In the matter of Anna Bay Resort Pty Ltd [2022] NSWSC 331

Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 Blatch v Archer (1774) 1 Cowp 63; (1774) 98 ER 969 Boyd v Feeney [2017] NSWSC 1595 Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 Ferguson v Wilson (1866) LR 2 Ch App 77 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWSC 453 Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 Hindle v John Cotton Ltd (1919) 56 Sc LR 625 HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68; [1974] AC 821 Hungerfords v Walker (1989) 171 CLR 125; (1989) 84 ALR 119 In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 In the matter of Austral Alloys Pty Limited [2017] NSWSC 1833 In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 In the matter of Crow Inn Pty Limited [2020] NSWSC 601 In the matter of Crow Inn Pty Ltd (No 2) [2020] NSWSC 1746 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153; (2007) 71 ACSR 395 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222 Mudgee Dolomite & Lime Pty Limited v Murdoch [2020] NSWSC 1510 Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 Neville v Lam (No 3) [2014] NSWSC 607 Ngurli Ltd v McCann (1953) 90 CLR 425; (1953) 27 ALJR 349 Page v Newman (1829) 9 B & C 378 at 381; 109 ER 140 Power v Ekstein [2009] NSWSC 130 President of India v La Pintada Compania Navigacion SA [1985] AC 104 Re a company (No 00709 of 1992); O'Neill v Phillips [1999] 2 All ER 961; [1999] UKHL 24 Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 Shelton v National Roads and Motorists Association Ltd (NRMA Ltd) [2004] FCA 1393; (2004) 51 ACSR 278 Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104; (2011) 84 ACSR 121 Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68 Texts Cited: John Henry Wigmore, Wigmore on Evidence (3rd ed., 1940) Category: Principal judgment Parties: Timesgarden Pty Ltd (First Plaintiff) Wilson Hu (Second Plaintiff) Frank Shi (First Defendant) Wisemans Group Pty Ltd (Second Defendant) Anna Bay Resort Pty Ltd (Third Defendant) Representation: Counsel: Mr G Campbell (Plaintiffs) Mr RD Marshall SC / Mr M Rose (Defendants)

Solicitors: WB Legal (Plaintiffs) Keypoint Law (Defendants) File Number(s): 2020/321040

Judgment

1. HER HONOUR: This is an oppression suit under sections 232 and 233 of the Corporations Act 2001 (Cth). Wilson Hu and his company, Timesgarden Pty Ltd, sue Frank Shi and his company, Wisemans Group Pty Ltd, in respect of the operation of the third defendant, Anna Bay Resort Pty Ltd (the Company). Mr Hu was, and Mr Shi is, a director of the Company. Their respective companies are shareholders in the Company.
2. Through the Company, Mr Hu and Mr Shi embarked upon a property development in Anna Bay, which is some 200km north of Sydney near Port Stephens. Since these proceedings were commenced, the development site has been sold at a goodly profit such that Mr Hu can confidently expect that his loans to the Company will soon be repaid. This had the consequence that some of the relief sought became less contentious or was no longer pressed. In particular, Mr Hu did not press his claim for damages for breach of an alleged joint venture agreement and shareholders' agreement, to which much of the pleadings and evidence had been directed.
3. Resolving the plaintiffs' remaining claims, however, was no easy matter as both Mr Hu and Mr Shi proved to be unreliable witnesses. Further, Mr Hu and Mr Shi chose to conduct themselves without the contracts and formalities ordinarily attending a business enterprise of this nature. There were few documents contemporaneous to key events: large chasms in documentations existed on both sides. The informality of the arrangements between the parties has resulted in what could fairly be described as a mess. Matters were not helped by the pleading and presentation of the plaintiffs' case. I have endeavoured nonetheless to try and work out what happened and what, if anything, should be done about it. I have not, however, burdened this already lengthy judgment with a recitation of the parties' submissions.

WITNESSES

1. The plaintiffs relied on the evidence of Mr Hu together with his partner and bookkeeper Wen (Wendy) Yun, former banker Kai Leong and solicitor Chunyu (Grace) Gong. All except Ms Gong were cross-examined. The defendants relied on the evidence of Mr Shi, who was cross-examined at length. All witnesses other than Mr Leong gave evidence through a Chinese translator, although both Mr Hu and Mr Shi speak and read English to some extent.
2. Ms Yun appeared straightforward. Her evidence that her signature on a Transfer was not her own was not challenged. I accept her evidence.
3. Mr Leong gave evidence in a precise and straightforward manner. Unsurprisingly, he did not recall some details of a lending transaction, having since left the bank and being without access to the bank's records to refresh his memory. Mr Leong made reasonable concessions and was firm in his recollection of his initial meetings with Mr Shi. Mr Leong's evidence was also inherently likely and I accept it.
4. Mr Hu appeared straightforward, intelligent and sophisticated. Of he and Mr Shi, Mr Hu appeared to be the more well-resourced and substantial business person. He was a careful witness who gave brief and accurate answers. He explained discrepancies between his affidavits well: his initial affidavits were prepared from memory "for another proceeding during which process, the preparation was not made sufficiently and thoroughly". (Mr Hu's first affidavit was sworn in support of an application for access to the Company's books pursuant to sections 198F, 290 and 247A of the Corporations Act. His second affidavit was sworn in support of an application for urgent interlocutory relief.) His last affidavit was prepared having refreshed his memory with contemporaneous documents and having thought further about what had happened. As will become apparent, it is unlikely that Mr Hu had access to many contemporaneous documents at the time of his initial affidavits; presumably his evidence reflected his recollection alone (he was generally a poor historian) and was directed to the specific relief then sought.
5. Mr Hu made reasonable concessions. On occasion, Mr Hu appeared non-responsive, although this appeared to be referable to language difficulties. Some of Mr Hu's evidence seemed inherently likely, whilst other aspects of his evidence were less so, in particular, that he became a shareholder in Mr Shi's company, NSW Construction Holdings Pty Ltd, without his knowledge: see [33], [82]. Business experience would suggest that, whilst a person may be unaware when an asset is taken away from them, they are rarely unaware when an asset is given to them.

ONUS AND INFERENCES

1. The gaping holes in the documents provided by both sides and the unreliability of the principal witnesses gives rise to considerations of onus and inferences. The burden of proof rests on the plaintiffs. The standard of proof is the civil standard, being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: section 140(2), Evidence Act 1995 (NSW); Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; [1938] HCA 34. As Dixon J observed in Briginshaw at 361, "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found."
2. A lacuna of documentary evidence, where a party might be expected to be in possession of documents to corroborate their account, may give rise to an inference that such documents as they may be expected to have would not support their account: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 at 320 (per Windeyer J), citing with approval Wigmore on Evidence (3rd ed., 1940), "the failure to bring before the tribunal some circumstance, document or witness…"; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [134] (per Callinan J); Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [44] (per Eames JA, with whom Buchanan JA agreed, noting that "the Jones v Dunkel principle can equally apply to missing documents as to missing witnesses"); Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 at [131]-[132]; Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 at [112].
3. The tension between onus and inferences was perhaps brought into clearest focus in the plaintiffs' claim that Mr Shi had made "unauthorised withdrawals". As to whether the plaintiffs discharged their onus, it has been said that the "difficulty of proving a negative is well known": A v New South Wales (2007) 230 CLR 500; [2007] HCA 10 at [60] (per Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ). As Campbell JA (with whom McColl JA and Handley AJA agreed) explained in Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [78]: If a plaintiff has the onus of proving a negative proposition, the fact that the defendant has greater means to produce evidence which contradicts that negative proposition, does not mean that the plaintiff ceases to have the onus of proof of that negative proposition. However, once the plaintiff establishes sufficient evidence from which, if that evidence is accepted, the negative proposition may be inferred, an evidential onus shifts to the defendant to adduce evidence that tends to show that the negative proposition is incorrect. If a defendant adduces such evidence, the plaintiff must then, as part of its overall burden of proof, deal with that evidence either by submission or argument. …

FACTS

1. Mr Hu is a property developer. Over the years, Mr Hu obtained commercial loans for his business ventures from the National Australia Bank. Mr Leong was the commercial lending manager with whom Mr Hu dealt.
2. Mr Shi is a builder and has also worked as a bus driver. In 2010, he and Mr Hu met when Mr Hu engaged Mr Shi's company to manage the building of some houses in Arncliffe. Mr Shi then had a Contractor Licence subject to a condition that he was only permitted to work on contracts not requiring home warranty insurance. Mr Hu later obtained a Contractor Licence in the same terms.
3. In 2013, Mr Hu incorporated two companies: The Avery Pty Ltd and Timesgarden. Mr Hu was sole director and shareholder of both companies.
4. In April 2015, Mr Shi incorporated NSW Construction; his wife was sole director and shareholder. In addition, Wisemans was incorporated; Mrs Shi was sole director and the shareholders were various members of the Shi family, including Mr Shi. Mr Shi said he and Mr Hu incorporated NSW Construction "for our future projects". This is possible, but seems unlikely where neither Mr Shi nor Hu had an interest in the company. Further, so far as the evidence reveals, Mr Shi and Mr Hu were not then working together.
5. On 9 July 2015, Mr Shi's Contractor Licence was cancelled, although Mr Shi considered that this did not prevent him from undertaking building work through a company. Mr Hu was then engaged on a development in Eastwood, building townhouses and residential villas. Mr Hu was having problems with his co-investor and builder. Mr Shi said he helped Mr Hu to resolve these problems, which appear to have related to the driveway, through traffic and cleaning. Mr Hu denied asking Mr Shi for any help; he did not consider that Mr Shi was qualified to do so given the cancellation of his building licence. (Such a professed reluctance on Mr Hu's part is inconsistent with his later willingness to work with Mr Shi on the Anna Bay land.) Whilst Mr Shi agreed that he did not have a building licence, "I found people to help Wilson to get this done."
6. I am inclined to accept Mr Shi's description of these events as, whatever the extent of Mr Shi's involvement in the Eastwood project, it was such that Mr Hu and Mr Shi began looking to lease an office to do property development together. That is, Mr Hu's experience of working with Mr Shi was sufficiently satisfactory to make plans to work together more regularly on similar projects.

Bay Wharf Pty Ltd and the Pyrmont office

1. Mr Hu and Mr Shi decided to buy an office in Pyrmont. Mr Hu and Mr Shi agreed to set up a new company as the purchasing entity, in which each would hold equal shares. They agreed to contribute equally to the purchase of the office, with the new company to apply for a commercial loan secured by a mortgage over the property to complete the purchase.
2. On 19 August 2015, Bay Wharf Pty Ltd was incorporated. Mr Shi's company, Wisemans, held 50% of the shares while Mr Hu's company, U Pin Group Pty Ltd, held the other 50%. Mr Hu, Mr Shi and Zhibin Lu were appointed directors. Mr Lu was likely Mr Hu's accountant: the registered office of The Avery and Timesgarden was Kams & Associates; the same firm lodged the application to register Bay Wharf, where the applicant's surname was also "Lu"; Mr Lu was appointed a director but was allotted no shares. Two days' later, Mr Hu ceased to be a director, apparently leaving his accountant to represent his interests in Bay Wharf. This may reflect Mr Hu's reluctance to be a director unless it was absolutely necessary. It may be consistent with Mr Hu's evidence that he later ceased to be a director of the Company as he wished to avoid liability for loans to the Company: see [56]. This may be an earlier example of the same approach.
3. On 4 September 2015, Bay Wharf exchanged contracts to buy the Pyrmont office for $847,000. A deposit of $50,000 was paid by U Pin Group.
4. According to Mr Hu, Mr Shi said he wished to undertake a construction project through his company NSW Construction, but he had no building licence. Mr Shi asked if Mr Hu could help him by working as the licenced builder of NSW Construction, and Mr Hu agreed. On 10 September 2015, Mr Hu was appointed as a director of NSW Construction. Mr Hu said he was unaware that he had been appointed, while Mr Shi said that Mr Hu requested it. I am inclined to accept Mr Shi's evidence on this subject as it seems more likely that, if NSW Construction and Mr Shi were going to avail themselves of Mr Hu's Contractor Licence, then Mr Hu asked for, or Mr Shi gave Mr Hu, a role in the Company.
5. In October 2015, Mr Hu transferred $100,000 to Bay Wharf, whilst Mr Shi transferred $150,000, such that their contribution to the acquisition of the office was now each $150,000. On 16 October 2015, the purchase was completed. The balance was funded by a loan from National Australia Bank to Bay Wharf of $592,900. (U Pin Group's shares in Bay Wharf were later transferred to Ms Yun's company.) The significance of the purchase of the Pyrmont office is that the plaintiffs contend that the same model was later used when acquiring the Anna Bay land.

Oz Recreation Pty Ltd and Halls Creek land

1. Mr Shi said that he and Mr Hu started to look for projects to work on together. The first project was to acquire and develop a property in Halls Creek. On 27 November 2015, Oz Recreation Pty Ltd was incorporated. Mr Hu, Mr Shi and a friend of Mr Hu's (Jieheng Yu) became directors and equal shareholders.
2. On 22 December 2015, Oz Recreation exchanged contracts to buy land in Halls Creek for $250,000. In evidence is an undated front page of the contract signed by Oz Recreation: the contract was signed by Mr Shi and, apparently, Mr Yu. A deposit of $25,000 is recorded as having been paid, with completion to take place on 27 May 2016 (the date for completion was later extended). Mr Shi said it was a joint decision to buy the land, "it was us three together at the time. They only asked two people to sign." Mr Hu said that he and Mr Yu never agreed to purchase the Halls Creek land.
3. Given the short period of time which passed between the incorporation of Oz Recreation and the exchange of contracts to buy the Halls Creek land, I infer that Oz Recreation was incorporated for the purpose of buying the land. As Mr Hu was a director and shareholder of Oz Recreation, it is reasonable to think that he was aware of, and agreed, to purchase the Halls Creek land. Thus, in this respect, I have preferred the evidence of Mr Shi and find that Mr Hu was aware of and agreed to the purchase of the Halls Creek land by Oz Recreation. I will return to the Halls Creek land at [77].
4. According to Mr Shi, the next project he and Mr Hu looked into was to tender (unsuccessfully) for a project in Lane Cove. On 18 February 2016, a preliminary costs plan was prepared for NSW Construction in respect of a proposed townhouse development in Lane Cove. Mr Hu said he was not involved in the tender.
5. On 22 February 2016, Mr Hu was allotted 690 shares in NSW Construction. Mr Hu says that he was not aware of this at the time. According to Mr Shi, Mr Hu knew that he was a shareholder of the company, as it was discussed when NSW Construction was founded. It seems unlikely that Mr Hu's shareholding was discussed when NSW Construction was founded in April 2015 as, so far as the evidence suggests, they had no particular dealings with each other at the time and neither became shareholders or directors of the company. However, the coincidence of the share allotment with the preliminary cost plan prepared for NSW Construction in respect of the proposed Lane Cove development may point to Mr Hu's increasing involvement in NSW Construction which was, it will be recalled, using his Contractor's Licence to his knowledge. As earlier mentioned, business experience would suggest that, whilst a person may be unaware when an asset is taken away from them, they are rarely unaware when an asset is given to them. It is likely that Mr Hu knew that he was allotted shares in NSW Construction.

The Company and Anna Bay land

1. On 9 March 2016, Mr Hu sent Mr Shi a link to a real estate advertisement for land at Anna Bay, under the banner "Receiver Sale: Part-Constructed Beachfront Opportunity". On 10 March 2016, at Mr Hu's request, Mr Shi obtained the Information Memorandum and a link to due diligence information from the real estate agent and forwarded it to Mr Hu. It is reasonable to think that these materials included the development consent issued in respect of the "part-constructed" development. As the bank's valuer later summarised the position, the property had the benefit of a development approval for a tourist facility comprising 154 prefabricated units, a restaurant area, reception foyer, inground swimming pool, pool room, playground, tennis courts and 24 lot strata subdivision. Further, the development application stated that the estimated cost of development was $15 million.
2. On 22 March 2016, the sales campaign for the Anna Bay land was extended, with expressions of interest to be submitted on 13 April 2016. On 13 April 2016, Bay Wharf submitted an expression of interest to purchase the Anna Bay land for $2.75 million exclusive of GST. On 22 April 2016, the real estate agent invited Mr Shi and Mr Hu to submit a further offer in the form of a signed, unconditional contract accompanied by a bank cheque for the deposit by 26 April 2016, with completion to take place by 15 June 2016.
3. It is apparent from NSW Construction's bank statements that someone drove to inspect the Anna Bay land, staying locally on 24 April 2016. What Mr Hu or Mr Shi, or both, would have seen was described in a valuation obtained by the National Australia Bank two weeks' later. The valuer described the Anna Bay land as an incomplete tourist resort requiring extensive works to enable trading. The valuer observed, "The development has been stalled since early 2013 and since then minimal security and environmental measures have been in place to protect those improvements already completed. Accordingly, the site has been heavily vandalised and environmental exposure has caused considerable damage." It must have been apparent that raising funds to buy the Anna Bay land was one thing; raising funds to complete construction of the tourist resort was quite another, both having regard to the estimated cost of development on the development application together with the state of the construction work completed thus far.

Obtaining finance

1. Mr Leong recalls receiving a telephone call from Mr Hu, who said that he and his business partner Mr Shi were looking at buying the Anna Bay land to do a hotel development. Mr Hu said, "Frank would like to obtain [a] loan for his investment into the land" and asked whether he could bring Mr Shi in for a meeting. As Mr Hu described it in cross-examination, "We have engaged National Australia Bank to help Mr Shi to make financing arrangements." Further: In fact I personally took Frank Shi to the meeting with representatives from the National Australia Bank because … he needed to meet the requirements in his own part from the National Australia Bank and at that time he needed to talk in person to the representatives from NAB about his own problems. So the representative from NAB can explain his questions or queries one by one. So in fact at that time I was acting as introducer. … During the meeting it was made very clear to all the three parties what documents were required and it was explained very clearly to each individual party.
2. According to Mr Leong, Mr Hu introduced Mr Shi as his partner with whom he had recently purchased the Anna Bay land and said, "I can fund the company for my part of [the] purchase price for the land, but Frank has not sufficient money now and he has his own properties mortgaged already. He therefore would like to have the new company obtain a loan for him by mortgage over this land. Can he still borrow money from the bank?" Mr Leong said the bank may consider lending against the Anna Bay property, subject to a valuation of the land. As the purchase price of the property was some $3 million, a commercial loan may be considered for 50% of the purchase price and, as such, the loan would be about $1.5 million. According to Mr Leong, Mr Shi said, "That is sufficient. I have $400,000 and only need $1.1 million from the company's loan. The difference between the proposed loan limit and what we propose to borrow, ie, $1.1 million can be used to fund the GST."
3. Mr Shi denied attending such a meeting. Rather, the first time Mr Shi attended at the bank was on 6 July 2016, to collect the loan documentation, "I never contacted [Mr Leong] except for 6 July when I went to his office for the first time." Mr Shi maintained that he did not attend any meeting with Mr Leong before 6 July 2016, "No. I hadn't met him." Mr Shi's evidence seems unlikely. So far as the evidence reveals, Mr Shi banked with ANZ. This was the first time that Mr Shi had dealt with the National Australia Bank, being on a transaction where it was proposed that he be involved in a loan of more than $1 million. It is inherently likely that Mr Shi was required to present himself to Mr Leong to begin the loan application process. As Mr Leong said, "Bank's policy always required a bank meetup with the client before each transaction has been approved." Mr Leong did not accept that it was possible that his recollection about meeting Mr Hu and Mr Shi at some time before completion of the purchase was mistaken. Mr Leong was a credible witness who had no interest in the outcome of these proceedings. I do not accept Mr Shi's evidence to the contrary.

Timesgarden ceases to be a shareholder

1. On 19 May 2016, Mr Shi lodged a Form 484 Change to Company Details with the Australian Securities and Investments Commission (ASIC), transferring Timesgarden's 50 shares in the Company to Wisemans. Mr Shi said that Mr Hu asked him to make this change. According to Mr Shi, Mr Hu said he had been talking with Mr Leong about finance for the Anna Bay land; because Mr Hu had a number of companies with property loans through the bank that were complicated, it would be easier for the Company to get the loan if Mr Hu was not involved. Mr Hu said he was concerned about his involvement in the Company affecting the ability to get a loan. If Mr Hu said this, then it was an unlikely explanation as it was Mr Hu who appeared to have a long-standing relationship with the bank whilst Mr Shi was a newcomer. If anything, Mr Hu's association with the loan application would more likely have improved its prospects.
2. Mr Hu said this was done due to his incorrect belief that the shareholders would be liable to repay loans obtained by the Company and to avoid Timesgarden being liable to repay the loans obtained by the Company to fund Mr Shi's loans to the Company. Mr Hu agreed that his company, Timesgarden, was no longer a shareholder of the Company "but that was out of … trust." There being no other obvious reason why Mr Hu would have divested Timegardens' shares in the Company at this time, being shortly before Mr Hu intended to lend $1.4 million to the Company (see [55]), Mr Hu's explanation is worthy of consideration and acceptance.

The Company's banking

1. On 2 June 2016, the Company opened an account with the National Australia Bank, ending 4690 (the Operating Account). Mr Hu was the sole signatory on the account. Mr Hu managed the financial affairs of the Company. Mr Shi said he did not know how much money was in the Company's bank account as Mr Hu was in charge of the account "and I was just doing the work."
2. On 6 June 2016, Mr Hu and his friend Jieheng Yu (being the same person who was a director and shareholder in Oz Recreation) transferred $1.4 million into the Operating Account. These deposits were later recorded in the Company's accounts, by Mr Hu's accountant, as loans from Mr Hu. On 9 June 2016, Mr Shi deposited $200,000 into the Operating Account. (Funds contributed to the Company by both Mr Hu and Mr Shi were provided, on occasion, by associates or related companies; it is apparent from Mr Hu and Mr Shi's affidavits that they treated these funds as being provided by one another).

Mr Hu ceases to be director

1. On 4 July 2016, at 10.32 am, Mr Shi lodged a Form 484 with ASIC, notifying Mr Hu's resignation as director of the Company, effective on 26 June 2016. Mr Shi was appointed in his place as sole director. Mr Hu said he agreed to remove himself as director because he did not want to be the guarantor of the Company's $1.1 million loan. Again, there being no other obvious reason why Mr Hu would have resigned as director of a company which he was then managing and to which he had just lent $1.4 million, Mr Hu's explanation is worth of consideration and acceptance, particularly when he ceased to be a director on the same day as the loan application forms were completed: see [58].
2. I note, however, that on 29 July 2016, the Australian Taxation Office (ATO) sent a letter to the Company marked to Mr Hu's attention, seeking information as to whether the Company was adhering to its obligations to pay GST. (Somewhat confusingly, the ATO requested the information by 7 July 2016.) Mr Shi pointed to this letter as the reason why Mr Hu was removed as a director. According to Mr Shi, Mr Hu was upset on receiving the letter and asked why he had not been removed as a director of the Company. Mr Shi apologised, saying that he did not know that Mr Hu wanted to be removed as a director, and proceeded to remove him. However, the problem with Mr Shi's account is that he removed Mr Hu as a director before the letter was issued (whichever date in the letter is used).

Loan application

1. Also on 4 July 2016, Ms Leong sent Mr Hu's partner, Ms Yun, an Application for Finance and Introducer Consent Form, asking "could you please get Frank to complete the two attached form for the Anna Bay application". Ms Yun forwarded the email to Mr Shi. An hour or so later, Mr Shi emailed the bank, copied to Mr Hu, attaching the signed execution page of both forms. (Mr Leong said that sometimes only the signing pages were sent back.) The bank promptly replied, copied to Mr Hu, asking that Mr Shi also sign as guarantor on the execution page of the Application for Finance, and resend. Mr Shi promptly did so.
2. Mr Shi said, "It was Wilson who asked me to just sign." As to whether Mr Shi knew that somebody else would be completing the rest of the application form, Mr Shi said, "I don't know. I didn't know which parts needed filling and which part didn't." Mr Shi later accepted that he knew that Mr Hu would be providing information to the bank to complete the forms, but said he was unfamiliar with the loan process and this was why Mr Hu was handling it.
3. The Application for Finance was completed in handwriting, which was not the handwriting of Mr Shi, Mr Hu nor Mr Leong. The application stated that Mr Shi was a full-time employee of The Avery, having been employed as General Manager since 10 February 2013. The parties agreed that Mr Shi was not, in fact, so employed. The application was accompanied by Mr Shi's 2014 and 2015 tax returns, which the parties agreed were not, in fact, his tax returns. Mr Hu agreed that he had arranged for his accountant, Mr Lu, to prepare the tax returns, "under the authorisation of Mr Frank Shi to do that." In the 2014 tax return, Mr Shi declared salary of $140,260 earned at The Avery as general manager, together with an $8,000 travel allowance. Similar income was declared in the 2015 tax return.
4. Mr Shi said that the tax returns were fabricated; he did not see the documents at the time; he was not aware that the documents had been created and submitted to the bank. The defendants submitted that Mr Shi's non-involvement in the falsification of the tax returns was corroborated by the existence of typographical errors not present in his genuine tax return: the spelling of the rental property in the schedule to the genuine tax return referred to "Blenheim Road" whilst the fabricated tax return referred to "Blenhaim Road". If Mr Shi had been involved, then it was submitted that one would not expect to see such an error. I suppose that would depend on the extent to which Mr Shi was involved, if at all. If Mr Shi simply handed over his tax returns to Mr Hu's accountant in the knowledge that false tax returns would be prepared based on the returns, then the existence of a typographical error may indicate that Mr Shi did not subsequently see or carefully check the false tax return before it was submitted to the bank.

Main Loan

1. On 1 November 2016, Mr Shi executed a mortgage over the Anna Bay land in favour of the bank. On 2 November 2016, the Main Loan was drawn down. In addition, a further $1,586,670.68 was transferred from the Operating Account, described as "balance required for settlement." It will be recalled that Mr Hu had been the source of the bulk of these funds. Completion of the purchase of the Anna Bay land occurred on 2 November 2016.
2. Also on 2 November 2016, Mr Shi transferred $24,805.18 to the Operating Account, described on the bank statement as "Transfer to allow for fees and charges". A corresponding amount was paid from the Operating Account for fees and charges including the valuation ($12,000) and loan application fee ($10,972.50). Mr Shi said he transferred the funds as a loan to the Company. Mr Shi said "Wilson tell me put the sum of money. I just put. That's all. … I just go to work."
3. Mr Shi's deposits to the Operating Account were generally without a significant description in the bank statements. This transfer had a description, on which I am inclined to place some weight given its contemporaneity. The transfer was not described as a loan (unlike "Nswch loan toannab") but a transfer to allow for fees and charges. That is, the funds were being placed in the Operating Account in order to be available to meet these cost items. It may well be that the parties proceeded on the basis that, in due course, Mr Shi could look to the Company to reimburse him for these funds. But the fact that Mr Shi attended to payment of the costs associated with the bank loans is consistent with an acceptance by him that the loans were to fund his contribution to the Company's acquisition of the Anna Bay land.

Loan repayments

1. It will be recalled that Mr Hu managed the finances of the Company, including the Operating Account. By 5 December 2016, after the monthly repayment, interest and fees on the Main Loan and GST Loan had been paid from the Operating Account, the account was overdrawn with a debit balance of $5,837.18. Mr Hu deposited sufficient funds to the Operating Account to remedy this position and it is interesting to observe how he did so. Two deposits were made on 9 December 2016, being $1,200 (described as "WH loan 2 ABR RE") and $5,840 (described as WH loan to Frank). A further deposit of $2,000 was made on 13 December 2016, described as "Wh loan toannab".
2. As I read the bank statements, Mr Hu considered that the funds which needed to be deposited to the Operating Account in order to redress the interest and fees drawn to pay the Main Loan and GST Loan were a loan by him to Mr Shi. Such a description, made contemporaneously, is consistent with his evidence that these costs were Mr Shi's responsibility. The additional deposits to the Operating Account were described by Mr Hu as loans by him to the Company, presumably placing the Company in funds to continue its day-to-day operations.
3. That said, further deposits by Mr Hu to the Operating Account in January 2017 to remedy the same problem following the payment of interest and charges Main Loan and GST Loan did not follow this pattern. The interest and charges put the Operating Account into debit on 3 January 2017. On 6 January 2017, $790 was deposited, described in the bank statement as a loan by Mr Hu to the Company and, on 16 January 2017, a further $10,000 was deposited as a loan from U Pin to the Company.
4. On 31 January 2017, the Operating Account was replenished when the ATO refunded the GST on the purchase. These funds were used to largely repay the GST Loan on 3 February 2017. Thereafter, monthly repayments and interest on the Main Loan were paid from the Operating Account, together with fees and interest on the remaining GST Loan account.
5. Mr Hu said that Mr Shi did not transfer amounts for the monthly repayment on the Main Loan at any time and, in order for the Company not to default on the Main Loan, Mr Hu deposited funds into the Operating Account from time to time as loans to the Company. Mr Hu said, "I had no other choice but to do that." In total, $410,210 was deposited from December 2016 to April 2018, of which some $160,000 was used to repay the Main Loan.

Mr Hu lends $100,000 for Halls Creek

1. According to Mr Shi, Mr Hu lent $100,000 to Oz Recreation to fund the purchase of the Halls Creek land. At some time before completion, Mr Hu said that he and Mr Yu had decided not to go ahead with the purchase. (Consistent with this, on 9 November 2016, Mr Hu and Mr Yu ceased to be directors and shareholders of Oz Recreation. The remaining shareholders were Mr Shi and Fang Liu.) According to Mr Shi, he asked Mr Hu, "What about my deposit payments if you two do not agree to settle?" and Mr Hu said he could keep the $100,000 loan to the company for the purchase. Mr Shi could not say if the $100,000 was recorded as a loan in Oz Recreation's accounts, "Maybe there weren't even financial reports. … because it wasn't in operation. It was just one piece of land." Mr Shi agreed that $100,000 was still owing to Mr Hu.
2. Mr Hu said he loaned the monies to Mr Shi and not to Oz Recreation. According to Mr Hu, Mr Shi told him that he had purchased land in Halls Creek together with a business partner. They had split the purchase price equally. (I have not accepted Mr Hu's evidence in this regard: see [31]). Mr Shi's partner had paid his portion in order to settle the purchase of the land; Mr Shi needed to pay his portion but had no cash as he had invested all of his money in Anna Bay. Mr Shi asked whether Mr Hu could lend him $100,000 for a temporary advance in the short term, which Mr Shi would repay as soon as possible. Mr Hu agreed and gave Mr Shi $100,000 in cash. Mr Hu said "I had no idea how Frank used or spent that money."
3. In his affidavit, Mr Shi also said, "We made an offer to buy the land but we ultimately did not proceed with that project as Wilson ultimately decided he did not want to." Mr Hu did not respond to this portion of Mr Shi's affidavit. Given Mr Hu's non-response, I infer that Mr Hu and Mr Yu lost interest in acquiring the Halls Creek land and were content for Mr Shi to go ahead with the purchase if he wished. However, Mr Shi's evidence that Oz Recreation did not proceed to complete the purchase was untrue. In fact, Oz Recreation had completed the purchase but Mr Shi never told Mr Hu. (This only became apparent during cross-examination). I will return to this subject at [107].

Mr Hu an equal shareholder in NSW Construction

1. Mr Hu said that, in January or February 2017, he and Mr Shi visited an accountant, Marcus Leonard of BDO Australia, and discussed an appropriate corporate structure to undertake the development of the Anna Bay land and hotel management. The accountant suggested that different companies be used to undertake the construction and management of the development. Mr Shi suggested that they use NSW Construction as the construction company to supervise the construction work, and Mr Hu agreed. Mr Shi said "Wilson can be a director and shareholder of this company in future."
2. On 2 February 2017, NSW Construction opened a bank account with the National Australia Bank ending 0197 (NSW Construction NAB Account). Ms Yun assisted in opening the bank account. Mr Shi and Mr Hu and Mrs Shi were signatories. Mr Hu said he became a signatory as he wanted to supervise Mr Shi's use of the money that Mr Hu had deposited into the Company since October 2016, which was a loan from Mr Hu to the Company. Thus it would appear that, after four months of Mr Hu advancing funds to NSW Construction's bank account, Mr Hu now wished to have greater supervision of those funds through the NSW Construction NAB Account.
3. On 3 February 2017, Mrs Shi lodged a Form 484 with ASIC in respect of NSW Construction, notifying that 2,760 shares had been transferred to Mr Hu, increasing his shares from 690 to 3,450, being equal to the shares now held by Mr Shi. Mr Shi was also appointed a director. Mr Hu said he was not aware of this at the time. The coincidence of this share allotment with the meeting with BDO Australia where, according to Mr Hu, Mr Shi said, "Wilson can be a … shareholder of this company in future", together with the fact that the share allocation took place the day after NSW Construction opened the NSW Construction NAB Account, of which Mr Hu was a signatory, points to Mr Hu's increasing involvement in this company. Again, I think it unlikely that Mr Hu was unaware that he had now become an equal shareholder in NSW Construction.
4. On 13 February 2017, Mr Hu made further loans to the Company of $1,800, recorded as a loan from U Pin, deposited to the Operating Account. On 14 February 2017, Mr Hu deposited $6,000 into the NSW Construction NAB Account, recorded as a loan from U Pin to NSWCO. Another such loan to NSW Construction was made on 14 March 2017 of $3,000.

Loan agreement with Mr Hu

1. Mr Hu said that, in March 2017, Mr Shi suggested that they invest money to recondition the unfinished buildings on the Anna Bay land. Some $300,000 was needed, but Mr Shi did not have any funds available and asked whether Mr Hu could lend the money to the Company. It would appear that Mr Hu's willingness to make undocumented loans to the Company was at an end. On 27 March 2017, the Company executed a Loan Agreement with Mr Hu; the Company borrowed $300,000. In addition, the Company granted a mortgage over the Anna Bay land, signed by Mr Shi as director.
2. The $300,000 was deposited into the Operating Account. From these funds, the remaining $6,000 of the GST Loan was repaid. From 30 March 2017 to 30 May 2017, five payments were made from the Operating Account to NSW Construction, totalling $140,000. By 30 June 2017, Mr Hu's loans to the Company stood at $1,886,848.91.
3. Precisely who was doing what on the Anna Bay land is unclear. Mr Hu said he allowed NSW Construction to use his builder's licence number "because I helped [Mr Shi] to manage the construction site." Mr Hu did not agree that NSW Construction had the job of getting the land ready for sale. Rather, "We hired someone else to do that job … Mr Shi make arrangement for someone else to do the job. He did so [through NSW Construction] for the convenience of making payments. Money … [was] put into the bank account with NSW Construction so that [Mr Shi] could pay the subcontractors." The impression I gained from the oral evidence of both Mr Hu and Mr Shi was that Mr Hu was more involved in significant decision-making whilst Mr Shi was more involved in the day-to-day work on site.

Problems emerge

1. Mr Hu and Mr Shi looked for investors to develop the Anna Bay land. In September 2017, Mr Hu understood that Jieheng Yu's father, Albert Yu, was interested. Between September and December 2017, Mr Hu accompanied Mr Yu Snr to the Anna Bay land for a number of onsite inspections. Mr Shi joined them on some of these trips.
2. On 23 October 2017, Mr Hu lent a further $50,000 to the Company, depositing the funds to the Operating Account. Mr Hu deposited a further $15,000 to the Operating Account on 20 December 2017. Interestingly, for the first time, the deposit was described in the bank statement as "director deposit Wilson Hu".
3. In early January 2018, Mr Hu and Mr Shi met with the potential investor in Sydney. Mr Yu Snr said he was interested in joining them in the project and offered to buy 25% of the Company's shares from Mr Shi for $2.25 million. Mr Yu Snr said he could raise construction finance with Mr Hu, against properties which Mr Hu Snr and Mr Hu owned in Hong Kong, to develop the land into a resort. Mr Shi did not understand why he alone was being asked to transfer his shares to Mr Yu Snr and was not prepared to do so. (Mr Shi's version of the meeting is somewhat different, but nothing turns on it.)
4. Mr Hu was not pleased that this investor was turned down. His annoyance is understandable where the development obviously needed significant funds to develop the site but only Mr Hu appears to have then been in a position to provide funding to meet the Company's ongoing operations. Mr Hu became uncomfortable about his continuous investment in the Company. He was neither a director nor shareholder and thus the Company was totally out of his control. Until then, Mr Hu had been taking care of all the costs and expenses of the Company. He had begun to feel that he could not afford to do so, "I felt it was very hard for me to [shoulder] so much responsibility for the company. So I wanted to take all I have put out there and then to proceed to the next stage. … I was only taking back what belonged to me … I don't need to shoulder any responsibilities for any other person."
5. According to Mr Hu, after the meeting he telephoned Mr Shi and said, "I have always put monies in the company to repay the NAB mortgage and meet the costs of the company. I think I am entitled to resume my 50% shareholding in the Company as well as my directorship." Mr Shi apparently agreed and Mr Hu said he would get his accountant to prepare the ASIC documents. Mr Shi denies having a discussion with Mr Hu at any time about Mr Hu resuming his directorship.

Secret bank account

1. On 9 January 2018, the Company opened a bank account with ANZ, ending 9786 (Company ANZ Account). Mr Shi opened the account "for the normal operation of the company. Because the company needed money to pay for the bills, council rates, power and electricity bills." Mr Shi deposited $44,000 into the Company ANZ Account, apparently from his investment account. He did not tell Mr Hu about the Company ANZ Account. That is, notwithstanding that Mr Hu continued to manage the financial affairs of the Company, he was not aware of the existence of this account. The fact that Mr Shi took steps, at this precise moment, to open a secret bank account in the name of the Company suggests that he anticipated that he was about to lose control of the Company. This would be consistent with Mr Hu having told Mr Shi that Mr Hu wished to resume his directorship; if Timesgarden became a shareholder of the Company again then this would make no difference to Mr Shi's sole directorship.
2. On 10 January 2018 at 4.12 pm, a Form 484 was lodged with ASIC by Mr Hu's accountant, issuing 100 ordinary shares in the Company to Timesgarden. Mr Hu said that, although he had asked his accountant to prepare forms to resume both his directorship and shareholding, the accountant only prepared the form in respect of his shareholding. Mr Hu did not appreciate that his directorship had not been resumed at the time. The ASIC form, which Mr Hu assumed attended to both matters, was forwarded to Mr Shi. Mr Shi denies being aware of the change in shareholding until he met with Mr Hu on 26 February 2018: see [102].
3. From 10 to 12 January 2018, Mr Shi transferred $12,000, $16,500 and $14,320 form the Company ANZ Account to NSW Construction. That is, of the $44,000 which Mr Shi deposited into the Company ANZ Account, Mr Shi promptly transferred $42,820 to NSW Construction. Further, $40,000 was then promptly transferred from NSW Construction's bank account to Mrs Shi. That is, of the $44,000 deposited by Mr Shi into the Company ANZ Account, $40,000 was back in his wife's account within a matter of days.
4. NSW Construction issued three invoices dated 3, 4 and 5 January 2018, being $12,000 to repair, reinstall and maintain the existing fences in 2016 and 2017, $16,500 to install new fences and remove damaged fences, and $14,320 to clean the prefabricated units and prepare for sale. Whether the invoices were prepared on the dates they bore or sometime later, in response to the plaintiffs' application to inspect the Company's records, is unclear: see [152].

Minutes of meeting

1. Having not heard from Mr Shi in respect of the Form 484 forwarded by email, Mr Hu said he called Mr Shi in mid-February 2018 and asked whether Mr Shi had received the ASIC form restoring Mr Hu's shares in the company and appointing him as a director. Mr Shi said he was busy and suggested that they meet to sign the document. A meeting was arranged on 26 February 2018.
2. On 26 February 2018, Mr Hu and Mr Shi met in Eastwood. According to Mr Shi, Mr Hu gave him a document entitled "Statement", which states: I, Wilson Hu, make the following statements here: 1. On 19 May 2016, I requested to transfer the 50% of Anna Bay Resort Pty Ltd Shares that were held by Timesgarden Pty Ltd to Wisemans Group Pty Ltd. 2. Now, I request that Wisemans Group Pty Ltd transfer back its 50% of Anna Bay Resort Pty Ltd shares to Timesgarden Pty Ltd again. 3. Now the share structure of Anna Bay Resort Pty Ltd (ACN: 611 999 921) is: Wisemans Group Pty Ltd 50% shares Timesgarden Pty Ltd 50% shares 4. I, Wilson Hu is fully responsible for any responsibilities caused by the changes. The statement was signed by Mr Hu. It may be significant that the Statement clearly set out Mr Hu's requirement that Timesgarden's shares in the Company be re-transferred but made no reference to a requirement that he be restored as a director. Mr Hu also gave Mr Shi the Form 484 and asked Mr Shi to sign it, which he did. Mr Shi said he was unaware that the form had already been lodged with ASIC.
3. According to Mr Hu, at the meeting he pointed out that Mr Shi's loan of $1.1 million would expire at the end of July 2018 and would need to be repaid. Mr Shi said he currently had no money to meet the monthly mortgage payments and was in the process of selling the Pyrmont office and his other properties, but expected to have the sales proceeds by July 2018 to repay the outstanding principal and interest. Mr Hu protested that this did not accord with their initial agreement; he had been continually putting money into the Company's bank accounts to service the mortgage. Mr Shi asked if Mr Hu would keep putting funds into the Company to maintain the mortgage until July 2018. Mr Hu agreed to do so on the condition that Mr Hu was responsible for the Company's financial affairs until then and Mr Shi would be liable for the Company's accounts and books after that date. Mr Hu also said that Mr Shi would need to maintain written records of the Company's business, including keeping invoices and receipts to justify the transfers from the Company to NSW Construction starting from March 2017 and the outstanding loan of $100,000 owed to Mr Hu. Mr Shi is said to have agreed.

Sale of the Pyrmont office

1. Consistently with the minutes, Mr Shi proceeded to sell the Pyrmont office. It is noteworthy that he did so when the Main Loan was not in default and thus his actions could not be seen as seeking to discharge his obligations as guarantor.
2. On 17 May 2018, Mr Shi reported to Ms Yun that the Pyrmont office had sold at auction for $1.11 million, "Not bad!" (it will be recalled that U Pin Group's 50% shares in Bay Wharf had been transferred to Ms Yun's company). Ms Yun was unimpressed as the original bank valuation was $1.25 million. Ms Yun advised by text message "if you want to sell, you may sell your own property. I don't agree to selling." Mr Shi replied, "It's $1.15 million, ok?! I have notified you! If you want to keep it, buy my share, but you won't do it!" Ms Yun replied that she neither needed to, nor was obliged to, buy Mr Shi's share. As the sale price was at least 10% less than the bank's valuation, "shouldn't you compensate me for the loss? Because it's you who insists to sell it at such a low price."
3. The sale went ahead, notwithstanding Ms Yun's objections. Mr Shi sent a further text message to Ms Yun on 4 June 2018, "Let me know when you are available so we can settle accounts of Baywharf."

Scramble for control

1. The next day, on 5 June 2018, Mr Hu said he discovered that he had still not been registered as a director of the Company and so instructed his accountant to add him as a director with effect from 10 May 2018. A Form 484 was lodged with ASIC by Mr Hu's accountant, appointing Mr Hu as a director with effect from 10 May 2018. Mr Shi was not aware that the document had been lodged. It may be noteworthy that the appointment as director was to take effect from 10 May 2018, rather than 10 January 2018, when Mr Hu first lodged a Form 484 which he said omitted his re-appointment as director in error: see [93]. I infer from the coincidence between Ms Yun's unhappiness with how Mr Shi was conducting the sale of the Pyrmont office and the lodgment of a Form 484 that these events prompted Mr Hu to look closely at the Company again. By 30 June 2018, Mr Hu's loans to Anna Bay Resort stood at $2,023,041.09. Of all the monies outlaid, only $3,000 had been repaid.
2. On 29 June 2018, sale of the Pyrmont office was completed for $1.11 million. According to the financial statements for Bay Wharf for 30 June 2018, the bank loan of $552,900 was repaid. Also in evidence is a transfer signed by Mr Shi and, apparently, Ms Yun. However, Ms Yun said she was surprised to find her signature on the transfer as the handwriting of her signature was not made by her. Nor was the handwritten "Wen Yun Director" in her handwriting. Nor was she a director of Bay Wharf. Ms Yun's denial was not challenged in cross-examination.
3. That is, Ms Yun's signature on the transfer was falsified by a person unknown, in circumstances where Mr Shi had agreed to sell the property in order to repay the Main Loan and Ms Yun was unhappy to do so given the poor sale price achieved. This event reflects poorly on Mr Shi's credit: he may not have forged Ms Yun's signature but he was obviously keen for the sale to proceed notwithstanding Ms Yun's opposition and was likely involved in ensuring that the Transfer was completed nonetheless.
4. On 9 July 2018, two Form 484s were lodged with ASIC. In the first form, which Mr Shi said was lodged by his wife on his instruction, Timesgarden's 100 shares in the company were transferred to Wisemans. In the second form, lodged later that evening, Mr Hu was removed as a director with immediate effect. Mr Shi said that the first form was lodged in error and he instructed his wife to lodge another Form 484 correcting the Company's shareholders. That form was lodged on 10 July 2018, transferring 100 shares in the Company from Wisemans to Timesgarden. Mr Hu was not aware that he had been removed as a director.

Main Loan in default

1. On 1 August 2018, the bank closed the Main Loan and opened a new loan account ending 6780 (for convenience, I will continue to refer to this account as the Main Loan), to which a loan of $920,000 was transferred. The amount required to reduce the Main Loan to $920,000, and associated fees and interest, were drawn from the Operating Account.
2. Also on 1 August 2018, Mrs Shi signed a letter addressed to the bank, confirming that she owned a property in Pennant Hills; the proceeds of sale of the property would be used to pay out the residual debt of $920,000 owed by Anna Bay Resort to the bank. Mr Shi said "The bank … forced us to write this letter, otherwise they would put it on auction." Mr Shi said "I was lied to and tricked as the director, I had to use my personal property … because I was the guarantor."
3. On 2 August 2018, the bank deducted a further $15,000 from the Operating Account to reduce the balance of the Main Loan to $905,000. Default interest on the Main Loan and monthly service fees continued to be deducted from the Operating Account, totalling some $20,000 from August until November 2018.
4. Mr Hu ceased to manage the financial affairs of the Company. Ms Yun ceased to be the Company's bookkeeper. From 1 August 2018, Mr Shi was in charge and became the sole signatory on the Company's bank accounts. It might be thought odd for Mr Hu to hand over control of the Company's bank accounts and finances to Mr Shi at this point. Mr Hu had advanced more than $2 million to the Company, in which he was a 50% shareholder through Timesgarden. On Mr Hu's evidence, he then understood that he was a director of the Company. The Main Loan had not been repaid on expiry and was in default. On one view of it, this was the time for Mr Hu to maintain his control of the Company's bank accounts to ensure that the funds available were used wisely in the interests of the Company. That said, so far as Mr Hu knew, there were no excess funds to be concerned about.
5. On another view of it, if the terms on which Mr Hu and Mr Shi had agreed to develop the Anna Bay land were as described by Mr Hu, then his divestment of control over the Company's bank account may have reflected his frustration with Mr Shi's failure to perform his obligations under that agreement being, primarily, to repay the Main Loan. Until then, Mr Hu had provided the bulk of the working capital for the Company. By removing himself from the management of the Company's financial affairs, Mr Hu may have been endeavouring to ensure that Mr Shi was wholly responsible for repayment of the Main Loan.

Mr Hu's loan in default

1. On 27 March 2019, Mr Hu's loan of $300,000 was due to be repaid. No repayment was made. On 8 April 2019, Mr Hu lodged a caveat over the Anna Bay land, citing an interest in the land pursuant to the unregistered mortgage. Mr Hu commenced proceedings in this Court to extend the caveat.
2. On 22 May 2019, $5,500 was transferred from the Company ANZ Account to NSW Construction. At some point - and it is not clear when - an invoice dated 13 May 2019 was issued by NSW Construction, for removal of a barbed wire fence and site rubbish cleaning, including machine hire. Also on 22 May 2019, a Form 484 was lodged by Mrs Shi with ASIC in respect of NSW Construction, removing Mr Hu as a director with immediate effect and transferring his shares in the company to Mr Shi. Mr Hu was unaware of this, which evidence I accept. It would appear that relations between Mr Hu and Mr Shi were in a poor state.
3. On 14 June 2019, Mr Shi offered a bank cheque to Mr Hu in the sum of $166,540 in return for Mr Hu removing the caveat. Mr Shi considered that this was a fair offer as the loan was owed by the Company, in which they each had a 50% shareholding. Mr Hu refused to accept the cheque or remove the caveat. As at 30 June 2019, Mr Hu was owed $2,020,041.09 by the Company. On 29 July 2019, Darke J made orders extending the caveat until 16 September 2019. On 12 September 2019, the Court declared that Mr Hu had an equitable interest as mortgagee in the Anna Bay land and extended the caveat until further order. The Company was ordered to pay Mr Hu's costs of the proceedings.
4. On 20 January 2020, the bank issued a default notice to the Company; the amount due under the Main Loan then stood at $760,856.58. The bank continued to deduct default interest and service fees from the Operating Account, amounting to some $132,000 by 31 March 2021.

Mr Shi's loan

1. On 21 January 2020, Mr Shi deposited $145,000 into the Company ANZ Account. Mr Shi also executed a mortgage on behalf of the Company, granting security over the Anna Bay land to secure repayment of a loan by Mr Shi to the Company in that sum.
2. On 30 January 2020, $12,500 was transferred to the NSW Construction account, which was then overdrawn. No receipt or invoice was issued by NSW Construction in respect of this transfer. A further $1,210 was transferred to the NSW Construction account on 9 March 2020. Two invoices were rendered by NSW Construction to the Company dated 2 March 2020 for council-required landscaping work ($660) and to repair a leaking pump and tap ($550), presumably together accounting for the $1,210 payment.

A share issue

1. On 22 June 2020, Mr Shi purported to hold a meeting of the Company, attended only by himself. There is no evidence that any notice was given of the meeting; the Company's constitution required 21 days' notice be given to each member: clauses 12.4 and 12.7.
2. According to the minutes, it was resolved that the Company's shares were valued at $14,750 each. The basis of this valuation is set out in minutes, signed by Mr Shi. In short, the Anna Bay land was valued at $4.02 million . The current debts of the Company were said to be $770,000 owed to the National Australia Bank and $300,000 owed to Mr Hu. (The $145,000 owed to Mr Shi was not mentioned, nor the earlier directors' loans which, for Mr Hu's part, exceeded $2 million.) Thus, the net assets of the Company were stated to be $2.95 million which, divided by 200 shares, gave the resulting figure. The minutes further record: 3. It is resolved that the Company will raise $295,000 to fund working capital including the payment of property rates, consultant fees and finance costs. 4. It is resolved that the Company issue 20 ordinary shares in order to meet the working capital. 5. It is resolved that the Company will invite each of the existing shareholders to purchase 10 shares each. The Company will give each shareholder 14 days to accept the offer for the additional shares. 6. It is resolved that if any shareholder does not accept the offer to subscribe to the additional shares, then the other shareholder will have the option to subscribe to those shares. As the meeting was not convened in accordance with the Constitution, any resolutions purportedly passed at the meeting were invalid.
3. On 22 June 2020, Mr Shi wrote to Mr Hu advising that more working capital was needed for the cost of running the Company, in order to pay land rates and outgoings, finance costs and consultant fees. The capital was said to be needed urgently as some of these costs were already overdue, "The company has resolved to raise a total of $295,000 and to issue 20 ordinary shares (or 10% of the share capital of the company). The company will invite each of the shareholders to subscribe to ten additional shares each at the cost of $147,500. Timesgarden Pty Ltd is invited to subscribe to 10 shares." Response to the offer was sought within 14 days, or by 6 July 2020, failing which the shares would be offered to Mr Shi at the same price.

Inspection of Company's books

1. On 12 November 2020, Timesgarden and Mr Hu commenced these proceedings against Mr Shi, Wisemans and the Company, seeking access to the Company's books. On 17 December 2020, draft financial statements were prepared for the Company for the 2019 and 2020 financial years. On 24 December 2020, the defendants made the Company's books and records available to the plaintiffs' solicitor for inspection, including documents concerning Mr Shi's $145,000 loan, and its repayment, of which Mr Hu was previously unaware. In February 2021, the plaintiffs' solicitors were provided with bank statements for the Company ANZ Account, of which Mr Hu was also previously unaware. Also amongst these documents were the receipts and invoices issued by NSW Construction in respect of the payments made from the Company's bank account to NSW Construction, described at [94], [110], [133] and [136].
2. On 4 February 2021, the plaintiffs' solicitors sought further records including invoices issued by third parties to NSW Construction and NSW Construction's payment records, supporting NSW Construction's invoices in respect of fencing, cleaning, security dogs and the like. Documents and information were sought in respect of various entries in the draft financial statements and a range of other information, failing which a statement of claim may be drawn "which may not be favourable to your clients due to lack of justifiable documents and information". Further bank statements were provided, but the defendants' solicitors advised that their clients had no further documents to support the invoices rendered by NSW Construction.

Sale of Anna Bay land

1. Meanwhile, it appears that Mr Shi had arranged to list the Anna Bay land for sale. A local real estate agent prepared an Information Memorandum, offering the land for sale at $12.5 million. On 22 February 2022, Mr Hu found an online advertisement, auctioning part of the site on 25 February 2021. Mr Shi did not agree to postpone the auction. On 24 February 2021, Mr Hu affirmed a second affidavit in support of urgent interlocutory relief. The plaintiffs' solicitors sought Mr Shi's agreement to an order that the defendants not dispose of the proceeds of sale until agreed by the parties or ordered by the Court. The plaintiffs' solicitors also requested further documents in respect of a number of transactions recorded in the bank statements. The defendants' solicitors advised that the defendants would not be answering any further requests for information.
2. On 26 February 2021, Williams J ordered that the proceeds of any contract of sale for the advertised lots be paid to the bank, with any remaining proceeds of sale to be paid into Court. On 12 March 2021, the auction was held but Mr Shi said that no sale resulted. The local real estate agent continued to market the Anna Bay land.
3. On 11 October 2021, contracts were exchanged to sell the Anna Bay land for $11 million plus GST, with completion six months after the contract date. The deposit was $1.1 million plus GST. The balance of the Main Loan then stood at $655,000. On 22, 25 and 26 October 2021, monies were transferred to the Main Loan totalling $605,000, leaving an amount owing of $50,000.
4. On 22 November 2021, the defendants' solicitors advised the plaintiffs' solicitors that contracts had been exchanged. The deposit paid on exchange had been "paid in full to the NAB in reduction of the loan." A second deposit instalment of $605,000, including GST, was due to be paid on 11 January 2022, with completion of the sale to occur on 11 April 2022. On 23 November 2021, Ms Gong and the defendants' solicitor, Mr Rozdal, spoke regarding the proposed allocation of the second tranche of the deposit. The defendants' solicitor proposed to use the second tranche to repay the remaining amount owing to the bank, being both the remaining $50,000 on the Main Loan and the balance of the Operating Account (being -$163,670.16), totalling $213,670.16, "our clients will agree to an order restraining the further disbursement of the balance of those funds until further order of the Court or consent of [Mr Hu]."

OPPRESSION

1. Mr Hu and Timesgarden seek an order under section 233(1)(g) of the Corporations Act to authorise Timesgarden to institute proceedings in the name of the Company against Mr Shi seeking: 1. declarations that Mr Shi has breached his fiduciary and statutory duties to the Company; 2. equitable compensation for breach of fiduciary duty; 3. damages; 4. compensation under section 1317H and section 1325 of the Corporations Act, in particular, compensation sufficient to repay the Main Loan and other amounts owing to the bank as a result of that loan, to repay the monies lent to the Company by Mr Hu to service that loan and to reimburse monies said to have been withdrawn from the Company's accounts in breach of Mr Shi's duties; and 5. a declaration Mr Shi holds funds he has taken without authority from the Company on constructive trust for the Company.
2. The pleading is unusual but not wrong. Section 233(1)(g) of the Corporations Act provides: (1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order: … (g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company; …
3. The Court may make such an order where oppression is established under section 232. That is, section 233(1)(g) differs from the more frequently pleaded grounds for instituting proceedings in the name of a company under sections 236 and 237: the former requires proof of oppression whilst the latter does not. As such, section 233(1)(g) may be used in an oppression suit to "short circuit" the requirement that a shareholder may only bring an action on behalf of a company with leave, where the liability of the defendant to the company is established in the oppression suit: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688 at 737 (per Young J); upheld on appeal in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672.
4. As Spigelman CJ explained in Fexuto at [142]: The process of what his Honour described as a "short circuit" was, in effect, to proceed on the basis that an order permitting Fexuto to bring proceedings for account on behalf of the company had been made, with a view to the court granting the order in the same proceedings. Obviously it would have been absurd for his Honour, after hearing the entirety of the case in this respect, to have ended only with an order authorising Fexuto to bring such proceedings in future. …

Principles

1. Section 232 of the Corporations Act provides that the Court may make orders under section 233 if: (a) the conduct of a company's affairs; or (b) an actual or proposed act or omission by or on behalf of a company; or (c) a resolution, or a proposed resolution, of members or a class of members of a company; is either: (d) contrary to the interests of the members as a whole; or (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
2. Drawing on my judgment in In the matter of Crow Inn Pty Ltd (No 2) [2020] NSWSC 1746, Brennan J noted in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459; [1985] HCA 68, in respect of the statutory predecessor to section 232, that it is not oppressive for the directors of a company to make a decision which is manifestly prejudicial to and discriminatory against a member. To amount to oppression, it must also be unfair, that is, so unfair that reasonable directors who considered the disability the decision placed on the member would not have thought it fair to impose it: at 471-473. In an oft-cited passage of Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222, Young J explained the position post-Wayde as follows, at ACLR 704; ACLC 233 (some citations omitted): … in my view as a result of the decisions … in Australia in Wayde & Anor v. N.S.W. Rugby League Ltd it has been accepted that one no longer looks at the word "oppressive" in isolation but rather asks whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair. In my view the court now looks at [the section] as a composite whole and the individual elements mentioned in the section would be considered as different aspects of the essential criterion, namely commercial unfairness.
3. More recently, the High Court has continued to extol a broad approach to the words of the statute. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, French CJ said of the present oppression provisions, at [72]: Their language and history indicate that ss 232 and 233 are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution. The majority (Gummow, Hayne, Heydon and Kiefel JJ) took a similar approach at [174]-[176] and [178]-[182].

Consideration

1. As the plaintiffs submitted, it appears to be common ground that the parties agreed to share equally in the profits of the Anna Bay development. The difference between the parties is whether they agreed to share the costs equally and the Main Loan was a part of the defendants' contribution or that Mr Hu was to fund the project while Mr Shi contributed the construction work.
2. It is not obvious why Mr Hu would have agreed to an arrangement as described by Mr Shi or, if he did, one might think it generous. Where Mr Hu was proposing to provide the bulk of the funds, and the Contractor's Licence, it is not entirely clear why My Hu would have agreed to share the profits with Mr Shi equally. Mr Hu and Mr Shi did not then have a history of successful property developments together such that Mr Hu may have agreed to such an arrangement by reason of that history. More reflective of the state of their working relations was Mr Hu's refusal to speculate, in cross-examination, on how much money he thought Mr Shi had to contribute to the project, "because that's his problem". I consider it more likely that the arrangement was as described by Mr Hu, "… at that time the agreement was: everyone is taking care of 50% of the total investment and everyone should take care of the financial source of this 50%." Further, "Our business model, starting from the Bay Wharf project, has always been 50% to 50% and we have been doing business together, sticking to that business model," (albeit Mr Hu later said that the Company and Bay Wharf were "two totally different business models"). Consistent in their inconsistency, Mr Shi both accepted and denied that he and Mr Hu agreed to share the costs and profits equally: see [39]-[40].
3. More importantly, Mr Leong corroborated the agreement described by Mr Hu. Mr Leong was told that Mr Shi wished to obtain a loan "for his investment into the land", both before his first meeting with the prospective borrowers and at the first meeting, which I have found was attended by Mr Shi: at [45]-[47]. Mr Leong was a credible witness who had no interest in the outcome of these proceedings.
4. Further, Mr Hu took steps consistent with the arrangements he described, for which there is no other obvious explanation. He ceased to be a director of the Company and Timesgarden ceased to be a shareholder. In this manner, Mr Hu sought to ensure that Mr Shi was responsible for the Main Loan. Mr Hu nonetheless managed the financial affairs of the Company, including as sole signatory of the Operating Account, and provided roughly half of the purchase price for the Anna Bay land. Also consistent with such an arrangement, Mr Shi attended to payment of the fees and charges associated with the Main Loan, this being consistent with an acceptance by him that the loans were to fund his contribution to the Company's acquisition of the Anna Bay land: see [70]-[71]. Mr Hu's initial deposits to the Operating Account, once overdrawn to meet repayments on the Main Loan and GST Loan, were described as "WH loan to Frank". This is also consistent with Mr Hu's evidence that these costs were Mr Shi's responsibility, albeit this pattern was not maintained in subsequent bank statements: see [72]-[74].

RELIEF FROM OPPRESSION

1. Section 233 of the Corporations Act confers an extremely wide discretionary power on the Court to make orders, although establishing oppressive conduct does not in itself lead to a right to obtain a remedy: Shelton v National Roads and Motorists Association Ltd (NRMA Ltd) [2004] FCA 1393; (2004) 51 ACSR 278 at [15]. As Barrett J explained in Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343, "The statutory jurisdiction created by ss 232 and 233 … provides a means by which the Court can look beyond legal rights and do what is just and equitable in the particular circumstances": at [85].
2. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; [1998] NSWSC 413, Young J emphasised the need for proportionality in framing relief to eliminate the oppression found. At 742: Although there is no reported authority on the matter, my view is that the section should be applied by first considering whether orders can be made for regulating the company's affairs in the future so that there is no further oppression or unfair conduct, if that cannot be done, to see if there should be a buy-out by one faction of another: Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 539. The remedy chosen should be the least intrusive: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 at 475. Only as a last resort is the court to make a winding up order of an otherwise solvent company under the section. The flavour of the section also is that the court is only to give the remedy which removes the oppression. Note the remedy in fact given in Re H R Harmer Ltd [1959] 1 WLR 62 at 68. Thus it is not enough merely to find oppression and then proceed to find some remedy that might bring peace to the company generally. The court should only grant the remedy that removes the oppression found.
3. The conduct of each party is relevant to the relief granted. As Nourse J said in Re London School of Electronics Ltd [1986] Ch 211 at 222; [1985] BCLC 273 at 279 in relation to the English oppression provision (footnotes omitted): The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct of the other side, even if it is prejudicial, not unfair: cf Re R.A. Noble & Sons (Clothing) Ltd [1983] BCLC 273. Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant under subsection (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands. This passage was cited with approval by Young J in Morgan v 45 Flers at 10 ACLR 692 at 706.

Share issue

1. The plaintiffs sought an order pursuant to section 233(1)(j) "or s 233 generally" that the 10 shares issued to Wisemans on 15 August 2020 be set aside. Section 233(1)(j) provides that the Court can make an order "requiring a person to do a specified act". It is not entirely clear how the relief sought falls within the sub-section. However, such an order may fall within the Court's broad powers to "make any order under this section that it considers appropriate in relation to the company".
2. The power of the director to allot shares is a fiduciary power: Ngurli Ltd v McCann (1953) 90 CLR 425; (1953) 27 ALJR 349 at 439; Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 76; [1974] AC 821 at 834B per Lord Wilberforce (PC); Whitehouse v Carlton Hotel at 289-290 (per Mason, Deane and Dawson JJ). The power to allot new shares is conferred primarily to enable capital to be raised when required. In ascertaining the purpose for which the power was in fact exercised, the court is concerned with the state of mind of the director and is informed by the surrounding circumstances. As the Privy Council explained in Howard Smith Ltd v Ampol Petroleum at 77 (NSWLR); at 834B (PC) (citing what Viscount Finlay had said in Hindle v John Cotton Ltd (1919) 56 Sc LR 625 at 630-631): Where the question is one of abuse of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.
3. Directors of a company cannot ordinarily exercise a fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority: see Ngurli Ltd v McCann at 440; Ashburton Oil NL v Alpha Minerals NL (1971) 45 ALJR 162; (1971) 123 CLR 614 at 640 (per Gibbs J); Howard Smith Ltd v Ampol Petroleum Ltd at 79 (NSWLR); at 827D (AC); Whitehouse v Carlton Hotel at 289 (per Mason, Deane and Dawson JJ); HNA Irish Nominees Ltd v Kinghorn (No 2) (2012) 290 ALR 372; [2012] FCA 228 at [639] (per Emmett J). As the plurality (Mason, Deane and Dawson JJ) stated in Whitehouse v Carlton Hotel at 290: It is simply no part of the function of the directors as such to favour one shareholder or group of shareholders by exercising a fiduciary power to allot shares for the purpose of diluting the voting power attaching to the issued shares held by some other shareholder or group of shareholders.

Proceedings on behalf of the Company

1. It follows from my finding of oppression that it is appropriate to authorise Timesgarden to prosecute proceedings on behalf of the Company for declaratory relief, compensation and damages.

DIRECTORS' DUTIES

1. The parties agree that Mr Shi owed fiduciary obligations as a director of the Company and was obliged to exercise his powers and discharge his duties with reasonable care and diligence (section 180(1)), in good faith in the best interests of the Company and for a proper purpose (section 181) and to not improperly use his position to gain an advantage for himself or someone else or cause detriment to the Company (sections 182).
2. The plaintiffs contend that Mr Shi breached his fiduciary and statutory duties to the Company by repeatedly removing Mr Hu as a director and issuing additional shares to Wisemans, without the consent of Timesgarden or Mr Hu. Further, this was said to be contrary to clauses 21, 22 and 23 of the Constitution (which concern the procedures for calling a meeting of directors, giving notice to other directors of a material personal interest, and the powers and duties of directors).
3. It follows from my conclusions in respect of oppression that Mr Shi's actions in thrice removing Mr Hu as a director and issuing additional shares in the Company to Wisemans was in breach of his fiduciary obligations as a director. In particular, Mr Shi preferred his interests and those of his companies, Wisemans and NSW Construction, to the interests of the Company. Likewise, Mr Shi breached his statutory duties as a director by failing to act in good faith in the best interests of the Company and for a proper purpose (section 181) and improperly used his position to gain an advantage for himself and his companies (section 182). It is not obvious, however, what equitable compensation or compensation under section 1317H should be awarded. There is no evidence that the Company suffered any loss by reason of the repeated removal of Mr Hu as a director nor the purported issue of further shares to Wisemans.
4. Further, the plaintiffs contended that Mr Shi made a number of withdrawals from the Company's bank accounts for which no reasonable explanation or supporting evidence had been provided, being withdrawals from 30 March 2017 to 9 March 2020 totalling $207,030. Of these payments, I note that $140,000 was transferred from the Operating Account to NSW Construction during a period in which Mr Hu was the signatory of the Operating Account. These payments were made from March to May 2017, as described at [84]-[85]. It is difficult to see how these payments, authorised by Mr Hu at the time, may be considered "unjustified withdrawals" where, presumably, Mr Hu satisfied himself that it was appropriate to transfer the funds.

WINDING UP ON JUST AND EQUITABLE GROUNDS

1. The plaintiffs sought an order pursuant to section 461(1)(k) of the Corporations Act, winding up the Company on just and equitable grounds. As to whether it is "just and equitable" that the Company be wound up under section 461(1)(k) of the Corporations Act and a winding up order be made under section 467(4) of that Act, the principles were elegantly summarised by Hetyey AsJ in Re Docklands Chiropractic Clinic Pty Limited [2020] VSC 364 at [19] ff.
2. As noted in In the matter of Crow Inn Pty Limited [2020] NSWSC 601 at [53], a deadlock in the management of the company's affairs is a common case for a winding up under section 461(1)(k) of the Corporations Act where the Court is of the opinion that it is just and equitable in all the circumstances to do so, including where a company was formed on the basis of a personal relationship involving mutual confidence, and that confidence has broken down so that continuation of the association would be futile; or there has been oppression in relation to the affairs of the company: In the matter of Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]-[20] (per Brereton J); Boyd v Feeney [2017] NSWSC 1595 at [50] (per Black J); Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; (2008) 66 ACSR 325 at [119] (per Dodds-Streeton JA, with whom Ashley JA and Forrest AJA agreed); Nassar at [90], [96] and [117] (per Barrett J); In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [17] (per Black J); Docklands Chiropractic Clinic at [22]. There is, of course, significant overlap between the Court's powers under section 233 and section 461 as conduct in the nature of oppression may also make it just and equitable that a company be wound up: Asia Pacific Joint Mining Pty Limited v Allways Resources Holdings Pty Limited (2018) [2018] 3 Qd R 520; [2018] QCA 048 at [62]-[63] (per McMurdo JA).
3. Such an order may more readily be made where a company is in the nature of a "quasi partnership", or "a majority controlled business requiring mutual co-operation and a level of trust", and there has been a loss of trust and confidence, or the loss of confidence frustrates the commercially sensible operations of the company in accordance with the incorporator's expectations and such loss of confidence is justified: Nassar at [77]-[79]; Amazon Pest Control at [18]-[19]; Tomanovic at [49]-[51] (per Austin J); In the matter of Austral Alloys Pty Limited [2017] NSWSC 1833 at [18]-[30] (per Brereton J). However, the Court is not restricted to exercising its discretion to particular categories; the question whether it is just and equitable is a question of fact in respect of which each case must depend on its own circumstances: Re Catombal at [20].

MR HU'S LOAN TO THE COMPANY

1. Mr Hu seeks repayments of his loan to the Company of $300,000. The defendants accepted that Mr Hu was entitled to repayment of his $300,000 loan together with interest calculated under the Mortgage Agreement.

HALLS CREEK LOAN

1. Mr Hu sought judgment against Mr Shi in respect of the $100,000 loan. The problem with giving someone $100,000 cash is that it becomes difficult to prove, on the balance of probabilities, the terms on which the cash was lent or to whom. I have found that Mr Hu and Mr Shi, together with Mr Yu, incorporated Oz Recreation to acquire the Halls Creek land. However, Mr Hu and Mr Yu later lost interest in the property and ceased to be directors and shareholders in the company. Mr Shi and Fang Liu remained shareholders of Oz Recreation. It appears that Mr Shi wished to proceed with the purchase but had insufficient funds to pay his share of the purchase price, and Mr Hu lent him the money to do so. It appears that Mr Hu understood that the $100,000 would be used to complete the purchase of the Halls Creek land.
2. Where Mr Hu had no ongoing role in Oz Recreation and, so far as the evidence reveals, did not know Fang Liu, it seems more likely that Mr Hu would have been prepared to lend the money to Mr Shi, who he knew and with whom he was then working on the Anna Bay land, than to Oz Recreation. As mentioned, the minutes of the 26 February 2016 meeting referred to the $100,000 loan but did not reveal whether the borrower was Mr Shi or Oz Recreation. However, the fact that the loan was referred to at all in a minute of meeting between Mr Hu and Mr Shi suggests that the loan was to Mr Shi, rather than to a company which was not mentioned in the minutes at all, nor represented at the meeting. On the balance of probabilities, I am satisfied that Mr Hu lent the money to Mr Shi.
3. The plaintiffs also seek interest on the loan. There is no evidence that Mr Hu and Mr Shi discussed the subject of interest when the loan was made. In the absence of agreement, a creditor is not entitled to interest where the borrower fails to repay the money lent on the due date: Page v Newman (1829) 9 B & C 378 at 381; 109 ER 140 at 141 (per Lord Tenterden); President of India v La Pintada Compania Navigacion SA [1985] AC 104 at 115, cited in Hungerfords v Walker (1989) 171 CLR 125; (1989) 84 ALR 119 at 137-8 (per Mason CJ and Wilson J). Mr Hu is not entitled to interest.

SPECIFIC PERFORMANCE

1. Finally, the plaintiffs sought specific performance of obligations said to arise under an undertaking or "Deposit Agreement", being the payment of $300,000 out of the second tranche of the deposit and the final repayment of the Main Loan. As already described, through discussion and correspondence from November 2021 on, the parties came to an amicable agreement that, from the $605,000, the bank would be repaid in full (some $215,000), then $300,000 would be paid to Mr Hu towards repayment of his loan and the balance to remain in trust with the defendants' solicitors. The precise figures varied slightly over time, but the parties were agreed that $300,000 of the second tranche would be paid to Mr Hu. Preparations were made accordingly: Mr Hu provided an authority; the second tranche was received by the defendants' solicitors; Mr Rozdal informed Ms Gong that the transfer of $300,000 would be made that day; the accounts department of Mr Rozdal's firm called Ms Gong to confirm the details of her firm's trust account. But the transfer was never made. Correspondence between the practitioners soured.
2. There is no evidence as to why the $300,000 was not transferred. The defendants' senior counsel informed the Court at the commencement of the hearing that the second tranche "hasn't been paid into my solicitor's trust account in whole … my instructions are the real estate agent actually holds $250,000 of it so it wouldn't be possible to honour this agreement in full. … we'd need to put some evidence on about whether or not that money could come forward …" Of course, I would be loathe to order specific performance if the undertaking or agreement could not actually be performed, as equity will not specifically enforce what cannot be done: Ferguson v Wilson (1866) LR 2 Ch App 77. But such evidence was not ultimately forthcoming.
3. On the face of it, Mr Shi should comply with his undertaking. However, if Mr Hu's loan is not repaid, then he is entitled to interest under the Loan Agreement. I do not consider that it will make any difference whether Mr Hu's loan is repaid in accordance with an order for specific performance or on completion of the sale of the Anna Bay land. Further, as a Court-appointed liquidator will now be supervising completion of the sale, Mr Hu's fear that the loan will not be repaid on completion should abate. For these reasons, I am not minded to order specific performance.

ORDERS

1. The defendants submitted that, as no relief was sought against Wisemans, the proceedings against Wisemans should be dismissed with costs. This is not correct. An order is sought that the ten shares issued to Wisemans on 15 August 2020 be set aside. In addition, where an order was sought that the Company be wound up on just and equitable grounds, Wisemans' presence in these proceedings was likely necessary and appropriate in any event. For these reasons, I make the following orders: 1. Pursuant to section 233 of the Corporations Act 2001 (Cth), set aside the issue of ten ordinary shares in Anna Bay Resort Pty Ltd (the Company) on 15 August 2020 and the allotment of those shares to the second defendant. 2. Pursuant to section 461(1)(k) of the Corporations Act, appoint Alan Hayes of Level 16, 55 Clarence Street, Sydney NSW 2000 as liquidator of the Company. 3. Pursuant to section 233(1)(g) of the Corporations Act, authorise the first plaintiff to prosecute proceedings on behalf of the Company against the first defendant. 4. Pursuant to section 1317H(1) of the Corporations Act, order the first defendant to compensate the Company by payment of $67,030 together with interest. 5. By consent, judgment against the Company in favour of the second plaintiff in the sum of $300,000 together with interest. 6. Judgment against the first defendant in favour of the second plaintiff in the sum of $100,000. 7. Order the first and second defendants to pay the plaintiffs' costs and the Company's costs of the proceedings. 8. Direct the parties within 14 days to: 1. confer and provide interest calculations, preferably agreed, in respect of Order 4 and Order 5; 2. notify any errors or omissions; and 3. if seeking a variation of Order 7, provide any affidavits or submissions (limited to three pages). 1. In the event that affidavits or submissions are served under Order 8(c), direct: 1. those parties affected by the variation sought to provide any affidavits or submissions (limited to three pages) within 14 days; and 2. such application to be determined on the papers.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 March 2022