He v Sunnya Pty Ltd; Supermega Market Ltd v Sunnya Pty Ltd

[2025] NSWCA 78

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

He v Sunnya Pty Ltd; Supermega Market Ltd v Sunnya Pty Ltd [2025] NSWCA 78

Hearing dates:

25-26 November 2024

Date of orders:

24 April 2025

Decision date:

24 April 2025

Before:

Bell CJ at [1];
Leeming JA at [121];
Basten AJA at [122]

Decision:

Proceeding 2024/171961 (He Parties’ Appeal):

1.   Appeal dismissed.

2.   The Appellants pay the First and Second Respondents’ costs.

Proceeding 2024/161624 (NZ Parties’ Appeal):

1.   Appeal dismissed.

2.   The Appellants pay the First and Second Respondents’ costs.

Catchwords:

CORPORATIONS — Directors and officers — Fiduciary duties — Where directors of company resigned — Whether fiduciary duties of directors continued despite resignation — Whether the fact the company may not have been able to exploit commercial opportunity precluded a finding of breach of fiduciary duty by former directors

EQUITY — Equitable remedies — Injunctions — Width of injunctive relief ordered against defaulting fiduciary and knowing assistant

Legislation Cited:

Corporations Act 2001 (Cth) ss 180, 181, 182, 237

Cases Cited:

Addstead Pty Ltd (In Liq) v Liddan Pty Ltd (1997) 70 SASR 21; (1997) 25 ACSR 175

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

Barnes v Addy (1874) LR 9 Ch App 244

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

Canadian Aero Service Ltd v O’Malley [1974] SCR 592; (1973) 40 DLR (3d) 371

Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27

Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200

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

Jagatramka v Wollongong Coal Limited [2021] NSWCA 61

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

Murdoch v Mudgee Dolomite & Lime Pty Ltd (In Liq) (2022) 398 ALR 658; [2022] NSWCA 12

Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383

Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193

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

Texts Cited:

M Leeming, Common Law, Equity and Statute: A Complex Entangled System (2023, Federation Press)

Category:

Principal judgment

Parties:

Proceeding 2024/171961 (He Parties’ Appeal):

Yinghan He (First Appellant)
Yanxia Lu (Second Appellant)
Sunnya Pty Ltd (First Respondent)
Jatcorp Ltd (Second Respondent)
Supermega Market Ltd (Third Respondent)
Megadairy Ltd (Fourth Respondent)
NZFDA Ltd (Fifth Respondent)

Proceeding 2024/161624 (NZ Parties’ Appeal):

Supermega Market Ltd (First Appellant)
Megadairy Ltd (Second Appellant)
NZFDA Ltd (Third Appellant)
Sunnya Pty Ltd (First Respondent)
Jatcorp Ltd (Second Respondent)
Yinghan He (Third Respondent)
Yanxia Lu (Fourth Respondent)
Guangzhou Aotea Biological Technology Pte Ltd (Fifth Respondent)
Guangzhou Niurui Trading Co Ltd (Sixth Respondent)
Sunlife Healthfood Pty Ltd (Seventh Respondent)
Yaqing He (Eighth Respondent)
HLW Investments Pty Ltd (Ninth Respondent)

Representation:

Proceeding 2024/171961 (He Parties’ Appeal):

Counsel:

S Baron Levi (Appellants)
R Foreman SC, M R Davis and G Gee
(First and Second Respondents)

Solicitors:

Shen’s Lawyers (Appellants)
AHD Lawyers (First and Second Respondents)

Proceeding 2024/161624 (NZ Parties’ Appeal):

Counsel:

D Zhang (Appellants)
R Foreman SC, M R Davis and G Gee
(First and Second Respondents)

Solicitors:

Chang Construction Legal (Appellants)
AHD Lawyers (First and Second Respondents)

File Number(s):

2024/171961; 2024/161624

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity

Citation:

[2024] NSWSC 403

Date of Decision:

19 April 2024

Before:

Williams J

File Number(s):

2022/329426; 2022/333557

HEADNOTE

[This headnote is not to be read as part of the judgment]

These proceedings involved extensive findings made by the primary judge concerning breaches of fiduciary duties owed by Ms Yanxia Lu and Mr Yinghan He (the He Parties) to Sunnya Pty Ltd (Sunnya), including in respect of conduct which occurred after their resignation as directors of Sunnya. The primary judge also found three companies, collectively referred to as the NZ Parties, liable as knowing recipients or knowing assistants in the He Parties’ breaches of fiduciary duty.

The issues raised on the appeals included: (i) whether, on the facts, the fiduciary duties owed by the He Parties to Sunnya continued after their resignation as directors of Sunnya; (ii) whether a finding that the He Parties breached their fiduciary duties was precluded by the fact that the relevant corporate opportunity may not have been available to Sunnya; and (iii) the width of the injunctive relief ordered.

The Court (Bell CJ, Leeming JA and Basten AJA agreeing), dismissing the appeals, held:

1. The primary judge did not err in finding that the fiduciary duties owed by the He Parties towards Sunnya continued despite their resignation as directors: [81]-[85] (Bell CJ); [121] (Leeming JA); [122] (Basten AJA).

Canadian Aero Service Ltd v O’Malley [1974] SCR 592; (1973) 40 DLR (3d) 371; Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27; Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200; Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383; Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193, referred to.

2. The primary judge was correct in holding that the fact that Sunnya may not have been able to exploit a particular corporate opportunity in China did not preclude a finding that the He Parties breached their fiduciary obligations: [86]-[87] (Bell CJ); [121] (Leeming JA); [122] (Basten AJA).

Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24; Furs Ltd v Tomkies (1936) 54 CLR 583; [1936] HCA 3; Canadian Aero Service Ltd v O’Malley [1974] SCR 592; (1973) 40 DLR (3d) 371; Warman International v Dwyer (1995) 182 CLR 544; [1995] HCA 18; Addstead Pty Ltd (In Liq) v Liddan Pty Ltd (1997) 70 SASR 21; (1997) 25 ACSR 175; Murdoch v Mudgee Dolomite & Lime Pty Ltd (In Liq) (2022) 398 ALR 658; [2022] NSWCA 12, applied.

3. The primary judge did not err in exercising the discretion to order injunctive relief in the terms that her Honour did as against the He Parties and NZ Parties: [91]-[107] (Bell CJ); [121] (Leeming JA); [122] (Basten AJA).

JUDGMENT

1. BELL CJ: There are three appeals before the Court arising from a detailed judgment of Williams J (the primary judge) following a 15 day hearing, involving allegations of breach of directors’ and fiduciary duties owed to Sunnya Pty Ltd (Sunnya) by Ms Yanxia Lu (Ms Lu) and Mr Yinghan He
   (Mr He) (together, the He Parties), and claims of involvement in and knowing assistance in a fraudulent and dishonest design against various other parties: In the matter of Sunnya Pty Ltd [2024] NSWSC 403 (primary judgment or PJ).

2. Some but not all the alleged breaches were held to have been made out including breaches of fiduciary obligations which her Honour held to have continued to subsist following the He Parties’ resignation as directors of Sunnya on 25 November 2022. The He Parties challenge her Honour’s findings in this regard and Sunnya challenges her Honour’s rejection of a number of claims made by it in relation to conduct of the He Parties while directors of Sunnya. These latter challenges are dealt with in the companion judgment: Sunnya Pty Ltd v He [2025] NSWCA 79.

3. It was not controversial that, as a matter of principle, a director (or senior employee) may not escape his or her fiduciary obligations in relation to a corporate commercial opportunity by resigning where that resignation may fairly be said to have been prompted or influenced by a wish to acquire the corporate opportunity which was being or on the verge of being exploited by the company to whom the fiduciary owed his or her obligations: Canadian Aero Service Ltd v O’Malley [1974] SCR 592; (1973) 40 DLR (3d) 371 (Canadian Aero); Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27 at [56]-[58]; Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 at [55]-[58]; Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 at [178]; Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193 at [95].

4. The seminal statement is that of the Supreme Court of Canada delivered by Laskin J in Canadian Aero at 607:

“An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.”

5. The primary judge held that the Canadian Aero principle was engaged and conduct prior to the He Parties’ resignation as directors of Sunnya informed her Honour’s conclusion that their resignations were prompted or influenced by a wish to acquire for themselves maturing corporate opportunities to which they were privy by reason of their position as directors of Sunnya: PJ [804].

6. A separate appeal has been brought by Supermega Market Ltd (Supermega), Megadairy Ltd (Megadairy) and NZFDA Limited (NZ) (NZFDA), together, the NZ Parties, whom her Honour found to be knowingly concerned in the breaches of statutory duties by the He Parties, or liable as knowing recipients or knowing assistants in the breaches of fiduciary duties found to have been committed in accordance with Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy). A number of the NZ Parties’ grounds of appeal overlapped with grounds of appeal pursued by the He Parties.

7. Her Honour also made extensive declarations and orders including against Guangzhou Aotea Biological Technology Pte Ltd (GABT) for being knowingly concerned in the alleged breaches of statutory duties by the He Parties and liable as a knowing recipient or knowing assistant in the alleged breaches of fiduciary duties by the He Parties. GABT filed a cross-claim against Sunnya, which was dismissed on 7 December 2023 as it did not appear at the hearing (PJ [41]) and has not appealed from orders 5, 6, 11-14, 17, 20, 34-39 and 68-69 made in relation to it. Sunnya in its appeal seeks further orders inter alia against GABT.

8. GABT was owned as to 95% by Mr He. Mr Yancheng Lu, his brother-in-law, was its General Manager and Executive Director: PJ [6].

9. Orders were also made against the fifth defendant, Sunlife Healthfood Pty Ltd (Sunlife) which also did not appear at the hearing. Ms Yaqing He, the daughter of the He Parties, is the sole director and shareholder of Sunlife, which was the registered owner of the trade marks “Guamis” and “NRIO” in Australia and New Zealand. After the commencement of the proceedings, it transferred those trade marks to NZFDA in late March 2023: PJ [14]. The primary judge declared by order 48 that NZFDA knowingly assisted the breaches of fiduciary duty by Mr He and Ms Lu in the period from 31 March 2023 by holding the New Zealand registered NRIO trade mark from that date.

10. Very few of the primary judge’s factual findings in a judgment running to almost 300 pages have been challenged on appeal, and her Honour’s meticulous analysis of the facts which is available on CaseLaw may be read in conjunction with these reasons, obviating the need for undue and extensive repetition. It is necessary, however, to provide some introductory overview before turning to her Honour’s key findings, and introducing and considering the key issues on the He and NZ Parties’ appeals.

Background facts

11. Mr He and Ms Lu are husband and wife. In 2014, they together incorporated Sunnya and were its majority shareholders and directors. By mid-2018, when the He Parties sold 51% of their interest in Sunnya to Jaternergy Pty Ltd, a company associated with Jatcorp Ltd (Jatcorp) pursuant to a Share Purchase Agreement (SPA), Sunnya’s business involved the export and sale of formulated milk powder products from Australia and New Zealand to the People’s Republic of China under the brand name “Neurio”. The primary judge extracted the following description of the Neurio brand from a document which had evidently been prepared in relation to the share sale:

“Neurio brand

It is owned by Yanxia Lu in Australia, and owned by Guangzhou Aotea Biological Technology Pte Ltd [GABT] in China. Currently, the ODM products including Nurio lactoferrin, DHA, and probiotics. The products have been sold to the Chinese market since April 2017, with the annual sales volume of about 210,000 AUD and profit of 31,500 AUD in 2017-2018. Sunnya is expected to make a profit of 90,000 AUD in 2018-2019, with the sales of Nurio reaching 600,000 AUD.”

12. Announcements at the time of the execution of the SPA referred to synergies that would be secured by reason of combining Sunnya’s incipient export business with Jatcorp’s existing Chinese online platforms and offline distribution channels. These synergies were expected to, and did, generate higher growth rates and profitability.

13. Following execution of the SPA, Sunnya became the owner of the registered Neurio trade marks in Australia, New Zealand and Indonesia. The Neurio trade marks in China were held by GABT. GABT was registered in China by Ms Lu, and her brother, Mr Lu. Until 10 March 2023, Mr He held 95% of the shares in GABT, with the remaining 5% held by Mr Lu. Ms Yanping Lu, Ms Lu’s sister, is GABT’s “Supervisor”.

14. GABT initially acted as Sunnya’s import agent in China, although that role was later taken over by Guangzhou Niurui Trading Co Ltd (GNT), another company registered in China with two of its three shareholders being Ms Yanping Lu and Ms Aiping Zhang, Ms Lu’s sister and sister-in-law respectively.

15. The primary judge found that there was a cooperative relationship between Sunnya and GABT in relation to Sunnya’s use of the Neurio trademark in China. This cooperative relationship was manifested by a “letter of statement” of 17 June 2019 which referred to a “cooperation relationship” between GABT and Sunnya which included the statement that GABT was taking steps to transfer the Neurio trademark in China to Sunnya (which never in fact transpired), and a letter of authorisation dated 1 January 2021 by which GABT purported to give and authorise Sunnya “permanent rights to use” various Neurio trademarks registered in China: PJ [80]-[81], [179]. Her Honour held that “the export of Sunnya’s Australian and New Zealand manufactured Neurio-branded products to China was a significant part of Sunnya’s business, and that GABT did in fact facilitate the distribution and sale of those products in China until October 2022”: PJ [84].

16. The cooperative relationship was consistent with cl 4.2(a) of the SPA by which the He Parties, as vendors, had promised that they would cause the business to own and carry on before and after completion “the right to sell Neurio-Health products in Australia and China, including any further registered infant formula…”. The business was, of course, that of Sunnya.

17. The Neurio-branded products exported to and sold in China by Sunnya were produced by third party manufacturers. Those third parties included Supermega, and the products supplied by Supermega to Sunnya were manufactured by Megadairy, a company also registered in New Zealand. Mr Yi Wu was the sole director of both Supermega and Megadairy as well as a third company, NZFDA.

18. Of importance to the success and value of the export business was the fact that products were manufactured in New Zealand under the New Zealand Neurio trade mark, this evidently conveying a level of quality assurance. Thus, products exported from New Zealand to China by Sunnya carried the New Zealand trade mark which Sunnya owned.

19. The He Parties remained as directors and employees of Sunnya following Jatcorp’s acquisition of a 51% controlling interest in 2018. Their 49% shareholding in Sunnya was held on trust for them by All168 Pty Ltd (All168) with Mr He and Ms Lu each holding 50% of the shareholding in All168. Following the SPA, Jatcorp appointed two additional directors to the board of Sunnya.

20. Between June and September 2022, changes were made in Jatcorp’s management and new Jatcorp directors were appointed to Sunnya’s board. At 2.18pm on 21 October 2022, Jatcorp notified the He Parties of its intention to increase its representation on the board of Sunnya from two to three directors and issued a notice calling for an extraordinary general meeting (EGM). The notice stated:

“Jatcorp Limited acquired a 51% shareholding in the Company pursuant to a Share Sale Agreement which was executed on or around 13 June 2018 (SSA).

The SSA had contemplated Jatcorp Limited appointing Anthony Crimmins as director and chairman of the Company, and Wilton Yao (who at the time was a director of Jatcorp) as an executive.

Mr Crimmins has since left Jatcorp and Mr Yao’s role has also changed within the management structure of Jatcorp and he is no longer a director. Both of these Jatcorp board nominees have left the board of the Company. Recently, Mr Bo Qiang, a serving director of Jatcorp was appointed as a director of the Company.

Jatcorp desires to replace their nominee director Mr Bo Qiang with Mr Peng Shen and replace Mr Brett Crowley with Mr Zhan Wang, both of whom are serving directors of Jatcorp.

Jatcorp further desires to appoint Mr Zhiguo Zhang to the board of the Company.

Jatcorp requires to obtain full information disclosure about any matter which may hinder the Company’s ability to market the Neurio brand products in Australia and China, noting that:

-    clause 4.2 of the SSA expressly requires the current management (being vendors in the SSA) to ensure the Company’s ability to continue to market the Neurio brand in Australia and China;

-    Jatcorp has received advice from management that a related third party may exercise certain intellectual property rights in China to affect the Company’s use of the Neurio brand there.”

The notice of meeting also set out proposed resolutions for the removal of Mr Qiang and Mr Crowley, and for the appointment and remuneration of Mr Wang, Mr Zhang, and Mr Shen as directors of Sunnya, and a proposed resolution directing the current directors (the He Parties) to provide the new directors with full and unfettered access to all of Sunnya’s books and records.

21. At 9.01 pm on 21 October 2022, Mr Lu, on behalf of GABT, wrote to Mr He and Ms Lu in their capacity as directors of Sunnya as follows (the Termination Notice):

“Termination of Trademark Holding and Usage Notice

In light of the notification received by [GABT] from [Sunnya], Jatcorp Limited with hold an Extraordinary General Meeting … on 22 November 2022, to vote on matters related to [Sunnya’s] decisions. Based on the clauses in the “trade mark [registration] authorisation agreement” and the “Trademark registration entrustment agreement” signed between [GABT] and [Sunnya] in 2014 and 2020 respectively, [GABT] believes that [Sunnya’s] actions will infringe upon [GABT’s] interests. Therefore, [GABT] has the right to terminate this contract at any time, terminate [Sunnya’s] holding of the trademark, and revoke [Sunnya’s] usage rights to the trademark.

Now on October 21, 2022, [GABT] formally notified [Sunnya] via email. [Sunnya] is required to transfer all trademarks related to ‘Neurio (simplified Chinese’, ‘Neurio (traditional Chinese)’ and ‘Neurio (English)’ held by [Sunnya] back to [GABT] or to a third party designated by [GABT] within 15 days from the date of this notice, [Sunnya] must immediately cease the use of [GABT’s] trademark, and [Sunnya] must return any remaining products containing [GABT’s] trademark to [GABT] within 30 days of the contract termination.”

22. The primary judge made unchallenged factual findings that the Trademark Registration Authorisation Agreement was not a genuine agreement entered into between GABT and Sunnya and was created by the He Parties “for the purpose of manufacturing a false basis for Sunnya to transfer the Australian and New Zealand Neurio trade marks to GABT in late October and early November 2022, so as to assist the He Parties’ defence of the Sunnya proceedings”: PJ [555].

23. The Trademark Registration Authorisation Agreement attached to the Termination Notice purported to provide that:

“1.   Under this agreement, Party A [GABT] agrees to have Party B [Sunnya] act as its agent to assist in registering the Neurio trademark, which is exclusively owned by Party A, with Intellectual Property Australia and Intellectual Property Office of New Zealand. The Chinese trademark registration numbers are 9433608, 9433612, 9433654, 9433665, and 10484064.

2.   Party B agrees and acknowledges that Party A is the sole and actual owners of this trademark…

3.   Because Party A is a Chinese company and does not have a subsidiary overseas, Party A agrees to have Party B hold the trademark on its behalf for an extended period. However, Party A retains the right to terminate Party B’s holding authority at any time.

4.   If Party A terminates Party B’s authority to hold the trademark, Party B agrees to, upon Party A’s request, submit an application to Intellectual Property Australia and Intellectual Property Office of New Zealand to transfer the trademark back to Party A or to a third party designated by part A within 15 days.”

24. The Agreement was purportedly signed on 16 December 2014 by Mr He on behalf of Sunnya and his brother in law, Mr Lu, on behalf of GABT. There was no appeal from the primary judge’s finding that this document had been fabricated.

25. The issue of the Termination Notice, terminating the cooperation relationship between GABT and Sunnya and requiring the transfer of the registered ownership of the Australian and New Zealand Neurio trade marks to GABT, in order to enable GABT to manufacture Neurio-branded products in Australia and New Zealand for export and sale in China without any involvement of Sunnya and without any benefit passing to Sunnya, was referred to in the proceedings at first instance as “Plan A”: PJ [759].

26. Significantly, as the primary judge found, notwithstanding the serious adverse consequences for Sunnya if the Termination Notice were valid, and if Sunnya were required to comply with GABT’s demands to transfer the Australian and New Zealand Neurio trade marks, Mr He did not inform the Jatcorp-nominated directors of Sunnya, or any other representative of Jatcorp, about the Termination Notice when he received it from GABT. Nor did Mr He convene a meeting of Sunnya’s board to discuss the notice and Sunnya’s response to it. Rather, Mr He withheld the notice from Jatcorp and the Jatcorp-nominated directors of Sunnya at the time, for a period of ten days until 31 October 2022: PJ [699].

27. Between 23 October 2022 and 1 November 2022, the He Parties took steps to effect the transfer of the Australian, New Zealand (and Indonesian) Neurio trade marks from Sunnya to GABT with the consequence that GABT could manufacture Neurio-branded products in Australian and New Zealand for export to and sale in China, without involving or benefitting Sunnya. The He Parties took these actions surreptitiously. As the primary judge held, they did so purportedly in their capacity as directors of Sunnya, without informing the Jatcorp-nominated directors of Sunnya, or any other representative of Jatcorp, of their actions that would remove the foundation of Sunnya’s business: PJ [700].

28. There was no proper basis for the transfers of the trade marks. The primary judge noted that the sole justification advanced by Mr He and Ms Lu for their conduct in seeking to transfer the Australian, New Zealand and Indonesian Neurio trade marks to GABT was that Sunnya held the trade marks on behalf of GABT pursuant to the agreements purportedly dated December 2014 and January 2020 referred to in the Termination Notice (and which, as noted above at [22], her Honour found to have been fabricated), and that GABT was entitled to require the trade marks to be transferred to it at any time: PJ [701].

29. The EGM of Sunnya, for which notice had been given on 21 October 2022 (see [20] above), was brought forward to 31 October 2022 and it was only then that Mr He informed the Jatcorp-nominated directors of Sunnya about the Termination Notice. As the primary judge held, earlier that same day, GABT had become the registered owner of the Australian Neurio trade marks, and had entered into eleven contracts with Supermega which the primary judge found Ms Lu had negotiated on GABT’s behalf for the manufacture and supply of 190,000 cans of Neurio-branded products to be exported to China: PJ [705]. These actions were held to have been in breach of fiduciary duty (PJ [741]) and there is no appeal from this finding or the declarations made to this effect.

30. Due to the He Parties having failed to explain their conduct in effecting the trade mark transfers and having failed to attend a board meeting of Sunnya on 2 November 2022, the Sunnya Parties commenced proceedings on 3 November 2022 seeking relief pursuant to s 237 of the Corporations Act 2001 (Cth) (Corporations Act) against Mr He and Ms Lu for alleged breaches of their statutory and fiduciary duties by taking steps in late October and early November 2022 to transfer the Neurio trademarks to GABT for no consideration.

31. Interim orders were made in the proceedings below between 3 November and 10 November 2022. These required GABT to transfer the Australian Neurio trade marks back to Sunnya, and precluded Mr He, Ms Lu or GABT from taking any further steps to transfer the New Zealand or Indonesian Neurio trade marks to GABT. These orders in effect put an end to Plan A as described at [25] above (which recognised the importance of the ownership of the Australian and New Zealand trade marks which had been surreptitiously transferred or were in the process of being transferred from Sunnya to GABT for no consideration purportedly pursuant to the fabricated Trademark Registration Authorization Agreement by deed of assignment signed by the He Parties, their daughter and Ms Lu’s brother.)

32. From 31 October to 8 November 2022, Ms Lu on behalf of GABT negotiated eleven contracts with Supermega for the manufacture and supply of Neurio-branded products to GABT. The primary judge inferred at PJ [708] that the He Parties undertook these actions:

“with the intention and purpose of diverting to GABT Sunnya’s business of selling Australian and New Zealand-manufactured Neurio-branded products in China, including by encouraging GABT to terminate the cooperation relationshipthat had hitherto facilitated Sunnya’s sale of those products in China, and by transferring to GABT the trade marks that had entitled Sunnya to manufacture those products in Australia and New Zealand. I infer that Ms Lu negotiated on behalf of GABT the eleven contracts that it entered into with Supermega during the period from 31 October to 8 November 2022 in anticipation of the transfer of the New Zealand Neurio trade marks to GABT being registered.”

Her Honour continued:

“Whilst the GABT Termination Notice was ineffective insofar as it purported to require Sunnya to transfer the Australian and New Zealand Neurio trade marks to GABT, it did signal the termination of the cooperation relationship. I further infer that Mr He and Ms Lu’s underlying intention and purpose in encouraging the termination of the cooperation relationship, and in diverting Sunnya’s business to GABT, was to ensure that the profits of that business would be earned by GABT, which was 95 per cent owned by Mr He, rather than by Sunnya, over which Mr He and Ms Lu were about to lose effective management control, and in which they only had a 49 per cent interest through All168. I draw those inferences based on the obvious consequences of the conduct of Mr He and Ms Lu. Further, I infer from the manner in which their actions were co-ordinated to achieve those consequences that Mr He’s actions were done with the knowledge and encouragement or endorsement of Ms Lu, and that Ms Lu’s actions were done with the knowledge and encouragement or endorsement of Mr He. I further infer from that cooperation between them that any profits distributed to Mr He by reason of his 95 per cent shareholding of GABT would also directly or indirectly benefit his wife, Ms Lu. I draw each of the inferences above more comfortably in the absence of any evidence of Mr He and Ms Lu to the contrary.”

33. What was described in the proceedings as Plan B (and described by the primary judge as a continuation of Plan A and which gave rise to what were described as the Neurio/NRIO claims) involved:

1. Mr He and Ms Lu’s resignation as directors of Sunnya on 25 November 2022;

2. the registration, at Mr He’s request of the NRIO trade mark by Sunlife (a company controlled by Mr He and Ms Lu’s daughter, Yaqing He as noted at [9] above) in Australia and New Zealand on the same day;

3. the registration of the NRIO trade mark by GABT in China on 6 December 2022; and

4. the manufacture of NRIO-branded formulated milk powder sachets by Megadairy in New Zealand which:

1. were then exported to China;

2. where they were packaged in tins bearing both the Neurio and NRIO brands; and

3. in circumstances where GABT updated its website to inform customers that the Neurio label had been “upgraded” to include the NRIO label.

Sunnya received no payment or any other benefit from the distribution and sale of Neurio/NRIO branded formulated milk powder pursuant to Plan B. The linguistic similarity between “Neurio” and “NRIO” may be noted.

34. Between 7 December 2022 and 12 January 2023, Supermega also entered into ten contracts with GNT for the manufacture and supply of Neurio-branded products. Seven of the ten contracts listed Shanghai Gainful Industrial Co Ltd (Shanghai Gainful) as the import agent for GNT.

35. In about March 2023, NZFDA became the registered owner of the “Guamis” and “NRIO” trademarks in Australia and New Zealand. Those trademarks were formerly held by Sunlife: PJ [378], [455]. This transfer and NZFDA’s receipt of the NRIO trade mark was the subject of order 48 by the primary judge, referred to at [9] above.

36. In about late March or early April 2023, the NRIO trade mark began to appear on Neurio-branded products on shelves in China. On 4 April 2023, GABT’s website “neurio.com.cn”, which it described as the “Official Website of the Australian Brand Neurio”, published notices referring to the “upgrade” of the Neurio trade mark to include the NRIO trade mark. The images in the notices depicted the addition of the NRIO trade mark on the tin as well as on the sachets of milk product.

37. This post-resignation conduct (including the entry into contracts by GABT and GNT with Supermega and Megadairy) comprising Plan B was held by the primary judge to be in breach of the He Parties’ continuing fiduciary obligations in circumstances where the Canadian Aero principles (see [3]-[4] above) had been engaged: PJ [804].

38. By the time of the hearing before the primary judge, the Sunnya Parties’ claims had expanded to include some 200 claims for relief against the He Parties and also against GABT, GNT, Sunlife, Ms He and the NZ Parties. Relevantly for the purposes of these appeals, those claims, as summarised by the primary judge at PJ [459], included that the He Parties had:

“contravened one or more of ss 180, 181 and 182 of the Corporations Act, breached fiduciary duties that they owed to Sunnya by reason of their position as directors of Sunnya, and/or breached fiduciary duties that they continued to owe to Sunnya after resigning as directors of the company, by:

(1)   causing or permitting … changes to Sunnya’s general trade channel sales and distribution arrangements in April 2021 … (the under value sales claims);

(2)   causing Sunnya to engage in the practice of issuing the commercial invoices [being commercial invoices issued to GNT showing export prices which were less than the prices for which Sunnya sold the products to its distributors to facilitate the calculation of Chinese duties, taxes or fees based on the lower export price shown on the commercial invoice] (the commercial invoices claims);

(3)   allegedly directing, requesting, encouraging or endorsing Supermega and GABT to enter into the sales contracts … during the period from March to November 2022 for the supply of Neurio-branded products to GABT (the improper Neurio contracts claims);

(4)   taking … steps referred to during the period from 23 October to 1 November 2022 … [to] transfer the registered ownership of the Australian, New Zealand and Indonesian Neurio trade marks from Sunnya to GABT (the trade mark transfer claims);

(5)    allegedly requesting, directing, encouraging or endorsing GABT to apply to register the Neurio trade marks with the European Intellectual Property Office … (the European trade mark claim);

(6)    requesting Sunlife to register the NRIO trade mark in Australia and New Zealand and by allegedly diverting to GABT Sunnya’s business of selling Australian and New Zealand-manufactured Neurio products in China by the use of that NRIO trade mark in the manufacture of formulated milk powder products in New Zealand, the packaging of those products in co-branded Neurio/NRIO tins in China, and the marketing, distribution and sale of those products in China as new or upgraded versions of Neurio (the Neurio/NRIO claims);

(7)    allegedly directing, requesting, encouraging or endorsing Supermega and/or Megadairy to release to entities other than Sunnya some or all of the empty Neurio tins and/or finished Neurio products that the Plaintiffs allege Supermega and/or Megadairy held in stock as at 1 November 2022 (the sale of destroyed products claims);

(8)    allegedly directing, requesting, encouraging or endorsing the distribution and sale of Neurio–branded products in China by GABT, GNT and/or Sunlife in the period since November or December 2022, without any payment or benefit to Sunna (the improper Neurio products claims);

(9)    allegedly directing, requesting, encouraging or endorsing Supermega and/or Megadairy to release to GABT and GNT the Neurio products comprising batch number NE04220009 which the Plaintiffs claim Mr He and Ms Lu had recorded in Sunnya’s records as written off (the sale of written off products claim); and

(10)  causing or permitting Sunnya to market and develop the Guamis brand by co-branding certain products with the Neurio and Guamis trademarks (the Guamis claims).” (Emphasis in original; footnotes omitted.)

39. The Sunnya Parties also claimed that each of GABT, GNT, Sunlife, Ms He and the NZ Parties was knowingly concerned in the He Parties’ alleged contraventions of ss 180, 181 and 182 of the Corporations Act and/or knowingly assisted the He Parties’ breaches of fiduciary duty.

Proceedings at first instance and primary judgment

40. The hearing before the primary judge took place over some 15 days in November and December 2023. Concurrent with that hearing was the hearing of another proceeding brought by Mr He and Ms Lu disputing the validity of the Sunnya EGM and board meeting of 31 October and 2 November 2023 respectively: PJ [993]. A large volume of evidence was adduced in the proceedings comprising over 15,000 pages of documentary evidence, reports of forensic accounting experts tendered by both the Sunnya Parties and the He Parties and the oral and affidavit evidence of witnesses called by both the Sunnya Parties, namely Mr Wang, Mr Zhang and Ms Chen, and the NZ Parties, namely Mr Wu.

41. None of the He Parties gave evidence in the proceedings. Mr He and Ms Lu departed the jurisdiction shortly before the hearing and Ms He failed to attend the hearing. The Sunnya Parties tendered as admissions, or for non-hearsay purposes, various statements made by Mr He, Ms Lu and Ms He in affidavits served by the He Parties prior to the hearing but which were not read at the hearing.

42. The hearing at first instance dealt with all questions other than questions of the quantum or compensation the Sunnya Parties were entitled to in relation to established breaches of statutory and fiduciary duties.

43. The primary judge found that the Sunnya Parties had failed in respect of (1) the undervalue sales claims, (2) the commercial invoices claims, (8) the improper Neurio products claims, (7) the sale of destroyed products claims, (9) the sale of written off products claim and (5) the European trade mark claim: PJ [1039], [1041], [1043]. Challenges to some of these conclusions are dealt with in the companion judgment dealing with Sunnya’s appeal: see [2] above. Her Honour upheld (4) the trade mark transfer claims and also (3) the improper Neurio contract claims, but only in relation to some of the impugned contracts, and only as against Mr He, Ms Lu and GABT: PJ [1042].

44. In relation to (6) the Neurio/NRIO claims, the primary judge upheld the claims relating to breaches of fiduciary duties (other than in relation to the six contracts between GABT and Supermega from March to September 2022) by the He Parties. Her Honour also upheld related knowing assistance claims against Sunlife but only after May 2023: PJ [1042]. The Sunnya Parties additionally succeeded in their claims that GABT had knowingly assisted those breaches of fiduciary duty and had acted in concert with the He Parties during part of the period in which the breaches occurred. The primary judge also upheld the claims that the NZ Parties had knowingly assisted the He Parties in their breaches of fiduciary duty: PJ [1042].

45. Key parts of her Honour’s reasoning are contained at PJ [708], as set out at [32] above.

46. At PJ [795]-[796], her Honour held that:

“On the basis of all of those matters, considered as a whole, I find that Mr He procured Sunlife’s application to register the NRIO trade mark in Australia and New Zealand to create an alternative trade mark to Neurio that could be used for the manufacture of formulated milk powder products in Australia and New Zealand without the knowledge or consent of Sunnya, with the intention that such products would be manufactured for GABT, and packaged, marketed and sold by GABT in China using both the established Neurio trade mark of which GABT was the registered owner in China, and the new NRIO trade mark in respect of which GABT was shortly to apply for registration in China. I further find that Ms Lu negotiated for the benefit of GABT the two contracts that Supermega entered into on 7 December 2022 to manufacture and supply NRIO-branded sachets for formulated milk powder products to the buyer named as Shanghai Gainful. I find that the intention and purpose of Mr He and Ms Lu was to divert to GABT Sunnya’s business of selling Australian and New Zealand-manufactured Neurio-branded products in China by creating a new trade mark to be used to manufacture the products in New Zealand, and to be used in conjunction with the Neurio trade mark for the marketing and sale of the products in China as ‘new’ or ‘upgraded’ versions of the established Neurio product lines. That intention and purpose was carried into effect by GABT’s marketing of the ‘new’ or ‘upgraded’ products from about April 2023, as evidenced in the notices published on GABT’s website referred to at [359] above and similar notices published on e-commerce platforms referred to at [357] above. That use of the NRIO trade mark registered by Sunlife in Australia and New Zealand had the obvious effect of removing any need for GABT to procure the consent or cooperation of Sunnya in manufacturing the products, in circumstances where Mr He and Ms Lu had failed in their previous efforts to achieve that outcome by transferring Sunnya’s Neurio trade marks to GABT for no consideration. For the reasons explained above, I have found that Mr He and Ms Lu encouraged or endorsed GABT’s marketing of the NRIO sachets as ‘new’ or ‘upgraded’ Neurio products, and I infer that Mr He and Ms Lu intended to achieve that obvious effect. Indeed, this Plan B was really a continuation of Plan A, adjusted in response to the failure of the attempts made by Mr He and Ms Lu to arrange for the transfer of Sunnya’s registered Australian and New Zealand Neurio trade marks to GABT.

I infer from the co-ordinated nature of their actions, which were directed to facilitating the supply to GABT of formulated milk powder products bearing the new NRIO trade mark, that Mr He and Ms Lu were each aware of the conduct of the other, and that they encouraged or endorsed one another’s conduct. The obvious effect of their conduct, was to ensure a supply of products to GABT that could be sold, and was sold, by GABT in China capitalising on the established Neurio brand, being profits that had previously been earned by Sunnya in selling Australian and New Zealand-manufactured Neurio-branded products in China with the cooperation of GABT. As I have observed earlier in these reasons, Mr He would benefit directly, and Ms Lu would benefit indirectly, from such profits earned by GABT to a greater extent than they would have benefitted if such profits had been earned by Sunnya. I infer that Mr He and Ms Lu intended to achieve the obvious effect of their conduct, for their own benefit and to the detriment of Sunnya.”

47. The primary judge went on to find (at PJ [800]) that the resignation of Mr He and Ms Lu as directors of Sunnya on 25 November 2022 was “in order to distance themselves from the company immediately before embarking on their endeavour to register the NRIO trade mark through Sunlife and to procure the manufacture of NRIO-branded products in New Zealand for the benefit of GABT, with the intention and purpose that I have found at [795]-[796]”.

48. Her Honour held (at PJ [802]-[803]) that:

“… by Mr He undertaking that preparatory work and procuring Sunlife’s application to register the NRIO trade mark on 25 November 2022 (with the knowledge and encouragement or endorsement of Ms Lu), by Ms Lu negotiating the NRIO contracts with Supermega for the benefit of GABT in the period up to 7 December 2022 (with the knowledge and encouragement or endorsement of Mr He), by Mr He and Ms Lu encouraging or endorsing GABT’s registration of the identical NRIO trade mark in China with the intention that it would be used together with GABT’s Chinese Neurio trade mark to market and sell in China the NRIO-branded formulated milk powder products to be manufactured in New Zealand under contracts being negotiated by Ms Lu, and by Mr He and Ms Lu encouraging or endorsing GABT’s subsequent packaging, marketing, and sale of those sachets in China as “new” or “upgraded” Neurio products, Mr He and Ms Lu diverted to GABT and pursued for their own profit (through Mr He’s 95 per cent shareholding of GABT) the business of selling Australian and New Zealand-manufactured Neurio-branded products in China. Sunnya had been carrying on that business with the cooperation of GABT until shortly before Mr He and Ms Lu resigned as directors. Sunnya continued to pursue that business after the resignation of Mr He and Ms Lu, without the cooperation of GABT, including by exporting to China the tins of Neurio-branded products bearing the JAT logo. The reality of this position is not obscured by the introduction of the NRIO trade mark alongside the Neurio trade mark. On the contrary, that was a strategy to facilitate the manufacture of formulated milk powder products in New Zealand to be marketed and sold as Neurio products in China, without using Sunnya’s registered New Zealand Neurio trade marks so that Sunnya would not be entitled to prevent the manufacture of the NRIO products in New Zealand, and would not be entitled to require any payment or benefit in respect of the manufacture of those NRIO products that were to be marketed and sold under the Neurio trade mark in China. Mr He and Ms Lu cannot rely on GABT’s termination of its cooperation relationship with Sunnya – which they had encouraged or endorsed in the Plan A stage of the series of coordinated actions described above – as freeing them to divert Sunnya’s Neurio business in China to GABT for their own profit. It is therefore not necessary to determine whether Sunnya would contravene any law of the People’s Republic of China by exporting Neurio-branded products to China without the consent of GABT. Assuming that it was lawful, the evidence establishes that it was difficult as a matter of commercial reality for Sunnya to market and sell Neurio products in China without GABT’s consent.

… I find that Mr He and Ms Lu were able to pursue the business described above for GABT, for the ultimate benefit of themselves, by reason of their knowledge gained as directors of Sunnya of the terms on which Supermega and Megadairy manufactured and supplied Neurio products to Sunnya, their knowledge of the distribution channels and through which those products were marketed and sold in China, and their dealings with Sunnya’s distribution partners, or their oversight of the dealings with those distribution partners by Sunnya’s staff, during the period since at least October 2018. As I have found at [800] above, Mr He and Ms Lu resigned as directors of Sunnya for the very purpose of pursuing that business for GABT, for their own personal benefit. Contrary to the He Parties’ submissions, this was no fresh initiative in which Mr He and Ms Lu utilised their expertise to launch of an entirely new NRIO line of products.” (emphasis added)

None of the primary judge’s findings in these paragraphs was challenged on appeal. Her Honour continued:

“It is clear from the events that happened, and from the terms of GABT’s notice published on 22 April 2023 that the NRIO trade mark was only ever intended to be used in order to co-brand products sold to retail consumers with the Neurio brand. GABT’s notice […] stated that:

‘The owner of Niu Rui You Neurio brand will continue to grow the Niu Rui You brand with imported products in original packaging, and will never change its brand name.’” (Emphasis in original.)

49. In relation to the failure of Ms Lu, Mr He and Ms He to give evidence in the proceedings, the primary judge held that that failure was unexplained in a sense that could attract the rule in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 (Jones v Dunkel): PJ [541]. That rule, of course, allows for the more comfortable drawing of inferences which are otherwise available on the evidence.

50. The primary judge held that Supermega and Megadairy knowingly assisted both Mr He and Ms Lu’s dishonest and fraudulent breaches of fiduciary duty from December 2022 by “contracting to supply (in the case of Supermega) and by manufacturing (in the case of Megadairy) the NRIO-branded sachets of formulated milk powder products with the knowledge that those products would be marketed and sold in Neurio/NRIO tins in China, as subsequently occurred”: PJ [838]. Central to her Honour’s findings was a consideration of Mr Wu’s knowledge, which was accepted by the NZ Parties as being attributable to Supermega, Megadairy and NZFDA: PJ [834]. The primary judge enumerated at PJ [835]-[836] ten propositions of which Mr Wu was found to have been aware during the relevant period:

“(1)   Sunnya was the registered owner of the Neurio trade marks in Australia and New Zealand and that Neurio-branded products could not be manufactured in New Zealand without Sunnya’s consent;

(2)   Mr He and Ms Lu had resigned as directors of Sunnya and had no authority to deal with Sunnya’s assets, including by consenting to the use of its trade marks;

(3)   Mr He had arranged for Ms He to cause Sunlife to register the NRIO trade mark in Australia and New Zealand;

(4)   Ms Lu was the person with whom Mr Wu was negotiating the contracts for Supermega to supply NRIO-branded sachets to Shanghai Gainful;

(5)   Shanghai Gainful was associated with GABT, in that it had acted as the importer for GABT under previous contracts for the supply of Neurio products by Supermega to GABT;

(6)   the NRIO-branded sachets to be supplied by Supermega to Shanghai Gainful would be packaged in Neurio/NRIO-branded tins in China, and would be marketed and sold in that way in China. By no later than April 2023, Mr Wu knew that the NRIO-branded sachets were in fact being marketed and sold under the Neurio brand in China…

(7)   the conduct and matters referred to in (3), (4) and (6) above would facilitate products manufactured by Megadairy and supplied by Supermega being marketed and sold as New Zealand-manufactured products in China under the Neurio brand, with the introduction of the additional NRIO trade mark removing any need for Sunnya’s consent to the manufacture of the products in New Zealand;

(8)   this would, in turn, remove any opportunity for Sunnya to negotiate and receive any payment or other benefit in connection with the manufacture and sale of those products;

(9)   having resigned as directors of Sunnya, Mr He and Ms Lu had no interest in offering such a payment or benefit to Sunnya; and

(10) it was not in Sunnya’s best interests for its rights as the registered owner of the New Zealand Neurio trade mark to be circumvented this way.”

51. The primary judge concluded that those ten propositions, taken as a whole, “amounted to knowledge of the essential matters comprising Mr He and Ms Lu’s dishonest and fraudulent breaches of fiduciary duty diverting to GABT Sunnya’s business of selling Australian and New Zealand manufactured Neurio-branded products or, alternatively, knowledge of circumstances which would indicate those essential matters to an honest and reasonable person in Mr Wu’s position”: PJ [837].

52. At PJ [839], the primary judge granted relief in respect of the Neurio/NRIO claims in the following terms:

“The Plaintiffs are also entitled to injunctions restraining Supermega and Megadairy from taking further steps that would assist Mr He and Ms Lu’s dishonest and fraudulent scheme, or variations on that scheme – namely any steps to manufacture, market, sell, distribute or export any NRIO-branded product, or any other product that is to be sold to ultimate consumers in China in Neurio-branded packaging, to or for any person other than Sunnya.”

53. The primary judge then turned to consider NZFDA’s liability under the second limb of Barnes v Addy, having found that the first limb was not satisfied on the basis that the New Zealand NRIO trade mark was not the property of Sunnya: PJ [842]-[843], [848]. Her Honour held that, having regard to the ten propositions outlined at [50] above, by receiving the transfer of the New Zealand NRIO trade mark from Sun Life, “NZFDA knowingly assisted Mr He and Ms Lu’s dishonest and fraudulent scheme by facilitating the registered ownership of the trade mark being held by an entity that was not yet a defendant to the Sunnya proceedings while Sunlife continued to market the NRIO-branded milk powder sachets manufactured by Megadairy in New Zealand under the Neurio brand in China”: PJ [844].

54. Her Honour further held that that the Plaintiffs were entitled to orders restraining NZFDA from taking steps to “market, manufacture, sell, distribute, or export” any NRIO branded product or any product that is to be “sold to ultimate consumers in China in Neurio-branded packaging to or for any person other than Sunnya”: PJ [847].

The appeals

55. The three appeals before the Court were, in short summary, as follows:

1. 2024/171961 (the He Parties’ Appeal) appealing from the orders made by the primary judge in relation to those parts of the Neurio/NRIO claims against Mr He and Ms Lu for breaches of fiduciary duties that were upheld;

2. 2024/161624 (the NZ Parties’ appeal) appealing from the orders made by the primary judge in relation to those parts of the Neurio/NRIO claims against the NZ Parties for knowingly assisting Mr He and Ms Lu’s breaches of fiduciary duties that were upheld; and

3. 2024/183502 (the Sunnya Parties’ appeal or the Cross Appeal) appealing from the primary judge’s dismissal of the under value sales claims and commercial invoices claims against Mr He, Ms Lu and GNT, the improper Neurio product claims against each of Mr He, Ms Lu, GABT, GNT, Supermega and NZFDA and the Neurio/NRIO claims against GNT. As already noted, this appeal is addressed in the companion judgment.

56. The He Parties raised the following grounds of appeal:

“1   Her Honour erred in finding that the scope of fiduciary obligations owed by the first and second defendants (“Mr He and Ms Lu”) to the first plaintiff (“Sunnya”) extended, after Mr He and Ms Lu’s resignation as directors of Sunnya in November 2022, to preclude Mr He and Ms Lu from engaging in a business opportunity to sell Neurio branded products in China.

2   Her Honour erred in failing to find that Sunnya would contravene the law of the People’s Republic of China by exporting Neurio-branded products to China without the consent of the third defendant (“GABT”).

3   Her Honour erred in finding that Mr He and Ms Lu breached fiduciary obligations to Sunnya by diverting a business opportunity available to Sunnya to sell Neurio branded products in China, after the cooperation agreement between Sunnya and the third defendant (“GABT”) had been terminated in October 2022.

4   Her Honour erred in finding that Mr He and Ms Lu encouraged GABT to terminate the cooperation relationship with Sunnya.

5   Her Honour erred in finding that Mr He and Ms Lu should be restrained from taking steps to manufacture, market, sell, distribute or export any NRIO-branded product, or any other product that is to be sold to ultimate consumers in China in Neurio branded packaging, to or for any person other than Sunnya (or persons authorised thereby).” (footnotes omitted.)”

57. Dr Baron Levi, counsel for the He Parties, accepted in argument that a “significant amount” of the He Parties’ appeal turned on success under ground 4: Transcript, 25 November 2024, p13 lines 22-28. This concession reflected his argument that it was speculative for her Honour to have found that the He Parties encouraged GABT to terminate the cooperation relationship with Sunnya and that an equally available inference was that GABT reached this decision independently and without the encouragement of the He Parties and that, if this was the case, Sunnya would not have been able to pursue its business in China such that there was no business opportunity of Sunnya able to be diverted. As will be seen, the primary judge was correct in my view in holding that Mr He and Ms Lu encouraged GABT to terminate the cooperation relationship with Sunnya, and ground 4 must fail, and with it at least ground 3 and, as was implicit in the concession, ground 1 as well.

58. Ground 1 of the NZ Parties’ Appeal mirrored ground 3 of the He Parties’ Appeal and ground 3 of the NZ Parties’ appeal mirrored the He Parties’ appeal ground 5. The NZ Parties also raised two additional grounds of appeal:

“2   Her Honour erred in finding that the eighth and ninth defendants (‘Supermega and Megadairy’) knowingly assisted Mr He and Ms Lu’s dishonest and fraudulent breaches of fiduciary duty from December 2022 by contracting to supply and manufacturing NRIO branded sachets of formulated milk powder with the knowledge that those products would be marketed or sold in Neurio or NRIO tins in China. [emphasis added, footnote omitted.]

…

4   Her Honour erred in finding that the tenth defendant NZFDA:

(a)    knowingly assisted in Mr He and Ms Lu’s dishonest and fraudulent breaches of fiduciary duty; and

(b)    should be restrained from manufacturing marketing selling distributing or exporting NRIO branded products or products to be sold in China in Neurio branded packaging to any person other than Sunnya.”

Ground 4 of the He Parties’ Appeal

59. Given Dr Baron Levi’s concession as referred to in [57] above, it is convenient to commence with consideration of ground 4 of the He Parties’ appeal.

60. By this ground 4, the He Parties challenged the primary judge’s findings (at PJ [693], [708], [719] and [802]) that Mr He and Ms Lu had “encouraged”, and not merely “endorsed”, the termination of the cooperation agreement between Sunnya and GABT in relation to the use of the Chinese Neurio trade mark. As already noted, Dr Baron Levi accepted in the course of oral argument that each of the other grounds of appeal raised in the He Parties Appeal, with the exception of ground 5 challenging the extent of the restraints imposed on the He Parties, were contingent upon the success of ground 4.

61. At PJ [693], the primary judge held that:

“On the basis of the events that occurred in the ten days following the issue of the GABT Termination Notice…, I infer that it was Mr He who informed GABT about the EGM, the proposed resolutions, and that this would result in Mr He and Ms Lu no longer having effective control over Sunnya because the Jatcorp-nominated directors would be in a position to out-vote Mr He and Ms Lu when board decisions were put to a vote, and that Mr He then used his influence derived from his majority shareholding in GABT to encourage the issue of the GABT Termination Notice.” (emphasis added)

62. The He Parties did not dispute that it was Mr He who informed GABT as to the EGM and the proposed resolutions but contested the finding that Mr He informed GABT that the proposed resolutions “would result in Mr He and Ms Lu no longer having effective control over Sunnya”. It was put that this finding, although “only a small thing”, was “gratuitous and unfounded in circumstances where such a fact would be plain to any cogent reader of the notice”. This point may be put to one side as Dr Baron Levi, having raised it both in writing and oral argument, almost immediately volunteered that “in the end, nothing really turns on that contest”. I agree.

63. In relation to the primary judge’s finding that Mr He “used his influence derived from his majority shareholding in GABT to encourage the issue of the GABT Termination Notice”, the He Parties submitted that there was no evidence that GABT required any encouragement to issue the Termination Notice and that there was at least an equally compelling inference that GABT, upon learning about the EGM at which additional Jatcorp directors were to be appointed, independently took actions in its inherent commercial interests, and which were in the interest of its primary shareholder, Mr He, to terminate the cooperation agreement with Sunnya.

64. The forensic significance of GABT terminating the cooperation arrangement with Sunnya of its own accord, as it were, and without the encouragement of Mr He and his wife, was seemingly to found an argument that, without GABT’s cooperation, Sunnya would have had no opportunity in China to exploit and, thus, the He Parties could not be found liable for breach of fiduciary duty in pursuing such an opportunity other than through Sunnya. If, however, GABT was encouraged to the position it took by the He Parties, they could not rely on their later resignation as directors to bring an end to their fiduciary obligations to Sunnya. (This is why any success on ground 1 of the He Parties’ appeal is linked to success on ground 4).

65. Considerable time was spent in oral argument emphasising that, while the primary judge indicated in various paragraphs of her judgment that the He Parties had “encouraged” GABT to terminate the cooperation arrangement (see, for example, PJ [693]; [708]; [719]), at PJ [802], her Honour held that the He Parties “encouraged or endorsed” the sending of the Termination Notice which brought to an end the cooperation between Sunnya and GABT. Read as a whole, her Honour must be taken to have found that the He Parties encouraged GABT to send the Termination Notice. The primary judge said so expressly on no fewer than three occasions in her reasons. Her alternative use of the word “endorse” at PJ [802] does not, in context, imply approval after the event but, rather, approval in advance. Such submissions unduly sought to “read the reasons for judgment minutely, with an eye keenly fixed on minor textual variations which, if appearing in a statute, might carry significant weight”: M Leeming, Common Law, Equity and Statute: A Complex Entangled System (2023, Federation Press) at 90.

66. Further, her Honour’s conclusion that the He Parties encouraged GABT to issue the Termination Notice was based upon an inference which was open to her Honour and which, on a rehearing, is comfortably able to be drawn by this Court.

62. Mr He controlled 95% of GABT and was identified in a company extract as the “actual controlling person” of GABT: PJ [6]. GABT’s Executive Director was his brother-in-law, Mr Lu. Mr He and Mr Lu were signatories to the fabricated purported 2014 Trademark Registration Authorization Agreement which was attached to the Termination Notice. That fabricated document was expressly referred to in the Termination Notice and was designed fraudulently to provide GABT with authority to terminate GABT’s relationship with Sunnya: see [21]-[22] above. It is inconceivable that Mr He would have been a party to such a document without knowing why it was being brought into existence and the use intended to be made of it. Had he not approved of it and known and approved of its use, he would not have lent his signature to the document. As was submitted by Mr Foreman SC on behalf of Sunnya:

“There is no explanation from the He Parties as to how GABT is said to have independently decided to terminate (let alone were aware of) two non-existent agreements that had been invented by Mr He and Ms Lu to provide a false basis for Sunnya to transfer its Australian and New Zealand Neurio trademarks to GABT.”

In these circumstances, the inference drawn by her Honour, namely that Mr He encouraged the termination of the relationship between GABT and Sunnya by GABT notwithstanding that he was a director of Sunnya, was not only available but comfortably able to be drawn.

68. Mr He, moreover, as the 95% controlling shareholder in GABT, had the clear economic incentive to effect the termination of relations with Sunnya, especially in circumstances where it was he and his wife (Mr Lu’s sister) who had just lost management control of Sunnya. One would not expect a director of a company such as GABT to bring an existing, otherwise profitable relationship with Sunnya to an end without the encouragement or approval of its 95% shareholder. That was all the more so when that shareholder was his brother-in-law. This analysis is further strengthened when regard is had to GABT’s Articles of Association, to which the primary judge referred at PJ [176], including that:

“shareholders ‘[e]njoy the rights of asset income, participation in major decision-making, and selection of managers in accordance with the law’, the right to supervise the company’s business, operations and financial management, the right to determine (through the forum of the shareholders’ meeting) the company’s business policy, and investment plan, and the right to review and approve (through the shareholders’ meeting) the company’s annual financial budget, and final accounts. Shareholders are entitled to exercise voting rights at shareholders’ meetings in accordance with their capital contribution ratio.”

69. In written submissions, the He Parties contended that GABT “did not need Sunnya’s right to the trade marks in Australia and New Zealand, because the mark could be applied in China even if the product was manufactured in Australia”. This submission is entirely at odds with GABT’s attempts to have the Australian and New Zealand trade marks transferred to it, and the lengths that it went to, with the support of its dominant shareholder, Mr He, to fabricate agreements calculated to provide a basis for the demand for retransfer.

70. There was, with respect, a complete unreality to Dr Baron Levi’s submissions that Mr Lu, as the Executive Director of GABT, was acting quite independently of the He Parties and without receiving their encouragement as to the strategy put in place by the Termination Notice. That is in part illustrated by the fact that it was Ms Lu, and not her brother, who arranged the entry by GABT into the eleven contracts with Supermega between 31 October and 8 November 2022 to which the primary judge referred at PJ [708] (see [32] above), notwithstanding that she did not appear to hold any office in GABT. The volume of milk products the subject of these contracts was more than the total volume manufactured and exported under the six contracts entered into during the six-month period to September 2022: PJ [685].

71. Her Honour’s impugned conclusion challenged by ground 4 was also supported by the “events that occurred in the ten days following” the Termination Notice to which the primary judge referred at PJ [693] and which were in addition to what has been noted in the previous paragraph. These included Mr He’s failure to inform Jatcorp, or its nominee directors, of the Termination Notice (PJ [699]); the steps which he took to effect the transfers of trade marks (PJ [700]-[703]); his objection to bringing forward the EGM of Sunnya to 31 October (PJ [704]); and his informing Jatcorp’s directors of the Termination Notice only after the EGM was held on 31 October 2022: PJ [705].

72. I also accept Sunnya’s submission that drawing the inference that Mr He and Ms Lu encouraged the termination of the cooperation arrangement was consistent with and supported by the primary judge’s (unchallenged) finding that Mr He and Ms Lu had the intention and purpose of diverting to GABT Sunnya’s business of selling Australian and New Zealand-manufactured Neurio-branded products in China: PJ [708].

73. The inference which the primary judge drew, and which I would also draw, was able to be drawn more comfortably because of the failure of Mr He, Ms Lu and Mr Lu to give evidence: Jones v Dunkel at 308, 312, 320-321; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165]-[167], [232]; Jagatramka v Wollongong Coal Limited [2021] NSWCA 61 at [49]. I reject the submission that her Honour’s finding was speculative and that Sunnya did not establish it on the balance of probabilities.

74. The primary judge was justified in her conclusion at PJ [711] that:

“The fact that the cooperation relationship between Sunnya and GABT had already been terminated on 21 October 2022 does not assist Ms Lu and Mr He, in circumstances where Mr He (with the knowledge and encouragement or endorsement of Ms Lu) encouraged GABT to terminate that relationship as part of the same series of actions undertaken for the same improper purpose. In any event, the termination of the cooperation relationship did not entitle GABT to use Sunnya’s registered Neurio trade mark to manufacture Neurio-branded products in New Zealand for export to China.”

Her Honour was also justified in reaching the conclusions she did at PJ [802], which is extracted at [48] above.

75. It was also submitted orally on appeal that the Sunnya parties did not plead that the encouragement or termination of the cooperation agreement between Sunnya and GABT was a breach of fiduciary duty in relation to the Neurio/NRIO claim. This aspect of the argument can be dealt with briefly. By way of a Third Further Amended Statement of Claim filed on 1 November 2023, the Sunnya parties pleaded that:

“122A    On or about 21 October 2022 Mr He and/or Ms Lu directed, requested, encouraged or endorsed GABT:

a.   to purport to terminate each of the following purported agreements

i.   the purported 2014 Commission Agreement (being an agreement that Mr He, Ms Lu and GABT allege that, Mr He purported to enter into … on behalf [of] Sunnya with GABT on or about 16 December 2014 and entitled ‘Trademark Registration Commission Agreement’ which is denied by Sunnya),

ii.   the Purported 2014 Authorisation Agreement (being an agreement that Mr He, Ms Lu and GABT allege that, Mr He purported to enter into … on behalf [of] Sunnya with GABT on or about 16 December 2014 and entitled ‘Letter of Authorisation of Use of Trademarks’ and which is denied by Sunnya)

iii.   the Purported 2020 Commission Agreement (being an agreement that Mr He, Ms Lu and GABT allege that, Mr He purported to enter into … on behalf [of] Sunnya with GABT on or about 27 January 2020 and entitled ‘Trademark Registration Commission agreement’ and which is denied by Sunnya) and

iv.   the Purported 2020 Authorisation Agreement being an agreement that Mr He, Ms Lu and GABT allege that, Mr He purported to enter into … on behalf [of] Sunnya with GABT on or about 27 January 2020 and entitled ‘Letter of Authorisation of Use of Trademarks’ and which is denied by Sunnya),

b.   [to] demand that Sunnya to transfer all Neurio trade marks held by Sunnya to GABT.

122B   On or about 21 October 2022 GABT:

a.   purported to terminate the Purported 2014 Commission Agreement, the Purported 2014 Authorisation Agreement, the Purported 2020 Commission Agreement and the Purported 2020 Authorisation Agreement.

b.   purported to demand Sunnya to transfer all Neurio trade marks held by Sunnya to GABT.” (emphasis added)

76. The Sunnya Parties also pointed to the following passages of their pleadings:

“Mr He’s Breaches – Corporations Act

318   By virtue of the conduct of Mr He as pleaded in each of:

…

h1.    paragraphs 122A (purported trademark agreement termination);

…

Mr He:

n.    did not exercise his powers and discharge his duties as director of Sunnya in good faith in the best interests of Sunnya or for a proper purpose; and/or

o.    gained an advantage for someone other than Sunnya; and/or

p.    caused detriment to Sunnya.

…

Mr He’s Breaches – Fiduciary Duty

322    By virtue of the conduct of Mr He as pleaded in each of:

…

h1.    paragraphs 122A (purported trademark agreement termination);

…

Mr He:

n.    did not act in the interest of Sunnya; and/or

o.    pursued and/or obtained a benefit or advantage for someone other than Sunnya while occupying or acting in a position of conflict with his fiduciary duties to Sunnya; and/or

p.    made a profit for himself or someone other than Sunnya as a result of his fiduciary position in relation to Sunnya, or from an opportunity or knowledge resulting from that fiduciary position.

323    By virtue of each of the matters pleaded at each of paragraphs 322n to 322p, Mr He has breached the fiduciary duties owed by him to Sunnya as pleaded at paragraph 307.”

77. By way of their Defence filed on 22 November 2023, the He Parties denied paragraph 122A of the Third Further Amended Statement of Claim.

78. In my view, Mr He’s encouragement of GABT issuing its Termination Notice was sufficiently pleaded. Part of that Termination Notice included the purported termination of a suite of agreements which were signed by Mr He but found to have been fabricated.

79. Ground 4 of the He Parties’ appeal must be dismissed.

Grounds 1 and 3 of He Parties’ appeal and ground 1 of the NZ Parties’ appeal

80. These grounds can be treated together (as they were in written submissions) and with relative brevity by reason of the acceptance by Dr Baron Levi that success or failure in the appeal principally turned on achieving success under Ground 4 of the appeal which has been dealt with above.

81. Grounds 1 and 3 have been reproduced at [56] above. As noted at [3], it was not controversial that, as a matter of principle, a fiduciary’s obligations as a director of a company may continue post-resignation in certain circumstances. The issue was whether those circumstances existed in the present case. The primary judge held that they did and that the opportunity that the He Parties continued to pursue after their resignation as directors of Sunnya existed (and was being exploited by Sunnya) prior to their resignation. As such, their actions not only before their resignation but also after were held to amount to a breach of continuing fiduciary obligations, consistent with the principles closely associated with Canadian Aero.

82. These post-resignation activities relied upon by the primary judge, as identified by the He Parties in their submissions, included the following:

1. Ms He, acting at the request of her father, causing Sunlife to apply for the registration of the NRIO trade mark in Australia and in New Zealand on 25 November 2022 with Mr He carrying out some preparatory work for the applications to register the NRIO trade mark in Australia and New Zealand prior to 25 November 2022, including designing the NRIO logo;

2. Mr He and Ms Lu resigning as directors of Sunnya on 25 November 2022 in order to distance themselves from the company immediately before embarking on an endeavour to, inter alia, procure the manufacture of NRIO-branded products in New Zealand for the benefit of GABT, and allowing GABT in China to capitalise on the established Neurio brand, [that being the established business by which the Australian and New Zealand branded Neurio products were being imported into China];

3. During the period from at least 25 November 2022, GABT and Mr He and/or Ms Lu were in communication with one another about, and were aware of, and encouraged and endorsed, all of one another’s activities. The essential plan was that between them, they would hold the rights to use the NRIO trade mark for the manufacture of formulated milk powder products in Australia and New Zealand, and for the sale of those products in China where GABT would have the rights to both the Neurio and the NRIO trademarks, and that those products would be packaged, marketed and sold by GABT in China using the Neurio brand in conjunction with the NRIO brand. During that same period, the He Parties expressly or impliedly encouraged or endorsed GABT’s actions;

4. GABT applying to register the NRIO trade mark in China on 6 December 2022;

5. Ms Lu negotiating, on behalf of a Chinese company associated with GABT, the manufacture and supply of NRIO-branded sachets of formulated milk powder with lactoferrin on 7 December 2022 which were delivered before April 2023; and

6. In early April 2023, GABT publishing notices associating the Neurio and NRIO brands, as part of actively marketing Neurio/NRIO co-branded cans in China as a new or upgraded version of the Neurio brand of formulated milk powder products, and marketing itself as the company behind the “Australian Brand Neurio”. These cans were manufactured by Megadairy and supplied by Supermega.

83. In relation to this last matter, the primary judge referred to three notices extracted from the “corporate notices” tab of GABT’s website “neurio.com.cn” on 6 April 2023 and observed at PJ [359]:

“One notice relates to Neurio Blue products, one notice relates to Neurio Gold products, and one notice relates to Neurio White products. All notices bear a publication date of 4 April 2023. The home page of GABT’s website on which the notices were published states: ‘Welcome to the Official Website of the Australian Brand Neurio’. The images and text of the notice relating to Neurio Blue products are the same as in the notice published on the Tmall Supermarket platform referred to above. The notices relating to the Neurio Gold and White products are in similar terms to the notice relating to the Blue products. Those notices refer to the ‘upgrade’ of the Neurio trade mark to include the NRIO trade mark, state that ‘the new version and the old version will be dispatched randomly’ during ‘the transition period’, and state that the ‘new and old versions are genuine products of our company’. The images in those notices show the addition of the NRIO trade mark on the ‘new version’ of the tin, with the graphic design of the label otherwise appearing to be the same as the ‘old version’ of the tin. The ‘new version’ of the labels for each type of tin set out Megadairy’s name, address and manufacturer registration number where the ‘old version’ had contained Sunnya’s details as the supplier of the products. The notices depict the sachets placed inside each type of tin, with the ‘new’ sachets omitting the Neurio trade mark that appears prominently on the ‘old’ sachets. The ‘new’ sachets display only the NRIO trade mark, but have been enhanced with the same graphic design that appears on the ‘old’ and ‘new’ versions of the tins for the relevant type of Neurio product. For example, the Blue tin sachets bear the NRIO logo together with the same blue diamond-like pattern that is used on the Neurio Blue tin labels. The ‘new’ sachets for each type of tin have QR codes printed on them. The notices do not identify the distributor of the Neurio/NRIO-branded products in China.”

84. The essence of the He Parties’ argument under ground 1 was encapsulated in the following two paragraphs of the written submissions:

“Fundamental to the Primary Judge’s conception of the case was the existence of a ‘Plan A’, involving the transfer of Sunnya’s Australia and New Zealand Neurio trademarks to GABT, which failed, and a ‘Plan B’ (constituted by this claim) to divert to GABT Sunnya’s business of exporting and selling Neurio-branded products in China. The execution of ‘Plan B’ after the He Appellants resignation was said to be in breach of fiduciary obligations, by diverting the opportunity to GABT for their profit.

The fundamental difficulty with the Primary Judge’s analysis is that, whilst ‘Plan A’ may have been wrongful, ‘Plan B’ was an entirely lawful enterprise, involving the exploitation of GABT’s Chinese Neurio trademarks, which only it could exploit. In the circumstances, there was no opportunity open to Sunnya in relation to the sale of Neurio goods in China. Once the He Appellants resigned as directors, the scope of their fiduciary obligations did not extend over opportunities which it was impossible for Sunnya to exploit.”

85. This description of Plan B as “involving the exploitation of GABT’s Chinese Neurio trademarks” fundamentally under-describes the essence of the plan which her Honour found at PJ [795] was essentially a continuation of Plan A, albeit by different means and following the failure of Plan A as a result of the Court’s interlocutory orders requiring retransfer of the trademarks. The purpose of Plan A was to secure the transfer of the Australian and New Zealand Neurio trade marks from Sunnya so as to permit the He Parties, via GABT or other entities which they controlled, to use those trade marks to secure the benefits and opportunities which Sunnya had begun to exploit in China. That Plan B was a continuation of Plan A is highlighted by the matters the primary judge emphasised in PJ [359] extracted above at [83]. Plan B was not designed to embark on a “fresh initiative” in the sense used in some of the cases but rather was an attempt to exploit the opportunity that had been developed in China by Sunnya in the preceding years. As the primary judge held at [803]:

“Mr He and Ms Lu were able to pursue the business described above for GABT, for the ultimate benefit of themselves, by reason of their knowledge gained as directors of Sunnya of the terms on which Supermega and Megadairy manufactured and supplied Neurio products to Sunnya, their knowledge of the distribution channels and through which those products were marketed and sold in China, and their dealings with Sunnya’s distribution partners, or their oversight of the dealings with those distribution partners by Sunnya’s staff, during the period since at least October 2018. As I have found at [800] above, Mr He and Ms Lu resigned as directors of Sunnya for the very purpose of pursuing that business for GABT, for their own personal benefit. Contrary to the He Parties’ submissions, this was no fresh initiative in which Mr He and Ms Lu utilised their expertise to launch of an entirely new NRIO line of products. It is clear from the events that happened, and from the terms of GABT’s notice published on 22 April 2023 that the NRIO trade mark was only ever intended to be used in order to co-brand products sold to retail consumers with the Neurio brand. GABT’s notice, which is extracted at [375] above, stated that (emphasis added):

‘The owner of Niu Rui You Neurio brand will continue to grow the Niu Rui You brand with imported products in original packaging, and will never change its brand name.’” (emphasis in original)

86. Insofar as the He Parties submitted in writing that the scope of their fiduciary obligations did not extend over opportunities “which it was impossible for Sunnya to exploit”, it is well established that there may still be a breach of fiduciary obligations if the party or person to whom those obligations are owed is unable to exploit (or fully exploit) the opportunities in question: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408-409; [1929] HCA 24; Furs Ltd v Tomkies (1936) 54 CLR 583 at 592; [1936] HCA 3; Canadian Aero at 611; Warman International v Dwyer (1995) 182 CLR 544 at 558; [1995] HCA 18 (Warman); Addstead Pty Ltd (In Liq) v Liddan Pty Ltd (1997) 70 SASR 21 at 44, 59; (1997) 25 ACSR 175; Murdoch v Mudgee Dolomite & Lime Pty Ltd (In Liq) (2022) 398 ALR 658; [2022] NSWCA 12 at [112], [115]. Indeed, in oral submissions, Dr Baron Levi said:

“The He parties accept the proposition that where an opportunity falls within the scope of a director’s fiduciary obligations, the company’s inability to exploit an opportunity is irrelevant to the no profit or no conflict rules.”

87. For the above reasons, grounds 1 and 3 of the He Parties’ appeal must be dismissed as must ground 1 of the NZ Parties’ appeal.

Ground 2 of the He Parties’ Appeal

88. By ground 2 of their appeal, the He Parties submitted that the primary judge ought to have made a factual finding that Sunnya would contravene the law of the People’s Republic of China by exporting Neurio-branded products to China without the consent of GABT which was the owner of the Neurio trade marks in China.

89. This argument was not developed in oral submissions. The primary judge explained why it was not necessary to determine the issue (at least on the question of liability) at PJ [802], reproduced at [48] above. The ability or inability of Sunnya to continue to be able to exploit the corporate opportunity it was successfully exploiting in China prior to the breaches is legally irrelevant, as the primary judge held in accordance with the authorities collected in [86] above.

90. It follows that ground 2 of the He Parties’ Appeal must be dismissed.

Ground 5 of the He Parties’ Appeal

91. Ground 5 of the He Parties’ appeal was directed to the width of the injunctive relief granted by the primary judge in relation to the Neurio/NRIO claims. That relief was in the form of orders restraining Mr He and Ms Lu:

“from taking any steps to manufacture in Australia or New Zealand any other products that are to be sold to ultimate consumers in China in packaging bearing the Neurio brand, or to market, sell, distribute or export any such products, to or for any person other than Sunnya or persons authorised by Sunnya”.

92. The He Parties made three arguments in relation to the breadth of the injunctive relief ordered by the primary judge.

93. First, it was contended that the injunctive relief was overly broad in the sense that it would simultaneously compensate Sunnya for the loss of an opportunity which it was not possible in law for it to exploit and prohibit the He Parties from lawfully exploiting that opportunity. That argument is met by the principles and authorities set out in [86] above.

94. As submitted by the Sunnya Parties in response, there is no merit to the He Parties’ contention that the Sunnya Parties should not obtain the benefit of the injunctions as well as equitable compensation. The restraints were directed to the prevention of any prospective benefit to the He Parties associated with the breaches of their fiduciary duty while the order for equitable compensation was directed towards compensating the Sunnya Parties for the losses already incurred by Sunnya associated with the loss of its business of selling Australian and New Zealand Neurio-branded products into China.

95. Secondly, the He Parties contended that the injunctive relief granted by the primary judge failed to take into account the time period over which the restraint arising from the breach of fiduciary obligations operates. It was put that there was no basis for the indefinite time period of the restraint in circumstances where it had been several years since the relevant opportunity ceased to be available to Sunnya and since the He Parties had resigned.

96. In oral argument, Dr Baron Levi put that, in this respect, the Court ought to be guided by the principles that apply in terms of non-compete arrangements and that it is “very rare” that any restraint in that context would extend to a period of more than three years. Rather, he argued, any time limit affixed to the restraint ought to have already expired, or should expire in the next six months. The analogy with a contractual restraint is inapposite. The doctrines of equity properly insist upon a robust response to the violation of fiduciary obligations entailing a conflict of duty and interest, such as was found in the present case: Warman at 562-3. This was a clear case of a breach of continuing fiduciary duties and it was open to the primary judge to exercise her discretion in formulating the injunctive relief in the way she did.

97. Further, given that the precise quantification of equitable compensation to be paid by the He Parties is to be addressed at the quantification stage of the proceedings, subject to an election being made between equitable compensation and an account of profits, the Sunnya Parties submitted that, in circumstances where there is no evidential foundation for a finding that the He Parties will in fact pay any equitable compensation, the restraints ordered by the primary judge should not be temporally limited.

98. Thirdly, the He Parties submitted that the orders made by the primary judge have the effect of restraining the He Parties from involvement in the manufacture of generic products in Australia and New Zealand where the Neurio trade mark is affixed, with GABT’s consent, in China. It was put that there would be nothing unlawful about that conduct and it should not have been the subject of a restraint.

99. Mr Foreman submitted in response that Sunnya’s business was, relevantly, the sale of Australian or New Zealand manufactured Neurio-branded products in China and that the breaches of fiduciary duties by the He Parties were not just the affixing of the Sunnya-owned Australian and New Zealand Neurio trade marks to the product which was exported to China but, rather, the use of the NRIO trade mark, in conjunction with the Chinese Neurio trade mark, to establish themselves as the Australian brand Neurio, thereby circumventing the protections afforded to Sunnya by its interest in the Australian and New Zealand Neurio trade marks and misappropriating Sunnya’s business.

100. It was put that, notwithstanding the fact that the Neurio trade marks in China were owned by GABT, the conduct of the He Parties, particularly in circumstances where they had made a contractual promise by way of cl 4.2(a) of the SPA to carry on Sunnya’s business, meant they had forfeited the right to market anything as associated with the Neurio brand which was manufactured in Australia or New Zealand because, as evidenced by the marketing materials associated with the products, the place of manufacture was an integral part of Sunnya’s business.

101. It was also put by the Sunnya Parties that, in a practical sense, in so far as submissions were made that the He Parties should be entitled to assist GABT in asserting its intellectual property rights in China, GABT had not sought to enforce those rights by appealing against the orders restraining it from “taking any steps to manufacture any NRIO-branded products in Australia or New Zealand, or to market, sell, distribute or export any such products” and from “taking any steps to manufacture in Australia or New Zealand any other products that are to be sold to ultimate consumers in China in packaging bearing the Neurio brand, or to market, sell, distribute or export any such products, to or for any person other than Sunnya”.

102. By way of reply, the He Parties submitted that this did not account for the fact that GABT may, at some point in the future, seek a variation or setting aside of the restraints imposed on it. This last submission raised a hypothetical matter which is inconsistent with GABT’s evident lack of interest or involvement in the appeal. Were the hypothesis to materialise, any material change of circumstances may provide a basis for the He Parties to seek a variation of the injunctive relief granted. But for the reasons advanced by Mr Foreman on behalf of Sunnya and set out above, I am not convinced that the injunctive orders formulated by the primary judge and challenged in Ground 5 of the He Parties’ appeal were unreasonably or illegitimately broad. That ground of appeal should be rejected.

Ground 3 of the NZ Parties’ Appeal

103. Ground 3 of the NZ Parties’ Appeal was also concerned with the breadth of the injunctions ordered by the primary judge in relation to the Neurio/NRIO claims and was largely equivalent to ground 5 of the He Parties’ appeal.

104. Like the He Parties, the NZ Parties contended that the injunctions restraining Supermega and Megadairy were excessively broad in that they would prevent the sale of generic milk powder sachets to a purchaser (including GABT or the He Parties) in China to be placed in Neurio-branded cans. It was put that the manufacture of generic, unbranded product in New Zealand for ultimate sale in China in Neurio-branded cans would “involve nothing more than the exercise of the rights held by the NZ Parties and the rights of the registered owner of the Chinese Neurio trademarks.” The NZ Parties argued that the effect of the injunctions made by the primary judge was to confer “upon Sunnya legal protection over the Chinese Neurio trademarks which Sunnya had not secured by commercial dealing”.

105. I do not agree. This submission ignores the context of the impugned conduct in relation to which the NZ Parties were held to have been accessorially liable.

106. The injunctive relief ordered against the NZ Parties did not interfere with the rights of the registered owner of the Chinese Neurio trademarks and any such interference, in any event, was not a matter for the NZ Parties to agitate. Nor did the injunctions restrain the manufacture of generic, unbranded product in New Zealand by the NZ Parties provided it was unassociated with the Neurio brand that had been developed by Sunnya but in effect misappropriated by the He Parties with the knowing assistance of the NZ Parties.

107. As with ground 5 of the He Parties’ Appeal, ground 3 of the NZ Parties’ Appeal must fail.

Ground 2 of the NZ Parties’ Appeal

108. Ground 2 of the NZ Parties’ Appeal has been set out at [56] above. It was the subject of relatively brief written submissions in chief filed by Mr Gronow KC on behalf of the NZ Parties before he and his juniors withdrew from the case shortly before the hearing of the appeal. The thrust of those submissions on this ground of appeal was that, although it was accepted that, by April 2023, the NZ Parties, through Mr Wu, had sufficient knowledge for the purpose of the NZ Parties’ accessorial liability, there was insufficient evidence to justify the primary judge’s conclusion as to the requisite degree of knowledge from December 2022.

109. The primary judge’s findings in relation to Mr Wu’s knowledge in the context of the findings of the accessorial liability of the NZ Parties have been set out at [50] above. The individual matters of which Mr Wu was found to have been aware and upon which the primary judge drew to found her ultimate conclusion on accessorial liability were not the subject of individual challenge by the NZ Parties in their written or oral submissions. Nor, it should be observed, was there any challenge to the primary judge’s strong conclusion that Mr Wu was not a credible witness.

110. The NZ Parties’ submissions in support of this ground of appeal were flawed insofar as they asserted that the primary judge’s inference as to Mr Wu’s knowledge was drawn from a more limited set of circumstances than had in fact been relied upon by the primary judge, as pointed out by Sunnya in its written submissions. The primary judge’s reference to the requisite knowledge existing from December 2022 (as opposed to April 2023) was tied to the fact that it was in December 2022 that Mr Wu negotiated two contracts for the supply of NRIO-branded sachets to Shanghai Gainful. Her Honour’s findings as to Mr Wu’s knowledge were based in part on her assessment of Mr Wu’s prior dealings with the He Parties and Sunnya, a matter she dealt with in [792] of the primary judgment:

“The following circumstances give rise to an inference on the balance of probabilities that Mr Wu had actual knowledge of those matters by the time Supermega entered into the two contracts with Shangai Gainful on 7 December 2022, and I so find. Sunnya’s solicitors had written to Supermega on 15 November 2022 stating that Mr He and Ms Lu were no longer authorised to deal with Sunnya’s assets, make payments out of Sunnya’s bank accounts, or enter into any binding agreements on behalf of Sunnya. Prior to receiving that letter, Supermega had frequently dealt with Ms Lu in negotiating contracts with Sunnya for the manufacture and supply of Neurio products. It is therefore inherently likely that, on receipt of the 15 November 2022 letter, Mr Wu made some inquiries with Mr He and Ms Lu in order to ascertain whether or how the instructions set out in the letter were likely to affect the business of Supermega and its related manufacturing entity Megadairy. By 18 November 2022, Mr Wu had made a decision not to accept any further orders from Sunnya. Mr Wu’s reasons for that decision communicated to Mr Wang at the time – namely, that Sunnya was too busy, and that Mr Wu feared accidentally disclosing to Sunnya or to GABT confidential information belonging to the other – are implausible given that Supermega entered into new contracts with GNT for the manufacture and supply of Neurio products from 7 December 2022. These matters, together with the terms of the email that Mr Wu sent to Mr Wang on 18 November 2022 stating that he had a ‘rough knowledge of the bigger changes of people inside your company and such changes remain to be there’ (my emphasis), give rise to an inference that Ms Lu had conveyed to Mr Wu on or about 18 November 2022 sufficient information for Mr Wu to have formed the view that his business interests would be better served going forward by manufacturing Neurio products for GABT, which owned the trade marks in China, rather than for Sunnya. Given that Mr Wu was aware that Neurio products could not be manufactured in New Zealand without the consent of Sunnya as the registered trade mark owner, that, gives rise to a further inference that Mr Wu was aware on or about 18 November 2022 that Mr He and Ms Lu were working to circumvent the requirement for Sunnya’s consent. That is because, as at 18 November 2022, Mr Wu and his companies did not have Sunnya’s consent to manufacture Neurio-branded products in New Zealand for anyone other than Sunnya. I have rejected Mr Wu’s evidence that he had Sunnya’s consent in the form of the Production Sales and Confidentiality Agreement purportedly dated 9 June 2015 and the Brand OEM Authorized Letter purportedly dated 8 July 2019. I have found that those documents, and the emails by which Mr Wu claims to have received them, were fabricated by or at the direction of Mr Wu for the purpose of the NZ Parties’ defence of the Sunnya proceedings, and that Mr Wu gave false evidence in relation to those documents and emails. From 15 November 2022, Mr Wu knew that Sunnya claimed to have revoked the authority of Mr He and Ms Lu to deal with Sunnya’s assets or funds, or to enter into any binding agreement on behalf of Sunnya. From 1 December 2022, Mr Wu knew that Mr He and Ms Lu had resigned as directors of Sunnya and had no authority to deal with Sunnya’s assets, including by consenting to the use of its trade marks. The mere fact of Ms Lu’s involvement in the negotiation of any sales contracts that would involve the use of the Neurio trade mark was no longer capable of conveying to Mr Wu that Sunnya consented to that use of its trade mark. Mr Wu knew that Mr He had arranged for Ms He to cause Sunlife to register the NRIO Trade mark in Australia and New Zealand. It is inherently likely that, in the course of negotiating the contracts for the supply of NRIO-branded sachets with Ms Lu on or about 6 December 2022, Mr Wu was told that Sunlife had applied to register the NRIO trade mark in New Zealand with a view to ordering sachets to be manufactured by Supermega and Megadairy that would be exported to China without tins – a departure from previous practice which Ms Lu emphasised in negotiating the price with Mr Wu – and that those sachets would then be placed in Neurio-branded tins in China where GABT was the registered owner of the Neurio trade marks. That is inherently probable because, unless such information had been provided to Mr Wu at that time, there was an obvious risk for Mr He and Ms Lu that Mr Wu would not have seen any reason to cease supplying Neurio products to Sunnya. Continued supply of those products to Sunnya by Supermega and Megadairy would have interfered with Plan B.”

111. This passage makes it abundantly clear that Mr Wu was cognisant of the developments that had been taking place during November 2022 in relation to the control of Sunnya including the commencement of these proceedings at first instance and the allegations made therein. The unchallenged findings as to Mr Wu’s dishonest evidence with regard to the state of his knowledge and his participation in the fabrication of documents for the purposes of the proceedings, as referred to in PJ [792], allowed the primary judge more comfortably to draw the inference she did as to Mr Wu, and therefore the NZ Parties’ knowledge for the purposes of her finding of accessorial liability and the time by which that knowledge was acquired.

112. Her Honour was justified in finding that Mr Wu and thus the NZ Parties held the requisite knowledge for the purposes of Barnes v Addy liability from December 2022. Ground 2 of the NZ Parties’ Appeal should be dismissed.

Ground 4 of the NZ Parties’ Appeal

113. This ground (see [56] above) is a narrow one and relates to orders 49 and 50 which were to the effect that:

“(49)   ORDER that the tenth defendant [NZFDA Ltd] is restrained from taking any steps to manufacture, market, sell, distribute or export, or to permit the manufacturing, marketing, sale, distribution or export, of any NRIO-branded products.

(50)   ORDER that the tenth defendant is restrained from taking any steps to manufacture, market, sell, distribute or export, or to permit the manufacturing, marketing, sale, distribution or export, of any other products that are to be sold to ultimate consumers in China in packaging bearing the Neurio brand, to or for any person other than the first plaintiff or persons authorised by the first plaintiff.”

114. No argument was developed on behalf of NZFDA by way of challenge to order 48 to the effect that NZFDA was knowingly concerned in the breaches of fiduciary duty of Mr He and Ms Lu in the period from 31 March 2023 by holding the New Zealand registered NRIO trade mark from that date: see [9] above.

115. The essence of NZFDA’s argument on appeal was that order 48 provided no foundation for the injunctive relief formulated in orders 49 and 50 because NZFDA did not manufacture, market, sell, distribute or export anything, nor permit any such thing to occur, and that there was no evidence to suggest that NZFDA might do so in future.

116. Her Honour’s justification for orders 49 and 50 derived from NZFDA’s holding of the NRIO trade mark and was explained in PJ [846] by reference to her Honour’s assessment as to the existence of:

“a risk that NZFDA or such authorised parties would permit the New Zealand NRIO trade mark to be used in the manufacture of NRIO branded products in New Zealand, or in the marketing, sale, distribution, or export of such products, if not restrained permanently from doing so, and that such products would be marketed and sold in China in conjunction with the Neurio brand. This would, in substance, provide further assistance to Mr He and Ms Lu's dishonest and fraudulent scheme. There is no evidence, and nor did the NZ Parties submit, that the NRIO brand has ever been used other than for the manufacture, export, marketing and sale in China of formulated milk powder sachets in tins bearing the Neurio brand.”

117. On this footing, and contrary to NZFDA’s submission, it is not to the point that there was no evidence that NZFDA manufactured, marketed, sold, distributed or exported anything. Her Honour’s concern, in light of her adverse findings as to the knowing assistance that NZFDA had afforded to Mr He and Ms Lu, was that there was a risk that it, as the holder of the New Zealand NRIO trade mark, would permit it to be used in the manufacturing, marketing etc of product for ultimate sale in China. In view of the findings as to Mr Wu’s knowledge and his willingness to engage in false testimony in support of not only the defence of the NZ Parties’ position but also, in substance, the defence of Mr He and Ms Lu, the primary judge was entirely justified in assessing the existence of a risk that was addressed by the injunctive relief reflected in orders 49 and 50.

117. It follows that ground 4 of the NZ Parties’ appeal should also be dismissed.

Costs

119. In both appeals, costs should follow the event.

Orders

120. I would propose that the following orders be made:

Proceeding 2024/171961 (He Parties’ Appeal):

1. Appeal dismissed.

2. The Appellants pay the First and Second Respondents’ costs.

Proceeding 2024/161624 (NZ Parties’ Appeal):

1. Appeal dismissed.

2. The Appellants pay the First and Second Respondents’ costs.

   121. LEEMING JA: I agree with the Chief Justice.

   122. BASTEN AJA: I agree with Bell CJ.

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Amendments

24 April 2025 - Amendment made to coversheet only, to include M R Davis as one of the counsel for the First and Second Respondents.

Decision last updated: 24 April 2025