Liu v Lam - [2024] NSWSC 1306

Supreme Court

New South Wales

Medium Neutral Citation: Liu v Lam [2024] NSWSC 1306
Hearing dates: 14, 15, 16, 19, 20, 23, 27 February, 13 March 2024. Further written submissions received on 27 March and 4 April 2024
Date of orders: 18 October 2024
Decision date: 18 October 2024
Jurisdiction: Common Law
Before: Walton J
Decision:
The Court orders and directs:
(1) The plaintiff shall file and serve Short Minutes of Order reflecting this judgment within 28 days of the publishing of the judgment.
(2) If there is any dispute as to the form of the Short Minutes of Order filed and served by the plaintiff in accordance with Order (1), then the defendant shall file and serve an alternative form of Short Minutes of Order within 35 days of the publishing of this judgment.
(3) The Short Minutes of Order shall make provision for the receipt by the Court of submissions as to any adjustment to the judgment sum for any monies paid into a Chinese Court by the defendant, interest and costs (not exceeding five pages) in the event of any dispute as to those matters. The Short Minutes of Order shall also make provision for the filing and service of evidence in the case of a dispute as to costs.
(4) In the event any one or more of the issues concerning monies paid into a Chinese Court by the defendant, interest and costs are resolved, the parties shall provide a note accompanying the Short Minutes of Order to that effect in which case the Court may deal with the consent orders administratively in Chambers.

Catchwords:
CONTRACTS – Formation – Agreement – Acceptance of offer – communication of acceptance – whether agreement executed by both parties
CONTRACTS – Formation – Intention to create legal relations – whether agreement indemnified plaintiff for loss occasioned by prior judgment debt
EVIDENCE – Credibility of evidence
EVIDENCE - s 191 Evidence Act - status of agreed facts – whether agreed facts and issues in dispute constituted an “agreement” – whether evidence before the court warrants displacement or modification of agreed facts – use to which agreed facts may be put
PARTNERSHIPS AND JOINT VENTURES – Whether contract of partnership – Interpretation – presumptions – evidence of Chinese law – absence of common law in China – contribution towards losses – no partnership found
PROCEDURE – equitable set-off – no basis for set-off or repayment
CONTRACTS – penalties – whether interest claimed under agreement is penal – whether different interest rate should apply – interest under contract unenforceable
CONTRACTS – Mitigation

Legislation Cited:
Civil Procedure Act 2005 (NSW) s 100
Evidence Act 1995
Partnership Act 1892 (NSW) ss 1, 9, 24(1)

Cases Cited:
Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30
Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328
Australian Securities and Investments Commission BHF Solutions Pty Ltd (2022) 293 FCR 330; [2022] FCAFC 108
Bonython v The Commonwealth [1951] AC 201; (1950) 81 CLR 486
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61
Briginshaw v Briginshaw (1938) 60 CLR 336
Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Chan v Zacharia (1984) 154 CLR 178
Cubillo v Commonwealth (No 2) (2000) 103 FCR 1; [2000] FCA 1084
Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
Edwards v Skyways Ltd (Edwards) [1964] 1 WLR 349
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8
Farmers' Mercantile Union and Chaff Mills Ltd v Coade (1921) 30 CLR 113
Fazio v Fazio [2012] WASCA 72
Forsyth v Gibbs [2009] 1 Qd R 403; [2008] QCA 103
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
Galati v Deans (No 2) (2018) 133 ACSR 516; [2018] NSWSC 1813
Gibson Motor Sport Merchandise Pty Ltd v Forbes [2005] FCA 749
Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Hawes v Dean [2014] NSWCA 380
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235; (2005) 12 BPR 23,021
Hope v Bathurst City Council (1980) 144 CLR 1; 29 ALR 577; 54 ALJR 345
HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479
James v Commonwealth Bank of Australia (1992) 37 FCR 445
Lym International Pty Ltd v Marcolongo [2011] NSWCA 303
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305
Mao v Bao [2023] NSWCA 278
Mineralogy Pty Ltd v Sino Iron Pty Ltd(No 6) (2015) 329 ALR 1; [2015] FCA 825
Minter v Minter (2000) 10 BPR 18,133; [2000] NSWSC 100
Miwa Pty Ltd v Siantan Properties Pte Ltd (2011) 15 BPR 29,545; [2011] NSWCA 297
Nadinic v Drinkwater [2017] NSWCA 114
Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54
Norman v FEA Plantation Ltd (2011) 195 FCR 97; [2011] FCAFC 99
Nunn Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74
OLI 1 Pty Ltd (In Liquidation) v OLG 1 Pty Ltd (No 2) [2022] NSWSC 1199
Orion Insurance Co plc v Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28
Quadling v Robinson (1976) 137 CLR 192
Redowood Pty Ltd v Mongoose Pty Ltd (2004) 49 ACSR 172; [2004] NSWSC 101
Roadshow Entertainment v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462
Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149
Sangha v Baxter [2009] NSWCA 78
Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46
Steinberg v Commissioner of Taxation (Cth) (1975) 134 CLR 640; [1975] HCA 63
The Crown v Clarke (1927) 40 CLR 227
United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1; 60 ALR 741; 59 ALJR 676
Warner v Hung, in the matter ofBellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; (2011) 297 ALR 56
Woods & White v Hopkins [2016] WASC 16
Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678

Texts Cited:
Anson’s Law of Contract, 27th Edition
Heydon on Contract (Thomson Reuters, 1st edition, 2019)
On Equity (Thomson Reuters, 2009)

Category: Principal judgment
Parties: Tuo Liu (Plaintiff)
Kin Lam (Defendant)
Representation: Counsel:
J R Willis (Plaintiff)
D Robinson SC and Bradley Smith (Defendant)
Solicitors:
Piper Alderman (Plaintiff)
Baker McKenzie (Defendant)

File Number(s): 2020/117870
Publication restriction: Nil

JUDGMENT

By a Statement of Claim (“SOC”) filed on 20 April 2020 Tuo Liu (“plaintiff”) brought a claim in contract pursuant to an agreement alleged to have been entered into between the plaintiff and Kin Lam (“defendant”) on 14 May 2018. On the plaintiff’s case, the agreement sued upon is constituted by three pages of Chinese script. For ease of reference, I shall refer to the three-page document in Chinese Script and the English Translation of the same length, which contains the terms of the agreement, as “the Agreement”. There was attached to the Agreement five additional pages. These pages did not contain operative terms, as such, and were not referred to in the text of the Agreement.
The Agreement in Chinese Script appeared at 465 to 467 of Exhibit 5 (a two volume set originally described as Volume D of the Court Book). The English translation appeared at 468 to 470 of Exhibit 5. That document contained three signatures at the bottom of the first two pages and five signatures at the bottom of the third page, which also included those same three signatures. It was common ground that the signature appearing between the other two signatures was the defendant’s English signature. It was also common ground that the signature appearing to the left of that signature was the plaintiff’s Chinese signature. The plaintiff contended that the signature sitting to the right of the defendant’s English signature was the defendant’s signature written in Simplified Chinese. The contention was disputed by the defendant.
The five additional pages consisted of a letter from Advocatus Law dated 30 April 2018 and post-dated cheques from a corporation known as BS Tech Pte Ltd (“BS Tech”) to Ignatius J & Associates (“Ignatius”) which appeared at 467A to 467E of Exhibit 5 (“the Advocatus Law Document”). The defendant had been successful in obtaining judgment against BS Tech in a prior proceeding. The letter from Advocatus Law attached cheques forwarded by BS Tech as payments which were post-dated and ultimately not entirely honoured.
In a copy of the Agreement before the Court there was an additional page at 471 that provided a notation (“the notation”) typed in English. In its original form it was handwritten by the plaintiff.
There is a further document in the record before the Court which was not relied upon by the plaintiff as forming part of the Agreement or constituting an attachment to the Agreement. That document consisted of a 2-page letter from Ignatius responding to the Advocatus Law Document and challenging parts of it (“the Ignatius Document”). That document is found at 463A and 463B of Exhibit 5 and has affixed to it the English signature of the defendant. It does not contain the Chinese signatures of either the plaintiff or the defendant.
On or around 3 June 2014, the defendant entered into an antecedent loan agreement with a company incorporated in Hong Kong, by the name of Hong Kong Jiayi International Trade Co Ltd (“Jiayi”), pursuant to which he personally borrowed RMB 5 million (“Jiayi Loan Agreement”). Clause 4.2 of the Jiayi Loan Agreement specified that the plaintiff was a guarantor and stated the obligations of the plaintiff under that agreement.
The defendant defaulted under the Jiayi Loan Agreement and Jiayi commenced proceedings against the plaintiff, as the guarantor, who was ordinarily a resident of the People's Republic of China (“China”), rather than against the borrower, the defendant, who was ordinarily a resident of New South Wales. Those proceedings were heard in the People’s Court of Tianjin Binhai New Area (“the Lower Court Proceedings”). A judgment was delivered in favour of Jiayi against the plaintiff on 27 September 2017. The judgment was for the sum of RMB 5,000,000 plus interest and damages of a further RMB 1,483,333.31. There was an additional charge for interest on overdue payments from 5 July 2016 bringing the total judgment sum to RMB 6,635,516.64 (“the Lower Court Judgment”).
The plaintiff then brought Appeal Proceedings in the Secondary Intermediate People's Court of Tianjin (“the Appeal Proceedings”). Collectively I shall refer to the Lower Court Proceedings and the Appeal Proceedings as “the Chinese Court Proceedings”.
The appeal from the Lower Court Judgment was determined on 19 March 2018 (“the Appeal Judgment”). The orders made in the Appeal Judgment were for the plaintiff to pay an additional appeal filing fee, bringing the total amount payable under the judgment sum to RMB 6,692,699.64. Accrued post judgment interest, including interest accrued during the Appeal Proceedings, resulted in the plaintiff having to pay an amount of RMB 9,469,485.52 (“Judgment Debt”).
The Court enforced the Judgment Debt. As part of the enforcement proceeding, the plaintiff’s home was seized by the Court and funds were deducted from his bank account. The plaintiff was anxious to avoid being placed on a list of people with “bad credit” (which had a severe consequence in China) and sought to delay the Court’s enforcement measures. The plaintiff paid the Judgment Debt over time, paying a total of RMB 9,469,485.52 by 23 January 2019 (the plaintiff earlier paid RMB 1 million to Jiayi under the Jiayi Loan Agreement).
A short history of events prior to the Jiayi Loan Agreement having been entered into may be usefully given at this juncture ahead of the detailed findings of fact later in this judgment. Having met in 2011, from 2013, the plaintiff and the defendant discussed potential future collaboration for business opportunities. In about 2012, the plaintiff introduced the defendant to a corporation known as Tianhe Chemicals Group Limited (“Tianhe”), a manufacturer and seller of chemicals in China.
In around 2014, the defendant became interested in and studied the business plan of a Hong Kong based company known as CAN (HK) Co Ltd (“CAN”), a developer of piping technology. CAN wished to establish a factory which could produce pipe fittings and other material.
The defendant was advised that CAN required EUR 10 million to buy land for the factory and a further EUR 40 million to build a production factory.
The defendant established that BS Tech, a Singaporean company, would be able to source funds (by an introduction to bank lenders) for a fee of 4% of the face value of an instrument (EUR 400,000) with a further 1.9% (or the instrument needed for security) which was to be obtained for a Malaysian company, Jiaso (the full name was not in evidence) (for a fee of EUR 190,000).
On 13 June 2014, Millennium Commodity Trading Limited (“Millennium”), a company under the control of the defendant, entered into an agreement with BS Tech for the provision of a EUR 10 million financial instrument for a fee of 4% of the face value of that instrument. Millennium was a company incorporated and registered in Hong Kong of which the defendant is a shareholder and sole director.
On 30 September 2014, Millennium entered into an agreement with Much Rise Investment Limited (“Much Rise”), the parent of CAN, whereby Millennium would obtain an effective 10% equity stake in the relevant CAN subsidiary.
The funds borrowed under the Jiayi Loan Agreement were to pay for the fees of BS Tech and Jiaso. That money (RMB 5 million or about EUR 585,000) was advanced 2 days after the Jiayi Loan Agreement was entered on 3 June 2014 (there was an earlier version of this agreement to which I shall later refer).
The money was paid by Jiayi to the defendant who, in turn, transferred that sum to his company, Millennium, which then paid BS Tech and Jiaso. BS Tech ultimately failed to provide the agreed finance.
The defendant’s case was that he and the plaintiff were equal partners in respect to profits and liabilities resulting from the Jiayi Loan Agreement, which was in furtherance of, or continuous with, a partnership emerging from the CAN deal. It was contended the Jiayi Loan Agreement was a partnership debt. The plaintiff contested all of those propositions (I note that there is some evidence of an unrelated attempted transaction by which Jiayi, as a borrower, sought to obtain funds facilitated by Millennium. However, the plaintiff’s role, in that respect, was limited).
Later in early 2015, the Tianhe was suspended from the Hong Kong stock exchange. The plaintiff worked to have the suspension lifted by finding a new auditor as Tianhe’s current auditor, Deloitte, would not sign off on its accounts. The defendant knew professional people in Hong Kong and could introduce them to Tianhe to help it recover trading. He introduced, in that respect, Bowie Cheng (“Mr Cheng”).
An agreement was reached between Tianhe, the plaintiff, the defendant and Mr Cheng by which they would be paid an amount of money for the provision of services to enable Tianhe to re-list on the Hong Kong stock exchange (“the Tianhe Venture”).
The defendant contended that the Tianhe Venture was entered within the scope of a partnership with the plaintiff and was a transaction of that partnership. That contention was contested by the plaintiff. Further, there was a dispute between the parties as to how much was agreed to be paid under the Tianhe Venture. Payments were received from Tianhe.
There was no dispute two payments of RMB 5 million and RMB 1.5 million were received by the plaintiff in 2016 (although the defendant correctly contended that the sum of these amounts was inconsistent with the amount the plaintiff said he would be paid under the Tianhe deal).
There was a dispute regarding whether RMB 7 million (or a substantial sum) was received by the plaintiff in late 2015. This contention was contested by the plaintiff. The defendant contended that there was a substantial “balance” of the Tianhe funds which were not distributed to the defendant.
In the instant proceedings, the plaintiff claimed that, under the Agreement, the defendant had agreed to pay the plaintiff what the plaintiff was required to pay under the Lower Court Judgment and the Appeal Judgment. In substance, the plaintiff claimed that, under the Agreement, the defendant agreed to indemnify the plaintiff for his loss occasioned by the Judgment Debt in consideration for the plaintiff proffering a period of forbearance.
Accordingly, the present proceedings are brought for breach of the Agreement. It is claimed that the defendant had wrongfully failed and refused to pay the plaintiff any amount in relation to the amount owing or interest thereon which remained due and owing to the plaintiff under the Agreement. It was claimed that, by January 2019, the plaintiff had paid the Judgment Debt (equivalent to $1,890,531.96). There was also a claim in interest, costs and expenses in the claim for damages by the plaintiff. The plaintiff contended that there was no set off or repayment available to the defendant arising out of the Tianhe Venture or payments received by the plaintiff from Tianhe.

THE AGREEMENT

The Agreement was drafted by the plaintiff’s lawyers on instructions from the plaintiff.
The preamble to the Agreement stipulated the parties to be the plaintiff (Party B) and the defendant (Party A).
What follows is a reference to the three pages of the Agreement in English text.
There is a recital to the Agreement:

“1. On 3 June 2014, Party A signed a Loan Agreement with Hong Kong Jiayi International Trade Co., Ltd. (hereinafter referred to as 'Hong Kong Jiayi'). Party A borrowed RMB 5 million yuan from Hong Kong Jiayi and Party B was the guarantor.
2. Because Party A failed to make repayments on time, on 13 July 2016, Hong Kong Jiayi sued Party B at The People's Court of Tianjin Binhai New Area ('Binhai Court') and requested Party B to assume the liabilities as a guarantor. It asked the court to order Party B to pay the principal of the loan, being RMB 5 million yuan, interests for overdue payment, being RMB 2.73 million yuan (as of 4 July 2016), interests payable at the actual date of paying off the debts, liquidated damages, and other fees. It also asked the court to order Party B to pay its legal service fee, being RMB 331200 yuan, and all litigation costs. Binhai Court accepted this case and the case ID was (2016) JIN 0116 MIN CHU NO. 2011.
3. After hearing, Binhai Court made the decision and ordered Party B to pay Hong Hong Jiayi the principal of the loan, being RMB 5 million yuan and the interests for overdue payment and liquidated damages incurred between 20 June 2014 and 4 July 2016, being RMB 1483333.31 yuan (the 1 million repayment made during that period has already been deducted from the amount). The court ordered Party B to pay Hong Kong Jiayi the interests for overdue payment, liquidated damages and other fees incurred between 5 July 2017 and the actual date of paying off the debts. This amount will be calculated on the basis of RMB 5 million yuan with an annual interest rate of 24%. Other claims raised by Hong Kong Jiayi were dismissed. Party B paid 62183.33 yuan for the filing fee of the case and the 9000 yuan authentication fee was borne by Party B ('first instance Judgment').
4. After the first instance judgment was made, Party B appealed within the term for appeal. The appellant court made the judgment on 19 March 2018. Party B's appeal was dismissed and the first instance judgment was upheld.
5. Party A voluntarily becomes liable for the repayment of all and final liabilities assumed by Party B in the above-mentioned cases.”

The terms of the Agreement then appeared as follows:

“As a result, through friendly negotiations, Party A and B formed the following agreements.
I. Party A promises to Party B that it will borne all the debts assumed by Party B due to the above-mentioned cases, and all liabilities, fees and loss incurred by Party B, including but not limited to all and any liabilities, legal service fees, litigation costs, translation fees, authentication fees, potential costs for court enforcement, penalty interests, and all the legal service fees paid by Party B (‘all debts’). Besides, Party A should pay Party B interest from 13 July 2016 until the day that all debts are paid off. The principal shall be the amount of all debts and the interest rate is 0.02% per day.
II. Party A promises that before 31 December 2018, it will pay all debts and interests agreed in Clause I to the following account designated by Party B:
Account Name:
Bank:
Account Number:
III. If Party A fails to perform the obligation to pay Party B within the period agreed in Clause II, Party B has the right to commence legal proceedings to request Party A to pay all debts mentioned above and interests for overdue payments (0.05% per day). All resulting costs, including but not limited to litigation costs, legal service fee, translation fee and authentication fee, shall be borne by Party A.
IV. Party A voluntarily offers a piece of land owned by him in Australia as the security for all debts mentioned above. Party A should assist Party B to process the mortgage of the land in Australia according to Australian law. Within () days after this contract takes effect, Party A and Party B should proceed with the procedures of registering the mortgage of the property. Party A should not delay this process without reason.
Below is the information of the land:
Location: 32°48’46.4”S, 150°41’30.6”E
Size:
Owner:
Term of Ownership:
Certificate ID:
V. If Party A fails to perform the obligation to pay Party B within the period agreed in Clause II, Party B can choose to exercise the rights of mortgagee against the mortgaged land. However, all other rights of Party B will not be affected by the rights in relation to mortgage.
VI. Without Party B's consent, Party A should not sell, transfer, gift, or mortgage the property. Party A should keep the property properly according to Party B's request. If the property is subject to government requisition, Party B has the rights to place the compensation in escrow or request Party A to perform the obligation to pay all debts at an earlier time.
VII. If Party A breached the contract and disposed the property by himself, such disposal would be invalid. Party B can request Party A to return the property to its original state and pay a sum that equals to 10% of the amount of all debts as liquidated damage.
VIII. If Party A concealed the facts that the mortgaged property is co-owned, or is subject to disputes, or had been seized or retained, or is subject to other mortgages, Party A shall compensate Party B for any economic loss caused by such concealment, and pay a sum that equals to 10% of the amount of all debts as liquidated damage.”

As to the terms of the Agreement and the process for dealing with copies of the Agreement and disputes, these appeared at the end of the terms following:

“IX. This contract will take effect after being signed by both parties. This contract is in quadruplicates. Party A and Party B hold two copies respectively. The contract is made in English and Chinese. If there are inconsistencies between the two versions, the English version shall prevail.
X. Any disputes in relation to this agreement shall be resolved through negotiation. If negotiation is unsuccessful, the matter shall be administered exclusively by the courts of the State where Party A's land locates.”

PRIMARY ISSUES

As I will note below, the parties reached, prior to the commencement of the proceedings, an agreed statement of issues. I will expand upon those issues below. However, it is convenient to mention three principal issues on appeal at this juncture.
First, on the first day of the hearing, Mr D Robinson SC with whom Mr B Smith appeared for the defendant, articulated a defence that there was no binding agreement as there had not been an exchange of offer and acceptance.
It was the defendant’s case that he signed the three pages on 9 May 2018 (by his English signature) and that:

there was an offer made by the defendant which was not accepted by the plaintiff; and

if it was accepted by the plaintiff, that acceptance was never communicated to the defendant.

The plaintiff’s case was that there was an offer and acceptance in a hotel room occupied by the defendant on 14 May 2018 by the execution of the Agreement by the plaintiff and the defendant using their Chinese signatures. Alternatively, the defendant contended that there was an offer when the plaintiff asked the defendant to sign the collateral agreement on 8 May 2018 and an acceptance by the defendant by the signing of the Agreement on 9 May 2018 and returning the document to the plaintiff on that day (the respective statements of issue in this respect shall be referred to as “the offer and acceptance issue”).
Secondly, there was a further related issue which was expressed by the parties as follows:

“Whether the document titled Agreement executed by the parties in May 2018 ostensibly for the repayment by Lam to Liu of any amounts paid by Liu to satisfy a judgment debt to Jiayi was intended to give rise to enforceable legal obligations or was the Agreement entered into as an artifice for Liu to provide to the People’s Court of Tianjin Binhai New Area to delay enforcement of the Jiayi Judgment against Liu?”

The defendant relied upon a number of factors in that respect including a feature of the Agreement itself to which I will revisit. The defendant submitted:

“A further indication that the Agreement Sued Upon was not intended to be binding is that the land of Mr Lam said to be "pledged" as security is almost entirely left blank, other than latitude and longitude co-ordinates which are meaningless to support any attempt at identification and enforcement.304 While there was provision for the parties to attend to the mortgage of the land, no steps were taken to mortgage the land, with no follow up or complaint by Mr Liu. Further the Agreement Sued Upon declared that it "is written in Chinese and English" with the English version to prevail in event of inconsistency.305 There is no suggestion in any evidence that there was ever an English version.”

Thirdly, the defendant also contended that he and the plaintiff were partners in respect of the profits and liabilities resulting from the Jiayi Loan Agreement. This issue was as follows:

"Whether the Loan Agreement entered into with Jiayi, by Lam (described as borrower) and Liu (described as guarantor) in June 2014 was entered into as a partnership.”

I have earlier mentioned the various forms of, or aspects of, a partnership the defendant contended arose between the plaintiff and the defendant.
There were further agreed issues which I will discuss under the next heading. However, I observe at this juncture I will make findings in this judgment contrary to the defendant as to each primary issue. Namely, there was offer and acceptance forming a contract in terms of the Agreement; in forming the Agreement the parties intended to create legal relations and there was not the partnership or partnerships contended for by the defendant.

THE EVIDENCE BEFORE THE COURT AND FURTHER AGREED ISSUES

There was a significant volume of evidence produced in each party's case in the form of affidavits produced by the plaintiff and the defendant (contained within Exhibit 3 in the proceedings).
The plaintiff filed affidavits dated 29 March 2021 (“the first plaintiff affidavit”), 7 April 2022 (“the second plaintiff affidavit”), 26 July 2022 (“the third plaintiff affidavit”) and 13 February 2024 (“the fourth plaintiff affidavit”).
The plaintiff gave his evidence with the assistance of an interpreter. He does not speak English. He stated the conversations he had referred to in his affidavits were conversations which occurred in Mandarin. There was an English translation of his affidavits.
The defendant adduced evidence by way of affidavits dated 26 July 2021 (“the first defendant affidavit”), 1 October 2021 (“the second defendant affidavit”), 26 July 2022 (“the third defendant affidavit”) and 3 November 2023 (“the fourth defendant affidavit”). Save for the third plaintiff affidavit, these affidavits are to be found in Exhibit 3 in the proceedings (Volume B of the Court Book).
The plaintiff also relied upon the report of Stephen Dubedat, forensic document examiner, dated 19 November 2021 (“the Dubedat Report”).
The defendant relied upon the report of Ana Zhao who had professional experience in translation and interpreting, including translating the legal document dated 1 June 2021 (“the Zhao Report”).
Neither Mr Dubedat or Ms Zhao were required for cross-examination.
There was documentary evidence exhibited before the Court consisting of the following:

subpoenaed material from the Department of Home Affairs, Department of Foreign Affairs and Trade, and Roads and Maritime Services, although only a very small portion of this material came into evidence (two pages from the Court Book C became Exhibits marked 8 and 9 respectively); and

documents comprising exhibits and annexures to the lay evidence (Exhibit 5 which consists of two volumes) and other exhibits. Much of the material in Exhibit 5 consisted of the Chinese language version of the document plus an English translation.

The parties produced a document which was described during the proceedings as a Statement of Agreed Facts and Issues in dispute (“SOAF”). This document was filed on 13 October 2023. I have earlier set out Items 1 and 2 under Part B of the SOAF at [37] (Item 2) and [39] (Item 1). The remaining issues were:

“3. What amounts were:
(a) Received by Liu from Tianhe Chemical Group Limited (Tianhe) in 2015 and 2016;
(b) received by Liu from Tianhe for Liu and Lam;
(c) (out of the amounts referred to at (a) and (b)) paid or transferred by Liu to others, to whom, when and in what amounts?

4. Did Liu hold monies received from Tianhe for the partnership or, alternatively, on trust for Lam?
5. If the answer to (4) Is yes, were partnership funds used to repay Jiayi.
6. If the answer to (5) is yes:
6.1 was such repayment a partial payment in satisfaction of the Agreement if the Agreement was intended to give rise to enforceable legal obligations; or alternatively
6.2 is Lam entitled to set off any such monies paid against any debt otherwise found to be owing under the Agreement.
7. If Liu is otherwise successful:
(a) did he mitigate his loss to Jiayi; and
(b) is his claim for interest at 18.25% per annum in clause III of the Agreement unenforceable as a penalty and if so, whether any (and if so, what) other interest rate should apply;
(c) did Lam pay amounts towards the Jiayi Judgment or to others at Liu's request, which amounts Lam is entitled to set off against any monies otherwise payable to Liu?.
8. Whether Lam owes:
(a) the amount of $1,890,351.96, or some other amount; and
(b) interest calculated at 18.25% per annum from 31 December 2018, or at some other rate,
(c) other costs and expenses to Liu pursuant to the terms of the Agreement, and if so, in what amount.”

The SOAF also contained a statement of agreed facts. There was subsequently a dispute as to two aspects of the SOAF in that respect. This resulted in the tendering of a document entitled “Communications leading to Agreed Statement Of Facts And Issues: 26 July to 13 October 2023” (“SOAF related documents”) and the plaintiff and the defendant making supplementary submissions as to that issue. I will resolve the questions arising in that respect later in this judgment.
The parties produced a joint chronology which was filed on 2 February 2024 (“the Joint Chronology”).
On 13 March 2024, during oral submissions in reply, senior counsel for the defendant provided a document to the Court, although apparently not to his opponent, which was described in oral submissions as “the facts that are established objectively” (the document actually bore the title “Facts established in [the defendant's] case”). Senior counsel for the defendant, Mr D Robinson explained that, by the use of the word “objectively”, he was referring to facts that were either established by documentary evidence, accepted by the plaintiff or corroborated wholly or partially by other evidence, including admissions. Senior counsel stated that he had produced the document because of “discussions between the Bench and the Bar” by which he was presumably referring to issues raised by the Court as to the credibility of the defendant’s evidence.
Mr J Willis of counsel who appeared for the plaintiff accepted, in substance, that any prejudice experienced by his client may be remedied by being given an opportunity to respond to the document produced by the defendant. The plaintiff did so by producing a document bearing the same title on 4 April 2024 identifying the points of dispute with the document produced by the defendant in red mark-up. The document in reply was introduced by the following statement on behalf of the plaintiff:

“This document has been prepared by the solicitors for the Defendant, and amended in mark-up by the solicitors for the Plaintiff in accordance with the direction of Walton J on the final day of the hearing (13 March 2024). The document is not intended to, and does not, enlarge or narrow the facts that have been established or the issues in dispute but instead seeks to provide a convenient summary of those facts the Defendant asserts were established on his case.
For the avoidance of doubt, consistent with the Plaintiff’s position in relation to the Agreed Statement of Facts and Issues in Dispute filed in the proceedings, this document is not considered to be an agreement for the purposes of section 191 of the Evidence Act 1995 (NSW).
For the avoidance of doubt, the Plaintiff does not agree that the facts below are the only facts relevant to the disposal of the proceedings and in that respect relies on his closing submissions dated 26 February 2024.”

I shall refer to the respective documents produced by the parties, in this respect, as the “Objective Facts Documents” and will refer, to the extent necessary, to each party's version of the document by reference to the Objective Facts Document produced by the plaintiff or defendant.
There was a significant controversy during the proceeding as to the authenticity of an email dated 26 September 2015 which, on its face, was sent from the defendant to the plaintiff (“the 26 September 2015 email”). I will return to the parties’ submissions in this respect later in this judgment, however, I note for present purposes that the parties, at the Court’s request, produced a note showing transcript references to the cross-examination of the parties as to the alleged email. The defendant produced such a document on 27 March 2024 which was confirmed with minor variations by the plaintiff on 4 April 2024.
Lastly, the parties both filed substantial written closing submissions, both on 26 February 2024. The plaintiff’s closing submissions shall bear the short form “PWS”. The defendant's closing submissions shall be referred to as “DWS”.

FINDINGS OF FACT

Credibility Issues

At the opening of these findings, it is appropriate to deal with some issues of credibility of the witnesses but not exhaustively as the topic will be revisited at the end of the general narrative of facts and in light of further findings made therein. Some issues of principle might be firstly mentioned.
The assessment of credibility of a witness may be based upon whether the accounts of a witness is inherently probable or given against interest. It does not follow that a witness who has been found not to be honest or unreliable about one matter should necessarily be disbelieved about everything else: Cubillo v Commonwealth (No 2) (2000) 103 FCR 1; [2000] FCA 1084 at [118] (O’Loughlin J). Nor does the disbelieving of a witness as to a particular proposition necessarily mean that the proposition has been proven: Steinberg v Commissioner of Taxation (Cth) (1975) 134 CLR 640; [1975] HCA 63 at 694.
Further, as Basten JA observed in Sangha v Baxter [2009] NSWCA 78 (with whom Handley AJA agreed), considerable caution should be exercised in making global credibility findings. His Honour observed:

“[155] There are risks in making global findings about credibility of any particular witness. Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
[156] Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].”

That said, there are aspects of the defendant’s evidence which, in a more general sense, reflect poorly on his credit as a witness and relate directly to key events in issue in these proceedings. To illustrate this proposition, I will refer to some of the defendant’s evidence in the Appeal Proceedings (which will be discussed more fully below) and his evidence in this proceeding.
In the Chinese Court Proceedings, the defendant signed an affidavit dated 6 April 2017 for use in those proceedings (“the Chinese Court Proceedings Affidavit”). I will set out the content of this affidavit in greater detail later in this judgment, but for present purposes it may be noted that in the affidavit the defendant attested:

Jiayi needed a local person as guarantor when signing the Jiayi Loan Agreement with a foreign national.

As security was offered and “priority of the [plaintiff’s] guarantee was placed after the security”, the defendant “agreed to let [the plaintiff] sign his name”.

It was only because the guarantee given by the plaintiff was after security given by the defendant, the defendant agreed to let him sign.

The plaintiff was a witness not a guarantor. The defendant would not have asked him to provide a guarantee as such unless that was the case.

In October 2015, the defendant arranged for the plaintiff to pay 1 million yuan for the principal of the loan.

That evidence was substantially consistent with the defendant’s concessions extracted under cross-examination in these proceedings.
When cross-examined on such matters in the Appeal Proceedings, the defendant did not suggest his evidence was untrue. Indeed, the defendant stated that the plaintiff was a witness, not a guarantor, and, if there was any real need to ask him to provide a guarantee, he would not have done so.

Later, the defendant signed the Agreement knowing that it would be provided by the plaintiff and his lawyers to the Chinese Court, or a Chinese Official associated with the Court to show the plaintiff would imminently receive funds sufficient to discharge the Judgment Debt with a view to delaying the enforcement of the judgment out of the Appeal Proceedings pending receipt of those funds.
In these proceedings, as earlier mentioned, the defendant’s case was that he entered the Jiayi Loan Agreement with the plaintiff as a partner such that the shared liabilities and revenue are equally shared between then. Any suggestion that the plaintiff only signed the Jiayi Loan Agreement because the defendant requested him to and did not take up obligations under that Agreement because he was not a guarantor or because the defendant had given a security in land ahead of any guarantee should be rejected. The Agreement was not intended, it was suggested, to create legal relations but to buy time for repayment of the Judgment Debt. To find otherwise it was argued, would be to radically reconstitute the Jiayi Partnership.
The defendant’s affidavit evidence in these proceedings reflected those tenets, although he did, as I have mentioned, make a number of admissions or gave concession under cross-examination to the contrary.
Ultimately, there was an irreconcilable conflict in the evidence given by the defendant in the Chinese Court Proceedings in this respect and his evidence to the contrary in these proceedings.
In cross-examination in these proceedings, the defendant stated that his evidence in the Chinese Court Proceedings was in all material respects a lie. Senior counsel sought to meet this difficulty in written submissions as follows:

“Mr Lam has explained that he gave false evidence in the Chinese Proceedings to help Mr Liu, his friend, and the content of his evidence in the Chinese Proceedings was completely consistent with that purpose. It is telling that Mr Liu did not give evidence in the First Instance Court or the Appeal Court in China, despite being the defendant, and instead offered up Mr Lam and Ms Meng as his witnesses. That is consistent with Mr Liu attempting to resist Jiayi's claim in those proceedings by advancing false evidence, without exposing himself to cross-examination on issues of which he had knowledge, namely, the circumstances surrounding the payment of the RMB 1 million on 8 October 2015 and whether or not the Jiayi Agreement contained a clause detailing security in the form of real estate.”

What is inherent in that submission, and more broadly the defendant’s case in these proceedings, is that the defendant is willing to lie in Court proceedings where he assessed there is a proper basis to do so. I note that, in the defendant’s case, it is not suggested he acted under any form of duress.
The gravamen of the defendant’s case in these proceedings including his affidavit evidence was that he was willing to tell lies to a Chinese Court to assist his friend, yet he asks this Court to accept he is a witness of truth in these proceedings when he gives evidence to assist himself.
These considerations must result in an acceptance of the plaintiff’s submission that the inevitable consequence of the defendant's evidence is that either the defendant's evidence is accepted, wholly or in part, with the necessary corollary that he knowingly gave false evidence in China, or his evidence is not accepted, wholly or in part with the necessary corollary that he is knowingly giving false evidence in these proceedings. I have reached the latter conclusion.
Ultimately, I will find that the defendant’s evidence in these proceedings was false and that he did not give false evidence in the Chinese courts as reflected above.
This conclusion is predicated upon the evidence in these proceedings supporting that conclusion including admissions made by the defendant together with my overall conclusions as to the defendant’s credibility (which I will partly find in this section of my judgment and further during the course of my findings of fact).
The particular factual considerations bearing upon my conclusion as to the true nature of the plaintiff’s obligations under the Jiayi Loan Agreement (when viewed in the light of my findings as to those matters) and the truth of his evidence in the Chinese Court Proceedings include: the email sent by the defendant to the plaintiff on 29 November 2016; the email sent by the defendant to the plaintiff dated 6 December 2016; the affidavit executed by the defendant on 6 April 2017 to be used in the Lower Court Proceedings; the viva voce evidence given by the defendant in the Appeal Proceedings and his evidence in these proceedings as to the correctness or otherwise of his evidence, in that respect and the Agreement itself being signed by the defendant with his English and Chinese signature knowing that it would be provided by the plaintiff and his lawyers to a Chinese Court or Official to demonstrate that the plaintiff would imminently receive funds sufficient to discharge the Judgment Debt and to obviate the need for enforcement of the judgment pending the receipt of those funds. I do not find that either party intended to defraud the Chinese Courts.
Apart from those considerations and the later elaboration upon particular aspects of the defendant’s evidence which strain credulity or which were dishonest or unreliable as discussed in the fact-finding section of this judgment, particular attention needs to be focused upon two matters.
The first is the defendant gave a false declaration in a passport application. In his evidence in these proceedings, he accepted not only that he had lied in that document but that he was willing to lie in documents such as a declaration if it will assist him. He ultimately conceded that he was willing to lie in affidavits if that would assist him. Those are matters of general concern as to the credibility of the defendant’s evidence, noting additionally, that the giving of the passport declaration was not remote from the facts and circumstances leading to the formation of the Agreement.
Secondly, I give one particular illustration for present purposes which has a bearing upon my later assessment of whether the defendant signed the Agreement with his Simplified Chinese signature.
In cross-examination, the defendant was asked about the circumstances in which his signature, which is in simplified Chinese, came to be applied to the transcript of the Appeal Proceedings (“the Appeal Proceedings transcript”). The defendant’s response was, in essence, that he could not remember whether he signed it or not because there were “too many people in the Court”.
As the plaintiff submitted, whilst the defendant could not explain how the number of people in a court room had any correlation to his ability to recall whether or not he signed the transcript of the Appeal Proceedings, he was also unwilling to accept that he must have signed it (notwithstanding his supposed lack of recollection). However, the defendant went further in his evidence. He suggested that it could have been any one of the other people in the court room that applied his signature that day to the Appeal Proceedings transcript.
That proposition is incredible. It would require the Court to accept that an unidentified individual would, in a courtroom, replicate the defendant’s signature on the Appeal Proceedings transcript, presumably without anyone else including the defendant and the Court taking notice of what was occurring.
The evidence was evasive, manufactured and I do not accept it. It has a relationship to a later issue as to whether the defendant affixed his Chinese signature to the Agreement.
A further consideration is that it was clear from the defendant’s responses to certain questions during cross-examination that he was not being entirely truthful, was evasive and was not willing to make reasonable concessions where such concessions ought to have been given in the circumstances. I do not accept the submission by senior counsel for the defendant that his evidence was “consistent and accurate and truthful”.
Based upon my overall assessment of the defendant’s evidence, which derived, in part, from my close observations of him as a witness, when combined with the further adverse credit findings regarding the defendant’s evidence in the fact finding section of this judgment, I have such concerns about both the honesty and reliability of the defendant’s evidence that, mindful of the aforementioned principles, his entire evidence must nonetheless be approached with great caution.
Overall, I have found that he is not a truthful and reliable witness and that his evidence should only be accepted to the extent that it is against his interests, is consistent with the plaintiff’s evidence (which for the most part was honest and reliable) or is corroborated by contemporaneous documentary evidence.
The defendant made the submission as to the credit.
It was submitted that the plaintiff was not a reliable or credible witness and that parts of his evidence were demonstrably false or unable to be explained. Expressed with that level of generality, I do not accept the defendant’s submissions, even though I have made some adverse credit findings as to the plaintiff’s evidence in the course of my judgment. Further, I consider that some criticisms of his evidence to be unreasonable, because of problems as to the plaintiff’s understanding of questions, the intersection with an interpreter and or ways in which questions were formulated in cross-examination.
It was also submitted that, to the extent there was a conflict between the evidence of the plaintiff and the defendant which is not resolved by contemporaneous documents, the defendant’s evidence should be preferred. I reject that submission based upon my assessment of the defendant’s evidence above and my observations as to the plaintiff’s evidence below. I am also of the view that the plaintiff’s case is consistent with the objective facts.
The attack on the plaintiff’s credibility as a witness by the defendant in written submissions was as follows:

“52. First, Mr Liu’s contradictory and incomprehensible accounts of the circumstances in which the Agreement Sued Upon was signed on 14 May 2018, which must be false. In Mr Liu’s first affidavit, he deposed that Mr Lam met him in the lobby of the Grand Hyatt hotel in Shenzhen on 14 May 2018 at approximately 10:00am.41 They went to Mr Lam’s hotel room, where Mr Liu handed a printed copy of the agreement to Mr Lam, to which Mr Liu had attached a letter from Advocatus, the Singapore solicitors, which Mr Lam had apparently emailed to him on 3 May 2018.42 Mr Lam then signed the agreement with his English signature. Mr Liu then photocopied the version of the agreement with Mr Lam’s English signature on it, following which Mr Lam signed both copies with his Chinese signature. Mr Liu says he gave the version with three original signatures on it to Mr Lam, and he kept the version with the copy of Mr Lam’s English signature. The version of the Agreement Sued Upon which Mr Liu propounds contains a handwritten annotation on page 2 of the Advocatus letter that “This loan agreement and its attachments are signed by the parties face to face at 11:18 AM on 14 May 2018 at MR LAM Kin’s hotel room, which was Room 3115 of Grand Hyatt Shenzhen in China”. Mr Liu gave very specific evidence in his affidavit that “Mr Mr Lam and I left the Hotel at approximately 11:20am.”
53. This version of events was undermined by two critical objective facts in Mr Lam’s evidence: first, a WeChat on 9 May 2018 in which Mr Lam sent Mr Liu the agreement signed with his English signature, indicating that Mr Liu already had this document before attending the hotel; second, Mr Lam’s travel itinerary for 14 May 2018 which shows that his flight from Beijing to Shenzhen arrived at 12:25pm, more than an hour after the very specific at which Mr Liu said the agreement was signed.
54. Mr Liu sought to deal with this by giving a completely different account of how the agreement was signed. He said that he had forgotten that he received the agreement signed by Mr Liu on 9 May 2018 because he had replaced his mobile phone so did not have a copy of the WeChat message.46 That is despite Mr Liu having exhibited WeChat messages between 13 April 2018 and 8 May 2018 to his first affidavit.47 In this new version of events, he deposed that the reason the two men met in Shenzhen was because Mr Liu was uncertain as to whether the agreement would have legal effect under Australian law.48 Mr Liu then deposes that the version Mr Lam sent on 9 May 2018 signed with his English signature might in fact be what he (Mr Liu) took to the hotel. Although Mr Liu cannot remember what version of the agreement he took to the hotel, or whether he made photocopies of it at the hotel, Mr Liu remains “certain” that Mr Lam signed his Chinese signature at the hotel.49 Mr Liu does seek to reconcile the handwritten annotation that the agreement was signed at 11:18am with Mr Lam’s travel itinerary.
55. The detailed conversation set out in paragraph 42 of Mr Liu’s first affidavit is also non-sensical once it is understood that Mr Lam had already executed the agreement, in particular the words “Are you happy with it or do you think it needs to be amended?” and “Let me take a look” which Mr Liu attributes to himself and Mr Lam respectively.
56. Mr Lam invites the Court to read the whole of Mr Liu’s first account of the circumstances in which the Agreement Sued Upon was executed.50 The fact that Mr Liu’s first account was so demonstrably wrong, and that he was willing to re-construct his version of events in his second affidavit in an attempt to salvage it, reflects very poorly on his credit. The problems with Mr Liu’s evidence, and their significance for the resolution of the issues, are addressed further in Section F2.3 below.
57. Secondly, Mr Liu’s evidence that he did not write the email contained in Exhibit 13 (previously MFI 9). The email contains draft terms of a “Supplementary Agreement” in relation to Jiayi, BS Tech and Millennium. When asked whether he sent the document, Mr Liu’s evidence was that the email was sent from Mr Lam to him, and he forwarded it by email due to many people not having WeChat accounts. That is despite Mr Lam being a recipient of the email, and with no explanation of why Mr Lam, who apparently drafted the text, could not simply have sent it from his own email account. This evidence should be understood as an attempt by Mr Liu to distance himself from any involvement in the Jiayi transaction.
58. Thirdly, Mr Liu’s insistence that the document at CB-D Tab 17 p 164 was not the agreement he signed on 3 June 2014, despite deposing in his first affidavit that that document (which he exhibited to his affidavit) was a copy of the loan agreement. He stated that “this is a distorted version of the contract” and “I think Jiayi may have made some special arrangements to this documents because this two pages do not bear my signature.” After a number of further similar assertions, Mr Liu ultimately accepted that all of the signatures on the document were genuine, and that the document at CB-D Tab 17 p 164 was the document that was signed in June 2014.56 This evidence should be understood as an attempt by Mr Liu to ensure his evidence in this Court conformed with the evidence advanced in his case in the Chinese courts.
59. Fourthly, Mr Liu’s evidence in relation to the 26 September 2015 Email, which was wholly unsatisfactory. Mr Liu deposed, without any qualification, that “On 26 September 2015, I received an email from Mr Lam”, referring to the document at CB-D Tab 24 p 199.57 That was clear evidence that he (allegedly) received that email on that day. When first asked about the email, his evidence was that it was possible that he may not have received it, and possible that he did receive it. He then suggested, for the first time, that Mr Lam also asked him to pay money to Jiayi by telephone and in other emails. There was no reference to those phone calls in his affidavit and he was not able to identify any other email. He then gave oral evidence completely contrary to his affidavit that he did not pay RMB 1 million to Jiayi because of the email at all, but rather because of a phone request.60 His evidence about the creation of the document at CB-D Tab 24 p 199 was equally incredible. He initially said that Mr Lam approached him with the printed screenshot, already signed by Mr Lam.61 He then said that he and Mr Lam applied their signatures to the email together in a hotel or a restaurant.62 When asked about the email account “SJTMr [email protected]” and why he no longer has the email file he received, Mr Liu said that he normally has two email addresses, but “163.com combined the two of them into one” and “I stopped using this email address, and my company needed this email address, so all the emails were deleted”.63 Ultimately, Mr Liu’s evidence on these matters was internally contradictory and incomprehensible, strongly supporting the inference that the 26 September 2015 Email was fabricated, as addressed further below.
60. Fifthly, Mr Liu’s evidence that he was not trusted by Ms Meng to make contracts on behalf of Huge Fairway, and that Ms Meng never gave him a power of attorney to act on behalf of Huge Fairway.64 This was demonstrated to be a lie by the photograph of Ms Meng that was shown to the witness and which became Exhibit 6, in which Ms Meng was holding a document headed “Power of Attorney for Execution of Contract” which specifically authorised Mr Liu to execute a contract on behalf of Huge Fairway.
61. Sixthly, Mr Liu’s tendency to volunteer irrelevant and unresponsive information in an attempt to slight Mr Lam. In the course of being asked about his knowledge of the “something unethical” referred to in the 26 September 2015 Email, Mr Liu gave this answer:
INTERPRETER: I asked Mr Lam why he travelled so frequently in between the two countries. And I think there might be some fraudulent behaviours of Mr Lam when he applied for his passport. So, he’s required to go back to Australia to report.

62. This was completely irrelevant to the question and was an unashamed attempt by Mr Liu to impugn Mr Lam’s credit and elevate his own. An honest, credible and reliable witness would not engage in this conduct. Again, when being asked about his dealings with Huge Fairway, Mr Liu volunteered the irrelevant response “I’d like to repeat that Ms Meng is also a good friend of Mr Lam.”
63. Seventhly, when confronted with documents which posed difficulties for his case, Mr Liu would pretend not to understand the document, provide a new explanation, or suggest that the document was fake, rather than accept the obvious propositions being put to him about it. Mr Liu was shown the WeChat messages from Ms Meng (“Rummy”) at CB-D Tab 55 pp 354-5, which, fairly obviously, are Ms Meng conveying instructions about the evidence to be given in the Chinese appeal proceedings based on her involvement with Mr Liu’s lawyers, and which Mr Liu forwarded to Mr Lam. When asked about this, Mr Liu gave answers such as “I’m not too sure what she was referring to” and “I had this document before, but I don’t understand what she meant by that”. When shown Mr Lam’s travel itinerary which undermined Mr Liu’s version of events about the execution of the Agreement Sued Upon, rather than acknowledge that, Mr Liu suggested the document had been “amended”, by which he clearly meant fabricated.
64. Eighthly, Mr Liu’s persistent evidence that he paid 1.2 million HKD out of his own money to Mr Lam in October 2015 as part of Mr Lam’s share of the funds to be received from Tianhe, despite, on his own evidence, not receiving any payment from Tianhe until five months later in March 2016.71 His explanation for this was that “as agreed with Tianhe we have to invest something first before we can get profits”72 and “there was a responsibility of making advance payments”.73 In Mr Lam’s submission, this explanation was invented on the run. It is unsupported in any of the documentary evidence and does not make sense on its own terms. Mr Liu, of course, also paid RMB 1 million to Jiayi at the same time, which he contended was also out of his own money. The obvious inference is that Mr Liu had received funds from Tianhe at this time, which he was seeking to explain away by this evidence. Mr Liu repeatedly gave contradictory and incoherent evidence about the dates on which he received RMB 5 million and RMB 1.5 million from Tianhe, a central issue in the proceedings. In Mr Lam's submission, this raises significant doubt about his reliability as a witness.

65. Ninthly, Mr Liu’s blunt refusal to explain the source of the RMB 4.5 million he had in his bank account in May 2018,74 combined with this vague responses that the RMB 4.2 million he paid to the Chinese court in May 2018 came from “many different businesses” in China.75 Again, this was not a witness endeavouring to assist the Court by seeking to provide complete and direct answers to questions asked, but rather a witness who was guarded and calculated in the information he chose to divulge.”

As mentioned, I have found during my findings of fact parts of the plaintiff’s evidence to be unsatisfactory including occasionally being inconsistent, evasive or straining credulity in the sense that he occasionally maintained unexplained positions. However, in other respects, I found the plaintiff’s evidence to be credible and given in a frank forthright manner allowing for some difficulties in translation and a lack of clarity in some questions asked of him.
My observations of the plaintiff were that he was more often studious and attentive in addressing questions under strenuous cross-examination. His answers were frank and concise. He was unshakable in his evidence as to the central tenets of his case and, in particular, that his case put to the Chinese Courts as to the Jiayi Loan Agreement was honest and correct which in some respects corresponded to the defendant’s concessions under cross-examination. However, I will deal briefly with the particular issues raised by the defendant in the aforementioned extract from his written submissions.
As to the first contention, I will find parts of the plaintiff’s evidence, in that respect, very unsatisfactory, lacking in candour and as being unreliable, but otherwise consider the defendant’s criticism to be either unavailable or exaggerated.
I have rejected the attack of the plaintiff’s credit based on the second contention.
I have dealt with the third contention in considering submissions by the defendant as to the intention to create legal relations and the absence of security for land being shown in the Jiayi Loan Agreement. The plaintiff’s answers as to the Jiayi Loan Agreement were frank, particularly given that the defendant, Ms Meng and he had all expressed an understanding that security had been offered by the defendant in the Jiayi Loan Agreement.
I have rejected the defendant’s critique of the plaintiff’s evidence regarding the 26 September 2015 email in the particular section of my fact finding dealing with that topic, although I have accepted the position of the plaintiff as to the receipt of a telephone request from the defendant represented a shift from his affidavit evidence (in a similar fashion to his evidence concerning the receipt of a payment from Tianhe of RMB 1.5 million).
There is substance in the defendant’s answer that the plaintiff was not being honest in his answer regarding a Power of Attorney by giving to him to execute a contract on behalf of Huge Fairway Trading Limited (“Huge Fairway”), most likely to downplay his association with Ms Meng, a factor present in one of the defendants examples in the sixth contention.
I do not, however, accept the plaintiff had a general tendency to volunteer irrelevant and unresponsive information in an attempt to slight the defendant. The illustration given by the defendant is an example of an unresponsive answer, as the Court ruled during the course of the evidence (see T101) but, in my view, it was, when allowing for some translation difficulties, isolated (and there remained the prospect for some confusion in the questions and answers which was never fully explored) (T101).
As to the seventh contention, and assuming Ms Meng’s communication was “an instruction” as opposed to an advice, I will later find that neither the plaintiff or defendant relied upon it. Further, I do not accept that the plaintiff’s responses as to his understanding of Ms Meng’s message to indicate he was pretending not to understand “the document” or provide another explanation. It represented the plaintiff’s uncertainty, not so much about Ms Meng’s intent, but as to what idea she was trying to communicate.
Thus, I consider the plaintiff intended to convey that parts of Ms Meng’s message were difficult to comprehend such as stating that the plaintiff and the defendant had never been involved until 2016 or the defendant did not know Tian, a position which was never adopted by the plaintiff or the defendant. The failure to act on her advice would confirm that it was either unclear or rejected.
I agree that the plaintiff’s evidence with respect to the defendant’s travel itinerary, namely, that it had been amended was disingenuous even though the plaintiff had been surprised by a document which sat contrary to his views of the time of the execution of the Agreement on 14 May 2018.
However, as I will find a meeting did occur and the Agreement was signed by the defendant at a time during that day consistent with the plaintiff’s version, even though parts of his evidence were confused or inconsistent in that respect. Ultimately, the plaintiff’s recording of the time of the meeting was simply erroneous.
As to the eighth contention, I will find that the plaintiff did not receive RMB 7 million or a substantial payment from Tianhe (less the RMB 7 million) in the immediate aftermath of the change of the appointment of new auditors by Tianhe. Nor do I consider the plaintiff’s evidence, in this respect, when properly understood to be dishonest, contradictory or incoherent. My reasons for these views are discussed later in this judgment.
As to the ninth contention, I will find part of the plaintiff’s evidence to be unsatisfactory, including incorporating evasion.
Overall, I do not consider that some general caution needs to be expressed with respect to the plaintiff’s evidence, as I have found with respect to the defendant. My assessments as to his credit goes to particular findings of fact addressed below.

Chronological Findings Of Fact (Save For Some Particular Later Findings):

Background as to the Parties

The plaintiff is a Chinese citizen who lives in Beijing. As earlier mentioned, he speaks Mandarin but not English. The defendant is an Australian citizen who primarily lives in Sydney. However, it is appropriate to mention additional parts of his background.
The defendant was born in Hainan, which is an island in the south of China, on 26 June 1970. His native language was Hainanese, which is spoken in the Hainan province of China.
In 1979, the defendant’s family left Hainan for Macau. While in Macau the defendant learned and started to speak Cantonese. He also learned to speak Mandarin at that time. Cantonese became his primary language.
He finished High School in Macau. However, in 1991 the defendant came to Australia to complete the Higher School Certificate. He then studied at Macquarie University from 1993.
In 1997, the defendant travelled to Hong Kong to pursue work in the financial services area. While in Hong Kong the defendant was employed as a financial advisor which also dealt with share broking.
In 2001, the defendant returned to Australia and ultimately became engaged in a cleaning business.
In 2008, the defendant returned to Hong Kong to set up a share broking firm. He kept that share broking business until 2011.
Between 2008 and August 2020, the defendant travelled for substantial periods of the year overseas on business to various countries including Hong Kong, Macau, China and Singapore.
The plaintiff and the defendant first met by no later than October 2011.
From time-to-time, between when they met until at least August 2015, the plaintiff and the defendant discussed and introduced each other to business opportunities, primarily related to the buying and selling of commodities.
In or about 2012, the plaintiff introduced the defendant to Zhang Xi Long (“Mr Zhang”) of, or who had a relationship with, Tianhe.
Throughout 2013, the plaintiff and the defendant discussed potential future collaboration by which they would introduce business opportunities to each other under which they could each earn commission. The evidence does not suggest at this juncture that they had agreed to equally share all profits and liabilities.
In May 2013, the plaintiff and the defendant travelled together to Hong Kong and met with several parties interested in acquiring natural gas, oil and coal and investing in waste disposal, but none of these projects eventuated.
In 2014, Tianhe was listed on the Hong Kong Stock Exchange with a market capitalisation of HK 30 billion.

The CAN deal and the Jiayi Loan Agreement

As earlier mentioned, from March 2014, the defendant became involved in possible funding for CAN.
The defendant’s evidence as to the background to these transactions was in, summary, as follows:

in the beginning of 2014, the defendant met Mr Lai from CAN having been introduced by two of his business associates, Albert Wong (“Albert”) and Gami Chiu (“Gami”);

the defendant visited CAN’s offices in Hong Kong and was impressed with their ‘One-Plug technology’, being a technology relating to industrial pipes;

CAN told the defendant that it needed EUR 10 million to buy land for a larger factory and as, a second stage, EUR 40 million to build a production facility; and

in exchange for the defendant assisting with obtaining finance, Mr Lai would give the defendant a 10% share in the business. This involved the entry into a joint venture agreement (“JVA”), under which Millennium (being a company incorporated and registered in Hong Kong of which the defendant was a shareholder and sole director), being given 10% of the shares in a CAN entity. The plaintiff was not a party to the JVA and it did not confer any benefit on him. Nor did the plaintiff hold any shares in Millennium.

Accordingly, the defendant needed to raise money in relation to the CAN deal (being EUR 10 million). Albert and Gami suggested the defendant contact BS Tech. The defendant was told by Albert and Gami that:

BS Tech may be able to source funds for a fee of 4% of the face value of the instrument to introduce a bank lender to provide a facility in the amount of EUR 10 million (being a fee of EUR 400,000); and

“Jiaso”, a Malaysian industrial company, would provide assets as security to BS Tech, although it is unclear why BS Tech would need security given its role was to introduce a lender which would advance the funds, and would charge EUR 190,000 or 1.9% of face value.

Ultimately, the funds required by BS Tech and Jiaso were borrowed from Jiayi.
In April 2014, the defendant told the plaintiff about the potential CAN deal in Beijing. It was the defendant’s evidence that during their conversation it was agreed there would be a sharing of profits and losses between the plaintiff and the defendant which was denied by the plaintiff and remains a considerable controversy in the proceeding.
In his first affidavit, the defendant gave his account of the conversations that occurred between himself and the plaintiff in Beijing in this respect, which incorporated the following:

the plaintiff offered to assist with finding a lender for the CAN deal (being Jiayi) and allegedly stated “let’s work together and share equally on this deal”; and

the defendant said, “The way to share the 10% is for you to become a half owner of Millennium” to which the plaintiff allegedly replied “[m]y 50% share in Millennium should be held by Huge Fairway Trading Ltd”, (Huge Fairway Trading Ltd was a company owned by a third party to the proceedings), Ms Linjiao Meng (“Ms Meng”).

The plaintiff denied that a conversation in these terms occurred. I will deal later with the question of partnership but, at this juncture, I note that I prefer his evidence in these respects. In addition to my earlier observations as to the defendant’s credit, which I will return to below, the objective evidence is consistent with the plaintiff’s denial as follows:

The first is that the proposition advanced by the defendant sits contrary to the fact that the defendant did not transfer any of the shares (let alone 50%) in Millennium to Huge Fairway, the plaintiff or any company associated with the plaintiff and the defendant accepted this in his evidence. The defendant submitted that the shares were not transferred because “there was nothing there to share” because the fundraising failed. But at the time that the arrangement was said to be made the defendant did not know the fundraising would not be successful. Further, no communication was ever sent by the plaintiff raising the failure to transfer the shares, despite the agreement being important to the defendant he never committed it to writing.

The defendant continued to use Millennium as his own private corporate vehicle and did not regard it as being a company owned jointly by him and the plaintiff. The defendant gave evidence that, on 6 and 8 October 2015, “I received two payments from Huge Fairway” being money received in relation to the Tianhe Venture. In fact, his share of the Tianhe monies were paid into an account belonging to Millennium. This is inconsistent with the notion that the plaintiff held an interest in that company.

There is no mention of a profit and loss sharing arrangement between the plaintiff and the defendant in any other documentary evidence before the Court, which pre-dates the commencement of these proceedings.

As discussed below, the circumstances in which the Agreement was entered into was inconsistent with the there being an arrangement to share profits and losses in relation to the Jiayi Loan Agreement (or for that matter, the CAN deal).

The defendant deposed that Mr Zhuang mentioned Tian Hao of Jiayi (referred to as Mr Tian) and Jiayi to him at a dinner at which the defendant, the plaintiff and Mr Zhuang were present to consider funding for the CAN deal.
There was, in fact, an earlier version of the Jiayi Loan Agreement (“the First Jiayi Loan Agreement”).
As to the First Jiayi Loan Agreement, on 29 May 2014, the plaintiff, the defendant and others attended the offices of Minter Ellison in Hong Kong. Millennium executed an agreement with Jiayi (with no guarantor) and took a photograph of those in attendance. The plaintiff was not a party to that contract.
In his first affidavit, the defendant stated that the plaintiff offered to and did draft the ‘first’ Jiayi Loan Agreement. A document was attached to the affidavit which was said to be evidence of what the plaintiff had proposed.
I do not accept the defendant’s evidence in this respect. It is, as the plaintiff put it, a self-serving reconstruction. If necessary to do so, I would infer that the defendant had access to the email account he used to communicate with the plaintiff at this time, but it is not necessary to do so. I reach my conclusion on the following bases which have contributed to my earlier findings as to the defendant’s credibility as a witness.
In his third affidavit, the defendant accepted that the document attached to his first affidavit was, in fact, a different transaction. Further, the defendant accepted, in cross-examination, that it is possible Jiayi drafted the First Jiayi Loan Agreement.
It may also be noted that the defendant did not produce in evidence in these proceedings the First Jiayi Loan Agreement. Nor did the defendant explain why that the document was no longer in his possession.
I accept the plaintiff’s submission that the plaintiff’s attendance at the signing is not indicative of him being in partnership with the defendant for the following reasons.
Firstly, the plaintiff’s evidence was that:

he was in Hong Kong at the time and the defendant invited him to attend; and

he was hopeful that he would receive a financial reward for being a “part of the introduction between Mr Lam and Mr Tian, because they had been introduced by Mr Zhuang who was [his] friend” (but ultimately, he did not receive a reward).

This evidence was consistent with Chinese custom under which people who assist in a deal will often be given an ex-gratia financial benefit. The expectation of a financial reward is also consistent with the plaintiff’s evidence that he and the defendant would, from time to time, refer opportunities to each other for financial reward, rather than constituting an indicia of partnership.
Secondly, the surrounding facts and circumstances do not support an inference of partnership. If the plaintiff was truly jointly liable for the debt, it would be expected he would have been a joint owner of Millennium (at the latest) by the date the first version of the Jiayi Loan Agreement was signed which was not the case.
Between 29 May 2014 and 3 June 2014, the plaintiff and the defendant had a number of conversations about a proposed borrowing from Jiayi.
However, the content of at least one of those discussions was in dispute. In the first defendant affidavit, the defendant stated the following conversation occurred during that period:

the plaintiff told the defendant that Jiayi wanted a new agreement in which the plaintiff was a “local guarantor” and the defendant and the plaintiff “put up security”;

the defendant would offer his land in Australia as security and asked the plaintiff if he would be the guarantor, to which he agreed; and

the defendant said to the plaintiff, “We are liable 50/50 for the total loss. If Jiayi do go after the land you will have to pay me half of the land value”, to which the plaintiff agreed.

The plaintiff denied this conversation. He stated that his involvement was because of his personal connection with his friend Mr Zhuang and the defendant. In particular, the plaintiff stated that he did not understand that he would also be guarantor for the Jiayi Loan Agreement until he attended a dinner on 3 June 2014. He stated that the first time he was asked to be a guarantor was at a dinner on 3 June 2014.
I am inclined to accept the plaintiff’s account in this respect because, in addition to my earlier findings as to his credit:

The plaintiff’s account is consistent with the evidence given by the defendant’s viva voce in the Appeal Proceedings (which I have earlier referred to and will set out later in this judgment) which tended to suggest that the defendant found out about the need for a local guarantor while at the dinner where the Jiayi Loan Agreement was signed, and upon finding out it was necessary, he called the plaintiff over who was “[a]t the time…not dining with us…[but was] in another conversation in another place” (although the defendant denied this part of the Appeal Proceedings evidence during cross-examination). The defendant stated in his evidence in the Appeal Proceedings, the plaintiff became a party to the Jiayi Loan Agreement as a matter of formality because he was a local and was, in reality, a witness to the transaction. The guarantee, such as it was, was secondary to the security the defendant had provided to support the loan.

I agree with counsel for the plaintiff that the expression “We are liable 50/50 for the total loss” is an odd expression. A more common expression that may be expected to be used in that conversation is ‘sharing the risk’ although I have taken into account the prospect of translation difficulties.

It follows that I do not accept the proposition advanced by the defendant that the defendant and the plaintiff had discussed the prospect of the plaintiff becoming a guarantor prior to the 3 June 2014 which I discuss next.
On 3 June 2014, the plaintiff and the defendant entered into the Jiayi Loan Agreement at a dinner with Mr Tian and other representatives of Jiayi pursuant to which:

the defendant was described as the borrower;

the plaintiff was described as the guarantor;

the plaintiff was to be jointly liable as guarantor for the debts owed by the defendant under the Jiayi Loan Agreement (cl 4.2.1);

To briefly recap, the plaintiff contended that there had been no evidence adduced by the defendant concerning the content of Chinese partnership law and accordingly the defendant must necessarily attempt to rely on the presumption that the law of partnership in China is the same as the law of the lex fori (being New South Wales) to fill this evidentiary lacuna.
It was in that context that submissions were made regarding Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 (“Damberg”).
The defendant had submitted that the Court should reject the plaintiff’s contention that the presumption should apply and had sought to distinguish the judgment in Damberg in the case of the issues regarding partnership. The following submissions were made in that respect:

In Damberg, the presumption was, in fact, applied in relation to the law of resulting trusts and presumption of advancement in Germany (see [161]). This would have resulted in the husband and father in a family law dispute retaining six properties which he had transferred to his children in Germany (see [12]-[27]). The husband’s children then submitted that the resulting trusts should not be recognised because the properties were transferred into the children’s names by the husband for the illegal purpose of avoiding German capital gains tax.

It was in respect of this latter issue only that Heydon JA (at [162]) refused to apply the presumption. The factors his Honour relied on in declining to apply the presumption, were: (i) German capital gains tax law must be statutory; (ii) German law is not a common-law based system; (iii) the children were asserting that the husband’s conduct was criminal and fraudulent, which depended on the specific terms of the legislation; (iv) German tax law was likely to have special machinery and highly individual provisions; and (v) “Taxation law cannot be assumed to be a field resting on great and broad legal principles likely to be a part of any given legal system”.

Apart from the fact that Chinese law is not a common-law based system, none of these factors applies in the present case. There is no reason to think that Chinese partnership law is necessarily statutory. Even if it was, the defendant was not seeking to rely on specific, idiosyncratic aspects of it, only the existence of a commercial agreement for the joint sharing of profits and liabilities in relation to business ventures. That Chinese law recognised such a concept was not seriously open to doubt; indeed, these aspects of partnership law were very much a field resting on broad legal principles likely to be part of any legal system. The defendant is also not making serious allegations of wrongdoing by reference to the law he invokes. The attempt to liken this case to the outcome in Damberg is inapt.

It should be noted that the defendant also made the following submissions:

“Secondly, the mere fact that the foreign legal system is not common-law based is not itself a reason for the presumption to be inapplicable: In the matter of Blackmores Limited [2023] FCA 624 at [20] (in which Jackman J applied the presumption in relation to the indoor management rule and Japanese law); CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527 at [34] (in which Jackman J applied the presumption in relation to the Dutch law of assignability of property); Nygh’s Conflict of Laws in Australia (LexisNexis, 10th edition, 2019) at [17.37].”

In the present context, the defendant accepted that he relied upon particular aspects of partnership law involving the existence of fiduciary obligations and the obligation to account, but submitted the presumption should nonetheless be applied “because those concepts are matters likely to find reflection in any legal system”. The conclusions of Heydon J in Damberg refusing to apply the presumption focused, inter alia, upon the children asserting that the husbands conduct was criminal and fraudulent which depended upon specific terms of the legislation.
Here, it was submitted, reliance was placed upon two people sharing profits and revenues and, to the extent monies were received as part of that venture, they needed to be accounted for to the other party as a fiduciary obligation of partners.
What is clear from the judgment of Heydon J in Damberg is that courts have been reluctant to state exhaustively when they will assume that the unproved provisions of foreign law are identical with those of the lex fori (see Damberg at 162).
Whilst it is unnecessary to determine the question, I have significant reservations about applying the presumption in the present case. There are some real difficulties in presuming that the fiduciary duties owed between partners are the same in China as Australia when China is not a common law jurisdiction and part of those obligations arise under statute law in New South Wales pursuant to the Partnership Act.
I have less reluctance in respect of a duty to account. Whilst it is a duty arising in equity which attaches specific criteria, it is not inconceivable that the law in China in relation to commercial transactions would not apply common law principles and, as the defendant correctly submitted, the fact a foreign legal system is not common law based is not alone a reason for the presumption to be found to be inapplicable, in that context.
Putting aside the question of presumption, I do not consider that the defendant has established a breach of any fiduciary duty or trustee duty because no Jiayi or Tianhe partnership has been found. In any event, any alleged breach is not a defence to a contractual claim under the Agreement which does not concern a partnership.

EQUITABLE SET-OFF AND REPAYMENT

There was no dispute as to the principles stated by the defendant with respect to this defence.
In HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479, Emmett JA stated (Beazley P and Meagher JA agreeing) at [136]:

“For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary’s demand.”

Emmett JA then (at [137]) gave three examples of situations in which impeachment will exist: where a mortgage is granted to a solicitor as security for costs and the mortgagor client has a cross-claim against the solicitor for faulty work; where a builder has a claim for money due under a building contract and there is an unliquidated claim against the builder for damages for breach of that contract; and where a lender fails to provide promised further advances for a development project and the borrower is, therefore, unable to complete the project and repay the advances actually made.
In Hawes v Dean [2014] NSWCA 380, the Court of Appeal (at [63]) endorsed the statement of principle extracted above and said (at [65]):

“In all the hypothetical cases to which Emmett JA referred, two wrongs or defaults are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other’s countervailing legal right. It is the existence of that unconscionability that causes the first party’s claim to be “impeached” (that is, undermined and defeated) by the second party’s claim.”

There must be such a connection between the claim and the cross-claim that the cross-claim can be said to impeach the claim so as to make it unfair for the claim to be allowed without taking account of the cross-claim: Forsyth v Gibbs [2009] 1 Qd R 403; [2008] QCA 103 (“Forsyth”) at [10] (Keane JA, McMurdo P and Fraser JA agreeing).
One example where equitable set-off may arise is where the defendant’s liability under the originating claim arose only because of, or was contributed to by, the originating claimant’s breach of duty.
Equitable set-off may arise even if the claim relied upon by the party invoking set-off does not arise from the same transaction or same contractual relationship: Mao v Bao [2023] NSWCA 278 at [61]-[62], citing Norman v FEA Plantation Ltd (2011) 195 FCR 97; [2011] FCAFC 99 at [156] and Forsyth at [14]-[15].
Finally, equitable set-off has a substantive, not merely procedural, operation: Miwa Pty Ltd v Siantan Properties Pte Ltd (2011) 15 BPR 29,545; [2011] NSWCA 297 (“Miwa”) at [53]-[56], citing Roadshow Entertainment v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462 at 481. Thus, “an equitable set-off can be asserted as soon as circumstances subsist which support the equitable set-off, and regardless of whether proceedings have been brought at that time”: Miwa at [53]. Where equitable set-off is found to have arisen, it substantively extinguishes the plaintiff’s claim from the time it arose, which will often be prior to any court proceedings having been commenced. It follows that a defendant need not advance a cross-claim in the proceedings in order to rely on equitable set-off.
The starting point of the defendant’s submissions is that the Court should apply the presumption of identity of foreign law in relation to the principles of equitable set-off.
In summary, the defendant relied upon the following “set-off and related defences” (the contentions below shall be referred to as the first, second, third and fourth contentions respectively):

The plaintiff failed to use funds received from Tianhe to pay down the loan under the Jiayi Loan Agreement (both of which were partnership transactions). That failure caused interest to accrue on the Jiayi Loan and Judgment Debt which otherwise would not have been incurred. It was submitted this was a breach of the plaintiff’s partnership obligations to the defendant and his liability to account to the defendant must be set off against any entitlement the plaintiff is found to have under the Agreement.

To the extent the plaintiff has not repaid the defendant his share of the funds received from Tianhe, that was also a breach of the plaintiff’s partnership obligations and his liability to account to the defendant must be set off against any entitlement the plaintiff is found to have under the Agreement.

To the extent that the plaintiff has used Tianhe partnership money to pay down the judgment sum he is precluded from suing the defendant for the judgment sum.

The defendant paid RMB 300,000 to the Second Intermediate People’s Court of Tianjin in satisfaction of the Judgment Debt, which amount must be deducted from the quantum of the plaintiff’s claim, if otherwise established.

The principal component of the defendant’s submissions as to the first contention (with emphasis in italicises) was as follows:

“398. As to the first ([388(a)], Mr Liu’s claim is pursuant to clause 1 of the Agreement Sued Upon, which, on the translation Mr Liu propounds, imposed an obligation on Mr Lam to bear (“it will borne”) “the debts assumed by Party B due to the above-mentioned cases” and “paid by Party B [Mr Liu]”. Accordingly, Mr Lam’s obligation was to indemnify Mr Liu for such amounts that Mr Liu himself was required to pay to satisfy the Judgment Debt.
399. The Judgment Debt itself arose from Mr Liu’s liability as guarantor under the Jiayi Agreement. The term of the Jiayi Loan was 15 days, commencing on the day Jiayi advanced the loan funds (clause 2.2). Clause 5.2 provided that if the loan was not repaid upon its maturity, “liquidated damages will be paid to [Jiayi] at a daily interest rate of 0.1% from the date of breach to the date on which the principal, interests and liquidated damages are paid off.” Jiayi advanced the loan amount on 5 June 2014. Interest therefore began to run from 20 June 2014 when the loan was not repaid. That interest (along with the obligation to repay the principal) was a partnership liability.
400. The Appeal Court found that as at 4 July 2016, the outstanding amount under the Jiayi Loan was RMB 6,483,333.31.
…
402. Mr Liu’s duties as a partner obliged him to use partnership funds to repay partnership liabilities... Again, for the purpose of illustration, if the Court accepts Mr Liu received RMB 7 million on September-October 2015, then by 22 March 2016, he had sufficient partnership funds to do so. His failure to use those funds to repay the Jiayi Loan and thereby stop interest accruing further was a breach of his partnership duties, such that he is liable to Mr Lam for the interest which accrued on the Jiayi Loan amount after 22 March 2016.
403. The “Enforcement Sum” claimed as the total amount paid by Mr Liu to discharge the Judgment Debt is RMB 9,469,485.52. Adopting 4 July 2016 as the date on which the Jiayi Loan should have been repaid (favourably to Mr Liu and for ease of calculation), the failure to use the partnership funds received from Tianhe to do so caused a further RMB 2,986,152.21 in interest and other costs to be incurred.
404. Mr Liu is liable to Mr Lam for breach of his partnership duties for that amount. That amount forms part of the amount now claimed in these proceedings. It only arose because of the plaintiff’s breach of duty, which is a recognised category of case in which equitable set-off will arise…Accordingly, if Mr Lam is otherwise found liable under the Agreement Sued Upon, that amount must be set off against Mr Liu’s claim, with the result that Mr Lam is only liable for RMB 6,483,333.31, being the amount that was due to Jiayi as at 4 July 2016 (approximately $1,396,711.63).”

The second contention was advanced as an alternative to the first contention. The principal aspect of the submissions were as follows:

“405. The second ([388(b)]) aspect of Mr Lam’s set-off defence is that Mr Liu’s failure to pay Mr Lam his full share of the Tianhe funds was also a breach of Mr Liu’s partnership duties for which he is liable to Mr Lam and which amount must be set-off against any liability Mr Lam is found to have under the Agreement Sued Upon.
…
…
408. … Mr Liu was not entitled to retain partnership funds from Tianhe for his own benefit, and is required to account to Mr Lam for those funds. The amount of Mr Lam’s share of the Tianhe funds which he has not been paid is RMB 2,637,068. Interest should run on that amount at Civil Procedure Act 2005 (NSW) rates from 2 August 2016.
409. Once it is accepted that the Jiayi Loan was a partnership transaction, any liability which Mr Lam is found to have under the Agreement Sued Upon arose from, and is necessarily intimately connected with, that partnership dealing. If the Court accepts that the Tianhe venture was also a partnership dealing, the connection between the Jiayi Loan, Mr Lam’s liability under the Agreement Sued Upon and the funds received from the Tianhe venture is readily apparent. Otherwise, Mr Liu would succeed on a claim which arose out of a partnership dealing, without accounting to Mr Lam for monies Mr Liu owes pursuant to the very same partnership. That is a situation in which “two wrongs or defaults are so closely connected that a net position or result ought in equity to prevail between the parties because it would be unconscionable to allow one of them to insist on its legal right without first accommodating the other’s countervailing legal right”: … Accordingly, to the extent Mr Lam is found liable under the Agreement Sued Upon, Mr Liu’s liability to account to Mr Lam for the RMB 2,637,068 of partnership funds which Mr Lam has retained must be set-off against that liability.”
(Emphasis added.)

As to the third contention, the defendant submitted as follows:

“410. As submitted at [359] to [366] above, the Court should find that all or a substantial part of the repayment of approximately RMB 4.2 million which Mr Liu made to the Chinese Court on 11 May 2018 was partnership money he received from Tianhe. Mr Lam is entitled to be credited for half the amount of partnership money that was used. This must be set off against any entitlement Mr Liu is found to have under the Agreement Sued Upon.”

As to the fourth contention, the defendant submitted as follows:

“411. It is an agreed fact that Mr Lam transferred RMB 300,000 to the People’s Court of Tianjin Binhai New Area on 9 October 2018, and that this amount was applied in partial satisfaction of the Judgment Debt.
412. Mr Liu's claim is for the "Enforcement Sum", being the total amount required to discharge the Judgment Debt, which Mr Liu alleges he paid in full. It being accepted that Mr Lam paid RMB 300,000 of the Enforcement Sum, this amount must be deducted from Mr Liu's claim, if otherwise established. Any other approach would result in double recovery by Mr Liu.”

The starting point of the consideration of the defendant’s defence requires a review of the aforementioned principles.
Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from his or her adversary's demand and the mere existence of cross demands is not sufficient. For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or “impeach” the “title” of the applicant.
The premise of the first contention is that the Jiayi Loan and the Tianhe Venture were or arose out of a partnership. I have rejected that proposition. Indeed, the very consideration of these defences proceeds upon the bases that the Court has found that there was an intention to create legal relations in relation to the Agreement and there was no partnership in respect of the Jiayi Loan Agreement or CAN deal. Similarly, the alternative, second contention faces the same difficulties as it proceeds upon the bases of a partnership with respect to the Jiayi Loan Agreement (as earlier italicised). The alternative contention states on its foundation “once it is accepted that the Jiayi Loan was a partnership transaction”.
Different issues arose with respect to the third contention. The obligation sued upon in these proceedings arises out of the Agreement. This aspect of the set-off defence proceeds upon the bases that the “repayment” to the Chinese Court “was partnership money [the plaintiff] received from Tianhe. It was pleaded in the FAD ([37]) that the plaintiff had used “Partnership Funds” to repay monies to the Lender [Jiayi] and that such repayments were either a partial payment in satisfaction of the Agreement, or alternatively “in equity to be set-off against the Plaintiff’s claims in these proceedings”.
The repayments relied upon by the defendant do not concern funds from the defendant to the plaintiff but rather funding from, on the defendant’s case, Tianhe and the plaintiff. The gravamen is that the plaintiff should have distributed monies received under the Agreement (even if a generous approach were taken to how the parties divided various amounts under the respective transactions).
I agree with the submission of the plaintiff that this defence does not go to the root of, challenge, call in question, or “impeach” the “title” of the plaintiff to his contractual damages. The claim is based upon the notion of the plaintiff using partnership funds to pay Jiayi. The obligation sued upon in these proceedings arises out of a different agreement unconnected to any alleged partnership. If the plaintiff were to use partnership funds to pay (contrary to my earlier findings) (being a payment from the plaintiff to Jiayi) this would not constitute a repayment under the Agreement.
The position may be different under a cross-claim but none is brought by the defendant.
There is no dispute as to the fourth contention provided it is dealt with as a necessary adjustment under the Agreement (reducing the loss) as opposed to a cross-claim.
Finally, there is a factual issue undermining the defendant’s contentions in this respect.

The defendant sought an opportunity to make submissions on the first contention if the Court found an off-set and the Court found that the plaintiff “received a different amount from Tianhe in September – October 2015” than that contented for in submissions from the defendant. There would seem to be no remainder in that submission as the Court has not found the plaintiff received RMB 7 Million or another large sum in that period.
The Court has found the plaintiff received RMB 5 million on 22 March 2016 and RMB 1.5 million on 2 August 2016. On the calculations provided by the defendant in opening submissions the amounts received by the defendant would exceed a third share of RMB 6.5 million.
There is no basis for a set off or repayment save for, potentially the monies referred to with the fourth contention by the defendant. I shall make provisions in final orders to deal with that question as an adjustment may be required in that respect, subject to any submissions made by the plaintiff as to any accounting for the amount in this claim.

WHETHER INTEREST CLAIMED UNDER THE AGREEMENT IS PENAL

The issue raised by the defendant in this respect is whether the interest rate for overdue payments of 0.05% per day (18.25% per annum) prescribed in cl III of the Agreement is a penalty and, if so, whether any other interest rate should apply (Issue 7(b)). The plaintiff claimed interest at this rate from the date the SOC was filed, namely 20 April 2020. Alternatively, he claimed interest at the lower contractual rate of 0.02% per day, or in accordance with the Civil Procedure Act 2005 (NSW), s 100.
The relevant principles were adequately stated in the defendant’s written submissions as the correct approach to a commercial contract. The following is based on those principles.
A contractual provision prima facie imposes a penalty if it is collateral to a primary stipulation and, upon the failure of the primary stipulation, imposes on the first party an additional detriment to the benefit of the second party: Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 at [10].
A provision will be penal where the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach: Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 (“Paciocco”) at [29], [54], [158]-[162], [221] [331]. In Paciocco at [331], Nettle J stated:

“For the same reason, the fact that the late payment fee may have been set by reference to what other banks were charging in the context of a competitive banking market is essentially irrelevant. As Lords Neuberger and Sumption observed in Cavendish, although the penalty rule originated out of equity’s concern to prevent exploitation at a time when credit was scarce and borrowers were particularly vulnerable, the modern rule is substantive, not procedural. It does not normally depend for its operation on establishing that advantage was taken of one party. An obligation to pay a fee does not cease to be penal just because the obligee’s competitors impose similar penalties on their customers. Where there is an incentive constituted of an obligation to pay a sum of money conditioned on a breach of contract of which the amount is wholly disproportionate to the greatest costs which would have been conceived of at the time of entry into the contract, the obligation will be regarded as penal unless there be some aspect of the contract which makes it possible to say that the amount of the obligation is not wholly disproportionate to the interest protected by the bargain.”

The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage: Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86-87, cited in Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328 (“Arab Bank”) at [72].
In Arab Bank, McDougall J (with whom Gleeson JA and Sackville AJA agreeing) distilled the principles emerging from Paciocco as follows at [74]:

“(1) Lord Dunedin’s propositions [in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79] were not “rules of law”, but “distillations of principle”: at [143] (Gageler J); compare at [32] (Kiefel J) and at [260] (Keane J).
(2) The essence of a penalty is that it is a collateral stipulation, the (or a predominant) purpose of which is to punish the borrower for breach, and thus to compel performance: at [29] (Kiefel J); at [127], [159], [166] (Gageler J); at [254], [259], [273] (Keane J).
(3) One way of testing whether the impugned stipulation is penal — intended to punish — is to inquire whether the sum that it stipulates to be payable on breach (as I have indicated, the equitable origins and continuing equitable operation of the principle have no present relevance) is to ask whether the stipulated sum is extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to follow from the breach: at [29], [54] (Kiefel J); at [158]–[162] (Gageler J); at [221] (Keane J).
(4) “Damage” in this sense is not limited to damages recoverable upon breach of contract, but may extend to damage, or losses, caused by the impairment of other legitimate commercial interests that were intended to be protected by the stipulation: at [33], [42]–[47] (Kiefel J); at [145], [160]–[162] (Gageler J); at [216], [283] (Keane J).
(5) The analysis is to be made at the time, and taking into account the circumstances applicable, when the contract was made; not at the time of breach; the analysis is prospective, not retrospective (or as is said in some judgments, is ex ante, not ex post): at [62] (Kiefel J); at [169] (Gageler J).
(6) Mere disproportion between the stipulated sum and the possible damage is not enough to indicate “penalty”; the disproportion must be such that it is unconscionable for the lender to rely on the stipulation: at [54] (Kiefel J); at [164] (Gageler J); at [221], [240], [279] (Keane J).”

The plaintiff submitted that the Court should answer the first part of this issue in the negative. It was submitted:

The indemnity that operates in cl I of the Agreement operates on debts assumed by the plaintiff from the Chinese Court Proceedings and incorporates other liabilities or costs including interest and litigation costs.

However, that does not constitute a proper bases on which to conclude that cl III contains a penalty interest rate.

The defendant has to make payment under the indemnity to pay the debt by December 2018. If he did not, the plaintiff had to meet the debt. In evidence, the plaintiff said he did not know when that would be and that he would be faced with borrowing or selling assets.

The 0.05% interest rate is designed to meet a situation where the plaintiff borrowed money and paid interest on any outstanding amount on the Judgment Debt.

Where the Chinese Courts struck down the interest payable that reduction was only reduced to 24% which is much higher than 18.25% (the annual equivalent of the rate in cl III).

In Paciocco at [331] (see [795] above), it was stated that the amount said to be penal will not be so unless it is wholly disproportionate to the greatest costs which could have been conceived at the time of entry into contract. The plaintiff could only have conceived the possibility that, if he were to borrow money, he “may have to pay 24%”. He seeks 18.25%.

If the Court were to find the interest rate to be penal, it is necessary to demonstrate what interest rate would not have been penal. The plaintiff’s claim achieves that end.

The plaintiff gave evidence regarding the default interest rate in cl III of the Agreement in the second plaintiff affidavit in the following terms:

“This document is a WeChat message between myself and Lawyer Yuan about making repayments towards the Judgment Debt. At the time I was borrowing money to make repayment for the Judgment Debt. Ultimately the sum of 9,469,485.52 yuan (being the Enforcement Sum referred to in paragraph 26 of my First Affidavit) was paid to satisfy the Judgment Debt. Of that amount:
129.1 approximately RMB6.3 million was deducted from my various bank accounts; and
129.2 my property was mortgaged with the SPD Bank in China for the sum of RMB3 million.”
Prior to obtaining the mortgage from the SPD Bank but after my bank accounts were deducted, I entered into a number of loan agreements with relatives to borrow a total sum of RMB4 million so that I could make repayments towards the Judgment Debt.
At the time the Agreement between me and Mr Lam was being prepared (which was prior to my borrowing funds from relatives), I did not know what means I would use to satisfy the Judgment Debt and whether I would need to borrow money or sell assets. If I was required to borrow money then I was aware from my own business dealings that the interest rate under those loans could be as high as 24% per annum, being the highest interest rate permitted for private loans in China. This informed the decision to include a default rate under clause lll of the Agreement of 0.05% per day which equals an annual rate of 18. 25% per annum.”

(The document the plaintiff is referring to above is a WeChat message dated 31 August 2018 which was between himself and his lawyer, Mr Yuan.)

The plaintiff made five payments towards the Judgment Debt between 7 and 11 May 2018. He then made the fifth payment of RMB 4,219,675.63. By 11 May 2018 he had paid RMB 4,314,930.73. I agree with the submission of the defendant that, whilst the plaintiff may not have known fully the means by which he would have repaid the Judgment Debt at the time of signing the Agreement, he did know that approximately half of the Judgment Debt had been paid by that time.
By cl I of the Agreement, the defendant indemnified the plaintiff for all liabilities, fees and loss the plaintiff incurred as a result of the Lower Court Judgment. The indemnity included interest which the plaintiff had to pay on the Judgment Debt.
Clause I also provided an obligation to pay interest at 0.02% per day from 13 July 2016, notwithstanding the Lower Court Judgment was not delivered until 27 September 2017 and the plaintiff, as mentioned, was fully indemnified for his liability to pay the Judgment Debt including interest.
The first consideration for the Court as stipulated in Andrews is whether the higher interest rate in cl III is collateral to a primary stipulation. In my view the higher interest rate in clause III is collateral to a primary stipulation (the obligation in clause I and II to indemnify the plaintiff for “all debts” by 31 December 2018) and, upon the failure of that primary obligation, it imposed an additional detriment on the defendant to the benefit of the plaintiff. It is, therefore, prima facie penal.
The next question is whether the provisions of cl III do, in reality, create a penal condition. In my view the interest for overdue payments in cl III of the Agreement is penal and unenforceable for the following reasons:

The plaintiff was fully indemnified under cl I for the accrual of interest and Judgment Debt.

The interest payable under cl III increased the interest rate under cl I from 0.02% per day to 0.05% per day. It is unnecessary to reach a conclusion that the interest rate of 0.02% per day was a windfall in order to reach a conclusion that the interest rate under cl III was extravagant or out of all proportion to, or unconscionable in comparison with, the maximum amount of damage that might be anticipated to flow from the breach.

The evidence of the plaintiff that he may have had to borrow with an interest rate as high as 24% does not overcome that consideration. The circumstances operating at the time the Agreement was entered into were such, as I have mentioned, that the plaintiff had already paid approximately half of the Judgment Debt. I agree with the submission advanced by the defendant that, in those circumstances, he could never have been close to the circumstance where he would need to borrow the entire Judgment Debt at the maximum rate under Chinese law.

Furthermore, assuming the maximum interest rate permitted for private loans in China was 24%, the evidence does not establish under what interest terms the plaintiff would have had to borrow. The plaintiff's evidence does not rise any higher than the possibility he may have been charged the highest interest rate permissible under Chinese law. In any event, the primary interest rate under cl I of about 7.3% per annum would have adequately protected the plaintiff against speculative, unquantified risk that he would have had to pay interest on borrowed funds as a result of a breach by the defendant, particularly if that rate operated from 13 July 2016.

The fact that the plaintiff's claim to interest operates under the SOC from 2020 does not obviate the conclusion that the interest under cl III is penal because the analysis of whether a contractual position is a penalty needs to be undertaken at the time the contract is made in the circumstances that then prevailed: Arab Bank (at [74(5)]).

The question then arises as to what interest rate, if any, the Court would fix that was not penal in nature. That consideration received little attention in the parties’ submissions. My preliminary view is that interest would be awarded upon the judgment sum awarded by the Court from the date specified in the SOC. Furthermore, as the rate specified in cl I of the Agreement was not attacked by the defendant as being penal per se (even though described as a ‘windfall’), my preliminary view is that the first part of the plaintiff’s alternative claim on interest should be applied, namely, the lower contractual rate of 0.02% per day. However, it would seem appropriate to receive further submissions by the parties in that respect and I will make provision to do so in my final orders.
With respect to Issue 7(b), the Court finds that the plaintiff’s claim for interest at 18.25% per annum under cl III of the Agreement is unenforceable as a penalty. The Court’s preliminary view is that interest should be applied on the judgment sum in accordance with the first alternative claim for interest by the plaintiff, but the Court will make an allowance for further submissions of the parties in those respects in the orders accompanying this judgment.

MITIGATION OF LOSS

In my view there has been mitigation of loss by the plaintiff.
The plaintiff’s defence in the Lower Court Proceedings and the Appeal Proceedings proceeded on the basis that he had no liability to Jiayi. It is reasonable that he would not make payments to Jiayi in respect of his liability as guarantor until such time as the judgment in the Appeal Proceedings was handed down (which occurred on 19 March 2018). Retaining lawyers to assist in defending the Lower Court Proceedings and pursuing the Appeal Proceedings was not an unreasonable act of mitigation.
As mentioned above, the plaintiff started making payments toward the Judgment Debt promptly after the judgment in the Appeal Proceedings was handed down on 19 March 2018 (with the first three payments being made on 7 May 2018).
On the evidence, the plaintiff did his best to obtain funds to pay the Judgment Debt as promptly as possible, which he ultimately did, notwithstanding the defendant’s failure to make payment under the Agreement.

CONCLUSION

Subject to the question of adjustment for payment made by the defendant of RMB 300,000 to the second Intermediate People’s Court, there should be judgment for the plaintiff.
The interest under cl III of the Agreement has been found to be penal and unenforceable. There remains a question as to what interest rate, if any, should be applied from 20 August 2020. The Court has expressed a preliminary view but makes provision for further submissions in this respect. The program for the same should be reflected in the Short Minutes of Order which the Court has directed will be filed and served.
No submissions on costs have been received. If there is an agreed position then that may be reflected in the Short Minutes of Order the Court will direct to be filed. If not, those Short Minutes of Order should provide for directions as to the receipt of submissions and evidence as to costs.

Orders

The Court orders and directs:

The plaintiff shall file and serve Short Minutes of Order reflecting this judgment within 28 days of the publishing of the judgment.

If there is any dispute as to the form of the Short Minutes of Order filed and served by the plaintiff in accordance with Order (1), then the defendant shall file and serve an alternative form of Short Minutes of Order within 35 days of the publishing of this judgment.

The Short Minutes of Order shall make provision for the receipt by the Court of submissions as to any adjustment to the judgment sum for any monies paid into a Chinese Court by the defendant, interest and costs (not exceeding five pages) in the event of any dispute as to those matters. The Short Minutes of Order shall also make provision for the filing and service of evidence in the case of a dispute as to costs.

In the event any one or more of the issues concerning monies paid into a Chinese Court by the defendant, interest and costs are resolved, the parties shall provide a note accompanying the Short Minutes of Order to that effect in which case the Court may deal with the consent orders administratively in Chambers.

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Decision last updated: 18 October 2024

Medium Neutral Citation:	Liu v Lam [2024] NSWSC 1306
Hearing dates:	14, 15, 16, 19, 20, 23, 27 February, 13 March 2024. Further written submissions received on 27 March and 4 April 2024
Date of orders:	18 October 2024
Decision date:	18 October 2024
Jurisdiction:	Common Law
Before:	Walton J
Decision:	The Court orders and directs: (1) The plaintiff shall file and serve Short Minutes of Order reflecting this judgment within 28 days of the publishing of the judgment. (2) If there is any dispute as to the form of the Short Minutes of Order filed and served by the plaintiff in accordance with Order (1), then the defendant shall file and serve an alternative form of Short Minutes of Order within 35 days of the publishing of this judgment. (3) The Short Minutes of Order shall make provision for the receipt by the Court of submissions as to any adjustment to the judgment sum for any monies paid into a Chinese Court by the defendant, interest and costs (not exceeding five pages) in the event of any dispute as to those matters. The Short Minutes of Order shall also make provision for the filing and service of evidence in the case of a dispute as to costs. (4) In the event any one or more of the issues concerning monies paid into a Chinese Court by the defendant, interest and costs are resolved, the parties shall provide a note accompanying the Short Minutes of Order to that effect in which case the Court may deal with the consent orders administratively in Chambers.
Catchwords:	CONTRACTS – Formation – Agreement – Acceptance of offer – communication of acceptance – whether agreement executed by both parties CONTRACTS – Formation – Intention to create legal relations – whether agreement indemnified plaintiff for loss occasioned by prior judgment debt EVIDENCE – Credibility of evidence EVIDENCE - s 191 Evidence Act - status of agreed facts – whether agreed facts and issues in dispute constituted an “agreement” – whether evidence before the court warrants displacement or modification of agreed facts – use to which agreed facts may be put PARTNERSHIPS AND JOINT VENTURES – Whether contract of partnership – Interpretation – presumptions – evidence of Chinese law – absence of common law in China – contribution towards losses – no partnership found PROCEDURE – equitable set-off – no basis for set-off or repayment CONTRACTS – penalties – whether interest claimed under agreement is penal – whether different interest rate should apply – interest under contract unenforceable CONTRACTS – Mitigation
Legislation Cited:	Civil Procedure Act 2005 (NSW) s 100 Evidence Act 1995 Partnership Act 1892 (NSW) ss 1, 9, 24(1)
Cases Cited:	Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231; [2016] NSWCA 328 Australian Securities and Investments Commission BHF Solutions Pty Ltd (2022) 293 FCR 330; [2022] FCAFC 108 Bonython v The Commonwealth [1951] AC 201; (1950) 81 CLR 486 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Briginshaw v Briginshaw (1938) 60 CLR 336 Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Chan v Zacharia (1984) 154 CLR 178 Cubillo v Commonwealth (No 2) (2000) 103 FCR 1; [2000] FCA 1084 Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 Edwards v Skyways Ltd (Edwards) [1964] 1 WLR 349 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 Farmers' Mercantile Union and Chaff Mills Ltd v Coade (1921) 30 CLR 113 Fazio v Fazio [2012] WASCA 72 Forsyth v Gibbs [2009] 1 Qd R 403; [2008] QCA 103 Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 Galati v Deans (No 2) (2018) 133 ACSR 516; [2018] NSWSC 1813 Gibson Motor Sport Merchandise Pty Ltd v Forbes [2005] FCA 749 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 Hawes v Dean [2014] NSWCA 380 Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235; (2005) 12 BPR 23,021 Hope v Bathurst City Council (1980) 144 CLR 1; 29 ALR 577; 54 ALJR 345 HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479 James v Commonwealth Bank of Australia (1992) 37 FCR 445 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305 Mao v Bao [2023] NSWCA 278 Mineralogy Pty Ltd v Sino Iron Pty Ltd(No 6) (2015) 329 ALR 1; [2015] FCA 825 Minter v Minter (2000) 10 BPR 18,133; [2000] NSWSC 100 Miwa Pty Ltd v Siantan Properties Pte Ltd (2011) 15 BPR 29,545; [2011] NSWCA 297 Nadinic v Drinkwater [2017] NSWCA 114 Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54 Norman v FEA Plantation Ltd (2011) 195 FCR 97; [2011] FCAFC 99 Nunn Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] 1 VR 74 OLI 1 Pty Ltd (In Liquidation) v OLG 1 Pty Ltd (No 2) [2022] NSWSC 1199 Orion Insurance Co plc v Sphere Drake Insurance plc [1992] 1 Lloyd’s Rep 239 Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28 Quadling v Robinson (1976) 137 CLR 192 Redowood Pty Ltd v Mongoose Pty Ltd (2004) 49 ACSR 172; [2004] NSWSC 101 Roadshow Entertainment v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462 Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 Sangha v Baxter [2009] NSWCA 78 Shahid v Australasian College of Dermatologists [2008] FCAFC 72; (2008) 168 FCR 46 Steinberg v Commissioner of Taxation (Cth) (1975) 134 CLR 640; [1975] HCA 63 The Crown v Clarke (1927) 40 CLR 227 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1; 60 ALR 741; 59 ALJR 676 Warner v Hung, in the matter ofBellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; (2011) 297 ALR 56 Woods & White v Hopkins [2016] WASC 16 Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678
Texts Cited:	Anson’s Law of Contract, 27th Edition Heydon on Contract (Thomson Reuters, 1st edition, 2019) On Equity (Thomson Reuters, 2009)
Category:	Principal judgment
Parties:	Tuo Liu (Plaintiff) Kin Lam (Defendant)
Representation:	Counsel: J R Willis (Plaintiff) D Robinson SC and Bradley Smith (Defendant) Solicitors: Piper Alderman (Plaintiff) Baker McKenzie (Defendant)
File Number(s):	2020/117870
Publication restriction:	Nil