Shao v One Funds Management Ltd; Shao v One Funds Management Ltd (as Trustee of the iProsperity JY Hotel Fund)

[2024] VSC 787

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2021 01578

JIANQIANG SHAO & ORS (according to the Schedule attached)	Plaintiffs
v
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) & ORS (according to the Schedule attached)	Defendants

S ECI 2023 00414

JIANQIANG SHAO & ORS (according to the Schedule attached)	Plaintiffs
v
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the IPROSPERITY JY HOTEL FUND) & ORS (according to the Schedule attached)	Defendants

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JUDGE:	Waller J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 December 2024
DATE OF RULING:	13 December 2024 (Revised 17 December 2024)
CASE MAY BE CITED AS:	Shao v One Funds Management Ltd; Shao v One Funds Management Ltd (as Trustee of the iProsperity JY Hotel Fund)
MEDIUM NEUTRAL CITATION:	[2024] VSC 787

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PRACTICE AND PROCEDURE — Leave to file and serve a notice of solicitor ceasing to act — Party’s failure to provide instructions or funding to their solicitors — Solicitor remaining on record despite lack of instruction — Proceeding otherwise settled between all other parties — Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 20.03.

PRACTICE AND PROCEDURE — Want of prosecution — Plaintiff’s failure to provide instructions — Plaintiff’s failure to comply with orders — Prejudice to defendants — Solicitor’s obligation to a party for which they are still on record — Proper party to make dismissal application — Self-executing order for summary dismissal — Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 23.02.

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APPEARANCES:	Counsel	Solicitors
For the First and Third to Sixth Plaintiffs in S ECI 2021 01578 and the First and Third to Sixth Plaintiffs in S ECI 2023 00414	Ms B Slocum	Madgwicks Lawyers
For the First to Fourth Defendants in S ECI 2021 01578 and the First Defendant in S ECI 2023 00414	Mr N De Young KC	Webb Henderson
For the Fifth Defendant in S ECI 2021 01578	Ms L Mills	Nicholson Ryan Lawyers
No appearance for the Second Plaintiff in S ECI 2021 01578 or S ECI 2023 00414

HIS HONOUR:

1. Proceeding number S ECI 2021 01578 (‘Shao Proceeding’) and proceeding number S ECI 2021 00105 (‘Xia Proceeding’) were set down for trial commencing on 25 November 2024. The proceedings concern unit trusts which invested in various properties in Glen Waverly. The plaintiffs are holders of units in those trusts. They pleaded various allegations against the defendants, including misleading or deceptive conduct and breaches of fiduciary and other equitable duties.

1. The main unit trust relevant to the Shao Proceeding is known as the iProsperity JY Hotel Fund (‘JY Hotel Fund’), which invested in the Novotel Glen Waverly Hotel. There are various classes of unit holders in the JY Hotel Fund. Each plaintiff in the Shao Proceeding is a Class A unit holder. Class C units were also issued as a short-term investment option, principally to bridge a shortfall in funds for settlement of the purchase of the property. The Class C unit holders were not paid out in the short term.

1. Ultimately, much of the capital of the JY Hotel Fund was lost. A dispute arose between the Class A unit holders and the Class C unit holders in respect of some of the remaining capital. The plaintiffs in the Shao Proceeding commenced proceeding number S ECI 2023 00414 (‘JY Hotel Class A Proceeding’) as a result of that dispute.

1. On 27 November 2024, the Court was informed that a settlement had been reached between all parties to those proceedings with the exception of the second plaintiff in both the Shao Proceeding and the JY Hotel Class A Proceeding, Ruixiang Yuan (‘Ms Yuan’).

1. On 27 November 2024, the Court made consent orders dismissing the Xia Proceeding and dismissing the Shao Proceeding and the JY Hotel Class A Proceeding other than in respect of Ms Yuan’s claims in those proceedings.

1. Following decisions of Derham AsJ and the Court of Appeal,[1] the only remaining claim still to be determined in the JY Hotel Class A Proceeding is relief sought by paragraph 10 of the originating motion dated 3 February 2023.

   [1]Shao v One Funds Management Ltd [2023] VSC 192 (Derham AsJ); Shao v One Funds Management Ltd (No 2) [2023] VSC 251 (Derham AsJ); Shao v One Funds Management Ltd [2024] VSCA 231 (Kennedy, Macaulay and Orr JJA).

1. On 28 November 2024, Madgwicks Lawyers (‘Madgwicks’) filed a summons in the Shao Proceeding and the JY Hotel Class A Proceeding. In both proceedings Madgwicks act for the plaintiffs. The summons made two applications.

1. First, an application by Madgwicks seeking leave, in each proceeding, to file a notice of ceasing to act on behalf of the second plaintiff, Ms Yuan.

1. Secondly, an application by the first and third to sixth plaintiffs in each proceeding, seeking an order that Ms Yuan’s claims in the Shao Proceeding and the JY Hotel Class A Proceeding be dismissed for want of prosecution without adjudication on the merits and with no order as to costs, pursuant to r 24.05(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’).

1. I will address each application in turn.

Application for leave to cease acting for the second plaintiff

1. Ms Lisa McNicholas, a solicitor at Madgwicks, has deposed to Madgwicks’ relationship with Ms Yuan. She states that none of the plaintiffs in the proceedings, including Ms Yuan, speak fluent English, that their first language is Mandarin Chinese, and that most live in China, although Ms Yuan lives in Melbourne.

1. Ms McNicholas states that Madgwicks has primarily communicated with and sought and obtained instructions from its clients via Ms Nicole Gong, an advisor engaged by the plaintiffs in each of the proceedings. Ms Gong speaks fluent English and Mandarin and lives in Melbourne. Under an agreement between the plaintiffs and Madgwicks, Ms Yuan contributed a portion of the plaintiffs’ legal costs from the commencement of the Shao Proceeding until about September 2022 and Ms Yuan also provided instructions to Madgwicks and contributed to legal costs incurred by the plaintiffs in the JY Hotel Class A Proceeding.

1. Ms McNicholas states that since about November 2022, Ms Yuan has not contributed to the legal costs of either proceeding and that the remaining plaintiffs have paid the share of costs which would otherwise have been paid by Ms Yuan. Notwithstanding these matters, Madgwicks has remained on the Court’s record as representing Ms Yuan in both proceedings.

1. On 19 July 2023, Madgwicks filed an amended writ in the Shao Proceeding which removed the seventh, eighth and ninth plaintiffs from that proceeding as they had given instructions that they no longer wished to pursue their claims in that proceeding.

1. Ms McNicholas has deposed that, due to an oversight by her at that time, she failed to remove Ms Yuan as a plaintiff in the Shao Proceeding and the JY Hotel Class A Proceeding after Ms Yuan had failed to respond to an earlier email from Ms McNicholas. Ms McNicholas states that she held the honest but incorrect belief that she had rectified the Court record and had filed a notice of ceasing to act and that this oversight only became apparent to her in the course of preparing the Shao Proceeding for trial and during negotiations for its possible resolution.

1. The order made on 27 November 2024 in the Shao Proceeding and the JY Hotel Class A Proceeding required Madgwicks to forthwith send a copy of the summons, together with an unredacted copy of the affidavit of Ms McNicholas sworn on 27 November 2024 and a copy of that order, to Ms Yuan by various means. The order also provided that if Ms Yuan wished to be heard in relation to the summons, she must file a notice of appearance in the proceeding by no later than 6 December 2024.

1. Ms Yuan did not file a notice of appearance in the Shao Proceeding or the JY Hotel Class A Proceeding by 6 December 2024 or at all.

1. Rule 20.03(3)(b) of the Rules relevantly provides that a solicitor shall not file a notice of ceasing to act after a proceeding has been set down for trial except by leave of the Court.

1. In circumstances where the trial of the proceeding that had commenced on 25 November 2024 did not proceed, it may be the case that Madgwicks did not need to seek leave to file a notice of ceasing to act but, given that the matter had previously been set down for trial, Madgwicks acted appropriately in seeking leave to do so.

1. The rule governing a solicitor who is on the record as representing a particular party is clear. They are responsible to that party and to the court for representing them.[2]

   [2]Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 179 (Tadgell J).

1. A solicitor acting for a party who is unable to obtain instructions or funding is generally entitled in those circumstances to cease acting and to file a notice to that effect. However, the court has a discretion which may be affected by particular circumstances. Generally, leave would be given upon proof that the solicitor has in fact ceased to act for the party but that no steps have been taken to remove the solicitor’s name from the record. Leave, however, may not be granted if there are special circumstances which render it expedient to retain the solicitor on the record.[3]

   [3]Investec Bank (Australia) Ltd v Mann [2012] VSC 81, [3] (Pagone J).

1. Having regard to the evidence in support of Madgwicks’ application and the submissions that have been made in that respect, I consider it appropriate to grant leave to Madgwicks to file a notice of ceasing to act for the second plaintiff in both the Shao Proceeding and the JY Hotel Class A Proceeding. It is also appropriate to make a declaration that Madgwicks have ceased to be the solicitors acting for the second plaintiff in those proceedings.[4]

   [4]Plenty v Gladwin (1986) 60 ALJR 665, 666 (Wilson, Brennan, Deane and Dawson JJ).

Application to dismiss the second plaintiff’s claims

1. During the course of the hearing I informed counsel that I was troubled by the notion of a firm, whilst still formally on the record as acting for a client, bringing an application to dismiss that client’s proceeding for want of prosecution. Equally troubling is such an application being brought by a number of plaintiffs against a co-plaintiff.

1. As I indicated during the course of the hearing, the appropriate process would be for a defendant in each proceeding to make such an application or such other application as they may be advised.

1. In these circumstances, I will not make an order dismissing the second plaintiff’s claims for want of prosecution in the Shao Proceeding or the JY Hotel Class A Proceeding as sought by the other plaintiffs in their summons dated 28 November 2024.

1. During the hearing, Mr De Young KC, acting for the first to fourth defendants in the Shao Proceeding and for the first defendant in the JY Hotel Class A Proceeding, made an oral application for a self-executing order dismissing the second plaintiff’s claims in those proceedings for want of prosecution without adjudication on the merits pursuant to r 24.05 of the Rules. That application was supported by Ms Mills acting for the fifth defendant in the Shao Proceeding.

1. In support of that application, Mr De Young relied on written submissions that his clients had filed in the proceedings dated 10 December 2024, setting out the relevant principles that apply to an application pursuant to r 24.05 of the Rules.

1. Mr De Young submitted that it was appropriate to make a self-executing order in both proceedings where there had been an inordinate and inexcusable delay by Ms Yuan in prosecuting the proceedings which had caused or was likely to cause serious prejudice to the defendants.

1. In making that submission, he relied on the decisions in Pentridge Village Pty Ltd (In Liq) v Capital Finance Australia (No 3) and Bishopgate Insurance Australia Ltd (In Liq) v Deloitte Haskins & Sells.[5]

   [5]Pentridge Village Pty Ltd (In Liq) v Capital Finance Australia (No 3) [2023] VSC 605, [30] (Stynes J) (‘Pentridge Village’); Bishopgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863, 872 [24]–[25] (Tadgell and Ormiston JJ).

1. Mr De Young submitted that prejudice can include a defendant being kept at risk in respect of the subject matter of the action, particularly where the cause of action involves allegations of dishonesty or affects the reputation of the defendant.[6]

   [6]Pentridge Village [2023] VSC 605, [42] (Stynes J).

1. Mr De Young took me to the pleadings in the Shao Proceeding and demonstrated that the allegations against his clients raised serious questions concerning their propriety and honesty which, left unresolved, would necessarily affect their reputations. So far as the JY Hotel Class A Proceeding is concerned, as stated previously, the only remaining issue to be determined is the relief sought by paragraph 10 of the originating motion dated 3 February 2023.

1. The JY Hotel Class A Proceeding was settled as between all parties other than the second plaintiff, Ms Yuan. Mr De Young acts for the first defendant in that proceeding against whom the relief in paragraph 10 is sought. He submitted that although there were no allegations of dishonesty of the kind made in the Shao Proceeding, the claim nonetheless raised an allegation that his client had breached the Class A terms of issue and that such a claim left unresolved would necessarily prejudice the interests of his client in that proceeding.

1. The second plaintiff, on the evidence before the Court, has failed to provide instructions to her lawyers to prosecute her claims in these proceedings since early 2023. Nor has she provided any explanation for her failure to take any step to instruct her solicitors to prosecute the proceeding since early 2023, nor given any indication that she intends to prosecute her claims in either of the proceedings. Following the order that I made on 27 November 2024, she has not filed an appearance in respect of the summons as required by that order. In these circumstances, I consider it appropriate to make the orders sought by the defendants in their oral application made today.

Orders

1. I have been provided with a proposed form of order and, subject to making some amendments to that order, I propose to make orders in those terms.

1. I will note, in ‘Other Matters’, that at the hearing on the return of the summons dated 28 November 2024, the first to fifth defendants made an oral application for a self-executing order dismissing the second plaintiff’s claims in each proceeding for want of prosecution without adjudication on the merits pursuant to r 24.05 of the Rules.

1. I will make an order declaring that Madgwicks Lawyers have ceased to be the solicitors acting for the second plaintiff. I will next make orders in terms of paragraphs 2, 3, 4 and 5 in relation to the application by Madgwicks Lawyers for leave to file a notice of ceasing to act.

1. I will make an order that the summons filed by the first and third to sixth plaintiffs is otherwise dismissed.

1. I will make an order that Madgwicks Lawyers must forthwith serve a copy of this order and a copy of the transcript of the hearing on 13 December 2024 on the second plaintiff in the manner set out by paragraph 5 of the order.

1. I will next order that if the second plaintiff wishes to be heard in respect of the oral application made by the first to fifth defendants at the hearing on 13 December 2024 so far as it concerns the dismissal of her claims against them, she shall file a notice of appearance by no later than 4:00 pm on 20 January 2025.

1. I will next order that if the second plaintiff fails to file a notice of appearance in accordance with paragraph 8 of the order, the second plaintiff’s claims in each proceeding shall be dismissed without adjudication on the merits pursuant to r 24.05 of the Rules.

1. I will make no order as to costs.

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SCHEDULE OF PARTIES

S ECI 2021 01578

BETWEEN:

JIANQIANG SHAO	First Plaintiff
RUIXIANG YUAN	Second Plaintiff
LINGYUN HUANG	Third Plaintiff
TUNGPING SO	Fourth Plaintiff
YUEFANG XU	Fifth Plaintiff
HONGSHAN YANG	Sixth Plaintiff
BINGHUA YUAN	Seventh Plaintiff
GUIBAO YUAN	Eighth Plaintiff
HONG GUO	Ninth Plaintiff
v
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403)	First Defendant
ONE MANAGED INVESTMENT FUNDS LIMITED (ACN 117 400 987)	Second Defendant
SARAH WIESENER	Third Defendant
FRANK JOHN TEARLE	Fourth Defendant
JUSTIN KURT EPSTEIN	Fifth Defendant
CORNERSTONE CAPITAL INVESTMENT GROUP PTY LTD (In Liquidation) (ACN 612 659 079)	Sixth Defendant

S ECI 2023 00414

BETWEEN:

JIANQIANG SHAO	First Plaintiff
RUIXIANG YUAN	Second Plaintiff
LINGYUN HUANG	Third Plaintiff
TUNGPING SO	Fourth Plaintiff
YUEFANG XU	Fifth Plaintiff
HONGSHAN YANG	Sixth Plaintiff
BINGHUA YUAN	Seventh Plaintiff
GUIBAO YUAN	Eighth Plaintiff
HONG GUO	Ninth Plaintiff
v
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the IPROSPERITY JY HOTEL FUND)	First Defendant
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the GLEN WAVERLEY FUND)	Second Defendant
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the IPROSPERITY CORNERSTONE PROPERTY INCOME FUND)	Third Defendant
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the IPROSPERITY PROPERTY OPPORTUNITIES FUND)	Fourth Defendant
ONE FUNDS MANAGEMENT LIMITED (ACN 117 797 403) (in its capacity as Trustee of the IPROSPERITY CORNERSTONE 333 KENT FUND)	Fifth Defendant
IPROSPERITY UNDERWRITING PTY LTD (In Liquidation) (ACN 619 068 969)	Sixth Defendant
MINGHAO LI	Seventh Defendant