Li v So

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST

S CI 2016 04256

HUA LI	Plaintiff
v
JOHN HONG PING SO	Defendant

---

JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	16-19, 23 and 24 July, 1 August 2019
DATE OF JUDGMENT:	28 August 2019
CASE MAY BE CITED AS:	Li v So
MEDIUM NEUTRAL CITATION:	[2019] VSC 515

---

EQUITY – Fiduciary Relationship – Where plaintiff and defendant invested in residential property as tenants in common – Where purchase of property secured by mortgage and guarantee – Where plaintiff denies she executed guarantees made in her name – Whether defendant allowed personal interest to conflict with fiduciary duty – Chan v Zachariah (1984) 154 CLR 178 – Whether defendant acted unconscionably – Kakavas v Crown (2013) 520 CLR 392 – Whether plaintiff subject to special disability or disadvantage - Where plaintiff claims loss of opportunity to pursue alternative investment – Account of profits – No special disability or disadvantage – No loss of opportunity – Claim dismissed.

EQUITY – Exercise of discretion – Illegality – Sections 21A and 26A Foreign Acquisitions and Takeovers Act 1975 (Cth) – Whether plaintiff was a foreign person whose presence in Australia was subject to a time limit imposed by law – Where plaintiff held a temporary resident visa – s30(2)(a) Migration Act 1958 (Cth) – Where plaintiff failed to provide compulsory notification to Treasurer – Plaintiff disentitled to equitable relief on account of illegality.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A. McClelland QC and Mr A.M. Christophersen	HWL Ebsworth Lawyers
For the Defendant	Mr M.S. Osborne QC and Mr D. McAloon	B2B Lawyers

HIS HONOUR:

Introduction

The plaintiff, Hua “Eva” Li (“Ms Li”), seeks declaratory relief and relief in the nature of an account of profits made by the defendant, John Hong Ping So (“Mr So”), from the investment by the parties in a residential property located at 589 King St, West Melbourne (“the King Street Property”) or, alternatively, equitable compensation by reference to the value of Ms Li’s alleged lost opportunity to invest in a 2015 property development located at 23 Toolambool Rd, Carnegie (“the Carnegie Project”).

Key issues and position of the parties

The plaintiff submits that the key issues arising for determination in the proceeding are:

(a)whether the relationship between Mr So and Ms Li at the relevant times was a fiduciary relationship;
(b)whether Mr So allowed his personal interest to conflict with his duty as a fiduciary without obtaining Ms Li’s fully informed consent;
(c)whether Mr So’s conduct was in the circumstances unconscionable;
(d)whether Mr So is liable to account for profits resulting from his conduct;
(e)whether Ms Li is entitled to equitable compensation for the loss of a valuable opportunity as a result of Mr So’s conduct; and
(f)whether Mr So’s allegation of illegality should deny Ms Li equitable relief.

Moreover, the plaintiff contends that the determination of these key issues should be in favour of her position.

The defendant, on the other hand, effectively addresses these key issues in submitting that the proceeding should be dismissed because:

(a)To the extent that the parties’ relationship had a fiduciary aspect, it did not extend to the defendant’s arrangements for financing part of his share of the purchase costs (which was collateral to any joint enterprise).
(b)The plaintiff was not relevantly suffering from a special disability or in a special situation of disadvantage.
(c)Irrespective of the correct characterisation of the parties’ relationship and any disability or disadvantage that the plaintiff is said to have been suffering from, the defendant did not act in an unconscientious manner such as could entitle the plaintiff to the relief claimed.
(d)Additionally, based on the evidence adduced at trial, the plaintiff’s claim for equitable compensation based on a loss of opportunity must fail.
(e)Further, the plaintiff’s contravention of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“the FATA”) disentitles her from the equitable relief that she seeks.

Undisputed factual matters

This proceeding arises from the purchase, in March 2010, of the King Street Property. This property was purchased at auction on 27 March 2010 for $1,355,000. The plaintiff and the defendant executed a contract of sale on the day of the auction as purchasers. Following settlement of the purchase, the plaintiff and the defendant were registered as tenants in common of the King Street Property, each as to one of two equal shares.

At the time of the purchase of the King Street Property, the plaintiff was 40 years of age, a citizen of the People’s Republic of China and residing in Australia on a temporary resident visa. She was, with her husband, Mr Yu Qiang Chen, the registered proprietor of a residence in Canterbury which she and her husband purchased in November 2008 for $3,660,000 by paying “in cash”.[1] According to the plaintiff’s husband, the plaintiff explained her interest in proceeding with the purchase of the King Street Property as providing the plaintiff with a “project” (in circumstances where she had little to occupy her since arriving in Melbourne).[2] It is disputed that it was the plaintiff who suggested to the defendant that they buy a residential property together as an investment. For reasons which follow, it is not necessary to resolve this conflict, save to say that this evidence supports the defendant’s evidence that it was the plaintiff who proposed the investment.
[1]Transcript (Tuesday 16 July 2019), 67.
[2]Transcript (Thursday 18 July 2019), 245; 251.

The defendant was, at the time of the purchase of the King Street Property, 24 years old and had become familiar with the plaintiff in the course of tutoring the plaintiff’s children, which the defendant undertook by attending at the plaintiff’s family home one or two times per week.[3] The defendant was working at securities firm (Austock) and living with his parents (a fact known to the plaintiff).[4]
[3]Transcript (Tuesday 23 July 2019), 438–439.
[4]Transcript, (Wednesday 17 July 2019), 165.

The King Street Property was purchased on the understanding that each of the plaintiff and the defendant would contribute equally to the purchase costs and that they would share equally in the income generated by the King Street Property.[5]
[5]Transcript (Wednesday 17 July 2019), 172.

The defendant financed part of his share of the costs of acquiring the King Street Property by borrowing $580,000 (“the First King Street Loan”) from National Australia Bank Limited (“NAB”). The NAB required, by way of security for the First King Street Loan, that the parties provide a mortgage over the King Street Property (“the King Street Mortgage”) and that the mortgage be supported by a personal guarantee from the plaintiff (‘the 2010 Guarantee”).[6]
[6]National Australia Bank, “Guarantee and Indemnity” (20 April 2010).

In April 2010, the plaintiff met with a Mandarin-speaking NAB employee named Ms Vivian Liao at NAB’s Chinatown branch and, during the course of that meeting, signed the King Street Mortgage and the 2010 Guarantee. The defendant was not present at the meeting. The plaintiff conversed with Ms Liao in Mandarin.[7] Amongst the documents signed by the plaintiff was an acknowledgement that that she had received an explanation of the nature and effect of the 2010 Guarantee.
[7]Transcript (Wednesday 17 July 2019), 153–154.

Following settlement of the purchase in 2010, the King Street Property was renovated and then rented to Chinese students, generating income for the plaintiff and the defendant (comprising the rental paid by the occupants, net of expenses).

In 2013, the defendant restructured the First King Street Loan into two separate loan facilities (“the Second King Street Loan”). The total loan amount was unchanged, but the transaction was designed to take advantage of a promotional program offered by NAB that provided a fixed interest rate for a specified period. The defendant understood that NAB required new security documents to be executed in connection with the Second King Street Loan. These apparently included guarantees from the plaintiff (“the 2013 Guarantees”) to replace the 2010 Guarantee. NAB has produced signed copies of the 2013 Guarantees together with related documents. The plaintiff denies that she executed the 2013 Guarantees. In this respect it is observed that the signature these documents bear is in Roman characters, whereas her signature on documents that she signed in 2010 is in Chinese characters.

In December 2015, the defendant arranged for the repayment of the Second King Street Loan in full, with the consequence that the related security provided to NAB, including the 2013 Guarantees, no longer secured any amount and were discharged.

In September 2017, the parties sold the King Street Property for $2 million, which was $645,000 more than the parties paid to acquire the King Street Property. There is no suggestion that this outcome is not indicative of the involvement of the parties with the purchase and sale of the King Street Property as something in the nature of a profitable venture; in spite of there being some issues in relation to accounting for rental payments, outgoings and the like.

Observations regarding witnesses

In my view, the plaintiff was a very unimpressive and unreliable witness. I accept that language and cultural issues may impose some difficulties for her as a party in proceedings of this nature, but I formed this view looking to the substance of the evidence which she gave, making allowance for such possible difficulties. Ms Li was prone to making speeches rather than answering questions directly and was frequently non-responsive to questions — particularly where she perceived that an honest or direct answer would be against her interests — and was conscious to avoid making a concession that might be considered harmful to her pleaded case.[8] Moreover, much of her evidence was characterised by overstatement.[9] The consequence is, in my view, that key elements of the plaintiff’s account lacked credibility. Moreover, as indicated in the reasons which follow, the plaintiff’s evidence at trial did not align with her pleaded case.
[8]See for instance, Transcript (Wednesday 17 July 2019), 188 where she noted that if she gave evidence that she could not remember her meeting with Ms Liao, senior counsel for the defendant would “say that she explained to you but you don’t remember”.
[9]For example, “I basically just did whatever John asked me to do” (Transcript (Thursday 18 July 2019), 199).

Additionally, witnesses who gave evidence, or could have given evidence, at the trial failed to corroborate material aspects of the plaintiff’s evidence. The plaintiff filed an Outline of Evidence from Ms Amy Veitch and stated in her written Outline that Ms Veitch’s evidence would be relied upon.[10] Ms Veitch was, without any explanation, not called, with the result that the defendant contends that, consistent with the rule in Jones v Dunkel,[11] the Court should infer that Ms Veitch’s evidence would not have assisted the plaintiff’s case.
[10]Plaintiff’s Outline of Submissions (8 July 2019), [3(b)].
[11](1959) 101 CLR 298.

In contrast, the defendant was a more credible and careful witness than the plaintiff. He did, in my view, answer questions directly and frankly to the best of his recollection. Certainly, the plaintiff did criticise Mr So’s evidence and attack his credibility. However, as indicated in the reasons which follow, I am of the view that these matters have been explained or are not relevant to the matters in issue in this proceeding — or are due, simply, to faulty recollection. He also made appropriate concessions, including as to the plaintiff’s reliance upon him regarding some matters.[12] Where he was unable to recollect details of events, including during his evidence-in-chief, he did properly acknowledge the limits of his memory. Such limits are, of course, understandable, given the passage of time since the subject transactions. Moreover, the defendant’s mother, Ms Cheng, corroborated the defendant’s evidence on relevant issues. She gave honest evidence, and her credit was not impeached.
[12]Transcript (Tuesday 23 July 2019), 462, 463, 469.

Fiduciary relationships
Applicable principles

The law recognises a range of fiduciary relationships, including the fiduciary relationship that arises between partners or joint venturers. The existence of a fiduciary relationship will depend on the particular circumstances.[13] In Breen v Williams, Gaudron and McHugh JJ identified persuasive indicia of a fiduciary relationship as follows:[14]

… the existence of a relationship of confidence; inequality of bargaining power; an undertaking by one person to perform a task or fulfil a duty in the interests of another; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another.

[13]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 68 (Gibbs CJ), 96 (Mason J) (Hospital Products).

[14](1995) 186 CLR 71, 107.

A commercial agreement does not preclude the creation of fiduciary relations between parties:[15]

That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them.

[15]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 68 (Gibbs CJ), 97; see also Breen v Williams (1995) 186 CLR 71, 105; and Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625, 670-1.

Nonetheless parties may by agreement define the limits of their relationship: “… equity will not lightly impose ﬁduciary duties on parties to a well-deﬁned contractual relationship in which the parties have prescribed in detail their rights and obligations”.[16]
[16]Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625, 670; see also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97; John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 35 [90].

By contrast, partnership is a commercial relationship that is arguably also the strongest case of fiduciary relationship there is.[17] Partnership is defined in the Partnership Act 1958 as arising where persons carry on business in common with a view to profit.[18] In determining whether the business is “in common”, the sharing of profits of the business is treated as prima facie evidence of partnership,[19] and the authors of Lindley & Banks on Partnership say that an agreement between persons as to “community of profit and loss” is a fundamental characteristic of partnership.[20] Where a partnership agreement provides for the sharing of profits but does not expressly provide for the sharing of losses, the latter element may readily be inferred.[21] A partnership may be formed for a single venture.[22] Even though the partnership may not commence until the agreement crystallises, fiduciary relationships can arise as soon as prospective partners embark upon the course of their association as distinct from their own or collateral arrangements to bring their association into being.[23] It is “not uncommon” for only one of the partners to play an active role in management of the partnership business, provided he or she does so on behalf of all the alleged partners.[24] That is because partners are both principals and agents within the scope of the partnership enterprise.[25]
[17]Dixon J in Birtchnell v Equity Trustees (1929) 42 CLR 384, 407.
[18]Partnership Act 1958 s 5; Fletcher, Law of Partnership in Australia, (Thomson Lawbook Co, 9^th ed, 2007) 23–50, 62–73.
[19]Partnership Act 1958 s 6(3); Fletcher 46–50.
[20]Banks et al, Lindley & Banks on Partnership (Sweet & Maxwell, 20^th ed, 2017) [5-08].
[21]Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321, 326–7.
[22]Partnership Act 1958 s 36(b) assumes the existence of partnerships for single ventures. See also United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 15 (Dawson J).
[23]GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113 [35]; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1.
[24]Lang v James Morrison & Co Ltd (1911) 13 CLR 11; Fletcher, Law of Partnership in Australia, (Thomson Lawbook Co, 9^th ed, 2007) 32, citing Kelly v Tucker (1907) 5 CLR 1.
[25]Boardmanv Phipps [1967] 2 AC 46, 108.

Even where the requirements of partnership are not satisfied, similar fiduciary duties may arise in the course of a “joint venture” or similar enterprise, however styled, provided the relationship demonstrates the necessary qualities.[26] As Warren CJ observed in GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers:[27]

The term “joint venture” does not have a settled common law meaning and is said to be an American conception imported into Australian law. Nevertheless, it is widely understood as referring to a kind of association in which no firm name is used and where the association is restricted to a single “one-off” undertaking. Use of the term “joint venture” does not automatically import fiduciary duties; one must look to the form which the joint venture takes and also to the content or the obligations that the particular relationship imposes. The duties of joint venturers have often been viewed as analogous to that of partners in a partnership.[28]
In the present case, it is apparent that the relationship between the parties was a fiduciary one even though no formal agreement was ever executed.

[26]Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625, 670-1.

[27][2005] VSCA 113, [34]–[35]. Cf Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 where the joint venturers’ relationship was held not to be fiduciary because they sought to make separate profits based on self-interest rather than shared profits from joint interest.

[28]Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384, 408.

And further:

The fact that a transaction is commercial in nature will not prevent the finding of a fiduciary relationship, though additional care may be taken to recognize a fiduciary duty in these circumstances.[29] In this matter emphasis was not on the existence of a formal agreement, rather, upon the character of the relationship itself, in particular one of mutual trust and confidence, which gave rise to fiduciary obligations.

[29]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 70.

It follows that the presence of indicia of trust and confidence, as well as vulnerability and reliance above and beyond that of any contracting party, will support the characterisation of a commercial relationship as fiduciary. The characterisation of a relationship as fiduciary does, however, depend upon the particular circumstances of that relationship.

Breach of fiduciary duty

A fiduciary is under an obligation not to promote his or her personal interest by making or pursuing a gain or benefit in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his or her personal interest and the interests of those whom he is bound to protect, without their informed consent.[30] The policy basis for the no-conflict rule is to avoid a ﬁduciary being tempted from his or her duty by consideration of personal interest.[31] Thus, in AHRKalimpa Pty Ltd v Schmidt (No 3) Elliott J said:[32]

A fiduciary need not act dishonestly or fraudulently to be liable for a breach of fiduciary duty.[33] But dishonesty or fraud on the part of a fiduciary ‘is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour’.[34] In other words, engaging in this standard of misbehaviour may occur even if the fiduciary did not consider the conduct in question dishonest or fraudulent.

Similarly, the authors of Meagher, Gummow and Lehane observe that “Fiduciaries may be liable although their integrity emerges from the proceeding unscathed”.[35] There is, accordingly, a close connection between the no-conflict rule and the remedy of account of profit:[36]
The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; … The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called to account.

[30]Chan v Zacharia (1984) 154 CLR 178, 198; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, [78].

[31]Keech v Sanford (1726) Sel Cas t King 61.

[32][2019] VSC 197, [29].

[33]Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1, 20 [70] (Gageler J).

[34]Ibid, [71], citing Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609, 636 [124] (Leeming JA, with whom Barrett and Gleeson JJA agreed).

[35]Heydon, Leeming & Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5^th ed, 2015) 165 [5-125].

[36]Regal (Hastings) Limited v Gulliver [1967] 2 AC 46, 144–145.

Consequently, nothing short of fully informed consent can excuse conduct that would otherwise constitute a breach.[37] In Farah Constructions Pty Ltd v Say-Dee Pty Ltd, the plurality of the High Court said that the necessary disclosure could be made “at different times and in different ways’ and that ‘the sufficiency of disclosure can depend on the sophistication and intelligence of the persons to whom disclosure must be made”.[38] Accordingly, where a person is at a disadvantage in understanding the transaction, or the nature or potential consequences of transaction are complex, the necessary disclosure may be more exacting. For instance, a beneficiary may lack the requisite knowledge to consent to a breach of trust even where he or she was furnished with extensive documents relating to the trustee’s proposed actions.[39] In some circumstances, the necessary understanding can only be obtained by receiving independent advice:[40]

[I]f the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies, it was for them to show, by way of defence, informed consent by the respondents to the appellants’ acting, in relation to the Mortgage, with a divided loyalty. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party.

[37]Phipps v Boardman [1967] 2 AC 46, 109.

[38](2007) 230 CLR 89, [107].

[39]Spellson v George (1992) 26 NSWLR 666, 671 (and see also Young AJA at 678).

[40]Maguire v Makaronis (1996) 188 CLR 449, 466-467 (citations omitted); see also Commonwealth Bank of Australia v Smith (1991) 42 FCR 390, 393.

Where the person is under a disability such that explanation is necessary, that explanation will ordinarily have to be independent, and go not just to the terms but to the propriety and consequences of the transaction.[41] The question of the necessity and quality of independent advice tends to arise when considering questions of undue influence. In Yerkey v Jones, Dixon J described the necessary character of advice relied upon to negate otherwise wrongful conduct as “competent, independent and disinterested”.[42] While Dixon J was writing in the context of the archaically-named “married-women’s equity”, there is no reason to confine his Honour’s description of the necessary quality of exculpatory explanation to that category of relationship.
[41]Powell v Powell [1900] 1 Ch 243, 247; Riz v Perpetual Trustee Australia Ltd [2007] ANZ Conv R 615, [116]–[124] and the cases there cited.
[42](1939) 63 CLR 649, 686.

In a trusts context, it has been held that a critical aspect of this inquiry is whether there was “full and frank disclosure so that the beneficiary is put fully in the picture”.[43] In considering whether it would be fair and equitable in all the circumstances to allow a beneficiary to sue a trustee for breach of trust, the Court is entitled to take into account the beneficiary’s subjective understanding — the beneficiary must “fully understand” what they are concurring in, and not merely “be informed of all relevant matters.[44] It is therefore significant if a beneficiary’s sworn evidence is that they did not consent, but this remains a matter to be considered in the context of the particular circumstances and even in a trustee-beneficiary context is not necessarily a decisive consideration.[45] Crucially, where there is deception by the defaulting fiduciary, or the defaulting fiduciary withholds or gives a false account of relevant matters, the consent will necessarily be ineffective notwithstanding that the beneficiary had access to or a degree of notice of the true facts.[46]
[43]Spellson v George (1992) 26 NSWLR 666, 674 (Handley JA) (citing with apparent approval Halsbury’s Laws of England, 4th ed, vol 48, [966] at 536).
[44]Spellson v George (1992) 26 NSWLR 666, 675 (Hope AJA).
[45]Spellson v George (1992) 26 NSWLR 666 at 682 (Young AJA).
[46]Bullhead Pty Ltd v Brickmakers Place Pty Ltd [2018] VSCA 316, [104]–[107].

Relief

A person wronged by reason of a fiduciary’s breach of duty may elect to seek an account of profits or claim equitable compensation.[47] Such a person may, as plaintiff, make his, her or its election after the delivery of reasons for judgment on liability and completion of interrogatories with respect to the value of the profit.[48]
[47]GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [61]-[62] (Warren CJ, with whom Chernov JA and Dodds-Streeton AJA agreed).
[48]See eg Island Records Ltd v Tring International plc [1996] 1 WLR 1256, 1259–60.

The principle that a ﬁduciary is liable to account for a proﬁt or beneﬁt obtained in breach of his or her duty as a ﬁduciary is integral to the formulation of the ﬁduciary principle itself.[49] The remedy of account of profits recognises that “no one should be permitted to gain from his own wrongdoing”.[50] Its availability may also serve to discourage fiduciaries from misusing their position for financial gain. That prophylactic function of the remedy is demonstrated by the fact that causation does not arise as a separate issue in relation to an account. Rather, as Spigelman CJ observed in Visnic v Sywak,[51] it is enough that there is a “sufficient connection” between the profit and the breach. His Honour the Chief Justice quoted in that regard the joint judgment in Warman International Ltd v Dwyer to the effect that “A fiduciary must account for a profit or benefit if it was obtained … when there was a conflict or possible conflict between his fiduciary duty and his personal interest”.[52] Adopting the language of Brickenden v London Loan & Savings[53] as explained by Spigelman CJ[54] and later Nettle J[55] the requirement is that the conduct have been ‘material’ to the profit.
[49]Chan v Zachariah (1984) 154 CLR 178 at 198–9; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 107–8.
[50]Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 262 (Lord Keith).
[51](2009) 257 ALR 517, 523 (citing Maguire v Makaronis (1997) 188 CLR 449, 468 and affirming the decision of Brereton J in Visnic v Sywak [2008] NSWSC 427).
[52](1995) 182 CLR 544, 557.
[53][1934] 3 DLR 465, 469.
[54]Beach Petroleum NL v Kennedys (1999) 48 NSWLR 1, 93–4.
[55]Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 92 ALJR 918, 952.

Once the breach is established, the court does not consider what might have happened had the fiduciary discharged their duty properly. For example, there is no place for consideration whether the beneficiary might have acted identically if he or she were fully informed, or whether the profit might instead have been obtainable by innocent means available to the fiduciary.[56] As Lord Radcliffe observed in Gray v New Augarita Porcupine Mines Ltd in the context of disgorgement of proﬁts for a breach of ﬁduciary duty by non-disclosure:[57]
[56]Murad v Al-Saraj [2005] EWCA Civ 959, [71]; Regal (Hastings) Limited v Gulliver [1967] 2 AC 46, 154. Keech v Sanford (1726) Sel Cas T King 61.
[57][1952] 3 DLR 1, 15, cited in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 92 ALJR 918, 923 [9] (Kiefel CJ, Keane and Edelman JJ). See also Murad v Al-Saraj [2005] EWCA Civ 959, [67], [105]–[107].

It is said it would have made no difference if he had told them. … There may be an element of truth in all this, but in fact it constitutes an irrelevant speculation. If a trustee has placed himself in a position in which his interest conflicts with his duty and has not discharged himself from responsibility to account for the profits that his interest has secured for him, it is neither here nor there to speculate whether, if he had done his duty, he would not have been left in possession of the same amount of proﬁt.

Similarly, in Brickenden v London Loan & Savings, Lord Thankerton said:[58]
When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor, such as the valuation by another of the property proposed to be mortgaged. Once the court has determined that the non-disclosed facts were material, speculation as to what course the constituent or disclosure would have taken is not relevant.

And in Gwembe Valley Development Co Ltd v Koshy Mummery LJ said:[59]
In considering … whether the director should account for unauthorised profits, what would have happened, if the required disclosure had been made, is irrelevant.
[58][1934] 3 DLR 465, 469.
[59][2003] EWCA Civ 1048, [145].

Allegations of breach of fiduciary duty

The plaintiff’s pleading alleges that conduct of the defendant in 2010 (defined as the “2010 Impugned Conduct”) was in breach of alleged fiduciary duties owed by the defendant to the plaintiff. In the Plaintiff’s Outline, the conduct said to entitle the plaintiff to relief is “inducing Ms Li to sign the mortgage and guarantee documents…without informing her of their significance or effect”.[60]
[60]Plaintiff’s Outline of Opening Submissions (9 July 2019), [14].

Proper characterisation of relationship

The plaintiff observes that it is common ground that Ms Li and Mr So orally agreed, in March 2010, to purchase the King Street Property together in equal shares, with a view to renting rooms to students to generate “mutual profit”.[61] They agreed to “share expenses and profits” equally.[62] Thus it is said that the capital investment in the King Street Property formed part of the business.[63] Both witnesses did give evidence that they agreed they would own the property “half-half”.[64] In addition to sharing operating expenses equally, the plaintiff says, they stood by reason of their equal shares to share in any capital loss.[65] Mr So’s tax returns reflected a 50 per cent ownership of the property and a corresponding entitlement to the profits, being the rental receipts less expenses.[66] Mr So did, from time to time, give Ms Li accounts reflecting the income, expenses and profit of the business on a monthly basis.[67] When exceptional expenses were incurred, Mr So and Ms Li engaged in a cash reconciliation to “square off” the expenses “half-half”.[68] The plaintiff also observes that both Mr So and Ms Li gave evidence that they thought at all times that they were in a partnership.[69] The business was clearly operated for and generated a profit and, for this purpose, was leased to eight separate tenants at a time, most for a semester and some for longer.[70] It was not clear how many tenants had come and gone during the period of the business, but estimates ranged from “30, 40, 50”[71] to “more than a hundred”.[72] Mr So’s girlfriend was paid as a “property manager” at the rate of $600 per month to manage the day-to-day business of managing tenants.[73] Thus, the plaintiff contends that, by reason of their community of profit and loss, and mutual exposure to the other’s conduct in respect of the business and the property, the agreement between Mr So and Ms Li is properly characterised as an agreement to “carry on business in common with a view of profit” within the meaning of the Partnership Act 1958.[74]
[61]Further Amended Statement of Claim (5 February 2018) (“FASOC”), [3]; Defence to Further Amended Statement of Claim (16 February 2018) (“Defence”), [3](a).
[62]FASOC [4](c); Defence [3](c)(iii).
[63]National Australia Bank, “Business Purpose Declaration” signed by John So (20 April 2010); and see Rental Property Statements for 2011–2014.
[64]Transcript (Wednesday 17 July 2019), 172; Transcript (Tuesday 23 July 2019), 460.
[65]See Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321, 326–7.
[66]Rental Property Statements for 2011–2014.
[67]Rental Income Summary for Eva Li.
[68]Transcript (Tuesday 23 July 2019), 493–494; Transcript (Tuesday 16 July 2019), 102.
[69]Transcript (Tuesday 23 July 2019), 498, 506, 527. Ms Li also described them as “partners”: Transcript (Tuesday 16 July 2019), 98; Transcript (Friday 19 July 2019), 295. See also Text Message Chain between Eva Li and John So: “It cannot proceed without your consent, as we are in a partnership”.
[70]Transcript (Tuesday 23 July 2019), 494.
[71]Transcript (Tuesday 23 July 2019), 494.
[72]Text Message from Wendy Zheng to Eva Li (CB: 80).
[73]Transcript (Tuesday 23 July 2019), 406.
[74]Partnership Act 1958, s 5.

The plaintiff further submits that the agreement between her and the defendant was undoubtedly commercial in character, but could hardly be said to “prescribe in detail their rights and obligations”.[75] There was, it is observed, limited discussion of express terms[76] and it is clear that there were no terms limiting the responsibility of the parties to one another. The plaintiff also observes that the parties were not arms-length commercial parties and that Mr So’s evidence was that they were “friends”[77] and that he regularly visited her house to tutor her children. As the plaintiff also observes, the decisions in Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd[78] and Hospital Products Ltd v United States Surgical Corporation[79] addressed the position where arms-length commercial parties — incorporated entities — had entered into comprehensive written agreements setting out the rights and obligations of the parties. Thus, the Court of Appeal in Adventure Golf observed that “AGS’s only vulnerability in respect of the property ‘was that which any contracting party has to breach by another’.”[80] Clearly, that was not the position in the present circumstances. Nevertheless, the plaintiff contends that the conduct and knowledge of the parties at the time demonstrate each of the features of a relationship in which equity imputes a fiduciary responsibility and, in support of that proposition, makes reference to a variety of matters to which I now turn.
[75]Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625, 670; see also Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97.
[76]Transcript (Tuesday 23 July 2019), 392: ”my understanding at the time was just that we would buy the property together and would, obviously, split the profits - split the rent. I don’t think it was - I don’t think it was expressly said.’; Transcript (Tuesday 16 July 2019), 85–86: “we would buy a house together, each pay his or her own half, and we would split the income, as well… equally”.
[77]Transcript (Tuesday 23 July 2019), 439.
[78](2017) 54 VR 625.
[79](1984) 156 CLR 41.
[80]Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd (2017) 54 VR 625, 672 quoting John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 34.

In support of the proposition that Ms Li reposed considerable trust and confidence in Mr So and relied on him in all aspects of the transaction and the business, the plaintiff makes reference to a variety of particular matters. Mr So knew that Ms Li had arrived in Australia “about” a year earlier and could not speak or read English.[81] Mr So was fluent in both English and Mandarin and communicated with Ms Li in Mandarin. It follows that Mr So knew that Ms Li could not read legal documents in relation to the purchase or settlement of the purchase of the King Street Property.[82] It appears that Mr So also knew that Ms Li believed that he was a lawyer and that he had investment banking experience.[83] Mr So, on the other hand, gave evidence that he did not think at the time that Ms Li would “appreciate” the significance of his job as an investment banker.[84] There are some general reference to his “professional advice” and Ms Li taking it in the evidence of Mr So but, in context, this is a reference to his experience with the student accommodation model for which the King Street Property was to be used and likely returns, rather than a matter of any relevance to the issues in this proceeding. Ms Li had no professional qualifications, and had not had a job since she married in 1994 at age 24.[85] It is said that Mr So understood that Ms Li was not commercially experienced, although it must be said that, in spite of the plaintiff’s submission in this respect, there is evidence and circumstances, particularly with respect to the Carnegie Project, which might be seen to cast some doubt on that general proposition. In any event, Ms Li had never attended an auction[86] and could not read the contract of sale.
[81]Transcript (Tuesday 23 July 2019), 439; Transcript (Tuesday 16 July 2019), 66.
[82]Transcript (Tuesday 23 July 2019), 469.
[83]Transcript (Tuesday 23 July 2019), 469.
[84]Transcript (Tuesday 23 July 2019), 442.
[85]Transcript (Tuesday 16 July 2019), 24.
[86]Transcript (Tuesday 16 July 2019), 87; Transcript (Thursday 18 July 2019), 198–9.

Additionally, the plaintiff says that while Ms Li had purchased her family home together with her husband, her evidence as to that purchase demonstrated a lack of understanding of the process and that she had relied upon a banker to manage the process. Thus, the plaintiff submits, Mr So knew that Ms Li had no experience with his business model of leasing individual rooms for profit, and admitted that she was totally reliant on his advice in relation to the proposed business model.[87] Mr So also admitted that Ms Li was totally reliant upon him in relation to the contract to purchase the King Street Property.[88] Mr So also admitted that Ms Li had trusted him to handle the entire conveyancing process, and gave evidence that he told her that he would arrange a conveyancer.[89] It is also said that Ms Li’s inexperience is apparent from her evidence that she had not known about the need to provide a deposit by cheque at auction.[90] Mr So had, in any event, assumed that he would arrange for payment of the deposit, and could not remember whether he had mentioned it to Ms Li beforehand.[91] In accordance with his usual practice when attending auctions, Mr So had taken the initiative of bringing a blank cheque which had been provided by his mother, Ms Cheng, for the purpose of paying the deposit as required at the auction.[92] Thus, the plaintiff submits that Mr So knew that Ms Li was completely reliant on his advice to her about the settlement and conveyancing of the King Street Property.[93] Ms Li’s evidence was that Mr So told her to “wait for the next step” and said “I’ll let you know”.[94] While Mr So says “I didn’t just tell her to wait for settlement”, he also did not believe that she was taking any further steps other than waiting for his direction as to where to send her half of the purchase price.[95] Thus, it is said that this evidence is consistent with Ms Li’s evidence in response to the question, “you had no interest as to what was going to happen after the auction?” that “I didn’t know the workings of that and so basically John told me ‘Just go home and wait’ then I just go home and wait”.[96]
[87]Transcript (Tuesday 23 July 2019), 462–463.
[88]Transcript (Tuesday 23 July 2019), 469.
[89]Transcript (Tuesday 23 July 2019), 469–470.
[90]Transcript (Wednesday 17 July 2019), 173.
[91]Transcript (Tuesday 23 July 2019), 468.
[92]Transcript (Tuesday 23 July 2019), 467.
[93]Transcript (Tuesday 23 July 2019), 487.
[94]Transcript (Tuesday 18 July 2019), 198, Transcript (Tuesday 16 July 2019), 90.
[95]Transcript (Tuesday 23 July 2019), 470.
[96]Transcript (Thursday 18 July 2019), 200.

In the plaintiff’s submissions it is stressed that Ms Li’s evidence was not that she was indifferent to matters but, rather, the simple fact was that she did not speak English, was less experienced than Mr So in relation to property transactions, and was unequipped to handle those matters except through an interpreter or bilingual agent. It is said that Mr So acted as that agent. Thus, it is said that when Mr So told Ms Li to open a NAB bank account to facilitate settlement, he expected that she would do as he told her.[97] In answer to the question, “your entire relationship since 2010 was one in which [Ms Li] was reliant upon you to give her advice about this property investment”, Mr So answered “Not entirely… Partly”.[98] Thus, the plaintiff contends that Mr So understood that Ms Li was partly reliant upon him throughout the entire venture and, in some respects, was totally reliant. It is said that it follows that their relationship was one of trust and confidence, and a relationship in which Ms Li relied upon Mr So to act in her interests and for the purposes of their partnership. Moreover, it is said that Ms Li’s inability to speak or read English, combined with Mr So’s experience and his undertaking to perform substantial parts of the partnership activity on her behalf, demonstrate the fundamentally fiduciary character of the relationship.
[97]Transcript (Tuesday 23 July 2019), 471–472.
[98]Transcript (Wednesday 24 July 2019), 525.

Continuing, the plaintiff submits that, assuming that Ms Li and Mr So had entered a partnership, that partnership crystallised upon the formation of the partnership agreement, which occurred at latest upon the purchase of the King Street Property on 27 March 2010. But, it is said, the nature and features of their relationship are such that a fiduciary relationship likely arose at an earlier time, and persisted throughout the course of their relationship regardless of whether the relationship formally constituted a partnership or was instead a joint venture.[99]
[99]GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd [2005] VSCA 113, [35].

The defendant contends that the plaintiff’s assertion that the relationship between the parties “undoubtedly constituted a partnership…with the result that Mr So was a fiduciary in respect of Ms Li”[100] reflects an overly simplistic analysis of both the relationship between the parties and the obligations arising from that relationship. Thus, it is said, and in my view, correctly, that two key principles must be borne in mind when assessing the relationship between the plaintiff and the defendant:

(a)Notwithstanding the labels that may be put on parties’ relationship (such as “partnership” or “joint venture”), determination of a fiduciary relationship depends upon examining the detail of what those parties have agreed and done. For instance, the creation of a joint venture relationship is not, in itself, determinative of whether a fiduciary relationship is also created.[101]
(b)A person may be a fiduciary in some activities but not in others. As the Court of Appeal confirmed in Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd:[102]
…fiduciary relationships are rarely fiduciary for all purposes; most fiduciary relationships, and particularly those which arise against the backdrop of a commercial relationship, are fiduciary only in part. As Professor Finn notes: ‘The fiduciary aspect of a commercial relationship may well only be a small — indeed a quite small — and discrete part of a larger arrangement that exists for the several, the individual, benefit of the participants.’ The determination of the scope of a fiduciary relationship is logically distinct from the determination of its existence. The scope defines the reach of the fiduciary relationship; it is the subject matter over which the fiduciary obligations extend. Put simply, ‘a person may be a fiduciary in some activities but not in others’.

[100]Plaintiff’s Outline of Opening Submissions (9 July 2019), [12].

[101]John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1, [44]; Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd [2017] VSCA 326; 54 VR 625, [134] (“While the relationship may be described as collaborative and in the nature of a joint venture, these features are insufficient to take it outside the realms of an ordinary contractual relationship in which each party was entitled to expect the other to perform its end of the bargain. In this context, it can hardly be said that there existed an obligation of loyalty.”); Ahrkalimpra Pty Ltd v Schmidt [2017] VSC 701, [258].

[102]Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd [2017] VSCA 326; [2017] 54 VR 625, [126].

Additionally, reference is made to the judgment of Mason J in Hospital Products, where his Honour identified the critical feature of what has been called the accepted traditional categories of fiduciary relationship: “that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense”. In John Alexander’s Clubs Pty Limited v White City Tennis Club Limited, the High Court made the following observation:[103]

…phrases such as ‘for or on behalf of’ (and ‘in the interests of’) another person must be understood in a reasonably strict sense, lest the criterion they formulate become circular. No doubt undertaking to act in this way is inherent in the position of trustee administering a trust, director participating in the control and management of a company, partner acting in the conduct of the partnership business and employee acting in the course of the business of the employer, for example.
[emphasis added and footnote omitted]

[103](2010) 241 CLR 1 at 35, [88].

Moreover, I accept that in the present case, the conduct that is said to give rise to the plaintiff’s cause of action occurred outside the sphere of what, on the plaintiff’s characterization of the relationship, could be classified as “partnership business”. In particular, as the defendant contends, one partner or joint venturer making arrangements to finance his, her or its participation in the venture — such as the defendant did in the present case, when he asked the plaintiff about the prospect of the defendant obtaining finance from NAB — does not entail that partner “acting in the conduct of the partnership business”, and nor does it involve a partnership asset. Rather, it is a collateral undertaking to the joint enterprise and one in which the partner is entitled to act in a manner that protects or furthers his, her or its own interests.[104]
[104]See above, [20].

I accept also that in the present case, another instance of “non-partnership business” — where one party was legitimately seeking to advance or protect his or her own interests — can readily be identified where the plaintiff acted on her professed desire to sell the King Street Property in order to pursue an alternative investment opportunity. The plaintiff was acting in an entirely self-interested manner, including as she had not ascertained the likely sale price of the King Street Property and the pleaded terms of the agreement between the parties did not entitle one party to “exit” the relationship in such circumstances. The defendant does not, however, suggest that, by seeking to advance her interests in this way, the plaintiff was subject to or breached a fiduciary duty owed to the defendant. Equally, it follows in my view, the defendant was not subject to, or acting in breach, of a fiduciary obligation by making a request to the plaintiff in respect of the financing of part of his share of the property acquisition costs.

Whether the defendant was in breach of any duty

The plaintiff’s pleaded case is that the defendant engaged in certain conduct without the plaintiff’s “knowledge or informed consent”, namely:

(a)procuring a loan from NAB for $580,000 (being the First King Street Loan);
(b)procuring the plaintiff to sign a guarantee and indemnity (apparently the 2010 Guarantee) and mortgage “without Hua [the plaintiff] receiving independent legal advice”; and
(c)procuring the transfer of $716,000 from a bank account in the plaintiff’s name to a bank account in the defendant’s name.[105]

Contrary to the pleaded allegation of lack of knowledge on the part of the plaintiff, I accept the defendant’s submissions that the plaintiff was aware of each of the above matters.

[105]FASOC [9].

More particularly, the plaintiff’s evidence at trial was that the defendant told her that the defendant would obtain a loan to finance his share of the acquisition costs.[106] This evidence is consistent with the Statement of Claim originally filed on behalf of the plaintiff in this proceeding, which made no complaint about events in 2010 and positively alleged that, “In or around late March 2010 or early April 2010…the defendant indicated to the plaintiff his intention to borrow money from a bank to meet his obligations to pay half of the purchase price and the associated costs”.[107] It follows that, despite the manner in which the plaintiff’s case was opened and is pleaded, the plaintiff knowingly assented to the defendant obtaining a loan in connection with the acquisition of the King Street Property. Moreover, in a further departure from the plaintiff’s pleaded case, the plaintiff adduced no evidence that the parties agreed that their respective contributions to the acquisition costs had to be paid from “their own independent financial resources”.[108] In this respect, I accept the defendant’s contention that proof of these matters was critical to the plaintiff’s claim and, for the sake of completeness, observe that no such proof was forthcoming.
[106]Transcript (Wednesday 17 July 2019), 113, 114; 153; 174.
[107]See paragraph 5 of original pleading, which is struck out in the FASOC.
[108]FASOC [4(b)].

The plaintiff does concede that she signed the 2010 Guarantee and that she did so in the absence of the defendant. Her purported lack of knowledge of the nature and effect of this document as contended by the plaintiff is, for the reasons which follow, not a proposition which I accept.

The transfer of $716,000 was the payment made by the plaintiff towards the costs of acquisition of the plaintiff’s half share of the King Street Property — including the plaintiff’s share of the purchase price — held by her as tenant in common. In my view, and as the defendant submits, it cannot sensibly be suggested that the plaintiff did not understand the use to which these funds would be put.[109] Rather, the plaintiff’s evidence is that she knew that this was the means by which the plaintiff acquired her legal and beneficial interest in the King Street Property.
[109]cf Plaintiff’s Outline of Closing Submissions (29 July 2019), [24].

As has been indicated, the plaintiff claims that she did not understand the effect of the 2010 Guarantee, including as it was not explained to her or to the extent that it was explained by Mr So, it was not explained as to its effect on her interests accurately.[110] For the following reasons, I am of the view that this claim is not supported by the evidence and should not be accepted.
[110]See Plaintiff’s Outline of Closing Submissions (29 July 2019), [25]-[34].

By April 2010, the plaintiff: had executed at least one mortgage; had attended at the Commonwealth Bank of Australia (“CBA”) to execute documents related to obtaining finance from and, or alternatively, providing security to, CBA;[111] understood that it was customary for banks that provided loan facilities to require a property mortgage;[112] had obtained a Viridian Line of Credit from CBA; knew that if she defaulted under her finance facility with CBA, the bank could take her house;[113] advised her husband that the joint acquisition of an investment property would be a “simple matter”;[114] had ascertained, apparently from bank staff, that she had access to funds to meet her share of the costs of acquiring the King Street Property;[115] and opened bank accounts with both CBA and Westpac.[116] Additionally, it must be said that the plaintiff’s professed lack of understating in April 2010 stands in stark contrast to her apparently sophisticated understanding at the time of the alleged opportunity provided by the Carnegie Project.
[111]Transcript (Tuesday 16 July 2019), 68.
[112]Transcript (Wednesday 17 July 2019), 176.
[113]Transcript (Thursday 18 July 2019), 209.
[114]Transcript (Tuesday 16 July 2019), 77–78.
[115]Transcript (Tuesday 16 July 2019), 99. The plaintiff’s evidence was that the drawdown of funds by the plaintiff from the CBA facility was “all her doing”: Transcript (Thursday 18 July 2019), 252.
[116]Transcript (Tuesday 16 July 2019), 90.

In any event, the evidence is that the defendant provided an explanation of the 2010 Guarantee to the plaintiff, following which the plaintiff indicated that she was content to provide the 2010 Guarantee.[117] The explanation which Mr So says in his evidence that prompted such agreement from Ms Li was as follows:[118]

Now, what explanation, if any, did you provide to Ms Li about the things described in this box, titled security?‑‑‑So on one of the – so after I met Vivienne on one of the occasions I went to Li’s house – Ms Li’s house, to tutor, I told her that I’ve been to the bank and the bank actually requires the house to be – the house to be mortgaged, and for Ms Li to provide a guarantee, because that’s just what is required in order for me to borrow. Yeah.
And did she – what was her response when you told her that?‑‑‑Well, in the end, she said that’s fine. She doesn’t see an issue with it. I should probably add that, before that, I explained to her what I thought were the significances of giving this guarantee, which was that the guaranteed amount is less than half of my purchase share – sorry, half – half of the – half of the – half of the – half of what the property was worth, which is what I owned, and so the loan was worth less than that, and there was rent coming in. So her guarantee was only going to be called upon if – if there was no rent and – and then the property had to be foresold – foresell, and couldn’t – and – and the proceeds that came in were not enough to satisfy the loan amount.
And did you provide that explanation in – or did you say those words in Mandarin?‑‑‑Yes.
And what did she say, in response?‑‑‑I – she said something to the effect of ‘That’s – that’s fine.’ I don’t remember the exact words, but that’s – that’s what I understood from the conversation, that she was okay with it.

The defendant’s evidence of this discussion during cross-examination should, in my view, be accepted: together with his evidence that he told the plaintiff that if she was not comfortable with providing a guarantee, he “could get money from my parents”: “So what I was doing was not giving her advice, but giving her two options”.[119]

[117]Transcript (Tuesday 23 July 2019), 404.

[118]Transcript (Tuesday 23 July 2019), 403–404.

[119]Transcript (Tuesday 23 July 2019), 484–485. See also Transcript (Tuesday 23 July 2019), 485 (“I reiterated to her that if she was not comfortable, I could borrow from my parents.”) and Transcript (Tuesday 23 July 2019), 486 (“I remember explaining it to her in detail, because I didn’t want her to feel ripped off”).

The plaintiff contends, however, that she received no such explanation and that, in any event, Mr So did not tell her of the real extent of the obligations and liabilities inherent in the proposed guarantee. Thus, the plaintiff submits:[120]

28.But Ms Li’s evidence is that she received no such explanation, either from Mr So or from the NAB. On her evidence, Mr So had told her that he intended to take a loan but no more. Without more, that provided no indication that Mr So had arranged to mortgage the King Street Property, nor that she would be called up to guarantee his borrowing, with all that entails. Ms Li had no reason to believe that would be required: the King Street Property purchase was entirely different from her previous experience purchasing her home with her husband using cash.[121]
29.Mr So gave evidence of having explained to Ms Li ‘what the potential risk of the guarantee was — something along those lines.’[122] He gave evidence that ‘it didn’t even cross my mind’ that Ms Li should have independent advice about whether to grant him a guarantee.[123] Mr So denied that it was inappropriate for him, the volunteer beneficiary of the guarantee, to be the person explaining to Ms Li her potential risks under the guarantee.[124] But as he describes in his evidence, the only risk he outlined was that, ‘if there was no rent and the property had to be foresold [sic] and the proceeds were not enough to satisfy the sale amount.’[125] Mr So said that to the best of his memory, all he explained about his financial position was that ‘I had rent. I had salary, and so I would be able to meet the repayments’.[126]

30.Mr So’s explanation displayed a gross misconception of the nature of the transaction. Mr So said that he preferred to name Ms Li as a guarantor rather than a borrower because ‘she doesn’t need to be liable for the loan. So from my perspective, the guarantee was just something the bank required, but I was ultimately the person - I was - I was the first port of call to be liable for the loan if anything happened.’[127] The fact is that, by obtaining a guarantee from Ms Li, he did in fact make Ms Li liable for his loan. Mr So did not tell Ms Li that under the proposed guarantee and indemnity she would be indemnifying NAB even where Mr So might not be liable, nor that it was an all-moneys guarantee.[128] The guarantee was not ‘just something the bank required’, but rather made her contingently liable for all of Mr So’s debts to the NAB in the future.[129]

Significantly though in the present context, the plaintiff’s otherwise important point that the guarantee (and hence the indemnity) was an “all moneys” guarantee in support of all Mr So’s indebtedness to the NAB is simply wrong. The guarantee (and the indemnity) was limited to $580,000 plus associated costs and interest.[130] Thus, relevantly, Mr So’s description as to its nature and extent was correct.

[120]Plaintiff’s Closing Submissions (29 July 2019), [28]-[30].

[121]Transcript (Tuesday 16 July 2019), 67.

[122]Transcript (Tuesday 23 July 2019), 488.

[123]Transcript (Tuesday 23 July 2019), 487; 489; 507.

[124]Transcript (Tuesday 23 July 2019), 487–488.

[125]Transcript (Tuesday 23 July 2019), 403–404.

[126]Transcript (Tuesday 23 July 2019), 486.

[127]Transcript (Tuesday 23 July 2019), 403.

[128]National Australia Bank, “Guarantee and Indemnity” (20 April 2010), 1 (CB: 417).

[129]National Australia Bank, “Guarantee and Indemnity” (20 April 2010) (CB: 411).

[130]National Australia Bank, “Guarantee and Indemnity” (20 April 2010), ii (CB: 414); cf Transcript (Thursday 1 August 2019), 630–645 (Plaintiff’s Closing Submissions); and Transcript (Thursday 1 August 2019), 667–671 (Defendant’s Closing Submissions).

Building upon this mistaken characterisation of the guarantee (and indemnity), the plaintiff submitted that Mr So had failed to disclose his true financial position with respect to his indebtedness of approximately half a million dollars in relation to his then recent purchase of a property at 134 Curzon Street, North Melbourne; that he had available the sum of $410,000 in an HSBC account to which he said he was beneficially entitled; or that he intended to borrow further in coming years.[131] Moreover, it was submitted that the evidence indicates that Mr So failed to properly disclose his assets and liabilities to NAB in the course of seeking or exploring financing by the NAB.[132] Thus, it is said that these matters demonstrate a clear failure on the part of Mr So to disclose his true financial position to Ms Li in circumstances where her interests were critically affected by the transaction — the provision of an all moneys guarantee and indemnity — that she was being asked to enter into. Consequently, there could be no effective consent on her part. Of course, as indicated, the premise for this submission fails as the guarantee (and indemnity) was, relevantly, as Mr So described it. As to the other matters, Mr So’s indebtedness with respect to the North Melbourne property was secured by a mortgage on that property so his “non-disclosure” to the NAB was in fact a “failure” to inform that bank of a net asset. As to the credit balance in the HSBC account, that is a matter for Mr So. There is no reason, having regard to the actual extent of the guarantee which was effectively secured by the mortgage of the King Street Property, why Mr So should not maintain cash assets himself.
[131]Plaintiff’s Closing Submissions (29 July 2019), [31].
[132]See Plaintiff’s Closing Submissions (29 July 2019), [35], [36].

In spite of any inability with respect to speaking or reading English, it is clear that the plaintiff could read Arabic numbers in April 2010.[133] It is telling that the 2010 Guarantee prominently displayed a reference to “$580,000”.[134] In any event, the plaintiff attended a meeting with a Mandarin-speaking employee of NAB arranged for the purpose of the documents being explained to the plaintiff and executed by her. The plaintiff’s evidence was that this meeting lasted for more than ten minutes,[135] a period of time which would not be required for the plaintiff and the bank officer to exchange greetings and for the plaintiff to sign a handful of documents without any explanation as to their contents. However, having regard to the nature of the mortgage arrangements and the limited guarantee, I do not accept that if the meeting did only last ten minutes, this would be insufficient time to provide a proper explanation to Ms Li — and particularly as it was provided by a fellow Mandarin speaker. While the plaintiff denied receiving any explanation of the documents signed at this meeting, she conceded that her recollection of the meeting was poor:

…what was discussed or said at the time, I really couldn’t remember. I – I tried my best every day. I’ve been trying my best to try to recollect what was discussed over that incident but now I can only see my signature but I couldn’t remember what was discussed.[136]
…You were asking what was discussed with Vivienne Lau [sic]. I really couldn’t remember.[137]

Moreover, the plaintiff’s evidence in relation to a different commercial document was that if she did not understand any aspect of the document, she would have asked about it.[138]

[133]Transcript (Wednesday 17 July 2019), 194.

[134]National Australia Bank, “Guarantee and Indemnity: Guarantee Advice Certificate” (20 April 2010).

[135]Transcript (Tuesday 16 July 2019), 93; Transcript (Wednesday 17 July 2019), 188 (“approximately 10 minutes, 11 minutes, 12 minutes”).

[136]Transcript (Wednesday 17 July 2019), 188.

[137]Transcript (Wednesday 17 July 2019), 191.

[138]Transcript (Thursday 18 July 2019), 223 (in relation to the Carnegie Proposal).

Also telling against the plaintiff’s claim is the production by NAB of a “Guarantee Advice Certificate” in respect of the 2010 Guarantee that is signed by both the plaintiff and the relevant bank officer, and in which the plaintiff acknowledged having received:

(a)an explanation of the nature and effect of the 2010 Guarantee;
(b)a recommendation that she obtain independent legal advice prior to signing the 2010 Guarantee; and
(c)confirmation that she could refuse to sign the 2010 Guarantee.

Moreover, and significantly in my view, there is no apparent reason why the relevant bank officer would sign a “Guarantee Advice Certificate” that contained false acknowledgements by the plaintiff — including where NAB, not the defendant, was the party that sought, and would ultimately seek to rely upon the 2010 Guarantee in the event of a default by the defendant in respect of the 2010 King Street Loan.

It is also telling against the plaintiff’s position that her evidence in relation to the Carnegie Project was that she was willing to proceed with an investment that she understood required a mortgage over the subject property and her provision of a guarantee.[139]
[139]Transcript (Thursday 18 July 2019), 225.

Finally, even if the Court were to consider that the 2010 Guarantee may not have been properly explained to the plaintiff by the bank officer, the defendant — as opposed to NAB — did not procure its execution and otherwise the conduct of the defendant in connection with the execution of the 2010 Guarantee cannot be characterised as in breach of any duty owed to the plaintiff. In particular, as the defendant submits:[140] the defendant gave the plaintiff the “option” of having him fund his share of the acquisition costs via a loan from his parents (that would not have required the provision of the King Street Mortgage or the 2010 Guarantee).[141] In that context, he sought to explain the operation of the guarantee.[142] While it was suggested during cross-examination that it was “grossly inappropriate” for him to seek to explain the “potential liabilities” under the proposed guarantee, it is apparently not suggested that the defendant should have made no attempt to explain the potential issues associated with provision of a guarantee; the defendant was aware that the plaintiff was to meet a Mandarin-speaking bank officer for the purpose of executing documents required by NAB (including the 2010 Guarantee); the defendant had no prior relationship with the relevant bank officer;[143] and the defendant was not present during the subsequent meeting. He was entitled to expect that NAB, which had sought the 2010 Guarantee as security for the First King Street Loan, would ensure that the 2010 Guarantee was properly executed and would be enforceable by NAB if ultimately required (including by NAB ensuring that the plaintiff, as guarantor, understood the nature and effect of the 2010 Guarantee).[144] Moreover, if, as the plaintiff appears to submit, the defendant’s intention was to “trick” the plaintiff into unwittingly providing a guarantee in respect of the First King Street Loan, such a scheme would have been dependent upon NAB conspiring in that outcome. As the defendant observes, all that was required for such a result to be avoided was for the relevant NAB officer or officers to behave in the manner that would be expected — namely, by explaining to the plaintiff the nature and effect of the 2010 Guarantee prior to accepting it from her. For these reasons, the plaintiff’s submissions with respect to the explanation of the 2010 Guarantee, or lack of it, simply cannot be accepted.
[140]Defendant’s Outline of Closing Submissions (29 July 2019), [25].
[141]Transcript (Tuesday 23 July 2019), 484–485. See also Transcript (Tuesday 23 July 2019), 485 (“I reiterated to her that if she was not comfortable, I could borrow from my parents.”).
[142]Transcript (Tuesday 23 July 2019), 486 (“I remember explaining it to her in detail, because I didn’t want her to feel ripped off”). See also Transcript (Tuesday 23 July 2019), 488 and Transcript (Tuesday 23 July 2019), 488 (“I explained to her what the guarantee was and what her exposure would be and in what scenarios did I think the guarantee would be called upon”).
[143]Transcript (Tuesday 23 July 2019), 401.
[144]While reference was made to NAB’s “financial interest” in the transaction (Transcript (Tuesday 23 July 2019), 489), protection of that interest required that the 2010 Guarantee be executed in a manner that ensured that it would be enforceable by NAB if ultimately required.

Unconscionable conduct claim

In addition to the plaintiff’s claim with respect to alleged breach of fiduciary duties made between Mr So and Ms Li, a claim based on unconscionable conduct is also pleaded.[145]
[145]FASOC [15]-[20].

In this respect, the plaintiff claims that she was at a special disadvantage that enabled Mr So to “catch a bargain”.[146] Prior to the enactment of the unconscionable conduct provisions of the Australian Consumer Law, the guiding authorities were grounded in the equitable jurisdiction. Nevertheless, the High Court has confirmed that the historic principles by which conduct will be deemed unconscionable apply similarly to claims for relief by way of equitable compensation under the Australian Consumer Law.[147] The modern elements of unconscionable dealing in the narrow sense were set out by the High Court in Commercial Bank of Australia v Amadio:[148]
[146]Plaintiff’s Closing Submissions (29 July 2019), [41].
[147]Kakavas v Crown (2013) 250 CLR 392, citing Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
[148]Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 474.

The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: “the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract”.
[emphasis added]

It is also clear that the categories of “special disadvantage” for the purposes of equity are not closed.[149] Thus, in Blomley v Ryan, for instance, Fullagar J said that:[150]
The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.
[emphasis added]

[149]Heydon J [15-005], [15-105]–[15-115]; Blomley v Ryan (1956) 99 CLR 362; Wilton v Farnsworth (1948) 76 CLR 646.

[150](1956) 99 CLR 362, 405.

The statement of the High Court in Amadio was made in the context of its consideration of the equitable jurisdiction to set aside a transaction on the ground of unconscionable conduct where a party to the transaction, who suffers detriment by reason of the transaction, is suffering from some special disability or is placed in some special situation of disadvantage at the time of the transaction. It was, however, observed by the High Court in Kakavas v Crown Melbourne Ltd that it is essential to the operation of this principle that there be:[151] “an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests”. Moreover, in Mackintosh v Johnson, the Court of Appeal identified the two threshold requirements before the principle identified in Amadio can operate:[152]

First, the need for the suggested disability or disadvantage to affect the ability of the party said to be suffering from it “to make a judgment as to his [or her] best interests”. Second, the need to demonstrate that the special disability or disadvantage was known or “sufficiently evident” to the other party.
It is only if these two threshold requirements are established that the court then considers the third requirement: whether or not the other party acted unconscionably so as to be deprived in equity of the benefit of the transaction in issue.

[151](2013) 250 CLR 392 at 425, [118].

[152](2013) 37 VR 301 at 304, [11]-[12].

In the present case, the plaintiff was not suffering from any special disability or disadvantage that prevented her from making a judgment in her best interests. Alternatively, if she could be so characterized, any such disability was not sufficiently evident to the defendant. In 2010, the plaintiff was 40 years of age and thus 16 years older than the defendant. She was able to, and did, seek counsel from her husband, apparently a successful businessman. Her lifestyle, including her ownership of a residential property purchased for in excess of $3.6 million in 2008, suggested she was financially secure. In discussions with the defendant, the plaintiff expressed interest in purchasing property in Australia, raised the prospect of a joint purchase[153] and told the defendant about her existing property holdings.[154]
[153]Transcript (Tuesday23 July 2019), 391.
[154]Transcript (Tuesday 23 July 2019), 391–392.

Having regard to the matters set out previously, the plaintiff’s professed lack of understanding of financial matters should, in my view, be regarded with scepticism. Additionally, other conduct of the plaintiff considered at trial was consistent with her being capable of acting to protect and advance her commercial interests: for instance, her participation in the auction of the King Street Property;[155] her securing of an earlier settlement date in order to accommodate her relatives;[156] her drawing down on her CBA facility for her share of the purchase costs (described by her husband as “all her doing”);[157] her refinancing of her CBA loan with HSBC (described by her husband as “all her doing”);[158] and her seeking to have the King Street Property sold in order that she could pursue an alternative investment property and renegotiating the terms of that property investment — the Carnegie Project — with Mr Wang. In my view, the evidence does not, fully considered, suggest that the plaintiff was unable to make rational decisions about the acquisition of the King Street Property and, or alternatively, the provision of security for the First King Street Loan; whether in 2010 or in 2013.
[155]Transcript (Tuesday 23 July 2019), 394.
[156]Transcript (Tuesday 23 July 2019), 397.
[157]Transcript (Thursday 18 July 2019), 252.
[158]Transcript (Thursday 18 July 2019), 252.

It is accepted that the plaintiff was not a native English speaker and it is also clear that there may be situations in which the inability to speak or read English in the context of a transaction that involves executing documents, such as guarantees and the like may, in all the circumstances, constitute a situation of special disadvantage. Indeed, as the plaintiff submits, Amadio is a case in point.[159] Nevertheless, an inability to speak or read English does not, of itself, amount to a special disability or disadvantage.[160] However, the present situation is not so stark. Here, the defendant spoke with Ms Li at all relevant times in Mandarin, including in relation to the 2010 Guarantee.[161] Additionally, the NAB officer, Ms Liao, who met with the plaintiff, was a Mandarin speaker and spoke with the plaintiff in Mandarin. Moreover, there is no evidence to suggest that the plaintiff’s language skills have been an impediment to her dealings with other financial institutions, such as CBA and Westpac. It was suggested to the defendant during cross-examination that he believed, or should have known, that the plaintiff “knew nothing” about the Melbourne property market or the rental market in Victoria.[162] However, the plaintiff herself gave no such evidence, nor is this purported lack of knowledge pleaded.[163] The extent of her evidence on such matters was merely to suggest that the King Street Property was situated in an area of Melbourne that she did not like and that was relatively unfamiliar to her.[164] The defendant made appropriate concessions regarding the plaintiff’s reliance upon the defendant in respect of limited aspects of their relationship.[165] However, alone or cumulatively, they did not result in the plaintiff suffering from a special disadvantage of the kind that would attract the operation of the principle stated in Amadio. In any event, the “2010 Impugned Conduct”[166] and the “2013 Impugned Conduct”[167] do not relate to that aspect of the parties’ relationship.[168]
[159]Plaintiff’s Closing Submissions (29 July 2019), [43].
[160]See for instance, Luong v Du [2013] VSC 723, [123] (“The fact that Hong and Hue had a limited capacity to read and understand documents written in English does not mean that they were incapable of making a judgement about their bests interests”.); Walter v National Australia Bank [2004] VSC 36, [359] (“The fact that borrowers are not fluent English speakers does not constitute a special disability in circumstances where they have access to competent translation, access to qualified professional advisers and extensive collective business experience and education”.).
[161]Transcript (Tuesday 32 July 2019), 390.
[162]Transcript (Tuesday 23 July 2019), 457; Transcript (Tuesday 23 July 2019), 457.
[163]See FASOC [1], [5].
[164]Transcript (Tuesday 16 July 2019), 84 (“I don’t know much about that neighbourhood. I like eastern suburbs. He said that his father told him that there would be developments in that area while he was in possession.”).
[165]The defendant accepted that the plaintiff relied upon him as to: (a) whether or not the “business model” deployed at the defendant’s existing investment property could be adopted in relation to the King Street Property (Transcript (Tuesday 23 July 2019), 462); consideration of the rental return from the King Street Property (Transcript (Tuesday 23 July 2019), 463); and (c) whether there was “anything important” in the contract of sale and the conveyancing process (Transcript (Tuesday 23 July 2019), 469).
[166]See FASOC [9].
[167]See FASOC [12].
[168]cf Plaintiff’s Closing Submissions (29 July 2019), [43]-[45].

In my view, it is quite clear that if the plaintiff genuinely wished to proceed with the Carnegie Project, she had a number of alternative means by which to fund the investment. Where the plaintiff had cash reserves available in her HSBC bank account exceeding $500,000, her options to raise a further $200,000 included: obtaining finance from HSBC; obtaining funds from her husband; and, or alternatively, obtaining a loan from NAB with security provided over the King Street Property.

In June 2015, the plaintiff had existing credit facilities from HSBC and significant additional equity available in her property at Chaucer Crescent, Canterbury. This property had been purchased for $3.66 million in December 2008. The plaintiff agreed that, by 2015, its value had increased substantially.[209] She believed it to be worth as much as $5 million.[210] In spite of this, no credible attempt was made to explain why the plaintiff did not use the equity in that property to seek a further $200,000 from HSBC to secure her interest in the Carnegie Project. Moreover, the evidence of the plaintiff’s husband was that if the plaintiff required funds to invest in the Carnegie Project, he would have “slowly raised the funds”.[211] Importantly however, he confirmed that if the amount to be raised was $200,000, that could be “raised quite quickly”[212] and if the plaintiff had asked him for “another $250,000 to be paid by 30 June”, in addition to the transfers he had made on 4 and 5 June 2015, he could have agreed to that and could have paid that money.[213] Additionally, to the extent that the plaintiff’s husband also suggested that his provision of funds would be contingent upon the sale of the King Street Property,[214] the non-sale of this property was not attributable to the conduct of the defendant that is the subject of complaint.
[209]Transcript (Thursday 18 July 2019), 261.
[210]Transcript (Thursday 18 July 2019), 263.
[211]Transcript (Thursday 18 July 2019), 247–248.
[212]Transcript (Thursday 18 July 2019), 253.
[213]Transcript (Thursday 18 July 2019), 256.
[214]Transcript (Thursday 18 July 2019), 249–250; 253.

Additionally, and importantly, I am of the opinion that, as submitted by the defendant and contrary to the position advanced on the plaintiff’s behalf prior to trial, the existing security over the King Street Property provided no genuine impediment to the plaintiff obtaining finance, including from NAB, by using the King Street Property as security. In particular, despite the contents of his report, the plaintiff’s expert witness, Dr Franzese, conceded that the purported “matters” and “potential complications” that he had identified as needing to be addressed for the plaintiff to obtain finance to obtain a loan secured by the King Street Property were in most instances not referable to the existence of the prior security (namely, they would have arisen irrespective of the existing security structure) and, in any event, were capable of being overcome.[215]
[215]Transcript (Friday 19 July 2019), 368-369.

Moreover, at no time did the plaintiff seek a loan in the conventional fashion — identified by Dr Franzese as applying through a mortgage broker or an appointment with a personal banker.[216] Nor did the plaintiff ask the defendant to assist her with obtaining finance from NAB by using the King Street Property as security, noting that Dr Franzese agreed that a “joint approach” of the plaintiff and the defendant would enhance the prospects of obtaining a loan.[217] Indeed, the plaintiff did not tell the defendant that she needed funds for an alternative property investment, nor did she ask whether he would guarantee a loan by her secured by the King Street Property.[218] Moreover, the evidence relied upon by the plaintiff as to the refusal of finance from the NAB is of an enquiry she made at the Box Hill Branch of the NAB, a branch at which she had no account and, apparently, one with which she had no prior dealings or contract.[219] To suggest that this amounted to a serious attempt on her part to obtain finance from the NAB where she knew that the Chinatown Branch of the NAB was the branch involved in financing the King Street Property purchase — a branch a short distance from the Dragon Boat Restaurant where she apparently lunched reasonably often — is simply bordering on the absurd.
[216]Transcript (Friday 19 July 2019), 359.
[217]Transcript (Friday 19 July 2019), 362.
[218]Transcript (Tuesday 23 July 2019), 431.
[219]Transcript (Wednesday 17 July 2019), 118–124; Transcript (Thursday 18 July 2019), 265–266.

Insufficient evidence of “lost opportunity”

In considering a loss of opportunity claim, the Court is required to assess the evidence as to whether the investment opportunity, as a matter of reality had ever existed and whether, in any event, the plaintiff would have pursued such an opportunity.[220] As the Court of Appeal observed in Price Higgins v Drysdale, a lost commercial opportunity “must be proven by evidence”:[221]

…in order for a plaintiff to establish that a negligent defendant’s conduct has caused a valuable loss of opportunity, he or she must establish by evidence that, but for the contravening conduct of the defendant, he or she could have and would have taken the opportunity and the benefit that it would have yielded.

Further, as the Court of Appeal confirmed recently in MA & J Tripodi Pty Ltd v Swan Hill Chemicals Pty Ltd:[222]
Where, as in the present case, a plaintiff seeks damages for loss of opportunity in respect of a proposed business venture, it must be borne in mind that what is relevant — and must be the subject of evidence — is not only that there was an opportunity to consummate the venture that was lost due to the defendant’s conduct, but also that there was a prospect of a profit being made from the venture.

[220]Price Higgins v Drysdale [1996] 1 VR 346, 353-355; Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88, [411].

[221][1996] 1 VR 346, 355.

[222][2019] VSCA 46, [95].

Such evidence as was adduced regarding the Carnegie Project did not satisfy these requirements but, rather, exposed it as a speculative venture with very uncertain prospects. I turn to these matters in more detail.

Mr Wang conceded that: demolition of the dwelling at the Carnegie Property had not commenced until February or March this year (being three years after settlement of the purchase of the Carnegie Property);[223] construction work had not yet commenced;[224] no building contract had been entered into;[225] no finance had been secured for the construction works;[226] development finance was difficult to obtain;[227] and completion of the development is not expected until April 2020.[228]
[223]Transcript (Friday 19 July 2019), 314.
[224]Transcript (Friday 19 July 2019), 314.
[225]Transcript (Friday 19 July 2019), 322.
[226]Transcript (Friday 19 July 2019), 317; 318.
[227]Transcript (Friday 19 July 2019), 318.
[228]Transcript (Friday 19 July 2019), 308.

Of the five proposed townhouses, three have apparently been sold “off the plan”.[229] The plaintiff’s expert, Mr Takacs, agreed that this suggested that demand for these type of properties was slow.[230] He also confirmed that only one (Lot 3) had been sold to a non-related party.[231] According to the contracts of sale relating to the Carnegie Property produced on subpoena, the purchaser of this townhouse (Lot 3) agreed to pay a deposit of $120,000 but had only paid $2,000 upon signing of the contract of sale.[232] Further, the contracts of sale for the other two townhouses (Lot 4 and Lot 2) provide that no deposit was payable by the purchasers.[233] It follows that, on the evidence available to the Court, pre-sales of the lots at the Carnegie Property have generated total income of only $2,000.
[229]Transcript (Friday 19 July 2019), 308.
[230]Transcript (Tuesday 23 July 2019), 380.
[231]Report of Adam Takacs, 19: (“It is understood that townhouse two and four have been sold, but these was [sic] off market and to related parties”).
[232]See Contract of Sale for Lot 3: Court Book 316B.
[233]See Contracts of Sale for Lot 4 (Court Book 316C) and Lot 2 (Court Book 316D).

Mr Wang’s projections as to the profitability of the development of the Carnegie Project should be treated with caution. Mr Wang was taken to a document headed “Executive Summary” (“the Carnegie Executive Summary”) that was said to set out the “likely profitability of the project”.[234] The Carnegie Executive Summary refers to a “Net Development Profit” of $859,616 (15% of which is apparently payable to Mr Wang or his company, leaving an estimated profit for the investor of only $730,675.30).[235] Mr Wang conceded that the Carnegie Executive Summary was the product of an “internal feasibility” study and largely comprised estimated costs (rather than costs actually incurred) and estimated receipts.[236] As noted above, actual receipts to date total only $2,000 (rather than in excess of $5 million). The Carnegie Executive Summary also contained no amount for “Property Finance”, despite containing an entry for that item.
[234]Court Book 316A; Transcript (Friday 19 July 2019), 301.
[235]Transcript (Friday 19 July 2019), 323.
[236]Transcript (Friday 19 July 2019), 315–316.

If the plaintiff’s contention as to the effect of the Carnegie Proposal is accepted — namely, that it required that the plaintiff pay $700,000 by 30 June 2015 — the terms of the Carnegie Proposal also obliged Mr Wang, or his company, SNMM Australia Investment Pty Ltd, to contribute $300,000 by the same date. However, no evidence was adduced as to the capacity of Mr Wang or his company to provide funds in that amount at that time. Mr Wang was not asked about that topic during his evidence in chief. It follows, in my view, as submitted by the defendant, that a Jones v Dunkel inference applies equally to the failure to adduce evidence in chief. Further, the investor that is said to have ultimately proceeded with the Carnegie Project apparently contributed 100% of the required funding (such that Mr Wang and his company provided no funds on their own account).[237] Thus, on the state of the evidence, even if the plaintiff was able to find the $700,000 (and assuming further that the payment had to be provided all at once by 30 June 2015), the pursuit of the opportunity also required Mr Wang (or his company) to contribute $300,000 by that date and there is no evidence that he (or his company) had the capacity or would have done so.
[237]Transcript (Friday 19 July 2019), 307–308.

According to the plaintiff’s evidence, her ultimate interest in the Carnegie Project would equate to 60% of the net profits (where, despite only being required to contribute 30% of the funding, Mr Wang would receive an additional 10% for his “management work”).[238] According to the Carnegie Executive Summary, the likely profitability of the development of the Carnegie Project is $859,616 (ignoring Mr Wang’s fee). Despite the serious problems with that estimate, it would represent a possible return to the plaintiff in the order of $516,000 (60% of $860,000). However, if the plaintiff needed to borrow $1,000,000 in around July 2015 (where her total funding obligation was apparently $1.386 million) and would be “out of her money” for at least a five-year period (assuming in the plaintiff’s favour that the ambitious anticipated completion date is achieved), finance costs of more than $200,000 would be incurred.[239] It follows that before any reductions to take account of the obvious risks and uncertainty of the Carnegie Project, the maximum possible value of the “opportunity” was in the order of $300,000.
[238]Transcript (Friday 19 July 2019), 297; Plaintiff’s Outline of Opening Submissions (9 July 2019), [20(d)(ii)].
[239]$1 million borrowed for a five years period at the interest rate that was payable under the plaintiff’s HSBC facility (4.15%) would require interest payments totaling $207,500.

For these reasons, the plaintiff has not established that the Carnegie Project was a valuable opportunity that she both would and could have taken but was lost due to the defendant’s conduct. Nor has the plaintiff established there was a prospect of a meaningful profit being made from the venture.

Entitlement to equitable relief

The defendant has raised the possibility that the plaintiff acted in contravention of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (‘the FATA’) by acquiring the King Street Property without providing the requisite notice to the Treasurer of the Commonwealth of Australia.

Foreign Acquisition and Takeovers Act 1975 (Cth)

Section 21A[240] of the FATA provides that where a foreign person acquires an interest in Australian urban land,[241] and the Treasurer is satisfied the acquisition is contrary to the national interest,[242] the Treasurer may make an order requiring the foreign person to dispose of the interest.[243]
[240]Since repealed by the Foreign Acquisitions and Takeovers Legislation Amendment Act 2015 (Cth).
[241]‘Australian urban land’ includes any land that is not ‘Australian rural land’: FATA, s 5. Neither the King Street Property nor residential property in Melbourne’s eastern suburbs are Australian rural land.
[242]FATA s 21A(4).
[243]FATA s 21A(4).

Section 26A of the FATA provides where a person[244] “enters into an agreement by virtue of which he or she acquires an interest in Australian urban land and did not, before entering into the agreement, furnish to the Treasurer a notice stating his or her intention to enter into that agreement”, that person is guilty of an offence.[245] Whilst a limited number of exemptions existed between 2008 and April 2010 that would allow a temporary resident such as the plaintiff to purchase Australian urban land without providing notification to the Treasurer,[246] it is clear that these exemptions had no application to the plaintiff.
[244]Includes ‘a natural person not ordinarily resident in Australia’: FATA s 26A(1)(a).
[245]FATA s 26A.
[246]Foreign Acquisitions and Takeovers Regulations 1989 (Cth), r3(w).

It follows that if the plaintiff was, at the time of entering the agreement to acquire the King Street Property, a “foreign person” for the purposes of s 21A of the FATA and failed to provide the requisite notice of the acquisition to the Treasurer, she would have committed an offence pursuant to s 26A of the FATA. It is said that the plaintiff should therefore be disentitled from obtaining equitable relief.

A “foreign person”

Although the definition of “foreign person” within s 21A of the FATA only includes corporations,[247] the section is required to be applied as if the definition of foreign person also included “a person not ordinarily resident in Australia”.[248] A “person not ordinarily resident in Australia” includes a natural person who is not a citizen of Australia,[249] and their presence in Australia is “subject to a time limit imposed by law”.[250]
[247]FATA, s 21A(1).
[248]FATA, s 4(6).
[249]FATA, s 5A(1).
[250]FATA, s 5A(1)(b)(i).

The defendant relies[251] exclusively on the plaintiff’s pleaded position that she “resided in Australia on a temporary resident visa until January 2013 when she was granted a permanent resident visa”.[252]
[251]Defence, [21] – [23].
[252]FASOC, [1(c)].

It is self-evident that at the time of acquiring the King Street Property, the plaintiff was (as the holder of a temporary resident visa) not a citizen of Australia. It remains to be determined whether the plaintiff’s presence in Australia was “subject to a time limit imposed by law”.

“Subject to a time limit imposed by law”

The plaintiff argues that s 30(2) of the Migration Act 1958 (Cth) provides three possible bases by which a temporary visa may be limited: the holder may remain during a specified period; or until a specified event happens; or while the holder has a specified status.[253] Whilst the first of these three conditions may be said to impose a time limit, the second and third do not: the “specified event” may not happen, and the “specified status” may never change. Consequently, the plaintiff submits that it does not necessarily follow that her presence in Australia was “subject to a time limit imposed by law” simply by virtue of holding a temporary resident visa. Consequently, in the absence of further evidence, the Defendant has failed to discharge his onus of establishing his allegation of illegality.
[253]Migration Act 1958 (Cth), s 30(2).

I remain mindful of the serious nature of the defendant’s allegation. Whilst the required standard of proof is the civil standard, the gravity of the allegation justifies the application of the Briginshaw[254] standard. However, I do not accept the plaintiff’s submission regarding the appropriate characterization of s 30(2)(a) of the Migration Act 1958 (Cth). I consider all three conditions contemplated by s 30(2)(a) render the holder of a temporary resident visa “a person whose present in Australia is subject to a time limit imposed by law”. Irrespective of the precise event which terminates the holder’s right to remain in Australia, all three conditions render the holder subject to a temporal limitation. Such is inherent in the very nature of a “temporary resident visa”.
[254](1938) 60 CLR 336.

Therefore, it is clear that by failing to provide the required notice of the acquisition of the King Street Property to the Treasurer, the plaintiff acted in contravention of s 26A of the FATA. The offence is of a serious nature and is punishable by a fine not exceeding 500 penalty units or imprisonment for a period not exceeding two years, or both.[255]
[255]FATA s 26A.

Despite committing this offence, the plaintiff not only seeks to retain the profit that she derived from her acquisition of the King Street Property but also seeks to have the Court order that the defendant account to her for profits that he derived from his interest in the King Street Property (where there is no suggestion that the defendant’s acquisition was in breach of the FATA).

The prospect of non-compliance with the FATA disentitling the offender to equitable relief has been considered in a number of cases. However, those cases entailed a party other than the legal owner seeking to have their beneficial interest in the subject land recognized. Invariably, including on account of not being the legal owner, the party seeking the relief had not given the requisite notice under the FATA. In some instances they had undertaken to give such notice and, or alternatively, the grant of relief has been conditional upon that occurring.[256] The plaintiff’s position is very different. She was a registered proprietor of the King Street Property. She gave no notice under the FATA. She disposed of her interest in the King Street Property and does not seek, and nor does she require, equitable relief to protect or recognize the benefits she derived from her ownership. Rather, she seeks an account of profits made by the defendant on account of his ownership of the King Street Property. Citing Nelson v Nelson,[257] the plaintiff asserts that any sanction must be proportionate to the “illegality involved”.[258] In that case, McHugh J observed that the penalty for breaching a law or frustrating its policy should not be disproportionate to the seriousness of the breach and that a denial of relief due to a breach of statute should not create a situation of “double punishment”.
[256]Menezes v Salmon [2009] NSWSC 2, [116] (“It is accepted by the plaintiff that if he is successful he must notify the Treasurer of an interest in the property”); Shiekholeslami v Tolcher [2011] FCA 1050, [189]; Huang v Fu [2011] NSWSC 316, [30] (“Mr Huang indicated through his counsel that he was willing to now undertake to the Court to seek FIRB approval”) and [40].
[257](1995) 184 CLR 538.
[258]Plaintiff’s Outline of Opening Submissions (9 July 2019), [28].

More recently, in Patel v Mirza,[259] the United Kingdom Supreme Court considered the doctrine of illegality. After considering the authorities (including Nelson v Nelson), Lord Toulson JSC observed that there are two broad policy reasons for the doctrine of illegality as a defence to a civil claim: first, that a person should not be allowed to profit from their own wrongdoing and second, the law “should be coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand.”[260]
[259][2016] 3 WLR 399.
[260][2016] 3 WLR 399, 428 (cited by the Court of Appeal in CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd [2017] VSCA 11; 55 VR 62, [74]).

In the present case, granting the relief sought by the plaintiff would lack coherence and would subvert the efficacy of the FATA by tacitly approving non-compliance with the notice requirements prescribed by the FATA. It would permit a person that has committed an offence not only to profit from their own (the plaintiff’s) resultant property ownership but to attain a further benefit referable to the interest in the subject property of the non-offending co-owner (the defendant). Consistent with the approach in cases such as Nauru Local Government Council v Australian Shipping Officers Association,[261] the Court should not exercise its discretion to assist the plaintiff to benefit in that fashion where, insofar as she was concerned, the relevant commercial opportunity was pursued illegally. Unlike where claims have been made by beneficial (but not legal) owners that have breached the FATA, declining relief to this plaintiff involves no risk of “double punishment”. The plaintiff is no longer the owner of the King Street Property, she is not proposing to give notice to the Treasurer in the manner that was required by FATA and, if the relief sought is not granted, she will still retain the benefits that she has already derived from her ownership of the King Street Property.
[261](1978) 27 ALR 535; See also Epitoma Pty Ltd v Australasian Meat Industry Employees’ Union and Others (No 1) (1984) 2 FCR 439.

Conclusion

For the preceding reasons, the plaintiff’s claim fails in all respects. The parties are to bring in orders to give effect to these reasons.

I otherwise reserve the question of costs and will hear the parties further in relation to this issue.

[2019] VSC 515

28 August 2019