Su v Qi

[2018] SASC 108

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

SU v QI & ORS

[2018] SASC 108

Judgment of The Honourable Justice Vanstone

26 July 2018

EQUITY - EQUITABLE REMEDIES - RESCISSION - BREACH OF FIDUCIARY OBLIGATIONS

Plaintiff seeks rescission of a joint venture agreement and return of funds advanced to the joint venture in the basis of alleged breaches of fiduciary duty by joint venture partners. Defendants counterclaim for profit foregone on account of plaintiff’s repudiation of the joint venture agreement.

Where agreement was to purchase and build on land and sell the finished products  -  where the defendants’ contribution to the joint venture was to erect dwellings on the land and to sponsor the plaintiff on a 457 visa  -  where plaintiff was to advance all the funds to the joint venture and the defendants were to provide their expertise and local knowledge.

Whether plaintiff entitled to withdraw from the joint venture in circumstances where no visa was obtained  -  whether it was agreed that the first and second defendants would take share of the profit only or of equity in the joint venture  -  whether defendants breached fiduciary duty owed to the plaintiff.

Held: A fiduciary duty was owed to the plaintiff by the first and second defendants by virtue of their control of the joint venture funds. Removal of funds in payment of their legal expenses was a breach of that duty and the plaintiff should have equitable compensation but not rescission.

The agreement contemplated that the first and second defendants would take a share of net profits rather than equity.

The plaintiff’s withdrawal was not justified. The first and second defendants should be compensated for loss of the chance to enjoy profits from the joint venture.

Evidence Act 1929 (SA) s 34, referred to.
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; Breen v Williams (1996) 186 CLR 71; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, applied.
Maguire v Makaronis (1996-1997) 188 CLR 449, distinguished.
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001] WASC 190; Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, considered.

SU v QI & ORS
[2018] SASC 108

Civil.

1. VANSTONE J:     The plaintiff’s claim arises from what has been referred to by the parties as a joint venture agreement with the defendants to develop property.  Representations made by the defendants in the discussions leading to that agreement, the terms of it and the consequences of the plaintiff’s withdrawal from it are matters of dispute.

   Background

2. The plaintiff and the first and second defendants (‘D1’ and ‘D2’ respectively) agreed that the plaintiff would advance funds to finance the purchase of land and the construction of one or more dwellings upon it.  A company associated with D1 and D2, Hong Yuan Constructions (‘Constructions’), which was likely to build the houses, was to sponsor the plaintiff, a non-English speaking Chinese national, so that she might obtain a 457 visa, on the basis that she would bring skills to the joint venture.  The initial discussions concerning the parties took place in October 2015.  Present were the plaintiff, D1 and D2 and a long standing associate of the plaintiff, namely Lin Yun Ma.  Mr Ma had been instrumental in bringing together the plaintiff and defendants.  He had been a trusted adviser of the plaintiff’s late husband and he worked in a real estate or development company in Adelaide.  He was also a friend of D1 and D2.  Mr Ma was not a party to the joint venture agreement, but he played a role, for a time, in advising the plaintiff and in advancing the plans of the joint venture.  Later on, he stepped back from it.

3. In 2015 the plaintiff’s long term aim was to migrate to Australia and, to that end, Mr Ma introduced her to a migration agent, Mr Chen, so that she might apply for a visa.  Therefore, on the plaintiff’s case, the purpose of the joint venture was very much entwined with her hopes of securing a sponsor for her visa application and, ultimately, the visa itself.

4. At the initial meeting there was discussion about division of the fruits of the joint venture.  Mr Ma had raised this issue with both sides before the meeting and had offered some advice about it.  The plaintiff claims that Constructions was to receive its usual profit margin in the event it took on and completed the work and D1 and D2 were to receive 25 per cent of any profits made by the joint venture.  On the other hand D1 and D2 claim that they were to take a 25 per cent share in the joint venture as a whole, including in the funds advanced by the plaintiff.  They say that their share of the joint venture’s entire assets was to remain in the joint venture company for use in any future project which the plaintiff might decide to pursue.

5. The plaintiff further claims that the continuation of the joint venture was conditional upon her obtaining a 457 visa and that, if she failed, the joint venture arrangements would be dissolved and all remaining funds returned to her.  That would be the position even if she obtained a 188 visa (a business investment visa) for which no sponsorship was required: 361-362.  D1 and D2 say that although they agreed to assist the plaintiff in obtaining such a visa and Constructions was to sponsor her, these were not conditions of the agreement and the plaintiff’s failure to obtain such a visa was no impediment to the continuation of the project.  They refuted that there was any mention at the initial meeting, or indeed later, of all of the funds being returned to the plaintiff if her plans were frustrated.

6. It is common ground that the plaintiff was to provide all the funds to the joint venture.  Initially she advanced the sum of $2m.  Ultimately her contribution totalled $3.1 m.  The joint venture took an office in Hutt Street, Adelaide and employed a receptionist.  The first defendant was also employed by the joint venture.  In October 2015 she was on maternity leave from Pitcher Partners, where she worked as an accountant.  However in February 2016 she resigned and took a rather ill-defined position with the joint venture, which included assisting the plaintiff with personal matters.  D1 is a person with tertiary qualifications, including in accountancy, and with some experience in commercial project dealings.  The salary she was to be paid is a matter of dispute.  Part of her role was to manage the finances of the joint venture company. There is clear evidence that she very often consulted the plaintiff about expenditure of monies and also about decisions which were to be made.

7. On 28 October 2015 Hong Yuan Investments Pty Ltd (‘Investments’) was incorporated as the joint venture vehicle.  In February 2016, by agreement of those within the joint venture, a property at 4 Austin Crescent, St Georges was purchased at auction for $1.08m.  Soon thereafter the property at 3 Austin Crescent was also purchased, for $990,000.  A few days later, and on 11 March 2016, there was a meeting at the Hutt Street offices of the joint venture involving the plaintiff, D1 and D2 and Mr Ma.  The first defendant presented a budget document on a computer screen and later that was distributed to the parties.  The members of the joint venture approved the expenditure outlined in the document.

8. On 13 April 2016 two companies were incorporated for the purpose of owning the two properties.  They were Maple Homes Incorporated and Maple Homes One Incorporated.  They are the third and fourth defendants.  D1 is the sole director of each.  Constructions owns all of the shares in each.  The plaintiff claims that she did not understand that these companies would own the properties.  She said that, although she was consulted about the selection of names, she thought it was the land that was to be named, rather than any company.  Settlement on the two properties occurred on 31 May 2016.  Both properties had older style dwellings upon them.  The joint venture planned to demolish the dwellings, subdivide and build three new houses, each on its own title.  It was anticipated that Constructions would be engaged to build those houses, and that the plaintiff would, at least ostensibly, work for that company. However, a building contract was never signed.  I pause to say that although D2 has long worked for that company, he is not a shareholder or office bearer.  D1 is the sole director and holds half the shares in it.

9. Indeed, nothing of the arrangements between the three joint venture members was recorded in writing.  The Court is left to determine the terms of the agreement by a consideration of the multiple affidavits of the plaintiff and D1 and D2, their evidence and that of Mr Ma, some ‘WeChat’ communications between the plaintiff and D1, together with an analysis of what was done.

10. In August 2017 the plaintiff advised D1 and D2 that she wished to withdraw from the joint venture and to have her monies refunded.  The defendants declined to facilitate that.  At that stage the plaintiff’s application for a 188 visa was outstanding, but she had seen her first application for a 457 visa refused.  She had appealed against that decision and on 9 August 2017 that decision had been confirmed.  It appeared that her nominated occupation in terms of Construction’s sponsorship of her, ‘Procurement Manager’, was rejected because such an occupation was no longer an eligible one.  There had already been discussion with a second migration agent, whom the plaintiff had later engaged, about altering the proposed occupation to ‘Marketing and Sales Manager’ and about substantiating the plaintiff’s experience in that field.  For that purpose a second application for a 457 visa was lodged on 21 July 2017.  However, at much the same time as she advised D1 and D2 that she would withdraw from the joint venture, the plaintiff withdrew her second visa application.  It is common ground that the plaintiff told the defendants that she now wished to immigrate to Canada; but the plaintiff said in evidence that this was not true and was only said by her to explain her withdrawal.

11. The plaintiff now claims damages for breach of the fiduciary duties which she claims were owed by D1 and D2 to her.  The principal breaches claimed include, first, allocating to the plaintiff only B class shares in Investments, as opposed to the ordinary shares allocated to Constructions.  This would have potentially disadvantaged the plaintiff in the event of a winding up of Investments.  Second, it is claimed there was a breach of duty in incorporating the Maple Homes companies so that Constructions beneficially held 100 per cent of the shares of each.  (As will be seen, in November 2016 D1, as Director, executed a Deed of Trust declaring that Constructions held 75 per cent of the shares on the plaintiff’s behalf).  Thirdly it is said that D1 misused the funds in the joint venture accounts, including by advancing those funds to Constructions without the plaintiff’s knowledge and by using those funds to pay legal fees of D1 and D2 arising from the dispute which led to the present claim.  Until the defendants’ closing address began the plaintiff also claimed, in the alternative, damages for misleading and deceptive conduct in relation to certain statements which she had said were made to her by D1 and D2 in relation to her visa.  That claim was abandoned by her counsel.  Indeed, the fourth statement of claim, filed soon after the trial commenced, also pleaded breach of the joint venture as a cause of action; but that was abandoned during the plaintiff’s opening address.

12. For their part, D1 and D2 counterclaim for damages for the plaintiff’s alleged breach of contract and/or a quantum meruit amount for work performed by them, for the summary termination of D1’s employment with the joint venture and for profits they claim would have accrued to them and were lost through termination of the joint venture.  Constructions also counterclaims for the loss of profits it would have earned on the construction of the houses.

    The main issues for decision

13. Against that brief background, I now set out in short form the principal issues for decision.

    1.What were the terms of the agreement struck in October 2015, as supplemented subsequently, and in particular:

    a.was it agreed that D1 and D2 would have the benefit of 25 per cent of the profits of the joint venture, or 25 per cent of the entirety of the assets of the joint venture;

    b.was it an express condition of the continuation of the joint venture that the plaintiff would obtain a 457 visa, or any visa.

    2.Did D1 and D2 owe duties to the plaintiff as fiduciaries, either on account of her limited English and limited business experience, or because they, and D1 in particular, had immediate control of the funds of the joint venture.

    3.If there were a fiduciary duty, did D1 breach it in any of the ways claimed by the plaintiff, and if so, to what remedy is the plaintiff entitled. Potential breaches might include:

    a.overseeing a process in which the plaintiff was given B class shares in Investments;

    b.deregistering Investments;

    c.making unauthorised withdrawals from the account of the joint venture for any of the following purposes:  placing funds into term deposits, making loans to Constructions, paying the legal fees of D1 and D2, paying D1 in excess of the amount agreed for her salary;

    d.overseeing the process in which the Maple Homes companies were incorporated having Constructions as the sole shareholder.

    4.If the continuation of the joint venture were conditional upon the plaintiff obtaining a visa, did she exhaust all avenues to obtain one.

    5.To what extent, if any, should D1 and D2 and Constructions succeed in their counterclaim for damages for the plaintiff’s breach of contract and how should those damages be assessed.

    Assessment of the witnesses

14. Before dealing with the matters which arise for decision I propose to discuss the evidence of each witness who gave oral testimony.

15. The plaintiff gave evidence which spanned five sitting days.  She gave evidence with the assistance of an interpreter, the plaintiff being a native Mandarin speaker with little English.  There were significant difficulties in the interpretation of, not only the plaintiff’s evidence, but also that of Mr Ma.  That was perhaps caused partly because of the extent of usage of technical terms, and by counsel’s generally lengthy and detailed questions, but also perhaps because of the inexperience of the interpreter.  Nevertheless, the difficulties made any attempt to assess the witnesses in terms of demeanour rather pointless.  I gained the impression that the plaintiff was an intelligent woman who well understood the issues raised in the trial and who had a good understanding of the negotiations and dealings generally between herself and D1 and D2.  Although the plaintiff’s counsel suggested to D1 (at 497) that the plaintiff was ‘basically a housewife with a lot of money’, I reject that characterisation of her.  I find that her exposure to her husband’s business dealings over a long period and the roles she took on in various Chinese companies after his death, together with her readiness to seek and heed expert accounting and legal advice when appropriate, indicates that she was not an unsophisticated investor.

16. There are several reasons why I consider I cannot accept without reservation the plaintiff’s evidence on critical issues.  The first one relates to the nature of documents which were submitted by the plaintiff in support of her application for a 457 visa.  It was necessary that she make good her claim that she was well qualified to be a marketing and sales manager to be employed by Constructions. Various documents were put forward, the contents of which she now disavows.  Those documents asserted that she had extensive experience in management in China.  For instance there was a reference from the Yunnan Zhong Ju Petroleum Chemical Group Company which asserted that the plaintiff had worked for it as ‘Deputy General Manager’ from 1998 to 2015.  The plaintiff said that this was not a true statement.  She gave these answers about it at 328:

    Q.Looking at the document now produced, do you recognise that as a document being a work reference from the Yunnan Zhong Ju Petroleum Chemical Group Co.

    A.    Yes.

    Q.Do you agree that that's a genuine document that comes from Yunnan Zhong Ju Petroleum Chemical Group Co.

    A.Yes, the document is genuine for the purpose of 457 and they ask me to ask the company to provide such a reference.

    Q.The reference that says that 'Ms Su Yan has been working for Yunnan Zhong Ju Petroleum Chemical Co as Deputy General Manager from 1998 to April 2015'.

    A.    Yes.

    Q.    Is that a true statement.

    A.    No

    HER HONOUR

    Q.    So it says that, does it.

    A.    Yes.

    Q.    But it's not -

    A.So this statement is incorrect; is not true. It's just for the visa purpose to provide such a document.

    The plaintiff was inclined to blame D1 for encouraging her to obtain and submit documents about her experience in China containing falsehoods.  Even if that were soundly based it does not absolve the plaintiff.  I find that she was knowingly concerned in misleading officers of the Department for Immigration in the hope of securing a visa to which her experience did not entitle her.  This reflects poorly on her credit.

17. Another example relates to a loan agreement which was drawn up between the plaintiff, as lender, and Investments, as borrower, referring to the sum of $2m.  It is Exhibit PTB Tab 10.  It purports to be signed on 30 October 2015, but was created some time after 22 February 2017.  In her affidavit P3, dated 11 September 2017, in support of an application for an injunction against the defendants, the plaintiff said the following.

    [39]In February 2017, I was provided with a copy of a document titled ‘Loan Document’. This was between me and HY Investments. Now produced and shown to me and marked ‘YS-10’ is a true copy of this Loan Agreement.

    [40]I was asked to sign the Loan Agreement, which I did. I note that it is back dated to October 2015.

    [41]I took no legal advice prior to signing the Loan Agreement. The Loan Agreement is in English, I was not provided with a translation.

    [42]The Loan Agreement was provided to me simply as paperwork. I did not understand the effect of the Loan Agreement at the time. It has subsequently been translated and explained to me. I did not agree to my money being treated in this way.

    The clear thrust of the plaintiff’s statements on oath is that the document was provided to her for her signature – implicitly by D1 – without preamble, and that she was not provided with a translation.  In her evidence at trial (156) the plaintiff agreed that it was she who asked for the loan agreement to be prepared.  This tends to demonstrate that the plaintiff is prepared to lie on oath to advance her interests.

18. In a WeChat conversation, also in February 2017, there is discussion about production of a further loan agreement, this time naming Maple Homes as the Lender.  D1 advises the plaintiff that this would be inappropriate as it would not represent what had occurred.  In response, the plaintiff suggests the production of two loan agreements between herself and Maple Homes, each being the lender in one, both in the sum of $2m.  The following passage of the WeChat conversation between the plaintiff and D1 (Exhibit PTB Tab 44) is instructive as a demonstration of the plaintiff’s understanding of what steps could be taken to further her purposes.  By way of introduction, in a WeChat conversation on the previous day the plaintiff said she needed a loan agreement showing she had advanced $2m to Maple Homes in October 2015.  She had explained that it was needed to assist in her son’s quest for an immigration visa (to the USA).  Here she explains the difficulties she faces.

    23 February 2017 5:24pm, Google Suyan<[email protected]>wrote:

    Because of its time urgency, only $2 million arrived at MuQingYaShe [Maple Homes]. If the $2 million is all counted as investment, how can that $800,000 be returned? It can not be explained. If the investment is $3 million and $1 million has been sent to Hong Yuan company, I can’t claim that $800,000 is the left-over from that $1 million, because the timing is wrong with the insurance compensation. For the right timing, that $2 million is the only right money. I understand your worry, I can sign another loan agreement at the same time, that I borrow $2 million from MuQingYaShe, is it okay? Zhu Baobei’s immigration application can not wait. Also even if the US immigration department investigates this Loan Agreement and suspects its truthfulness, it will only affect Zhu Baobei’s immigration, not MuQingYaShe, they wouldn’t ask MuQingYaShe to repay my money. If you worry about this, we have the email as evidence, at the same time I can sign an agreement saying I borrowed $2 million from MuQingYaShe, then you will be risk-free. Once Zhu Baobei’s immigration application is submitted, we can destroy both agreements. This is our private agreement, we don’t need lawyers, we have no record, it won’t be a problem.

1. Another example occurs in relation to the conversations between the plaintiff and D1 at the time when the plaintiff advised that she no longer wished to be part of the joint venture and wished to have the return of her funds.  She agreed in evidence that she told D1 that the reason she wanted to withdraw her application for a visa was because she wished to move to Canada.  In Court she said that she had not wanted to move to Canada, but told D1 and D2 that she did because she wanted to withdraw from the venture.  I am unsure whether the truth lies in what she told D1 and D2 of her reasons for wishing to withdraw, or what she said in Court.  Either way, the plaintiff has shown herself to be a person who is prepared to make untrue assertions of fact to suit her present purposes.

2. For these reasons I am not prepared to rely on the plaintiff’s unsupported evidence about the material issues in the case.

3. I turn to the evidence of D1.  D1 gave evidence in English, in which language she was proficient, although I thought that, as might be expected, her level of understanding surpassed her oral expression.  I found D1 to be an extremely intelligent, well-educated woman.  Her knowledge of the documents in the trial and their significance and her ability to marshal the facts was patent.  D1 was not particularly damaged in cross-examination.  However, I found some of her evidence unconvincing.

4. One topic upon which I am not prepared to accept her evidence concerns discussions leading up to the alleged agreement that she and D2 would take a 25 per cent share in the equity of the joint venture.  In her affidavit (Exhibit D6) the plaintiff described a meeting with Mr Ma which preceded the meeting with the plaintiff in October 2015.  She said:

   [27]… At the dinner meeting Mr Ma said using words to the effect that Yan would like to secure someone with local professional knowledge in property development to do business together and that Yan could offer us 20% percent of the share of company equity to us as her business partner. I remember Mr Ma using the Chinese words ‘Gu Quan’ which means ‘equity’. Gavin and I replied using words to the effect that usually for joint venture projects, we would accept 20% or even less, but with Yan, we do not believe her sincerity of doing business in Adelaide even if we sympathised for her because her husband committed suicide due to Yan’s Company’s financial issues. I said to Mr Ma using words to the effect that if in the case that Yan simply decide to withdraw from the Joint Venture half way through, we may make a loss on the time, efforts, costs and company reputation spent on the project. Mr Ma said to me using words to the effect that he will negotiate with Yan and try to get Yan to increase our share of equity in the joint venture to 25%. Gavin said to Mr Ma, using words to the effect that if Yan agreed to give us a 25% share of the equity in the joint venture, then even if Yan stops the joint venture half way or the joint venture did not make any profit at the end, we have nothing to lose. Mr Ma said to Gavin using words to the effect that Gavin is right and that if he can successfully negotiate with Yan to increase our share in the joint venture equity to 25%, Gavin and I should agree to give Mr Ma 10% of the first JV Project profit as our appreciation to his introducing us to Yan and for his role negotiating the agreement between two parties. Both Gavin and I using words to the effect expressed our agreement with Mr Ma’s suggestion.

   There are several observations to make about this passage.  First, according to her affidavit, at this stage D1 had only briefly met the plaintiff in circumstances where she had been asked by Mr Ma to assist the plaintiff in obtaining a ‘proof of age card’.  It does not seem likely she had had opportunity to assess the plaintiff’s sincerity and commitment to any project that might be agreed upon.  Further, while she and D2 reportedly told Mr Ma that ‘usually for joint venture projects’ they would accept 20 per cent or even less, D2 said in evidence (544) that his company had not previously been involved in any joint ventures.  More importantly nothing about Mr Ma getting a cut was put to Mr Ma and he refuted both that there was mention of D1 and D2 taking a 20 per cent share at all and that there was mention of a share of anything other than profits.  I will come to his evidence a little later.  Furthermore, it seems to me that there is an illogicality in the defendants’ position.  If the agreement was one whereby D1 and D2 would secure equity in a project that was anticipated to be worth at least $2m, then the profit from that – at any stage of the project – would be very substantial.  D1 was questioned about this and gave the following answer (at 423):

   HER HONOUR

   Q.In your mind, what was the critical difference between 20% and 25% because if the plaintiff just pulled out midway through, what did you see that you would take away with you.

   A.There was two parts. Firstly we - actually we initially we were happy with 20% of equity but Mr Ma said, because he introduced Ms Su to us, so Mr Ma asked us to give him 10% of the profit if we make money. Then Ms Su will give Mr Ma another 5%, so Mr Ma will have 15% of the profit and we will have another 15% of the profit. But I told Mr Ma, just in case Ms Su halfway through stop, there will be no profit at all. So I suggest I will get the equity but I will give Mr Ma 10% of the profit once the project finish out of my pocket.

   Q.But what equity might there be, for instance, if the properties were half built.

   A.The equity will be the land, at least. That's based on my understanding.

   Q.Had it already been discussed, that the plaintiff would put in $2 million initially.

   A.Yes, Mr Ma said Yan will put $2 million for sure. Mr Ma said Yan will be 2 million for one project.

   Q.And so 25% of that would be half a million.

   A.500,000, yes.

   Q.And you'd get that, just like that.

   A.Yes but we cannot withdraw this $500,000 if Yan decide to continue next project.

   I am entirely unconvinced by that evidence and indeed the entirety of D1’s statements about this matter.  The plaintiff was adamant that the only figure ever discussed was 25 per cent.  I doubt that she knew of the significance of that assertion.  Mr Ma’s evidence was to like effect.  Then, there is the false assertion that usually the defendants accepted 20 per cent or even less.  Next, as mentioned, Mr Ma was not cross-examined about aspects of this conversation and spoke only of an agreement that 25 per cent of any profit would be paid to the defendants.  Finally, while D2 agreed in evidence that he had told Mr Ma (564) during the early discussion that such was the anticipated arrangement that he had ‘nothing to lose’ – and Mr Ma said in his affidavit (P2) that D2 had used those words – if the arrangement were one of equity as opposed to profit, it was not strictly true that D1 and D2 would have nothing to lose.  That statement is consistent with the plaintiff’s and Mr Ma’s versions, that D1 and D2 were to take a share of profit only.  Furthermore, the arrangement for which the defendants contend seems extraordinary.  Not only was it agreed in due course that D1 would be employed by the joint venture at a salary of at least $100,000 a year (the exact figure is in dispute) but Constructions was expected to complete the building project and to retain its usual profit margin.  Early in 2016 the plaintiff agreed to increase her total funding of the project to about $4m.  On the version put forward by D1 and D2, this was an extraordinarily good deal, whether at 20 per cent or 25 per cent.

5. Another area where I found D1 to be evasive was the topic of information provided to the Immigration Department in support of the plaintiff’s visa application.  It is clear to me that, true to her word, D1 assisted the plaintiff in her various visa applications and that included attending with her upon the several migration agents/solicitors whom the plaintiff engaged to prepare and lodge her applications.  While several of those persons spoke Mandarin, not all did.  The process was a complicated one and I am satisfied that D1 would have been apprised of what was required.  I am further satisfied that she would have seen the bulk of the relevant documents which were provided in support of the application and that she would have known that a good deal of false information was being put forward.  While the Department for Immigration may be seen as fair game by some sections of the immigrant community, the fact remains, presenting false information is a serious matter.  As I said, I found D1’s evidence on this topic (at 495-499) to be evasive.

6. During the passage which follows, it is notable that D1 seemed to make an assertion that was contrary to her case, and, as will be seen, echoed some evidence given by Mr Ma.  At 497-498 she gave the following evidence.

   Q.You encouraged Ms Su to provide favourable information on the visa application process because that would be good for Constructions and the project.

   A.No. If, like Ms Su said, if she get 188 we don't get any - it's based on what she said, we don't get anything if she get 188 - why I help her to make ... document to get one double visa and a ... and from Construction point of view if she get - that's what she said, but this is not a condition, visa is not a condition.

   HER HONOUR

   Q.    Sorry, are you referring to what the plaintiff said in court.

   A.    Yes. But the visa is -

   Q.No, no, is that what you're talking about what she said in court, or what she said back in October '15.

   A.    Back in October '15 the visa is not a condition.

   Q.    I know that, just listen to my question please.

   A.    Yes, ... October.

   Q.    Just let me put the question again.

   A.    Yes please, thank you.

   Q.Did Ms Su say anything about what would happen if she got a 188 visa during the meeting in October 2015.

   A.    She didn't say anything, she just ask me to give her assistant, a 188 visa.

   Q.I thought you said a moment ago that she did talk about that in the meeting in October '15.

   A.She just said she has the options to get another visa but the number of visa has not been identified, she just ask me to give her assistant, that kind of visa.

   Q.Well before this trial started had you ever heard her say that if she got a 188 visa then the whole joint venture would be off.

   A.    No, no.

   (emphasis added)

   I read this passage as being D1 departing from her script and, inadvertently, supporting Mr Ma’s evidence about what impact on the joint venture the plaintiff’s obtaining of a 188 visa would have, before realising her slip and retrieving the position.

7. A matter which reflects particularly poorly on D1, and indeed D2, is the use by them of funds from the joint venture account in payment of their own legal fees.  Both defendants sought to justify these withdrawals on the basis that the Maple Homes companies were defendants in this action along with D1 and D2.  However, Mr Lazarevich, for the defendants, did not take that position and that was a prudent course because there could be no justification for the payments.  Although the Maple Homes companies were defendants, there were no allegations against them and their role in these proceedings is merely to abide the outcome and suffer any orders made in relation to their assets.

8. The plaintiff’s summons and first statement of claim were filed on 13 September 2017.  Over the period starting on 2 November 2017 and finishing on 7 March 2018, some eight withdrawals were made from the account of Maple Homes Pty Ltd in favour of the solicitors for the defendants, Johnson & Mezhvinsky Legal Practice Pty Ltd.  I note that [24] of the fourth statement of claim lists only the first seven of those payments.  There was no reference during the trial to the eighth payment, being a withdrawal of $8,250 made on 7 March 2018.  After the trial this apparent oversight was drawn to the attention of the parties.  The plaintiff’s solicitors confirmed it was an oversight and the defendants’ solicitors did not object to the statement of claim being amended to reflect that payment.  Therefore, the total of the withdrawals for legal fees is $68,043, rather than the amount of $59,793 referred to in [24] of the fourth statement of claim.

9. On 27 February 2018 the plaintiff filed an interlocutory application seeking, among other orders, that D3 and D4 pay into Court the balance of funds held in their accounts or, in the alternative, that D1 and D2 be restrained from using those funds.  The last withdrawal was made after that application was filed and on the day following the first mention of the application before a Master of this Court.  The application was adjourned to 13 March 2018 for argument.  On that day, following argument, D1 and D2 undertook not to apply the funds except for paying expenses associated with the Austin Crescent properties, or as agreed and consented to by all the joint venture parties.  The order was formalised on 15 March 2018.

10. I reject D1’s evidence (and that of D2) to the effect that the withdrawals were justified.  That explanation falls to be rejected irrespective of whether the terms of the joint venture constituted D1 and D2 as equity partners or merely profit sharers.  D1’s attitude to these withdrawals reflects no credit upon her.  As a professional person I would have expected her to have raised with her solicitors the legitimacy of making such withdrawals.  If she did not see at the outset that the withdrawals were irregular she should have recognised, at least by the time of trial, that the withdrawals should not have been made.  Further, in answer to me, D1 specifically said, at 517, that she had made no withdrawals from that account since February 2018.  That is contradicted by the last payment which I have already mentioned.  As an accountant I do not think she would have overlooked that payment.  I take that to be a deliberately false statement.

11. There is a further matter which reflects poorly on D1.  Some background is required.  It will be remembered that Investments was incorporated on 28 October 2015.  On 7 December 2016 the bank account of Investments was closed and funds from it were transferred to Maple Homes Incorporated, which had been incorporated, along with Maples Homes One on 13 April 2016.  The reason that Investments was deregistered is a matter of dispute.  The plaintiff says it was done without her knowledge, but D1 and D2 say it was done at her request.  D1 says that she was told by the plaintiff that assets belonging to her in China had been frozen and the plaintiff was anxious to hide assets which she was holding in Australia.  There is some support for the existence of such an order in Exhibit PTB Tab 53, which is a document translated from Mandarin and entitled, ‘Enforcement Ruling’.  It is dated 31 March 2017.  It describes the plaintiff as the chairman of several companies referred to as ‘enforcement debtors’.  The thrust of the order is to freeze the assets of those companies and of the plaintiff ‘to the extent of the outstanding debt principal amount of RMB 325,872,611.67’, an amount which might equate to about $660,000.

12. The reason for the incorporation of the Maple Homes companies was said by D1 to be, in part at least, to minimise land taxes.  Constructions owned all the shares in both those companies.  D1 claims that late in 2016 the plaintiff told her that she was concerned by the Chinese freezing order but felt unprotected by the structure of the joint venture, and wished to protect her interests.  Accordingly, D1 arranged for her to see a Mandarin speaking lawyer, Mr Pehn, in Adelaide.  As a result D1, as the director of Constructions, executed a declaration of trust, which is Exhibit PTB Tab 33.  The effect of that document is that Constructions declares that 75 of the 100 shares held in the two Maple Homes companies are held on trust for the plaintiff.  Paragraph 4 of the document records that, ‘We will at all times deal with such shares in accordance with the directions of the said Yan Su’.

13. My assessment of the evidence does not enable me to make any firm finding to the effect that, without the plaintiff’s approval, the Maple Homes companies were incorporated having Constructions as the only shareholder, or whether Investments was deregistered without her knowledge or approval.  However, it is plain that, once the parties came into dispute, the plaintiff, through her then solicitors, Lynch Meyer, called upon D1 as director of Constructions, to transfer the shares in those companies held on behalf of the plaintiff to the plaintiff.  That was not done.  The defendants’ case is that in the face of that request they sought to negotiate with the plaintiff to purchase those shares.  Those negotiations were said to have broken down, due to the plaintiff’s lack of response to their suggestions.  However, the plain obligation on D1, as director and trustee, was to transfer the shares as requested.  I reject D1’s justification for not doing so and I find that her refusal reflects poorly on her.

14. All in all, although I was impressed by D1’s intelligence and her shrewd grasp of the issues, on the critical issue on the terms of the joint venture agreement, I am not prepared to accept her evidence.

15. I turn briefly to D2’s evidence.

16. I have already mentioned a number of areas in which D2 supported the evidence of D1.  Indeed, their position on every issue is all but identical.  That is not surprising.  What it means, though, is that their credibility tends to rise and fall as one.

17. Various suggestions were made to D2 based on passages in his affidavit, D7, which, it was put, implied an acceptance that the plaintiff holds 100 per cent of the equity in the project.  D2 rejected those suggestions and, since the documents containing the assertions highlighted by the plaintiff’s counsel had been translated from Mandarin, I find it difficult to place much weight on statements which might otherwise appear to damage D2’s credibility.  What was significant in his evidence, in my view, was his position that, had the project proceeded to its end and the houses constructed and sold, then, were there a loss, he and D1 would have shared in it to the extent of 25 per cent.  That seems to me to be contrary to his admitted statement to Mr Ma made prior to the first meeting of the joint venture partners, to the effect that he had ‘nothing to lose’ by entering the joint venture, a statement which seems to be more consistent with a share of profit, rather than equity.

18. Mr Lin Yun Ma is a man of almost 40 years.  His affidavit, P2, records that he has lived in Adelaide since June 2012.  He has some English but his first language is Mandarin.  He said in his affidavit that he first met the plaintiff’s husband in 2004 when he provided consultancy services to him.  At that time the plaintiff’s husband had a petroleum company but was expanding into property development.  From that time they developed an ongoing business relationship and a personal relationship.  Mr Ma described their relationship as ‘friendly’ but said they were not close friends.  He also met the plaintiff at about that time.  She was working in her husband’s business in the accounts department.  Mr Ma said that since the death of the plaintiff’s husband in 2014 he had kept in touch with the plaintiff.  When he saw her in Hong Kong in September 2014 she told him she was unhappy living there and was concerned about financial pressures resulting from the collapse of her husband’s business.  That conversation led to Mr Ma speaking with the migration agent, Mr Chen, about the plaintiff’s circumstances.

19. Mr Ma said he met D2 in about January 2014.  Their paths would cross by reason of their respective positions and their membership of the Chinese community.  However, over time, he became friendly with both D1 and D2.  According to Mr Ma’s affidavit it was he who proposed the idea to both the plaintiff and D2 that they might undertake a project together.  He said that he told the plaintiff that if D2 were to assist her in obtaining an Australian visa, then D2 would be offered a share in the profit from the project.

1. Mr Ma gave evidence about the discussions during the meeting on 20 October 2015.  He said that D1 proposed the whole project, the timeframe and the budget.  It was agreed that Constructions would build the project as long as its quotation was the same or less than others.  The plaintiff said that upon the completion of the whole project she was willing to give 25 per cent of the profit to Constructions.  The plan was to purchase two pieces of land.  The plaintiff planned to keep one of the finished houses for herself.  Mr Ma explained that the plaintiff said that if she obtained her visa the profit from the project would be divided according to the plan.  If she did not then Constructions would build the houses.  Later on, in answer to me, Mr Ma clarified (at 134) what was said on this topic.  He said:

   A.So at the time Su Yan provided two - ways to obtain her visa. The first one is 457 which is sponsorship by the employer. And the second one is 188 which is business investing sort of visa. So if Yan Su can obtain her visa through 457 employer sponsored visa and ... profit will - so 25% of the profit will give to [Constructions]. If the visa been granted through 188 business investing visa then [Constructions] doesn't gain the 25% of profit but obtain the job to doing the construction job for the properties.

   Q.And what about if there's no visa at all.

   A.We never think about that.

   And a little later, at 135.

   HER HONOUR

   Q.    If 457, then [Constructions] gets 25% of the profit.

   A.    Yes.

   Q.    If 188 then [Constructions] doesn't get 25% but gets the project.

   A.    Yes.

   Q.    Why the difference.

   A.So the difference is it goes through the - going through the 457 visa it means [Constructions] successfully sponsored Yan Su. So following 188 visa it means Yan Su for migrate to Australia, Yan Su doesn't rely on any resource from [Constructions]. So in order to gain the visa through 457 and 25% of the profit is from Yan Su herself.

   Q.And at the time of this discussion had money already been paid.

   A.Has already started to put it in, not all of them.

   Q.$2 million.

   A.Yes it should be.

   Q.And you said if Yan Su did not get any visa you didn't think about that. Sorry I'll put that again. Are you saying that there was no thought about what would happen if Yan Su got no visa.

   A.No we never imagined that.

2. As mentioned earlier, Mr Ma said there was never a discussion in which D1 and D2 proposed that they should have 25 per cent instead of 20 per cent of the equity because of concern that the plaintiff would pull out of the project.  There was never any discussion of equity in the funds of the joint venture, as opposed to a share of the profits from it.  He said that the plaintiff did not say that she was an experienced property developer.

3. Mr Ma said at the March 2016 meeting the budget proposed by D1 was approved.  By this time the anticipated cost of the project was about $4m.  The plaintiff was prepared to put in the additional funds.

4. I am persuaded by Mr Ma’s evidence.  He is the only witness in the trial who might be expected to be impartial, he having some loyalty to both sides.  The arrangement, as described by him, seems to make more sense.  For example, if Constructions were not successful in sponsoring the plaintiff and ostensibly employing her, then there seems little reason why Constructions should have taken a generous slice of the possible profit from the venture.  I also accept Mr Ma’s evidence that no thought was given to what might happen were the plaintiff unsuccessful in obtaining a visa of any sort.  I find that it was simply assumed by all that either a 457 or 188 visa would be secured.  Although the witness gave evidence through an interpreter – and there was some difficulties with that process – I was impressed by Mr Ma’s willingness to attend to questions and attempt to answer them accurately.  Furthermore, he appeared to me to have a good memory of the discussions and of what was agreed by the joint venture parties.  His evidence is contrary to that of the plaintiff and of D1 and D2 in material respects.  He does not support the plaintiff’s contention that the continuation of the joint venture was conditional upon her obtaining a visa; nor does he support the evidence of D1 and D2 that they were to receive equity in the assets of the joint venture, as opposed to merely profit.  I prefer Mr Ma’s evidence to that of the parties on those important matters, and generally.

   The plaintiff’s claim in more detail

5. As already observed, the plaintiff’s cause of action was ultimately trimmed to one of breach of fiduciary duty.  The fourth amended statement of claim sets out the asserted duties as follows:

   22.As fiduciaries, pursuant to the Joint Venture, the First and Second Defendants Na and Lei owed Yan a duty:

   22.1. To act with care and diligence;

   22.2. To act in good faith and in the best interests of the Joint Venture;

   22.3. Not to gain an advantage for themselves to the detriment of the Joint Venture;

   22.4. to act in their the best interests of the Joint Venture and not their own;

   
   

   and

   22.5. to avoid conflicts of interest.

   The statement of claim then goes on to allege that each of the enumerated duties was breached and to give particulars of the breaches.  Those include failing to comply with the budget document or to report to the plaintiff on the use of her funds [24.1], causing the Austin Crescent properties to be placed in the names of companies under D1’s control [24.2], causing the plaintiff’s funds to be transferred out of the Investments account and into the Maple Homes accounts [24.3], causing Investments to be deregistered [24.4], applying the plaintiff’s funds in a manner inconsistent with her interests or instructions and without her knowledge [24.6], advancing funds to Constructions without the plaintiff’s knowledge [24.6(b)], causing the plaintiff’s motor vehicle to be sold without her knowledge or consent [24.6(c)], investing the plaintiff’s funds in term deposits [24.6(d)], causing the defendants personal legal fees to be paid from the plaintiff’s funds [24.6(f)], and paying salary to D1 in excess of that which was agreed [24.6(h)].

6. Some of the breaches alleged in the statement of claim have fallen away.  Even of the ones I have outlined, several, including reporting to the plaintiff and selling the plaintiff’s motor vehicle, have withered in the face of neglect.

7. The plaintiff’s counsel put as a proposition of law that where joint venturers structure their relationship such that one party provides all the funding and the other controls that funding, then the position of vulnerability in which the former is placed gives rise to a fiduciary duty by the latter to the former; citing Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 16 and Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001] WASC 190, [48]. Although the decision in Say-Dee was reversed on appeal, counsel put that the general principle was not undermined.

8. Mr Douglas pointed to similarities in the facts of Say-Dee as compared with the present case.  That was a joint venture for redevelopment of property.  The individuals standing behind the plaintiff company, Say-Dee, were inexperienced in property development.  Say-Dee was to provide the finance for the project, which the defendant, Farah, controlled by Mr Elias, was to manage.  Through his work for the joint venture Mr Elias came into possession of information relevant to the object of the joint venture, which he exploited to his own advantage.  It was common ground that Farah owed fiduciary duties to Say-Dee.  Tobias JA, with whom Mason P and Giles JA agreed, described the duty in this way:

   [171]The fiduciary obligations or duties of Farah in these circumstances were, therefore, not to withhold information or otherwise act in a manner which, in a practical sense, either brought Farah's personal interests into conflict with its fiduciary duties and obligations or resulted in it making a profit or obtaining a benefit or an advantage from its actions as a consequence of the knowledge or information it acquired from the Council as a result of the special opportunities which it obtained by reason of the obligations it undertook as its contribution to the joint enterprise.

   [172]These twin proscriptive duties to avoid an undisclosed conflict of interest or the making of an unauthorised profit have been aptly described as functioning in order to "neutralise influences likely to sway the fiduciary away from properly performing" the non-fiduciary duties that lie at the core of the original consensual arrangement between the parties: see Matthew Conaglen, "The Nature and Function of Fiduciary Loyalty" (2005) 121 LQR 452 at 453.

9. Mr Douglas argues that, in the present case, the plaintiff’s vulnerability rests both on her limited English, naivety in business matters and also on the agreement that D1 would control the accounts containing the joint venture funds.  He puts that this duty includes a duty of loyalty to the beneficiary not to obtain an unauthorised benefit from the relationship or to put oneself in a position of conflict; relying on Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, 198 approving Breen v Williams (1996) 186 CLR 71, 113. He argues that once a relevant duty is identified and a prima facie breach made out, then the fiduciary bears the onus to prove that he or she acted with fully informed consent.

10. The passage referred to in Breen occurred in the judgment of Gaudron and McHugh JJ.  Their Honours said.

    “In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed.”

    The plurality in Pilmer pointed to the need to identify the obligations owed as a fiduciary and the respects in which the fiduciary had failed to discharge those obligations.  It referred with approval to the formulation of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103. The plurality said:

    [78]In particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is “a conflict or a real or substantial possibility of a conflict” between personal interests of the fiduciary and those to whom the duty is owed.

11. The plaintiff’s counsel argues (646) that each and every one of the alleged breaches of fiduciary duty gave rise to an entitlement in the plaintiff to ‘rescind this venture’.  He points out that the first alleged breach – supervising a process in which the plaintiff was allotted B class shares – took place only 10 days or so after the agreement was formed on 20 October 2015.  In support of the argument that the breaches gave rise to a right to rescind, Mr Douglas cited the High Court decision in Maguire v Makaronis (1996-1997) 188 CLR 449. There, the defendant solicitors had loaned monies to the plaintiffs, their clients Mr and Mrs Makaronis, for the purchase of a poultry farm. The solicitors took a mortgage over separate land, charging a (reducible) rate of interest of 24 per cent. The trial Judge found that the solicitors were conflicted by their duty to their clients and their personal interest in the transaction. In the High Court the plurality said that in these circumstances ‘it was for them to show, by way of defence, informed consent’ given by the defendants: 466. In the absence of proof of such consent, the mortgage was liable to be set aside. The plurality said, ‘The breach of duty was patent at the creation of the very thing which is to be set aside’: 467.

12. The situation in the present case is not one of those classic situations such as solicitor and client, or executor and beneficiary, where a fiduciary relationship necessarily arises.  Mr Douglas acknowledges as much.  However, the relationship of the parties does bear similarity to that in Say-Dee v Farah Constructions.  I have already rejected the suggestion that the plaintiff was a woman who was naive in business affairs.  On the contrary, I find that she demonstrated some familiarity with business, both in her dealings with Mr Ma and also in her correspondence.  Nonetheless, D1 certainly had control of all the joint venture funds.  While the plaintiff was given login details so that she could examine transactions on the accounts at any time, D1 had the day to day management of those funds.  I am prepared to assume that this gave rise to a fiduciary duty, but it is then necessary to define that duty.

13. Contrary to the plaintiff’s pleading, I do not find that D1, or the defendants as a group, owed the plaintiff duties to act with care and diligence, to act in good faith and in the best interests of the joint venture, not to gain an advantage for themselves to the detriment of the joint venture, or to act in the best interests of the joint venture and not their own.  Indeed, D2 plainly was entitled to act in his own interests to some extent, because the joint venture was expecting him to build the houses at Austin Crescent and for him to charge his usual margin.  However, in accordance with Breen, Pilmer and Hospital Products I find that D1 and D2 owed the plaintiff a duty not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict.

14. The alleged failure to comply with the budget document, Exhibit PTB Tab 7, focuses on payment of D1’s salary.  That budget document was discussed at the March 2016 meeting.  It contained the anticipated costs for a period of one year.  Against the entry ‘Salary’ is the figure $158,776.  The plaintiff alleges that D1 overpaid her own salary, which she says was agreed at $100,000.  D1 said in [73] of her witness statement (Exhibit D6) that she told the plaintiff that she would like a salary of $158,776 per annum plus superannuation.  When she gave evidence she sought to correct that statement, saying (398) that this figure was for the entire payroll, which included her and a receptionist.  How such a mistake could have been made by this usually meticulous witness was left to conjecture.  D1 said that she drew a salary equivalent to $2,188 per week.  That accords with the bank statements.  She thought that the discussion in which the plaintiff had agreed to this was in about February 2016.  She said the plaintiff had no objection to such a figure.  That figure was substantially more than she had been earning in her position at Pitcher Partners.

15. D1 was cross-examined to suggest that she did little work for the joint venture and that this was an excessive salary in the circumstances.  D1 responded by listing multiple tasks which she had performed to get the development up and running and adding that she had also spent a great deal of time attending to the plaintiff’s needs.

16. I consider that the work D1 did for the joint venture was both time consuming and demanding of a good deal of expertise.  It included such things as instructing accountants, architects, and land brokers in relation to the acquisition of the properties and progressing plans to develop them.  I also accept that the plaintiff made significant calls on D1’s time, and they became very friendly.  In the circumstances it is difficult to make any finding about what was orally agreed in relation to D1’s salary.  I am thrown back on the budget document which allowed $158,776 for salaries.  D1’s drawings were within that amount.  Therefore I am not persuaded of a breach of duty in this regard.  In any event, the difference between the amount said to be agreed upon and the amount drawn is not of much significance in the scheme of the matters in dispute.

17. I am not persuaded that D1 failed to adequately report to the plaintiff on the use of the joint venture funds.  It is plain that a number of issues regarding disbursement of funds were discussed between them.  Since the plaintiff had the login details of the accounts, she could have checked to see what were the level of disbursements.  If she were unsatisfied I would have expected to see email messages or WeChat messages requesting details.

18. There are WeChat messages in relation to the names of the two companies, D3 and D4, incorporated to hold the two properties.  The plaintiff acknowledged that D1 discussed the land being in two different names ‘for accounting purposes’ to ‘save costs’: 237-238.  I do not accept that those discussions were, in the plaintiff’s mind, about the names which would be applied to the properties themselves.  I accept D1’s evidence that she explained the reasons why two companies should be incorporated to hold those properties and that the plaintiff accepted that advice.

19. The question of why the plaintiff was given B class shares in Investments is a vexed one.  D1 claims that this was done at the plaintiff’s request and for the reason that then her name would not be so prominent upon any ASIC search.  Her evidence about this appears at 440-443.  D1 said that she and the plaintiff met with the accountant, Ms Zhang, and that the plaintiff told Ms Zhang that she did not ‘want her name to be easily [found] out in the assets registration’ and that she therefore wanted to have shares which were not ordinary shares: 441.  At that, Ms Zhang suggested B class shares.  D1 said that the plaintiff spoke directly, in Mandarin to Ms Zhang about setting up the company.  D1 points to an undated letter addressed ‘To whom it may concern’ by Ms Zhang stating that a meeting with the plaintiff, D1 and Ankang Sun (the plaintiff’s companion) took place on 20 October 2015 and that she explained and answered questions in relation to the corporate set up during the meeting.  This letter is Annexure QN4 to the witness statement of D1, which is Exhibit D6.  Mr Douglas argues that the defendants should have called Ms Zhang to give evidence of the discussions which occurred during that consultation, particularly on the question of B class shares being allocated to the plaintiff.  He suggests I should draw an inference against the defendants for not having produced that witness.  I decline to draw such an inference.  It can equally be said that the plaintiff could have called Ms Zhang.  She and D1 consulted Ms Zhang together.  I do not rely on the letter apparently written by Ms Zhang.

20. I am left with the competing versions of the plaintiff and D1 and, bearing in mind there is some support for the suggestion that the plaintiff was keen to move money from China or Hong Kong to Australia and that some of her funds in China were out of her reach, I am prepared to overlook the illogicality of what D1 claims was the plaintiff’s explanation for the shareholding structure.  Ultimately this is a matter which goes to credit more than anything else.  The plaintiff was not disadvantaged by this structure.  She would have been, apparently, had the company been subject to a winding up.  But that did not occur.  Consequently, she has suffered no loss from the having held B class shares.

21. In relation to the deregistration of Investments, again it is difficult to make a positive finding.  It is true that the transfer of the funds from Investments to the Maple Homes accounts and the later deregistration of Investments took those funds further from the plaintiff’s control.  And, the Maple Homes companies were incorporated in such a way that they were wholly owned by Constructions.  However, the defence position is that this was done at the plaintiff’s request, to remove any documentary association between the plaintiff and the funds.  And, in due course, at the plaintiff’s request, the declaration of trust already referred to was drawn up.  On balance I am prepared to accept that these various steps were taken with the plaintiff’s knowledge and consent.

1. The claim relating to the sale of the plaintiff’s Mercedes Benz motor vehicle seems to have fallen away.  The plaintiff apparently left Australia, effectively abandoning the car, and D1 and D2 took it upon themselves to recover it from the street and to sell it.  D1 seems to have realised a good price for it and repaid the money into the joint venture account.  In those circumstances nothing turns on any argument in relation to it.

2. As to the plaintiff’s complaints about various withdrawals made from the Investments bank account in favour of other accounts I say this.  The plaintiff claims at [24] of the Statement of Claim that at about the time that Investments was deregistered all the funds were removed by D1 and placed into accounts associated with D3 and D4.  She says that both the deregistration and the movement of funds were done without her knowledge.  I have discussed those matters.  Then she alleges that funds were advanced to Constructions without her knowledge.  She nominates payments of $30,000 on 24 March 2017, $50,000 on 5 April 2017 and $80,000 on 22 June 2017.  The plaintiff then alleges that, without her consent, D1 withdrew funds from the joint venture account and deposited them into term deposits.  She alleges that upon maturity those funds were not immediately transferred back.

3. The answer of D1 and D2 to these allegations is that these steps were taken and funds variously transferred with the plaintiff’s knowledge.  D1 said that, in fact, the plaintiff was pleased about the idea of removing funds for the purpose of placing them into term deposits, as the money was not yet needed and this was a way of earning some interest on it.  D1 says that the funds were repaid on maturity of the term deposits.  Counsel for the defendants attempted to cross-examine the plaintiff to this effect, but there were some difficulties in interpretation of the concept of a ‘term deposit’.  (319.)  However, the plaintiff did acknowledge that she herself had been advanced some $800,000 from a Maple Homes account to assist in her son’s visa application to the United States.  And she also seemed to agree that D1 loaned her a large sum of money from her (D1’s) personal funds for the same purpose.  The plaintiff agreed that she had told D1 she was grateful for this.  However, she denied the further suggestion that, in gratitude for these loans, she had said Constructions was permitted to borrow funds from the joint venture.

4. The specific amounts nominated above were said by D1 to be loans to Constructions to assist its cash flow.  All three were repaid, the first two with interest.  I note that the last one was only repaid in November 2017 after there had been an exchange of solicitors’ letters.

5. Two further amounts were nominated as being unauthorised withdrawals from the Maple Homes accounts.  Each was in the order of the order of $19,500.  These were said by the defendants to be payments made to Constructions for the demolition of the houses located on the two properties.  An invoice from Constructions to Maple Homes was raised to reflect those amounts.  That work was said to be done by a contractor but no documents in the form of invoices to Constructions were produced.  Neither was there any call for such documents.  The amounts charged were within the amount of $50,000 budgeted in the expenditure document Exhibit PTB Tab 7 generated and agreed to in March 2016.  In the circumstances I am not satisfied that these withdrawals were unauthorised.  Looking at all the payments together, the amount of all the loans were repaid and it is plain that the two homes were demolished.  I can identify no loss to the plaintiff.

6. I have already observed that the transfer of funds from the joint venture account in order to pay legal fees incurred by D1 and D2 was done without justification.  I find that these withdrawals were made other than for joint venture purposes and were in breach of D1’s duty to the plaintiff not to promote her personal interests when dealing with joint venture funds

7. In relation to the specific conduct alleged to have amounted to breaches, I am not satisfied that placing money into a term deposit where it would earn a greater rate of interest amounted to a breach of duty.  The benefit of so doing went to the joint venture and there was no conflict associated in removing the funds in this way.  The same cannot be said of the loans to Constructions.  On the face of it, those loans could not benefit the joint venture.  But neither could the loan which the plaintiff acknowledged she sought and was granted from the joint venture account in the sum of $800,000.  In circumstances where both the plaintiff and D1 apparently acquiesced in the funds of the joint venture being used for such a purpose, it is difficult to say that the loan to Constructions was not authorised, and, even if not authorised, inconsistent with the aims of the joint venture.  D1 said in evidence that all the withdrawals in favour of the term deposits and the loans to Constructions were authorised and I am simply not in position to make a positive finding of whether that is true.  On balance, I would say that it is more likely than not that the plaintiff gave her consent to the joint venture lending funds to Constructions.  In any event, as seen, by the end of 2017, all funds removed from the accounts for non-joint venture purposes – except the legal fees – had been repaid, some with interest.  In these circumstances and, again, leaving aside the legal fees, there is no proven misconduct such as to attract the application of equitable principles.

   The counterclaim in more detail

8. The defendants, together with Constructions, counterclaim against the plaintiff.  In case the defendants are found liable to pay damages to the plaintiff, the defendants seek to set off such amounts as might be found payable to them by their counterclaim.  The causes of action relied upon are breach of contract and quantum meruit.

9. The defendants claim that the plaintiff repudiated the joint venture and that they, or alternatively Constructions, have suffered loss and damage which they quantify as “25 per cent of the final price estimated for the project”, or alternatively the profits they would have made had the project been completed.  Constructions also claims the profits which it says it would have earned on the construction of the three houses.  D1 claims loss and damage arising from her giving up her job at Pitcher Partners and, since the cessation of the joint venture, the loss of her salary paid by it.  The quantum meruit claim is pitched in the alternative in case the Court should find that the joint venture failed through ‘no attributable fault of either party’.  As will be seen, that is not my finding.

10. The claim by Constructions for loss of its margin on the project is based on what D2 said was its usual margin of 15 to 20 per cent.  D2 said that at about the time when the plaintiff terminated the joint venture she asked him to prepare a quotation for completion of the three dwellings.  This was never given to the plaintiff.  An undated document containing that quotation was tendered in evidence Exhibit D37.  It lists in brief terms amounts for the various component parts and processes involved in erecting the three dwellings.  Much of this work would have been done, not by Constructions, but by subcontractors and whatever quotations for it were obtained are not presented.  The ‘total quotation price’ is given as $2,051,204.87.  That price explicitly includes what is referred to as ‘builder profit’ of $341,867.48.  Notwithstanding the way the claim was set out in the defendants’ written closing submission, that seems to me the amount which Constructions is claiming by way of lost profit.

11. At this point I mention Exhibit D25, a valuation report. That was tendered by the defendants without need for the author, Mr Mark Robins of LMW Adelaide, to be cross-examined. I take it to be in the nature of an admission pursuant to s 34 of the Evidence Act 1929 (SA) and is ‘sufficient proof of the facts’. Neither the report nor the letter of request from the defendants’ solicitors appears to be dated, although the report must have been written since 14 May 2018, as it refers to an event on that date.

12. Mr Robins estimates the total value of the vacant land as $2.52m.  This assumes an individual, orderly sale of three allotments each with its own Certificate of Title.

13. The author also makes an estimate of the value of the proposed dwellings if satisfactorily completed in accordance with the plans.  Several observations in the report are of note and I set them out.

    4.3 Construction costs and comments

    We understand that the proposed works were to be completed on an ‘owner builder’ basis and as such we have not been supplied with building contracts/quotes as requested. We have been advised via email that the budget for each of the dwellings was $1,500/sqm ‘turnkey. On this basis we have calculated the construction costs for each dwelling as follows:

Total Building Area	$/m2Total building area	Total
Dwelling 1	461	$1,500	$691,500
Dwelling 2	444	$1,500	$666,000
Dwelling 3	463	$1,500	$694,500
Total	$2,052,000

The advised effective building rate ($1,500) is considered to be below the expected range based on the proposed size and fit-out (as described) of the development, which we understand is to be turnkey.

Based on the large number of prestige to be erected valuations completed by our office, assuming a ‘turn key’ package with regards to the significant hard and soft landscaping that will be required, we consider a rate between $2,000 and $2,500 more indicative of market rates.

Check Cost = Between $2,736,000 and $3,420,000.

…

5.3 Market comment

The broader residential property market has been more volatile over recent months than it has been over the last few years. More specifically, it would appear that it has become more difficult to obtain finance. Lending policies in general appear to have become more conservative with some lenders making changes to serviceability calculators, loan to value ratios, as well as enforcing more intense scrutiny and verification of facts within finance applications. This has resulted in reductions in borrowing capacities, which is having a direct influence on demand, which in turn, appears to be placing some downward pressure on pricing.

The number of vacant allotments available for sale within St Georges is typically low and as such typically selling periods are less than 12 weeks. That said the topography also has a significant impact on the saleability of land in the area, with the more level allotments traditionally more desirable than those with significant cross fall and therefore high associated site preparation costs including increased retaining and footings costs.

The market for high and modern dwelling in St Georges has recently softened. This market has been primarily driven by international purchasers over recent years and we expect these purchasers to become less active moving forward due to recent changes in foreign investment criteria as well as restrictions on taking funds offshore imposed in China.

6.1 Property overview

…

If sold “as if complete” assuming new high-end dwellings finished to a turnkey stage, each is expected to appeal to high net wealth individuals, more specifically extended families.

We note that on the back of the Royal Commission into banking and recent buyer retreat from foreign investors, current market conditions appear to be tentative, with the high end residential market likely to be more adversely impacted than that of the low and middle markets in the short to medium term.

1. The author provided short details of a number of recent sales in St Georges and surrounding suburbs.  He selected two properties as being ‘most broadly comparable’.  Both were sold in mid-2017.  He used those properties as a basis to imply a value of $1.8m for each of the joint venture homes, if completed.  The author does not address the relevance of the selected properties being stand alone and distinctive homes, as opposed to proposed joint venture dwellings which, although freestanding on regular sized allotments, would have ended up being similar in appearance, particularly two of them, and might appear, undesirably, as a homogenous development.

2. Relying on that report, D1 and D2 claim that, had the project proceeded to completion, each residence would have been worth $1.8m.  From that figure are to be deducted the construction costs, fixed costs – in relation to which they have allowed costs over two years totalling about $0.5m – together with the costs of purchasing the land.  The defendants’ submission does not specify what is included in the fixed costs figure.  Offsetting those costs against the expected proceeds, the defendants arrive at a total profit of about $0.567m.

3. It can be seen that the total profit figure rests on a number of assumptions.  I have already set out Mr Robins’ observations about the projected construction costs.  He considered that the $1,500 per square metre figure was at least one third below what would be expected.  This suggests that the desired quality of the finished product would have suffered and that calls into question the expected sale prices.  Alternatively, if Constructions built the project to the required standard, then it would likely have made a loss on the project.  Furthermore, the fixed costs figure seems to be calculated on the basis of the project taking two years.  In my view that is hopelessly optimistic.  Not only had Constructions never tackled a project of this scale and complexity, but even when the joint venture ceased, Council approval was still outstanding.  In any event, although there is no evidence on the topic, a project such as this could hardly be expected to be completed in one year, in circumstances where the builder was on a tight budget and, on my assessment of the evidence D2 gave, was relatively inexperienced.

4. All these calculations rely on the accuracy of Mr Robins’ report.  Of necessity his estimate of the value of the completed works relates to a period which, as I have said, must be at least a year and probably two into the future.  As set out, Mr Robins expressed the view that current market conditions appear to be tentative, with the ‘high end residential market’ most likely to be adversely impacted.  In addition, if the figure to be ascertained is the expected net profit of the joint venture, then the cost of marketing and selling the properties needs to be considered.  No reference to those costs has been made.  I would anticipate that those costs would not be less than 3 to 4 per cent of the sale prices.

5. In Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332 at 349 the plurality observed that where a contract contains a promise to provide a chance of reward, and breach of the contract results in the loss of that chance, then the loss is compensable and difficulties involved in estimating the quantum of the loss are not permitted to defeat an award of damages. The damages are to be ascertained by reference to the degree of probabilities, or possibilities inherent in the aggrieved party succeeding, had he been allowed to exploit the chance given by the contract. In The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 the Court concluded that a lost opportunity was a compensable loss, even though there was a less than 50 per cent likelihood that the commercial advantage would have been realised. The task is to assess damages by reference to the probabilities or possibilities of what would have happened.

6. For this purpose it is necessary for me to assume that, had the plaintiff advanced the balance of the necessary funds in order to complete the construction work, the work would have been completed by Constructions.  It is likely that the quotation of Constructions would have been accepted, judging by Mr Robins’ report, as it would likely have been far below that which another contractor would have supplied.  While I consider that Mr Robins’ estimate of value of the completed homes – based on ‘new high-end dwellings finished to a turnkey stage’ (Exhibit D25, page 15) is probably valid within a reasonable tolerance, given the current economic circumstances, there can be no certainty that the same conditions would prevail in one or two years’ time.  The process of assessing damages in this case is not much more than guesswork, and in undertaking it, I consider it is wise to be conservative, that is, allow for unexpected expenses, some blowout of time, and a finished product which reflects a very low building budget.

7. The first defendant also counterclaims for damages for the loss of her employment with the joint venture.  In my opinion, once the building work commenced, there would have been very little for D1 to do on behalf of the joint venture.  I am prepared to assume that her personal work for the plaintiff would have continued.  If so, there would not have been justification to continue her earlier rate of drawings of $2,188 per week.  However, she having given up a position at a reputable firm – although attracting a much lower rate of pay – and having had no notice of termination of her position with the joint venture, I consider that a sum of $50,000 to reflect the lack of notice is reasonable.

   Findings

8. I make the following findings.  The plaintiff and D1 and D2 entered into an agreement, referred to as a joint venture, whereby it was agreed they would buy and develop one or more properties.  The plaintiff was to provide all the funds.  The defendants were to provide their knowledge and expertise in property development.  D1 was to work both for the joint venture and for the plaintiff on an agreed, although now disputed, salary, to be paid by the joint venture.  If Constructions was successful in sponsoring the plaintiff and she obtained a 457 visa then the profits of the joint venture (if any) were to be shared in the proportion 75 per cent to the plaintiff and 25 per cent to D1 and D2.  D1 and D2 agreed to help the plaintiff obtain a visa and I find they did so.  However, I find that no assurance was given to the plaintiff that she would obtain a visa.  I find that it was assumed by all that she would.  The agreement was not reduced to writing.

9. I reject the evidence of D1 and D2 to the effect that the agreement was for them to take a 25 per cent share in the equity of the joint venture.  I accept Mr Ma’s evidence on that point.  I also accept his evidence and find that it was agreed that if the plaintiff obtained a 188 visa and so did not rely on Constructions’ sponsorship, then the joint venture would proceed, but D1 and D2 would not take 25 per cent of profits; although, provided its quotation met the market, Constructions would build the new home or homes and make its usual profit margin in so doing.  I find that no thought was given by the joint venture parties to what might happen if the plaintiff was unsuccessful in securing a visa of any sort.  However, since that would be no impediment to the project continuing, I find that it was an implied term that it would continue in those circumstances and, much like the situation which would pertain if a 188 visa was obtained, Constructions would receive a preference in terms of securing the building contract.

10. Investments was incorporated as the joint venture vehicle on 28 October 2015.

11. I interpret the 75 to 25 division of shares in Investments as being consistent with the agreement that D1 and D2 would receive the benefit of 25 per cent of any net profit made on the first project.

12. The plaintiff was not ‘basically a housewife with a lot of money’.  She was neither naïve or inexperienced in property matters.  She took part in the important decisions regarding the joint venture including in selection of property.  She was consulted about many decisions, but I cannot and do not say that she was always consulted about relevant decisions.  I find that the plaintiff and the defendants agreed to the expenditure set out in the budget document.

1. In due course two properties were located in St Georges.  The houses on them were demolished and plans were prepared for the erection of three new homes.  Building development was granted.  Counsel approval was outstanding.  It was anticipated that, as well as the original $2m advanced by the plaintiff, another $2m would be required to complete the buildings.

2. I find that in August 2016 the plaintiff unilaterally withdrew from the joint venture.  The terms of the joint venture agreement did not comprehend such an eventuality.  At that point the plaintiff had advanced $3.1m to the joint venture and some $700,000 remained in the relevant account.  At the time of the last proved account balance, on 29 March 2018, the sum of $323,806 remained.

3. The plaintiff’s claim is (now) solely based on breach of fiduciary duty.  A number of discrete matters are argued, but the only one I find proved relates to the time after the plaintiff’s withdrawal.  I find that, in breach of their fiduciary duty to the plaintiff arising from the fact that D1 controlled the funds of the joint venture, D1, with D2’s knowledge and agreement, withdrew the sum of $68,042.63 to pay for their legal fees associated with the plaintiff’s action.

4. The plaintiff claims that the pleaded breaches of fiduciary duty justify the Court ordering rescission of the joint venture agreement and an order that the whole of the monies advanced by the plaintiff be returned to her.  I find that insofar as the payment of legal fees was in breach of the duty owed by D1 and D2 to the plaintiff, the joint venture – effectively the plaintiff – should be compensated for that loss.  However, the plaintiff’s claim for rescission of the joint venture agreement must fail.  This is not a case such as Maguire v Makaronis where the loan itself – the original transaction – was entered into in breach of the solicitors’ duty to their clients.  In relation to all the breaches alleged by the plaintiff, I find that equity would do no more than to ensure that any losses arising from a proved breach were made good.  In this case I have found only that the payment of legal fees represented such a breach.

5. I find that the two allotments purchased have been divided into three and that the value of the three combined is about $2.25m, that is, just short of $200,000 more than the combined original purchase prices.  Therefore, what remains of the plaintiff’s $3.1m advance is land and monies totalling about $2.57m.  Leaving aside the legal fees, the balance has been expended on legitimate expenses of the joint venture, including, for example, stamp duty, plans, approvals, demolition, salaries, rental etc.  The value of the unimproved land just mentioned is based on the defendants’ Valuation Report Exhibit D25 which, to this extent, I accept.

6. As seen, although the fourth amended Statement of Claim nominated three causes of action namely breach of joint venture, breach of fiduciary and misleading and deceptive conduct, the first and third have been abandoned.  The plaintiff seeks a declaration she is the beneficial owner of the two properties and ‘common law equitable compensation’ for the difference between the value of the properties and $3.1m.  Alternatively, she seeks the declaration, together with the $330,000 odd, and the specific funds expended, she claims, as a result of breaches.  As I said, of those, the only ones I find to be made out relate to legal fees.  Those breaches came well after the plaintiff’s withdrawal from the joint venture and, in terms of the amount of money under consideration in this trial, are relatively minor.  I find that the defendants are liable to account for, or pay equitable compensation for, the amount of the legal fees, being $68,042, or that there be a winding up of the joint venture companies and payment out of its assets.

7. The plaintiff has not chosen to pursue relief in terms of a winding up of the joint venture.  She has not asked for transfer of her 75 per cent beneficial shareholding in the two property owning companies.  Also, the declaration that she seeks that she is the beneficial owner of the two properties seems to be based, not on her having provided all the funds for them, but rather on alleged breaches of fiduciary duty, all but one of which I have not found proved.

8. I turn to the defendants’ counterclaim.  I find that the plaintiff breached the joint venture agreement in unilaterally withdrawing from it.

9. In relation to the plaintiff’s failure to secure a 457 visa, I find that it was her decision to abandon her attempts to secure a visa.  The decision which was confirmed in the Administrative Appeals Tribunal to deny her first attempt at securing a 457 visa was due to her putting herself forward as a ‘Procurement Manager’, which occupation had been removed from a list of eligible occupations for which a 457 visa might be granted.  There was no failure on D1 or D2’s part to provide assistance to her in that endeavour.  Constructions was approved as a business sponsor.  In circumstances where D1 and D2’s right to enjoy a 25 per cent share of the joint venture profits depended on the plaintiff securing a 457 visa, I find that a term should be implied into the agreement that the plaintiff would do all she could to obtain a 457 visa.  Therefore she breached the agreement to that extent.  I am not satisfied that the plaintiff would not have obtained the visa had she persisted.  I find that, had the plaintiff persisted in her attempts, it is likely that, not only would Constructions have secured the building project, but D1 and D2 would have been entitled to 25 per cent of the net profits of the venture.

10. I find that consequent upon that breach, the employment of D1 was summarily terminated.  I consider that she should be awarded compensation in the sum of $50,000 on account of that unjustified dismissal.

11. I find that Constructions lost the chance to build the three homes on account of the plaintiff’s breach of the agreement.  In as much as D2 and Constructions would have enjoyed the benefits of building the homes and taking whatever profit could be made, that loss is compensable.  However, due to the extremely low building cost per square metre quoted by D2, as against the superior workmanship which the joint venture contemplated for the homes and upon which Mr Robins made his estimate, I find that there would not have been any profit flowing to Constructions for having done the work.

12. Determination of the loss to D1 and D2 of their share of the net profit is extremely speculative and difficult.  The material going to this issue provided by the defendants is skimpy.  It is far from certain that, even had the project proceeded to completion, it would have achieved any profit at all.  A major factor in its favour was the fact that the plaintiff had provided all the funding and so no interest was payable on those funds for the term of the venture.  On the other hand the joint venture wasted money on unnecessary office space, the plaintiff’s Mercedes Benz and excessive or unnecessary salaries.

13. I find that the funding provided by the plaintiff and the further funds which she had agreed to provide were in the nature of an advance and that it was agreed that those monies would be returned to her before any profit on the venture was calculated.  The assets of the joint venture are effectively due to the plaintiff.

14. Nevertheless, there should be some compensation to D1 and D2 for the loss of the chance to achieve that profit and I assess that in the sum of $50,000.

15. Against the damages which I have found are payable by the plaintiff to D1 and D2, should be set off the amount of $68,043 in legal fees which are due to the joint venture.

16. I consider that the joint venture companies should be wound up and all monies recoverable should be returned to the plaintiff, apart from what is left of the damages I have assessed to be due to D1 and D2 after deduction of the legal fee amount.

17. Since the pleadings have not contemplated orders in these terms, I propose to call on the parties to formulate appropriate orders.

    Conclusion

18. The plaintiff has succeeded in part.  D1 and D2 have succeeded to an extent on their counterclaim.  Constructions has failed on its counterclaim.  The plaintiff’s prayer for relief does not contemplate the outcome reached.  It is appropriate that the land be sold and the net proceeds be divided in accordance with my findings, as sought by D1 and D2 in [7] in their counterclaim.