Gan v Xie

The history of the dispute and the litigation to date - Nature of this hearing

1. The alleged representations and investments occurred between 29 August 2016 and 7 February 2017.
2. The original Statement of Claim was filed on 25 October 2019.
3. Between 30 August 2021 and 8 December 2021, there was a hearing before Gibb DCJ which occupied 13 full hearing days.
4. On 22 February 2022, Gibb DCJ delivered a comprehensive, 99-page judgment, wherein, whilst she did find that Ms Xie's conduct was in trade or commerce, she otherwise concluded that each and every aspect of Ms Gan's claim failed.
5. Ms Gan appealed that decision. The appeal was heard by the Court of Appeal on 7 February 2023 (White JA, Simpson AJA, and Basten AJA), with judgment delivered on 17 July 2023 (Gan v Xie [2023] NSWCA 163).
6. The Court of Appeal identified error in most of what Gibb DCJ had decided and remitted the matter for a new trial before this Court, differently constituted.
7. Notwithstanding that order having been made on 17 July 2023, it was only on 16 September 2024 that the matter came on for hearing before me. On that date, I adjourned the matter for one week to allow Ms Xie, who by now is representing herself, some more time to prepare. The hearing before me took two and a half days commencing on 23 September 2024.

What has already been decided

1. The Court of Appeal's decision can be summarised as follows (paragraph numbers are reference to the Court of Appeal judgment): 1. MFC was a pyramid scheme as defined in s 45 of the ACL [39]-[40]; 2. Ms Xie participated in the scheme in contravention of s 44(1) of the ACL [47]; 3. The findings made by Gibb DCJ as to whether the representations were made and what might be described as "causation" for the purpose of s 236 of the ACL, were infected by a series of errors, including; the manner in which her Honour treated the evidence and made credit findings bespoke error, a failure to refer to factors which appeared to the Court of Appeal to be significant, the findings were inconsistent with, contemporaneous documentary evidence that supported Ms Gan's factual case, and finally, her Honour declined to admit into evidence and therefore did not take account of evidence that was tendered as "tendency evidence" (s 97(1)(a) of the Evidence Act 1995 (NSW)) for a number of reasons, including that her Honour's discretion to allow that evidence, absent a formal notice, miscarried and her Honour's reasoning as to why that evidence would have limited probative value, was erroneous [122].

What is left to be decided

1. The finding by Gibb DCJ as to the trade or commerce issue was not challenged on appeal. The findings of the Court of Appeal are not only binding on me as a matter of precedent, but they are also findings made in the same litigation and therefore, create an issue estoppel between the parties.
2. The issues left to be decided are as follows: 1. What conduct of Ms Xie constituted her participation in the "pyramid scheme"? 2. Did Ms Xie's participation in the "pyramid scheme" cause any of the claimed damages to Ms Gan? 3. Did Ms Xie contravene s 44(2) of the ACL by inducing Ms Gan to participate in the scheme? 4. Related to the first issue, but also as a separate question, have the various alleged misleading and deceptive "representations" been proved? 5. If so, did those representations amount to a contravention of s 18 of the ACL. 6. If so, did Ms Xie's involvement in the "pyramid scheme" or any s 18 contraventions, or any of them, cause any of the claimed damages? 7. In the event that the Court finds some damage to have been suffered by Ms Gan, should s 137B of the Competition and Consumer Act be applied, so as to reduce the amount of any damages because of what is contended by Ms Gan to be a failure by Ms Xie to take reasonable care in relation to her decision to invest in MFC. 8. Ms Gan's restitution claim.

The proceedings before me

1. With some limited exceptions, the same affidavit evidence that was read before Gibb DCJ was read before me. Some, but not all, of the witnesses were cross-examined. They had all been cross-examined at considerable length and in great detail by counsel for both parties before Gibb DCJ.
2. It appears that both parties have run out of money, or perhaps have decided that spending money on lawyers is not the best use of their resources. Ms Xie acted for herself before me and Ms Gan was represented "pro bono" by her solicitor, Mr Zhao. The Court is very grateful for Mr Zhao's assistance, it was in the very best traditions of the legal profession. He presented the case in a way that was not just helpful to me but was extremely fair to Ms Xie.
3. Because of the long history of the case to date, I admitted into evidence the transcript of the hearing before Gibb DCJ and indicated to the parties that I proposed to allow limited cross-examination of witnesses to take place before me, but that I would also take into account, as best I could by reading the transcript, the evidence given by witnesses in cross examination before Gibb DCJ. I have read the transcript of the first hearing for that purpose but have deliberately not read any parts of the transcript that relate to witnesses whose affidavits were not read before me.
4. Because of this approach and the fact that the case has already consumed 17 or 18 hearing days in both this Court and the Court of Appeal, the amount in issue, and the fact that Ms Xie is now unrepresented and her cross-examination did tend to be a little repetitive, I imposed time limits on the cross-examination before me.
5. Ms Xie who, as I have said, represented herself in these proceedings, was represented at the first hearing before Gibb DCJ by Mr Livingstone SC, who cross-examined the Plaintiff's witnesses comprehensively and effectively. I have carefully considered that cross-examination and the comprehensive written submissions which he made to her Honour, both in writing and as recorded in the transcript. I have taken those submissions into account, as well as the further submissions Ms Xie made to me.

Findings of fact - What happened?

1. The seven representations said to contravene s 18 are pleaded are as follows: 1. That participation in MFC was risk free (Risk Free Representation); 2. The Company was legitimate (Legitimacy Representation)); 3. The plaintiff would get her principal back after one year (Return of Principal Representation); 4. The more money the plaintiff invested, the sooner she would get her principal back (Quicker Return Representation); 5. In the event that the plaintiffs investment was not risk free, the defendant would give back to the plaintiff the amount of her principal (Guarantee); 6. The plaintiff did not need to do anything in order to make money (Profit Representation); and 7. The plaintiff could withdraw cash at any time (Liquidity Representation).
2. The breach of s 44 of the ACL is pleaded as follows: 1. Ms Xie participated in a pyramid scheme in contravention of s 44(1) of the ACL and sought to induce Ms Gan into participating in the scheme in contravention of s 44(2) of the ACL. 2. Ms Gan has suffered loss and damage because of these contraventions of the ACL.
3. The alleged participation by Ms Xie in the scheme is not limited to the pleaded representations. The way the evidence was presented, and submissions made at the first hearing before Gibb DCJ, and again before me, was that the participation by Ms Xie was much wider than the representations.
4. Ms Gan, in writing, put that Ms Xie's participation involved the active dissemination and promotion of MFC (to Ms Gan) and the process of which facilitated the meeting between Ms Gan and Ms Xie and the receipt by Ms Xie from Ms Gan of some of the money, constituting the investment.
5. It is submitted on behalf of Ms Gan, Ms Xie's participation in MFC manifested in two distinct courses of conduct: 1. Her active promotion of the scheme to Ms Gan and; 2. Her selling MFC tokens to Ms Gan, which is the very cause of Ms Gan's loss.
6. Ms Gan's submission is that finding is comfortably available by doing no more than accepting Ms Xie's description of what she did and said in her interactions with Ms Gan.
7. Upon that basis, Ms Gan's claim in relation to her participation in MFC is much broader than the alleged and very specific misleading or deceptive statements pleaded in support of the s 18 case.
8. In writing, Ms Gan puts it this way: "45. Whilst the defendant denies the categorisation of her behaviours to be the active encouragement, promotion, and dissemination of MFC, her objective evidence is that she did in fact engage in these conducts. 46. The defendant admits in cross examination that: a. She enjoyed sharing information about MFC, even with strangers. It gave her great satisfaction. b. She had a habit of handing over handwritten notes about how MIFC works, and leaving them with strangers. It was put to her that she did so for the purpose of allowing these estrangers to continue considering joining MFC. c. She sincerely believed MFC to be a good platform. It was put to her that she therefore encouraged people to join MFC, in line with her positive impression of MFC. d. She did share and teach MFC to at least 9 people, and may even be in the range of 20 to 30 people. 47. Meanwhile, it is apparent on objective evidence that the defendant actively compared MFC with other traditional avenues of investments. Specifically: a. She agreed with the proposition that the hand-written notes she drew up at Parramatta on 28 August 2016 compared MFC with ordinary share investments, wherein MFC investment had greater tu16 and b. It was put to her, and written records suggest, that she had tried to compare MFC with entities such as Alibaba to the extent of suggesting MFC investments were comparatively better. 48. All of the above suggest, and quite naturally in the context of a pyramid scheme, that the defendant was in the practice of active dissemination and promotion of MFC, the process of which facilitated the meeting between the plaintiff and the defendant. 49. Even more importantly, and the defendant admitted in cross examination on 24 September 2024, that she had sold RCs, a MFC token, to the plaintiff, and the plaintiff paid the following monies to the defendant directly to acquire the said RCs: a. $60,150.00 on 31 August 2016; b. $105,000.00on 5 September 2016; c. $37,500.00 on 7 September 2016; and d. RMB560,000.00 on 26 September 2016. 50. In the circumstances, it is the plaintiff's submission that the defendant's participation in MFC (a pyramid scheme) had manifested in two distinct courses of conduct: a. Her active of promotion of the scheme to the plaintiff; and b. Her selling MFC tokens to the plaintiff, which is the very cause of the plaintiff's loss. . . . and it is these conduct that had 'materially contributed' to the plaintiff's loss and damage. 51. Separately, however, the plaintiff also seeks to recover the following damage and loss that had arisen from her monies paid to Xuanfang Xu (or Wendy Xu): a. RMB245,000.00 paid on 7 February 2017; and b. $52,500.00 paid on 8 February 2017. 52. The plaintiff gave evidence that she had only done so under earlier advice of the defendant, whereby the plaintiff ought to try to complete a certain structure in order to maximise her gains."
9. Ms Xie's answer to this is that, whilst she accepts that she had a series of meetings wherein she imparted information about MFC to Ms Gan and that following each of those encounters Ms Gan invested money, that she was doing nothing more than acting as a helpful volunteer to assist Ms Gan and others to understand the nature of MFC and therefore, such conduct cannot be described as "participation" in the scheme by her, nor did she in any way induce Ms Gan to participate in the scheme.
10. I do not accept these submissions. It seems to me it is already covered by the Court of Appeal's finding that Ms Xie did participate in the "pyramid scheme". That finding was made by the Court of Appeal in circumstances where it expressly made no findings as to the specific representations. The Court of Appeal has determined that there was a contravention of s 44(1) of the ACL.
11. The Court of Appeal only made findings of the general circumstances of the interactions between the parties. I am comfortably satisfied that the Court of Appeal considered the general conduct of Ms Xie when dealing with Ms Gan relevant to the scheme to amount to participation in the scheme.
12. I consider Ms Xie's submission to be legally wrong in any event. Let it be accepted that Ms Xie was doing no more than acting as a helpful volunteer in explaining the scheme to people like Ms Gan, she was not Ms Gan's "sponsor" for the purposes of the scheme and that when she received money from people like Ms Gan, it was not in exchange for any asset owned by her, but rather it was for the purpose of her passing that money on to others. If that be what happened, I am of the view that such conduct, in the context of Ms Xie's other involvement in the scheme as an investor, of itself amounted to participation in a pyramid scheme. I accept Ms Gan's submissions, which I have set out above at paragraph [29].
13. That being said, in my opinion, this is the wrong question. Looking at the question of Ms Xie's alleged "participation" in the scheme, is to consider the matter without reference to the separate and distinct alleged contravention created by s 44(2) of the ACL.
14. In my view, the clear words of s 44(1) and (2) mean that the obvious intent of the legislation is to make the participation by any person in a pyramid scheme a contravention of the law. Participation, per se, is a contravention by virtue of subsection 1. Participation may be satisfied by no more than investing in such a scheme. Subsection 2 then precludes any person (not just someone who is already participating in the scheme) from inducing or seeking to induce another person to participate in the scheme.
15. The obvious meaning of s 44(2) is to prevent any person from seeking to, or in fact inducing, any other person to participate in a pyramid scheme. Thus, subsection 2 stands alone from subsection 1. All that is necessary for a contravention of subs (2) is for there to be identified an attempt or actual inducement by Ms Xie to Ms Gan in relation to Ms Gan becoming a member of the pyramid scheme.
16. Looked at in that way, to my mind, it becomes clear that the inducement or attempt to induce will be in contravention of subsection 2, regardless of whether that inducement or attempt can itself be described as "participation" by the person doing the inducing in a pyramid scheme. Perhaps the same result is arrived at by reference to the very broad definition of "participation" contained in s 44(3), which includes "to promote the scheme".
17. Upon that construction of the legislation, the only characteristic of Ms Xie's conduct that becomes relevant for the purpose of subsection 2, is whether, by her conduct, she was attempting to, or in fact did induce, Ms Gan to become a participant in the scheme. Such inducement need not involve any misleading or deceptive conduct at all. Everything that is said may be entirely accurate, but it will still be a contravention of s 44(2). So it can be seen the alleged contravention of s 44(2) is not dependant at all on a finding of a contravention of s 44(1) or s 18.
18. The crux of the "causation" case for the purpose of s 44, is that Ms Xie's conduct was such that it "induced" Ms Gan to invest in MFC, albeit the statutory route to a remedy is via s 236. Ultimately, the resolution of that question will turn on whether Ms Xie's conduct, in the context of all of the facts proved on the evidence, can be said to have had that effect.
19. To resolve this issue of causation, one must first focus on if what message was conveyed by Ms Xie to Ms Gan during the period between August and September in 2016 in a series of conversations, most of which are shortly followed by an investment in a particular amount of money, was such to have caused that investment.
20. The second step, in the words of s 236, is the question becomes was the investment "because of" that conduct.
21. As the Court of Appeal explained in its judgment, there was a raft of surrounding contemporaneous documents created, insofar as there are notes by Ms Xie and communications on "Wechat" by both Ms Xie and Ms Gan at the time. Those documents give a reasonably clear insight into the general topics being discussed between them, and in some instances, provide a clear window into what happened and assist in working out, with some precision, what was said.
22. I have allowed into evidence, consistent with the Court of Appeal's finding, the evidence of Zhong Ming Di Si and Jenny Wills as "tendency evidence". Ms Di Si was cross-examined before me, although Ms Wills was not, even though she was available to give evidence by AVL from China. Ms Xie explained to me that she was not prepared to cross-examine in those circumstances, for what she described as security issues.
23. Be that as it may, Ms Wills was cross-examined on the last occasion. I have taken into account the transcript of the cross-examination, as well as what Mr Livingstone SC said about her evidence in his written submissions. I draw no inference adverse to Ms Xie because of her decision not to cross-examine Ms Wills before me.
24. The gist of both those witness' evidence is that they had conversations with Ms Xie close to the time of the alleged conversations with Ms Gan and, if their evidence is to be accepted, she said things to them which were remarkably similar to what Ms Gan recollects. More importantly, their recollection of the conversations they had with Ms Xie are also consistent with what I think is the overarching message to be taken from the contemporaneous written material to which I have referred. Their evidence, if accepted, would demonstrate that Ms Xie, at the relevant time, had a tendency to say the type of things that Ms Gan recalls, and thus would make it more likely that Ms Gan's evidence is reliable.
25. I also consider Ms Xie's confidence in MFC at the time to be relevant context. Ms Xie gave very clear evidence as to her state of mind at the time of the alleged representations.
26. At paragraph [55] of her affidavit, she said the following: "Up until late 2018, I sincerely and strongly believed in the company. I liked its products (goods and services) and that I could buy them using LR. I thought they were fairly and reasonably priced. I thought that normal market demand for those products would grow and grow. I thought that, while the MFC Platform had the backing and support of the company and there was demand for its products, the Platform could go on and on from strength to strength. I had seen the performance charts from when it started in 2012 up until 2016. At that time, I never thought about what would happen if demand for GRC and/or the company's products dried up. I realise now, but didn't understand back in 2017 and 2018, that the whole model was built on growing demand and that once demand slowed or receded, there would be no growth in the GRC price, it would become difficult to cash out, and this would or could trigger a cycle of recession, as potential new members would no longer be interested or attracted to join the platform."
27. What all that means is that, before I come to trying to reconcile the competing oral evidence of Ms Gan and Ms Xie, that evidence has to be judged and weighed in the following context: 1. That, at the time, Ms Xie strongly believed in MFC and thought, at the time, that it would "go on and on, from strength to strength". She "never thought about what would happen if demand for GRC or the company's products dried up". That state of mind, in my opinion, makes it at least very plausible, if not likely, that Ms Xie would have said something along those lines to Ms Gan. 2. The contemporaneous notes created by Ms Xie at the time she was speaking to Ms Gan, and which were given by Ms Xie to Ms Gan to take away after at least the meetings at Parramatta and Burwood, contain statements which, in my opinion, are consistent with: 1. the first pleaded representation, that participation in MFC was "risk-free"; 2. the second, that MFC and the company promoting it was "legitimate"; 3. the fourth representation that "the more money Ms Gan invested, the sooner she would get her principal back"; 4. the fifth representation that Ms Gan "did not need to do anything in order to make money"; and 5. the final representation, Ms Gan "could withdraw cash at any time". 1. That contemporaneous record, to my mind, demonstrates very strongly that Ms Xie did say something to the effect that the scheme was risk-free and legitimate, and that Ms Gan did not need to do anything in order to make money. For example, set out below are the original notes and their English translations of two of their meetings, one at Parramatta and the other at Burwood. 1. Whilst those notes are impossible to interpret on their own, they were the subject of considerable cross-examination and evidence. I have included them in these reasons in both their original form and the English translation because I consider that they provide real insight into the level of detail and complexity of the explanations provided by Ms Xie. In my opinion, they are consistent with the following statements being made by Ms Xie to Ms Gan: 1. That the "investment" would be "painless"; 2. That the investment would "create value" and have longevity; 3. Compared to other investments, an investment into MFC would produce far greater "value"; 4. The characteristics of the investment included that it would only rise and never fall; 5. If an investor did nothing (static), the investment would still produce a positive return; 6. Large amounts of benefit could be cashed out in one go; and 7. There was an ability for indefinite circulation of the investment. 1. All of that is, to my mind, consistent with Ms Gan's recollection of what was said, and inconsistent with Ms Xie's explanation. Ms Xie was at pains to emphasise that any reference to "value" ought not be understood by me as a reference to what actual returns could be produced by the investment, but rather was a reference to the "value" of the investment that might be shown on paper. Regardless of Ms Xie's understanding or intention, I do not think that was the gist of the message that was conveyed to Ms Gan. 2. Such statements are also entirely consistent with Ms Xie's state of mind at the time. She of course did not know that the scheme was an illegal "pyramid scheme", and therefore thought that the scheme and the company behind it were legitimate. She had herself invested large amounts of money into the scheme. At least implicitly, she must have conveyed the message that the scheme was legal. Moreover, she believed that the scheme would go on and on, continue to return profits, and that the investment could be converted back to cash in a way that had to involve it being valued at a higher price than the last sale of the product, and if no other investor was prepared to invest, that the company would itself buy back the investment at that price. Again, that state of mind makes it likely that she said such things to Ms Gan. 3. This is all consistent with what the "tendency" witnesses recall being told by Ms Xie. If this evidence is accepted, it would prove that Ms Xie had a tendency to say something along the lines of what I have set out above, making it more likely that Ms Gan's version of events be accurate. For reasons I will come to, I accept their evidence and find the relevant tendency made out and take it into account. 4. It is not to be overlooked that, objectively, after each conversation between Ms Gan and Ms Xie, Ms Gan did invest further funds. This temporal connection cannot be coincidental. To my mind, this makes it close to inevitable that something was conveyed in those conversations that encouraged Ms Gan to invest.
28. One thing that is entirely clear to me from both the cross-examinations Ms Xie conducted herself and her oral evidence before me when she was being cross-examined, is that, to this day, she still believes in the product, notwithstanding that it appears to have spectacularly failed and that all investors who were left in the scheme lost their money. She went to great lengths to explain the scheme to me in a way that was glowing in its assessment. Whilst the explanation as to the way the scheme actually works is extraordinarily complex and difficult to follow, the take-home message that I got from Ms Xie's explanations in her evidence before me was that the scheme was, as far as she was concerned, "risk-free". While she was not prepared to acknowledge that it was an investment - she preferred to describe it as a "game" - she was adamant that her understanding at the time was that the "investment" would be returned with profit and that the prospect of there being a loss of principal or return was so remote as to be fanciful. She explained that the question of "value" and the question of turning the investment back into a cash return is irrelevant, as it is to compare different things, I consider it very likely that the gist of what she conveyed to Ms Gan at the time was that there was no risk, the scheme was legitimate, that she would get her principal back, and that it was not necessary for Ms Gan to do anything other than invest.
29. Turning then to my assessment of the credit and demeanour of both Ms Gan and Ms Xie. I do so against the background of the context as I have found it to be.
30. I should record that Mr Livingstone SC in his written submissions was highly critical of Ms Gan as a witness: "42. Ms Gan was frequently non-responsive and evasive in her answers, especially when she appreciated that a responsive answer may potentially be harmful to her case: see, eg, T128:30-50, T132:41 - 133:25; T138:33-39; T138:46 - 139:22; T141:08-19; T143:22 - 144:04; T169:06 - 170:09, T184:29-49; T185:22-34; T192:25-33; T212:26 - 213:30, T224:17-33; T232:23-43. 43. Ms Gan repeatedly made dogmatic, categorical and sweeping statements about past events that were implausible having regard to the frailties of human memory. Her unqualified and absolute declarations were frequently shown to be incorrect by reference to contemporaneous documents. Even when confronted with those contemporaneous documents, Ms Gan steadfastly refused to admit that she was mistaken, or even of the possibility that she was mistaken: see, for example, the exchanges in cross-examination regarding the location of her first meeting with Ms Xie on 28 August 2016 (T132:42 - 135:05); the date of their second meeting at the Burwood RSL ((T143:14 - 144:31); and the possibility that Ms Xie's handwritten notes were handed to her at their first and second meetings, respectively (T136:40 - 137:14; T146:15-22)."
31. He was also extremely critical of Ms Di Si and Ms Wills in the following terms: "100. For the reasons summarised below, neither the evidence of Ms Zhong Ming Di Si nor that of Ms Jenny Wills has "significant probative value", within the meaning of ss 97(1) or 98(1) of the Evidence Act. Further, the evidence of both is well-removed from the subject-matter of the claims made by Ms Gan against Ms Xie: a. Ms Gan's claim against Ms Xie concerns only alleged representations made by Ms Xie to Ms Gan from late August 2016 to November 2016: ASOC at [7]-[12A]. It is not suggested that Ms Si or Ms Wills were present on any such occasion or can give any direct evidence of those matters. b. Ms Si's evidence alleges that Ms Xie made certain representations to her in November and December 2017 (Exhibit C1 at [2]-[3], translated in Exhibit C2) - up to 16 months after the events in question in the present proceedings. Further, of the 7 representations pleaded at ASOC [7], Ms Si's evidence (at its highest) was that, at most, only 3 of them were allegedly made to her (namely, the Return of Principal Representation, the Risk Free Representation and the Profit Representation) and, even then, the terms of the alleged representations were not the same. c. Ms Wills' evidence alleges that Ms Xie made certain representations to her on two occasions well removed in time from the events in question in the present proceedings, namely "in April 2016" and "in 2017" (Exhibit D1 at [2]-[8], translated in Exhibit D2). Further, of the 7 representations pleaded at ASOC [7], Ms Wills' evidence (at its highest) was that, at most, only 2 of them were allegedly made to her (namely the Risk Free Representation and the Profit Representation) and, even then, the terms of the alleged representations were not the same. d. Even if (contrary to the submissions made below) the Court were prepared to accept the truth of the evidence of Ms Si and Ms Wills, nonetheless that could not rationally affect, to a significant extent, the Court's assessment of the probability of the existence of the facts alleged by Ms Gan. There is no rational connection, much less any substantially probative or influential one, between Ms Gan's case and the separate allegations that Ms Xie said different things (with limited similarities) to two individuals (Ms Si and to Ms Wills) on isolated occasions at a time many months removed from the events in question, in different conversations occurring in different contexts and for different purposes. 101. As to Ms Zhong Ming Di Si: a. First, Ms Si was willing to make, under oath, sweeping factual assertions which she later retracted. She testified that Ms Xie was her sponsor in MFC (T323:49 - 324:05). When pressed, Ms Si gave non-responsive answers identifying Ms Xie as the person to whom she gave her money, rather than addressing whether or not Ms Xie had the status of her sponsor in MFC (T324:09-10). Her non-responsive answers continued, even when asked questions by the Court (T324:14-22). She then admitted that she does not know who her sponsor was (T324:31-32). Having done so, Ms Si then immediately reverted to her previous non-responsive answer that she gave her money to Ms Xie (T324:34 - 325:08). Ms Si then admitted, again, that she does not know who her sponsor was and that her earlier evidence, that her sponsor was Ms Xie, was wrong (T325:10-15). Whether her evidence was the product of a desire to cause harm to Ms Xie, poor recollection or confusion, the result is the same: the evidence lacks probative force and is unreliable. b. Secondly, Ms Si's recollection of what was said to her in 2017 was poor. It is plain that Ms Si did not herself make any notes in any of her meetings with Ms Xie: T330:14-44, 332:05-12, 333:12-14. In re-examination, Ms Si admitted, in particular, that she did not remember the full details of the 30 November 2017 meeting "because I don't make any notes about all this" (T339:34-35). c. Thirdly, Ms Si's affidavit evidence as to what Ms Xie allegedly said to her at each of their various meetings (Exhibit C1 at [2]) was shown to be knowingly wrong. That paragraph of the affidavit wrongly suggested that, at each of their meetings on 30 November 2017, 5 December 2017 and in their subsequent meetings, Ms Xie had said words to precisely the same effect. Ms Si conceded that Ms Xie did not say exactly the same thing at each of those meetings (T333:21-23); that what she (Ms Si) had done in paragraph 2 of her affidavit was to set out her reconstruction of all the things she now believes Ms Xie had said to her at any time (T332:46-48); that she (Ms Si) had combined in paragraph 2, into one conversation, information which she says Ms Xie had told her on different occasions (T333:40-45, 334:04-05, 334:18-22); that it followed that Ms Xie did not say to Ms Si all of those words on 30 November 2017 (T333:47-49); that it was wrong to say all of that was said on 30 November 2017 (T334:25-27); and that, at the time she swore her affidavit, she knew that paragraph 2 was wrong because it incorrectly suggested that Ms Xie had said all of these things to her on 30 November 2017 (T334:39-42). d. Fourthly, the cross-examination revealed that Ms Si was a person who was prepared, in secret, to make reckless or baseless allegations against Ms Xie in a public forum. Ms Si admitted that, using the name "Gold, Green and Blue Flower" rather than her real name, she had posted messages making serious accusations against Ms Xie on a Chinese language website called "Sydney Today" (T335:05-42). These included an accusation that Ms Xie had received hundreds of millions of dollars and transferred them to her personal account (T336:19-33). Ms Si had no proper basis to make that accusation, much less to do so publicly and anonymously. In the witness box, Ms Si expressed emotional hurt and blame towards Ms Xie (T336:35-49). The intensity of her perceived grievances, and her previous conduct in recklessly making improper public allegations, would cause the Court to approach Ms Si's evidence, at minimum, with extreme caution. 102. As to Ms Jenny Wills: a. First, Ms Wills' recollection of what was said to her in 2016 and 2017 was not reliable. She did not make any written notes of any of her discussions with Ms Xie (T346:50). Ms Wills accepted that the first time she set out her memory of what Ms Xie told her was when she prepared her affidavits in these proceedings in 2020 and 2021 (T358:09-11). Ms Wills agreed that, since 2016, she had spoken with other members of MFC about Ms Xie, but (unconvincingly) refused to concede even the possibility that her memory had been affected by what other members had told her about their discussions with Ms Xie (T358:23-32). b. Secondly, Ms Wills' oral evidence revealed a surprising lack of familiarity with her own affidavit, which she had sworn only 15 days earlier (on 31 August 2021) (Exhibit D1). Despite lengthy questioning - both in English (in which Ms Wills said she was fluent: Exhibit D at [1]) and in Mandarin through an interpreter - Ms Wills seemed unable to identify or to recall, accurately, the plain words in the first sentence of paragraph 2 of her affidavit or the meaning that was conveyed by those words (T347:21 - 357:22). c. Thirdly, Ms Wills' affidavit evidence suffered from the same fundamental difficulty as Ms Si's. At paragraph 2 of her affidavit (Exhibit D1), Ms Wills purported to give evidence, in a single conversation, of what in truth must have been a combination of different words allegedly said by Ms Xie at different meetings over a lengthy period of time. However, it was telling that - unlike Ms Si - Ms Wills refused to concede that this was so (T357:13 - 358:15). Her unreasonable failure to make that concession did her no credit. d. Fourthly, Ms Wills' evidence disclosed a strong sense of perceived grievance against Ms Xie. Ms Wills said that Ms Xie had "been always bullying me", she spoke of emotional upset and trauma and she said that she blamed Ms Xie for her own losses in MFC (T360:31-44). There is, at the least, a heightened risk that Ms Wills' evidence of what she thinks she was told four or five years ago - uncorroborated by any contemporaneous record - has been overlayed or infected, consciously or subconsciously, by her own entrenched sense of financial loss and grievance and her interactions with other members of MFC over the years."
32. I have carefully read the transcript of Ms Gan and the other witnesses' evidence before Gibb DCJ, and in particular the portions referred to by Mr Livingstone SC in his written submissions. A lot of the criticisms are to the effect that, in particular, Ms Gan was dogmatic, argumentative, prone to not answering questions, and appeared to be extremely keen to advocate her case are fair criticisms. They can of course be explained away by the fact that, if she is accepted, she has a legitimate reason to feel considerably aggrieved by the conduct of Ms Xie. Before Gibb DCJ, she was giving evidence through an interpreter over AVL during the Covid period. It is clear from the transcript that the technology was not working at all smoothly which caused great frustration, not only to witnesses and counsel, but also to her Honour. Moreover, whilst there are some examples of Ms Gan behaving in the way described by Mr Livingstone SC, there are many other examples in the transcript of her giving direct answers, sometimes contrary to her interests. There were also some errors in her affidavit, which she clarified and explained in a way that I felt was satisfactory.
33. Before me, Ms Gan presented in a similar way to that described by Mr Livingstone SC. She did not answer questions directly and was extremely defensive when being cross-examined by Ms Xie. Again, I think this is reasonably understandable because firstly, it is the second time she has given evidence. Secondly, she was being cross-examined by Ms Xie herself and there was an obvious degree of animosity between them, and thirdly, she obviously feels that she has suffered a significant financial loss due to the conduct of Ms Xie and was very anxious to make that case to me directly from the witness box.
34. As to Ms Xie, the same type of criticisms can be fairly made against her. It is of course extremely difficult for a party acting for themselves, when moving from the bar table where they are an advocate, into the witness box where they are expected to behave like a witness. She was very prone to using the opportunity of being asked a question to advocate her case by making points which had little to do with the question. She was also defensive, and I think a little bit dismissive of everyone else in the Courtroom's failure to immediately understand with precision the excruciatingly complex arrangement that was MFC. Nonetheless, there are a number of occasions during her evidence where I felt I got a very clear picture of the type of explanations she was giving to Ms Gan and others in 2016, which, as I have already said, I think is consistent with the gist of Ms Gan's evidence, the contemporaneous documents, and the other tendency witnesses.
35. I was impressed with Ms Di Si as a witness. I felt she was straightforward and doing nothing more or less than trying her hardest to remember what she was told by Ms Xie at the time, which induced her into investing.
36. I did not get to see and make my own assessment as to Ms Wills, but on reading the transcript, it is clear that her evidence was a difficult experience but again it was being given over AVL in circumstances where there was a large degree of frustration by everyone involved in the technology.
37. Whilst both Ms Gan and Ms Xie presented in their own ways as problematic witnesses, and I would not wish to be required to elevate one over the other, without any context or objective material. In light of the various objective matters I have set out above, I prefer Ms Gan's evidence. I also accept the evidence of Ms Di Si and Ms Wills and make a finding that Ms Xie had the relevant tendency. The fact of that tendency reinforces my confidence in this finding.
38. Taking into account all the matters I have identified, including my assessment of the demeanour of the various witnesses I saw and heard, I am comfortably satisfied that Ms Xie did make at least the "risk-free" representation, the "legitimacy" representation, and the "conversion to cash" representation.

Misleading or Deceptive

1. Whether or not conduct is misleading or deceptive, or likely to mislead or deceive, must be determined having regard to the whole of Ms Xie's conduct, viewed in the context of all relevant facts and circumstances at the time of the conduct: Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1 at [6]-[15] (French CJ, Crennan and Kiefel JJ); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2014) 317 ALR 73; [2014] FCA 634 at [38] (Allsop CJ); Unilever Australia Ltd v Beiersdorf Australia Ltd [2018] FCA 2076 at [16] (Wigney J); Australian Competition and Consumer Commission v Employsure Pty Ltd (2021) 394 LR 205; [2021] FCAFC 142 at [92] (Rares, Murphy and Abraham JJ); Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202 (Deane and Fitzgerald JJ).
2. Taking into account the context and setting in which Ms Gan made the representations, I am comfortably satisfied that the representations I have identified were not only likely to mislead or deceive, but in fact were misleading and/or deceptive. Obviously, the investment was not risk-free, nor was the scheme legitimate, and the investments could not be readily converted into cash. To the extent the representation might be said to be as to future matters, Ms Xie had no reasonable basis to believe they were accurate.

Participation in the scheme

1. Turning then to the "participation" of Ms Xie in MFC and the separate question of whether s 44(2) was contravened, I accept the submissions, made on behalf of Ms Gan, that, based on her own evidence, Ms Xie: 1. Enjoyed sharing information about MFC, even with strangers. It gave her a great deal of satisfaction. 2. Made handwritten notes about how MFC works at the time she discussed MFC with Ms Gan. I consider that conduct could only have been for the purpose of allowing Ms Gan and others to continue considering joining MFC. 3. Sincerely believed MFC to be a good platform and that it would go on effectively ad infinitum. Because of this, she believed it would be to the benefit of Ms Gan and others for them to understand the scheme and its benefits so that they might enjoy its benefits. 4. Compared potential returns from an investment into MFC with other types of investments in her handwritten notes, including investing in the share market or putting money in the bank. Those comparisons were extremely favourable. 5. Emphasised that value of the investment could only increase over time. 6. Accepted money from Ms Gan for the purpose of the investment. Ms Xie's evidence was that she passed that money onto others. On her own evidence, she acted as a conduit to allow the investment to happen.
2. Accordingly, even if I am wrong as to the gist of the precise matters represented by Ms Xie to Ms Gan, I am satisfied, based on Ms Xie's own evidence, that when Ms Xie was dealing with Ms Gan, she was actively disseminating information about and promoting MFC for the purpose of encouraging Ms Gan to invest in MFC. In context, that conduct and her conduct of at least facilitating the investments by Ms Gan all constituted conduct in contravention of s 44(1) and (2) of the ACL.

Causation

1. The next question is therefore whether the investments and the subsequent loss of the investment by Ms Gan was "because of" those representations, and/or because of Ms Xie's "involvement" in the "pyramid scheme".
2. Ms Xie has emphasised that Ms Gan had other advisors, in that other people involved in the scheme were speaking to her and providing her their assessments, which undoubtedly, she took into account.
3. However I think it is important to record that it is clear to me, as indeed Ms Xie was at pains to emphasise, that she was, and perhaps remains, one of very few people with a full understanding of how the scheme worked and her role was to explain the mechanics of that scheme to Ms Gan.
4. In so doing, especially in light of her state of mind, her fervent belief in the product, and that investment into it would be "good for people", she actually did seek to encourage or induce the investments made by Ms Gan.
5. In such circumstances, it is relatively easy to infer that that intention was successful: see for example Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 ("ACCC v TPG").
6. More to the point, for "causation" to be proved for the purpose of the Act, it does not matter that there were other causes or indeed the conduct of a Defendant was the primary cause, all that needs to be shown is that it was a material cause: see for example Travel Compensation Fund v Robert Tambree (t/as R Tambree & Assocs) (2005) 224 CLR 627 at [32].
7. In order to recover damages, Ms Gan must satisfy me that loss or damage was suffered "because of" conduct in breach of the ACL. The word used in s 82 of the Trade Practices Act (1974) (Cth) was "by", but it has been held that the new drafting makes no difference to the meaning: Flogineering Pty Ltd v Blu Logistics SA Pty Ltd (No 3) [2019] FCA 1258; Flogineering Pty Ltd v Blu Logistics SA Pty Ltd (No 4) [2021] FCA 1219.
8. The relevant question will always be whether there is sufficient connection between the conduct and the damage suffered, with the latter to be regarded as "because of", to consider the question by reference to concepts such as reliance can be a distraction and potentially lead to error. What is necessary is to find a causal connection between the conduct identified and the loss and damage suffered: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304.
9. At the risk of repetition, the impugned cause does not have to be the sole cause, it must merely be a sufficient cause of the alleged damage: Henville v Walker (2001) 206 CLR 459. To put it another way, as long as the breach materially contributed to the alleged damage, a causal connection will ordinarily be found to exist.
10. The question should ordinarily be determined objectively without too much, if any, weight being given to direct evidence of reliance from the party claiming damages. Such evidence as to what a person claiming reliance would have done if not for the information is necessarily hypothetical and must be clouded by the fact that, at the time the evidence is given, that person knows that the consequences of their act have been detrimental to them: see for example Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471; and ACCC v TPG.
11. I am satisfied that Ms Gan's participation in the "pyramid scheme" and/or the making of at least four of the pleaded representations was not just a material cause, but the primary cause for Ms Gan investing, and thus her loss.
12. In coming to that conclusion I have taken into account the matters I have already identified, including, but not limited to, the temporal relationships between the various discussions between Ms Gan and Ms Xie and investments being made. In this regard, I should record that there was an issue of fact which troubled Gibb DCJ, this issue was that Ms Gan's evidence was to the effect that her first meeting with Ms Xie was after she had made her initial investment. However, as the Court of Appeal pointed out at [122], that evidence, insofar as it relied on a person's memory as to a specific date, is inherently unreliable. In any event, the objective record i.e. the notes created by Ms Xie, make it clear that the first discussion was before the first investment as was confirmed by Ms Xie's own evidence.
13. Having regard to the nature of the information provided by Ms Xie, the confidence under which I am convinced she conveyed the message to Ms Gan (by reference to the way she conveyed the same information to me in her evidence) the nature and in particular the complexity of the investment, the information that I can glean from the contemporaneous documents that is consistent with Ms Gan's evidence, and the tendency that I have identified, it seems to me inevitable that there is the requisite connection between Ms Xie's conduct - whether it be the express representations in contravention of s 18 that I have found, or some of them or, even if I am wrong in that regard, whether it be Ms Xie's own description of her conduct which induced Ms Gan to participate in the "pyramid scheme" - I am satisfied that there is the requisite connection between any one of those contraventions and the damage claimed by Ms Gan. For the purposes of s 44(2), I find that whatever the precise context of what Ms Xie said to Ms Gan, that conduct induced Ms Gan to make the investment. I make that finding entirely based on Ms Xie's own description of her conduct and on the assumption that there was no misleading or deceptive conduct at all.

Section 137B of the Competition and Consumer Act - Should the amount of damages be reduced?

1. Section 137B allows a reduction in damages awarded under s 236(1) of the ACL for conduct akin to what might be described as "contributory negligence", in other areas of the law in answer to claims for breach of s 18 of the ACL, it has no application to damages claimed for a contravention of s 44.
2. As I have found in favour of Ms Gan on both contraventions, there is little point in determining the question as a matter of fact.
3. However, against the possibility that I am wrong in relation to s 44, in my view Ms Gan did not fail to take reasonable care in relation to the investment. This is because, she relied on the detailed explanations given to her by Ms Xie who was a person held out to her by other people, but also by Ms Xie herself, as being the ultimate expert as to how the scheme worked. I do not think it was unreasonable for her to make no further enquiries.
4. As to the legitimacy representation, whether the scheme was a "pyramid scheme" or not involved the application of extremely complicated factual findings as to precisely what the scheme was, against the statutory test. Gibb DCJ concluded that the product was not a "pyramid scheme", senior counsel made submissions to her to that effect, and the matter received considerable attention in the Court of Appeal. In other words, I do not think that Ms Gan can be criticised for not finding a lawyer expert in "pyramid schemes" and expecting that lawyer to advise her that in fact the scheme was in contravention of the law.
5. As to the "risk-free" type representations again, one can criticise Ms Gan for accepting at face value such a proposition. Common sense ought compel rejection of such a statement. However, the person who was advising her as such was held out to her as being the expert in the field and I do not think that her failure to take advice from others (that is people not already involved in the scheme) ought be held to be a failure of hers to take reasonable care for her own financial well-being.

Quantum

1. Ms Xie was critical of Ms Gan for not "cashing out" her investment prior to the scheme collapsing in May 2020. However, despite Ms Xie's confident evidence to the contrary, I am not at all satisfied that it was at all easy to turn the investment back into cash, but in any event, Ms Gan was continuing to rely on what she had been told about the scheme by Ms Xie.
2. Accordingly, I think the total of her lost investment was caused because of the breach of the contraventions of the ACL by Ms Xie that I have identified.

Restitution

1. Ms Gan brings an alternative case based on what is described as the law of "restitution".
2. Ms Gan's submissions can be summarised as follows: 1. By virtue of the combined operation of ss 44 and 45 of the ACL, the "pyramid scheme" constituted a single, or perhaps a series of separate but related contracts which were "illegal". 2. Therefore, the contractual arrangement(s) that Ms Gan entered into by her series of investments were themselves "illegal". 3. Neither Ms Gan or Ms Xie were aware of that illegality and both proceeded upon the basis that the arrangement was legitimate and did not breach any law. 4. Thus, the payments made by Ms Gan were made by her under a "mistake of law" and as such are recoverable by her pursuant to the principal explained in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 ("David Securities") at [46], to the effect that such payments give rise to a prima facie obligation to make restitution, in the sense of compensation for the benefit of unjust enrichment, to the person who has sustained the countervailing detriment. 5. In the alternative, the contract was an illegal contract that has the consequence that no enforceable claim could be made on it as explained by Barrett J in Sherman v Australian Competition & Consumer Commission (2003) 47 ACSR 505 ("Sherman") at [15], [17], and [18].
3. This aspect of the claim raises issues of significant legal complexity. I have concluded that the claim put in this way cannot succeed for two reasons. Firstly, I am not satisfied as a matter of fact that Ms Gan entered into any contract with Ms Xie. Rather, and I accept the evidence is unclear, I think it more likely that, even though money was given to Mrs Xie, it was done so for the purpose of her acting as a conduit to pass those monies onto others in return of various interests in MFC. For this reason, I do not consider that any money was paid by Ms Gan to Ms Xie for her benefit and accordingly, regardless of whether the matter be classified as a payment made under a mistake of law or "illegally" I do not consider the principal explained in David Securities has application.
4. Insofar as the reasoning of Barrett J in Sherman is concerned, that case concerned an application by a liquidator for directions to the effect that the liquidator was not obliged to pay money described as commissions under a "pyramid scheme". His Honour determined the matter by concluding at [15] that the effectiveness of the contractual provision allowing for recovery by the liquidator could not be enforced by the liquidator. At [18], his Honour went no further than saying that, if the liquidator was satisfied on "ordinary contract unjust enrichment principles" that the claimant has shown grounds for recovery, then a refund should be made. He did not conclude that a restitutionary claim based on notions described as "unjust enrichment" was available. I am not sure that such a finding, in the context of an application by a liquidator for directions, can be said to be any emphatic statement as to the law. In any event, for the reasons I have explained in relation to the illegality aspect of the claim, I do not think on the facts it can be concluded that Ms Xie has been enriched at all, she is, therefore, the wrong Defendant to such a claim.
5. For those reasons, in my judgement the claim based on restitution would fail.

Resolution

1. For those reasons, I have concluded that: 1. Ms Gan did contravene s 18 of the ACL by conveying to Ms Gan information that was misleading or deceptive. 2. Ms Gan invested into MFC because of that conduct. 3. In the circumstances, Ms Gan is entitled to recover from Ms Xie, by way of damages, the total amount of her investments. 4. In any event, and regardless of whether her conduct was misleading or deceptive, Ms Xie contravened s 44(1) and s 44(2) of the ACL, in that she participated in the scheme and induced Ms Gan to herself participate in the scheme. 5. Ms Gan's decision to invest into the scheme was because of Ms Xie's contravention of s 44. 6. Section 137B of the Competition and Consumer Act has no application to damages occasioned as a result of a contravention of s 44(1) or (2) of the ACL. 7. On the facts, there is no reason to reduce the amount of damages to be awarded to Ms Gan in any event because I am not satisfied that she failed to take reasonable care for her own position. 8. Ms Gan's claim based on unjust enrichment or restitution fails.

Relief

1. The case is a "no transaction" case in that I am satisfied that Ms Gan invested into MFC because of the conduct of Ms Xie, and if not for that conduct, she would not have made the investments.
2. In such a case, the usual measure of damages is the difference between the amount Ms Gan invested and what she received in return. As she has received nothing in return, then the amount of damages appropriate to be ordered is the full amount of the investment.

Foreign Currency

1. Ms Gan's investments were a series of payments, some made in Australian dollars, and some made in Chinese RMB.
2. My understanding of the law is that the Court has power to order judgment in either Australian dollars or a foreign currency. If the amount is to be converted to Australian dollars, the conversion should ordinarily be undertaken at the time the loss occurred: see the discussion in Who Ya Gonna Call Bark Busters Pty Ltd v Brooke [2013] NSWDC 133 at [54]-[63] per P Taylor SC DCJ.
3. In this case, Ms Gan originally sought relief in both Australian dollars and Chinese RMB, corresponding to the currency that the investments were made in.
4. In final submissions, Ms Gan sought judgment in Australian dollars and has filed an affidavit proving the exchange rate between Australian dollars and Chinese RMB as at the dates of the investments in Chinese RMB.
5. I am prepared to act on that evidence. On that basis, the amount of damages in Australian currency is $411,353.52.

Interest

1. Ms Gan is, prima facie, entitled to interest on her loss from the date of that loss up to the time of entry of judgment (s 100 of the Civil Procedure Act (2005) (NSW)).
2. In the circumstances, as there were a series of payments made over a period of time from the end of August 2016 to the start of February 2017, I propose to award interest from 1 November 2016 until the date of this judgment being 27 February 2024 at the rates prescribed for the purpose of s 100.
3. My calculation as to interest at the Court rates, on that basis from 1 November 2016 until 27 September 2024 is AUD$181,801.35.

Costs

1. Both parties accepted that the costs of these proceedings ought follow the outcome of the case. The Court of Appeal expressly reserved the question of the costs of the proceedings before Gibb DCJ to be determined by me. I can see no reason why those costs would not form part of the costs of the proceedings and be borne by Ms Gan.

orders

1. I make the following orders: 1. Judgment for the Plaintiff in the sum of AUD$593,155.87, inclusive of interest at Court rates from 1 November 2016 until 27 September 2024. 2. Order the Defendant pay the Plaintiff's costs of the proceedings before me and Gibb DCJ.

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: 27 September 2024