Xu v Wang

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S CI 2014 01312

JIXIN XU	Plaintiff
v
WEI WANG	Defendant

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JUDGE:	CAMERON J
WHERE HELD:	Melbourne
DATE OF HEARING:	3–7, 10–12, 17-19 September 2018, 11 October 2018
DATE OF JUDGMENT:	30 April 2019
CASE MAY BE CITED AS:	Xu v Wang
MEDIUM NEUTRAL CITATION:	[2019] VSC 269

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RECOGNITION OF FOREIGN JUDGMENT – Concurrent proceedings in Australia and the People’s Republic of China – Plaintiff obtained judgment in a court in the People’s Republic of China without notifying defendant or this Court – Whether plaintiff entitled to recognition of judgment obtained in secret – Whether defendant submitted to the foreign jurisdiction – Whether foreign judgment obtained by fraud – Whether defendant denied natural justice – Whether an abuse of process – Evidence Act 2008 (Vic) s 174 considered – Terrell v Terrell (1971) VR 155; Moore v Inglis (1976) 9 ALR 509; Stern v National Australia Bank; National Australia Bank v Pollack [1999] FCA 1421; Boele v Norsemeter Holdings AS [2002] NSWCA 363; Thirteenth Corp Pty Ltd v State (2006) 232 ALR 491; Re AWB Ltd (No 10); Australian Securities and Investments Commission v Lindberg (2009) 76 ACSR 181; SK Foods LP v SK Foods Australia Pty Ltd (in liq) (No 3) (2013) 214 FCR 543; Marks v Australia and New Zealand Banking Group Ltd [2014] QCA 102; Doe v Howard [2015] VSC 75; Liu v Ma [2017] VSC 810; Re Tang (2017) 52 VR 786 referred to.

CHEQUES ACT 1986 (CTH) – Dishonoured cheque in purported repayment of loan – Loan monies advanced by contra agreement – Whether total or partial failure of consideration – Cheques Act 1986 (Cth) ss 35, 36, 71, 76 considered – Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713; Mobil Oil Australia Ltd v Caulfield Tyre Service Pty Ltd [1984] VR 440 referred to.

BREACH OF CONTRACT – Personal loan from plaintiff to defendant – Loan monies advanced by contra agreement – Consideration – Whether total failure of consideration.

MISLEADING OR DECEPTIVE CONDUCT – Representations made to defendant about performance and profitability of business – Representations made to defendant about plaintiff’s involvement in business – Representations made to defendant about defendant’s involvement in business – Whether misleading or deceptive – Whether statements in the ordinary course of business – Whether statements of opinion – Whether statements as to future matters – Whether representations attributable to plaintiff – Whether representations caused defendant to invest in business – Competition and Consumer Act 2010 (Cth) Sch 2, ss 4, 18; Australian Consumer Law and Fair Trading Act 2012 (Vic) s 8 considered – Parkdale Custom Built Furniture Pty Ltd (1982) 149 CLR 191; Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 55 ALR 25; Yorke v Lucas (1985) 158 CLR 661; Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302; Argy v Blunts Lane & Cove Real Estate Ltd (1990) FCR 112; General Newspapers Pty Ltd v Telstra Corp (1993) 45 FCR 164; Sanders v Glev Franchises [2002] FCA 1332; Butcher v Lachlan Elder Realty Ltd (2004) 218 CLR 592; ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640 referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S J Minahan	Madgwicks
For the Defendant	Mr R A Harris	Marchesin & Co Lawyers

HER HONOUR:

What is this case about?

This dispute arises in relation to an attempted redevelopment of the Heritage Golf and Country Club (‘Heritage’), a golf course in Chirnside Park, Victoria. The redevelopment was broadly unsuccessful, sparking a number of legal proceedings, including this one.

Jixin Xu (‘Mr Xu’) claims for sums allegedly outstanding under a loan that he made to Wei Wang (‘Mr Wang’), and a dishonoured cheque drawn in purported repayment of that loan. Mr Wang counterclaims, alleging that Mr Xu induced him into executing the loan, among other transactions, through misleading or deceptive conduct.

An additional complication arises as, unbeknownst to Mr Wang, or to this court, Mr Xu instituted additional proceedings for recovery of the debt in China. Mr Xu obtained judgment in those proceedings and now seeks enforcement of that judgment in this jurisdiction. Mr Xu maintains that, if the Chinese judgment is not enforced, he is nonetheless entitled to judgment on his substantive claim.

Background facts

Heritage is located about 45 kilometres east-north-east of the central business district of Melbourne, in the suburb of Chirnside Park. It has been in operation since 1999.

In or before 2012, a group of investors put together a plan to redevelop the vacant land surrounding the golf course. The plans contemplated a dramatic expansion of the existing site: a second golf course was to be constructed, along with a day spa, more than 20 townhouses and 9 or 10 freestanding houses. As will be discussed below, the scope of the development project changed somewhat over its lifetime.

The development project centred around two companies and a trust. At the relevant time, Golden Heritage Golf Pty Ltd (‘GHG’) was the registered proprietor of Heritage and various related properties (the Henley Golf Course, the St John Golf Course, the Retreat and Spa of the Sebel Heritage Yarra Valley, and the management lot) (collectively, the ‘development area’).[1] A second company, GHG Services Pty Ltd (‘GHG Services’) was established to manage assets owned by GHG. A trust (the ‘GHG Trust’), of which GHG was the trustee, was the beneficial owner of the development area.
[1]The development area is described in the following Certificates of Title: Volume 10469 Folios 796, 797, 798 and 805; Volume 10997 Folios 622, 623 and 624; Volume 11283 Folios 353, 357, 358, 359 and 360; Volume 10943 Folios 072, 073 and 074; Volume 10499 Folio 304; Volume 10826 Folio 958; Volume 10803 Folio 535; and Volume 10650 Folio 047.

The development project experienced various difficulties until, on 31 January 2014, GHG was placed in voluntary administration. At the second creditors’ meeting, held on 17 April 2014, a resolution was passed that the company be wound up.

The plaintiff, Mr Xu, and the defendant, Mr Wang, were both involved in the development project. However, the role played by each is in dispute in this proceeding.

Pleadings and procedural history
Mr Xu’s pleaded case

By his Further Amended Statement of Claim Mr Xu alleges that:

(a) At some point between March and August 2013, he advanced sums totalling $2,300,000 to GHG as a short-term loan (the ‘GHG Loan’).

(b) In or around November 2013, Mr Wang and GHG entered into an investment agreement, pursuant to which Mr Wang would invest $5,000,000 in the GHG Trust in return for 10 units in the trust (the ‘Investment Agreement’). Under the agreement, Mr Wang would also be made a director of GHG, and General Manager of Heritage.

(c) On or about 11 December 2013, he and Mr Wang entered into an agreement under which Mr Xu agreed to lend Mr Wang $1,300,000 for the purpose of Mr Wang’s investment in GHG (the ‘Loan Agreement’). Mr Wang agreed to repay this loan (the ‘Xu-Wang Loan’) by 31 January 2014. Under the terms of the Loan Agreement, Mr Xu agreed to forward the loan amount ($1,300,000) directly to GHG (the ‘GHG Payment’) on behalf of Mr Wang, to be used solely to purchase units in the GHG Trust. The loan was to be secured by Mr Wang’s units in the GHG Trust. The interest rate was to be 1% per month.

(d) On or about 19 December 2013, Mr Xu paid $1,300,000 under the Loan Agreement to GHG, by means of a contra agreement, under which GHG agreed to receive the advance by reducing the balance of the GHG Loan by $1,300,000. The balance of the GHG Loan was accordingly reduced by $1,300,000 on or about 20 December 2013. GHG acknowledged receipt of this payment on or about the same day, and issued Mr Wang with 10 units in the GHG Trust.

(e) On or about 20 January 2014, Mr Xu received a cheque from Mr Wang in the amount of $1,300,000 (‘the Cheque’), supposedly repaying the Xu-Wang Loan.

(f) On or about 28 February 2014, Mr Xu presented the Cheque for payment.

(g) On or about 3 March 2014, the Cheque was dishonoured. Mr Wang had notice of this, and failed and/or refused to pay the amount due under the Cheque.

Mr Wang’s pleaded case
Mr Wang’s defence

By his Further Amended Defence Mr Wang admits that:

(a) His signature appears on a document titled ‘Golden Heritage Golf Investment Agreement’ (that is, the Investment Agreement), and that this document purports to contain the terms alleged by Mr Xu. However, he otherwise does not admit Mr Xu’s allegations regarding the Investment Agreement. He alleges that the Investment Agreement states that he was to receive 24 units in the GHG Trust, and 24 shares in GHG.

(b) He entered into the Loan Agreement, and that the loan was to be repaid by 31 January 2014. However, he says that this money was loaned for the purpose of him purchasing shares in GHG, and not units in the GHG Trust.

Mr Wang alleges that it was an express or implied term of the Loan Agreement that Mr Xu was to procure from GHG his 24 shares in GHG, prior to or contemporaneously with Mr Xu making the GHG Payment.

He further alleges that he is not liable under the Loan Agreement or as drawer of the Cheque, because:

(a) There was total failure of consideration for the Loan Agreement and the Cheque, by reason of the following alleged facts:

(i) Mr Xu did not advance to GHG or to Mr Wang the sum of $1.3 million;

(ii) Mr Wang never received any shares in GHG;

(iii) Mr Wang does not believe that he was ever issued with units in the GHG Trust; and

(iv) Mr Wang was never appointed as a director of GHG.

(b) He was induced into entering the Loan Agreement by misleading or deceptive conduct by Mr Xu, a businessman by the name of Mr Guo Zhao ‘Sunny’ Sun (‘Mr Sun’) (of which more will be said later) and/or GHG.

Mr Wang’s counterclaim

In his counterclaim, Mr Wang alleges that Mr Xu, Mr Sun and/or GHG represented to him that:

(a) GHG owned and operated Heritage, which had two golf courses, a wellness retreat, and land available for property development;

(b) Mr Xu was the general manager of Heritage and spent a lot of time in this role, and that he was in charge of the development of the relevant land;

(c) GHG was developing housing on the land owned by GHG, and there was at least 15 hectares of land to be developed with a mixture of houses and townhouses;

(d) GHG had plans and permits in place for the development of over 26 townhouses, and potentially for the development of other sites as well;

(e) Mr Xu had invested approximately $2,500,000 of his own money in the land development project, and would invest more;

(f) GHG and its investors would make a large profit from the development of the land;

(g) the financial position of GHG and Heritage was strong;

(h) GHG and Heritage were both trading profitably;

(i) although GHG had borrowed around $10,500,000 from Morelend Finance Corporation Pty Ltd (‘Morelend’), this presented no problem as GHG and Heritage were both trading profitably, the value of the assets of Heritage were more than enough to cover its liabilities, and Morelend was comfortable with GHG’s financial position;

(j) Mr Wang would be made a director of GHG and would be issued with shares in GHG and units in the GHG Trust in return for making an equity investment; and

(k) Mr Xu would, prior to or contemporaneously with him making any payment to GHG on Mr Wang’s behalf, procure Mr Wang’s 24 shares in GHG from that company.

He alleges that these representations were false, with the exception of the representation detailed in paragraph [13(f)], which was a representation as to a future matter which Mr Xu, Mr Sun and GHG had no reasonable grounds for making.

He alleges that Mr Xu aided, abetted, counselled, procured or was directly or indirectly knowingly involved in this misleading or deceptive conduct by Mr Sun and/or GHG. He alleges that, as a result of this misleading and deceptive conduct, he suffered loss and damage in the amount of $720,000, being money transferred to GHG under the Investment Agreement.

Procedural history
Australian proceedings

Proceedings were first instituted in this Court on 21 March 2014. Initially, the proceedings were based solely on the dishonoured cheque. In his defence, Mr Wang claimed a failure of consideration on behalf of Mr Xu in respect of the Cheque and alleged misrepresentations made by Mr Xu in relation to the various financial interactions and transactions. The case moved on, as often is the case as parties and counsel form a clearer vision of issues in dispute. In short, the parties’ pleadings settled as outlined above.

In January 2015 a court appointed mediation was held. That mediation was unsuccessful and Lansdowne AsJ listed the matter for pre-trial directions on 26 May 2015.

On 25 September 2015 Elliot J fixed the case for trial commencing 2 May 2016. That trial date was vacated on 27 April 2016 to allow for the production of expert evidence. Following several extensions, the trial was re-listed on 16 December 2016 to commence on 2 February 2017. The second trial date was vacated by Riordan J on 27 January 2017, apparently because Mr Wang brought the existence of concurrent proceedings in China to the attention of the Court.

Chinese proceedings

The Chinese proceedings were issued by Mr Xu in the Ningbo Municipal Intermediate People’s Court on 9 July 2015. Those proceedings named Mr Wang as defendant, and sought to recover the same sum under the same transaction as is the subject of the proceedings before this Court. Service of the Chinese proceedings was carried out by way of advertisement pursuant to Article 92 of the Civil Procedure Law of the People’s Republic of China. Mr Wang did not appear.

The following day the Ningbo Court gave judgment ordering that certain properties owned by Mr Wang in China be frozen up to a value of RMB 4,500,000.

Mr Xu obtained judgment in the Chinese proceedings on 25 March 2016 (the ‘Chinese judgment’), that is only months after this proceeding was listed for trial in this Court by Elliott J on 25 September 2015 and a considerable time before the matter was re-listed. The Chinese court ordered payment to Mr Xu of AUD 1,300,000, plus interest at a rate of 1% per month from 20 December 2013 to the date thereof. The Court further ordered that, if Mr Wang did not make payment, interest payable would increase to a rate of 2% per month. The Court also ordered payment of RMB 59,475 (approximately AUD 11,271.27), comprising a “case acceptance fee” and “property preservation fee”.

Upon becoming aware of the Chinese proceedings, Mr Wang filed an ‘Application for Retrial of Civil Case’ to the Zhejiang Provence Higher People’s Court on 13 February 2017. The grounds for that application were:

(a) The evidence did not substantiate that any money had been advanced to him under the Loan Agreement.

(b) That Mr Xu had failed to effect proper service upon him.

The Higher People’s Court rejected Mr Wang’s application by judgment dated 27 July 2017, finding that service of the proceedings had been proper in accordance with Chinese law, and that the judgment at first instance was sound.

On 7 August 2018, Mr Wang applied to the Ningbo City People’s Procuratorate of Zhejiang Provence to further appeal the Chinese judgment. At the time of hearing that application remains outstanding.

The parties agreed that this Court only became aware of the Chinese proceedings in late January 2017, likely 27 January 2017, after Mr Xu had already obtained judgment in China.

Mr Xu thereafter further amended his statement of claim in these proceedings to request damages as enforcement of the Chinese judgment. Although enforcement is pleaded in the alternative to Mr Xu’s substantive claim, it became his primary argument in the course of submissions. Mr Xu maintained that, if this Court did not enforce the Chinese judgment, he is nonetheless entitled to damages under his substantive claim.

Mr Wang opposed enforcement of the Chinese judgment on the basis that:

(a) It was not final and conclusive of the controversy between him and Mr Xu, as it did not consider the defences raised, or his counterclaim.

(b) It was obtained by fraud of Mr Xu, who withheld from the Chinese court:

(v) the existence of this proceeding and the defences and counterclaim made in this proceeding, in particular, Mr Xu failed to provide certain loan agreements and other documents to the Chinese court;

(vi) the fact that Mr Wang was resident in Australia and that service by public announcement would not affect proper service on him; and

(vii) the fact that he knew the whereabouts of Mr Wang in Australia, which would have enabled the proceedings to have been brought to his attention.

(c) The Chinese court acted contrary to natural justice in accepting service by way of public announcement when it ought to have made further enquiries as to Mr Wang’s whereabouts.

Mr Wang submitted further that enforcement of the Chinese judgment would be an abuse of process, and that the Court should, in the exercise of its inherent jurisdiction, permanently stay Mr Xu’s claim on that basis.

Claims made and orders sought
Claims made and orders sought by Mr Xu

Mr Xu claims:

(a) That Mr Wang is liable to pay him the sum owing under the Cheque, being $1,300,000.

(b) Further, or in the alternative, that the Xu-Wang Loan is due and payable, and that Mr Wang has failed and/or refused to pay the sums owing under it.

(c) Further, or in the alternative, that he has suffered loss and damage in respect of the alleged breach of the Loan Agreement by Mr Wang.

(d) In the alternative to the above, Mr Xu requests that this Court recognise and enforce the Chinese judgment, and seeks:

(viii) AUD 1,508,000, being the amount of that judgment plus interest accrued at 1% and the payment of RMB 59,475 (AUD 11,271.27).

(ix) Additional interest accruing from the date of default of payment to the date of the Chinese judgment at a rate of 2% per month, as provided for in that judgment.

(x) Interest on the Chinese judgment from March 2017 pursuant to statute.

Mr Xu seeks the following orders:

(a) Payment of the outstanding sum of $1,300,000.

(b) Alternatively, damages.

(c) Alternatively, judgment in the order of $1,508,000 being the amount of the Chinese judgment.

(d) Additional interest on the Chinese judgment accruing at a rate of 2% per month between Mr Wang’s default and the date of that judgment.

(e) Interest, pursuant to the terms of the Loan Agreement or, alternatively, pursuant to statute.

(f) Costs.

Claims made and orders sought by Mr Wang

Mr Wang claims:

(a) That the Chinese judgment is unenforceable against him.

(b) That he is not liable to pay Mr Xu the sum alleged to be owing under the Loan Agreement.

(c) That he is not liable to pay Mr Xu the sum alleged to be owing under the Cheque.

(d) That he has suffered loss and damage by reason of Mr Xu’s misleading or deceptive conduct.

Mr Wang seeks the following orders:

(a) A declaration that the Chinese judgment is unenforceable.

(b) Damages.

(c) Damages pursuant to the Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’) s 236 and the Australian Consumer Law and Fair Trading Act 2012 (Vic) (‘Fair Trading Act’) ss 216 and 226.

(d) A declaration pursuant to the Australian Consumer Law s 243 and the Fair Trading Act ss 216 and 226 that the Loan Agreement is null and void ab initio.

(e) A declaration pursuant to the Australian Consumer Law s 243 and the Fair Trading Act ss 216 and 226 that the Cheque is null and void ab initio.

(f) Interest.

(g) Costs.

(h) Such other order as the Court deems fit.

The evidence of the parties

The Court heard evidence from several witnesses of fact, as well as two expert accountants.

In addition to giving evidence himself, Mr Xu called:

(a) Mr Tao Lin (‘Mr Lin’), Mr Xu’s son-in-law;[2] and

(b) Mr Hamish MacKinnon, former liquidator of GHG and current liquidator of GHG Services.

[2]Mr Lin is also a qualified lawyer in China, and sought to give expert evidence on service procedures under Chinese law.

Mr Wang gave evidence himself, and called Mr David Honey, GHG’s former financial controller.

The witnesses of fact gave evidence on several topics, which I will deal with below before turning to the expert evidence. Evidence which goes exclusively to Mr Wang’s counterclaim will be considered separately.

The business experience of the parties

Considerable evidence was given during the hearing of the matter as to the business experience of the parties. Ultimately, it appears that both Mr Xu and Mr Wang are, and were at all relevant times, experienced businessmen. It is unnecessary to outline, beyond a brief reference, the experience of each of the parties. Suffice to say that the Court is satisfied that there was no question of inequality of commercial experience as between the parties and each was sophisticated in matters of business.

Mr Xu was a director and shareholder in a property development company in China from 2001 to mid-2011. The company undertook large property developments, at times involving hundreds of residential units. After moving to Australia in mid-2011, he started a red wine import-export business, which he operated until November 2016.

Mr Wang was involved in trading gold ore in China between 1995 and 2013, through a company in which he and his brother were the sole shareholders. Mr Wang ceased to play an active role in that company in May 2013. He also oversaw the construction of an office building which was sold to the Chinese government for approximately RMB 30 million.

The background to Mr Xu’s involvement and the GHG Loan

Mr Xu gave evidence that he moved to Australia in May 2011, and remained until November 2016. In late 2012, while looking for development projects in Australia, Mr Xu read about a business brokering service owned by Mr Anbo Xiang (‘Mr Xiang’) in a Chinese language newspaper. He went to Mr Xiang’s office in Box Hill at some point during September or October 2012. Mr Xiang initially suggested that Mr Xu invest in a hotel in Sydney, but this project was not to Mr Xu’s liking. Mr Xu stated that Mr Xiang first told him of the Heritage Golf Club project in October or November 2012. After calling Mr Xu to tell him of an unspecified project, Mr Xiang dropped by Mr Xu’s office on Little Collins St, and left behind a document (in Mandarin) summarising the project. The document contained, amongst other things, a statement of the business’s income and expenses for the previous (2010-11) financial year.

Mr Xu visited Heritage with Mr Xiang in December 2012, and met with Mr Sun. After the visit, Mr Xu’s interest in the project deepened.

Mr Xu denied having ever worked as an employee of GHG in any capacity, or holding himself out as such. When shown an agreement between himself and Heritage for the joint development of certain land, Mr Xu said that it was never put into practice. The project did not start and he never received any income from it.

The GHG Loan

At some point between December 2012 and January 2013 Mr Xu introduced the investment to Mr Lin. In the course of this conversation, Mr Lin and Mr Xu concluded that the best way to invest in Heritage was by way of a loan agreement. Mr Xu and Mr Lin both gave evidence that, between January and August 2013 some $2,300,000 was loaned to GHG, and entities associated with GHG, by Mr Xu and various members of his family.[3] A sum of $1,500,000 of those funds are said to have been outstanding at the time of the GHG Payment. Mr Xu and Mr Lin both maintained that the money had all been provided by Mr Xu, though it was paid through various bank accounts held in the names of Mr Xu, Mr Lin, and Qian Xu (‘Ms Xu’) – Mr Xu’s daughter and Mr Lin’s wife.
[3]The total figure given by the witnesses varied slightly, depending on whether those witnesses took account of several additional transactions between members of Mr Xu’s family and GHG which do not form a part of the present claim. Those transactions are discussed below at 46.

Mr Lin’s evidence was that money was transferred though accounts owned by him and Ms Xu in order to facilitate migration to Australia. Mr Lin said that Mr Xu told him that Australia was ‘a very pleasant place to live’, and that migration could be facilitated by making investments in this country. As Mr Lin was working and living in China, Mr Xu was to handle the details of the loans. Mr Lin was unsure at the time as to which entity associated with Heritage he was lending money. He was unfamiliar with the corporate structure of GHG and had no knowledge of GHG Services. He left those details to Mr Xu.

The chronology of short-term loans advanced is as follows:

(a) On 22 March 2013 a loan of $700,000 was made to GHG in the name of Mr Lin. That loan was evidenced by a cheque drawn on HSBC Bank Australia Ltd, signed by Mr Xu’s wife, as well as a loan agreement with GHG. Mr Xu’s evidence was that he provided the funds to Mr Lin, Mr Lin could not recall whether some of his personal funds were also used.

(b) On 25 June 2013 a loan of $300,000 was made to GHG in the name of Mr Xu. That loan was paid by cheque dated 24 June 2013. Mr Xu said that, although the cheque was made out to the golf club, the payment was made pursuant to a personal loan agreement with Mr Sun.[4]
[4]Mr Xu lodged a proof of debt in the liquidation with respect to this loan, but it was rejected on the basis that it was a personal loan to Mr Sun, rather than to the company.

(c) On 25 July 2013 a loan of $500,000 was made in the name of Mr Lin. That loan took the form of a $300,000 cheque drawn on HSBC Bank Australia Ltd, made out to GHG Services paid by Mr Lin and $200,000 cash paid by Mr Xu directly to Mr Sun. Mr Xu said that he had borrowed, under his own name, the entire $500,000 from a contact in China.

(d) In late July 2013 GHG paid $700,000 to Mr Lin, purportedly in re-payment of the 22 March 2013 loan. The money was paid in instalments of $570,000, $30,000 and $100,000 directly to Mr Xu, who forwarded those funds to Mr Lin’s account.

(e) On 2 August 2013 a loan of $700,000 was made to GHG Services by bank transfer from an HSBC account held in the name of Mr Lin. Mr Lin’s evidence was that those funds were provided to him by Mr Xu.[5]

[5]Mr Wang submitted that this payment, as well as the $300,000 paid to GHG Services on 25 July 2013 actually comprised an equity investment in GHG Services made by Mr Lin, who appears on the register of shareholders of that company. Mr Lin was not aware that he held equity in GHG Services and, although Mr MacKinnon gave evidence that there had been funds deposited into GHG Services in the order of $1,000,000 for the purposes of purchasing shares in that company, he was unable to identify the source of those funds.

Several other transactions between Mr Xu and his family, and GHG were discussed in the evidence. Those funds are not said to have contributed to the GHG Payment and are relevant only in providing context to the transactions at issue in these proceedings:

(a) In January 2013 a loan of $800,000, secured by mortgage, was made to GHG by Ms Xu. Mr Xu and Mr Lin both gave evidence that the funds for that loan were provided by Mr Xu. Mr Xu initially included this figure in the total short term loans outstanding with GHG as at the date of the GHG payment, however he conceded in cross-examination that it was unrelated.

(b) In December 2014, a loan of $4,000,000 was made to GHG by Mr Lin.

(c) Both of those loans were the subject of proofs of debt lodged by, or on behalf of, Ms Xu and Mr Lin in the liquidation of GHG.[6] A settlement was reached with the liquidators as to their entitlement to a dividend in the liquidation. Mr MacKinnon could not recall how much money was ultimately distributed under that settlement.

[6]It was suggested in submission by Mr Wang that Mr Xu, who lodged the proof of debt in respect of the $800,000 loan on his daughter’s behalf, withheld certain information from the liquidator. That information goes only to Mr Xu’s credit, and I treat it as such.

Background to the Investment Agreement

Mr Wang’s involvement in the project also began with Mr Xiang. He gave evidence that he came to Australia in May 2013, and remains a permanent resident. From June 2013 Mr Wang began investigating investment opportunities in Australia. He discovered an advertisement for an unrelated investment placed in a local Chinese language newspaper by Mr Xiang. In or around September of that year Mr Xiang contacted Mr Wang and told him about a potential investment opportunity in GHG. Mr Wang first met with Mr Xiang and Mr Sun on 6 October 2013, Mr Xu and his wife were also present at the meeting. Mr Wang gave evidence that Mr Xu was introduced to him at that meeting as the general manager of Heritage, who was responsible for property development, an allegation Mr Xu denied. Mr Wang stated that he discussed the financial performance of the company with those present, and thereafter received a brochure relating to the investment from Mr Xiang.

Mr Wang was approached with an offer to invest in GHG at the end of October 2013 because an existing shareholder, Mr Hua Wang, wished to sell his shareholding. At a meeting on 11 December 2013 Mr Sun informed Mr Wang that he would need to purchase Mr Hua Wang’s shares by 20 December 2013, or the opportunity would pass. Mr Xu suggested that he could lend $1.3 million to him for 45 days whilst Mr Wang arranged the transfer of money from China, in order to facilitate purchase of the shares.

The Investment Agreement

Mr Wang signed both the Investment Agreement with GHG and the Loan Agreement with Mr Xu on or around the date of the 11 December meeting. The Investment Agreement is undated. Mr Wang’s evidence was that he signed the agreement sometime before the Loan Agreement was signed on 11 December 2013. Mr Xu says that both documents were signed on the same date. I do not consider that anything materially turns on this point.

The Investment Agreement records that Mr Wang was to purchase 24 units in the GHG trust and 24 shares in GHG for a price of $5,000,000. The terms of the agreement, insofar as is relevant to the present proceedings, may be summarised as follows:

(a) Clause 1 – the parties agreed that the “net capital asset” under the GHG Trust and GHG was $20,450,000.

(b) Clause 2 – Mr Wang agreed to invest $5,000,000 in the GHG Trust in exchange for the issue of 10 units in the GHG Trust.

(c) Clause 3 – Mr Wang would be allotted 24 units in the GHG Trust and 24.45% of shares in GHG.

(d) Clause 4 – Mr Wang would be registered as a director of GHG.

(e) Clauses 7.1 to 7.3 – Mr Wang was to forward an amount of $300,000 to GHG before 16 December 2013 by way of deposit. A further $2,700,000 was to be forwarded before 30 July 2014, with the balance to be forwarded before 30 July 2015.

Attached to the Investment Agreement was an asset and liability statement for GHG dated 28 November 2013, in a combination of English and Chinese. That document was signed by Mr Wang. The Court is not satisfied that submissions in relation to this statement were sufficiently developed such as to found a finding based upon it. In this regard the Court notes that it was hampered in assessing the forensic utility of this document given that it was mostly in Mandarin.

The Loan Agreement

The Loan Agreement was entered into between Mr Xu and Mr Wang on 11 December 2013. Mr Wang’s evidence was that Mr Xu planned to borrow the money from a friend in China in order to finance the loan. Mr Xu denies having made any such representation, but in any event I do not consider that anything turns on the source of Mr Xu’s funds.

The terms of the Loan Agreement may be summarised as follows:

(a) Clause 1 – Mr Xu agreed to lend $1,300,000 to Mr Wang from 15 December 2013 for a period of 45 days at an interest rate of 1% per month.

(b) Clause 2 – Mr Wang would use the loan for the purpose of purchasing shares in GHG.

(c) Clause 3 – Mr Xu agreed to forward the $1,300,000 directly to GHG under the name of Mr Wang. GHG would issue the agreed shares to Mr Wang.

(d) Clause 4 – Mr Wang’s company shares were to be used as security to guarantee repayment of the loan.

The advancement of money to GHG by Mr Xu was said to have occurred pursuant to a contra agreement between Mr Xu and GHG. No written agreement to that effect was placed in evidence before this Court. Under that agreement the GHG Payment was said to be made by reducing the outstanding balance of the GHG Loan by $1,300,000. Mr Xu initially said that outstanding loans at that date were $2,300,000, comprising:

(a) $800,000 lent in the name of Qian Xu in January 2013;

(b) $700,000 lent in the name of Mr Lin in March 2013;

(c) $300,000 lend in his own name in June 2013;

(d) $500,000 lent in the name of Mr Lin in July 2013; and

(e) $700,000 lent in the name of Mr Lin in August 2013.

In re-examination Mr Xu accepted that the $800,000 secured loan, and $700,000 repaid to Mr Lin should be subtracted from that total, reducing the total outstanding short term loans to GHG to $1,500,000 as at the date of the GHG Payment.

GHG’s internal accounts recorded a reduction in the short term loan account of $1,291,119 dated 20 December 2013, with a corresponding credit journal entry to equity of Mr Wang. A written acknowledgement of receipt of payment was signed by Mr Sun. On the same day, Mr Wang paid an additional $20,000 of his own funds by way of cheque in favour of GHG.

On 20 or 21 January 2014, Mr Wang provided Mr Xu with a cheque dated 20 January 2014, in purported repayment of the $1,300,000. Mr Wang requested that Mr Xu wait until he had travelled to Hong Kong to transfer money before banking the Cheque. Mr Wang also drew a cheque in favour of GHG in the sum of $700,000, which Mr Xu believed was honoured.

Mr Xu presented Mr Wang’s cheque to the bank on 28 February 2014, having heard no further response from him and sometime after GHG entered administration. The Cheque was not honoured.

The Books and Records of GHG

Mr Honey and Mr MacKinnon both gave evidence that the maintenance of proper financial records at GHG left much to be desired. Mr Honey gave evidence that Mr Sun arranged loans from several sources into GHG and GHG Services, referring to those creditors as ‘investors’. Mr Honey said that although he personally maintained the accounts of GHG Services, Mr Sun maintained control over the accounts of GHG, and entries for incoming funds would be entered into GHG’s records only upon his instructions. Mr Honey attributed certain discrepancies between different versions of GHG’s general ledger as likely having been the result of some instruction from Mr Sun.

Mr Honey explained that money would typically flow into GHG, and then be on-lent by GHG to GHG Services in order to meet operational expenses. Intercompany accounts operated between GHG and GHG Services, funds would often be transferred between the two companies to meet their immediate obligations. Funds also moved in and out of a family trust owned by Mr Sun. Funds moving to or from the Sun Family Trust account were treated as owed by, or owing to, Mr Sun personally.

Mr MacKinnon similarly noted that dealings with Mr Sun in the course of his investigations into the financial state of the company were difficult. This, in turn, made it difficult to reach an accurate assessment of the financial position of the company, or to rely on its MYOB records. There were no audited financial statements or other accounts available.

Expert reports

The court received expert accounting evidence from two chartered accountants, Mr Michael Smith (‘Mr Smith’) on behalf of the defendant, and Mr Russel Munday (‘Mr Munday’) on behalf of the plaintiff. The experts reviewed the books and records of GHG and the GHG Trust and considered several questions, namely:

(a) Is there any evidence that Mr Xu advanced $2,300,000[7] or any sum to GHG by way of short term loan or otherwise?
[7]Mr Smith’s initial report recorded that he was asked whether there was any evidence that Mr Xu advanced $1,300,000. Mr Smith corrected the error in his supplemental report and confirmed that the correction made no difference to his opinions.

(b) Is there any evidence that GHG:

(xi) agreed to receive payment of the $1,300,000 by way of a reduction of the balance of loans owed to Mr Xu; and

(xii) did in fact receive such a reduction?

(c) Was GHG’s net capital asset position as presented in the Investment Agreement in fact the true position at any time between 1 July 2013 and 20 December 2013, or, if not, what was the actual position throughout that period?

(d) What was the actual net asset and liability position of GHG and GHG Trust for each month from 1 July 2013 to 31 January 2014, in comparison to:

(i) the information contained in the various prospectuses or investor brochures provided to Mr Wang;

(ii) the liquidator’s statements and reports to creditors; and

(iii) the Investment Agreement?

Mr Smith, a chartered accountant and director of CFAS Advisory Pty Ltd, prepared an initial expert report on behalf of Mr Wang. Mr Smith gave the following opinions by reference to the books and records of GHG:

(a) First, it appeared that Mr Xu personally paid only $300,000 to GHG on 25 June 2013. The balance of the company’s short term loan account arose from contributions from other investors, including Mr Lin. Mr Smith was unable to verify any repayments made from the short term loan account, and therefore could not determine the balance per investor as at the date of the GHG Payment. In oral evidence, Mr Smith further observed that, if the $300,000 paid by Mr Xu was actually paid by way of loan to Mr Sun, any forwarding of those funds to GHG would be treated as a loan from Mr Sun to GHG, rather than Mr Xu to GHG.

(b) Second, there was no evidence that Mr Xu had a short term loan in favour of GHG in the amount of $1,300,000 as at 19 December 2013. The accounts did however record a reduction in the short term loan account of $1,291,119 dated 20 December 2013 with a corresponding credit journal entry to equity of Mr Wang.

(c) Third, as at 30 November 2013 GHG’s accounts recorded total assets of $24,701,883.95 and total liabilities of $29,778,892.36. GHG’s net asset position at that date was therefore a deficiency of $5,077,008.41.

(d) Fourth, at all times between 31 July 2013 and 31 January 2014 GHG’s net asset position remained substantially below $20,450,000 as presented in the Investment Agreement. That assessment accorded with the summary financial statements contained in the Administrators’ Report.

Mr Munday, a chartered accountant and director of Munday Wilkinson Pty Ltd, prepared a responsive report on behalf of Mr Xu. Mr Munday identified several perceived deficiencies in Mr Smith’s report:

(a) First, Mr Smith’s report did not consider GHG’s relationship to GHG Services, nor whether any transactions recorded as having been made by Mr Lin were actually made by Mr Xu. The consequence of this was that Mr Munday said that Mr Smith had not considered two payments into GHG Services, of $500,000 on 25 July 2013 and $700,000 on 1 August 2013. However, in cross-examination Mr Munday accepted that $200,000 of the 25 July 2013 payment was paid through GHG services into a family trust account held by Mr Sun, not into GHG.

(b) Second, the net asset position of GHG was not relevant to the Xu-Wang Loan, and was relevant only to the Investment Agreement.

(c) Third, when taking account of payments made by Mr Xu and Mr Lin, including those made through GHG Services, those payments equate to $1,500,000, potentially supporting Mr Xu’s case regarding the GHG Payment.

Mr Munday acknowledged that his conclusion required additional information, namely:

(a) books and records of GHG Services; and

(b) evidence that transactions attributed to Mr Lin actually related to Mr Xu.

Mr Smith produced a supplementary report wherein he responded to the opinions contained in Mr Munday’s report:

(a) First, Mr Smith clarified that his observation with respect to the reduction in GHG’s short term loan account and corresponding entry to equity in favour of Mr Wang did not indicate that this occurred pursuant to the Loan Agreement.

(b) Second, Mr Smith confirmed that he had no instructions as to the relevance of the relationship between GHG and GHG Services.

(c) Third, Mr Smith reported that he had seen no documentation that supports the theory that transactions identified as involving Mr Lin related to Mr Xu. Mr Smith also observed that payments identified by Mr Munday of $300,000 and $200,000 dated 25 July 2013, were between Mr Lin and GHG and Mr Xu and GHG Services respectively, and not between Mr Xu and GHG.

The experts conferred and produced a joint report. That report did little to narrow the issues between them, and each expert re-iterated the views outlined above. The experts largely affirmed those opinions in oral evidence, and made few concessions save for those identified above.

As observed, there was no meeting of the minds of the experts in relation to the state of transactions or the accounts concerning the dispute between the parties. Whilst I have no basis upon which to bring into question the veracity and expertise of the expert witnesses, equally the confused and contradictory nature of the evidence and seemingly ‘moving feast’ as to the state of accounts of GHG renders the Court unable to draw any firm conclusion, or conclusion whatsoever, from the collective evidence of the experts.

Is the Chinese judgment enforceable?
Legal principles – enforcement of foreign judgments
Proof of foreign law

In order to consider the enforceability of the Chinese judgment, it is necessary to have regard to the content of the law of the People’s Republic of China (‘PRC’).

The content of foreign law is a special question of fact for an Australian court.[8] While it is often desirable in cases such as this for the court to receive expert evidence as to the content of foreign law, pursuant to the Evidence Act 2008 (Vic) s 174 it is permissible for the parties to tender publications of foreign law from a reliable source in the absence of expert evidence. As was held by Kyrou and McLeish JJA of the Victorian Court of Appeal in the recent decision in Re Tang, a trial judge may interpret and apply those materials on their own and may make findings as to the content of the foreign law in the absence of expert assistance.[9]
[8]Martin Davies, Andrew Bell and Paul Le Gay Brereton, Nygh’s Conflict of Laws in Australia (LexisNexis Butterworths, 9^th ed, 2014) 405-6 [17.5] – [17.7].
[9]Re Tang (2017) 52 VR 786, 804 [65].

The Court notes that, as referenced previously, Mr Lin sought to give expert evidence on service procedure under Chinese law. Mr Lin was a key witness on behalf of Mr Xu. There was no evidence before the Court of Mr Lin’s legal experience, except in the broadest of terms. There was no evidence that Mr Lin was aware of the code of conduct in relation to expert evidence in this Court, had read it, understood it or subscribed to it. Mr Lin was not advanced as an expert witness on Chinese procedural law. Mr Wang was not aware that Mr Lin intended to give evidence in relation to any procedural matters going to the service of proceedings in China. For these reasons the Court did not consider nor allow Mr Lin to proffer expert evidence in this proceeding.

I will return to the content of PRC procedural law below.

Proceeding on a foreign judgment

Foreign judgments may be enforced in Australia either at common law or through the combined operation of the Foreign Judgments Act 1991 (Cth) and the Foreign Judgments Regulations 1992 (Cth) (‘the Regulations’). The statutory regime applies where a country has been designated as a jurisdiction of substantial reciprocity under the Regulations. The PRC has not been so designated.[10]
[10]See the Foreign Judgments Regulations 1992 (Cth) sch 1.

The common law principles governing the enforcement of foreign judgments are uncontroversial between the parties. Those principles have been summarised as follows in Nygh’s Conflict of Laws, by reference to several conditions which must be established by the plaintiff:

To entitle a foreign judgment to recognition at common law, four conditions must be satisfied: (a) the foreign court must have exercised a jurisdiction which Australian courts will recognise; (b) the foreign judgment must be final and conclusive; (c) there must be an identity of parties; and (d) if based on judgment in personam, the judgment must be for a fixed debt.[11]

[11]Davies, Bell and Brereton, above n 8, 895 [40.2].

Once those conditions are established, a foreign judgment is prima facie enforceable in this jurisdiction.[12] It is for the defendant to establish grounds for rebutting that prima facie entitlement, which grounds are discussed below. In the present proceedings, the defendant contests the jurisdiction of the Chinese Court and the finality of its judgment. Identity of the parties and the nature of the Chinese judgment are not in issue.
[12]Stern v National Australia Bank; National Australia Bank Ltd v Pollack [1999] FCA 1421, [133] (Tamberlin J).

Jurisdiction is established by asking whether the foreign court exercised a jurisdiction recognised under Australia’s conflict of laws rules. In Doe v Howard, J Forrest J of this Court observed:

The term ‘jurisdiction’ used here does not refer to the jurisdiction of the foreign court under its own rules, but ‘jurisdiction in the international sense’, by which is meant a competence that is recognised under Australian law.[13]

[13]Doe v Howard [2015] VSC 75, [57] (J Forrest J).

Jurisdiction might be established by reference to, for example, citizenship of the country in which the foreign court exercises its jurisdiction.[14] A party may also submit to the jurisdiction of a foreign court, either by agreement or by conduct in the foreign proceedings.
[14]In Victoria, ‘active citizenship’ of the PRC has been specifically accepted by the Supreme Court as a basis for jurisdiction recognised in the enforcement of a PRC judgment: see Liu v Ma & Anor [2017] VSC 810, [7] (Mukhtar AsJ).

Finality is determined principally by reference to whether the foreign court treats the judgment as res judicata. To be enforceable, the judgment must be one which ‘put[s] an end to the particular proceeding pending between the parties, and must settle once and for all the controversy between them’.[15]
[15]Davies, Bell and Brereton, above n 8, 907 [40.30].

The availability of a right of appeal against a judgment does not itself affect the finality of that judgment. Where a judgment is subject to an outstanding appeal it is nonetheless treated as final and conclusive until it is actually set aside by the foreign appellate court.[16] In exceptional circumstances it may be appropriate for a domestic court to give judgment but to delay enforcement until the determination of an outstanding appeal, however only where there is persuasive evidence as to the prospects of success in the foreign appellate court.[17]
[16]Ibid 908 [40.33].
[17]Ibid 908 [40.32].

Common law grounds for challenging a foreign judgment

Notwithstanding the satisfaction of the above conditions, the forum court may still refuse to grant enforcement of the foreign judgment in limited circumstances. Grounds for refusing to recognise or enforce a foreign judgment in an Australian jurisdiction include:

(a) where granting enforcement of the foreign judgment would be contrary to Australian public policy.[18] This includes judgments obtained by improper means, such as duress[19] or undue influence;[20]
[18]Re Macartney [1921] 1 Ch 522, 527–8 (Astbury J).
[19]Re Meyer [1971] P 298, 307 (Bagnall J).
[20]Israel Discount Bank of New York v Hadjipateras [1984] 1 WLR 137, 143 (Stephenson LJ, with whom O’Connor and Robert Goff LJJ agreed).

(b) where the foreign judgment was obtained by fraud (including equitable fraud),[21] by the plaintiff, or even on the part of the court;[22]

(c) where the foreign judgment is penal or a judgment for a revenue debt;[23] and

(d) where enforcement of the decision would amount to a denial of natural justice.[24]

[21]Keele v Findley (1990) 21 NSWLR 444, 457–8 (Rogers CJ).

[22]Price v Dewhirst (1837) 8 Sim 279; 59 ER 111 (Shadwell VC).

[23]Schnabel v Lui [2002] NSWSC 15 [164] (Bergin J); Benefit Strategies Group Inc v Prider (2005) 91 SASR 544, 566 [75] (Bleby J).

[24]Boele v Norsemeter Holding AS [2002] NSWCA 363, [24] (Giles JA, with whom Handley and Beazley JJA agreed).

The Court also maintains its inherent jurisdiction to refuse to enforce proceedings as an abuse of process.

It falls to the defendant to establish any of the above defences to enforcement, once the plaintiff has established the prima facie enforceability of the judgment.[25] It should be noted that a defendant cannot challenge the inherent merits of the foreign decision by alleging that the foreign court made a mistake of fact or law.[26] Moreover, a defendant cannot raise any defence in an enforcement proceeding that was, or could have been, raised in the foreign proceeding.[27]
[25]Stern v National Australia Bank; National Australia Bank Ltd v Pollack [1999] FCA 1421, [133] (Tamberlin J).
[26]Norsemeter Holding AS v Boele (No 1) [2002] NSWSC 370, [14] (Einstein J) (reversed on other grounds in Boele v Norsemeter Holding AS [2002] NSWCA 363).
[27]Ellis v McHenry (1871) LR 6 CP 228.

For present purposes the operative questions are:

(a) whether the Chinese judgment was obtained by fraud;

(b) whether enforcement of the Chinese judgment would amount to a denial of natural justice;

(c) whether enforcement of the Chinese judgment would be contrary to Australian public policy; and

(d) whether enforcement of the Chinese judgment would amount to an abuse of process.

Foreign judgments obtained by fraud

In Doe v Howard, J Forrest J affirmed that the proper approach to setting aside a foreign judgment on the basis of fraud in Victoria is that of the Supreme Court of New South Wales in Keele v Findley,[28] drawing from the decision in Wentworth v Rogers (No 5).[29] In that case, his Honour helpfully summarised the relevant principles as follows:

(a) New discovery of a material fact: It must be shown, by the party asserting that a judgment was procured by fraud, that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment.
(b) Mere suspicion is insufficient: Mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief. The claimant must establish that the new facts are so evidenced and so material that it is reasonably probable that the action will succeed.
(c) Ordinarily perjury is not enough to set aside the judgment: Although perjury by the successful party or a witness may, if later discovered, warrant the setting aside of a judgment on the ground that it was procured by fraud, and although there may be exceptional cases where such proof of perjury could suffice, without more, to warrant relief of this kind, the mere allegation, or even the proof, of perjury will not normally be sufficient to attract such drastic and exceptional relief as the setting aside of a judgment.
(d) The successful party must be responsible for the fraud: It must be shown by admissible evidence that the successful party was responsible for the fraud which taints the judgment under challenge. And the evidence in support of the charge ought to be extrinsic.
(e) Onus is on the party alleging fraud: The burden of establishing the components necessary to warrant the drastic step of setting aside a judgment, allegedly affected by fraud or other relevant taint, lies on the party impugning the judgment. It is for that party to establish the fraud and to do so clearly.[30]

[28](1990) 21 NSWLR 444 (Rogers CJ).

[29](1986) 6 NSWLR 534 (Kirby P, as he then was).

[30]Doe v Howard [2015] VSC 75 [107]-[108], [131] (J Forrest J).

It therefore falls to Mr Wang to establish that there has been new discovery of facts which were not brought to the attention of the Chinese court, and which are sufficiently material to justify setting aside its judgment.

Denial of natural justice

Mr Wang submitted that the manner of service of the Chinese proceedings amounted to a denial of natural justice.

In Boele v Norsemeter Holding AS,[31] Giles JA of the NSW Court of Appeal (with whom Handley and Beazly JJA agreed) stated that the notice provisions of the foreign court will be a consideration (but not a determinative consideration) in deciding whether due notice has been given:

In determining whether due notice has been given regard will be had to the notice provisions of the foreign court: for example, notification not by personal service but in accordance with the rules of the foreign court may be held to be consistent with affording natural justice even if not in accord with notice provisions of the forum.[32]

[31][2002] NSWCA 363.

[32]Ibid [28], citing Jeannot v Fuerst (1909) 25 TLR 424; Igra v Igra (1951) P 404; Terrell v Terrell (1971) VR 155.

This is not to say that any form of notice recognised in foreign courts will be regarded as due notice by an Australian court. There are limits. In Terrell v Terrell,[33] cited by Giles JA in the above passage of Boele, Barber J of the Supreme Court of Victoria held that:

[T]he authorities support the view that the courts here, as in England, would regard the proceedings of any court as being contrary to natural justice if they resulted in a decree where the respondent had received no notice of the proceedings and had not had any opportunity to be heard. To this basic rule there is an exception, that where the foreign court has power to order substituted service or to dispense with service, and that power has been properly exercised upon proper material, even where the respondent was not in fact made aware of the proceedings, such proceedings cannot be held to be unjust, as similar powers are available to our courts. However, there must have been some attempt to effect personal service.[34]

[33](1971) VR 155.

[34]Ibid 157, citing Grissom v Grissom [1949] QWN 52.

Having made these observations, the Court notes that in closing submissions a concession was made by Mr Wang that he had submitted to the jurisdiction of the Chinese Court.

Public policy

Case law demonstrates that it is very difficult to show that Australian public policy should operate to prevent enforcement of a foreign judgment. The starting point is that Australian courts should, in the interests of comity, refrain from criticising the judgments of foreign courts or be ‘too reluctant to recognise their orders’.[35] Tamberlin J of the Federal Court has stated:

The thread running through the authorities is that the extent to which the enforcement of the foreign judgment is contrary to public policy must be of a high order to establish a defence. A number of cases involve questions of moral and ethical policy; fairness of procedure, and illegality, of a fundamental nature.[36]

[35]Bouton v Labiche (1994) 33 NSWLR 225, 234 (Kirby P, as he then was).

[36]Stern v National Australia Bank; National Australia Bank Ltd v Pollack [1999] FCA 1421, [143].

Thus it has been suggested in subsequent cases that a foreign judgment will be held to offend Australian public policy if, for example, the content of the foreign law was repugnant (such as permitting contracts for the sale of slaves), enforcement of the judgment would require the Australian court to jeopardise Australia’s national interest, or if enforcement of the judgment would lead to an ‘unacceptably unjust result’.[37] A foreign judgment will not be contrary to public policy unless it would ‘violate some fundamental principle of justice, some prevalent conception of good morals, some deep rooted tradition of the common weal’.[38]

Abuse of process

[37]De Santis v Russo (2001) 27 Fam LR 414, [21] (Atkinson J), quoted in Jenton Overseas Investment Pte Ltd v Townsing [2008] VSC 470, [14]-[15] (Whelan J). Atkinson J’s judgment in De Santis was overturned on appeal but not on this point: see De Santis v Russo [2002] 2 Qd R 230.

[38]Loucks v Standard Oil Co of New York (1918) 224 NY 99, 111 (Cardozo J), quoted in Stern v National Australia Bank; National Australia Bank Ltd v Pollack [1999] FCA 1421, [141].

The question raised by this case is whether it would be an abuse of process to allow enforcement of the Chinese judgment in circumstances where proceedings raising common issues of law and fact had already been instituted in Australia; had been on foot for some years and indeed had continued (with the active participation of Mr Xu) for nearly a year following the foreign judgment, without Mr Xu informing Mr Wang or indeed this Court of the existence of the judgment on which he now seeks to rely. In essence, Mr Wang submits that pursuing the Chinese proceedings was an abuse of process and it would thus be an abuse of process to enforce the judgment made in those proceedings.

The case of Marks v Australia and New Zealand Banking Group Ltd[39] is apposite. In that case, the appellant contended that a Singaporean judgment for the repayment of debt under a Facility Agreement should not be enforced on the basis that it was contrary to Australian public policy. This was said to be because the respondent bank had commenced related (although not identical) proceedings in Queensland for the recovery of land used to guarantee the Facility Agreement. It was said that it was an abuse of process for the respondent to have commenced proceedings in Singapore when it had already commenced proceedings in Queensland which it knew were being defended, and that to enforce the Singaporean judgment would be contrary to Australian public policy because it would ‘give legitimacy to an abuse of process’.[40]
[39][2014] QCA 102.
[40]Ibid [20] (Gotterson JA).

In the event, the Court did not decide the point. Gotterson JA (with whom Muir JA and Daubney J agreed) held that the Singaporean judgment was not an abuse of process, variously because it had in fact been commenced before the Queensland proceeding,[41] Singapore was an appropriate forum on construction of the Facility Agreement,[42] and the Singaporean proceedings did not contain a claim for possession of land (unlike the Queensland proceedings).[43] It was therefore unnecessary to decide first whether obtaining a foreign judgment with domestic proceedings on foot could amount to an abuse of process, and if it could, whether that abuse of process could justify refusing to enforce the foreign judgment on public policy grounds. However, the case is of interest for raising this issue, even if its determination cannot assist the Court in this case. In particular, it is of note that the Queensland Court of Appeal did not express the view that an abuse of process could not amount to a circumstance that would prevent enforcement of the judgment by reason of it being contrary to Australian public policy.
[41]Ibid [24] (Gotterson JA).
[42]Ibid [26] (Gotterson JA).
[43]Ibid [27] (Gotterson JA).

Neither party was able to provide the court with any other authority in which a party has commenced, and obtained judgment on, foreign proceedings when domestic proceedings remain on foot and progress in ignorance of the foreign proceeding or indeed a foreign judgment. In the absence of any authority directly on point I am guided by the general principles applied by this court when considering whether a step taken in proceedings amounts to an abuse of process.

In Re AWB Ltd (No 10); Australian Securities and Investments Commission v Lindberg,[44] Robson J set out an extensive list of principles as to when an abuse of process will be made out. The particularly relevant principles are set out below:
[44](2009) 76 ACSR 181.

(1) The court possesses an inherent jurisdiction to stay its proceedings as an abuse of process if the proceedings are unjustifiably oppressive and vexatious or manifestly unfair or otherwise bring the administration of justice into disrepute among right-thinking people: Walton; Rogers and PNJ; Jeffery.

(2) The jurisdiction should only be exercised in exceptional cases or sparingly with the utmost caution: Jago.

(3) The jurisdiction to stay for abuse of process is not limited to cases where the proceedings have been brought for an improper purpose or where there is no possibility of the court affording the affected party a fair hearing: Walton; Rogers.

(4) The circumstances in which abuse of process may arise are extremely varied and the courts have refrained from limiting the circumstances to fixed categories: Hunter; Rogers; Batistatos.

…

(8) The rationale underlying the principle against double jeopardy, in that an individual should not be vexed twice for the same cause, is a factor properly to be taken into account in the weighing exercise: Walton.

(9) It is prima facie vexatious to bring two extant civil actions where one will lie: Moore; Thirteenth Corp.

(10) This prima facie rule applies whether or not the two proceedings are in separate courts or one: Branir.

(11) The prima facie rule applies where the issues overlap or significantly overlap or there is a similarity of subject matters of the proceedings.

(12) The fact that the parties may not be identical, or the relief different, does not necessarily disentitle relief under this principle: Moore.

(13) In considering whether the rule should apply, the court should consider whether there was no reasonable justification for the second proceeding based on legitimate considerations of convenience, cost or the like: Thirteenth Corp.

(14) The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice. Regard may be had to:

(a) the importance of the issue in and to the earlier proceeding, including whether it is an evidentiary or ultimate issue;

(b) the opportunity available and taken to fully litigate the issue;

(c) the terms and finality of the finding as to the issue;

(d) the identity between the relevant issues in the two proceedings;

(e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceeding;

(f) the extent of the oppression and unfairness to the other party if the issue was relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and

(g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process: Rippon.[45]

[45]Ibid [264] (citations omitted).

What is clear from these principles, so clearly set out by Robson J, is that the Court must not declare a proceeding an abuse of process lightly. However, when considering whether a second proceeding will constitute an abuse of process, the Court must hold both the integrity of the administration of justice and notions of fairness to the other party at front of mind.

In Moore v Inglis (‘Moore’),[46] Mason J held that it was vexatious, oppressive and an abuse of process for the plaintiff Inglis to have commenced a proceeding in the High Court of Australia when proceedings relating to the same matter were already before the Supreme Court of the Australian Capital Territory. This was so even where the parties differed to a minor extent, the allegations made were related but not identical, and the relief claimed was different (in the High Court, a declaration and injunction; in the Supreme Court, damages only).
[46](1976) 9 ALR 509.

Similar facts presented themselves in Thirteenth Corp Pty Ltd v State (‘Thirteenth Corp’).[47] Considering Moore, Jessup J stated:

…the question whether a later proceeding is an abuse of process because of similarity with an earlier, extant proceeding is not concluded in the negative merely because the parties, the causes of action, the specific relief sought, or even the forensic issues which may arise, are not identical… The important, perhaps critical, point was that the court in which the earlier proceeding was commenced had jurisdiction to deal with everything raised in the later proceeding and there was no reasonable justification, based on legitimate considerations of convenience, cost or the like, for commencing the second proceeding rather than seeking to amend the earlier.[48]

[47](2006) 232 ALR 491.

[48]Ibid [41].

In Thirteenth Corp, Jessup J held that the second proceeding was not an abuse of process, because the first proceeding had been dismissed by a self-executing order on the same day that the second proceeding was instituted. However, Jessup J made clear that were this not the case, his Honour would have held that:

the commencement of the present proceeding was an abuse of process in the sense of being a course preferred by the applicant over what I would regard as the more obvious, more convenient, less costly and less vexing expedient of seeking to make the necessary amendments to the pleadings in the Victorian proceeding.[49]

[49]Ibid [42].

In SK Foods LP v SK Foods Australia Pty Ltd (in liq) (No 3) (‘SK Foods’),[50] the issue was whether a judgment obtained in a United States bankruptcy court formed res judicata for the purposes of a concurrent Australian proceeding (which issue also arises in this judgment: see paragraph 108 below). The defendants in the Australian proceeding contended that ‘the mere commencement of the American proceeding…was prima facie vexations and oppressive’.[51] This was argued because the American proceeding, although instituted first, was amended to include similar claims to those put in the Australian proceeding after the institution of the Australian proceeding. The defendants further argued that pursuit of the American proceeding was vexatious and oppressive because it was pursued as part of a ‘plan’ or ‘strategy’ to ‘shut down’ the Australian proceeding.[52] In holding that it was possible, in the circumstances of that case, for the American proceeding to form res judicata, Flick J stated:

The forensic concern of the other defendants that a party may seek to “fast track” a proceeding in a foreign forum, possibly by way of a more recently commenced proceeding or amendment to an existing proceeding, it is respectfully concluded, is already adequately addressed in the law by way of (for example):
·the disfavour with which the law views a party seeking the same relief in two or more different forums, especially in those circumstances where one party is improperly seeking to secure some forensic advantage; or
·the control which a court can exercise over the conduct of parties, including its ability to grant relief where a party has (for example) deliberately pursued a course of seeking to vex or oppress an opponent.[53]

[50](2013) 214 FCR 543.

[51]Ibid [15].

[52]Ibid.

[53]Ibid [31].

Mr Xu submitted that maintaining concurrent proceedings in multiple jurisdictions does not necessarily constitute an abuse of process. In particular, where the foreign proceedings involve a reasonable and genuine juridical advantage they ought not be stayed as an abuse of process.[54] Where there is no such juridical advantage the parties agree that the proper process where both proceedings are ongoing is for the party to elect which proceedings to continue, or to have one stayed by an anti-suit injunction.[55] Of course, that procedure is no longer available here.
[54]Citing Davies, Bell and Brereton, above n 8, 76 [3.117]-[3.119]; Peruvian Guano Company v Bockwoldt (1883) 23 Ch D 225, 230 (per Lord Jessel MR).
[55]Australian Commercial Research and Development Ltd v ANZ McCaughan Merchant Bank Ltd [1989] 3 All ER 65, 69-70 (Browne-Wilkinson VC).

Analysis and decision on enforcement of the Chinese judgment

Mr Wang alleged that the manner of service meant that he was not notified of the Chinese proceedings until after judgment, and therefore had been denied natural justice. Mr Xu did not contend that Mr Wang was aware of the proceedings against him, but maintained that service was effected properly in accordance with the laws of China.

I was taken to a number of translated provisions from the Civil Procedure Law of the People’s Republic of China, sourced from a website maintained in a collaboration between Peking University and Monash University. Having considered them, it seems, based on their plain and natural meaning, that service may be validly effected in China by the following means:

(a) Processes are to be served directly on the person to be served, either personally, upon a litigation representative, or upon a designated person (Article 85 of the Civil Procedure Law).

(b) With the consent of the person to be served, a people’s court may serve by fax, email, or other means capable of confirming receipt (Article 87 of the Civil Procedure Law).

(c) If service is difficult, it may be entrusted to another people’s court or conducted by post (Article 88 of the Civil Procedure Law).

(d) Where the whereabouts of the person to be served is unknown or service of process is not possible by any other means, process may be served by public announcement (Article 92 of the Civil Procedure Law).

(e) Where a party has no domicile within the territory of the People’s Republic of China they may be served by various means, including on a litigation representative, by fax or by email (Article 267 of the Civil Procedure Law). ‘Domicile’ is “a citizen’s place of permanent residence”, or “the place of registration of the legal person” (Article 3 of the Interpretation of the Supreme People’s Court of the Civil Procedure Law of the People’s Republic of China).

It was conceded by Mr Wang that, because he has appealed certain decisions in China, he has submitted to the jurisdiction of that country. However, it remains a question for this Court as to whether the judgment should nevertheless be recognised by this Court or whether this Court should regard it as a denial of natural justice or an abuse of process. I will address these issue below.

Mr Wang further alleged that the Chinese judgment was obtained by fraud as Mr Xu failed notify the Chinese court of his misleading or deceptive conduct claim, as well as several documents which would render it inequitable for Mr Xu to take the benefit of its judgment, namely:

(a) the loan agreement between Mr Lin and GHG dated 22 March 2013;

(b) the loan agreement between Mr Xu and Mr Sun dated 24 June 2013;

(c) the loan agreement between Mr Xu and the Chinese lender dated 22 July 2013;

(d) the loan agreement between Mr Xu and Mr Sun dated 22 July 2013; and

(e) the executed Project Management Agreement between Mr Xu and GHG dated 18 March 2013.

In my opinion, this Court ought not recognise the Chinese judgment in this case making it immediately enforceable in this jurisdiction. I say this for the following reasons:

(a) Service was purported to be effected under Article 92 of the Civil Procedure Law of China, that is service by public announcement. This provision allows service by public announcement in circumstances where the whereabouts of the person to be served is unknown, or service of process is not possible by any other means.

(b) This is clearly not the case here. Mr Xu knew how to contact Mr Wang as proceedings were on foot, and very well advanced, in this jurisdiction. Accordingly, I consider that, at least at the service stage, there was a denial of natural justice to Mr Wang. Service was not effected properly in accordance with the Civil Procedure Law, and consequently Mr Wang was not made aware of the proceedings against him until, it seems, January 2017.

(c) The documents outlined above were not discovered in the Chinese proceedings. Several of those documents were not, in fact, discovered in these proceedings until Mr Xu referred to them in oral evidence. In my opinion, they were clearly relevant to the defendant’s case. It was submitted by Mr Xu that, when they were discovered in this proceeding, he ‘volunteered materials which he’d have been better off keeping to himself’ and that in the Chinese proceedings he ‘wasn't under any obligation to disclose [them] because they don't form part of the way he says his debt arises’. This is an alarming proposition. Whether these documents are eventually critical in the outcome of proceedings between the parties is, in my opinion, irrelevant. The point is that they ought have been at the disposal of the judge of the Chinese Court and, indeed, the suggestion that even in these proceedings Mr Xu may have been better served by not producing them is to be condemned by this Court.

(d) Instituting proceedings in a foreign jurisdiction, proceeding to judgment and appeals, whilst the every same issues (absent the counterclaim) were, in ignorance of this Court, actively agitated in this Court does, undoubtedly, bring the administration of justice into disrepute among right thinking people. It ought to be borne in mind that this Court devoted considerable time and resources to this matter — the matter was indeed set down for trial whilst secret parallel proceedings were being conducted. For Mr Xu to seek to enforce those proceedings now constitutes a disrespect for the processes of this Court and the administration of justice in this State.

(e) Many of the authorities which touch on issues of this nature are comparatively (in this fast moving world) dated. Accordingly, the internationalisation of business and global access to legal services understandably may not have loomed so large in previous decisions. It is incumbent on this Court, in my opinion, to recognise these issues and the emerging global shopping for legal redress in determining whether the conduct of this matter constitutes an abuse of process of this Court.

Can the plaintiff pursue proceedings in Australia if the Chinese proceeding is unenforceable?

The plaintiff is not precluded from pursuing a suit in this court on the merits of the case, regardless of the status (enforceable or otherwise) of the Chinese judgment. This is because although foreign courts are now accepted to be ‘courts of record’, a foreign judgment does not bring about a merger of the cause of action at common law.[56]
[56]Carl Zeiss Stiftung v Rayner and Keeler (No 2) [1967] 1 AC 853, 917; RDCW Diamonds v Da Gloria [2006] NSWSC 450, [28] (Rothman J).

Thus, it is necessary for me to consider the merits of Mr Xu’s substantive claim before turning to Mr Wang’s counterclaim.

Mr Xu’s cheque claim
Legal principles

It is trite to observe that a cheque embodies a simple contract between the parties, namely a promise to pay money. In order to be enforceable a cheque must therefore meet all of the requirements of a valid contract, including consideration in exchange for payment. Section 36 of the Cheques Act 1986 (Cth) is a deeming provision which provides that ‘The drawer and each indorser of a cheque shall, unless the contrary is proved, be presumed to have received value for the cheque.’

‘Value’ for the purpose of that section is defined as follows in s 35 of the Act:

(1) Valuable consideration for a cheque may be constituted by:
(a) any consideration sufficient to support a simple contract; or
(b) an antecedent debt or liability.

(2) An antecedent debt or liability may constitute valuable consideration for a cheque whether or not the cheque is post-dated.

The combined effect of those provisions is that, unless the contrary is proved, the drawer of a cheque is deemed to have received consideration in order to support the contract for payment. That presumption may be rebutted by establishing a failure of consideration on the contract.[57] The onus is upon the defendant to do so.
[57]There are several other defences prescribed expressly by the statute. For example, where the holder of a cheque has obtained title to it by fraud, duress or other unlawful means their title to that cheque is defective: Cheques Act 1986 (Cth) s 3(3).

There is disagreement between the parties as to whether the failure of consideration must be total or whether a partial failure of consideration also constitutes a valid defence to a Cheques Act claim. Mr Xu advocated the former view, while Mr Wang maintained the latter. Both parties directed me to the decision of Young CJ of this Court in Mobil Oil Australia Ltd v Caulfield Tyre Service Pty Ltd (‘Mobil Oil’)[58] in support of their respective positions.
[58][1984] VR 440 (‘Mobil Oil’).

In Mobil Oil, Young CJ considered a summons brought by the defendant to set aside judgment in an action under the former Instruments Act 1958. The defendant’s summons was brought on the basis that it should be allowed to set off valuable counter-claims against the judgment. His Honour rejected the summons on the basis that set-off was not among the limited defences available on an Instruments Act claim. In so deciding, Young CJ considered generally the defences available in such an action, including failure of consideration. His Honour endorsed the views of the House of Lords in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH,[59] as follows:

In the course of the leading speech which was made by Lord Wilberforce, his Lordship said… “I take it to be clear law that unliquidated cross-claims cannot be relied upon by way of extinguishing set-off against a claim on a bill of exchange… As between the immediate parties, a partial failure of consideration may be relied upon as a pro tanto defence, but only when the amount involved is ascertained and liquidated…
Lord Dilhorne agreed with Lord Wilberforce. Lord Salmon dissented but on a different point and did not express any view contrary to what Lord Wilberforce had expressed in relation to bills of exchange. Indeed, his Lordship expressly accepted that view. He said…: “I agree that there is no defence to the bills, since the only possible defence (which is not relied upon by the respondents) could be that their acceptance had been procured by fraud, duress or for a consideration which had failed because the damages claimed in the arbitration are unliquidated damages and such damages cannot be set off against a claim on the bills of exchange…
I shall read one further passage from the speeches in that case and this time from Lord Russel of Killowen, who also agreed, as did Lord Fraser of Tullybelton. Lord Russel said…: “It is in my opinion well established that a claim for unliquidated damages under a contract for sale is no defence to a claim under a bill of exchange accepted by the purchaser: nor is it available as a set-off or counterclaim. This is a deep rooted concept of English commercial law. A vendor and purchaser who agree upon payment by acceptance of bills of exchange do not simply do so on the basis that credit is given to the purchaser so that the vendor must in due course sue for the price under the contract of sale. The bill itself is a contract separate from the contract of sale. It’s [sic] purpose is not merely to serve as a negotiable instrument; it is also to avoid postponement of the purchaser’s liability to the vendor himself, a postponement grounded upon some allegation of failure by the vendor under the underlying contract, unless it be total or quantified partial failure of consideration.”[60]

[59][1977] 1 WLR 713.

[60][1984] VR 440, 441-2 (internal citations omitted).

It is clear from those observations, endorsed by this Court, that a partial failure of consideration does afford a defence pro tanto to a Cheques Act claim, provided that the amount involved is ascertained and liquidated. I am comforted in that conclusion by the recognition of such a defence in several commentaries on claims under the Cheques Act and its international equivalents.[61] The position is most clearly summarised by the authors of Chalmers and Guest on Bills of Exchange and Cheques, as follows:

Partial failure of consideration is a defence pro tanto against an immediate party, and against a remote party who is not a holder for value, provided that the partial failure is an ascertained and liquid amount. Thus if A accepts a bill drawn on him by B as the price of a specified quantity of goods at a certain price per tonne to be supplied by B to A, and B delivers part only of the contract quantity, A will have a good defence to an action against him by B on the bill to the extent of the excess in price beyond the amount due (at the contractual rate) for the goods which are delivered.[62]

[61]Richard Morgan, Guide to Australian Cheque Law – an explanation of the new cheque code (CCH Australia, 1987), 50-1; Brian Conrick, The Law of Negotiable Instruments in Australia (Butterworths, 2^nd ed, 1989), 62 [5.9]; Nicholas Elliot QC, John Odgers QC and Jonathan Phillips, Byles on Bills of Exchange and Cheques (Sweet & Maxwell, 29^th ed, 2013), 282 [19-037].

[62]A.G. Guest QC, Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (Sweet & Maxwell, 17^th ed, 2009), 234 [4-009].

In the event that a cheque for which valuable consideration had been given is dishonoured, ss 71 and 76 of the Cheques Act jointly operate to impose upon the drawer of a cheque a presumption of payment for its full value. The existence of that statutory presumption is not disputed by the defendant.

Analysis and decision on the Cheques Act claim

Mr Xu is entitled to take the benefit of the presumption of payment of the dishonoured cheque for its full value, subject to the defences raised by Mr Wang.

Mr Wang pleads two matters in his defence to Mr Xu’s Cheques Act claim:

(a) First, total, or in the alternative partial, failure of consideration insofar as he says Mr Xu did not, pursuant to the Loan Agreement:

(iv) advance $1,300,000 to GHG or him by way of the contra agreement or at all; or

(v) procure an issue of shares to him in GHG.

(b) Second, disentitlement to the Cheque by reason of misleading or deceptive conduct.

There is no express term, nor am I satisfied that there is an implied term that may be read into the Loan Agreement imposing upon Mr Xu an obligation to procure the issue of shares in GHG to Mr Wang. Mr Wang’s entitlement to shares in GHG arose by operation of the Investment Agreement. Mr Xu was not a director or otherwise, on the evidence before me, an agent of GHG. Aside from the recognition in Clauses 2 and 3 of the Loan Agreement that shares in GHG would be issued to Mr Wang there is nothing in that agreement that comes close to imposing any such obligation on Mr Xu to bring about that result. On its ordinary meaning Clause 3 does not impose a positive obligation upon Mr Xu, it is rather a recognition of the use to which the money would be put, and which would form the security for the loan. The fact that shares in GHG were not issued to Mr Wang in the context of the Loan Agreement is simply in my opinion a commercial risk taken by Mr Xu; that is, that his loan of $1,300,000 to Mr Wang would be unsecured. Therefore, I am not satisfied that the fact that Mr Wang was not issued shares in GHG amounts to a total failure of consideration under the Loan Agreement.

However, on all of the evidence I am not satisfied that, on the balance of probabilities, the money which Mr Xu claims made up the GHG Payment consisted of short term loans as between Mr Xu and GHG. Taking each of those loans in turn:

(a) The loan of $700,000 on 22 March 2013 was made from Mr Lin to GHG. Even accepting that those funds were provided by Mr Xu, that loan was repaid in late July 2013, well before the GHG Payment.

(b) The loan of $300,000 made on 25 June 2013 was made pursuant to a personal loan agreement with Mr Sun. So much was admitted by Mr Xu in evidence notwithstanding that the cheque was payable to GHG.

(c) The loan of $300,000 paid by cheque on 25 July 2013 was made from Mr Lin to GHG Services. Again accepting that those funds were procured by Mr Xu, the loan was made to a separate entity to GHG and, as was recognised by both experts, does not appear in the short term loan account of GHG.

(d) The loan of $200,000 paid in cash on 25 July 2013 was made from Mr Xu directly to Mr Sun.

(e) The loan of $700,000 on 2 August 2013 was made from Mr Lin to GHG Services.

Mr Xu’s case is that, under the contra agreement, outstanding loans made by him and his family to GHG were reduced and converted to equity in favour of Mr Wang. Mr Xu said that it doesn’t matter to or from whom those loans were paid. I reject that submission. Clause 3 of the Loan Agreement requires that Mr Xu ‘forward this $1.3M to the company account of Golden Heritage Golf Pty Ltd’. Although ultimately it may be argued that it does not matter by whom funds were transferred it does matter to which entity they were paid. Of the $1,500,000 said to make up the GHG Loan only $700,000 was paid directly to GHG. That $700,000 was repaid before the GHG Payment was made. In those circumstances I consider that Mr Wang did not receive the benefit that he bargained for under the Loan Agreement, there was a total failure of consideration which provides a complete defence to Mr Xu’s Cheques Act claim.

There is a document dated 20 December 2013 and corresponding book entries that need to be reconciled with the Court’s conclusion. The document is a receipt signed by Mr Sun in his capacity as managing director of ‘Golden Heritage Golf Club Pty Ltd’ (not GHG). It purports to record a ‘share payment’ of ‘$AUD 1.3m’ from Mr Xu on behalf of Mr Wang.

The books and records of GHG were, by all accounts, creatively kept. Evidence was given of the alteration of entries on the MYOB system and whimsical re-categorisations of debt and equity at the direction of Mr Sun.

The experts called in this matter, for both sides, did not demonstrate to the Court that it could rely on the veracity of GHG’s accounts. The Court, by way of observation, is not aware of any separate accounts being held in the name of Golden Heritage Golf Club Pty Ltd. The Court is unable to draw the conclusion urged upon it by Mr Xu that the document and book entries lead to the conclusion that Mr Wang received the equity that he bargained for.

Mr Xu’s loan claim

Mr Xu’s claim under the Loan Agreement, which is pleaded in the alternative to his Cheques Act claim, is premised upon substantially the same factual matrix.

As observed, I am not satisfied that the funds purporting to make up the GHG Payment were in fact forwarded to GHG by Mr Xu. I therefore do not consider Mr Xu’s entitlement to recover under the Loan Agreement itself to be any different from his entitlement under the Cheque. Both claims fail due to a total failure of consideration.

Mr Wang’s counterclaim

Mr Wang claims, by way of both defence and counterclaim, that prior to entering into the Investment Agreement and the Loan Agreement several misleading representations were made to him regarding the financial position of GHG and the likely performance of his investment. Mr Wang submits that those misrepresentations have two legal consequences:

(a) as a complete defence to Mr Xu’s claim; and

(b) as misleading or deceptive conduct within the meaning of s 18 of the Australian Consumer Law.

Mr Wang alleges that the representations induced him to invest in GHG, and to suffer loss and damage in the order of $720,000, being:

(a) $20,000 paid by way of cheque made out to GHG dated 20 December 2013; and

(b) $700,000 paid by way of cheque made out to GHG dated 30 January 2014.

The alleged misrepresentations

In his Further Amended Defence and Counterclaim Mr Wang alleges that Mr Xu, Mr Sun and/or GHG made the representations as set out in paragraph 13 to him. For ease of reference, they are repeated here:

(a) GHG owned and operated Heritage, which had two golf courses, a wellness retreat, and land available for property development;

(b) Mr Xu was the general manager of Heritage and spent a lot of time in this role, and that he was in charge of the development of the relevant land;

(c) GHG was developing housing on the land owned by GHG, and there was at least 15 hectares of land to be developed with a mixture of houses and townhouses;

(d) GHG had plans and permits in place for the development of over 26 townhouses, and potentially for the development of other sites as well;

(e) Mr Xu had invested approximately $2,500,000 of his own money in the land development project, and would invest more;

(f) GHG and its investors would make a large profit from the development of the land;

(g) the financial position of GHG and Heritage was strong;

(h) GHG and Heritage were both trading profitably;

(i) although GHG had borrowed around $10,500,000 from Morelend, this presented no problem as GHG and Heritage were both trading profitably, the value of the assets of Heritage were more than enough to cover its liabilities, and Morelend was comfortable with GHG’s financial position;

(j) Mr Wang would be made a director of GHG and would be issued with shares in GHG and units in the GHG Trust in return for making an equity investment; and

(k) Mr Xu would, prior to or contemporaneously with him making any payment to GHG on Mr Wang’s behalf, procure Mr Wang’s 24 shares in GHG from that company.

In closing submissions Mr Wang’s case focused on the alleged representations at (d) to (j), which he contended were false. I will first summarise the relevant legal principles, then return to consider each of those alleged misrepresentation in turn.

Legal principles – misleading or deceptive conduct

Section 18 of the Australian Consumer Law[63] provides that ‘[a] person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.’[64] Three issues arise between the parties in this case:
[63]Competition and Consumer Act 2010 (Cth) sch 2.
[64]The Australian Consumer Law applies as the law of Victoria by operation of s 8 of the Australian Consumer Law and Fair Trading Act 2012 (Vic).

(a) whether each of the representations alleged to have been made by GHG, Mr Sun and Mr Xu was misleading or deceptive;

(b) whether the alleged representations can be attributed to Mr Xu; and

(c) whether the alleged representations caused Mr Wang to enter into the Investment Agreement and the Loan Agreement.

Misleading or deceptive conduct

Whether conduct is misleading or deceptive must be tested objectively, and does not turn upon the intent of the representor.[65] In ACCC v TPG Internet Pty Ltd[66] the High Court of Australia characterised nature of the requisite conduct as follows:

Whether speaking of representations to the public at large or in negotiations between parties of equal bargaining power and competence… Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into error. That is to say there must be a sufficient causal link between the conduct and error on the part of persons exposed to it. It is in that sense that it can be said that the prohibitions in ss 52 and 18 were not enacted for the benefit of people who failed to take reasonable care of their own interests.[67]

[65]Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 197 (Gibbs CJ).

[66](2013) 250 CLR 640.

[67]Ibid 651-2 [39] (French CJ, Crennan, Bell and Keane JJ), by reference to the High Court’s previous decisions in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 and Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357.

Not all representations with a tendency to lead into error fall within that description. Relevantly, exaggerated statements in the ordinary course of business, statements of opinion and representations as to future matters often fall outside of the scope of s 18.

By necessity, certain representations made in the ordinary course of business must be regarded as falling below the relevant threshold. In General Newspapers Pty Ltd v Telstra Corp[68] Davies and Enfield JJ of the Federal Court observed that ‘in the ordinary course of commercial dealings, a certain degree of ‘puffing’ or exaggeration is to be expected. Indeed, puffery is part of the ordinary stuff of commerce.’[69] Mr Xu raised, by way of example, the decision of Kenny J of the Federal Court in Sanders v Glev Franchises Pty Ltd.[70] In that case, statements made in the course of encouraging a party to invest in a pizza franchise that the business was ‘extremely successful’ and that it was an ’attractive investment’ were held to have been mere puffery, and not misleading or deceptive conduct within the meaning of then s 52 of the Trade Practices Act 1974 (Cth).[71]
[68](1993) 45 FCR 164.
[69]Ibid 178.
[70][2002] FCA 1332.
[71]Ibid [272].

Similarly, a statement of opinion does not amount to a misrepresentation, provided that it is identifiable as an opinion and not as a statement of fact. The legal position was summarised as follows, in obiter, by the Full Court of the Federal Court in Global Sportsman Pty Ltd v Mirror Newspapers Ltd:

An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if these conditions are met, an expression of opinion, however erroneous, misrepresents nothing.[72]

[72](1984) 55 ALR 25, 31 (Bowen CJ, Lockhart and Fitzgerald JJ).

That position differs where the statement is that of an expert, but no expertise is attributed to Mr Xu here.

Section 4 of the Australian Consumer Law expressly provides that representations made as to a future matter will not fall within s 18 unless the representor has no reasonable grounds for making the representation.[73] The evidentiary burden falls upon the respondent to an allegation, here Mr Xu, to establish that reasonable grounds existed with respect to any alleged misrepresentation as to future matters.[74]
[73]Competition and Consumer Act 2010 (Cth) sch 2, s 4(1).
[74]Competition and Consumer Act 2010 (Cth) sch 2, s 4(2).

Responsibility for misleading conduct

Mr Wang says that Mr Xu made the alleged representations either directly or as an intermediary between Mr Wang and GHG.

In circumstances where an individual acts as an intermediary, or conduit, of information they may be liable for misleading or deceptive conduct either as principal or as an accessory.

An intermediary will be said to have engaged in misleading or deceptive conduct as principal only where they could readily be regarded as having adopted any misrepresentation as their own.[75] For example, in Butcher v Lachlan Elder Realty Pty Ltd[76] the High Court considered that a real estate agent who passed on a brochure, which expressly disclaimed his knowledge of the correctness of any information contained therein, was not liable for misleading or deceptive conduct as he did no more than communicate what the seller was representing.
[75]Yorke v Lucas (1985) 158 CLR 661, 666 (Mason ACJ, Wilson, Deane and Dawson JJ); Gardam v George Wills & Co Ltd (No 1) (1988) 82 ALR 415, 427 (French J), a case under then s 53 of the Trade Practices Act.
[76](2004) 218 CLR 592.

Accessorial liability turns upon the intermediary’s knowing participation in, or assent to, the misleading conduct.[77] Knowledge must extend beyond just the acts constituting the contravention, to the circumstances which give those acts the character of misleading or deceptive conduct.[78]
[77]Yorke v Lucas (1985) 158 CLR 661, 666-668 (Mason ACJ, Wilson, Deane and Dawson JJ), 674 (Brennan J).
[78]Ibid.

Causation

In circumstances where misrepresentations are made for the purpose of inducing another to enter into a contract the fact that the representee could have discovered the misrepresentation upon proper enquiry does not absolve the representor from liability.[79] This is so despite the High Court’s general observation that the section was ‘not enacted for the benefit of those who fail to take reasonable care of their own interests’.[80] In Argy v Blunts Lane & Cove Real Estate Ltd,[81] Hill J noted, however, that although failure to protect one’s own interests would not absolve a representor from liability in those circumstances, it could nonetheless break the chain of causation between the misrepresentation and any alleged damage:

A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.[82]

[79]Neilsen v Hempston Holdings Pty Ltd (1986) 65 ALR 302, 309 (Pincus J); Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 72 ALR 601, 612 (Wilcox J), upheld on appeal, Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 (Lockhart, Burchett and Foster JJ); Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233, 240-1 (Forster, Woodward and Wilcox JJ).

[80]ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640, 651-2 [39] (French CJ, Crennan, Bell and Keane JJ).

[81](1990) 26 FCR 112.

[82]Ibid 138.

Where representations are made to specific individuals, rather than to the public at large, the proper analysis is by reference to the conduct of a defendant in relation to that plaintiff alone. That approach was summarised as follows by Gleeson CJ, Hayne and Heydon JJ in Butcher v Lachlan Elder Realty Pty Ltd:

[I]t is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.[83]

[83](2004) 218 CLR 592, 604-605 [37].

It is therefore necessary for Mr Wang to establish that:

(a)the alleged misrepresentations were made;
(b)the alleged misrepresentations were made directly by Mr Xu, or as an intermediary for GHG;
(c)the alleged misrepresentations were misleading or deceptive; and
(d)he relied upon the alleged misrepresentations and they caused his loss.

Analysis and decision on the misleading or deceptive conduct claim
GHG had plans and permits for the development of over 26 townhouses and potentially other development sites

In Mr Wang’s counterclaim, this representation was said to have been made orally at a meeting between Mr Wang, Mr Xu, Mr Sun and Mr Xiang on 6 October 2013, at various further meetings between 13 October and 27 November 2013, and in documentation sent to Mr Wang from time to time. Mr Wang says that GHG did not have the required approvals, and Mr Xu was aware of this at the relevant time.

In oral evidence Mr Wang attributed the representation at the 6 October 2013 meeting to Mr Xiang. Mr Wang also said that that he received further information regarding the 26 townhouses by email from Mr Xiang, in particular:

(a) by email dated 8 October 2013, which attached a brochure containing a plan for the townhouse project; and

(b) by email dated 21 November 2013, which attached a draft masterplan for Heritage.

The masterplan dated 8 October 2013 included townhouse, hotel extensions and other potential sites, and stated that all of those plans had approval of the Yarra Ranges Council. The Masterplan also referred to the need for additional approvals. Similarly, the document dated 21 November 2013 was a draft plan for proposed changes to the townhouse project, which was stated to be pending approval.

In cross-examination it was pointed out to Mr Wang that the documentation provided to him contained several statements to the effect that approval was still pending for aspects of the development. Mr Wang’s response was that he did not notice those statements when reading the materials as he focused only on what had been approved. There was no evidence that Mr Wang followed up with the progress of outstanding approvals.

Mr Wang gave further evidence that Mr Xu discussed the project with him at subsequent meetings, representing that the profit out of development of the townhouses would be $12 million. Mr Wang said that Mr Xu gave further information about the townhouses at a meeting on 25 November 2013, and represented that they would have a very favourable return.

Mr Xu’s evidence was that the townhouses initially had government approval, but that plans had been revised such that there was a need to re-apply. In re-examination Mr Xu further explained that the need to re-apply arose because Heritage had decided to increase the number of townhouses from 26 to 30. Mr Xu confirmed that he was aware of the need to re-apply before he met Mr Wang. Mr Xu also denied discussing the townhouse project with Mr Wang at the 6 October 2013 meeting, but accepted that he did discuss it at a later meeting with Mr Wang as it was the aspect of the project with which he was most familiar.

In my opinion, there is no basis upon which a claim for misleading or deceptive conduct can be sustained in these circumstances, based on the facts that I have outlined.

I say this for the following reasons:

(a) The evidence is, at best, equivocal. It is unclear who made representations, if at all they were made, and on whose behalf.

(b) I remain unconvinced that the evidence supports the contention that Mr Xu was a conduit for Mr Sun or GHG; that case may very well have succeeded in different circumstances, but not on the evidence presented to the Court at trial.

(c) There appears to be an element of ‘investor encouragement’ or ‘group think’ to this investment decision by Mr Wang. Even if it cannot be said that any alleged representations were mere puffery, such enthusiastic investment observations (falling short of advice) are a common, even daily, occurrence in commercial dealings.

(d) Mr Wang was not commercially unsophisticated nor unfamiliar with the vagaries of business. His evidence and demeanour in Court displayed as much. It is not for the Court to protect (where it finds that there is no misleading or deceptive conduct) individuals from unfortunate investment decisions. Were that the case, the Court’s workload would be unsustainable.

Mr Xu had invested approximately $2,500,000 of his own money in the land development project and would invest more

Mr Wang’s counterclaim pleads that this representation was made at the meeting on 6 October 2013. He says that the evidence did not establish that Mr Xu had invested $2,500,000 of his own money.

A significant amount of evidence and submission in this case went to the question of what is meant by ‘investment’. Mr Wang and Mr Lin both gave evidence that, in Mandarin, the term ‘invest’ encompasses the advancement of money both by way of equity and debt. That evidence was corroborated by Mr Honey who gave evidence that GHG referred to its creditors as ‘investors’, and by Mr MacKinnon who said that some investors were treated as unit holders, secured and unsecured creditors interchangeably.

In oral evidence, Mr Wang said that Mr and Mrs Xu represented to him at the 6 October 2013 meeting that they had already invested in the project, describing it to him as ‘a very good project with very handsome return.’ Mr Wang did not specify how much Mr Xu said that he had invested. Mr Wang said further that, at a meeting on 25 November 2013, Mr Xu represented that he planned to increase his investment in GHG in the future.

Mr Xu accepted in cross-examination that he told Mr Wang that he had invested in GHG, but denied that he made any representation as to the expected returns. Mr Xu had previously given evidence that the loans forwarded to GHG amounted to $2,300,000.

I refer and repeat the matters outlined in paragraphs 152(c) and (d) above.

There was no evidence that Mr Xu invested $2.5 million in GHG — as referred to, the evidence only established that $2.3 million was invested by Mr Xu in GHG.

In any event, there was no evidence that Mr Xu’s investment was an operative reason in Mr Wang’s investment in GHG beyond what may colloquially be described as Mr Wang thinking that he was on a ‘good thing’. Indeed, Mr Wang proceeded in the absence of legal advice, admitting on cross-examination that he relied on himself and information and documents provided by GHG.

GHG and its investors would make a large profit from the development of the land

In Mr Wang’s counterclaim, this representation was said to have been made orally at a meeting on 6 October 2013, at various further meetings between 13 October and 27 November 2013, and in documentation sent to Mr Wang from time to time.

Mr Wang’s evidence was that Mr Xu made the following representations to him:

(a) ‘[GHG is] a very good project with very handsome return’;

(b) ‘there would be handsome return on the investment into the land of GHG’;

(c) ‘they will have a very favourable return, which was big enough to cover the liability and still have profit, good profit left over’;

(d) ‘there would be a very good return on the development of the land and many people were willing to invest as well’.

Representations (b) and (d) were also attributed to Mr Sun.

Certain documents provided to Mr Wang by email from Mr Xiang on 8 October 2013 also spoke of large profits. The land development plan contained in the brochure attached to that email estimated profits in the order of $2,700,000 for the development of terraced houses and $9,500,000 for the townhouse project. The conclusion to that prospectus represented: ‘With over 10 years-development time frame, we can find this is a healthy development project with huge profit for the investors, who will make great return in every development stage.’

Mr Wang said that the fact that GHG had been suffering financial stress from 2011, and did not have government approval to develop the land, meant that any potential for profit was unrealistic. He said that Mr Sun was seeking funds from investors in order to stave off insolvency, knowing that significant loans, including that from Moreland, would soon fall due for repayment.

Mr Xu’s evidence was that he believed GHG was running at a profit, by reference to the same documents provided by Mr Xiang. Mr Xu also believed that there was potential value in having the land developed. Mr Xu accepted that he told Mr Wang about the land based on his own understanding, and that his ‘personal opinion was that it would make a profit.’ Mr Xu accepted that he was aware of outstanding loans to Moreland, but said that he was told by Mr Sun not to worry about it.

At best, I am unable to accept Mr Wang’s evidence as to the alleged representations made to him by Mr Xu. It remained unclear as to what information, statements or representations as to the future profitability of GHG were provided to Mr Wang. Mr Wang’s evidence was in broad terms with general statements as to matters upon which he asserted to rely. I found his evidence unconvincing and lacking the detail and particularity that the court requires in order to form the conclusion that representations were made by Mr Xu to him that he would make a large profit from the development of the land.

If I am wrong, to the extent that any representations were made by Mr Xu to Mr Wang the evidence supports the conclusion that those representations were made on the basis of the same information as was provided to Mr Wang, being documents provided to Mr Xu by a third party, including GHG, Mr Sun or Mr Xiang and therefore constitutes a reasonable basis upon which to make representations as to the future profitability of the business.

The financial position of GHG and Heritage was strong;
GHG and Heritage were trading profitably;
The value of assets of Heritage were more than enough to cover its liabilities, and its largest creditor, Moreland Finance Corporation (Vic) P/L were more than comfortable with GHG’s financial position

Each of these three alleged representations boils down to the financial performance of GHG and Heritage. I therefore deal with them together.

In Mr Wang’s counterclaim, these representations were said to have been made at various meetings between 13 October and 27 November 2013, and in documentation sent to Mr Wang from time to time.

Mr Wang said in oral evidence that both Mr Xu and Mr Sun represented to him that the golf course was operated ‘really well’ and was ‘quite healthy’. Mr Wang further said that the documents provided to him by Mr Xiang on 21 November 2013, including GHG’s 2012 financial statement represented that operating profit was around $959,000. Mr Wang considered this to indicate that the company was ‘operating really well’. However, in cross-examination Mr Wang conceded that he did not consider the financial statements provided to him in their entirety, relying only on the bottom line, nor did he seek professional assistance before making his investment.

Mr Xu initially disclaimed any knowledge of the financial position of GHG. However he also gave evidence that he asked his accountant to check the company’s financial statements, and would not have invested if he had no knowledge of its total assets. Mr Xu conceded that Mr Sun had told him that the club was in deficit in November 2013, but did not consider it to be a significant amount. Mr Xu did not tell Mr Wang of the deficit. Mr Xu also accepted that he was aware of a loan from Moreland of around $8,000,000 which would become due in July 2014. Mr Sun told both Mr Xu and Mr Wang not to worry about that loan, and he made no further enquiries about it.

Mr Honey, GHG’s former financial controller, gave evidence that, in reality, GHG’s financial position worsened over time from mid-2011, and that Mr Sun was borrowing funds in order to repay existing loans. Mr Honey’s evidence is corroborated by the expert evidence, which also indicated that GHG’s net asset position was significantly worse than that which was understood by Mr Wang. Mr Smith, the defendant’s expert, gave evidence that the net asset position of GHG at each month end from July 2013 to January 2014 was as follows:

(a) deficit of $4,372,928 as at 31 July 2013;

(b) deficit of $4,507,938 as at 31 August 2013;

(c) deficit of $4,969,688 as at 30 September 2013;

(d) deficit of $5,036,015 as at 31 October 2013;

(e) deficit of $5,077,008 as at 30 November 2013;

(f) profit of $11,343,473 as at 31 December 2013; and

(g) profit of $11,248,010 as at 31 January 2014.

Mr Munday, the plaintiff’s expert, did not dispute the accuracy of those figures, stating only that GHG’s net asset position has relevance only to the Investment Agreement.

Mr Wang suggested that Mr Xu was intrinsically involved in the affairs of GHG and knew far more about the financial position of the company than he admitted in evidence. Mr Wang pointed to the large amount of money that Mr Xu and his family had loaned to GHG and suggested that their motivation was to get others to invest in the company in the hope that it would survive. Mr Xu maintained that he was provided with the same information as Mr Wang and that any comment he may have made about the profitability of the business was based upon that information.

There is no evidence that representations contained in documentation provided by Mr Xiang were adopted by Mr Xu. The extent of Mr Xu’s own knowledge of the precise financial situation of GHG is not clear. It is indeed plausible, in my opinion, that Mr Xu may have encouraged Mr Wang into investing in GHG with a view to offsetting his own investment or alternatively shoring up the financial stability of GHG. The representations, were they made, may indeed have been capable of having had the potential to mislead or deceive and, if attributable to Mr Xu, a dominant cause in Mr Wang entering the Investment Agreement. However, on the evidence, this case was simply not established.

Mr Wang would be made a director of GHG and would be issued with shares in GHG and units in the Trust in return for making an equity investment

Mr Wang’s pleaded case is that this representation was made in the Investment Agreement, the Loan Agreement, and in discussions with Mr Xu and Mr Sun around the time those agreements were entered into.

The Investment Agreement was prepared by Mr Xiang. As outlined above, clauses 3 and 4 of the agreement represented respectively that Mr Wang would be allotted 24 units in the GHG Trust, and 24.45% of the shares of GHG, and would be registered as a director of GHG. Mr Xu was not a party to the Investment Agreement, however he did witness its signature.

The terms of the Loan Agreement between Mr Wang and Mr Xu state that, upon receipt of the $1.3 million from Mr Xu, ‘The Company will issue the agreed shares to the borrower.’ Those shares acted as security to guarantee the loan repayment. Mr Wang also gave evidence that Mr Xu assured him orally on 11 December 2013 that the $1.3 million would be paid on time and that he would be entitled to his shares.

An ASIC company search for GHG, as well as the Liquidators’ report to creditors, tendered by Mr Wang records that, as at 24 February 2014, GHG’s only shareholders were Mr Sun and a corporate shareholder named Well Link Holdings Pty Ltd. GHG’s directors were Mr Sun, Wenzhao Sun, and Wang Yan Ping. That company search indicates that Mr Wang was never issued shares in GHG, or appointed as a director. However it is clear on the evidence that Mr Wang was allotted 10 units in the GHG Trust.

The representations as alleged have the potential to be misleading or deceptive in that they have the tendency to lead Mr Wang to the erroneous belief that he would be issued shares in GHG. The key representations in the Investment Agreement do not appear to be attributable to Mr Xu, at most he was an observer or a conduit of the information. Again, the evidence on this issue, in my opinion, did not ascend beyond the realms of assertion.

Conclusion on Misleading or Deceptive Conduct

Based on the evidence, the Court does not accept that Mr Wang’s counterclaim in relation to misleading or deceptive conduct on the part of Mr Xu can succeed for the reasons/outlined above, in summary:

(a)Mr Wang was a sophisticated investor and, in my opinion, based on his demeanour and evidence, was accustomed to the vagaries and, at times, unpredictability of investment decisions.
(b)Although I accept, on the evidence, that he may have been encouraged about the investment in GHG – its prospects and the attraction of future returns, I am not convinced that statements made by Mr Xu either directly or indirectly makes out a claim for misleading or deceptive conduct.
(c)Mr Xu’s evidence did not establish, notwithstanding cross-examination, that he made representations as alleged by Mr Wang. Mr Wang’s evidence also, in my opinion, fell short of establishing his claims. In my opinion, Mr Xu and others were no doubt encouraging, as I have observed, but statements fall short of misleading or deceptive conduct.

Other Observations

There was no evidence before me in this case that Mr Xu’s solicitors, Madgwicks Lawyers, were aware that he was prosecuting parallel proceedings in China, to the ignorance of Mr Wang and this Court. Was there such evidence I would be minded to consider whether the continued prosecution of the foreign proceedings to judgment, whilst allowing the proceedings in this Court to take their course, amounted to professional misconduct by an officer of this Court within the meaning of the Australian Solicitors’ Conduct Rules. Practitioners are no doubt mindful of their duties as officers of the Court, particularly when faced with the possibility of engaging in a course of conduct that risks bringing the profession, and this Court, into disrepute.

Decision

Based on the comments, reasons and observations above, this Court has reached the following conclusions and consequently will make the following orders:

(i)The Chinese judgment dated 25 March 2016 is not recognised by this Court, as an abuse of process;
(ii)The plaintiff’s claim in relation to the Cheque of $1.3 million and damages is dismissed;
(iii)The defendant’s counterclaim is dismissed.

I will hear the parties on the form of orders and on the question of costs.

[2019] VSC 269

30 April 2019