Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd

[2024] NSWSC 1293

Supreme Court

New South Wales

Medium Neutral Citation:

Firmtech Aluminium Pty Ltd v Xie; Zhang v Xu; Xie v Auschn Conveyancing & Associates Pty Ltd [2024] NSWSC 1293

Hearing dates:

22-26 July 2024, 29 July 2024-2 August 2024, 5 August 2024

Date of orders:

17 October 2024

Decision date:

17 October 2024

Jurisdiction:

Equity - Corporations List

Before:

Nixon J

Decision:

(1)   Directs the parties to bring in short minutes of order, by 5pm on 31 October 2024, to give effect to these reasons for judgment.

(2)   Directs that, insofar as any aspect of the orders to give effect to the reasons for judgment cannot be agreed:

(a)   the parties exchange, by 5pm on 31 October 2024, the orders which each party proposes and submissions (limited to 5 pages) on those orders; and

(b)   the matter be listed for hearing at 9.15 am on 6 November 2024, or such other date as may be arranged with the Associate to Nixon J.

Catchwords:

CORPORATIONS – Directors and officers – Duties under Corporations Act 2001 (Cth), ss 180, 181, 182 – Involvement of third parties in contraventions of ss 180, 181, 182 – Remedies under s 1317H

CORPORATIONS – Fiduciary duties owed by director – Fiduciary duties owed by employee – Scope of fiduciary duties of employee – Whether fiduciary duties modified by agreement to “close down” corporation

EQUITY – Fiduciaries – Conflict Rule – Profit Rule - Whether director and employee diverted business opportunities from principal to companies which they controlled –Whether informed consent – Liability of third parties under rule in Barnes v Addy

CORPORATIONS – Whether affairs of company conducted in a manner that was contrary to interests of members as a whole, and oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member

CONTRACT – Whether breach of express term – Whether breach of implied terms

EQUITY – Remedies – Constructive trust – Account of profits – Scope of liability to account – Whether liability to account on a “whole of business” basis or by reference to the specific business opportunities which were diverted from the principal

EQUITY – Fiduciaries – Whether conveyancer made payments from settlement proceeds without authorisation from principal – Whether payments discharged liabilities of principal

Legislation Cited:

Corporations Act 2001 (Cth), ss 9, 79, 180-182, 232-233, 237, 286, 1317H

Evidence Act 1995 (NSW), s 140

Home Building Act 1989 (NSW), s 8

Cases Cited:

Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201

Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294

Atanaskovic Hartnell v Birketu Pty Ltd (2021) 105 NSWLR 542; [2021] NSWCA 201

Australian Karting Association Ltd v Karting (New South Wales) Incorporated [2022] NSWCA 188

Australian Securities and Investments Commission v King (2020) 270 CLR 1; [2020] HCA 4

Auxil Pty Ltd v Terranova (2009) 260 ALR 164; [2009] WASCA 163

Barnes v Addy (1874) LR 9 Ch App 244

Bellevarde Constructions Pty Ltd v L’Officina by Vincenzo Australia Pty Limited [2022] NSWCA 246

Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

Bentley Capital Limited v Keybridge Capital Limited [2019] FCA 1675

Breen v Williams (1996) 186 CLR 71; [1996] HCA 57

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Brisbane South Regional Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25

Brunningshausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199

Butt v McDonald (1896) 7 QLJ 68

Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62; [2014] FCAFC 55

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36

Charlton v Baber [2003] NSWSC 745

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24

Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8

Cook v Deeks [1916] 1 AC 554

Coote v Kelly [2016] NSWSC 1447

Crawley v Short [2009] NSWCA 410

Dhami v Martin [2010] NSWSC 770

Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404

DVO16 v Minister for Immigration and Border Protection (2021) 273 CLR 177; [2021] HCA 12

Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50

ET-China.com International Holdings Ltd v Cheung (2021) 150 ASCSR 461; [2021] NSWCA 24

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21

Furs Ltd v Tomkies (1936) 54 CLR 583; [1936] HCA 3

Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6

Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179

Herron v McGregor (1986) 6 NSWLR 246

Hightime Investments Pty Ltd v Adamus Resources Ltd [2012] WASC 295

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

Huang v Wei (No 2) [2022] NSWSC 473

In the matter of Cheal Industries Pty Ltd – Fitzpatrick v Cheal [2012] NSWSC 261

In the matter of ICB Medical Distributors Pty Ltd and The International College of Biomechanics Pty Ltd; ICB Gait and Posture Clinic Pty Ltd; Foot Steps Orthotics Pty Limited [2018] NSWSC 1315

In the matter of Sunnya Pty Ltd [2024] NSWSC 403

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563; [1995] HCA 68

Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144

Law Society of New South Wales v Harvey [1976] 2 NSWLR 154

Ling v Pang [2023] NSWCA 112

Longman v The Queen (1989) 168 CLR 79; [1989] HCA 60

Mackay v Dick (1881) 6 App Cas 251

Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23

Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692

Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102

Mualim v Dzelme [2021] NSWCA 199

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66

O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262

Oliveri Legal Pty Ltd t/as Oliveri Lawyers v Cassegrain Tea Tree Oil Pty Ltd [2024] NSWCA 74

Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63; [2011] FCAFC 166

Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31

Re Keneally (as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd)) [2015] NSWSC 937

Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547

Sangha v Baxter [2009] NSWCA 78

Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18

Southern Real Estate Pty Ltd v Dellow (2003) 87 SASR 1; [2003] SASC 318

Town & Country Property Management Services Pty Ltd v Kaltoum [2002] NSWSC 166

Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18

Warner Capital Pty Ltd v Shazbot [2020] NSWCA 121

Watson v Foxman (1995) 49 NSWLR 315

Wayde v New South Wales Rugby League Ltd  (1985) 180 CLR 459; [1985] HCA 6

Wild v Meduri [2024] NSWCA 230

Xiao v BCEG International (Australia) Pty Ltd (2023) 111 NSWLR 132; [2023] NSWCA 48

Category:

Principal judgment

Parties:

Proceedings 2022/221710
Firmtech Aluminium Pty Ltd (First Plaintiff)
Zhaohui Xu (Second Plaintiff)
Xiaoyan Xie (First Defendant)
Jiamin Zhang (Second Defendant)
Firmtech Aluminum Pty Ltd (Third Defendant)
Logikal Façade Solutions Pty Ltd (Fourth Defendant)

Proceedings 2022/259467
Jiamin Zhang (First Plaintiff)
Zhaohui Xu (First Defendant)
Auschn Conveyancing & Associates Pty Ltd (Second Defendant)
Firmtech Holdings Pty Ltd (Third Defendant)
Hui Gao (Fourth Defendant)
Firmtech Aluminium Windows and Doors Pty Ltd (Fifth Defendant)

Proceedings 2022/277905
Xiaoyan Xie (First Plaintiff)
Auschn Conveyancing & Associates Pty Ltd (First Defendant)
Auschn Global Group Pty Ltd (Second Defendant)
Zhaohui Xu (Third Defendant)

Representation:

Counsel:
Proceedings 2022/221710
DFC Thomas SC with D Birch (Plaintiffs)
DR Stack with D Elliot (Defendants)

Proceedings 2022/259467
DR Stack with D Elliot (Plaintiffs)
DFC Thomas SC with D Birch (Defendants)

Proceedings 2022/277905
DR Stack with D Elliot (Plaintiffs)
DFC Thomas SC with D Birch (Defendants)

Solicitors:
Proceedings 2022/221710
McCabes (Plaintiffs)
Amberlake Lawyers (Defendants)

Proceedings 2022/259467
Amberlake Lawyers (Plaintiffs)
McCabes (Defendants)

Proceedings 2022/277905
Amberlake Lawyers (Plaintiffs)
McCabes (Defendants)

File Number(s):

2022/221710
2022/259467
2022/277905

Publication restriction:

Nil

JUDGMENT

1. This litigation arises out of the breakdown of a business relationship between, on the one hand, Mr Zhaohui (Kevin) Xu and, on the other, Mr Jiamin Zhang and his wife, Ms Xiaoyan (Yan) Xie.

2. In May 2018, Mr Xu, Mr Zhang and Ms Xie agreed to establish a company called Firmtech Aluminium Pty Ltd. Each of Mr Xu and Mr Zhang was a director of Firmtech and Ms Xie was the General Manager. Each of Mr Xu and Mr Zhang was a 50% shareholder in Firmtech.

3. Firmtech operated a business manufacturing and installing aluminium windows and doors and performing façade works (the Windows and Doors Business) and also operated a construction business. Mr Zhang and Ms Xie were responsible for running the Windows and Doors Business, and Mr Xu was responsible for running the construction business.

4. Prior to the establishment of Firmtech, Mr Zhang and Ms Xie had performed work for a number of other businesses in the aluminium windows and doors industry, including for a company called Firmtech Aluminum Pty Ltd. This company was registered in May 2017. Ms Xie was its sole director and was the ultimate beneficial owner of all of its shares.

5. The only difference between the name of the company which was established by the parties in 2018 and which I have called “Firmtech” (Firmtech Aluminium Pty Ltd) and the name of this other company which had been established by Ms Xie in 2017 (Firmtech Aluminum Pty Ltd) is that the name of the latter adopted the US spelling “Aluminum” (without the second “i”), while the name of the former adopted the British/Australian spelling “Aluminium”. In order to distinguish Ms Xie’s company from Firmtech, I will refer to it as “Aluminum”.

6. When Firmtech was established in 2018, Ms Xie and Mr Zhang provided their industry experience and contacts, as well as some machinery and existing projects, and Mr Xu provided capital. Mr Xu was informed of the existence of Aluminum prior to Firmtech being established. There is a dispute regarding the terms of his discussions with Ms Xie about Aluminum and, in particular, whether there was an agreement that Aluminum would cease, or continue, operations after the establishment of Firmtech.

7. From around 2019, while Mr Zhang was a director of Firmtech and Ms Xie was its general manager, and while each was responsible for securing, and managing, projects for Firmtech’s Windows and Doors Business, they took steps to obtain, and perform, projects for Aluminum in the same industry. Each of the projects which was undertaken by Aluminum involved work of a type that was capable of being performed by Firmtech. There is a dispute regarding whether Mr Xu was aware of, and agreed to, the performance of those projects by Aluminum.

8. Subsequently, Ms Xie and Mr Zhang informed Mr Xu that they wished to end their association with Firmtech. There is a dispute whether the relevant discussions occurred from late September 2020, or from late January 2021, and also a dispute as to what was discussed and agreed.

9. From around late 2020, Ms Xie and Mr Zhang started performing work in the aluminium windows and doors industry through another company which was wholly owned by Ms Xie, Logikal Façade Solutions Pty Ltd, as well as continuing to perform work through Aluminum. Ms Xie and Mr Zhang acknowledged that, from late 2020, they operated businesses through Logikal and Aluminum which were in competition with Firmtech’s Windows and Doors Business, but contended that they did so only after the parties had agreed to close down Firmtech and go their separate ways. Mr Xu disputed this, contending that he did not agree to any work being performed by these other entities and that he told Mr Zhang and Ms Xie that it was his intention to continue to operate Firmtech’s Windows and Doors Business after they departed.

10. In addition to establishing and operating Firmtech, the parties had joined together in investing in two properties, one being a residential property in Panania (the Panania Property) and the other being a commercial property in Lansvale (the Lansvale Property). The Panania Property was purchased in Ms Xie’s name. The Lansvale Property was purchased in the name of an entity called Firmtech Holdings Pty Ltd (which I will refer to as Holdings). It was the trustee of a unit trust, and was established for the purpose of purchasing and holding the Lansvale Property in that capacity. Mr Xu and Mr Zhang were the directors of Holdings and were equal shareholders. The units in the trust were owned by entities associated with Ms Xie and Mr Xu’s wife.

11. In early 2021, the parties agreed to sell the Panania Property and the Lansvale Property. Mr Xu’s firm, Auschn Conveyancing & Associates Pty Ltd, acted as conveyancer for, respectively, Ms Xie and Holdings in relation to the sale of those properties. Following receipt of the settlement moneys, Mr Xu caused Auschn to pay various sums from the settlement funds to accounts in the name of his wife and in the name of companies which he controlled, as well as to certain third parties. Ms Xie claimed that Auschn and Mr Xu did not have authority to make such payments from the proceeds of the sale of the Panania Property, and Holdings made a similar claim in respect of the payments from the proceeds of the sale of the Lansvale Property.

12. These events have given rise to three proceedings.

13. In the first proceeding, Firmtech Aluminium Pty Ltd v Xie (2022/221710) (the Principal Proceeding), Mr Xu brings claims on his own behalf and also on behalf of Firmtech, pursuant to leave granted by the Court under s 237 of the Corporations Act 2001 (Cth) (the Act). The Defendants are Ms Xie, Mr Zhang, Aluminum and Logikal (the Zhang/Xie Parties). (Seven other corporations related to the Zhang/Xie Parties were previously named as defendants, but were removed as parties when the Summons was amended.)

14. In the Principal Proceeding, Mr Xu and Firmtech allege that Ms Xie and Mr Zhang wrongfully diverted numerous projects from Firmtech’s Windows and Doors Business to Aluminum or Logikal, and that they thereby breached the terms of a contract with Mr Xu, their statutory duties as officers of Firmtech, and the fiduciary obligations which they owed to each of Firmtech and Mr Xu. Mr Xu and Firmtech also allege that Aluminum and Logikal were knowingly involved in those breaches of duty. The relief sought includes a declaration that Aluminum and Logikal hold their assets and undertakings on constructive trust for Firmtech, an account of profits or equitable compensation, and damages.

15. In the second proceeding, Xie v Auschn Conveyancing & Associates Pty Ltd (2022/277905) (the Panania Proceeding), Ms Xie brings a claim against Mr Xu, Auschn and Auschn Global Group Pty Ltd. Mr Xu is the sole shareholder and director of each of Auschn and Global.

16. In the Panania Proceeding, Ms Xie alleges that Auschn did not have authority to make payments from the settlement proceeds of the Panania Property to Global; that Auschn acted in breach of contract and in breach of its fiduciary duties in making those payments; that Mr Xu knowingly participated in Auschn’s breach of its fiduciary obligations and that Global knowingly received the payments as a result of this breach; and that Global is liable for money had and received.

17. In the third proceeding, Zhang v Xu (2022/259467) (the Lansvale Proceeding), Mr Zhang brings claims on behalf of Holdings, pursuant to leave granted nunc pro tunc by the Court on 2 February 2023, against Mr Xu, Auschn, Holdings, Ms Gao (who is Mr Xu’s wife) and a corporation named Firmtech Aluminium Windows and Doors Pty Ltd (FAWD). Mr Xu is the sole director and shareholder of FAWD.

18. In the Lansvale Proceeding, Mr Zhang and Holdings allege, among other things, that Auschn did not have authority to make payments from the settlement proceeds of the Lansvale Property to Mr Xu, FAWD, or Ms Gao; that Auschn acted in breach of contract and in breach of its fiduciary duties in making those payments; that Mr Xu knowingly assisted in this breach and also breached his duties as a director of Holdings; and that Mr Xu, FAWD and Ms Gao are liable for money had and received.

19. Before turning to consider the issues in each proceeding, it is convenient to deal with the submissions made by the parties about the approach to fact-finding and, in particular, about the credit of the main witnesses.

Issues regarding fact-finding

20. Many of the critical issues in the three proceedings turn on issues of knowledge and consent.

21. In the Principal Proceeding, it is common ground that, from around 2020, Aluminum and Logikal were performing work of the type performed by Firmtech’s Windows and Doors Business. The key disputes are whether Mr Xu had knowledge of, and consented to, this work being performed by Ms Xie’s companies, and whether the parties reached an agreement (and if so, when) that Firmtech would close down and that they would be free to pursue separate businesses in competition with each other.

22. In the Panania Proceeding and the Lansvale Proceeding, it is common ground that payments were made from the settlement proceeds to persons and companies associated with Mr Xu. The key dispute in each of those proceedings is whether those payments were made in accordance with authority or instructions given by Ms Xie and Mr Zhang.

23. In respect of those key disputes of knowledge and consent, the principal participants – Mr Xu, Mr Zhang and Ms Xie – gave competing accounts of conversations between themselves which occurred several or more years ago. Each of them was extensively cross-examined about these events. Each party advanced submissions that the Court should make adverse credit findings in relation to, and disregard the evidence of, the other party’s witnesses.

24. The Court is to reason to its conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] per Gleeson CJ, Gummow and Kirby JJ. This does not eliminate the established principles about witness credibility, but it tends to reduce the occasions where those principles are seen as critical: ibid.

25. In an often-quoted observation in Watson v Foxman (1995) 49 NSWLR 315 at 319, McLelland CJ in Eq made the following observations regarding the fallibility of human memory, particularly when disputes intervene:

“human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

26. In Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102, Bell P referred to those comments of McLelland CJ in Eq (at [77]), and also a number of observations by McHugh JA (at [78]-[83]), as highlighting the “corrosive effect of the passage of time and its consequences for the quality and integrity of the trial process”: see Herron v McGregor (1986) 6 NSWLR 246 at 253-255; Longman v The Queen (1989) 168 CLR 79 at 107-108; [1989] HCA 60; and Brisbane South Regional Authority v Taylor (1996) 186 CLR 541 at 551; [1996] HCA 25.

26. Similar observations were made by Black J in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7]:

“It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56].”

28. While oral testimony should be assessed in the light of the objective contemporaneous evidence, such testimony can provide important context for understanding particular documents and their significance. In ET-China.com International Holdings Ltd v Cheung (2021) 150 ASCSR 461; [2021] NSWCA 24 at [27]-[28], Bell P (with whom Bathurst CJ and Leeming JA agreed) observed as follows:

“Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):

‘the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose — though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth. (emphasis added)’

Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.”

29. In the present case, a complicating factor is that each of the relevant conversations was in Mandarin. However, none of the witnesses gave, in their affidavits, an account of what was said in Mandarin. Instead, each gave evidence, in English, of the substance of what was communicated, with their accounts of each conversation preceded by statements that words “to the effect” of those set out (in English) were used.

30. In his first affidavit filed in the Principal Proceeding, Mr Xu gave the following evidence (under the heading “Translation”):

“I was born in China and the Mandarin dialect of the Chinese language is my first language. I have lived in Australia since 2002 and can speak and read English; however, as this affidavit was prepared with the assistance of a lawyer who speaks Mandarin, I have had this affidavit translated and read to me in the Mandarin dialect of the Chinese language to assist me to make sure its contents are true and correct.”

An affidavit of an interpreter was attached, stating that the entire affidavit was translated to Mr Xu, who confirmed that he understood the interpretation and agreed with the entire contents of the affidavit, before he affirmed the affidavit in the interpreter’s presence.

31. Mr Xu did not give any similar evidence regarding the preparation of his remaining seven affidavits in the proceedings. Given that Mr Xu had required “the assistance of a lawyer who speaks Mandarin” to prepare his first affidavit, it is likely that he needed some assistance for the preparation of his subsequent seven affidavits. However, given the lack of any accredited interpreter’s affidavit accompanying those remaining affidavits, it appears that no such interpreter was used in their preparation. Accordingly, the identity of any person who assisted Mr Xu in preparing those affidavits, and the qualifications of any such person, are unknown.

32. Ms Xie and Mr Zhang were both asked questions in cross-examination regarding how they had come to give evidence, in English, of conversations which occurred in Mandarin (given that each of them required the assistance of an interpreter in Court). Each explained that they had used other resources, such as Google Translate or the assistance of an unidentified employee.

33. Each of Mr Xu, Mr Zhang and Ms Xie was cross-examined over several days. Each demonstrated, under cross-examination, a command of English to varying degrees. Mr Xu gave his evidence in English, without the assistance of an interpreter. Mr Zhang required the assistance of an interpreter in giving his evidence, but was content for the main part for his cross-examination to proceed in English, choosing only occasionally to have questions translated into Mandarin or to give answers in Mandarin. Ms Xie relied on an interpreter to a greater degree, although the extent to which she did so lessened later in her cross-examination, such that on her third day in the witness box she gave evidence predominantly in English.

34. The fact that (with the exception of the first of Mr Xu’s eight affidavits) none of the key witnesses used an accredited interpreter in the preparation of their affidavits increases doubt about the reliability of the conversations recorded in their affidavits. As McLelland CJ in Eq observed in Watson, there is a risk that a person’s recollection of conversations is affected by not only the passage of time, but also the intervention of litigation. This risk is compounded where a witness, with some degree of fluency in English, has been involved in the task of translating the recollected substance of a conversation into English. The act of translation necessarily involves choices regarding vocabulary, syntax and tone, and those choices may, consciously or unconsciously, take into account the witness’s interests in the litigation.

35. These matters have not led me to conclude that the evidence of conversations given by any or all of the principal witnesses is so unreliable that it should simply be rejected in its entirety. I do not consider that the key disputes in this case can be resolved either by ignoring the witnesses’ competing accounts of the relevant conversations, on the basis that the witnesses have not recorded the precise words used and the method of translation is unclear, or by treating any of these accounts as a text which able to be parsed and analysed in order to resolve any issue of knowledge or consent. The former approach would involve putting aside evidence that is of central relevance to the key issues in dispute, while the latter approach would involve assuming a level of accuracy in the recollections and translations which is unwarranted. Instead, in considering and determining the main issues in dispute, I have taken account of the affidavit evidence given by each of the principal witnesses (in English) of “the effect of” the relevant conversations (in Mandarin), and have treated this as representing the witness’s best effort to capture the gist of the relevant conversations (see Wild v Meduri [2024] NSWCA 230 at [245] per Bell CJ). I have sought to assess the witnesses’ competing accounts of the gist of what was said in the light of their cross-examination about these events, the contemporaneous documentary evidence and the overall probabilities.

36. One of the main sources of contemporaneous documentary evidence is a group chat between Mr Xu, Ms Xie and Mr Zhang on the WeChat platform (the Group Chat). There were numerous messages posted on the Group Chat in evidence, extending over the course of three years. This appears to have been the principal means by which the parties communicated about their business affairs (with there being, by comparison, far fewer emails exchanged between them). Each of Mr Xu, Ms Xie and Mr Zhang posted messages on the Group Chat, and each read the messages posted by others on the Group Chat, throughout the period of their dealings in relation to Firmtech.

37. These WeChat messages provide their own difficulties. All of the messages exchanged by the parties were in Mandarin. In some instances, there were competing translations in evidence, each of which was a certified translation. I have proceeded on the basis that, where alternative translations are in evidence, each is an open and available translation, and any choice between them is to be determined having regard to the surrounding context and objective circumstances. In any case, many of these messages require interpretation in the light of other contemporaneous evidence, since the WeChat messages often comprise incomplete sentences, which assume a familiarity with the relevant subject matter or with prior discussions.

38. Each side made submissions about the credit of the other side’s witnesses, including by reference to the manner in which the witnesses gave their evidence. For example, there were submissions that Mr Xu “was prone to avoiding answering important questions by launching into lengthy responses which were, in substance, passionate submissions in support of his case”; that Mr Zhang “frequently sought to volunteer non-responsive information which he thought might be helpful to his case”; and that Ms Xie “also performed poorly in terms of non-responsiveness and a failure to give concise and responsive answers to many of the questions she was asked”, and that she “frequently required clear questions to be repeated, notwithstanding that they had been interpreted for her”.

39. Each of the key witnesses, at times, gave answers which were non-responsive. In particular, each had a tendency, to various degrees, to interpolate, and repeat, matters which were not germane to the question being asked, but which the witness probably considered to be material which supported his or her case. Each came across, at times and to varying degrees, as defensive and unwilling to give a direct answer to questions which were perceived to be harmful to their interests.

40. I do not consider that those matters provide any sound basis for determining the credibility of the testimony of the main witnesses in these proceedings. The well-known limitations on making credit assessments based on a person’s demeanour are amplified where cultural issues may impact the manner in which a person responds to questions, and where evidence is given in a second language, of which the witness has a limited command, or through an interpreter. In DVO16 v Minister for Immigration and Border Protection (2021) 273 CLR 177; [2021] HCA 12, Edelman J observed at [54] (footnotes omitted):

“The errors that can arise from interpretation are not limited to the consequences of incorrect interpretation. They extend also to the pernicious effect of adverse credibility assessments based upon matters of demeanour and impression. A former member of the Refugee Review Tribunal has correctly described how ‘[t]he utilisation of demeanour, without more, to substantiate adverse credibility findings is ‘fraught with dangers’. Empirical studies have also suggested that the medium of an interpreter can affect assessment of demeanour, and therefore credibility, ‘by the interpreter’s voice, dress, mannerisms, linguistic competence, age, race and gender’. As Professor Groves has observed, decision-makers ‘may struggle to distinguish between the words and demeanour of an interpreter and those of the person being interpreted’. Further, the unspoken relationship between the interviewee and the interpreter, especially if there is not complete trust between them, can sometimes present a distorted impression of, or distorted context for, the interpreted words. These problems for credibility assessments based, in part, upon impression and demeanour are compounded by cultural issues that may not be known to the decision-maker such as the impoliteness in some cultures of direct responses to questions or the extreme discomfort involved in discussion of some topics in particular cultures. All of these considerations compound the usual problems of assessment of demeanour, particularly in the context of evidence in an atmosphere that is very commonly one of high pressure and which also can commonly concern highly distressing matters…”

41. In Huang v Wei (No 2) [2022] NSWSC 473 at [18], Kunc J made the following observations which are of relevance to the present case:

“Added to these factors, it is relevant that most of the witnesses were Chinese nationals who gave evidence in Mandarin. As I previously observed in passing in an interlocutory judgment in these proceedings (Guojin Huang v Jinghong Wei [2022] NSWSC 222 (Huang v Wei (No 1)) at [50]), the Court will exercise great caution, and generally resist, making findings based on the demeanour of witnesses in such cases because the Court is not equipped to make such assessments when the language and culture of the witnesses is so far outside the experience of the Court.”

42. Some of the credit submissions were made on the basis that certain evidence that was confidently given by a witness was shown to be demonstrably incorrect. I am, however, mindful that, as Basten JA said in Sangha v Baxter [2009] NSWCA 78 at [155] (Handley AJA agreeing), there “are risks in making global findings about credibility of any particular witness”. His Honour observed (at [155]-[156]) that:

“Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.

Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].”

43. For those reasons, I have not made any global assessment of the credibility of the three main witnesses. Instead, in respect of the key disputed conversations and events, I have evaluated each witness’s evidence regarding those matters not only in the light of their responses in the course of their extensive cross-examination, but also in light of the contemporaneous documents, the objectively established facts, the apparent logic of events, the existence and nature of corroborative evidence, and the effect of the evidence as a whole.

44. Finally, in deciding whether I am satisfied that the case against the Zhang/Xie Parties has been proved on the balance of probabilities, I have taken into account the nature of the cause of action, the nature of the subject-matter of the proceeding, and the gravity of the matters alleged: Evidence Act 1995 (NSW), s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; [1938] HCA 34; and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ; [1992] HCA 66.

PRINCIPAL PROCEEDING

Overview of Issues

45. The main issues which arise for determination in the Principal Proceeding are as follows:

1. whether, at the time of establishing Firmtech, Mr Xu agreed with Ms Xie that she could continue to use Aluminum for the purposes of operating a business in the aluminium windows and doors industry;

2. whether, prior to work on certain projects being undertaken by Aluminum and Logikal, Ms Xie and Mr Zhang obtained Mr Xu’s consent to those projects being performed by Ms Xie’s companies rather than by Firmtech;

3. whether (and if so, when) Mr Xu agreed with Ms Xie and Mr Zhang to close down Firmtech and the terms of any such discussion;

4. whether (and if so, in what circumstances) Ms Xie and Mr Zhang excluded Mr Xu from the management of Firmtech and the reasons why Mr Xu set up FAWD;

5. whether, by undertaking work in the aluminium windows and doors industry through Aluminum and Logikal, Ms Xie and Mr Zhang breached:

1. the terms of any contract with Mr Xu;

2. their statutory or fiduciary duties to Firmtech; and/or

3. any fiduciary duty owed to Mr Xu;

and whether Aluminum or Logikal knowingly assisted in any such breach of duty;

6. whether the affairs of Firmtech were conducted by Mr Zhang and Ms Xie in a manner which was contrary to the interests of the members as a whole, and which was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Mr Xu; and

7. whether Firmtech and Mr Xu are entitled to the declaration of a constructive trust over the assets and undertaking of Aluminum and Logikal, or to compensation or an account of profits (and the quantification of any such relief).

Pre-incorporation Agreement

46. Between 2011 and 2017, Ms Xie and Mr Zhang worked for various businesses engaged in the aluminium windows and doors industry.

47. On 31 May 2017, Aluminum was incorporated by Ms Xie. She was its sole director. Its sole shareholder was JKZ (Australia) Pty Ltd, which was wholly owned by Ms Xie. During the financial year ending 30 June 2018, Aluminum performed a negligible amount of work, reporting total income of around $3,000.

48. In December 2017, Ms Xie and Mr Zhang proposed to Mr Xu that they establish an aluminium windows and doors business together. Mr Xu did not have any experience in this industry, but had capital available for investment.

49. Discussions between Mr Xu, Ms Xie and Mr Zhang continued over a number of months. It is common ground that a consensus was reached in around May 2018. This led to the incorporation of Firmtech on 18 May 2018.

Express Terms

50. There was a large measure of common ground regarding the pre-incorporation agreement formed between Mr Xu, Ms Xie and Mr Zhang in around May 2018.

51. The Plaintiffs pleaded that this agreement included the following express terms (Amended Statement of Claim (ASC), [29]):

1. Firmtech was to be established to pursue an aluminium windows and doors business;

2. Mr Xu would contribute at least $500,000 in capital to establish Firmtech’s Windows and Doors Business;

3. Mr Xu would advance up to $1,000,000 in further funds to Firmtech if required, though such amounts would be by way of a loan to be repaid;

4. Firmtech would have a 50/50 share structure, with Mr Xu holding 50% of the shares and Mr Zhang holding 50% of the shares;

5. Mr Xu and Mr Zhang would be the directors of Firmtech;

6. Ms Xie would be the General Manager and would handle quotations and sales;

7. Mr Zhang would run the factory and would handle manufacturing and installation of aluminium and glass products on site;

8. if a dispute arose about the manufacturing, production or the technical side of the business, Mr Xu would defer to Mr Zhang, and if a dispute arose about finances, Mr Zhang would defer to Mr Xu; and

9. Ms Xie would take all steps necessary to ensure that Aluminum did not operate a business in competition with Firmtech.

52. In closing submissions, the only express terms of the agreement which were disputed by Ms Xie and Mr Zhang were those in subparagraphs (2), (3) and (9) above.

53. As regards subparagraphs (2) and (3), Ms Xie and Mr Zhang contended that Mr Xu’s initial capital contribution of $500,000 was to be non-refundable, and that Mr Xu was required to provide further cash flow injections of up to $1.5m, rather than $1m (for a total investment of $2m). I do not need to resolve these issues. That is because it is common ground that, by 30 January 2021, it was agreed that Mr Xu should be repaid all of the money which he had invested in Firmtech, including both the initial capital contribution and the subsequent cash flow injections. Further, there is no claim that Mr Xu breached any obligation to provide $1.5m of cash flow injections to Firmtech (although Mr Zhang and Ms Xie rely on the fact that Mr Xu ceased providing significant cash flow injections to Firmtech in 2020 as one of the reasons why they decided that they did not want to continue in business with Mr Xu).

54. As regards subparagraph (9), the dispute regarding whether there was an agreement that Aluminum would not compete with Firmtech is more significant for the resolution of the matters at issue in the Principal Proceeding.

55. Mr Xu gave evidence that he had a conversation in around May 2018 to the following effect:

“[Ms Xie]:    I have another company called Firmtech Aluminum – spelt without the second ‘I’ – but it is not active. Should I close it?

[Mr Xu]:    Well, so long as you are not using it, then you don’t have to close it.

[Ms Xie]:    Ok.”

56. Ms Xie denied Mr Xu’s account, and gave evidence that she had a discussion with him to the following effect:

“[Ms Xie]:    Kevin, as you know already, I have a company called Firmtech Aluminum operating for a year already. Everybody knows about me and Firmtech Aluminum already. I have been advertising and tendering for jobs for the past year already. I don't mind selling 50% of the shares in this company to you.

[Mr Xu]:    No. It’s better to set up a new business name. Maybe we can do a business name which is similar to Firmtech Aluminum. Let me know do some checks to see what is available.

[Ms Xie]:    Ok; I am happy to share Firmtech Aluminum's resources with you guys.”

57. Neither Mr Xu nor Ms Xie identified Mr Zhang as having been a party to this conversation. However, Mr Zhang deposed, that “Kevin [Xu] informed me that Yan [Xie] could keep going with her company” and “it was decided that she could keep it”. Mr Zhang’s evidence provides no detail of the terms of any discussion and merely asserts, in conclusory terms, that an agreement was reached that Aluminum could “keep going”. It is of limited weight.

58. Any such discussion took place in Mandarin and occurred over six years ago. As I have explained above, it is necessary, given the passage of time since the disputed conversation, to assess the conflicting evidence of the substance of this conversation in light of the contemporaneous documentary evidence and having regard to the inherent likelihood of the competing versions.

59. On 15 May 2018, Ms Xie and Mr Xu exchanged the following WeChat messages on the Group Chat. This exchange occurred only days before the incorporation of Firmtech. Given the importance of these messages to the dispute, they are set out at some length below:

“[Ms Xie]:   I now have a company that was registered last year

…

Firmtech Aluminum Pty Ltd

…

If you think the name is good, share it

…

It was my first company

….

But if you have a better company name. You can decide. My current Firmtech Aluminum is there. I bought machines and made small income last year.

[Mr Xu]:   Just change the company address is ok

…

It is a good name

….

You can use it if you want

[Ms Xie]:   At the end, my son said that firm tech was good.

[Mr Xu]:   The English meaning of Firmtech is good too

[Ms Xie]:   But what do you think is better? … I got 100% of it

…

You can engage an accountant and change it to whatever you want

[Mr Xu]:   You can keep it for the family in the future

…

We use Firmt[e]ch Windows for trading name

[Ms Xie]:   No worries. No use for family.

[Mr Xu]:   Will be useful in the future.

I also have one

…

[Ms Xie]:   Firmtech Aluminium sounds nice

…

[Mr Xu]:   Okay then

[Ms Xie]:   Firmtech Aluminum Pty Ltd

It is already registered

…

See the word aluminum?

Missing an i

…

So we can use Firmtech Aluminium pty ltd

Make an ABN look up to see if it is okay

[Mr Xu]:   OK

Register it tomorrow if want it

[Ms Xie]:   The one already registered is missing one i

You can register one tomorrow with an extra i

…

Don’t know if it is considered the same name

[Mr Xu]:   I will check it now

[Ms Xie]:   The words have the same meaning anyway

What I wanted at the time was aluminium, but the accountant missed one i

…

[Mr Xu]:   No one has registered it

…

Will register it tomorrow

…

[Ms Xie]:   Are you sure the name will not be considered the same?

It means the same thing after all

…

[Mr Xu]:   Won’t be the same.

…

[Ms Xie]:   I still don’t get it. I looked on the Internet that alumnium and aluminum mean the same thing.”

60. In this exchange, Ms Xie and Mr Xu were discussing the corporate vehicle and trading name through which they would conduct their proposed Windows and Doors Business. Ms Xie explained that she already had a company that was registered in 2017, Aluminum. From the terms of the messages set out above, it appears that this was the first time that Ms Xie had disclosed this fact to Mr Xu. Ms Xie disclosed that she was the sole shareholder of Aluminum (“I got 100% of it”); and that it had made a “small income” last year. (As noted above, Aluminum reported income of only $3,000 in FY2018).

61. Ms Xie offered to “share” this company if Mr Xu thought that “the name is good”. Mr Xu was initially attracted to this idea, agreeing that it is “a good name” and stating that Ms Xie could “use it if you want”. However, when Ms Xie suggested “Firmtech” as an alternative, Mr Xu indicated that he would like to proceed with Firmtech as the trading name.

62. Ms Xie proposed that Mr Xu could use “an accountant” to “change it [the name of the company, Aluminum] to whatever you want”. However, Mr Xu suggested that Ms Xie should “keep” this corporate entity “for the family in the future”. Ms Xie indicated that she did not think she needed a company for her family’s affairs (“No use for family”), but Mr Xu advised that she would find it “useful” to have such a company “in the future”, explaining that he had a company which he used for his own family affairs.

63. Accordingly, it was agreed that they would establish a new company called “Firmtech Aluminium Pty Ltd”. They were aware when taking this step that the only difference between the proposed company name and Ms Xie’s existing company was that the name of the latter was “missing an i” from the word “Aluminium”. In agreeing to use “Firmtech Aluminium”, they were also aware that each of the alternate spellings “Aluminium” and “Aluminum” meant “the same thing”, and that there was a potential for confusion between the words (with Ms Xie indicating that she actually wanted the name “Aluminium” but her accountant “missed the extra i”). Ms Xie deposed that it was “often the case” that Aluminum was referred to as “Firmtech Aluminium” from the time of its incorporation; and Mr Zhang deposed that the company Aluminum was “regularly spelled as ‘Aluminium’ by our customers and suppliers”.

64. On 18 May 2018, shortly after the exchange of WeChat messages set out above, Firmtech was incorporated.

65. Mr Xu was not, when referring to Aluminum being used “for the family” in the “future”, suggesting that, from May 2018 onwards, Aluminum could be used to operate a business which competed with Firmtech in the same industry, for the benefit of Ms Xie and her family. His remarks instead conveyed an understanding on his part that Aluminum would be used for some other, personal business.

66. The substance of the pre-incorporation agreement between Mr Xu, Ms Xie and Mr Zhang was that, in return for Mr Xu contributing his capital to the establishment of Firmtech’s Windows and Doors Business, Ms Xie and Mr Zhang would contribute their skills, experience, equipment, employees, clients and some existing projects. There is no rational reason why Mr Xu would have agreed to contribute total capital of $1.5m (or, on the Zhang/Xie Parties’ case, $2m) to a joint enterprise with Ms Xie and Mr Zhang in which he had a 50% interest, while leaving Ms Xie and Mr Zhang free, if they chose, to perform business through a competitor in the same industry (in which Mr Xu had no interest). Any such arrangement would have been inconsistent with, and undermine, the joint endeavour which the parties were seeking to establish.

67. Significantly, Ms Xie did not, in her evidence, suggest that she said anything to Mr Xu to the effect that she would continue to use Aluminum to perform work in the aluminium windows and doors industry in competition with Firmtech, or that Mr Xu said anything to indicate that he agreed to this occurring. Instead, she gave the following evidence as to what was not discussed between her and Mr Xu at this time: “at no time was it agreed with Kevin that Aluminum would cease taking jobs”.

68. As outlined above, Mr Xu pleaded that it an express contractual term of his pre-incorporation agreement with Ms Xie and Mr Zhang that “Ms Xie would take all steps necessary to ensure that Aluminum did not operate a business in competition with Firmtech”.

69. In circumstances where there was a lengthy exchange of messages between the parties shortly prior to incorporation, and where those messages are in evidence (with certified translations), I have placed little weight on the respective evidence of Mr Xu and Ms Xie regarding their recollections, in English, of the substance of a conversation, in Mandarin, about the same subject matter more than six years ago, which are given largely in conclusory terms regarding the effect of the agreement reached between them.

70. Accordingly, I have determined the issue whether there was a contractual obligation in the terms pleaded by reference to the contemporaneous WeChat messages set out above, which provide evidence of the parties’ contemporaneous communications about Aluminum shortly prior to the establishment of Firmtech.

71. In the course of those messages, Mr Xu did not require, as a condition of agreeing to establish Firmtech, that Ms Xie promise not to operate a business through Aluminum in competition with Firmtech. A term to that effect was not proposed, or accepted.

72. Further, an exchange of WeChat messages in the Group Chat, on the same date as those set out above, appeared to envisage that in some circumstances Aluminum and Firmtech might issue quotations for the same work:

“[Mr Xu]:   May use the two companies to give quotes for the same project sometimes.

[Ms Xie]:   What does that mean?

[Mr Xu]:   Make it easy for them

At least more choices

They got two quotes

[Ms Xie]:   I don’t think it’s necessary I think”

73. For those reasons, I am not satisfied that there was an express contractual obligation to the effect that Ms Xie would take all steps necessary to ensure that Aluminum did not operate a business in competition with Firmtech.

74. It does not, however, follow that Ms Xie was free to compete with Firmtech, through Aluminum. The pre-incorporation agreement included terms to the effect that Ms Xie would become General Manager of Firmtech, Mr Zhang would become a director of Firmtech, and that Ms Xie and Mr Zhang would be responsible for running its Windows and Doors Business. Those terms were implemented. Accordingly, from the time of the incorporation of Firmtech and the establishment of its Windows and Doors Business, each of Ms Xie and Mr Zhang owed duties, inter alia, not to improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to Firmtech (s 182 of the Act).

75. In closing address, the Zhang/Xie Parties confirmed that they did not advance a submission that, from the time of incorporation, they were “free to use Aluminum to compete with Firmtech”: “All we say is that there was no requirement for us to close it down, and that it was available to be used in appropriate circumstances”. As regards the “appropriate circumstances”, the Zhang/Xie Parties accepted that, if Aluminum was “to be used” in the future for performing work in the same industry as Firmtech, it could only be so used if Ms Xie disclosed to Mr Xu the work which she proposed undertaking through Aluminum and obtained his consent (and thereby Firmtech’s consent) to that work being performed by Aluminum rather than Firmtech.

76. As outlined below, Aluminum did in fact subsequently perform work in the aluminium windows and doors industry. Ms Xie and Mr Zhang contended, and Mr Xu denied, that this work was performed with Mr Xu’s knowledge and consent. It is this dispute about whether or not such consent was, after Firmtech’s incorporation, sought or obtained which is key to the resolution of the issues in the Principal Proceeding.

Performance of Projects by Aluminum in 2019 and 2020

Firmtech commences operations

77. Firmtech commenced business in around June 2018, operating from a factory at 6 Marigold Street, Revesby, New South Wales (Revesby Factory). The Revesby Factory was leased by Firmtech for a period of five years, and each of Mr Zhang and Mr Xu guaranteed Firmtech’s obligations under the lease.

78. Ms Xie acted as the General Manager of Firmtech from the time that it commenced business.

79. A brochure was prepared for Firmtech around the time that it started its operations. This brochure referred to each of Mr Xu and Ms Xie as a “contact person” and identified Ms Xie as General Manager. It stated that “Firmtech Aluminium has been working closely with various construction companies in the recent years”, and set out details of various projects. The particular projects which were identified were ones on which Ms Xie and Mr Zhang had performed work through other entities. This reflected the fact that Mr Zhang and Ms Xie were contributing their skills, experience and contacts, as well as some existing projects, to the establishment of Firmtech’s Windows and Doors Business.

80. Firmtech purchased pre-cast aluminium extrusions which were cut and assembled, with glass then being added. It sub-contracted out the process of installing the windows and doors to third parties. It was a relatively small operation. In addition to Ms Xie and Mr Zhang, there were around three to four employees in the office, and another two or three on the floor of the factory.

81. It was common ground that there is usually a significant lag time in the aluminium windows and doors industry between a company being invited to tender for a project, and the company performing the work and receiving income. Despite that being the case, Firmtech enjoyed significant success in its first full financial year of operation, being the year ending 30 June 2019 (FY2019), reporting revenue of around $5.874m and a profit before tax of around $2.198m.

82. This financial success in Firmtech’s first year of operation was due, in part, to the fact that Ms Xie and Mr Zhang provided Firmtech, at its establishment, with projects and opportunities which they had previously been pursuing through other entities.

83. It was also due, in part, to Mr Xu providing significant moneys to finance Firmtech’s operations in this start-up period. Between May 2018 and February 2020, Mr Xu advanced more than $1m for the purpose of Firmtech’s business.

84. Mr Xu was responsible for managing the finances of Firmtech. At first, this included entering financial data into Firmtech’s Quickbooks system. However, Firmtech subsequently changed to a MYOB system and employed a bookkeeper, Ms Sandy Liu, who took over the role of entering data into that system. Ms Liu reported to Ms Xie.

85. Mr Xu was also responsible for managing Firmtech’s construction business. This business involved the development of a number of properties by Firmtech, and was separate from Firmtech’s Windows and Doors Business, which involved supplying aluminium windows and doors to property developments being undertaken by third parties.

Campbell 5 Project

86. In 2019, Aluminum tendered for a substantial project in relation to a multi-unit mixed use development named “S131 the Parade”, which was to be constructed at 51 Constitution Avenue, Campbell, in the Australian Capital Territory. This was referred to as the “Campbell 5 Project”. Aluminum was awarded the contract for this project in 2020. I set out below the relevant timeline, which is largely documentary and was not in dispute, before considering the two critical issues which were in contest: namely, whether Mr Xu was informed about, and consented to, Aluminum performing the Campbell 5 Project; and whether Aluminum engaged Firmtech as its subcontractor in relation to this project.

Campbell 5 Project – relevant events

87. On 24 May 2019, Icon SI (Aust) Pty Ltd issued a surveying scope of works for the Campbell 5 Project. In cross-examination, Mr Zhang accepted that this scope of works was provided to Firmtech, so that Firmtech could tender for the project. He also agreed that, at this time, he considered that Icon could be a valuable source of work for Firmtech.

88. On 20 September 2019, Ms Xie submitted a quotation for the Campbell 5 Project on behalf of Aluminum, for a “Total Lumpsum Price (Excl. GST)” of $2.55m. Ms Xie specified Aluminum’s address as the Revesby Factory, and provided “[email protected]” as the contact email address. Aluminum’s quotation used the Firmtech logo. Mr Zhang acknowledged that he was aware at this time that Ms Xie was using the Firmtech logo when issuing documents for Aluminum.

89. On 25 September 2019, a Senior Design Manager at Firmtech, Ms Bhawna Pargain, sent an email to Mr Zhang (which was addressed to Ms Xie) attaching design plans for the Campbell 5 Project. In cross-examination, Mr Zhang confirmed that Ms Pargain was an employee of Firmtech, not of Aluminum. Mr Zhang also accepted that he was intimately involved in the work undertaken by Aluminum in respect of the Campbell 5 Project.

90. On 8 January 2020, Ms Xie issued, on behalf of Aluminum, an updated quotation for the Campbell 5 Project, for a total lump sum price of $3.1m (excluding goods and services tax (GST)). Again, this was issued using the Firmtech logo, and specifying the Revesby Factory as Aluminum’s address. Whereas the initial quotation was stated to be issued on the “Firmtech Aluminium Term and Conditions”, this revised quotation was stated to be issued on the “Firmtech Aluminum Term and Conditions” (emphasis added).

87. On 23 January 2020, Ms Xie issued, on behalf of Aluminum, a further updated quotation for the Campbell 5 Project, for the sum of $3.15m (excluding GST).

88. On 31 January 2020, Icon and Aluminum entered into a Major Works Trade Contract for the Campbell 5 Project for $3.15m plus GST. This contract was executed by Ms Xie on behalf of Aluminum. Mr Zhang confirmed in cross-examination that he was aware, at the time, that Ms Xie had signed this contract.

89. On 18 March 2020, Mr Kane Toscano, who was a contractor regularly engaged by Firmtech, sent to Mr Zhang (copied to Ms Xie) an email which he had drafted in Mr Zhang’s name, responding to various queries which had been raised by Icon in relation to the Campbell 5 Project.

90. On 18 June 2020, Ms Xie issued, on behalf of Aluminum, a further quotation in respect of the Campbell 5 Project for the supply and installation of galvanised steel balustrades, ground floor louvres and roof condenser louvres, for a sum of $658,400 (excluding GST). This quotation was for work which was additional to the work that was the subject of the January 2020 contract, such that the total value of work on the Campbell 5 Project was around $3.8m (excluding GST).

91. On 26 June 2020, Mr Toscano sent an email to Mr Zhang and Ms Xie attaching design plans relating to the Campbell 5 Project. In cross-examination, Mr Zhang acknowledged that he was fully apprised of what was occurring in respect of the Campbell 5 Project during what he described as “the contract stage”.

92. On 14 July 2020, Icon approved Aluminum’s first payment claim in respect of the Campbell 5 Project, in a gross amount of $346,502.07 (including GST). This payment claim was accompanied by a Subcontractor’s Statement which Ms Xie signed on behalf of Aluminum on 25 June 2020, and a Statutory Declaration signed by Mr Zhang on 13 July 2020. Mr Zhang stated that he was “the Manager of [Aluminum] (Subcontractor) in relation to the Works carried out by us under the Agreement between Icon”, and confirmed that “all amounts due by us to our subcontractors or employees in respect of the Works under the Agreement have been paid”.

93. The above events took place before there was, on the evidence of all parties, any discussion about closing down Firmtech. It is plain from these steps that a valuable business opportunity was taken up by Aluminum, for work of a type that was able to be performed by Firmtech. The critical issue is whether Mr Xu consented to this arrangement.

Campbell 5 Project – Consent and Subcontract?

98. Mr Xu deposed that it was his understanding that Firmtech had tendered for work on the Campbell 5 Project. He gave evidence that in early 2020 he saw a customer representative come to the Revesby Factory, and when he asked Ms Xie who this was, Ms Xie said: “That guy is from JWLand. He is here for Campbell 5”. JWLand Constructions Pty Ltd was a Canberra-based developer. Mr Xu also gave evidence that he asked Mr Zhang later in 2020 “What is happening with Campbell 5?”, and that Mr Zhang responded: “That is in our pipeline.”

99. Mr Xu further deposed that:

1. in mid-2020, he asked Ms Xie how much the Campbell 5 Project was worth, and was told that it was around “$2.5 mil excluding GST”; and

2. later in 2020, Ms Xie asked Mr Xu for further funds for Firmtech, explaining that these were required because: “We’re getting some shipping containers in. We need to pay the shipping container company for the Campbell 5 project.”

100. Mr Xu gave evidence that some time after the latter conversation, he noticed, when reviewing Firmtech’s bank statements, that some payments into its account were being made by Aluminum which were said to be in respect of the Campbell 5 Project. He gave evidence that, when he asked Firmtech’s bookkeeper, Ms Liu, about these payments, he was told that Firmtech had not issued any invoices to Aluminum, and so she could not match deposits to invoices, telling him: “Xie is in charge of [Aluminum]. I don’t have any control over this”.

101. Mr Xu’s evidence of these various conversations about the Campbell 5 Project was not challenged in cross-examination.

102. Mr Xu deposed that, despite his enquiries, he never received any explanation for why Firmtech was receiving payments from Aluminum for the Campbell 5 Project.

103. For their part, each of Ms Xie and Mr Zhang deposed that they had an agreement with Mr Xu that Aluminum would perform the Campbell 5 Project and would subcontract work on that project to Firmtech.

104. In her first affidavit of 8 August 2022, Ms Xie deposed that she recalled “various conversations” with Mr Xu from “mid-2019 to early 2020” where words to the following effect were said:

“[Ms Xie]:   Kevin, I have a chance to win a project in Canberra and it is under Firmtech Aluminum. However, I can subcontract the windows and doors to Firmtech Aluminium.

[Mr Xu]:    That’s good.”

105. On this account, there was no disclosure to Mr Xu of the identity of the developer, the identity of the project, the value of the project and the expected profit to Aluminum from the project. Despite not being aware of any of those matters, Mr Xu is said to have immediately agreed to Ms Xie’s proposal (“That’s good”).

106. In a subsequent affidavit of 25 March 2024, Ms Xie gave evidence of a conversation with Mr Xu “in 2019”. Ms Xie deposed that, in the course of this conversation, statements were made to the following effect:

“[Ms Xie]:    Kevin, I have a developer contact JWLand who wants to partner up with me for a Canberra project called Campbell 5. He wants to invest in us and do the business together because he had some issues with a previous builder. They want to develop their own construction team. It will be good if we work together.

[Mr Xu]:    Ok. I don’t want to share the Firmtech Aluminium shares and Canberra is not a big market. If you want to do something like that why don’t you use your own Firmtech company.

[Ms Xie]:   Ok. If that’s okay with you, I’ll speak to them about that.”

107. Ms Xie further deposed that in around March 2020, Aluminum was awarded the contract for the Campbell 5 Project, and that: “From then onwards I agreed to have Aluminum subcontract to Firmtech the supply and installation of aluminium windows and doors”.

108. In his affidavit of 24 March 2024, Mr Zhang deposed to a conversation in “around late 2019” which he had with Mr Xu and Ms Xie, to the following effect:

“[Mr Zhang]:    Kevin, we have some contacts in the Canberra market however, we might want to consider bringing in another business partner to build our presence there. If we have a new partner, they will care about the business and its profitability.

[Mr Xu]:    I don’t want to reduce my share and want to keep 50% in Firmtech as a minimum. I don’t recommend getting involved in the Canberra market and we should grow in the Sydney market.

[Mr Zhang]:   I can regularly travel there to help the management there.

[Mr Xu]:   I’m not interested. If you want to find another partner for Canberra, Yan has another Firmtech company and people don’t know the difference. Why doesn’t Yan sell her share in that company to bring in a new partner.

[Mr Zhang]:    Ok. For the potential C5 project, I can try and find a new partner. In the meantime, for the C5 project, if we get it, I can take that job under Aluminum and sub contract to Firmtech.

[Mr Xu]:    Ok sounds great. That helps me and Jiamin maintain our 50% shares in Firmtech Aluminium.”

109. In a reply affidavit, Mr Xu denied each of those conversations.

110. One oddity about the affidavit evidence of Ms Xie and Mr Zhang is that each asserted that there was an agreement with Mr Xu that Aluminum would “subcontract” work on the Campbell 5 Project to Firmtech, but neither gave any evidence of a discussion with Mr Xu about the terms of this subcontract.

111. No such subcontract is referred to in any contemporaneous document, including any of the WeChat messages exchanged between the parties.

112. In cross-examination, each of Ms Xie and Mr Zhang said that the subcontract was oral, not written, but gave differing evidence as to its terms. Mr Zhang gave evidence that the subcontract was on a “cost basis”. However, when Ms Xie was asked whether the subcontract arrangement was on the basis that “Firmtech was providing its services at cost”, she responded “We didn’t discuss about it – about this point.”

113. Each version has its own difficulties.

114. If there was no discussion about the basis on which Firmtech was providing services to Aluminum as a “subcontractor”, and in particular, about whether those services were to be provided “at cost” or on some other basis, then it is difficult to see how there could be any subcontract, since price is an essential element of any such agreement.

115. On the other hand, it is difficult to see any rational commercial basis on which Mr Xu would agree to an arrangement which involved Firmtech providing services to Aluminum at cost, since the effect of such an arrangement would be that, for a substantial contract worth several million dollars, all of the profit was earned by Aluminum (in which Mr Xu had no interest), and none was earned by Firmtech (in which he had a 50% interest).

116. Moreover, at the time that the Campbell 5 Project was undertaken, Aluminum did not have any premises, employees or equipment. In performing the project, Aluminum used the Revesby Factory, the rent for which was paid by Firmtech; Firmtech’s employees, whose salaries were paid by Firmtech; and Firmtech’s equipment, which was operated and maintained at Firmtech’s cost. There was no rational reason for Mr Xu to agree to an arrangement whereby Aluminum would use Firmtech’s premises, staff and equipment to perform a project worth several million dollars, with the profits being wholly retained by Aluminum.

117. It is also inherently improbable that Mr Xu would have declined the opportunity for Firmtech to perform the Campbell 5 Project and earn a significant profit, on the basis that he did not want to be “involved” in the Canberra market, and at the same time have agreed for Firmtech to be a subcontractor on precisely the same project, in the Canberra market, at cost (and thereby not make any profit at all).

118. Further, Mr Zhang’s evidence that Mr Xu said, in late 2019, that he did not want Firmtech to be “involved in the Canberra market” is at odds with the following contemporaneous documentary material.

1. In March 2019, Firmtech entered into a contract with Hindmarsh Construction Australia Pty Ltd to supply doors and windows to an apartment development at Constitution Avenue, Campbell, ACT. By undertaking this work, Firmtech was, in 2019, working on a project located in the same suburb and on the same street as the Campbell 5 Project.

2. In June 2019, Firmtech performed work for Icon, involving the supply of aluminium windows and doors to RSL Lifecare at Kaleen in the ACT, and issued invoices for this work. Mr Xu gave unchallenged evidence that he had enthusiastically encouraged Firmtech to get involved in the RSL Lifecare project, because he “considered this to be a fantastic opportunity to work with a major company” (namely, Icon). By undertaking this work, Firmtech was, during 2019, performing work on a project in the ACT for the same entity that was undertaking the Campbell 5 Project.

3. On 24 July 2019, Mr Simon Skillicorn, who was an employee of Firmtech, sent an email to a representative of Meriton (copied to Ms Xie and Mr Zhang), stating: “please keep us in mind for Meriton’s Canberra Project as we are already working in Canberra and have a large number of installers down there”. Mr Zhang agreed in cross-examination that “we” and “us” were references to Firmtech, that Mr Skillicorn was engaging with Meriton in order to provide opportunities for Firmtech, and that in doing so, Mr Skillicorn was acting at the direction of Mr Zhang in his capacity as a director of Firmtech.

4. On 25 July 2019, Ms Xie issued, on behalf of Firmtech, a quotation for the supply and installation of aluminium windows and doors for Queanbeyan Police Station.

5. In July 2019, Icon contacted Firmtech about the construction of a housing development for people with an intellectual disability in Phillip in the ACT. Icon was providing its time and resources on this project free of charge, and asked if Firmtech would like to be involved. On 1 August 2019, Mr Skillicorn of Firmtech sent an email in response, copied to Ms Xie and Mr Zhang, in which he stated that Firmtech would be “delighted to be involved”, and would propose a price “lower than our costs”, adding: “we look forward to discussing this project and many more large projects with the Icon team”. This exchange reveals that, in the second half of 2019, Firmtech was willing to perform work for Icon in the ACT at a price lower than cost. It can be inferred that it was willing to so do because it was keen to earn profits from other projects with the same developer.

119. In addition, Mr Xu gave unchallenged evidence that in about 2019 he discussed with Ms Xie and Mr Zhang a plan to buy a house in Canberra, which would be available for the use of Firmtech’s employees and contractors who were performing work in the ACT, and that he personally visited Canberra to inspect properties for this purpose.

120. Having regard to those matters, I do not accept Mr Zhang’s evidence that Mr Xu expressed any unwillingness for Firmtech to be involved in the Canberra market, or that Mr Xu agreed, for this reason, to the Campbell 5 Project being performed by Aluminum.

121. Significantly, it was not put to Mr Xu in cross-examination that he agreed to a costs only subcontract. Nor was it put to Mr Xu that he was aware of the total value of the Campbell 5 contract from Aluminum’s perspective, or the proportion of the total contract price that was paid to Firmtech.

122. In May 2021, the following WeChat messages, relating to the Campbell 5 Project, were exchanged on the Group Chat:

“[Mr Xu]:   How much remains uncollected from the C5 project?

…

And how much money was spent on C5, count it too

…

[Ms Xie]:   The total price is 2.2 million + 300,000 … plus gst

…

The profit is about $80,000

The construction site is still finishing. The last payment will have to wait until next month.

…

[Mr Xu]:   How many square metres are C5 doors and windows? 6400 square meters?

[Ms Xie]:   Correct

6450 or 6438

[Mr Xu]:   Then why are the doors and windows only 2.2 million? Shouldn’t it be 2.56 million?

[Ms Xie]:   The original contract price was 2.53

But we can only get 2.2”

123. In this exchange, Ms Xie substantially understated both the price of the Campbell 5 Project and the square metres of that project (which Mr Xu was using to estimate price). As set out above, the initial quotation was $2.55m (excluding GST), which is close to the figure stated by Ms Xie, but this was later revised substantially upwards. The total value of the Campbell 5 Project for Aluminum was around $3.8m plus GST. Further, the project was said to be in the region of 12,000 square metres in an email sent by Mr Toscano in June 2021. When taken to this email in cross-examination, Ms Xie suggested that the actual size of the project was around 9,000 sqm, with the “windows and doors” being 6,500 sqm and the remainder being “cladding”. There was no documentary support identified for the different figures provided by Ms Xie.

124. When asked about this WeChat exchange, Ms Xie and Mr Zhang agreed that they never told Mr Xu about the total value of the Campbell 5 Project for Aluminum, but said that this exchange of messages on the Group Chat was referring to the value of the subcontract between Aluminum and Firmtech.

125. The Zhang/Xie Parties pointed out in closing submissions that Firmtech’s bank statements revealed that, between August 2020 and March 2021, Firmtech received $2,119,999.55 from Aluminum in respect of the Campbell 5 Project. This was said to be consistent with their evidence that a subcontract existed.

126. However, the WeChat exchange set out above makes no reference to any subcontract. Nor is any subcontract referred to in any other contemporaneous document. Further, Ms Xie’s message “we can only get 2.2” suggests that what is being discussed is what “we” (that is, Firmtech) can “get” from Icon in respect of the Campbell 5 Project. The message would not make sense if Ms Xie was talking to Mr Xu about a contract in respect of which they stood on either side (namely, a contract between Firmtech and Aluminum). Further, Mr Xu’s questions about revenue and costs on the Campbell 5 Project suggest that he expected Firmtech to make a profit from the Campbell 5 Project, rather than Firmtech simply having an “at cost” arrangement with Aluminum.

127. Counsel for the Zhang/Xie Parties submitted that:

“It makes no sense that if my clients were as dishonest as the plaintiffs would allege, that they wouldn’t keep this money to themselves. Why would they pay, in effect, 60% of the money which they receive to Firmtech? And what we say is it points to the truth of what my clients say, that they did have a discussion, that they did agree that they would subcontract the work and they did subcontract 60% of the work to the value of the $2.11 million.”

128. Mr Xu was aware that work was being performed at Firmtech’s premises on the Campbell 5 Project, and he had been told by Ms Xie that the total value of this project was around $2.2m. In those circumstances, Mr Xu would have expected to see around $2.2m being deposited into Firmtech’s account. In that respect, the payments into Firmtech’s account confirmed what he had been told. I accept that those payments refer to Aluminum, as well as to the Campbell 5 Project. However, that does not amount to any disclosure to Mr Xu regarding Aluminum’s role in that project, or a sufficient basis to conclude that Mr Zhang and Ms Xie were frank with Mr Xu regarding those matters. In light of the evidence outlined above, and in particular the incomplete and inaccurate statements made to Mr Xu about the Campbell 5 Project in the WeChat messages of May 2021, I accept Mr Xu’s evidence that when he discovered that these payments were being made by Aluminum, and sought to know why, he was not provided with an explanation.

129. For the reasons set out above, I accept Mr Xu’s evidence that he did not have any discussion with Ms Xie and Mr Zhang in which he indicated that he did not want Firmtech to take up the Campbell 5 Project because he did not want Firmtech to be “involved in the Canberra market”. Nor did he have any conversation with them in which he agreed to this project being performed by Aluminum rather than Firmtech, or in which he agreed to Firmtech working on the project as Aluminum’s subcontractor “at cost”.

130. Even if I am wrong in this conclusion, and the conversations occurred in the terms to which Mr Zhang and Ms Xie deposed, it is notable that on their own evidence, there was no disclosure to Mr Xu of the value of the Campbell 5 Project, or the anticipated profit margin for Aluminum. Those are matters which would be critical to any assertion that Mr Xu, and therefore Firmtech, gave informed consent to this project being performed by Aluminum.

Embark on Northbourne Project

131. In around late 2019, Aluminum entered into a contract to perform work on a project involving the construction of around 600 apartments at 255-259 Northbourne Avenue, Lyneham, ACT, called “Embark on Northbourne”. This project was being undertaken by JWLand as developer and Icon as project manager.

132. I set out below the relevant timeline of events, as disclosed by the contemporaneous documents, and then address the issue whether Mr Xu consented to this work being performed by Aluminum.

Embark on Northbourne – relevant events

133. On 16 September 2019, a representative of Icon sent an email to Ms Xie, inviting the submission of a quotation for the installation of sunscreens and other metalwork for Stage 1 of the Embark on Northbourne project. Stage 1 consisted of around 160 apartments.

134. On 22 September 2019, Ms Xie issued, on behalf of Firmtech, a quotation for sunscreens, for a total lump sum price of $144,213 (excluding GST).

872. In light of the evidence referred to above, it can be inferred that Ms Xie had actual authority from Mr Zhang to give instructions regarding the sale of the Lansvale Property.

873. Even if Ms Xie did not have actual authority to give instructions on behalf of Mr Zhang in relation to the Lansvale Property, she had ostensible authority to do so.

874. In Oliveri Legal Pty Ltd t/as Oliveri Lawyers v Cassegrain Tea Tree Oil Pty Ltd [2024] NSWCA 74 at [46], Mitchelmore JA (with whom Gleeson JA and Basten AJA agreed) observed that:

“As Diplock LJ described it in Freeman and Lockyer at 503, ostensible authority is ‘a legal relationship between the principal and the contractor created by a representation, made by a principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority’. As the High Court noted in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 (‘Pacific Carriers’) at [36], Diplock LJ’s statement of the general principles in Freeman and Lockyer was approved in Crabtree-Vickers and in Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; [1990] HCA 32.”

877. Her Honour referred with approval (at [63]) to the decision of Newnes JA in Auxil Pty Ltd v Terranova (2009) 260 ALR 164; [2009] WASCA 163 at [176], where his Honour observed as follows:

“A representation creating an apparent authority of an agent may be made in a number of ways but the most common form of representation by a principal is by conduct, that is, by permitting the agent to act in the management or conduct of the principal's business. By permitting the agent to act in the management or conduct of the business, the principal thereby represents to anyone dealing with the agent that he or she has authority to do those acts on behalf of the company which an agent authorised to do acts of the kind which he or she is in fact permitted to do normally does in the ordinary course of such business.”

878. Having regard to that the posting of messages by Ms Xie on the Group Chat (to which Mr Zhang was a party) providing instructions to Mr Xu regarding the sale of the Lansvale Property, and the absence of any response by Mr Zhang expressing any concern either about the fact that Ms Xie was giving such instructions or about the content of any of those instructions, I find that Mr Zhang permitted Ms Xie to act in the management or conduct of Holdings’ business (and, in particular, Holdings’ sale of the Lansvale Property) and thereby represented to Mr Xu that Ms Xie had authority to do those acts on behalf of Holdings.

879. For those reasons, I am satisfied that Mr Xu had authority from his fellow director of Holdings, Mr Zhang, both as a result of instructions given by Mr Zhang and as a result of instructions given by Ms Xie with Mr Zhang’s actual or ostensible authority, to use the settlement proceeds of the Lansvale Property to repay the balance of the Luna Loan and to repay the moneys agreed to be owing to Mr Xu himself.

880. As set out at paragraphs [770]-[771] above, Mr Xu obtained a written direction from Ms Gu that some $600,000 of the moneys from the settlement of the Lansvale Property be repaid to her in respect of the Luna Loan, by means of a payment into a nominated bank account held by Ms Gao.

881. In accordance with Ms Gu’s direction, an amount of $565,500 was paid from the Lansvale settlement proceeds to the nominated account. Mr Xu had calculated this amount as representing the balance of the Luna Loan as at the date of the payment, including interest (see paragraph [807] above).

882. In short, the payment into Ms Gao’s account was a payment to Ms Gu’s nominee, in respect of a liability which Holdings had to Ms Gu pursuant to the Luna Loan Agreement, and was made in accordance with instructions from Mr Zhang that the settlement proceeds from the sale of the Lansvale Property be used for this purpose.

883. Within several days of this payment being made into Ms Gao’s account, an amount of $120,000 was transferred from Ms Gao’s account to Ms Gu’s account. There were no submissions made by Mr Zhang and Holdings about the difference between this sum and the amount received by Ms Gao, and no cross-examination of Mr Xu in relation to this difference. Irrespective of whether the full amount which was received by Ms Gao as nominee of Ms Gu was paid to Ms Gu, the payment of $565,500 to Ms Gu’s nominee was a payment to Ms Gu which reduced the Luna Loan by that amount. Ms Gu had accepted, by her written direction to Auschn, that the payment made to the nominated account of Ms Gao had the effect of discharging the Luna Loan to the extent of that payment.

884. In closing submissions, the claim advanced by Holdings and Mr Zhang in respect of the payment to Ms Gao was based primarily on the basis that there was “no approval that’s given or no authorisation that’s given” for this payment to be made, and that “Mr Xu had on any view, a conflict of interest”, with the situation said to one “which mirrors the position in relation to Panania”:

“there are all those, in effect, non-disclosures that we identified in the Panania proceeding, that operate equally in relation to the Lansvale proceeding that would have had to have been made before there could have been any authorisation. But of course, there was no authorisation at all, and certainly no authorisation from Mr Zhang.”

885. I have addressed above the authorisation for this payment. As regards the non-disclosure issue, similar comments apply to those made in respect of the Panania Proceeding (see paragraphs [845]-[846] above). In particular, there was no pleaded issue in the Lansvale Proceeding regarding the manner in which the funds advanced by Ms Gu under the Luna Loan had been disbursed, or regarding Ms Gu’s retainer of Auschn, or regarding the direction which Ms Gu gave Mr Xu.

886. The interests of Mr Xu were not in conflict with the interests of Holdings or Mr Zhang so far as the payment to Ms Gu was concerned. The directors of Holdings (Mr Zhang and Mr Xu) had agreed, as outlined above, that the Lansvale Property would be sold and that the settlement proceeds would be used to repay moneys owing by Holdings (and Mr Xu and Mr Zhang) to Ms Gu. The sale of that property, and the application of its proceeds in that way, was a necessary part of the agreed process to separate the parties’ financial affairs. It was in the interests of Holdings, Mr Zhang and Mr Xu that those steps be undertaken.

887. The remainder of the payment made to Ms Gao’s account – being an amount of $50,000 – represented the amount of interest which was agreed to be payable by Holdings to Mr Xu’s brother (see paragraphs [809]-[811] above). Mr Xu gave unchallenged evidence that he received authorisation from his brother that the amount due to him by way of interest should be paid into Ms Gao’s account.

888. Mr Zhang and Holdings submitted that “there was no entitlement of [Mr Xu’s] brother to $50,000 worth of interest”, because there was no loan made by his brother to Holdings. I do not accept this submission. For reasons set out at paragraphs [715]-[716] above, I have determined that Mr Xu’s brother had advanced the sum of $400,000 to Holdings to enable the purchase of the Lansvale Property.

889. Mr Zhang and Holdings also submitted that while “there was some discussion with Ms Xie in which there was some notional agreement that $50,000 would be paid to Mr Xu”, this “couldn’t possibly constitute an authorisation on the part of Holdings to make such a payment”, since Ms Xie was not a director of Holdings. I also do not accept this submission. For reasons set out above, I have determined that Ms Xie had actual or ostensible authority from Mr Zhang to give directions to Mr Xu and Auschn in relation to the sale of the Lansvale Property.

890. Even if a breach of fiduciary duty had been established in respect of the Gao Payment, it would be inequitable for any orders to be made requiring Auschn, Mr Xu or Ms Gao to repay the amount of $615,500 to Holdings. That is because:

1. by the payment of $565,500 being made into the account nominated by Ms Gu, in accordance with her direction, Holdings’ liability in respect of the Luna Loan was reduced by that amount; and

2. by the payment of $50,000 being made into the account nominated by Mr Xu’s brother, Holdings’ obligation to pay interest to Mr Xu’s brother in respect of his $400,000 loan was discharged.

Accordingly, Holdings received a benefit from the Gao Payment which was equal to the amount of that payment.

891. It would be inequitable for Holdings both to receive the full benefit of the payment of $615,500 into Ms Gao’s account, which discharged those obligations of Holdings, and at the same time claim back all or part of that amount from Ms Gao, Auschn or Mr Xu.

892. Similarly, the claim against Ms Gao for money had and received fails. It does not matter that Holdings did not have any liability to Ms Gao. Holdings had, at the time of the Gao Payment, a liability to each of Ms Gu and Mr Steven Xu, and each directed that any payment made by Holdings in reduction of such liability be made to Ms Gao. It follows that Holdings received consideration for the making of the Gao Payment, namely, a reduction in its liabilities to Ms Gu and Mr Xu’s brother in a total amount that was equal to the amount of that payment.

FAWD Payment: $535,000

893. The payment of $535,000 to FAWD from the settlement proceeds of the Lansvale Property represented a payment made in order to reimburse Mr Xu for moneys which he had invested in Firmtech.

894. In closing address, Mr Zhang and Holdings submitted that: “[Mr Xu] was acting for … Holdings and was meant to represent the interest of Holdings, which was a trustee of a trust, and the fact that Holdings may have owed monies to Firmtech did not justify Mr Xu at his own whim to simply pay those monies to FAWD to satisfy a liability that Firmtech had to him”. The position was put as follows in their written submissions: “If monies were owed by Holdings to Firmtech, then they should have been paid to Firmtech, not to FAWD. It was then a matter for the directors of Firmtech to decide whether those monies should then be paid to or at Mr Xu’s direction”.

895. I am satisfied that, in making this payment from the settlement proceeds of the Lansvale Property, Mr Xu was not acting “at his own whim”, but was acting in accordance with, and implementing, an agreement reached by the directors of Firmtech and Holdings (that is, an agreement reached between himself and Mr Zhang).

896. Mr Zhang had proposed to Mr Xu that their financial affairs should be separated, including their investment in Firmtech and their investment in the Lansvale Property which Holdings owned. It was recognised in the “Closing Down Calculations” sent by Mr Zhang to Mr Xu, in the discussions between Mr Zhang and Mr Xu at the 30 January meeting, and in the WeChat messages which were posted on the Group Chat to which Mr Zhang and Mr Xu were parties, that the Lansvale Property (which was owned by Holdings and which had been purchased, in part, using funds advanced by Firmtech) had to be sold in order for Mr Xu to be repaid the amount of $1.22m which he had invested in Firmtech.

897. I accept that Mr Xu did not inform Mr Zhang that he was effecting the agreed repayment to himself by making a payment directly to FAWD, rather than by making a payment to Firmtech, in respect of the funds advanced by Firmtech to Holdings for the purchase of the Lansvale Property (calculated in the “Closing Down” spreadsheets as totalling $927,015), and then making a payment from Firmtech to Mr Xu in respect of the funds which he had advanced to Firmtech (calculated in the “Closing Down” spreadsheets as totalling $1.22m). However, the WeChat messages that were posted on the Group Chat recorded an agreement that funds would flow from the sale of the Lansvale Property to Mr Xu, in order to repay the moneys which he had advanced to Firmtech. The payment made from Auschn’s trust account to FAWD (which was wholly owned by Mr Xu) gave effect to this agreement.

898. In circumstances where Mr Zhang had agreed with Mr Xu that moneys from the Lansvale Property would be paid to Mr Xu in reduction of the amount owed by Firmtech to him, the absence of a disclosure by Mr Xu to Mr Zhang of the identity of his nominee for the purpose of receiving this payment does not establish an absence of informed consent.

899. Given those matters, I am satisfied that this payment was made in accordance with the authority of Holdings.

900. For the same reasons, the claim against FAWD for money had and received fails. As a result of the amount of $535,000 being paid to Mr Xu’s nominee (FAWD) from the moneys held on trust for Holdings, Firmtech’s debt to Mr Xu was reduced by the amount of that payment, and Holdings’ debt to Firmtech was reduced by the same amount. It therefore does not matter that Holdings did not have any liability to FAWD. Holdings did receive a benefit by making the payment, namely, a commensurate reduction in the amount of its liability to Firmtech. It also follows that Holdings did not suffer any loss by reason of the payment being made.

Conclusion – Payments at time of settlement

901. Auschn did not provide any settlement statement to Holdings. This was a breach of its obligations under its retainer. However, Holdings did not identify any damage flowing from any such breach. Instead, its claims were all directed to the loss alleged to have flowed from the making of unauthorised payments from the settlement proceeds to Ms Gao and FAWD.

902. For reasons set out above, I have found that those payments were authorised, and that Holdings did not suffer any loss by the making of those payments.

903. It follows that the claims in relation to those payments not been established.

Claims in respect of payments from Holdings Trust Balance

904. As regards the payments made in August 2022 from the Holdings Trust Balance to two creditors of Firmtech, I accept that Mr Xu was motivated by a concern to ensure that Firmtech complied with a statutory demand issued by Alcentre by the stipulated deadline. At the time, Firmtech did not have cash to pay the amount of the statutory demand, but Firmtech was (on Mr Xu’s understanding) owed an amount by Holdings which exceeded the amount of the statutory demand. Mr Xu sought to arrange a meeting of the directors of Holdings and Firmtech on short notice, but Mr Zhang was unavailable. In those circumstances, Mr Xu went ahead and caused Auschn to pay moneys from the Holdings Trust Balance to him, which he then used to pay Alcentre and to make a payment to the lessor of the Revesby Factory.

905. In the absence of a provision specifying the period required for the convening of a directors’ meeting (and I was not referred to any such provision), the general principle is that directors should come together whenever called on notice of reasonable length and without any expectation of being told why they are being summoned to a meeting: Dhami v Martin [2010] NSWSC 770 at [47] (Barrett J). In determining what is reasonable, the practice usually adopted by the board is a relevant consideration, and the issue may ultimately need to be resolved by reference to the nature of the business to be dealt with at a particular meeting: Bentley Capital Limited v Keybridge Capital Limited [2019] FCA 1675 at [38] (Banks-Smith J). This will include the urgency of the need for the directors to take particular action: see Re Keneally (as administrator of Australian Blue Mountain International Cultural & Tourist Group Pty Ltd (admin apptd)) [2015] NSWSC 937 at [57] (Black J) and the cases there cited.

906. Whether or not there was an urgent need for a meeting of Firmtech’s directors (given the approaching deadline for payment of Alcentre’s statutory demand) and whether or not the notice given to Mr Zhang of the meeting was reasonable in that context, the difficulty for Mr Xu is that, prior to the payments being made from the Holdings Trust Balance, he had received a letter from Mr Zhang’s solicitors stating that Mr Zhang did not agree to the proposed resolutions and seeking an undertaking that Mr Xu would not take any steps to implement the purported resolutions.

907. Accordingly, when making the payments, Mr Xu was aware that he did not have the agreement of Mr Zhang, who was his fellow director of Holdings and of Firmtech, to those payments being made.

908. Mr Xu referred to evidence that there had been an agreement between himself and Mr Zhang regarding what would happen in the event of a deadlock between them as directors of Firmtech. Specifically, as noted above, Mr Zhang accepted, in the Principal Proceeding, that it was a term of his pre-incorporation agreement with Mr Xu that if a dispute arose about the manufacturing, production or technical side of Firmtech’s business, Mr Xu would defer to Mr Zhang and if a dispute arose about Firmtech’s finances, Mr Zhang would defer to Mr Xu (see paragraph [51(8)] above).

909. However, this was an agreement in respect of the management of Firmtech. It may be accepted, on the basis of the terms of this agreement, that Mr Xu had express authority to make decisions for Firmtech in the event that there was a dispute between him and Mr Zhang regarding a financial matter (such as whether available cash should be used to pay a particular debt). However, Mr Xu did not have any authority, whether pursuant to this agreement or otherwise, to make decisions on behalf of Holdings in circumstances where there was a dispute between himself and Mr Zhang about a financial matter affecting Holdings (such as whether Holdings should make a payment from its funds to Firmtech).

910. It follows that Auschn made the payment from the Holdings Trust Balance to Mr Xu, and Mr Xu received those funds and used them to make the payments to Alcentre and to the lessor of the Revesby Factory, in circumstances where Auschn and Mr Xu did not have, and knew that they did not have, authority from Holdings to make those payments. Auschn thereby breached its duties to Holdings under its retainer, and Mr Xu breached his duty under s 180 as a director of Holdings.

911. However, Mr Xu did not make any profit or receive any benefit as a result of these payments being made, since the sum of $197,604.03 was paid out to Firmtech’s creditors in reduction of debts which were due and payable, and no part of the funds were retained by Mr Xu (with the balance of the moneys being returned to be held on trust for Holdings).

912. Further, I am not satisfied that Holdings suffered any loss as a result of the payment being made.

913. It is common ground that Firmtech had advanced funds to Holdings to purchase the Lansvale Property. In the “Closing Down Calculations”, Mr Zhang calculated the amount advanced as being $927,015; in the resolutions which he prepared for Firmtech in August 2022, Mr Xu recorded that Firmtech had providing funding of $810,772.24 to purchase the Lansvale Property; and in these proceedings, Mr Zhang and Holdings submitted, and Mr Xu did not dispute, that an amount of $869,860.00 from Firmtech’s account was paid to Holdings for the purchase of this property.

914. Leaving aside the FAWD Payment of $535,000, there was no evidence of any payment being made by Holdings which effected a reduction in its debt to Firmtech. Whichever of the figures outlined above is used, there remained, after the FAWD Payment, a balance owing by Holdings to Firmtech which was greater than the amount that was subsequently paid from the Holdings Trust Balance to discharge debts of Firmtech in August 2022 (namely, $197,604.43).

915. When, on 26 August 2022, the money which was held by Auschn on trust for Holdings was transferred to the director of Firmtech who was responsible for managing its finances (Mr Xu), and used by him to pay creditors of Firmtech, Holdings received a benefit which was precisely equal to the amount that was paid, namely, a commensurate reduction in the debt which it owed to Firmtech.

904. The only basis on which Mr Zhang and Holdings cast doubt on the existence of a liability of Holdings to Firmtech as at the relevant date was as follows:

“The reason I hesitate in relation to the liability as between Firmtech Holdings and Firmtech is this, your Honour may recall in the course of the evidence, there was a payment of $731,500 pursuant to an invoice for marketing services, and that was issued by Firmtech to Firmtech Holdings. There would be a question mark as to whether or not that was legitimate and if it wasn’t legitimate, that would have an impact upon, in effect, the debtor/creditor position between the two entities.”

917. However, as I have noted at paragraphs [802]-[803] above, there was no pleaded issue regarding the invoice of $731,500 which was issued by Firmtech on 12 May 2021 for project management fees in respect of the Lansvale Property and was paid by Holdings.

918. Insofar as Holdings claimed damages or equitable compensation in respect of the payments made by Auschn and Mr Xu from the Holdings Trust Balance on 26 August 2022, it was for Holdings to prove its loss. Holdings pleaded in its Amended Statement of Claim that, as at 26 August 2022, it “was not liable to … Firmtech”. The matters which I have outlined above indicate that Holdings did have a liability to Firmtech as at that date, which exceeded the amount of the payments made from the Holdings Trust Balance on that date. If Holdings wanted to contend that it did not have any liability to Firmtech as at August 2022 because the payment of $731,500 which was made by Holdings to Firmtech in May 2021 was not a genuine payment for services, and should therefore be brought to account so as to extinguish Holdings’ debt to Firmtech in respect of the moneys advanced for the Lansvale Property, it was necessary for Holdings to plead, and to lead evidence to establish, those matters. Holdings did not do so, and accepted in closing oral address that such an issue was “not raised in these proceedings”.

919. It follows that, for the reasons I have set out above, Holdings has not established that it suffered any loss as a result of the payment of $197,604.43 which was made from the Holdings Trust Balance in August 2022.

Conclusion – Lansvale Proceeding

920. For the reasons set out above, none of the claims advanced by Mr Zhang or Holdings in the Lansvale Proceeding has been established, and those claims will be dismissed.

CONCLUSION AND ORDERS

921. In the Principal Proceeding, I have determined that each of Mr Zhang and Ms Xie breached their fiduciary and statutory duties to Firmtech, by diverting various business opportunities to Aluminum and Logikal during the period when they were responsible for operating Firmtech’s Windows and Doors Business. I have also determined that, by reason of this conduct, the affairs of Firmtech were conducted in a manner which was contrary to the interests of the members as a whole, and which was oppressive to, unfairly prejudicial to, and unfairly discriminatory against Mr Xu.

922. I have determined that Firmtech is entitled, at its election, to an account of profits or equitable compensation in respect of the breaches of fiduciary duty. I have determined that the profits to which it is entitled are those from the particular projects which were diverted to Aluminum or Logikal prior to Firmtech ceasing operations (and not those from other projects which were sought and obtained by Aluminum and Logikal after Firmtech ceased operations). The relevant projects are identified at paragraph [598] above. Similarly, the compensation to which Firmtech is entitled for the breaches of fiduciary and statutory duties which have been established is compensation flowing from the loss of those particular projects which were diverted prior to Firmtech ceasing operations. The parties will have an opportunity to address on the appropriate orders for the resolution of the outstanding issues of relief, including any consequential relief.

923. Ms Xie has failed to establish her claims in the Panania Proceeding, and Mr Zhang and Holdings have failed to establish their claims in the Lansvale Proceeding. Those claims will be dismissed.

924. Mr Xu has established his cross-claim in the Panania Proceeding, and is entitled to judgment in the sum of $163,256.22, plus pre-judgment interest.

925. It is my preliminary view that, in each proceeding, costs should follow the event, such that Mr Xu and Firmtech are entitled to an award of costs in the Principal Proceeding, and the defendants in each of the Panania Proceeding and the Lansvale Proceeding are entitled to an award of costs.

926. I will direct the parties to bring in short minutes of order to give effect to these reasons. If there is any dispute about the form of those orders, or if any party seeks a different costs order, or a costs order other than on the ordinary basis, the parties will have an opportunity to be heard on these matters.

927. Accordingly, I make the following orders. The Court:

1. Directs the parties to bring in short minutes of order, by 5pm on 31 October 2024, to give effect to these reasons for judgment.

2. Directs that, insofar as any aspect of the orders to give effect to the reasons for judgment cannot be agreed:

1. the parties exchange, by 5pm on 31 October 2024, the orders which each party proposes and submissions (limited to 5 pages) on those orders; and

2. the matter be listed for hearing at 9.15 am on 6 November 2024, or such other date as may be arranged with the Associate to Nixon J.

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Decision last updated: 17 October 2024