Haiye Developments Pty Ltd v The Commercial Business Centre Pty Ltd

[2022] NSWSC 937

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Haiye Developments Pty Ltd v The Commercial Business Centre Pty Ltd [2022] NSWSC 937

Hearing dates:

12-16, 19, 20, 22, 23, 27 April 2021; further written submissions 7, 17 and 28 May 2021

Decision date:

13 July 2022

Jurisdiction:

Equity

Before:

Kunc J

Decision:

Judgment for the First Plaintiff

Catchwords:

CONSUMER LAW – False or misleading representations – Representations about the sale of land – Whether conduct is “in trade or commerce” – Effect of illegality or unlawfulness

TORTS – Miscellaneous torts – Deceit – Liability as joint tortfeasors

TORTS – Conspiracy – Conspiracy not available where substantive cause of action pleaded

EQUITY – Fiduciary duties – Breach – Fiduciary relationships – Partners and joint venturers – Rule in Barnes v Addy – Money had and received

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth)

Evidence Act 1995 (NSW)

Kogarah Development Control Plan 2013

Kogarah Local Environmental Plan 2012

Trade Practices Act 1974 (Cth)

Partnership Act 1892 (NSW)

Cases Cited:

Aardwolf Industries LLC v Tayeh [2020] NSWCA 301

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470; [1993] FCA 265

Agius v R; Abibadra v R; Jandagi v R; Zerafa v R [2011] NSWCCA 119

Ahern v R (1988) 165 CLR 87; [1988] HCA 39

Ambridge Investments Pty Ltd v Baker [2010] VSC 59

Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850

Aon Risk Services Aust Ltd v ANU (2009) 239 CLR 175; [2009] HCA 27

Ashbury v Reid [1961] WAR 49

Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114

Australian Competition & Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17

Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2020) 278 FCR 450; [2020] FCAFC 130

Australian Competition and Consumer Commission v Woolworths Limited [2019] FCA 1039

Australian Competition and Consumer Commission v Woolworths Group Limited (formerly called Woolworths Limited) [2020] FCAFC 162

Australian Securities and Investments Commission SIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17

Australian Securities and Investments Commission v Activesuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342; (2015) 325 ALR 414

Australian Wool Innovation Ltd v Newkirk [2005] FCA 290

Barnes v Addy (1874) LR 9 Ch App 244

Bisset v Wilkinson [1927] AC 177

Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205

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

Brownbill v Kenworth Truck Sales (NSW) Pty Ltd [1982] FCA 7; (1982) 39 ALR 191

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60

Cabasi v Vila (1940) 64 CLR 130; [1940] HCA 41

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25

Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) ATPR 41-550; (unreported, WASC)

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17

Cummings v Lewis (1993) 41 FCR 559; [1993] FCA 190

Curwen v Yan Yean Land Co Limited (1891) 17 VLR 745

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; [1992] FCA 851

Digital Pulse Pty Ltd v Harris [2012] NSWSC 33

Dresna Pty Ltd v Misu Nominees Pty Ltd [2003] FCA 1537

Dresna Pty Ltd v Misu Nominees [2004] FCAFC 169

EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195

Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd (No 3) [2014] FCA 909

Emwest Products Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (2002) 117 FCR 588; [2002] FCA 61

Fatimi Pty Ltd v Bryant & Ors [2002] NSWSC 750

Fish & Fish Ltd v Sea Shepherd UK [2015] AC 1229

Gibson Motor Sport Merchandise Pty Ltd v Forbes [2005] FCA 749

Giorgianni v R (1985) 156 CLR 473; [1985] HCA 29

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82; [1984] FCA 180

Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1

Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 75

Gray v Motor Accident Commission (1998-1999) 196 CLR 1; [1998] HCA 70

Henville v Walker (2001) 206 CLR 459; [2001] HCA 52

Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252

Hoath v Connect Internet Services Pty Ltd [2006] NSWSC 158

Hodges v Waters (No 7) (2015) 232 FCR 97; [2015] FCA 264

Hornsby Building Information Centre Pty Limited v Sydney Building Information Centre Ltd (1978) 140 CLR 216; [1978] HCA 11

Hughes v Western Australian Cricket Association Inc (1986) 19 FCR 10; [1986] FCA 465

Johnson v Mackinnon [2021] NSWCA 152

Jones v Dubbrell [1981] VR 199

JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20

Keller v LED Technologies Pty Ltd (2010) 185 FCR 449; [2010] FCAFC 55

Knowles v Fuller (1947) 48 SR (NSW) 243

Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205; [2008] NSWCA 343

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

Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458

Lamb v Cotogno (1987) 164 CLR 1; [1987] HCA 47

Li v Liu [2022] NSWCA 67

Livers v Legal Services Commissioner [2020] NSWCA 317

Lonrho Ltd v Shell Petroleum Co Ltd [1981] 1 QB 358; Com LR 74

Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173

Luxottica Retail Australia Pty Ltd v Grant [2009] NSWSC 126 at [39]

Mackinnon as Plaintiff representative of 153 Plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as “STC Sports Trading Club” (No 8) [2019] NSWSC 1658

Magill v Magill (2006) 226 CLR 551; [2006] HCA 51

Maria Saravinovksa v Krste (Chris) Saravinovski; Chris Saravinovski v George Saravinovski (No 6) [2016] NSWSC 964

Maritime Union of Australia v Geraldton Port Authority (1999) 93 FCR 34; [1999] FCA 899

Marrinan v Vibart [1963] 1 QB 234

McKellar v Container Terminal Management Services Limited [1999] FCA 1101; (1999) 165 ALR 409

McKernan v Fraser (1931) 46 CLR 343; [1931] HCA 54

Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357; [2010] HCA 31

Morris v IMF Bentham Limited [2018] FCA 1009

National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251; [1986] HCA 21

New Cap Reinsurance Corporation Ltd v Daya [2008] NSWSC 64; (2008) 216 FLR 126

North East Equity Pty Ltd v Proud Nominees Pty Ltd [2012] FCAFC 1; (2012) 285 ALR 217

Nowegijick v R (1983) 144 DLR (3d) 193

Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587

O’Brien v Dawson (1942) 66 CLR 18; [1942] HCA 8

OBG Ltd v Allan [2007] UKHL 21

Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44

Pereira v Director of Public Prosecutions [1988] HCA 57; (1988) 82 ALR 217

Pittmore Pty Ltd v Chan; Chan v Tan [2020] NSWCA 344; 104 NSWLR 62

PPK Willoughby Pty Ltd v Baird [2020] NSWSC 1757

R v Goldie; Ex parte Picklum (1937) 59 CLR 254; [1937] HCA 65

R v Houssain [1969] 2 QB 567

R v Kelly (1975) 24 FLR 441

R v Nifadopoulos (1988) 36 A Crim R 137

R v Rogerson (1992) 174 CLR 268; [1992] HCA 25

R v Tannous (1987) 10 NSWLR 303

Rafferty v Madgwicks (2012) 203 FCR 1; [2012] FCAFC 37

Robertson & Moffat v Belson [1905] VLR 555

Rubenstein v Truth & Sportsman Ltd [1960] VR 473

S & I Publishing Pty Ltd v Australian Surf Life Saving Pty Ltd (1998) 88 FCR 354

Sorrell v Smith [1925] AC 700

Standen v Regina [2015] NSWCCA 211

Swancom Pty Ltd v Jazz Corner Hotel Pty Ltd (No 2) [2021] FCA 328; (2021) 157 IPR 498

Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177

The Koursk [1924] P 140

Ting v Blanche [1993] FCA 781; (1993) 118 ALR 543

Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 32 ALR 570

Trade Practices Commission v Australia Meat Holdings Pty Ltd [1988] FCA 338; (1988) 83 ALR 299

Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74

Uber Australia Pty Ltd v Andrianakis (2020) 61 VR 580; [2020] VSCA 186

United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1985] FCA 49

Universal Music Publishing Pty Ltd v Palmer (No 2) [2021] FCA 434

Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314

Volvo Finance Australia v Waterfront Enterprises Pty Ltd (In liq) (No 2) [2020] NSWSC 262

Walters v Scarborough [2011] NSWSC 1380

Ward v Lewis [1955] 1 WLR 9

XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1983-1984) 155 CLR 448; [1985] HCA 12

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65

Texts Cited:

K Mason, J W Carter and G J Tolhurst, Restitution Law in Australia, (2nd ed, 2008, LexisNexis Butterworths)

Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (4th ed, 2002, LexisNexis Butterworths)

Category:

Principal judgment

Parties:

Haiye Developments Pty Ltd (First Plaintiff)
Jianzong He (Second Plaintiff)
Haiqiang He (Third Plaintiff)

The Commercial Business Centre Pty Ltd (First Defendant)
Nickolas Varvaris (Second Defendant)
Pionnier Property Development Pty Ltd (Third Defendant)
Citywide Financial Services Group Pty Ltd (Fourth Defendant)
Pionnier Pty Ltd (Fifth Defendant)
Hua Liu (Sixth Defendant)
Kei Kwok (Seventh Defendant)
A & T Education Holdings Pty Ltd (Eighth Defendant)
Citywide Property Group Pty Ltd (Ninth Defendant)
Red Horizon Travel Services Pty Ltd (Tenth Defendant)

Representation:

Counsel:
A P Cheshire SC and S Jeliba (Plaintiffs)
G A Sirtes SC and A L Oakes (Defendants)

Solicitors:

File Number(s):

2017/69394

Publication restriction:

No

Judgment

Summary

1. In August 2015, the First Plaintiff, Haiye Developments Pty Ltd (“Haiye”), and Fifth Defendant, Pionnier Pty Ltd (“Pionnier”), agreed to purchase and develop the property known as 60B Gray Street and 26 Princes Highway, Kogarah, NSW (“the First Kogarah Property”). Haiye and Pionnier agreed to purchase and develop the First Kogarah Property through a corporate special purpose vehicle and to that end, incorporated the Third Defendant, Pionnier Property Development Pty Ltd (“PPD”). Between the date of its incorporation and 23 April 2021, Haiye and Pionnier held 75 and 25 of the 100 issued shares in PPD respectively.

2. Through PPD, Haiye and Pionnier purchased the First Kogarah Property in late 2015. Settlement occurred in early 2016. Prior to PPD’s purchase of it, the First Kogarah Property had built upon it a two-storey commercial building and an associated open plan car park area and garage. Haiye and, apparently, Pionnier intended to develop a residential building on the First Kogarah Property to accommodate approximately 80 units.

3. Both simultaneously with, and following, their purchase of the First Kogarah Property, several other transactions are said to have been entered into by Haiye, Pionnier, PPD, the other parties to these proceedings and other third parties. Those transactions (summarised in [11] below), it is alleged, are infected with misrepresentation, fraud, deceit, breach of fiduciary duties, impropriety and illegality. The Court has been required to untangle this web of transactions and determine what, if any, relief is available to the parties to whom loss can be attributed.

4. The facts of the underlying dispute the subject of these proceedings are complex. That is often the case when allegations of fraud are involved. The primary allegation advanced against those to whom I shall refer as the Active Defendants (see paragraph [8] below) is that by their involvement in a fraudulent enterprise, they have caused, or played a part in causing, substantial damage to the Plaintiffs. The primary architect of the fraudulent enterprise, it is alleged, is a former Federal Parliamentarian, Mr Nickolas Varvaris; the Second Defendant in these proceedings. Although Mr Varvaris’ involvement in the enterprise is undeniably central to the Plaintiffs’ case, the Plaintiffs have abandoned their claims against him on account of his bankruptcy subsequent to the commencement of these proceedings.

5. Additional claims advanced against other defendants – including PPD, Citywide Financial Services Group Pty Ltd (the Fourth Defendant) (which traded as “Varvaris & Co” and to which I will refer as such or as “Citywide Financial Services”), A & T Education Holdings Pty Ltd (the Eighth Defendant) (“A & T Education”), Citywide Property Group Pty Ltd (the Ninth Defendant) (“Citywide Property Group”) and Red Horizon Travel Services Pty Ltd (the Tenth Defendant) (“Red Horizon”) – have also been abandoned. Those companies have either been placed into liquidation, have had a voluntary administrator appointed or have been deregistered.

6. At the outset of the hearing, the Active Defendants made certain concessions on a non-admissions basis which went some way to resolving matters in favour of the Plaintiffs (set out in [293] to [295] below). The Plaintiffs – namely, Haiye and its two Chinese shareholders, Jianzong He (as to 51% of Haiye) and his father Haiqiang He (as to 49% of Haiye), the Second and Third Plaintiffs respectively – nevertheless continued to press their claims against The Commercial Business Centre Pty Ltd (the First Defendant) (“CBC”), Pionnier, Hua Liu (the Sixth Defendant) and Kei Kwok (the Seventh Defendant).

7. Following the commencement of these proceedings, CBC was also placed into liquidation. However, on 6 April 2021, orders were made by consent granting the Plaintiffs leave to proceed against it and its liquidator has been excused from appearing but has been granted liberty to address the Court as to the form of any final orders to be made against it (if any).

8. For the balance of these reasons, without intending any disrespect, I shall refer to Mr Jianzong He as “Chris”, Mr Haiqiang He as “Mr He”, Ms Hua Liu as “Alysha” and Mr Kei Kwok as “Dennis”. Alysha and Dennis are husband and wife and, together with Pionnier, I shall refer to the three of them collectively as the “Active Defendants”.

9. It is convenient at this point also to note three further corporate matters:

1. Chris and Dennis were directors of Haiye (although as will already be apparent, Dennis was not a shareholder, because his directorship was nominal only in order to satisfy the legal requirement for one director too be resident in Australia).

2. Dennis was the sole director and shareholder of Pionnier. He was its controlling mind. The Active Defendants did not point to any matter where an allegation was made against the Active Defendants some relevant distinction should be drawn between the positions of Dennis and Pionnier.

3. Alysha was the sole director and shareholder of A & T Education.

10. It should also be noted at the outset that, but for several documentary tenders, the Active Defendants did not call any evidence, although several paragraphs of affidavits affirmed by Alysha and Dennis were tendered against them by the Plaintiffs. Those paragraphs (or parts of paragraphs) were largely admissions made by Alysha or Dennis as to the accuracy of Chris’ and Mr He’s evidence. For reasons set out in [331] to [333] below the Court has concluded that Alysha’s and Dennis’ evidence would not have assisted them and, where evidence for an inference adverse to their interests otherwise exists, the Court can more easily draw that inference by reason of their failure to give evidence.

11. The Plaintiffs’ case turned on four transactions for which Mr He funded Haiye:

1. The pro rata payment by Haiye for the purchase of the First Kogarah Property in reliance on alleged misrepresentations as to its value and development potential;

2. In connection with that purchase, the pro rata payment by Haiye of its share towards what is referred to in these reasons as the Supplementary Contract, which was said not to be a genuine contract and which payment was misappropriated to the benefit of the Active Defendants or their associates;

3. The pro rata payment by Haiye for the deposit to purchase an adjoining property (referred to below as the “Second Kogarah Property”) from Landmark Element Pty Limited (“Landmark”), where it was said the transaction was not genuine and the monies were misappropriated, in part to fund Pionnier’s obligation to pay 25% of PPD’s purchase of the First Kogarah Property.

4. The pro rata payment by Haiye of an invoice in connection with the proposed development of the First Kogarah Property and Second Kogarah Property from Bingemann Consulting Pty Limited (“Bingemann”) that was said not to be genuine, and which was misappropriated to the benefit of the Active Defendants or their associates.

12. To understand in overview why the Court has decided that the Plaintiffs, in particular Haiye, should substantially succeed, a reader of these reasons should bear in mind the following seven fundamental conclusions which the Court has reached.

13. First, much of what passed between the parties was through the medium of the messaging platform known as WeChat. The Court had many pages of transcripts of those contemporaneous and unguarded discussions, translated into English when it had been originally conducted in Chinese. It has been necessary to reproduce these at length in what follows because they, without more, tell the story generally in favour of the Plaintiffs and against the Active Defendants and Mr Varvaris.

14. Second, while as their own counsel acknowledged, Chris and Mr He were not in all respects ideal witnesses, the Court accepts their evidence as truthful, not least because it was consistent with the WeChat evidence. With only one relevant but explicable exception (see [418] below), their evidence is also generally corroborative of each other. One aspect of particular relevance is that wherever Chris and Mr He have given evidence that statements made by any of Alysha, Dennis or Mr Varvaris were not contradicted or qualified by either of the other two, the Court accepts that evidence.

15. Third, the Plaintiffs read an affidavit of Mr Tom Chan, the sole director, secretary and shareholder of Landmark. He was not required for cross-examination. The effect of his evidence was that he had never had anything to do with Pionnier or anyone connected with it in relation to a proposed sale of the Second Kogarah Property to Pionnier, and that Landmark had never had any intention of selling the Second Kogarah Property to Pionnier. He disavowed what appeared to be his signature on documents that purported to relate to such a transaction.

16. Relying primarily on Mr Chan’s evidence (but also on matters such as to whom various funds were misappropriated), the Court is well satisfied to the Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (“Briginshaw”) standard that all the references to any proposal to purchase the Second Kogarah Property that fell from Alysha, Dennis and Mr Varvaris were a complete fabrication and were known by all of them to be such. This finding of their joint knowledge is further dealt with in [430] to [437] below.

17. Fourth, not least because it was propounded by Alysha, Dennis and Mr Varvaris as relating to the purchase of the Second Kogarah Property, the Court is well satisfied to the Briginshaw standard that the invoice from Bingemann which is the subject of these proceedings was fraudulent – and which is referred to in these reasons as the “Fake Bingemann Invoice” – and was known to be such by Alysha, Dennis and Mr Varvaris.

18. Fifth, one submission put in Alysha’s defence was that on many occasions she was not herself making any representation but was merely acting as a conduit by interpreting into Chinese for the benefit of Chris (who understood conversational English) and Mr He (who did not understand English) what was being said in English by Mr Varvaris. While there are some examples of where the text and context show that Alysha was doing no more than interpreting, the Court is satisfied that is not the case on matters of substance. Taking all the evidence together, but especially the WeChat discussions, the Court has no difficulty in concluding that Alysha was present not as a mere conduit, but as a totally engaged principal in the proposed transactions. She was not an interpreter who had no stake or interest in what she was conveying. She was a principal who happened to be able to translate for Mr Varvaris and, as such, the Court finds was adopting and making her own whatever Mr Varvaris was saying and thereby adding her own voice to his attempts to persuade (and in some cases cajole) Chris and Mr He to finance Haiye’s role in the various purported transactions. So much is demonstrated by her references to “we” and “us”, for example, “Nick can help us get the best terms through his connections to maximise our profits” (see [57] below). The Court makes the same conclusion for the same reasons in relation to Dennis on those occasions where he was translating what Mr Varvaris said.

12. Sixth, the totality of the evidence makes clear that Alysha and Dennis were active participants in the various transactions together. While Alysha had the larger role, presumably because of her “big sister” relationship with Chris, the fact that Alysha and Dennis were married fortifies the Court in its conclusion that Alysha and Dennis essentially had the same knowledge about what was in fact going on. The Court draws that conclusion more easily by reason of their failure to give evidence to the contrary or at all.

13. Seventh, while their own Senior Counsel made clear that he was not attempting to portray Alysha and Dennis as complete innocents, his main attack on Chris and Mr He was that they were knowing (or sometimes deliberately blind in the Nelsonian sense) participants in a scheme orchestrated by Mr Varvaris. The gravamen of this submission was that Chris and Mr He were not victims of a fraud worked by Mr Varvaris, Alysha and Dennis, but rather fellow participants in a dubious (if not illegal) scheme. The Court rejects this for these reasons:

1. It is not borne out by the totality of the evidence, but especially the WeChat discussions;

2. It contains an irreconcilable tension about the position of Alysha and Dennis. The evidence – not least the apparently unprotesting receipt of misappropriated funds – does not permit of the conclusion that the Plaintiffs and Active Defendants were all Mr Varvaris’ victims. Yet much of this defence would have the Court accept that Alysha and Dennis were ignorant if not completely innocent pawns in relation to Mr Varvaris’ (and on this part of the defence case, the Plaintiffs’) scheming.

3. The submission did not really rise above innuendo. The evidence pointed to by the Active Defendants was far from sufficient to warrant a finding against Chris and Mr He that would have to have been made to the Briginshaw standard.

4. In cases such as this, the classical test to separate victims from perpetrators is to ask “cui bono?” (to whose benefit?), or in its modern incarnation “follow the money”. In relation to each of the matters complained of it was the Active Defendants and Mr Varvaris who benefited and who ended up with money that had been diverted from the purpose for which it had been advanced on behalf of Haiye. Furthermore, the fact that there is no evidence in the WeChat conversations or elsewhere of the slightest surprise (to put it mildly) or similar reaction from the Active Defendants to the substantial financial benefits received by them is fundamental to the Court’s conclusion that they knew that the Plaintiffs were being deceived or “scammed” and that they (the Active Defendants) were active participants in the deception.

5. The Court more easily draws the conclusion available to it by reason of the four preceding matters because of the failure of Alysha and Dennis to give evidence.

21. Mr A P Cheshire SC and Ms S Jeliba of Counsel appeared for the Plaintiffs. Mr G A Sirtes SC and A L Oakes of Counsel appeared for the Active Defendants.

The Facts

22. The Court finds the facts to be as is set out in paragraphs [23] to [256] below, including by reason of accepting the evidence of Chris and Mr He for the reasons set out in paragraphs [300] to [316] and [327] to [330] below.

Background

23. In 2002, Mr He, Mrs Li Yaner (Mr He’s wife), and Chris (his son) migrated to Auckland, New Zealand from China. Mr He, Mrs Yaner and Chris became permanent residents of New Zealand shortly thereafter and remained there until 2006, at which time Mr He and Mrs Yaner returned to China. Chris remained in New Zealand and attended both high school and university, later graduating from the University of Auckland with a Bachelor of Business.

24. Although Chris attended both high school and university in New Zealand, and in doing so studied in English, he can only speak and understand English at a “conversational level”. Chris’ native language is Cantonese, although he is also fluent in Mandarin as is the case for Mr He and Mrs Yaner (although Mr He and Mrs Yaner have a very limited understanding of English).

25. In 2006, Chris first met Alysha and Dennis in Auckland through a mutual friend.

26. By 2010, Chris had returned to China. Following his return, Chris arranged to introduce his father to Alysha for her to discuss with Mr He a milk powder business opportunity that she was pursuing in China. As Mr He had no experience in marketing food products, he declined to entertain Alysha’s offer to distribute milk powder in southern China.

27. Between 2011 and early 2015, Chris maintained a relationship with Alysha and Dennis, albeit Chris spent most of his time in Guangzhou, China. Throughout this period, Chris formed a strong relationship with both Alysha and Dennis, often referring to Alysha as his “big sister”. That relationship appeared to be reciprocated by Alysha, who often referred to Chris as her “little brother”. It is clear that as their relationship developed, particularly in or around 2015, Chris began to repose significant trust in Alysha and Dennis.

28. In early 2015, Mr He, Mrs Yaner and Chris travelled to Sydney for a holiday and spent some time with Alysha and Dennis, who were now located in Sydney. At that time, Mr He, Mrs Yaner and Chris were interested in investment opportunities that were available in Australia. They returned to China after having spent a short time in Sydney.

Wah Ming Pty Ltd’s Purchase of the Landmark Property

29. On 20 June 2014, Wah Ming Pty Ltd (“Wah Ming”) entered into a Put and Call Option Deed (“the Wah Ming Option Deed”) with AFC Holdings Pty Ltd (“AFC Holdings”) in respect of the property situated at 2-24 Princes Highway, Kogarah, NSW (“the Landmark Property”). The following matters are of present relevance in relation to this transaction:

1. Mah Wing obtained its option to purchase the Landmark Property for a fee of $580,000, which was to be exercised within 323 days;

2. the purchase price of the Landmark Property was $11,600,000, which amount was to include the $580,000 fee as part of the deposit if Wah Ming exercised the option. If Wah Ming did not exercise the option, the $580,000 would be forfeited;

3. the Landmark Property is adjacent to the First Kogarah Property;

4. from at least 7 May 2015, Alysha was one of two directors of Wah Ming and, through A & T Education (a company wholly owned by her), was also one of six shareholders (holding 19% of the issued shares); and

5. from at least 27 July 2015, Alysha was one of two directors and one of only two shareholders in Wah Ming, holding 50% of the issued shares in her name personally.

30. Wah Ming intended to develop the Landmark Property. Although the details of that development were not before the Court, it is apparent that Alysha had a substantial role in the preliminary development steps taken by Wah Ming. Mr Varvaris also appeared to be involved in the development, however, his involvement was minimal and his role in the development process is unclear.

31. On 8 May 2015, Wah Ming and AFC Holdings entered into a Deed Varying Option Deed (“the Option Variation Deed”), by which the parties agreed that the contract for the sale of the Landmark Property was to be dated 8 May 2015 and the completion date was extended to 31 August 2015. By the Option Variation Deed, AFC Holdings agreed to extend the completion date in consideration for Wah Ming’s payment of an additional $580,000 which, together with the option fee payment under the Wah Ming Option Deed, would comprise the 10% deposit payable under the contract for sale. Wah Ming was also required to pay an additional non-refundable extension fee of $550,000. Thus, by their entry into the Wah Ming Option Deed and Option Variation Deed, Wah Ming had incurred liabilities to AFC Holdings in the amount of $1,710,000.

32. On 5 August 2015, Wah Ming entered into two agreements with Landmark, to one of which AFC Holdings was also a party. By the agreement between Wah Ming and Landmark, Landmark agreed to take over Wah Ming’s purchase of the Landmark Property in consideration for the payment of $1,160,000 (being the deposit paid by Wah Ming to AFC Holdings) and a fee of $3,200,000 to Wah Ming. By the agreement between Wah Ming, Landmark and AFC Holdings, Wah Ming and AFC Holdings agreed to rescind the contract annexed to the Option Variation Deed.

33. Wah Ming thus realised a profit from the Wah Ming Option Deed and Option Variation Deed in the sum of $2,650,000 (i.e. $3,200,000 less the non-refundable fee of $550,000 paid by Wah Ming to AFC Holdings).

Chris’ and Mr He’s Second Trip to Sydney

34. On 17 June 2015, Chris and Mr He returned to Sydney to inspect a property at the Greenland Centre development in Sydney’s CBD. Shortly upon their arrival, Chris made an off the plan purchase of the penthouse of the Greenland Centre.

35. Whilst in Sydney, Chris and Mr He spent most of their time with Alysha and Dennis, who introduced Chris and Mr He to various people including real estate agents and business partners. Chris and Mr He were introduced to these figures, it appears, both to open their eyes to the Sydney property market (and property development market) and test whether Chris and Mr He would be interested in investing in Australia. As they did so, Alysha and Dennis were quick to flaunt the various properties they asserted they owned and leased or intended to develop throughout Sydney. It is clear that not only did Alysha and Dennis seek to ingratiate themselves with Chris and Mr He; they also sought to vaunt their success in dealing with, and developing, property in Sydney.

36. There is, however, a peculiar feature to Alysha’s and Dennis’ behaviour throughout Chris’ and Mr He’s trip to Sydney in June 2015. Whilst on the one hand, they had no hesitation in reiterating their success in purchasing and developing property, they also made it clear that they were somewhat cash deficient. Whilst, ordinarily, it is not unusual for property developers to be cash deficient at times, the unusual circumstances of this case warrant greater attention to such detail.

37. While not initially interested in pursuing property development opportunities in Australia, as Alysha and Dennis chauffeured Chris and Mr He throughout Sydney, Chris and Mr He began to develop an interest in properties in Sydney. They also began to learn about property development yields, the cost associated with developing apartments in Sydney and the regulations associated with purchasing and developing properties, including the nature of, and process associated with, development applications. Having said that, Chris’ and Mr He’s understanding of these matters remained, at least at this stage, trivial.

38. Although Chris and Mr He only intended to remain in Sydney for a short period to facilitate their inspection and purchase of the penthouse of the Greenland Centre, upon Chris learning of property development opportunities that were available to him in Sydney, they decided to remain in Sydney. At this time Mr He opened two bank accounts at the Town Hall branch of HSBC. One bank account was held in Mr He’s name solely (“the 439 Account”); the other was held in his and Chris’ name jointly (“the 440 Account”). The funds held in both the 439 Account and the 440 Account were funds drawn from Mr He’s personal bank accounts. By opening the 440 Account, it was Mr He’s intention to facilitate Chris’ access to funds in Australia as he was planning to reside in the Greenland Centre penthouse upon its completion.

39. On 19 June 2015, at a dinner with Alysha, Dennis, their business partner – to whom the parties referred throughout the proceedings as “Vicky” – and other guests, Chris and Mr He were first introduced to Mr Varvaris, with whom Alysha had a close relationship. Mr Varvaris was introduced to Chris and Mr He by Alysha. It was at this time that Chris and Mr He became aware that Mr Varvaris was a former mayor of Kogarah and a federal parliamentarian.

40. Several days after their initial introduction to Mr Varvaris, Alysha invited Chris and Mr He to travel to Canberra with her for her to introduce them properly to Mr Varvaris. It was intended that Alysha, Chris and Mr He would meet with Mr Varvaris, and other federal politicians including the Minister for Immigration, at Parliament House in Canberra.

41. On or about 24 June 2015, Chris, Mr He, Alysha and others attended Mr Varvaris’ office at Parliament House. They also attended a dinner with Mr Varvaris that evening. Although Mr He was unable to speak with Mr Varvaris directly without having Alysha interpret for him, Chris was able to converse with Mr Varvaris directly.

42. Chris and Mr He assert that several conversations took place at this dinner and throughout their trip to Canberra more generally. Chris deposes that Mr Varvaris said the following to him at the dinner:

“I have a lot of resources available to me. I have been the mayor in the Kogarah area for many years. I have many contacts that I can use to arrange developments of properties.”

43. Mr He deposes that he had the following conversations with Alysha:

Alysha: “Nick is my good friend and a very special friend.”

…

“Nick is a man of substantial importance.”

…

“Nick is giving a speech in the parliament today.”

…

“Nick can help us.”

and

[Mr He]: “If you are such good friends with Nick, why aren’t you doing real estate development with him?”

Alysha: “I haven’t got enough money at the moment. I need to find someone who would be prepared to be my partner and put in the money before I could do that.”

44. Chris and Mr He returned to China shortly following their trip to Canberra.

Chris’ and Mr He’s Third Trip to Sydney

45. On 29 July 2015, Chris and Mr He returned to Sydney with the intention of purchasing another apartment for them to reside in when they returned to Sydney from China (from time to time) as the Greenland Centre penthouse was, at that time, several years from completion. Much like their first visit, Chris and Mr He spent most of their time with Alysha and Dennis throughout this trip and had several meetings, most (if not all) of which were instigated by Alysha or Dennis (or both) to discuss property development opportunities. Mr He deposes that at one such meeting, Alysha said the following to him:

“We should look at investing in the Southern area of Sydney. Nick used to be the mayor there and the area is under his control. We will be protected. I have limited funds at the moment because of my investment in the school. If we can do something together that would be great. My business partner, Vicky, is also able to be involved. There is a site in Rockdale we should look into developing together.”

46. At another meeting in early August 2015, Alysha introduced Chris and Mr He to Mr Joe Owen, a real estate agent. Mr Owen was marketing a property in Rockdale which had an ostensible development potential of 60 residential units and a floor of commercial shops (“the Rockdale Property”).

47. Several days after their introduction to him, Chris and Mr He attended the Rockdale Property with Mr Owen and Dennis. Chris, Mr He, Alysha or Dennis (or some combination of those four people) made an offer for the purchase of the Rockdale Property shortly after Chris and Mr He’s inspection of it. Although the details of the offer (i.e. who made the offer, upon who’s behalf it was made, how the parties were to apportion the purchase price etc.) are not in evidence, it is clear that someone, most likely Alysha, made an offer to purchase the Rockdale Property for $12,500,000. That offer was rejected.

48. Throughout the process of their inspection of, and subsequent offer to purchase, the Rockdale Property, Mr He, Chris and Dennis had several conversations about incorporating a company to use to purchase the Rockdale Property. Dennis later introduced Chris and Mr He to Fei Gao, who was the accountant ultimately used by Chris, Mr He and Dennis to incorporate Haiye and PPD.

49. On 13 August 2015, Haiye was incorporated. Chris and Dennis were appointed as directors of Haiye. Dennis was appointed as a director of Haiye because one of its directors is required to ordinarily reside in Australia: s 201A(1) of the Corporations Act 2001 (Cth) (“Corporations Act”). Although Dennis was a director of Haiye, he was not involved in the operation of that company. Principally, Chris had the day-to-day carriage of Haiye and its affairs. Of the 100 shares issued upon Haiye’s incorporation, Chris held 51 shares and Mr He held 49 shares.

50. On 14 August 2015, Mr He purchased an apartment in St Leonards.

51. In the week or two after their offer on the Rockdale Property was rejected, Chris asserts that he had the following conversation with Alysha:

Alysha: “Nick has a lot of contacts and influence in the Kogarah area. He can help us find good deals and properties to develop. He has found a site in Kogarah we can show you. It had better yield than Rockdale. Are you interested to inspect the site?”

[Chris]: “Yes.”

52. Mr He deposes that Alysha said the following to him in the week or two after their offer on the Rockdale Property was rejected:

“Vicky and I previously bought a property. Nick introduced us to the property.”

…

“Vicky and I only paid 10% as a deposit on that property and we earned a lot of money when we sold it just a few months after we bought it. We have made a substantial profit off it.”

…

“Nick has now approached me about another block of land that is next door to the one that Vicky and I sold. It is a church property and the price is lower than what Vicky and I paid for the property next door.”

…

“Nick’s father is a Greek priest. The Islamic church own this new property. Nick has used his family’s connections to convince the Islamic church to sell the land. It is not on the open market for sale. The Islamic church will not sell to another person who they do not know.”

…

“You could build about 80 apartments on this church property of 1 to 3 bedrooms.”

…

“The exact area of each unit would have to be approved by the government after considering our application and working out whether we can be allocated the number of units that we want in the space that we have.”

…

“This church property is valued at about $9.5 million Australian dollars. Therefore, the cost of the land for each of the 80 units would be about $120,000. That is about $70,000 less than the land the [sic] Vicky and I brought [sic] before.”

53. Alysha has accepted that she said the words attributed to her by Mr He, but for the words “Nick’s father is a Greek priest”.

Chris’ and Mr He’s First Inspection of the First Kogarah Property

54. On 16 August 2015, Chris and Mr He first inspected the First Kogarah Property. Chris deposes that he had the following conversation with Alysha and Mr Varvaris at that inspection:

Alysha: “This piece of land is much cheaper than Rockdale. You can build more apartments on it. The cost of the land would be around $120,000 for each apartment you could build on the site. You could put about 75 units on the block. Nick’s father works for the Greek church and the owner of this property is the Islamic church, so Nick can use his connections to get us a good deal and get whatever approvals are needed.”

Chris: “How much is the site?”

[Mr Varvaris]: “The price is $9.5 million.”

…

“In this area you can only build up to 10 storeys. All of the current projects around here are not higher than 10 storeys.”

and

Alysha: “Vicky and I put a deposit on that property. Nick helped us. But later on, Vicky decided not to go ahead. So, we sold the land to another company called Landmark and made a little profit. Don’t mention to Vicky that I brought you here to look at this property. Nick isn’t happy with her and doesn’t want to have any dealings with her anymore.”

…

“Through his relationships, Nick will try and get the best profit for us. Nick is trustworthy. He used to be the mayor but he has been promoted now.”

…

“Nick is my very good friend and I regard you, Chris, as my brother. If we buy this land, it needs internal control. You cannot tell others.”

55. Alysha has accepted that she said the words attributed to her in the first paragraph of the first extract and all of the second extract, but for the words “[h]e used to be the mayor but he has been promoted now”.

56. Chris also deposes that Alysha translated the following, which was said by Mr Varvaris to Chris and Mr He (which Alysha accepts she translated):

Alysha: “The cost of the land per unit will be much cheaper than Rockdale.”

…

“Nick says this land is not on the open market. Because this property is owned by the church there are religious issues. You cannot get it without his help and his father’s connections through the church.”

…

“Nick says that we will need to get approval from the council to build units on the land if we buy it.”

…

“Nick says in this area, when apartments are more than three or four levels then they have a sea view.”

57. Mr He also deposes to several conversations, which were either words said by Alysha on her own accord or what was said by Mr Varvaris and translated for him by Alysha. Those conversations include (the first two extracts are words said by Alysha translating what was said by Mr Varvaris; the final extract contains words alleged to have been said by Alysha on her own accord):

Alysha: “Nick says you can build a maximum of 12 floors in this area, and the building across the road has 8 to 9 floors.”

and

Alysha: “The land will cost $9.5 million.”

…

“Nick can help us get the best terms through his connections to maximise our profits.”

…

“I want you to rest assured, Nick is a very good friend of mine. I treat Chris as my own brother.”

…

“The purchase of land will be processed internally within the seller and it will not be disclosed to the public market.”

…

“Nick was the former mayor of Kogarah and he got promoted.”

and

Alysha: “The total price of the First Kogarah Property will be $9.5 million but it need [sic] to be paid in two parts. $8.5 million will be paid to the law firm. Nick will be in charge of the other $1 million for the sellers. The sellers want the contract split up in this way.”

58. Alysha accepts that the words attributed to her by Mr He were said by her but for the words “Nick was the former mayor of Kogarah and he got promoted”.

59. Around the time of Chris and Mr He’s first inspection of the First Kogarah Property, Alysha invited Chris and Mr He to join a WeChat messaging group with her, Dennis and Mr Varvaris (“the Group WeChat”), which invitation they accepted. Ms Yaner was also initially a member of the Group WeChat, however, she left the group in about August 2016.

60. In the Group WeChat, Mr Varvaris was often referred to (primarily by Alysha) as “the classmate” or “the schoolmate”.

61. Several other WeChat threads were also created and used to converse including the following:

1. a private WeChat thread between Alysha and Chris (“the Alysha WeChat”);

2. a private WeChat thread between Dennis and Chris (“the Dennis WeChat”); and

3. a private WeChat thread between Mr Varvaris and Chris (“the Mr Varvaris WeChat”).

62. These WeChat threads became the primary means through which Chris and Mr He would converse with Alysha, Dennis and Mr Varvaris, other than in person. Importantly, because the WeChat software has a translation function, Mr He was able to translate the messages sent in English into Cantonese and reply to those messages in Cantonese, which could similarly be translated into English by Mr Varvaris and the other English-speaking members of the Group WeChat.

Chris’ and Mr He’s Second Inspection of the First Kogarah Property and Meeting at the Pymble Property

63. On 17 August 2015, Chris and Mr He attended the First Kogarah Property for a second time, albeit on this occasion with Dennis. Chris and Mr He depose to several conversations they had with Dennis on this occasion. Chris deposes that he had the following conversation with Dennis:

Dennis: “Nick has helped Alysha and Vicky to purchase properties in the past. They have turned around the properties for good profit.”

…

“Land in Kogarah is cheaper than other places in Sydney, especially when you have Nick’s help. Alysha and I have bought up a lot of apartments as investments in Kogarah. We have also been investing our money in Alysha’s language school. So, we have extended ourselves in terms of spending.”

“For that reason, I know we said we’d go 50/50 when we were talking about buying the Rockdale property, but because Vicky won’t be involved this time, Alysha and I have a cash flow problem. If we buy this property in Kogarah, would you be prepared to proceed on a 65/35 basis?”

Chris: “We will have to think about it. Let’s talk about it when Alysha is with us.”

Dennis: “If you don’t have plans tonight, why don’t you and your father come over and we can all talk about it.”

64. Mr He deposes that Dennis said the following:

Dennis: “This land is available to build about 80 units.”

…

“It is cheaper than the unit price of the land that Joe Owen introduced to us at Rockdale for $12.5 million.”

…

“I would like to hold 35% of the interest in this land and you could hold 65% but we will need to discuss it with Alysha.”

…

“I certainly wish to hold more of an interest in it but I just bought some properties and the school needs investments. I do not have too much money in hand.”

65. Later that day, Chris and Mr He attended Alysha’s and Dennis’ residential property in Pymble (“the Pymble Property”). Chris deposes that he, Mr He, Alysha and Dennis had several conversations about their potential purchase of the First Kogarah Property, including the following:

Dennis: “Alysha, I have mentioned to Chris and brother Hai that we don’t have enough cash flow to buy the [First Kogarah Property] on a 50/50 basis, and that we want to proceed on a 65/35 basis.”

Alysha: “I disagree. We can’t afford 35%. It should be a 75/25 split. But, if our cash flow improves, we can adjust things so that we pay more to Chris and brother Hai to bring our contribution up to 40% of the deposit, together with some interest and then 40% of the balance of the purchase price.”

[Mr He]: “We agree with doing it that way.”

Dennis: “OK, well we should register a company tomorrow that we can use to purchase the property.”

66. Both Alysha and Dennis have accepted that the conversation as set out by Chris accurately reflects the conversation had that evening. Mr He also deposes to a similar conversation, the effect of which is similarly accepted as having been said by Alysha and Dennis.

67. Later that evening, Chris received a copy of the contract for the sale of the First Kogarah Property, which was sent to him by Alysha. Chris did not read the contract but forwarded it to his solicitor, Mr Eddy Vay of Longton Legal (also known as Mr Eddy Wei).

68. Shortly following 17 August 2015, Chris met with Alysha and Mr Varvaris to discuss further PPD’s purchase of the First Kogarah Property. Chris deposes that the following conversation took place:

Alysha: “Nick will help us get approval for the development application to build a certain number of units on the Kogarah property.”

[Mr Varvaris]: “Once you have built and sold the units, I will get a commission from the sale. My commission will depend on the number of units that you can get approval to build.”

Chris: “Can you tell me again how much is the price for the property?”

[Mr Varvaris]: “$9.5 million, which is made up of two amounts, $8.5 million plus $1 million. I will explain that to you later.”

69. On 19 August 2015, Chris, Mr He and Dennis incorporated PPD. Chris and Dennis were appointed as directors of PPD.

24 August 2015 Meeting

70. On 24 August 2015, Chris, Mr He and Dennis attended a meeting at Mr Varvaris’ office in Kogarah to discuss PPD’s purchase of the First Kogarah Property. Chris deposes that he was handed a document by Mr Varvaris which Mr Varvaris asserted was the contract for PPD’s purchase of the First Kogarah Property. Chris also deposes that the following was said by Mr Varvaris at this meeting, which was translated to him and Mr He by Dennis:

[Mr Varvaris]: “The cost of the [First Kogarah Property] is $9.5 million. That cost is going to be split. We are going to have two contracts. $8.5 million plus 10% GST is going to be paid to the Church. We will then have a supplementary contract for the balance of $1 million plus GST.”

…

“The church has asked for the money to be split like that otherwise they won’t sell. The supplementary contract is to help me to deal with VIP people in the church to get them to sell the property to you.”

…

“You don’t need to worry about anything else.”

…

“You need to get the money ready for the purchase.”

71. Chris also deposes that he had the following exchange with Mr Varvaris at this meeting:

Chris: “We should use our solicitor, Eddy Vay at Longton Legal to do the property transaction.”

[Mr Varvaris]: “No, I have another firm that I will organise because they will be able to deal with the vendor’s lawyer.”

72. By his affidavit, Dennis has accepted that Chris’ account of these conversations is an accurate record of what was said at the 24 August 2015 meeting.

73. Mr Varvaris did not disclose who he intended to engage to act on PPD’s behalf for the purpose of its purchase of the First Kogarah Property. Chris and Mr He later learned that Blackstone Waterhouse Lawyers had been engaged by Mr Varvaris.

74. Chris also deposes that it was at about the time of the 24 August 2015 meeting that Alysha said to him:

Alysha: “You will need to get two cheques for the primary and supplementary contract. You can give the cheque for the supplementary contract to Nick.”

75. By her affidavit, Alysha has accepted that she said these words to Chris.

76. At the conclusion of their meeting, Chris signed the document handed to him by Mr Varvaris. Chris did not keep a copy of that document and cannot recall what the document was. As it turned out, the document signed by Chris was not the contract for the sale of the First Kogarah Property, but was likely to have been an Option Deed entered into by PPD and Al-Jaafaria Society Incorporated (“Al-Jaafaria”), the vendor of the First Kogarah Property.

77. The meeting held at Mr Varvaris’ office on 24 August 2015 was the first time that a “supplementary contract” was mentioned, albeit a split in the purchase price was discussed at Chris’ and Mr He’s first inspection of the First Kogarah Property. For the balance of these reasons, I shall refer to the “supplementary contract” as exactly that.

78. On 25 August 2015, Chris and Dennis opened a bank account in PPD’s name with the Commonwealth Bank of Australia at the World Square branch (“the CBA Account”). Chris and Dennis were co-signatories on the account. Shortly after the CBA Account was opened, Chris had the following conversation with Dennis (which Dennis has accepted to be an accurate record of the conversation):

Chris: “Should we use the CBA account to pay the deposit and purchase price for the Kogarah property?”

Dennis: “No, just pay the money directly from your personal account. It will be faster and more efficient.”

79. Later that afternoon, Chris and Mr He attended the Pymble Property for dinner and to further discuss PPD’s purchase of the First Kogarah Property. Mr Varvaris arrived at approximately 9:30pm that evening. Chris deposes that upon Mr Varvaris’ arrival, he had the following conversation with Dennis:

Chris: “Dennis, are you sure we can build 75 apartments on the block? After it settles, how long will it take us to get the development application approval for the construction?”

Dennis: “It can take six months, but don’t worry about it, Nick will look after it for us.”

Payment of the Deposit Under the Primary Contract and the Supplementary Contract

80. At 9:49am on 26 August 2015, Alysha sent the following message to the Group WeChat:

Alysha: The schoolmate said that all shareholders of the vendor have passed it. No problems now, just wait for the documents. If you need to leave tomorrow, it’s OK to send emails and sign your names.

81. By this message, the Court finds Alysha was relaying a message from Mr Varvaris that Al-Jaafaria had accepted PPD’s offer to purchase the First Kogarah Property.

82. At 2:46pm on 26 August 2015, Alysha sent the following message to the Group WeChat:

Alysha: CHRIS APOSTOLAKOS SOLICITOR LAW PRACTICE TRUST ACCOUNT.

83. By this message, the Court finds Alysha was intending to convey the account to which Haiye’s cheque was to be drawn for Haiye’s share (i.e. 75%) of the deposit for the Supplementary Contract in the amount of $75,000.

84. Upon receiving this message, Chris and Mr He attended the HSBC branch in the Sydney CBD and obtained two bank cheques. The first bank cheque was drawn in favour of the Chris Apostolakos Solicitor Law Practice Trust Account for the sum of $75,000, being Haiye’s share of the 10% deposit payable by PPD pursuant to the Supplementary Contract (“the Supplementary Contract Deposit Cheque”). The Supplementary Contract Deposit Cheque was deposited into the Chris Apostolakos Solicitor Law Practice Trust Account on 13 November 2015.

85. The second bank cheque was drawn in favour of the trust account of Longton Legal for the sum of $701,250, being Haiye’s 75% share of the 10% deposit payable by PPD under the contract for the sale of the First Kogarah Property (“the Primary Contract Deposit Cheque”). Mr He used his personal funds to purchase both the Supplementary Contract Deposit Cheque and the Primary Contract Deposit Cheque.

86. The funds transferred by the Supplementary Contract Deposit Cheque were, unbeknownst to the Plaintiffs, later disbursed as follows:

1. on 18 November 2015, the sum of $25,000 was paid to CBC; and

2. on 19 November 2015, $50,000 was paid to A & T Education.

87. Later that evening, Chris and Mr He attended a Liberal Party fundraising dinner at the Waitan Restaurant in Haymarket. Whilst at the event, Chris handed Mr Varvaris the Supplementary Contract Deposit Cheque. Chris deposes that he had the following conversation with Mr Varvaris:

Chris: “Here is the cheque for the deposit for the Supplementary Contract.”

[Mr Varvaris]: “Thanks.”

Chris: “Can you please give us a copy of the Contract for Sale and have the Supplementary Contract prepared as soon as possible and then give us a copy of that too?”

[Mr Varvaris]: “I will.”

88. On 27 August 2015, Chris and Mr He returned to China.

89. On 8 September 2015, Alysha sent a message to Chris on the Alysha WeChat which contained a text message from Mr Varvaris to Alysha. That message read:

Hi mate, we’ve been arguing with their lawyers over a Put and Call finally got their lawyers to agree yesterday, we are drafting the Put and Call, pushing to exchange this week. Response

Good news

90. On 13 and 14 September 2015, Chris and Alysha exchanged further messages via the Group WeChat regarding PPD’s purchase of the First Kogarah Property. Chris says that as a result of those communications, he instructed Mr Vay to draw a cheque on Longton Legal’s trust account for $701,250 in favour of Al-Jaafaria, in satisfaction of Haiye’s 75% share of the 10% deposit under the contract for sale of the First Kogarah Property.

91. On 17 September 2015, PPD and Al-Jaafaria exchanged counterpart Deed of Put and Call Options (“the First Kogarah Property Option Deed”). Chris was of the mistaken belief, at the time, that the contract for the sale of the First Kogarah Property was exchanged on this date.

92. The First Kogarah Property Option Deed contained the following salient terms:

2.1 Call Option

In consideration of the payment by the Buyer to the Owner of the Call Option Fee, the Owner grants to the Buyer a call option to purchase the Property on and subject to the terms and conditions contained in this Deed and the Contract.

…

2.3 Buyer’s Warranty as to Structural Matters

(a) The Buyer warrants to the Owner that at the time of entering into this Deed, the buyer:

(i) intends to substantially redevelop the Property including demolishing all existing improvements, buildings and structures on the land…

…

Reference Schedule

[The reference schedule at the end of the Option Deed provides as follows:]

…

3. Call Option Start Date – 4 calendar months after the date of this Deed.

4. Call Option End Date – 5 calendar months after the date of this Deed.

Chris’ and Mr He’s Fourth Trip to Sydney and Introduction to Candalepas Associates

93. On 6 October 2015, Chris and Mr He returned to Sydney for Chris and Mr He to further progress PPD’s purchase and development of the First Kogarah Property and to attend to establishing the Golden Sands Chinese Restaurant in Hurstville with Mr Varvaris, Alysha and Dennis. The Golden Sands Chinese Restaurant was a further, separate, joint business endeavour entered into by Chris, Mr He, Mr Varvaris, Alysha and Dennis.

94. Chris deposes that shortly following his arrival in Sydney, he had a conversation with Mr Varvaris, in which Mr Varvaris said the following to him:

“I know a good firm of architects called Candalepas Associates. They will help us design the apartments to be built on the Kogarah property.”

95. On 10 October 2015, Chris, Mr He, Mr Varvaris and Dennis attended an introductory meeting with a man named Angelo from Candalepas Associates. Chris deposes to having the following conversation with Mr Varvaris at this meeting:

Chris: “How will our apartments be designed?”

[Mr Varvaris]: “Drawings will be done. We want your apartments to be a well-known landmark in Kogarah.”

96. On 11 October 2015, Chris, Alysha and Dennis exchanged several messages on the Group WeChat and arranged to have lunch in the city the following day. In those messages, Chris requested that Dennis bring copies of the contract for the sale of the First Kogarah Property to their meeting. Although Chris requested copies of the contract for the sale of the First Kogarah Property, he asserts that he intended to request the documents relating to both the Primary Contract and the Supplementary Contract.

97. On 12 October 2015, Chris, Mr He, Alysha and Dennis met, at which time Dennis handed Chris a document that was dated 17 September 2015, although Chris cannot now recall what that document was. The document was, in all likelihood, the First Kogarah Property Option Deed.

98. Neither Chris, nor Mr He, has ever received a copy of the Supplementary Contract (assuming there was such a document).

99. On 14 October 2015, Chris, Mr He and Alysha discussed the potential profitability of PPD’s proposed development of the First Kogarah Property, inter alia, via the Group WeChat. That exchange included:

Mr He: One-bedroom 58 apartments x 700,000 = (40.6 million), two-bedrooms 37 apartments x 900,000 = (33 million), three-bedroom 9 apartments x .1 million = (9.9 million). Total 83.5 million …… Theoretically, 106 apartments x 300,000 building cost = (31.8 million + 22.18 million land cost + tax 2.22 million = 56 million costs). That is 83.5 million – 56.2 million = 27.3 million x 0.7 = 19.11 million gross profit, then less bank interest about 3 million. Actual profit is around 16 million. (Calculated on two-year plan).

Alysha: Add another 20 apartments.

Chris: 20 apartments, one-bedroom? Two-bedroom?

Alysha: We’ll find out on Friday

Alysha: The schoolmate said we would talk about it when we meet

100. On 15 October 2015, Chris, Mr He, Alysha and Mr Varvaris met in person to discuss PPD’s proposed development of the First Kogarah Property. Chris asserts that although he cannot recall the discussion had on that occasion, nothing was said to change his understanding that:

1. 80 units could be built on the First Kogarah Property; and

2. the purchase price of the First Kogarah Property would be $9,500,000 in total, to be paid in two transactions under the Primary Contract and the Supplementary Contract.

101. On 26 October 2015, Chris and Dennis were appointed as directors of Golden Sands Hospitality Pty Ltd (“Golden Sands Hospitality”) (formerly Risun Solar Energy Pty Ltd), which operates the Golden Sands Chinese restaurant in Hurstville. At that time, Chris and Dennis personally held 40 and 60 of the 100 issued shares respectively, although the shares were not beneficially owned by either Chris or Dennis. Chris asserts he was advised by Dennis and Mr Varvaris at around the time of their appointment as directors that Dennis held 30% of the company’s shares for Mr Varvaris.

552. Furthermore, lest it be thought that the question is only to be answered by reference to whether there was a joint venture agreement (notwithstanding that is how it was pleaded, as I have set in paragraph [533] above), I accept the Active Defendants’ submission that neither Haiye, nor Pionnier, expressly or impliedly undertook to subordinate their interests to each other or the venture. This is the essential question in determining the existence of a fiduciary relationship (see Vanguard at [61]). Haiye and Pionnier (and the natural persons who stood behind them) were co-operating for commercial advantage, but they were doing so in their own commercial interests without subordination of those interests to the others.

Breach of Trust

558. The Plaintiffs’ plead breach of trust against Varvaris & Co only. The circumstances out of which that trust is alleged to arise is Haiye’s payment of $3,564,000 to Varvaris & Co in purported satisfaction of its share of PPD’s obligation to pay a 60% deposit for PPD’s purported purchase of the Second Kogarah Property. As will be abundantly clear by this point in the reasons, there was no such obligation.

559. The Plaintiffs nevertheless plead that Varvaris & Co held those funds on trust for Haiye pending completion of the purchase of the Second Kogarah Property and that in breach of trust, Varvaris & Co misapplied the funds, including by satisfying Pionnier’s obligation to pay its share of PPD’s purchase of the First Kogarah Property.

560. Varvaris & Co has been placed into liquidation. It is unclear when Varvaris & Co was placed into liquidation, as is the manner in which it was placed into liquidation. Notwithstanding when and how Varvaris & Co was placed into liquidation, the Plaintiffs do not have leave to proceed against it pursuant to either ss 471B or 500(2) of the Corporations Act. Although referred to in the Plaintiffs’ closing written submissions, it was not included in the Plaintiffs’ final written submissions on damages and I have assumed is not pressed.

Knowing Receipt and Assistance

561. The Plaintiffs plead knowing receipt and/or assistance claims against each of PPD, Pionnier, Varvaris & Co, CBC, A & T Education, Citywide Property Group and Red Horizon pursuant to the first and second limbs of Barnes v Addy, although the Plaintiffs no longer press their claims against PPD and they do not have leave to proceed against Varvaris & Co, A & T Education, Citywide Property Group and Red Horizon. That leaves only the knowing receipt claims against Pionnier and CBC, there being no knowing assistance claim pleaded against either of those companies.

562. Because the Court has concluded that neither the Active Defendants, nor Mr Varvaris, owed fiduciary duties to the Plaintiffs on the Plaintiffs’ pleaded case and because the pleaded breach of trust action against Varvaris & Co is also not pressed, it follows that the Plaintiffs’ claims pursuant to the first limb of Barnes v Addy against Pionnier and CBC must fail.

Monies Had and Received

563. The Plaintiffs’ monies had and received claims are put in the alternative. By their ASOC, the Plaintiffs have brought claims for monies had and received against each of Alysha, Dennis, Pionnier, PPD, Varvaris & Co, CBC, A & T Education, Citywide Property Group and Red Horizon. As the Plaintiffs do not have leave to proceed against Varvaris & Co, A & T Education, Citywide Property Group and Red Horizon, and in light of the orders set out in [295] above, the Plaintiffs do not press their monies had and received claims against Alysha, Varvaris & Co, A & T Education, Citywide Property Group and Red Horizon. I have also assumed that the claim is not pressed against PPD (now that Haiye is the sole shareholder of PPD and that, therefore, Haiye (in effect) solely owns the First Kogarah Property) nor against Pionnier.

564. The only specific money claims referred to in the Plaintiffs’ final written submissions in respect of damages were against Dennis, CBC and Pionnier, and can be summarised as:

1. Dennis received the benefit of at least $270,000 from the moneys paid by Haiye in purported satisfaction of the Fake Bingemann Invoice by the unlawful conduct of Mr Varvaris and/or the other Active Defendants. Further, or alternatively, Dennis knew that he had received that benefit by the unlawful conduct of Mr Varvaris and/or the other Active Defendants at the time of his receipt of those funds.

2. CBC received the benefit of two sums – namely, $25,000 and $534,500 – which were paid by Haiye in purported satisfaction of its share of the Supplementary Contract by the unlawful conduct of Mr Varvaris and/or the Active Defendants. Further, or alternatively, CBC knew that it had received the benefit of those funds by the unlawful conduct of Mr Varvaris and/or the other Active Defendants at the time of its receipt of those funds.

565. The principles relevant to the question of whether Dennis, CBC and/or Pionnier are liable in an action for monies had and received can be distilled from the Court of Appeal’s decision in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 (“Heperu”) in which Allsop P (as his Honour then was), with whom Campbell JA and Handley AJA agreed, endorsed this passage from K Mason, J W Carter and G J Tolhurst, Restitution Law in Australia, (2nd ed, 2008, LexisNexis Butterworths) at [305] (at [127]) (footnotes omitted):

“[305] Principle stated. A personal cause of action, deriving from the count for money had and received, is available to the owner of money, or of property that is changed into money or its equivalent, that can be traced to someone who did not take the money as or from a bona fide purchaser for value without notice of defect of title. The plaintiff's right does not turn upon proof of a tort or other wrong, although that is often the way of demonstrating the defendant's unauthorised gain. The independent restitutionary claim is one means whereby the plaintiff's property right is vindicated. Merely because the defendant has paid over the money to a third party provides no defence to the personal claim, but defences including change of position are available.”

566. In Heperu, Allsop P also affirmed the proposition that a plaintiff must show that the recipient knew or ought to have known of their receipt and/or possession or control of the funds in question prior to it being disposed of (if at all) and that it would be unjust or inequitable for the recipient to retain the funds: see [74]; see also National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 268-9; [1986] HCA 21 per Gibbs CJ. In discerning the standard underpinning “ought to have known”, his Honour referred to and accepted the following passage from Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (4th ed, 2002, LexisNexis Butterworths) at 342 [8–270]:

“all matters: (a) of which he would have received notice if he had made the investigations usually made in similar transactions; and (b) of which he would have received notice had he investigated a relevant fact which has come to his notice and into which a reasonable man ought to have inquired.”

Are Dennis and/or CBC Liable to the Plaintiffs for Monies Had and Received?

567. Turning first to the claim against Dennis, the Plaintiffs’ case rested solely upon a director’s loan ledger purporting to reflect Dennis’ director’s loan account with Golden Sands Hospitality (see [241] and [242] above) and bank statements for A & T Education evidencing corresponding transfers to those reflected in the loan ledger. The Plaintiffs assert that the balance of the funds paid by Haiye to Bingemann in purported satisfaction of the Fake Bingemann Invoice (i.e. $271,343.75) were credited to Dennis’ loan account with Golden Sands.

568. The various primary business records to substantiate the movement of funds set out in paragraphs [239] – [241] above were in evidence. The only matter to which the Plaintiffs have not referred is that at the time the $671,378.75 was received by A & T Education, its account had an existing credit of $110,171.29. There were a number of debits to the account before the $100,000 was paid (in cash) from A & T Education to Golden Sands and applied to Dennis’ loan account. There was also a $160,000 deposit which was made on the same day that the $334,100 was paid out on 15 September 2016. In my view, the rule in Clayton’s Case should be applied, which I have calculated means $232,832.47 of the funds from the refund by Bingemann can be attributed to Dennis. The parties are at liberty to check this calculation and, if they wish, address on the application of the rule.

569. Insofar as the question of knowledge is concerned, given the Court’s findings about the knowledge of the Active Defendants, the Court is satisfied that Dennis would have been aware of the source of the funds being credited to his loan account. His liability does not depend upon him being aware of the precise sum. The Court finds Dennis is liable to Haiye for monies had and received in the sum of $232,832.47 (subject to the liberty reserved to the parties in the preceding paragraph as to how that sum has been calculated).

570. As for the Plaintiffs’ claim against CBC, it was undisputed that the sums of $25,000 and $534,500 were transferred from Red Horizon to CBC. It was also undisputed that those funds were provided by Haiye to Citywide Property Group, who thereafter transferred those funds to Red Horizon. The flow of funds from Haiye to CBC is thus undoubted.

571. The Plaintiffs nevertheless face the challenge of proving that CBC knew, or ought to have known, of its receipt and/or possession or control of the funds and the circumstances from which the funds derived. Although Mr Varvaris had a connection to CBC, it is unclear what that connection was. He did not (nor does he now) hold office with CBC, nor was he a shareholder in that company. The Plaintiffs nevertheless plead that CBC had the requisite knowledge by reason of the following matters, all of which require an inference of knowledge to be drawn by the Court:

1. At all material times, Christopher Michael was the sole director and shareholder of CBC.

2. Mr Michael executed the Deed of Agreement referred to at [202] above on behalf of CBC.

3. Mr Michael is, or was, a director of several entities of which Mr Varvaris is or was also a director; namely, Unified Security Group (Australia) Pty Ltd and Golden Sands Hospitality.

4. Mr Michael is, or was, a director of several entities the registered offices of which are care of Varvaris & Co; namely, WPI Group Pty Ltd, Wuhan Group Pty Ltd and Affordable Energy Suppliers Pty Ltd.

5. CBC’s registered office is located at the same address as the registered office for Varvaris & Co.

6. CBC benefited from the misappropriation of the Supplementary Contract Deposit Cheque.

7. CBC benefited from the misappropriation of the Second Supplementary Contract Cheque.

572. The matters recited in the preceding paragraph are circumstantial. They are insufficient for the Court to reach a state of actual satisfaction on the balance of probabilities that CBC, through Mr Michael, had actual knowledge or ought to have known of the unauthorised derivation of the funds at the time of their receipt or while CBC had possession or control of those funds. The Plaintiffs’ claim against CBC fails for want of proof.

Unclean Hands

573. As the Plaintiffs are not entitled to equitable relief, there is no need for the Court to consider the parties’ submissions addressing the doctrine of unclean hands.

Conclusion

574. The parties will be given an opportunity to agree short minutes to give effect to these reasons, including as to costs. Subject to any special applications, costs should follow the event.

Amendments

12 September 2022 - Correction of numerical figures at [476].

Decision last updated: 12 September 2022