Kim v Wang
[2023] FCAFC 115
•25 July 2023
FEDERAL COURT OF AUSTRALIA
Kim v Wang [2023] FCAFC 115
Appeal from: Kim v Hodgson Faraday Pty Limited [2022] FCA 1190 File number: NSD 972 of 2022 Judgment of: MOSHINSKY, LEE AND JACKMAN JJ Date of judgment: 25 July 2023 Catchwords: CORPORATIONS – misleading or deceptive conduct in relation to financial services – accessorial liability – where the applicant alleged at first instance that two companies (TM Index and TMK Index) made representations to potential investors that the companies’ investments were legitimate and regulated by the Australian Securities and Investments Commission – where the real issue at first instance was whether the respondent was involved in making the representations – where the primary judge was not satisfied that the respondent had actual knowledge of the making and falsity of the representations – whether the primary judge erred in not inferring that the respondent had actual knowledge of these matters Legislation: Australian Securities and Investments Commission Act 2001 (Cth), ss 5, 12DA, 12GF, 12GH
Corporations Act 2001 (Cth), s 79, 761A, 911A, 912DA, 913B, 913BA, 915A
Evidence Act 1995 (Cth), s 98
Federal Court of Australia Act 1976 (Cth), ss 28, 33C, 33H, 33J, 33V, 33ZB
Trade Practices Act 1974 (Cth)
Federal Court Rules 2011, r 39.05
Cases cited: Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439
Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342; 235 FCR 181
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Axon v Axon (1937) 59 CLR 395
Blatch v Archer (1774) 1 Cowp 63
Bowler v Hilda Pty Ltd [2000] FCA 899
Compaq Computer Australia Pty Ltd v Merry [1998] FCA 968; 157 ALR 1
Cooper v The Queen [2012] HCA 50; (2012) 87 ALJR 32
Coulton v Holcombe (1986) 162 CLR 1
Edwards v The Queen (1993) 178 CLR 193
Ethicon Sàrl v Gill [2021] FCAFC 29; (2021) 288 FCR 338
Fox v Percy [2003] HCA 22; 214 CLR 118
Giorgianni v The Queen [1985] HCA 29; (1985) 156 CLR 473
Girlock (Sales) Pty Ltd v Hurrell (1982) 149 CLR 155
Jones v Dunkel (1959) 101 CLR 298
Keller v LED Technologies Pty Ltd [2010] FCAFC 55; 185 FCR 449
Kozarov v Victoria [2022] HCA 12; 273 CLR 115
Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2010) 243 CLR 361
Lee v Lee [2019] HCA 28; 266 CLR 129
Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141
Moriarty v London, Chatham & Dover Railway Co (1870) LR 5 QB 314
NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270
NOM v Director of Public Prosecutions [2012] VSCA 198; (2012) 38 VR 618
Oran Park Motor Sport Pty Ltd v Fleissig [2002] NSWCA 371
Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2015] FCA 1067
Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; 160 FCR 1
R v Burdett (1820) 4 B & Ald 95; 106 ER 873
Roberts-Smith v Fairfax Media Publications Pty Limited (No 41) [2023] FCA 555
Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
The Zamora (No 2) [1921] 1 AC 801
Tozer Kemsley & Millbourn (A’Asia) Pty Ltd v Collier’s Interstate Transport Service Limited (1956) 94 CLR 384
Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125
Uniting Church in Australia Property Trust (NSW) v Allianz Australia Insurance Limited (Liability Judgment) [2023] FCA 190
Walplan Pty Ltd v Wallace (1985) 8 FCR 27
Warren v Coombes [1979] HCA 9; 142 CLR 531
Yorke v Lucas [1985] FCA 65; 158 CLR 661
Zervas v Burkitt (No 2) [2019] NSWCA 236
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 280 Date of last submissions: 31 May 2023 Date of hearing: 24 May 2023 Counsel for the Appellant: Mr BW Walker SC with Mr JE Mack and Mr TL Bagley Solicitor for the Appellant: RESURGAM Law Corporation Counsel for the Respondent: Mr DR Pritchard SC with Mr AJ Macauley Solicitor for the Respondent: KPL Lawyers ORDERS
NSD 972 of 2022 BETWEEN: KWANGHO KIM
Appellant
AND: YINGJIE WANG
Respondent
ORDER MADE BY:
MOSHINSKY, LEE AND JACKMAN JJ
DATE OF ORDER:
25 JULY 2023
THE COURT ORDERS THAT:
1.The appeal be allowed.
2.Orders 2 and 3 made on 7 October 2022 be set aside.
3.The following questions common to the claims of group members be answered as follows (adopting the abbreviations used in the fourth amended statement of claim):
Question 1: During the Relevant Period, did TM Index or TMK Index:
(i)conduct any business;
(ii)have available for purchase any “T”, “M” or “K” products;
(iii)use the MT4 trading platform;
(iv)use the EA system to trade on behalf of investors; or
(v)intend that any monies received from investors would be traded or invested on behalf of the investor?
Answer: No
Question 2: Did TMI Index make the:
(i)TM Trading Profit Representation;
(ii)TM Guaranteed Returns Representation;
(iii)TMK Guaranteed Returns Representation;
(iv)TM Index Legitimacy Representation?
Answer: No to questions (i), (ii) and (iii); Yes to question (iv).
Question 3: Did TMK Index make the:
(i)TM Trading Profit Representation;
(ii)TMK Guaranteed Returns Representation;
(iii)TMK Index Legitimacy Representation?
Answer: No to questions (i) and (ii); Yes to question (iii).
Question 4: By reason of the True Position, were the Representations misleading or deceptive or likely to mislead or deceive within the meaning of s 12DA of the ASIC Act?
Answer: Yes, as to the TM Index Legitimacy Representation and the TMK Index Legitimacy Representation; No as to the other Representations.
Question 5: Did TM Index contravene s 12DA(1) of the ASIC Act by engaging in the TM Index Contravention?
Answer: Yes, but only to the extent of the TM Index Legitimacy Representation.
Question 6: Did TMK Index contravene s 12DA(1) of the ASIC Act by engaging in the TMK Index Contravention?
Answer: Yes, but only to the extent of the TMK Index Legitimacy Representation.
Question 7: Was Mr Wang involved in the TM Index Contravention or TMK Index Contravention within the meaning of s 12GF(1) of the ASIC Act?
Answer: Yes, but only to the extent of the TM Index Legitimacy Representation and the TMK Index Legitimacy Representation.
4.Pursuant to s 33ZB of the Federal Court of Australia Act 1976 (Cth) (the FCA), the persons bound by the judgment of the Full Court are the group members (other than any person who opted out of the proceeding under s 33J of the FCA within the time provided), the applicant and the third respondent.
5.The respondent pay the appellant’s costs of the appeal, and of the proceedings at first instance.
6.The parties file and serve by 4pm on 27 July 2023 a submission of no more than two pages addressing the question as to what orders should be made as to the resolution of individual claims of group members and what, if any, order should be made as to the individual claim of the appellant (with the issue of any further orders being thereafter determined on the papers).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MOSHINSKY J:
Introduction
The appellant, Mr Kwangho Kim (Mr Kim), who was the applicant in the proceeding at first instance, brought that proceeding as a representative proceeding under Pt IVA of the Federal Court of Australia Act 1976 (Cth) on his own behalf and on behalf of all persons who suffered loss or damage by reason of the conduct of the respondents as pleaded in the fourth amended statement of claim (group members), which was alleged to have occurred in the period 1 January 2015 to 25 June 2015.
The respondents to the first instance proceeding were:
(a)Hodgson Faraday Pty Ltd, which was known as Taemus Funds Ltd between 1 March 2012 and 27 October 2014 and as TM Index Ltd between 28 October 2014 and 16 April 2015 (TM Index);
(b)TMK Index Ltd, which was known as Fish Capital Securities Ltd between 12 February 2007 and 25 May 2015 (TMK Index); and
(c)Mr Yingjie (Jay) Wang (Mr Wang), who was a director of TM Index from 24 June 2014 to 8 October 2015.
Mr Kim and the group members are residents of South Korea. As a result of certain marketing and other information provided to them, they invested in financial products purportedly issued by TM Index and TMK Index known as “T”, “M” or “K” financial products. In his fourth amended statement of claim (the statement of claim), Mr Kim alleged that:
(a)TM Index and TMK Index made misleading or deceptive representations, or representations likely to mislead or deceive, about the investments in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act); and
(b)Mr Wang was involved in those contraventions and therefore was a person liable to pay damages as provided for in s 12GF(1) of the ASIC Act.
Mr Kim relied in the statement of claim on a number of alleged representations. These included a representation that TM Index’s investments were legitimate and regulated by the Australian Securities and Investments Commission (ASIC) (TM Index Legitimacy Representation) and a representation that TMK Index’s investments were legitimate and regulated by ASIC (TMK Index Legitimacy Representation) (together, the Legitimacy Representations).
Mr Kim further alleged that the investments were made in reliance on the misrepresentations and that Mr Kim and the group members suffered loss as a result.
As at the time of trial, TM Index was in liquidation and TMK Index was de-registered. In these circumstances, Mr Kim did not pursue the proceeding against those respondents. On the first day of the hearing, the primary judge granted leave for Mr Kim to discontinue the proceeding against those respondents.
The primary judge dismissed Mr Kim’s claim against Mr Wang: Kim v Hodgson Faraday Pty Ltd [2022] FCA 1190 (Reasons). As her Honour stated at [52], the real dispute in the case was not about the making of the representations or that they were misleading and deceptive; the ultimate dispute was whether Mr Wang was involved in making the representations. Her Honour concluded that she was not satisfied that Mr Wang was involved (in the requisite sense of knowing participation) in the pleaded contraventions: Reasons, [4], [102]-[112], [114]-[115].
Further, her Honour concluded that it was not apparent how the making of the misrepresentations was conduct “engaged in on behalf of a body corporate” as provided for in s 12GH(2) of the ASIC Act. Accordingly, it was not apparent how Mr Wang was involved in the contraventions by TM Index or TMK Index as pleaded: Reasons, [113].
Mr Kim appeals from the whole of the judgment of the primary judge and relies on three grounds in his notice of appeal. These are, in summary:
(a)on the findings made by the primary judge, the primary judge erred at [110] in declining to infer that Mr Wang was wilfully blind to: (i) the making of the Legitimacy Representations; and (ii) the falsity of the Legitimacy Representations (Ground 1);
(b)on the findings made by the primary judge, the primary judge erred in finding at [113] that the making of the Legitimacy Representations was not conduct “engaged in on behalf of a body corporate” (Ground 2); and
(c)the primary judge erred in rejecting the tender of the “ASIC Guide Evidence” and the “Legitimacy Evidence” as those terms are defined in the notice of intention to adduce coincidence evidence dated 22 March 2022 (Ground 3).
As was accepted by senior counsel for Mr Kim during the appeal hearing, in order to succeed on the appeal, Mr Kim needs to succeed on both Grounds 1 and 2 (T5). Further, as was stated in Mr Kim’s reply submissions and confirmed by junior counsel for Mr Kim during the appeal hearing (T53), it is only if Ground 1 fails and Ground 2 succeeds that Ground 3 falls to be determined.
For the reasons that follow, I have concluded that the appeal should be dismissed. In respect of all three grounds, in my view, no error is shown in the primary judge’s conclusions. In particular, in relation to ground 1, no error is shown in the primary judge’s conclusion that it was not established that Mr Wang had knowledge of the making of, and the falsity of, the Legitimacy Representations.
Background facts
In order to assess the grounds of appeal, it is necessary to set out the background facts in some detail. In this section, I set out the factual findings made by the primary judge that are not challenged on appeal, together with some of the evidence referred to in the Reasons. Insofar as the evidence of Mr David Batten (Mr Batten) is set out, the primary judge stated at [35] of the Reasons that she accepted Mr Batten as a witness of truth and that his evidence was cogent and credible.
Insofar as reference is made below to the evidence of Ms Jingli Wei (Ms Wei) (a cousin of Mr Wang who he called as a witness), it should be noted that the primary judge did not consider her a witness of truth (Reasons, [36]). Nevertheless, some reference to her evidence is necessary to understand the chronology of events, keeping in mind that the primary judge found that everything that Ms Wei did, she did under the control and direction of Mr Wang (Reasons, [49]). In particular, her Honour found that Mr Wang was the controlling and directing mind in relation to Ms Wei’s dealings with TM Index and TMK Index (Reasons, [49]).
General matters and the period before June 2014
Mr Wang was born in China. He practised as a solicitor in New South Wales as a principal of his law firm, Wang & Associates Solicitors (Wang & Associates).
In 2013, Mr Batten met Mr Wang.
On 25 February 2014, Vivid Quark Technology Pty Ltd (an Australian company) was incorporated. It was de-registered on 13 April 2015. Mr Wang was the sole director.
On 3 March 2014, Vivid Quark Technology (Pty) Ltd (VQ Seychelles) was incorporated in the Seychelles. Ms Wei was the sole director and Mr Wang was the sole shareholder of the company. The primary judge found that Mr Wang acted as the controlling mind of VQ Seychelles and that Ms Wei acted in accordance with his directions: Reasons, [47].
Facts relating to TM Index – June 2014 to April 2015
On 5 June 2014, Mr Wang sent an email to Stella and Ma Jia, employees of Wang & Associates, as follows: “Stella please ask ma jia to do the contract. Jia I want the contract done by 1 pm today”. The primary judge inferred from this that Mr Wang directed the purchase by VQ Seychelles of Taemas Funds Ltd.
On or around 11 June 2014, VQ Seychelles purchased all of the shares in Taemas Funds Ltd from National Civil Recovery Pty Ltd. The primary judge inferred that Mr Wang caused VQ Seychelles to purchase the shares. The price of the shares was $75,000. By 24 June 2014, the directors appointed by National Civil Recovery Pty Ltd had resigned, and Mr Chen and Mr Wang had been appointed as directors. A third director, Mr Shouxin Li, was also appointed. Ms Wei worked for Mr Chen while employed by a company called Forpro Group Ltd (Forpro) in the period up to October 2014. Mr Wang and Mr Chen knew each other. These appointments of directors were made by VQ Seychelles as the new owner of Taemas Funds Ltd. The primary judge inferred that the appointments occurred at Mr Wang’s direction.
On 4 July 2014, Mr Wang and Ms Wei emailed each other concerning an Australian licence lease contract for Taemas Funds Ltd. The primary judge rejected the evidence of Ms Wei that she only became aware of Taemas Funds Ltd in October 2014 as a result of her own inquiries of Wang & Associates.
From October 2014, Mr Batten consulted for Mr Wang on a part-time basis. Mr Batten worked out of Level 35, St Martins Tower, 31 Market Street, Sydney. The office was the office of Forbes Capital Pty Limited, operated by Mr Wang. Wang & Associates were located on Level 22 of the same building. Mr Batten attended the Level 35 office about two or three times a week. It was not uncommon for Mr Batten to see Ms Puimen Tang (Mr Wang’s personal assistant and practice manager of his law firm) come up to Level 35 to see Mr Wang.
Mr Batten in his evidence described Mr Wang as involved in the buying and selling of Australian financial services licences (AFSLs) (that is, companies that had AFSLs), predominantly to the Asian market where Mr Wang had many contacts. Mr Batten’s job was to assess whether the entity with the AFSL was in compliance with the various conditions attaching to the licence. His work for Mr Wang went for approximately six months. He observed that Mr Wang was frequently changing the directors of his companies or companies under his control.
Ms Wei gave evidence that, in or around early October 2014, she received a telephone call from a person who identified himself as David, who said to her (in words to this effect and in the Mandarin language):
My name is David. I got your number off a website. I, and some of my associates, am interested in acquiring financial services licences in overseas companies. Are you able to assist?
Ms Wei gave evidence that: she wanted to earn extra money and had her knowledge from Forpro (where she was involved with the purchase and sale of many financial licences, including those in Australia and New Zealand) so she agreed; she communicated with David via WeChat, a messaging platform popular in China; she subsequently changed phones and did not transfer historical data to her new phone, so she no longer had access to these messages at the time of trial; shortly after David introduced himself to her, he introduced her (via WeChat) to a person called “Johnson” (Johnson); she communicated with Johnson exclusively via WeChat and email and never spoke to Johnson or met him face-to-face; David told her in Mandarin that “Johnson is interested in acquiring an overseas financial services licence. Are you able to sell him one?”
Ms Wei gave evidence that: in around late October 2014, she informed David and Johnson (via WeChat) of Taemas Funds Ltd and that the purchase price was US$250,000 (a price she set); Johnson asked for the name to be changed to TM Index Ltd; she agreed; she then spoke to John at Wang & Associates saying she had a buyer interested in Taemas Funds Ltd, who wanted to change the name to TM Index, and asked John to do this.
On 28 October 2014 at 6.50 pm, Taemas Funds Ltd changed its name to TM Index Ltd. The form lodged with ASIC (showing the relevant timestamp) is a notification of resolution which records the registered agent as Mr Wang, the date of the meeting of the company (28 October 2014), and a certification by Mr Wang as the director.
On the same day at 7.06 pm, an extract was made from ASIC’s database that provided details about TM Index’s AFSL. The primary judge inferred that Mr Wang caused this to occur: Reasons, [70]. The extract was timestamped “19:06:06 on 28/10/2014”.
On 29 October 2014, Ms Wei sent an email to Johnson which attached a contract for sale of TM Index and a copy of the extract from the ASIC database, which the primary judge inferred was the same as the extract obtained on 28 October 2014 at 7.06 pm. The primary judge inferred that Mr Wang provided Ms Wei with the extract from the ASIC database and instructed her to send it Johnson with the contract for sale. The primary judge also inferred that Mr Wang must have known of, and approved the terms of, the contract for sale (AB tab 16.2, as substituted during the appeal hearing).
Ms Wei gave evidence that: Johnson never signed the agreement; she never received any funds for the purchase of TM Index; the deal never went through; after 29 October 2014, she was unable to obtain any responsive communications from either Johnson or David, until Johnson contacted her again in April 2015 about acquiring another company with an AFSL.
The primary judge found that the sale of the rights in TM Index did not proceed: Reasons, [106].
In late January 2015, Mr Kim attended a presentation in the Gangnam district of Seoul, where he was introduced to Mr Geun Su Ha and Mrs In Sook Yoo. On this occasion, Mr Ha gave a presentation about TM Index, stating that he was an investor and had had a positive experience from investing in that company. Mr Ha is Korean.
In January 2015, a brochure which bears the logo of TM Index and is entitled “Creating Wealth, Realizing Dreams” was made available to potential investors (the January 2015 Brochure). The brochure appears in Korean as an exhibit to Mr Kim’s affidavit dated 5 July 2017 (AB tab 11.1). An English translation appears at AB tab 31.86. The extract from the ASIC database with the AFSL details for TM Index (timestamped “19:06:06 on 28/10/2014”) appears in the brochure (at page A216 in the Korean version and page B3388 in the English translation).
Following this presentation, Mr Kim undertook some research about TM Index, including watching some YouTube videos, some of which were in Korean and some of which were in Chinese.
Mr Kim invested in TM Index by transferring money to a bank account, the details for which he was provided. The documentary record reveals that each of the recipient bank accounts were with Korean banks; none are known Australian banks.
On 13 February 2015, two forms were lodged with ASIC in respect of TM Index:
(a)The first form changed the business’s registered address from one in Darlinghurst, NSW to Level 3503, 31 Market Street, Sydney, NSW. The form also mistakenly changed Mr Wang’s personal address for the purposes of his directorship from an address in Drummoyne to 31 Market St. This change of address was certified by Mr Wang as being true.
(b)The other form corrected the error in changing Mr Wang’s personal address and changed it back to Drummoyne, noting that “[t]he change of Officeholder Yingjie Wang’s address is incorrect. It wasn’t supposed to be changed. The correct address should be [the Drummoyne address]”. The correction was also certified by Mr Wang as being true and correct.
On 16 February 2015, Jenny Li at Maxmillian Management Pty Ltd (Maxmillian) sent an email recording Mr Wang’s approval to engage Maxmillian as the tax agent and accountant for TM Index.
On 19 February 2015, a form, certified by Mr Wang as being true, was lodged with ASIC which records that Mr Chen and Mr Li had ceased being directors of TM Index.
On 19 March 2015, Mr Wang signed the director’s report for TM Index and the form FS70 (profit and loss statement and balance sheet).
On 17 April 2015, Mr Wang changed the name of TM Index Ltd to NZGFT Fund Management Ltd.
On 30 April 2015, Mr Wang signed the ASIC form 388, which lodged the 2014 end of financial year statements for TM Index.
At [94] of the Reasons, the primary judge set out the following inferences that were contended for by Mr Kim:
(a)first, Mr Wang organised the sale of the use of TM Index to “Johnson” and organised the name change to TM Index as part of that sale;
(b)secondly, that Mr Wang certified the name change to TM Index and extracted the timestamped version of the TM Index AFSL after making enquiries as to the purpose for which that material was to be used;
(c)thirdly, Mr Wang organised for the timestamped version of the TM Index AFSL to be sent to Johnson; …
At [95], the primary judge stated that there was sufficient evidence to enable these inferences to be drawn. I note that there appears to be an inconsistency between the primary judge’s acceptance of the second part of proposition (b) (“after making enquiries as to the purpose for which that material was to be used”) and the primary judge’s finding, at [104], that Mr Wang made “a deliberate decision … not to know what the purchasers of the rights under the contracts proposed to do”. In oral submissions during the appeal hearing, senior counsel for Mr Kim said that he could not locate any evidence of dealings between Mr Wang and anyone else as to what the purchasers proposed to do with the material (T35-39). Senior counsel stated that he “enthusiastically support[ed]” the finding at [104] (T36). Thus, the thrust of Mr Kim’s submissions on appeal was to embrace the finding at [104] and not to place reliance on the primary judge’s acceptance of the latter part of Mr Kim’s proposition (b).
Facts relating to TMK Index – early 2015 to October 2015
On 9 March 2015, Ms Michelle Lin (a clerk at Wang & Associates) forwarded to Mr Wang an email from Mr Matthew Green (accountant at Hanrick Curran) which attached the AFSL for Fish Capital Securities Ltd (later TMK Index Ltd). The email asked if there were any clients who may be interested in acquiring the company which had a “clean history, having never traded since its establishment some years ago”.
On 26 March 2015, Ms Lin sent Mr Wang the financial report for Fish Capital Securities Ltd – the “new license that we plan to purchase”.
Mr Batten gave evidence that Mr Wang asked him in early 2015 to “find some directors and RM’s [responsible managers] for some of my companies”. Mr Batten agreed he would do so and then spoke to a former colleague, Mr Greg Forrester from the Gold Coast in Queensland. Mr Forrester and he had worked for many years together in the finance industry. They had a conversation to the following effect:
Mr Batten: Greg, are you available to be a director on a couple of dormant companies?
Mr Forrester: Yes, but I have some requirements.
Mr Batten: What are they?
Mr Forrester: The conditions are that the companies are to remain dormant and you David are to remain involved with the compliance.
Mr Batten gave evidence that he then had a conversation with Mr Wang as follows:
Mr Batten: I found a director for your companies. But he’ll only be a director if they are not operating.
Mr Wang: That’s fine, they’re not operating and I’ll pay him $2,000 a month.
Mr Batten gave evidence that Mr Forrester was subsequently appointed director to a number of Mr Wang’s companies, including the company now known as TMK Index. Later, he heard that Mr Forrester resigned as a director from all of Mr Wang’s companies due to non-payment of his fees. Mr Forrester died in 2016.
The primary judge made the following findings at [47] of the Reasons:
(a)Mr Wang asked Mr Batten to locate directors for companies that held an AFSL.
(b)This request was not made for Mr Wang’s clients; it was made for Mr Wang himself, as the controlling mind of companies including VQ Seychelles.
(c)TMK Index was a company in respect of which Mr Wang asked Mr Batten to find a director and, in accordance with that request, Mr Batten found Mr Forrester.
Ms Wei gave evidence that: in around mid to late April 2015, Johnson contacted her via WeChat and expressed interest in acquiring another company with an AFSL; on 22 April 2015, she drafted, and sent to Johnson by email, a contract for the sale by VQ Seychelles of the shares in GFT Forex Pty Ltd (to be renamed Saxon Capital Group Pty Ltd); the sale price was US$260,000; Johnson executed, and returned by email, that contract on the same day.
Ms Wei gave evidence that: at this time, a colleague of hers – Meng Zhang (Aom) – with whom she had worked at Forpro, also had a client interested in acquiring a company with an AFSL; she spoke to Aom at this time and they agreed to sell the company GFT Forex Pty Ltd to whoever paid first; Aom’s client paid first and, as such, GFT Forex Pty Ltd was not sold to Johnson.
Ms Wei gave evidence that: in late April 2015, Johnson contacted her again via WeChat to purchase another company with an AFSL since the arrangement concerning GFT Forex Pty Ltd had fallen through; she did not have any companies to sell at that time, so she contacted John from Wang & Associates inquiring whether he knew of any companies available for sale; she became aware of Fish Capital Securities Ltd and informed Johnson about it; Fish Capital Securities Ltd later became TMK Index Ltd.
On 15 May 2015, Ms Wei sent an email to Johnson attaching a contract for sale of TMK Index. The primary judge inferred that Mr Wang instructed Ms Wei to send the contract for sale to Johnson. The primary judge also inferred that Mr Wang must have known of and approved the terms of the contract for sale. The contract provided that the name of the company was to be changed from Fish Capital Securities Ltd to TMK Index Ltd. On 15 or 16 May 2015, the HSBC bank account of VQ Seychelles received the sum of US$199,971.50 on account of the purchase of the shares in Fish Capital Securities Ltd.
Ms Wei gave evidence that: the contract she sent to Johnson on 15 May 2015 disclosed that the name of Fish Capital Securities Ltd was to be changed to TMK Index Ltd; this was something that Johnson had instructed her to do in a WeChat message.
Ms Wei gave evidence that two further amounts were received into the HSBC bank account of VQ Seychelles in relation to the acquisition by Johnson of Fish Capital Securities Ltd, namely US$24,966.60 on 8 June 2015 and US$24,971.60 on 2 July 2015.
Ms Wei gave evidence that: on 19 May 2015, she executed a contract on behalf of Successway Ltd to purchase all of the shares in Fish Capital Securities Ltd; Ms Wei is the director of Successway Ltd, with her mother (Ai Zhen Wang) being the shareholder; Successway Ltd is a company incorporated in the Seychelles; she said in evidence that she could not recall why the contract was not made with VQ Seychelles.
Ms Wei gave evidence that: on 21 May 2015, the sum of A$60,000 was transferred from VQ Seychelles’s HSBC account in Hong Kong to the trust account referred to in cl 3 of the sale contract executed by Ms Wei on 19 May 2015; on or around the same day, she spoke to John from Wang & Associates and told him (in words to the effect), “the money has been paid. Can you please have the company name changed to TMK Index”.
By email dated 26 May 2015 at 12.28 pm, the vendors of Fish Capital Securities Ltd (via the accountant, Mr Green) agreed to “release the ASIC shareholder key for Fish Capital Securities Limited to John Xu, acting for the purchaser”. Mr John Xu was a lawyer employed at Wang & Associates. The primary judge inferred that Mr Wang thereafter had control of the ASIC shareholder key for Fish Capital Securities Ltd, enabling access to ASIC’s website for information about Fish Capital Securities Ltd, including extracting details of its AFSL.
On 26 May 2015 at 3.05 pm, a change of company name form, to change the name of Fish Capital Securities Ltd to TMK Index Ltd, was lodged with ASIC. The registered agent on the change of name form is shown as Mr Wang, despite the certification of the correctness of the information being Philip Sissons of the vendor.
At 3.30 pm on the same day, an extract was made from ASIC’s database that provided details about TMK Index’s AFSL.
At 4.09 pm on the same day, Ms Lin emailed Mr Xu in relation to the change of name of Fish Capital Securities Ltd to TMK Index Ltd, explaining “I have submitted the application form online” (which she had done earlier that day). On 26 May 2015 at 4.51 pm, Mr Xu forwarded the email of 12.28 pm that day to Mr Wang. While the email of 12.28 pm was only forwarded to Mr Wang at 4.51 pm (which was after the name change from Fish Capital Securities Ltd to TMK Index Ltd), the primary judge inferred that Mr Wang caused the name change to occur via his assistant Ms Lin. The primary judge inferred that Ms Lin and Mr Xu were acting under Mr Wang’s direction in respect of the name change.
In May 2015, Mr Kim travelled to Manila to attend an investor presentation, staying at the Shangri-La Hotel, the expense of which was paid for by others. The presentation took place on 28 May 2015. A man identified as “Mark Ryan”, the purported “CEO of TM Index”, gave a presentation, as did a man identified as “Joshua Davison”, the purported “CEO of TMK Index”. In his evidence in the proceeding, Mr Kim identified “Mark Ryan” and “Joshua Davison” in photographs. Both men are clearly Caucasion. Mr Wang is Chinese. The presentations delivered by “Mark Ryan” and “Joshua Davison” at the Manila conference were delivered in English. Those presentations were then translated by Mr Se Nam Lee, who also delivered his own presentation following “Mark Ryan” and “Joshua Davison”. That person (Se Nam Lee) was Korean.
On 29 May 2015, Mr Wang as a registered agent lodged with ASIC a form recording the appointment of Mr Forrester as director of TMK Index.
On the same day, Mr Wang’s assistant (Ms Tang) organised a registered office for TMK Index. Ms Tang sent an email to Ms Melissa Yong (of Regus) inquiring whether she could get another office for TMK Index Ltd. The credit card details used to obtain this office were those of Ms Wei. The primary judge inferred Ms Tang acted under the direction of Mr Wang in so doing.
Also on 29 May 2015, Mr Wang as registered agent lodged with ASIC a form registering the Regus address as the registered office of the company.
On or about 25 June 2015, a brochure entitled “A Doorway to Create your Wealth/ A Journey to Pursue Your Dreams” was made available at a presentation in Seoul (the June 2015 Brochure). A copy of the brochure appears at AB tab 31.51. The brochure contained an ASIC extract for TMK Index dated 26 May 2015 with a timestamp of 3.30 pm AEST (at page B1580). The primary judge found that, at some time, the extract referred to at [59] above was made available for inclusion in the June 2015 Brochure. The primary judge stated that the person who obtained the extract must have known that the change of name form had been lodged in order to obtain the extract showing the name TMK Index on the same day. The primary judge inferred that Mr Wang caused the extract to be obtained from the ASIC website. The primary judge also inferred that Mr Wang caused the extract to be provided, probably via Ms Wei, to Johnson or a person on Johnson’s behalf.
On 14 July 2015, ASIC emailed Mr Wang, referring to his “recent appointment as contact officer for AFS Licensee, TMK Index Limited”. By further email on 15 July 2015, ASIC requested, “authority from the director of TMK index Limited (A.C.N. 123 936 336) (“TMK”) to speak on this matter prior to discussing any details within the applications”. On the same day, Mr Xu of Wang & Associates sent to ASIC an authority executed by Mr Wang (identified as the director) to act on behalf of TMK Index in relation to the applications submitted to ASIC. Mr Wang was copied into that email.
On 15 July 2015, Mr Wang emailed Ms Tang, asking “please get myself resign as a director”. Ms Tang responded on the same day by forwarding Mr Wang’s email to Mr Xu (copying Mr Wang in) asking him to arrange a replacement and a subsequent email stating: “[p]lease disregard, Jay is not director”.
On 20 July 2015, Mr Wang authorised Ms Lin to assign Maxmillian as the accountant for companies that were still pending an accountant, including TMK Index.
Ms Wei gave evidence that: following the acquisition of the shares in TMK Index, she did not receive any further monies from Johnson; she did not receive any of the monthly US$25,000 operational service fees payable pursuant to the contract with VQ Seychelles; as a result, by around July 2015, she ceased paying any money to Mr Batten on account of director fees in respect of TMK Index.
On 23 October 2015, Ms Tang forwarded an email she received from Regus to Mr Wang and Stella. The email notified that “there are 3 visitors coming to have a look at the management of TMK Index” and added that the visitors left the following message:
Name:Mr Jo Sung and Mr Cho Sung …
Message:We want to meet TMK Korea Management and we want to discuss this situation at Korea. They demand a meeting this coming Monday as they are flying off to Korea on Tuesday 27th October 2015 …
They also asked for the address of the Korean Embassy and ASIC.
On 26 October 2015, Ms Tang forwarded an email entitled “REMIND MESSAGE TO TMK MANAGEMENT” from a “[email protected]” to Ms Stella Song (at Wang & Associates) and Mr Wang. The substance of that email did not appear in the evidence.
On 27 October 2015, Ms Tang responded to indicate that “we no longer act as the legal representation for TMK Index please contact the company/company director directly”. Based on that reply, the primary judge inferred that the original email must have sought to raise issues concerning the management of TMK Index.
At [96] of the Reasons, the primary judge set out the following inferences that Mr Kim submitted should be drawn:
(a)first, Mr Wang organised the sale of TMK Index to “Johnson” and organised the name change to TMK Index as part of that sale;
(b)secondly, that Mr Wang changed the name to TMK Index and extracted the timestamped version of the TMK Index AFSL after making enquiries as to the purpose for which that material was to be used;
(c)thirdly, Mr Wang organised for the timestamped version of the TMK Index AFSL to be sent to Johnson; …
At [97], the primary judge stated that the evidence was sufficient to enable the above inferences to be drawn. Again, I note that there appears to be an inconsistency between the primary judge’s acceptance of the second part of proposition (b) (“after making enquiries as to the purpose for which that material was to be used”) and the primary judge’s finding, at [104], that Mr Wang made “a deliberate decision … not to know what the purchasers of the rights under the contracts proposed to do”. As set out at [42] above, the thrust of Mr Kim’s submissions on appeal was to embrace the finding at [104] and not to place reliance on the primary judge’s acceptance of the latter part of Mr Kim’s proposition (b).
General findings
As noted above, her Honour found that everything that Ms Wei did, she did under the control and direction of Mr Wang: Reasons, [49]. Her Honour also stated: “Accordingly, and for example, Ms Wei may well have communicated with ‘Johnson’ but I infer that it was Mr Wang who was the controlling and directing mind of Ms Wei’s dealings with TM Index and TMK Index.”
The primary judge stated at [83] of the Reasons that: the evidence satisfied her that everything done by Wang & Associates in connection with the purchase and sale of companies with AFSLs and their name changes was done under the direction of Mr Wang and with his knowledge and authority; Mr Wang appeared to have been careful not to leave too many traces of his involvement if he could avoid it, but there was enough evidence, including the credibility of Mr Batten’s evidence and the lack of credibility of Ms Wei’s evidence, to support the inference that Mr Wang was in control of all steps in relation to the purchase and sale of TM Index and TMK Index and their name changes.
The primary judge inferred at [93] that Mr Wang was in the business of acting as a director of non-active companies buying and selling non-active companies with AFSLs for profit.
The reasons of the primary judge
The primary judge set out the applicable provisions and principles relating to involvement in a contravention at [53]-[60] of the Reasons. No issue is taken on appeal as to her Honour’s summary of the provisions and principles.
As the primary judge noted at [53], s 5(2)(b) of the ASIC Act provides that, unless the contrary intention appears, an expression used, but not defined, in the ASIC Act has the same meaning as in the Corporations Act 2001 (Cth). Section 79 of the Corporations Act provides that:
A person is involved in a contravention if, and only if, the person:
(a)has aided, abetted, counselled or procured the contravention; or
(b)has induced, whether by threats or promises or otherwise, the contravention; or
(c)has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention.
The primary judge referred at [55] of the Reasons to the principle expressed in Yorke v Lucas [1985] FCA 65; 158 CLR 661 at 667-668 that “involvement” requires knowing and intentional participation in the contravention in the sense of “knowledge of the essential matters which went to make up the [contravention] on the occasion in question”, as opposed to knowledge that those elements constituted a contravention. Her Honour also referred to the judgment of Besanko J in Keller v LED Technologies Pty Ltd [2010] FCAFC 55; 185 FCR 449, where his Honour stated at [336]:
In a case concerning representations, the essential elements of the contravention are the fact that the representation was made and that, in a case such as the present, it was misleading or deceptive, or likely to mislead or deceive (s 52) or was false (s 53(a) and (c)). To establish accessorial liability it must be established that the relevant person knew the representation was made and the facts which made it misleading or deceptive, or likely to mislead or deceive, or false. It need not be shown that the relevant person actually drew the conclusion that the representation was misleading or deceptive, or likely to mislead or deceive, or was false.
The primary judge referred to: Zervas v Burkitt (No 2) [2019] NSWCA 236 at [17]; Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 at [303]; Quinlivan v Australian Competition and Consumer Commission [2004] FCAFC 175; 160 FCR 1 at [9]-[10]; Compaq Computer Australia Pty Ltd v Merry [1998] FCA 968; 157 ALR 1 at 5.
The primary judge quoted from Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342; 235 FCR 181 (ActiveSuper) at [403] per White J. In that paragraph, White J set out a passage from the judgment of Lord Sumner in The Zamora (No 2) [1921] 1 AC 801 at 812-813, which was (and is) relied on by Mr Kim. The passage from The Zamora (No 2) reads as follows:
A thing may be troublesome to learn, and the knowledge of it, when acquired, may be uninteresting or distasteful. To refuse to know any more about the subject or anything at all is then a wilful but a real ignorance. On the other hand, a man is said not to know because he does not want to know, where the substance of a thing is borne in upon his mind with a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests. In such a case he flatters himself that where ignorance is safe, ‘tis folly to be wise, but there he is wrong, for he has been put upon notice and his further ignorance, even though actual and complete, is a mere affectation and disguise.
In relation to the above passage, White J in ActiveSuper observed at [403]:
In the former circumstance described by Lord Sumner, the person will not have actual knowledge of the matter. In the latter circumstance, the person does have that knowledge but deliberately refrains from asking questions or seeking further information in order to maintain a state of apparent ignorance. That is not a circumstance of constructive or imputed knowledge, but of actual knowledge reduced to a minimum by the person’s wilful conduct: Richardson & Wrench at 694 (Burchett J). It stands in contrast to the circumstance of “honest ignorance” to which Brennan J referred in Yorke v Lucas at 677.
Applying these principles, the primary judge concluded that “this is a case which falls on the wrong side of the wilful blindness line” (at [102]). Her Honour noted at [102] that Mr Kim described his best case as the case based on the Legitimacy Representations. However, her Honour identified problems with that case at [103]. Her Honour reasoned at [104]:
The difficulty is that, on the evidence and by proper application of inferences arising from the fact that Mr Wang did not give evidence, I am unable to bridge the gap from suspicion and what I infer to be a deliberate decision on the part of Mr Wang not to know what the purchasers of the rights under the contracts proposed to do, and actual knowledge of the content of the representations and the facts falsifying them.
Having noted earlier in the Reasons that Mr Kim relied on the principles in Jones v Dunkel [1959] HCA 8; 101 CLR 298 (in circumstances where Mr Wang did not give evidence), the primary judge stated at [107]:
Further, Jones v Dunkel reasoning and the extensions of that principle in other cases do not permit me to infer that Mr Wang knew that the TM Index Legitimacy Representations (or the other, more problematic representations) would be made and were false.
Her Honour set out, at [108], a series of matters about which there was no evidence. Her Honour accepted, at [109], that Mr Wang must have suspected that the contracts could enable the purchaser or a person authorised by the purchaser to represent that TM Index’s and TMK Index’s investments were each legitimate and regulated by ASIC in circumstances where that representation could be false. Her Honour also accepted that Mr Wang did not want to know, and ensured that he did not know, what the purchasers would do with the rights they acquired. However, her Honour was not persuaded that Mr Wang’s unwillingness to know resulted from “a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests” (picking up the language used in The Zamora (No 2) at 812-813) for the reasons set out at [110]-[112] and [114]-[115] of the Reasons. These reasons included deficiencies in the evidence and contrary factual indicators.
Ground 1
As noted above, by Ground 1 Mr Kim contends that, on the findings made by the primary judge, the primary judge erred at [110] in declining to infer that Mr Wang was wilfully blind to: (a) the making of the Legitimacy Representations; and (b) the falsity of the Legitimacy Representations.
As developed orally during the appeal hearing, senior counsel for Mr Kim submitted that the case concerned a “racket” in which investors (who are, in the main, Korean) were presented with the opportunity to invest in Australian companies that held AFSLs; the means by which the racket was perpetrated was that the investors were assured (by the Legitimacy Representations) that the investment vehicle was “a corporation in good standing with an AFSL in good standing”. Focussing on the TMK Index transaction, senior counsel for Mr Kim submitted that the means by which Mr Wang was personally involved in the racket included his offering for sale “clean corporations with AFSLs in such a way as to permit those who purchased [them] … to provide information to those who might want to conduct what would laughably be called due diligence”, that is, to check that the named company did indeed hold the AFSL.
Senior counsel for Mr Kim embraced the primary judge’s finding that Mr Wang made “a deliberate decision … not to know what the purchasers of the rights under the contracts proposed to do” (at [104]; see also [109]). However, he submitted that the primary judge erred by not going further and inferring that Mr Wang desisted from inquiry because he knew that what he was selling would, in all likelihood, be used by those to whom he was selling in such a way as to misrepresent matters; in particular, by making the Legitimacy Representations. Senior counsel submitted that the primary judge erred (at [110]) in concluding that this case fell into the first, rather than the second, kind of case discussed in the passage from The Zamora (No 2) set out at [82] above.
In the submissions on behalf of Mr Kim, reliance was placed on the failure of Mr Wang to give evidence and the absence of any explanation for that failure. Reliance was also placed on the fact that Ms Wei’s evidence was disbelieved, Ms Wei having been called in Mr Wang’s case.
For Mr Kim to succeed on the appeal, it is necessary for him to show error by the primary judge. The applicable principles in a case such as this are those set out in Warren v Coombes [1979] HCA 9; 142 CLR 531 at 551; Fox v Percy [2003] HCA 22; 214 CLR 118 at [25]-[26]; Lee v Lee [2019] HCA 28; 266 CLR 129 at [55]; and Kozarov v Victoria [2022] HCA 12; 273 CLR 115 at [55]. In circumstances where Mr Wang did not give evidence, and the evidence of Ms Wei (who was called by Mr Wang) was disbelieved, this Court is in as good a position as the primary judge to decide whether it should be inferred that Mr Wang had actual knowledge of the relevant matters, giving appropriate respect and weight to the conclusion of the primary judge.
In my view, essentially for the reasons given by the primary judge, Mr Kim has not established that it should be inferred that Mr Wang had actual knowledge that the purchasers would make (or were likely to make) the Legitimacy Representations, and that they would be (or were likely to be) false.
In oral submissions during the appeal hearing, considerable emphasis was placed on the terms of the contract for sale relating to TMK Index (AB tab 16.4, as substituted during oral submissions). However, the contract includes a number of provisions that are contrary to the inference that Mr Kim seeks to draw. Under the contract, the purchaser guarantees that “the overseas company it is applying to register shall operate lawful business, and shall be liable for the company’s debts and legal responsibilities” (cl 6). Further, the purpose of the seller “providing services such as setting up the Australian company, license application and office administration is to help [the purchaser] carry out lawful business activities within the scope of Australian laws” (cl 10(3)).
There were significant deficiencies in the evidence adduced by Mr Kim (and his pleadings) in support of the allegation that Mr Wang was involved in the alleged contraventions by TM Index and TMK Index. As the primary judge reasoned at [108]:
(a)there was no evidence or pleading that Mr Wang delivered any of the presentations complained about, nor distributed or circulated any of the complained-about brochures, purportedly disseminated on behalf of TM Index or TMK Index;
(b)there was no evidence or pleading that Mr Wang was in Seoul or Manila at any of the relevant times;
(c)there was no evidence or pleading that Mr Wang speaks or understands Korean (in circumstances where, at least, the January 2015 Brochure was in Korean);
(d)there was no evidence or pleading that Mr Wang knew or had any connection with any of the persons who made the presentations (eg, Mr Geun Su Ha, Mrs In Sook Yoo, Mr Mark Ryan, Mr Joshua Davison or Mr Se Nam Lee);
(e)there was no evidence of any communication between Mr Wang and any of the various persons in Seoul or Manila involved in the presentations or the activities occurring there;
(f)the various persons who made the relevant presentations were not officers, directors, employees or agents of TM Index or TMK Index;
(g)there was no evidence that Mr Wang drafted or prepared any of the presentations or promotional material; there was no evidence of Mr Wang seeing or being involved in the preparation of the promotional material;
(h)there was no evidence or pleading that Mr Wang received any of the monies paid by any of the group members, or received any profits from the fraud perpetrated on them; and
(i)there was no evidence showing or revealing that Mr Wang was aware of the presentations in Seoul or Manila at the time they were given or that he was aware that there were people in Seoul and Manila making presentations purportedly on behalf of TM Index or TMK Index to induce investments from unwitting members of the public.
Further, as the primary judge reasoned at [112]:
(a)the evidence does not establish or provide a basis to infer that Johnson was a person who made or was involved in the making of the Legitimacy Representations;
(b)there is no evidence as to how the company name information and the ASIC extracts made their way from Johnson to the fraudsters;
(c)there is no evidence of who created the documents containing the misrepresentations and no evidence of any connection between them and the companies; and
(d)the fact that Mr Wang again changed the name of TM Index to NZGFT Fund Management Ltd on 17 April 2015, which was before the Manila conference and the June 2015 Brochure (which refers to TM Index as well as TMK Index), is difficult to reconcile with Mr Wang being a knowing participant in the making of the misrepresentations.
While Mr Wang’s failure to give evidence was unexplained, the rule in Jones v Dunkel only applies where a party is required to explain or contradict something: Jones v Dunkel at 321 per Windeyer J, citing R v Burdett (1820) 4 B & Ald 95 at 161-162; 106 ER 873 at 898. No adverse inference can be drawn unless evidence is given of facts “requiring an answer”: Jones v Dunkel at 322. Here, in light of the deficiencies in the evidence set out above, there was insufficient evidence to infer that Mr Wang had actual knowledge that the Legitimacy Representations would be made (or were likely to be made) and that they would be (or were likely to be) false.
Insofar as Mr Wang put forward as a witness Ms Wei, who gave false evidence, Mr Kim submitted at first instance that, having regard to the principles in Jones v Dunkel, this provided a basis to “more comfortably draw the inference” that Johnson disclosed his proposed representations to Mr Wang: see the Reasons at [94(d)], reflecting paragraph 19(d) of Mr Kim’s outline of closing submissions at first instance (AB tab 39). However, as stated above, no adverse inference can be drawn unless evidence is given of facts “requiring an answer”. I note that it does not appear to have been contended below that Mr Wang’s conduct in putting forward Ms Wei as a witness constituted an implied admission of actual knowledge of the relevant matters. Further, no such contention is raised in Mr Kim’s notice of appeal or written submissions on appeal. If and to the extent that such a contention was made orally (T41-43), I do not consider it open to Mr Kim to rely on such a contention given the way the case was run below. Insofar as senior counsel for Mr Kim submitted that [111] of the Reasons contained a rejection of an implied admission contention, I consider that that paragraph is to be read in light of the way the argument was presented below, which was based on adverse inference rather than implied admission.
The primary provided the following succinct explanation of the flaw in Mr Kim’s case theory, which I adopt:
114The problem with the applicant’s case thesis is that it depends on the notion that Mr Wang would not have provided the critical information (the ASIC extracts with the AFSL details) unless he knew the purpose for which the material was to be used (by which the applicant means the making of the misrepresentations and their falsity).
115To the contrary, it seems to me that there was very good reason for Mr Wang to have provided that information (in the hope of obtaining or in fact obtaining money under the contracts for sale) and for Mr Wang not to have made any enquiry of the kind posited. Mr Wang would have wanted to remain in ignorance of any possible unlawful use of the material in circumstances where it could have been used lawfully or unlawfully. I infer that Mr Wang’s refusal to know more was deliberate but also “real ignorance” as described in The Zamora [(No 2)] at 812–813, not wilful blindness of the kind that constitutes actual knowledge of any of the misrepresentations or their falsity.
For these reasons, in my opinion, no error is shown in the primary judge’s conclusion that Mr Wang was not involved in any contraventions by TM Index or TMK Index. In light of this conclusion, it is unnecessary to consider whether (as contended by Mr Wang) the case presented on appeal was outside the case pleaded and run at first instance.
Accordingly, Ground 1 is not made out.
Ground 2
By Ground 2, Mr Kim contends that, on the findings made by the primary judge, the primary judge erred in finding at [113] that the making of the Legitimacy Representations was not conduct “engaged in on behalf of a body corporate”, namely TM Index and TMK Index.
In his written submissions for the appeal, Mr Kim submitted that: the Court should have found that the representations constituted conduct engaged in on behalf of a body corporate, being TM Index and TMK Index; this finding flows from the same material relied on in relation to Ground 1 together with the findings of Mr Wang’s control over both TM Index and TMK Index; if Mr Wang supplied the information used to make the Legitimacy Representations, then those representations were made with at least the implied consent of a “director, employee or agent of the body corporate” (ASIC Act, s 12GH(2)(b)); and Mr Wang armed Johnson with the means to represent to the world that TM Index and TMK Index were legitimate trading businesses.
Mr Kim further submitted that: Mr Wang was in control of all steps in relation to the purchase and sale of TM Index and TMK Index and their name changes; he effectively controlled both companies at the level of shareholding and office-holding; it was only Mr Wang who controlled the corporate key; it logically follows from the fact that Mr Wang was the person who was responsible for the conduct of handing the core corporate indicia to Johnson (including the ASIC extracts) that it was conduct engaged in on behalf of TM Index/TMK Index because Mr Wang was a director of TM Index/TMK Index and also an agent of TM Index/TMK Index; for the purposes of s 12GH(2)(b), Mr Wang was another person who acted at the direction of or with the consent or agreement of a director of TM Index/TMK Index, namely himself; in respect of TMK Index, there is a further issue that Johnson “purchased” the company and was therefore at least in de facto control of the company himself.
Section 12GH(2) of the ASIC Act provides:
(2) Any conduct engaged in on behalf of a body corporate:
(a)by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or
(b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;
is taken, for the purposes of this Division, to have been engaged in also by the body corporate.
For essentially the same reasons as for Ground 1, I consider that no error is shown in the primary judge’s conclusion, at [113] of the Reasons, that it was not established that the Legitimacy Representations were made by TM Index or by TMK Index. In circumstances where it was not established that Mr Wang had actual knowledge that the Legitimacy Representations would be made (or were likely to be made), it was also not established that Mr Wang (being a director or agent of TM Index and TMK Index) directed, consented to, or agreed to the making of the Legitimacy Representations. Accordingly, Ground 2 is not made out.
Ground 3
By Ground 3, Mr Kim contends that the primary judge erred in rejecting the tender of the “ASIC Guide Evidence” and the “Legitimacy Evidence” as those terms are defined in the notice of intention to adduce coincidence evidence dated 22 March 2022 (AB tab 14.22). Mr Kim contends in the notice of appeal that the evidence: (a) was rejected as insufficiently probative; and (b) if admitted, supported the inference that Mr Wang had a practice of allowing third parties to make representations in the form of the Legitimacy Representations in circumstances where those representations were false.
It appears from Mr Kim’s written and oral appeal submissions that the two sets of documents relevant to this ground of appeal are:
(a)the documents located at AB tabs 41.1 to 41.5 and 41.7 to 41.9 (which relate to ASIC, Easy Capital Pty Ltd (Easy Capital) and Easy Capital Global Pty Ltd (Easy Capital Global)); and
(b)the documents at AB tab 41.6 (which relate to NZ Global Financial Trading Pty Ltd (NZGFT)).
Mr Kim’s submissions in relation to the two sets of documents can be summarised as follows:
(a)In relation to the first set of documents, the relevance and probative value of this evidence did not depend on coincidence reasoning. The documents showed that prior to the “sale” of TM Index, Mr Wang had been informed by ASIC that Easy Capital was representing itself as an AFSL-holding Australian company and Mr Wang had been informed by Mr Guan that he had “invested” money in Easy Capital and considered that Easy Capital had misappropriated that money. The evidence went directly to Mr Wang’s knowledge. In particular, the evidence showed that Mr Wang knew that AFSLs were being used to make representations to investors about being legitimate businesses.
(b)In relation to the second set of documents, Mr Kim accepted in oral appeal submissions that these documents were only relevant for a coincidence purpose. He submitted that the documents showed striking similarities between representations made by another of Mr Wang’s companies (NZGFT), which was unconnected with Johnson, and the representations made to Mr Kim in relation to TM Index and TMK Index (AB tab 11.1 at pages 98-101 and tab 31.91 at pages 1382-1384).
The following pages of the trial transcript were identified in Mr Kim’s written and oral appeal submissions as containing the primary judge’s provisional and final rulings for the purposes of this ground: trial transcript, pages 31-32, 48, 143, 164-167.
Insofar as Mr Kim sought to rely at first instance on the documents as coincidence evidence, it appears that one of the reasons why the primary judge rejected the evidence was the lateness of the coincidence notice, which was dated 25 March 2022 (three days before the hearing), in circumstances where the proceeding had been on foot for years (trial transcript, pages 31, 48) (see s 98(1)(a), Evidence Act 1995 (Cth)). Her Honour also considered that the evidence lacked significant probative value (see s 98(1)(b), Evidence Act) as coincidence evidence “in circumstances where that proposition seems to depend upon a chain of reasoning which is quite complicated”. Her Honour made clear that this did not affect whether the evidence might otherwise be admissible, either for use in cross-examination or to be tendered. I do not consider there to be any error in the primary judge’s evidentiary ruling. It was open to her Honour to reject the evidence on the basis that reasonable notice had not been given (notwithstanding the matters referred to in paragraph 37 of Mr Kim’s written appeal submissions). Further, it was open to her Honour to form the view that the material lacked significant probative value as coincidence evidence.
Insofar as Mr Kim sought to rely at first instance on the first set of documents other than as coincidence evidence, the submission in support of the relevance of the documents included the statement that “I would need to make that good by reference to other documents” (trial transcript, page 166). The primary judge indicated that, at that stage, she would not admit the documents, which related to Easy Capital and Easy Capital Global, on the grounds of relevance, but if counsel wanted to take her to other documents to show the relevance of the documents, he could do so (trial transcript, pages 166-167). However, Mr Kim’s written and oral submissions on appeal do not identify any place in the trial transcript where counsel for Mr Kim took the primary judge to other documents to seek to demonstrate the relevance of the documents. In my view, no error is shown in the primary judge’s ruling that the documents, which related to companies not directly in issue, were not relevant.
For these reasons, Ground 3 is not made out.
Conclusion
It follows that I consider that the appeal should be dismissed.
During the appeal hearing, in response to questions from the Court, both parties accepted that orders should be made by the Full Court answering common questions and providing for the orders to bind all group members other than those who had opted out. The parties were directed to file proposed forms of orders depending on the various possible outcomes of the appeal. Subsequently, each party filed a document setting out his proposed orders.
In light of the conclusion I have reached that the appeal should be dismissed, I would make the following orders (which largely reflect orders proposed by Mr Wang in the event the appeal is dismissed):
(1)The appeal be dismissed.
(2)The appellant pay the respondent’s costs of the appeal, as agreed or assessed.
(3)Pursuant to r 39.05(h) of the Federal Court Rules 2011, in addition to the orders made by the primary judge on 7 October 2022, it be ordered that (with effect from 7 October 2022):
(a)the discontinuance of the proceeding as against the first and second respondents be approved pursuant to s 33V(1) of the Federal Court of Australia Act 1976 (Cth);
(b)the fourth amended statement of claim filed on 29 March 2022 be dismissed;
(c)the common questions at paragraph 2 of the further amended originating application filed on 6 April 2022 be answered as follows:
(i)in relation to paragraph 2(a) – unnecessary to answer in light of the answers to the further common questions below;
(ii)in relation to paragraph 2(b) – TM Index Ltd did not make any of the pleaded representations;
(iii)in relation to paragraph 2(c) – TMK Index Ltd did not make any of the pleaded representations;
(iv)in relation to paragraph 2(d) – unnecessary to answer in light of the answers to the other common questions;
(v)in relation to paragraph 2(e) – TM Index Ltd did not contravene s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act);
(vi)in relation to paragraph 2(f) – TMK Index Ltd did not contravene s 12DA(1) of the ASIC Act; and
(vii)in relation to paragraph 2(g) – Mr Wang was not involved in any of the pleaded contraventions within the meaning of s 12GF(1) of the ASIC Act;
(d)pursuant to s 33ZB of the Federal Court of Australia Act, the dismissal of the proceeding, and the above answers to the common questions, bind all group members (other than any person who opted out of the proceeding under s 33J of the Federal Court of Australia Act within the time provided), namely, all persons who suffered loss or damage by reason of the conduct of the respondents as pleaded in the fourth amended statement of claim.
I certify that the preceding one hundred and fifteen (115) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Moshinsky. Associate:
Dated: 25 July 2023
REASONS FOR JUDGMENT
LEE J:
The separate reasons of Moshinsky J and Jackman J set out comprehensively the issues below, how the primary judge resolved those issues and the nature of the appeal against the orders made below. I will adopt the abbreviations used elsewhere.
For the reasons given by Jackman J, I agree that the Legitimacy Representations constituted conduct engaged in “on behalf” of TM Index and TMK Index and that Ground 2 is made out. I also agree that Ground 3 is not made out, for the reasons given by Moshinsky J.
In my reasons, I propose to deal with two matters: first, a procedural aspect of the proceeding below that does not relate to any error alleged to have been made by the primary judge but would likely have occasioned a further hearing had the appeal been dismissed; and secondly, my reasons as to why the error alleged by Ground 1 is established.
I A PART IVA PROCEDURAL MATTER
Mr Kim commenced a class action seeking statutory compensation against the respondents, not only on his own behalf but also in a representative capacity on behalf of group members.
It followed this was a case where the claim of Mr Kim and any claim by a group member contained a combination of common questions (for example, the existence or otherwise of contravening conduct) and individual questions (most obviously, causation and quantification of any statutory compensation).
An initial trial was conducted to determine an entitlement to individual and common (that is, representative) relief against Mr Wang. Regrettably, there was a failure by the parties to identify with precision, in advance of the initial trial, the common issues to be determined.
There exists a persistent misconception held by those acting in class actions that the common questions specified in the originating application or supporting documentation define the common questions for the balance of the proceeding. This misconception needs again to be put right.
A representative applicant is required to identify one or more common questions of substance at the outset of a class action in accordance with s 33H(1)(c) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). The purpose of this requirement is to allow the parties and the Court to assess whether the case has passed through the s 33C “gateway”, which includes identifying at least one substantial common issue (see s 33C(1)(c)). But the common issues can, and usually do, change. For one thing, issues which are common may narrow considerably upon a joinder of issue by way of pleadings or can expand upon the filing of evidence to be adduced at the initial trial. Before the initial trial, a consensus must emerge as to what common issues or “issues of commonality” are in play or, if there is disagreement, the parties should ensure any dispute as to what is being determined at the initial trial is resolved. Hence, as stressed by the Full Court in Ethicon Sàrl v Gill [2021] FCAFC 29; (2021) 288 FCR 338 (at 357–358 [57]–[59] per Jagot, Murphy and Lee JJ):
57.[b]y whatever means common questions arise, what is critical for the orderly conduct of a Pt IVA proceeding is that prior to an initial trial starting there is specificity in what common questions are being determined. In Merck Sharp & Dohme (Australia) Pty Ltd v Peterson [2009] FCAFC 26; (2009) 355 ALR 20 at [6], the Full Court explained that at the conclusion of an initial trial, the court should pronounce formal orders regarding the common questions, perhaps by way of formal declarations or answers to questions.
58.In the early stages of Pt IVA litigation, the discipline of identifying the issues to be determined at an initial trial had not developed. Significant controversy often arose following the delivery of a judgment (as it did here), with the parties parsing the judgment trying to divine which of the findings amounted to the determination of a common issue of law or fact. The accumulated experience of this Court in having to deal with the needless controversy that such a course involved was the impetus for ensuring that prior to an initial trial there was no such confusion.
59.Nowadays, a “Merck order” is made, almost always wholly or largely by consent, which identifies that at an initial trial the whole of the claim of the applicant or some other group representatives are determined, together with a list of questions identified in a schedule to the order. These questions reflect common issues or issues of commonality the answers to which, following judgment, can be the subject of s 33ZB orders (thus identifying the metes and bounds of the statutory estoppel). Precisely why this occurred is difficult to discern. Although the appellants’ failure to speak out in a timely way about the lack of consensus is particularly troubling, both sides share some responsibility for an order not being made at the outset of the initial trial making it clear (either by way of agreement or determination) what precisely was being decided. But whatever else is unclear, this lack of clarity ought not to be a course repeated in any complex Pt IVA proceeding in the future.
This is not an oversight by the parties without potential consequence. Following the initial trial, consistently with the approach of the parties, the orders made (and which are the subject of the appeal), were that:
1.The proceeding be deemed to be discontinued against the first and second respondents on and from the date of this order.
2.The further amended originating application be dismissed.
3.The applicant pay the third respondent’s costs as agreed or taxed.
Two matters arise from these orders.
First, a class action can only be discontinued against any party with the approval of the Court pursuant to s 33V(1) of the FCA Act. There is no need in this case to canvass the differing views expressed as to what has been described as the “test” for approving the discontinuance of a class action. I have explained elsewhere why there is no real difference between considering whether a settlement is fair and reasonable or whether the discontinuance is in the interests of group members in particular circumstances, or whether discontinuance would be unfair, unreasonable or adverse to the interests of group members: see Lloyd v Belconnen Lakeview Pty Ltd (No 3) [2022] FCA 761 (at [2]–[6]). Although no application was made under s 33V(1), given one corporate respondent is in liquidation and the other is deregistered, no practical difficulty arises (because any proceeding against them is either stayed or unable to be maintained). It follows there is no need for a s 33V(1) order.
Secondly, and more substantively, the failure to identify common questions meant the parties did not ask the primary judge to consider or pronounce formal orders regarding the common questions in dismissing, and hence determining, the proceeding below. Her Honour cannot be faulted for not doing something the parties did not ask her to do.
As emphasised in Ethicon Sàrl v Gill (at 357 [55] per Jagot, Murphy and Lee JJ), “[t]he binding of group members to a determination of the Court is foundational to the operation of a class action regime”. In a proceeding governed by Pt IVA of the FCA Act, s 33ZB provides that a judgment given in a class action “must describe or otherwise identify the group members who will be affected by it” (emphasis added) and “binds all such persons other than any person who has opted out”. This provision creates a kind of statutory estoppel and is the pivotal provision within Pt IVA.
The orders made following the initial trial, including as to dismissal of the proceeding, do not bind any non-party group members as contemplated by Pt IVA. Absent this being changed, even if this appeal was dismissed, it would arguably be open for any group member to commence an individual proceeding to seek statutory compensation and relitigate any questions determined below. I say arguably because no potentially complex arguments based on some sort of extended operation of principles of abuse of process or based on the intervention of equity have been articulated or considered.
After this issue was raised by the Full Court at the commencement of the appeal, both parties indicated they would consent to an order varying the terms of the orders below to provide for an order under s 33ZB. The Full Court in the exercise of its appellate jurisdiction pursuant to s 28(1) of the FCA Act may have power to make such an order in the absence of error by the primary judge, but such a course does not work as it would in ordinary inter partes litigation. Here, the rights of strangers to the litigation are involved and the Full Court continues to have a protective and supervisory role in relation to absent group members. Reference was also made to the “slip rule” (r 39.05 of the Federal Court Rules 2011 (Cth)) as providing a basis for the belated making of a s 33ZB order, notwithstanding the absence of error by the primary judge and the fact no such order was ever sought by the respondent below. Such an order would be without notice and without any evidence before the Full Court as to dealings with, or prior notifications to, the group members (including as to the terms of opt out or other notices and service). Similarly, although no application is before the Full Court, if any slip rule application was made, it should be made on a proper basis including an explanation as to what, if anything, has been communicated to group members to date, and after a determination being made as to whether a notice of an intention to seek such an order should now be communicated to third parties whose legal interests would be affected: see ss 33X(5) and 33X(6) of the FCA Act.
Moreover, in the usual course, a slip rule application should be made to the judge making the orders the subject of the alleged “slip”: see J Tarrant, Amending Final Judgments and Orders (Federation Press, 2010) (at 152–153). In the present circumstances, the appropriate course would be for any such application to be made to a judge exercising the original jurisdiction of the Court on evidence, or one member of this Court after making orders for the receipt of evidence and a hearing.
Save for noting that these sorts of complications can and do arise if parties do not heed the requirements of Pt IVA, I can move on from these procedural issues to the substantive reasons why I consider, with respect, that the challenged orders made below should be set aside.
II GROUND 1
Both Moshinsky J and Jackman J explain this ground of appeal, the relevant reasoning of the primary judge and the nature of the alleged error in detail. As a consequence, I can be relatively brief.
At the risk of stating the obvious, the primary judge was required to assess the determinative issue as to whether Mr Wang had knowledge of the making of the Legitimacy Representations and the facts falsifying those representations. Mr Kim sought to establish actual knowledge by reliance upon a combination of suspicious circumstances and a failure to make enquiry by Mr Wang which, taken together, sustained an inference of knowledge of the actual or likely existence of the relevant matters.
To discharge his legal onus on the ultimate question to be determined, Mr Kim adduced evidence as to the factual circumstances bearing upon that question. Mr Wang made the decision to go into evidence following the closure of Mr Kim’s case including by adducing important evidence he must have known was false, but did not himself give evidence. The determinative issue in respect of which Mr Kim bore the onus fell to be assessed after the receipt and consideration of all the evidence capable of bearing upon it adduced by both parties and the inferences properly available to be drawn from the evidence adduced, or from the absence of any evidence (including Mr Wang not giving evidence without explanation).
On the basis of the material adduced, the primary judge, after a careful and comprehensive survey of the evidence, found that Mr Wang:
(1)was in the business of acting as a director of inactive companies, and making money by buying and selling inactive companies with AFSLs for profit (J at [93], [112(6)]);
(2)generally directed, authorised and knew everything done in connexion with the purchase and sale of companies with AFSLs and their name changes but “was careful not to leave too many traces of his involvement if he could avoid it” (J at [81], [83]);
(3)specifically, in relation to:
(a)TM Index: organised the sale of the use of TM Index to “Johnson” and organised the name change as part of that sale; certified the name change and extracted the timestamped version of the TM Index AFSL “after making enquiries as to the purpose for which that material was to be used” and organised for the timestamped version of the AFSL to be sent to “Johnson” (J at [94]–[95]);
(b)TMK Index: organised the sale of TMK Index to “Johnson” and organised the name change as part of that sale; certified the name change and extracted the timestamped version of the AFSL “after making enquiries as to the purpose for which that material was to be used” and organised for the timestamped version of the AFSL to be sent to “Johnson” (J at [97]);
(4)must have suspected that the contracts could enable the purchaser, or a person authorised by the purchaser, to represent that TM Index’s and TMK Index’s investments were each legitimate and regulated by ASIC in circumstances where that representation could be false (J at [109]);
(5)suspected that the sales could result in the use of the companies and their AFSLs as vehicles for fraud (J at [112(3)]);
(6)made a deliberate decision not to know what the purchasers of the rights under the contracts proposed to do (J at [104]); and
(7)put forward Ms Wei to give false evidence to prove Mr Wang’s lack of involvement in acquiring and selling TM Index and TMK Index (J at [13], [36] and [42]).
In the language of Lord Sumner in The Zamora (No 2), the substance of the Legitimacy Representations and of their falsity was “borne in upon [Mr Wang’s] mind with a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests”. I am comfortably satisfied that Mr Wang had actual knowledge of the Legitimacy Representations and of their falsity for that reason. To the extent that Mr Wang did not actually know further details as to the use of the material which he had caused to be sent to “Johnson” (such as the matters referred to by the primary judge at [112], including the identity of those who created the documents containing the misrepresentations, and how the material was given to them by “Johnson”), that was the product of wilful blindness in the second of the senses referred to by Lord Sumner in The Zamora (No 2), and does not affect the ultimate conclusion that he had actual knowledge of the Legitimacy Representations and of their falsity.
There are some particular aspects of the reasoning of the primary judge on which I should comment.
First, there is an apparent contradiction between (i) the inference which the primary judge made that Mr Wang certified the name change to TM Index and TMK Index and extracted the timestamped version of the AFSL for each company “after making enquiries as to the purpose for which that material was to be used” (see [94(b)] and [96(b)] as found in [95] and [97]), and (ii) the inference expressed at [104] as to “a deliberate decision on the part of Mr Wang not to know what the purchasers of the rights under the contracts proposed to do”, and the finding at [109] that Mr Wang did not want to know and ensured that he did not know what the purchasers would do with the rights they acquired. Mr Pritchard SC suggested that the two sets of inferences may be reconciled by reading the first set as enquiries by Mr Wang as to why his staff needed a copy of the AFSL with the name change within the office of Wang & Associates, whereas the latter set of inferences related to a decision not to make enquiries of the purchasers themselves (T65.31-66.4). I do not think that argument is available in light of the broad way in which the primary judge expressed both sets of inferences. More importantly, I do not see how the argument reconciles the contradictory findings. An enquiry by Mr Wang of his own staff as to why the AFSL licence with the name change was needed by Wang & Associates would have invited an answer which may well have disclosed the intention of the purchasers themselves, given that the reason for obtaining the extract of the AFSL with the name change was for it to be communicated to the purchasers. Accordingly, an enquiry of the more limited kind suggested by Mr Pritchard SC would not ensure that Mr Wang was not told directly of the purchasers’ purposes.
In my view, the two sets of inferences cannot be reconciled. The better reading of the judgment is that the first set of inferences was an error, generated by the fact that in [94] and [96] the primary judge was quoting directly from the written submissions by Mr Kim, rather than expressing findings in her Honour’s own words. The findings and inferences expressed at [104] and [109], together with the extensive reasoning concerning wilful blindness as expounded by Lord Sumner in The Zamora (No 2), were central to her Honour’s reasoning, and should be read as the paramount findings which prevail over the inconsistency expressed in this aspect of [94]-[97]. That conclusion is reinforced by the fact, as counsel for both sides appeared to acknowledge, that there was no primary evidence on which an inference could be based that Mr Wang did in fact make enquiries as to the purpose for which the certification of the name change to the companies and the extract of the timestamped version of the AFSLs were to be used.
Second, at [105], the primary judge placed considerable weight on the provision in the contracts for the activities of TM Index and TMK Index to be lawful, noting that the fact that the companies were not undertaking activities did not mean that they could not be caused to carry out lawful activities in Australia after the contracts had been executed. However, Mr Wang knew that even after the contracts were provided, TM Index and TMK Index remained dormant companies which were not in fact carrying on any financial services business. Indeed, Mr Wang knew that that was the basis on which Mr Forrester had agreed to be the director of TMK Index, and gave an assurance in that regard. In order for Party A to be able to use TM Index or TMK Index to carry out a lawful financial services business as permitted by the AFSLs, Party A or its nominees would have had to become the controlling shareholders of those companies respectively, and then would have had to replace Mr Forrester with another director who would be willing to serve as director of active companies. There is no such thing as a transfer of an AFSL, as Mr Wang must have known. At no stage were the shares in TM Index or TMK Index transferred to Party A, nor was there any request made by Party A for any such transfer. At no time did Party A even provide information as to the identity of any prospective shareholders to whom any such transfer could have been made. Accordingly, Mr Wang knew that TM Index and TMK Index were not undertaking any activities by way of conducting a financial services business, and TMK Index would not be doing so for as long as Mr Forrester was the director of TMK Index. On the contrary, as I have inferred, Mr Wang was aware that Party A (whoever that may have been) was seeking to derive substantial commercial advantage from representing that its activities were those of TM Index or TMK Index, as authorised by the AFSLs and as regulated by ASIC.
Third, as to the reasoning in [106], the primary judge said that the continued exercise of control by Mr Wang over TM Index after the name change proves nothing relevant. Mr Pritchard SC sought to bolster his argument as to a lack of actual knowledge of the contraventions on the part of Mr Wang by pointing to two subsequent events relating to TM Index Ltd. One was the fact that Mr Wang had deposited A$149,080.36 in favour of TM Index between 30 June 2014 and 19 March 2015 in order to rectify a non-compliance with condition 9(a) of the AFSL, being the base level financial requirements: T75.27-76.31. The second was the change of name from TM Index Ltd to NZGFT Fund Management Ltd effected by Mr Wang on 17 April 2015: T78.23-42. In my view, neither event is relevant to the question of Mr Wang’s actual knowledge of the contraventions. In light of the fact that the contract relating to TM Index had not proceeded, Mr Wang was obviously keen to ensure that TM Index, together with its AFSL, was available to be sold to another purchaser at a later point in time. While the amount of A$149,080 is substantial, it is much less than the evidence suggests could be realised by way of a sale to purchasers in Asia, being in the order of US$225,000 to US$290,000. I note also that the reason why Party A did not proceed with the TM Index contract would appear to be that that contract was provided simultaneously with the ASIC extract of the AFSL with the change of name to TM Index. It would appear that Party A had obtained everything which it sought to achieve by way of the contract by the provision of that AFSL extract, without having had to pay any money for that benefit. Mr Wang did not make that mistake again when it came to the TMK Index contract, ensuring that he received about US$200,000 of the purchase money upfront from Party A before effecting the change of name to TMK Index and providing the ASIC extract of the AFSL with that name change to Party A.
Fourth, at [110], the primary judge said of a perceived inability to find that Mr Wang’s unwillingness to know resulted from a conviction that full details or precise proofs may be dangerous, that it was “equally plausible” that Mr Wang’s unwillingness to know resulted from “a hope that the purchasers would comply with the contract for sale in respect of only conducting lawful activities”, and said that that was “a hope that might well have been equal to or greater in weight than a suspicion that, if they chose, the purchasers or others with whom the purchasers might deal could use the companies and the AFSLs they held as instruments of fraud.” As Mr Walker SC submitted, a party to a contract which is above board would expect compliance with that contract, not a mere hope of compliance: T41.30-38. Further, as I have said above, any “hope” that the purchasers would comply with the contract in respect of only conducting lawful activities would be unfounded unless there was in fact a purchase and transfer of the shares in TM Index and TMK Index respectively. That was a matter which Mr Wang knew at all material times had not actually taken place. Mr Wang knew that TM Index and TMK Index remained dormant companies with no business operations at all material times after the contracts were entered into by Party A. It could only have been deriving commercial benefit to offset its outlay of US$250,000 by misrepresenting itself as TM Index or TMK Index or both, and misrepresenting that the products or services it was offering were covered by the AFSL held by either or both of those companies.
Fifth, at [110], the primary judge said that the failure of Mr Wang to give evidence cannot fill the gap in the proof of actual knowledge.
The rule in Jones v Dunkel at 308 (Kitto J), 312 (Menzies J) and 320-21 (Windeyer J) is that the unexplained failure by a party to call a witness may in appropriate circumstances:
(a)support an inference that the uncalled evidence would not have assisted the party’s case, particularly where it is the party who is the uncalled witness; and
(b)permit the court to draw, with greater confidence, any inference unfavourable to the party who failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.
See Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2010) 243 CLR 361 at [63] (Heydon, Crennan and Bell JJ); Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [79] (Besanko, Perram and Katzmann JJ).
In the present case, I have drawn inferences unfavourably to Mr Wang that he had actual knowledge of the making of the Legitimacy Representations and of their falsity. There is no doubt that Mr Wang was in a position to cast light on whether those inferences should be drawn; indeed, he was in the best position of anyone to do so. His failure to give evidence is unexplained. Although it is not necessary for me to rely upon the rule in Jones v Dunkel in order to conclude that Mr Wang was knowingly involved in the contraventions of s 12DA of the ASIC Act, I draw the inferences that he had actual knowledge of the making of the Legitimacy Representations and of their falsity with greater confidence by reason of Mr Wang’s failure to give evidence. Contrary to the suggestion in the primary judge’s reasons at [111], there is no need for the party relying on Jones v Dunkel to explain the reasons for the decision of a material witness not to give evidence for the opposing party.
Sixth, at [111] the primary judge said that her Honour was not able to infer from the rejection of key aspects of Ms Wei’s evidence as false that Mr Wang must have something to hide, namely his knowing participation in the making of the misrepresentations knowing them to be false. Her Honour said that that would be “speculation based on suspicion, not inference based on rational reasoning”. Her Honour said that Mr Wang might have had many reasons for not giving evidence, and Ms Wei might have had many reasons for not being candid. However, that last proposition does not confront the crucial question, which is what inference to draw from the fact that Mr Wang decided to call Ms Wei to give false testimony.
The rule in Jones v Dunkel does not permit an inference that evidence not called by a party would have been adverse to the party, merely that it would not have assisted the party: Kuhl at [64]. However, there is a separate principle which gives rise to such an adverse inference by way of an implied admission by conduct of the weakness of the party’s case. The majority judgment of Heydon, Crennan and Bell JJ in Kuhl at [64] expressed the principle as follows:
Depending on the circumstances, when a party lies, or destroys or conceals evidence, or attempts to destroy or conceal evidence, or suborns witnesses, or calls testimony known to be false, or fails to comply with court orders for the production of evidence (like subpoenas or orders to answer interrogatories), or misleads persons in authority about who the party is, or flees, the conduct can be variously described as an implied admission or circumstantial evidence permitting an adverse inference.
The relevant category for present purposes is the calling of testimony known to be false.
As Heydon J said in his Honour’s dissenting judgment in Cooper v The Queen [2012] HCA 50; (2012) 87 ALJR 32 at [86]-[87], evidence suggesting a consciousness of guilt is receivable as an admission, and one such category is procuring others to lie, as illustrated by Moriarty v London, Chatham & Dover Railway Co (1870) LR 5 QB 314. Another illustration is where deliberately false evidence is given by the party himself: Oran Park Motor Sport Pty Ltd v Fleissig [2002] NSWCA 371 at [66] (Hodgson JA, with whom Beazley JA at [50] and Einstein J at [125] agreed).
As each of Cockburn CJ, Blackburn J and Lush J said in Moriarty, such evidence is not necessarily conclusive against the party, and it is a matter for the jury to decide the effect of the evidence. As Cockburn CJ said in Moriarty at 319, lies may not reflect a consciousness of guilt but rather an attempt to improve a just cause where the liar perceives the result to be uncertain; see J.D. Heydon, “Can Lies Corroborate?” (1973) 89 LQR 553 at 555.
In the present case, Mr Wang called Ms Wei to give evidence, which the primary judge was convinced was untruthful, as to her controlling role in relation to the sale of the companies with an AFSL, the lack of any dealings between her and Mr Wang, and Mr Wang’s lack of any role in acquiring and selling TM Index and TMK Index: [36]. Further, the primary judge rejected Ms Wei’s evidence that she acted as the controlling mind of VQ Seychelles, and found that Mr Wang must have acted as the controlling mind of VQ Seychelles, and that Ms Wei acted in accordance with Mr Wang’s directions: [47]. Indeed, her Honour found that everything Ms Wei did, she did under the control and direction of Mr Wang: [49]. The primary judge found that everything done by Wang & Associates in connection with the purchase and sale of companies with AFSLs and their name changes was done under the direction of Mr Wang and with his knowledge and authority, and he was in control of all steps in relation to the purchase and sale of TM Index and TMK Index and their name changes: [83].
In my opinion, Mr Wang’s conduct in calling Ms Wei to give false evidence in relation to those matters reflected a consciousness that, in truth, he had actual knowledge of the Legitimacy Representations and of their falsity. Ms Wei’s evidence was the central plank in Mr Wang’s defence at first instance, and it was not merely a case of Mr Wang gilding the lily in order to make a genuinely sound case appear even stronger or less uncertain of success. While I do not regard it as necessary for the ultimate conclusion as to Mr Wang’s liability for knowing involvement in those contraventions, there was an implied admission on the part of Mr Wang as to his knowing participation in the contraventions arising from Mr Wang’s conduct in calling Ms Wei to give testimony which, on the primary judge’s uncontested findings, he must have known to be false.
That implied admission is not “speculation based on suspicion” and is indeed an inference based on rational reasoning, contrary to the primary judge’s reasoning at [111]. In my view, the submission which Mr Kim made to the primary judge that the fact that Mr Wang had put forward his cousin to give a false account (see [94(d)] of the primary judge’s reasoning) was a matter which had to be taken into account in the assessment of whether it should be inferred that Mr Wang had actual knowledge of the essential elements of the contraventions should have been accepted, even though at the level of principle, that matter was not necessarily conclusive against Mr Wang.
Mr Wang’s pleading point
Mr Pritchard SC submitted that it was not open to Mr Kim to rely upon the terms of the contracts relating to TM Index and TMK Index, including the amount of US$250,000, because those matters had not been pleaded in the fourth amended statement of claim. In that pleading, the particulars of the allegation that Mr Wang was involved in the alleged contraventions were set out in paragraph 31, which alleged that Mr Wang’s involvement within the meaning of s 12GF of the ASIC Act can be reasonably inferred from the following matters considered together:
(i)Wang was the sole appointed director of TM Index from at least 19 February 2014 to 8 October 2015;
(ii)it may be reasonably inferred that at all material times Wang controlled TMK Index, in the sense of directing the affairs of that company, by reason of various facts and matters that are then set out;
(iii)it may be reasonably inferred that material included in the January 2015 brochure was provided by Mr Wang, with specific reference to the ASIC extract for TM Index dated 28 October 2015 at 7.06 pm in the January 2015 brochure;
(iv)it may be reasonably inferred that the material included in the 25 June 2015 brochure was provided by Mr Wang, with specific reference to the ASIC extract for the TMK Index dated 26 May 2015 at 3.30 pm;
(iv)(bis) it may reasonably be inferred that Mr Wang, as sole director of TM
Index and as the person directing the affairs of TM Index, would not have provided the material referred to in particulars (iii) and (iv) above without knowing, or enquiring as to, the purpose for which the material was to be used.
(v)it may reasonably be inferred that Mr Wang knew that the name and logo of TMK Index were to be used in the Powerpoint slides shown on 28 May 2015 in Manila for reasons which were then set out;
(vi)it may reasonably be inferred that Mr Wang, as the person directing the affairs of TM Index, would not have changed the name of TMK Index in time for it to be used at the Manila convention without knowing, or enquiring as to, the purpose for which it was to be used at that conference;
(vii)Mr Wang knew the true position by reason of the fact that, at the time the representations were made, he was the sole director of TM Index and the person who must be taken to have controlled TMK Index as alleged in particular (ii) above.
It was then said that further particulars may be provided following subpoenas and discovery.
While it is true that those particulars do not make any specific reference to the terms of the contracts pertaining to TM Index and TMK Index, or to the amount of the purchase money referred to in those contracts, the particulars which I have referred to above as (iv)(bis) and (vi) are independent of the other particulars, and operate as free-standing particulars of Mr Wang’s knowing involvement. Neither of those particulars refers back to the other particulars, except to identify the material (being the ASIC extract of the AFSLs with the name changes) which was provided by Mr Wang. Mr Pritchard SC accepted that there was no request by Mr Wang for further particulars in relation to those particulars: T60.39-41. In my view, as a matter of pleading and procedural fairness, Mr Kim is entitled to rely upon the breadth of those particulars in their ordinary and natural meaning. In my view, there is no reason why the terms of the contracts relating to TM Index and TMK Index and the purchase money referred to in those contracts cannot be relied upon as evidence in support of those particulars. An irony of Mr Pritchard SC’s argument is that those contracts were in fact tendered by Mr Wang himself, as annexures to the affidavit of Ms Wei, along with the samples of other contracts to which I have referred above. There is no reason why Mr Kim should be precluded from relying upon evidence tendered by Mr Wang, being evidence which is relevant to the allegations made by Mr Kim, and falling within the ordinary and natural meaning of the particulars which Mr Kim gave.
Alleged divergence between the conduct of the trial and the argument on appeal
Separately from the pleading point, Mr Pritchard SC on behalf of Mr Wang makes complaints that the argument on appeal has, in his submission, diverged from the way in which the trial was conducted. Mr Pritchard SC invokes the principle that where an argument is not made in the Court below, and evidence could have been given there which by any possibility could have prevented the argument from succeeding, it cannot be taken afterwards: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438 (Latham CJ, Williams and Fullagar JJ); Coulton v Holcombe (1986) 162 CLR 1 at 7-8 (Gibbs CJ, Wilson, Brennan and Dawson JJ). To the extent that this complaint is relevant to the matters to which I have referred in these reasons, the submission is that no argument was put to the primary judge in relation to the terms of the sale contracts themselves, including that the contracts were concerned only with effecting a name change and the appearance of legitimacy rather than the sale of shares in the companies, the absence of any nominated purchaser as Party A, and the disparity between the purchase price of US$250,000 in contrast to the prices paid by Mr Wang’s interests of A$75,000 and A$60,000, and the inferences which are available from those matters.
As to the submission that no argument was put to the primary judge concerning the terms of the sale contracts, the submission flies in the face of the primary judge’s observation at [102] that Mr Kim placed particular weight on the contracts for sale. In the course of final addresses, the primary judge remarked to counsel for Mr Wang that the contracts had now taken a “central role” (T322.38), a proposition with which counsel for Mr Wang agreed (T322.40). Those statements were well-founded. In Mr Kim’s closing written submissions, the salient terms of the contracts were referred to at [18(b)] and [23(c)]. In oral address, counsel for Mr Kim dealt with the terms of the sale contracts and squarely put the argument that the contracts were concerned only with the name change of the companies and the appearance of legitimacy rather than a sale of shares in the companies: T297.26-34, 297.40-43, 300.41-42, 301.45, 302.37-40, 303.15-304.25. Counsel for Mr Wang, despite complaining about the pleadings and particulars, addressed the issue at T307.22-27, 323.12-44, 329.31-33, 330.13-29. As to the anonymity of Party A, the fact that Party A was not identified in the contracts, and that it should be inferred that Party A was “Johnson” or unidentified persons associated with or nominated by “Johnson”, was addressed by counsel for Mr Kim (T297.13-14), and by counsel for Mr Wang (T307.18, 323.11-15, 324.22-36, 330.22-24). The disparity between the amounts of USD250,000, on the one hand, and A$75,000 and A$60,000, on the other hand, was the subject of submissions by counsel for Mr Kim (T300.17) and Mr Wang (T319.1-29).
While I accept that these arguments were more fully developed on appeal than was the case before the primary judge, I reject the submission that these arguments were not put in the Court below.
Conclusion on Ground 1
Accordingly, in my opinion, the appellants have made good Ground 1 of the notice of appeal. Mr Wang participated with actual knowledge in the essential elements of the misleading and deceptive conduct constituted by the Legitimacy Representations.
Ground 2: The Legitimacy Representations were engaged in on behalf of TM Index and TMK Index
It is a necessary integer of the alleged contraventions of s 12DA(1) of the ASIC Act that the misrepresentations be “engaged in on behalf of a body corporate”, namely TM Index and TMK Index. Section 12GH(2) of the ASIC Act provides as follows:
Any conduct engaged in on behalf of a body corporate:
a)by a director, employee or agent of the body corporate within the scope of the person’s actual or apparent authority; or
b)by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;
is taken, for the purposes of this Division, to have been engaged in also by the body corporate.
It has been held that the test of what constitutes conduct “on behalf of” a corporation is more widely cast under provisions such as s 12GH(2) of the ASIC Act than the common law principles for proving corporate responsibility for conduct, as the expression includes any conduct engaged in in the course of the corporation’s business, affairs or activities: NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270 at [1241] (Lindgren J). In that case, Lindgren J said at [1244] that an act is done “on behalf of” a corporation for the purpose of the corresponding provision in the then Trade Practices Act 1974 (Cth) if either one of two conditions is satisfied: that the actor engaged in the conduct intending to do so “as representative of” or “for” the corporation; or, that the actor engaged in the conduct in the course of the corporation’s business, affairs or activities. That reasoning was approved by Jagot J in Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2015] FCA 1067 at [122]. The provision has the effect of attributing responsibility to a corporation for a wide range of conduct engaged in by others provided that it was engaged in on behalf of the corporation, whether actually authorised by it or not: Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 37-38 (Lockhart J, with whom Sweeney and Neaves JJ agreed).
Mr Wang was clearly acting as the agent of TM Index and TMK Index in the provision of material to “Johnson” or Party A to the contracts, being the person who controlled those companies. He was also the director at the time of TM Index. By providing the extracts of the AFSLs showing the name changes to TM Index and TMK Index respectively, he was impliedly consenting to the use by the recipient or recipients of that material in their commercial activities. Accordingly, the conduct engaged in by those recipients (whether their access to the material was direct or indirect) was conduct taken to have been engaged in also by TM Index and TMK Index respectively pursuant to s 12GH(2) of the ASIC Act. In this regard, it does not matter whether the contract relating to TM Index was signed or otherwise entered into; the provision of the AFSL extract with the name change together with the draft contract constituted an implied consent by Mr Wang for Party A to use the material. As I have found in relation to Ground 1, Mr Wang provided that material with actual knowledge that it was to be used in making representations that products or services to be provided by Party A or its associates were legitimate investments and were regulated by ASIC. That knowledge, in conjunction with the provision of the AFSL extract with the name changes, was sufficient to constitute implied consent on the part of Mr Wang.
Accordingly, in my view, Ground 2 of the notice of appeal is also established.
Ground 3: Rejection of certain documentary tenders
Ground 3 relates to the rejection by the primary judge of the tender of two sets of documents. One set of documents dealt with a separate transaction involving Mr Wang relating to Easy Capital Pty Ltd, and the other related to a separate transaction concerning NZ Global Financial Trading Pty Ltd.
Mr Bagley of counsel, who conducted this aspect of the argument on the part of Mr Kim, acknowledged that Ground 3 did not arise if the appellant was successful on Grounds 1 and 2. As I have concluded that Mr Kim succeeds on Grounds 1 and 2, it is unnecessary for me to deal with Ground 3.
Conclusion and Orders
It follows that the appeal should be allowed and the orders made by the primary judge dismissing the further amended originating application and ordering costs against Mr Kim should be set aside. Mr Kim is entitled to orders substantially to the effect sought in the notice of appeal as to answers being given to the questions common to claims of group members as sought in the further amended originating application. For the sake of good order, I have re-numbered those questions consistently with the deletion of certain representations in the further amended originating application. Although the only representations relied on in the appeal are the Legitimacy Representations, it is appropriate to answer the common questions concerning the alleged representations as to trading profits and guaranteed returns in the negative to reflect the fact that those other representations were not pursued on the appeal.
In my opinion, Mr Kim is entitled to a costs order in his favour for the appeal and also for the proceedings at first instance. Mr Wang submitted that any such costs order should only be for 80% of the costs of the proceedings at first instance having regard to the withdrawal of all but two of the pleaded representations, the significant number of affidavits prepared and served by Mr Kim which were ultimately not read, the significant volume of documentary material that was rejected by the trial judge, and the failed attempt to rely upon a notice to adduce coincidence evidence. In my view, no such discount is appropriate. The focus of the proceedings at first instance was on the Legitimacy Representations, and Mr Kim has been successful in that regard. The matters relied upon by Mr Wang in relation to costs were not clearly severable from the success which Mr Kim has obtained, and it is not the case that a litigant must succeed on all of the forensic steps which are taken in order to be awarded an order for costs.
It is appropriate that the matter be remitted to a trial judge to determine the balance of the proceedings concerning causation and the assessment of damages. It will also be necessary for findings to be made in relation to Mr Kim’s personal claim, as to which there was an unresolved dispute at first instance.
Accordingly, in my view the following orders should be made:
(1)The appeal be allowed.
(2)Orders 2 and 3 made on 7 October 2022 be set aside.
(3)The following questions common to the claims of group members be answered as follows (adopting the abbreviations used in the fourth amended statement of claim):
Question 1: During the Relevant Period, did TM Index or TMK Index:
(i)conduct any business;
(ii)have available for purchase any “T”, “M” or “K” products;
(iii)use the MT4 trading platform;
(iv)use the EA system to trade on behalf of investors; or
(v)intend that any monies received from investors would be traded or invested on behalf of the investor?
Answer: No
Question 2: Did TMI Index make the:
(i)TM Trading Profit Representation;
(ii)TM Guaranteed Returns Representation;
(iii)TMK Guaranteed Returns Representation;
(iv)TM Index Legitimacy Representation?
Answer: No to questions (i), (ii) and (iii); Yes to question (iv).
Question 3: Did TMK Index make the:
(v)TM Trading Profit Representation;
(vi)TMK Guaranteed Returns Representation;
(vii)TMK Index Legitimacy Representation?
Answer: No to questions (i) and (ii); Yes to question (iii).
Question 4: By reason of the True Position, were the Representations misleading or deceptive or likely to mislead or deceive within the meaning of s 12DA of the ASIC Act?
Answer: Yes, as to the TM Index Legitimacy Representation and the TMK Index Legitimacy Representation; No as to the other Representations.
Question 5: Did TM Index contravene s 12DA(1) of the ASIC Act by engaging in the TM Index Contravention?
Answer: Yes, but only to the extent of the TM Index Legitimacy Representation.
Question 6: Did TMK Index contravene s 12DA(1) of the ASIC Act by engaging in the TMK Index Contravention?
Answer: Yes, but only to the extent of the TMK Index Legitimacy Representation.
Question 7: Was Mr Wang involved in the TM Index Contravention or TMK Index Contravention within the meaning of s 12GF(1) of the ASIC Act?
Answer: Yes, but only to the extent of the TM Index Legitimacy Representation and the TMK Index Legitimacy Representation.
(4)Pursuant to s 33ZB of the Federal Court of Australia Act 1976 (Cth) (the FCA), the persons bound by the judgment of the Full Court are the group members (other than any person who opted out of the proceeding under s 33J of the FCA within the time provided), the applicant and the third respondent.
(5)The respondent pay the appellant’s costs of the appeal, and of the proceedings at first instance.
(6)The parties file and serve by 4pm on 27 July 2023 a submission of no more than two pages addressing the question as to what orders should be made as to the resolution of individual claims of group members and what, if any, order should be made as to the individual claim of the appellant (with the issue of any further orders being thereafter determined on the papers).
I certify that the preceding one hundred and thirteen (113) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman. Associate:
Dated: 25 July 2023
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