Flash Lighting Company Ltd v Australia Kunqian International Energy Co Pty Ltd (No 4)
[2018] VSC 823
•22 November 2018 (reasons reserved until 9 April 2019)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS’ LIST
S ECI 2016 01132
and
S ECI 2016 01242
BETWEEN
| FLASH LIGHTING COMPANY LTD | Plaintiff |
| v | |
| AUSTRALIA KUNQIAN INTERNATIONAL ENERGY CO PTY LTD | Defendant |
AND BETWEEN
| FLASH LIGHTING COMPANY LTD | Plaintiff |
| v | |
| ZHANG YINAN | First Defendant |
| U&D MINING INDUSTRY (AUSTRALIA) PTY LTD | Second Defendant |
| WEI KUN PTY LTD | Third Defendant |
| YI KUN PTY LTD | Fourth Defendant |
| YI WEI AUSTRALIA PTY LTD | Fifth Defendant |
| AUSTRALIA WALES FINANCIAL MANAGEMENT PTY LTD | Sixth Defendant |
| BEIBEI ZHU | Seventh Defendant |
---
JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13 November 2018 |
DATE OF RULING: | 22 November 2018 (reasons reserved until 9 April 2019) |
CASE MAY BE CITED AS: | Flash Lighting Company Ltd v Australia Kunqian International Energy Co Pty Ltd (No 4) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 823 |
---
PRACTICE AND PROCEDURE – Applications to re-open the hearing of the trial in both proceedings – Application to amend pleadings – Application to tender fresh evidence, obtain further discovery, cross-examine a witness and for the parties to make submissions – Tests applied that were cited in Slea Pty Ltd v Connective Services Pty Ltd [2018] VSCA 229 – Applications refused.
---
APPEARANCES: | Counsel | Solicitors |
| For Flash Lighting Company Ltd | T J Margetts QC with W Thomas | Baker McKenzie |
| For Australia Kunqian International Energy Co Pty Ltd | J P Moore QC with G Kozminsky | Clayton Utz |
| For Jun Xiao | T J Margetts QC with W Thomas | Baker McKenzie |
| For Beibei Zhu | No appearance | |
| For U&D Mining Industry (Australia) Pty Ltd | R D Strong with A D Barraclough | Clayton Utz |
| For Wei Kun Pty Ltd | No appearance | |
| For Yi Kun Pty Ltd | No appearance | |
| For Yi Wei Australia Pty Ltd | No appearance | |
| For the liquidator of Australia Wales Financial Management Pty Ltd (in liq) | A Schnaider (solicitor) | SBA Law |
TABLE OF CONTENTS
Introduction.......................................................................................................................... 1
The Deane affidavit............................................................................................................. 2
First and second Cunningham affidavits......................................................................... 8
Chung affidavit.................................................................................................................... 8
Evidence of Madam Cui................................................................................................... 11
Cross-examination of Madam Cui.................................................................................. 13
U&D’s submissions........................................................................................................... 17
KQ’s submissions.............................................................................................................. 20
FLC’s submissions............................................................................................................. 23
Power to make order......................................................................................................... 28
The fresh evidence............................................................................................................. 30
Discussion........................................................................................................................... 34
Conclusion.......................................................................................................................... 36
HIS HONOUR:
Introduction
By a summons dated 24 October 2018 in the tracing proceeding, U&D sought, inter alia, an order that it have leave to re-open its case for the purpose of adducing fresh evidence and for ancillary orders granting leave to amend its defence and for limited additional discovery. U&D alleged the fresh evidence raised an inference that the moneys that FLC alleged it transferred to U&D to buy the shares in U&D were in fact a loan to Mr Zhang.
U&D sought to amend its defence to allege that FLC held the shares in U&D as trustee for Mr Zhang, as the moneys that FLC used to buy the shares in its own name were in fact moneys lent to Mr Zhang. U&D claimed that these events gave rise to an implied or resulting trust over the shares in favour of Mr Zhang.
By a summons dated 26 October 2018 in the share-sale proceeding, KQ sought, inter alia, an order that the defendant and plaintiff by counterclaim (KQ) have leave to re-open its case to adduce fresh evidence and make submissions. Further, KQ sought orders that FLC make further discovery, and that Mr Xiao be recalled for the purposes of further cross-examination. KQ relied on the same fresh evidence as U&D. KQ contends that if the shares in U&D belonged to Mr Zhang, then FLC was not entitled to the proceeds of their sale to KQ.
After hearing the summonses on 13 November 2018, I reserved my decision. On 22 November 2018, I dismissed both applications and reserved my reasons. Also on 22 November 2018, I published my judgment in both the share-sale proceeding and the tracing proceeding. I now publish the reasons for my decision on the applications to re-open and for ancillary orders.
As KQ adopted the submissions of U&D as part of its submissions, I will deal with the U&D submissions first.
The Deane affidavit
In support of its application to re-open, U&D relied on an affidavit of Anthony John Deane. Mr Deane deposed that on 27 August 2018 the solicitors acting for the Zhu parties informed the solicitors acting for U&D that Mr Xiao had instituted a legal proceeding in China. Mr Xiao started the proceeding on or about 24 April 2018. The defendants were Mr Zhang, Ms Zhu, and Ms Lidan Wang.[1]
[1]Deane affidavit, 24 October 2018, [9].
Exhibited to Mr Deane’s affidavit was a copy of a letter dated 27 August 2018 from the Zhu parties’ solicitors to U&D’s solicitors. Attached to the letter is a copy of the Chinese application with a translation. Mr Deane deposed that the solicitors for U&D showed the letter and attachments to U&D shortly after receiving it on 27 August 2018.[2]
[2]Ibid [11].
The letter makes the following statements regarding the civil application that Mr Xiao filed in the Zhengzhou Intermediate People’s Court. On or about 24 April 2018, and during the trial before me, Mr Xiao filed a civil application in the Zhengzhou Intermediate People’s Court with proceeding number (2018) YU 01 MC no 702 (the ‘Chinese civil application’).
The letter states that Mr Xiao’s Chinese civil application names as respondents Mr Zhang, Ms Wang, and Ms Zhu. Mr Xiao sought payment from those respondents of CN¥80.64 million. The quantification of this claim was based on Mr Xiao’s personal loan to Mr Zhang in the second half of 2011. According to the Chinese civil application, the exchange rate in 2011 meant that CN¥80.64 million was the equivalent of $12 million.
The letter outlines Mr Xiao’s pleadings in the Chinese civil application. Mr Xiao pleaded that in 2010, Mr Zhang and Mr Xiao discussed the former’s need to raise funds for his Australian companies. Mr Xiao pleaded that they discussed the possibility of Mr Zhang’s borrowing money from him.
Mr Xiao pleaded that from 8 July 2011 to 6 December 2011, Mr Xiao and Madam Cui transferred CN¥80.64 million ($12 million) across multiple bank transfers to various accounts.[3] Mr Xiao pleaded that they made these transfers according to the email instructions of Mr Zhang and Ms Zhu.
[3]Ibid [19].
Mr Xiao pleaded that he and Mr Zhang did not agree on the loan period of interest. Mr Xiao pleaded that on 26 August 2014, Mr Zhang acknowledged the debt through a handwritten note. The letter from the Zhu parties’ lawyers observed that FLC tendered this handwritten note into evidence in these proceedings. Mr Xiao pleaded that the loan occurred while Mr Zhang and Ms Zhu were still married.
Mr Xiao pleaded that Ms Zhu admitted ‘in the other Australian Proceedings that she used the assets between the two of them and set up trusts for their two sons, and large amount of properties were purchased in Australia under the trusts’. Mr Xiao pleaded that Ms Zhu and Ms Lidan Wang should be jointly and severally liable to repay his loan to Mr Zhang, because of their relationships with Mr Zhang and their access to bank accounts.
The letter from the Zhu parties’ solicitors made observations in relation to the evidence that Mr Xiao gave in these proceedings. The letter quotes Mr Xiao’s evidence as to the $12 million paid into Australia:[4]
[4]Transcript of Proceedings (19 February 2018) 215.19–21, (20 February 2018) 292.29–30, 320.27.
Mr Margetts: Do you recall how much money you put into that company?
Mr Xiao:I put in — I put in $12 million, which was equivalent to 40 per cent of the shares.
…
Dr Moore:Mr Xiao, you’ve told the court that FLC acquired 60 per cent of the shares in U&D for $12 million?
Mr Xiao:Yes, correct.
…
Dr Moore:Mr Xiao, I want to put some propositions to you and you tell me whether or not you agree with them. FLC bought its shares in 2011 — its U&D shares in 2011 for $12 million?
Mr Xiao:Forty per cent.
The letter from the Zhu parties’ solicitors asserted that Mr Xiao’s evidence was consistent with how Mr Margetts opened the case for FLC:[5]
And Your Honour will recall that I just indicated or told Your Honour, the evidence is that FLC purchased 40 per cent of the shares in U&D, and in-between October and December 2011, FLC transferred $12 million into U&D, and that money was then used to part pay for the purchase of the EPC 818 tenement.
[5]Transcript of Proceedings (14 February 2018) 28.26–31 (T J Margetts).
The letter from the Zhu parties’ solicitors noted that Mr Xiao’s second witness statement recorded a separate loan of $12 million paid between December 2011 and February 2012.[6] The letter points out that this purported loan occurred after the loan the subject of the Chinese civil application.
[6]Second witness statement of Jun Xiao, 6 December 2017, [52].
The letter made observations on the evidence that Madam Cui gave in these proceedings.[7] The letter quoted a paragraph of Madam Cui’s amended witness statement, where Madam Cui said, ‘On 20 October 2011 and 6 December 2011, I arranged FLC to pay [U&D] a sum of AUD$ 12 million’.[8]
[7]Exhibit AJD-3, [3].
[8]Amended witness statement of Yan Cui, 20 February 2018, [4].
The letter then observed that Madam Cui gave evidence of the payments that FLC made to U&D in the second half of 2011, and which add up to $12 million.[9]
[9]Ibid [5]–[12].
The letter referred to Dr Moore’s cross-examination of Madam Cui, in which he asked the witness about a document that FLC discovered. The document was described as ‘a copy of an extract from FLC’s accounting book’. KQ tendered this document into evidence in these proceedings.[10] Madam Cui said about this document, ‘This document is — um, our payment of RMB including the payments from — including the payments to [U&D]’.[11]
[10]See exhibit KQ 23.
[11]Transcript of Proceedings (27 February 2018) 621.25–8.
The letter from the Zhu parties’ solicitors observed that the document records a number of payments that FLC made to U&D during the second half of 2011 that add up to $12 million.[12]
[12]Exhibit AJD-3, [3(e)].
The letter from the Zhu parties’ solicitors to U&D’s solicitors asserted that there are inconsistencies between evidence given in these proceedings and statements made in support of the Chinese civil application.[13]
[13]Ibid [4].
In the concluding section of the letter, the solicitors demanded an explanation for the perceived inconsistencies:[14]
There are unexplained inconsistencies between Mr Xiao’s Civil Application in China and the sworn evidence of Mr Xiao and Madam Cui in the Supreme Court of Victoria as both these versions of events cannot be truthful simultaneously.
In these circumstances, we require an explanation to be provided and by no later than Friday 31 August 2018.
If we do not receive FLC’s explanation prior to that time, we give notice that our clients may bring this matter to the attention of the Honourable Justice Robson.
[14]Ibid [5(a)]–[5(c)].
Mr Qian Yu is a director of U&D. Mr Deane deposed that Mr Yu told him that the translation of the Chinese civil application attached to the letter from the Zhu parties’ solicitors did not include a translation of the two-page document titled (in Mandarin Chinese) ‘Zhengzhou Intermediate People’s Court,’ and ‘Notice to Produce Evidence’. Exhibited to Mr Deane’s affidavit was a translation of that document.[15]
[15]Deane affidavit, 24 October 2018, [12].
Mr Deane deposed that when Mr Xiao filed the Chinese civil application in China, the parties in the tracing proceeding had completed their closing submissions. The parties in the share-sale proceeding completed their closing submissions on 27 April 2018.[16]
[16]Ibid [13].
Mr Deane deposed that Mr Yu informed him of the following:
(a) that U&D first became aware of the Chinese civil application when it received the documents from its solicitors in late August 2018;
(b) that before August 2018, U&D did not know about ‘proceedings in the Zhenzhou area that might involve Mr Xiao and the defendant named in the Civil Application’; and
(c) that, to the best of Mr Yu’s knowledge and belief, ‘reports concerning the issue of such proceedings are not published in Zhengzhou at the time they are filed’.[17]
[17]Ibid [14].
Mr Deane deposed as to the details of various transfers totalling $3 million made in the second half of 2011.[18] Mr Deane noted that the evidence in these proceedings was that FLC paid the remaining $9 million to U&D from its Australian-dollar account with the Bank of China, Sydney, on 9 November 2011. Mr Deane noted that ‘[n]o evidence was given at the trial about the means by which FLC had this amount [$9 million] available to it in that account’.[19]
[18]Ibid [17].
[19]Ibid [18].
In the Chinese civil application, Mr Xiao alleged that he and Madam Cui transferred CN¥80.64 million to Mr Zhang as a loan. Mr Deane deposed that Mr Qian Yu instructed him that U&D now wanted to contend in these proceedings that the $12 million loan is the same money as that paid to U&D to acquire its shares. U&D wanted to contend that the shares were bought in the name of FLC, but that they ‘were in fact beneficially owned by Mr Zhang and not FLC’.[20]
[20]Ibid [20].
Mr Deane deposed that U&D sought leave to amend its statement of claim and to re-open its case ‘to tender in support of that allegation evidence of the Civil Application together with such further relevant evidence as it may obtain by means of the discovery process’. Mr Deane described the purpose of the discovery would be ‘to obtain documents relevant to ascertaining the source of the funds used to make the payment of $9 million’.[21]
[21]Ibid [21].
Exhibited to Mr Deane’s affidavit were copies of letters passing between the solicitors of the parties in these proceedings after the letter of the Zhu parties’ solicitors’ letter of 27 August 2018.[22]
[22]Exhibit AJD-5.
Mr Deane deposed that on 13 September 2018, U&D’s solicitors wrote by email to the Chinese lawyer nominated by FLC’s solicitors, Mr Mao Chulong. On 14 September 2018, Mr Mao Chulong replied to the email.[23] According to Mr Deane, Mr Mao Chulong said in his reply that he ‘is prevented by Chinese law relating to conduct by lawyers from giving any information to third parties about the case’. Mr Mao Chulong also said in his reply that he ‘recommends that [U&D] apply to the [Chinese] court to participate in the proceedings as a third party if it thinks its rights or interests in China may be affected’.[24]
[23]Exhibit AJD-6.
[24]Deane affidavit, 24 October 2018, [23].
First and second Cunningham affidavits
In support of its application to re-open, KQ filed two affidavits of Dugan Winston Cunningham. In his first affidavit, Mr Cunningham deposed that KQ refers to and relies upon the Deane affidavit and exhibits.[25]
[25]First Cunningham affidavit, 26 October 2018, [4].
Mr Yu is also a director of KQ. According to Mr Cunningham, Mr Yu informed him that KQ first became aware of the Chinese civil application in late August 2018, when Mr Yu received from his solicitors the letter from the Zhu parties’ solicitors to FLC’s solicitors that I have described above.[26] Mr Yu also said that KQ had no prior knowledge of legal proceedings in the Zhengzhou area that involved Mr Xiao, Mr Zhang, Ms Zhu, or Ms Lidan Wang.[27]
[26]Ibid [5(a)].
[27]Ibid [5(b)].
Mr Cunningham exhibited to his affidavit copies of further correspondence between the parties’ solicitors, adding to those exhibited to Mr Deane’s affidavit.[28]
[28]Exhibit DWC-1.
In Mr Cunningham’s second affidavit, he deposed that Mr Yu informed him that a bank slip contained in the court book refers to a company called Zhengzhou Baichuang Electronic and Technology Co Ltd.[29] Mr Yu said that the Chinese civil application refers to the same company.[30]
[29]See CB vol 5 tab 8.
[30]Second Cunningham affidavit, 12 November 2018, [4].
Chung affidavit
In support of its defence to these applications, FLC filed an affidavit of Tuck Farn Chung. Mr Chung is one of FLC’s solicitors, and deposed that he is fluent in Mandarin Chinese.[31]
[31]Chung affidavit, 9 November 2018, [1].
Mr Chung deposed that a representative of FLC informed him of several matters relevant to Mr Xiao’s Chinese civil application. The representative’s name is Mr Yiming Cui. Mr Chung deposed that Mr Yiming Cui has authority to act on behalf of FLC and Mr Xiao. One of the matters that Mr Yiming Cui informed Mr Chung about was that on 12 February 2018, Mr Xiao filed an application in the Zhengzhou Court in the form which appears exhibited to the Deane affidavit. According to Mr Yiming Cui, Mr Xiao was, and continues to be, represented by Guangdong Pacific Union Law Firm, a firm of lawyers in China, in connection with the proceeding in the Zhengzhou Court.[32]
[32]Chung affidavit, 9 November 2018, [3(a)].
According to Mr Yiming Cui, when Mr Xiao lodged the application with the Zhengzhou Court, he was issued with a fee notice.[33] Mr Chung exhibited to his affidavit a copy of the fee notice dated 12 February 2018, together with an English translation.[34]
[33]Ibid [3(b)].
[34]Exhibit TFC-1.
According to Mr Yiming Cui, Mr Xiao became aware of the mistakes in his Chinese civil application in April 2018.[35] Mr Xiao then instructed his lawyers in China to prepare a new application that complied with his instructions.[36] Mr Chung deposed that the amended application was sent to the Zhengzhou Court by courier on 1 June 2018.[37] Mr Chung exhibited to his affidavit the amended application together with an English translation.[38] Mr Chung also exhibited a delivery slip from the couriers who took the amended application to the Zhengzhou Court.[39]
[35]Chung affidavit, 9 November 2018, [3(c)].
[36]Mr Chung deposed that the substitution of one application with another is permitted under the procedural rules of the Zhengzhou Court (Replacement Application). In any case, the procedural aspects of running a case in the Zhengzhou Court are not relevant to the issues before me.
[37]Chung affidavit, 9 November 2018, [3(d)].
[38]Exhibit TFC-3.
[39]Exhibit TFC-4.
According to Mr Yiming Cui, the amended application claimed that Mr Xiao lent to Mr Zhang and Ms Lidan Wang the sum of CN¥81.5113 million, that he made this loan by way of transfers to them and entities associated with them, and that these transfers occurred between July 2011 and November 2012. Mr Xiao deposed that the transfers the subject of the amended application were set out in the ‘List of Evidence’ that Mr Xiao filed with the Chinese civil application.[40]
[40]Chung affidavit, 9 November 2018, [3(e)].
According to Mr Yiming Cui, the transfers set out in the ‘List of Evidence’ are different from and unrelated to the payments that FLC made for the purchase of its shares in U&D. Mr Yiming Cui informed the deponent that, to the extent that the original application referred to matters relating to FLC’s purchase of shares in U&D, those matters were included by mistake.[41]
[41]Ibid [3(e)].
Mr Chung deposed the amended application referred to a loan agreement made in connection with the moneys that Mr Xiao loaned to Mr Zhang and Ms Wang between July 2011 and November 2012. Mr Chung deposed that the amended application refers to a receipt for payment that Mr Zhang and Mr Xiao signed. Mr Yiming Cui said that this is the receipt that was meant to be included in the Chinese civil application, and that the handwritten receipt that Mr Zhang signed on 26 August 2014 was included in error. Mr Chung exhibited to his affidavit copies of the loan agreement and receipt referred to in the amended Chinese civil application, together with English translations.[42]
[42]Exhibit TFC-5.
Also exhibited to Mr Chung’s affidavit is a copy of an online record showing that the Zhengzhou Court acknowledged that it received the amended application on 5 June 2018, with an English translation.[43]
[43]Exhibit TFC-6.
Mr Chung exhibited to his affidavit a written statement prepared by Mr Mao Chulong, one of Mr Xiao’s lawyers in China, that confirmed the contents of the affidavit in relation to the filing of the application and amended application. Also exhibited is a translation of that document.[44]
[44]Exhibit TFC-7.
Evidence of Madam Cui
Madam Cui gave evidence at the trial in relation to the payment by FLC for the shares acquired by it in U&D. This evidence has been considered in my judgment in the share-sale proceeding and the tracing proceeding, but is relevant to whether leave should be given to U&D and KQ to re-open their cases.
Madam Cui, who is a director of FLC and the wife of Mr Xiao, gave evidence on behalf of FLC. Madam Cui described herself as an entrepreneur who studied at the Beijing University of Technology and completed a degree in computer sciences. Madam Cui established Genedigi with her husband.
Her witness statement was tendered as evidence in the trial.[45] Madam Cui owns 49 per cent of the shares in FLC. In her witness statement, Madam Cui gave evidence of certain payments she caused to be made.
[45] Ex FLC 18, vol 1, tab 34.
Relevantly to the applications of U&D and KQ, Madam Cui gave evidence of FLC’s investment in shares in U&D. Madam Cui said that between 20 October 2011 and 6 December 2011, she caused the total amount of $12 million to be paid to U&D on behalf of FLC. Madam Cui said that she received emails from Ms Beibei Zhu during this period which specified bank accounts for the purpose of transferring those funds. Madam Cui exhibited the emails.
On 20 October 2011, on behalf of FLC, Madam Cui caused the total amount of CN¥10 million to be transferred to bank accounts specified by Ms Zhu. She exhibited the bank remittance confirmation for this transfer. As discussed below, this payment was treated in the books of FLC as an investment in U&D.
On 21 October 2011, Madam Cui sent an email to Ms Zhu which attached bank records showing the transfer of CN¥10 million on 20 October 2011.[46]
[46]Exhibit FLC 22.
On 2 November 2011, Madam Cui received an email from Ms Zhu regarding FLC’s investment in U&D. She exhibited the email.
On 2 November 2011, on behalf of FLC, Madam Cui caused a further payment of CN¥5 million to be made to the accounts specified in Ms Zhu’s email. Madam Cui exhibited a copy of the bank remittance confirmation. As discussed below, this payment by FLC was treated in the books of FLC as an investment in U&D.
On 7 November 2011, Madam Cui received an email from Ms Zhu regarding details of FLC’s investment in U&D. Madam Cui exhibited the email.
On 9 November 2011, Madam Cui caused $9 million to be transferred from FLC to U&D. Madam Cui exhibited a copy of the bank remittance for this transfer which shows the payee was U&D.[47] As discussed below, this payment by FLC was treated in the books of FLC as an investment in U&D.
[47]CB vol 5 tab 13.
On 1 December 2011, Madam Cui received an email from Ms Zhu that contained an attachment that according to Ms Zhu was the bank statement of ‘your remittances to U&D’s account some time ago’.
On 6 December 2011, Madam Cui, on behalf of FLC, caused CN¥4.75million to be transferred to bank accounts specified by Ms Zhu. As discussed below, this payment by FLC was treated in the books of FLC as an investment in U&D.
As to the receipt of funds for the sale of FLC’s shares in U&D, Madam Cui said that in September 2012, Mr Xiao said to her that FLC should have received part of the amount due to be paid for the sale of its shares in U&D. Madam Cui said that Mr Xiao asked her to check whether the funds had been received. Madam Cui checked FLC’s bank account through the Bank of China’s online portal. She saw that two payments had been received: a payment of $5.4 million on 17 September 2012 and a second payment of $17 million on 18 September 2012.
Madam Cui said that the bank records did not show the name of the payer. Madam Cui said that in July 2014 she requested a statement from the Brisbane branch of the Bank of China, which recorded the receipt by FLC of the payments on 17 and 18 September 2012. Madam Cui said that she was informed by the bank that the payer was U&D, and she subsequently obtained documents from the bank showing the payer was U&D.
Madam Cui said that FLC had not received any further payments for the sale of its shares in U&D. The relevant documents showing the payments to FLC’s account were tendered during Madam Cui’s oral evidence.[48]
[48]Exhibit FLC 19; exhibit FLC 20; exhibit FLC 21.
Cross-examination of Madam Cui
Under cross-examination, Madam Cui said that she managed the accounting department of FLC. It was put to Madam Cui that an extract from FLC’s accounts recorded a receipt of $5.4 million and $17 million from U&D, recorded who paid the money, and that it was entered in the accounts in September 2012.[49] Madam Cui said that that was not the truth.[50]
[49]Ex KQ 23.
[50]Transcript of Proceedings (27 February 2018) 622.
Madam Cui said that in 2012 she thought the $22.4 million came from KQ.[51] She said she first learnt it came from U&D in 2014. Dr Moore put to her that this answer was not true and that she knew in 2012 that the money had come from U&D. Madam Cui said she was telling the truth.
[51]Ibid 634.
Counsel:What caused you in July 2014 to go to the Bank of China to ask for more documents?
Madam Cui:In 2014, when I went to Bank of China, I initially just wanted to get the bank statements of that account. However, I didn’t notice that there were some payments — big payments, without the payer’s name on it. So I asked the bank staff to tell me who paid those big amounts.
Counsel:But according to your evidence, you believed — since 2012 — that the payments had been made by KQ. Isn’t that right?
Madam Cui:That’s correct.
Counsel:And you had no reason to doubt that, did you?
Madam Cui:Yeah — KQ is the one who should be paying for the money, so I thought it should be KQ who paid the money, in the transaction agreement.
Counsel:And you had no reason to believe that the payment had been made by anyone other than KQ, according to your evidence?
Madam Cui:Yes, correct.[52]
[52]Ibid 634–5.
Madam Cui was taken to an extract from FLC’s accounts[53] and an entry that recorded ‘Amounts transferred to U&D mining (via accounts specified by Ms Beibei Zhu and Mr Zhang Yinan)’. This entry referred to money totalling CN¥15 million transferred from FLC to U&D Mining, being CN¥10 million on 20 October 2011, and CN¥5 million on 2 November 2011. Madam Cui agreed that the accounts were specified by Ms Zhu and Mr Zhang.
[53]Ex KQ 23.
Dr Moore asked Madam Cui to explain the account. Madam Cui said:[54]
This document is — um, our payment of RMB including the payments from — including the payments to U&D Mining. It also includes the two payments from U&D. One is 17 million. Another is 5.4 million.
As Madam Cui explained, the document also recorded the receipts from U&D.
[54]Transcript of Proceedings (27 February 2018) 621.
The FLC account recorded that the CN¥15 million equalled $2,235,738.90. The account further recorded that the transfer was debited to ‘long term investment’ and credited to ‘cash & bank’. The accompanying note stated, ‘Injected on behalf of FLC to U&D via Lion Glass’.
The FLC account also recorded that on 9 November 2011, FLC transferred to U&D $9 million. The account recorded that the transfer was debited to ‘long term investment’ and credited to ‘cash & bank’. The accompanying note said, ‘Invested in U&D directly’.
The account also recorded that on 6 December 2011, FLC transferred to U&D CN¥4.75 million ($764,261.10). The FLC account recorded that the transfer was debited to ‘long term investment’ and credited to ‘cash & bank’. The accompanying note recorded, ‘Injected on behalf of FLC to U&D via Lion Glass’.
Those three sums transferred to U&D totalled $12 million. Thus, the accounts of FLC showed that in total $12 million was transferred from FLC to U&D and treated in the accounts as a long-term investment of FLC in U&D.
Dr Moore tendered the accounting document as exhibit KQ 23. I am satisfied by this accounting document that FLC had treated the $12 million in payments, transferred pursuant to the email instructions from Ms Zhu, as an investment in U&D. The payments were not recorded in the accounts of FLC as a loan to Mr Zhang or anybody else. I am satisfied that the investment referred to was the acquisition by FLC of 40 per cent of the shares in U&D.
Dr Moore put to Madam Cui a balance sheet for FLC as at December 2011 and 2012.[55] The balance sheet for December 2011 recorded a long-term investment of $12 million. Dr Moore tendered the balance sheet.[56] For December 2012, the long-term investment had increased to $20.5 million. I infer that the long-term investment of $12 million was the money invested in U&D shares.
[55]Ibid 623.
[56]Exhibit KQ 24.
The case now sought to be put by KQ and U&D, that the $12 million was a loan to Mr Zhang, is inconsistent with the accounts of FLC which treated the $12 million transferred as an investment in U&D. KQ itself tendered this evidence.
Further, the accounting entries on the moneys received from the sale of the U&D shares to KQ are also inconsistent with the $12 million payment being a loan to Mr Zhang.
It was put to Madam Cui that the balance sheet for December 2012 did not show that KQ owed a debt of $29.2 million to FLC. The balance sheet showed, as a liability, $22.4 million as ‘received in advance’. Madam Cui was asked why that entry was made. Madam Cui said that at that stage they did not know who had paid FLC the $22.4 million that FLC received in September 2012. The balance sheet for December 2012 shows that the $22.4 million was credited to an account entitled ‘received in advance’.
From an accounting point of view, the receipt was treated as a liability until the purpose of the payment was identified. When its purpose as payment for the shares was confirmed, it could have been credited against the asset cost and the surplus taken to shareholders’ funds as a profit on the sale. I found Madam Cui’s explanation of the accounting treatment satisfactory and quite consistent with her evidence that the moneys were paid by U&D rather than KQ.
Dr Moore put it to Madam Cui that, in circumstances where the $22.4 million had not been recorded as payment for the sale of FLC’s shares in U&D, the balance sheet should have shown that FLC was owed $51.6 million (being the total price of the sale of the shares in U&D). Madam Cui said that she was not familiar with the balance sheet, and that the accounting department manager ‘will be knowing more about the — um, accounting record’.[57]
[57]Transcript of Proceedings (27 February 2018) 624.
Madam Cui was asked to explain why the sum of either $51.6 million or $29.2 million did not appear in FLC’s balance sheet as at 31 December 2012:[58]
[58]Ibid 624–5.
Madam Cui:I’m not quite sure about that.
Counsel:I suggest to you that the reason why no debt owed by KQ, whether in the amount of 29.2 or 51.6, doesn’t appear in the balance sheet is that FLC did not regard KQ as its debtor? What do you say about that?
INTERPRETER: I’m sorry, can you repeat the last part?
Counsel:I suggest to you that the reason why the balance sheet does not show KQ as a debtor as at 31 December 2012, for either $29.2 million or $51.6 million, is because FLC did not regard KQ as owing it any money? What do you say about that?
Madam Cui:I don’t agree.
U&D’s submissions
U&D sought to amend its defence to allege that the shares which FLC alleged it sold to KQ were not beneficially owned by FLC, but were held by FLC as trustee for Mr Zhang.
In the tracing proceeding, FLC alleged that it had sold 40 per cent of the shares in U&D to KQ and claimed that KQ transferred $51.6 million to U&D to be paid to FLC for the sale of the U&D shares. FLC alleged that U&D held the $51.6 million in trust for it. FLC alleged that $29.2 million of those moneys was dishonestly paid away to Mr Zhang’s benefit without the authority or consent of FLC and otherwise than for the benefit of FLC. FLC alleged that this was a breach of trust or breach of fiduciary duty by U&D, whereby FLC had suffered a loss of $29.2 million.
U&D applied to re-open the trial in the tracing proceeding to admit evidence of the proceeding that Mr Xiao instituted in China. At the trial of these proceedings in this Court before me, Mr Xiao gave evidence that FLC owned the 40 per cent shareholding in U&D that it sold to KQ and that it purchased the U&D shares for $12 million. As mentioned above, Mr Xiao and Madam Cui, the directors of FLC, gave evidence of the payments comprising the $12 million and to whom the payments were made.
U&D submitted that it had discovered fresh evidence, which supported a finding that Mr Xiao lent Mr Zhang the moneys transferred and that the shares purchased in FLC’s name were in fact purchased with the moneys loaned to Mr Zhang. U&D submitted that Mr Zhang was, accordingly, the beneficial owner of the shares FLC held in U&D, not FLC. U&D submitted that, therefore, FLC had no entitlement to the moneys transferred from KQ to U&D to pay FLC and suffered no loss by their misapplication by Mr Zhang.
In particular, as mentioned above, the fresh evidence was or arose from an application made in China, bearing the date 24 April 2018, which alleged that Mr Xiao lent Mr Zhang CN¥80.64 million (equivalent to about $12 million) between 8 July 2011 and 6 December 2011, via payments to:
(a) Zhengzhou Huake Investment Management Co Ltd;
(b) Lu Hao;
(c) Ye Xiaoqin;
(d) Zhengzhou Baichuang Electronic Science and Technology Co Ltd;
(e) Henan Province Jiayi Real Estate Co Ltd;
(f) Henan Weiming Science and Technology Co Ltd;
(g) Zhenzhou Leyang Glass Imp/Exp Co Ltd;
(h) Mr Zhang; and
(i) Ms Wang.
In this proceeding, evidence was led that FLC paid $12 million to acquire a 40 per cent shareholding in U&D. Of that $12 million, a total of $3 million was paid via international transactions, which on FLC’s side were as follows:[59]
[59]U&D, ‘Submissions of the Second Defendant’, 12 November 2018, [10].
(a) 20 October 2011, CN¥4.8 million to Zhengzhou Baichuang Electronic Science and Technology Co Ltd;
(b) 20 October 2011, CN¥5.2 million to Zhengzhou Huake Investment Management Co Ltd;
(c) on 2 November 2011, CN¥600,000 to Lu Hao;
(d) on 2 November 2011, CN¥2.4 million to Lu Hao;
(e) on 2 November 2011, CN¥2 million to Ye Xiaoqin;
(f) on 6 December 2011, CN¥2.75 million to Zhengzhou Huake Investment Management Co Ltd; and
(g) on 6 December 2011, CN¥2 million to Zhengzhou Huake Investment Management Co Ltd.
The remaining $9 million was transferred on 9 November 2011 from FLC’s Australian-dollar account with the Bank of China, Sydney.[60] There was no evidence as to how that $9 million was originally deposited into FLC’s account.
[60]Ibid [10].
U&D submitted that, if one accepted the fresh evidence, then that would lead to a finding that Mr Xiao lent Mr Zhang $12 million in payments made between 8 July 2011 and 6 December 2011.
U&D submitted that, based on this evidence, it would be open for the Court to infer that the amount of $12 million referred to in the Chinese civil application was wholly or in part the source of the $12 million that FLC paid to U&D.
U&D submitted that if the Court accepted that the shares in U&D were purchased with moneys loaned to Mr Zhang, then it would be open for the Court to find that the shares were beneficially owned by Mr Zhang, and that FLC suffered no loss by reason of KQ’s alleged failure to pay for the shares.
U&D submitted that such a finding would lead to the conclusion that the moneys which KQ transferred to U&D to pay for FLC’s holding of U&D shares were moneys held on behalf of Mr Zhang and not FLC.
As mentioned, in the tracing proceeding, FLC sued U&D on the basis that U&D held the moneys that KQ paid it on trust for FLC. In my judgment of 22 November 2018, I found that U&D did not hold any moneys on trust for FLC. Thus, the claim by FLC against U&D failed. The new evidence would not alter that result.
KQ’s submissions
In the share-sale proceeding, FLC alleged that it sold its U&D shares to KQ, but that KQ failed to pay the balance of the purchase price. KQ alleged that the new evidence would tend to show that the U&D shares were held on trust for Mr Zhang, and that Mr Zhang as the beneficial owner was entitled to receipt of the moneys transferred by KQ to U&D, to pay for the shares it purchased in U&D from FLC.
In my opinion, this would require an amendment to the pleading in the share-sale proceeding to allege that FLC was not beneficially entitled to the proceeds of the sale of its holding of U&D shares to KQ.
KQ relied on some different matters from those on which U&D relied. It is necessary therefore to deal with KQ’s submissions in some detail.
KQ submitted that in the proceedings before me, Mr Xiao and Madam Cui gave evidence about two separate $12 million payments. First, they gave evidence that FLC paid $12 million to acquire a 40 per cent shareholding in U&D by payments made between 20 October 2011 and 6 December 2011, which they call the first $12 million amount.
Secondly, KQ submitted that, according to Mr Xiao’s witness statement of 6 December 2017, he said that FLC lent a second amount of $12 million to Mr Zhang via payments made between 8 December 2011 and 27 February 2014. FLC made these payments after the payment of the first $12 million amount.
Thirdly, KQ submitted that in the Chinese proceedings, Mr Xiao alleges that he lent Mr Zhang $12 million between 8 July 2011 and 6 December 2011, which KQ calls the third $12 million amount.
KQ submitted that the evidence given by Madam Cui and Mr Xiao is inconsistent. KQ referred to the following matters. First, KQ said that the receipt could not be evidence that Mr Zhang owed the second $12 million amount to FLC and that Mr Zhang owed the third $12 million amount to Mr Xiao. Secondly, KQ said that the date of the transfer of the first $12 million amount occurred between 20 October 2011 and 6 December 2011 and that the transfer of the third amount occurred between 8 July 2011 and 6 December 2011. These periods overlap. Thirdly, KQ said that part ($3 million) of the first $12 million amount was paid to Zhengzhou Huake Investment Management Co Ltd, Lu Hao, and Ye Xiaoqin. The third $12 million amount includes payments to those same recipients during the same period. Fourthly, Mr Xiao and Madam Cui did not adduce any evidence of the third $12 million amount in these proceedings. Fifthly, KQ said that, notwithstanding numerous requests by KQ, U&D, and other parties to the tracing proceeding, FLC and Mr Xiao had not provided any explanation for the inconsistencies between the evidence given in these proceedings and the allegations in the Chinese proceeding. Finally, KQ said that some of the payments that made up the third $12 million amount and the first $12 million amount were the same.
KQ submitted that it might be the true position that the third $12 million amount alleged in the Chinese civil application was in fact the first $12 million amount alleged in the trial in this Court. KQ submitted that the first $12 million amount alleged in the trial in this Court might not have been a payment from FLC to U&D as a subscription for U&D shares, but rather as a loan from Mr Xiao to Mr Zhang.
KQ sought to make use of the fresh evidence in the following four ways. First, KQ submitted that if the third $12 million amount and the first $12 million amount were the same, and the third $12 million amount were in truth a loan to Mr Zhang, then it would follow that Mr Zhang used the money to purchase the shares in U&D in the name of FLC. KQ said that there was, therefore, a purchase money resulting trust,[61] whereby FLC held the U&D shares on trust for Mr Zhang. KQ said that once FLC had sold these shares to KQ, the trust assets held by FLC for Mr Zhang comprised the debt owed under the Equity Transfer Agreement (‘ETA’).
[61]KQ cited Calverley v Green (1984) 155 CLR 242, 246–7 (Gibbs CJ).
KQ said that, at the direction of Mr Zhang, KQ paid the proceeds of the sale of the shares to U&D and Mr Zhang then caused $29.2 million to be paid by U&D to China Investments Holdings Ltd (‘CJI’), a company that Mr Zhang controlled.
KQ said that, at trial, it submitted that one could infer that Mr Zhang told Mr Xiao of those matters. KQ said that the submission could be strengthened if the position were that the shares, and then the debt for their sale proceeds, were held on trust for Mr Zhang. KQ submitted that a beneficiary who has an absolute and vested interest in the trust assets (here, the debt owed under the ETA) is entitled to call for and deal with the trust assets for itself.
KQ said that, if accepted, that would be a (further) complete answer to the primary claim advanced by FLC for breach of contract (or debt) under the ETA.
The second way in which KQ wished to rely upon the fresh evidence relates to Mr Zhang’s role as agent of FLC. KQ submitted that, in considering the scope of Mr Zhang’s agency, it is relevant that Mr Zhang had a beneficial interest in the U&D shares, which FLC (as the legal owner) sold under the ETA. If the shares and then the debt had been, in substance, Mr Zhang’s, then he was more likely to have been given a broad authority by FLC to deal with them.
Thirdly, KQ submitted that it challenged the evidence of Mr Xiao on the following matters:
(a) whether Mr Xiao knew that FLC had received payments from U&D;
(b) whether FLC imposed conditions on Mr Zhang’s agency;
(c) whether the receipt in respect of payment under the ETA was a fraud; and
(d) Mr Xiao’s explanation as to why the value of the mine increased from $25.25 million in November 2011 to approximately $129 million in March 2012.
KQ submitted that the inconsistencies between Mr Xiao’s evidence in these proceedings and the allegations he makes in the Chinese civil application were relevant when assessing the credit of Mr Xiao on these matters.
Fourthly, KQ submitted that the fresh evidence would change the nature of the case. KQ said that FLC was seeking to recover money to which Mr Zhang was beneficially entitled, and which Mr Zhang had already received (via CJI). KQ submitted that it was then seeking to recover from FLC moneys which belonged to the architect of the fraud, Mr Zhang. KQ said that FLC was not seeking to recover money in which FLC held a beneficial interest.
KQ sought further discovery and the opportunity to cross-examine Mr Xiao on the fresh evidence. KQ also sought to make further, brief closing submissions.
FLC’s submissions
FLC submitted that neither U&D nor KQ clearly identified what fresh evidence each would have sought to adduce if the Court had granted leave.[62] FLC submitted that the affidavit material that KQ filed in support of its application did not explain the basis upon which KQ sought discovery of the same categories of documents as U&D in its summons.[63]
[62]FLC, ‘Plaintiff’s Submissions on Application to Re-open’, 12 November 2018, [12].
[63]Ibid [14].
FLC submitted that it was not for the purpose of adducing fresh evidence that U&D and KQ sought leave to re-open.[64] FLC submitted that the true motivation for U&D and KQ’s applications was a desire to conduct an inquiry as to what further evidence may have been available to support their cases, via orders for discovery. FLC submitted that this motivation did not fall within the category of exceptional situations which courts have recognised as justifying the re-opening of a trial.[65]
[64]Ibid [15].
[65]See below at [130].
FLC submitted that, in seeking to conduct the inquiry, U&D and KQ were relying on ‘asserted similarities’ between the transactions that Mr Xiao named in the original Chinese civil application and the transactions for the purchase of the shares in U&D.[66] FLC submitted that there was ‘not an identity between all the transactions the subject of the Civil Application and those in this proceeding’. FLC submitted that the idea that those two sets of transactions were the same was ‘essentially speculative’.[67]
[66]FLC, ‘Plaintiff’s Submissions on Application to Re-open’, 12 November 2018, [16].
[67]Ibid [17].
FLC submitted that one might find ‘the explanation for the similarities between the transactions’ in the affidavit of Mr Chung.[68] FLC referred to two aspects of the affidavit as constituting the explanation. First, FLC pointed to the fact that Mr Xiao had withdrawn the original Chinese civil application and replaced it with an amended version.[69] Secondly, FLC submitted that, to the extent that the original Chinese civil application ‘erroneously included’ matters that related to the proceedings in this Court, ‘this was due to a mistake on the part [of] the lawyers in China engaged by Mr Xiao’.[70] FLC submitted that this explanation was ‘a complete answer to the applications to re-open’.[71]
[68]Ibid [18].
[69]Ibid [18].
[70]Ibid [18]. See also Transcript of Proceedings (13 November 2018) 59.2–12 (T J Margetts).
[71]FLC, ‘Plaintiff’s Submissions on Application to Re-open’, 12 November 2018, [20].
FLC made a submission on whether the fresh evidence, if accepted, would change the result of the case, submitting that the fresh evidence could not be said to be so material that it would likely change the result of the case. FLC made three arguments in support of this submission. FLC’s first argument was that ‘the fresh evidence which U&D and KQ seek leave to re-open their cases to adduce is not known’.[72] As it was unknown, its capacity to alter the result of the case could not be assessed.
[72]Ibid [21].
FLC’s second argument centred on the replacement of the original Chinese civil application with the amended one. FLC said that the fact of the replacement undermined any evidence that U&D and KQ might produce.[73] FLC said that, even if U&D and KQ could produce evidence to show that the two sets of transactions were the same, ‘it does not follow that the result of the case would change’. FLC said that the result could only change if the amended Chinese civil application were disregarded.
[73]Ibid [21].
FLC’s third argument was that the fresh evidence could not outweigh the material already in evidence.[74] FLC submitted, pointing to three specific documents already in evidence, that the existing evidence in these proceedings tended to establish that FLC was the beneficial owner of the shares in U&D.
[74]Ibid [25]; Transcript of Proceedings (13 November 2018) 36.28–37.2 (T J Margetts).
The first document was the ETA.[75] FLC submitted that the ETA was ‘totally inconsistent’ with the inference which U&D and KQ wished the Court to draw.[76] It appears that Mr Zhang signed a document which states that FLC owned 40 per cent of the shares in U&D.[77] FLC submitted that this tended to establish that Mr Zhang was not the beneficial owner of the shares.
[75]Transcript of Proceedings (13 November 2018) 38.13–39.7 (T J Margetts). The English translation of the ETA may be found at CB vol 3 tab 59 1404–14.
[76]Ibid 39.5–6 (T J Margetts).
[77]See ETA items 4–5, and the signing clause at CB vol 3 tab 59 1403.
The second document was a Form 484, ‘Change to Company Details,’ that Mr Zhang lodged with ASIC.[78] This form records the changes to U&D’s register of members. The document records that FLC beneficially owned its shares in U&D before they were transferred to KQ.[79] Mr Zhang signed this document, certifying that the information he had provided was ‘true and correct’. The document is dated 11 May 2012. Mr Margetts noted that the date of this document is ‘well and truly after the dates of these purported transactions that go to make up this alleged loan’.[80]
[78]CB vol 3 tab 61 1417–19; see Transcript of Proceedings (13 November 2018) 39.8–40.19 (T J Margetts).
[79]CB vol 3 tab 61 1419.
[80]Transcript of Proceedings (13 November 2018) 39.14–16 (T J Margetts).
The third document is an ASIC current and historical extract of the share and ownership of U&D.[81] Mr Margetts submitted that the document could only have been prepared on information provided to ASIC by Mr Zhang. The extract indicates that FLC was a former shareholder, that it owned 40 shares, and that it owned its shares beneficially.
[81]Ibid 41.30–42.3 (T J Margetts).
FLC submitted that those three documents (the ETA, the Change to Company Details form, and the ASIC extract) are inconsistent with the inference which U&D and KQ wanted me to draw. The documents, Mr Margetts submitted, were ‘unequivocal’.[82]
[82]Ibid 42.9–14 (T J Margetts).
FLC made a submission on the purpose for which KQ and U&D were seeking to re-open their cases.[83] FLC submitted that the applicants’ ‘true purpose’ was to adduce evidence undermining the credibility of Mr Xiao and Madam Cui.[84]
[83]FLC, ‘Plaintiff’s Submissions on Application to Re-open’, 12 November 2018, [28]–[35].
[84]Ibid [28].
FLC submitted that this true purpose on the part of KQ is revealed in correspondence that KQ’s solicitors sent to FLC’s solicitors.[85] FLC quoted an extract of the correspondence, which I copy here:[86]
The position is quite simple as to why the matter ought be raised with Robson J. As outlined above, it is that your clients have seemingly put forward two inconsistent stories in two separate Court proceedings which are of such a nature that your clients’ evidence at the trial of the Victorian proceeding is unreliable and ought be given little or no weight by the Court. You have been asked to explain the inconsistencies on more than one occasion, but you continue to dismiss the issue which gives rise to concerns that your clients’ evidence at the trial is unreliable. Those are important matters that we think will be of interest to the Court.
[85]Ibid [31].
[86]Letter from Clayton Utz to Baker McKenzie, 12 September 2018, [7(c)] (part of Exhibit AJD-5).
FLC submitted that the correspondence from Clayton Utz ‘makes it tolerably clear that U&D also seeks to re-open its case primarily for the purpose of adducing evidence relevant to credit’.[87] According to FLC, the facts that support this proposition are that:
[87]FLC, ‘Plaintiff’s Submissions on Application to Re-open’, 12 November 2018, [32].
(a) the correspondence was exhibited to the affidavit filed on behalf of U&D;
(b) the applications of U&D and KQ were both made on the basis of instructions from Mr Yu, in his capacity as a director of both companies;
(c) the same firm of solicitors was acting for both U&D and KQ; and
(d) U&D and KQ were seeking discovery of the same categories of documents. FLC submitted that ‘[t]he applications are obviously coordinated’.[88]
[88]Ibid [32].
FLC submitted that it is inappropriate for a court to grant a party leave to re-open its case for the purpose of adducing evidence as to credit.[89] In support of this submission, FLC referred to the High Court’s decision in Goldsmith v Sandilands & Ors,[90] and the Victorian Court of Appeal’s decision in Spotlight Pty Ltd v NCON Australia Ltd.[91]
[89]Ibid [33].
[90](2002) 190 ALR 370.
[91](2012) 46 VR 1 (‘Spotlight’).
Power to make order
U&D contends that the Court has power to make the orders sought. U&D contends that the High Court has confirmed that the Court has an inherent common law discretion to re-open a case to receive fresh evidence at any time before judgment is entered.[92] Section 49 of the Civil Procedure Act 2010 (Vic) gives the Court the widest possible power to make any order that furthers the overarching purpose in relation to the conduct of the hearing in a civil proceeding. The power is exercisable ‘during a hearing’. U&D submitted that this included a period in which judgment is reserved.
[92]Smith v NSW Bar Association (1992) 176 CLR 256, 265.
In any event, U&D submitted that the case management provisions of the Act do not cut down the Court’s inherent powers.[93]
[93]See Civil Procedure Act 2010 (Vic) s 53(2)(a).
The legal principles for a re-opening application are well settled. Kenny J summarised these situations in Inspector-General in Bankruptcy v Bradshaw:[94]
The authorities indicate that, broadly speaking, there are four recognised classes of case in which a court may grant leave to re-open, although these classes overlap and are not exhaustive. These four classes are (1) fresh evidence; (2) inadvertent error; (3) mistaken apprehension of the facts; and (4) mistaken apprehension of the law. In every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open.
[94]Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22, [24] (citations omitted) (‘Bradshaw’). See also Spotlight (2012) 46 VR 1, 7 [25]–[26] (Harper and Tate JJA and Beach AJA); Di Stasio Pty Ltd v R and K Services Pty Ltd [2018] VSCA 340.
As Kenny J noted, the overriding principle requires the Court to consider whether, taken as a whole, the justice of the case favours the grant of leave to re-open.[95]
[95]Bradshaw [2006] FCA 22, [26] (citations omitted). See also Baum v Barport [2018] VSC 291, [21] (Cameron J); FYD Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097, [30] (White J); Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd (No 2) [2004] FCA 1310, [22], [25] (Mansfield J); Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471, 478; Di Stasio Pty Ltd v R and K Services Pty Ltd [2018] VSCA 340.
In Reid v Brett,[96] Habersberger J listed four criteria that ought to be taken into account in the Court’s exercise of discretion where the application relies on fresh evidence. The four criteria are:[97]
[96]Reid v Brett [2005] VSC 18.
[97]Ibid [41] citing Re Australasian Meat Industry Employees’ Union (WA Branch); Ex parte Ferguson (1986) 67 ALR 491, 493–4 (Toohey J), citing Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88 and Murray v Figge (1974) 4 ALR 612.
(a) whether the further evidence is so material that the interests of justice require its admission;
(b) whether the further evidence, if accepted, would most probably affect the result of the case;
(c) whether the further evidence could, by reasonable diligence, have been discovered earlier; and
(d) whether any prejudice would ensue to the other party by reason of the late admission of the further evidence.
I adopted this classification in Re Connective Services Ltd.[98] On appeal, in Connective Services Pty Ltd v Slea Pty Ltd,[99] the Court of Appeal cited my statement of the relevant principles without qualification and upheld my decision not to accede to an application to re-open the case to admit new evidence.
[98][2017] VSC 609, [216].
[99][2018] VSCA 229.
In relation to criterion (d), it was submitted that what must be shown is the absence of unfair prejudice to the other party.[100]
[100]See Smith v NSW Bar Association (1992) 176 CLR 256, 267 (Brennan, Dawson, Toohey, and Gaudron JJ).
In Re Australasian Meat Industry Employees’ Union (WA Branch); Ex parte Ferguson,[101] Toohey J expressed the second test as ‘the evidence if believed would most probably affect the result’.[102]
[101](1986) 67 ALR 491.
[102]Ibid 493.
The mere fact that fresh evidence has come to light is not in itself sufficient reason to grant a party leave to re-open. Sifris J made the following observation in Nicholson v Hilldove Pty Ltd:[103]
The authorities establish that the existence or discovery of fresh evidence alone is not sufficient to re-open a case. If this were not so decisions would be “of a provisional character only”. Rather, public policy requires a more “stringent rule”. Accordingly a party seeking to re-open a case on the grounds of fresh evidence is required to show “that there was no lack of reasonable diligence on his part and that it is reasonably clear that the fresh evidence would have produced an opposite verdict”.
[103][2013] VSC 231, [18], citing Commonwealth Bank of Australia v Quade (1991) 178 CLR 134, 141.
The fresh evidence
The fresh evidence is of an application made by Mr Xiao in a Chinese court alleging that he had lent the equivalent of $12 million to companies of Mr Zhang. The application was signed by Mr Xiao and is dated 24 April 2018. Mr Xiao’s solicitor in Australia has deposed, on information and belief, that it was in fact commenced on 12 February 2018, before the trial commenced in the Australian proceedings. Mr Strong and Mr Kozminsky submitted that arguably the proceedings in China ought to have been discovered in these proceedings.
The Chinese civil application alleges that between 8 July 2011 and 6 December 2011, Mr Xiao and his wife Madam Cui, under the email instruction of Mr Zhang and Ms Beibei Zhu, and through multiple bank transfers, transferred CN¥80.64 million (approximately $12 million) to bank accounts of nine entities, of which four are people and five are companies.
U&D sought to compare this evidence with evidence given by Madam Cui during the trial of the transfer of moneys to two companies and two individuals. The companies are Zhengzhou Baichuang Electronic and Science Technology Co Ltd and Zhengzhou Huake Investment Management Co Ltd. The two individuals are Lu Hao and Ye Xiaoqin. The transfer of moneys was approximately $3 million and the transfer by FLC to U&D was $9 million.
U&D relied on the fact that Madam Cui gave evidence of transferring $12 million and that the application in China alleges $12 million was loaned. The applicants contended that the loans Mr Xiao was suing upon in the Chinese civil application were the same sums that FLC said it paid to the entities nominated by Mr Zhang to purchase the U&D shares. The applicants contended that the Court should draw that inference from the Chinese civil application and from Madam Cui’s evidence about the payments.
U&D contended that the further evidence, if accepted, would probably affect the result of the case, because the evidence would establish that FLC purchased the shares with moneys loaned to Mr Zhang.
U&D submitted that the respondents referred to evidence as to why the evidence would not be accepted. The respondents referred to the fact that the inference conflicted with existing documentary evidence. U&D contends, however, that this is not the issue.
U&D relied on an inference. Before I could find that the proposed evidence, if accepted, would most probably affect the result of the case, I must be satisfied that the inference which the applicants seek to draw, would most probably be drawn.
In my view, I would need to be satisfied that the fresh evidence that KQ and U&D seek to adduce would most probably lead me to find that FLC purchased the U&D shares using Mr Zhang’s money. The evidence would need to most probably satisfy me that FLC did not purchase the U&D shares beneficially, as sworn to by Mr Xiao and Madam Cui, but rather that FLC purchased them with moneys of Mr Zhang. Or, at the least, the evidence most probably would cause me to be not satisfied that FLC paid for the shares in U&D as it alleges.
I accept that the inference for which the applicants contend is open for me to draw. However, the existing evidence does not support, but rather contradicts, the inference. Accordingly, I am not satisfied that, if the evidence were accepted, it would most likely affect the result of the case.
The evidence is to the effect that Mr Xiao made loans to the companies and individuals alleged in the Chinese civil application for the benefit of Mr Zhang. I am not satisfied that that evidence would most likely satisfy me that FLC did not own the shares it purportedly sold to KQ. I am not satisfied that the evidence would most likely satisfy me that the moneys loaned to Mr Zhang were the moneys used to buy the U&D shares in the name of FLC. It may have affected the result of the case if I had rejected the contradicting evidence already tendered, and if I had overlooked the fact that Mr Zhang did not give evidence to support the inference. That, however, is not the case.
In particular, evidence, as discussed above, was admitted during the trial that the payments relied on by FLC in its case that it purchased the shares, were recorded in FLC’s books of account as purchasing the shares in U&D. FLC further treated the shares as an asset in its balance sheet.
In opposition to the applications, FLC relied on an affidavit of Mr Tuck Farn Chung, a solicitor from Baker McKenzie, solicitors for FLC and Mr Xiao in the proceeding. Mr Chung deposed that in or about April 2018, while preparing for the proceeding in the Chinese Zhengzhou Court, Mr Xiao became aware that the matters described in the original Chinese civil application in China were incorrect. Mr Xiao became aware that the lawyers retained in connection with that proceeding had mistakenly included information which related to the proceedings in the Supreme Court of Victoria, contrary to his instructions. Mr Xiao subsequently organised for the retrieval of payment records relevant to the transactions which he had intended to pursue in the Zhengzhou Court.
Mr Chung deposed that Mr Xiao subsequently instructed his lawyers in China to prepare a new application to replace the original Chinese civil application. He deposed that the replacement application claims that the sum of CN¥81.5113 million was loaned to Mr Zhang and Ms Wang, by way of transfers to them and entities associated with them between July 2011 and November 2012. Mr Chung said that these loans are different and unrelated to the payments made by FLC for the purchase of its shares in U&D. He deposed that ‘to the extent that the original application referred to matters relating to FLC’s purchase of shares in U&D, those matters were included in the application by mistake’.
U&D contended, however, that the relevant test on whether to re-open a case requires the Court to examine the fresh evidence on the assumption that it is accepted. U&D contended that it is not appropriate to proceed, as Mr Xiao would have it, on the assumption that the matters included were so included by mistake. I accept U&D’s contention.
The key to U&D’s application is the drawing of the inference from the fresh evidence, on the assumption the fresh evidence is accepted and believed. In drawing that inference, the Court is entitled to take into account existing evidence that contradicts the drawing of the inference. As mentioned, the contemporaneous documents establish that, in the accounts of FLC, the payment was treated as the purchase of an investment, not the making of a loan. Secondly, other contemporaneous documents signed by Mr Zhang acknowledge that the U&D shares were beneficially owned by FLC.
At its highest, if the two tranches of payment are considered, an inference arises that the $12 million loan referred to in the Chinese proceedings may be the $12 million used to purchase the U&D shares. The inference can go no further than that, as the alleged borrowers involve different people. Even if they were the same, the inference may be stronger, but still is only to the degree of ‘may’.
The inference only arises by comparing the proposed fresh evidence with existing evidence in the case that the payments made constituted the $12 million which was used to purchase the shares. But if the fresh evidence is also compared to other existing evidence in the case, such as the accounting records of FLC and the admissions made by Mr Zhang, then the strength of the inference falls away. In my opinion, considered in the light of all the existing evidence, on the submissions of U&D, the fresh evidence does not give rise to an inference that will most probably affect the result of the case.
Discussion
At the commencement of the trial, FLC stated that its case in the tracing proceeding was an alternative proceeding, which it only wished to pursue if the Court held in the share-sale proceeding, contrary to FLC’s primary position, that the moneys that KQ paid for the purchase of FLC’s U&D shares were held on trust by U&D for FLC. As it is, in my judgment, I have found that moneys that KQ transferred to U&D were not held on trust. Accordingly, in my judgment of 22 November 2018, I dismissed FLC’s claims in the tracing proceeding that relied on the existence of a trust.
On that ground alone, I refused the application of U&D to re-open its case in the tracing proceeding to allege that the moneys were not held on trust for FLC but instead held on trust for Mr Zhang, as I had found that the moneys were not held on trust by U&D.
The case now sought to be put by KQ and U&D is inconsistent with the evidence of Madam Cui, supported by accounting records of FLC that were tendered by KQ. The accounting records do not support the inference that the $12 million that Madam Cui said was transferred to pay for the U&D shares was in any way a loan to Mr Zhang.
In my view, the purpose of KQ’s application was, in substance, first to have an inquiry and then, if the Court were of the view that the inferences for which KQ contended were made out, to amend its case. The amendment would be a major shift in the case. It is a major shift for KQ to allege that in FLC not being paid for the U&D shares KQ purchased, FLC has suffered no detriment, because it is not the beneficial owner of the shares.
In my opinion, it is important to identify precisely what KQ is seeking to do. On the basis of an inference that the moneys allegedly loaned to Mr Zhang, and sought to be recovered by Mr Xiao in the Chinese proceedings, may be the same moneys that FLC used to purchase the shares in U&D in the name of FLC, KQ does not seek to tender fresh evidence to bolster its existing case (save insofar as it seeks to challenge Mr Xiao’s credit). On the contrary, KQ seeks to run a fresh and different defence to FLC’s claim for the non-payment of the purchase price. This new defence is that FLC was not beneficially entitled to the purchase moneys and thus has suffered no loss by the non-payment.
KQ submitted that it did not intend to seek to amend its pleaded case. It said that it could rely on the ‘direction discharge’. I took this to be the plea that Mr Zhang informed KQ that it could satisfy its obligations by payment of the outstanding purchase moneys to U&D, and that the new evidence may establish that Mr Zhang, as the beneficial owner of the shares, had authority to do so.
I do not agree. In my opinion, such a fundamental alteration to the defence — that FLC was not the beneficial owner of the shares but Mr Zhang was — would likewise demand an alteration to the plea.
However, in my view, if the case were re-opened, the Court would have to consider further evidence from both sides. This is because both sides would need to run a new case. In those circumstances, the question of whether the fresh evidence would most likely affect the result of the case becomes more difficult for the applicant to satisfy. I do not know what evidence FLC may call to meet the new case. FLC may have a perfect answer to all the issues that KQ raises in addition to the existing evidence that contradicts the new case that the parties wish to advance.
Conclusion
I accept that the Court does have the power to allow a fresh defence to be raised and to allow evidence to be led from both sides on the fresh defence if the fresh evidence sought to be introduced, in the interests of justice, necessitates such a process.
However, based on the existing evidence, the likelihood that FLC would also need to tender further evidence, and the fact that the new evidence is merely relied on to draw an inference that is contradicted by existing evidence, I am not satisfied that the new evidence, if accepted, would most probably affect the result.
I also do not consider that the interests of justice are better served by allowing the applications for leave to re-open; rather, I consider the interests of justice are better served by not granting the applications.
Accordingly, I dismiss the applications of KQ and U&D to re-open their cases to tender fresh evidence, cross-examine Mr Xiao and to make further submissions.
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