Re Australian Organic Eggs Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S ECI 2021 03769

IN THE MATTER OF AUSTRALIAN ORGANIC EGGS PTY LTD (ACN 633 278 903), SEASONS KERANG PTY LTD (ACN 633 279 473), SEASONS RANCH PTY LTD (ACN 616 496 541) AND SEASONS RANCH ORGANIC PTY LTD (ACN 633 144 788)

BETWEEN:

HONG LIU & ANOR (according to the Schedule of Parties)	Plaintiffs
v
AUSTRALIAN ORGANIC EGGS PTY LTD (ACN 633 278 903) & ORS (according to the Schedule of Parties)	Defendants

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JUDGE:	Button J
WHERE HELD:	Melbourne
DATE OF HEARING:	25 and 26 October 2022
DATE OF JUDGMENT:	5 December 2022
CASE MAY BE CITED AS:	Re Australian Organic Eggs Pty Ltd
MEDIUM NEUTRAL CITATION:	[2022] VSC 747

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CONTRACT – Formation – Whether the parties mutually assented to the essential elements of the bargain – Whether the parties intended to be legally bound – Where the plaintiffs are investors in egg farming and grading businesses – Where the dealings between the parties were informal – Where the agreements were not formalised in writing – Where the plaintiffs made multiple payments pursuant to the agreements – Parties agreed on essential terms of their bargain – Parties intended to be legally bound.

CONTRACT – Formalities – Whether parol contracts for the issue of units in a unit trust holding land captured by requirements that certain contracts be in writing Where unit holders under the Trust Deed did not have an interest in real property held on trust – Writing requirements do not apply to the parol contracts in this case – Instruments Act 1958 (Vic) s 126 – Property Law Act 1958 (Vic) s 53.

CORPORATIONS – Shares – Rectification – Where share registers failed to record plaintiffs as holding shares pursuant to agreements concluded with the defendants – Orders to be made for rectification of share registers – Corporations Act 2001 (Cth) s 175.

CORPORATIONS – Shares – Whether transfers of shares should be declared null and void – Where no effective transfer documents were signed – Where ASIC form 484 is prima facie evidence of share transfer – Where there is no evidence of any underlying share transfer – Declaratory relief to be granted declaring share transfers void and of no effect.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	C J Twidale	Mills Oakley
For the First to Fourth Defendants	No appearances	Petersen Westbrook Cameron Pty Ltd
For the Fifth Defendant	Mr G Song (solicitor)	Lawren Legal

TABLE OF CONTENTS

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

The County Court proceedings....................................................................................................... 4

Notification of potentially interested persons............................................................................. 7

The issues in this proceeding.......................................................................................................... 8

Factual narrative............................................................................................................................... 11

Wonder’s investment in the new organic egg farm............................................................... 11
Ms Liu’s investments.................................................................................................................. 14
Corporate constitutions and the Trust Deed........................................................................... 17
Share transfers and incomplete share issue............................................................................ 20
AOE Pty Ltd....................................................................................................................... 20
Kerang Pty Ltd................................................................................................................... 21
SRO Pty Ltd........................................................................................................................ 21
SR Pty Ltd........................................................................................................................... 22
The circumstances in which the transfer forms were signed and later registered.. 23

Consideration.................................................................................................................................... 25

Formation of contracts................................................................................................................ 25
Formation of contracts: egg farming............................................................................... 27
Formation of contract: egg grading................................................................................ 30

Rectification of share registers under s 175 of the Act........................................................... 31
Specific performance.................................................................................................................. 33
Section 126 of the Instruments Act and s 53 of the Property Law Act................................ 33
Terms of the Trust Deed regarding the issue of units........................................................... 40
Declaring share transfers null and void.................................................................................. 40
Kerang Pty Ltd................................................................................................................... 40
AOE Pty Ltd....................................................................................................................... 41
SR Pty Ltd........................................................................................................................... 42
SRO Pty Ltd........................................................................................................................ 43

Next steps........................................................................................................................................... 43

HER HONOUR:

Introduction

Between them, the plaintiffs invested $6 million ($3 million each) in an organic egg farming venture. The first plaintiff, Hong Liu (Ms Liu), also invested $1.5 million in an egg grading venture. The second plaintiff, Wonder Agriculture Pty Ltd (Wonder), only invested in the egg farming venture. Each of these ventures involved an operating company and a land-holding company. They are detailed below. The plaintiffs contend that they invested pursuant to agreements whereby shares would be issued to them in the operating and land-holding companies. The plaintiffs seek orders effectively putting them in the position they say they would have been in, vis-à-vis those shareholdings, had the agreements been performed. As the land on which the egg farming business was to be (and was) established was held on trust for a unit trust, they also seek the issue of units in that trust.

The negotiations on behalf of Ms Liu were primarily conducted by her husband, Yan Sun (Mr Sun). Their daughter, Chenyu Sun (who goes by the name Tracey), was not involved in negotiations, but became involved in the egg farming and egg grading businesses later on, in circumstances that will be explained.

The negotiations on behalf of Wonder were primarily conducted by Ke Cao (who goes by the name Jack), although his wife, Jingjing Zhang (who goes by the name Jacey), was also directly involved in certain aspects. Jacey is the only director of Wonder.

Turning to the defendants: the first defendant, Australian Organic Eggs Pty Ltd (AOE Pty Ltd), was registered on 6 May 2019,[1] to establish and operate the new egg grading venture. All of the 100 issued shares in AOE Pty Ltd have at all times been held by the fifth defendant, Capital Wins Pty Ltd (Capital Wins).[2] In this proceeding, Ms Liu seeks orders under s 175 of the Corporations Act 2001 (Cth) (the Act) correcting the company’s share register to record the issue to her of 100 new ordinary shares in AOE Pty Ltd as at 1 August 2019, so that she would hold 100 of 200 issued shares.[3]
[1]CB 694.
[2]However, an earlier copy of AOE Pty Ltd’s register dated 18 October 2019 records Capital Wins as holding 50 shares and Ms Liu holding 50 shares. This was unexplained and a later register records Capital Wins as holding 100 shares: see paragraph 76 below.
[3]Plaintiffs’ Amended Originating Process, [2]–[3].

The second defendant, Seasons Kerang Pty Ltd (Kerang Pty Ltd), was also registered on 6 May 2019,[4] to hold the land on which the egg grading operations were to be established. Kerang Pty Ltd became the sole registered proprietor of 44–46 Tate Drive, Kerang (the Kerang property)[5] on 8 November 2019.[6] According to ASIC records, 100 of 100 issued shares were held by Capital Wins prior to 21 July 2020, and thereafter, 50 of 100 were held by Ms Liu, with Capital Wins holding the remaining 50. In this proceeding, Ms Liu seeks orders rendering that transfer of 50 shares void and of no effect, and seeks orders under s 175 of the Act correcting the company’s share register to cancel the previous transfer of 50 shares and record the issue of 100 new shares to her as at 1 August 2019.[7]
[4]CB 692.
[5]Volume 11593, Folio 144; Volume 11593, Folio 145.
[6]CB 609–610.
[7]Plaintiffs’ Amended Originating Process, [5]–[6], [8]–[9].

Whereas AOE Pty Ltd and Kerang Pty Ltd were involved in the egg grading venture, the third and fourth defendants were involved in the egg farming venture.

The third defendant, Seasons Ranch Pty Ltd (SR Pty Ltd), was registered on 18 December 2016,[8] and held the land at 121 Lake Lookout Road, Beauchamp (the Beauchamp property)[9] on which the egg farming business was to be established. SR Pty Ltd is the trustee of the Seasons Ranch Unit Trust (the Trust).[10] It is not clear exactly when SR Pty Ltd took title to the Beauchamp property, but the transfer was stamped on 17 February 2017.[11] According to ASIC records, Capital Wins transferred 25 of 100 issued shares to each of the plaintiffs on 21 July 2020.[12] In this proceeding, the plaintiffs seek orders rendering the transfers of 25 shares void and of no effect, and also seek orders under s 175 of the Act correcting the company’s share register to record the issue to each of them of 50 new shares as at 22 May 2019.[13]
[8]CB 689.
[9]Volume 10215, Folio 264.
[10]The holding of the Beauchamp property on trust by SR Pty Ltd as trustee for the Trust was specifically alleged by paragraph 5(b) of the Statement of Claim, which allegation was admitted by Capital Wins (currently the holder of all units in the Trust) in its defence dated 29 April 2022 and taken to be admitted by the first to fourth defendants pursuant to r 13.12 of the Supreme Court General Civil Procedure Rules (2015) Vic.
[11]CB 296–297.
[12]CB 632–634.
[13]Plaintiffs’ Amended Originating Process, [12]–[13], [16]–[17], [19]–[20].

The fourth defendant, Seasons Ranch Organic Pty Ltd (SRO Pty Ltd), was registered on 29 April 2019,[14] to establish and operate the egg farming business. In this proceeding, the plaintiffs seek orders under s 175 of the Act to record the issue to each plaintiff of 50 shares as at 22 May 2019.[15]
[14]CB 687.
[15]Plaintiffs’ Amended Originating Process, [22]–[23], [25]–[26].

The fifth defendant, Capital Wins, holds shares in each of the first to fourth defendants, and units in the Trust. Hanyin Zhang (Ms Zhang) is the sole director and shareholder of Capital Wins.[16] She is married to Yining Tao (who goes by the name Steven). Steven has never been a director or shareholder of Capital Wins.
[16]CB 726.

The relief sought by the plaintiffs includes orders for specific performance of the agreements they contend were reached (the egg farming agreements and the egg grading agreement).

Capital Wins does not oppose the relief sought by the plaintiffs in their Amended Originating Process dated 16 August 2022.

The first to fourth defendants did not participate in the trial on the basis that they would abide by the outcome, save that they may seek to make submissions on the final form of any orders. The first to fourth defendants had previously filed a defence (which did not materially dispute the allegations advanced in the statement of claim), but that defence was struck out by consent as there was a dispute between the directors as to whether it was authorised and should have been filed.[17]
[17]Orders made on 14 July 2022.

The plaintiffs conducted their negotiations variously with Steven and his associate, Eng Beng Koh (also known as Tom and by the Chinese name Aming).[18] Both Steven and Tom were arrested in mid-2020 on serious drug charges. There is no suggestion that the plaintiffs, or those involved in the plaintiffs’ affairs, had any involvement in the alleged illegal activities of Steven and Tom. At the time of trial, the Court was informed that Steven was still on remand awaiting trial.
[18]I will refer to him as Tom to avoid confusion by using multiple names as the witnesses did.

The arrest of Steven in mid-2020 caused some changes to be effected to the directors of the first to fourth defendants. On 13 July 2020, Steven ceased to be a director of AOE Pty Ltd and Tracey and Ms Zhang became directors.[19] On 1 October 2020, Steven ceased to be a director of Kerang Pty Ltd, with Tracey and Ms Zhang becoming directors.[20] Steven ceased to be a director of SRO Pty Ltd on 13 July 2020, with Tracey, Jacey and Ms Zhang becoming directors from that date.[21] Steven was one of two directors of SR Pty Ltd until 10 June 2019, at which time Ms Zhang became a director, and was joined by Jacey and Tracey on 13 November 2020.[22] The other director of SR Pty Ltd until 10 June 2019 was Xiaoyan Ning, but that person did not feature in the evidence.
[19]CB 694.
[20]CB 692.
[21]CB 687.
[22]CB 689. The other director was Xiaoyan Ning, who also ceased being a director on 10 June 2019. There was no evidence about who this individual was.

Currently, four sheds at the Seasons Ranch Organic egg farm are operational and producing eggs. Since the arrest of Tom and Steven in mid-2020, construction on the fifth shed has ceased because of orders made by the County Court, which affect SRO Pty Ltd’s bank account.[23] The County Court orders are explained below.
[23]Affidavit of Ke Cao affirmed 13 October 2022, [61]; Affidavit of Sun Yan affirmed 13 October 2022, [53]; Affidavit of Chenyu Sun affirmed 23 December 2022, [23](e)(i)].

As will be apparent, Steven was the sole director of AOE Pty Ltd, Kerang Pty Ltd and SRO Pty Ltd at the times when the plaintiffs contend agreements were reached with each of those companies, and was one of two directors of SR Pty Ltd at the relevant time.

The County Court proceedings

On 30 June 2020, Steven was charged with offences including trafficking in a drug of dependence in commercial quantities.[24] Based on those charges, Judge Dyer of the County Court made a serious drug restraining order on 1 September 2020 under s 18 of the Confiscation Act 1997 (Vic) (the Confiscation Act). That order prohibited any person disposing of, or otherwise dealing with, various property or interests in that property. The property so restrained included the Kerang property registered in the name of Kerang Pty Ltd.[25]
[24]Affidavit of Hanyin Zhang affirmed on 10 February 2022, [5].
[25]CB 641–643.

Ms Zhang (Steven’s wife) was charged with the offence of dealing with property suspected of being proceeds of crime.[26] She pleaded guilty. On the basis of that guilty plea, Judge Dyer made an unexplained wealth restraining order on 22 October 2021 pursuant to s 40I(1) of the Confiscation Act. That order prohibited any person disposing of, or otherwise dealing with, various property or interests in that property. The property so restrained included the Beauchamp property held in the name of SR Pty Ltd, the shares in SR Pty Ltd recorded on the ASIC register as having been held by the plaintiffs in that company, and the shares recorded by ASIC as being held by Ms Liu in Kerang Pty Ltd.[27]
[26]CB 631.
[27]CB 696–700.

It is clear from the submissions advanced by the DPP in obtaining the unexplained wealth restraining order, and the reasons given by Judge Dyer in making that order, that the shares recorded as being held by the plaintiffs were included in the ambit of the order on the basis that they were (ostensibly) transferred by Capital Wins, but there was no apparent consideration moving from the plaintiffs to Capital Wins for the transfers.[28] No criminality or knowledge of criminality on the part of the plaintiffs was suggested.
[28]CB 768–788. See Judge Dyer Reasons, [14]: CB 782.

The plaintiffs have filed what are referred to as ‘exclusion’ applications in the County Court, in order to have certain property excluded from the ambit of the County Court’s restraining orders.

Judge Dyer was informed by the plaintiffs of the application proposed under s 175 of the Act and the manner in which the (then-anticipated) action would change the share structures of the four companies. Judge Dyer observed that the proceeding before him did not require that he finally determine the property interest in the items of property sought to be restrained.[29] Judge Dyer also referred expressly to the foreshadowed s 175 application, acknowledging that it may ultimately succeed and that the property interests may be in line with the matters asserted by the present plaintiffs’ affidavits concerning the various property interests.[30]
[29]Judge Dyer Reasons, [32]: CB 787.
[30]Judge Dyer Reasons, [32], [35]: CB 787–788.

The present plaintiffs’ exclusion applications in the County Court are in a cycle of being adjourned pending the outcome of this proceeding. While the DPP appeared, with leave, at two directions hearings, the DPP did not wish to be joined as a defendant and declined to be appointed as contradictor or amicus. Nevertheless, the DPP, by her counsel, raised a concern that the position taken by the plaintiffs in this proceeding (by which the agreements were for the issue of shares) was inconsistent with their affidavits in the County Court proceeding by which they sought to preserve the ostensible transfer of the shares which they now ask this Court to cancel and declare void and of no effect.

In response to the DPP’s concerns, the plaintiffs provided this Court with all the affidavits filed by them in the County Court exclusion applications, and filed additional affidavits in this proceeding addressing the perceived inconsistencies in their position.[31] The thrust of the explanations proffered by those affidavits is that the difference between the transfer and issue of shares was not something the deponents understood at the time of swearing their County Court affidavits, but was something explained to them once their present solicitors (Mills Oakley) became involved. The explanatory affidavits also pointed out that the applications in the County Court for exclusion orders had to be made under strict, and short, time limits. Understanding that distinction, they contend the agreements reached were unequivocally for the issue (and not transfer) of shares.
[31]Affidavit of Ke Cao affirmed on 11 April 2022; Affidavit of Yan Sun affirmed on 11 April 2022; Affidavit of Chenyu Sun affirmed on 11 April 2022; Affidavit of Jingjing Zhang affirmed on 11 April 2022.

On 28 October 2022, the DPP (by her Principal Solicitor) emailed to the Court orders made by Judge Hinchey in the County Court proceedings on 23 November 2022 which, under ss 40W and 26 of the Confiscation Act, (inter alia) permitted the mortgagee sale of the Beauchamp and Kerang properties by the National Australia Bank Limited (NAB).[32]
[32]The parties in this proceeding were given the opportunity to make further submissions relating to the County Court orders made on 23 November 2022, but did not indicate that they wished to do so.

Notification of potentially interested persons

On 8 April 2022, the Court ordered the plaintiffs to write to persons whose interests may be affected by the relief sought in this proceeding, notify those interested persons of the proceeding and inform them that, if they wished to be heard on the plaintiffs’ application, they should file an appearance.

The plaintiffs identified the following interested persons, in addition to the parties to the proceeding:

(a) the DPP, as custodian of the relevant shares and property restrained by orders made by the County Court;

(b) NAB, as mortgagee over the Kerang and Beauchamp properties;

(c) Capital Wins in its capacity as trustee for the Solomon Capital Trust, as the holder of 100 issued units in the Trust;

(d) Mr Koh (Tom); and

(e) Mr Tao (Steven).

The DPP, by letter dated 7 June 2022, advised the plaintiffs that she did not wish to be heard on the plaintiffs’ application and did not intend to file an appearance. The DPP also informed the Court that she did not wish to participate in the proceeding as an amicus or contradictor.

Similarly, the NAB did not file an appearance, and by email to the plaintiffs dated 13 July 2022, indicated that it neither consented to, nor opposed, the relief sought by the plaintiffs and did not waive its rights under the mortgages over the properties.

Capital Wins, which is already a party to the proceeding, saw no need to file an additional appearance as it already had a right to be heard on the plaintiffs’ application, including in its capacity as a trustee of the Solomon Capital Trust.

Tom was notified of the proceeding through his solicitors (Stary Norton Halphen) and informed the plaintiffs that he did not intend to be heard on the application.

On 2 June 2022, the plaintiffs sent Steven the materials filed in this proceeding to that date. The plaintiffs did not receive any indication that Steven sought to be heard on the application, and he has not filed an appearance in this proceeding. However, Ms Zhang (Steven’s wife) deposes to Steven having told her about the amounts invested and the proportion of equity which each plaintiff should have received.[33]
[33]Affidavit of Hanyin Zhang sworn on 10 February 2022, [10].

The issues in this proceeding

While the Amended Originating Process sought relief under s 1324(2)(b) of the Act, that relief was not pressed at trial. The relief sought was confined to:

(a) orders for specific performance of the various agreements contended for;

(b) orders for the issue of shares and units in the Trust to both plaintiffs in accordance with the egg farming agreement each says was entered into;

(c) orders for the issue of shares to Ms Liu in accordance with the egg grading agreement she contends was entered into;

(d) orders under s 175 of the Act correcting the registers kept by the first to fourth defendants to record the plaintiffs as holding the shares they say should have been issued to them; and

(e) declarations that the transfers of shares apparently effected are void and of no effect.

The first issue that needs to be determined is whether the plaintiffs entered into the contracts for which they contend. Specifically:

(a) did Ms Liu reach an agreement with AOE Pty Ltd and Kerang Pty Ltd for the issue of shares in those companies in return for the investment of $1.5 million in the development of an egg grading business?

(b) did Ms Liu reach an agreement with SR Pty Ltd and SRO Pty Ltd for the issue of shares in those companies, and the issue of units in the Trust, in return for the investment of $3 million in the development of an organic egg farming business?

(c) did Wonder reach an agreement with SR Pty Ltd and SRO Pty Ltd for the issue of shares in those companies, and the issue of units in the Trust, in return for the investment of $3 million in the development of an organic egg farming business?

There is no doubt that, if those agreements were reached, they were not performed by the first to fourth defendants as no shares in those companies have been issued, and no units have been issued to the plaintiffs in the Trust.

It is also clear that the plaintiffs have paid the sums required of them under the agreements for which they contend. Comprehensive and detailed evidence was tendered establishing the payment of the sums to be invested, over time. Those amounts were (consistent with the plaintiffs’ case in this Court) not paid to Capital Wins (hence the consideration issue in the County Court) but were paid:

(a) by Ms Liu and Mr Sun to SRO Pty Ltd for the new egg farm, with the first instalment payment (being $1 million) paid on 22 May 2019;[34]

(b) by Ms Liu and Mr Sun to the manufacturer of a piece of machinery needed for the egg grading operation (on 1 August 2019) and the balance to AOE Pty Ltd for the egg grading business;[35]

(c) by Wonder to SRO Pty Ltd for the new egg farm, with the first payment (a cash payment from Jack to Steven of $200,000) on 7 May 2019. Subsequent instalments were paid variously from Jack’s bank account and Jacey’s bank account after Tom provided SRO Pty Ltd’s bank account details on 22 May 2019, with a small number of payments having been made directly from investors to SRO Pty Ltd. Jack also directed that the repayment of one interest-free loan from him to Tom form part of Wonder’s investment.[36]

[34]Affidavit of Yan Sun affirmed on 13 October 2021, [21].

[35]Affidavit of Yan Sun affirmed on 13 October 2021, [28].

[36]Affidavit of Ke Cao affirmed on 13 October 2021, [19]–[39].

If those agreements were not reached, then it follows that the plaintiffs will not be entitled to any of the relief they seek (specific performance, the issue of shares and units in the Trust, corrections to the share registers, and declaratory relief).

However, if they do succeed in establishing the agreements for which they contend, then the following issues arise:

(a) should orders be made correcting the first to fourth defendants’ registers of members under s 175 of the Act?

(b) are the agreements of a kind that are required to be in writing?

(c) should declarations be made that the transfers of shares apparently effected in respect of Kerang Pty Ltd and SR Pty Ltd are void and of no effect?

The plaintiffs do not seek any costs orders if they succeed. Once the Originating Process was amended, so that it no longer contended that any agreements had been reached with Capital Wins, the fifth defendant no longer opposed the relief sought by the plaintiffs.

Factual narrative
Wonder’s investment in the new organic egg farm

Jack met Steven in 2010 when they played indoor soccer on the same team. Jack was in the real estate business, and Steven referred clients to him between 2010 and 2012, at which time Steven went back to China. They resumed contact when Steven returned to Australia in 2017 and Jack then learned that Steven had an egg farm called ‘Spring Ranch’. This existing egg farm is not to be confused with the new, organic egg farm, in which the plaintiffs invested.

Jack visited Spring Ranch in January 2019. Steven told Jack he planned to construct an additional, fifth, shed at Spring Ranch, and there was also an opportunity to be involved in establishing a new, larger egg farm at the Kerang property, where the plan was to establish a ten-shed organic egg farm, which would be the largest organic egg farm in Australia. Jack was more excited about the potential to invest in the new, largest organic egg farm in Australia, than in the expansion of the existing egg farm at Spring Ranch.

Steven then met again with Jack in mid-March 2019 at Jack and Jacey’s home. Jacey also attended this meeting once the children were in bed. Jack wanted Steven to present the investment opportunities to Jacey as she had business experience. At that meeting, Steven again outlined the two investment options. He said that the amount of investment required for the expansion of Spring Ranch would be $1 million to $1.5 million, which could be kept as a loan after completion of the new shed, or converted to equity at that point. In relation to the new organic egg farm, he said that the required investment was $3 million and this investment could also be structured as a loan or in return for equity.[37]
[37]T41.20–43.2; 52.5–53.4.

Jack consulted with his co-investors. They preferred equity and were more interested in the new egg farm opportunity.

At a further meeting attended by Jack and Jacey with Steven on 30 March 2019, Jack told Steven that he and his co-investors were not interested in investing by way of loan, but wanted to acquire equity in the new egg farm business. Jack said the investing group also wanted equity in the land. Steven told Jack and Jacey that was fine because the land and the business were a ‘package deal’. Steven proposed that his contribution to the new egg farm would constitute the Kerang property, and then managing the construction and operation of the egg farm, as well as undertaking activities to obtain any future finance that may be required. The contribution from Jack, Jacey and their co-investors would be the $3 million.[38]
[38]T43.3–44.30; 53.5–54.11.

There was a further meeting on 15 April 2019, at Jack’s office in the city. That meeting was attended by Jack, Steven and Tom (who Jack identified as Steven’s business partner). At that meeting, Steven confirmed that the required investment from Jack and his co-investors would be $3 million, which was to be used to fund construction of the new organic egg farm, as well as to provide working capital. He also confirmed that, in return for that investment, they would be issued 25% of the equity in the new operating company that was to be established, and would have the same interest in the land. Jack was informed that the other $3 million would come from another investor, and that (as stated previously) for their 50% interest, Steven and Tom would contribute the Beauchamp land and their management of the operation for 10 to 15 years. Steven was to provide a draft Shareholders Agreement. Jack agreed with the proposal. He then reported his agreement with Steven to his wife, Jacey.[39]
[39]T44.31–48.11; 54.12–55.4.

On 24 April 2019, Jacey had Wonder established to be the investment vehicle.[40] Jack was then informed by Steven (via WeChat message) on 30 April 2019 that he had incorporated a new company, SRO Pty Ltd, to be the operating company.[41] On 22 May 2019, Steven provided Jack the bank account details for SRO Pty Ltd. The first payment had been made about two weeks earlier, on 7 May 2019[42] when $200,000 in cash was provided to Jack by two of his co-investors, which he passed on to Steven on behalf of Wonder. The balance of the $3 million was paid by a number of bank transfers, on various dates (presumably as capital was required by SRO Pty Ltd and as the co-investors provided their funds) through to 9 June 2020. Many, but not all, of the bank transfers referred to Wonder (by the note ‘Wonder Agri’ or some similar reference) in the transfer records.[43]
[40]Affidavit of Jingjing Zhang affirmed on 23 December 2021, [14].
[41]Affidavit of Ke Cao affirmed on 13 October 2022, [17].
[42]While Jack’s affidavit affirmed on 13 October 2021 referred to the cash payment being made in 2014 (at [19]–[20]), I am satisfied this must have been an error and the correct year is 2019.
[43]See CB 513, 606–624.

Steven sent a draft Shareholders Agreement in relation to SRO Pty Ltd to Jacey by email on 7 May 2019.[44] While that document referred (erroneously) to Mr Tao as the ‘Existing Shareholders’ (when the shares in SRO Pty Ltd were held by Capital Wins), the recitals stated that the Existing Shareholders held the ‘200 shares in the Company’ and that the new shareholders ‘wish to subscribe for, and the Company wishes to issue’ ‘Subscription Shares’ for the ‘Subscription Moneys’. Clause 3 referred again to 200 shares being held by Steven and to the issue of 100 shares each to two new shareholders.
[44]CB 750; T55.29–56.5.

Jacey did not focus on the draft due to the impending birth of a baby. On 12 October 2019, Jacey met with Steven. They discussed the draft Shareholders Agreement. She took notes and prepared a written account of the meeting, which she sent to Steven for his comment. Steven provided his comments, and Jacey compiled a composite document. The notes referred, inter alia, to the injection of the $3 million in two phases, the status of the new egg farm and the expectation that it would generate a net profit of at least $4 million dollars per annum once completed.[45]
[45]CB 577–581. A translated version of Jacey’s handwritten notes from the 12 October 2019 meeting were provided at the trial: CB 741–742.

A further version of the draft Shareholders Agreement was sent to Jacey in December 2019, but she was not satisfied with this version either, including because it referred to $4 million gross (not net) profit.[46] Ultimately, the Shareholders Agreement was never finalised and executed before Steven was arrested on 30 June 2020. For reasons which were not addressed in the evidence, Jacey’s handwritten notes of the meeting,[47] and the second version of the draft Shareholders Agreement referred to the Existing Shareholders (still erroneously identified as Steven) having 200 shares and 100 shares being issued to each of the new shareholders.[48]
[46]Affidavit of Ke Cao affirmed on 13 October 2022, [44].
[47]CB 741–742.
[48]CB 750.

Jack had no agreement with Capital Wins to purchase any shares from the existing shareholder. Ms Zhang, for Capital Wins, likewise stated in her evidence that that company had no agreement with anyone to transfer a portion of its shares, and also that Steven had never been an office holder or member of Capital Wins.[49]
[49]Affidavit of Hanyin Zhang affirmed on 10 February 2022, [2], [16].

It was only more recently (on a date which is not clear) that Jack came to discover that SR Pty Ltd holds the Beauchamp property as trustee of the Trust.[50]
[50]Affidavit of Ke Cao affirmed on 13 October 2021, [53].

As noted above, four chicken sheds were built on the Beauchamp property, and entered into production, on the Beauchamp property.

Ms Liu’s investments

Mr Sun met Steven in early September 2018 when he went to visit the Spring Ranch farm. An acquaintance of Mr Sun’s, Mr Chan, was there too. Mr Chan had told Mr Sun that he (Mr Chan) had a friend with an egg farm, who was looking for partners. At the initial visit to Spring Ranch, Steven introduced the egg farm, told them it was profitable and that he intended to expand the business, as well as establish a new egg farm. Steven asked Mr Sun if he was interested. No specifics of the proposed investment were discussed at that time.

Mr Sun met with Steven again on 6 January 2019 at a restaurant in Balwyn. Tom and Mr Chan were also present. At that meeting, Steven told Mr Sun they — apparently Steven and Tom — had already purchased the land for the new egg farm.

A few days later, on 9 January 2019, Mr Sun had a meeting at a restaurant in Kew with Steven, Tom and Mr Chan. Ms Liu was also present. The new egg farm investment was discussed and the sum of $3 million was identified by Steven as the amount required to be invested, to pay for construction of the new farm, as well as operating costs. In return, Mr Chan and the Liu/Sun interests were to have a 50% interest. Steven and Tom were to have the other 50%. That was on the basis that Steven and Tom would supply the land and would be responsible for managing construction and running the business.[51]
[51]T73.21–74.29; 86.23–88.1.

Mr Sun had a number of telephone conversations with Steven on 16 April 2019. During these calls, Steven described the business plan for the new egg farm, and explained that it was to progress in two stages with some chicken sheds being put up in the first stage and going into production, and then further sheds being built in the second stage.[52]
[52]T74.30–75.18.

Shortly after these calls, Mr Sun had a telephone discussion with Tom in which Mr Sun told Tom that he was still interested in the egg farm investment even though Mr Chan had pulled out. Tom informed Mr Sun that the plan had changed and the egg farm would now be established as an organic egg farm as that would be more profitable. However, given the greater costs associated with an organic egg farm, Tom informed Mr Sun that the total required from investors would now be $6 million (and not $3 million). Tom also told Mr Sun the expected net profit after the first year of operations would be $4 million.[53]
[53]T75.19–76.26.

Mr Sun and Tom spoke by telephone again on or about 28 April 2019. Tom said that, with Mr Chan having given up on the venture, Steven’s friend, Jack, planned to invest as well. Each co-investor would invest $3 million. Those funds were to be used to establish the business and operate it. Each investor was to receive a 25% interest in the business and the land. Mr Sun concluded the discussion by asking Tom to make the arrangements as soon as possible as Mr Sun was still interested in investing in the new egg farm.[54]
[54]T76.27–78.16.

The amount of money to be invested and the portions of equity to be obtained were confirmed again in a subsequent call between Mr Sun and Tom on 3 May 2019. Mr Sun asked Tom to prepare the contract. A draft Shareholders Agreement was then provided to Mr Sun on or about 4 May 2019.[55] That draft referred (erroneously) to Steven as the ‘Existing Shareholders’ holding 100 shares. It also referred to the Company’s desire to issue new ‘Subscription Shares’ for the ‘Subscription Moneys’. Clause 3 referred to the issue of 50 shares to each new shareholder.
[55]CB 517.

Mr Sun had a telephone call with Tom regarding the draft Shareholders Agreement. Having had the document translated by a colleague, Mr Sun noted there was no reference to the land or to the expected net profit after the first year of operations. He raised these matters with Tom and Tom said he would speak to Steven and they would get the document amended and sent back quickly.

A further version was then received.[56] This version referred to the expected ‘gross revenue’ of $4 million, and not ‘net profit’. Mr Sun had a further call with Tom in which he raised this matter, on or around 7 May 2019. They also discussed matters concerning the composition of the board of directors. Again, Tom said that he would discuss the draft with Steven and come back with revisions. They again confirmed that Mr Sun’s interest would be 25% in the operating company and in the land.[57] Mr Sun told Tom that his wife would hold the investment. Ms Liu explained that they decided to have the investment in her name as she was based in Melbourne long-term, whereas Mr Sun went back and forth between Australia and China.[58]
[56]CB 544.
[57]T79.20–80.22.
[58]T88.27–31.

As noted above, the first payment (of $1 million) was made on 22 May 2019.

On 13 July 2019, there was an opening ceremony at the new organic egg farm, to mark the start of construction. As noted above, four chicken sheds were built and entered into production, on the Beauchamp property.

Tom drove Mr Sun home from the opening ceremony at the new egg farm. During the drive, Tom said to Mr Sun that he intended to set up an egg grading facility, which would outsource distribution and sales for the new organic egg farm, as well as servicing other egg farms. Tom drove Mr Sun to the land he proposed to purchase (the Kerang property). They had a look around. Tom told Mr Sun it was proposed to establish a new entity for the egg grading business. Tom asked Mr Sun if he was interested in investing in the egg grading facility, to obtain a 50% interest in the operations and the land, for an investment of $1.5 million.[59]
[59]T80.26–83.28.

Mr Sun and Tom had a further discussion about the egg grading investment on 18 July 2019 at a café in Balwyn. They had a detailed discussion about the egg grading company, the amount of the investment, as well as the progress of the business. It was confirmed that the amount to be invested was $1.5 million, and that the funds were to be used to purchase the land, purchase the necessary facilities, and undertake construction. The investment was to be provided in tranches, with the first instalment to be used as a deposit on the acquisition of egg grading machinery. The remaining 50% of the business and the land was to be held by Steven and Tom. Mr Sun conveyed that he accepted the proposal at that meeting with Tom. Mr Sun asked Tom to arrange an agreement quickly.[60]
[60]T83.29–84.14.

The first payment ($100,000) was paid to the manufacturer of egg grading equipment (Moba Asia Sdn Bhd) on 1 August 2019, and the balance of the $1.5 million was paid in several instalments by cheque on an account held by Ms Liu and Mr Sun, with the last instalment having been paid on 11 November 2019.[61]
[61]Affidavit of Yan Sun affirmed on 13 October 2021, [28].

Corporate constitutions and the Trust Deed

The Trust Deed of the Trust[62] provides that (subject to conditions concerning variation of class rights, which do not apply in the present circumstances) the Trustee has the power to issue units (cl 41). Other terms of the Trust Deed that are relevant to the nature of the interests of unit holders are discussed below in connection with the Instruments Act 1958 (Vic) (the Instruments Act) and the Property Law Act 1958 (Vic) (the Property Law Act).
[62]CB 459.

The corporate constitutions of each of AOE Pty Ltd,[63] SRO Pty Ltd,[64] and Kerang Pty Ltd[65] were in evidence. They were ‘off the shelf’ constitutions, and were in identical terms. Tracey deposed that, despite having access to the first to fourth defendants’ corporate records since becoming a director, she was unable to locate any constitution for SR Pty Ltd. Tracey stated in her evidence that corporate records were held by the accountants, Graphite (referred to elsewhere in the evidence as Graphite Business Advisors).[66]
[63]CB 376.
[64]CB 298.
[65]CB 337.
[66]Affidavit of Chenyu Sun affirmed on 23 December 2021, [15]; T92.16–25.

By cl 3.1 of each constitution, the directors of each of AOE Pty Ltd, SRO Pty Ltd and Kerang Pty Ltd were authorised to issue shares on the terms they thought fit.[67]
[67]Clause 3.1 of the constitutions: CB 380 (AOE Pty Ltd), CB 302 (SRO Pty Ltd) and CB 341 (Kerang Pty Ltd).

In the absence of a constitution for SR Pty Ltd having been located, I was invited by the plaintiffs to infer that, given that ‘off the shelf’ identical constitutions were procured for the other three companies, SR Pty Ltd had a constitution and it was in the same terms as the constitutions of the other three companies. Such an inference, while open, may be unsafe given that SR Pty Ltd was registered in 2016,[68] three years before the other three companies were registered in 2019,[69] and it appears that different advisors were involved (who may use different pro forma constitutions). In any event, even in the absence of such an inference, the replaceable rules apply under the Act such that the directors of SR Pty Ltd may exercise all the powers of the company,F[70] which include the power to issues shares in that company.[71]
[68]CB 689.
[69]CB 687, 692, 694.
[70]Section 198A of the Act. See also s 135 of the Act.
[71]Section 124(a) of the Act.

The constitutions in evidence also made it a requirement of registering a share transfer that there be an instrument in writing effecting the transfer, signed by the transferor and the transferee (except where execution by either was not required by law or deemed by law to be present).[72] This provision is relevant to the plaintiffs’ arguments on the share transfers that were apparently made (discussed below) being void and of no effect.
[72]Clauses 7.2 and 7.3 of the constitutions: CB 386–7 (AOE Pty Ltd), CB 308–9 (SRO Pty Ltd) and CB 347–8 (Kerang Pty Ltd).

Further, in the absence of a constitution, s 1072F of the Act would apply to SR Pty Ltd as a replaceable rule pursuant to s 135. Section 1072F provides (inter alia) that the transferor of shares remains the holder of shares until the transfer is registered in the company’s register of members. The section also provides that directors are not required to register transfers in certain circumstances.

Section 1071B also contains various requirements for an effective transfer of shares. Those requirements apply despite anything in the company’s constitution. In particular, a transfer must only be registered by the company if a ‘proper instrument of transfer’ has been delivered to the company: s 1071B(2). The Corporations Regulations 2001 (Cth) (the Regulations) specify what is required for an instrument of transfer to be a ‘proper instrument of transfer’. Those requirements differ depending on whether the securities being transferred are covered by Division 3 of Part 7.11.F[73] Division 3 applies (inter alia) to ‘shares in a company’: s 1073A(1)(a).
[73]A transfer of securities covered by that division must also be a ‘sufficient transfer of securities’: s 1071B(4).

Section 1073D provides, inter alia, that the regulations made in relation to transfers that are not effected through a ‘prescribed CS facility’[74] may specify the forms to be used and other matters.[75] The relevant regulations are largely enabling and not exhaustive. They prescribe forms which will be effective when stamped by a broker.[76] The enabling effect of the regulations is confirmed by s 1073F(6) of the Act, which provides that:

(6)       Nothing in the provisions prevents or affects the use of:
(a)       any other form of transfer of securities; or
(b)       any other mode of executing a document transferring securities;
that is otherwise permitted by law.[77]

[74]The relevant transfers in this proceeding were not made through a clearing and settlement facility.

[75]See r 7.11.22 of the Regulations, which prescribes that for the purpose of sub-s 1071B(3) of the Act, ‘for a transfer of unquoted securities, the State or Territory in this jurisdiction in which the company is taken to be registered is a prescribed detail’.

[76]See rr 7.11.11, 7.11.14 and Schedule 2A of the Regulations.

[77]See also Ku v Song (2007) 63 ACSR 661, 708 [198]–[199] (Graham J); Imperial Chemical Industrial Plc v Echo Tasmania Pty Ltd [2007] FCA 1731, [124]–[125] (Graham J).

Accordingly, in the absence of an inference that SR Pty Ltd had a constitution in the same terms as the other constitutions (which expressly required a signed transfer in writing), some recognised form of instrument of transfer is still required to effect a transfer of shares in SR Pty Ltd.

Share transfers and incomplete share issue
AOE Pty Ltd

Resolutions of AOE Pty Ltd were signed by Steven and dated 18 October 2019, approving the transfer of 50 shares in AOE Pty Ltd from Capital Wins to Ms Liu. A document headed ‘Standard Transfer Form’ was also prepared and dated 18 October 2019.[78] That document recorded the transfer of 50 shares in AOE Pty Ltd and was signed by Ms Liu as transferee. While Capital Wins was the named transferor, the document was signed by Steven, notwithstanding that he was not a director of Capital Wins. That transfer was not registered with ASIC, such that ASIC’s records for AOE Pty Ltd continue to record Capital Wins as the holder of all 100 issued shares.[79]
[78]CB 582–587.
[79]CB 694–695.

According to AOE Pty Ltd’s Register of Members[80] (as at 14 October 2022) all 100 shares are held by Capital Wins. However, an earlier copy of the register (dated 18 October 2019) records Capital Wins as holding 50 shares and Ms Liu holding 50 shares.[81] No explanation was proffered as to the change to the records of the register between October 2019 and October 2022.
[80]CB 736.
[81]CB 586.

There is no discrepancy between ASIC’s record of shareholders and the company’s current register.

Kerang Pty Ltd

An equivalent suite of documents was executed (again signed by Steven) for the transfer of 50 shares in Kerang Pty Ltd by Capital Wins to Ms Liu.[82] That transfer was eventually registered with ASIC, such that ASIC’s records for Kerang Pty Ltd record Capital Wins and Ms Liu as each holding 50 shares.[83]
[82]CB 594–599.
[83]CB 692–693.

According to Kerang Pty Ltd’s Register of Members[84] (as at 14 October 2022) 50 shares are held by Ms Liu and 50 shares are held by Capital Wins.
[84]CB 733.

There is no discrepancy between ASIC’s record of shareholders and the company’s register.

SRO Pty Ltd

An equivalent suite of documents was executed (again signed by Steven) for the transfer of 25 shares in SRO Pty Ltd by Capital Wins to Ms Liu and dated 18 October 2019.[85] There was no equivalent transfer form in respect of Wonder. The form in relation to a transfer from Capital Wins to Ms Liu was not lodged with ASIC and ASIC’s records continue to list Capital Wins as the sole shareholder of all 100 issued shares in SRO Pty Ltd.[86]
[85]CB 588–593.
[86]CB 687–688.

According to SRO Pty Ltd’s Register of Members[87] (as at 14 October 2022) all 100 shares are held by Capital Wins.
[87]CB 734.

There is no discrepancy between ASIC’s record of shareholders and the company’s current register. However, an earlier copy of the register (dated 18 October 2019) records Capital Wins as holding 75 shares and Ms Liu holding 25 shares.[88] No explanation was proffered as to the change to the records of the register between October 2019 and October 2022.
[88]CB 592.

Curiously (in light of documents for a share transfer having been signed on or about 18 October 2019), an ASIC form 484 (‘Change to company details’) for SRO Pty Ltd was also completed and signed by Steven also bearing a date of 18 October 2019.[89] That form 484 was, for reasons which remain unclear,[90] never lodged with ASIC. It provided for the issue of 100 ordinary shares in SRO Pty Ltd, with 50 of the newly issued shares being allocated to Ms Liu, and 50 to Wonder.
[89]CB 600–605.
[90]Affidavit of Jingjing Zhang affirmed on 14 August 2020, [18(b)].

SR Pty Ltd

An ASIC form 484 ‘Change to company details’ was signed by Ms Zhang as a current officeholder of SR Pty Ltd and dated 9 June 2020 (although it appears the form was processed on 20 July 2020).[91] The form purported to record a 50 share decrease in Capital Wins’ shares in SR Pty Ltd, with a commensurate increase in the shares held by Ms Liu and by Wonder of 25 shares each. The form does not, in terms, refer to a transfer of shares from Capital Wins to each of Ms Liu and Wonder, but also does not refer to any change in the number of issued shares.
[91]CB 632.

No actual transfer documentation (similar to that referred to above in relation to the other three companies) was in evidence for the transfer of shares in SR Pty Ltd.

It is not apparent whether Graphite Business Advisors were aware of the existence of the Trust.

According to ASIC’s records,[92] 50 shares are held by Capital Wins, 25 shares are held by Ms Liu and 25 shares are held by Wonder.
[92]CB 690.

According to SR Pty Ltd’s Register of Members[93] (as at 14 October 2022) 50 shares are held by Capital Wins, 25 shares are held by Ms Liu and 25 shares are held by Wonder.
[93]CB 735.

There is no discrepancy between ASIC’s record of shareholders and the company’s register.

The circumstances in which the transfer forms were signed and later registered

The transfer forms in relation to the shares in AOE Pty Ltd, Kerang Pty Ltd and SRO Pty Ltd were signed by Ms Liu when she attended a meeting with Steven at the offices of Graphite Business Advisors. Jeff Hung, of Graphite Business Advisors, was present. Mr Hung handed Ms Liu three documents to sign and said to her words to the effect that they were in respect of the shares to be issued in respect of her investment in the egg farm, the egg grading facility and the landholdings. Ms Liu did not take independent advice about the effect of the transfer documents. Ms Liu was not told that the effect of the documents would be to cause existing shares to be transferred from Capital Wins, and deposed that she would not have signed the forms had she been so informed.[94]
[94]Affidavit of Hong Liu affirmed on 23 December 2021, [20]–[25].

At all relevant times, Ms Zhang was the sole director of Capital Wins. It was her evidence that neither she nor Capital Wins were involved in any meetings with the plaintiffs and, before Steven’s arrest, had had no engagement with any of the plaintiffs’ witnesses.[95]
[95]Affidavit of Hanyin Zhang affirmed on 10 February 2022, [8].

Mr Sun deposed that, while he received copies of the signed transfers, he did not look very closely at the documents and thought the documents his wife signed gave effect to the agreement he had reached for the issue of shares. Mr Sun did not appreciate, and was not told by Steven, that the effect of the documents would be to transfer existing shares to his wife. He deposed that, had he been told this or otherwise realised that was the effect of them, he would have asked Tom to prepare new forms.[96]
[96]Affidavit of Yan Sun affirmed on 11 April 2022, [8]–[9].

It was only after Steven and Tom were arrested that Mr Sun and Ms Liu took steps to have the transfer forms completed for SR Pty Ltd and Kerang Pty filed with ASIC.[97] Mr Sun did not know why the signed forms in relation to AOE Pty Ltd and SRO Pty Ltd were not also registered. At the time of taking steps to have the forms registered, Mr Sun did not appreciate that the forms were for the transfer of shares, and only became aware of the effect of the forms, and the distinction between the issue and transfer of shares, once the plaintiffs’ current solicitors became involved.[98]
[97]Affidavit of Yan Sun affirmed on 11 April 2022, [10].
[98]Affidavit of Yan Sun affirmed on 11 April 2022, [10]–[13].

Ms Zhang explained that the form 484 for SR Pty Ltd was prepared by Graphite Business Advisors, who had been consulted by Ms Zhang, Tracey and Jacey after Steven’s arrest. By that time, Ms Zhang had had a conversation with Steven (then in custody) in which he confirmed the amounts invested and the proportion of equity which each plaintiff should have received. Ms Zhang stated that the form 484 was provided to Tracey and Jacey, who did not raise any issues and the form was then lodged with ASIC.[99] Jacey’s evidence referred to the ASIC form referring to the transfer, and she deposed that ‘[a]t the time, I was not aware that these shares had not been issued to Wonder Agriculture by Seasons Ranch, but had been transferred from Capital Wins’.[100]
[99]Affidavit of Hanyin Zhang affirmed on 10 February 2022, [10]–[14].
[100]Affidavit of Jingjing Zhang affirmed on 23 December 2021, [20].

The precise circumstances in which the plaintiffs became aware that SR Pty Ltd held the Beauchamp property on trust was not revealed by the evidence, save that both Mr Sun and Jack deposed to their investigations having ‘revealed’ the existence of the Trust.[101] The Trust Deed for the Trust was in evidence,[102] as were documents establishing the appointment of Capital Wins as trustee (in place of Steven) on 8 March 2018,[103] and that Capital Wins is the holder of all 100 units in the Trust.[104]
[101]Affidavit of Ke Cao affirmed on 13 October 2021, [53]; Affidavit of Yan Sun affirmed on 13 October 2021, [29].
[102]CB 549.
[103]CB 743–747.
[104]CB 748–749. See also affidavit of Hanyin Zhang affirmed on 10 February 2022, [4].

It is not apparent whether or not Graphite Business Advisors were aware that SR Pty Ltd held that land as trustee of the Trust.

Consideration
Formation of contracts

In the present case, no formal contracts were concluded, although a draft Shareholders Agreement in respect of SRO Pty Ltd was circulated.

In order to find, and enforce, a contract, it is not necessary that the parties’ interactions can be neatly characterised by identifying a distinct ‘offer’ and clear ‘acceptance’ of that offer. The limitations of that restrictive approach have been recognised in many cases.F[105] Rather, where the parties’ interactions were more informal, the court will examine the whole of the parties’ interactions (written and spoken) and their conduct, to determine whether, viewed objectively, the parties mutually assented to the essential elements of a bargain and intended to be bound.[106] In York Air Conditioning & Refrigeration (A/sia) Pty Ltd v Commonwealth, Williams J set out the principles as follows:

In Scammell & Nephew Ltd v Ouston Lord Wright said, ‘The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation … It is a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain.’ In Hillas & Co Ltd v Arcos Ltd … Lord Wright [said] ‘… After all, the parties being businessmen ought to be left to decide what degree of precision it is essential to express in their contracts, if no legal principle is violated.’ In the present case it is clear that the parties believed they had made a concluded and enforceable contract and the provisions of the standard conditions are in my opinion sufficiently definite to enable the court to give them a practical meaning.[107]

[105]See, eg, Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117–11,118 (McHugh JA, Hope and Mahoney JJA agreeing). See also Vroon BV v Foster’s Brewing Group Ltd (1994) 2 VR 32 (Vroon), 81–83 (Ormiston J); Hyatt Australia Limited v LTCB Australia Limited [1996] 1 Qd R 260, 264 (McPherson JA, Fitzgerald P and Davies JA agreeing).

[106]See, eg, Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 337 (McHugh JA); Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 (Brambles), 179 [80]–[81] (Heydon JA); Branir Pty Ltd v Owston Nominess (No 2) Pty Ltd (2001) 117 FCR 424, 525 [369] (Allsop J, Drummond and Mansfield JJ agreeing); Husain v O & S Holdings (Vic) Pty Ltd [2005] VSCA 269, [49]–[51] (Nettle JA, Chernov and Ashley JJA agreeing).

[107](1949) 80 CLR 11, 26–27 (emphasis added, internal citations omitted), quoted with approval by Tamberlin J in Seven Cable Television Pty Ltd v Telstra Corp Ltd (2000) 171 ALR 89; [2000] FCA 350 (Seven Cable Television), [94].

Where the parties have embarked on significant elements of the venture or transaction in question, that is an indication (the strength of which varies, depending on the circumstances) that the parties intended to commit themselves to the whole venture or transaction.[108] Post-contractual conduct is admissible on the question of whether a contract was formed (cf the construction of a contract).[109] Where matters that are truly essential to the bargain are still being negotiated, a contract will not be implied.[110] However, care must be taken not to apply a lawyer’s fastidious hindsight and treat a failure to discuss and agree on the wide range of matters that account for the length and detail of many modern commercial contracts, as demonstrating a failure to agree essential matters.
[108]See, eg, Vroon, where Ormiston JA drew particular attention to the fact that, in connection with a joint venture to purchase and convert a ship, the parties did in fact proceed to purchase the ship and one party subsequently entered into a four year charterparty contract: at 87–88.
[109]Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd [1979] 1 BPR 9251, 9255 (McLelland J); Geebung Investments v Varga Group Investments No 8 Pty Ltd (1995) 7 BPR 14551, 14562–3, 14569 (Kirby P); Brambles, 163–4 [25] (Haydon JA); Mushroom Composters v IS & DE Robertson Family Trust [2014] NSWSC 164, [127]–[130], [144] (McDougall J).
[110]See, eg, Toyota Motor Corporations Australia Ltd v Ken Morgan Motors Pty Ltd (1994) 2 VR 106, 136 (Brooking J); Seven Cable Television, [155] (Tamberlin J).

Section 131 of the Act is also relevant, given Wonder was not yet incorporated when Jack began negotiations with Steven (the company was incorporated on 24 April 2019). Section 131(1) provides as follows:

Contracts before registration
(1)If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:
(a) within the time agreed to by the parties to the contract; or
(b)if there is no agreed time--within a reasonable time after the contract is entered into.

Ratification, for the purposes of s 131, can be express or implied (eg it can be implied from conduct, such as the payment of amounts due).[111]
[111]Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd (2005) 55 ACSR 1; [2005] NSWCA 319, [81], [90]–[91] (Basten JA, Handley JA agreeing).

Formation of contracts: egg farming

Adopting the approach set out in the authorities referred to above, I have considered the totality of the parties’ conduct in determining whether the parties entered into contracts containing the terms contended for by the plaintiffs. In the present case, that conduct includes the conversations during which the investment opportunity and terms were discussed, the parties’ conduct (including conduct post-dating the alleged contracts) and such written documentation as exists (being the draft Shareholders’ Agreement in respect of SRO Pty Ltd and various share transfer and issue documentation).

The terms on which each of the plaintiffs invested in the egg farming business were explicitly agreed. Each plaintiff was to receive a 25% equity interest in the operating entity and a 25% interest in the land, in return for investing $3 million. Those funds were to be used for construction costs and as working capital. The construction and operation of the egg farming business was to be managed by Steven and Tom. As such, in my view, the essential terms of the bargain were explicitly agreed by the parties during the conversations referred to above. Further, the plaintiffs’ conduct in proceeding to pay the amounts agreed and the parties proceeding with the construction of the egg farm sheds is consistent with the parties performing the agreements they had reached (cf making such substantial payments in anticipation of binding agreements being reached). The amounts invested were substantial and the commencement of payments by the plaintiffs demonstrates, from the objective viewpoint, that the parties had reached agreement with the necessary intention to create legal relations. While draft Shareholder Agreements were circulated, but never finalised, I do not considered that that indicates the requisite intention to create legal relations was lacking. Rather, those drafts were, viewed objectively, treated by the parties as supplementary to, or confirmatory of, the contracts already formed.

While the precise means by which the plaintiffs were to receive their 25% interests were not explicitly discussed, I consider that the only means that is consistent with the bargain, which was for investment in a new enterprise, was for the equity interests to be conveyed by the issue of shares by SR Pty Ltd and SRO Pty Ltd, and the issue of units in the Trust.

Critically, and as noted, the egg farming business was a new venture, and the plaintiffs’ funds were to be used for construction costs and working capital. There would be no commercial logic in the plaintiffs each paying $3 million to take a transfer of 25% of the existing equity in a venture that held nothing of value other than the Beauchamp property (which SR Pty Ltd had obtained for $350,000[112]). Further, the draft Shareholders Agreement (although never executed) explicitly referred to the issue of shares in SRO Pty Ltd, as did a form 484, which was prepared but never lodged. A transfer of shares from Capital Wins was not what was bargained for. The substantial funds provided did not move to Capital Wins, and Steven was not a director of Capital Wins, whereas he was a director of SR Pty Ltd (the trustee of the Trust) and SRO Pty Ltd.
[112]CB 296.

While it is the case that share transfer documentation for SRO Pty Ltd was also executed by Ms Liu in 2019, I do not consider that undermines my conclusion that the substantive bargain was necessarily for a share issue. The objective observer would not, in my view, regard the existence of this form as suggesting, against all the other evidence and features of the venture referred to, that the true bargain was for a share transfer. Similarly, while a form 484 was executed by Ms Zhang in June 2020 for a transfer of shares in SR Pty Ltd, no transfer documentation was signed by Ms Liu or by Wonder. I do not regard their failure to raise an objection, when the form 484 was circulated by Ms Zhang, as undermining my conclusion for the same reasons.

While there was no explicit discussion of the issue of units in the Trust — in fact the existence of the Trust was something the plaintiffs only learned of more recently — I consider that the explicit agreement of the parties as to the interest that the investors would have in the land necessarily entails agreement to convey that which was necessary for the investors to have the legal and economic entitlement to the relevant parcel of land. Clearly, receipt only of shares in a trustee company would in no way convey that which the investors bargained to receive. If it be necessary to do so, I would imply a term that SR Pty Ltd would do all things necessary to issue units to the plaintiffs in the Trust. A term of that character meets the test in BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[113] such that it is reasonable and equitable; necessary to give business efficacy; so obvious that ‘it goes without saying’; capable of clear expression; and does not contradict any express terms of the contract.
[113](1977) 180 CLR 266 (BP Refinery) (Privy Council), 282–3 (Lord Simon, Viscount Dilhorne and Lord Keith). The test in BP Refinery continues to be applied: see, eg, Knight v Mayart Pty Ltd [2022] VSCA 36, [80] (McLeish, Sifris and Kennedy JJA).

I have referred above to the exclusion applications made by the plaintiffs in the County Court and the affidavits sworn in support of those applications. To the extent those applications were premised on a bargain for the transfer of shares, and statements were made supporting such transactions, it is clear that the plaintiffs’ witnesses did not appreciate the distinction between a share transfer and a share issue at the relevant time. My conclusion that the bargain was for the shares to be issued rests on the objective circumstances noted above concerning the venture being new, and the destination of the funds. I have not relied on the witnesses’ reference, in their accounts of conversations, to shares being ‘issued’. As such, I do not consider that the ostensibly inconsistent position taken in the County Court (which seeks to preserve the ‘transfer’ of shares in SR Pty Ltd) undermines my conclusions, or the witnesses’ credibility.

To the extent that some of Mr Sun’s interactions were with Tom (in addition to other interactions with Steven), no issue arises as to Tom’s authority to negotiate and conclude an agreement on behalf of SR Pty and (following its incorporation on 29 April 2019) SRO Pty Ltd. Nor does any issue arise concerning Mr Sun’s negotiation of the terms of the investment, although the investing person was to be his wife, Ms Liu. Wonder was incorporated on 24 April 2019. The plaintiffs contend that the egg farming agreements were concluded in April or May 2019. Given that that date range includes the period before Wonder and SRO Pty Ltd were incorporated, it is clear that those companies both ratified the contracts by their conduct for the purposes of s 131 of the Act.

Formation of contract: egg grading

Similarly, the terms on which Ms Liu invested in the egg grading venture (comprising the operating business and the Kerang land) were expressly agreed between Mr Sun and Tom.

Mr Sun expressly agreed with Tom that, in exchange for an investment of $1.5 million, he (or his nominee) would receive a 50% interest in the new egg grading business and the land on which it was to be established, with Tom and Steven to manage the development and operation of the egg grading facility. The required investment amount was paid, commencing with a payment to a manufacturer (Moba Asia Sdn Bhd) by way of deposit on a new egg grading machine. The conversations between Mr Sun and Tom (by which the agreement concerning the egg grading investment was struck) commenced on 13 July 2019. By then, AOE Pty Ltd and Kerang Pty Ltd had already been incorporated, so there is no need to rely on s 131 of the Act.

As with the egg farming venture, the agreement can only logically have been for the issue of shares (and not for the transfer of shares by Capital Wins). The egg grading venture was a new enterprise, and the money was to be invested for construction costs and for use as working capital. Capital Wins did not hold 100% of the shares in a valuable, operating enterprise, which might conceivably be sold. Nor had the purchase of the Kerang land yet been settled in July 2019 (it settled on 8 November 2019[114]).
[114]CB 609–610.

As with the egg farming agreements, no issue arises as to Tom’s authority to negotiate and conclude an agreement on behalf of AOE Pty Ltd and Kerang Pty Ltd. Nor does any issue arise concerning Mr Sun’s negotiation of the terms of the investment, although the investing person was to be his wife, Ms Liu.

I also refer to, without repeating, my observations above regarding the positions taken in the County Court, and the reasons why the execution of share transfer documentation does not undermine my conclusion that the bargain was necessarily for the issue of shares.[115]
[115]See paragraph 109 above.

Rectification of share registers under s 175 of the Act

Section 175(1) provides that ‘[a] company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected’.

Section 175 does not confer jurisdiction on the Court to rectify the share register, but assumes the Court has the power to do so.[116] It is well established that the Court has such power as part of its general jurisdiction as a court of equity.[117] The power is discretionary, and an explanation of the practical advantages of rectifying the register is required before the power will be exercised.[118] The person applying for rectification must demonstrate that they have an equity which the court will protect.[119] Such an equity is prima facie established where a person’s name was wrongly included or omitted from the register.[120] The same applies where ‘the number of shares attributed to that person is incorrectly recorded, so as to impose a disadvantage on that person or on other shareholders’.[121]
[116]Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 (Peninsula Gold), 558–9 (Bryson J). See also Price v Powers [2005] WASC 154 (Price), [98] (Le Miere J); Re Mogul Stud [2012] NSWSC 1639, [7] (Black J).
[117]Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 (Grant), 51 (Fullagar J); Peninsula Gold, 558–9 (Bryson J).
[118]HWG Holdings Pty Ltd v Fairlie Court Pty Ltd [2015] VSC 519 (HWG Holdings), [21] (Sifris J).
[119]Grant, 51 (Fullagar J); Whitehouse v Carlton Hotel Pty Ltd [1983] 1 Qd R 336, 339 (Thomas J); Price, [98] (Le Miere J).
[120]Grant, 51 (Fullagar J).
[121]Re Mogul Stud, [7] (Black J).

An order may be made under s 175 to rectify the share registry nunc pro tunc, fixing a particular date for the correction.[122]
[122]See, eg, Re Independent Quarries Pty Ltd (1993) 12 ACSR 188 (Re Independent Quarries), 192 (William J), citing Re Sussex Brick Co (1904) 1 Ch 598, 608–9 (Stirling LJ). See also Taylor (as trustee for the bankrupt estate of Kwok) v Goldana Investments Pty Ltd (recs and mgrs apptd) [No 2] (2015) 108 ACSR 409; [2015] FCA 947, [19]–[21] (Wigney J); HWG Holdings, [21], [27], [57]–[58] (Sifris J).

In the present case, the registers of each of the first to fourth defendants were in evidence (see paragraphs 76, 79, 82 and 89 above).

Each of those registers fails to record the plaintiffs as holding the shares for which they contracted. The register of SR Pty Ltd also records each of Ms Liu and Wonder as the holders of 25 of 100 issued shares in SR Pty Ltd, and the register of Kerang Pty Ltd erroneously records Ms Liu as the holder of 50 of 100 issued shares in Kerang Pty Ltd. It follows that, as the registers do not record the shareholdings of the plaintiffs to which they are entitled, the plaintiffs have the necessary equity to warrant correction of the registers. The practical advantages of rectification, in these circumstances, are clear.

The plaintiffs seek rectification of the registers of:

(a) SRO Pty Ltd and SR Pty Ltd as at 22 May 2019; and

(b) AOE Pty Ltd and Kerang Pty Ltd as at 1 August 2019.

Those dates correlate with when the first payments were made, or in respect of Wonder’s investment in the egg farming business, the date on which Tom provided Jack and Jacey with SRO Pty Ltd’s bank account details (the first payment of $200,000 having already been made on 7 May 2019, in cash).[123]
[123]See paragraphs 35 above.

Given the lack of formality in the parties’ dealings, I consider that the date on which the first payments were made by Ms Liu is as firm a date as can be identified for when her entitlement to the issue of shares arose. In the case of Wonder, I consider the date of 22 May 2019 to be as firm a date as can reasonably be identified for when rectification of the registers of SR Pty Ltd and SRO Pty Ltd ought to take effect. Although the first payment was made (in cash) before that date, there is no prejudice to any person arising from the slightly later date of 22 May 2019 being the date for rectification, as that was the date on which SRO Pty Ltd’s bank account details were communicated to Jack and Jacey, for transfer of further funds.

Further, although not all of the amounts to be invested were paid at once, it was part of the structure of the deals agreed with both Ms Liu and Wonder that the total investment would be paid over time. There was no suggestion that the equity agreed would be provided piecemeal, or only in tranches commensurate with the payments advanced. Accordingly, I consider it appropriate that the registers be rectified to record the issue of all of the shares to which each plaintiff was entitled at the dates identified.

Specific performance

Given that the position of the plaintiffs as the holders of shares in the first to fourth defendants is to be effected by making orders for the rectification of the first to fourth defendants’ registers under s 175 of the Act and for the issue of shares and share certificates, I consider there is no utility in making any orders for specific performance of the contracts in general terms. It may even cause confusion to order specific performance as actions taken consequent upon such an order (in particular the issue of shares by the company after orders are made) may well overlap with, or be in conflict with, the rectification orders.

However, subject to the application of the doctrine of part performance, orders cannot be made for the issue of units in the Trust if to do so would fall foul of s 126 of the Instruments Act or s 53 of the Property Law Act.

Section 126 of the Instruments Act and s 53 of the Property Law Act

The potential application of s 126 of the Instruments Act was raised by the DPP when she appeared with leave (by her counsel) at a directions hearing on 14 July 2022.

Section 126(1) of the Instruments Act provides as follows (emphasis in italics added):

126 Certain agreements to be in writing
(1)An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.

This issue was addressed by the plaintiffs in their submissions. After submitting (correctly) that no issue would arise regarding the issue of shares — because shareholders do not have legal or beneficial interests in the assets of the company[124] — the plaintiffs addressed the issue of units in the Trust as follows:[125]

Similarly, absent some contrary terms in the trust deed, units in a unit trust “may, and usually will, fall short of a proprietary interest in the assets of the trust”[The plaintiffs here relied on Elecnet Pty Ltd v Commissioner of Taxation.[126]]. There are no terms in the Seasons Ranch Unit Trust deed which confer any proprietary interest in trust assets on the unitholders; the rights attaching to the various classes of unit in the trust (see at CB 495) fall short of such an interest.
For those reasons, s.126 of the Instruments Act has no application to the matters in issue in this proceeding.

[124]Plaintiffs’ submissions, [79], citing s 1070A(1) of the Act and Charles v Federal Commissioner of Taxation (1954) 90 CLR 598, 609 (Dixon CJ, Kitto and Taylor JJ).

[125]Plaintiffs’ submissions, [80]–[81].

[126](2016) 259 CLR 73 (Elecnet), 98–99 [86] (Nettle J).

The question of whether unit holders in the Trust have an ‘interest’ in the Beauchamp property depends on the terms of the Trust Deed. As the High Court emphasised in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic), a priori assumptions about the nature of unit trusts do not assist (and can be apt to mislead); what is critical is the terms of the trust deed in question.[127] The fact that unit holders and beneficiaries of a trust have interests which will be protected by a court of equity does not mean that they have beneficial interests in the property held by the trustee.[128]
[127](2005) 224 CLR 98 (CPT Custodian), 109–10 [15] (Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ).
[128]See CPT Custodian, 110 [17].

As may be seen, the plaintiffs’ primary submission on the point involved the kind of a priori reasoning that the High Court rejected in CPT Custodian.

Further, the plaintiffs’ quotation from the judgment of Nettle J in Elecnet omits the final, and critical, words of his Honour’s observation. What Nettle J said was as follows:

The point made in CPT Custodian was not that a priori conceptions of unit trusts are irrelevant to the recognition of what may constitute a unit trust, but rather that, although the trust estate of a unit trust is divided into units, the rights conferred by a unit may, and usually will, fall short of a proprietary interest in the assets of the trust that would be sufficient to constitute the holder of a unit an “owner” of trust property within the meaning of s 3(1) of the Land Tax Act 1958 (Vic).[129]

[129]Elecnet, 98–99 [86] (emphasis added, citation omitted).

In other respects, Elecnet is of limited assistance as it concerned whether or not a particular trust was a ‘unit trust’ for the purposes of Div 6C of Pt III of the Income Tax Assessment Act 1936 (Cth). As such, the critical issue was what features make a trust a ‘unit trust’. The plurality determined, that even if it were to be assumed, for the sake of argument, that workers had a beneficial interest in the trust estate (even though the quantum of such interest is contingent on the exercise of the trustee’s discretions), it could not be said that that beneficial interest had been divided into units, so as to be a unit trust.[130]
[130]Elecnet, 88 [51] (Kiefel CJ, Gageler, Keane and Gordon JJ).

CPT Custodian also does not stand for any general proposition that the holders of units in a unit trust do not hold beneficial interests in trust property. As noted, the case is directly contrary to any such generalisations. What CPT Custodian does (in addition to clearly rejecting reasoning from a priori assumptions about unit trusts) is reject the ‘dogma’ that where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else.[131] The High Court also cautioned that the decision of Brooking J in Costa & Duppe Properties Pty Ltd v Duppe[132] did not stand for any broad proposition as to the hallmarks of unit trusts and also appeared to doubt Brooking J’s proposition that, where there is a proprietary interest in the entirety of the trust fund, there must be a proprietary interest in each of the assets of which the entirely is composed.[133]
[131]CPT Custodian, 112 [25] (Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ).
[132][1986] VR 90 (Duppe), discussed in CPT Custodian, 113–114 [30], [32].
[133]Duppe, 96. Otherwise, the High Court did not find it necessary to decide whether Duppe was correctly decided in relation to the requirements for a caveatable interest.

The High Court’s caution regarding Duppe is also relevant as the plaintiffs relied on a passage of that decision, when invited to supplement their submissions on the relevant point.

The plaintiffs’ supplementary submission was in the following terms:[134]

The Plaintiffs respectfully submit that clause 29 of the Seasons Ranch Unit Trust Deed (CB459) creates a beneficial interest in the trust assets as a whole, as distinct from specific assets held by the trustee (i.e. the land owned by this trust).
Clause 29 of the said unit trust deed is similar in nature to clause 16.4 of the trust deed in question in the matter of Floriston Nominees Pty Ltd v Kingsley Brown Finance Pty Ltd [2005] VSC 467, a case in which the Court found a unit holder did not have an interest in land owned by the trust that supported a caveat. …
Further, the use of the term of “beneficial interest” in clause 29 does not, in the Plaintiffs’ view, mean a proprietary interest in the land. In this regard Brooking J said in Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90, at 93:
“Things are not always what they seem. A unit is an undivided part or share in the trust fund, but it does not necessarily follow from this definition that the holder of a unit has a proprietary interest in any of the assets making up the trust fund; a testator may in terms give a share of his residuary estate, but the law says that the residuary beneficiary has no proprietary interest in any of the assets of the unadministered estate. By CL7(a) of the deed the beneficial interest in the trust fund shall be vested in the unit-holders, but 'beneficial interest' does not always mean an interest that is proprietary; moreover the effect of an instrument in relation to the creation of proprietary interests depends, not simply on any express provision it may contain in that regard, but on what effect the law will give to the instrument considered as a whole in the light of applicable principles.”

[134]The plaintiffs’ supplementary submissions were provided by email dated 27 October 2022.

The decision in Floriston Nominees Pty Ltd v Kingsley Brown Finance Pty Ltd does not assist the plaintiffs. In that case, Hansen J did not (contrary to the plaintiffs’ submission) find that ‘a unit holder did not have an interest in land owned by the trust that supported a caveat’. Rather, his Honour did not need to decide that point as he concluded that the caveat lodged could not be maintained because it went beyond the interest that might be claimed.[135]
[135][2005] VSC 467, [14], [20].

In order to determine whether or not a contract which obliges SR Pty Ltd to issue units in the Trust cannot (subject to part performance) be enforced due to s 126 of the Instruments Act or s 53 of the Property Law Act, it is necessary to examine the nature of the rights that unit holders enjoy under the terms of the Trust Deed. The plaintiffs’ submissions did not engage in any analysis of the Trust Deed, beyond referring to cl 29.

While many cases have considered the effect of CPT Custodian and the nature of the interests of unit holders in particular trusts (often, but not always, in the context of caveat removal applications), given that the nature of the unit holders’ interests depends on the provisions of the particular trust deed in question, it is not productive to wade into that body of case law here.[136] Suffice it to say, the cases are not all easy to reconcile.
[136]See, eg, Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447; [2006] VSC 343, [29]–[39] (Warren CJ); Handberg v MIG Property Services (2010) 79 ACSR 595; [2010] VSC 388, [128]–[148] (Robson J); Gerard Batt & Deleece Batt (as trustees for the Gerard Batt Superannuation Fund) v Clipse (Caloundra) Pty Ltd [2011] QSC 192, [17]–[40] (Ann Lyons J); Jonsue Investments Pty Ltd v Balweb Pty Ltd (2019) 3 ASTLR 460; [2013] NSWSC 325; Jubilee Properties v Parkview Farm (2013) 17 BPR 33,271; [2013] NSWSC 2011; Federal Commissioner of Taxation v Elecnet (Aust) Pty Ltd (2015) 239 FCR 359, 375–376 [88]–[94] (Pagone and Edelman JJ).

Clause 29 of the Trust Deed provides that, subject to other provisions of the Trust Deed, ‘the Trustee holds the Trust assets for the benefit of each class in proportion to the number of units held from time to time by the Unitholders of each class’ and that:

(b)the beneficial interest in the Trust assets as existing from time to time is vested:
(1) in the Unitholders for the time being; and
(2)if there is more than one Unitholder, in the Unitholders in proportion to the number of units each holds, disregarding the issue price of those units —

in accordance with the rights attaching to the units.[137]

[137]Cl 29(b).

The effect of cl 29 is to vest the beneficial interest in the Trust assets in the unit holders. However, the closing words of cl 29 are important— the beneficial interest in Trust assets is vested in the unit holders ‘in accordance with the rights attaching to the units’. Clause 31 imposes significant restrictions on the rights of unit holders. That clause provides as follows:

Restrictions on rights of Unitholders. A unit does not entitle the Unitholder to any asset comprised in or any particular part of, the Trust assets other than in accordance with this Deed, and consequently, [a] Unitholder may not:
(a)       lodge a caveat or other notice in relation to any Trust asset;
(b)       claim any interest in any Trust asset;
(c)       exercise any right in respect of any Trust asset;
(d)      require any Trust asset to be transferred to the Unitholder; or
(e) prevent the exercise by the Trustee of a power of sale or of any right or power.

Under the terms of the Trust Deed, the Trustee also has a first and paramount lien over all units and any distributions for, inter alia, its rights of reimbursement, indemnity, recoupment and unpaid remuneration (cl 138). The Trustee’s powers under the Trust Deed are extensive and authorise the Trustee to exercise all powers in respect of the Trust assets ‘as though it were the absolute owner of the Trust assets’ (cl 184(1)(b), see also cl 226(a)). The Trustee also has the power to mix or blend the Trust assets (including income) with other funds held by the Trustee pursuant to any provision of the Trust Deed or under any other trust and may invest the mixed funds (cl 214).

According to the First Schedule to the Trust Deed, the holders of ‘A class units’ have the right to one vote per unit, to participate in any distributions of income or capital in proportion to the number of units, and, on the termination of the Trust, to a share in the division of any surplus Trust assets in proportion to the number of units.[138]
[138]Other classes of units are also established: B class units (income only fixed units), C class units (capital only fixed units), D class units (fixed entitlement fixed units) and E class units (interest only fixed units).

As such, unit holders’ rights in respect of trust assets do not include any of the features of a proprietary interest. Unit holders have no possessory rights, and it is difficult to conceive of any circumstances in which their rights in respect of trust assets could extend beyond obtaining relief to ensure that the trustee adheres to its obligations in respect of such property, administers the trust in accordance with the Trust Deed and the trustee’s duties, and deals appropriately with the proceeds of any sale of trust assets, or their profits. Those are personal rights. Accordingly, in my view, an application to enforce a parol contract which requires the issue of units in the Trust does not fall within s 126 of the Instruments Act.

Although the plaintiffs made no mention of it, s 53(1) of the Property Law Act is potentially also relevant. Sections 53(1)–(2) provide as follows:

53 Instruments required to be in writing
(1)Subject to the provisions hereinafter contained with respect to the creation of interest in land by parol—
(a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law;
(b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
(c)a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will.

(2)This section shall not affect the creation or operation or resulting, implied or constructive trusts.

In my view, s 53 of the Property Law Act also does not preclude the grant of an order for the issue of units in the Trust to the plaintiffs. Insofar as s 53(1)(a) refers to the creation of an ‘interest’ in land, I have already concluded (in connection with s 126) that the holders of units in the Trust do not acquire interests in the Beauchamp property. The issue of units would not involve a ‘declaration of trust’ pursuant to s 53(1)(b), in respect of the Beauchamp property, as that land is already held by SR Pty Ltd on trust. Section 53(1)(c) does not apply as there is no ‘disposition’ by any person of an equitable interest or trust held by that person. While Capital Wins’ proportionate unit holding would be diminished by the issue of units, it is not a person ‘disposing’ of any equitable interests.[139]
[139]See Property Law Act, s 18(1) (definitions of ‘conveyance’ and ‘disposition’).

In view of my conclusions on the enforceability of the parol contract, it is not necessary to address the question of whether specific performance may nonetheless be available pursuant to the doctrine of part performance.[140]
[140]The plaintiffs contended that if, contrary to their primary submission, s 126 of the Instruments Act applied, the doctrine of part performance would be enlivened by the acts of part performance pleaded in paragraphs 14, 19 and 24 of the Statement of Claim. No issue was raised in the proceeding concerning whether, if the issue of new units was precluded for any reason, a constructive trust might arise in relation to the extant units held by Capital Wins.

Terms of the Trust Deed regarding the issue of units

The Trust Deed contains clauses which authorise the Trustee to issue units, and to do so on such terms as the Trustee may decide and at an issue price decided by the Trustee (cll 41, 45 and 53). However, cl 47 stipulates that, before issuing units of a particular class, ‘the Trustee must offer them to existing Unitholders of that class’. If SR Pty Ltd were to issue new units to the plaintiffs without first offering the new units to the existing unit holder, SR Pty Ltd may commit a technical breach of the Trust Deed.

However, I do not consider that I should decline to order that SR Pty Ltd issue units to the plaintiffs for that reason. First, the issue of units in compliance with a court order may well not put the trustee in breach of the Trust Deed (as compared with the voluntary issue of units). Secondly, and in any event, the only existing unit holder, Capital Wins, does not oppose the issue of units in the Trust and it is well established that beneficiaries can consent to a breach of trust, provided they have sufficient knowledge.[141]
[141]See, eg, Swan v Perpetual Executors and Trustees Association of Australia Ltd (1897) 23 VLR 293, 309 (Holroyd J); Spellson v George (1992) 26 NSWLR 666, 669–670 (Handley JA), 679, 682 (Young AJA).

Declaring share transfers null and void
Kerang Pty Ltd

The transfer of shares in Kerang Pty Ltd from Capital Wins to Ms Liu was ostensibly effected pursuant to documentation signed by Steven for Capital Wins. Steven was not a director of Capital Wins. It follows that the transfer documentation was not properly executed by the company under s 127 of the Act. Nor was Steven the authorised agent of Capital Wins for the purposes of s 126 of the Act; this is not a case where the plaintiffs are seeking to rely on the assumptions in s 129(3) of the Act regarding the status of Steven against Capital Wins.

Accordingly, there was no effective transfer document signed by Capital Wins transferring shares in Kerang Pty Ltd to Ms Liu.

However, both Kerang’s own register, and ASIC’s records, record Ms Liu as the holder of 50 shares. In the absence of any underlying transfer documentation, I consider that the position stated in the company’s register and ASIC’s records, which is prima facie evidence of the shareholders in Kerang Pty Ltd, is incorrect and the prima facie position is displaced.

While it has been suggested that a transfer which was ineffective did not occur, and need not be declared null and void,[142] for the avoidance of doubt, I consider it appropriate to grant declaratory relief in respect of the earlier purported transfer of shares in Kerang Pty Ltd to Ms Liu.
[142]See, eg, the observations of Robb J in Dlakic v Vaughan [2018] NSWSC 1455 (Dlakic), [355], [357]. However, in Re Alon Pty Ltd [2021] NSWSC 1021, Rees J determined that share transfers and issues undertaken by a director, but without power under the company’s constitution, to be void ‘of no effect’: at [63]–[66]. Her Honour proceeded to make orders, not only for rectification under s 175 of the Act, but declaring the impugned share transfers and issues to be ‘void and of no effect’.

AOE Pty Ltd

A document providing for the transfer of shares in AOE Pty Ltd from Capital Wins to Ms Liu was also signed by Steven for Capital Wins in October 2019. While that transfer was not registered with ASIC, a copy of AOE Pty Ltd’s register dated October 2019 appears to record the position pursuant to that documentation. As noted above, Steven was not a director of Capital Wins and the transfer documentation was not properly executed. Nor was Steven the authorised agent of Capital Wins. Accordingly, there was no effective transfer document signed by Capital Wins transferring shares in AOE Pty Ltd to Ms Liu.

In the absence of any effective transfer documentation, I consider that the position stated in the register dated 18 October 2019, which is prima facie evidence of the shareholders in AOE Pty Ltd at that time, is incorrect and the prima facie position is displaced. While the position stated in the October 2019 register was later amended (so that the October 2022 register recorded Capital Wins as holding all 100 shares), I consider it appropriate to grant relief declaring the October 2019 transfer of 50 shares in AOE Pty Ltd void and of no effect.

SR Pty Ltd

As stated earlier, there is no share transfer documentation underpinning the form 484 signed by Ms Zhang in mid-2020 recording changes to the members of the company, such that Capital Wins’ shareholding was reduced to 50 shares and each of Ms Liu and Wonder Agriculture were recorded as becoming shareholders with 25 shares each.

Under s 168 of the Act, a company must maintain a register of members. Companies are obliged (pursuant to s 178A) to notify ASIC of changes to registers maintained according to the requirements in s 169. In Dlakic, and having regard to these obligations, Robb J regarded a form 484 as prima facie evidence of a share transfer, applying the general law evidentiary principles discussed in Trade Practices Commission v TNT Management Pty Ltd concerning public documents containing hearsay statements.[143]
[143]Dlakic, [376]–[391], quoting Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR
647, 665–669 (Franki J)

The extract of records maintained by ASIC also stands as prima facie evidence of the shareholding position.[144]
[144]Section 1274B(2) of the Act.

The question, then, is whether the prima facie position recorded in the ASIC extract and in the company’s own register, and the form 484, is displaced. In my view, the prima facie position is displaced. There is no evidence of any underlying transfer of the shares in SR Pty Ltd.[145] Nor was there any consideration moving from the plaintiffs to Capital Wins for a transfer of shares in SR Pty Ltd.
[145]As discussed above at paragraphs 70 to 74, a form of transfer is required whether or not I infer that SR Pty Ltd had a constitution in the same terms as the other relevant corporate defendants.

For the same reasons as those stated in relation to the ineffective transfer in Kerang Pty Ltd, I consider it appropriate to grant declaratory relief declaring the purported transfer of shares in SR Pty Ltd to the plaintiffs void and of no effect.

SRO Pty Ltd

A document providing for the transfer of shares in SRO Pty Ltd from Capital Wins to Ms Liu was signed by Steven for Capital Wins in October 2019. While that transfer was not registered with ASIC, a copy of SRO Pty Ltd’s register dated October 2019 appears to record the position pursuant to that documentation. As noted above, Steven was not a director of Capital Wins and the transfer documentation was not properly executed. Nor was Steven the authorised agent of Capital Wins. Accordingly, there was no effective transfer document signed by Capital Wins transferring shares in SRO Pty Ltd to Ms Liu.

In the absence of any underlying transfer documentation, I consider that the position stated in the register dated 18 October 2019, which is prima facie evidence of the shareholders in SRO Pty Ltd at that time, is incorrect and the prima facie position is displaced. While the position stated in the October 2019 register was later amended (so that the October 2022 register recorded Capital Wins as holding all 100 shares), I consider it appropriate to grant relief declaring the October 2019 transfer of 25 shares in SRO Pty Ltd void and of no effect.

Next steps

The plaintiffs and the fifth defendant have indicated that they would not oppose orders made by this Court in this proceeding being stayed for a period of time to permit consideration of the interaction of these orders with the orders made in the County Court proceedings, and to bring any application in the County Court. The DPP has also indicated, by her counsel, that she may wish to make submissions on the form of final orders Further, as noted above, the first to fourth defendants did not participate in the trial. They were excused from participating on the basis that they would abide by the outcome, but could be heard on the form of final orders. I consider that a stay of two weeks should be adequate to allow the parties and the DPP to consider their position vis-à-vis the County Court, but I will hear from the parties regarding the period for which the orders should be stayed.

I propose to make orders in the following terms:

The Court orders that
Shareholding of Australian Organic Eggs Pty Ltd (the First Defendant)
1.The first defendant issue the first plaintiff 100 fully paid ordinary shares and deliver to the first plaintiff a share certificate recording this shareholding.
2.Pursuant to s 175(1) of the Corporations Act 2001 (Cth) (the Act), the register kept by the first defendant is corrected:
(a)as at 1 August 2019, to record the first plaintiff as the holder of 100 ordinary shares in the first defendant; and
(b)to remove any subsequent record of the first plaintiff holding 50 shares and the fifth defendant holding 50 (rather than 100) of a total of 100 issued shares.

3.The purported transfer of 50 ordinary shares in the first defendant by the fifth defendant to the first plaintiff in or around October 2019 is declared to be void and of no effect.
Shareholdings of Seasons Kerang Pty Ltd (the Second Defendant)
4.The second defendant issue the first plaintiff 100 fully paid ordinary shares and deliver to the first plaintiff a share certificate recording this shareholding.
5.Pursuant to s 175(1) of the Act, the register kept by the second defendant is corrected:
(a)as at 1 August 2019:
(i) record the first plaintiff as the holder of 100 ordinary shares in the second defendant;
(ii)record the fifth defendant as the holder of 100 ordinary shares in the second defendant and

(b) to remove any subsequent record of the first plaintiff holding 50 shares and the fifth defendant holding 50 (rather than 100) of a total of 100 issued shares.

6.The purported transfer of 50 ordinary shares in the second defendant by the fifth defendant by instrument dated in or around October 2019 and registered with ASIC in or around July 2020 is declared to be void and of no effect.

Shareholding of Seasons Ranch Pty Ltd (the Third Defendant) and units in the Seasons Ranch Unit Trust
7.The third defendant issue to each of the first plaintiff and the second plaintiff 50 fully paid shares and deliver to each of the first plaintiff and the second plaintiff share certificates recording these shareholdings.
8.The third defendant issue 50 A class units in the Seasons Ranch Unit Trust to each of the first plaintiff and the second plaintiff.
9.Pursuant to s 175(1) of the Act, the register kept by the third defendant is corrected:
(a)as at 22 May 2019 to record:
(i)the first plaintiff as the holder of 50 ordinary shares in the third defendant;
(ii)the second plaintiff as the holder of 50 ordinary shares in the third defendant; and
(iii) the fifth defendant as the holder of 100 ordinary shares in the third defendant.

(b)to remove any record of the transfer of 25 ordinary shares in the third defendant by the fifth defendant to each of the first plaintiff and the second plaintiff and to each of the first plaintiff and the second plaintiff holding 25 shares and the fifth defendant holding 50 (rather than 100) of the total 100 issued shares.

10.The purported transfer of 25 ordinary shares in the third defendant by the fifth defendant to each of the first plaintiff and the second plaintiff in or around July 2020 is declared to be void and of no effect.

Shareholding of Seasons Ranch Organic Pty Ltd (the Fourth Defendant)
11.The fourth defendant issue to each of the first plaintiff and the second plaintiff 50 fully paid ordinary shares and deliver to the first plaintiff and to the second plaintiff share certificates recording these shareholdings.
12.Pursuant to s 175(1) of the Act, the register kept by the fourth defendant is corrected:
(a) as at 22 May 2019, to record:
(i) the first plaintiff as the holder of 50 ordinary shares;
(ii)the second plaintiff as the holder of 50 ordinary shares; and
(iii)the fifth defendant as the holder of 100 ordinary shares; and

(b)to remove any subsequent record of the first plaintiff holding 25 shares and the fifth defendant holding 75 (rather than 100) of a total of 100 issued shares.

13.The purported transfer of 25 ordinary shares in the fourth defendant by the fifth defendant to the first plaintiff in or around October 2019 is declared to be void and of no effect.
Other
14.Orders 1 to 13 above are stayed for a period of two weeks until 4:00pm on 19 December 2022, or by further order of the Court.
15.No order as to costs.

I direct that the plaintiffs inform the DPP of these draft orders.

I will hear any submissions the parties or the DPP may wish to make on the form of final orders on 13 December 2022 at 9:00am.

SCHEDULE OF PARTIES

S ECI 2021 03769

BETWEEN:
HONG LIU	First Plaintiff
WONDER AGRICULTURE PTY LTD (ACN 633 078 538)	Second Plaintiff
and
AUSTRALIAN ORGANIC EGGS PTY LTD (ACN 633 278 903)	First Defendant
SEASONS KERANG PTY LTD (ACN 633 279 473)	Second Defendant
SEASONS RANCH PTY LTD (ACN 616 496 541) (IN ITS OWN CAPACITY AND AS TRUSTEE FOR THE SEASONS RANCH UNIT TRUST)	Third Defendant
SEASONS RANCH ORGANIC PTY LTD (ACN 633 144 788)	Fourth Defendant
CAPITAL WINS PTY LTD (ACN 613 674 481)	Fifth Defendant

[2022] VSC 747

5 December 2022