Jiangsu Lianguan Zhaoxing Petrochemical Science and Technology Co Ltd v Wu

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S CI 2017 02422

JIANGSU LIANGUAN ZHAOXING PETROCHEMICAL SCIENCE AND TECHNOLOGY CO LTD	Plaintiff
v
LEI (MICHAEL) WU	First Defendant
NEVILLE MISSEN	Second Defendant

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JUDGE:	McDonald J
WHERE HELD:	Melbourne
DATE OF HEARING:	24, 26, 31 August 2020; 17–18 September 2020; 5–9, 12–16, 19–21 October 2020; 10, 18 November 2020
DATE OF JUDGMENT:	5 May 2021
CASE MAY BE CITED AS:	Jiangsu Lianguan Zhaoxing Petrochemical Science and Technology Co Ltd v Wu & Anor
MEDIUM NEUTRAL CITATION:	[2021] VSC 228

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TRADE PRACTICES — Misleading and deceptive conduct — First defendant made false representations regarding the opportunity for the plaintiff to supply large quantities of pipes to Australian companies — First defendant knew that the representations were false and intended the plaintiff to act in reliance upon representations — No reasonable grounds for making representations — First defendant engaged in fraudulent conduct by forging 13 documents — First defendant not entitled to an order apportioning liability for damages with second defendant — Competition and Consumer Act 2010 (Cth) ss 87CC, 87CD — Australian Consumer Law ss 4, 18, 236.

DECEIT — First defendant made representations knowing they were false and intending the plaintiff to rely upon them — Plaintiff suffered loss and damage acting in reliance on representations — First defendant not entitled to an order apportioning liability under Part IVAA Wrongs Act — Wrongs Act ss 24AF, 24AH, 24AI, 24AM.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr C Shaw SC and Mr P Reynolds	Norton Rose Fulbright Aust
For the First Defendant	Mr T Alexander and Mr H Kirimof	Hiways Lawyers
For the Second Defendant	No appearance

HIS HONOUR:

Introduction

The plaintiff (‘JLZ’) is a Chinese company established on 28 January 2016. It is a manufacturer of plastic pipes used for sewerage and high voltage transmission. Between 20 July 2016 and 28 October 2016 JLZ transferred USD$1.5 million into the bank account of a Hong Kong registered company, Star Energy and Resources Ltd (‘Star Energy HK’). Prior to June 2016 the sole shareholders and directors of this company were the defendants. On 12 July 2016 JLZ acquired 50 per cent of the shares in Star Energy HK for HKD$5,000. In late 2016 JLZ manufactured 85.76 kilometres of pipes at the request of the first defendant, Lei (Michael) Wu (‘Mr Wu’).

JLZ claims damages against the defendants for misleading and deceptive conduct in contravention of s 18 of the Competition and Consumer Act 2010 (Cth) sch 2 (‘ACL’) and in the tort of deceit. JLZ relies on five representations which it contends Mr Wu made to representatives of JLZ. JLZ contends that in reliance upon the representations it transferred USD$1.5 million to Star Energy HK and manufactured 85.76 kilometres of pipes. JLZ claims damages totalling USD$2,164,352 comprising the USD$1.5 million transferred to Star Energy HK and USD$664,352 being the cost of production of 85.76 kilometres of pipes. JLZ also claims AUD$44,000 which it transferred to Star Energy HK for the purposes of obtaining Australian Standards Certification for the pipes that it manufactured.

It is common ground that JLZ paid Star Energy HK USD$1.5 million and manufactured pipes at least in partial reliance upon representations made to it by Mr Wu. These representations related to the ‘Australian Project’: an opportunity to secure orders from two Australian companies, Mayberry Constructions Pty Ltd (‘Mayberry’) and Oz Civil Australia Pty Ltd (‘Oz Civil’) for the manufacture and supply of pipes worth hundreds of millions of dollars.

The second defendant, Neville Missen (‘Mr Missen’), did not enter an appearance and played no role in the proceeding. He was served with a third party notice on 10 August 2018 and an amended third party notice on 22 March 2019. He was joined as second defendant on 31 October 2019. On 12 December 2019 Robson J granted JLZ leave to proceed against Mr Missen pursuant to r 7.07 of the Supreme Court (General Civil Procedure) Rules2015. JLZ is entitled to judgment against Mr Missen in default of appearance in the same sum that it seeks against Mr Wu: USD$2,164,352 and AUD$44,000.

Mr Wu advanced two principal defences in response to JLZ’s claims. First, he contends that JLZ transferred USD$1.5 million into the account of Star Energy HK as payment for 50 per cent of the shares in Star Energy HK. Mr Wu contends that as the funds were for the purchase of shares which he owned the money was his to spend as he pleased. Further, he submits that JLZ received the shares which it paid for and has therefore not suffered any compensable loss. I reject this defence. There was no agreement with JLZ to purchase 50 per cent of the shares in Star Energy HK for USD$1.5 million. Even if there had been such an agreement, JLZ paid USD$1.5 million in reliance upon Mr Wu’s misrepresentations regarding the size and profitability of the Australian Project. Further, the shares acquired by JLZ were of little to no value.

Second, Mr Wu contends that representations which he made to JLZ were as to future matters and that he had reasonable grounds for making the representations. I reject this contention. Mr Wu had no reasonable basis for believing that the Australian Project would generate demand for millions of dollars’ worth of pipe orders at a profit margin of 35 per cent. Further, irrespective of whether the representations were with respect to future matters, they were misleading and were relied upon by JLZ resulting in loss. JLZ’s claim under ss 18 and 236 of the ACL is made out. Further, Mr Wu’s conduct in making the representations relied upon by JLZ was fraudulent. JLZ has established an entitlement for damages under the tort of deceit.

By reason of his fraudulent conduct Mr Wu is not entitled to an order under Pt VIA of the Competition and Consumer Act 2010 (Cth) apportioning liability for damages under s 236 of the ACL, as between himself and Mr Missen. Further, by reason of his fraudulent conduct Mr Wu is not entitled to an order apportioning liability under Part IVAA of the Wrongs Act 1958 (‘Wrongs Act’).

Background

JLZ was established on 28 January 2016. Since 28 March 2016, its shareholders have been:

(a) Jiangsu Lianguan High-Tech Co Ltd (‘LHT’), which holds a 37 per cent share;

(b) Yangzhou Zhaoxing Technology Ltd (‘Yangzhou Zhaoxing’), which holds a 28 per cent share; and

(c) Changzhou Highway Transportation Group Ltd (‘Changzhou Group’), which holds a 35 per cent share.

Xuexiang Huang (‘Mr Huang’) was the Chairman of JLZ from its incorporation. Zhengyuan Cao (‘Mr Cao’) has been the Chairman of Yangzhou Zhaoxing since 2000. He was appointed general manager of JLZ in September 2016. Xing Xie (‘Mr Xie’) has been a director of JLZ since March 2016. He is also Chairman and general manager of the Changzhou Group, a position he has held since 2000. Messrs Huang, Cao and Xie represented JLZ in a series of meetings attended by Mr Wu during which the representations which underpin JLZ’s claim were made.

The following matters are not in dispute. They are derived from the written submissions filed on behalf of Mr Wu on 2 November 2020. Mr Wu arrived in Australia in 2010 and immediately commenced searching for business opportunities. In 2012 he was introduced to Mr Missen, an engineer, by a mutual friend. He was told that Mr Missen managed a company called Boretec. Mr Wu and Mr Missen’s initial meeting concerned the ‘Arrow Project’, a proposed joint venture between Chinese and Australian companies. Mr Wu was interested in the prospect of assisting Mr Missen to secure USD$100 million in finance for the project from investors in China. Mr Wu and Mr Missen initially decided to incorporate a company as a ‘vehicle’ to obtain the necessary finance for the Arrow Project. To this end, Star Energy Australia Pty Ltd was incorporated on 12 April 2012. Mr Missen failed to provide the necessary documentation relating to the Arrow Project for Mr Wu to present to prospective investors in China, and as a result the project never came to fruition.

In September 2012 Mr Missen introduced Mr Wu to Ken Basso (‘Mr Basso’), and his partners Marcus Wade and William Beale. Mr Basso is the sole director and shareholder of Oz Bore Australia Pty Ltd (‘Oz Bore’) and was formerly a director of Oz Civil. Oz Civil was formed in 2013 with Mr Basso as a director and shareholder along with William Beale and Marcus Wade. At this first meeting, Mr Wu was informed of another potential project, the ‘Capricorn Project’. This project similarly stalled. Star Energy Australia did not engage in any further business projects until 2015.

In early 2015 Mr Wu had a further meeting with Messrs Missen and Basso at a café in Glen Waverley, Mocha Jo’s, to discuss a bushfire relief project involving Australian companies SP AusNet (‘AusNet’) and Mayberry. In early 2015 Mayberry specialised in the installation and repair of underground electrical cabling. The sole director and shareholder of the company was Clint Mayberry (‘Mr Mayberry’).

Mr Wu and Mr Basso gave differing accounts of the meeting at Mocha Jo’s. Mr Wu gave evidence that Mr Basso told him that AusNet and Mayberry had signed a contract for either AUD$220 million or AUD$250 million to perform work that required 2,000 kilometres of pipes. Mr Wu gave evidence that Mr Basso told him that in order for Star Energy Australia to become involved in the project it would be necessary to purchase a controlling interest in Mayberry and Oz Civil. I shall address the disputed account of this meeting later in this judgment. For present purposes it is sufficient to record that it is not in dispute that the meeting did take place and that there was a discussion between Mr Wu and Mr Basso about projects requiring the supply of pipes.

In March 2015 Mr Wu contacted a childhood friend, Jun (Val) Yao (‘Mr Yao’), the general manager of the Changzhou branch of the East Asia Bank in China, seeking to secure finance for a proposed loan of USD$28 million for the purpose of investment in Mayberry and Oz Civil.[1] Mr Wu’s original proposal was for LHT to become a guarantor for the loan to Star Energy HK. However, LHT lacked the requisite capital and was unable to satisfy the Chinese government’s foreign investment regulations.[2] In early April 2015 Mr Yao travelled to Melbourne to meet with Messrs Wu, Missen and Basso to discuss financing.[3] The East Asia Bank was unable to provide the loan because it could not issue loans to overseas companies. The bank recommended that Mr Wu and Mr Missen incorporate a company in Hong Kong and seek financing from third party investors.[4] Star Energy HK was incorporated for this purpose.
[1]Transcript of Proceedings, T 1043 L 10 (14 October 2020).
[2]Transcript of Proceedings, T 628 L 16–20 (7 October 2020).
[3]First Defendant, ‘Written Submissions for Wu’, 2 November 2020 [32].
[4]Transcript of Proceedings, T 1044 L 20–2 (14 October 2020).

Mr Huang was introduced to Mr Wu sometime prior to October 2015.[5] Mr Wu told Mr Huang that there were business opportunities in Australia for burying pipes in the ground. Mr Wu said that there was a particular project in Queensland involving the burying of cables underground. Mr Wu said that there were large projects, but that he lacked money, and he was hoping to work together. He said that in Australia the way to do business was to buy equity in a company to get rights of procurement.[6]
[5]Transcript of Proceedings, T 570 L 7–31, T 571 L 1–17 (6 October 2020).
[6]Transcript of Proceedings, T 571 L 18–31, T 572 L 1–11 (6 October 2020).

First Representations: 15 November 2015 Meeting

On 15 November 2015 Mr Wu and Mr Missen met with Mr Huang in Hong Kong. Mr Huang’s impression following this meeting was that Mr Wu’s role was to create a network of contacts in order to facilitate co-operation while Mr Missen would use his experience as an engineer to facilitate the technical side of the project.[7]
[7]Transcript of Proceedings, T 577 L 25–7 (6 October 2020).

Mr Huang gave evidence, which I accept, that during the 15 November 2015 meeting Mr Wu told Mr Huang that if they were able to secure a deal, Mr Huang’s company, LHT, would be able to provide pipes.[8] Mr Wu said the pricing for the pipes was very attractive and that the profit margin for the pipes would be very large.[9] Mr Wu proposed that he would get orders from the target companies and then send them on to a company in Hong Kong, ‘Star Energy’, which he and Mr Missen owned.[10] Mr Wu said that the purpose of that company was to avoid paying tax.[11]
[8]Transcript of Proceedings, T 576 L 1–31, T 577 L 1–27 (6 October 2020).
[9]Ibid.
[10]Ibid.
[11]Ibid.

In his further amended defence, Mr Wu admits that during the November 2015 meeting:

(a) he and Mr Missen represented to the plaintiff that Mr Missen on behalf of Star Energy HK would procure orders for pipe products from customers;

(b) Mr Wu or Mr Missen on behalf of Star Energy HK would enter into an agreement to purchase pipe products from LHT;

(c) Mr Huang on behalf of LHT represented that LHT would supply pipe products to Star Energy HK; and

(d) Mr Wu or Mr Missen on behalf of Star Energy HK represented that Star Energy HK would pay LHT for the pipe products.[12]

[12]First Defendant, ’Further Amended Defence’, 16 November 2018 [5].

The representations which are the subject of the admissions set out above are pleaded in the plaintiff’s amended statement of claim as ‘the first representations’.

On 24 December 2015 there was a meeting at Hong Kong Airport. The meeting was attended by Messrs Huang, Xie, Dahui Sun (‘Mr Sun’) and Lily Huang (‘Ms Huang’) and Messrs Wu, Missen and Yao.[13] During the meeting there was discussion of the Australian Project. Mr Missen showed the other parties details of pipe projects on his computer. Mr Missen returned home to Australia following the first day of the meeting as he was eager to be home for Christmas. That evening and the following day there were ongoing discussions regarding the Australian Project with Mr Wu. At the conclusion of the meeting Mr Wu invited Messrs Huang and Xie to visit Australia to examine the project. Mr Wu does not dispute this account of the meeting, but says the meeting occurred on 4 February 2016.[14]
[13]Transcript of Proceedings, T 446 L 27–31, T 447 L 1–27 (18 September 2020); T 706 L 18–28, T 726 L 5–13 (8 October 2020).
[14]Transcript of Proceedings, T 1073 L 15–26 (14 October 2020).

On 20 March 2016 Messrs Cao, Xie, Huang, Xiaoyu Qian (‘Mr Qian’) (an interpreter) and Liangbao Wang, a party secretary for the Changzhou Group, travelled to Australia.[15] They were met at Melbourne Airport by Messrs Wu, Missen and Basso and Ms Jiaen (Esther) Liang (‘Ms Liang’), Mr Wu’s domestic partner. The parties attended a site which had been affected by a bushfire where fibre optic cables were being laid.[16] They also met Mr Yao, who told them he could assist with foreign exchange and financing. He told them he was a childhood friend of Mr Wu. The parties were taken to a nearby construction site, which they were told was a construction site for Mayberry and Oz Civil. They asked to attend Mayberry’s office but were told by Mr Wu that they were unable to do so.[17]
[15]Transcript of Proceedings, T 167 L 20–30 (28 August 2020); T 453 L 28–30 (5 October 2020).
[16]Transcript of Proceedings, T 169 L 17–20 (28 August 2020); T 456 L 6–22 (5 October 2020); T 585 L 1–28 (6 October 2020).
[17]Transcript of Proceedings, T 169 L 17–20 (28 August 2020); T 456 L 6–22 (5 October 2020); T 585 L 1–28 (6 October 2020).

At the site where the fibre optic cable was being laid, they saw workers drilling holes and putting cable through the pipes.[18] They also visited two companies. One of the companies was a water company, where a presentation was given and interpreted by Mr Qian, with occasional help from Mr Wu.[19] Mr Wu stated that the market for pipe products in Australia was very big and that the two companies he worked with, Mayberry and Oz Civil, had a lot of orders from the government.[20] At the end of the trip Mr Qian produced a report, ‘The Australian Investigation Report’, which was amended by Mr Wu.[21]
[18]Transcript of Proceedings, T 169 L 26–8 (28 August 2020).
[19]Transcript of Proceedings, T 169 L 31, T 170 L 1–31, T 171 L 1–6 (28 August 2020).
[20]Transcript of Proceedings, T 171 L 18–22 (28 August 2020); T 258 L 22–31, T 259 L 1–27 (31 August 2020); T 455 L 15–31, T 456 L 1–5 (5 October 2020).
[21]CB784; Transcript of Proceedings, T 172 L 10–16 (28 August 2020); T 586 L 3–31, T 587 L 1 (6 October 2020); T 753 L 5–11 (9 October 2020).

After the Australian trip, JLZ’s shareholders held a meeting.[22] It was agreed that there was a genuine project in Australia.[23] It was also agreed that Mr Xie’s company Changzhou Group would contribute RMB$15 million by way of a loan to JLZ.[24]
[22]Transcript of Proceedings, T 172 L 18–19 (28 August 2020).
[23]Transcript of Proceedings, T 172 L 22–3 (28 August 2020).
[24]Transcript of Proceedings, T 172 L 29–31, T 173 L 1–2 (28 August 2020); T 508 L 25–31, T 509 L 1 (5 October 2020).

On 12 April 2016 there was a further meeting in Hong Kong attended by Messrs Huang, Qian, Wu and Missen. Mr Huang gave evidence, which I accept, that at the meeting, it was agreed that JLZ would send USD$1 million to Star Energy HK to progress the Australian Project and invest in the two target companies, Mayberry and Oz Civil.[25]
[25]Transcript of Proceedings, T 602 L 13–31, T 603 L 1–14 (7 October 2020).

In order to circumvent foreign currency regulations, it was agreed that the Chinese parties would send USD$1 million in the form of a performance bond.[26] Mr Wu said that the money had to go through Star Energy HK. He said that the money would be returned within 18 months.[27] Although the agreed amount was initially USD$1 million the amount was subsequently changed to USD$200,000. This amount was ultimately sent to Star Energy HK by LHT.[28] Minutes of the meeting of 12 April 2016 were signed by Mr Wu.[29]
[26]Transcript of Proceedings, T 603 L 15–31, T 604 L 1–6 (7 October 2020).
[27]Transcript of Proceedings, T 604 L 15–31, T 605 L 1–16 (7 October 2020).
[28]Transcript of Proceedings, T 606 L 7–21 (7 October 2020).
[29]CB792; Transcript of Proceedings, T 604 L 7–14 (7 October 2020).

In addition to the minutes of the meeting of 12 April 2016, a further document entitled ‘Additional Remarks’ was prepared.[30] This document records:

Lianguan Company’s initial USD 1 million capital investment as well as later financing (used to acquire the equity of the Australian project company) for the Australian project, regardless of in which form they have been expressed (equity investment or performance bond), ultimately, all such funds shall be returned from Hong Kong ‘Star Energy’ company before the distribution of operating profits (within 5 years).

[30]CB794; Transcript of Proceedings, T 651 L 30–31, T 652 L 1–27 (7 October 2020).

It was put to Mr Huang in cross-examination that the reference in the ‘Additional Remarks’ to ‘Australian project company’ was a reference to Star Energy HK, while ‘target company’ in the minutes of the meeting referred to Mayberry and Oz Civil. It was put to Mr Huang that this ‘Additional Remarks’ document recorded JLZ’s agreement to acquire shares in Star Energy HK. Mr Huang denied this and stated that the only targets were Mayberry and Oz Civil. I accept this evidence. I reject Mr Wu’s evidence that the reference to ‘Australian project company’ is a reference to Star Energy HK.[31]
[31]Transcript of Proceedings, T 1086 L 22–31, T 1087 L 1–10 (14 October 2020).

Second Representations: 1 June 2016 meeting

On 1 June 2016 a further meeting took place in Hong Kong at the Regal Hotel in Kowloon.[32] The meeting was attended by Messrs Cao, Xie and Huang as well as Messrs Wu, Missen and Yao. JLZ’s lawyer, Ping Gu (‘Ms Gu’), also attended. Mr Huang’s son, Mr Qian, attended as translator.
[32]Transcript of Proceedings, T 173 L 27–31, T 174 L 1–4 (28 August 2020).

JLZ alleges that during the meeting Mr Wu represented to JLZ as follows (‘the second representations’):[33]
[33]Plaintiff, ‘Amended Statement of Claim’, 31 October 2018 [6].

(a)Two Australian companies, Mayberry and Oz Civil would purchase at least $50 million per annum of Pipe Products from Lianguan Zhaoxing and that the demand from the Australian companies would continue for at least 10 years;

(b) [JLZ’s] profit margins on those sale would be 35%;
(c)In order to source those sales, Star Energy HK would need to invest in Mayberry and Oz Civil;
(d)The initial investment by Star Energy HK would be a combined amount of USD$1 million paid to Mayberry and Oz Civil, which would be sufficient as an initial investment to secure the ‘purchasing power’ for the sales;
(e)Ultimately, over a two year period, Star Energy HK would pay USD $7.5 million to become a 55% shareholder of Mayberry and USD $7.5 m to become a 51% shareholder of Oz Civil;
(f)There would be an initial purchase order for USD $ 5 million of Pipe Products, which Star Energy HK would forward to [JLZ] to supply;
(g)[JLZ] would have to make a USD $1 million performance security payment to Star Energy HK in respect of the initial USD $5 million purchase order and Star Energy HK would use that money to pay an initial investment of USD $1 million in Mayberry and Oz Civil.

In his further amended defence, Mr Wu admits that at the meeting on 1 June 2016:

(a)[He] and Mr Missen on behalf of Star Energy HK represented that Star Energy HK intended to acquire a controlling interest in Mayberry and Oz Civil for USD 7.5 million each over two years;
(b)If and when acquired, Mayberry and Oz Civil would purchase at least $50 million per annum of Pipe Products from the plaintiff at a profit margin of 35%;
(c)Star Energy HK and the plaintiff would enter into a Pipe Product Purchase Agreement for USD $5 million (‘Purchase Agreement’) requiring inter alia the payment to Star Energy HK of a USD $1 million performance security bond.[34]

[34]Further Amended Defence (n 12) [6].

In addition to the matters which are admitted in Mr Wu’s defence, the evidence of JLZ’s witnesses who attended the meeting on 1 June 2016, establishes that the following representations were made:

(a) Mayberry and Oz Civil would purchase at least USD$50 million of pipe products from JLZ per year for at least 10 years;[35]
[35]CB891; Transcript of Proceedings, T 175 L 7–9 (28 August 2020); T 608 L 7–12 (7 October 2020); T 764 L 27–31, T 765 L 1–5 (9 October 2020).

(b) JLZ’s profit margin on the orders would be 35 per cent;[36]
[36]CB891; Transcript of Proceedings, T 175 L 7–9 (28 August 2020); T 608 L 4–6 (7 October 2020); T 766 L 21–31, T 767 L 1–6 (9 October 2020).

(c) in order to secure the orders, Star Energy HK needed to invest in Mayberry and Oz Civil;[37]
[37]CB890; Transcript of Proceedings, T 175 L 14–17 (28 August 2020); T 463 L 25–31, T 464 L 1–12 (5 October 2020); T 608 L 13–18 (7 October 2020); T 765 L 6–15 (9 October 2020).

(d) Star Energy HK needed to make an initial investment of USD$1 million in Mayberry and Oz Civil to secure ‘purchasing power’ for the orders;[38]
[38]CB890; Transcript of Proceedings, T 174 L 28, T 181 L 9–15 (28 August 2020); T 463 L 25–31, T 464 L 1–12 (5 October 2020); T 608 L 28–31, T 609 L 1–11 (7 October 2020).

(e) over a two year period Star Energy HK would pay USD$7.5 million to become a 55 per cent shareholder of Mayberry and USD$7.5 million to become a 51 per cent shareholder of Oz Civil;[39]

(f) Mayberry and Oz Civil would make an initial order of USD$5 million of pipe products, which Star Energy HK would send on to JLZ;[40] and

(g) JLZ needed to make a USD$1 million ‘performance bond payment’ to Star Energy HK in respect of the initial order, which Star Energy HK would use to make the initial investment of USD$1 million in Mayberry and Oz Civil.[41]

[39]CB890; Transcript of Proceedings, T 175 L 31, T 176 L 1, T 176 L 11–15 (28 August 2020); T 463 L 25–31, T 464 L 1–19 (5 October 2020); T 608 L 19–27 (7 October 2020); T 764 L 21–6 (9 October 2020).

[40]CB890–1; Transcript of Proceedings, T 177 L 7–10 (28 August 2020); T 467 L 12–26 (5 October 2020); T 609 L 27–31, T 610 L 1–17 (7 October 2020); T 767 L 24–31, T 768 L 1–12 (9 October 2020).

[41]CB891; Transcript of Proceedings, T 177 L 11–12 (28 August 2020); T 465 L 9–15, T 466 L 14–20 (5 October 2020); T 609 L 27–31, T 610 L 1–17 (7 October 2020); T 766 L 16–17 (9 October 2020).

Each representation set out above is recorded in the signed minutes of the meeting of 1 June 2016.[42] Mr Wu agreed that he read the minutes, signed them and that they were correct.[43] Mr Wu agreed that during the meeting on 1 June 2016 he said that after investing USD$1 million in Mayberry and Oz Civil, Star Energy HK would have purchasing rights in the Australian Project and that Star Energy HK would pay USD$7.5 million for 55 percent of Mayberry and USD$7.5 million for 51 per cent of Oz Civil respectively.[44] Mr Wu also agreed that he stated that Star Energy HK would pay USD$1 million for Mayberry and Oz Civil, but only after the completion of the purchase of Star Energy HK.[45]
[42]CB889.
[43]Transcript of Proceedings, 1093 L 22–8 (14 October 2020).
[44]Transcript of Proceedings, T 1269 L 25–31, T 1270 L 1–3 (19 October 2020).
[45]Transcript of Proceedings, T 1271 L 27–31, T 1272 L 1–3 (19 October 2020).

During final submissions, Mr Alexander, who appeared with Mr Kirimof for Mr Wu, accepted that, subject to one qualification, Mr Wu did make each of the pleaded representations during the meeting on 1 June 2016. The one qualification is in respect of the representation that Mayberry and Oz Civil would purchase at least USD$50 million per annum of pipe product from JLZ and that the demand would continue for 10 years. Mr Alexander submitted that the figure of USD$50 million was proposed by Mr Huang and that Mr Wu simply ‘acquiesce[d]’ to that figure.[46] Mr Alexander submitted that Mr Wu represented during the meeting on 1 June 2016 that USD$20 million per annum of pipe products would be required for the Australian Project.[47] I reject this submission. It is contrary to the unqualified admission in [6(b)] of the further amended defence that Messrs Wu and Missen represented that ‘if and when acquired, Mayberry and Oz Civil would purchase at least $50 million per annum of Pipe Products from the Plaintiff at a profit margin of 35%’. It is also contrary to the minutes of the meeting of 1 June 2016 signed by Mr Wu and which he acknowledged as a correct record of the meeting.
[46]Transcript of Proceedings, T 1443 L 9 (10 November 2020).
[47]Transcript of Proceedings, T 1443 L 25–31 (10 November 2020).

Mr Wu also disputed that he represented that JLZ’s profit margin would be 35 per cent. He gave evidence that he told JLZ’s representatives that the profit margin would be 10 to 15 per cent.[48] I reject this evidence. It is inconsistent with the admission in [6(b)] of the further amended defence. It is also inconsistent with the signed minutes of the meeting of 1 June 2016. Mr Alexander, quite properly, did not seek to resile from the admission in the further amended defence.[49]
[48]Transcript of Proceedings, T 1263 L 15–17, T 1266 L 2–9 (19 October 2020).
[49]Transcript of Proceedings, T 1444 L 16 (10 November 2020).

On 1 June 2016 the plaintiff and Star Energy HK entered into a contract for the manufacture and supply of 500 kilometres of pipes for USD$5.2 million.[50] The contract was signed by Mr Wu on behalf of Star Energy HK as purchaser.
[50]CB872.

On 16 June 2016 JLZ obtained an overseas investment certificate from the Foreign Currency Control Board (‘FCCB’). This enabled the plaintiff to remit funds to Star Energy HK.[51]
[51]CB901.

Third Representations: 10 July 2016 meeting

On 10 July 2016 there was a further meeting in Hong Kong at the Marco Polo Hotel in Kowloon. The meeting was attended by Messrs Cao, Xie and Huang on behalf of JLZ and Messrs Wu and Missen together with Mr Wu’s partner Ms Liang. Mr Wu admits that this meeting took place and that he and Mr Missen represented that Star Energy HK would not pay any remuneration such as salary or bonuses to any shareholder or shareholder representative unless a further agreement was reached with JLZ (‘the third representation’).[52]
[52]Further Amended Defence (n 12) [7].

A shareholder memorandum signed by Mr Wu on 10 July 2016 records:

At the same time, except for where shareholders enter into other agreements as of today, currently each shareholder or shareholder representative shall participate in each operating activity of the Company, except for future distributions of profit, the Company shall not provide any additional remuneration such as wages or bonuses.[53]

[53]CB991.

There is a dispute, addressed later in this judgment, whether JLZ subsequently agreed that Star Energy HK could apply funds received from JLZ for the purpose of paying a salary to Mr Wu and Mr Missen.

On 12 July 2016 JLZ became a 50 per cent shareholder in Star Energy HK.[54] JLZ acquired the 35 per cent shareholding previously held by LHT for the sum of HKD$3,500, 10 per cent of Mr Wu’s shares for HKD$1,000, and 5 per cent of Mr Missen’s shares for HKD$500.[55] At the same time Mr Wu transferred a further 20 per cent of his shares to Ms Liang for no consideration to hold on his behalf.
[54]CB942.
[55]CB992; CB994; CB996.

On 20 July 2016 JLZ transferred USD$140,000 to the bank account of Star Energy HK. On 11 August 2016 JLZ transferred a further USD$860,000 to the bank account of Star Energy HK.

Fourth Representation: 29 September 2016

On 29 September 2016 Mr Cao sent an email to Mr Wu attaching a confirmation of shipping time notice dated 28 September 2016 signed by Mr Wu.[56] The document states that ‘[t]he above is the actual delivery schedule requested by the Australian party, which the Chinese party is requested to signed [sic] and return’.[57] Mr Wu admitted that he sent the document to Mr Cao, and that he knew that JLZ would produce pipes in accordance with the order.[58]
[56]CB1061; SCB19.
[57]SCB19.
[58]Transcript of Proceedings, T 1387 L 6–11 (21 October 2020).

The shipping notice required the production and shipment, pursuant to the 1 June 2016 sales contract, of:

(a) 50 kilometres of 63mm pipe and 50 kilometres of 140mm pipe by 10 November 2016;

(b) 100 kilometres of 63mm pipe and 100 kilometres of 140mm pipe by 29 January 2017; and

(c) 100 kilometres of 63mm pipe and 100 kilometres of 140mm pipe by 15 February 2017.[59]

[59]SCB19.

JLZ alleges that by signing the shipping notice Mr Wu represented to JLZ that the specified products were required on the specified dates (‘the fourth representation’).[60] During final submissions Mr Alexander accepted that the fourth representation was made by Mr Wu.[61]
[60]Further Amended Statement of Claim (n 33) [16].
[61]Transcript of Proceedings, T 1478 L 9–20 (10 November 2020).

On 28 October 2016 JLZ transferred a further USD$500,000 to the bank account of Star Energy HK. On 29 October 2016 Messrs Cao, Huang, Xie, as well as the Director of the Enterprise Department at Changzhou Group, Liang Dong (‘Mr Dong’), and JLZ’s lawyer Jiajun Mao (‘Mr Mao’) met with Mr Wu in Hong Kong. The plaintiff’s representatives raised concerns regarding the slow progress of the Australian Project. There is a dispute between the parties, to which I shall refer later in this judgment, regarding the matters discussed during this meeting. JLZ contends that during the meeting Mr Wu stated that he had negotiated a reduction in the price of a 50 per cent shareholding in Mayberry and Oz Civil from USD$15 million to USD$6 million. For his part, Mr Wu contends that the reduction in price from USD$15 million to USD$6 million was in relation to the price for JLZ’s acquisition of a 50 per cent shareholding in Star Energy HK.

Mr Cao gave evidence, which I accept, that after the meeting on 29 October 2016 the plaintiff’s representatives began to feel concerned about Mr Wu and the Australian Project. The reasons for this concern included Mr Wu’s requests for more money without placing orders for pipe production and the fact that the pipe orders which had been placed had not been paid for on time.[62]
[62]Transcript of Proceedings, T 213 L 7–15 (28 August 2020).

On 10 December 2016 there was a further meeting in Hong Kong attended by Messrs Cao, Xie, Sun, Mao and Wu.[63] Mr Cao gave evidence, which I accept, that during this meeting Mr Wu said that he was having problems with Mr Missen and that Star Energy Australia had been closed down. Mr Wu stated that he had established a new company, Vitality Pipe Services (‘VPS’).[64] Mr Wu stated that JLZ could invest in VPS, but JLZ’s representatives expressed no interest in doing so.[65] Mr Wu also stated that he had spent in excess of USD$100,000 on due diligence for Mayberry and Oz Civil.[66] Mr Wu stated that JLZ needed to transfer the remaining USD$4.5 million for the acquisition of shares in Mayberry and Oz Civil as soon as possible.[67] JLZ’s representatives accepted this proposal in principle, but said they wished to visit Mayberry and Oz Civil and speak to them face to face, since JLZ had already transferred USD$1.5 million to acquire shares in these companies.[68] Mr Wu was angry at the suggestion that JLZ’s representatives would visit Australia again.[69]
[63]Transcript of Proceedings, T 214 L 16–23 (28 August 2020).
[64]Transcript of Proceedings, T 214 L 25–8 (28 August 2020).
[65]Transcript of Proceedings, T 214 L 30–1, T 215 L 1 (28 August 2020).
[66]Transcript of Proceedings, T 824 L 11–17 (12 October 2020).
[67]Transcript of Proceedings, T 215 L 8–10 (28 August 2020).
[68]Transcript of Proceedings, T 215 L 14–20 (28 August 2020).
[69]Transcript of Proceedings, T 215 L 24–5 (28 August 2020).

Fifth Representation: 6 December 2016

In early December 2016 after the second consignment of pipes manufactured by JLZ had been delivered to Australia, and JLZ was seeking payment from Star Energy HK, Mr Wu informed JLZ that the pipe products were not of an appropriate standard and that JLZ needed to apply for Australian Standards approval.[70] Mr Wu admits that on or about 6 December 2016 he represented to JLZ that a payment of AUD$44,000 was required to have pipe products approved to Australian Standards (‘the fifth representation’).[71] On 16 December 2016, in response to Mr Wu’s request, Mr Cao transferred AUD$44,000 to the bank account of Star Energy HK.[72]
[70]Transcript of Proceedings, T 216 L 28–31, T 217 L 1–3 (28 August 2020).
[71]Further Amended Defence (n 12) [24].
[72]CB1267; Transcript of Proceedings, T 217 L 22–3 (28 August 2020).

The relationship between JLZ and Mr Wu turns sour

On 16 January 2017 Mr Cao received financial records for Star Energy HK for the period of August to December 2016. The records were forwarded to him by ‘Vana Liu’ at VPS.[73] The attachments to the records included invoices from Rigby Cooke and Brand Partners. Mr Cao gave evidence that around this time Mr Wu had requested JLZ to forward a further USD$1 million to Star Energy HK.[74]
[73]CB1284.
[74]Transcript of Proceedings, T 205 L 11–13 (28 August 2020).

Mr Cao did not understand the documents forwarded to him on 16 January 2016 so he asked employees of JLZ’s finance department to prepare him a summary.[75] Upon reading the summary, Mr Cao discovered that Mr Wu had misappropriated funds transferred by JLZ, including that Mr Wu had used the funds to pay his salary, purchase a motor vehicle and transfer USD$340,000 to the United States, and had spent funds on legal costs.[76] Mr Cao’s evidence, which I accept, is that he did not know that Mr Wu had been spending money on personal items of expenditure until he received the summary document.[77]
[75]Transcript of Proceedings, T 205 L 23–4 (28 August 2020); CB1747.
[76]Transcript of Proceedings, T 206 L 1–7 (28 August 2020).
[77]Transcript of Proceedings, T 206 L 13–16 (28 August 2020).

Immediately after receiving the summary document Mr Cao called Mr Wu and questioned him about the use of the funds.[78] Mr Wu admitted that he had misused funds.[79]
[78]Transcript of Proceedings, T 206 L 19–25 (28 August 2020).
[79]Transcript of Proceedings, T 207 L 3 (28 August 2020).

In February 2017 Mr Cao had a telephone conversation with Mr Wu during which he requested to see contracts for the purchase of shares in Mayberry and Oz Civil.[80] On 20 February 2017 Mr Wu sent emails to Mr Cao attaching share sale agreements for Mayberry and Oz Civil.[81] When Mr Cao received the agreements he noticed they were dated 2015 and that the purchase price was not USD$6 million, as had been agreed in December 2016.[82] Mr Cao rang Mr Wu and told him the documents were incorrect.[83] Mr Wu told Mr Cao that he had sent the wrong documents.[84] On 21 February 2017 Mr Wu emailed Mr Cao updated documents.[85]
[80]Transcript of Proceedings, T 218 L 9–18 (28 August 2020).
[81]Transcript of Proceedings, T 217 L 30–31, T 218 L 1–8 (28 August 2020).
[82]Transcript of Proceedings, T 218 L 21–4 (28 August 2020).
[83]Transcript of Proceedings, T 218 L 28–31 (28 August 2020).
[84]Transcript of Proceedings, T 219 L 1–2 (28 August 2020).
[85]Transcript of Proceedings, T 219 L 3–5 (28 August 2020).

Mr Wu admitted in an affidavit filed prior to the commencement of the trial that the share sale agreements which he forwarded to Mr Cao on 21 February 2017 had been fabricated by him and that he had forged all signatures on the documents except his own.[86] During examination in chief, Mr Wu agreed that he reduced the sale price recorded in the agreements after Mr Cao asked him why the amount was USD$15 million when the sale price had been reduced to USD$6 million.[87]
[86]Transcript of Proceedings, T 1125 L 6–7; T 1129 L 27–31, T 1130 L 1–9 (15 October 2020).
[87]Transcript of Proceedings, T 1130 L 18–24 (15 October 2020).

On 10 February 2017 Messrs Cao, Xie, Huang and their lawyers Ms Gu and Mr Mao met with Mr Missen and his interpreter, Nancy, at the offices of Changzhou Group.[88] During this meeting Mr Missen told JLZ’s representatives that Mr Wu had misappropriated funds transferred by JLZ to Star Energy HK for expenditure on personal matters, including purchasing property, vehicles and also paying his personal legal costs.[89] Mr Missen admitted that he had asked Mr Wu to transfer USD$340,000 to the United States, as a result of which he offered JLZ the opportunity to be involved in a business project in the United States.[90] It was agreed during this meeting that Mr Wu would have no further involvement in the Australian Project and that Mr Missen would be the representative of the Australian Project going forward.[91]
[88]Transcript of Proceedings, T 490 L 29–31, T 491 L 1–2 (5 October 2020).
[89]Transcript of Proceedings, T 491 L 3–23 (5 October 2020).
[90]Transcript of Proceedings, T 621 L 14–31, T 622 L 1–19 (7 October 2020).
[91]Transcript of Proceedings, T 562 L 5–14 (6 October 2020).

On 24 February 2017 Mr Wu sent an email to Mr Cao.[92] In this email Mr Wu stated that he had engaged Rigby Cooke to assist in purchasing shares in Oz Civil, and that he had engaged Brand Partners to assist with purchasing Mayberry.[93] When cross-examined regarding the contents of this email, Mr Wu admitted, for the first time, that he fabricated the invoices from Rigby Cooke and Brand Partners.[94] Mr Cao gave evidence, which I accept, that after receiving the email of 24 February 2017 JLZ completely lost confidence in Mr Wu.[95]
[92]CB1531.
[93]Ibid.
[94]Transcript of Proceedings, T 1327 L 7–26 (20 October 2020); CB1298; CB1355.
[95]Transcript of Proceedings, T 220 L 13–31, T 221 L 1–17 (28 August 2020).

On 2 March 2017 Mr Wu sent a further email to Mr Cao.[96] The email includes the following:

Starting from the 1.5 million, I admit the part of the facts against me, the AUD350,000 was used for personal purposes. But I promise to you that I will repay it in my own name; meanwhile, I have informed the lawyer to prepare a letter of undertaking for repayment. In addition, I must say clearly that when I used the money, I had no other choice at the time.[97]

[96]CB1546.

[97]CB1546.

On 3 March 2017 Mr Wu sent a further email to Mr Cao[98] in which he admitted he had made ‘some mistakes’ and said he was willing ‘to bear the necessary consequences’.[99] He otherwise sought to lay the blame at Mr Missen’s feet, alleging that he had paid out money from Star Energy HK’s bank account on Mr Missen’s instructions.
[98]CB1553.
[99]CB1560.

On 16 April 2017 Messrs Cao, Xie, Huang, Sun and Mao attended a meeting with Mr Missen.[100] During this meeting Mr Missen told the representatives of JLZ that the Mayberry and Oz Civil share sale agreements which Mr Wu had emailed to Mr Cao on 21 February 2017 were forgeries. Mr Missen denied having signed them.
[100]Transcript of Proceedings, T 232 L 24–31, T 233 L 1–24 (31 August 2020).

On 30 May 2017 Messrs Cao, Huang, Dong and Mao travelled to Australia to ascertain what had happened to the pipes which had been manufactured and shipped to Australia and to seek legal advice.[101]
[101]Transcript of Proceedings, T 236 L 17–31, T 237 L 1 (31 August 2020).

Mr Basso picked up the representatives of JLZ from the airport together with Mr Missen’s interpreter, Nancy. Nancy told them that Mr Missen had been unable to leave the United States because of ‘visa reasons’.[102] During the trip Mr Basso told JLZ’s representatives that he was able to obtain pipes for much less than the price Mr Wu had said JLZ could sell pipe products.[103] Mr Basso took the representatives of JLZ to the site of VPS. At that site they saw pipes that had been produced and shipped by JLZ with some of the packaging still intact.[104] A representative of VPS told them that some of the pipes which had been manufactured and delivered by JLZ were still at the Port of Melbourne because money was still owed to the port authorities.[105]
[102]Transcript of Proceedings, T 830 L 24–31, T 831 L 1–8 (12 October 2020).
[103]Transcript of Proceedings, T 936 L 27–31, T 937 L 1–7 (13 October 2020).
[104]Transcript of Proceedings, T 239 L 3–23 (31 August 2020).
[105]Transcript of Proceedings, T 849 L 11–16 (12 October 2020).

Mr Wu made each of the five representations pleaded in the amended statement of claim. Mr Wu contends that no finding of liability for breach of s 18 of the ACL should be made by reason of two defences. First, he contends that the USD$1.5 million which was deposited into the bank account of Star Energy HK was part payment by JLZ for 50 per cent of the shares in Star Energy HK. Second, he contends that the first to fourth representations were with respect to future matters and he had reasonable grounds for making the representations. Before addressing these two defences, it is necessary to record my findings regarding Mr Wu’s credit.

Forgeries

Mr Wu has admitted to fraudulently preparing twelve documents:

(a) four share sale agreements in relation to Mayberry and Oz Civil;[106]
[106]Transcript of Proceedings, T 1125–31 (15 October 2020); CB1462; CB1474; CB1486; CB1499.

(b) three invoices from the law firm Brand Partners;[107]
[107]Transcript of Proceedings, T 1323 L 6–21 (20 October 2020); CB1306; CB1332; CB1343.

(c) two invoices from the law firm Rigby Cooke;[108]

(d) two invoices from Boretec;[109] and

(e) an agreement between Star Energy HK and Wilmac Inc.[110]

[108]Transcript of Proceedings, T 1327 L 4–16 (20 October 2020); CB1298; CB1355.

[109]Transcript of Proceedings, T 1335 L 26–31, T 1336 L 1–3 (20 October 2020); CB1312; CB1347.

[110]Transcript of Proceedings, T 1399 L 5–18 (21 October 2020); CB1509.

I reject Mr Wu’s evidence that Mr Cao told him to prepare the four share sale agreements to be provided to the FCCB to facilitate the transfer of further funds.[111] Mr Alexander properly conceded that it was unlikely that FCCB regulations would have necessitated the provision of share sale agreements to facilitate the transfer of further funds.[112]
[111]Transcript of Proceedings, T 1130 L 25–31 (15 October 2020).
[112]Transcript of Proceedings, T 1403 L 3–8 (21 October 2020).

Mr Wu fabricated the agreements as part of a false narrative that Star Energy HK was taking steps to acquire a controlling interest in Mayberry and Oz Civil. This conclusion is reinforced by an email Mr Wu sent to Mr Cao on 25 February 2017 in which he sought to explain the role of Rigby Cooke and Brand Partners in the share sale transaction:

According to clause 2 on page three of the contract, the idea is: The seller of Oz Civil is selling its equity at a price of $2,500,000.00 with the equity ratio of 51%:49%. Delegated is the firm of Rigby Cooke Lawyers to assist both parties in dealing with the legal aspects of the sale. The purchasing fund should will [sic] paid in full on the 30^th of October 2017. The buyer will pay the purchase deposit before December 2016 and the amount of the deposit can be negotiated. The deposit must be kept in the lawyer’s trust account.
The seller of Mayberry sold the shares at a price of $3,500,000.00 with the equity ratio of 70%:30%. Delegated is the firm of Brand Partners Commercial Lawyers to assist both parties in dealing with the legal aspects of the sale. The purchasing fund should be paid in full on the 30^th of October 2017. The buyer will pay the purchase deposit before December 2016 and the amount of the deposit can be negotiated. The deposit must be kept in the lawyer’s trust account.
So, on the 12^th and 25^th of August, 8^th of October, 3^rd and 11^th of November we paid the deposits and the solicitor’s fees through the Hong Kong account. Bank receipts and invoices were attached (Brand Partners Commercial Lawyers, Rigby Cooke Lawyers).[113]

This email is an elaborate and brazenly misleading attempt to justify the five Brand Partners and Rigby Cooke invoices forged by Mr Wu.

[113]CB1523.

Whilst Mr Wu admitted to forging the four share sale agreements both in a sworn affidavit dated 24 July 2017 and during his evidence in chief, he made no admissions that the invoices for Brand Partners, Rigby Cooke or Boretec were forged. This is despite the invoices having been included in the Court Book. It was only during cross-examination that Mr Wu admitted to forging the invoices. Mr Wu’s selective admission of having forged some documents, but not others, created the misleading impression that documents which had been forged were genuine.

Mr Shaw SC, who appeared with Mr Reynolds for JLZ, submitted that the agreement between Star Energy HK and Mayberry dated 6 October 2015 is also a forgery.[114] Mr Wu denied having forged this agreement.[115] I reject this denial for the following reasons:
[114]CB594.
[115]Transcript of Proceedings, T 1242 L 31, T 1243 L 1–2 (19 October 2020); CB594; CB595.

(a) the agreement purports to have Star Energy HK as a party to the agreement, yet cl 1.1 of the agreement states that Mayberry is to register Star Energy HK as a new company in Hong Kong;[116]
[116]Transcript of Proceedings, T 1238 L 16–20 (19 October 2020).

(b) the execution page of the agreement provides that Star Energy HK, a Hong Kong company, executes the agreement in accordance with s 127 of the Corporations Act 2001 (Cth);

(c) the wording of cls 1.1, 1.2, 1.3, 1.4 and 1.5 is consistent with the author being someone for whom English is not a first language;

(d) Mr Mayberry’s evidence, which I accept, is that he did not sign the agreement;[117]
[117]Transcript of Proceedings, T 870 L 27–31 (12 October 2020).

(e) the execution page of the 6 October 2015 agreement is identical to the 21 May 2015 agreement, admitted by Mr Wu to be a forgery.[118] Mr Wu accepted this during cross-examination;[119] and
[118]FSCB617; FSCB624.
[119]Transcript of Proceedings, T 1243 L 7 (19 October 2020).

(f) Mr Wu gave inconsistent evidence regarding how the agreement was signed. Initially, his evidence was that there were two separate agreements that he had signed,[120] one on 21 May 2015 and the other on 6 October 2015. Mr Missen brought the signature page of both agreements to Mr Wu’s house and he signed them last.[121] When it was put to Mr Wu that on his account, the circumstances in which the two agreements were signed were identical, he confirmed that they were the same for the two contracts.[122] Upon seeing the identical execution pages, Mr Wu said:
[120]Transcript of Proceedings, T 1053 L 26–8; T 1055 L 6–16 (14 October 2020).
[121]Transcript of Proceedings, T 1054 L 14–26 (14 October 2020); T 1233 L 14–19 (19 October 2020).
[122]Transcript of Proceedings, T 1233 L 14–19 (19 October 2020).

Let me think. Ah, please give me some time. I suddenly realise that there are … issues in here. In my memory, I only signed one document. Okay. Um, in my memory, I’m — I’m remembering while seeing these two documents, ah, is that I remember clearly signing one document. And, um, ah after I signed that — that document, ah, I remember Neville send me an email, um, but, ah, ah, there were two different, ah, two different documents that he has signed, ah, he sent to me. Ah, one was a blank one, ah, a blank page. Um, and, ah, and another one was, um, the signature page that he sent it to me, ah, asking me — ah, he sent it to me via WeChat. And, ah, ah, and then, now, ah, I can, ah, remember that, ah because why would he send me the, ah, the signature page. Ah, so I — I now can remember or I can, ah, work it out, ah, is that the — looking at these two documents, I can see that my signature, ah, and — and the signatures are exactly the same. So I can, ah, I can, um, guess that, ah, ah, what Neville did was that he took the signature page from the first document and he just put it in the second document. I think — I don’t know if you — if you — if you agree with that explanation.[123]

Mr Wu subsequently denied having given evidence that there were two agreements.[124] I conclude that in addition to the four share sale agreements forwarded to Mr Cao on 20 and 21 February 2017, the 6 October 2015 agreement is also a forgery.

[123]Transcript of Proceedings, T 1240 L 2–24 (19 October 2020).

[124]Transcript of Proceedings, T 1240 L 25–31, T 1241 L 1–10 (19 October 2020).

The forged documents were a brazen attempt by Mr Wu to maintain the charade that Star Energy HK was making ongoing efforts to acquire Mayberry and Oz Civil. Mr Wu’s motivation was to induce JLZ to remit further funds. The forgeries support a finding that Mr Wu is prepared to engage in serious fraudulent conduct in his business activities.

Mr Wu’s English proficiency

Mr Wu submitted that his English proficiency is at primary school level.[125] In his outline of evidence, which replicates an affidavit sworn on 24 July 2017, Mr Wu stated that his written English skills are ‘very poor’.[126]
[125]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [8].
[126]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [10].

Mr Wu elected to give the majority of his evidence through an interpreter. However, on the second day of cross-examination, in response to a challenge about his English proficiency, Mr Wu offered to give evidence in English without an interpreter.[127] During this exchange, Mr Wu feigned confusion, including about the meaning of the word ‘phone’,[128] despite having lived in Australia since 31 December 2010.[129] I consider that this was a charade. Mr Wu engaged in business dealings in Australia and communicated with various English speakers, including Mr Missen and Mr Basso, during many meetings without an interpreter present. These included the meetings at Mocha Jo’s,[130] dinners at Glen Waverley[131] and Lygon Street.[132] Mr Basso’s evidence, which I accept, is that Mr Wu could speak English when he wanted to, but that when he didn’t want to, he didn’t understand.[133]
[127]Transcript of Proceedings, T 1162 L 7–12 (16 October 2020).
[128]Transcript of Proceedings, T 1164 L 1–19 (16 October 2020).
[129]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [20].
[130]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [42], [47], [56].
[131]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [38].
[132]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [27].
[133]Transcript of Proceedings, T 917 L 8–16 (13 October 2020).

Mr Wu translated English into Chinese for JLZ’s representatives during the Australian investigation trip.[134] During the meetings in Hong Kong, Mr Wu interpreted for Mr Missen.[135]
[134]See, eg, Transcript of Proceedings, T 266 L 8–17 (31 August 2020); T 499 L 2–8 (5 October 2020); T 599 L 15–18 (7 October 2020); T 750 L 4–6 (9 October 2020).
[135]See, eg, Transcript of Proceedings, T 803 L 26–7 (9 October 2020).

The fact that Mr Wu was able to fraudulently prepare numerous documents is consistent with Mr Wu’s English proficiency being better than he professes. Whilst the wording of some of the documents indicates they were not written by a fluent English speaker, they are consistent with a level of English proficiency significantly better than Mr Wu’s description of ‘very poor’.[136]
[136]Affidavit of Lei (Michael) Wu, affirmed 24 July 2017, [10].

I observed during cross-examination that Mr Wu was increasingly frustrated by the questions asked. He appeared to understand the questions prior to them being translated. This was manifested in his physical responses to the questions. On one occasion, Mr Wu said to the interpreter in English ‘[y]ou don’t need to interpret’.[137] Mr Alexander conceded that Mr Wu’s reactions indicated a level of comprehension.[138]
[137]Transcript of Proceedings, T 1326 L 5 (20 October 2020).
[138]Transcript of Proceedings, T 1500 L 29–31, T 1501 L 1–5 (10 November 2020).

Mr Wu’s English proficiency is significantly better than he represented to the Court. His evidence to the contrary, and his feigning of incomprehension during cross-examination, reinforces my assessment of him as a most unreliable witness.

Implausible explanations

There are significant inconsistencies in Mr Wu’s evidence which reflect poorly on his credit as a witness. He contradicted the admission in his further amended defence that he represented to JLZ that profit margins on the pipe sales would be 35 per cent.[139] His evidence was that he said that the profit on the sale of the pipes would be 10–15 percent. He denied representing that the profit margins would be 35 per cent.[140]
[139]Further Amended Defence (n 12) [6(b)].
[140]Transcript of Proceedings, T 1221 L 1–8 (16 October 2020); T 1263 L 15–17 (19 October 2020).

Mr Wu gave contradictory evidence about the reduction of the prices of the shares in Mayberry and Oz Civil from USD$15 million to USD$6 million. Mr Wu stated that a reduction in the share prices for Mayberry and Oz Civil was never discussed.[141] This is inconsistent with his exchange with Mr Cao on 20 and 21 February 2017, when Mr Wu sent Mr Cao the four fraudulent share sale agreements for Mayberry and Oz Civil and amended the sale price to USD$6 million when prompted to by Mr Cao.
[141]Transcript of Proceedings, T 1116 L 15 (15 October 2020).

When questioned about his contention that the USD$9 million reduction in the share price was for the acquisition by JLZ of 50 per cent of the shares in Star Energy HK, Mr Wu claimed that he agreed to reduce the purchase price because he was asked to ‘fill the hole’[142] and that he did so out of ‘pity’.[143] This evidence is not credible. Neither is his evidence that part of the appeal of investing in Mayberry and Oz Civil was that he would eventually be taught welding and digging.[144]
[142]Transcript of Proceedings, T 1117 L 4–7 (15 October 2020).
[143]Transcript of Proceedings, T 1135 L 8 (15 October 2020).
[144]Transcript of Proceedings, T 1173 L 29–30 (16 October 2020).

In October 2015 Mr Missen told Mr Wu that the USD$7.5 million purchase price for the shares in each of Mayberry and Oz Civil had been inflated by Mr Basso. He was told the true price was closer to USD$1.5 million each.[145] Mr Wu claims that he continued representing to JLZ that the purchase price was USD$7.5 million for each company because Mr Missen told him that Messrs Basso and Mayberry would insist on the higher purchase price for their shares, such that that they could not reduce the price.[146] I reject Mr Wu’s explanations for his silence. The reason he did not inform JLZ of the true value of Mayberry and Oz Civil was his own self-interest. By inflating the value of the companies he inflated the quantum of funds JLZ would deposit in the bank account of Star Energy HK.
[145]Transcript of Proceedings, T 1067 L 22–31, T 1068 L 1–26.
[146]Transcript of Proceedings, T 1069 L 1–20 (14 October 2020).

Initially Mr Wu gave evidence that he did not have a discussion with Mr Basso about the true purchase price of the shares of Mayberry and Oz Civil being USD$1.5million.[147] Subsequently, he said that he had a meeting with Mr Basso in Hong Kong, where Mr Basso insisted on USD$7.5 million for the shares in Mayberry and Oz Civil and refused to accept anything less.[148] It was not put to Mr Basso in cross-examination that he had a discussion with Mr Wu in Hong Kong as alleged.
[147]Transcript of Proceedings, T 1070 L 5–9 (14 October 2020).
[148]Transcript of Proceedings, T 1108 L 1–15 (15 October 2020).

Mr Wu was cross-examined about a text message exchange with Mr Missen, where Mr Missen told Mr Wu to ‘put your car from Patterson Cheney down as a Mercedes truck for work’, to which Mr Wu replied ‘[s]ure, thats [sic] good explanation’.[149] I reject Mr Wu’s contention that this exchange was about filing tax returns under Hong Kong laws.[150] Mr Missen and Mr Wu were attempting to conceal their expenditure of JLZ’s funds for their personal use.
[149]CB1795.
[150]Transcript of Proceedings, T 1306 L 1–21 (20 October 2020).

Conclusion

Mr Wu was not a reliable witness. I do not accept his testimony wherever it conflicts with the evidence given by any other witness. I now turn to consider the two principal limbs of Mr Wu’s defence.

The characterisation of the USD$1.5 million paid into the account of Star Energy HK

It is common ground that all of the USD$1.5 million which JLZ paid into the bank account of Star Energy HK was spent by Messrs Wu and Missen for their personal purposes unrelated to the Australian Project. This included the purchase of a Mercedes Benz by Mr Wu for AUD$115,000 on 23 August 2016;[151] AUD$350,000 paid into the trust account of Rigby Cooke for the settlement of litigation in the County Court of Victoria in which Mr Wu was the defendant;[152] and payment of AUD$117,300 to Brand Partners who represented Mr Wu in the County Court proceedings.[153]
[151]CB1016.
[152]CB1011; CB1147.
[153]CB1018, CB1069, CB1141.

It was submitted on behalf of Mr Wu that this expenditure does not reflect adversely upon him because the funds which he expended were his to spend as he pleased. Mr Wu submits that the USD$1.5 million was ‘either for a performance bond or for the purchase of 50% of the shareholding in his company, Star Energy HK’.[154]
[154]Written Submissions for Wu (n 3) [4].

Mr Wu contends that there were two separate agreements with JLZ, each for USD$15 million. The first was to acquire a 50 per cent shareholding in his company, Star Energy HK. The second was to acquire majority shareholdings in both Mayberry and Oz Civil for USD$7.5 million each.[155] Mr Wu contends that JLZ agreed to advance a total of USD$30 million to facilitate the Australian Project.[156] Mr Wu contends that the acquisition of 50 per cent of the shareholding in Star Energy HK was to occur first, after which JLZ would begin acquiring a controlling interest in Mayberry and Oz Civil.[157]
[155]Transcript of Proceedings, T 1071 L 4–20 (14 October 2020).
[156]Transcript of Proceedings, T 1194 L 4–8 (16 October 2020).
[157]Transcript of Proceedings, T 1299 L 10–19 (20 October 2020).

JLZ submits that the USD$1.5 million was transferred as part payment of USD$15 million (subsequently reduced to USD$6 million) to acquire a controlling interest in Mayberry and Oz Civil. JLZ denies that there was a second agreement to purchase 50 per cent of the shares in Star Energy HK for USD$15 million. I accept JLZ’s submission.

Mr Wu and representatives of JLZ attended several meetings in Hong Kong during 2016. The minutes of these meetings support JLZ’s contention that the funds transferred were for the acquisition of shares in Mayberry and Oz Civil.

12 April 2016 meeting

The minutes of the 12 April 2016 meeting record the discussions between Messrs Huang, Qian, Wu and Missen. The minutes were signed.[158]
[158]Transcript of Proceedings, T 604 L 7–14 (7 October 2020).

The minutes record the following:

In order to facilitate operations and avoid tax for the cooperation project, both parties will use ‘Star Energy’ company as a platform to operate in Hong Kong …
Lianguan representatives shall be jointly involved in such matters as ‘Star Energy’ company’s equity acquisition of future target companies and the conclusion of supply contracts.
The company will use USD 1 million as a performance bond for ‘Star Energy’ to acquire the target company’s equity deposit. To be returned after 18 months.[159]

[159]CB792.

Mr Huang gave evidence, which I accept, that the reference to ‘target company’s equity deposit’ is to Mayberry and Oz Civil and that the performance bond was intended to be used to acquire shares in these companies.[160]
[160]Transcript of Proceedings, T 605 L 3–9 (7 October 2020).

During cross-examination, Mr Shaw asked Mr Wu:

Mr Shaw SC: It’s clear on the plain words of this — of these minutes that the money was being paid to purchase shares in Mayberry and Oz Civil, isn’t it?
Mr Wu: Yes, in — in this — in this document, it said clearly, yes, for the — the — for the target company.[161]

[161]Transcript of Proceedings, T 1251 L 7–11 (19 October 2020).

An additional document was drawn up during the 12 April 2016 meeting, titled ‘Additional Remarks’.[162] It records that:

Lianguan Company’s initial USD 1 million capital investment as well as later financing (used to acquire the equity of the Australian project company) for the Australian project, regardless of in which form they have been expressed (equity investment or performance bond), ultimately, all such funds shall be returned from Hong Kong ‘Star Energy’ company before the distribution of operating profits (within 5 years).[163]

[162]CB794.

[163]Ibid.

Mr Alexander submitted that these Additional Remarks recorded an agreement that the USD$1 million was intended to be used to acquire shares in Star Energy HK, and not for the acquisition of a majority shareholding in Mayberry and Oz Civil, as is recorded in the meeting minutes.[164] I reject this submission. I accept Mr Huang’s evidence that the reference to the ‘Australian Projects’ and ‘Australian project company’ is a reference to Mayberry and Oz Civil.[165]
[164]Transcript of Proceedings, T 652 L 1–20 (7 October 2020).
[165]Transcript of Proceedings, T 652 L 20–2 (7 October 2020).

1 June 2016 meeting

The minutes of the 1 June 2016 meeting record the discussions between Messrs Wu, Missen, Huang, Xie and Cao and were signed by all participating parties.[166] The minutes record the following:
[166]CB889.

Target Business Acquisition and Operation Process
a) Star Energy will participate in Australia’s national power grid upgrade project together with Mayberry Australia. For this purpose, Star Energy will invest USD 7.5 million in Mayberry Australia within two years to acquire 55% of the shares of Mayberry Australia and acquire purchasing rights for projects.
b) Star Energy will participate in the Australian water supply upgrade project together with OZ Civil. For this purpose, Star Energy will invest USD 7.5 million in OZ Civil within two years to acquire a 51% of the shares of OZ Civil and acquire purchasing rights for projects.
After paying the first investment of USD 1 million to Mayberry Australia and OZ Civil, Star Energy will have purchasing rights in the Australian cable upgrade project and the Australian waterpipe upgrade project in the target business …
Star Energy will sign relevant agreements with Mayberry Australia and OZ Civil on the Australian national grid upgrade project and the Australian water services upgrade project to clarify the acquisition of the above-mentioned procurement rights and profit distribution ratio. …
…
After Star Energy signs a USD 5 million purchase agreement with Lianguan Zhaoxing, Lianguan Zhaoxing will pay a performance bond of USD 1 million to Star Energy as stipulated in the contract.[167]

[167]CB890–1.

Mr Wu signed the minutes and accepted that they were correct.[168] Mr Wu submits there was discussion about the purchase of his shares in Star Energy HK during the June 2016 meeting. As to why there is no reference to a purchase price for his shares in the minutes, Mr Wu said the minutes were written by JLZ to comply with Chinese government regulations which prohibit the purchase of shareholdings from individuals.[169] I reject this evidence.
[168]Written Submissions for Wu (n 3) [115]; see also Transcript of Proceedings, T 1093 L 22–5 (14 October 2020).
[169]Transcript of Proceedings, T 1094 L 13–20 (14 October 2020).

Mr Wu stated that the 1 June 2016 meeting minutes contemplate that there would be two funds; one USD$1 million fund for the purchase of the shareholding in Star Energy HK, and the second fund as a USD$1 million performance bond.[170] I reject this evidence. I accept Mr Cao’s evidence that the USD$1 million was not payment for Mr Wu’s shares in Star Energy HK, but was to acquire shares in Mayberry and Oz Civil.[171]
[170]Transcript of Proceedings, T 1283 L 28–31, T 1284 L 1–4 (19 October 2020).
[171]Transcript of Proceedings, T 282 L 3–8 (31 August 2020).

Mr Xie confirmed that as at the 1 June meeting, the USD$1 million was ‘the first down payment as performance bond to be remitted and transferred to Star Energy account … the $1m was used to be part of the money to acquire the interests of the companies, at the first stage, once the orders are coming in’.[172] I accept Mr Xie’s evidence that the minutes do not record an agreement for a separate USD$1 million payment for Mr Wu’s shares in Star Energy HK.[173]
[172]Transcript of Proceedings, T 466 L 9–11, T 466 L 15–18 (5 October 2020).
[173]Transcript of Proceedings, T 540 L 29–31 (6 October 2020).

Mr Huang described the USD$1 million as a ‘deposit to acquire the interest into the two target companies’, and later clarified that as the full USD$15 million could not be paid at once, there needed to be USD$1 million ‘as a deposit or as a performance bond or as a guarantee money first to get into the two companies’.[174] I accept this evidence.
[174]Transcript of Proceedings, T 609 L 3–4, T 609 L 9–11 (7 October 2020).

Ms Gu, JLZ’s lawyer who prepared the 1 June 2016 meeting minutes, confirmed that although the USD$1 million was labelled as a performance bond,[175] its purpose was to acquire the interests in Mayberry and Oz Civil.[176] Ms Gu explained that ‘[s]trictly speaking, Lianguan Zhaoxing didn’t have a certificate to have overseas investment, so what we considered was use performance bond way to transfer the money outside China’.[177]
[175]CB891.
[176]Transcript of Proceedings, T 783 L 18–23 (9 October 2020).
[177]Transcript of Proceedings, T 786 L 15–18 (9 October 2020).

As at 1 June 2016, it was not possible for JLZ to transfer the USD$1 million to Star Energy HK and to have described the transfer as being for the purchase of USD$1 million worth of shares in Mayberry and Oz Civil because JLZ did not have an overseas investment certificate at the time.[178] The USD$1 million was labelled a performance bond in the 1 June 2016 minutes to enable JLZ to remit the funds in the absence of an overseas investment certificate.[179] Ms Gu was an impressive witness. I accept her evidence about the description of the USD$1 million as a performance bond, notwithstanding that it was to be invested into Mayberry and Oz Civil. Although the minutes referred to the USD$1 million as a performance bond, Star Energy HK, and by extension Mr Wu, could not use the money as they wished. The funds were for the acquisition of shares in Mayberry and Oz Civil.
[178]Transcript of Proceedings, T 796 L 13–15 (9 October 2020).
[179]Transcript of Proceedings, T 796 L 6–31, T 797 L 1–7 (9 October 2020).

10 July 2016 meeting

The shareholder meeting held on 10 July 2016 was attended by Ms Liang, and Messrs Missen, Wu, Huang, Xie and Cao. It resulted in two shareholder resolutions and one Memorandum for Internal Shareholder Matters.[180] These three documents were signed by all participants.[181] Mr Wu gave evidence that the purpose of the meeting was to discuss the shareholding in Star Energy HK. This evidence is consistent with that of Ms Gu, who prepared the three documents.[182]
[180]CB990.
[181]See Written Submissions for Wu (n 3) [137].
[182]Transcript of Proceedings, T 773 L 5–31 (9 October 2020).

The first Shareholder Resolution records various share transfers in Star Energy HK:

Shareholder [Missen] shall transfer 5% of all shareholder rights to [the plaintiff], for a transfer price of HKD 500;
Shareholder WU LEI shall transfer 10% of shareholder rights to Lianguan Zhaoxing, for a transfer price of HKD 1,000;
Shareholder WU LEI shall transfer 20% of shareholder rights to [Liang], for a transfer price of HKD 2,000;
Shareholder [Lianguan High-Tech], shall transfer all of its 35% of shareholder rights to Lianguan Zhaoxing, for a transfer price of HKD 3,500;
…
After these shareholder rights have been transferred, shareholders of the Company shall be updated to: Lianguan Zhaoxing, [Missen], and [Liang], having the following shareholder ratios:
i) Lianguan Zhaoxing, capital contribution of HKD 5,000, 50% of the Company’s total registered capital.
ii) [Missen], capital contribution of HKD 3,000, 30% of the Company’s total registered capital.
iii) [Liang], capital contribution of HKD 2,000, 20% of the company’s total registered capital.
The capital contribution ratios for the above shareholders shall be used as the ultimate basis for which each shareholder can carry out their shareholder rights, share in operating profits of Star Energy.[183]

[183]CB986–7.

The Memorandum for Internal Shareholders Matters from the 10 July meeting prepared at 10.30pm records the following:

Current registered shareholders of Star Energy & Resources Co., Ltd (hereinafter ‘the Company’) are Jiangsu Lianguan Zhaoxing Petrochemical Technology Co., Ltd (hereinafter ‘Lianguan Zhaoxing’, with a shareholder ratio of 50%), MISSEN NEVILLE EDWARD DAVID (hereinafter ‘NEVILLE’, with a shareholder ratio of 30%), and LIANG Jiaen (with a shareholder ratio of 20%). The founders of the Company are NEVILLE and WU LEI, registered capital is HKD 10,000. As the Company has a realistic opportunity to participate in the projects in relation to upgrading Australian power cables and water services (hereinafter referred to as ‘the Australian projects’), to obtain the right to supply products for the above projects, and as such, as proposed by NEVILLE and WU LEI, and upon reaching a consensus on a plan with Lianguan Zhaoxing, Lianguan Zhaoxing has decided to join the Company as a shareholder, and through the Company’s mutual participation in the Australian Projects, and through shareholding transfer procedures of the Company, Lianguan Zhaoxing currently holds a 50% share in the Company, NEVILLE holds a 30% share in the Company, and LIANG Jiaen holds a 20% share in the Company.[184]

[184]CB990.

The share transfers were concluded by 12 July 2016, when JLZ became a 50 per cent shareholder in Star Energy HK, for HKD$5,000.[185] The Instrument of Transfer notes that on 12 July 2016, Mr Wu transferred 10 per cent of his shares in Star Energy HK to JLZ for HKD$1,000.[186]
[185]CB992.
[186]CB994.

Mr Wu submits that HKD$5,000 paid by JLZ is a ‘nominal amoun[t]’ which does not truly reflect the share price.[187] Mr Wu referred to the Overseas Investment Record Form, which attributes the capital value of Star Energy HK to be USD$20 million.[188] I accept Mr Cao’s evidence that the capital value of USD$20 million was chosen as a ‘higher number’ to avoid JLZ having to repeatedly seek approval from the Chinese authorities to remit additional funds out of China.[189] I also accept the following evidence of Ms Gu:

The registered capital for Star Energy Hong Kong was only [HKD] $10,000, and for us to send money overseas, we need to get investment overseas certificate, and the application was a proforma template provided by the government. We can only fill out the form as they provide it. We wanted to remit US$15m, and in the process, we know that the $15m will be, eventually, used to acquire the equities in the Australian companies. Therefore, the purpose here, for remittance, was to send to Star Energy Hong Kong company. Once that money is approved, we get a certificate, and the money is, eventually, to be used for acquiring interests in the target company and in the destination in Australia. And all these agreements are bound and agreed by both parties in the minutes of several meetings.[190]
[187]Written Submissions for Wu (n 3) [134].
[188]CB895.
[189]Transcript of Proceedings, T 305 L 2–17 (17 September 2020).
[190]Transcript of Proceedings, T 797 L 31, T 798 L 1–14 (9 October 2020).

3 September 2016 meeting

The 3 September 2016 meeting was attended by Messrs Xie, Cao, Wu, Missen and Mao in Hong Kong. Mr Mao prepared the minutes. The minutes were not signed by Mr Wu.

The minutes record the following discussion:

At the above-mentioned time and place, discussions were held on a number of issues such as Star Energy’s participation in the investment of Mayberry Australia and OZ Civil in Australia’s national power grid upgrade project and water service upgrade project and some issues regarding the international procurement of related products (hereinafter referred to collectively as ‘target business’). …
1. Target Business Acquisition and Operation Process
a) Mayberry Australia is a participant in Australia’s national power grid upgrade project, with purchasing and supply rights for construction materials for this project. Star Energy is willing to participate in the above-mentioned project. The path of participation is as follows: Star Energy will invest USD 7.5 million in Mayberry Australia in stages to acquire 55% of the shares; Star Energy will complete all product orders Mayberry Australia obtains for construction materials for the Australian power grid upgrade project, and Mayberry Australia guarantees that the product orders required for the project will meet the predetermined quantity and the expected profit. …
OZ Civil is a participant in Australia’s water service upgrade project, with purchasing and supply rights for construction materials for this project. Star Energy is willing to participate in the above-mentioned project. The path of participation is as follows: Star Energy will invest USD 7.5 million in OZ Civil in stages to acquire 51% of the shares; Star Energy will complete all product orders OZ Civil obtains for construction materials for the Australian water service upgrade project, and OZ Civil guarantees that the product orders required for the project will meet the predetermined quantity and the expected profit. …
b) After paying the first investment of USD 1 million (USD 500,000 for each company, or different amounts) to Mayberry Australia and OZ Civil (hereinafter collectively referred to as the Australian target companies), Star Energy will have purchasing rights for construction materials for the Australian power cable upgrade project and the Australian water service upgrade project in the target business, and can constantly supply PE pipes, cables and other engineering products for these projects.[191]

[191]CB1042–3.

The minutes also note that:

All parties unanimously recognised that the main purpose of Star Energy’s equity investment in Mayberry Australia and OZ Civil is to obtain the right to supply construction materials for the power grid and water service upgrade projects in Australia, and to obtain equity investment dividends from Mayberry Australia and OZ Civil.[192]

[192]CB1044.

As to the characterisation of the USD$1 million, the minutes record the following:

First, it has been clarified that the USD 1 million remitted by Lianguan Zhaoxing to Star Energy is the financial support for Star Energy to invest in the Australian target companies. This is Lianguan Zhaoxing’s own funds. If the project is abandoned, Star Energy shall return the full amount of USD 1 million and relevant payments to Lianguan Zhaoxing, with MICHAEL WU and MISSEN NEVILL [sic] jointly responsible for the specific refund.[193]

[193]CB1043.

Mr Wu says that he refused to sign the minutes because he did not agree with their contents and believed that they were pre-drafted.[194] He denies that the proposed investment in Mayberry and Oz Civil was discussed during the 3 September meeting. He contends that the statement that the USD$1 million was clarified as being financial support for Star Energy to invest in the Australian companies was not discussed at the meeting.[195] I reject this evidence.
[194]Transcript of Proceedings, T 1105 L 3–23 (15 October 2020).
[195]Transcript of Proceedings, T 1105 L 24–31, T 1106 L 1–13 (15 October 2020).

I accept Mr Cao’s evidence that the minutes accurately record the discussion and that Mr Wu did not sign the minutes at the time because he wished to take the minutes back to Australia for Ms Liang (who had acquired 20 per cent of Mr Wu’s shares in Star Energy HK), who did not participate in the meeting.[196]
[196]Transcript of Proceedings, T 196 L 2–18 (28 August 2020).

29 October 2016 meeting

A further meeting was held on 29 October 2016 in Hong Kong, a day after USD$500,000 was sent to Star Energy HK.[197] Mr Wu did not sign the minutes.[198]
[197]CB1124.
[198]Written Submissions for Wu (n 3) [158].

The minutes record that:

According to the original plan of the Chinese and Australian parties, the Chinese party will inject capital into Hong Kong Star Energy, and then Star Energy will inject capital into Australia MAYBERRY and OZ CIVIL (that is, the Australian target companies), to control product orders by controlling shares in the Australian target companies. According to the original plan, predetermined total capital for the acquisition of the shares in the target companies in Australia is USD 15 million, which will be borne by the Chinese party. The initial payment is USD 1 million, and the subsequent funds will be gradually paid in the form of payment for goods. At the proposal of the Australian party, the total amount of funds for the acquisition of shares in the Australian target companies was reduced to USD 6 million, and the Chinese party will provide all the funds within a predetermined period of time to speed up the acquisition process.[199]

As regards the contract for USD$5.2 million worth of pipes dated 1 June 2016, Mr Wu stated that he believed these pipes were required and could be sold by Star Energy HK, on the basis of information provided to him by Mr Missen, the Australian investigation trip and emails from Mr Basso to Mr Missen which had been shown to him.[277] For the reasons set out above, this evidence falls well short of establishing a reasonable basis for Mr Wu believing that there was genuine demand for USD$5.2 million of pipes. Further, the likelihood of Mayberry and Oz Civil purchasing pipes from JLZ to the value of USD$5.2 million was significantly diminished by the fact that Mr Wu had no intention as at June 2016 of investing funds received from JLZ in the acquisition of shares in Mayberry and Oz Civil.
[277]Transcript of Proceedings, T 1102 L 23–8 (15 October 2020).

Mr Mayberry and Mr Basso gave evidence that their respective companies had no need for quantities of pipes in the volume represented by Mr Wu to JLZ. Mr Mayberry gave the following evidence in relation to the AusNet Project:

We had two sources of pipe. Depending upon the type of ground conditions and the type of distances and the type of environment, we would have to select two different types of pipe. The majority of our pipe was free of issue from AusNet Services where they would provide us with the conduits. And the polyethylene pipe for the drilling purposes would be provided for a company that we had an agreement with for some years called Fastway Civil.[278]

[278]Transcript of Proceedings, T 862 L 29–31, T 863 L 1–6 (12 October 2020).

Mayberry spent an average of AUD$15,000 to AUD$20,000 per month on pipe products.[279] Mr Mayberry denied telling anyone that his company required a higher volume of pipe products. His evidence, which I accept, is that Mayberry did not have capacity to install more than AUD$15,000 to AUD$20,000 of pipes per month.[280] Mr Mayberry also denied telling anyone that in order to obtain pipe orders from his company, a pipe supplier would need to purchase a majority shareholding, and denied having ever entered into such an agreement with Star Energy HK.[281] I accept this evidence.
[279]Transcript of Proceedings, T 863 L 25–6 (12 October 2020).
[280]Transcript of Proceedings, T 864 L 2–7 (12 October 2020).
[281]Transcript of Proceedings, T 864 L 14–19, 23–30 (12 October 2020).

Mr Basso also gave evidence that Oz Civil did not have a high demand for pipes. He recalled that during the Australian investigation trip he may have told JLZ’s representatives that there were opportunities for large pipe orders in Australia, including a need for up to 200 kilometres of pipes.[282] However, Mr Basso specifically denied stating that there was a need for 2,000 kilometres of pipes as recorded in the ‘Investigation Report on the Australian Project’.[283] Mr Basso considered that a large demand for pipe products equated to AUD$50,000 to AUD$60,000 per month,[284] much less than the figures represented to JLZ by Mr Wu and Mr Missen. Mr Basso stated that in a busy month he required AUD$30,000 to AUD$40,000 worth of pipes.[285] He denied telling Mr Wu that Oz Civil and Mayberry would purchase USD$50 million of pipe products per annum.[286] I accept this evidence.
[282]Transcript of Proceedings, T 956 L 5–6 (13 October 2020).
[283]FSCB244.
[284]Transcript of Proceedings, T 957 L 1 (13 October 2020).
[285]Transcript of Proceedings, T 956 L 26–7 (13 October 2020).
[286]Transcript of Proceedings, T 957 L 4–7 (13 October 2020).

Finally, Mr Basso gave unchallenged evidence that if a manufacturer wanted to sell pipes in Australia, it needed to obtain Australian Standards Certification.[287] The requirement for Australian Standards Certification is referred to in Mr Basso’s email to Mr Missen dated 2 February 2016.[288] The fact that Mr Wu never turned his mind to the requirement to obtain Australian Standards Certification until late 2016 is consistent with him not having had any reasonable grounds for believing prior to that time that there was a genuine demand for pipe products in Australia. If there had been such a demand, it would have been essential that the pipes manufactured by JLZ complied with Australian Standards specifications. Mr Wu did not have reasonable grounds for making the fourth representation.
[287]Transcript of Proceedings, T 931 L 10–15 (13 October 2020).
[288]SCB193.

The fifth representation

The fifth representation was a representation as to a present fact which JLZ submits was misleading and deceptive because it was false. There was no need to obtain Australian Standards Certification because there was no demand for the pipes which were to be certified. Mr Wu contends that the representation was true because he genuinely believed that the pipes could be sold, and Mr Missen had told him that Australian Standards Certification would be necessary. Mr Wu gave evidence that in December 2016 he was informed by Mr Missen that there were quality and safety concerns with the pipes manufactured by JLZ, and that Australian Standards Certification needed to be obtained.[289] Mr Wu says Mr Missen told him that the cost of obtaining Australian Standards Certification was AUD$44,000, and he honestly believed this was the price.
[289]Transcript of Proceedings, T 1119 L 4–9 (15 October 2020).

In an email dated 3 March 2017 to JLZ, Mr Wu provides a confusing history of his understanding of the funds required to obtain Australian Standards Certification:

The first time, [Missen] told me that the cost would be over AUD$50,000 for three sizes, and then, for the second quote, he told me the starting point was $18,000, and $9,000 for each additional item! Therefore $40,000 would be enough! So, I told Mr CAO that it would cost us $40,000 to do the Australian Standards! When I told Nev that CAO had remitted the money and urged him to contact the Australian Standards Office immediately, he told me then that it would only cost $5,000 to do the Australian Standards — that was what he wanted to tell me. At the same time, he asked me to give him $10,000, saying that he had no money for Christmas. So, I gave it to him. After the New Year, I urged him again to make contact … When he came back, he told me — this was the fourth quote — that the cost would be $6,000![290]

[290]CB1555.

I do not accept Mr Wu’s contention that he genuinely believed the cost of obtaining Australian Standards Certification was AUD$44,000. Even if Mr Wu was not aware of the actual cost involved, he adopted Mr Missen’s representation and conveyed it to JLZ without making his own assessment of its veracity. A reasonable person in Mr Wu’s position would have made independent inquiries when presented with quotes for Australian Standards ranging from AUD$5,000 to in excess of AUD$50,000 from the same individual.

Further, Mr Wu’s reliance upon Mr Missen does not absolve him of responsibility. I do not accept that Mr Wu was an innocent bystander. Mr Wu began spending the AUD$44,000 transferred for the purpose of obtaining Australian Standards within days of the funds having been deposited in Star Energy HK’s bank account. Within three days of the AUD$44,000 being deposited in Star Energy HK’s bank account, Mr Wu paid AUD$41,000 to himself, his partner, Mr Missen and his wife.[291]
[291]Transcript of Proceedings, T 1388 L 14–29 (21 October 2020).

Mr Wu admitted that when the AUD$44,000 had been transferred, Star Energy HK had sufficient funds in its account that it could have used those funds to pay for the Australian Standards Certification.[292] The misuse of JLZ’s funds for Mr Wu’s own purposes, is inconsistent with Mr Wu having a genuine belief in there being any underlying demand for pipe products, necessitating Australian Standards Certification.
[292]Transcript of Proceedings, T 1388 L 2–4 (21 October 2020).

Conclusion

For the reasons outlined above, I find that Mr Wu did not have reasonable grounds for making the first to fourth representations. As a result, the representations were misleading and deceptive within the meaning of s 18 ACL. However, if I am wrong in concluding that Mr Wu did not have reasonable grounds for making the first to fourth representations, he would in any event be liable for a breach of s 18 ACL. The reason for this is that each of the representations was false. As regards the fifth representation, which is in respect of a present matter, the representation was misleading and deceptive.

It is common ground that JLZ relied upon the representations made by Mr Wu. In his closing submissions Mr Alexander quite properly conceded that JLZ acted at least in part reliance on Mr Wu’s representations in making the various transfers of funds, irrespective of how the transfers are characterised:

Yes. Your Honour, I think it’s, I think it’s artificial to say that those representations had no bearing on the decision to transfer that money. I’m not — I don’t press that, Your Honour, because that doesn’t seem to be realistic. They must have had, at least in part, a role to play in the decision, even if the decision was, as Your Honour points out, to invest in Star Energy.[293]

[293]Transcript of Proceedings, T 1476 L 4–11 (10 November 2020).

As to the question of loss, Mr Wu submits that JLZ has not suffered any loss in respect of the USD$1.5 million which was deposited into the bank account of Star Energy HK, for two reasons. First, Mr Wu submits the money was his to spend as he saw fit because the funds were payment for his shares in Star Energy HK. Second, he submits that JLZ received 50 per cent of the shares in Star Energy HK in return for the payment of USD$1.5 million. For the reasons set out earlier in this judgment I reject this submission. JLZ has lost USD$1.5 million. The funds were advanced for the purpose of investment in Mayberry and Oz Civil. This did not occur. Rather, the funds were expended on personal items of expenditure, entirely unrelated to the Australian Project.

As regards the pipes which were manufactured by JLZ in reliance on the representations, Mr Wu does not take issue with JLZ’s submission that the cost of manufacture of the pipes was USD$664,352.[294]
[294]Transcript of Proceedings, T 1484 L 15–25 (10 November 2020).

The final item of loss claimed by JLZ is AUD$44,000, being the amount which was transferred to the bank account of Star Energy HK to pay for Australian Standards Certification. This amount represents a loss incurred by JLZ. It received nothing in return for the payment because there was no market for the pipes manufactured and delivered to Australia.

JLZ has established that in reliance upon the representations it transferred USD$1.5 million and AUD$44,000 into the bank account of Star Energy HK and manufactured 85.76 kilometres of pipes at a cost of USD$664,352. Mr Wu and Mr Missen are jointly and severally liable to pay damages to JLZ for contravention of s 18 ACL in the sum of USD$2,164,352 and AUD$44,000. JLZ is entitled to judgment against Mr Missen for this sum in default of his entering an appearance.

Deceit

In the alternative to its claim for damages under the ACL, JLZ claims damages for deceit in respect of each of the five representations. In Magill v Magill[295] Gummow, Kirby and Crennan JJ identified five elements of the tort of deceit:

The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation. Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation.[296]

[295](2006) 226 CLR 551.

[296]Ibid 587–8 [114] (citations omitted).

Mr Wu submits that the first to fourth representations are in respect of future matters and by their nature cannot be true or false. In support of this proposition Mr Wu relies upon the judgment of the Court of Appeal delivered by MacKenna J in R v Sunair Holidays Ltd:[297]

A statement that a fact exists now, or that it existed in the past, is either true or false at the time when it is made. But it is not the case with a promise or a prediction about the future. A prediction may come true or it may not. A promise to do something in the future may be kept or it may be broken. But neither the prediction nor the promise can be said to have been true or false at the time when it was made.[298]

[297][1973] 1 WLR 1105.

[298]Ibid 1109.

I reject the submission that Mr Wu cannot be liable in the tort of deceit in respect of the first to fourth representations because they are in respect of future matters. Immediately after the passage in R v Sunair Holidays Ltd set out above, MacKenna J stated:

A promise or forecast may contain by implication a statement of present fact. The person who makes the promise may be implying that his present intention is to keep it or that he has at present the power to perform it. The person who makes the forecast may be implying that he now believes that his prediction will come true or that he has the means of bringing it to pass. Such implied statements of present intention, means or belief, when they are made, may well be … punishable if they were false and were made knowingly or recklessly. But, if they are punishable, the offence is not the breaking of a promise or the failure to make a prediction come true. It is the making of a false statement of an existing fact, somebody’s present state of mind or present means.[299]

[299]Ibid 1109–10.

In British Airways Board v Taylor[300] the passage set out above was cited with approval by the House of Lords.[301] In British Airways Board v Taylor Lord Edmund-Davies stated:

An assertion of existing fact and a promise of future conduct may both be found in one and the same statement.[302]

[300][1976] 1 WLR 13.

[301]Ibid 23 (Lord Edmund-Davies), 27 (Lord Fraser).

[302]Ibid 23.

I do not accept Mr Wu’s submission that JLZ cannot rely upon an implied representation of present fact contained in each of the first to fourth pleaded representations because there was no specific pleading of an implied representation.[303] Mr Wu was put squarely on notice of the case which he had to meet. A fair reading of the first to fourth pleaded representations conveys both a representation as to an existing fact and a promise of future conduct.
[303]Written Submissions for Wu (n 3) [299].

I accept Mr Shaw’s submission that the first and second representations contain the following implied representations of present fact:

(a) there was a genuine demand for pipe products from China, from Mayberry and Oz Civil and others;

(b) Mayberry and Oz Civil had the intention and means to order USD$50 million of pipe products from JLZ per year for at least 10 years;

(c) in order to secure those orders, Mayberry and Oz Civil required Star Energy HK to invest in them;

(d) Mayberry and Oz Civil required Star Energy HK to make an initial investment of USD$1 million in Mayberry and Oz Civil;

(e) the price of acquiring a 55 per cent share of Mayberry and a 51 per cent of Oz Civil was USD$7.5 million each;

(f) Mayberry and Oz Civil required USD$5 million worth of pipe products from Star Energy HK;

(g) Mayberry and Oz Civil required Star Energy HK to pay USD$1 million in respect of the first order; and

(h) Mr Wu intended to use that USD$1 million to invest in Mayberry and Oz Civil.[304]

[304]Plaintiff, ‘Plaintiff’s Closing Submissions’, 7 November 2020 [327].

The third representation includes an implied representation of present fact that Mr Wu intended not to pay himself a salary or any other remuneration. The fourth representation includes a representation of present fact that as at 28 September 2016 a shipment of pipe products was required on 11 October 2016, 29 January 2017 and 15 February 2017. The fifth representation is a representation of present fact that as at 6 December 2016 JLZ needed to obtain Australian Standard Certification at a cost of AUD$44,000.

Mr Wu made each of the five representations with knowledge that they were false. He made the representations with the intention that they would be relied upon by JLZ. JLZ acted on reliance of the representations and has suffered financial loss as a result. The quantum of that loss is USD$2,164,352 and AUD$44,000. Mr Wu and Mr Missen are jointly and severally liable in the tort of deceit to pay damages in this sum.

Proportionate liability

Mr Wu contends that if he is found liable for damages for contravention of s 18 ACL or in the tort of deceit, his liability should be apportioned as between himself and Mr Missen. Mr Wu relies on s 87CD of the Competition and Consumer Act 2010 (Cth) and s 24AI of the Wrongs Act.

Section 87CD(1) of the Competition and Consumer Act 2010 (Cth) provides:

(1)In any proceedings involving an apportionable claim:
(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant’s responsibility for the damage or loss; and
(b)the court may give judgment against the defendant for not more than that amount.

An ‘apportionable claim’ under that Act is defined as a claim for damages made under s 236 of the ACL for economic loss or damage to property caused by conduct contravening s 18 of the ACL.[305]
[305]Competition and Consumer Act 2010 (Cth) s 87CB(1).

A ‘concurrent wrongdoer’ is defined as ‘a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim’.[306]
[306]Ibid s 87CB(3).

Section 24AI(1) of the Wrongs Act provides:

(1)In any proceeding involving an apportionable claim—
(a)the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the loss or damage claimed that the court considers just having regard to the extent of the defendant’s responsibility for the loss or damage; and
(b)judgment must not be given against the defendant for more than that amount in relation to that claim.

An ‘apportionable claim’ is defined under the Wrongs Act as a claim for economic loss or damage to property in an action for damages (whether in tort, in contract, under statute or otherwise) arising from a failure to take reasonable care, and a claim for damages for a contravention of s 18 of the ACL.[307]
[307]Wrongs Act 1958 (Vic) ss 24AE, 24AF(1) (‘Wrongs Act’).

A ‘concurrent wrongdoer’ is defined under the Wrongs Act as ‘a person who is one of 2 or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage that is the subject of the claim’.[308]
[308]Ibid s 24AH(1).

Under s 87CD of the Competition and Consumer Act, the Court ‘may’ reduce the defendant’s liability; whereas, under s 24AI of the Wrongs Act, the Court ‘must’ reduce defendant’s liability in proportion to the extent of their liability. It is common ground that JLZ’s misleading or deceptive conduct claim against Mr Wu is an apportionable claim under both the Competition and Consumer Act and the Wrongs Act.

Section 87CC(1) requires the concurrent wrongdoer either to have intended to cause the loss or damage or to have caused the loss or damage fraudulently. As to the meaning of fraud in the context of deceit, in Derry v Peek Lord Herschell stated:

First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.[309]

In addition to Lord Herschell’s threefold classification of fraud, fraud may also consist of the suppression of what is known to be the truth.[310]

[309](1889) 14 App Cas 337, 374. See also Magill v Magill (2006) 226 CLR 551, 587 [113] (Gummow, Kirby and Crennan JJ).

[310]Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 575.

Mr Wu is an excluded concurrent wrongdoer under both s 87CC(1)(a) and (b) of the Competition and Consumer Act 2010. Mr Wu intended to cause the economic loss which is the subject of JLZ’s claim. Mr Wu knew that USD$1.5 million was deposited into the account of Star Energy HK by JLZ with the intention that the funds would be invested in Mayberry and Oz Civil. Mr Wu deliberately misappropriated the funds. Thereafter, he engaged in an elaborate and brazenly misleading attempt to justify the expenditure as having been for the legitimate purpose of the Australian Project. On 1 June 2016 Mr Wu signed the USD$5.2 million contract in the knowledge that there was no genuine demand in Australia for any pipes manufactured by JLZ. This conclusion is reinforced by the fact that Mr Wu never intended to invest any funds received from JLZ towards the acquisition of shares in Mayberry and Oz Civil.

Mr Wu knew that there was no genuine demand in Australia for any pipes manufactured and supplied by JLZ when he signed the shipping notice on 16 September 2016 pursuant to which JLZ manufactured 85.76 kilometres of pipes at a cost of USD$664,352. Mr Wu caused the loss of AUD$44,000 by JLZ in respect of the Australian Standard Certification. Mr Wu knew that there was no genuine demand for pipes necessitating Australian Standard Certification. This conclusion is reinforced by the fact that within days of the AUD$44,000 having been deposited into Star Energy HK’s bank account, the funds had been misappropriated.

JLZ’s claim against Mr Wu for deceit is not a claim in tort ‘arising from a failure to take reasonable care’ and is therefore not an apportionable claim within the meaning of s 24AF of the Wrongs Act. JLZ’s claim for damages for deceit is based on Mr Wu’s intentional fraudulent conduct. However, even if the claim for damages for deceit is an apportionable claim, as Mr Wu engaged in fraud, he is subject to s 24AM of the Wrongs Act. As such, he is precluded from receiving the benefit of s 24AI(1). Absent a finding of fraud, s 24AI(1) would require the Court to apportion liability as between Mr Wu and Mr Missen.

In contrast to s 87CC(1)(b) of the Competition and Consumer Act, s 24AM of the Wrongs Act does not require a finding that economic loss has been caused by fraud. Rather, s 24AM requires a finding that a defendant is liable for damages in circumstances where a finding of fraud has been made against the defendant.

Mr Alexander submitted that s 24AM should be read as requiring a nexus between the damage sustained by a plaintiff and the fraud committed by a defendant. He submitted that the words ‘which caused those damages’ should be read into s 24AM after the words ‘against whom a finding of fraud is made’. I reject this submission. On a plain reading of s 24AM there is no requirement for the damage for which a defendant is found liable to have been caused by fraud. Rather, any finding of fraud against a defendant, irrespective of whether it causes damage to a plaintiff, disentitles the defendant from the benefit of an apportionment of liability under s 24AI.

If I am wrong and s 24AM does require a nexus between the finding of fraud against Mr Wu and his liability for damages, that nexus is satisfied. All of the loss sustained by JLZ is attributable to fraudulent conduct by Mr Wu.

Mr Wu is jointly and severally liable with Mr Missen. His liability is not apportionable under either s 87CD of the Competition and Consumer Act 2010 or s 24AI(1) of the Wrongs Act.

Mr Wu’s third party notice

An amended third party notice was served on Mr Missen on 26 March 2019. Mr Missen has not entered an appearance in respect of the claim. Mr Wu submits that he is entitled to judgment in default of appearance in respect of his claim against Mr Missen.

JLZ’s joinder of Mr Missen as second defendant on 31 October 2019 did not render Mr Wu’s third party notice a nullity. Rather, the third party notice remained a valid claim for contribution and/or indemnity between Mr Wu and Mr Missen in the event that, as I have found, Mr Wu is liable to JLZ.[311]
[311]Perisher Blue Pty Ltd v Chubb Fire Safety Ltd [2014] ACTCA 43, [5]; Stojkoski v Belconnen Concrete Pty Ltd (2013) 274 FLR 316, 319–20 [14]–[15].

In a proceeding in the Commercial Court, judgment in default of appearance or pleading cannot be entered absent a court order. Mr Missen has not entered an appearance or filed a defence to Mr Wu’s amended third party statement of claim. Notwithstanding this, it is not appropriate to make any order in Mr Wu’s favour against Mr Missen based on the amended third party notice statement of claim.

Mr Wu alleges that Mr Missen’s liability to indemnify him arises under s 236 of the ACL.[312] Mr Wu alleges that Mr Missen made each of the five representations to Mr Wu and that in reliance upon them, Mr Wu in turn made the representations to JLZ.[313] Mr Wu alleges that he has suffered loss and damage arising out of his liability to JLZ for either misleading or deceptive conduct or the tort of deceit.[314] Mr Wu also alleges that Mr Missen is liable to indemnify him in respect of this liability.[315]
[312]First Defendant, ‘Amended Third Party Notice Statement of Claim’, 11 January 2019 [10], [19], [28].
[313]Ibid [9], [18], [27].
[314]Ibid [23]–[32].
[315]Ibid [11]–[14].

Mr Wu’s claim for indemnity and/or contribution against Mr Missen is misconceived. The premise of the claim is that Mr Wu was an innocent conduit, passing on to JLZ representations which had been made to him by Mr Missen. The premise of the third party notice is entirely inconsistent with the findings I have made earlier in this judgment. The claim for indemnity and/or contribution must be rejected.

Mr Wu did not rely upon any representation made to him by Mr Missen. Mr Wu knew that each of the five representations was false. He did not suffer any loss or damage in reliance on the representations. To the extent that he will suffer loss and damage by reason of court orders giving effect to this judgment, that is not loss or damage which can sustain a claim for indemnity or contribution against Mr Missen based on s 236 ACL or the tort of deceit. Rather, Mr Wu’s liability for damages arises by reason of the representations which he made, knowing such representations to be false.

Conclusion

Mr Wu is jointly and severally liable with Mr Missen to pay JLZ damages in the sum of USD$2,164,352 and AUD$44,000. I shall provide the parties with an opportunity to make submissions on the cost of the proceeding and the form of order to give effect to this judgment.

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[2021] VSC 228

5 May 2021