Re Atlas Advisors Australia Pty Ltd

[2022] NSWSC 705

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

In the matter of Atlas Advisors Australia Pty Ltd [2022] NSWSC 705

Hearing dates:

30 November; 1–3 December; 7–8 December; 10 December; 14 –16 December 2021; 18 January 2022; 28 April 2022, 4-5 May 2022.

Date of orders:

30 May 2022

Decision date:

30 May 2022

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

The First Plaintiff succeeds in respect of the Second Tredmore Investment, the Third Plaintiff succeeds in respect of the Lili Investment and the Plaintiffs collectively fail in their claim against Ms Zhuang. Parties are to bring in their agreed orders or their respective orders and submissions within 14 days.

Catchwords:

CORPORATIONS — Financial services — Misleading or deceptive conduct — Where claims relate to representations said to have been made as to the security or safety of investment in certain financial products — Where plaintiffs plead several representations as to safety, existence of mortgages, rate of return, existence of guarantees, and the extent and nature of the due diligence process — Whether there was a further representation that the relevant fund was “very safe” —Where representations made orally in Mandarin and in written Chinese — Whether the representations were misleading and deceptive and causative of loss suffered by the plaintiffs.

CORPORATIONS — Financial services — Unconscionable conduct — Statutory unconscionability — Whether conduct of the defendants “unconscionable” in the circumstances — Where allegations of vulnerability or relationship of dependence.

Legislation Cited:

- Australian Securities and Investments Commission Act 2001 (Cth), ss 12DA, 12DB, 12CA, 12CB, 12GF, 12GM

- Corporations Act 2001 (Cth), ss 991A, 1041E, 1041F, 1041H

- Evidence Act 1995 (NSW), ss 136, 140

Cases Cited:

- Armagas Ltd v Mundogas SA [1985] 1 LI R

-Australian Competition and Consumer Commission (ACCC) v CG Berbatis Holdings Pty Ltd (2000) 96 FCR 491; (2000) 169 ALR 324; [2000] FCA 2

- Australian Securities & Investment Commission v Cycclone Magnetic Engines Inc (2009) 71 ACSR 1; [2009] QSC 58 -Australian Securities and Investments Commission (ASIC) v Elm Financial Services Pty Ltd (2005) 55 ACSR 544; [2005] NSWSC 1065

- Australian Securities and Investments Commission (ASIC) v GetSwift Ltd [2021] FCA 1384

-Australian Securities and Investments Commission (ASIC) v Kobelt (2019) 267 CLR 1; (2019) 368 ALR 1; [2019] HCA 18

-Australian Securities Commission v Macleod (2000) 22 WAR 255; (2000) 34 ACSR 135; [2000] WASCA 101

- Australian Securities & Investment Commission v Narain (2008) 169 FCR 211; (2008) 66 ACSR 688; [2008] FCAFC 120

-Australian Competition and Consumer Commission (ACCC) v Quantum Housing Group Pty Ltd (No 2) [2020] FCA 802

-Australian Competition and Consumer Commission (ACCC) v Quantum Housing Group Pty Ltd (2021) 388 ALR 577; (2021) 151 ACSR 98; [2021] FCAFC 40

-Australian Securities and Investments Commission (ASIC) v Wealth and Risk Management Pty Ltd (No 2) (2018) 124 ACSR 351; [2018] FCA 59

-Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

- Broughton v B&B Group Investments Pty Ltd [2017] VSCA 227

- Browne v Dunn (1894) 6 R 67

- CH Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37

-Changizi v Rizaie [2021] NSWSC 613

- Dawson v LNG Holdings Pty Ltd [2008] NSWSC 137

- Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59-Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810

-Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) (2007) 63 ACSR 1; [2007] NSWSC 124

-Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd (2008) 73 NSWLR 653; (2008) 252 ALR 659; (2008) 68 ACSR 595; [2008] NSWCA 206

-Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61

- Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; (2011) 276 ALR 375; [2011] HCA 11

-Macleod v Australian Securities and Investments Commission (2002) 211 CLR 287; (2002) 191 ALR 543; (2002) 76 ALJR 1445; (2002) 43 ACSR 1; [2002] HCA 37

-Musa v Alzreaiawi [2021] NSWCA 12

-National Companies & Securities Commission v Monarch Petroleum NL [1984] VR 733; (1984) 8 ACLR 785; (1984) 2 ACLC 256

-Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66

-New South Wales v Hunt (2014) 86 NSWLR 226; [2014] NSWCA 47

-R v Albuino (2001) 80 SASR 416; (2001) 165 FLR 335; [2001] SASC 397

- Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40

- Samm Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132

- SDS Corporation Ltd v Pasdonnay Pty Ltd [2004] WASC 26

- Stav Investments Pty Ltd v Taylor [2022] NSWSC 208

- Swiss Re International SE v Simpson [2018] NSWSC 233; (2018) 354 ALR 607

- Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233

- Varma v Varma [2010] NSWSC 786

-Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963

-Watson v Foxman (1995) 49 NSWLR 315

-Yorke v Lucas (1985) 158 CLR 661; (1985) 61 ALR 307; [1985] HCA 65

Texts Cited:

- G Golding “Underwriters' liability in Australian securities offerings” (1993) 11 C&SLJ 401

- J Harris & S Webbey, “Personal liability for corporate disclosure problems” (2011) C&SLJ 463

- S Minns & G Golding, “Prospectus Due Diligence – A Focussed Approach” (1993) 11 C&SLJ 542

Category:

Principal judgment

Parties:

Tredmore Pty Ltd as trustee for the Xue Family Trust (First Plaintiff)
Lijuan Xue (Second Plaintiff)
Lili Xue (Third Plaintiff)
Atlas Advisors Australia Pty Ltd (First Defendant)
Wenyan Zhuang also known as Fiona Zhuang (Second Defendant)

Representation:

Counsel:
M E Einfeld QC/E Young (Plaintiffs)
P Knowles/S Danne (Defendants)

Solicitors:
MC Lawyers & Advisers (Plaintiffs)
Watson Mangioni Lawyers (Defendants)

File Number(s):

2020/71911

Judgment

1. By their Originating Process filed on 5 March 2020, Tredmore Pty Ltd (“Tredmore”) as trustee for Xue Family Trust, Ms Lijuan Xue (to whom I will refer as “Ms Xue”) and Ms Xue’s sister, Ms Lili Xue, bring claims against Atlas Advisors Australia Pty Ltd (“Atlas”) and Ms Fiona Zhuang in relation to their investment of $4.8 million into an investment fund known as the “QCAX Australian Property Income Fund II (Commercial Series)” (“Steller Fund”). They seek relief under several provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”) including several declarations and an order that Atlas and Ms Zhuang pay damages or compensation to them under ss 991A and 1041I of the Corporations Act or under ss 12GF and 12GM of the ASIC Act.

2. The Second Plaintiff, Ms Xue, is the sole director and shareholder of Tredmore. Ms Xue pleads that she was born and raised in mainland China and lived and worked in mainland China until about January 2017 (FASC [6]-[7], partly admitted in Defence [6]-[7]). She pleads that, at all material times, she could speak, read, and understand only the Mandarin language and could not speak or read English and understood little or nothing of the English language (FASC [8]-[9], not admitted Defence [8]-[9]). However, her Counsel accepted in the proceedings that, at least at the time of the trial, she at least had an understanding of simple English and I am left uncertain as to the extent of that understanding and the timing at which it was obtained. It plainly does not follow that because, understandably, Ms Xue is more fluent and more comfortable in speaking and reading in her first language, that she had or has little or no understanding of English, particularly given Ms Zhuang’s evidence (which I accept) as to the extent to which English is taught within the Chinese educational system.

3. Ms Xue pleads that, at all material times, she knew little or nothing about Australian culture, whether business or social (FASC [10], not admitted Defence [10]). Whether or not that was true, I will find below that it did not give rise to any relevant vulnerability of Ms Xue in business matters. As I noted above, Ms Lili Xue is Ms Lijuan Xue’s sister and she resides in London.

4. The First Defendant, Atlas, held an Australian financial services licence which authorised the provision of general financial advice and not personal advice. The Second Defendant, Ms Zhuang, was one of its directors, described as an “Executive Director”, and held a 20% shareholding in Atlas. Mr Guy Hedley, who is not joined as party to the proceedings and did not give evidence, was the executive chairman and chief executive officer of Atlas.

Affidavit evidence

5. Before turning to the affidavit evidence, I should note that the representations on which the Plaintiffs relied in this case are partly alleged to have been made orally, although the Plaintiffs also rely on several statements made in an exchange of WeChat messages as to which a contemporaneous record is available. It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41]; Varma v Varma [2010] NSWSC 786 at [424]-[425]. Credit issues here need to be determined in respect of particular conversations, and I have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining them: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; State of New South Wales v Hunt (2014) 86 NSWLR 226; [2014] NSWCA 47 at [56]; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 at [10]. The principles applicable to assessing claims for representations in oral form were helpfully summarised by Slattery J in Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [87] as follows:

“The principal conduct of the defendants that [the plaintiff] alleges was misleading or deceptive was the speaking of words in the course of a series of conversations. Special considerations apply when assessing alleged misleading and deceptive conduct in such a context. It is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in proved circumstances: Watson v Foxman & Ors (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq. In assessing whether spoken words were misleading the Court may have to examine relatively subtle nuances flowing from the use of one word, a phrase or a grammatical construction rather than another or the presence or absence of some qualifying word, phrase or condition: Watson v Foxman & Ors (1995) 49 NSWLR 315 at 31. The fallibility of human memory and the overlaying of memory with perceptions of self interest leading to sub conscious reconstruction are all hazards of ordinary human experience to which a Court must be alert in assessing whether particular spoken words are misleading or deceptive: Watson v Foxman & Ors (1995) 49 NSWLR 315 at 319. Ultimately each element of the cause of action must be proved to the reasonable satisfaction of the Court which means that the Court “must feel an actual persuasion of its occurrence or existence”. Such satisfaction is “not obtained or established independently of the nature and consequences of the fact or facts to be proved”, including the “seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding”: Helton v Allen (1940) 63 CLR 691 at 712.”

6. I also note that the allegations made by the Plaintiffs against Atlas and Ms Zhuang are plainly of a serious character. The Plaintiffs allege, inter alia, that Atlas contravened ss 1041E and 1041F of the Corporations Act, which are offence provisions, and that Ms Zhuang was a person knowingly involved in that contravention. Mr Einfeld went so far in opening as to characterise the Steller Fund as amounting to a Ponzi scheme, a form of fraudulent market conduct, and he submitted that Atlas and Ms Zhuang knowingly took advantage of Ms Xue’s alleged vulnerability. In determining these allegations, I have regard to the approach identified in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and its equivalent under s 140 of the Evidence Act. Where a party advances allegations of impropriety, the Court must take account of the gravity of the matters alleged in deciding whether the inference should be drawn and, although the standard of proof remains proof on the balance of probabilities, the strength of the evidence necessary to establish a given fact to the civil standard may vary according to the nature of what it is sought to be proved. In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449–450; [1992] HCA 66, the plurality observed that:

“The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary ‘where so serious a matter as fraud is to be found’. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.” [citations omitted]

Section 140 of the Evidence Act 1995 (NSW) similarly provides that, in a civil proceeding, the Court must find the case of a party proved if it is so satisfied on the balance of probabilities and that, without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject matter of the proceeding and the gravity of the matters alleged. I approach the evidence in the Plaintiffs’ claim on that basis.

7. The Plaintiffs rely on Ms Xue’s affidavit dated 4 March 2020. Her evidence is that she had little or no understanding of the English language (Xue 4.3.20 [16]) and that she started living in Sydney on a permanent basis from 4 January 2017 (Xue 4.3.20 [17]). She refers to having managed a transportation business while in China and invested in mainland Chinese property developments, “always making sure that such investments were safe investments, and avoiding any investments that had any significant degree or risk” (Xue 4.3.20 [20]). She goes further in emphasising her risk aversion, giving evidence that:

“It was and is important to me to make sure that my assets progressively increase, and not reduce in value, and so I have always actively avoided investments that had any significant possibility of making a loss, and have always emphasised these requirements to my advisors relating to my investments. Investments that carry the significant possibility of making any loss constitute a significant risk to me.” (Xue 4.3.20 [21])

It is, of course, possible for an investor to avoid investments that have any significant possibility of loss, although it is difficult to see how an investment that has no risk and no significant possibility of making a loss could generate anything more than the risk free rate of return at that time. I will return to that matter below.

8. Ms Xue also refers, in evidence admitted with a limiting order as a submission and not proof of fact under s 136 of the Evidence Act, to her reliance upon Ms Zhuang to assist her with her “day-to-day needs” including the requirements for her significant investor visa (“SIV”) application, the making of SIV compliant investments, the establishment of companies and trusts and other matters, and to her having socialised with Ms Zhuang. Her evidence is that she invested approximately $15 million in various “Atlas related investment schemes” recommended by Ms Zhuang, including through Tredmore. Ms Xue initially did not explain the source of those funds, although issues in that respect arose in her cross-examination. The dispute in this matter relates to a proportion of the investments made by Tredmore and Ms Xue through Atlas.

9. Ms Xue again returns to her investment objectives in her affidavit evidence, indicating that one of her “main goals” was to purchase a home with a value of approximately $10 million once she acquired permanent residency. She repeats once more her risk aversion, observing (Xue 4.3.20 [32]) that:

“Except for an $800,000 investment made by me on behalf of my younger sister, the principal and expected returns from the investments that are the subject of these proceedings were to be used for the purposes of me buying a residential property in Sydney to live in. Accordingly I only wished to invest in safe investments with little to no likelihood of loss. I explained this to [Ms Zhuang] on many occasions during my discussions with her, so often that I cannot remember precisely how many times, usually saying to her things like ‘it has to be safe’, ‘I don’t want risk’, and ‘I cannot lose money’.

These indications to her were the same even from my first meeting with her in which I said:

‘I can only have safe investments here [in Australia], I don’t want to lose any money’.”

10. Ms Xue also refers to several communications with Ms Zhuang, which I will address in dealing with the chronology and alleged representations below. Ms Xue also refers to her experience in China of investing in single property development projects backed by security in the form of a mortgage over the property and land (Xue 4.3.20 [38]), although it appeared from her cross-examination that she had only invested in only one such project, and had also been involved in development activities in China on a much larger scale than her evidence suggested. Ms Xue’s first affidavit also seeks to establish her reliance on Ms Zhuang in respect of day-to-day activities in Australia and to Ms Zhuang’s assistance with the arrangements for the enrolment of her son at a private school and to Ms Zhuang’s communications with the school in respect of day-to-day issues with her son’s schooling.

11. Ms Xue’s first affidavit also refers to several representations said to have been made by Ms Zhuang in person and by WeChat communications, including that the Steller Fund was secured by mortgages; there were personal guarantees; the investment was “low risk”, “risk free” and “very safe”; as to the level of presales and a Government requirement for presales; as to the similarity of the Steller Fund to property investments in China; and that the Steller Fund had “no risk of losing your capital” (Xue 4.3.20 [126]). I will return to that evidence in dealing with the Plaintiffs’ representational case below. Ms Xue then returns to the question of the risk of the investment (Xue 4.3.20 [130]), giving evidence that:

“As I explained to [Ms Zhuang] as set out above, because the money the plaintiffs were investing into the Steller Fund was going to be used for funding the purchase of my new home in Sydney, and for any balance of which I was using for my SIV, it was imperative to me that the plaintiffs’ investment be the safest possible. As set out above, I had often told [Ms Zhuang] about the importance of this as part of my investment plans both generally and in relation to the Steller Fund, as it was the money I was going to use for the purchase of my first Australian home when I obtained permanent residency. Further, this loss has also affected the interest income which I have relied upon to meet my daily living expenses.”

That proposition leaves open, of course, the question of the level of risk attached to the “safest possible” investment generating return of 10% per annum, where Ms Xue also appears to have wished to achieve that return.

12. Ms Xue’s evidence in that affidavit is also (Xue 4.3.20 [137]) that:

“I’ve only ever wished to deal with highly reputable financial companies who operate strictly legally and in accordance with Government regulations, whether in China or in Australia.”

13. By a second affidavit dated 3 June 2020, Ms Xue clarified her earlier evidence that she had first met Ms Zhuang at Sydney Airport in July 2015, by indicating that she had no “specific recollection” whether she had previously met Ms Zhuang in China in March 2015 or earlier. Little turns on that matter.

14. By a third affidavit dated 13 August 2020, Ms Xue responded to aspects of Ms Zhuang’s affidavit dated 10 July 2020 and took issue (Xue 13.8.20 [5]) with any proposition that risk and return had any correlation. Her evidence is that she would not have agreed to three investments totalling $4.8 million “where the risk of losing money had not been protected against” and she there referred to having received $2.8 million from overseas sources, which she did not identify, in late May 2017 (Xue 13.8.20 [6]). She referred (Xue 13.8.20 [8]) to her first investment with Atlas, which appears to have been a relatively low risk product involving an investment through Atlas in a bank issued product. She denied that she required higher levels of return and indicated that she was “mainly concerned with preserving my capital at all times, even if it came at the expense of a lower return” (Xue 13.8.20 [9]). I pause to note that Ms Xue’s evidence here implied that she recognised a linkage between the risk of an investment and its return, although she was reluctant to concede that matter at the hearing as I note below. Ms Xue also gave evidence of matters of which she had not been informed by Ms Zhuang or Atlas concerning a Mr Burstin’s role with Atlas Property Investment Management Pty Limited (“APIM”) and his association with Steller Group, which I address below, and to the impact those matters would have had on her decision-making, if disclosed. Ms Xue also denied that she used a translation application in order to translate documents from English to Chinese and again denied that she was provided with an information memorandum in respect of the Steller Fund (Xue 13.8.20 [22]).

15. Ms Xue there denied (Xue 13.8.20 [33]) having had a conversation with Ms Zhuang relating to her having a business that was partly or wholly a State owned enterprise in China or to her relationship to the Olympic Village in Beijing or elsewhere and claimed that:

“I have never had any such relationships, dealings or associations, nor have I said anything to that effect to anyone.”

The evidence that emerged in Ms Xue’s cross-examination indicates that that statement was either false or substantially incomplete.

16. Ms Xue’s evidence in reply was also that (Xue 13.8.20 [60]):

“Based on the advice received from [Ms Zhuang], I assessed the Steller Fund as being barely riskier than a bank bond or a term deposit facility given that it was backed by first mortgage’s [sic] over land and buildings, and on that basis still considered investment safe and reasonable in that it could attract a return of 10%. Had I known that the Steller Fund was not secured by first mortgages over land and buildings, and that there was a real risk that I could lose part or all of my capital, the Plaintiffs would not have invested in the Steller Fund even if it offered a much higher potential investment return.”

Part of that evidence was admitted with a limiting order under s 136 of the Evidence Act as directed to Ms Xue’s position as distinct from the other Plaintiffs’ position. Ms Xue also addressed her prior investment experience in China in respect of the rates of return on investments.

17. By a further affidavit dated 12 November 2021, Ms Xue gave self-serving evidence, plainly affected by hindsight and the manner in which her legal advisers had structured the affidavit, that she would not have caused the Plaintiffs to invest with Atlas in the Steller Fund if she had known any of the several matters on which the Plaintiffs rely for their misleading and deceptive conduct case, as follows:

“I refer to paragraphs 40C(c) and 41 of the Plaintiffs’ Further Amended Statement of Claim. Had I known any of the following matters in April or May 2017, I would not have caused the Plaintiffs to invest any money with the First Defendant in its QCAX Australia Fund II (Steller Fund):

(a)   that no mortgage security was taken or given over the properties (Properties) identified in Schedule 1 of the Commercial Loan Master Facility Deed dated 2 February 2017 (Deed) made between the First Defendant and Steller Developments Pty Limited (Developments);

(b)   that the current valuations of the Properties were not held by Developments or the First Defendant;

(c)   that the Properties were not all owned by Developments, nor that contracts were not in place for their acquisition and/or development by Developments;

(d)   that the Properties were not in each case zoned for non-residential use as required by the Deed;

(e)   that in the circumstances of (d) above, Developments was in immediate default (or alternatively was arguably in immediate default) of its obligations under the Deed, whereby the First Defendant under clause 10.2 of the Deed acquired the right to rely upon such default so as to bring the loan the subject of the Deed to an immediate end;

(f)   that the financial position of Developments had deteriorated substantially in the months prior to April 2017, in that its net assets had fallen by approximately 76%;

(g)   that there was no material from which Atlas could properly determine that revenue earned by Developments from its development of the Properties would suffice to pay interest to the Plaintiffs quarterly at the rate of 10% per annum for two years and to enable repayment of the principal invested by them in the Steller Fund;

(h)   that the defendants had no knowledge of the terms of the personal guarantees in relation to the investments in the Steller Fund, nor of the net assets of the persons or entities providing these guarantees; and

(i)   that Michael Burstin was a director and had an indirect interest in one or more of the Steller group of companies.”

18. By a further affidavit dated 6 December 2021, Ms Xue addressed a number of matters which have been raised in cross-examination, including her purchase of a house at Frenchs Forest. The consistent theme of Ms Xue’s evidence is that she relied on Ms Zhuang in respect of all of these matters and signed documents that were in English that she could not read or understand. Ms Xue was subsequently issued a penalty notice because of her failure to comply with Foreign Investment Review Board requirements in respect of that house. Ms Xue’s evidence (Xue 6.12.21 [11]) was that she did not know, at the time of buying or after she bought the Frenchs Forest house, that she was not complying with the “proper requirements”, although her evidence does not indicate any real effort on her part to do so. She also addresses a document headed “Memorandum of Understanding” between her company, Tredmore Group Pty Ltd, and Beijing Olympic Village Investment Pty Ltd, which appears to have a connection with the Steller Group, since the document was signed by Mr Smedley, a director of the Steller Group. Ms Xue’s evidence is that she could not read or understand that document and Ms Zhuang asked her to sign it before the Plaintiffs sent their money to invest in the Steller Fund. It is not necessary to address that document further, where the Defendants do not rely on it in answer to the Plaintiffs’ case.

19. Ms Xue also there addresses the existence of litigation between a company with which she was associated and another company in China, and her evidence is that that dispute was finalised in the Chinese Courts before 2017, and her bringing $2 million to Australia to pay the Steller Fund was not connected with the disputes in that case. She also refers to property preservation orders made against her in the Chinese Courts, which she says were not made until 2020 and 2021 and related to disputes which arose after the Plaintiffs’ investments in the Steller Fund in 2017. She also addresses the source of the monies paid into the Steller Fund on 4 May 2017, which it appears were transferred from a joint venture company in China to Tredmore Group Pty Ltd and then to Tredmore Pty Ltd. Ms Xue says, in evidence admitted with a limiting order under s 136 of the Evidence Act so that it is not proof of the asserted fact, that the representative of the other shareholder in the joint venture company consented to her taking the money out of the joint venture company, where Ms Xue’s mother had put that money into the company. Ms Xue’s affidavit annexed a financial report of Tredmore Group Pty Ltd for the year ended 30 June 2017, as to which the director’s declaration had not been signed and the accountant’s assurance had not been given, which it appears was recently prepared for the purposes of these proceedings. I would have given no weight to that document, if it had been necessary to rely on it in order to determine any relevant issue.

20. As I noted above, at the commencement of Ms Xue’s cross-examination, Mr Einfeld indicated that she could understand and speak “a few words” of English (T82). She gave evidence through a Mandarin interpreter and was cross-examined at length. I will refer to aspects of Ms Xue’s cross-examination in dealing with particular issues below. Mr Knowles submits that Ms Xue’s affidavit evidence should be given little weight given the manner in which it was prepared, and the fact that it was apparent from Ms Xue’s cross-examination that she did not understand significant aspects of it. Mr Knowles submitted:

“Ms Xue confirmed to the Court that her affidavit evidence had been prepared by her lawyers in English, a language Ms Xue represented to the Court that she cannot read, beyond perhaps a few words. It was then translated for Ms Xue, orally, by a translator … although Ms Xue indicated that she relied upon a “Google Translate” document (T229:1-3) (which is not in evidence), before she swore the affidavits. Ultimately, the outcome of this process is reflected in the following exchange (T229:5-10):

Q. So, is this fair about this affidavit, that these are not really your words, they are words prepared by a lawyer which you have then agreed with?

A. INTERPRETER: Correct.

Q. Is that the same for all of your affidavits in these proceedings?

A. INTERPRETER: Yes.    

This was further illustrated by an exchange in relation to Ms Xue’s evidence concerning her allegations of Mr Burstin’s supposed conflict, which apparently greatly disturbed her in respect of the Relevant Investment and indeed forms a part of her pleadings (T236:39 – T237:50 and T239.12-17):

Q. Did you meet [with your lawyers] to discuss this particular affidavit?

A. INTERPRETER: No.

Q. Can I ask you to turn to paragraph 13, which is at page 58?

… They’re not your words, are they, they’re words that your solicitor prepared for you?

… A. INTERPRETER: Yes, that’s the words of the lawyer.

Q. Is it right to say that you were concerned about not being informed that Mr Burstin was a director and major beneficiary of the Steller Group entities?

A. INTERPRETER: Yes.

Q. By the Steller Group entities, do you include Steller Developments Pty Ltd?

A. INTERPRETER: I don't know.

Q. What do you mean by Steller Group entities?

A. INTERPRETER: I don't know.

… That was a research done by my lawyers.

… My lawyer told me that there was some association. There was an association of, of trade between them which I don't know about the specifics.

Q. You don't know what the specifics of the association were?

A. INTERPRETER: I don't need to know about that much. My lawyer told me that there was an association of trades between them. So, that’s all I need to know.

…

Q. …Is this a fair summary of your evidence, that your concern is that Michael Burstin had a trade association with the Steller Group entities, but you're not sure of what that association [w]as and you're not sure what companies make up the Steller Group entities?

A. INTERPRETER: Correct.”

21. Mr Knowles also points to reversals in Ms Xue’s evidence as to her understanding of the relationship between risk and return, to which I return below. He submits, and I accept, that Ms Xue was reluctant to make concessions as to matters adverse to the Plaintiffs’ case, either claiming not to understand the question, notwithstanding that it had been interpreted for her and she had no difficulty with other questions of a similar character, or responding to a questions in a non-responsive manner. Mr Knowles also submits, and I accept, that Ms Xue’s evidence of her reliance upon Ms Zhuang overstated that reliance and substantially understated her business experience, intelligence, and capacity to make independent judgment. It seems to me that that is significantly adverse to Ms Xue’s credit, where it underpinned a significant part of her evidence.

22. Mr Einfeld defended Ms Xue’s credit in closing submissions. Mr Einfeld also there drew attention to authority as to the scope of the rule in Browne v Dunn (1894) 6 R 67, and to the discussion of that rule in Broughton v B&B Group Investments Pty Ltd [2017] VSCA 227 at [110] and SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132 (at [137]) where McColl JA recognised the significance of that rule for fair trial between the parties, and the assessment of the reliability and accuracy of a witness, but also observed (at [142]) that a trial judge is not obliged to accept evidence, even if it was not subject to cross-examination, where it is inconsistent with other evidence that he or she accepted or was “inherently incredible”. Mr Einfeld submitted that Mr Knowles had not challenged Ms Xue as to the content of the alleged representations and her reliance on those representations in cross-examination. It seems to me that it was always clear that that matter was in issue, where Ms Xue and Ms Zhuang gave significantly different accounts of the conversation; Mr Knowles had put Ms Zhuang’s account of the conversation to Ms Xue (T205-206); and Mr Knowles had also cross-examined Ms Xue at some length as to her affidavit claiming reliance on the representations, in the form in which they were pleaded, to which I referred above (T228ff). I am satisfied that the challenge to Ms Xue’s evidence was sufficiently raised by Mr Knowles’ cross-examination, notwithstanding Mr Einfeld’s submissions in that regard.

23. Mr Einfeld also pointed out that Ms Xue was cross-examined, among other matters, as to the circumstances in which she had removed money from a joint venture company in China, and I accept that there was plainly an implication in parts of that cross-examination that she did so to seek to avoid those assets being available in China, if judgment were given against Ms Xue in ongoing litigation between the shareholders in that company. I accept the Plaintiffs’ submission, in closing, that if Ms Xue had transferred the first $2 million from the joint venture company to Tredmore and then into the Steller Fund in haste to avoid the risk of the Chinese litigation, that would not prevent finding that Ms Xue relied upon representations made by Atlas, in determining whether not to invest in the Steller Fund, although it would have undermined Ms Xue’s evidence as to her motivations in that investment. I do not reach any finding adverse to Ms Xue in respect of any aspect of the removal of those funds from China, and it is not necessary to address that question further to determine these proceedings. Mr Einfeld also submits, by reference to authority, that rejection of one part of a witness’ evidence does not necessarily lead to the rejection of all of that witness’ evidence. I broadly accept that proposition, although it seems to me that the effect of rejection of part of a witness’ evidence must depend upon the extent of the evidence that is rejected and upon whether the witness’ evidence in cross-examination left the Court without confidence that his or her evidence could safely be accepted.

24. I am not persuaded that Ms Xue’s evidence is reliable and it seems to me that it was, at best, reconstructed and tailored to her perception of what would assist or damage her case in cross-examination. In particular, Ms Xue resisted admitting any matter in cross-examination that she thought was adverse to that case, unless she was left with no alternative other than to do so, and on occasion maintaining denials even after they had become patently unsustainable. I will refer to examples supporting that finding, particularly in relation to her understanding of the level of risk attached to the investments, below.

25. By an affidavit dated 4 June 2020, Ms Lili Xue gave evidence that she had “authorised” Ms Xue to act on her behalf with respect to her $800,000 investment capital and in these proceedings and did not further explain her investment objectives, the rate of return she sought on that investment or level of risk tolerance. Unsurprisingly, given the somewhat perfunctory character of her evidence, Ms Lili Xue was not required for cross-examination.

26. The Plaintiffs also relied on several affidavits of Ms Lina Ma sworn 4 March 2020, 27 April 2020, 3 June 2020, 13 August 2020 and 15 November 2021 and an affidavit of Ms Linxue Hu dated 6 December 2021 relating to translation of Ms Xue’s affidavits. The Plaintiffs also read a further affidavit of Dr Wang dated 6 December 2021, which relates to the translation of a document concerning a transfer of funds, apparently out of the joint venture company.

27. By an expert report dated 18 September 2021, parts of which were not read and parts of which were admitted on a limited basis, Mr Barnes addressed town planning issues in respect of several sites being developed by the Steller Group, including sites in Victoria at Station Road, Cheltenham; Hampden Street, Hampden; and Coppin Street and Swan Street, Richmond (Ex P1).

28. By an expert report dated 26 September 2021, Mr McMaster, who has substantial experience as a financial adviser and in training financial advisers, expressed his view as to aspects of the investment in the Steller Fund, including reaching conclusions as to whether that investment was a “safe” or “very safe” investment. In summary, he concludes that that investment was a high risk investment for several reasons, consistent with the matters put by the Plaintiffs to seek to falsify the pleaded representations. I address Mr McMaster’s evidence as to specific issues below. Mr McMaster recognised in that report that risks associated with investment in the Steller Fund were disclosed by Atlas in the information memorandum, although he noted Ms Xue’s claim not to have seen it prior to investing in the Steller Fund, and indeed he relied on Atlas’ disclosure of those risks to establish that they existed and Atlas knew of them. Mr McMaster also addressed the risk profile of the Steller Fund from June 2017 to June 2019, but it is not necessary to address that matter where the Plaintiffs’ claim relates to representations made at the time of the original investment in the Steller Fund and any claim in respect of any reinvestment in May 2019 was abandoned.

29. Mr Knowles refers to a significant error made by Mr McMaster in assessing the financial position of Steller Developments Pty Ltd (“Steller Developments”), which I address below, the fact that the basis of the assumptions made by Mr McMaster was unclear, and that some of those assumptions appear to reflect McMaster’s own investigations and depend upon findings of fact which he rather than the Court has made. Mr Knowles also points out, and I accept, that Mr McMaster prepared his report by reference to the obligations of a financial adviser giving personal financial advice, although neither Atlas nor Ms Zhuang acted in that capacity. Mr Knowles submitted, in summary:

“To be clear, the defendants do not contend that Mr McMaster was a dishonest witness. Further there are aspects of Mr McMaster’s report which are not challenged and which are, frankly, statements of the obvious. It may be accepted that investment in property development carries certain inherent risks and it may also be accepted that one way of seeking to mitigate (but not eliminate) those risks is to take mortgages over real property assets ... However, in light of the above issues, little weight should be given to the report of Mr McMaster in relation to matters which are in contest.”

30. It seems to me that a first difficulty with Mr McMaster’s report is that he has reached his conclusions by reference to the standard of what a licensed financial adviser would do in providing personal advice to a client, as he makes clear, for example, in paragraph 36 of that report. Mr McMaster acknowledged in cross-examination that his opinions had been given on the basis that a licensed financial adviser would take into account the particular characteristics of the investor, because he or she was obliged to do so, and that he was giving evidence by reference to what a reasonably competent financial adviser would do in giving personal financial advice, and that he had approached all of the questions in his report that referred to the role of a financial adviser on that basis (T278). The difficulty with that approach, which was fundamental, was that it is common ground that Atlas was not a financial adviser providing personal advice to a client but a financial product issuer providing general advice, which is not required or permitted under Chapter 7 of the Corporations Act to take the client’s personal circumstances into account. The conclusions expressed by Mr McMaster as to what a licensed adviser providing personal advice would have done are irrelevant to the matters that I have to decide.

31. A second difficulty with Mr McMaster’s report is that he based his opinions on his review of the pleadings, the affidavit evidence and other documents, including documents that are not in evidence such as transcripts of public examinations into the failure of the Steller Group, rather than on identified assumptions. That significantly undermines the utility of his report, since it is impossible to know the extent to which his opinions depend on matters of fact that he has decided for himself or assumed, but not identified, which do not reflect evidence before the Court or the findings that the Court has reached.

32. A third difficulty with Mr McMaster’s report is that he had a tendency to assert conclusions without identifying either the documents or facts on which they were based or any reasoning process from which those conclusions were derived: for example, in paragraph 30, as to what would have been revealed by a “proper” due diligence process. It should be well understood by experts, but I again emphasise, that a bare ipse dixit by an expert which does not identify the information on which it is based or the reasoning process supporting it, should be given little or no weight by a Court. A fourth difficulty is that Mr McMaster frankly concludes his report by observing that the opinions contained in it are “subjective” and “formed on the basis of his industry experience and observation”. While an expert can properly give evidence by the application of his expertise and experience to assumed facts, that does not provide a licence for the expression of the expert’s “subjective” views, as distinct from the application of expertise and accepted professional standards to proved or provable facts, in providing an expert report to the Court. I found Mr McMaster’s evidence to be of limited assistance.

33. By a report dated 1 October 2021 (Ex P3) Dr Wang addressed the translation of WeChat messages relied on in the proceedings, which became an increasingly problematic issue as the hearing continued and the parties (or at least the Defendants) recognised that the Plaintiffs’ pleading and the Defendants’ response to representations stated in English may have neglected the subtlety of statements originally made orally in Mandarin or in written Chinese.

34. Turning now to the evidence on which the Defendants rely, by her affidavit dated 10 July 2020, Ms Zhuang set out her professional qualifications and refers to her role within the Atlas business and the nature of that business. She notes that Atlas began the process of developing products “backed by real property developments” by approaching potential developers in 2015 and 2016, and indicates the criteria which Atlas applied in identifying such developers, and refers to the identification of Steller Group through inquiries and research coordinated by Mr Burstin, who had expertise in property investment, particularly in the Melbourne region (Zhuang 10.7.20 [31]). She refers to information reviewed by APIM (which was a joint venture with Mr Burstin) in respect of the Steller Group. She also identifies the factors that made Steller Group attractive as a potential investment, including that the Steller Group focused on multiple smaller projects with higher turnover, the areas in which it was undertaking development and the nature of its customer base and the identity of Steller Group’s then directors (Zhuang 10.7.20 [34]). Ms Zhuang also refers to her identification of the features that the relevant product should include, and to having satisfied herself that the several documents relating to the Steller Fund’s dealings with the Steller Group satisfied those requirements (Zhuang 10.7.20 [36]-[39]). She also gave evidence (admitted with a limiting order under s 136 of the Evidence Act as her understanding) as to Mr Burstin’s involvement in monitoring and reporting on Steller’s development activities (Zhuang 10.7.20 [45]). Ms Zhuang also outlined her dealings with Ms Xue (Zhuang 10.7.20 [47]ff), and I address Ms Zhuang’s evidence of several meetings and conversations with Ms Xue in the chronology of events below. Ms Zhuang also addressed Ms Xue’s further investments in dealings with Atlas (Zhuang 10.7.20 [92]ff). It is not necessary to address those matters in order to determine these proceedings. Ms Zhuang also responded to aspects of Ms Xue’s affidavit dated 4 March 2020. In particular, she provided a response to the allegation that Ms Xue was “reliant” on her, and pointed to the limited services which she provided to Ms Xue.

35. By a second affidavit dated 15 November 2021, Ms Zhuang addressed the role of APIM and Mr Burstin and noted that APIM was a joint venture arrangement between Atlas and Mr Burstin providing introductions to developers. I address that evidence in dealing with that issue below. By a further affidavit dated 6 December 2021, Ms Zhuang annexed screenshots of her mobile phone referring to communications with Ms Xue in late March, April and May 2017. By a further affidavit dated 7 December 2021, Ms Zhuang referred to an issue as to the production of legible copies of documents, and also addressed a policy of Atlas by which she was excluded from current issues relating to assistance provided by Atlas to the liquidators of Steller Developments. Ms Zhuang was cross-examined, with some effect, as to the use of the phrase “eschew any participation” in those discussions and it seems that that phrase likely originated with the solicitors drafting the affidavit rather than Ms Zhuang. This was, regrettably, not the first or most important example in these proceedings of a witness’ evidence being distorted by the manner in which it was prepared or expressed.

36. Mr Einfeld submitted, in closing submissions, that Ms Zhuang:

“frequently became an advocate on her own and Atlas’s cause, rather than giving the product of her actual recollection.”

Mr Einfeld also submitted that Ms Zhuang did not limit herself to “actual recollection” in her evidence. I do not accept that is a matter for criticism of her evidence, where Ms Zhuang was frequently asked questions which could only be sensibly answered by reference to Atlas’ or her usual practice, where she would not have had a specific recollection as to what was done several years ago, but an answer that she “did not recall” would not have revealed relevant evidence to what was likely to have occurred. He also handed up an aide memoire in oral closing submissions identifying suggested “contradictions” in Ms Zhuang’s affidavit and oral evidence. Some of these seem to me to arise from the length of her affidavits and cross-examination, where no witness is infallible, and include corrections of her affidavit evidence; some arise from her identifying matters which were not fully addressed in her affidavit evidence because their significance was not appreciated, as often occurs in a lengthy cross-examination of an intelligent witness; and some suggest a degree of reshaping of her evidence to support Atlas’ and her position, and a degree of advocacy for that position, which I recognise below. I have had regard to all of the other criticisms made of Ms Zhuang’s evidence, although I do not address them individually.

37. Mr Knowles in turn defended Ms Zhuang’s credit in closing submissions. He observed, fairly, that the criticisms of Ms Zhuang’s evidence were made by reference to a lengthy cross-examination. He also submitted that:

“Ms Zhuang is, understandably, heavily and personally invested in the outcome of these proceedings. In that context, it would be explicable if, at times, she had attempted to stray into the realms of advocacy in the course of her evidence. She did not do so. Ms Zhuang was concise and forthright in her evidence to the Court and made appropriate concessions. Her oral evidence was broadly consistent with her written evidence, noting the expansion referred to above with respect to limited translation/language issues, and her evidence should be accepted.”

38. It seems to me that Ms Zhuang was a precise witness, with a strong understanding of the structure of the relevant financial products, and her answers were often more precise than the questions she was asked in cross-examination. I accept that there was a degree of advocacy in Ms Zhuang’s evidence, although that is perhaps understandable given the nature of the attacks which had been advanced against Atlas and her, including an unjustified allegation of involvement in a Ponzi scheme and an allegation that Ms Zhuang was knowingly involved in misleading Ms Xue and taking advantage of her asserted vulnerability. I am left with a degree of uncertainty as to whether the precision in her approach operated, at some times, as a way of avoiding uncomfortable questions, but it is not necessary to determine that question in order to determine the proceedings.

39. It appears that Ms Zhuang was in reasonably regular communication with Mr Hedley during her cross-examination, and believed he was listening to the proceedings, although it is not apparent she discussed the particular content of her cross-examination with him (T505). That communication at least appears to have extended the steps to be taken in the proceedings, including leading any further evidence, although it is not apparent that it addressed the specific evidence that she was giving in cross-examination. An important issue also arose in cross-examination (for example T547ff) when Ms Zhuang, in the course of her cross-examination, became more cautious as to the accuracy of translation of exchanges that originally took place in Mandarin, both in computer generated translations made by WeChat, and in her own affidavit. It was understandable that Ms Zhuang should be more cautious of that issue, given the developments in her cross-examination that had placed the accuracy of translations in close focus, which I will address below.

40. Ms Zhuang explained, plausibly (T549) that, at the time she had given her affidavit, she had not understood the extent to which translation would become a significant issue in the proceedings. Ms Zhuang’s evidence was also that the texts of conversations set out in her affidavit were short summaries of more detailed conversations (T551). I am inclined to accept that evidence, which likely reflects what generally occurs when witnesses give evidence of the effect of conversations that took place some years previously. Difficulties also arose to the extent that Ms Zhuang had recorded matters in her affidavit, from which she later retreated in cross-examination on the basis that she now claimed not to recall them (T574). I recognise that there were occasions on which Ms Zhuang claimed not to remember matters that had occurred, including matters that occurred relatively recently, and I am uncertain as to the accuracy of her evidence in that respect. Ultimately, little turns on the criticisms of Ms Zhuang’s evidence given the findings which I reach on other grounds below, which do not depend on that evidence.

41. In closing submissions, Mr Einfeld points to several witnesses who were not called by the Defendants, namely Mr Hedley, who was Atlas’ chair and was involved in its due diligence exercise; Mr Burstin, whose role I will address below; representatives of PMC Legal, a law firm which, on Ms Zhuang’s evidence, was retained to assist with Atlas’ due diligence in respect of the Steller Fund and the Steller Group; and an employee of Atlas, Ms Wang. Mr Einfeld relies on the rule in Jones v Dunkel, as explained in Kuhl v Zurich Financial Services Ltd (2011) 243 CLR 361; (2011) 276 ALR 375; (2011) HCA 11 and Musa v Alzreaiawi [2021] NSWCA 12 at [78], as permitting an inference that evidence would not have assisted the case of the party that did not lead that evidence, and permitting the Court to draw an inference unfavourable to the party who failed to call the witness with greater confidence, where the uncalled witness could cast light on that inference.

42. Mr Knowles responds that there was no need for the Defendants to call Mr Hedley to duplicate Ms Zhuang’s evidence and the issues in respect of due diligence did not require Mr Hedley’s evidence. He makes the same point in respect of Mr Burstin and submits that there is no evidence to believe that Mr Burstin is available to give evidence for the Defendants, where he was not and is not an employee of Atlas, and ceased to be a director of the joint venture company, APIM, on 17 April 2019. He submits that the issue as to due diligence did not require that evidence be led from PMC Legal, to the extent it had assisted Atlas with due diligence, and that there was no issue as to the assistance that Ms Wang had provided to Ms Xue to require her to give evidence. He submits, and I accept, that the rule in Jones v Dunkel does not permit an inference that evidence not called by a party would have been adverse to it and does not operate to fill gaps in the Plaintiffs’ case: Jagatramka v Wollongong Coal Ltd [2021] NSWCA 61 at [49], [88].

43. It seems to me that the only witness who was likely to be able to cast light on whether the oral representations alleged to have been made in April 2017 were made, Ms Zhuang, was called, and the Plaintiffs have failed to establish those representations. An inference that Mr Hedley’s evidence would not assist the Defendants, in respect of the conduct of due diligence, does not assist the Plaintiffs where the relevant representation was not made. It was not established that Mr Burstin or PMC Legal are within Atlas’ camp so that it would be expected to call them. There does not appear to be any factual contest as to the nature of the administrative services provided by Ms Wang to Ms Xue as to which it would be expected that Ms Wang would be called, although there is plainly an issue as to whether the provision of those services gave rise to any vulnerability on Ms Xue’s part.

Chronology

44. Turning now to the chronology of events, the Plaintiffs plead that, while Ms Xue was still living and working in China, she was introduced to Atlas and Ms Zhuang by the China Construction Bank (“CCB”), and Ms Xue and Ms Zhuang first spoke to each other by telephone in about early 2015 (FASC [11]-12], partly admitted Defence [11]-[12]). They plead (FASC [13.2], partly admitted Defence [13]) that Ms Zhuang advised Ms Xue in early 2015 that, inter alia:

“Atlas and Ms Zhuang were able to take care of Ms Xue in relation to all aspects of Ms Xue’s needs relating to Ms Xue moving to Australia, applying for a [SIV] and making SIV compliant investments in Australia.”

45. Ms Zhuang’s evidence is that she first met with Ms Xue on 14 March 2015 in Beijing (Zhuang 10.7.20, [50]-[54]), and she provided an information memorandum and application form for an earlier investment to Ms Xue at that meeting in March 2015, and she notes those products were in English. Her evidence is that she observed Ms Xue use software applications to translate documents from English to Chinese in the course of her later dealings with Ms Xue (Zhuang 10.7.20 [54]). However, I also recognise that Ms Xue later appears to have adopted a practice of asking Ms Zhuang to translate day-to-day correspondence for her after she arrived in Australia, and Ms Zhuang did so by using software applications.

46. On or about 1 April 2015, Ms Xue invested approximately $5,000,000 in another fund, the QCAX CCB fund, which was managed by Atlas (“CCB Investment”) (Zhuang 10.7.20 [56]). The CCB Investment was a fixed income bank deposit product, based on a bank deposit bond held with CCB, which had a return of 3.6% per annum (Zhuang 10.7.20 [52]; Ex J1, 1135) for a period of four years (T101). Ms Zhuang’s evidence is that she provided a brief oral outline of the product and a copy of the information memorandum to Ms Xue, about two weeks before Ms Xue emailed to Ms Zhuang the completed application form and made the investment (Zhuang 10.7.20 [50]-[56]).

47. Ms Zhuang’s evidence is that Ms Xue first arrived in Australia on 20 June 2015 (Zhuang 10.7.20 [64]). The Plaintiffs in turn plead (FASC [16], denied Defence [16]) that, from about July 2015, Ms Xue was “reliant” on Ms Zhuang for advice as to numerous matters. I find below that she used Atlas, Ms Zhuang and another Atlas employee, Ms Wang, to provide services as to many of those matters, but was not in any relationship of vulnerability to them.

48. From 17 February 2017, Ms Xue made several investments totalling $1.9 million in the “Tasman” or “Epping” Fund (“Tasman Fund”), after a meeting between Ms Xue and Ms Zhuang on 14 February 2017. Ms Zhuang’s evidence is that Ms Xue there said (Zhuang 10.7.20 [71]):

“I have $500,000 to invest. Do you have any products? I want a high yield – it has to be close to 10% for 1 to 1.5 years.”

I will return to the relationship between investment return and investment risks, and Ms Zhuang’s evidence as to her understanding of that matter, below.

49. Ms Zhuang’s evidence is that she referred at that meeting to a product involving a loan to a Sydney property developer with a project in Epping, where a bank rather than Atlas had a mortgage and the relevant Atlas fund had personal and group guarantees, and she explained to Ms Xue why no mortgage was available as follows:

“In today’s market, the Bank would not let us have a mortgage, but we have tried to manage the risk with personal and group guarantees. In Australia, normally a developer purchases the land first, and the Bank as first lender will take a mortgage. The developer will then go and seek development approval and try and do pre-sales at the same time to meet the Bank’s requirements for construction funding.”

Ms Zhuang’s evidence is that Ms Xue then asked what would occur if the developer defaulted, Ms Zhuang addressed that possibility and, when Ms Xue asked why the fund took “group guarantees”, Ms Zhuang responded:

“Often developers will set up separate companies for different developments, in order to try and contain risk. This is why we aim to get both personal and group guarantees – so the fund’s interests are aligned with the developers.”

That conversation, which I accept occurred in substantially these terms, makes it significantly less likely that Ms Xue ever had an understanding that a mortgage would be available over development properties and also provided a fair explanation of the structure of the Atlas property funds, and a similar structure was later adopted for the Steller Fund.

50. Ms Zhuang’s evidence is that she also provided Ms Xue with a copy of the information memorandum for the Steller Fund, which indicated that that arrangement was not secured by a mortgage (Zhuang 10.7.20 [73]). Ms Xue took issue with that account in her evidence in reply and, in cross-examination, also responded that she was told there was a mortgage in relation to the Tasman Fund (T232). Ms Xue subsequently returned a copy of the signed application form in connection with that investment (Ex J1, 1353) to Atlas, which included a Mandarin translation and declared immediately prior to the signing block that:

“This Application was detached from an information memorandum for the following fund” (before the Tasman Epping Investment Series is selected) and confirmed that “I/we read and understood that information memorandum”.

I will note below that the application form for an investment in the Steller Fund took substantially the same form.

51. Ms Zhuang’s evidence is that Ms Xue relocated to Australia in January 2017 (Zhuang 10.7.20, [70]). Ms Zhuang also notes many inquiries made by Ms Xue in respect of that relocation and after she arrived in Sydney and refers to the fact that Ms Zhuang obtained assistance from Ms Wang, a client investment manager at Atlas, in order to deal with the frequency of Ms Xue’s requests. Ms Zhuang’s evidence (Zhuang 10.7.20 [69]) is also that, although Ms Xue made numerous requests of her to perform tasks in Australia, or to give advice, Ms Xue was capable of making independent decisions and seeking assistance from others, and Ms Zhuang gave examples where Ms Xue had done so.

52. The Plaintiffs plead (FASC [26], denied Defence [26]) that, at a meeting at Atlas’ offices in January 2017, Ms Xue orally informed Ms Zhuang that:

“26.1   Most of Ms Xue’s investment experience in China was to invest in single property development projects where the project was backed with a security in the form of a mortgage over the property and land being developed;

26.2   The banks that Ms Xue used in China always did a lot of checking into the property developments that were seeking investment funds, and decided whether the development proceeded or not;

26.3   Ms Xue only wished to make investments that were safe;

26.4   Ms Xue only wished to make investments that had no or very little risk of loss;

26.5   Ms Xue was not prepared to lose money on investments in Australia; and

26.6   The reason that Ms Xue wanted to ensure the investments did not lose money was because both the principal and returns of such investments were to be used to buy a residential property in Sydney of approximately $10 million.”

53. It is not strictly necessary to reach a finding as to whether Ms Xue made statements in those terms, given the findings that I reach below. If she had made those statements, the first of them would have been false, given the scale of her commercial activities in China; the third did not fairly reflect Ms Xue’s understanding of the relationship between investment risk and investment return, which she belatedly acknowledged in cross-examination, or the fact that she required a higher rate of return on her investments; and the sixth was, at best, significantly incomplete as an explanation of the circumstances in which she removed funds from China in early 2017.

54. The Plaintiffs also plead (FASC [27], denied Defence [27]) that Ms Zhuang informed Ms Xue at that meeting that Atlas was a careful company; that Atlas would do due diligence in relation to Ms Xue’s investments; and that “Ms Zhuang would make sure that all of Ms Xue’s investments made by or for Ms Xue through Atlas had no risk and would be safe.” I accept there were references to the safety of investments in communications between Ms Xue and Ms Zhuang, but it seems to me that Ms Xue could not have understood and did not understand a reference to “safety”, as she claimed at times in cross-examination, as involving “no risk”.

55. A Commercial Loan Note Master Facility Deed (“Deed”) dated 2 February 2017 was executed between Atlas and Steller Developments and established the basis on which Atlas would lend funds raised from investors to Steller Developments for the acquisition and/or development of the properties identified in Schedule 1 of that Deed. A letter dated 2 February 2017 from Atlas to Steller Developments (Ex J1, 1327-1349), on the same date as the Deed was signed, noted that the Steller Fund would invest in debt-based securities issued by Steller Developments and “secured over commercial real property (as defined in Schedule 1 of the Steller Commercial Subscription Deed dated 2 February 2017) with a view to delivering investors with a preferred investment return rate” and sought a representation that Steller Developments “will hold secured investments in the properties identified in the Steller Master Subscription Deed (Schedule 1) with any Fund monies received” and would not directly invest in Australian residential real property with fund monies or make other residential real property investments with specified exclusions, which appear to have been directed to the SIV requirements. I bear in mind Mr Einfeld’s submissions as to the terms of the Deed and the assurance letter of the same date (Plaintiffs’ closing submissions [65]ff).

56. Ms Zhuang gives evidence of Ms Xue’s subsequent investment in the Steller Fund, following communications commencing on 30 March 2017 (Zhuang 10.7.20 [75]ff). Ms Zhuang’s evidence is that Ms Xue told Ms Zhuang in a conversation on that date that she was looking at making an investment in Australian or US dollars and requested options “as soon as possible”; Ms Zhuang noted that Atlas could buy USD corporate bonds for her but fairly pointed out that Ms Xue would obtain a better yield by buying USD products in Hong Kong through her private bank relationship for US dollar investment; Ms Xue then asked whether Atlas had “anything else” and Ms Zhuang responded that:

“We also have a Melbourne-based property investment product. It aims for a 10% yield and it is a similar structure to the Tasman product that you invested in previously.”

Ms Xue there explains that the reference to the “Tasman product” was to another Atlas property fund, the “APIF 1 Epping Fund Product”. Ms Xue responded by expressing her interest and noting that she was “planning to transfer more funds to Australia” (Zhuang 10.7.20 [75]). There were subsequent WeChat exchanges concerning that matter.

57. A further meeting took place between Ms Zhuang and Ms Xue at Atlas’ office on 6 April 2017 regarding Atlas’ Steller Fund and a microequities investment product (Zhuang 10.7.20 [77]-[80]). I will refer to Ms Xue’s and Ms Zhuang’s evidence of that meeting in dealing with the Plaintiffs’ pleaded representational case below.

58. Another meeting took place between Ms Xue and Ms Zhuang on 4 May 2017, although the Plaintiffs do not rely on anything said at that meeting to found their representational case. Ms Xue signed an application form in respect of Tredmore’s investment of $2 million in the Steller Fund at that meeting, which recorded that Ms Xue was the investor and identified Tredmore as trustee for the Xue Family Trust as the relevant company, trust, or superannuation fund. Her evidence is that that form was not completed in her handwriting, although it is common ground that she signed it. The form contains a representation, by the execution of the application form, that the investor is an eligible investor which is investing at least $500,000 at one time (excluding superannuation sourced monies), and that was the case here; that the investor understands that the Steller Fund is currently an unregistered management investment fund; that neither the repayment of capital nor the performance of the Steller Fund is guaranteed; and the investor acknowledges that the application was detached from an information memorandum for the Steller Fund and that the investor had read and understood that information memorandum and agreed to be bound by the terms of the information memorandum and the trust deed for each fund. Each of those statements is translated into Chinese text and the statement acknowledging that the investor had read and understood the information memorandum and was bound by it appears immediately above Ms Xue’s signature. Ms Xue’s evidence in cross-examination was that she signed the application form because she had been asked to do so and did so without “having a look” and she claims she did not read the two matters immediately above her signature before signing the document (T211). I am not persuaded that I should accept that evidence and I have held above that, in any event, Ms Zhuang had been provided with that information memorandum at the meeting in April 2017.

59. Ms Xue’s evidence is that she then caused a transfer of $2 million from Tredmore to Atlas on 4 May 2017 (Xue 4.3.20 [41]) and the corresponding investment of $2 million in the Steller Fund took place on 8 May 2017 for a period of 2 years (“First Tredmore Investment”).

60. An exchange of WeChat messages then took place between Ms Xue and Ms Zhuang on 4 May 2017, after the $2 million had been transferred from Tredmore to Atlas but before it had been invested in the Steller Fund (“4 May WeChat exchange”). I will address that exchange in dealing with the second aspect of the Plaintiffs’ representational case below.

61. The Plaintiffs also rely on a letter dated 8 May 2017 from Steller Property Funds Pty Ltd signed by Mr Burstin as its chief executive officer and addressed to Australian Executor Trustees Limited (which was the custodian of the Steller Fund), which attached an investments notes certificate representing a $2 million investment in the Steller Commercial Loan Notes. Again, that appears to be intended to demonstrate that Mr Burstin had an association with the Steller Group.

62. A further WeChat exchange took place on 14 May 2017, although that exchange is not relied on in respect of the Plaintiffs’ representational case. Ms Xue’s evidence (Xue 4.3.20 [60]) is that that communication occurred, again by WeChat, before Tredmore’s second investment and Ms Lily Xue’s investment, as follows:

Xue:   “Dear, this is very safe right? To be honest, the more money I put with you, the more worried I get. Please help me to ensure.”

Zhuang:   “Well, I know your requirements, so I only suggest the very safe products to you. I have high yield products as well, but I didn’t suggest them to you.”

63. By her affidavit dated 10 July 2020 (Zhuang [130]-[131]), Ms Zhuang responds to Ms Xue’s evidence in respect of that exchange which she translates as follows:

Xue:   “The product is safe yes? To be honest, I placed lots of funds with you (your company), the more money the more worried I am. You need to examine them closely to determine its safety.”

Zhuang:   “Well, I know what you’re asking for, so all products that are very safe will come to you. I still have high profit products, but I haven’t presented them.”

64. On 24 May 2017, Tredmore invested a further $2,000,000 with Atlas in the Steller Fund (Ex J1, 496) (“Second Tredmore Investment”) and, also on 24 May 2017, Ms Lili Xue invested $800,000 with Atlas in the Steller Fund (Ex J1, 497) (“Lili Investment”), and those funds were transferred to the Steller Group on 26 May 2017 (Xue 4.3.20 [43]-[44]). The total investments made by Tredmore and Ms Lili Xue in the Steller Fund were by then $4.8 million (Xue 4.3.20 [47]).

65. On 1 June 2017, Tredmore also invested $1,000,000 with Atlas in the Microequities Emerging Companies Value Fund (“Microequities Fund”) (Zhuang 10.7.20 [82]; Ex J1, 1706). Ms Zhuang’s evidence is that, prior to Ms Xue making that investment, she had advised Ms Xue that the Microequities Fund had a historical return of over 20% and was speculative in nature, with high risk and volatility (Zhuang 10.7.20 [79]).

66. Between June 2017 and March 2019, distributions totalling $882,585.60 were paid in relation to the Plaintiffs’ investments in the Steller Fund (Zhuang 10.7.20, [98]). Members of the Xue family and Tredmore subsequently made further investments in a range of Atlas products from July 2017. Ms Zhuang was also cross-examined about a meeting in March 2019, at which the Steller Group unsuccessfully sought to persuade Atlas to make a further investment of $50 million into a separate Steller line of business, concerning aged care, and her evidence was that other options were identified by the Steller Group, including the Atlas notes being paid back over a longer period.

67. A meeting between Ms Zhuang and Ms Xue took place on 22 April 2019 (Zhuang 10.7.20 [99]). The Plaintiffs’ investments in the Steller Fund matured in May 2019 but were not then withdrawn from the Steller Fund. The Plaintiffs do not press part of their claim that relates to that matter.

68. A receiver and manager was appointed to Steller Developments on 1 July 2020. Ms Xue’s evidence is that, on 2 July 2019 she received a phone call from Ms Zhuang who informed her of the appointment of receivers to the Steller Fund. She claims that Ms Zhuang then advised her:

“Don’t worry, you will get your money back within six months because Atlas is providing a guarantee for your investment in the Steller Fund. I am sorry this caused a delay to the purchase of your home.”

No claim is brought by the Plaintiffs by reference to that matter. On 3 July 2019, Atlas then sent an email to investors in the Steller Fund advising them of the appointment of receivers to the Steller Fund (Ex J1, 1575). An administrator was subsequently appointed to Steller Developments on 20 December 2019 and a liquidator on 6 March 2020.

The April 2017 representations

69. The Plaintiffs plead (FASC [40], largely denied Defence [40]) that, at the meeting in April 2017 to which I referred above, Ms Zhuang made several oral representations to Ms Xue. Mr Einfeld rightly accepts, in closing submissions, that a central issue in the case concerns the making of representations by Atlas to Ms Xue in April and May 2017 and Ms Xue’s reliance upon them in causing the Plaintiffs to invest $4.8 million into the Steller Fund. While Mr Einfeld characterises those representations as directed to the “integrity and soundness” of the Steller Fund, the case which the Plaintiffs pleaded and which I have to determine depends upon a series of specific representations made on two occasions, each of which are said to be falsified in a specific way.

70. Mr Knowles in turn rightly submits that:

“In relation to each of the claims relating to misrepresentation, or otherwise in connection with misleading and deceptive conduct, the Court is obliged to first answer the “quintessential question of fact”, as to whether the alleged representations were made and, if they were, were misleading or deceptive or likely to mislead or deceive. This is an objective question that is to be determined by considering the conduct of the person who made the representation as a whole viewed in the context of all relevant surrounding facts and circumstances: Butcher v Lachlan Elder Realty (2004) 218 CLR 592 at [109]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [102]; Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459 at [49].”

71. These representations rest on Ms Xue’s and Ms Zhuang’s evidence of what was said at a meeting in April 2017, although a second part of that case relies on a WeChat exchange in May 2017, which I address below, after the first $2 million had been invested in the Steller Fund by Tredmore. Ms Xue’s affidavit evidence, which was in error as to the date of that meeting, was as follows (Xue 4.3.20 [36]-[37]):

“A few days later in or around late April 2017 I met with [Ms Zhuang] at the Atlas offices to discuss the proposed Steller Fund investment, during which [Ms Zhuang] said the words to the following effect:

[Ms Zhuang]:   The development is secured by mortgages and is zero risk. The investment will pay a return of approximately 10% per annum and is a single site project with presales of 50 to 70% already in place and that construction of the project cannot start until this minimum has been met.

Xue:   Has Atlas done its own due diligence?

[Ms Zhuang]:   Atlas has its own due diligence team and has done a report on the Steller Fund, confirming that it’s safe. We would not be recommending this investment to you if it was not safe.

Xue:   How can you do due diligence if the project is in Melbourne?

[Ms Zhuang]:   Atlas has arranged and sent a dedicated person to Melbourne to do on site inspections and due diligence.”

What Fiona told me about the Steller Fund made me feel reassured that it was a safe investment, with little or no risk of losing any money, and likely to pay about 10% interest per annum if I invested in it.”

72. Ms Xue’s evidence in cross-examination was that Ms Zhuang told her at that meeting that the properties were secured by mortgages in favour of the Steller Fund and Ms Xue maintained that was her “basic requirement” for investment in the Steller Fund, and that Ms Zhuang had also told her that the Steller Fund had no risk and there were 50-75% presales in each of the developments (T206). Ms Xue maintained her affidavit evidence that Ms Zhuang had told her that the Steller Fund operated on a similar basis to Chinese property developments and told her of “due diligence, mortgagee, guaranteed by directors, group guarantee” which were also Ms Xue’s “basic requirements” for an investment (T207).

73. Ms Xue also sets out several other representational statements said to have been made by Ms Zhuang in paragraph 126 of that affidavit, which are not linked to any particular date or occasion or placed in the context of any evidence of the larger conversation, and which are not relied on in the Plaintiffs pleaded representational case by reference to the April and 4 May representations, as follows:

“In particular, at various times throughout our interactions both in person and via WeChat communications, in addition to the WeChat communications I have referred to above regarding the Steller Fund, [Ms Zhuang] has said to me directly in person:

[Ms Zhuang]:   “The Steller Fund is secured by mortgages over real estate owned by the Issuer. In addition, there are personal guarantees.

The Steller Fund is for a single site project.

The Steller Fund is low risk.

The Steller Fund is risk free.

The Steller Fund is very safe.

My office colleagues are investing in the Steller Fund.

The Steller Fund has 50%-70% of the properties in each development subject to presales. This is required by government regulations, otherwise construction cannot not legally be commenced.

The gross realisation value of each development is effectively secured, which eliminates sales risk.

The holding company of the issuer of the notes to the Steller Fund, guarantees the investment.

Steller Fund operates on a similar basis to large scale property investments in China that you know, where the bank does a thorough due diligence into the risk of ach development before agreeing to give funding for the projects.

Steller Fund will allow you to redeem part or all of your investment by buying residential apartments at the prices which applied at the original date of your investment in the Steller Fund.

In the Steller Fund there is no risk of losing your capital.”

74. I am comfortably satisfied that this evidence is, at best, a reconstruction not linked to any particular recollection by Ms Xue of any particular conversation, and does not advance the Plaintiffs’ representational case pleaded by reference to the April meeting and the 4 May 2017 WeChat exchange, which I address below.

223. Ms Zhuang’s evidence as to the extent of Ms Xue’s English skills was not entirely consistent. She initially readily accepted that she knew that Ms Xue had difficulty communicating with immigration authorities in the English language because of her lack of English (T312). She also accepted in cross-examination that she had assisted Ms Xue in relation to aspects of her personal life, particularly once she arrived in Australia (T315). She was cross-examined at length as to a number of aspects of administrative assistance to Ms Xue, including meeting routine payments for strata fees and lawn mowing fees on her behalf (T320ff), which Ms Zhuang did personally, with Ms Xue sometimes paying amounts in advance and sometimes after the event. Ms Zhuang was even cross-examined as to advice she had provided to Ms Xue as to how to access the parking station of the building in which her offices were located, which was likely to have been helpful but hardly demonstrated any element of dependence on the part of Ms Xue (T326). Ms Zhuang accepted that Atlas had referred Ms Xue to an accounting firm with which Mr Hedley had an involvement to assist her with accounting services (T327). Ms Zhuang was also cross-examined about a number of routine communications sent to her, including relating to Ms Xue’s son’s schooling, but it appears some of those communications may have been sent to her by Ms Xue to ask her to translate them (T336).

224. Ms Zhuang was also taken to a message she sent to Ms Xue in English and then in Chinese and she explained she was there seeking to teach Ms Xue English. Ms Zhuang there said “see, English is very simple. You probably only need about 500 words to master the language” (T344). Ms Zhuang’s evidence was then that she expected Ms Xue to read and understand that message, because persons educated in China have been trained with “some English using simple words in English” (T344). Ms Zhuang observed that, although Ms Xue did not speak to her English, persons educated in China have been through English classes from primary school to university and “everyone has some basic understanding of English words.” She accepted, however, that Ms Xue did not speak English well enough to converse with her (T344).

225. Mr Einfeld summarises the matters said to support Ms Xue’s vulnerability, as at March 2017, in closing submissions as follows:

“the evidence revealed that by the time their discussions about the Steller Fund commenced, at the end of March 2017, Ms Zhuang had involved herself in Ms Xue’s life in many important respects, not just in terms of Ms Xue continuing her business dealings with Atlas, but in Ms Xue’s personal life, including being a school contact point for Ms Xue’s young son, paying household accounts, attending with Ms Xue to inspect a house Ms Xue subsequently purchased , accompanying Ms Xue to open a bank account - and generally in various aspects of Ms Xue’s personal life. These aspects of day-to-day reliance by Ms Xue upon Ms Zhuang were in any way challenged by the Defendants in their lengthy cross-examination of Ms Xue. There is thus unchallenged evidence of these matters recorded in contemporaneous documents.”

233. Mr Einfeld recognises, in closing submissions, that the facts which support the misleading conduct claim also underlie the claim for unconscionable conduct, and that Ms Xue’s vulnerability is not an essential ingredient in that claim. He does not identify any other facts, beyond those relied on to support the misleading and deceptive claim, and Ms Xue’s alleged vulnerability, in establishing the unconscionable conduct claim. In closing submissions, Mr Einfeld summarises the Plaintiffs’ unconscionability case as follows:

“All of the conduct upon which the Plaintiffs have relied to establish misleading conduct on the Defendants’ part is pertinent also to their unconscionability case. What ascribes to the conduct discussed above the particular character of unconscionability in this case is that the Defendants had the capacity to know, but the Plaintiffs did not know (and the Defendants knew that the Plaintiffs did not know) all of the aspects relating to the Steller companies and properties that Atlas had had at its disposal, before Ms Zhuang discussed the Steller investment with Ms Xue. Knowledge of the features of the four sites which Steller Developments covenanted to develop, the financial circumstances of the Steller companies, the inconsistencies in the Steller financial documents, the absence of any security and of contractual or other arrangements relating to the Schedule 1 sites, Atlas’ failure to investigate the wherewithal of the guarantors and the like were all known to Atlas, but not to Ms Xue.

234. Mr Einfeld also refers to the suggested relationship between Ms Xue and Ms Zhuang and submits that Ms Xue became “very much reliant upon Ms Zhuang for her advice, in personal as well as business matters, such that there was a particular vulnerability on Ms Xue’s part”. Mr Einfeld also refers to the elements relevant to a determination whether conduct is unconscionable under s 12CC of the ASIC Act as follows:

“(a)   the bargaining strengths of the parties [s12CC(1)(a)], which were in this case significantly unequal (Atlas had, but Ms Xue did not have) all relevant information concerning Atlas’ Steller Fund and the projects to be developed with the invested monies;

(b) the capacity of the kind envisaged by s12CC(1)(c) to understand the materials such as perhaps the Certificates that Ms Xue was given, the Information Memorandum (which she says she did not receive until many months after she made the investments);

(c) the tactics employed by Atlas and Ms Zhuang, which were, in terms of s12CC(1)(d), completely unfair, in that they provided to Ms Xue inaccurate information about the utility of any guarantees, the existence of security, the development projects, the financial strength (i.e. weakness) of the Steller companies and the like; and

(d) in terms of s12CC(1)(i)(ii), the Defendants unreasonable failure to disclose to Ms Xue the risks inherent in any investment in the Steller Fund; to the contrary, they minimised such risks entirely, instead recommending that the investment was safe.”

235. Mr Knowles refers to Ms Zhuang’s evidence in cross-examination that she did not always follow Ms Zhuang’s advice and was able to make her own decisions (T95, T97) and submits that:

“It is clear that Ms Xue is a sophisticated business-person, with a good knowledge of financial products and investment, evidenced by, among other things, the following:

(a)   by her own oral evidence, Ms Xue was very experienced at making investments in China and had a good understanding of commercial matters (T83:39-44);

(b)   by definition, Ms Xue is a sophisticated investor, having progressed her visa application through the SIV programme;

(c)   she is sole director of the first plaintiff, a role which carries with it all the statutory and fiduciary duties and responsibilities of a company director;

(d)   Ms Xue invested in a Chinese property development project called Beijing Shanghai Link Ecological Farm Pty Ltd (T83:14-22) and was the “legal representative” of that company, being responsible for the decisions the company makes (T83:27-29). …;

(e)   Ms Xue also managed a transport company in China, “composed of” around ten people (T83:7-9);

(f)   she has accrued a number of investments in Australia, in the few years since relocating, including at least three apartments in Sydney (T83:46-50); and

(g)   Ms Xue demonstrated familiarity with numerous financial and investment constructs demonstrating her significant experience as an investor, including: the relationship between risk and return, the likelihood of having to sell a property at a discount when relying upon mortgage security in the event of investment failure (T232:23-25), establishment and use of a family trust for investment (being the trust of which the first plaintiff is trustee), and the establishment of a self-managed superannuation fund, which Ms Xue set up using help from accountants in 2017 (T:17-20).

Against that background, it is somewhat fantastical to believe that Ms Xue would develop some vulnerability, even in the face of a language barrier, that would cause her to dispense with her commercial acuity and interest to capitulate to any alleged “undue pressure” or other unconscionable conduct by Ms Zhuang, or indeed, anyone, in relation to a particular investment.”

236. Mr Knowles also points out that Ms Xue accepted, in cross-examination, that she was not pressured by Ms Zhuang to make any investment (T98) and also points to the time taken by Ms Zhuang to make the decision whether to proceed with an investment in the Steller Fund, a matter on which the Plaintiffs also rely. Mr Knowles accepts that there is evidence that Ms Zhuang undertook “menial tasks” for Ms Xue but submits, and I accept, that those were matters of convenience for Ms Xue, rather than indicating any reliance on Ms Zhuang for decision-making.

237. It seems to me that the Plaintiffs’ case that Ms Xue was under any relevant disability or vulnerability to Atlas was not established. Ms Xue was and is plainly an intelligent and sophisticated businessperson, and it was not relevantly a disability or vulnerability that Mandarin was her first language, as it is the first language of many successful Chinese businesspersons trading with or living in Australia on a temporary or permanent basis. It was also not relevantly a disability or vulnerability that she had the ability to use Atlas staff to perform administrative and other tasks for her that she could have performed for herself. The evidence established that Ms Xue made extensive use of Ms Zhuang’s and Ms Wang’s services, but did not establish any vulnerability on her part, beyond the fact that she would need translation assistance with written documents or oral communications of any complexity in English. She accepted in cross-examination that she knew how to obtain such assistance and had used it from time to time. That did not give rise to any disability in her written and oral dealings with Atlas which were largely in Mandarin and where she had the capacity to obtain a translation of documents such as the information memorandum if she wished to do so.

238. It seems to me that the Plaintiffs’ wider unconscionability claim is also not established. The Plaintiffs have failed to establish misleading and deceptive conduct on the part of Atlas or knowing involvement in that conduct on the part of Ms Zhuang, and I have found that Atlas provided an information memorandum which included substantial risk disclosure, although neither Atlas nor Ms Xue sought to translate it from English to Mandarin and Ms Xue did not read it. The bargaining strengths of the parties were not unequal, because Ms Xue was an experienced businesswoman, and, as I have noted above, to be Mandarin speaking is not generally or in the relevant circumstances a matter of disadvantage; Ms Xue had the capacity to understand the materials provided to her, including the information memorandum, by either asking Atlas to translate it for her if it wished to obtain an investment of $4.8 million from her associated entities, or that she use a software program or a third party service which she had used in other matters to translate it for herself; even if, contrary to view that I have formed, misleading conduct had been established by reference to the Plaintiffs’ pleaded case, it did not rise to the level of unconscionable conduct. It does not seem to me that this result could come as any particular surprise, where the conduct of Atlas and Ms Zhuang in this case falls well short of that addressed, for example, by the High Court in Kobelt, which the majority found was not unconscionable.

239. I should recognise, for completeness that Mr Einfeld formulated a further and somewhat different unconscionability case in closing submissions, contending that Atlas had established the Steller Fund and had an involvement with APIM which had a management role in the fund, and that Atlas was at a distinct advantage over Ms Xue, which I understand to be by way of an informational advantage, and Ms Xue was not advised to take independent legal or accounting advice in respect of the investment in the Steller Fund (T744). This proposition was put in Mr Einfeld’s oral submission (T745) that:

“In all relevant senses Ms Xue was at a special disadvantage, qua Ms Zhuang. Ms Zhuang knew what she was talking about. Ms Zhuang knew the fund, Ms Xue didn’t and Ms Zhuang knew Ms Xue didn’t. After all, prior to 6 April, apart from the conversations recorded – well, prior to and on 6 April, apart from the conversations recorded by Ms Zhuang and Ms Xue, Ms Xue knew nothing about the fund in which she was investing or the Steller people to whom the money was intended to be passed.”

240. The immediate difficulty with that proposition is that the Plaintiffs’ pleaded unconscionability case related to Ms Xue’s personal circumstances and her previous dealings with Ms Zhuang, rather than to the relationship between a product manufacturer or promoter of a fund (or Atlas in that capacity) and an investor in that fund. A second difficulty with that proposition is that, although there will often be an informational inequality between a distributor of financial products and an investor, that inequality is addressed by the statutory regime for the regulation of financial services, which seeks to limit the disadvantage to investors which might otherwise arise by reason of that inequality. The Plaintiffs did not here contend that Atlas was in breach of any of the statutory duties that specifically apply to product manufacturers or Australian financial services licensees, although it relied on the statutory prohibitions on misleading and deceptive conduct that are applicable to dealings in financial products and financial services, as I have noted above. The inequality which arose from any information disadvantage was here addressed by Atlas providing an information memorandum to Ms Xue, which provided disclosure as to the Steller Fund and the risks of investment in the Steller Fund, and I have not accepted Ms Xue’s denial that she received it, although she may well not have translated or read it. That information memorandum at least allowed Ms Xue the opportunity to inform herself as to the nature of the investment and its risks, bearing in mind the size of the investment that she was proposing to make for Tredmore and her sister.

241. Mr Einfeld further submitted that: “[w]hat is plain beyond argument is that Atlas encouraged Ms Xue to invest her money which she lost”, although he accepts that does not in itself establish unconscionability and contends that this was not simply a case where an investor who had made an unsuccessful investment sought to recover its funds because it made a loss and was seeking a profit. I accept that proposition, to the extent that Tredmore and Ms Lili Xue have succeeded in part, but not all, of their claim for misleading and deceptive conduct. However, the fact of Tredmore’s and Ms Lili Xue’s loss and any informational disadvantage of Ms Xue, here arising from not reading the information memorandum, do not seem to me to establish a claim for unconscionability, even if the unpleaded aspect of that claim was open to Ms Xue.

Claim for direct liability against Ms Zhuang

242. The Plaintiffs seek to establish personal liability on the part of Ms Zhuang, although they devoted little attention to this in the course of submissions. Paragraph 73A-73B of the Further Amended Statement of Claim pleads that the Representations (as defined) were misleading conduct of the Defendants (including Ms Zhuang) in contravention of ss 1041E and 1041H of the Corporations Act and ss 12DA and 12DB(1)(i) of the ASIC Act. It is only necessary to address this claim in respect of the representation pleaded in paragraph 40.18, as falsified by the matter pleaded in paragraph 195, which is the only claim for misleading and deceptive conduct established by the Plaintiffs.

243. The case law establishes that a claim for misleading conduct undertaken by a director, employee or agent of a company can succeed against that director, employee or agent, where it also succeeds against the company. In Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59, an employee was held liable for misleading and deceptive conduct in the course of his employment, in parallel to the company's liability arising from his conduct. In Australian Securities & Investment Commission v Narain (2008) 169 FCR 211; (2008) 66 ACSR 688; [2008] FCAFC 120 (“Narain”), the Full Court of the Federal Court applied Houghton v Arms and held (at [98]) that the chief executive officer of a company was personally liable for misleading and deceptive conduct in respect of the release of a misleading statement to Australian Securities Exchange (“ASX”), where he had participated in the drafting of the announcement, approved its content and directed the company secretary to send it to the ASX, and the company secretary had performed that task on his instructions; see also Australian Securities & Investment Commission v Cycclone Magnetic Engines Inc (2009) 71 ACSR 1; [2009] QSC 58 at [221], CH Real Estate Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37, Swiss Re International SE v Simpson [2018] NSWSC 233; (2018) 354 ALR 607 at [527] (“Swiss Re”), Australian Securities and Investments Commission (ASIC) v GetSwift Ltd [2021] FCA 1384 at [2120]ff (“GetSwift”) and see the consideration of the issues in J Harris & S Webbey, “Personal liability for corporate disclosure problems” (2011) C&SLJ 463. I bear in mind that the parties did not address the relevant case law in submissions.

244. However, the proposition that such a claim can succeed against such a director, employee or agent personally does not mean that it inevitably will, or that the person who makes a representation for a company (which cannot speak other than by agents) necessarily does so in his or her personal capacity. In Narain, that claim succeeded where the company’s chief executive officer was the central participant in the misleading disclosure. In Swiss Re, in circumstances where a company’s board and advisers were involved in the drafting of an announcement, Hammerschlag J (as his Honour was then) found that neither the company’s chief executive nor its chief executive officer could be regarded as the embodiment of the company in making that announcement where neither of them were the principal of the company or its directing mind (at [562]). His Honour also held that an employee who had failed to disclose particular matters in a telephone conversation with insurers had undertaken conduct only on behalf of his employer and was also “not the principal of [his employer], its mind, or directing it” (at [527]), instead being only “one, amongst many other potential human embodiments of [his employer]” and not the “one on [his employer’s] behalf to disclose” the omitted information (at [529]). In GetSwift, Lee J reviewed the relevant principles at some length and observed that:

“The ultimate question, which is not in dispute between the parties, is whether all of the elements of the contravention are made out against the relevant individual in his own right, or whether he merely acted as a corporate organ, thereby binding the company but not himself personally: Narain (at [96] per Jacobson and Gordon JJ). This is a question of fact: Narain (at 225 [96]–[97]).”

His Honour there noted that, in Swiss Re, the employees (including senior executive officers) made statements and did not disclose materials in the course of their executive duties, and announcements were drafted as a result of a “collective effort” of the board. His Honour distinguished the position in GetSwift and held that individual defendants involved in the making of several announcements were liable for their conduct.

245. In Stav Investments at [528], Ward CJ in Eq (as the President then was) in turn observed that:

“It is noted that if individuals, such as the defendants, engage in conduct that is misleading or deceptive, they may be principally liable for that conduct, even if they were acting as an agent of a company (see Williams v Pisano at [42] per Emmett JA, with Bathurst CJ and McColl JA agreeing; Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59 at [40]; Standard Chartered Bank v Pakistan National Shipping Corporation [No 2] [2003] 1 AC 959 at 973 –974 per Lord Rodger of Earlsferry).” [emphasis added]

Her Honour there found, on the particular facts, that the defendants were not merely ministerial organs involved in making representations on behalf of the company, but that they made representations themselves as principals. That factual finding emphasises the need for that question to be addressed and then determined, as a matter of fact.

246. The Plaintiffs here put their submissions as to direct liability in a manner that did not recognise any need to establish anything more than that Ms Zhuang had made the relevant representations, and did not seek to address whether she had done so (in Ward CJ in Eq’s formulation) as a “merely ministerial organ … involved in making representations on behalf of the company”, or had herself made the representations as principal. Mr Einfeld did not seek to identify any particular facts which should lead to a conclusion that Ms Zhuang’s conduct should be treated as binding her personally rather than binding Atlas in its corporate capacity, beyond the fact that she had made the statements that the Plaintiffs attack, and possibly the additional fact (which is common ground) that she was one of the directors of Atlas. His closing written submissions (at [146]) simply contended that Ms Zhuang made the representations that are alleged to be misleading, without addressing why she should be treated as having done so in her personal capacity rather than as Atlas’ ministerial agent. In closing oral submissions on the second last day of the hearing, he addressed direct and accessorial liability together, and submitted that:

“The last submission we make before we adjourn is the obvious one, that if Ms Zhuang is not liable as a principal, she is certainly liable as being a person involved in the conduct of Atlas. As a practical matter, there is no real difference because she was the face of Atlas when it comes to Atlas’ dealings with Ms Xue but the sections to which we referred in outline, in particular s 12GF of the ASIC Act makes Ms Zhuang liable as an accessory, as it were, provides her with an accessorial liability.

The fact that she says herself in the affidavit that she formed the view that the investment in the Steller Fund was very safe, that’s the evidence at para 87 of her affidavit of 10 July, makes it extremely likely that that’s what she told Ms Xue in April 2017, and Ms Zhuang's involvement, as it were, at the coalface makes it extremely probable that it's, as we say, beyond the point of argument that she was personally involved in the misleading conduct and unconscionability of the corporate entity and should be found liable as a principal, but alternatively, as an accessory.” (T 747)

247. I recognise that a case could have been put, relying on matters put in other aspects of the Plaintiffs’ case, that Ms Zhuang should be treated as having made the representation pleaded in paragraph 40.18, as falsified by the matter pleaded in paragraph 195, in her own right, rather than merely as a corporate organ or ministerial agent of Atlas. That case may have involved the facts that Ms Zhuang was a director of and held a senior role with Atlas, although the executives who were not held liable in Swiss Re also held senior roles with Swiss Re; she was involved with the development of the Steller product and the “due diligence” undertaken in respect of it, although that proposition would have needed to engage with the extent to which others in Atlas, including Mr Hedley and employees working with Ms Zhuang, undertook that work; she made the impugned statements, although that is the start of the inquiry rather than the end of it; and she had extensive previous dealings between herself and Ms Xue, on which the Plaintiffs relied on in other aspects of the case. If Mr Einfeld had put such a case in submissions, Mr Knowles would have had the opportunity to respond to it. However, it seems to me that it would be profoundly unfair to Ms Zhuang, and a denial of procedural fairness, for me to articulate for the first time in a judgment how the Plaintiffs could have put this claim, where they did not seek to do so, and find that Ms Zhuang is liable in a case which the Plaintiffs did not formulate and to which she has not had a substantive opportunity to respond. I note, for completeness, that I asked Mr Knowles in closing oral submissions whether the Defendants accepted that Ms Zhuang had made, in her personal capacity, any representations that were made by Atlas. Unsurprisingly, he indicated that the Defendants did not accept that matter but did not go further to hypothesise the case that the Plaintiffs might have articulated for that proposition or seek to rebut it where it had not been articulated (T787-788).

248. The Plaintiffs have not articulated a basis on which Ms Zhuang should be treated as having made the representation pleaded in paragraph 40.18, as falsified by the matter pleaded in paragraph 195, in her own right, rather than merely as a corporate organ or ministerial agent for Atlas, and I should not find against Ms Zhuang on a case that was not put. The direct representational claim against her therefore fails, in respect of the only representation that I have found to be misleading. It is not necessary to address the case in unconscionability, which has failed generally.

Claim against Ms Zhuang for involvement in the pleaded statutory contraventions

249. The Plaintiffs in turn plead aspects of Ms Zhuang’s dealings with Ms Xue (FASC [76]ff) and then plead that Ms Zhuang was involved in Atlas’ pleaded contraventions of s 991A of the Corporations Act and ss 12CA and 12CB of the ASIC Act. The Plaintiffs did not plead the material facts relied on to support the allegation that Ms Zhuang was a person involved in the statutory contraventions pleaded against Atlas, although it is clear enough from the findings that I have reached above that Ms Zhuang was substantially involved in the events that gave rise to the contravention that I have found. More significantly, the Plaintiffs neither articulated, nor established, any case that Ms Zhuang had knowledge of the essential facts constituting that contravention so as to establish that she was involved in that contravention for the purposes of s 79 of the Corporations Act: Yorke v Lucas (1985) 158 CLR 661 at 670; (1985) 61 ALR 307; (1985) HCA 65; see also Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40 at [40]. Where the Plaintiffs do not identify a case supporting Ms Zhuang’s knowledge of the essential facts of that contravention, by any pleading or submissions that would allow Ms Zhuang a fair opportunity to respond to that case, any finding adverse to Ms Zhuang in that respect would involve a fundamental denial of procedural fairness. The case against Ms Zhuang in that respect is not established.

Orders and costs

250. For these reasons, the First Plaintiff, Tredmore, succeeds only against Atlas in respect of the Second Tredmore Investment. The Second Plaintiff, Ms Xue, did not bring any claim to recover any loss and she (as distinct from Tredmore) did not invest in the Steller Fund and suffered no loss in an individual capacity. The Third Plaintiff, Ms Lili Xue, succeeds in respect of the Lili Investment and the Plaintiffs collectively fail in their claim against Ms Zhuang. Tredmore’s and Ms Lili Xue’s damages are quantified as the amounts that they invested in the two investments, being $2 million and $800,000 respectively, on a “no transaction” case, less the substantial return they in fact made from their investments in the Steller Fund of nearly $900,000 (or a lesser amount attributable to the two investments in which they have succeeded), paid out between June 2017 and March 2019. The amount of that return is identified in Ms Zhuang’s evidence (Zhuang 10.7.20 [98]), although it will need to be allocated to the relevant investments and between Tredmore and Ms Lili Xue in making orders. Had I accepted Ms Lili Xue’s evidence that she would only invest on a risk free basis (which I have not accepted), I would have allowed interest on the amounts to be repaid at the risk free rate of return (which would be readily derived from public sources) on those amounts from the date of the investments to the date of judgment. Where I have not accepted that evidence, both parties accept that the Court should allow interest at the rate applicable from time to time for the purposes of s 100 of the Civil Procedure Act, again from the date of the investments to the date of judgment. I proceed on that basis.

251. I am not persuaded that the damages recoverable by the Plaintiffs can or ought to be reduced on account of any failure to take reasonable care, under s 1041E(1B) of the Corporations Act or s 12GR(3) of the ASIC Act, a matter pleaded in paragraph 92 of the Defendants’ Defence and particularised by reference to the Plaintiffs’ failure to make their own assessment of the risk of the investment and their failure to review or properly review the information memorandum and other material relating to the investments. This matter was not addressed in the Plaintiffs’ closing submissions and was addressed only briefly in the Defendants’ submissions, where Mr Knowles observed that:

“even if she were to succeed in this case, Ms Xue’s consciously blind approach to investment can only be characterised as negligent in failing to take reasonable care to protect her own interests. That conduct would justify a considerable reduction in the amount of compensation payable by virtue of s 1041E(1B) of the Corporations Act and s 12GR(3) of the ASIC Act: see Defence at [92]. The defendants submit that a reduction of approximately 50% of any loss would be appropriate.”

252. However, it seems to me that the matter on which the Plaintiffs have partly succeeded was a structural risk in the investment, which would not reasonably have been discovered by reasonable care on their part, including a review of the information memorandum. The claim for a reduction of damages under s 1041E(1B) of the Corporations Act or s 12GR(3) of the ASIC Act therefore fails.

253. The Plaintiffs have failed in significant aspects of their case, including the claim in respect of the First Tredmore Investment, the claim against Ms Zhuang, and their unconscionability case. It also seems to me that, even with the complexities arising from translation issues, this claim would likely have been completed in a hearing of, at most, four or five days rather than fourteen days if the Plaintiffs had not multiplied the number of representations relied on, put a case as to Ms Xue’s vulnerability that had no substantial evidentiary basis, and if Ms Xue had led straightforward evidence in respect of a narrower case rather than her evidence being shaped to support complex representations and then falsified in substantial parts on cross-examination. There would be a real injustice to the Defendants in ordering that they pay the substantial costs which will have arisen from the over-elaborate formulation of the Plaintiffs’ case. My preliminary view is that Atlas should be required to pay one third of the Plaintiffs’ costs of the proceedings against it (other than any costs dealt with by previous costs orders) as agreed or as assessed, although I will allow the parties an opportunity to make written submissions as to costs below. The Plaintiffs must pay Ms Zhuang’s costs of the proceedings against her (other than any costs dealt with by previous costs orders) as agreed or as assessed, where they have failed in the claim against her.

254. I direct the parties to bring in agreed orders, including as to costs, within 14 days, or otherwise their respective orders and submissions not exceeding 6 pages in one and a half spacing and 12-point Arial font as to differences between them.

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Amendments

24 January 2023 - To correct Counsel representation for Defendants.

Decision last updated: 24 January 2023