Jieyun International Investments Pty Ltd v Toorak Development Group Pty Ltd and ors

Jieyun International Investments Pty Ltd v Toorak

Development Group Pty Ltd and ors [2022] VSC

387 (11 July 2022)

Last Updated: 13 July 2022

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2018 00919

JIEYUN INTERNATIONAL INVESTMENTS PTY LTD (ACN 612 359 064) Plaintiff

v

Defendants

TOORAK DEVELOPMENT GROUP PTY LTD

(ACN 615 889 640) and others

---

JUDGE

:

Riordan J

WHERE HELD

:

Melbourne

DATE OF HEARING

:

22 March 2022

4-7, 12-13, 20-21, 27 April 2022

20 June 2022

11 July 2022

DATE OF JUDGMENT

:

CASE MAY BE CITED AS Jieyun International Investments Pty Ltd v Toorak

Development Group Pty Ltd and ors

:

MEDIUM NEUTRAL

CITATION

[2022] VSC 387

:

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TRUSTS – Loan money advanced for an ‘Approved Purpose’ – Principles with respect to

whether loan money subject to a trust – Barclays Bank Ltd v Quistclose Investments Ltd

[1970] AC 567 considered.

TRUSTS – Mixed fund – Whether repayments to the trustee were impressed with the trust

–Whether misappropriated money was held on trust for the plaintiff.

EQUITY - Principles of liability of third parties as accessories to a breach of trust – Whether

defendants liable for knowing assistance for transferring trust money in breach of trust –

Whether defendants liable as recipients of trust money.

MISLEADING AND DECEPTIVE CONDUCT – Whether defendant represented that funds

would be used for settlement of land contracts – Whether reasonable grounds for

representation – Whether plaintiff established reliance on the representation.

MISLEADING AND DECEPTIVE CONDUCT – Whether failure by defendant to disclose the

result of a planning decision was misleading and deceptive – Whether but for non-disclosure

plaintiff would have withheld further advance.

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APPEARANCES

:

Counsel

Solicitors

For the Plaintiff

Hiways Lawyers

Mr P Hayes QC with

Mr O Wolahan

For the Thirteenth Defendant Mr D Carlile

Interise Legal

Contents

HIS HONOUR:

1. By writ filed 21 August 2018, as amended on 8 October 2018 and 5 December 2019, and

by the second further amended statement of claim filed 28 March 2022, the plaintiff

(‘Jieyun’) claims relief against the first to fifteenth defendants arising out of the advance

of the sum of $8 million by Jieyun to the first defendant, being Toorak Development

Group Pty Ltd (‘TDG’) pursuant to a loan deed dated 20 September 2017 (‘the Loan

Deed’) as part of a venture to develop apartments on properties at 1093 to 1095 and 1097

to 1099 Malvern Road, Toorak (‘the Toorak Properties’).

2. The claim against the fourteenth defendant (‘Mr Balint’) settled prior to trial and, with

the exception of the thirteenth defendant (‘Mr He’), the trial proceeded on an

undefended basis.

3. In these reasons, I propose to first deal with the claims against Mr He and the eleventh

defendant, being Sentosa Marketing and Management Pty Ltd (‘SMM’). Mr He was a

director and shareholder of SMM and conducted much of his business through SMM.

The claims against both are closely related and are in summary as follows:

(a) A claim for equitable compensation from Mr He and SMM for:

(i) the sum of $155,156 arising from the transfer of that sum by the

eighth defendant, being Sentosa Capital Pty Ltd (‘Sentosa Capital’) to

SMM on 4 September 2018, in breach of trust; and

(ii) the sum of $150,000 arising from the transfer of part of that sum by

SMM to Mr Hening Xu in Hong Kong on 11 September 2018 in breach

[1]

of trust.

(b) A claim for damages of $4 million against Mr He for alleged misleading and

deceptive conduct, in contravention of s 18 of Schedule 2 to the Competition and

Consumer Act 2010 (Cth) (‘the ACL’), based on the alleged misrepresentation that

the second tranche of funds of $4 million payable by Jieyun under the Loan Deed

would be used to complete the settlement of the purchase of the Toorak Properties

(‘the Settlement Representation’).

(c) A claim for damages of $2 million against Mr He for alleged misleading and

deceptive conduct, in contravention of s 18 of the ACL, based on a failure to

disclose that the Victorian Civil and Administrative Tribunal (‘VCAT’) had declined

the planning permit for the development of the Toorak Properties (set out further

in paragraph 102 below and defined there as ‘the Silent Settlement

Representation’.

Background

4. Mr He was born in China and moved to Australia in 1997. In 2011, he registered Leimeng

Investment Pty Ltd (‘Leimeng‘) with his then business partner to develop a property in

Croydon, which was completed in 2016.

5. On 9 March 2016, Sentosa Capital was registered with the third defendant (‘Mr

[2]

Mihailescu’) as the sole director and shareholder. In its promotional material, Sentosa

Capital was described as ‘an Australian high-end low-density apartment property

development management and investment company focused on the Toorak Premium

Apartment project in Melbourne's traditional wealthy district’.

6. In May 2016, Guihong Zhu (‘Mr Zhu’) and Liang Lou (‘Mr Luo’), with whom Mr He had

been acquainted since September 2015, enquired whether it might be possible to invest

in a property project together. They agreed they had a total of $3 million to invest and

started the search for potential project sites.

7. By September 2016, it had been decided that their investment vehicle would be the

Leimeng Unit Trust (‘the Leimeng Trust’), of which Leimeng was trustee, and the unit

holding was split 34%, 33% and 33%.

8. After meeting the second defendant (‘Mr Cvek’) through a senior manager at the

National Australia Bank in September 2016, Mr He arranged a meeting at a coffee shop

in Box Hill with Mr Cvek and Mr Mihailescu to discuss potential property investments.

9. In October 2016, Mr He arranged a further meeting with Mr Cvek, Mr Mihailescu, Mr

Zhu and Mr Luo at a coffee shop in Toorak. At this meeting, a number of projects were

discussed including a proposed development of the Toorak Properties. Mr Cvek

produced a feasibility report which showed an annualised return per unit per annum

over 27 months of 23.54%.

10. After the meeting, it was agreed that Leimeng would invest a total of $8 million,

comprised of:

(a) $4 million from Mr Zhu; and

(b) $2 million from each of Mr Lou and Mr He.

11. In September and October 2016, Mr Cvek entered into the following contracts of sale

with respect to the Toorak Properties:

(a) on 24 September 2016, a contract of sale to purchase the property more

particularly described as Lot 1 on registered plan number TP093370D in

Certificate of Title Volume 10086 Folio 350, being 1097-1099 Malvern Road,

Toorak, for $6,850,000, with the settlement date of 28 February 2018; and

(b) on 26 October 2016, a contract of sale to purchase the property more

particularly described as Lot 4 on registered plan number PS005543 in Certificate

of Title Volume 3667, Folio 291, being 1093-1095 Malvern Road, Toorak, for

$8,250,000 with the settlement date of 28 March 2018,

(collectively, ‘the contracts of sale’).

12. In November 2016, it was agreed that Mr Zhu would transfer 12.5% of his units in the

Leimeng Trust to a friend of his, Mr Chen, in consideration of Mr Chen investing $1

million in Leimeng, thereby reducing Mr Zhu’s investment to $3 million.

13. On 14 November 2016, TDG was incorporated as a special purpose vehicle for the

development of the Toorak Properties. The directors were Mr Cvek, Mr Mihailescu and

Mr He. By nomination forms dated 14 November 2016, Mr Cvek nominated TDG as the

purchaser under the contracts of sale.

14. In or around February 2017, Mr Chen and (according to Mr He) Mr Zhu, introduced Mr

He to Mr Yong Huang and Ms Acai Ren at a social occasion. After the meeting, Mr He

provided Mr Huang the following documents by WeChat message:

(a) on 1 March 2017, the Chinese version of a brochure for Sentosa Capital; and

(b) on 10 March 2017, the web address for Sentosa Capital.

15. In July or August 2017, Mr Huang says he was told by Mr He and Mr Chen about the fact

that they had invested in the development of a four or five level apartment building in

Malvern Road and that Mr Huang should consider investing.

16. The next day Mr Huang says that Mr Chen drove Mr Fei Song, a close friend of Mr

Huang and him to see the Toorak Properties and several other properties in Toorak

which Mr Huang was told had been developed by Mr Cvek. They then drove to an office

in Toorak for a meeting with Mr He, Mr Mihailescu and Mr Balint. At the meeting, Mr

Huang and Mr Song were provided with project documents and plans, much of which

Mr Huang could not read because they were in English.

17. Either on the same day or shortly after, Mr Huang and Mr Song met with Mr He at a café

in Glen Waverley. Mr Huang and Mr Song decided that they would jointly invest in the

Toorak Properties.

18. On 29 August 2017, Jieyun was registered, with Mr Song and Ms Ren being the directors

and shareholders, holding 50 shares each.

19. In late August 2017, Mr He organised a dinner on Albert Park Lake to celebrate the Mid-

Autumn Festival, on behalf of Sentosa Capital. There were approximately 70 or 80

people in attendance; and Mr Chen drove Mr Song, Mr Huang and Ms Ren to the

function.

20. On 3 September 2018, Mr Huang returned to China and shortly thereafter Mr He and

Mr Zhu travelled to visit him in Bo Zhou, Anhui Province, China. During the course of

the visit, Mr Huang told Mr He that he and Mr Song would make a joint investment of

$8 million in the Toorak Properties.

21. By WeChat message of 12 September 2017 to Ms Ren, Mr He stated:

Which day will you be free? So I can get the lawyers to go to [the

accountant’s] place to interpret the contract and the feasibility report to you.

22. By the Loan Deed, Jieyun agreed to make a loan to TDG of $8 million to assist TDG to

‘purchase, develop and construct’ the Toorak Properties on terms including the

following:

(a) The advance was to be made in two tranches of $4 million each, payable by no

later than 22 September 2017 (‘the First Tranche’) and 1 December 2017 (‘the

Second Tranche’) (cl 3.2).

(b) The term ‘Approved Purpose’ was defined in cl 1.1 as:

(a) the purchase by TDG of the Toorak Properties; and

(b) the payment by TDG of development and construction expenses related to the

Toorak Properties.

(c) The parties acknowledge and agree that the Loan must only be used for the

Approved Purpose (cl 3.3).

23 Pursuant to cl 5 of the Loan Deed, Jieyun agreed not to charge interest, and under cl 4.1(c)

it was a condition precedent that Jieyun would subscribe for 130 units in the Toorak

Development Group Trust No 1 for 10 cents per unit.

24. The Loan Deed was signed by:

(a) Mr Song and Ms Ren as directors of Jieyun; and

(b) Mr He and Mr Balint (as Mr Cvek’s attorney under power), as directors of TDG.

25. By Unit Trust-Fixed Deed dated 20 September 2017 (‘the Unit Trust Deed’), the Toorak

Development Group Trust No 1 (‘the TDG Unit Trust’) was established. The Unit Trust

Deed recorded the unit holdings in the TDG Unit Trust as a total of 1000, held as

follows:

(a) 820 units by Rothman Piper Investment Group Pty Ltd, as trustee of the Cvek

Family Trust No 8;

(b) 50 units by Leimeng; and

(c) 130 units by Jieyun.

26. The Unit Trust Deed was signed by:

(a) Mr Song and Ms Ren as directors of Jieyun;

(b) Mr He and Mr Zhu as directors of Leimeng;

(c) Mr He and Mr Balint (as Mr Cvek’s attorney under power) as directors of TDG;

and

(d) Mr Balint (as Mr Cvek’s attorney under power) as the sole director of Rothman

Piper Investment Group Pty Ltd.

27. By letter dated 22 September 2017 to TDG, Mr He stated:

Please be advised that as I am the approved representative of Jeiyun

International Investments Pty Ltd (Jeiyun) [sic] ACN: 621 359 064, and have

been appointed to act, communicate and disclose information on behalf of

Jeiyun [sic] to TDG.

Additionally, we request that any and or all information relating to the TDG

project be communicated to me and I have the necessary authority to share

and communicate decisions on behalf of Jeiyun [sic] to TDG.

28. In accordance with the Loan Deed, Jieyun paid the sum of $8 million to TDG (‘the

Jieyun Advances’) in the following payments:

(a) 25 September 2017: $1.8 million (‘the First Portion of the First Tranche’);

(b) 3 October 2017: $2.2 million (‘the Second Portion of the First Tranche’);

(c) 28 February 2018: $2 million (‘the First Portion of the Second Tranche’); and

(d) 5 March 2018: $2 million (‘the Second Portion of the Second Tranche’).

29. On 25 September 2017, Jieyun transferred the First Portion of the First Tranche to

TDG’s Westpac account number 444101 (‘the TDG Account 4101’) from Jieyun’s

Westpac account No 012280.

30. On 28 September 2017, Mr Song gave Mr He a cheque drawn on the same Jieyun

account for the Second Portion of the First Tranche. The Second Portion of the First

Tranche was debited to Jieyun’s account and credited the TDG Account 4101 on 3

October 2017.

31. On 28 September 2017, Mr Song returned to Melbourne from China. Mr He drove him

to TDG’s office in Toorak where he signed the Loan Deed and the Unit Trust Deed.

32. By document dated 25 September 2017, Mr He resigned as a director of TDG,

purportedly from 25 September 2017. However, the document was not lodged with ASIC

until 21 October 2018.

33. By WeChat message of 17 October 2017 to Mr Zhu’s wife, Ms Ren stated:

But I have heard [Mr He] saying that we are investing in the same apartment.

Initially only 4 levels could be built, and subsequent application has been

made to the government for another level.

34. On 6 November 2017, Mr He says that he arranged for the purchasing of tables at the

‘Asian Executive 2017 Melbourne Cup Horse racing festival Charity evening’, which was

sponsored by Sentosa Capital (‘the Melbourne Cup Charity Event’). Promotional

material from the evening, which was posted online, contains a photograph that

included Mr Cvek, Mr Mihailescu and Mr He with the description: ‘Sentosa Capital

Senior Management Team’. Later in the document, under ‘Sentosa Capital Company

Profile’, there are photos of individuals labelled: ‘Our Team - Sentosa Capital’, which

includes Mr He who is described as ‘Director’.

35. On 13 November 2017, SMM was registered with Mr He, Mr Hao Liang and Mr Cvek as

the directors. Mr He is recorded as holding 67 out of a total of 100 issued shares.

36. On 27 November 2017, Mr He says he organised the ‘2017 Sentosa Cup Huayi Team

President Cup golf Elite Invitational’ at Moonah Links Golf Course on the Mornington

Peninsula (‘the Moonah Links Golf Event’). It was sponsored by Sentosa Capital. In the

promotional material posted online, under the heading ‘Our Team - Sentosa Capital’, Mr

He is again included and described as ‘Director’.

37. By WeChat message of 29 November 2017 to Mr Huang, Mr He stated:

To each shareholder our project has already made some progress the plan

and our design is now confirmed we have 5 floors and 28 apartments. The

total area available for sale is 7,000 sq metres. There are 8 people who have

objected to our project. However, have confidence we will obtain the permit

but we need to go to VCAT on 31 Jan 2018 to achieve the best outcome. Our

legal team is made up of Chis Townsend and Peter Small who are leaders in

the legal field and all the work has been confirmed to be finished during the

middle of December. We have increased our HR as we are preparing the

project progress report in Chinese. Because there are a lot of documents to be

translated we still need several days, the market is strong, and sales will

exceed expectations. We still do not know if we can maximise the profit but

this is highly possible. Please wait for the Chinese report in detail. Thank you.

38. By WeChat message of 17 January 2018 to Mr Huang, Mr He attached a project report.

In the report, the ‘project overview’ stated:

Land Transaction Price: $15,100,000 The scope of investment: 18 months,

four stories, 20 apartment units

Project status: Project planning has·been submitted to the local council

government, the 31st of January 2018 VCAT

Total project area: 6526m2

Sales Area: 5387m2

Estimated Selling Price: $86,192,000

Expected development profit: 55.40%

Estimated completion time of the project: mid-2019.

The report included a table, which estimated that the annual return rate for the project would

be greater for a four-storey project than a five-storey project. It noted that a four-storey

project has the following advantages:

1. The construction period is shortened. The retrieve of funds will be faster than expected

for several months.

2. In contrast to selling 28 apartments, the 20 apartments of the new plan will reduce the

impact of the project on the local housing market. At the same time, it allows our

designers to make a better design for each apartment of the project hence making the

price per square meter higher.

After successfully obtaining the permit for the four-storey apartment

plan, we may continue to apply for the permit of the five-storey plan.

However, after taking into account many factors including time, we

believe that applying for the permit for the four-storey apartment plan

is the best choice for the project at the moment. This plan maximizes

the project earnings while ensures no delay to the construction period.

39. By WeChat message of 23 January 2018 to Mr Song, Mr He stated:

Dear Shareholders, the part two investments are to be completed [paid] by

the end of 2017 as agreed originally, but because VCAT has been scheduled

on 31st January this year, I did not notify everyone to invest before the

finalization of the ultimate proposal. It won't make sense either to keep the

money in the account for two months. The current situation ... is clear, we

will obtain the permit in February and start presale. Please refer to the

project progress report sent a few days ago for details. Currently, we need to

settle the two lots of lands with clear fund before the end of February. As we

need to quickly prepare for the construction loan the lands must be paid in

full and obtain clear title. This way, the bank will be able to loan us the full

construction loan. Everyone please prepare your investment fund. I have

arranged for the shareholders' meeting on 10/11 February, and DALI will be

th

back to MELBOURE on 7 , apart from him, architect, town planner, VCAT

lawyer, sales consultant and others will also be attending the meeting.

Thanks!

40. On 11 February 2018, there was a meeting of TDG’s shareholders at a restaurant in

Docklands, attended by Mr Cvek, Mr Mihailescu, Mr Balint, Mr Scott Stewart (a

planner), Mr Song, Mr Huang, Mr Zhu, Mr Chen, Ms Yan Liang (Mr Chen’s wife), Mr

David Xue (Jieyun’s lawyer) and Mr He and Ms Sammie Liang. At the meeting, Mr

Huang complained that Leimeng held 20% of the units in the TDG Unit Trust while

[3]

Jieyun only held 13% of the units. Mr Huang insisted on an increase to Jieyun’s unit

holding before the Second Tranche would be paid.

41. By WeChat message of 12 February 2018 to Mr Huang, Mr He stated:

I have negotiated with DALI [Cvek], recalculation was done, and has helped

you [plural] secure 16%. Therefore, your annual return would be similar to

our investment return.

Hope you will be satisfied. Thanks!

I will amend the contract shortly.

42. Mr Huang replied on the same day saying: ‘Got it I will forward it to Chief SONG for him

to take a look’.

43. By WeChat message of 14 February 2018 to Mr Huang and Mr Song, Mr He stated:

Dear all, I talked to DALI yesterday, in fact up to now the project is trending

positively. In relation to the shareholding ratio fluctuating according to cash

invested, at present there has not been specific figures to be based on. In

actual fact there has been no fundamental difference in the opinions of the

two parties. The difference only lies in their ways of thinking. DALI and I

have been leaning towards protecting the rate of return, as it is simple and

clear. Otherwise at every juncture, one has to recalculate the figures which is

not feasible at all. Now the various parties have all understood the

proposition of one another and the questions and requests brought up,

everyone is also slowly resolving their difference. At the moment the most

important matter is for the balance of the fund to be put in place at the end of

th

the month (latest 9 March), otherwise if the settlement fails, it will put us

on the back foot and lead to a situation beyond redemption, with everything

back to zero. Therefore currently we must all try hard to ensure the funds are

in place in a timely manner. Thank you and wish you a happy Chinese New

Year and happiness in your families!

DALI will give 3% to Chief HUANG and Chief SONG's side. This will be

added to the contract later.

44. In mid-February 2018, Mr Cvek proposed the execution of an agreement called ‘Terms

of Settlement’ between Mr Cvek and Jieyun on the basis that Mr Cvek would transfer 5%

of his unit holdings in the TDG Unit Trust to Jieyun. Mr Huang referred these terms to

his lawyer.

45. The Terms of Settlement stated that the transfer of units from Mr Cvek to Jieyun would

be ‘[i]n consideration of [Jieyun] paying the amount of $4,000,000 by no later than 28

February 2018’.

46. By WeChat message of 23 February 2018 to Mr He, Mr Huang stated:

I am on board a flight. Just now my lawyer messaged me to say that several

clauses in the agreement are too harsh. Please communicate with him/her.

th

Also, the (4 million) will be in place before the 28 . Can you tell him/her,

[Mr He]?

47. After an exchange of WeChat messages on 24 February 2018, Mr He replied to Mr

Huang stating:

[I]f we communicate, at the end of the day, it will still be the lawyers who will

make the decisions. Then it will be better to get the lawyers to talk to each

other. I just want to state one point that I have been protecting the security of

our funds throughout, and there is nothing deceptive or unfounded in this.

48. On 25 February 2018 at 1:33 pm, Mr Zhu commented in a WeChat message group called

‘Toorak team of four – Leimeng (7)’:

I had a look at Mr. Huang’s supplementary agreement, and I really felt that

his lawyer was a little fussy, making suggestions carelessly without

considering the actual situation.

49. On the same day at 4:25 pm, Mr Zhu again said in the same WeChat message group:

@Lei He

Mr. Huang has basically been convinced.

50. After further WeChat message exchanges between Mr Huang and Mr He, on 28

February 2018, the First Portion of the Second Tranche was transferred from Jieyun’s

Westpac account No 012280 to TDG’s Westpac account No 444259 (‘the TDG Account

4259’).

51. By email of 1 March 2018 to Mr Cvek, Mr Balint, Mr Mihailescu and others, Mr Scott

Stewart attached VCAT’s decision, which refused TDG’s application for a planning

permit (‘the VCAT Decision’), and stated:

Attached is the Tribunal’s decision which despite being dated 15 February

2018 was not sent to us at that time.

Unfortunately the Tribunal has refused the application. The main reason is

neighbourhood character and the lack of separation in the front and rear

facades. The Tribunal was also concerned about the depth of the apartments

and concerned about internal amenity as a result, despite the size and quality

of the apartments. As I have mentioned, this is a regular cause of concern to

Tribunal members at present.

I am surprised and disappointed in the decision obviously. It was not what

was anticipated given how the hearing ran, but these were of course always

major issues for us to overcome.

The Tribunal has given reasonably clear guidance however about what it

finds acceptable about the proposal which means any new application should

be able to respond well to those matters and there should be strong prospects

of success. Of course you will need to respond to the new planning controls

including the Better Apartment Design Standards and the revised schedule to

the Zone.

One option you may wish to consider would be to look to seek review of the

decision to the Supreme Court on a question of law. It is not immediately

apparent what such a question may be, but I recommend we obtain advice

from senior counsel about this if you wish to consider. You have 28 days from

the date of the decision to seek leave, so approximately 2 weeks from now.

Although you are unlikely to succeed in such a leave application, it might be

possible to attempt to reach a negotiated position with the Council and other

parties about a modified design which could then either be approved by the

Court, or remitted to VCAT to approve. This would of course be very difficult

to achieve, so it may be that a new application is a more worthwhile option,

provided that the new planning controls do not greatly impact on what can

be achieved on the site so this should be looked at immediately.

There are of course lessons in this for Toorak Road and Glenferrie Road

hearings. In particular for Glenferrie Road, it again demonstrates why

Council and neighbours are keen to see a break in the rear façade like that in

the front. It may be sensible for us to make that additional change before we

distribute the plans.

Please let me have your thoughts as soon as possible about a possible

application for leave to the Supreme Court.

52. On 1 March 2018, Mr He telephoned Mr Balint and informed him that the application

for the planning permit had been rejected by VCAT.

53. On 5 March 2018, the Second Portion of the Second Tranche was paid from Jieyun’s

Westpac account No 012280 to the TDG Account 4259.

54. By WeChat message of 7 March 2018 to Mr He, Mr Cvek explained the background to

the investment in the Toorak Properties and stated that, following the VCAT Decision, if

no permit is granted, consideration could be given to selling the site. It included the

following:

At no point was any investment subject to permits being granted or any other

conditions. ...

TDG in its ordinary course of business is required to undertake all actions

necessary in order to obtain a permit in order to move to the next step. The

directors of which have an obligation to the company to ensure that it

continues to make every effort to do whats [sic] in the best interest of the

company.

At the current stage we have had a permit declined with a clear indication of

what changes are required in order for this to be resubmitted. The decision is

far from a negative one.

55. By WeChat message of 7 March 2018 to Ms Ren, Zheng Huang (Mr Zhu’s wife) sent

TDG’s bank statement that showed substantial amounts transferred out of it; and

forwarded on the above WeChat message of 7 March 2018 from Mr Cvek, referring to the

VCAT Decision.

56. By email of 8 March 2018 to Mr Scott Stewart and others, Senior Counsel stated:

I’ve read the reasons and, although hard line on the merits, I can’t see any

legal error.

It really is so easy for the tribunal to find a hook upon which to hang a refusal

given the myriad of dot points in policy. To give great weight to a

neighbourhood character policy consideration about rhythm and spacing of

buildings in an acknowledged area for substantial change isn’t a fair balance.

But sadly we can’t say they didn’t have regard to relevant matters etc.

57. By invoice number 1803 dated 20 March 2018 (‘Invoice 1803’) and invoice number 1801

dated 30 March 2018 (‘Invoice 1801’), both issued to TDG, SMM claimed respectively:

(a) By Invoice 1803, the sum of $76,780 (inclusive of GST) for:

TDG OVEARSEAS TRAVELLING----

Event Organisation---Marketing

Material, Labor, Product, Catering, accommadation [sic].

(b) By Invoice 1801, the sum of $85,800 (inclusive of GST) for

Sentosa Marketing Service----

MELBOURNE CUP CHARITY EVENT SPONSORSHIP

Middle autumn festival gala dinner

Golf Champion and TDG Project promotion.

58. By WeChat message of 25 March 2018 to Mr Huang, Mr He said:

We are going to formalize everything! There is no issue with your side,

and the extra 5% [units] for you all are also formalized. We have

problem here, big problem. The ungrateful missus is in charge who

does not know the law nor her own position. The main thing is her

attitude is not good.

59. On or about 26 March 2018:

(a) Mr Huang and Ms Ren on behalf of Jieyun; and

(b) Mr Chen, Ms Zheng, Mr Luo and Ms Liang on behalf of Leimeng,

engaged Ms Serena Ding of Riverson Lawyers to negotiate a solution with TDG.

60. By WeChat message of 29 March 2018 to Mr Huang, Mr He said:

The messy issues inside Leimeng has affected your confidence. I feel so

bad about it.

61. After a series of WeChat messages from 19 March 2018 relating to Leimeng’s failure to

pay its second tranche, by WeChat message of 30 March 2018 to Mr He, Mr Huang

stated:

[W]e have reached the following agreement today, 30 March, through

this morning's exchange of opinions : 1. Due to the delay of the land

settlement(s), please transfer over the AUD 4,000,000 we transferred

before 9 March to Toorak Development, to be transferred into your

company two days before the land settlement(s); 2. In relation to the

additional 5% of individual shares [units] DALI supplement for

JIEYUN, please amend the 13% shareholding in the agreement and

loan contract to 18% shares [units]; 3. The company JIEYUN is

requesting to send a representative to DALI to facilitate

communication; 4. Perfect all legal documents and from now on all

communications will base on the legal documents of the lawyers. Chief

HE, please deal with this four requests made by JIEYUN ASAP before

7th April.

62. By WeChat message of 19 April 2018 to Mr Song, Mr He said:

I just spoke with [Mr Balint] over the phone, he said that your lawyer

have [sic] contacted them, and he would respond to your lawyer’s letter

tomorrow. The letter will provide answers to all questions related to

how the funds will be applied to complete the settlement. I want to look

at this email first. In addition, he expressed clearly over the phone that

the only fund for settlement missing is LEIMENG’s $3,000,000, which

can be transferred directly to the settlement lawyer’s trust account.

63. Mr He gave evidence that sometime in March or April 2018, he asked Mr Cvek how

settlement of the Toorak Properties would occur. Mr He was told by Mr Cvek:

[T]he money was in one of the accounts of their group, and before the

settlement the money will come back.

64. By WeChat messages of 23 April 2018 between Mr Song and Mr He, the settlement was

proposed for Friday, 27 April 2018 but it is stated that Leimeng ‘has over played its

game’.

65. By WeChat message of 25 April 2018 to Mr He, Mr Huang asked for the return of the

Second Tranche to Jieyun’s account, in the event that settlement does not go through.

This request was repeated on 26 April 2018 to Mr He. Mr Huang stated:

Please return the money to JIEYUN’s account ASAP

Please consider this carefully

66. After a number of WeChat messages with further requests for the return of the Second

Tranche, by WeChat message of 5 May 2018 at 11:16 pm to Mr He, Mr Song stated:

[Y]our lawyer replied with messages yesterday. The gist is LEI MENG's

subsequent 4 million will not be invested. At the beginning of our

investment, you said the investment ratios of the two companies Jieyun and

Leimeng would be the same, now we Jieyun is also requesting to be the same

as Leimeng, invest the first 4 million and not the subsequent 4 million.

th

Because the lawyer is requesting a response by the 8 , as our policy will be

the same as Leimeng's

67. By WeChat message of 5 May 2018 at 11:37 pm to Mr Song, Mr He replied saying: ‘New

proposition, a challenging one, it is all to do with time’.

68. By WeChat message of 5 May 2018 at 11:43 pm to Mr He, Mr Song further stated:

[W]e said we wanted the same as Leimeng at the beginning of our

investment collaboration, now I demand to be the same as Leimeng!

69. By WeChat message of 6 May 2018 at 12:10 am to Mr Song, Mr He said:

The right way has no short cuts. Your withdrawal will be what my work

will focus on now. Chief SONG, only a few months’ time, we will all try

to accommodate, the facilitate the safe and dignified withdrawal of your

investment.

70. After a further exchange of WeChat messages on 6 May 2018 at 11:04 am, Mr He stated

to Mr Song:

Have communicated with the lawyer and a few proposals have been

come up with. I think they have also included the opinion you

expressed yesterday. I am not a director but a shareholder, I can only

forward opinions. I have made the appointment to meet DALI in

th

HONG KONG on 12 .

71. At about this time, there were negotiations between Jieyun and Mr Cvek to compensate

Jieyun by paying interest on their investment funds. Mr He told Mr Song on 14 May

2018 that Mr Cvek had agreed to pay Jieyun interest of approximately 7% per annum for

their investment funds.

72. In August 2018, Mr Song, Ms Ren and Mr Huang engaged their current solicitors

independently from Leimeng because Ms Ren said that Riverson Lawyers were unable to

reach any resolution for them.

73. By invoice number 1802 dated 18 July 2018 to TDG (‘Invoice 1802’), SMM invoiced

$70,400 (inclusive of GST) for the following services:

TDG OVERSEAS TRAVELLING ----

Eight trips including airfares, accommodation and Gifts

I refer to Invoice 1802, together with Invoice 1801 and Invoice 1803 as ‘the SMM Invoices’.

74. Following a request, by email of 3 August 2018 to Ms Ren, Riverson Lawyers attached an

expenditure transaction list from ‘November 2016 to February 2018’ by TDG (‘the

November 2016 to February 2018 TDG Expenditure List’).

75. On 15 August 2018, Ms Ren downloaded the most recent bank statement and

‘expenditure transaction list’(‘the September 2017 to August 2018 the Expenditure List’)

from the TDG investors web page.

76. On 21 August 2018, Jieyun filed this proceeding against the first to ninth defendants.

77. By invoice dated 22 August 2018 to TDG, Sentosa Capital invoiced $381,718 (inclusive of

GST) for services described as follows:

Payment for expenses incurred on behalf of TDG for the following:

- ABL Legal fees

- Ratio Consultants

- First Valuation Group

- Toorak Law legal fees

- Gadens legal fees

- Marketing expenses related to raising of funds for project

- ACA fees

- Urbis consultants

78. On 22 August 2018, the sum of $381,718 was transferred from the TDG Account 4101 to

the Westpac account of Mr Balint (‘the Balint payment’), who was not then joined as a

defendant.

79. On 23 August 2018, Lyons J made an interim freezing order against the assets of the first

to ninth defendants.

80. At the direction of Mr Mihailescu, Mr Balint:

(a) transferred $345,000 from his Westpac account into his ANZ account on 23

August 2018; and

(b) transferred $10,000 to the trust account of Gadens solicitors on 29 August

2018 from his ANZ account.

81. By email of 3 September 2018 to Mr Balint and Mr Cvek, the solicitors for the first to

ninth defendants advised as follows:

In relation to your query as to transfer of the funds back to Sentosa,

either way the transfer in and out will be seen when we provide the

Sentosa records, as required by the order.

Overall, given that the spreadsheet says that Sentosa received the

money, it would be better that the funds be in that account, and if you

make legitimate payments of TDG expenses -such as legal expenses and

ordinary business expenses incurred by TDG, then that would look

better.

We will still have to account for any expenses you have paid on behalf

of TDG - but presumably you did that on behalf of Sentosa, who in turn

paid on behalf of TDG.

82. On 4 September 2018, at the direction of Mr Mihailescu, Mr Balint transferred the

following amounts to Sentosa Capital:

(a) the sum of $337,122 from his ANZ account; and

(b) the sum of $34,873 from his Westpac account,

(together, ‘the Sentosa Capital payments’).

83. Immediately prior to the receipt of the two transfers on 4 September 2018, Sentosa

Capital’s ANZ account number 68419 was $2.32 in debit.

84. On 4 September 2018, after receipt of the funds from Mr Balint’s ANZ account, Sentosa

Capital transferred $69,328 and $85,828 to SMM’s Bank of Melbourne account (‘the

SMM payment’).

85. On 10 September 2018, Lyons J made a freezing order with respect to the assets of

SMM.

86. On 11 September 2018, Mr He transferred $150,000 from the account of SMM to Mr Xu

in Hong Kong (‘the Xu payment’), which according to Mr He was ‘to repay a personal

loan owed by me’.

87. Mr He is recorded by ASIC as ceasing as a director of Leimeng on 1 October 2018.

Questions to be Determined

88. It is agreed between the parties that the questions requiring determination for resolution

of the claims against Mr He and SMM are as follows:

Mr He’s knowing assistance in the SMM payments

89. Were the Jieyun Advances held by TDG on the Jieyun Trust?

90. Was the transfer of the Balint payment from funds held by TDG on the Jieyun Trust?

91. Was the Balint payment a dishonest and fraudulent breach of the Jieyun Trust?

92. Were the Sentosa Capital payments a dishonest and fraudulent breach of the Jieyun

Trust?

93. Were the SMM payments a dishonest and fraudulent breach of the Jieyun Trust?

94. By the SMM payments, did Mr He assist in the dishonest and fraudulent breach of the

Jieyun Trust?

95. Did Mr He know of the essential facts constituting the dishonest and fraudulent breach

of the Jieyun Trust by the SMM payments?

Mr He’s knowing assistance in the Xu payment

96. Was the Xu payment a dishonest and fraudulent breach of the Jieyun Trust?

97. By the Xu payment, did Mr He assist in the dishonest and fraudulent breach of the

Jieyun Trust?

98. Did Mr He know of the essential facts constituting the dishonest and fraudulent breach

of the Jieyun Trust by the Xu payment?

Mr He’s settlement representations

99. Between 23 January 2018 and 28 February 2018, did Mr He represent to Jieyun that the

Second Tranche to be advanced under the Loan Deed would be used to complete the

settlement of the Toorak Properties (‘the Settlement Representation’)?

100. Did Mr He have reasonable grounds for making the Settlement Representation?

101. But for the Settlement Representation, would Jieyun have avoided the loss of the Second

Tranche or part of it?

Mr He’s silent settlement representations

102. Between 1 March 2018 and 5 March 2018, did Mr He represent to Jieyun that:

(a) the scale of the Toorak project remained unchanged and was ongoing; and/or

(b) the Toorak project continued to be profitable, viable and feasible, as originally

forecast and anticipated prior to the VCAT Decision,

(‘the Silent Settlement Representations’)?

In particular, in the circumstances, was Mr He’s failure to inform Jieyun of the VCAT

Decision, misleading and deceptive within the meaning of the ACL?

103. But for the Silent Settlement Representations, would Jieyun have avoided the loss of the

Second Tranche or part of it?

Principles of accessorial liability of a third party to a breach of trust

104. Jieyun’s first contention was that Mr He and SMM were liable as accessories to TDG’s

breaches of trust in making the SMM payment and the Xu payment.

105. A third party may be found liable for a breach of fiduciary duty by a fiduciary (as a

trustee or otherwise) in circumstances including the following:

[4]

(a) Under the first limb of Barnes v Addy, if:

(i) the fiduciary duty existed with respect to property;

(ii) there was ‘misapplication of trust property by the trustee or

fiduciary’;

(iii) the third party received such property; and

(iv) the third party knew, at the time of receipt of the property, that it

[5]

was misapplied trust property.

(b) Under the second limb of Barnes v Addy, if:

(i) breach of trust was part of a dishonest and fraudulent design by the

fiduciary;

(ii) the third party assisted the trustee in the breach; and

(iii) the third party had knowledge of the essential facts constituting the

dishonest and fraudulent design. Under this limb, it is not necessary to

[6]

show the third party acted dishonestly.

[7]

(c) If the third party dishonestly procured or induced the breach of trust. Here, it

is not necessary to show the breach of trust was part of a dishonest and fraudulent

design by the fiduciary.

Were the Jieyun Advances held by TDG on the Jieyun Trust?

106. By its second further amended statement of claim, Jieyun claims that, as a result of cl 3.3

of the Loan Deed, pursuant to which the Jieyun Advances ‘must only be used for the

Approved Purpose’, TDG held the Jieyun Advances on trust for Jieyun (‘the Jieyun

Trust’).

Jieyun’s submissions

107. Jieyun submitted that the Jieyun Advances were held by TDG on a ‘Quistclose trust’, for

the following reasons:

(a) The Loan Deed expressly provided that ‘the Loan must only be used for the

Approved Purpose’, namely ‘the purchase by TDG of the Toorak Properties’ and

‘the payment by TDG of development and construction expenses related to the

Toorak Properties’.

(b) The recital to the Loan Deed recognised that the purpose of the funds was ‘to

assist TDG purchase, develop and construct the Toorak Properties’.

(c) The loan was interest free.

(d) Repayment of the loan was to be made after the last apartment was sold.

(e) The evidence was that Ms Ren was told by the accountant Jennifer Lou and Mr

He that ‘this special money needs to be used for special purpose’.

Mr He’s submissions

108. Mr He submitted that the Court should find there was no Jieyun Trust, for the following

reasons:

(a) Despite the fact that the Loan Deed limited the use of moneys to the ‘Approved

Purpose’, this was inconsistent with the Unit Trust Deed executed on the same day,

which provided for the trustee to carry on the business of real estate development

of the Toorak Properties, including the power to invest the assets in the trust,

borrow and create a security interest over the assets of the trust.

(b) In circumstances where the Loan Deed provided for no interest, the return on

the $8 million advance arose from the trust (ie the Jieyun Advances), and the

trustee was obliged to generate moneys in the manner it saw fit. Accordingly, the

conferring of the powers and duties of the trustee were inconsistent with the

narrow purpose prescribed in the Loan Deed and Jieyun knew that the funds

would be paid into the TDG Unit Trust.

(c) As the trustee was obliged to generate a return, it could not be limited to simply

using the funds in the manner described in the Loan Deed.

Principles

109. The expression ‘Quistclose trust’ refers to the decision of the House of Lords in Barclays

[8]

Bank Ltd v Quistclose Investments Ltd, in which the House of Lords considered

whether a trust arose in circumstances where a company in serious financial difficulty

borrowed money for the purpose of paying a declared dividend. The loan was advanced

[9]

on the basis that it would ‘only be used to meet the dividend due on July 24, 1964’,

and would be paid into a special account. After the money was paid into the account, but

[10]

before the dividend was paid, the company went into voluntary liquidation.

110. Lord Wilberforce found that a primary trust arose in favour of the dividend creditors

because it was the mutual intention of the parties that the loan moneys should not

become part of the assets of the company, but should be used exclusively for the

[11]

payment of those dividend creditors.

His Lordship also found that the parties had

intended to create a secondary trust to return the money to the lender, if the primary

[12]

trust to pay the dividend could not be carried out.

He stated:

A necessary consequence from [the mutual intention to use the loan

moneys exclusively for the payment of dividend creditors], by process

simply of interpretation, must be that if, for any reason, the dividend

could not be paid, the money was to be returned to the respondents: the

[13]

word ‘only’ or ‘exclusively’ can have no other meaning or effect.

111. In Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq),

Gibbs ACJ explained the decision in Quistclose as standing for the following proposition:

[W]here money is advanced by A to B, with the mutual intention that it

should not become part of the assets of B, but should be used

exclusively for a specific purpose, there will be implied (at least in the

absence of an indication of a contrary intention) a stipulation that if the

purpose fails the money will be repaid, and the arrangement will give

[14]

rise to a relationship of a fiduciary character, or trust.

112. In Raulfs v Fishy Bite Pty Ltd, Campbell JA, after reviewing the authorities, suggested

that the question of whether loan moneys were held on a trust should be approached as

follows:

[O]ne needs to analyse an individual fact situation for the purpose of

deciding whether there is an intention to create a trust, and, if so, on

what terms. Quistclose recognises that sometimes there can be a trust

whose terms are that the trust property is to be paid to particular

people, and if it is not paid to those people, it is to be held for someone

else. That is a matter arising from analysis of the facts of the particular

case in accordance with well established principles for identifying when

there is a trust, not because there is any separate legal institution

known as a ‘Quistclose trust’. Further, it is a gloss upon the law

concerning identification of the terms of a trust to say that the ‘question

in every case is whether the parties intended the money to be at the free

disposal of the recipient’. That suggests that being at the free disposal of

the recipient marks a dividing line between a ‘Quistclose trust’ and

something else. Facts about the intention with which a person has

parted with an item of property cannot usefully be categorised in such a

cut and dried fashion. However, the more limited statements in the

[15]

passage I have quoted from On Equity are correct.

113. The reference in the final sentence is to the following statement by Young, Croft and

Smith, in On Equity:

Cases in this area will often depend on a close analysis of the facts and,

in particular, whether the person who provided the money annexed a

trust or equitable obligation that it was only to be used for the

nominated purpose. The mutual intention of the parties ... will be

important. A trust will not necessarily arise just because a lender

inquires into the purpose for which a loan is sought and money is paid

[16]

over for that particular purpose.

114. In Eumeralla Estate Pty Ltd v Chen, the Court of Appeal found that money advanced to

a company was held on an express trust to be applied in the acquisition of a particular

property; with a resulting trust that it would be returned if the acquisition did not

[17]

proceed.

The Court found that the intention to create the trust arose from the

findings that:

(a) it was a condition of the advance that it would be applied for the purchase of

[18]

the particular property;

and

(b) there was an implied stipulation in the transaction that, if the purpose failed,

[19]

the money would be repaid.

115. Their Honours identified the following propositions as being relevant in ascertaining

whether a resulting trust has been established:

(a) First, as Gummow J explained in Elizabethan Theatre Trust, a trust of the kind

held to subsist in Quistclose is a species of express trust. As a consequence, the

question of whether such a trust exists is to be answered by reference to intention.

(b) Secondly, ordinarily the relevant intention is that of the alleged settlor,

although there may be exceptions to that proposition. Those exceptions are not

presently relevant.

(c) Thirdly, a trust may be recognised in a commercial setting (including a loan)

notwithstanding the absence of an express statement of intention to create a trust.

Neither writing nor formal words are necessary to create a trust.

(d) Fourthly, whether it will be possible to infer an intention to create a trust in a

particular case will depend upon a consideration of the language of the parties,

construed in context, including the matrix of circumstances.

(e) Fifthly, whether an intention to create a trust exists must be determined by

reference to the ‘outward manifestation’ of such an intention, rather than to the

subjective intention of the alleged settlor. As Gummow and Hayne JJ observed in

Byrnes, a settlor

must, of course, possess the necessary intention to create a trust, but

his subjective intentions are irrelevant. If he enters into arrangements

which have the effect of creating a trust, it is not necessary that he

should appreciate that they do so; it is sufficient that he intends to enter

into them.

(f) This fifth proposition applies not only to an alleged express bilateral covenant to

create a trust, but also to a unilateral declaration of an alleged trust and to an

alleged trust that is not wholly in writing. In relation to an alleged trust that is not

wholly in writing, the need to draw inferences from circumstances in construing

the terms of conversations may in practice widen the extent of the inquiry, but it

does not alter its nature.

(g) Sixthly, trust obligations arise where equity operates on the conscience of the

holder of the legal interest. A person cannot be a trustee of property if that person

is ignorant of the facts alleged to affect their conscience. That is, unless the

putative trustee is aware that they are intended to hold the property for the benefit

of others, their conscience will not be affected in a relevant way.

(h) Seventhly, where A makes a voluntary payment to B or pays (wholly or in part)

for the purchase of property which is vested in B alone, there is a presumption that

A did not intend to make a gift to B: the money or property is held on trust for A.

This is only a presumption, which presumption may be rebutted.

(i) Eighthly, a payment (including a loan) for a specific purpose, where the

recipient is not free to apply the money for any other purpose, gives rise to a trust.

However, a trust does not necessarily arise merely because money is paid for a

particular purpose. The question in every case is whether the money was intended

to be at the free disposal of the recipient or whether the person providing the funds

intended to retain a beneficial interest in the funds. A freedom to dispose of the

money is necessarily excluded by an arrangement that the money shall be used

exclusively for the stated purpose. That is because a necessary consequence of a

finding of an exclusive purpose must be that if, for any reason, the purpose could

not be carried out, the money was to be returned.

(j) Finally, a court will not readily infer that funds provided to a company will be

impressed with a primary express trust for use exclusively for a specific purpose,

the failure of which creates a secondary resulting trust in favour of the person who

provided the funds. A mere ‘expectation’ or ‘general understanding’ or ‘preference’

that the funds are to be used for a specific purpose is insufficient. Rather, it is

necessary to demonstrate an intention that the funds have been provided on the

condition that they will be earmarked for use exclusively in accordance with an

[20]

agreed purpose.

116. In summary, the relevant intention is to be inferred from the language employed by the

parties in question. For that purpose, the Court may look to the nature of the transaction

[21]

and the relevant circumstances attending the relationship between them.

The use of

the expression ‘Quistclose trust’ has been said to distract from the proper question of

whether, on the operation of principle upon the facts as found, a trust relationship has

[22]

been established.

The Court of Appeal in Eumeralla emphasised that a Quistclose

trust is not a separate species of trust and its existence must be based on a finding of the

[23]

requisite intention in accordance with normal principles referrable to express trusts.

Conclusion

117. In my opinion, the Jieyun Advances were paid to TDG on trust, to be applied only for the

‘Approved Purpose’ as defined in the Loan Deed and returned to Jieyun if the

settlements of the Toorak Properties did not proceed. The intention to create the trust is

to be inferred from the following:

(a) Jieyun and TDG expressly acknowledged and agreed that the Jieyun Advances

must only be used for the Approved Purpose. It is difficult to envisage the purpose

of including these words in the Loan Deed unless it was intended to make clear

that the Jieyun Advances were not intended to become the beneficial property of

TDG. As the Court of Appeal said in Eumeralla:

A freedom to dispose of the money is necessarily excluded by an

arrangement that the money shall be used exclusively for the stated

[24]

purpose.

(b) The fact that TDG was a special purpose vehicle to be trustee of the TDG Unit

Trust which was established for the purpose of carrying on the business of real

estate, in developing the Toorak Properties.

118. I reject Mr He’s submission outlined in paragraph 108 above for the following reason.

There is no inconsistency between:

(a) the fact that the trustee’s powers under the Unit Trust Deed were more

expansive than those under the Loan Deed (which limited the application of the

Jieyun Advances to the Approved Purpose); and

(b) an intention to form a trust with respect to the Jieyun Advances.

The terms of the Unit Trust Deed do not affect Jieyun’s interests under the Loan Deed which

are ‘engrafted onto [the Jieyun Advances] as a restriction on the manner in which the trustee

[25]

may deal with trust assets’.

119. Further, I do not consider the fact that the commercial arrangement between TDG and

Jieyun, being that:

(a) the Jieyun Advances were to be interest free; and

(b) the consideration for the Jieyun Advances was units in the TDG Unit Trust,

is inconsistent with a trust being inferred from the express words in the Loan Deed that the

Jieyun Advances ‘must only’ be used for the Approved Purpose.

Was the transfer of the Balint payment from funds held by TDG on the Jieyun

Trust?

Mr He’s submissions

120. During the course of final submissions on behalf of Mr He, it was submitted for the first

time that, if the Jieyun Advances were held by TDG on trust, the Court could not be

satisfied that the Balint payment was from funds held by TDG on the Jieyun Trust. By

written submissions filed with leave, counsel for Mr He relied on the following:

(a) The Balint payment was made from TDG to which $13 million had been paid as

follows:

(i) $8 million by Jieyun (being the Jieyun Advances);

(ii) $4 million by Leimeng; and

(iii) $1 million by Mr He.

(b) The money invested by Leimeng in TDG (‘the Leimeng Advance’) was also held

on trust because the evidence is that Leimeng had invested this money on similar

terms to the Jieyun Advances; and the Court could not determine this matter

without regard to the payment of moneys to TDG’s accounts from parties other

than Jieyun.

(c) The total of $6,336,251.20, which was paid into TDG’s accounts after 5 March

2018, consisted of:

(i) $1 million by Mr He on 13 April 2018; and

(ii) $5,336,251.20 that appears to have been deposited by related companies.

(d) Having considered the above, either:

(i) the effect of moneys going in and out of TDG’s accounts leads to there being no

basis to conclude that the moneys returned to TDG’s accounts are trust moneys

rather than simply funds available for distribution; or

(ii) the moneys are at least partially trust funds on the basis of tracing.

121. Accordingly, it was submitted that, adopting the pari passu approach, given that Jieyun

had only contributed $8 million out of the total $13 million sum deposited into TDG’s

ths

account, Jieyun could only claim 8/13 of the Balint payment as trust money. Applying

that percentage to the $150,000 paid from SMM to Mr Xu, Jieyun’s claim would be

limited to $92,307.

Jieyun’s submissions

122. Jieyun submitted that the Court should find that there was no ‘mixed trust’ because the

only trust moneys paid into the TDG accounts were those paid by Jieyun, for the

following reasons:

(a) Mr He did not plead the existence of a trust in respect of funds invested by

Leimeng or make any allegation in respect of a mixed trust.

(b) Although there was evidence suggesting that Leimeng’s investment in TDG may

have been on similar terms to Jieyun’s, Mr He did not tender any document in

respect of Leimeng’s investment and provided no explanation for his failure to do

so. Accordingly, the Court:

(i) may infer that the evidence would not have assisted Mr He’s case;

and

(ii) is more likely to draw inferences which are unfavourable to Mr He.

123. Jieyun further submitted that, even if it was accepted that the Leimeng Advance had

been paid on trust, the evidence was that:

(a) the Leimeng Advance of $4 million had been invested by Leimeng before 20

September 2017;

(b) Leimeng did not deposit with TDG a second sum of $4 million; and

(c) before Jieyun deposited the $2 million comprising the First Portion of the

Second Tranche on 28 February 2018, the balance of TDG’s bank accounts were as

follows:

(i) the TDG Account 4101was at $16.02 in debit; and

(ii) the TDG Account 4250 was at $474.90 in credit,

(collectively, ‘the TDG accounts’).

124. Accordingly, it was submitted that after 28 February 2018, deposits into the TDG

accounts totalled $10,336,071 [sic] consisting of:

(a) the First Tranche, advanced by Jieyun;

(b) $1 million deposited on 13 April 2018, which the Court should not accept was

deposited by Mr He;

(c) the balance of $5,336,251.20, which the evidence establishes consisted of:

(i) the sum of $1,340,883.52, being transferred from TDG’s other

accounts; and

(ii) $3,995,367.68, being repayments of loans from the fifth defendant,

being Hennessy Group Pty Ltd (‘Hennessy Group’) and the tenth

defendant, being Hopetoun Development Group Pty Ltd (‘Hopetoun

Development’).

125. In summary, Jieyun submitted that the Court should conclude as follows:

(a) There was no Leimeng trust.

(b) If the Leimeng Advance had been advanced on trust, the funds would be

exhausted before Jieyun paid the Second Tranche.

(c) Mr He did not contribute an additional $1 million.

(d) The transfers to TDG from Hennessy Group and Hopetoun Development were

repayments of money loaned from the Jieyun Trust to those companies.

Conclusion

126. I am not satisfied that the Leimeng Advance was made on trust for the following

reasons:

(a) The only submission relied on by Mr He in support of the contention that TDG

held the Leimeng Advance on trust was that ‘[t]here is evidence that Leimeng

invested on similar terms as to Jieyun’. In fact, the evidence was that, although Mr

Huang understood that Jieyun had invested in TDG on the same terms as

Leimeng, Jieyun did not. Jieyun discovered that Leimeng held 20% of the units

while Jieyun only held 13%, which was the subject of an ongoing dispute from

February 2018.

(b) No evidence was adduced on behalf of Mr He that the Leimeng Advance was

made on the basis that the funds would only be applied to an approved purpose or

were otherwise to be held by TDG on trust. In particular, Mr He did not produce

any deed or other document evidencing that the Leimeng Advance was received by

TDG on trust; and did not offer any explanation for the failure to produce such a

document.

(c) As submitted by Jieyun, the limit of the evidence in support of the Leimeng

Advance being on trust was that:

(i) Ms Ren gave evidence that Mr He produced documents in English

on 20 September 2017 including the Loan Deed and Mr He said that

‘Jieyun’s documents were the same as the documents signed by

Leimeng for its investment’; and

(ii) Mr He agreed in cross-examination to the proposition that

‘Leimeng entered into a similar agreement to Jieyun, where it too had

agreed to pay $8,000,000 in two groups of $4,000,000’.

(d) There is no basis to infer that the loan agreement between TDG and Leimeng

would have limited the use of the Leimeng Advance to an approved purpose

similar to that in the Loan Deed. Other loan deeds entered into by TDG at about

the same time, which adopted a similar form, included an ‘Approved Purpose’ that

[26]

permitted a broad use of the loan money.

127. Accordingly, to the extent that the Jieyun Advances were mixed with TDG’s own funds in

[27]

the account, it is presumed that TDG drew out its own funds first.

On this basis, I

find that the Balint payment was made from funds held on the Jieyun Trust.

128. Further, even if I was to accept that the Leimeng Advance was made on trust and adopt

the pari passu principle (as contended for by Mr He), the calculation of the percentage

of the Balint payment that was from Jieyun Trust money would have regard to the

following:

(a) No submission was made on behalf of Mr He as to why the Court should be

satisfied that the balance of $592,574.20 in the TDG Account 4101 at 25 September

2017, or any part thereof, was the product of the Leimeng Advance or even whether

the whole of the Leimeng Advance was paid into that account.

(b) In any event, by 16 November 2017, all but $1.79 had been disbursed from the

TDG Account 4101.

(c) The Balint payment was the balance remaining in the TDG Account 4101 after

$3,153,383.52 was credited to that account between 26 April 2018 and 16 May

2018, as set out in paragraph 210 below being:

(i) the transfer of the residue of the Second Tranche in February/March

2018 from the TDG Account 4259; and

(ii) part repayments of the loans by Hopetoun Development and

Hennessy Group, which loans had been substantially or wholly funded

from the First Tranche (paid in 2017). Such payments were impressed

with the Jieyun trust because I infer that the trustee intended that these

payments would be in replacement of the misappropriated trust

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moneys.

129. In the circumstances, any tracing of the Leimeng Advance to the Balint payment was, at

best, not significant.

Was the Balint payment a dishonest and fraudulent breach of the Jieyun Trust?

Jieyun’s submissions

130. Jieyun submitted that the transfer of $381,718, being the Balint payment, to Mr Balint’s

Westpac account was a dishonest and fraudulent breach of the Jieyun Trust by TDG, for

the following reasons:

(a) TDG, by its directors Mr Cvek (by his attorney Balint) and Mr He, were a

signatory to the Loan Deed and knew of the ‘Approved Purpose’.

(b) The proceeding was filed on 21 August 2018 ,together with a summons seeking

a freezing order over TDG’s assets.

(c) On 22 August 2018, Mr Mihailescu, at Mr Cvek’s direction, transferred

$381,718 of the $381,718.15 in TDG’s account, to Mr Balint’s Westpac account.

(d) At the time of the transfer, it was impossible for TDG to complete the

settlement of the Toorak Properties, which required an amount of $13,755,000.

(e) Mr Cvek produced an ‘invoice’ purporting to support the amounts transferred,

in which Sentosa Capital invoiced TDG for an improbable collection of expenses

incurred on behalf of TDG.

(f) At close to midnight on 3 September 2018, TDG’s solicitor emailed Mr Balint,

copied to Mr Cvek, advising that it would ‘look better’ if funds in the account were

used for ‘legitimate payments of TDG expenses -such as legal expenses and

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ordinary business expenses incurred by TDG’.

(g) Mr Balint did not recall having the invoice when he transferred funds out of his

account on 4 September 2018.

(h) Those expenses included payments that were ultimately made to SMM, and

which Mr He accepted were in respect of services provided to Mr Cvek or the

Sentosa Group of companies, and not TDG.

(i) Mr Cvek and Mr Mihailescu have not made themselves available or sought to

participate in the proceeding so as to explain this transfer.

131. Jieyun further submitted that there were the following highly unusual and irregular

features surrounding the transfer from which fraud and dishonesty could be inferred.

(a) The timing of the transaction, with it happening the day after TDG, Mr Cvek

and Mr Mihailescu became aware that TDG’s account was to be frozen.

(b) The fact that it was TDG that was invoiced for services purportedly provided by

Sentosa Capital, rather than any of the other special purpose entities within the

Sentosa Group.

(c) The amount invoiced, being pretty much the entirety of the moneys in TDG’s

account.

(d) The non-particularised nature of the expenses claimed in the SMM invoices.

(e) The payment of such an amount to Mr Balint, an employee of Hennessy Group

Pty Ltd (a special purpose entity within the Sentosa Group – but where Mr Balint’s

role was a broader one within the Sentosa Group) and not SMM, the purported

creditor who had issued the invoices.

(f) Payment was made to Mr Balint’s personal account.

(g) Mr Balint had admitted the transaction in his statement.

(h) No evidence is before the Court which satisfactorily explains the above

anomalies or that the transaction was in any way genuine.

(i) These features of the transactions must have been known to Mr Cvek and Mr

Mihailescu (and Mr Balint).

Mr He’s submissions

132. Mr He submitted that there is a high threshold of proof for Jieyun to establish that the

assistance was in furtherance of a dishonest and fraudulent design, and that Jieyun had

not satisfied that burden, for the following reasons:

(a) Jieyun failed to plead and particularise the requisite fraudulent design.

(b) The case was circumstantial.

(c) The fact that Mr Balint was told by Mr Cvek that the moneys were for services

provided by various entities does not constitute a dishonest and fraudulent design.

Conclusion

133. I am satisfied that the Balint payment was effected by TDG, through the agency of Mr

Cvek and Mr Mihailescu, for the fraudulent and dishonest purpose of misappropriating

the funds from TDG’s account, for the reasons submitted by Jieyun.

134. In particular, in my opinion, the following facts strongly support the finding of the

fraudulent and dishonest misappropriation of funds from TDG:

(a) The purported invoice of 22 August 2018 from Sentosa Capital to TDG is dated

the day after this proceeding was filed.

(b) The amount of the invoice and the amount of the transfer was, with the

exception of 15 cents, the precise amount remaining in the relevant TDG account at

the time.

(c) The transfer was made to Mr Balint’s Westpac account, and Mr Balint claimed

no entitlement.

Were the Sentosa Capital payments a dishonest and fraudulent breach of the

Jieyun Trust?

Jieyun’s submissions

135. Jieyun submitted that the Sentosa Capital payments were dishonest and fraudulent

because they were a further conversion of funds belonging to the Jieyun Trust, for the

same reasons as set out in paragraphs 133-134 above.

Mr He’s submissions

136. Mr He submitted that the transfers from Mr Balint’s Westpac account to Sentosa

Capital’s ANZ account were not dishonest and fraudulent because:

(a) Mr Balint gave evidence that he was given advice that the freezing order

allowed for the payment of reasonable legal and legitimate business expenses; and

(b) these payments could only be a breach of trust if the Balint payment was a

breach of trust.

Conclusion

137. It is common ground between the parties that the Sentosa Capital payments were part of

the series of transfers, which commenced with the Balint payment; and that the findings

with respect to the previous transfer would affect this transfer.

138. In my opinion, the Sentosa Capital payments were a dishonest and fraudulent breach of

the Jieyun Trust for the same reasons as applied to the Balint payment and was part of

the same scheme to misappropriate the balance of the funds held by TDG.

Were the SMM payments a dishonest and fraudulent breach of the Jieyun Trust?

Jieyun’s submissions

139. Jieyun submitted that the Court should find that the SMM payments were a dishonest

and fraudulent breach of the Jieyun Trust, for the following reasons:

(a) The transfers were carried out by Mr Mihailescu.

(b) Before the transfer by Mr Balint into Sentosa Capital’s ANZ account referred to

above, it had a negative balance.

(c) The Court should reject the evidence of Mr He and find that he was aware of the

nature of the proceedings commenced against TDG and the freezing order made on

23 August 2018.

(d) There were the following anomalies with respect to the SMM Invoices in

respect of which the transfer to SMM was purportedly in payment of:

(i) the invoices were directed to TDG but the work was not conducted

for TDG and no breakdown was provided on the invoices;

(ii) there is no direct relationship between the amount stated in the

SMM Invoices and the amounts transferred;

(iii) the invoices were dated many months after the services were

purportedly provided;

(iv) no documents were produced showing the SMM Invoices were

forwarded to any person before 29 August 2018, nor was there any

corroborating evidence as to when the invoices were created; and

(v) the SMM Invoices bear sequential numbers but the invoice bearing

the number ‘TDG-1803’ was apparently dated earlier than the invoice

bearing ‘TDG-1802’.

(e) There was no explanation from Mr He, Mr Cvek, Mr Mihailescu or Mr Balint as

to why Sentosa Capital was paying out these unusual invoices to Mr He’s company,

SMM.

(f) The Court should reject Mr He’s assertion that he resigned as a director of TDG

on 25 September 2017 and he may be presumed to have known of the existence of

funds in TDG’s bank account and the circumstances related to the transfer out of

that bank account.

Mr He’s submissions

140. Mr He submitted that the SMM payments were not a dishonest and fraudulent breach of

the Jieyun Trust, for the following reasons:

(a) There was no evidence that Mr He knew that the sums of $69,328 and $85,828

had originally come from TDG.

(b) There was no evidence that Mr He was aware of the anterior transactions

because:

(i) Mr Balint did not say that he had told him and there is no reason

why he would have; and

(ii) Mr He was not a director of Sentosa Capital.

(c) The Court should not conclude that the SMM Invoices were fake, for the

following reasons:

(i) There was no doubt that Mr He incurred promotional costs.

(ii) It would make no sense for Mr He to create the invoices after he

returned to Australia on 22 August 2018, because at that date, TDG had

no funds and it would have made more sense to invoice Sentosa

Capital, as it ultimately received the funds.

(iii) Despite some delay, it was unsurprising that Mr He would seek to

recover the costs which he had been previously promised but did not

occur.

(iv) Some of the source documents for the invoices were tendered.

(v) Mr Balint gave no evidence that he told Mr He about the freezing

order which affected TDG’s assets.

(d) The Court should accept that Mr He was an investor liaison person, rather than

a director of TDG, for the following reasons:

(i) It was consistent with the evidence given by Mr Balint.

(ii) Mr He told Jieyun on 6 May 2018 that he was not a director; and

the fact that the resignation was not entered into ASIC records is not

unusual.

(iii) The fact that Mr Cvek would require Mr He to resign as a director

because of the possibility of a conflict of interest given his position as

the representative of Jieyun and Leimeng ‘makes sense’.

(iv) The evidence establishes that Mr He was expected to convey

information to Jieyun and Leimeng, as the investors.

(v) There is no document that identifies Mr He as a director of TDG

post 25 September 2017.

(vi) The promotional material following the Sentosa Capital event,

incorrectly showing incorrectly Mr He to be a director of Sentosa

Capital, does not mean he was holding himself out to be a director of

TDG. Further, the fact that Mr He organised a promotional event for

the Sentosa Group does not mean he must have been involved in the

day to day running of the businesses.

Conclusion

141. I consider that Mr He, as the director of SMM, was aware that the SMM payments were

part of the fraudulent and dishonest breach of the Jieyun Trust, being the

misappropriation of the balance of the relevant TDG account.

142. Further, I am satisfied, to the Briginshaw standard, that Mr He fabricated the SMM

Invoices for the purpose of misappropriating the balance of TDG’s account, for the

following reasons.

143. The services which were the subject of each of the SMM Invoices were not performed on

the instruction of TDG; but on the instruction of Sentosa Capital. In fact, except for one

visit to China, the services did not relate to the development of the Toorak Properties by

TDG. In particular:

(a) With respect to the ‘TDG Overseas Travelling’ referred to in Invoice 1802,

which was dated 18 July 2018, Mr He’s evidence was that, except for one visit to

China in 2017 to visit Mr Huang, these trips related to Sentosa Capital and were

unrelated to TDG. The lack of any credible explanation by Mr He, about why the

invoice to TDG included ‘all eight trips’, supports an inference that it was part of an

ex post facto plan to justify the misappropriation of TDG’s funds.

(b) The Mid-Autumn Festival in August 2017 was, on Mr He’s own evidence, a

dinner he organised on behalf of Sentosa Capital. Although Mr Huang, Ms Ren and

Mr Song were invited and attended among the 70 or 80 guests, there is no

evidence suggesting that this was an event organised on the instruction of, or for

the benefit of, TDG.

(c) The Melbourne Cup Charity Event and the Moonah Links Golf Event were both

organised for Sentosa Capital. The contemporaneous promotional material posted

online shows no connection to TDG. Mr He conceded both that point and that, by

the time of the Melbourne Cup Charity Event, the investors in TDG (being Jieyun

and Leimeng) were finalised.

(d) The absence of any credible explanation by Mr He for adding ‘TDG’ in the false

description of the Moonah Links Golf Event in Invoice 1801 dated 30 March 2018,

being ‘Golf Champion and TDG Project promotion’ leads to the inference that it

was part of an ex post facto plan to justify the misappropriation of TDG’s funds.

(e) In fact, Mr He gave no evidence of any promotion of TDG undertaken by SMM

or why there would have been a need to do so. There was no credible attempt by

Mr He to explain why he directed the SMM Invoices to TDG for services provided

on instruction from Sentosa Capital. On the other hand, the presentation of the

SMM Invoices after this proceeding was filed was consistent with the legal advice

provided to Mr Balint and Mr Cvek by the solicitors for the first to tenth and

twelfth defendants on 3 September 2018 that ‘it would be better that the funds be

in that account, and if you make legitimate payments of TDG expenses – such as

legal expenses and ordinary business expenses incurred by TDG, then that

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would look better’.

144. This conclusion is also supported by the following unsatisfactory features of Mr He’s

evidence:

(a) There was no satisfactory explanation as to why Invoice 1803, dated 20 March

2018 for $76,780, related to the same promotional events as Invoice 1801 for

$85,800, dated 10 days later on 30 March 2018. Although Mr He stated that one

related to the ‘events’ and the other for ‘manufacture’, he gave no explanation for

why two invoices had been issued for the same event.

(b) Although Mr He gave evidence that the reason for the delay in rendering these

invoices was that he had been told by Mr Cvek that he would be reimbursed and

then he was not, he did not produce evidence of any communication with Mr Cvek

with respect to these claims before or after the purported dates of the SMM

Invoices.

(c) Despite the generality and the duplication of the descriptions in the invoices,

Mr He was unable to give a breakdown as to how these amounts were calculated or

how Mr Cvek might have been satisfied as to the calculations. Although some

records relating to the promotions were produced, Mr He said he gave all receipts

and records which formed the basis of the calculation of the records to his ‘second

lawyer’; but there was no attempt to subpoena such records to establish the bona

fides of the calculations.

(d) There was no explanation as to why:

(i) the invoice dated 20 March 2018 was numbered ‘1083’; whereas

(ii) the subsequent invoices were numbered ‘1801’ and ‘1802’ and were

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dated 30 March 2018 and 18 July 2018 respectively;

or

(iii) why, given that there was a period of almost four months between

the dates of issue, the SMM Invoices were numbered consecutively.

(e) Given the critical nature of these invoices and the circumstances in which they

were created, there was no explanation as to why Mr He could not have produced

the computers on which the invoices were created to establish the date of their

creation.

(f) The submission that Mr He did not know these payments were made from

TDG’s funds was not consistent with his evidence that he understood the payments

to be in satisfaction of these invoices, which he had directed to TDG.

(g) Mr He gave no evidence of any conversation with Mr Cvek, Mr Mihailescu or

Mr Balint about what must have been the surprising receipt of the two payments

from Sentosa Capital. Given the established close relationship, I consider that it is

inherently unlikely that these payments were made into SMM’s account without

communication.

(h) I do not accept that, after Mr He returned to Melbourne on 22 August 2018, he

was not told of the nature of the proceeding filed on 21 August 2018 or of the

freezing order made by Lyons J. I consider his evidence, that he was told by Mr

Balint of the existence of the proceedings but of no further details and made no

further inquiries, to be implausible. By affidavit of the then solicitor for the first to

[32]

ninth defendants sworn 23 August 2018,

the solicitor deposed that she was

informed by Mr Balint that ‘a freezing order [on TDG] would impact the existing

up-coming settlement’ and that ‘a freezing order on the remaining Defendants

would have disastrous results for each project’. The fact that Mr He was closely

associated with Sentosa Capital was demonstrated by the promotional material

published by Sentosa Capital and it is inherently unlikely that there would have

been no substantial communications between Mr He, Mr Cvek, Mr Mihailescu and

Mr Balint about the effect of the litigation and in particular the freezing order.

(i) Further, I consider it highly unlikely that the payment of $150,000 from these

funds to Mr Xu in Hong Kong on 11 September 2018 was made by Mr He in

ignorance of the fact that on the previous day of 10 September 2018, Lyons J had

made a further freezing order, this time with respect to the assets of SMM. The

first to tenth defendants, which included Mr Cvek and Mr Mihailescu, were

represented by counsel at that hearing on 10 September 2018. I consider it

inherently unlikely that they, having arranged the payments from Sentosa Capital

six days earlier on 4 September 2018, would not have communicated with Mr He

about the freezing order.

(j) Neither do I accept that the payment to Mr Xu on 11 September 2018 was a

bona fide repayment of a personal loan. The extent of Mr He’s evidence on this

question was as follows:

On 11 September 2018, SMM transferred $150,000 [to Mr Xu] in Hong

Kong to repay a personal loan owed by me’.

Mr He produced no documents supporting the personal loan and did not explain why Mr Xu

could not be called to confirm the bona fides of the debt.

145. In the circumstances, I find that Mr He was a witness who was prepared to give

untruthful evidence for the purpose of covering his involvement in the plan to

misappropriate the balance of TDG’s account. I do not accept his evidence on any

contentious issue unless it is corroborated by other evidence.

146. With respect to the issue between the parties about whether Mr He did in fact resign as a

director of TDG on 25 September 2017, the background facts are as follows:

(a) TDG was incorporated on 14 November 2016 and the directors were Mr Cvek,

Mr Mihailescu and Mr He.

(b) On or about 20 September 2017, Mr He, as a director of TDG, executed the

Loan Deed and the Unit Trust Deed on behalf of TDG.

(c) Mr He’s evidence is that, on 22 September 2017, Mr Cvek provided him with a

draft written authority (‘the Authority Letter’) and said that Leimeng and Jieyun

never communicated with Mr Cvek directly and so he required Mr He to sign an

authority for Mr He to act as representative of Jieyun. The Authority Letter stated:

Please be advised that as I am the approved representative of Jieyun

International Investments Pty Ltd (Jieyun) ACN: 621 359 064, and

have been appointed to act, communicate and disclose information on

behalf of Jieyun to TDG.

Additionally, we request that any and or all information relating to the

TDG project be communicated to me and I have the necessary authority

to share and communicate decisions on behalf of Jieyun to TDG.

(d) Mr He gave evidence that, on 25 September 2017, he signed a resignation letter

as a director of TDG (‘the Resignation Letter’), in the following terms:

I, LEI HE, of 18 Longstaff Court, DONCASTER EAST VIC resign as a

director of the Company, effective on and from the day of 25/9/17

I acknowledge that no amounts are owing to me by the Company and

that I have no claim whatsoever against the Company, including for

fees, salary or other entitlements or for compensation for loss of office

or otherwise.

I release and discharge the Company from any liability or obligation

which the Company had to me as a director prior to the above date.

(e) Mr He’s explanation of the circumstances surrounding his resignation was as

follows:

As I was now the approved representative of [Jieyun], Cvek was

concerned that there would be a conflict with my role as director of

TDG. I discussed the matter with Cvek and it was agreed that I would

resign as a director of TDG.

(f) On 21 October 2018, Mr He’s resignation as a director of TDG was lodged

purportedly effective from 25 September 2017. Mr He’s explanation for this

delayed lodgement was as follows:

Only after the commencement of this proceeding, I realised that TDG

had failed to update the ASIC register until October 2018. I called and

asked Balint why the ASIC records are incorrect, to which he said

because TDG had lost the AISC corporate key.

147. On the balance of probabilities, I am satisfied that Mr He did not resign as a director of

TDG on 25 September 2017, for the following reasons:

(a) For the reasons stated above, I give little weight to the evidence of Mr He on

any contentious matter. As I have already found, Mr He was prepared to fabricate

or backdate documents in an attempt to obscure his involvement in the

wrongdoing alleged in this proceeding.

(b) The Authority Letter and the Resignation Letter are both documents produced

in this proceeding with little or no evidence of their provenance. There is no

evidence that these documents were attached or referred to in any communication

or that any person saw these documents prior to their production in the

proceeding.

148. I am comforted in making this finding by the failure of Mr He to adequately explain the

following circumstances surrounding his purported resignation:

(a) The Authority Letter states that Mr He has been appointed to act, communicate

and disclose information on behalf of Jieyun. However, there was no evidence that

he was ever so appointed by Jieyun, or that he had the necessary authority to share

and communicate decisions on behalf of Jieyun to TDG.

(b) The circumstances surrounding the purported resignation being:

(i) Mr He signing the Loan Deed and the Unit Trust Deed on behalf of

TDG on 20 September 2017;

(ii) two days later, Mr Cvek requiring Mr He to sign the Authority

Letter;

(iii) three days later, Mr Cvek expressing such concern that Mr He was

so conflicted that he had to sign a resignation as a director of TDG; and

(iv) Mr He’s agreement to resign despite his position (in this

proceeding) that he was only ever a conduit for the transfer of

information between the parties.

(c) Any concern of Mr Cvek to separate Mr He from Mr Cvek’s interests was not

apparent given Mr He’s involvement in the promotion of Sentosa Capital at the

Melbourne Cup Charity Event and the Moonah Links Golf Event, at which Mr He

was described as a director. I accept the submission of counsel for Mr He that the

description of Mr He as a director of Sentosa Capital may have been incorrect, but

it is inconsistent with Mr Cvek having concerns about the propriety of Mr He

continuing to be associated with entities controlled by Mr Cvek.

(d) There was no evidence that Mr He communicated to Mr Huang, Ms Ren, Mr

Song, or anybody else about the decision to resign as a director or to act as Jieyun’s

representative at or after the time of the purported resignation.

149. Counsel for Mr He relied upon the WeChat message of 6 May 2018, in which Mr He

stated:

Have communicated with the lawyer and a few proposals have been

come up with. I think they have also included the opinion you [SIC]

expressed yesterday. I am not a director but a shareholder, I can only

forward opinions. I have made the appointment to meet DALI in

th [33]

HONG KONG on 12 .

150. I do not consider this WeChat message provides any real support for Mr He’s contention

that he had resigned as a director of TDG, for the following reasons:

(a) It is not clear about which company Mr He is speaking. At the relevant time, the

concern was that Leimeng was not contributing its share of the settlement money;

and Mr He may have been seeking to distance himself from that decision. In those

circumstances, Mr He may have been referring to Leimeng when he said ‘I am not

a director’, a statement which was either:

(i) false, given ASIC records show that Mr He did not cease to be a

director of Leimeng until 1 October 2018; or

(ii) reflected the fact that Mr Zhu had taken de facto control of

Leimeng.

(b) A reference to him not being a director of Leimeng would be consistent with the

fact that, on or around 20 April 2018, Mr He discovered that Mr Zhu, Ms Zhen and

Mr Luo had removed Mr He as a signatory to the Leimeng bank account.

(c) The assertion that he was a shareholder is consistent with his comment being a

reference to Leimeng; but not with it being a reference to TDG.

By the SMM payments, did Mr He assist in the dishonest and fraudulent breach

of the Jieyun Trust?

Submissions

151. Each party relied upon the submissions made with respect to the previous issue. In

particular, Jieyun claimed that Mr He assisted in the dishonest and fraudulent breach of

the Jieyun Trust in the amount of $155,156, being the total sum of money that was

eventually transferred to Mr He’s company, SMM.

Conclusion

152. For the reasons given with respect to the previous issue, I consider that through:

(a) the acceptance of the transfer from Sentosa Capital to SMM on 4 September

2018; and

(b) the transfer to Mr Xu in Hong Kong on 11 September 2018,

Mr He knowingly assisted the fraudulent and dishonest purpose of TDG in misappropriating

$155,156 from the account of TDG.

Did Mr He know of the essential facts constituting the dishonest and fraudulent

breach of the Jieyun Trust by the SMM payments?

Jieyun’s submissions

153. Jieyun submitted that Mr He knew the essential facts constituting the dishonest and

fraudulent breach, being:

(a) the Approved Purpose under the Loan Deed;

(b) the fact that the funds received by SMM were TDG’s funds; and

(c) the fact that the funds received by SMM were not applied for the ‘Approved

Purpose’.

154. Jieyun submitted that Mr He:

(a) was aware of the nature of this proceeding;

(b) was a director of TDG and so is presumed to have known about the

circumstances of TDG’s accounts; and

(c) gave no credible explanation as to why Sentosa Capital paid out the unusual

invoices issued by Mr He’s Company, SMM.

It otherwise relied upon its previous submissions.

Mr He’s submissions

155. On behalf of Mr He, it was submitted that Mr He was not aware of the relevant essential

facts, because Mr He:

(a) was not aware that the funds had come from TDG;

(b) had done nothing to assist;

(c) could not have attended the offices of TDG prior to the transfer of the funds

from TDG; and

(d) did not know of the details of the proceeding and the freezing orders until he

received a copy of the statement of claim on 4 October 2018.

Conclusion

156. I am satisfied that Mr He did know all of the essential facts constituting the dishonest

and fraudulent breach of the Jieyun Trust and the misappropriation of the $155,156 at

least from the time that the SMM payments were made into SMM’s account on 4

September 2018, for the following reasons:

(a) As a director of TDG, Mr He executed the Loan Deed on 20 September 2017

and conceded that he was aware that the moneys were advanced to TDG for the

purposes of acquiring the Toorak Properties.

(b) Mr He knew the funds received by SMM were TDG’s funds. I refer to my

findings in paragraphs 141 to 145 above and note that Mr He’s own evidence is that

he understood the SMM payments were in satisfaction of the SMM Invoices, which

had been rendered to TDG. Mr He has not put forward any basis upon which he

could have believed that the source of the funds were otherwise than from TDG.

(c) Mr He knew the funds received by SMM were not for the ‘Approved Purpose’.

In particular, he was aware that the services which were the subject of the SMM

Invoices had not been performed on the instructions of TDG or for the benefit of

TDG. Further, for the reasons set out above, Mr He and through him SMM were

aware that the purpose of the transfers was to misappropriate the money from

TDG’s account.

Was the Xu payment a dishonest and fraudulent breach of the Jieyun Trust?

Jieyun’s submissions

157. Jieyun submitted that Mr He’s knowing assistance by receiving the funds into the SMM

account contaminated the transaction by which Mr He paid $150,000 to Mr Xu on 11

September 2018. Accordingly, for the same reasons, the Xu payment perpetuates the

same breach of the Jieyun Trust and amounted to a dishonest and fraudulent breach of

the Jieyun Trust.

158. Jieyun further submitted that:

(a) there is no evidence before the Court as to the purpose of the Xu payment other

than Mr He’s self-serving statement that it was repayment of a ‘personal loan’;

(b) there is no documentary evidence to support any claim by Mr Xu against Mr He

in debt; and

(c) Mr Xu was not called to give evidence.

Mr He’s submissions

159. Mr He submitted that the Xu payment was not in breach of any trust because:

(a) no such trust existed; and

(b) SMM had a proper basis for believing that the moneys in its account were paid

on a proper basis.

Mr He otherwise relied upon his earlier submissions.

Conclusion

160. For the reasons set out in paragraphs 141 to 145 above, I find that in transferring the

$150,000 to Mr Xu in Hong Kong on 11 September 2018, Mr He participated in a

dishonest and fraudulent breach of the Jieyun Trust.

By the Xu payment, did Mr He assist in the dishonest and fraudulent breach of

the Jieyun Trust?

Submissions

161. Each party relied upon their previous submissions.

Conclusion

162. For the reasons set out above, I find that Mr He did assist in the dishonest and

fraudulent breach of the Jieyun Trust.

Did Mr He know of the essential facts constituting the dishonest and fraudulent

breach of the Jieyun Trust by the Xu payment?

Submissions

163. Each party relied upon their previous submissions.

Conclusion

164. For the reasons set out above, I find that Mr He did know of the essential facts

constituting dishonest and fraudulent breach of the Jieyun Trust by transferring the

$150,000 to Mr Xu in Hong Kong.

Did Mr He make the Settlement Representation?

Jieyun’s submissions

165. Jieyun submitted that the Settlement Representation arose out of the following WeChat

messages, in circumstances where Mr He had express knowledge of the Loan Deed and

the Approved Purpose.

(a) By WeChat message of 23 January 2018 to Jieyun, Mr He called for the Second

Tranche and impressed upon Jieyun the importance of settling the lands and

obtaining clear title.

(b) By WeChat message of 14 February 2018 to Jieyun, Mr He referred to Jieyun’s

unit holding dispute with TDG and again referred to the importance of receiving

the Second Tranche to settle the Toorak Properties.

(c) By WeChat message of 24 February 2018 to Jieyun, Mr He again referred to

Jieyun’s unit holding dispute with TDG and made assurances that he was

protecting the security of the funds throughout.

(d) By WeChat message of 28 February 2018 to Jieyun, Mr He continued to ask for

the Second Tranche to be transferred.

Mr He’s submissions

166. On behalf of Mr He, it was submitted that Mr He did not make the Settlement

Representation, for the following reasons:

(a) Mr He’s statements were merely passing on information for what it is worth,

from TDG to Jieyun.

(b) Mr He was not the principal or directing mind of TDG.

(c) Mr He was not involved in the design of the project, the VCAT proceedings, the

bank affairs or the communications between the lawyers.

Principles – what is the test for determining whether a representation

has been made?

167. To determine whether an express representation has been made, the Court asks the

question:

Would a reasonable person have understood the representor’s words in their context, to mean

the representation?

168. To determine whether an implied representation has been made, the Court similarly

asks:

Would a reasonable person have inferred, from the representor’s words and conduct in their

[34]

context, that the representation was being implied?

[35]

169. As Toulson J explained in IFE Fund SA v Goldman Sachs International:

In determining whether there has been an express representation, and

to what effect, the court has to consider what a reasonable person

would have understood from the words used in the context in which

they were used. In determining what, if any, implied representation has

been made, the court has to perform a similar task, except that it has to

consider what a reasonable person would have inferred was being

implicitly represented by the representor’s words and conduct in their

[36]

context.

Conclusion

170. The text of the WeChat messages from Mr He, which were relied upon by Jieyun are as

follows:

(a) By WeChat message of 22 January 2018, Mr He stated:

Dear Shareholders, the part two investments are to be completed [paid]

by the end of 2017 as agreed originally, but because VCAT has been

st

scheduled on 31 January this year, I did not notify everyone to invest

before the finalization of the ultimate proposal. It won’t make sense

either to keep the money in the account for two months. The current

situation ... is clear, we will obtain the permit in February and start

presale. Please refer to the project progress report sent a few days ago

for details. Currently, we need to settle the two lots of lands with clear

fund before the end of February. As we need to quickly prepare for the

construction loan the lands must be paid in full and obtain clear title.

This way, the bank will be able to loan us the full construction loan.

Everyone please prepare your investment fund. I have arranged for the

shareholders’ meeting on 10/11 February, and DALI will be back to

th

MELBOURNE on 7 , apart from him, architect, town planner, VCAT

lawyer, sales consultant and others will also be attending the meeting.

Thanks!

(b) By WeChat message of 14 February 2018, Mr He stated:

At the moment the most important matter is for the balance of the fund

th

to be put in place at the end of the month (latest 9 March), otherwise

if the settlement fails, it will put us on the back foot and lead to a

situation beyond redemption, with everything back to zero. Therefore

currently we must all try hard to ensure the funds are in place in a

timely manner.

(c) By WeChat message of 24 February 2018, Mr He stated:

I just want to state one point that I have been protecting the security of

our funds throughout, and there is nothing deceptive or unfounded in

this.

(d) By WeChat message of 28 February 2018, Mr He stated:

[P]lease transfer payments to the development company’s account

directly, or I come over for a cheque. Thanks.

171. In my opinion, Mr He did not make the Settlement Representation, for the following

reasons:

(a) A reasonable person would have understood the words used by Mr He in their

context to mean nothing more than a request for Jieyun to meet its obligations

under the Loan Deed for the purposes of allowing TDG to complete the settlement

of the Toorak Properties.

(b) The Settlement Representation, as formulated by Jieyun, proposes that the

WeChat messages effectively constituted a warranty that, if Jieyun paid the Second

Tranche, nothing would go wrong with the settlement. In my opinion, a reasonable

person would not understand Mr He’s request for Jieyun, as lender/investor, to

advance its funds in order to put the purchaser in a position to settle, as warranting

that the settlement would proceed and not be obstructed by anything such as:

(i) the vendor refusing to settle;

(ii) Leimeng refusing to pay its share; or

(iii) TDG being otherwise unable to find the necessary funds.

In the circumstances, the request to make the advance for the purpose of the settlement was

simply that.

172. The WeChat messages may well have included an implied representation, for example

that Mr He was not aware of any significant obstacle to the completion of the settlement.

However, the representation as pleaded by Jieyun was not to that effect. Presumably,

this was because there was no evidence that, at the time the representation was made,

Mr He was aware, or had reason to believe that:

(a) Mr Cvek had put TDG in a position where it could not settle; or

(b) Leimeng would refuse to contribute its agreed share to the settlement of the

Toorak Properties.

Did Mr He have reasonable grounds for making the Settlement Representation?

173. As I have found that Me He did not make the Settlement Representation, it is not

necessary to answer the following questions relating to the claim alleging the Settlement

Representation. However, as it was fully argued, I make the following observations.

Jieyun’s submissions

174. Jieyun submitted that Mr He did not have reasonable grounds for making the

Settlement Representation, for the following reasons:

(a) If Mr He did not look at TDG’s bank accounts prior to making a representation,

he was not in a position to know whether TDG was in the position of settling the

Toorak Properties on 9 March 2018. Therefore, there was no foundation for him to

say whether or not settlement could have been achieved.

(b) If Mr He did look at TDG’s bank accounts, he would have seen that, shortly

prior to 24 February 2018, the balance of TDG’s accounts were $16.02 in debit and

$474.90 in credit, despite the fact that there should have been $6,350,000 in

TDG’s accounts.

(c) Given the poor state of TDG’s accounts, even if Leimeng did contribute its

second tranche of $4 million, the Second Tranche of $4 million from Jieyun could

not in any way have contributed towards settlement of the Toorak Properties.

(d) The Court should find that Mr He knew of the state of the accounts because he

said he looked at the accounts before 24 February 2018; and if he was a director of

TDG he was likely to have known the true state of TDG’s finances.

Mr He’s submissions

175. Mr He submitted that there were reasonable grounds for the Settlement Representation,

for the following reasons:

(a) The contracts of sale provided for settlement in February and March 2018.

(b) Mr Cvek had said that the settlements were soon.

(c) The settlement was being organised.

(d) The fact that there may have been insufficient funds in the accounts of TDG did

not make it impossible to settle because Mr Cvek had said that the moneys were in

other accounts, which in fact was subsequently demonstrated by the transfer back

into TDG’s bank account of more than $6 million.

(e) There was no evidence that Leimeng would not pay its contribution prior to 7

March 2018 and the evidence shows that the money was withdrawn from

Leimeng’s account on 20 April 2018.

Conclusion

176. At the time of the relevant communications which are alleged to have constituted the

Settlement Representation, the relevant circumstances were:

(a) Mr Cvek had entered into the contracts of sale.

(b) TDG had been nominated as the purchaser of each of the Toorak Properties

and deposits had been paid.

(c) Jieyun had entered into the Loan Deed, pursuant to which it had paid the First

Tranche and was committed to pay the Second Tranche by 1 December 2017

(which was then extended to coincide with the settlement of the Toorak

Properties).

(d) It was proposed that the settlement of the Toorak Properties would be in or

about early March 2018.

(e) The parties understood that Leimeng had contributed its First Tranche to TDG

and was committed to provide its Second Tranche towards the completion of the

settlement of the Toorak Properties.

(f) Prior to Jieyun’s payment of the Second Portion of the Second Tranche on 5

March 2018, there was no evidence of any concern being expressed about:

(i) TDG’s funds being held in other accounts;

(ii) Mr Cvek’s ability to make TDG’s funds available for settlement; or

(iii) Leimeng’s intention to honour its commitment by paying its second

tranche.

177. In the circumstances, I consider that Mr He had reasonable grounds at the time of the

relevant WeChat messages, for expressing an opinion that there would be a settlement of

the Toorak Properties.

But for the Settlement Representation, would Jieyun have avoided the loss of the

Second Tranche or part of it?

Jieyun’s submissions

178. Jieyun submitted that the Court should find that it would not have paid the Second

Tranche if the Settlement Representation had not been made, for the following reasons:

(a) The Court should accept the evidence of Mr Huang and Mr Song that had they

known the funds would not be used for settlement of the Toorak Properties, they

would not have agreed to pay the Second Tranche.

(b) The funds were plainly intended by Jieyun to settle the Toorak Properties, as

the Second Tranche was only advanced when Mr He informed them the funds were

required for settlement.

Mr He’s submissions

179. Mr He submitted that Jieyun did not rely on the Settlement Representation in paying

the Second Tranche, for the following reasons:

(a) Jieyun was already obliged under the Loan Deed to pay the $4 million, being

the Second Tranche, and intended to do so.

(b) The representation did not cause Jieyun to make any change to its decision. If

Mr He had simply said that the Second Tranche was due now rather than saying it

was for settlement, then Jieyun would have paid the moneys anyway as it was

obliged to do.

(c) Jieyun relied upon the discussions and negotiations of Mr Zhu of Leimeng and

the securing of an extra 5% interest from Mr Cvek, in deciding to pay the second

tranche and proceed with the project.

Conclusion

180. The question of reliance on a representation, which I have found was not made by Mr

He, must be hypothetical.

181. Jieyun’s submission that it would not have paid the Second Tranche had it been told that

it would not be applied for the purpose of completing settlement of the Toorak

Properties, may be accepted.

182. However, Jieyun does not allege that Mr He was under an obligation to disclose that the

Second Tranche would not be used for the settlement of the Toorak Properties.

Therefore, the counterfactual to the be assessed in this ‘but-for’ scenario is one where:

(a) Mr He had not sent the WeChat messages relied upon by Jieyun, and

(b) Jieyun had simply been informed of the proposed settlement date.

183. In those circumstances, I am not satisfied that Jieyun would have refused to honour its

commitment under the Loan Deed and make its contribution to the settlement of the

Toorak Properties.

Did Mr He make the Silent Settlement Representations

Jieyun’s submissions

184. Jieyun submitted that:

(a) Mr He’s failure to inform Jieyun of the VCAT Decision before 5 March 2018

was misleading and deceptive, for the following reasons:

(i) The decision of VCAT not to grant the permit for the development of

the Toorak Properties had material effects, being:

(1) the project would need to be smaller in scale and as a consequence, would be less

profitable; and

(2) the project would be delayed, which would also add to costs and reduce profit.

(ii) Mr He knew of the VCAT Decision by 1 March 2018 and did not tell Mr Song,

Ms Ren or Mr Huang about it.

Mr He’s submissions

185. On behalf of Mr He, it was submitted that Mr He was not obliged to provide information

to Jieyun in relation to the VCAT Decision, for the following reasons:

(a) The implications of the decision were simply unknown and Mr He did what any

prudent individual would do and waited to be advised by the professionals who

had control of the company.

(b) The fact that only four storeys may be approved rather than five had been

contemplated for a long time.

(c) There was no evidence as to the previous projection, or whether or not the

decision would impact such projections.

(d) This particular representation has made no difference to the conduct of Jieyun,

who was already obliged to pay the monies.

Principles

186. It is well established that silence may form part of the relevant surrounding facts and

circumstances in which the conduct alleged to be misleading or deceptive is assessed.

The silence may constitute misleading or deceptive conduct where, for example, there is

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a reasonable expectation that, if some relevant fact exists, it will be disclosed.

187. Examples of where a relevant expectation of disclosure may arise include where:

(a) law or equity imposes a duty of disclosure;

(b) a statement conveying a half-truth only is made;

(c) the representor has undertaken a duty to advise;

(d) a representation, although correct at the time it was made, has a continuing

effect and has subsequently become incorrect; and

[38]

(e) the representor has made an implied representation.

Conclusion

188. The relevant circumstances at the time of the alleged representation are as follows:

(a) On 14 November 2016, TDG was nominated by Mr Cvek as the purchaser of the

Toorak Properties.

(b) By the Loan Deed, Jieyun agreed to advance the First Tranche by no later than

22 September 2017; and the Second Tranche by no later than 1 December 2017.

(c) By 3 October 2017, Jieyun had advanced the First Tranche.

(d) By 17 January 2018, Mr He provided Mr Huang and Mr Song with the

December project report. The report proposed that the development would

proceed as a four-storey project rather than a five-storey project, because, while

the projected earnings for each option were generally equal, the greater rate of

return was projected for the four storey project.

(e) On 28 February 2018, Jieyun the First Portion of the Second Tranche due

under the Loan Deed.

(f) On 1 March 2018, Mr He became aware that TDG’s application for the four-

storey development before VCAT was refused. The advice on that day was that

despite the legal advisers being surprised and disappointed by the decision:

The Tribunal has given reasonably clear guidance however about what

it finds acceptable about the proposal which means any new application

should be able to respond well to those matters and there should be

strong prospects of success.

(g) On 5 March 2018, Jieyun paid the Second Portion of the Second Tranche to

TDG.

(h) By WeChat message of 7 March 2018 to Mr He, Mr Cvek explained the

background to the investment in the Toorak Properties and stated that, following

the VCAT Decision, if no permit is granted, consideration could be given to selling

the site. It included the following:

At no point was any investment subject to permits being granted or any

other conditions.

...

TDG in its ordinary course of business is required to undertake all

actions necessary in order to obtain a permit in order to move to the

next step. The directors of which have an obligation to the company to

ensure that it continues to make every effort to do whats [sic] in the

best interest of the company.

At the current stage we have had a permit declined with a clear

indication of what changes are required in order for this to be

resubmitted. 'The decision is far from a negative one.

(i) By WeChat message of 7 March 2018 to Ms Ren, Ms Zheng Huang forwarded

the above WeChat message of 7 March 2018 from Mr Cvek.

189. It may be accepted that as an investor in the project, Jieyun was entitled to be informed

of the VCAT Decision; and it was so informed after Jieyun made payment of the Second

Portion of the Second Tranche. However, the thrust of Jieyun’s allegation is that Mr He

was under a duty to inform it of the VCAT Decision prior to the payment of the final $2

million because the effect of the VCAT Decision was likely to reduce the profitability

and/or delay the completion of, the development.

190. Jieyun did not make clear the basis upon which it was said that Mr He owed a duty to

advise Jieyun of the VCAT Decision. It was not alleged that Mr He owed fiduciary or

contractual duties to Jieyun. On the contrary, Jieyun rejected that Mr He was its

representative and contended that he acted for TDG, Sentosa Capital and Leimeng.

191. In the circumstances, I do not consider it was incumbent on Mr He to inform Jieyun of

the VCAT Decision prior to 5 March 2018, when the only purpose of providing that

information might be to prompt Jieyun to consider whether it might refuse to pay the

final instalment of $2 million as required by the Loan Deed. Jieyun’s obligation under

the Loan Deed was not conditional on the VCAT application being successful and it was

not in Mr He’s interest to give Jieyun advice for the purpose of Jieyun considering

whether to comply with its obligations under the Loan Deed.

192. To the extent that there may have been a continuing representation that TDG would

apply for a permit to construct a four-storey development, which would be profitable,

there is no evidence that the refusal of the application rendered that representation false.

On the contrary, the only evidence is that there was confidence that an amended

application would succeed. Neither was there evidence as to whether the need to lodge

an amended application would result in a significant delay or significantly affect

profitability.

But for the Silent Settlement Representations would Jieyun have avoided the loss

of the Second Tranche or part of it?

193. As I have found that Me He did not make the Silent Settlement Representation, it is not

necessary to answer the following question relating to the claim alleging the Silent

Settlement Representation. However, as it was fully argued, I make the following

observations.

Jieyun’s submissions

194. Jieyun submitted that, but for the Silent Settlement Representations, it would not have

paid the Second Portion of the Second Tranche, for the following reasons:

(a) Each of Mr Huang, Ms Ren and Mr Song made it clear that, if they had known

of the VCAT Decision, they would not have made the final instalment.

(b) Ms Ren’s evidence was that she ‘realised the seriousness of the matter’, after

speaking to Ms Zhen Huang about the reason for Leimeng’s decision not to invest

its second $4 million tranche, which was that they believed they had been cheated

because the permit was not granted.

Mr He’s submissions

195. Mr He submitted that Jieyun would not have avoided paying the Second Portion of the

Second Tranche if it had been aware of the VCAT Decision, for the following reasons:

(a) Jieyun waited nearly four years to make this allegation.

(b) Jieyun was already obliged to pay the final instalment under the Loan Deed.

(c) Jieyun had been made aware that the development was for four storeys and

that five storeys was only an opportunity, not a certainty (by the project report

dated December 2017).

(d) Mr Huang had known that there was a court proceeding regarding the permit.

(e) Mr Huang admitted he was only interested in the return on the project and he

said he wanted compensation for the delay arising from the refusal of the planning

permit.

(f) Jieyun was told by Ms Zhen Huang on 7 March 2018 of the VCAT Decision after

Mr Cvek made a statement about the planning permit to the unit holders.

(g) The circumstances did not warrant the disclosure because the project would

continue as a four-storey project.

(h) Jieyun did not incur any loss as a result of the VCAT Decision, because any loss

was the result of Mr Cvek and Mr Mihailescu transferring the money out of TDG.

Conclusion

196. I do not accept the evidence of Mr Huang, Ms Ren and Mr Song that, had they known of

the VCAT Decision prior to 5 March 2018, Jieyun would not have paid the final $2

million, for the following reasons:

(a) During the period from February to May 2018, Jieyun expressed concerns

about the transfer of money from TDG’s accounts; and demanded:

(i) Jieyun’s share of the project be commensurate with Leimeng’s;

(ii) return of the Second Tranche until completion of the delayed

settlement; and

(iii) interest be paid on their investment pending settlement of the

Toorak Properties.

However, during this period, it was not suggested that the delay in informing Jieyun about the

VCAT Decision was misleading; or that if they had known of the VCAT Decision they would

not have made the final $2 million payment.

(b) Further, during this period, Jieyun demonstrated an intention that TDG should

proceed with the completion of the settlement of the Toorak Properties; although

this was thwarted by the transfer of funds out of TDG’s accounts and the Leimeng’s

refusal to contribute its second tranche of $4 million.

(c) In fact, no complaint was made by Jieyun about the VCAT Decision or the

failure to disclose it until service of the proposed Second Further Amended

Statement of Claim in March 2022, shortly before the commencement of the trial.

(d) None of Mr Huang, Ms Ren or Mr Song explained their expectations as at

March 2018 about when the project would be completed, such that an assessment

could be made about the effect the VCAT Decision had on such expectations. In

other words, there was no explanation as to why any delays, which they perceived

would be caused by the VCAT Decision, would have prompted them to withdraw

Jieyun from the development.

(e) Jieyun was bound under the Loan Deed to make the final $2 million payment,

being the Second Portion of the Second Tranche.

Undefended claims

Agreements and loan deeds

197. The Loan Deed, dated 20 September 2017, provided the loan must only be used for the

Approved Purpose as set out in paragraph 22 and was signed by:

(a) Mr Song and Ms Ren as directors of Jieyun; and

(b) Mr He and Mr Balint (as Mr Cvek’s attorney under power) as directors of TDG.

198. By loan deed dated 20 September 2017 between TDG and Hennessy Group, TDG agreed

to loan the sum of $3,250,000 to Hennessy Group, on terms including that:

The investment funds will be used by [Hennessy Group] for a short to

medium term basis as working capital to invest or conduct any business that

it deems necessary including the selection, acquisition, marketing of any

development property or payout existing partners and paydown of loan

facilities on the property and/or any other purposes the company deems

necessary.

199. The loan deed was signed by:

(a) Mr He and Mr Mihailescu for TDG; and

(b) Mr Cvek for Hennessy Group Pty Ltd.

200. By a loan deed dated 21 September 2017, TDG agreed to loan $2.4 million to Hennessy

Group for ‘an existing obligation on or around April, May or June 2018 which requires a

capital injection of $2,400,000’, on terms including that:

The investment funds will be used by [Hennessy Group] for a short to

medium term basis as (but not exclusive to) working capital to invest or

conduct any business that it deems necessary including the selection,

acquisition, marketing of any development property or payout existing

partners and paydown of loan facilities on the property and/or any other

purposes the company deems necessary.

201. The loan deed was signed by:

(a) Mr He and Mr Mihailescu for TDG; and

(b) Mr Cvek for Hennessy Group.

202. By a loan deed dated 25 September 2017 between TDG and Hopetoun Development,

TDG agreed to loan the sum of $600,000 to Hopetoun Development, on terms including

that:

The investment funds will be used by [Hopetoun Development] as working

capital to invest or conduct any business that it deems necessary including

the selection, acquisition, marketing of any development property or payout

existing partners and paydown the loan facility on the properties and/or any

other purposes the company deems necessary

203. The loan deed was signed by:

(a) Mr Mihailescu for TDG; and

(b) Mr Cvek for Hopetoun Development.

204. By a loan deed dated 16 October 2017 between TDG and Hopetoun Development, TDG

agreed to loan the sum of $1,890,000 to Hopetoun Development, on terms including

that:

The investment funds will be used by [Hopetoun Development] on a short to

medium term basis as working capital to Invest or conduct any business that

it deems necessary including the selection, acquisition, marketing of any

development property or payout existing partners and paydown the loan

facility on the properties and/or any other purposes the company deems

necessary.

205. The loan deed was signed by:

(a) Mr Cvek and Mr Mihailescu for TDG; and

(b) Mr Cvek for Hopetoun Development.

Payments and transfers

206. On 25 September 2017 and 3 October 2017, Jieyun transferred the First Tranche by

instalments of $1.8 million and $2.2 million, being the:

(a) First Portion of the First Tranche; and

(b) Second Portion of the First Tranche,

respectively into the TDG Account 4101. At the time the First Portion of the First Tranche was

paid on 25 September 2017, the TDG Account 4101 was $592,574.20 in credit.

207. From 26 September 2017 to 16 November 2017, TDG made payments totalling

$4,582,397 from the TDG Account 4101 to persons or entities associated with Mr Cvek

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and Mr Mihailescu, as set out in schedule 1;

as at 16 November 2017.

and left a balance in the account of $1.79

208. On 28 February 2018, the TDG Account 4259 was $474.90 in credit. After Jieyun

transferred the Second Tranche by payments of $2,000,000 on each of 28 February and

[40]

5 March 2018, the account was $4,000,472.40 in credit.

209. From 13 March 2018 to 13 April 2018, TDG made payments totalling $2,626,500 from

the TDG Account 4259 to persons or entities associated with Mr Cvek and Mr

[41]

Mihailescu, as set out in schedule 2;

and after TDG transferred $1,340,883 from this

account to the TDG Account 4101on 26 April 2018, the account balance of the TDG

Account 4259 was zero.

210. Between 26 April 2018 and 16 May 2018, the September 2017 to August 2018

Expenditure List records that a total sum of $3,153,383.52 was transferred to the TDG

Account 4101, consisting of:

(a) $1,340,883.52 transferred from the TDG Account 4259 on 26 April 2018

(referred to in the previous paragraph);

(b) $1 million on 16 May 2018, being part repayment of the advance of $2,483,747

by TDG to Hopetoun Development; and

(c) $812,500 on 16 May 2018, being part repayment of the advance of $3,250,000

to Hennessy Group.

211. From 3 May 2018 to 22 August 2018, TDG made the payments totalling $3,119,818 from

the TDG Account 4101 to persons or entities associated with Mr Cvek and Mr

[42]

Mihailescu, as set out in schedule 3;

and left a balance in the account of $0.15.

212. The above calculations ignore the following credits to the TDG Account 4101, which were

reversed:

(a) The deposit of $1 million on 26 April 2018 because the contemporaneous

records of TDG and the Hopetoun Development bank statements record this sum

as being offset by a debit of $1,000,099.80 on 26 April 2018.

(b) The deposit of $1,182,867.68 on 26 April 2018 because the contemporaneous

records of TDG and the Hennessy Group bank statements record this sum as being

reversed on 26 April 2018.

(c) The deposit of $1 million by Mr He on 13 April 2018, on the basis that I accept

the allegation in the defence of the first to tenth and twelfth defendants (‘the

defence’) that this sum was reimbursed to Mr He on 23 April 2018. I accept the

allegation for the following reasons:

(i) The contemporaneous records of TDG, as at August 2018, record the

contributions of Jieyun into the TDG Account 4101between 25

September 2017 and 22 August 2018, but not any contribution by Mr

He. This is consistent with the payment being reimbursed on 23 April

2018 shortly after the $1 million deposit was made.

(ii) The bank statement for the TDG Account 4101records the receipt of

$1 million from Mr He on 13 April 2018 and the transfer out of the

same sum on 23 April 2018.

(iii) I reject the evidence of Mr He that he was not reimbursed the $1

million because of my assessment of his credibility, to which I have

previously referred, and the fact that there was no corroboration such

as:

(1) production of records showing the absence of the reimbursement; or

(2) evidence of attempts to recover the $1 million, as Jieyun did when it became apparent that

the settlement had been seriously delayed.

Jieyun debt claim

213. The Loan Deed provides that:

(a) the Jieyun Advances were loaned only for the ‘Approved Purpose’ as set out in

paragraph 22 above;

(b) it was an Event of Default, if TDG (among other things):

(i) failed to observe the provisions of the Loan Deed;

(ii) disposes of the Toorak Properties; or

(iii) ceased to carry on business (cl 9.1).

(c) Upon an Event of Default, Jieyun has the ‘right to demand the immediate

payment’ of the Jieyun Advances (cl 9.2).

214. By letter of 21 August 2018 to TDG, Hiways Lawyers, acting on behalf of Jieyun,

exercised Jieyun’s right under cl 9.2 of the Loan Deed to demand repayment of the

Jieyun Advances.

215. I am satisfied that, by reason of the matters referred to in paragraphs 207, 209, 211 and

217, an Event of Default arose under cl 3.2 of the Loan Deed and that TDG has failed to

repay any of the loan sum of $8 million (the Jieyun Advances).

216. Accordingly, TDG is indebted to Jieyun in the sum of $8 million, being the full amount

of the Jieyun Advances.

Breach of Trust by TDG

217. As is apparent from the matters referred to in paragraphs 206 to 211 above, shortly after

receipt of each of the four instalments comprising the Jieyun Advances, TDG expended

virtually the entirety of the Jieyun Advances to entities or persons associated with Mr

Cvek and/or Mr Mihailescu. This expenditure was not only in breach of the express

terms of the Jieyun Trust, it was also in breach of its fiduciary duty not to permit a

conflict between its duty as trustee and the interests of companies related to Mr Cvek

and Mr Mihailescu.

218. The direct result of these breaches of trust and its fiduciary duty was that TDG was left

with insufficient funds to:

(a) proceed with the settlement of the Toorak Properties; or

(b) refund the Jieyun Advances to Jieyun.

219. In the circumstances, TDG is liable to pay equitable compensation to Jieyun in the sum

of $8 million, being the sum of the Jieyun Advances.

Liability of Mr Cvek and Mr Mihailescu under the second limb of

Barnes v Addy

220. Mr Cvek and Mr Mihailescu will each be liable for the breach of trust by TDG for

knowing assistance in the breach if it is established that:

(a) TDG’s breach of trust was part of a dishonest and fraudulent design;

(b) Mr Cvek and Mr Mihailescu assisted TDG in the breach; and

(c) Mr Cvek and Mr Mihailescu had knowledge of the dishonest and fraudulent

[43]

design.

221. I am satisfied that Mr Cvek and Mr Mihailescu dishonestly and fraudulently effected the

misappropriation of the Jieyun Advances on behalf of TDG, for the following reasons:

(a) Mr Cvek was a director of TDG and a director of the following entities that were

beneficiaries of the misappropriations:

(i) 8 Hopetoun Rd Pty Ltd (the fourth defendant) (‘8 Hopetoun Rd’);

(ii) Hennessy Group;

(iii) East Asia Group Pty Ltd (the sixth defendant) (‘East Asia’);

(iv) Aberdeen Holdings Pty Ltd (the seventh defendant) (‘Aberdeen

Holdings’);

(v) Hopetoun Development;

(vi) SMM; and

(vii) Granville Group Pty Ltd (the twelfth defendant) (‘Granville’).

(b) Mr Mihailescu was a director of TDG and a director of the following entities

that were beneficiaries of the misappropriations:

(i) Sentosa Capital; and

(ii) Mandeville Group Pty Ltd (the ninth defendant) (‘Mandeville’).

Further, Mr Mihailescu was the ‘Line Manager’ to whom Mr Balint was required to report

under the terms of Mr Balint’s employment contract with Hennessy Group as its ‘Investment

Liaison Officer/Project Manager’.

(c) Mr Cvek and Mr Mihailescu were both aware of the relevant facts constituting

[44]

the Jieyun Trust as signatories to the Loan Deed.

(d) With respect to the loan deeds dated 20 September 2017, 21 September 2017,

25 September 2017 and 16 October 2017, referred to in paragraphs 198 to 205

above, the following facts are supportive of the dishonest and fraudulent intention

of Mr Cvek and Mr Mihailescu as to the misappropriation of the Jieyun Advances:

(i) Mr Cvek and Mr Mihailescu were each signatories to the loan deeds.

(ii) By the loan deeds, TDG agreed to loan the Jieyun Advances which it held on

the Jieyun Trust to the companies related to one or other or both Mr Cvek and Mr

Mihailescu.

(iii) The loan deeds committed TDG to lend $8,140,000, which given the state of

TDG’s accounts could only be met from using the Jieyun Advances.

(iv) The temporal proximity between the date of the Loan Deed and the

commitment of the funds due under that deed to related companies was as follows:

(1) $3,250,000 to be loaned to Hennessy Group on the same day;

(2) $2.4 million to be loaned to Hennessy Group on the day after;

(3) $600,000 to be loaned to Hopetoun Development five days after; and

(4) $1,890,000 to be loaned to Hopetoun Development 26 days after.

(v) There was no evidence of any disclosure by Mr Cvek and Mr Mihailescu to

Jieyun or any of Jieyun’s directors or agents of their intention for TDG to

immediately on-lend the Jieyun Advances to assist its related companies.

(e) As I have already found, Mr Cvek and Mr Mihailescu were both directly

responsible for the dishonest and fraudulent misappropriation of the Balint

[45]

payment.

(f) TDG paid out virtually the entirety of the Jieyun Advances to entities associated

with Mr Cvek and Mr Mihailescu promptly after receipt (as referred to in

paragraph 217 which consequently rendered TDG without sufficient funds to settle

the purchase of either of the Toorak Properties.

222. As it was:

(a) the dishonest and fraudulent design of Mr Cvek and Mr Mihailescu that was

attributed to TDG (being company directors); and

(b) their conduct that deliberately effected the design,

I am satisfied that each of Mr Cvek and Mr Mihailescu are each liable under the second limb of

Barnes v Addy.

223. In the circumstances, Mr Cvek and Mr Mihailescu are each liable to pay equitable

compensation to the Jieyun for the misappropriation of Jieyun Advances, being the sum

of $8 million.

Liability of corporations associated with Mr Cvek and Mr Mihailescu

under the first limb of Barnes v Addy

8 Hopetoun Rd

224. Jieyun alleges that the sum of $600,000 was paid in two separate payments on:

(a) 27 September 2017 of $100,000; and

(b) 28 September 2017 of $500,000,

(‘the Alleged 8 Hopetoun Payments’), to 8 Hopetoun Rd.

225. Although the November 2016 to February 2018 TDG Expenditure List records the

Alleged 8 Hopetoun Payments as paid to 8 Hopetoun Rd, I am not satisfied that the

Alleged 8 Hopetoun Payments were ultimately made to 8 Hopetoun Rd, because:

(a) the defence alleges that the Alleged 8 Hopetoun Payments were made to

Hopetoun Development as a ‘loan’;

(b) the September 2017 to August 2018 the Expenditure List’ records the Alleged 8

Hopetoun Payments as made to Hopetoun Development as ‘loans’ for the ‘Property

acquisition - 659 Orrong rd, Toorak’; and

(c) the Alleged 8 Hopetoun Payments are consistent with the first defendant’s

obligation to pay $600,000 to Hopetoun Development under the loan deed

between those parties dated 25 September 2017.

Hennessy Group

226. Jieyun alleges that the sum of $5,775,000 was paid in four separate payments on:

(a) 4 October 2017 of $3,250,000 (‘the 4 October Payment’);

(b) 9 October 2017 of $75,000 (‘the 9 October Payment’);

(c) 30 October 2017 of $50,000 (‘the 30 October Payment’); and

(d) 16 May 2018 of $2,400,000 (‘the 16 May Payment’),

(collectively, ‘the Alleged Hennessy Payments’), to Hennessy Group.

227. I am satisfied that the 4 October Payment, the 9 October Payment and the 16 May

Payment were made to Hennessy Group, for the following reasons:

(a) The 4 October Payment and the 16 May Payment are admitted in the defence

and are consistent with TDG’s obligation to make these payments under the loan

agreements dated 20 September and 21 September 2017 respectively.

(b) The 9 October Payment is recorded in both the TDG Expenditure Transaction

List and the September 2017 to August 2018 TDG Expenditure List as being made

to Hennessy Group.

228. Although the November 2016 to February 2018 TDG Expenditure List records the

Alleged Hennessy Payments as alleged, I am not satisfied that the 30 October Payment

was ultimately made to Hennessy Group because:

(a) the defence alleges that the 30 October Payment was made to Mr He as

‘Marketing expenses related to raising funds for TDG as part of fundraising

agreement’; and

(b) the September 2017 to August 2018 TDG Expenditure List records the 30

October Payment as made to Sentosa Capital as ‘Marketing/promotion - Sammie’.

East Asia

229. Jieyun alleges that the sum of $20,000 was paid on 5 October 2017 (‘the Alleged East

Asia Payment’) to East Asia.

230. Although the November 2016 to February 2018 TDG Expenditure List records the

Alleged East Asia Payment as alleged, I am not satisfied that it was made to East Asia

because:

(a) the defence alleges that the Alleged East Asia Payment was made to Sentosa

Capital as ‘Marketing expenses payable on behalf of TDG for investment fund

raising, Townplanning consultants’ for the benefit of:

(i) Mr Cvek as to $15,000; and

(ii) Urbis as to $5,000; and

(b) the September 2017 to August 2018 TDG Expenditure List records the Alleged

East Asia Payment in a manner broadly consistent with the defence, being two

separate payments to:

(i) Sentosa Capital as to $15,000 for ‘Marketing’; and

(ii) Urbis as to $5,000 for ‘Consulting on townplanning’.

Aberdeen Holdings Pty Ltd

231. Jieyun alleges that the sum of $116,000 was paid in five separate payments on:

(a) 12 October 2017 of $27,400;

(b) 16 October 2017 of $15,000;

(c) 17 October 2017 of $19,100;

(d) 27 October 2017 of $44,500; and

(e) 31 October 2017 of $10,000,

(collectively, ‘the Alleged Aberdeen Payments’), to Aberdeen Holdings.

232. Although the November 2016 to February 2018 TDG Expenditure List records the

Alleged Aberdeen Payments as alleged, I am not satisfied that the Alleged Aberdeen

Payments were ultimately made to Aberdeen Holdings because:

(a) the defence records the Alleged Aberdeen Payments as made to Mr Cvek and

Sentosa Capital; and

(b) the September 2017 to August 2018 TDG Expenditure List records the Alleged

Aberdeen Payments as being to Sentosa Capital.

Hopetoun Development

233. Jieyun alleges that the sum of $2,583,747 was paid in five separate payments on:

(a) 27 September 2017 of $100,000 (‘the 27 September Payment’);

(b) 17 October 2017 of $83,747 (‘the 17 October Payment’);

(c) 15 March 2018 of $600,000 (‘the 15 March Payment’);

(d) 29 March 2018 of $1,170,700 (‘the First 29 March Payment’); and

(e) 29 March 2018 of $629,300 (‘the Second 29 March Payment’),

(collectively, the Alleged Hopetoun Payments’) to Hopetoun Development.

234. I am satisfied that:

(a) the 17 October Payment;

(b) the First 29 March Payment; and

(c) the Second 29 March Payment,

totalling $1,883,747, were made to Hopetoun Development because they are:

(i) admitted in the defence and are consistent (within $7,000) with TDG’s

obligation to make these payments under the loan agreement dated 16 October

2017; and

(ii) recorded in the September 2017 to August 2018 TDG Expenditure List as being

made to Hopetoun Development.

235. I am satisfied that the 27 September Payment was made to Hopetoun Development

because it is:

(a) admitted in the defence; and

(b) recorded in the September 2017 to August 2018 TDG Expenditure List as being

made to Hopetoun Development.

236. I am satisfied that the 15 March Payment was made to Hopetoun Development because

it is:

(a) admitted in the defence and is consistent with TDG’s obligation to make the

payment of this sum under the loan agreement dated 25 October 2017; and

(b) recorded in the September 2017 to August 2018 TDG Expenditure List as being

made to Hopetoun Development.

Granville

237. Jieyun alleges that the sum of $1,175,600 was paid in 27 separate payments (‘the Alleged

Granville Payments’) to Granville as follows:

26/09/2017 $24,200.00

02/10/2017 $38,350.00

04/10/2017 $26,150.00

06/10/2017 $12,300.00

06/10/2017 $15,000.00

25/10/2017 $24,200.00

31/10/2017 $10,000.00

08/11/2017 $10,000.00

09/11/2017 $32,000.00

14/03/2018 $24,200.00

15/03/2018 $600,000.00

16/03/2018 $5,000.00

05/04/2018 $24,200.00

10/04/2018 $12,100.00

13/04/2018 $5,000.00

13/04/2018 $6,000.00

03/05/2018 $24,200.00

04/06/2018 $24,200.00

12/06/2018 $24,200.00

15/06/2018 $35,000.00

21/06/2018 $25,000.00

27/06/2018 $44,000.00

02/07/2018 $27,500.00

04/07/2018 $24,400.00

20/07/2018 $24,200.00

03/08/2018 $30,000.00

17/08/2018 $24,200.00

238. I am not satisfied that the payments on 31 October 2017 and 8 November 2017, each of

$10,000, were made to Granville because:

(a) although the September 2017 to August 2018 TDG Expenditure List records the

payments as made to Granville, the TDG Expenditure List records them as made to

Aberdeen Holdings and Sentosa Capital respectively; and

(b) the defence alleges these payments were paid to:

(i) Sentosa Capital on 31 October 2017 as ‘Interior render work,

marketing fund raising expenses on behalf of TDG’; and

(ii) Mr Cvek on 8 November 2017 as ‘Call on funds as per ACA

agreement’.

239. I am satisfied that the balance of the Alleged Granville Payments were made to Granville

because they are admitted in the defence.

Sentosa Capital

240. Jieyun alleges that the sum of $1,003,468 was paid in 26 separate payments (‘the

Alleged Sentosa Capital Payments’) to Sentosa Capital as follows:

05/10/2017 $20,000.00

06/10/2017 $15,000.00

12/10/2017 $27,400.00

16/10/2017 $15,000.00

16/10/2017 $69,500.00

17/10/2017 $19,100.00

23/10/2017 $8,450.00

25/10/2017 $24,200.00

25/10/2017 $27,400.00

27/10/2017 $44,500.00

30/10/2017 $28,000.00

30/10/2017 $50,000.00

31/10/2017 $10,000.00

31/10/2017 $16,000.00

08/11/2017 $3,800.00

08/11/2017 $10,000.00

13/03/2018 $150,000.00

13/04/2018 $5,000.00

13/04/2018 $6,000.00

04/05/2018 $5,000.00

04/07/2018 $24,400.00

06/07/2018 $4,000.00

11/07/2018 $5,000.00

13/07/2018 $4,000.00

03/08/2018 $30,000.00

22/08/2018 $381,718.00

241. I am not satisfied of the following:

(a) The payment of $27,400 of 12 October 2017 was made to Sentosa Capital

because:

(i) the defence alleges this line entry was ‘a bank reversal which has

been process on the bank account’, (which is presumably a reference to

a deposit of the same amount on 19 October 2017 into the TDG Account

4101); and

(ii) the reversal is consistent with there being no corresponding line

entry for it in either the September 2017 to August 2018 TDG

Expenditure List or the November 2016 to February 2018 TDG

Expenditure List.

(b) The payments on:

(i) 17 October 2017 of $19,100;

(ii) 25 October 2017 of $24,200; and

(iii) 27 October 2017 of $44,500,

were made to Sentosa Capital because each of the line entries in the September 2017 to August

2018 TDG Expenditure List conflict with:

(1) the corresponding line entries in the November 2016 to February 2018 TDG Expenditure

List (which records these payments as paid to Aberdeen Holdings or Granville); and

(2) the defence (which alleges these payments were paid to Mr Cvek).

(c) The payment on 30 October 2017 of $50,000 was made to Sentosa Capital

because the line entry in the September 2017 to August 2018 TDG Expenditure List

conflicts with:

(i) the corresponding line entry in the November 2016 to February 2018 TDG

Expenditure List (which records it as paid to Hennessy Group); and

(ii) the defence (which alleges it was paid to Mr He).

(d) The payment on 8 November 2017 of $10,000 was made to Sentosa Capital

given that its entry in the September 2017 to August 2018 TDG Expenditure List

conflicts with:

(i) the corresponding line entry in the November 2016 to February 2018 TDG

Expenditure List (which records it as paid to Granville); and

(ii) the defence (which alleges it was paid to Mr He).

242 I am satisfied as follows:

(a) The payments on:

(i) 16 October 2017 of $69,500,

(ii) 25 October 2017 of $27,400; and

(iii) 30 October 2017 of $28,000,

were made to Sentosa Capital because each is so recorded as a loan to Sentosa Capital in both

the September 2017 to August 2018 TDG Expenditure List and the November 2016 to

February 2018 TDG Expenditure List.

(b) The payment on 13 March 2018 of $150,000 was made to Sentosa Capital

because it is so recorded as a loan in the September 2017 to August 2018 the

Expenditure List.

(c) The payments on:

(i) 13 April 2018 of $3,500;

(ii) 13 April 2018 of $6,000; and

(iii) 3 August 2018 of $16,610,

were received by Sentosa Capital because each amount is admitted in the defence.

(d) the balance of the Alleged Sentosa Capital Payments were made to Sentosa

Capital because they are admitted in the defence.

Mandeville

243. Jieyun alleges that the sum of $608,097 was paid in 4 separate payments to Mandeville

Group:

(a) on 28 September 2017 of $500,000;

(b) on 17 October 2017 of $83,747;

(c) on 24 October 2017 of $8,350; and

(d) on 24 October 2017 of $16,000.

28/09/2017 Hopetoun Development /8 Hopetoun Rd $500,000.00

17/10/2017 Hopetoun Development

24/10/2017 Dali Cvek / Granville

$83,747.00

$8,350.00

$16,000.00

244. I am satisfied that on 28 September 2017 the sum of $500,000 was paid to Mandeville

because:

(a) it is admitted in the defence as the actual recipient of the payment; and

(b) its bank statement shows a deposit of $500,000 on that date.

245. I am not satisfied of the following:

(a) The payment of $83,747 on 17 October 2017 was paid to Mandeville because:

(i) the corresponding line entry in the September 2017 to August 2018

TDG Expenditure List (which records it as a loan to Hopetoun

Developments) conflicts with the entry in the TDG List; and

(ii) the defence alleges this payment was made to Hopetoun

Development.

(b) The payments of $8,350 and $16,000 both made on 24 October 2017, totalling

$24,350, were made to Mandeville given that the entries in the September 2017 to

August 2018 TDG Expenditure List conflict with:

(i) the corresponding line entry in the November 2016 to February

2018 TDG Expenditure List (which records the 24 October Payments as

paid to Granville); and

(ii) the defence, which alleges these payments were paid to Mr Cvek.

246. Accordingly, I am satisfied that the following payments were transferred from funds held

by TDG on the Jieyun Trust to the following recipients:

(a) Hennessy Group $5,725,000

(b) Hopetoun Development $2,583,747

(c) Granville $1,155,600

(d) Sentosa Capital $ 828,268

(e) Mandeville $ 500,000

247. I am further satisfied that each of the recipients is liable respectively in respect of each of

the above amounts transferred, for the following reasons:

(a) TDG owed a fiduciary duty as trustee under the Jieyun Trust with respect to the

amounts transferred, for the reasons set out in paragraphs 117 to 119.

(b) Each of the amounts transferred were misapplied by TDG, for the reasons set

out in paragraph 217.

(c) Each recipient knew, at the time of the receipt, that it was misapplied trust

money, for the reasons set out in paragraph 221.

Orders

248. Accordingly, I propose to order as follows:

(a) The first defendant pay the plaintiff the sum of $8,000,000 as a debt.

(b) The first defendant pay the plaintiff equitable compensation in the sum of

$8,000,000.

(c) The eleventh and thirteenth defendants pay the plaintiff equitable

compensation in the sum of $155,156.

(d) The second and third defendants pay the plaintiff equitable compensation in

the sum of $8,000,000.

(e) The fifth defendant pay the plaintiff equitable compensation in the sum of

$5,725,000

(f) The eighth defendant pay the plaintiff equitable compensation in the sum of

$828,268.

(g) The ninth defendants pay the plaintiff equitable compensation in the sum of

$500,000.

(h) The tenth defendant pay the plaintiff equitable compensation in the sum of

$2,583,747.

(i) The twelfth defendant pay the plaintiff equitable compensation in the sum of

$1,155,600.

(j) The claims against the fourth, sixth and seventh defendants be dismissed.

249. I will hear the parties with respect to further orders on the claims against the thirteenth

defendant; and from the plaintiff with respect to:

(a) the claim with respect to fifteenth defendant and the money held in Court on its

behalf,

(b) orders with respect to the sixteenth defendant, the seventeenth defendant and

the nineteenth defendant;

(c) orders with respect to other amounts held in Court; and

(d) any further orders.

---

250.

SCHEDULE 1

Date

Beneficiary

Payment

26/09/2017 Granville Group Pty Ltd

$24,200.00

27/09/2017 Hopetoun Development Group Pty Ltd $100,000.00

28/09/2017 Hopetoun Development Group Pty Ltd $500,000.00

02/10/2017 Granville Group Pty Ltd

03/10/2017 Granville Group Pty Ltd

04/10/2017 Granville Group Pty Ltd

04/10/2017 Hennessy Group Pty Ltd

05/10/2017 Sentosa Capital Pty Ltd

06/10/2017 Granville Group Pty Ltd

09/10/2017 Dali Cvek

$38,350.00

$25,000.00

$26,150.00

$3,250,000.00

$20,000.00

$12,300.00

$15,000.00

$75,000.00

$27,400.00

$15,000.00

$69,500.00

$19,100.00

12/10/2017 Dali Cvek

16/10/2017 Sentosa Capital Pty Ltd

16/10/2017 Dali Cvek

17/10/2017 Dali Cvek

17/10/2017 Hopetoun Development Group Pty Ltd $83,747.00

23/10/2017 Sentosa Capital Pty Ltd

24/10/2017 Dali Cvek

$8,450.00

$8,300.00

$16,000.00

$24,200.00

$27,400.00

$3,000.00

$44,500.00

$28,000.00

$50,000.00

$10,000.00

$16,000.00

$3,800.00

$10,000.00

$32,000.00

$4,582,397.00

24/10/2017 Dali Cvek

25/10/2017 Granville Group Pty Ltd

25/10/2017 Dali Cvek

27/10/2017 Sentosa Capital Pty Ltd

27/10/2017 Dali Cvek

30/10/2017 Dali Cvek

30/10/2017 Lei He

31/10/2017 Sentosa Capital Pty Ltd

08/11/2017 Sentosa Capital Pty Ltd

08/11/2017 Dali Cvek

09/11/2017 Granville Group Pty Ltd

SCHEDULE 2

Date

Beneficiary

Payment

13/03/2018 Dali Cvek

$150,000.00

14/03/2018 Granville Group Pty Ltd

15/03/2018 Granville Group Pty Ltd

16/03/2018 Granville Group Pty Ltd

$24,200.00

$600,000.00

$5,000.00

29/03/2018 Hopetoun Development Group Pty Ltd $1,170,700.00

29/03/2018 Hopetoun Development Group Pty Ltd $629,300.00

05/04/2018 Granville Group Pty Ltd

10/04/2018 Granville Group Pty Ltd

13/04/2018 Granville Group Pty Ltd

$24,200.00

$12,100.00

$5,000.00

$6,000.00

$2,626,500.00

SCHEDULE 3

03/05/2018 Granville Group Pty Ltd $24,200.00

04/05/2018 Sentosa Capital Pty Ltd $5,000.00

16/05/2018 Hennessy Group Pty Ltd $2,400,000.00

04/06/2018 Granville Group Pty Ltd $24,200.00

12/06/2018 Granville Group Pty Ltd $24,200.00

15/06/2018 Granville Group Pty Ltd $35,000.00

21/06/2018 Granville Group Pty Ltd $25,000.00

27/06/2018 Granville Group Pty Ltd $44,000.00

29/06/2018 Sentosa Capital Pty Ltd $13,200.00

02/07/2018 Granville Group Pty Ltd $27,500.00

04/07/2018 Granville Group Pty Ltd $24,400.00

06/07/2018 Sentosa Capital Pty Ltd $4,000.00

11/07/2018 Sentosa Capital Pty Ltd $5,000.00

13/07/2018 Sentosa Capital Pty Ltd $4,000.00

20/07/2018 Granville Group Pty Ltd $24,200.00

03/08/2018 Granville Group Pty Ltd $30,000.00

17/08/2018 Granville Group Pty Ltd $24,200.00

22/08/2018 Sentosa Capital Pty Ltd $381,718.00

$3,119,818.00

[1]

In various documents, Mr Hening Xu is also referred to as Mr Xu Hening. With no

disrespect intended, I refer to him throughout these reasons as ‘Mr Xu’.

[2]

Although Mr Cvek is shown as having being appointed as a director and secretary on 22

April 2019 and ceasing on the same date.

[3]

It was not explained how Leimeng’s interest in the Unit Trust had increased from 5%

referred to in the Unit Trust Deed, to 20%.

[4]

[5]

[1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 (‘Barnes v Addy’).

Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405; (2014) 17 BPR

33,717, 33,732–3 [86]–[91] (Gleeson JA with whom Beazley P and Barrett JA agreed). Quoted

with approval in Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118; (2018) 355 ALR

703, 742 [183] (Emmett AJA with whom Leeming JA and Sackville AJA agreed), although the

second element appears to be misquoted as ‘the misapplication of such property by the trustee

or beneficiary’ (emphasis added).

[6]

Harstedt Pty Ltd v Tomanek [2018] VSCA 84; (2018) 55 VR 158, 177–9 [79]–[87], [93]

(Santamaria, McLeish and Niall JJA).

[7]

Ibid 174 [68].

[8]

[1970] AC 567 (Lord Reid, Lord Morris of Borth-y-Gest, Lord Guest, Lord Pearce and Lord

Wilberforce) (‘Quistclose’).

[9]

Ibid 579.

[10]

Ibid 569.

[11]

Ibid 580 (Lord Wilberforce with whom the other Law Lords agreed).

[12]

Ibid 582.

[13]

Ibid 580.

[14]

[1978] HCA 45; (1978) 141 CLR 335, 353 (with whom Jacobs and Murphy JJ agreed).

[15]

[2012] NSWCA 135, [51] (with whom Meagher and Barrett JJA agreed) (‘Fishy Bite’).

[16]

Peter W Young, Clyde Croft and Megan Louise Smith, On Equity (Thomson Reuters,

2009) 470 [6.1020].

[17]

[2022] VSCA 78 (Maxwell P, Kennedy and Walker JJA) (‘Eumeralla’).

[18]

Ibid [89], [93], [95].

[19]

Ibid [87].

[20]

Ibid [83] (citations omitted).

[21]

Re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 30 FCR 491, 503

(Gummow J).

[22]

Ibid. See also Nationwide News Pty Ltd v Rush [2020] FCAFC 115; (2020) 380 ALR 432,

506 [383] (White, Gleeson and Wheelahan JJ).

[23]

Eumeralla [2022] VSCA 78, [83]. See also Fishy Bite Pty Ltd [2012] NSWCA 135, [51]

(Campbell JA), Re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 30 FCR 491,

502-3 (Gummow J); Legal Services Board v Gillespie-Jones [2013] HCA 35; (2013) 249 CLR

493, 523 [112] (Bell, Gageler and Keane JJ).

[24]

Eumeralla [2022] VSCA 78, [83(i)] (Maxwell P, Kennedy and Walker JJA) (citations

omitted).

[25]

Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA

20; (2019) 268 CLR 524, 560-1 [82] (Bell, Gageler and Nettle JJ) (citations omitted).

[26]

See paragraphs 197 to 205 below. Although it is to be noted that in these agreements TDG

was the lender.

[27]

Re Hallett’s Estate [1880] UKLawRpCh 38; (1879) 13 Ch D 696; Australian Receivables

Ltd v Tekitu Pty Ltd [2011] NSWSC 1306, [145] (Ward J); Brady v Stapleton [1952] HCA 62;

(1952) 88 CLR 322, 336 (Dixon CJ and Fullagar J).

[28]

Re Global Finance Group Pty Ltd (2003) WAR 385, 408 [103] (McLure J).

[29]

Bold in the original.

[30]

Bold in original.

[31]

This proposition was not put to Mr He in cross-examination but, after Jieyun sought to

rely on this submission, Mr He declined the opportunity to be recalled to give an explanation.

[32]

As at that date, the first to ninth defendants were the only defendants to the proceeding.

[33]

Emphasis added.

[34]

Brighton Australia Pty Ltd v Multiplex Constructions Pty Ltd [2018] VSC 246; (2018) 56

VR 557, 589 {72]-[73].

[35]

[2006] EWHC 2887 (Comm); upheld by the Court of Appeal in [2007] EWCA Civ 811

(Waller, Gage and Collins LJJ).

[36]

Ibid [50]; applied in Raiffseisen Zentralbank v Royal Bank of Scotland [2011] 1 Lloyd’s

Report 123, 142 (Christopher Clarke J); and Webster v Liddington [2014] EWCA Civ 560;

[2015] 1 All ER (Comm) 427 [39] (Jackson LJ with whom Briggs and Clarke LJJ agreed). Also

see Estoppel by Conduct and Election (Sweet & Maxwell, 2nd ed, 2016), 79-80 [4-001]. For a

similar test formulated in the context of estoppel, see Sullivan v Sullivan [2006] NSWCA 312,

[85] (Hodgson JA, with whom McColl JA agreed, stated the relevant test as ‘if it was

reasonable for the representee to interpret the representation ... in a particular way’).

[37]

Barport Pty Ltd v Baum [2019] VSCA 167, [194] (Kyrou, McLeish and Niall JJA).

[38]

Ibid, [195], citing Addenbrooke Pty Ltd v Duncan (No 2) (2017) 348 ALR 1, 119 [482]

(Gilmour and White JJ, see also Dowsett J [78]-[88]).

[39]

Source from the defence of the first to tenth and twelfth defendants.

[40]

A transaction fee of $2.50 was debited on 1 March 2018.

[41]

See above n 39.

[42]

Ibid.

[43]

Harstedt Pty Ltd v Tomanek [2018] VSCA 84; (2018) 55 VR 158, 177-9 [79]-[87]

(Santamaria, McLeish and Niall JJ).

[44]

Mr Cvek by his attorney under power, Mr Balint.

[45]

See paragraphs 133-134 above.