In the matter of Vinidici Rushcutters Bay Pty Ltd - Vinidici Rushcutters Bay... [2023] NSWSC 151 | Case summary

In the matter of Vinidici Rushcutters Bay Pty Ltd - Vinidici Rushcutters Bay... [2023] NSWSC 151 | Case summary | Zoe

Judgment (12 paragraphs)

[1]

Introduction

These proceedings arise from an agreement entered into on 8 September 2016 between the plaintiff (Vinidici Rushcutters Bay Pty Ltd, or Vinidici) and TFM Rushcutters Bay Land Pty Ltd (TFMRB), pursuant to which Vinidici subscribed for a convertible note for a principal sum of $2,000,000 with the right to convert the note into shares in TFMRB at any time before the maturity date of 31 March 2017 (the Convertible Note Agreement).
TFMRB was incorporated on 31 August 2016 for the purpose of purchasing and developing residential apartments on land at 18-28 Neild Avenue, Darlinghurst, although the parties referred to the location as Rushcutters Bay (the Project). The apartment building that was subsequently developed was known as "Encore". At the time of its incorporation, Dr Yihao Zhang (also known as Eric Zhang) was the sole director of TFMRB and Tasman Development Holdings Pty Ltd (Tasman) was its sole shareholder. Dr Zhang was also the sole director and sole shareholder of Tasman.
Vinidici was incorporated on 7 September 2016 for the purpose of investing in the Project. Mr Wei Shi (also known as Patrick Shi) and Mr Shengli Xi (also known as Victor Xi) have been the directors of Vinidici at all times since its incorporation. They each hold 40 per cent of the shares in the company. The remaining twenty per cent of the shares in Vinidici are held by Ms Mengjie Zhang.
TFMRB issued the convertible note to Vinidici on 9 September 2016. Vinidici paid the $2,000,000 principal sum to TFMRB in three instalments on 9 September 2016 ($1,000,000), 23 January 2017 ($500,000) and 9 February 2017 ($500,000).
On 7 September 2016, Tasman had entered into a Cooperation Deed with Australia Bai Fu Xin (International) Investment Pty Ltd (ABFX) setting out the terms on which those two companies agreed to "jointly invest in" the Project. Tasman had transferred all of its shares in TFMRB to ABFX on 5 September 2016. Eighty per cent of those shares were transferred in consideration of ABFX's contribution of $20,000,000 to the Project. The remaining 20 per cent were transferred to ABFX as a pledge for TFMRB's guarantee of a return of $9,600,000 on ABFX's investment over two years.
Vinidici claims that it entered into the Convertible Note Agreement and paid the principal sum in the belief that TFMRB had been established as, and would remain, a special purpose vehicle for the Project within the Tasman group of companies, and that Dr Zhang knew or ought to have known that Vinidici held that belief. Vinidici claims that Dr Zhang did not disclose that Tasman had transferred its shares in TFMRB to ABFX.
TFMRB purchased the land for the Project for $24,500,000 in late 2016. Vinidici's investment of $2,000,000 and the $20,000,000 invested by ABFX under the Cooperation Deed appear to have been applied to the purchase price. Construction of the apartments was financed by loans that TFMRB subsequently obtained from Perpetual Corporate Trust Limited and Westpac Banking Corporation Limited.
Vinidici did not convert its $2,000,000 loan into shares. It claims that $747,270.58 of the principal sum of remains owing and that this amount is unsecured and unlikely to be repaid by TFMRB in circumstances where a receiver and manager was appointed to that company on 15 September 2020, the apartments that remain to be sold are mortgaged to Assetline Capital Pty Ltd and the receiver's most recent annual administration report states that there are no assets available to be realised to pay any dividend to unsecured creditors.
Vinidici claims that it would not have entered into the Convertible Note Agreement and would not have paid the principal sum if Dr Zhang had disclosed to Vinidici that Tasman had transferred its shares in TFMRB to ABFX.
Vinidici sues Dr Zhang for deceit, alleging that he deliberately concealed from Vinidici the transfer of 80 per cent Tasman's shares in TFMRB to ABFX and the pledge of the remaining shares.
Alternatively, Vinidici claims that Dr Zhang's alleged deliberate concealment or non-disclosure was misleading or deceptive conduct that contravened s 1041H(1) of the Corporations Act 2001 (Cth). Vinidici also relies on the equivalent cause of action under s 18 of the Australian Consumer Law if the Court finds that the convertible note is not a "financial product" for the purposes of Chapter 7 of the Corporations Act. As both parties submitted and as referred to later in these reasons, the convertible note is a financial product. Vinidici's pleaded alternative claims that the alleged deliberate concealment or non-disclosure contravened s 1041E(1) and/or s 1041F(1) of the Corporations Act were not pressed after senior counsel acknowledged in opening submissions that those claims would "ultimately not rise higher than s 1041H(1)".
By the end of the hearing, Vinidici's misleading or deceptive conduct case was limited to the alleged conduct of Dr Zhang. In closing submissions, Vinidici abandoned its pleaded alternative case that the alleged concealment or non-disclosure was conduct of TFMRB in which Dr Zhang was "involved" within the meaning of s 79 of the Corporations Act.
Vinidici claims that it would not have entered into the Convertible Note Agreement and would not have paid the $2,000,000 if it had not believed that TFMRB was, and would remain, a company within the Tasman group of companies. Vinidici claims damages for deceit, or alternatively misleading or deceptive conduct, in the amount of the alleged outstanding principal sum of $747,270.58 plus accrued interest.
Dr Zhang denies the allegations of deliberate concealment or non-disclosure. He says that he disclosed to Vinidici before it entered into the Convertible Note Agreement that the majority of Tasman's shares in TFMRB had been sold to an investor. If Dr Zhang is found not to have disclosed that matter, he denies that the non-disclosure was a deliberate concealment and denies that it constituted deceit or was misleading or deceptive. Dr Zhang also denies that Vinidici has suffered any loss. He contends that the whole of the amount owing under the Convertible Note Agreement has been repaid to Vinidici. Alternatively, Dr Zhang contends that Vinidici is estopped from resiling from representations allegedly made in 2019 and 2020 that certain waived interest charges and alleged discounts on the sale prices of apartments would be set off against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.
To the extent that he may be found liable, Dr Zhang contends that his liability should be reduced pursuant to s 1041I(1B) of the Corporations Act on the grounds of Vinidici's alleged failure to take reasonable care by not making inquiries about the ownership of TFMRB and/or that he should be relieved of liability under s 1041I(4) and s 1317S of the Corporations Act. Dr Zhang did not press his pleaded proportionate liability defence.
For the reasons that follow, Vinidici's claims fail.

[2]

Summary of evidence

The plaintiff read affidavits of Mr Shi affirmed on 5 July 2021 and 10 September 2021 and an affidavit of Ms Claire Tian affirmed on 11 September 2021. The defendant read affidavits of Dr Zhang affirmed on 13 August 2021 and 14 March 2022, an affidavit of Ms Peixun Zhang (also known as Penny Zhang) affirmed on 13 August 2021, an affidavit of Yuchen Gao affirmed on 13 August 2021 and an affidavit of Ms Xinian Liu (also known as Yvonne Liu) affirmed on 13 August 2021. The following summary is drawn from those affidavits, the evidence given by Mr Shi, Ms Tian and Dr Zhang in cross-examination [1] and the documents tendered by the parties. Disputed factual matters are identified in the summary and my findings of fact are set out in a later section of these reasons.
Mr Shi has been living in Australia for approximately 20 years. He studied at the University of Wollongong from 2001 and was awarded the degree of Bachelor of Marketing in 2005 and a Masters in International Studies in 2007. Since 2010, Mr Shi has been operating a real estate agency business through ACCE Investments Group Pty Limited (ACCE), including property developments and investing in property developments. Mr Shi is the sole director of ACCE.
Dr Zhang immigrated from China to Australia in 2003. He has a Master of Engineering from the University of Technology, Sydney and a Master of Science and doctorate in financial modelling from Macquarie University. Mr Zhang has been involved in residential property development since 2014 through his directorship of and shareholding in various companies in what he describes as the Tasman group of companies.
Mr Shi gave evidence that he was first introduced to Dr Zhang by a mutual acquaintance in about early 2016. By that time, Mr Shi was aware through his work in the property industry that Dr Zhang was the director of Tasman. Dr Zhang's evidence puts their first meeting considerably earlier in about October 2014. Nothing turns on the timing of their first meeting.
According to Mr Shi, from early 2016 until about early 2020, he and Dr Zhang met "for a social chat" almost every week during which they would "discuss business opportunities and … just generally hang out".
Dr Zhang disputed this but gave evidence in cross-examination that, in the period after about February 2016, he did occasionally meet Mr Shi at his apartment and that he often spoke with Mr Shi on the telephone.

[3]

Evidence concerning the sale prices of Lots 8, 11 and 20

As referred to earlier in these reasons, Mr Shi's initial involvement with the Project was as the selling agent for LBD. [7]
On 12 March 2015, LBD's senior development manager sent Mr Shi an email attaching a sales list dated 19 February 2015 for Stage 3. That list recorded: 1. a sale price of $1,375,000 for Lot 8 (Unit 1/A) sold to Mr Xi; 2. a sale price of $1,300,000 for Lot 11 (Unit 1/D) sold to Mr Shi; and 3. a sale price of $1,395,000 for Lot 20 (Unit 2/D) sold to Min Lu.
On 3 September 2016, before TFMRB exchanged contracts for its purchase of the stage 3 land and in the midst of the exchange of draft versions of the convertible note agreement between Mr Shi and Dr Zhang, Mr Shi emailed to Dr Zhang a sales list dated 31 December 2015 in the same form as the 19 February 2015 list referred to above. Mr Shi gave evidence that he prepared the 31 December 2015 sales list for LBD. The subject heading of the email was: "Rushcutters Bay 3 'Encore' previous sold price list". The list recorded: 1. a sale price of $1,450,000 for Lot 8 (Unit 1/A) sold to Mr Xi; 2. a sale price of $1,400,000 for Lot 11 (Unit 1/D) sold to Mr Shi; and 3. a sale price of $1,395,000 for Lot 20 (Unit 2/D) sold to Min Lu.
Many other units were recorded on the 31 December 2015 list has having been sold.
Mr Shi gave evidence that several of the purchasers named on the 31 December 2015 list decided not to proceed after LBD sold the stage 3 land to TFMRB. I infer that contracts had not been exchanged with those purchasers prior to September 2016.
Both Mr Shi and Dr Zhang gave evidence that Mr Shi prepared updated sales lists from time to time after September 2016 and sent the lists to Dr Zhang.
Mr Shi sent an updated sales list dated 14 November 2016 to Dr Zhang on 16 November 2016.
According to the 14 November 2016 sales list: 1. Lot 8 (Unit 1/A) had been sold for $1,400,000; 2. Lot 11 (Unit 1/D) had been sold for $1,302,000; and 3. Lot 20 (Unit 2/D) had been sold for $1,395,000.
The 14 November 2016 sale list did not identify the purchasers of those units recorded as sold. It recorded fewer sales than the 31 December 2015 sales list, consistently with Mr Shi's evidence referred to at [137] above.

[4]

Evidence concerning waiver of penalty interest in respect of Lots 8, 11 and 37

It is common ground that the sale of Lot 8 to Mr Xi settled late and that TFMRB agreed in late September 2019 to waive penalty interest that was payable under the contract in the amount of approximately $20,000.
It is common ground that the sale of Lot 11 to Mr Shi settled late and that TFMRB agreed in mid-January 2020 to waive penalty interest that was payable under the contract in the amount of approximately $50,000.
It is common ground that the sale of Lot 37 to a Lianxiang Wu settled late and that TFMRB agreed shortly before settlement in early March 2020 to waive penalty interest that was payable under the contract in the amount of approximately $120,000.
Each of Dr Zhang and Mr Shi gave evidence about their conversations in which Dr Zhang agreed that TFMRB would waive interest. In each instance, Dr Zhang deposed that either he or Mr Shi said words to the effect that they would "offset the interest from the investment", and the other agreed. Dr Shi disputed that there was any agreement to deduct the interest from the amount owing by TFMRB under the Convertible Note Agreement.
In cross-examination, Dr Zhang gave evidence that, after the conversations referred to above in September 2019, January 2020 and March 2020, he informed Ms Penny Zhang that the penalty interest in respect of the relevant lot would be waived and that the amount would count towards the repayment of Vinidici's $2,000,000 investment. Ms Zhang was the Senior Investment Coordinator for Tasman at that time. Her responsibilities included organising the settlement of contracts for sale of lots in developments being carried out by the Tasman group of companies and also managing the day to day finances (including payments in and payments out) for loans for those developments. In her affidavit affirmed on 13 August 2021, Ms Zhang gave an account of her conversations with Dr Zhang concerning waiver of penalty interest in respect of Lots 8, 11 and 37. Ms Zhang's account of those conversations did not include Dr Zhang saying anything about the interest waived in respect of Lots 8 and 37 being offset against the loan from Vinidici to TFMRB. In relation to Lot 11, Ms Zhang deposed that Dr Zhang told her to waive the penalty interest payable by Mr Shi and added: "It'll pay back his investment."

[5]

Can you confirm that we have made repayment No 1, 2, 3and 4, and will schedule repayment of No 5 - 250,000 AUD on 18/03/2020 ? If yes, please advise the bank details for $250,000 to be repaid. Please discuss with me if you have further comments."

Mr Shi sent a short email in reply on 17 March 2020, which has not been translated. Ms Zhang replied to Mr Shi's email stated: "行啊,抓紧"
Ms Zhang then responded to Mr Shi on the same day, stating: "Thanks for your confirmation". I infer from this response that Mr Shi's 11.50am email confirmed that the details in Ms Zhang's 11.46am email were correct.
Vinidici relies on that email exchange as contemporaneous documentary evidence confirming that there was no agreement to deduct from the amount owing by TFMRB under the convertible note agreement any discount (if any) on the sale price of Lot 8, Lot 11 and Lot 20 or the interest that was waived by TFMRB on the late completion of the contracts for sale of Lot 8, Lot 11 and Lot 37.
Contemporaneous email correspondence between the solicitors acting for TFMRB on the sale of Lot 8, Lot 11 and Lot 37 and the solicitors acting for the purchasers of each of those lots record the agreement to waive penalty interest but make no reference to the amount so waived being offset against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.
As Vinidici submitted, Ms Zhang's email sent to Mr Shi on 17 March 2020 makes no reference to any discount on the sale price of Lot 8, Lot 11 and Lot 20 as a "repayment" of the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.
As referred to earlier in these reasons, Vinidici claims that $747,270.58 of the principal sum of $2,000,000 remains owing and that this amount is unsecured and is unlikely to be repaid given that a receiver and manager was appointed to TFMRB on 15 September 2020, the units that remain to be sold are mortgaged to Assetline Capital Pty Ltd, and the receiver's most recent annual administration report states that there are no assets available to be realised to pay any dividend to unsecured creditors.

[6]

Credibility and reliability of witness testimony

The evidence of Mr Shi and Dr Zhang included evidence of conversations as long ago as 2016, approximately four years before they each prepared their affidavits that were read in these proceedings and approximately five years before the final hearing. In assessing their evidence of such conversations, it is necessary to be mindful of the following well-known observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319: "… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
The factors referred to by his Honour require primary emphasis on the objective surrounding facts that are either undisputed or established by contemporaneous documents, and on the inherent probabilities and improbabilities: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[31] (Gleeson CJ, Gummow and Kirby JJ); Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102 at [77] (Bell P, Leeming JA and Emmett AJA agreeing). In any commercial litigation, contemporaneous documents "generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony". Witness testimony may still be of value and importance, including by providing evidence of the context in which relevant documents and events must be understood: ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (Bell P, Bathurst CJ agreeing).
I have considered all of the parties' submissions in relation to the credibility and reliability of the evidence of Mr Shi and Dr Zhang.
For the reasons explained at [201]-[205] and [211] below, I have found that Mr Shi gave untruthful evidence during his cross-examination about the 26 August 2016 email from Marcus Madison and about his understanding of Vinidici's right of conversion under the Convertible Note Agreement. In coming to those conclusions, and indeed in assessing all of Mr Shi's evidence, I have taken into account that English is not his first language. I have also taken into account that Mr Shi has been living in Australia for approximately 20 years and has obtained a bachelor and masters degree at an Australian university in 2005 and 2007 (respectively). I assume that all course work and all work submitted by Mr Shi for those degrees was in the English language. I have also taken into account that Mr Shi has been operating a business in Australia since 2010. [10] Mr Shi prepared his affidavits without an interpreter and gave evidence during the final hearing without an interpreter. Senior counsel for Vinidici quite properly took objections during cross-examination on those occasions where he perceived that the terms of a question may have been unclear to Mr Shi. On those occasions, the problem lay in the terms of the question and not in any suggested difficulty for Mr Shi in understanding the English language.

[7]

Findings of fact

In making the findings set out below, I have taken into account all of the evidence summarised earlier in these reasons and all of the parties' submissions about the findings of fact that they contend should (or should not) be made.
On the basis of the evidence referred to at [20]-[26] above, I find that Mr Shi and Dr Zhang spoke to one another either in person or by telephone reasonably frequently from about early February 2016 until about late July 2016. Given their involvement in the real estate and property development industries respectively, it is inherently probable that they disclosed to one another in general terms during those conversations the nature of their businesses and the manner in which they operated their businesses. The contrary is inherently improbable. It is common ground that Mr Shi informed Dr Zhang of the opportunity to acquire the stage 3 land for the Project in late July 2016. [11] It is inherently probable that, when Mr Shi referred the stage 3 opportunity to Dr Zhang, he believed based on what Dr Zhang had told him about his business that Dr Zhang may be interested in purchasing and developing the stage 3 land and may be capable of raising the funds to do so. I find that Dr Zhang did tell Mr Shi at some stage during the period between early 2016 and late July 2016 that he (Dr Zhang) was the sole director and shareholder of Tasman, that he was able to source money from Chinese investors in order to purchase development sites and to then borrow money from banks to develop those sites. I further find that Dr Zhang mentioned the location of some of the sites that he had acquired "through Tasman using investment money from Chinese investors", or words to that effect. I reject Dr Zhang's evidence to the contrary. I accept as inherently probable Dr Zhang's evidence that he regarded matters about the funding of developments to be confidential. However, the discussions that I have found occurred were in very general terms and did not result in disclosure of any detailed information about the funding of developments.
I accept Mr Shi's evidence that he saw Dr Zhang's ability to source investment money from China as "very beneficial" because it enabled projects to be undertaken quickly. I accept Mr Shi's evidence that, for that reason, he was "keen to do business" with Dr Zhang by mid-2016 because he saw this as an opportunity to make money. [12] That evidence is inherently plausible as a matter of commercial reality and consistent with Dr Zhang's observation at the time that Mr Shi appeared to be keen to have a business relationship with him. [13] It is also consistent with Mr Shi's subsequent conduct in telling Dr Zhang about the opportunity to acquire the stage 3 land for the Project in late July 2016 and in negotiating his own involvement in the Project after conducting his feasibility analysis.

[8]

The cause of action in deceit

The principles applicable to Vinidici's cause of action in deceit are well established and were not the subject of any dispute in these proceedings. Vinidici must establish that: [74] 1. Dr Zhang made a false representation, concealed true facts, or made a true representation that was rendered false by matters that were subsequently concealed or not disclosed; 2. to the extent that such a representation was made, Dr Zhang knew that the representation was false (or became false by reason of matters subsequently concealed or not disclosed), or was reckless as to the truth or falsity of the representation; 3. Dr Zhang intended that Vinidici should rely on the false representation or proceed in ignorance of the matters concealed; 4. Vinidici acted in reliance on the false representation or in ignorance of the matters concealed; and 5. Vinidici thereby suffered loss.
Words or conduct by which a representation is made may be understood in different senses. For the purpose of determining whether any representation made by Dr Zhang was false, the sense in which the representation would be understood by a reasonable person in the position of Vinidici is relevant. For the purpose of determining whether Vinidici was induced by any such representation to act on it, the sense in which Vinidici understood the representation is relevant. For the purpose of determining whether any such representation was made fraudulently, the sense in which Dr Zhang intended the representation to be understood is relevant. [75]
Any finding of liability in deceit will involve a conclusion that Dr Zhang has acted dishonestly. [76]
Vinidici's pleaded cause of action in deceit alleged false statements, the substance of which were not articulated in the pleading. However, senior counsel for Vinidici opened and ran its case at final hearing on the basis that its cause of action in deceit rested on Dr Zhang's alleged concealment or failure to disclose Tasman's transfer of 80 per cent of its shares in TFMRB to ABFX and the pledge of its remaining shares, in circumstances where Dr Zhang had previously told Mr Shi that he (Dr Zhang) was the sole director of Tasman through which he conducted the property development business and that he had established TFMRB as "a new Tasman company" for the Project. It is the combination of those statements with the subsequent alleged concealment or non-disclosure that is relied on as the foundation of Vinidici's claimed belief that TFMRB, as the special purpose vehicle established for the Project, was and would remain within the Tasman group of companies. Vinidici alleges that Dr Zhang knew that it entered into the Convertible Note Agreement holding that belief and intended that it should do so.

[9]

The statutory cause of action for misleading or deceptive conduct

As Vinidici submitted, the Convertible Note Agreement is a "financial product" for the purpose of Chapter 7 of the Corporations Act 2001 (Cth). [86] Accordingly, it is the provisions of ss 1041H and 1041I of that Act rather than the provisions of the Australian Consumer Law that applies to Vinidici's cause of action for alleged misleading or deceptive conduct.
Vinidici submitted that Dr Zhang's non-disclosure was misleading or deceptive conduct because Vinidici entered into the Convertible Note Agreement and paid the instalments of the investment sum to TFMRB in the belief that TFMRB was (and would remain) a special purpose company owned by Tasman which was in turn controlled by Dr Zhang. Vinidici submitted that, by reason of their personal and business relationship, Dr Zhang knew or ought to have known that Mr Shi would reasonably expect to be told about Tasman's sale of 80 per cent of its shares in TFMRB to ABFX and the pledge of its remaining shares. It was submitted that this was a reasonable expectation because disclosure of those matters was necessary to enable Mr Shi to consider whether or not he wished to proceed with the proposed investment through Vinidici.
I reject Vinidici's submissions. The evidence adduced by Vinidici in relation to the alleged belief was directed solely to the state of mind of Mr Shi. For the reasons explained at [213]-[224] above, the evidence does not establish that Mr Shi held the alleged belief. Mr Shi and Dr Zhang were both experienced in the development and sale of residential apartment projects, [87] and the relationship between them was not one of trust and confidence. [88] Mr Shi proposed investing $2,000,000 in the Project in the knowledge and expectation that Dr Zhang would source substantial additional investment funds from China. [89] Mr Shi chose to make no inquiries about the terms or structure of that investment. [90] Mr Shi and Mr Xi conducted their own feasibility analysis for the Project and had legal advice during the negotiation of the terms of and structure of the investment that was made by Vinidici. [91] That negotiation was a commercial negotiation conducted with Dr Zhang at arm's length. [92] In my opinion, those circumstances did not give rise to a reasonable expectation that Dr Zhang would disclose to Mr Shi or Vinidici the sale of 80 per cent of Tasman's shares in TFMRB to ABFX to raise $20,000,000 for the Project and Tasman's pledge of the remaining shares in connection with Tasman's guarantee of the return to be generated by the Project for which Tasman had given "warranties" to ABFX that it would complete the construction of units on time and sell all units. [93] The evidence does not establish that the non-disclosure of the terms and structure of the Chinese investment that Mr Shi knew Dr Zhang was arranging for the Project, and about which Dr Shi asked no questions, was likely to lead or in fact led Vinidici into error in relation to its investment decision. [94]

[10]

Matters not arising

Questions of causation and loss do not arise in light of my conclusions above that Dr Zhang did not deliberately conceal ABFX's shareholding in TFMRB from Vinidici and that his non-disclosure of the transfer and pledge of Tasman's shares in TFMRB was not misleading or deceptive in all the circumstances. In case a different view may be taken in any appeal, it is appropriate to record that, if Vinidici had succeeded in establishing the alleged deceit or misleading or deceptive conduct, I would not have been satisfied on the balance of probabilities that this had caused loss to Vinidici. That is essentially for the same reasons that Vinidici has failed to establish the alleged deceit and misleading or deceptive conduct, and for the further reasons referred to at [226]-[227] above.
If Vinidici had succeeded in establishing the alleged deceit and/or misleading or deceptive conduct and had also succeeded in establishing causation, I would have held that Vinidici had suffered loss in the amount claimed of $747,270.58 plus interest, having regard to Vinidici's concessions referred to at [126] above and TFMRB's inability to make further repayments in the circumstances referred to at [185] above. For the reasons explained at [228]-[234] above, I would have rejected Dr Zhang's contentions that the whole of the amount owing to Vinidici under the Convertible Note Agreement has already been repaid. Dr Zhang's estoppel defence would have failed because the alleged representations upon which that defence was founded were not proved.
Dr Zhang's pleaded defences under s 1041I(1B) and ss 1041I(4) and 1317S of the Corporations Act are defences to the misleading or deceptive conduct claim only. If Vinidici had succeeded on its cause of action for misleading or deceptive conduct, but failed to prove dishonesty, I would have reduced the damages recoverable by Vinidici pursuant to s 1041I(1B) by 50 per cent on account of its failure to make any inquiries about the structure or terms of the Chinese investment in the Project and whether or how it would affect the ownership of TFMRB in circumstances where Mr Shi knew that the investor may take shares in TFMRB. [95]
The submissions made on behalf of Dr Zhang maintained that, if he were found to have engaged in misleading or deceptive conduct without dishonesty, it would be appropriate to excuse him from the contravention under ss 1041I(4) and 1317S of the Corporations Act. The submissions did not articulate any reason why that would be an appropriate exercise of the discretion under s 1317S. I would not have formed the view that Dr Zhang ought fairly to be excused for the contravention because, in that hypothetical scenario, there would have been findings that Vinidici had a reasonable expectation that the undisclosed matters would be disclosed and that the misleading or deceptive conduct had caused loss to Vinidici. I do not consider that the absence of dishonesty, which is not an element of the statutory cause of action for misleading or deceptive conduct, would have been a reason to excuse Dr Zhang from liability in this case.

[11]

Conclusion

For all of the foregoing reasons, Vinidici's claims have failed and an order will be made dismissing the proceedings. I am not aware of any reason why costs should not follow the event, but I will hear the parties in relation to costs.

[12]

Endnotes

The defendant's other witnesses were not cross-examined.
See [111]-[115] below.
See [43] and [49] above.
T152.38-153.17.
Exhibit PS-1, p 128.
See [26]-[29] above.
See [27] above.
See [107], [110]-[115] above.
See [108]-[109] above.
See [18] above.
See [27]-[28] above.
See [26] above.
See [25] above.
See [26] above.
See [40].
See [71] above.
See [52] above.
See [42] above.
See [45]-[46] above.
See [46] above.
See [43] and [49] above.
See [47]-[50] above.
See [52]-[53] above.
T120.24-121.15 and see [56] above.
See [55]-[56] above.
See [50] above.
See [62] above.
See [63]-[64] above.
See [70] above.
T152.38-153.18.
Warner v Hung, in the matter of Bellpac Pty Ltd (recs and mgrs aptd) (in liq) (No.2) (2011) 297 ALR 56; [2011] FCA 1123 at [48].
See [20550] above.
See [78] above.
See [94] above.
See [94] above.
See [16]-[25] and [194] above.
See [26] above.
See [91] above.
See [98] above.
See [95]-[96] above.
See [97]-[98] above.
See [194] above.
8 September 2016 and 9 September 2016, respectively. Searches undertaken immediately prior to Vinidici's payments of the balance of the principal sum on 23 January and 9 February 2017 would have revealed that MBFX was the majority shareholder of TFMRB.
See [65] above.
See [88] above.
See [111]-[115] above.
See [207] above.
See [29]-[30] above.
See [214] above.
See [18] above.

Later on 26 August 2016, Mr Benoir Bayssari of Madison Marcus sent an email to Mr Shi outlining his comments following his preliminary review of the draft convertible note agreement. The comments included: "1. you should use a clean SPV entity other than ACCE to enter into this agreement; 2. you are required to advance the money on the Completion Date being 1 September 2016, 3. you must elect to convert the note into shares by 31 March 2017; 4. if you do not elect to convert the note by this time, the Company must pay you the $2,000,000 back plus interest at 4% per annum; 5. interest accrues up until the date you convert the note into shares and is payable quarterly commencing on the date of the agreement; 6. the definition of Project Company does not make sense, it refers to shares; 7. the Project Company should be the Company and the party which contracts under this document, we are unsure why there is a definition of Project Company and Company; 8. the definition of Shares does not specify a number or percentage of shares In the Company which you have the right to acquire, this needs to be specified so that you can determine your potential interest in the Company; 9. there may be stamp duty consequences if you convert the notes to acquire more than 50% of the shares as the Company may be land rich when you acquire those shares; 10. there should be a restriction on the Company from varying its share capital after this agreement is signed to ensure that your interest is not reduced when you convert into shares (particularly if you are acquiring a number of shares and not a percentage of shares) … 14. you should add a clause charging the development site in your favour to secure the loan amount, this would allow you to lodge a caveat over this site to secure your money; 15. we are of the view that the off-the-plan security proposed is unable to be properly secured without an exchanged contract for the purchase of those properties; 16. you should consider taking personal guarantees as security and also a specific security interest over the shares in the Company; 17. ultimately, the security you take Is a commercial matter for you; 18. you should ensure that the Company is the entity which exchanges the Contract and not some other entity, otherwise your shares in the Company will be worthless."

The terms of the convertible note were set out in Schedule 1 to the Convertible Note Agreement, including the "Loan Amount" of $2,000,000, interest rate of 4 per cent per annum and the maturity date of 31 March 2017. The terms included: "2.3 Nature of Convertible Note The Convertible Note will be secured by two off the plan properties as set out in Condition 8 and the charging provision provided in clause 9 of the agreement. The Company will not apply for official quotation of the Convertible Note. 3. Rights of Conversion 3.1 Conversion of Convertible Note (a) Any time before the Maturity Date the Investor may elect to convert the Convertible Note by delivering to the Company a written notice requiring the Company to procure the conversion of the Loan Amount into Shares. (b) If the Investor elects to convert in accordance with Condition 3.1(a), the Company may elect to repay any accrued interest on the date Shares are issued to the Investor by: (i) paying the accrued interest to the Investor in immediately cleared funds; or (ii) in addition to the Shares to be issued under Condition 3.1(a), issuing such additional number of Shares to the Investor at the time of conversion is equal to 9% of the total number of Shares in the Company. 4. Issue of Shares on Conversion 4.1 Notices irrevocable A notice given under Condition 3.1 is irrevocable. 4.2 Conversion Subject to Condition 6, on conversion the Loan Amount will be converted into the Shares. 4.3 Obligations on conversion Upon receipt of a notice from the Investor under Condition 3.1, the Company must within 2 Business Day [sic] procure the conversion of the Loan Amount in accordance with Condition 4.2 and take all steps necessary to cause the Investor to become entitled to be registered as the holder of the relevant Shares (and any additional Shares issued under Condition 3.1 (b)(ii)). 4.4 Record Dates The Company will keep the Investor informed in a timely way of the Record Dates relating to any dividends or distributions to be paid by the Company. 4.5 Shares issued to rank equally Any Shares issued on conversion (and any additional Shares issued under Condition 3.1 (b)(ii)) must rank from the date of issue in all respects equally with all other Shares in the Company. 5. Redemption 5.1 The Company may redeem If the Investor has not elected to convert the Convertible Note in accordance with Condition 3.1, the Company may redeem the Convertible Notes at any time following the 30 day anniversary of the Rights Issue Completion Date by repaying to the Investor any outstanding Loan Amount plus any accrued interest payable. 6. Reconstructions of Capital 6.1 Reconstructions If, before conversion or repayment, there is a reorganisation of the issued share capital of the Company (including by way of subdivision, consolidation or reduction), a proportional adjustment will be made to the number of Shares into which the Convertible Note is convertible so as that the Convertible Note is convertible into the same percentage of the issued ordinary share capital as the percentage into which they are convertible immediately before the relevant event (subject to the same provisions with respect to rounding of entitlements as sanctioned by the meeting of shareholders approving the reconstruction of capital) in a manner which will not result in additional benefits being conferred on the Investor which are not conferred on shareholders, but in all other respects the terms for conversion shall remain unchanged. … 8. Security 8.1 The Company grants security The Company grants the following off the plan properties as Security for the Company's obligations under this Agreement, contracts are to be exchanged and the Company acknowledges that the prices have been paid in full by the Investor: (a) Unit A01/2-8 Hazlewood Pl Epping NSW 2121. Unregistered Plan: Lot 41 in an unregistered plan which is part of Lot 15 Plan DP28934, Lot 14 Plan DP 28934, Lot 13 Plan DP 28934 and Lot 12 Plan DP 28934. (b) Unit B02/2-8 Hazlewood Pl Epping NSW 2121. Unregistered Plan: Lot 41 in an unregistered plan which is part of Lot 15 Plan DP28934, Lot 14 Plan DP 28934, Lot 13 Plan DP 28934 and Lot 12 Plan DP 28934. 8.2 Release the security Upon the Terms of the Convertible Note in Schedule 1, being satisfied. The Investor will follow all reasonable steps to rescind the contracts and return the properties mentioned in clause 8.1 to the Company. 8.3 Shall not sell The Investor shall not sell or offer to sell, assign, pledge, transfer, create, permit to subsist any encumbrance over, or otherwise deal with the properties mentioned in clause 8.1 without the prior written consent of the Company, which shall not be unreasonably withheld."

Mr Shi gave the following evidence during cross-examination on the first day of the hearing about his desire for shares in TFMRB and his understanding that Vinidici's right of conversion under the Convertible Note Agreement had to be exercised before the end of March 2017 (emphasis added): "Q. … At what point in time did you agree that the interest should be at 4% per annum? I agree that from the beginning I never argue about that cause my intention is not for the interest. If I just lending the money to Eric, 4% interest rate is way too low, according to the market rates. The market rate is normally above 10%. I was focusing on this joint venture with him, working together and making big profit, real money from the project. I'm not working for the interest. Q. My question was slightly different. When was the discussion had about the interest rate being 4%? A. I never said that. … Q. … when, if at any time, was there a discussion between you and him to be the effect that the loan would bear the rate of 4%? A. … We never discussed that cause he give me 4%, I take it. Yeah. … Q. Can I suggest to you that you were concerned to reach an agreement about the rate of interest? I don't concern that much. Q. Well, you were concerned, weren't you? A. Well, if the project failed, yeah. It's just the normal business, logical thinking. Q. Let me understand that, and the fault is, no doubt, mine. I want to suggest to you that in August 2016 you wanted to reach an agreement with Mr Zhang about the rate of the interest that the loan would bear? A. No. I disagree. Q. Are you saying to her Honour that it never crossed your mind to negotiate with Mr Zhang what the rate of interest the loan would bear? A. You mean the question, right? Q. The question. That's all I'm allowed to do. A. All right. I don't want a loan agreement. I want to be a shareholder, like a JV partner. If I want a loan agreement, 4% is way too loan [sic]. Like the way I said it before, the market rate is about 10%. I want shares. If we win, we win; if we lose, we lose. 4% is just a whatever number. I don't really pay too much attention on the interest rate. If it's a loan agreement, 4% is way too low. I'd probably say that, but that's why we change it from a loan agreement to a convertible agreement because I want shares. I want to run the project. I don't want to just become a lender, give the money. … Q. You told her Honour a few moments ago that you wanted the loan agreement to change to a convertible note agreement so you could have an investment in the venture. Do you remember saying that to her Honour? A. Yeah. Q. You certainly told Mr Zhang that you wanted to change the loan agreement to a convertible note. You told him that? A. Yeah. Q. But you never told him that you wanted to take, or be a joint venture, in this business, did you? You never told him that? A. I don't remember, because that's - that's - that's maybe a little bit of professional legal knowledge there. Q. On your part? A. On my part, yeah. Q. Well, you had the legal knowledge at the time, didn't you? A. Not as much as you are. Q. … But you never told Mr Zhang in late 2016 that the reason you wanted it to change from a loan agreement to a convertible note was that you could be a partner or a joint venturer in this project; correct? (No verbal reply). Q. Correct? A. Correct. … Q. Did you understand, pursuant to the terms of the convertible note agreement, how you would come to acquire shares in TFM Rushcutters Bay? I'm asking for your understanding in late 2016? A. Could you repeat the question again? In late 2016? Q. I'm focusing upon the period late 2016. August/September. A. Uh-huh. Q. Did you have any understanding how, pursuant to the terms of the convertible note agreement, you ever obtain shares in TFM Rushcutters Bay? A. I understand I have 9% shares from the projects, from TFM Rushcutters Bay. Q. Did you understand how you would get the 9% shares? As to what would have to happen before you get that? A. By investing $2 million. Q. Pardon? A. Investing $2 million. Q. Can I ask you, please, to go to page 617 of that volume. I'm going to show you the convertible note agreement. A. Yes. Q. I take it you read this document before you came to execute it? A. Yeah. Q. Indeed, you had the firm, Madison Marcus, acting for you, for your company, that is, in relation to the drafting of this document; correct? A. Correct. … Q. If you go to page 629, we say a document called, 'Schedule 1'. A. Yes. Q. We see there's something called the "Maturity Date" at the top. 31 March 2017. Do you see that? A. Yes. Q. In clause 3.1, it says this, and I'm looking at page 629. Do you have that, Mr Shi? A. Yes. Q. 'At any time before the maturity date, the investor may elect to convert the convertible note by delivering to the company written notice requiring the company to procure the conversion of the loan amount into shares.' Do you see that? A. Yes. Q. Now, did you understand in September 2016, when you signed this document, that the company, of which you were a director, the plaintiff, could exercise a right to convert the loan into shares on or before 31 March 2017, being the maturity date. A. I understand that. Q. You understood at the time, didn't you? A. I understand at the time, yeah. Q. And-- A. But can I explain? Q. No. I'll just keep going for the moment. You didn't actually issue any such notice, did you? A. No. Q. You understood that the only way you could convert your loan into equity was by issuing a notice in accordance with this convertible note agreement; correct? A. Correct. Q. And you had to do it by the end of March 2017? A. Correct. Q. The reason you didn't exercise that right is because you didn't want to convert the loan into equity, did you? A. I didn't exercise it because the project is not even finished. Q. That was the only way, as you understood at that time, that you would convert, or obtain shares, in TFM Rushcutters Bay? That was the only mechanism as you understood it; correct? A. Yes. Q. And you understood that once 31 March 2017 had gone, your company, the plaintiff, lost that right? A. I don't know. … Q. Did you understand in late 2016 or early 2017 any other mechanism by which your company could obtain shares in TFM Rushcutters Bay? I simply want your understanding? A. Yeah. Q. What was the other mechanism by which you could obtain shares in TFM Rushcutters Bay? A. Well, look, I didn't think in that way, because we plant the seeds, and the fruits not even grow up. No-one would think about it to - to exercise these things, you know? Q. You knew when you executed the convertible note agreement that the construction would take many months, if not years, to undertake; correct? A. I know that. Q. And in September 2016, you understood that the construction work would be close to finishing by 31 March 2017; correct? A. Could you repeat the-- Q. Yes. I'm sorry. You knew when you signed the convertible note agreement-- A. Uh-huh. Q. -in September 2016 that the construction work would not be finished any time soon before 31 March 2017? You knew that, didn't you? A. I'm not too sure. Q. Are you suggesting-- A. Because it's a - I approved the project, and it's only 40 units. If you have time - in one year time, if everything runs smoothly, you can - you are able to complete the construction. Q. Did you have in your mind in September 2016 that a development of 40 units could be completed between September 2016 and March 2017? Is that seriously your evidence? A. No, it can't. It can't. … "Q. You knew when you came to sign the convertible note agreement that the project wouldn't be completed by the maturity date of 31 March 2017; correct? Incorrect. I didn't pay too much attention on this. Q. You never asked Mr Zhang to extend the maturity date, did you? A. No. Q. Not once? A. Not once. Q. Can I suggest to you that if you wanted to obtain equity in TFM Rushcutters Bay, if that was truly your concern, you would have exercised, when noticed, on or before 31 March 2017? A. No. Because that was not truly my concern at that time. Q. And if you truly wanted to obtain equity in TFM Rushcutters Bay, you would have asked Mr Zhang to extend the maturity date past 31 March 2017. What do you say about that? A. Can you repeat again? Q. Yes. If you were truly concerned to obtain equity in TFM Rushcutters Bay, you would have asked Mr Zhang to extend the maturity date, wouldn't you? A. No. Because that was not truly my concern. Q. What was your concern? A. My concern is to run the project. To make it profitable and get the shares. Q. Part of your concern was, as you told her Honour on your case, to obtain a share in the venture; correct? That was part of your concern, wasn't it? A. Share of venture? Q. Share in the venture? A. Yeah. Q. After you executed the convertible note agreement, can you think of a single step you took to try and obtain some form of share in the venture? A. No. Q. You didn't do anything in that regard, even though you knew, so you say, that Mr Zhang was telling you that he was losing control of the venture? That never prompted you to seek to negotiate with him for share in a venture, did it? A. He told me that - that's a few years later. Q. And it didn't prompt you to ask for a share in the venture then, did it? A. Could you repeat the question again? Q. It didn't cause you then to ask Mr Zhang then to give you a share in the business, did it? A. No. Because that was too late. Q. How do you know it was too late? A. He told me. He told me the situation. Q. He told you it was too late for you to get a share in the business? A. He never offered that."

Mr Shi then gave the following evidence about the Madison Marcus email dated 26 August 2016, referred to at [50] above (emphasis added): "Q. Did you read Mr Bayssari's email to you which is on page 1 of that bundle? Yes, of course, I read that, but I don't understand this. I can't understand all this clause, so normally, I make a phone call to Benoir Bayssari, just simply ask, 'Is this okay? Should I sign? Any problem?' Cause this just the normal mentality thinking. Q. You certainly read paragraph 3, didn't you? "You must elect to convert the note into shares by 31 March 2017." You certainly read that, didn't you? A. Probably. I can't be certain. Q. You certainly knew as at late August 2017 that your company, Vinidici, had to elect to convert the note into shares by 31 March 2017. You knew that, didn't you? A. I knew that now. Q. You knew that then, didn't you? A. I don't pay too much attention back to those days. Q. With respect, I'll ask the question again. You knew in late August 2016 that Vinidici must elect to convert the note into shares by 31 March 2017. You knew that, didn't you? A. Very honestly, I don't know. Q. You don't recall, when you read this email, having any confusion about the contents of paragraph 3, do you? A. Like what I said, when Benoir sent me - Madison Marcus Lawyers sent me all these clause changes, I just take a brief look cause I can't understand every single word or every clause in the legal way. So, what I do is ask - normally ask my lawyer, 'Is this a good contract? Okay contract. I can sign or not?' Q. When you swore your three affidavits in this case, you didn't require a translator, did you? A. No. Q. You can read English-- A. Yeah. Q. -perfectly competently, as far as you understand it; correct? A. I can read English, but my English is not perfect. Q. But it was good enough for you to be able to sign your affidavits without the need for a translator; correct? A. Well, I signed the affidavit, yes. Q. In August 2016, you knew exactly what paragraph 3 was talking about, didn't you? A. No. Q. As you sit in the witness box now, you understand what paragraph 3 is communicating to you. A. You mean the clause 3? Q. Yeah. A. Yeah. Q. As you sit in the witness box now, it's perfectly plain what it's saying to you, isn't it? A. In the box, it is perfectly what, sorry? Q. Plain, what's it's saying to you. Perfectly clear. A. Perfectly clear. Q. Yeah. A. If you ask me to read the clause 3, 'You must elect to convert', look, I don't understand what it means of elect to convert. Q. Mr Shi, you knew by this stage that your company was negotiating an agreement which was called a convertible note agreement; correct? A. Yeah. Q. You knew that an element of that contract was that on certain terms and conditions, the loan your company was extending could be converted into shares of TFM Rushcutters Bay. You knew that, didn't you? A. I knew that. Q. That involved a conversion; correct? A. What do you mean by conversion? Q. A conversion of the loan into shares. A. A conversion, yeah, is - yeah. Q. By this stage, 26 August 2017, you knew that that was the sort of agreement the parties were negotiating. You knew that, didn't you? A. Could you repeat? Back to 26-- Q. You knew as at the date of this email that the parties were negotiating an agreement that provided for the conversion of the loan into shares. A. I can't remember. Q. When do you say you became aware, if you can remember, that that was an element of the transaction you were negotiating? A. That's my lawyers on behalf of me to negotiate the clause. Q Mr Shi, I want to suggest to you, you knew full well as at 26 August 2017 that an element of this contract - let me go back. I'm asking for your understanding as at late August 2016. As at late August 2016, you knew that your company, Vinidici, would be lending $2 million; correct? A. Yes. Q. You also knew in late August 2016 that the terms of the agreement which was being negotiated allowed Vinidici to convert the $2 million into shares in TFM Rushcutters BAY. A. I don't remember in that date I fully understand or not. Now, I fully understand I can convert. … Q. Do you recall when you first understood that Vinidici had the right to convert its loan into the shares of TFM? When did you first remember that that right existed for Vinidici's benefit? A. Well, around the 2019. When I realised that there could be a problem, I bring this agreement to see some lawyer friends. Then they told me, 'You can elect to convert', something, something. Q. Is it your evidence that when you got this email, the one in front of you, from Mr Bayssari, that you telephoned someone from Madison Marcus to ask about what it was saying? A. I can't remember. Well, I just ask, 'Is that a good contract? Can I sign?' Q. I want to suggest to you that the evidence you've been giving about your lack of recollection is incorrect. You knew full well at this time what the convertible note agreement provided insofar as it related to the conversion of loan into shares. A. Sorry, what do you mean? Q. I'm suggesting to you, your evidence is false. A. No, I disagree. Q. How many times did you speak to people from Maddison Marcus between, say, in the two weeks preceding the execution of the convertible note agreement concerning the terms of the agreement or the drafts? How often would you speak to them? A. Twice, probably. Q. Was that to Mr Bayssari or to Mr Qutami, or to someone else? A. Bayssari is the junior drafter of the agreement or look at the agreement, sorry, not drafted. Rimy is his boss. Q. That's R-I-M-Y. A. Yes. Q. You asked them for advice about the contract, didn't you? A. I ask them the advice, yes. Q. They told you what a convertible note agreement involved, didn't they? A. I can't remember but I think they must have say something. Q. You must have understood before you signed it, even from what they said or from what you read, that the loan could be converted into shares. You must have understood that? A. At that time, at 26 August, no. Q. As at the time you executed the agreement. Or about that time? A. No. Q. What I want to suggest to you is that evidence is false. What you just told her Honour is false and you know it to be false. A. What do you mean? Q. I'm suggesting to you, with great respect, that you are not telling the truth to her Honour about your recollection? A. No. I'm telling her 100% truth. … Q. Go to paragraph 4 of the email. You understood that the company would pay 4% per annum interest. A. Yeah. Q. And do you recall reading paragraph 4 in that email? A. I can't remember. Q. It said if you do not elect to convert the note by this time the company must pay you 4%. Do you see that? A. Yeah, saw that. Q. I suggest you understood that the interest at 4% would kick in, as it were, once you had not elected to convert the loan into equity? A. No, back to that date. What I understood is if the projects is not that profitable, I probably will have my $2 million back plus 4% interest rate as a little bit of bonus. That's what I always understood until in 2019 when I realised there could be problem, I bring the convertible note agreement to see my lawyer friends then I realised that I can elect to convert the shares or whatever. So I'm just being very, very honest. I'm tell the 100% truth. Q. When you say you saw some lawyer friends in 2019, who were the lawyers you say? A. CKSD Lawyers. Q. Did you understand from what they told you that as at 2019 you could then convert the loan into equity? A. They told me that at that time, yes. Q. Just so it's entirely clear, did they tell you that you could then at that point in time in 2019 still convert your loan into equity? A. No. I can't remember. Q. What did they tell you about this issue? A. They said, 'Look, it could be a problem. You could be in trouble', because I didn't meet them in the formal way because I just ask them to have a coffee, pass the document, ask their opinion. They say, 'Look, this could be a problem.' Q. Even then you didn't ask Mr Zhang if the loan could be converted to equity, did you? A. At that time no I didn't ask him to convert but I ask him to pay the money back. Q. If we go back to this document in front of you, we see paragraphs 3, 4 and 5 all refer to a conversion, or convert. You see the word convert appears in each of those three paragraphs, 3, 4 and 5? A. Yes, I saw that. Q. You must have understood when you read this email that the issue of converting or conversion was an important part of this transaction? A. In 2016? Q. Yes, when you read this email. A. No. At that time your mentality is trying to set up the company, the JV company, trying to start up a project, trying to run things. You think this is a great opportunity. Q. Did you before 2016 ever negotiate a joint venture agreement? A. Could you say that again, please, sorry. Q. You mention a JV company in the last answer you gave to her Honour. Before August 2016, had you ever been involved in drafting or signing a joint venture agreement? A. No. Q. But you knew that the agreement that you signed in September 2016 never once mentions a joint venture, does it? A. Yeah. Q. That's because it wasn't your intention in September 2016 to enter into any joint venture with Mr Zhang or any entity associated with him? A. No, because like what I said, I'm not a legal expert. There could be many forms of the joint venture. Q. You certainly have expertise in dealing with contracts because you've been an estate agent since 2010. Correct? A. A real estate agent doesn't explain the contracts. Q. Your evidence is even though the word 'convert' appears in paragraphs 3, 4 and 5 of this email, you don't recall asking Mr Bayssari or Rimy anything about what these paragraphs were referring to. Is that right? A. I didn't ask specifically because I don't have the knowledge and the capacity to ask specifically. Normally the question I ask are very general in like, 'Is this a good contract I can sign? Q. I'm suggesting that evidence is false, and you know it to be false. A. I disagree."

After some cross-examination about his reasons for wanting to invest in the Project, Mr Shi was asked in about his understanding in early September 2016 about the terms on which the other investors might invest in the Project. Mr Shi gave the following evidence: "Q. At this time, did you understand the terms upon which the investors might invest? A. Yeah. Q. Did you know they were going to take shares in the company or a loan or what? Did you have any idea? A. Absolutely no idea. That's - sorry. Q. … As at late 2016, you know that investors might in vest in the project such as this in a number of ways. You knew that, didn't you? A. I knew that, but may I explain? Q. No. You knew that one way was they might take a secured loan over the property; correct? A. Yes. Q. You knew another way was they might buy shares in the company which owned and was developing the land; correct? A. Could you say that again? Q. Yes, of course. You knew that another way was they might acquire shares in the company which owned and was developing the land; correct? That was another possible form of investment; correct? A. No. Q. You disagree with that proposition, that an investor would take units or shares in the company. A. No, I don't know. [Mr Shi was then asked about his experience in the real estate industry between 2010 and 2016.] Q. … you had extensive experience over a number of years about the construction and sale of residential apartment blocks; correct? A. Yes. Q. Those, in your experience, commonly involved investors investing money; correct? A. Yes. Q. You must've had some idea in late 2016 as to the form of the investment those investors might make. Do you agree with that proposition? A. Yes. Q. One of them, as I asked you about a few moments ago, was taking a mortgage over the land; correct? A. Now I know, yes. Q. You knew then, didn't you, Mr Shi? A. I know - I now - now, I know. Q. I'm asking you, with respect, something slightly different. You knew in late 2016 that one form by which the investors might invest was taking a mortgage over the land; correct? A. No, absolutely no idea at that time. Q. You also knew, didn't you, as an experienced estate agent, that one form the investors might take was buying shares in the company that owned and developed the site, didn't you? A. Yes. Q. Can you - A. But not in this case. Q. Thank you - A. In generally, yes. Q. Thank you. I'm asking for your knowledge Mr Shi. A. Yeah. Q. Apart from those two devices or mechanisms, did you know of any other way in which an investor might invest his or her, or its money, in a development of this kind? A. Can you repeat the question again? Q. As at late 2016, did you know of any other form of investment which an investor might make by way of investing his, her or its money in the project such as the Oncore project? A. In 2016, no. Q. I'm asking for your knowledge? A. Yeah. For the knowledge, yeah, but this case - in Oncore, no. Q. We'll come back to that shortly. Don't worry. A. That's okay. Q. Your evidence is that you never inquired of Mr Zhang how his investors were actually going to take their investment in this project; is that right? A. I never ask of him. Q. You must have known, can I suggest to you, that one of the means by which the investors might invest was taking shares in the company that became known as Rushcutters Bay TFM. You must have known that? A. No."

I reject Dr Zhang's evidence referred to at [62] above to the effect that he introduced Mr Shi to Mr James Tenghui Zhang at the Project site on 7 September 2016 and accept Mr Shi's evidence denying that this introduction occurred. It is inherently improbable that Dr Zhang made that introduction. Dr Zhang had not told Mr James Tenghui Zhang about Mr Shi's proposed investment. [27] Dr Zhang does not claim to have subsequently disclosed Vinidici's investment to Mr James Tenghui Zhang and there is no evidence to suggest that he ever intended or contemplated that he would do so. Dr Zhang did not give evidence of any reason why he claims to have taken the trouble to introduce Mr Shi to Mr James Tenghui Zhang in those circumstances. As Vinidici submitted, there was an obvious risk that, if they were introduced, Mr Shi would tell Mr James Tenghui Zhang about his intended $2,000,000 investment in the Project. At that time, Tasman was on the verge of signing a Cooperation Deed pursuant to which ABFX would provide $20,000,000 in equity funding for the Project on terms that included a warranty by Tasman that TFMRB did not carry any other liabilities or debts. [28] It is inherently improbable that Dr Zhang risked Mr Shi disclosing his proposed investment to Mr James Tenghui Zhang, which would have revealed to ABFX that TFMRB was proposing to imminently take on an obligation to repay a loan of $2,000,000 to Mr Shi's company or (if the right of conversion was exercised) to issue shares to Mr Shi's company. As Vinidici submitted, the $2,000,000 debt would immediately falsify the warranty in the Cooperation Deed. If the right of conversion were subsequently exercised, the issue of shares to Mr Shi's investing company would result in the TFMRB shares pledged by Tasman to ABFX under the Cooperation Deed constituting less than 20 per cent of the issued shares in TFMRB. As Vinidici submitted and as was put to Dr Zhang in cross-examination, TFMRB's proposed transaction with Mr Shi's company undermined the TFMRB shareholding structure on which Tasman's transaction with ABFX was predicated. There was an obvious risk for Tasman that ABFX would not proceed with its $20,000,000 investment if it became aware of Mr Shi's proposed investment. [29] Dr Zhang's denial of that risk in cross-examination was utterly implausible as a matter of commercial reality and I reject it. [30]

I have already found that Mr Shi understood as at 26 August 2016 that the draft convertible note agreement conferred on "the Investor" the right to elect by 31 March 2017 to take shares in the borrower company (noting that Tasman was the proposed borrower at that time), failing which the borrower company's obligation would be to repay the $2,000,000 loan plus interest at the rate of 4 per cent per annum. [32] I further find on the basis of Mr Shi's evidence in cross-examination referred to at [88] above that he read the Convertible Note Agreement before executing it as a director of Vinidici on 8 September 2016 [33] and that he understood at that time that the only way in which Vinidici could exercise the right to convert the $2,000,000 into shares in TFMRB was to issue a notice to that effect under the Convertible Note Agreement on or before 31 March 2017. It is common ground that no such notice was given. I reject Mr Shi's contrary evidence given on the following day of his cross-examination referred to at [89]-[90] above. Mr Shi's evidence on that day was initially to the effect that he did not now know if he knew or properly understood in September 2016 that the only way in which he (through Vinidici) could participate in any profits from the Project was by obtaining shares in TFMRB, and he did not pay attention at the time to the fact that any election by Vinidici to convert the loan into TFMRB shares had to be exercised by 31 March 2017. As the cross-examination progressed, Mr Shi's claimed uncertainty about those matters developed into a positive denial that he understood before signing the Convertible Note Agreement that the loan to be made by Vinidici could be converted into shares in TFMRB. That evidence (both the claimed uncertainty and the subsequent denial) is utterly implausible having regard to the plain terms of the 26 August 2016 email from Madison Marcus, the terms of the Convertible Note Agreement and Mr Shi's evidence given during the first day of his cross-examination that is set out at [88] above. I formed the impression at the time that Mr Shi changed his evidence about these matters between the first and second days of his cross-examination because he perceived that the cross-examiner's questions on the first day had highlighted an uncomfortable inconsistency between, on the one hand, Mr Shi's insistence that he had no intention of being a lender to the Project and that he only wanted shares because (according to Mr Shi) he wanted to be "alongside [Dr Zhang] as a business partner in this venture" [34] and, on the other hand, Vinidici's failure to exercise its right of conversion by 31 March 2017 or to seek to convert at any later time. I conclude that Mr Shi's evidence on the second day of his cross-examination was false, as the cross-examiner put to him.

Third, on Mr Shi's own evidence, he did not ask Dr Zhang, and Dr Zhang did not tell him, about the structure or terms of the investment that Dr Zhang had procured from China for the Project. [41] Although Dr Zhang had told Mr Shi that he had previously acquired property development sites "through Tasman using investment money from Chinese investors", [42] the evidence does not establish that Mr Shi believed that the investment from China would be used to finance Dr Zhang's participation in the Project "through Tasman". In any event, any such belief would have logically given rise to questions about whether the Chinese investment had resulted in any change to the ownership or control of Tasman. Mr Shi did not ask any such questions. It was open to Mr Shi to ask Dr Zhang about the form of the Chinese investment without asking about the identity of those investors, which Mr Shi perceived Dr Zhang would prefer to keep confidential. It was also open to Mr Shi to cause Madison Marcus to undertake searches to ascertain the shareholding in TFMRB and Tasman immediately before Vinidici executed the Convertible Note Agreement. Any such searches undertaken on the date of execution of the Convertible Note Agreement, or when Vinidici paid the first $1,000,000 instalment of the $2,000,000 investment sum, [43] would not have identified ABFX as a shareholder of TFMRB. [44] Nevertheless, the fact that Mr Shi took no steps to cause such searches to be undertaken on behalf of Vinidici and asked no questions of Dr Zhang about the form of the investment made by the investors from China are objective facts that give rise to a strong inference that Mr Shi was not concerned about the ownership or majority ownership of TFMRB and that, when Vinidici executed the Convertible Note Agreement and paid the instalments of the investment sum, Mr Shi was primarily interested in the likely profitability of the Project. That inference is consistent with Mr Shi's conduct in carrying out his own feasibility study before offering to invest in the project. It is also consistent with Mr Shi's attitude to the right of conversion after Vinidici entered into the Convertible Note Agreement. It was plain from Mr Shi's evidence in cross-examination that, notwithstanding the terms of the Convertible Note Agreement, he did not wish Vinidici to become a shareholder in TFMRB unless and until the Project had been completed and produced a profit. Answering questions about the right of conversion or any other mechanisms by which he thought he might be able to obtain shares in TFMRB in late 2016 and early 2017, Mr Shi said that he did not think about Vinidici obtaining shares in TFMRB at that time because "we plant the seeds, and the fruits not even grow up. No-one would think about it to - to exercise these things, you know?". Mr Shi said that he did not cause Vinidici to exercise the right of conversion on or before 31 March 2017 "because the project is not even finished". [45] As senior counsel for Vinidici submitted, Mr Shi and Dr Zhang did not conduct themselves strictly in accordance with the rights and obligations of TFMRB and Vinidici under the Convertible Note Agreement after it was executed. Their communications about Vinidici's overdue second instalment of the principal sum on 2 November 2016 are one example of this. [46]

Neither Vinidici nor Mr Shi caused any search of ASIC's register to be undertaken immediately before Vinidici entered into the Convertible Note Agreement or immediately before it paid each instalment of the principal sum of $2,000,000. A search undertaken before Vinidici paid the instalments totalling $1,000,000 in January and February 2017 would have disclosed that Tasman's shares in TFMRB had been transferred to ABFX. For the reasons already explained at [210] above, I find that Mr Shi did not know when Vinidici entered into the Convertible Note Agreement or when it paid the instalments of the principal sum that 80 per cent of Tasman's shares in TFMRB had been transferred from Tasman to ABFX. Nor did Mr Shi know that the remaining 20 per cent of the shares had been pledged in connection with the return that Tasman had guaranteed to ABFX on its investment in the Project. However, for the reasons explained at [214]-[217] above, I reject Mr Shi's evidence that he signed the Convertible Note Agreement as a director of Vinidici and caused or permitted Vinidici to pay the instalments of the principal sum "in the belief that TFM Rushcutters Bay was the special purpose company owned by Tasman, which I knew was a company in which Eric was the majority shareholder and controlling director". [53] For the same reasons, I also reject Mr Shi's evidence that his relationship with Dr Zhang and Dr Zhang's "direct personal and financial involvement" in the Project (in the sense of ownership) were "the main reason for my investment". [54] I accept that, at the time of Vinidici's execution of the Convertible Note Agreement and payment of the investment sum, it is probable that Mr Shi assumed from Dr Zhang's description of TFMRB as a "Tasman company" at the time of its incorporation, [55] and from Dr Zhang's personal involvement in the continuing negotiations for the Convertible Note Agreement and continuing involvement in the Project thereafter [56] , that there was a relationship between Dr Zhang (through Tasman) and TFMRB. The evidence does not support a finding on the balance of probabilities that Mr Shi had any belief about the precise nature or structure of that relationship. There was indeed a relationship between Dr Zhang (through Tasman) and TFMRB when Vinidici entered into the Convertible Note Agreement and when the instalments of the investment sum were paid. Tasman owned 20 per cent of the shares in TFMRB subject to the pledge in favour of ABFX, and had extensive contractual rights and responsibilities under the Cooperation Deed in respect of the Project to be undertaken by TFMRB. [57] I accept Vinidici's submission that, as an 80 per cent shareholder in TFMRB, ABFX could have removed Dr Zhang as a director of TFMRB. However, ABFX could not have removed Dr Zhang as the director of Tasman or derogated from Tasman's rights and responsibilities under the Cooperation Deed.

In the matter of Vinidici Rushcutters Bay Pty Ltd - Vinidici Rushcutters Bay Pty Ltd v Zhang

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