ET-China.com International Holdings Ltd v Cheung

Catchwords

[1990] HCA 47 ASIC v Hellicar (2012) 247 CLR 345[2020] FCA 1098 ASIC v Rich (2009) 236 FLR 1[2009] NSWSC 1229 Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279[1990] HCA 11 Best v Rosamond [2020] NSWCA 90 Biogen Inc v Medeva plc [1997] RPC 1 HL(E)[1996] UKHL 18 Boensch v Pascoe (2019) 375 ALR 15[2019] HCA 49 Browne v Dunn (1893) 6 R 67 HL(E) Calverley v Green (1984) 155 CLR 242[1984] HCA 81 Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353[1956] HCA 28 Devries v Australian National Railways Commission (1993) 177 CLR 472[1993] HCA 78 Equity Nominees Ltd v Tucker (1967) 116 CLR 518[1967] HCA 22 Evans v McLean (No 2) [1987] WAR 110 Foss v Harbottle (1843) 2 Hare 46167 ER 189 Fox v Percy (2003) 214 CLR 118[1983] HCA 7 Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716 Jarrett v Perpetual Trustee Co Ltd [2007] NSWSC 1231(2007) 64 ACSR 552 Jones v Hyde (1989) 85 ALR 23[1989] HCA 20 Leary v Federal Commissioner of Taxation (1980) 32 ALR 221 Lee v Lee (2019) 266 CLR 129

Judgment (39 paragraphs)

[1]

Introduction On 20 December 2019, in a lengthy, fact intensive judgment following a seven day trial (the primary judgment or PJ), Stevenson J (the primary judge) dismissed a claim for breach of directors' duties against Mr Christopher Rose (Mr Rose) and Mr Marco Marcou (Mr Marcou): see [2019] NSWSC 1874. His Honour also dismissed a claim for knowing assistance and knowing receipt against Vision Capital (Asia) Limited (Vision Capital) and Freada Kwan Cheung (Madam Cheung).

Madam Cheung, a Chinese national, was the sole shareholder in and had effective practical control of Vision Capital. Vision Capital was incorporated in the British Virgin Islands (BVI). She also controlled another BVI company, Wealthy Capital Enterprises Inc (Wealthy Capital), the role of which will be explained in due course.
The claim was brought by Mr Matthew Ng (Mr Ng) on behalf of ET-China.com International Holdings Ltd (ETCI) (together the Appellants). Mr Ng was the founding director of ETCI and had been, prior to November 2010, its President and Chief Executive Officer.
ETCI is a Jersey company, listed on the Alternative Investment Market of the London Stock Exchange (AIM). ETCI, through a wholly owned subsidiary (ETCH) incorporated in Hong Kong, held a 54.43% interest, through three Chinese entities (the ETC Subsidiaries), in a Chinese (PRC) State-owned entity, Guangzhou GZL International Travel Service Ltd (GZL).
GZL was one of the largest group leisure travel companies in South China.
ETCI's indirect interest in GZL was its sole asset: PJ [506].
The PRC's interest in GZL was held ultimately by Guangzhou Lingnan International Enterprise Group Co Ltd (Lingnan) together with a number of PRC State entities.
An organisational chart taken from the judgment at first instance is reproduced in the Appendix to these reasons. The broken line between ETC PRC and the three ETC Subsidiaries represents the fact that, although it is convenient to describe these entities as "subsidiaries", ETCH's interest in them existed not by way of shareholding but by means of various ultimately indirect contractual arrangements with PRC citizens, deployed by reason of restrictions in the PRC on foreign ownership of local businesses (and creating what is known in as a "Variable Interest Entity" structure).
Messrs Rose and Marcou were directors of ETCI. Both were involved in the transfer on or about 25 July 2012 of ETCI's shares in ETCH to Vision Capital (the ETCH Share Transfer). That transfer lies at the heart of these proceedings. On its face, at least, it had the consequence that ETCI lost its indirect interest in the ETC Subsidiaries and thus its economic interest in GZL. Ultimately, ETCI received AU$2 million for the transfer of its shares in ETCH but that was pursuant to a Share Sale Agreement with Vision Capital dated 7 June 2013 (the 2013 Share Sale Agreement) with the $2 million being paid in two tranches on 6 and 9 September 2016.
Apart from the circumstances surrounding the disposal of its shareholding in ETCH, how ETCH (and thus ETCI) acquired or at least was said (in Court proceedings in China in both 2011 and 2013) to have acquired its interest in the ETC Subsidiaries in the first place was also, as will be seen, of critical contextual significance to the present proceedings.
In holding that the various claims made on behalf of ETCI failed, the primary judge concluded that the breaches of duty alleged against Messrs Rose and Marcou had not been established and that, even if they had been established, his Honour held that no loss to ETCI had been established.
At first instance, as recorded at PJ [151], ETCI ultimately confined its case concerning Mr Rose's and Mr Marcou's alleged breach of their duties as directors so far as concerns the ETCH Share Transfer to: (a) a claim for equitable compensation (as opposed to an account of profits), (b) for the loss of the opportunity to sell its indirect interest in GZL to Lingnan (as opposed to the loss of the ETCH shares themselves).
The primary judge held that the opportunity to sell ETCI's indirect interest in GZL was lost by 4 July 2012 and that no breach of directors' duties had been established by that date (see PJ [568]-[574]), that no loss of commercial opportunity which had some non-negligible value had been established on the balance of probabilities and that, even if it had been, there was no basis in the evidence to make any assessment of that value: PJ [599]-[601].
To the extent that ETCI received a sum of $2 million for the transfer of its shares in ETCH pursuant to the 2013 Share Sale Agreement, the primary judge also rejected a claim that that transfer had been at a gross undervalue and that Messrs Rose and Marcou were or ought reasonably to have been aware of this: PJ [605]-[612].
It followed from the failure of the directors' duties claims that the claims for knowing assistance and knowing receipt brought against Vision Capital and Madam Cheung necessarily failed.

[2]

Notice of Appeal, Notices of Contention and challenges to factual findings

The Further Amended Notice of Appeal (the Notice of Appeal) contained some 21 grounds of appeal and ran to some 8 closely typed pages. These included challenges to particular factual findings which the primary judge had made to support aspects of his reasoning as well as to legal conclusions.
The Appellants also filed a statement prepared in accordance with r 51.36(2) of the Uniform Civil Procedure Rules 2005 (NSW) specifying the particular factual findings challenged and the findings which it was contended should have been made (the Rule 51.36 Statement).
The importance of such a Statement has been emphasised in a number of recent decisions of this Court: Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167 at [52]-[54]; Hamod v New South Wales [2011] NSWCA 375 at [774]; South Western Sydney Local Health District v Gould (2018) 97 NSWLR 513; [2018] NSWCA 69 at [135]; Best v Rosamond [2020] NSWCA 90 at [21]; Namrood v Ebedeh-Ahvazi [2017] NSWCA 310 at [61].
There was an extensive overlap between some of the grounds of appeal and some of the challenges to factual findings.
The Notice of Appeal is a complex and somewhat unwieldy document with many of the grounds of appeal containing multiple subparagraphs and a degree of repetition. For clarity's sake, it will be necessary to group various grounds of appeal in the consideration which follows. It should also be observed that there was a dispute between the parties as to whether or not some of the matters sought to be argued on appeal were open to the Appellants to argue.
Messrs Rose and Marcou, and Madam Cheung and Vision Capital both filed notices of contention seeking to uphold the primary judgment on grounds in addition to those found in their favour by the primary judge. There were detailed written submissions and the appeal was heard over three days.
Before setting out the key facts which are necessary to understand and resolve the various ground of appeal, it is desirable to make a number of observations about witness credibility, documentary evidence and fact finding.

[3]

Witness credibility, documentary evidence and fact finding

In reaching his decision, the primary judge rejected a submission that Mr Marcou was an untruthful witness and positively held that, save for one aspect of his evidence, Mr Rose was a witness who impressed as "calm and measured" and as someone who was "doing his best to recollect accurately the events in question": PJ [64]-[66]. Those events relevantly occurred between 2010 and 2013 in a context that was complex, fraught and, in many respects, quite dramatic, as will be explained in further detail below.
As with most commercial disputes, a proper understanding of the chronology of events is critical and, as has been regularly observed, contemporaneous documents generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony.
In Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] (Fox v Percy), Gleeson CJ, Gummow and Kirby JJ, having referred to increasing judicial awareness of scientific research that cast doubt on the ability to distinguish between truth and falsity in witness testimony from the mere appearance of the witness in the witness box, said: "Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical."
Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin): "the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." (emphasis added)

[4]

ETCI, Kuoni and the takeover offer

ETCI acquired its interest in GZL, through the ETC Subsidiaries, at a time when Mr Ng was ETCI's CEO.
At all relevant times, the Board of ETCI comprised Messrs Ng, Rose and Marcou together with Ms Maria Ng (Ms Ng) and Mr Martin Simeon (Mr Simeon), representing interests associated with a Swiss company, Kuoni Travel Holding Ltd (Kuoni). Ms Ng was not related to Mr Ng who, for reasons explained below, did not participate in the affairs of the board after November 2010. Mr Rose evidently represented a group of shareholders referred to in some documents as the "Mintpine shareholders". There was also an independent director, Mr Robert Drummond (Mr Drummond).
Kuoni held the largest individual stake (some 30.27%) in ETCI and had, in 2010, been contemplating a takeover of ETCI so as to gain for itself a majority 54% indirect interest in GZL. As the primary judge recorded at PJ [72], on 2 June 2010, Kuoni and ETCI made a public announcement in the following terms: "The board of [Kuoni] and the Independent Directors of [ETCI] are pleased to announce that they have reached agreement on the terms of a recommended proposal whereby Kuoni will acquire, for cash, all the issued and to be issued ordinary shares in [ETCI] not already owned by Kuoni (the 'Proposal'). It is intended that the Proposal will be implemented by a scheme of arrangement under Part 18A of the Jersey Law."
A little over two weeks later, on 18 June 2010, Lingnan wrote to ETCI and, according to Mr Ng, "demanded that it explain how it had gained control of GZL" and, on 5 July 2010, Lingnan wrote "an urgent letter" to Kuoni in which, again according to Mr Ng, Lingnan demanded that Kuoni not proceed with the takeover of ETCI and alleged that ETCI had "illegally taken control of GZL" and "has acted illegally when acquiring control of GZL i.e. corrupt practice": PJ [74]-[75]. As a result of this letter, Kuoni suspended the proposed takeover of ETCI. It formally withdrew its offer on 20 December 2010.
As will be seen, much had occurred in the intervening 6 months.

[5]

Mr Ng's detention, trial and incarceration

On 23 August 2010, two senior employees of the ETC Subsidiaries, including ETCI's finance director, Ms Kitty Yang (Ms Yang), were detained by Chinese authorities for 30 days: PJ [77].
Mr Ng had urgently left the PRC on 6 September 2010 but returned in November 2010 and met with representatives of Lingnan who repeated the allegations that ETCI's interest in GZL was held unlawfully and had been procured by corrupt practices: PJ [82].
On 15 November 2010, Mr Ng was detained by Chinese authorities and arrested a short time later.
Mr Ng was charged with various offences for which he was tried in the Intermediate People's Court of Guangzhou Municipality (the Intermediate People's Court) in August 2011. On 6 December 2011, he was convicted and sentenced to imprisonment for 14½ years. On appeal, the sentence was reduced to 11½ years. This occurred in March or April 2012.
The charges in respect of which Mr Ng was convicted related to the manner in which ETCI acquired its indirect 54.43% interest in GZL. The Intermediate People's Court made findings of "bribery", "misappropriation of funds", "misstatement of registered capital", "official embezzlement" and "organi[s]ational bribery" concerning the circumstances in which the ETC Subsidiaries acquired their interest in GZL: PJ [124]-[129].
At around the same time as Mr Ng was arrested, Ms Yang was again detained and arrested.
Minutes of a meeting between representatives of ETCI and Lingnan, which apparently occurred on 10 November 2010, recorded that the commencement of Lingnan's investigations to prove its allegations had "directly and indirectly caused chaos" in ETCH and GZL and "if left unchecked, could cause dramatic loss in business value of" ETCI and GZL. Those observations were made prior to Mr Ng and Ms Yang's arrest and conviction.
The effect of Mr Ng's arrest and incarceration was obviously that he was unable to participate in the management of ETCI. This was of no little moment as Mr Ng, according to a filing relating to ETCI's placement on the AIM in 2007, was responsible for establishing and maintaining ETCI's key relationships with strategic partners and key suppliers. But the impact for ETCI went beyond the immediate loss of Mr Ng, significant though that obviously was. Its finance director, Ms Yang, was also imprisoned and, as recorded at PJ [86], "senior staff of the PRC businesses had … been detained or arrested, bank accounts had been frozen and financial records confiscated."

[6]

The emergence of Madam Cheung and the "Wealthy Capital Transaction"

It was in about mid-2011 that, into the alleged breach, stepped Madam Cheung.
On 8 June 2011, Madam Cheung had written to Mr Rose, who had assumed executive responsibilities within ETCI in Mr Ng's forced absence: "I'm the sole shareholder and director of Financial International Holdings Ltd. As the biggest private investor when [ETCI] made its IPO in the AIM market in London, I am very concerned about the situation of the company right now. I had met Mr Matthew Ng and Mr Michael Tang in Hong Kong in September 2010 and gave some suggestions, but somehow in the end it was not used. I feel that the best moment of solving the problem had passed so that the situation is getting worse. Now it seems that besides having commercial and political assisting method, one must have the ability and techniques to help the company out of trouble. I invest a lot in Australia besides Hong Kong and Mainland China, so from the bottom of my heart I am not willing to see this dilemma to affect the relations between China and Australia. Therefore I am willing to use my personal influence and energy to solve the problem and protect the legitimate interests of all shareholders. Hope the board will consider my suggestion carefully. Please give me a reply at your earliest convenience." (emphasis added)
In an email sent from Ms Chow to Mr Marcou and Mr Rose on 22 June 2011, it was reported that: "A lady contacted Chris [Rose] I think last few weeks offering to help but Chris said everything should be fine. She invested in ETC and she offers to help in solving the issues with GZL, ie claim back our dividend (RMB10mil) and other court issues. She is happy to meet you in HKG and discuss possible ways to solve everything. Relying solely on Kuoni negotiating wouldn't be fruitful if there are no 'guanxi' made and it has been months. She offers to utilise her contacts with upper, upper officials for this. What do you think?" (emphasis added)
"Guanxi" is a Chinese term which refers to the system of social networks and influential relationships which facilitate business and other dealings.
Madam Cheung's name came up in an ETCI board meeting on 7 September 2011 in the context of a discussion about the need to appoint an official representative of ETCI in the PRC in place of Ms Yang who was imprisoned. In that context, the minutes record the following: "Martin [Mr Simeon of Kuoni] suggested that the board can consider appointment of someone from the law firm. Marco [Mr Marcou] replied that he would talk to the law firm about this. However, he believes that the law firm may be reluctant to take up this role. Robert [Mr Drummond] also suggested that the board can consider someone who is a qualified PRC individual but residing in Hong Kong so that the individual may not face the same pressure as the one in China. Marco also suggested a lady named Madam Cheung who is a PRC lady, residing in Australia and travelling around frequently. Martin commented that we need to be cautious and mindful of the potential risks and it would be politically incorrect if the board is appointing someone who is associated with Australia or Matthew."

[7]

Negotiations with Lingnan - 5 June 2012 meeting and cancellation of proposed July meeting

At PJ [139]-[142], the primary judge noted that, in a briefing paper for the ETCI board meeting scheduled for 2 April 2012, Mr Marcou reported that it was "[h]ighly likely that Lingnan will now move on the disputed GZL holdings" and that ETCI should "consider engagement with Lingnan or related entity to facilitate exit from disputed equity holdings in GZL ... at best possible price". Mr Rose reported to the same meeting that it was "highly likely that Lingnan will now move into a civil case on the disputed GZL holdings".
The board authorised Mr Marcou to contact Lingnan to pursue options "with Lingnan for the disposing of equity holding of [ETCH] in GZL at the best price that the group would accept". The board minutes of 24 May 2012 made reference to Mr Marcou's attempts to arrange a meeting with Lingnan.
A meeting was ultimately arranged to occur on 5 June 2012 in Hong Kong between Mr Rose, Mr Marcou, Mr Simeon, Ms Ng and Mr Leser (an employee of Kuoni superior to Mr Simeon and Ms Ng) with representatives of Lingnan.
According to the minutes of that meeting: "The opinions expressed by Lingnan are: (1) Lingnan should be part of any solution for solving the issues of the shareholding of GZL. (2) The shares of GZL owned directly by ETIC, ETCCT and Xinzhiye are obtained either illegally or with legal defect. (3) Lingnan has the intention to sort out the shareholding issue of GZL through negotiation. However, the subject of asset transaction is limited only to the shares of GZL. (4) After confirming the intention of ETIC, ETCCT and Xinzhiye for disposing all their shares of GZL, Lingnan intends to offer the amount of not more than RMB 70,000,000 as a consideration for purchasing the aforesaid shares. (5) If Lingnan can reach the agreement with ETIC, ETCCT and Xinzhiye on the proposed transaction of the shareholding of GZL, Lingnan will negotiate with other shareholders of GZL according to the article of association of GZL."
The ETCI board minutes of the same day recorded that Lingnan's final offer of RMB 70 million was arrived at after: (a) Lingnan made an initial offer of RMB 62 million; (b) Mr Rose and Mr Marcou made a counter offer of RMB 100 million; (c) "[a]fter a few rounds of negotiation" Mr Rose and Mr Marcou revised their counter-offer to RMB 75 million; and (d) Lingnan then increased its offer to RMB 70 million.

[8]

4 July 2012 board meeting

Following receipt of Lingnan's response to Mr Marcou's email postponing the meeting that was to have commenced two days earlier (see [91] above), the board of ETCI met.
As the primary judge noted at PJ [217], there are competing versions of the minutes of this meeting. The primary judge relied upon and accepted as accurate the version of the minutes signed by Mr Rose as accurately recording what transpired at that meeting as it was not suggested to him in cross-examination that they did not accurately record what had occurred: PJ [218]. The Appellants challenge his Honour's reliance on these minutes as accurate in their Rule 51.36 Statement at [2] and detailed submissions were made on appeal in this respect. These submissions are considered further at [196]-[203] below.
Aspects of the competing versions of the minutes were not, however, controversial. Both versions made reference to the need for Vision Capital to supply a term sheet. As reported to the board, Vision Capital's then current proposal involved a non-refundable cash down payment of US$500,000 to be paid within two or four weeks with the balance to be paid within 12 weeks of the execution of the sale agreement. Both versions of the minutes also made reference to the previous Wealthy Capital Transaction being "called back by us in May 2012", plainly a reference to the exercise of the Call Option referred to at [67] above and the reversible nature of that transaction.
The primary judge recorded the following evidence of Mr Marcou in relation to this meeting (PJ [225]): "I recall that leading up to and at this meeting the board discussed the reversible transfer of shares to Vision Capital (Vision Capital Arrangement). I cannot now recall the words said but I recall their effect, which was that: (a) Vision Capital would need to assume registered ownership and management control of the Hong Kong Company and the various PRC Domestic Companies; (b) that apparent assumption of ownership would allow Madam Cheung to resolve the disputes in PRC and realise the value in the Jersey Company's interest in GZL. I do not know why that discussion was not recorded in the minutes. I do recall that the Vision Capital Arrangement was discussed again at a subsequent Board meeting. That was from my point of view no different to the earlier Wealthy Capital Transaction, except that the earlier transaction was to involve payments of money and an option back to the Jersey Company. The Vision Capital transaction would instead involve these things occurring before the sale terms were finalised, with the Jersey Company [ETCI] being able to unwind these steps should basic matters such as a price ultimately not be agreed or paid." (emphasis in original)

[9]

The ETCH Share Transfer

On 5 July 2012, Mr Marcou and Mr Rose executed a term sheet in respect of the proposed acquisition of ETCI's shares in ETCH by Vision Capital, in terms similar to those of the "new offer" described at [84]-[86] above. This term sheet provided for a "non-refundable deposit" of US$500,000 "within 4 weeks of execution of a Sale Agreement" between ETCI and Vision Capital. This arguably differed from what had been contemplated at the meeting of the previous day.
The term sheet also provided that the balance of US$12.5 million be paid "within 12 weeks after the deposit has been received" and contained a number of conditions precedent to completion including that: "... the Purchaser completing its due diligence investigations of [ETCH] to its satisfaction, and in its absolute discretion being satisfied that the findings of those investigations do not reveal any reason why it would not wish to proceed with the Transaction".
The term sheet as executed was not approved by the board of ETCI prior to its execution but equally was not concealed from board members following execution. Thus, on 12 July 2012, Mr Rose sent an executed copy of it to Mr Simeon, who duly protested that: "[T]his is clearly against what we agreed in the board, in particular that the non-refundable deposit is payable upon execution of the term sheet. [C]an we see a copy of the receipt of the monies? [B]esides it was agreed that the execution version be shared with the board members before execution."
On 6 July 2012, Mr Marcou sent Madam Cheung a draft Sale of Shares Agreement (the draft SSA), providing, in accordance with the executed term sheet, for a purchase price of US$13 million with a $500,000 "down-payment" payable "on the date of this Agreement". The draft SSA did not contemplate a transfer of the ETCH shares until receipt of the purchase price. Thus cl 4.4 provided that "[u]pon the Purchaser paying the Balance to the Seller, the Seller shall deliver a transfer of the Shares to the Purchaser". The draft SSA also contained a condition precedent at cl 5.1(c) to the same effect as that that had been contained in the term sheet as noted at [86] and [100] above.
Although a slightly amended version of the draft SSA dated 25 July 2012 was executed on behalf of ETCI, which had added to cl 4.4 the words "[i]f the Purchaser does not pay the balance, the Purchaser will not be entitled to any transfer of the Shares", no copy of the SSA executed by Vision Capital was in evidence although an email sent by Mr Marcou on 1 August 2012 suggested a belief on his part that it had been signed by Vision Capital on 26 July 2012. Mr Rose was also of that understanding, confirming as much to Mr Simeon and Mr Ng on 2 August 2012 although noting that he was yet to receive a signed copy. The primary judge proceeded on the basis that Vision Capital never in fact executed a copy of this agreement.

[10]

Events following the ETCH Share Transfer

The primary judge held, based upon his analysis of emails and board minutes, that the ETCH Share Transfer was not known to and thus inferentially at least had not been disclosed to the other members of the board of ETCI by either of Messrs Rose or Marcou following the execution of the transfer. Mr Bagley, who appeared on behalf of Messrs Rose and Marcou on the hearing of the appeal, did not submit otherwise.
In addition, the primary judge rejected Mr Rose's evidence that he had disclosed the details of the ETCH Share Transfer to Mr Leser (a superior of Mr Simeon and Ms Ng) of Kuoni: PJ [297]. Indeed, the documentary record disclosed that Messrs Rose and Marcou reported to the board that they were still in negotiations with Madam Cheung in relation to completion of the sale of the ETCH Shares, implicit in which was the fact that a transfer of those shares had not yet occurred.
In the course of August 2012, Mr Marcou unsuccessfully sought from Madam Cheung an executed copy of an amended version of the draft SSA (to reflect a minor adjustment in the purchase price to take into account Madam Cheung's small existing interest in ETCH) together with payment of the deposit.
On 29 August 2012, Mr Rose sent an email to Mr Simeon, Ms Ng and Mr Drummond as follows: "Dear Board Members, I just wanted to give an update of how the Wealthy Capital [sic: Vision Capital] transaction is progressing. As tasked by the Board, I am endeavouring to progress the transaction under extremely difficult circumstances. There have been [a] number of issues that I have had to work through with Wealthy Capital [sic: Vision Capital] particularly in relation to their adverse due diligence findings relating to the company operations in China. This has created a reluctance to move forward on their part … Nevertheless, as a show of our intent to effect this transaction, I have been working with [Mr Marcou] and our staff in China to provide information and engage in dialogue to Wealth[y] Capital [sic: Vision Capital] on various matters such as court cases involving the company and providing access to key people from [the ETC Subsidiaries]. Whilst our position is very problematic and our negotiating position is quite weak, I have been able to keep them at the table and hope to complete the transaction in due course in accordance with the agreed timetable. I will be in contact once I have a [sic] something more definitive to report." (emphasis added)

[11]

The February 2013 Civil Judgment

As recorded at PJ [337]-[338], "[o]n 7 February 2013, the Guangzhou Tianhe District People's Court delivered a Civil Judgment in the proceedings commenced the previous June. The Court determined that ETIC PRC (one of the three ETC Subsidiaries) was 'not a shareholder' of GZL, had 'no right to hold' 28.5% and was 'not entitled to shareholder's rights and interests'."
While the judgment related to ETIC PRC's 28.5% interest in GZL, the primary judge recorded that there was other litigation on foot in relation to the remaining interests of the ETC Subsidiaries in GZL (that is the shareholding of Xinzhiye PRC and ETCCT PRC). No judgment was in evidence in relation to the outcome of this other litigation.
The primary judge noted in this context that Mr Mao, the Chinese national who was providing advice to the Kuoni interests (see [68] above), had opined in May 2012 that the interests of ETIC PRC "appeared to be the most secure of those of the ETC Subsidiaries." In that same letter, he had advised Kuoni that "[n]one can sell or buy the GZL shares[s] legally owned by those three Chinese companies without full support of the Guangzhou government" and "[a]ny delay for a solution beyond 2012 will successively destroy the value of collateral formalistically held by [ETCH] due to the deteriorating legality and compliance of the three Chinese companies and [ETCH]."
At PJ [340], the primary judge observed that: "The judgment was a major blow for [ETCI]. Its effect was that [ETCI] no longer had any indirect interest in GZL through ETIC PRC. Its implication was that ETCI no longer had an indirect interest in GZL at all." This factual conclusion was not the subject of any challenge on appeal. Indeed, on 27 February 2013, Mr Marcou had written to the members of the board of ETCI notifying that the decision of the Court was that "the shareholding of ETC[H] in GZL was to be forfeited and returned to the relevant State Owned Enterprise with no compensation to ETC[H] or recourse given ETC[H]'s foreign ownership status" (emphasis added). Mr Marcou's perception, shared with Mr Rose, was that "we've been screwed in China".
The primary judge also noted that the final page of the Civil Judgment referred to the possibility of an appeal but (PJ [344]) accepted Mr Rose's evidence that: "… they put this right of appeal in, but we thought how are we going to fund it, and, again, we're running up against the Chinese Government in China and the Courts are beholden to the Chinese State Party, so we thought that it would be futile." The reference to "how are we going to fund it" was a reference to ETCI's perilous financial state at the time (see [132] below).

[12]

Events following the February 2013 Civil Judgment

On 11 February 2013, Mr Wong, an associate of Madam Cheung, contacted Mr Marcou and the following conversation occurred: "Mr Wong: Madam [Cheung] has had to spend a lot of money dealing with the court cases and the difficulties with the legal persons are making everything a lot harder. Madam [Cheung] still wants to help but the price needs to be more realistic. [Mr Marcou]: I understand but whatever she is willing to pay needs to come quickly with no further delay. The board will not support any deal that cannot be wrapped up quickly and clearly on an as-is where-is basis. We cannot have any more false starts. Kuoni have already started making threats to sue the other directors for not taking up the Lingnan offer even though that would have resulted in nothing to shareholders or creditors outside China."
On 12 February 2013, Mr Wong wrote Mr Marcou: "Would you kindly simplify and amend the Sale Agreement with the follow [sic] details: 1. Consideration Price: US$3 Million; 2. $500,000 will be paid within seven days upon signing; 3. $1,000,000 will be paid within one month after the first payment; 4. $1,000,000 will be paid within one month after the second payment; 5. The balance of $500,000 will be paid withing [sic] one month after the third payment Please send me your revised version before Thursday. Then I will show Madam [Cheung] and we would like to execute it on Friday. For the time being, keep this between us before Madam [Cheung] agrees to inform others." The reference to the Sale Agreement was a reference to the draft SSA which ETCI but not Vision Capital had executed in July 2012.
These exchanges disclose that neither Madam Cheung nor Vision Capital took the view that a sale, still less a gift, of the ETCH shares had been effected notwithstanding the ETCH Share Transfer of July 2012, and that the suggested commercial terms represented an evolution of what Madam Cheung was prepared to pay for them following the due diligence she had done which, by this time, included "dealing with the court cases and the difficulties with the legal persons" (PJ [346]). The agreement was not executed "on Friday" as had been foreshadowed in Mr Wong's letter and was in fact not executed until June 2013, as explained more fully below, and then for a consideration of $2 million rather than $3 million.
Before that date, however, an inquorate board of ETCI (in the absence of the Kuoni representatives) purported to authorise an urgent rights issue which raised US$300,000 to meet (albeit partially) existing debts and administrative expenses. Significantly, both Kuoni and Madam Cheung (who had an interest in ETCI) participated in this rights issue.

[13]

The 2013 Share Sale Agreement

The primary judge held that on 7 June 2013, ETCI and Vision Capital executed the 2013 Share Sale Agreement. The terms of that document's recitals and its cl 3.1 have already been referred to at [107]-[108] above. The 2013 Share Sale Agreement made no reference to the ETCH Share Transfer that had been effected on 26 July 2012 and was wholly inconsistent with it
The primary judge accepted that the 2013 Share Sale Agreement "reflected the final agreement between ETCI and Vision Capital, as Vision Capital paid the $2 million referred to in the agreement, albeit not within three business days" (as had been provided for by the executed document): PJ [417]. The amount was paid in two tranches of $1 million each on 6 and 9 September 2013.
On 20 September 2013, ETCI purported to hold a board meeting with only Messrs Rose and Marcou present and Mr Drummond recorded as an apology. The minutes of this meeting appear to record the following resolutions: (1) "to ratify the sale of [ETCH] to Wealthy Capital [sic: Vision Capital] on an as is, where is basis for AUD$2 million"; and (2) "to declare a special distribution to shareholders of A$9.36/1,000 shares".
The primary judge recorded at PJ [440] that "[t]he total amount returned to shareholders by the Special Distribution was some $1,534,000. It was funded by the $2 million received from Vision Capital."
Both at trial and on appeal, it was submitted that the 2013 Share Sale Agreement was not executed on the date it bore but was backdated. It is sufficient to flag at this point that (a) the primary judge rejected this submission, holding that it was not open in the absence of that matter having been specifically pleaded (PJ [414]-[433]); and (b) the primary judge's ruling as to whether this submission was open was challenged on appeal (see further at [170] below).

[14]

The Papers of Civil Mediation

At PJ [405]-[408], the primary judge referred to the fact that there were in evidence copies of seven documents dated 21 June 2013, each entitled "Paper of Civil Mediation", and that these documents purported to record a settlement of the ETC Subsidiaries' appeal from the February 2013 Civil Judgment. His Honour recorded that (PJ [407]-[408]): "407 The settlement described in the documents purports to be an agreement by a number of Guangzhou state owned corporations to pay some RMB 80 million to the ETC Subsidiaries in respect of their interests in GZL. 408 The documents appear to have been 'affirmed by' three judges of the Guangdong Province Guangzhou City Intermediate People's Court."
At PJ [409], the primary judge held that, "[a]ssuming these documents accurately record a settlement of an appeal from the 7 February 2013 judgment, there is no evidence that the Guangzhou state owned corporations paid the RMB 80 million, or any sum at all, to the ETC Subsidiaries."
His Honour noted that Madam Cheung, by then in control of the ETC Subsidiaries by reason of the 2013 Share Sale Agreement, in an answer to an interrogatory in these proceedings, had denied that either she or any person or corporation at her nomination or direction had received the RMB 80 million referred to in the Papers of Civil Mediation. Although Madam Cheung did not give evidence in the proceedings at first instance, this answer was tendered, perhaps somewhat surprisingly, without objection by the plaintiffs and became, in the absence of an order pursuant to s 136 of the Evidence Act 1995 (NSW), evidence for all purposes notwithstanding its hearsay nature: see s 60 of the Evidence Act.
At PJ [412]-[413], the primary judge recorded that: "Mr Marcou initially said he first learned of the settlement in March 2014. However his attention was drawn to an affidavit he swore in proceedings in Jersey on 24 July 2017 in which he said that the ETCI board was, in October 2013, informed a 'settlement had been reached' between Lingnan and ETCH. Mr Rose was adamant that he had not heard of any settlement of the PRC proceedings until sometime in 2014 or 2015."
It is not entirely clear from the way in which these paragraphs are expressed as to whether the primary judge was here making findings of fact as to when Messrs Marcou and Rose respectively learnt of the Papers of Civil Mediation and the "settlement" they purported to entail but the key point, for reasons that will emerge, is that there was no evidence suggesting that they had learnt of the settlement prior to the execution of the 2013 Share Sale Agreement on 7 June 2013, or the purported ratification of that agreement on 20 September 2013 (see [137] above).

[15]

Mr Ng is transferred to Australia and ultimately released from prison

Pursuant to the Convention on the Transfer of Sentenced Persons (1983) ETS 112 (entry into force 1 July 1985) and the International Transfer of Prisoners Act 1997 (Cth), Mr Ng was released to Australia in November 2014 from his incarceration in China and remained imprisoned at the St Heliers Correctional Centre in Muswellbrook. He was released on 15 June 2016.
Two sets of proceedings against various defendants were commenced during 2017 and were subsequently consolidated in the proceedings presently under appeal in July 2018.

[16]

The case as pleaded and argued at first instance

At the heart of the case as pleaded and argued at first instance was the contention that Messrs Rose and Marcou breached their equitable or general law duties as directors of ETCT by authorising and or effecting the ETCH Share Transfer in July 2012 for "nil consideration". Thus, [61] of the Consolidated Commercial List Statement (CLS) pleaded that: "By causing or permitting to be transferred to Vision Capital ETCl's shares in ETCH for nil consideration on or about 25 or 26 July 2012, in circumstances where: a. the value of those shares was over AU$2,000,000 and at least US$13,000,000; b. Cheung (on behalf of Vision Capital) had made an offer of US$13,000,000 prior to 29 June 2012; c. Cheung (on behalf of Vision Capital) signed the Term Sheet on 5 July 2012, under which it was proposed that Vision Capital would pay US$13,000,000 to acquire the shares; d. there was not, as at 25 or 26 July 2012, in force any binding agreement between ETCI and Vision Capital requiring the latter to pay for the former's shares in ETCH, but merely a non-binding Term Sheet; e. the shareholders of ETCI were not informed that the shares had been transferred to Vision Capital for nil consideration, Rose and/or Marcou breached their fiduciary duties to ETCI, in that either or both of them: f. did not act honestly and/or in good faith in the interests (or best interests) of ETCI; g. did not act for a proper purpose; h. exercised their position as directors improperly; i. improperly exercised their fiduciary power to deal with the property of ETCI; j. misappropriated ETCl's property for the benefit of Vision Capital and/or Cheung (and to the detriment of ETCI), without ETCl's fully informed consent; and/or k. did not exercise the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances." (emphasis added).
The references to "nil consideration" and "misappropriated" in this pleading were central to the allegations. The effect of the pleading was that ETCI, through the actions of Messrs Rose and Marcou, lost for the company the value of its shareholding in ETCH (and thus its indirect interest in GZL) and received nil consideration for the transaction. This was said to have had the consequence that ETCI lost the opportunity to sell its interest because it had been transferred to Vision Capital.
This pleading was, as the primary judge accepted, tantamount to a contention that Messrs Rose and Marcou had in effect given away the company's sole asset, a claim that, if it were correct, would no doubt have involved a breach of one or more of the duties pleaded (although whether all of the duties pleaded in CLS [61] were "fiduciary" duties was an issue strongly contested, for obvious reasons, by Mr Entwisle, who appeared on behalf of Madam Cheung and Vision Capital, whose potential liability was predicated on knowing assistance in the breach of such duties).

[17]

The primary judgment

In light of the issues raised on appeal, there are three central findings of the primary judge which fall to be highlighted: (i) there was no disposal of the ETCH shares for nil consideration; (ii) any loss of opportunity to sell the shares to Lingnan was not caused by anything done after 4 July 2012; and (iii) the ultimate sale of the ETCH shares for AU$2 million was not at a gross undervalue.

[18]

No disposal of the ETCH shares for "nil consideration"

The primary judge dismissed this aspect of the claim by holding in effect that, despite transfer of the legal title to the shares from ETCI to Vision Capital on 25 July 2012, there had been no transfer of the beneficial interest in the shares at that time. As his Honour put it at PJ [522], there was no disposal of ETCI's sole asset, namely its shares in ETCH, for nil consideration. In short, his Honour held that there was no disposal for nil consideration because there was no disposal of the beneficial interest in the shares at all.
The primary judge's analysis of this question began by considering the corollary of ETCI's claim, namely that Messrs Rose and Marcou had in effect gifted ETCI's Shares in ETCH to Madam Cheung and Vision Capital. In this context, he called in aid the following legal propositions:

a transfer of property for "nil consideration" will only be a legally binding disposal of the beneficial interest in the property if the transfer is accompanied by an intention to transfer the beneficial interest for no return: Leary v Federal Commissioner of Taxation (1980) 32 ALR 221 at 237-238;
it is not possible unintentionally to transfer the beneficial interest in property. Thus, in the context of an unpaid vendor's lien, "a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration": Hewett v Court (1983) 149 CLR 639 at 645; [1983] HCA 7, citing Mackreth v Symmons (1808) 15 Ves Jun 329 at 340; (1808) 33 ER 778 at 782; and
this principle applies equally to choses in action such as shares: see Evans v McLean (No 2) [1987] WAR 110 at 115.

His Honour tested the matter by reference to a large body of evidence and considerations which he concluded were inconsistent with the existence of an intention to give away the company's sole asset; conduct which, it may be observed, prima facie at least, would be extremely surprising and commercially irrational.
The primary judge summarised the evidence of Messrs Rose and Marcou in relation to the ETCH Share Transfer at PJ [264]-[269] and reached the conclusions which have already been noted at [111] above. At [269], his Honour had observed: "Mr Rose and Mr Marcou cannot be mistaken about these matters. They were either telling the truth about the understanding they had with Madam Cheng about the share transfer, or they were giving evidence knowing it to be false."

[19]

No loss of opportunity to sell to Lingnan

At PJ [568], the primary judge summarised an earlier conclusion he had reached at PJ [211], namely that: "The reason ETCI lost its opportunity to sell its interest in GZL to Lingnan was a combination of, first, its decision to postpone the discussions with Lingnan scheduled for the first week of July 2012, and, second, the manner in which that decision was communicated to Lingnan." This important factual finding was not challenged in the Rule 51.36 Statement.
The primary judge also held that the decision to postpone the discussion with Lingnan was taken by the board of ETCI (PJ [197] and [570]) and that no complaint was made at first instance as to the manner in which Mr Marcou had expressed himself in his email to Lingnan of 30 June 2012, on which other board members were copied: see [90] above. Nor was the form or substance of this email the subject of any complaint by the board of ETCI at the time it was sent nor by the Appellants in these proceedings: PJ [214] and [572].
The cancellation of the proposed meeting with Lingnan, and communication thereof, did not entail any breach of directors' duties and the primary judge held that the loss of the opportunity to sell the ETCH shares (and thus the interest in GZL) to Lingnan could therefore not have been caused by any relevant conduct of Messrs Rose and Marcou.
As a matter of inescapable logic, that loss of opportunity having already occurred by 4 July 2012, any breach of directors' duties thereafter could not have caused that loss.

[20]

No sale at a gross undervalue

To recap, this aspect of the Appellants' case was that the sale of the ETCH shares for $2 million pursuant to the 2013 Share Sale Agreement was at a gross undervalue: see [148] above. On the basis that the date of that agreement was 7 June 2013 (a matter sought to be disputed by the Appellants as the true date of its execution), that is the date by reference to which the contention of sale at a gross undervalue fell to be assessed.
The primary judge's reasoning in respect of this allegation at PJ [605]-[612] was as follows:

as to whether each of Mr Rose and Mr Marcou was, or ought reasonably to have been, aware that the sale of ETCI's shares in ETCH for US$2 million was at a gross undervalue, Lingnan's offer of US$11 million, made 12 months earlier, was problematic;
the February 2013 Civil Judgment of the Guangzhou Tianhe District People's Court (see [122ff] above) was a major blow to ETCI, its implication being that ETCI no longer had any indirect interest in GZL;
there was no evidence that the RMB 80 million referred to in the 21 June 2013 Papers of Civil Mediation (see [138]-[140] above) was paid to the ETC Subsidiaries, or to any other entity;
absent such payments made to ETCI, the plaintiffs' own expert opined that the net assets of ETCI were valued at negative $2.12 million;
in those circumstances, there was no basis upon which to conclude that the price at which ETCI ultimately agreed to sell its interests in ETCH to Vision Capital was at a "gross undervalue".

[21]

Grounds of appeal

Reference has already been made to the complex nature of the Notice of Appeal and to the fact that issue was taken by the Respondents with some of the grounds of appeal, it being contended that they raised matters which had either not been raised in the pleadings or argued at first instance. It is convenient to deal with these matters first.

[22]

Derailing of negotiations with Lingnan

First, ground 12(d) of the Notice of Appeal (see [251] below) and part of [4] of the Rule 51.36 Statement were to the effect that the primary judge should have found that Messrs Rose and Marcou breached their duties as directors by "derailing" the negotiations with Lingnan in late June 2012.
It was objected, correctly, that this was not an allegation which was pleaded against either Messrs Rose or Marcou. It would have been a serious allegation and involved a complex factual inquiry. The allegation was never made and it should not be entertained on appeal.

[23]

Alleged backdating of the 2013 Share Sale Agreement

The second contentious matter sought to be raised (in [7] of the Rule 51.36 Statement and ground 12(f) of the Notice of Appeal (see [251] below) was an allegation that the 2013 Share Sale Agreement was not executed on the date it bore, namely 7 June 2013, but was executed at a later date and only ascribed the date of 7 June 2013 after the event in order to place it temporally before Messrs Rose and Marcou learnt of the "settlement" referred to in the 21 June 2013 Papers of Civil Mediation. This was the "backdating" contention that the primary judge had rejected because it had not been pleaded (see [137] above). His Honour described the argument at PJ [418]-[420] as being akin to an unpleaded allegation of fraud: "418 In closing, Mr White made the very serious allegation that the agreement was not entered into on the date it bears, 7 June 2013, but was 'invented' by Mr Rose and Mr Marcou 'after the event' to 'justify and explain' why the proceeds of the 21 June 2013 Paper of Civil Mediation 'had not been secured for the benefit of ETCI but left for [Madam] Cheung to collect through her control of ETCH and the downstream companies'. 419 Mr White also submitted that the Sale of Shares Agreement 'was intended [by Mr Rose and Mr Marcou] to conceal [their] derogation of duty' concerning the 21 June 2013 Paper of Civil Mediation and was entered 'to avoid or minimise any criticism from shareholders in ETCI as to why its sole asset was sold for $2 million following discovery of the [21 June 2013 Paper of Civil Mediation]'. 420 That is an allegation of fraud on the part of Mr Rose and Mr Marcou. There is no suggestion of any such allegation in ETCI's List Statement. The allegations of dishonesty in the List Statement are directed to the ETCH Share Transfer, the approval of the Rights Issue, the purported ratification in September 2013 of the sale of the ETCH shares and the purported approval of the Special Distribution. For that reason alone, I would not entertain the allegation."
His Honour proceeded, notwithstanding this conclusion, to consider and reject each of the five matters that were advanced to support this allegation: see PJ [421]-[433].
The primary judge was correct, for the reasons he gave, to reject the entertainment of this serious allegation and those reasons apply equally to the attempt to raise the matter on appeal. It is a fundamental requirement of procedural fairness that allegations of or akin to fraud are pleaded with particularity: Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 301-302; [1990] HCA 11. In the present case, not only was the backdating allegation not raised, but the Appellants' opening submissions at first instance positively asserted that the 2013 Sale Share Agreement was entered into on 7 June 2013, i.e. the date it bore.

[24]

Grounds 15, 16, 3 and 4 - credit and the ETCH Share Transfer

It is convenient to commence consideration of the grounds of appeal with grounds 15 and 16 and [7] of the Rule 51.36 Statement, all of which attack the primary judge's substantial acceptance of Messrs Rose and Marcou as witnesses of credit. Grounds 15 and 16 were as follows: "The trial judge erred in finding that Rose and Marcou were reliable witnesses, and that Rose and Marcou were generally honest witnesses, and failed to address the appellants' submissions and to give adequate reasons for his Honour's findings on credibility at J [65]-[66] and [491]. The trial judge should have found that: a. Rose and Marcou were not honest witnesses doing their best to assist the Court when giving evidence about the Vision Capital transaction and their dealing with the ETCI Board and Cheung with regard to that transaction; and b. Rose and Marcou were unreliable witnesses on those matters whose evidence should not be accepted unless corroborated by other probative contemporaneous evidence."
These grounds are of particular importance as the primary judge accepted Messrs Rose and Marcou's evidence that they intended and believed that the ETCH Share Transfer to Vision Capital in July 2012 was reversible. This aspect of his Honour's findings is related to grounds 3 and 4 of the Notice of Appeal which were as follows: "3 The trial judge erred in finding, contrary to the incontrovertible evidence, at J [227], [264]-[269], [292], [488]-[491], [496], [500]-[501], [515], [520] and [540], that: a. the Vision Capital transaction was a sham transaction designed and intended only to arm Freada Kwan Cheung (Cheung) with the appearance of ownership of ETCI's shares in ETCH; b. the Vision Capital transaction was understood and intended by Rose and Marcou to be 'reversible' or a trust arrangement; and c. the Vision Capital transaction was in the best interests of ETCI. 4 The trial judge should have found that the Vision Capital transaction was an actual or real transaction intended to transfer ownership of ETCI's shares in ETCH and the control of ETCH to Vision Capital and Cheung, in accordance with the evidence of Marcou, which the trial judge accepted at J [230]."
The evidence of Mr Marcou referred to in ground 4 was as follows: "Q. At the board meeting of 4 July weren't you trying to persuade the other directors that the Vision Capital deal was better? A. Yes, I was. Q. Than the Lingnan deal. A. I certainly was, your Honour. Q. Doesn't that suggest that you were trying to persuade the board that the Vision Capital deal was an actual deal, not just some device to make it appear that Madame Cheung was assuming ownership? A. I'm sorry, Madame Cheung was what? Q. Doesn't that suggest that you were trying to persuade the board that the sale proposed, or the possible sale to Vision Capital, was a genuine deal and a better deal than the Lingnan one and not merely a transaction to create an apparent assumption of ownership by that - A. Your Honour, absolutely. That is a fact. That is exactly what I wanted to do."

[25]

Approach to appellate review in respect of credit findings

The primary judge's conclusions as to the credibility of Messrs Rose and Marcou were relatively brief but positive: see [24] above. Messrs Rose and Marcou were both cross-examined at considerable length and the primary judge had all the well-known advantages of observing them in the witness box: see Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479; [1993] HCA 78; Jones v Hyde (1989) 85 ALR 23; [1989] HCA 20; Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47.
These three cases were described as "the Abalos trilogy" in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588; [1999] HCA 3 at [79] by Kirby J but, as has been pointed out in a subsequent trilogy of cases, namely Fox v Percy, Robinson Helicopter Co Inc v McDermott (2016) 331 ALR 550; [2016] HCA 22 at [43]; and Lee v Lee (2019) 266 CLR 129; [2019] HCA 28, the advantages of a trial judge in observing witnesses giving their evidence do not immunise an intermediate appellate court from its statutory obligation to conduct a real review of the trial.
In Fox v Percy at [23], Gleeson CJ, Gummow and Kirby JJ referred to the "natural limitations" upon an appellate court proceeding wholly or substantially on the record. Their Honours pointed out in this context that an appellate court does not have the same advantage as a trial judge: "in respect of the evaluation of witnesses' credibility and of the 'feeling' of a case which an appellate court, reading the transcript, cannot always fully share. Furthermore, the appellate court does not typically get taken to, or read, all of the evidence taken at the trial. Commonly, the trial judge therefore has advantages that derive from the obligation at trial to receive and consider the entirety of the evidence and the opportunity, normally over a longer interval, to reflect upon that evidence and to draw conclusions from it, viewed as a whole." (footnotes omitted) See also Biogen Inc v Medeva plc [1997] RPC 1 HL(E); [1996] UKHL 18 at 45.
In Fox v Percy at [25], consistently with Warren v Coombes (1979) 142 CLR 531 at 551; [1979] HCA 9, Gleeson CJ, Gummow and Kirby JJ also said: "Within the constraints marked out by the nature of the appellate process, the appellate court is obliged to conduct a real review of the trial and, in cases where the trial was conducted before a judge sitting alone, of that judge's reasons. Appellate courts are not excused from the task of 'weighing conflicting evidence and drawing [their] own inferences and conclusions, though [they] should always bear in mind that [they have] neither seen nor heard the witnesses, and should make due allowance in this respect'." (footnotes omitted).

[26]

Lines of attack on positive findings of credit

Mr Williams SC, who appeared with Mr Kaplan for the Appellants, sought first, through grounds 15 and 16, to defeat the primary judge's substantial acceptance of Messrs Rose and Marcou as witnesses of credit with a view to undermining their evidence in relation to the ETCH Share Transfer. He developed his argument substantially by reference to a number of discrete aspects of the evidence, pursuant to other grounds of appeal. Two of these attacks concerned or at least drew upon the minutes of board or other meetings.
In one instance, concerned with the minutes of a meeting held on 4 July 2012 (see [94]-[97] above), it was put in the Rule 51.36 Statement at [2] that: "The primary judge found that the minutes of the meeting of the Board of ETCI held on 4 July 2012 as signed by Mr Rose accurately recorded what had occurred at that meeting: J [218], [220]. The primary judge should have found that: (a) the version of the minutes that correctly recorded what occurred at that meeting was that which had been signed by Mr Tse (and not that which had been signed by Mr Rose), and (b) Mr Marcou had, on 4 August 2012, amended the minutes prepared by Mr Tse to seek to justify the terms of the Signed Term Sheet into which ETCI had entered with Vision Capital on 5 July 2012: AS [43]-[52]." This mirrored the terms of grounds 1 and 2 of the Notice of Appeal.
The second attack was based upon a discrepancy between the account given by Messrs Rose and Marcou in their evidence of the meeting with representatives of Lingnan on 5 June 2012, and minutes of that meeting. Thus it was put in the Rule 51.36 Statement at [5] that: "The primary judge found that there was no reason to doubt the accuracy of Messrs Marcou and Rose's recollection of their meeting with representatives of Lingnan on 5 June 2012: J [161]. The primary judge should have found that the details of what had occurred at that meeting were contained in the contemporaneous documentary evidence (including the minutes of that meeting) and not the oral and affidavit evidence of Messrs Rose and Marcou: AS [74]." This was a reference to the fact that the minutes of the meeting do not refer to the fact that Messrs Rose and Marcou considered that some of the Lingnan representatives at the meeting were intoxicated and threatening: see [74]-[76] above.
In addition to these two matters, the Appellants relied upon the fact, which the primary judge accepted, that Messrs Rose and Marcou failed to inform their fellow directors, Ms Ng and Mr Simeon, of the ETCH Share Transfer which the primary judge described as "doubtless a breach of their duty to keep their fellow board members informed of vital developments": PJ [528]. Indeed, Mr Williams sought to demonstrate that they had actively concealed the fact of the transfer to Vision Capital of the legal title to the ETCH shares in mid-2012 from their fellow directors.

[27]

4 July 2012 minutes

This issue is the subject of appeal grounds 1 and 2 which are in the following terms: "The trial judge erred in finding, at [218] and [220] of his Honour's reasons for judgment (J), that the version of the minutes of the meeting of the Board of ET-China.com International Holdings Ltd (ETCI) on 4 July 2012 signed by Christopher Peter Rose (Rose) was an accurate record of what occurred at that meeting in the light of, or against the weight of, the incontrovertible evidence to the contrary, in particular: a. Rose's own oral evidence (Transcript (T) 538.40-540.35); b. the undisputed documentary evidence of e-mail communications sent to Rose and Marco Marcou (Marcou) by the other directors of ETCI who had been present at that meeting; and c. the evidence that Marcou had altered the original draft minutes after the meeting (as found by the trial judge at J [217]). The trial judge should have found that: a. the version of the minutes of the meeting of the Board of ETCI held on 4 July 2012 signed by Rose was not an accurate record of what transpired during that meeting; b. the unamended version of the minutes of the meeting of the Board of ETCI held on 4 July 2012 prepared by Daniel Tse accurately reflected what transpired during that meeting; and c. Marcou had altered the original draft minutes on 4 August 2012 to justify the terms of an executed Term Sheet dated 5 July 2012 between ETCI, ET-China Holdings Ltd (ETCH) and Vision Capital (Asia) Ltd (Vision Capital), the terms of which were markedly different from those upon which the Board of ETCI had agreed at its meetings held on 29 June 2012 and 4 July 2012."
The primary judge explained his reasons for accepting the accuracy of the minutes which Mr Rose signed (PJ [218]) on the basis that it was not suggested to Mr Rose in cross-examination that the minutes that he signed did not accurately record what occurred at the meeting. It must also be recalled that, apart from Mr Marcou, nobody else who attended the meeting gave evidence.
It is not unknown, still less uncommon, for disputes to arise as to what may have been said at meetings of boards of companies: see, for example, Equity Nominees Ltd v Tucker (1967) 116 CLR 518; [1967] HCA 22 at 524-525; ASIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [111]-[122]; Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 56 SASR 455 at 469-473; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2385]-[2402]; Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 567 at 581; ASIC v Loiterton [2004] NSWSC 172 at [115]-[120]; Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716 at [102]-[115]; Jarrett v Perpetual Trustee Co Ltd [2007] NSWSC 1231; (2007) 64 ACSR 552 at [75]-[85]; ASIC v Rich (2009) 236 FLR 1; [2009] NSWSC 1229; ASIC v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098; ASIC v Macks (No 4) [2020] SASC 209 at [570]-[575]; Mirvac (WA) Pty Ltd v Binningup Nominees Pty Ltd [2020] WASC 28 at [234]-[248]. Sometimes, the differences may be substantial; sometimes, they may go to matters of emphasis or the extent of detail recorded about particular issues discussed. The mere fact that there may be competing versions of minutes does not mean, moreover, that one of the different versions is necessarily false: recollections of events may differ. Obviously it is desirable that directors reach accord as to the accuracy of minutes but that may not always be possible.

[28]

The 5 June 2012 Lingnan meeting

This is the meeting that has been referred to at [71]-[78] above and about which Messrs Rose and Marcou gave evidence to the effect that they perceived that the Lingnan representatives at the meeting were drunk, heavy handed and threatened them with arrest if they came to China.
The Appellants submitted that this account should not have been accepted because it was not recorded in any minutes of the meeting or other contemporaneous documentary evidence: see [162] above.
Messrs Rose and Marcou submitted that the primary judge was correct to accept their evidence and that it was "inherently plausible and consistent with Lingnan's 'big bully' status (to use language from [Mr] Ng's evidence) and their conduct in relation to Ng." The evidence was also submitted to be consistent with the fact that, following the meeting, Lingnan commenced civil proceedings against Mr Ng, Ms Yang, and various ETC Subsidiaries.
The evidence accepted by the primary judge does find support both in the matters referred to on behalf of Messrs Rose and Marcou and in Lingnan's subsequent conduct in withdrawing from any further negotiations following receipt of Mr Marcou's email of 30 June 2012. It is also evidence in respect of which the primary judge's advantage in observing Messrs Rose and Marcou give their evidence over a lengthy period of time in the context of the evidence as a whole must be appreciated and respected: see Fox v Percy at [23], extracted at [183] above.
The absence of any reference to Lingnan's conduct in any minutes or record of the meeting of 5 June 2012 does not, in my view, supply a sufficient basis for interfering with the primary judge's findings in this regard, and does not undermine the primary judge's credibility findings.

[29]

Concealment of the ETCH Share Transfer

The first point to be made in this regard is that the primary judge made his assessment as to Mr Rose's and Mr Marcou's credibility notwithstanding his conclusion that they did not disclose the fact of the ETCH Share Transfer to the board. In other words, it was a matter that the primary judge took into account in his overall assessment of witness credibility.
Secondly, even accepting that the ETCH Share Transfer was something that should have been disclosed to the other members of the board of ETCI, the non-disclosure is not necessarily commensurate with dishonesty especially in circumstances where, as discussed below and as the primary judge accepted, the ETCH Shares were not being gifted to Vision Capital or Madam Cheung.
Thirdly, as noted at [188] above, even if there were some dishonesty in the non-disclosure, it does not follow that the whole of a witness' evidence should be rejected or characterised as dishonest: see [178] above. This is particularly so where the challenged evidence is supported by objective considerations, as his Honour found was the case: see PJ [494]-[515].
I would also reject the Appellants' contention that the primary judge failed to give adequate reasons for his findings on credibility. To the contrary, the primary judgment discloses an exemplary approach to fact-finding and the assessment of witness credibility with the plausibility of witnesses' testimony being tested against context and that which was revealed objectively by contemporaneous documents. As the primary judge said at PJ [70]: "In the circumstances, I must do the best I can to reach a conclusion as to what happened and why it happened, bearing in mind the evidence given by Mr Marcou and Mr Rose, the documentary record and, perhaps most significantly, the logic of events."
Consistently with the primary judge's invocation of "the logic of events", Mr Bagley on behalf of Messrs Rose and Marcou emphasised key unchallenged factual findings including Mr Ng's arrest and incarceration in China in relation to ETCH's acquisition of interests in GZL, and that ETCI was effectively locked out of this asset as a result, with bank accounts being frozen, all of which he submitted, and the primary judge found, supplied a contextual reason or explanation for the use of a reversible transaction.
Finally, I would reject the Appellants' submission that the "reversible nature" of the Vision Capital Transaction was "contrary to all the contemporaneous documentation concerning it". That was not the case. The final sentence of cl 4.4 of the draft SSA as well as the recitals to the 2013 Share Sale Agreement are two cases in point, as has already been noted at [103] and [107] above.

[30]

Grounds 3-8 - the nature of the ETCH Share Transfer

Grounds 3 and 4 have been set out at [179] above.
Grounds 5 and 6 essentially challenged the primary judge's finding that Madam Cheung's participation in the rights issue in March 2013 could only be explained on the basis that she did not believe that, through Vision Capital, she was the beneficial owner of ETCH: see [131] above.
Grounds 7 and 8 were, in many respects, the converse of the Appellants' attack on the primary judge's findings as contained in grounds 3 and 4. Grounds 7 and 8 are in the following terms: "7. The trial judge misunderstood the appellants' case in finding, at J [484]-[485], that it was a necessary element of their case that each of Rose, Marcou and Cheung understood and intended that, on the date of the transfer of ETCI's shares in ETCH to Vision Capital, ETCI made a gift to Vision Capital of those shares, and that their case had to fail because, as found at J [487], "the evidence of each of … Rose and … Marcou [wa]s that neither they, nor … Cheung, intended to make a gift to Vision Capital of the ETCH shares". 8. The trial judge should have found that the appellants' case involved the propositions that ETCI's shares in ETCH were transferred to Vision Capital on 25 July 2012 without consideration being paid and that that permitted Vision Capital to take control of ETCH (whether it had beneficial ownership thereof or not), and that it was not a necessary element of the case that Vision Capital received actual, beneficial ownership of ETCH."
Contrary to ground 3 of the Notice of Appeal, the primary judge did not hold that the Vision Capital Transaction was a "sham transaction". What he held was that the legal transfer of ownership of the shares was for a particular purpose but that it was ineffective to transfer beneficial ownership and was not intended by Messrs Rose or Marcou to do so. The primary judge said (at PJ [519]-[520]) that: "Mr White did not submit that any of these negotiations was a sham. The highest that it was put was that delivery of the ETCH Share Transfer weakened ETCI's bargaining position. I think Mr Entwisle was in these circumstances correct to submit that the 'true position' was that: '… the shares in [ETCH] were transferred prior to there being a final agreement as to price. Vision Capital received the shares for the purpose of representing to relevant parties in the PRC that [Madam] Cheung was the ultimate legal owner and could deal with the PRC businesses, thereby facilitating the potential resolution of the PRC legal issues and the potential sale of the business. The evidence does not establish that [Mr] Rose, [Mr] Marcou or [Madam] Cheung ever viewed the transfer as being final without any agreement to pay for the shares. … absent any intention by [Mr] Rose to absolutely transfer the shares, there could not have been any final disposal of the beneficial interest. The transaction was, therefore, always reversible until the entry into the [Sale of Shares Agreement] on 7 June 2013'."

[31]

Grounds 9-10

Grounds 9-10 of the Notice of Appeal were as follows: "9. The trial judge erred in fact and law at J [521]-[544] in finding that Rose and Marcou did not breach any duties that they owed as directors of ETCI in circumstances where his Honour found, at J [528], that they had failed to advise the other directors of ETCI of the "vital developments" constituted by the transaction with Vision Capital which took place on and shortly after 25 July 2012. 10. The trial judge should have found that for Rose and Marcou to set up, carry out and not advise the other ETCI directors of the terms of the Vision Capital transaction and its execution on 25 July 2012 was: a. a failure to act honestly and in good faith in the interests of ETCI, and a breach of the duty to do so as directors; b. a failure to exercise the powers of directors for a proper purpose, and a breach of their duty to do so as directors; c. a misappropriation of company property for their own, or a third party's, benefit, and a breach of their duties as directors not to engage in such conduct; d. a failure to act with due care, skill and diligence, and a breach of their duties as directors so to act in relation to the Vision Capital transaction, and that, contrary to the trial judge's conclusion at J [528], the appellants made no concession that a breach by Rose and Marcou of their duty to keep ETCI's Board members informed of vital developments (including the transfer of its shares in ETCH to Vision Capital) alone "[wa]s not sufficient … to impose liability on them."
These grounds, and in particular ground 10, are predicated on the ETCH Share Transfer entailing a disposition of ETCI's beneficial interest in the ETCH shares. For reasons already given, the primary judge did not find that to have occurred and that conclusion was not only open to him but, in my view, correct. There was no relevant failure to act honestly and no "misappropriation of company property for their own, or a third party's, benefit".
Furthermore, no improper purpose was pleaded. As submitted by Mr Entwisle: "the only improper purpose that the appellants have alleged (here or below) is to 'enable [Vision Capital] to make a profit': AS, [64] (see also J [452]; [529]-[532]. This purpose was not pleaded. It is based solely on an alleged concession made by Marcou in cross examination, reproduced at J [532], to the effect that he 'would hope' that Cheung was seeking to make a profit. The primary judge rightly dismissed this case as not reflecting a 'fair reading' of the evidence: J [533]-[534]. As his Honour observed, the cross-examiner (much like the appellants in their submissions) did not distinguish between the transfer of shares and the 'overall transaction contemplated with Vision Capital': J [533]. It is plain from Marcou's subsequent answers (including 'That's unfair. We did get $2 million') that he was talking about the latter. No improper motive can be imputed from Marcou's observation that, in the context of the overall deal being discussed, Cheung would not agree to ultimately acquire the business unless she could make a profit from doing so."

[32]

Ground 11 - causation

Ground 11 of the Notice of Appeal stated that: "The trial judge erred in fact and law in finding, at J [574], that the breaches of directors' duties by Rose and Marcou were not a cause of loss to ETCI."
In light of the primary judge's findings on breach and my reasons for dismissing the grounds of appeal in respect of those findings, this ground does not strictly arise. It can, therefore, be dealt with relatively briefly.
It will be recalled that the primary judge held that ETCI lost the opportunity of a sale of its shares to Lingnan on or about 4 or 5 July 2012 when a proposed meeting in Hong Kong was postponed, following the sending by Mr Marcou of an email on 30 June 2012 about which no complaint was made (other than the Appellant's illegitimate attempt to introduce a new complaint for the first time on appeal that Messrs Rose and Marcou had deliberately derailed the Lingnan negotiations: see [168]-[169] above). Part of the Appellants' submissions on causation (see Appellants' Written Submissions at [73]) are based upon this contention which was not open to be made.
Even if, contrary to the primary judge's finding as to when the opportunity to sell to Lingnan was lost, the opportunity was not lost by 4 July 2012, the ETCH Share Transfer would not have had the effect of precluding a sale to Lingnan, had Lingnan wished to engage, for the reason that the transfer was reversible in equity and had not effected a transfer of the beneficial ownership in the shares. The ETCH Share Transfer, therefore, cannot have been causative of any loss of opportunity to sell to Lingnan even if, contrary to the primary judge's finding (as to which there was no specific factual challenge), the opportunity was not lost at the time and by reason of the postponement of the proposed 4 July 2012 meeting.

[33]

Ground 12 - the 2013 Share Sale Agreement and the Papers of Civil Mediation

This ground of appeal (as amended in the course of the hearing of the appeal and indicated by the underlining) was as follows: 12. The trial judge should have found that the breaches of directors' duties by Rose and Marcou included their conduct in: a. setting up the Vision Capital transaction; b. misleading the ETCI Board about the nature and terms of that transaction; c. persuading the ETCI Board to postpone the negotiations for sale of ETCI's shares in ETCH to Guangzhou Lingnan International Enterprise Group Co Ltd (Lingnan); d. de-railing those negotiations (as put to Marcou at T340.17-26); e. the execution of the transfer of ETCI's shares in ETCH to Vision Capital on 25 July 2012; f. entering into and purporting to ratify the transaction the subject of the purported agreement dated 7 June 2013; and g. not ensuring that ETCI received the benefit of proceeds of a 'Paper of Civil Mediation' issued in June 2013 by a court in the People's Republic of China (PRC) in proceedings involving Lingnan and the interest held in Guangzhou GZL International Travel Services Limited by subsidiaries of ETCI operating in the PRC (June 2013 Paper of Civil Mediation)."
Of the various sub-paragraphs of this ground, (a), (b) and (e) have already been dealt with in substance. Subparagraphs (c) and (d) relate to unpleaded allegations which have already been held not to be open to be raised on appeal: see [162] and [168]-[169] above.
Subparagraphs (f) and (g) are contentious and were objected to by the Respondents, in particular Madam Cheung and Vision Capital on the basis that the knowing assistance and/or knowing receipt case advanced against them at first instance was confined to a case in respect of the ETCH Share Transfer.
Subparagraph (f) represented the Appellants' attempt to formulate a ground of appeal in relation to the allegation that the 2013 Share Sale Agreement (in consideration of AU$2 million) represented the sale of shares at a gross undervalue. This argument had been advanced in writing in appeal submissions but was not reflected in the Notice of Appeal as originally formulated. It had been rejected by the primary judge: see [165]-[166] above.
There was force in Mr Entwisle's objection on behalf of Madam Cheung and Vision Capital as follows: "The fundamental point is that no case was ever advanced below that Cheung entered into the 7 June 2013 agreement with knowledge that it was a breach of the directors' duties for them to agree to the $2 million sale. It certainly was not alleged that she did so with knowledge that the agreement was back-dated or was being entered into to cover up some other wrongdoing. That case cannot be raised against her for the first time on appeal."

[34]

Sale at gross undervalue

Reference had been made at [148] above to CLS [67] and the pleading that the sale of the ETCH shares for AU$2 million pursuant to the 2013 Share Sale Agreement was at a gross undervalue. The primary judge's consideration of that matter has been referred to at [165]-[166] above.
ETCH's value lay solely in its indirect interests in the ETC Subsidiaries which had been the subject of a wholly adverse judgment in the PRC in February 2013. The impact of that judgment was recorded in contemporaneous correspondence at the time, as referred to in [125] above.
As at the date of sale, namely 7 June 2013, Mr Rose had an utterly pessimistic view about any appeal prospects (see [126] above) and, on all of the evidence, was entirely justified in holding this view. Mr Marcou's perception, shared with Mr Rose, that "we've been screwed in China", has also been noted at [125] above.
The Appellants' "gross undervalue" case sought to place reliance on the original Lingnan "offer" as well as the $13 million referred to in the Vision Capital Term Sheet and the draft SSA in mid-2012. That reliance was quite misplaced. The former "offer" was subject to deductions for fines, penalties and possibly any illegally-paid dividends: see [74] and [77] above. It was also made long before the February 2013 Civil Judgment which completely and dramatically changed the landscape, as the board of ETCI recognised. The Vision Capital offer of $13 million was conditional upon due diligence. That due diligence resulted in the offer being reduced drastically. It was an offer that was also made well before the February 2013 Civil Judgment.
The assessment of whether or not the sale was at a gross undervalue and whether that was or ought to have been known to Messrs Rose and Marcou must be by reference to the date of sale.
At that point in time, with ETCI on the brink of insolvency and with no other assets, and subject to a powerful adverse judgment in the PRC, there is no basis for concluding that the sale was at a gross undervalue.
As ETCI's independent director Mr Drummond described in a draft email to Mr Ng, which he sent to Messrs Rose and Marcou on 3 August 2016: "The board had realised that the authorities would not deal with the 'foreign' controlled company because we had attempted to sell a controlling interest in GZL to Kuoni illegally rather than find a deal with Lingyan which would keep GZL under Chinese control. It struck me that they were also of the view that the earlier set up was also illegal even though we had received legal opinion that it worked. So we turned to Madam Chung [sic] and agreed to sell HK to her for A2 million in the expectation that she could make something out of a deal with the authorities. We did not expect her to buy the HK shares unless she thought she could make money from the deal but had no idea how much that would be, when it might be possible and how it would work. Clearly she did well and very fast although I believe she was not really involved in the negotiations which were principally between the Guanghou authorities and Lingyan. My guess is that Lingyan wanted the whole matter cleared up so that they were legal owners of GZL and could manage it without risk. I guess they had good friends in high places who would support a deal. None of the news regarding the 'settlement' was passed on to members of the Jersey board until October 2013 by which time I had resigned following the rights issue. As you know I never heard about the 'settlement' until last month."

[35]

Grounds 13-14 - damages

Grounds 13-14 were as follows: "13. The trial judge erred in fact and law by not judicially assessing the damages caused to ETCI by the breaches of directors' duties by Rose and Marcou, in particular: a. in rejecting the valuation evidence of the appellants' valuation expert, Tony Samuel (Samuel), at J [587]-[588] and [594]-[595], on the basis that he had not taken into account that the Vision Capital offer was subject to due diligence, when he had taken that into account as he stated in his evidence at T182.6-10 and 21-22, and that valuation methodology was not disputed and reliance on such an offer was in accordance with authority; b. in finding, at J [395] and [611], that Samuel had given evidence that, if no payment was made to ETCI as a result of the 'June 2013 Paper of Civil Mediation', the value of ETCI as at June 2012 was negative $2.12 million, when his evidence was that 'it [wa]s reasonable to assume that the net asset position of ETCI as at the date of the June 2013 [Paper of Civil Mediation] (and prior to the assumed inflow of RMB 83 million) was around negative US$2 million' (at [107] of his report dated 13 February 2019; see also T183.37-42, 194.16-18 and 199.30-200.5); c. failing to take into account on this issue in his reasoning the fact of the agreed settlement of RMB 83 million in the June 2013 Paper of Civil Mediation; d. failing to take into account or address in his reasoning the evidence of the ETCI Board's valuation of the ETCI interest in ETCH at the Board meeting on 8 June 2012 (J [169]-[171]); e. failing to take into account or address in his reasoning the evidence of the advice received by ETCI from Jianhe Mao to which the trial judge referred at J [146]; f. in finding, at J [599]-[602], that it had not been established that ETCI lost an opportunity which had more than negligible value, and that to assess the possibility of realising that value was to be required to 'pluc[k] a figure out of the air'; and g. failing judicially to assess the value of ETCI's lost opportunity in accordance with the principles enunciated by this Court in O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 and Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415 or to address those principles. 14. The trial judge should have found that: a. the breaches of directors' duties by Rose and Marcou caused ETCI to lose a commercial opportunity to sell its shares in ETCH to Lingnan or to another purchaser which had a value of at least US$12 million, or more than a negligible value; and b. after making appropriate adjustments to reflect the fact that the loss of the ETCH shares to Vision Capital caused ETCI to lose the opportunity to sell those shares to Lingnan in 2012 or early 2013, ETCI suffered a loss of more than AU$2 million."

[36]

Grounds 17-18 - accessorial liability

Grounds 17-18 related to accessorial liability. They were the subject of very brief written and oral submissions.
In circumstances where the Appellants have clearly failed in establishing primary liability and any entitlement to loss or damage or equitable compensation, it is not necessary to prolong this already lengthy judgment further (Boensch v Pascoe (2019) 375 ALR 15; [2019] HCA 49 at [8] and [101]) save to say, as Mr Entwisle submitted, that the Appellants failed to discharge their onus of proving that Madam Cheung or Vision Capital ever in fact received the proceeds of the purported settlement between the ETC Subsidiaries and Lingnan.
A Notice of Contention was filed on behalf of Madam Cheung and Vision Capital to the effect that: "None of duties that fourth (Rose) and fifth (Marcou) respondent are alleged to have breached (Notice of Appeal (NOA), [10]) are fiduciary duties and/or a breach of those duties could not, as a matter of law, give rise to liability on the part of the Cheung Respondents by reason of their being the knowing recipient of property by, or by being knowingly involved in, a breach of those duties in accordance with the principles in Barnes v Addy (1874) LR 9 Ch App 244."
In circumstances where this Notice of Contention raises issues of some doctrinal controversy, where the oral hearing which ran for three full days did not permit full argument, especially in response, on this point and where, for the reasons given in detail above, the issue does not need to be reached, it is neither necessary nor desirable to engage with it.

[37]

Other grounds and further Notice of Contention

The Notice of Appeal also contained grounds 19-21 but these grounds were not the subject of either written or oral submissions and must be taken in these circumstances to have been abandoned.
A Notice of Contention was filed on behalf of Messrs Rose and Marcou and supported by Madam Cheung and Vision Capital to the effect that the primary judge should not have granted Mr Ng leave to bring the proceedings on behalf of ETCI as an exception to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189.
In light of the conclusions reached which mean that the appeal should be dismissed, it is not necessary to deal with this issue.

[38]

Conclusion

For all of the above reasons, the appeal should be dismissed with costs.
LEEMING JA: I agree with Bell P.

[39]

APPENDIX DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 March 2021

HEADNOTE [This headnote is not to be read as part of the judgment] Mr Christopher Rose (Mr Rose) and Mr Marco Marcou (Mr Marcou) were directors of ET-China.com International Holdings Ltd (ETCI), whose sole asset, held through a wholly owned subsidiary incorporated in Hong Kong (ETCH) and its three Chinese subsidiaries (the ETC Subsidiaries), was a 54.43% interest in a Chinese (PRC) state-owned entity, Guangzhou GZL International Travel Service Ltd (GZL). The majority of the PRC's interest in GZL was held by Guangzhou Lingnan International Enterprise Group Co Ltd (Lingnan). Due to restrictions on the foreign ownership of local businesses in the PRC, ETCH's interest in GZL was not by way of a formal shareholding. Instead, it was held through a series of indirect contractual arrangements with citizens of the PRC, creating what is known as a "Variable Interest Entity" structure. Mr Matthew Ng (Mr Ng) was the founding director of ETCI and had been, prior to November 2010, its President and Chief Executive Officer. On 18 June 2010, Lingnan wrote to ETCI demanding that it explain how it had gained control of GZL and asserted that it had "acted illegally when acquiring control of GZL". In November 2010, Mr Ng was arrested by Chinese authorities and charged with offences including "bribery", "misappropriation of funds", "misstatement of registered capital", "official embezzlement" and "organisational bribery". On 6 December 2011, Mr Ng was convicted on these charges and sentenced to a term of 14.5 years imprisonment by the Intermediate People's Court of Guangzhou Municipality. Mr Ng's incarceration left ETCI in a vulnerable position with its PRC bank accounts frozen. ETCI secured the services of a PRC citizen, Madam Freada Kwan Cheung (Madam Cheung), in June 2011 to assist in selling its shares in ETCH and to obtain some value for its shareholders. This ultimately involved entering into a conditional transaction for a sale of the ETCH shares to a company controlled by Madam Cheung and the transfer of the shares to that company (the ETCH Share Transfer). Notwithstanding the transfer of the shares, no consideration was paid. Only Messrs Rose and Marcou, but not the other directors of ETCI, were aware of this transaction. Shortly before this transaction was entered into, a meeting between ETCI and Lingnan in relation to a possible sale of ETCI's indirect interest in GZL was postponed and Lingnan subsequently commenced civil proceedings in the Guangzhou People's Court against one of the ETC Subsidiaries. On its face, the ETCH Share Transfer to Madam Cheung's company had the consequence that ETCI lost its indirect interest in the ETC Subsidiaries and thus its economic interest in GZL, but neither Madam Cheung nor Messrs Rose or Marcou conducted themselves as though ETCI's indirect beneficial interest in GZL had been lost and that the beneficial interest in the ETCH Shares had passed. In February 2013, the Guangzhou People's Court delivered a judgment in the civil proceedings commenced by Lingnan the previous June (the February 2013 Civil Judgment), determining that the relevant ETC Subsidiary "was not a shareholder of GZL … and was not entitled to shareholder's rights and interests". The February 2013 Civil Judgment placed ETCI in a perilous financial state, in response to which Madam Cheung contacted Mr Marcou and proposed that the earlier share sale agreement between ETCI and Vision Capital be "simplified and amended" to reflect a purchase price of AU$3 million (later reduced to AU$2 million), to be paid over a period of approximately three months. Four months later, on 7 June 2013, ETCI and Madam Cheung's company, Vision Capital, executed a share sale agreement (the 2013 Share Sale Agreement), which made no reference to the earlier ETCH Share Transfer and was drafted on the basis that ETCI remained the beneficial owner of the ETCH shares. The consideration was paid in two tranches of AU$1 million each on 6 and 9 September 2013. Within a fortnight of receiving payment, on 20 September 2013, the board of ETCI purported to hold a meeting with only Messrs Rose and Marcou present, the minutes of which recorded that the directors resolved to ratify the 2013 Share Sale Agreement. Mr Ng continued to be a director of ETCI throughout the period of his incarceration. Following his release on 15 June 2016 and subsequent return to Australia, he commenced proceedings on behalf of ETCI against Madam Cheung, Vision Capital and Messrs Rose and Marcou and two related entities. It was contended that Messrs Rose and Marcou had breached their equitable duties as directors of ETCI in causing or permitting the ETCH Share Transfer to occur without payment, and in purporting to ratify the 2013 Share Sale Agreement "at a gross undervalue". The claim against Madam Cheung and Vision Capital was for knowing assistance and knowing receipt in respect of the breaches alleged against Messrs Rose and Marcou. ETCI sought equitable compensation for the loss of the opportunity to sell its indirect interest in GZL to Lingnan. The primary judge dismissed the claims against Messrs Rose and Marcou, and therefore those against Madam Cheung and Vision Capital, holding that: (i) there was no disposal of the ETCH shares for nil consideration in 2012; (ii) any loss of opportunity to sell the ETCH shares to Lingnan was not caused by anything that occurred after 4 July 2012; and (iii) the ultimate sale of the ETCH shares for AU$2 million, pursuant to the 2013 Share Sale Agreement, was not at a gross undervalue. ETCI and Mr Ng appealed. The Court held (Bell P, Bathurst CJ and Leeming JA agreeing), dismissing the appeal with costs: 1. The primary judge did not err in finding that Messrs Rose and Marcou were witnesses of credit. The primary judgment disclosed an exemplary approach to fact-finding and the assessment of witness credibility with the plausibility of witnesses' testimony being tested against context and that which was revealed objectively by contemporaneous documents: [1] (Bathurst CJ); [212] (Bell P); [287] (Leeming JA). Devries v Australian National Railways Commission (1993) 177 CLR 472; [1993] HCA 78; Jones v Hyde (1989) 85 ALR 23; [1989] HCA 20; Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47; State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588; [1999] HCA 3; Fox v Percy (2003) 214 CLR 118; [2003] HCA 22; Robinson Helicopter Co Inc v McDermott (2016) 331 ALR 550; [2016] HCA 22; Lee v Lee (2019) 266 CLR 129; [2019] HCA 28; Biogen Inc v Medeva plc [1997] RPC 1 HL(E); [1996] UKHL 18; Warren v Coombes (1979) 142 CLR 531; [1979] HCA 9; Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560, referred to. 1. The ETCH Share Transfer did not involve the transfer of the beneficial ownership of ETCH to Vision Capital in the absence of an intention on the part of ETCI to dispose of the beneficial interest gratuitously: [1] (Bathurst CJ); [221]-[222] (Bell P); [287] (Leeming JA). Leary v Federal Commissioner of Taxation (1980) 32 ALR 221; Hewett v Court (1983) 149 CLR 639; [1983] HCA 7; Mackreth v Symmons (1808) 15 Ves Jun 329; (1808) 33 ER 778; Evans v McLean (No 2) [1987] WAR 110; Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; [1956] HCA 28; Napier v Public Trustee (WA) (1980) 32 ALR 153; Mendonca v Tonna [2020] NSWCA 196; Moore v Whyte [No 2] (1922) 22 SR (NSW) 570; Shephard v Cartwright [1955] AC 431, referred to. 1. The sale of the ETCH shares in 2012 was intended by both ETCI and Vision Capital to be a genuine transaction but one that was subject to Vision Capital's due diligence inquiries. It was not a "sham" but merely a transaction that did not come to fruition: [1] (Bathurst CJ); [230] (Bell P); [287] (Leeming JA). 2. Although the ETCH Share Transfer, out of context, may have appeared highly unusual, in fact and in context it involved an attempt to advance the best interests of ETCI in the extraordinary circumstances in which ETCI found itself. If, as was held to be the case, the ETCH Share Transfer was reversible, then even if the non-disclosure of the ETCH Share Transfer entailed a breach of duty, no loss was caused thereby: [1] (Bathurst CJ); [245]-[246] (Bell P); [287] (Leeming JA). Richard Brady Franks Ltd v Price (1937) 58 CLR 112; [1937] HCA 42, referred to. 1. ETCI did not lose its opportunity to sell the ETCH Share to Lingnan by reason of any breach of duty by Messrs Rose and Marcou: [1] (Bathurst CJ); [247]-[250] (Bell P); [287] (Leeming JA). 2. Even if ETCI's opportunity to sell its indirect interest in GZL to Lingnan was not lost by 4 July 2012, the ETCH Share Transfer would not have had the effect of precluding a sale to Lingnan, as the transfer was reversible in equity and had not effected a transfer of the beneficial ownership in the shares. The ETCH Share Transfer, therefore, could not have been causative of any loss of opportunity to sell to Lingnan: [1] (Bathurst CJ); [250] (Bell P); [287] (Leeming JA). 3. The primary judge was correct to reject the entertainment of an allegation of the "backdating" of the 2013 Share Sale Agreement on the basis that the allegation was akin to an unpleaded allegation of fraud. It is a fundamental requirement of procedural fairness that allegations of or akin to fraud are pleaded with particularity. Not only was the "backdating" allegation not raised before the primary judge, but the Appellants' positively asserted that the 2013 Share Sale Agreement was entered into on 7 June 2013, being the date that the document bore: [1] (Bathurst CJ); [172] (Bell P); [287] (Leeming JA). Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11, referred to. 1. The sale of the ETCH shares pursuant to the 2013 Share Sale Agreement was not at a gross undervalue. The relevant assessment of the value of the shares, and whether that was or ought to have been known to Messrs Rose and Marcou, must be by reference to the date of sale. At that point in time, with ETCI on the brink of insolvency and with no other assets, and ETCH subject to a powerful adverse judgment in the PRC, there was no basis for concluding that the sale was at a gross undervalue: [1] (Bathurst CJ); [261]-[262] (Bell P); [287] (Leeming JA). 2. The primary judge did not err in assessing the quantum of the alleged loss of the opportunity to sell the ETCH shares to Lingnan. The primary judge did not have any reliable means of assessing the value of the opportunity said to have been lost. The contingencies were many and complicated by the fact that any assessment would need to take into account the fact that the value of the opportunity was necessarily affected by the February 2013 Civil Judgment and the allegations contained therein: [1] (Bathurst CJ); [275]-[276] (Bell P); [287] (Leeming JA). 3. Observations by Bell P regarding: 1. the importance of an understanding of matters of chronology, context and contemporaneous documents in fact finding: [1] (Bathurst CJ); [24]-[29] (Bell P); [287] (Leeming JA); 2. the approach to appellate review in respect of credit findings, and the principle that an adverse finding about an aspect of a particular witness' evidence does not mandate that his or her evidence must or should be rejected on all issues: [1] (Bathurst CJ); [181]-[188] (Bell P); [287] (Leeming JA); and 3. disputes arising as to what may have been said at meetings of boards of companies, in which the mere fact that there may be competing versions of minutes does not mean that one of the different versions is necessarily false: [1] (Bathurst CJ); [197] (Bell P); [287] (Leeming JA).

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