In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541, Riordan J., (24 May 2022); Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624, Forbes J., (18 October 2022)

These cases have the common thread of a caveator attempting to block a sale, the second case being a reminder that a caveat removal application may morph into another form of restraining application.  In Ausun a caveat blocking completion of a sale by a Receiver and Manager was removed.  In Rowell a caveat was removed by consent and the caveator then unsuccessfully applied for a freezing order.

 

In In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541 the facts were –

• Ausun Property CBD Pty Ltd (Ausun) was trustee of a unit trust (the Trust).  Its sole director was Li Zeng.  The unitholders were a company, whose sole director was also Li Zeng, and Ziqian Wang.  The trust deed provided in substance that a unitholder was not entitled, merely by the holding of units, to the transfer of any property comprising the trust fund, or to interfere with the trustee’s powers to deal with the trust fund, or to exercise any rights in respect thereof.
• Ausun was registered proprietor of land in South Melbourne (the Properties).  It obtained planning permission to redevelop the land.  In 2020 Li Zeng returned to China and had not since returned to Australia.
• On 25 August 2021 Ausun was wound up for non-payment of a debt of approximately $12,000.  The liquidator attempted to interact with Li Zeng about delivery of books and records and attendance at his office.   Over the next few months: a solicitor for Li Zeng stated that he was awaiting instructions to seek orders to terminate the liquidation, then ceased to act and Li Zeng was uncontactable; the debt was repaid; the solicitor recommenced acting for Li Zeng and again foreshadowed an application to end the liquidation, subsequently seeking more time; the liquidator formed the view that it was critical for the assets to be realised and applied for an order appointing him Receiver and Manager of the trust assets;  Li Zeng’s solicitor commenced acting in this proceeding then ceased to act; on 19 November 2021 the receivership orders were made; from November 2021 Li Zeng ceased making payments under the first mortgage on the Properties.
• On 11 March 2022 the Receiver entered a contract to sell the Properties with settlement due on 25 May 2022.  In the contract the purchaser acknowledged that the Receiver was selling as such and included clauses 15.4 – 15.8 making provision for eventualities if the Receiver was later found not to have the right to sell.
• Li Zeng then engaged new solicitors who lodged a caveat on behalf of a unitholder and Li Zeng over the Properties and proposed to apply to terminate the liquidation.
• A mortgagee foreshadowed exercising the power of sale if the current sale fell over.
• The Receiver applied under the Transfer of Land Act s. 90(3) to remove the caveat and the Li Zeng and the unitholders applied for orders terminating the winding up and for injunctions restraining sale of the Properties.

The caveator argued that there was a serious question to be tried that the Receiver had breached his fiduciary duty in entering into the contract of sale: without properly consulting with Li Zeng; before being satisfied that Ausun was insolvent – alleging it would not be insolvent if certain debts owed to related companies were not enforced; and before properly investigating whether payment of a particular debt would be resolved.  It also argued that there was a serious question to be tried whether the purchaser had notice of the breach of fiduciary duty via the inclusion of clauses 15.4 – 15.8 in the contracts, as to which the caveators desired discovery.

Riordan J. ordered removal of the caveat and dismissed the other applications, holding –

1. There was no serious question to be tried of a breach by the Receiver of fiduciary duty. The Receiver had acted properly in selling the Properties. [61]-[63], [68]
2. The inclusion of clauses 15.4 – 15.8 in the contracts was insufficient to give notice of any otherwise unknown breach of duty. [64]-[65], [68]
3. There was no serious question to be tried merely by reason of the assertion, without more, that the caveator desired discovery.  There may be circumstances where there was sufficient basis for suspicion of notice by the purchaser such that the Court would maintain a caveat until after discovery, but they did not exist here.  Although there was evidence that the amount expended by Ausun on the Properties exceeded the sale price, it was not contended that the sale price was below the Properties’ true value and there was no evidence that the Properties would be of greater value in the hands of Ausun. [66]-[67]
4. The balance of convenience was against maintenance of the caveat. [61]
5. The orders sought by Li Zeng and the unitholders would not be made. [68]-[69]

In Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624 the plaintiff registered proprietor entered a contract of sale due for settlement on 17 October 2022.  On 12 September the first defendant caveated over the property.  On 12 October the plaintiff filed an application under the Transfer of Land Act s. 90(3) to remove the caveat, returnable on 14 October.  By the morning of hearing the caveator had not filed any affidavit material, although in correspondence its solicitors had focused on the plaintiff’s alleged wrongdoing and the need for a restraining order to compel discharge of a debt he allegedly owed to it arising from breach of fiduciary duties as director and from misappropriation.  While the hearing was stood down the caveator provided an affidavit, and the parties agreed that the caveat would be removed and that the first defendant would bring an application returnable on 17 October for an order under Order 37A of the Supreme Court (General Civil Procedure) Rules 2015 freezing the net proceeds of sale.  Forbes J. dismissed the application, holding that the first defendant had not established a good arguable case or a real risk of dissipation of funds.

  Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, February 28, 2023