Re Dysin Investment Partners Pty Ltd
[2024] VSC 656
•29 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 04338
IN THE MATTER of DYSIN INVESTMENT PARTNERS PTY LTD (ACN 609 479 138)
| QIWEN WU (also known as SIMON WU) | Plaintiff |
| v | |
| DYSIN INVESTMENT PARTNERS PTY LTD (ACN 609 479 138) (and others according to the Schedule) | Defendants |
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JUDGE: | Waller J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 September 2024 |
DATE OF JUDGMENT: | 29 October 2024 |
CASE MAY BE CITED AS: | Re Dysin Investment Partners Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 656 |
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MISLEADING OR DECEPTIVE CONDUCT — Unconscionable Conduct — Misuse of investor funds — Plaintiff invested funds for specific property development — Funds utilised by defendants for other purposes — Remedies under the Australian Securities and Investments Commission Act 2001 (Cth) — ss 12DA, 12CB — Relief sought under ss 12GF and 12GM — Conduct unconscionable but not misleading or deceptive — Defendants ordered to compensate plaintiff —Defendants absent at trial.
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APPEARANCES: | Counsel | Solicitors |
| For the First Plaintiff | Mr A Purton | Madgwicks Lawyers |
| No appearance for the Defendants |
HIS HONOUR:
A. INTRODUCTION
The first defendant, Dysin Investment Partners Pty Ltd (ACN 609 479 138) (‘Dysin Investment Partners’) operated a financial services firm. The fifth defendant, Yongjie Chen (also known as Jackie Chen) and the sixth defendant, Rufino Villaluz were its directors and managing partners.
In June 2017, Mr Chen, Mr Villaluz, Dysin Investment Partners and the second defendant, DIP Anthony Street Pty Ltd (ACN 620 408 353) (‘DIP Anthony Street’), invited the first plaintiff, Qiwen Wu (also known as Simon Wu), to invest in a property investment scheme described as the Anthony Street Syndicate,[1] for the development of the property at 21–23 Anthony Street, Melbourne, Victoria (‘Property’).
[1]Points of Claim filed by the First Plaintiff on 10 June 2022, [9] (‘Points of Claim’); Court Book filed by the First Plaintiff on 16 August 2024, 16 (‘CB’).
The Property was to be developed into a 10 storey building consisting of 696 sqm of office and retail space and 1,202 sqm of student accommodation, with the potential for a further 1,145 sqm of student accommodation.
Between 23 August 2017 and 29 August 2017, Mr Wu invested $1.6 million in the Anthony Street Syndicate (‘Member Investment’).
The Property was subject to a contract of sale dated 24 April 2017, between Mr Chen and HGO Management Services Pty Ltd. The contract price was $5,650,000. A 10% deposit of $565,000 was payable on the signing of the contract. Settlement was originally fixed for 21 August 2017,[2] but was delayed until 25 August 2017.
[2]CB (n 1) 65.
On 31 August 2017, DIP Anthony Street became the registered proprietor of the Property.
Development of the Property never took place and, on 20 January 2021, the Property was sold for little more than the price for which it had been acquired. No investor received any return on their investment because DIP Anthony Street was insolvent.
On 20 November 2020, the plaintiffs commenced this proceeding by way of an originating process.
The second plaintiff was also an investor in the Anthony Street Syndicate, unrelated to Mr Wu. On 15 December 2021, the proceeding was dismissed insofar as it relates to the second plaintiff.
Mr Wu seeks damages, alternatively compensation, from Mr Chen and Mr Villaluz of $1.6 million, plus interest, representing his investment in the Anthony Street Syndicate.[3] Mr Wu seeks this relief under Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’), ss 12GF and 12GM, for contraventions of ss 12DA and 12CB of the ASIC Act.
[3]Opening Submissions filed by the First Plaintiff on 18 September 2024, [82] (‘Plaintiff’s Opening Submissions’).
The second to fourth defendants are some of the companies that comprised the Dysin Investment Partners corporate group. Those companies have either been deregistered or are in liquidation. No relief is sought against them.[4]
[4]Ibid [6](3); Points of Claim (n 1) [2].
For the reasons set out below, an order will be made that the fifth and sixth defendants pay the sum of $1.6 million to the first plaintiff, together with interest on that amount from the commencement of the proceeding.
B. THE ABSENCE OF THE DEFENDANTS AT TRIAL
On 6 October 2023, the sixth defendant’s solicitors, FCW Lawyers, filed and served a notice of ceasing to act pursuant to r 20.03(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’).
On 20 May 2024, I fixed the proceeding for trial to commence on 23 September 2024.
On 16 August 2024, I granted leave to the fifth defendant’s solicitors, Oceania & Li Lawyers, to file and serve a notice of ceasing to act pursuant to r 20.03(1) of the Rules.
On 11 September 2024, my chambers emailed the parties and solicitors confirming that the trial was scheduled to commence on 23 September 2024.
On 13 September 2024, I granted leave to the second defendant’s solicitors, Logie-Smith Lanyon, to file and serve a notice of ceasing to act pursuant to r 20.03(1) of the Rules.
On 13 September 2024, I granted leave to the second defendant’s provisional liquidators’ solicitors, Altus Lawyers, to file and serve a notice of ceasing to act pursuant to r 20.03(1) of the Rules.
On 17 September 2024, my chambers emailed the parties and solicitors, reminding them that outlines of submissions were required to be filed and served by 18 September 2024.
On 20 September 2024, the first plaintiff received a communication from the sixth defendant indicating that he would not be appearing at the trial.[5]
[5]Transcript of Proceedings (23 September 2024) 1.09–1.17 (‘Transcript’).
Between 16 August 2024 and 23 August 2024, the first plaintiff attempted unsuccessfully to communicate with the fifth defendant.[6]
[6]Ibid 1.17–1.28.
As both the fifth and sixth defendants were given reasonable notice of the trial and made no application for an adjournment, I determined that the trial should proceed in their absence.[7]
[7]See Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 49.02(1)(b).
Where a defendant is absent at trial, the plaintiff must still establish their case by evidence in order to obtain judgment. The plaintiff is then entitled to the relief claimed in the statement of claim.[8]
[8]See Stone v Smith (1887) 35 Ch D 188, 189 (Kekewich J); Macquarie Bank Ltd v Seagle (2005) 146 FCR 400, 406–7 [24] (Conti J); Electrolux Home Products Pty Ltd v Delap Impex KFT (2015) 110 IPR 164, 169–70 [24] (Farrell J).
To prove that Mr Chen and Mr Villaluz made certain representations to Mr Wu,[9] Mr Wu relied on various admissions made by them, through their lawyers, in their respective defences.[10]
[9]See below, [75]–[82]; Points of Claim (n 1) [12]–[13].
[10]CB (n 1) 34–9 (Defence of the first, third, fourth and sixth defendants filed 26 August 2022) (‘First, Third, Fourth and Sixth Defendants’ Defence’); CB (n 1) 40–5 (Defence of the fifth defendant filed 20 December 2023) (‘Fifth Defendant’s Defence’).
A lawyer has implied authority to make admissions on behalf of their client during litigation, either for the purposes of dispensing with proof at trial, or in certain other respects.[11]
[11]Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (2008) 167 FCR 314, 318–19 [18]–[19], [34] (Rares J), cited in Slea Pty Ltd v Connective Services Pty Ltd (No 9) [2022] VSC 136, [429] (Robson J), undisturbed on appeal in Millsave Holdings Pty Ltd v Connective Group Pty Ltd [2023] VSCA 326, [105] (McLeish and Macaulay JJA, Lyons JA agreeing at [1053]–[1054]).
Whether an admission in a defendant’s pleading or other filed documents constitutes an admission pursuant to s 87 of the Evidence Act 2008 (Vic) is a question of fact in the circumstances.[12]
[12]Australian Competition and Consumer Commission v J Hutchinson Pty Ltd (2022) 404 ALR 553, 569–70 [98] (Downes J), quoting Australian Competition and Consumer Commission v Pratt (No 3) (2009) 175 FCR 558, 593–5, [70], [72]–[73]; Capic v Ford Motor Company of Australia (2021) 154 ACSR 235, 419–20 [815]–[817] (Perram J), reversed (2023) 300 FCR 1 but not on the question of admissions, special leave granted by the High Court in Capic v Ford Motor Company of Australia Pty Ltd [2024] HCASL 27.
Further, a defendant’s defence must be weighed in light of their failure to lead any evidence at trial. As the High Court of Australia recognised in Australian Securities and Investments Commission v Hellicar,[13]
[d]isputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken into account in determining whether a party has proved its case to the requisite standard.
[13]Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345, 412 [165] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) (‘Hellicar’).
In G v H, Brennan and McHugh JJ said,[14]
when a court is deciding whether a party on whom rests the burden of proving an issue on the balance of probabilities has discharged that burden, regard must be had to that party’s ability to adduce evidence relevant to the issue and any failure on the part of the other party to adduce available evidence in response.
[14]G v H (1994) 181 CLR 387, 391–2, quoted in Hellicar (n 13) 441 [250] (Heydon J).
In the circumstances, I consider that it is appropriate to treat representations made in documents filed by the fifth and sixth defendants (through their lawyers) as admissions, to the extent that they establish the representations made to Mr Wu.
C. FACTUAL BACKGROUND
The parties
The first plaintiff, Mr Wu, is a company director based in Guangzhou, China. In August 2017, Mr Wu invested $1.6 million in the Anthony Street Syndicate.[15]
[15]CB 36 (n 1) [14], 42 [14], 108 [14], 472–8.
The first defendant, Dysin Investment Partners, operated a financial services firm, of which the fifth defendant, Mr Chen, and the sixth defendant, Mr Villaluz, were directors and managing partners.
The first to fourth defendants are some of the companies that comprised the Dysin Investment Partners corporate group. Those companies have either been deregistered or are in liquidation.[16] Mr Wu seeks no relief against them.[17] Their respective roles in respect of the Anthony Street Syndicate are summarised below:
[16]The first defendant was deregistered on 22 April 2022: CB (n 1) 1852. The second defendant was wound up by order of Lyons J on 26 March 2021: CB (n 1) 46. The third defendant was deregistered on 15 April 2022: CB (n 1) 1867. The fourth defendant was deregistered on 28 November 2021: CB (n 1) 1882.
[17]Plaintiff’s Opening Submissions (n 3) [6](3).
(a) on 25 November 2015, Dysin Investment Partners was incorporated. Its directors were Mr Chen and Mr Villaluz;
(b) in addition to the Anthony Street Syndicate, Dysin Investment Partners managed a number of other investments. They included property developments at the following sites:[18]
[18]Ibid [6](5); CB (n 1) 1383, 1816.
(i) 3 View Court, Brighton, Victoria;
(ii) 406–408 Buckley Street, Essendon, Victoria;
(iii) 152–156 Gailey Road, St Lucia, Queensland;
(iv) 3 Graham Street, Bacchus Marsh, Victoria; and
(v) 5–7 and 9 Provost Street, North Melbourne Victoria;
(c) on 12 July 2017, the second defendant, DIP Anthony Street, was incorporated to be the entity through which the Anthony Street Syndicate would be conducted. On 31 August 2017, it became the registered proprietor of the Property, which has since been sold;
(d) on 26 March 2021, Lyons J ordered that DIP Anthony Street be wound up on the just and equitable ground pursuant to s 461(1)(k) and in insolvency pursuant to s 459B of the Corporations Act 2001 (Cth) (‘Corporations Act’).[19] As a consequence of those orders, the proceeding was automatically stayed as against DIP Anthony Street;
(e) the third defendant, DIP Holdco Pty Ltd (‘DIP Holdco’) was the major shareholder in DIP Anthony Street. It received some of the funds advanced by the investors in the scheme;
(f) the fourth defendant, DIP AS Funding Trust Pty Ltd (‘DIP AS Funding’) was the Trustee of the DIP AS Funding Trust. It was incorporated for the purpose of providing funding for the Anthony Street Syndicate.
[19]CB (n 1) 46.
First plaintiff’s investment
In January 2017, Mr Wu was introduced to Mr Chen and Mr Villaluz at a meeting in Guangzhou, China. The introduction was made by Luo Hong Ming, who was a legal consultant to Mr Wu’s company.[20]
[20]Ibid 105 [3], [6].
On 24 April 2017, Mr Chen entered into a contract of sale to purchase the Property for $5,650,000.[21]
[21]Ibid 165.
In or around June 2017, Mr Chen told Mr Wu that he was involved in the development of the Property and that the development was a medium to long term investment which would involve obtaining planning permission and constructing a 10 level building on the Property, consisting of a mix of office space, retail space and student accommodation (‘Project’).[22] Mr Wu exchanged WeChat messages with both Mr Chen and Mr Villaluz in respect of the opportunity.[23]
[22]Ibid 106 [8]–[9].
[23]Ibid 127, 134.
In or around July 2017, Mr Wu was handed an Information Memorandum titled ‘Boutique Student Accommodation 21–23 Anthony Street, Melbourne CBD’ (‘Information Memorandum’) by Mr Chen and Mr Rufino. Mr Wu was given two copies, one in English dated 16 July 2017 and one in Mandarin Chinese dated 10 July 2017. At around the same time, he received the documents by email.[24]
[24]Ibid 106 [12], 159.
Under the heading ‘Important Notice’ the following was stated:[25]
This Information Memorandum (“IM”) is dated July 2017 (“Issue Date”). This IM relates to the offer (the “Offer”) of 3 shares in the DIP Anthony Street Pty Ltd (the “Syndicate”) and subordinated debt units in the DIP AS Funding Trust. It is intended that the Offer will raise a total of $4,800,000.
[25]Ibid 160.
The Information Memorandum described Dysin Investment Partners as the ‘Syndicate Manager’.[26] It stated that ‘[t]he Syndicate Agreement together with this IM and the Act and other laws govern the Syndicate and the Syndicate Manager’s relationship with Unitholders’.[27]
[26]Ibid 163.
[27]Ibid 107 [14], 174.
Under the heading ‘Executive Summary’ the following was stated:[28]
…
The Manager is pleased to offer an opportunity to invest in the Syndicate, which is proposing to develop a 10 level building that will consist 696 sqm of office and retail space and 1202 sqm of student accommodation with potential for a further 1145 sqm of student accommodation.
…
The capital for the Syndicate raised under the Offer will be applied toward funding of the land purchase consideration, management fees, consultant fees, financing costs. In addition, it is proposed that the Project will be part funded by bank debt at a loan to development cost ratio of 65%.
[28]Ibid 163.
On around 17 August 2017, DIP Anthony Street (as borrower) and DIP AS Funding as trustee for the DIP AS Funding Trust (as lender) entered into a loan agreement pursuant to which DIP AS Funding agreed to lend $2,928,000 to DIP Anthony Street (‘DIP AS Funding Loan Agreement’).[29]
[29]Ibid 418.
In or around August 2017, Mr Wu, DIP Anthony Street, DIP Holdco, Lam Tuong Don Cheng, Ryan’s Horizon Pty Ltd and Li & Ge Holdings entered into an English-language deed titled ‘Shareholders Deed’ in respect of DIP Anthony Street (‘DIP Anthony Street Shareholders Deed’).[30]
[30]Ibid 249–320.
In the period from 23 August 2017 to 29 August 2017, Mr Wu paid $1.6 million to Dysin Investment Partners for the purpose of investing in the Anthony Street Syndicate,[31] through the following transactions:
[31]Ibid 108 [21], 472.
(a) on 23 August 2017, Mr Wu transferred $600,000;[32]
[32]Ibid 472.
(b) on 24 August 2017, Mr Wu transferred $100,000;[33]
[33]Ibid 474.
(c) on 24 August 2017, Mr Wu transferred $170,000;[34]
[34]Ibid 475.
(d) on 24 August 2017, Mr Wu transferred $30,000;[35]
(e) on 28 August 2017, Mr Wu transferred $400,000;[36] and
(f) on 29 August 2017, Mr Wu transferred $300,000.[37]
[35]Ibid 476.
[36]Ibid 477.
[37]Expert Report of Gary Fettes dated 14 June 2023, Appendix I, 75 (‘Expert Report of Gary Fettes’).
Mr Wu received:
(a) $624,000 in shares in DIP Anthony Street (comprising 130 shares at a share price of $4,800 per share);[38] and
(b) $976,000 in units in the DIP AS Funding Trust (comprising 20 Class A Units).[39]
[38]CB (n 1) 20 [18], 36 [18], 42 [18].
[39]Ibid 20 [19], 36 [19], 42 [19].
In total, investors in the Anthony Street Syndicate invested $4.8 million, comprising:
(a) $1,872,000 in exchange for shares in DIP Anthony Street (at the issue price of $4,800 per share); and
(b) $2,928,000 in exchange for units in the DIP AS Funding Trust,[40] which was lent to DIP Anthony Street pursuant to the DIP AS Funding Loan Agreement.[41]
[40]Ibid 59 [2.2].
[41]Ibid 418.
Purchase of the Property
The contract price of the Property was $5,650,000. A 10% deposit of $565,000 was payable on the signing of the contract and settlement was due on 21 August 2017.[42] Settlement was delayed until 25 August 2017.[43] On 31 August 2017, DIP Anthony Street became the registered proprietor of the Property.[44]
[42]Ibid 65.
[43]Expert Report of Gary Fettes (n 37) Appendix I, 127, 131; Transcript (n 5) 48.12–48.13.
[44]CB (n 1) 986, 1046–55.
On or around 22 August 2017, DIP Anthony Street (as borrower) entered into a finance facility agreement with Australian Securities Limited (‘ASL’), pursuant to which it agreed to borrow $2,938,000 as a non-bank loan to be secured over the Anthony Street Property (‘ASL Facility’).[45] The ASL Facility commenced on 24 August 2017 and was a short term loan which was required to be repaid on 15 September 2018.[46] The ASL Facility was applied in full to the purchase of the Property and associated costs.[47]
[45]Ibid 70, 432.
[46]Ibid 441, 467.
[47]Ibid 70.
The expert report of Gary Fettes, a forensic accountant, states that, excluding the repayment of the deposit, investor funds of $2,530,821.14 were required to complete the settlement for the purchase of the Property.[48]
[48]Ibid 77 [6.13].
Having regard to the:
(a) bank statements of Dysin Investment Partners;
(b) DIP Anthony Street ledgers and Xero records; and
(c) Dysin loan account between DIP Anthony Street and Dysin Investment Partners,[49]
Mr Fettes’ report states that the $2,530,821.14 was paid by a combination of $930,821.14 from the Dysin Investment Partners bank account and $1,600,000 of investor funds not banked in the Dysin Investment Partners bank account,[50] received from an investor other than Mr Wu.[51]
[49]Ibid 59 [2.3], 60 [2.6].
[50]Ibid 77 [6.13].
[51]Ibid 79 [6.23](b).
Mr Fettes’ report states that the likely funding of the purchase price of the Property incorporated the ASL Facility and the amounts received on the following dates:[52]
[52]Ibid 77–8 [6.16].
Date Detail Amount Less Bank Fees 22-Aug-17 Dysin bank account payment $906,028.00 $906,000.00 23-Aug-17 Dysin bank account payment $20,241.25 $20,213.25 24-Aug-17 DIPAS - Journal payment to Vendor $4,707.89 $4,607,389 $930,977.14 $930,821.14 24-Aug-17 Assumed investor funds $1,600,000.00 $1,600,000.00 $2,530,977.14 $2,530,821.14
Mr Fettes’ report states that an analysis of the Dysin Investment Partners bank account indicates that Mr Wu’s funds were not applied to the purchase of the Property and were substantially used to meet the costs and expenses of Dysin Investment Partners and/or other related entities and not toward the Project.[53]
[53]Ibid 78 [6.21].
Development of the Project
Having regard to the ASL Facility agreement, Mr Fettes’ report states that the initial funding of the Anthony Street Syndicate was $7,738,000,[54] comprising the ASL Facility loan funds of $2,938,000 and investor funds totalling $4,800,000.[55]
[54]Ibid 59.
[55]Ibid [2.2].
Mr Fettes’ report states that application of loan and investor funds toward the purchase of the property was as follows:[56]
[56]Ibid 60 [2.10].
Details Total ASL Loan Funds Investor Funds Payments to Vendor or on Vendor’s behalf $5,114,624.54 $2,583,803.40 $2,530,821.14 Deposit repaid to Dysin Investment Partners $565,000.00 $565,000.00 Applied to stamp duty and other costs $354,196.60 $354,196.60 Total purchase price $6,033,821.14 $2,938,000.00 $3,095,821.14 Investor funds – available to meet project costs $1,704,178.86 Total Loan funds $2,938,000.00 $4,800,000.00
Mr Fettes’ report states that:
(a) after settlement, investor funds available to meet project costs would have been $1,704,178.86, assuming Dysin Investment Partners had a right to be paid, or repaid, the deposit amount of $565,000; or $2,269,178.86 if Dysin Investment Partners had no entitlement to the deposit sum;[57]
(b) $450,000 was paid to Dysin Investment Partners for management fees. No evidence in support of the management fees was provided. The amount charged was the amount set out in the Information Memorandum, presuming the Project went through to completion;[58] and
(c) almost all of Mr Wu’s funds were applied toward the costs and expenses of Dysin Investment Partners or related entities and not toward the Project. Mr Fettes was only able to identify project costs of some $37,216.43 which might be traceable to Mr Wu’s funds.[59]
[57]Ibid [2.11].
[58]Ibid 92 [7.42].
[59]Ibid 61 [2.13].
On 28 February 2019, DIP Anthony Street refinanced the ASL Facility with a $3,390,000 loan facility made available to it by Perpetual Corporate Trust Ltd (‘Perpetual Facility’).[60]
[60]Ibid 1371.
On 8 July 2019, DIP Anthony Street obtained a planning permit for the demolition of the existing building and the construction of an 11 storey building with a basement and rooftop terrace for student accommodation. The permit was due to expire on 7 July 2021.[61]
[61]Ibid 1372.
In February 2020, the Property was put on the market for sale.[62]
[62]Ibid 1371.
On 28 February 2020, Mr Chen resigned as a director of DIP Anthony Street.
On 5 March 2020, DIP Anthony Street (as borrower) entered into a loan agreement with MACC Lending Solutions Pty Ltd (‘MACC’) (as lender) for a finance facility of $500,000.[63]
[63]Ibid.
On 11 March 2020, HS Credit (Melbourne) Pty Ltd engaged Egan National Valuers to prepare a valuation of the Property.[64]
[64]Ibid 751.
On 13 March 2020, Egan National Valuers finalised a report, in which it valued the Property at $6.5 million.[65]
[65]Ibid 711.
On 24 April 2020, Mr Wu received a letter from Mr Villaluz in relation to the development.[66] The letter outlined two options:
(a) to develop the Property, consistent with the original Information Memorandum; or
(b) to sell the Property. The letter stated, ‘we believe a $9M+ asset sale price is achievable’.
[66]Ibid 767.
On around 27 April 2020, MACC agreed to extend the financial accommodation made available to DIP Anthony Street by entering into a second loan agreement, with DIP Anthony Street and DIP Gailey Road Pty Limited as borrowers in the amount of $700,000.[67]
[67]Ibid 774.
On 26 May 2020, DIP Anthony Street refinanced the Perpetual Facility by obtaining a new facility of $4,225,000 from Rusalia Trading Pty Ltd, Fast Distribution Pty Ltd and YGL Investment Pty Ltd (‘RTFDYGL’).[68]
[68]Ibid 1598.
On 24 July 2020, DIP Anthony Street provided a guarantee of a loan which Staldone Corporation Pty Ltd ACN 003 893 132 (‘Staldone’) advanced to DIP Brighton Property Pty Limited ACN 617 277 246 in its own right and in its capacity as trustee of the DIP Brighton Property Trust (‘Staldone Guarantee’).[69]
[69]Ibid 1619.
On 27 September 2020, MACC (as lender) and DIP Anthony Street, DIP Gailey Road Pty Limited, DIP Buckley Property Pty Limited and DIP Graham Street Pty Ltd (collectively, ‘Borrowers’) entered into a loan agreement pursuant to which MACC agreed to lend $700,000 to the Borrowers for the purpose of satisfying and discharging a current loan facility provided by MACC and to provide working capital for the Borrowers’ businesses (‘MACC Loan Facility’).[70]
[70]Ibid 949.
On 20 November 2020, this proceeding was commenced.
On 11 December 2020, the Court made orders authorising Mr Wu and the second plaintiff to inspect the books of DIP Anthony Street and the books of the fourth defendant in its capacity as trustee of the DIP AS Funding Trust. Mr Wu and the second plaintiff engaged Glenn Franklin of PKF as an investigative accountant to review the books and records produced by the second and fourth defendants.
On 20 January 2021, a contract of sale for the Property was executed for a purchase price of $5,850,000 (‘January 2021 Contract of Sale’).[71]
[71]Ibid 1371.
On 28 January 2021, Mr Franklin provided his preliminary assessment.[72] Under the heading ‘Suspected Divestment of Investor Funds’, Mr Franklin identified nine loan accounts which revealed a total of $1,892,909.42, which appeared to be associated with related entities and the development of separate projects.[73]
[72]Ibid 1108.
[73]Ibid 1111.
Provisional liquidation
On 10 February 2021, Mr Franklin and Jason Stone of PKF Melbourne were appointed jointly and severally as provisional liquidators of DIP Anthony Street (‘Provisional Liquidators’). Mr Franklin and Mr Stone were also ordered to provide the Court with a report as to the provisional liquidation, including as to:[74]
[74]Ibid 1368.
(a) the identification of the assets and liabilities of DIP Anthony Street;
(b) an opinion as to the solvency of DIP Anthony Street;
(c) the likely return to creditors;
(d) any other information necessary to enable the financial position of DIP Anthony Street to be assessed;
(e) any claims which might be available to DIP Anthony Street under Part 5.7B of the Corporations Act in the event of its liquidation; and
(f) any suspected contravention of the Corporations Act by the directors and officers of DIP Anthony Street.
On 23 February 2021, Mr Franklin and Mr Stone provided their report to the Court (‘Provisional Liquidator’s Report’). The Provisional Liquidator’s Report stated, amongst other things, that:
(a) DIP Anthony Street was insolvent as at 10 February 2021, being the date of their appointment;[75]
[75]Ibid.
(b) as at 10 February 2021, DIP Anthony Street had secured creditors who were owed a total of $6,422,422, comprising:
(i) RTFDYGL, which was owed $4,448,090 pursuant to the Deed of Loan executed on 26 May 2020;
(ii) Staldone, which was owed $1,200,000 pursuant to a guarantee dated 14 July 2020 provided by DIP Anthony Street in connection with a loan of $1.2 million made available to related entity, DIP Brighton Pty Ltd (‘Staldone Guarantee’);[76] and
[76]Ibid 1384.
(iii) MACC, which was owed $774,332 pursuant to the MACC Loan Facility;
(c) as at 10 February 2021, DIP Anthony Street was owed $1,980,926 pursuant to a number of related party loan accounts. Most of the related party loans were made in connection with other property developments, including:
Debtor Amount Dysin Investment Partners $1,395,000.00 DIP Brighton Property Pty Ltd ATF the DIP Brighton Property Trust $98,699.00 DIP Buckley Property Pty Ltd ATF the DIP Buckley Property Trust $61,578.00 DIP Gailey Road Pty Ltd ATF the DIP Gailey Road Trust $53,006.00 DIP Graham St Property Pty Ltd ATF DIP Graham St Trust $5,496.00 DIP Provost Property Pty Ltd ATF DIP Provost Property Trust $146,919.00 East 68th Capital Pty Ltd $150,531.00
(d) the Provisional Liquidators served demands on each of the related parties and received no response. The Provisional Liquidators formed the view that it was doubtful as to whether the related party loans were recoverable;
(e) the Provisional Liquidators inspected five other sites which were under development by associated entities of DIP Anthony Street.[77] Each of the sites was either vacated or abandoned. There were no signs of any recent construction;[78] and
(f) by causing DIP Anthony Street to enter into the Staldone Guarantee, Mr Villaluz may have contravened multiple sections of the Corporations Act, including ss 180, 181 and 182, by executing a contract that caused detriment to DIP Anthony Street and for not acting in good faith in the best interests of DIP Anthony Street and for a proper purpose. In this context, Mr Villaluz conceded to the Provisional Liquidators that there was no benefit to DIP Anthony Street in it providing the Staldone Guarantee.[79]
[77]See paragraph [32](b) above.
[78]CB (n 1) 1383.
[79]Ibid 1385–6.
On 23 June 2021, the 20 January 2021 Contract of Sale settled. None of the proceeds were paid to Mr Wu.
D. THE FIRST PLAINTIFF’S CASE
At trial, Mr Wu relied on the following key documents:
(a) the expert witness report of Gary Fettes, dated 14 June 2023;[80]
(b) the Information Memorandum;[81] and
(c) the Provisional Liquidator’s Report.[82]
[80]Ibid 54–104.
[81]Ibid 159–76 (English version); CB (n 1) 136–58 (Mandarin Chinese version).
[82]CB (n 1) 1368–1849.
In addition, Mr Wu called the following witnesses:
(a) Mr Wu gave evidence with the assistance of a Mandarin Chinese interpreter. Mr Wu adopted the evidence set out in his witness statement;[83] and
(b) Mr Fettes gave evidence. Mr Fettes is a forensic accountant, a Fellow of CPA Australia and a Registered Liquidator. He has been a director of Rogers Reidy since May 2008. Mr Fettes adopted his expert report.
[83]Transcript (n 5) 40.12–40.31.
Representations
Mr Wu alleges that the WeChat messages and the Information Memorandum together constituted an invitation to invest in the Project (‘Invitation’).[84]
[84]Points of Claim (n 1) [9]; CB (n 1) 16; Plaintiff’s Opening Submissions (n 3) [59]; CB (n 1) 112–19 [7]–[12].
Mr Wu alleges that, in making the Invitation, the defendants made several representations to Mr Wu (collectively, ‘Representations’).
First, in respect of the Project and its returns, the Information Memorandum made representations to the following effect (‘Project and Returns Representation’):[85]
[85]CB (n 1) 163–4.
(a) the Anthony Street Syndicate was proposing to develop a 10 level building on the Property that would comprise 696 sqm of office and retail space and 1202 sqm of student accommodation, with potential for a further 1145 sqm of student accommodation;
(b) the Project would take approximately 18 months for the planning stage and 18 months for the delivery (construction) stage;
(c) after the completion of the delivery (construction) stage, the Anthony Street Syndicate would hold the Property for five years and, if favourable market conditions exist, liquidate the asset;
(d) capital would be returned to investors when the Property was sold;
(e) anticipated returns would be:
(i) capital growth of 38% when planning permits are achieved; and
(ii) capital growth and income yield of 81% and 12.68% respectively when the asset is completed and fully let.
Secondly, in respect of members’ interests, the Information Memorandum made representations to the following effect (‘Member’s Interest Representation’):[86]
[86]CB (n 1) 163.
(a) the $1.6 million Member Investment into the Anthony Street Syndicate would represent and involve the acquisition of a 25% interest in the Anthony Street Syndicate (by way of shares in DIP Anthony Street and subordinated debt units in the DIP AS Funding Trust);
(b) investors in the Anthony Street Syndicate would hold a total 75% interest in the Anthony Street Syndicate; and
(c) Dysin Investment Partners would receive a carried interest in the Anthony Street Syndicate of 25%.
Thirdly, in respect of the application of investments, in making the Invitation and providing the Information Memorandum, Mr Chen, Mr Villaluz, Dysin Investment Partners and DIP Anthony Street represented to Mr Wu that the Member Investment would be wholly applied towards the purchase of the Property, management fees, consultant fees and financing costs (‘Member Investment Application Representation’).[87]
[87]Ibid 18; Points of Claim (n 1) [12]; CB (n 1) 163, 170–1; First, Third, Fourth and Sixth Defendants’ Defence (n 10) [12]; Fifth Defendant’s Defence (n 10) [12].
Finally, in respect of financing, in making the Invitation and providing the Information Memorandum, Mr Chen, Mr Villaluz, Dysin Investment Partners and DIP Anthony Street represented (‘Bank Financing Representation’) to Mr Wu that:[88]
(a) the Project would be funded by bank financing, at a loan-to-development ratio of approximately 65%; and
(b) the bank financing (and any financing) would be applied to the Project.
[88]CB (n 1) 18; Points of Claim (n 1) [13]; CB (n 1) 163, 170–1; First, Third, Fourth and Sixth Defendants’ Defence (n 10) [13]; Fifth Defendant’s Defence (n 10) [13].
Mr Wu alleges that the Representations were made in trade or commerce within the meaning of s 12DA(1) of the ASIC Act and were made in relation to financial services within the meaning of ss 12BAA(1), 12BAB(1) and 12DA(1) of the ASIC Act.[89]
[89]Plaintiff’s Opening Submissions (n 3) [72].
Dysin Investment Partners was a financial services firm which operated a business promoting investments such as the Anthony Street Syndicate. In the context of the Anthony Street Syndicate, it dealt in a financial product (i.e. the shares in DIP Anthony Street and units in the DIP AS Funding Trust) and accordingly, it relevantly provided financial services.
Misleading or deceptive conduct
Mr Wu alleges that each of the Representations was misleading or deceptive, or likely to mislead or deceive.[90]
[90]Points of Claim (n 1) [42].
At all relevant times, Mr Chen and Mr Villaluz described themselves as the Managing Partners of Dysin Investment Partners and were jointly responsible for decisions taken in respect of the Anthony Street Syndicate until 28 February 2020, when Mr Chen resigned (at which point, Mr Villaluz was solely responsible for decisions taken in respect of the Anthony Street Syndicate).[91]
[91]Plaintiff’s Opening Submissions (n 3) [74].
Mr Wu alleges that Mr Chen and Mr Villaluz acted in a manner which was inconsistent with the content of the Information Memorandum. Most significantly, they did not advance the development of the Property because they used funds invested for that purpose to pursue unrelated developments.[92]
[92]Ibid [73].
Project and Returns Representation
Mr Wu alleges that contrary to the Project and Returns Representation:[93]
(a) the Anthony Street Syndicate did not undertake the Project or develop the Property;[94] and
(b) no capital was returned to Mr Wu when the Property was sold.
[93]Points of Claim (n 1) [38].
[94]CB (n 1) 112–19 [44], [50]–[54].
Member’s Interest Representation
At trial, Mr Wu did not press his claim in respect of the Member’s Interest Representation.[95] Accordingly, it is not necessary for the Court to consider this issue.
[95]Plaintiff’s Opening Submissions (n 3) [64], [66]–[67], [70]; Transcript (n 5) 10.6–11.3.
Member Investment Application Representation
Mr Chen and Mr Villaluz admit to making the Member Investment Application Representation.[96]
[96]First, Third, Fourth and Sixth Defendants’ Defence (n 10) [12]; Fifth Defendant’s Defence (n 10) [12].
Mr Wu alleges that contrary to the Member Investment Application Representation:[97]
(a) the Member Investment was not wholly used in the purchase of the Property, management fees, consultant fees and financing costs; and
(b) from in or around mid July 2017, DIP Anthony Street and the Anthony Street Syndicate divested the Member Investment by loaning it on an unsecured basis to Dysin Investment Partners and other entities and persons related to or associated with Dysin Investment Partners, for purposes unrelated to the purchase of the Property, or management fees, consultant fees, or financing costs of the Project, or the Project at all.
[97]Points of Claim (n 1) [40]; Plaintiff’s Opening Submissions (n 3) [71].
Bank Financing Representation
Mr Chen and Mr Villaluz admit to making the Bank Financing Representation.[98]
[98]First, Third, Fourth and Sixth Defendants’ Defence (n 10) [13]; Fifth Defendant’s Defence (n 10) [13].
Mr Wu alleges that contrary to the Bank Financing Representation, the Anthony Street Syndicate borrowed:[99]
(a) exclusively from non-bank lenders on comparatively unfavourable terms; and
(b) for purposes unrelated to the Project.
[99]Points of Claim (n 1) [41]; Plaintiff’s Opening Submissions (n 3) [68].
Mr Wu further alleges that Dysin Investment Partners:[100]
[100]CB (n 1) 125 [68].
(a) used Mr Wu’s investment and that of the other investors for purposes unrelated to the Project, including to lend it to other persons and entities for purposes unrelated to the Project and for no benefit to the Project;
(b) borrowed exclusively from non-bank lenders (on terms comparatively unfavourable to banks), including for purposes unrelated to the Project and for no benefit to the Project; and
(c) used the Property as security for loans to other entities and for purposes unrelated to the Project.
Mr Wu alleges that, as a consequence, Mr Chen, Mr Villaluz, Dysin Investment Partners and DIP Anthony Street engaged in conduct in contravention of s 12DA(1) of the ASIC Act.[101]
[101]Points of Claim (n 1) [43].
In the alternative, to the extent that they did not themselves engage in the said conduct, Mr Wu alleges that Mr Chen, Mr Villaluz and DIP Anthony Street were persons involved in the contravention for the purposes of s 12GF(1) of the ASIC Act.[102]
[102]Ibid [44].
Mr Wu’s evidence is that that there was limited disclosure of the risks of the investment; while he understood that all property development carries risks,[103] he would not have invested in the Anthony Street Syndicate if he had been told that:[104]
(a) money which he (or the other investors) invested in the Anthony Street Syndicate would have been used for purposes other than the Anthony Street Syndicate;[105] or
(b) the Anthony Street Syndicate would be funded by non-bank financing.[106]
[103]Plaintiff’s Opening Submissions (n 3) [63].
[104]Ibid [18], [63], [75]–[76]; Points of Claim (n 1) [45].
[105]CB (n 1) 108, 108 [19], 125 [69].
[106]Ibid 108, 108 [20], 125 [69].
By reason of each of Mr Chen’s, Mr Villaluz’s and DIP Anthony Street’s conduct in contravention of, or involvement in the contravention of s 12DA(1) of the ASIC Act, Mr Wu alleges that he has suffered loss and damage and is entitled to an award of damages pursuant to s 12GF(1) of the ASIC Act.[107]
[107]Points of Claim (n 1) [46].
Unconscionable conduct
Further or in the alternative, Mr Wu alleges that Mr Chen, Mr Villaluz, Dysin Investment Partners and DIP Anthony Street engaged in unconscionable conduct in contravention of s 12CB, or alternatively s 12CA, of the ASIC Act, in that they:[108]
[108]Ibid [49]. Mr Wu’s Points of Claim also allege that the defendants engaged in unconscionable conduct in that they did not grant Mr Wu and the other investors an interest in the Anthony Street Syndicate in accordance with the Member’s Interest Representation, but that allegation was not pressed at trial: see paragraph [87] above.
(a) did not apply the Member Investment to the Project in accordance with the Member Investment Application Representation and instead:
(i) divested the Member Investment from DIP Anthony Street, the Anthony Street Syndicate and the Project; and
(ii) used the Member Investment to fund other activities for the benefit of the Defendants and to the detriment of Mr Wu; and
(b) eroded the value of the Property and the Project by:
(i) obtaining non-bank loans:
(A) at comparatively high interest rates; and
(B) for purposes unrelated to the Project and to the benefit of the Defendants and to the detriment of Mr Wu,
contrary to the Bank Financing Representation; and
(ii) using the Property as security for loans to other entities and for purposes unrelated to the Project.
Mr Wu submits that by using investor money to pursue other projects and by failing to obtain finance on appropriate terms, Mr Chen and Mr Villaluz caused the Anthony Street Syndicate to fail. There was never any real prospect that the development would succeed because it was undercapitalised. Mr Wu submits that it was unconscionable for Mr Chen and Mr Villaluz to induce investors to provide capital to a project that was never going to succeed.[109]
[109]Plaintiff’s Opening Submissions (n 3) [80].
Mr Wu alleges that, to the extent that they did not themselves engage in the said conduct, Mr Chen, Mr Villaluz and DIP Anthony Street were persons involved in the contraventions of the ASIC Act.[110]
[110]Points of Claim (n 1) [51].
Mr Wu alleges that by reason of each of Mr Chen’s, Mr Villaluz’s and DIP Anthony Street’s conduct in contravention of, or involvement in the contravention of, s 12CB(1) of the ASIC Act, or alternatively s 12CA(1) of the ASIC Act, Mr Wu has suffered loss and damage and is entitled to an award of compensation pursuant to ss 12GM(1) and 12GM(2)(c) of the ASIC Act.[111]
[111]Ibid [52].
At trial Mr Wu did not press his claim in respect of s 12CA of the ASIC Act and relied only on s 12CB.
E. CONSIDERATION
Misleading or deceptive conduct
Mr Wu’s case insofar as it alleges misleading or deceptive conduct faces a number of difficulties.
First, each of the Representations relied on by Mr Wu pertains to future conduct or events, rather than facts which existed at the time.
For example, in respect of the Member Investment Application Representation, it is alleged that the defendants represented that the Member Investment would be wholly applied towards the purchase of the Property, management fees, consultant fees and financing costs.
Similarly, in respect of the Bank Financing Representation, it is alleged that the defendants represented that the Project would be funded by bank financing, at a loan-to-development ratio of approximately 65% and that the bank financing (and any financing) would be applied to the Project.
Section 12BB of the ASIC Act relevantly provides:
(1) If:
(a)a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
(b)the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.
(2)For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:
(a)a party to the proceeding; or
(b)any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
Despite each of the Representations being in respect of a future matter, Mr Wu’s pleading makes no reference to s 12BB of the ASIC Act. Nor is it alleged that any of the defendants lacked reasonable grounds in making the representations.
Where a plaintiff alleges misleading or deceptive conduct based upon representations as to future matters and seeks to rely on s 12BB(1) of the ASIC Act (or the equivalent provision in other legislation), the pleading should expressly refer to that provision or notice should be given that the plaintiff intends to rely on it.[112] This is to ensure that the defendant is placed on fair notice that they are required to adduce ‘evidence to the contrary’ if they are to avoid the deeming effect of s 12BB(2) (or the equivalent provision in other legislation).[113]
[112]O’Neill v Medical Benefits Fund of Australia Ltd (2002) 122 FCR 455, 461–3 [15]–[21] (Carr, Moore and Marshall JJ).
[113]SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (2014) 314 ALR 35, 57 [76] (Foster J).
The second difficulty confronting Mr Wu is that each of the Representations is alleged to have been misleading or deceptive because the future conduct or events referred to did not come to pass.
However, this does not make the Representations misleading or deceptive.
In Body Bronze International Pty Ltd & Ors v Fehcorp Pty Ltd, the Court of Appeal observed:[114]
It has long been held that ‘the mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive’ even though the plaintiff ‘has relied on them and has altered his position on the faith of them’.
[114]Body Bronze International Pty Ltd & Ors v Fehcorp Pty Ltd (2011) 34 VR 536, 547 [48] (Macaulay AJA), quoting Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171, 179 (Lockhart J).
Thirdly, a representation as to future conduct or events may contain an implied statement of existing fact, namely, that the promisor has a present intention or capacity to perform the promise.[115] If such a representation is made when no such intention or capacity exists, the representation may be misleading or deceptive.
[115]HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, 649 [13] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).
Here, however, it was not pleaded, nor was it submitted, that any of the Representations contained an implied statement that the defendants had a present intention or capacity to perform the promise and that in fact they had no such intention or capacity at the time the Representations were made.
In the circumstances, Mr Wu has not established that any of the Representations were misleading or deceptive or likely to mislead or deceive contrary to s 12DA of the ASIC Act.
The fact that the fifth and sixth defendants have admitted making the Representations does not avail Mr Wu. Nor does the fact that, having made the Representations, the future conduct or events did not come to pass.
Unconscionable conduct
Section 12CA of the ASIC Act provides:
(1)A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
(2)This section does not apply to conduct that is prohibited by section 12CB.
Section 12CB of the ASIC Act provides:
(1)A person must not, in trade or commerce, in connection with:
(a)the supply or possible supply of financial services to a person; or
(b)the acquisition or possible acquisition of financial services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
…
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law of the States and Territories relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour.
Section 12CC(1) of the ASIC Act provides:
Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 12CB in connection with the supply or possible supply of financial services to a person (the service recipient), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the service recipient; and
(b)whether, as a result of conduct engaged in by the supplier, the service recipient was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the service recipient was able to understand any documents relating to the supply or possible supply of the financial services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the service recipient or a person acting on behalf of the service recipient by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the financial services; and
(e)the amount for which, and the circumstances under which, the service recipient could have acquired identical or equivalent financial services from a person other than the supplier; and
(f)the extent to which the supplier’s conduct towards the service recipient was consistent with the supplier’s conduct in similar transactions between the supplier and other like service recipients; and
(g)if the supplier is a corporation—the requirements of any applicable industry code (see subsection (3)); and
(h)the requirements of any other industry code (see subsection (3)), if the service recipient acted on the reasonable belief that the supplier would comply with that code; and
(i)the extent to which the supplier unreasonably failed to disclose to the service recipient:
(i)any intended conduct of the supplier that might affect the interests of the service recipient; and
(ii)any risks to the service recipient arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the service recipient); and
(j)if there is a contract between the supplier and the service recipient for the supply of the financial services:
(i)the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the service recipient; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the supplier and the service recipient in complying with the terms and conditions of the contract; and
(iv)any conduct that the supplier or the service recipient engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the service recipient for the supply of the financial services; and
(l)the extent to which the supplier and the service recipient acted in good faith.
The principles concerning unconscionable conduct in equity are well established and were summarised by the High Court in Thorne v Kennedy:[116]
[116]Thorne v Kennedy (2017) 263 CLR 85, 103–4 [37]–[40] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ) (citations omitted).
Unconscionable conduct
There was no controversy on this appeal concerning the principles of unconscionable conduct in equity. Those principles were recently restated by this Court in Kakavas v Crown Melbourne Ltd.
A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage ‘which seriously affects the ability of the innocent party to make a judgment as to [the innocent party’s] own best interests’. The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring ‘victimisation’, ‘unconscientious conduct’, or ‘exploitation’. Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.
In Commercial Bank of Australia Ltd v Amadio, Deane J said that the equitable principles concerning relief against unconscionable conduct are closely related to those concerned with undue influence. The same circumstances can result in the conclusion that the person seeking relief (i) has been subject to undue influence, and (ii) is in a position of special disadvantage for the purposes of the doctrine concerned with unconscionable conduct. For instance, in Diprose v Louth [No 1], the trial judge, King CJ, observed that both doctrines were satisfied where the defendant ‘was in a position of emotional dominance which gave her an influence over the [plaintiff] which she exercised unconscientiously to procure the gift of the house’. Before the High Court in that case, Mr Diprose relied only upon the ground of unconscionable conduct.
Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required. In Commercial Bank of Australia Ltd v Amadio, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:
‘In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.’
In Australian Securities and Investments Commission v Kobelt,[117] Gageler J explained the difference in the operation of s 12CA of the ASIC Act, which imposes an additional statutory sanction on conduct that is unconscionable in equity, and s 12CB which is not so confined.[118] His Honour said:[119]
[Section] 12CB operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of a court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standard in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances.
[117]Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1.
[118]Ibid 36–40 [81]–[93].
[119]Ibid 38 [87].
Conduct will contravene s 12CB of the ASIC Act where it is so far outside the societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience.[120] While exploitation of some form of pre-existing disability, vulnerability or disadvantage is often a feature of unconscionable conduct, it is not a necessary feature for the impugned conduct to fall within the meaning of s 12CB.[121]
[120]Ibid 40 [92] (Gageler J); Productivity Partners Pty Ltd v Australian Competition and Consumer Commission (2024) 98 ALJR 1021, 1034–6 [50]–[60] (Gageler CJ and Jagot J, Gleeson and Beech-Jones JJ agreeing at [310] and [340]), 1045–6 [97]–[105] (Gordon J), 1077 [282] (Steward J) (‘Productivity Partners’).
[121]Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133, 152 [78] (Allsop CJ, Besanko and McKerracher JJ) (‘Quantum Housing’).
In Australian Securities and Investments Commission v National Exchange Pty Ltd, the Full Court of the Federal Court said that unconscionable conduct ‘on its ordinary and natural interpretation, means doing what should not be done in good conscience’.[122]
[122]Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132, 140 [33] (Allsop CJ, Besanko and McKerracher JJ).
In Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd, the Full Court of the Federal Court said:[123]
‘Unconscionable’ is the language of business morality and unconscionable conduct is referable to considerations expressed and recognised by the statute. The word is not limited to one kind of conduct that is against or offends conscience. Surely to predate on vulnerable consumers or small business people is unconscionable. But why is it not also unconscionable to act in a way that is systematically dishonest, entirely in bad faith in undermining a bargain, involving misrepresentation, commercial bullying or pressure and sharp practice, using a superior bargaining position, behaving contrary to an industry code, using significant market power in a way to extract an undisclosed benefit that will harm others who are commercially related to the counterparty?
…
little is to be gained by quibbling over adjectives, adverbs and verbs to express the notion, as long as it is recognised that unconscionable conduct is not limited to the worst kind of unconscionable conduct. There may be more and less serious examples. That will reflect in penalty. The task is an evaluation of the impugned conduct to assess whether it is to be characterised as a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable. In any particular case, it should be recognised that if the evaluative answer be ‘no: it is not unconscionable’, the court is concluding that by an Australian business conscience the conduct was conscionable and is not to be deterred by penalty.
[123]Quantum Housing (n 121) 155–6 [91]–[92] (Allsop CJ, Besanko and McKerracher JJ).
The considerations in s 12CC are available but not necessary or essential considerations.[124] It is the totality of the circumstances relevant to the conduct being considered (as required by s 12CB(1)) which dictates if any matter in s 12CC(1)(a)–(l) is applicable. If applicable, that matter must be considered. If not applicable, the matter need not be considered.[125]
[124]Ibid 153 [85] (Allsop CJ, Besanko and McKerracher JJ).
[125]Productivity Partners (n 120) 1036 [57] (Gageler CJ and Jagot J).
The unchallenged evidence of Mr Fettes was that substantially all of Mr Wu’s investment of $1.6 million was used for purposes other than the Anthony Street Syndicate. Mr Fettes said:[126]
My analysis of the Dysin ANZ bank account shows that the funds required to settle the property purchase were expended and applied toward the property purchase prior to Mr Wu’s funds being received by Dysin. My analysis further shows that the majority of Mr Wu’s funds were applied toward the costs and expenses of Dysin and/or related entities and not toward the project. After the receipt of Mr Wu’s investment funds, I have only identified project costs of some $37,216.43 which might be traceable to Mr Wu’s funds.
[126]CB (n 1) 61 [2.13].
I am satisfied that the conduct of the fifth and sixth defendants was unconscionable under s 12CB of the ASIC Act. In using almost all of Mr Wu’s invested funds for unrelated purposes, they acted in bad faith and engaged in conduct that amounted to a ‘sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable’.[127]
[127]Quantum Housing (n 121) 156 [92].
I have also had regard to the matters set out in s 12CC to the extent that they are applicable. In particular:
(a) Section 12CC(1)(i): The fifth and sixth defendants unreasonably failed to disclose to Mr Wu that Mr Wu’s invested funds would be used by them for unrelated purposes and the significant risks to Mr Wu from such conduct. These risks included the risk of loss on the Anthony Street investment due to underfunding. These risks would not have been apparent to Mr Wu as he had no knowledge that his funds would be misused. The failure to disclose the intended misuse of funds was plainly unreasonable as it fundamentally altered the nature of the investment and violated basic principles of investment management and fiduciary duty. The fifth and sixth defendants would have foreseen that the investor would not be aware of these risks as they had not disclosed that Mr Wu’s funds would be used by them for unrelated purposes.
(b) Section 12CC(1)(l): The fifth and sixth defendants’ actions in misusing Mr Wu’s funds without his knowledge or consent demonstrated a lack of good faith on their part.
I am satisfied that the unconscionable conduct of the fifth and sixth defendants was conduct in trade or commerce in connection with the supply or acquisition of financial services.
Section 12BA(1) provides that ‘financial service’ has the meaning given by s 12BAB. Relevantly, s 12BAB(1)(b) provides that ‘a person provides a financial service if they … deal in a financial product’. Section 12BAB(7) relevantly provides that issuing a financial product constitutes dealing in a financial product. Section 12BAA relevantly provides that a financial product is a facility through which, or through the acquisition of which, a person makes a financial investment.
Mr Wu’s investment led to him being issued shares in DIP Anthony Street and units in the DIP AS Funding Trust.
The requirement that the unconscionable conduct be ‘in connection with’ the supply or acquisition, or possible supply or acquisition, of financial services is not to be read narrowly. There is no basis for implying into the expression ‘in connection with’ a requirement that conduct said to be unconscionable must have occurred prior to the relevant supply or acquisition of financial services.[128]
[128]Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 266 FCR 147, 267 [2172] (Beach J).
Even if the fifth and sixth defendants did not themselves engage in the unconscionable conduct and such conduct was engaged in by the other defendants, the fifth and sixth defendants were involved in those contraventions. At all material times they were directors and managing partners of Dysin Investment Partners and directors of DIP Anthony Street, DIP AS Funding and DIP HoldCo. As such, I am satisfied that they were aware of ‘the essential matters constituting the contravention’,[129] being that almost all of Mr Wu’s invested funds were used for purposes unrelated to the Project.
[129]Productivity Partners (n 120) 1042 [82] (Gageler CJ and Jagot J).
In this regard and generally, I note that the fifth and sixth defendants could have given evidence but chose not to do so without explanation. That evidence could have explained the extent of their involvement and the extent to which and the reasons why Mr Wu’s invested funds were used for purposes unrelated to the Project. I draw the inference against them that their evidence would not have assisted their case.[130]
[130]Jones v Dunkel (1959) 101 CLR 298, 308 (Kitto J), 312 (Menzies J), 319–22 (Windeyer J).
I am not satisfied that the fifth and sixth defendants engaged in, or were involved in, unconscionable conduct in obtaining non-bank loans. The Information Memorandum made reference to the possibility of non-bank finance being obtained.[131] In the circumstances, there was no bad faith or conduct departing from the norms of acceptable commercial behaviour in this regard.
[131]CB (n 1) 170.
Remedy
Section 12GM of the ASIC Act empowers the Court to make various remedial orders, including orders to pay compensation or refund monies.
Section 12GM(1) of the ASIC Act provides as follows:
Without limiting the generality of section 12GD, if, in a proceeding instituted under, or for an offence against, this Division, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division, the Court may, whether or not it grants an injunction under section 12GD or makes an order under section 12GF, 12GFA, 12GLA or 12GLB, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (7) of this section) if the Court considers that the order or orders concerned will compensate the first‑mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
Section 12GM(7) relevantly provides:
Without limiting the generality of subsections (1) and (2), the orders referred to in those subsections include the following:
…
(d)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;
(e)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;
…
Section 12GF(1) of the ASIC Act provides:
A person who suffers loss or damage by conduct of another person that contravenes a provision of Subdivision BA (sections 12BF to 12BM), Subdivision C (sections 12CA to 12CC), Subdivision D (sections 12DA to 12DN) or Subdivision DA (sections 12DO to 12DZA) may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
In Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd, Rees J said:[132]
The power to award damages under section 12GF depends on a finding that the plaintiff suffered loss or damage ‘by’ reason of the unconscionable conduct. In cases considering analogous statutory provisions related to misleading and deceptive conduct, the Court has held that the provision should be understood as taking up the common law practical or common-sense concept of causation: Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 525 (per Mason CJ, Dawson, Gaudron and McHugh JJ). As long as the conduct materially contributed to the damage, a causal connection will ordinarily exist even though the conduct, without more, would not have brought about the damage: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [106] (per McHugh J). That is, it is sufficient for the conduct to be a cause of the loss rather than the sole cause of the loss: at [14] (per Gleeson CJ).
[132]Hoho Property Pty Ltd v Bass Finance No 37 Pty Ltd [2023] NSWSC 411, [405].
A similar approach should be taken in respect of s 12GM which applies where ‘the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of this Division’.[133]
[133]Australian Securities and Investments Commission Act 2001 (Cth) s 12GM(1).
I am satisfied that Mr Wu suffered loss and damage by reason of the unconscionable conduct engaged in by the fifth and sixth defendants, or in which they were involved. The funds Mr Wu invested were substantially redirected to other projects of which he was unaware. In the circumstances he is entitled to recover the funds invested by him.
F. CONCLUSION AND ORDERS
While I am not satisfied that the fifth and sixth defendants engaged in misleading or deceptive conduct contrary to s 12DA of the ASIC Act, the first plaintiff has made out his case that the fifth and sixth defendants engaged in, or were involved in, unconscionable conduct contrary to s 12CB of the ASIC Act.
I will make an order pursuant to s 12GM(1) of the ASIC Act that the fifth and sixth defendants pay the sum of $1.6 million to Mr Wu. The plaintiff is entitled to interest on that amount pursuant to s 60 of the Supreme Court Act 1986 (Vic)[134] and an order for costs.
[134]The expression ‘damages’ in s 60 of the Supreme Court Act 1986 (Vic) has been given a broad application and covers any sum of money recovered by one party from another whether at common law or in equity or under statute: BP Exploration Co Libya v Hunt (No 2) [1983] 2 AC 352, 373 (Lord Brandon of Oakbrook); Mario Piraino v Roads Corporation [1991] 2 VR 534, 536 (Gobbo J).
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SCHEDULE OF PARTIES
BETWEEN:
| QIWEN WU (ALSO KNOWN AS SIMON WU) | First Plaintiff |
| | |
| - and - | |
| DYSIN INVESTMENT PARTNERS PTY LTD (ACN 609 479 138) | First Defendant |
| DIP ANTHONY STREET PTY LTD (ACN 620 408 353) | Second Defendant |
| DIP HOLDCO PTY LTD (ACN 609 390 570) | Third Defendant |
| DIP AS FUNDING TRUST PTY LTD (ACN 620 407 089) | Fourth Defendant |
| YONGJIE CHEN (ALSO KNOWN AS JACKIE CHEN) | Fifth Defendant |
| RUFINO MEDINA VILLALUZ | Sixth Defendant |
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