Li v Zhang

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2024 02634

SHENGHAI LI & ANOR (according to the Schedule)	Plaintiffs
v
XIAOLONG ZHANG & ORS (according to the Schedule)	Defendants

---

JUDGE:	Whelan JA
WHERE HELD:	Melbourne
DATES OF HEARING:	11-13 June, 16-20 June, 23-26 June, 8 July 2025
DATE OF JUDGMENT:	22 July 2025
CASE MAY BE CITED AS:	Li & Anor v Zhang & Ors
MEDIUM NEUTRAL CITATION:	[2025] VSC 432

---

EQUITY – Large properties purchased on behalf of Chinese Australian resident – Substantial deposits due on specified date – Proposal to Chinese investor to make equity investment using funds in Australian bank account – Equity proposal not finalised by specified date – Funds in Australian bank account used to pay deposits – Whether funds agreed to be lent or used without authority – Whether use if unauthorised was dishonest – Trial on liability only – No agreement to lend – Use unauthorised – Use dishonest.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M Wyles KC with Mr A Christophersen and Ms A Pogson of counsel	TNS Lawyers
For the Defendants	Mr J Peters KC with Mr S Crock of counsel	Hiways Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The relevant persons and the substance of the dispute............................................................. 1

Sequence of events............................................................................................................................ 4

Acquisition of the properties and establishment of Sortop.................................................... 4
An opportunity is introduced to Mr Li...................................................................................... 5
Negotiation of the proposed investment — Ms Gao’s WeChat messages........................... 7
Involvement of Mr Fu................................................................................................................. 10
Events on 15 December 2016..................................................................................................... 11
The critical conversation............................................................................................................ 13
16 December to 20 December 2016........................................................................................... 18
Events on 20 December 2016..................................................................................................... 18
20 to 24 December 2016.............................................................................................................. 21
January 2017................................................................................................................................. 25
March 2017 — Loan Agreements.............................................................................................. 26
Repayment on 15 May 2017....................................................................................................... 30
Meeting in August 2017............................................................................................................. 31
Post 2017....................................................................................................................................... 33
The 2024 WeChat messages....................................................................................................... 34
Mr Li’s evidence concerning discovery................................................................................... 37

Claims, defences and issues........................................................................................................... 37

Submissions...................................................................................................................................... 41

Defendants’ submissions........................................................................................................... 41
Plaintiffs’ submissions................................................................................................................ 46

Analysis.............................................................................................................................................. 51

General observations on credit................................................................................................. 51
Did Mr Li agree to lend the $3 million — Relevant factors.................................................. 56
Did Mr Zhang use Mr Li’s funds dishonestly?....................................................................... 58
Addressing the defendants’ submissions................................................................................ 62
Limitation of Actions Act........................................................................................................... 66
Limits of relief.............................................................................................................................. 68

Conclusions....................................................................................................................................... 68

HIS HONOUR:

Introduction

On 20 December 2016, $3 million was transferred from an account with the ANZ Bank (‘ANZ’) held by the first plaintiff, Shenghai Li (‘Mr Li’), to an account held by the second plaintiff Sengia Pty Ltd (‘Sengia’) and then to an account held by the third defendant Sortop Pty Ltd (‘Sortop’). Sortop is and was a company controlled by the first defendant, Xiaolong Zhang (‘Mr Zhang’). The transfers were undertaken on that day by one Ran Bi (‘Mr Bi’) acting on Mr Zhang’s instructions. The funds transferred were used to make deposit payments due that day on properties of which the second defendant, Crefly Pty Ltd (‘Crefly’), and the fourth defendant Sortop (Narraburra Road) Development Pty Ltd (‘Sortop Narraburra’), companies also controlled by Mr Zhang, are now the registered proprietors. The principal issues in the case are whether Mr Li authorised the use of his $3 million by Mr Zhang, and, if not, whether Mr Zhang used those funds dishonestly so as to entitle the plaintiffs to trace the misappropriated funds and to obtain proprietary relief against the registered proprietors.

The relevant persons and the substance of the dispute

All of the persons involved in the relevant events are Chinese or of Chinese heritage. It is useful to set out an initial overview of the evidence they gave as to their background, their roles, and their relationships with each other.

Mr Li is a Chinese citizen resident in Qingdao of the People’s Republic of China (‘PRC’). He is a businessman who has, or has had, business endeavours related to property development in China and related to products sourced from Australia. In 2014, he was investigating the possibility of investing in, and possibly migrating to, Australia. He established, through an ANZ office in Beijing, an account with the ANZ in Adelaide. He deposited a sum of $3 million into that account. His plan to invest and possibly migrate to Australia was abandoned after his mother fell ill, but he left the deposit he had made in his ANZ account. He described $3 million as ‘not a big sum of money’, but ‘not a small sum’. Mr Li is unable to speak or read English.

Mr Zhang is also a Chinese citizen. He is also unable to speak or read English. He is now a resident in Australia. He was, until 2020, qualified as a lawyer in the PRC.

Mr Zhang came to Australia with his family in 2015 on a holiday and, while here, he investigated business opportunities. He returned in 2016 and met Mr Bi, and an estate agent named Diandian Zhao (‘Ms Zhao’). With their assistance, he arranged the acquisition of a number of properties.

Mr Zhang had, for some years prior to 2016, acted on behalf of companies associated with Mr Li in the PRC. According to Mr Li, Mr Zhang was ‘nothing more’ to him than a lawyer that had acted on behalf of his companies, although he agreed that in 2016 he thought very highly of him and liked him.

In 2016, Mr Li had an assistant named Na Gao (‘Ms Gao’). Ms Gao worked very closely with Mr Li. Her office was next to his. They met every morning if Mr Li was not travelling. He would give her directions and instructions which she was authorised to pass on to others on Mr Li’s behalf. She would report the outcome of her activities to Mr Li.

Communications between Ms Gao and Mr Li were generally face-to-face. In 2016, Mr Li did not use email, nor did he use any messaging service such as WeChat. Mr Li relied on Ms Gao to report the substance of email communications to him.

Ms Gao left Mr Li’s employment in 2020. She remained registered as an officeholder of some of Mr Li’s companies after her departure, although she had no active involvement in Mr Li’s business affairs after 2020.

Mr Bi was introduced to the possibility of working for Mr Zhang by a university classmate in 2016. He met Mr Zhang and another Chinese businessman at the airport upon Mr Zhang’s return to Australia in 2016.

Mr Bi initially worked for Mr Zhang as his driver and translator. In the beginning he was paid $700 a week by Mr Zhang personally, and later he signed an employment contract with Sortop, under which he received ‘around $2,200 per fortnight’.

Mr Bi’s activities during the course of his employment with Mr Zhang, which began as a driver and translator, evolved into an extraordinary range of activities from the menial, such as typing, mowing Mr Zhang’s lawn, and grocery shopping for Mr Zhang’s family; to activities well beyond those expected of a normal employee, including personally entering into contracts for the acquisition of land for many millions of dollars, arranging complex banking transactions, acting as a director and shareholder of companies controlled by Mr Zhang, and guaranteeing obligations related to Mr Zhang’s business affairs.

Mr Bi’s mother, who was an Australian citizen residing in Australia, also acted as a director and shareholder of companies controlled by Mr Zhang, notwithstanding that she had no financial interest in those companies and took no active part in their management or affairs.

Mr Bi described his relationship with Mr Zhang as ‘basically … doing what he told me to do’. Mr Bi said that everything he did was done on Mr Zhang’s instructions, and that Mr Zhang was, in relation to all relevant matters, the ‘decision-maker’. Mr Zhang essentially agreed with this. When Mr Bi’s description of their relationship was put to him, he said:

It can be said that’s correct because we didn’t have many people in the company at that time so our work [was] divided like this. I [was] in charge of the capital in China and decision making and Bi Ran [was] put in charge of or will be in charge of the [execution] of the work.

Mr Li’s assistant, Ms Gao, and Mr Zhang’s assistant, Mr Bi, were extensively involved in the transactions relevant to the current dispute.

Mr Bi ceased working for Mr Zhang on 14 February 2023. They have since had a significant falling out. Mr Bi was called by the plaintiffs in the trial.

When Mr Zhang met Ms Zhao in 2016, she was working part-time as a real estate agent with LJ Hooker. LJ Hooker was the ‘referring agent’ in relation to certain properties whose acquisition Mr Zhang arranged in 2016.

Ms Zhao described Mr Bi, upon her introduction to him, as Mr Zhang’s ‘assistant and driver’.

Ms Zhao is now a director of Crefly and is the operations manager of a company named, Comazor Pty Ltd (‘Comazor’). Comazor is a company which manages the Australian property portfolio associated with Mr Zhang. Mr Zhang is the chief executive officer of Comazor. Ms Zhao said in her evidence that Sortop, Crefly and Comazor are all connected, and are all controlled by Mr Zhang.

As indicated, in 2016 Mr Zhang arranged for the acquisition of a number of properties in Australia. He introduced Mr Li to the opportunity to invest in Sortop, a company he established to acquire those properties. Substantial deposit payments were due on 20 December 2016. As at 20 December 2016, Mr Li’s funds were crucial to Mr Zhang’s ability to make those deposit payments, and, as indicated, Mr Li’s funds were in fact used to meet those deposit payments.

Mr Li’s case is that the proposed investment was never finalised and that he never agreed to the use of his funds by Mr Zhang.

Mr Zhang’s case is that although the investment was not finalised as at 20 December 2016, Mr Li agreed to lend his funds so as to enable the deposits to be paid.

Mr Zhang maintains that the loan that he says was made by Mr Li is now owed by him personally. He accepts that he is liable to repay it.

Mr Li maintains that his funds were misappropriated and that he is entitled to trace the misappropriated funds and to obtain proprietary remedies, at his election.

Sequence of events
Acquisition of the properties and establishment of Sortop

On 21 September 2016, Mr Bi as purchaser signed terms sheets for the acquisition of land at 2–32 Paynes Road, Rockbank and at 34–64 Paynes Road, Rockbank.

On 11 October 2016, Sortop was incorporated. Upon incorporation, Mr Bi was its sole director. He was replaced by his mother as the sole director shortly thereafter, on 7 November 2016. Initially, Mr Bi was the only shareholder, holding two fully paid shares. He was then replaced by his mother, also holding two fully paid shares. Mr Bi gave evidence that Mr Zhang told him it was necessary for Sortop to be owned by an Australian citizen.

On 31 October 2016, Mr Bi ‘and/or nominee’ executed contracts of sale for the two Paynes Road properties. The contracts of sale provided for a total purchase price in excess of $14 million. The contract of sale for 2–32 Paynes Road, Rockbank provided for a deposit of $1,419,360 payable as follows:

$45,000 on 4 November 2016 (of which $5,000 has been paid) and the balance on 20 December 2016

The deposit on 34–64 Paynes Road was $1,423,200 payable on the same terms.

Both contracts of sale were to be settled five years from the contract date.

The vendor’s agent on both sales was Maax Real Estate and Investment Group Pty Ltd (‘Maax’). As indicated, Ms Zhao was working for the ‘referral agent’, LJ Hooker. She introduced the purchaser and, as a result, would be entitled to a share of the commission earned by Maax.

The two initial deposit payments of $5,000 were made by Ms Zhao from her personal cheque account as a loan. The balance of the initial deposits (two payments of $40,000 each) was paid by Mr Bi, also as a loan. These loans were later repaid.

An opportunity is introduced to Mr Li

In October 2016, Mr Li and Ms Gao met Mr Zhang at a private teahouse owned by Mr Li near his offices in Qingdao.

Mr Li, Ms Gao and Mr Zhang all gave evidence about this meeting. They all gave evidence that the possibility of Mr Li investing in the acquisition of property in Australia was discussed. Mr Zhang’s evidence was that Mr Li ‘seemed to be interested’ and that he had ‘some money in Australia’. One point of difference between Mr Li and Ms Gao on the one hand and Mr Zhang on the other in relation to this meeting was that Mr Li said that Mr Zhang initially asked him for a loan of money, and that Mr Li declined that request firmly, requiring that any investment which he made be by way of capital in the company acquiring the land, with Mr Li having the right to approve payments to acquire land in advance. Mr Zhang denied that he made any request to Mr Li for a loan.

By an email dated 9 November 2016 from Mr Bi to Ms Gao, the proposed investment in Sortop, designated as the ‘parent company’, was introduced, and a number of documents, including the contracts of sale in relation to the Paynes Road properties were attached.

On 21 November 2016, Mr Bi entered into a contract of sale for land at 155 Narraburra Road, Little River for the sum of $1,600,000. The purchaser was named as ‘Ran Bi & or nominees’. A deposit of $320,000 (of which $5,000 had been paid) was payable on 20 December 2016. Sortop Narraburra, a wholly owned subsidiary of Sortop, was the eventual nominee. Mr Bi’s mother was a director of Sortop Narraburra from 15 March 2017 until 21 November 2019 and Mr Bi was the company secretary from 3 April 2017 until 25 August 2022.

At some point, probably around 2 December 2016, Mr Zhang sent Ms Gao a description of what was said to be Sortop’s ‘employees and cooperation teams’. It emerged in the course of Mr Zhang’s cross-examination that none of the people listed, other than Mr Zhang himself and Mr Bi, were employees at that time.

Mr Zhang’s description of the proposal in his email of 9 November 2016 foreshadowed the difficulty that was to emerge later in December in meeting the deposit payments. Mr Zhang said:

It will be very difficult for our funds in China to be transferred over before December 20, and it may only happen by mid-January. We have several payments scheduled for payment before December 20. Therefore, the secretary’s funds in Australia are crucial.

The reference to ‘the secretary’ is a reference to Mr Li. The reference to the ‘secretary’s funds’ is a reference to the funds in Mr Li’s ANZ account in Australia.

Mr Zhang in his evidence said there was a second meeting in China with Mr Li and Ms Gao in November 2016 in which Mr Li expressed strong interest in the proposed investment. Neither Mr Li nor Ms Gao were asked about this meeting.

Negotiation of the proposed investment — Ms Gao’s WeChat messages

Throughout the early part of December, Mr Zhang and Ms Gao dealt with each other extensively in relation to the proposed investment. Their communications were predominantly through the messaging service WeChat. There were also occasional emails from Mr Bi to Ms Gao.

Ms Gao was able to locate the WeChat messages between herself and Mr Zhang between 2 December 2016 and 10 December 2016. She was not able to locate the WeChat messages after 10 December because they were on a different phone to which she no longer has access. Mr Zhang, for his part, has no relevant WeChat messages. He said that all of his WeChat records were lost in 2022 as a result of changing phones.

The WeChat messages produced by Ms Gao were the subject of considerable attention during the trial. They are the principal reliable source for the dealings between the parties up until 10 December 2016.

Mr Zhang described the proposed sequencing of Mr Li’s investment in a WeChat message to Ms Gao on 2 December 2016. The English translation of that message reads: ‘There are four things we need to get done before 20 December: First, the Shuji [Mr Li] sets up his own company; Second, the Shuji’s company becomes the controlling shareholder of Sortop; Third, the capital injection needs to be completed’.

In their evidence, Mr Li and Ms Gao were adamant that the proposed sequence for Mr Li’s investment was never altered, and that it was always a precondition to the use of Mr Li’s funds in Australia that what was usually described as a ‘cooperation agreement’, providing for the capital subscription in Sortop, be in place before Mr Li’s funds were transferred.

Mr Zhang accepted that that was the proposed sequence until a conversation in which he says that Mr Li agreed to lend his funds to pay the deposits even though the sequence set out in the 2 December WeChat message had not occurred.

The WeChat messages produced by Ms Gao reveal that Mr Zhang was repeatedly emphasising to Ms Gao the critical importance of 20 December 2016 as the ‘final payment date’. He suggested a failure to meet the payments due on 20 December 2016 would mean he would have to leave Australia in disgrace. He told Ms Gao that any investment after that date would be ‘meaningless’.

The logistics of transferring Mr Li’s funds out of his Australian ANZ account were the subject of significant consideration and discussion in Ms Gao’s WeChat messages. Mr Zhang was pressing Ms Gao to provide him with the BSB and account number for Mr Li’s Australian account. Ms Gao’s evidence was that whilst she believed she had had this information in 2014 when the account was established, she did not have it in December 2016. Her WeChat messages confirm that position, at least until 10 December 2016.

The WeChat messages record that as at 8 December 2016, Ms Gao and Mr Zhang believed that the requirements of the ANZ meant that the transfer of the $3 million could not be made unless Mr Li was physically present in Australia in order to arrange the transfer. As a consequence, Mr Zhang advised Ms Gao on 9 December that there was ‘nothing we can do…we can’t cooperate with you and Shuji this time…I’ll seek other funding’. Later, Ms Gao messaged: 'I also told Shuji that you're looking for friends or other sources of funding; Shuji said if you find suitable funds, you can make your own decision'.

Mr Zhang’s evidence was that he was unable to raise funds from other sources beyond about $800,000. Notwithstanding what seems to have been the shared understanding of the ANZ requirements, and Mr Zhang’s statement that cooperation was impossible as a result, discussions about the proposed investment continued.

The WeChat messages record that the commercial terms of Mr Li’s proposed investment were broadly agreed between Ms Gao and Mr Zhang by 10 December 2016.

Ms Gao, acting on Mr Li’s instructions, had insisted upon an arrangement whereby Mr Li would have a level of shareholding which was disproportionate to the level of capital which he contributed, and whereby Mr Li would also have a power of veto over use of the company’s capital.

A WeChat message of 9 December 2016 reveals that by then Mr Zhang had agreed to these terms, which Mr Zhang described in his evidence as constituting a ‘big concession’. Mr Li was to have 40% of the shares for the $3 million he would contribute, whereas other investors would contribute $18 million for the remaining 60%; and ‘business decisions’ would require ‘70% approval’, thereby effectively giving Mr Li a power of veto. Mr Zhang agreed with the suggestion that Ms Gao was driving a ‘very hard bargain’.

On 10 December 2016 Ms Gao asked if the agreement had been drafted in response to which Mr Zhang said that the agreement was being drafted by the lawyer, that in the future it would be signed between Mr Li’s new company and the ‘Hong Kong SPV company’, and that Sortop would only have these two shareholders. The WeChat messages then record the fact that Ms Gao said that she had prepared a visa application for Mr Li and that he intended to go to Australia ‘soon’.

Finally, it is noteworthy that in the WeChat messages, Mr Zhang referred to a ‘friend’ which he said he had at the ANZ Bank, and also to an Australian investor ‘friend’ that he had who he said might be able to provide the funds on the security of Mr Li’s funds if a solution to the problem of transferring those funds could not be found. In his evidence, Mr Zhang said that his friend at ANZ was actually Mr Bi’s friend, and that his Australian investor friend was a friend of a relative whose name he did not know.

Involvement of Mr Fu

In December 2016, Sheldon Fu was a junior solicitor at Sabelberg Morcos. He had been admitted in February of that year.

Sabelberg Morcos were acting on behalf of Sortop in relation to the proposed investment by Mr Li. Mr Fu said he was working with other more senior lawyers. He took instructions from both Mr Zhang and Mr Bi. He described himself as relatively junior at the time, and said that he was involved because of his knowledge of Mandarin. Mr Fu arranged the incorporation of Sengia on 12 December 2016. Upon incorporation, the sole director was Mr Bi, and the sole shareholder was Mr Li.

On 13 December 2016, Mr Fu sent a draft loan agreement between Mr Li and Sengia to Mr Zhang, and, in a separate email, to Mr Bi. The email to Mr Zhang included the passage:

Please forward it to Mr Li, who will then need to give it to his own lawyer for review and interpretation before signing.

Mr Fu said in his evidence that his firm was not acting for Mr Li and that was why he said Mr Li should get independent legal advice. He was unable to recall if he was ever informed or instructed that the agreement had been forwarded to Mr Li.

On Wednesday 14 December 2016 at 6:24pm, Mr Fu sent an email to Mr Bi and Mr Zhang concerning Mr Li’s proposed investment through Sengia in Sortop. The email contained an analysis of the risks involved for Sortop in the arrangement as Sabelberg Morcos then understood it. In his evidence, Mr Fu seemed to suggest that the relevant content of this email had emanated from his more senior colleagues.

The risks addressed in the email arose out of the fact that the equity ratio for Mr Li was not equal to that of the other proposed shareholders; and also out of the fact that if Mr Li, through Sengia, were to invest before the other shareholders, he would obtain control of Sortop and be able to replace the directors. Mr Fu agreed in his evidence that he (and presumably his more senior colleagues) were concerned as to the ‘lopsidedness’ of the proposed arrangement.

Mr Bi responded to Mr Fu’s email at 7:39pm that evening (Wednesday 14 December 2016) saying: ‘Mr Zhang would like to confirm with you that Sortop needs to issue 3 million acquisition shares’.

Events on 15 December 2016

On 15 December 2016, a bank officer at the Chinatown branch of the ANZ Bank, Ling Huang (‘Ms Huang’), made alterations to the bank’s records concerning Mr Li’s ANZ account, which significantly advanced the capacity of Mr Bi and Mr Zhang to access Mr Li’s funds. The relevant entries in the ANZ’s records for Mr Li’s account on 15 December 2016 read as follows:

CRN Telecode Reset   Approved.
Register For Challenge Questions        Approved.
Register For Internet Banking              Approved.
Register For Pay Anyone  Approved.

Mr Bi gave evidence that he helped Mr Zhang take these steps at the Chinatown branch of the ANZ that day because Mr Zhang had difficulty doing it himself. He said that the difficulty which Mr Zhang had was that he did not know English and was not able to type. Mr Zhang has a disabled hand.

Mr Bi gave evidence that he and Mr Zhang had often gone to the Chinatown branch of the ANZ, and that they went to that branch because staff members there could speak Chinese. Mr Bi said that he had accompanied Mr Zhang to the Chinatown branch on other occasions, and that they ‘were received’ by Ms Huang. He said Mr Zhang was the person who would speak to Ms Huang.

Ms Huang gave evidence in the trial and Mr Zhang was in Court when she did so. Mr Zhang, in his evidence, said that he did not know Ms Huang, although he agreed that it was possible that he had spoken to her in 2016 but did not recognise her now.

Mr Zhang said in his evidence that he had asked Mr Bi to carry out the transactions put into effect at the ANZ Chinatown branch on 15 December 2016, but he maintained that he did not know precisely what Mr Bi was doing. He agreed that he went to the bank that day with Mr Bi, and he said that what they were doing was setting up ‘online banking for Sengia’. Mr Zhang said that he was ignorant of the details of what was done that day.

Mr Zhang gave evidence that Mr Bi had found a solution to the problem that the ANZ required Mr Li to be physically present before the transfer of Mr Li’s money could be made. He said that Mr Bi found a way to do it by ‘internal transaction’. He said that he had told Ms Gao of the method which Mr Bi had devised in a call to her mobile in which Mr Bi had participated.

When Mr Bi was asked in cross-examination if he knew of a method of transferring Mr Li’s funds as an ‘internal transfer’, he said: ‘I didn’t know’. When asked if he had ‘any discussions with anyone - Mr Zhang, Ms Gao – about transferring the money in any way from Mr Li’s personal account’, he said he only had discussions with Mr Zhang ‘but we didn’t have any outcome’. When asked if it was possible he had informed Ms Gao of an ‘alternative solution’ to the transfer he said if it were him who told Ms Gao this, he ‘will write down everything clearly and report to Zhang Xiaolong first’.

Ms Gao denied ever being told of any ‘alternative solution’.

Mr Bi maintained in his evidence that the information necessary to carry out the steps taken at the bank on 15 December 2016 had been given to him by Mr Zhang.

The Customer Reference Number, the ‘CRN’, for Mr Li’s account, together with the BSB and the account number, are handwritten on a card, a photograph of which is in evidence. The card itself has clearly been produced by the ANZ and is written in English. Mr Bi took the photograph of that card on 15 December 2016. He agreed with the suggestion that the photograph was of a card provided by the ANZ. He said the writing on the card was not his. Mr Bi said that the details on the card ’should be’ the details that were given to him by Mr Zhang. Mr Bi also said that he completed the ‘challenge questions’ registered on Mr Li’s account on 15 December 2016 on Mr Zhang’s instructions. He took a screenshot of those questions and answers.

Evidence was given by Andrew Peter Savvas, the senior operational governance manager of the ANZ. He addressed the transactions recorded in 2015 in some detail. He identified Ms Huang as the bank officer who reset the CRN telecode. The substance of his evidence was that the changes made on 15 December 2016 ought not to have been made in the absence of Mr Li’s physical presence and verification of his identity. To make those changes without Mr Li’s physical presence and verification of his identity was in contravention of ANZ’s required procedures. He said ‘the only way’ the transactions could be undertaken in circumstances where Mr Li was not present would be ‘if someone was in the branch impersonating’ him. He accepted that ‘another possibility’ was that a mistake had been made by ANZ staff but observed that they do train their branch staff on identifying customers and that they ‘don’t seem to have many problems’ with branch staff performing those actions correctly. When I suggested that based upon his evidence I should proceed on the basis that either someone has impersonated Mr Li successfully, or the ANZ staff have failed to follow the requirements, he responded: ‘Yes, both of those would be where I would be heading as well’.

As indicated, Ms Huang also gave evidence. She was unable to recall the transactions on that day, but she confirmed that her understanding of what was required in order to make those changes was that the customer needed to be physically present in the branch with verifying identification.

Mr Li, in his evidence, said he was unaware of what occurred in relation to his account on 15 December 2016.

The critical conversation

At 11:52am on Friday 16 December 2016, Mr Fu sent Mr Bi and Mr Zhang an email addressed ‘Dear Mr Bi’, confirming the receipt of instructions that ‘SENGIA will advance 3 million to SORTOP’, and seeking confirmation. Mr Bi, in his evidence, said that the instruction had come from Mr Zhang, not from himself.

This email is the first documentary reference to the proposition that Mr Li’s proposed investment company, Sengia, was to advance $3 million to Sortop as opposed to subscribing for $3 million in shares. The change in the arrangements, if it occurred, must have occurred between 7:39pm on the evening of 14 December 2016 when Mr Bi confirmed to Mr Fu that ‘Sortop needs to issue 3 million acquisition shares’ and the instruction Mr Fu records at 11:52am on Friday 16 December 2016.

In evidence-in-chief, Mr Zhang said that he had arranged for Mr Bi to send the instruction to Mr Fu concerning the loan by Sengia to Sortop. He was asked whether before he had arranged for Mr Bi to send Mr Fu the instruction he had spoken to Ms Gao or Mr Li about any advance or loan of the $3 million and he said he had. When asked what had occurred, he said the following:

I remember the four of us had a meeting together. I called Ms Gao Na first. Then I asked Bi Ran to join, and Ms Gao asked Mr Li to join to discuss this matter.
How did this meeting occur? Face to face?---Over the phone.
All right, what happened?---According to my memory, at that time there was legal procedures which can only finish after the 20^th of December. So if we wait for the legal procedures to complete to sign the [cooperation] agreement, the deposit payment will not happen in time. So I discuss with Mr Li, [Sengia] can loan us, can loan the money to Sortop first.
All right, and what did Mr Li or Ms Gao say?---So Mr Li agreed with this method.
Do you recall when this occurred?---I can’t remember the exact time but it should happen before this email was sent.
And did you have any other discussions with Ms Gao about a loan of the $3m for Mr Li, from Sengia to Sortop?---I remember at that meeting we discussed lots of content. I couldn’t remember too much details. But the money from Sengia, so the loan from Sengia to Sortop was only an advance. Later on this money will be transformed into a shareholding.
All right, Mr Li says nothing was to occur until agreements had been signed, do you recall him saying that?---Mr Li is someone I respect very much but I don’t agree what he said.
…
Did Ms Gao tell you that nothing was to occur until an agreement was signed?

---No.

Mr Zhang was challenged in cross-examination about this conversation and, in particular, he was asked whether, before giving evidence in the case, he had told his lawyers about this call. His response was as follows:

So during my conversation with the lawyers I mentioned there were a lot of telephone calls, telephone meetings. I am not sure whether my lawyers made a detailed record of this.

Mr Zhang said that the call was ‘via WeChat’.

It was put to Mr Zhang that the call he described never happened, and he said that that was not true.

The reason that Mr Zhang was asked about what he had told his lawyers in relation to this WeChat call was because this critical conversation had not been pleaded, had not been opened, and had not been put to any of the other alleged participants in the conversation who, by then, had completed their evidence; namely, Mr Li, Ms Gao, and Mr Bi.

When the defendants’ senior counsel opened the defendants’ case, at the end of the plaintiffs’ opening on 12 June 2025, he said:

What had been happening during December is continuing communications directly with Ms Gao by phone and WeChat concerning Mr Li’s funds. Originally it was an investment, but by around this time it’s become a loan, and both Mr Zhang and Mr Bi would communicate with the lawyers and the banks. Sometimes Mr Bi would handle matters independently.

When asked about the email confirming the instruction that there was to be a loan from Sengia to Sortop, senior counsel agreed with the suggestion that the defendants’ case was that by the time of Mr Fu’s email on Friday 16 December 2016, Mr Li had told Mr Zhang that he would lend the money. He then went on:

Now, I can’t be more specific, Your Honour, with mathematical precision, but it’s at some time around this time and the documents would suggest that’s the first time it’s recorded in the solicitor’s file as an instruction.

On 17 June 2025, the defendants filed a further amended defence in which no specific reference was made to a conversation as described by Mr Zhang. The relevant portion of the particulars read:

The loan was discussed during conversations between Ms Gao, Mr Bi, Mr Zhang, and Mr Li in or about December 2016, and was documented in emails and attachments (including a written loan agreement prepared by Sabelberg Morcos Lawyers in or around early 2017). The emails were sent by Sheldon Fu of Sabelberg Morcos Lawyers to Mr Bi on behalf of Sengia Pty Ltd on 16 December 2016, 20 December 2016, 21 December 2016 and 14 March 2017.

Mr Zhang gave the evidence concerning the WeChat conversation on 23 June 2025. By that time, Mr Li, Ms Gao and Mr Bi had all completed their evidence. No application was made for their recall.

In the course of Mr Li’s cross-examination, relevantly what had been put to him was the following:

Do you recall whether Mr Zhang made a request through Ms Gao that you give him permission to allow his funds to be used to pay for the deposits on the properties in December 2016, before 20 December?---Yes.
Yes. And did you agree to lend the 3 million around this time because Mr Zhang had asked you to lend the moneys?---No.

A little later, the following was put to Mr Li:

Did Ms Gao tell you prior to 20 December 2016 that Mr Zhang had asked to use your funds in paying the deposits?---Yes.
…
It was agreeable to you that he use your funds to pay the deposits on 20 December?---We have a condition for using the fund[s].

The condition to which Mr Li referred was that the ‘cooperation’ agreement be in place and that the funds be used to subscribe for the shares. Nothing was put to Mr Li to the effect that he participated in a WeChat call with Ms Gao, Mr Zhang and Mr Bi prior to the morning of 16 December 2016, and presumably between the evening of Wednesday 14 December 2016 and the morning of Friday 16 December 2016, in which a loan from Sengia to Sortop was specifically discussed and agreed.

When Ms Gao was cross-examined, the following was put to her:

Do you recall either speaking with Mr Zhang or, in a WeChat discussion at this time, where he asked you to pass on a request to Mr Li to use his funds to pay for the deposits?---No, what we discussed was signing the agreement first and then invest.
…
Do you recall telling Mr Zhang that Mr Li agreed to lend the $3m to pay the deposits at that time?---I never said that.

A little later, Ms Gao was being cross-examined about the events on 20 December 2016 when I sought clarification as to what was being put during a period when Ms Gao asked if she could stop to have a drink of water. The interchange was as follows:

[JUDGE]:Sorry, just while that’s happening, can I just be clear about what you’re putting to her. The authorisation to lend the money wasn’t on the 19^th, it was before then.
[SENIOR COUNSEL]: Yes.
[JUDGE]:All right, but you give no particular date, is that right?
[SENIOR COUNSEL]: Well I give it in the weeks leading up to 20 December, that’s what I put. I can’t be more specific than that, Your Honour.
[JUDGE]:And it’s Ms Gao who’s said to have done it?
[SENIOR COUNSEL]: Yes, he asked Ms Gao for her permission, to ask Mr Li for his permission, she reported back he agreed.
[JUDGE]:All right. And this is in a phone call is it, or what?
[SENIOR COUNSEL]: Yes. A phone call. Well, Your Honour, this is the difficulty with doing a case about something that happened eight years ago. It’s either in a phone call or WeChat.

Mr Bi was cross-examined about Mr Fu’s email confirming the loan instruction on 16 December 2016, but was asked nothing about a phone call in which he had participated with Mr Zhang, Ms Gao, and Mr Li in which that agreement had been made.

It is impossible to escape the conclusion that the reason the defendants pleaded the case as they did, the reason senior counsel opened the case and explained it as he did, and the reason that Mr Li, Ms Gao and Mr Bi were cross-examined on this issue in the manner in which they were, was because at the time those steps were taken, the defendants’ lawyers had not been instructed that the WeChat conversation described by Mr Zhang had occurred.

16 December to 20 December 2016

Mr Fu had sought confirmation of the instruction that Sengia was to advance a loan of $3m to Sortop in his email at 11:52am on 16 December. At 12:53pm Mr Bi sent a confirming response. At 12:56pm Mr Fu replied asking Mr Bi to ‘inform Mr Shenghai Li, the shareholder of Sengia, and obtain his written consent’. There is no evidence that any such written consent was sought.

By emails of 17 December 2016, Mr Bi forwarded to Ms Gao information concerning the other proposed investors in Sortop as well as information regarding Sortop itself.

Phone records in Mr Bi’s name are in evidence. They include a phone that Mr Zhang says was used by him. The phone records record a phone call from that phone on 19 December 2016 to Ms Gao at 7:11pm of 1 minute and 40 seconds duration. The records also show that Mr Bi called the ANZ Qingdao Branch twice that day; such calls being of 10 minutes 19 seconds and 3 minutes 4 seconds duration.

Mr Zhang gave evidence that in his call on 19 December 2016, he told Ms Gao ‘about the arrangement for making payment and transactions on 20 December’. It was put to Ms Gao in her cross-examination that Mr Zhang rang her the night before 20 December ‘to talk about how he was going to arrange for the transfer of funds from Mr Li’s personal account’. She responded: ‘I don’t think that’s correct’.

Mr Bi was not asked about the calls he made to ANZ Qingdao Branch on 19 December 2016, although the defendants submit that evidence he gave about WeChat messages between Mr Li and himself in 2024, to which subsequent reference will be made, should be interpreted as being referable to these 19 December calls.

Events on 20 December 2016

Mr Bi successfully arranged for Mr Li’s funds to be transferred from his personal account to Sengia’s account, and then to Sortop’s account on 20 December 2016. On the same day, those funds were used to meet the deposit payments due on the properties in Paynes Road and Narraburra Road.

In their evidence, Mr Li and Ms Gao said that they were ignorant of what occurred on 20 December 2016. They said that they considered that the investment proposal was over because the 20 December deadline had been reached and the cooperation agreement had not been finalised and signed.

Mr Li agreed in his evidence that during December the parties had been investigating possible solutions for the transfer of his funds from his personal account to Sengia. Mr Li and Ms Gao said that they believed, based upon advice from the ANZ, that Mr Li would need to be physically present in Australia in order to arrange the transfer. Mr Savvas confirmed in his evidence that that ought to have been the case.

In cross-examination, Mr Li was asked whether he was ever told by Ms Gao of an ‘alternative solution’ involving Mr Li’s appointment as a director and account signatory for Sengia. Mr Li responded that Ms Gao had not told him that. He said: ‘she told me Mr Zhang has his method, but Gao Na didn’t tell me the details’.

It seems that the so-called ‘internal transfer’ solution required Mr Li’s appointment as a director of Sengia because his appointment as a director was arranged urgently on the morning of 20 December 2016. This appointment was arranged by Ms Zhao using the services of an ASIC registered agent and accountant named Stephen Chiu. Mr Chiu was a friend of hers.

Ms Zhao contacted Mr Chiu very early on the morning of 20 December 2016. At her request, he arranged for himself to be appointed as the registered agent for Sengia and to add Mr Li as a director. He had the consent of the existing director, Mr Bi. He did not have the consent of Mr Li.

Mr Chiu gave evidence. He frankly admitted that he had made a mistake in registering Mr Li as a director of Sengia without his written consent.[1]
[1]See s 201D of the Corporations Act 2001 (Cth).

An ASIC company search of Sengia conducted at 10:41am on 20 December 2016 listed Mr Li as a director. The extract of this search was returned on subpoena by ANZ. The defendants accepted that it could be assumed the search was conducted by ANZ. The existence of the search suggests that it had been necessary to add Mr Li as a director of Sengia as a consequence of some requirement by the ANZ.

Initially in his evidence Mr Bi maintained that whilst he had performed the transfer from the Sengia account to the Sortop account, he did not know who had transferred the $3 million from Mr Li’s account to Sengia’s account. When cross-examined, it was put to him that he was the person who effected the transfer from Mr Li’s account to Sengia’s account, and his response was that Mr Zhang had asked him.

The next morning, Mr Bi, at the outset, asked to clarify something. He said he had looked at the documents he had produced under a subpoena, and they had helped him remember something. He was concerned to emphasise that he was not a ‘decision-maker’ and that he was only an employee, doing what Mr Zhang told him to do. Referring then to the ANZ card which he had photographed on 15 December 2016, upon which there was the handwritten CRN, BSB and account number of Mr Li’s account, Mr Bi then said:

So I took a photo of this card was to help the company and Mr Zhang Xiaolong to keep a record. I didn’t save this in my personal computer. So, after this so like a few years after this Mr Zhang Xiaolong often said to me Didi Zhao made [an] important contribution to this matter. If she didn’t cry at the ANZ branch it’s not, so they would not let the money being transferred out of Mr Li’s account. So I remember in the morning of the 20^th of December, Zhang Xiaolong told me that I need to keep my phone connected and waiting for Didi Zhao to notify me. So at about 11 am that morning, I received a notice from Didi that I can make the transfer now. So after I received that notification I made the transfer of $3 million from Mr Li’s account to Sengia’s account to Sortop’s account.

Mr Zhang, in his evidence, said that he arranged for Mr Bi to make the transfer and that he also asked Ms Zhao to assist him. He said that on the day, it ‘went smoothly’.

Ms Zhao, in her evidence, said she arranged for Mr Chiu to add Mr Li as a director of Sengia after Mr Bi had requested urgent help. She said that Mr Chiu was a friend of hers. She provided the relevant information to Mr Chiu which enabled him to add Mr Li as a director.

Ms Zhao said that she went to the bank on 20 December with Mr Bi. The account she gave in evidence-in-chief was as follows:

So we went to the, I went to the bank with Bi Ran, and we need to make a transfer. I remember at that time we cannot make the transfer directly. I remember the bank said the account, the account holder has to be the director of the business. And then the bank had some communications with Bi Ran.

A little later she continued:

I remember the bank needs to make lots of phone calls. I remember during that time the banker asked Bi Ran to come over and then asked us to wait, continue to wait. … And then after well we waited for a while and then Bi Ran suddenly said it’s done.

Ms Zhao said the deposits were paid later that day.

Ms Zhao agreed that her involvement in the transactions so far described went well beyond what would normally be expected of a real estate agent. She agreed that she had never lent money to a purchaser before to pay part of the deposit, that she had never before gone to a bank with a purchaser to help them arrange their affairs, and that she had never before helped a purchaser to add a director to a company. She explained that it was the first time that she had met a customer like Mr Zhang, who had come from overseas and who needed such help.

20 to 24 December 2016

On the morning of 20 December 2016, Mr Bi forwarded to Ms Gao an ANZ document entitled ‘Company/Formal Trust Account Authority’ partially completed in the name of Sengia. The blank form had been forwarded to him a number of times the previous day by Ms Huang. Mr Bi asked Ms Gao to arrange for it to be signed by Mr Li, and to be scanned and returned. It was not returned.

In cross-examination it was put to Ms Gao that it would’ve been a simple matter for her to call Mr Zhang or Mr Bi and ask what was going on. Her response was that the ‘most important thing is to sign the cooperation agreement’ and that without that being signed, she would not give any authorisation. When she was asked: ‘Didn’t you think it important?’ She responded: ‘No, I don’t think’.

On the evening of 20 December 2016, Mr Fu sent an email to Mr Bi, and to an email address which it seems was an erroneous typing of Mr Zhang’s email address. Mr Fu’s email begins, ‘Hello Mr. Zhang’.

Mr Fu’s email of 20 December 2016 attached a number of draft agreements, including an agreement described as ‘Loan Agreement Share Allotment - Sengia and Sortop’, a constitution for Sortop; and two draft shareholder agreements.

Identification of the attachments to the 20 December email was not certain, but the parties advised the Court that it was agreed that the attachments were ‘similar’ to the corresponding attachments in an email of 6 March 2017 from Mr Fu.

The attachments to Mr Fu’s email of 6 March 2017 included a ‘Deed of Loan, Share Allotment’ agreement; a ‘Shareholder Deed’ between Sortop, Sengia and Mr Bi’s mother; a ‘Shareholder Deed’ between Sortop, Sengia, and Yin Shan Investments (HK) Ltd (‘YSI’); a ‘Subscription Agreement’ between Sortop, Sengia and Mr Bi’s mother; a ‘Subscription and Purchase Agreement’ between Sortop, Sengia, Mr Bi’s mother, and YSI; and a ‘Memorandum of Understanding’ between Sortop, YSI, Sengia, and Mr Bi’s mother.

Mr Fu’s covering email of 20 December 2016 referred to what must be the attached ‘Loan Agreement Share Allotment’ as the ‘Loan and Debt-to-Equity Contract’. The email asked Mr Zhang to note that the attachments were only drafts ‘intended to disclose the main contents to Mr Li in advance’. The email continued that after ‘Mr. Li signs the Loan and Debt-to-Equity Contract’, final contracts for the share subscription and shareholders agreements would be provided ‘for Mr. Li to review and finally sign’.

For present purposes, the significant draft agreement is the one described as ‘Loan Agreement Share Allotment’ in the attachment to the 20 December 2016 email, as the ‘Loan and Debt-to-Equity Contract’ in the text of that email, and as the ‘Deed of Loan, Share Allotment’ attached to the email of 6 March 2017. It is potentially significant because it provides for the making of a loan by Sengia of $3 million from a ‘Commencement Date’ of 20 December 2016 or such other date as may be agreed, with a ‘Repayment Date’ of 1 March 2017 or such other date as may be agreed. It provides that repayment is to be made by the issue of 3 million fully paid shares in Sortop.

On Wednesday 21 December 2016, Mr Fu sent an email to Mr Zhang, attaching a ‘Memorandum of Understanding’ between Sortop, YSI and Sengia.

At 5:28pm on 24 December 2016, Mr Bi sent an email to Ms Gao with two attachments. The email was in Chinese. The English translation reads:

This is the memorandum and shareholders agreement prepared by our lawyer, please check.

The attachments were described as follows: Memorandum.pdf; Shareholders Agreement Translation.pdf.

The documents attached to Mr Fu’s email of 20 December 2016, and in particular the draft ‘Loan Agreement Share Allotment’, were not attached to Mr Bi’s 24 December email to Ms Gao. There is no evidence that it or any of the other attachments were sent to Ms Gao, or Mr Li, then, or later.

The memorandum which was attached to the email to Ms Gao was a Chinese translation of the memorandum of understanding Mr Fu had drafted in English. The other document attached was a draft Shareholders Agreement between Sortop, Sengia, and Mr Bi’s mother regulating shareholder rights premised on Sengia holding 3,000,000 shares and Mr Bi’s mother holding 2 shares.

Recital C.1 of the memorandum of understanding, as drafted by Mr Fu, relevantly read: ‘Sengia has … provided a loan facility to Sortop’. The translation of recital C.1 in the Chinese version that was forwarded to Ms Gao could be read in two possible ways, as: ‘Sengia is to provide loan to Sortop’ or ‘Sengia is providing loan to Sortop’.

Ms Gao gave evidence that she could recall seeing the email and memorandum of understanding on 24 December 2016. She then said:

I didn’t do a deep investigation on this email because the deadline for the land transaction [had] passed. So I believe that at that time any discussion about the shareholders agreement at that time should not exist. …
Did you discuss this email and these attachments with Mr Li?---No.
And why was that?---Because the transaction day, 20 December 2016, has passed, is meaningless, it’s meaningless to discuss this matter further.

When taken specifically to recital C.1, she said:

It doesn’t exist, this term. This is not consistent to what I discussed with Mr Zhang.

Mr Zhang was asked about Mr Fu’s email of 20 December 2016 and the draft documents attached. He pointed out that the email address for him was wrong, and said: ‘I didn’t receive this email in my email box’. But he agreed that on 20 December 2016 Mr Fu had provided to him ‘a loan agreement, share allotment’, a draft shareholders agreement and a draft subscription agreement.

When taken to the recitals in the memorandum of understanding in cross-examination, it was put to Mr Zhang that the purpose of the loan was solely to subscribe for shares and that the recitals reflected that, in response to which he said: ‘Ah, no, the purpose of the loan was to pay the deposit for the land’. As to the meaning of Recital C.1 he agreed that the Chinese could be understood as ‘Sengia is to provide loans to Sortop’.

There is no evidence of any written communications between the parties after 24 December 2016.

The defendants admit in paragraph 57(a) of their further amended defence that Mr Zhang ‘did not inform Mr Li that … a deposit had been paid on the Paynes Road properties, or the source of funds for that deposit’, and they say in paragraph 57(b) that Mr Li was aware that the funds lent by Sengia to Sortop ‘were being used for deposit payments for property purchases in Australia’.

January 2017

On Monday 9 January 2017, Mr Fu sent an email to Mr Zhang and to Mr Bi, attaching the final draft of a share subscription contract between Sengia and Sortop, a shareholders’ agreement between Sengia and Sortop, and a memorandum of understanding between Sengia and YSI. The email also attached invoices for the work done thus far, including an invoice to Sengia for the sum of $2,585. Sortop paid the Sengia invoice on 30 January 2017. There is no evidence that any of these documents were forwarded to Mr Li or Ms Gao in China.

Mr Zhang gave evidence that there was a meeting between him, Mr Li and Ms Gao in January 2017. Mr Li said that he did not recall this meeting. Both Mr Li and Ms Gao recalled there was a meeting later in 2017, which was subsequently established to have occurred in August.

Mr Zhang’s evidence was that the January meeting was in China and was between him, Mr Li and Ms Gao. He said it was in the ‘latter half of January’. Mr Zhang said an administrative ruling in a proceeding concerning Mr Li was discussed. That ruling is dated 23 January 2017.

Mr Zhang’s evidence was that, in this meeting, he thanked Mr Li for the loan of his money for the deposit of the land acquisition and asked him to speed up the process of signing the cooperation agreement. Mr Zhang said that Mr Li did not reveal his attitude to investment at this meeting, but that he was contacted by Ms Gao later who told him that Mr Li was ‘a bit hesitant about continuing investment’.

Mr Zhang’s evidence was that there was a second meeting which occurred around March 2017 on the same trip as the January meeting and before he returned to Australia. Mr Zhang says that Mr Li said to him at this meeting that his investment plan was ‘too aggressive’ and that he did not want to invest. Mr Zhang’s evidence was that Mr Li also said to him that although he would not invest anymore, he would support him. Mr Zhang quoted Mr Li as saying:

As your brother I will support you as much as I can. I have money putting in the bank, if you need the money you can use it.

Mr Zhang gave evidence that he asked about interest and Mr Li replied that there was no need to discuss interest.

In Mr Li’s cross-examination, it was put to him that in a meeting in January 2017, Mr Zhang had expressed his sincere appreciation for the loan of $3 million. Mr Li responded that he did not recall that. It was then put to Mr Li that in March of 2017, there had been a further meeting with Mr Zhang at which Mr Li had said that he would support him, even though he would not invest. Mr Li responded:

So I didn’t know any of that. As a businessman, if I knew my money was moved from my account at a later time, at least I will try to complete a formal loan agreement with the other party.
All right. Well Mr Zhang is going to say that you told him at this meeting, “If you need the money, just use it”?---I will not say that.
And he said that he shouldn’t, that Mr Zhang shouldn’t worry about interest, “If you need it, just use it”?---I won’t say that.

In his evidence-in-chief, Mr Li had said:

So, after December 2016 Mr Zhang didn’t mention anything about using my money, so how could [he] – how could he thank me for that.

March 2017 — Loan Agreements

By an email dated 6 March 2017, Mr Fu sent to Mr Bi and to ‘Nancy’ (an employee of Mr Zhang’s who translated English documents for him) the draft documents to which previous reference has been made.

Mr Fu’s email of 6 March 2017 and the documents attached reveal that at that time he continued to believe that Sengia was to be an equity investor in Sortop. Again, there is no evidence that any of these documents were sent to Mr Li or Ms Gao in China.

On 14 March 2017, Mr Fu sent a further email to Mr Bi and Nancy enclosing a draft loan agreement between Sengia and Sortop.

The draft loan agreement sent by Mr Fu on 14 March 2017 provided for an advance of $3 million by Sengia to Sortop. Both the commencement date and the principal repayment date were blank. There was provision for the payment of a fixed amount of interest of $2,585 ‘as agreed between the Borrower and the Lender’.

Mr Fu’s covering email requested that Brian (Mr Bi) and Nancy ‘arrange the execution of this loan agreement, and return us a copy of the executed document at your earliest convenient time’.

Mr Zhang was asked about the provision in relation to interest in this draft loan agreement. He said:

So the situation was Mr Li didn’t want interest. Our company made some, so paid for Mr Li’s legal cost[s] earlier so this $2,585 was for that purpose. So he didn’t need to pay us for the legal cost[s] we paid for him, instead we paid this amount of interest to him.

When asked whether Mr Li was involved in this interest arrangement, Mr Zhang said:

So in, when I had the meeting with Mr Li in March 2017 we discussed the loan face to face, but Mr Li wasn’t aware of this $2,585. After the meeting with Mr Li I asked Bi Ran to deal with this matter.

Mr Zhang said he did not know whether Mr Bi reported this to Ms Gao and whether Mr Li knew about this arrangement.

Mr Bi gave evidence that the impetus for the loan agreement which Mr Fu forwarded to him and Nancy on 14 March 2017 was a request from the company accountant. Mr Bi said:

Because at that time the accountant of the company has been chasing all these loan agreement so that the accountant can get all the documents ready for tax purpose. Yes, the accountant want [to] get all [these] matters dealt with and then we can get the tax ready for 2017. So, many documents and agreements were signed in this period of 2017.

The file of Sabelberg Morcos was subpoenaed by the plaintiffs, and the documents were produced to the Prothonotary. Amongst the documents so produced was a copy of the loan agreement which Mr Fu forwarded to Mr Bi and Nancy on 14 March 2017, apparently executed by Mr Bi and by Mr Li on behalf of Sengia, and by Mr Bi’s mother on behalf of Sortop, with Mr Fu witnessing the signature of Mr Bi’s mother.

The signature which purports to be that of Mr Li is a forgery. Specimen signatures of Mr Li were compared to the signature on the copy loan agreement by a forensic document examiner named Trevor Joyce. His report was tendered by consent. In substance, he was of the opinion that significant differences between the specimen signatures and the signature on the copy document could be explained only by disguise, that is, deliberate modification by the signatory in order to appear dissimilar; or, because the signature on the document was not written by Mr Li. He expressed the view that the most likely hypothesis was that the signature was not that of Mr Li, but he said a determination of a preference for the ‘Disguise’ or ‘Different Writer’ hypotheses should be made by the Court. In this case, the ‘Disguise’ hypothesis can be rejected. No submission was made to the contrary.

[7][2017] FCA 1319 at [79], citing CE Heath Underwriting & Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd (unreported, Supreme Court of Victoria, Batt J, 3 August 1995) at 121–2 (other citations omitted).

I accept the evidence of Mr Li that he unsuccessfully tried to obtain access to his account in and between 2017 and 2023. Especially after the changes made on 15 December 2016, I have no difficulty accepting his evidence that both he, and those acting on his behalf, were told by the ANZ that information could not be provided as they were unable to verify Mr Li’s identity.

I accept that, until contacted by Mr Bi in 2023, Mr Li believed that his funds were still held in the ANZ account in Adelaide. As I have observed earlier, Mr Savvas’ evidence reveals that that belief ought to have been well-founded. The WeChat messages between Mr Li and Mr Bi in 2024 reveal Mr Li’s surprise and anger at discovering his funds were no longer in his account and had been used by Mr Zhang to pay the deposits in 2016.

Mr Li also gave evidence that he never received statements of account from the ANZ prior to 2024. This does seem odd. Something was said as to the unreliability of postal services into the PRC in the course of submissions but there was no evidence about it. Although the circumstance does seem odd, I am not prepared to reject Mr Li’s evidence that he never received account statements during the relevant period. I note that according to the record of Mr Li’s account produced by the ANZ, the mailing address for the account was changed twice during the relevant period, once in December 2018, and again in December 2019. No evidence was led about this, but it does suggest that Mr Li’s non-receipt of statements may not be as odd as it might otherwise seem.

The plaintiffs issued proceedings on 27 May 2024, within months of Mr Li’s discovery of the fact that his money was no longer in his Australian bank account. I do not consider that Mr Li was put on notice of a possible fraud before 27 May 2018 and I do not consider that with reasonable diligence he could have discovered it earlier than that. In all the circumstances, my conclusion is that s 27 of the Limitation of Actions Act is applicable and that the plaintiffs’ claims are not statute-barred.

Limits of relief

Given that I have found that Mr Li’s funds were fraudulently misappropriated, Mr Li is entitled to elect to obtain an account of profits from Mr Zhang, Sortop, Sortop Narraburra, and Crefly,[8] or to trace the proceeds of his misappropriated funds.[9]
[8]See Halsbury’s Laws of Australia at [240-4880].
[9]See Halsbury’s Laws of Australia at [185-1700], [185-1715], and [370-480].

I am loath to reach any definitive conclusion as to the existence or imposition of a constructive trust. I am concerned about the position of others who may claim relevant proprietary interests. It may be that their interests will not be affected, but I am presently of the view that they should be given the opportunity to be heard on this issue.

Conclusions

By reference to the defendants’ list of issues, my conclusions are as follows:

1. Mr Zhang did not obtain the permission of Mr Li to effect or arrange the transfers on 20 December 2016 of $3 million from Mr Li’s ANZ account to Sengia’s account and from Sengia’s account to Sortop’s account.

2. [deleted]

3. Mr Zhang’s conduct was dishonest.

4. I am presently disposed to defer the question of the existence or imposition of a constructive trust to the trial concerning relief.

5. Neither Mr Li nor Sengia agreed to loan the sum of $3 million to Sortop.

6. Neither Mr Li nor Sengia provided ongoing permission to Sortop to use the $3 million at any point after March 2017.

7. The plaintiffs’ causes of action are not barred by s 5 of the Limitation of Actions Act.

8. Mr Li is entitled to elect to receive an account of profits or to trace his $3 million.

I will hear the parties on the appropriate orders to be made.

---

SCHEDULE OF PARTIES

S ECI 2024 02634
BETWEEN:
SHENGHAI LI	First Plaintiff
SENGIA PTY LTD (ACN 616 398 273)	Second Plaintiff
- v -
XIAOLONG ZHANG	First Defendant
CREFLY PTY LTD (ACN 619 104 915)	Second Defendant
SORTOP PTY LTD (ACN 615 282 883)	Third Defendant
SORTOP (NARRABURRA ROAD) DEVELOPMENT PTY LTD (ACN 617 973 681)	Fourth Defendant

Actions

Download as PDF Download as Word Document

Citations

Li v Zhang [2025] VSC 432

Cases Citing This Decision

0

Cases Cited

1

Statutory Material Cited

0

Clurname Pty Limited v McGraw-Hill Financial, Inc [2017] FCA 1319

[2025] VSC 432

22 July 2025