Hui v Champion

The companies 7 The corporate structures, which extend from China to Australia, are complex. It is not necessary to document the entirety of the structures, or the details of the legal agreements between all the entities within those structures, to resolve the present dispute. The necessary context can be confined to the following. 8 The ultimate owner of the Shimao entities is Mr Hui. His daughter, Ms Carol Hui, is one representative of the Shimao interests whose directorships were removed by the actions of the respondents in January 2019. The other representative of the Shimao interests whose directorships were removed is Mr Zhang. 9 Two Chinese companies, one representing the Shimao interests and one representing the Dechang interests (the principal of which is Mr Xue), entered into a Contract of Co-operation on Joint Establishment of Agricultural Fund in April 2016. By this contract, the parties referred to as Party A (Dechang) and Party B (Shimao) entered into a limited partnership enterprise to invest in a high-end food industry chain including the acquisition of Australian cattle farms. Party A and Party B were required to establish and contribute to a fund equally, after which Party B was to bear an annual management fee of 2% of its actual annual contribution annually. Party A was to raise not less than 75% of the total amount of the first phase of the fund (3 billion yuan) from other third party investors and, on this premise, Party B agreed to invest no more than 25% of that total value (i.e. 750 million yuan). Party A undertook to complete the third party fund raising within a specified time and Party B undertook to guarantee the return of the investment principal and an expected rate of return to the third party investors. 10 On this basis Shimao Aoya Fund Management Co Ltd was established as a joint enterprise of the Shimao and Dechang interests. The basic structure of the Chinese companies was described as follows in the respondents' submissions at [22]: a. the Chinese structure is ultimately controlled by the General Partner, which is called Shimao Aoya Fund Management Co Ltd (Shimao Fund Manager); b. the Shimao Fund Manager is in turn controlled by the Dechang interests. That control is exercised by reason of Mr Xue and Mr Xie (each of whom is associated with the Dechang interests) being 2 of the 3 directors on the Shimao Fund Manager board of directors; c. the arrangements governing investments in the fund are governed by a Cooperation Agreement between the Dechang interests and the Shimao interests. … d. the fund was intended to operate for a period not exceeding 7 years. 11 The applicants' submissions about the overall structure of the Chinese companies may also be adopted. They said at [18]: Ultimately, the structure as recorded in the various agreements was relatively simple. Dechang was to be in control of day to day management of assets acquired by the Fund [CB Tab 48, V3: P730; Tab 130, V6: P1485], the "Investment Committee" would make decisions about which assets to acquire [CB Tab 31, V1: P368; Tab 130, V6: P1487-1488] and Dechang would raise further capital from other third party limited partners so that Shimao's eventual interest would be no more than 25% of the Fund [CB Tab 31, V1: P367-368]. The Fund would be sufficient to provide working capital and there was no obligation on Shimao to organise or provide funding in the future. Ultimately the Fund would be wound up with a first right of refusal to purchase assets given to Shimao [CB Tab 31, V1: P370]. Dechang, which had a very small equity investment, was to be remunerated by a 2% management fee [CB Tab 31, V1: 368; Tab 130, V6: P1486]. 12 The basic structure of the Australian companies was described as follows in the respondents' submissions at [26]: a. HoldingCo [Shimao Aoya Holding Pty Ltd] (the sixth respondent) is the ultimate holding company under the Australian structure; b. …HoldingCo's sole shareholder is Shimao Huanyu (Shanghai) Industry Limited Partnership, which is known by the parties as China HoldingCo, a partnership formed in China; c. in turn, Shimao Fund Manager (which as noted above is controlled by the Dechang interests), has the authority to exercise its rights and powers and cause China HoldingCo to exercise its rights and powers as the sole shareholder of HoldingCo. 13 Further, as the applicants identified: 24. CAPH [Consolidated Australian Pastoral Holdings Pty Ltd], as lessee under the Pastoral Leases, subleases the Pastoral Leases to ACC [Argyle Cattle Company Pty Ltd] who, in turn, operates the Argyle Stations [CB Tab 70, V4: P990-1003]. 25. The sole shareholder of ACC is CAPH2 [Consolidated Australian Pastoral Holdings No.2 Pty Ltd] [CB Tab 243, V7: P2048-2051]. 26. Up until 12 January 2019, and at all material times, the shareholders of CAPH were: (a) Ms Hui holding 2 ordinary shares as bare trustee for HoldingCo; (b) Mr Zhang holding 2 ordinary shares as bare trustee for HoldingCo; and (c) Mr Champion holding 2 ordinary shares as bare trustee for HoldingCo,[CB Tab 241, V7: P2040-2043] 27. …CAPH is the trustee for the ACP Land Trust [CB Tab 37, V2: 503-530]. 28. The sole unit holder of the ACP Land Trust is CAPH2 [CB Tab 37, V2: P503-530]. 29. Up until 12 January 2019, and at all material times, the shareholders of CAPH2 were: (a) Ms Hui holding 2 ordinary shares as bare trustee for HoldingCo; (b) Mr Zhang holding 2 ordinary shares as bare trustee for HoldingCo; and (c) Mr Champion holding 2 ordinary shares as bare trustee for HoldingCo, [CB Tab 242, V7: P2044-2047]. 30. …CAPH2 is the trustee for the ACP Holding Trust [CB Tab 38, V2: P531-558]. 31. The sole unitholder of the ACP Holding Trust is HoldingCo [CB Tab 38, V2: P531-558]. 32. China HoldingCo is the sole shareholder of HoldingCo [CB Tab 240, V7: P2036-2039]. 33. ACC owns the farming assets, including the biological assets (the "cattle"). It is ACC that appointed Mr Champion's company, Australian Standard Agriculture Pty Ltd (ASA), to manage the Argyle Stations from 1 January 2017 for 3 years. The management agreement between ASA and ACC is the extent of Mr Champion's economic interest in the Argyle Stations [CB Tab 95, V5: P1168-1171]. 34. In accordance with section 201A of the Act, HoldingCo, CAPH2, CAPH and ACC required at least 1 director to ordinarily reside in Australia. Mr Champion was chosen for this position and was appointed as director of HoldingCo on 19 April 2016 [CB Tab 240 and 241, V7: P2037, 2041], CAPH2 on 9 May 2016 [CB Tab 242, V7:2045], CAPH on 19 April 2016 and ACC on 4 July 2016 [CB Tab 243, V7:P2049]. [See also confirmation of Mr Champion's understanding that he was appointed only as a resident director of the relevant companies in T. (11 June 2019) P74 at lines 6-11 and 34-40 and P78 at lines 36-38 and P79 at lines 26-31]. 35. Mr Xue became a director of HoldingCo on 12 May 2016 [CB Tab 240, V7: P2037]. 36. Ms Hui became a director of HoldingCo on 12 May 2016 [CB Tab 240, V7: P2037] and of CAPH2 and CAPH on 17 January 2017 [CB Tab 241 and 242, V7: P2041, 2045] and of ACC on 13 January 2017 [CB Tab 243, V7: P2049]. 37. Mr Zhang became a director of CAPH and CAPH2 on 17 January 2017 [CB Tab 241 and 242, V7:P2041 and 2045] and ACC on 13 January 2017 [CB Tab 243, V7: P2049]. (Emphasis added.)

2016 - 2017 events 14 The applicants' submissions describing these events may conveniently be adopted. Accordingly: 19. The Argyle Stations were purchased by CAPH for circa A$100 million pursuant to a contract for sale dated 20 April 2016 [CB Tab 41, V:2 P588-650]. 20. Shimao contributed circa 99% of the equity required to purchase and fund the cattle stations (A$51,566,763.10). Dechang's contribution was, and is limited to, circa A$817,880.00 [CB Tab 130, V6: P1483]. 21. Despite the intention of Boxin and Dechang Tandi as set out in the Cooperation Agreement…a debt facility provided by China Merchant Bank, Hong Kong (CMB) for A$75million…was used to acquire the Argyle Stations [CB Tab 63, V4: P 942-957]. 15 For reasons which are disputed but need not be resolved here, the Dechang interests had not secured from third party investors any part of the 75% funding of the fund. It is in this context that the Shimao interests arranged a loan to HoldingCo from the China Merchant Bank or CMB. 16 The CMB facility dated 5 October 2016 is addressed to HoldingCo. The facility is for AUD$75 million. The facility offers "you (the 'Borrower')", which is HoldingCo, the facility subject to the terms and conditions of the facility letter. The utilisation of the facility is said to be subject to the conditions in Appendix A. Clause 1.3 provides that the Borrower shall repay the Facilities by four instalments. Conditions precedent to the facility include a standby letter of credit from one branch of CMB to another in the sum of AUD$75 million which may be inferred to have been guaranteed by the Shimao interests. Clause 7 contains this negative pledge: The Borrower: (i) Shall not create or permit to subsist any security (including a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having similar effect) over any of its assets. (ii) Shall not (1) sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by the Borrower 17 Appendix A contains the following statements: (i) Shimao Property Holdings Ltd. (813 HK) shall make up any shortfall in repayment for the principal and interest of the Facilities, and shall undertake that if the Borrower fails to fully repay the principal and interest of the Facilities, the shortfall shall be paid by it to make up the difference. Legal documents stating the above shall be issued by an external lawyer … 7. During the period of the Facilities, the Borrower may not sell, pledge, lend or otherwise transfer or dispose of the rights to trust income and the underlying assets of the overseas farms of the target assets without the consent of the Bank 18 The accompanying General Commercial Agreement contains these provisions: 3. Repayment on Demand and Cancellation 3.1 The Customer shall on demand pay to the Bank all monies which are now or will be in the future become due, owing or payable to the Bank by the Customer (whether as principal or surety, alone or jointly with any other person). 3.2 Upon such demand being made or the breach of an of the terms and conditions of this Agreement or any other agreement(s) between the Customer and the Bank, all banking facilities and accommodations granted to the Customer by the Bank shall be automatically cancelled and all sums payable to the Bank shall become immediately due and payable. 19 As required by the terms of the facility, there is also a Shortfall Supplement Deed between CMB as Party A and Shimao Property Holdings Ltd as Party B. This deed contains the following provisions: Whereas: 1. Part A is lending to Shimao Aoya Pty Ltd (a company incorporated in Australia, Australian Company Number: 611955607. Hereafter abbreviated to 'Shimao Aoya'). Party A has signed the 'Loan Contract' (including its revisions or supplemental documents, hereafter collectively referred to as 'Loan Contract') numbered CR/2016/125 with Shimao Aoya, with the loaned funds to be used for the acquisition of Australian assets. Shimao Aoya has the obligation to repay the principal and interest of the loan as agreed. 2. To ensure that Party A's loan claims are repaid, Party B consents to provide Party A with an obligation to repay shortfalls to Party A in accordance with this deed. 1 Shortfall Supplement Obligation Loan shortfall supplement obligation In respect of any principal repayment date and/or interest payment date for any loans under the 'Loan Contract' (including normal/non-compliant early repayments), where Party A is unable to receive the principal and/or interest for the loan which should have been repaid by Shimao Aoya on schedule and in its full amount prior to 11 AM, then Party B shall assume a shortfall supplement obligation toward Party A, which shortfall shall be calculated in accordance with the method below: … 4 Indemnification by Party B 4.1 Where it does not prejudice the rights and interests of Party A under this deed, Party B unconditionally and irrevocably guarantees, as an independent, additional and continuing obligation and in its identity as the principal debtor, to compensate Party A for any losses, labilities, compensatory damages, expenses and payments incurred by Shimao Aoya's failure to pay a guaranteed debt punctually and on schedule (including changes arising from amendments to supplementing financing documentation). Even if the shortfall supplement obligation under Article 2 is ineffective, invalid, or unenforceable upon Party A for any reason, then this shall have to effect at all on any of the obligation and duties of Party A under this deed as if the reasons for the invalidation of the shortfall supplement obligations under Article 2 did not exist and the shortfall supplement obligations were still fully valid. … (i) Promote and guarantee the strict observance and performance of all liabilities and obligations under the 'Loan Contract' by Shimao Aoya as well as any other obligers in accordance with the rules of the 'Loan Contract'; and (ii) Assume shortfall supplement obligations and duty to indemnify in accordance with the terms and conditions of the deed and to immediately pay all receivable shortfall supplements and indemnities to Party A when requested in writing to do so by Party A. 20 CAPH entered into contracts to buy the cattle stations in April 2016, with the AUD$10 million deposit paid by the Shimao interests. Completion was scheduled for November 2016. Mr Xie and Mr Champion became concerned about the management of the stations by the vendor and an arrangement was made for Mr Smoothy to take over the management. 21 Mr Xue, the principal of Dechang, says he had a number of conversations about these matters. In particular, he said Ms Hui told him "[i]f it's not possible for [HoldingCo] to make repayments under the loan, I will meet them". Mr Zhang told him "[t]he boss has told me to tell you that you should not worry about the loan. If there are issues, we will look after them". He said that from this he understood that if HoldingCo could not make the repayments, "…the Shimao Group would guarantee the repayments and would not look to the Borrower to repay to it any sums paid under the guarantee". The source of this latter belief is obscure and it is inconsistent with the terms of the shortfall deed, but it is part of the context within which the later impasse was reached. Mr Xue signed the facility on behalf of HoldingCo. In so doing he had a conversation with Mr Zhang in which Mr Zhang told him that the loan prevents HoldingCo from granting security to other parties. Mr Xue queried why that had been agreed and was told it was already done. He later said to Mr Zhang that "[w]hat you did was not good. You got the company to promise not to give security to other banks". Mr Zhang or Ms Hui said "[i]t's already done". Mr Xue said: 41. I was disappointed with what Mr Zhang and Carol had done with the CMH Facility, because it might have trapped the Australian assets. However, from my perspective, the details of the agreement were not ultimately that important, because, as I have set out above, my understanding was that the Shimao Group was wholly responsible for making any repayments of the CMB Facility which HoldingCo was unable to make on its own. 22 As the respondents' submissions identified: 41. Following completion of the contracts to purchase the stations, in early 2017 changes were made to the Australian corporate structure to permit Ms Hui and Mr Zhang to become directors of CAPH and CAPH2. Additionally, Ms Hui and Mr Zhang became directors of ACC. The shares in each of CAPH and CAPH2 were held by Mr Champion, Ms Hui and Mr Zhang on trust for HoldingCo. Thus control continued to reside in HoldingCo. 42. Additionally, during the early part of 2017, the relationship between the Australian companies and Mr Smoothy began to break down. That led to Mr Champion taking over the management of the stations, through ASA (a company which he controls). Mr Champion explains that: Ultimately, I agreed that ASA would take on the role. Although it was not something I had originally contemplated, I felt committed to the project, and there was no other alternative available. At the time, I also thought that ASA's role would be limited. I thought that its role would be to establish the right team and corporate culture for the [s]tations, and to undertake certain key steps. … 43. Mr Champion's management role was ultimately formalised in the form of a Management Agreement between ACC and ASA dated 6 June 2017. The Management Agreement was expressed to run for 3 years from 1 January 2017 and was able to be terminated with 6 months written notice (see clause 3 and Annexure 1, clause 8). 23 The relevant context, accordingly, was set by (1) the fact that the Dechang interests, for whatever reason, had not attracted any other investors in the fund, meaning that the Shimao interests were the only investor, (2) the Shimao interests had provided part of the funding to acquire the cattle stations and had otherwise arranged a loan from CMB so that the acquisitions could be completed and had guaranteed the repayment of the loan, and (3) for reasons which are not apparent, Mr Xue of Dechang believed that if HoldingCo could not repay the loan amounts, not only would the Shimao interests repay those amounts (which the shortfall deed did require) but also the Shimao interests would not look to HoldingCo for repayment (a belief which has no apparent foundation). In other words, Mr Xue was treating the CMB loan as a form of further equity investment by the Shimao interests. I accept the applicants' submissions that this belief is inconsistent with all of the contemporaneous documents and statements. Accordingly I accept that, as the applicants put it at [44]: The only agreement, which is as recorded in the CMB Facility documents, was that HoldingCo would borrow the money from CMB and be principally responsible for its repayment and that Shimao would guarantee those obligations. Both the First and Second Respondents admit this at T. (11 June 2019) P83 at lines 11-26 and P86 at lines 1 - 20 (for Mr Champion) and T. (12 June 2019) P157 at lines 18 to 47). The evidence of Mr Xue to the contrary ought to be rejected. It is entirely inconsistent with every single piece of paper created at the time and is inherently implausible. 24 Nevertheless, as I have said, Mr Xue's unfounded belief is part of the context which explains subsequent events. 25 In this context, in order for the audited accounts to be issued, it was necessary for the Shimao interests to provide letters of financial support. Letters were issued in 2017 and 2018 in the following terms: 2017 I confirm that Shanghai Shimao Co., Ltd. will continue to provide financial support to our subsidiary Shimao Aoya Holding Pty Ltd, to enable this group to pay their debts as and when they fall due for the subsequent 12 months from the signing of the audit report for the period ending 31 December 2016. 2018 I confirm that Shanghai Shimao Co., Ltd will, if required, continue to provide financial support to our subsidiary Shimao Aoya Holding Pty Ltd, to enable this group to pay their debts as and when they fall due for the subsequent 12 months from the signing of the audit report for the period ending 21 December 2017, to enable Shimao Aoya Holding Pty Ltd to continue operations. 26 It will be apparent that the financial support proffered was limited by time to the end of each relevant calendar year.

2018 - 2019 events 27 The applicants' submissions then identify subsequent events: 47. The first principal repayment due under the CMB Facility was in November 2018. By about March 2018, Dechang with ASA identified that HoldingCo and the ACC cash-flows were going to be unable to meet HoldingCo's liability for the November 2018 principal and interest payment [CB Tab 132, V6: P1497-1498]. 48. During 2018, the cash flow position of HoldingCo and ACC did not improve. ASA recommended further capital investment in the Shamrock Station and proposed that cattle sales be deferred. Shimao became frustrated. They formed the view that ASA and Mr Champion's management was contributing to the weakened financial position and the need that would arise for Shimao to meet HoldingCo's liabilities to CMB and its working capital requirements. 49. In October 2018 Shimao communicated to Dechang that, because Dechang had not raised the money expected of it under the Cooperation Agreement, they expected HoldingCo to meet its own liabilities to CMB instead of relying on Shimao [CB Tab 135, V6: P1501]. That caused Dechang concern because, to them, there were then no other obvious financial solutions apart from Shimao injecting cash to support HoldingCo [CB Tab 132, V6: P1497-1498 and Tab 135 V6: P1520-1526]. 50. Shimao proposed that if it were to advance more money, HoldingCo should enter into a loan agreement with it [CB Tab 144, V6: P1626-1630]. The Dechang interests did not agree with that. 28 The Shimao proposal was for a loan over 6 months, unsecured, at a rate of 8% interest. Mr Xue did not agree with the Shimao proposal because, in his view, that was "against our agreement" and Shimao "need[s] to support the venture". That is, Mr Xue rejected the Shimao offer of a loan based on his own unfounded beliefs about the agreements between the Shimao and Dechang interests. 29 By this time the Shimao interests, via Ms Hui, also informed Mr Xue that they considered Mr Champion's management had caused the project to fail. Ms Hui and Mr Xue had a conversation to this effect: Carol: We want to replace Dale. Me: I'm not opposed to this. But I need to see a comprehensive plan from the new manager, to prove the farm can be properly managed and the new manager can cooperate with the government. Carol: Yougawalla [a station which Carol had bought, and which neighbours the Stations] is being run really well by Haydn. Me: Ok, let me visit Yougawalla, to see how it is being managed. Carol: No, I'm going to replace Dale right now. Me: That would make things hard. It's Christmas and the place is in drought. Let's do a proper transition, if Dale is going to be replaced. 30 Mr Champion, who was unaware of the Shimao offer of an unsecured loan, and Mr Xue then canvassed Australian banks for a loan. Mr Champion, unlike Mr Xue, was unaware of the terms and conditions of the CMB facility, despite the facility being addressed to his residential address. Mr Xie of Dechang sent an email to Mr Zhang, copying in Ms Wang, of Shimao on 13 November 2018 which summarised the key aspects of loan proposals from various financial institutions. For one proposal which proposed using the cattle as collateral, Mr Xie noted that "it will cause a default to the China Merchants Bank facilities". Mr Xie sent another email on 20 November 2018 to Mr Zhang, copying in Ms Wang, which noted that there was a "severe deficiency in Argyle's operational cashflow, which needs money to solve urgently". Mr Champion sent an email on 27 November 2018 to Ms Hui and Mr Zhang, copying in Ms Wang, from Shimao, and Mr Xue, copying in Mr Xie, from Dechang, which noted that wages were due to be paid and stating that the best financing proposal was that of Westpac, which Mr Xie was now reviewing and the lack of capital was now a critical issue. 31 Shimao continued to provide funds to HoldingCo to enable it to meet its liabilities. As the applicants said "[i]n November 2018, Shimao paid the A$4.6 million liability of HoldingCo for interest and principal to CMB [CB Tab 141 and 142, V6: P1608 - 1611 (including 1611A)]. It did so despite Dechang's refusal to enter into a loan agreement [CB Tab 144, V6: P1626-163]. It did so consistently with the then in force letter of support and consistently with its obligations as guarantor [CB Tab 67, V4: P981]." Further, in December 2018 "Shimao had to make two further injections of cash into HoldingCo of $100,000 each [CB Tab 169, V6: P1751 and Tab 175 V6: P1764]." 32 By 13 December 2018, Mr Champion had become aware that the Shimao interests wished him to cease as manager and wanted to terminate Australian Standard Agriculture Pty Ltd's (ASA) management contract. In an email of 13 December 2018 to Ms Hui, copying in Ms Wang, Mr Champion said "[t]his distresses me immensely". He urged Ms Hui to either accept the Westpac overdraft facility or make alternative capital available. 33 On 18 December 2018, Ms Hui and Mr Zhang, as directors of Argyle Cattle Company Pty Ltd (ACC), resolved to terminate the management agreement between ACC and ASA. On the same day ACC gave ASA notice of this termination which, pursuant to the management agreement, was for a period of six months expiring on 20 June 2019. Mr Champion ultimately agreed in cross-examination that he thought this was the wrong decision and that he wanted to stay on as manager even though the funding problems continued. 34 On 31 December 2018, Mr Champion sent an email to Ms Wang and Mr Xie, copying in Ms Hui, which noted that ACC's wholesale food supplier had placed ACC on stop credit so ACC was no longer able to obtain bulk supplies of food for staff. Further, a number of other suppliers were verbally advising that they would no longer supply ACC until outstanding accounts were cleared. Mr Champion wrote again on 2 January 2019 noting that the lack of cash created a significant animal welfare risk as well as the risk of staff leaving and operations ceasing in which event the pastoral leases would be at risk. He noted that as directors of ACC, he, Ms Hui, and Mr Zhang had a legal responsibility in terms of the risk of insolvent trading. He sought an urgent direction as to whether ASA was able to incur any more expenses on ACC's behalf. Subsequently on 10 January 2019, the Shimao interests wrote to Mr Champion saying that they were willing to release him from acting as a director of HoldingCo, CAPH, CAPH2 and ACC and attached proposed board resolutions to that effect. 35 By 4 January 2019, Mr Champion, I infer with the knowledge and consent and, indeed, at the behest of Mr Xue, was writing to Westpac setting out the steps involved from his side to enter into the loan facility as follows: 1. Monday 7th, changes to company Directorships and shareholdings. Solicitor email confirming changes have been instigated will be sent to you immediately it is received to enable you to complete updated documentation. Company search confirming these changes to be available shortly thereafter. 2. Tuesday 8th, ideally I will receive, sign and return all transaction documentation and account opening forms as a priority. 3. Thursday or Friday, accounts will be open, electronic banking established, and overdraft facility operational and available. 36 By that time it is apparent that Mr Xue and Mr Champion had decided that steps should be taken to obtain control of the shares in CAPH and CAPH2 by HoldingCo by passing a majority resolution (HoldingCo's directors were Ms Hui, Mr Xue and Mr Champion) to issue a direction to Ms Hui and Mr Zhang to transfer the shares they held on trust for HoldingCo as bare trustees to Mr Champion. Mr Champion, as the sole shareholder of CAPH and CAPH2, would then resolve to remove Ms Hui and Mr Zhang as directors of each company. CAPH2 would also then resolve to remove Ms Hui and Mr Zhang as directors of ACC. These steps were set out in an email from Mr Venus, a solicitor, from whom Mr Xue and Mr Champion had sought advice. It is clear that Mr Venus was not told by Mr Xue about the terms of the CMB facility and gave no advice in this regard. 37 Mr Xue said this in his statement: 50. In or about late December 2018, I decided that ACC should borrow from an Australian financial institution to fund the continued operation of the Stations. I had several conversations with David [Mr Xie] about this. I said to David words to the effect that: Shimao have made decisions that have damaged the interests of many people, including me. I object to this. Also, what they did in replacing Dale without any notice is contrary to the terms of the agreement signed in Australia and in China. Also, they want the Yougawalla manager to manage the farms. Our farms back on to Yougawalla. If the Yougawalla manager manages, there will be a conflict of interest. There would be nothing to stop the Yougawalla manager from taking our cattle across to Yougawalla. 51. David and I also discussed how ACC might enter into an Australian facility. At that time, Carol and Mr Zhang were two out of the three directors on the two companies involved in the leasing of the Stations (CAPH and CAPH2). They were also two of the three directors of ACC, the company that sub-leased the Stations, and they held shares in CAPH and CAPH2 on trust for HoldingCo. 52. I was aware that in order to have ACC enter into a borrowing agreement with and Australian financial institution, it would be necessary for HoldingCo to pass resolutions to remove Carol and Mr Zhang from their positions as directors and shareholders of the companies referred to above. This is because if this did not occur, Carol and Mr Zhang could block this from happening. 53. I discussed the need for this to happen with David. I said to him words to the effect: Make sure you control the risk. Speak to the lawyers. 54. I also considered whether the entry into a secured facility would breach the CMB Facility. At or about that time, I also spoke to a lawyer in China about this. However, the lawyer told me that he could not advise me without seeing the CMB Facility, which I did not have. 55. In or about early January 2019, David told me that he had spoken to Mr Simon Venus, a lawyer who had acted for the Australian business venture for some time. David said that Simon had told him that there was no issue with removing Mr Zhang and Carol from the boards and having them transfer their shares in CAPH and CAPH2 to Dale. 56. Subsequently, on 10 January 2019, and on 12 January 2019, I signed a series of resolutions of HoldingCo. Copies of those documents are exhibited and marked JYX-1.4. 57. I made my decision to sign the resolutions referred to above and have ACC enter into a facility with Westpac because I believed that doing so was in the best interests of the company. I believed this for the following reasons: 57.1 First, the business was in a very difficult situation. It was facing litigation from a number of suppliers who weren't willing to supply it. 57.2 Secondly, ACC otherwise had no money to pay the salaries of its staff 57.3 Thirdly, ACC otherwise had no money to buy grass and nutrients. Without this, cattle at the Station would die. 57.4 Fourth, at the time, the business had applied for a licence to operate pivot irrigation. If the business got into trouble with the government (for example because it did not pay its employees), then I thought this would jeopardize the chance of obtaining this pivot irrigation licence. This would, I thought, devalue the business. 58. I was aware that the Westpac facility included security. I was aware also (based upon what Mr Zhang and Ms Hui had told me, set out at paragraphs 39 and 40 above) that the CMB Facility might have prohibited ACC from giving security to Westpac. However, in view of the dire situation facing the Stations (as discussed above), and Ms Hui's refusal to cause her companies to perform their obligations under the terms of our agreements, I thought that it was in the best interests of the venture, including in the best interests of HoldingCo, to remove Carol and Ms Zhang from their positions as directors of ACC, CAPH and CAPH2, and have them transfer their shares to Dale, so that ACC could enter into a facility with Westpac. From my perspective, without money, the Stations would not survive as an ongoing enterprise: if I didn't take the steps that I did, then my view was that animals would die, employees would leave, the companies would be sued, and then more cattle would die. It was a straightforward decision from my perspective to stop this from happening. In any event, my understanding was that the Shimao Group were required to meet any obligations arising from the CMB Facility which HoldingCo was unable to meet. The case that has been pleaded against me 59. I understand, on the basis of the applicants' statement of claim, that it is alleged (among other things) that: 59.1 As a director of HoldingCo, I resolved to direct Ms Hui and Mr Zhang to transfer the shares they held on trust for HoldingCo in CAPH2 and CAPH to Mr Champion on trust for HoldingCo in direct response to and only because of the notice terminating ASA's Management Agreement and for the purpose only of preserving, protecting and extending ASA's management rights. 59.2 I knowingly or recklessly caused HoldingCo to breach a negative pledge in the CMB Facility not to encumber the underlying farming assets of HoldingCo; 59.3 I knowingly or recklessly caused the Shimao Interests to be exposed to CMB calling a breach of the CMB Facility and calling on them for payment pursuant to the Standing Letter of Credit up to the value of A$75 million; 59.4 I acted in a way which was not, and continues not to be, in the best interests of HoldingCo because my conduct in removing all of the representatives associated with the Shimao interests for each of either CAPH, CAPH2 and ACC was, to my knowledge, likely going to cause the Shimao interests (particularly, Shanghai Shimao Co. Ltd) to withdraw its financial support and call on all loans owing to it thus making ACC and HoldingCo insolvent. 60. I deny each of those allegations. I signed the resolutions set out at paragraph 56 above for the reasons set out in paragraphs 57 and 58 above. I regard Dale as a good manager, but I was not, and am not, wedded to him continuing in the role. I am open to having someone else replace Dale as manager, so long as they can competently manage the Stations and maintain a good relationship with the government. As I have set out above, I told Carol this. 38 Mr Champion said this in his statement: 133. Between about 3 January and 7 January 2019, David [Xie] and I called Simon Venus on several occasions. During one of those conversations, there was an exchange in words to the following effect: David: Simon, the Shimao Interests have stopped funding ACC and it is in a very difficult position. Its suppliers have not been paid and many are no longer supplying the business. We are considering having HoldingCo pass resolutions removing Mr Zhang and Carol as directors of the subsidiary companies and having ACC enter into the funding facility with Westpac. Is this permissible? Mr Venus: Yes. Carol and Mr Zhang hold shares as trustees for [HoldingCo]. They should act in accordance with the instructions they are given by [HoldingCo]. One issue might be that they refuse to sign but ultimately they have to follow the instructions of HoldingCo. They might go to Court to say, you've overstepped the bounds of your role as directors if you instigate such a change. But that would be a hard case for them as the court would recognise that it is their responsibility to act in accordance with such directions. Mr Xue controls the General Partner in China, and he is justified in taking the action that he wants to take to rectify the situation which ACC finds itself in. It would be hard for Ms Hui to go to Court and say you did not act in accordance with your obligations. 134. During a call on 7 January 2019, Simon Venus explained the steps that he said HoldingCo, ACC and CAPH2 should take to effect the removal of Mr Zhang and Carol as directors of ACC, CAPH and CAPH2, and to have ACC enter into the facility with Westpac. Following the call, Simon Venus sent an email which set out the technical steps that ACC could take. A copy of that email is at DJC-1.35. 135. After the call, I spoke with Simon on a couple of further occasions about whether the proposed course of action would be consistent with my obligations as a director of ACC and as a director of HoldingCo. On each occasion, we had conversations in words to the following effect: Me: Are the resolutions that have been proposed ok? Am I acting in accordance with my responsibilities as a director? Simon: Yes, everything you're doing is right. It's not a personal thing, you're doing it for the right reasons. But for extra comfort, to ensure you're not acting independently, you should ensure that you have a record that you are being directed to do this by Mr Xue. 39 Mr Champion said he signed the resolutions for the following reasons: 141.1 First, I thought it was necessary for ACC to enter into the Westpac facility so that ACC could obtain immediate liquidity, and pay its suppliers and staff. It was my view that without those payments, the operations of the Stations would grind to a halt, and I was extremely concerned about the welfare of the animals on the Stations. 141.2 Secondly, I was conscious that if animal welfare issues arose, CAPH's pastoral leases were at risk. This would cause enormous reputational damage and significant financial loss for the investment. 141.3 Thirdly, I was concerned about the staff and my own reputation. As I have set out at paragraph 125 above, I was closely connected with the enterprise. I felt a sense of responsibility for all connected with it. I wanted to ensure that the enterprise had some chance of succeeding for whoever it is that will be appointed to manage it, and for the investors. 141.4 Fourthly, and finally, I had received legal advice to the effect that the resolutions set out at paragraphs 136 - 140 were a permissible and an entirely justified course of action. 40 In common with Mr Xue, Mr Champion denied the allegations against him. 41 Mr Xue and Mr Champion signed a resolution of HoldingCo on 10 January 2019 which recorded the following as background: 1. Ms Hui Mei Mei Carol (Ms Hui) holds 2 ordinary shares. In the capital of Consolidated Australian Pastoral Holdings Pty Ltd CAN 611 942 002 (CAPH) upon bare trust for the Company pursuant to a declaration of trust dated 16 January 2017. 2. Ms Hui also holds 2 ordinary shares in the capital of Consolidated Australian Pastoral Holdings No. 2 Pty Ltd CAN 612 283 806 (CAPH2) upon trust for the Company pursuant to a declaration of trust dated 16 January 2017. 3. Mr Zhang Jie (Mr Zhang) holds 2 ordinary shares in the capital of CAPH upon bare trust for the Company pursuant to a declaration of trust dated 17 January 2017. 4. Mr Zhang also holds 2 ordinary shares in the capital of CAPH2 upon trust for the Company pursuant to a declaration of trust dated 17 January 2017. 5. Copies of the declarations of trust are attached to this circulating resolution, 6. Pursuant to clause 2 of each declaration of trust, both Ms Hui and Mr Zhang provided an undertaking to transfer the shares they hold in CAPH and CAPH2 (upon bare trust for the Company) to the Company or Company's nominee upon request by the Company. 7. The Company wishes to provide a written direction to both Ms Hui and Mr Zhang to transfer all the shares they hold in CAPH and CAPH2 to Mr Dale James Champion (Mr Champion) as bare trustee for the Company and pending such transfer becoming effective; to direct all voting and decision making powers in respect of those shares to give effect to the transfer of those shares and to remove Ms Hui and Mr Zhang as directors of CAPH and CAPH2. 42 The resolution was as follows: 1. That the Company forthwith issue written directions to both Ms Hui and Mr Zhang to transfer all the shares they hold in CAPH and CAPH2 (upon trust for the Company) to Mr Champion as bare trustee for the Company and pending such transfer becoming effective to direct all voting and decision making powers in respect of those shares to give effect to the transfer of those shares and to remove Ms Hui and Mr Zhang as directors of CAPH and CAPH2; 2. That Mr Champion is authorised to execute any document for and on behalf of the Company to give effect to the resolutions set out above; and 3. That as beneficial owner of the shares and absolutely entitled to them, the Company take all steps necessary to give effect to the resolutions set out about including causing the registration of the transfers by CAPH and CAPH2 and authorising the acceptance of a transfer executed by the Company as beneficiary despite any provision of the Constitution by which the trust relationship need not be recognised. 43 The declarations of trust, each from January 2017, recorded in clause 2 that the signatories (Ms Hui and Mr Zhang) "undertake to transfer those shares to the Beneficiary [HoldingCo] or to the Beneficiary's nominee or nominees upon request by the Beneficiary". 44 On the same day, Mr Xue and Mr Champion executed directions from HoldingCo as beneficiary of the shares in CAPH and CAPH2 to Ms Hui and Mr Zhang. The directions said: In your capacity as trustee of the Trust, YOU ARE HEREBY REQUESTED, AUTHORISED AND DIRECTED to forthwith transfer the Shares to Dale James Champion of 534 Wickham Hill Road, Kuilpo SA 5201 as bare trustee for Shimao Aoya Holding Pty Ltd CAN 611 955 607 and to do all things necessary, including signing all documents, required to give effect to such transfer. A share transfer form is enclosed for that purpose. … If you fail or refuse to sign any documents required to give effect to such transfer in breach of your obligations as trustee you are hereby put on notice that within 24 hours of this requires, such documents will be signed by Shimao Aoyo [sic] Holding Pty Ltd (the beneficiary of the Trust), Shimao Aoyo [sic] Holding Pty Ltd as beneficiary hereby reserves all rights in relation to our failure to act in accordance with this direction, including to take such enforcement action as may be advised and claim indemnity costs. 45 On 12 January 2019, because Ms Hui and Mr Zhang did not act in accordance with the direction, Mr Champion executed standard share transfer forms which identified the relevant transferor as Ms Hui or Mr Zhang with Mr Champion signing both as transferee and as transferor above a notation stating: Dale James Champion as director and an authorised representative of Shimao Aoya Holding Pty Ltd as beneficial owner absolutely entitled to the securities and having given a written direction to the seller to transfer the securities and the seller in breach of its trust obligations, having failed to act as directed 46 Mr Champion, as the sole shareholder as bare trustee for HoldingCo, then passed resolutions of CAPH and CAPH2 which removed Ms Hui and Mr Zhang as directors of those companies. Mr Champion as the sole shareholder of CAPH2 then caused ACC to resolve to remove Ms Hui and Mr Zhang as directors of ACC. 47 On 14 January 2019, Mr Xue and Mr Champion as directors of HoldingCo then executed a resolution which said this: Background 1. Argyle Cattle Company Pty Ltd, a subsidiary entity within the Shimao Aoya Holding Pty Ltd group in Australia, has not made general operational supplier payments since the first payment run in November 2018. 2. Westpac Banking Corp had approved and presented to Argyle Cattle Company Pty Ltd a Business Loan facility of AU$5m that has been under consideration. 3. It has reached a point whereby ongoing payment delays are materially and detrimentally impacting the value and brand of the Argyle Cattle Company Pty Ltd. It is also placing the welfare of staff and livestock at risk as suppliers cease trading with the company. 4. It is resolved by the Directors that Argyle Cattle Company should be directed to proceed with accepting the Westpac Banking Corp Business Loan facility offer and instigate use of the facility to alleviate the mounting risks to the investment. Resolution(s) A. The Directors of the company confirm and direct Argyle Cattle Company Pty Ltd to proceed with the acceptance and implementation of the AU$5m Westpac Banking Corporation Business Loan facility as soon as practically possible. B. The Directors authorise Argyle Cattle Company Pty Ltd to instigate operation of the facility including the payment of all outstanding creditors of the company. C. The Directors of the company direct Argyle Cattle Company Pty Ltd to ensure an appropriate payment authorisation process is established between Australian Standard Agriculture Pty Ltd and a designated personnel appointed by the compnay [sic], as representative of the company and the Directors, for all payments thereafter 48 ACC then entered into the Westpac facility which involved a loan of AUD$5 million for a term of 2 years, subject to ACC executing a general security agreement over all existing and future assets and undertakings, and executing a specific security agreement over all cattle at nominated stations.

Issue 1: the alleged improper purpose 49 The applicants' contention, in [51] of the statement of claim, is that: On 10 January 2019 Mr Champion and Mr Xue, in direct response to and only because of the notice terminating [the Management Agreement] and for the purpose only of preserving, protecting and extending ASA's management rights, as directors of HoldingCo, purported to resolve to direct Ms Hui and Mr Zhang to transfer the shares they held on trust for HoldingCo in CAPH2 and CAPH to Mr Champion on trust for HoldingCo. The circular resolution included a resolution that invalidly purported to allow Mr Champion to transfer the shares if the shareholders refused. 50 The respondents submitted that the applicants should be held to the strict terms of the pleaded allegation. Thus, in order to succeed the applicants had to prove that the actions were a direct response to and only because of the notice terminating the ASA management agreement. The applicants submitted that the fact they had pleaded this did not mean they needed to prove it in order to succeed because the relevant legal principle is that the alleged improper purpose must be the substantial, not the sole, purpose of the directors in the sense that but for the improper purpose the conduct would not have been undertaken. 51 In Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 Ipp J (as he was) explained that: (a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose. (b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties. (c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry. (d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned. 52 Further, and as the respondents submitted: 60. The onus is on the applicants to prove that the power was misused: see Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199 at 206; Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 348. 61. The assessment is a two stage process: a. first, it is necessary to ascertain the purposes for which the power may, and may not be exercised; and b. second, it is necessary to determine as a matter of fact the purpose for which the power was exercised in the present case and whether that purpose was within the category of permissible purposes: Kokotovich Constructions Pty Ltd v Wallington (1995) 17 ACSR 478 at 490. 53 The fact that the applicants have pleaded more than they needed to in order to establish an improper purpose vitiating the impugned conduct, in my view, is immaterial. If the relevant purpose found is improper and was the directors' substantial purpose in the sense explained in Wheeler, then the improper purpose ground will be made out. However, I agree with the respondents that one thing the applicants did not plead was that the purpose of entering into the Westpac facility was itself an improper purpose. The Westpac facility features in other parts of the applicants' case, but not this part dealing with improper purpose. Accordingly, to the extent of the identified improper purpose, the applicants should be held to their pleading. The impugned purpose is confined to the purpose of preserving, protecting and extending ASA's management rights. 54 One submission of the respondents which I reject is that the impugned purpose of preserving, protecting and extending ASA's management rights was not an improper purpose. It is not to the point that Mr Xue did not want to replace Mr Champion other than through an orderly transitional process. Nor is it to the point that there is no evidence that ASA was doing a bad job and that the applicants eschewed any such proposition in the proceeding. The point is that the purpose as expressed - preserving, protecting and extending ASA's management rights - cannot be a proper purpose of the directors who owe fiduciary duties to the company, HoldingCo. By this I mean that HoldingCo has no legitimate interest in preserving, protecting and extending ASA's management rights per se. HoldingCo's legitimate interest is in ensuring the cattle stations are properly managed and if preserving, protecting and extending ASA's management rights is a means by which that purpose can be achieved, the purpose would be proper. But if the purpose is merely to preserve, protect and extend ASA's management rights, irrespective of the proper management of the cattle stations, the purpose would be improper. Proving this does not necessarily require proof that ASA was doing a bad job. But whether the improper purpose can be proved is a fact to be determined objectively, by reference to all surrounding circumstances, albeit that subjective statements of intention may be relevant. 55 In my view the objective circumstances in this case accord with the subjective statements of intention. That is, a substantial purpose of Mr Xue and Mr Champion was not to preserve, protect and extend ASA's management rights. Rather, their substantial purpose was to put the companies in a position by which HoldingCo could enter into the Westpac facility. The circumstances supporting this inference, to my mind, are overwhelming. 56 First, the timing issue. It may be accepted that the impugned conduct occurred shortly after ACC terminated ASA's management contract. Two other facts, however, are also relevant. One, the termination was on six months' notice. Had the relevant purpose been merely to preserve, protect and extend ASA's management rights then there was no urgency. Mr Xue and Mr Champion, as two of the three directors of HoldingCo, had six months in which to work out how best to arrange matters to ensure Mr Champion, through ASA, remained as the manager. Two, the contemporaneous evidence clearly discloses that the immediate motivating factor was to relieve the pressing and dire cash shortage which ACC was experiencing by taking steps to ensure that ACC could take a loan from Westpac which Mr Xue (with knowledge of Shimao's loan offer) and Mr Champion (without knowledge of Shimao's loan offer) had assessed as the best finance facility available to the company. It was the liquidity problems, not the management agreement, that created the urgency which is apparent in the actions of Mr Xue and Mr Champion between late December 2018 and early January 2019. 57 Second, as to Mr Champion, while it is true that Mr Champion's company, ASA, was receiving AUD$100,000 per month to perform the management role and that Mr Champion ultimately admitted that he did wish to stay on as manager and was very distressed by the termination: (1) It had not initially been intended that Mr Champion manage the stations. This job was to be performed by Mr Smoothy. It was only when Mr Smoothy's work was considered unacceptable that Mr Champion stepped into the role. Thus it cannot be said that either Mr Xue or Mr Champion were and always had been intent on Mr Champion being the manager. (2) The increasing concern of Mr Champion about the liquidity problems of ACC and the urgent need to resolve them is evident from all of the contemporaneous records. Given that Mr Champion had put Shimao on notice of the seriousness of the liquidity problem and had received no response and was unaware of the Shimao loan offer, it is unsurprising that he considered a credit facility from a financial institution to be the only solution. It must be inferred that he knew full well from his dealings with Mr Xie and Mr Xue of Dechang that Ms Hui and Mr Zhang of Shimao would not agree to such an option. The fact is this very inference, that Shimao would not have agreed to such an option, is overwhelmingly likely, not just because of the CMB facility but because by this time it is apparent from the contemporaneous communications that the relationship between the Shimao interests and the Dechang interests was rapidly disintegrating making the next most likely step (as was then proved) a battle for control of the enterprise. (3) As the respondents noted: 67. …Mr Champion communicated to Westpac on 4 January 2019 that the corporate changes had to occur before ACC could enter into the Westpac facility. After this, on 7 January 2019, Mr Champion and Mr Lowe of Westpac exchanged emails concerning legal advice which Mr Champion was obtaining concerning the corporate changes (i.e., what became the 'steps plan'). And, on 8 January 2019, Mr Champion forwarded the 'steps plan' produced by Mr Venus to Mr Lowe [of Westpac], asking 'let me know if this is sufficient for you to prepare docs'. Finally, on 14 January 2019, Mr Champion sent Ms Hopkins of Westpac an updated company search for ACC, showing that he was now the sole director of that company. Mr Champion noted 'I believe everything should now be in order and you are able to proceed with the facility as anticipated'. These communications are fatal to the suggestion that Mr Champion's purpose was only (or even substantially) related to the management rights purpose. They are completely consistent with the purpose being related to the entry into the Westpac facility. (4) As the respondents also noted: 68. …the sequence set out in the email to Westpac did occur. Namely the corporate changes were made and then the facility was entered into. This is perfectly consistent with Mr Champion's evidence. (5) The resolution of HoldingCo dated 14 January 2019 executed by Mr Champion and Mr Xue recorded as background the pressing and dire illiquidity of ACC as the reason for entering into the Westpac facility. There is no mention in that resolution of any intention to preserve, protect or extend ASA's management rights. Rather, the motivating forces are identified as the need to enter into the Westpac facility to deal with the liquidity problem. (6) The fact that Mr Champion was very distressed by his termination, believed he was doing a good job, and thought that comparisons with the adjoining property's management were unfair does not mean that his substantial purpose in executing the corporate changes was for the purpose of preserving, protecting or extending ASA's management rights. At best, Mr Champion may have held a hope, or even a belief, that one consequence of the corporate changes might be that ASA's management contract would be reinstated but the possible consequence of actions, even if desired, does not mean that the consequence was necessarily a substantial purpose. As the respondents submitted, the fact is that if that had been the intention of Mr Champion he could have immediately rescinded the notice of termination after the plan was implemented because he was the sole director of ACC. He took no such step. (7) The fact that Mr Champion had done nothing in the intervening six months making it (as he ultimately accepted) inevitable that ASA would continue as the manager by default after the notice period for his termination had expired does not support the inference that Mr Champion always intended to continue as manager and took the actions he did to fulfil that purpose. In the face of the litigation which commenced on 6 February 2019, Mr Champion was right to think that no meaningful negotiations with a potential alternative manager could commence. I also accept the respondents' submission that: 73. The applicants have sought to meet this point by alleging that Mr Champion's failure, as ACC director, to obtain a new manager made it 'inevitable' that ASA would continue as manager (see in particular AS [127]). But when one steps back, this case requires the Court to find that Mr Champion engaged in a deliberate strategy where he first participated in the corporate changes, then anticipated the Court proceedings (which he assumed would fail), and all the while took no steps to engage a new manager so as to procure a situation where ASA would continue as manager. This is all objectively improbable and the Court would not accept it. (8) As the respondents also submitted: 76. …the applicants have not produced any objective communication such as an email, text message or any other communication between Mr Champion, Mr Xie or Mr Xue which impugns Mr Champion's evidence or which speaks of an extension of the Management Agreement. There was no suggestion in cross-examination that Mr Champion and Mr Xie discussed the corporate changes in order to extend the Management Agreement. On the applicants' case, each of Mr Champion and Mr Xue must have independently formed the improper purpose and then serendipitously set out to make the corporate changes to implement it. It is far more plausible that their purpose was consistent with the email communications to the effect that urgent liquidity was required - and the corporate changes were required to have ACC enter into the Westpac agreement. (9) The fact that Mr Champion wanted the liquidity problem to be promptly solved so that all suppliers, including ASA, could be paid does not transform his substantial purpose into one of preserving, protecting and extending ASA's management rights. As the respondents noted, the termination did not affect ASA's right to work out and be paid for the six months' notice period. (10) While Mr Champion was sometimes reluctant to concede matters he ultimately conceded (for example, that he was very distressed by the termination and did want to remain as the manager), I agree with the respondents' submission that his evidence that he was motivated by the need to obtain immediate liquidity which the Westpac facility could provide. 58 Third, as to Mr Xue: (1) Mr Xue was aware that ACC had a serious liquidity problem. The fact that he wanted to solve that problem without further empowering the Shimao interests by agreeing to HoldingCo taking a loan from them (which would be inconsistent with Mr Xue's unfounded beliefs about the agreements) seems readily apparent. (2) Mr Xue's evidence that he was not opposed to Mr Champion being replaced as the manager but wanted a proper transition was unchallenged and is objectively probable. Mr Xue had no reason to go out on a limb for Mr Champion. I have no doubt that one of his substantial purposes was to regain control of the Australian corporate entities, for which he needed Mr Champion's assistance, but he did not need to extend ASA's management agreement to achieve this. I should also record that this purpose, regaining control of the Australian entities, formed no part of the pleaded improper purpose. (3) As the respondents submitted Mr Xue: 85. …signed the resolution dated 14 January 2019 which sets out HoldingCo's purpose. Again, it was not suggested that that resolution was false or did not in any way represent the true and correct position. (4) The fact that Mr Xue rejected Shimao's offer of a loan does not transform his objectives into extending ASA's management rights. Mr Xue's evidence that he believed Shimao had to financially support HoldingCo and ACC explains his rejection of the Shimao loan. He also gave evidence that ACC would face the same liquidity problem in 6 months' time if the loan was accepted but it is apparent he rejected the offer of the Shimao loan outright, with no attempt to negotiate more favourable terms, because of his unfounded belief about the agreement between the Shimao interests and the Dechang interests. (5) For Mr Xue to have acted as he did for the purpose of extending ASA's management agreement is commercially improbable even if, as is the case, he believed Mr Champion was doing a good job as manager. Mr Xue had no personal interest in protecting ASA as manager. 59 For these reasons the applicants have not made out their allegation in [51] of the statement of claim. This part of their case must be rejected.

Issue 2: breach of the corporate constitutions 60 In another example of pleading more than is strictly necessary, in [54] of the statement of claim the applicants contended that Mr Champion, in breach of clause 20 of the constitutions of CAPH and CAPH2, and only for the purpose of protecting ASA's commercial interests under the management agreement, purported to execute the share transfer forms. The respondents sensibly accepted that if the applicants proved that the share transfer forms had been executed in breach of the corporate constitutions then, subject to the respondents' cross-claim seeking validation, that would suffice. 61 Section 1071B(2) of the Act provides that a company must only register a transfer of securities if a proper instrument of transfer has been delivered to the company and this is so despite anything in its constitution or anything in a deed relating to debentures. Section 1071B(3) and (4) are as follows: (3) An instrument of transfer is not a proper instrument of transfer for the purposes of subsection (2) if it does not show the details, specified in the regulations, in relation to the company concerned. (4) If the transfer of the securities is covered by Division 3 of this Part, then (in addition to subsection (3)), the instrument is not a proper instrument of transfer for the purposes of subsection (2) unless it is a sufficient transfer of the securities under regulations made for the purposes of that Division. 62 The transfer form is mandated by Sch 2A to the Corporations Regulations 2001 (Cth). The form provides for the signature of transferor and the transferee. 63 The constitutions of CAPH and CAPH2 were in the same terms. Clause 11 provided: Except as required by law or this constitution, the Company need not recognise: (a) that a person holds a share on trust; or (b) any interest in a share except the registered holder's absolute ownership of the whole share. 64 By clause 20: An instrument of transfer of shares must be: (a) in writing; (b) in a common form or as the Directors accept; (c) executed by or for both the transferor and the transferee; (d) stamped; (e) delivered to the Company, at any place the Directors specify, together with the certificate for the shares and any other evidence the Directors require to prove: (1) the title of the transferor; (2) the transferor's right to transfer the shares; and (3) the proper execution of the instrument of transfer. 65 The dispute between the parties is about the meaning of the word "for" in clause 20(c). That is, could Mr Champion sign the transfer "for" Ms Hui and Mr Zhang as transferors when he was not their agent or authorised to do so? The applicants contended that Mr Champion had no such capacity. The respondents contended to the contrary. 66 The relevant principles were largely common ground. By s 140(1) of the Act, the constitutions of the companies had effect as a contract between the company and each member, between the company and each director and company secretary, and between a member and each other member. 67 As the applicants put it: 65. The construction of the constitution is an objective exercise in which the general principles of construction of commercial contracts applies: Beach J, Donaldson v Natural Springs Australia Ltd [2015] FCA 498 (Donaldson) at [148]-[149]. Further, "primacy must be given to the objective intention discernible from the language in which the constitution is expressed rather than to other features of the surrounding matrix of fact in which its provisions may have been made": HNA Irish Nominee Ltd v Kinghorn (2010) FACFC 57 at [42]. Surrounding circumstances can be taken into account in construing the provisions of a constitution but restraint needs to be exercised: Donaldson at [150] citing Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1. 68 As the respondents put it: 101. A constitution is a contract between shareholders and company: s 140, Corporations Act. The terms of a commercial contract are to be understood objectively, by reference to what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract: Electricity Generation Corporation v Woodside Energy Ltd [[2014] HCA 7] (2014) 251 CLR 640 at 656 [35] and the cases at fn 58. 102. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the Court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35]. 69 The applicants contended that the word "for", in the context of an instrument transferring legal ownership of property, took its natural and ordinary meaning of execution by the transferor's agent or attorney. The fact that Ms Hui and Mr Zhang held the shares as bare trustees on behalf of HoldingCo was immaterial given the terms of cl 11 of the constitutions. Nor should the constitutions be construed assuming all shares would be held on trust. The declarations of trust which Ms Hui and Mr Zhang had executed did not require Ms Hui and Mr Zhang, "upon receipt of a direction by a properly constituted resolution of the directors of the beneficial owner, to appoint the person authorised by the directors as their agent or attorney to sign the transfer forms 'for them'". 70 The applicants submitted: 68. …In equity there are a limited circumstances in which a beneficiary can take possession of trust property. One circumstance where this arises is where the beneficiary is absolutely entitled, or where the words of the trust instrument make it clear that a beneficiary with a limited interest is to be let into possession [(Equity & Trusts (7th ed.) Heydon and Loughlan [870])]. These rights do not apply in this case because: (a) there is nothing in the declarations making it clear that HoldingCo is entitled to possession; (b) on the contrary, the declarations expressly contemplate a transfer by the legal owner to HoldingCo or its nominee, an interpretation which is supported by the January Resolution which refers to a direction to the trustees (Ms Hui and Mr Zhang) to "transfer the shares" [CB Tab 188, V7: P1787-1789]; and (c) the beneficiary would only become absolutely entitled to the shares upon receipt of a signed transfer by Ms Hui and Mr Zhang. 71 Further, they said, the January resolution contained nothing which authorised Mr Champion to sign the transfers for the transferors. In any event, it would have been beyond the power of the directors of HoldingCo to appoint Mr Champion as the agent for Ms Hui and Mr Zhang. The fact that Ms Hui and Mr Zhang were bare trustees did not vest any such power in the directors of HoldingCo. Properly construed the resolution of 10 January 2019 "does no more than allow Mr Champion to execute documents on behalf of HoldingCo for the purpose of the direction, not any transfer. Moreover, as a matter of common sense and law, a person cannot appoint themselves agent of a principal". The applicants also submitted that there is also no entitlement at law, in equity, or by statute for the beneficiary to engage in self-help which "creates a right of agency or authority to execute documents to transfer trust assets to themselves". 72 According to the applicants: 72. Starting from first principles, the legal position is that the registered holder of shares is the owner of the shares. The law does not recognise any distinction between legal and beneficial ownership. Equity, which acts in personam, recognises that the beneficial interest can be separate and distinct from the legal interest and does so by the mechanism of a trust. However, that recognition by equity does not create, of itself, any entitlement in rem to the property. What it allows is for a Court of equity to make orders in personam compelling the assets to be dealt with consistent with that beneficial ownership. In other words, to enforce a beneficial interest at equity, one needs to go to a Court of equity and seek orders giving effect to that right. 73. In Commonwealth Bank Officers Superannuation Corporation Pty Ltd & Anor v Beck & Anor [2016] NSWCA 218, Macfarlan JA at [195] observed that a beneficiary of a discretionary trust had "a right to have his interest [in the trust] protected by a court of equity" citing Gartside v Inland Revenue Commissioners [1968] AC 553 at 617-8 per Lord Wilberforce and Kennon v Spry [2008] HCA 56; 238 CLR 366 at [161] [See also Jacob's Law of Trusts in Australia, 8th ed at [23-03]]. 74. A similar and important reference point can be found in the judgement of Hope JA in DKLR Holding Co (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 where he states at [(16)] " … although the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligations which equity has imposed upon him." 75. It is clear from the authorities that the proper avenue for a beneficiary to enforce rights is not by exercising 'self-help remedies' but by making an application to the Courts to compel the legal owner to act in accordance with the trust instrument. 76. Further, Justice Parker most recently confirmed the specific position as regards "bare trusts" in Preston v Diaspora Holdings Pty Ltd; Diaspora Holdings Pty Ltd v Owners Corporation of Strata Plan 68608 [2019] NSWSC 651 at [122] to [125]. In that case, his Honour said: "122. Statute aside, the term "bare trustee" is not a term of art. In trust law, the term usually refers to a trustee who has no active duties to perform. But this is a somewhat imprecise description, because few if any trustees have no obligations whatever: J D Heydon, M D Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworths) at [3-15]. 124. A fundamental aspect of equitable jurisprudence is the duality of interests and remedies which it creates. In a trust, the legal title to the relevant property is held by the trustee who can exercise legal rights incidental to that property. Equity acts in personam by compelling the trustee to exercise those legal rights in the interests of the beneficiaries. Or equity may award compensation against the trustee for an action taken in breach of the trustee's obligations to the beneficiaries. But in such cases equitable intervention does not in some way invalidate the trustee's action at law. Rather, it presupposes the validity of such action. 125. For this purpose, it does not matter what the terms of the trust are. Equity operates in the same way whether the trust is an express one or a constructive one. Even if [plaintiff] were correctly characterised as a "bare trustee" of the legal title after his bankruptcy, that would have no effect on the validity on his actions at law." 77. These statements support the proposition that, as shareholders of CAPH and CAPH2 and whether as bare trustees or otherwise, Ms Hui and Mr Zhang were the legal owners of the shares and entitled to enforce the terms of the CAPH and CAPH2 constitutions. Any remedy of the beneficiary of the bare trusts (being HoldingCo) was to seek equitable relief. HoldingCo could not appoint its director to be the agent of the trustee of its shares. 78. In this instance the First and Second Respondents, having failed to make an application to Court for relief, have presented to CAPH and CAPH2 a transfer which not only does not comply with section 20(c) of each of the CAPH and CAPH2 constitutions but is also in breach of section 1071B of the Act in that it is not a "proper instrument of transfer". 79. The position is analogous to the rule in Saunders v Vautier [(1841) 4 Beav 115 [49 ER 282] where, with the consent of all beneficiaries, a trust can be terminated and the beneficiaries require the trustee to transfer the trust property to them. In circumstances where a trustee failed to comply with a valid, direction from a beneficiary, in that context, equity would order the result by way of a mandatory injunction. This was known as a vesting order which is now enshrined within section 78 of the Trustee Act 1925 (NSW) (see section 71(2)(i) in particular). However there is nothing in the rule in Saunders v Vautier which creates, without the intervention of a Court order, a right to the property. 73 The respondents contended that the words "or for" are wide in their ambit and connote that someone other than the transferor may sign the instrument of transfer. The class of persons who may sign obviously extends to agents or authorised attorneys of the transferor but is not limited to those persons. If it had been intended to limit the class in this way, some reference to agency or the expression "on behalf of" would be expected. "For" is wider than an agency relationship and extends to the beneficiary of the bare trust, that is HoldingCo, to sign the transfer. The objective context in which the constitutions of CAPH and CAPH2 supports this view. As the respondents put it: 104. …Thus, as at the date of the constitutions (18 April 2016, in the case of CAPH116, and 8 May 2016, in the case of CAPH2, the parties to the relevant contract were the intended shareholders - Mr Champion ATF Mr Huang Fei (who was associated with the Dechang interests), and the intended companies (CAPH and CAPH2). On the day Mr Champion signed those constitutions, he also executed documents entitled 'declaration of trust', by which Mr Champion declared that he held '2 ordinary shares in [CAPH / CAPH 2 (as applicable)] upon trust for [Huang Fei]'. 105. There has never been an agency relationship or power of attorney arrangement regarding HoldingCo and the legal holder of the shares. Conversely, the existence of a bare trust from the outset is consistent with the concept that CAPH and CAPH2 were the corporate vehicles by which the business was operated, but that it was always intended that HoldingCo (and then, above this, Shimao Fund Manager) would be in control of the subsidiary companies and able to effectuate changes as to the board of directors of those companies. 106. In light of this context, the logical conclusion, when the required 'iterative process' of construction is undertaken (see Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561 at 582 [86] (Leeming JA)) is that the objective intention of the parties was that the words "or for" were inserted to ensure that the beneficiary of the bare trust would be entitled to ensure that a transfer which it directed occurred. A finding to the contrary would be an uncommercial one. 74 The respondents noted that their construction was consistent with the rights of a beneficiary of a bare trust, saying: 109. A direction by a beneficiary of a bare trust to transfer title is sufficient to render it the legal and beneficial owner of the shares: Meagher, Gummow & Lehane, at [4-020]. This is no doubt a consequence of the fact that a beneficiary under a bare trust has an immediate right to possession and to the indicia of title to the trust property: Turner v Noyes (1903) 20 WN (NSW) 266; recently approved in Simonson Properties Pty Ltd v Hardy [2014] NSWSC 229; (2014) 15 ASTLR 167 [82] (Sackar J). In turn, the right to possession is an incident of ownership: Knapp v Knapp [1944] SASR 257 at 261. 75 The issue is the meaning of the company constitutions in circumstances where clause 11 provided that the company need not recognise the holding of shares on trust. In that context, I consider that the word "for", in the context of the transfer of legal ownership, should be given its ordinary and natural meaning of "on behalf of" which connotes the existence of legal authority having been given by the legal owner to an agent or attorney to execute the transfer. That is, HoldingCo could not purport to authorise Mr Champion to execute transfers for Ms Hui and Mr Zhang. Further, HoldingCo's resolution, properly construed, did not authorise Mr Champion to execute the share transfer forms for Ms Hui and Mr Zhang. Rather, it authorised Mr Champion to execute any document to give effect to the first resolution concerning the giving of the direction to Ms Hui and Mr Zhang. It is the third resolution which concerns causing the registration of the transfers and that resolution does not purport to authorise Mr Champion to execute the transfers for Ms Hui and Mr Zhang. 76 Accordingly, the share transfer forms executed by Mr Champion for Ms Hui and Mr Zhang and thereafter registered were not a proper instrument of transfer within the meaning of s 1071B(3) of the Act and were executed in contravention of cl 20(c) of the constitutions of CAPH and CAPH2. 77 As a result, it is necessary to consider the respondents' cross-claim in which, pursuant to s 1322(2) and 1322(4) of the Act, a declaration is sought that the removal of Ms Hui and Mr Zhang as directors of CAPH and CAPH2 is not invalid by reason of any contravention of cl 20 of the constitutions of CAPH and CAPH2. 78 By s 1322(2): A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. 79 Section 1322(4) provides that: Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation; 80 Section 1322(6) provides that: The Court must not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is just and equitable that the order be made; and (b) in the case of an order referred to in paragraph (4)(c)- that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person. 81 The case is not analogous to Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337 in which the defect was in the purported notice of removal. However, the observation of Young JA at [148] that one must be careful as to what validation is being sought is relevant. Here the validation sought in the cross-claim is validation of the removal of Ms Hui and Mr Zhang as directors of CAPH2 and ACC. On any view, the removal of directors is a matter of substance rather than procedure. Even if the act, matter or thing to be validated was the execution of the share transfer form, I am not satisfied that the execution of a share transfer form by a person without the authority to do so can be described as a "procedural irregularity" or an act, matter or thing of a procedural nature. The existence of authority from Ms Hui and Mr Zhang to execute the transfer forms was a matter of substance, not procedure. No doubt HoldingCo had the right to approach a court of equity to enforce the terms of the trust, but that has not occurred and I cannot see how the lack of authority of Mr Champion to execute the share transfer forms is a mere matter of procedure. As a result, it is necessary for the respondents to prove that the person or persons concerned in or party to the contravention or failure acted honestly or that it is just and equitable that the order be made and that no substantial injustice has been or is likely to be caused to any person. 82 These requirements give rise to another dispute between the parties. The applicants contended that in defence of the respondents' claim to validation they are entitled to raise various allegations of breach of director's duties by Mr Xue and Mr Champion in their capacity as directors of HoldingCo. They also contended that irrespective of their defence of the validation claim they are entitled to raise the same matters, which are not a derivative suit, because the relief they seek (the reinstatement of Ms Hui and Mr Zhang as directors of CAPH, CAPH2 and ACC) is of no interest to and cannot be sought by the companies and is available to Ms Hui and Mr Zhang alone under s 1324 of the Act. Section 1324 provides that where a person has engaged in a contravention of the Act, the Court may "on the application of ASIC, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing". 83 I accept the first part of these submissions for the applicants. That is, in deciding if Mr Xue and Mr Champion, as the persons concerned in or party to the contravention or failure (being the execution of the share transfer form without authority) acted honestly, or that it is just and equitable that the order be made and that no substantial injustice has been or is likely to be caused to any person for the purpose of the respondents' application under s 1322(4) of the Act, it is necessary to consider the applicants' contentions that Mr Xue and Mr Champion breached their duties as directors of HoldingCo. 84 I have difficulty in accepting the second part of these submissions for the applicants to the effect that, in any event, as the relief that is sought lies only at the suit of Ms Hui and Mr Zhang, and not the companies, there is no barrier to the applicants' claims being made outside the scope of ss 236 and 237 of the Act. One answer to the second part of the applicants' contention is that they have not identified their interests that have been affected by the conduct in question within the meaning of s 1324. They were directors of CAPH, CAPH2 and ACC and, by reason of the impugned conduct, are no longer directors of CAPH, CAPH2 and ACC. I am unable to accept, however, that Ms Hui's and Mr Zhang's interests as former directors of those companies gives them a legitimate interest in respect of the breach of director's duties within the meaning of s 1324. This is because those duties were owed by Mr Xue and Mr Champion to the companies of which they were directors and were not owed to Ms Hui or Mr Zhang. I thus accept the respondents' submission that, insofar as the applicants seek to raise the alleged breach of director's duties separately from their defence of the validation action, they should not be permitted to circumvent the requirements of ss 236 and 237 of the Act either as a matter of power or of discretion. 85 With these matters in mind, I will deal with the allegations of breach of director's duties before resolving the issue of validation under s 1322(4) of the Act.

Issue 3: breach of director's duties 86 In paragraphs 67 and 68 of the statement of claim the applicants relevantly allege that: 67. Mr Xue's conduct as a director was not, and continues to not be, in the best interests of HoldingCo because: (a) the conduct had the practical effect of making Mr Champion the only person supervising and monitoring ASA's performance under the Management Agreement; (b) the conduct had the practical effect of making Mr Champion the only person capable of negotiating with ASA any variation or extension of the Management Agreement; (c) the entry into the Westpac Loan Agreement was a breach of the CMB Facility Agreement or put HoldingCo and ACC at risk of a claim by CMB asserting that it was a breach of the CMB Facility and calling in its loan; and … [note: subparagraph (d) has been deferred for subsequent hearing] 68. Xue's conduct: (a) was and continues to be a breach of his duty to act in good faith and for a proper purpose in s.181 of the Corporations Act 2001 ; (b) was and continues to be a breach of his duty not to improperly use his position to gain an advantage for himself or cause detriment to HoldingCo and ACC in s.182 of the Corporations Act 2001; (c) was and continues to be in breach of his analogous fiduciary duties of directors specified in paragraph 67 above; (d) was and continues to be reckless and or intentionally dishonest within the meaning of each in s.184 of the Corporations Act 2001; and (e) in paragraph 67 above, was and continues to be a breach of his duty of care and skill in s.180 of the Corporations Act 2001 . 87 The allegations against Mr Champion are as follows: 62. When on 20 December 2018 Mr Champion received notice that the Management Agreement was terminated with 6 months' notice Mr Champion took the steps in paragraphs 51 to 55 above, motivated only by his own personal interest and ASA's interest (at the expense of HoldingCo's and ACC's interests), to take control of HoldingCo and its controlled entities to: (a) protect his management fee rights (through the Management Agreement); and (b) cause the ASA management rights to be extended beyond 20 June 2019, when the six months' notice period of termination expired. 63. In pursuing his personal interest in ASA and his legal duties as a director of ASA, in conflict with his duty as a director of ACC and HoldingCo, Mr Champion acted other than in good faith and for an improper purpose, that was contrary to the best interests of HoldingCo and ACC. 64. Mr Champion's conduct as a director was not, and continues to not be, in the best interests of either HoldingCo or ACC because: (a) the conduct had the practical effect of making Mr Champion the only person supervising and monitoring ASA's performance under the Management Agreement; (b) the conduct had the practical effect of making Mr Champion the only person capable of negotiating with ASA any variation or extension of the Management Agreement; (c) the entry into the Westpac Loan Agreement was a breach of the CMB Facility Agreement or put HoldingCo and ACC at risk of a claim by CMB asserting that it was a breach of the CMB Facility and calling in its loan; and …[note: subparagraphs (d) and (e) have been deferred for subsequent hearing] 65. Mr Champion's conduct: (a) was and continues to be a breach of his duty to act in good faith and for a proper purpose in s.181 of the Corporations Act 2001; (b) was and continues to be a breach of his duty not to improperly use his position to gain an advantage for himself or cause detriment to HoldingCo and ACC in s.182 of the Corporations Act 2001 ; (c) was and continues to be in breach of his analogous fiduciary duties of directors specified in paragraphs 62 to 64 above; (d) was and continues to be reckless and or intentionally dishonest within the meaning of each in s.184 of the Corporations Act 2001; and (e) in paragraphs 62 to 64 above was and continues to be a breach of the duty of care and skill in s.180 of the Corporations Act 2001 . 88 The specified provisions of the Act provide as follows: 180 (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. (3) In this section: business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. 181 (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. 182 (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. 184 (1) A director or other officer of a corporation commits an offence if they: (a) are reckless; or (b) are dishonest; and fail to exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; or (b) for a proper purpose. 89 I have already rejected the applicants' contention that Mr Xue and Mr Champion acted for the improper purpose of extending ASA's management rights. It follows that the contentions against Mr Champion in [62] and [63] of the statement of claim cannot be sustained. The remaining allegations are the same as against Mr Xue and Mr Champion. Before considering those allegations I should note that the applicants' submissions ranged more widely than the statement of claim. However, in the context of these claims of breach of director's duties, the applicants should be held to their claims as pleaded and it is those claims to which I now turn. 90 The first contention, that Mr Xue's and Mr Champion's conduct had the practical effect of making Mr Champion the only person supervising and monitoring ASA's performance under the management agreement, is unpersuasive. It may be accepted that Mr Champion became the sole director of ACC, the company which entered into the (now expired) management agreement with ASA. However, Ms Hui remains a director of HoldingCo. If she and Mr Xue wished to act to ensure Mr Champion was not the sole director of ACC they could do so given that the shares in CAPH and CAPH2 are held solely for the benefit of HoldingCo. The respondents' submissions to this effect should be accepted. 91 The second contention, that entry into the Westpac loan was a breach of the CMB facility and put HoldingCo and ACC at risk of a claim by CMB asserting that it was a breach of the CMB facility and calling in its loan, requires more detailed consideration. I do not agree with the respondents that the allegation is purely hypothetical merely because CMB has not itself alleged that HoldingCo is in breach of the CMB facility. This is because cl 3.2 of the facility provides that on breach of the terms and conditions of the agreement, all banking facilities and accommodations granted to HoldingCo "shall be automatically cancelled and all sums payable to the Bank shall become immediately due and payable". Accordingly, if the Westpac loan placed HoldingCo in breach of the CMB facility, then the legal status of its debt would be automatically changed from a longer term liability into an immediate obligation for repayment of the principal plus interest. There is evidence indicating that this change of status was recognised by HoldingCo's auditor who wanted to change the status of the loan in HoldingCo's accounts to a short-term liability. 92 The respondents denied that the Westpac loan placed HoldingCo in breach of the CMB facility. On the respondents' behalf it was submitted that: (1) the negative pledge in the CMB facility was given by HoldingCo alone, not by ACC; (2) none of HoldingCo's subsidiaries were parties to the CMB agreement and HoldingCo was not purporting to act as their agent when entering into the CMB facility; (3) cl 7 in Appendix A to the CMB agreement places no positive obligation on HoldingCo with respect to its subsidiaries and would not be construed in CMB's favour to do so; (4) cl 7 is a purely negative obligation and any positive obligation on HoldingCo to ensure subsidiaries did not deal with farm assets would be a substantively new and different obligation; and (5) the security interests were granted by ACC and not by HoldingCo, ACC being a separate legal entity and not bound by the CMB facility. 93 Against this, the applicants submitted that cl 7 of Appendix A had to be given a different meaning from the negative pledge in cl 7 of the CMB facility which related to HoldingCo's assets. Further, because cl 7 of Appendix A refers to the underlying assets of the overseas farms, it is clear the provision is intended to refer to the farms. Accordingly, the provision would be construed as requiring HoldingCo to act to prevent its subsidiaries from creating any security interest over the farms. 94 I consider that the respondents' submissions about the proper construction of cl 7 of Appendix A to the CMB facility are to be preferred. The negative pledge in cl 7 of Appendix A is by HoldingCo and does not bind or purport to bind ACC who is not a party to the CMB facility. It is not possible to convert the negative pledge in cl 7 of Appendix A into a positive obligation on HoldingCo to act to prevent its subsidiary from giving security over the farms. The fact that cl 7 of Appendix A may thereby add nothing to cl 7 of the CMB facility is not, in my view, a sufficient reason to construe that provision as if it imposed a positive obligation on HoldingCo. The fact that this is my conclusion, of course, does not bind CMB. CMB's position is unknown. To date, it has not alleged any breach of the facility but it is not known whether CMB is aware of the Westpac loan. The proper construction of the negative pledge in cl 7 of Appendix A is inherently contestable. The entry into the Westpac loan necessarily gave rise to a real risk that CMB might consider that a breach of the facility had occurred. 95 Mr Xue's evidence is clear that he knowingly took the risk that the Westpac loan might place HoldingCo in breach of the CMB facility but he did what he did because of the dire financial situation of ACC and his understanding that the Shimao interests were required to meet any obligations under the CMB facility that HoldingCo was unable to meet. He acted without reviewing the CMB facility (which he did not have), without requesting a copy of the CMB facility, without obtaining any advice about HoldingCo's obligations under the CMB facility, and without discussing with Mr Champion the risk of which he (but not Mr Champion) was aware. Mr Venus, solicitor, was not asked to advise about the CMB facility and the risk for HoldingCo. Mr Xue appears to have given no consideration to the position of HoldingCo under the CMB facility if the Westpac loan did constitute a breach, relying instead on a general understanding that if HoldingCo could not pay CMB then the Shimao interests would do so. This understanding appears to have been formed without reference to the agreements and without regard to the fact that HoldingCo as the borrower would become liable to pay CMB in the first instance and to pay the Shimao interests in the second instance assuming it met HoldingCo's debt obligations to CMB on the loan being called in. That is, Mr Xue acted without advice about a fundamental obligation of HoldingCo, relying on his idiosyncratic views about the agreements, and without regard to the impact on HoldingCo's financial status if the loan from CMB became immediately due and payable irrespective of the obligations of the Shimao interests to CMB as guarantor of HoldingCo's debts. 96 In so doing Mr Xue did not act with the degree of care and diligence with which a reasonable person would exercise if in the same circumstances and holding the same position. In In the matter of Central Management (NSW) Pty Ltd (in liquidation) [2017] NSWSC 1258 Black J said: 20. Whether a breach of the duty of care and diligence is established is determined by reference to a balancing of the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; 11 ACSR 162; Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209 at [479]. 97 While the Westpac loan offered a longer term finance and a lower rate of interest than the Shimao loan, it also required the giving of security which Mr Xue knew might place HoldingCo in breach of the CMB loan which he ought reasonably to have known would make all amounts owing by HoldingCo immediately due and payable. The obligations of the Shimao interests in that event would not eradicate HoldingCo's debt. If Shimao paid CMB as it would have been bound to do, HoldingCo (contrary to Mr Xue's beliefs) would be indebted to the Shimao interests for the full amount. In these circumstances I consider Ms Xue's conduct as a director of HoldingCo in causing ACC to enter into the Westpac loan contravened s 180(1) of the Act. 98 I do not accept the submissions for Mr Xue to the contrary. There is a real and arguable case upon which CMB could rely at any time to assert breach of the CMB facility and to call in the loan as a result. The fact that Ms Wang, an accountant with the Shimao interests, does not believe CMB would do that because of the good connections between the Shimao interests and the bank does not mean that CMB is unable to do so at any time. For Mr Xue to cause HoldingCo to enter into the Westpac loan in preference to taking the unsecured loan offered by the Shimao interests or negotiating in good faith with the Shimao interests for a longer term loan and a better rate of interest for HoldingCo fell far short of the standard of reasonable care and diligence provided for in s 180(1) of the Act. The perceived benefits of the Westpac loan over the loan from the Shimao interests were rationally incapable of outweighing the foreseeable risk of harm to HoldingCo from a real and arguable risk that the Westpac loan would place HoldingCo in breach of the CMB facility. To the extent that Mr Xue's evidence was that he had no alternative other than to enter into the Westpac loan, the assertion was simply wrong and self-serving given the offer of a loan from the Shimao interests. Importantly, the choice was not between the Westpac loan on the one hand and cattle starving and employees leaving on the other hand. The choice was between a secured loan from Westpac which created a real risk of HoldingCo breaching the CMB facility and an unsecured loan from the Shimao interests which created no such risk. It follows that I do not accept the submission for the respondents that: 74. … it is not clear that the risk of breach of the CMB facility was a matter that could have stood in the way of Mr Champion and Mr Xue's decision to enter into the Westpac facility. ACC had immediate funding needs to keep cattle alive, to pay its staff and to pay its suppliers. Ms Hui and Mr Zhang were refusing to engage and address these issues. In the absence of entry into the facility the business operations of ACC would have failed. That would have been a disaster for each of the Shimao interests and the Dechang interests (and probably also operate significantly to the detriment of CMB). 99 This submission, in common with Mr Xue, ignores the Shimao offer of a loan. 100 It is also important that, in my view, the reason Mr Xue rejected the loan outright from the Shimao interests and opted for the Westpac loan is because he wanted to re-assert Dechang's control over the Australian operation. I am aware that this is not a pleaded improper purpose of Mr Xue. Nevertheless, it is Mr Xue who is the party seeking validation of his actions with the result that all relevant circumstances may be considered in this context. It could not be concluded in these circumstances that Mr Xue's decision as a director of HoldingCo to ensure that ACC could enter into the Westpac loan was one made in good faith and in the best interests of HoldingCo. HoldingCo had no interest in Mr Xue asserting his perceived rights as against the Shimao interests. Accordingly, the same conduct also means that Mr Xue breached his duty as a director of HoldingCo as specified in s 181(1)(a) of the Act. 101 I do not accept the other alleged contraventions of director's duties by Mr Xue because the submissions in support of them depend on either accepting the improper purpose of extending ASA's management rights (which I have rejected above) or accepting other unpleaded improper purposes. 102 Mr Champion was unaware of the terms of the CMB facility. He was aware, however, that the CMB facility existed since October 2016 and that HoldingCo was the borrower when he saw that information in the company's accounts (which Mr Champion signed as a director) in March 2017. Mr Champion did not ask to be provided with the terms of the CMB facility and instead relied generally on what the Dechang interests told him which did not include the terms of HoldingCo's negative pledge. In common with Mr Xue, Mr Champion did not seek any advice about the CMB facility before causing ACC to enter into the Westpac loan despite knowing of the existence of the CMB facility. Mr Champion simply took no steps to inform himself about the terms of the CMB facility at any time. Nor did he inform himself about the terms on which the Shimao interests had agreed to fund HoldingCo, although he did understand that the Shimao interests funding support was on a year-by-year basis. Mr Champion was also in a position of a potential conflict of interest between his interest as the principal of ASA and as a director of HoldingCo, CAPH, CAPH2 and ACC. I do not accept the applicants' submission that this precluded Mr Champion having any involvement in any decision about the Westpac loan (if that is the effect of the applicants' submissions, which are obscure on this and other points about breach of director's duties), but it did mean that Mr Champion had to keep his potential conflict of interest in mind and not act to advance his own interests at the expense of the interest of the companies. I do not accept that Mr Champion in fact advanced his own interests at the expense of the interest of the companies, but in the circumstances he was in, to cause ACC to enter into the Westpac loan without having informed himself of the terms of the CMB facility fell short of the standard of reasonable care and diligence required by s 180(1) of the Act. Mr Champion knew that the Shimao interests were the majority investor and had provided all funding for the farming operations but took no steps to inform himself as to whether the Shimao interests were willing to lend money to ACC before taking the steps he did in order to enable ACC to enter into the Westpac loan. Mr Champion acted knowing that Mr Xue wanted to re-assert the control of the Australian operations by the Dechang interests and, by his conduct, Mr Champion acted to facilitate that outcome. In these circumstances it also cannot be concluded that Mr Champion acted in good faith in the interests of the companies as a whole as required by s 181(1)(a) of the Act. 103 In common with my conclusions about Mr Xue I do not accept the other alleged contraventions of Mr Champion's duties as a director because the submissions in support of them depend on either accepting the improper purpose of extending ASA's management rights (which I have rejected above) or accepting other unpleaded improper purposes or conduct (such as not acting independently of Mr Xue). 104 As noted, I am unable to identify a legitimate interest of Ms Hui and Mr Zhang as former directors of CAPH, CAPH2 and ACC which would enable them to obtain relief under s 1324(1) of the Act for breach of director's duties by Mr Xue and Mr Champion which were duties owed to the companies (as relevant) and not to Ms Hui or Mr Zhang. Accordingly on my conclusions, the above findings are relevant only to the validation application of the respondents under s 1322(4) of the Act. If my conclusions about s 1324 are in error and Ms Hui and Mr Zhang do have a legitimate interest to protect as former directors of CAPH, CAPH2 and ACC then I would not have withheld relief as a matter of discretion. Provided there is a legitimate interest to protect within the meaning of s 1324(1), the applicants have established that the impugned conduct of Mr Xue and Mr Champion was undertaken in breach of their duties as directors as imposed by ss 180(1) and 181(1)(a) of the Act as a result of which relief would be granted tailored to the particular circumstances of the case. 105 As it is, I return now to the validation action under s 1322(4) of the Act, having rejected reliance on s 1322(2) above.

Issue 4: the cross-claim seeking validation 106 In Re Continental Pacific [2002] NSWSC 789 at [12] Barrett J said: The claim must be considered in the light of the clear reality that each of Continental Pacific and Holdings was, at both shareholder and director level, under the sole control and direction of Mr Hashman and that his was the only human mind and will at work within each company. The purported passing of the s.436A resolution and the opinion reflected by that supposed resolution were thus expressions of the opinion and intention of the only person whose decisions were in any way meaningful in relation to the conduct of the affairs of each company. The case is not one in which those central issues were not addressed (cf, Wagner v International Health Promotions Pty Ltd (1994) 15 ACSR 419). 107 In the present case, Mr Xue and Mr Champion were two of the three directors of HoldingCo. They could, by majority vote, decide who should hold the shares in and control the subsidiaries of HoldingCo. In so doing, however, they had to exercise their powers in accordance with ss 180(1) and 181(1)(a) of the Act. For their actions to be validated under s 1322(4), the relevant requirements (given that the act, matter or thing is not essentially of a procedural nature) are that the persons concerned in or party to the contravention, being Mr Xue and Mr Champion, acted honestly or that it is just and equitable that the order be made and that no substantial injustice has been or is likely to be caused to any person. 108 As to the requirement for honesty in Hall v Poolman [2007] NSWSC 1330 Palmer J said: 326. These conclusions are, I think, supported by authority. In Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, an insolvent trading claim brought against directors, Tadgell J had to consider a defence under a predecessor to CA 1317S and s 1318. His Honour considered whether the director's conduct was dishonest, in the sense of "involving some moral turpitude": at 196, 198. It is clear that his Honour did not regard the fact that the director had breached his duty to prevent insolvent trading and had failed to make out a defence as constituting dishonesty for the purpose of the exonerating provisions: ex hypothesi, a director would never be entitled to call upon the exoneration provisions unless he or she had breached his or her duty and had failed in all other defences: see at p 198. 327. Likewise, in Australian Securities & Investments Commission v Vines (2005) 56 ACSR 528, Austin J, following Friedrich, considered that "honesty" for the purpose of the sections meant "without moral turpitude": at [43]. His Honour's conclusion as to the meaning of honesty was upheld in the Court of Appeal: Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1, at [568] per Ipp JA and at [797], [800] per Santow JA. 328. In my view, when considering whether a person has acted honestly for the purposes of a defence under CA s 1317S(2)(b)(i) or s 1318, the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, ie, whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law. A failure to consider the interests of the company as a whole, or more particularly the interests of creditors, may be of such a high degree as to demonstrate failure to act honestly in this sense. However, if failure to consider the interests of the company as a whole, including the interests of its creditors, does not rise to such a high degree but is the result of error of judgment, no finding of failure to act honestly should be made, but the failure must be taken into account as one of the circumstances of the case to which the Court must have regard under CA s 1317S(2)(b)(ii) and s 1318. 109 In circumstances where Mr Xue: (1) knew that the Shimao interests had offered unsecured loan finance to HoldingCo, (2) had no reasonable basis for and could give no cogent explanation for his apparent belief that the Shimao interests were bound to continue to support HoldingCo financially, (3) knew that there was a real risk that entry into the Westpac loan would place HoldingCo in breach of the CMB facility, (4) ought reasonably to have known that if that risk eventuated CMB could call in the loan from HoldingCo as the borrower with the consequence that a future liability for HoldingCo would become a debt immediately due and payable, (5) knew or ought reasonably to have known that Mr Champion was unaware of the offer of a loan from the Shimao interests, (6) knew or ought reasonably to have known that Mr Champion was unaware of the risk that the Westpac loan could place HoldingCo in breach of the CMB facility, making the full debt immediately due and payable, and (7) decided to enter into the Westpac loan in preference to the Shimao loan or to attempting to negotiate more favourable loan terms from the Shimao interests to advance his cause of re-asserting Dechang's control over the Australian operations, thereby giving preference to his own interests over and above the interests of HoldingCo, I am not prepared to conclude that Mr Xue acted honestly in the sense of without "moral turpitude". 110 I consider that if one of the majority directors, in this case Mr Xue, was not acting honestly, then the condition in s 1322(6)(a)(ii) cannot be satisfied and it is strictly unnecessary to consider the position of Mr Champion. Despite this, I should record that I do not consider that Mr Champion acted other than honestly and do not think that his lack of care and skill reached such a level as to warrant a conclusion of lack of honesty. However, because his evidence was to the effect that he acted under Mr Xue's direction, Mr Xue's lack of honesty necessarily colours Mr Champion's actions. In any event, and as I have said, Mr Xue's lack of honesty excludes reliance on s 1322(6)(a)(ii). 111 The same circumstances mean that it is not just and equitable as provided for in s 1322(6)(a)(iii) that the order sought be made. It must be inferred that Mr Xue was determined to re-assert control of the Australian operations by rejecting out of hand any offer of a loan by the Shimao interests as contrary to (his incorrect view of) the agreements between the Shimao and the Dechang interests irrespective of the best interests of HoldingCo. If he had the best interests of HoldingCo in mind he would not have rejected outright the loan offer from the Shimao interests but would have accepted the loan or sought to negotiate more favourable loan terms. Further, he was well aware that the Shimao loan offer stood ready to be taken up which would enable ACC to meet its obligations ensuring staff were paid and the cattle fed. He could also have taken legal advice about the obligations of the Shimao interests which, on any view of the agreements, did not include open-ended funding of HoldingCo, but he did not do so, preferring to rely on his own idiosyncratic view of those agreements because they supported his own interest of continued control by Dechang. 112 For these reasons the validation claim should be rejected (and the cross-claim seeking validation dismissed). The Shimao interests have established that the share transfer forms were executed by Mr Champion in breach of the constitutions of CAPH and CAPH2, and s 1071B(2) of the Act. In contrast to the position in respect of the alleged breach of director's duties (being duties owed to the companies and not to Ms Hui and Mr Zhang), Ms Hui and Mr Zhang, as former shareholders of CAPH and CAPH2 do have a legitimate interest within the meaning of s 1324(1) of the Act which was affected by the invalid share transfers. It was also these invalid share transfers that enabled Mr Champion as the sole shareholder of CAPH, CAPH2 and ACC to resolve to remove Ms Hui and Mr Zhang as directors of these companies. As a result, I consider that Ms Hui and Mr Zhang have established an entitlement to relief the effect of which would be to put the shareholding and directorships back into the position they were in immediately before the impugned conduct. 113 In respect of the exoneration claim by Mr Xue and Mr Champion under ss 1317S(2) and 1318 of the Act, my conclusion above about Mr Xue's lack of honesty and the fact that Mr Champion said he was acting at Mr Xue's direction mean that no such orders may be made. 114 The parties should have the opportunity to propose orders reflecting these reasons for judgment and directions for the future conduct of the matter. I certify that the preceding one hundred and fifteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

SCHEDULE OF PARTIES NSD 141 of 2019 Defendants Fourth Defendant: CONSOLIDATED AUSTRALIAN PASTORAL HOLDINGS PTY LTD Fifth Defendant: ARGYLE CATTLE COMPANY PTY LTD Sixth Defendant: SHIMAO AOYA HOLDING PTY LTD Cross-Claimants Second Cross-Claimant: JING YUAN XUE Cross-Respondents Second Cross-Respondent JIE ZHANG Third Cross-Respondent ARGYLE CATTLE COMPANY PTY LTD Fourth Cross-Respondent CONSOLIDATED AUSTRALIAN PASTORAL HOLDINGS PTY LTD Fifth Cross-Respondent CONSOLIDATED AUSTRALIAN PASTORAL HOLDINGS NO.2 PTY LTD Sixth Cross-Respondent SHIMAO AOYA HOLDING PTY LTD