Xu v Salter Brothers Asset Management Pty Ltd

[2025] FCA 89

FEDERAL COURT OF AUSTRALIA

Xu v Salter Brothers Asset Management Pty Ltd [2025] FCA 89

File numbers:

VID122 of 2022
VID123 of 2022
VID124 of 2022

Judgment of:

MCELWAINE J

Date of judgment:

19 February 2025

Catchwords:

FINANCIAL PRODUCTS - misleading or deceptive conduct concerning the terms of complying investments of at least $5 million as required to be made by applicants pursuant to the Significant Investor Visa Program- ss 12 DA and 12DB of the ASIC Act and 1041H of the Corporations Act- trial of three separate claims- oral and written representations relied on.
MISLEADING OR DECEPTIVE CONDUCT - whether oral representations as contended were made- whether written representations were made in context of documents provided in English to applicants fluent only in Mandarin- whether conduct was in any event misleading or likely to mislead or deceive-relevance of ability of applicants to have documents translated and or to take independent financial advice before making financial investments-whether core claims that complying investments could be redeemed after four years made out.
STATUTORY UNCONSCIONABLE CONDUCT -s 12CB ASIC Act-whether respondents engaged in unconscionable conduct in providing Information Memoranda for financial products only in English to a Mandarin speaking class of prospective applicants- whether applicants were vulnerable- whether unconscientious advantage taken-relevance of ability of applicants to obtain translations.
CAUSATION - whether applicants relied on misleading conduct as alleged-whether reliance on conduct is a necessary element-distinction between direct and indirect causation-whether causation is established in circumstances where applicants at the time made alternative complying investments with similar risks.
DAMAGES - whether failure of applicants to establish that investments as made have no current value precludes alternative claims raised at a late stage-methodology for calculation of damages when redemption of investments is delayed- whether refund orders may have been made pursuant to s 12GM of the ASIC Act.
CONTRIBUTORY NEGLIGENCE - whether if claims had otherwise succeeded, any amount of damages should be reduced on account of any failure by the applicants to take reasonable care.

Legislation:

Australian Securities and Investment Commission Act 2001 (Cth) ss 12AC, 12BB, 12CB, 12CC, 12DA, 12DB, 12GF, 12GF, 12GM,12GP, 12GR

Competition and Consumer Act 2010 (Cth) sch 2 ss 16, 21, 22

Corporations Act 2001 (Cth) ss 601KA(5), 601KA(6), 761G, 769C, 1041H, 1041I(1B), 1041(2), 1041L, 1041N, 1230H

Evidence Act 1995 (Cth) s 140

Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AG, 37M, 37N

Trade Practices Act 1974 (Cth) ss 52, 82

Migration Regulations 1994 (Cth) rr 1.03, 5.19B(2)

Federal Court Rules 2011 (Cth) r 16.02

Cases cited:

ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1

Akron Securities Ltd v Iliffe (1997) 143 ALR 457

Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216

APIR Systems Ltd v Donald Financial Enterprises Pty Ltd [2009] FCAFC 45

Ashby v Slipper (2014) 219 FCR 322

Astley v AusTrust Ltd [1999] HCA 6; (1999) 197 CLR 1

Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114

Australian Competition and Consumer Commission v Employsure Pty Ltd [2021] FCAFC 142; (2021) 392 ALR 205

Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17

Australian Competition and Consumer Commission v Mazda Australia Pty Ltd [2023] FCAFC 45

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40; (2021) 285 FCR 133

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640

AustralianCompetition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196; (2016) ALR 647

Australian Medic-Care Company Ltd v Hamilton Pharmaceutical Ltd [2008] FCA 1979

Australian Securities and Investments Commission v BPS Financial Pty Ltd [2024] FCA 457

Australian Securities and Investments Commission v DoverFinancial Advisers Pty Ltd [2019] FCA 1932; (2019) 140 ACSR 561

Awad v Twin CreeksProperties Pty Ltd [2012] NSWCA 200

Bale v Mills (2011) 81 NSWLR 498

Banque BruxellesLambert SA v Eagle Star Insurance Co Ltd [1997] AC 191

Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 271 CLR 151

BHP Billiton Olympic Dam Corporation Pty Ltd v Steuler Services GmbH & Co KG [2014] VSCA 338

Bird vDP [2024] HCA 41

Briginshaw v Briginshaw (1938) 60 CLR 336

Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592

Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304

Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13

CCL Secure Pty Ltd v Berry [2019] FCAFC 81

Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367

Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447

Culligan v Aco Pty Ltd [2009] NSWCA 290

Delaney v Delaney [2021] VSC 365 at [443]

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

Elanor Funds Management Ltd v Alceon Group Pty Ltd [2024] FCAFC 121

Equuscorp Pty Ltd v Glengallen Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Reg) [1997] HCA 8; (1997) 188 CLR 241

Gates v City Mutual LifeAssurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1

Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; (2013) 249 CLR 435

Gulic v Boral Transport Ltd [2016] NSWCA 269

Hanave Pty Ltd v LFOT Pty Ltd (formerly Jagar Projects Pty Ltd) [1999] FCA 357; (1999) 43 IPR 545

Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; (2020) 282 FCR 530

Harvey v John Fairfax Publications Pty Ltd [2005] NSWCA 255

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd(No 1) (New York Deli case) (1988) 39 FCR 546

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640

Hughes-Holland v BPE Solicitors [2018] AC 599; [2017] UKSC 21

Hunt & Hunt Lawyers (a firm) v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613

In Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526

John Holland Pty Ltd v Kellog Brown & Root Pty Ltd [2015] NSWSC 451

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Kazal v Thunder Studios Inc (California) [2023] FCAFC 174

Kuligowski v Metrobus (2004) 220 CLR 363

Lantrack Holdings Pty Ltd v Yammine [2023] FCAFC 156

Lehrmann v Network Ten Pty Ltd (Trial Judgment) [2024] FCA 369

Mayfair Wealth Partners Pty Ltd v Australian Securities and Investments Commission [2022] FCAFC 170; (2022) 295 FCR 106

Paciocco v Australia and New Zealand Banking Group Ltd (2015) [2015] FCAFC 50; (2015) 236 FCR 199

Palmer v McGowan (No 5) [2022] FCA 893; (2022) 404 ALR 621

Paper Express Ltd v Pfankuch Maschinen GmBH, 972 F. 2d 753 (1992)

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191

Placer (Granny Smith) v Thiess Contractors Pty Ltd [2003] HCA 10; 196 ALR 257

Potts v Miller [1940] HCA 43; (1940) 64 CLR 282

Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2024] HCA 27; (2024) 98 ALJR 1021

Productivity Partners Pty Ltd v Australian Competition and Consumer Commission [2023] FCAFC 54; (2023) 297 FCR

Punchbowl Casual Dining Pty Ltd v Rashays Cafes & Restaurants Pty Ltd [2024] FCA 1265

Ramadan v ACN 098408 176 Pty Ltd [2023] SASCA 91

Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705; (2022) 162 ACSR 509

Re HIH Insurance Ltd (in liq) [2016] NSWSC 482; (2016) 335 ALR 320

Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd [2023] HCA 8; (2023) 277 CLR 186

Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

TPT Patrol Pty Ltd v Myer Holdings Ltd [2019] FCA 1747; (2019) 293 FCR 29

Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422

Wardley v Western Australia [1992] HCA 55; (1992) 175 CLR 514

Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd [2005] WASCA 174; (2005) 224 ALR 134

Water Board v Moustakas [1980] HCA 12; (1988) 180 CLR 491

Watson v Foxman (1995) 49 NSWLR 315

Wingecarribee Shire Council v Lehman Brothers Australia Ltd (in liq) [2012] FCA 1028; (2012) 301 ALR 1

Wyzenbeek v Australian Marine Imports Pty Ltd (in liq) (2019) 272 FCR 373

Zonia Holdings Pty Ltd vCommonwealth Bank of Australia Ltd (No 5) [2024] FCA 477

Division:

General Division

Registry:

Victoria

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Number of paragraphs:

1293

Date of hearing:

3 – 7, 11 – 14, 17, 18, 25 – 28 June 2024
8, 24 – 26 July 2024
5, 6 August 2024

Counsel for the Plaintiff in VID 122 of 2022

Mr M Pearce SC with Mr A Aleksov and Mr P Donovan

Solicitor for the Plaintiff in VID 122 of 2022

Roberts Gray Lawyers

Counsel for the Plaintiff in VID 123 and 124 of 2022

Ms E.A Bennett SC with Ms H. Aprile

Solicitor for the Plaintiff in VID 123 and 124 of 2022

Corrs Chambers Westgarth

Counsel for the Defendant in VID 123 and 124 of 2022, and the First, Second and Fourth to Sixth Defendants in VID 122 of 2022

Mr J.W.S Peters AM KC with Mr H.C Whitwell

Solicitor for the Defendant in VID 123 and 124 of 2022, and the First, Second and Fourth to Sixth Defendants in VID 122 of 2022

Minter Ellison

Counsel for the Seventh Defendant in VID 122 of 2022

Mr M Meng

Solicitor for the Seventh Defendant in VID 122 of 2022

Vstar Lawyers

ORDERS

VID 122 of 2022

BETWEEN:

LI XU

Plaintiff

AND:

SALTER BROTHERS ASSET MANAGEMENT PTY LTD

First Defendant

SBII INVESTMENT PTY LTD

Second Defendant

ROBERT SALTER (and others named in the Schedule)

Fourth Defendant

ORDER MADE BY:	MCELWAINE J
DATE OF ORDER:	19 FEBRUARY 2025

THE COURT ORDERS THAT:

1.Pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth) and on the ground that it is necessary to prevent prejudice to the administration of justice, the publication of paragraphs [111]-[124] in their entirety, the final sentence of paragraph [128], and the portions of the first sentence of paragraph [129] immediately following “evidence” and preceding “I am satisfied” and immediately following “documents” and preceding “each investor” of the reasons for judgment in this matter are suppressed, save for publication to the parties and their legal representatives, until 31 March 2025 or further order, as those paragraphs reference commercially confidential information.

2.The proceeding is dismissed.

3.Any application for costs, with any affidavit evidence in support, is to be made in writing filed and served by 4pm within 14 days. The submissions in support must not exceed 10 pages.

4.If an application for costs is made, it is to be responded to in writing filed and served within 14 days of the date of service pursuant to order (3), limited to a submission not exceeding 10 pages plus any affidavit in support.

5.Any reply submission is to be filed and served within 7 days of the date of service pursuant to order (4), limited to 5 pages.

6.Subject to any further order, any costs application will be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

VID 123 of 2022

BETWEEN:

JINGYI LI

Plaintiff

AND:

SALTER BROTHERS ASSET MANAGEMENT PTY LTD

Defendant

ORDER MADE BY:	MCELWAINE J
DATE OF ORDER:	19 FEBRUARY 2025

THE COURT ORDERS THAT:

1.Pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth) and on the ground that it is necessary to prevent prejudice to the administration of justice, the publication of paragraphs [111]-[124] in their entirety, the final sentence of paragraph [128], and the portions of the first sentence of paragraph [129] immediately following “evidence” and preceding “I am satisfied” and immediately following “documents” and preceding “each investor” of the reasons for judgment in this matter are suppressed, save for publication to the parties and their legal representatives, until 31 March 2025 or further order, as those paragraphs reference commercially confidential information.

2.The proceeding is dismissed.

3.Any application for costs, with any affidavit evidence in support, is to be made in writing filed and served by 4pm within 14 days. The submissions in support must not exceed 10 pages.

4.If an application for costs is made, it is to be responded to in writing filed and served within 14 days of the date of service pursuant to order (3), limited to a submission not exceeding 10 pages plus any affidavit in support.

5.Any reply submission is to be filed and served within 7 days of the date of service pursuant to order (4), limited to 5 pages.

6.Subject to any further order, any costs application will be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

VID 124 of 2022

BETWEEN:

ZHENG XU

Plaintiff

AND:

SALTER BROTHERS ASSET MANAGEMENT PTY LTD

Defendant

ORDER MADE BY:	MCELWAINE J
DATE OF ORDER:	19 FEBRUARY 2025

THE COURT ORDERS THAT:

1.Pursuant to ss 37AF and 37AG of the Federal Court of Australia Act 1976 (Cth) and on the ground that it is necessary to prevent prejudice to the administration of justice, the publication of paragraphs [111]-[124] in their entirety, the final sentence of paragraph [128], and the portions of the first sentence of paragraph [129] immediately following “evidence” and preceding “I am satisfied” and immediately following “documents” and preceding “each investor” of the reasons for judgment in this matter are suppressed, save for publication to the parties and their legal representatives, until 31 March 2025 or further order, as those paragraphs reference commercially confidential information.

2.The proceeding is dismissed.

3.Any application for costs, with any affidavit evidence in support, is to be made in writing filed and served by 4pm within 14 days. The submissions in support must not exceed 10 pages.

4.If an application for costs is made, it is to be responded to in writing filed and served within 14 days of the date of service pursuant to order (3), limited to a submission not exceeding 10 pages plus any affidavit in support.

5.Any reply submission is to be filed and served within 7 days of the date of service pursuant to order (4), limited to 5 pages.

6.Subject to any further order, any costs application will be determined on the papers.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

A. SYNOPSIS	[1]
B. DRAMATIS PERSONAE AND GLOSSARY	[11]
B. 1 Salter Brothers	[11]
B. 2 Li Xu proceeding	[20]
B. 3 Jingyi Li proceeding	[34]
B. 4 Zheng Xu proceeding	[36]
C. COMMON BACKGROUND MATTERS	[37]
C. 1 The Significant Investor Visa (SIV) Program	[38]
C. 2 Salter Brothers Group Funds	[44]
C. 3 Hotel Group	[67]
C. 4 The Information Memoranda and Application Documents	[76]
D. REDEMPTIONS AND AN IPO OF TWO ENTITIES	[91]
E. LEGAL PRINCIPLES	[130]
E. 1 Misleading or deceptive conduct principles	[130]
E. 2 Statutory unconscionable conduct principles	[138]
E. 3 The effect of the contractual documents	[156]
E. 4 General approach to the assessment of the evidence	[161]
F. THE CASE OF LI XU	[170]
F. 1 Issues on the pleadings	[170]
F. 2 The witnesses	[211]
F. 3 Misleading conduct case	[228]
F. 4 The Han representations	[230]
F. 5 The Jin representations	[260]
F. 6 The Fan representations	[287]
F. 7 Consideration and findings	[299]
F. 8 The Michael Gu, Hannah Zhu and Robert Salter representations	[347]
F 8.1 Michael Gu representations	[348]
F 8.1.2 Pleaded case	[348]
F 8.1.3 Evidence	[350]
F. 8.1.4 Consideration and findings	[361]
F. 8.2 Hannah Zhu and Robert Salter representations	[375]
F. 8.2.1 The issues	[375]
F. 8.2.2 The evidence	[379]
F. 8.2.3 Cross-examination of Li Xu	[398]
F. 8.2.4 Evidence of Robert Salter	[405]
F. 8.2.4.1 Evidence-in-chief	[405]
F. 8.2.4.2 Cross-examination	[407]
F. 8.2.5 Evidence of Hannah Zhu	[410]
F. 8.2.5.1 Evidence-in-chief	[410]
F. 8.2.5.2 Cross-examination of Hannah Zhu	[421]
F. 9 Consideration and findings	[446]
F. 9.1 Robert Salter representations	[446]
F. 9.2 Hannah Zhu representations	[456]
F. 10 Conclusion on the representation case	[515]
F. 11 Were the representations misleading or deceptive	[517]
F. 12 Causation	[541]
F. 12.1 How the case is put	[541]
F. 12.2 The counterfactual	[561]
F. 13 Loss and damage	[576]
F. 13.1 Damages in a no transaction case	[576]
F. 13.2 The accounting and expert valuation evidence	[582]
F. 13.3 Li Xu’s damages claim	[602]
F. 13.4 A new damages claim	[630]
F. 13.5 Reduction of damages on account of failure to take care	[664]
F. 13.6 The refund remedy	[677]
F. 13.7 Other issues in the proceeding	[685]
F. 13.8 Overall result	[694]
G. THE CASE OF JINGYI LI	[695]
G.1 The pleaded issues	[695]
G. 2 The witnesses and the evidence	[747]
G. 3 The IM Representation case	[764]
G. 4 Jingyi Li evidence and Jun Chen evidence	[767]
G. 4.1 Events to 30 August 2016	[768]
G. 4.1.1 Evidence of Jingyi Li	[768]
G. 4.1.2 Jun Chen evidence	[781]
G.5 Were the IM Representations misleading or deceptive?	[796]
G. 5.1 What is the relevant class?	[797]
G. 5.2 The class question: Were the IM Representations misleading?	[803]
G. 5.2.1 Context	[803]
G. 5.2.2 The Four-Year Investment Representation	[808]
G. 5.2.3 Investment Assessment Representation	[811]
G. 5.2.4 The Conflict Representation and the Structured Investment Representation	[814]
G. 5.2.5 The Diversification Representation	[833]
G. 5.3 Conclusions regarding the IM Representations	[837]
G. 5.4 The WeChat Representations	[838]
G. 5.5 The March 2017 meeting	[841]
G. 5.6 An email of 19 April 2017	[845]
G. 5.7 An email of 31 July 2018	[856]
G. 5.8 Jun Chen’s knowledge as at September 2018	[862]
G. 5.9 The September 2018 WeChat messages	[863]
G. 5.9.1 Were the WeChat Representations made?	[867]
G. 5.9.2 The construction issue	[883]
G. 5.9.2.1 Submissions	[883]
G. 5.9.2.2 Consideration	[896]
G. 5.10 Conclusions as to the meaning of the WeChat Representations	[926]
G. 5.11 Were the WeChat Representations misleading or deceptive?	[927]
G. 5.11.1 The entire course of conduct	[929]
G. 5.12 Submissions	[957]
G. 5.13 Consideration	[964]
G. 5.14 Conclusions as to the misleading conduct case	[990]
G. 6 Causation	[991]
G. 6.1 The pleaded case	[991]
G. 6.2 The direct evidence	[996]
G. 6.3 Submissions	[1005]
G. 6.4 Consideration	[1010]
G. 7 Unconscionable conduct	[1025]
G. 7.1 What is in issue in this case?	[1025]
G. 7.2 Consideration	[1059]
G. 8 Damages and other relief	[1082]
G. 8.1 What is the claim?	[1082]
G. 8.2 Consideration	[1115]
G. 8.3 The failure to take reasonable care defence	[1123]
G. 8.3.1 Submissions	[1123]
G. 8.3.2 Consideration	[1132]
G. 9 ASIC Act s 12GM refund claim	[1137]
H. THE CASE OF ZHENG XU	[1138]
H. 1 The pleaded issues	[1138]
H. 2 The witnesses and the evidence	[1166]
H. 3 The IM Representations case	[1178]
H. 4 Were the IM Representations misleading?	[1179]
H. 4.1 The evidence	[1179]
H. 4.2 Agency is not established	[1222]
H. 5 Conclusion as to the misleading conduct case	[1224]
H. 6 Causation	[1225]
H 6.1 The pleaded case	[1225]
H. 6.2 Reliance evidence	[1229]
H. 6.3 Causation submissions	[1233]
H. 6.4 Consideration	[1235]
H. 7 Unconscionable Conduct	[1236]
H. 8 Damages and other relief	[1261]
H. 9 Did Zheng Xu fail to take reasonable care?	[1277]
H. 10 Section 12GM refund claim	[1288]
H. 11 Other matters of defence	[1289]
H. 12 Overall conclusions in the Zheng Xu proceeding	[1291]

MCELWAINE J:

A. SYNOPSIS

1. The Salter Brothers Group is a private equity business which owns and operates hotels and acts as a fund manager for high-net-worth investors.  The corporate structure is relatively complex where all pathways ultimately lead to the founding brothers, Paul and Robert Salter.  Of the many corporate entities in the Salter Brothers Group, those of primary relevance to these proceedings are Salter Brothers Asset Management Pty Ltd, Salter Brothers Immigration Investment Pty Ltd, Salter Brothers Property Opportunity Fund Ltd, Salter Brothers Hotel Company Ltd, and various similarly named corporations with distinguishing numbers commencing with Salter Brothers Hotel Company No 1 Pty Ltd.  For some assets, where ownership and trading operations are separated, the trading entities adopt the names of well-known hotels: a good example of which is Salter Brothers (Rialto) Hotel Pty Ltd which is situated at 495 Collins Street, Melbourne.

2. Commencing in 2012, the Commonwealth established the Significant Investor Visa (SIV) Program, the effect of which was to enable complying foreign investors to obtain a temporary visa and, subject to satisfying certain criteria, the opportunity of making an application for a permanent visa.  A condition of the grant of either visa required the applicant to make and maintain a complying investment in Australia of at least $5 million for a period of four-years.  There were other criteria, which varied depending on whether an application was made before 15 July 2015, between 15 July 2015 and 30 June 2021 or after 1 July 2021.  These proceedings concern visa applications made by Li Xu in proceeding VID122/2022 (who applied on 3 September 2014), Jingyi Li in proceeding VID123/2022 (who applied on 15 June 2016) and Zheng Xu in proceeding VID124/2022 (who applied on 4 June 2015).  At the time, each plaintiff was a citizen and resident of the People’s Republic of China and whose native language was Mandarin.

3. This is not, however, a case about migration law.  Each application was successful, in that each plaintiff made complying investments and thereafter migrated with family members to Australia having secured a temporary visa.  In differing ways, each plaintiff now contends that they were misled into making their investments and they claim damages or alternatively a refund of the amounts invested against Salter Brothers Asset Management Pty Ltd, which is the primary defendant.

4. Salter Brothers Asset Management Pty Ltd at all material times acted as the Trustee of various compliant investment funds designated by the letters A, B, C, D, E, F, K and L.  Each fund invested in a designated class of asset.  Some funds were liquid, and others were not.  The illiquid funds offered a higher rate of return.  The trusts were unit trusts in which investors were the unit holders.  The primary investment of some of the funds were stapled securities in the related SB&G Hotel Group.  Salter Brothers Immigration Investment Pty Ltd acted as the authorised representative and appointed manager of each fund.

5. Each proceeding was case managed and heard concurrently as there is a significant overlap of issues.  That said, there are important differences.  Li Xu’s claim is that oral representations were made to her to the effect that she could redeem her investment after four-years and that the investments did not carry risk. In reliance thereon she invested a total of $2.5 million in three funds operated by Salter Brothers Asset Management Pty Ltd.  Later in March 2017, she consolidated her investments into a single fund, which she contends was and is illiquid.  Her claim is that the representations on which she relied were misleading.  She further contends that the representations amounted to contractual warranties which have been breached.  She made a further investment of $50,000 in March 2018, again believing in consequence of the representations that she could redeem upon expiry of the initial four-year term.  Despite redemption requests, none of her investments have been redeemed.  Li Xu’s claim joined seven defendants.  Two were deleted as the claim progressed. During the trial she compromised with one defendant, Austar Group Migration Pty Ltd, and the claim against it was dismissed.  In closing submissions, she abandoned her claim against another defendant Kevin Fan.

6. Jingyi Li confines her claim to Salter Brothers Asset Management Pty Ltd.  In September 2016, she invested $5 million into a fund which invested in term deposits held with Australian financial institutions.  This investment was liquid.  Her claim is that she was (largely) provided with documents in English, particularly an Information Memorandum dated 1 September 2015, which she did not read and could not comprehend.  The Information Memorandum conveyed five representations that were misleading or deceptive on which she relied.

7. Between July and September 2018, Jingyi Li contends that various oral and written misleading representations were made to her which ultimately induced her to transfer her investments into other property funds with higher rates of return.  In reliance thereon in February 2019, she resolved to and applied to reallocate her investment into two different funds which she did not understand at the time to be illiquid and which decision she would not have made but for those representations.  Her requests to redeem her investments have been unsuccessful.

8. Zheng Xu also confines her claim to Salter Brothers Asset Management Pty Ltd, and in material respects it mirrors that of Jingyi Li.  She contends that in June 2016, she was provided with a brochure which outlined the funds and Jeanetta Jin made oral representations to her that “reinforced” the representations made in writing in an Information Memorandum dated 1 February 2016.  She does not recall receiving a copy of the Information Memorandum, but nonetheless pleads that it was in English and that it contained the same five representations as pleaded in the case of Jingyi Li.  In reliance on the representations, she invested $3 million on 15 June 2016 into a property fund.  She contends that in late 2017, Hannah Zhu, a representative of Salter Brothers Asset Management Pty Ltd “repeated and reinforced” the representations made in the Information Memorandum (though it is not said that Zheng Xu relied on that distinct representation in any particular manner).

9. Separately, Jingyi Li and Zheng Xu contend that Salter Brothers Asset Management Pty Ltd engaged in statutory unconscionable conduct in that each was in a position of special disadvantage (an inability to read or comprehend English) which Salter Brothers Asset Management Pty Ltd took advantage of by only providing the Information Memoranda and other important documents in English, which could not be read or comprehended.

10. For the reasons that follow, I have concluded that each claim fails for multiple reasons.  I have not employed the device of judicial economy by only deciding the determinative issues.  In each proceeding I have resolved each primary issue: “a judge should determine all issues …to assist the appeal process and obviate recourse to a new trial”: Gulic v Boral Transport Ltd [2016] NSWCA 269 at [7], Macfarlan JA. In each case I have concluded that the claims fail on the liability issues. However, I have proceeded to determine the questions of causation, damages and reduction on account of a failure to take reasonable care. The causation cases fail as do the damages claims on the particularised contention that the investments have no present value. However, an alternative basis for the assessment of damages is open on the evidence of the expert witness for the Salter Brothers parties. Had I awarded damages on the alternative calculations, I would have reduced the quantum of each claim to amounts that I consider to be just and equitable having regard to each claimant’s share of responsibility for the loss or damage caused.

    B. DRAMATIS PERSONAE AND GLOSSARY

    B. 1 Salter Brothers

11. At the outset to avoid confusion, the following entity names and roles, which evolved over time, must be understood. Where entities are referred to in contemporaneous documents the former name is used.

12. Salter Brothers Asset Management Pty Ltd was until 14 September 2017, known as MAP Capital Pty Ltd.  Where contemporaneous documents reference it, I refer to it as MAP Capital. Otherwise, I adopt the parties’ nomenclature of SBAM.  It acted as the Trustee of each fund, and it is often convenient to simply refer to it as the Trustee.

13. Salter Brothers Immigration Investment Pty Ltd was until 2 March 2020 known as Atlas Capital Group Pty Ltd. It acted as the Investment Manager, appointed to that role by the Trustee. It is referred to in contemporaneous documents as the Investment Manager.  Otherwise, I also adopt the parties’ nomenclature of SBII.

14. Atlas Capital was the generic name assigned to the Significant Investor Visa Funds.  Each fund is variously referenced in the documents as an Atlas Capital Fund.

15. SB&G Hotel Group is the former name of the Salter Brothers Hotel Group or simply Hotel Group, which at all material times has included SBAM, SBII and Salter Brothers Hotel Company Ltd. Which in many contemporaneous documents is referred to as Hotel Company.  The Hotel Company is the consolidated reporting entity comprising Salter Brothers Opportunity Fund Ltd and entities controlled by it.  It is variously referenced as Property Opportunity Fund or POF.  It invests in stapled securities in the Hotel Group and property developments in Australia and the USA. 

16. Collectively, the entire group of companies is commonly referred to as Salter Brothers or Salter Brothers Group.

17. SBAM as the Trustee of the relevant funds holds units in the Salter Brothers Hotel Company Trust which was known as the SB&G Hotel Company Trust.  SBAM is also the Trustee of the Salter Brothers Hotel Company Trust.  This is often referred to in evidence as the Hotel Trust.

18. Each fund in issue is an unregistered managed investment scheme open only to wholesale clients.  Each was established for the purpose of facilitating the making of a complying investment by a prospective SIV Program applicant.  Each of the funds holds units in the Hotel Trust and shares in Hotel Company which are stapled.  The Hotel Company holds units in the Salter Brothers Hotel Company No 2 Trust, which in turn holds units in a series of trusts which own the real property assets.  The Hotel Company holds shares in Salter Brothers Hotel Company No 2 Pty Ltd, which holds shares in a series of companies which conduct the hotel businesses and own the business assets.

19. I intend no disrespect to any individual by not including the title for each person who has given evidence or is referred to in the evidence.  Those persons and their roles for each proceeding are as follows.

    B. 2 Li Xu proceeding

20. Li Xu is the plaintiff. She is married to Dian Wang. Each is a citizen of the People’s Republic of China, and each has permanent resident status in Australia.

21. Enda Stankard is the Managing Director of MA Financial Group, which was previously known as Moelis Australia. Moelis also offered complying forms of investment for prospective SIV Program investors.

22. Rhys Roberts is the solicitor for Li Xu.  He gave limited evidence about an attempt by Li Xu to sell her units in in early 2024, which is relevant to the damages claim.

23. SBAM and SBII are the first and second defendants respectively.  Menghong (Michael) Gu was named as the third defendant until deleted as a party upon the filing of an amended statement of claim on 10 October 2023. He was a director of SBII between 17 September 2013 and 4 April 2019.

24. Robert Salter is the fourth defendant.  He is a director of SBAM and the CEO of the Salter Brothers Group.

25. Fuyin (Kevin) Fan is the fifth defendant.  The claims against him were not pressed in closing submissions. He is a non-executive director of SBII.

26. Hannah Zhu is the sixth defendant.  She is a director of Salter Brothers Capital Pty Ltd and was employed by SBII.

27. Austar Group Migration Pty Ltd (Austar Melbourne) was the seventh defendant until the proceeding against it was dismissed by consent on 7 June 2024.  There are other corporations referred to with the name Austar and prominent amongst them is Suzhou Austar Private Entry-Exit Consulting Service Co Ltd (Austar Suzhou).  It is part of the Austar Group of companies, based in the People’s Republic of China.  It acted as an immigration agent.

28. Xiaoyan (Jeanetta) Jin was named as the eighth defendant.  She is a resident of the People’s Republic of China.  She was deleted as a party due to an inability to effect service.  She was engaged as an SIV Investment Director with Austar Suzhou.

29. Lixia Han was named as the ninth defendant.  She was also deleted as a party because she could not be served.  She was a representative of Austar Suzhou based in China.

30. Many of the witnesses for Salter Brothers gave evidence in each of the three proceedings.

31. Paul Salter is the Managing Director of SBAM and Hotel Company.  He is the CEO of SBII. He is also a director of Property Opportunity Fund.

32. Peter Hamilton is the Chief Financial Officer of the Salter Brothers Group.

33. Dawna Wright is a Chartered Accountant and specialist forensic accountant.  She gave independent expert witness evidence for Salter Brothers on the damages issue.

    B. 3 Jingyi Li proceeding

34. Jingyi Li is the plaintiff.  She is married to Jun Chen.  Even though Jun Chen was the primary decision-maker he was not named as a party.

35. Hui (Natalie) Liao is engaged as a contractor to Salter Brothers Capital Pty Ltd and is currently the Executive-Investment Advisory. She is the only additional witness for the Salter Brothers parties in this proceeding.

    B. 4 Zheng Xu proceeding

36. Zheng Xu is the plaintiff and the only witness in her case.

    C. COMMON BACKGROUND MATTERS

37. An order was made on 9 May 2022 to the effect that each proceeding would be managed and heard together, with the evidence received in one proceeding being, to the extent relevant, evidence in each other proceeding.  To reduce the prospect of an unwieldy trial, other case management orders were made which required attendance before a registrar to settle and agree a chronology, a statement of facts and a list of issues for determination.  Those orders were complied with.

    C. 1 The Significant Investor Visa (SIV) Program

38. At relevant times, the SIV Program was open to eligible applicants willing to invest a minimum amount of $5 million in complying Australian investments and maintain the investment for a minimum period of four-years. Units in the SIV Funds have at all material times been ‘financial products’ within the meaning of Chapter 7 of the Corporations Act 2001 (Cth) and section 12BAA of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). Each fund was established for the purpose of satisfying the requirements for a complying investment for the purpose of raising funds from foreign citizens who sought to participate in the SIV Program as a pathway to the grant of a visa.

39. The statutory scheme of the SIV Program may be briefly summarised as set out in the Migration Regulations 1994 (Cth). The SIV Program was inserted by amendment commencing on 24 November 2012. A complying investment must consist of one or more of the categories of investment specified at r 5.19B(2) of the Regulations. The categories include government bonds, direct investments in proprietary companies that meet specified requirements and investments in managed funds. Managed funds were defined as managed investment schemes within the meaning of the Corporations Act: r 1.03 of the Regulations.

40. The scheme was amended from time to time and other types of complying investments were specified by legislative instruments, but nothing in these proceedings turns on that.

41. Typically, the process operated as follows in these cases.  A Chinese citizen seeking to migrate to Australia will contact a China based migration agent.  A contract is entered into with the agent to assist with the application process.  The agent prepares the documentation.  The documentation includes notification of the appointment of the agent to an Australian sponsor.  The applicant, through the agent, submits an expression of interest to participate in the SIV Program.  If the expression of interest is accepted, the investor is invited to apply for sponsorship, in the form of a nomination by a relevant State or Territory government agency.  If the application is approved, the agent will receive all correspondence from the Department of Immigration and Border Protection addressed to the applicant.  Correspondence from the Department will advise that the application has reached the stage whereby the applicant is invited to select and make a complying investment of at least $5 million in Australia to qualify for the grant of a temporary visa.  From the information provided by the applicant, the assets that may be used for that purpose are identified.  The applicant is instructed to complete and submit a deed of acknowledgement, undertaking and release, make the complying investment and having done so, provide evidence of that fact to the Department.

42. The applicant considers a range of complying investments from information provided by the migration agent.  Investment managers, such as Salter Brothers, provide information to migration agents.  This information is sometimes composed in the Mandarin language, but in these cases most of it was written only in English.  Having selected the preferred investment, the applicant signs and submits an application form to the selected fund manager.  If the application is approved, the necessary funds are transferred and upon evidence of that fact having been provided to the Department the temporary visa is issued.  Having secured the temporary Subclass 188 Visa, the investor may then apply for the permanent Subclass 888 Visa.

43. Unsurprisingly, the investment application forms and the accompanying Information Memoranda are replete with warnings about the risks of investment and contain detailed disclaimers and statements that the applicant should consider taking his or her own independent financial and/or legal advice. For Salter Brothers this key documentation was only provided in English.

    C. 2 Salter Brothers Group Funds

44. There are common agreed facts about the corporate defendants, the relevant funds and aspects of the Salter Brothers Group operations.  As the trial progressed, the points of difference narrowed.

45. SBAM was at all material times, the Trustee of various SIV Funds, including:

    (a)The Salter Brothers Series A (Large Cap) Fund (which was previously known as the Atlas Capital Series A (Protected Equities) Fund) (Fund A);

    (b)The Salter Brothers Series B (TMT) Fund (which was previously known as the Atlas Capital Series B (Active Investment) Fund) (Fund B);

    (c)The Significant Investor Visa Series C Fund (Fund C);

    (d)The Significant Investor Visa Series D Fund (Fund D);

    (e)The Salter Brothers Series E (Property) Fund (which was previously known as the Atlas Capital Series E (Property) Fund) (Fund E);

    (f)The Significant Investor Visa Series K Fund (Fund K); and

    (g)The Significant Investor Visa Series L Fund (Fund L).

46. SBAM has at all material times held an Australian Financial Services Licence (AFSL: 308971) in respect of the operation of the funds.

47. Each of funds A, B, C, E, K and L have at all material times operated as an unregistered managed investment scheme and were established by SBAM for the purpose of raising funds from foreign investors intending to participate in the SIV Program.

48. SBII has at all material times acted as the Investment Manager of the SIV Funds. It is and was at all material times the authorised representative of SBAM within the meaning of Division 5 of Part 7.6 of the Corporations Act.

49. Hotel Company has at all material times had its shares stapled to units in the Hotel Trust. Hotel Company and the Hotel Trust own and operate a number of hotels.  The Hotel Group (formerly the SB&G Group) has at all material times included SBAM and SBII.

1. On 27 January 2015, Atlas Capital Group entered into a referral agreement with Austar Group Ltd.  On 17 November 2015, MAP Capital entered into a referral agreement with DH Global Investment Ltd.

2. Fund A was established by a trust deed dated 25 September 2013, and later amended by a deed of variation dated 5 April 2016.  This fund invests predominantly in shares of corporations listed on the Australian Securities Exchange (ASX).

3. Fund B was established by a trust deed dated 25 September 2013 and was also amended by a deed of variation dated 5 April 2016.  This fund predominantly invests in companies in the technology, retail, internet, media, entertainment and telecommunications sectors that are either small capitalisation companies listed on the ASX or companies that expect to list on the ASX.

4. Fund C was established by a trust deed dated 25 September 2013 and was also amended by a deed of variation dated 5 April 2016.  This fund invests in term deposits with Australian banks.

5. Fund D invests in the Hotel Group and in Property Opportunity Fund.  The form of investment in the Hotel Group comprises stapled securities being a share in a hotel company and a unit in the corresponding Hotel Trust.  Investments in Property Opportunity Fund comprise an allocation of 100 fully paid ordinary shares and a specified number of convertible notes.  Each convertible note converts into one share in Property Opportunity Fund upon the happening of one or more specified events.  One of those events is the listing of Property Opportunity Fund on the ASX.

6. Fund E was established by a trust deed dated 3 March 2015 and was amended by a deed of variation dated June 2015. This fund invests in the Hotel Group and in Property Opportunity Fund. The Fund E assets, including indirect investments, comprise stapled securities in property development projects (one in Victoria and the other in North Carolina), a majority interest in a hotel in Maryland in the United States and a minority interest in the Salter Brothers Social Infrastructure Property Fund, which owns a childcare centre in Victoria.  Over time, this fund has also held an investment interest in a townhouse development in Victoria.

7. Fund K was established by two trust deeds each dated 24 August 2015.  The trust investments comprise stapled securities in the Hotel Group, units in the Hotel Trust and units in another fund known as Fund K2 (which is also a complying SIV Fund).  This fund was described in evidence (the Information Memorandum dated 1 September 2015) as investing in Australian property and infrastructure, with the fund mandate focused on investments in yielding property and infrastructure investments that include commercial, industrial, retail, hotel and other yielding property and infrastructure assets.

8. Fund L was established by a trust deed dated 18 September 2017.  Investments in this fund comprise stapled securities in the Hotel Group and convertible notes in Property Opportunity Fund.  The key difference between Fund L and Fund K is that Fund L invests in Property Opportunity Fund and Fund K does not.  A further difference is that investors in Fund L are entitled to receive a preference return in the minimum amount of 6% per annum and if there are insufficient funds, the difference must be met by SBII returning a proportion of its management fees, subject to the fees being exhausted.

9. The trust deeds are in materially the same form.  As examples, I reference the deed for Fund E which is central to the claims of Li Xu, and Fund K which is common to the claims of Jingyi Li and Zheng Xu.

10. The Fund E deed poll (amended in accordance with the June 2015 Deed of Variation) relevantly provides (CB 4236, 4295):

    (1)This trust deed binds the Trustee and each Unitholder and former Unitholder: cl 2.2;

    (2)The Trustee holds the Trust Assets on trust for the Unitholders in accordance with the terms of the trust deed: cl 3.1;

    (3)The beneficial interest in the Trust Assets is divided into a changeable number of Units which may be issued by the Trustee at any time and, subject to rights, obligations and restrictions attaching to any particular Unit, all Units rank equally with each other: cl 4.1;

    (4)The Trustee may allot and issue Units to any person on any terms at any time and in any numbers and attaching thereto such rights, restrictions and obligations as the Trustee thinks fit in its absolute discretion: cl 4.2;

    (5)The Trustee may, in addition to Units, allot and issue any Financial Product to any person on any terms at any time and in any number as the Trustee thinks fit in its absolute discretion: cl 4.5;

    (6)A Unitholder is not entitled to and waives any right it may otherwise have to require any Trust Assets to be transferred to the Holder, other than in accordance with clauses 9.8 or 24.5: cl 5.1;

    (7)Units must only be issued at the Issue Price determined in accordance with clause 8.1: cl 8;

    (8)Except as provided in clause 9, a Unitholder has no right to withdraw from the Trust and the Trustee has no obligation to redeem any Units or cause any Units to be redeemed: cl 9;

    (9)While the Trust is Liquid, a Unitholder may make requests of the Trustee to redeem some or all of the Units and within 60 Business Days of the making of such request, the Trustee in the Trustee’s discretion may redeem the number or value of Units specified in the Withdrawal Request, purchase or arrange for another person to purchase the number or value of Units specified in the Withdrawal Request at a price per Unit no less than the proceeds of withdrawal or satisfy the Withdrawal Request in part in each of those ways: cl 9.2;

    (10)Liquid has the meaning given for the purposes of the Corporations Act (cl 1.1), which, is one where liquid assets account for at least 80% of the value of the scheme property, respectively comprising money in an account or on deposit with a bank, bank accepted bills, marketable securities or property of a prescribed kind: s 601KA(5). Any other property is a liquid asset if the responsible entity reasonably expects that the property can be realised for its market value within the period specified in the constitution for satisfying withdrawal requests while the scheme is liquid: s 601KA(6). In the case of a sub-fund for a corporate collective investment vehicle, similar definitions apply at s 1230H (it is perhaps surprising that the definitions for managed investment schemes are incorporated into the Fund E unregistered scheme, but no party submits that this is a matter of significance);

    (11)The Trustee may extend the time by which a withdrawal request must be satisfied if, inter alia, in the opinion of the Trustee sufficient Trust Assets cannot be realised at an appropriate price or on adequate terms or otherwise due to one or more circumstances outside the control of the Trustee: cl 9.2(3)(a), (d), and 9.2(3);

    (12)The Trustee may in its absolute discretion redeem some or all Units held by a Unitholder regardless of whether or not the Trustee has received a Withdrawal Request and may do so whether or not the Trust is liquid: cl 9.15;

    (13)The income of the Trust for any Financial Year is the distributable income for each Unitholder immediately prior to the end of the last day of each distribution.  At that time a vested and indefeasible interest in, and a present entitlement to receive, the income is conferred. This is the distributable amount, which is to be calculated according to a formula: cl 10.1 and 10.2;

    (14)The Trustee may distribute to Unitholders any amount of the capital of the Trust: cl 10.7;

    (15)Where Units are redeemed in accordance with cl 9, the Trustee is to determine the Redemption Entitlement to be paid for each Unit in accordance with a formula: cl 10.10;

    (16)Units are transferable by a Unitholder in such form as the Trustee may require from time to time: cl 11;

    (17)The Trustee has the usual powers of investment and management: cl 12, and may appoint agents and delegates to exercise or perform any of the duties, powers, discretions and obligations of the Trustee in connection with the Trust: cl 12.5;

    (18)The Trustee may cause any of the Trust Assets to be valued at any time and may calculate the Net Asset Value of the Trust at any time in each case in its absolute discretion: cl 14.1; and

    (19)The Trustee is entitled to be paid a range of fees in the form of an establishment fee of up to 2% of the Issue Price per Unit received by the Trustee for each application for units (capped at a maximum of $100,000 for each application), an administration fee of 0.5% of the Gross Asset Value of the Trust and is entitled to be indemnified for all expenses incurred in the proper performance of the Trustee’s duties: cl 21.

11. Prior to amendment, cl 10.10 had conferred power upon the Trustee to transfer trust assets to a unitholder rather than pay cash in satisfaction of all or part of the payment of the distribution of income or capital without the consent of the unitholder who is to receive the trust assets.

12. There are two trust deeds for Fund K - the Atlas Umbrella Trust Deed and the Trust Formation Deed, each dated 24 August 2015 (CB 4460, 4465).  The Umbrella Trust Deed provides that trusts may be constituted under it, but it does not establish any trusts: cl 2.2.  It contains the detailed regulating provisions and by cl 2.3 permits the Trustee to form other trusts.  The Trust Formation Deed operates as supplemental to the Umbrella Trust Deed and pursuant to it, the Trustee established the Yield Asset Trust.  The Umbrella Trust Deed applies to each trust and binds the holders in the trust and the Trustee: cl 2.7.

13. The Umbrella Trust Deed relevantly provides:

    (1)The beneficial interest in each trust is divided into units: cl 4.1;

    (2)A Unit in a Trust confers on the Holder an undivided beneficial interest in the Trust as a whole, subject to Trust Liabilities and not in parts or single assets: cl 4.2;

    (3)The Trustee must use the Net Trust Value of the Trust to determine the net value of the Trust Property (cl 7.2) which means the total value of all Trust Property less all Trust Liabilities of the Trust as determined by the Trustee in accordance with Australian Accounting Principles: cl 1.1;

    (4)The value of any Trust Property is the market value, the net fair value or other value appropriate to the nature of the Trust Property: cl 7.3;

    (5)The Issue Price of Units in a Trust for the Initial Issue of Units is one dollar per Unit and for each subsequent issue of Units the sum of the Net Trust Value of the Trust plus any Application Transaction Costs: cl 8.1;

    (6)A Holder of Units may transfer Units in the manner as the Trustee from time to time prescribes: cl 10.1;

    (7)A Holder of Units can, prior to termination of the Trust, make Redemption Requests in a form specified by the Trustee: cl 11.2(b) and the Trustee may, but is under no obligation to, redeem the Units the subject of the Redemption Request at the Redemption Price from capital, and if insufficient, the Trust Income: cl 11.2(c).  These provisions apply where the trust is a registered managed investment scheme and is liquid or is not a registered scheme;

    (8)The Redemption Price is calculated in accordance with a formula, being the Net Trust Value as at the last Valuation Time less any Redemption Transaction Costs divided by the number of Units on issue at the Valuation Time: cl 11.4;

    (9)Where the Trust is not liquid, the Redemption Price per Unit is calculated as the sum of the Net Trust Value of the Trust as at the time specified in the withdrawal offer less any Redemption Transaction Costs of the Trust divided by the number of Units on issue in the Trust at the Valuation Time: cl 11.5;

    (10)In specified circumstances, the Trustee may suspend the redemption of Units or the payment of proceeds of redemptions for up to one year if, amongst other things, the Trustee reasonably considers that it is in the interests of the holders in relation to the Trust: cl 12.1;

    (11)The Trustee has the usual powers of management of the Trust at cl 13, including an ability to appoint agents to act on its behalf: cl 13.3.  Separately, the Trustee is responsible for the management of each Trust and may engage advisers in connection with the performance of the Trustee’s duties: cl 14;

    (12)The Trustee is entitled to certain fees, described as an Entry Fee of 2% of the consideration payable on an application for Units in the Trust, a management fee of 2% per annum of the total value of all Trust Property, a Performance Fee of 20% of the amount of any change in the net value of the Trust less the amount of any change in net value which would have occurred if the net value of the Trust had changed in accordance with the ASX 200 Accumulation Index and an Exit Fee of 0.5% of the Redemption Price payable on the redemption of Units in the Trust: cl 25; and

    (13)The Trustee is entitled to reimbursement for all expenses reasonably and properly incurred in connection with the performance of the Trustee’s duties: cl 27.

14. The audited accounts for 30 June 2023 for Funds E, K and L disclose the following.

15. For Fund E (CB 6787), the primary investments were in the Hotel Group and Property Opportunity Fund.  The operating loss was $4.474 million, compared with a loss in the previous financial year of $1.7 million.  The net assets attributable to the unit holders were $76.54 million, compared with the previous financial year of $81 million.  The investment income received by way of distributions was $260,000, which was then offset by a negative movement in investments carried at fair value of $1.668 million.  The deduction of expenses of $3.066 million produced the net operating loss.  The liquid assets comprised cash and cash equivalents of $9,000.  Primarily, the assets were investments at fair value in the amount of $83.866 million.  The corresponding notes to the accounts disclose that this investment comprised only listed units in unit trusts in the Hotel Group of $5.116 million and convertible notes in Property Opportunity Fund of $78.75 million.

16. For Fund K (CB 6759), the primary investments were in the Hotel Group and other funds which have an investment in the Hotel Group.  The net operating loss was $18.25 million, compared with a loss in the previous financial year of $8.7 million.  The net assets attributable to unit holders were $206.16 million, compared to $224.32 million in the previous financial year.  Distribution income received comprised $7.873 million, offset by a negative movement in investments carried at fair value of $19.739 million producing a total investment loss of $11.862 million.  The deduction of expenses of $6.389 million produced the net operating loss.  The balance sheet recorded cash and cash equivalents of $6,000 and investments carried at fair value of $215.857 million.  The corresponding note to that figure discloses that the investments comprised unlisted units in the Hotel Group of $155.105 million, unlisted units in the Salter Brothers Hotel Fund of $59.217 million and unlisted units in the K2 Fund of $1.535 million.

17. For Fund L (CB 6773), the primary investments were in the Hotel Group and the Property Opportunity Fund.  The operating loss was $742,000, compared with a profit of $15,000 in the previous year.  Distribution income received comprised $356,000, offset by a negative movement in investments carried at fair value of $851,000.  The deduction of expenses of $248,000 produced the net operating loss.  Cash and cash equivalents amounted to $2,000.  The primary asset is recorded as investments carried at fair value of $15.322 million.  The corresponding note to that figure discloses investments in unlisted unit trusts in the Hotel Group of $7.017 million and in convertible notes in Property Opportunity Fund of $8.305 million.

    C. 3 Hotel Group

18. As noted, the Hotel Group was known as the SB&G Group.  It is useful to set out an overview of the Hotel Group and the operation of relevant corporations within it.  What follows are my findings based on the evidence of Peter Hamilton, whose evidence addressed the Salter Brothers Group structure as at May 2024.  The primary entities are Hotel Company (the ultimate holding company of the trading entities), SBAM as trustee for the Hotel Trust (the asset owning entities) and as trustee for the SIV Funds (and the respective entities they control). Another member is Property Opportunity Fund and its controlled entities.

19. SBAM as the Trustee of the Hotel Trust invests primarily in the Hotel Group, which was initially established to facilitate investment by wholesale Australian investors.

20. Corporations controlled by Property Opportunity Fund own the hotel businesses.  SBAM as the Trustee of the Hotel Trust, and several sub trusts, own the hotel premises.  The shares in Hotel Company are stapled to units in each of the Hotel Trusts.

21. Each relevant SIV Fund holds stapled securities in the Hotel Group.  Fund E holds 354,536 stapled securities.  Fund K holds 10,748,551 stapled securities.  Fund L holds 486,297 stapled securities.  

22. The Hotel Group owns the assets and operates the businesses of a portfolio of seven hotels comprising: Crowne Plaza Melbourne, Intercontinental Melbourne, Crowne Plaza Canberra, Crowne Plaza Coogee Beach, Voco Gold Coast, Hyatt Regency Brisbane and Holiday Inn Potts Point.  The Hotel Group also owns a property on Flinders Lane in Melbourne.

23. For the Hotel Group to 30 June 2023, it held total assets of $1.0877 billion, less liabilities of $641.558 million and net assets of $446.178 million.

24. The Property Opportunity Fund has 100 fully paid ordinary shares on issue and Fund E is the sole shareholder.  It also has 64,639,321 convertible notes on issue (each note convertible into one share) that are held by Fund E, Fund L and other Salter Brothers Group entities together with a small number of other entities and individuals.  Each convertible note is capable of being converted to shares at a specified point in time.  Fund E presently holds 36,515,727 convertible notes and Fund L holds 3,850,727 convertible notes.

25. The assets of Property Opportunity Fund comprise stapled securities in the Hotel Group and wholly owned shares in a number of subsidiary companies concerned with various projects in Australia and the USA.

26. The primary asset of the Hotel Fund is stapled securities in the Hotel Group.  It presently owns 6,314,211 stapled securities.  The Hotel Group unit price as at 30 June 2023 was $14.43 per unit.  The value of this investment is recognised as an asset in the balance sheet of the Hotel Fund recorded at $91,116,089.

    C. 4 The Information Memoranda and Application Documents

27. As might be expected, a range of Information Memoranda were issued between 2015 and 2020.  In evidence, there are references to at least ten such documents.  They are in relatively common form in respect of the clauses that are of most importance in these proceedings.  The Information Memoranda of particular relevance to each proceeding are dated 3 March 2015 and 1 February 2016 (Li Xu proceeding), 1 September 2015 and 22 August 2018 (Jingyi Li proceeding) and 1 February 2016 (Zheng Xu proceeding).  I set out relevant clauses from the Information Memorandum of 1 September 2015, as the example (CB 8325). I refer to this as the September 2015 Information Memorandum. Where there are differences that affect issues in each of the cases, I address those matters separately.

28. The document was issued by MAP Capital and is in English.  It commences by disclosing that MAP Capital is the Trustee of each complying SIV Fund, which operates as an unregistered unit trust.  It discloses that Atlas Capital Group is the appointed Investment Manager for each SIV Fund, the Trustee is a subsidiary of Salter Family Holdings Pty Ltd, the Information Memorandum is not investment advice and has been prepared without taking into account individual investment objectives, the financial situation and particular needs of a prospective investor.  It further states that it is important that “you read the entire Information Memorandum before making any decision to invest in a SIV Fund” and “it is important that you consider the risk factors that could affect the financial performance” of an SIV Fund.  Next follows a disclaimer which includes the following (CB 8326):

    This Information Memorandum is intended for distribution to investors who are in (sic) Australia. By accepting this Information Memorandum, the recipient agrees to be bound by the following terms and conditions. …

    This Information Memorandum has been prepared on the basis that prospective investors in the SIV Funds are wholesale clients within the definition in section 716G of the Corporations Act 2001 and therefore any offer or issue made under or in connection with this Information Memorandum does not require disclosure to investors… This Information Memorandum is not a product disclosure statement and does not contain all the information which would be required in a product disclosure statement prepared in accordance with the requirements of the Corporations Act. Each recipient of this Information Memorandum represents and warrants that it is and at all times will be a Wholesale Client, for the purposes of the Corporations Act.

    …No financial product advice is provided in this Information Memorandum and nothing in it should be taken to constitute a recommendation or statement of opinion that is intended to influence the person or persons in making a financial product decision. Any advice given by the Trustee, the Investment Manager or their associates or representatives in connection with a SIV Fund or in this Information Memorandum is general advice only. This Information Memorandum does not purport to be complete, accurate or contain all information which its recipients may require to make an informed assessment of whether to invest in the SIV Funds. This Information Memorandum does not take into account the objectives, circumstances (including financial situation) or needs of any particular person. Before acting on the information contained in this Information Memorandum or making a decision to invest in the SIV Funds, potential investors should make their own enquiries and seek professional advice (including financial product advice from an independent person licensed by ASIC to give such advice) as to whether investment in a SIV Fund is appropriate in light of their own circumstances.

    Neither the Trustee, the Investment Manager or any other person or entity guarantees any income or capital return from the SIV Funds. There can be no assurance that the SIV Funds will achieve their investment objectives. This Information Memorandum has been prepared to the best of the knowledge and belief of the Trustee. It comprises statements of intent and opinion, many of which may or may not be realised or be accurate. Whilst the Trustee believes (sic) the information in this Information Memorandum including statements of intent and opinion is based on reasonable assumptions, neither the Trustee nor any other person makes any representation or warranty that any statement, whether based on fact or opinion, projection or forecast is true, complete or accurate.

    The Trustee, the Investment Manager and their agents, directors, officers and employees:

    Ÿdo not warrant or represent the accuracy, completeness or currency of, or accept any responsibility for errors or omissions in, this Information Memorandum or any related information (whether oral or written); and

    Ÿdisclaim and exclude all liability (to the maximum extent permitted by law) for all losses and claims arising in any way out of or in connection with this Information Memorandum or any related information (whether oral or written), including by reason of reliance by any person on this information.

    …

1. The next section is “SIV Funds at a Glance”, including a list of the investment objectives for each of the funds from Fund A through to Fund K with a short statement of the primary investment mandate and risk profile of each fund.  For the funds relevant to these proceedings: Fund A (predominantly ASX 200 stocks and derivatives and related investments), Fund B (ASX small cap stocks and/or companies that are expected to list in the next 12 months), Fund C (term deposits with Australian “Big 4” banks), Fund E (property and related investments), Fund K (commercial, retail, industrial, hotel and other yielding property and infrastructure assets).  The Information Memorandum predates the establishment of Fund L.  Within this section the following appears (CB 8329):

   Who should invest?     The SIV Funds may be suitable for long-term (at least 4 years) investors who are seeking a yield (Series C & D SIV Funds) and an actively managed portfolio (Series A, B, E, F, G & K SIV Funds).

   RisksEach of the Series A, Series B, Series C, Series D, Series E, Series F & Series K Funds have different investment mandates and risk profiles. You should be aware that there are risks associated with an investment in each SIV Fund which may affect the value of your investment, including but not limited to: share market risk, volatility risk, concentration risk, company specific risk, manager risk, liquidity risk, and fund risk. Please refer to page 26 for a more detailed explanation of these risks.

2. There is a description of the Trustee of the SIV Funds, together with a short biography of each of the directors of the Trustee, including Robert Salter and Paul Salter.  There is a similar description for the Investment Manager, its director Michael Gu and some senior personnel.  The next relevant section sets out a brief description in diagrammatic form of the structure of the funds.

3. In the September 2015 Information Memorandum (though not in later versions) the next section provides a summary of the key features of the SIV Program including (CB 8335):

   The purpose of the Significant Investor Visa is to provide a boost to the Australian economy and to compete effectively for high-net-worth individuals seeking investment migration to Australia. Investors will be required to invest at least $5 million into complying investments for a minimum of four-years before being eligible to apply for a Business Innovation and Investment (Permanent)Visa (Subclass 888 Visa) (subject to meeting certain residency and other requirements).

4. There is then a “brief indicative guide to the steps involved in applying for” the SIV Visa, including point 10:

   Investor may apply for a Subclass 888 Visa i.e. “permanent residency”:

   At the earliest after the 4th anniversary of the grant of the Subclass 188 Visa, or after any one of 2 allowable extensions of 2 years.

5. Under the heading Investment Objective and Philosophy, the following relevantly appears (CB 8337):

   The SIV Funds aim to provide a positive excess return over the long-term (at least 4 years). Within this general objective, the individual Series Trusts, have different risk/return objectives:

   ŸSIV Fund A: The ATLAS Dividend Performance Strategy (“ADPS”) has been designed to maximise the yield and capital growth opportunities presented by high-quality ASX stocks… The ADPS offers an exposure to the anticipated price appreciation of the selected stocks, with a conservative approach to leverage where available and/or appropriate. In order to facilitate this strategy this SIV Fund A may invest in funds operated by third-party managers with comparable SIV compliant mandates…

   ŸSIV Fund B: The TRiMET Absolute Return Strategy (“TMTARS”) has been developed to take advantage of TRiMET investing using historically favoured thematic strategies, as innovation repeatedly remakes the landscape in favour of those able to exploit the rapid pace of evolution in the sector. The Investment Manager will seek to exploit the situation by taking an active role with investee ASX listed companies via seeking board seats combined with an active M&A involvement to drive growth in the value of our investments.

   ŸSIV FUND C: An investment in an Australian bank term deposit product. The term deposit will be held with an Australian “big four” bank, being Commonwealth Bank of Australia (however Atlas reserves the right to change to another “big 4” bank… where the available rates are materially better.

   …

   ŸSIV Fund E: An Investment in Australian property. The mandate of SIV Fund E is necessarily broad so that the Investment Manager can allocate capital to the most attractive property investment opportunities available at a particular time. The mandate of potential investments include direct property investment (both debt and equity), LICs operating in the property sector, listed property companies, REITs, and property funds operated by third-party managers.

   …

   ŸSIV Fund K: An investment in Australian yielding property and infrastructure. The mandate of SIV Fund K is focussed on investing in yielding property and infrastructure investments in Australia, that can include commercial, industrial, retail, industrial (sic), hotel and other yielding property and infrastructure assets. This may be achieved via direct property and infrastructure investments, LICs operating in the property and infrastructure sector, listed property and infrastructure companies, REITs, and property and infrastructure funds operated by third-party managers.

6. Digressing from this Information Memorandum for a moment, Fund L was established on 18 September 2017.  It is referred to in the Information Memorandum dated 1 November 2018 (CB 4512).  The short description of its investment strategy refers to “exposure to property and infrastructure assets with initial exposure to hospitality and tourism related property assets”. A more detailed description within the Investment Objective & Philosophy section is (CB 4524):

   SIV Fund L and SIV Fund LII: Funds L and LII aim to provide Investors with a preference return through an underlying exposure to the Australian property and infrastructure sectors. The Manager will allocate capital to the most attractive, risk adjusted, yield based property and infrastructure investment opportunities available at any particular time. The mandate of potential investments includes direct property and infrastructure investments, LICs or ETFs operating in the property and infrastructure sectors, listed property and infrastructure companies, REITs, and property and infrastructure funds operated by third-party managers. The initial investment of the Fund will be an exposure to the SB&G Hotel Group. …

7. Each Information Memoranda contains a glossary.  An LIC is a listed investment company, REIT is a real estate investment trust and ETF is Exchange Traded Fund.

8. Returning to the September 2015 Information Memorandum, there is a detailed description of the investment objectives, investment process and investment policies for the funds.  As no plaintiff complains about investments in Fund A, Fund B or Fund C, it is not necessary to delve deeper into the features of each.  Commencing with Fund E, the Information Memorandum relevantly provides (CB 8334):

   THE STRUCTURE OF THE SIV FUNDS

   Like most managed funds, each of the SIV Funds is a unit trust. Unit trusts are vehicles which enable investors to pool their money with that of other investors.

   You may invest in one or more SIV Funds. Following receipt of your application money, the Trustee will issue you with Units in the relevant SIV Funds. Your Units in a SIV Fund are your proportionate share of that SIV Fund and reflect the value of your investment in that trust, which will change over time as the value of the net assets of the relevant SIV Fund rises and falls.

   Certain rights (such as a right to any income and a right to vote) attach to your Units. You may also have obligations in respect of your Units.

   Units won’t give you an interest in any particular part of a SIV Fund’s assets or investments, or an entitlement to exercise any right or power in respect of any such asset or investment, or an entitlement to participate in the management or operation of a SIV Fund (other than through unitholder meetings).

9. For Fund K, the Information Memorandum relevantly provides (CB 8350):

   SIV FUND K – YIELD ASSET FUND

   Investment Objective

   An investment in property and infrastructure related assets in Australia. In order to facilitate this strategy this SIV Fund may:

   1. invest in property or infrastructure funds operated by a third party manager; or

   2. invest in direct property or infrastructure investments that are presented to the Investment Manager; or

   3. invest in a LIC, Australian REIT or LIT that have a mandate for yielding property or infrastructure assets.

   SIV Fund K Allocation Process

   The objective of the allocation process employed by the Investment Manager is to deliver competitive results, even during difficult markets. Under this approach, the Investment Manager identifies attractive relative value opportunities for SIV Fund K by:

   ŸMonitoring risk adjusted expected returns. The Investment Manager analyses the potential returns presented by the various sectors and individual investments across the property and infrastructure landscape.

   ŸOptimizing third party fund allocation. The Investment Manager will, based on prevailing risk adjusted expected returns optimise the percentage of the funds allocated to the various investment alternatives available.

   The default investment of the capital will be a fund, or funds operated by third party managers. Where any of the following opportunities meet the investment criteria of the Investment Manager, the Investment Manager will reallocate funds from the third party fund(s) to invest in these opportunities:

   1. direct property or infrastructure investment; or

   2. listed investment companies operating in the property or infrastructure sectors or REITs; or

   3. a LIC (or to be listed LIC) that has a mandate for property or infrastructure related assets;

   In this way the Investment Manager may maximise the investment returns with funds not sitting idle in term deposits (or like investments). However, the Investment Manager may choose to remain in cash or cash equivalents should it consider it appropriate.

   The Investment Manager believes that either direct property or infrastructure investment or a LIC that has a similar mandate for property or infrastructure related assets (or a combination of both) will generate higher risk adjusted returns in the medium term (i.e. 3 to 5 years) compared to unlisted funds operated by third party managers. As a result the Investment Manager will favour such investments, where the opportunities present.

   Direct investment – Internal Investment Process & Policies

   Investment Process

   The Investment Manager will follow a structured five-step investment process when considering direct investments (not via a third party fund). The objective of this process is to help deliver competitive returns, even during difficult markets. The five-step investment approach encompasses:

   ŸAsset identification: The Investment Manager (and Investment Adviser) will seek to access assets on attractive ‘off-market’ terms wherever possible by leveraging its diverse network of industry relationships.

   ŸInitial investment feasibility: The Investment Manager (and Investment Adviser) will clearly define the investment strategy of the opportunity by undertaking an initial feasibility covering:

   ŸAsset SWOT analysis,

   ŸMarket analysis,

   ŸPreliminary modelling, valuation and returns analysis.

   ŸInvestment: The Investment Manager, supported by the Investment Adviser, will conduct a detailed due diligence program:

   ŸThird party due diligence – The Investment Adviser will prudently engage and manage third parties to deliver any independent expert services required including financial, design, technical, legal, town planning and environmental.

   ŸFinance – The Investment Manager’s corporate finance team will engage closely with debt capital partners to ensure an optimal capital structure is secured.

   ŸInvestment analysis – The Investment Adviser will execute a robust internal economic benefit review of the asset.

   ŸInvestment strategy and planning – Based on due diligence findings, the Investment Manager will refine the investment strategy and develop an investment strategy implementation plan

   ŸManage: The Investment Manager will actively manage acquired assets utilising the Investment Manager and Investment Adviser’s extensive asset management experience. The Investment Manager will look to add value and improve income streams by tenant remixing, lease extensions, targeted upgrade and refurbishment capex, identification & creation of additional income streams and maximising value through usage changes.

   ŸExit: The Investment Manager, supported by the Investment Adviser, will ensure timely exit of investments by:

   ŸContinually monitoring the market to determine optimum exit timing,

   ŸDetermining best method for exit (e.g. On market campaign, Off market campaign, pre-sales (for development),

   ŸTransaction management (qualifying purchasers, terms negotiation, legal documentation and settlement).

   This investment process applies no matter whether the SIV Fund K is investing in real property or infrastructure assets.

10. For Fund L the Information Memorandum of November 2018 relevantly provides (CB 4544):

    SIV FUND L – PREFERENCE YIELD FUND

    Investment Objective

    To provide exposure to property and infrastructure related assets in Australia. In order to facilitate this strategy this SIV Fund may:

    1. invest in property or infrastructure funds operated by a third party manager; or

    2. invest in direct property or infrastructure investments that are presented to the Investment Manager; or

    3. invest in an LIC, ETF, Australian REIT or LIT that has a mandate for yielding property or infrastructure assets.

    SIV Fund L Investment Process

    The objective of the allocation process employed by the Investment Manager is to deliver competitive results, even during difficult markets. Under this approach, the Investment Manager identifies attractive relative value opportunities for SIV Fund L by:

    ŸMonitoring risk adjusted expected returns. The Investment Manager analyses the potential returns presented by the various sectors and individual investments across the property and infrastructure landscape.

    ŸOptimising third party fund allocation. The Investment Manager will, based on prevailing risk adjusted expected returns optimise the percentage of the funds allocated to the various investment alternatives available, in order to achieve a 6% p.a. return to investors. The default investment of the capital will be a fund or funds operated by third party managers. Where any of the following opportunities meet the investment criteria of the Investment Manager, the Investment Manager will reallocate funds from the third party fund(s) to invest in these opportunities:

    1. direct property or infrastructure investment; or

    2. LICs or ETFs operating in the property or infrastructure sectors or REITs. The initial investment shall be an exposure to the SB&G Hotel Group; or

    3. an LIC (or to be listed LIC) or ETF that has a mandate for property or infrastructure related assets.

    In this way, the Investment Manager may maximise the investment returns with funds not sitting idle in term deposits (or like investments). However, the Investment Manager may choose to remain in cash or cash equivalents should it consider it appropriate.

    The Investment Manager believes that either direct property or infrastructure investment or an LIC or ETF that has a similar mandate for property or infrastructure related assets (or a combination of both) will generate higher risk adjusted returns in the medium term (i.e. 3 to 5 years) compared to unlisted funds operated by third party managers. As a result, the Investment Manager will favour such investments, where the opportunities present, in order to achieve a 6% p.a. return to investors.

    Direct Investment – Internal Investment Process & Policies

    Investment Process

    The Investment Manager will follow a structured five-step investment process when considering direct investments (not via a third party fund). The objective of this process is to help deliver competitive returns, even during difficult markets. The five-step investment approach encompasses:

    ŸAsset identification: The Investment Manager (and Investment Adviser) will seek to access assets on attractive ‘off-market’ terms wherever possible by leveraging its diverse network of industry relationships.

    ŸInitial investment feasibility: The Investment Manager (and Investment Adviser) will clearly define the investment strategy of the opportunity by undertaking an initial feasibility covering:

    ŸAsset SWOT analysis,

    ŸMarket analysis,

    ŸPreliminary modelling, valuation and returns analysis.

    ŸInvestment: The Investment Manager, supported by the Investment Adviser, will conduct a detailed due diligence program:

    ŸThird party due diligence – The Investment Adviser will prudently engage and manage third parties to deliver any independent expert services required including financial, design, technical, legal, town planning and environmental.

    ŸFinance – The Investment Manager’s corporate finance team will engage closely with debt capital partners to ensure an optimal capital structure is secured.

    ŸInvestment analysis – The Investment Adviser will execute a robust internal economic benefit review of the asset.

    ŸInvestment strategy and planning – Based on due diligence findings, the Investment Manager will refine the investment strategy and develop an investment strategy implementation plan.

    ŸManage: The Investment Manager will actively manage acquired assets utilising the Investment Manager and Investment Adviser’s extensive asset management experience. The Investment Manager will look to add value and improve income streams by tenant remixing, lease extensions, targeted upgrade and refurbishment capex, identification & creation of additional income streams and maximising value through usage changes.

    ŸExit: The Investment Manager, supported by the Investment Adviser, will ensure timely exit of investments, in order to achieve a 6% p.a. return to investors by:

    ŸContinually monitoring the market to determine optimum exit timing,

    ŸDetermining best method for exit (e.g. on market campaign, off market campaign, pre-sales (for development)),

    ŸTransaction management (qualifying purchasers, terms negotiation, legal documentation and settlement).

    This investment process applies no matter whether the SIV Fund L is exposed to real property or infrastructure assets.

11. The September 2015 Information Memorandum gives prominent attention to significant risks of investing in an SIV Fund, commencing with a summary table (CB 8352):

12. Those risks are then explained in detail including, as relevant to these proceedings, liquidity risk and the effect of significant redemptions, as follows (CB 8354):

    Liquidity risk

    Exists when particular investments are difficult to purchase or sell, preventing a SIV Fund from exiting a position or rebalancing within a timely period and at a favourable price. While every effort is made for a SIV Fund to be able to satisfy all redemption requests, the nature of the underlying assets may mean that, in certain circumstances, we may not be able to meet all redemption requests when they are received. Under the Trust Deed, Investors’ rights to redeem Units may be suspended while a SIV Fund is not liquid. This may lead to satisfaction of the redemption requests and payment of the redemption proceeds to Investors being deferred until a SIV Fund is liquid or the Trustee forms the view that it is in the best interests of all Investors to meet the outstanding redemption requests and pay out the redemption proceeds.

    Effect of Significant Redemptions

    A risk exists that a significant number of requests for withdrawal of Units in a SIV Fund will be received. In such an event, it may not be possible to liquidate a SIV Fund at the time that such withdrawals are requested, or it may be possible to do so only at prices which the Trustee believes do not reflect the true value of such investments, resulting in an adverse effect on the return to Investors. Further, under the Trust Deed the Trustee may suspend redemptions in certain situations. In addition, although it is expected on termination of a SIV Fund to liquidate all of a SIV Fund’s investments and distribute only cash to the Unit Holders, there can be no assurance that this objective will be attained.

1. In June 2016, Zheng Xu was not fluent in English, had not taken any course of study in English and accordingly could not read or understand any English document.  Her prime motivation was to migrate to Australia and eventually to obtain permanent residency.  These matters may be accepted.

2. Zheng Xu was reassured by Hannah Zhu that her investment could be redeemed after four years. I have concluded this contention is not made out. 

3. Salter Brothers put in place a system designed to target vulnerable overseas investors who primarily wished to secure permanent residency in Australia and without making provision for their language needs or unfamiliarity with the commercial and financial systems in Australia.  That case is not pleaded as systemic unconscionable conduct, even though some of its elements are separately identified in the pleading.  It is not open to Zheng Xu, at the stage of closing submissions, to seek to make out that case: Productivity Partners at [59] and [313].

4. The relative strength of the bargaining positions.  Salter Brothers was in a much stronger position because Zheng Xu was required to make a complying investment to obtain her visa, it had all relevant information about the purpose, nature and risks of the investment – only some of which it shared.  This led to an “information asymmetry” which caused substantial imbalance in favour of Salter Brothers.  In framing that submission, Ms Bennett submits that it was not until during the course of the preceding that Zheng Xu became aware of “the liquidity strategy disclosed in the evidence” of Salter Brothers, which is a reference to the IPO proposals to create liquidity and then effect redemptions from Fund K.  That case is not pleaded, no application was made upon delivery of the relevant evidence of Salter Brothers, primarily the affidavit of Paul Salter made on 12 May 2024, to amend and the trial was conducted on the basis that this contention did not form part of the unconscionable conduct case.  It is not open to Zheng Xu to advance it.

5. No English translation was provided of the February 2016 Information Memorandum and, with it, the application form.  That is so and it is of weight. Conformably with my findings in the Jingyi Li proceeding, Salter Brothers was aware that approximately 85% of the target market comprised Chinese citizens with little or no fluency in English and made the decision not to provide Mandarin translations as beyond the boundaries of what they were prepared to do. I have found that this is an unsatisfactory explanation in the circumstances.

6. However, balanced against that consideration in this case is the fact that Zheng Xu admitted in evidence that, despite being able to engage Austar Suzhou to provide a translation of relevant documents (and there being no financial impediment which would have prevented her from obtaining a translation) and having considered that option, she did not do so because her appointed agent represented that her funds would be “safe” which advice she accepted (T 715).  Zheng Xu made an informed and deliberate choice to place faith in her appointed agent.  She was not vulnerable or disadvantaged because the documents were not provided to her in Mandarin.

7. Relatedly, Salter Brothers ensured that some of the documents it provided to investors were translated (the slide-decks and the yearly fund investment reports are notable examples), other fund managers did provide Information Memoranda in a translated form and complaints had been received from some investors concerning Salter Brothers’ failure to provide translated documents.  The same submission was made in the Jingyi Li proceeding, and I adopt my analysis.  In short, I am not satisfied that there was at the time any normative standard of societal commercial behaviour to the effect that important documents relating to complying investments should be provided in the native language of the intended class of recipients.  And for the same reasons given in the Jingyi Li proceeding, the receipt of contemporaneous complaints contention is not made out on the evidence.

8. The extent to which Salter Brothers failed to disclose intended conduct that could affect Zheng Xu’s interests or the risks of the investment.  This is particularised as knowledge that the plans to achieve liquidity in Fund K necessarily made redemption at expiry of the four-year timeframe unviable which was not shared with potential investors. Further, for that reason an investment in Fund K was materially illiquid.  The pleaded case includes the contention, in several paragraphs, that limitations, restrictions or material risks were not disclosed.  It extends to a failure to disclose those matters before the initial investment was made in June 2016 and thereafter in the form of the provision of various investment reports in February 2017, 2018, and 2019.

9. The pleading of the unconscionability case necessarily therefore “picks up” these matters. Some are simply not made out on the facts. That Fund K would the investing in the Hotel Group was disclosed as early as 13 March 2017, when Zheng Xu received in Mandarin a fund report for the period to 31 December 2016, and similar disclosures were made in each of the fund reports (in Mandarin) that were provided on 6 September 2017, 2 March 2018, 7 September 2018, 5 March 2019 and 16 September 2020. Further, on 16 May 2018 she received an investor presentation and the SB&G Group New Opportunities document dated May 2018 and accepted in cross-examination that upon receipt she was aware that an investment in Fund K was in turn an investment in the Hotel Group (T 745). Zheng Xu did not then seek a redemption.

10. As to the failure to disclose the intention to undertake an IPO as a means of achieving fund liquidity and meeting redemptions, the evidence of Paul Salter, which I have accepted, is that a major reason why the liquidity strategy was not achieved was the impact on the hotel industry of the COVID-19 Pandemic.  His evidence was also that by late 2015, he had conceived of a plan to list the Hotel Group as “one means” of satisfying redemptions in Fund D and Fund K.  There were other proposals in contemplation before the onset of the COVID–19 Pandemic, being a sale of units to institutional investors or wealth managers or the introduction of new investors.  Zheng Xu has not established that as at June 2016,  redemption immediately after the four year timeframe was unviable.

11. The circumstances that led to the decision to sign the application form, including the conduct in separating the Information Memorandum from the application form “created a risk that it would not be provided” and there was awareness by Salter Brothers that “some complaints about dealings with Austar over time” had been made.  

12. The detachment of the application form from the Information Memorandum was the work of Austar Suzhou, not Salter Brothers.  There is some evidence from the cross-examination of Kevin Fan that he would receive by email a completed application form from Austar Suzhou, detached from the relevant Information Memorandum, which practice he accepted was “common” (T 949-950).  To this, should be added the evidence of Zheng Xu that she does not recall receiving a copy of the February 2016 Information Memorandum before she signed the application form in June 2016.  However, once again, the fact of separation of the application form and knowledge that this practice was common by Salter Brothers is not pleaded as a matter relevant to the unconscionable conduct claim and it is not open to Zheng Xu to now rely on these facts.

13. As to the allegation about “some complaints”, the evidence from the complaints register is for the period 1 February 2022 until 15 May 2024, and in any event concerns the failure to provide Information Memoranda in Mandarin.  This contention is not made out on the evidence.

14. There is a general rolled up submission that “funnelling investors into an investment for the benefit of related entities while representing that investments would be arms-length, conflict free, and based on a sound, diversified and structured approach is comfortably within the concept of statutory unconscionability”.  As expressed, that broad submission is not founded in the pleaded unconscionable conduct case, although aspects of it are expressed differently.  Conformably with my earlier findings, it is only the Conflict Representation that was made which was in the circumstances misleading or deceptive or likely to mislead or deceive.  However, it was not a matter of consequence for Zheng Xu because the evidence is clear that she was made aware from as early as 13 March 2017, that Fund K made related investments in the Hotel Group.  She made no complaint about that at the time and made no request to redeem upon becoming aware of it. Similarly, she made no complaint when that fact was disclosed in writing to her on multiple occasions thereafter.

15. The structural unfairness submission put in the Jingyi Li proceeding is repeated, which I reject for the reasons I have given.

16. That no copy of the February 2016 Information Memorandum (or any earlier version) was provided, and even if it had, Zheng Xu would not have been able to read or comprehend it.  I have dealt with the related submissions concerning Zheng Xu’s lack of fluency in English, the targeting of Chinese citizens as the significant potential class of investors and the fact of separation of the information memorandum above.  This separate submission takes the matter no further.

17. Despite that Zheng Xu had the means to procure translations, Salter Brothers did not comply “with its obligations to its investors” to provide documents in Mandarin from the outset.  No such case is pleaded, and I reject it for the reasons given in the Jingyi Li proceeding.

18. Zheng Xu had a relatively short window within which to consider and to make a complying investment, which likely would have made it difficult for her to do so, and in any event, she considered that she was under time pressure to decide.  This submission is taken as far as the contention that Zheng Xu was under “immense pressure” to make the requisite investment in compliance with the 28-day deadline.  I have rejected her case to that effect.  Objectively, she became aware that her application had been successful on or about 14 April 2016 but did not attend the offices of Austar Suzhou until 2 June 2016.  The investment application form was not signed until 7 June 2016.  

19. The evidence discloses that the time necessary to translate into Mandarin, the declarations and acknowledgements on the application form was quite short (less than three minutes).  For example, during the evidence of Jun Chen it took one and a half minutes to translate three paragraphs on the application form at CB 9484 (T 519) and when the identical passage at CB 10169 was translated for Zheng Xu, it took less than one minute (T 714).  Plainly, there was sufficient time to obtain a translation of all the words under the declaration and signature section of the application form, and then any necessary part of the corresponding Information Memorandum if Zheng Xu was interested to know the terms on which her money would be invested.  She did not take these prudent steps because she trusted Austar Suzhou as her agent to protect her interests.

20. Zheng Xu was not at the time a sophisticated investor.  I accept that.  Most certainly she was not as sophisticated as Jun Chen.  She was, however, relatively wealthy and had the financial means to obtain a translation of relevant documents and the intellectual ability to consciously decide that she would not do so because she had engaged Austar Suzhou from whom she had received the assurances of safety and compliance

21. Zheng Xu was a member of a class of investors who were required to make a complying investment as a means of obtaining permanent residency, which submission is relevantly identical to one put in the Jingyi Li proceeding.  I adopt my reasoning to the extent relevant.  In short, the class was not vulnerable in comparison to other Chinese citizens at the time.  These were comparatively wealthy people who had decided to make the life-changing decision to migrate to a foreign country and who had the financial capacity to comply with the significant requirement to make and to fund a complying investment of not less than $5 million from their own resources.  The class appointed China-based agents to assist in that process.  The agent offered, for the payment of an additional fee, to procure translations of relevant documents.

22. These circumstances in my view lead to the inevitable conclusion that, acting prudently, Zheng Xu ought to have obtained translations or ought to have interrogated the relevant personnel from Austar Suzhou more carefully about the terms on which her funds were to be invested in a foreign country and in a financial system that she had no understanding or experience of: cf Atlas Advisors at [237] – [238].

23. Finally, I have also considered the list of factors at s 12CC of the ASIC Act as a guide to the societal norm of acceptable commercial conduct, in the same way as I have in the Jingyi Li proceeding; that is to the extent relevant and argued.  There is no additional matter I consider relevant.

24. For these reasons I am not satisfied having undertaken an overall evaluative assessment, that the conduct of Salter Brothers as alleged, even though some matters favour the case of Zheng Xu, are sufficient to establish the serious allegation that the conduct was unconscionable.

    H. 8 Damages and other relief

25. The approach to the claim of Zheng Xu very closely follows that of Jingyi Li. Declaratory relief, damages pursuant to s 1041 of the Corporations Act or s 12GF and a refund pursuant to s 12GM of the ASIC Act are claimed, some in the alternative.

26. Damages were particularised (until closing submissions) in the form of a letter of 15 April 2024 (CB 255).  On the counterfactual that if Zheng Xu had known the true state of affairs in respect of Fund K in June 2016, then she would not have invested $3 million in Fund K and instead would have invested $3 million in the VIMG Property Fund.

27. The financial consequences of not proceeding in that way are calculated at $3,443,547 as follows:

Item	Amount
4-year investment return not received from an investment with the VIMG Property Fund	$946,800
Plus redemption sum that would have been received from VIMG in June 2021 (assuming a redemption request submitted in June 2020) and less a management fee of 2%	$2,940,000
Less distributions received from the investment Fund K between 15 June 2016 and December 2019	($443,252)
Less current value of the units in fund K	($0)
Total	$3,443,547

1. There is an alternative particularisation on the counterfactual that Zheng Xu would have discovered the true state of affairs of Fund K shortly after making her investment in June 2016 and if so she would have requested her investment in Fund K to be redeemed and upon redemption, would have invested the funds received in the VIMG Property Fund.

2. The same calculation is then performed to arrive at an amount of $3,443,547.  A third alternative proceeds on the counterfactual that Zheng Xu would have discovered the true state of affairs “in the months or years” following her initial investment.  The quantum of that claim is not calculated, as it turns upon findings about the face value of a redeemed investment at unparticularised points in time and the difference in hypothetical distributions.

3. For the reasons I have given in the Li Xu and Jingyi Li proceedings, Zheng Xu has failed to prove that the current value of her units is nil.  Once again, I accept the methodology, procedure and calculations as set out in the Expert Report of Dawna Wright and I find according to her evidence.  The calculations for Zheng Xu are as follows.

4. The selected discount rates and the unit prices from Tables 1 and 2 in the Expert Report are the same.  In the Executive Summary, Dawna Wright made the counterfactual assumption consistent with the claim of Zheng Xu as to what she would have done if she had known of the true state of affairs in June 2016 (CB 22,122).  Table 9 sets out her summary opinion of the loss suffered at each redemption date: (CB 22122)

5. Table 10 sets out the calculations as to the current value of the unit holdings in Fund K as at each redemption date: (CB 22122)

6. Table 11 is a summary comparison of loss with Zheng Xu’s particularised claim: (CB 22122-22123)

7. A more detailed analysis is at Table 60 for Redemption Date 1: (CB 22192)

8. In summary, I accept that on the no transaction case, the current value of the units held by Zheng Xu in Fund K is between $2,416,870 and $1,819,149.  I am satisfied that redemption requests are likely to be satisfied no later than 31 March 2025, with the consequence that the units had a value of $2,312,919 (redemption date 2) as at the valuation date of 3 June 2024.

9. Despite the submission of Mr Peters, that Zheng Xu must be held to her nil value claim, in my view there is no significant prejudice that flows from an assessment of damages on the basis of the evidence set out in the Expert Report.  It is the same issue that I have resolved in the Li Xu and Jingyi Li proceedings by reference to paragraphs [6.3.6] and [7.3.6] in the Expert Report.  The corresponding paragraph for Zheng Xu is [8.3.5].

10. On that basis, if I had determined that Zheng Xu was entitled to an award of damages, I would have determined the value of her Fund K units at redemption date 2 as $2,312,919 in accordance with the evidence of Dawna Wright.

11. As I have rejected the causation case, it would be speculative for me to proceed further and determine the quantum of damages that I would have assessed if the case of Zheng Xu had otherwise succeeded.

12. In closing submissions, Ms Bennett relied on a third alternative calculation, which I have mentioned when dealing with the Jingyi Li proceeding.  The document that was handed to me in closing submissions is a recalculation of the damages claim as at each redemption date by applying the unit prices for Fund K as at 31 May 2014 after deduction of the 0.5% Sell Spread (Table 17 of the Expert Report) and by application of the discounts set out in Table 22 of the Expert Report.  The derived unit value is then applied to the units held conformably with the methodology at Tables 56 and 61 of the Expert Report.  The result is a recalculation of the particularised loss at each redemption date.

13. I will not permit Zheng Xu to rely on this alternative calculation (for the reasons I have given in the Jingyi Li proceeding) because it is unfair, inconsistent with the overarching purpose and I do not have the benefit of the considered opinion of Dawna Wright.

    H. 9 Did Zheng Xu fail to take reasonable care?

14. Salter Brothers rely on s 1041I(1B) of the Corporations Act and s 12GF(1B) of the ASIC Act. The s 12DB ASIC Act issue does not arise as there is no claim for damages pursuant to s 12DB.

15. As refined in final submissions, Salter Brothers contend that there ought to be a substantial reduction of any damages award because Zheng Xu was:

    (a)Aware of investment risks. She accepted that in 2016 she knew that no investment can be made without risk (T 724);

    (b)Aware when she signed the application form in June 2016, that she was entering into a contract (T 713);

    (c)Not prevented from obtaining a translation of the application form or the February 2016 Information Memorandum; and

    (d)Not under time pressure to select a complying investment.

16. In contrast, Ms Bennett submits:

    (a)Paul Salter accepted that Salter Brothers owes obligations to investors extending to ensuring that they understand “what they’re investing in” (T 838).  This obligation cannot be displaced by a reasonable care defence, despite Paul Salter’s further evidence that the “burden in terms of their investment decision is theirs” (T 838);

    (b)There was no impediment to the provision by Salter Brothers of Mandarin translations of the important documents, by delivery to the China based immigration agents.  This was not done because it sat beyond of what it was prepared to do.

    (c)Kevin Fan gave evidence (T 948) that translation quality can vary, and mistakes can be made.  If the concern of Salter Brothers was to ensure accuracy and control over content, it was not logical to leave it to the investors to obtain translations;

    (d)Thus, it should be concluded that the evidence “discloses a notable lack of care by [Salter Brothers] to the interests of its investors”; and

    (e)Zheng Xu’s goal was to obtain permanent residency, the window of opportunity to select a complying investment was narrow, she felt pressured and in fact did engage her own agent to assist her with the process.

1. Finally, the overarching submission is made that the statutory provisions are concerned with protecting consumers of financial services from misleading conduct and acceptance of the submissions of Salter Brothers “would result in significantly adverse implications” for the statutory regime.

2. I adopt mutatis mutandis my reasoning in the Jingyi Li proceeding as to why broad reliance on the statutory purpose does not answer the application of the reduction of damages provisions.

3. In my view there are three material facts that establish that Zheng Xu failed to take reasonable care to protect her own interests.  First, she engaged Austar Suzhou as her agent to assist with the process, knowing that for an additional fee it could provide her with any requested translation service, but she chose not to have the application form or the Information Memorandum translated because her agent told her that it is a government scheme, which caused her to think that her principal was not at risk (T 695- 696). She was also told by Austar Suzhou representatives that the funds were assessed by lawyers as compliant and safe (T 712) and deliberately chose not to obtain a translation of the application form that she signed in June 2016 because of those assurances (T 715). Austar Suzhou acted as her agent in providing that advice. Salter Brothers bear no responsibility for these representations.

4. Further, in my view, it was unreasonable to rely on the generalised oral assurances from representatives of Austar Suzhou when the agency agreement signed by Zheng Xu (in Mandarin) expressly warranted, immediately above her signature, that Austar Suzhou “shall not assume any responsibility for any kind of liability relationships arising from various contracts and agreements executed between” Zheng Xu and third parties (CB 20875).

5. Despite this, Zheng Xu made application to invest $3 million into a fund in a foreign country without herself making rudimentary enquiries as to the terms of her investment.

6. Second, Zheng Xu took these steps in the knowledge that there are risks associated with any investment.  Accepting that she was then considering a life-changing decision is not a reason to take less care to protect her own financial interests.  In my view an ordinary and prudent investor in the position of Zheng Xu at the time would have taken steps to inform herself more fully about the terms on which she was preparing to part with a substantial sum of money to make an investment in a foreign country and in an unfamiliar financial system.

7. Third, there was no impediment, financial or practical, which prevented Zheng Xu from obtaining a translation of at least the application form which would then have alerted her to the need to enquire into what was in the Information Memorandum by having it translated as well.

8. In my view a significant reduction is warranted. Essentially Zheng Xu decided not to take steps to protect her own interests because she relied on generalised assurances from Austar Suzhou.  If I had otherwise been minded awarding an amount of damages, I would have reduced the sum by 65% as the amount that I consider just and equitable having regard to Zheng Xu’s share of responsibility. 

   H. 10 Section 12GM refund claim

9. I apply the same reasoning and conclusion that I have reached in the Li Xu proceeding and decline to make the orders sought.

   H. 11 Other matters of defence

10. Salter Brothers pleads that the claims are statute barred, as having been commenced beyond the six-year limitation period that applies under the Corporations Act and the ASIC Act.  The basis is that loss or damage was first suffered, by reference to Zheng Xu’s pleaded claim, in late 2017 (or early 2018) when she decided to remain in Fund K instead of redeeming her investment and transferring to the VIMG Property Fund.  In the written closing submissions, this defence is confined to paragraph [45A] of the Further Amended Narrative Statement which pleads that in late 2017 Hannah Zhu repeated and reinforced the four-year investment representation.

11. There is no merit in the defence, essentially for the reasons I have given when dealing with the limitation defence in the Li Xu proceeding.  Loss or damage was prospective in late 2017 or early 2018.  It depended upon the making of a redemption request and it not being met.  The first redemption request that Zheng Xu made was on 28 July 2020, which Salter Brothers accepts was not met because at that time due to insufficient liquidity in Fund K.  Until that event, Zheng Xu had not suffered actual as distinct from prospective loss: Wardley at 532.

    H. 12 Overall conclusions in the Zheng Xu proceeding

12. There is no issue that the five IM Representations were made.  Only the Conflict Representation was misleading or deceptive or likely to mislead or deceive.  Zheng Xu did not rely on the Conflict Representation and her case fails on the causation issue.

13. Even if Zheng Xu had established that the other representations relied on where misleading or deceptive or likely to mislead or deceive and that she relied on one or more when making her initial investment decision in June 2016, her particularised claim for damages cannot succeed because her units are not without value.  Had I otherwise found in her favour, I would have proceeded by adopting the evidence of Dwana Wright as to the value of the units calculated to redemption date 2.  If I had awarded an amount of damages in her favour (depending on acceptance of one of her causation contentions) I would have reduced the quantum of the award by 65% as the amount that I consider just and equitable having regard to Zheng Xu’s share of responsibility for her loss or damage.

14. Overall, the claim fails and the proceeding and must be dismissed.

I certify that the preceding one thousand two hundred and ninety three (1293) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.

Associate:   

Dated:       19 February 2025

Schedule

No: VID122/2022

Federal Court of Australia

District Registry: Victoria Registry

Division: General

Fifth Defendant	FUYIN FAN
Sixth Defendant	HANNAH ZHU
Seventh Defendant	AUSTAR GROUP MIGRATION PTY LTD