Ip v Chiang  NSWSC 1549
Supreme Court of New South Wales
The first defendant sought a variation of a ‘restraining and asset preservation orders’ which the Court had made at plaintiff’s insistance. The orders restrained the first defendant from dealing with the properties. The first defendant sought to sell one property and to use the proceeds to retain lawyers to act on her behalf in proceedings. The plaintiff opposed the application contending that the Court could not entertain the application because the first defendant was in breach of the orders or, if the Court rejected this contention, the Court should refuse the application ‘on the merits’. The Court considered whether the first defendant was in contempt and whether the Court had the discretion to entertain or decline to entertain the application by the defaulting party. The court determined that the application was to be dismissed.
From the judgement ;
- “In dealing with the merits, it is important to distinguish between an asset preservation order on the one hand, and an injunction to preserve an asset which is the subject of the proceedings, on the other.
- An asset preservation order is made in cases where there is reason to think that otherwise the defendant will defeat the judgment by removing assets from the jurisdiction or dissipating them within the jurisdiction. Although the order may operate so as to provide security for the plaintiff’s claim, that is not its purpose. The purpose of the order is to protect the court’s processes and there is no justification for making an order which goes beyond the minimum necessary to do that.
- This explains why there will usually be an exception built into the order which permits the defendant to pay for reasonable living expenses and reasonable legal costs. Although such expenditure may result in the dissipation of assets, it is not a dissipation which can be regarded as an abuse of process: see Harrison Partners Constructions Pty Ltd v Jevena Pty Ltd  NSWSC 317 at .
- On the other hand, an injunction against dealing with an asset is usually granted where there is an arguable case that the court will ultimately find that the plaintiff has proprietary interest in it. In such a case, to make an exception allowing for the use of the property to meet the defendant’s legal costs could result in property belonging to the plaintiff being appropriated to the defendant’s personal use. Although that does not deprive the court of power to make such an exception, it is often a good reason not to do so: Gap Constructions Pty Ltd v Vigar Pty Ltd  NSWSC 1205 at .
- The distinction is reflected in the present case in the difference between the asset preservation order and what I have called the restraining order. The restraining order reflects the fact that Ms Ip makes proprietary claims against the proceeds of sale of the Redfern property, in particular to the extent that they can be traced into the Pyrmont properties. To the extent that tracing is not possible, the plaintiff has an unsecured claim which is protected by the asset preservation order.
- I have already recounted the sequence of events. On Ms Chiang’s evidence, the proceeds of the Redfern property were used to acquire the first three Pyrmont properties, namely the Pyrmont Street unit and the car spaces. But no more than $120,000 can have gone into the Harris Street unit. The balance was paid by the CBA and was later paid out by Mr Xu.
- The concession that Ms Ip has a strong prima facie case carries with it the concession that she has a strong prima facie proprietary claim to the first three Pyrmont properties. She also has a strong prima facie proprietary claim to part of the Harris Street property, but that does not exceed $120,000.
- The result is that the Harris Street property, which is presumably worth at least $600,000, is largely unencumbered by any proprietary claim. On the face of it, at least $480,000 in value is unencumbered, but this is subject to the asset preservation order. Counsel for Ms Chiang submitted that Mr Xu was effectively the owner, but there is no evidence before the Court from him to establish the basis on which he paid out the CBA; the payment could have been a gift to Ms Chiang or an unsecured loan.
- In these circumstances I am firmly of the view that if the Court were to permit Ms Chiang to raise funds from the sale of assets for the purpose of paying legal fees, that should be done from the Harris Street property (and even then on terms quarantining a sum of money sufficient to satisfy Ms Ip’s claim to proprietary entitlement to part of the property). There is no justification for allowing Ms Chiang to litigate at what would potentially be at the estate’s expense when she apparently has other assets available to fund the conduct the proceedings. I have not forgotten that Mr Xu appears to have a restitutionary claim, but on the evidence before the Court this may be no more than an unsecured one.
- It is not a foregone conclusion that the Court would permit recourse to the Harris Street property for the purpose of funding legal costs. The Court would have to take into account whether there are any other assets held by Ms Chiang (in view of the doubts about this question in the evidence). The fact that Ms Chiang’s dissipation of monies which could have been used to fund the proceedings occurred by gambling, which could be described as “wanton”, would also be relevant: see Harrison Partners at . It would also be necessary to consider Ms Chiang’s obligations to Mr Xu in more detail. But it is not necessary to go into these matters. Ms Chiang’s application concerns the Pyrmont Street property. This was confirmed by counsel for Ms Chiang when I raised the issue at the hearing. That application fails and must be dismissed.”