Jin Niu Investments Pty Ltd v Wang (No 2)

Case •

[2020] NSWSC 649

•

29 May 2020

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Jin Niu Investments Pty Ltd v Wang (No 2) [2020] NSWSC 649
Hearing dates: 25 and 26 November 2019
Date of orders: 29 May 2020
Decision date: 29 May 2020
Before: Henry J
Decision:

See paragraph [302]

Catchwords:

CORPORATIONS – Directors duties – duty to act in good faith and not improperly use position to gain advantage – where directors made cash payments to themselves without authorisation – where expenses unreasonably incurred – breach of statutory obligations owed to company

 

EQUITY – Fiduciary duties – Directors – duty to not take profits or pursue advantage from company for themselves – misappropriation of company funds – breach of fiduciary obligations owed to company – directors liable to account – knowing assistance in a dishonest breach of fiduciary duty – declarations and equitable compensation ordered

 

EQUITY – Fiduciary duties – Joint Ventures – fiduciary duty established – duty to not promote personal interests in relation to affairs of joint venture in conflict with other joint venture partner – where agreed 90/5/5 division in the equity of the joint venture – where two parties established other entities to be used in the joint venture business without consent and issued shares and allocated units in those entities in different proportions – position of conflict – dishonest breaches of fiduciary duty established – knowing assistance by third parties – shares and units held on trust and fiduciaries and third parties liable to account for interests

 

EQUITY – Trust and trustees – Quistclose trusts – funds advanced to joint venture company to be used for joint venture business – where funds advanced as working capital – no express intention create a trust – Quistclose trust not established

 

EQUITY – Trust and trustees – Resulting trusts – Purchase money trusts – where funds from joint venture company used to purchase interests in property in another’s name – resulting trusts established – trustees liable to account for sale proceeds – knowing assistance by third parties in dishonest and fraudulent design – third parties liable to account for sale proceeds as trust property

  PARTNERSHIPS AND JOINT VENTURES – Joint venture agreements – Fiduciary relationships – existence of legally binding agreement – where parties associated together to invest in Australian assets – joint venture established – where party who provided funds was overseas and lacked control – where other parties undertook to manage the joint venture business – fiduciary relationship established
Legislation Cited: Corporations Act 2001 (Cth), ss 181 and 182
Cases Cited: ASIC v Adler (2002) 168 FLR 253; [2002] NSWSC 171
Australasian Conference Association Limited v Mainline Constructions Pty Limited (in liq) (1978) 141 CLR 335; [1978] HCA 45
Barclays Bank Limited v Quistclose Investments Limited [1970] AC 567
Barnes v Addy (1874) LR 9 Ch App. 244
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833
Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Chong v Channell [2009] NSWSC 765
Clementi v Rossi [2019] VSC 725
Crampton-Smith v Crampton-Smith [2012] 1 NZLR 5; [2011] NZCA 308
Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89; [2007] HCA 22
Fast Financial Solutions Pty Ltd v Crawford and Battye [2012] NSWSC 40
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
George v Webb [2011] NSWSC 1608
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266
Hoh v Ying Mui Pty Ltd [2019] VSCA 203
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
John Alexander’s Club Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; [2010] HCA 19
Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27
Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31
Potter v Potter [2003] 3 NZLR 145
Rambaldi v Commissioner of Taxation (2017) 107 ATR 1; [2017] FCAFC 217
Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135
Re Associated Securities Ltd and the Companies Act [1981] 1 NSWLR 742
Re Australia Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
Twinsectra Ltd v Yardley [2002] 2 AC 164
United Dominions Corporation Ltd v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49
Warman International Limited v Dwyer (1995) 182 CLR 544; [1995] HCA 15
Weige v Cupton Pty Ltd [2012] NSWCA 414
Ying v Song [2010] NSWSC 1500
Texts Cited: JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths)
Young, Croft and Smith, On Equity (2009, LawBook Co)
Robert Austin and Ian Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths)
WA Lee & HAJ Ford, Principles of the Law of Trusts (March 2018, Thomson Reuters, looseleaf)
Category:Principal judgment
Parties: Jin Niu Investments Pty Ltd (First Plaintiff)
Henan Jin Niu Industrial (Group) Co Ltd (Second Plaintiff)
Jianqiang Wang (Third Plaintiff)
Yuehui (Christine) Wang (First Defendant)
Ping Li (Second Defendant)
Jin Niu Property Development Pty Ltd (Third Defendant)
Jin Niu Agribusiness Pty Ltd (Fourth Defendant)
Australian Securities and Investments Commission (as recipient of the property of NSW Land Pty Ltd) (Fifth Defendant)
Representation:

Counsel:
Dr K Stern SC with Mr G Ng (Plaintiffs)

  Solicitors:
Ashurst Australia (Plaintiffs)
No appearances for the Defendants
File Number(s): 2018/00196981
Publication restriction: Nil

JUDGMENT

  1. These proceedings arise out of an alleged joint venture between the third plaintiff, Mr Jiangiang Wang, and the first and second defendants, Ms Yuehui (Christine) Wang and Ms Ping Li.

  2. The terms of the alleged joint venture provided for a company to be formed to invest in Australian assets. Mr Wang was to arrange funding for the company and hold 90% of the shares. Ms Wang and Ms Li were to manage the company and each hold 5% of the shares. No one was to be paid fees or salary and profits were to be divided between them.

  3. On 26 February 2013, Jin Niu Investments Pty Ltd (JN Investments) was incorporated as the joint venture vehicle and Mr Wang, Ms Wang and Ms Li were each appointed as directors.

  4. Subsequently, and over an 18 month period, Mr Wang and Henan Jin Niu Industrial (Group) Co Limited (Henan), a Chinese corporation of which Mr Wang was the president and majority shareholder, provide funding to JN Investments of around $11 million. Between October 2013 and December 2017, those funds were used to pay for three investments in Australia, which are referred to in these reasons as the Hyde Apartment, the Blueberry Farm and the Lane Cove Property. They were also used by Ms Wang and Ms Li to pay themselves over $4.5 million by way of consulting fees, reimbursed expenses, loans or salary.

  5. On 26 June 2018, Mr Wang was granted leave, pursuant to s 237 of the Corporations Act 2001 (Cth), to bring these proceedings on behalf of JN Investments so as to facilitate the prosecution of various claims against Ms Wang and Ms Li. On that occasion, the Court also made freezing orders over Ms Wang and Ms Li’s Australian assets and orders for substituted service.

  6. In addition to claims made in the name of JN Investments as the first plaintiff, Henan (the second plaintiff) and Mr Wang (the third plaintiff) also advance a range of claims against Ms Wang and Ms Li on their own account.

  7. In essence, the plaintiffs’ claims are that Ms Wang and Ms Li misappropriated and used funds held by JN Investments and created and issued interests in three corporate and trust entities, namely Jin Nui Agribusiness Pty Ltd (JN Agribusiness), Jin Nui Property Development Pty Ltd (JN Property), and the Jin Nui Property Development Unit Trust (JN Property Trust), in breach of their director and fiduciary duties owed to JN Investments, in breach of the joint venture agreement, in breach of fiduciary duties owed to Mr Wang as joint venturers, and in breach of trusts that arose in favour of Henan and JN Investments. The plaintiffs also claim that Ms Wang and Ms Li knowingly assisted each other’s breaches of fiduciary duties and are liable to account as constructive trustees and that the proceeds from the sale of the Hyde Apartment and the interest in the Lane Cove Property are held on trust.

  8. In terms of relief, the plaintiffs seek a range of declarations, an order for an account, pecuniary relief in the amount of $5,318,019.74, and orders for the transfer to Mr Wang of shares in JN Agribusiness and JN Property and units in the JN Property Trust.

  9. The claims advanced give rise to relief against Ms Wang and Ms Li that overlaps between the different plaintiffs and, in some cases, are alleged as alternatives. While contending that each of the claims made by the respective plaintiffs are good claims, as Senior Counsel stated at the hearing, if relief is founded as against Ms Wang and Ms Li in respect of one claim, the Court would not need to consider the alternative claims which lead to the same conclusion. I have approached the claims made in this case on that basis.

The hearing

  1. The proceedings were originally listed for a 10 day final hearing to commence on 18 November 2019.

  2. On 15 November 2019, Ms Wang was declared bankrupt. Prior to then, she had taken steps to defend the proceedings.

  3. The hearing was adjourned to enable the plaintiffs to obtain leave from the Federal Court, pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth), to continue the proceedings. They did so on 18 November 2019. On 25 November 2019, I granted an order pursuant to s 6(3) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) for the proceedings to be determined by this Court: Jin Niu Investments Pty Ltd v Wang [2019] NSWSC 1697.

  4. On 25 and 26 November 2019, the hearing proceeded before me on an uncontested basis.

  5. Ms Wang’s trustee in bankruptcy was on notice of the hearing but did not appear and was not joined as a party. The hearing proceeded in his absence as correspondence before the Court indicated that he accepted that he did not need to be joined as any findings of trust against Ms Wang’s property would take that property out of the bankruptcy and any findings for an account or quantum of debt would be provable under s 82 of Bankruptcy Act.

  6. As for Ms Li, she had taken no steps in the proceedings. An affidavit of Wen-Ts’ai Lim sworn 3 July 2018 established that Ms Li had been served in accordance with the substituted service order made on 26 June 2018. There was also evidence that Ms Li had been informed of the hearing date and served with other material filed by the plaintiffs.

  7. The third and fourth defendants are JN Property and JN Agribusiness. They were not represented.

  8. The fifth defendant is the Australian Securities and Investments Commission (ASIC), as recipient of the property of NSW Land Pty Ltd (NSW Land). NSW Land was incorporated by Ms Li, holds shares in JN Property and is now deregistered. There was no appearance by ASIC.

  9. At the hearing, the plaintiffs relied on a substantial amount of lay, documentary and expert evidence in support of their claims. The Court book comprised eleven volumes. During the course of the hearing, the plaintiffs provided three additional volumes, as well as detailed schedules referring to and summarising some of the documentary evidence relied on.

  10. I have been assisted by the summary schedules prepared by the plaintiffs as well as by the written and oral submissions from their senior and junior counsel.

  11. The lay evidence comprises two affidavits from Mr Wang, two affidavits from Robert Wolton (the farm manager of the Blueberry Farm), and an affidavit from Susan Wahhab, a partner of Money Intelligence Pty Ltd, formerly trading as Winner Partnership Pty Ltd (Winner Partnership), an accounting and wealth advisory practice that was engaged by Ms Wang on behalf of JN Investments, JN Agribusiness and JN Property from September 2013 to mid-2017. The plaintiffs also read two extracts from an affidavit affirmed by Ms Wang.

  12. The plaintiffs also rely on an expert report of Jennifer Exner, a partner in the forensic practice of Deloitte Risk Advisory Pty Ltd (Exner Report). Ms Exner was provided with bank records and financial statements relating to JN Investments, JN Agribusiness and JN Property which had been prepared by the Winner Partnership for the 2013–2016 financial years, and revised financial records for the same years which had been prepared by Ms Evelyn Xie of E-AccounTax. Ms Exner analysed the records and reported on:

  1. the amounts paid to Ms Wang and Ms Li (and their companies) and the purpose or nature of the payments made;

  2. the details of loans made by Ms Wang and Ms Li (or their companies) to JN Investments, JN Property and JN Agribusiness; and

  3. the amounts, if any, paid to Henan and Mr Wang.

Facts

  1. Before dealing with the claims, I set out some further details about the parties and the factual matters that give rise to the claims made. The details are drawn from the unchallenged evidence before the Court.

The parties

  1. Mr Wang is a Chinese businessman. He does not speak or read English. During 2013 and 2017, Mr Wang spent most of his time in China, where he was a resident and national.

  2. Ms Wang was born in China and is an Australian resident. According to her tax return for the 2011 financial year, during 2010 and 2011, Ms Wang worked for the Department of Trade and Investment. She has been a director of four companies in Australia, a company secretary of two companies and has held shares in seven.

  3. Ms Li was born in China and trained as a lawyer. She has been a director of two companies in Australia and has held shares in one company.

  4. Ms Wang and Ms Li both speak and read English and Chinese.

  5. Mr Wang first met Ms Wang in March 2009 at an Australian investment promotion conference in Beijing, China. Ms Wang’s business card identified her as a director of PRIMEX, NSW Department of Primary Industries.

  6. After meeting, Mr Wang had a number of telephone conversations with Ms Wang. During one of those calls, Ms Wang told Mr Wang that she could assist him if he was interested in investing in Australia.

  7. In March 2012, Mr Wang met with Ms Wang in Beijing and told her that his company, Henan, remained interested in investing in Australia and asked for her advice. Ms Wang said she would be willing to provide investment assistance and legal advice and that she had many contacts in government. At that time, she also recommended Ms Li as a lawyer who could assist him.

  8. In May 2012, Mr Wang met Ms Li in Zhengzhou. Ms Li’s business card indicated that she was a partner in Tongshang, a Chinese law firm. Ms Li told Mr Wang that she had been a lawyer in Australia, that she was “well versed in the laws of Australia and China” and that she could assist him to maximise returns on investments if he decided to do business in Australia.

  9. In August 2012, Mr Wang, Ms Wang and Ms Li discussed going into business together. At the time, Mr Wang understood that Ms Wang was employed by an Indonesian company.

  10. In early February 2013, Ms Wang invited Mr Wang to come to Sydney to discuss working together and investing in Australia. He met with Ms Wang and Ms Li at “The Canopy” café in Liverpool Street, Sydney on 25 February 2013. During the meeting, Ms Wang and Ms Li presented to Mr Wang on how he could conduct business with them in Australia. The presentation lasted for approximately one hour.

  11. During the presentation, Ms Wang and/or Ms Li said to Mr Wang that:

  1. they would form a company in Sydney for the purposes of making investments in Australia;

  2. each of them would be a director of the company and Ms Wang would be the company secretary;

  3. Mr Wang would hold 90% of the share capital in the company and each of Ms Wang and Ms Li would hold 5%;

  4. each of them would receive a third of the net profits of the business;

  5. none of them would be paid any fees or salary. They would only seek reimbursement for expenses reasonably incurred in the course of business for the company;

  6. Ms Wang and Ms Li would be responsible for the day to day management of the company and Ms Wang would be responsible for regular reporting to Mr Wang; and

  7. Mr Wang would be responsible for raising funds for the company and would participate in the company’s management as required.

  1. After the presentation, Mr Wang told Ms Wang and Ms Li that he agreed with their explanation of how the joint venture would work. He also told them that he agreed to their joint venture proposal and that he would arrange for Henan to obtain the funds for the company through loans from China. He asked Ms Wang and Ms Li to start preparing the documents to incorporate the company according to their proposal.

The establishment of JN Investments

  1. On 26 February 2013, Mr Wang, Ms Wang and Ms Li attended ASIC’s registry and lodged the forms to incorporate JN Investments (then known as Zheng Zhoug Jin Niu Industrial (Group) Australia Pty Ltd). Mr Wang, Ms Wang and Ms Li were recorded as directors and Ms Wang as company secretary. JN Investments’ share capital was recorded as AUD$6 million, with Mr Wang holding 5,400,000 ordinary shares and Ms Wang and Ms Li each holding 300,000.

  2. Sometime between 26 February and 17 June 2013, Mr Wang had a conversation with Ms Li and Ms Wang during which they told him that $6 million share capital was not necessary and that $600,000 was sufficient. During that period, they also discussed fund raising progress in China, the foreign exchange permit application to the Chinese government and a plan to research a blueberry farm project in Australia.

  3. On 17 June 2013, Mr Wang arranged the transfer of $449,999 to bank accounts nominated by Ms Wang and Ms Li to provide equity capital for JN Investments. The amount transferred was by way of eight deposits of $50,000 and one deposit of $49,999. At around this time, Ms Li and Ms Wang told Mr Wang not to transfer any more money, that Ms Li would contribute the remaining $150,000 and that she would get that amount back from JN Investments.

  4. In mid to late June 2013, an account in the name of JN Investments was established with the China Construction Bank Corporation Limited (CCB) in Sydney (account initially ending in 3297 and then ending in 0050) (CCB Account). Between 18 June and 26 June 2013, $600,000 was deposited into the CCB Account made up of two deposits of $150,000 from Ms Li, one deposit of $150,036 from Ms Wang, and three deposit amounts of $49,988 from others.

  5. On 24 June 2013, JN Investments’ share capital and allocations were corrected at ASIC to provide for share capital of $600,000 and 600,000 ordinary shares on issue of $1 each, with 540,000 held by Mr Wang and 30,000 each held by Ms Wang and Ms Li.

Retainer of Winner Partnership and preparation of financial statements

  1. In around September 2013, Ms Wang retained Winner Partnership to provide accounting, tax and financial advice to JN Investments. That retainer was later expanded to include JN Property, the JN Property Trust and JN Agribusiness.

  2. During the course of Winner Partnership’s retainer, Ms Wahhab prepared financial statements and tax returns for JN Investments, JN Property, the JN Property Trust and JN Agribusiness in relation to the 2013 to 2016 financial years based on instructions from Ms Wang and Ms Li.

  3. Relevantly, those instructions included that regular cash payments that Ms Wang and Ms Li received, usually on a monthly basis, should be recorded in the financial statements as loans they owed to JN Investments and that certain initial $20,000 payments to each of them should be recorded as consulting fees. Ms Wahhab’s evidence is that Ms Wang and Ms Li also instructed her that they were going to bring in their own money to invest in JN Investments.

  1. During the course of her retainer, Ms Wahhab also recorded cash payments made from JN Investments and JN Agribusiness to Ms Wang and Ms Li as expense reimbursements. She did so based on information contained in “reimbursement” spreadsheets she received from Ms Wang each fortnight or month. The spreadsheets itemised amounts which Ms Wang and Ms Li claimed as business expenses. Copies of the reimbursement spreadsheets are in evidence, as are some of the underlying receipts.

  2. On 17 December 2013, Mr Wang’s 540,000 shares in JN Investments were transferred to Henan. That change was made by Winner Partnership on instructions from Ms Wang without Mr Wang’s knowledge or consent. It is not clear on the evidence why that change was made.

  3. On 18 December 2013, an amount of $120,000 was recorded as a “share allocation” against each of Ms Wang and Ms Li’s loan accounts with JN Investments. The effect of these share allocations was to record a reduction in the amount of the loans owing by Ms Wang and Ms Li to JN Investments by $120,000. The allocations were made by Ms Wahhab based on instructions from Ms Wang that she and Ms Li had each initially transferred $150,000 to JN investments by way of share capital.

Funding to JN Investments

  1. Between 8 October 2013 and 27 January 2015, Mr Wang arranged for Henan to advance funds by way of loans to JN Investments totalling $10,785,766.83, as follows:

8 October 2013   $3,467,634

23 June 2014   $1,054,753

25 August 2014   $1,001,934.25

29 October 2014   $606,617.65

27 January 2015   $4,654,827.93

  1. The funds advanced by Henan were deposited into JN Investments’ CCB Account and recorded in JN Investments’ financial ledger as a credit to Henan’s loan account. There are no written loan agreements in respect of the amounts advanced.

  2. Mr Wang’s evidence is that the funds were “to be used to make investments for JN Investments” and that he did not consent to them being used for any other purpose. The circumstances surrounding the transfer of those amounts to JN Investments and the use to which they were put are described in more detail below.

Acquisition of the Hyde Apartment

  1. In around July 2013, Ms Wang contacted Mr Wang and suggested they invest in a property in Sydney for $3 million which could be used as a residential apartment and office. Ms Wang advised Mr Wang that, as the property was residential and second-hand and Mr Wang was a foreigner, it could not be bought in his name or that of JN Investments but she and Ms Li could buy it and it would “belong to the company”. Mr Wang agreed.

  2. On 8 October 2013, Mr Wang caused Henan to deposit the amount of $3,467,634 into the CCB Account to cover the purchase of the property by Ms Wang and Ms Li.

  3. On the same day, two amounts totalling $3,010,000 were transferred from the CCB Account; $1,585,000 to an account in the name of Ms Li and $1,425,000 to an account in the name of Ms Wang.

  4. On 10 October 2013, an apartment in “The Hyde”, 2801/157 Liverpool Street, Sydney, being Lot 114 in Strata Plan 83861 (Hyde Apartment) was purchased by Ms Wang and Ms Li as tenants in common in equal shares for $3 million.

  5. On 13 December 2013, JN Investments’ registered office was changed to the address of the Hyde Apartment.

  6. Mr Wang agreed to pay the costs of the Hyde Apartment. On 17 April 2014, he opened an account at the Bank of China, Haymarket branch. Although Mr Wang made two deposits into that account, according to the financial statements in evidence, some of the Hyde Apartment costs were funded by JN Investments.

Acquisition of the Blueberry Farm

  1. In December 2013, at a meeting in Sydney, Ms Wang showed Mr Wang a business report about a blueberry farm and suggested it as a good investment. Shortly afterwards, Mr Wang visited the farm, which was located in Fairy Hill, NSW.

  2. Due to a delay in raising funds in China, Ms Wang proposed to Mr Wang that the purchase of the Blueberry Farm be funded by way of a loan to Ms Wang and Ms Li for $1 million to be secured by a mortgage over the Hyde Apartment. Mr Wang agreed to the purchase of the farm being funded by a loan but told Ms Wang that the loan had to be paid in full immediately after he transferred sufficient funds to JN Investments.

  3. On 8 April 2014, Ms Wang transferred $1,099,865.50 into JN Investment’s CCB Account, which were from funds that Ms Wang and Ms Li had borrowed from Westpac. Their loan from Westpac was secured by a mortgage which was registered on the title to the Hyde Apartment (Westpac mortgage). JN Investments’ financial ledger records that an amount of $549,932.75 was credited to each of Ms Wang and Ms Li’s loan accounts on 8 April 2014.

  4. On 21 May 2014, JN Investments became the registered proprietor of the land on which the Blueberry Farm is situated (being Lot 5 in Deposited Plan 817939) (Blueberry Farm) for $750,000.

  5. On 23 June 2014, Mr Wang arranged for Henan to transfer the amount of $1,054,753 to JN Investments to enable Ms Wang and Ms Li to discharge the Westpac mortgage, in accordance with the discussions referred to in [56].

  6. On 26 June 2014, $1 million was transferred from JN Investments’ CCB account to a Westpac account jointly held by Ms Wang and Ms Li with account number ending 9528 (Joint Account). Ms Wang and Ms Li did not use the $1 million to immediately discharge the Westpac mortgage. Rather, the evidence demonstrates that they instructed Ms Wahhab to record that JN Investments had made “investment” loans of $500,000 to each of them. They then appeared to have used the $1 million for other purposes, including to make loan payments in reduction of their loans from JN Investments and JN Agribusiness.

  7. In particular, the evidence discloses that:

  1. following the transfer on 26 June 2014 of the $1 million, Ms Wang and Ms Li’s Joint Account had a balance of $1,040,538.70;

  2. on 1 September 2014, the balance of the Joint Account, being a sum of $1,032,825.65, was withdrawn, and deposited:

  1. as to $549,552.22 into a Westpac loan account jointly held by Ms Wang and Ms Li with account number ending 4026 (the 4026 Account), which had previously been overdrawn in the amount of $549,522.22; and

  2. as to $483,273.43 into a Westpac loan account jointly held by Ms Wang and Ms Li with account number ending 5627 (the 5627 Account), which had previously been overdrawn in the amount of $549,552.34;

  1. on 14 October 2014, the sum of $600,000 was withdrawn from the 4026 Account and on 15 October 2014, the same amount was deposited into JN Investments’ CCB Account. This is recorded in JN Investments’ financial ledger as loan payments made by Ms Wang and Ms Li to JN Investments;

  2. on 13 February 2015, an amount of $100,000 was withdrawn from the 5627 Account and applied towards an unknown purpose;

  3. on 16 February 2015, a further $100,000 was withdrawn from the 5627 Account and deposited into an account held by JN Agribusiness at ANZ. This amount is recorded as loan payments made by Ms Wang and Ms Li to JN Agribusiness in JN Agribusiness’ financial ledgers;

  4. on 26 October 2015, $220,386.33 was withdrawn from JN Investments’ CCB Account and deposited into the 5627 Account. This is recorded in JN Investments’ financial ledger as loans of $110,193.17 made to Ms Wang and Ms Li by JN Investments;

  5. on 11 December 2015, $300,000 was withdrawn from JN Investments’ CCB Account and deposited into the 4026 Account. This is recorded in JN Investments’ financial ledger as loans of $150,000 made to Ms Wang and Ms Li by JN Investments;

  6. on 15 February 2016, $250,000 was withdrawn from the 5627 Account and, on 16 February 2016, the same amount deposited into JN Investments’ CCB Account. This appears in the financial ledger as loan payments made by Ms Wang and Ms Li to JN Investments; and

  7. on 21 June 2016, $150,000 was withdrawn from the 4026 Account, and deposited in JN Agribusiness’ ANZ account. This is recorded as another loan payment made by Ms Wang and Ms Li to JN Agribusiness in the financial ledger.

Transfer of further funds by Henan

  1. On 25 August 2014, Mr Wang caused Henan to transfer the amount of $1,001,934.25 into JN Investments’ CCB Account. The evidence does not identify why Mr Wang arranged to transfer that amount to JN Investments on that day.

Establishment of JN Agribusiness, JN Property and the JN Property Trust

  1. On 23 September 2014, Ms Wang and Ms Li caused NSW Land and NSW Asset Holdings Pty Ltd (NSW Asset Holdings) to be incorporated. Ms Li was registered as the sole director and shareholder of NSW Land. Ms Wang was registered as the sole director and shareholder of NSW Asset Holdings.

  2. On the same day, Ms Wang and Ms Li caused JN Property to be incorporated and the JN Property Trust to be settled, with JN Property appointed as the corporate trustee.

  3. JN Property was registered as having 100 dividend shares and 100 ordinary shares on issue at $1 each. 60% of the shares were recorded as being held by Mr Wang and 20% by each of NSW Land and NSW Asset Holdings. Mr Wang, Ms Wang and Ms Li were registered as the directors.

  4. On 23 September 2014, Ms Wang and Ms Li executed an Application for Units in the JN Property Trust and the JN Property Trust Deed. The documents provided for 60 units in the JN Property Trust to be issued to Mr Wang, 20 units to NSW Land as trustee for the NSW Land Trust, and 20 units to NSW Asset Holdings as trustee for the NSW Asset Holdings Trust.

  5. Mr Wang did not execute any instrument or participate in any resolution to give effect to the incorporation of JN Property, the establishment of the JN Property Trust or the allocation of shares and units in those entities.

  6. On 29 September 2014, Ms Wang and Ms Li caused JN Agribusiness to be incorporated as the management company for the Blueberry Farm business. Mr Wang, Ms Wang and Ms Li were registered as directors. JN Agribusiness was registered as having 100 dividend and 100 ordinary shares on issue at $1 each, with Mr Wang holding 40% of the shares and Ms Wang and Ms Li each holding 30%.

  7. There is evidence that Mr Wang signed a page from a Share Application Journal recording an application by him for shares in JN Agribusiness and a document recording his consent to act as a director, both of which are dated 29 September 2014.

  8. Mr Wang’s evidence is that he did, on occasion, sign documents in English which he did not ask to be translated by Ms Wang, including at a meeting on 30 September 2014 at the offices of Baron & Associates (the then solicitors for JN Investments), and that he was not aware of JN Agribusiness until late in 2017. Based on his evidence, I consider it open to find that, when Mr Wang signed the documents referred to in [69], he did so not knowing that he was consenting to be a director of JN Agribusiness or applying for shares which provided him with 40% of the equity.

Management of Blueberry Farm by JN Agribusiness

  1. On 8 October 2014, Mr Wolton met with Ms Wang and Ms Li and signed an employment contract with JN Agribusiness as the farm manager of the Blueberry Farm. He worked as the Blueberry Farm manager from that day.

  2. On around 10 October 2014, an account at the ANZ bank (ending in 7768) was established in the name of JN Agribusiness (ANZ Account).

  3. On 21 October 2014, an initial deposit of $200,000 was made into JN Agribusiness’ ANZ Account and a corresponding withdrawal made from JN Investments’ CCB Account.

  4. According to the Exner Report, the operational costs and trading losses of the Blueberry Farm were funded by JN Investments. JN Agribusiness’ financial statements record that, as at 30 June 2017:

  1. JN Agribusiness’ total trading losses amounted to $1,025,438;

  2. the balance of the loans owed by JN Agribusiness to JN Investments was $1,856,767; and

  3. JN Agribusiness held assets valued at $724,896.15.

  1. The Exner Report also identifies that JN Investments did not charge JN Agribusiness any rent for the occupation of the Blueberry Farm. This is consistent with a letter dated 25 January 2017 from the Australian Taxation Office to JN Investments which states that “there was an agreement between JNA (JN Agribusiness) and you (JN Investments) whereby the former would be running the farming operations and that no rent was currently being paid. You (Ms Wang) explained there was a belief that rent would be paid in the future based on the expected profits of the farming of the blueberries”.

Interest in the Lane Cove Property

  1. In September 2014, Mr Wang became aware of an opportunity to invest with two other parties in a venture to purchase and develop property located over three titles situated at 25-29 Longueville Road, Lane Cove, Sydney, being Lot 78 in Deposited Plan 1055896 and Lots 12 and 13 in Deposited Plan 808119 (Lane Cove Property).

  2. In about October 2014, Mr Wang, Ms Wang and Ms Li met with representatives of one of the parties and agreed to contribute funds in return for a 33% interest in the Lane Cove Property project. That interest was subsequently increased to 35%, based on a contribution of $3,255,000. Mr Wang told Ms Wang and Ms Li that once the Lane Cove Property project “was complete”, the funds would go back to JN Investments and the net profit would be split between them.

  3. As events transpired, the funding arrangements for the Lane Cove Property project were structured such that JN Investments’ funds were used to pay $3,255,000 for an interest in the Lane Cove Property and to lend additional amounts to one of the parties, BMV Developments Pty Ltd, which were later repaid and on which JN Investments was paid interest, as follows:

Date

Withdrawal ($)

Deposit ($)

Payments from JN Investments

24/10/2014

558,600.00

18/12/2014

402,990.50

6/02/2015

2,358,379.85

6/02/2015

1,438,375.79

6/02/2015

703,244.36

Repayments to JN Investments

27/03/2015

1,500,000.00

22/07/2015

706,590.50

Total

5,461,590.50

2,206,590.50

Net (35%)

3,255,000.00

Interest on additional amounts lent

22,683.77

  1. As noted earlier, Henan transferred to JN Investments the amount of $606,617.65 on 29 October 2014 and the amount of $4,654,827.93 on 27 January 2015. Based on the timing of those payments, I accept they were made to cover the costs relating to the investment in the Lane Cove Property project.

  2. Between 13 and 16 February 2015, JN Property was registered as having acquired title to a 35/100 share in the Lane Cove Property as a tenant in common with BMV Developments Pty Ltd (holding an 35/100 interest) and Claireleigh Lane Cove Pty Ltd (holding an 30/100 interest).

  3. At that time, Mr Wang was not aware that JN Property, as trustee for the JN Property Trust, acquired the 35/100 interest in the Lane Cove Property.

Change to JN Property Trust unit holdings

  1. In August 2015, Ms Wang and Ms Li instructed Baron & Associates to prepare documents to equalise the number of shares and units that the parties held in JN Property and the JN Property Trust. On 4 August 2015, Baron & Associates sent Ms Wang and Ms Li draft documents to effect those instructions, including minutes of a meeting of the directors of JN Property dated 24 September 2014 which recorded resolutions in relation to the transfer and issue of shares and units. The documents were not provided to Mr Wang.

  2. The 2015 financial statements for JN Property Trust record that, with effect from 24 September 2014, the unit holdings in the JN Property Trust were equalised, with each of Mr Wang, NSW Land and NSW Asset Holdings holding (and continuing to hold) 34 units. The change to the unit holdings was effected by the transfer from Mr Wang of 13 units to each of NSW Land and NSW Asset Holdings and the issue of 1 unit to each of NSW Land and NSW Asset Holdings.

  3. Mr Wang did not execute any instrument or participate in any resolution giving effect to the transfer or issue of the units in the JN Property Trust.

Sale of Hyde Apartment

  1. In around September 2016, Mr Wang, Ms Wang and Ms Li agreed to sell the Hyde Apartment. During discussions about a possible sale of JN Investments’ assets, Mr Wang told Ms Wang that, once tax and other expenses had been deducted, the sale proceeds had to be transferred to JN Investments, after which the net profits could be distributed equally amongst them and Ms Li.

  2. On 10 December 2016, the Hyde Apartment was sold by Ms Li and Ms Wang for $3.85 million and the Westpac mortgage in the amount of $1.1 million was discharged.

  3. The Hyde Apartment sale proceeds totalling $2,664,199.52 were paid into a joint account in the names of Ms Wang and Ms Li. As at the date of the hearing, those sale proceeds had been distributed by Ms Wang and Ms Li as follows:

  1. $300,000 was paid into JN Agribusiness’ ANZ Account on 15 December 2016;

  2. $150,000 was paid into JN Investments’ CCB Account on 15 December 2016;

  3. $1.1 million was paid to Ms Li; and

  4. $1.1 million was paid to Ms Wang.

  1. After the sale of the Hyde Apartment, Mr Wang telephoned Ms Wang multiple times about the sale proceeds. On at least one occasion, Mr Wang asked Ms Wang to confirm that the sale proceeds had been transferred to JN Investments’ bank account. Ms Wang informed him that they had.

2017: Retainer of E-AccounTax and change in approach to accounting

  1. In late January 2017, Ms Wang telephoned Ms Wahhab and advised her that she wanted to borrow money to buy another property in the Sydney CBD and needed payslips going back to July 2016 to show that she had a gross income of about $180,000. She instructed Ms Wahhab to work out the tax, super and other requirements if she was to be paid a gross income of $180,000, made up of $30,000 in wages from JN Investments and $150,000 in wages from JN Agribusiness. According to those instructions, in March 2017, Ms Wahhab arranged for payslips from JN Agribusiness and JN Investments to be prepared and sent to Ms Wang.

  2. In about May 2017, Ms Wang terminated Ms Wahhab’s retainer and engaged Ms Xie of E-AccounTax as the accountant for JN Investments, JN Agribusiness, JN Property and the JN Property Trust.

  3. Ms Xie subsequently prepared revised financial statements for JN Investments and JN Agribusiness for the 2013-2016 financial years.

  4. According to the Exner Report, approximately $1.35 million in payments made by JN Investments to Ms Wang and Ms Li, which, in the Winner Partnership financial statements, had been accounted for as loans owing by them to JN Investments, were reclassified in Ms Xie’s revised financial statements as payments for wages of the company. This had the effect of treating the amount of $1.35 million paid to Ms Wang and Ms Li as no longer owing by them to JN Investments. The revised financial statements recorded $1.44 million as the wage expense of JN Investments and also recorded a reduction in the consulting fees expense (of $97,000) and a reduction in travel related expenses (of $101,398).

  5. In the case of JN Agribusiness, Ms Xie’s revised financial statements for the 2016 financial year recorded an increase in the amount of the loans owed by each of Ms Wang and Ms Li to the company by around $95,000.

Events leading to these proceedings

  1. By the second half of 2017, Mr Wang began to have concerns about the lack of information provided to him about JN Investments. Despite repeated requests to do so, Ms Wang and Ms Li had failed to provide Mr Wang with copies of any of the books, records and bank statements relating to JN Investments. Nor had they provided him with contact details for the accountants they had retained to act on behalf of JN Investments or updated him on progress made in trading in respect of the Blueberry Farm or on the Lane Cove Property development.

  2. In late November 2017, on a trip to Sydney, Mr Wang attended a CCB branch with Ms Wang and Ms Li. Mr Wang observed that the balance of the funds held in JN Investments’ accounts was in the “thousands”. Having regard to the amount of the funds advanced by Henan and the sale proceeds from the Hyde Apartment, Mr Wang expected to see a balance of several million dollars. He was later provided with bank statements for the CCB Account and another account.

  1. Mr Wang asked Ms Wang what had happened to the funds and was told that “it should be in one of the bank accounts”. After attending a nearby ANZ branch and identifying that the “missing money” was not in any ANZ account, Mr Wang arranged for the balance of the ANZ accounts to be transferred to JN Investments’ CCB Account and instructed CCB to freeze all funds pending further instructions.

  2. In early December 2017, Mr Wang received from the Winner Partnership copies of the financial records relating to JN Investments, JN Agribusiness and the JN Property Trust. On a review of those records, Mr Wang became aware of the existence of JN Agribusiness, JN Property, the JN Property Trust and his respective holdings in those entities. He also became aware that Ms Wang and Ms Li had received various payments from JN Investments and JN Agribusiness which were recorded in the financial statements as consulting fees, reimbursement for business expenses and loans or salary.

  3. On 14 December 2017, Mr Wang and Ms Wang met in Sydney and discussed the transfer of funds from JN Investments to Ms Wang and Ms Li. Ms Wang asserted that some of the money was “salary”. Mr Wang disputed their entitlement to salary noting that they had agreed only to share net profits. Following that meeting, Mr Wang instructed lawyers and an accountant to assist him to understand what had happened to the funds and transactions.

  4. On 7 February 2018, Ms Wang resigned as director and company secretary from JN Agribusiness and JN Investments. NSW Land had previously been deregistered on 20 February 2017.

  5. As noted earlier, the proceedings were commenced on 26 June 2018.

  6. On 3 December 2018, JN Property’s 35/100 interest in the Lane Cove Property was sold to BMV Developments Pty Limited for $3,525,072.00.

The claims and issues for determination

  1. The Further Amended Commercial List Statement (FACLS), filed on 25 October 2019, advances a range of claims against Ms Wang and Ms Li. The Third Amended Summons, filed on 29 November 2019, sets out the final relief sought. The nature of some of the trust claims and pecuniary relief was also the subject of supplementary materials received on 26 and 29 November 2019.

  2. As finally put, the plaintiffs’ claims and relief sought against Ms Wang and Ms Li can be summarised as follows.

  3. First, they claim that Ms Wang and Ms Li have retained the net sale proceeds of the Hyde Apartment in breach of trust in favour of JN Investments and that they did so in furtherance of a dishonest and fraudulent design or having knowingly procured the other to act in breach of trust. They claim that Ms Wang and Ms Li are liable to account and that JN Investments is entitled to declaratory relief and equitable compensation in respect of the net sale proceeds: FACLS at [31D], [31DE], [31E], [37], [37A]; Third Amended Summons at [11], [12], [13] and [24].

  4. Second, they claim that the 35/100 interest in the Lane Cove Property was held by JN Property on resulting or constructive trust in favour of JN Investments, or alternatively, in favour of Henan following breach by JN Investments of a Quistclose trust over the funds advanced to it by Henan. They claim that the proceeds from the sale of the interest in the Lane Cove Property are also held by JN Property on trust and that JN Investments, or alternatively, Henan, is entitled to declaratory relief to that effect: FACLS at [31F], [31G], [33(e)], [38]; Third Amended Summons at [24A].

  5. Third, they claim that Ms Wang and/or Ms Li caused cash payments to be made to themselves from JN Investments’ funds in breach of their statutory duties and fiduciary obligations as directors of JN Investments and in breach of the JV Agreement. They also claim that, in making the cash payments to Ms Wang and Ms Li, JN Investments acted in breach of a Quistclose trust over the funds it held in favour of Henan: FACLS [30(c)], [31], [32] and [33].

  6. The plaintiffs allege that Ms Wang and Ms Li knowingly assisted or induced each other in their breaches of fiduciary obligations to JN investments in furtherance of a dishonest and fraudulent design to appropriate funds from JN Investments for their own benefit. They also allege that Ms Wang and Ms Li knowingly assisted JN Investments in furtherance of a dishonest and fraudulent design to appropriate funds towards purposes other than the joint venture: FACLS [34] and [34A]. They claim that Ms Wang and/or Ms Li are liable to account as constructive trustees and to compensate JN Investments and Henan, or alternatively Mr Wang, for the unauthorised payments and seek declaratory relief and equitable compensation: FACLS [36]; Third Amended Summons [7], [10], [12], [13] and [24].

  7. Fourth, they claim that the $1 million which was provided to Ms Wang and Ms Li for the purposes of discharging the Westpac mortgage was held on resulting trust in favour of JN Investments and that they used those funds for other purposes in breach of that trust: FACLS [31BC] – [31BE].

  8. Fifth, they claim that the creation and issue of shares and units in JN Agribusiness, JN Property and the JN Property Trust by Ms Wang and Ms Li was in breach of the JV Agreement and in breach of fiduciary duties they owed to Mr Wang as joint venturers. They also claim that the breaches of fiduciary duty were in furtherance of a dishonest and fraudulent design and that NSW Land and NSW Asset Holdings assisted with those breaches with knowledge of the design: FACLS at [24] to [27]. Mr Wang claims that Ms Wang, Ms Li, NSW Land and NSW Asset Holdings’ interests in JN Agribusiness, JN Property and the JN Property Trust, to the extent they hold more than 5% of the shares and units, are held on constructive trust. Mr Wang seeks declaratory relief and orders that those interests be transferred to him or, alternatively, damages: FACLS [28], [29], [36(e)] and [36(f)]; Third Amended Summons [7], [15] to [23].

  9. Sixth, they claim that Ms Wang and Ms Li used JN Investments’ funds to purchase the 35/100 interest in the Lane Cove Property by JN Property (as trustee) and to enable JN Agribusiness to occupy the Blueberry Farm on a rent free basis in breach of Ms Wang and Ms Li’s fiduciary and director’s duties owed to JN Investments and in breach of the JV Agreement. They also claim that the use of the funds for those purposes was a breach by JN Investments of the Quistclose trust in favour of Henan: FACLS [31F] to [31H], [32A], [33]. The plaintiffs claim that Ms Wang and Ms Li knowingly assisted each other in their breaches of fiduciary duty and knowingly assisted JN Investments in its breach of trust and are liable to account as constructive trustees and to compensate JN Investments, or alternatively Henan, or alternatively Mr Wang, for gains made: FACLS [34], [34A].

  10. As is evident, the claims advanced by the plaintiffs are based on a range of legal and equitable relationships that they allege arose out of the discussions between the parties on 25 February 2013 and their subsequent dealings. Before dealing with the particular claims, it is necessary to first consider the nature of the relationships and whether they give rise to the particular obligations asserted.

  11. The key relationships and obligations asserted are that: Ms Wang and Ms Li were directors of JN Investments and owed it statutory and fiduciary duties; Ms Wang and Ms Li were parties to a legally binding agreement and joint venture with Mr Wang which gave rise to fiduciary obligations between them; and JN Investments held funds advanced to it pursuant to a Quistclose trust in favour of Henan.

  12. As directors of JN Investments, there is no doubt that Ms Wang and Ms Li owed duties to JN Investments to exercise their powers and discharge their duties in good faith in the best interests of JN Investments and for a proper purpose, and to not improperly use their position to gain an advantage for themselves or cause detriment to JN Investments: ss 181 and 182 of the Corporations Act 2001 (Cth) (Corporations Act).

  13. Ms Wang and Ms Li also owed fiduciary duties to JN Investments to not promote their personal interests by making or pursuing a gain in circumstances in which there was a conflict, or a possibility of a conflict between their interests and those of the company: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 at 103 per Mason J (Hospital Products); ASIC v Adler [2002] NSWSC 171 at [735] per Santow J.

  14. Before dealing with each of the six claims, the two issues that arise for consideration are:

  1. whether there was a legally binding agreement entered into by Mr Wang, Ms Wang and Ms Li on 25 February 2013 and/or whether there was a fiduciary relationship between the parties arising from the joint venture; and

  2. whether the funds advanced to JN Investments were held on and subject to a Quistclose trust in favour of Henan.

Was there a binding joint venture agreement and did it give rise to fiduciary obligations?

  1. The plaintiffs claim that, on 25 February 2013, Mr Wang, Ms Wang and Ms Li entered into a joint venture (referred to as the JV Agreement or Joint Venture), the terms of which were that:

  1. they would incorporate a joint venture company to invest in Australian assets;

  2. Mr Wang or his nominee would be issued 90% of the equity of the corporate entity through which the Joint Venture might invest in Australian assets;

  3. Ms Wang and Ms Li or their respective nominees would each be issued 5% of the equity in the joint venture company;

  4. Mr Wang or his nominee would advance funds to the joint venture company to provide working capital for the Joint Venture;

  5. Ms Wang and Ms Li would manage the affairs of the Joint Venture but did not have to provide any funding;

  6. each of Mr Wang, Ms Wang and Ms Li would be directors of the joint venture company;

  7. none of Mr Wang, Ms Wang and Ms Li would receive any remuneration from the joint venture company; and

  8. each of Mr Wang, Mr Wang and Ms Li would receive one third of any profits earned by conducting the business of the Joint Venture.

  1. The agreement is alleged to have been made orally and in Mandarin.

  2. The plaintiffs also allege that, by reason of the terms of the JV Agreement that provided for Mr Wang to advance funds and for Ms Wang and Ms Li to manage the affairs of the Joint Venture and not provide funding, Ms Wang and Ms Li assumed responsibility to act in Mr Wang’s best interests, and thereby owed him fiduciary obligations in relation to the affairs of the Joint Venture.

  3. I am satisfied that Mr Wang, Ms Wang and Ms Li entered into a binding agreement on 25 February 2013 on the terms alleged by the plaintiffs. The terms alleged reflect the terms of the joint venture proposal proffered by Ms Wang and Ms Li. That proposal was accepted by Mr Wang on that day.

  4. While not in writing, the terms of the joint venture proposal which were proposed by Ms Wang and Ms Li and accepted by Mr Wang were sufficiently certain for a binding agreement of the nature asserted by the plaintiffs. Although somewhat high level and informal, they provided for the key rights and obligations of the parties in respect of the business arrangement that they had agreed to pursue. Those rights and obligations continued to govern the business arrangement after the agreement was entered into on 25 February 2013.

  5. To the extent there is any dispute that Ms Wang and Ms Li entered into a binding agreement, the subsequent conduct of the parties may be considered in determining the existence of the asserted contract: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25], [71]-[81] per Heydon JA.

  6. The subsequent conduct of the parties is also consistent with the formation of a binding contract in the terms alleged and agreed. On 26 February 2013, Ms Wang, Ms Li and Mr Wang incorporated JN Investments, appointed themselves as directors and took shareholdings in proportions consistent with what had been agreed. Mr Wang provided funding for investments that were made in Australian assets and Ms Wang and Ms Li took on the management of the business.

  7. Considered objectively, the language the parties employed when they met on 25 February 2013, the nature of the commercial arrangement and their subsequent conduct all point to the parties having mutually assented to a sufficiently clear regime which was intended to be binding as the essential elements of a contract: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [74]-[80]; Branir Pty Ltd v Owston Nominees(No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369] per Allsop J (as he then was).

  8. As to whether there was a joint venture, in United Dominions Corporation Ltd v BrianPty Limited (1985) 157 CLR 1; [1985] HCA 49 (United Dominions), Mason, Brennan and Deane JJ considered what was meant by that term, at 10:

“The term ‘joint venture’ is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, ‘adventure’) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a ‘joint venture’ and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred.”

  1. In this case, Mr Wang, Ms Wang and Ms Li associated together for a common purpose of carrying out commercial activities, namely, the investment in assets in Australia, for mutual commercial gain in the form of the profits which were to be shared equally. They each contributed to the joint undertaking, although not equally. Mr Wang contributed all the finances, whereas Ms Wang and Ms Li contributed their skills and experience in legal and business matters.

  2. The medium through which they agreed to carry out the joint activity was through an incorporated entity which was to be held by way of equity in the agreed proportions of 90/5/5, with Ms Wang and Ms Li’s lesser shareholdings reflecting their non-financial contributions. As directors of the incorporated entity, they were legally entitled to exercise joint control, although it was agreed that Ms Wang and Ms Li would be responsible for managing the affairs of the joint venture business and exercise practical control, which they did.

  3. Accordingly, I am satisfied that the relationship between Mr Wang, Ms Wang and Ms Li may be described as joint venturers and that they were parties to a joint venture agreement.

  4. Whether the relationship between Ms Wang, Ms Li and Mr Wang as joint venturers was fiduciary depends upon the form of their particular joint venture and upon the content of the obligations they undertook: United Dominions at 11.

  5. The JV Agreement provided for the incorporation of a joint venture vehicle, with all the participants in the joint venture becoming directors and shareholders.

  6. The plaintiffs accept that, as a general proposition, “equity does not impose fiduciary duties between the parties to a deliberate commercial decision to adopt a corporate structure in which they would owe duties but to the corporation and as directors”: Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at 160. But they submit that the form and content of the JV Agreement, the trust and confidence that Mr Wang reposed in Ms Wang and Ms Li and Mr Wang’s vulnerability and reliance on them, support the conclusion that fiduciary obligations to Mr Wang arose, notwithstanding the corporate structure adopted. In this case, I am persuaded by the plaintiffs’ submission.

  7. In my view, the terms of the JV Agreement and other facts provide the foundation for a fiduciary relationship between Ms Wang, Ms Li and Mr Wang that is independent of and co-exists with Ms Wang and Ms Li’s fiduciary duties owed to JN Investments that arise from the incorporated legal structure adopted by the parties: Fast Financial Solutions Pty Ltd v Crawford and Battye [2012] NSWSC 40 at [114] (Fast Financial).

  8. The authorities recognise that contractual and fiduciary relationships may co-exist and fiduciary obligations may be owed as between joint venture parties, both before and after a joint venture agreement is entered into: Hospital Products at 97. In this case, the terms of the JV Agreement are not inconsistent with the existence of a fiduciary relationship as they required Ms Wang and Ms Li to manage the joint venture business and the funds which were to be provided by Mr Wang. The terms also continued to govern the manner in which the corporate vehicle and joint venture business was to operate and be managed by Ms Wang and Ms Li.

  9. A critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another when exercising a power or discretion which will affect the interests of that other person in a legal or practical sense: Hospital Products at 96-97.

  10. As Dawson J said in United Dominions at 16:

“Although the relationship between participants in a joint venture which is not a partnership will be governed by the particular contract rather than extrinsic principles of law, the relationship may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another”.

  1. As Barrett J (as his Honour then was) stated in Fast Financial at [118], after reviewing the authorities:

“The High Court cases show that three factors will be crucial to the resolution of the question whether a fiduciary relationship or a fiduciary duty exists between parties associated together under some recognised legal structure (such as a contract or company shareholdings) not of its nature productive of fiduciary consequences: the nature and incidents of that recognised legal structure; whether there exists a special kind of vulnerability or reliance; and whether there is a strong degree of trust and custodianship.”

  1. The evidence establishes that there existed in Mr Wang a special kind of vulnerability and reliance on Ms Wang and Ms Li. He also placed a strong degree of trust and custodianship in them. That vulnerability, reliance and trust arose from circumstances over and above the corporate structure the parties put in place and needs protection by the recognition of a fiduciary relationship.

  2. At the time he entered into the JV Agreement, Mr Wang had explored but not undertaken any investment opportunities in Australia. He was not familiar with Australian commercial practices and had no knowledge of Australian laws and regulations, particularly in relation to business investment. Mr Wang believed that Ms Wang and Ms Li were experienced in dealing with those matters based on statements they made to him prior to entering into the JV Agreement and throughout their relationship. He trusted them to put together corporate structures, manage the joint venture company and business and deal with the funds which he was to provide in the manner agreed and provided for by the terms of the JV Agreement. Thus, the very foundation of the relationship between the parties was based on Mr Wang placing significant trust and confidence in Ms Wang and Ms Li.

  3. That relationship of trust and confidence continued over the period in which Mr Wang did business with Ms Wang and Ms Li while he remained in China. He relied on them when they proposed purchasing the Hyde Apartment in their names. He trusted them to manage the operations of the Blueberry Farm and to negotiate and complete the transactions relating to the purchase of the 35/100 interest in the Lane Cove Property. Ms Wang and Ms Li had practical custodianship over the significant funds Mr Wang arranged to be remitted to JN Investments.

  1. Order that, by 26 June 2020, the second defendant transfer, or cause to be transferred, to the third plaintiff:

  1. 25 dividend-V-R shares in the fourth defendant;

  2. 25 ordinary shares in the fourth defendant,

in default of which an appropriate judicial officer is authorised to execute any instrument of transfer on behalf of the second defendant for the purpose of giving effect to this order.

  1. The first and second defendants pay equitable compensation to the first plaintiff in the amount of $5,318,019.74 less the amount of stamp duty, conveyancing fees and adjustments on closing paid or payable on the sale of the Property and less any amounts recovered under order [6].

  2. Declare that the third defendant holds any proceeds from the sale of its interests in Lot 78 in Deposited Plan 1055896 and Lots 12 and 13 in Deposited Plan 808119 on the terms of the resulting trust in favour of the first plaintiff pleaded in paragraph 38(c) of the Further Amended Commercial List Statement.

  3. The first and second defendants pay the plaintiffs’ costs of the proceedings.

  4. Relist the proceedings at 9.45am on 10 July 2020 in the Commercial List for further directions in respect of the proceedings for the taking of accounts.

**********

Decision last updated: 29 May 2020

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Cases Cited

39

Statutory Material Cited

1

Jin Niu Investments Pty Ltd v Wang [2019] NSWSC 1697
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64
Australian Securities and Investments Commission v Adler [2002] NSWSC 171