Lee v Kwak

[2017] NSWDC 202

District Court

New South Wales

Medium Neutral Citation:

Lee v Kwak [2017] NSWDC 202

Hearing dates:

21 March 2017 – 23 March 2017, 11 May 2017 – 12 May 2017, 22 June 2017

Date of orders:

03 August 2017

Decision date:

03 August 2017

Jurisdiction:

Civil

Before:

Dicker SC DCJ

Decision:

(1) Judgment for the plaintiff on the Statement of Claim;
(2) The parties are to bring in short minutes of order within 7 days reflecting these reasons in relation to the amount of the claim of the plaintiff and interest;
(3) The defendant is to pay the plaintiff’s costs of the Statement of Claim as agreed or assessed;
(4) The Second Cross-Claim is dismissed. Judgment for the cross-defendant on the Second Cross-Claim;
(5) The cross-claimant is to pay the costs of Mr Lee of the second cross-claim as agreed or assessed;
(6) Liberty to the parties to apply on two business days’ notice for different orders to those in (3) and (5) above;
(7) Exhibits to be returned after 28 days.

Catchwords:

Contract – identity of contracting party – agency - whether disclosed principal - whether variation of contract agreed – whether estoppel established

 

Torts – inducing breach of contract – intentional interference with contractual relations – injurious falsehood

 

Company law – whether conduct of unauthorized third parties to enter contract purportedly on behalf of company ratified

  Damages – whether assumptions for expert valuation report established – effect of failure to establish assumptions - loss of a chance in relation to a commercial contract – assessment of the value of the loss of a chance

Legislation Cited:

Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)
Foreign Judgments Act 1991 (Cth)
Foreign Judgments Regulations 1992 (Cth)
Limitation Act 1969 (NSW)
Trade Practices Act 1974 (Cth)

Cases Cited:

All State Life Insurance Co v ANZ Banking Group Ltd (1995) 58 FCR 26
Ballard v Multiplex [2012] NSWSC 426
Bennett v Strauss [2016] NSWCA 324
Bodycorp Repairers Pty Ltd v AAMI [2015] VSCA 73
Born Brands Pty Ltd v Nine Network Australia Pty Ltd [2014] NSWCA 369
Briginshaw v Briginshaw (1938) 60 CLR 336
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1992] HCA 54
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72
Daebo Shipping Co Ltd v The Ship Go Star [2012] FCAFC 156
Deepcliffe Pty Ltd v Council of the City of the Gold Coast [2011] QCA 342
Donaldson v Natural Springs Australia Ltd [2015] FCA 498
Giliberto v Kenny (1983) 48 ALR 620
Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307
Integrated Asset Management Pty Ltd v Trans Communications Pty Ltd [2015] NSWSC 984
Kyluk Pty Ltd v Chief Executive, Office of Environment and Heritage [2013] NSWCCA 114
Leybourne v Permanent Custodians Ltd [2010] NSWCA 78
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638; [1990] HCA 20
Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141
Network Ten Pty Ltd v Seven Network (Operations) Ltd [2014] NSWSC 692
New South Wales Housing Authority v Diab [2015] NSWCA 133
Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146
Origin Energy LPG Ltd v Bestcare Foods Ltd [2013] NSWCA 90
OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120
Palmer Bruyn & Parker Pty Ltd v Parsons (2001) 208 CLR 388.
Qantas Airways v TWU of Australia [2011] FCA 470
Raj Law NSW Pty Ltd v Raj Law Pty Ltd [2013] NSWSC 1621
Ryan and Briggs (as Executrices of Estate of late Donoghue) v Wikramanayake [2013] NSW 1150
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Sharjade Pty Ltd v Commonwealth of Australia [2009] NSWCA 373
Short v Citibank of Sydney (1912) 15 CLR 148
Sidhu v Van Dyke (2014) 251 CLR 505
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199
Tinyow v Lee [2006] NSWCA 80
Tomko v Palasty [2007] NSWCA 258
Varty v Director of Public Prosecutions (NSW) [2015] NSWSC 304
White v Baycorp Advantage [2006] NSWSC 441
Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265
Williams v Hursey (1959) 103 CLR 30
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530

Texts Cited:

Gooley and Others, Corporations and Associations Law: Principles and Issues, 6th Edition, LexisNexis 2015

Category:

Principal judgment

Parties:

Bonney Hoi Jung Lee (Plaintiff, Cross-Defendant on the Second Cross-Claim)
Gregory Kwak (Defendant and Cross–Claimant on the First Cross-Claim)
Woorifarm Pty Ltd (Cross-Defendant on the First Cross-Claim, Cross-Claimant on the Second Cross-Claim)

Representation:

Counsel:
D Parish (Plaintiff, Cross-Defendant on the Second Cross-Claim)
E Peden (Defendant and Cross–Claimant on the First Cross-Claim, Cross-Defendant on the First Cross-Claim, Cross-Claimant on the Second Cross-Claim)

  Solicitors:
H & H Lawyers (Plaintiff, Cross-Defendant on the Second Cross-Claim)
Pelosi & Associates (Defendant and Cross–Claimant on the First Cross-Claim, Cross-Defendant on the First Cross-Claim, Cross-Claimant on the Second Cross-Claim)

File Number(s):

2014/340072

Judgment

1. These proceedings relate to dealings between a number of members of the Australian-Korean community in the period 2010 to 2013. The plaintiff, Mr Bonney Lee, claims that the defendant, Mr Gregory Kwak, owes him $50,000 plus interest as a result of a loan between them. Mr Kwak denies that and says that any loan was between Mr Lee and a company of which Mr Kwak was a director and shareholder, Woorifarm Pty Ltd (“Woorifarm”), and that the loan was only in the sum of $35,000. Woorifarm sues Mr Lee in tort for alleged inducing breach of contract, interference with contractual relations and injurious falsehood. These torts are denied by Mr Lee.

2. In the event that one or more of these torts is established by Woorifarm against the plaintiff, a question arises as to the value, if any, of the loss of a chance of potential profit arising from an alleged agreement between Woorifarm and an entity representing the Democratic People’s Republic of Korea (“North Korea”) in November 2012.

The pleadings

Statement of Claim

3. A Statement of Claim was filed by the plaintiff in the Local Court on 18 November 2014. The proceedings have since been transferred to this court.

4. In the Statement of Claim the plaintiff, Mr Lee, pleads that on 8 January 2010 Mr Kwak executed a loan agreement of that date pursuant to which the defendant, Mr Kwak, agreed to borrow from Mr Lee the sum of $50,000 (paragraph 1). It is pleaded that Mr Kwak failed to repay the loan when it was due on 8 January 2011 and that the $50,000 remains outstanding under the loan agreement (paragraphs 2 to 3). It is asserted that it was a term and condition of the loan agreement that 10% annual interest would be paid on the amount borrowed and that Mr Kwak has failed to repay that sum. It is claimed that the capital sum of $50,000 with interest from 8 January 2010 is owing by Mr Kwak to Mr Lee. As at 17 November 2014, shortly before the Statement of Claim was filed, the amount sought was $74,301.37.

5. It is claimed that despite requests, the defendant, Mr Kwak, has not repaid the outstanding sum owed to the plaintiff.

6. In the alternative, a claim in restitution is made by the plaintiff against the defendant (paragraphs 8-12). This claim was not pursued in final submissions.

Amended Defence filed 21 July 2015

7. Mr Kwak filed an Amended Defence to the Statement of Claim on 21 July 2015.

8. The Defence responds to the Statement of Claim as follows:

1. Mr Kwak admits the loan including the execution by him of the loan agreement but says that he entered into the loan agreement not in his personal capacity but only as agent for and with the authority of Woorifarm (paragraph 1). It is not pleaded whether the alleged entry into the loan agreement was made as the disclosed or undisclosed agent for Woorifarm but it seems to be asserted that Mr Kwak was the disclosed agent;

2. It is said that the loan money was provided to Woorifarm (paragraph 2);

3. It is admitted by the defendant that he has not repaid the amount of the loan or interest but repeats that the loan agreement was with Woorifarm and not him in his personal capacity (paragraph 3);

4. It is also pleaded that in about 2011 the loan agreement was varied by the plaintiff, Mr Lee, and Mr Kwak as agent for Woorifarm, by which the loan amount was reduced from $50,000 to $35,000 and Mr Lee agreed to recover the difference of $15,000 from a Mr Kim who was allegedly assisting Woorifarm with a business venture in North Korea (paragraph 5);

5. In the alternative, it is pleaded that Mr Lee is estopped from denying that he would recover the $15,000 directly from Mr Kim and that Woorifarm would only be required to pay the balance of the loan moneys. Counsel for Mr Kwak said in opening that the detriment arises from the fact that Woorifarm has not sought the $15,000 from Mr Kim;

6. It is further asserted by Mr Kwak in response to the allegation that the $50,000 remains outstanding that:

1. In about March 2013, Mr Lee entered into an agreement with Mr Kim whereby Mr Lee would pay Mr Kim an amount of $70,000 to participate in a fraudulent scheme in North Korea;

2. Mr Lee and Mr Kim agreed to set off against the $70,000 the $15,000 which Mr Lee had agreed to recover from Mr Kim;

3. Mr Lee paid an amount of $20,000 to Mr Kim (paragraph 7);

4. As a result of the matters pleaded, Mr Kwak says that he is not liable to Mr Lee for the amount sought under the loan agreement.

Amended First Cross-Claim

9. An Amended First Cross-Claim was filed on 11 August 2015 in which Mr Kwak sought indemnity from Woorifarm. Leave was sought to discontinue this Cross-Claim on the first morning of the hearing on 21 March 2017. No objection was made by the plaintiff and leave was granted to discontinue the Cross-Claim.

Second Cross-Claim

10. A Second Cross-Claim was filed by Woorifarm against Mr Lee on 11 August 2015.

11. In the Second Cross-Claim, Woorifarm pleads the following matters:

1. At all material times the directors of Woorifarm were Mr Kwak and his wife (paragraph 2);

2. At all material times, Mr Lee ran an accountancy business in Campsie (paragraph 3);

3. In or about late 2009 Woorifarm authorised Mr Kwak to obtain a loan for the purposes of Woorifarm’s business and as a result, Mr Kwak entered into a loan agreement with Mr Lee as agent for, and with the authority of, Woorifarm to borrow the amount of $50,000 from Mr Lee (paragraphs 4-5);

4. In about January 2010 Mr Kwak caused Woorifarm to lend an amount of $15,000 from the loan funds to Mr Kim who was assisting Woorifarm with the business venture in North Korea. It is alleged that in about late 2011 the terms of the original loan agreement were varied by Mr Lee and Mr Kwak as agent for Woorifarm such that the obligations for the repayment of the $15,000 rested with Mr Kim and not with Woorifarm. In the alternative, it is alleged that Mr Lee is estopped from denying that he would recover the $15,000 only from Mr Kim and not Woorifarm (paragraph 7-8);

5. On about 16 November 2012, Woorifarm entered into a written agreement with Chosun Kumsoo Company (“Kumsoo”) (“the Kumsoo Agreement” or the “November 2012 Agreement”), said to be a State-owned entity located in North Korea, for the purpose of supplying seed, logistics and agricultural expertise to Kumsoo in consideration for which Woorifarm would receive profits from the sale of the produce. It is alleged that it was an express term of the Agreement that it would have a term of 30 years (paragraphs 9-10). It is asserted that in about December 2012 Woorifarm provided seed to Kumsoo in accordance with the Agreement (paragraph 11);

6. It is alleged that in about March 2013, Mr Lee, Mr Kim and another Mr Lee (“Mr David Lee”) travelled to North Korea, and without the knowledge or authority of Woorifarm, fraudulently conspired to amend the November 2012 Agreement by entering into an Amended Agreement (“the March 2013 Agreement” or “the Amended Agreement”). It is claimed that pursuant to the amendments, the registered address of Woorifarm was changed to the address of Mr Lee’s accountancy business, the company representative of Woorifarm was amended to Mr Kim as “President and Managing Director”, the two Mr Lees were stated to be directors of Woorifarm, the investment amount under the joint venture was amended to €2,500,000, the Woorifarm investment amount was amended to €2 million and there were other relevant changes (paragraph 12);

7. It is alleged that on about 3 March 2013, Mr Lee, Mr Kim and Mr David Lee, without the knowledge or consent of Woorifarm, signed the Amended Agreement as purported directors of Woorifarm. It is asserted that at that time Mr Lee, Mr David Lee and Mr Kim knew they were not directors of Woorifarm and were not authorised to sign on its behalf (paragraphs 13-16). It is claimed that Mr Lee agreed to pay Mr Kim an amount of $70,000 to participate in the fraudulent Amended Agreement. It is claimed that he then paid Mr Kim an amount of $20,000 and set off the $15,000 which Mr Lee had allegedly agreed to recover from Mr Kim and not Woorifarm (paragraphs 17-18);

8. In about May 2013, the North Korean Government is alleged to have advised Mr Kwak that it had terminated the original Kumsoo November 2012 because of the asserted fraudulent conduct by Messrs Kim, Lee and David Lee. It is also pleaded that Woorifarm has not received any compensation from Kumsoo or any other party for the termination of the Kumsoo November 2012 Agreement nor any payments under the Agreement (paragraph 20);

9. Woorifarm seeks damages from Mr Lee. The basis of the claim for damages is not set out in the Second Cross-Claim. In submissions, counsel for Woorifarm and Mr Kwak indicated that the claims were for damages for the torts of inducing breach of contract, interference with contractual relations and injurious falsehood.

Defence to Second Cross-Claim

12. A Defence to the Second Cross-Claim was filed by Mr Lee on 23 November 2015.

13. In his Defence to the Second Cross-Claim, Mr Lee:

1. Denies the various allegations made against him in the Second Cross-Claim;

2. Denies that the original Kumsoo November 2012 Agreement was entered into on 16 November 2012 or that it was the final agreement (paragraph 9);

3. Denies that the original Kumsoo November 2012 Agreement existed at the time of the alleged Amending Agreement (paragraph 12(a)-(b));

4. Says that the information provided for the purposes of the alleged fraudulent agreement was with the knowledge or authority of Woorifarm through its “agent, servant or officer” Mr Kim (paragraph 12(c));

5. Admits that Mr Lee executed a document on 3 March 2013 in respect of a joint venture with Kumsoo, denies that it was an amendment to the original agreement and denies that he took any step without the knowledge and consent of Woorifarm (paragraph 13);

6. Admits that the North Korean Government terminated the joint venture (paragraph 19);

7. Says that if the alleged “fraudulent” agreement is found to be an amendment of the original Kumsoo November 2012 Agreement without the authority of Woorifarm, then Mr Lee acted at all times with the knowledge and authority, and at the express direction, of Mr Kim who held himself out to be the Managing Director with the full authority of Woorifarm. It is also asserted that Mr Kwak entered into further negotiations with the North Korean Government subsequent to the execution of the alleged fraudulent agreement and Mr Kwak held out the alleged fraudulent agreement as the full, final and authorised contract between the parties to the joint venture. It is also claimed that Woorifarm thereby ratified the alleged fraudulent Amended Agreement (paragraph 22).

Allegation of fraud by the defendant

14. As is clear from the summary of the pleadings set out above, the defendant, Mr Kwak, makes an allegation of fraud in the present case against Mr Lee.

15. Having regard to the seriousness of the allegation of fraud made by the defendant, the requirements in Section 140 of the Evidence Act 1995 (NSW) and the Briginshaw standard (Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362) apply in relation to the defendant’s proof of the allegation which is contested.

16. In paragraph 45 of Varty v Director of Public Prosecutions (NSW) [2015] NSWSC 304, Adamson J stated as follows:

“[45]Having read the Magistrate’s reasons as a whole, I do not consider that her Honour’s use of the words “benefit of the doubt“ indicate that her Honour was applying the criminal standard of “beyond reasonable doubt“. Although the civil standard applies (s 142) of the Evidence Act, so too does the doctrine of Briginshaw v Briginshaw [1938] HCA 34 ; 60 CLR 336 at 361–362, which is not excluded by the Evidence Act: Habib v Nationwide News Pty Ltd [2010] NSWCA 34 ; 76 NSWLR 299 at [338] per Hodgson, Tobias and McColl JJA (which dealt with s 140, which is, on this point, relevantly indistinguishable). The so-called Briginshaw doctrine has the effect that, although the standard of proof is not altered where the matter to be proved involves fraud, criminal conduct, or, as in the instant case, unlawful conduct, the strength of the evidence necessary to satisfy the tribunal of fact on the balance of probabilities may be greater because of the seriousness of the allegation.”

17. However, the tort of deceit is not relied on by the defendant or Woorifarm. Accordingly, the Briginshaw standard may not apply to all aspects of the facts/torts relied on by them. Each will need to be considered.

Plaintiff’s evidence

Evidence in chief of Mr Kim

18. The plaintiff relied on and read an affidavit of Mr Un Kak Kim (“Mr Kim”) sworn 2 December 2016. In his affidavit Mr Kim said he is originally from South Korea and that he migrated to Australia in the 1980s. He says he is 75 years of age.

19. Mr Kim gives evidence that in about January 2010 he borrowed $50,000 from Mr Lee and signed an IOU document as requested by Mr Lee. He also gives evidence that in about January 2010 he also borrowed $15,000 from Mr Kwak for business expenses. He says that in about January 2011 he paid the $50,000 he had borrowed back to Mr Lee.

20. Mr Kim states in his affidavit that he has worked as a farmer for more than 35 years in various countries including South Korea, the UAE, Australia and North Korea. He states that he has been “working with North Korea since 1997”, initially through the charity World Vision and then through his own “capacity and network”: affidavit paragraph 3. In relation to Woorifarm, Mr Kim states in his affidavit that he ran a farming business in Australia under the name Woorifarm from about 1985 to 2012 when he sold the farm. The farming business operated farms growing vegetables. Woorifarm had not been registered as a company but merely operated under that name. Mr Kim stated in his affidavit his belief that “as far as I knew and still know, I consider myself to be the owner and founder of Woorifarm” (paragraph 4).

21. Since 1997, Mr Kim states in his affidavit that he has had numerous dealings in North Korea, in particular through the provision of seeds and his skills in agriculture through the charity World Vision.

22. Mr Kim says that he first met Mr Kwak in about 2009 on a plane trip to North Korea where Mr Kwak indicated that he was interested in getting involved in Mr Kim’s Woorifarm agricultural business in North Korea. Mr Kim says he agreed for Mr Kwak to become involved with the administrative side of the business. He gives evidence in his affidavit that thereafter Mr Kwak followed Mr Kim around in his business and visited his farm in Australia about two to three times per week. He also states that Mr Kwak paid for Mr Kim’s expenses for travelling to North Korea.

23. Mr Kim gives evidence that he asked Mr Kwak to register Woorifarm in Mr Kwak’s name “only for now” so Mr Kim could receive the retirement pension from the Australian Government. Mr Kim says that he made clear to Mr Kwak that he would remain “the owner and Chairman of Woorifarm”. Mr Kwak was said apparently to have agreed to this. Mr Kim gave evidence that in Korea the word “Chairman” means the owner and “boss” of the company above all others including directors or managing directors and that is what Mr Kim believed to be the case when he said this to Mr Kwak, that is, that he Mr Kim would remain the owner and Chairman of Woorifarm.

18. Mr Kim gives evidence that Mr Kwak later told him that he had registered the company. Mr Kim says that he did not know Mr Kwak had registered himself as the holder of shares in Woorifarm (paragraph 4). Mr Kim gives evidence that it was always his understanding that he remained the owner of Woorifarm despite Mr Kwak being a director (paragraph 10). Mr Kim gave inconsistent evidence in relation to his knowledge that Mrs Kwak was a director of the company. In his affidavit (paragraph 10), he said that he only became aware of this when he was shown an ASIC search of the company in the proceedings (paragraph 10). In cross-examination he said he only heard it for the first time in being asked questions in the trial. He later clarified this and said he first found out about it when told by the solicitors for the plaintiff. Mr Kim asserted that despite Woorifarm being “registered in [Mr Kwak’s] name” he Mr Kim remained in charge and made all decisions for Woorifarm since Mr Kwak had no background or experience in the agricultural business. Mr Kim asserted that he continued to operate the business and Mr Kwak was “merely assisting [him] in [an] administrative role” (paragraph 11).

19. Mr Kim gives evidence in his affidavit that in about 2012 Kumsoo, an investment company in North Korea, approached him for a business opportunity which he negotiated in a number of meetings. He gives evidence that he took Mr Kwak with him to the meetings where he was introduced as a director of Woorifarm. Mr Kim gives evidence that in about November 2012 Woorifarm signed a Joint Venture Agreement with Kumsoo for the purpose of agricultural development in North Korea through seed collecting and transferring technology “for the benefit of the North Korean people” (paragraph 19). Mr Kim said that he and Mr Kwak signed the Kumsoo Agreement on behalf of Woorifarm. He states that under the Agreement, Woorifarm had to come up with an investment of €2.5 million within a month after 16 November 2012 but, according to his belief, Woorifarm did not have the funds to meet those obligations under the Agreement.

20. Mr Kim gave evidence that on 27 November 2012 he personally delivered 14 different types of foundational seeds to Kumsoo as part of Woorifarm’s investment under the November 2012 Agreement. He stated the belief in his affidavit that the foundational seeds were “very valuable” and it was his understanding that those seeds were to cover Woorifarm’s investment of €2.5 million under the Agreement (paragraph 22). There is no clear evidence that Kumsoo had a similar view as to the value of the seeds supplied or that they were objectively worth that sum.

21. Mr Kim gave evidence that in the process of negotiating a further Joint Venture Agreement with Kumsoo in North Korea he met Mr Lee and Mr David Lee. He gives evidence that he asked them to join him in his meetings with Kumsoo “so that I could ask them to join Woorifarm as investors” (paragraph 25). Mr Kim gives evidence in his affidavit that he believed that Kumsoo would probably require some cash payments to pay for the office, cars and equipment which was needed in North Korea and he believed that Woorifarm did not have such funds: paragraph 25. In particular, Mr Kim gives evidence that at a meeting, Mr Seo from Kumsoo said to him that a further investment from Woorifarm was required in the sum of US$140,000 to meet “the operation costs” of the joint venture.

22. Mr Kim then states the following in paragraph 27 of his affidavit:

27.  As such, I approached the plaintiff and David [Lee] asking for their investments in Woorifarm. We had a conversation in Korean to the following effect:

I said:   "They are asking for $140,000.00. What should I do?"

Mr Lee said:   "Why don't you talk to Mr Kwak?"

I said:   "No need. We have no funds."

Mr Lee said:   "How much did Mr Kwak invest in Woorifarm?"

I said:   "$35,000."

Mr Lee said:   "Hmm, what do you think about David and I investing the required amount of $140,000? $70,000 for 20% shares each in Woorifarm."

I said:   "Sure."

Mr Lee said:   "But you should also make us directors of Woorifarm. Is this ok even if you are not a director of Woorifarm?"

I said:   "Of course. You know I am the chairman of Woorifarm and I call the shots."

29. Mr Kim gives evidence in his affidavit that he believed that he was able to make this “executive decision” for Woorifarm since he had founded the company and was in charge of its day to day business as the Chairman (paragraph 28). This statement was admitted as evidence of his belief only.

30. The next day, Mr Lee, Mr David Lee and Mr Kim signed the Joint Venture Agreement on behalf of Woorifarm (this was the March 2013 Agreement) which is the Agreement which the defendant, Mr Kwak, calls ‘the fraudulent agreement” in the Second Cross-Claim.

31. Mr Kim gives evidence that a few months later he visited North Korea where he met with Mr Seo and a Mr Kwon who was the President of Kumsoo. Mr Kim states in his affidavit that after that meeting he “came to a conclusion that [he] cannot trust them anymore as it transpired that the certificate issued to Woorifarm was not authentic” (paragraph 30). Mr Kim said that since then he has had no further dealings with Kumsoo.

32. It may be seen from his evidence in chief that Mr Kim:

1. Confirmed that he borrowed $50,000 from the plaintiff, signed an IOU document for this sum and then repaid it to the plaintiff;

2. Gave evidence that he was the founder of the Woorifarm business and believed that he remained the owner of Woorifarm and the Chairman of it;

3. Claims he negotiated the Kumsoo November 2012 Agreement with Kumsoo which was signed by Mr Kwak and himself. He later asserts that as a result of a request from Mr Seo of Kumsoo for an additional US$140,000, he sought an investment from the plaintiff and Mr David Lee in the sum of $70,000 for 20% of the shares each in Woorifarm and he agreed to make them directors as he believed he called “the shots” in relation to Woorifarm.

Cross-examination of Mr Kim

33. Mr Kim gave oral evidence through a Korean interpreter. Mr Kim agreed that he was a good friend of the plaintiff, Mr Lee, and had known him for more than 20 years. He indicated that he got to know Mr Lee’s name as an accountant and became friendly with him since he started travelling to Pyongyang, the capital of North Korea, in about August 1998. Mr Kim said that he did not join the business association “Business Link to DPRK” as a member.

34. Mr Kim said that Mr Lee was not his accountant and he did not ask for his advice in relation to his business activities.

35. Mr Kim gave evidence that he ran a farming business through the name Woorifarm. He confirmed that it had been eventually incorporated but he did not own the business now as it had been passed on to Mr Kwak. This was done to assist him (Mr Kim) to obtain retirement benefits in Australia. Mr Kim said he passed it on to Mr Kwak by ceasing work as a farmer and Mr Kwak taking on the business activities. Mr Kim confirmed that he had previously used the name for his business of Woorifarm. The business was to distribute groceries under that name and he employed workers in the business. Mr Kim confirmed that he did not have any documents to show that he had used the business name Woorifarm.

36. Mr Kim confirmed that he did not initially want to be involved in the company called Woorifarm Pty Ltd which Mr Kwak had established, as he wanted to obtain a pension from the Government. He also confirmed that he was content for Mr Kwak to use the name Woorifarm if he Mr Kim had some involvement in the company. He stated that he had never been registered as a director of Woorifarm but said that he acted as the President of the company in Australia, in North Korea and in South Korea. He confirmed that he had never been registered as the Chairman of the company with ASIC as far as he was aware. He also agreed that he did not have any documents to establish that he had invested money in Mr Kwak’s Woorifarm company.

37. In answer to the question whether Mr Kim was happy to assist Mr Kwak with his agricultural experience, Mr Kim said that he gave him his experience not just to please Mr Kwak but also to assist North Korea and Mongolia. He agreed that Mr Kwak had paid for his travel expenses on occasions to go to North Korea.

38. In response to the suggestion that Mr Kwak had introduced Mr Kim to people for business purposes as a “consultant” to Woorifarm, Mr Kim denied this and said that he had been introduced as the “President” of Woorifarm. Mr Kim said he was the owner of the Woorifarm business when he was operating the farm.

39. In response to the suggestion that he was not the owner of the Woorifarm company or business at any time in the period 2009 to now, Mr Kim said he did own the Woorifarm business. He said all products of the Woorifarm business were sold under that name.

40. Mr Kim confirmed that he had borrowed $15,000 from Mr Kwak in 2010. He said he had not paid this sum back. He said this was because Mr Kwak had received money in North Korea and had kept it whereas Mr Kim had delivered seeds to the North Korean authorities on behalf of Woorifarm. He confirmed he had not sued Mr Kwak for that money spent on the seeds. This suggests that Mr Kim had paid for the seeds supplied to Kumsoo which evidence shows was in November 2012.

41. Mr Kim gave some confusing evidence in relation to borrowing money from Mr Lee. He said he had given an IOU to Mr Lee for the $15,000 and Mr Lee had not asked for the $15,000 back. It was unclear from this evidence whether Mr Kim was confused in relation to the IOU given in 2010 to Mr Lee for the $50,000. To the extent his evidence suggests that he had given an IOU for $15,000 to Mr Lee, it is inconsistent with Mr Lee’s affidavit. This evidence was later relied on by Mr Kwak to suggest that there was a variation to the initial loan agreement made by Mr Lee in 2010.

42. Mr Kim confirmed that he had introduced Mr Kwak and Woorifarm to the North Korean authorities in relation to agricultural matters. He also confirmed that Mr Kwak was in charge of all matters other than agricultural business ventures. He agreed that he understood Mr Kwak could engage in agricultural business ventures as he was the legal director of the Woorifarm company.

43. In relation to the first contract signed in November 2012, Mr Kim said that he was happy when it was signed, he regarded it as a good business deal and he believed that Woorifarm would make a lot of money out of the deal. In answer to the suggestion that he was concerned he was not a director or shareholder of the Woorifarm company, Mr Kim said he was not concerned as he aimed to assist North Korea with the provision of seeds. He said he had previously been involved with NGO work in North Korea for World Vision. Mr Kim said he did not complain to the plaintiff Mr Lee that he had not been made a director of the Woorifarm company by Mr Kwak.

44. Mr Kim gave evidence that he believed that Woorifarm belonged to him and he never believed that it was owned by anyone else. Mr Kim agreed that he wanted to be a director and did ask Mr Kwak to be made a director in about 2010. He said Mr Kwak did not refuse his request but did not respond to it.

45. As stated above, Mr Kim initially said that the first time he heard that Mr Kwak’s wife was a director and shareholder of Woorifarm Pty Ltd was when it was suggested to him in cross-examination. When he was shown paragraphs 8-11 of his affidavit, he amended his evidence and said that he became aware that Mrs Kwak was a director and shareholder of Woorifarm Pty Ltd when he went to the solicitor’s office to prepare his affidavit.

46. Prior to the continuation of his cross-examination on the second day of the trial, Mr Kim stated that he had a bad memory and had been hospitalised on two occasions as a result of a stroke: T69.3.

47. Mr Kim was asked questions in relation to the use of honorific titles as a sign of respect in the Korean community. He agreed that this was his experience. Mr Kim agreed that he had been called “Chairman” as a matter of respect in conversation but not in written documents. He agreed that the use of the word “Chairman” had been used as a mark of respect to him on occasions.

48. Mr Kim was asked questions in relation to travelling to North Korea in 2012 with the defendant Mr Kwak to negotiate with Kumsoo. He agreed that he had gone in 2012 to North Korea for this purpose and that Mr Kwak had travelled with him. He said that Mr Kwak had organised for some of his expenses to be paid for the trip, although he also took money for himself which he used for hotels, taxis and personal expenses. He agreed that a joint venture between Woorifarm and Kumsoo had been signed in November 2012 and that he was very happy that the document had been signed. He confirmed that when he returned that he told some people who were interested in projects in North Korea of the contract and some people had congratulated him. He could not recall whether Mr Lee, the plaintiff, had congratulated him. He did not give evidence that he told Mr Lee of the November 2012 Agreement.

49. Mr Kim was asked further questions in relation to a desire on his behalf to be a director of Woorifarm. He denied that he complained to Mr Lee in relation to not being made a director of the company. Mr Kim gave evidence that he ordered Mr Kwak to register him as a director of Woorifarm and that he assumed he did. He could not recall exactly when he did this but he believed it was in about 2009. After being taken to paragraph 8 of his affidavit, he agreed that he did not want to be a director of Woorifarm in 2009 as he wanted to obtain the Australian Government pension. When it was put to him that he wanted to be a director after 2009, he responded that he “broke the relationship” with the North Korean entities as the relationship was not good between them and “us”. By “relationship” he confirmed he meant all the Agreements: T73.30-.47.

50. Mr Kim was then asked questions about travelling to North Korea in March 2013. He agreed that he had travelled there in March 2013. He denied that Mr Kwak had organised the visas for the trip and instead gave evidence that they were organised by the North Korean entities. He denied that Mr Lee paid for his trip and said that he had paid for it. In relation to the suggestion that the March 2013 Agreement had changed the November 2012 Agreement, he agreed with that. However, he denied that the March 2013 Agreement had replaced the November 2013 Agreement.

51. Initially Mr Kim vaguely described the March 2013 Agreement as being “related to an operation manual”: T74.33. He clarified this by stating that in March 2013 the North Korean authorities had asked for more money for the operation of the joint venture. Mr Kim then said that he asked Mr Lee and Mr David Lee for $70,000 each to pay for the operation costs as funds were short: T74.45. He denied the suggestion that Mr Seo from Kumsoo would only change the signatories on the November 2012 Agreement in exchange for money.

52. Mr Kim agreed that he did not tell Mr Kwak of the changes to the contract in March 2013 either before he went to North Korea or whilst he was in North Korea. He said he told Mr Kwak of the changes after he returned from North Korea. He denied that he did not tell Mr Kwak of the changes whilst he was in North Korea because he wanted to “take over” the contract and exclude Mr Kwak from it: T75.6. He also denied that his intention was to set up a different company with Mr Lee and Mr David Lee and replace Woorifarm. Mr Lee, in later submissions, relied on the fact Mr Kim had told Mr Kwak of the March 2013 Agreement on his return from North Korea as negating any conspiracy on the part of Mr Kim and Mr Lee to take over the benefit of the November 2012 Agreement from Woorifarm.

53. Mr Kim was taken to the documents at pages 493 to 494 of Exhibit A. Mr Kim was asked whether he suggested to Kumsoo that a solution to the “conflict issue” in relation to Mr Kwak was to set up another company. Mr Kim said he asked Mr Lee to register his name to Woorifarm. Mr Kim was then asked questions about the company One Korea Trading Pty Ltd. Mr Kim said he did not recognise the name and said that he did not recall setting up a new company with himself, Mr Lee and Mr David Lee as directors.

54. Exhibit 1 which is a current and historical company extract for One Korea Trading Pty Ltd, establishes that the company was registered in New South Wales on 8 July 2013. The directors of the company are Mr Kim, Mr Lee and Mr David Lee. Originally Mr Lee and Mr David Lee held 30 shares each and Mr Kim held 40 shares. The current shareholding of the company was 30 shares to Mr Lee and 70 shares to Mr Kim. It seemed from his evidence that Mr Kim knew little about this company. Mr Kim gave evidence that he did recall requesting help from Mr Lee and Mr David Lee in the form of the payment of US$140,000 towards operation costs under the joint venture in North Korea with Kumsoo.

55. Although initially Mr Kim gave evidence that he travelled to North Korea in March 2013 with Mr Lee and Mr David Lee for discussions in relation to a new agreement, he then clarified his evidence by saying that he asked them for help and met them on the plane. The discussion in relation to the US$140,000 occurred in Pyongyang. He said he did not have discussions with them prior to the meeting with Mr Seo.

56. Mr Kim then gave some evidence that at the meeting with Mr Seo in March 2013 he knew that the North Korean representatives from Kumsoo were lying. He said he knew the acceptance letter from Kumsoo “was a fake” one: T78.44. This was not further clarified.

57. Mr Kim denied that he asked Mr Lee and Mr David Lee to come to North Korea to help him. He said that they had their other business to attend to in North Korea and he met them there. Mr Kim confirmed that he saw Mr David Lee give Mr Seo US$5,000 in cash. However, he said that the payment was to set up the company including for buying office equipment. Mr Kim stated again that he knew the representatives from Kumsoo were lying as they asked for cars and computers whereas they did not do any work: T79.34; T79.49; T81.12; T81.37-82.3.

58. Mr Kim expressly denied that he wanted to set up another company to take the Kumsoo Agreement from Woorifarm: T82.13.

59. Mr Kim said that there was no intention to set up a new company. There was a shortage of operation costs and he asked Mr Lee and Mr David Lee for money towards the joint venture project in exchange for a director position in Woorifarm.

60. In re-examination Mr Kim said that Mr Kwak had prepared business cards for him for the purposes of completing business in North Korea: T56.11; T82.39. A business card became Exhibit C in the proceedings. Mr Kim was described on the business card as “Chairman”. The words “Woorifarm Pty Ltd” are at the top of the business card.

61. Mr Kim stated in his evidence that due to ill health he had memory problems. On occasions he seemed to give answers which were not connected to the questions asked. However, I did not form the view that he was being deliberately evasive or was deliberately intending to give false evidence.

62. Mr Kim’s evidence was that he believed he was the Chairman and owner of Woorifarm, although he was not a director or shareholder of the company. His evidence was to the effect that when he was in North Korea at a meeting in Pyongyang with the representatives of Kumsoo in March 2013 he was asked for US$140,000 towards operation costs and due to the fact that there was a shortage of funds in Woorifarm he asked Mr Lee and Mr David Lee to contribute the money and they would be awarded directorships and a shareholding. This seems to be generally consistent with Mr Kim’s evidence in paragraphs 26 to 28 of his affidavit.

63. Overall, I formed the opinion that Mr Kim was attempting to answer the questions put to him truthfully. However, his lack of recollection on some issues and his evidence that he had a poor memory means that some caution should be exercised in accepting his evidence unless it is consistent with other evidence.

33. Exhibit C appears to establish that in business cards organised for Mr Kim by Mr Kwak, Mr Kwak described Mr Kim as the Chairman of Woorifarm.

Evidence of Mr Bonney Hoi Jung Lee

65. Mr Bonney Hoi Jung Lee (“Mr Lee”) is the plaintiff in the proceedings. He swore two affidavits for the purposes of the proceedings, dated 29 January 2016 and 27 June 2016.

66. In relation to the loan issue, Mr Lee’s evidence is that he lent $100,000 to Mr Kim and Mr Kwak in the form of two bank cheques for $50,000 made out to each of them. In exchange for a signed IOU Mr Lee gave the two bank cheques to Mr Kwak and Mr Kim on or about 8 January 2010. Mr Lee’s evidence is that he was repaid the $50,000 from Mr Kim on or about 10 January 2011 (which is supported by a receipt of that sum in Mr Lee’s bank statement) but he has never been repaid the $50,000 which he lent to Mr Kwak.

67. Mr Lee denies that he agreed to vary the Agreement to seek $15,000 of that amount from Mr Kim. He also denies that the loan was to Woorifarm Pty Ltd as opposed to Mr Kwak. He annexes to his affidavit the IOU which is signed by Mr Kim and Mr Kwak without any reference to Woorifarm (see pages 38-39 of Exhibit A). He also annexes a copy of the bank cheque for $50,000 dated 8 January 2010 which is made out to Gregory Kwak and not Woorifarm (Exhibit A, page 40). Mr Lee also relies on an email he received from Mr Kwak dated 18 December 2011 which includes the following in the English translation:

“I am well aware that you took much trouble in paying the interests by yourself.

Today, I met Mr KIM and deaconess, we felt sorry among ourselves that we haven't been

able to pay your favors back to you despite of your great trouble in arranging it.

I felt my heart heavy as I have never indebted to anyone in my life.

Sooner or later, I will pay back the money, With interests as well.” [sic] (Exhibit A, page 43).

68. Mr Lee also relies on an email demand for the $50,000 and interest sent by him to Mr Kwak on 15 October 2013 (Exhibit A, page 44).

69. In relation to the position of Mr Kim, in his second affidavit Mr Lee gives evidence that he was aware at all times that it was Mr Kim who had the expertise in the agricultural business (paragraph 10). Mr Lee states in paragraph 9 of his second affidavit that he “was always under the impression that Mr Kim was the president or chairman with the full authority of Woorifarm”.

70. Mr Lee says that neither Mr Kim nor Mr Kwak ever mentioned to him about the November 2012 Agreement at the time and he was not aware of its existence until much later.

71. In relation to what occurred in the relevant conferences in March 2013 in North Korea, Mr Lee gives the following evidence in paragraph 13 of his affidavit:

“13.  In relation to the signing of the March 2013 Agreement, I say that:

(a)  In March 2013, I happened to visit North Korea with Mr Kim to check the changes on the new leadership, and to meet with staffs from the Department of Sports with whom I have contacted several times.

(b)  Mr Kim and l went to Pyongyang together on the same flight.

(c)  Mr Kim and I met with Mr David Lee ("Mr Lee") from Philippines in Pyongyang …

(d)  Mr Lee and I did not join Mr Kim's meeting with the North Korean partners. On the second day however, Mr Kim asked and begged us in Korean to the following effect:

Mr Kim said: "Gentlemen, would you please be kind enough to join my meeting? I beg you please."

Mr Lee and I reluctantly agreed and accompanied Mr Kim to his meeting.

(e)  During the meeting, Mr Sung II Seo ("Mr Seo"), the representative of the North Korean authorities, requested Mr Kim for a number of amendments to be made to the March 2013 Agreement and a further investment in the sum of US$140,000.00 being US$40,000.00 for the operating costs and US$100,000.00 for the original seeds in Korean to the following effect:

Mr Seo said: "Mr Kim, estimated scale of production needs to be increased and investment and capital amounts for our joint venture will need to be reduced. Otherwise, it will be difficult to obtain the necessary approval for the certificate of incorporation."

Mr Kim said: "Ok."

Mr Seo said: "We will also need a further investment for US$140,000.00. $100,000.00 for the seeds and $40,000.00 for operation costs."

Mr Kim said: "Right."

(f)  Mr Kim seemed very concerned and distressed about Mr Seo's requests.

(g)  After the meeting with Mr Seo, Mr Kim turned to Mr Lee and I, and we had a conversation in Korean to the following effect:

Mr Kim said: "Oh no, what can I do now?"

I said: "You should sort this out with Mr Kwak."

Mr Kim said: "Mr Kwak and I don't have the funds."

(h)  I then had a second thought about this business opportunity and we had a further conversation in Korean to the following effect:

I said: "How much did Mr Kwak invest in Woorifarm?"

Mr Kim said: "$35,000.00."

I said: "Right. How about Mr Lee and I invest $70,000.00 each for 20% of the company shareholdings each. Mr Kwak must of course keep his shares in the company."

Mr Lee said: "I'm happy to invest on that basis."

Mr Kim said: "Sounds good to me. Thank you."

I said: "Mr Lee and I will also need to become directors of the company."

Mr Kim said: "Yes."

I said: "Can you agree to our proposal even though you are not recorded as a director of Woorifarm?"

Mr Kim said: "No problems at all. I am the president of Woorifarm as you know."

(i)  At the time I understood that Mr Kim was authorised to agree to this as he was the president or chairman with the full authority of Woorifarm.

(j)  On the next day, Mr Kim, Mr Lee and I signed the March 2013 Agreement (which Mr Kwak claims to be the Fraudulent Agreement) incorporating the changes requested by Mr Seo. Mr Lee and I signed as directors and Mr Kim as chairman of Woorifarm.”

72. Overall, this evidence in relation to the March 2013 meeting appears in substance to be similar to the evidence of Mr Kim in his affidavit. Although there are some differences in their accounts there are not differences in relation to the fact that money or benefits were requested by Mr Seo of Kumsoo in the sum of US$140,000, Mr Kim said that he and Mr Kwak did not have the funds to pay this and that Mr Lee and Mr David Lee offered to invest the US$140,000 (US$70,000 each) for 20% of the shares in Woorifarm each and to be made a director of the company. These main items are confirmed in Mr Kim’s evidence: see paragraph 27 of his affidavit. Mr Lee’s alleged belief that Mr Kim had the full authority of Woorifarm as he was the President or Chairman of the company (paragraph 13(i) of Mr Lee’s second affidavit) is supported by Mr Kim’s evidence in paragraph 28 of his affidavit that he believed he was able to make the decision to grant the interest in Woorifarm and the directorships to Mr Lee and Mr David Lee as he was of the belief that he “found the company and was in charge of its day to day business as the chairman”.

73. Although the evidence is clear that Mr Kwak and his wife were the directors and shareholders of Woorifarm at all relevant times, Mr Kim attended meetings in relation to the negotiations of the November 2012 Agreement, signed the November 2012 Agreement as Chairman (Exhibit A, page 134), and had business cards arranged for him by Mr Kwak indicating that he was the Chairman of Woorifarm: Exhibit C. In addition, the negotiations related to an agricultural joint venture business and the evidence was that Mr Kim had extensive business experience in agriculture including in North Korea for World Vision whereas Mr Kwak was a painter by occupation, although he had pursued other business interests in North Korea. Mr Kim also gave evidence that he had run an agricultural farming business near Sydney under the business name Woorifarm for many years. Although Mr Kim was not able to produce documents establishing this, his evidence was that the business ceased in 2012 when he sold his farm.

Cross-examination of Mr Lee

74. Mr Lee gave evidence that he was practicing as a Certified Practicing Accountant and a Registered Tax Agent. He said he was the principal of his firm. He gave evidence that taxation work took up most of his time. He conceded that in the last 15 years or so he had created documents changing directors for corporate clients on about four or five occasions. He was asked whether he had ever offered to change directors for a company for Mr Kim. Mr Lee gave evidence that Mr Kim had initially said to a Mr Park and him that he did not want to be a director of Woorifarm because he wished to obtain a Government pension benefit. Mr Kim said that about one year after this Mr Kim told Mr Park and him that he now wanted to be a director of Woorifarm.

75. Mr Lee was then cross-examined in relation to companies of which he was or had been a director. Initially he denied having been a director of a company but after further reflection indicated that he had been a director and shareholder of a company named Auslife Enterprise Pty Ltd. Mr Lee was shown company summaries for a number of other companies and agreed that he had been a director of Dialpad.com Australia Pty Ltd and Ausuwon Co Pty Ltd (see Exhibits 2-4).

76. Mr Lee agreed that he was a director of One Korea Trading Pty Ltd. He also agreed that he had created this company at the request of Mr Kim. Mr Lee agreed that the company was created by him with three directors, Mr Kim, Mr David Lee and himself.

77. Mr Lee agreed that he was a member of the organisation “Business Link DPRK”. He said he was the Chairman of that organisation and it had six other members. He agreed that it was a private organisation which had as a purpose the organisation of business ventures in North Korea. It also had as a purpose the discussion of business opportunities in North Korea. Mr Lee said he had travelled to North Korea to negotiate business opportunities on four or five occasions as start-up business ventures.

78. Mr Lee was taken to paragraph 8 of his affidavit sworn 29 January 2016 and agreed that in or about December 2009 Mr Kwak told him that he and Mr Kim were interested in starting an agricultural business in North Korea under the name of Woorifarm Pty Ltd. Mr Lee said that he did not get involved in this matter but knew that Mr Kwak wanted to pursue the opportunity with Mr Kim. Mr Lee said he thought it was a good idea and that it would be profitable as Mr Kim was involved in it: T91.37.

79. Mr Lee was then asked some questions in relation to the use of honorific titles in the Korean community. He agreed that he was the President of the Business Link DPRK organisation. He denied that it was his idea to set it up and gave evidence that Mr Park asked him to organise it. The Association had a business name and an ABN with the standard constitution provided for by the Department of Fair Trading. He said the organisation had a president, treasurer and secretary and he had been selected by the other members as the President. Mr Lee agreed that people called him by the title “Chairman” in the community but did not agree this was as a mark of respect. Mr Lee was taken to emails from Mr Kwak at pages 477 and 479 of Exhibit A where Mr Kwak had addressed the email as “Dear Mr Chairperson”. Mr Lee said he did not believe that this was as a mark of respect by Mr Kwak but because he was the President of the Business Link DPRK Association. Mr Lee agreed that the words “President” and “Chairman or chairperson” were sometimes used as equivalents but not always.

80. Mr Lee gave evidence that he normally spoke 60% of the time in English and 40% of the time in Korean in his work. He agreed that with older Korean clients he sometimes used titles in Korean such as Senior or Teacher as a mark of respect.

81. Mr Lee was then taken to page 489 of Exhibit A and agreed that it was an email to him from Mr David Lee where he was addressed as “Mr Chairperson”. Mr Lee said that Mr David Lee was a member of the Business Link organisation and he called him by the title of “Chairperson”. Mr Lee agreed that if a person had owned a business then he was commonly called “Chairman” whereas if he did not have a business he was not called “Chairman”.

82. Mr Lee denied knowing Mr Kim for more than 20 years. He said he had known him since about 2005. This was contrary to Mr Kim’s evidence.

83. Mr Lee was then asked questions about his belief as to whether Mr Kim was a director of Woorifarm in March 2013. Mr Lee gave evidence that he believed Mr Kim was a director of Woorifarm as at that time. It was put to Mr Lee that he was aware that Mr Kim was not registered as a director of Woorifarm at any time. Mr Lee denied this and said he believed Mr Kim was a director of Woorifarm from about 2011. He agreed that he had never been told by anyone that Mr Kim had been registered as a director of Woorifarm. He also agreed that he did not conduct any search of ASIC’s records to confirm that Mr Kim was a director of Woorifarm. He said it was not his job to undertake such a search. Mr Lee confirmed that in order to become a director you needed a consent from the director, the completion of the appropriate form and to file it with ASIC. Mr Lee said he did not know as at 2013 that no-one had taken the steps to register Mr Kim as a director of Woorifarm.

84. Mr Kim was then taken to paragraph 13(h) of his affidavit sworn 27 June 2016 (Exhibit A, page 50) where he records a conversation with Mr Kim in North Korea in March 2013 in which he said to Mr Kim words to the following effect: “Can you agree to our proposal even though you are not recorded as a director of Woorifarm?”.

85. Mr Lee gave evidence that he said this “just in case Mr Kim was not a director”: T105.1. He denied that he knew Mr Kim was not a director of Woorifarm at that time in March 2013 and believed he had been a director since 2010. He conceded that he did not take steps to check that Mr Kim was a registered director of Woorifarm. Mr Lee said that he understood that Mr Kim was called the “Chairman” of Woorifarm, that he was a representative of Woorifarm and when he saw the November 2012 Kumsoo Agreement he noted that Mr Kim had signed it as Chairman: T105.24-.33.

86. This evidence of Mr Lee was not persuasive and I reject it. The clear inference to be drawn from paragraph 13(h) of his 27 June 2016 affidavit was that he was aware that Mr Kim was not recorded as a director of Woorifarm as at March 2013.

87. Mr Lee was then taken to the email which he forwarded to Mr Kwak on 24 January 2014 which is at pages 224-230 of Exhibit A. Although Mr Lee stated in his evidence that he believed the translation in English of the Korean email was wrong he does not dispute the translation in his affidavit. In the email (Exhibit A, page 225) Mr Lee stated as follows: “We said that we would agree to invest on the condition that Mr Kwak’s equity is maintained. Chairman Kim surely agreed to that. I in fact raised a concern with Chairman Kim that he was not registered as the Managing Director of Woori Nongjang so it would be a flaw in the contract. However Chairman Kim insisted that it should not be a problem at all.”

88. It was put to Mr Lee by counsel for the defendant that the email dated 24 January 2014 at page 225 of Exhibit A was to this extent consistent with paragraph 13(h) of his second affidavit. Accordingly, in 2013 Mr Lee knew that Mr Kim was not registered as a director of Woorifarm. Mr Lee maintained that as at March 2013 he believed Mr Kim was a director of Woorifarm. Mr Lee referred to the business card which Mr Kwak prepared for Mr Kim and which Mr Kim showed to Mr Lee which recorded Mr Kim’s position as “Chairman” of Woorifarm. Mr Lee said that he believed this showed that Mr Kim was a director of Woorifarm. He denied that he had only been told that Mr Kim was a consultant to Woorifarm. There was no evidence Mr Lee had seen this business card in or before March 2013.

89. Mr Lee agreed that he was aware of Mr Kim’s experience and background with World Vision and his agricultural expertise. He did not agree that he was a friend of Mr Kim in 2012 but described him as a business associate. He agreed that he had lent Mr Kim $50,000 in 2010 but that it had been paid back. Mr Lee said that Mr Kim had not paid him interest on the $50,000 loan and Mr Lee had not sought this interest as Mr Kim was a farmer and then a pensioner and he did not think he could afford the interest.

90. Mr Lee denied that he was aware that Mr Kwak had given Mr Kim $15,000 from the $50,000 which Mr Kwak had borrowed. He also denied that Mr Kim had provided him with an IOU for $15,000 or that he had required Mr Kim to sign an IOU for $15,000. He said that if Mr Kim had given this evidence he was wrong. Mr Lee said he was aware that Mr Kim had borrowed $15,000 from Mr Kwak in about March 2011. He said he was told this by Mr Kim later. When cross-examined about his instructions to lawyers in 2012 and 2013 only to ask for $35,000 from Mr Kim plus interest, Mr Lee said that at least $35,000 and interest would be acceptable to him but this was never repaid.

91. Mr Lee agreed that he had received the email from Mr Kwak on 9 November 2013 (Exhibit A, pages 100-102) in which Mr Kwak had referred to “the debt of $35,000”. He was also taken to a letter from his previous lawyers to Mr Kwak (Exhibit A, page 114) which provided: “We are instructed that you have failed to repay the balance of the advance in the sum of $35,000.00 with interest at the rate of 10%.” Mr Lee said that in his view the best way to get the money from Mr Kwak was to only seek $35,000 plus interest. He confirmed that he believed he was owed $50,000 plus interest and had emailed Mr Kwak twice seeking this money. He denied that the arrangement was for him to seek $15,000 from Mr Kim.

92. Mr Lee was taken to a letter he wrote to Mr Kwak’s previous lawyers where he said: “…I borrowed $100,000 from my friend, Mr Thomas Kang and I loaned it to them ($50,000 for each) (see attached) in January 2010. Mr Kwak later transferred $15,000 out of his $50,000 to Mr Kim”. Mr Lee was then taken to the next sentence in the letter to the following effect: “They did neither repay it at all until now, nor the interest on it at all”. Mr Lee said this was a mistake and that he expected Mr Kwak to repay the $50,000 plus interest not merely $35,000 plus interest. He said that the $15,000 loan was between Mr Kim and Mr Kwak. He said they did not let him know of the transaction at the time and told him about one year later.

93. When it was suggested to Mr Lee that he knew the loan was for Woorifarm he denied this and said that he gave the money to Mr Kwak: T117.29. He agreed that he understood in 2010 that Mr Kwak handled all the administrative side of Woorifarm. However, Mr Lee denied that when he gave the cheque to Mr Kwak he intended that it be provided to Woorifarm for its business in North Korea. He said it was simply provided to Mr Kwak. He said it was Mr Kwak’s decision if the money borrowed was used for Woorifarm or him personally. He denied that anything was said to him as to the purpose of the loan at the time.

94. Mr Lee was then taken to his contrary evidence in paragraph 8 of his 29 January 2016 affidavit where he states Mr Kwak had sought money by way of a loan for investing in the agricultural business in North Korea under the name of Woorifarm. Mr Lee eventually accepted that he was aware that the money borrowed was to be used for the purpose of the agricultural business of Woorifarm in North Korea: T118.31.

95. Mr Lee was then cross-examined in relation to his March 2013 trip to North Korea. He agreed that he went to North Korea with Mr Kim in March 2013. Mr Lee denied that he bought the plane tickets in March 2013 but said that he had paid for the tickets for the previous visit to North Korea which did not involve meeting representatives from Kumsoo. Mr Lee said that he and Mr Kim travelled together whereas Mr David Lee travelled from the Philippines. He agreed that the three of them normally stayed together in the same hotel and shared meals together.

96. Mr Lee denied that prior to the March 2013 trip to North Korea that he was aware of the November 2012 Kumsoo Agreement. He said he heard no discussion of it in the Korean community at the time and Mr Kim and Mr Kwak had not told him about it.

74. Whilst they were in North Korea Mr Lee denied that Mr Kim had talked to him prior to his meeting with Kumsoo about the purpose of the meeting. Mr Lee said he was asked on the second day in North Korea by Mr Kim to attend the meeting with Kumsoo with Mr David Lee. He denied that he was told the purpose of the meeting was to change or amend the November 2012 Kumsoo Agreement. Mr Lee was taken by counsel for the defendant to his 24 January 2014 email (Exhibit A, page 225) where he said words to the effect: “Chairman Kim insisted that Mr Myung Ja Lee and I should come to a meeting where a contract would be amended and signed so I agreed to go as an observer. In the discussion between Chairman Kim and Seong Il Seo, it became clear that US$40,000 for operations costs and US$100,000 for importing the seeds must be invested in addition for the contract to be signed.”

75. Despite this email, Mr Lee said that he did not know the contract was to be amended. He thought it was only to be discussed. He denied that Mr Kim had shown him the November 2012 Agreement prior to the meeting. Mr Lee said he noted as an observer at the meeting that there was discussion about a draft agreement between Mr Kim and Mr Seo.

76. It was put to Mr Lee that when the March 2013 Agreement was signed there was no intention to provide further seeds to Kumsoo. Mr Lee said there was discussion about a new draft of the Agreement and a request for operating costs in the sum of US$140,000. Mr Lee denied that Mr Seo asked for an extra $140,000 but merely said that US$140,000 should be invested by Woorifarm. Mr Lee agreed that the Agreement was not signed at that meeting but was signed the next day. He denied that the Agreement was discussed between Mr Kim, Mr David Lee and himself that night. He also denied that in the evening before the Agreement was signed that Mr Kim talked about the November 2012 Agreement.

77. When it was suggested to Mr Lee that he was concerned that Mr Kwak had not registered Mr Kim as a director of Woorifarm, Mr Lee said that Mr Kwak was not present and that Mr Kim therefore had to sign for Woorifarm. He agreed that he knew Mr Kwak was a director of Woorifarm and that he did not call or email him to ask him if Mr Kim had authority to sign the Agreement.

78. It was put to Mr Lee that when he signed the March 2013 Agreement he knew that he was not a registered director of Woorifarm. He said he signed as he believed Mr Kim had authority to appoint him a director and to sign the Agreement and he trusted Mr Kim. He said that he regarded the registration of himself and Mr David Lee as directors of Woorifarm to be Mr Kim’s job. He said he regarded Mr Kim and Mr Kwak as business partners and he trusted Mr Kim.

79. When it was suggested to Mr Lee that Mr Kwak alone could make him a director of Woorifarm Mr Lee denied this. He said he believed that Mr Kim and Mr Kwak could make him a director of Woorifarm.

80. It was put to Mr Lee that he realised it was a problem that he and Mr David Lee had signed the Agreement when they were not directors of Woorifarm. He said that he became aware that there was a problem after he had come back to Sydney after a number of days and he realised that there was a dispute between Mr Kim and Mr Kwak as to the signing of the Agreement. He said he called Mr Kwak and Mr Kim into his office to attempt to mediate the matter. He said he told both of them exactly what he believed happened in North Korea.

81. In relation to the March 2013 meeting with Mr Seo, Mr Lee agreed that Mr Kim appeared to be very distressed and nervous and was chain smoking. It was put to him that Mr Kim was nervous as he was trying to change the November 2012 Agreement. Mr Lee denied this and said he believed Mr Kim was nervous because he had to find the extra amount required by Kumsoo of US$140,000.

82. Mr Lee was taken to his email at Exhibit A, page 225 where he stated the following:

“However Chairman Kim insisted that it should not be a problem at all. Although I could not fully understand, I did not have any choice but to follow Chairman Kim's decision as a solution. When I think about it now, it was a very big mistake.”

106. It was put to Mr Lee that he did have a choice and that he was not obliged to follow Mr Kim’s decision. He denied this and said that to get the business going the money had to be provided to Kumsoo. It was put to Mr Lee that he had a choice and he could have called Mr Kwak. Mr Lee said that that was Mr Kim’s job and he regarded Mr Kwak as being under Mr Kim. It is clear in my view that Mr Lee did have a choice at the time as to whether he agreed to provide Mr Kim and Woorifarm the US$70,000 which he agreed to.

107. It was put to Mr Lee that although he did not want to invest in Woorifarm’s proposed agricultural activities in North Korea in 2009 he had changed his mind by 2013 and did want to invest. Mr Lee said that the situation had changed and Mr Kim had asked him for money in exchange for being a shareholder and director of Woorifarm. He decided to invest US$70,000 in exchange for a 20% interest as he did not understand that Mr Kim could afford the US$140,000 sought by Kumsoo. It was put to Mr Lee that his reference at Exhibit A, page 225 to “a very big mistake” was a reference to signing the March 2013 Agreement when he was not a director and attempting to exclude Mr Kwak. It was also suggested that it was a reference to the fact that Mr Kim had signed even though he was not registered as the Managing Director of Woorifarm and that would be a “flaw in the contract”. Mr Lee did not agree with this. He said there was a dispute later between Mr Kwak and Mr Kim. However, he regarded Mr Kim as having solved the problem in North Korea in March 2013 in his capacity as Chairman of Woorifarm. Mr Kwak had recognised Mr Kim as Chairman and Mr Kim had signed both the November 2012 Agreement and the March 2013 Agreement in that capacity. Mr Lee said he regarded Mr Kim as signing as a representative of Woorifarm and that Mr Kwak was only assisting him in the proposed agricultural joint venture. Mr Lee said that without Mr Kim no Agreement could have been achieved with Kumsoo. There appears to be some force in that opinion as only Mr Kim and not Mr Kwak had any relevant expertise in agriculture as was apparently known to Kumsoo: see Exhibit A page 93.

108. It was put to Mr Lee that he, Mr David Lee and Mr Kim set up One Korea Trading Pty Ltd as a new company to take the place of Woorifarm with the North Korean entity. Mr Lee denied this and said that Mr Kim had asked him to set it up.

109. Mr Lee was then taken to an email sent to him on 28 June 2013 from the Investment Committee of the Equity Joint Venture in North Korea (Exhibit A, page 494). In particular his attention was drawn to the following extract from the email:

“With reference to drawing a new conclusion for company contract The Equity Joint Venture for Seed gathering, it would be much appreciated if you could register the incorporation anew, with Mr Un Kak Kim as representative director at the relevant body in Australia within a few days. Please kindly send me the company registration documents and certifying documents showing the name of the company and the name of representative director by email” [sic].

110. Mr Lee said that Mr Kim had requested him to register a new company but he did not understand that the registration of the new company was to replace Woorifarm as the joint venture partner. He also did not understand that its purpose was to exclude Mr Kwak from the deal.

111. Mr Lee was taken to his email dated 24 January 2014 (Exhibit A, page 226) where he stated:

“I believe that the following reasons are the reasons why the contract failed:

…

3.  Chairman Kim's lack of understanding and experience of the business operation, suggesting something like setting up a new company if he is not listed as a director, etc. Also because he failed to meet the demand from Hae Dong so Hae Dong obstructed it.”

112. Mr Lee agreed that the new company did not have Mr Kwak as a director. However, Mr Lee denied that Mr Kwak was excluded as he had refused to make Mr Kim a director of Woorifarm. He said that was a dispute between Mr Kwak and Mr Lee. Mr Lee said that he denied he was aware that Mr Kim was angry as he was not a director as he thought Mr Kim was a director at the time.

113. Mr Lee denied that One Korea Trading Pty Ltd was registered by him for the purpose of concluding a new agreement. His attention was directed to the fact that One Korea Trading was registered on 28 June 2013. Mr Lee repeated that this was Mr Kim’s direction and he had no idea that its purpose was to replace Woorifarm.

114. Mr Lee agreed that at the March 2013 meeting he saw Mr David Lee pay US$5,000 in cash to Mr Seo at the signing of the Agreement. He said that he understood that this was part of the US$140,000 that needed to be advanced. He also agreed that he had advanced US$20,000 to Mr Kim as part of the amount required from him. He said it has never been paid back by Mr Kim to him. He said that he understood that Mr Kim had used this money to buy seeds from South Korea in order for them to be provided to the North Korean joint venture party.

115. In answer to the suggestion that he knew that the signing of the March 2013 Agreement was a mistake, Mr Lee said that Mr Kim did not handle the matter properly and it gave rise to a big dispute. This was the “big mistake” that he was referring to in his email.

116. Mr Lee confirmed that he did not expect Mr Kim to complete the registration requirements for him to become a director of Woorifarm in the period before requesting it in exchange for his investment in North Korea in March 2013 and the date of the signing. Mr Lee said that he expected that after they came back to Australia that Mr Kim as Chairman of Woorifarm would handle the registration as a director with Mr Kwak. Mr Lee agreed that when he signed the March 2013 Agreement he knew he had not been registered as a director of Woorifarm.

117. Mr Lee was taken to his 24 January 2014 email (Exhibit A, page 226) where he gave as one of the reasons why the contract failed as being “2.  Mr Soong II Seo's greed and lack of experience”.

118. It was put to Mr Lee that what he was referring to was Mr Seo’s demand for $5,000 in cash to change the November 2012 Agreement and Mr Lee denied this.

119. Mr Lee agreed that one reason he was prepared to invest money in the Agreement in March 2013 was to assist him in getting money back from Mr Kwak that he was owed. He agreed that he believed that he and Mr David Lee were entitled to double the share of Mr Kwak as they were to invest US$70,000 each whereas Mr Kwak had only invested $35,000. Mr Lee denied that he thought it was a good idea to take over the Woorifarm Agreement by One Korea Trading as Mr Kwak still owed him $35,000.

120. I viewed Mr Lee carefully whilst he was giving his evidence. Overall, I am of the view that some real caution should be exercised in considering the evidence of Mr Lee. I was not impressed with some aspects of Mr Lee’s oral evidence including:

1. His failure to concede he was of the belief that Mr Kim was not a director of Woorifarm in March 2013. That he had this belief is clear from paragraph 13(h) of his second affidavit;

2. His explanation for his willingness to accept a repayment of $35,000 of the $50,000 loan to Mr Kwak, being that it was an attempt to resolve the matter;

3. His initial assertion that he did not understand the $50,000 loaned to Mr Kwak was to be provided to Woorifarm for its business in North Korea whereas this is clear from his first affidavit; and

4. His explanation for the registration of One Korea Trading Pty Ltd.

121. I consider Mr Lee was attempting in his evidence to place a good light on his actions in North Korea in March 2013. However, I did not form a view that Mr Lee was lying about what occurred at the March 2013 meeting with Kumsoo. It seems from the evidence that the Kumsoo representatives were trying to alter the deal to obtain further benefits for Kumsoo. In forming this view I took into account the defendant’s allegations that Mr Lee was fraudulently attempting to take the benefit of the November 2012 Agreement for himself, Mr David Lee and Mr Kim. I accept that Mr Lee believed Mr Kim was very important in relation to any agreement between Woorifarm and Kumsoo because of his extensive agricultural experience. I also accept Mr Lee’s evidence that without Mr Kim there would likely have been no Agreement reached with Kumsoo. This was due to Mr Kim’s known expertise in agriculture.

Evidence of the Defendant and Cross-claimant

Expert report of Mr Domenic Quartullo

122. The defendant and cross-claimant to the Second Cross-Claim rely on an expert accountant’s report of Mr Domenic Quartullo dated 21 July 2016.

123. In his report, Mr Quartullo states that his instructions from the solicitors for the defendant were to prepare a report addressing and valuing the loss of a chance suffered by Woorifarm as a consequence of the “fraudulent actions to which Bonney Lee was a party”: paragraph 3.02. Mr Quartullo gives as part of the background to his report that as a consequence of the conduct of Mr Lee, Mr Kim and Mr David Lee, the November 2012 “Kumsoo Agreement was terminated thus depriving Woorifarm of a chance to participate in the joint venture under the Kumsoo Agreement” (paragraph 2.09). Mr Quartullo assumed a valuation date of at or about November 2012 (paragraph 3.03).

124. The methodology adopted by Mr Quartullo in his report is to ascertain the expected future cashflows to Woorifarm based on the financial details of the expected investment of the parties in the joint venture and the expected financial performance of the joint venture (paragraph 7.01). Mr Quartullo adopted a discount rate to take into account risks which varied between 45% and 50% in determining his valuation (paragraph 7.12).

125. Mr Quartullo assessed the valuation in two different scenarios. Scenario 1 was that €15,387 of seeds still had to be delivered by Woorifarm to Kumsoo and Scenario 2 was that €76,934 of seeds still had to be delivered by Woorifarm. Mr Quartullo expresses his opinion that the valuation range of Woorifarm’s expected cashflows from its investment in the Kumsoo joint venture “lies in the range of $3.29 million (Low Value Scenario 2) to $3.84 million (High Value Scenario 1), with mid-point values of $3.595 million (Scenario 1) and $3.535 million (Scenario 2)” (paragraph 7.13).

126. In relation to the discount rates of 45-50% Mr Quartullo states the following:

“Whilst these rates are “high” by normal standards I consider them to be appropriate given my professional assessment of the risks associated [with] the investment by Woorifarm, including the risk associated with the investment being in the DPRK.” (paragraph 7.08).

127. At paragraph 7.08.4 in his report Mr Quartullo refers to the following risk:

“The specific business risks associated with Woorifarm’s investment in the Kumsoo JV including the risk that the returns expected to be received by Woorifarm from the Kumsoo JV may not eventuate.”

128. No further detail is provided by Mr Quartullo in relation to the risks arising from the proposed joint venture.

129. I will consider the report in some detail further below in relation to Mr Quartullo’s cross-examination and the loss of a chance issue.

Evidence of Mr Kwak

Affidavit Evidence of Mr Kwak

130. Mr Kwak, the defendant, swore three affidavits for the purposes of the proceedings.

131. He gave evidence in his first affidavit sworn 13 April 2016 that he and his wife were the two directors of Woorifarm and that they have always been the only directors of Woorifarm (paragraph 1). Mr Kwak gave evidence that he incorporated Woorifarm in September 2009 for the purposes of exploring agricultural and other business opportunities in North Korea (paragraph 5). He said he was a member of the business association Business Link to DPRK. He said that he met Mr Kim in North Korea in about October 2009.

132. Mr Kwak gave evidence in his first affidavit about meeting Mr Kim and discussing with him a number of potential agricultural opportunities using Mr Kim’s agricultural expertise (paragraphs 9 to 10). Mr Kwak also sets out in his affidavit his versions of the conversations with Mr Kim and Mr Lee relating to discussions concerning the borrowing of $50,000 for the agricultural business of Woorifarm. Mr Kwak said he did not think it was necessary to include a reference to Woorifarm in the IOU Agreement as he understood that Mr Lee was aware that he was borrowing the money for Woorifarm (paragraphs 14-17). Mr Kwak also gives evidence that it was agreed between him and Mr Lee that $15,000 of the $35,000 would be repayable by Mr Kim to Mr Lee leaving only $35,000 outstanding to be paid by Woorifarm (paragraph 20).

133. In the rest of his first affidavit, Mr Kwak sets out in detail his pursuit on behalf of Woorifarm of business opportunities in North Korea including potential agricultural businesses (see paragraph 21 and following). In particular, Mr Kwak gives the detail of his negotiations throughout 2012 with Kumsoo. He says he travelled to North Korea about three times for this purpose and on each visit Mr Kim accompanied him and Woorifarm paid for his trip. Mr Kwak gives evidence that he referred in his conversation with Mr Seo to Mr Kim being Woorifarm’s “consultant” as he had the agricultural expertise (paragraph 22). Mr Kwak gives evidence that Mr Seo asked for something to be drafted in writing in relation to Woorifarm. Mr Kwak prepared a draft letter which is annexed to his affidavit describing Mr Kim on the letterhead of Woorifarm Pty Ltd as the “President” of Woorifarm. Mr Kwak in his oral evidence said that the letter was never finalised and that the English translation is incorrect because the original Korean version refers to Mr Kim as the “Chairman”. In his oral evidence Mr Kwak said that he described Mr Kim as the Chairman as a matter of respect and to make him “feel better” because of poor business outcomes Mr Kim had experienced in North Korea.

134. Mr Kwak gives evidence of the execution of the November 2012 Kumsoo agreement. He annexes a copy of the Korean version to his affidavit with an English translation. Mr Kwak gives evidence that prior to the signing of the November 2012 Agreement the parties had developed a projected profit and loss statement which he annexes to his affidavit. Mr Kwak said in his oral evidence that this was a draft profit and loss statement depending on the final total investment of the parties under the Agreement.

135. Mr Kwak gives evidence of conversations he had with Mr Kim and then with Mr Seo in relation to Mr Kim signing the November 2012 Agreement. He said that Mr Kim indicated to him that he should also sign the contract and that Mr Seo agreed to this even though Mr Kwak told him that Mr Kim was not a director of Woorifarm. The contract which was ultimately signed describes Mr Kim as the Chairman of Woorifarm (Exhibit A, page 134).

136. Mr Kwak then gives evidence about Mr Kim requesting in early 2013 to be made a director and shareholder of Woorifarm. Mr Kwak said that he would think about it and he would work out something with Mr Kim which is fair for him to be paid as a consultant (paragraph 30). Mr Kwak said that Mr Kim repeated his request to become a director and shareholder of Woorifarm in late February 2013 whilst he was with the company of Mr Lee (paragraphs 35-36). Mr Kwak said that he again said that he would work out a “fair arrangement” with Mr Kim when he returned from North Korea to ensure that he was “properly rewarded for his efforts”. Whilst this payment was uncertain and may have impacted on any profits Woorifarm may have made from the Agreement, both parties submitted in their final submissions that any such amount did not need to be taken into account.

137. Mr Kwak gives evidence that in about mid-March 2013 Mr Kim informed him that he changed the November 2012 Agreement while he was in Korea and that Mr Kwak told him that he could not do that. He asserted that Mr Kim claimed that it was fairer and that he gave 20% of the company to Mr Bonney Lee and to Mr David Lee for US$70,000 each. Mr Kwak said that Mr Kim gave him a copy of what he describes in his affidavit as “the fraudulent agreement”. Mr Kwak claims that he remonstrated with Mr Lee in relation to this (paragraph 39) and then pursued discussions with the North Korean authorities to try and remedy the situation (paragraphs 41-43). The North Korean authorities requested a formal written complaint and in due course told him that because a fraud had been committed, Mr Seo had been dismissed and that it was too difficult to continue with the Joint Venture without him (paragraph 47). Mr Kwak claims that a Mr Shin from the North Korean Government told him that Mr Seo would provide a written explanation as to what had occurred and that a document was provided to him by a person in November 2015 providing that explanation.

281. Mr Quartullo conceded that the November 2012 Agreement did not include prices for the seeds and vegetables. He also conceded that his report was based on the figures in the profit and loss statement and he assumed it to be the Economics Technology Estimation Document referred to in the November 2012 Agreement. He said that he would need further information to fill the void created by the absence of the relevant document and that if the profit and loss document at page 155 of Exhibit A was not the correct document he would practically not be able to perform his valuation.

282. Mr Quartullo confirmed that he had not valued a loss of a chance in relation to a contract requiring performance in North Korea before. Mr Quartullo said that he had dealt with this issue by referring to the country risk premium research for North Korea assessed by Professor Damodaran, a Professor of Finance at New York University: see paragraphs 14.10-14.13 of his report. Mr Quartullo said he had not been able to find other evidence of rates of returns on agreements with parties in North Korea. He said that the market risk premium was relevant to the total discount rate which he assessed for the purposes of his report.

283. Mr Quartullo was asked whether Professor Damodaran’s research took into account the particular industry involved in North Korea. He said that he understood that it did not and that the country risk premium used by Professor Damodaran of 17.2% assumed a balanced portfolio across an entire investment spectrum. That, of course, is not the case here where the investment was focused in the agricultural sector and more specifically in the growing of vegetables and vegetable seeds.

284. For the purposes of calculating risk factors and the discount rate for his report, Mr Quartullo confirmed that he had used comparable Australian companies: paragraph 14.17 of his report (Exhibit A, page 448). Mr Quartullo said that he could not find similar companies in North Korea and he needed to draw on the closest comparable companies. He denied that the use of the Australian companies effectively amounted to a guess.

285. Mr Quartullo was asked to assume that Woorifarm or its directors had been previously involved in two agricultural projects providing seeds to North Korean entities with the expectation of profit in the two years prior to 2012 and that in relation to the two schemes they did not return a profit and one of the schemes had experienced a crop failure. Mr Quartullo said that assumption would not affect his calculations “at the micro level” but would be relevant to the discount rate which he had used of 45%-50%. He regarded this as an appropriate discount rate for an early stage venture.

286. When asked what factors he took into account in assessing the discount rate of 45%-50%, Mr Quartullo referred to paragraph 6.05.2 on page 429 of his report. He said these were the factors which he took into account. He said he was of the view that the risks of a contract where performance was to occur in North Korea were captured partly by the equity market premium. He said that there was no accurate way to assess the risk of such a venture: T214.4

287. Mr Quartullo was asked about whether he made any assumptions for the purposes of preparing his report about the enforceability of the November 2012 Agreement in North Korea. His evidence on this point was as follows:

“Q.  Did you make any assumption about the enforceability of that agreement in North Korea?

A.  Look, my genuine assumption would have been that the contractual arrangements could have been carried out.  If it had been brought to my attention that there was a risk that the contractual arrangements could not be carried out, it would be a significant factor.

Q.  When you say not carried out, you mean enforceable?

A.  From a valuation perspective it's more about the commercial practicalities rather than the enforceability.  Many things may not be enforceable, but from a commercial perspective they carry commercial ‑ and ultimately, yes, I think you need to be able to rely on being able to carry it out.  That would be a factor.”

294. North Korea is not a country referred to in the Foreign Judgments Regulations 1992 (Cth).

295. There was no evidence before the court as to whether North Korea would recognise any judgment obtained in Australia against Kumsoo.

296. Mr Quartullo was taken to Recital 2 on page 116 of Exhibit A of the November 2012 Agreement. He confirmed that he had not reviewed the Equity Joint Venture Act and the Enforcement Regulations of that Act of North Korea. Mr Quartullo confirmed that for the purposes of his evaluation he had assumed that all approvals required in North Korea would be granted. There was no evidence that such approvals had been granted, would be granted or were likely to be granted before the court.

297. A review of Mr Quartullo’s report and his cross-examination referred to above shows that the report was based on a number of assumptions:

1. That all North Korean government approvals would be obtained as required under the November 2012 Agreement: T216.9. There was no evidence of the likelihood of the approvals being obtained referred to in clauses 1.1.9, 5.2.7, 6.1, 9.2.2, 21.4 of the November 2012 Agreement. As to the first sentence on page 134 of Exhibit A, there is, as found above, no satisfactory evidence Woorifarm had advanced its first funding of €2.5m. There was no evidence Mr Kim’s assertion in paragraph 22 of his affidavit as to the value of the seeds provided by him (Exhibit A page 77) was accepted or would be accepted under clause 5.2.7 of the November 2012 Agreement;

2. That the profit and loss statement at Exhibit A page 155 was the Economics Technology Estimation Document referred to in clause 4.4.16 of the November 2012 Agreement. The evidence shows that the Economics Technology Estimation Document was, as Mr Kwak understands it, never received by him and is not the document at Exhibit A page 55: T178.16-.35. There is no objective evidence to the contrary of Mr Kwak’s evidence even though it is only his understanding. Mr Quartullo based his valuation report on the basis that the profit and loss statement at Exhibit A page 55 was the Economics Technology Estimation Document referred to in clause 4.4.16 of the November 2012 Agreement: T210.20; report paragraph 5.04 and following. Accordingly, this assumption is not established on the evidence. I do not accept the cross-claimant’s submissions in paragraphs 5-6 to the extent they constitute a challenge to this assumption of Mr Quartullo not being established;

3. That the November 2012 Agreement would be carried out commercially: T214.23. There was no evidence that the November 2012 Agreement could be enforced by Woorifarm in North Korea. When Mr Shin said the Agreements could not be continued with, Mr Kwak did not practically have a means to challenge this. In the end, Mr Kwak accepted this pronouncement: see paragraph 48 of Mr Kwak’s affidavit sworn 13 April 2016 where he says “From my experience in North Korea…there is no possibility of challenging that decision”. Further, both Mr Lee and Mr Kim in their affidavits state that Kumsoo through Mr Seo sought amendments to the November 2012 Agreement and the payment of additional money by Woorifarm;

4. That Woorifarm’s contribution under the November 2012 Agreement was €2m not the €4m referred to in clause 5 of the November 2012 Agreement. See the report Tables 2 and 6 cf paragraph 5.04 of the report;

5. That Woorifarm would contribute €300,000 worth of expertise: Profit and Loss Statement Exhibit A page 155; report paragraph 5.02 Exhibit A page 419. The only real expertise in vegetable growing was provided by Mr Kim who had no shareholding in Woorifarm. See the Kwak 13 April 2016 affidavit paragraph 22 and Exhibit A page 93. As stated above, by about May 2013 Mr Kim believed the Kumsoo representatives were lying. His continued involvement in the venture was speculative prior to the signing of the March 2013 Agreement: Kwak 13 April 2016 affidavit paragraph 30.

298. These assumptions by Mr Quartullo are, in my view, not established on the evidence. The matter in sub-paragraph (b) in the previous paragraph seems to be particularly important.

299. In Kyluk Pty Ltd v Chief Executive, Office of Environment and Heritage [2013] NSWCCA 114 the Court of Criminal Appeal, after reviewing the authorities, considered the approach which should be taken to an expert report if factual assumptions made by an expert are not established.

300. In Kyluk Schmidt J stated in [177] as follows:

“[177]An expert opinion which meets those requirements need not be excluded if all of the factual bases upon which the opinion is proffered are not established by the expert’s own evidence. Even if facts which the expert “assumes” or “accepts” in reaching the opinion expressed are not proved in some other way, then the opinion may still be admissible. That will depend on the nature of those facts and what bearing they have on the opinion. If they provide but a small part of the basis upon which the opinion rests, then the failure to prove those facts may have but little impact, and not render the opinion inadmissible. The failure to prove facts which provide a significant basis for the opinion might, by way of contrast, be such as to render the opinion no longer relevant to a fact in issue, no foundation for the opinion having been established. Such an opinion, even if it were admitted, would be of no value. Where an opinion is admitted, the failure to establish a fact which is not of such significance, may nevertheless have an impact on the weight given to the opinion.”

301. McCallum J was of the same view as Schmidt J: see at [138]. At [61] Price J stated that even if an opinion based on an assumed but unproven fact is admissible, the opinion may be given little or no weight if the assumption is made good by the evidence.

302. The important assumptions which were made by Mr Quartullo which I have referred to above were not established. In my view they were significant to the report and therefore the report should be given little or no weight.

Further Analysis of Mr Quartullo’s report

303. The following further observations are made in relation to this expert report in the event that my conclusion as to the report in the previous paragraph is held to be wrong:

1. Mr Quartullo indicates in paragraph 1.05 of his report that he has prepared his report on the basis of the information provided to him. He states that he has not undertaken an audit or other independent examination of the documentation provided. He lists the documentation provided in Appendix A to his report. Mr Quartullo emphasises again in paragraph 1.16 of his report that he has prepared his report on the basis of information provided to him. The documents provided to him are the basis for his understanding of the background to the matter: paragraph 2.01 to his report;

2. In paragraph 2.05 of his report, Mr Quartullo states that in or about November/December 2012, Woorifarm provided seed to Kumsoo in accordance with the November 2012 Agreement. It seems from the evidence that the seeds were provided not by Mr Kwak but by Mr Kim: Kim affidavit, Exhibit A, page 77, paragraph 22. In paragraph 44 of his first affidavit, Mr Kwak annexes a receipt for the seed which was provided: Exhibit A, page 88, paragraph 44. Mr Kwak does not say who provided this seed and seemingly does not dispute that it was provided by Mr Kim. There is no clear evidence about who funded the purchase of this seed. Mr Kim asserts in this paragraph that the foundational seeds were “very valuable” and it was his understanding that the seeds were to cover Woorifarm’s investment of €2.5 million under the November 2012 Agreement but the actual cost of the seeds is not stated. As stated above, there is no evidence that the North Korean authorities or Kumsoo agreed with Mr Kim’s valuation of the seeds provided;

3. Mr Quartullo for the purposes of his report, assumed that Mr Lee, Mr Kim and Mr David Lee, without the knowledge or authority of Woorifarm, fraudulently conspired to amend the November 2012 Agreement and thus deprived Woorifarm of a chance to participate in the joint venture under the November 2012 Agreement: Report paragraphs 2.06-.07 and 2.09. I have found that there was no fraud on the part of Mr Lee;

4. It is clear from paragraphs 3.02-3.03 of his report that Mr Quartullo assesses the value of the lost chance as being the chance of making profits under the November 2012 Agreement;

5. In paragraph 4.02 of his report Mr Quartullo notes certain matters set out in the November 2012 Agreement including that it was for 30 years and included in Clause 4.4 an estimated scale of production per year of vegetables. While setting out the estimated scale of production, Clause 4.4.16 of the November 2012 Agreement states that the estimated scale of production shall be decided by “Economics Technology Estimation Document” (“ETED”) and the figures in that document are “not more than estimation”.

Mr Quartullo assumes for the purposes of his report that the estimated scale of production as decided in the ETED referred to in Clause 4.4.16 of the November 2012 document is the profit and loss statement which is Exhibit GK-2 to Mr Kwak’s first affidavit which is at Exhibit A, page 155 and following: Quartullo report paragraph 4.02.5.

Mr Quartullo notes that the production estimates in Clause 4.4 of the November 2012 Agreement differ from those in the ETED. Mr Quartullo indicates that he has assumed that the estimation set out in the ETED represent the expected annual trading results of the joint venture arising from the November 2012 Agreement in each year of the term of the Agreement, expressed in 2012 euros. Why Mr Quartullo has made that assumption is unclear.

There is no reference or assumption in the report of Mr Quartullo as to the experience or trading history of Kumsoo including in agricultural products. There is no evidence about whether it has made profits in the past in agricultural enterprises or whether it breached joint venture agreements with other foreign entities or any other commercial background as to Kumsoo.

Mr Quartullo also does not appear to have taken into account the history as at 8 April 2013 of the cultivation of vegetables from the seeds provided by Mr Kim which shows on balance a poor production: see Exhibit A, page 88, paragraph 44; Annexure D to Mr Kwak’s affidavit at Exhibit A, page 96.

6. Clause 5.2.7 of the November 2012 Agreement provides that the evaluation of asset values for which parties invested shall be decided by both parties upon mutual agreement according to the international market prices and the board of directors will confirm such evaluation based on the “verification of the Joseon Pyongyang Accounting Accreditation Office”. There is no evidence of this confirmation of valuation. Mr Quartullo notes that the ETED contains details of the value of the assets that each of the parties will invest in the Kumsoo Joint Venture totalling €2.5 million rather than the €5 million set out in Clause 5 of the November 2012 Agreement. Mr Quartullo has been asked to assume that the investment amount details set out in Clause 5 of the November 2012 Agreement apply rather than the details in the ETED: paragraphs 4.07-4.08. Why that assumption was asked to be made is unclear;

7. In doing this, Mr Quartullo is asked to assume to place an extremely heavy value on expertise in Woorifarm: see Exhibit A page 155. This is despite the fact that the evidence shows that the only person with expertise in relation to agricultural matters is Mr Kim as opposed to Mr Kwak. Mr Kim’s future involvement in Woorifarm was highly doubtful as he thought the representatives of Kumsoo were lying to him: Kim affidavit paragraph 30 and paragraph 56 above.

It is unclear in relation to paragraph 5.02 of Mr Quartullo’s report how he assumed that Woorifarm would pay for its share of the funding under the November 2012 Agreement;

8. Mr Quartullo makes assumptions about the value of seeds yet to be delivered under the November 2012 Agreement. He does not determine how these seeds were to be obtained or provided nor does he take into account that it appears that Mr Kim provided the earlier seeds: Quartullo report paragraphs 5.05-5.06. In particular, he does not determine how the costs would be borne by Woorifarm if they were to be incurred in or around May 2013 as he assumes in paragraph 5.06 in his report;

9. In relation to the expected annual gross income referred to in the ETED that Mr Quartullo includes in paragraph 5.07 of his report, there is no evidence that Mr Quartullo has compared the unit prices indicated with market value. The unit prices have a uniformity which is surprising. An independent assessment of the annual production costs which he sets out in paragraph 5.09 of his report does also not appear to have been undertaken. The assumption seems to be made that these estimates are accurate and can be relied upon;

10. In paragraph 5.11 Mr Quartullo sets out a summary of the estimated annual profit amount for the Kumsoo Joint Venture. However, this assumes the accuracy of the income which he sets out in Table 3 in paragraph 5.07 and the production costs in Table 4 in paragraph 5.09. He assumes a corporate tax rate of 25%. It is unclear where he obtained this percentage from. All these matters appear to affect the calculation in paragraph 5.11;

11. In paragraph 5.17 of his report Mr Quartullo assumes that the expected annual profit amounts set out in the ETED would be the annual profit expected each year over the term of the Kumsoo Joint Venture with no real growth. However, Mr Quartullo then increases cashflows in each year subsequent to Year 1 by 3% to reflect nominal, rather than real, results. In doing so, it does not appear that Mr Quartullo has taken into account the actual evidence of the crop performance history in Annexure D to Mr Kwak’s first affidavit (Exhibit A, page 96) which shows that the results were less than impressive or matters such as crop failures through disease or adverse weather events. It seems that Mr Quartullo may not have taken all adverse matters into account in determining an appropriate discount rate;

12. Mr Quartullo adopts a discounted cashflow methodology to determine the valuation of Woorifarm’s alleged loss of a chance in relation to the November 2012 Agreement: paragraph 6.03. In paragraph 6.04 Mr Quartullo states as follows:

“The DSF methodology is based on the premise that the value of an asset is the present value of future cashflows expected to be derived from that asset. It requires an analysis of risks, revenue, expenses, investment and cost of capital and (if applicable) the residual remaining at the end of the projected period”.

In paragraph 6.05.2 Mr Quartullo refers to the application of an appropriate discount rate which he says must be “adjusted for the differences in country risk rates and a subjective estimate of the specific risks associated with the investment in the Kumsoo JV”.

In the end Mr Quartullo adopts a 45-50% discount rate: paragraph 7.08. The matters Mr Quartullo takes into account are set out in paragraph 7.08 of his report and include “an appropriate risk premium that would apply to an investment in the DPRK” and “the risk that the returns expected to be received by Woorifarm from the Kumsoo JV may not eventuate”. Mr Quartullo notes that it is a subjective estimate in paragraph 6.05.2. The precise matters he takes into account in assessing the appropriate risk premium to an investment in North Korea and the risk that returns may not eventuate are not stated in greater detail. However, see T213.43.

There is no analysis from any objective materials about profits made by other private companies from western countries in relation to investments in North Korea or, in particular, actual returns compared to estimated returns for agricultural investments in North Korea.

Mr Quartullo also says that he had regard to the amounts purportedly paid by parties for minority interests in Woorifarm as at the date of the March 2013 Agreement: paragraph 6.06. However, Mr Kwak’s whole case is that these amounts were part of a fraudulent conspiracy. Further, there is no apparent detailed analysis leading to the amounts offered by Mr Kim and Mr David Lee.

Mr Quartullo in paragraph 7.6 of his report refers to the very substantial balance which Woorifarm had to pay for its share of the investment amount in paragraph 5.2.1 which exceeds over €500,000 (on the assumption that Woorifarm’s investment amount was €2m rather than €4m) and in paragraph 7.06 says that he has assumed that Woorifarm would not have been able to borrow moneys for its investment and “would have financed its investments solely from equity”. There is no evidence of any available equity investors in Woorifarm other than Mr Kwak and his wife.

304. My overall impression of the Quartullo report is, with respect, that it is essentially largely a theoretical exercise which has been conducted on the basis of certain assumptions without appropriate consideration of:

1. The fact that Mr Kim had the agricultural expertise and experience at the time and not Mr Kwak. As I have found above, Mr Kim’s future involvement was crucial to the venture. If there was a disagreement as occurred between these two persons then Mr Kim would likely no longer have been involved in the joint venture for Woorifarm;

2. A subjective discount rate of between 45% and 50% has been undertaken without any empirical evidence of success by foreign western owned companies in agricultural investments in North Korea and in particular whether North Korean government controlled entities have complied with their contractual obligations;

3. There is no reference to disease and climate risks for agricultural enterprises taking into account evidence of such risks in North Korea. Exhibit D to Mr Kwak’s first affidavit has not, it seems, been taken into account;

4. There is no evidence as to whether Mr Quartullo has taken into account North Korean income tax rates and charges that would be applied. There is some suggestion he has taken into account a rate of 25% but it is not clear where he got this from;

5. Mr Quartullo takes into account in the calculation of an appropriate discount rate in Appendix F to his report the activities of Australian vegetable growing companies which in my view are not relevant to an assessment of possible performance by a joint venture entity in North Korea;

6. In paragraph 14.7 of Appendix F, Mr Quartullo notes that as the investment in the Kumsoo Joint Venture is situated in North Korea, the most appropriate rate would be one relating to North Korea. He then notes that such a rate “is not readily published” and he bases his estimate of the risk free rate on that for Australia with an added premium to represent the added risk associated with the investment being in North Korea. Whilst that may theoretically be an appropriate approach, some proper basis needs to be identified for the rate ultimately adopted for the joint venture in North Korea.

305. I also note:

1. If Exhibit A page 155 is not the ETED what rates should be adopted for vegetable and seed prices for any valuation;

2. What further discount, if any, should be allowed for the risk of not getting the relevant North Korean government approvals;

3. What further discount, if any, should be allowed for the risk the estimated scale of production set out in clause 4.4 of the November 2012 Agreement is not achieved;

4. What further discount, if any, should be allowed for a risk Mr Kim’s assessment of the value of the seeds provided in November 2012 would not be adopted under clause 5.2.7.

306. In the light of all of these matters the question arises whether within Malec and Sellars the valuation conclusion in paragraph 7.13 of Mr Quartullo’s report should be rejected on the basis that the assumptions in the report have not been established and the chance of profits out of the joint venture is truly “speculative” or “negligible” being less than 1%.

307. In my view, many factors need to be taken into account including:

1. The assumption that Exhibit A page 155 is the ETED not being established;

2. The fact that Mr Kwak had no expertise in agricultural matters and that the expertise was held by Mr Kim;

3. The possibility of Mr Kwak obtaining alternative expertise satisfactory to Kumsoo;

4. The fact Mr Kim thought the representatives of Kumsoo were lying and he believed he could not trust them any more;

5. The fact Mr Seo asked for changes to the November 2012 Agreement and more money to be contributed by Woorifarm;

6. The fact that the joint venture arrangement was in North Korea which does not have a modern western market economy;

7. The need for Woorifarm to make substantial additional investments as part of the joint venture with real uncertainty as to where the money was to come from, particularly in the short term in 2013;

8. The difficulty with placing much weight on the estimates of future production in Clause 5 of the November 2012 Agreement;

9. The need to take into account the possibility of poor production or disease or other extreme weather events;

10. The need to consider whether the joint venture would be approved by North Korean authorities;

11. The need to take into account the consequences of a dispute arising and whether Woorifarm would have any prospects of enforcing its rights. It is noted that the courts of North Korea are not referred to in the Foreign Judgments Regulations 1992 (Cth) made under the Foreign Judgments Act 1991 (Cth).

308. Taking all of these matters into account, in my view there were very serious risks that the joint venture by Woorifarm would lead to heavy losses as opposed to profits. Doing the best I can in the light of the matters set out above, in my view the prospect of Woorifarm making profits under the November 2012 Agreement was entirely speculative and no amount should be allowed for a loss of a chance. The various factors which I have listed strongly indicate to me that this was a highly speculative joint venture which could have resulted in considerable time, expenditure and effort for a negative return.

309. If I am wrong in this approach, and some weight should be given to Mr Quartullo’s valuation, I would only allow for a 1% loss of a chance being $79,888 (mid-point value of $3.595m divided by 45 – paragraph 7.13 of Mr Quartullo’s report) plus interest.

Disposition

310. Accordingly, I would make the following orders:

1. Judgment for the plaintiff on the Statement of Claim;

2. The parties are to bring in short minutes of order within 7 days reflecting these reasons in relation to the amount of the claim of the plaintiff and interest;

3. The defendant is to pay the plaintiff’s costs of the Statement of Claim as agreed or assessed;

4. The Second Cross-Claim is dismissed. Judgment for the cross-defendant on the Second Cross-Claim;

5. The cross-claimant is to pay the costs of Mr Lee of the second cross-claim as agreed or assessed;

6. Liberty to the parties to apply on two business days’ notice for different orders to those in (3) and (5) above;

7. Exhibits to be returned after 28 days.

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