Duanmu v KPSS Development Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2024 01952

JIN DUANMU	Plaintiff
v
KPSS DEVELOPMENT PTY LTD (ACN 168 019 458)	First Defendant
and
CHH PROPERTY PTY LTD (ACN 608 744 761)	Second Defendant

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JUDGE:	Delany J
WHERE HELD:	Melbourne
DATE OF HEARING:	3-7, 10 February 2025
DATE OF JUDGMENT:	20 March 2025
CASE MAY BE CITED AS:	Duanmu v KPSS Development Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2025] VSC 128

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RESTITUTION – Money had and received – No evidence money paid in anticipation of contract as alleged – No total failure of consideration – Joint ventures – Evidence of cultural considerations relevant to whether contracts alleged – Contracts proved – Contractual remedies available – Chan v Eastern Blue Pty Ltd [2021] VSCA 121, Equuscorp Pty Ltd v Haxton [2012] HCA 7; Branir Pty Ltd v Owston Nominees Pty Ltd (No 2) (2001) 117 FLR 424, applied. Deng v Zheng [2002] NZSC76, referred to – Claims dismissed.

ESTOPPEL – Representations alleged not proved – Reliance not proved – Kramer v Stone [2024] HCA 48, applied – Estoppel claims dismissed.

MONEY DUE ON AN ACCOUNT STATED – Loan certificates relied on not signed or otherwise adopted – Commonwealth Dairy Produce Equalisation Committee Ltd v McCabe (1938) 38 SR (NSW) 397; Bank of NSW v Brown (1983) 151 CLR 514, applied – Claims dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ian UpJohn KC Nicholas Bird	VStar Lawyers
For the Defendants	Robert Craig KC Andrew McRobert	Norton Rose Fulbright Australia

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The witnesses...................................................................................................................................... 2

The chronology................................................................................................................................... 4

Issues on the pleadings................................................................................................................... 24

Restitution......................................................................................................................................... 29

The pleadings............................................................................................................................... 29
The applicable principles........................................................................................................... 33
The ambit of the dispute............................................................................................................ 36
The plaintiff’s submissions........................................................................................................ 36
The defendants’ submissions.................................................................................................... 41
Findings concerning the restitution case................................................................................. 42
No evidence to substantiate the pleaded case............................................................... 43
No total failure of consideration..................................................................................... 43
The Karrina joint venture................................................................................................. 46
The joint venture relating to Overture........................................................................... 53
Other binding contracts.................................................................................................... 56
Contractual Remedies are available................................................................................ 56

The estoppel claims......................................................................................................................... 59

The principles.............................................................................................................................. 59
The plaintiff’s claims................................................................................................................... 59
The defence to the estoppel claims........................................................................................... 60
No oral representations as alleged........................................................................................... 60
No written representations as alleged..................................................................................... 62
No implied representations as alleged.................................................................................... 63
No reliance................................................................................................................................... 65
No detriment................................................................................................................................ 66

The claims on an account stated.................................................................................................... 67

The principles.............................................................................................................................. 67
The plaintiff’s case....................................................................................................................... 68
The defendants’ response.......................................................................................................... 71
Findings concerning the account stated claims...................................................................... 75

Disposition........................................................................................................................................ 81

HIS HONOUR:

Introduction

This proceeding arises from the breakdown in the business and close personal relationship between two men, the plaintiff, Mr Jin Duanmu and Mr Huyi Li, the man who sits behind two property development projects in Kew, Victoria, undertaken by KPSS Development Pty Ltd (‘KPSS’) and CHH Property Pty Ltd (‘CHH’).

Mr Duanmu is the cousin of Huyi Li’s wife. Both Mr Duanmu and Huyi Li and their families lived in Shenzhen in the People’s Republic of China, until around 2020 when Huyi Li moved to Australia. Mr Duanmu continues to live in the People’s Republic of China.

KPSS undertook and completed a residential development at 134-136 Princess Street, Kew known as ‘Karrina’. CHH undertook and completed a residential development at 4 Barenya Court, Kew known as ‘Overture’. The Karrina development was financially successful and all of the apartments in that development have been sold. Money from the Karrina project to which Mr Duanmu and Huyi Li had contributed financially was rolled over to assist in funding the Overture development. As at December 2024, 13 of the 23 units comprising the Overture development remained unsold. The Overture development is expected to make a loss.

In substance, Mr Duanmu claims that he is entitled now to be paid in respect of his financial contribution to the two projects. The defendants do not agree. Their case is that until all the apartments remaining in the Overture project have been sold and it is known what funds are available for distribution, Mr Duanmu has no entitlement to be paid.

This is not a case where there are detailed agreements signed by the participants that govern rights and obligations in relation to the two projects. There are some documents signed by Mr Duanmu and Huyi Li. However, most of the dealings between the two men were not formally documented. Some documents were prepared and exchanged but not signed. Most written communications were via WeChat messages. Written documents and communications were in Mandarin, the first language of both Mr Duanmu and Huyi Li.

Huyi Li gave unchallenged evidence that in his experience in property development in China it is common for investors to agree on their respective contributions to a project through discussions with the other investors and to advance funds to the project without first signing any formal document confirming their agreement. Depending on the value of the project, it is also not uncommon, in his experience, for investors not to sign any formal document for the project at all.

Both Mr Duanmu and Huyi Li gave their evidence in Mandarin. Their evidence was translated by Professor Charles Qin OAM. In addition to translating their evidence, where disputes arose about the translation of documents from Mandarin to English, Professor Qin resolved those disputes. Where such disputes arose I proceed on the basis of Professor Qin’s evidence as to correct translation of such documents or words in documents. The same is the case concerning the interpretation of some taped conversations in Mandarin, about which there was some disagreement between the parties.

The dispute between Mr Duanmu and the corporate defendants and the issues that I need to decide are defined by the pleadings, current at the commencement of the trial. Having carefully considered the evidence within the framework of the pleadings, for the reasons that follow, I have decided that each of the claims by Mr Duanmu fail. The proceeding must be dismissed.

The witnesses

Mr Duanmu filed three witness statements in support of his case. Mr Duanmu was cross-examined. Overall I found Mr Duanmu to be a truthful witness. His answers in cross-examination were generally responsive. As discussed later in these reasons, there are some aspects of Mr Duanmu’s evidence which I do not accept.

Mr Duanmu also relied on the witness statements of his son, Qixuan Duanmu who lives in Shenzhen, and of an accountant employed by him in Shenzhen, Ms Dai Wang. The witness statements of Qixuan Duanmu and Dai Wang were tendered by agreement. Neither of those witnesses were required for cross-examination.

The defendants relied on the evidence of Huyi Li who made two witness statements. At the beginning of his cross-examination Huyi Li appeared to be a little hesitant when providing his answers but as his cross-examination progressed that became less so. Overall I found Huyi Li to be a truthful witness who answered questions put to him to the best of his recollection.

At the outset of the trial senior counsel for the defendants made an admission that Huyi Li was capable of binding both defendants. As a result of that admission, no questions of Huyi Li’s capacity, authority or ostensible agency arise.

The defendants relied on the evidence of Qian (Ian) Zhang who made two witness statements. Mr Zhang was cross-examined.

Mr Zhang is a Mandarin speaking accountant who migrated to Australia in 1991. He completed a Bachelor of Commerce at the University of Melbourne in 2000 and later a Masters degree in Finance. He became a certified practising accountant in 2003 and from 2003 until 2011, was employed by a professional services firm specialising in accounting and tax. In 2011 he established his own accountancy business, Longevity Group Pty Ltd (‘Longevity Group’). From the incorporation of KPSS and CHH Mr Zhang has provided accounting services to those companies.

I found Mr Zhang to be an impressive witness whose evidence was responsive, careful, clear and concise.

The defendants filed a witness statement and a witness statement in reply of Ms Yin Ren. Ms Ren is a resident of the People’s Republic of China with whom in 2015 Huyi Li had a good business relationship. At the conclusion of Mr Zhang’s evidence senior counsel for the defendants said that Ms Ren would not be called. Ms Ren’s witness statements were not tendered.

The son of Huyi Li, Xin (Shaun) Li is and from their incorporation has been a director of KPSS and CHH. Xin Li resides in Australia. No witness statement was filed on his behalf. Xin Li was present at the trial and after an order was made for witnesses out of Court he was the representative of the defendants who remained in Court.

Mr Duanmu submits that the Court should draw a Jones v Dunkel[1] inference from the failure on the part of the defendants to call Ms Ren and Xin Li.
[1][1959] HCA 8; (1959) 101 CLR 298, 308, 312, 320-321 (Kitto J) (Menzies J) (Windeyer J).

The chronology

The parties agree that in around December 2013 to January 2014 Mr Duanmu and Huyi Li had multiple conversations in which they discussed the formation of KPSS and the provision of funds for the purpose of developing a real estate project in Australia at Princess Street, Kew, which later became Karrina.

By late 2013 Huyi Li had engaged Mr Kuei Hsin (David) Liao to look for properties around Melbourne that would be suitable for investment.

In late January 2014 Mr Duanmu transferred $100,000 to an Australian bank account controlled by Xin Li and 1.1 million renminbi to a bank account controlled by the wife of Huyi Li. The fact of these payments and of later funds transfers by Mr Duanmu in relation to the two projects are not in dispute.

On 12 February 2014 KPSS was incorporated. The registered shareholders of KPSS are, and since its incorporation, have been:

(a) Mr Duanmu as to 47 shares;

(b) Xin Li as to 47 shares;

(c) Mr Kuei Hsin Liao (the father of David Liao) as to 3 shares; and

(d) DLX Creative Pty Ltd (‘DLX Creative’) (a David Liao company) as to 3 shares.

Huyi Li gave evidence, which I accept, that Mr Liao and DLX Creative were given shares in KPSS in return for David Liao’s skills and services. Huyi Li and Mr Duanmu discussed they needed good talent in Australia to assist them. In return for sharing his skills and performing work and providing resources David Liao was promised a share of profits.

The directors of KPSS from its incorporation have been:

(a) Xin Li (a permanent resident of Australia from around 2015) from 12 February 2014 and continuing;

(b) Mr Duanmu between 12 February 2014 and 28 January 2019; and

(c) David Liao between 12 February 2014 and 28 January 2019.

Huyi Li gave evidence that in early 2014 Mr Duanmu and he had a number of conversations over the telephone and via WeChat messages in which they discussed and agreed that:

(a)[they] would contribute to the deposit for the purchase of Princess Street in equal shares;
(b)[they] would contribute equally to the equity capital required to develop Karrina; and
(c)Mr Duanmu and [Huyi Li] would receive a return of [their] capital and share in the profits that KPSS would make from Karrina equally ([Huyi Li] expected Karrina would be profitable at this time)

In early 2014 KPSS purchased the land in Princess Street, Kew, later developed as Karrina, for $3.6 million.

The first directors meeting of KPSS at which Xin Li, Mr Duanmu, David Liao and Huyi Li (not a director) were present was held on 14 February 2014. On the same day Mr Zhang recorded a contribution of $300,000 in favour of KPSS comprising amounts previously transferred by Mr Duanmu.

On 21 March 2014 at the second meeting of the shareholders of KPSS, the shareholders agreed to purchase an additional parcel of land at 138a Princess Street, Kew.

By June 2014 Mr Duanmu and Huyi Li had contributed approximately $350,000 each towards the Karrina project by way of electronic funds transfers to accounts held by KPSS. While that was the case there was no signed or other document confirming or evidencing the agreement between the two men to contribute equally financially to the development, and to share equally the benefits and burdens as alleged by the defendants.

On 23 April 2015 Mr Duanmu (as party A) and Huyi Li (as party B) signed an ‘Agreement on the Joint Establishment of the Australian KPSS Investment Company’ (‘KPSS Agreement’). The KPSS Agreement was drafted by Huyi Li and signed at the office of DLX Creative in Melbourne. The KPSS Agreement followed discussions in China between Mr Duanmu and Huyi Li in April 2015 about how KPSS would be managed and how decisions about Karrina would be made.

The KPSS Agreement stated:

Party A, Jin Duanmu (Mr.), and Party B, Huyi Li (Mr.), have mutually agreed, through this agreement, to establish Australian KPSS Limited Investment Company, and jointly develop Australian real estate projects, in accordance with the following stipulations…

The KPSS Agreement contained detailed stipulations. Some of the matters stipulated in the KPSS Agreement occurred, being those highlighted below, others of the matters stipulated, including those not highlighted below, either did not or may not have occurred. Amongst other things the KPSS Agreement stipulated:

1. Registered Capital of the Company: AUD 1.5 million
2. Contribution Ratio and Contribution Amount:
Jin Duanmu (Mr.) contributes AUD 750,000, ratio 50%;
Huyi Li (Mr.) contributes AUD 750,000, ratio 50%.

3.Both parties shall share the investment returns and bear the risks in proportion to their contributions.
4.The board of directors shall consist of Jin Duanmu and Huyi Li, with Huyi Li serving as the Executive Director.
5.Both parties will jointly contribute AUD 1.5 million to invest in the Princess Street 134-136 land project. KPSS Company holds 100% ownership of the Princess Street 134-136 land project.
6.The company adopts a system of executive director responsibility. The Executive Director is responsible for formulating the company’s daily operating plans and all external cooperation plans, reporting to the board of directors for approval before implementation. The company’s normal operations shall strictly comply with local laws, and it may hire local professional teams to operate the invested projects.
7.Based on the principle of maximizing profits, costs shall be determined by comparison with local market prices, with the principle of not exceeding the amounts listed in the cost plan.
8.The Executive Director has the authority to approve expenses of up to AUD 5,000. For expenses exceeding AUD 5,000, a monthly expenditure plan must be submitted to the board of directors for approval. Project cooperation plans and normal company expenses shall be executed according to the monthly fund plan approved by the board.
9.All major matters, including land acquisition, sales pricing, and construction, shall be implemented after approval by the board of directors.
10.All investment funds shall be deposited into the designated company account, with an official receipt issued by the company, stamped, and confirmed by the Executive Director’s signature. All funds shall be deposited into the designated account, and professional financial management shall be engaged with a professional financial company, strictly adhering to financial procedures for financial income and expenditure management. A written report shall be submitted to the board of directors monthly.
11.The invested projects shall be scheduled reasonably according to the development progress to ensure the successful development of the projects. Other funds required for project development shall be raised through local loans or financing. If loans or financing are not available, alternative investment methods shall be discussed. After additional investment, formal registration changes shall be made to the equity and funds.
12.When the investment reaches AUD 4 million, either shareholder has the right to terminate further investment. The other shareholder has the right to purchase the terminated party’s equity at market value. If the other party does not purchase it, both parties must terminate the investment and sell all the equity in the project at market value.
13.Regular board meetings shall be held to supervise and inspect the company’s various business operations.

14.After the signing of this agreement, both parties shall contribute AUD 1.1 million on November 20, 2014, and AUD 400,000 on May 1, 2015, totaling AUD 1.5 million.

The KPSS Agreement dealt only with the relationship between Mr Duanmu and Huyi Li concerning the Karrina project. While their interests in the project were equal, as noted above, as at April 2015, David Liao at whose business premises the KPSS Agreement was signed, was not a party to the agreement but was and remains effectively a 6% shareholder.

Although the KPSS Agreement referred to Huyi Li as the Executive Director, he was not at that time a director of KPSS and did not later become a director. Huyi Li gave evidence, which I accept, that he told Mr Duanmu that his son Xin Li would serve as a director in his place and Mr Duanmu agreed.

While Xin Li was a director of KPSS from the date of its incorporation as was Mr Duanmu, Huyi Li gave unchallenged evidence that Xin Li was not involved in discussions between he and Mr Duanmu in relation to their investment in Karrina or in CHH.

By May 2015 Mr Duanmu and Huyi Li had each contributed about $750,000 towards the Karrina project.

In around September to October 2015 David Liao was engaged to locate properties around Kew that would be suitable for investment with a land budget of approximately $10 million. Mr Liao located the property at 2‑4 Barenya Court in Kew (‘Barenya Court’), later purchased and developed by CHH as the ‘Overture‘ development.

On 14 October 2015 CHH Property Pty Ltd was incorporated. Upon its incorporation, Xin Li became the sole director and sole registered shareholder. That remained the case at the time of trial.

On 29 October 2015 Huyi Li sent a WeChat message to Mr Duanmu enclosing information relating to Barenya Court telling him that the site was ‘feasible’, and inviting Mr Duanmu to inspect the site on 3 November 2015. On the same day Huyi Li sent the same information to Ms Ren.

After inspecting Barenya Court, in mid-November 2015 Mr Duanmu agreed to invest in the Overture project.

In November 2015 Huyi Li introduced Mr Duanmu to Ms Ren. Mr Duanmu, Ms Ren and Huyi Li formed a WeChat group. From around this time through to April 2016 Mr Duanmu, Ms Ren and Huyi Li had a number of conversations about the terms on which they would invest together in the Overture project. Ms Ren joined Mr Duanmu and Huyi Li as an investor in that project.

On 1 December 2015 CHH paid about $10,000 as an initial deposit for Barenya Court to enable due diligence to be undertaken. The initial deposit was paid from contributions by Mr Duanmu, Ms Ren and Huyi Li.

The defendants allege and Huyi Li gave evidence that in December 2015 and January 2016 Mr Duanmu, Ms Ren and Huyi Li agreed they would contribute respectively 40%, 40% and 20% by way of equity to the Overture project. Draft agreements stating the proportion of the investment would be 40:40:20 and that the three individuals would share the investment income and the operational risks according to that ratio were exchanged by email and WeChat messages on 26 December 2015 and 15 January 2016.

It is the defendants’ case, and I accept, that in December/January 2016 Mr Duanmu, Ms Ren and Huyi Li met in Shenzhen and agreed upon the relative proportions of their investment in CHH/Overture. At around the same time they agreed that Xin Li would be the sole registered shareholder and director of CHH and that he would hold all the shares in CHH on behalf of the three individuals as ‘invisible shareholders’.

Huyi Li gave evidence that Mr Duanmu told him he did not want to be a director or a registered shareholder of CHH. It was his evidence, that I accept, that Mr Duanmu said he wanted to be an ‘invisible shareholder’ because after his experience as a director of KPSS, he did not want to be responsible for signing documents on behalf of CHH, he did not want to be a guarantor of any loans relating to CHH, and because of the larger size of the investment, any application by him for FIRB approval to become a shareholder was more complicated.

On 22 January 2016 CHH contracted to purchase Barenya Court for $14.1 million. The settlement period was extended for 11 months because CHH needed to raise the funds required to settle the purchase.

On 26 January 2016 Mr Duanmu transferred $395,992.52 to KPSS as a contribution to CHH. On 27 January 2016 Mr Duanmu transferred $180,000 to KPSS as a further contribution to CHH.

On 28 March 2016 Huyi Li sent the following documents to Mr Duanmu and Ms Ren by WeChat message:

(a) a document outlining the capital contributions required from Mr Duanmu, Ms Ren and Huyi Li according to the ratios of 40:40:20;

(b) a CHH ‘Investment Contribution Certificate’ dated 3 March 2016 on the letterhead of Longevity Group;

(c) a document that set out the planned budget for the Overture development for 2016 and 2017; and

(d) a document that set out the process by which CHH would pay invoices for development expenses.

The Longevity Group ‘CHH Investor Contribution Certificate’ issued by Mr Zhang dated 3 March 2016 sent via WeChat on 28 March 2016 relevantly states:

The Investor Contribution Certificate serves as legal documentation confirming that the investor has fulfilled their legal obligation to contribute capital and has become an investor in CHH. The certificate is the investor’s proof of entitlement to rights and obligations within the company.
For company registration capital changes (paid-in capital) involving investor contributions, an investor contribution certificate is required…Longevity Group Accounting Firm must review and approve the request before a reissue or replacement can be issued.
The Investor Contribution Certificate is issued by Longevity Group Accounting Firm. Any unauthorised alterations are invalid.
1. Company Name: CHH
2. Investor and Investment Amount Details:
1) Boss Li contributed a total of $280,000.00 AUD to the company from the establishment of CHH to 28 January 2016.
2) Boss Ren contributed a total of $640,185.27 AUD to the company from the establishment of CHH to 20 January 2016.
3) Boss Duanmu contributed a total of $645,992.50 AUD to the company from the establishment of CHH to 5 February 2016.

As of 5 February 2016, CHH has received a total investment of $1,566,177.77 AUD.

On 1 June 2016, Mr Duanmu, Huyi Li and Ms Ren attended a shareholders meeting of CHH. The minutes relevantly record:

1. The total investment, profit and costs calculation plan of the project was approved and signed (see attachment);
2. The investment proportions of the three parties are: Jin Duanmu 40%, Ying Ren 40%, and Huyi Li 20%...

The attachment referred to in the minutes, the ‘total investment profit and costs calculation plan for the CHH project’, was not part of the evidence at trial.

On 2 June 2016 Mr Duanmu, Huyi Li and Ms Ren signed a cost control sheet titled ‘Karrina Development cost control table (AUD)’ next to the words ‘Board signature’. This document assumed some significance at the trial because although signed by Ms Ren, she was not a director of KPSS, she was not a shareholder in KPSS, and she had no financial interest in the Karrina development. In re-examination concerning Ms Ren’s signature on this document Huyi Li said that Ms Ren was good at cost control. He said she wanted to put the two projects together so there would be good cost control of future costs and to use the table as a template. I accept Huyi Li’s evidence about these matters.

As at 30 June 2016 the accounting records kept by Mr Zhang concerning KPSS recorded a loan to KPSS from Mr Duanmu of $2,212,238.35 and a loan to KPSS from Huyi Li of $2,019,638.62.

In July 2016 construction of the Karrina development began.

On 6 July 2016 and again on 14 July 2016, versions of a document titled ‘Barenya Project Development Investment Proposal (2-4) (Signed Version)’ were circulated. The proposal document recited that ‘shareholders’ will contribute funds according to their respective proportions outlined in this plan and ensure timely disbursement. Current shareholder equity distribution of 4:4:2 was specified. Although titled ‘Signed Version’ no signed version of this document was in evidence.

Around June or July 2016 Mr Duanmu, Huyi Li and Ms Ren discussed the funding of the Overture development. At that stage it was expected that approximately $9 million would be raised through external financing, $3.5 million would be lent by Ms Ren from her own funds and the remainder of the required funds would come from Mr Duanmu, Huyi Li and Ms Ren as their capital contributions.

On 6 and 14 July 2016 Huyi Li circulated versions of an investment plan for the Overture development to Mr Duanmu and Ms Ren. That document was not signed by Mr Duanmu or Ms Ren.

By around August 2016 difficulties had been encountered in relation to the amount of external funding for the Overture project. Although CHH had sought a loan for $9 million, the lender only committed to providing around $7.6 million.

On 30 August 2016 Mr Duanmu sent a WeChat message to Huyi Li referring to both projects. Mr Duanmu stated his ‘suggestion’ regarding the project investment plan:

1)The total investment for Karrian project is AUD 3.6 million with an additional AUD 1.7 million for engineering. The initial AUD 3.6 million will be split evenly at 50% each, resulting in AUD 1.8 million per shareholder. For the engineering addendum, shareholders each contribute 50% of AUD 1.7 million (AUD 0.85 million each).
2)The Barenya project… AUD 4.09 million is to be contributed by shareholders respectively in a ratio of 4:4:2 = AUD 1.636 million: AUD 1.636 million: and AUD 0.818 million.

On 1 September 2016 Mr Duanmu transferred $999,980 to KPSS with instructions to Huyi Li to allocate:

(a) $439,980 to the KPSS; and

(b) $560,000 to CHH.

It is common ground that the total amount deposited into KPSS’s bank account for and on behalf of Mr Duanmu was $3,769,022.22. Of Mr Duanmu’s total funds:

(a) $2,633,029.72 related to Mr Duanmu’s investment in KPSS; and

(b) $1,135,992.50 related to Mr Duanmu’s investment in CHH.

The evidence of Mr Zhang which is not in contest, is that $3,771,194.71 represents the total amount of funds:

that have been returned Mr Duanmu from KPSS… However, the $3,771,194.71 has not actually been remitted to Mr Duanmu and has, instead, been transferred to CHH and formed part of his investments in CHH.

On 9 September 2016, on 31 March 2017 and on 13 March 2018 Longevity Group prepared and provided ‘Investor Contribution Reports’ to the participants in the two projects. The form and content of those documents was similar to the 3 March 2016 ‘Investor Contribution Certificate’ reproduced above. Mr Zhang gave the following evidence concerning these reports:

23.Consistent with my experience with other Chinese-language investors, Shaun and Mr Li referred to funds advanced to KPSS (and CHH) as investments. While in some of the company documents that I prepared I recorded the investments from Mr Li and Mr Duanmu in KPSS as loans, I have never seen any documentation recording the terms on which any monies were loaned from either Mr Li or Mr Duanmu to KPSS (or CHH). Where no specific instructions are provided to me by a Chinese-language clients to treat their investments as equity or a loan my usual practice is to record investments as loans in the company’s accounts. Other company documents that I prepared, characterise the funds advanced by one or other of the investors in KPSS (and CHH) as equity or capital contributions (and not loans). For example:
(1)the initial contributions made by the investors of KPSS in FY2014 were described as capital contributions, not loans; and
(2)I regularly prepared “Investor Contribution Reports” (and similarly named documents), which referred to funds advanced by investors in CHH as equity contributions…

On 24 November 2016 CHH entered into a loan agreement in writing with Ms Ren with a limit of $3.5 million for the stated purpose of the purchase of Barenya Court, Kew and working capital (‘November 2016 loan’). The November 2016 loan agreement with Ms Ren is a lengthy formal document, apparently prepared by or based on a precedent prepared by an Australian lawyer. The agreement includes the grant of a fixed and floating charge over the assets and undertaking of CHH in favour of Ms Ren. The loan was personally guaranteed by Xin Li. The agreement was signed by Ms Ren, by CHH and by Xin Li as guarantor. This formal loan agreement is the only document of this character in evidence signed by any of the relevant participants in respect of either the Karrina or Overture projects.

The term of the November 2016 loan is two years. There is no evidence the loan has been repaid. There is no evidence that enforcement action has been taken by Ms Ren under the November 2016 loan agreement.

Settlement of the purchase of the Barenya Court land occurred between December 2016 and January 2017.

On 15 May 2017 Ms Yiying (Delia) Wang, Ms Ren’s daughter who was involved in working on the CHH development project in Australia in a managerial capacity, sent an email to Huyi Li, Mr Duanmu and Ms Ren stating:

Dear Shareholders,
The shareholder investment certificates issued in April have been signed by all shareholders. The current CHH Company shareholder investment amounts and allocation ratios are as follows:
Duanmu: 2,291,901.82 (35.35%)
Ren: 2,588,780.27 (39.93%)
Li: 1,602,959.61 (24.72%)
According to the agreement at the 2016 shareholders’ meeting, the investment allocation ratios of the shareholders should be Duanmu 40% / Ren 40% /Li 20%. Hereby, we hope the shareholders confirm the final investment ratios of CHH Company, whether to invest according to the originally agreed 4:4:2 ratio, or to use the current investment ratios for future investments…

In around September 2017 KPSS completed construction of the Karrina project. The last apartment was sold in May 2024. By the end of the Karrina project Huyi Li had contributed $4,226,120.24 and, as noted above, Mr Duanmu had contributed $3,769,022.22.

In late 2017 CHH received planning approval for the Overture development.

On 6 December 2017 Delia Wang sent a further email to Mr Duanmu, Ms Ren and Huyi Li attaching a ‘shareholding nominee agreement’. The first paragraph of that document states:

1. The Trustee [Xin Li] acknowledges that he/she will hold the shares of CHH Property Pty Ltd. (hereinafter referred to as CHH) as a nominee for the Principals, where the equity interests of the Principals Jin Duanmu, Ying Ren and the Trustee Xin Li are determined based on their investment proportions of 4:4:2. The estimated total investment of CHH is AUD 16 million. As per the agreement upon completion of the investment, the three parties, Jin Duanmu, Ying Ren and Xin Li, are expected to receive AUD 6.4 million, AUD 6.4 million and AUD 3.2 million respectively…

Delia Wang invited the recipients of her email to let her know if they had any questions about the agreement. She proposed that once everyone was agreed the document would be translated into English and signed in both Chinese and English.

Having circulated the draft ‘shareholding nominee agreement’ on 6 December 2017, on 14 December 2017 Delia Wang followed up the ‘shareholders’ to enquire whether they had any comments or suggestions upon review. A short time later Mr Duanmu responded to Delia Wang’s email ‘no, I agree’.

In January 2018 Huyi Li delivered a copy of the ‘KPSS Distribution Draft Explanation’ document to Mr Duanmu. The KPSS distribution plan to which the ‘Distribution Explanation’ relates lists the shareholders in KPSS as Mr Duanmu and Huyi Li. Under the heading ‘5. Distribution’ item 3 states as follows:

(Remarks: Huyi Li’s shareholding needs to be further subdivided as follows)
A. Huyi Li’s total investment amount is $2,633,029.72, including Ying Ren’s RMB3,000,000, which is equivalent to $517,920… Huyi Li accounts for 37.75% of the total investment; Ying Ren accounts for 9.25% of the total investment…

Huyi Li was cross-examined about the reference to subdividing his shareholding such that Ms Ren ‘accounts for 9.25% of the total investment’. Mr Duanmu submitted the reference to ‘subdivision’ ’suggests uncertainty about the shareholders in KPSS. I do not agree. The reference to Ms Ren arises because of a debt at that time owed to Ms Ren by Huyi Li. The reference to Ms Ren reflects her status as a creditor of Huyi Li. It does not impact upon the 50:50 arrangement between Huyi Li and Mr Duanmu.

I do not consider the failure on the part of the defendants to call Ms Ren in relation to this or other issues raised at the trial to be material when it comes to deciding whether there were joint venture or other relevant agreements as alleged by the defendants. In closing address Mr Duanmu did not identify any particular issue upon which it was submitted Ms Ren could have given material evidence if called.

On 5 March 2018 Delia Wang sent an email to Mr Duanmu, Ms Ren and Huyi Li attaching a revised version of the draft CHH Shareholding Nominee Agreement.

The agreed chronology records that on about 28 March 2018 Huyi Li and Ms Ren signed a CHH ‘Shareholding Nominee Agreement’.

Huyi Li gave evidence in his witness statement that on 13 April 2018 Mr Duanmu sent him a document relating to CHH, referred to in Huyi Li’s evidence as a ‘Fixed Return Agreement’ via WeChat. Huyi Li responded saying, ‘Don’t rush, I will provide my opinions in writing later’. I note that the title of the document located in the Court Book at the reference in Huyi Li’s witness statement is ‘Cooperation Agreement’ rather than ‘Fixed Return Agreement’.

On 29 October 2018 Huyi Li sent a draft loan agreement between Mr Duanmu and Huyi Li with Ms Ren named as a guarantor and a draft of a further loan agreement which he had received from Mr Duanmu to Ms Ren. These documents related to CHH. It is not in dispute that Huyi Li did not at any stage agree to these documents or their terms.

On 3 November 2018 Mr Duanmu sent copies of a draft loan agreement in relation to CHH and a draft document entitled ‘Profit Distribution Agreement’ to Ms Ren and Huyi Li. WeChat messages were exchanged between Mr Duanmu, Ms Ren and Huyi Li concerning the draft documents.

On 5 November 2018 a ‘Profit Distribution Agreement’ (‘PDA’) between Huyi Li as party A and Mr Duanmu as party B was signed in Shenzhen. The PDA was prepared by Mr Duanmu’s accountant and his external lawyer in China.

Because of its significance to the issues in dispute it is helpful to set out the text of the PDA in full:

Profit Distribution Agreement
Party A: Huyi Li Party B: Jin Duanmu
ID: 520112196207010012 ID: 210102196209011013
Signing place; Futian District, Shenzhen
The KPSS project developed by A and B in co-operation has been basically completed in March 2018, Party A allocates the investment income for Party B. After friendly negotiation between the two parties, they sign this agreement and abide by it together.
1.Principle of distribution: Party B distributes the net profit of the company in cash in priority according to the principle of net profit distribution; Net profit refers to the income after deducting the various taxed, bank charges and other expenses payable for the purpose of generating the investment income.
2. The agreement currency unit: all currencies in the agreement are Australian dollars (AUD)
3. The amount of allocation: Party B’s allocation of funds for this time contains: Party B’s investment into the project, $2,633,029.71 *handwriting: P2, profit generated by the investment: 1) Unit F102, $720,000; 2) net income $880,000; 3) other fund (before tax): $50,000 *handwriting at the left margin: $165,000. Funds to be distributed to Party B this time totalling $4,283,029.72.

4. Distribution method and timing of Party A’s payment:
1)As of 30 October 2018, Party A has paid $1,160, 002.21 *handwriting: KPSS refund containing principle. 738,587.84+344,139.78; KPSS dividends distribution 96,971.76-9,697.17 to CHH, which constituted Party B’s investment in CHH company, details can be found in Breakdown of Payment Schedule Arrangement.

2)The ownership of KPSS project’s Unit F102 goes to Party B and be held by Party A on trust. This transfer of interests shall be deemed as a payment of the net profit of $720,000; Party B shall determine the period the unit to be held on trust; Party A cannot buy or sell the unit without authority while it holds the property on trust; the rental income belongs to Party B; management costs shall be met by Party B; Party A shall designate a person to provide Party B a monthly income and expenditure schedule, and deposit the rental income to Party B’s designated account.
When Party B requests for the property to be sold, Party A shall sell the unit to a third party According to Party B’s request at the market price. Party shall receive all the sale proceeds, and bear part of the associated value-added tax (value-added portion = selling price - $720,000).
3) Payment of the remaining funds to Party B ($2,353,027.51) shall be made according to the payment schedule provided by Party A.
4) Payment of other funds (before tax) of $50,000 to be made on 30 December 2018.
5) The above funds will be transferred to Party B’s account or an account designated by Party B. Relevant confirmation documents will be provided.
6) If the payment is not made on time, Party A shall pay interest at 0.05% per day on the amount of outstanding amount. The time of payment shall be determined by the relevant confirmation documents provided by Party A.

5. Other matters of the company: Party B provided guarantee for the company’s loan for the project’s development and construction (starting from 30 June 2018, Party B has completed its guarantor’s responsibility, and Party A shall bear the responsibility of subsequent guarantee). Starting from 30 June 2018, Party A terminates Party B’s guarantee responsibility; Party A shall bear the consequences of the responsibility arising from the unreleased guarantee.

6. Dispute resolution method:
Any disagreement during the performance of this contract shall be resolved by mutual negotiation. If the negotiation fails, the parties agree to bring the matter to Shenzhen Futian District People’s Court for judgement.
7. This contract becomes effective from the date of signature. ID cards are attached as an annexure to this agreement. The contract is in duplicate, with each party holding a copy, which carries the same legal effect.

Party A (signature) *Signed
Date of signing the contract: 5.11.2018
Party B (signature) *Signed
Date of signing the contract: 5.11.2018

On 7 November 2018 Huyi Li as party A and Mr Duanmu as party B signed a ‘Project Cooperation Fixed Return Distribution Agreement’ (‘FRA’) in Shenzhen. Ms Ren was named as ‘Party C’ to that agreement. Ms Ren initially refused to sign the FRA however, on 23 December 2018 she did so with an additional handwritten note next to her signature.

Because of its significance to the issues in dispute it is helpful to set out the text of the FRA in full:

Project Cooperation Fixed Return Distribution Agreement
Party A: Huyi Li
Address: B-1402, Building 3, CITIC Mangrove Bay Flower City, No. 8, Second Road, Nanshan District Shenzhen, Guangdong Province
ID: 520112196207010012
Party B: Jin Duanmu
Address: 17D, Building Q, Swan Castle, Nanshan District, Shenzhen
ID: 210102196209011013
Party C: Ying Ren
Residential Address:
Identity card:
Signing place: Futian District, Shenzhen
Huyi Li (hereinafter referred to as Party A) is the father of Xin Li. Party A is CHH Property Pty Ltd (hereinafter referred to as CHH), which was established with Xin Li’s capital. Its address: Suite 13, 53 coppin street, Richmond, Vic 3121. Since January 2016, CHH has invested in the development of 2-4 BARENXA real estate project. Party A, due to funding needs, has joined with Party B and Party C to co-finance the development of the real estate project of 2-4 BARENXA. Party A will participate in the operation and management of the Company, Party C will participate in the financial management of the Company, and Party B will not participate in the operation and management of the Company. Party B and Party C will be the invisible shareholders of CHH, with Party B owning 40% of the shares of CHH; Party C owning 40% of the shares of CHH; and Xin Li owning 20% of the shares of CHH.
As Party B is not involved in the operation and management of CHH, in order to safeguard Party B’s investment principal and profit, Party A and Party C unanimously agree to enter into this agreement, which shall be binding on all three parties.
I. Amount of Party B’s investment
1. The currency unit of this contract is Australian dollar (AUD).
2. Party B has transferred the amount to the company designated by Party A (CHH Property Pty Ltd.) according to Party A’s request. The fund will be used for completing the development of 2-4 BARENXA lot. The investment amount is transferred in cash, and will be confirmed by the amount actually received (all transferring costs will be met by Party B).
3. Party A acknowledges that it has received the investment amount transferred by Party B in Party A’s designated account from January 2016 to 31 October 2018, totaling AUD3,939,504.03 (see Schedule 1 for details), the total investment shall not exceed AUD4,800,000.00.
4. The remaining part of the investment shall be paid out of the investment principal amount (cash portion) in the KPSS Company repayable to Party B, totaling AUD2,353,027.51 *handwriting: 2633029.72-728587.84-344139.78-(96971.76-9697.17). Party A shall pay (see investor’s capital contribution certificate) to CHH account as needed, and Party B’s total investment shall not exceed AUD4,800,000.00. The specific transfer time and procedures shall be completed by Party A and KPSS Company.
5. If the capital requirement of the project exceeds AUD4,800.000 during the project development, the two parties shall negotiate and enter into a separate contract according to the situation.

II. Investment period
Party A expects to start formal construction from April to November 2019 (actual timetable is subject to the construction contract), the project development cycle is as follows.
1)        Sales period: 10.11.2018~110.11.2019 (one year)
2)        Construction period: 11.2019~5.2021
3)        Settlement period: Delivery in 6.2021
Within twelve months after the completion of the project (before 30 June 2022), Party A is required to settle all the payments to Party B. In case of construction delay, Party B should be notified 3 months in advance and a supplementary agreement should be entered into subject to negotiation.
Invest return (investment principal + profit)
1. As Party B is not involved in the operation and management of CHH, Party A and Party C shall guarantee that Party B will get a profit of not less than AUD2,240,000 (based on the cost control table provided by Party A and Party C). If the profit exceeds this amount, the excess will be distributed in proportion to Party B’s 40% shareholding.
2. The actual principal and profit amount shall be confirmed according to the amount deposited to Party B’s account or Party B’s designated account, and Party B shall bear the personal tax arising from the portion of the profit obtained by Party B.
3. Party A shall adopt the most cost-effective method to transfer Party B’s profit to the designated account.

IV. Repayment Period and Repayment Arrangement of Funds
1. As a matter of principle, Party A and Party C agree to prioritise repaying Party B’s principal and profits within twelve months after the completion of the project construction.
2. The principal shall be paid two months after the completion of the project construction, and the whole principal shall be repaid within three months.
3. Within three months after the completion of the project and within nine months after payment of principal, all the profits shall be repaid.
4. If Party A and Party C fail to perform the contractual obligation of payment within the stipulated period, Party A and Party C unconditionally agree to grant Party B the right to sell properties of CHH project through auction, the proceeds of which will be used to repay Party B’s principal amount as well as the profit. Party A and Party C unanimously agree to bear the expenses incurred due to the auctioning of the property.

V. Liability for breach of contract
If there is a failure to repay Party B all the money according to the period stipulated in Clause 4 of this Agreement (the time shall be based on the transfer date in the payment certificate), Party A, Party C and CHH unanimously agree that Party A and CHH Company shall bear the overdue interest of 0.05% per day as penalty interest, and shall bear the litigation costs, arbitration costs, lawyer costs, traveling costs, appraisal, notarisation, and translation costs incurred by Party B for the purpose of realisation of the claim.
VI. Other
1. The parties may reach a written supplementary agreement by consensus in the process of co-operation for any matters not covered in this agreement, and the supplementary agreement shall have the same legal effect.
2. This Agreement shall enter into force after signing by all parties and shall have the same legal effect. The identity documents of all parties to the contract are annexed to this agreement.

When Ms Ren signed the FRA the note next to her signature, as translated by Professor Qin reads as follows:

if at the end of July 2019 changes in the investment of this project happened, then this agreement will be re-negotiated.

On 28 January 2019 Mr Duanmu and David Liao ceased to be directors of KPSS.

In January 2021, shortly prior to the onset of the COVID-19 pandemic, construction of Overture development commenced. Construction was delayed and sales of the apartments were adversely impacted by the pandemic.

In around August 2023 practical completion of the Overture development was achieved.

On 5 and 6 March 2024 and also on 13 and 15 March 2024 meetings took place in Kew attended by Huyi Li, Xin Li, Mr Duanmu, Qixuan Duanmu and Mr Zhang. At the time those meetings took place Mr Duanmu was staying as a guest of Huyi Li at his home in Melbourne. There is a contest about what occurred at these meetings and about the circumstances surrounding the provision of two ‘Loan Certificates’ dated 15 March 2018 upon which Mr Duanmu places significant weight in the conduct of his account stated claim. Because of their significance it is helpful to reproduce the Loan Certificates in their entirety.

The KPSS loan certificate dated 15 March 2024 (‘KPSS loan certificate’) is in the following terms:

KPSS LOAN CERTIFICATE
I. Full name of the company: KPSS Development Pty Ltd
Minutes of the meeting on 14 March 2024:
1.The total loan injected by Jin Duanmu in KPSS is AUD $2,633,029.72.
2.After the profit distribution agreement signed by both parties on 5 November 2018, it was confirmed that the return on investment in KPSS Company is AUD $1,650,000.
3.The total assets of Jin Duanmu in KPSS are AUD $4,283,029.72. ($2,633,029.72 + $1,650,000 = $4,283,029.72)
4.From 10 September 2018 to 21 September 2020, KPSS Company has returned Jin Duanmu loan principal of $1,904,441.88.
5.From 10 September 2018 to 21 September 2020, KPSS Company has repaid Jin Duanmu loan interest of $598,067.80.
6.Finally, Jin Duanmu’s remaining loan interest in KPSS is AUD $954,960.44 (please refer to the annexure for the detailed calculation regarding this figure). The personal income tax generated by the remaining loan interest shall be borne by KPSS company.
Date of review and issuance: 15 March 2024
KPSS (signature)
Jin Duanmu (signature)

The CHH loan certificate dated 15 March 2024 (‘CHH loan certificate’) is in the following terms:

CHH LOAN CERTIFICATE
I. Full name of the company: CHH Property Pty Ltd
Minutes of the meeting on 14 March 2024:
1.CHH Company borrowed AUD cash from Jin Duanmu in the amount of $3,056,469.43.
2.Through the KPSS Company agreement distribution transfer-in, CHH Company borrowed from Jin Duanmu the total amount of AUD $3,318,372.11.
3.The total amount borrowed by CHH Company from Jin Duanmu is AUD $3,056,469.43 + $3,318,372.11 = $6,374,841.54 (please refer to the annexure for a detailed calculation regarding this figure).
4.Paragraph 3 of Clause 1 in the Fixed Return Distribution Agreement for Project Cooperation signed by CHH Company and Jin Duanmu on 23 December 2018, where it says, “but the total amount does not exceed AUD4,800,000.00 yuan,” is to be adjusted to “but the total amount does not exceed AUD$6,374,841.54 yuan.”

Date of review and issuance: 15 March 2024
KPSS (signature)
Jin Duanmu (signature)

Issues on the pleadings

Mr Duanmu’s written closing submissions summarise his case as follows:

The Plaintiff seeks to recover the monies advanced by it to KPSS and CHH on three distinct, but necessarily inter-connected, causes of action, namely:
·Restitution of monies paid for a consideration which has totally failed;
·Estoppel for misrepresentation; and
·Accounts stated.

None of the three causes of action in the form pleaded and relied on by Mr Duanmu at trial formed part of his pleaded case when he issued the proceeding on 24 April 2024. Nor were any of those causes of action pleaded or relied on by Mr Duanmu when he obtained an ex parte freezing order against the defendants and against Huyi Li and Xin Li on 6 May 2024, or when that freezing order was extended on 13 May 2024, 3 June 2024, 16 August 2024 and 6 September 2024.

When Mr Duanmu issued the proceeding and until 20 December 2024 his case was about recovering debts said to be due to him from the defendants. Mr Duanmu alleged two oral loan agreements payable on demand. One in January 2014 between him and KPSS (the ‘First Loan Agreement’), the other, in October 2016, between him and CHH (the ‘Second Loan Agreement’). In his original statement of claim, Mr Duanmu claimed payment of $4,329,022.22 from KPSS and $1,920,476.93 from CHH pursuant to those alleged loan agreements.

On 11 June 2024 Mr Duanmu amended his statement of claim to claim $5,419,022.22 from KPSS pursuant to the First Loan Agreement and $4,160,476.93 from CHH pursuant to the Second Loan Agreement.

Between 25 November 2024 and 13 December 2024 Mr Duanmu foreshadowed a radical change to his case. Drafts of a proposed amended statement of claim were provided. In those drafts and in the second further amended statement of claim dated 20 December 2024 (‘2FASOC’) upon which Mr Duanmu relied at trial, the previous claims that relied on the existence of the First Loan Agreement and the Second Loan Agreement were abandoned.

Mr Duanmu no longer brings a claim that depends upon the existence of a binding contract to which he was a party. On the contrary, his primary claim, a claim for restitution for monies had and received is dependant for its success on the proposition that relevant contracts were never concluded, or, if they were, any such contract has been abandoned and the parties have ‘moved on without entering into a new contract’.

The 2FASOC seeks $3,769,022.22 in restitution from KPSS as monies paid for consideration which has totally failed. Mr Duanmu makes a claim for $1,920,476.93 against CHH based on the same cause of action. In written closing submissions Mr Duanmu’s restitution case, of which monies had and received is a ‘subclass’,[2] is described as follows:

in this matter the plaintiff maintains that a contract was never concluded or, if it was, it has been abandoned and the parties have moved on without entering into a new contract.

[2] Nu Line Construction Group Pty Ltd v Fowler [2014] NSWCA 153; 87 NSWLR 214 [10] (Mason P, Spigelman CJ and Campbell JA agreeing).

It is now the defendants who plead and rely on allegedly enforceable contracts relating to the Karrina and Overture developments; different contracts concerning the two developments, pleaded in the alternative in answer to the restitution claim. In his reply Mr Duanmu denies the existence of each of the contracts alleged.

Mr Duanmu’s second cause of action relies on estoppels. In his June 2024 amended statement of claim Mr Duanmu made an alternative claim based on estoppel. In the 2FASOC, in the alternative to his restitution claims, Mr Duanmu claims $4,283,029.72 against KPSS for estoppel in respect of the ‘KPSS Representations’ and $6,179,504 03 from CHH, for estoppel in respect of ‘the Representations’.

Mr Duanmu’s current estoppel claims are based on representations allegedly made in the 5 November 2018 PDA and the 7 November 2018 FRA and based on oral representations allegedly made by Huyi Li to Mr Duanmu at the time those agreements were prepared in early November 2018.

Mr Duanmu’s current estoppel plea is a materially different plea from the estoppel plea in his June 2024 amended statement of claim. The differences are apparent from paragraphs 13 and 19 of the marked up version of the 2FASOC. Showing the changes, those paragraphs which plead the representations now relied on are in the following terms:

~~13.~~13. On or about 5 November 2018, Huyi Li, acting on behalf of the First Defendant in his capacity as an agent, employee and / or shadow director, made representations (“the KPSS Representations”) to the Plaintiff to the effect that:
(a)if he declined to immediately take steps to recover the ~~loans~~payments that he had made to the First Defendant, and to otherwise enforce his rights as a shareholder of the First Defendant, the amount owing pursuant to the First ~~Loan Agreement~~Investment Proposal would be repaid with an additional fee;
(b)the fee payable by the First Defendant would be in the amount of $1,650,000; and
(c)the amount owing pursuant to the First ~~Loan Agreement~~Investment Proposal and the fee of $1,650,000 would be recoverable by the Plaintiff within a timely manner following the completion of the development, Karrina Kew, once the First Defendant had had a reasonable opportunity to sell most or all of the apartments which comprised the said development.

~~PARTICULARS~~
PARTICULARS
The ~~Representations were made by Huyi Li in writing, orally and by implication. The written~~ representations ~~were made in a document entitled, Profit Distribution Agreement, which the Plaintiff and Huyi Li~~ both signed on ~~at paragraph 18(a)~~ were made orally in or about 5early November 2018~~. To the extent that the Representations were made orally, they arose from~~ in conversations between the Plaintiff and Huyi Li ~~which occurred at the time when they signed the document entitled,~~ .
The representations at paragraphs 13(b) were made in writing and appear at paragraph 3 of the Profit Distribution Agreement, and are implied from the figures in the said paragraph. The representations at paragraph 13(c) were implied from the oral representation at paragraph 13(a) above and at paragraphs 3 and 4 of the Profit Distribution ~~Agreement. To the extent that the Representations were implied, they~~ arose to give ~~efficacy to the representations made by Huyi Li in the document entitled, Profit Distribution Agreement~~.

~~19.~~19. On or about 7 November 2018, Huyi Li, acting on behalf of both Defendants in his capacity as an agent, employee and / or shadow director, made representations (“the Representations”) to the Plaintiff to the effect that:
(a)if he declined to immediately take steps to recover the ~~loans~~payments that he had made to both Defendants, the Second Defendant would ensure that the amounts owing pursuant to the First ~~Loan Agreement~~Investment Proposal and the Second ~~Loan Agreement~~Investment Proposal would both be repaid, and the Second Defendant would pay to the Plaintiff a fee, following the completion of the developments, Karrina ~~Kew~~ and Overture;

(b) the fee payable by the Second Defendant would be, as a minimum, in the amount of $2,240,000; and
(c)the amounts owing pursuant to the First ~~Loan Agreement~~Investment Proposal and the Second ~~Loan Agreement~~Investment Proposal, and the fee in the amount of at least $2,240,000 would be recoverable by the Plaintiff within a timely manner ~~following the,~~ and in any event, within twelve months of the completion of the construction of the developments, Karrina ~~Kew~~ and Overture.

~~PARTICULARS~~
PARTICULARS
The Representations~~representations~~ at paragraph 19(a) were made by Huyi Lipartly orally in or about early November 2018 in conversations between the Plaintiff and Huyi Li, and were made partly in writing~~, orally and by implication. The written representations were made in a document entitled,~~ in the Project Cooperation Fixed Return Distribution Agreement ~~(“the Written Agreement”), which the Plaintiff and Huyi Li both signed on or about 7 November 2018. To~~at clause 1 under the ~~extent that the Representations~~heading “Investment return (investment principal + profit)”.
The representations at paragraph 19(b) were made ~~orally, they arose from~~ conversations between the Plaintiff and Huyi Li which occurred at ~~in writing~~ and appear in the Project Cooperation Fixed Return Distribution Agreement, at clause 1 under the heading “Investment return (investment principal + profit)”.
The representations at paragraph 19(c) were partly in writing in clause IV of the ~~time when they signed the Written~~Profit Cooperation Fixed Return Distribution Agreement. ~~To the extent that the Representations were implied, they arose to give efficacy to the~~ representations made by Huyi Li in the Written Agreement, and partly to be implied from the same.

The defendants deny making the representations alleged. They otherwise deny that the elements required to establish a cause of action for estoppel are made out.

The third alternative claim relied on by Mr Duanmu is for an account stated. Mr Duanmu’s claims on account stated are based on the Loan Certificates dated 15 March 2024 and, so Mr Duanmu contends, on their face signed by KPSS and CHH on 15 March 2024 and/or on agreement on the figures in the Loan Certificates reached between Mr Duanmu and Huyi Li on 15 March 2024.

Relying on the Loan Certificates and the alleged agreement Mr Duanmu claims $4,283,029.72 on an account stated against KPSS and $6,374,841.54 on an account stated against CHH.

In closing submissions Mr Duanmu accepted that in order for him to succeed in his claims on an account stated the Court must be satisfied that:

(a) the defendants made absolute acknowledgements of the debts, or ascertained sums; and

(b) these amounts accrued and were due and payable at the time when Mr Duanmu brought the claims.[3]

[3]Lewis v Wilson (1997) 42 NSWLR 228, 230–231.

Both defendants deny that there was an absolute acknowledgement of debt. Both deny that any money is or was due and payable to Mr Duanmu on 15 March 2024 or at the date of trial.

In the course of closing submissions senior counsel for Mr Duanmu accepted that the Loan Certificates relied on do not state that money is due and that Mr Duanmu could not rely on the Loan Certificates in support of his account stated claims as standalone documents. It was his submission the Loan Certificates are relied on as a fixing of the amount due.

In oral closing submissions senior counsel for Mr Duanmu confirmed that if Mr Duanmu does not succeed on his claim for monies had and received or in his estoppel claims, his action on an account stated fails.

Restitution
The pleadings

The 2FASOC pleads two separate but unfulfilled investment proposals as the basis of Mr Duanmu’s claim for restitution. The relevant paragraphs of the marked up 2FASOC, omitting the particulars, state as follows:

4.Sometime in January 2014, the Plaintiff ~~agreed to lend money to~~ and Huyi Li, the promoter of the First Defendant ~~(“,~~ which was yet to be incorporated, discussed a joint venture for the investing of money in the First ~~Loan Agreement”)~~. Defendant for the purposes of a property development in Kew, Victoria, which was later to be known as the Karrina apartments (“the First Investment Proposal”).
5. From on or about 26 January 2014 to on or about 7 December 2016, the Plaintiff paid to the First Defendant ~~the suma~~ total of $4,329,022.22 $3,769,022.22 ~~pursuant to~~in accordance with the First ~~Loan Agreement~~Investment Proposal.
…
6.~~The abovesaid sums were paid by the Plaintiff tofor the First Defendant pursuant to the First Loan Agreement are repayable immediately.~~
7.6. ~~The First Defendant has not repaid any~~ The abovesaid sums were paid by the Plaintiff for the purposes of the ~~monies received in accordance with the First Loan Agreement, and the sum of $4,329,022.22 $3,769,022.22 remains due and owing by it to the Plaintiff~~ joint venture, and in anticipation of entry into contractual arrangements for the joint venture.
~~Second Loan Agreement~~
~~8. Sometime in October 2016, the Plaintiff agreed to lend money to the Second Defendant (“the Second Loan Agreement”).~~
7.No joint venture agreement or other contractual arrangements were entered into, and therefore, the abovesaid payments are recoverable as monies paid in anticipation of a contract, the consideration of which has totally failed.
…
7A. Alternatively, the abovesaid sums were paid by the Plaintiff in furtherance of an agreement, which was subsequently abandoned, and the consideration of which has totally failed.
…

7B. The monies paid by the Plaintiff to the First Defendant referred to in paragraph 5 above are repayable on demand.
7C. The First Defendant has not repaid any of the monies referred to in paragraph 5 above, and the sum of $4,329,022.22 $3,769,022.22 remains due and owing by it to the Plaintiff.
Second Investment Proposal
8. Sometime in October 2016, the Plaintiff discussed a joint venture with Huyi Li, acting as agent, employee and / or shadow director of the Second Defendant, by which the Plaintiff would invest money in the Second Defendant for the purpose of a property development in Kew, Victoria, to be known as the Overture apartments (“the Second Investment Proposal”).
…

9.9. From on or about 27 October 2016 to on or about 2 November 2020, the Plaintiff paid to the Second Defendant ~~the sum~~a total of $1,920,476.93 pursuant to the Second ~~Loan Agreement~~Investment Proposal.
…

10. The abovesaid sums were paid by the Plaintiff for the purpose of establishing a joint venture with the Second Defendant, and in anticipation of entry into contractual arrangements with the Second Defendant for the joint venture.
10A. No joint venture agreement or other contractual arrangements were entered into, and therefore, the abovementioned payments are recoverable as monies paid in anticipation of a contract, the consideration of which has failed.
…

~~10.~~10B. The monies paid by the Plaintiff to the Second Defendant referred to in paragraph 12 above are repayable ~~immediately.~~on demand.
~~11.~~11. The Second Defendant has not repaid any of the monies ~~received in accordance with the Second Loan Agreement~~, referred to in paragraph 12 and the sum of $1,920,476.93 remains due and owing by it to the Plaintiff.

The defendants deny the allegations set out above, with certain exceptions and qualifications:

(a) the defendants admit that from 14 February 2014 Mr Duanmu paid $2,633,029.72 to KPSS which he directed KPSS to expend on the Karrina Project;

(b) the defendants admit KPSS has not repaid monies received by it from Mr Duanmu; and

(c) the defendants allege that Mr Duanmu:

(i) represented to KPSS that any monies payable to him from the Karrina project should be paid to CHH and be treated as a contribution to the Overture project by him;

(ii) induced by and in reliance on such representations or acquiescence (by Mr Duanmu), KPSS transferred such monies to CHH;

(iii) KPSS would suffer detriment and it would be unconscionable if Mr Duanmu were permitted to resile from such representations and acquiescence and accordingly he is estopped from doing so.

In further answer to the restitution claim, the defendants allege the following agreements:

(a) In early 2014 Mr Duanmu on the one hand and KPSS and/or Huyi Li on the other, entered into an agreement for the purchase and development of the property at 136 Princess Street, Kew with residences which would be sold and that this project would be called the Karrina project (‘the first KPSS Agreement’).

(b) On about 23 April 2015 Mr Duanmu and Huyi Li entered into the KPSS Agreement.

(c) Subsequent to the first KPSS Agreement and/or the KPSS Agreement the parties agreed that any monies payable from the Karrina project to Mr Duanmu or to Huyi Li would be paid to CHH and be treated as a contribution to the Overture project by, as to monies payable to him, Mr Duanmu and, as to monies payable to Huyi Li, Huyi Li (‘the second KPSS Agreement’).

(d) In around January 2016 Mr Duanmu, CHH, Huyi Li and/or Ms Ren entered into an agreement for the purchase and development of the property at Barenya Court, Kew with residences which would be sold and that this project would be called the Overture project (‘the CHH Property Agreement’).

(e) On or about 15 March 2018 Mr Duanmu, CHH, Huyi Li and/or Ms Ren entered into an agreement titled Shareholder Nominee Agreement.

Responding to the agreement allegations in the defence, in his reply Mr Duanmu:

(a) denies the first KPSS Agreement and says that no such contract was concluded or, if any contract was concluded, it was subsequently abandoned;

(b) denies the KPSS Agreement and says that the document signed on about 23 April 2015 represented merely a statement of intention, or alternatively represented an agreement which was subsequently abandoned;

(c) denies the second KPSS Agreement;

(d) denies the CHH Property Agreement; and

(e) denies the Shareholder Nominee Agreement and says that no such agreement was executed or otherwise agreed.

While Mr Duanmu does not seek to advance a claim for breach of contract in reliance on either the PDA or the FRA, those agreements are referred to in the particulars in support of Mr Duanmu’s estoppel claims.

In paragraphs 13 and 13A of the defence, responding to Mr Duanmu’s estoppel claim against KPSS which particularises the PDA, the defendants:

(a) admit that Huyi Li signed the PDA on behalf the KPSS; and

(b) say that any cause of action based on the PDA is only justiciable in the Shenzhen and Futian District Peoples Court.

In response to the estoppel claim in paragraph 19 of the 2FASOC against CHH the defendants admit that Huyi Li signed the FRA but otherwise deny the allegations.

In his reply Mr Duanmu expressly disavows reliance on the PDA as a contract. He pleads that that the PDA ‘does not represent contractual terms agreed upon between him and [KPSS]’.

While that is his pleaded case, in December 2024, Mr Duanmu made an unsuccessful application to amend his pleadings. He sought leave to introduce a claim for breach of contract (in the further alternative), based on the PDA. Leave to amend was refused for the reasons delivered by me on 20 December 2024.[4]
[4]Duanmu v KPSS Development Pty Ltd & Anor (No 2) (Unreported, Supreme Court of Victoria, Delany J, 20 December 2024).

The applicable principles

In Chan v Eastern Blue Pty Ltd,[5] the Court of Appeal identified the elements of a cause of action in restitution for money had and received:

(a)A payment from the plaintiff to the defendant.
(b)An unjust factor in the defendant retaining the payment, such as mistake, duress, illegality or total failure of consideration. In this context, consideration means the state of affairs contemplated as the basis or reason for the payment. Where the relevant basis is the benefit that is bargained for, the test is whether or not the plaintiff has in fact received any part of the benefit bargained for under the contract or purported contract. It is sufficient that there is a total failure of a severable part of the consideration.
(c)No contractual remedy is available.

[5][2021] VSCA 121 [70] (Kyrou and Niall JJA) (‘Chan’), citing David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353, 376–83; Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516, 525–30 [16]–[29], 539–58 [62]–[109]; Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498, 516–23 [30]–[45] (‘Equuscorp’); Mann v Paterson Constructions Pty Ltd [2019] HCA 32; (2019) 373 ALR 1, 7–8 [14]–[18], 10 [23]–[24], 43–5 [164]–[168], 47 [175].

There is no contest that the principles in Chan are to be applied. Mr Duanmu submits the Court should be satisfied that:

(a) Mr Duanmu advanced monies to both defendants;

(b) in furtherance of an anticipated contract or contracts;

(c) no such contract or contracts materialised; and

(d) if contracts were formed, they were abandoned by the parties to those contracts.

Abandonment was discussed by the Court of Appeal in Jafari v 23 Developments Pty Ltd[6] in the following terms:

Parties may expressly agree to terminate or abandon a contract. Abandonment can also be inferred from conduct of the parties that makes it “plain” that neither intends to perform the contract. They are regarded as having conducted themselves in a manner so as to abandon the contract. Abandonment commonly arises from a period of time having elapsed, “during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned.

[6][2019] VSCA 201 (citations omitted).

There are three issues which should be mentioned.

The first issue is whether an enforceable contract is needed to disentitle a plaintiff otherwise entitled to relief for monies had and received, or whether, if there has not been a total failure of consideration, that of itself is sufficient to shut the plaintiff out. Mr Duanmu submitted there must be either something in the nature of a joint venture agreement or a substantive contract in order for his claims for monies had and received otherwise established to be shut out.

Mr Duanmu puts his claims on the basis that money was paid for the purposes of a joint venture and in anticipation of entry into contractual arrangements for the joint venture. While that is Mr Duanmu’s pleaded case, as a matter of principle, even if there is no contract, provided there is consideration as discussed in Chan, there is no entitlement to claim in restitution for monies had and received.

The second issue upon which the parties disagree concerns the identification of the degree to which a contract must be ‘intertwined’ with the money paid in order to shut out what would otherwise be Mr Duanmu’s entitlement to relief. Mr Duanmu accepts that a contract that provides sufficient essential terms, even if an oral contract, would be sufficient to defeat the restitution claims. In Delaney v Delaney[7] the Court of Appeal said:

The essential terms are those which the parties or the law regard as ‘essential to the formation of legally binding relations.

[7][2022] VSCA 48 [57].

Mr Duanmu submits that in this case there is no contract containing essential terms. It is not enough that there is an agreement about some small aspect of the provision of funds, there must be something in the nature of a joint venture agreement.

The third area of disagreement concerns who bears the onus of proof to disprove or to establish the absence of a contract which, if present, would disentitle Mr Duanmu from maintaining his claim to recover monies had and received. In oral submissions, senior counsel for the defendants submitted:

The restitution and cause of action cannot sit on top of an effective and continuing contractual arrangement where that would subvert or undermine the contractual allocation of risk. Now that is an essential element to establishing a claim for money had and received that is the absence of a contractual right… it is an essential element of our learned friends’ cause of action to establish … that there is no contract as between the parties.

I accept that the burden is on Mr Duanmu to prove all of the essential elements of his cause of action. That includes proving the negative, the absence of a relevant contract or consideration. As Kirk JA, with whom Meagher JA and Griffiths AJA agreed, observed in Coshott Family Pty Ltd v Lyons:[8]

An oft-cited statement as to where the legal burden of proof will lie is that of Walsh JA in Currie v Dempsey (1967) 69 SR (NSW) 116 at 125, who said that it will lie on the claimant “if the fact alleged (whether affirmative or negative in form) is an essential element in his cause of action, e.g., if its existence is a condition precedent to his right to maintain the action”. His Honour explained that if a point was a matter of “avoidance” of the claim then in general the legal burden will be on the defendant; ...

[8][2022] NSWCA 216; (2022) 110 NSWLR 44 [18].

As the absence of a contractual right is an essential element to establishing Mr Duanmu’s claim for money had and received the onus is on Mr Duanmu to establish that there was no contract.

The ambit of the dispute

There is no dispute about the first element of the cause of action. The defendants accept that Mr Duanmu made the payments upon which he relies. KPSS admits receipt of $2,633,029.72 from Mr Duanmu. CHH admits $1,920,476.93 has been paid as a cash contribution to it for and on behalf of Mr Duanmu.

The substantive dispute concerns the second element of the cause of action, the alleged presence of unjust or vitiating factor. The defendants deny money was paid in anticipation of contracts. If it was, contracts materialised and were not abandoned. There was no total failure of consideration.

Separately, the defendants submit that if Mr Duanmu makes out each of the elements of the cause of action identified in Chan, prima facie liability can be displaced if they can establish that to grant restitution would be unjust. A change of position has occurred in this case which would make an order for restitution unjust.

The plaintiff’s submissions

Mr Duanmu submits:

(a) His claims arise out of a series of payments in anticipation of contracts in the way of joint venture agreements for the development of the Karrina and Overture apartments.

(b) The payments, which in the case of KPSS began on 8 January 2014 and continued until early September 2016, were not intended to be gifts or unconditional payments. The first two payments were made prior to incorporation.

(c) Over 10 years commencing January 2014 (or thereabouts) and March 2024 there was a constantly evolving negotiation, without conventional offer and acceptance and without any clear concluded agreement. There was either no contract, or, in the case of 2015, the contract was abandoned. In the case of any other time, the parties merely moved on and conducted themselves in a way that was inconsistent with there being a contract in existence.

(d) It is not possible to pin down a concluded joint venture agreement, at any particular point in time concerning either project. In the absence of a concluded agreement or subsisting contract, restitution is available.[9]

(e) In the event there was a contract and that contract was abandoned, restitution is available.[10]

[9]Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498, 517; Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880, 902–903; Baltic Shipping Co v Dillon (The Mikhail Lermontov) [1993] HCA 4; (1993) 176 CLR 344, 376; Angelopolous v Sabatini (1995) 65 SASR 1, 10-11.

[10]DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 434; Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144, 153.

The submissions by Mr Duanmu in closing and, more importantly the evidence referred to in those submissions, does not substantiate the reliance plea in paragraph 15. The reliance case concerning the KPSS representations is not made out.

The same is the case concerning the reliance element of the representation claim concerning CHH.

The 2FASOC alleges that in reliance on the CHH representations Mr Duanmu was induced to pay a further $276,967.61 to CHH between about 7 November 2018 and 2 November 2020 and not to exercise his right to recover payments made to both defendants until the commencement of this proceeding.

There is no doubt Mr Duanmu made the further payments of $276,967.61 alleged, but there is no evidence that he did so in reliance on the representations alleged. That is also the case in relation to the timing of the institution of these proceedings.

The reliance element of the estoppel claim relating to CHH is not made out.

No detriment

The defendants submit that the 2FASOC does not disclose any or any meaningful detriment suffered by Mr Duanmu in reliance on the representations alleged. While that appears to be to be the case, as I have already found both that the representations alleged were not proved and, that if they were, there was no reliance, it is unnecessary to deal with these submissions.

The claims on an account stated

Mr Duanmu’s claims on an account stated in reliance on the 15 March 2024 Loan Certificates and the discussions alleged to have occurred on that day between Mr Duanmu and Huyi Li were at the forefront of his case against the defendants during the trial.

As correctly acknowledged in closing address by senior counsel for Mr Duanmu, it was not possible for Mr Duanmu to succeed on either of his claims on an account stated unless he also proved his claim for monies had and received or in estoppel. Because I have found each of those claims fails, Mr Duanmu’s claims on an account stated also fail and must be dismissed.

However, even if I am wrong in relation to the monies had and received or the estoppel causes of action, Mr Duanmu’s claims on an account stated fail for two separate and independent reasons:

(a) First, because the Loan Certificates relied on were not ‘signed’ by the defendants or either of them; and

(b) Second, because I do not accept critical aspects of Mr Duanmu’s account of the discussions he says took place at Huyi Li’s home on the evening of 15 March 2024.

The principles

In Commonwealth Dairy Produce Equalisation Committee Ltd v McCabe[26] Jordan CJ identified the essential elements of a cause of action for money due on an account stated:

It is always essential in such an action that there should have been before action brought an admission by the defendant or his agent to the plaintiff or his agent that the sum claimed is due by the defendant to the plaintiff : John Shaw & Sons (Salford) Ltd. v. Shaw. But this admission may be so framed as to be merely an acknowledgment of indebtedness, in which case although it supplies evidence of the debt the evidence may be rebutted by proof that no debt in fact existed.

[26](1938) 38 SR (NSW) 397, 401 (citations omitted).

Generally a mere acknowledgement of debt is not enough. In Bank of NSW v Brown[27] Brennan J said:

When there are debit and credit items in an account and a balance is struck by one party who sends a written statement of the balance to the other and the other raises no objection, is an account stated between the parties to be inferred? Or is a mere acknowledgment of debt by the party Apparently liable for the balance to be inferred? These are pure questions of fact but, generally, the bare delivery of a written statement of account by one party to another is insufficient to raise an inference that the balance is due on an account stated: see Irvine v. Young
…
No inference of an account stated can be drawn from the company’s acceptance of the statement of debits and credits and balances furnished by the bank from time to time. The inference to be drawn is that the company acknowledged the correctness of the entries, not that it agreed to discharge the debits and credits.
[27][1983] HCA 1; (1983) 151 CLR 514; (1983) 45 ALR 225, 243-249 (citations omitted).

The plaintiff’s case

The 2FASOC at [25] alleges:

... on or about 15 March 2024, Qian Zhang, an accountant acting on behalf of the First Defendant, delivered to the Plaintiff a document, KPSS Loan Certificate, which acknowledged that the First Defendant was liable to pay to the Plaintiff the sum of $4,283,029.72, and which document the Plaintiff and the First Defendant agreed and / or signed.

The 2FASOC at [27] alleges:

... on or about 15 March 2024, Qian Zhang, an accountant acting on behalf of the Second Defendant, delivered to the Plaintiff a document, CHH Loan Certificate, which acknowledged that the Second Defendant was liable to pay to the Plaintiff the sum of $6,374,841.54, and which document the Plaintiff and the Second Defendant agreed and / or signed.

Mr Duanmu alleges that the Loan Certificates were ‘signed electronically by the Plaintiff and by the First Defendant‘. He submits that it is not necessary that a statement that the sum is presently due and payable appear in the certificate itself. Mr Duanmu acknowledged that if the sum is not presently due and payable, then the defendants have an ‘escape hatch‘.

Mr Duanmu submits that Mr Zhang was careful to note that he did not sign the Loan Certificates. The Loan Certificates bear the names of the parties. The fact that at the foot of the page KPSS appears rather than CHH on the loan certificate relating to CHH is not significant. It is akin to a company executing a document with a wrong or defective seal.[28]
[28]Westpac Banking Corporation v Dawson (1990) 19 NSWLR 614, 623.

As part of his pleaded case Mr Duanmu alleges that liability to pay the amount in the Certificates was ‘agreed‘ orally, and is recorded in writing in ‘minutes of a meeting held on or about 14 March 2024 which he attended together with Huyi Li, Xin Li, Mr Zhang and Qixuan Duanmu. In late February 2024 he came to Melbourne ‘to sort things out’, staying at the home of Huyi Li in Kew and meeting with Huyi Li and Mr Zhang at CHH’s offices in Kew. Mr Duanmu alleges an accounting for his monies was agreed. The accounting is represented in the Loan Certificates. The moneys the subject of the certificates were already owing by reason of Mr Duanmu’s right to restitution of his payments, alternatively, because of his promissory estoppel claims.

Mr Duanmu submits the ‘Loan Certificates’ reflect the way in which the company accounted for the monies over almost 10 years. His ‘investments’ were identified in ledgers and annual accounts, in particular the balance sheet, under the heading ‘Current Liability‘. They are identified as loans as part of the loan account of Xin Li in the books of account. They were described as ‘shareholders loans’ in many communications concerning the defendant companies.

The documents in which Mr Duanmu’s financial contributions were referred to as loans to which Mr Duanmu drew attention in submissions include the ‘KPSS Distribution Draft Explanation‘ of January 2018 and WeChat messages on 21 December 2015. In the KPSS Investor Capital Return Certificate dated 15 March 2018 the funds being returned were described as ‘return of principal and investment‘, in paragraph 1 and then as ‘repaid loan with interest‘ in paragraph 2.

Mr Duanmu submits the transactions to which he was a party cannot validly be referred to in company documents and ledgers as loans but then re-organised and interpreted as capital transactions when it suits the defendants. In support of that submission he referred in to the following statement by Young J in Morgan v 45 Flers Avenue Pty Ltd:[29]

Unfortunately it very often happens in cases in this Court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, with which respect to creditors and the Government he expects to be recognised as no sham but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the ‘realistic’ or ‘practical’ effect of what has happened. I do not find this mission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer in commercial sickness or commercial health.

[29](1985) 10 ACLR 692, 694-5.

Mr Duanmu submits the Court should prefer his evidence to the evidence of Mr Zhang about whether Mr Zhang informed Mr Duanmu on 15 March 2024 that the Loan Certificates were only draft documents for further discussion between the plaintiff and Huyi Li.

Mr Duanmu submits the Court should accept his evidence of the contested events of early March 2024, in particular his evidence in his supplementary witness statement that a meeting took place on the evening of 15 March 2024 between Mr Duanmu and Huyi Li at Huyi Li’s home at which the Loan Certificates were shown by Mr Duanmu to Huyi Li and that Huyi Li said he had no comment and he was ‘okay as long as the figures were accurate’.

Mr Duanmu submits the Court should reject Huyi Li’s evidence on three important matters:

(a) the meetings leading up to the provision and discussion of the two Loan Certificates in March 2024;

(b) whether Mr Duanmu’s investment was a loan (or monies repayable) by KPSS and CHH or in the nature of capital, and thus last in line for repayment of expenses after priority lenders and other debts of the company; and

(c) that Huyi Li did not attend a meeting on 15 March 2024, which was an important occasion as by this time the amount of the indebtedness to Mr Duanmu had been agreed after a lengthy reckoning or taking of accounts over a series of meetings on 6, 7 and 13 March 2024.

Mr Duanmu submitted that while at the end of his cross-examination Huyi Li gave an explanation as to why the Loan Certificates were invalid, that explanation should not be accepted.

In his submissions concerning the oral evidence Mr Duanmu submitted the Court should draw adverse inferences applying the rule in Jones v Dunkel[30] to infer that the evidence of Xin Li concerning meetings in March 2024 would not have assisted the defendants.
[30][1959] HCA 8; (1959) 101 CLR 298.

The defendants’ response

The defendants submit the claim on an account stated against KPSS fails for several reasons. First, because the KPSS Loan Certificate is not an admission or acknowledgment made by KPSS , it is a draft, not a final document. Second, because the KPSS Loan Certificate is not an admission or acknowledgment of a debt (or a sum) due from the defendant to the plaintiff and payable at the time of action brought.Third, because on its face, the KPSS Loan Certificate does not contain any admission as to the ‘certainty of the amount‘ said to be owing. Fourth, because in fact, no amount set out in the certificate is due and payable to Mr Duanmu.

The defendants submit the claim against CHH on an account stated fails for the same reasons.

The defendants submit the Loan Certificates are not documents in final form. They are not signed, digitally or otherwise. Mr Duanmu’s contention that the certificates are digitally signed is untenable. The position advanced by Mr Duanmu is that the certificate is signed because the Chinese word for ‘signature‘ appears next to the names ‘KPSS‘ and ‘Jin Duanmu’. The word ‘signature‘ is not itself a signature. As Mr Zhang put it, ‘It means you’re gonna – well that’s where you sign ... We put the name there and leave the space. That’s where you sign’.

The defendants submit the word ‘signature‘ on the Loan Certificates does not satisfy the requirements of the Electronic Transactions Act 2000 (Vic) (‘ETA’). The ETA corresponds with Commonwealth legislation and none contain a definition for ‘electronic signature’. The common law concept of a signature contemplates a signature can be affixed by a person in a variety of ways so long as what is done by the person with the intention of authenticating the document so as to be binding on the company under whose authority that person is executing the document. That has not occurred in this case concerning either certificate.

The defendants submit that no agreement was reached in March 2024 between Mr Duanmu and Huyi Li that any amounts were due and owing and ‘presently payable’. Taking Mr Duanmu’s evidence in his supplementary witness statement at its highest, there is no evidence that Huyi Li agreed any money was due and payable at that time.

What was discussed at the meetings on 6 and 13 March 2024 was a process by which Mr Zhang assisted Mr Duanmu (and his accountant Dai Wang) to confirm the total amount of Mr Duanmu’s investments in KPSS and CHH. When Mr Duanmu said to Huyi Li that he wished to sign a written agreement with Huyi Li, which would confirm Mr Duanmu’s entitlement to recover all money advanced by him both KPSS and to CHH, along with guaranteed returns from both companies, Huyi Li said in no uncertain terms that ‘he would not agree to do anything of that sort’. That was Mr Duanmu’s own evidence in his witness statement.

On the afternoons of 6 and 7 March 2024, Mr Duanmu said to Huyi Li that he wanted to change, or convert, his investments in KPSS and CHH into loans. Huyi Li refused Mr Duanmu’s request. Mr Duanmu said he wanted to reconcile and settle up his investments in KPSS and CHH and wanted to get his money back and to receive his return. Huyi Li said that it was not possible for Mr Duanmu to receive a return because the CHH apartments had not yet all been sold, and the final accounting had not been done for KPSS.

At those meetings, Mr Duanmu said that he wanted Huyi Li to sign a formal written agreement to record his loans and that he wanted a lawyer to witness the signing of that document. Huyi Li again refused Mr Duanmu’s request.

Mr Duanmu and Huyi Li agreed that the value of Mr Duanmu’s interest in CHH was $6.37 million. However, Huyi Li did not agree that KPSS or CHH owed Mr Duanmu $6.37 million or any other amount.

Mr Duanmu came to CHH’s offices again on around 13 March 2024. Huyi Li did not recall Mr Duanmu ever saying, prior to that meeting, that he was a lender or had lent CHH money. Before that meeting, Mr Duanmu had always said that he was an investor, or a shareholder. Mr Duanmu also raised with Huyi Li the $1.65 million return in the PDA. Mr Duanmu asked Huyi Li if he would admit that that amount was owing. Huyi Li did not do so. By the end of the meeting, Mr Duanmu and Huyi Li did not reach agreement on the terms by which Mr Duanmu would receive an early repayment of his investment and a fixed return on it.

On 15 March 2024, Mr Zhang met with Mr Duanmu and Qixuan Duanmu. The defendants submit the meeting at CHH’s office began at roughly 4:00pm. Friday, the day of the meeting, was not a usual day for Mr Zhang to be working at CHH’s office. Huyi Li and/or Xin Li had asked him to come to the office for the meeting. The defendants submit the purpose of the meeting was made clear at the start by Huyi Li. It was to confirm the total amount invested by Mr Duanmu, not just in KPSS but also the money he put into CHH. Huyi Li and Xin Li had to leave the meeting for an inspection at Overture. Mr Zhang remained with Mr Duanmu and his son.

As he left, Huyi Li said that the purpose of the meeting was to discuss how Mr Zhang could assist Mr Duanmu in verifying the investment amounts he had transferred into CHH and KPSS and the distribution of profit to him from KPSS. After Huyi Li and Xin Li left, Mr Duanmu asked Mr Zhang to write down the total amount he invested in KPSS and CHH under Mr Zhang’s company letterhead. In response to that request Mr Duanmu provided Mr Zhang with the figures he said were the monies owed to him. Mr Zhang said that the figures could be discussed with Huyi Li and Xin Li the following day.

It is the case for the defendants that Mr Zhang prepared draft documents titled ‘Loan Certificate’ for KPSS and CHH, as directed by Mr Duanmu. Both Mr Duanmu and his son made handwritten changes to each of the Loan Certificates after Mr Zhang prepared them. Mr Zhang identified four versions of the draft KPSS loan certificate and three versions of the draft CHH loan certificate which were produced during the course of the 15 March Meeting which contain handwritten changes. Mr Zhang handwrote the numbers 1-4 on the KPSS drafts, and 1-3 on the CHH drafts, to indicate the sequence of the amendments (with 1 being the first version).

Once Mr Duanmu and his son reviewed and finished their changes to the draft Loan Certificates, Mr Zhang printed the drafts and gave them to Mr Duanmu. He did not sign the certificates. It was his evidence that he did not do so because he understood them to be drafts that were to be discussed between Huyi Li and Mr Duanmu before being finalised.

The defendants submit that neither Huyi Li or Xin Li had asked Mr Zhang, or authorised him, to sign the certificates on behalf of either of KPSS or CHH. Mr Zhang told Mr Duanmu that they were drafts. They are unsigned.

The defendants were critical of Mr Duanmu’s account of what happened on 15 March 2024 submitting that it has continually shifted. In any case, they submit the evidence of Mr Duanmu that a meeting took place at the home of Huyi Li on the evening of 15 March should be rejected and the evidence of Huyi Li should be preferred on that topic. The defendants submit there was no discussion about the Loan Certificates that evening and there was no acknowledgement by Huyi Li of the present indebtedness of the companies to Mr Duanmu as alleged.

It is the case for the defendants that neither Huyi Li nor Xin Li reviewed or approved the Loan Certificates. The Loan Certificates do not bear any words of formality akin to other certificates prepared by Mr Zhang as a record of contributions to KPSS by the investors.

Findings concerning the account stated claims

The Loan Certificates are not documents signed by either defendant company. Nor was either of the Loan Certificates adopted by those companies or either of them after they were prepared by Mr Zhang.

The submission by Mr Duanmu that because the word ‘signature’ appears next to KPSS on both of the certificates means that the certificates were signed must be rejected. It is obvious on the face of the documents that it was intended that later a signature would be affixed on behalf of KPSS and CHH respectively (even though CHH is misnamed in the CHH loan certificate signature ‘block’) and also by Mr Duanmu. Mr Duanmu’s name appears below the name KPSS next to the word ‘signature’.

The Loan Certificates relied on were not signed electronically. There was no ‘digital certificate’. Nor is the common law test referred to in the submissions on behalf the defendant satisfied.

The Loan Certificates were no more than draft documents prepared by Mr Zhang after consultation and input between him, Mr Duanmu and Mr Duanmu’s accountant in China who communicated with Mr Zhang on the afternoon of 15 March 2024 via WeChat. Mr Zhang had no authority to bind the companies or to sign any documents on their behalf and he did not do so.

It is not in dispute that Mr Duanmu and Huyi Li attended meetings in at Huyi Li’s office in Kew on 6, 7, 13 and 15 March 2024. Mr Duanmu was accompanied ‘at all times‘ by his son, Qixuan Duanmu. Mr Zhang participated in some of those meetings.

Without Huyi Li’s knowledge, Mr Duanmu recorded part of the discussion that took place at the meeting on 6 March 2024 between he and his son, Qixuan Duanmu and Huyi Li and his son, Xin Li. Mr Duanmu also recorded part of the discussion that took place at meetings on 13 March 2024 attended by those persons.

It is important to note that at no time on Mr Duanmu’s own case in the course of his visit to Australia, including on 15 March 2024, did Huyi Li agree to sign a written agreement confirming that Mr Duanmu was entitled to recover money advanced by him. The evidence of Mr Duanmu in his witness statement, which is directly contrary to the proposition that on the evening of 15 March 2024 Huyi Li acknowledged monies were presently payable, is that:

on multiple occasions at such meetings I said to Huyi words to the effect that I wished to sign a written agreement with him, which would confirm my entitlement to recover all money advanced by me to both KPSS and to CHH, along with guaranteed returns from both companies. Huyi said to me words to the effect that he would not agree to do anything of that sort.

Apart from the partial transcript of recorded conversation on 6 March 2024 there is little detail in the evidence about what was discussed on 6 or 7 March 2024. What is clear is that on 6 and 7 March 2024 Mr Zhang exchanged WeChat messages and information with Mr Duanmu’s Shenzhen based accountant, Dai Wang, the purpose of which Mr Zhang understood to be for him to confirm the source of Mr Duanmu’s funds and to check that Mr Duanmu’s investment was correctly recorded.

Mr Zhang’s evidence regarding his belief as to the purpose of the communications on 6 and 7 March 2024 is consistent with the unchallenged evidence of Dai Wang in her witness statement.

On 13 March 2024 there were two meetings at Huyi Li’s office in Kew at which Mr Duanmu and his son and Huyi Li and his son were present and for which, as to part, Mr Zhang was present.

The partial recordings of the two 13 March 2024 meetings are consistent with the evidence of Mr Duanmu and his son in their witness statements that while Mr Duanmu wanted to confirm his entitlement to recover monies advanced by him along with a guaranteed return, Huyi Li did not agree ‘to do anything of that sort‘.

The recorded conversations do not support a finding that at any time Huyi Li or the defendants agreed that amounts in the Loan Certificates later prepared by Mr Zhang were due and payable. What was discussed at these meetings was the clarification and recording of Mr Duanmu’s total investment in the defendant companies.

In the course of the first meeting on 13 March 2024, Huyi Li is recorded as saying that Mr Duanmu believes there is a discrepancy in cash flows and that he, Huyi Li would like to ‘list Mr Duanmu’s total cash investment in both companies, see if there is any discrepancy‘. Later, Huyi Li is recorded as saying that:

it’s very simple… Therefore, we all acknowledge the original 6.37 million and it has not changed… The project has not been completed yet… This has not been fully realised, so I said this, this cannot be settled, it can only be put there as a budget…

In the course of the second meeting on 13 March 2024 Huyi Li is recorded as saying:

…I personally think of three steps. The first step is to recognise the reality of the current situation. Don’t make any decisions now with you are taking a loss or taking advantage… The second step is to have the same goals, …let it increase in value within a limited range as much as possible, to reduce our losses, this is the second goal; The third goal is that under these two certain premises, the first creditor outsiders finished, and the internal debtor, I will protect you first. So, first protect you, the three of us are still a team, or an investment portfolio, this is a fact, you say you don’t authenticate the relationship, you are doing investment behaviour, this is something that cannot be changed.

Mr Zhang gave evidence that on 13 March 2024 he was working from CHH’s office in Kew and was called downstairs to a meeting. Huyi Li told him ‘we need to confirm Mr Duanmu’s investment in KPSS. During the course of the meeting for which he was present with access to his computer Mr Zhang and Dai Wang exchanged information about amounts paid to KPSS’s bank account but which were allocated to CHH which Mr Zhang confirmed was the transfer of Mr Duanmu’s investment.

It is not in dispute that while dated 14 March 2024, it was on 15 March 2024 that Mr Zhang printed the ‘Loan Certificates‘ upon which Mr Duanmu relies and that Mr Zhang gave the Loan Certificates to Mr Duanmu.

Both in his first witness statement and in his witness statement in reply, Huyi Li made no reference to a meeting on the afternoon of 15 March 2024. In cross-examination Huyi Li said he had no recollection of a meeting on that day. While Huyi Li had no recollection of such a meeting, I have no doubt that a meeting took place on the afternoon of 15 March 2024 across three hours beginning at around 4:00pm and that Huyi Li and Xin Li were in attendance for the first part of that meeting.

Mr Zhang gave detailed evidence of the meeting at the office of CHH on the afternoon of 15 March 2024 and Qixuan Duanmu gave unchallenged evidence about such a meeting.

The meeting on 15 March 2024 began at around 4:10pm. Mr Zhang gave evidence in his first witness statement that Huyi Li and his son left the meeting in order to attend an inspection at Overture just before 5:00pm. Mr Zhang gave evidence in his second witness statement that the meeting that began shortly after 4:00pm lasted for approximately three hours. I accept the accuracy of Mr Zhang’s evidence concerning these matters.

That evidence about timing is important because it highlights that Mr Duanmu’s recollection of what occurred on 15 March 2024 is not strong.

The only evidence Mr Duanmu gave in his first witness statement about events on 15 March 2024 is that it was on that day that Mr Zhang gave him hard copies of the Loan Certificates. In his reply witness statement, responding to evidence in the primary witness statements of Huyi Li and Mr Zhang, Mr Duanmu gave evidence that the meeting began at around 4:00pm. He said that at approximately 3:48pm on that day, prior to the meeting, Mr Zhang sent him a document titled ‘KPSS loan certificate‘ via WeChat. He gave evidence that the Loan Certificates upon which he relies for his claim were provided to him ‘shortly upon our arrival, at approximately 4:24pm’.

Mr Duanmu was wrong about the timing of provision of the Loan Certificates. He fixed the 4:24pm time by reference to the timestamp on photographs of the Loan Certificates taken by his son and referred to in his son’s primary witness statement. However, as Mr Duanmu accepted in his third witness statement, his son was mistaken. The mistake was due to the time zone difference between Victoria and China. The two photographs taken by Qixuan Duanmu are time stamped, 4:24pm in the Shenzhen time zone which the parties agree is 7:24pm in the Victorian time zone.

Because Mr Duanmu now accepts the time zone correction, it is no longer in dispute that by the time the Loan Certificates were provided by Mr Zhang to Mr Duanmu on 15 March 2024 that Huyi Li and Xin Li were no longer in attendance at the Kew office. In direct answer to a question from me, Mr Duanmu confirmed that handwritten changes were made to the Loan Certificates at the meeting with Mr Zhang after Huyi Li and his son had left the meeting. The changes to various versions of the Loan Certificates were changes made by or at the request of Mr Duanmu or his accountant.

It is important to note that at no time on Mr Duanmu‘s own case, including on 15 March 2024, did Huyi Li agree to sign a written agreement confirming that Mr Duanmu was entitled to recover money advanced by him.

The sequence of events on the afternoon and evening of 15 March 2024 is most clearly set out in the two witness statements of Mr Zhang. At 3:48pm, shortly before the meeting commenced, Mr Zhang sent a KPSS ‘loan certificate‘ to Dai Wang via WeChat. The loan certificate related to KPSS, was on Longevity Group letterhead and ended with the words ‘verified and issued by Ian Zhang’. Mr Zhang gave evidence that he sent the same document to Huyi Li at the same time. Huyi Li gave evidence in cross-examination that he did not look at the draft certificates sent to him via WeChat at the time. I accept the accuracy of that evidence.

Mr Zhang gave evidence in his witness statement, which I also accept, that after Huyi Li and his son left the meeting Mr Duanmu asked him to write down the total amount he invested in KPSS and CHH under Mr Zhang’s company letterhead. He then provided Mr Zhang with the figures which he said were the monies owed to him. He said that these figures could be discussed with Huyi Li and his son the following day. He showed Mr Zhang something on his phone which included the number $1.65 million.

Mr Zhang then prepared draft documents with a heading Loan Certificate for both KPSS and CHH, ‘as directed by Mr Duanmu’. He sent drafts of the Loan Certificates to Dai Wang via WeChat, and she provided comments.

Mr Zhang gave evidence that once Mr Duanmu and Dai Wang had reviewed and finished their changes to the draft Loan Certificates he printed the drafts and gave them to Mr Duanmu. It was his evidence which I accept that before that occurred, Mr Zhang and Dai Wang exchanged WeChat messages. That occurred between 6:41pm and 6:58pm on 15 March 2024. The message sent by Mr Zhang at 6:41pm enclosed a photograph of draft KPSS and CHH certificates which he had taken while in the CHH boardroom with Mr Duanmu and his son.

Mr Zhang gave evidence in his witness statement, which I accept, that neither Huyi Li nor his son had asked him or authorised him to sign Loan Certificates on behalf of KPSS or CHH.

In his witness statement Mr Zhang said he understood the certificates to be drafts that were to be discussed between Huyi Li and Mr Duanmu move before being finalised. In oral evidence, Mr Zhang said that he told Mr Duanmu the documents were drafts. Although no such statement appears in his witness statement and he was cross-examined about that evidence, I found Mr Zhang to be a truthful witness and I accept his evidence in that regard.

While Huyi Li could not remember whether a meeting took place on the afternoon of 15 March 2024 he did recall and I accept his evidence about the events that occurred on the evening of 15 March 2024. That evening, after he and his wife had been out for dinner in Hawthorn, they walked home. The receipt for dinner issued at 9:35pm. Huyi Li denied that a discussion occurred between he and Mr Duanmu at his home that evening about the Loan Certificates.

I accept the evidence of Huyi Li that no such discussion took place between the two men on the evening of 15 March 2024 concerning the Loan Certificates after he and his wife walked home. I reject Mr Duanmu’s oral evidence, not otherwise referred to in his witness statements, that sometime ‘in the evening’ of 15 March he showed Huyi Li the Loan Certificates at Huyi Li’s home. Although allowances should be made for references in Mr Duanmu’s oral evidence to ‘should have shown Huyi Li the Loan Certificates that evening’, I do not accept that this occurred or that such a discussion took place.

Even if I had accepted Mr Duanmu’s evidence that a discussion occurred, which I do not, it is not part of his evidence to say that in the course of any such discussion Huyi Li agreed the money in the Loan Certificates was at that time immediately due and payable.

It is not necessary to make any findings in consequence of the failure of the defendants to call Xin Li. He was not said to be present at his parents’ home on the evening of 15 March 2024.

For the reasons discussed, even if the underlying debt said to be the subject of the Loan Certificates had been established by reason of the pleaded claims for monies had and received and/or the estoppel having been made out, Mr Duanmu’s claims on an account stated based on the Loan Certificates and on the alleged conversation on the evening of 15 March 2024 are not made out.

Disposition

The proceeding is dismissed.

Unless by 4:00pm on 27 March 2025 either party contends for a different order as to costs, I will order the plaintiff pay the defendants’ costs, including reserved costs on a standard basis.

If either party contends for a different costs order then that party should file and serve submissions of no more than four pages by 4:00pm on 27 March 2025. The opposing party shall file and serve any responding submissions of no more than four pages by 4:00pm on 3 2025April. Unless otherwise determined, I will deal with any outstanding costs issues on the papers.

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[2025] VSC 128

20 March 2025