SONG -v- SOUTH BEACH MANAGEMENT PTY LTD AS TRUSTEE FOR THE SOUTH BEACH TWO DEVELOPMENT TRUST [No 2] - [2021] WASC 243

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   SONG -v- SOUTH BEACH MANAGEMENT PTY LTD AS TRUSTEE FOR THE SOUTH BEACH TWO DEVELOPMENT TRUST [No 2] [2021] WASC 243
CORAM:   ALLANSON J
HEARD:   23 DECEMBER 2020
DELIVERED          :   23 JULY 2021
FILE NO/S:   CIV 3152 of 2019
BETWEEN:   CHANGFU SONG
First Plaintiff
YUANCHAO XUE
Second Plaintiff
TOPSTAR MARKETING (AUST) PTY LTD
Third Plaintiff
AND
SOUTH BEACH MANAGEMENT PTY LTD AS TRUSTEE FOR THE SOUTH BEACH TWO DEVELOPMENT TRUST
First Defendant
CAMERON ANDREW KEAST BARR
Second Defendant
LLOYD RICHARD CLARK
Third Defendant

Catchwords:

Practice and procedure – defendants' application for summary judgment – where plaintiffs overseas investors holding ordinary units in unit trust established by first defendant to conduct property development – where defendants subsequently issued preference units to procure finance for development - where plaintiffs allege ordinary unit holders have lost whole of investment - where plaintiffs claim for breach of trust and breach of Australian Consumer Law and/or the Australian Securities and Investments Commission Act 2001 (Cth) – where defendants filed extensive evidence as to development project – whether that evidence wholly answers plaintiffs' claim – whether on plaintiffs' pleaded cases there is a causal link between the conduct of the defendants and losses suffered – whether plaintiffs' claims are statute barred

Practice and procedure – defendants' application to strike out specified paragraphs of statement of claim – whether claim pleaded with proper clarity and particularity – whether plaintiffs have pleaded causal link between alleged breaches of duty and losses claimed – whether statement of claim discloses reasonable cause of action for breach of trust

Legislation:

Nil

Result:

Leave to bring application granted
Defendants' application to strike out paragraphs of statement of claim
Paragraphs 29, 30, 41, 43, 45, 48, 58, 60, 61 & 64 of statement of claim struck out

Category: B

Representation:

Counsel:

First Plaintiff	:	K A Dundo
Second Plaintiff	:	K A Dundo
Third Plaintiff	:	K A Dundo
First Defendant	:	M L Bennett
Second Defendant	:	M L Bennett
Third Defendant	:	M L Bennett

Solicitors:

First Plaintiff	:	K D Legal
Second Plaintiff	:	K D Legal
Third Plaintiff	:	K D Legal
First Defendant	:	Bennett + Co
Second Defendant	:	Bennett + Co
Third Defendant	:	Bennett + Co

Cases referred to in decision:

Banque Commerciale S.A., (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 285, 295
Bhagat v Global Custodians Ltd [2002] FCAFC 331
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486
Forsayth NL v Northern Gold NL (Unreported; WASC; Library No 940012; 20 January 1994)
Greenwood v Harvey [1965] NSWR 1489
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357
Monadelphous KT Pty Ltd v Transalta Energy (Australia) Pty Ltd [2017] WASCA 176
NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2020] WASCA 107
Permanent Building Society (in Liq) v Wheeler (1994) 11 WAR 187
Smith v McCusker QC [2005] WASCA 226
Speight v Gaunt (1883) 9 App Cas 1
Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

ALLANSON J:

Broad overview

Changfu Song and Yuanchao Xue, are residents of the Peoples' Republic of China. The third plaintiff, Topstar Marketing (Australia) Pty Ltd is incorporated pursuant to the Corporations Act 2001 (Cth). Mr Xue is a director and major shareholder of Topstar.
The second and third defendants, Cameron Andrew Keast Barr and Lloyd Richard Clark are directors of five companies, collectively known as the M Group, as well as being directors of the first defendant, South Beach Management Pty Ltd. The companies in the M Group carry out project management and property development.
The South Beach Two Development Trust was formed in May 2011 for the purpose of a land development project in South Fremantle (the Project). It is a unit trust. South Beach Management was incorporated to act as trustee of the Trust.
The Trust sought investment from Chinese nationals who wished to obtain visas based on investment in Australian businesses.
Mr Song and Mr Xue each invested $1 million in the Project, which forecast a high return on capital on completion of the Project. It now appears that each has lost the whole of his capital investment. In 2014, South Beach Management issued Class P units, which carried an entitlement to payment in priority to other unit holders. The proceeds of sales of the apartments in the Project have gone to holders of those preference units.
Mr Song and Mr Xue commenced this action by writ filed 19 December 2019 and amended 3 February 2020, with an indorsement of claim setting out claims under the Australian Consumer Law and/or the Australian Securities and Investments Commission Act 2001 (Cth), and a claim for breach of Trust.
The statement of claim was filed on 3 February 2020, and has been amended twice – on 29 July and 5 August 2020. The plaintiffs also proposed some minor corrections and amendments at the hearing of these applications.
The defendants entered an appearance on 23 December 2019, but are yet to plead.
An application for summary judgment was foreshadowed in about February 2020. It was initially deferred to enable the plaintiffs to file an amended statement of claim. Like many actions in 2020, the case has been further delayed by the effects of the COVID‑19 pandemic.
After the filing of the Further Amended Statement of Claim on 5 August 2020, the defendants applied by chamber summons, filed 11 September 2020, for leave to bring an application for summary judgment, alternatively to strike out specified paragraphs of the Further Amended Statement of Claim.

The evidence

The application for summary judgment was initially supported by two affidavits: an affidavit of Xavier Peter Malone, solicitor, sworn 11 September 2020, predominantly addressed to the issue of delay in bringing the application; and an affidavit of Mr Barr, affirmed 12 September 2020. On 2 December 2020, Mr Barr affirmed a second affidavit in support of the application.
The defendants also rely on an affidavit of Mr Clark, affirmed 2 December 2020.
The defendants appear to have thought it necessary to put everything before the court for the purposes of the summary judgment application. The first affidavit of Mr Barr is 3001 pages long, most of which is constituted by 225 attachments. Mr Barr described, and provided valuation reports for, other projects carried out by the M Group. He included letters to successful investors, including Mr Barr and Mr Clark, in a successful project.[1] Neither the evidence nor the submissions explained whether the projects were comparable or why that material was thought to be relevant. From the letters to the investors, none of them appears to have been an overseas investor.
[1] Affidavit of Cameron Andrew Keast Barr affirmed 12 September 2020, CAKB‑11.
Mr Barr formally deposed that he believes that none of the plaintiffs have an actionable or reasonable claim against the defendants and there is no basis for any claim; to the extent that the Further Amended Statement of Claim discloses any claim, the defendants have a complete defence to any claim; and summary judgment should be granted in their favour.
Mr Song and Mr Xue both made affidavits which were put before the court in sworn translations in affidavits of Tak Fa Winnie Lai Hadad, sworn 21 October 2020, 22 October 2020 and 2 November 2020.
The plaintiffs also rely on the affidavit of Frances Lai, solicitor, dated 21 October 2020. Ms Lai attached some documents but her affidavit does not add materially to the evidence before the court.

The parties

South Beach Management Pty Ltd, is the trustee for the South Beach Two Development Trust.
Mr Barr and Mr Clark were directors of South Beach Management at all material times.

The statement of claim

The claim against the defendants is complex. The events pleaded as material occurred over an extended period between 2011 and 2018. The plaintiffs allege they support several overlapping causes of action against three defendants.
The statement of claim is reasonably clear in setting out, in chronological order, the facts on which the plaintiffs rely. It is less clear in identifying the duties alleged to have been breached, and how the relief claimed by the plaintiffs is causally related to those breaches.

The pleaded facts

The facts pleaded, in broad outline, are as follows:
(1)The South Beach Two Development Trust was established on 20 May 2011.[2] South Beach Management was trustee of the Trust.[3]
[2] Statement of claim [6].
[3] Statement of claim [6].
(2)The Trust was established as a unit trust and initially all units were of one class, of equal value, and ranked equally with all other Trust units.[4]
[4] Statement of claim [8].
(3)There were initially only two units issued by the Trustee to persons described as Specified Unitholders, Chicago Management Pty Ltd and Hudson Management (WA) Pty Ltd.[5]
[5] Statement of claim [9].
(4)By a further deed dated 20 May 2011, South Beach Management purported to amend the Trust Deed to establish four classes of units.[6]
[6] Statement of claim [10].
(5)On 20 May 2011 South Beach Management issued an Information Memorandum to raise $4 million from investors to enable the Trust to purchase and develop a property in South Fremantle.[7]
[7] Statement of claim [11].
(6)By further deed dated 27 May 2011, South Beach Management purported to amend the Trust Deed by an amendment which in effect enabled the Trustee to issue different classes of trust units; provided that the Trustee could only be removed by unanimous resolution of the unit holders; removed restrictions on the Trustee's power to amend the Trust Deed; and removed a provision enabling unit holders to amend the Trust Deed by Special Majority.[8]
[8] Statement of claim [13].
(7)On 9 June 2011, Mr Xue was provided with a summary, in Mandarin, of the Information Memorandum by Ms Zhang of Shinyway (a migration services firm operating in the Peoples' Republic of China) and on 19 June he was provided with an excerpt from the Information Memorandum by another employee of Shinyway.[9]
[9] Statement of claim [14], [15].
(8)Before 21 June 2011, Mr Xue was provided with a copy of the Information Memorandum by an employee of Shinyway.[10]
[10] Statement of claim [16].
(9)On about 21 June 2011, in reliance on the Information Memorandum, and without knowledge of the Deed of Variation or the Deed of Amendment, Mr Xue signed an application form for 1,000,000 ordinary units in the Trust.[11] On about 23 June 2011, Mr Xue agreed to purchase 1 million ordinary units in the trust at one dollar per unit. A term of the agreement was that Mr Xue would be offered a Director/Management role in South Beach Management.[12]
[11] Statement of claim [17].
[12] Statement of claim [18] - [19].
(10)On 7 July 2011, Mr Barr gave Mr Song a copy of the Information Memorandum at a meeting at the South Beach Management offices.
(11)On about 8 July 2011, in reliance on the Information Memorandum, and without knowledge of the Deed of Variation or the Deed of Amendment, Mr Song agreed to purchase 1 million ordinary units in the Trust at one dollar per unit. The term of the agreement was that Mr Song would be offered a Director/Management role in South Beach Management.[13]
[13] Statement of claim [22], [24].
(12)Mr Song and Mr Xue each paid $1million to the solicitors for the First Defendant.[14] In July 2011, each was issued 1 million ordinary units of a total of 2,000,002 ordinary units.[15]
[14] Statement of claim [18A], [22A].
[15] Statement of claim [23].
(13)On or shortly after 16 September 2011, Mr Song and Mr Xue were appointed as directors of SB Development Management Services Pty Ltd.[16]
[16] Statement of claim [20], [25].
(14)South Beach Management did not offer any Director/Management role to Mr Xue. Mr Song became a director of South Beach Management between May and November 2017.[17]
[17] Statement of claim [26], [26A].
(15)On 20 March 2012, South Beach Management applied for development approval for a substantially different development from that in the Information Memorandum and the agreements with Mr Song and Mr Xue, involving the construction of 67 residential apartments on the property.[18]
[18] Statement of claim [28].
(16)On 24 July 2012, South Beach Management provided a progress report to Mr Song and Mr Xue which revealed that development approval had been sought and obtained for 67 apartments.[19]
[19] Statement of claim [31].
(17)On about 1 February 2013, without informing Mr Song and Mr Xue and without their knowledge or approval, South Beach Management issued a further Information Memorandum seeking to raise up to $5 million by placement of further ordinary units in the Trust. South Beach Management issued a further 3,160,000 ordinary units.[20]
[20] Statement of claim [33] - [34].
(18)On 11 July 2013, Mr Barr advised Mr Xue that they were close to a start, interest in the sales had been good, property investment was still strong, and 'we think the project will still deliver a very good return'.[21]
[21] Statement of claim [36].
(19)On 7 April 2014, South Beach Management Centre sent a copy of a report on the development (the March 2014 Report) to the plaintiffs.[22]
(20)On 6 August 2014, Mr Barr advised Mr Xue that they were at 50% presales on the project and were ready to sign the building contract, and that he was confident of being able to deliver a good return on the project.[23]
(21)On 6 August 2014, without informing Mr Song and Mr Xue and without their knowledge or approval, South Beach Management executed a deed poll determining to issue 3,500,000 preferred units in the trust (Class P Units); suspending all rights of ordinary unit holders while Class P Units were in issue; and giving holders of Class P Units a preferred income to be paid before any holders of ordinary units could participate in any distribution of revenue or any return of income or capital.[24]
(22)On or about 11 August 2014, without informing Mr Song and Mr Xue and without their knowledge or approval, South Beach Management agreed to issue 3,500,000 class P units at one dollar per unit and subsequently issued those units on 17 December 2014, 24 December 2014, 12 February 2015, and 13 February 2015.[25]
(23)On or about 20 August 2014, Mr Barr provided a Project Report to Mr Song and Mr Xue which forecast profit on each of their $1 million dollar investments of $621,560; repayment of capital and profit expected to take place in December 2015; and construction expected to start in October 2014 and be completed by October 2015.[26]
(24)On about 12 September 2014, South Beach Management contracted with a builder to construct the apartments for $16,700,000 and construction commenced on about 10 March 2015.[27]
(25)On about 15 March 2015, without informing Mr Song and Mr Xue and without their knowledge or approval, South Beach Management issued a further 181,500 Class P Units to a related company.
(26)On about 7 August 2015, Mr Xue nominated Topstar and Topstar became the holder of 1 million ordinary units formally held by Mr Xue.[28]
(27)On or about 8 September 2015 Mr Song nominated Jin Chen Australia Pty Ltd and Jin Chen became the holder of the 1 million ordinary units formally held by Mr Song. On about 4 May 2017, the units were transferred back to Mr Song.[29]
(28)On 22 November 2018, lawyers for South Beach Management notified Mr Song and Mr Xue that there was a risk the realisation of the nine remaining unsold apartments would not satisfy the principal debt to Class P unit holders.[30]
[22] Statement of claim [39].
[23] Statement of claim [42].
[24] Statement of claim [44].
[25] Statement of claim [46].
[26] Statement of claim [46A].
[27] Statement of claim [47], [47A].
[28] Statement of claim [50].
[29] Statement of claim [51], [52].
[30] Statement of claim [53].
The plaintiffs foreshadowed an amendment to the statement of claim to plead, in effect, that South Beach Management no longer holds any assets from which to pay any return of capital or profit to the unit holders, and the plaintiffs have suffered loss as they will not receive any of the funds they invested or any return on them.[31]
[31] Proposed new [54] and [55].
I consider these applications on the basis that the amendment would be allowed.

The pleaded duties

Trustee's duties

The plaintiffs plead that South Beach Management was under an equitable duty as trustee to exercise its powers with due consideration to the purpose for which they were conferred, and to perform the trust honestly and in good faith for the benefit of the beneficiaries.[32] They further plead a duty as trustee to act in the best interests of the holders of ordinary units and to maintain impartiality between different classes of beneficiaries.[33]
[32] Statement of claim [30].
[33] Statement of claim [48].
The pleaded breaches, discussed below, attribute specific content to the duty of the Trustee.

Statutory duties

The plaintiffs also rely on statutory duties under the Australian Consumer Law and the Australian Securities and Investments Commission Act, specifically in relation to misleading or deceptive conduct.

Contractual duties

The plaintiffs allege contractual duties under the Agreements with each of them (pleaded as the Song Agreement and the Xue Agreement).

The pleading of breach

Trustees duties

Mr Song and Mr Xue allege breaches of South Beach Management's duties as trustee:
(1)by failing to disclose the amendments made to the Trust Deed by the Deed of Variation and Deed of Amendment; and
(2)by failing to disclose before 24 July 2012, the substantial changes South Beach Management intended to make to the development;[34]
(3)by agreeing to issue and by issuing the Class P units at the times and on the terms that they did;[35]
(4)by, on or about 15 March 2015, issuing Class P units to a related company;[36] and
(5)by not deferring the proposed construction of the apartments and proceeding with the construction in early 2015.[37]
[34] Statement of claim [29 (a) and (b)], [30]. The failure to obtain consent is not specifically pleaded as a breach.
[35] Statement of claim [48], [63(e)].
[36] Statement of claim [48].
[37] Statement of claim [60], [61], [63].
The plaintiffs do not specify when the breach by failing to disclose amendments to the Trust Deed was committed, or whether it was an ongoing breach.
Mr Song and Mr Xue plead that, as directors of South Beach Management, Mr Barr and Mr Clark knowingly participated in and procured the breaches of trust and are liable to compensate the trust in respect of those breaches.[38]

Statutory duties

[38] Statement of claim [64].

Mr Song and Mr Xue further allege misleading and deceptive conduct by South Beach Management, Mr Barr and Mr Clark:
(1)by failing to inform them of changes intended to be made to the development and to obtain their consent before proceeding;[39]
[39] Statement of claim [30(c)]; [56(a)].
(2)by failing to inform them of the amendments made to the trust deed on 27 May 2011;[40]
[40] Statement of claim [30(c)]; [56(b)].
(3)by Mr Barr only in his email of 11 July 2013;[41]
[41] Statement of claim [36] and [56(c)].
(4)by statements in the March 2014 Report about past and prospective interest costs; the estimated gross sale price of all apartments; and the projected return to unit holders;[42]
(5)(by Mr Barr only) by his statement on 6 August 2014 that South Beach Management would be able to deliver a good return on the project;[43]
(6)in 'concealing' from Mr Song and Mr Xue:
a.the issue of 3,160,000 ordinary units in 2013;[44]
b.that in August 2014 South Beach Management intended to amend the Trust Deed to issue 3,500,000 Class P Units;[45]
c.the amendment made on 6 August 2014;[46]
d.the issue of 3,681,000 Class P Units in August 2014 and March 2015 and the terms of issue;[47]
e.the issue on or about 15 March 2015 of 181,500 Class P Units to a related company;[48]
f.that the properly estimated finance and interest costs exceeded $4,610,000: in particulars the plaintiffs specify the CBA facility of 12 December 2014, and finance and interest costs in the raising of funds under the Second Information Memorandum in 2013, and the issue of the Class P Units in about August 2014.[49]
[42] Statement of claim [41] and [56(d)].
[43] Statement of claim [42], [43] and [56](d)].
[44] Statement of claim [56(e)(1)].
[45] Statement of claim [56(e)(2)].
[46] Statement of claim [44] and [56(e)].
[47] Statement of claim [46], [47B] and [56(e)(4)-(6)].
[48] Statement of claim [47B] and [56(e)(7)].
[49] Statement of claim [56(e)(8)].

The plaintiffs also plead that South Beach Management proceeded with the larger development for 67 units 'contrary to the Information Memorandum and the representations therein'.[50] It is unclear whether that is intended to allege a breach of duties under the Australian Consumer Law or the Australian Securities and Investments Commission Act.

Contractual duties

[50] Statement of claim [28].

Mr Song and Mr Xue plead that South Beach Management proceeded with the larger development contrary to the Agreements.
They plead repudiation by South Beach Management of the Song Agreement and Xue Agreement by the failure to disclose the amendments to the trust deed and the proposed changes to the development.[51]
[51] Statement of claim [29], [30].
Mr Song and Mr Xue also plead breach of the Agreement in each case to appoint them as directors of South Beach Management.[52]
[52] Statement of claim [24] - [26A].
They do not, however, claim damages for breach of contract and that cause of action was not included in the indorsement on the writ.

Other breaches

The plaintiffs plead:
(1)the second Information Memorandum was issued on or about 1 February 2013 without informing the plaintiffs without their knowledge or approval;[53]
(2)the plaintiffs were not informed until April 2014 of the proposal to issue further units or that South Beach Management had issued 3,160,000 ordinary units;[54]
(3)on 6 August 2014, without informing the plaintiffs and without their knowledge or approval, South Beach Management executed a deed poll by which it amended sch 3 of the Trust Deed to provide for the issue of Class P units.[55]
[53] Statement of claim [32].
[54] Statement of claim [35].
[55] Statement of claim [44].
The agreement to issue and the Class P units is pleaded to be a breach of the duties of the Trustee.[56] Although the other matters referred to above are pleaded as though they were breaches, the plaintiffs do not plead the nature and source of the duty breached.

Loss or damage

[56] Statement of claim [48].

The statement of claim pleads that 'the plaintiffs' (not differentiating between them, and in particular between Mr Xue and Topstar) have suffered loss in that they will not receive any of the funds they invested pursuant to the Xue Agreement and the Song Agreement or any return thereon.[57]
[57] Statement of claim [55].
They separately plead that Mr Song and Mr Xue suffered the complete loss of their investment funds and any return on the funds.[58]

Causation

[58] Statement of claim [57].

In [58] of the statement of claim, the plaintiffs plead that if they had had full knowledge of the state of affairs 'as at 20 March 2012' they could have exercised their rights to rescind the Song Agreement and the Xue Agreement; or to apply to the court for:
(1) removal of SBM as Trustee and for a receiver of the Trust property in order to preserve the Trust assets;
(2) rescission of their Agreements and restitution of their invested funds; and
(3) relief under Part 5-2 of the Australian Consumer Law directing South Beach Management to refund their invested funds with such interest as the court might order.
The plaintiffs plead that had Mr Song and Mr Xue been appointed directors of South Beach Management in accordance with the Agreements, they 'would have had the opportunity to gain full knowledge of the true state of affairs of [South Beach Management] from the time they requested appointment in and from August 2011 and could have controlled the future affairs of [South Beach Management] from that date'.[59]
[59] Statement of claim [59].
The statement of claim does not otherwise set out any causal link between the alleged breaches and loss or relief claimed.

Important documents

The evidence filed in the summary judgment application was comprehensive and included the Trust Deed, Deed of Variation and Deed of Amendment, and the Agreements with Mr Song and Mr Xue.

The Trust Deed[60]

[60] Barr 979; referred to in the Information Memorandum as the Constitution, CAKB-14.

The trust was created by the deed of settlement dated 20 May 2011, by which the Settlor created a unit trust for the benefit of the specified unit holders: Hudson Management (WA) Pty Ltd as trustee for the Clark Family Trust, and Chicago Management Pty Ltd as trustee for the Boston Management Trust. The settled monies were $2 and the value of the specified units was $2.[61]
[61] Barr 1039, CAKB-14.
By cl 3.1, the beneficial interest in the trust was divided into Trust Units to be issued by the Trustee to Unitholders. Unless otherwise provided in sch 3, all Units were to comprise one class and be of equal value, and the rights attaching to a Trust Unit, to rank equally with any other Trust Unit.
Where sch 3 provided for Units to be divided into classes, each class of Units was to confer the rights and be subject to the restrictions and be differentiated in the manner set out in the Schedule in addition to other rights and restrictions contained in the Deed. The provisions of sch 3 were to prevail in the event of any inconsistency.
Before amendment, sch 3 of the Trust Deed was blank.
By cl 12.8 the Trustee was permitted to exercise or concur in the exercise of any power or discretion given by law or under this Deed 'notwithstanding that the Trustee or any Associate or Associate Company of the Trustee has or may have a direct or indirect interest in the mode or result of the exercise of such power or discretion or may benefit either directly or indirectly as a result of the Exercise of any such power or discretion'.
The Unitholders could at any time by Special Majority Consent[62] appoint a replacement Trustee by written instrument,[63] and could by Special Majority Consent at any time remove a Trustee and engage a replacement Trustee.[64]
[62] Defined as 'Special Majority Consent in relation to Unitholders, means any Unitholder Resolution passed by Unitholders separately or collectively holding more than 75 per centum of the votes held by Unitholders, present and having the Right to vote at any general meeting of Unitholders: cl 27.1.
[63] Cl 14.5.
[64] Cl 14.6.
By cl 17.1:
The Trustee is not liable for:
(a) any Loss to the Trust Assets or to any Unitholder or other Person as a result of the Exercise of, or failure to Exercise, any power conferred on the Trustee by this deed or by Law; or
(b) any Default under any Liability or trust of any nature or description,
except in the case of actual fraud or wilful misconduct on the part of the Trustee.
The Trustee had the power to amend any trust or provision of the Trust Deed but that power was limited to amendments that were minor, technical or administrative in nature; or where the trustee reasonably believed that the amendment 'will not have any prejudicial effect on any Unitholder, or Trust Unit held by that Unitholder'.[65]
[65] Cl 23.
Unitholders could by Special Majority Consent at any time amend any trust or provision of the Deed, by way of revocation, addition or other Amendment, or any previous Amendment.
The power to amend also was limited, so that an amendment must not, 'prejudicially affect the beneficial entitlement to any income or capital Distribution to or for any Unitholder before the date of that Amendment'.[66]
[66] Cl 23(c).
By cl 27.3, the trustee was entitled to exercise any power 'in the absolute and uncontrolled Decision [sic] of the Trustee, without necessity for the Consent of any Person and without the Trustee being under any Liability, or being legally required or compelled by any Person, to Exercise that power'. The Trustee was not legally required or compelled to provide or communicate any reason to any Person for the Exercise of that power.

The Deed of Variation[67]

[67] CAKB-15.

The Deed of Variation is dated as made 20 May 2011. At the time of the Deed of Variation there were only two unit holders. The Deed of Variation amended the trust deed by replacing Schedule 3. Under the new schedule, until the Trustee otherwise determined, the units in the Trust were to comprise four classes of units with varying entitlements to vote and to receive income.

The Deed of Amendment[68]

[68] CAKB-17.

The Deed of Amendment recited that the amendments made in it had been approved by Special Majority Consent of Unit holders on 27 May 2011. At that time, the sole unit holders were Hudson Management as trustee for the Clark Family Trust, and Chicago Management as trustee for the Boston Management Trust.
Schedule 3 was deleted. Clause 3.1 was replaced. By cl 3.1A, the trustee could now determine to create and issue further Trust Units of the same class or of a different class to those already on issue. The rights, obligations and restrictions attaching to a class of Trust Unit were to be subject always to the rights, obligations and restrictions which attach to Trust Units issued in other classes.[69]
[69] Barr 1074, CAKB-17.
The power of Unit holders to remove and replace the trustee was amended by requiring a unanimous resolution, rather than Special Majority Consent.[70]
[70] Cl 3.2, Barr 1074, CAKB-17.
Further, cl 23 was replaced with a clause permitting the Trustee to make an amendment to the trust deed in its absolute discretion and on such terms as it sees fit.[71]
[71] Cl 3.3, Barr 1075, CAKB-17.
The Deed of Amendment was executed in accordance with s 127 of the Corporations Act by Mr Clark and Mr Barr and dated 27 May 2011.
While the plaintiffs have since questioned when the Deed of Amendment was executed, the date execution is not a pleaded issue.

The Information Memorandum: 20 May 2011

The first Information Memorandum[72] is dated the same day as the Trust Deed and the Deed of Variation.
[72] Barr 1051, CAKB-16.
The Information Memorandum invited investment in the Trust and stated that it was seeking to raise $4 million to purchase and develop the property in the South Beach Estate, South Fremantle. The summary of the investment opportunity included:
·Acquisition of Units in a Trust specifically formed to acquire land to develop 38 residential apartments.[73]
·Directorship positions available in the Trustee Company.
·1 million minimum investment with Trust targeting $4m raise under this IM.
…
·Funds raised under this IM together with vendor finance will be used to acquire the Property and secure Development Approval (DA).
·The projected financial return to unit holders under this IM is 69% on equity invested or approximately 30% p.a.[74]
[73] See also Barr 1056, CAKB-16.
[74] Barr 1054, CAKB-16.
The Information Memorandum stated that the Trust intended to secure a loan to fund construction costs, with the assets of the Trust as security.[75] Later, it stated that funding terms had been agreed with the property vendor, and that 'it may be necessary to raise further equity and or structured finance should senior lender construction funding terms be insufficient to provide the required project capital'.[76]
[75] Barr 1055, CAKB-16.
[76] Barr 1061, CAKB-16.
The return to investors, subject to the availability of funds following the sale of completed units in discharge of Trust and Project debts, was:
·Return of initial equity investment in the Trust.
·Return on equity invested payable from the Funds's profits based on the number of units held in the trust.
·50% share of any profit of the fund beyond the $2,777,331 pre‑tax profit forecast (surplus profit), with the Development Manager entitled to receive 50% of the surplus profit.[77]
[77] Barr 1055, CAKB-16.
The proposed timetable was for practical completion in September 2013, with payment of dividend in December 2013.[78]
[78] Barr 1057, CAKB-16.
The offer included the statements that Mr Clark and Mr Barr would be directors of the Trustee Company and 'will be joined on the Board of directors by investors purchasing Units in the Trust issued under this IM'.[79]
[79] Barr 1055, CAKB-16.
In outlining 'significant documents' the Information Memorandum referred to the Constitution of the Trust dated 20 May 2011 as the primary document. It stated:
Pursuant to the terms of the Constitution, the Trustee may determine to create and issue Units of different classes with the rights obligations and restrictions specified in their terms of issue. Each Unit gives Unit Holders an equal and undivided interest in all the Trust's assets. However, a Unit does not give an interest in any particular part of the Trust and does not entitle a Unit Holder to have any part of the Trust transferred to them. Subject to the Constitution, Unit Holders have the following rights:
·The right to share in any distributions.
·The right to attend and vote at meetings of Unit Holders.
·The right to participate in the proceeds of winding up of the Trust.
…
Amending the Constitution
The Trustee can amend the Constitution without Unit Holders' approval provided the Trustee reasonably considers the change will not adversely affect Unit Holders' rights. The Constitution can also be amended by a special resolution passed by Unit Holders (which needs the support of at least 75% of the votes cast, by value, on the resolution).
Removal of Trustee
Unit Holders can remove South Beach Management Pty Ltd as Trustee through the passing of extraordinary resolutions (which needs the support of at least 75% of all Unit Holders, by value).[80]
[80] Barr 1061 (emphasis added).
The Information Memorandum gave notice of the limitation on the liability of the trustee, although it expressed the exception as for 'its own fraud, negligence or breach of trust', and not actual fraud or wilful misconduct.

The Second Information Memorandum: 1 February 2013

The Second Information Memorandum[81] was for the purpose of raising a further $5 million to the issue of 5 million units (minimum subscription amount, $2,700,000). The minimum investment amount was $50,000.
[81] Barr 1078, CAKB-18.
The information provided to investors in the second Information Memorandum was significantly different from that in the earlier document.
The second Information Memorandum included the following:
(1)the Trust was targeting securing a construction facility of approximately $20 million to yield 67 apartments;[82]
(2)the Trust expressly reserved the right to raise additional equity or debt through the issue of different classes of units having different rights and obligations, which may reduce forecast return;[83]
(3)the Trust's constitution did not provide unit holders with the right to withdraw their investment during the term of the trust and the Trust did not intend to make any withdrawal offers during the term of the Project.[84]
[82] Barr 1086, CAKB-18.
[83] Cl 1.6, Barr 1086, CAKB-18.
[84] Barr 1086, CAKB-18.
The statements in the Information Memorandum regarding amendment of the Constitution, removal of the Trustee, and limitation of Trustee liability were unchanged from the first Information Memorandum.[85]

The Investment and Management Agreements[86]

[85] Pt 5, Barr 1094, CAKB-18.

[86] Barr 1292, 1297, CAKB-65, CAKB-68.

The Agreements were expressed as an offer from Mr Song or Mr Xue to the directors of South Beach Management as trustee for the South Beach Two Development Trust. The Agreement for Mr Xue is dated 21 June 2011, that for Mr Song is dated 8 July 2011.
It recorded that Mr Song intends to purchase 1 million units, which accounts for 25% of the total units issued. It further provided:
All parties have agreed that Mr Song will be offered a Dir/Management role in [South Beach Management Pty Ltd] upon payment of the Investment.
The document further recorded that the investment 'is on the basis of the Terms and Conditions of the Offer Document, dated 20 May 2011. Estimated return is 69% on equity being 27.5% per annum. Project completion estimated to be late 2013. Estimated project term 30 months'.

The Deed Poll of 6 August 2014[87]

[87] Barr 1142, CAKB-19.

On 6 August 2014, by an instrument executed as a deed poll by South Beach Management, the Trust Deed was varied so that it comprised Ordinary Units and Class P Units.
Holders of Ordinary Class Units were 'in the absolute discretion of the Trustee' and subject to the rights of holders of Class P Units, entitled to participate in a distribution of the benefit of all or any part of the net income of the Trust; entitled to participate in any distribution of capital of Trust Assets on the winding up of the Unit Trust; and entitled to receive upon redemption the face value of the units redeemed.[88]
[88] Cl 3.1.
By cl 3.2, in effect, the rights, interests and entitlements of Ordinary Class Unit holders were suspended until all Class P Units had been redeemed by payment in full of the Class P Redemption Price and all outstanding Preferred Income.
The entitlements of holders of Class P Units, set out in cl 4, included to participate in any distribution of capital on winding up ahead of all other Unit Holders; to receive upon redemption, the face value of the units (to be paid out of the capital of the Trust), plus all outstanding Preferred Income (to be paid out of capital or net income). Preferred Income provided, in effect, 12% per annum, compounding monthly, on the Redemption Price of the Class P Units, or 15% if paid after the specified Target Date (the date 24 months from the date of issue).

The evidence of Mr Barr

General background

In his affidavit of 12 September 2020, Mr Barr gave evidence of his own background, and other projects conducted by the M Group of companies, including three projects in the South Beach and Port Coogee area.
South Beach Management was incorporated as a special purpose vehicle to act as the trustee of the South Beach Two Development Trust. The Trust was created for the specific purpose of facilitating investment to develop the property in North Coogee.
In or around early 2010, Mr Barr was introduced to the Vice President (Commercial) of GNS China Limited, a company which acted as a facilitator between Australian businesses seeking equity for projects and Chinese investors.[89] Through GNS, M Group raised around $1,000,000 from Chinese investors in another development. It was the first time Mr Barr was involved in a project that accessed capital from Chinese equity.[90]
[89] Barr [57].
[90] Barr [58], [59].
On 27 July 2011, South Beach Management and GNS executed an agreement for GNS to be paid a commission on investments by an investor introduced by GNS.[91]
[91] Barr [26].
Shortly after the introduction to GNS, Mr Barr was introduced to Ms Shu Hua Wu, a Perth‑based solicitor and migration agent.[92]
[92] Barr [60].
On or about 25 October 2011, Mr Barr was introduced to Ms Rachel Zhang of Zhejiang Shinyway Overseas Development Co Ltd (Shinyway). Shinyway is an emigration agency based in the People's Republic of China.
GNS, Shinyway and Ms Wu facilitated investment from Chinese nationals who were attempting to emigrate to Australia via the 132 Business Talent (Permanent) visa (132 Visa), which required an investment of at least $AUD 1 million in an Australian company as well as satisfying various other criteria.[93]
[93] Barr [61], [65].
Mr Song and Mr Xue were introduced to South Beach Management as potential investors by GNS.
Throughout the Project, Mr Barr mainly dealt with Ms Wu and, to a lesser extent, Shinyway. On the occasions he met with either Mr Song or Mr Xue, Ms Wu was present to act as interpreter.[94]
[94] Barr [73].
Mr Barr deposes that during the project he always held an honest and reasonable belief that the Project would deliver a return to its investors, and statements he made regarding projected returns were based on cash flow models, property valuations commissioned during the Project, and his own experience.[95]
[95] Barr [74], [75].
The financial projections for the Project in the first Information Memorandum were based on earlier projects located at South Beach. The projections were undertaken by Mr Stuart McDonald, M Group's former Chief Financial Officer.[96]

The investments by Mr Xue and Mr Song

[96] Barr [76], [77].

On 20 May 2011, Mr Barr emailed a project summary to Ms Wu and asked her to add a Chinese translation. The project summary included a statement that a minimum investment of $1 million accounted for 25% of total issued units; that the anticipated return on equity was 69%, being 27.5% per annum; and that the site would yield 38 apartments, with the project expected to be completed by the end of 2013.[97]
[97] Barr [30], [31].
On 9 June 2011, Ms Zhang provided a copy of the translated project summary to Mr Xue.[98]
[98] Barr [90].
On 13 June 2011, Ms Wu advised Mr Barr that Mr Xue had agreed to invest $1 million in the Project and asked that he send an investment agreement.[99] On 14 June 2011, Mr Barr sent to Ms Wu, by email, a Word version of the Investment and Management Agreement.[100]
[99] Barr [38], [91].
[100] Barr [93].
On 18 June 2011, Mr Xue sent an email to Ms Wu with questions including whether the 25% 'stocks' in South Beach Management was enough to apply for immigration or if he still needed to find other projects.[101]
[101] Barr [98].
Mr Barr set out the events of Mr Xue paying the $1 million for his investment. It is not necessary to detail them for the purpose of these reasons.
On 8 July 2011, Mr Barr met with Ms Wu and Mr Song. On 8 July 2011, Mr Song executed the investment and management agreement.[102]
[102] Barr [120], CAKB-65.
Mr Barr set out the events relating to Mr Song paying the $1 million for his investment.
The First Information Memorandum sought to raise $4,000,000. It raised only half that amount, although it was sufficient for the purchase of the land, with vendor finance.

Appointment of Mr Song and Mr Xue as directors

On 16 August 2011, Ms Wu requested the paperwork for Mr Song and Mr Xue in relation to their appointment as directors in South Beach Management.[103]
[103] Barr [132], CAKB-76.
Mr Barr responded that he had not formally appointed Mr Song or Mr Xue as directors and said, if it was easier, he could use the 'same format as had been used for previous investors'. That format appears to have been appointment as a project manager, not a director. Ms Wu replied that it would be better for her clients to be appointed as directors.[104]
[104] Barr [134], CAKB-78.
On 30 August 2011, Mr Barr responded stating that M Group would form a specific project management company so that the investors could sit on that board 'and not simply be on the trustee company'. Mr Barr also said that they could get nearly 60 apartments on the site we should show a higher profit and would need to 'sound out current demand' in order to proceed.[105] Ms Wu responded that Mr Xue and Mr Song would agree to be on the board of the management company.[106]
[105] Barr [135], CAKB-79.
[106] Barr CAKB-80.
On 19 September 2011, Mr Barr sent Ms Wu, by email, director appointment forms for SB Development Management Services Pty Ltd for Mr Xue and Mr Song.[107]
[107] Barr CAKB-83.
SB Development Management Services was registered on 8 September 2011.[108]
[108] Barr CAKB-165.
On 20 September 2011 and 24 September 2011, Mr Xue and Mr Song signed consent to act forms which Ms Wu sent to Mr Barr. Each is recorded as a director of SB Development Management Services from 6 September 2011.[109]
[109] Barr CAKB-165.
Mr Song was later appointed a director of South Beach Management for a short period between May and November 2017.

The project funding

In or around April 2011, South Beach Management entered into an option to purchase the property for the project for $3,835,000 (excluding GST).[110] On about 29 June 2011, South Beach Management entered into a contract for the purchase of the property.[111]
[110] Barr [142].
[111] Barr CAKB-87.
The evidence does not explain what happened in the period between 29 June 2011 and 20 December 2012.
On 20 December 2012, Ralph Beattie Bosworth, Construction Cost Consultants, provided an estimate of current construction costs for the project of $17,919,000 inclusive of GST.[112]
[112] Barr CAKB-89.
Mr Barr deposes:
As the capital raising under the Information Memorandum did not achieve its target goal of $4 million, and as the project changed from a 38 residential apartment development to 67 apartment development, SBM required additional capital in order to progress the Project. This was the reason SBM issued the Second Information Memorandum.[113]
[113] Barr [155].
The Second Information Memorandum sought to raise a further $5 million by the issue of five million ordinary units. The Second Information Memorandum was also not fully subscribed.
In the Second Information Memorandum South Beach Management revised the projected profit and projected return for investors.
Mr Barr set out in detail the financing arrangements made by South Beach Management between October 2013 and December 2014 when it entered into a facility agreement with the Commonwealth Bank of Australia to fund the development of the project. Match Projects, Match Property and M Constructions entered into a Guarantee and Indemnity with CBA to act as corporate guarantors for South Beach Management under the Facility Agreement.[114]
[114] Barr CAKB-101.
As Mr Barr pointed out, the M Group companies were acting as guarantors for an investment owned by the investors in the Trust and not the M Group.[115] He stated that it would not have guaranteed the funding and if it believed the Project would not deliver a return to investors. On the other hand, from the time the M Group gave the guarantees, it was in the interests of M Group to replace the secured funding with an alternative to which it was not a surety.

Updates on the project

Updates in 2011 and 2012

[115] Barr [171].

Mr Barr set out, in detail, communications with Ms Wu in relation to the status of the Project. Of particular relevance to the present applications are updates provided before 24 July 2012.
(1)On 8 September 2011, in an email to Ms Wu, Mr Barr said, in substance, that 'based on our discussion with the local authority on Lot 462 they are going to support more apartments than we had originally planned'.[116]
(2)On 19 July 2012, Ms Wu sent an email to Mr Barr regarding immigration reports for some of her clients, including Mr Xue. She added that Mr Xue would like to receive information about the progress of the Project. The information required for the immigration report included 'evidence of substantial ownership interest in eligible business' and 'evidence of day‑to‑day management at a senior level'.[117]
(3)On 19 July 2012, Mr Barr replied and advised that they had obtained development approval for 67 apartment which should flow on to provide an uplift in profit. He further said that sales interest in the Project had been very strong and 'we believe the market will buy these apartments quickly'.[118]
(4)On 19 July 2012, Ms Wu sent an email to Ms Zhang, telling her about the new planning approval increasing the number of units from 40 to 67.[119]
(5)On 24 July 2012, Mr Barr forwarded a draft progress report to Ms Wu, saying, 'then I will send to both investors via you'.[120]
[116] Barr CAKB-102.
[117] Barr CAKB-108.
[118] Barr CAKB-109.
[119] Barr 1997, CAKB-110.
[120] Barr CAKB-111.
The draft documents sent to Ms Wu included advice that final development approval had been given for 67 apartments, that consultants had been appointed and a ten‑week documentation process commenced at the end of which '[Match Projects] will be in a position to finalise the construction price of the project' and more accurately predict the profit position. The letter finished with the statement:
Whilst we are behind the original program it is largely as a result of pursuing the higher density scheme. This should result in a profit increase to investors but also improve the salability of the project is the price point for the apartments will be a broader range. Once we are able to determine the construction price we will issue a revised feasibility for the review of the Directors and Unit Holders.[121]
[121] Barr 2001, CAKB-111.
On 31 July 2012, Mr Barr met with Ms Wu and Mr Song 'for a general catch up to discuss the project and other investment opportunities'.[122]
[122] Barr [185].
The pleaded case regarding misleading conduct requires consideration of some later correspondence and reports.

Updates in 2013

A Project Report, dated April 2013 and addressed to each of Mr Xue and Mr Song, included a forecast profit of $588,730, or 58.8% on the $1 million investment, with estimated repayment of capital and profit in December 2014.[123] The Report referred to delay in the Project 'as a request [sic] of securing approval of 67 apartments as opposed to 38 apartment'.[124]
[123] Barr CAKB-121.
[124] Barr 2072, CAKB-121.
On 5 July 2013, Mr Xue wrote and asked how the project was going, saying that he had heard from TV news that the economic [situation] in Australia was getting weak, and that he hoped sales was still successful. Mr Barr replied:
We are very close to start as interest in sales have been very good. The economy in Australia is patching especially in retail. But as interest rates have fallen so property investment is still strong.
We think the project will still deliver a very good return.[125]
[125] Barr 1996, CAKB-110.
On 2 September 2013, Ms Wu asked directly how many units have been sold, and Mr Barr replied, 'we have secured nearly 10 sales with another five under negotiation. We're just waiting for contracts to be signed so they are expressions of interest at the moment'.[126]
[126] Barr CAKB-137.
In the same email exchange, Ms Wu asked for a copy of the Trust Deed and unit register. Mr Barr forwarded a copy of the original Trust Deed, but it appears he did not forward the Deed of Variation or Deed of Amendment.
On 21 October 2013, Ms Wu advised Mr Barr that Mr Song was asking about sale progress and when construction could start on the site.[127] Mr Barr replied: 'We have sold $8 million and need to get another $10 million to start. We are aiming to start in Nov/Dec subject to sales'.[128]

Updates in 2014

[127] Barr CAKB-139.

[128] Barr CAKB-140.

On 20 January 2014 Ms Wu again wrote saying that Mr Song was asking about progress and when construction would start.[129] Mr Barr replied that the revised design had come in well over budget, they had sold 12 million in stock and needed another 10 sales and, 'we really want to start on site in Feb/March'.[130]
[129] Barr CAKB-150.
[130] Barr CAKB-151.
On 7 April 2014, Mr Barr gave a further report by email to Ms Wu, advising that the building cost was nearly 5 million over budget and they currently had the building out to tender; they were aiming to be on‑site midyear; presales had been 'slower than we would like' but they had now sold '40% of the project and have 10 more sales to meet the bank funding conditions'. He now forecast a return of around 15% per annum for the total time investors had their funds in the project.[131]
[131] Barr CAKB-152.
On 8 April 2014, Mr Clark and Mr Barr provided a Project Report for March 2014.[132] The Report still forecast a return of $0.56 cents for each dollar invested, taking into account the assumption that mezzanine finance could be procured.
[132] Barr 2979 – 2987, CAKB-225.
In an email dated 6 August 2014, Mr Barr stated:
We are now at 50% presales in the project. We have had some challenges with the construction price which we now have under control. We are ready to sign the building contract and have the bank ready to fund the project.
We are very sorry for the delay and the big lesson for us is that going for the additional density and super profit is not always the best approach.
I am confident that we will however [despite] the delays be able to deliver you a good return on the project.[133]
[133] Barr 2396, CAKB-167.
In August 2014, a second Project Report was issued, with a forecast profit of 62.15 %, and an estimated repayment of capital and profit in December 2015.[134]

Updates in 2015

[134] Barr CAKB-157.

On 23 April 2015, Mr Barr provided an investor schedule for Shinyway investors to Ms Wu. Under the heading 'TOTAL Preferred Equity Principle', the schedule shows $3.5 million and preferred equity at 12% interest.[135]
[135] Barr CAKB-164. The schedule also records the Project is under construction with 65% of apartments sold.
On 4 June 2015, Mr Barr provided Ms Wu with copies of the mezzanine finance agreements for two projects, including the Project in which Mr Song and Mr Xue had invested. He advised that sales were tough but 'capital and a return' was likely on the Project.[136] The agreements disclosed the issue of preference units in January 2015 to the lenders.
[136] Barr CAKB-171.
On 10 June 2015, Ms Wu wrote, advising that Mr Xue wanted to meet with Stuart Macdonald, the Match Group chief financial officer, and wanted a project update.[137]

Updates in 2016

[137] Barr CAKB-172.

Mr Barr states that, on 6 May 2016, he sent Ms Wu a copy of the Project reports from September and December 2015. The attachment to his affidavit does not, however, include the reports.[138]
[138] Barr CAKB-189.
Also on 6 May 2016, Mr Macdonald sent copies of the 2015 end of year accounts for the project to Mr Barr and Ms Wu.[139] The accounts disclose trust funds of $7,250,254, with 8,841,502 units issued – 3,681,500 in 2015.[140]
[139] Barr CAKB-190.
[140] Barr 2705, CAKB-190.
On 12 July 2016, Mr Xue asked for information on why the project was taking so long and whether there was still any profit in the project.[141] On 23 July 2016, Mr Xue asked for an update.[142]
[141] Barr CAKB-192.
[142] Barr CAKB-194.
On 25 July 2016, Mr Barr responded that construction was going very well, and they did have more apartments to sell but were making sales.[143]
[143] Barr 2758, CAKB-194.
On 26 August 2016, Ms Wu sent an email to Mr Barr, and told him that investors were accusing Shinyway of being responsible for monitoring and auditing all aspect of the projects in which they had invested, and that Shinyway wanted it made clear that investors should be monitoring the projects themselves.[144] Mr Barr attaches a schedule sent to him by Shinyway of more than 20 'Shinyway investors' in Match projects.[145]
[144] Barr CAKB-195.
[145] Barr CAKB-196.
On 6 November 2016, Mr Xue wrote, asking the exact situation.[146] Mr Barr responded on 7 November and told Mr Xue:
There are some concerns with current market conditions but positive is that the building will shortly be completed.
The risk side is that of current sales and making sure all the buyers settle and pay for their units. We need this to occur so that we pay the project debt down quickly.
If we can achieve this the Joint Venture owns or controls the remaining property with very limited holding costs. At that time we need to sell apartments to pay out capital and returns.
The choice for Unit Holders will sell quickly which will impact returns or take more time.
I will make a recommendation on this once we have settled the current sales that we have made.[147]

Updates in 2017

[146] Barr CAKB-197.

[147] Barr CAKB-198.

On 28 June 2017, Ms Wu asked Mr Barr for documents requested by Mr Song, including an ASIC extract showing his director position in the trustee company and most recent financial statements for the Project.[148] On 11 July Ms Wu asked for the documents that week, and Mr Barr had an employee of M Group send them on 12 July 2017.[149]
[148] Barr CAKB-206.
[149] Barr CAKB-207.
On 18 October 2017, Ms Wu asked for the Project's 'Financials' which Mr Song had requested.[150] Mr Barr responded the following day:
[150] Barr CAKB-209.
Attached are the financial summary for Tempo and full transaction detail.
The key features that have impacted us is time hence interest costs, requirement of additional capital due to chance in banking markets and reduction is selling prices.
It should be noted that our Group as not exceed [sic] and has in fact received less that the forecast IM for 67 apartments.
• $7.9m variation comprising:
·$3.1m net proceeds
·$0.4m overrun on statutory holding costs
·$0.8m over on construction
·$0.4m saving on consultants (results from saving on DM cost)
·$2.2m over on interest/finance costs
·$1.8m P‑Class return
Key non‑finance cost variations:
• Additional time required to secure pre‑sales predominant factor PC being achieved Feb 17 v Oct 14 per IM. This time delay led to increased carrying costs on interest and statutory holding costs.
• Project timeframes have extended further post PC due to weak sales market, eg current interest cost is approx. $70K/mth and P Class return is $60K/mth
• $800k Build ($198k developer contribution, $180k agreed escalation, $150k contaminated fill/soak wells, $160K soffit improvements/stores' cladding, $150K aircon to unsold)
• $1.17m combined DM fee/ DM performance fee ($895k) saving
• $370K additional marketing due to poor market conditions ($100K fwd allowance)
• $110K equity fee – $7m target v $8.84m raised – uplift due to bank lending parameters
• $222K contingency costs – $50K strata levies, $80K rent guarantees, $50K abortive costs on PDS
There are really only three major investors in the project. This is the Mr Song and Mr Xue and an English investor who we have a full authority to manage his investment.
Therefore we really just need the direction of the major shareholders. As it stands now the only thing we can do in our view is sell a number of apartments quickly to reduce the debt position and then we can reassess whether we can refinance and hold the stock for a longer period until the market recovers. But at present our loan to value ratios are too high.
On a positive note we have sold a one bedroom apartment at $460,000 this week and if we can keep the sales at this price or level it will improve our capital return position to Unit Holders.[151]
[151] Barr CAKB-210, CAKB-211.
Following a meeting with Mr Xue and Mr Song on 9 November 2017, on 15 November Mr Barr sent to Ms Wu, for forwarding to the investors, a financial history of the Project plus forecast, a financial summary, and trust financial statement to 30 June 2017.[152] The financial history disclosed:
(1)In the year ended 30 June 2015, the Trust entered into funding arrangements secured by Preference Units in the Trust.
(2)Building work commenced on 10 March 2015.
(3)Practical Completion was achieved on 14 February 2017.
(4)In May, Match procured a residual stock facility from Balanced Securities Limited to enable the bank facility to be repaid. Income generated in the period was used to reduce project debt.
(5)The current position was 28 apartments remained for sale, and the amount of the Balanced Facility at 31 October was approximately $6.3 million.
[152] Barr CAKB-214.
The financial forecast was for 27 cents for each $1.00 invested in repayment of capital with no profit distribution, with a prospect to uplift the return to 40 or 50 cents for each $1.00.

The management role of Mr Song and Mr Xue

On 1 November 2012, Ms Wu wrote to Mr Barr an email regarding the evidence she needed to show the Department of Immigration to establish the investment amount and the clients' management role in the projects.[153] Mr Barr responded:
I feel that the best structure which is what we run on most projects is that Chinese are Directors of the Development Management company which does most of the day to day and that the Development Management company be given a power of attorney by the trust to sign building contract, sales contract, development approvals etc.[154]
[153] Barr CAKB-116.
[154] Barr CAKB-117.
In May 2013, Mr Barr sent draft letters to Ms Wu for each of Mr Song and Mr Xue, addressed 'To Whom it May Concern' setting out their investment and ownership of a million units in the South Beach Two Development Trust, and appointment as a director of the Management Company, SB Development Management Services Pty Ltd, on 16 September 2011.[155] The letter proceeded to outline the responsibilities that had been given to each of the plaintiffs in decision‑making, project management, quality control, advice, and management of the sale of the project to buyers in China.[156]
[155] Barr CAKB-126.
[156] Barr CAKB-127.

The reference letter for Mr Song was provided (or provided again) on 25 November 2013.[157] A signed letter for Mr Xue was provided in December 2014.[158]

Statutory duties

[157] Barr CAKB-144.

[158] Barr CAKB-161.

Mr Barr deposes that he genuinely believed the statements made in his emails of 11 July 2013, 21 October 2013, 20 January 2014, and 7 April 2014 to be true.[159]

The second affidavit of Mr Barr

[159] Barr [207], [220], [232], [234].

Mr Barr made a further affidavit, affirmed on 2 December 2020. It was largely directed towards an issue raised by the plaintiffs: whether the Deed of Variation or the Deed of Amendment might have been backdated. That issue is not pleaded in the statement of claim, and it is unnecessary to address it.

The evidence of Mr Clark

Mr Clark filed an affidavit dated 2 December 2020.
His evidence was also directed to whether the Deed of Variation or the Deed of Amendment might have been backdated. On the plaintiffs' pleaded claims, it is not necessary to further address his evidence.

The plaintiffs' evidence

The evidence of Mr Xue

Mr Xue stated that, on or about 7 June 2011, at a meeting with Mr Hou and Ms Zhang of Shinyway, he was provided with a copy of the Information Memorandum dated 20 May 2011.[160] He was not made aware of any further information memorandum relating to the Project, and any proposal to issue further ordinary units until April 2014. He was not aware of any proposal for the issue of preference units until about 19 October 2017.[161]
[160] Affidavit of Yuanchao Xue sworn 30 October 2020 [4].
[161] Xue affidavit [5].
Mr Xue said he signed the Investment and Management Agreement on 23 June 2011.

The evidence of Mr Song

Mr Song stated that he can remember receiving a copy of the Information Memorandum some time before meeting Mr Bauer on 7 July 2011, and also receiving a copy at that meeting before he signed the Investment and Management Agreement.[162]
[162] Affidavit of Changfu Song sworn 20 October 2020 [3].
Mr Song also stated that he was not made aware of any further information memorandum or any proposal to issue further ordinary units until April 2014; and was not made aware of any proposal to issue or the issue of preference units until about 19 October 2017.[163]
[163] Song affidavit [4].
Mr Song further stated that at no time did he attend any meeting without Ms Wu being present, as she acted as an interpreter during all meetings with Mr Barr in relation to the Project.[164]
[164] Song affidavit [6].

The defendants' applications

The defendants applied by chambers summons, filed 11 September 2020, for the following orders:
1 The Defendants have leave to bring this application.
2 Pursuant to Order 16 rule 1 of the Rules of the Supreme Court (WA) (RSC) the Defendants' application for summary judgment be granted.
3 Alternatively, pursuant to RSC Order 20 rule 19 paragraphs 29, 30, 41, 43, 45, 48, 58, 60, 61 and 64 of the Plaintiffs' Further Amended Statement of Claim dated 5 August 2020 be struck out on the grounds they: 3.1 disclose no reasonable cause of action; and/or 3.2 may prejudice, embarrass or delay the fair trial of the action; and/or 3.3 are otherwise an abuse of the process of the Court.

Summary judgment

The principles

Order 16 r 1 of the Rules of the Supreme Court 1971 deals with an application for summary judgment by a defendant. The court may grant summary judgment if satisfied that the action is frivolous or vexatious, that the defendant has a good defence on the merits, or that the action should be disposed of summarily or without pleadings.
The general principles in relation to the grant of summary judgment are settled and have been recently restated by the Court of Appeal in NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd.[165] In summary (citation of authority omitted):
(1)The power to order summary judgment should be exercised with great care.
(2)The cases where summary judgment ought properly to be granted have been described as 'when there is no real question to be tried', 'only in the clearest of cases', and 'when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial'.
(3)The assessment of the claim's prospects of success if it went to a trial in the ordinary way has an evaluative character to it, but it is doubtful that it can be strictly described as discretionary.
(4)Summary judgment is not confined to cases where it is 'so to speak apparent at a glance' that the claim is untenable and whether a claim is untenable may require extensive argument.
(5)There is, however, no error in dismissing an application where, having regard to the complex or serious points of law involved, a judge at first instance concludes that it cannot be said that the claim is so clearly untenable that it could not possibly succeed if it went to trial.
[165] NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2020] WASCA 107Error! Bookmark not defined. [43] - [55]; see also Sutton Investments Pty Ltd v Realistic Investments Pty Ltd [2017] WASCA 14 [24]; and Monadelphous KT Pty Ltd v Transalta Energy (Australia) Pty Ltd[2017] WASCA 176 [116].
In considering the defendants' application, the onus is the defendants to demonstrate that there is no serious question to be tried upon any cause of action raised by the plaintiff. The defendants need deal only with the plaintiffs' case as pleaded. The parties have filed extensive evidence in these applications. Providing the statement of claim is construed broadly and generously, and any ambiguities are either clarified or assumed in favour of the plaintiffs, it is not for the court to identify or accept some other cause of action that is not pleaded, but which the evidence might arguably support.[166]

Consideration

[166] Smith v McCusker QC [2005] WASCA 226 [37]; Forsayth NL v Northern Gold NL (Unreported; WASC; Library No 940012; 20 January 1994).

The defendant's position on summary judgment was summarised in the written submissions in five propositions:
(1) there is no admissible or cogent evidence that the first or second plaintiffs (the Investors), who are Chinese nationals and speak and read little to no English, received any of the information that they claim to have relied on prior to investing in mid‑2011; or that if they were provided with that information that they understood its contents;
(2) it is evident from the Statement of Claim that Shinyway and Ms Wu, as the Investors' agents, failed to forward information to the Investors that had been provided to those parties by the defendants regarding material matters relating to the Trust and which further answers aspects of the claim;
(3)there is no causal link between the conduct of the defendants complained of and any loss that the Investors allege to have suffered;
(4) the plaintiffs' claims are, in any event, statute barred as on the plaintiffs' pleading, their loss was suffered on or about 24 July 2012, but in any event prior to 20 December 2013;
(5) the second plaintiff has no standing by reason of the transfer of his unit holding in the Trust to the third plaintiff on or about 7 August 2015.
The defendants also relied on the assertion, based on the evidence of Mr Barr, that the plaintiffs' primary purpose for investing in the trust was to satisfy the requirements of an application for a 132 Visa. They submitted that the plaintiffs received what they bargained for. The defendants also submitted that, if the court finds the primary purpose of the investment was to obtain a visa, the court should find the investors have not approached the court with clean hands.
The plaintiffs' bargain went beyond meeting the criteria for a visa. Each plaintiff invested $1 million and, on the evidence adduced by the defendants, there is a strongly arguable case that each plaintiff was expecting the return of his capital investment as well as profit. They will receive neither.
The defendants were not only aware of the plaintiffs' purpose to use their investment in meeting the requirements for a visa, but facilitated that purpose by providing letters purporting to set out the responsibilities that had been given to each plaintiff in decision‑making, project management, quality control, advice, and management of the sale of the project to buyers in China.
This summary judgment application is not the occasion to decide whether the plaintiff should be denied equitable relief because they had another purpose for investing in the way in which they did. It is sufficient that, in my opinion, it is far from clear that the defendants are entitled to judgment on the basis of 'clean hands'.
I will consider each of the pleaded causes of action.

Breach of trust

The plaintiffs plead that South Beach Management was subject to equitable duties as trustee and breached those duties. The general statement of the duties of a Trustee is orthodox: to exercise its powers with due consideration to the purpose for which they were conferred; to perform the trust honestly and in good faith for the benefit of the beneficiaries; to act impartially between beneficiaries.
The plaintiffs allege breach of those duties by:
(1)failing to disclose the amendments made to the Trust Deed by the Deed of Variation and Deed of Amendment;
(2)failing to disclose before 24 July 2012, the substantial changes South Beach Management intended to make to the development;[167]
(3)agreeing to issue and issuing the Class P units at the times and on the terms that they did, when it knew or ought to have known that there was then virtually no prospect that holders of Ordinary units would receive any distribution from the Trust;[168]
(4)issuing Class P units to a related company;[169]
(5)not deferring the proposed construction of the apartments and proceeding with the construction in early 2015.[170]
[167] Statement of claim [29(a)], [29(b)], [30]. The failure to obtain consent is not specifically pleaded as a breach, and would, in any event, be excluded by cl 27.3 of the Trust Deed.
[168] Statement of claim [48], [63(e)].
[169] Statement of claim [48].
[170] Statement of claim [60], [61], [63].
The plaintiffs face obvious difficulties in their claim. In pleading the alleged breaches of trust, the plaintiffs do not relate the allegations to the terms of the Trust Deed, and the powers and duties of South Beach Management pursuant to it. Critically:
(1)South Beach Management had at any time all the general powers in relation to the 'Trust Entity'[171] that a natural person has 'as a sole, absolute and beneficial owner in relation to Property of any nature or description';[172]
(2)the Trustee was given powers which included the power to create a security interest over any property,[173] and the performance of any maintenance activity or construction activity in relation to any property;[174]
(3)the Trustee had contractual powers including powers to secure liability by way of guarantee or security interest over or affecting a trust asset;[175]
(4)the Trustee could exercise any power or discretion notwithstanding that the Trustee or any associate or associated company may have a direct or indirect interest in the mode or result of the exercise of that power;[176]
(5)the Trustee was entitled to exercise any power in its absolute and uncontrolled discretion, without the necessity for the consent of any person.[177]
[171] Defined in cl 27.1 as including the Trust Assets and the Trust Business.
[172] Cl 12.1.
[173] Cl 12.4(d).
[174] Cl 12.4(e).
[175] Cl 12.5.
[176] Cl 12.8.
[177] Cl 27.3.
Following the Deed of Amendment, the Trust Deed also expressly provided for the Trustee to issue different classes of units with different entitlements, and for the rights attaching to a class of Trust Units to be subject to the rights, obligations and restrictions which attach to units issued in other classes.
The amendments to the Trust Deed by the Deed of Variation and the Deed of Amendment both preceded the plaintiffs becoming unit holders in the Trust. There could have been no obligation on South Beach Management, as a Trustee, to disclose those amendments at the time they were made. It is uncertain, on the plaintiffs' pleaded claim, when the obligation is alleged to have arisen and whether South Beach Management was obliged to disclose the amendments at the time the plaintiffs applied for units in the Trust.
Nothing in the Trust Deed requires the Trustee to inform unit holders of business decisions. The apparent intention of the proposal in the Information Memorandum was that unit holders would be offered appointment to the board of the Trustee. It would be necessary for the plaintiffs to establish some other basis on which the Trustee was obliged to act only with their knowledge and approval. No such basis is pleaded.
Generally, the plaintiffs plead the failures by South Beach Management to disclose the matters in [29(a) and (b)] of the statement of claim were failures to 'exercise its power with due consideration to the purpose for which it was conferred' and 'to perform the Trust honestly and in good faith for the benefit of the beneficiaries'. It is unclear on what basis the plaintiffs assert the failure to inform related to the exercise by South Beach Management of the powers of the Trustee.
The Trustee had express power to issue units with different entitlements, coupled with the express investment powers of the Trustee. It would not be sufficient for the plaintiffs to rely solely on the exercise of that power as a breach of trust.
The plea of failure to act impartially between beneficiaries does not have regard to the express power to create different classes of units and the different rights and obligations attaching to different units. Once those preferential units were created, the Trustee could not treat all unit holders equally, consistently with the terms of the Trust.
But the core of the plaintiffs' claim is that the defendants had not disclosed to them that the Trust Deed could be amended by the Trustee so as to take away existing entitlements. The Information Memorandum had stated that the Trustee could amend the Constitution without Unit Holders' approval provided the Trustee reasonably considered the change would not adversely affect Unit Holders' rights. There can be no doubt that the 2014 Deed Poll adversely affected ordinary unit holders' rights. The plea that the Trustee knew or ought to have known that by issuing the Class P Units, holders of Ordinary units would have virtually no prospect of receiving any distribution, and that the decisions to amend the Trust Deed and issue preferential units was not made honestly and in good faith is, in my opinion, not one that should be summarily dismissed.
The fact that Topstar is now the holder of the units originally issued to Mr Xue must affect the relief that can be claimed by Mr Xue. The prayer for relief does not differentiate between the plaintiffs in the remedies sought. It is something which needs to be addressed by the plaintiffs, but is not, in my opinion, a basis for granting summary judgment on the claim.

Misleading or deceptive conduct

The plaintiffs' claim for misleading or deceptive conduct has several strands:
(1)failure to inform the plaintiffs of changes intended to be made to the development and the amendments made to the trust deed on 27 May 2011;[178]
(2)the statements by Mr Barr in his email of 11 July 2013[179] and 6 August 2014;[180]
(3)the statements in the March 2014 Report about past and prospective interest costs; the estimated gross sale price of all apartments; and the projected return to unit holders;[181]
(4)the conduct of the defendants in 'concealing' from Mr Song and Mr Xue the matters set out in [56(e)].
[178] Statement of claim [30(c)] and [56(a)].
[179] Statement of claim [36] and [56(c)].
[180] Statement of claim [42], [43] and [56(d)].
[181] Statement of claim [41] and [56(d)].
The defendants' submissions largely misconstrue the plaintiffs' pleaded case. While the plaintiffs plead, in [17] of the statement of claim, that they relied on the Information Memorandum and were induced by it in applying for units in the Trust, the allegations of breach of trust and misleading and deceptive conduct are put on a different basis.[182] The plaintiffs rely on a duty to disclose the matters set out in [29(a) and (b)], and misleading conduct by failing to do so.
[182] Statement of claim [29] - [30].
Further, even if the Information Memorandum did summarise the Trust Deed and Deed of Variation (it is not clear that it referred to the Deed of Variation), the Deed of Amendment was made after the Information Memorandum. It included important provisions including those permitting the issue of units of a different class to those already on issue, and permitting amendment to the Trust Deed in the absolute discretion of the Trustee. It was the exercise of those powers, on the plaintiffs' case, which enabled South Beach Management to create the Class P units by Deed Poll.
The defendants also sought to meet the allegation of failure to disclose by contending that Shinyway and Ms Wu were agents of the Investors and under an obligation to keep the Investors informed of material information.[183] On the material that has been presented so far, while Shinyway and Ms Wu may properly be regarded as agents of the Investors for purposes related to the visa applications, there is a real question as to whether they were agents of the plaintiffs in relation to the investment. GNS were paid a commission by South Beach Management for introducing the plaintiffs. South Beach Management was introduced to both Ms Wu and Shinyway before it had any contact with either plaintiff. Ms Wu appears to have been a conduit by which information passed between South Beach Management and the investors. But both Mr Song and Mr Xue directly approached Mr Barr for information and were directly given information.
[183] Referring to Greenwood v Harvey [1965] NSWR 1489.
In short, if the defendants wish to meet allegations of non‑disclosure by relying on Ms Wu and Shinyway being agents of the plaintiffs, it is a matter which should be pleaded and determined on all the evidence.
Mr Barr adduced evidence in relation to his email of 11 July 2013 by saying that he genuinely believed his statements in it to be true.[184]
[184] Barr [207].
He did not directly address the plea regarding his comments in his email to Mr Xue of 6 August 2014, although he referred to the CBA prediction on that day of a development margin/profit of $3,258,000 (including GST).[185] That prediction, as I understand the document without further evidence, is the total margin. That is, for the original unit holders the predicted margin must be reduced by the amount to be paid out to holders of the Class P units. The Deed Poll permitting the issue of the Class P units was executed the same day.
[185] Barr [165], 1778.
Mr Barr did not directly address the allegations regarding the March 2014 Report.[186]
[186] Barr 2978 - 2987.
The evidence adduced by the defendants does not satisfy me that it is unarguable that the statements of Mr Barr in his emails, and the statements in the March 2014 Report, were misleading. Whether Mr Barr had reasonable grounds for believing his statements to be true should be determined at trial.
The last of the claims of misleading conduct is based on the allegation that the defendants concealed matters. The plaintiffs contend that the defendants concealed matters relating to the issue of additional units in 2013, and the issue and terms of issue of the Class P units in 2014. The plaintiffs further allege that the defendants concealed the properly estimated finance and interest costs.
The defendants challenged whether, from information provided to Ms Wu, the plaintiffs knew or ought to have known that additional units would be issued. The claim, and the answer to it, requires resolution of questions of fact which I am not satisfied can be done on the documents put before the court and solely on the evidence of Mr Barr.

Finally, the defendants submitted that the limitation period for the statutory claims had expired.
It is settled that, in an action for misleading or deceptive conduct, the cause of action does not accrue until the plaintiff sustains actual loss or damage. The plaintiffs had entered contracts in which there was a risk that they would lose their investment and any return on it. The determination of when it was reasonably ascertainable that the risk of loss had materialised, and actual loss or damage was first suffered, is a matter for trial.

Breach of contract

The plaintiffs allege both breach and repudiation of their Agreements with South Beach Management. It is not necessary to address the claims further. First, the plaintiffs do not presently claim any relief for breach of contract. Second, the cause of action for breach of contract is not included in the indorsement on the writ. Without amendment of the writ, the plaintiffs cannot pursue a claim for relief.

Causation

The defendants submit that there is there is no causal link between the conduct of the defendants complained of and any loss that the Investors allege to have suffered.
The issue is most acute in relation to the allegations of misleading conduct after Mr Song and Mr Xue had purchased their units. The plaintiffs plead that the conduct set out in [56] of the statement of claim 'contravened the statutory norms in s 18 of the Australian Consumer Law … and/or s 12DA of the [Australian Securities and Investments Commission Act]'. The conduct alleged ranges from failure to disclose matters, perhaps as early as 2011, statements made in 2013 and 2014, and 'concealing' things that were done in 2013 and 2014. In [57], they plead that 'by reason of the foregoing' each of Mr Song and Mr Xue suffered loss and damage 'by the contravening conduct of [South Beach Management] and Barr and Clark'.
In [58] of the statement of claim, the plaintiffs plead that if they had full knowledge of the state of affairs 'as at 20 March 2012' they could have exercised the right to rescind the Agreements or apply to the court for relief.
The date of 20 March 2012 appears to have been chosen as the date on which South Beach Management applied for development approval for the 67 apartment development. When asked what was the 'true state of affairs' at the specified date, counsel for the plaintiffs referred to amendments to the Trust Deed which were not disclosed, the consideration of the application for the larger development, and the failure to appoint Mr Xue and Mr Song as directors of South Beach Management.[187] The other conduct relied on by the plaintiffs in [56] of the statement of claim is all pleaded to have occurred after 2013.
[187] ts 91.
In oral submissions, counsel for the defendants asserted the causal link that the plaintiffs continued their investment under the misapprehension that they would receive a good return.[188] The statement of claim is deficient in failing to properly plead a causal link between the statements being made without reasonable grounds (as opposed to the forecast returns not being realised), or matters being concealed from them, and their loss.
[188] ts 91.
As set out below, the plaintiffs' pleaded case is deficient, and should be struck out. But I am not satisfied that it cannot be corrected. For there to be a necessary causal relationship between the contravention of a relevant statute (two are pleaded) and loss or damage, it is not essential that the contravention is the sole cause of the loss or damage. It is enough that the contravention is a cause, in the sense that it has materially contributed to the loss or damage suffered.[189]
[189] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 [65] - [72]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 [57], [62].
Finally, in written submissions, the defendants assert that the plaintiffs have failed to adduce evidence regarding any resulting benefit to them should the construction not have proceeded in 2015; and that the plaintiffs took no steps between 2015 and 2018 to call a meeting of unit holders, to notify the defendants that they objected to the commencement of construction, to apply to the court to remove South Beach Management as Trustee, or otherwise to pursue remedies under the Corporations Act.[190] Again, the defendants have identified a deficiency in the pleading. But the issues of evidence are matters for trial, not for summary determination.
[190] Defendants' written submissions [91], [93].

Conclusion on the application for summary judgment

The defendants did not argue for summary judgment for only part of the claim. They have undoubtedly demonstrated problems in the case as pleaded. I am not satisfied, however, that they have shown that there is no real question to be tried on the causes of action that have been pleaded so that judgment on the whole of the claim should be entered now.

The application to strike out

The defendants also challenged the plaintiffs' pleading pursuant to O 20 r 19, on the grounds that the pleas in [29], [30], [41], [43], [45], [48], [58], [60], [61] and [64] either disclose no reasonable cause of action, may prejudice, embarrass or delay the fair trial of the action, is frivolous and vexatious, or are otherwise an abuse of the process of the court.

General principles

The principles applied on an application to strike out are well settled, and were recently set out by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60]. It is unnecessary to repeat them. The present application calls upon two further principles.
First, what is needed to satisfy the requirement for a clear statement of the case will depend upon the nature of the allegations made. Fraud must be pleaded distinctly and with particularity.[191] 'It is quite inappropriate and unacceptable to make an allegation of fraud without proper particulars of the conduct relied upon'.[192]
[191] Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 [25] ‑ [26]; Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, 573; Banque Commerciale S.A., (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 285, 295.
[192] Bhagat v Global Custodians Ltd [2002] FCAFC 331 [13].
The need to plead clearly and with proper particulars applies here where the plaintiffs allege a failure to act honestly and in good faith.
Second, where the causal link between a breach or contravention and loss is not obvious, the plaintiff must plead material facts that at least arguably establish the necessary causal connection.[193]
[193] See English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [102] ‑ [104].
Before dealing with the challenged paragraphs there are a number of arguments in the defendants' submissions which, in my opinion, fall well outside what is appropriate in an application under O 20 r 19.
First, the failure of the plaintiffs to adduce evidence is not relevant to whether the statement of claim discloses a reasonable cause of action or is embarrassing.[194]
[194] Defendants' written submissions [100], [153].
Second, where the defendants referred to documents that are pleaded in the statement of claim, the court may have regard to them. But the defendants also relied on documents that had not been pleaded but were adduced by the evidence of Mr Barr.
Third, the defendants relied on the evidence of Mr Barr to assert that Ms Wu and Shinyway acted as agents of the plaintiffs.[195] That is not the plaintiffs' pleaded case, and it is not a relevant consideration in the strike out application.
[195] Defendants' written submissions [105], [107] [134.1].
Fourth, the defendants relied on assertions of fact: for example, that the plaintiffs did not request a copy of any trust documents before investing;[196] that between 24 July 2012 and May 2013, the plaintiffs could have applied to remove the Trustee by a vote with Special Majority Consent but took no steps to do so.[197] The defendants apparently relied on these submissions as relevant to whether particular pleas in the statement of claim are embarrassing and may be struck out under O20 r 19(c). That is not the scope of r 19(c). That rule is directed to pleadings that raise immaterial or irrelevant issues, or fail to confine the issues or state the case of the party in question with reasonable particularity, so that they may prejudice, embarrass or delay the fair conduct of the proceedings.

Misleading and deceptive conduct

Paragraphs 29 and 30; and paragraphs 41, 43 and 45; paragraph 58

[196] Defendants' written submissions [149].

[197] Defendants' written submissions [107].

The defendants contend that the plaintiffs fail to plead, with proper particularity:
(1)the alleged requirement to inform the plaintiffs of any amendments made to the Trust Deed or to obtain their consent;
(2)the alleged duties the defendants owed and how the matters contained in [29] were in breach of any such duty or duties;
(3)when such requirements or duties arose; and
(4)how the matters pleaded in [29] caused any loss and damage to the plaintiffs.
Paragraph 29 pleads that the defendants were under a duty to inform the plaintiffs of the specified matters. The source of that 'duty' is pleaded in [12], regarding the content of the Information Memorandum; [19] and [24], that each plaintiff would be offered a Director/Management role in South Beach Management; [27], which alleges the Information Memorandum and the Agreements provided for a development with 38 apartments; and [28], which alleges that proceeding with the larger development was contrary to the stated purpose of the Trust, the Information Memorandum and the Agreements.
It is sufficiently clear that the allegation in [29] and [30] is that, having regard to those matters, it was misleading and deceptive conduct for the defendants to not disclose their intention to proceed with the larger development before they did (on 24 July 2012). And it was misleading and deceptive conduct to not disclose the amendments to the Trust Deed at all.
For the purposes of the statutory causes of action, the plaintiffs do not need to establish that the defendants were under a duty to disclose the matters on which they rely. The question is whether the defendants engaged in conduct that was misleading or deceptive or likely to mislead or deceive. The plaintiffs' pleading of a 'duty' is similar in effect to the pleading of a reasonable expectation that matters will be disclosed. In Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd, French CJ and Kiefel J said:
To invoke the existence of a reasonable expectation that if a fact exists it will be disclosed is to do no more than direct attention to the effect or likely effect of non‑disclosure unmediated by antecedent erroneous assumptions or beliefs or high moral expectations held by one person of another which exceed the requirements of the general law and the prohibition imposed by the statute.[198]
[198] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357 [21].
By pleading that the duty arose from the purpose of the Trust, the representations in the Information Memorandum, and the Agreements, the plaintiffs have pleaded those as matters material to the likely misleading effect of the defendants' conduct in failing to disclose specified matters.
Although the plaintiffs plead the failure of the defendants to obtain their consent, the alleged misleading conduct in [30] is confined to the failure to disclose.
I do not accept the defendants' submission that, if the duty was breached before 24 July 2012, the claim is statute barred. The cause of action does not accrue until the plaintiff sustains actual loss or damage. The determination of when it was reasonably ascertainable that any risk of loss causally related to the breach had materialised, or when actual loss or damage was first suffered, should not be determined in this application and is a matter for trial.
Subject to the question of causation of loss and damage, to which I will return, I do not accept that the pleas in [29] and [30] are liable to be struck out.
Paragraphs 40 and 42, plead statements made by South Beach Management and Mr Barr in 2014. In [41], [43] and [45], the plaintiffs allege those statements were misleading and made without reasonable grounds.
The first basis on which the defendants challenge these paragraphs is factual.
The defendants submit that, on a plain reading of the March 2014 Report, the interest costs in it were included as a forecast which would be impacted by plans for additional capital or structured debt raising. The defendants further submit that the plaintiffs have not pleaded material facts as to the financial position of the Trust at the time of the 2014 Report; they do not set out how the statements were in fact misleading, and why there was no reasonable ground for the statements. Further, the plaintiffs do not link the alleged misleading statements to any loss and damage.
Paragraph 41 is, however, more particular than the defendants submit. The plaintiffs specifically plead why the statements regarding interest costs and the estimate of gross sale price of all apartments were misleading. Further particularity may be required, but it is not a basis for the plea to be struck out as embarrassing.
The plea in [43] must be read with the following two paragraphs, in which the plaintiffs set out the conduct on the same day in which the defendants executed the Deed Poll to provide for the issue of Class P units and allege that, in view of the proposal in the Deed Poll, the representation that the South Beach Management would be able to deliver a good return was deceptive. The plaintiffs' case is sufficiently stated.
A common problem, however, affects all of these pleaded claims in misleading or deceptive conduct. As the defendants submit, the plaintiffs have not clearly pleaded any causal link between the alleged misleading conduct and any purported loss or damage.
The plaintiffs have pleaded that each agreed to purchase 1 million units in the Trust 'in reliance on the Information Memorandum, and without knowledge or notice of the Deed of Variation…and the Deed of Amendment or the amendments made thereby'.[199] To that extent there are facts pleaded that arguably support a causal link between the plaintiffs' purchase of the units and the defendants' failure to disclose the amendments.
[199] Statement of claim [18], [22].
The plaintiffs plead that they agreed to purchase units before September 2011, so there is no pleaded causation between the alleged failure to disclose the decision to proceed with the larger proposal and the agreement to purchase units. In [56], the plaintiffs plead the conduct in failing to obtain the plaintiffs' consent before proceeding with the larger development was conduct which contravened statutory norms. Assuming that failure to obtain consent could be misleading or deceptive, the more general causation question still arises.
There are three paragraphs which appear to address causation.
Following [56], which sets out detailed allegations of misleading or deceptive conduct, the plaintiffs simply allege in [57] that 'by reason of the foregoing each of Song and Xue suffered loss and damage by the contravening conduct of SBM and Barr and Clark'. In particulars, they allege that each of Mr Song and Mr Xue suffered the complete loss of invested funds and any possible return.
The connection between the alleged contravening conduct and the loss or damage claimed is far from obvious. This is a case where it is necessary for the plaintiffs to plead the material facts that establish the necessary causal connection. Paragraph [57] is not sufficient.
Paragraph 58 may have been intended, at least in part, to address the omission. The plaintiffs plead that they 'could have exercised' certain rights had they had 'full knowledge of the true state of affairs as at 20 March 2012'. The plea is insufficient in a number of respects.
First, most of the conduct alleged in [56] was in 2013 and 2014. Paragraph 58 does not address any causal link with the statements made in 2013 and 2014 and the loss suffered.
Second, the plaintiffs do not plead what was the 'true state of affairs' at 20 March 2012 – the date on about which South Beach Management lodged plans and applied for approval for the larger development, or to what extent they did not have knowledge of those affairs.[200] It may be intended to refer back to [30(c)], which refers to the 'true position', but such an allegation should be clearly stated.
[200] Statement of claim [28].
Third, the plaintiffs do not clearly plead material facts, not known to them as at 20 March 2012, by which they had a right to rescind the Agreements, or on the basis of which they could have applied for orders to remove South Beach Management as Trustee, rescind their Agreements, or otherwise obtain relief under the Australian Consumer Law.
Finally, [59] purports to plead a relationship between the failure to appoint them as directors of South Beach Management and later loss, in that the plaintiffs alleged they would have had the opportunity to gain full knowledge 'and could have controlled the future affairs of SBM from [August 2011]'.
As I have said earlier, the plaintiffs do not bring a claim for breach of contract. The matters pleaded in [59] are not related to the other breaches on which they rely.
The result is that the claim for misleading and deceptive conduct does not disclose a reasonable cause of action. On the facts pleaded, the plaintiffs could not establish that they suffered loss because of the conduct of the defendants.
Paragraphs 29, 30, 41, 43, 45 and 58 should be struck out.
Although the defendants did not apply for orders striking out related paragraphs, the statement of claim cannot stand without substantial re‑pleading of the claim in misleading and deceptive conduct.

Breach of trust

Paragraphs 29 and 30

The claim for breach of trust overlaps to some extent with the claims under statute. In particular, the allegations of failure to disclose in [29] and [30] are alleged also to be breaches of duty by South Beach Management as a Trustee.
The claim for breach of trust in these paragraphs – which is an allegation that South Beach Management failed to disclose specified matters – suffers from the same problems as the claim under statute. It lacks clarity and also lacks a sufficiently pleaded causal connection to the plaintiffs' loss.

Paragraphs 48, 60, 61 to 63

Paragraph 48 pleads breach of fiduciary duty by South Beach Management in agreeing to issue and by issuing Class P units, including to a related company. The plaintiffs allege that there was 'then' virtually no prospect ordinary unit holders would receive a distribution from the Trust.
It is not clear what time the plaintiffs refer to by the word 'then', as they plead the Deed Poll was made on 6 August 2014;[201] the agreement to issue units was on or about 11 August 2014;[202] and Class P units were issued on five dates between 17 December 2014 and 15 March 2015.[203]
[201] Statement of claim [44].
[202] Statement of claim [46].
[203] Statement of claim [46], [47B].
During that period, on 12 September 2014, South Beach Management contracted with a builder for the construction of the apartments.[204]
[204] Statement of claim [47].
The defendants also complain that the plaintiffs plead no material facts as to the financial position of the Trust at the time of the issue of the Class P units. At the heart of the allegation in [48] is the claim that South Beach Management knew or ought to have known that ordinary unit holders had virtually no prospect of a distribution on the issue of the Class P units. The allegations of bad faith and breach of the duty of impartiality are based on that conclusion. I accept the defendants' submission that it is necessary for the plaintiffs to plead the material facts on which that conclusion is based.

The plaintiffs' further claims for breach of trust – particularly in [63] – combine pleas of breach of fiduciary duty, and breaches of the obligation, in carrying on business activities on behalf of the trust, to exercise the same care as an ordinary, prudent business person would exercise in conducting that business as if it were his or her own.[205]
[205] Speight v Gaunt (1883) 9 App Cas 1; Permanent Building Society (in Liq) v Wheeler (1994) 11 WAR 187, 235.
The plaintiffs plead in [60] and [61] that it was incumbent on South Beach Management to defer construction of the apartments and
At all times from about August 2014, it was in the interests of the Trust and its beneficiaries to retain the Property (Lot 462), rather than proceed with construction at great expense to the Trust and with the near certain result that the beneficiaries, being the holders of Ordinary units, would lose their whole investment.
In particular, in [63], the plaintiffs include the following allegations against South Beach Management:
(a) breach of the equitable duty to act on a genuine consideration of whether or not it was economically viable to proceed;
(b) breach of the equitable duty to act on a genuine consideration of whether or not it was in the interest of holders of Ordinary units to then proceed;
(c) breach of the equitable duty to exercise the Trustee's power with due consideration for the purpose for which it was conferred;
(d) breach of the equitable duty to perform the trusts honestly and in good faith for the benefit of the beneficiaries who held Ordinary units;
(e) breach of the obligation as Trustee to act in the interest of all beneficiaries (who then held only Ordinary units) by issuing the preferential Class P units at the times and on the terms that they did;
(f) proceeding with construction of the apartments in early 2015 notwithstanding that, in doing so, it sacrificed the interests of all holders of Ordinary units.
Subparagraphs (e) and (f) were added by amendment in July 2020 – apparently without regard to the opening words of [63], 'by proceeding with the construction of the apartments'. Those subparagraphs are, in substance, repetition of claims in [48] and [61]. To confuse matters even further, the particulars to subparagraph (f) include a further allegation that matters were concealed from the plaintiffs.
The defendants again submit, in my opinion correctly, that the plea does not set out the material facts relating to the financial position of the Trust to support the conclusions pleaded. The defendants go further and submit that preserving the property rather than proceeding with construction would have preserved liability and debt and otherwise increased costs. It is not necessary to go into those arguments which are not properly dealt with as a pleading point.
I have already set out, in considering the application for summary judgment, the failure of the plaintiffs to relate their plea regarding the duties and conduct of the Trustee to the terms of the Trust Deed.
The result is that the statement of claim does not disclose a reasonable cause of action for breach of trust.
The challenged paragraphs will be struck out.
It follows that the plea of participation in breach of trust against Mr Barr and Mr Clark must also be struck out.

Leave to bring the applications

This case has been affected by the COVID‑19 pandemic: the first and second plaintiffs are residents of the People's Republic of China and that has resulted in delay.
The writ was filed 19 December 2019, and amended 3 February 2020. The defendants entered an appearance on 23 December 2019, but are yet to plead.
The statement of claim was filed on 3 February 2020.
The application for summary judgment was foreshadowed in about February 2020. Following conferral, the plaintiffs indicated that they expected to file an amended statement of claim, and the application for summary judgment was deferred to enable that to be done.
The statement of claim has since been amended twice – on 29 July and 5 August 2020. The amendment to the statement of claim was filed later than expected, but the plaintiffs were allowed some indulgence due to the conditions then being experienced in China and Australia.
By chamber summons filed 11 September 2020, the defendants applied for leave to bring an application for summary judgment, alternatively to strike out specified paragraphs of the further amended statement of claim.
There has, accordingly, been some delay in making the applications, but in the context of the procedural history it is not excessive. In particular, the plaintiffs have made extensive amendments to the claim originally pleaded.
I also take into account my finding that the claim now pleaded is liable to be struck out in part. In short, the action could not satisfactorily proceed to trial on the current statement of claim.
The defendants will have leave to bring the applications and time will be extended accordingly.

Conclusion on the application to strike out

The defendants' application to strike out specified paragraphs of the statement of claim will be upheld. Because the identified defects in the plea have been primarily a lack of particularity and a failure to plead material facts relating to the causation of loss or damage, I am not satisfied that the plaintiffs should be denied the opportunity to replead.

I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Associate to the Honourable Justice Allanson
23 JULY 2021