Firmtech Aluminium Pty Ltd v Xie (No 3)

On 29 August 2022, I delivered judgment on an interlocutory application by the second plaintiff in these proceedings, Mr Xu, for the continuation of freezing orders that were originally made by Meek J, sitting as Duty Judge, on 28 July 2022 against all the defendants: see Firmtech Aluminium Pty Ltd v Xie (No 2) [2022] NSWSC 1142 (“J”).

The purpose of this judgment is to explain the interlocutory orders that will be made based on the reasons in my earlier judgment, and to deal with the costs of the application. These reasons assume knowledge of my earlier reasons. I will use the same terms as in those reasons.

I explained in my earlier reasons why I did not think it was appropriate to continue the freezing orders, but instead should make interlocutory orders pending the determination of the proceedings or further order that had the effect of requiring the first four defendants to preserve the businesses operated by the third and fourth defendants, being Aluminum and Logikal, which Mr Xu claims are held by those defendants on a constructive trust for the first plaintiff, Firmtech.

I also concluded that interlocutory orders should be made that preserved the profits earned by the two defendants, and that they should be required to maintain accounts and keep vouchers in a way that would facilitate Mr Xu's claim for an accounting by the first four defendants in favour of Firmtech. I set out what I considered were the broad parameters of appropriate interlocutory relief at J [106]-[112], and invited the parties to provide to my Associate draft short minutes of order and short submissions in support of the orders that they proposed the Court should make.

Mr Xu and the defendants provided draft short minutes and written submissions and a further oral hearing took place on 31 August 2022. Following the hearing, I prepared my own version of what I considered to be appropriate interlocutory orders, having general regard to the orders proposed by the parties, and provided my proposed orders to the parties to give them a last opportunity to make final submissions as to the form of the orders to reduce the risk that my orders would omit appropriate relief or have unintended consequences.

Mr Xu subsequently advised my Associate that he did not consider that my draft orders would have any unintended consequences or contained omissions. The defendants advised my Associate that they also were generally content for the orders that I proposed to be made, save that they made a small number of suggestions as to appropriate revisions to the proposed orders.

Orders 1 to 11 below are the orders that I proposed, subject to my following comments on the suggestions made on behalf of the defendants:

Orders 14 to 16 are case management orders agreed by the parties.

I now turn to the issue of the order that should be made as to the costs of the interlocutory applications. The position adopted by Mr Xu was that the appropriate costs order was that the costs of the interlocutory applications to date be Mr Xu's costs in the cause.

The defendants submitted that, in principle, it would be appropriate for Mr Xu to be ordered to pay their costs of the interlocutory applications as the defendants had substantially succeeded on the applications. However, notwithstanding that position, the defendants accepted that it would be reasonable for the Court to make the following costs order:

In essence, the basis of the defendants' submission on costs was that Mr Xu had only applied for and sought freezing orders and that the freezing orders that were made by Meek J and extended on a number of occasions will now be discharged. Mr Xu did not seek interlocutory relief in the terms that will now be made to protect the businesses and profits of Aluminum and Logikal. The defendants noted that, before lunch on the first day of the hearing, I suggested that the preferable relief might be of the form that I have now decided to give. The defendants responded immediately by offering to settle the interlocutory applications on the terms of the undertakings that I have recorded at J [70]. Mr Xu did not accept that offer, but made a counteroffer that I summarised at J [71]. The defendants responded to Mr Xu's offer by agreeing to parts of the offer, but rejecting other parts. The defendants submitted that Mr Xu ought to have accepted the response they made to his offer, and if that had happened the interlocutory hearing before me would have concluded in about half the time that it ultimately took.

As I did not set out the terms of Mr Xu's offer verbatim in J [71], it will be necessary for me to give a general description of the parts of Mr Xu's offer that were accepted and rejected by the defendants, and the relationship between the accepted parts and the interlocutory orders that will now be made in these proceedings.

That description is:

The result therefore is that, with only one exception, the decision made by Mr Xu to press on for interlocutory relief in the terms of his offer, as well as with the application for orders that all of the defendants provide asset disclosure affidavits, substantially failed. That failure must be added to the failure of Mr Xu to obtain an order extending the freezing orders against any of the defendants.

It is reasonable for the Court to conclude that, if Mr Xu had sought, from the outset, orders that preserved relevant assets of appropriate defendants rather than freezing orders in so great an amount as $10 million, the defendants would – as their conduct in the proceedings has demonstrated – have agreed to some reasonable interlocutory regime to protect the plaintiffs.

In those circumstances, I am satisfied that the appropriate order for costs is the order proposed by the defendants.

The formal orders that the Court will make are as follows:

These orders will not be formally made and entered until after counsel for Mr Xu has informed my Associate by email that he has instructions to give to the Court the usual undertaking as to damages on behalf of Mr Xu.