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[2026] NSWSC 899
Supreme Court of NSW
2026-07-30
Nixon J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Jianping Qiu v Yuchen Chen (No 2) [2026] NSWSC 899
Hearing dates: 15-19 June 2026
Date of orders: 30 July 2026
Decision date: 30 July 2026
Jurisdiction: Equity - Commercial List
Before: Nixon J
Decision: 1. By 5.00pm on 3 August 2026, the parties are to confer regarding the form of order for costs and the calculation of pre-judgment interest in accordance with these reasons for judgment.
2. By 5.00pm on 10 August 2026:
a. the Plaintiffs are to file and serve submissions on any issue which is in dispute regarding interest and costs, limited to 5 pages, or otherwise notify the Court if the parties have agreed a proposed form of orders in respect of interest and costs; and
b. the First Defendant is to file and serve any submissions on the issue of apportionment of loss and damage, limited to 5 pages.
3. By 5.00pm on 17 August 2026, the parties are to file and serve any submissions in reply to the submissions served in accordance with order (2) above, limited to 5 pages in respect of each set of reply submissions.
4. The issue of apportionment and any disputed issue of interest or costs are to be determined on the papers, unless any party requests an oral hearing in their written submissions.
Catchwords: MISLEADING OR DECEPTIVE CONDUCT – Financial Services – where second defendant was corporate trustee of unit trust and third defendant was director of that trustee – where second defendant provided information memorandum to first defendant relating to the unit trust – where first defendant introduced plaintiffs to the opportunity to invest in the unit trust and provided information memorandum to them – where first defendant received referral fee from second defendant consequent upon the plaintiffs’ investment in the trust – whether the first defendant made misleading oral representations to plaintiffs regarding the unit trust – whether the information memorandum made misleading representations regarding the unit trust – whether the defendants engaged in misleading conduct – whether the defendants committed the tort of deceit – whether the plaintiff relied on any misleading representations in deciding to invest in the unit trust
EQUITY – Trusts and Trustees – breach of trust – where the second defendant purported to redeem the plaintiffs’ units in the trust in return for units in a different fund which were held in the name of a company controlled by the first defendant – whether plaintiffs gave authority for this “swap” transaction to be implemented – whether second defendant breached the terms of the trust or its duties as trustee in implementing the “swap” transaction – whether third defendant knowingly assisted in breach
DAMAGES – whether the plaintiffs’ loss should be assessed in accordance with the “rule” in Potts v Miller (1940) 64 CLR 282; [1940] HCA 43 – whether the plaintiffs were “locked into” their investment in the unit trust by reason of the defendants’ misleading conduct – whether break in chain of causation by reason of the “swap” transaction – whether interest earned by the plaintiffs should be brought to account to reduce quantum of loss
Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAA, 12BAB, 12DA, 12DB, 12DC, 12GF, 12GP
Evidence Act 1995 (NSW) s 140
Cases Cited: Armitage v Nurse [1998] Ch 241
Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120
Barnes v Addy (1874) LR 9 Ch App 244
Bennett v Minister of Community Welfare (1992) 176 CLR 408; [1992] HCA 27
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60
Chapman v Hearse (1961) 106 CLR 112; [1961] HCA 46
Cleary v Australian Co-Operative Foods Ltd (Nos 2 & 3) (1999) 32 ACSR 701; [1999] NSWSC 991
DVO16 v Minister for Immigration and Border Protection (2021) 273 CLR 177; [2021] HCA 12
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Federal Commissioner of Taxation v Miley [2017] FCA 1396
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268
Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54
Huang v Wei (No 2) [2022] NSWSC 473
In re Vickery [1931] 1 Ch 572
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) (2007) 63 ACSR 1; [2007] NSWSC 124
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Karger v Paul [1984] VR 162
Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082
Lord v Pacific Steam Navigation Co Ltd (The Oropesa) [1943] P 32
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12
Magill v Magill (2006) 226 CLR 551; [2006] HCA 51
Mandie v Memart Nominees Pty Ltd (as trustee of the David Mandie Family Trust) (2020) 62 VR 528; [2020] VSCA 281
Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66
Pico Holdings Inc v Voss [2004] VSC 263
Potts v Miller (1940) 64 CLR 282; [1940] HCA 43
Sangha v Baxter [2009] NSWCA 78
Segelov v Ernst and Young Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156
Smith New Court Securities Ltd v Citibank NA [1997] AC 254
Turner v Richards [2025] NSWCA 83
Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15
Zong v Wang [2022] NSWCA 80
Category: Principal judgment
Parties: Jianping Qiu (First Plaintiff)
Jingjing Lin (Second Plaintiff)
Yuchen Chen (First Defendant)
Jarrah Capital 2005 Loan Pty Ltd (Second Defendant)
Michael Hai Tao Pan (Third Defendant)
Representation: Counsel:
D Cook SC with J Foley (Plaintiffs)
E Finnane (First Defendant)
R D Marshall SC and N Li (Second and Third Defendants)
Solicitors:
AHD Lawyers (Plaintiffs)
EXC Law (First Defendant)
Northan Legal (Second and Third Defendants)
File Number(s): 2024/00241565
Publication restriction: Nil
This proceeding arises out of an investment made by Mr Jianping Qiu and his wife, Ms Jingjing Lin, in the Jarrah Capital 2005 Loan Trust (Jarrah Capital Trust).
The Second Defendant, Jarrah Capital 2005 Loan Pty Ltd, is the trustee of the Jarrah Capital Trust.
The Third Defendant, Mr Michael Hai Tao Pan, was, at all material times, a director and the Chief Executive Officer of Jarrah Capital.
The First Defendant, Mr Yuchen (Luke) Chen, introduced Mr Qiu and Ms Lin to the investment in the Jarrah Capital Trust, and received a referral fee from Jarrah Capital as a result of their investment.
There are five main issues to be determined in this proceeding:
first, whether Mr Luke Chen made misleading statements about the Jarrah Capital Trust in the course of a conversation with Mr Qiu on 26 June 2022 (the Oral Representations), and thereby engaged in misleading conduct in contravention of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and/or committed the tort of deceit;
secondly, whether the Information Memorandum which Jarrah Capital provided to Mr Luke Chen, on Mr Pan’s instructions, and which Mr Luke Chen forwarded to Mr Qiu and Ms Lin, contained misleading statements (the IM Representations), and whether the Defendants thereby engaged in misleading conduct in contravention of the ASIC Act and/or committed the tort of deceit;
thirdly, whether the Plaintiffs relied on the Oral Representations and/or the IM Representations in deciding to invest in the Jarrah Capital Trust;
fourthly, whether Jarrah Capital breached the terms of the Jarrah Capital trust deed and/or breached its fiduciary duties as trustee in causing the Plaintiffs’ units in the Jarrah Capital Trust to be “swapped” for units in another unit trust, known as the Hastings Fund, and whether Mr Pan knowingly assisted in any such breach; and
finally, whether the Plaintiffs have established that they suffered loss and damage as a result of any such wrong and, if so, the amount of such loss and damage.
The resolution of these issues depends on the determination of various other matters such as the content of disputed conversations, and the state of mind of each of the protagonists at the time of particular transactions. These matters were the subject of extensive cross-examination of each of the four individuals involved in the proceeding. Three of those individuals – Mr Qiu, Ms Lin and Mr Luke Chen – have very limited command of English, and gave their evidence through interpreters. There were relatively few contemporaneous emails in relation to the matters in issue, with the majority of communications being via WeChat messages.
On 2 March 2017, Ausvogar Investment Management Pty Ltd was incorporated. Ausvogar was a member of a group of companies known as the “Rong Qiao” group. Rong Qiao is a Mandarin term meaning to “obtain financing from overseas Chinese community”.
On 5 July 2021, Ausvogar issued an Information Memorandum (Ausvogar IM) regarding an offer to invest in the Ausvogar Cobbitty South Unit Trust (ACSU Trust).
The Ausvogar IM stated that Ausvogar intended to enable the acquisition by investors of up to 10m Class A Units and 15m Class B Units in the ACSU Trust at a price of $1.00 each, in order to raise up to $25m.
The Ausvogar IM further stated that:
Ausvogar would use the investment funds of $25m to purchase 100% of the units in Robert Jones Mezz Fund No 1 (RJ Mezz Fund), of which Robert Jones Mezz Fund No 1 Pty Ltd (RJ Mezz) was the trustee;
RJ Mezz would in turn loan the amount of $25m to Robert Jones Cobbitty 2005 Pty Ltd (RJ Cobbitty);
RJ Cobbitty would use the $25m loan, together with a $204m facility from a private lender (which was White & Partners (Investments) Pty Ltd), to settle the acquisition of a property of approximately 79.8 hectares, which was located at 421 The Northern Road, Cobbitty NSW 2750 (the Cobbitty Property);
an independent valuation of the Cobbitty Property indicated that, as at 24 April 2021, the “as is” value of the property was $271.5m;
RJ Cobbitty would grant a first mortgage to White & Partners, and a second mortgage to RJ Mezz as trustee for the RJ Mezz Fund; and
RJ Mezz would assign the second mortgage to the ACSU Trust, such that: “If [RJ Cobbitty] fails to repay, we [Ausvogar] hold the mortgage right on the [Cobbitty] Property to ensure the Fund is not at risk of [an] unrecoverable loan”.
The Ausvogar IM indicated that Class A and Class B unitholders would receive a fixed net return of 20% per annum.
The Cobbitty Property is located in the vicinity of the planned Western Sydney airport. The land was contained in Certificate of Title 2005/1162239. The projected development of this land became known as “2005”. This explains why the number “2005” appears in the name of the entity which bought the Cobbitty Property (“Robert Jones Cobbitty 2005 Pty Ltd”), and also in the name of the Second Defendant (“Jarrah Capital 2005 Loan Pty Ltd”) and the trust of which it was trustee (“Jarrah Capital 2005 Loan Trust”).
On 5 July 2021 (being the same day as the Ausvogar IM was issued):
Jarrah Capital was incorporated and Mr Pan was appointed as a director;
the Jarrah Capital Trust was established as a unit trust by a deed dated 5 July 2021 (the Trust Deed), with Jarrah Capital as its trustee; and
Jarrah Capital issued an Information Memorandum in respect of the Jarrah Capital Trust (Jarrah Capital IM).
The Trust Deed was executed by Mr Pan both as a director of Jarrah Capital and as sole director of one of the two initial unitholders, Red Eucalyptus Pty Ltd.
The “Letter to Unit Holders” in the Jarrah Capital IM was from Mr Pan as Chief Executive Officer of Jarrah Capital, and relevantly stated as follows:
“Dear Unit Holders,
Invitation – On behalf of Jarrah Capital 2005 Loan Pty Ltd, we are delighted to present you with the opportunity to become a Unit Holder in Jarrah Capital 2005 Loan Trust, subsequently in Cobbitty South Unit Trust, enabling participation in Australian real estate property (‘Property’) development and investment project opportunities with which Jarrah Capital and its corporate group is involved (‘Project’), being:
To provide registered mortgage to assist the Borrower in settling the purchase of 421 The Northern Road, Cobbitty NSW 2570 (the ‘Property’ or ‘Lot 2005’).
Opportunity – The Trustee intends to enable the acquisition by investors of up to 5,000,000 Class A Preferred Units and 15,000,000 Class B Regular Units at a price of A$1.00 each, to raise up to A$20,000,000.00. Class A and Class B units have different rights and obligations attaching, detailed information and the proposed subscription opportunity is contained in this information memorandum.
Purpose – the primary purpose of the Offer is to provide the Trust with the money required to finance the project through secured loan selected by the Managers, and to provide investors with development-grade returns on their capital invested.”
“The Trust will provide the Borrower a $20 million registered mortgage loan to assist the Borrower in settling the acquisition of the Property …
…
The Borrower has obtained mortgage from a private lender with an approx. $204 million facility. Robert Jones Cobbitty 2005 Pty Ltd (ACN 649 501 931), a special purpose vehicle, ultimately owned by Robert Jones Holdings Pty Ltd (ACN 643 884 084) will be the registered legal owner of the Property, and is the Borrower.
…
When the sale of the land and loan facility is settled, the title is expected to contain a first mortgage registered by first mortgagor and a mortgage registered by Roberts Jones Mezz Fund No.1 Pty Ltd (‘RJ Mezz’), a special purpose vehicle ultimately owned by Roberts Jones Holdings Pty Ltd (ACN 643 884 084).
The Trust will acquire 100% units of Roberts Jones Mezz Fund No. 1 with Roberts Jones Mezz Fund No 1 Pty Ltd (ACN 650 363 198) as trustee. If the Borrower fails to repay, we hold the mortgage right on the Property to ensure the Trust is not at risk of unrecoverable loan.”
The Jarrah Capital IM stated that the opening date for the offer to acquire units in the Jarrah Capital Trust was 5 July 2021 and the closing date was 9 July 2021.
Mr Pan deposed that the Jarrah Capital Trust was intended for three proposed investors whom he had identified, and whom he acknowledged in cross-examination to be his “close friends”.
By the end of the subscription period, each of these three investors had subscribed for units in the Jarrah Capital Trust. On 12 July 2021, these investors paid a total of $11m into the trust account of Jarrah Capital’s solicitors. On the same day, a total of 11m units in the Jarrah Capital Trust were issued at $1.00 each as follows:
Mr Ping Sun was issued with 8m units;
AAL Properties Group Pty Ltd, being a company associated with Ms Lena Ng, was issued with 2m units; and
Hou & Li Investment Pty Ltd as trustee for the Hou & Li Family Trust was issued with 1m units.
On 13 July 2021, Jarrah Capital used the $11m in subscription moneys from these initial investors to subscribe, in turn, for 11m units in the ACSU Trust.
On the same day:
RJ Cobbitty became the registered proprietor of the Cobbitty Property;
a first-ranking mortgage granted to White & Partners was registered on the title of the Cobbitty Property.
On 26 July 2021, a second-ranking mortgage granted to RJ Mezz was registered on the title of the Cobbitty Property.
Jarrah Capital received a quarterly payment of interest from Ausvogar in respect of the $11m which it had invested in the ACSU Trust, and used this payment to fund the payment of interest to unitholders in the Jarrah Capital Trust.
On 24 December 2021, RJ Cobbitty sold the Cobbitty Property to Mirvac Homes (NSW) Pty Ltd. At the same time, the first and second mortgages which had been registered on the title of the Cobbitty Property were discharged.
In early 2022, Ausvogar as trustee of the ACSU Trust deployed the funds which had been received by reason of the discharge of the second mortgage for the purpose of a new loan to RJ Cobbitty that was made by an entity called RJ Cobb 2005 Pty Ltd.
The Deed of Loan between RJ Cobb 2005 (as Lender) and RJ Cobbitty (as Borrower) provided, inter alia, that RJ Cobbitty must sign an Irrevocable Direction in the form of Schedule 3 to that deed, which was addressed to Mirvac. This document authorised and directed Mirvac to pay all moneys which were due and payable under the contract for the sale of the Cobbitty Property (Cobbitty Sale Contract) into a particular bank account nominated by RJ Cobb 2005 or otherwise as RJ Cobb 2005 directs. This direction appears to have been given in circumstances where there was an amount described as the “Purchase Price Retention Amount” which remained payable by Mirvac under the Cobbitty Sale Contract.
There was evidence given by Mr Pan, which was limited to evidence of his understanding, that the retention amount owed by Mirvac was $40m. However, the Cobbitty Sale Contract was not in evidence, and there was otherwise no admissible evidence as to the quantum of the retention amount at any material date. Accordingly, I make no finding in that regard.
Mr Pan only learned of the matters outlined above in around the first week of April 2022. He was angry when he discovered what had happened. He informed his three “close friends” (who were the unitholders in the Jarrah Capital Trust) of what he had discovered and, in particular, that the security for their investment had been impaired. He acknowledged in cross-examination that this was distressing news for them.
On 13 April 2022, the solicitors for Jarrah Capital sent a letter to Ausvogar alleging that it had breached its obligations as trustee of the ACSU Trust. This letter demanded the return of the capital which Jarrah Capital had invested in the ACSU Trust, as well as distribution of the income derived from that capital.
As a result of this dispute being raised, Ausvogar:
began paying Jarrah Capital interest on its investment in the ACSU Trust on a monthly, rather than quarterly, basis;
began to redeem units which had been issued to Jarrah Capital in the ACSU Trust (as outlined further below); and
procured Mr Pan’s appointment as one of the two directors of RJ Cobb 2005, with Jarrah Capital also being made a 26% shareholder of RJ Cobb 2005 on 31 May 2022.
In June 2022, Mr Pan telephoned Mr Luke Chen and had a discussion with him about an investment opportunity to purchase units in the Jarrah Capital Trust from an existing unitholder (namely, Mr Sun).
There is a dispute as to the terms of this conversation and, in particular, as to the extent of the information which Mr Pan provided Mr Luke Chen about the Jarrah Capital Trust in the course of this conversation (which I will address below).
At the time of this conversation, Mr Luke Chen was working as a tennis coach. However, he has held a real estate licence since 2016 and had previously worked as a real estate agent for CBRE Commercial selling off-the-plan residential properties and, in 2019, as a sales manager in Mr Pan’s real estate business, PW Realty. Mr Luke Chen had kept in contact with Mr Pan after leaving this role.
Mr Pan agreed in cross-examination that, at the time of their conversation in June 2022, he knew that Mr Luke Chen “had a lot of friends in the tennis world that were wealthy”.
Mr Luke Chen gave evidence that, in the course of this telephone call, Mr Pan told him that if he was successful in finding friends to invest in the fund, he would receive a financial benefit; and that this benefit turned out to be a referral fee of 4% per annum on the amount that his friends had invested in the fund.
There was documentary evidence that Mr Luke Chen subsequently received such fees in respect of the investments in the Jarrah Capital Trust which were made by the Plaintiffs.
Mr Luke Chen regularly met to play tennis or to have dinner with Mr Yu (Grant) Chen. They became close friends, who sometimes discussed business and investment opportunities.
In around May 2022, Mr Grant Chen informed Mr Luke Chen that he had invested in a property development project which was being managed by the Rong Qiao Group.
In June 2022, Mr Luke Chen told Mr Grant Chen that his “boss” had “a similar investment offering to your Rong Qiao investment”, but which offered a higher return. Mr Luke Chen proceeded to inform Mr Grant Chen of an opportunity to invest in the Jarrah Capital Trust. (I will address below the question of what Mr Luke Chen told Mr Grant Chen about this investment and, in particular, the security for this investment.)
Through playing tennis, Mr Luke Chen had also met and become friends with Mr Qiu and Ms Lin, who had a tennis court at their home.
On 26 June 2022, shortly after Mr Luke Chen’s conversation with Mr Grant Chen about the Jarrah Capital Trust, each of them attended Mr Qiu’s and Ms Lin’s home to play tennis. Also in attendance was Mr Grant Chen’s wife (Ms Cui Cui) and Mr Gudi Li, who was another acquaintance of Mr Luke Chen.
On this occasion, Mr Luke Chen had a conversation with Mr Qiu regarding the opportunity to invest in the Jarrah Capital Trust. Mr Grant Chen was present when this occurred. This is the conversation in which each of the “Oral Representations” is alleged to have been made.
Mr Qiu had a conversation with Ms Lin later on the same day in which he relayed what Mr Luke Chen had told him.
Each of Mr Qiu, Mr Luke Chen and Mr Grant Chen gave an account of the conversation on 26 June 2022, and each was cross-examined at some length regarding what was said by Mr Luke Chen in the course of this conversation, particularly regarding the nature of the investment and the security for the investment. Again, I will address these matters below.
On this day, Mr Grant Chen and his wife made the decision to invest in the Jarrah Capital Trust. Between 28 and 30 June 2022, Mr Grant Chen deposited a total of $350,000 into the trust account of Jarrah Capital’s solicitors.
In the course of their conversation at the tennis gathering on 26 June 2022, Mr Qiu asked Mr Luke Chen whether he had any documents regarding the investment in the Jarrah Capital Trust.
Mr Luke Chen gave evidence that, on the following day, he had a telephone conversation with Mr Pan and asked whether there were any documents about the Jarrah Capital Trust which Mr Pan could send to him, so that he could pass them onto his friends; and that, in response, Mr Pan stated that Mr Damon Yu, the Finance Director of Jarrah Capital, would email Mr Luke Chen a copy of the Jarrah Capital IM.
In contrast, Mr Pan gave evidence that he had offered to provide Mr Luke Chen with a copy of the Jarrah Capital IM when he had first spoken to him about the Jarrah Capital Trust (that is, prior to the conversation with Mr Qiu).
This issue of timing is of comparatively minor importance. The more important issues, which I will address below, are precisely what Mr Pan told Mr Luke Chen about the events which had happened since the issue of the Jarrah Capital IM and about the impact of those events on the information in the Jarrah Capital IM, and whether Mr Pan placed any restriction on the use that could or should be made of the Jarrah Capital IM.
On 27 June 2022 at 7.45pm, Mr Yu sent an email to Mr Luke Chen, copied to Mr Pan, which attached the Jarrah Capital IM and stated as follows:
“Please kindly find attached information memorandum and application form for Jarrah Capital 2005.”
The email provided instructions on completing the application form and making payment, but did not contain any further comment in relation to the attached Jarrah Capital IM.
Mr Pan confirmed in cross-examination that this email was sent on his instructions.
On 27 June 2022 at 8.08pm, shortly after receiving the Jarrah Capital IM, Mr Luke Chen sent the PDF of the Jarrah Capital IM and application form to Mr Qiu by way of a WeChat message. Mr Luke Chen did not provide any comment about this material when he sent it.
Around the same time, Mr Luke Chen asked Mr Qiu for his email address and Mr Qiu responded by providing Ms Lin’s email address. Mr Luke Chen then forwarded Mr Yu’s email to Ms Lin at 8.13pm on the same evening. Mr Luke Chen forwarded this email, with the Jarrah Capital IM attached, without adding any comment other than “As forward”.
At the time that Mr Qiu and Ms Lin received the Jarrah Capital IM, they were staying at a hotel in Port Macquarie, as a stopover on their way to the Gold Coast for a family holiday.
Ms Lin did not read the Jarrah Capital IM.
Mr Qiu gave evidence that he used an online translation tool so that he could read the Jarrah Capital IM and that he relied on the information in that document when deciding to invest in the Jarrah Capital Trust. This evidence was the subject of challenge in cross-examination. (I deal with this evidence below when addressing the question of reliance.)
Ms Lin subsequently completed an application form, which was dated 27 June 2022, for 500,000 units in the Jarrah Capital Trust. On 28 June 2022, she transferred $500,000 into the trust account of Jarrah Capital’s solicitors.
On 30 June 2022, Ausvogar redeemed another 500,000 units held by Jarrah Capital in the ACSU Trust at $1.00 each.
On 1 July 2022, 3.5m units in the Jarrah Capital Trust were issued to various investors at $1.00 each, including:
500,000 units to Ms Lin;
350,000 units to Ms Cui (Mr Grant Chen’s wife);
150,000 units to Mr Luke Chen;
450,000 units to Red Eucalyptus (of which Mr Pan was sole director); and
1.5m units to AAL (which was one of the original investors in the Jarrah Capital Trust, thereby increasing its holding to 3.5m units).
On the same day, the total amount of $4m that was received by Jarrah Capital, from the redemption of its 500,000 units in the ACSU Trust and from the issue of 3.5m units in the Jarrah Capital Trust, was applied to redeem Mr Sun’s remaining 4m units in the Jarrah Capital Trust.
Accordingly, as at 1 July 2022, Mr Pan’s “close friend”, Mr Sun, achieved his wish of recovering his investment and getting out of the Jarrah Capital Trust.
Also on 1 July 2022, Mr Luke Chen issued an invoice to Jarrah Capital for his referral fee. This followed an earlier exchange of WeChat messages between him and Mr Pan on the same day, which had commenced with Mr Luke Chen stating “Hey boss, just wanted to check – Damon [Yu] asked me to issue an invoice for the Referral Fee”.
Mr Luke Chen subsequently redeemed his 150,000 units in the Jarrah Capital Trust for $150,000 on 1 October 2022, when Ms Cui made a further investment of that amount in the Jarrah Capital Trust and was issued with 150,000 units. On the same date, Ms Cui’s entire holding of 500,000 units was transferred to her husband, Mr Grant Chen.
On 31 October 2022, Jarrah Capital’s solicitors wrote to Ausvogar, noting that Jarrah Capital had, on 13 April 2022, required the redemption of all 11m units held by it in the ACSU Trust, but that 5.5m units remained outstanding. This letter required that Ausvogar redeem a further 3m units at a price of $1.00 per unit by no later than 30 November 2022, failing which Jarrah Capital would take all necessary action to enforce its rights.
On 30 December 2022, Ausvogar redeemed a further 3m units held by Jarrah Capital in the ACSU Trust at $1.00 each. This reduced Jarrah Capital’s holding in the ACSU Trust to 2.5m units (down from its initial investment of 11m units).
In early January 2023, Jarrah Capital used the $3m received from the redemption of its ACSU units to redeem 3m units held by AAL in the Jarrah Capital Trust at $1.00 each. This reduced the holding of AAL (which was associated with Mr Pan’s “close friend”, Ms Lena Ng) to 500,000 units.
The remaining 500,000 units held by AAL were redeemed in February 2023, when Mr Qiu made a further investment of $500,000 in the Jarrah Capital Trust. The relevant sequence of events was as follows:
On 4 January 2023, Mr Qiu had an exchange of WeChat messages with Mr Luke Chen in which Mr Qiu asked whether he could make a further investment in the Jarrah Capital Trust and when such an investment could be made. Mr Luke Chen replied that it was possible to make a further investment, and that this should be done by 31 January 2023 by way of a payment into the trust account of Jarrah Capital’s solicitors. Mr Qiu replied: “Okay, I’ll think about how much to invest and let you know”.
Mr Qiu appears to have missed the 31 January deadline. On 1 February 2023, he and Mr Luke Chen exchanged the following messages:
Mr Qiu: “It was said to add more last time but was forgotten”.
Mr Chen: “Haha, then in February”.
Mr Qiu: “Ok. I will let [Ms Lin] add your WeChat. You just tell her when it is ok to buy”
“500,000 will be invested in the project same as the previous one. The rate will be the same. Everything will be the same.
The date of payment is 27 February. As long as the money reaches the account on Monday, it will be fine.”
Ms Lin responded that she would make the transfer on Friday (24 February 2023). She proceeded to make the payment on that date, and also completed an application for the further units.
On 27 February 2023, Mr Luke Chen sent Ms Lin, via WeChat, a receipt for the payment and a certificate for the further 500,000 units, which were held in Mr Qiu’s name.
On 28 February 2023, AAL’s remaining 500,000 units in the Jarrah Capital Trust were redeemed at $1.00 each.
This meant that, by the end of February 2023 (and around 10 months after Mr Pan had discovered that the Cobbitty Property had been sold), all of Mr Pan’s “close friends” had exited the Jarrah Capital Trust and had recovered the full amount of their investment. Further, at this point in time, the Plaintiffs held 40% of the units in the Jarrah Capital Trust (1,000,000 of the 2,500,000 units on issue), with Mr Grant Chen holding another 20%.
On 27 February 2023, after receiving the certificate for the additional 500,000 units, Ms Lin asked Mr Luke Chen: “is this certificate the contract?” He left her a voice message, replying as follows:
“I will send you a copy of the contract later. It is actually a document that is exactly the same as the one last time. It is just a document. And then, this is your certificate to prove that you made an investment. It proves that you invested 500,000 into Plus A. This is the certificate. The contract is that document. Look for it later. It’s in the message history with Jay.”
Mr Luke Chen was here referring to the Jarrah Capital IM (which he had sent to Mr Qiu by WeChat message in June 2022, and which was therefore in the WeChat “message history”), was describing it as the “contract”, and was confirming that it remained “exactly the same as the one last time”.
Mr Luke Chen sent Ms Lin a copy of the Jarrah Capital IM by WeChat message later on the same day, at around 6.00pm, stating “this document is what we usually call contract”. This led to the following exchange of messages a few minutes later:
Ms Lin: “Well, I don’t even know what we are investing in. Does it have any security?”
…
Mr Chen: “The security locates in southwestern Sydney, the location of the new airport. The security is a large piece of land. …”
On 20 May 2023, the Hastings C101 Fund (Hastings Fund) was established as a unit trust with Hastings C101 Pty Ltd as its trustee and with Hastings Capital Au Pty Ltd as its sponsor and fund manager.
Mr Pan was a director of Hastings Capital, which held an Australian Financial Services Licence. Hastings Capital operated out of the same office as Jarrah Capital, with each entity using the services of the same staff member (Mr Damon Yu).
In addition, Mr Pan was appointed as the Investment Director of the Hastings Fund.
On 20 May 2023, Hastings Capital issued an Information Memorandum in relation to the Hastings Fund (the Hastings IM).
The Hastings IM had a large box on its front page headed “IMPORTANT INFORMATION FOR INVESTORS”, which stated as follows:
“Investment in a new fund can carry high risks. The activities of the fund are speculative, and before investing, prospective investors are strongly advised to take appropriate professional advice”
The Hastings IM stated that the target fund size was $10,110,000, comprising 10,000,000 Class A Units and 110,000 Class O Units. The moneys raised from the Class A Units would be used by the Hastings Fund “to invest in a Preference Share in the Company [Hastings Equity Pty Ltd]”, and Hastings Equity would, in turn, use these funds “to engage in trading and dealing activities with respect to securities and derivatives in markets both in Australia and overseas”. The Hastings IM warned that: “These activities are by their nature highly speculative”.
The Hastings IM stated that the Preference Share which the Hastings Fund held in Hastings Equity would entitle the Class A Units to a fixed return of 12% per annum. If Hastings Equity earned a return in any year less than 12%, then the return on the Preference Share (and hence on the Class A Units) would be reduced. If Hastings Equity earned a return in any year in excess of 12%, the profit in excess of the 12% return would be the entitlement of the Ordinary Shares in Hastings Equity (rather than the Preference Share held by the Hastings Fund). Accordingly, the maximum return for the Class A Units was 12% per annum.
From around June 2023, Mr Luke Chen began offering units in the Hastings Fund to friends and associates. Mr Pan offered Mr Luke Chen an 8% referral fee for any such investment (being a rate twice that offered in respect of an investment in the Jarrah Capital Trust). Mr Luke Chen was subsequently issued with a business card by Hastings Capital which described his role as “Business Development Director”. He also had a Hastings Capital email address.
In late 2023, around Christmas, Mr Pan attended a dinner with Ms Lena Ng and her husband. At this time, Ms Ng held 2,000,000 units in the Hastings Fund through Advance Investment & Financial Service Group Pty Ltd (AIF), which she controlled. Ms Ng also held (through AAL) 1,000,000 units in the Jarrah Capital Fund, which had been issued on 1 December 2023. (These units were issued when Jarrah Capital redeemed Mr Grant Chen’s 500,000 units, as well as units held by two other investors, including Mr Pan’s company Red Eucalyptus.)
Ms Ng told Mr Pan that she wanted to swap AIF’s 1,000,000 units in the Hastings Fund for 1,000,000 units in the Jarrah Capital Trust.
Mr Pan then contacted Mr Luke Chen and asked him to see if “his friend” (namely, Mr Qiu) was willing to do this “swap”.
At this time, there was a total of only 1,500,000 units in the Jarrah Capital Trust held by persons other than AAL, and Mr Qiu and Ms Lin held, between them, 1,000,000 of those units. It follows that if Mr Qiu and Ms Lin did not agree to the proposed “swap”, then it would not be able to occur.
At around 3.00pm on 29 December 2023, Mr Luke Chen called Mr Qiu via WeChat, and they had a conversation which lasted 2 minutes and 46 seconds (according to the WeChat records in evidence). At the time, Mr Qiu and Ms Lin were visiting China. The 29th was a Friday and therefore the last business day of the year.
Each of Mr Luke Chen and Mr Qiu gave evidence about the contents of this conversation.
It is common ground that, in the course of this conversation, Mr Luke Chen said words to the effect that the investment in Jarrah Capital would be maturing, or coming to an end, and asked if Mr Qiu would be interested in the $1m currently invested in the Jarrah Capital Trust being used for another investment. There is a dispute as to what Mr Luke Chen told Mr Qiu about this new investment, and also as to whether Mr Qiu indicated that he was interested in the investment and would consider it when he returned to Australia. I address this dispute below.
Around an hour after calling Mr Qiu, Mr Luke Chen sent a WeChat message to Mr Qiu which stated as follows:
“Hello Jay, the information is confirmed as follows:
The interests for the investment paid in at the beginning of the month for the previous project (1 million in total) are paid on the 1st day of the same month.
Therefore, the interest was paid on 1 December 2023 for that month.
Therefore, on 1 January 2024, no interest will be paid.
From 1 January 2024, investment will be paid into the following project: the project that was subsequently transferred to.
(Director Ge, the boss and I are all in it)
The rate of return is still 12% per annum. A return of 1% will be paid every month.
It will be deemed to be invested on 1 January 2024.
On 1 February, the interest for January will be paid, and so on.
If necessary, once you are back in Sydney, we can issue you supplementary documents.”
Mr Qiu replied later on the same day: “Ok”.
On the same day, following his discussion with Mr Qiu, Mr Luke Chen called Mr Pan. According to Mr Pan, Mr Luke Chen informed him that Mr Qiu and Ms Lin “were OK for the ‘swap’ of all their units in the Jarrah [Capital] Trust”, and Mr Luke Chen “also asked to have the new certificate in [the Hastings Fund] to be issued to Yulan Investment Pty Ltd”, which he described as “the company he uses to hold units for himself and his friends”. Mr Luke Chen largely corroborated this account.
Mr Luke Chen was the sole director and shareholder of Yulan.
It was common ground that Mr Luke Chen did not say anything to Mr Pan to indicate that Mr Qiu and Ms Lin had given authority for any units in the Hastings Fund to be issued to or held by Yulan. It was also common ground that Mr Luke Chen had not sought or obtained any such authority.
Mr Pan gave evidence that, following this conversation, he caused the following transactions to be effected on 1 January 2024:
the 500,000 units held by Ms Lin and the 500,000 units held by Mr Qiu in the Jarrah Capital Trust were “redeemed” (and this was recorded in the unit register of the Jarrah Capital Trust by cancelling the unit certificates which had previously been issued to each of Ms Lin and Mr Qiu);
1,000,000 units in the Jarrah Capital Trust were issued to Ms Ng’s company, AAL;
1,000,000 units in the Hastings Fund held by Ms Ng’s company, AIF, were redeemed (and this was recorded in the unit register of the Hastings Fund by cancelling the unit certificate previously issued to AIF); and
1,000,000 units in the Hastings Fund were issued to Yulan.
Mr Chen: “Morning Jay,
Attached is the proof of investment for your 1 million (valid from January 2024).
Currently, it is being held on your behalf by a company called Yulan (Yulan is a company specifically established by me for the convenience of the tax lodgement for the funds received. Director Ge and Gudi are all under Yulan and they all invested).
Once you are back in Sydney, it can be transferred to you or Jingjing [Ms Lin] or the company.
Or you can choose to let Yulan hold it on your behalf.
Regardless of being held on your behalf or held by yourself, the rest is all the same.
Once you are back, we can have further discussions.”
Mr Qiu: “Ok.”
…
“This is your company, right?”
Mr Chen: “Yeah, Yulan, one character from each name [smiling emoji]”
Mr Qiu: “Ok”
Around two weeks later, on 29 January 2024, Mr Qiu asked whether the investment in the Hastings Fund could “be redeemed at any time”. Mr Luke Chen replied: “For this project, normally it is locked in for 1 year”. He added that, if there were special circumstances, and Mr Qiu gave “2-3 months” advance notice, “it should be fine”.
A week later, on 6 February 2024, Mr Qiu told Mr Luke Chen that he wanted the investment redeemed. Mr Luke Chen replied that he would “try to get it back after two months (that is the end of April)”.
On 14 February 2024, Mr Luke Chen sent a further message to Mr Qiu, stating that he had made a request to Hastings Capital to withdraw the $1m investment, and had been told that $500,000 would be paid before 30 April, with the remaining $500,000 being paid before 30 June.
In April 2024, Mr Pan resigned as a director of Hastings Capital. In his letter of resignation, which was addressed to investors in the Hastings Fund and was dated 10 April 2024 (but appears to have been sent to investors by an email on 30 April 2024), Mr Pan stated that he felt “obliged to share [his] recent findings and concerns with regard to [Hastings Equity’s] current poor liquidity due to complicated market conditions”.
On 24 April 2024, Mr Pan met with Mr Luke Chen to discuss the Hastings Fund. Mr Pan told Mr Luke Chen of his resignation as a director of Hastings Capital, and said words to the effect that “there are cashflow issues with the company and there may be an issue with the investment and the investors may lose their money”.
On the afternoon of the same day, Mr Luke Chen met with Mr Qiu and passed on this information. Mr Qiu requested a copy of the Hastings IM (which had not previously been provided to him). Mr Luke Chen sent this document to Mr Qiu by WeChat on the same afternoon, leading to the following exchange of messages:
Mr Qiu: “You did not told me it was invested into a fund. I thought it was for property mortgage, same as before.”
“It does not matter why I decided to withdraw so early. Their company did promise that the investment will be paid back in April and June. Now, not a single cent has been has been paid. This is simple unacceptable. Also I need money urgently.”
Mr Chen: “I know.”
Mr Qiu: “What is the full name of this fund? Is there an official website? Send it to me.”
Mr Chen: “Yes. I will send you a screenshot.”
[Image sent]
Mr Qiu: “Noted.”
“Is this your company? Doesn’t it have a website?”
Mr Chen: “https://hastings-capital.com/”
“This is the website of the company.”
“It is our company.”
Mr Qiu: [Image of two persons]
“Is this person the superior you mentioned about?”
Mr Chen: [image of three persons]
“It’s the first one. … Michael Pan.”
Mr Qiu: “My money was transferred to another company while I had no knowledge about this at all. This is fraud. I don’t want you to become involved in this, so be quick.”
Mr Chen: “I know, I know. I will definitely chase it up.”
“Give me a bit more time. Having a face to face conversation right now.”
…
Mr Qiu: “You talk to him about this issue. My request is to have my principal refunded by Jarrah Capital. I have no knowledge at all when my money was transferred away. Therefore it needs to be refunded via the same route.”
Mr Chen: “Ok, noted. I also mentioned this in person today.”
On 13 May 2024, the Plaintiffs’ solicitors wrote to Jarrah Capital, stating that their clients never consented to their investment funds being transferred to Yulan, and demanding the repayment of their $1m investment.
No money was subsequently returned to the Plaintiffs by Jarrah Capital.
The Plaintiffs have not received, since April 2024, any payment in respect of interest or capital from the Hastings Fund.
Mr Pan confirmed in cross-examination that the units in the Hastings Fund were now worthless.
On 1 December 2023, Ausvogar failed to make the interest payment due to Jarrah Capital in respect of its 2.5m units in the ACSU Trust. Ausvogar did not subsequently make any further interest payments to Jarrah Capital.
On 17 June 2024, the unitholders of the Jarrah Capital Trust unanimously resolved to sell all of the remaining 2.5m units in the ACSU Trust for $550,000.
On 18 June 2024, Jarrah Capital entered into an agreement for the sale of the units at this price with LNG Finance Pty Ltd, which was the nominee of AAL (being the company associated with Ms Ng, which held 80% of the units in the Jarrah Capital Trust).
LNG subsequently paid the amount of $550,000 to Jarrah Capital, and this sum was distributed to the unitholders in the Jarrah Capital Trust.
Each of the parties made submissions that various aspects of the evidence of the opposing parties’ witnesses were unreliable, or implausible, or inconsistent, or were patently incorrect. In this proceeding, there are multiple contested issues as to what was stated in conversations, what particular individuals knew and intended at certain points in time, and what matters were relied upon in proceeding with various transactions. In those circumstances, I do not consider that there is any utility in engaging in a global assessment of the credit of the key protagonists separate from an assessment of the credibility of their evidence on particular issues. Accordingly, I have considered the challenges made to individual witnesses’ evidence about particular matters when resolving any factual disputes regarding those matters.
However, there were matters raised regarding the credit of Mr Qiu and Mr Pan, which were not tied to their evidence in respect of the particular issues that are addressed below, and which are convenient to address in advance of considering those issues.
In considering the submissions on credit, I have borne in mind that the well-known limitations on making credit assessments based on a person’s demeanour are amplified where cultural issues may impact the manner in which a person responds to questions, and where evidence is given in a second language, of which the witness has a limited command, or through an interpreter: see DVO16 v Minister for Immigration and Border Protection (2021) 273 CLR 177; [2021] HCA 12 at [54] (Edelman J) and Huang v Wei (No 2) [2022] NSWSC 473 at [18] (Kunc J).
Further, as Basten JA observed in Sangha v Baxter [2009] NSWCA 78 at [155]-[156] (Handley AJA agreeing), there are risks involved in making global findings about the credibility of any particular witness:
“Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44].”
Jarrah Capital and Mr Pan submitted that Mr Qiu showed “a propensity to adopt evidence which is not his own, in order to advance his case” and “a propensity to say fundamentally inconsistent things as and when it suits him”.
These submissions were, for the most part, based on Mr Qiu’s evidence regarding the preparation of his first affidavit of 1 July 2024, and, in particular, paragraph [12] of that affidavit in which he set out, in eight subparagraphs, certain items of information in the Jarrah Capital IM. This list closely matched, in content and wording, a similar list in a letter sent by Mr Qiu’s solicitors on 18 June 2024.
When Mr Qiu was shown the two lists, side-by-side, in cross-examination, and was asked “Who wrote paragraph 12” of his first affidavit, he replied “My solicitors”.
Jarrah Capital and Mr Pan submitted that this answer, which was “not … surprising”, was inconsistent with Mr Qiu’s previous statements in cross-examination that he had written out the evidence in his first affidavit in Chinese characters, and had sent this document to his solicitors. When this inconsistency was pointed out to Mr Qiu, he said that he did not recall stating, earlier in his evidence, that he had provided a draft to his solicitors written in Chinese, and that he had not in fact done so.
While I accept that there were inconsistencies in Mr Qiu’s evidence about these matters, it was not put to Mr Qiu that he was giving dishonest evidence. Further, as Senior Counsel for the Plaintiffs submitted, one possible explanation for the similarity between the list of items in the solicitors’ letter of 18 June 2024 and the affidavit of 1 July 2024 was that Mr Qiu, when providing instructions to his lawyers, identified the items of information in the Jarrah Capital IM which he considered significant. In such a scenario, it would not be surprising that the contents of the letter matched the contents of the affidavit prepared two weeks later.
Further, there is an ambiguity in the question “Who wrote paragraph 12”, in circumstances where “paragraph 12” is a reference to a paragraph written in English. It is correct that Mr Qiu did not write this paragraph. That does not mean he did not give to his solicitors, in Chinese (whether orally or in writing), the information which appears in this paragraph. Further, I regard the inconsistency in Mr Qiu’s evidence as to whether he provided a statement of his evidence to his solicitors in a handwritten document as of comparatively minor significance, particularly since the preparation of an affidavit commonly involves an iterative process over a period of time.
Nonetheless, I acknowledge that Mr Qiu’s oral evidence, particularly regarding the matters on which he relied in deciding to invest in the Jarrah Capital Trust some four years ago, should be treated with caution. That is not because I have reached any view that Mr Qiu has deliberately crafted his evidence in a manner that he believes will advance his case. Rather, it is because where a person who has lost the whole of an investment gives evidence regarding the matters which were critical to their decision to invest, there is a risk that they may seize upon matters which were of comparatively minor significance to them at the time and elevate the importance of those matters with the benefit of hindsight.
The Plaintiffs submitted that, when drafting the Jarrah Capital IM on the basis of the Ausvogar IM, Mr Pan had deliberately changed the description of the security for the investment in order to mislead investors in the Jarrah Capital IM.
This was not a necessary element of the Plaintiffs’ claims in respect of the Jarrah Capital IM, since it is common ground that, as at 27 June 2022, when the Jarrah Capital IM was provided to the Plaintiffs, the statements made in that document regarding the nature of the investment and the security for the investment were not true.
However, on the issue of Mr Pan’s credit, the Plaintiffs sought findings that the Jarrah Capital IM was, to Mr Pan’s knowledge, misleading when it was issued in July 2021 and that he intended, by the issue of that document, to mislead potential investors in the Jarrah Capital Trust.
Three matters are plain from a side-by-side comparison of the Ausvogar IM and the Jarrah Capital IM.
First, the text of the latter is based upon the text of the former.
Secondly, the amendments which were made to the text of the Ausvogar IM when creating the Jarrah Capital IM relate primarily to the description of the security for the investment and, in particular, involve the deletions of all references to there being only a “second” or “second ranking” mortgage over the Cobbitty Property.
The following examples suffice to make the point. In each case, I have shown the text of the Jarrah Capital IM marked up against the text of the Ausvogar IM.
From the “Letter to Unit Holders”:
“Invitation – On behalf of Ausvogar Investment Management Pty Ltd Jarrah Capital 2005 Pty Ltd, we are delighted to present you with the opportunity to become an investor a Unit Holder in Jarrah Capital 2005 Loan Trust, subsequently in the Ausvogar Cobbitty South Unit Trust, enabling participation in Australian real estate property (“Property”) development and investment project opportunities with which AIM Jarrah Capital and its corporate group is involved (“Project”), being:
To provide registered second ranking mortgage to assist the Borrower in settling the purchase of 421 The Northern Road, Cobbitty NSW 2570 (the ‘Property’ or ‘Lot 2005’).”
“The Fund Trust will provide the Borrower a $2520 million registered second mortgage loan to assist the Borrower in settling the acquisition of the Property …
…
The Borrower has obtained first mortgage from a private lender with an approx. $204 million facility. Robert Jones Cobbitty 2005 Pty Ltd (ACN 649 501 931), a special purpose vehicle, ultimately owned by Robert Jones Holdings Pty Ltd (ACN 643 884 084) will be the registered legal owner of the Property, and is the Borrower for the first mortgage.
…
When the sale of the land and loan facility is settled, the title is expected to contain a first mortgage registered by first mortgagor and a second mortgage registered by Roberts Jones Mezz Fund No.1 Pty Ltd (‘RJ Mezz’), a special purpose vehicle ultimately owned by Roberts Jones Holdings Pty Ltd (ACN 643 884 084).
The Fund Trust will acquire 100% units of Roberts Jones Mezz Fund No. 1 with Roberts Jones Mezz Fund No 1 Pty Ltd (ACN 650 363 198) as trustee. The Fund will be the sole owner of the Fund, and RJ Mezz will assign the second mortgage right to the Fund. If the Borrower fails to repay, we hold the mortgage right on the Property to ensure the Fund Trust is not at risk of unrecoverable loan.”
Thirdly, and as a result of the matters set out above, the description given in the Jarrah Capital IM regarding the security for an investment in the Jarrah Capital Trust was misleading. In closing written submissions, Jarrah Capital and Mr Pan acknowledged that this was the case: “It is readily admitted that the Jarrah [Capital] IM was inaccurate at the time it was prepared” (emphasis added).
In cross-examination, Mr Pan accepted that he “consciously removed” all references to a “second” or “second ranking” mortgage in the Jarrah Capital IM, and that this was a “deliberate choice” on his part. He gave the following evidence regarding his reasons for doing so:
“Q. Why did you remove the words ‘second‑ranking’ from the Ausvogar Unit?
A. When we started as a trust, it was actually the first lending deal by Jarrah, so we are thinking to evolve the - grow the trust into a monetary fund. In the future, we - about to obtain the AFSL license as well, so we want to see the monetary fund will be including both the first and the second.
Q. You understood when you prepared this information memorandum that what Jarrah was going to be offering was shares in the Ausvogar Unit?
A. Unit - become a unit holder, yes.
Q. And that the investors in Jarrah could not have any better security than the investors in the Ausvogar trust?
A. At that point, yes.
Q. The Ausvogar information memorandum was telling its investors that the security was going to be a second‑ranking mortgage?
A. Correct.
Q. But you chose to remove that and just to have the words, ‘to provide registered mortgage’?
A. Because I had a brief conversation with Ausvogar, so if I can raise significant funding - for example, over 100 million - so we can become the first on the title as well. There’s a potential business opportunity.”
There are a number of difficulties with this evidence.
First, there was no evidence, beyond Mr Pan’s statements in the witness box, that Mr Pan ever intended that Jarrah Capital would raise $100m.
Secondly, even if Mr Pan had this intention at some point in time, it is difficult to see that he could have regarded this as a realistic prospect at the time that the Jarrah Capital IM was issued in July 2021, having regard to the following matters:
Jarrah Capital was incorporated on the day that the Jarrah Capital IM was issued;
the Jarrah Capital IM stated that Jarrah Capital intended to raise $20m;
this investment was marketed only to Mr Pan’s three “close friends”; and
Mr Pan gave evidence that these friends had given their commitments (totalling $11m) before the Jarrah Capital IM was issued.
Thirdly, even if Mr Pan believed, at the time that the Jarrah Capital IM was issued, that there was “a potential business opportunity” to raise $100m, which would allow Jarrah Capital to improve its security position, no such opportunity was referred to in the Jarrah Capital IM. Nor did the Jarrah Capital IM inform investors that, unless Jarrah Capital raised $100m, the only security for the investment would be an indirect interest in a second-ranking mortgage over the Cobbitty Property (via Jarrah Capital’s investment in the ACSU Trust, and Ausvogar’s right to seek an assignment of the RJ Mezz security). Mr Pan was asked in cross-examination whether he accepted that, if Jarrah Capital did not raise $100m, then it was “misleading to suggest that [the security] was a registered mortgage rather than a second ranking mortgage”, and he responded “Potentially, yes”.
I accept the Plaintiffs’ submission that Mr Pan, when preparing the Jarrah Capital IM, deliberately removed the references to a “second” or “second ranking” mortgage, and did so knowing that this meant that the Jarrah Capital IM gave incomplete, and inaccurate, information to potential investors regarding the nature of the security for an investment in the Jarrah Fund.
This is a matter which tells significantly against his credit.
At the same time, I accept the Defendants’ submission that Mr Pan readily made, in the course of cross-examination, a number of significant concessions which were adverse to his interest. For example, as set out below, he readily conceded that it would have been dishonest, as at June 2022, to solicit investments on the basis of the Jarrah Capital IM.
In light of such concessions, and bearing in mind the observations of Basten JA in Sangha (quoted at paragraph [120] above), I have not made a global finding as to Mr Pan’s credibility, or made any findings regarding particular issues on the basis of any such global finding.
The Plaintiffs’ claim in respect of the Oral Representations was made only against Mr Luke Chen. There was no allegation that, in making those representations, Mr Luke Chen was acting on behalf of Jarrah Capital, or that he was authorised by either Jarrah Capital or Mr Pan to make those representations.
The Plaintiffs alleged that the Oral Representations were made by Mr Luke Chen in the course of his conversation with Mr Qiu and Mr Grant Chen on the occasion of the tennis match at Mr Qiu’s and Ms Lin’s home on 26 June 2022.
Although a number of Oral Representations were pleaded, the Plaintiffs’ case at trial focused on the contention that Mr Luke Chen had made a representation to the effect that the funds invested in the Jarrah Capital Trust were being loaned to the owner of a large development property which was located near the site of the planned Western Sydney Airport and would be secured by a registered mortgage over this property, such that an investment in the Jarrah Capital Trust was a secured and safe investment.
The Plaintiffs pleaded that, by making this representation, Mr Luke Chen engaged in misleading and deceptive conduct in contravention of s 12DA of the ASIC Act, and committed the tort of deceit. (The Plaintiffs also pleaded contraventions of ss 12CB, 12DB and 12DC of the ASIC Act, but did not address those other claims in their submissions.)
Mr Luke Chen denied making any such representation. However, he did not, in his submissions, dispute the proposition that if any such representation was made, it was misleading.
In order for the Plaintiffs’ claim regarding the Oral Representations to succeed, it must be proved, to the reasonable satisfaction of the Court, that the relevant statements were made by Mr Luke Chen. This means that the Court “must feel an actual persuasion” as to the existence or occurrence of those statements: John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]. In that case, Hammerschlag J (as his Honour then was) made the following observations (at [94]):
such reasonable satisfaction “is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved”;
“[t]he seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court”;
reasonable satisfaction “should not be produced by inexact proofs, indefinite testimony, or indirect inferences”; and
“[i]n the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof”.
These observations were recently quoted with approval by Payne JA in Turner v Richards [2025] NSWCA 83 at [59] (with whom Leeming and Adamson JJA agreed).
“The investment was to be into a company which proposed to lend the money invested and take a registered mortgage over a property located in Cobbitty, NSW, details of which were contained in an information memorandum which he would provide to me.
…
The aim was for the owner of the property to sell it in the near future and the loan would then be paid out to the mortgage fund at settlement, so the investment was a secured and safe investment.”
In a further affidavit of 4 June 2026, Mr Qiu stated that the first paragraph quoted above was consistent with his present recollection, “except that my present recollection is that [Mr Luke Chen] referred to the land as being near the new airport rather than referring to the land being in Cobbitty”.
Mr Luke Chen denied, in his affidavit of 28 February 2025, that he told Mr Qiu that the company was to take a registered mortgage over the Cobbitty Property:
“I said to Jay [Mr Qiu] that there was previously a mortgage as security but that the property had been sold to Mirvac and now there was a retention amount owing to Mirvac as security”.
Mr Luke Chen also denied that he told Mr Qiu that the aim was for the owner to sell the Cobbitty Property in the near future and to repay the loan to the Jarrah Capital Trust at settlement, such that an investment in the Jarrah Capital Trust was a safe and secure investment.
Mr Luke Chen deposed that he said to Mr Qiu and Mr Grant Chen words to the following effect:
“you can be a unit holder in Jarrah [Capital] Trust that has provided a loan for the development of land at Cobbitty. It was … a land project that Mirvac and Rong Qiao were present in. The security was a retention amount owing to Mirvac. …”
“The investment is into a company that will take a mortgaged position over the property.”
“The company only deals with real estate and mortgages and the structure will be similar to the Rongqiao investment.”
“The development project is located near Sydney’s new Western Sydney Airport and presents a highly promising opportunity.”
“Luke told me that a new investment opportunity has recently become available with his boss.”
“Luke said that his company only deals with mortgage backed investments.”
“The investment is in a company which will make a secured loan to a big property developer in Sydney.”
“The loan will be secured by mortgage.”
“The investment is secure and safe as the developer is developing a large plot of land, and the loan is backed by a mortgage where the developer will pay out the loan when the property is sold.”
In cross-examination, Mr Qiu largely maintained his evidence regarding the terms of his conversation with Mr Luke Chen and Mr Grant Chen on 26 June 2022. In particular, he rejected the proposition that he was told that “the investment was a land project that Mirvac and Rong Qiao were involved in”, or that “the investment had a security that was a retention amount”.
When Mr Grant Chen was cross-examined about the terms of this conversation, he accepted that it was “possible” that Mr Luke Chen mentioned “Mirvac”, but he was “not quite sure”. However, he rejected the proposition that Mr Luke Chen referred to a “retention amount”. He also maintained his evidence that Mr Luke Chen had said that the investment was secured against land.
In contrast, Mr Luke Chen made significant concessions in his cross-examination regarding statements made by him in the course of the 26 June 2022 conversation, including as follows:
“Q. Do you agree that you told them [Mr Qiu and Mr Grant Chen] that the investment was going to be used to lend money that would be secured by registered mortgage over land near the new airport?
A. INTERPRETER: Yes, I think I had done that.
…
Q. Did you tell them their investment was secured and safe?
A. INTERPRETER: According to my comprehension, it is safe. So that's why I said to them it is safe.
…
Q. Yes, and you never told anyone at the tennis court that the land had already been sold, did you?
A. INTERPRETER: No.”
“Q. During the meeting with Mr Qiu, did you say ‑ or did you say that the land had been sold?
A. INTERPRETER: No.
…
Q. The other thing that you were asked was about ‑ you were asked a question with a whole lot of information in it. I'm just going to ask you the same question but I'm going to emphasise the tense and whether it is past, present or future. In June 2022, when you were talking to Mr Qiu, did you say that the investment will be into a company?
A. INTERPRETER: Invested into Jarrah?
Q. I'm just asking, did you say the investment will be into a company?
A. INTERPRETER: Yes.
…
Q. Did you say the company will take a registered mortgage over a property?
A. INTERPRETER: Yes, I think this is part of my evidence.”
The accounts given by each of Mr Qiu and Mr Grant Chen of the terms of their conversation with Mr Luke Chen on 26 June 2022 are supported by the following further matters.
First, it is unlikely that Mr Luke Chen would have told Mr Qiu and Mr Grant Chen that the security was a “retention amount” in circumstances where Mr Luke Chen:
did not, by his own admission, understand the term “retention amount” (and was confused in his own evidence about whether this sum was owed by or to Mirvac); and
was therefore not in a position to provide any coherent explanation of the “retention amount” to Mr Qiu or Mr Grant Chen if he was asked for more information about the nature of the arrangement, or if he was asked how this arrangement provided security for an investment in the Jarrah Capital Trust.
Secondly, it is likely that Mr Luke Chen provided Mr Qiu and Mr Grant Chen with an explanation that was consistent with his own understanding of the security for an investment in the Jarrah Trust. Mr Luke Chen acknowledged that this was the case:
“Q. Can you listen, Mr Chen, very carefully to my question. When Michael Pan told you about the investment, you understood that you would need to be in a position to explain the investment to your friends. Correct?
A. INTERPRETER: My understanding is based on my comprehension of what I was told by Michael. I convey those information to my friends.”
“Q. Just to be very clear, is it your evidence that you have never believed that your investment was secured by a large piece of land near the site of a new airport?
A. INTERPRETER: I believed that the investment was on that big land in the south west of Sydney.
Q. So you did think when you invested that there was a big piece of land that secured your investment?
A. INTERPRETER: At the beginning, I had the impression of that.
Q. In the beginning, was that in June 2022?
A. INTERPRETER: Yes.”
Thirdly, Mr Luke Chen’s understanding of the nature of the security was likely informed by the content of the Jarrah Capital IM. Mr Luke Chen deposed that he only requested, and received, the Jarrah Capital IM from Mr Pan after the conversation with Mr Qiu. However, Mr Pan deposed that he provided Mr Luke Chen with a copy of the Jarrah Capital IM when he first discussed the investment with him, prior to Mr Luke Chen’s conversation with Mr Qiu. Mr Pan’s account is consistent with Mr Qiu’s evidence that Mr Luke Chen, when describing the nature of the investment and the security to him, said that “details” of these matters “were contained in an information memorandum that [Mr Luke Chen] would later share with [Mr Qiu]”.
If Mr Luke Chen looked at the “Letter to Unit Holders” in the Jarrah Capital IM, he would have seen that it described the “Project” as follows: “The Trust will provide the Borrower a $20 million registered mortgage loan to assist the Borrower in settling the acquisition of the [Cobbitty] Property”. That statement is in similar terms to the matters which:
Mr Qiu deposed were said by Mr Luke Chen, namely: “the investment was to be into a company which proposed to lend the money invested and take a registered mortgage over a property” which was located near the proposed Western Sydney Airport;
Mr Grant Chen deposed were said by Mr Luke Chen, namely: the “investment is into a company that will take a mortgaged position over the property”;
Ms Lin deposed were relayed by Mr Qiu shortly after his conversation with Mr Luke Chen, namely: the “investment is in a company which will make a secured loan to a big property developer in Sydney” and the “loan will be secured by a mortgage”; and
Mr Luke Chen acknowledged, in cross-examination, were said by him, namely: “the investment will be into a company” which “will take a registered mortgage over a property” which was “near the new airport” (see paragraphs [164]-[165] above).
Fourthly, it is likely that, in the course of the conversation with Mr Qiu and Mr Grant Chen at the tennis gathering on 26 June 2022, Mr Luke Chen described the investment in similar terms as he had used when speaking to Mr Grant Chen shortly before that occasion. In cross-examination, Mr Luke Chen acknowledged that this was the case: “Explanation heard by Grant [prior to the tennis gathering] should be the same version as what Jay had received”.
In that regard, Mr Grant Chen deposed that in their earlier conversation, Mr Luke Chen had described the investment in the Jarrah Capital Trust as “similar” to Mr Grant Chen’s existing Rong Qiao investment (which was secured by a mortgage over land), and had stated that the Jarrah Capital “investment is also secured against land”.
Fifthly, at the time that Mr Qiu made a further investment of $500,000 in the Jarrah Capital Trust in February 2023, Mr Luke Chen told Ms Lin, in a WeChat message, that the “security is a large piece of land” which was “locate[d] in southwestern Sydney, the location of the new airport” (see paragraph [77] above).
For those reasons, I find that, on 26 June 2022, Mr Luke Chen made representations to Mr Qiu that the investment was to be into a company (Jarrah Capital) which proposed to lend the money invested and take a registered mortgage over a large parcel of land near the proposed Western Sydney Airport, such that the investment was a secured and safe investment.
Those representations were inaccurate and misleading. The Cobbitty Property had been sold to Mirvac in December 2021 and the registered second mortgage over the Cobbitty Property (which in any case was held by RJ Mezz and not by Jarrah Capital) had been discharged at that time. As at June 2022, Jarrah Capital Trust did not hold, or have a direct or indirect interest in any entity which held, a mortgage over the Cobbitty Property.
A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
Mr Luke Chen did not dispute that any representations made by him on 26 June 2022 regarding the Jarrah Capital investment were made by him “in trade or commerce”. He was not simply speaking to friends, on a social occasion, regarding an investment which he himself was considering making. Instead, he was introducing Mr Qiu and Mr Grant Chen to an investment in the Jarrah Capital Trust, in circumstances where he had been informed by Mr Pan that he would receive a financial benefit if any investment were subsequently made by his friends (and he did in fact receive such a benefit).
Further, Mr Luke Chen did not dispute that any representations made by him regarding an investment in the Jarrah Capital Trust constituted “conduct in relation to financial services”.
Units in the Jarrah Capital Trust constituted an interest in a managed investment scheme, and therefore a financial product (ASIC Act, s 12BAA(7)(b)). Mr Luke Chen, by making a recommendation or statement of opinion regarding the Jarrah Capital Trust which was intended, or which could reasonably be regarded as being intended, to influence Mr Qiu’s decision in relation to units in the Jarrah Capital Trust, was providing “financial product advice” (ASIC Act, s 12BAB(5)), and was therefore providing a “financial service” (ASIC Act, s 12BAB(1)).
Alternatively, the issuing of units in the Jarrah Capital Trust to the Plaintiffs constituted dealing in a financial product (ASIC Act, s 12BAB(7)(b)) and therefore the provision of a financial service (ASIC Act, s 12BAB(1)(b)), and as such, Mr Luke Chen’s conduct in introducing Mr Qiu to the opportunity to acquire those units was conduct “in relation to” that financial service.
Finally, Mr Luke Chen did not dispute that, if he made the representations set out in Mr Qiu’s evidence (as I have found), then those representations were misleading.
For the reasons set out above, I find that Mr Luke Chen contravened s 12DA of the ASIC Act by making, on 26 June 2022, the representations to Mr Qiu regarding an investment in the Jarrah Capital Trust which are set out at paragraph [177] above.
It is unnecessary to consider the other claims pleaded by the Plaintiffs in respect of the Oral Representations for contravention of ss 12DB, 12DC and 12CB of the ASIC Act. That is because:
those claims were not the subject of any separate written or oral submissions by the Plaintiffs; and
those claims, if established, would have the same legal consequence as the established claim for contravention of s 12DA of the ASIC Act, namely, they would give rise to a claim pursuant to s 12GF of the ASIC Act for loss and damage suffered by the contravening conduct (consisting of the Oral Representations).
Mr Luke Chen disputed, in closing oral address, that those representations had any causal consequence, and submitted that Mr Qiu’s decision to invest was made on the basis of the IM Representations, rather than the Oral Representations. I address this issue below.
In Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [114], Gummow, Kirby and Crennan JJ stated that the modern tort of deceit will be established where a plaintiff can show five elements:
first, that the defendant made a false representation;
secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not;
thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff;
fourthly, that the plaintiff acted in reliance on the false representation; and
fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation.
Their Honours added that: “Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation”. This reflects the general principle that, in determining whether a claim has been established on the balance of probabilities, it is necessary to take into account the nature of the cause of action, the nature of the subject matter of the proceeding, and the gravity of the matters alleged: Evidence Act 1995 (NSW), s 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 per Dixon J; [1938] HCA 34; and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450 per Mason CJ, Brennan, Deane and Gaudron JJ; [1992] HCA 66.
For the reasons given above, I am satisfied that, on 26 June 2022, Mr Luke Chen made false representations regarding an investment in the Jarrah Capital Trust.
However, I am not satisfied that Mr Luke Chen made those representations with the knowledge that they were false, or that he was reckless or careless as to whether they were false or not, having regard to the following matters.
Mr Luke Chen was not a sophisticated investor and did not have any training or experience in relation to dealing in financial products. He had worked as a real estate agent for a period, and was, as at June 2022, working as a tennis coach.
While he was likely able to understand the nature and structure of, say, a unit trust which loaned funds for property development secured by a mortgage over the relevant property, an investment in the Jarrah Capital Trust was, as at June 2022, a very different and much more complex type of investment.
Mr Luke Chen gave evidence, against his own interest, that Mr Pan told him, when first describing the nature of an investment in the Jarrah Capital Trust that:
“There was a mortgage on the property as security for the loan but the property has been sold to Mirvac and so there is no longer a mortgage but there is a security amount owing as a retention amount”.
This was consistent with Mr Pan’s account of the same conversation, which was to the effect that he told Mr Luke Chen that “the original security was a 2nd mortgage” on a large parcel of land in Cobbitty, but “[n]ow that [the] land has been sold to Mirvac and the second mortgage over it was discharged, the security has become a ‘retention amount’ of $40m owed by Mirvac which is associated with the land sales contract”.
Accordingly, I find that Mr Luke Chen was informed of these matters.
However, that does not mean that Mr Luke Chen understood those matters. As I have noted above, he did not understand what a “retention amount” was, let alone how it provided security for the investment.
Mr Luke Chen repeatedly stated in cross-examination that he provided an explanation of the Jarrah Capital Trust which accorded with his understanding or belief as to the nature of the investment and the security. In that regard, it is likely that he only had a limited understanding of the Jarrah Capital Trust because, as he repeatedly stated in cross-examination, what was of importance to him was “the person” with whom he was investing, rather than “the project” in which he was investing. For example, Mr Luke Chen gave the following evidence (emphasis added):
“Q. Is the reason you didn't read the information memorandum when it was sent by Damon Yu to you was because you knew it was outdated?
A. INTERPRETER: Firstly, my English is not that good. Secondly, I want to repeat what I have said. I want to invest in the person not the project.
Q. You ultimately invested $150,000 into Jarrah?
A. INTERPRETER: Yes.
Q. It was a lot of money to you, wasn't it?
A. INTERPRETER: Very.
Q. You wanted to make sure you were making the right decision to invest?
A. INTERPRETER: Because I trust him.
Q. You knew the information memorandum was a document that explained the investment?
A. INTERPRETER: Should be.
Q. But you weren't curious to see what it said about your investment?
A. INTERPRETER: Because Michael had already explained to me.
Q. You weren't bothered to read it just to get a better understanding of your significant investment?
A. INTERPRETER: I trust the person.”
“Q. Isn't really what you're saying to his Honour that you didn't have much of an understanding at all about this investment, but you had confidence in Michael Pan?
A. INTERPRETER: Yes.
Q. When you said in your evidence that you thought this was a safe investment, you thought it was a safe investment because it was Michael Pan you were dealing with. Correct?
A. INTERPRETER: Yes.
Q. You didn't think it was a safe investment because you had a full understanding of the security behind the investment?
A. INTERPRETER: Yes.”
I accept this evidence, especially since Mr Luke Chen himself invested $150,000 in the Jarrah Capital Trust.
In particular, I am satisfied that:
Mr Luke Chen believed that an investment in the Jarrah Capital Trust was safe and secured, because it was associated with Mr Pan;
because Mr Luke Chen was focussed on “the person” rather than “the project”, he acquired only a limited (and inaccurate) understanding of the nature of an investment in the Jarrah Capital Trust and the nature of the security for that investment; and
while Mr Luke Chen had been told by Mr Pan that the Cobbitty Property had been sold, he had also been told that there was a “retention amount”, and he believed that this arrangement provided some form of security for the Jarrah Capital Trust in respect of that property, without comprehending either the nature of the arrangement that was in place or how this arrangement provided security for the Jarrah Capital Trust.
Accordingly, I am not satisfied that, when Mr Luke Chen represented to Mr Qiu on 26 June 2022 that Jarrah Capital was lending the investment funds and taking a registered mortgage over a large parcel of land near the proposed Western Sydney Airport, and that the investment was a secured and safe investment, Mr Luke Chen either knew that those representations were false, or was reckless or careless as to whether those representations were false or not.
For those reasons, I reject the claim in deceit against Mr Luke Chen insofar as it is based on the Oral Representations.
The Jarrah Capital IM made the following representations (see paragraphs [16]-[17] above):
Jarrah Capital was seeking $20m from investors for the purpose of providing a loan to an unrelated entity, RJ Cobbitty, to assist with the acquisition of the Cobbitty Property;
the loan to RJ Cobbitty would be in the amount of $20m and would be secured by a registered mortgage over the Cobbitty Property which would be held by RJ Mezz, which was the trustee of the RJ Mezz Fund;
Jarrah Capital would acquire 100% of the units in the RJ Mezz Fund; and
if RJ Cobbitty failed to repay the loan, Jarrah Capital would “hold the mortgage right on the [Cobbitty] Property” to ensure that the Jarrah Capital Trust was not at risk of the loan being unrecoverable.
It is common ground that, as at June 2022, these representations provided an inaccurate and misleading description of the nature of an investment in the Jarrah Capital Trust and of the security for that investment. That is because the Cobbitty Property had been sold and the mortgage previously held by RJ Mezz had been discharged.
The Plaintiffs pleaded that each of Jarrah Capital and Mr Pan engaged in misleading and deceptive conduct in contravention of s 12DA of the ASIC Act, by providing the Jarrah Capital IM to Mr Luke Chen with the knowledge that he would provide it to prospective investors.
There is no doubt that Jarrah Capital, at Mr Pan’s direction, provided the Jarrah Capital IM to Mr Luke Chen, for the purpose of him forwarding it to investors. In particular, on 27 June 2022, Mr Damon Yu of Jarrah Capital sent Mr Luke Chen an email, which was copied to Mr Pan, attaching the Jarrah Capital IM and an application form for investment in the Jarrah Capital Trust, with instructions on how those documents were to be completed by investors. Mr Luke Chen forwarded this material to each of the Plaintiffs on the same day.
For reasons set out at paragraphs [180]-[184] above, I am satisfied that the conduct of each of the Defendants described in the previous paragraph was conduct “in trade or commerce … in relation to financial services” within the meaning of s 12DA of the ASIC Act (and none of the Defendants contended otherwise).
Mr Pan acknowledged that he was aware, as at 27 June 2022, that Mr Luke Chen would likely forward the Jarrah Capital IM to prospective investors, and that this would be the only document which they would receive describing the investment:
“Q. When you were copied in on the email from Mr Yu to Mr Chen with the attachments, you expected that Mr Chen would, in turn, forward that to his friends?
A. For the application form?
Q. Yes?
A. Yes.
Q. And the other documents attached?
A. I was not a hundred per cent sure, but I think likely.
Q. Yes. Pretty likely?
A. You can say that.
Q. Yes. You knew that on 27 June the only document that his friends would have that would say anything about the investment would be the outdated information memorandum, correct?
A. The only document. Yes.”
Jarrah Capital and Mr Pan submitted that they did not engage in misleading conduct by providing the Jarrah Capital IM to Mr Luke Chen, with the knowledge that it would be forwarded to prospective investors, because prior to providing this document to Mr Luke Chen, Mr Pan had informed him that:
the Cobbitty Property had been sold to Mirvac, the second mortgage over the Cobbitty Property had been discharged, and the security had become a “retention amount” owed by Mirvac under the contract for sale of the land; and
the Jarrah Capital IM had not been “updated”, but that Mr Luke Chen could obtain a copy from Mr Yu if he wanted “to take a look at the old one for some reference material and get to know about the subscription process”.
Dealing with the second matter first, I am not satisfied that Mr Pan told Mr Luke Chen that the document was for “reference” purposes only. Mr Luke Chen did not, in his affidavit, refer to any such statement by Mr Pan. Nor did Mr Pan refer to any such statement in his first account of this conversation (in his affidavit of 10 July 2024).
Further, even if Mr Pan did say that he was providing the document for “reference” purposes, such a statement would have provided no guidance or information to Mr Luke Chen regarding the extent to which he should have “reference” to the material in it, or for what purposes he should have “reference” to it. Mr Pan agreed in cross-examination that there was “pretty much” nothing in the Jarrah Capital IM that would tell Mr Luke Chen anything about the present state of the investment. Further, he agreed with the following propositions:
“Q. So if you’d given Luke this document for the purposes of references, it wouldn’t have told him anything about the fact that the land had been sold to Mirvac?
A. By the document itself, no.
Q. To the extent that there was retention money owed to Robert Jones and security over that, there would be nothing in the information memorandum that would explain those arrangements, would it?
A. No. Not at all.
Q. In fact, all of the arrangements that you made after you discovered the sale of the land in April - none of that's in the information memorandum?
A. No. Out of date.”
“Q. I’m just trying to understand what you think the purpose was in suggesting to Luke that he should look at the information memorandum for reference purposes if it did not provide any assistance at all?
A. I think in my language I said ‘just for reference’, just like a - like, ‘I’ll give you the document, but just for reference, but don’t’ - you know, the information was out of date, so just for reference.”
I have found, when dealing with the deceit claim against Mr Luke Chen, that Mr Pan told him that the Cobbitty Property had been sold to Mirvac; that the second mortgage over the Cobbitty Property had been discharged; and that the security had become a “retention amount” owed by Mirvac under the contract for sale of the land (see paragraph [195] above).
Further, Mr Luke Chen deposed, consistently with Mr Pan’s evidence, that Mr Pan told him that the Jarrah Capital IM had not been “updated”, and gave the following evidence of this conversation in cross-examination:
“Q. When you got the information memorandum, there was no instruction given to you by anyone that you were not to provide the information memorandum to any of your investing friends without telling them, first, that it was out dated. Correct?
A. INTERPRETER: Michael had told me that it had expired already.
Q. What did Michael exactly tell you about the information memorandum expiring? Try and be as precise as you can.
A. INTERPRETER: At that time I called him to tell him that my friend wanted to have a look at the material of this project. ‘Do you have any document that you can provide?’ Michael told me, ‘I have a document’ and he used the English words directly, ‘But it is out of date. That this is the only document that I have now. You can give it to them. If they have any questions, try to summarise the question and get back to me.’
Q. Did he explain how the information memorandum was out of date?
A. INTERPRETER: In Chinese equivalency, ‘shi xiao’. So this is the word he added in the end.
Q. Could you translate that?
A. INTERPRETER: Expired.”
In the accounts of each of Mr Pan and Mr Luke Chen, there is no suggestion that Mr Pan told Mr Luke Chen what information would need to be added to, or deleted from, the Jarrah Capital IM in order for it to be “updated”. (There was evidence that, around 27 June 2022, Mr Pan and Mr Yu had taken some preliminary steps to prepare a revised “Letter to Unit Holders”. However, this exercise did not progress very far, and no such document was ever issued by Jarrah Capital nor was any such draft provided to Mr Luke Chen.)
According to the accounts given by each of Mr Pan and Mr Luke Chen of their discussions concerning the Jarrah Capital IM, Mr Pan did not tell Mr Luke Chen that the Jarrah Capital IM should not be provided to prospective investors, or should only be provided to prospective investors if they were informed that it was “out of date” or had “expired”, or that it should only be provided to prospective investors if those persons were provided with specific additional information about the Jarrah Capital Trust.
Further, when Mr Yu emailed the Jarrah Capital IM to Mr Luke Chen, in order that it could be forwarded to investors:
there was no restriction placed on the use of the Jarrah Capital IM;
there was no statement that any of the information in the Jarrah Capital IM was outdated or that this document, which was presented as the information memorandum for the trust, had expired;
there was no warning that the Jarrah Capital IM should not be relied upon as providing an accurate description of an investment in the Jarrah Capital Trust; and
there was no “update” provided in the email regarding any of the events which had occurred since the Jarrah Capital IM was issued in July 2021 (including the sale of the Cobbitty Property and the discharge of the second mortgage held by RJ Mezz over that property).
I am satisfied that, by this conduct, Jarrah Capital engaged in misleading conduct in contravention of s 12DA of the ASIC Act.
Mr Pan was acting as a director of Jarrah Capital in offering the Jarrah Capital IM to Mr Luke Chen in the course of their June 2022 conversation, and in giving directions for that document to be emailed to him by Mr Yu. However, it does not follow from the fact that Mr Pan was acting in such a capacity that he cannot be personally liable for contravention of s 12DA of the ASIC Act by this conduct.
The question for determination is whether “all of the elements of the contravention are made out” against Mr Pan or whether he “merely acted as a corporate organ, binding the company but not the person individually”: Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120 at [96] per Jacobson and Gordon JJ, citing (1999) 32 ACSR 701; [1999] NSWSC 991 at [54], [56] and [57]; [2004] VSC 263 at [157]; [2006] FCA 1268 at [297]-[305]. This is a question of fact: at [97] citing (2007) 63 ACSR 1; [2007] NSWSC 124 at [1056]-[1057].
On 27 June 2022, Mr Luke Chen sent the Jarrah Capital IM to Mr Qiu by WeChat, and to Ms Lin by email (see paragraphs [58]-[59] above).
Mr Luke Chen did not dispute that the Jarrah Capital IM contained misleading statements about the Jarrah Capital Trust. However, he contended that he had not engaged in misleading conduct because he had simply acted as a “conduit” in forwarding the Jarrah Capital IM to Mr Qiu and Ms Lin.
The relevant principles were not in dispute.
In Yorke v Lucas at 666, Mason ACJ, Wilson Deane and Dawson JJ observed that it is well established that, “even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. Their Honours continued as follows (emphasis added):
“That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false. If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”
“It is not right to characterise the problem as one of analysing the effect of its ‘conduct’ divorced from ‘disclaimers’ about that ‘conduct’ and divorced from other circumstances which might qualify its character. Everything relevant the agent did up to the time when the purchasers contracted to buy the Rednal land must be taken into account.”
Their Honours held (at [40]) that, in the circumstances of that case, the agent acted as a mere conduit in passing on the information because the agent “did no more than communicate what the vendor was representing, without adopting it or endorsing it”. Their Honours added that: “That conclusion flows from the nature of the parties, the character of the transaction contemplated, and the contents of the brochure itself”.
The fundamental problem with Mr Luke Chen’s submission that he was acting as a “mere conduit” in passing on the Jarrah Capital IM to the Plaintiffs is that he was expressly informed by Mr Pan that this document was “out of date” and had “expired” (see paragraph [216] above). He did not pass this information on to the Plaintiffs when he provided the Jarrah Capital IM to them. His Counsel sought to play down the significance of this omission, by suggesting that the term “expired” was a reference to the fact (which was apparent from the front page of the Jarrah Capital IM) that the subscription period for the offer made by that document had closed almost a year earlier, in July 2021.
However, there was no evidence that Mr Pan made any reference to the fact that the subscription period had passed when informing Mr Luke Chen that the document had “expired” and was “out of date”, or that Mr Luke Chen understood the term “expired” in this way.
Instead, Mr Luke Chen deposed that Mr Pan told him that the Jarrah Capital IM “has not been updated”, in circumstances where Mr Pan had informed him that a number of significant events had occurred since the Jarrah Capital IM was issued: namely, that “the property has been sold to Mirvac and so there is no longer a mortgage but there is a security amount owing as a retention amount”.
Given those matters, it is likely that Mr Luke Chen understood Mr Pan’s statement that the Jarrah Capital IM was “out of date” or had “expired” as a statement that the document did not make any reference to these significant events which had occurred since it was issued in July 2021.
For those reasons, Mr Luke Chen was not acting as a “mere conduit” in providing the Jarrah Capital IM to the Plaintiffs, and I find that he engaged in misleading conduct in contravention of s 12DA of the ASIC Act by providing this document to them, in circumstances where it contained misleading and inaccurate statements about the nature of an investment in the Jarrah Capital Trust and the security for such an investment.
The Plaintiffs pleaded that, by providing the Jarrah Capital IM to the Plaintiffs, Mr Chen made the IM Representations to them in circumstances where he knew, or was reckless to the fact that, the IM Representations were false, and was thereby liable in the tort of deceit.
This claim requires that Mr Luke Chen understood what was stated in the Jarrah Capital IM regarding the nature of an investment in the Jarrah Capital Trust and the nature of the security for such an investment; understood the information which Mr Pan conveyed to him regarding the changes to the investment and the security since the issue of the Jarrah Capital IM (including the “retention amount” arrangement); and either knew that these matters meant that particular representations in the Jarrah Capital IM were false or was reckless as to whether this was the case.
For reasons given at paragraphs [192]-[203] above, I am not satisfied that the Plaintiffs have established this claim against Mr Luke Chen.
As against Jarrah Capital, the Plaintiffs pleaded that (CLS, C62):
by providing the Jarrah Capital IM to Mr Chen, with the knowledge and intention that Mr Chen would provide that document to prospective investors, Jarrah Capital made the IM Representations to the Plaintiffs;
Jarrah Capital knew that the IM Representations were false; and
Jarrah Capital was liable in the tort of deceit.
I have found that Jarrah Capital provided the Jarrah Capital IM to Mr Luke Chen with the knowledge and intention that he would provide the document to prospective investors.
Further, I accept that Jarrah Capital, through Mr Pan, knew that the Jarrah Capital IM made statements about an investment in the Jarrah Capital Trust and the security for such an investment which were, as at 26 June 2022, false and misleading. Mr Pan acknowledged as much in cross-examination:
“Q. You knew by June 2022 that whatever was stated in the Jarrah information memorandum in July 2021 was completely outdated?
A. Yes.
Q. Anyone investing in Jarrah Capital essentially was investing in the Ausvogar Trust, correct?
A. Correct.
Q. The Ausvogar Trust was a completely different trust in June 2022 to what it was in July 2021?
A. Securities have changed.
Q. The loan has changed?
A. The loan?
Q. It’s a different loan?
A. You can say that. Yes.
Q. I can say that. It’s a fact. It’s a new loan, wasn’t it?
A. It’s a new loan through a new lending entity, which we own 26% of the share.
Q. Everything in the old information memorandum is outdated now, isn’t it?
A. Most out of date. Yes.
…
Q. You appreciated at June 2022 that if someone gave the information memorandum to a potential investor in the Jarrah Fund and said, ‘This is the investment, do you want to invest?’, that would be misleading that investor?
A. The date was completely out. It was back in 2021.
Q. But if anyone suggested‑‑
A. Yeah.
Q. ‑‑that if you want to understand what an investment in June 2022 in the Jarrah Fund is about, read this document, that would’ve been misleading, do you agree?
A. I think it would be misleading because it’s out of date.”
Mr Pan accepted that there was “pretty much” nothing in the Jarrah Capital IM that would inform a reader about “anything [regarding] the present state of the investment”.
Against that background, it is not surprising that Mr Pan also conceded that it would be dishonest to solicit investments in the Jarrah Capital Trust, as at June 2022, on the basis of the information contained in the Jarrah Capital IM:
“Q. Do you agree with me it would be dishonest for you to have told Mr Chen that this was the investment that he should go and sell to his friends?
A. I didn’t. I didn’t tell‑‑
Q. Yes, but you agree it would be dishonest?
A. What was that?
Q. You agree it would be dishonest, because you knew that that wasn’t the investment that he could sell?
A. It was out of date time, but I did explain to him about the investment itself.
Q. Mr Pan, I want to be very fair to you. It wasn’t that the IM was out of date because it’s dated July 21. The IM was completely false as at June 2022. There was no prospect at all of an investment on the basis disclosed in that document; do you agree?
A. You mean the document in June timeframe, 2022?
Q. Yes?
A. I agree. Yeah.”
However, it does not follow that Jarrah Capital committed the tort of deceit.
Jarrah Capital was (through Mr Pan) aware that Mr Luke Chen would be meeting with his friends, who were prospective investors, to discuss the Jarrah Capital Trust with them. At the time of introducing Mr Luke Chen to the Jarrah Capital Trust (and before any of those meetings with prospective investors occurred), Mr Pan informed him that the Cobbitty Property had been sold to Mirvac, that there was no longer a mortgage over the property, that the security had become a “retention amount” owed by Mirvac, and that the Jarrah Capital IM had not been “updated” since those events had occurred. Mr Luke Chen did not give any evidence to the effect that Mr Pan told him not to inform prospective investors of those matters, or placed any restriction on what information could be passed on to prospective investors. Nor was any such proposition put to Mr Pan in cross-examination.
In those circumstances, there is no basis to conclude that Jarrah Capital knew or intended that Mr Luke Chen would provide the Jarrah Capital IM to the Plaintiffs without also explaining to them the respects in which the investment and security had changed since the Jarrah Capital IM was first issued in July 2021.
It follows that the Plaintiffs have not established their claim in deceit against Jarrah Capital.
The Plaintiffs pleaded (CLS, C63) that Mr Pan was aware that the IM Representations were false and that he:
assisted in the commission of the tort of deceit by Mr Luke Chen and Jarrah Capital;
participated in a common design with Jarrah Capital and Mr Luke Chen to provide the Jarrah Capital IM to prospective investors; and
is liable as a joint tortfeasor with Mr Luke Chen and/or Jarrah Capital for damages for the tort of deceit.
Given the findings I have made above in relation to the claims of deceit against Mr Luke Chen and Jarrah Capital, the claim of deceit against Mr Pan must likewise be dismissed.
In order to bring an action for damages under s 12GF of the ASIC Act, the Plaintiffs must establish that they have suffered loss or damage “by” the conduct of the Defendants that I have found to be in contravention of s 12DA of that Act.
The Plaintiffs contended that they suffered loss or damage “by” that conduct, because Mr Qiu relied on the Oral Representations and the IM Representations in deciding to invest an amount of $500,000 in the Jarrah Capital Trust in June 2022 and a further amount of $500,000 in February 2023.
Ms Lin initially gave evidence in her affidavit of 4 October 2024 that she read the Jarrah Capital IM “to get some understanding of what the investment involved”, that she “spoke with” Mr Qiu after she read the Jarrah Capital IM, and that she and Mr Qiu “decided jointly” to invest $500,000 in the Jarrah Capital Trust in Ms Lin’s name.
In her subsequent affidavit of 4 June 2026, Ms Lin deposed that she did not recall reading the Jarrah Capital IM, but did recall Mr Qiu speaking to her about the investment after she provided the Jarrah Capital IM to him. Further, Ms Lin stated in cross-examination that, for each of the investments which the Plaintiffs made, “it was [Mr Qiu’s] decision” and that she was “just following his instructions”.
The Defendants accepted, in their respective closing written submissions, that the relevant decision-maker in respect of each of the investments in question was Mr Qiu.
Mr Qiu deposed that, in making the decision to invest in the Jarrah Capital Trust, he “relied upon the Oral Representations and the information contained in the [Jarrah Capital] IM to for[m] the view that the investment was a secured and safe one which [was] backed by a mortgage asset”.
Jarrah Capital and Mr Pan submitted that, in circumstances where Mr Qiu and Ms Lin were staying in a hotel room in Port Macquarie when they received the Jarrah Capital IM, it was likely that Mr Qiu did not translate or read the Jarrah Capital IM before they attended a bank branch in Port Macquarie the next morning to arrange the transfer of $500,000 in order to subscribe for units in the Jarrah Capital Trust.
I do not accept this submission, for the following reasons.
First, Mr Luke Chen gave evidence that, when he presented the investment to Mr Qiu on 26 June 2022, Mr Qiu said that he was interested but wanted to see “any documents about the investment”. It is likely he did so because, as he acknowledged in response to a question from Counsel for Mr Luke Chen, it “would’ve been extremely foolish” for Mr Qiu to have decided to invest a substantial sum in the Jarrah Capital Trust “based only on the things” that Mr Luke Chen told him on the occasion of the tennis gathering on 26 June 2022.
Secondly, and given those matters, it is likely that Mr Qiu would have sought to read and understand the Jarrah Capital IM when it was sent to him. The alternative theory – that he regarded it as important to request documentation before deciding to invest, but then did not read it before going ahead with a $500,000 investment – is implausible.
Thirdly, although Mr Qiu was staying in holiday accommodation when he received the Jarrah Capital IM, this did not present an insuperable obstacle to his being able to review the Jarrah Capital IM. He had a mobile phone with him and was communicating with Mr Luke Chen, via WeChat, from that device before and after the Jarrah Capital IM was received. Further, Ms Lin had her laptop with her. There is nothing remarkable about a person who is a sophisticated investor reviewing documents regarding potential investments by such means.
Fourthly, the fact that the document was in English was not an insuperable obstacle to Mr Qiu’s being able to review and understand the Jarrah Capital IM. Although Mr Qiu could not read the document in English, he deposed that he used an online translation tool to convert the document to Mandarin. It is common knowledge that there are a number of such tools that are readily available online and, as Senior Counsel for the Plaintiffs submitted, it is likely that Mr Qiu and Ms Lin, as persons who were living in Australia and who needed to translate documents on a regular basis, had ready access to, and a familiarity with, one or more such tools.
Fifthly, the email from Mr Yu which attached the Jarrah Capital IM was in English, and gave instructions regarding the steps which an investor needed to take in order to subscribe for units in the Jarrah Capital Trust, including how to fill out the application form (which was attached to that email, and was also in English). Ms Lin subsequently completed and sent the application form in accordance with those instructions. That establishes that at least the email and one of its attachments was translated from English to Chinese on the evening of 27 June 2022, and strongly suggests that the Jarrah Capital IM was likely also translated at the same time.
Jarrah Capital and Mr Pan submitted that there were various inconsistencies in Mr Qiu’s evidence regarding which parts (if any) of the Jarrah Capital IM he read and, in those circumstances, the Court could not be satisfied that he read any of the parts that conveyed the IM Representations.
As a starting point, I acknowledge that the evidence of Mr Qiu regarding the parts of the Jarrah Capital IM which he read around four years ago is to be treated with caution, and assessed in the light of the inherent probabilities and evidence as a whole (see paragraph [127] above).
Mr Qiu gave evidence that he could not “recall whether [he] had translated the whole of the document”, but could recall that he had “translated what [he] thought was the key information”. In cross-examination, Mr Qiu was taken through the first few pages of the document (which largely consisted of disclaimers) and agreed that he did not translate any of them. He was then asked the following question:
“Q. If I show you more pages in this information memorandum, will your answer be the same about whether you translated any of them?
A. INTERPRETER: That's not correct.”
“Q. … Is your evidence that you don’t remember whether or not you translated this page?
A. INTERPRETER: That’s not correct. I had it translated.
Q. So you remember this page?
A. INTERPRETER: Yes.
Q. What do you remember it said?
A. INTERPRETER: I need to look at the translated version, not this page.”
“Okay. I make the selection ‑ sorry, I make the selection of the pages roughly from the middle section of this document, and some parts of it that I translated are – include ‑ were including something with the title, for example, letter or a letter to investors, and I started the information memorandum from that particular page, and all the information contained in it was in relation to the Jarrah Capital Fund, including the class A and class B of investment, as well as the annual and monthly interest payment and other things.”
Jarrah Capital and Mr Pan submitted that Mr Qiu’s “policy, apparently, was to open the document and turn somewhere roughly to the middle, and translate that page and hope that the page contained sufficient information to enable the investor to make a sufficient informed decision”.
I do not consider that to be a fair characterisation of Mr Qiu’s evidence. The Jarrah Capital IM is not a lengthy document. It consists of only 15 pages, the first six of which consist of the title page and five pages of disclaimers and other general statements. The first page that contains a substantive description of the investment is the “Letter to Unit Holders”, which is the seventh (and therefore “middle” page of the document). This is followed by six pages that set out the terms of the investment and a description of the Project.
It is likely that Mr Qiu, being a person who was an experienced investor, would have readily appreciated, from the (translated) document, that the information specific to an investment in the Jarrah Capital Trust commenced in “the middle section of the document” with the “letter to investors”, and that the information that was of particular importance to potential investors was set out in this letter and in the pages which immediately followed this letter (which, to use the words of Mr Qiu, dealt with “the class A and class B of investment, as well as the annual and monthly interest payment and other things”).
Further, given that Mr Qiu would have been understandably cautious about investing a substantial sum of money in the Jarrah Capital Trust based only on Mr Luke Chen’s description of the investment and of the security for the investment, it is likely that he would have paid particular attention, when looking at the Jarrah Capital IM, to whether the statements in that document were consistent with the matters explained by Mr Luke Chen (in particular, regarding the use of the invested funds and the security for the investment).
For those reasons, I am satisfied that Mr Qiu translated, and read, at least the “Letter to Unit Holders” and the “Project Description”, those being the parts of the document which contain the IM Representations.
Mr Qiu deposed that he did not learn, until around June 2024, that the Cobbitty Property had been sold and that the registered mortgage over the Cobbitty Property held by RJ Mezz had been discharged in December 2021, prior to the Plaintiffs’ investment in the Jarrah Capital Trust. Given the findings I have made regarding the conversation between Mr Qiu and Mr Luke Chen on 26 June 2022, and regarding the Oral Representations and the IM Representations, I accept this evidence.
Mr Qiu deposed that he would not have invested in the Jarrah Capital Trust if he had received this information prior to the Plaintiffs’ investment. Ms Lin likewise deposed that she would not have made the $500,000 investment into the Jarrah Capital Trust in June 2022 if she had known at the time that the investment was not backed by a land mortgage.
The Defendants submitted that the Court would not be satisfied that the existence of a mortgage security was a matter which was material to the Plaintiffs’ decision to invest in the Jarrah Capital Trust. In this regard, the Defendants referred to evidence that the Plaintiffs had, during 2022, made a similar sized investment in “Class D" units of another unit trust known as the “Ausvogar Element Value Fund II Alpha”, which had the same rate of return as the Jarrah Capital Trust (12% per annum) and which was not secured by a registered mortgage. In short, the Defendants submitted that what mattered to the Plaintiffs in making an investment was the interest rate on offer, rather than the existence of a mortgage security.
The difficulty with this submission is that it does not follow that, just because a person invests $1m in a unit trust which offers 12% per annum and is not secured by a registered mortgage, the same person would be willing to invest a further $1m, at around the same time, in another unit trust with the same rate of interest which was also not secured by a registered mortgage. Such a bald proposition does not take any account of the concept of balancing an investment portfolio or diversifying risk.
Nor does this submission take account of differences between the structure and features of the Jarrah Capital Trust and the structure and features of the Ausvogar Element Value Fund II Alpha.
In April 2024, in the course of exchanging WeChat messages with Mr Luke Chen regarding the Hastings Fund, Mr Qiu stated as follows: “You did not told [sic] me it was invested into a fund. I thought it was for property mortgage, same as before” (see paragraph [105] above). The reference to “same as before” is a reference to the previous investments made by Mr Qiu and Ms Lin in the Jarrah Capital Trust. Mr Qiu was communicating to Mr Chen that it was his understanding that the investment in the Hastings Fund was like an investment in the Jarrah Capital Trust, being an investment in a fund that would lend moneys secured by a “property mortgage”. It is likely that he understood that the Jarrah Capital Trust was such a fund based not only on Mr Luke Chen’s oral representations, but also based on the statements made in the Jarrah Capital IM (and, in particular, in the “Letter to Unit Holders” and “Project Description” regarding the nature of the fund and the nature of the security for an investment in the fund).
Mr Luke Chen submitted that the Court should find that, if Mr Qiu read and relied on the Jarrah Capital IM, then the Oral Representations did not have any causative effect.
I have found that Mr Luke Chen engaged in misleading conduct in contravention of s 12DA of the ASIC Act both by reason of making the misleading Oral Representations to Mr Qiu and also by reason of providing to the Plaintiffs the Jarrah Capital IM which made the misleading IM Representations.
Given that is so, it matters little, so far as Mr Luke Chen’s liability is concerned, whether the Plaintiffs relied only on the IM Representations, or relied on both the Oral Representations and the IM Representations.
In any case, there is an evident artificiality in seeking to divide the Oral Representations from the IM Representations, when those representations were made to the Plaintiffs in a single course of conduct by Mr Luke Chen, on 26 and 27 June 2022, prior to the Plaintiffs’ investment in the Jarrah Capital Trust on 28 June 2022.
In addition, as I have noted above, Mr Luke Chen told Mr Qiu, when describing the investment and security on 26 June 2022, that further details of those matters were found in an information memorandum which he would (and subsequently did) share with Mr Qiu. From Mr Qiu’s perspective, the IM Representations confirmed the information which had been conveyed to him in the Oral Representations, and the Oral Representations were consistent with what was set out in the Jarrah Capital IM.
Having regard to those matters, I reject the submission that the Oral Representations had no causative effect.
The above consideration of reliance has focused on the investment which Ms Lin made in the Jarrah Capital Trust on June 2022, rather than the investment which Mr Qiu made in February 2023.
However, there was no evidence that Mr Qiu was provided with any further or different information regarding the Jarrah Capital Trust between the dates of these two investments. Instead, shortly prior to the second investment, Mr Luke Chen sent a message to Ms Lin via WeChat in relation to the further investment, stating that “the project” was the “same as the previous one”: “The rate will be the same. Everything will be the same” (see paragraph [73] above).
Given those matters, it is likely, and I find, that the basis on which Mr Qiu decided to proceed with the second investment was the same as which he proceeded with the first investment.
I do not consider that it is of any material significance that, shortly after the second investment had been made, Ms Lin sent a message to Mr Luke Chen on 27 February 2023 stating: “I don’t even know what we are investing in. Does it have any security?” (see paragraph [77] above). As noted above, the decision to make the February 2023 investment was not made by Ms Lin, but by Mr Qiu (and it was Mr Qiu, rather than Ms Lin, who read and translated the relevant parts of the Jarrah Capital IM).
For the reasons set out above, the Plaintiffs have established that:
Mr Qiu made the decisions:
(a) to invest $500,000 in the Jarrah Capital Trust in Ms Lin’s name in June 2022; and (b) to invest a further $500,000 in the Jarrah Capital Trust in his own name in February 2023;
in reliance on the misleading Oral Representations and IM Representations; and
The Plaintiffs pleaded as follows (CLS, C6-7, C47-49, C72, C74-75):
the Trust Deed included terms that:
(a) a unit holder must apply for redemption of their units by submitting a completed form approved by Jarrah Capital for that purpose; (b) Jarrah Capital must set the redemption price by applying a formula to determine the value of the units being redeemed; and (c) within 90 days of the redemption, the trustee must pay the redemption price for the units;
on 1 January 2024, Jarrah Capital purported to cause the Jarrah Capital Trust to redeem the units held by the Plaintiffs (the “Purported Redemption”) and purported to cancel those units (the “Purported Cancellation”);
Jarrah Capital did not redeem the Plaintiffs’ units in accordance with the terms set out in paragraph (1) above, and thereby breached the terms of the Trust Deed;
further, by engaging in the Purported Redemption and the Purported Cancellation, Jarrah Capital, as trustee of the Jarrah Capital Trust, breached its fiduciary duties to act in good faith, in the best interests of beneficiaries and in accordance with the terms of the Trust; and
Mr Pan was a person “knowingly involved in each of the breaches of duty by Jarrah Capital”.
It should be noted that, although Mr Luke Chen was centrally involved in the events which led to the Plaintiffs’ units being “swapped” for units in the Hastings Fund, the Plaintiffs did not make any claim against him in respect of this transaction.
“A unit holder may apply to the trustee to redeem one or more units. The unit holder must do so by giving the trustee a completed form approved by the trustee for that purpose. ...
Clause 28 of the Trust Deed provided that Jarrah Capital had “an absolute discretion whether to accept an application for redemption or not”.
In circumstances where a redemption application was accepted, clause 29 provided that Jarrah Capital “must set the redemption price … of a unit on the basis of the following formula, applied on the date the redemption takes place”:
“Net asset value” was defined as meaning “the value of the assets less the liabilities of the trust as determined by the trustee under clause 102”. Clause 102 of the Trust Deed provided as follows:
“The trustee may at any time value the assets and liabilities of the trust. In doing so, the trustee is not to be regarded as having a valuer's knowledge or any expertise in valuing assets. The trustee may determine what valuation methods and policies to apply. The valuation of an asset must be a market valuation unless the trustee decides that there is no market for an asset or that the market value does not represent its fair value.
The trustee, in making a valuation of the assets and liabilities of the trust, may seek the opinion of the trust's auditors. If no auditor has been appointed to the trust, the trustee may seek the opinion from the trust's accountant. The auditor or accountant as the case may be must confirm to the trustee in writing the market value of the assets of the trust.”
Accordingly, clause 29 required that, in setting the redemption price, Jarrah Capital determine the market value of the assets of the Jarrah Capital Trust (being its units in the ACSU Trust), unless Jarrah Capital determined that there was no market for those units or that the market value did not represent their fair value.
Clause 31 of the Trust Deed was headed “Payment” and relevantly provided that:
“Within 90 days after the redemption, the trustee must pay the applicant the redemption price for the units. However, the trustee may deduct any money owed by the unit holder to the trustee on any account before paying the applicant.”
There was a dispute regarding whether Mr Qiu gave consent for the units held by the Plaintiffs in the Jarrah Capital Trust to be “swapped” for units in the Hastings Fund.
It is common ground that, on 29 December 2023, Mr Luke Chen had a telephone call with Mr Qiu, who was in China at the time, in which Mr Luke Chen told Mr Qiu that his investment in the Jarrah Capital Trust would be “maturing” or “finishing soon”, and asked whether Mr Qiu would be interested in using the funds that had been invested in the Jarrah Capital Trust to invest in a new project.
There is no evidence that, as at this date, the units in the Jarrah Capital Trust were about to “mature”, and Mr Luke Chen does not appear to have had any basis for this representation. However, the Plaintiffs did not bring any claim against Mr Luke Chen in relation to this representation. That is because it was the Plaintiffs’ case that they did not agree, in the course of this conversation, for their units in the Jarrah Trust to be “swapped” for units in the Hastings Fund (or, for that matter, take any other step in reliance on Mr Luke Chen’s representation).
Mr Qiu deposed that the conversation on 29 December 2023 proceeded as follows:
“Luke: Jay, your investment is maturing and you will be repaid shortly. I will help organise the payment to you and your wife. Do you have any plans with your capital once it is returned? There is a new project that I have access to which you and your wife should look into, I will send you some details about it*.*
Me: Thanks Luke. I’m overseas currently and I will consider and talk to you after I return to Australia.
Luke: No worries.”
On Mr Qiu’s account, he was informed that he would be receiving a repayment of his investment in Jarrah Capital; was asked if he would be interested, once his capital was returned, in investing in a new project; and indicated that he was happy to discuss this further when he was back in Australia.
Mr Qiu added, in a supplementary affidavit of 4 June 2026, that he also said words to the effect that he was “open, in principle, to our investment being moved into a replacement investment”, but “asked if [he] could be provided with further information about the new investment”. Mr Qiu explained that he had indicated interest in the new investment because he “had an understanding that the only investments that Jarrah Capital had were mortgage-backed investments”, adding that:
“At that stage, I had never heard of the Hastings Fund or any fund operated by Jarrah Capital that invested in any way other than through mortgage-backed investments.”
“a. I said Michael [Pan] rang me and he has a new investment fund called Hastings and there is a Hastings subscriber that wants to swap 1 million units in Hastings for 1 million units in Jarrah. Your investment in Jarrah may be finishing soon and you can take your money out or you can do the swap to the Hastings fund.
b. I said the Hastings Fund has the same 1% per month rate of interest paid monthly but in arrears and not in advance.
c. I said if you do the swap, it would be deemed swapped/invested as of 1 January 2024 and the first interest payment would be made on 1 February 2024.
d. I said it [29 December 2023] was the last business day of the year, and as the interest period would begin on the 1st of the month, if you and Jinjing [Ms Lin] decide to invest after January that they would not be entitled to the monthly interest payment of $10,000 until the next month.
e. I said that if he wanted to proceed with the swap that I would call Michael to see if he could make it happen and I would get back to Jay [Mr Qiu] via WeChat message.
f. Jay said we are interested in the swap. Call Michael and see if he can make it happen quickly so we don’t miss out on the interest payment”.
I accept Mr Qiu’s account of this conversation, for the following reasons.
First, Mr Qiu’s account was supported by Ms Lin, who gave evidence that on about 29 December 2023, Mr Qiu said to her words to the following effect:
“Luke just told me that our investment is maturing, and we will soon be repaid our money. Luke will assist organising the payment to us.
Luke wants me to consider a new investment project. I told him we are overseas at the moment, and asked him to send us some materials so we can look at it when we get back to Australia.”
Each of Mr Qiu and Ms Lin maintained their evidence in cross-examination.
Secondly, the telephone call was relatively short, lasting only 2 mins and 46 seconds (as shown in the WeChat records). This was long enough for an exchange of pleasantries, and for Mr Luke Chen to inform Mr Qiu that the Jarrah Capital Trust was maturing, to ask if Mr Qiu had any plans for what he would do with this capital when it was returned, to tell him that there was a new investment opportunity available, and to discuss next steps. It is unlikely that it was enough time for Mr Luke Chen to cover all of the detail in his account, including informing Mr Qiu of the details of the new investment, the interest arrangements, the proposed swap, the timing of the transactions and so forth, let alone for Mr Qiu to reach a level of comfort about those matters such as to decide to invest in the Hastings Fund.
Thirdly, on 29 December 2023, around an hour after this short telephone call, Mr Luke Chen sent a WeChat message to Mr Qiu in which he set out the arrangements for the payment of interest (see paragraph [93] above). This message included the following statement: “From 1 January 2024, investment will be paid into the following project: the project that was subsequently transferred into”. The syntax of this statement (as translated) is unclear. It might be read, consistently with Mr Luke Chen’s evidence, as indicating that the parties had already agreed that the investment would be transferred into a new project, and that interest will be payable upon the investment being “subsequently transferred” in accordance with this agreement. However, it might also be read, consistently with Mr Qiu’s evidence, as providing information regarding what the position would be in the event that, in the new year, the investment was “subsequently transferred” into a new project.
Although Mr Luke Chen was, in this message, “confirming” the “information” which he had provided in his earlier conversation with Mr Qiu, there was no reference in this message to the Hastings Fund, or to any “swap”, or to any discussion between Mr Luke Chen and Mr Pan regarding whether the “swap” transaction could be effected quickly (which are all matters that, on Mr Luke Chen’s account, were referred to in his conversation with Mr Qiu).
Importantly, Mr Luke Chen’s message concluded as follows: “If necessary, once you are back in Sydney, we can issue you supplementary documents”. It is difficult to see why Mr Qiu would need further documentation about the Hastings Fund once he was back in Sydney, if (as Mr Luke Chen suggests) Mr Qiu had already given his approval for the “swap” transaction and had agreed to invest in the Hastings Fund prior to this message being sent. However, this statement is consistent with Mr Qiu’s account that he had indicated that he would make a decision when he was back in Sydney and when he had been provided with further information about the investment.
“HIS HONOUR: But doesn’t that mean, as a starting point, that you ‑ do you accept that there was no consent for the transaction that, in fact, occurred?
[SENIOR COUNSEL 2nd and 3rd DEFENDANTS]: I think that has to be right because [Mr Pan] wasn't told that ‑ well, there's no evidence that [Mr Pan] was told by [Mr Luke Chen] that [Mr Qiu] says, ‘Put it into my company [Yulan]’. It just happened, and it happened in a context where this is the way that Luke was operating with his friends in the other investments that had occurred, including at Hastings. It appears that it was his company that was an investor for his friends and him, and‑‑
HIS HONOUR: Does that mean, as a starting point, there’s a breach of trust?
[SENIOR COUNSEL 2nd and 3rd DEFENDANTS]: I have to say it certainly doesn’t ‑ what occurred does not accord with the terms of the trust deed, so if‑‑
HIS HONOUR: And is there a distinction between those two things?
[SENIOR COUNSEL 2nd and 3rd DEFENDANTS]: If I was administering this trust, I would go to the trust deed and look and see what are the processes that you have to follow. They weren’t followed. What your Honour says is, yes, what actually happened.”
Jarrah Capital did not comply with the terms of the Trust Deed regarding the redemption of units in the Jarrah Capital Trust. In particular:
Jarrah Capital did not proceed to “redeem” the units following receipt of a written redemption application from the Plaintiffs by way of “a completed form approved by [Jarrah Capital] for that purpose” (cl 27), but instead proceeded simply on the basis of an oral instruction from Mr Luke Chen;
Jarrah Capital did not set a redemption price for the Plaintiffs’ units based on a determination of the value of the net assets of the Jarrah Capital Trust (cll 29, 102) (with Mr Pan stating in cross-examination that, when he effected the “swap” transaction, he did not have any regard to the provisions in the Trust Deed regarding the redemption of units); and
Jarrah Capital did not pay the Plaintiffs the amount of any such “redemption price” (or any other amount of money) upon the redemption of their units (cl 31), but instead cancelled the unit certificates issued to the Plaintiffs for 1,000,000 units in the Jarrah Capital Trust on the basis that 1,000,000 units in a different fund were issued to a third party (Yulan).
It follows that the claim for breach of trust has been established.
In Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [32], the High Court observed that “[p]erhaps the most important duty of a trustee is to obey the terms of the trust”. Having regard to the findings I have made above, Jarrah Capital breached that duty.
In answer to the Plaintiffs’ claim for breach of trust, Jarrah Capital relied on the terms of cl 70 of the Trust Deed, which provides as follows:
“The trustee is not liable to the unit holders in respect of any loss unless it arises from fraud or breach of trust arising from bad faith on the part of the trustee. Any liability is limited to the assets of the trust.”
The Plaintiffs submitted that Jarrah Capital could not rely on this clause because it had breached its duty to act in good faith, such that its breach of trust was one “arising from bad faith on the part of the trustee” within the meaning of this provision.
In Armitage v Nurse [1998] Ch 241 at 253-254, Millett LJ considered the permitted scope of trustee exemption clauses. His Lordship observed that there is “an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust”. A trustee exemption clause cannot validly exclude liability for breach of those core obligations. However, such “irreducible core” obligations do not extend to the duties of skill and care, prudence and diligence. His Lordship said that:
“The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient.”
The test of acting honestly is the same as the test of acting in good faith; and an “act which falls short of good faith is done in bad faith”: Mandie v Memart Nominees Pty Ltd (as trustee of the David Mandie Family Trust) (2020) 62 VR 528; [2020] VSCA 281 at [256] per curiam (Tate, Niall and Emerton JJA), quoting Karger v Paul [1984] VR 162, 164 (McGarvie J).
“Dishonesty” in this context “connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not”: Armitage v Nurse at 251.
A trustee will breach the duty of honesty and good faith where the trustee is guilty of wilful default, in the sense of being “conscious that, in doing the act which is complained of or in omitting to do the act which it said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not”: Armitage v Nurse at 252, quoting In re Vickery [1931] 1 Ch 572 at 583 (Maugham J); see also Segelov v Ernst and Young Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156 at [149]-[150] per Gleeson JA (with Meagher and Leeming JJA agreeing). In such circumstances, the trustee will not be able to rely on a trustee exemption clause: Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082 at [23] (Brereton J).
I am satisfied that Jarrah Capital, in redeeming the Plaintiffs’ units in the Jarrah Capital Trust and “swapping” them for units in the Hastings Fund which were issued to Yulan, was recklessly careless as to whether it was breaching its duties as trustee and also as to whether this transaction was contrary to the Plaintiffs’ interests or not. This is for the following reasons.
First, Jarrah Capital must be taken to know the terms of the Trust Deed which it executed on 5 July 2021. However, according to Mr Pan, Jarrah Capital made no reference to, and therefore took no steps to ascertain or comply with, the terms of the Trust Deed concerning redemption when proceeding to effect the “swap” transaction. Mr Pan gave the following evidence in cross-examination:
“Q. … you didn’t bother to see whether or not the trust deed had specific provisions about how units were to be redeemed?
A. I didn't read the document.
Q. Was there any reason you weren’t able to read the document?
A. I don’t think that during the management of the trust deed company, everything I do, I have to go back to the trust deed to read it.
Q. Are you saying as a director of a trustee company, you didn’t think it was important for you to know what the terms of the trust under which the trustee was appointed were?
A. I know my responsibility and my good face [faith] at high level, but I didn’t read line by line in the trust deed.
…
Q. Before you dealt with large sums of money in redeeming units, did you not think it was necessary for you to make sure that you were complying with the obligations of Jarrah Capital under the deed?
A. I should. I should be acting out of the good faith of the unit holder. Yes.
Q. Yes. Well, at least, you should know what you’re doing?
A. I know what I’m doing.
Q. You haven’t read the trust deed to work out what you need to do, do you?
A. I don’t know which particular clause you are referring to, how I should do the redemption.
Q. Let’s be very specific.
… [Mr Pan was directed to look at clause 27 of the Trust Deed]
Q. Under the heading Redemption. Isn’t that something, as a director of a professional trustee company, you thought you should have a look at?
A. At that time, I didn’t read it. I’m sorry. Because it was my first trust deed to manage.
…
Q. You knew, at least, Mr Pan, that before you dealt with someone’s investment worth $500,000, you would need at least a written instruction from them to deal with their units?
A. Deal with the - I think in my mind, as long as I have obtained a genuine consent from the unit holder, I have to admit - yeah. I - we should have done a better job to manage all the documents, all the paperwork.”
Secondly, although Mr Pan understood that he needed to obtain “a genuine consent from the unit holder” before dealing with their units, he proceeded to cause Jarrah Capital to implement the “swap” transaction in circumstances where:
he knew that Jarrah Capital did not have any written authority from the Plaintiffs to proceed with the transaction;
he knew that Jarrah Capital was acting solely on the oral instruction of a third party who would receive an 8% referral fee as a result of the transaction being implemented; and
Mr Luke Chen said nothing to indicate that the Plaintiffs had consented to their units in the Jarrah Trust being redeemed in return for units in the Hastings Fund being issued to Yulan. (In closing oral address, Senior Counsel for Jarrah Capital and Mr Pan acknowledged that: “there’s no evidence that Michael was told by Luke that Jay says, ‘Put it into my company’”.)
Those are matters which would have indicated to any honest and reasonable person in Jarrah Capital’s position that there was a significant risk that the Plaintiffs had not in fact authorised (or given their “genuine consent” to) the “swap” transaction.
In light of the matters set out above, I find that when Jarrah Capital implemented the “swap” transaction, it was recklessly careless as to whether it was breaching its duties as trustee and recklessly indifferent as to whether it was acting in the best interests of the Plaintiffs as beneficiaries, and was, as a result, acting dishonestly and in wilful default of its duties as trustee.
The Plaintiffs’ pleading was silent as to the basis on which Mr Pan was alleged to have been “knowingly involved” in Jarrah Capital’s breach of trust or breach of its duties owed to the Plaintiffs, and the basis on which his “involvement” was said to given rise to his personal liability.
Mr Pan was not alleged to have received, and did not receive, any trust property as a result of the “swap” transaction being effected. He therefore cannot be liable under the first limb of Barnes v Addy (1874) LR 9 Ch App 244.
In order for Mr Pan to be liable under the second limb of Barnes v Addy, the Plaintiffs must establish that he assisted Jarrah Capital in the relevant breach, in circumstances where he had knowledge of a dishonest and fraudulent design on the part of Jarrah Capital: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [160] per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. A dishonest and fraudulent design includes a dishonest and fraudulent breach of fiduciary duty: ibid at [179].
Nothing falling short of dishonest conduct is sufficient to engage the second limb of Barnes v Addy: see Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [9] per Gleeson JA and at [125] per Leeming JA. “Dishonesty” amounts to a transgression of the ordinary standards of honest behaviour; it is not necessary to show that the defendant thought about what those standards were: ibid at [124].
Mr Pan participated in the relevant conduct on the part of Jarrah Capital, since he caused the “swap” transaction to be implemented.
When Mr Pan was asked about the failure to comply with the terms of the Trust Deed regarding the redemption of units in the Jarrah Capital Trust, he responded that he never read the Trust Deed (see paragraph [325] above), and therefore was not aware of its terms when he redeemed the Plaintiffs’ units.
Obviously, such self-serving evidence must be treated with great caution.
It is likely that Mr Pan was in fact aware of the terms of the Trust Deed, having executed that document on behalf of Jarrah Capital on 5 July 2021.
While he may not have consciously known that Jarrah Capital was acting in breach of the Trust Deed by effecting the “swap” transaction, or that Mr Luke Chen had not in fact obtained the Plaintiffs’ consent to the “swap” transaction, I am satisfied that he was recklessly indifferent to those matters, for the reasons given in paragraphs [324]-[327] above.
Given that Mr Pan was the controlling mind of Jarrah Capital, his reckless indifference to those matters establishes both that Jarrah Capital dishonestly breached its duties as trustee and that Mr Pan knowingly assisted in that breach.
The Defendants submitted that the Plaintiffs’ loss from their investment in the Jarrah Capital Trust should be assessed by reference to the difference (if any) between the amount paid for their 1m units in the Jarrah Capital Trust (being $1m) and the value of those units as at the dates they were issued to the Plaintiffs (being 1 July 2022 and 27 February 2023). The Defendants further submitted that:
in circumstances where the Plaintiffs had not led any evidence of the value of units in the Jarrah Capital Trust as at each of those dates, the Court would have regard to the transactions which occurred in respect of those units in the Jarrah Capital Trust around the time of the Plaintiffs’ investment (at a price of $1.00 per unit); and
accordingly, the Court should find that the Plaintiffs have not established that they suffered any loss by acquiring 1m units for $1m.
The approach of subtracting value from price is commonly employed when the acquisition of some asset has been induced by deceit, and also when determining loss under provisions such as s 12GF of the ASIC Act. It is sometimes referred to as “the rule in Potts v Miller” (1940) 64 CLR 282; [1940] HCA 43: see HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [35] per curiam.
Potts v Miller involved the acquisition of shares as a result of a fraudulent misrepresentation. The High Court held that, in such a case, the measure of damages was the difference between the amount paid for the shares and the real value of the shares at the time they were received. Dixon J observed (at 297) that:
“... it appears to be treated as an inflexible rule that wherever the purchase or allotment of shares is the consequence of the deceit, the defendant shall receive credit for the fair or real value of the shares estimated as at the time of allotment or purchase.”
While general law principles such as the “rule” in Potts v Miller may provide a helpful analogy when assessing damages under a provision such as s 12GF of the ASIC Act, the task of the Court is to construe and apply the relevant provision in its statutory context: Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; [2004] HCA 3 at [44]-[45] per curiam. Even in cases where the “rule” in Potts v Miller is often applied, “the ‘rule’ is not universal or inflexible or rigid”: HTW Valuers at [35].
In particular, the “rule” in Potts v Miller is commonly not applied in cases where the plaintiff has become “locked in” to some investment as a result of the defendant’s misleading conduct. Instead, in such a case, the Court will have regard not to the value of the investment as at the date of acquisition, but instead to the value of whatever is left in the plaintiff’s hands.
In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653; [2008] NSWCA 206 at [177], Ipp JA (with whom Giles and Hodgson JJA agreed) observed that:
“the rule in Potts v Miller will not ordinarily apply in cases where a plaintiff becomes ‘locked in’ to property acquired as a result of contravening conduct. In circumstances where it is not practically possible or it is unreasonable for plaintiffs to dispose of assets acquired on the strength of contravening conduct on the part of others, that conduct may be regarded as causing the entire loss even if, after the acquisition of the assets in question, other causes contribute to the loss.”
“In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. … But in cases where property has been acquired in reliance on a fraudulent misrepresentation there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired.”
There may be questions of degree, but ultimately it must be determined whether departure from the “rule” in Potts v Miller will provide a proper assessment of the loss suffered “by conduct” in contravention of s 12DA of the ASIC Act: Ingot at [180].
In Zong v Wang [2022] NSWCA 80 at [53], Brereton JA (with whom Leeming and White JJA agreed) summarised the position in the case of a claim for damages suffered as a result of misleading conduct, pursuant to s 236 of the Australian Consumer Law, as follows:
“Thus, the deduction of true value at the date of the transaction from the price paid is no more than a guide to the assessment of damages under s 236, and it will generally not be appropriate where the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset, or where the circumstances of the case are such that the plaintiff is, by reason of the contravening conduct, locked into the property, in which cases it will often be appropriate to deduct from the cost of acquisition not the value at the date of acquisition, but ‘whatever was “left in [the plaintiff’s] hands”’.”
Those principles are applicable here.
The misrepresentations made by the Defendants continued to operate after June 2022 so as to induce the Plaintiffs to retain their units in the Jarrah Capital Trust. The Plaintiffs remained of the view, as a result of those misrepresentations, that their investments were secured by a registered mortgage over a substantial property near the planned Western Sydney airport. The Plaintiffs did not discover the true position until around June 2024.
Further, after they had invested in the Jarrah Capital Trust, the Plaintiffs were “locked in” to their investment. They held illiquid units which could not be redeemed unless another investor was induced (presumably by the misleading Jarrah Capital IM) into investing in the Jarrah Capital Trust, or unless Ausvogar redeemed units held by the Jarrah Capital Trust in the ACSU Trust (and the proceeds of all such redemptions appear to have been used to redeem the units in the Jarrah Capital Trust that were held by Mr Pan’s “close friends”, rather than those held by other investors).
In any case, if the approach in Potts v Miller were applied, I would not have accepted the Defendants’ submission that the units in the Jarrah Capital Trust had, as at the dates of the Plaintiffs’ investment, a value equal to the price paid for them. In support of this submission, the Defendants relied on the fact that, both before and after the Plaintiffs’ first investment in June 2022 and second investment in February 2023, units in the Jarrah Capital Trust were redeemed for a price of $1.00 each as evidence that the 1m units acquired by the Plaintiffs had a value equal to the $1m invested by the Plaintiffs as at the time those investments were made.
In this regard, Jarrah Capital and Mr Pan referred to the following observations of Wigney J in Federal Commissioner of Taxation v Miley [2017] FCA 1396 at [81]:
“Where the asset in question has been the subject of a recent arm’s length sale, it is generally unnecessary to hypothesise. If the recent sale transaction can be said to be one between a willing but not anxious seller, and willing but not anxious buyer, the price that the buyer and seller actually agreed on may generally be taken to be the market price, or at least a reliable indictor, if not the best evidence, of the market price: Inez Investments Pty Ltd v Dodd (1979) 26 The Valuer 501 at 505; Rostam Pty Ltd v Valuer General; Shavran Pty Ltd v Valuer General [2011] NSWLEC 1387 at [13]; Commonwealth Custodial Services Ltd v Valuer General [2007] NSWCA 365 at [106], [115]; Alcan NT Alumina Pty Ltd v Commissioner of Taxation [2007] NTSC 9; (2007) 208 FLR 159 at 183.”
I am not satisfied that the redemption and purchase transactions in units in the Jarrah Capital Trust that were effected at a price of $1.00 per unit in the period from June 2022 to February 2023 provide evidence of the fair or real value of those units in that period.
So far as the redemption transactions are concerned, Mr Pan made it clear in cross-examination that he did not pay any regard to cl 29 of the Trust Deed, which required Jarrah Capital to set the redemption price for units based on an assessment of the net asset value of the Jarrah Capital Trust at the relevant date. Instead, the transactions were simply effected at $1.00 per unit, without any such assessment being performed.
Further, so far as the purchase transactions are concerned, Mr Qiu, Ms Lin and Mr Grant Chen invested in the Jarrah Capital Trust at a price of $1.00 per unit based on the misleading representations made to them about the Jarrah Capital Trust; and it appears likely that other investors were in a similar position, given that the Jarrah Capital IM was forwarded to potential investors together with the application form for units (see paragraph [55] above).
Further, even if I had accepted the Defendants’ contentions that loss should be assessed in accordance with the “rule” in Potts v Miller and that the redemption and purchase transactions provided evidence of the market value of the units in the Jarrah Capital Trust, I would nonetheless have determined that Jarrah Capital and Mr Pan were liable for the loss of the full $1m invested by the Plaintiffs. That is because, if I had reached such a conclusion, it would have followed that:
the 1m units held by the Plaintiffs in the Jarrah Capital Trust were worth $1m as 1 January 2024 (by reason of the redemption transactions which had occurred at a price of $1.00 per unit shortly before that date); and
accordingly, Jarrah Capital’s breach of trust and breach of its duties as trustee (in which Mr Pan knowingly participated) caused the Plaintiffs to lose the full value of that investment, which was swapped for worthless units in the Hastings Fund. (In that regard, the evidence establishes that the Plaintiffs were locked into the units in the Hastings Fund and were unable to redeem those units, despite their best efforts to do so.)
There remains an issue as to whether the “swap” transaction broke the chain of causation so far as concerns Mr Luke Chen’s misleading conduct. He contended in closing submissions that the Plaintiffs ultimately suffered loss because their units in the Jarrah Capital Trust were “swapped” for units in the Hastings Fund, which was “a distinct wrongdoing” by the other Defendants.
The chain of causation has been described as broken for the purposes of attributing legal responsibility if there has been “an intrusion of a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic”: *)* [1943] P 32 at 39 per Wright LJ; (1992) 176 CLR 408 at 428 per McHugh J; [1992] HCA 27.
“As a matter of both logic and common sense, it makes no sense to regard the negligence of the plaintiff or a third party as a superseding cause or novus actus interveniens when the defendant's wrongful conduct has generated the very risk of injury resulting from the negligence of the plaintiff or a third party and that injury occurs in the ordinary course of things. In such a situation, the defendant's negligence satisfies the ‘but for’ test and is properly to be regarded as a cause of the consequence because there is no reason in common sense, logic or policy for refusing to so regard it.”
Although the Plaintiffs did not plead that Mr Luke Chen committed any wrong in respect of the “swap” transaction, it remains the case that, as a matter of fact, that transaction was effected as a direct result of Mr Luke Chen conveying to Mr Pan that the Plaintiffs had given their authority for the swap transaction to occur, in circumstances where this was not in fact the case.
Further, by reason of Mr Luke Chen’s misleading conduct, the Plaintiffs would not have invested in the Jarrah Capital Trust, and therefore would not have become exposed to the risks involved in having their funds tied up in an illiquid investment which was managed by Mr Pan (who, on his own evidence, did not pay any regard to the terms of the Trust Deed). The Plaintiffs invested a total of $1,000,000 in Jarrah Capital Trust, which were subsequently “swapped” (in disregard of the provisions of the Trust Deed) for units held in Yulan’s name in the Hastings Fund, which are agreed to be worthless. The losses which they have suffered – being the loss of their entire investment - is a result of the realisation of the risks to which they were exposed by reason of Mr Luke Chen’s misleading conduct.
Finally, if I had determined that the chain of causation was, so far as Mr Luke Chen was concerned, broken by the “swap” transaction, I would have accepted the Plaintiffs’ submission that the value of their units as at the date of that transaction (being 1 January 2024) was not $1.00 per unit, but rather $0.22 per unit. The latter represents the price at which all of the units in the Jarrah Capital Trust were sold to LNG in June 2024 (when LNG acquired 2.5m units for $550,000: see paragraphs [113]-[115] above). Although this transaction occurred some five months after the “swap” transaction, there is no evidence that any new information emerged in the intervening period regarding the Jarrah Capital Trust such as might have had a material impact on the price of units in the trust.
The Plaintiffs earned the following interest from their investments:
Ms Lin earned interest of $90,000 on her 500,000 units in the Jarrah Capital Trust (being $5,000 per month between 1 July 2022 and 1 December 2023, inclusive);
Mr Qiu earned interest of $50,000 on his 500,000 units in the Jarrah Capital Trust (being $5,000 per month between 1 March 2023 and 1 December 2023, inclusive); and
the Plaintiffs received, from Yulan, interest of $40,000 on the 1,000,000 units held in the Hastings Fund (being $10,000 per month from January to April 2024 inclusive).
The Defendants contended that this amount should be applied to reduce the amount of any judgment in favour of the Plaintiffs.
The Plaintiffs submitted, in response, that the amount of interest actually received should be applied to reduce the amount of interest awarded on the judgment, rather than the amount of the judgment itself.
I accept the Plaintiffs’ submission. As a result of the Defendants’ conduct, the Plaintiffs have lost the entire amount of the $1m capital which they invested in the Jarrah Capital Trust.
The payments which they received from the Jarrah Capital Trust and subsequently from the Hastings Fund did not represent a repayment of capital, but a payment of interest on their capital.
If the Plaintiffs’ funds had not been invested in the Jarrah Capital Trust, they would likely have been invested in another investment (whether in shares or in another managed investment fund). Any such investment would have likely earned interest. The award of pre-judgment interest is in recognition of the income that the Plaintiffs would have been able to earn if their $1m capital had remained in their hands rather than being invested in the Jarrah Capital Trust (or subsequently the Hastings Fund).
Accordingly, the appropriate course is to determine pre-judgment interest on the full amount of the capital invested by the Plaintiffs, from the dates of each of the Plaintiffs’ respective investments, and then deduct the interest actually received by the Plaintiffs from any such award.
“for the reason that they have been contributorily negligent in allowing Mr [Luke] Chen to represent them in all aspects of their dealings with Jarrah Capital; reposing trust in him to the extent that they were content to allow him, without protest, to instruct Jarrah Capital to redeem their units and direct the proceeds to fund the acquisition by Yulan Investment Pty Ltd of the Hastings C101 Fund units, and not in their own names.”
Each of the Defendants pleaded that the claims made by the Plaintiffs pursuant to s 12GF of the ASIC Act for loss and damage suffered by the Defendants’ misleading and deceptive conduct in contravention of s 12DA were apportionable claims within the meaning of s 12GP of the Act.
Mr Luke Chen pleaded that, if the Plaintiffs’ allegations against him were established, Jarrah Capital and Mr Pan were concurrent wrongdoers, and Jarrah Capital and Mr Pan made a similar allegation in respect of Mr Luke Chen.
The Plaintiffs did not dispute that their claims under s 12GF of the ASIC Act, relating to their investment in the Jarrah Capital Trust as a result of the Defendants’ misleading conduct, were apportionable. Given the findings I have made, I am satisfied that Mr Luke Chen, Jarrah Capital and Mr Pan were concurrent wrongdoers in respect of the loss and damage suffered by their respective contraventions of s 12DA of the ASIC Act. (Jarrah Capital and Mr Pan cannot, however, seek apportionment in respect of loss and damage suffered by reason of Jarrah Capital’s breach of trust of its duties as trustee in effecting the “swap transaction”, and Mr Pan’s knowing participation in that breach.)
In the course of closing addresses, I proposed that any submissions on the issue of proportionate liability be provided following the publication of these reasons for judgment. None of the parties opposed that course.
The Plaintiffs have established their claims and are (subject to any issue of apportionment) entitled to judgment against the Defendants for the amount of their respective investments in the Jarrah Capital Trust.
The Plaintiffs are also entitled to pre-judgment interest, from the respective dates on which they invested the two amounts of $500,000 each (namely, 28 June 2022 and 24 February 2023). However, in determining the amount of the award of pre-judgment interest, it is necessary to bring to account the interest which the Plaintiffs in fact received from their investments in the Jarrah Capital Trust and the Hastings Fund.
The parties should confer on the calculation of interest. If there is any dispute, I will resolve this at the same time as determining the question of apportionment.
Costs should follow the event. As the Plaintiffs have succeeded in their claims, they are entitled to their costs of this proceeding on the ordinary basis. I will, however, allow the Plaintiffs an opportunity to make submissions in the event that they seek a different form of order in respect of costs.
If there is any dispute about interest or costs, I will determine such dispute at the same time as determining any issue of apportionment. Unless any party requests otherwise, I will determine those matters on the papers.
For the reasons set out above, I make the following orders:
By 5.00pm on 3 August 2026, the parties are to confer regarding the form of order for costs and the calculation of pre-judgment interest in accordance with these reasons for judgment.
By 5.00pm on 10 August 2026:
(a) the Plaintiffs are to file and serve submissions on any issue which is in dispute regarding interest and costs, limited to 5 pages, or otherwise notify the Court if the parties have agreed a proposed form of orders in respect of interest and costs; and (b) the First Defendant is to file and serve any submissions on the issue of apportionment of loss and damage, limited to 5 pages.
**********
Jianping Qiu
Yuchen Chen (No 2)
Before turning to address each of the five issues outlined above, I will outline the factual background to the dispute, by reference to documents and matters which were largely uncontroversial, and then deal with the issue of credit.
On 19 April 2022, Ausvogar paid $1m to Jarrah Capital in redemption of 1m units in the ACSU Trust. This sum was applied by Jarrah Capital to redeem 1m units in the Jarrah Capital Trust which were held by Hou & Li. This entity thereby ceased to be a unitholder in the Jarrah Capital Trust (leaving Mr Sun and AAL as the only unitholders).
On 31 May 2022, Ausvogar paid a further $4m to Jarrah Capital in redemption of 4m units in the ACSU Trust. This sum was applied by Jarrah Capital to redeem 4m units in the Jarrah Capital Trust that were held by Mr Sun.
Following the redemption of these units, Mr Sun continued to own another 4m units in the Jarrah Capital Trust, being half of his initial investment. Mr Pan acknowledged in cross-examination that Mr Sun “wanted out” of the rest of his investment in the Jarrah Trust because he was not happy about the way that the investment was being managed. Mr Pan further acknowledged that Jarrah Capital did not have the funds available to redeem Mr Sun’s units and that, as a result, Mr Pan “got on the telephone and … phoned people [he] knew” to see if they would be interested in investing in the Jarrah Capital Trust.
Instead, I have, by reason of the matters set out above, approached Mr Pan’s oral evidence – particularly as regards various conversations and his state of mind at critical points in time – with a degree of scepticism, and have evaluated such evidence in light of the objectively established facts, the apparent logic of events, the existence and nature of any corroborative evidence, and the effect of the evidence as a whole: see Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] per Gleeson CJ, Gummow and Kirby JJ.
Given that Mr Luke Chen understood, in February 2023, that there had been no material change in respect of the Jarrah Capital Trust since June 2022 (confirming to Ms Lin that “the project” was “same as the previous one” and that “[e]verything will be the same”: paragraph [73] above), it is likely that any description of the security for the investment which Mr Luke Chen gave to Mr Qiu and Mr Grant Chen on 26 June 2022 would have been consistent with the description of the security that he subsequently gave to Ms Lin in February 2023.
I am satisfied that the elements of the contravention of s 12DA of the ASIC Act are made out against Mr Pan personally, in circumstances where he took steps to provide the Jarrah Capital IM to Mr Luke Chen, in the knowledge that it would be forwarded to potential investors, and in circumstances where he was aware that it contained, as at June 2022, inaccurate and misleading statements about the nature of an investment in the Jarrah Capital Trust and the nature of the security for such an investment.
Further, Mr Pan both:
directed that the Jarrah Capital IM be provided to Mr Luke Chen, and therefore participated in the misleading conduct of Jarrah Capital; and
had knowledge of the essential facts constituting the breach of s 12DA of the ASIC Act by Jarrah Capital (namely, knowledge that Jarrah Capital was providing the Jarrah Capital IM to Mr Luke Chen so that he could forward this document to potential investors, and knowledge that the Jarrah Capital IM contained inaccurate and misleading statements about the Jarrah Capital Trust).
It follows that Mr Pan is a person who was “involved” in the contravention of s 12DA by Jarrah Capital, and is taken, pursuant to s 12GBCL of the ASIC Act, to have also contravened that provision: see Yorke v Lucas (1985) 158 CLR 661 at 670 per Mason ACJ, Wilson Deane and Dawson JJ; [1985] HCA 65.
For the reasons set out above, I am satisfied that, in making the decision to invest in the Jarrah Capital Trust, Mr Qiu relied on the statements made in the Jarrah Capital IM regarding the nature of the investment and the nature of the security for the investment. Those statements were misleading. That is sufficient to establish a causal link between the Defendants’ misleading conduct and the Plaintiffs’ investment in the Jarrah Capital Trust.
Fourthly, as noted at paragraph [258(1)] above, Mr Qiu readily agreed with the proposition put to him by Counsel for Mr Luke Chen that, in respect of his investment in the Jarrah Capital Trust, it would have been foolish for him to invest simply on the basis of Mr Luke Chen’s recommendation. That must apply equally to an investment in the Hastings Fund. It accords with commonsense that Mr Qiu wanted to see some documentation about the nature of an investment in the Hastings Fund before he made any decision to put $1m into that Fund. Yet, on Mr Luke Chen’s account, Mr Qiu agreed to make that investment in a telephone call of around two minutes, while he was located overseas, and without being given any information about the investment activities of the Hastings Fund, the risks involved in an investment in the Hastings Fund, or the nature of the security (if any) for an investment in the Hastings Fund. That is implausible.
Fifthly, the Defendants submitted that Mr Luke Chen’s account was supported by the fact that, when Mr Qiu was informed on 10 January 2024 that his $1m was now invested in units in the Hastings Fund which were held by Yulan, he asked for information regarding Yulan but did not otherwise raise any issue about what had occurred, responding “Ok” (see paragraph [99] above). However, this lack of protest on Mr Qiu’s part is likely explained by an unwillingness, at this stage, to confront his friend about what had occurred. Mr Qiu deposed that he was “surprised” that this transaction had been effected without approval, but that he was overseas at the time, and was reluctant to confront Mr Luke Chen “given that he had control over that investment [in the Hastings Fund, through Yulan] and there was a possibility that I could ask for the return of those funds without the need to provoke Luke in the event that there was a misunderstanding”. Consistently with this evidence, only around two weeks after being told of the investment in the Hastings Fund, Mr Qiu made enquiries with Mr Luke Chen about redeeming this investment (see paragraph [100] above).
By April 2024, Mr Qiu had lost any reticence that he may have previously had about being critical of his friend. He sent messages to Mr Luke Chen stating that he had not been told that his money “was invested into a fund” and complained that: “My money was transferred to another company while I had no knowledge about this at all. This is fraud” (see paragraphs [105] and [107] above; emphasis added). Mr Luke Chen did not protest about either of those messages or seek to explain or justify his actions in taking steps to effect the swap. Instead, he responded to each message: “I know”. Further, it is apparent from the messages sent by Mr Qiu in April 2024 that he had not been told the name of the fund into which the Plaintiffs’ money had been transferred, let alone been given any information about the fund (see paragraph [106] above). Those are matters which also support Mr Qiu’s account of his 29 December 2023 conversation with Mr Luke Chen.
Having regard to those matters, I accept the Plaintiffs’ contention that they did not consent to their units in the Jarrah Capital Trust being “redeemed” and being “swapped” for units in the Hastings Fund.
Even if I had accepted Mr Luke Chen’s account of the 29 December 2023 conversation in full, I would nonetheless have found that the Plaintiffs did not consent to the “swap” transaction which was subsequently effected on 1 January 2024. In particular, it is common ground that Mr Luke Chen never sought, or obtained, Mr Qiu’s consent to the units held by the Plaintiffs in the Jarrah Capital Trust being “swapped” for units in the Hastings Fund that would be held in Yulan’s name.
The question whether the chain of causation is broken by such an event is “very much a matter of circumstance and degree”: Chapman v Hearse (1961) 106 CLR 112 at 122; [1961] HCA 46. In March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12, Mason CJ observed (at 518-519) that:
[1938] HCA 34
[2003] HCA 22
(1940) 64 CLR 282
(2008) 169 FCR 211
(1992) 176 CLR 408
(1938) 60 CLR 336
(2004) 218 CLR 592
(1961) 106 CLR 112
(2021) 273 CLR 177
(2007) 230 CLR 89
(2003) 214 CLR 118
(2014) 87 NSWLR 609
(2004) 217 CLR 640
(2008) 73 NSWLR 653
(1991) 171 CLR 506
(2006) 226 CLR 551
(2020) 62 VR 528
(2004) 216 CLR 388
(1992) 110 ALR 449
(2015) 89 NSWLR 431
(1985) 158 CLR 661
(2003) 212 CLR 484
(2007) 208 FLR 159