GROUP KINETICA PTY LTD [2024] SADC 17

Applicant: GROUP KINETICA PTY LTD Counsel: MR P ADAMS - Solicitor: MINTER ELLISON Respondents: SANGONG HOMES PTY LTD & XIAOSHAN SUN Counsel: MR T RICE - Solicitor: XIAO LAWYERS Hearing Date/s: 17/01/2024, 18/01/2024 File No/s: CIV-23-005401 B DISTRICT COURT OF SOUTH AUSTRALIA (Civil: Interlocutory Application) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment. The onus remains on any person using material in the judgment to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court in which it was generated. GROUP KINETICA PTY LTD v SANGONG HOMES PTY LTD & ANOR [2024] SADC 17 Judgment of her Honour Judge Thomas 21 February 2024 PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - SECURITY FOR COSTS PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - DETENTION, INSPECTION AND PRESERVATION - FREEZING ORDERS The applicant company instituted proceedings against the first respondent builder and its current director, the second respondent, concerning delays in the completion of a residential development. The claims against the director were limited to his alleged liability under a standstill agreement made to avoid litigation over the builder’s alleged failure to complete the works. The Court was required to determine two interlocutory applications that became entwined as the proceedings evolved. The applicant sought freezing orders against only the second respondent restraining him from dealing with his and the first respondent’s assets, relying on alleged threats to flee the jurisdiction and sell up and an advertisement for sale of real property owned by the director. Affidavit evidence filed in support of an unrelated application led the respondents to make application for security for costs up to the first day of trial in the amount of $75,000 under s 1335(1) of the Corporations Act 2001 (Cth). The respondents relied on inferences sought to be drawn from limited evidence as to the company’s assets and liabilities given it is no longer trading to establish the threshold requirement that there is “reason to believe” the company will be unable to pay the costs of the respondents if their defences are successful. -- 1 of 28 -- Held, dismissing both applications and making no order as to costs. 1. On an evaluative assessment of the limited evidence before the Court, the respondents have failed to establish the threshold requirement for an order for security for costs under s 1335(1) of the Corporations Act. 2. Satisfaction of the threshold requirement that there is reason to believe the ‘plaintiff’ will be unable to pay the costs of the ‘defendant’ if successful requires more than satisfaction that there is a risk that this is so. 3. The respondents carried the onus in establishing the threshold requirement. Accordingly, the applicant had no obligation to respond to a request for financial information or prove its financial capacity to meet an adverse costs order. Its failure to do so was not relevant or of assistance in reaching a conclusion as to whether the threshold requirement was satisfied in the absence of other evidence casting doubt or giving rise to a concern about the financial capacity of the applicant. 2. The applicant has not established that there is a real risk, absent the making of a freezing order against the second respondent director, of any prospective judgment going wholly or partly unsatisfied because the prospective judgment debtor might abscond or dissipate his assets. 4. The alleged threats to flee the jurisdiction were not made by, or with the knowledge of, the second respondent director. There is no evidence of any conduct by the second respondent director giving rise to any real risk of asset dissipation. 6. There should be a departure from the usual order that costs follow the event. Each side’s success in defending the other side’s application is effectively neutralised by the dismissal of their own application. There was considerable overlap in the issues and evidence considered in determining both applications. Australian Competition and Consumer Act 2010 (Cth), Australian Consumer Law sch 2, s 18; Corporations Act 2001 (Cth) s 1335(1); Misrepresentation Act 1972 (SA) s 7; Uniform Civil Rules 2020 (SA) r 112, r 115, r 117, referred to. Brentwood Village Ltd (in liq) v Terrigal Grosvenor Lodge Pty Ltd [2014] FCA 1203; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Deputy Commissioner of Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194 ; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Mannix Electrical Pty Ltd v Belport Pty Ltd (2019) 134 SASR 438; McEntee v SJ Berry Pty Ltd [2024] SADC 8; National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271; Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319; Seeley International Pty Ltd v Millenium Electronics Pty Ltd [2020] SASC 205; Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645; Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131, considered. -- 2 of 28 -- GROUP KINETICA PTY LTD v SANGONG HOMES PTY LTD & ANOR [2024] SADC 17 Civil Introduction 1 This judgment concerns two interlocutory applications. The first is the Respondents’ application for security for costs that was heard on 17 and 18 January 2024. The second concerns the Applicant’s application for freezing orders against the Second Respondent, Mr Xiaoshan Sun (Mr Sun Junior), that was part-heard on 4 August 2023 pending the Applicant considering whether it would amend its application and seek relief directly against the First Respondent builder (the Builder). The Applicant chose not to amend, and the application was adjourned pending a private mediation and ongoing settlement negotiations. These negotiations were ultimately unsuccessful, and on 23 January 2024 the parties requested the Court rule on the Applicant’s application for freezing orders against Mr Sun Junior. Conclusion 2 I dismiss the Respondents’ application for security for costs. 3 I dismiss the Applicant’s application for freezing orders against Mr Sun Junior. 4 I order the parties bear their own costs of and incidental to these unsuccessful applications. There should be a departure from the usual order that costs follow the event in this case since each side’s success in defending the other side’s application is effectively neutralised by the dismissal of their own application in circumstances where similar time and resources were taken up in dealing with each application and there was considerable overlap in the issues and evidence considered in determining both applications. 5 My reasons follow. Background 6 This proceeding concerns a claim1 by the Applicant owner (the Company) primarily for losses caused by the delay of the Builder in completing domestic building works on a house (Residence 2) known as Unit 1 on land known as 23A Ferguson Avenue, Myrtle Bank (the Land).2 1 Claim – Revision 1 (FDN 26). At the time of hearing these applications the Applicant had not filed its current Claim - Revision 2 (FDN 66) that was filed on 8 February 2024. 2 CT 6217/501. -- 3 of 28 -- [2024] SADC 17 2 7 The Applicant relies on causes of action in contract, in tort for negligence, misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law3 and s 7 of the Misrepresentation Act 1972 (SA). The Respondents deny the Company is entitled to the relief sought or any at all.4 8 The legal and factual disputes are numerous and complex. 9 Residence 2 is one of three residential lots on the Land.5 The Land was purchased by the Company for the purpose of development by the construction of three houses. Residence 1 was built on a second lot owned and sold by the Company in September 2023. Until sold, it was the residence of the Company’s sole director, Mr Omid Rad (Mr Rad). Residence 3 is built on a third lot on the Land and was sold by the Company in November 2020 to Mr Park, who is not a party to this proceeding. Mr Park separately contracted with the Builder for the construction of Residence 3 on his lot. 10 The Second Respondent, Mr Sun Junior, is currently the sole director of the Builder, appointed on 10 February 2021. A previous director and secretary of the Builder, Mr Mingchuan Deng (Mr Deng), resigned on 24 October 2022. Between 10 February 2021 and 24 October 2022, both Mr Sun Junior and Mr Deng were directors of the Builder company. 6 11 The Builder company was incorporated on 22 January 2016.7 12 The shareholders of the Builder company are Mr Zengmin Sun (Mr Sun Senior) and Tao Zhou, following a change of members notified to ASIC on 9 February 2021, about the time Mr Sun Junior was appointed a director. Details of these shareholding changes were not in evidence. Mr Sun Senior is the father of Mr Sun Junior.8 13 There is a dearth of evidence about the circumstances in which Mr Sun Junior and Mr Sun Senior became involved in the Builder company and Mr Deng withdrew. 14 The Company relies on two alleged written agreements for its claims in contract. 3 Comprising Schedule 2 of the Competition and Consumer Act 2010 (Cth). 4 Defence - Revision 1 (FDN 42). At the time of the substantive hearing of the Applicant’s application for freezing orders against Mr Sun Junior on 4 August 2023, the Respondents had not yet filed their then current Defence (FDN 33). A revised defence was filed on 1 November 2023 (FDN 42) that will be superseded by a further defence in response to Claim - Revision 2 (FDN 66) filed on 8 February 2024. 5 CT 6216/703. 6 Exhibit OFR-5.1 to the Second Affidavit of Omid Farshid Rad (Rad) made on 10 July 2023 (FDN 22) (the First Rad Affidavit). The short description given to each affidavit is based on its order by FDN, not its title. This affidavit was filed twice as FDN 20 and FDN 22. 7 Ibid. 8 Seventh Affidavit of Ben Michael D’Andrea made on 15 January 2024 (FDN 59) (the Seventh D’Andrea Affidavit) at [50]. -- 4 of 28 -- [2024] SADC 17 3 15 The form and terms of the first are not disputed. It is in writing in the form of a standard MBA contract dated 18 December 2020 (the Contract)9 for a fixed price of $402,500 and a contract completion date of 31 August 2021. It was executed on 19 December 2020, well before Mr Sun Junior became a director of the Builder. 16 The Company alleges delay in completion of Residence 2. The Respondents admit practical completion of Residence 2 has not been achieved but say the Builder is entitled to extensions of time for some 27 alleged events of delay occurring up until November 2022 and say further, since at least 17 April 2023, the Builder has been entitled to stop works due to non-payment by the Company. 17 The Company alleges the second agreement (the September Agreement)10 was made in September 2022 between the parties and Mr Park, following delay in the completion of Residences 2 and 3, to avoid litigation and encourage the Builder to complete the works for Residences 2 and 3. This agreement allegedly provides for a new completion date for Residence 2 of 20 December 2022, the appointment of a building inspector (Mr Edgar) and otherwise preserves the Company’s rights under the Contract against the Builder. 18 The Company alleges the Builder knew the following matters at the time it contracted with the Company. • On the completion of Residence 2, the Company intended to lease Residence 1 and Mr Rad would then live in Residence 2. • The Contract for Residence 2 was not subject to finance because the Company intended to finance its construction from its own resources, including borrowings made against the security of Residence 1. 19 The Company claims that as a result of the delay in completion of Residence 2, Mr Rad has been unable to move out of Residence 1 into Residence 2 and lease Residence 1. The Company claims it has suffered losses in the nature of additional interest on its bank finance for the development, loss of rent for Residence 1, a GST liability on the sale of Residence 1 and loss of a capital gain on Residence 1, as well as a miscellany of other minor losses. The Company further claims for wrongly charged variation claims and failures to credit variations where there were alleged savings11 and for rectification of damage caused by the Builder to the guttering and fencing of Residence 1, which has now been sold.12 9 Exhibit OFR-1 to the First Rad Affidavit. 10 Exhibit OFR-5 to the First Rad Affidavit. 11 $23,618.75 ex GST. 12 $12,000 ex GST. -- 5 of 28 -- [2024] SADC 17 4 20 The Company further claims it is entitled under the terms of the September Agreement to have any legal fees incurred since its date of execution by reason of the Builder’s breaches of the September Agreement (including the costs of litigation) paid by the Builder. 21 At the time of execution of the September Agreement, both Mr Deng and Mr Sun Junior were directors of the Builder company. 22 The Company alleges that Mr Sun Junior is named as party in his own right to the September Agreement and executed it twice, both as a director of the Builder and for himself. Damages are claimed against Mr Sun Junior for breaches of the September Agreement and for misleading or deceptive conduct under the Australian Consumer Law and/or the Misrepresentation Act. 23 The Respondents say in their defence13 that neither the Company nor Mr Sun Junior were parties to the September Agreement, and it confers no rights or obligations on either the Company or Mr Sun Junior. Status of Completion of Works 24 Self-evidently, the Residence 2 building works are incomplete. 25 There is substantive dispute over alleged defects in the works and whether the works have reached 70% completion by reference to the seventh stage of completion in the Contract: that is, substantial completion of the second-fix carpentry (including built-in cupboards) and lock-up (Lock-up).14 26 The Company relies on the written evidence of Mr Edgar, a building consultant and licensed building work contractor and supervisor, as to the status of completion of Residence 2.15 27 Mr Edgar first inspected Residence 2 on 28 June 2022 on behalf of the Company and identified defects he describes in his written evidence as ‘numerous, and systematic major defects’.16 Thereafter, Mr Edgar regularly inspected Residence 2 and, from time to time until October 2022, provided the Builder with written defect lists identifying rectification works required to be undertaken.17 28 From September 2022, Mr Edgar also monitored progress of the works for Residences 1 and 2. Mr Edgar inspected both Residences on 26 November 2022 to assess the rectification works and progress of the build in line with the revised completion date of 20 December 2022 specified in the September Agreement. He reported18 slower than expected progress, noting the schedule for completion of the 13 Defence - Revision 1 (FDN 42). 14 Item J, Part 4 – Schedule 4 of the Contract comprising Exhibit OFR-1 to the First Rad Affidavit. 15 Affidavits of Christopher John Edgar made on 11 July 2023 (FDN 16) (the First Edgar Affidavit) and 15 January 2024 (FDN 58) (the Third Edgar Affidavit). 16 First Edgar Affidavit at [6]. 17 Ibid at [7]-10]. 18 Exhibit CJE-4 to the First Edgar Affidavit. -- 6 of 28 -- [2024] SADC 17 5 works for both residences was 29 days behind but there were only 19 business days until the Christmas shutdown. He also reported on defects discussed at inspection and identified incomplete works. Mr Edgar identified the general nature of the defects and incomplete works as at the completion date in his written evidence.19 29 Between December 2022 and March 2023, Mr Edgar was refused access to the site by the Respondents. There have been ongoing difficulties with site access since the dispute became contentious and solicitors became involved. Based on his then most recent inspection of Residence 2 in April 2023, Mr Edgar estimated in July 2023 that it could be brought to completion within a period of 8 to 10 weeks.20 30 There is no explanation in the evidence for the change in his opinion from 29 days for two residence and 8 to 10 weeks for only Residence 2. 31 Mr Edgar inspected Residence 2 again on 21 December 2023. Following this inspection, Mr Edgar confirmed in his written evidence his view that the works had still not reached Lock-up because of the absence of a roller door, an inappropriate lock on the double doors leading from the garage to the house and unremedied defects in the works.21 32 The Respondents’ building expert, Mr Begg, was of the opposite view following his inspection on the same day. Little weight should be attached to Mr Begg’s opinions. His report22 does not provide any reasons for his opinion, nor address any of the concerns raised by Mr Edgar. The attached photographs show the absence of the garage roller door and are generally confirmatory of the incomplete works identified by Mr Edgar. 33 Resolution of dispute over the alleged defects in the completed works, the precise status of the completed works, and whether the works had reached the seventh milestone for payment are issues for trial. For present purposes, it is sufficient to identify that subject to the alleged defects (including the absence of the garage roller door), the footings, external walls for both storeys, the roof cover and internal linings, second-fix carpentry, doors and windows are substantially complete and the dispute concerns the 70% completion milestone. That is, the stages up to Lock-up are completed, save for defects. Termination of Contract and September Agreement 34 By its solicitors’ letter dated 18 December 2023, the Company gave formal notice of termination of the Contract and the September Agreement by reason of 19 Op cit [13]. 20 First Edgar Affidavit at [20]. 21 Third Edgar Affidavit. 22 Exhibit JX-1 to Affidavit of Jia Xiao (Xiao) made on 16 January 2024 (FDN 63) (the Sixth Xiao Affidavit). -- 7 of 28 -- [2024] SADC 17 6 the Respondents’ alleged ongoing defaults in the performance of the works, ongoing breaches of contract and repudiatory conduct.23 Costs to Complete the Works 35 The quantum of the likely costs to complete construction of Residence 2 by a new builder has not been ascertained and will be the subject of evidence at trial. Although no longer contractually relevant, some indications of the likely quantum can be inferred from the outstanding 30% of the Contract price ($120,750). Bearing in mind the escalation of building costs since the Contract was executed, it should be accepted that the costs to complete Residence 2 will be significantly more than the unpaid balance of the Contract price. How much more is uncertain. Application for Security for Costs Basis of Application 36 By application dated 6 December 2023,24 the Respondents seek security for their costs up to the first day of trial in the amount of $75,000 and that the proceeding be stayed pending payment of that security into Court. 37 Their application is brought under s 1335(1) of the Corporations Act 2001 (Cth) and r 115.1(1)(d) of the Uniform Civil Rules 2020 (SA) (UCR).25 Relevant Legal Principles 38 Section 1335(1) of the Corporations Act provides: Where a corporation is plaintiff in an action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 39 The relevant legal principles are well established and uncontentious. 40 Both parties rely on the judgment of Justice Doyle in Mannix Electrical Pty Ltd v Belport Pty Ltd26 as a contemporary and convenient summary of the relevant principles.27 It is therefore unnecessary to restate the law at length save to reiterate four matters pertinent to the issues in this case. 23 Exhibit JX-3 to the Affidavit of Xiao made on 11 January 2024 (FDN 57) (the Fifth Xiao Affidavit). 24 FDN 49 [1]-[2]. 25 That is, the Court may order that an applicant in an action provide security for costs if the order is authorised by statute. 26 (2019) 134 SASR 438. 27 Ibid [11]-[17] in particular. -- 8 of 28 -- [2024] SADC 17 7 41 First, that the discretion to order security for costs under s 1335(1) is conditioned upon satisfaction of the threshold requirement that it appears by credible testimony that there is reason to believe that the plaintiff corporation will be unable to pay the defendant’s costs if it is successful in its defence. 42 Secondly, satisfaction of the threshold requirement requires more than satisfaction of a risk that the plaintiff corporation will be unable to pay the costs of the defendant if successful. 43 Thirdly, the Court’s assessment of the threshold requirement will necessarily be preliminary by reason of the nature and timing of the application. 44 Fourthly, the onus of establishing the threshold requirement (that is, the onus of adducing “credible testimony” and establishing that the requisite “reason to believe” exists) is the defendant’s and remains on the defendant throughout the application. The Evidence 45 In support of their application for security for costs the Respondents rely on four affidavits sworn by their solicitor, Mr Xiao.28 46 In opposing this application, the Company relies on two affidavits sworn by its director, Mr Rad;29 three by its solicitor, Mr D’Andrea;30 and two by the building inspector, Mr Edgar.31 47 In submissions, the Respondents refer to certain parts of some of the affidavit evidence adduced by the Company as well as an earlier affidavit sworn by Mr Rad32 in support of the Company’s application for an urgent assessment of the Company’s losses following the entry of default judgment.33 Mr Rad’s Evidence 48 The Respondents submit Mr Rad’s earlier evidence as to the financial position of the Company contradicts his later evidence and comprises assertions unsupported by available objective evidence. 28 Affidavits of Xiao made on 13 July 2023 (FDN 24) (the Third Xiao Affidavit) and 1 December 2023 (FDN 51) (the Fourth Xiao Affidavit) together with the Fifth and Sixth Xiao Affidavits referred to above. The earlier affidavits of Xiao filed in this proceeding do not concern this application. 29 Affidavits of Rad made on 1 August 2023 (FDN 27) (the Second Rad Affidavit) and 20 December 2023 (FDN 53) (the Third Rad Affidavit). 30 Affidavits of Ben Michael D’Andrea made on 17 November 2023 (FDN 46) (the Fifth D’Andrea Affidavit); 5 December 2023 (FDN 48) (the Sixth D’Andrea Affidavit); and the Seventh D’Andrea Affidavit. 31 Affidavits of Christopher John Edgar made on 11 July 2023 (FDN 16) (the First Edgar Affidavit) and 15 January 2024 (FDN 58) (the Third Edgar Affidavit). 32 First Rad Affidavit. 33 This application was superseded by default judgment being set aside by consent on 13 July 2023. -- 9 of 28 -- [2024] SADC 17 8 49 In the First Rad Affidavit, Mr Rad deposes:34 For the reasons set out above, the applicant requires urgent assessment of its losses so that it can enforce judgment before it is forced into insolvency. 50 The reasons set out in the previous paragraphs are Mr Rad’s evidence as to the consequences of the Builder’s failure to complete Residence 2. They relevantly include his evidence that the delay in completing the works has led to the depletion of the Company’s finances by the ongoing accrual of interest on borrowings against Residence 1 to fund the construction of Residence 2 at increased interest rates and being forced to sell Residence 1 to mitigate the interest incurred on finance.35 51 Mr Rad further deposes to the personal consequences of the delay in completion of the works including relevantly:36 By reason of the financial consequences for my company, I will be unable to engage in business again… 52 The Respondents refer to Mr Rad being quoted in a newspaper article published on 9 December 2023 as losing his house and “basically exhausted everything, including most of my personal and financial resources, in order to keep the project going”.37 53 By contrast, in his Third Affidavit, Mr Rad deposes that the Company’s total assets exceed its liabilities by approximately $985,000.38 54 The Respondents submit the positions deposed to in Mr Rad’s evidence are ‘strikingly inconsistent’, unexplained and raise real questions as to the credibility of Mr Rad. This overstates matters somewhat. 55 First, the reference to the Company ‘being forced into insolvency’ and the newspaper quote in context are emotive and carry little weight in assessing the Company’s incapacity to meet an adverse costs order. The matters relied on in the preceding paragraphs of Mr Rad’s earlier written evidence are relevant considerations but dated given the sale of Residence 1 in September 2023 and more recent documentary evidence of the Company’s financial position. 56 Secondly, Mr Rad’s conclusion as to the Company’s net assets is expressly stated to be by reason of the matters set out in the preceding paragraphs and self- evidently only current then as at December 2023. His conclusion is not persuasive evidence in itself. It is for this Court to draw the necessary inferences as to the 34 [43]. Emphasis supplied. 35 Ibid [34]-[40]. 36 Ibid [42(b)]. Emphasis supplied. 37 Exhibit JX-9 to Fifth Xiao Affidavit. 38 [11]. -- 10 of 28 -- [2024] SADC 17 9 Company’s net assets from an assessment of the referenced evidence as updated by the further evidence relied on by both parties in January 2023. 57 In the circumstances, the alleged contradiction between Mr Rad’s earlier and later evidence does not justify the Respondents’ application to cross-examine him as to the financial position of the Company, an application I ultimately refused during the course of the hearing of the Respondents’ application for security for costs. The Company’s Financial Position Approach to Assessment 58 Mr Rad is the sole director and shareholder of the Company. The Company was registered on 3 April 2000. Its paid-up capital is nominal and is not relied on as a basis for reasonably believing the Company will be unable to meet an adverse costs order. 59 The Company is no longer trading, incurring no further liabilities except interest,39 plainly a relevant consideration in assessing whether the threshold requirement has been met. The Company alleges it is no longer trading in consequence of the Respondents’ wrongful conduct, a matter that would be relevant to the exercise of the Court’s discretion if I were to find the threshold requirement satisfied. 60 The assessment of the Company’s incapacity to meet an adverse costs order in this case therefore turns on an analysis of its assets and liabilities and ongoing expenses based on the limited and preliminary nature of the evidence before the Court. 61 In support of the Respondents’ position, Mr Rice of counsel prepared a summary (Respondents’ Summary) of the Company’s assets and liabilities showing negative net assets of $63,000 based on a 12-month timeframe. Whilst a helpful and convenient way of approaching the required analysis, the outcome involves a series of unfavourable inferences against the Company that, ultimately, I do not find persuasive and ground the requisite reason to believe that must be proved. Net Equity in Residence 2 62 By the hearing of this application in January 2024, the central dispute between the parties concerned whether there is sufficient net equity in Residence 2 from which to pay the Respondents’ costs if successful in their defence, having regard to the Company’s other assets and liabilities, ongoing expenses and the incomplete construction of Residence 2. 39 T54.33-.38. -- 11 of 28 -- [2024] SADC 17 10 63 Having terminated the Contract in December 2023, the Company’s intention is to retain a new builder to complete the works in the next six months once tenders have been received, using funds held in a term deposit to fund the building costs.40 64 The Respondents submit the Company has not demonstrated it has the resources to complete Residence 2 given it has insufficient equity in it of some $135,000 by its calculation41 by reason of its incomplete state and no other resources to realise its market value. Further, its value ‘as is incomplete’ is significantly below the ‘as if complete’ valuations. 65 The Company correctly submits that the Respondents carry the onus in this application. It is not for the Company to persuade the Court of its financial capacity. To the contrary, the Respondents must by credible testimony demonstrate the Company’s financial incapacity to meet an adverse costs order. In any event, the Company further submits there is no basis on the evidence before the Court for reaching the conclusions contended for by the Respondents. 66 Indisputably, the Company’s principal asset is now Residence 2.42 Residence 1 was sold on 28 September 2023 for $1.41 million43 and the sale proceeds used to discharge a mortgage over Residence 1 and reduce the Company’s bank liabilities by approximately $1.15 million.44 67 Residence 2 is subject to a registered mortgage in favour of Australia & New Zealand Banking Group Ltd (ANZ) for two business loans. The total of the Company’s indebtedness to ANZ as of 14 January 2024 was $703,796.69.45 The Company holds a term deposit of $163,343.81 as of 9 January 2024 as collateral security for the business loans.46 68 Nonetheless, the Respondents submit it should be inferred from the ANZ’s requirement for the term deposit to be held as collateral security for the business loans, that Residence 2 is not sufficient security in itself. These are in my view unsafe inferences to draw when nothing further is known about the terms of the Company’s banking arrangements and why and for how long the collateral security is required. On the evidence, any inferences about the insufficiency of Residence 2 as security for the business loans shed no light on its value if sold ‘as is incomplete’. 69 Having regard to the onus the Respondents carry on this application, the absence of evidence about this does not advance the Respondents’ position. 40 Seventh D’Andrea Affidavit [10] and [11]. 41 Respondents’ Summary. 42 Exhibits JX-2 and JX-3 to the Fourth Xiao Affidavit. 43 Exhibit BMD-27 to the Seventh D’Andrea Affidavit. 44 Third Rad Affidavit at [10]. 45 Exhibit BMD-29 to the Seventh D’Andrea Affidavit. That is, two business loans plus debit balances for a commercial credit card and a bank account. 46 Seventh D’Andrea Affidavit [10] and Exhibit BMD-30. -- 12 of 28 -- [2024] SADC 17 11 70 Since March 2023, interest has been capitalised on the business loans at the rate of approximately $5,000 per month.47 This equates to increased bank liabilities in 12 months’ time of $60,000. It may be inferred that interest will continue to be capitalised as it has been since March 2023 in the short to medium term. In the absence of any further evidence as to the terms of the Company’s banking arrangements, there is no basis for inferring that the Company’s banker is not prepared to continue to be supportive or when and why that position might change. 71 The market value of Residence 2 in its incomplete state is contentious. 72 The Company relies on two formal valuations, each prepared by different licensed valuers of Residence 2 10 months apart. The first was prepared by Herron Todd White (HTW Valuation) as at 28 February 202348 and the second by Opteon (Opteon Valuation) as at 27 December 2023.49 73 The HTW Valuation assessed market value on an ‘as if complete’ basis at $1.3 million (Land at $650,000 and Improvements at $650,000) with an unfurnished rental assessment of $850 per week. In the Additional Comments’ section, the valuer notes the incomplete state of the works and notes four key matters pertinent to this application. 74 The first is obvious. That is, Residence 2 is partly completed, rendering the dwelling uninhabitable at the date of inspection. Secondly, ‘on advice’, there are remaining progress payments of $120,750 being 30% of the contract price of $402,500 (which was the case in February 2023). Thirdly, the contract price is considered below market construction costs having regard to the significant escalation in building costs since late 2020 when the contract was signed. Fourthly, and most relevantly:50 It should be noted that many construction projects which have not been fully established by owners and sold under adverse sale conditions have achieved prices considerably below initial land and building costs… 75 The Opteon Valuation (although prepared by a different licensed valuer is in the same format) assessed market value on an ‘as if complete’ basis 10 months later at $1.5 million (Land at $600,000 and Improvements at $900,000) with the same unfurnished rental assessment of $850 per week. The increased market value reflects updated sales evidence and the market, and specifically the sale of Residence 1 on 28 September 2023 at $1.41 million described in comparison to Residence 2 as “Overall considered slightly inferior to the subject property”.51 47 ANZ Bank statement comprising part of Exhibit JX-6 to Fifth Xiao Affidavit. 48 Exhibit OFR-20 to the Third Rad Affidavit. 49 Exhibit JX-7 to the Fifth Xiao Affidavit. 50 Op cit page 13. 51 Op cit page 38. -- 13 of 28 -- [2024] SADC 17 12 76 The ‘Additional Comments’ section contains some notable observations in comparison to the HTW Valuation. The first is the reference to the Contract. It had been terminated by the date of inspection, making the agreed contract price less relevant given the notorious observation made in the HTW Valuation that building costs have significantly escalated since the Contract price was struck. 77 The second is the bare statement that the dwelling was approximately 95% complete at the time of inspection in December 2023, a percentage the Company disputes and the Respondents acknowledge is overstated. This does not accord with the advice provided to HTW about 70% of progress payments made and is not supported by Mr Edgar’s evidence or a comparison of the photographs in each report that show that only minor further works (installation of bench tops) had been carried out between valuation inspections. 78 The third comment is emphasised by the Respondents as lending material support to their submission that both market valuations of Residence 2 are unreliable given their ‘as if complete’ basis:52 In providing the As If Complete market value, we have deducted an allowance for the estimated cost to complete the property to a fully established standard. We have also made a deduction for a profit and risk allowance, which reflects the expected discount a prudent purchaser would require for buying the property in this incomplete state, allowing for the effort, time and risk involved in completing the property. 79 There is no further explanation of the amount of the allowance for the estimated costs to complete or the discount for profit and risk. More specifically, this explanation as to the basis of valuation is inconsistent with the common sense qualifications made in the HWT Valuation and unsubstantiated assumption of 95% completion. For these reasons, I attribute little weight to this statement and consider the assessed market value in the Opteon Valuation should be approached on an ‘as if complete’ basis. I accept the increased market value ‘as if complete’ of $1.5 million is otherwise reasonable and reflects updated sales evidence and the market some 10 months after the HWT Valuation. 80 It follows, as the Respondents submit, the HTW and Opteon Valuations do not represent the market value of Residence 2 in its current incomplete state. It should also be accepted that a lesser price would be achieved than the assessed market value ‘as if complete’ if sold ‘as is incomplete’ and, further, under adverse sale conditions, a sale price “considerably below initial land and building costs” would likely be achieved. 81 However, once again the absence of evidence about the magnitude of the risk of a ‘distressed sale’ (as the Respondents put it) and what price might be achieved does not assist the Respondents’ position and presents a serious difficulty for the Respondents in discharging their onus on the threshold requirement. It should be 52 Ibid page 39. -- 14 of 28 -- [2024] SADC 17 13 emphasised again that it is not sufficient to merely show that there is a risk of such an outcome. 82 The Respondents’ next submission is that because the term deposit is held as collateral security, the Court should infer it cannot be used by the Company to pay another builder to complete the works, contrary to Mr D’Andrea’s evidence on instructions.53 83 To bolster their position in this regard, the Respondents submit the Court ought to infer from the amount of the business loans and the term deposit held as collateral security, that the ANZ Bank is only prepared to lend $540,000 against its valuation of the (incomplete) property in the order of $675,000 and therefore not prepared to lend any more to fund completion of the works. This limit was deduced by deducting the term deposit from the total of the business loans and assuming an LVR (Loan to Value Ratio) of 80%.54 84 The Respondents’ submissions are speculative. There is no basis for inferring the applicable LVR or, more importantly, that the ANZ Bank (or for that matter some other lender) is not prepared to lend any further funds to complete the works or will not agree to release the term deposit to fund the completion works. There may be a risk because it is held as “collateral” security on unknown terms, but as already stated, a risk is not sufficient. 85 The following matters significantly militate against such a risk. 86 First, considerable value will be unlocked on completion of Residence 2 ($1.5 million), securing current net bank liabilities of approximately $700,000 plus accruing interest. Secondly, the amount of the term deposit exceeds the amount to complete the disputed 30% or more of the works when valued by reference to the Contract price ($120,750) leaving some $40,000 for escalation before recourse is needed to any other assets or additional borrowings are required. Again, the absence of evidence as to the likely costs does not assist the Respondents’ position. Thirdly, the headroom between the market value when complete and the bank debt is almost double the Contract Price of $402,500 and sixfold the unpaid Contract value. These numbers appear sufficient to secure funding for a significant escalation in the costs to complete. 87 In conclusion, the evidence there is does not support the Respondents’ analysis and submission that the equity in Residence 2 ‘as is incomplete’ is a net $135,000 and both should be rejected. Nor am I persuaded that the Company’s net equity in Residence 2 ‘as is incomplete’ limits its capacity to fund completion of the works by further borrowings because of the insufficient value of Residence 2 or that the Company cannot have recourse to the term deposit on any terms. As 53 Seventh D’Andrea Affidavit [10] and [11]. 54 That is $700,000 less $160,000 is $540,000 grossed up on an assumed LVR of 80% to $675,000. -- 15 of 28 -- [2024] SADC 17 14 I have already said, the absence of evidence on these topics does not support the Respondents’ position. Other Assets and Liabilities 88 My conclusions in this regard are fortified by my analysis of the evidence of the Company’s other assets and liabilities. 89 Mr Rad gave written evidence to the effect that as at 17 December 2023 the Company has $101,097 cash in a bank account held with the Commonwealth Bank of Australia that includes the remaining proceeds of sale of Residence 1.55 The Respondents submit there is no evidence that the Company is the holder of the bank account because the screenshot from Mr Rad’s mobile phone evidencing the balance does not show any further detail.56 90 This submission should be rejected. Plainly, there is relevant evidence. Mr Rad has deposed to it being the Company’s asset twice. The real substance of the Respondents’ complaint is that the documentary evidence does not confirm Mr Rad’s evidence that the cash is the Company’s asset. For the purposes of this interlocutory application, I am prepared to accept Mr Rad’s evidence as truthful. 91 The Company’s only other liquid asset is in the form of a relatively substantial cryptocurrency portfolio. As at 16 January 2024, the value of the Company’s portfolio had increased since July 2023 from $141,388 to $197,785.60.57 These assets are highly volatile and whilst it should be accepted that the value will fluctuate as it has, that is not a reason to discount the asset as an important source of funds to meet ongoing liabilities (whether interest, legal or building costs). 92 The Company is the registered owner of a motor vehicle, a BMW M2 series coupe (the BMW). The dispute about who owned it was resolved during the hearing by the Company tendering the registration certificate.58 The Respondents now accept that the balance of the finance owing on the BMW as at 14 January 2024 was $79,671.91, requiring monthly payments of $1,325.78,59 leaving value and therefore net equity in the BMW as disputed issues. 93 The Respondents challenge the agreed insured value of $225,000 as not being evidence of its condition or market value, pointing to the lower purchase price of $145,000 after dealer charges and tax shown in a purchase order,60 the initial finance price of $115,000 and depreciation after four years of ownership. 55 Third Rad Affidavit [7.3] and [8.3] and Exhibit OFR-23. 56 Respondents’ Summary. 57 Seventh D’Andrea Affidavit [12] and Exhibit BMD-28. 58 Exhibit A1. 59 $79,671.91 as shown in Exhibit BMD-26 to the Seventh D’Andrea Affidavit. 60 Seventh D’Andrea Affidavit [7] and Exhibit BMD-25. -- 16 of 28 -- [2024] SADC 17 15 Ultimately, the Respondents submit the evidence shows there is no or negligible net equity in the BMW. 94 The Company submits there is significant net equity in the BMW on the evidence and the Respondents have not adduced any evidence to the contrary. It is said to be a specialist vehicle, as indicated by the low odometer reading and nominated annual distance to be driven of up to 1,000 km shown in the Enthusiast Motor Insurance policy.61 95 As to condition, the insurance policy shows it is undamaged, garaged and had a very low odometer reading as at 14 August 2023 of 1,239 km and a nominated annual distance to be driven of 1,000 km.62 As to value, whether it is a specialist vehicle or not does not resolve this question. Whilst the market value of the BMW is not known, it is reasonable to infer that its value would likely be in the range between its agreed insured value and the initial finance price and therefore there is now some net equity in it. Bearing in mind the evidence of its good condition, there is no evidence to show that it has depreciated materially below its purchase price of approximately $170,000 including taxes to below the current loan balance. Again, the absence of evidence of market value does not assist the Respondents’ position in light of the other evidence of considerably higher values. 96 The Company’s liability for unpaid legal fees as at 16 January 2024 was $138,566.77 including GST after a payment of $40,000 was made in partial satisfaction of this liability.63 The GST component is, of course, not a net liability. 97 Mr D’Andrea gave important evidence that the Company was not in default of its arrangements with his firm.64 There is no other evidence of the Company’s arrangement with its solicitors, by whom or how this payment was made and no basis for inferring when the Company will need to pay its solicitors and whether the incurring of future legal fees will prevent the Company from completing the Residence 2 works as is intended. 98 As to future legal fees, there is no evidence of the terms of the Company’s solicitors’ retainer before the Court. Whilst it should be accepted that the Company will incur further significant legal fees, the Respondents’ estimate for a two-week trial based on Mr Xiao’s estimate for the purposes of the Respondents’ application for security for costs is at best indicative at this stage of the proceeding. Failure to Provide Information Requested 99 In the solicitors’ correspondence and throughout the course of argument, the Respondents repeatedly complained the Company had failed to demonstrate that it 61 Exhibit OFR-21 to the Third Rad Affidavit. 62 Ibid. 63 Seventh D’Andrea Affidavit [16]. 64 Ibid [17]. -- 17 of 28 -- [2024] SADC 17 16 has the financial resources to complete the Residence 2 works and failed to provide clear evidence of the ownership and value of its assets. 100 I respectfully adopt the analysis of Justice Doyle in Mannix65 on this topic. It must be emphasised that the Company carries no onus in establishing the threshold requirement. Any failure to provide information requested is only relevant and assists in reaching a conclusion about the Company’s financial incapacity if there is other evidence casting doubt or concern on an issue. The Company’s refusal to proffer information requested by the Respondents must not be used to fill gaps in the evidence or elevate suspicion and conjecture into evidence by inference. The Company has no obligation in response to an application for security for costs to provide a full account of its financial position and fill any evidentiary gaps arising, particularly where the Respondents could have adduced relevant evidence. Key examples in this case are the market values of the BMW or Residence 2 ‘as is incomplete’. Conclusion as to Threshold Requirement 101 Finally, having regard to all the matters raised by the Respondents, I am not persuaded on the evidence that there is reason to believe that the Company will be unable to pay the costs of the Respondents if they are successful in their defences. Exercise of the Discretion 102 Given my conclusion that the threshold requirement has not been satisfied, it is unnecessary for me to consider how the Court’s discretion to order security for costs might have been exercised if I had found otherwise. Quantum of Security Sought 103 Whilst it is strictly unnecessary to consider whether the amount of security sought is appropriate, quantum is a relevant consideration as to the question of the Company’s incapacity to meet an adverse costs order. 104 The starting point is that the $75,000 sought as security is not an onerous liability by comparison to the magnitude of the Company’s assets and liabilities. 105 The amount of security sought is based on an estimate of costs prepared by the Respondents’ solicitor Mr Xiao, an experienced litigation solicitor. 66 Mr Xiao estimates the total costs to complete steps in the proceeding from the date of his letter requesting security for costs up until the first day of trial will be $90,880 ex GST. His estimate is made on the basis of the time to be taken by counsel and a principal solicitor at hourly rates of $300 and $530 ex GST respectively. The Respondents claim $75,000 in recognition that solicitors’ fees will be taxed at the scale rate. 65 Op cit [50]-56]. 66 Fourth Xiao Affidavit [18]-21]. -- 18 of 28 -- [2024] SADC 17 17 106 Having regard to the estimated time to complete the tasks identified, who they will be done by and the hourly rates, I consider insufficient reduction has been made for payment of taxed costs on the standard costs basis in accordance with the Higher Courts Costs Scale. I would further reduce Mr Xiao’s estimate made on a time costing basis on account of the notorious difference between time-charged and scale costs, the considerably lower hourly rates for solicitor’s attendances involving skill and those not involving skill, to allow some steps (such as discovery) to be undertaken by a clerk at a lower rate again, the excessive time estimated for a solicitor’s preparation for trial and consequent unnecessary duplication with counsel in carrying out this work. 107 In my view, a further reduction of $10,000 ex GST to $65,000 ex GST would be required if I had determined an order for security for costs should be made. Conclusion 108 For these reasons, I dismiss the Respondents’ application for security for costs. Application for Freezing Order Procedural History of the Application 109 The Company’s application for freezing orders against Mr Sun Junior as a prospective judgment debtor was filed on 11 July 2023.67 110 The orders sought are that Mr Sun Junior not remove from Australia or in any way dispose of, deal with or diminish the value of any of his assets in Australia up to the value of AUD$1 million, and in particular two properties (one at Vale Park and the other at Evanston Gardens) and the assets of his business the Builder company. No relief is sought against the First Respondent Builder. 111 As the Respondents (correctly) point out, Mr Sun Junior is not a shareholder of the Builder company and its assets are not his. 112 The application was opposed, and substantive argument proceeded on 4 August 2023. The Company relied on then filed written evidence of Mr Rad68, Mr Edgar69 and Mr D’Andrea.70 The Respondents relied on the written evidence of Mr Xiao.71 Both parties relied on written submissions.72 113 During the course of argument on 4 August 2023, the basis of the Company’s application ostensibly changed, and its counsel foreshadowed making an oral application to amend the application to seek a freezing order directly against the 67 FDN 21. 68 The First and Second Rad Affidavits. 69 The First and Second Edgar Affidavits. 70 The Affidavit of Mr D’Andrea made on 2 August 2023 (FDN 29) (the Third D’Andrea Affidavit). 71 Affidavit of Xiao made on 6 July 2023 (FDN 14) (the Second Xiao Affidavit) and the Third Xiao Affidavit. 72 FDN 30 and FDN 32. -- 19 of 28 -- [2024] SADC 17 18 Builder as well as relying on the principle in Cardile v LED Builders Pty Ltd73 as the foundation for the orders sought against Mr Sun Junior as concerns the Builder’s assets.74 114 The application was adjourned part-heard by agreement between the parties to allow the Company to consider and propose its amendment and provide the Respondents with an opportunity to put forward any further affidavit evidence to meet the change in the Company’s position.75 To preserve the status quo, Mr Sun Junior gave an undertaking not to deal with the Vale Park property without first giving two business days’ written notice.76 115 Although the Company ultimately chose not to amend its application, an affidavit of Mr Sun Junior (the Sun Affidavit) was filed in accordance with the Court’s directions. 77 The adjourned application was next mentioned on 23 August 2023 but not ultimately pressed pending a private mediation and ongoing settlement discussions. On 23 January 2024, the parties requested the Court rule on the Applicant’s application for freezing and ancillary orders against Mr Sun Junior on the basis the parties agreed to the tender of the following further written evidence: the Sun Affidavit and the Fifth and Sixth D’Andrea Affidavits. Relevant Legal Principles 116 In support of its application, the Company relies upon the Court’s power to make freezing and ancillary orders as expressly provided in rr 112.14 and 112.15 of the UCR: …for the purpose of preventing the frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partially unsatisfied.78 117 Rule 112.17 sets out the requirements for freezing and ancillary orders against a judgment debtor, prospective judgment debtor or third party in the following terms: The Court may make a freezing order or an ancillary order or both against a judgment debtor or prospective judgment debtor if the Court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because any of the following might occur— (a) the judgment debtor, prospective judgment debtor or another person absconds; or 73 (1999) 198 CLR 380. 74 T81.31-84.23. 75 T90.12-.22 76 T88.17-.22. 77 Affidavit of Xiaoshan Sun made on 11 August 2023 (FDN 35). 78 UCR 112.14. -- 20 of 28 -- [2024] SADC 17 19 (b) the assets of the judgment debtor, prospective judgment debtor or another person are— (i) removed from Australia or from a place inside or outside Australia; or (ii) disposed of, dealt with or diminished in value. 118 The general principles relating to the grant of freezing and ancillary orders are well-established and not in real contention here. In summary, an applicant must satisfy the Court of the following matters as are relevant to the circumstances of the case before any order is made. 119 First, there is a good arguable case79 on both facts and the law80 for an accrued or prospective cause of action. The threshold for demonstrating a good arguable case is low and all that is required is something which “is more than barely capable of serious argument and not yet necessarily one the judge believed to have a better than 50% chance of success”.81 120 Secondly, there is a danger that the prospective judgment will be wholly or partly unsatisfied because the prospective judgment debtor will abscond82 or the assets of the prospective judgment debtor will be disposed of, dealt with or diminished in value.83 The Court will be satisfied there is a danger that a prospective judgment will not be satisfied where there is a real risk of the judgment debtor absconding or dissipating assets.84 121 The fact that assets within the jurisdiction are moveable or the respondent is incorporated or resident outside the jurisdiction is not a sufficient basis for inferring a finding of a relevant danger. There must be conduct from which “a prudent, sensible commercial person” can “properly infer a danger of default if assets are removed from the jurisdiction”.85 122 The relevant danger must be established by evidence and not be mere assertion or speculation and conjecture.86 However, an applicant is not required to prove an actual intention on the part of the respondent to deal with their assets and defeat recovery of the prospective judgment sum. It is enough if the applicant 79 UCR 112.17(1) and (2). 80 Cardile op cit [68] per Gaudron, McHugh, Gummow and Callinan JJ. 81 Seeley International Pty Ltd v Millenium Electronics Pty Ltd [2020] SASC 205 (Seeeley) per Livesey J (as he then was) at [8] citing Brentwood Village Ltd (in liq) v Terrigal Grosvenor Lodge Pty Ltd [2014] FCA 1203, [24]. 82 UCR 112.17(4)(a). 83 UCR 112.17(4)(b). 84 Cardile op cit at [122]; Seeley op cit at [16] citing Yadlamalka Land Pty Ltd v Ragless [2018] SASC 131 (Yadlamalka) per Hinton J at [35]-[44]. 85 In Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194 per Kenny J at [12] citing Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 per Lawton LJ at 671. 86 Yadlamalka op cit at [43]. -- 21 of 28 -- [2024] SADC 17 20 establishes that in the absence of relief, there is a danger that the assets will be dealt with in a way that will prevent recovery of the judgment sum. 87 123 Thirdly, the balance of convenience favours the making of an order.88 124 As the authorities emphasise, 89 a freezing order is an exceptional or drastic remedy which should not be granted lightly. It imposes severe restriction on a respondent’s right to deal with their assets. Its purpose is not to provide an applicant with security in advance of a prospective judgment it fears may not be satisfied nor to improve the applicant’s position if the respondent were to become insolvent. 125 It is therefore important that any freezing order made be framed within the limits set by the purpose for which it can properly be intended to serve,90 including by not tying up assets beyond the extent of any likely judgment sum.91 Therefore, an applicant must satisfy the Court with some precision as to the value of the prospective judgment.92 126 Finally, no such relief should be contemplated without the provision of an undertaking as to damages.93 Approach to Determination 127 The logical approach to an application for a freezing order in the case of a prospective judgment is to first consider whether the applicant has established the threshold requirement that it has a good arguable case and then next consider whether the evidence establishes the requisite danger that a judgment will not be satisfied and address other discretionary considerations as are relevant. 128 It is unnecessary to do that here because the evidence clearly does not establish any real risk that a prospective judgment against Mr Sun Junior will not be satisfied because he might abscond or dissipate his or the Builder company’s assets. 129 For completeness, I mention there should be no real dispute that the Company has a good arguable case against the Builder. Much time was taken by the parties in debating the merits of the Company’s claims against Mr Sun Junior and whether the Court could be satisfied there was a good arguable case. Ultimately, given this threshold requirement is a ‘low bar’, I am satisfied that there is a ‘good arguable’ case against Mr Sun Junior. This is properly an issue for trial and determination of the contractual claim will require evidence of the surrounding circumstances to 87 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 325 per Gleeson CJ. 88 Seeley op cit at [6]. 89 Cardile op cit at [51]. 90 Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 625. 91 Cardile op cit at [124.] 92 McEntee v SJ Berry Pty Ltd [2024] SADC 8 per Burnett DCJ at [35]. 93 Cardile op cit [122] citing National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277. -- 22 of 28 -- [2024] SADC 17 21 determine whether the September Agreement was objectively intended to be binding or bind Mr Sun Junior in his personal capacity. Danger of Unsatisfied Judgment 130 In conclusion, the Company submits:94 The applicant submits that on the facts and circumstances of this matter, the evidence clearly establishes that there is a prima facie cause of action against the respondents and that there is a very real danger by reason of the respondents absconding or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, that the applicant, if he succeeds, will not be able to have his judgment satisfied. 131 The Company submits the danger of a prospective judgment against the Respondents not being satisfied arises in circumstances where the Respondents have made threats to sell up and flee the jurisdiction, there is a proposed sale of a property owned by Mr Sun Junior and the structures of the Builder company and intercompany relationships are opaque. The Company relies on these circumstances in combination, accepting each in isolation may be a ‘bit thin’.95 Alleged Threats to Sell Up and Flee the Jurisdiction 132 For the following reasons, I do not find the written evidence of the alleged threats to sell up and flee the jurisdiction compelling in all the circumstances. The relevant evidence is untested, was sworn some six months after the alleged meetings occurred in February 2023 and comprised in remarks informally translated by unknown third persons with no apparent authority to speak for the Builder or Mr Sun Junior. As it transpires, the threats attributed to Mr Sun Junior were made by his father, unknown to him. 133 Mr Rad and Mr Edgar both gave limited evidence about a meeting held at the Builder’s offices on 6 February 2023 to discuss progress of the works and defect rectification which was attended by them both, Tim (Mr Wei Yuan) and persons only known as ‘Amanda’, ‘Annie’ and ‘Mr Sun’. Tim and Amanda acted as translators for Annie and Mr Sun, who did not speak English. 134 It is Mr Rad’s evidence that Tim translated a remark made by Mr Sun to the effect of:96 If this project is going to cost us any more losses, we will sell everything, pack up and go back to China. 94 Applicant’s Submission FDN 30 [7.1]. 95 4 August 2023 T42.7-.11. 96 Second Rad Affidavit [5]-[6], emphasis supplied. -- 23 of 28 -- [2024] SADC 17 22 135 It is Mr Edgar’s evidence that Tim translated for Annie or Mr Sun words to the effect:97 If it cost that after what I’ve lost, we’ll sell everything, pack our bags and go back to China. 136 Mr Rad gave evidence of a second meeting held on 24 February 2023 at the Builder’s offices attended by among others Mr Edgar, Tim, Amanda, Annie, Mr Sun and a “man known to me only as ‘Binh’ who was introduced to me as an investor and director of the company.” 98 Mr Rad recalls ‘Binh’ saying words to the effect:99 I would rather send the company bankrupt and pay nothing. 137 Mr Rad’s account of the second meeting is not supported by Mr Edgar, who did not give any evidence about this meeting despite his being there, according to Mr Rad, and swearing an affidavit about the first meeting. I infer that the absence of his evidence does not assist the Company. 138 During the course of argument on 4 August 2023, the question arose as to whether the Mr Sun in attendance at these meetings was Mr Sun Junior (the Second Respondent and director of the Builder company) or Mr Sun Senior, who is not a party and is the majority shareholder of the Builder company. Mr Sun Junior’s subsequent written evidence makes clear it was not him in either meeting, he has never met Mr Rad or Mr Edgar and was not aware of the alleged threats until told by his solicitor Mr Xiao.100 139 Further, ‘Binh’ has no role and is not an investor involved in the Builder’s business. He is a director of the roofing and cladding sub-contractor retained by the Builder.101 140 The Respondents submit these alleged threats were made by a person with no formal or any role within the Builder company. That should be accepted on the evidence save it is now common ground that the Mr Sun in attendance at these meeting is Mr Sun Senior, the major shareholder of the Builder company and father of Mr Sun Junior, the director of the Builder company.102 141 There is on the evidence no basis for finding Mr Sun Junior made the alleged threats to sell up and flee the jurisdiction. This is a fatal flaw in seeking a freezing order against Mr Sun Junior on the basis there is a danger he might abscond. 97 Second Edgar Affidavit [6]; emphasis supplied. 98 First Rad Affidavit [8]. 99 Ibid [9]. 100 Sun Affidavit [3]-[7]. 101 Ibid [8]. 102 Seventh D’Andrea Affidavit [48]-[50]. -- 24 of 28 -- [2024] SADC 17 23 142 Finally, there is no evidence of any steps taken consistent with the alleged threats since February 2023. This is an important consideration fortifying my conclusion that little weight should be placed on this evidence in all the circumstances. Sale of Real Property 143 The Company further relies on an advertisement of a property for sale known as 4 Chase Grove, Vale Park (the Vale Park Property).103 Mr Rad describes the listing as the sale of a house and land package involving Mr Sun Junior’s land and a building contract with the Builder.104 Much was sought to be made by the Company during argument of the Builder’s role in dealing with the Vale Park Property. However, it is in my view not surprising or of concern that the Builder company, of which Mr Sun Junior is a director, would be a proposed party to a building contract on land sold by Mr Sun Junior as part of a house and land package, given their businesses. 144 Any concern that might arise from the advertised sale of the Vale Park Property is allayed when two further matters are appreciated. First, this is not Mr Sun Junior’s only asset. He is also the registered proprietor of another property known as 26 Andreas Avenue, Evanston Gardens (Evanston Gardens).105 There are two registered proprietors of this second property but the identity of the other proprietor is not known. Secondly, it is now apparent that the Vale Park Property has been on the market since about July 2022.106 It was purchased by Mr Sun in April 2022 with the intention of developing it, and in November 2022 he decided to demolish the existing house and build two new dwellings. Development approval from the Walkerville Council was received on 11 May 2023 and demolition work was planned to start in September 2023, and to the extent that the Builder performs any construction work Mr Sun Junior deposes that it will be done under a contract between Mr Sun Junior and the Builder.107 There is no reason to disbelieve any of this evidence. 145 In the circumstances shown by the evidence before me, I do not consider that the development and sale of one of Mr Sun Junior’s real property assets of itself or in combination with the other matters relied on demonstrates any real risk of a prospective judgment in favour of the Company being unsatisfied. Opacity 146 The Company further relied on the alleged opacity of the Builder company’s structure and intercompany relationships. This submission was grounded on two matters: first, the alleged lack of substantive information about the affairs of the Builder as a result of the Respondents’ alleged failure to provide certain 103 Second Rad Affidavit Exhibit OFR-15.4. 104 Ibid [47]. 105 Ibid Exhibit OFR-15.3. 106 Sun Affidavit [9]. 107 Ibid [9]-[13]. -- 25 of 28 -- [2024] SADC 17 24 information about its affairs as requested by the Company’s solicitors; secondly, concerns arising from its apparent relationship with other entities (Myland Constructions and JD Homes). The latter concern was based on Mr Rad’s internet searches of the websites of the Builder and the other entities. In essence, he deposed that the three website advertised the same common projects including an image of the redeveloped Vale Park Property owned by Mr Sun Junior.108 147 It should first be emphasised that these matters all concern the First Respondent Builder and not Mr Sun Junior, the person against whom the freezing and ancillary orders are sought. 148 In any event, the Company’s evidence on this topic largely comprised bare assertions, speculation and conjecture. Ultimately, any relevant concerns arising were addressed by Mr Sun Junior’s written evidence filed after the 4 August hearing but before the Company (and the Respondents) requested that the Court determine the application for freezing and ancillary orders against Mr Sun Junior. 149 It is plain that the web pages searched and printed by Mr Rad are identical in all respects save for the named vendor company. However, the images of ‘on sale’ properties relied on are images of new houses, and all that may reasonably be inferred from it is that they are offered for sale by these companies. More is required to infer any concern. 150 As to the other entities and their relationship with the Builder and Mr Sun Junior, whilst the Company apparently conducted searches of these entities it did not put them before the Court. Mr Sun Junior’s written evidence has since clarified a number of issues the subject of potential concern. First, he identifies a number of construction projects being undertaken by the Builder109 and deposes that neither he nor the Builder has any relationship with Myland Construction and JDE Homes, as shown in ASIC searches that he has now put in evidence.110 His written demands that these entities take down its website appear contrived at worst.111 151 The matters raised by Mr D’Andrea in his responding affidavit112 in January 2024 also do not assist the Builder’s position. First, the Respondents’ liquidity is not the issue.113 There must be conduct from which a danger of default can properly be inferred. Secondly, demolition of the house on the Vale Park Property was the subject of written notice in the form of Mr Sun Junior’s written evidence and therefore did not breach the undertaking given in Court on 4 August 2023. As the Respondents submit, continuing progress of their development projects is not only consistent with their carrying on their usual business but negates any inference of 108 First Rad Affidavit [48]-[50] and Exhibits OFR-16 and OFR-17; Second Rad Affidavit [12]-[14] and Exhibit OFR-19. 109 Sun Affidavit [14]-[15]. 110 Ibid [16] and Exhibit XS-4. 111 Ibid [17]. 112 The Seventh D’Andrea Affidavit [42]-[47]. 113 Ibid [42]. -- 26 of 28 -- [2024] SADC 17 25 an intention to abscond from the jurisdiction or dissipate their assets to avoid a prospective judgment. 152 Mr Sun Junior has shown by unchallenged evidence he is an Australian citizen and therefore no longer a Chinese citizen.114 There is no basis for inferring any risk of Mr Sun Junior absconding to China. Other Matters 153 The alleged non-payment by the Builder of two sub-contractors does not give rise to any relevant concern.115 It is consistent with the pleaded non-payment by the Builder the subject of the proceeding made in the context of one of the subcontractors telling Mr Rad this so Mr Rad would pay him. As already stated, the illiquidity of the Builder of itself does not give rise to any risk of abuse or frustration of the process of the Court by the dissipation of its assets. 154 The fact that the Company made payments in the past to the Builder into a bank account in the name ‘Dangling Homes’116 does not without more give rise to any adverse inference in favour of the Company’s application. There could be many explanations and all would be speculation. 155 As I ruled during the 4 August 2023 hearing, Mr Rad’s evidence as to his concerns about the Builder not being an established business or being unable to satisfy an award of damages is an inadmissible conclusion. It is for the Court to assess the evidence and determine whether the relevant risk arises. The purpose of the grant of a freezing order is not to create security in favour of the applicant Company for a prospective judgment or require the Respondents to provide security as a condition of being permitted to defend the claims brought against them.117 In any event, Mr Rad’s expressed and belated concerns lack credibility given his dealings with the Company since at least late 2020. Balance of Convenience 156 The balance of convenience does not favour the making of any freezing or ancillary orders as sought. Further, the orders sought are not confined to the limits set by the purpose of the freezing order: that is, a restraint against the disposal of assets only to the extent the applicant Company may be thought likely to recover from Mr Sun Junior. 157 First, any order generally restraining Mr Sun Junior from dealing with his business or the Builder’s assets (whose assets are not his) would unreasonably interfere with the operation of these businesses in circumstances where there is no 114 Sun Affidavit [18]. 115 First Rad Affidavit [52]. 116 Ibid [51]. 117 Jackson v Sterling Industries Ltd op cit per Deane J at 625. -- 27 of 28 -- [2024] SADC 17 26 evidence of any willingness to defeat a prospective judgment or real risk of that outcome justifying such interference. 158 Secondly, the Company has not established with sufficient precision the value of the prospective judgment against Mr Sun. The basis of the amount sought of AUD$1 million has not been established, bearing in mind that Mr Sun’s alleged liability only arises from delays since December 2022, the values of the Vale Park and Evanston Gardens Properties are unknown, and the latter property is jointly owned by Mr Sun Junior and an unknown third party. 159 Thirdly, there is no basis for restraining Mr Sun Junior’s assets to secure a prospective judgment against the Builder. That the Builder owns no real property or in fact may be impecunious is not a legitimate basis for seeking a freezing order against Mr Sun Junior for the Builder’s assets. Conclusion 160 The Company has not established on the evidence that there is a real risk that, absent the freezing order sought against Mr Sun Junior, any prospective judgment will be wholly or partly unsatisfied. The onus is on the Company to establish a real risk of asset dissipation and it has not done so. I place little weight on the untested alleged threats that are dated, were informally translated and did not involve Mr Sun Junior. I do not find the sale of the Vale Park Property evidence of asset dissipation as opposed to the carrying on of the Respondents’ usual business with a view to enhancing the property’s value. 161 Accordingly, I dismiss the Company’s application for freezing and ancillary orders against Mr Sun Junior. -- 28 of 28 --