(2021) 157 ACSR 77
Australian Competition and Consumer Commission v Yazaki Corp (No 2) [2015] FCA 1304
[2003] HCA 22
IMM v The Queen (2016) 257 CLR 300
[2016] HCA 14
Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381
Lithgow City Council v Jackson (2011) 244 CLR 352
[2011] HCA 36
Nominal Defendant v Smith [2015] NSWCA 339
Source
Original judgment source is linked above.
Catchwords
(2021) 157 ACSR 77
Australian Competition and Consumer Commission v Yazaki Corp (No 2) [2015] FCA 1304[2003] HCA 22
IMM v The Queen (2016) 257 CLR 300[2016] HCA 14
Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381
Lithgow City Council v Jackson (2011) 244 CLR 352[2011] HCA 36
Nominal Defendant v Smith [2015] NSWCA 339
Judgment (10 paragraphs)
[1]
Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379
Ford v Ingham Enterprises Pty Ltd ABN 20 008 447 345 (No 3) [2020] FCA 1784
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
IMM v The Queen (2016) 257 CLR 300; [2016] HCA 14
Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381
Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36
Nominal Defendant v Smith [2015] NSWCA 339; (2015) 73 MVR 257
R v Dann [2000] NSWCCA 185
R v Harker [2004] NSWCCA 427
Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
RH v R [2014] NSWCCA 71; (2014) 241 A Crim R 1
Rogic v Samaan [2018] NSWSC 1464
Szeto v Situ (No 2) [2019] NSWSC 1312
Toben v Jones (2003) 129 FCR 515; [2003] FCAFC 137
Watson v Foxman (1995) 49 NSWLR 315
Texts Cited: Schacter et al, 'The Cognitive Neuroscience of Constructive Memory' (1998) 49 Annual Review of Psychology 289
Judicial Council on Cultural Diversity, 'Recommended National Standards for Working with Interpreters in Courts and Tribunals' (2017, http://jccd.org.au/wp-content/uploads/2018/02/JCCD-Interpreter-Standards.pdf)
Category: Principal judgment
Parties: Youxian Gan (Appellant)
Eileen Xie (Respondent)
Representation: Counsel:
S Zhao (Solicitor) (Appellant)
L T Livingston SC with L P Cavell (Respondent)
[2]
Solicitors:
Brightstone Legal (Appellant)
Burrell Solicitors (Respondent)
File Number(s): 2022/83362
Decision under appeal Court or tribunal: District Court of New South Wales
Jurisdiction: Civil
Date of Decision: 25 February 2022
Before: Gibb DCJ
File Number(s): 2019/335739
[3]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[4]
HEADNOTE
[This headnote is not to be read as part of the judgment]
Between August and September 2016, the appellant, Ms Youxian Gan, invested approximately $305,150 and RMB805,000 in a platform known as "MFC", which was operated by MBI International Sdn Bhd ("MBI"). For her investment, Ms Gan received a variety of credits that could be sold to existing or new members of MFC, and the ability to earn a number of bonuses upon the introduction of new members to MFC. Ms Gan asserted that her decision to invest in MFC was brought about by the respondent, Ms Eileen Xie, who had made certain misrepresentations regarding: the legitimacy of MBl's operations; the profitability of investing in MFC; and the safety of any funds so invested, assured by the fact that the price of entry into MFC, and the price at which Ms Gan could sell her virtual coins and credits, would only ever increase and never decrease. After Ms Gan's entry into the scheme, MFC collapsed, resulting in widespread losses to its investors.
In the primary proceedings, Ms Gan asserted that: MFC was a pyramid scheme proscribed by and within the meaning of section 45(1) of the Australian Consumer Law, insofar as it required new participants to provide financial benefits to existing participants, substantially induced by the prospect held out to new participants of earning financial benefits upon their introduction of further participants to the scheme; Ms Xie had, in contravention of section 44(1) of the Australian Consumer Law, participated in a pyramid scheme, by making the alleged misrepresentations and, accordingly, Ms Gan was entitled to damages under section 236 of the Australian Consumer Law calculated by reference to the sums she had invested at Ms Xie's behest.
In an attempt to substantiate her claim that Ms Xie made the alleged misrepresentations to her, Ms Gan sought to lead evidence from other investors in MFC, who deposed that Ms Xie had made similar misrepresentations to them as part of her efforts to recruit them into MFC. The use sought to be made of that evidence by Ms Gan was a tendency use.
The primary judge (Gibb DCJ) dismissed Ms Gan's claims. Her Honour rejected the contention that MFC was a pyramid scheme proscribed by section 45(1) of the Australian Consumer Law on two bases. First, the primary judge found that persons introduced to MFC did not make a "participation payment" (as defined by section 45(1)(a)) to join the scheme, as they received virtual benefits commensurate with their level of investment, in the form of the scheme's coins and credits, and any financial benefits that flowed therefrom to existing participants resulted only from "the mechanics of the system". Secondly, the primary judge found that any such persons were not entirely or substantially induced to make a "participation payment" by the prospect held out to them that they would be entitled to receive a financial benefit upon the introduction of other persons to the scheme (as required by section 45(1)(b)).
The primary judge also rejected Ms Gan's claim that any of the representations alleged was made and held that Ms Gan was not induced by anything said by Ms Xie to invest. The primary judge refused to admit the tendency evidence sought to be led by Ms Gan for its lack of probative value, and for Ms Gan's failure to serve a notice of intention to adduce tendency evidence upon Ms Xie. The primary judge found that the inability of those witnesses to recall the words spoken to them by Ms Xie precisely undermined the reliability and probative value of their evidence.
On appeal, the issues before the Court were:
(i) Whether MFC bore the statutory characteristics, and thus met the description, of a "pyramid scheme" for the purposes of section 45(1) of the Australian Consumer Law;
(ii) Whether the primary judge erred in the treatment of the evidence regarding Ms Xie's alleged participation in a pyramid scheme, by the making of misrepresentations to and recruitment of Ms Gan, and in being satisfied on the state of the evidence that no such misrepresentations were in fact made; and
(iii) Whether the tendency evidence sought to be led by Ms Gan ought to have been admitted into evidence on the basis that it had significant probative value, notwithstanding the lack of service of a notice of intention to adduce tendency evidence.
The Court (per White JA, Simpson and Basten AJJA agreeing), allowing the appeal and remitting the matter for a new trial, held:
As to issue (i)
(1) Whether a scheme has the characteristics of a pyramid scheme proscribed by section 45(1) of the Australian Consumer Law is to be determined by the scheme's objective features, and not by reference to the participants' subjective understandings of the nature and operation of the scheme: [42]-[43] (White JA), [126] (Simpson AJA), [127] (Basten AJA).
(2) The primary judge erred in concluding that MFC did not bear the characteristics, and meet the description, of a pyramid scheme proscribed by section 45(1). Funds invested by new participants in the scheme provided a financial benefit to existing participants by enabling the conversion of otherwise irredeemable credits into legitimate currency and the prospect of receiving a financial benefit, in the form of bonuses, upon the referral of further participants to the scheme substantially induced, objectively, new participants to provide that financial benefit: [32]-[43] (White JA), [126] (Simpson AJA), [127] Basten AJA.
As to issue (ii)
3) Even where they are not contrary to incontrovertible facts, uncontested evidence, or compelling inferences, appellate intervention upon a trial judge's findings of fact or findings of credit is permissible where the manner in which the trial judge treated the evidence and made credit findings bespeaks error, including by reason of a failure to refer to factors which appear to the appellate court to be significant: [24] (White JA), [126] (Simpson AJA), [127] (Basten AJA).
Nominal Defendant v Smith [2015] NSWCA 339; (2015) 73 MVR 257, followed.
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, cited.
(4) The primary judge's findings of fact failed to take account of, and were inconsistent with, contemporaneous documentary evidence that supported Ms Gan's contention that Ms Xie had made certain misrepresentations to her about MFC. Those erroneous factual findings impacted the findings of credit made by the primary judge, exacerbated by the primary judge's rejection of the evidence given by other investors in MFC: [24], [52]-[69], [79]-[80] (White JA), [126] (Simpson AJA), [127] (Basten AJA).
As to issue (iii)
(5) The exercise of the primary judge's discretion not to waive the requirement for service of a notice of intention to adduce tendency evidence miscarried, by erroneously disregarding that Ms Xie was sufficiently on notice of Ms Gan's intention to adduce tendency evidence and that, accordingly, Ms Xie was unlikely to suffer prejudice by any such waiver. Each of those factors ought to have been taken into account by the primary judge: [106][108] (White JA), [126] (Simpson AJA), [127] (Basten AJA).
Toben v Jones (2003) 129 FCR 515; [2003] FCAFC 137; R v Harker [2004] NSWCCA 427, followed.
Cantarella Bros Pty Ltd v Andreasen [2005] NSWSC 579; Ford v Ingham Enterprises Pty Ltd ABN 20 008 447 345 (No 3) [2020] FCA 1784, approved.
(6) The tendency evidence that Ms Gan had sought to lead from other investors in MFC had probative value, insofar as it bore upon the probability that Ms Xie had made misrepresentations of the kind made to other investors to Ms Gan, and ought to have been admitted into evidence. That the other investors could not recall the conversations that they alleged they had had with Ms Xie verbatim was a matter separate from their ability to recall the substance or gist of those conversations: [87]-[99], [109]-[123] (White JA), [126] (Simpson AJA), [127] (Basten AJA).
Rogic v Samaan [2018] NSWSC 1464; Szeto v Situ (No 2) [2019] NSWSC 1312, considered; Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381, approved.
R v Dann [2000] NSWCCA 185; Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379; Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36; RH v R [2014] NSWCCA 71; (2014) 241 A Crim R 1; Australian Competition and Consumer Commission v Yazaki Corp (No 2) [2015] FCA 1304; (2015) 332 ALR 396; IMM v The Queen (2016) 257 CLR 300; [2016] HCA 14; Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 3) [2021] FCA 1147; (2021) 157 ACSR 77, cited.
[5]
JUDGMENT
WHITE JA: This is an appeal from orders of the District Court (Gibb DCJ) (Youxian Gan v Eileen Xie (District Court (NSW), 25 February 2022, unrep)).
The appellant, Ms Gan, was the plaintiff in the proceedings below. The respondent, Ms Eileen Xie, was the defendant. The primary judge gave judgment for the respondent. Ms Gan was ordered to pay Ms Xie's costs.
Ms Gan alleged that she was induced by misrepresentations made by Ms Xie to invest $305,150 and RMB805,000 in a pyramid scheme called "MFC", being an online platform operated by a Malaysian company, MBI International Sdn Bhd. Ms Gan alleged that she invested in the scheme as a result of representations made by Ms Xie that:
1. participation in MFC was risk-free;
2. MBI International Sdn Bhd was legitimate;
3. she would get her principal back after one year;
4. the more money she invested, the sooner she would get her principal back;
5. if her investment were not risk free, Ms Xie would return the amount of her principal;
6. she did not need to do anything to make money; and
7. she could withdraw cash at any time.
Ms Gan pleaded that these representations were made by Ms Xie to her orally at the Burwood RSL on 29 August 2016 during a meeting at which Ms Wei Yun Liu was present.
Ms Gan also alleged that Ms Xie participated in a pyramid scheme in contravention of s 44 of the Australian Consumer Law and that, as a result of that contravention, she suffered loss and damage. The acts of participation alleged were confined to the making of the pleaded representations. Ms Gan alleged that the representations made by Ms Xie were made in trade or commerce, were misleading or deceptive, and she suffered loss or damage because of those representations. She also alleged that Ms Xie did not inform her that in order to make money she would need to recruit people to participate in MFC, or that it was a pyramid scheme, and thereby engaged in conduct that was misleading or deceptive.
It is not disputed that Ms Gan invested her moneys in the MFC scheme, the scheme collapsed and she lost the moneys she invested.
Ms Gan invested her moneys into the scheme through Ms Xie. She also brought a claim for restitution of unjust enrichment. It was not in issue on appeal that Ms Xie acted as a conduit for Ms Gan's investment. The claim for restitution of unjust enrichment was not pressed on appeal.
[6]
Grounds 1 and 2: MFC was a pyramid scheme
Ms Xie described how the MFC platform worked. MFC was a membership based system. The members were called "fans". It was described as a "loyalty membership management system" and "a strictly non-investment program or financial tool". To join the platform and become a member, a person had to be introduced by an existing member called a "sponsor". The MFC platform maintained a record of who introduced each new member. Each new member's account was linked within the MFC structure to the account of the person who introduced the new member. To join the platform and become a member, a person had to purchase "advertising packages" available in US dollars at a cost in different tranches of between $100 and $35,000. The only way of purchasing an advertising package was through the use of MFC virtual currency called "Registered Coin" or "Registered Credit" ("RC"). RC was purchased by new and existing members from their sponsor or, if their sponsor did not have sufficient RC to sell, the sponsor would arrange for another member in the same line above or below the sponsor to sell the RC. An account on the MFC platform was created with each advertising package purchased. Advertising packages related to real advertising space on websites maintained by the promotors of the scheme. Each new member's account was initially linked to the account of the member who introduced them (the sponsor) or to some other member by agreement with the sponsor. The names of members above the sponsor who introduced the person to the MFC platform were not disclosed.
Ms Xie deposed that when she joined the platform, she was told that her sponsor would receive a bonus when she opened an account. Ms Xie sponsored a Wendy Xu, who in turn sponsored a Lucy Liu, who in turn sponsored the appellant, Ms Gan.
Ms Xie described the purchase of advertising packages as being the acquisition of an "atom" in a triangle of seven atoms. Any atom in the triangle would be activated by the purchase of an advertising package for US$5,000. A member could acquire the whole or part of an "atom". Members could buy parts of an atom or more than one atom. Ms Xie deposed:
"A member can have multiple accounts by purchasing multiple advertising packages and these can be all linked to one another so that the over-all structure grows in the same pattern (like a growing crystal). I return to the significance of this complicated multi-tiered structure below when describing the 'cashing out' process, because the MFC Platform imposes a limit on the Goods Redemption Credit (GRC) sales per account, as discussed below.
MFC gives a 'bonus' or reward whenever a new account is added to an existing account, whether or not that new account relates to a new member. There are 3 different types of bonuses:
i) New Account Introductory Bonus - a percentage of the new account value, ranging from 6% for a $100 account up to 10% for a $5,000 account.
ii) Balance Bonus - a further percentage if the new account is 'balanced' in terms of having atoms in-filled that match on the same level, or two branches that are identical - ranging from 3.6% for a $100 account up to 6% for a $5,000 account.
iii) Bonus Bonus - a further 4% percentage of the Balance Bonus. This Bonus Bonus is paid to the upline account that is nominated to be the recipient of the Introductory Bonus. That could be the account immediately above the new account or some other account higher up the chain. Once nominated, that recipient account can then receive the Bonus Bonus for further generations of accounts subsequently created down line, ranging from 1 generation for a $100 account up to 6 generations for a $5,000 account. (The term 'generation' is used to distinguish this relational linkage from pure structural linkage, because the nomination can skip/jump levels in the structure.)
There are two important features regarding the payment of bonuses;
i) It is possible for a member to use up all of their generational entitlements to bonuses for a particular account (down 1 to 6 generations depending on the original or starting purchase value) without ever introducing/sponsoring a new member. In other words, the MFC Platform does not follow an automatic pyramid reward model.
ii) When a bonus is received, 30% is credited to the GRC account of the nominated recipient account - ie it can only be used to buy further GRC, and 70% is credited to a rewards account called the M Credit Account (this is the same M Credit Account where 55% of the value of GRC, whenever sold, also goes).
A member with 'funds' in their M Credit Account can either:
i) transfer funds from the M Credit Account to their RC Account where it becomes denominated as RC, and from here, they can:
a. use the RC to upgrade and/or open further accounts; or
b. they can sell their RC upline or downline to any one in their direct linkage chain structure; or
ii) use the M Credit Trading function (which operates separately within each currency or country) to advertise and sell to any interested member M Credits in parcels of $100, $200, $500, $1,000, $2,000 or $5,000 and, if not sold within 15 days, then the MFC Controller buys the M Credits on request.
This provides two avenues for a member to "cash out" - they can either sell their RC or they can sell their M Credit. The advantage of the latter is that the company owning and controlling the MFC has to buy the M Credits, on request from the member whose M Credit is not taken up by other members within 15 days of having been offered for sale. Once a member converts M Credit to RC, the exchange is irreversible: RC cannot be converted back to M Credit. Because there is no going back, my experience and observation has been that skilled members do not convert M Credits to RC until they have a use for that RC.
Buying an advertising package results in obtaining Advertising Points [AP]. With an advertising package comes a commensurate level of notional USD in the form of a credit that can be applied to acquire Goods Redemption Credit [GRC] - [the word 'coin' is sometimes used interchangeable with the word 'credit' - from the Chinese yi wu dian. For instance, buying an advertising package for $5,000 USD gives a member 5,000 AP package and $3,000USD credit to be used to buy GRC. The GRC at any time is fixed by the market, by demand."
[7]
Ground 3: Section 44(1): Ms Xie's participation in a pyramid scheme
Ms Xie participated in the scheme. She deposed that in April 2015 she joined MFC. She invested in the scheme herself, but her own investment in the scheme could not be causative of loss to Ms Gan. Ms Xie deposed that she believed that Ms Gan understood what was entailed in investment in MFC and the risks involved in that investment. She deposed that she went out of her way to teach Ms Gan how to navigate her own way on the MFC platform and to assist her and answer her queries every time she contacted her, which Ms Gan did frequently between August 2016 and 31 December 2016.
Ms Xie deposed that she told Ms Gan that MFC was not risk free and that Ms Gan should only invest money in MFC that she could face losing without affecting her lifestyle and living standards. When Ms Gan was prepared to invest US$40,000 in MFC (which Ms Xie said was a sum of Ms Gan's choosing) she told Ms Gan that she could pay the money to her to buy RC if she wanted to join MFC. This was because she had RC to sell at the time and Ms Gan's sponsor, Ms Liu, did not. She agreed to manage Ms Gan's accounts initially until Ms Gan was confident to do it herself. Ms Xie deposed that Ms Gan specified to her amounts that she wanted to send to open accounts for various members of her family and sent her their identification details. Ms Xie set up for Ms Gan accounts both for Ms Gan's initial investment, and for an investment of a further US$80,000 on 24 September 2016.
It is admitted on the pleadings that Ms Gan deposited the following sums on the following dates to Ms Xie's bank account for the purpose of assisting Ms Gan to open accounts with MFC at Ms Gan's request:
1. A$60,150 on or about 31 August 2016;
2. A$105,000 on or about 5 September 2016;
3. A$37,500 on or about 7 September 2016;
4. A$50,000 on or about 8 September 2016;
5. RMB560,000 on or about 26 September 2016.
Whether or not this would be enough to establish Ms Xie's participation in the scheme within the meaning of s 44(1) is not a question which arises, having regard to the limited basis on which that allegation was advanced at trial.
[8]
Ms Gan's and Ms Xie's evidence
All of the persons involved were of Chinese ethnicity and their conversations were in Mandarin. Ms Gan employed Zhang Shijing Lawyers as her solicitors, evidently also of Chinese ethnicity. Her affidavit was in English. A certified interpreter, Mr Nan Xia, deposed that he sight-translated the affidavit to Ms Gan in Mandarin, and she informed the person responsible for the preparation of the affidavit, through him, that she understood his interpretation and agreed with the contents of the affidavit. The affidavit was then affirmed.
Ms Gan deposed that Mandarin was her first language and that she could not speak English very well, and that the affidavit had been prepared with the aid of an interpreter. Her affidavit was admitted subject to rulings on particular paragraphs that were rejected on the grounds of hearsay, relevance or opinion about which no issue is raised on the appeal. She deposed that she became aware of the MFC platform and the company MBI in about August 2016 through a friend, Ms Lucy Liu. She attended an MFC platform seminar at Parramatta RSL in August 2016 and, after the seminar ended, Ms Liu introduced her to Ms Xie. A lady sitting next to her at the seminar was introduced to her as Ms Wendy Xu. She deposed that Ms Xie told her that the platform was very successful and could make money for everyone. On driving back from the seminar she told Ms Liu that she was not interested in the platform.
In her affidavit, Ms Xie did not respond to Ms Gan's evidence that after the seminar at Parramatta, Ms Xie said to her that "the platform is very successful and can make money for everyone".
In cross-examination, Ms Gan said that she recalled nothing in particular said by Ms Xie at the Parramatta meeting on 28 August 2016.
Ms Gan deposed that, on 29 August 2016, Ms Liu invited her to the Burwood RSL which she attended. She saw Ms Xie with Ms Liu. They had lunch and coffee. She deposed that Ms Xie told her that the MFC platform would make "100% money with no risk at all"; that Ms Xie had doubled her money, having invested $500,000, and had bought many real properties; that the company was a legal company; and that she had earned a lot of money by participating in the platform. She said that Ms Xie invited her to visit the company in November and that, if she did visit, she would not have to pay anything except the airfare. She said that Ms Xie represented that there was no risk; that she would get her principal back after one year; that she did not have to do anything but would earn money even while she was sleeping; and that Ms Xie took out a piece of paper and a pen and drew a diagram and said:
"MBI is good, and legal. It has a lot of powerful investments. The company does not earn from fans [investors], but will only charge 10% administration fee. Your money will be very safe in the account, risk free. You can get all of your principal back in one year. It is like a stock, but a stock will increase and decrease in value. This investment can only be sold at a higher price than the price you paid, so the value of GRC points always increases and never decreases. Compound interest result in multiplied increases. Sure-fire profits. In one year spilt twice. You do not need to join others in. You do not sell products, you can still make money. It has various modes, like bank compound mode, and stock dividends mode for example. If you invest more money, you can get your principal back sooner. You can withdraw cash at any time. It Is risk free for you or I will give back all of your principal. You can withdraw cash at any time you wish. The interest from the investment would be sufficient for you to use when you are retired."
[9]
Grounds 5, 6 and 7: tendency evidence
Ms Gan sought to adduce evidence from two witnesses, Ms Zhong Ming Di Si and Ms Jenny Wills (Xiao Tuang Shan). They deposed to having had conversations with Ms Xie in relation to their investments in MFC in 2017.
In her first affidavit, Ms Di Si deposed that she was fluent in both English and Mandarin. She deposed that on 30 November 2017 she was introduced to Ms Xie by a friend and that Ms Xie introduced the MFC virtual platform to her in words to the following effect:
"There is a great platform operated by a Malaysian company known as MBI, and it is very easy to make a profit by participating on the platform. I have participated and made a lot of money, and bought real properties like I am shopping in the supermarket. It is so easy to make money. You buy a type of virtual coins called GRC on the platform and the rule of this is that the price of GRC will only increase and not decrease.
There will be an event named distribution, where the amount of GRC that you hold will be increased based on the multiplier set by the company, usually 1.5. This means that you would be able to double your value within a year. This opportunity is hard to miss and there is no risk at all since it is not possible for you to lose money.
If you want to cash out, you can sell the GRC and withdraw cash at any time. The company has so many fans and they all want to buy the GRC. The demand is so much higher than supply so there is not enough GRC listed. You sell the GRC by listing it on the platform. In the extremely unlikely event that no one buys it within 15 days, the company will buy it back from you with a small fee. This is why it is guaranteed that you would be able to convert GRC into cash any time. I promise you there is no risk at all and you would definitely earn money.
In addition, you do not have to recruit other people to earn the money. Taking me as an example, I just put a lot of money to purchase many accounts at different levels and I have made so much money. I have made so much money that I do not need to work anymore for the rest of my life. All you need to do is to buy this GRC and then you do not have to do anything. You just leave it there and the value will keep increasing with each distribution. I promise you that there is no risk and you would be able to cash out at any time."
She deposed that, on 5 December 2017, Ms Xie said in words "to the effect of":
"This platform is a great platform. The company which owns this platform has a lot of assets all around the world. There is great potential in this company. Therefore you guys need to act quickly to invest in this company early. The earlier you put money in, the more money you would earn. In addition, the more money you put in the more profit you would make. In addition, the price of GRC only increases and will never decrease. When the price of GRC reaches a certain limit set by the company, the company will distribute more GRC using a multiplier to multiply the units of GRC you hold. The price of the GRC will return to a lower price. However this is not a decrease in price as the amount of GRC has increased. There is no risk in this at all. Earning profit is guaranteed. There is definitely no way that you would make a loss. You can cash out anytime with no problem at all. This is guaranteed."
[10]
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: 17 July 2023
Section 44 of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)) provides:
"44 Participation in pyramid schemes
(1) A person must not participate in a pyramid scheme.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
(2) A person must not induce, or attempt to induce, another person to participate in a pyramid scheme.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
(3) To participate in a pyramid scheme is:
(a) to establish or promote the scheme (whether alone or together with another person); or
(b) to take part in the scheme in any capacity (whether or not as an employee or agent of a person who establishes or promotes the scheme, or who otherwise takes part in the scheme)."
Section 45 provides:
"45 Meaning of pyramid scheme
(1) A pyramid scheme is a scheme with both of the following characteristics:
(a) to take part in the scheme, some or all new participants must provide, to another participant or participants in the scheme, either of the following (a participation payment):
(i) a financial or non-financial benefit to, or for the benefit of, the other participant or participants;
(ii) a financial or non-financial benefit partly to, or for the benefit of, the other participant or participants and partly to, or for the benefit of, other persons;
(b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled, in relation to the introduction to the scheme of further new participants, to be provided with either of the following (a recruitment payment):
(i) a financial or non-financial benefit to, or for the benefit of, new participants;
(ii) a financial or non-financial benefit partly to, or for the benefit of, new participants and partly to, or for the benefit of, other persons.
(2) A new participant includes a person who has applied, or been invited, to participate in the scheme.
(3) A scheme may be a pyramid scheme:
(a) no matter who holds out to new participants the prospect of entitlement to recruitment payments; and
(b) no matter who is to make recruitment payments to new participants; and
(c) no matter who is to make introductions to the scheme of further new participants.
(4) A scheme may be a pyramid scheme even if it has any or all of the following characteristics:
(a) the participation payments may (or must) be made after the new participants begin to take part in the scheme;
(b) making a participation payment is not the only requirement for taking part in the scheme;
(c) the holding out of the prospect of entitlement to recruitment payments does not give any new participant a legally enforceable right;
(d) arrangements for the scheme are not recorded in writing (whether entirely or partly);
(e) the scheme involves the marketing of goods or services (or both)."
Sections 44 and 45 are contained in Div 3 of Pt 3.1 in Ch 3 of the Australian Consumer Law. Section 236 provides that a claimant may recover the amount of any loss or damage suffered because of the conduct of another person that contravened a provision of Ch 3 from that person.
It would be arguable that Ms Xie induced or attempted to induce Ms Gan to invest in MFC. But the Amended Statement of Claim did not allege a contravention of s 44(2). The Amended Statement of Claim alleged that Ms Xie participated in a pyramid scheme in contravention of s 44(1). Ms Xie did participate in MFC, including by acting as a conduit for Ms Gan's funds. But the pleaded acts of participation were confined to the representations allegedly made by Ms Xie. On the hearing of the appeal, the solicitor who appeared pro bono for Ms Gan, Mr Zhao, confirmed that the trial had been conducted on that basis.
The primary judge held that none of the representations alleged in the Amended Statement of Claim had been made by Ms Xie. Her Honour held that Ms Gan was an unreliable witness and neither straightforward nor frank. Her Honour rejected Ms Gan's contention that she relied on statements said to have been made by Ms Xie. Her Honour found that Ms Gan's decision to invest was informed by what she was told by Ms Liu and not by Ms Xie. Her Honour found that "Anything said or done (or not) by the defendant was not relevantly causal in the plaintiff[s] decision to 'invest' her money in the MFC scheme". Her Honour inferred that if Ms Xie had not been the conduit another would have been found. Her Honour held that the scheme was not a pyramid scheme. She rejected the allegation of misleading conduct by silence on the grounds that recruiting new members was not the only way to make money.
Grounds 1 and 2 of the Notice of Appeal challenged the primary judge's finding that MFC was not a pyramid scheme and a ruling in relation to the pleading of that issue.
Ground 3 of the Notice of Appeal was that the primary judge erred in not finding that Ms Xie participated in a pyramid scheme contrary to s 44(1) of the ACL.
Ground 4 asserted that the primary judge's assessment of Ms Gan's credit and her consequent findings as to causation were infected by four errors, namely:
"(a) the trial judge erred in mistaking the identity of the Mandarin translator who translated the appellant's written evidence materials, Huang, as the interpreter-at-trial, Wang, thereby arriving, incorrectly, at the view that the evidence adduced at trial was unreliable (at J p 6.5);
(b) the trial judge erred in concluding, without bases, that the interpreter at trial was playing an active role during Ms Gan's cross-examination, when the translator was not (at J p 6.4);
(c) the trial judge found, as a necessary plank in her analysis of Ms Gan's decision to invest, that the transfer of funds between Ms Gan's accounts on 29 August 2016 manifested a decision to proceed with the MFC investment on that date, when Ms Gan gave no evidence to that effect, and was not cross examined on those matters (J p 32.9 - 33.2, J p 47.8 - 48.3);
(d) the trial judge erred in inferring that Ms Gan would have invested in the MFC even if Ms Xie had not been the conduit (J p 49.7)."
Grounds 5, 6, and 7 challenged the primary judge's rejection of the evidence of two witnesses called by Ms Gan: Ms Zhong Ming Di Si and Ms Jenny Wills. Objection to their evidence was taken at trial on the basis that their evidence was tendency evidence in respect of which no tendency notice had been served and which had no significant probative value. The primary judge did not rule on the objection at trial. The witnesses were cross-examined on the basis that their evidence might be admitted. The primary judge ultimately found their evidence to be inadmissible. Her Honour also found that in any event she would not have accepted their evidence had it been admissible. Ms Gan had submitted that their evidence had significant probative value by demonstrating that Ms Xie had the tendency to promote the MFC platform by making representations to the same or similar effect as those Ms Gan said had been made to her.
The appellant was represented for most of the trial by solicitors and counsel. The trial lasted for 15 days. On the last day of the trial, the solicitors retained for the appellant advised the primary judge that because the appellant no longer had resources to pay for legal representation, they no longer had instructions to appear. The matter was adjourned but the appeal book does not disclose that there was any appearance by counsel or solicitors for the appellant on the adjourned date.
I infer that Ms Gan had some pro bono assistance in formulating the grounds of the Notice of Appeal. Mr Zhao appeared pro bono for the appellant on the hearing of the appeal. But the grounds of appeal were not those which would be expected if drafted by competent counsel who was fully briefed.
The Notice of Appeal did not expressly challenge the primary judge's findings that none of the alleged representations had been made. Ground 3 asserted that the primary judge ought to have found that Ms Xie participated in a pyramid scheme. The Amended Statement of Claim had alleged that she did so by making the alleged representations. Nonetheless, there was no explicit challenge to the judge's findings that none of the representations had been made.
Ground 4 challenged the primary judge's assessment of Ms Gan's credit on only three grounds. Ground 4(d) appears to limit the effect of upholding ground 4(a)-(c) to the judge's finding that Ms Gan would have invested in the scheme in any event. As appears below, there are more fundamental reasons for querying the primary judge's approach to the assessment of Ms Gan's credit, including, but not limited to, her rejection of both the admissibility of Ms Wills' and Ms Di Si's evidence, and her rejection of that evidence if it were admissible. Their evidence, if accepted, made it more probable that Ms Xie made representations to Ms Gan to the effect she alleged. It would then be relevant to an assessment of Ms Gan's credibility.
A successful challenge to the primary judge's credit findings adverse to Ms Gan would necessarily impugn the reliability of the judge's findings that none of the representations was made and her Honour's findings as to lack of reliance.
The respondent submitted that, because grounds 4 to 7 were not germane to the appellant's "pyramid scheme" case, and because there was no challenge to the primary judge's finding that she had not engaged in misleading or deceptive conduct, grounds 4 to 7 went nowhere. Moreover, because the pleaded allegation that the respondent participated in the pyramid scheme was confined to the allegation that she did so by making the alleged representations, none of the grounds of appeal went anywhere.
The better view is that if the challenges to the primary judge's credit findings adverse to Ms Gan and her Honour's rejection of the evidence of Ms Wills and Ms Di Si are set aside, that necessarily impugns her Honour's ultimate findings that the alleged representations were not made in so far as they were based on her findings about Ms Gan, Ms Wills, and Ms Di Si.
For the reasons which follow, the primary judge's finding that the MFC platform was not a pyramid scheme should be set aside. In assessing the credibility of the witnesses, the primary judge had an advantage not enjoyed by this Court. Nonetheless, her Honour's adverse credit findings should also be set aside. This is not a case where the primary judge's conclusions based on her credibility findings are contrary to incontrovertible facts, uncontested evidence or compelling inferences (Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[29]). However, the primary judge palpably misused her advantage as a trial judge. As Basten JA said in Nominal Defendant v Smith [2015] NSWCA 339; (2015) 73 MVR 257 (at [11]):
"…while recognising that written reasons cannot provide a complete picture of the circumstances of the trial, or the considerations which may have led to the preferring of the testimony of one witness over another, nevertheless the appellate court is entitled to infer error from the manner in which the testimony was addressed in the reasons, including a failure to refer to factors which appear to the appellate court to be significant."
Her Honour erred in rejecting the admissibility of the evidence of Ms Di Si and Ms Wills and erred in her assessment of their evidence and Ms Gan's evidence, by requiring that she be satisfied that they remembered the words Ms Xie spoke, rather than the gist of what she conveyed.
Regrettably, a new trial is required.
Ms Xie described how RC could be redeemed. She deposed:
"A member can exchange GRC for MP [Merchandise Points], which can then be converted to Loyalty Rewards [LR] that the member can use to buy goods and services on-line and off-line at certain nominated shops and suppliers, these being either owned by the owner of MFC (being MBI) or in some commercial arrangement with that owner, such as for instance resort accommodation, restaurants, beauty salon services, taxi transport, gift cards etc.
MP [Merchandise Points] can be used to open a new account - ten percent (10%) of the purchase price of the advertising package can be paid applying MP and the balance of 90% can come out of the Register Wallet. See MFC Manual found in Exhibit EX1 at page 89.
A member can sell their GRC to an existing or new member, subject to the following:
i) GRC cannot be sold unless owned for a minimum of 30 days;
ii) Not less than 10 GRC must be sold at one time;
iii) No GRC can be put up for sale after 10 days from an announcement by the MFC Controller of an intended intervention - 'pei song' or 'split' - until that intervention takes place;
iv) The GRC to be sold must be notified as being for sale on a platform notice board and the asking price must be nominated;
v) The nominated asking price must be higher than the then current selling price plus one cent;
vi) A member cannot sell their GRC unless other members who are offering their GRC for sale at a lesser price have sold their GRC - ie. cheaper GRC must all be sold before more expensive ones;
vii) The MFC effectively limits the volume of GRC that may be sold at any one time to 70% - because 30% of the proceeds of sale must be applied to buying more GRC (this is the same, in effect, as being limited to selling only 70% in the first place) and, to avoid paying more than the selling price, a member has to act quickly to buy the 30% before the price rises;
viii) The MFC Platform takes a commission of 10% on all sales;
ix) 5% of the sale price must be converted to Loyalty Rewards [LR] (to buy goods and services from MBI and its commercial partners, as mentioned above).
x) From the 70% sold, after deducting 10% and 5% as last mentioned, this leaves 55%. This 55% value is put into the M Credit Account. From the M Credit Account, a member can either cash out or transfer M Credit to their Register Wallet. From their Register Wallet a member [can] sell RC, create a new account or upgrade any existing account (add value by infilling empty balls in colour)."
On the respondent's own description of the scheme, it had the characteristics of a pyramid scheme.
The MFC platform satisfied the requirement of s 45(1)(a) of the ACL in that it was a scheme in which new participants were required to provide to another participant or participants in the scheme a benefit for the other participant or participants. New participants were required to purchase RC from existing participants in the scheme. This was one of only two ways in which existing participants could convert virtual credits into real money. The other way was by acquiring and then disposing of M Credits. But only 55% of the value put into an M Credit account could be cashed out.
The primary judge held that it was not established that new participants made a "participation payment" as defined because, in return for the payments made, they received virtual benefits at the designated exchange rate and that the benefits conferred upon other participants were not provided by the new participants, but by the mechanics of the system.
The primary judge said that the bonuses that flowed to existing members when a new account was opened for a new member were generated by the system itself and formed no part of, nor used, any of the real money that a new participant provided, either directly or indirectly.
But it is clear that a new member did provide a financial benefit indirectly in the form of a bonus or bonuses to an existing member or members. Even if these were not provided directly "to" an existing participant, they were "for the benefit of the other participant or participants" (s 45(1)(a)). In addition, a new member could only join the scheme by using real money to purchase RC of an existing member. This was one of only two ways in which an existing member could withdraw real money from the scheme. As the primary judge said:
"This was a virtual world in which money went around generated itself virtually and sales into the real world were charged at 100% to the purchaser but could never return more [than] 90% to the vendor; and actually could return at most about 45% in real value (as distinct from virtual ephemera of no (real) value without conversion in the real world) given the 30% re-investment requirements and 5% conversion to loyalty rewards. This was worse than a zero sum game. In the real world this was a diminishing sum game as regards all the participants."
The provision of real money by a new participant to an existing participant in the scheme by the sale of that participant's RC provided liquidity to an existing participant who sold the RC.
In this case, Ms Gan deposed that her first investment of A$60,150, being the then equivalent of US$40,000, was paid to Ms Xie on her understanding that Ms Xie would then make the investment for her. Ms Xie deposed that she did say to Ms Gan that she could pay money to her to buy RC if she wanted to join MFC because she had RC to sell at that time and Ms Gan's sponsor, Ms Lucy Liu, did not. The primary judge found that in fact the money was not applied in the purchase of RC from Ms Xie. She accepted Ms Xie's evidence that she did not sell her own RC at the time because she was building up her RC balance at the time and not cashing out. Instead, the payment by Ms Gan was transferred immediately by Ms Xie to another account. The primary judge said:
"There is nothing equivocal about the payment; in whole to the defendant before (not after) the plaintiff joined the scheme by purchasing accounts. The defendant's bank account statement (exhibit EE, account XX039) them [sic] show precisely that same sum being transferred out of the account that same day as a "withdrawal online" by a transfer. The sum paid by the plaintiff was a precise match for virtual value of the virtual things purchased, viz a "platinum package" (being "seven balls with the 5,000 AP each made up of 35,000 AP") and a small account and none of the benefits or money was retained by the defendant. It is common ground that the plaintiff obtained the virtual MFC commodities that she paid for, from which the inference is obvious: the money went to the purchase of those virtual commodities.
That being so, although that payment meant that the plaintiff provided money to another participant (the defendant), the plaintiff did not provide "a financial or non-financial benefit to, or for" the defendant's benefit - in that she received (briefly) only a sum that she applied in whole for that which the plaintiff acquired. There is thus a coherence with part of the plaintiff's pleading in paragraph 12C: the defendant used money provided by the plaintiff to participate in MFC on her behalf.
The treatment of the sum paid at joining is significant. Whether or not the defendant sold any (of her own) RC or other virtual commodity, the sum that the plaintiff paid was the precise equivalent of the MFC virtual commodities purchased. The bonuses generated by the MFC system went to Ms Liu as the sponsor, and perhaps others."
But all this means is that, if the RC was not purchased from Ms Xie, it was purchased from some other scheme participant to enable Ms Gan to acquire the advertising packages.
The primary judge erred in finding that s 45(1)(a) was not satisfied.
The primary judge also held that s 45(1)(b) was not satisfied because the payments made by new participants were not substantially induced by the prospect held out to them that they would be entitled, in relation to the introduction of further new participants, to be provided with a recruitment payment, that is, a benefit either for themselves or for themselves and others.
In reaching this conclusion, the primary judge relied on the evidence of Ms Gan, and witnesses called by her, that they did not join the scheme on the basis that they would receive a recruitment payment for the introduction of further new participants. Ms Gan deposed that she was uncomfortable doing sales and Ms Xie assured her that there was another way, being a "static approach" that did not require her to do anything but still make money. Instead of introducing other people, she could simply create more of her own accounts under her own structure and still make money. The primary judge said that Ms Liu's evidence was much to the same effect.
Section 45(1) describes the "characteristics" of a scheme which is proscribed as a pyramid scheme. The "characteristics" of a scheme denote the objective features of the scheme. The recruitment of a new member would reward the existing account to which the new account was added by the provision of the New Account Introductory Bonus (and potentially a Balance Bonus and Bonus Bonus) (see [29]). That account would then receive further bonuses if the new account member recruited new participants. Importantly, 70% of those bonuses were credited to the M Credit Account, which could be cashed out.
The fact that the plaintiff and her witnesses were not attracted by a need to recruit new members does not mean that that was not an objective characteristic of the scheme that would be a substantial inducement to new members. Rather, it indicates that they did not understand the scheme in which they invested.
There was an issue at trial which is the subject of ground 1 of the Notice of Appeal concerning the pleading of what was said to constitute the pyramid scheme. Ms Gan's Amended Statement of Claim pleaded the elements of s 45(1)(a) and (b) and provided particulars. After the service of evidence, she sought to amend those particulars in a way which broadly reflected the evidence. Objection was taken to the amendments. The primary judge ruled that she would allow the filing of a Further Amended Statement of Claim but only on condition that the proceeding be adjourned. Ms Gan declined to proceed with the proposed amendment to particulars if that would necessitate an adjournment. She was right to do so. The elements of s 45 were pleaded.
The features of the scheme that make it a pyramid scheme appear from Ms Xie's evidence. There was no prejudice to her by Ms Gan's proceeding on the original particulars but having regard to Ms Xie's own description of the scheme.
For these reasons, contrary to the conclusion of the primary judge, the scheme in which Ms Gan invested was a pyramid scheme.
Ms Gan deposed:
"[47] I did not have much of an understanding of how the MFC Platform worked, and I was sceptical at first. But I believed what Eileen was telling me because my friend Lucy was present and had introduced me to Eileen and appeared to support the truth of what Eileen was telling me. I had a good relationship with Lucy and I trusted her.
[48] Eileen continued to make statements similar to those that I have set out above during our lunch. She was persuasive, and by the time we were getting ready to leave the RSL I was interested in making an investment in the MFC Platform.
[49] As a result of what Eileen had said to me, I decided that I would access funds using my home mortgage, so that I could make an investment.
[50] Towards the end of our conversation, Eileen said words to the following effect to me:
'I can help you to buy a single ball [investment unit] which is US$5,000 and a platinum group which is US$35,000, in total US$40,000, under the exchange rate between the Australian Dollar and the US Dollar which is around 1:1.5 now - set by the company. But you need to transfer AUD$60,150.00 to me. If you want to participate in the platform, take the chance to transfer the money to me.'"
Ms Gan transferred $60,150 to Ms Xie's account on 31 August 2016. On 29 August 2016 Ms Gan had transferred most of that sum from her mortgage offset account into her joint home loan account.
The primary judge found that Ms Gan's movement of money from her mortgage offset account into her joint home loan account demonstrated that she had decided to "invest" on that day, 29 August 2016. Her Honour noted that Ms Gan disavowed any recollection of anything said by Ms Xie on 28 August 2016. Her Honour found that there was no meeting between Ms Xie and Ms Gan on 29 August 2016. Her Honour found that the meeting which Ms Gan deposed had occurred in Burwood on 29 August in fact took place on 31 August 2016. Her Honour said that Ms Gan's "…assertion of reliance rests upon her having acted on that which the defendant said (or did not say) at Burwood, since the plaintiff disavows any recollection of anything relevant said by the defendant at Parramatta".
In her affidavit, Ms Xie did not give an account of what she said to Ms Gan at Parramatta on 28 August 2016. The transcript of Ms Xie's oral evidence was not included in the appeal papers. But in his submissions at trial, counsel for Ms Xie said that the best available evidence of what Ms Xie said to Ms Gan on 28 August 2016 were two pages of handwritten notes that Ms Xie made and handed to Ms Gan at that meeting. According to the submissions, in her oral evidence, Ms Xie confirmed the notes and that she handed them to Ms Gan. A typed copy of the notes in English translation was tendered. As counsel for Ms Xie submitted, the notes make no reference to MFC being risk free, or that she could withdraw cash at any time, or that Ms Gan would not need to do anything in order to make money. The primary judge quoted and accepted counsel's submission. But page 2 of the notes includes the following:
This appears to be corroborative of Ms Gan's evidence that she was told that whereas a stock may increase or decrease in value, the value of GRC always increased and never decreased ("Only rise, no↓"). It also appears to corroborate Ms Gan's evidence that Ms Xie said "Sure fire profits. In one year split twice" ("$↑↑↑; 1st batch virtual wealth; 2 distributions/year").
The primary judge did not address this. This may have been because no submission was made about it at trial by the appellant's counsel in final submissions. It may have been because the primary judge regarded it as irrelevant because it referred to what was said at a meeting at Parramatta on 28 August, Ms Gan said she recalled nothing in particular said by Ms Xie on that day, and the primary judge concluded that therefore she did not rely on anything said on that day.
Ms Gan denied having had any substantial conversation with Ms Xie on 28 August 2016. According to the respondent's submissions at trial, Ms Liu described a lengthy and detailed discussion by Ms Xie on that date. Ms Liu's affidavit was not included in the appeal papers.
The primary judge found that Ms Gan did not rely on anything said by Ms Xie when, on 29 August, she transferred funds from one of her accounts to another in anticipation of making the investment. The primary judge did not address the question of whether Ms Gan might have been wrong about the place and date, but right, or substantially right, about what she was told.
On the appeal, Mr Zhao submitted that the primary judge wrongly assumed that there were only two meetings between 28 and 31 August 2016, one at Parramatta on 28 August, and the other at the Burwood RSL on 31 August. In her affidavit Ms Gan made no reference to a meeting at the Burwood RSL on 31 August. But text messages clearly indicated that there was such a meeting. Hence, the respondent said, and the primary judge accepted, any inducement by Ms Xie for Ms Gan to invest was given to Ms Gan on or before 29 August. Because there was only one meeting by then (at Parramatta on 28 August) where Ms Gan, on her own evidence, had not made a decision to invest in reliance on anything said by Ms Xie, her investment was not made in reliance on anything said by Ms Xie.
In response, in her submissions on appeal, Mr Zhao submitted that because it was never put to Ms Gan in cross-examination that no meeting occurred on 29 August, this left open the uncontradicted possibility of three meetings.
I do not accept this submission. Ms Gan's own evidence was that there were only two meetings: one on 28 August and the other at Burwood RSL on 29 August. WeChat messages between Ms Xie and Ms Gan established that the second meeting took place on 31 August.
Ms Gan's WeChat message on 29 August to Ms Xie "Eileen please send me the URL Link. I'll try it myself", is consistent with there having been some substantial discussion on or prior to 29 August between them. Whether that discussion was on 28 August, as would appear to be the case from Ms Xie's evidence, or 29 August as Ms Gan deposed, should have been neither here nor there.
The primary judge's finding that Ms Gan did not rely on anything said to her by Ms Xie, because it should be inferred from the fact that she transferred funds from her mortgage investment account to her joint account on 29 August 2016 and professed no recollection of anything said to her by Ms Xie on 28 August 2016 (coupled with her Honour's rejection that the meeting at the Burwood RSL took place on 29 August 2016), does not account for the fact that, on 31 August 2016 which, according to Ms Xie, was the date the meeting at the Burwood RSL took place, Ms Gan transferred $60,150 not to Ms Liu, but to Ms Xie. The primary judge found that Ms Gan was motivated to make the payment as a result of representations made to her by Ms Liu, not by representations made by Ms Xie. But that does not explain why the payment was made to Ms Xie, not to Ms Liu, to acquire RC.
The fact that Ms Gan's initial payments were made to Ms Xie is highly suggestive that the payments were made after Ms Gan had had one or more conversations with Ms Xie about investments in the MFC scheme, whether those conversations took place on 28, 29, or 31 August 2016. Even if Ms Liu's representations about the MFC scheme were a material contributing cause of Ms Gan's decision to invest, the fact that she made her initial investments through Ms Xie is consistent with her evidence that she relied on representations made by Ms Xie in relation to investments in the scheme.
The assessment of the parties' credit was complicated by the fact that the plaintiff's witnesses' evidence was given in Mandarin and interpreted. The primary judge was critical of the interpreter, saying that the interpreter was "involved" with most of the plaintiff's witnesses and took an "active role" in the course of interpreting their evidence. The trial was conducted by audiovisual link and the transcript reveals many failures of the AV link.
Ground 4(b) asserts that the primary judge erred in finding that at times the interpreter took an active role in the course of interpreting. It appears from the transcript that the primary judge was unnecessarily brusque in her exchanges with the interpreter and wrongly asserted that the interpreter was not properly carrying out her role. For example, there was the following exchange:
"Q. You chose not to take one of those brochures, didn't you?
INTERPRETER: Sorry I need - because of negative and position question your Honour, I need to clarify with--
HER HONOUR: No, you don't.
INTERPRETER: I don't know whether to say yes or no.
HER HONOUR: You do not need to clarify anything. You need to translate. What did the witness say?
INTERPRETER: The witness say yes, but I mean to English may be the - mean no.
HER HONOUR: You do not get to decide, please, you do not have that role. There was no objection to the question. It is not your place to intervene--
ASHWORTH: Well, I object--
HER HONOUR: No, Ms Ashworth, that's not flying. The interpreter needs to be an interpreter.
ASHWORTH: But I think your Honour if I may, I understand the difficulty to be the interpreter to translate--
HER HONOUR: No, Ms Ashworth please. If the interpreter cannot translate, the interpreter says that. The interpreter does not wait and editorialise after the question. The interpreter's job is to interpret what is said by each side. It is not to become an auxiliary counsel. Interpreter, please understand that. Your job is to interpret the question, and then interpret the answer. Mr Livingston's job is to decide what his question is. Mr Livingston.
INTERPRETER: Yes.
LIVINGSTON
Q. You chose not to take one of the brochures, correct?
A. INTERPRETER: I didn't take it."
The primary judge appears not to have allowed the interpreter to explain the difficulty that the witness said yes to whether she made a choice, and meant no, in the sense of "no, I didn't take the brochure", as appears from the final answer.
The example of the interpreter taking an "active role" given by the primary judge was as follows:
"Q. Sometime in 2017 you understood that one way to cash out was for a member with funds in their M credit account to advertise their M credits for sale to any member, correct?
A. INTERPRETER: Yes, but I didn't practice that way. Because that means, that need you to recruit more people.
Q. No Ms Gan, you understood that did not require you to recruit new people because you knew you could sell your M credits to any existing member of MFC, correct?
INTERPRETER: Mr Livingston what she said was to more people, she didn't say new people."
I fail to see how the interpreter's statement warranted criticism.
But this is by the way. There is no indication in the primary judge's reasons that the difficulties she identified with the interpreter affected her assessment of Ms Gan's credit. Rather her Honour said:
"I have allowed for the added complexity when reviewing the evidence, conscious that all the witnesses faced unusual difficulty, particularly given the passage of time; the sums of money lost; the complexities of language and interpretation; and the chaos wrought by the AVL arrangements."
Ground 4(a) was directed to an observation by the primary judge that the interpreter Ms Wang gave a different translation of a document attached to Ms Gan's second affidavit than the English translation of that document that accompanied the affidavit. Ground 4(a) asserted that the translator of the written evidence materials was not the Ms Wang who was the interpreter at trial. The appeal papers did not demonstrate whether or not that was so (Ms Wang sight-translated Ms Gan's second affidavit but it does not appear whether she also translated documents attached to it). But assuming it to be so, there is nothing to suggest that the issue with translation affected the primary judge's assessment of Ms Gan's credit.
The primary judge said that she applied McLelland CJ in Eq's observations in Watson v Foxman (1995) 49 NSWLR 315 at 319:
"…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
Her Honour also said that she applied the approach of Black J in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7] that:
"[7] It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: … To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: …."
Her Honour said that, where there was a conflict with a contemporaneous record, she preferred the contemporaneous record to the oral evidence.
However, the primary judge did not take account of Ms Xie's contemporaneous note referred to at [59] above, nor, on the issue of reliance, the significance of the fact that Ms Gan's investment was made through Ms Xie.
The matter is complicated because the appeal papers did not include Ms Liu's first affidavit.
She deposed that Ms Xie made further representations to her that, if her evidence were accepted, would indicate that Ms Xie had a tendency to make representations about the MFC platform to similar effect to that those which Ms Gan had deposed were made by Ms Xie to her in 2016.
Ms Wills gave evidence to much the same effect. She deposed that she was fluent in English and Mandarin and that, through the course of communications in 2016 and 2017, Ms Xie said to her words to the effect of:
"You would definitely make profit in this program. That is 100% guaranteed. There is absolutely no way that you would make a loss. This is not an investment, because with investments there is a risk of making a loss. This is a type of funds management, as there is no risk.
One of the reasons why there is no risk is because the company has a buy-back mechanism. You can list your GRC on the company's platform to sell to others. If no one purchases your GRC, the company will buy them back at the current price of the GRC. The only difference is that the company will take 10% of the proceeds as fees. In addition, it is mandatory that after each buy-back you will also have to use 30% of the proceeds to repurchase GRC and therefore only receive cash equivalent to 60% of the proceeds. However the mandatory repurchase requirement would create liquidity and demand for GRC. In addition, we have a lot of fans and participants, and they strive and compete to purchase the GRC issued by the company. This creates a huge demand of GRC but the supply is limited. Therefore it is very easy to sell and the price of the GRC will only increase and not decrease.
As the price of GRC increases to a certain limit set by the company, the company will conduct a distribution, which effectively increases the number of GRC you have by a multiplier set by the company. After the distribution, the price of GRC will return to its original price. However in effect this is not a decrease in price because you have more units of GRC. The rationale behind this is to give an opportunity to more people to participate in this program, since if the price of each unit raises too high, new people may be reluctant to participate. There will be at least two distributions a year and usually it is 3 to 4 distributions a year. The more money you put in, the more money you would make. You have to be fast to put money in here, otherwise you could lose this opportunity. In addition, the earlier you put money in, the more money you would make here. If you put money in, you would definitely double your principal in less than one year. There is no risk, I guarantee.
You can market this to others and although it is not mandatory, you will earn more money if you do. You would be able to get bonus from the company if you recruit more participants. But if you do not do marketing, you will still earn a lot of money. You can recruit yourself and create a structure. Don't worry, you do not even need to manage these to earn money. Just list them for sale for once every time there is about to be a distribution. It is simple. Even dummies can make money. This program is similar to funds management in Australia. The distribution of additional GRC is similar to that of additional shares issued in the stock market."
No objection was taken to these affidavits on the ground that they gave the witnesses' own understanding, expressed in English, of the effect of the words spoken to them by Ms Xie in Mandarin. But the primary judge, of her own motion, rejected the affidavits on the basis that the words spoken were not spoken in English, but in Mandarin. Her Honour said:
"HER HONOUR: Just stopping with a simple point here. What language were these conversations in? If any of these conversations were not in English, it's all going out the window and we don't need to waste any more time on it.
ASHWORTH: I'm not sure what the answer to that question is.
HER HONOUR: I suggest you find out because the witness makes--
ASHWORTH: Perhaps I get over that--
HER HONOUR: --a big point of saying that she's fluent in both languages and she equally does not include anything that permits proper translation or verification. If this is her version of what she thinks was said in English, it all goes and we don't need to waste any more time with it if the conversation was not in English.
ASHWORTH: Perhaps I can take some instructions and address your Honour‑‑
HER HONOUR: I think get some instructions overnight. If it's not in English, it all goes..."
Following that observation, the affidavits of Ms Di Si and Ms Wills were reaffirmed overnight with the assistance of an interpreter.
The respondent objected to the affidavits of 31 August 2021 on the ground that they were inadmissible as tendency evidence, or coincidence evidence, or were irrelevant, or were unfairly prejudicial under s 135 of the Evidence Act 1995 (NSW). The primary judge said:
"HER HONOUR: Well, we've got a bigger problem and that's that they're being raised now with witnesses who have no doubt listened carefully to all the evidentiary rulings, because we've got a whole bunch of people who don't identify themselves, and they've carefully recut their affidavits, and it's a very serious problem."
The hearing was conducted by audiovisual link. The primary judge recorded:
"The hearing was complicated by the involvement of numbers of electronic 'spectators.' Episodically they joined in sufficient numbers to overwhelm the system such that the active participants (such as cross-examining counsel) were sometimes dropped from the system in mid voice, disrupting both concentration and flow.
The spectators' use of fake names (e.g., 'jane doe') and the random assumption of the names of active parties (including the names of the solicitors and the Court) was disruptive, more so by failures in muting microphones or switching off cameras, which resulted in people who looked exactly like some of the witnesses appearing on screen with random names at different points."
Even if the primary judge recognised some of the "electronic spectators" as being the deponents, Ms Di Si and Ms Wills, that would provide no basis for her Honour's assertion that "they've carefully recut their affidavits" and that this was a very serious problem.
Those affidavits were also rejected because the witnesses did not depose to the words said in Mandarin with those words translated by an accredited translator.
As a result of this ruling, Ms Di Si and Ms Wills made further affidavits on 31 August 2021 in which they deposed to representations made to them by Ms Xie. These were transcribed in the affidavit using Mandarin Chinese characters. Those affidavits were later translated into English and admitted into evidence subject to the respondent's objections as to their admissibility.
In Rogic v Samaan [2018] NSWSC 1464, Kunc J observed that practitioners should follow the "Recommended National Standards for Working with Interpreters in Courts and Tribunals", [1] when preparing an affidavit for a witness who is "culturally or linguistically diverse" (at [152]-[158]).
Ms Gan's affidavits that were interpreted to her complied with that standard. The standard did not require Ms Gan to depose, using Mandarin characters, to the words spoken to her by Ms Xie, or her understanding of the effect of the words spoken, and the Mandarin script being translated into English by an accredited translator.
In Szeto v Situ (No 2) [2019] NSWSC 1312, Emmett AJA said:
"[8] Discussions that took place between the Brother and the Sister prior to the purchase of the Properties took place in Mandarin. However, each swore an affidavit purporting to give evidence of the English translation of the Mandarin words used, without any evidence as to the Mandarin words allegedly used in the discussions. I indicated considerable disquiet about evidence of that character, as a result of which the relevant parts of the affidavits were not read. Each of the parties then gave oral evidence as to the words allegedly spoken in Mandarin. That evidence was interpreted by an interpreter familiar with Mandarin and English."
I agree with Emmett AJA's preference for an accredited translation where the witness professes to recall the actual words spoken. The primary judge's insistence on an accredited translation of the witness' recollection of the Mandarin words spoken, where the witness professed a fluency in both Mandarin and English, is only explicable on the basis that her Honour regarded the actual words said as vital.
Ms Di Si and Ms Wills did not purport to recollect the precise words that were said by Ms Xie. They used the widely adopted method of putting the gist or substance of what they professed to remember as conversations in direct speech, qualified by the statement that words were said "to the effect" of the words purportedly quoted. Once it is recognised that they did not profess to recall the precise words used, and professed fluency in English, there was no proper reason to reject the deponents' first affidavits.
To make their final affidavits, the deponents had to recall in August 2021 what had been said in conversations with Ms Xie in 2017. Understandably, there were differences between their recollections as expressed in English in their first affidavits made in July and August 2020 and their recollections as expressed in Mandarin in 2021 and then translated into English by an accredited translator.
In her affidavit as translated, Ms Di Si said that Ms Xie told her that the price of GRC would only increase and not decrease; that "you would be able to double your [principal] within a year"; that there was no risk to the investment and it was not possible to lose money; that Ms Di Si should invest as soon as possible; that the earlier she joined, the quicker she could start making money; that if she wanted to cash out, she could sell the GRC after which 55% would become cash; that there were two strategies, static and dynamic; that she could make money even if she did not introduce other people; "After you buy these GRC you do not have to do anything. You just leave it there and the value will keep increasing with each distribution, non-stop".
The translation of the affidavit of Ms Wills records that Ms Wills deposed that Ms Xie said to her in Mandarin words to the effect:
"You would definitely make profit in this program. That is 100% guaranteed. There is absolutely no way that you would make a loss. Investments have risks, but this is a type of funds management game, funds managements are [not] investments, so it has no risks.
One of the reasons why there is no risk is because the company has a buy-back mechanism. You can list your GRC on the companies platform to sell to others. If no one purchases your GRC, the company will buy them back at the current price of the GRC, although the company will take 10% of the proceeds as fees. In addition, it is mandatory that after each buy-back you will also have to use 30% of the proceeds to re-purchase GRC, and your [sic] only get back 55%, and another 5% as spending credits (LR). However, the mandatory repurchase requirement would create liquidity and demand for GRC. In addition, we have a lot of fans and participants. To them, demand for GRC is rigid, while the supply of GRC is limited. Therefore, it is very easy to sell. Further, the price of the GRC will only increase and not decrease.
As the price of GRC increases to a certain limit set by the company, the company will conduct a division, which effectively increases the number of GRC you have by a multiplier set by the company. After the distribution, the price of GRC will return to its original price. However in effect this is not a decrease in price because you have more units of GRC. The rationale behind this is to give an opportunity to more people to participate in this program, since if the price of each unit raises too high, new people may be reluctant to participate. There will be at least two distributions a year, although there usually are 3 to 4 divisions a year. The more money you put in, the more money you would make. You have to be fast to put money in, otherwise you could lose this opportunity. In addition, the earlier you put money in, the more money you would make. If you put money in, you would definitely double your principal in less than one year. There is no risk, I guarantee.
You can also market this to others. Although it is not mandatory, you will earn more money if you do. You would be able to get bonus from the company if you develop more participants and introduce them into the scheme. But if you do not do marketing, you will still earn a lot of money. You can develop yourself, and just focus on creating an optimal structure. Don't worry, it is very simple, just list them for sale for once every time there is about to be a division, even dummies can do it. This scheme is a funds management game, GRC divisions are like share dividends."
Ms Di Si deposed that words to the effect of those she reported were said to her at meetings with Ms Xie on 30 November and 5 December 2017 and later repeated at other meetings. Ms Wills deposed to the effect of words said to her by Ms Xie over numerous phone calls and an attendance by Ms Xie at her home, mostly in 2017.
There are strong similarities between Ms Gan's evidence as to what Ms Xie said to her in August 2016, and what Ms Di Si and Ms Wills said Ms Xie said to them in November and December 2017. In particular, all deponents said that Ms Xie represented that:
there would be no risk;
they would double their money;
they would get their principal back within one year (and would double their principal within a year (or get it back sooner) if they invested more);
the value of GRC always increased and never decreased; and
if you invest more money you get your principal back sooner.
(see [55], [100], [101].)
Not all of the above were in the same terms as the pleaded representations (see [3]). But they provided the context in which the pleaded representations were said to have been made and, if accepted, supported the likelihood that the pleaded representations referred to at [3(a), (c) and (d)] were made.
The primary judge did not rule during the hearing on the respondent's objections to these affidavits. Accordingly, cross-examination proceeded as if the affidavits had been admitted.
The primary judge ultimately rejected the admissibility of the affidavits. One ground for this decision was that notice had not been given of the appellant's intention to adduce tendency evidence as required by s 97(1)(a) of the Evidence Act. Ms Gan's counsel submitted that it was made plain to the respondent comparatively early in the proceedings, by the service of the affidavits, that she proposed to adduce the evidence in question. The primary judge said "I have not dispensed with the notice requirement and do not". But her Honour did not take issue with the substance of the submission.
In relation to Ms Wills' evidence, her Honour said that her initial affidavit lacked an address and thus did not comply with cll 5 or 6 of the Evidence Regulation 2020 (NSW). Ms Wills' later affidavit, along with Ms Di Si's later affidavit, did provide an address, albeit the address of her solicitors. The absence of an address could not rationally have had any effect on a decision as to whether to dispense with the requirement of notice under s 100(1) of the Evidence Act.
The essential point was that the affidavit had been served so that Ms Xie knew what evidence would be sought to be adduced, and the nature of that evidence as tendency evidence. In the context of civil proceedings, that the affidavits put Ms Xie on notice as to the type of evidence Ms Gan sought to adduce from Ms Di Si and Ms Wills ought to have been regarded as a factor weighing heavily in favour of dispensing with the requirement for the service of a tendency notice (see, eg, Toben v Jones (2003) 129 FCR 515; [2003] FCAFC 137 at [168]. Cf R v Harker [2004] NSWCCA 427 at [35]). For much the same reason, it was unlikely that Ms Xie would have suffered prejudice from the admission of tendency evidence, of the substance of which she had received adequate notice (see, eg, Cantarella Bros Pty Ltd v Andreasen [2005] NSWSC 579 at [19]; Ford v Ingham Enterprises Pty Ltd ABN 20 008 447 345 (No 3) [2020] FCA 1784 at [157]-[160]). These two matters ought to have factored into the primary judge's consideration of whether it was appropriate to dispense with the requirement to serve a tendency notice (having regard to the criteria specified in s 192(2) of the Evidence Act). Reasonable notice of Ms Gan's intention to adduce the evidence had been given (s 97(1)(a)), although not in the prescribed form (s 99). Where the judge did not rule on the admissibility of the affidavits at trial so that cross-examination proceeded as if they had been admitted, it was irrational to reject the affidavits on the ground that notice under s 97 had not been given. The primary judge erred in not dispensing with the notice requirement.
In assessing the admissibility of the evidence of Ms Wills and Ms Di Si, the primary judge ought to have proceeded on the assumption that their evidence could be accepted (IMM v The Queen (2016) 257 CLR 300; [2016] HCA 14 at [17], [39], [44], [45], [49]). If accepted, the evidence had significant probative value.
The substantial ground for rejecting the admissibility of the evidence of Ms Di Si and Ms Wills was expressed as follows:
"If I believe the relevant parts of the plaintiff's evidence, any similar fact, tendency or coincidence evidence resting upon conversations with others is redundant and thus lacking in significant probative value. If I do not accept the relevant part of the plaintiff's evidence (as is the case, as discussed elsewhere) any such similar fact, tendency or coincidence evidence is irrelevant and lacking in significant probative value in this context.
I do not "think" or find that the evidence of any conversations asserted by either Ms Wills or Ms Di Si, either by itself or having regard to other evidence adduced by the plaintiff, has any significant (or any) probative value; and find on the balance of probabilities that the evidence does not have any significant probative value (or indeed any probative value) in either case."
The primary judge's statement that if she otherwise rejected Ms Gan's evidence, then the evidence of Ms Di Si and Ms Wills was irrelevant, was a non sequitur. If Ms Di Si's and Ms Wills' evidence had significant probative value by demonstrating a tendency on the part of Ms Xie to make representations about the scheme to the same or similar effect as some (it need not be all) of the representations Ms Gan said had been made to her, that would be a matter that the judge should have taken into account in deciding whether she believed Ms Gan.
The primary judge said:
"As discussed, Ms Wills and Ms Di Si deposed to different conversations at different times, in mangled and jumbled accounts, that had the defendant saying precisely the same words repeatedly at different times. None of the conversations involved the plaintiff; and they occurred in different contexts and at different places and times, where the temporal element is significant, being November/December 2017 in the case of Ms Di Si (exhibit C1) and April 2016 and 2017 in the case of Ms Wills (exhibit D1). Ms Di Si invested on 30 November 2017 (exhibit C/CB87-88), when she says she met the defendant at a café, but deposed about later conversations (on 5 December 2017, exhibits C1 and C2). Ms Wills said [sic] joined MFC in April 2016 (exhibit D1/paragraph 2) but deposed to conversations in 2017.
…
It was apparent in cross-examination that neither witness had any specific recollection of precisely anything said, quite apart from the linguistic complexities. As noted earlier, neither Ms Di Si nor Ms Wills had any firm or specific recollection of anything said at any particular time but relied upon their respective understandings and impressions, as Ms Wills said, being 'the meaning that' the witness understood some years later.
…
Putting aside that differences between the conversions [sic] asserted (exhibits C2 and D2) and those asserted by the plaintiff; neither Ms Wills nor Ms Di Si had reliable, separate or specific recollections of any of the particular words said by the defendant in any specific conversation. The unreliability of their respective evidence negated any probative value in each case."
The significance of the temporal connection between tendency evidence sought to be relied upon and the conduct in issue will depend upon the subject matter of that conduct and the tendency evidence. If the conduct in issue is alleged sexual abuse, tendency evidence of abuse at later times than the charged offence may be of less probative value than evidence of earlier abuse, but this is not necessarily so (R v Dann [2000] NSWCCA 185 at [36]; RH v R [2014] NSWCCA 71 at [89]-[129]; (2014) 241 A Crim R 1). If the conduct in issue is the making of representations about the takings or profitability of a business, which change over time, a close temporal connection between the conduct in issue and the tendency evidence may be required for the tendency evidence to be of significant probative value. But there is no suggestion in this case that the features of MFC changed between 2016 and 2017.
There is a striking similarity between the evidence of Ms Di Si and Ms Wills as to some of the representations made by Ms Xie to them and the evidence of Ms Gan as to the representations made by Ms Xie to her.
Their evidence that they were told that the price of GRC will only increase and not decrease and the amount of GRC that they would hold would be based on a multiplier set by the company, usually 1.5 to 2, is consistent with Ms Xie's notes of the GRC characteristics extracted at par [59]. They deposed that Ms Xie said "This means you will be able to double your principal within a year". The primary judge made no reference to the notes in assessing the reliability of their evidence.
Ground 7 contends that the primary judge erred in finding that there was no significant probative value in the evidence of Ms Wills and Ms Di Si. In reaching that conclusion, the primary judge considered both the admissibility and reliability of their evidence. Ground 7 challenges both the primary judge's rejection of the admissibility of their evidence and her Honour's reasons for rejecting the reliability of their evidence.
The primary judge rejected Ms Wills' evidence that she was fluent in both English and Mandarin Chinese. It appears that the primary judge also at least had reservations about Ms Di Si's assertion that she was fluent in both English and Mandarin. Her Honour said:
"The conversations in the initial affidavits (exhibits C and D) were reported in English with Ms Wills and Ms Di Si deposed [sic] in English to conversations they said were had in Chinese and each said that she had translated herself. The Chinese versions of the respective conversation were produced with translation on 31 August 2021 (exhibits C1, D1, and C2) and 1 September 2021 (exhibit D2). The content differed when the Chinese conversations asserted were produced by the respective deponents in Chinese and translated (exhibits C1, C2, D1, and D2)."
The primary judge erred in rejecting the evidence of Ms Wills and Ms Di Si on the ground that they had no separate and specific recollection of particular words said by Ms Xie in any specific conversation such that their evidence was unreliable and had no probative value.
The fact that precise words used, and the specific occasion on which words were used, are not recalled, does not mean that a person's memory of the substance or "gist" of what was said must be rejected. I agree with the following observations of Jackman J in Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd [2023] FCA 381 at [121]-[129]:
"[121] Mr Kane's frankness on the issue exposes the flaws in what has continued to be the usual practice in New South Wales. It is impossible to ascertain from his evidence which words (if any) have been recalled by him as the exact words used in conversations some years ago, and which elements are the product of reconstruction. The appearance of a vivid memory of the conversation which is conveyed by the use of direct speech bears no resemblance to the state of Mr Kane's actual memory.
[122] The respondents, by contrast, have not used direct speech in their evidence of conversations. Their evidence is clearly evidence of memories of the substance or gist of conversations. There is no use of quotation marks, which ordinarily in English grammar are used to indicate the actual words spoken. It may well be that the fact that the respondents' lawyers are based in Victoria, with a different tradition in this regard, is one of the reasons why the respondents' evidence took the form that it did.
[123] There is ample authority for the proposition that there is no rule of the law of evidence in Australia that evidence of conversations must be given in direct speech: Commonwealth v Riley (1984) 5 FCR 8 at 34 (Smithers, Sheppard and Wilcox JJ); R v Wright (1985) 19 A Crim R 17 at 19 (Mathews, McPherson and Vasta JJ); R v Noble [2000] QCA 523; [2002] 1 QdR 432 at [20] (Pincus JA, with whom McMurdo P and Mackenzie J agreed); LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 688; (2001) 53 NSWLR 31 at [8] (Barrett J); Hamilton-Smith v George [2006] FCA 1551; (2006) 247 FCR 238 at [79]-[83] (Besanko J). Even as long ago as 1984, the Full Court said in Commonwealth v Riley at 34 that the practice of adducing evidence of conversations in direct speech was probably disregarded as often as it was followed. Evidence should be given in direct speech only if the witness can remember the actual words used: Noble at [20]; LMI Australasia at [8]; Hamilton-Smith at [83].
[124] The following passage from the judgment of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319, a case dealing with alleged misleading conduct arising from oral statements (which the plaintiff endeavoured unsuccessfully to prove in direct speech) pursuant to the former s 52 of the Trade Practices Act 1974 (Cth), has often been cited with approval:
Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether the spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
[125] The passage is characteristically pithy and insightful. I would respectfully add the following observations relevant to the present issue. Whether the evidence of spoken words is sufficiently precise to enable the court to be reasonably satisfied that the words spoken were in fact misleading is plainly a question of degree, not a demand for unattainable perfection. In some cases, that may depend upon the use of a specific word or phrase, but in many cases the court can be reasonably satisfied of the misleading nature of an oral statement from evidence of the substance of what was said. The statement towards the end of the quoted passage, as to what is actually remembered being little more than an impression from which plausible details are then constructed, is particularly pertinent to the present issue, although many would find his Honour's reference to that often occurring "subconsciously" to be overly charitable.
[126] The primary duty of a witness is one of honesty. The oath or affirmation binds the witness to tell the truth, the whole truth and nothing but the truth. Witnesses should not be compelled or encouraged into uttering untruths on oath by giving a form of words in direct speech with which they are not happy and which they cannot actually recollect in preference to their own words in indirect speech: J.D. Heydon, Cross on Evidence (11th ed, 2017) at [17145], cited with apparent approval by Besanko J in Hamilton-Smith at [81]; and see to the same effect Noble at [4] and [19].
[127] The practice of witnesses and lawyers working up a version of a conversation in direct speech (whether or not prefaced by the phrase "in words to the following effect") from the witness's actual memory merely of the substance or gist of what was said is logically, ethically and grammatically wrong. It is logically wrong because it reverses the logical process of deriving the meaning or substance of what was said from the actual words which were spoken; one cannot derive (as distinct from guess at) the actual words spoken simply from their gist. It is ethically wrong because the evidence given as a result of that process conceals the true nature and quality of the witness's memory, and conveys a false impression of that memory. It is grammatically wrong because the use of quotation marks indicates as a matter of conventional usage that the relevant expression is a quotation of the exact words which were spoken. It could not be said that this practice is allied to an iron sense of principle.
[128] The form in which evidence of conversations is given should reflect the difference between verbatim memory and gist memory. While in general terms gist memory tends to be more stable and durable over time than verbatim memory, possibly because it has engaged with higher reasoning processes which interpret and give meaning to what has been heard superficially, it will often be the case that certain words or phrases can actually be remembered verbatim. It would appear that verbatim memory and gist memory of conversations are not merely different in degree, but are also different in kind: see C J Brainerd and V F Reyna, "Fuzzy-Trace Theory and False Memory", (2002) 11(5) Current Directions in Psychological Science, pp 164-169.
[129] Applying that reasoning, the following general principles apply to the form of evidence of conversations:
(1) The form of the evidence should correspond to the nature of the actual memory the witness has of the conversation: Wright at 19; Noble at [4] and [20]; LMI Australasia at [8]; Hamilton-Smith at [83]. There is no reason in the abstract to think that evidence in direct speech is more reliable or credible than evidence in indirect speech, or vice versa.
(2) If the witness remembers only the gist or substance of what was said, and not the precise words, then the evidence should be given in indirect speech (also known as reported speech), in terms which reflect the witness's actual memory: Wright at 19; Noble at [4], [20]; LMI Australasia at [8]; Hamilton-Smith at [83].
(3) If the witness claims to remember particular words or phrases being used, then those words or phrases should be put in quotation marks to indicate that they are verbatim quotations, even if the evidence is otherwise given in indirect speech: see Wright at 19; LMI Australasia at [10].
(4) If the witness genuinely claims to recall the actual words used in a conversation, then the evidence should be given in direct speech; that is, quoting the words as actually spoken: LMI Australasia at [8]; Hamilton-Smith at [83]. Apart from rare cases of photographic memory, this may well be the case where the witness has made a detailed contemporaneous note of the conversation, and has refreshed his or her memory from the note (in which case this should be expressly stated along with the tender of the note).
(5) Evidence given in direct speech should not be prefaced by the phrase that the conversation occurred "in words to the following effect". That expression blurs the important distinction between verbatim memory and gist memory, and leaves the Court unable to ascertain which kind of recollection is being claimed by the witness. This is a different point from the one considered by Bromwich J in Director of Public Prosecutions (Cth) v Country Care Group Pty Ltd (Ruling No 1) [2020] FCA 1670 at [11], where the only argument against admissibility was the erroneous contention that evidence of conversations can only be given in direct speech of what was actually said.
(6) Evidence of a witness who claims to remember the exact words of a conversation, but who is found after cross-examination to have exaggerated the nature and quality of his or her memory, may well suffer an adverse effect on his or her credibility (the weight of which will depend on all the circumstances). However, the inability to cross-examine in that manner a witness who gives evidence in indirect speech is not unfairly prejudicial within the meaning of s 135 of the Evidence Act 1995 (Cth): LMI Australasia at [9]."
Any objection that evidence in indirect speech of the substance or gist of what was said is inadmissible as opinion evidence, being the witness' inference drawn from observed and communicable data, is met by s 78 of the Evidence Act (Connex Group Australia Pty Ltd v Butt [2004] NSWSC 379 at [12]-[27]; Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at fn 40; Australian Competition and Consumer Commission v Yazaki Corp (No 2) [2015] FCA 1304 at [54]-[63]; (2015) 332 ALR 396; Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 3) [2021] FCA 1147 at [66]-[68]; (2021) 157 ACSR 77).
The primary judge reasoned that, because the witnesses only professed a recollection of the gist of what they were told and could not say when and in which particular conversation or conversations the statements were made or where the conversations took place, their evidence was unreliable. It has been recognised for at least 90 years that memory is not a literal reproduction of the past (Schacter et al, 'The Cognitive Neuroscience of Constructive Memory' (1998) 49 Annual Review of Psychology 289 at 290). Because memory is constructive it is prone to errors. It is not merely on that account to be rejected.
As Jackman J observed at [125] of Kane's Hire Pty Ltd v Anderson Aviation Australia Pty Ltd, the observations of McLelland CJ in Eq in Watson v Foxman are not a demand for unattainable perfection. The primary judge did not engage with the question of whether Ms Gan, Ms Di Si, and Ms Wills should be accepted as having accurately recounted the gist, rather than the actual words, of Ms Xie. Her Honour did not consider whether Ms Xie's notes, that she said were notes of discussions with Ms Gan on 28 August 2016, corroborated material parts of the conversation which Ms Gan deposed took place on 29 August. Her Honour considered that, because Ms Gan had no recollection of anything said on 28 August 2016, she did not rely on anything said on that day, without considering whether Ms Gan may have been mistaken as to date and place, but not as to the substance of what was said. This affects her Honour's finding that Ms Gan did not rely on anything said by Ms Xie because Ms Gan transferred money from one of her accounts to another on 29 August 2016 and her Honour found that the meeting at which Ms Gan said that representations were made to her to invest did not take place until 31 August 2016. But her Honour failed to consider the significance of the fact that Ms Gan's investment was made on 31 August and was made through Ms Xie.
These errors undermine the primary judge's findings that none of the alleged representations was made, and that Ms Gan did not rely on anything she was told by Ms Xie. There were no contemporary objective materials inconsistent with the alleged representations having been made.
It is not possible for this Court to decide the contested issues of fact. Regrettable though it is, there must be a new trial.
I propose the following orders.
1. If and to the extent necessary, extend the time for service of the notice of appeal to 24 May 2022.
2. Allow the appeal.
3. Set aside the orders and judgment of the District Court of 25 February 2022.
4. Order that the proceedings be remitted to the District Court for a new trial before the Court, differently constituted.
5. Order that the respondent pay the appellant's costs of the appeal.
6. Order that the costs of the proceedings in the District Court be reserved for consideration of the judge determining the new trial.
SIMPSON AJA: I agree with White JA.
BASTEN AJA: I agree with the orders proposed by White JA, and with his reasons for them.