, from whom part of the loan monies were borrowed, has already demanded repayment. I am not persuaded that there is any justification for visiting the ambit of the Family Court proceedings on the plaintiffs whose only interest is in obtaining a judgment against the husband under the loan agreements for monies which he would appear to admit he owes them. The interests of justice are that the proceedings remain in this Court which is the natural forum.

Mr Connor and Mr Lawrance agreed, relevantly, that there was no reason for departing from the general rule that costs ought follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. Ms Chen submitted that no order for costs should be made against the husband because he did not play an active role in the hearing of the motion. Mr Connor and Mr Lawrance accepted that no order for costs ought be made against the husband.

As referred to above, no defences have been filed and the question whether the wife wishes to remain a party to the proceedings is still an open one. In these circumstances, I propose to make directions to address these two matters.

For the reasons given above, I make the following orders in proceedings 2020/8992 and 2020/9036: