Re Blockchain Tech Pty Ltd

Case •

[2021] VSC 640

•

1 October 2021
IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S ECI 2019 02711

IN THE MATTER of Blockchain Tech Pty Ltd (ACN 623 201 945)

JIN CHEN First Plaintiff
(First Defendant by Counterclaim)
BLOCKCHAIN TECH PTY LTD
(ACN 623 201 945) 		Second Plaintiff
(Second Defendant by Counterclaim)
- and -
WEI ZHAO & ORS
(according to the attached Schedule) 		Defendants

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JUDGE:

Ierodiaconou AsJ

WHERE HELD:

Melbourne

DATE OF HEARING:

23 September 2021

DATE OF RULING:

1 October 2021

CASE MAY BE CITED AS:

Re Blockchain Tech Pty Ltd

MEDIUM NEUTRAL CITATION:

[2021] VSC 640

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PRACTICE AND PROCEDURE – Discovery of documents – Production for inspection of discovered documents – Scope of discovery - Whether categories of documents are discoverable – Whether categories of documents are relevant – Volunteer Fire Brigades Victoria v CFA (discovery ruling) [2016] VSC 537.

PRACTICE AND PROCEDURE – Subpoena objections – Subpoenas issued to banks – Whether classes of documents sought are discoverable – Whether subpoenas are used as a substitute for discovery - Objections to subpoenas allowed on the basis that subpoenas were used as substitute for discovery.

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APPEARANCES:

 Counsel Solicitors
For the Plaintiffs Mr C Hibbard KCL Law
For the First, Second, Seventh, Eighth, Ninth and Tenth Defendants Mr V Andreou Christopher James Lawyers

TABLE OF CONTENTS

Issues for determination................................................................................................................... 2

Orders concerning the disclosure of documents...................................................................... 2

Issues in dispute in this proceeding......................................................................................... 12

Galaxy Crowdfunding dispute........................................................................................ 12

Blockchain Business Dispute........................................................................................... 16

Allegations of negligence and breach of retainer against first defendant................. 22

First defendant’s counterclaim – Bitcoin Loan Agreement Dispute.......................... 23

Second defendant’s counterclaim – Loan Agreement Dispute................................... 24

Second defendant’s counterclaim – credit card dispute.............................................. 25

Galaxy Crowdfunding’s counterclaim – use of information...................................... 25

Discovery Dispute........................................................................................................................... 27

Category 34 – discovery sought by defendants from plaintiffs........................................... 28

Defendants’ submissions.................................................................................................. 28

Plaintiffs’ submissions...................................................................................................... 28

Analysis of category 34........................................................................................ 29

Category 21 – discovery sought by defendants from plaintiffs........................................... 31

Defendants’ submissions.................................................................................................. 31

Plaintiffs’ submissions...................................................................................................... 31

Analysis of category 21........................................................................................ 32

Subpoena Objections...................................................................................................................... 32

Credit Union Australia (CUA) subpoena issued 2 December 2020..................................... 32

Plaintiffs’ submissions...................................................................................................... 33

Defendants’ submissions.................................................................................................. 33

Analysis of the subpoena objections.................................................................. 33

Commonwealth Bank Australia (CBA) subpoena issued 30 November 2020................... 34

Conclusion......................................................................................................................................... 35

HER HONOUR:

  1. Mr Jin Chen, the first plaintiff, and Ms Wei (‘Leah’) Zhao, the first defendant, have woven a web of corporate entities around themselves and their business dealings.  The entities are tethered to them by the holding of corporate offices and shares, and perhaps through their respective spouses, Ms Shurui Ding, the wife of the first plaintiff, and Mr Guodong Zhang, the husband of the first defendant.  The business dealings include cryptocurrency trading, crowdfunding platforms, and other online activities.  In at least one business, the first plaintiff assumed responsibilities as a chief information officer and the first defendant, an accountant, assumed responsibilities as a chief financial officer. 

  1. In this proceeding, the first plaintiff alleges that he and the first defendant established two joint ventures.  The second plaintiff is a corporate entity.  The plaintiff(s) seek, amongst other things, damages, declarations, reinstatement of directorship and rectification of corporate registers in respect of monies, bitcoins, and shares.  They claim the first defendant has been negligent in her professional duties and breached her fiduciary duties.  They claim, amongst other things, that money and bitcoins owing to them has been misused or channelled elsewhere.  The first plaintiff says he was removed as a director without his consent.  The second defendant is Mr Biyang ‘Ben’ Hu.  The plaintiffs say he was procured as a director by the first defendant and now holds corporate offices and shareholdings in various entities connected with the disputes here.  The third-tenth defendants are corporate entities.  Some have not actively participated in this proceeding.

  1. The first, second and seventh defendants counter-claim against the first plaintiff.  The first defendant seeks damages arising from the alleged failure to return bitcoins to her.  The second defendant seeks damages for alleged failure to pay back a loan or monies used on his credit card.  The seventh defendant seeks damages for, amongst other things, alleged misuse of information.

Issues for determination

  1. This proceeding commenced more than two years ago and the parties are still in dispute regarding interlocutory matters.  As J Forrest J has observed, the Civil Procedure Act 2010 (‘CPA’) “now requires a court to cut through the layers of interminable argument and nit picking which had traditionally accompanied discovery contests.”[1]  At the Court’s request, the parties grouped the categories of documents into sub-classes and identified representative samples for each class.  The parties identified 16 classes of documents.  Over the course of a two day hearing, I made multiple ex tempore rulings on whether certain categories of documents ought be discovered.  This ruling determines whether two outstanding categories of documents should be discovered by the plaintiffs. 

    [1]Volunteer Fire Brigades Victoria v CFA (Discovery ruling) [2016] VSC 573 [33].

  1. Prior to discovery, the first and second defendants caused seven subpoenas to be issued and the plaintiffs object to them.  At the Court’s request, the parties identified two subpoenas as a representative sample of the seven subpoenas in dispute.  Unfortunately, and despite the evident overlap between some classes in the subpoenas and the discovery rulings, all classes in the two subpoenas remain in dispute.  This ruling also determines whether the plaintiffs’ objections to the subpoenas are allowed.

  1. In order to provide context to this dispute about documents, it is necessary to refer to some previous orders made concerning the exchange of documents.

Orders concerning the disclosure of documents

  1. On 19 June 2019, the plaintiffs filed their originating process.

  1. On 9 August 2019, orders were made requiring the defendants to produce documents to the plaintiffs by 23 August 2019.  The specific categories of documents were outlined in paragraph 2 of those orders.

By 4.00 pm on 23 August 2019, the Defendants produce to the Plaintiffs copies of the following documents electronically pursuant to section 26 of the Civil Procedure Act 2010 (Vic):-

a.        The General Ledger for each of:-

i.        Blockchain Tech Pty Ltd ACN 623 201 945;

ii.        Dashboard Management Pty Ltd ACN 623 566 487;

iii.       Coin Loop Pty Ltd ACN 625 460 773;

iv.       Digital Galaxy Pty Ltd ACN 625 459 814;

v.        Digital Silo Pty Ltd ACN 626 208 393;

vi.       Galaxy Crowdfunding Pty Ltd ACN 622 444 142.

b.Copies of all documents evidencing or recording any consideration provided by:-

i.        Morning Shine Pty Ltd ACN 617 270 425;

ii.        Market St Investments Pty Ltd ACN 629 138 361;

iii.       Apex Legendary Consulting Pty Ltd ACN 141 117 455;

for their shares in the third to seventh defendants.

c. Financial Statements for the second plaintiff and each of the third to seventh defendants for FY2017/2018 and FY 2018/2019, or management accounts if these have not yet been completed which contain the equivalent information.

  1. On 30 August 2019, orders were made that, by 6 September 2019, the defendants comply with paragraph 2 of the orders made on 9 August 2019, or alternatively file an affidavit deposing to the identity of the person who they reasonably believe holds all the documents in question or to the location of the documents.

  1. On 25 October 2019, orders were made requiring the defendants to produce documents to the plaintiffs by 8 November 2019.  The specific categories of documents were outlined in paragraph 2 of those orders.

Further to order 1, by no later than 4:00 pm on 8 November 2019, the Defendants produce to the Plaintiffs, pursuant to section 26 of the Civil Procedure Act 2010 (Vic), the following documents:-

a.        General Ledgers for the following entities:

i.        Apex Legendary Consulting Pty Ltd (the Tenth Defendant);

ii.        Market St Investments Pty Ltd (the Ninth Defendant);

iii.       Morning Shine Investment Trust;

iv.       Morning Shine Investment Trust (No 2);

v.        Carpricorn Assets Management Trust;

vi.       Livia Pty Ltd; and

vii.      Blockchain Business Solutions Pty Ltd (deregistered).

b.Copies of all documents evidencing or recording any consideration provided by Livia Pty Ltd for its units in the following trusts (or any of them):

i.        Carpricorn Assets Management Trust;

ii        Morning Shine Investment Trust;

iii.       Morning Shine Investment Trust (No 2); and

c.Financial statements (or management accounts containing equivalent information) for:

i.        Morning Shine Investment Trust for FYl8 and 19;

ii.        Morning Shine Investment Trust (No 2) for FYl8 and 19;

iii.       Carpricorn Assets Management Trust for FYl8 and 19; and

iv. Apex Legendary Consulting Pty Ltd (the Tenth Defendant) for FY18 and 19.

d.Minutes of meeting in relation to the appointment of Apex Legendary Consulting Pty Ltd (the Tenth Defendant) as the trustee for the Carpricorn Assets Management Trust;

e.Minutes of meeting in relation to the appointment of Market St Investments Pty Ltd as trustee of the Carpricorn Assets Management Trust;

f.Documents or records showing distributions or payments to unitholders, payments to the trustee, bank statements, transfers of units, the register of units and unit certificates for:-

i.        the Morning Shine Investment Trust;

ii.        the Morning Shine Investment Trust (No 2); and

iii.       the Carpricorn Assets Management Trust.

g. Resolutions, notices or agendas of meetings, minutes of meetings, share certificates and any other documents relating to any changes made to the shareholding and directors of:

i. Dashboard Management Pty Ltd (Third Defendant);

ii. Coin Loop Pty Ltd (Fourth Defendant);

iii. Digital Galaxy Pty Ltd (Fifth Defendant);

iv. Digital Silo Pty Ltd (Sixth Defendant); and

v. Galaxy Crowdfunding Pty Ltd (Seventh Defendant).

h.Bank statements for the period 1 January 2018 to 30 September 2019 for:

i.        AMEX Account 377739060101001;

ii.        AMEX Account 376062770392005;

iii. CBA Account ending xx8057 referred to in the bank statements of Apex Legendary Consulting Pty Ltd (the Tenth Defendant) comprising exhibit DW-;

iv. CBA account ending in xxx123 in the name of Apex Legendary Consulting Pty Ltd (the Tenth Defendant) from 1 July 2019 to present;

v. any other bank accounts in the name of Apex Legendary Consultants Pty Ltd (the Tenth Defendant) for the period from 1 July 2018 to present;

vi. any bank accounts in the name of Market St Investments Pty Ltd (the Ninth Defendant) for the period from 1 October 2018 to present; and

vii. any bank accounts in the name of or controlled by Ms Zhao, and from which money was paid to or received from any of:-

1.        Blockchain Tech Pty Ltd (Second Plaintiff);

2.        Dashboard Management Pty Ltd (Third Defendant);

3.        Coin Loop Pty Ltd (Fourth Defendant);

4.        Digital Galaxy Pty Ltd (Fifth Defendant);

5.        Digital Silo Pty Ltd (Sixth Defendant);

6.        Galaxy Crowdfunding Pty Ltd (Seventh Defendant);

7.Morning Shine Pty Ltd (Eighth Defendant); Market St Investments Pty Ltd (Ninth Defendant);

8.Apex Legendary Consultants Pty Ltd (Tenth Defendant); or

9.Livia Pty Ltd.

i.Any documents filed with the Australian Taxation Office or State Revenue Office on behalf of:

i.        Blockchain Tech Pty Ltd (Second Plaintiff);

ii.         Dashboard Management Pty Ltd (Third Defendant);

iii.       Coin Loop Pty Ltd (Fourth Defendant);

iv.       Digital Galaxy Pty Ltd (Fifth Defendant);

v.        Digital Silo Pty Ltd (Sixth Defendant);

vi.       Galaxy Crowdfunding Pty Ltd (Seventh Defendant);

vii       Morning Shine Investment Trust;

viii.      Morning Shine Investment Trust (No 2); and

ix.       Carpricorn Assets Management Trust.

J.The ASIC corporate keys for each of:

i.        Dashboard Management Pty Ltd (Third Defendant);

ii.        Coin Loop Ltd (Fourth Defendant); and

iii.       Digital Galaxy Pty Ltd (Fifth Defendant).

k.The subscription details (including user names and passwords) required to access the QuickBooks accounts for:-

i.        Dashboard Management Pty Ltd (Third Defendant);

ii.        Coin Loop Ltd (Fourth Defendant);

iii.       Digital Galaxy Pty Ltd (Fifth Defendant); and

iv.       Digital Silo Pty Ltd (Sixth Defendant).

  1. Also on 25 October 2019, orders were made for the appointment of Mark Bailey as an independent forensic accountant.

Mark Bailey of Hall Chadwick Melbourne be appointed as an independent forensic accountant to prepare a report in respect of the financial position and affairs of the Second Plaintiff and the Third to Seventh Defendants by 29 November 2019, such report to include:

a.An account of all funds paid to those parties (or any of them) by the Plaintiffs (or either of them) or the Defendants (or any of them) over time, whether by way of loan or otherwise;

b.An account of all amounts paid by any of those parties to, or for the benefit of, the First Plaintiff or the First or Second Defendants in respect of personal expenses or expenses unrelated to the Blockchain Business (or such expenses of any party related to them).

  1. On 9 October 2020, orders were made requiring the defendants to produce documents to the plaintiffs by 6 November 2020.  The specific categories of documents were outlined in paragraph 2 of those orders.

Further to para 1 of this order and subject to any proper objection as to legal professional privilege, by 4pm on Friday 6 November 2020, the defendants are to produce to the plaintiffs the following documents:

(a)Unredacted statements for the period 1 January 2018 to 30 September 2019 for:

i.AMEX account ending xx1001 for the period 1 January 2018 to 30 September 2019;

ii.AMEX account ending xx92005;

iii.the card identified as “HSBC Card” in Ms Zhao’s submissions to the independent forensic accountant, Mark Bailey, for the period 1 January 2018 to 30 September 2019;

iv.Westpac account ending in X5305;

v.Commonwealth Bank of Australia account ending in X8057;

vi.Bank of Melbourne account ending in X4498;

vii.Commonwealth Bank of Australia account ending in X9320;

viii.Bank of Melbourne account ending in X3650;

ix.St George account ending in X5451; and

x.ANZ account ending in X1504.

(b)Books and records for Block Business Solutions Pty Ltd (ACN 624 415 854) (Deregistered) (aside from the General Ledger and FY18 financial statements already produced) including:

i.Any invoices issued to any companies named in the schedule to this proceeding;

ii.Any financial reports, records or bank statements that record any payments or transfers between Block Business Solutions Pty Ltd and any companies named in the schedule to this proceeding;

iii.Any other books, records, reports or other information that refer to, or relate to, any companies named in the schedule to this proceeding; and

iv.Any Payroll reports and PAYG payment summaries for Jiale “Daisy” He and any other employees of Block Business Solutions Pty Ltd who were later employed by any companies named in the schedule to this proceeding.

(c)Documents relating to Half Moon AM Pty Ltd (ACN 632 543 009) as identified in the plaintiffs’ solicitor’s email dated 12 November 2019 including:

i.any invoices or receipts issued to or from the second plaintiff or the third to tenth defendants;

ii.any signed engagements or authorities relating to the second plaintiff or the third to tenth defendants;

iii.any reports, records or bank statements that record any payments or transfers between Half Moon AM Pty Ltd, and the second plaintiff or the third to tenth defendants;

iv.any financial reports, records or other documents prepared by Half Moon AM Pty Ltd for the second plaintiff or the third to tenth defendants; and

v.any documents, reports (including financial reports), books or records relating to:

1.        Morning Shine Investment Trust;

2.        Morning Shine Investment Trust No 2;

3.        Carpricorn Assets Management Trust;

4.        Blockchain Investment Trust; and

5.        Kette Investment Trust.

(d)All documents relating to Blockchain Investment Trust including:

i.The trust deed;

ii.The General Ledger for the trust;

iii.Documents relating to the establishment of the trust;

iv.Documents and correspondence in relation to the preparation of the trust deed, and instructions to set up the trust;

v.Financial statements;

vi.Tax returns for the trust;

vii.Minutes of meeting in relation to the appointment of Blockchain Tech Pty Ltd as the trustee for the Blockchain Investment Trust; and

viii.Documents or records showing distributions or payments to unitholders, payments to the trustee, bank statements, transfers of units, the register of units and unit certificates.

(e)Tax returns for any of the trusts listed in para 2(c)(v) of this order.

(f)Bank statements for any accounts controlled by Mr Guodong Zhang that have transferred funds to, or received funds from the second plaintiff or the third to tenth defendants directly or indirectly, or that received funds from BTC Markets in relation to the sale of the first defendant’s bitcoins.

(g)Bank statements for any accounts in the name of Black Rock Superannuation Fund or its trustee that have transferred funds to, or received funds from the second plaintiff or the third to tenth defendants directly or indirectly.

(h)Bank statements for any other accounts or cards in Leah’s name personally, or in the name of any company of which she is a director, that have transferred funds to, or received funds from the second plaintiff or the third to tenth defendants directly or indirectly.

(i)Any documents, including trust deed, general ledger, financial records, or bank statements for Kette Investment Trust including:

i.The trust deed;

ii.The General Ledger for the trust;

iii.Documents relating to the establishment of the trust; and

iv.Documents and correspondence in relation to the preparation of the trust deed, and instructions to set up the trust.

(j)Payroll documents for second plaintiff or the third to tenth defendants for FY18 and FY19 including:

i.PAYG withholding Payment Summary Reports; and

ii.PAYG Payment Summary per employee per company per year.

(k)Documents evidencing the payroll and super guarantee contributions for:

i.Blockchain Tech Pty Ltd;

ii.Dashboard Management Pty Ltd;

iii.Coin Loop Pty Ltd;

iv.Digital Galaxy Pty Ltd;

v.Digital Silo Pty Ltd; and

vi.Galaxy Crowdfunding Pty Ltd.

(l)Employment contracts for all employees of the second plaintiff or the third to tenth defendants that were employed during the period 1 January 2018 to 30 September 2019.

(m)The ATO Integrated Client Account statements and BAS returns for the second plaintiff or the third to tenth defendants for each financial year between FY17 and FY 19 (inclusive).

(n)All documents evidencing any agreement between the first and second defendant, either personally or through their interests, in relation to:

i.Any of the companies in the Blockchain Group;

ii.Galaxy Crowdfunding Pty Ltd;

iii.The second defendant’s purported investment;

iv.Removing Jin Chen as a director of Galaxy Crowdfunding Pty Ltd; and

v.The funding of costs related to this proceeding and any indemnity given in connection thereto.

  1. On 12 October 2020, Mr Bailey filed his report (‘the Bailey report’).  Paragraph 14 contains key findings “in relation to the financial position and affairs of the Blockchain Group during the period 1 January 2018 to 31 October 2019”.  Paragraph 15 of his report contains other key findings.  It also refers to the information that has not been provided to him by the parties.  Appendix 5 to the report contains the documents that he has received.

  1. On 29 January 2021, orders were made for the hearing of the subpoena objections, the filing of the parties’ points of claim, defence, and reply.

  1. On 17 March 2021, the plaintiffs filed their points of claim. 

  1. On 29 April 2021, orders were made for the first defendant to file her points of defence by 14 May 2021.

  1. On 28 May 2021, the time for the first defendant to file her points of defence was extended to 8 June 2021.  An order was made that if the first defendant failed to comply with that order, the plaintiffs were at liberty to apply for judgment against her in default of delivery of defence.

  1. On 8 June 2021, points of defence were filed.

  1. On 16 June 2021, discovery orders were made. 

Discovery in this proceeding is to be conducted by the following procedure:

(a)By 4pm on Tuesday 27 July 2021, the parties are to serve on each other lists of categories of documents they seek to be discovered, setting out in such lists why the said category of discovery is relevant to the issues in dispute, with appropriate reference to pleadings (‘reasons for request’).

(b)By 4pm on Friday 6 August 2021, the parties are to provide responses to the requested categories of discovery, stating whether that category is accepted or rejected and if rejected, the reasons that category is rejected (‘reasons for rejection’).

(c)By 4pm on Wednesday 11 August 2021, the parties are to compile and provide to the Court a schedule of disputed categories of discovery, including the reasons for request and reasons for rejection.

(d)Any disputed categories will be decided by the Honourable Justice Garde at 11:00am on Friday 20 August 2021.

(e)By Friday 3 September 2021, the parties must give discovery (by way of affidavit of documents in accordance with Rule 29.04 of the Rules) of the agreed categories of discovery and those ordered by the Court, including full inspection.

  1. On 15 July 2021, the subpoena objections was listed before this Court.  On that morning, the solicitor for the first and second defendants informed the Court that his clients were not ready to proceed.  The hearing was adjourned by consent to 22 September 2021. 

  1. On 29 July 2021, amended points of defence and counterclaim were filed (‘amended defence and counterclaim’).

  1. On 6 August 2021, the defendants filed further and better particulars of defence.

  1. On 12 August 2021, the plaintiffs filed a reply to the amended defence and counterclaim (‘reply to amended defence and counterclaim’).

  1. On 3 September 2021, orders were made for the parties to file an updated Redfern schedule by 15 September 2021 recording the categories of discovery, noting which were agreed, and which were disputed, and the reasons for the dispute (‘updated Redfern schedule’).  By paragraph 3 of those orders, the outstanding disputed categories were referred to this Court for determination.

Issues in dispute in this proceeding

  1. Given the degree of the dispute between the parties as to relevance, it is necessary to outline various pleadings. 

Galaxy Crowdfunding dispute

  1. The points of claim filed on 17 March 2021 include the following allegations.  In or about late 2017, the first plaintiff and the first defendant entered into a joint venture agreement, namely the ‘Galaxy Crowdfunding Agreement’.  They agreed that a company would be incorporated to operate a crowdfunding business.  They would each own 50% of the shares in the company and each make contributions on a 50/50 basis, and each be directors of the company.  They agreed that the first plaintiff would be the chief information officer and the first defendant would be that chief financial officer.[2]

    [2]Points of claim filed 17 March 2021 [14].

  1. The defendants deny the Galaxy Crowdfunding Agreement ever existed.  They admit that: Galaxy Crowdfunding was incorporated to develop a crowdfunding business, the initial shareholding of the company was owned 50% by the first plaintiff and 50% by the first defendant, and that they were each its first directors.  The defendants agree that the first plaintiff assumed the responsibilities of chief information officer and the first defendant assumed responsibilities of chief financial officer.  The defendants plead that there was also an agreement that any loans made by the first plaintiff and first defendant or other individuals to Galaxy Crowdfunding would be converted to equity if the loans had not been repaid at the end of the financial year and Galaxy Crowdfunding’s assets were below the sum of $100,000 (‘the Debt to Equity Agreement’).[3]

    [3]Amended points of defence and counterclaim filed 29 July 2021 [14].

  1. Galaxy Crowdfunding Pty Ltd (‘Galaxy Crowdfunding’) is named as the seventh defendant.  It is common ground that Galaxy Crowdfunding was incorporated on about 24 October 2017 with both the first plaintiff and the first defendant as directors.  It is also common ground that the first plaintiff and first defendant were each allocated shares.  There is a dispute between the parties as to the number of shares that were allocated to each of them.[4] 

    [4]Points of claim filed 17 March 2021 [17(b)]; Amended points of defence and counterclaim filed 29 July 2021 [17(b)].

  1. The plaintiffs make the following further allegations in respect of Galaxy Crowdfunding.[5]  On about 24 October 2017, the first plaintiff paid the sum of $157,701 to Galaxy Crowdfunding in consideration for the original shares allocated to him.  On about 1 October 2018, the first defendant recorded a debit of $145,000 in Galaxy Crowdfunding’s ledger on the Xero platform for “White Paper consultation to Silo” (‘White Paper’).  It contained research regarding the establishment of the business operated by the sixth defendant.  The first and second defendants were invited to contribute to the White Paper but did not make any substantive contribution.[6]  On 19 November 2018, without the consent of the first plaintiff, the first defendant transferred, or caused to be transferred, all of the shares in the initial shareholdings to another entity, namely Morning Shine Pty Ltd (‘Morning Shine’), the eighth defendant.  By reason of this, the first plaintiff’s shareholding was diluted to zero.  On 9 May 2019, the Australian Securities and Investments Commission (‘ASIC’) records the first plaintiff’s removal as a director of Galaxy Crowdfunding.  This occurred without his consent.  On 16 April 2019, the first defendant procured the appointment of the second defendant as director of Galaxy Crowdfunding without the first plaintiff’s consent.  On 15 August 2020, Mr Pasquale Franzese was appointed as a director of Galaxy Crowdfunding.[7]

    [5]Points of claim filed 17 March 2021 [18]-[19], [21]-[24].

    [6]Points of reply and defence to counterclaim filed 12 August 2021 [8].

    [7]Points of claim filed 17 March 2021 [34].

  1. The defendants say the following.[8]  They deny the first plaintiff paid the sum of $157,701 to Galaxy Crowdfunding in consideration for the original shares allocated to him.  The debit of $145,000 for the White Paper is admitted.  The first and second defendants conducted research for Galaxy Crowdfunding as to the use of non‑cash tokens for investment products.  This research was later useful in the development of the sixth defendant’s business.  The first plaintiff instructed the first defendant to effect the debit to ensure that the sixth defendant paid for the services it received and the debit was effected at his instruction.  The sixth defendant paid $145,000 in instalments to Galaxy Crowdfunding, although the transfers on occasions were made by an intermediate account.  As to the transfer of shares to Morning Shine, this was done with the consent of the first plaintiff.  The shares were transferred to it as trustee for Morning Shine Investment Trust No 2, a unit trust which 50% of the units were owned by Ding Ding Holdings Pty Ltd (as trustee for the first plaintiff’s family trust).  It is agreed that the first plaintiff’s shareholdings in Galaxy Crowdfunding were reduced to zero.  As to the second defendant being appointed as a director, that was done with the first plaintiff’s knowledge and consent.  The defendants admit the first plaintiff was removed as a director, but it is denied that this was done without his knowledge or consent.

    [8]Amended points of defence and counterclaim filed 29 July 2021 [19], [21], [23], [24], [26].

  1. The plaintiffs make the following further allegations in respect of Galaxy Crowdfunding.[9]  The first defendant lodged forms with ASIC that purported to record a ‘retrospective share issue’.  They purported to record that on 30 June 2018, Galaxy Crowdfunding had issued further shares to the first defendant, the first plaintiff, and Livia Holdings Pty Ltd (‘Livia Holdings’); and on 16 April 2019 issued further shares to Epacris Impressa Pty Ltd (‘Epacris’).  The first defendant has been the sole director of Livia Holdings since 1 January 2018 and at all relevant times held 50% of its shares.  The second defendant has at all relevant times been the sole director and shareholder of Epacris.  Later, the first defendant purported to cause issue of further shares in Galaxy Crowdfunding to various persons such that ASIC now records it has 2,098,615 Class ‘A’ shares and 5,293,344 ordinary shares, and that the first plaintiff owns 33,231 ordinary shares.  This is referred to as the ‘further share issue’.

    [9]Points of claim 17 March 2021 [28]-[30], [32].

  1. The defendants agree that was the retrospective share issue.  They say the following.[10]  The issue was in accordance with audit findings of accountants as to the contributions made to Galaxy Crowdfunding and pursuant to the Debt to Equity Agreement.  They agree the first and second defendants are directors and shareholders in Livia Holdings and Epacris respectively.  As to the further share issue, the defendants deny the allegation and say that on 25 October 2020, ASIC accepted a request for a correction to the shareholding of Galaxy Crowdfunding and that the first defendant purported to cause the issue of shares to various persons in accordance with the corrected records.

    [10]Amended points of defence and counterclaim filed 29 July 2021 [28]-[30], [32].

  1. The plaintiffs say the following.[11] The first defendant has breached, and is continuing to breach, the Galaxy Crowdfunding Agreement. They allege that the first plaintiff has suffered loss and damage by reason of those breaches. It is alleged the loss and damage includes the loss of 50% of the shares of Galaxy Crowdfunding upon a proper accounting of all liabilities and assets, including any funds paid out by the first defendant in breach of the Galaxy Crowdfunding Agreement. The first defendant has breached her fiduciary duties and those breaches constitute a dishonest and fraudulent design. It is pleaded that the eighth defendant had knowledge of those breaches, and knowingly assisted the first defendant’s breaches. Alternatively, it is pleaded that the first defendant is conducting the affairs of Galaxy Crowdfunding in a manner that is oppressive to, unfairly prejudicial to and unfairly discriminatory against the first plaintiff within the meaning of s 232 of the Corporations Act 2001 (Cth) (‘Corporations Act’) and that the first plaintiff is entitled to relief pursuant to s 233 of that Act. The defendants deny these allegations.[12]

    [11]Points of claim filed 17 March 2021 [36]-[43].

    [12]Amended points of defence and counterclaim filed 29 July 2021 [36]-[43].

  1. In paragraphs A-C of the relief claimed, the plaintiffs seek a declaration that the first plaintiff is entitled as a beneficial owner to 50% of the issued shares in Galaxy Crowdfunding and, pursuant to s 175 of the Corporations Act, that the seventh defendant’s register of members be rectified to reflect that, or alternatively an order pursuant to s 233 of the Corporations Act setting aside all purported issues and transfers of shares in Galaxy Crowdfunding that have occurred since 19 November 2018.

  1. The other relief sought by the plaintiffs includes the following.[13] Orders are sought pursuant to s 233 of the Corporations Act removing the second defendant and Mr Pasquale Franzese as directors of Galaxy Crowdfunding and reinstating the first plaintiff as a director. Alternatively, the plaintiffs seek an order winding up Galaxy Crowdfunding. They seek equitable compensation and/or damages, alternatively an account of profits. The plaintiffs also seek a declaration that the first defendant has breached her fiduciary duties, and a declaration that the eighth defendant holds 144,382 shares on constructive trust in favour of the first plaintiff.

    [13]Points of claim filed 17 March 2021 [D]-[L] of relief claimed against Galaxy Crowdfunding.

  1. Turning now to the next dispute.

Blockchain Business Dispute

  1. The points of claim include the following allegations.[14]  In or about December 2017 and early 2018, the first plaintiff and the first defendant entered into a joint venture agreement to establish the Blockchain Business (‘the Blockchain Business Agreement’).  They agreed that the first defendant would arrange for the incorporation of companies to form the Blockchain Business.  It would operate a cryptocurrency exchange platform, and associated technologies, using intellectual property developed by the first plaintiff.  Both the first plaintiff and the first defendant would share the risks and profits in the Blockchain Business and would contribute capital to it.  This would be done on the basis of 70% by the first plaintiff and 30% by the first defendant.  The shares in the companies forming the business would be held on the same ratio.  Neither company would draw a salary nor be entitled to a dividend until the Blockchain Business was profitable.  They agreed that the first plaintiff would be responsible for developing the software platform, IT protocols, and technological material and the first defendant would be responsible for providing bookkeeping, accounting, tax, payroll and corporate governance services, for registering trademarks, and have control of the bank accounts and accounting software.  The defendants deny the allegations.[15]

    [14]Ibid [45]-[46].

    [15]Amended points of defence and counterclaim filed 29 July 2021 [45]-[46].

  1. The points of claim allege that the “Blockchain Business” was formed by Blockchain Tech Pty Ltd (the second plaintiff), Dashboard Management Pty Ltd (the third defendant), Coin Loop Pty Ltd (the fourth defendant), Digital Galaxy Pty Ltd (the fifth defendant), Digital Silo Pty Ltd (the sixth defendant), together with an entity not party to these proceedings, being Blockchain Jet Pty Ltd (‘Blockchain Jet’).  The defendants deny that the entities together operated a business.[16]  The defendants plead, amongst other things, that:

    [16]Points of claim filed 17 March 2021 [9]; Amended points of defence and counterclaim filed 29 July 2021 [9].

(a)        the second plaintiff was incorporated by the first plaintiff for the purpose of employing the staff operating the cryptocurrency exchange platform operated by ACX Tech Pty Ltd (‘the ACX Platform’), and to provide the services of those staff to Blockchain Global for the ongoing operation of that platform following its acquisition of ACX Tech Pty Ltd;

(b)       the third defendant was incorporated by the first plaintiff for creating a new over-the-counter cryptocurrency platform around the time he was negotiating the sale of his shares in ACX Tech Pty Ltd to Blockchain Global, that it was at all times in his effective control and that its banking transactions were managed and controlled by Crochet Pty Ltd, which was in turn effectively controlled by Ms Ding.  The defendants say that the first defendant agreed to be the sole director and shareholder of the third defendant at the request of the first plaintiff;

(c)        the fourth defendant was incorporated by the first plaintiff and the first defendant for the purpose of developing a mobile phone software application, namely “Coin Loop”.  Coin Loop was to be used in conjunction with a hardware wallet for cryptocurrency.  The first defendant was its sole director, and gave direction as to the overall product concept and target market, and organised payroll.  The software was developed, became operational and available for purchase on Google Play, and its listing on Google Play was organised by the first plaintiff, and the first defendant is unaware as to whether this generated any revenue;

(d)       the fifth defendant was incorporated by the first plaintiff, and the first and second defendants for the purpose of creating a crowdfunding business in the event that the Galaxy Crowdfunding equity crowdfunding business was not approved by ASIC, that the development of that business was intended to be a collaboration between the three of them.  On 2 June 2019 the first plaintiff removed the first and second defendants’ access to various accounts without their consent.  These accounts are named as the Gmail accounts, Google Drive, Atlassian accounts (Confluence, Jira, Wiki), Slack accounts, Trello accounts, Amazon accounts, Xero (the fifth defendant did not use Xero, but the second plaintiff did);

(e)        the sixth defendant was incorporated by the first plaintiff and first defendant to operate a business of reselling hardware or cryptocurrency wallets; and

(f)        Blockchain Jet was incorporated by the first plaintiff who wanted to hide his ownership of shares in the second plaintiff, and that he later owned shares in the second plaintiff as a trustee.

  1. The plaintiffs allege that the first defendant owed, and continues to owe, the first plaintiff the following fiduciary duties: not to pursue her own interests or the interests of a related party in conflict with the interests of the first plaintiff, and not to deal with the assets of the Blockchain Business for her own benefit or the benefit of another, or otherwise to profit from her position to the exclusion of the first plaintiff (‘the Blockchain Business Fiduciary Duties’).[17]  This is denied by the defendants.

    [17]Points of claim filed 17 March 2021 [48].

  1. The plaintiffs allege that the first defendant registered the second plaintiff, Blockchain Jet, and the third-sixth defendants without the 70:30 shareholding ratio required by the Blockchain Business Agreement.[18]  The first defendant admits that she caused the companies to be registered and that they did not incorporate the 70:30 shareholding ratio.  The first defendant says she incorporated the second plaintiff, Blockchain Jet and the third defendant on the instruction of the first plaintiff.[19]  The defendants deny the allegations regarding the Blockchain Business Agreement.[20]

    [18]Ibid [51]-[58].

    [19]Admitted by the first plaintiff, who says he gave that instruction on advice from the first defendant: Points of reply and defence to counterclaim filed 12 August 2021 [13].

    [20]Amended points of defence and counterclaim filed 29 July 2021 [51]-58].

  1. The plaintiffs say that between about 3 November 2017 and 29 June 2018, the first plaintiff made capital contributions to the Blockchain Business of at least $1,670,000 by way of cash plus 158.67 bitcoins.[21]  The particulars cited in support of this allegation include the Baily report.  The defendants do not admit this allegation.[22]

    [21]Points of claim filed 17 March 2021 [63].

    [22]Amended points of defence and counterclaim filed 29 July 2021 [63].

  1. The plaintiffs say that between about 9 November 2017 and 4 March 2019, the first defendant made capital contributions to the Blockchain Business of $213,937 by way of cash plus 66.2 bitcoins.  The particulars cited in support of this allegation include the Bailey report.[23]  The defendants deny the ”Blockchain Business” and they refer to the first defendant’s counterclaim (discussed further below).[24]

    [23]Points of claim filed 17 March 2021 [64].

    [24]Amended points of defence and counterclaim filed 29 July 2021 [64].

  1. The plaintiffs say that the first defendant has transferred and/or procured the transfer of funds from the Blockchain Business to: her personal bank accounts, her personal credit cards, the tenth defendant, and Galaxy Crowdfunding.  It is alleged that she caused funds from the tenth defendant to be transferred to her personal or related accounts.  The particulars cited for the transfers include tables of financial transactions annexed to the points of claim and the Bailey report.  The plaintiffs allege the transfers occurred without their knowledge.[25]

    [25]Points of claim filed 17 March 2021 [65]-[67].

  1. The defendants admit the transfers.  They say that the transfers were for various reasons including reimbursing the first defendant for business expenses and this was with the knowledge and consent of the first plaintiff.  Further, the transfers to the tenth defendant were to reimburse it for payment of wages, superannuation and contractor payments.  Further, that the transfers to Galaxy Crowdfunding represented repayment of debts owed by the first plaintiff, contributions by the first plaintiff and first defendant, and some transfers represented the sixth defendant’s payment to Galaxy Crowdfunding for the White Paper.[26]

    [26]Amended points of defence and counterclaim filed 29 July 2021 [65]-[66].

  1. The plaintiffs say the following.[27]  The first defendant withdrew 25 bitcoins from the second plaintiff between 29 March 2019 and 9 April 2019.  She withdrew them to realise them for the benefit of the Blockchain Business.  In April and May 2019, the first defendant caused proceeds from the realisation of the 25 bitcoins to be transferred to the tenth defendant, and then from it to Galaxy Crowdfunding.  She then represented that the funds formed part of her contribution to Galaxy Crowdfunding.  She has otherwise failed to account for the 25 bitcoins. 

    [27]Points of claim filed 17 March 2021 [68]-[70].

  1. The defendants deny the allegations.[28]  The first defendant says the funds represented profit generated using her personal bitcoins, and there was an agreement between her and the first plaintiff that the profits derived from his arbitrage activities, using her personal bitcoins, would be owned by her.  They say that the first plaintiff transferred 25 of the 50 bitcoins to the first defendant by transferring the bitcoins to Mr Zhang’s account, that the first defendant then caused the bitcoins to be sold.  The proceeds of sale were deposited in Mr Zhang’s personal bank account, then transferred to the tenth defendant’s bank account and then onto the bank accounts of the second plaintiff and Galaxy Crowdfunding.  The first defendant says the funds formed part of her contribution to Galaxy Crowdfunding.  She says that the proceeds of sale were used to pay the wages and superannuation of employees, make payments to contractors, reimburse herself for business expenses, and to pay Galaxy Crowdfunding expenses. 

    [28]Amended points of defence and counterclaim filed 29 July 2021 [68]-[70].

  1. The plaintiffs say that in about mid-May 2019, the second plaintiff agreed to loan the first defendant 36 bitcoins.  Several weeks later, the first plaintiff, on behalf of the second plaintiff, requested the 36 bitcoins be returned.  The bitcoins were not returned, and the first defendant remains indebted to the second plaintiff in the amount of 36 bitcoins.[29]  The defendants deny the allegations and refer to the first defendant’s counterclaim (discussed below).[30]

    [29]Points of claim filed 17 March 2021 [71]-[74].

    [30]Amended points of defence and counterclaim filed 29 July 2021 [71]-[74].

  1. The plaintiffs say that between about 18 February 2019 and 19 May 2019, the first defendant caused funds to be removed from the Blockchain Business and transferred to Galaxy Crowdfunding.[31]  The defendants admit the transactions made, and say they were made to effect the payment by the sixth defendant to Galaxy Crowdfunding for the White Paper.[32]

    [31]Points of claim filed 17 March 2021 [78].

    [32]Amended points of defence and counterclaim filed 29 July 2021 [78].

  1. The plaintiffs say that without the first plaintiff’s knowledge or consent, the first defendant caused the third and sixth defendants to loan funds to Block Business Solutions (‘BBS’), (a deregistered company in which the first defendant was the sole director and shareholder).  Those funds have not been repaid.[33]  This is denied.  The first defendant says she was unaware of the transaction at the time it occurred and this was effected by another person under the first plaintiff’s instructions.[34]

    [33]Points of claim filed 17 March 2021 [3(f)], [80].

    [34]Amended points of defence and counterclaim filed 29 July 2021 [80].

  1. The plaintiffs say that on or about 3 June 2019, the first defendant removed 30 “Octowallet” hardware products that were assets of the sixth defendant and, despite demand, has failed to return them.[35]  The defendants admit that the sixth defendant had such assets.  They deny that the first defendant removed them.[36]

    [35]Points of claim filed 17 March 2021 [87]-[89].

    [36]Amended points of defence and counterclaim filed 29 July 2021 [87]-[89].

  1. The plaintiffs say the following. [37] The first defendant has breached, and is continuing to breach, the Blockchain Business Agreement. They allege that the first plaintiff has suffered loss and damage by reason of those breaches. It is alleged that the loss and damage includes the loss of 70% of the value of the Blockchain Business or alternatively 70% of the shares of the third-sixth defendants upon a proper accounting of all liabilities and assets, including any funds paid out by the first defendant in breach of the Blockchain Business Agreement. The first defendant has breached the Blockchain Business Fiduciary Duties. Alternatively, it is pleaded that the first defendant is conducting the affairs of the companies constituting the Blockchain Business, or alternatively the affairs of each of the third-sixth defendants, in a manner that is oppressive to, unfairly prejudicial to and unfairly discriminatory against the first plaintiff within the meaning of s 232 of the Corporations Act and that the second plaintiff is entitled to relief pursuant to s 233 of that Act.[38]  The defendants deny these allegations.[39]

    [37]Points of claim filed 17 March 2021 [90]-[93].

    [38]Ibid [94].

    [39]Amended points of defence and counterclaim filed 29 July 2021 [90]-[94].

  1. In paragraph P of the relief claimed, the plaintiffs seek relief in respect of the Blockchain Business, specifically a declaration that the first plaintiff, alternatively the second plaintiff, is entitled as a beneficial owner to 70% of the issued shares in the third-sixth defendants. In paragraph Q of the relief sought in the points of claim, the plaintiffs seek corollary orders pursuant to s 175 of the Corporations Act for rectification of the registers of the third-sixth defendants.

  1. The plaintiffs also seek a declaration that the first defendant has breached the Blockchain Business Fiduciary Duties, equitable compensation and/or damages, alternatively an account of profits, and payment of 36 bitcoins by the first defendant to the second plaintiff.[40]

    [40]Points of claim filed 17 March 2021 [R]-[U] of relief claimed against Blockchain Business.

  1. Before turning to the next dispute it should be noted that the plaintiffs make allegations against the first defendant of failure to keep proper books and records, and failure to provide access to financial and other information.

Allegations of negligence and breach of retainer against first defendant

  1. The plaintiffs say the following.  The first defendant breached her duty of care to each of them to act with the level of care and skill that could reasonably be expected of an ordinary skilled accountant in the circumstances, and that they have consequentially suffered loss and damage.  Alternatively, the first defendant entered into an agreement with the second plaintiff and BBS to the effect that the second plaintiff would retain BBS to perform accounting and company secretarial services for it (‘the Retainer’).  It is alleged that the first defendant owed fiduciary duties to the second plaintiff by reason of the Retainer.  It is alleged that the first defendant breached the Retainer and fiduciary duties by preferring her own interests and profiting from her appointment under the Retainer.  It is alleged that the second plaintiff consequently suffered loss and damage.[41]  

    [41]Ibid [95]-[107].  Damages or alternatively equitable compensation or damages are sought in paragraphs Y and Z of the prayer for relief.

  1. The defendants deny these allegations and say the following.[42]  BBS was operated by the first defendant and provided a business of secondment services in respect of accountants and office managers.  Amongst other things, BBS was incorporated following the first plaintiff’s request that the first defendant hire staff using a new entity for the purpose of supplying the second plaintiff with accountants and an office manager.

    [42]Amended points of defence and counterclaim filed 29 July 2021 [95]-[107].

  1. Turning now to the counterclaim.

First defendant’s counterclaim – Bitcoin Loan Agreement Dispute

  1. The first defendant makes the following allegations.[43]  In around August 2018, the first defendant entered into an agreement with the first plaintiff by which she agreed to lend 66.2 bitcoins to him (‘the Bitcoins Loan Agreement’).  There were express terms of the agreement that he would use the bitcoins for arbitrage activities and any profit generated would be contributed to their companies, including Galaxy Crowdfunding, the second plaintiff, and the third-sixth defendants, and, moreover, would be regarded as the first defendant’s contribution to those businesses.  Further, that the bitcoins would be repayable upon demand.  There was an implied term of the agreement that the first plaintiff would account to the first defendant for any profit generated using the bitcoins.  Pursuant to the Bitcoins Loan Agreement, the first defendant transferred 66.2 bitcoins to the first plaintiff.  In or around April 2019, the first plaintiff represented that he had generated profit in the form of 50 bitcoins and he transferred 25 bitcoins to the first defendant and kept 25 bitcoins for himself.  In May 2019, the first plaintiff transferred 35.9999 of the original bitcoins back to the first defendant.  Despite demand, and promising to do so on around 5 June 2019, he has failed to transfer back the balance to her, being 30.2 bitcoins.  In breach of the implied terms of the Bitcoins Loan Agreement, he has failed to disclose and substantiate the profit generated by his use of the bitcoins and failed to use the profit to make contributions in the manner agreed.  The first plaintiff claims damages, interest, and costs.

    [43]Amended points of defence and counterclaim filed 29 July 2021 [108]-[113B].

  1. The first plaintiff denies the allegations.[44]  Under cover of an objection, that pleading is vague and embarrassing and liable to be struck out, he admits that he has not transferred 30.2 bitcoins “back” to any defendant.

    [44]Points of reply and defence to counterclaim filed 12 August 2021 [26]-[34].

Second defendant’s counterclaim – Loan Agreement Dispute

  1. The second defendant makes the following allegations.[45]  On or around 2 March 2019 there was a negotiation with the first plaintiff regarding the sale of shares to the second defendant.  On around 5 March 2019 they entered into agreement by which the second defendant agreed to lend $200,000 to the first plaintiff (’the Loan Agreement’).  On 6 and 17 March 2019, the second defendant transferred $200,000 to the first plaintiff.  The first plaintiff refused to sign the share sale agreement.  The second defendant did not make an election to treat their loan of $200,000 as a part payment towards any purchase of shares.  In satisfaction of $20,000 of the first plaintiff’s total liability under the Loan Agreement, the second defendant received 20,000 shares in Galaxy Crowdfunding.  Despite demand, the first plaintiff has refused to repay the balance of the $180,000.  He has breached the Loan Agreement and caused the second defendant loss and damage.  Alternatively, the first plaintiff is indebted to the second defendant in the sum of $180,000.

    [45]Amended points of defence and counterclaim filed 29 July 2021 [114]-[124].

  1. The first plaintiff says the following. [46]  He objects to the pleading and under cover of that objection admits that he met the second defendant on 2 March 2019 and discussed the second defendant buying shares in the Blockchain Business (excluding the second plaintiff) and Galaxy Crowdfunding but that no agreement was reached in that discussion.  He otherwise he denies the allegations.  The first plaintiff says that he met with the first and second defendants on about 5 March 2019.  At that meeting the second defendant offered to transfer his own funds to the Blockchain Business to provide liquidity to it and Galaxy Crowdfunding.  After that meeting there was a discussion between the first and second defendants regarding the second defendant transferring $200,000 to a bank account of the second plaintiff.  The first plaintiff admits he has not signed any “share sale agreement” purported to exist between him and the second defendant and says further that he is not aware of the circumstances in which the second defendant received 20,000 shares in Galaxy Crowdfunding.

Second defendant’s counterclaim – credit card dispute

[46]Ibid [36]-[48].

  1. The second defendant says the following.[47]  From May to June 2019, the first plaintiff used the second defendant’s personal credit card without permission.  In doing so, he spent $5,873.  The second defendant claims damages, debt or restitution from the first plaintiff.  The first plaintiff denies the allegations.[48]

    [47]Ibid [125]-[127].

    [48]Ibid [46]-[48].

Galaxy Crowdfunding’s counterclaim – use of information

  1. Galaxy Crowdfunding makes the following allegations.[49]  It developed software for the purposes of creating an online crowdfunding platform.  The platform was designed to be accessed by customers online using the platform’s website.  The software source code for the platform was stored online in an account with GitHub.  Gmail accounts were created for staff.  From May 2018 to May 2019, in the course of its business, Galaxy Crowdfunding used the following online services or applications to communicate, store information, purchase goods and services, and otherwise operate its business: Gmail, Google Drive, Atlassian (including its applications Confluence, Jira and Wiki), Slack, Tiello, Amazon and GitHub.  In around December 2018, the platform became fully operational save that it did not have a communication facility.  At all relevant times, the first plaintiff had the credentials to access the platform’s software, the online services and applications together with the information necessary to change the credentials to access that information.  The first plaintiff obtained information because he was a director of Galaxy Crowdfunding.  He owed a duty to it not to improperly use that information.  On 9 May 2019, the first plaintiff ceased being a director of Galaxy Crowdfunding.  On or around 2 June 2019, and without the consent of Galaxy Crowdfunding, he used the information to change credentials for the online services and applications, and software.  Since that time, Galaxy Crowdfunding’s offices and staff have been unable to access its accounts in the services and applications, access or modify the software source code or administer the website.  In response to its demands to the first plaintiff for return of the information, he has demanded payment of an invoice issued by Amazon to the second plaintiff which Galaxy Crowdfunding is not liable to pay.  He has deliberately withheld the information in order to gain an advantage for himself and cause detriment to Galaxy Crowdfunding.  He has breached his duties to it and caused loss and damage.  As a result,  Galaxy Crowdfunding claims damages.

    [49]Ibid[128]-[148].

  1. The first plaintiff says that the software was developed by the second plaintiff and not Galaxy Crowdfunding, and remained the property of the second plaintiff at all relevant times.  He says that in late 2017, Galaxy Crowdfunding had email accounts on the “fast mail” email platform and that at around the same time the second plaintiff had an account with the “Gmail” email platform and email accounts that operated on the platform.  He says that in about May 2018, he cancelled the Galaxy Crowdfunding fast mail email accounts and opened new accounts as part of the second plaintiff’s Gmail account and the steps were undertaken with the knowledge and consent of the first defendant.  The first plaintiff says that the second plaintiff had an account with each of the online services referred to in the counterclaim and that it had an account with the Google product “Gsuite” that allowed it to have multiple Gmail email accounts and Google documents associated with its account.  Further, multiple usernames and passwords could be established for access to that Gsuite, and it also allows the use of “single sign on” technology to access accounts for other products not operated by Google by entering a username and password associated with the Gsuite account.  Certain usernames and passwords were established for use by Galaxy Crowdfunding.  It did not have any separate account.  As at April 2018 Galaxy Crowdfunding was incapable of being “operational”.  By December 2018 the platform was “operational” insofar as Galaxy Crowdfunding was capable, in theory, of raising funds.  No actual fundraising project was embarked on, or any fundraising undertaken by Galaxy Crowdfunding at that time.  As the administrator of the second plaintiff’s account, the first plaintiff was able to pause access for particular usernames and reset passwords.  He denies misusing information. He says that on about 29 May 2019 he discovered the first defendant had removed his access to the accounting files of the second plaintiff and third defendant on the Xero accounting platform.  On 3 June 2019 he caused the Gsuite user names associated with Galaxy Crowdfunding to be paused.  The pause was then lifted on 5 June 2019.  He says that by about 17 June 2019, the first defendant had not given him access to the Xero account and that he caused the usernames to be paused once again and on about 30 August 2019 he lifted the pause again.  The first plaintiff admits that the second plaintiff has requested that Galaxy Crowdfunding paid invoice issued by Amazon.  He otherwise denies the allegations.

Discovery Dispute

  1. The relevant principles were not in dispute. Order 29 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’), and ss 7, 26 and 55 of the CPA are applicable. I adopt the principles summarised in Volunteer Fire Brigade Victoria v CFA (Discovery ruling).[50] It must be recalled too, that the orders on 16 June 2021 require the parties to give discovery by way of affidavits of documents in accordance with r 29.04 of the Rules.

    [50]Volunteer Fire Brigades Victoria v CFA (discovery ruling) [2016] VSC 537 [28]-[36].

  1. The parties filed multiple affidavits in support of their various submissions.  It is unnecessary to recite them here. 

Category 34 – discovery sought by defendants from plaintiffs

  1. Category 34 is as follows:

All the unredacted bank statements evidencing the first plaintiff’s cash contributions from his personal and joint controlled bank accounts paid to the bank accounts of the second plaintiff and third and seventh defendants of his cash contribution of $2,365,000 and … all material of the source of the cash contributions [from the first plaintiff to the bank accounts of the second plaintiff, third and seventh defendants].

  1. Category 34 is the representative category for documents grouped under ‘contribution of cash’ and ‘share ownership and relief’.  The latter category includes classes 42-45 which relate to Ding Ding Holdings and the Ding Ding Family Superannuation Fund. 

Defendants’ submissions

  1. This class is relevant in the pleadings: paragraph 63(a) of the points of claim, paragraph P of the relief sought in the points of claim, and paragraph 63 of the defence.  They concern the global issue of cash contributions by the first plaintiff to the Blockchain Business.  The documents have not been provided save for some statements received in redacted form.

  1. There is no temporal limit on the documents sought.  The danger in adopting such a limit is that it excludes documents regarding the first plaintiff’s contributions.  The first and second defendants seek documents regarding further contributions have been made to the Blockchain group.  It becomes relevant in the way that the funds have been used.

  1. In respect of Ding Ding: the defendants seek documents for the period to June 2020. 

Plaintiffs’ submissions

  1. In paragraph 63(a) of the points of claim, it is alleged that between about 3 November 2017 and 29 June 2018 the first plaintiff made a capital contribution to the Blockchain Business of at least $1,670,000 by way of cash.  That is the temporal limit and it is unclear how any later dates are relevant to production.  The issue of share ownership after this time is not relevant to this category of documents.

  1. As to the relief sought in paragraph P, the declaration that is sought is relevant to the Blockchain Business.  The bank statements do not have any bearing on this issue.  It is unclear how there could be relevance beyond 30 June 2019.  It is unclear how the relief sought can be relevant when it seeks a declaration about the effects of the agreement.

  1. In respect of the Ding Ding entities: they are not party to the proceeding.  There is reference to a Ding Ding entity in the points of claim: paragraph 3(g).  This goes to the qualifications of the first defendant as an accountant and particularises facts in support of that, including setting up the Ding Ding family superannuation fund.  This is admitted in the defence.

  1. The fact that Ding Ding Holdings owns 50% of the units in Galaxy Crowdfunding might be relevant, but not to the extent it would require production of its bank statements.

  1. If the defendants wish to make an application to strike out pleadings, they can.  They have not. 

Analysis of category 34

  1. The pleading in paragraph 63(a) of the points of claim is that the first plaintiff made capital contributions to the Blockchain Business of “at least $1,670,000 by way of cash” between about 3 November 2017 and 29 June 2018.  This allegation is not admitted.  It is accordingly for the plaintiffs to prove.  The defendants seek the records of cash contributions to entities that are included within the plaintiffs’ description of the Blockchain Business, namely the second plaintiff, the third and Galaxy Crowdfunding.  I accept the bank statements are relevant.  As discussed, disputes about whether or not documents may be provided in an unredacted form will not be determined here.  I reject the plaintiffs’ submission that there is a danger in applying a temporal limit.  It is for the plaintiffs to prove they made the capital contributions as they alleged, which is during the period pleaded.  Discovery for the 2017-2018 financial year is plainly relevant.  Given the pleading is that there were contributions made on about 3 November 2017 and 29 June 2018, there should be discovery for the financial year 2017-2018.  As the parties are working in financial years, I will allow discovery for the period up to 30 June 2019.  Discovery beyond that period cannot be relevant.

  1. The relief sought in paragraph P, as outlined above, is for beneficial share ownership as it relates to the claim of ongoing oppressive conduct.  The claim relies upon particular allegations made in the pleadings.  The defendants have failed to establish how the relief sought in paragraph P could be relevant to the capital contributions that the plaintiffs say were made to the Blockchain Business beyond the period referred to in paragraph 63(a) of the points of claim.

  1. Classes 42-45 seek discovery of financial information regarding Ding Ding Holdings and Ding Ding Family Superannuation Fund.  Neither of those entities are a party to this proceeding and no claim is made on their behalf.  As discussed above, the defendants referred to Ding Ding Holdings in paragraph 21 of their defence.  There is no dispute between the parties that the shares in the original Galaxy Crowdfunding shareholding were transferred to the eighth defendant.  The defendants say the eighth defendant is a trustee of Morning Shine Investment Trust No 2, and that, in turn, is a unit trust in which Ding Ding Holdings own 50% as trustee for the first plaintiff’s family trust.  They say the transfer occurred with the first plaintiff’s consent.  It is this consent that is in dispute.[51]  This does not make the financial records of either Ding Ding entity relevant. 

    [51]Points of reply and defence to counterclaim filed 12 August 2021 [9].

  1. The points of claim refer to Ding Ding Family Super Fund in particular D to the particulars of paragraph 3(g) of the points of claim.  They are particulars which relate to the allegation the first plaintiff held herself out to be a Certified Practising Accountant with a Masters Degree in Business Administration and experience in accounting and taxation advice, superannuation and business structuring.  The defendants admit the allegations in paragraph 3(g) save to say that the first defendant is a chartered accountant and not a certified practising accountant.  These pleadings do not make the financial records of either Ding Ding entity relevant to the proceeding.  Those records are not discoverable.

Category 21 – discovery sought by defendants from plaintiffs

  1. Category 21 is as follows:

Payroll records, pay slips, employment agreement between ACX Tech Pty Ltd (ACX Tech) and the first defendant, and unredacted ANZ Bank account statements for ACX Tech for the period October 2017 to present.

  1. Category 21 is not a representative category.

Defendants’ submissions

  1. This is relevant to the engagement of the first defendant by ACX Tech.  There is a reference to this in particular E to the particulars of paragraph 3(g) of the points of claim.  It is alleged that the first defendant was engaged by ACX Tech to provide bookkeeping and accounting services.  If the particulars are relevant, the documents are relevant.  The first defendant is entitled to understand why it is raised in the pleadings.  She does not know what weight the plaintiffs may place on that particular and how they will use it.  There is no temporal limit that the defendants are prepared to apply to this category.

Plaintiffs’ submissions

  1. The particulars of paragraph 3(g) of the points of claim go to the first defendant’s personal ability and the allegation of breach of professional retainer.  The defence admits paragraph 3(g).  This does not go to any relevant issue in dispute in the proceeding.

  1. ACX Tech is not a party to the proceeding.  There is not even an allegation that the first defendant was employed by ACX Tech. 

  1. Even if this category was relevant, there is no basis for discovery for the period from the 2018 financial year.

Analysis of category 21

  1. The same analysis applies as for particular D to paragraph 3(g) of the points of claim analysed above.  This category is not relevant.  It is not discoverable.

  1. Finally, as a matter of completeness, Mr Bailey’s report refers to cash inflows from ACX Tech to the ‘Blockchain Group’, and notes the second plaintiff’s balance sheet as at 30 June 2019 records a loan payable to ACX Tech.[52]  This does not make the records sought relevant.  They must be relevant to the issues in dispute between the parties.

    [52]The Bailey report [14], [59], [63], 25.

Subpoena Objections

  1. The relevant principles were not in dispute. I refer to order 42A of the Rules.  I adopt the principles summarised in Volunteer Fire Brigade Victoria v CFA (Discovery ruling).[53] 

    [53]Volunteer Fire Brigades Victoria v CFA (discovery ruling) [2016] VSC 537 [55]-[63].

Credit Union Australia (CUA) subpoena issued 2 December 2020

  1. The CUA classes are as follows:

Class 1:  All bank accounts opened and closed between 1 January 2018 and 26 November 2020 in the name of Crochet Pty Ltd (ACN 619 981 654)

Class 2: In respect of [bank account number]: all statements identifying all debits and credits from the date the account was opened until the present date.

  1. The parties addressed both classes concurrently in their submissions.  Reference was made to Exhibit ‘WZ-9’ and Exhibit ‘IL-9’.  Exhibit ‘WZ-9’ to the first defendant’s affidavit affirmed on 25 August 2021 (noting there were two such affidavits made by the first defendant on that date) is a copy of the statement from Kette Investment Pty Ltd (‘Kette’)  received by the first defendant 26 May 2021.  It is stated to be for the second plaintiff’s account for the periods 1 August 2018-30 June 2019, and 1 July 2019-30 June 2020. 

  1. Exhibit ‘IL-9’ to the affidavit of Ian Yuying Li, the plaintiffs’ solicitor, sworn on 1 September 2021 (‘Liu 1 September 21 affidavit’), is a summary spreadsheet of all bank transfers made by Kette and is said to correlate to the entries in the Kette bitcoins transaction account exhibited at ‘WZ-9’.  Exhibit ‘IL-9’ also contains copies of the bank statements of the third defendant, Kette, and Crochet Pty Ltd (‘Crochet’) that are said to correlate to that exhibit.

  1. Reference was also made to Exhibit ‘IL-8’.  It is stated to be a ‘General Service Agreement’ between the second plaintiff and Kette dated 12 August 2018.

Plaintiffs’ submissions

  1. There is nothing inconsistent about the documents provided.  Nothing can be gained from obtaining further bank statements from non-parties.  Records have been provided and some have been included in the Bailey report.

Defendants’ submissions

  1. There are discrepancies between Exhibit ‘WZ-9’ and Exhibit ‘IL-8’.  An issue that arises is whether the sale of the first defendant’s bitcoins flowed into the bank account of Crochet.  There appears to be mystery as to where the sale money has gone.  The plaintiffs have produced partially unredacted statements.

Analysis of the subpoena objections

  1. In an affidavit affirmed on 25 August 2021, the first defendant deposes to the reasons why she does not believe the spreadsheet contained in Exhibit ‘WZ-9’ to be genuine.  It is not appropriate for the Court here to determine whether or not the statements are genuine. 

  1. There are bank accounts of Crochet and Kette relevant to the proceeding.  The first defendant’s counterclaim for the Bitcoins Loan Agreement is denied.  The general services agreement contained in Exhibit ‘IL-8’ includes provision for Kette to liquidate the second plaintiff’s cryptocurrencies, such as bitcoins, into Australian dollars.  Mr Bailey requested third party evidence from the parties to verify bitcoin contributions, including ledger and/or transaction history.  Mr Bailey received statements issued by Kette to the second plaintiff, listing all transactions between Kette, Crochet, the second plaintiff, and the third defendant.  Mr Bailey stated in his report that the “listings provided do not appear to be externally generated third-party documents” and that he had been advised by the plaintiffs’ lawyers that “the exchanges don’t provide statements”.[54]  Mr Bailey noted receipt of the general services agreement between the second plaintiff and Kette, together with an agreement between the second plaintiff and Crochet dated 2 January 2019.[55]  Mr Bailey investigated and made findings on cash inflows to Blockchain Group bank accounts from Crochet and Kette for the review period (as discussed above, 1 January 2018 to 31 October 2019).[56]  He found the parties’ respective claims with respect to bitcoins were “inconclusive due to lack of third-party supporting documentation provided”.[57]

    [54]The Bailey report [45], item (3) in table.

    [55]Ibid, item (8) in table.

    [56]Ibid [59], [63].

    [57]Ibid [15].

  1. The subpoena was issued prior to discovery orders being made and prior to pleadings.  The plaintiffs’ objection letter contained an objection on the basis that the subpoena appeared to be an impermissible attempt to circumvent discovery.[58]

    [58]Notice of objection from the plaintiffs’ solicitors dated 19 December 2020.

  1. Subpoenas should not be used as a substitute for discovery and that is what has occurred here.  Crochet bank statements are evidently in the ‘possession’ of the plaintiffs, as defined in r 29.01(2), as their solicitor has exhibited them.[59]  The subpoena objection is allowed.

    [59]Exhibit ‘IL-9’, Summary spreadsheet and copy of bank statements, to the See the Crochet bank Liu 1 September 221 affidavit: see the Crochet bank statement.

Commonwealth Bank Australia (CBA) subpoena issued 30 November 2020

  1. The CBA classes are as follows:

Class 1:  All bank accounts opened and closed between 1 January 2018 and 26 November 2020 in the name of Kette Investments Pty Ltd (ACN 627 876 788)

Class 2:  In respect of [bank account no.], for the debits identified in the table [contained in the subpoena] below:

(a)document identifying the account (or other facility, such as a merchant card) to which funds were credited as part of the relevant transaction (including BSB and account number and account holder) (Receiving Account);

(b)the receiving account was an account operated by Commonwealth Bank of Australia the account statements of the Receiving Account; and (c)          a copy of the cheque or voucher or whatever document records the debit transaction to which a BSB and account number and account holder cannot be identified.

Class 3:  In respect of [bank account no]: all statements identifying all debits and credits from the date the account was opened until the present date.

  1. The parties made similar submissions to those for the CUA subpoena and they need not be reiterated here.  I should add that, as outlined above, the orders made on 9 October 2020 required the defendants to produce documents for the Kette Investment Trust. 

  1. The same analysis applies as for the CUA subpoena.  The subpoena is being used as a substitute for discovery.  The objection is allowed.

Conclusion

  1. The parties should confer as to the form of orders following this ruling and the ex tempore rulings.  If they cannot agree on the form of the orders, they will be given an opportunity to  provide their respective orders.

SCHEDULE OF PARTIES

S ECI 2019 02711

BETWEEN:
JIN CHEN First Plaintiff

BLOCKCHAIN TECH PTY LTD (ACN 623 201 945)

Second Plaintiff

- v -
WEI ZHAO First Defendant
BIYANG HU Second Defendant
DASHBOARD MANAGEMENT PTY LTD (ACN 623 566 487) Third Defendant
COIN LOOP PTY LTD (ACN 625 460 773) Fourth Defendant
DIGITAL GALAXY PTY LTD (ACN 625 459 814) Fifth Defendant
DIGITAL SILO PTY LTD (ACN 626 208 393) Sixth Defendant
GALAXY CROWDFUNDING PTY LTD (ACN 622 444 142) Seventh Defendant
MORNING SHINE PTY LTD (ACN 617 270 425) Eighth Defendant
MARKET ST INVESTMENTS PTY LTD (ACN 629 138 361) Ninth Defendant
APEX LEGENDARY CONSULTING PTY LTD
(ACN 141 117 455) 		Tenth Defendant

- v -
WEI ZHAO First Plaintiff by Counterclaim
BIYANG HU Second Plaintiff
by Counterclaim
GALAXY CROWDFUNDING PTY LTD
(ACN 622 444 142) 		Third Plaintiff by Counterclaim

- and -
JIN CHEN First Defendant by
Counterclaim
BLOCKCHAIN TECH PTY LTD (ACN 623 201 945) Second Defendant by Counterclaim

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