Plaintiffs/Defendants by Counterclaim v Defendants/Plaintiffs by Counterclaim

CONTRACT - Whether persons agreed to lend cryptocurrency, Bitcoin, to a company, to be used for working capital or contributed the Bitcoin to obtain equity - Held persons agreed to lend Bitcoin to the company to be used for working capital - Held that the terms of loans concerning repayment likely the subject of agreement but no evidence of what was agreed.

BAILMENT - Whether an interest in Bitcoin may be subject of a bailment - Whether an interest in Bitcoin is property - Whether an interest in Bitcoin is held in possession - Held that an interest in Bitcoin is property but is intangible and is not held in possession - Held an interest in Bitcoin cannot be the subject of bailment - Yanner v Eaton [1944] HCA 4; (1944) 68 CLR 261; National Trustees Executors and Agency Company Limited v Federal Commissioner of Taxation [1954] HCA 71; (1954) 91 CLR 540; AA v Persons Unknown [2019] EWHC 3556 (Comm); Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728; [2020] 2 NZLR 809; Tulip Trading Ltd v Bitcoin Association for BSV [2023] EWCA Civ 83; D'Aloia v Persons Unknown [2024] EWHC 2342 (Ch) considered and applied.

PRACTICE AND PROCEDURE - A defendant did not appear in the proceeding or at trial - Allegations of fact taken to be admitted - Whether claims made in closing submissions against that defendant are made in the pleadings - Where claims not made in the pleadings and plaintiff did not seek leave to amend and to serve an amended pleading - Held that the plaintiff not entitled to make the claims - Held, in any event, claims not established.

EQUITY - Whether a person is a volunteer who received misappropriated monies - Whether a person is liable to account for benefit received - Held person is not a volunteer - Black v S. Freedman & Company [1910] HCA 58; (1910) 12 CLR 105 and Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230 applied.

TRUSTS - Whether there is an express trust in relation Bitcoin - Whether the trustee acted in breach of trust - Held there was an express trust and that the trustee acted in breach of her duties as trustee - Held plaintiff entitled to equitable compensation - Held trustee breached her duties not in selling the assets of the trust but in not remitting the proceeds from the sale - Held in the circumstances of this case the appropriate equitable compensation was equivalent to the proceeds misappropriated by the trustee and not the value of the assets at the date of judgment - LL UP Pty Ltd v Kegland Distribution Pty Ltd [2024] VSC 651; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484; Break Fast Investments Pty Ltd v Rigby Cooke Lawyers (A Firm) [2022] VSCA 118 applied.

CORPORATIONS - Oppression - Multiple instances of oppression - Held that oppression established - Order for transfer of shares by minority shareholder to majority shareholder refused - No evidence of valuation - Order for accounts to be adjusted refused and the companies wound up - ss 232, 233 and 461(1)(k) of the Corporations Act 2001 (Cth).

The First Defendant, Ms Wei Zhao (pursuant to leave granted) (up to and including 14 March 2024)

1 This proceeding concerns disputes between a Mr Jin Chen and a Ms Wei Zhao arising from their failed dealings involving Blockchain technology and cryptocurrency.[1]

2 On 12 February 2024, I made an order granting leave to Ms Zhao to defend the proceeding on behalf of the seventh defendant, Galaxy Crowdfunding Pty Ltd (Galaxy Crowdfunding). She appeared on her own behalf, and on behalf of Galaxy Crowdfunding, on each day of trial until the seventeenth day on 18 March 2024. She did not appear on that day or on any of the following days of trial. The trial proceeded and concluded in the absence of Ms Zhao. This is the subject of a number of rulings. No other defendants appeared at the trial.

B. PARTIES AND OTHER RELEVANT PERSONS AND ENTITIES

3 Mr Chen, the first plaintiff/first defendant by counterclaim, is a software developer.

4 Blockchain Tech Pty Ltd (Blockchain Tech), the second plaintiff/second defendant by counterclaim, was incorporated on 3 December 2017 as Blockchain HR Pty Ltd with Mr Chen as sole director. Its name was changed to 'Blockchain Tech Pty Ltd' on 12 December 2017. Ms Zhao was the company secretary from 17 January 2019 to 19 June 2019. Mr Chen gave evidence that Blockchain Tech was incorporated for the purpose of, inter alia, developing software. From April 2018, Blockchain Tech's office was based at 6 Nexus Court in Mulgrave (Mulgrave Office). Mr Chen holds 70% of the shares and Livia Holdings Pty Ltd (Livia Holdings) holds 30% of the shares in Blockchain Tech. Mr Chen was a sole shareholder in Blockchain Tech until about 7 August 2018. Mr Chen became a shareholder again in May 2023 and prior to that time it was common ground that Mr Chen beneficially owned 70% of the interest in Blockchain Tech.

5 Ms Zhao, the first defendant/first plaintiff by counterclaim, is a chartered accountant.

6 Mr Hu, formerly the second defendant/second plaintiff by counterclaim, was employed by Galaxy Crowdfunding. Mr Hu did not appear at the trial and the proceeding was dismissed against him on the second day of the trial.

7 Dashboard Management Pty Ltd (Dashboard Management), the third defendant, was incorporated on 22 December 2017 with Ms Shuyuan Yao as director and company secretary. Ms Yao is Mr Chen's mother. During the trial, Dashboard Management was not represented and did not appear. The first, second, seventh, eighth, ninth and tenth defendants/plaintiffs by counterclaim (the Zhao parties) admitted that 'Mr Chen has at all material times (in reality) beneficially owned and controlled 70% of the interest in... Dashboard Management'. Christopher James Lawyers (who also previously represented the Zhao parties) previously represented Dashboard Management, but ceased to act for it on 25 October 2019. Dashboard Management has received correspondence sent to its last known email address for service being Mr Chen's email address of jinchen@blockchaintech.net.au. On 26 April 2018, Ms Yao ceased to be secretary and director, and Ms Zhao was appointed as secretary and Mr Chen was appointed as director. On 7 May 2018, Mr Chen ceased to be a director and Ms Zhao was appointed as director. On 28 December 2018, Ms Zhao ceased to be a director and Mr Chen was appointed director. From 15 March 2019, Dashboard Management had the business name 'Jinance'. On 4 June 2019, Mr Chen ceased being a director, and Ms Yuan (Ashley) Wang, Ms Jiale (Daisy) He and Ms Zhao were appointed directors of Dashboard Management. Ms Wang and Ms He ceased to be directors on 19 June 2019. On 9 September 2019, Ms Zhao ceased to be a director and on 10 September 2019, she ceased to be company secretary. On 20 September 2019, Mr Chen was appointed director. Mr Chen gave evidence that Dashboard Management was incorporated to operate a cryptocurrency exchange, which later became known as 'Jinance'. Mr Chen holds 70% of shares and Livia Holdings holds 30% of shares in Dashboard Management. Mr Chen became a shareholder in May 2023 and prior to that time it was common ground that Mr Chen beneficially owned 70% of the interest in Dashboard Management.

8 Coin Loop Pty Ltd (Coin Loop), the fourth defendant, was incorporated on 9 April 2018 with Mr Chen as director. During the trial, Coin Loop was not represented and did not appear. The Zhao parties admitted prior to trial that 'Mr Chen has at all material times (in reality) beneficially owned and controlled 70% of the interest in... Coin Loop.' Coin Loop was previously represented by Christopher James Lawyers who ceased to act for it on 25 October 2019. Coin Loop has received correspondence sent to its last known email address for service being Mr Chen's email address of jinchen@blockchaintech.net.au. Mr Chen was initially sole director from 9 April 2018 until ceasing on 16 May 2018. Ms Zhao was sole director and secretary from 16 May 2018 to 9 September 2019. Ms Zhao was also company secretary from 9 April 2018 to 9 September 2019. Mr Chen was reappointed as sole director with effect from 20 September 2019. Mr Chen gave evidence that Coin Loop was incorporated to develop a mobile phone software application called 'Coin Loop' to be used in conjunction with a hardware wallet for cryptocurrency. Mr Chen holds 70% of the shares and Livia Holdings holds 30% of the shares in Coin Loop. Mr Chen became a shareholder in May 2023 and prior to that time it was common ground that Mr Chen beneficially owned 70% of the interest in Coin Loop.

9 Digital Galaxy Pty Ltd (Digital Galaxy), the fifth defendant, was incorporated on 9 April 2018 with Mr Chen, Mr Hu and Ms Zhao as directors. During trial, Digital Galaxy was not represented and did not appear. The Zhao parties admitted prior to trial that 'Mr Chen has at all material times (in reality) beneficially owned and controlled 70% of the interest in... Digital Galaxy'. Digital Galaxy was previously represented by Christopher James Lawyers who ceased to act for it on 25 October 2019. Digital Galaxy has received correspondence sent to its last known email address for service being Mr Chen's email address of jinchen@blockchaintech.net.au. Mr Chen was a director from 9 April 2018 to 9 May 2019 and from 20 September 2019, and both Mr Hu and Ms Zhao were directors from 9 April 2018 to 9 September 2019. Ms Zhao was the secretary from 9 April 2018 to 9 September 2019. Mr Chen gave evidence that Digital Galaxy was incorporated for the purpose of making initial coin offerings to raise money for new projects or services related to cryptocurrency and Blockchain technology. Mr Chen holds 70% of the shares and Livia Holdings holds 30% of the shares in Digital Galaxy. Mr Chen became a shareholder in May 2023 and prior to that time it was common ground that Mr Chen beneficially owned 70% of the interest in Digital Galaxy.

10 Digital Silo Pty Ltd (Digital Silo), the sixth defendant, was incorporated on 16 May 2018 with Ms Zhao as director. During the trial, Digital Silo was not represented and did not appear. The Zhao parties admitted prior to trial that 'Mr Chen has at all material times (in reality) beneficially owned and controlled... close to 70% of the interest in Digital Silo.' Digital Silo was previously represented by Christopher James Lawyers who ceased to act for it on 25 October 2019. Digital Silo has received correspondence sent to its last known email address for service being Mr Chen's email address of jinchen@blockchaintech.net.au. Ms Zhao was director from 16 May 2018 to 12 July 2018, and from 6 August 2018 to 9 September 2019. Mr Chen was director from 1 July 2018 to 4 June 2019 and from 20 September 2019, and Mr Hu was director from 12 July 2018 to 9 September 2019. Mr Chen gave evidence that Digital Silo was incorporated to develop a hardware wallet, known as 'Octowallet', for the storage of Bitcoin. Mr Chen holds 70% of the class K shares and 7,000 of the 11,111 ordinary shares and Livia Holdings holds 30% of the class K shares and 3,000 of the 11,111 ordinary shares in Digital Silo. Mr Chen became a shareholder in May 2023 and prior to that time it was common ground that Mr Chen beneficially owned 'close to 70%' of the interest in Digital Silo.

11 Galaxy Crowdfunding, the seventh defendant/third plaintiff by counterclaim, was incorporated on 24 October 2017. Upon incorporation, Mr Chen was appointed as director and Ms Zhao was appointed as director and company secretary. Mr Hu was a director from 16 April 2019 to at least 10 February 2024. On 9 May 2019, Mr Chen was removed as a director. Dr Pasquale Franzese was a director from 15 August 2020 to 2 August 2023. Mr Chen gave evidence that Galaxy Crowdfunding was incorporated to operate a crowdfunding business and acquire an Australian Financial Services Licence (AFSL) for that purpose. Mr Chen gave evidence that Dr Franzese was the responsible manager for Galaxy Crowdfunding's AFSL and Dr Franzese's role was to ensure that Galaxy Crowdfunding met its compliance requirements under the Corporations Act 2001 (Cth) (Corporations Act). The present and historical shareholding of Galaxy Crowdfunding is set out Annexure A to these reasons. Annexure A is addressed in paragraph 127 of these reasons.

12 Castle Accountants Pty Ltd (later renamed Morning Shine Pty Ltd) (Morning Shine), the eighth defendant, was incorporated on 8 February 2017, with Ms Zhao as the sole director. During the trial, Morning Shine was not represented and did not appear. It was previously represented by Christopher James Lawyers who then filed their notice of ceasing to act on 1 February 2024 and has received correspondence sent to its last known email address for service being Ms Zhao's email address of wzhao2019.10@gmail.com. Morning Shine is a shareholder in Galaxy Crowdfunding.

13 Market St Investments Pty Ltd (Market St Investments), the ninth defendant, was incorporated on 2 October 2018, with Ms Zhao as the sole director.[2] During the trial, Market St Investments was not represented and did not appear. It was previously represented by Christopher James Lawyers who then filed their notice of ceasing to act on 1 February 2024. Market St Investments has received correspondence sent to its last known email address for service being Ms Zhao's email address of wzhao2019.10@gmail.com. Mr Chen gave evidence that Market St Investments purportedly replaced Apex Legendary Consulting Pty Ltd (Apex) as the trustee of the Capricorn Assets Management Trust on 2 October 2018.

14 Apex, the tenth defendant, was incorporated on 15 December 2009 as Migration Leader Pty Ltd, with Mr Guodong Zhang, Ms Zhao's husband, as the sole director.[3] Ms Zhao was also the sole director of Apex from 31 August 2015, except for between 1 May 2019 to 11 May 2019 during which time Mr Hu was also a director. During the trial, Apex was not represented and did not appear. It was previously represented by Christopher James Lawyers who then filed their notice of ceasing to act on 1 February 2024 and has received correspondence sent to its last known email address for service being Ms Zhao's email address of wzhao2019.10@gmail.com. Its name changed from 'Migration Leader Pty Ltd' to Apex on 6 September 2015. Mr Zhang was director from 15 December 2009 to 18 May 2015, Xinhua Chu was director from 18 May 2015 to 31 August 2015, Mr Hu was director from 1 May 2019 to 11 May 2019, and Ms Zhao was director from 31 August 2015. Mr Chen gave evidence that Apex is the former trustee of the Capricorn Assets Management Trust.

15 Epacris Impressa Pty Ltd (Epacris Impressa), the eleventh defendant, was incorporated on 5 March 2019, with Mr Hu as the sole director and company secretary. No notice of appearance was filed for Epacris Impressa in this proceeding. Epacris Impressa was a shareholder in Galaxy Crowdfunding.

16 The proceeding has been discontinued against Australasian Finance & Investment Corporation Pty Ltd (Australasian Finance & Investment Corporation), the twelfth defendant. Australasian Finance & Investment Corporation was a shareholder in Galaxy Crowdfunding.

17 Bitgrowth Advisory Pty Ltd (Bitgrowth Advisory), the thirteenth defendant, was incorporated on 26 April 2018, with Mr Hu as the sole director and company secretary. No notice of appearance was filed for Bitgrowth Advisory in this proceeding. Bitgrowth Advisory was a shareholder in Galaxy Crowdfunding.

18 Livia Holdings, the fourteenth defendant, was incorporated on 22 December 2017, with Mr Bao Zhao (presumably Mr Baoquan Zhao) as the sole director and company secretary. This is Ms Zhao's father. Ms Zhao is the sole shareholder. No notice of appearance was filed for Livia Holdings in this proceeding. Livia Holdings is a shareholder in Galaxy Crowdfunding. I have already set out that it is a shareholder in Blockchain Tech, Dashboard Management, Digital Silo, Coin Loop and Digital Galaxy. For convenience I will refer to these companies as the 'Blockchain Companies' and the businesses conducted by them as the 'Blockchain Business'.

19 Mr Zhang, the fifteenth defendant, is Ms Zhao's husband. Mr Zhang was served with the amended originating process and the amended points of claim. There is no evidence that he was served with the further amended points of claim but no amendment was made to the claims against him. No notice of appearance was filed for Mr Zhang in this proceeding. Grand Castle Lawyers is Mr Zhang's law firm. The office of Grand Castle Lawyers was the original registered address for Coin Loop, Dashboard Management, Digital Galaxy, Digital Silo and Ding Ding Holdings Pty Ltd (Ding Ding Holdings).

20 The counterclaim of Super Junior Pty Ltd, the fourth plaintiff by counterclaim (not a defendant) was abandoned prior to trial. This is because the solicitors for Super Junior Pty Ltd were also the solicitors for the Zhao parties and filed the second further amended points of defence on 6 December 2023 in which the counterclaim of Super Junior Pty Ltd was abandoned by being struck out.

21 Mr Chen and/or his wife, Ms Shurui Ding were the sole directors of the following companies at the relevant times:

(a) Ding Ding Holdings which was incorporated on 22 December 2017 with Ms Ding as the sole director and secretary.

(b) Kette Investment Pty Ltd (Kette Investment) which was incorporated on 1 August 2018 with Ms Ding as the sole director and secretary. On 2 October 2018, Mr Chen was appointed director. Kette Investment was a service provider to Blockchain Tech under a General Services Agreement signed by Ms Ding, and was a user on the Jinance exchange.

(c) Crochet Pty Ltd (Crochet) which was incorporated on 24 June 2017, with Ms Ding as sole director and secretary.

22 Ms Zhao, Ms Zhao's father, Mr Baoquan Zhao and/or Ms Zhao's husband, Mr Zhang, were the sole directors of the following companies at the relevant times:

(a) Half Moon AM Pty Ltd (Half Moon AM) which was incorporated on 27 March 2019, with Ms Zhao as the sole director and secretary.

(b) Business Block Solutions Pty Ltd (Business Block Solutions) which was incorporated on 14 February 2018, with Ms Zhao as the sole director and secretary.

(c) Leader Tech Co Pty Ltd (Leader Tech) which was incorporated on 8 June 2004. Ms Zhao's husband Mr Zhang was initially appointed as sole director and secretary, though these roles changed over the course of the relevant period. Ms Zhao was the sole director of Leader Tech from 12 October 2015 to 28 August 2017, and from 1 July 2018 to at least 14 March 2021, and Mr Zhang was the sole director from 28 August 2017 to 1 July 2018. On 20 July 2020, Ms Zhao was appointed company secretary. On 28 June 2021, Leader Tech was deregistered.

(d) Block Business Solutions Pty Ltd (Block Business Solutions) which was incorporated on 14 February 2018 with Ms Zhao as the sole director and company secretary. Block Business Solutions occupied the office space the Mulgrave Office and provided accounting services to Blockchain Tech, employing Ms Yuan and Ms He. Ms Zhao deregistered Block Business Solutions on 22 February 2019.

(e) Ruby AM Pty Ltd (Ruby AM) which was incorporated on 15 July 2019, with Ms Zhao's father, Mr Baoquan Zhao as the sole director and company secretary. Ruby AM was a shareholder in Galaxy Crowdfunding.

23 Blockchain Jet Pty Ltd (Blockchain Jet) was incorporated on 4 December 2017 with Ms Yao as sole director and secretary. On 29 March 2019, Ms Yao ceased as director and secretary and Mr Chen was appointed as director and secretary. Mr Chen gave evidence that Ms Zhao set up this company. It was common ground that Blockchain Jet was and always has been one of Mr Chen's companies.

24 Kette Investment Trust was a unit trust set up by Ms Zhao. Kette Assets Management Trust was another unit trust set up by Ms Zhao on 19 February 2019. Mr Chen gave evidence that it was set up for the purpose of providing a vehicle for employees to invest in Kette Investment's trading activities but no investments were ever made.

25 Ms Zhao was granted leave to defend the proceeding on behalf of Galaxy Crowdfunding. As I have already said, she appeared on each day of trial until the seventeenth day of trial on 18 March 2024, when she failed to appear in court at 10:30am. It is convenient to provide the following summary of what then occurred. These matters are the subject of rulings of the Court made on 19 March 2024, 25 March 2024, and 8 April 2024.

26 On 10:44am on 18 March 2024, Ms Zhao sent email correspondence to Chambers, copied to the plaintiffs' solicitor, with the subject, 'Unwell', informing the Court that she was 'at the hospital'. The Court adjourned the matter to a time and date to be fixed. On 5:33pm on that day, Ms Zhao sent further email correspondence to Chambers, not copying in the parties, which, inter alia, attached a medical certificate certifying that Ms Zhao was suffering from a 'Medical illness' and would be unfit to follow her daily occupation from 18 March 2024 to 22 March 2024, inclusive. With Ms Zhao's consent, the Court forwarded this email correspondence, including the attached medical certificate, to the parties at 10:23am on 19 March 2024.

27 The Court convened a Zoom hearing at 11:00am on 19 March 2024. Ms Zhao did not appear. The Court gave a ruling and ordered that, inter alia, the trial be adjourned to 10:30am on 25 March 2024, and for Ms Zhao to notify Chambers and the plaintiffs by email as to whether or not she intends to make any adjournment application by midday on 22 March 2024, and if so, to file a supporting affidavit by 10:00am on 25 March 2024. On 20 March 2024, Mr Allen Clayton-Greene accepted a request to the Victorian Bar Pro Bono Assistance Scheme to assist Ms Zhao. On 22 March 2024 at 10:40am, Chambers received an email from the email address 'reception@doctorsatknox.com.au' which attached a medical certificate stating that Ms Zhao had a 'medical condition' and would be 'unfit for work/court presentation from 21/03/2024 to 05/04/2024 inclusive'.

28 At the hearing on 25 March 2024, Ms Zhao did not appear. Mr Clayton-Greene informed the Court that he had had no contact from Ms Zhao but was available to act for her in the capacity of assisting with any adjournment application made by her. The Court gave a ruling and ordered that, inter alia, the trial be adjourned to 10:30am on 8 April 2024, that Ms Zhao must notify Chambers by email as to whether or not she intends to make any adjournment application by midday on 5 April 2024, and if so, to file a supporting affidavit by 10:00am on 8 April 2024, and for the plaintiffs to forthwith send a copy of these orders by express post to Ms Zhao's address. On 1 April 2024, Chambers received an email from 'reception@medcentralknox.com.au' attaching a medical certificate signed by Mrs Krysta Kors, which stated 'Ms Wei Zhao has a psychological condition and will be unfit for work or attending court, from 01/04/2024 to 22/04/2024, inclusive.'

29 At the hearing on 8 April 2024, Ms Zhao did not appear. The Court gave a ruling and ordered that, inter alia, the trial be adjourned to 9:30am on 16 April 2024, and for the plaintiffs to send a copy of these orders and of the Court's ruling made on that day to Ms Zhao's address by 4:00pm on 10 April 2024 (which was subsequently extended by further order to 10:00am on 11 April 2024).

30 The trial resumed on 16 April 2024 and 17 April 2024. Ms Zhao did not appear and did not send any correspondence to the Court. On 17 April 2024, the plaintiffs closed their case and judgment was reserved. On 11:12am on 19 April 2024, Mr Clayton-Greene informed the Court and the parties that, inter alia, Ms Zhao and Mrs Krysta Kors made contact with him via Mrs Kors, and he notified them that he was no longer able to act for Ms Zhao. On 12:00pm on the same day, Ms Zhao sent email correspondence to Chambers, copied to the plaintiffs' solicitor, stating 'I request pro bono assistance immediately'. On 3:52pm on the same day, Chambers sent email correspondence to Ms Zhao, copied to the plaintiffs' solicitor, requesting for Ms Zhao to 'please identify the matter for which you seek pro bono seek assistance'. No response was received. On 5:02pm on 24 April 2024, Chambers sent email correspondence to Ms Zhao, copied to the plaintiffs' solicitor, repeating the request that Ms Zhao identify the matter for which she seeks pro bono assistance. Again, no response was received.

Consequences of Ms Zhao's non-attendance at trial

31 In Hacer Group Pty Ltd v Euro Façade Tech Export Sdn Bhd,[4] Stynes J recently set out the applicable principles where a Court determines to proceed with a trial without the appearance of a defendant:

1. In circumstances where the Court determines to proceed with the trial generally without the appearance of the defendant, the authorities suggest:

(a) the court must investigate the merits of the matter;

(b) Hacer must prove its case on the balance of probabilities in the usual way;

(c) Hacer's relief is restricted to that claimed in its pleadings;

(d) the court may allow evidence to be tendered and affidavits to be read on behalf of the party which is present; and

(e) the court is entitled to assume the correctness of the facts claimed by Hacer in its submissions where Hacer tenders uncontroverted evidence in support of those submissions.[5]

32 In Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd,[6] Brennan J said

Non-appearance of a defendant at the trial does not allow the plaintiff a free rein to amend the pleadings to raise issues of which the absent defendant has had no notice or to obtain relief not founded on the pleadings. The reason why the court does not allow substantive amendments to pleadings so as to allow the plaintiff further or other relief against an absent defendant can be gleaned from analogous cases where the court has not allowed substantive amendments of the writ against a defendant who has failed to enter an appearance unless the writ is re-served. The reason is not that the court has no jurisdiction to amend the writ in the defendant's absence; the reason is that the risk of injustice to the absent defendant must be avoided, as Romer LJ explained in Jamaica Railway v. Colonial Bank (38):

The Court has always borne in mind that an absent defendant served with the original writ may have acted upon the supposition that he thereby gathers substantially what the case made against him is, and relies upon it that that case and no other substantially different case will be made against him, and on that footing does not choose to appear. Accordingly the Court has refused to act upon a rule, which in terms covered a defendant who had not appeared, in cases in which the Court came to the conclusion that it would not be just to enforce the rule against such a defendant - not that the Court had no jurisdiction to proceed, but that it did not think it right to proceed in such a case.

And (39):

Again, it has been held in favour of a defendant who has not appeared that, if a writ be amended by altering the claim indorsed on it so as substantially to increase the claim against the defendant, the Court, in the exercise of its discretion, will not allow the plaintiff to obtain as against such a defendant the relief sought by the amended indorsement or extended claim unless the defendant be re-served personally with the amended writ.[7]

33 In Ying v Perpetual Trustee Victoria Ltd,[8] the Court of Appeal said:

It is axiomatic that if the relief claimed by a plaintiff does not arise on the pleadings, a court is not entitled to grant the particular relief unless amendment is sought and notice is first given to the defendant. This is so whether or not the defendant appears at trial. [9]

34 I also accept the following submission of the plaintiffs:

M Osborne J recently explained: 'The more appropriate course in evaluating competing evidence is "to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence", and make "inferences drawn from the documentary evidence and known or probable facts".' His Honour went on to refer to Lord Goff's judgment in Grace Shipping Inc v C F Sharp & Co (Malaya) Pte Ltd,[10] where his Lordship endorsed the following statement:

Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witness's motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth ...[11]

35 The plaintiffs submitted that some departure from these principles might be accommodated by the Court in giving effect to the overarching purpose in the Civil Procedure Act 2010 (Vic).

36 Prior to not appearing, Ms Zhao opened her case and that of Galaxy Crowdfunding and cross-examined the plaintiffs' witnesses. Ms Zhao did not give evidence and did not call any witnesses. The substance of the defence of Ms Zhao and Galaxy Crowdfunding is set out in the Zhao parties' second further amended points of defence, their particulars, and Ms Zhao and Galaxy Crowdfunding's opening submissions (written and oral). It is convenient, therefore, in these reasons to address the Zhao parties' pleadings and also Ms Zhao's and Galaxy Crowdfunding's opening submissions.

37 I made detailed typed notes of the evidence each day of the trial, including my observations on the witnesses and their evidence.

38 Mr Chen gave evidence and was cross-examined over a number of days by Ms Zhao. He listened carefully to questions and answered them in a direct manner. Some of his evidence was imprecise but this is to be expected given that the events took place many years ago, including the period from 2017 to 2019. In addition, at times, but not often, Ms Zhao became argumentative in her questioning of Mr Chen. Despite this, he maintained a calm and responsive manner when answering her questions. I do not, however, for the reasons I give later, accept all of the evidence of Mr Chen. Some of his evidence was inconsistent with the matters opened on his behalf by his senior counsel and with contemporaneous documents. In this respect, I find that Mr Chen was mistaken in his evidence and was not deliberately untruthful. This concerns his evidence of the basis upon which he and Ms Zhao provided Bitcoin to Blockchain Tech.

39 Ms Zhihong (Stella) Zhang is a former employee of Blockchain Tech. I was not impressed by the evidence of Ms Zhang. She gave evidence in chief concerning a meeting on 9 May 2019, further conversations with Ms Zhao, and Mr Chen's announcement that he was shutting down the 'Blockchain Business' in about June 2019. In cross-examination, Ms Zhang could not recall basic details of the meeting, including what was discussed. She repeatedly said she was 'shocked' concerning what she saw on a whiteboard. The text of what was on the whiteboard is at page 2035 of the court book and Ms Zhang's evidence added nothing.

40 Ms Ding is Mr Chen's wife. I was not impressed by the evidence of Ms Ding. She gave evidence in chief that she did not have any knowledge of certain matters. In cross-examination, however, she gave evidence that she, in effect, left matters to Mr Chen and had no involvement herself, even though she was a director. Ms Ding gave evidence that she signed documents in her capacity as a director but she did not understand and or read them. For example:

(a) she signed the General Service Agreement between Blockchain Tech and Kette Investment in her capacity as a director of Kette Investment but did not understand it;

(b) she signed the General Service Agreement between Dashboard Management and Crochet in her capacity as a director of Crochet. Ms Ding gave evidence that she did not read it when she signed it. She said that at the time she signed the agreement she did not have any discussion with Mr Chen about the services to be provided that are listed in the General Service Agreement. Ms Ding said that she did not perform any of the services under the General Services Agreement and she does not know who did perform the services. Ms Ding gave evidence that she was not involved in operating Crochet and she only signed the General Services Agreement because she was a director of Crochet.

41 Mr Mark Bailey, a chartered accountant and a director at Hall Chadwick Forensics at Hall Chadwick Melbourne Pty Ltd, gave expert evidence on particular aspects of the financial position and affairs of the Blockchain Tech and the third to seventh and tenth defendants.

42 Mr Andrew McLeish, a computer forensic specialist and the managing director and Chief Executive Officer of Stopline Pty Ltd, gave expert evidence on the forensic data of documents relevant to the proceeding, including purported meeting minutes and trust deeds.

43 Ms Zhao and Galaxy Crowdfunding did not call any witnesses. This is because Ms Zhao did not appear at the trial after having cross-examined the plaintiffs' witnesses. The plaintiffs submitted:

Ms Zhao has tendered some documents in her opening, but has not tendered any witness statements. Ms Zhao's case lacks credit. Her lack of credit is underscored by her repeated failure to comply with discovery obligations (including deliberate attempts to conceal documents and manipulate others in order to advance her narrative).

44 I have addressed whether Ms Zhao's case lacks credit in relation to the relevant issues and the matters to be determined in light of the evidence. This includes the matters raised by the plaintiffs concerning her credit in their closing submissions to the extent that those matters are relevant.

1. APPLICABLE LAW: OPPRESSION, WINDING-UP AND CORRECTION OF THE REGISTER

1. The oppression provisions are found in pt 2F.1 of the Corporations Act. Section 232 relevantly provides:

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

1. Subsections 233(1) and (2) provide:

(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(b) that the company's existing constitution be modified or repealed;

(c) regulating the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or a receiver and manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

Order that the company be wound up

(2) If an order that a company be wound up is made under this section, the provisions of this Act relating to the winding up of companies apply:

(a) as if the order were made under section 461; and

(b) with such changes as are necessary.

1. Section 234 provides:

234 Who can apply for order

An application for an order under section 233 in relation to a company may be made by:

(a) a member of the company, even if the application relates to an act or omission that is against:

(i) the member in a capacity other than as a member; or

(ii) another member in their capacity as a member; or

(b) a person who has been removed from the register of members because of a selective reduction; or

(c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or

(d) a person to whom a share in the company has been transmitted by will or by operation of law; or

(e) a person whom ASIC thinks appropriate having regard to investigations it is conducting or has conducted into:

(i) the company's affairs; or

(ii) matters connected with the company's affairs.

1. The affairs of a company for this purpose are non-exhaustively defined in s 53 of the Corporations Act, and include, relevantly, 'the promotion, formation, membership, control, business, trading, transactions and dealings' of the company and, in the case of a trustee company, matters 'concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust'.[12]
2. The oppression provisions contemplate a flexible jurisdiction, responsive to any conduct that occurs within or in relation to a company that, according to accepted standards of corporate behaviour, is burdensome, harsh and wrongful, productive of unfair prejudice, or contrary to the interests of the members as a whole.[13] The provisions are accordingly required to be construed broadly and the imposition of judge-made limitations on their scope is to be treated with caution.[14] It is however important to recognise that sub-ss 232(d) and (e) form distinct categories of conduct which are each independently capable of engaging the Court's jurisdiction to award relief.
3. Subsection 232(d) calls for an objective assessment of whether conduct is contrary to the interests of the members as a whole. Conduct may fall within this category even if it does not exhibit commercial unfairness. [15] In Exton v Extons Pty Ltd (Extons),[16] following a comprehensive review of the relevant authorities, Sifris J said:

The court is required to examine all of the relevant facts and circumstances in order to determine whether the conduct under scrutiny is in the best interests of the company as a whole, apart from its members. In this context breaches of duty (whether statutory or fiduciary) by directors and officers may well be conduct that is not in the best interests of the company as a whole. Whether breaches of duty in a small family type company, where there is an overwhelming identity of interest between shareholders and directors, fall within the sections is a related matter. There is authority, as referred to above, to the effect that where there is consent or ratification of such conduct, it may, in context and in the circumstances, not be contrary to the interests of members as a whole or indeed unfair. [17]

1. In relation to s 232(e), the terms - 'oppressive to', 'unfairly prejudicial to', and 'unfairly discriminatory against' - are treated as a compound expression.[18] Put another way, the various terms, as Young J explained in Morgan v 45 Flers Avenue Pty Ltd (Morgan),[19] should be 'considered merely as different aspects of the essential criterion, namely commercial unfairness'.[20] Under this rubric, the appropriate inquiry is whether, on the balance of probabilities, an objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly.[21] This is sometimes described as conduct that reasonable directors would consider unfair.[22] The test was articulated by Brennan J in Wayde v New South Wales Rugby League Ltd.[23]

The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.[24]

1. The requisite unfairness can arise from the cumulative effect of a course of conduct, or from a single act or omission.[25] But to meet the applicable threshold, it is recognised that commercial unfairness usually results in some harm or prejudice, arising from the conduct complained of, that is not reasonably or commercially justifiable.[26] Poor management is not of itself sufficient to establish oppressive conduct.[27]
2. The Court does not conduct its inquiry in a vacuum: regard must be had to the full factual context in which the impugned conduct occurred. In Re Skytraders Pty Ltd (Re Skytraders),[28] Button J explained:

That context includes the business, the conduct of the aggrieved party - which may be such that the conduct complained of is not unfair, or may affect the relief to be granted - and the nature of the relationship between the people participating in the business. In many cases, there may be an agreement or understanding between those engaged in business with one another. Such an agreement or understanding will often be important in assessing whether the conduct in question constitutes oppression. Such agreements or understandings may result in the aggrieved party having a 'legitimate expectation' about the basis upon which he or she would participate in the management of the company.[29]

1. There can be no oppression if the conduct complained of was carried out with the acquiescence or consent of the aggrieved party.[30]
2. Finally, if the oppression jurisdiction is enlivened, the jurisdiction to award a remedy under s 233 is discretionary. I also observe:

(a) The function of any remedy awarded pursuant to s 233 is to eliminate the oppression and compensate the oppressed party.[31]

(b) The jurisdiction will be enlivened if the oppressive conduct occurs at any time and notwithstanding that it may have ceased at the time of trial. However, this will be of relevance in determining whether and to what extent to award a remedy.[32] Further, the Court's focus is directed to the appropriateness of the remedy at the time of trial, and not at the time when the application was filed.[33]

(c) While the Court has a broad and versatile discretion to fashion an appropriate remedy, it will have regard to the principle of proportionality with a preference for the least intrusive remedy.[34]

56 Subsection 461(1)(k) of the Corporations Act relevantly provides:

461 General grounds on which company may be wound up by Court

(1) The Court may order the winding up of a company if:

...

(k) the Court is of opinion that it is just and equitable that the company be wound up.

57 Subsection 462(2)(c) relevantly provides:

462 Standing to apply for winding up

...

(2) Subject to this section, any one or more of the following may apply for an order to wind up a company:

58 A 'contributory' is defined in s 9 and includes a holder of fully paid shares in the company or a person alleged to be the holder of fully paid shares in the company.

59 Section 467 provides:

(1) Subject to subsection (2) and section 467A, on hearing a winding up application the Court may:

(a) dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application; or

(b) adjourn the hearing conditionally or unconditionally; or

(c) make any interim or other order that it thinks fit.

(2) The Court must not refuse to make a winding up order merely because:

(a) the total amount secured by one or more security interests in the property of the company is equal to or greater than the value of the property subject to the interest (or interests); or

(3) The Court may, on the application coming on for hearing or at any time at the request of the applicant, the company or any person who has given notice of intention to appear on the hearing of the application:

(a) direct that any notices be given or any steps be taken before or after the hearing of the application; and

(b) dispense with any notices being given or steps being taken that are required by this Act, or by the rules of court, or by any prior order of the Court; and

(c) direct that oral evidence be taken on the application or any matter relating to the application; and

(d) direct a speedy hearing or trial of the application or of any issue or matter; and

(e) allow the application to be amended or withdrawn; and

(f) give such directions as to the proceedings as the Court thinks fit.

(4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:

(a) the applicants are entitled to relief either by winding up the company or by some other means; and

(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;

must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

(5) Notwithstanding any rule of law to the contrary, the Court must not refuse to make an order for winding up on the application of a contributory on the ground that, if the order were made, no property of the company would be available for distribution among the contributories.

(6) At any time after the filing of a winding up application and before a winding up order has been made, the company or any creditor or contributory may, where any action or other civil proceeding against the company is pending, apply to the Court to stay or restrain further proceedings in the action or proceeding, and the Court may stay or restrain the proceedings accordingly on such terms as it thinks fit.

60 In Read-Zorn v Origin Distillers Group Pty Ltd,[35] Jackman J said:

1. Winding up on the just and equitable ground has been recognised as applicable in a number of conventional categories, such as where the substratum of the company has failed, where management of the company's affairs is in deadlock or disagreement, where the company's formation involved fraud, where there has been misconduct on behalf of the company's directors, where there is a constitutional or administrative vacuum in the company's management, and where there is a lack of fairness, confidence and commercial morality in the company's affairs: Catombal Investments Proprietary Limited [2012] NSWSC 775 at [19] (Brereton J).
2. In that case, Brereton J said at [20] that the Court is not restricted to those scenarios, as the term 'just and equitable' is broad and a party may seek an order under s 461(1)(k) of the Corporations Act whenever there is something:

[affecting] him or her in [their] relations with the company or shareholdings, at least so long as those circumstances have a direct and immediate relationship to, or bearing upon, the management or administration of the affairs of the subject company, or the conduct of its business.

1. His Honour also pointed out that whether winding up is just and equitable is a question of fact, in respect of which each case will depend on its own circumstances. A well-established circumstance is where mutual cooperation and a level of trust are essential for the smooth running of the company's day-to-day management. As Barrett J said in Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343:

Winding up is the characteristic remedy in circumstances where a working relationship predicated on mutual cooperation, trust and confidence has broken down.

1. Similarly, the New South Wales Court of Appeal in Fexuto Proprietary Limited v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ASCR 672 at [89] said that the jurisdiction to order winding up on the just and equitable ground may be exercised in circumstances that do not amount to oppression, unfair prejudice or unfair discrimination, particularly so where "irreconcilable differences" between shareholders have led to an irretrievable breakdown in a "personal relationship involving mutual confidence".
2. Similarly, in Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510, the company which was established on the basis of a relationship of mutual confidence suffered irreconcilable differences emerging between the members. In that case, the personal relationship between the parties failed and, ultimately, actions such as unwillingness to sign documents or attend meetings caused the disintegration of the relationship and, subsequently, a reason for the court to wind up the company on the just and equitable ground.[36]

61 Subsection 175(1) of the Corporations Act provides:

(1) A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.

62 The applicable law is well established.[37] Subsection 175(1) does not confer a power to correct a register.[38] Instead, it assumes that the Court already has such a power at general law.[39] The power to order correction of a register is discretionary.[40] As observed by Fullagar J in Grant v John Grant & Sons Pty Ltd:[41]

The power to order rectification of the register must clearly, I think, be in all cases discretionary. The person claiming rectification must show that he has some equity which the court will protect. If he is a shareholder, then prima facie he shows such an equity if he establishes that a name is wrongly included in or omitted from the register of his company. Some definite reason must be shown, I would think, for refusing rectification before rectification will be refused.

...

But the power of a court of equity to order rectification is no more and no less than a part of its general jurisdiction to 'act in personam' in aid of a legal right, and it must be subject to the same principles which apply generally to equitable remedies. [42]

63 More recently, Button J conveniently summarised the applicable principles upon an application pursuant to sub-s 175(1) in Re Australian Organic Eggs Pty Ltd:[43]

1. Section 175 does not confer jurisdiction on the Court to rectify the share register, but assumes the Court has the power to do so. It is well established that the Court has such power as part of its general jurisdiction as a court of equity. The power is discretionary, and an explanation of the practical advantages of rectifying the register is required before the power will be exercised. The person applying for rectification must demonstrate that they have an equity which the court will protect. Such an equity is prima facie established where a person's name was wrongly included or omitted from the register. The same applies where 'the number of shares attributed to that person is incorrectly recorded, so as to impose a disadvantage on that person or on other shareholders'.
2. An order may be made under s 175 to rectify the share registry nunc pro tunc, fixing a particular date for the correction.[44]

64 No independent expert was called to give evidence in relation to the operation of cryptocurrency, including Bitcoin (being a form of cryptocurrency).

65 Mr Chen gave an overview of cryptocurrency and also on blockchain. He is a software developer. There was no issue between the parties at the trial concerning his evidence on these matters. The plaintiffs in closing submissions relied upon a number of recent cases concerning cryptocurrency, some of which provide a convenient summary of the operation of cryptocurrency, including Bitcoin.

1. Blockchain is a peer-to-peer network. It acts as a public ledger that stores data in 'blocks'. The blocks consist of chunks of data, strung together and timestamped, which become a part of the Blockchain timeline. Each 'block' is given a timestamp when it is added to the chain, and all blocks are linked together to form a shared database. As a database, Blockchain stores information electronically in a digital format, and is most commonly known as a decentralised database to store the history of cryptocurrency transactions. The database is viewable to anyone, and the transactions are transparent and permanently recorded. A major benefit of Blockchain technology is that it is secure, decentralised and enables the transfer of cryptocurrencies for little cost.
2. A cryptocurrency exchange is a platform that matches buyers of cryptocurrency with sellers of cryptocurrency or fiat currency. It works like an exchange for any other asset. A cryptocurrency exchange usually has one or more fiat currency 'payment gateway' companies, which deal with transactions involving fiat currency, such as where a user sells cryptocurrency for fiat currency.
3. A cryptocurrency token is a virtual currency token that constitutes a tradeable asset. A token is 'owned' (ie each is an individual asset), has a unit of value and resided on its own Blockchain, meaning that a token cannot exist without underlying cryptocurrency.
4. A cryptocurrency wallet is a physical device or software program used to store cryptocurrency and enable the sending and receiving of cryptocurrency transactions. The wallet allows a receiving user to retrieve a public key to which a sender, who wants to send that receiving user cryptocurrency, can send cryptocurrency. Some wallets contain more than one address to and from which cryptocurrency transfers can be made. Wallets can also be divided into 'subwallets' that allow a user to compartmentalise her or his cryptocurrency holdings. There are two types of cryptocurrency wallets: software (or 'hot') wallets and hardware (or 'cold') wallets.

(a) A 'hot' wallet comes in the form of a computer program that holds private keys online in 'custody' wallets' or an application on a laptop or mobile phone, which stores private keys on the local device. 'Hot' wallets are generally seen as less secure because if a problem occurs with the custodian, the user's web browser or hard drive, the user could lose the private key to her or his wallet, resulting in the permanent loss of cryptocurrency.

(b) A 'cold' wallet is a small physical device that stores cryptocurrency offline, and keeps a user's private key off the internet. To use a 'cold' wallet, a user needs to connect the physical device to a computer (usually by a USB port) and use software to make transactions from that cold wallet.

1. A pre-sale token offering is a program that allows buyers to buy a new cryptocurrency token issued by a company. The company usually creates a whitepaper that explains a project, how much money is needed, and what type of money will be accepted in exchange for 'tokens'. Purchasers buy tokens in the hope that the project will succeed after it launches, which results in the value of their tokens increase above the price for which they bought them during the initial coin offering campaign. In this case, Digital Silo conducted a campaign for its 'Octowallet' product, for which it offered OCT tokens for pre-sale to buyers. The OCT tokens were offered at a 25% discount. Conducting the pre-sale gave Digital Silo access to purchasers from whom funds could be raised to meet the manufacturing expenses of the Octowallet. The pre-sale campaign also had the benefit of being a marketing campaign for the Octowallet product. The Whitepaper of Octowallet project was using the 'pre-sale token offering' which was carefully picked to:

a) differentiate the token and the coin; and

b) stay away from ICOs that were seen at the time as potential scams. Digital Galaxy also did not have an AFSL that would enable it to conduct crowdsource funding campaigns.

67 In Tulip Trading Ltd v Bitcoin Association for BSV (Tulip Trading),[45] a decision relied upon by the plaintiffs in closing submissions, the Court of Appeal of England and Wales, recently provided the following convenient description of the operation of cryptocurrency, namely Bitcoin:

1. In October 2008 a famous paper, generally referred to as the 'Bitcoin White Paper', was published. Its actual title was Bitcoin: A Peer-to-Peer Electronic Cash System . The named author is 'Satoshi Nakamoto', which was a pseudonym. Dr Wright claims he is Satoshi Nakamoto. This is a hotly disputed claim and does not matter in this case.
2. The White Paper proposed a new online electronic cash system. The fact it is cash is important (and that is why the word 'coin' is in the name bitcoin). The thing about physical cash is that it cannot be spent twice. Once I have handed over a physical coin to buy something from a shopkeeper, they now have it and I no longer do. I cannot spend it again. In the language of possession, before the transaction I possessed the token (and nobody else) while afterwards it is possessed by the shopkeeper. This characteristic of a physical coin is a key part of what allows the recipient of that token, and therefore everyone else, to place trust in the token's value.
3. Electronic payment systems, which of course existed in 2008 as the White Paper acknowledged, solve the double spending problem in a different way because the payment systems are run by financial institutions, which both parties have to trust. The point of the White Paper was to propose a scheme using cryptographic methods to solve the double spending problem and create a form of electronic cash which does not rely on third party financial institutions.
4. Since then a number of different systems have been developed. Dr Wright maintains that the original bitcoin, and the only one properly so-called, is that held though the BSV Network. Like the judge, my use of the term bitcoin in this judgment reflects common usage, rather than being intended to express a view on that point, which is not relevant.
5. In the bitcoin scheme transactions are recorded in a ledger or database known as a blockchain, with each network having its own ledger. The blockchain constitutes a public registry recording every transaction. A given amount of bitcoin is simply a number held at a certain digital address. A transaction simply involves reducing the value at one address and correspondingly increasing it at another. Whether new addresses are created in this process does not matter for present purposes, as different cryptocurrencies work in different ways. The amounts held at every address are public, but the identity of the parties is not. The blockchain does not reveal the relationship between the digital addresses and any persons.
6. Each digital address is associated with a pair of public and private cryptographic keys. The public key identifies the address on the network. The relevant private key is the means by which bitcoin can be dealt with. The holder of the private key uses it to cryptographically sign a record of the transaction moving bitcoin from one address to another. The record is called a cryptographic hash. The public/private key pair means that the person signing with the private key is proving that they are associated with the public key (and so the address), without revealing the private key itself. The hash ensures that any attempt to alter the record would be noticeable, because even the smallest change would alter the hash.
7. For each network there are devices on the network that undertake "mining". This is the means whereby transactions are validated. The latest transactions are gathered together into a block, which also includes a hash of the previous block (hence each block is chained to its predecessor, making a 'blockchain'). The miners work in competition with each other to produce an appropriate hash of this new block. The competition is to find a unique 'number used once' or nonce, which causes the hash of the new block to have certain defined characteristics. This is called a 'proof of work'. Blocks that have been validated this way are broadcast to the network and incorporated into further work. Miners receive both transaction fees and new bitcoin.[46]

What were the terms of the agreement between Mr Chen and Ms Zhao concerning Galaxy Crowdfunding? Did the alleged Debt to Equity Agreement form part of the agreement?

68 The plaintiffs allege that, in or about late 2017, Mr Chen and Ms Zhao entered into a 50/50 joint venture agreement (Galaxy Crowdfunding agreement) under which Mr Chen and Ms Zhao would, inter alia, incorporate a company where the shares of the company would be owned 50% by Mr Chen and 50% by Ms Zhao, and the company would apply for an AFSL and operate a crowdfunding business, and each of Mr Chen and Ms Zhao would make contributions to the company on a 50/50 basis. The plaintiffs further allege that:

(a) Ms Zhao would be the Chief Financial Officer of the company, and be responsible for providing and/or provide bookkeeping, accounting, tax, payroll and corporate governance services;

(b) Mr Chen would be the Chief Information Officer of the company, and be responsible for developing the software platform for the crowdfunding investment opportunities; and

(c) Mr Chen would be responsible for IT protocols and technological resources involved in operating a crowdfunding business.

69 The Zhao parties allege that the 50/50 joint venture agreement alleged by the plaintiffs never existed, but they do admit:

(a) Mr Chen and Ms Zhao were the initial equal shareholders, and first directors, in Galaxy Crowdfunding which was incorporated to develop a crowdfunding business;

(b) Galaxy Crowdfunding did apply for an AFSL;

(c) Ms Zhao assumed the responsibilities of providing bookkeeping, accounting, tax, payroll and corporate governance services to the company;

(d) Mr Chen assumed the responsibilities for developing the software platform for the crowdfunding investment opportunities;

(e) Mr Chen assumed the responsibilities for IT protocols and technological resources involved in operating a crowdfunding business.

70 The Zhao parties further allege that Mr Chen and Ms Zhao agreed as follows:

Mr Chen and Ms Zhao agreed that any loans made by them or other individuals to the company, would be converted to equity, at the end of the financial year in which the loans were made, if the company had not repaid the loan and its net assets were below the sum of $100,000 (the Debt to Equity Agreement)...

71 The Zhao parties referred to this agreement as the 'Debt to Equity Agreement'. The Zhao parties provided the following particulars, including of the Debt to Equity Agreement:

In around September 2017, Ms Zhao, after reading ASIC publication RG 261, began speaking with Mr Chen, a Mr Allan Guo, and Mr Hu (in October 2017),

about starting a crowdfunding business. They each expressed interest. Mr Guo said that he may become involved when the idea was more developed. Mr Hu was overseas.

72 The Zhao parties also provided the following particulars specifically in relation the Debt to Equity Agreement:

The particulars are in a document that has been provided to the plaintiffs on 6 August 2021.

73 The plaintiffs deny the existence of the Debt to Equity Agreement. As a result, the critical disputes between the plaintiffs and the Zhao parties were whether Mr Chen and Ms Zhao:

(a) entered into an agreement in relation to Galaxy Crowdfunding, and if so, on what terms; and / or

(b) entered into the alleged Debt to Equity Agreement.

74 Mr Chen met Ms Zhao in early 2015. From about 2015 to about 2017, Mr Chen and Ms Zhao both worked at Blockchain Global Limited (Blockchain Global). Ms Zhao was an accountant at Blockchain Global. Ms Zhao is a chartered accountant. In about 2015, Mr Chen was looking for a new accountant to look after his tax affairs. Mr Sam Lee, a founder and a director of Blockchain Global, recommended Ms Zhao to Mr Chen.

75 Mr Chen gave evidence that from early 2017 it became clear to him that cryptocurrency and Blockchain technology had enormous potential in the crowdfunding sector and that a platform which combined cryptocurrency and Blockchain technology with crowdfunding presented an excellent business opportunity. He gave evidence that this platform could offer a method for small businesses to receive funds in the form of cryptocurrency, as an alternative to listing on the ASX.

76 Mr Chen gave evidence that in the middle of 2017 he was working in the office of Blockchain Global at City Road, Melbourne when Ms Zhao came to see him. Ms Zhao told him that she had learned that the Australian Securities and Investments Commission (ASIC) had opened a short window for an AFSL application for crowd source funding. Ms Zhao told him that she had spoken to a Mr Allan Guo, who was also a founder of Blockchain Global, about this information. Ms Zhao then asked Mr Chen whether they should apply for an AFSL. Mr Chen gave evidence that he told her that they should apply for an AFSL.

77 Later in 2017, Mr Chen had several conversations together with Ms Zhao and a Ms Hannah Young, an executive co-ordinator working at Blockchain Global, about making an AFSL application. He said he could not remember the content of those conversations.

78 Mr Chen gave evidence that one day prior to the incorporation of Galaxy Crowdfunding (i.e. on 23 October 2017), he was in the City Road office and said to Ms Zhao that she needed to decide whether to choose to work with him or to work with Mr Guo and Blockchain Global. Mr Chen told Ms Zhao that he did not want to work with Mr Guo. Mr Chen gave evidence that Ms Zhao told him that she will talk to Mr Guo about it. Mr Chen gave evidence that later that day, Ms Zhao came back and told Mr Chen that Mr Guo had no problem with not participating in the crowdfunding business and that Ms Zhao had decided to work with Mr Chen. Mr Chen gave evidence that Ms Zhao also said that they would be both directors and that he said okay. Mr Chen also gave evidence that Ms Zhao asked, 'What about shareholding?' and that he said 'I don't know, you tell me your thoughts'. Mr Chen gave evidence that Ms Zhao then said, 'Let's do 50/50' and that he said okay.

79 Galaxy Crowdfunding was incorporated on 24 October 2017. Mr Chen gave evidence that on 24 October 2017, Ms Zhao sent him a company certificate of Galaxy Crowdfunding.

80 Upon incorporation, Mr Chen and Ms Zhao were the directors and Ms Zhao was the company secretary. The share capital comprised 100 ordinary shares with Mr Chen and Ms Zhao each beneficially holding 50 shares.

In the following three days, ah, from 25 to 27 October 2017, ah, we had several discussions in this office at City Road. And the first was we decided that, um, our responsibilities, um, being that I will be the CTO responsible - responsible for the IT aspects and the technology, and she will be the CFO for the, um, finance and commercials. Um, those responsibilities later on had been specified in the AFSL application, um, documents. And in that three days the rest of the conversation was about, um, me to write up the IT strategy. And that was also part of the AFSL application.

82 Mr Chen gave evidence that Ms Zhao was the Chief Financial Officer of Galaxy Crowdfunding, and that she also, with respect to Galaxy Crowdfunding, caused lodgements of ASIC updates, controlled the subscriptions for financial software that stored and recorded the financial information of Galaxy Crowdfunding, including Xero, was a signatory to the bank accounts, and supervised the preparation of Business Activity Statements, payroll, superannuation contributions, and tax statements.

83 There is a document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' concerning a purported meeting at 5:30pm on 25 October 2017. The minutes record that both Mr Chen and Ms Zhao were present. The minutes also record the following:

The chairperson advised that

Jin Chen

Wei Zhao

have consented to contribute $50,000 each initially to fund the business activities of the Company and for each dollar contributed to the Company will receive one (1) ordinary share and also have consented to provide a loan of $100,000 each to the Company. This loan and any subsequent loans will be converted to equity as and when required if the company is required to do so in accordance with Corporations Act 2001 and ASIC RG 262.[47]

84 The minutes are signed by Ms Zhao and dated 25 October 2017. Mr Chen gave evidence that this meeting did not take place and that he first saw a copy of the minutes after it was discovered in this proceeding. Mr Chen gave evidence that as at 25 October 2017, they did not discuss any loans to be made to Galaxy Crowdfunding.

85 Shortly after this purported meeting, on 27 October 2017, Mr Chen and Ms Zhao signed a document titled 'Commitment Letter', addressed to Galaxy Crowdfunding, which states:

We, Jin Chen and Wei Zhao, have agreed to lend the Company the sum of $200,000.00 as a joint and several obligation, of which we have already advanced $80,000.00.

Furthermore, we commit to ensuring that the Company maintains the required cash amounts in the bank at all times. In this instance, we pledge to lend additional funds on demand to ensure that the cash surplus of $50,000.00 is maintained at all times.

86 The plaintiffs submitted that Mr Chen and Ms Zhao entered into the Galaxy Crowdfunding agreement.

87 The plaintiffs also submitted that Mr Chen and Ms Zhao never entered into the Debt to Equity Agreement. They submitted that the minutes of the meeting of the directors and shareholders of Galaxy Crowdfunding on 25 October 2017 is a false record.

88 At the trial, Ms Zhao submitted that in October 2017, Ms Zhao initially had meetings with Foster Nicholson Lawyers to obtain advice from them on applying for a AFSL for crowdfunding. Mr Chen had no involvement at the time. Ms Zhao then discussed the matter with Mr Chen. They had discussions about how to set up the business. Ms Zhao did not identify these discussions with any precision. Ms Zhao and Mr Chen had a meeting on 25 October 2017 as Ms Shannon Ryan, solicitor, told them that they needed to make commitments to the fund. Ms Zhao submitted that Ms Ryan initially said that $50,000 of tangible assets was enough and 'maybe we prepare extra funds for the application fees'.

89 I find that Mr Chen and Ms Zhao entered into an agreement shortly prior to the incorporation of Galaxy Crowdfunding on the following terms:

(a) Ms Zhao would incorporate a company;

(b) the company would apply for an AFSL and operate a crowdfunding business;

(c) Mr Chen and Ms Zhao would be the directors; and

(d) Mr Chen and Ms Zhao would be equal shareholders and make equal contributions to the company.

90 Mr Chen and Ms Zhao then agreed in the following days that Mr Chen would be the Chief Information Officer and Ms Zhao would be the Chief Financial Officer.

91 First, I accept the evidence of Mr Chen concerning the Galaxy Crowdfunding agreement. He gave an account of the circumstances of the making of the agreement. I accept that parts of his evidence were imprecise, especially concerning the dates of various conversations, but this is to be expected in circumstances in which the conversations took place many years ago. Ms Zhao did not give evidence.

92 Second, upon the incorporation of Galaxy Crowdfunding on 24 October 2017, Mr Chen and Ms Zhao were appointed as the only directors and became the only shareholders.

93 Third, the Zhao parties admit that a company named Galaxy Crowdfunding was incorporated to develop a crowdfunding business and that Mr Chen and Ms Zhao were the initial directors and shareholders. They also admit that the company applied for an AFSL and that Mr Chen assumed the responsibilities for developing the software platform for the crowdfunding investment opportunities and Ms Zhao assumed the responsibilities for providing bookkeeping, accounting, tax, payroll and corporate governance services to the company. The Zhao parties deny, however, that there was a joint venture between Mr Chen and Ms Zhao but otherwise do not identify in their defence the basis for the arrangement between Mr Chen and Ms Zhao concerning the incorporation, shareholding, operation and management of the company. This is despite the Zhao parties alleging that Mr Chen and Ms Zhao entered into an agreement in relation to Galaxy Crowdfunding, namely the alleged Debt to Equity Agreement. I find it likely that Galaxy Crowdfunding was incorporated pursuant to an agreement between Mr Chen and Ms Zhao concerning its incorporation, shareholding, operation and management. I have set out that agreement in paragraph 89 of these reasons.

94 I find that the alleged Debt to Equity Agreement does not exist.

95 First, the alleged Debt to Equity Agreement is not evidenced in writing, with the exception of the purported 25 October 2017 minutes which I address at paragraph 98 of these reasons. Ms Zhao did not give evidence. Mr Chen denies the existence of alleged Debt to Equity Agreement.

96 Second, I do not accept, however, Mr Chen's evidence that as at 25 October 2017, he and Ms Zhao did not discuss any loans to be made to Galaxy Crowdfunding. This is because this evidence is inconsistent with the matters set out in the letter signed by them on 27 October 2017 in which they stated: 'We, Jin Chen and Wei Zhao, have agreed to lend the Company the sum of $200,000.00 as a joint and several obligation, of which we have already advanced $80,000.00' (emphasis added). I find that Mr Chen was mistaken about this. I do not find that he was deliberately untruthful. In addition, I find that there was no discussions of loans to be made by any other persons to Galaxy Crowdfunding at this time. There is no such reference in the letter of 27 October 2017 which was confined to Mr Chen and Ms Zhao. I also observe that the $80,000 had not been, in fact, 'already advanced'. It was common ground between Mr Chen and Ms Zhao that no payments had been made by this time. This is because the payments (including contributions and loans) alleged in the plaintiffs' and Zhao parties' pleadings to have been made by Mr Chen and Ms Zhao to Galaxy Crowdfunding at around this time were alleged to have been made from November 2017 onwards.

97 Third, the Zhao parties have never provided adequate particulars of the alleged Debt to Equity Agreement, including where or when it was made. In addition, the particulars they have provided are vague and evasive. They stated that the '[t]he particulars are in a document that has been provided to the plaintiffs on 6 August 2021.' The Zhao parties did not further identify this document in their particulars. The particulars provided by the Zhao parties in their second further amended defence with respect to, inter alia, the alleged Debt to Equity Agreement, also do not support any agreement as they refer to persons who only 'expressed interest' about starting a crowdfunding business.

98 Fourth, I find that the minutes of the meeting of directors and shareholders of Galaxy Crowdfunding at 5:30pm on 25 October 2017 are a false record and that the meeting did not take place. This is because:

(a) Mr Chen denies that this meeting took place. Ms Zhao did not give evidence;

(b) Ms Zhao in her opening address made reference to the purported meeting on 25 October 2017 but made no mention of any discussion at that meeting concerning converting any loans to equity;

(c) there is no contemporaneous evidence, apart from the purported minutes, that supports a finding that the meeting took place. The letter signed by Mr Chen and Ms Zhao on 27 October 2017 does refer to them having agreed to lend $200,000 to Galaxy Crowdfunding and the minutes refer to them providing a loan of $100,000 each to Galaxy Crowdfunding, but there is no reference in the letter to loans being converted to equity. This is the essential element of the alleged Debt to Equity Agreement;

(d) the minutes purport to record a critical part of the alleged Debt to Equity Agreement (i.e. loans being converted to equity) but this document was not specifically identified in the Zhao parties' pleadings or particulars;

(e) the minutes were not discovered by the Zhao parties until 29 June 2022 after there had already been numerous occasions for it to be discovered. No adequate explanation was provided as to why it was discovered so late;

(f) ASIC RG 262 did not 'require' loans to be converted to equity in the terms set out in the minutes; and

(g) Foster Nicholson Lawyers provided extensive advice and other services, including concerning ASIC RG 262 (as referred to in the minutes), and prepared the documents relevant to the AFSL application. The tax invoice from Foster Nicholson Lawyers with respect to this work included advice and services provided at the date of the minutes (i.e. 25 October 2017). There is no evidence that it advised the directors and shareholders of Galaxy Crowdfunding, namely Mr Chen and Ms Zhao, to take the step of passing the resolution recorded in the minutes. It is likely that Galaxy Crowdfunding would have obtained advice from Foster Nicholson Lawyers before taking such a step.

Did Ms Zhao appoint Mr Hu as a director of Galaxy Crowdfunding on 16 April 2019 without Mr Chen's consent and/or remove Mr Chen as a director of Galaxy Crowdfunding on 9 May 2019 without his consent?

99 The plaintiffs allege that on 16 April 2019, Ms Zhao purported to appoint Mr Hu as director of Galaxy Crowdfunding without Mr Chen's consent. The Zhao parties deny this and allege that Mr Hu was appointed as director of Galaxy Crowdfunding with Mr Chen's knowledge and consent. The plaintiffs also allege that on 9 May 2019, Ms Zhao purported to cause Mr Chen's removal as a director of Galaxy Crowdfunding without Mr Chen's consent. The Zhao parties deny this and allege that the removal of Mr Chen as a director of Galaxy Crowdfunding was done upon his request.

100 Mr Chen gave evidence that shortly prior to Ms Zhao providing him with a draft ASIC form changing the register of members of Digital Galaxy which she then caused Leader Tech to lodge on 10 October 2018, he had a conversation with Ms Zhao in which they agreed that Mr Hu would be added as a director of Digital Galaxy and he would be removed.

101 Mr Chen gave evidence that he never stated to Ms Zhao that Mr Hu should be a director of Galaxy Crowdfunding. He gave evidence that in around January 2019, Ms Zhao proposed to him that Mr Hu should become a director of Galaxy Crowdfunding, and he did not accept her proposal. Mr Chen gave evidence that he never agreed to be removed as a director of Galaxy Crowdfunding.

102 A document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' which concerns a purported meeting held at 2:00pm on 16 April 2019, attended by Mr Chen and Ms Zhao with Ms Zhao as the chairperson, records the following:

The Chairperson has been advised by Jin Chen that he was seeking resignation from the Company and mentioned appointment of new Director. Jin Chen initiated the appointment of Biyang Hu to replace himself. Jin Chen expressed his business focus to cryptocurrency exchange but not Galaxy Crowdfunding. Jin Chen also admitted that he could not compose the Research and Development report of Galaxy.

The Chairperson accepted Jin Chen's diversion of business focus and agreed to appoint Biyang Hu as a Director. This decision be notified to Biyang Hu and to seek his consent.

103 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting. Mr Chen gave evidence that he did not know about or consent to Mr Hu's purported appointment as director of Galaxy Crowdfunding.

104 On 28 April 2019, a Form 484 for Galaxy Crowdfunding was lodged with ASIC by Leader Tech, appointing Mr Hu as director with the appointment date as 16 April 2019. Ms Zhao certified the form in her capacity as company secretary.

105 There is a document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' which concerns a purported meeting held at 7:00pm on 8 May 2019, attended by Mr Chen, Ms Zhao and Mr Hu. The minutes record the following:

The Consent to act as a Director signed by Biyang Hu has been tabled and adopted.

The lodged ASIC form 484 Notification to appoint new Director has been tabled and adopted.

Jin Chen as the CTO acknowledged he did not deliver the communication facility function on time due to lack of time and focus and seeking to be removed as a Director.

The Chairperson agreed Jin Chen's proposal to remove him as director and kept his position of CTO at the moment.

The directors decided to engage a contractor to develop the communication facility function for the platform and seek new Tech Lead to replace Jin Chen.

106 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting. Mr Chen said that he could not recall a telephone conversation on 9 May 2019 between Ms Zhao, Mr Hu and himself in which Mr Chen's removal as a director of Galaxy Crowdfunding was discussed. Mr Chen denied that he told Ms Zhao that he was a politically exposed person. He gave evidence that he is not the person identified in a search obtained by Ms Zhao as his name 'Jin' in Mandarin is a different character to that of the person in the search.

107 On 9 May 2019, Ms Zhao and Mr Chen exchanged text messages. It is important to refer to the full translated text of this exchange:[48]

Leah, I have a few things I'd like to discuss with you:

1. Should we, and how should we, communicate further with westpac?

1. Confirmation: Currently, Zhao Long is the compliance officer for the exchange (?), and we'll bring Stella on board.

2. I'm arranging for Stella to design and implement a decentralisation strategy for the exchange operations. Do you see any issues with this?

3. Contracts with Hui Du will proceed as currently arranged. I don't plan to add anyone new at the moment.

Let's discuss when you come over tomorrow

I will remove you from the Director position at Galaxy, so it is easier for you.

You are not responsible for this part anyway

Everyone should focus on their respective roles.

Ok.

Dons?

Done

Yes done.

Leah [Ms Zhao] has produced an undated telegram conversation in which she says 'I will remove you as a director from Galaxy'. In about early May 2019, at the Mulgrave office, Leah said words to the effect that she will remove me as a director from Digital Galaxy to lighten my workload.

109 Mr Chen did not give evidence as to what he said in response to Ms Zhao.

110 Mr Chen did not deny that he received and sent the texts on 9 May 2019. The plaintiffs admit in the plaintiffs' chronology that they were sent and received on 9 May 2019.

111 On 9 May 2019, a Form 484 for Galaxy Crowdfunding was lodged with ASIC by Leader Tech, removing Mr Chen as director with the cessation date as 9 May 2019. Ms Zhao certified the form in her capacity as company secretary. Mr Chen gave evidence that he did not consent or have knowledge about being removed as a director and did not resign.

112 On 13 May 2019, Ms Zhao sent an email to Ms Kaye Martin and Dr Franzese, copied to Mr Hu and Mr Chen, in which she stated that Mr Chen is no longer a director of Galaxy Crowdfunding and that Mr Hu had been appointed a director. Mr Chen gave evidence, in cross-examination, that he received this email. Ms Zhao also stated in the email that the current directors were Mr Hu and herself and she was the secretary. Mr Chen gave evidence that the contents of the email were a surprise to him. He said that he chose not to confront Ms Zhao directly because he did not want to ruin their relationship as partners in Galaxy Crowdfunding unnecessarily and he is generally a non-confrontational person. He gave evidence that their relationship was already strained at this point. Mr Chen was asked in cross-examination whether he questioned anyone about the contents of this email. He said he did not talk to anyone immediately afterwards and that he did not take any action immediately because he was confused and at the same time he felt there was tension between himself and Ms Zhao. He also gave evidence that he wished to solve the bigger problem first rather than hanging on to this directorship and felt there might be some issue that he needed to clarify between himself and Ms Zhao.

113 The plaintiffs submitted that Ms Zhao appointed Mr Hu as a director of Galaxy Crowdfunding on 16 April 2019 without Mr Chen's knowledge or consent. The plaintiffs submitted that Ms Zhao removed Mr Chen as a director of Galaxy Crowdfunding on 9 May 2019 without his knowledge or consent.

114 The Zhao parties submitted that Mr Chen was removed as a director of Galaxy Crowdfunding with Mr Chen's knowledge and consent.

115 Ms Zhao referred to the text exchange on 9 May 2019 and submitted:

MS ZHAO: Yeah, so based on that message, um, we updated ASIC record so to cease Chen's directorship of Galaxy Crowdfunding. So when I mention about Galaxy I always mean Galaxy Crowdfunding.

HIS HONOUR: Yes.

MS ZHAO: Because Digital Galaxy is a company had no employee, no products, it's just an idle shelf company. Yeah, so we talk about the works delegation, about the works, and then segregation of the duties. So he want to be in charge of the cryptocurrency part, and then I said to him, ah, I agree, and that it wasn't his responsible for that part anyway. So he asked me whether I lodge ASIC form and then I told him it's been done.

116 Ms Zhao also submitted that at the time of Mr Chen's resignation as a director, he remained the technical officer in charge of the platform.

117 Ms Zhao, on behalf of Galaxy Crowdfunding, also submitted:

1. In January 2019, Mr Chen raised an issue that he was a politically-exposed person. Mr Chen raised his willingness to remove his directorship from the Company. The removal of Mr Chen's directorship is completed on 9th May 2019. Mr Chen sent me a telegram message to confirm with me about his removal on 9th May 2019. Mr Chen remained as CTO of the Company and still in charge of the further development and maintenance of the platform.

118 I find that Mr Chen was removed as a director, and Mr Hu was appointed as a director, of Galaxy Crowdfunding, without Mr Chen's consent.

119 First, Ms Zhao informed Mr Chen by text on 9 May 2019 that she would remove him from the 'Director position at Galaxy' and he replied 'Ok'. As a result, Mr Chen communicated an unequivocal acceptance of his removal as a director of a company referred to as 'Galaxy'. There are only two companies that have the word 'Galaxy' in their name that are relevant to this proceeding, namely Galaxy Crowdfunding and Digital Galaxy.

120 Second, I find it likely that the reference to 'Galaxy' in the text messages was a reference to 'Digital Galaxy' and not 'Galaxy Crowdfunding' given the following matters:

(a) Mr Chen gave evidence that he did not resign from Galaxy Crowdfunding and that Mr Hu was appointed without his knowledge or consent. Ms Zhao did not give evidence;

(b) Ms Zhao admitted that after 9 May 2019 Mr Chen remained the technical officer at Galaxy Crowdfunding in charge of the platform. Ms Zhao submitted in her opening written submissions on behalf of Galaxy Crowdfunding: 'Mr Chen remained as CTO [Chief Technical Officer] of the Company and still in charge of the further development and maintenance of the platform'. In this context, the words in the texts that 'You are not responsible for this part anyway... Everyone should focus on their respective roles' is unlikely to have been a reference to Galaxy Crowdfunding;

(c) I reject Galaxy Crowdfunding's submission that: '[i]n January 2019, Mr Chen raised an issue that he was a politically-exposed person. Mr Chen raised his willingness to remove his directorship from [Galaxy Crowdfunding].' This is because I accept Mr Chen's evidence that he did not tell Ms Zhao that he was a politically exposed person. The document relied upon by Ms Zhao also concerned a different person;

(d) Mr Chen gave evidence of his discussions with Ms Zhao concerning his removal as a director of Digital Galaxy, including in early May 2019;

(e) the email sent on 13 May 2019 by Ms Zhao to Ms Martin and Dr Franzese, copied to Mr Chen, informed them that Mr Chen was no longer a director of Galaxy Crowdfunding and that Mr Hu had been appointed as a director. Mr Chen did not take any immediate action once he received the email. I accept his explanation. He was cross-examined on this matter. His explanation was credible. At this time, the relationship between Mr Chen and Ms Zhao was 'strained'.

121 Third, I find that the minutes of Galaxy Crowdfunding dated 16 April 2019 are a false record created by Ms Zhao. This is because:

(a) Mr Chen denies that this meeting took place. Ms Zhao did not give evidence. The minutes are only signed by Ms Zhao;

(b) the minutes are also self-serving for Ms Zhao and state, inter alia, 'Jin Chen also admitted that he could not compose the Research and Development report of Galaxy'. I find it unlikely that Mr Chen made such a statement. This is because there is no other evidence that he could not undertake that task.

122 Fourthly, I find that the minutes of Galaxy Crowdfunding dated 8 May 2019 are also a false record created by Ms Zhao. This is because:

(a) Mr Chen denies that the meeting took place and Mr Zhao did not give evidence. The minutes are only signed by Ms Zhao;

(b) the minutes are self-serving for Ms Zhao and state, inter alia, 'Jin Chen as the CTO acknowledged he did not deliver the communication facility function on time due to lack of time and focus and seeking to be removed as a Director.' I find it also unlikely that he made such a statement. This is because there is no other evidence that he did not deliver the communication facility function on time due to lack of time and focus.

123 Finally, I have made findings on this issue but observe that the plaintiffs do not otherwise rely upon this finding in their closing submissions for any final relief.

Did Ms Zhao procure the issue of further shares in Galaxy Crowdfunding to other persons without the consent of Mr Chen and/ or in contravention of the constitution?

124 The plaintiffs allege that Ms Zhao purported to cause Galaxy Crowdfunding to issue, on 30 June 2018, a further 13,443 shares to Ms Zhao, 24,925 shares to Mr Chen, and 237,906 shares to Livia Holdings, and on 16 April 2019, issue a further 20,000 shares to Epacris Impressa, without the consent of Mr Chen and/or in the contravention of Galaxy Crowdfunding's constitution. The Zhao parties allege that the issue of the 24,925 shares to Mr Chen and the 237,906 shares to Livia Holdings occurred on 30 June 2019. They allege that the shares issued were in accordance with the audit findings of Ashfords Accountants and Advisory[49] as to contributions made to Galaxy Crowdfunding, and pursuant to the Debt to Equity Agreement.

125 The plaintiffs also allege that Ms Zhao, without consent of Mr Chen and/or in contravention of Galaxy Crowdfunding's constitution, wrongfully purported to cause the issue of further shares in Galaxy Crowdfunding to various persons such that ASIC's records now record a certain distribution of 'Class A' shares and ordinary shares in Galaxy Crowdfunding.

126 The Zhao parties allege that the shares were issued pursuant to the alleged Debt to Equity Agreement. The Zhao parties otherwise do not allege or provide particulars of loans made by persons to whom shares were issued, including the amount lent.

127 I refer to Annexure A to these reasons. I have prepared this as a convenient summary of the evidence I am about to address. This identifies, inter alia, the following:

(a) there were two purported transfers of shares, being from Mr Chen and Ms Zhao to Morning Shine, and from Bitgrowth Advisory to Epacris Impressa;

(b) ordinary shares were issued to Mr Chen, Ms Zhao and also third parties;

(c) Class A shares were issued to Ms Zhao and third parties; and

(d) the current shareholders are Mr Chen, Ms Zhao, Morning Shine and Livia Holdings.

128 I have already said that upon incorporation, each of Mr Chen and Ms Zhao held 50 shares in Galaxy Crowdfunding.

129 The constitution of Galaxy Crowdfunding relevantly provided:

1. No share may be issued unless the directors first offer them to the existing holders of shares of that class. The company may pass a resolution at a general meeting authorising the directors to issue shares without complying with this rule.

...

1. Transfers of shares by a member may be by means of a written instrument of transfer in any usual form or in any other form approved by the directors and permitted by law. Such an instrument should be signed by the transferor and transferee.

...

1. If a member intends to transfer shares, he or she must notify the company in writing, along with the member's price for the shares. Parcels of shares to be transferred may be covered by one notice, separate notice then being deemed to have been given for the transfer of each parcel of shares.

130 Mr Chen gave evidence that on 3 December 2017, Ms Zhao rang him and told him that they both need to contribute $50,000 to Galaxy Crowdfunding and the total of $100,000 needs to be put into the company, which she had already transferred to Galaxy Crowdfunding, and that Ms Zhao asked him to transfer his share of the $50,000 to her. Mr Chen gave evidence that she said that this was to be a loan. Mr Chen gave evidence that Ms Zhao made a transfer of $100,000 to Galaxy Crowdfunding on 29 November 2017. Mr Chen gave evidence that Ms Zhao gave him the bank information in the telegram chat and that he responded in the telegram chat that he will transfer $50,000 in three transactions due to the daily transfer limit. A translation of a telegram message between Mr Chen and Ms Zhao records that on 3 December 2017 Mr Chen said to Mr Zhao that he would transfer $50,000 to Ms Zhao's account in three transfers in three days 'due to limits'. This is not consistent with the plea that these payments were made, in fact, in November and not December 2017.

131 There was no dispute that Mr Chen and Ms Zhao made the following payments to Galaxy Crowdfunding as follows:

(a) Mr Chen: $50,000 (between 3 and 16 November 2017), $41,919 (between 22 and 24 May 2018); and

(b) Ms Zhao: $54,925 (between 9 and 15 November 2017), $41,919 (on 2 March 2018).

132 The Zhao parties allege that these were all loans.

133 Mr Chen gave evidence that his contributions of 3, 6 and 16 November 2018 were noted as an 'investment' in the bank statements of Galaxy Crowdfunding. Mr Chen referred to a Commonwealth Bank of Australia bank statement for the period from 1 October 2018 to 31 December 2018. That statement does not record any payments totalling $50,000 and makes no reference to 'investment'.

134 On 12 December 2017, Ms Zhao, through Leader Tech, lodged an ASIC Form 484. The Form 484 stated that, on 29 November 2017, 104,825 ordinary shares were issued, and the resulting share structure in Galaxy Crowdfunding was 104,925 ordinary shares. Mr Chen was recorded as holding 52,463 ordinary shares and Ms Zhao was recorded as holding 52,462 ordinary shares.

135 Mr Chen gave evidence that he had a conversation with Ms Zhao in the Collins Street office in June 2018. He gave evidence that Ms Zhao said to him words to the effect that the AFSL application requires the conversion of $100,000 from a loan to equity and that this $100,000 was the $50,000 that they each had contributed as a loan previously. He also gave evidence that she said to him that ASIC required that Galaxy Crowdfunding maintain a minimum of $100,000 in the bank. He gave evidence that he agreed to this.

136 Mr Chen gave evidence that there was no other conversation or agreement about any loan to equity agreement.

137 On 8 June 2018, a Form 484 bearing Mr Chen's signature titled 'Change to Company Detail' in relation to Galaxy Crowdfunding was lodged. This recorded a new issue of 183,839 ordinary shares on 7 June 2018 and an increase in the ordinary shares held by Mr Chen of 91,919 shares and an increase in the ordinary shares held by Ms Zhao of 91,920 shares. It also recorded that the total number of ordinary shares held by each of Mr Chen and Ms Zhao was 144,382 shares. Mr Chen gave evidence in chief that he had no recollection that he signed this Form 484. In cross-examination he gave evidence that there was a meeting on 8 June 2018.

138 On 8 June 2018, Ms Zhao sent an email to Dr Franzese, copied to Mr Chen, in which she stated:

Good evening Pas,

Attached is the latest ASIC company statement we have requested today, with updated share capitals records after converted $100K loan to equity.

Regards,

Leah Zhao.

139 On 12 June 2018, Dr Franzese sent an email to Ms Zhao, copied to Mr Chen and others, in which he stated, inter alia:

Use paid up capital as you have done, shareholder loans need to be subordinated with ASIC, difficult process. P&I cover will take a week or so. Therefore recommend we accept draft , provide cash flow and balance sheet and Shannon lets ASIC know P&I in process. Please call if you need to. Feel free to reformat cash flow projection, I have set to A3 so it can be read easier. Apart from that I have not changed any of your numbers. Please give cash flow projection and balance sheet as at 8 June one final check before you email to Shannon to provide to ASIC.

140 Mr Chen gave evidence that the total amount of debt converted to equity was $100,000. He said this was confirmed by Ms Zhao in her email of 8 June 2018 to Dr Franzese, copied to him.

141 Mr Chen gave evidence concerning a document that purports to be minutes of the directors of Galaxy Crowdfunding dated 14 June 2018:

1. Leah has produced a set of compliance meeting minutes dated 14 June 2018 purportedly submitted by Ben, in which it is recorded that "LZ and JC confirmed that all the directors' loans have been converted into equity and notified ASIC on 8th June 2018.
2. I was not, contrary to what is said in the minutes, at the meeting conducted at the Collins Street Office which is said to have commenced at 11:45am and closed at 2:00pm. From about 10.59 am until about 6.47 pm, I was at another office on Collins Street, being the office of Nicholson Ryan Lawyers at Level 7, 416-420 Collins Street, Melbourne, on 14 June 2018, attending a mediation. An invoice from the mediator's company, Allegro Investment Services Pty Ltd, confirms that the mediation occurred on 14 June 2018. I recall a brief telephone call to the people at the Galaxy Crowdfunding office at some point that day. That call was brief and was only to greet Pasquale because he was visiting the Galaxy Crowdfunding office and I could not be there. I have no recollection of there being any formal meeting of the kind described in the minutes (or otherwise).
3. The minutes were not 'approved' nor 'seconded'. Ordinarily, in my experience minutes of a formal meeting are approved at the next meeting of the same group. However, in the meeting minutes of Galaxy Crowdfunding on 16 July 2018, there is no recorded approval of these minutes dated 14 June 2018. Indeed, the meeting minutes of Galaxy Crowdfunding dated 16 July 2018 are described as 'the first Compliance and General meeting of the Galaxy Crowdfunding Pty Ltd (ABN 71 622 444 142)'. I also did not receive a copy of the minutes dated 14 June 2018 until its production in this proceeding. Conversely, Ben sent a copy of the minutes dated 16 July 2018 to me on 3 August 2018.

142 Mr Chen gave evidence that he was never offered further shares before Ms Zhao caused Galaxy Crowdfunding to issue subsequent shares to other entities, not at that time nor any time since 8 June 2018.

143 The document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' concerning a meeting at 3:00pm on 12 November 2018 contains the following purported resolution:

Both directors who are the individual shareholders have agreed to use their family trust as the shareholders of the Company. Shares held in the names of the directors will be transferred to Morning Shine Investment Trust No.2. Unit holders being Ding Ding Holdings Pty Ltd will be the beneficiary owners of Jin Chen's shareholdings and Unit holders being Livia Holdings Pty Ltd will be the beneficiary owners of Wei Zhao's shareholdings.

144 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting. Ms Zhao submitted that this meeting was by telephone. The minute, however, states that the meeting was held at Level 31, 120 Collins Street and that Mr Chen and Ms Zhao were present. Mr Chen gave evidence that he was not aware of the Morning Shine Investment Trust (No 2) prior to the proceeding. He also gave evidence that he was not aware that Ding Ding Holdings was a unitholder in the Morning Shine Investment Trust (No 2) prior to the proceeding.

145 On 19 November 2018, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao and lodged with ASIC by Leader Tech, decreased Mr Chen and Ms Zhao's shares each by 144,382 to 0 ordinary shares, and issued 288,764 ordinary shares to Morning Shine, with the date of the share changes as 12 November 2018. Mr Chen gave evidence that this purported transfer of shares occurred without his knowledge or consent, and Ms Zhao had not produced any written notice from him that would have preceded this transfer of shares in accordance with the constitution. Mr Chen gave evidence that Ms Zhao is the sole director and shareholder of Morning Shine.

146 The document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' concerning a meeting at 2:30pm on 8 January 2019 contains the purported resolution concerning 'Issue new shares' in the following terms:

Jin Chen has briefed the Chairperson his meeting with the Company's Compliance Officer Mr Biyang Hu and seeking additional funding for the Company. The Chairperson has agreed with his initiation to issue new shares to Mr Hu with the same share structure being $1 for one ordinary share. The Directors both consented to seek legal advice on share agreement and will introduce Mr Hu to Holley Nethercote Lawyers.

147 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting.

148 The document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' concerning a meeting at 6:00pm on 15 March 2019 contains the purported resolution:

Both directors acknowledged the receipt of the funds from Biyang Hu to the Company. The funds transferred from Biyang Hu to Blockchain Tech Pty Ltd as per Jin Chen's instruction and then $20,000 of the funds transferred from Blockchain Tech Pty Ltd to Galaxy Crowdfunding Pty Ltd.

The Directors have consented to issue new shares at the price of $1 per ordinary share. Share register will be updated and ASIC form will be lodged accordingly.

149 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting.

150 Mr Chen gave evidence that he denies that the $20,000 was for Mr Hu's shares in Galaxy Crowdfunding. Mr Chen did give evidence that he discussed Mr Hu's potential investment in companies including Galaxy Crowdfunding with Ms Zhao and Mr Hu, and had agreed with Mr Hu that Mr Hu could purchase 7.5% of Dashboard Management, Digital Galaxy, Digital Silo, Coin Loop and Galaxy Crowdfunding. Mr Chen did not give evidence that a price was agreed for this investment. Mr Chen also gave evidence:

1. On 5 March 2019, after we became aware of the fraudulent activities and the severity of the problem, I asked my technicians to investigate the accounts involved in the fraudulent activities and to freeze those accounts. I recall that, in the evening, Leah, Ben and I then spoke about how we should deal with the cash flow problem caused by money being frozen by the banks. Ben offered to transfer his own funds to Blockchain Tech to address the cash flow issue, using the words to the effect of 'why don't I transfer my $200,000 in advance'?
2. By his use of the expression 'my $200,000 in advance' I understood that there would be two purposes to Ben's $200,000 advance. One, it would address the cash flow issues. Two, it was a part payment towards his obligations under the share sale agreement in respect of Ben's investment in Dashboard Management, Digital Galaxy, Digital Silo, Coin Loop and Galaxy Crowdfunding.
3. I didn't agree to Ben's proposal to transfer his $200,000, initially. The rest of the meeting, Leah, Ben and I spoke about the fraud. Ben, Leah and I then left the office. We took the lift down to the underground carpark together. As Ben, Leah and I exited the lift and walked to the underground carpark of the Mulgrave office, Ben offered to me and Leah, again, to transfer $200,000 to Blockchain Tech to address the cash flow problems. Leah said to me and Ben that Ben transferring $200,000 to Blockchain Tech was OK because the share sale agreement was going to go ahead. I recall that Leah said words to the effect that she would provide the bank account information to Ben to allow Ben to transfer the $200,000 to Blockchain Tech. I agreed and left. I recall that Ben and Leah got into Ben's car so that Ben could give Leah a lift.

1. ...I recall that, Leah, Ben and I met in a meeting room at the Mulgrave office, at Leah's request for us to read and get ready to sign the paperwork. Leah gave Ben and me a thick bundle of paperwork before leaving the room. Ben and I waited for about 20 minutes for Leah to return, but Leah didn't return. Ben and I both found typos on the first page of the paperwork, and decided not to sign the paperwork.

152 I infer that the reference to 'paperwork' is a reference to documents concerning a share sale agreement. This because that is the subject of the matter Mr Chen was addressing. I refer to Mr Chen's supplemental witness statement at paragraphs 258-268. As a result, I find that there was no share sale agreement involving the issue or transfer of shares to Mr Hu.

153 The document titled 'Minutes of Meeting of Directors and Shareholders of Galaxy Crowdfunding Pty Ltd' concerning a meeting at 2:00pm on 16 April 2019 contains the purported resolution: 'Updated share register has been tabled and adopted by the Directors'. The updated register was not in evidence.

154 Mr Chen is identified as an attendee. He gave evidence that he did not attend this meeting.

155 As I have already said, Mr Chen was removed as a director of Galaxy Crowdfunding on 9 May 2019. No shares were issued to any third parties prior to this time, with the exception of a purported transfer of shares from Mr Chen to Morning Shine and the 20,000 ordinary shares issued to Epacris Impressa on 16 April 2019 as recorded in a Form 484 lodged on 26 November 2019.

156 The document titled 'Minutes of Meeting of Directors of Galaxy Crowdfunding Pty Ltd' concerning a meeting at 5:00pm on 20 November 2019 contains the purported resolution concerning 'Share capital update with ASIC':

The Company recognised the existing Directors contributions in the expense payments in the financial year ended 30/06/2018 and 30/06/2019. The directors take the actions in accordance with the previous practice. Company share register to be updated and notified ASIC accordingly.

157 On 26 November 2019, three Form 484s for Galaxy Crowdfunding, certified by Ms Zhao, were lodged with ASIC by Leader Tech, which:

(a) issued 13,443 shares to Ms Zhao and 8,513 shares to Mr Chen, with the date of the share issues as 30 June 2018;

(b) issued 16,412 shares to Mr Chen and 237,906 shares to Livia Holdings, with the date of the share issues as 30 June 2019; and

(c) issued 20,000 shares to Epacris Impressa with the date of the share issue as 16 April 2019.

158 Mr Chen gave evidence that he did not know about or consent to any of the changes described in these forms.

159 On 10 December 2019, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC by Leader Tech, which:

(a) changed the share structure of Galaxy Crowdfunding to 855,038 ordinary shares and 808,715 Class A shares as of 9 December 2019;

(b) issued 270,000 ordinary shares to Livia Holdings as of 9 December 2019;

(c) recorded that Epacris Impressa now held 572,365 Class A shares as of 9 December 2019; and

(d) recorded that Ms Zhao now held 236,350 Class A shares as of 9 December 2019.

160 Mr Chen gave evidence that he had no knowledge, and did not consent to, the changes recorded in this form, and that he was not informed, consulted, notified, nor did he approve this further issuing of shares to Epacris Impressa.

161 On 20 December 2019, the directors (i.e. Ms Zhao and Mr Hu) provided a directors' report as part of the financial report for Galaxy Crowdfunding. It stated, inter alia:

Wei Zhao and her related entities held 395,731 ordinary shares issued at $1.00 each, fully paid.

Biyang Hu and his related entity held 20,000 ordinary shares issued at $1.00 each, fully paid.

Jin Chen and his related entity held 177,614 ordinary shares issued at $1.00 each, fully paid.

162 On 20 December 2019, Ashfords Audit & Assurance Pty Ltd declared, inter alia:

In our opinion, the accompanying financial report of Galaxy Crowdfunding Pty Ltd is in accordance with the Corporations Act 2001, including:

• giving a true and fair view of the company's financial position as at 30 June 2019 and of its performance for the year then ended; and
• complying with Australian Accounting Standards and the Corporations Regulations 2001.

163 On 20 December 2019, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC by Leader Tech, which issued 8,306 ordinary shares to Mr Chen. The date of the share issue was 2 May 2019. Mr Chen gave evidence that he had no knowledge, and did not consent to this further share issue.

164 Ms Zhao submitted that on 15 August 2020 there were further loans to Galaxy Crowdfunding and 'loan conversations [sic]' to maintain the AFSL licence.

165 On 15 September 2020, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC by Leader Tech, which, inter alia:

(a) appointed Dr Franzese as director with the appointment date as 15 August 2020;

(b) changed the share structure of Galaxy Crowdfunding to 5,293,344 ordinary shares, with the date of change as 8 May 2020;

(c) issued 1,680,000 ordinary shares to Epacris Impressa, with the date of change as 8 May 2020;

(d) issued 1,650,000 ordinary shares to Australasian Finance & Investment Corporation, with the date of change as 8 May 2020; and

(e) issued 1,100,000 ordinary shares to Ruby AM, with the date of change as 8 May 2020.

166 Mr Chen gave evidence that he had no knowledge, and did not consent to these further share issues.

167 On 24 September 2020, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC by Leader Tech, which recorded 1,290,000 Class A shares issued and:

(a) recorded that Australasian Finance & Investment Corporation now held 660,000 Class A shares as at 12 August 2020;

(b) recorded that Ruby AM now held 480,000 Class A shares as at 12 August 2020;

(c) issued 150,000 Class A shares to Bitgrowth Advisory, with the date of change as 12 August 2020.

168 Mr Chen gave evidence that he had no knowledge of, and did not consent to, these further share issues.

169 On 25 October 2020, a Form 492 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC by Leader Tech, which requested the following correction to the Form 484 lodged on 15 September 2020:

In accordance with the Directors minutes, the ordinary shares issued on 8th May at $1.00 per share and the number of shares issued was 44,300. The details are listed below: New ordinary shares issued to these Shareholders: 1 AUSTRALASIAN FINANCE & INVESTMENT CORPORATION PTY LTD ACN 161 288 124 Number of Ordinary shares issued 16,500 2 EPACRIS IMPRESSA PTY LTD A.C.N.632 051 159 Number of Ordinary shares issued 16,800 3. RUBY AM PTY LTD A.C.N 634 871 079 Number of Ordinary shares issued:11,000 Please update the above accordingly.

170 Mr Chen gave evidence that Ms Zhao has not produced any directors' minutes, agendas of meeting, notices of meeting or other antecedent documents relevant to this correction.

171 Mr Chen gave evidence that at that as of 31 January 2022, Epacris Impressa owned 572,365 Class A shares and 1,700,000 ordinary shares in Galaxy Crowdfunding, and that Mr Hu had not provided evidence of payments from Epacris Impressa for those shares.

172 On 9 December 2021, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC, which made corrections to the register by cancelling 4,430,000 ordinary shares and decreased the shares held by Australasian Finance & Investment Corporation to 0 ordinary shares, Epacris Impressa to 20,000 ordinary shares and Ruby AM to 0 ordinary shares.

173 On 10 December 2021, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC, which recorded 44,300 ordinary shares issued with the date of issue as 9 December 2021, and:

(a) recorded that Australasian Finance & Investment Corporation now held 16,500 ordinary shares;

(b) 16,800 ordinary shares were issued to Epacris Impressa such that 36,800 ordinary shares were now held;

(c) recorded that Ruby AM now held 11,000 ordinary shares.

174 On 3 May 2022, a Form 492 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC, which made corrections to the register by noting that the ordinary shares held by Australasian Finance & Investment Corporation and Ruby AM as at 10 December 2021 were not beneficially held.

175 On 4 May 2022, a Form 484 for Galaxy Crowdfunding, certified by Ms Zhao, was lodged with ASIC, which issued 25,386 ordinary shares as at 30 June 2021 as follows:

(a) 3,300 ordinary shares to Australasian Finance & Investment Corporation;

(b) 16,448 ordinary shares to Epacris Impressa; and

(c) 5,638 ordinary shares to Ruby AM.

176 On 6 June 2022, the directors (i.e. Ms Zhao and Mr Hu) declared that the financial statements for the year ended 30 June 2021 were accurate. The financial statements included a note that there were 933,030 ordinary shares issued for $730,530 and 2,098,715 ordinary type A shares issued for $93,772.

177 On 6 June 2022, Ashfords Audit & Assurance Pty Ltd declared, inter alia:

In our opinion, the accompanying financial report of the Company is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Company's financial position as at 30 June 2021 and of its financial performance for the year ended; and

(ii) complying Australian Accounting Standards - Simplified Disclosures and the Corporations Regulations 2001.

178 On 22 October 2023, Dr Franzese wrote to Ms Zhao and Mr Hu, confirming that as of 22 October 2023, Australasian Finance & Investment Corporation's shareholding in Galaxy Crowdfunding is to be returned to Galaxy Crowdfunding 'for nil consideration and on the basis that neither Australasian Finance & Investment Corporation Pty Ltd nor I have any future claim over these shares or any other shares pertaining to [Galaxy Crowdfunding].'

179 On 8 November 2023, a Form 484 for Galaxy Crowdfunding was lodged by Ms Zhao which forfeited all shares held by Australasian Finance & Investment Corporation as of 22 October 2023.

180 On 17 January 2024, a Form 484 for Galaxy Crowdfunding was lodged by Ms Zhao recording that the 150,000 Class A shares held by Bitgrowth Advisory are transferred to Epacris Impressa as of 20 December 2022.

181 On 22 February 2024, a Form 484 for Galaxy Crowdfunding was lodged by Ms Zhao, which:

(a) removed Mr Hu as director with the cessation date of 12 February 2024;

(b) forfeited all shares held by Epacris Impressa as of 12 February 2024; and

(c) forfeited all shares held by Ruby AM as of 12 February 2024.

182 Mr Bailey, the forensic accountant called by the plaintiffs, gave evidence concerning whether the accounts of Galaxy Crowdfunding, being the bank statements and accounting ledger for equity in the Xero accounts, disclose any payments for the shares issued in Galaxy Crowdfunding and notified to ASIC.

183 He gave evidence that he identified payments for the shares issued to Mr Chen and Ms Zhao on 29 November 2017 (i.e. the issue of 104,825 shares, though Mr Bailey identifies 104,925 shares issued on this date) and on 7 June 2018 (i.e. the issue of 183,839 shares).

184 The plaintiffs submitted that Ms Zhao procured the issue of further shares in Galaxy Crowdfunding to entities controlled by her, Mr Hu and Dr Franzese without the consent of Mr Chen and in contravention of Galaxy Crowdfunding's constitution. In relation to the transfer of shares to Morning Shine, the plaintiffs submitted:

[MR HARRIS]: But Mr Zhao decides, based on advice given by one of the responsible managers she says, to change the personal shareholdings into entities that are associated with her and Mr Chen, to be held through a trust structure and that's implemented. Now, whether that was on instructions, whether it's legitimate, doesn't really matter because the point - - -

HIS HONOUR: So, who are the - anyway, the - - -

MR HARRIS: Because the structure - - -

HIS HONOUR: But it's still 50/50 split through some sort of corporate structure between Chen and Zhao up until May 2019.

MR HARRIS: Exactly.

HIS HONOUR: All right.

MR HARRIS: Whether it's authorised or not, Your Honour probably doesn't have to worry about that at the moment.

185 In relation to the issue of 20,000 shares to Epacris Impressa, the plaintiffs submitted:

MR HARRIS: ...So part of again the construct we would say, Your Honour, is that while there is evidence that $20,000 - sorry, that $200,000 came from Mr Hu and was deposited into Blockchain, and that $20,000 of Blockchain - $20,000 went out of Blockchain to Galaxy, and shares were issued to Mr Hu purportedly in return for that contribution by Ms Zhao. All of the other share issues that have happened are purported conversions of loans to equity, not because of contributions of cash - - -

Another important thing happened during the period between July 2018 and December 2018, where Galaxy, the shareholdings from - individually held by Mr Chen and I, changed to trust. So, the trustee is - trustee was Morning Shine Pty Ltd and non-beneficiary held. So, the beneficiary structure was the same.

187 Ms Zhao submitted at trial that the trust companies of Mr Chen and Ms Zhao were the unitholders in the trust and that the shareholding remained 50/50. She submitted that Mr Chen understood and was happy with this.

Ms Martin, she was the key person and responsible manager at the time. So, she said to me, I'm accountant, I should know about the difference, about shares held under individual name in the trust name. So, she said it's just for the shareholder - for the owner's benefit. So, you should consider that. I mean, I talk Ms Chen afterwards. He fully understand the structure, so we did that change and to him and to I, that's to better protect our interest. On top of that, Ms Chen, he said that he had further dispute with Blockchain Global. So, he is happy, he was happy, not now. He was happy to have the beneficiary ownership held in trust.

189 Ms Zhao submitted, that on 12 November 2018, there was a '[m]eeting held over the phone via Telegrams and shares transferred to Morning Shine No 2 Trust'. She submitted at trial:

And during the time when Mr Chen shut down the Galaxy Crowdfunding platform, we still have to pay, um, our, um, developers to develop the platform, and then because we signed a service agreement with, ah, the responsible managers at the time, being the key person, Ms Kay Martin, and, ah, the second responsible manager, Dr Pasquale Franzese, so we have to pay them and all these payments were made in cash, ah, due to the agreement we signed. And then we really want to keep the licence so we continue to make the payments for, ah, the development of the software and, ah, the related expenses to operate a business. And all these were incurred. And then the directors, at the time, provide a loan to Galaxy Crowdfunding and these loans have been converted to equity before the time we prepare financial statement and lodge with ASIC. So we can satisfy the RG262 conditions.

190 Ms Zhao submitted that some of the payments were made in cash and made by making withdrawals from Galaxy Crowdfunding's account. Ms Zhao submitted that Mr Chen and Ms Zhao's loans were converted to equity during the audit process of 2018 and 2019 financial years.

192 I find that Mr Chen did not have any knowledge of or consent to the transfer of his shares to Morning Shine.

193 First, there is no evidence that Mr Chen, on behalf of himself, and Ms Zhao, on behalf of Morning Shine, executed any written instrument transferring his shares to Morning Shine. In addition, this is required by clause 58 of Galaxy Crowdfunding's constitution.

194 Second, I accept Mr Chen's evidence that he did not have any knowledge of or consent to the transfer of his shares to Morning Shine. Ms Zhao did not give evidence.

195 Third, there is no other contemporaneous documentary evidence, except for the purported minute of 12 November 2018, concerning Mr Chen's knowledge of or consent to the transfer of his shares to Morning Shine. But, as submitted by the plaintiffs, the transfer resulted in the shares of Mr Chen and Ms Zhao being transferred to a trust in which Mr Chen and Ms Zhao retained their 50/50 interest. That said, Ms Zhao was the only director of Morning Shine. She had control of Morning Shine which was the trustee.

196 I also find that Mr Chen did not have any knowledge of or consent to the further issue of shares by Galaxy Crowdfunding after 8 June 2018. This included the issue of shares to Mr Chen, Ms Zhao and third parties.

197 First, I have already found that the alleged Debt to Equity Agreement does not exist. This is the basis upon which the Zhao parties allege that Mr Chen consented to the issue of the shares to third parties who had purportedly lent monies to Galaxy Crowdfunding.

198 Second, many of the notifications provided by Ms Zhao of the changes to the shareholdings were made many months (sometimes more than a year) after the alleged issue. I refer to the notifications provided by Ms Zhao on 26 November 2019 (for issues of shares on 30 June 2018, 16 April 2019 and 30 June 2019), 4 May 2022 (for an issue on 30 June 2021) and 17 January 2024 (for a share transfer on 20 December 2022).

199 Third, I accept Mr Chen's evidence that he was never offered further shares before Ms Zhao caused Galaxy Crowdfunding to issue subsequent shares to other persons and entities after 8 June 2018, and that he had no knowledge and did not consent to the share issues for Galaxy Crowdfunding after 8 June 2018. Ms Zhao did not give evidence.

200 Fourth, there is no other contemporaneous documentary evidence concerning Mr Chen's knowledge of or consent to these issues of shares. There is no evidence that any of the forms lodged by Ms Zhao concerning these matters were provided to Mr Chen at the time.

201 Finally, the further issue of ordinary shares was also made in contravention of clause 29 of Galaxy Crowdfunding's constitution. This is because the newly issued shares were not first offered to existing shareholders of Galaxy Crowdfunding, including Mr Chen.

Did Ms Zhao transfer $32,674 to her personal bank account without the consent of Mr Chen?

202 The plaintiffs allege that Ms Zhao, without the consent of Mr Chen, wrongfully transferred funds to her personal bank accounts from Galaxy Crowdfunding in the amount of $32,674. The Zhao parties deny this, and allege further that neither the plaintiffs nor Mr Bailey in his supplementary report provided the transactions which supported this allegation.

203 The plaintiffs submitted that Ms Zhao transferred $12,125.14 (revised from $32,674) to her personal bank accounts without the consent of Mr Chen. The plaintiffs annexed a revised table 4 to their closing submissions that identified the items that constituted this amount and responded to matters raised by Ms Zhao concerning these items. For convenience, I attach tables 1 to 5 from the plaintiffs' closing submissions marked as Annexure B to these reasons (plaintiffs' reimbursement submissions). The plaintiffs submitted that there is no evidence that the payments for these items were otherwise supported by any proper consideration provided by Ms Zhao.

204 Ms Zhao does not dispute that the payments were made to her personal bank accounts but submitted that the payments were not for her personally but were reimbursements for expenses she incurred on behalf of Galaxy Crowdfunding. Ms Zhao provided tables and some supporting documents, including invoices, that responded to the plaintiffs' submissions (Ms Zhao's reimbursement submissions). This was provided to Chambers on the morning of 18 March 2024. It was not filed as Ms Zhao did not appear that day. Nonetheless, the plaintiffs still addressed the matters set out in Ms Zhao's reimbursement submissions and also the documents attached by her.

205 I find that Ms Zhao transferred $5,985.68 to her personal accounts without the consent of Mr Chen and that this was not a reimbursement for any expense incurred by her on behalf of Galaxy Crowdfunding. She was not entitled to these monies. At the time, she was a director and secretary of Galaxy Crowdfunding.

206 First, Ms Zhao transferred monies to her personal bank accounts in the period 23 December 2017 to 24 April 2019. Ms Zhao did not dispute this.

207 Second, I accept the plaintiffs' reimbursement submissions, set out in table 4, that the documents relied upon by Ms Zhao do not establish that the payments to her personal accounts were for reimbursements for expenses she incurred on behalf of Galaxy Crowdfunding except for the following two amounts:

(a) The sum of $2,081 on 18 January 2018. I find that this was a reimbursement for a laptop as the bank statement records 'Asus laptop'. The receipt of $2,081 is undated (document 4.5 attached to Ms Zhao's reimbursement submissions) but shows that it was emailed from Bing Lee on 9 January 2018 and the product was shipped to Mr Hu at 120 Collins Street, Melbourne.

(b) The sum of $4,058.46 on 6 March 2018. I find that this was a reimbursement for a course to be undertaken by Mr Hu as part of his work at Galaxy Crowdfunding as the bank statement records 'Ben [i.e. Mr Hu] Oxford trainin (sic)' and the invoice of £2,200 is dated 23 February 2018 (document 4.10 attached to Ms Zhao's reimbursement submissions) and shows that it is addressed to Mr Hu at 120 Collins Street, Melbourne and to his Galaxy Crowdfunding email address.

208 As a result, the sum of $5,985.68 is calculated by taking the total amount of $12,125.14 set out in table 4 and deducting the amounts of $2,081 and $4,058.46.

Did the conduct alleged in the points of claim at paragraph 37 cause a diminution of the value of Mr Chen's shareholding interest in Galaxy Crowdfunding?

209 The plaintiffs allege that Ms Zhao's breaches of the Galaxy Crowdfunding agreement, her other breaches of duty and/or her oppressive conduct caused a diminution of the value of Mr Chen's shareholding interest in Galaxy Crowdfunding. They allege that by reason of this conduct, Mr Chen suffered loss and damage. The Zhao parties deny the conduct pleaded by the plaintiffs.

210 The Zhao parties allege that the reduction in the value of the shares of Galaxy Crowdfunding was caused by Mr Chen. They allege that Mr Chen used the information of Galaxy Crowdfunding to change or cause to be changed the credentials for email accounts, software and the website.

211 I have already addressed matters concerning the shares.

212 Mr Chen gave evidence that in May 2018 there was a migration of the Galaxy Crowdfunding email account from Fastmail to Google mail. He said he did not close the Galaxy Crowdfunding email account and that all the account holders had been notified to download the emails and after that the email system was migrated to Google mail. Mr Chen said that this occurred as he proposed it to Ms Zhao and she agreed and then he migrated the email system from Fastmail to Google mail. Mr Chen explained that Galaxy Crowdfunding's email account was transferred into Blockchain Tech's Google mail subscription. Mr Chen gave evidence that he assisted Dr Franzese to set up the email account. Mr Chen gave evidence that he could not recall specifically telling Ms Martin. He said he did not advise anyone of the change and he thought it was enough to get Ms Zhao's consent. He said that from May 2018 he controlled Galaxy Crowdfunding's email account through Blockchain Tech. He said he had access to the control functions.

213 The plaintiffs submitted that Ms Zhao's conduct had the effect of significantly diluting Mr Chen's interest in Galaxy Crowdfunding, in particular by reducing Mr Chen's shareholding in Galaxy Crowdfunding from 50% to 3.6% of ordinary shares, and 0% of '"A" class shares'.

214 Ms Zhao did not specifically address this issue in her opening.

215 The conduct of Ms Zhao in procuring the further issues of shares in Galaxy Crowdfunding caused a significant diminution in the value of Mr Chen's shareholding interest in Galaxy Crowdfunding. This is because Ms Zhao's conduct had the effect of reducing the shareholding of Mr Chen, in effect, in Galaxy Crowdfunding from 50% to 21.06% of ordinary shares and Mr Chen having 0% of Class A shares. This is calculated as follows:

(a) Mr Chen currently holds 33,231 ordinary shares, Ms Zhao holds 13,443 ordinary shares and Livia Holdings holds 507,906 ordinary shares. The shares held in the Morning Shine Investment Trust (No 2), which holds 288,764 ordinary shares, are held, as admitted by the plaintiffs, in entities associated with Mr Chen and Ms Zhao each as to 50%. As a result, Mr Chen and an entity associated with him, holds 177,613 shares of 843,344 shares;

(b) Mr Chen currently holds 0 Class A shares and Ms Zhao holds 236,350 Class A shares.

216 I accept that the shares were issued after 8 June 2018 without the persons making any payment for them.

217 First, I have already found that the alleged Debt to Equity Agreement does not exist. This is the basis upon which the Zhao parties allege that Galaxy Crowdfunding issued shares to third parties.

218 Second, Ms Zhao submitted that the directors lent monies to Galaxy Crowdfunding during the time Mr Chen shut down the Galaxy Crowdfunding platform and then some payments were made by withdrawing cash from Galaxy Crowdfunding's account to pay expenses. Ms Zhao submitted that this included the costs of the responsible managers. Ms Zhao did not give evidence in support of these claims.

219 Third, I accept the evidence of Mr Bailey. This establishes that no consideration was received by Galaxy Crowdfunding for the shares after 8 June 2018. Ms Zhao did not cross-examine Mr Bailey on this issue.

220 Fourth, the forms filed by Ms Zhao with ASIC, which purport to record consideration for the shares, are a false record. I refer to the evidence of Mr Bailey I have addressed immediately above.

221 Fifth, I am not satisfied that the company financial statements prepared by the directors and audited by Ashfords Audit & Assurance Pty Ltd are accurate. The directors at the time, Mr Hu and Ms Zhao, did not give evidence. The financial statements record a contribution of equity in a total sum, and with respect to each of the directors' shareholdings. I refer to the court book at pages 2655, 2670, 3002 and 3014. The financial statements do not otherwise identify the receipt of monies for those shares or whether they were loans that were converted to shares. There is no other evidence that loans of particular monies were made to Galaxy Crowdfunding with respect to these share issues.

222 Sixth, Australasian Finance & Investment Corporation returned its shareholding in Galaxy Crowdfunding for nil consideration. I infer this is because they were issued for nil consideration.

223 Seventh, Ms Zhao took steps to have all shares held by Epacris Impressa and Ruby AM forfeited. I infer this is because they were also issued for nil consideration.

224 Finally, I am not satisfied that any diminution in the shares was caused by any act of Mr Chen in relation to Galaxy Crowdfunding's email accounts, software and the website. Ms Zhao did not give evidence in support of these claims. I accept the evidence of Mr Chen concerning the migration of the email account.

Did Ms Zhao engage in any conduct that was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen, within the meaning of s 232 of the Corporations Act?

225 The plaintiffs allege that Ms Zhao engaged in conduct that was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen, within the meaning of s 232 of the Corporations Act. The Zhao parties deny this.

226 The plaintiffs submitted that Ms Zhao's conduct in causing the issue of a large number of shares in Galaxy Crowdfunding, with no record of consideration paid by the persons holding those shares, is a clear case of oppressive conduct. The plaintiffs did not rely upon any other matters in their closing submissions as conduct that was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen with respect to Galaxy Crowdfunding, including the appointment of Mr Hu as a director of Galaxy Crowdfunding or Mr Chen's removal as a director of Galaxy Crowdfunding. The plaintiffs did not expressly submit that Ms Zhao's conduct in transferring monies to her personal bank account was conduct that was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen but this is implicit in their closing submissions at paragraphs 107 to 109 and the plaintiffs' proposed order for final relief at paragraph 16(a).

227 Ms Zhao did not specifically address this issue in her opening submissions.

228 Mr Chen and Ms Zhao were initially equal shareholders and co-directors. Ms Zhao, however, engaged in conduct that was oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen, within the meaning of s 232 of the Corporations Act. First, she engaged in this conduct as a director and, in my view, her conduct was 'overbearing'. As a result of the transfer and issue of shares, Mr Chen's shareholding ceased to be equal with that of Ms Zhao. Although Mr Chen and Ms Zhao were initially equal shareholders, they ceased to be as a consequence of the oppressive conduct of Ms Zhao.[50] Second, Ms Zhao's conduct caused a significant diminution in the value of the shareholding of Mr Chen in Galaxy Crowdfunding. It was conduct engaged in over a substantial period of time. I accept the plaintiffs' submissions at paragraphs 114-116 of their closing submissions and find that Ms Zhao issued the shares with the intent of diluting the shareholding of Mr Chen and issued the shares for no consideration. Third, Ms Zhao transferred the sum of $5,985.68 to her personal accounts without the consent of Mr Chen and the transfers were not a reimbursement for any expense incurred by her on behalf of Galaxy Crowdfunding. Ms Zhao was a director at the time of this conduct.

Is Mr Chen entitled to relief pursuant to ss 175, 233(1) and/or 461(1)(k) of the Corporations Act?

229 The plaintiffs allege that Mr Chen is entitled to relief pursuant to ss 175, 233 and/or 461(1)(k) of the Corporations Act. The Zhao parties deny that Mr Chen is entitled to relief pursuant to ss 233 or 461(1)(k) of the Corporations Act, though in relation to s 461(1)(k), admit that there has been a breakdown in the mutual trust and confidence between the parties. The Zhao parties' second further amended defence did not address s 175 of the Corporations Act.

230 Mr Chen seeks relief as follows in the proposed form of final order with respect to the shares in Galaxy Crowdfunding:

1. The purported transfer dated 12 November 2018 (ASIC lodgement reference 7EAG24813 dated 19 November 2018) of 288,764 ordinary shares in Galaxy Crowdfunding from the first plaintiff (Mr Chen) and Ms Zhao to the eighth defendant (Morning Shine) be set aside.
2. The purported issue dated 2 May 2019 (ASIC lodgement reference 7EAS50124 dated 20 December 2019) of 8,306 ordinary shares in Galaxy Crowdfunding to Mr Chen be set aside.
3. The purported issue dated 30 June 2019 (ASIC lodgement reference 7EAR64814 dated 26 November 2019) of 21,956 ordinary shares in Galaxy Crowdfunding, comprising:

(a) 13,443 ordinary shares issued to Ms Zhao; and

(b) 8,513 ordinary shares issued to Mr Chen,

be set aside.

1. The purported issue dated 30 June 2019 (ASIC lodgement reference 7EAR66963 lodged 26 November 2019) of 254,318 ordinary shares in Galaxy Crowdfunding, comprising:

(a) 16,412 ordinary shares issued to Mr Chen; and

(b) 237,906 ordinary shares to the fourteenth defendant (Livia Holdings)

be set aside.

1. The purported issue dated 9 December 2019 (ASIC lodgement reference 7EAS08823 dated 10 December 2019) of 270,000 ordinary shares and 235,350 class A shares in Galaxy Crowdfunding, comprising:

(a) 270,000 ordinary shares in Galaxy Crowdfunding to Livia Holdings; and

(b) 236,350 class A shares in Galaxy Crowdfunding to Ms Zhao,

be set aside.

1. Galaxy Crowdfunding and Mr Chen are directed to notify the Australian Securities and Investments Commission (ASIC) of paragraphs 10 to 14 above.

231 Mr Chen seeks the following order in the final form of order in relation to the books of account of Galaxy Crowdfunding:

16. The books of account of:

(a) Galaxy Crowdfunding be adjusted by:

(i) adding the amount of $12,125.14 as a debt due from Ms Zhao; and

(ii) deducting the amount of $24,945.12 as a debt due to Blockchain Tech.

232 Mr Chen also seeks an order that Galaxy Crowdfunding be wound up. The plaintiffs submitted that Ms Zhao's oppressive conduct in respect of Galaxy Crowdfunding has been so profound, and has gone unchecked for so long, that there is no sensible alternative to having the company wound up. They submitted that s 461(1)(k) and alternatively s 233(1)(a) of the Corporations Act were both available as bases on which to wind up Galaxy Crowdfunding. They submitted that in circumstances where there has been an irretrievable breakdown in the mutual trust and confidence between members, an order under s 461(1)(k) is clearly available and appropriate.

233 Ms Zhao, on behalf of Galaxy Crowdfunding, submitted that Mr Chen was not a shareholder on 19 June 2019 (i.e. when this proceeding was commenced) and has no right to sue Galaxy Crowdfunding.

234 Mr Chen has standing to make the application for orders under s 233 of the Corporations Act. This is because at the time he made these claims concerning Galaxy Crowdfunding (by the originating process filed 19 June 2019), Mr Chen was a shareholder and remains a shareholder of Galaxy Crowdfunding. I refer to Annexure A to these reasons.

235 The relief sought by Mr Chen in paragraphs 10-15 of the proposed final order is appropriate. The relief seeks to set aside the purported transfer and issue of shares that were done without Mr Chen's knowledge or consent and in contravention of Galaxy Crowdfunding's constitution. They restore Mr Chen and Ms Zhao as the only shareholders and on the basis of an equal shareholding. The reference to '2019' with respect to the ASIC lodgement reference 7EAR64814 is erroneous and should be 2018. The orders will address the oppressive conduct of Ms Zhao.

236 No relief was ultimately sought under s 175 of the Corporations Act.

237 Mr Chen also seeks an adjustment to the books of account of Galaxy Crowdfunding by adding the amount of $12,125.14 together with an order that Galaxy Crowdfunding be wound up.

238 In the plaintiffs' prayer for relief, Mr Chen only seeks an adjustment to the books of account of Galaxy Crowdfunding expressly in the context of an order that Ms Zhao purchase Mr Chen's shares in Galaxy Crowdfunding. This order has been abandoned.

239 Mr Chen now seeks an order that Galaxy Crowdfunding be wound up. This relief is expressly sought in the prayer for relief as an alternative to an order that Ms Zhao purchase Mr Chen's shares and the determination of fair value, including an adjustment of the books.

240 Adequate notice of the adjustment to the books of account in the context of an application to wind up Galaxy Crowdfunding has been given to Ms Zhao. This is because it is set out in the draft order that the plaintiffs circulated on 25 February 2024 by email to Chambers and to Ms Zhao.

241 An adjustment in the books of account by adding the amount of $5,985.68 as a debt due from Ms Zhao to Galaxy Crowdfunding is appropriate and I refer to my reasons at paragraphs 205-208 concerning this. It will address the oppressive conduct of Ms Zhao. It will address a loss (albeit not significant) caused to Mr Chen. As a result, I find that the books of account of Galaxy Crowdfunding should be adjusted by adding the amount of $5,985.68 as a debt due from Ms Zhao to Galaxy Crowdfunding.

242 Mr Chen also seeks an adjustment to the books of account of Galaxy Crowdfunding by deducting the amount of $24,945.12 as a debt due to Blockchain Tech. Adequate notice of this relief has also been given to Ms Zhao. This is because it is set out in the draft order that the plaintiffs circulated on 25 February 2024 by email to Chambers and to Ms Zhao. I address this issue in the context of the claims made by Mr Chen concerning Blockchain Tech at paragraphs 671(a) and 688 of these reasons.

243 Mr Chen seeks an order under s 461(1)(k) or alternatively s 233(1)(a) of the Corporations Act for the winding up of Galaxy Crowdfunding.

244 I consider it appropriate to order that Galaxy Crowdfunding be wound up pursuant to s 461(1)(k).

245 First, there has been a breakdown in the mutual trust and confidence between Mr Chen and Ms Zhao. Galaxy Crowdfunding was established on such trust and confidence. Galaxy Crowdfunding was established pursuant to an agreement between Mr Chen and Ms Zhao. The company was established on the basis that they would each own 50% of the shares and each be a director. There are now irreconcilable differences between them.

246 Second, Galaxy Crowdfunding has never operated the equity crowdfunding business but has instead incurred costs and expense, including in developing the crowdfunding platform. I refer to the opening submissions of Galaxy Crowdfunding at paragraph 11. The latest financial statements as at 30 June 2021 show a loss at 30 June 2020 of $211,859 and a loss to $121,274 at 30 June 2021 and that as at 30 June 2021, it was in the crowdfunding campaign stages and was yet to operate a platform that enabled crowdfunding campaigns to be undertaken and based upon the 2023 forecasts and budgets, it was expected to make an operational profit based off new income generating projects by November 2022. But on or about 30 June 2023, ASIC cancelled Galaxy Crowdfunding's AFSL. It is not able to provide financial services. As a result, I infer it is not a profitable company. In the circumstances, the drastic remedy of winding up Galaxy Crowdfunding is appropriate.

247 Third, I do not consider that there is any relief that is preferable to the winding up order. An order for the purchase of Mr Chen's shares by Ms Zhao will result in a significant delay and cost in resolving the dispute between them concerning Galaxy Crowdfunding in circumstances in which it is not operating and is not a profitable company.

Did Mr Chen and Ms Zhao enter into the alleged Blockchain Business Agreement? Did Ms Zhao agree to contribute 66.2 Bitcoin for the purpose of producing working capital for the alleged Blockchain Business? Did Mr Chen and Ms Zhao enter into the alleged Bitcoin Loan Agreement?

248 The plaintiffs allege that in about December 2017 and early 2018, Mr Chen and Ms Zhao entered into a 70/30 joint venture agreement to establish a business named the 'Blockchain Business' (Blockchain Business Agreement). The plaintiffs allege that Blockchain Tech, Dashboard Management, Coin Loop, Digital Galaxy, Digital Silo and Blockchain Jet together form the 'Blockchain Business'.

249 The plaintiffs allege terms of the Blockchain Business as follows:

(a) Mr Chen would own 70% of the Blockchain Business;

(b) Ms Zhao would own 30% of the Blockchain Business;

(c) the Blockchain Business would operate a cryptocurrency exchange platform (and associated technologies) business, using intellectual property developed by Mr Chen;

(d) Mr Chen and Ms Zhao would share the risks and profits in, and each contribute capital to, the Blockchain Business, with Mr Chen (70%) and Ms Zhao (30%);

(e) Ms Zhao would arrange for the incorporation of companies to form the Blockchain Business;

(f) the shares in the companies that formed the Blockchain Business would be held by Mr Chen and Ms Zhao, with Mr Chen (70%) and Ms Zhao (30%);

(g) neither Ms Zhao nor Mr Chen would (without the consent of the other) draw a salary or otherwise be entitled to a dividend from the Blockchain Business, or the entities that comprised the Blockchain Business, until the Blockchain Business was profitable;

(h) Ms Zhao would be responsible for providing bookkeeping, accounting, tax, payroll and corporate governance services, and for registering trademarks;

(i) Ms Zhao would have control of the companies' bank accounts and accounting software; and

(j) Mr Chen would be responsible for developing the software platform, IT protocols and technological material.

250 The plaintiffs allege that between about 9 November 2017 and 4 March 2019, Ms Zhao made 'capital contributions' of, inter alia, 66.2 Bitcoin to the Blockchain Business. The plaintiffs also allege in their reply that 'Mr Chen agreed to match Ms Zhao's capital contribution of 66.2 bitcoins'.

251 The Zhao parties deny the Blockchain Business Agreement. The Zhao parties also deny that Blockchain Tech, Dashboard Management, Coin Loop, Digital Galaxy, Digital Silo, and Blockchain Jet, operated together as a business, and deny the Blockchain Business.

2C. They say that in the circumstances, Mr Chen has at all material times (in reality) beneficially owned and controlled:

(a) 70% of the interest in Blockchain Tech, Dashboard Management, Digital Galaxy and Coin Loop (see below); and

(b) close to 70% of the interest in Digital Silo.

253 The Zhao parties allege that in or around August 2018, Ms Zhao and Mr Chen entered an agreement by which Ms Zhao agreed to lend 66.2 Bitcoin to Mr Chen (the Bitcoin Loan Agreement). They allege as follows:

109. There were express terms of the agreement that:

(a) Mr Chen could use the Bitcoins for arbitrage activities;

(b) that any profit generated by the arbitrage activities would be contributed to their companies including Galaxy Crowdfunding, Blockchain Tech, Dashboard, Digital Silo, Digital Galaxy, Coin Loop, would be regarded as Ms Zhao's contribution to those businesses; and

(c) the Bitcoins would be repayable upon demand.

109A. It was an implied term of the agreement that Mr Chen would account to Ms Zhao for any profit generated using the Bitcoins in that he would:

(c) disclose and substantiate the profit generated; and

(d) use the profit generated to make contributions to the companies identified in paragraph 109(b) above or otherwise as directed by Ms Zhao (including to herself).

1. In or around August 2018, pursuant to the Bitcoin Loan Agreement, Ms Zhao transferred 66.2 Bitcoins to Mr Chen.

254 The Zhao parties further allege that in or around March 2019, Mr Chen represented that he had generated profit equivalent to approximately $900,000 US dollars in performance of arbitrage activities.

255 The plaintiffs deny the existence of the Bitcoin Loan Agreement.

256 Mr Chen gave evidence of a telephone conversation with Ms Zhao on 2 December 2017. He gave evidence that he told Ms Zhao:

(a) he had a conversation with a Mr Jason Webb and a Mr Grant Leonard who were trying to do business with Blockchain Global;

(b) they had proposed a business plan to him and had invited him to join their business;

(c) he had his own business plan and wanted to hear Ms Zhao's opinion on those issues.

257 He gave evidence that Ms Zhao told him she will be at the Eastland shopping centre in the afternoon and she wanted to have a face to face discussion.

258 Mr Chen gave evidence that he then drove to the Eastland shopping centre in the afternoon and arrived at about 3:30pm. He gave evidence that he then telephoned Ms Zhao and she told him to meet at the entrance to Myer. He gave evidence that he then went to the entrance to Myer and took a photo and sent it to her and a short time later they met and sat down on couches beside the bakery shop. Mr Chen gave evidence that he told Ms Zhao that Mr Webb proposed to create a cryptocurrency called 'SportIcon' and that Mr Leonard wanted to create a cryptocurrency exchange. He told Ms Zhao that they wanted him to join their business to use his technology skillset to help them build the platform and the cryptocurrency. He told Ms Zhao that Mr Webb had drawn on a whiteboard a name 'Blockchain Jet' to represent Mr Chen's interest. Mr Chen gave evidence that Ms Zhao said that their business is not worth it and that these peoples' credibility is at question and that he told Ms Zhao that he did not like them too. Mr Chen gave evidence that Ms Zhao said that she liked the name 'Blockchain Jet'. Mr Chen gave evidence that he told Ms Zhao that he had his own business plan and he wanted to build a cryptocurrency exchange of his own and also build a hardware wallet that could provide secure storage for customers. He gave evidence that he said that he had already been in discussions with a company in China called 'EmbedWay' to co-design a hardware wallet. He also told Ms Zhao that he wanted to create a cryptocurrency that could be traded on the cryptocurrency exchange and could also be stored on the hardware wallet. He gave evidence that he told Ms Zhao that if he was not going to do business with Mr Webb and Mr Leonard then he needed a business partner as he is a technical person and needed someone with commercial sense and business experience. He gave evidence that he asked Ms Zhao why don't they go into business together since they had already done it in relation to Galaxy Crowdfunding. Mr Chen gave evidence that Ms Zhao said to him, 'I'd love to join you in the Blockchain business'.

259 Mr Chen gave evidence that on 3 December 2017, Ms Zhao telephoned him. Mr Chen gave evidence that Ms Zhao said that it is better off to segregate the risks for the business liabilities and to put different platforms or products into different companies. Mr Chen gave evidence that Ms Zhao said he should set up a company for hiring and another company to hold the intellectual property and that, in relation to the intellectual property holding company, it is better off if Mr Chen was not the director. Mr Chen then gave evidence that he asked if he was not the director then who would it be and Ms Zhao said it is better off to be his family and his parents. Mr Chen said that his parents do not speak English even though his mother is better than his father in terms of understanding English and that Ms Zhao then said that his mother would be the better candidate.

260 On 3 December 2017, Mr Chen and Ms Zhao exchanged texts in which Ms Zhao requested his mother's name, tax file number, date of birth and residential address and then Mr Chen provided that information. On 3 December 2017, Ms Zhao sent text messages to Mr Chen in which she provided photographs of proposed company names that were available, being JC Tech Consulting, Block HR, Blockchain HR and Blockchain Jet, and Jet Consulting which was unavailable. Mr Chen responded by texting 'ok'. Ms Zhao texted Mr Mr Chen and said that she registered two companies and that he was the director and sole shareholder of 'HR'. Ms Zhao then texted Mr Chen and said let's use his mum for 'Jet' at the moment and Mr Chen replied with 'Okay'.

261 On 11 December 2017, Mr Chen employed the first employee of Blockchain HR, named Wenjing Luo. Mr Chen gave evidence that on that day he told Ms Zhao that he also wanted to use Blockchain HR to develop the software. He gave evidence that Ms Zhao agreed. Mr Chen also gave evidence that he did not like the name Blockchain HR and wanted the name changed to 'Blockchain Tech'.

262 On 12 December 2017, Blockchain HR was renamed Blockchain Tech.

263 On 22 December 2017, Dashboard Management was incorporated. On 22 December 2017, Ms Zhao sent an email to Mr Chen attaching the company registration details for Dashboard Management, and stating: 'I understand this will be the trustee for a unit trust.' Mr Chen gave evidence that Dashboard Management was incorporated because Ms Zhao had told him that they had to have a separate entity for the crypto exchange and also that she said to him to 'put my mother on that entity'.

264 Mr Chen gave evidence that on 30 December 2017, Ms Zhao sent text messages to Mr Chen stating that Dashboard Management was the trustee of a unit trust. He gave evidence that he had not asked Ms Zhao to use a trust structure but did not ask her about it, and did not think the trust was set up yet as he knew documents had to be signed to set up a trust.

265 Mr Chen gave evidence that on 23 March 2018 he drove Ms Zhao from work to her home to Boronia but they stopped on the way for dinner at a restaurant. He gave evidence that he left work at Mulgrave for the restaurant at about 6:00pm. He said that he cannot remember the name of the restaurant. He also gave evidence that he cannot remember who paid for the dinner or what time it finished. He gave evidence, under cross-examination, that he has a Google timeline record for his travel on that date. Ms Zhao called on Mr Chen to produce it. Mr Chen then produced a Google timeline. This was cropped so Mr Chen said he would see if he could provide the whole version. He subsequently produced a further version and was cross-examined on this document. Mr Chen said that he was not aware of how to create a Google timeline on 23 March 2018. He said he was not sure if it can be edited. Mr Chen said that apart from his own evidence and the Google timeline he has no other evidence that he had dinner at the restaurant. The Google timeline records that Mr Chen travelled from his home to Southbank and then to Nexus Court, Mulgrave and then left Nexus Court, Mulgrave at 7:40pm and travelled to near the Ocean King Chinese Restaurant and then at 8:55pm left near the Ocean King Chinese Restaurant and drove home. He gave evidence that after leaving the restaurant he drove Ms Zhao home. He gave evidence that in the car, he said to Ms Zhao that he appreciated her financial and business management skills and that it was great to have her with him in the business. He gave evidence that he asked her how much she would like to invest for an ownership stake in the Blockchain Business. He said that he particularly used the Mandarin word for 'shareholding'. Mr Chen gave evidence that she asked how much would he would allow her to have and that he said he did not mind. He gave evidence that he said that as long as she made a contribution to the percentage of her shareholding it meant that the more percentage she had the more risk and more responsibility she would have but that he wanted to be the majority shareholder. Mr Chen gave evidence that Ms Zhao said 'how about 30 percent' and further explained that 'usually 75 per cent is the threshold to control a company'. Mr Chen gave evidence that he replied 'that's fine'. Ms Zhao then said that she does not have much money in hand but has a property in Forest Hill which she was planning to sell that was worth over a $1,000,000. He gave evidence that he said 'that's okay'. She then said that she also had Bitcoin. Mr Chen gave evidence that he knew about the Bitcoin. Mr Chen gave evidence that he told her that their responsibility will be set up in the same way as in Galaxy Crowdfunding with him being the Chief Technical Officer and her being the Chief Financial Officer and that she said 'fine'. Mr Chen also gave evidence that Ms Zhao asked about a salary and that he said that he did not want a shareholder to draw a salary until the business was profitable and that Ms Zhao said 'okay'. Mr Chen then gave evidence that Ms Zhao started to speak about the business structure and how it may be set up including involving setting up trusts but he cannot remember the exact details of those matters.

266 Mr Chen also gave evidence of a further conversation in March 2018 with Ms Zhao when he drove her home. He said that he told Ms Zhao that he wanted to separate the software from the hardware wallet so that the software would work with the hardware wallet that they were going to manufacture and also with popular hardware wallets in the market. Mr Chen gave evidence that Ms Zhao then said that they were going to register a new company for this product.

267 Mr Chen gave evidence that on 20 July 2018 he invited Ms Zhao to lunch at a restaurant called Colourful Yunnan. He gave evidence that they drove to the lunch. He gave evidence that he told Ms Zhao that he appreciated her experience in finance and businesses and asked whether she was still up to committing to invest in a 30% share. Mr Chen gave evidence that Ms Zhao said 'very positively yes'. Mr Chen gave evidence that Ms Zhao said that she was still in the process of selling her house and did not have cash to contribute. Mr Chen gave evidence that she said that she cannot say exactly how many Bitcoin she would contribute but she told him that her Bitcoin was about 70 plus, so she would be able to contribute some number more than 60 Bitcoin and also set aside some Bitcoin for her daughter. Mr Chen gave evidence that he said that was fine and that for whatever number of Bitcoin she contributes he will match it according to the 30:70 ratio. Mr Chen gave evidence that he asked Ms Zhao whether she thought that the price of Bitcoin will go up in the future and that she said yes and that he said that he agreed with this. Mr Chen said that he proposed to Ms Zhao that they should preserve the Bitcoin contributions as long as possible and that they should only sell the Bitcoin when the business needs to pay expenses and that Ms Zhao said 'sounds good' in Mandarin. Mr Chen said the cryptocurrency exchange was going to be ready in a few months and that by that time they were going to need to supply liquidity to the exchange. Mr Chen gave evidence that he explained that when a customer comes to the exchange they will want to buy Bitcoin and that Mr Chen and Ms Zhao will need to provide their Bitcoin contributions to the exchange for customers to be able to buy them and that Ms Zhao agreed. Mr Chen then told Ms Zhao that there is a problem, as when the customers come to buy the Bitcoin on the exchange their Bitcoin contribution will be converted into cash but at that time the business may not need that much cash or may not need any of it. He gave evidence that he told Ms Zhao that they would then have to buy back the Bitcoin that had been sold and would have to move the money from the exchange from the sale of the Bitcoin to the other exchange to buy Bitcoin and that it takes some days or a week to do that and that by that time the price might have changed. Mr Chen told Ms Zhao that by that time the price of Bitcoin may have changed a lot and that this is a risk to their business and a conflict with the strategy to preserve the Bitcoin. Mr Chen said this is 'arbitrage'. Mr Chen told Ms Zhao that they need to have other cash in the other exchange to buy back the Bitcoin that had been sold and that in response Ms Zhao said that she did not have the extra cash. Mr Chen said that he did not have extra cash but did have extra Bitcoin and that he would not mind bringing them out and using them. Mr Chen gave evidence that Ms Zhao said that it was better to do that in a separate entity rather than in Blockchain Tech and that she will manage the registration of that separate entity later. Mr Chen gave evidence that he agreed. Mr Chen also gave evidence that Ms Zhao asked what about if other employees including Mr Hu wanted to also join in on this arbitrage and that in response Mr Chen said that this was more of a risk than an opportunity and that it will not make much money in the beginning but it might make some profit later on when the exchange grows its customer base. Mr Chen said that he would not leave anyone behind but for anyone who wants to come on board they would have to make a contribution and that would include Ms Zhao. Ms Zhao said in response that she cannot make any cash contribution to this separate entity until she sold her house. Mr Chen said that was fine and that they can set up something later on.

268 Mr Chen then told Ms Zhao that there is risk in the separate entity, and he will bear the risk and keep the profit if there is any and he gave evidence that Ms Zhao agreed. Mr Chen then said that he told Ms Zhao that there is another small issue and that is because when the business needs cash they need to sell the Bitcoin and convert them into cash and they should agree on a rate when converting the Bitcoin into cash for the business. Mr Chen gave evidence that he proposed that they use a 'liquid market closing price of the day when the cash sent to [Blockchain Business]' and that Ms Zhao said that was fine and that they agreed that 'BTC market is a liquid market'.

269 Mr Chen gave evidence that in late July 2018, Ms Zhao telephoned him. He said that Ms Zhao told him that after setting aside Bitcoin for her daughter, her contribution of Bitcoin will be 66 or 67, give or take less than one Bitcoin. Mr Chen gave evidence that he said to her that his Bitcoin were ready. Mr Chen gave evidence that she also said that she was going to register a separate entity called 'Kette' and asked him whether she should use his wife for that company. He said okay.

270 Mr Chen gave evidence that he calculated the number of Bitcoin he was to contribute by using the number Ms Zhao contributed and the 70/30 ratio to come to the number that would be around the 158 Bitcoin.

271 Mr Chen gave evidence that on 1 August 2018 he took steps to 'sort out my contribution'. He said that he first found a wallet that held the 58.6 Bitcoin that he had received from Blockchain Global. He then said that he extracted the private key of the address that held the Bitcoin, and saved that into a folder called 'BCT'. Mr Chen gave evidence that the folder was saved onto his computer. Mr Chen said that the 58.6 Bitcoin were the first instalment paid by Blockchain Global to him pursuant to a settlement made on 22 June 2018. He said he had a settlement deed which set out those payments. He said there may be some screenshots of the 58.66 Bitcoin.

272 Mr Chen then gave evidence that on 2 August 2018 he brought a Trezor wallet, which is a hardware wallet that looks like a USB stick, to the Mulgrave Office and changed the wallet's name from 'JIN' to 'BCT'. He said that when Ms Zhao came into the office he showed the Trezor wallet to her and said, 'I've made my contribution'. He said he gave the address in the wallet to Ms Zhao and asked her to send her Bitcoin 'into this wallet'. He also gave evidence that he took the wallet out of his pocket and showed it to Ms Zhao and said that he had given the wallet to Blockchain Tech. Mr Chen gave evidence that no-one had access to the wallet apart from him and that he controlled it. Mr Chen said that he discovered a screenshot from the wallet. The screenshot is at page 4166 of the court book (Trezor screenshot). This screenshot has redacted information. Mr Chen gave evidence that the redacted information is irrelevant. Mr Chen gave evidence that the Trezor screenshot was produced using software connected to the Trezor wallet. Mr Chen gave evidence that he cannot recall when the screenshot was taken of the Trezor wallet and that it might have been in 2020 or 2021 but he cannot remember exactly what date. The Trezor screenshot shows two wallet addresses that are labelled. One is identified as 'BCT Jin's contribution' and the other is identified as 'BCT Leah's contribution'. Each have a column on the right hand side under the heading 'Tx'. Mr Chen gave evidence that this represents the number of transactions concerning this address. Mr Chen gave evidence that this is verified by the 'Blockchain explorer' which showed the other time that the address shown on the Trezor screenshot held 100 Bitcoin. Mr Chen said that the 100 Bitcoin were his 'family's Bitcoin'. He said he gave ownership of the 100 Bitcoin by giving the wallet to Blockchain Tech. Mr Chen stated that from the screenshot it cannot be identified that it is from the Trezor wallet. He said that the screenshot does not record dates of receiving or dates of changes to the Trezor wallet.

273 Mr Chen relied upon a document titled 'Blockchain Tech Pty Ltd Bitcoin Capital Report'. This document was prepared for this proceeding. Mr Chen gave evidence that apart from this document there is no other document in the court book that records his contribution on 2 August 2018. This is because he said that this did not involve a transfer as he gave the wallet to Blockchain Tech. He gave evidence that as a result, the giving of the wallet is not shown in the Bitcoin blockchain.

274 Mr Chen gave evidence that after he gave the address of the wallet to Ms Zhao and asked her to send the Bitcoin into this wallet, he did not receive any Bitcoin from Ms Zhao for a week and so he asked Ms Zhao about this and she said that Mr Chen should prepare the 'agreement between Kette and Blockchain Tech'. He asked Ms Zhao to draft it and she said that he should do it as 'Kette' is his and his wife's company. Mr Chen then gave evidence that he searched for a general service agreement on the internet and then drafted the terms himself and he and his wife then signed it. Mr Chen gave evidence that they signed it on 12 August 2018. He also gave evidence that he brought the agreement into the office and gave a copy to Ms Zhao. Mr Chen gave evidence that he provided the general services agreement to Ms Zhao prior to the proceeding. There is no contemporaneous record of Mr Chen providing the document to Ms Zhao. On being cross-examined about whether there is any evidence that Mr Chen provided it to Ms Zhao, Mr Chen stated: 'I gave my oral evidence'.

275 Mr Chen gave evidence that on 28 August 2018 he received a telephone call from Ms Zhao. Ms Zhao told him that she had transferred her 66 Bitcoin to the address that he had given her. He told her that he would go and check it. Mr Chen said that he opened up the Bitcoin explorer and checked the address and saw the transaction where Ms Zhao had transferred her Bitcoin to the address that he had given her. He said that he then copied the link that contains the 'txid', which is a name for the receipt of any Bitcoin transaction, copied that link into an email and sent it to Ms Zhao. On 28 August 2018, Mr Chen sent Ms Zhao an email with the subject line 'Record of transfer BTC to Jin's account for BCT', stating, in the body of the email:

Hi Leah,

BTC 66.20070657

https://www.smartbit.com.au/tx/ac3bcde508111d70f5057e124f6789ef88e546971c25459907bfbb08f0f03029

Regards,

Jin Chen | Director.

276 Mr Chen referred to a document titled 'Bitcoin Transaction'. This records a transfer of 66.2 Bitcoin from the wallet address 3N338aBZqwd78nTiLaqBtDo3yEgs3YYzpL to the wallet address 3HmUYLkNRwkqr8tHHpUQyJ7Lot7BD1LB7M (3Hm address) on 29 August 2018. Mr Chen gave evidence that the 'to' address in this document to which the 66.2 Bitcoin were transferred is the same address as in the Trezor screenshot. Mr Chen gave evidence that: 'This transaction is recorded on 2 August 2018 on the Bitcoin Capital Report and Kette's Bitcoin Transaction Account statement for Blockchain Tech, for the period 1 Aug 2018 to 30 Oct 2019'.

277 Mr Chen gave evidence he had a conversation in late August 2018 with Ms Zhao when he told her that her Bitcoin were transferred later but she should record them as being contributed on the same day as his contributions to avoid any valuation differences. He gave evidence that there was no written evidence or written agreement to this effect and that it was oral.

278 Mr Chen sent a text on 19 April 2019 to Ms Zhao in the following terms (emphasis added):

So the two of us both opted for loans, right? I took/brought (with me) 100+ wan [over 1,000,000] + 200 coins; you took/brought (with you) 60+ coins plus 60 wan [600,000]. These were all loans.

279 Ms Zhao cross-examined Mr Chen on this text. Mr Chen gave evidence:

MR CHEN: Um, I still struggle to understand the, um, context of that, um, or recall the conversation, the context of it, because I, when I saw that picture, um, I look back into my, um, Telegram chat record, I could not find the record in my, ah, Telegram chat history.

...

MS ZHAO: Yeah, so, Mr Chen, you can read both Chinese and English on this, ah, supplementary court book p1473. So, did you - do you agree, um, did you ask Mr Hu you took about 100 million and then 200 coins, and then I took about 60, um, coins plus 600K, and they were all loans. Did you pass this information to Mr Hu?

MR CHEN: I did not discuss this, what you just said, with Mr Hu.

280 On 20 April 2019, Mr Chen sent a text message to Ms Zhao stating, 'the Arbitrage at the moment may not make money'. On 21 May 2019, Ms Zhao sent a text message to Mr Chen stating, 'I'm not sure what specific content of Arbitrage you're referring to... Yesterday, you mentioned $450,000 and money doubled'. Mr Chen responded on the same day, stating 'Not double 450,000'.

281 On 30 May 2019, Mr Chen sent an email to Ms Zhao in which he stated:

Hi Leah,

I'd like to hold an shareholder meeting tomorrow in Mulgrave Office. Those are serious issues to address and we have to do it in a timely manner. I have attached the agenda in this email.

Kindly Regards,

Jin Chen | CEO

Blockchain Tech.

282 This email attached a document titled 'Shareholder meeting agenda', which relevantly stated (emphasis added):

Date: 30 May 2019

Location: Office at 6 Nexus Ct, Mulgrave VIC

Attendants: Jin Chen, Leah Zhao

Agenda:

1. Shareholder Agreement

Background:

Jin and Leah agreed to co-invest in companies in a share ratio 7/3, where Jin owns 70% and Leah owns 30%. Jin and Leah share the risk and the profit according to the share ratio respectively. Subsequently following companies (The Companies) were built up:

1. DASHBOARD MANAGEMENT PTY LTD on 22 Dec 2017.

2. BLOCKCHAIN TECH PTY LTD on 03 Dec 2017

3. COIN LOOP PTY LTD on Jan 2019

4. DIGITAL SILO PTY LTD on 16 May 2018

5. DIGITAL GALAXY PTY LTD on 09 Arp 2018

Those companies were established with minimal share capital and the working capital were raised by loan from shareholders. To raise necessary capital for keeping the companies running, shareholders, namely Jin and Leah, are going to reach an agreement of one method or combined methods as below. All existing loan will be resolved into the quota of the capital in ether method.

...

283 On 18 June 2019, Mr Chen swore an affidavit in this proceeding in which he deposed that he contributed approximately 102 Bitcoin to the 'Blockchain Business'. Upon cross-examination, Mr Chen said that at the time he did not have the books and records and he may have miscalculated some of the Bitcoin into the cash. Mr Chen said that he has not provided that calculation and he cannot remember how he did calculate it. He said he cannot recall how he calculated the cash value of the Bitcoin. Upon further cross-examination he said that at the time of the affidavit, he was a 'mess'. He said he was trying to save the business. He also said that he does not remember how he got to 102 Bitcoin.

284 The plaintiffs submitted that Mr Chen and Ms Zhao entered into the Blockchain Business Agreement and relied upon the evidence of Mr Chen with respect to his conversations with Ms Zhao. The plaintiffs submitted that Mr Chen and Ms Zhao agreed over the course of meetings on 2 and 3 December 2017, 23 March and 20 July 2018, to the following:

(a) they would establish companies to form Mr Chen's proposed business, with different companies being incorporated for different projects and roles within the business;

(b) they would share the ownership of those companies on a 70/30 Chen/Zhao basis;

(c) they would make contributions to the business on a 70/30 Chen/Zhao basis;

(d) they would contribute Bitcoin for the purpose of realising those Bitcoin in order to generate working capital for the use of the business, and to provide liquidity to what ultimately became the String or Jinance exchange; and

(e) they would try to preserve Bitcoin (that is, not convert them to cash unless necessary) for as long as possible on the assumption that the price of bitcoin would increase over time.

285 The plaintiffs did not submit that it was a binding concluded agreement but rather an 'in-principle agreement'. The plaintiffs in their opening address referred to discussions in March 2018 and then further said in opening:

MR HARRIS: In March, the topic of Ms Zhao participating in the venture is revisited with Ms Zhao.

HIS HONOUR: In 2018?

MR HARRIS: 2018. And an in-principle agreement is reached and then Your Honour will have seen, as I've introduced the matter that in April, Ms Zhao starts taking an interest in the business by issuing shares to her companies. But she hasn't put in a penny at this stage.

HIS HONOUR: Right. And you'll come to the in-principle agreement then at some point?

MR HARRIS: Yes. Well, as Your Honour said, the only real issue here is the bitcoin equity. There's all kinds of things that could have been agreed and didn't - but on the bitcoin, is it working capital, a loan of working capital or not? That's the issue. A key issue might be the better way of putting it, Your Honour.

286 The plaintiffs submitted that in the absence of an arrangement or agreement to the effect described by Mr Chen, it is difficult to conceive of a sensible commercial reason for the 70/30 shareholding structure that Ms Zhao admits is 'in reality' the structure of the companies in the Blockchain Business. The plaintiffs submitted that Ms Zhao has proffered no alternative explanation as to how or why the 70/30 ownership in each of the Blockchain Business companies that she facilitated the incorporation and ownership of, and the appointments of their officers to, including through Leader Tech, came about, other than to merely deny the meetings referred to above ever occurred.

287 The plaintiffs submitted that Mr Chen's evidence is that Ms Zhao contributed 66.2 Bitcoin in accordance with the agreement between Mr Chen and Ms Zhao set out in the plaintiffs' submissions. They submitted that Mr Chen's evidence is that, in accordance with the 70/30 ratio of contributions he agreed with Ms Zhao, after Ms Zhao identified 66.2 Bitcoin as her contribution, Mr Chen calculated his proportional contribution would be approximately 158 Bitcoin. The plaintiffs submitted that Mr Chen informed her of that fact, and showed her a 'Trezor' hardware wallet.

288 The plaintiffs submitted that Ms Zhao's narrative is that the 66.2 Bitcoin (and presumably Mr Chen's Bitcoin) were not transferred for the purpose of being held, used as liquidity on Jinance as required, and to be realised as working capital when required, but rather for the purpose of generating more Bitcoin for Ms Zhao through 'arbitrage activities' to be conducted by Mr Chen. They submitted that relies on a contention that Mr Chen had represented he had 'generated profit equivalent to approximately $US900,000 (then representing approximately 180 Bitcoin) (in performance of the arbitrage activities alleged [by Ms Zhao])'. They submitted that, not only is there no evidence to support this contention, it is highly improbable that Mr Chen made that representation because generating profit in Bitcoin, let alone an amount of profit which would be the equivalent of 180 Bitcoin, from any Bitcoin that could have been incurred by arbitrage in the period relied on is simply impossible.

289 The plaintiffs submitted in their opening submissions that Ms Zhao's contribution of Bitcoin was a 'loan' to be used for working capital. They submitted that to be used for working capital the Bitcoin had to be converted into Australian currency.

290 They submitted that Ms Zhao's contribution of Bitcoin was not for paid up share capital. They submitted:

MR HARRIS: Your Honour, these companies were established with minimum share capital and working capital was raised by loans from shareholders. So, he accept that the monies that have been put into the companies are capital contributions by way of loans. So, the expectation that Ms Zhao seems to have that, oh well, it's a loan, that's good for my case or that's the answer to my case, this is something that's not really in dispute, Your Honour.

291 As to the matters set out by Mr Chen in the agenda attached to his email to Ms Zhao dated 30 May 2019, the plaintiffs submitted:

MR HARRIS: Well, what I'm saying - well, what Mr Chen's saying in his own agenda on 30 May is that he recognises that these monies that were advanced by the parties being the bitcoin, are loans. Now, the question for Your Honour is what is the purpose of the loan? Is the purpose of the loan to use these bitcoins insofar as the loan constitutes bitcoins? Is it to be used to preserve the bitcoin?

HIS HONOUR: And so your client is - is it your client's case that the 158 bitcoin were loans?

MR HARRIS: Loans to be used as working capital.

HIS HONOUR: Working capital. And do you say that - - -

MR HARRIS: And liquidity, yes.

HIS HONOUR: And you say the - you say that Ms Zhao's case is - - -

MR HARRIS: Also a loan.

HIS HONOUR: Yes.

MR HARRIS: But not to use as working capital. That can be the only point, right, her only case can be, oh, yes, I can borrow these bitcoin, but it was on terms that they would be preserved.

HIS HONOUR: They would be preserved, yes.

MR HARRIS: So, what is the point of giving them to the company? What are they going to do with it? Just put them in the drawer and do nothing? No, that can't be right.

HIS HONOUR: Right.

MR HARRIS: What are they going to do with them? She knows what they're going to do with them. They're going to use them Jinance to create liquidity, right? And so, then, Jinance is going to get some transactions happening through it and hopefully that will be an escalating business and the fees that it made will all get returned back to Dashboard Management, which operate it. There's no dispute about that. All very clear, the reason why it has to happen have all been explained. Everybody knows that.

Sure enough, you can do arbitrage with the coins and the risk with arbitrage and coins is loss of money, not loss of bitcoin. Bitcoins are preserved by definition, because it's a single transaction. Sell/buy instantaneously. Bitcoins the same. The risk is, price movement in Australian dollars. The robots set infinitesimally small amounts of money. The ability to make money on each trade depends on having funds available in the buy exchange. Not of the little amount of money, but of the entire purchase price of each bitcoin.

293 The plaintiffs also submitted that Ms Zhao's contribution of 66.2 Bitcoin was for a '30 per cent interest in the business'. They submitted:

MR HARRIS: It was agreed at the time. So remember, what's happened here is Ms Chen [sic] secures 100 bitcoin on her disaggregation from BGL, and Mr Chen is saying well, do you want to have a 30 per cent interest in the business? Yes, I do. All right, you need to put in capital. All right. I haven't got any cash or hardly any cash because I'm trying to sell my house, but I do have some bitcoin, but I want to put some of the bitcoin away. I want to work out how many I'm going to put away, but I think something around 60. He says, all right, well on 70/30 that means I've got to put in 158, so I'll agree to commit 158 so I'll do that. And she says well, I'll work out the precise number and I'll give it to you in the next few days. She does that and does it a week later on I think 8 August.

So we bought ours on the 2nd and we say well, just to make it simple this 70/30 thing, rather than having to recalculate that, we'll just assume you gave me yours on 2 August.

294 Ms Zhao made submissions on the Blockchain Business Agreement, the Bitcoin Loan Agreement and the contribution of the 66.2 Bitcoin:

1. First fold is that is that Mr Chen failed to return my bitcoins that I lent to him for the bitcoin arbitrage operations run by Mr Chen. Instead, Mr Chen concealed the location, usage and any profits generated from these bitcoins from the arbitrage activities. But instead, Mr Chen attempted to link my 66.2 bitcoins with the failed start-ups business operations of Blockchain Tech Pty Ltd (second plaintiff), and the third defendant, namely Dashboard Management Pty Ltd and its subsidiary company named Crochet Pty Ltd since August 2018 and onwards.

...

1. In about July 2018, Mr Chen told me that he received 58.67 bitcoins from the recent settlement with Blockchain Global. I agreed to put in approximately the same number of Bitcoin that he put into these arbitrage activities. I told him (and he agreed) that the profit from the arbitrage activities would be equally distributed between Mr Chen and I, and to the extent that we wished to maintain the principal investment for arbitrage and use the profit for the purpose of investing in businesses.
2. On 1 August 2018, Mr Chen and I agreed to set up a company at Mulgrave Office to distinguish the arbitrage with other business operations. Ms Cherry ChengCheng Huang (Cherry) set up the company and related unit trust on the same day. Cherry was a contractor of Blockchain Global and ACX from October 2017 to June 2018 and an employee of Block Business Solutions from July 2018 to August 2018. Cherry setup the Kette Investment Pty Ltd and the unit trust named Kette Investment Pty Ltd as the Trustee for Kette Investment Trust under her own name and used her personal email cherryhuang0726@gmail.com. Cherry emailed me the Tax invoice for the Unit Trust.
3. On about the first week of August 2018, Cherry provided me a physical copy of the trust deed with Ms Shurui Ding's signature. Cherry told me that she asked Mr Chen to take home the printed trust deed and let his wife Ms Ding signed the deed.
4. Ms Chen explained to me his Bitcoin arbitrage strategy in August 2018. This was mentioned by Mr Chen in his witness statement filed on 31 January 2021. In paragraph 218 of Mr Chen's witness statement, Mr Chen stated that 'Our strategy of preserving the Bitcoin for as long as possible and only liquidating them to cash when the Blockchain Business needed cash to meet its expenses is confirmed in the approach that Leah adopted on or about 29 March 2019.'

14. On about 22 August to 28 August 2018, Mr Chen instructed me to transfer my bitcoins to his bitcoin address 3HmUYLkNRwkqr8tHHpUQyJ7Lot7BD1LB7M. I did it as per Chen's instruction on about 28 August 2018.

And during that time, in the beginning of July to August, Mr Chen said to me, if I could put my bitcoin into the arbitrage, he could generate more profit and in return, will be enough to supply the funds to this business.

Ms Chen always knew I have bitcoins, because we were past employees of Blockchain Global. Now, when I look back, I feel like I rather have no bitcoins, no business with Mr Chen. So, I hesitate in July and I hesitate in August, but he keep pushing me and then I finally agreed, so I transferred my 66.2 bitcoins to Ms Chen for the purpose of arbitrage to generate profit in hope those profit would be enough to supply the funds to this business, and then may have some leftovers for me as well, because according to Ms Chen he operate the arbitrage for a long time, maybe from 2013. So he said it's stable, always make gains, especially when there are turbulence in the market.

And then he explain to me the theory, exactly the same as what Mr Harris mentioned, so to me it is an ideal investment. You buy and you sell at the same time. You don't lose your coins, you only generate profit. So I trust him. And then I did transfer my 66.2 bitcoins to Ms Chen.

Did Mr Chen and Ms Zhao enter into the alleged Blockchain Business Agreement?

296 I find that Mr Chen and Ms Zhao entered into an agreement on 20 July 2018 as follows:

(a) they would operate companies and businesses together concerning a cryptocurrency exchange, a cryptocurrency wallet and a cryptocurrency;

(b) they would share the ownership of those companies and businesses on the basis that Mr Chen would own 70% of the shares and Ms Zhao would own 30% of the shares;

(c) Mr Chen would be the Chief Technical Officer and Ms Zhao would be the Chief Financial Officer;

(d) they would make contributions to the companies and businesses on the basis that Mr Chen would contribute 70% and Ms Zhao would contribute 30%. This included loans of their own Bitcoin to Blockchain Tech to be used to:

(i) realise those Bitcoin when required for working capital for the companies and businesses;

(ii) provide the Bitcoin as liquidity to their cryptocurrency exchange.

Operation, equity percentages and roles in the companies and businesses

297 First, I accept the evidence of Mr Chen concerning the operation, equity percentages and roles in the companies and businesses. I find that, as at 20 July 2018, there were matters that had to be further agreed, including the amount of their contributions to equity and working capital. Mr Chen's recollection of the events leading up to and on 20 July 2018 was precise and compelling. Ms Zhao did not give evidence.

298 Second, the Zhao parties admit that 'Mr Chen has at all material times (in reality) beneficially owned and controlled... 70% of the interest in Blockchain Tech, Dashboard Management, Digital Galaxy and Coin Loop... close to 70% of the interest in Digital Silo'. The Zhao parties do not expressly allege who beneficially owned and controlled the other 30%. But it is clear from the particulars to paragraph 2(j) and paragraph 2(k), the particulars to paragraph 5(e) and paragraph 5(f), the particulars to paragraph 6(f) and paragraph 6(g), the particulars to paragraph 7(g) and paragraph 7(h), the particulars to paragraph 8(h) and paragraph 8(i) of the Zhao parties' defence that it is Ms Zhao. Ms Zhao was at all material times the sole shareholder of Livia Holdings. Blockchain Jet did not form part of the agreement. I have already referred in these reasons to the parties' common position that Blockchain Jet is, and always has been, one of Mr Chen's companies.

299 Third, Ms Zhao admitted she made financial contributions as set out in the supplementary report of Mr Bailey. This included financial contributions to the Blockchain Companies.[51] I refer to Ms Zhao's opening submissions at paragraph 6. This is consistent with the agreement I have found at paragraph 296.

300 Fourth, the Zhao parties have not provided any particulars of any agreements concerning the three companies (i.e. Digital Galaxy, Coin Loop and Digital Silo) that they admit were established by Mr Chen and Ms Zhao, and in the case of Digital Galaxy, also with Mr Hu, to conduct businesses.

301 Fifth, Ms Zhao has not provided any alternate explanations as to how Mr Chen and Ms Zhao became the beneficial owners and controllers of the interests in Blockchain Tech, Dashboard Management, Digital Galaxy, Coin Loop and Digital Silo. She did not give evidence.

302 Sixth, Ms Zhao's position in relation the two of the companies that the plaintiffs allege formed part of the Blockchain Business is inconsistent. The Zhao parties in their:

(a) counterclaim refer to some of the companies (which include Blockchain Tech and Dashboard Management) as being 'their [i.e. Mr Chen and Ms Zhao's] companies' and to 'Ms Zhao's contribution to those businesses'; and

(b) defence refer to Ms Zhao's very limited role in relation to Blockchain Tech and Dashboard Management.

303 Mr Chen and Ms Zhao agreed that they would lend their own Bitcoin to Blockchain Tech to be used to:

(a) realise those Bitcoin when required for working capital for the companies and businesses; and

(b) provide the Bitcoin to provide liquidity to their cryptocurrency exchange.

304 The Bitcoin were then lent by them to Blockchain Tech.

305 First, it was common ground between the parties at the trial that Mr Chen and Ms Zhao lent the Bitcoin and that they were not contributed to purchase equity in the Blockchain Companies (i.e. shares). This is because:

(a) the plaintiffs repeatedly submitted during their opening address that Ms Zhao contributed the 66.2 Bitcoin as a 'loan' for 'working capital' and that Ms Zhao did not contribute the 66.2 Bitcoin for equity. The plaintiffs did not subsequently seek to withdraw these submissions. The plaintiffs in their closing address referred to the Bitcoin as being 'contributed' but did not otherwise expressly identify whether the contribution was a loan or a 'capital contribution'; and

(b) Ms Zhao alleges and also submitted that she contributed the 66.2 Bitcoin as a loan.

306 Second, I reject Mr Chen's evidence that the Bitcoin were a 'contribution' to equity. This was the clear tenor of his evidence. He also made no mention in his evidence that there was any discussion that the Bitcoin would be loans. This is clear from the following evidence he gave (emphasis added):

MR CHEN: And I asked um, Ms Zhao whether she was still up to commit to her, um, the agreement with me that she was going to invest money for her seven - ah, sorry, 30 um per cent share in the Blockchain business. Um, Ms Zhao said to me very positively yes. And - and she further said that she is still in the process of selling her house, and she did - um, did not have cash to contribute. Her bitcoins was about 70 plus but she was planning to set aside some for her daughter.

HIS HONOUR: Did - sorry, did you say 70 plus, did I - - -?

MR CHEN: Yes. Just more than 70 bitcoins. Um, and she was going to set aside some bitcoins for her daughter. So she cannot tell me exactly how many bitcoins she would be able to contribute. However it would be um, some number more than 60. Um, I said that's fine, I - for whatever um, number of bitcoins you contribute, I will match to it according to this 30:70 ratio. And then um, we - the conversation ah, went on with I, um, with I asking Ms Zhao do you think, um, the bitcoin price will go up in the future, and she said yes. I said I think so too. So in that case I proposed to Ms Zhao in that case, um, we should preserve the bitcoin contributions as long as possible. We only sell those bitcoins at the time, ah, the business needs to pay expenses to - um, to convert the bitcoins, ah, into cash to meet this, ah, working capital. Um, Ms Zhao said, um, sounds good - in Mandarin to that effect. And - and then I went on saying that the exchange, the exchange is going to be ready, the cryptocurrency exchange is going to be ready in a few months. Um, by that time we need to um, supply liquidity to exchange um, in the marketing. Because customer comes to the exchange, they want to buy bitcoins. We provide our, um, bitcoins contribution to the exchange, um, for them to buy. And um, Ms Zhao agreed.

307 Mr Chen, however, accepted repeatedly, by his senior counsel, in the opening address that the companies were established with minimum share capital and that the Bitcoin contributions were loans. This was a fundamental departure from the plaintiffs' pleaded case. The plaintiffs do not plead that they were a loan to raise working capital. The pleading makes no reference to any loan of the Bitcoin. Mr Chen nonetheless did not give any evidence that he agreed with Ms Zhao that they would lend the Bitcoin. He never made mention of any loan. His evidence concerning this aspect was consistent with the plaintiffs' pleaded case with respect to this issue. I find that Mr Chen was mistaken about this matter. He was not deliberately untruthful.

308 Mr Chen has, however, also previously stated to Ms Zhao that the contributions of the Bitcoin were loans. I refer to his communications with Ms Zhao on 19 April 2019 and 30 May 2019 that I have set out in these reasons at paragraphs 278, 282 and 283.

309 As a result, I find that Mr Chen and Ms Zhao agreed to lend Bitcoin to Blockchain Tech to be used as I have already set out. I am not able otherwise to make any finding as to what they agreed concerning the terms of these loans. This is because Mr Chen did not give any evidence that they were loans. In addition, I find that Mr Chen and Ms Zhao did not enter into the alleged Bitcoin Loan Agreement for the reasons I address later at paragraphs 321 to 330. I find it is likely, however, that they discussed and agreed the terms of the loans including the following:

(a) when the loans would be repaid;

(b) how the loans would be repaid, including whether in Bitcoin or cash; and

(c) if the Bitcoin was realised, whether the loans were repayable in an amount equivalent to the value of the Bitcoin on the day they were lent, the amount realised for the Bitcoin, or some other value.

310 It is likely that they would have discussed and agreed these matters given the following:

(a) the amount and value of the Bitcoin involved was significant;

(b) they were both aware of the volatile nature of the value of Bitcoin;

(c) they knew that the Bitcoin may be sold and the proceeds realised;

(d) they took the steps of discussing and agreeing they were loans as opposed to a contribution to the equity that would not have to be repaid;

(e) Ms Zhao is a chartered accountant and I infer it is likely that she would have taken steps to discuss and agree upon the terms of the repayment of the loans.

311 I am not able to, however, based upon the evidence, find what they agreed on these matters. There is no direct evidence and no inference may be made of what they likely agreed. As a result, there is no place to infer or imply any terms of these loans applying the principles set out in Realestate.com.au Pty Ltd v Hardingham[52] or BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[53]

312 Third, Ms Zhao accepted in her opening submissions that Mr Chen told her in August 2018:

Our strategy of preserving the Bitcoin for as long as possible and only liquidating them to cash when the Blockchain Business needed cash to meet its expenses is confirmed in the approach that Leah [Ms Zhao] adopted on or about 29 March 2019.

313 This is an acceptance by Ms Zhao of the following matters:

(a) Mr Chen and Ms Zhao had a strategy;

(b) the strategy included that Bitcoin may be liquidated for cash for expenses;

(c) the existence of the 'Blockchain Business';

(d) the use of the proceeds of the liquidated Bitcoin for expenses in the Blockchain Business.

314 This position was confirmed again by Ms Zhao when she submitted in opening submissions that '[b]oth of Mr Chen and I agreed to transfer some of the sales proceeds to support various business [sic]'.

315 Fourth, Ms Zhao accepted in her opening submissions that '[o]n 1 August 2018, Mr Chen and I agreed to set up a company at Mulgrave Office to distinguish the arbitrage with other business operations'.

316 This is an acceptance by Ms Zhao of the following matters:

(a) Mr Chen and Ms Zhao agreed to set up a company to conduct the arbitrage; and

(b) they took the step of setting up the company to distinguish the arbitrage with other business operations.

Did Ms Zhao agree to contribute 66.2 Bitcoin for the purpose of producing working capital for the alleged Blockchain Business?

317 I find that in about late July 2018 Ms Zhao agreed to lend 66.2 Bitcoin to Blockchain Tech to be used by Blockchain Tech as working capital for the Blockchain Business.

318 First, Ms Zhao agreed to lend Bitcoin to Blockchain Tech for use to obtain working capital for the companies. I refer to my reasons concerning the agreement between Mr Chen and Ms Zhao.

319 Second, it was common ground that Ms Zhao provided 66.2 Bitcoin.

320 Third, I find that Ms Zhao lent the 66.2 Bitcoin to Blockchain Tech and not to Mr Chen. This is because:

(a) I accept the evidence of Mr Chen. Ms Zhao did not give evidence;

(b) shortly after the provision of the 66.2 Bitcoin, Mr Chen sent an email to Ms Zhao in which he stated, 'Record of transfer BTC to Jin's account for BCT'. The reference to 'BTC' is a Bitcoin and the reference to 'BCT' is a reference to Blockchain Tech. This is consistent with Mr Chen having agreed with Ms Zhao that she would lend the Bitcoin to Blockchain Tech.

Did Mr Chen and Ms Zhao enter into the alleged Bitcoin Loan Agreement?

321 I find that Mr Chen and Ms Zhao did not enter into the alleged Bitcoin Loan Agreement.

322 First, Ms Zhao did not give evidence concerning the conversations that are alleged to have constituted the alleged Bitcoin Loan Agreement. Apart from the transfer of the 66.2 Bitcoin, the conversations are the only matters relied upon for the alleged Bitcoin Loan Agreement.

323 Second, Mr Chen gave evidence that he did not agree with Ms Zhao's allegation that she loaned Bitcoin to him for arbitrage.

324 Third, Ms Zhao's acceptance of what Mr Chen told her in August 2018 is inconsistent with the Bitcoin Loan Agreement. I refer to the matter I have addressed at paragraphs 312 and 313 above. This is because the strategy included liquidating Bitcoin for cash for expenses and was not confined, as alleged with respect to the Bitcoin Loan Agreement, to the use of the profit from arbitrage activities to pay expenses.

325 Fourth, Ms Zhao has provided inconsistent versions of the alleged Bitcoin Loan Agreement. This is because:

(a) the Zhao parties pleaded that the alleged Bitcoin Loan Agreement concerned the loan of Bitcoin only by Ms Zhao to Mr Chen; and

(b) Ms Zhao also submitted: 'I agreed to put in approximately the same number of Bitcoin that [Mr Chen] put into these arbitrage activities'.

326 Fifth, Ms Zhao has provided inconsistent versions of the operation of the arbitrage activities the subject of the alleged Bitcoin Loan Agreement. This is because:

(a) the Zhao parties pleaded that it was an express term of the alleged Bitcoin Loan Agreement that 'Mr Chen could use the Bitcoins for arbitrage activities';

(b) Ms Zhao submitted that she and Mr Chen agreed to set up a company 'to distinguish the arbitrage with other business operations'. That is, they agreed to set up a company to conduct the arbitrage activities. Ms Zhao also submitted that Kette Investment conducted the arbitrage activities 'for Mr Che [sic] and Ms Zhao'.

327 Sixth, I reject the Zhao parties' claim that Mr Chen represented to Ms Zhao that he earned Bitcoin 'as the profits of arbitrage activities he had conducted to generate funds to pay for the business expenses of which they were shareholders' [sic]. This is because the arbitrage activities undertaken by Mr Chen did not result in more Bitcoin as profits. Any profits were in cash. This is because in the arbitrage activity Bitcoin are simultaneously sold and purchased and the profit made is in cash. I refer to the following description of arbitrage provided by Mr Chen to Dr Franzese and others on 16 May 2019:

Crypto Arbitrage is the simultaneous purchase and sale of a crypto asset to profit from an imbalance in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of asset's illiquidity status and supply more liquidity to markets for the targeting assets.

328 As a result, I find that Mr Chen did not make the alleged representation.

329 Seventh, the alleged Bitcoin Loan Agreement is uncommercial and unlikely to have been entered into by Mr Chen. This is because the use of Bitcoin in arbitrage may result in a loss but the alleged Bitcoin Loan Agreement provides for the repayment of the Bitcoin on demand.

330 Finally, I otherwise refer to my finding that Ms Zhao agreed to lend 66.2 Bitcoin to Blockchain Tech for the purpose of producing working capital for the alleged Blockchain Business. This finding is inconsistent with the alleged Bitcoin Loan Agreement. This is because the Bitcoin Loan Agreement concerns the use of the Bitcoin in arbitrage activities and for any profit to be used as working capital and not for the Bitcoin themselves to be realised and used as working capital.

Did Ms Zhao act as Chief Financial Officer of the Blockchain Business and/or conduct activities consistent with having that role?

331 The plaintiffs allege that Ms Zhao acted as Chief Financial Officer of the Blockchain Business and conducted activities consistent with that role. The Zhao parties deny this.

332 The plaintiffs relied on a number of documents that they submitted evidenced Ms Zhao acting as a Chief Financial Officer:

(a) a spreadsheet titled 'BCT Employees' sent from Ashley Wang to Mr Chen on 24 May 2019 described Ms Zhao as the 'CFO' in the 'Job Title' column, 'Current' in the 'Status' column, and 'Manager' in the 'Company' column (along with Mr Chen, whereas other employees belonged to specific companies such as 'BCT', 'Dashboard', and 'Coin Loop');

(b) email correspondence dated 28 March 2018 from Mr Chen to Daniel Nutbean of Salta Properties and copying in Ms Zhao, pertaining to a reimbursement of money to 'ACX Tech', describing Ms Zhao as 'my CFO';

(c) an email dated 24 May 2018 from Shannon Ryan, a solicitor retained by Ms Zhao to prepare material for the AFSL licence for Galaxy Crowdfunding, attaching a document titled 'Responsible Manager Activities and Tasks' naming Ms Zhao as the CFO. Mr Chen gave evidence that he told Ms Zhao that their responsibility would be set up in the same way as they did Galaxy Crowdfunding, including that he said, 'I will be the CTO and you will be the CFO', and she said 'Fine';

(d) InfoTrack ASIC extracts showing Ms Zhao being appointed as director and/or secretary to companies within the alleged Blockchain Business. She was, at certain points in time, director and secretary of Coin Loop, director and secretary of Dashboard Management, director and secretary of Digital Silo, and director and secretary of Digital Galaxy;

(e) a receipt showing that Ms Zhao submitted a trade mark application on behalf of Coin Loop;

(f) text messages between Mr Chen and Ms Zhao evidencing Ms Zhao organising salary payments for employees and controlling costs and cash flow, although it is not specified which company these discussions relate to;

(g) an Australian Taxation Office return of information cover sheet for Blockchain Tech, signed by Ms Zhao;

(h) email correspondence from Ms Zhao to Malia Forner of Ernst & Young showing Ms Zhao's involvement in the application of R&D tax incentives for Blockchain Tech; and

(i) email correspondence copying in Ms Zhao, including emails between Ms Cherry (ChengCheng) Huang in her capacity as senior business services accountant for Block Business Solutions and Mr Chen regarding the hiring of an external HR consultant and banking options for Crochet, and an email from Ms He in her capacity at Blockchain Tech providing payment summaries for FY 2018 and 2019 to Karel Malbroukou.

333 Mr Chen gave evidence that Ms Zhao controlled the cashflow of the Blockchain Business, and was responsible for overseeing and managing the day to day financial affairs of the Blockchain Business. He gave evidence that Ms Zhao managed the payroll and controlled the bank accounts of Dashboard Management, and oversaw the financial reporting functions of the Jinance platform.

334 Mr Chen gave evidence that Ms Zhao was the Chief Financial Officer of Blockchain Tech, and that he had authorised Ms Zhao to pay the salary, and Ms Wang was under Ms Zhao's supervision to do the job.

335 The plaintiffs submitted that Ms Zhao acted as Chief Financial Officer of the Blockchain Business or otherwise conducted activities consistent with having that role. They submitted that her conduct, responsibilities and experience confirmed that it is more inherently probable that she would take on that role in the business.

336 Ms Zhao submitted that she had never been a financial or commercial advisor for Mr Chen or any of his related parties. Ms Zhao submitted that Ms Wang worked for Mr Chen in March 2018 (citing text messages between Mr Chen and Ms Wang), though Ms Zhao did pay her salary until around August / September 2018 and later on when Ms Wang became employee of Digital Silo.

337 I find that Ms Zhao was the Chief Financial Officer of the Blockchain Companies. This is because, as I have already found, this is what Mr Chen and Ms Zhao agreed her role would be. This was specifically discussed and agreed to at their meeting on 23 March 2018.

Did Ms Zhao contribute any funds to the Blockchain Business and/or Blockchain Tech? If so, in what amount?

338 The plaintiffs allege that between about 9 November 2017 and 4 March 2019, Ms Zhao made the capital contributions to the Blockchain Business of, inter alia, $223,937 by way of cash (having excluded the amount paid to Galaxy Crowdfunding, and subtracting the realisations of the 25 Bitcoin transferred by Ms Zhao to Blockchain Tech). The Zhao parties deny the Blockchain Business. They allege that Ms Zhao's contributions were made by way of capital contributions and loans, in the amount of at least $635,531.

339 In his expert report, Mr Bailey completed a statement of cash flow identifying 'claimed', 'concluded', and 'unconcluded' cash inflows and cash outflows. He identified $635,531 in concluded cash inflows as financial contributions from Ms Zhao. Mr Bailey gave evidence in cross-examination that he identified 'contributions' in his first report that had been made by, inter alia, Ms Zhao but that he did not know 'the nature of the transaction' including whether they were loans, payments for equity or services. I also refer to his second report at note 10 at paragraph 28 in which he stated: 'cash inflows referrable to the Parties are referred to as Contributions as their exact legal nature is to be determined'. Mr Bailey gave evidence that the contributions included:

(a) contributions totalling $82,838 vouched to Blockchain Tech bank statements and traced to Apex bank statements;

(b) contributions totalling $213,937 traced to Ms Zhao's personal bank statements (Black Rock Superannuation Fund);

(c) a contribution of $10,000 in concluded cash flow from Ms Zhao to Blockchain Tech.

340 The plaintiffs submitted that the total contributions made by Ms Zhao to the Blockchain Business, excluding Galaxy Crowdfunding, was $306,775. Of that, the plaintiffs submitted that Ms Zhao transferred a further $82,838 in realisations of the 25 Bitcoin to Blockchain Tech, and accordingly, the actual amount contributed should be $223,937.

341 Ms Zhao submitted that she contributed $635,531 and relied upon the report of Mr Bailey.

342 I find that Ms Zhao contributed the sum of $243,575. There is no evidence, however, concerning the nature of the contributions and whether they were loans or something else.

343 First, the parties agreed that Ms Zhao contributed the sum of $635,531 to all of the companies, including Galaxy Crowdfunding. This is the amount determined by Mr Bailey. I refer to his supplementary report at paragraph 30 and Note 3 on page 13. The figure of $635,531 is constituted by the total concluded amounts of $593,394 (first report at paragraph 63 and Note 3 on page 23) and $42,137 (supplementary report at paragraph 30 and Note 3 on page 13).

344 Second, the sum of $243,575 is calculated by deducting sums that Ms Zhao contributed to Galaxy Crowdfunding and the sum Ms Zhao contributed from the sale of some of the 25 Bitcoin. As a result, the sum of $243,575 is calculated by deducting the following amounts from the sum of $635,531:

(a) the amounts that Mr Bailey found concerned Galaxy Crowdfunding, being the amounts of $263,619 and $33,000 referred to in his first report at Note 3 on page 23 and being the amounts of $7,000 and $5,499 referred to in his supplementary report at Note 3 on page 13; and

(b) the amount that Mr Bailey found concerned contributions to Blockchain Tech bank statements and traced to Apex bank statements, being the sum of $82,838. I refer to his first report at Note 3 on page 23. The parties agreed that this sum was contributed by Ms Zhao from selling part of the 25 Bitcoin. The Zhao parties allege that it was a loan. For reasons I give later in these reasons, I have found that Ms Zhao did not lend the sum of $82,838 to Blockchain Tech. It was the sum realised from the sale of some of the 25 Bitcoin. This is further addressed at paragraph 461 of these reasons.

345 Third, I note that the difference between the sum of $243,575 and the amount submitted by the plaintiffs (i.e. $223,937), is $19,638. $19,638 is the concluded sum Mr Bailey found Ms Zhao to have contributed to Digital Silo in his supplementary report. The plaintiffs did not identify why they did not factor in this contribution into their final calculation nor did they otherwise explain the discrepancy of the $19,638. They submitted that Mr Bailey recorded contributions totalling $635,531, which included the contribution of $19,638.

346 Finally, I have made findings on this issue but observe that the plaintiffs do not otherwise rely upon this finding, including in relation to matters concerning the relief sought against Ms Zhao.

Did Blockchain Tech deliver 36 of 66.2 Bitcoin to Ms Zhao pursuant to the alleged Bailment?

347 The plaintiffs allege that in about mid-May 2019, Blockchain Tech agreed with Ms Zhao to and did deliver its 36 Bitcoin to Ms Zhao to be safely kept by her until they were returned to Blockchain Tech following completion of a purported audit of her superannuation fund. The plaintiffs allege that Blockchain Tech was the owner of the 36 Bitcoin at all material times and, subject to the bailment, otherwise was entitled to immediate possession thereof.

348 The Zhao parties deny this and allege further that Blockchain Tech had failed to demonstrate how it was the owner of 36 Bitcoin.

349 Mr Chen gave evidence that on or around 22 May 2019, Ms Zhao told Mr Chen that her superannuation fund was the subject of an 'audit', and so she needed to borrow Bitcoin to verify that she had assets in her superannuation fund.

350 Through a text message dated 22 May 2019, Ms Zhao provided the address 1723pDqDhpnbkspZ9TJarBrXzbBJ8oRQay which she described as her superannuation fund's address to Mr Chen.

351 Mr Chen gave evidence that he told Ms Zhao that he would prepare a separate wallet for her with the address of bc1q37llf2kua0r3pelfuyzn6vtkm27mrl0rx4jpkc, so that she could pass her audit by giving the auditor that address.

352 Mr Chen gave evidence that Ms Zhao repeated her request that he send her 36 Bitcoin, and that he reluctantly did so, transferring the 36 Bitcoin with the input hot wallet address bc1q37llf2kua0r3pelfuyzn6vtkm27mrl0rx4jpkc to the output address 1723pDqDhpnbkspZ9TJarBrXzbBJ8oRQay.

353 On 22 May 2019, 35.99990950 Bitcoin were transferred from address bc1q37llf2kua0r3pelfuyzn6vtkm27mrl0rx4jpkc to address 1723pDqDhpnbkspZ9TJarBrXzbBJ8oRQay.

354 The Zhao parties admitted in their defence that on about 18 September 2019, Ms Zhao caused:

(a) 3 Bitcoin to be transferred to a deposit address maintained by Mr Zhang (with ID 36FLV8rPmpdKmFEfbhg4kVLN95uHXsmg5f (36F address)); and

(b) 32.99986410 Bitcoin to be transferred to a deposit address with ID 1Ema9M7DxP5EZYNAD9qpin918dxSewDnK5.

355 The plaintiffs submitted that Mr Chen transferred the 36 Bitcoin to Ms Zhao's control because she dishonestly told Mr Chen she would hold them solely for the purpose of a superannuation audit, and that she later transferred the 36 Bitcoin to a deposit address maintained by Mr Zhang. The plaintiffs submitted that it was not controversial that the 36 Bitcoin were transferred out of the pool of Bitcoin that Mr Chen and Ms Zhao had accumulated by their contributions. They submitted that the relationship between Blockchain Tech and Ms Zhao is best characterised as a gratuitous loan for use by a bailee.

1. On about 22 May 2019, Jin agreed to return my 36 bitcoins. He transferred to me after I use the words that make him feel if not return it could cause aduit [sic].

357 Ms Zhao submitted in her opening address that she asked Mr Chen to return to her at least 50% of the original 66 Bitcoin due to concern from the fraud, which he did, returning 36 Bitcoin. Ms Zhao submitted:

MS ZHAO: ...so because of that fraud, I was worried about the - you know, the principal of my bitcoins. So I said to Mr Chen if he can return me my principal because he said the arbitrage made huge profit and then now Jinance was functional and he track users. He said to me he can't return me the whole amount, he still needs some of the bitcoin. Especially he mention to me that, so he lock some bitcoin as a security on B2C2 and then by doing that, B2C2 would land him credits to trade more and to earn profits. So - so he show me B2C2, that's why I believe him at the time, so by doing that he did make a big profit.

But I think that was a very risky strategy, so I insist for him to return me at least 50 per cent of my original 66 bitcoins. And it did happen in May 2019.

HIS HONOUR: Yes.

MS ZHAO: Yes. So that's how he return me the 36 bitcoins.

358 The applicable law concerning bailment is well established.

359 In Hobbs v Petersham Transport Co Pty Ltd (Hobbs),[54] Windeyer J outlined the essential features of bailment in the following terms:

A bailment comes into existence upon a delivery of goods of one person, the bailor, into the possession of another person, the bailee, upon a promise, express or implied, that they will be re-delivered to the bailor or dealt with in a stipulated way.[55]

360 In Hocking v Director-General of the National Archives of Australia (Hocking),[56] in the context of an examination of property rights over chattels in Australian law, Edelman J observed that 'for a property right to arise by bailment the bailee "must have both the intention and the practical means to exercise independent control over the item that would exclude the bailor's own possession and control"'.[57]

361 The learned authors of Palmer on Bailment state:

Certain forms of intangible material can undoubtedly be owned. But since things incapable of being touched or felt cannot be physically possessed, a literal separation of ownership and possession seems unattainable in this context. Moreover, if there can be no possession, it would seem to follow that there can be no right to possession, which is the essence of being a bailor. If the orthodox antipathy to bailments of dematerialised subject matter is to be overcome, this would seem to require either some radical modification of the principle that bailment requires possession of a concrete thing, or the use of some legal device to satisfy or sidestep the principle in this peculiar context.[58]

362 A bailment relationship imposes a duty on the bailee to take care of the goods as is reasonable in the circumstances.[59] It falls upon the bailor to first establish the existence of a bailor-bailee relationship.[60] This relationship may arise and exist independently of contract.[61]

363 Even a person with no right of possession against the original owner may create an enforceable bailment by conferring a limited right of possession upon a third party.[62] As also observed by the learned authors of Palmer on Bailment:[63]

The position is relatively straightforward when the non-owner makes a direct delivery to the alleged bailee. The fact that the possessor has both accepted the goods from him and undertaken to return the goods to him will normally constitute the deliveror a bailor, irrespective of the existence of some ulterior party enjoying a full proprietary interest in the goods.

364 Proof of breach of bailment is usually non-delivery or delivery in a damaged condition.[64] The function of any damages awarded is to put the injured party in the position that it would have been in but for the wrongdoing. Where what is lost or damaged is personal property, then the assessment of damages must take into account the value of the property at the time of the wrong.[65]

365 In Minister of State for the Army v Dalziel,[66] Latham CJ observed that the word 'property' is ambiguous.[67] It is, however, well established that property is a legal relationship with a thing and refers to a degree of power that is recognised by the law as a power permissibly exercised over the thing. In Yanner v Eaton (Yanner),[68] Gleeson CJ, Gaudron, Kirby and Hayne JJ said:

1. The word 'property' is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, 'property' does not refer to a thing; it is a description of a legal relationship with a thing. It refers to a degree of power that is recognised in law as power permissibly exercised over the thing. The concept of 'property' may be elusive. Usually it is treated as a 'bundle of rights'. But even this may have its limits as an analytical tool or accurate description, and it may be, as Professor Gray has said, that 'the ultimate fact about property is that it does not really exist: it is mere illusion'. Considering whether, or to what extent, there can be property in knowledge or information or property in human tissue may illustrate some of the difficulties in deciding what is meant by 'property' in a subject matter. So too, identifying the apparent circularity of reasoning from the availability of specific performance in protection of property rights in a chattel to the conclusion that the rights protected are proprietary may illustrate some of the limits to the use of 'property' as an analytical tool. No doubt the examples could be multiplied.
2. Nevertheless, as Professor Gray also says, 'An extensive frame of reference is created by the notion that "property" consists primarily in control over access. Much of our false thinking about property stems from the residual perception that "property" is itself a thing or resource rather than a legally endorsed concentration of power over things and resources.'
3. 'Property' is a term that can be, and is, applied to many different kinds of relationship with a subject matter. It is not 'a monolithic notion of standard content and invariable intensity'. That is why, in the context of a testator's will, 'property' has been said to be 'the most comprehensive of all the terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have'.
4. Because 'property' is a comprehensive term it can be used to describe all or any of very many different kinds of relationship between a person and a subject matter. To say that person A has property in item B invites the question what is the interest that A has in B? The statement that A has property in B will usually provoke further questions of classification. Is the interest real or personal? Is the item tangible or intangible? Is the interest legal or equitable? ...[69]

366 In Telstra Corporation Limited v Commonwealth (Telstra),[70] the High Court endorsed the reasoning in Yanner and said:

1. In the present case it is also useful to recognise the different senses in which the word 'property' may be used in legal discourse. Some of those different uses of the word were identified in Yanner v Eaton. In many cases, including at least some cases concerning s 51(xxxi), it may be helpful to speak of property as a 'bundle of rights'. At other times it may be more useful to identify property as 'a legally endorsed concentration of power over things and resources'. Seldom will it be useful to use the word 'property' as referring only to the subject matter of that legally endorsed concentration of power. [71]

367 More recently, in Hocking, the majority (Kiefel CJ, Bell, Gageler and Keane JJ)[72] and Gordon J[73] also endorsed the reasoning in Yanner. The majority also said:

1. Accordingly, property is not for all purposes to be equated with 'full beneficial, or absolute, ownership'. Indeed, a proprietary relationship can have the quality of relativity. Especially is that so in relation to property in tangible things. It is an old and well-known application of common law doctrine, for example, that 'the finder of a jewel, though he does not by such finding acquire an absolute property or ownership, yet he has such a property as will enable him to keep it against all but the rightful owner'.
2. The doctrine of the common law has been explained in terms that physical possession of a tangible or 'corporeal' thing, in the sense of actual physical custody of the thing, 'is not merely evidence of absolute title: it confers a title of its own, which is sometimes called a "possessory title"'. The possessory title that derives from lawful physical possession 'is as good as the absolute title as against, it is usually said, every person except the absolute owner'. Though the doctrine has been so much encrusted with technicalities that any exposition of it must be hedged with qualifications, a slightly more complete statement of it might be that lawful physical possession is as good as absolute title against every person except someone 'who can show a better right to possession'.[74]

368 Alienability is not an indispensable attribute of property. As observed in National Trustees Executors and Agency Company Limited v Federal Commissioner of Taxation (National Trustees)[75] by Kitto J (with whom Dixon CJ and Fullagar agreed):

It may be said categorically that alienability is not an indispensable attribute of a right of property according to the general sense which the word 'property' bears in the law. Rights may be incapable of assignment, either because assignment is considered incompatible with their nature, as was the case originally with debts (subject to an exception in favour of the King) or because a statute so provides or considerations of public policy so require, as is the case with some salaries and pensions; yet they are all within the conception of 'property' as the word is normally understood. [76]

369 The reasoning of Kitto J was endorsed in The Commissioner of Taxation of the Commonwealth of Australia v Orica Limited[77] by the majority (Gaudron, McHugh, Kirby and Hayne JJ)[78] and also by Gummow J.[79] Similarly, in R v Toohey; Ex parte Meneling Station Pty Ltd,[80] Mason J said:

Assignability is not in all circumstances an essential characteristic of a right of property. By statute some forms of property are expressed to be inalienable. Nonetheless, it is generally correct to say, as Lord Wilberforce said, that a proprietary right must be 'capable in its nature of assumption by third parties'...[81]

370 The reasoning of Kitto J in National Trustees implicitly accepts that all personal property known to the law must consist of choses in possession or choses in action. This is because his Honour said:

The argument for the executor on this part of the case seems to involve and depend upon two propositions: first, that all personal property known to the law must consist either of choses in possession or of choses in action, and, secondly, that choses in action comprise only rights enforceable by action in the courts. But the term chose in action 'furnishes an instance of the subject-matter of property having outgrown its nomenclature'; and the second proposition needs to be recast in more flexible terms if the first is to be accepted.[82]

371 Kitto J then went on to recast the second proposition in more flexible terms. Kitto J held that a chose in action is not limited to only those rights that may be enforced in the courts. His Honour said:

The expression now comprises a heterogeneous group of rights which, as Goodeve observes, have only one common characteristic, viz. that they do not confer the present possession of a tangible object. Sir William Holdsworth considered the history of the subject in his History of English Law, and showed that although 'the original meaning of a chose in action - a right to be asserted by an action - has never been wholly lost sight of', the meaning of the term has become progressively extended to accommodate many forms of personal property which were not within the original conception. The topic has been developed by Sir Howard Elphinstone, Mr Cyprian Williams and Mr Charles Sweet in learned articles in the Law Quarterly Review. [83]

372 No judge of a superior court in Australia has determined upon a trial of a proceeding that a person's interest in cryptocurrency, such as Bitcoin, is property. Some judges in Australia have determined or proceeded upon an interlocutory application on the basis that a person's interest in cryptocurrency, such as Bitcoin, is property. A number of judges in England and Wales, New Zealand and the Republic of Singapore have found that a person's interest in cryptocurrency is property. There are also comprehensive reports prepared by the Law Commission of England and Wales including reports titled 'Smart legal contracts: Advice to Government'[84] and 'Digital assets: Final report'.[85] These reports have been referred to with approval in a number of the decisions in England and Wales. The issue is also the subject of an excellent and learned speech delivered by Justice Jackman titled 'Is Cryptocurrency Property?',[86] in which his Honour concludes, inter alia, that cryptocurrency is property and that, within Australian law, no impediment exists to treating cryptocurrency as a chose in action, despite the absence of an identified or identifiable counterparty.

373 In AA v Persons Unknown (AA),[87] Bryan J held that Bitcoin are property in determining to grant an interim injunction. This finding was premised, in part, upon the analysis set out in the legal statement of the UK Jurisdiction Taskforce titled 'Legal statement on cryptoassets and smart contracts' (the UKJT Legal Statement).[88] His Honour endorsed parts of UKJT Legal Statement, including concerning the applicable law and embraced its conclusion as to the proprietary status of cryptocurrencies. Bryan J said:

1. Turning then to the relevant principles in relation to the granting of a proprietary injunction, the first and perhaps fundamental question that arises in relation to this claim for a proprietary injunction is whether or not in fact the Bitcoins, which are being held in this account of the second defendant with the third or fourth defendants, are property at all. Prima facie there is a difficulty in treating Bitcoins and other crypto currencies as a form of property: they are neither choses in possession nor are they choses in action. They are not choses in possession because they are virtual, they are not tangible, they cannot be possessed. They are not choses in action because they do not embody any right capable of being enforced by action. That produces a difficulty because English law traditionally views property as being of only two kinds, choses in possession and choses in action. In Colonial Bank v Whinney [1886] UKLawRpAC 34; (1885) 30 Ch D 261 Fry LJ said:

All personal things are either in possession or action. The law knows no tertium quid between the two.

1. On that analysis Bitcoins and other crypto currencies could not be classified as a form of property, which would prevent them being the subject of a proprietary injunction or a freezing injunction. This exact issue has recently in November 2019 been the subject of detailed consideration by the UK Jurisdictional Taskforce ('UKJT') which has published a legal statement on Cryptoassets and Smart Contracts, ('the Legal Statement'). The UKJT is chaired by Sir Geoffrey Vos, and Sir Antony Zacaroli is also a member. However, neither in their judicial capacity was responsible for the drafting of the legal statement, nor have either in their judicial capacities endorsed that legal statement. Indeed Sir Geoffrey Vos explained in the foreword to the Legal Statement: 'It is not my role as a judge nor that of the UKJT or its parent, the UK Lawtech Delivery Panel, to endorse the contents of the Legal Statement'. Those responsible for drafting the Legal Statement were Laurence Akka QC, David Quest QC, Matthew Lavy and Sam Goodman.
2. It follows that the legal statement is not in fact a statement of the law. Nevertheless, in my judgment, it is relevant to consider the analysis in that Legal Statement as to the proprietary status of crypto currencies because it is a detailed and careful consideration and, as I shall come on to, I consider that that analysis as to the proprietary status of crypto currencies is compelling and for the reasons identified therein should be adopted by this court.
3. The difficulty identified in treating crypto currencies as property, as I say, starts from the premise that the English law of property recognises no forms of property other than choses in possession and choses in action. As I have already identified, crypto currencies do not sit neatly within either category. However, on a more detailed analysis I consider that it is fallacious to proceed on the basis that the English law of property recognises no forms of property other than choses in possession and choses in action.[89]

374 Bryan J then set out extensive extracts from the UKJT Legal Statement concerning whether English law recognises forms of property other than choses in possession and choses in action and its conclusions that a cryptoasset might not be a thing in action on the narrower definition of that term but that does not in itself mean that it cannot be treated as property. Bryan J then said:

1. The conclusion that was expressed was that a crypto asset might not be a thing in action on a narrow definition of that term, but that does not mean that it cannot be treated as property. Essentially, and for the reasons identified in that legal statement, I consider that crypto assets such as Bitcoin are property. They meet the four criteria set out in Lord Wilberforce's classic definition of property in National Provincial Bank v Ainsworth [1965] UKHL 1; [1965] AC 1175 as being definable, identifiable by third parties, capable in their nature of assumption by third parties, and having some degree of permanence. That too, was the conclusion of the Singapore International Commercial Court in B2C2 Ltd v Quoine PTC Ltd [2019] SGHC(I) 03 [142].

...

1. In those circumstances and for the reasons I have given, as elaborated upon in the Legal Statement which I gratefully [adopt] as what I consider to be an accurate statement as to the position under English law, I am satisfied for the purpose of granting an interim injunction in the form of an interim proprietary injunction that crypto currencies are a form of property capable of being the subject of a proprietary injunction. [90]

375 In Ruscoe v Cryptopia Ltd (in liq) (Ruscoe),[91] Gendall J of the New Zealand High Court said:

The four requirements for a "property" interest

[102] I return now to the classic statement of the characteristics of 'property' outlined by Lord Wilberforce in Ainsworth essentially to recognise what constitutes a 'property' interest, and then to apply this to each cryptocurrency at issue here. In doing so, I need to say at the outset that I am satisfied the criteria for Lord Wilberforce's definition of 'property' are clearly met in this case. I say this bearing in mind the indications I have outlined from the range of authorities noted above that support this conclusion. This is also in line with the approach adopted in the Legal Statement on Cryptoassets and Smart Contracts noted above.

[103] Lord Wilberforce's long-applied statement is outlined at [75] above. It outlines four requirements that I now address in turn.

(a) Identifiable subject matter

[104] The first requirement is that the asset in question needs to be definable. It needs to be capable of being isolated from other assets whether of the same type or of other types and thereby identified. It is possible, however, for there to be co-ownership (either at law or in equity) of a definable share of an identified bulk of like assets. The present situation, as I see it, is one of this sort.

[105] Computer-readable strings of characters recorded on networks of computers established for the purpose of recording those strings, as I see it, are sufficiently distinct to be capable of then being allocated uniquely to an accountholder on that particular network. For the cryptocurrencies involved here, the allocation is made by what is called a public key - the data allocated to one public key will not be confused with another. This is the case even though the identical data is held on every computer attached to the network. Indeed, the working of the system is such that the distribution of the data across a large network of computers, when combined with cryptography that prevents individual networks from altering historic data over the network, assists in giving that data stability. It is these features that provide the basic underpinning for the existing cryptocurrencies.

[106] This is in large measure similar to what occurs in the banking system where large and trusted international banks record balances in various numbered bank accounts held with them. The identifiability provided by cryptocurrency data recorded in the network of computers (called the 'distributed ledger') is no less than the identifiability which results from the bank's inclusion of balances in their customers' numbered bank accounts. Equity regards such recorded bank balances as a type of property owned by the party in whose favour the balance is recorded.

[107] The developer of the most widely known cryptocurrency (Bitcoin), Satoshi Nakamoto, who I have referred to above, argued in 2008:

...an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party...

will provide superior stability and reliability compared to the traditional banking system.

[108] It is also the case, as I see it, that the public key so allocated to a cryptocurrency account might also be argued to be more readily identifiable than some asserted rights for example to copyright (which is acknowledged as "property") where issues of originality may be at play.

(b) Identifiable by third parties

[109] The second component of property outlined by Lord Wilberforce is that the thing needs to be identifiable by third parties. This element alludes to the thing identified having to have an owner capable of being recognised as such by third parties. The degree of control over the type of asset that a person has to have before the law recognises it as capable of being owned must involve an element of judgement but again I am satisfied here that cryptoassets clearly meet this criterion.

[110] On this aspect, it has long been recognised by property lawyers that the power of an owner to exclude others from an asset provides a more important indicator of ownership than the power actively to use or benefit from that asset.

[111] The unique strings of data recording the creation of and dealings with cryptocurrency are always allocated via the public key to a particular accountholder connected to the system. But that allocation by itself is unlikely to be recognised as creating an item of property if there is no element of excludability. So, if that accountholder's personal connection to the data via the public key could be lost through any person connected with the network being able to reallocate the cryptocurrency to any other colleague on the network without the consent of the accountholder, there might be some doubt whether the law would conclude that the accountholder owned the key.

[112] The degree of control necessary for ownership (namely the power to exclude others) is achieved for cryptocurrencies by the computer software allocating to each public key a second set of data made available only to the holder of the account (the private key), and requiring the combination of the two sets of data in order to record a transfer of the cryptocurrency attached to the public key from one account to another. A varied public key and a new private key for the cryptocurrency are generated after each transfer of cryptocurrency. The private key, in effect, is like a PIN. Anyone who learns of the private key attached to a public key can transfer the public key but the private key, having been used once in respect of the public key, cannot be used again.

[113] These features of cryptocurrencies inhibit two potential practices. First, the existence of the private key inhibits the possibility of involuntary transfers - it gives the power to exclude third parties from access. And secondly, the creation of a new private key after each transfer or disposition inhibits a holder from purporting to transfer the cryptocurrency data twice.

(c) Capable of assumption by third parties

[114] The third of Lord Wilberforce's criteria, namely that the right or interest in question must be capable of assumption by third parties, generally involves two aspects:

(a) Third parties must respect the rights of the owner in that property and will be subject to actions expressly devised by the law to give effect to proprietary rights if they assert their own claim to ownership without justification. Property has been said by its nature to be concerned with legal rights that affect strangers to bilateral transactions. These third parties will also include insolvency officials of an insolvent trustee; and

(b) Normally, but not always, an asset recognised by the law as an item of property will be something which is potentially desirable to third parties such that they would want themselves to obtain ownership of it. It might not matter that an asset has no current market value if there has been a market for the asset in the past. For example, in the case where polluted land has excessive clean-up costs, it may be worthless, but it will still be regarded as property.

[115] Both aspects of this component of Lord Wilberforce's test are reflected in comments by Lord Bridge for the Privy Council in Attorney-General of Hong Kong v Nai-Keung, a case concerned with a charge of theft of an export quota brought under the theft ordinance of Hong Kong:

It would be strange indeed if something which is freely brought and sold and which may clearly be the subject of dishonest dealing which deprives the owner of the benefit it confers were not capable of being stolen. Their Lordships have no hesitation in concluding that export quotas in Hong Kong, although not 'things in action' are a form of 'other intangible property.

[116] I am satisfied here that cryptocurrencies meet both aspects of the assumption by third parties criterion outlined by Lord Wilberforce. There can be no doubt that cryptocurrencies can be, and many are, the subject of active trading markets.

(d) Some degree of permanence or stability

[117] The last of Lord Wilberforce's criteria for determining whether something is capable of attracting proprietary status, in my view is also met here. This criterion requires that the thing needs to have some degree of permanence or stability, but as I see the position, it does not add much to the other three criteria noted above. It is true too that some assets will have little permanence yet undoubtedly be property, such as the example of the ticket to a football match which can have a very short life yet unquestionably it is regarded as property. Also unproblematic, as I see it, will be situations where the short life of an asset is the result of the deliberate process of transferring the value inherent in the asset so that one asset becomes replaced by another. As I have noted above, cryptocurrencies work in this manner but it is also true that bank payments use a similar process which is simply native to the type of property in question. This is not inimical to the asset's status as property.

[118] The blockchain methodology which cryptocurrency systems deploy also greatly assist in giving stability to cryptocoins. The entire life history of a cryptocoin is available in the public recordkeeping of the blockchain. A particular cryptocoin stays fully recognised, in existence and stable unless and until it is 'spent' through the use of the private key, which may never happen. Standard cryptocurrency systems do not provide for the arbitrary cancellation of coins.

[119] While it is possible for cryptocurrencies to be wrongfully interfered with, by someone gaining unauthorised access to the private key or by hacking the address to which an owner intends to send a coin, these risks are not markedly greater than those borne by an owner of tangible property or a person relying on the integrity of a bank account record with or without the use of a PIN.

Conclusion on the four criteria

[120] I am satisfied that cryptocurrencies meet the standard criteria outlined by Lord Wilberforce to be considered a species of 'property'. They are a type of intangible property as a result of the combination of three interdependent features. They obtain their definition as a result of the public key recording the unit of currency. The control and stability necessary to ownership and for creating a market in the coins are provided by the other two features - the private key attached to the corresponding public key and the generation of a fresh private key upon a transfer of the relevant coin.

[121] This identical point is made in the Legal Statement on Cryptoassets and Smart Contracts which says that a cryptoasset is 'a conglomeration of public data, private key and system rules.'

Possible arguments against cryptocurrency being property

[122] Two arguments that are most commonly raised to suggest that cryptocurrencies do not have the status of 'property' are:

(a) The common law recognises only two classes of personal property: tangibles and choses in action. Cryptocurrencies are said to be neither.

(b) Information is not generally recognised as a form of 'property' and cryptocurrencies might be said to be a form of information.

[123] Although before me counsel for the creditors did not rely particularly on the first objection noted above, nevertheless I address it briefly. On this, I am satisfied the argument here is in fact a red-herring. This is because cases which might be perceived to be problematic in this area are not about the limits of what can be recognised as 'property' but simply about the number of categories of 'property' one needs. This accords with the well-known dictum of Fry LJ sitting in the English Court of Appeal in Colonial Bank v Whinney that all personal property must either be a chose in possession or a chose in action. The argument follows that cryptocurrencies are neither a chose in possession nor a chose in action.

...

[126] I turn now to the second argument suggesting that cryptocurrency does not have the status of property as noted at [122](b) above. This is to the effect that cryptocoins are just a type of information and that information is not property. The argument is based on the view that neither the common law nor equity recognises property in 'information' and cryptocurrencies are said to be merely digitally recorded information. This argument, it is said, is supported by the 2014 decision of the English Court of Appeal in Your Response Ltd v Datateam Business Media Ltd. In Your Response, the Court held that there could be no property in a database in the situation prevailing there, which involved a party contracted by a client to maintain and update a database of the client's customers. It was held that this party had no common law lien over the database for the fees owed to it. As I see it, however, the decision in Your Response does not go much further than to make a determination upon the particular facts of that case. I am satisfied it is an inconclusive precedent in a case such as the present.

[127] And, in my view, it is wrong in any event to regard cryptocurrencies as mere information because:

(a) The whole purpose behind cryptocurrencies is to create an item of tradeable value not simply to record or to impart in confidence knowledge or information. Although cryptocoins are not backed by the promise of a bank, the combination of data that records their existence and affords them exclusivity is otherwise comparable to the electronic records of a bank. The use of the private key also provides a method of transferring that value. This might be seen as similar in operation to, for example, a PIN on an electronic bank account.

(b) And, generally, as I see it, cryptocoins are no more mere information than the words of a contract are. What allows a contract to be capable of being an item of property is not the words nor even the binding promise which is only a personal obligation, but the fact that equity recognises there is a unique relationship between the parties created by the words and then supplies a system for transferring the contractual rights. Similarly, a unique relationship and system of transfer exists with respect to the relevant data on the blockchain that makes up a cryptocoin.

(c) In Boardman v Phipps Lord Upjohn stated: 'In general, information is not property at all. It is normally open to all who have eyes to read and ears to hear.' This statement appears to confirm as a principle for not regarding information as property the fact that it can be infinitely duplicated. Again, this is not true of cryptocoins where every public key recording the data constituting the coin is unique on the system where it is recorded. It is also protected by the associated private key from being transferred without consent.

(d) Cryptocurrency systems provide a more secure method of transfer than a mere assignment of a chose in action. It is possible in equity for the holder of a chose in action to assign it multiple times. Only one assignment will be effective to bind the debtor but the winner may not be the first assignee in time but rather the first assignee to notify the debtor. By way of contrast, a cryptocoin can not only be assigned in that way but it can also be sold only once.

[128] I am satisfied that cryptocurrencies are far more than merely digitally recorded information. The argument that cryptocurrency is mere information and therefore it is not property is a simplistic one and, in my view, it is wrong in the present context. I dismiss it.

Public policy arguments

[129] Lastly, I turn to certain public policy arguments here. It is widely known that at least some types of cryptocurrency are used by criminals for the transmission of funds across borders in order to pursue criminal activity and as a means of laundering the proceeds of past criminal activity. This is not exclusive, however. Cryptocurrencies have also become popular with honest people as a method of effecting payments and of investing. The traditional banking sector is itself widely reported to be already using block chain technology and to be planning to create trading platforms for cryptocurrencies. Any failure by the general law to recognise cryptocurrencies as property, as I see it, would have little effect in reducing potential criminal activity. The banking system is subject to exploitation by the criminal fraternity just as other traditional assets are.

[130] In my view, honest commercial developments may very well be hindered by a failure of the general law to recognise cryptoassets as property. This is notwithstanding any possible need for more formal regulation of cryptocurrencies.

[131] The Legal Statement on Cryptoassets and Smart Contracts has also advocated dealing with the status of cryptocurrencies unencumbered by other legal issues including the need for regulation. Similarly, in those cases where the status of cryptocurrencies as property has been assumed or conceded, including those I have noted above, no court has felt obliged to take a public policy objection. Further, before me Ms Cooper for the creditors raised no particular public policy arguments.

[132] Overall, I am of the view that public policy questions here do nothing to harm the accountholders' contention that cryptocurrencies do have the status of property.[92]

376 In Tulip Trading, also relied upon by the plaintiffs, Birss LJ (Popplewell and Lewison LJJ agreeing) of the Court of Appeal of England and Wales (Civil Division) said:

1. The signing of the hashed transaction record with users' private keys in the first place, and the incorporation of these records into a hashed chain of blocks produced by the proof of work, solves the double spending problem. This characteristic of bitcoin does not emerge as a matter of law or convention, it is a characteristic which arises as a matter of fact from the way the software works. As a result it is meaningful to describe bitcoin not merely as something which is transferable but as "rivalrous" (see the Law Commission's recent Digital Assets: Consultation Paper [Law Com No 256]). For a transferable thing to be rivalrous, the holding of it by one person necessarily prevents another from holding that very thing at the same time. Because the holder cannot double spend their bitcoin, such that it is rivalrous, the cryptoasset can be said to be capable of assumption by a third party (see the definition of property in National Provincial Bank v Ainsworth [1965] 1 AC 65 ). Thus, as Bryan J held in AA v Persons Unknown [2019] EWCH (Comm) 3556 (paragraphs 55-61) citing Ainsworth , a cryptoasset such as bitcoin is property.
2. In a sense the token which is the bitcoin analogue of a real coin is the chain of cryptographically signed and validated transactions relating to the relevant entry in the ledger. Since every transaction relating to that token adds to its chain, some would say a fresh piece of property is created every time bitcoin is transferred, but there is no need on this appeal to get into that debate.
3. There are four bitcoin networks in issue in this case: BSV, BTC, BCH and BCH ABC. Dr Wright contends that these networks arose in chronological order, starting with BSV. Each later network started life as a copy of the blockchain of a preexisting network (which is after all public) but by then applying different software thereafter. BTC was created by copying the BSV blockchain as it was in 2017, and subsequently BCH and BCH ABC were formed in a similar way. As the judge explained (paragraph 20):

The effect of copying is that all historic transactions up to the point of creation of an additional Network are the same as for the Network from which the blockchain was copied. This is the reason that all four Networks are involved here: [ Tulip's ] case is that the relevant assets were held on the BSV Network and have been replicated in the others through the process just referred to, including (in the case of the BCH ABC Network) after the hack occurred.[93]

377 Recently, in Australian Securities and Investments Commission v NGS Crypto Pty Ltd (No 3),[94] Collier J said:

1. ... I am satisfied that, at an interlocutory level, the definitions of financial service, financial product, financial investment and property in the Corporations Act are sufficiently broad to encompass cryptocurrency assets in appropriate circumstances, and the orders made by her Honour (as subsequently varied). I am fortified in respect of this conclusion, and the correctness of her Honour's findings consistent with that conclusion, by the recent paper by Jackman J entitled 'Is cryptocurrency property' delivered on 21 June 2024 to the Commercial Law Association (https://www.fedcourt.gov.au/digital-law-library/judges-speeches/justice-jackman/jackman-j-20240621), where his Honour noted inter alia:

• cryptocurrency was in effect assumed to be property in the two cases which might have analysed the issue (Commissioner of the Australian Federal Police v Bigatton [2020] NSWSC 245 (Cavanagh J); Chen v Blockchain Global Limited (2022) 66 VR 30 (Attiwill J)) and
• the analysis of Gendall J in the High Court of New Zealand in Ruscoe v Cryptopia Limited (in liq) [2020] NZHC 728; [2020] 2 NZLR 809, where the Court held that the cryptocurrencies in question were a species of intangible personal property which were without question capable of being the subject matter of a trust, and not simply a form of information.[95]

378 In Chen v Blockchain Global,[96] I made urgent interim orders preserving Bitcoin.

379 Recently, Farnhill J (sitting as a judge of the Chancery Division of the High Court of Justice, in the Business List of the Business and Property Courts of England and Wales) in D'Aloia v Persons Unknown (D'Aloia),[97] considered whether a form of cryptocurrency named Tether (referred to in the judgment as 'USDT') was property. Farnhill J said in conclusion:[98]

1. ... I have concluded that: as a matter of existing English case law an expectation can suffice for the foundation of property rights even in the absence of a legal relationship; that English law recognises that assets that are substantially identical to USDT are rivalrous; and that in respect of USDT the Ainsworth test is satisfied. If I were to conclude that, even so, USDT should not be considered to be property because there are public policy concerns that I am not well placed to consider, I would not be maintaining the status quo until Parliament acts. I would be making a positive finding that, for the purposes of Mr D'Aloia's claim, he had no property that I was prepared to recognise. And I would be doing so on the basis that there may be concerns of a type that, if they existed, Professor Grower argues I would lack the institutional competence to consider. That, it seems to me, would not be right.

380 The parties in D'Aloia accepted that USDT is something to which property rights can attach.[99] Farnhill J nonetheless referred to the decision of the Court of Appeal of England and Wales in Tulip Trading and then said:

1. A number of points flow from Birss LJ's judgment. First, there is broad recognition that it is at least arguable that cryptoassets attract property rights. I frame it in that way because the decisions have been in the context of interim applications, where no final determination needed to be made, but in fact the judgments have been more definitive than that and have found that such assets do attract property rights. Secondly, a key aspect of cryptoassets is that they are rivalrous, that is to say ownership by one person prevents ownership by another. That can be contrasted with information, which is not rivalrous even if it has value - the fact that I know the post code for the Rolls Building does not give me any means to stop you also obtaining that information, nor does your obtaining it in any way dilute my own knowledge. Thirdly, cryptoassets exist as something outside the minds of their users.

113. The Final Report at 3.48 endorsed the approach taken by the courts:

In England and Wales, across the common law world, and in other jurisdictions, there is now a persuasive, clear, and well-reasoned body of case law that concludes that certain digital assets are capable of being objects of personal property rights. Much of the reasoning in that case law relies on analysis that supports or is consistent with our approach that recognises there is a third category of thing to which personal property rights can relate. As such, our conclusion and recommendation that the law of England and Wales either does recognise, or should explicitly recognise, such a category is intended to be confirmatory only. We conclude that the common law has already moved on from the question as to the proprietary status of certain digital assets, and how best to categorise them.

114. It added further to the analysis of Birss LJ by noting at 3.68 that:

Those things [crypto-tokens] do not exist as rights or claims in themselves (they instead exist independently). They also can be used and enjoyed independently of whether any rights or claims in relation to them are enforceable by action.

1. This, it seems to me, is both right and significant in the analysis: cryptoassets have a conceptual existence that is independent of the legal system and of their individual users.[100]

1. It was accepted in AA at [59] and Tulip Trading at [24] that the Ainsworth criteria are satisfied in the case of bitcoin. As the Tether White Paper makes clear, USDT operates in much the same way but with the added feature of proof of reserves. It therefore also satisfies the Ainsworth criteria, and the starting point is that it is property.
2. USDT does not confer Hohfeldian claim-rights, powers, privileges or immunities. In not conferring claim-rights USDT cannot be choses in action, but as Nai-Keung and Gwinnutt both make clear that is not necessary provided there is an expectation with a sufficient basis. Here, plainly, there is. The foundation of USDT is the cryptographic security of the blockchain. There is more than a mere hope that transactions will be honoured; as the Bitcoin and Tether White Papers make clear, there is an expectation that this will happen based on cryptographic security that is designed to make it happen.
3. What would the nature of such an asset be? The Final Report devoted some time to that question, particularly noting Professor Fox's article "Digital Assets as Transactional Power" (2022) 1 JIBFL 3 (see in particular paragraphs 4.14 and 4.19-4.20 of the Final Report). Professor Fox noted (my emphasis):

But to see the asset as mere data would ignore its larger functionality, just as we would fail to appreciate the full economic or legal significance of a coin by treating it as a mere metal disc. If the law is to recognise digital assets as property for private law purposes, then it would benefit from analysing them as composite things. The asset is more than mere data. It is a set of transactional functionalities. The most important of these is the capacity of the person who holds the private key to effect new transactions which will be recognised as valid by the rules of the system. Analysed in this way, the asset can be viewed as a specific transactional power over unique data entries on the ledger.

1. The same conclusion was reached by the UKJT Legal Statement at paragraph 60.

2. I agree. The combination of both data and transactional functionalities in my view satisfies what is required by cases such as Huggins, Nai-Keung and Gwinnutt to give the "expectation", to use the term from Nai-Keung, that the transaction will be honoured sufficient form to attract property rights. The Court of Appeal in Tulip Trading at [24] considered that the fact the data entries are unique means that the asset is rivalrous - possession by one party excludes possession by another.

3. The final limb of Professor Stevens' argument is that cryptoassets are simply information, and there is no property in information as such. That seems to me to be addressed by Professor Fox's definition that I have accepted above: the property is not merely the data but the combination of the data and the transactional functionalities related to it.

4. The second argument against the Law Commission's proposed approach that was recognised in the Final Report is that cryptoassets should be considered property but that there is no need for a third class of property to accommodate them. The Final Report made particular reference to a piece by Professor Peter Watts KC and Professor Kelvin FK Low ('The Case for Cryptoassets as Property' now updated in light of the Final Report and published in Agnew and Smith (Eds) 'Law at the Cutting Edge: Essays in Honour of Sarah Worthington' (Hart 2024)).

5. Professor Watts and Professor Low criticise the idea in the Final Report that cryptoassets are themselves rivalrous, but that their rivalrousness is fragile in that it depends on cryptography that can never be absolutely secure (page 287):

Rivalrousness is by definition an absolute concept, and in property law terms relates not to an object per se, but to control of the said object. Possession is rivalrous because A's possession of an object ipso facto means B is not in possession and vice versa. That it is the form of control that is protected rather than the object per se can be seen from the absence of any conception of trespass by merely viewing something. All forms of control are imperfect - A may be dispossessed by B - but their imperfection has no impact on the rivalrousness of possession as a form of control. When dispossessed, B is in possession of the object and by definition A is not. The Law Commission appears to have fallen into the mistake of concluding that just because possession is an imperfect and rivalrous form of control that other imperfect forms of control (such as via a private key in a decentralised system) can also be regarded as rivalrous.

1. They argue that one option would be to treat the private key as confidential information that can be bequeathed. They conclude at page 290 that there is a better route:

However immune to suit the creators and operators of the data system may be to legal suit, it seems fairly obvious that a legal system with jurisdiction should conclude of a functioning cryptoasset system that each holder of the cryptoasset defined by a public key has the legal right as against all parties outside the system to use the corresponding private key in order to cause the data system to recognise a new transaction involving the cryptoasset. That right is a species of intangible property.

This is so whether or not the private key remains secret; it is the right to cause the system to operate, not the key, that is the property.

1. It seemed to me that, on closing, Mr Bergin was advocating for such an approach. As I have noted, his focus was on the rights and remedies that adhere to USDT, more than the nature of the asset itself.
2. As the Final Report notes at 4.38, an approach focussed on rivalrousness and an approach focussed on control are similar and in practice may lead to functionally equivalent results. However, I find an approach focussed on control less straightforward to reconcile with the caselaw. Most obviously, the Court of Appeal considered that bitcoin are rivalrous in Tulip Trading at [24]. The operation of USDT, which as I have noted is the only type of cryptoasset in issue before me, is designed to be almost identical, such that they, too, are rivalrous.
3. Moreover, I agree with what is said at 4.39 of the Final Report that it is helpful to focus on the characteristics of the thing itself. Paragraph 3.68 of the Final Report notes that crypto-tokens exist independently of the rights and claims associated with them and are used and enjoyed independently of whether they give rise to rights enforceable by action. That seems to me to be consistent with Birss LJ's observation in Tulip Trading at [72] that bitcoin have an existence outside the minds of individuals. I take those observations to be more consistent with recognising property in the crypto-token itself, rather than the rights that surround it.[101]

382 A number of judges in the Republic of Singapore have also found that a person's interest in cryptocurrency is property.[102]

383 For the following reasons, I find that a person's interest in Bitcoin is property.

384 First, it is necessary to identify 'the thing'. The thing is Bitcoin. It is an electronic coin. It is data in the form of a unique digital address on a network of computers (also referred to as a shared public ledger). A public cryptographic key is generated that identifies the unique digital address on the shared public ledger. As observed by Gendell J in Ruscoe: 'the data allocated to one public key will not be confused with another'.[103] The identity of the holder of the public key is not public. Lord Justice Birss said in Tulip: '[t]he blockchain does not reveal the relationship between the digital addresses and any person'.[104] As a result, an interest in Bitcoin is identifiable but not the identity of the person who has the interest. A person must use a 'wallet', in the case of Bitcoin, a Bitcoin wallet, to obtain and access a public cryptographic key on the network.

385 Second, an interest in Bitcoin is also identifiable by third parties. I have already said that the public key identifies an address of Bitcoin at that address on the shared public ledger. A person has the power to control and deal with the Bitcoin and to exclude third parties from accessing or dealing with it. This is because a private cryptographic key is also generated. Both the public and private keys are required to deal with the Bitcoin. As observed by Gendall J in Ruscoe:

[112] ...A varied public key and a new private key for the cryptocurrency are generated after each transfer of cryptocurrency. The private key, in effect, is like a PIN. Anyone who learns of the private key attached to a public key can transfer the public key but the private key, having been used once in respect of the public key, cannot be used again.

[113] These features of cryptocurrencies inhibit two potential practices. First, the existence of the private key inhibits the possibility of involuntary transfers - it gives the power to exclude third parties from access. And secondly, the creation of a new private key after each transfer or disposition inhibits a holder from purporting to transfer the cryptocurrency data twice. [105]

386 Third, a person's interest in Bitcoin has a degree of permanence or stability. Bitcoin are recorded on the shared public ledger. As observed by Gendall J in Ruscoe, this contains the 'entire life history of a cryptocoin'.[106] Bitcoin are held at a certain digital address. Bitcoin remain stable at the address until there is a transaction concerning those Bitcoin. A transaction must involve the use of the public key and the private key. Upon a transaction concerning Bitcoin, the number of Bitcoin at the owner's address is reduced and the number of Bitcoin at the next owner's address is increased. This process involves the owner of the Bitcoin (the transferor) using their private key to digitally sign a hash which records the details of the transaction. This hash comprises a digital message which records the previous transactions by which the transferor initially received the Bitcoin as well as the public key of the new owner to whom the Bitcoin are to be allocated (the transferee). Upon verification by the Bitcoin network, this transaction record is added to the blockchain. The parties in this case referred to such a transaction as a 'transfer'. For convenience, I will refer to such a transaction as a 'Bitcoin transfer transaction' and I will refer to the Bitcoin transfer transaction taking place as a Bitcoin being 'transferred'. This does not involve the actual transfer of the person's interest in Bitcoin, but it is a convenient reference. Gendall J describes this process as involving one asset being replaced with another asset.[107] I agree.

387 Fourth, although a Bitcoin transfer transaction does not involve the 'transfer' of a person's interest in the Bitcoin, this does not mean that an interest in Bitcoin is not property. This is because alienability is not an indispensable attribute of property. Bitcoin are also the subject of very active trading markets, including cryptocurrency exchanges, throughout the world, including in Australia.[108]

388 Fifth, a person's interest in Bitcoin may be readily distinguished from a mere interest in information, including electronic data. This is because an interest in Bitcoin includes the power:

(a) to undertake transactions on a network by the use of a public key and a private key; and

(b) to exclude third parties from accessing or dealing with the Bitcoin.

389 As a result, I find that a person's interest in Bitcoin is property. It is not a chose in possession as it is intangible. It cannot be possessed. It is a chose in action. As I have already said, it is well established in Australia that a chose in action comprises a heterogeneous group of rights which have only one common characteristic in that they do not confer the present possession of a tangible object. That is the case with Bitcoin.

390 I find that on or around 22 May 2019, Ms Zhao told Mr Chen that her superannuation fund was the subject of an 'audit', and she needed to borrow Bitcoin to verify that she had assets in her superannuation fund. Mr Chen gave evidence that this is what they discussed. I accept his evidence.

1. On about 22 May 2019, Jin agreed to return my 36 bitcoins. He transferred to me after I use the words that make him feel if not return it could cause aduit [sic].

392 Ms Zhao did not give evidence. Blockchain Tech transferred 36 Bitcoin to Ms Zhao by a Bitcoin transfer transaction.

393 Nonetheless, no bailment arose between Blockchain Tech (as bailor) and Ms Zhao (as bailee) in relation to the 36 Bitcoin. This is because the Bitcoin were intangible and were not 'possessed' by Blockchain Tech or Ms Zhao.

Did Ms Zhao breach the alleged Bailment by not returning the 36 Bitcoin and or transferring them? Is Blockchain Tech entitled to relief against Ms Zhao for breach of the Bailment?

394 I have already found that no bailment arose between Blockchain Tech (as bailor) and Ms Zhao (as bailee) in relation to the 36 Bitcoin. As a result, it is not necessary for me to consider whether there has been a breach of the alleged bailment or whether Blockchain Tech is entitled to relief for breach of the alleged bailment.

Is Mr Zhang liable to Blockchain Tech in respect of some or all of the 36 Bitcoin?

395 The plaintiffs allege that Ms Zhao, in breach of, inter alia, her obligations in respect of the alleged bailment, caused 3 of the 36 Bitcoin to be transferred to a deposit address maintained by her husband, Mr Zhang. No cause of action is pleaded against Mr Zhang. Blockchain Tech does seek relief against Mr Zhang concerning the 36 Bitcoin as follows:

1. Insofar as Ms Zhao and/or Mr Zhang retains possession, custody or control over any of the 25 Bitcoins and/or the 36 Bitcoins:

1. a declaration that those coins are held on trust for Blockchain Tech; and

b. an order that those coins be delivered up to Blockchain Tech.

1. Insofar as Ms Zhao and/or Mr Zhang had but no longer retains possession, custody or control over any of the 25 Bitcoins and/or the 36 Bitcoins, Ms Zhao and/or Mr Zhang (as the case may be) make equitable compensation to Blockchain Tech for the loss of those bitcoin.

1. Alternatively to paragraph P, insofar as Ms Zhao and/or Mr Zhang no retains possession, custody or control over any of the 25 Bitcoins and/or the 36 but retain possession, custody or control over proceeds from the realisation of any of the Bitcoins and/or the 36 Bitcoins:
   1. a declaration that those coins are held on trust for Blockchain Tech; and

b. an order that those coins be delivered up to Blockchain Tech.

1. Alternatively to paragraphs O to Q, insofar as Ms Zhao and/or Mr Zhang had but no longer retains possession, custody or control over any of the 25 Bitcoins and/or the 36 Bitcoins, Ms Zhao and/or Mr Zhang (as the case may be) pay damages to Blockchain Tech for the loss of those bitcoin, assessed at the date of trial.

396 The Zhao parties admit that Ms Zhao caused this transaction but otherwise denied the plaintiffs' allegations.

1. On 18 September 2019, Ms Zhao transferred 3 of the 36 Bitcoin to a wallet associated with Mr Zhang's BTC Markets account. Ms Zhao had access to that account at least in April and May 2019, because she used it to realise some of the 25 Bitcoin.
2. Mr Zhang, Ms Zhao's husband, is also liable in respect of the 3 bitcoin as the transfer did not pass title to him in those bitcoin. The Zhao Parties and Mr Zhang have advanced no evidence to the effect that Mr Zhang took possession of those bitcoin without notice of Blockchain Tech's title or that he took those bitcoin in any capacity other than as a volunteer. Just like with an obligation in a foreign currency, he is liable to account to Blockchain Tech by reference to the bitcoin's value at judgment (see Relief Submissions).
3. Mr Zhang has failed to file a notice of appearance (or any defence) to the allegations made against him in the plaintiffs' points of claim. Mr Zhang is taken to have admitted those allegations.
4. Mr Zhang has therefore admitted that he received 3 bitcoin from Ms Zhao in circumstances where Ms Zhao had no title to those bitcoin.

398 In Black v S Freedman & Co,[109] the High Court considered whether a wife was a volunteer in circumstances in which she received monies that had been stolen by her husband. Griffith CJ (with whom Barton and O'Connor JJ agreed) said:

Of course it is not sufficient if the money is taken by the other party bona fide for valuable consideration. There the money cannot be recovered back. But it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not. In the present case, did the wife take the money as a volunteer? In my opinion the proper inference to be drawn from the evidence is that the husband - supposing there was no question of stealing - presented the money to his wife. He intended her, no doubt, to keep it, in one sense, and that it should go to her account at the Savings Bank, where it became under the local law her money for her separate use, but that is quite irrelevant to the question whether she took it as a volunteer or not. I think that where a man pays a large sum of money to his wife, and no more appears, the inference is that it is a present. Therefore the doctrine of equity is applicable. The money is identified; it came into her hands as a volunteer, and she is liable to repay it. It was pointed out by Sir George Jessel, in a well known case, that a man may at a certain stage be innocent, but that, if he knows that he has got the advantage of a fraud to which he was no party and says he will keep it, then he becomes himself a party to the fraud and is liable to the jurisdiction of the Court of Equity. [110]

399 With respect to the equitable obligation of a volunteer and any associated remedy arising, in Heperu Pty Ltd v Belle,[111] Allsop P said:

1. ... Black v S Freedman & Company is clear authority for the equitable obligation upon the innocent volunteer to restore to the plaintiff the fund identified and remaining (whether in original form or traceable product) in his or her hands. The equitable obligation arises from the later discovered position, not from wrongful conduct. Therefore, the extent of the personal equity involved, created by the circumstance in question, is the touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner, now discovered. The expression of view of O'Connor J as to constructive trust (as to which see the views of Spigelman CJ in Robb Evans that the characterisation is better expressed as resulting trust) should be seen in this light. To call the volunteer recipient a constructive trustee and to call upon him or her to account as a constructive trustee (because he or she upon discovery of the fund or asset belonging to another has become one) does not mean the volunteer comes under personal liabilities, independently of, or beyond, the obligation to restore the fund or asset and any attendant obligation. He or she does not, for instance, become liable to pay damages for the moneys received that led to the fund or asset being created, as if he or she were a knowing participant in the fraud.

...

1. The remedy, both at law and in equity should focus upon the value properly attributable to the earlier receipts derived from misappropriations and still retained by the volunteer at the relevant time. The proper approach to the assessment of this and its relationship to the funds received would be a matter for assessment. For instance, at law, it might be that the plaintiff would not be entitled to any increase in value of the asset into which funds were traced, though the position in equity may be that the plaintiff is so entitled.

...

1. The primary judge concluded (at [135]) that the appellants had not shown that Ms Belle at the date of the hearing and judgment had property in her hands which she at that time knew to be the proceeds of Mr Cincotta's fraud. He gave no reasons for that conclusion. The above discussion reveals that the question of tracing is one of some detail and complexity which was not addressed by his Honour and which has not been adequately addressed by the parties in the submissions on appeal. Prima facie the primary judge has erred by failing to address the issue and give reasons. His Honour also addressed the incorrect time. It is not the date of the hearing that is relevant, but the date Ms Belle received notice of the claim or when she otherwise became aware that she had property paid for with the misappropriated funds. At least those errors are implicit in par [135] of the primary judge's reasons. Nevertheless, proper attendance to the question of tracing and the correct time may reveal that his Honour's substantive conclusion was correct.[112]

400 I find that Mr Zhang is not liable to Blockchain Tech in respect of the 3 Bitcoin as a volunteer.

401 First, Blockchain Tech is not entitled to make this claim against Mr Zhang. He has not had notice of it. Blockchain Tech makes no allegation that Mr Zhang is a volunteer in respect of the 3 Bitcoin in the amended points of claim (served upon Mr Zhang) or the further amended points of claim. This is because:

(a) no cause of action based upon the 3 Bitcoin is alleged against him in these pleadings;

(b) the allegation of the transfer of the 3 Bitcoin to Mr Zhang's account is made as a part of a claim against Ms Zhao and not Mr Zhang. I refer to paragraph 74B of the further amended points of claim. There is no plea that as a result of these matters Mr Zhang is liable as volunteer or upon any other basis;

(c) the allegation that persons are volunteers in relation to the 36 Bitcoin is not made against Mr Zhang with respect to the 3 Bitcoin. I refer to paragraphs 74C and 74D. The allegations are made against unknown persons;

(d) an essential element of a claim against a volunteer is when they became aware of the claim made by the person asserting the claim. This is essential in establishing when the 'touching of the conscience of the volunteer recipient to deal with the property of another conformably with the interests of the owner' occurred. This is because it is at this time that a person becomes liable as a volunteer. This is not pleaded;

(e) the amended points of claim and the further amended points of claim do not identify the basis for the relief sought against Mr Zhang in paragraphs O, P, Q or R;

(f) the plaintiffs do, however, make specific allegations against Mr Zhang concerning their other claims concerning 25 Bitcoin, including that Mr Zhang was a volunteer in relation to the 25 Bitcoin. I refer to paragraph 70C of the amended points of claim and the further amended points of claim. This is in contrast to the claims concerning the 36 Bitcoin that are only made against Ms Zhao.

402 Mr Zhang did not appear at the trial. The non-appearance of Mr Zhang at trial does not allow the plaintiffs a free rein to raise issues of which he has not had notice. Blockchain Tech did not seek leave to further amend the pleading and to then serve it upon Mr Zhang. Blockchain Tech could have made this claim against Mr Zhang and served it upon him. It had all of the relevant information to attend to this. It did not do so. It only made claims that Mr Zhang was a volunteer in relation to the 25 Bitcoin.

403 Second, even if I am incorrect and Blockchain Tech is entitled to make the claim against Mr Zhang concerning the 3 Bitcoin, there is no evidence of:

(a) when Mr Zhang first had notice of Blockchain Tech's claim to the 3 Bitcoin or their traceable proceeds; or

(b) whether, at that time, Mr Zhang had in his possession the 3 Bitcoin or their traceable proceeds.

404 This is of critical importance in the context of the 36 Bitcoin as Mr Zhang obtained 3 Bitcoin as a result of a Bitcoin transfer transaction involving Ms Zhao and not Blockchain Tech.

405 The gist of the cause of action against a volunteer is that upon notice being given of the plaintiff's interest in, for example, property, the person keeps the property. It is at that time that the person becomes liable as a volunteer and not before. The plaintiffs do not address this in their closing submissions. The plaintiffs only seek to rely upon the receipt of the 3 Bitcoin by Mr Zhang, Blockchain Tech's title to the 3 Bitcoin and that Mr Zhang had no title to them. They have not established that Mr Zhang is a volunteer.

Is any other person liable to Blockchain Tech in respect of some or all of the 36 Bitcoin?

406 The plaintiffs allege that Ms Zhao, in breach of her obligations in respect of the alleged bailment, caused 32.99986410 Bitcoin to be transferred to a particular deposit address, which were then transferred to other deposit addresses, though the person(s) who maintained those deposit addresses were unknown to the plaintiffs. Insofar as those persons were related to or associated with Ms Zhao, Blockchain Tech alleges that those persons took their interest in the relevant Bitcoin with notice of Blockchain Tech's interest and/ or for no or no proper consideration and, therefore, hold that interest on constructive trust for the benefit of Blockchain Tech, or alternatively are liable to account to Blockchain Tech for that interest.

407 The Zhao parties admit that Ms Zhao caused 32.99986410 Bitcoin to be transferred to the particular deposit address pleaded by the plaintiffs but denied that this was in breach of a bailment. The Zhao parties do not admit to the allegations that these Bitcoin were then transferred to other deposit addresses as they were unaware if those transactions took place as described.

408 The supplementary affidavit of documents affirmed by Ms Zhao on 5 February 2024 stated that, to the best of her knowledge, information and belief, she did not have or ever have in her possession, custody or power, any document required to be discovered, other than the documents enumerated in Schedule 1 of that affidavit.

409 The supplementary affidavit of documents affirmed by Mr Hu on 10 February 2024 stated that he did not have in his possession or control any document referred to in the letter of KCL Law to Christopher James Lawyers dated 25 August 2023.

410 In response to a subpoena to produce addressed to BTC Markets Pty Ltd filed on 12 February 2024, the plaintiffs received a number of documents which can be found at pages 95 to 172 of the fourth supplementary court book, which included, inter alia, what appears to be the transaction history of the Hu and Zhang Superannuation Fund, the trust deed establishing the Hu and Zhang Superannuation Fund, the transaction history of Mr Zhang, and the transaction history of Mr Hu.

411 Between 8 November 2020 and 4 January 2021, 7 Bitcoin were transferred into the wallet address 3JaFZJ3i5nqM8v8MJwjm4BnwyoPiX2cXbA, and between 25 September 2019 and 9 November 2023, a total of 22.99 Bitcoin were transferred into the wallet address 34RcwVAFitgRL7gQuyVmBR8NeqvKEYTp1V and the wallet address 3LewWCnKz3o5Z2Avq3FDiqXM9j2AtxEEtb.

412 The plaintiffs submitted that Mr Hu actively sought to conceal from the Court the fact of the transfers from the 36 Bitcoin by the affirmation of false discovery affidavits, and that he must have known about the circumstances of the transfers. They submitted that in any event, Mr Hu and the trustee of Mr Hu's superannuation fund (Hu & Zhang Investment Pty Ltd) received 22.49 Bitcoin and 7 Bitcoin respectively with prior notice of Blockchain Tech's interest in them and/or as a volunteer, and is liable to account to Blockchain for today's value of those Bitcoin.

413 Blockchain Tech is not entitled to any relief against Mr Hu or Hu & Zhang Investment Pty Ltd.

414 First, Blockchain Tech did not seek any relief against Mr Hu or Hu & Zhang Investment Pty Ltd in their proposed form of final order. Mr Hu and Hu & Zhang Investment Pty Ltd are mentioned in the proposed form of final order but only in the context of a proposed order against Ms Zhao based upon the price received by Mr Hu and Hu & Zhang Investment Pty Ltd for some of the Bitcoin. In those circumstances, the plaintiffs' submissions do not support the relief that is sought by them.

415 Second, Blockchain Tech is not entitled to make claims against Mr Hu and Hu & Zhang Investment Pty Ltd. They have not been given notice of these claims. This is because:

(a) the plaintiffs announced during the trial that they settled with Mr Hu and their claim against him was dismissed;

(b) the plaintiffs have not sought leave to amend the pleadings to join Mr Hu and Hu & Zhang Investment Pty Ltd to the proceeding and to make claims against them.

Did Blockchain Tech own the 25 Bitcoin provided to Ms Zhao in March and April 2019?

416 The plaintiffs allege that but for the withdrawal of the 25 Bitcoin by Ms Zhao, Blockchain Tech would have continued to hold and retain the 25 Bitcoin, except to the extent they were otherwise required to be realised to fund the working capital expenses of the Blockchain Business. The plaintiffs allege that Ms Zhao held any interest in and dealt with the 25 Bitcoin on trust for the benefit of Blockchain Tech.

417 The Zhao parties deny this, and allege that Blockchain Tech never owned or held the 25 Bitcoin prior to Ms Zhao's receipt of the 25 Bitcoin.

418 The 25 Bitcoin were the subject of the 3 transactions as follows:

(a) 5 Bitcoin on 29 March 2019: these were the subject of a transaction concerning the address 3HaxjVMenJqWHbYHk2EWaHjf1ivGML9XdC (3Ha address) (which held 100 Bitcoin) to the 36F address. The 3Ha address was the address the subject of Mr Chen's contribution of the 100 Bitcoin to Blockchain Tech. I refer to pages 1959 and 4166 of the court book. The remaining Bitcoin were then allocated a return address (also referred to as an exchange address) of 3JudU1dDeVSP5cyyKPmNsEhZ5qxwM4zUwN (3Ju address). Again, I refer to page 1959 of the court book;

(b) 10 Bitcoin on 2 April 2019: these were transferred from the 3Ju address to the 36F address. The remaining Bitcoin were then allocated a return address of 3HZRKq9RgFaV7uuaej9cY8pFepGtmv7mJJ (3HZ address). I refer to page 1978 of the court book; and

(c) 10 Bitcoin on 9 April 2019: these were transferred from the 3HZ address to the 36F address. I refer to page 1987 of the court book.

419 The plaintiffs submitted that the 25 Bitcoin formed part of the pool of Bitcoin advanced to Blockchain Tech by Mr Chen and Ms Zhao in accordance with the Blockchain Business Agreement. The plaintiffs submitted that the 25 Bitcoin were transferred from the 100 Bitcoin that were stored on the Trezor wallet and that had been contributed by Mr Chen.[113]

420 Ms Zhao submitted that at the time she sold the 25 Bitcoin, she sincerely believed that the 25 Bitcoin were profits generated from arbitrage.

421 Blockchain Tech transferred 25 Bitcoin to Mr Zhang's BTC Markets account by Bitcoin transfer transactions. I have set out earlier in these reasons at paragraph 386 how such a transaction is undertaken. The 25 Bitcoin were not the product of the alleged Bitcoin Loan Agreement. I have rejected the existence of that agreement. These Bitcoin transfer transactions are set out in Mr Zhang's BTC Market account report upon which the parties relied (a version of which can be seen at pages 4167-4171 of the court book) (Mr Zhang's BTC Markets report).

422 Blockchain Tech had received the 25 Bitcoin as a result of a previous Bitcoin transfer transaction whereby Mr Chen lent Bitcoin to Blockchain Tech. This is because:

(a) I accept the evidence of Mr Chen that the 25 Bitcoin were transferred from the Bitcoin he contributed to Blockchain Tech;

(b) the evidence also establishes that the 25 Bitcoin were transferred from the Bitcoin in the Trezor wallet which contained the 100 Bitcoin contributed by Mr Chen.

Did Blockchain provide the 25 Bitcoin to Ms Zhao for the alleged 25 Bitcoin Conversion Purpose?

423 The plaintiffs allege that between 29 March 2019 and 9 April 2019, Ms Zhao caused the withdrawal of 25 Bitcoin from Blockchain Tech. They allege that Ms Zhao had stated to Mr Chen, and Mr Chen agreed, that she could withdraw the 25 Bitcoin for the sole purpose of allowing them to be sold to the extent that was necessary to meet the working capital expenses of the Blockchain Business (defined in the further amended points of claim as the '25 Bitcoin Conversion Purpose'). They allege the 25 Bitcoin were held on trust by Ms Zhao.

424 The Zhao parties deny this, and allege that Mr Chen had represented to Ms Zhao that he earned Bitcoin as the profits of arbitrage activities he had conducted to generate funds to pay for the business expenses of which they were shareholders and had transferred 25 Bitcoin to Mr Zhang's BTC Markets account. Ms Zhao also alleges in her counterclaim (which is incorporated by the Zhao parties defence at paragraph 70A):

(a) represented that he had generated profit equivalent to approximately $US900,000 (then representing approximately 180 Bitcoins) in the form of 50 Bitcoins (in performance of the arbitrage activities alleged at paragraph 109(b) hereof); and

(b) represented that of the profit: of the 50 Bitcoins he transferred 25 Bitcoins to Ms Zhao and kept 25 Bitcoins for himself,

(i) he would transfer some Bitcoins to his wife to sell;

(ii) he would transfer some of the Bitcoins (being the same amount that he would transfer to his wife) to Ms Zhao's husband's BTC Markets Account to sell;

(iii) these Bitcoins should be sold on an exchange in the name of family members (rather than Mr Chen or Ms Zhao);

(iv) the proceeds should be used to pay the on-going expenses of the various corporate entities,

(c) the amounts contributed by way of sale would be treated as a loan to Blockchain Tech;

(collectively "the Representations").

PARTICULARS

The Representations were oral and by way of conduct and be implied by performance.

In late March 2019, Mr Chen (in front of Ms Zhao) logged on to a cryptocurrency trading account held on the Kracken exchange and showed Ms Zhao a screen containing a number of transactions. This occurred at the offices at 120 Collins Street. Mr Chen said words to the effect that this was the arbitrage account. He said that he had generated around $US900,000 from the Bitcoins we held. Ms Zhao queried how Mr Chen had been able to generate so much profit, and Mr Chen said words to the effect that he had been able to leverage by way of lending of further Bitcoins through another exchange B2C2.

There was then a discussion as to the effect alleged at paragraphs 111(b) and 111(c).

There was a discussion as to how to treat the monies which were to be realised by way of the sale of the Bitcoins, and which were then to be contributed to Blockchain Tech. Mr Chen said words to the effect that the monies should be treated in the same manner as the monies that had previously been advanced by each of Mr Chen and Ms Zhao (other than their capital contributions), namely that they would be recorded as loans in the Xero system of the books and accounts of Blockchain Tech. Ms Zhao believes that the liability to Ms Zhao was recorded in the books and records of Blockchain Tech by way of a loan, but these records have not been discovered.

There was a further conversation in late March 2019 at the 120 Collins Street office. Mr Chen said words to the effect that:

(a) they should use the profits from the arbitrage to pay for business expenses;

(b) if Ms Zhao sold Bitcoins to pay for expenses, he would sell the same amount of Bitcoins to match Ms Zhao; and

(c) those amount would be treated as loans.

Following the conversation Mr Chen transferred 25 Bitcoins to Ms Zhao's husband (at her direction) over three transactions namely:

(a) 5 Bitcoins on 29 March 2019;

(b) 10 Bitcoins on 2 April 2019; and

(c) 10 Bitcoins on 9 April 2019.

The Bitcoins were then sold by Ms Zhao using her husband's account with the proceeds being deposited in Ms Zhao's husband's account. Of those proceeds, $82,838 was transferred to Apex Legendary Consulting by way of multiple deposits, which were in turn on-transferred to Blockchain Tech as set out in Annexure A.

111A. Of the 25 Bitcoins in profit alleged at paragraph 111(a) hereof, Ms Zhao caused to the knowledge of Mr Chen and Blockchain Tech, the proceedings of the same to be sold and transferred to Blockchain Tech to be used for business expenses of Blockchain Tech.

PARTICULARS

They refer to and repeat the particulars sub-joined to paragraph 111 hereof.

Insofar as knowledge is alleged, the knowledge is express and contained in discussions as between Mr Chen and Ms Zhao after the sale of the first 5 Bitcoins referred to in the particulars sub-joined to paragraph 111 by words to the effect alleged. Further, Mr Chen had at all material times visibility in relation to the bank account of Blockchain Tech such that he was aware of monies being deposited in that account.

111B. Further, and in the premise of paragraph 111A, between 1 to 11 April 2019, Ms Zhao caused to be lent to Blockchain Tech the proceeds of the sale of the 25 Bitcoins (in purported profit) alleged at paragraph 111(a) hereof ("the Further Loan").

PARTICULARS

The loan is express and to be implied.

Without limitation, Ms Zhao refer to paragraph 69 of the Points of Claim.

Ms Zhao refers to and repeats the particulars sub-joined to 111 hereof insofar as the alleged Further Loan was oral.

Insofar as it is implied:

(d) it is implied by conduct, Ms Zhao refers to Annexure A which sets out the proceeds of the sale paid by her in performance of the Further Loan; and

(e) implied because it is necessary for the reasonable effective operation of a contract of that nature and in the circumstances of the case, and is otherwise implied by law (see below).

111C. There was a term of the Further Loan that the proceeds of the sale of the 25 Bitcoins that were lent ($82,838) would be repaid upon demand.

PARTICULARS

The term is implied because it is necessary for the reasonable effective operation of a contract of that nature and in the circumstances of the case, and is otherwise implied by law.

111D. Notwithstanding demand, Blockchain Tech has refused to repay the proceeds from the sale of the 25 Bitcoins lent pursuant to the Further Loan and is, as such, indebted to Ms Zhao in the amount of $82,838.

PARTICULARS

The demand was oral and made in a telephone conversation between Ms Zhao and Mr Chen on 5 June 2019. Ms Zhao was in attendance at the office at 120 Collins Street and included in the telephone conversation were Mr Hu, Ashley Wang and Daisy He. Ms Zhao said words to the effect to Mr Chen that she wanted a return of all of her assets and funds which had been loaned by her and Mr Hu to Blockchain Tech and Mr Chen. Mr Chen, in response, said words to the effect that the monies were working capital.

425 Mr Chen gave evidence that Ms Zhao caused the transfer of 25 Bitcoin to her husband Mr Zhang's BTC Markets account. He gave evidence that the transactions comprised the transfer of 25 Bitcoin (comprising transfers of 5 Bitcoin, 10 Bitcoin, and 10 Bitcoin).

426 Mr Chen gave evidence that on about 5 March 2019, a fraud occurred on the Jinance exchange which caused two bank accounts of Crochet to be frozen.

Um, so on - on about 5 March 2019, um, there was a fraud happened on Jinan's exchange, um, after that is all about - oh, the fraud caused two bank accounts of Crochet had been frozen, so large amount of money has been tied up in those accounts. On about 28, um, March 2019, um, Ms Zhao came to me and said, um, 'There is a certain amount of expense. The expense -the business expense is due and I need to prepare the money'. Um, I could not remember exact how much that was. But I was busy, ah, with the technical team to fix up the security issue, um, and also I have - um, I said to, um, Ms Zhao that the money has been frozen in the Crochet's account, um, the customers of the exchange could not withdraw, um, could not withdraw their money. If, um, if the - if Kette withdraw the money for the, um, to meet the - and give to Blockchain business, Blockchain Tech, then there's - the other customers will not be able to withdraw anything. And at the same time, um, the Kette has not had any other account, bitcoin trading account elsewhere that can sell the bitcoin into Australian dollars. In that conversation and, ah, Ms Zhao said to me that she can use her husband's, um, account on BTC Markets to sell the bitcoins. Then I said to Ms Zhao, um, 'You told me that it's not good to use personal accounts for business purpose'. And she said back to me saying, um, her husband is a lawyer and he managed - manages customer client's, um, funds in the trust account so that shouldn't be a problem. I accept that explanation.

428 He gave evidence that on 28 March 2019, Ms Zhao gave him the address of her husband's account with BTC Markets over text message, and asked him to transfer 5 Bitcoin over.

429 Mr Chen gave evidence that on 29 March 2019, he asked Ms Zhao which wallet address he should send the Bitcoin to for her to realise for the benefit of Blockchain Tech. A text message from Ms Zhao to Mr Chen on 29 March 2019 provided the address 36FLV8rPmpdkKmFEfbhg4kVLN95uHXsmg5f (which is the 36F address, with an added 'k' at ...pdkKm...).

430 Transactions with the 36F address were recorded as part of a table titled 'Transaction History', annexed to a document titled 'Account Details' which provided the 'Account Name' as Mr Zhang. Mr Chen gave evidence that the 36F address was Mr Zhang's BTC Markets account.

431 Mr Chen and Ms Zhao then had a short telephone call, and Mr Chen gave evidence that during this call, he asked how many Bitcoin Ms Zhao wanted to be transferred, and she told him that she needed 5 Bitcoin to be transferred.

432 Following the phone call, Mr Chen sent text messages to Ms Zhao, stating 'Jinance wouldn't work. There is a restriction, the first withdrawal requires warmup' and 'We've limited ourselves. I'll find another way to get the coins' (emphasis in original).

433 On 29 March 2019, 5 Bitcoin were transferred from the 3Ha address to the 36F address.

434 On the same day, Ms Zhao sent text messages to Mr Chen stating 'sold 2 for 11254', 'requested transfer already' and 'should arrive by Tuesday to pay part of legal fee'.

435 Mr Chen gave evidence that on or about 2 April 2019, Ms Zhao in a phone call verbally requested that Mr Chen transfer a further 10 Bitcoin to Mr Zhang's BTC Markets account with the 36F address.

436 On 2 April 2019, 10 Bitcoin were transferred from the wallet addresses 3Q4Xf46VzEQvKjTKBongy88xGyZsE3WPEJ, 3JHE1Pc8HzNJJh7k4omHTeoxWZ51wHqgw1, and the 3Ju address to the 36F address. Mr Chen gave evidence that he effected these transfers.

437 Mr Chen gave evidence that on or about 9 April 2019, Ms Zhao verbally requested that Mr Chen transfer a further 10 Bitcoin to Mr Zhang's BTC Markets account with the 36F address.

438 On 9 April 2019, 10 Bitcoin was transferred from the 3HZ address to the 36F address. Mr Chen gave evidence that he effected this transfer.

439 During the trial, Ms Zhao admitted that she sold all of the 25 Bitcoin, and that from 15 March 2019 to 12 April 2019, she sold 26.192 Bitcoin. She submitted to the Court that at the time she sold the Bitcoin, she 'sincerely believe[d] those bitcoins were profit generated from the arbitrage.' Mr Chen rejected Ms Zhao's assertion that the 25 Bitcoin represented profits generated by Kette Investments.

440 The plaintiffs submitted that the 25 Bitcoin formed part of the pool of Bitcoin transferred to Blockchain Tech by Mr Chen and Ms Zhao in accordance with the Blockchain Business Agreement and that Ms Zhao was only authorised to realise those Bitcoin to provide working capital to the Blockchain Business, including to provide liquidity to the Jinance exchange. The plaintiffs submitted that Ms Zhao's case that the 25 Bitcoin formed part of the profit of Mr Chen's arbitrage and were transferred to Ms Zhao to realise, and that those realisations would be treated as a loan to Blockchain Tech, could not be factually possible. They submitted that Ms Zhao is liable for breach of trust.

1. Later in the March 2019, Mr Chen told me that the leveraged trading gained huge profit. It was about 50 bitcoins. Mr Chen and I both wanted to have the profit in cash. Both of Mr Chen and I agreed to transfer some of the sales proceeds to support various business. Mr Chen also said to me that the trading platform his wife use (BTC Markets) limited the withdrew to $20,000 every day. I was happy and asked him to transfer the bitcoins to me to sell them as well. Mr Chen said to me he knew the BTC market platform developers, we should not sell them under our names. Because Jinance and BTC market were cryptocurrency competitors. I listed to him and provided him Mr Guodong Zhang's BTC Markets address to him.
2. From 29 March 2019 to 9 April 2019, Mr Chen made three transfers of the bitcoins, being 5,10,10. From the date I received the first 5 bitcoins to the 12 April 2019, all the 25 bitcoins were sold. Among the proceeds received $127,609 were transferred to the tenth's defendant and further transfers and payments were made from the tenth defendant to Blockchain Tech Pty Ltd, Galaxy Crowdfunding Pty Ltd and made payments for various business expenses to support the business operations. The complete sales records of the 25 bitcoins provided to the plaintiffs and Mr Mark Bailey in year 2020 and again in November 2022 as I affirmed in my affidavit.

442 Ms Zhao also submitted that during the period from the fraud to May 2019, Mr Chen said they had recovered and arbitrage was making a profit, and he was happy to send her 25 Bitcoin. Ms Zhao submitted that there would be telegram screenshots showing that Mr Chen said they made a profit and wanted to sell some to supply to the business, but could only sell about 20,000 a day on the market. Ms Zhao submitted that she offered to sell some, and that Mr Chen transferred Ms Zhao Bitcoin by three lots. Ms Zhao submitted that she believed that the 25 Bitcoin were profits generated from the arbitrage.

443 As I have already said, the plaintiffs allege that Ms Zhao held the 25 Bitcoin on trust. The applicable law concerning the establishment of an express trust has been recently and authoritatively set out by Croft J in LL UP Pty Ltd v Kegland Distribution Pty Ltd:[114]

1. There are two methods of creating a non-testamentary trust: (1) a trust arising from a transfer of property by a person having power to transfer it to another person to hold that property on trust (whether the transferee is an owner, donee of a power or otherwise); or (2) a declaration of trust in which a person declares that he or she holds, or will hold, property on trust and thereby assumes, or proposes to assume, the obligations of a trustee. Such a declaration is as much as a declaration of trust as one made by the beneficial owner of the property to be subjected to the trust. The existence of an express trust depends on three things: (1) certainty as to the subject matter of the trust; (2) certainty as to the beneficiaries, the objects of the trust; and (3) certainty as to intention.
2. Where there is an unambiguous statement of intention to create a trust which leaves no uncertainty as to the terms of the trust, it will not be necessary to look beyond that statement. In the absence of an expressed intention, however, the creation of a trust depends on an intention to create a trust. The test of intention to create a trust is objective. The relevant intention is thus the outward expression of that intention, and not actual intention. For all practical purposes, a person's undisclosed intention is immaterial. Moreover, it is not necessary that the creation of a trust is communicated to the trustee. All that is required is a clear, express declaration that it is intended to be binding.
3. As made clear in Byrnes v Kendle, issues as to whether a trust has been created and on what terms are to be resolved according to the ordinary meaning of the words and actions the subject of the relevant dealings. It is an objective enquiry, and one that requires an examination of the 'circumstances attending the relationship between the parties'.
4. The Plaintiffs appear to be suggesting in their submissions that there is some further constraint or reluctance on the part of the courts to find an express trust which is alleged to have been created orally. In this respect reference is made to the judgment of Gummow and Hayne JJ in Byrnes v Kendle, setting out the following passage:

In Bahr v Nicolay [No 2] [(1988) [1988] HCA 16; 164 CLR 604, 618)] Mason CJ and Dawson J approved of the expression of the "traditional attitude" by du Parcq LJ that "unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention".

Reference to this passage in this judgment, as quoted, does, however, omit the remainder of that paragraph which, in my view, makes it clear that enquiry whether or not an express trust has been created orally is an objective enquiry as the authorities, more generally, indicate and without any previous position or presumption against a finding that such a trust was created. This appears to be supported by the remainder of the paragraph to which reference is made in the judgment of Gummow and Hayne JJ, as follows:

In the present case there was no degree of informality, the trust being manifested and proved by deed using the technical term "upon trust". Accordingly, to adopt what was said in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) [(2000) 202 CLR 588, 605 [34]]:

This is not one of those cases where the language employed by the parties for the transaction is inexplicit so that the court is left to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties. (footnote omitted)

1. Turning to the authorities more generally, in Eumeralla Estate Pty Ltd v Chen, the Court of Appeal said:

(pp) Fourthly, whether it will be possible to infer an intention to create a trust in a particular case will depend upon a consideration of the language of the parties, construed in context, including the matrix of circumstances.

(qq) Fifthly, whether an intention to create a trust exists must be determined by reference to the "outward manifestation" of such an intention, rather than to the subjective intention of the alleged settlor.

(ss) Sixthly, trust obligations arise where equity operates on the conscience of the holder of the legal interest. A person cannot be a trustee of property if that person is ignorant of the facts alleged to affect their conscience. That is, unless the putative trustee is aware that they are intended to hold the property for the benefit of others, their conscience will not be affected in a relevant way.

33 Further, in Korda v Australian Executor Trustee Co, French CJ said:

[3] The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties.

...

Finding an express trust

[5] It has rightly been observed that "many express trust are not express at all. They are implied, or inferred, or perhaps imputed to people on the basis of their assumed intent". The American Law Institute's Restatement Third, Trusts uses the term "trust" to refer to an express trust as distinct from a resulting trust or constructive trust and defines it as:

a fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee.

The seventh edition of Jacobs' Law of Trusts in Australia offers the usefully succinct observation that the creator of an express or declared trust will have used language which expresses an intention to create a trust:

The author of the trust has meant to create a trust, and has used language which explicitly or impliedly expresses that intention, either orally or in writing. The fact that a trust was intended may even be deducted from the conduct of the parties concerned but if there is any uncertainty as to intention, there will be no trust. (Footnote omitted).

In the present case, neither text nor context could elevate the propounded intention to the level of certainty.

1. In Flash Lighting Co Pty Ltd v Australia Kunqian International Energy Co Ltd, Robson J emphasised that the onus of proving an intention to create a trust is on the person alleging the trust was created. In this respect, Robson J said:

[824] Where an explicit declaration of trust is absent, as is the case here, the court must determine whether intention is to be imputed. In this task, the court must refer to the language of the documents or conversations, having regard to the nature of the transactions and the circumstances attending the relation between the parties.

...

[826] In Korda, Keane J referred with approval to the statement by Dixon CJ, Williams and Fullagar JJ in Kauter v Hilton that "the established rule that in order to constitute a trust intention to do so must be clear and that it must also be clear what the property is subject to the trust, and reasonably certain who are the beneficiaries".

...

[828] Where a trust is said to arise through an informal document, rather than through a deed or contract, then the court will assess the question of whether a trust was created by reference to all relevant circumstances. In Byrnes v Kendle, Gummow and Hayne JJ explained:

Where ... an express inter vivos trust of personality is said to have been created by information writing or orally, then a dispute as to the presence of the necessary intention, despite inexplicit language, is resolved by evidence of what the Court in Kauter v Hilton identified as "[a]ll the relevant circumstances".

1. Intention to create an express trust may also be found in circumstances where there is "a pattern of business dealings each in legal form intended to follow those before it, with a resulting abbreviation in attention to detail".
2. Clearly an unambiguous reference to a "trust" in the words of the disposition of the relevant property gives rise to the presumption that the disponor intended to create a trust. However, particularly in the cases to which reference has been made, there are cases in which the parties have used inexplicit language. In such cases, the court is left to infer the relevant intention from the following: (1) other language used by the parties; (2) the nature of the transaction; and (3) the relevant circumstances, including commercial necessity, attending the relationship between the parties. In cases where no express or clearly implicit intention to create a trust is shown, such as where the parties give no actual thought to the matter, whether or not there was an intention that the subject monies be kept separate from the other general monies of the recipient is often decisive of the question whether the recipient is a trustee. This, of course, is a particular circumstance, where the subject property of an alleged trust is money. It is, however, an example of the court directing its attention particular circumstances. Nevertheless, as the authorities make clear, "[a]ll the relevant circumstances must be examined in order to determine whether the depositor really intended to create a trust".
3. As the Defendants highlight, to these principles should be added the knowledge-related principles expressed in Westdeutsche Landesbank Girozentrale v Islington LBC, where Lord Browne-Wilkinson said:

(i) Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust).

(ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.

Moreover, having regard to the approach and technique of equity, as applied in Westdeutsche, it follows that after-acquired property may be subject to an express trust.[115]

444 I have already found that Blockchain Tech transferred the 25 Bitcoin to Mr Zhang by Bitcoin transfer transactions whereby 25 Bitcoin were transferred from Blockchain Tech to Mr Zhang's BTC Markets account.

(a) Blockchain Tech, as settlor, settled the trust, by undertaking Bitcoin transfer transactions in relation to its 25 Bitcoin which resulted in 25 Bitcoin being transferred to Mr Zhang's BTC Markets account. It is common ground that Bitcoin transfer transactions took place in three instalments;

(b) the trustee is Ms Zhao;

(c) the property of the trust was the 25 Bitcoin held in Mr Zhang's BTC markets account;

(d) Mr Zhang had a legal interest in the 25 Bitcoin but held that legal interest for Ms Zhao;

(e) the object of the trust was Blockchain Tech. This is because Mr Chen and Ms Zhao agreed for the 25 Bitcoin to be sold and the proceeds be remitted to Blockchain Tech to be then used for 'business expense'. This was a reference to the business expense of the Blockchain Companies;

(f) Ms Zhao, as trustee, was under an obligation to deal with the 25 Bitcoin for the benefit of Blockchain Tech by selling the 25 Bitcoin and remitting the proceeds to Blockchain Tech;

(g) the beneficiary is Blockchain Tech.

446 First, I accept the evidence of Mr Chen. Ms Zhao did not give evidence.

447 Second, I find that Mr Chen and Ms Zhao agreed:

(a) Blockchain Tech would undertake a Bitcoin transfer transaction in relation to the 25 Bitcoin which would result in the transfer of 25 Bitcoin to Mr Zhang's BTC Markets account;

(b) Ms Zhao would sell the 25 Bitcoin in Mr Zhang's BTC Markets account and remit the proceeds to Blockchain Tech so that it could use the proceeds for working capital of the 'Blockchain Business', being the businesses conducted by the Blockchain Companies. This is evident from the discussion between Mr Chen and Ms Zhao on about 28 March 2019. This is because during the discussion between Mr Chen and Ms Zhao on 28 March 2019 Ms Zhao said '[t]here is a certain amount of expense. The expense -the business expense is due and I need to prepare the money' and also that she can use Mr Zhang's account to 'sell' the Bitcoin. The plaintiffs did not submit that there was, in fact, no expense due. Mr Chen's evidence was that he could not remember exactly how much expense was due. Prior to the fraud on the Jinance exchange, Blockchain Tech was using the proceeds from the sale of Bitcoin on the Jinance exchange to pay the working capital of the Blockchain Companies but, as at 5 March 2019 could no longer do so as a result of the fraud on the Jinance exchange. During the discussion between Mr Chen and Ms Zhao on about 28 March 2019 they were determining how to proceed given that impediment. The plaintiffs, in addressing the 25 Bitcoin, submitted in their closing submission: 'The 25 Bitcoin were transferred from Blockchain Tech to Ms Zhao impressed with a specific purpose: to realise them in order to pay the working capital expenses of the Blockchain Business' (emphasis added). I agree with this submission for the reasons I have identified immediately above. I reject the plaintiffs' pleaded case that Ms Zhao was only required to sell them to the extent as 'necessary'. The 25 Bitcoin were provided for the specific purpose to be sold and the proceeds remitted to Blockchain Tech. Blockchain Tech required the proceeds for expenses in the Blockchain Business.

448 Third, the Zhao parties admit that the 25 Bitcoin were transferred to her husband's BTC Markets account to be sold and for the proceeds to be used to pay the ongoing expenses of various corporate entities.

449 Fourth, I reject the Zhao parties' claim that in or around March 2019, Mr Chen represented that he had generated a profit equivalent to approximately 900,000 US dollars (then representing approximately 180 Bitcoin) in performance of the arbitrage activities the subject of the alleged Bitcoin Loan Agreement. This is because:

(a) I have already found that the alleged Bitcoin Loan Agreement did not exist. I refer to paragraphs 321 to 330 of these reasons;

(b) Ms Zhao did not give evidence;

(c) Ms Zhao submitted in opening submissions that Mr Chen told her that the arbitrage gained a profit equivalent to about 50 Bitcoin. The alleged 'Representation' in the second further amended points of defence does not concern 50 Bitcoin but 'approximately 180 Bitcoins';

(d) Mr Chen sent a text on 20 April 2019 to Ms Zhao in which he stated, 'the Arbitrage at the moment may not make money', and this is inconsistent with the alleged 'Representation'. I also find that Ms Zhao deliberately concealed these words from the text she provided to the Court by redacting it. I accept the plaintiffs' submissions concerning this matter in their closing submissions at paragraphs 21 to 25; and

(e) the texts exchanged on 21 May 2019, in which Ms Zhao referred to arbitrage and said, '[y]esterday, you mentioned $450,000 and money doubled', to which Mr Chen replied, '[n]ot double 450,000', are inconsistent with the alleged 'Representation'. I also find that Ms Zhao deliberately concealed these words from the text she provided to the Court by redacting it. I accept the plaintiffs' submissions concerning this matter in their closing submissions at paragraph 34.

450 Fifth, I find that Blockchain Tech and Ms Zhao did not enter into 'the Further Loan' as pleaded by Ms Zhao in her counterclaim at paragraph 111B. This is because it is inconsistent with the evidence of Mr Chen which I have accepted concerning the arrangements, including the express trust, with respect to the 25 Bitcoin.

Did Ms Zhao act in accordance with the alleged 25 Bitcoin Conversion Purpose?

451 The plaintiffs allege that save in respect of $82,838 of the proceeds from the realisation of the 25 Bitcoin, Ms Zhao failed to ultimately deal with the 25 Bitcoin in accordance with the 25 Bitcoin Conversion Purpose. They allege that further or in the alternative, Ms Zhao made realisations of the 25 Bitcoin in breach of her obligations to Blockchain Tech to only deal with the 25 Bitcoin in accordance with the 25 Bitcoin Conversion Purpose. In particular, they allege:

1. Wrongfully, contrary to the 25 Bitcoin Conversion Purpose, in breach the Blockchain Business Agreement, without Mr Chen's knowledge, or consent, and in breach of the Directors' Duties, contrary to the interests of the members of Blockchain Tech as a whole and oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr Chen's membership interests in Blockchain Tech, and without any or any proper consideration passing to Blockchain Tech, insofar as Ms Zhao has now realised the 25 Bitcoins, she has:

(a) between 1 April 2019 and 11 April 2019 caused some of the proceeds from that totalling $127,609 to be transferred to Apex; and

Particulars

The funds were transferred from Ms Zhao's husband's account to Apex's Commonwealth Bank account ending in 0123.

(b) between 8 April 2019 and 17 May 2019 caused $29,104.48 to be transferred from Apex to Galaxy Crowdfunding.

Particulars

The funds were transferred from Apex to Galaxy Crowdfunding's Commonwealth Bank account ending in 8112.

70A Save in respect of $82,838 of the proceeds from the realisation of the 25 Bitcoins, Ms Zhao failed ultimately to deal with those bitcoin in accordance with the 25 Bitcoin Conversion Purpose.

Particulars

Of the proceeds received by Apex referred to in paragraph 70(a) by Apex, $82,838 was transferred to Blockchain Tech's CBA account ending in 5044 (see Bailey Report at [3.3]). The balance of the proceeds have not been received by any company in the Blockchain Business or applied for the 25 Bitcoin Conversion Purpose.

70B By reason of the matters alleged in paragraphs 68 to 70A above, Ms Zhao remains liable to Blockchain Tech to account to it for her use of the 25 Bitcoins as does any third party who was not a bona fide purchaser of those bitcoins who took title in them (or in the proceeds from their realisation) without knowledge of Blockchain Tech's interest.

70C Further or in the alternative, in breach of her obligations to Blockchain Tech to only deal with the 25 Bitcoins in accordance with the 25 Bitcoin Conversion Purpose, Ms Zhao has:

(a) realised the 25 Bitcoin as pleaded in paragraph 70 above; and

(b) made further realisations, such that between 1 April 2019 and 19 September 2019, those further realisations, commingled with other funds, were transferred to her husband, Mr Guodong Zhang, as a volunteer and/or with notice of Blockchain Tech's interest.

Particulars

The proceeds were transferred from the BTC Markets account controlled by Ms Zhao, where they were commingled with other funds, to the CBA account maintained by Mr Zhang with account number ending 8021.

A total of $363,616.05 was transferred. The plaintiffs do not presently know how much of that amount is constituted by realisations of the 25 Bitcoins. Particulars of the amount constituted by realisations of the 25 Bitcoins will be provided after disclosure from Mr Zhang of the trading, withdrawal and deposit records requested in KCL Law's letter to Christopher James Lawyers dated 28 August 2023.

Mr Zhang's knowledge of Blockchain Tech's interest is to be inferred from the fact that:

(a) the $363,616.05, including an amount (presently not known by the plaintiffs) of realisations of the 25 Bitcoins, was transferred to his own bank account without Mr Zhang having provided any or any proper consideration for that payment to Blockchain Tech; and

(b) his wife had procured the transfer from her realisation of Blockchain Tech's bitcoin.

70D By reason of the matters pleaded in paragraphs 70A to 70C, further or in the alternative, Mr Zhang also holds proceeds of the 25 Bitcoins on constructive trust for the benefit of Blockchain Tech, alternatively is liable to account to Blockchain Tech for the amount of those proceeds.

Particulars

Particulars of the precise amount held will be provided after disclosure from Mr Zhang of the trading, withdrawal and deposit records requested in KCL Law's letter to Christopher James Lawyers dated 28 August 2023.

452 I have already set out Ms Zhao's counterclaim at paragraph 424 of these reasons.

453 The Zhao parties also provided further and better particulars of the matters alleged in paragraph 70C during the trial. These particulars state, inter alia, that approximately 26.19 Bitcoin were sold in the period 29 March 2019 to 12 April 2019 for a total amount of $175,517.7447.

454 The particulars do not state where the proceeds were deposited or ultimately transferred.

455 It was common ground that the amount of $82,838 was remitted to Blockchain Tech and was from the sale of part of the 25 Bitcoin.

456 In his expert report, Mr Bailey identified contributions totalling $82,838 vouched to Blockchain Tech bank statements and traced to Apex bank statements. I refer to his first report at Note 3.3 on page 23. As I have already said, Ms Zhao was the sole director of Apex from 31 August 2015 to at least 13 February 2024.

457 The plaintiffs submitted that aside from the transfer of $82,838 to Blockchain Tech, Ms Zhao did not act in accordance with the 25 Bitcoin Conversion Purpose. Ms Zhao submitted that as seen in her particulars, she sold around 26.2 Bitcoin from 15 March 2019 to 12 April 2019, and the net proceeds were $175,517. Ms Zhao submitted that of the realisations of the sale of the 25 Bitcoin, she put about $127,000 back to Apex with $82,000 of that $127,000 to Blockchain Tech, and then the further difference between the $175,000 and $127,000 went to Galaxy Crowdfunding as contributions and also to herself to reimburse her for payments from her credit cards. Ms Zhao relied on her further and better particulars spreadsheet to support paragraph 70C of the Zhao parties' defence.

458 Ms Zhao sold the 25 Bitcoin. It was common ground that she did so. I refer to the plaintiffs' further amended points of claim at paragraphs 70A, 70C(a) and 70D, the Zhao parties' second further amended points of defence and counterclaim at paragraphs 68(d) and 70C and the plaintiffs' closing submissions at paragraphs 18 (and footnote 21) and 163. Mr Zhang's BTC Markets report, upon which the parties all relied, also evidences the following matters:

(a) the receipt of the 25 Bitcoin into the BTC Markets account in instalments on 29 March 2019, 2 April 2019 and 9 April 2019;

(b) upon receipt of the first instalment of the 5 Bitcoin there were 5.4618 Bitcoin in the account, meaning that the 0.4618 Bitcoin were already in Mr Zhang's BTC Markets account;

(c) Mr Zhang deposited and purchased Bitcoin that did not form part of the 25 Bitcoin on 29 March 2019 (deposited 0.0999 Bitcoin), 29 March 2019 (purchased 0.2000384 Bitcoin), 29 March 2019 (purchased 0.1 Bitcoin), 29 March 2019 (purchased 0.075 Bitcoin) and 29 March 2019 (purchased 0.2556574 Bitcoin), 6 April 2019 (deposited 2 Bitcoin) and 6 April 2019 (deposited 2.9988 Bitcoin); totalling 5.7293958 Bitcoin;

(d) in the period 29 March to 12 April 2019, 30.730395 Bitcoin were deposited or purchased;

(e) the average proceeds (net fees) based on the proceeds (net fees) of the Bitcoin sold between 29 March and 12 April 2019 was $6,701.15 per 1 Bitcoin. This is calculated as follows:

(i) for each Bitcoin sale transaction during the relevant period, the net sale proceeds are calculated as the total sale proceeds less fees; and

(ii) the sum of all net sale proceeds during the relevant period amount to $175,517.74. This figure is divided by 26.1921959, being the total number of Bitcoin sold during the relevant period, to calculate the average net sale proceeds per 1 Bitcoin of $6,701.15;

(f) a closing balance of the BTC Markets account as at 12 April 2019 was 5 Bitcoin. There is no evidence of the sale price of these 5 Bitcoin;

(g) I find that it is likely that the 5 Bitcoin were sold within a few days of 12 April 2019 as: Blockchain Tech needed the money to pay the working capital of the Blockchain Companies; Blockchain Tech transferred these Bitcoin to be sold, Ms Zhao had taken steps to sell all of the other Bitcoin pursuant to the express trust and it was common ground that all of the 25 Bitcoin were sold.

459 Ms Zhao had a duty to sell the 25 Bitcoin as trustee. This was her obligation pursuant to the terms of the express trust.

460 I find, however, that she failed to remit all of the proceeds to Blockchain Tech. As a result, she breached her duty as trustee. Ms Zhao failed to obey the terms of the trust by not remitting all of the proceeds to Blockchain Tech.

461 First, the only amount remitted was the sum of $82,838. I refer to Mr Bailey's first report at Note 3.3 on page 23. This was remitted via Apex. This was not all of the proceeds as is evident from Mr Zhang's BTC Markets report. No other amount is identified by Mr Bailey as being remitted. I refer to Mr Bailey's first report at Note 3 on page 23.[116] I also refer to Note 11, which states 'Transfer of funds from Apex Consulting to BCT totalling $27,187 vouched to Blockchain Tech bank account statements (account CBA X5044) and traced to Apex Consulting bank account statements (account CBA X0123).' But there is no evidence that this was part of the proceeds from the sale of the 25 Bitcoin.

462 Second, Ms Zhao did not allege that she made a loan of any monies to Galaxy Crowdfunding or any other company from the proceeds of the sale of the 25 Bitcoin, other than her allegation of a loan to Blockchain Tech from the sale of the proceeds of the sale of the 25 Bitcoin.

463 Third, Ms Zhao did not identify any particular payment she made to herself from the proceeds of the sale of the 25 Bitcoin that was a reimbursement of an expense paid by her.

Is Blockchain Tech entitled to relief against Ms Zhao?

464 The plaintiffs allege that Ms Zhao remains liable to Blockchain Tech to account to it for her use of the 25 Bitcoin. The Zhao parties deny this.

465 Blockchain Tech seeks relief. Mr Chen does not seek any relief. I have already set out the relief sought by Blockchain Tech in paragraphs O to R at paragraph 395 of these reasons.

466 The plaintiffs submitted that Ms Zhao is liable for breach of trust by failing to deal with the Bitcoin for the 25 Bitcoin Conversion Purpose (save for the $82,838 provided to Blockchain Tech for working capital), and therefore Blockchain Tech is entitled to a declaration that any remaining Bitcoin are held on trust (and delivery up of those Bitcoin), or otherwise equitable compensation. The plaintiffs submitted that the equitable compensation awarded should be assessed at time of trial, with the full benefit of hindsight and common sense, and on the assumption that Blockchain Tech would have sought to use the Bitcoin in the most advantageous way possible.

467 Blockchain Tech's claims for relief are premised upon 13.65 Bitcoin, being the balance of the 25 Bitcoin the plaintiffs submitted were not realised for the 25 Bitcoin Conversion Purpose. This assumes that the amount that Blockchain Tech received from the sale of some of the 25 Bitcoin (i.e. the sum of $82,838) was equivalent to 11.35 Bitcoin. This is confirmed by the plaintiffs' opening submissions at paragraph 39 in which they submitted '...only $82,838 (which, at the time was the equivalent of about 11.35 Bitcoins) was applied consistently with the purpose for which the 25 Bitcoins were advanced'. The plaintiffs further explained this in its closing submissions:

1. An extract of Mr Zhang's BTC Markets account is in the court book. The amount of 13.65 bitcoin has been calculated by identifying 'trades' realising bitcoin up to the value of $82,838 (being the amount paid to the Blockchain Business), and deducting the corresponding bitcoin from the 25 Bitcoins. This approach accords with the way equitable compensation is 'often' calculated, by reference to the loss suffered by the innocent party assessed 'at the time of the trial, with the full benefit of hindsight'.

468 The plaintiffs provided a draft form of order for relief against Ms Zhao:

1. Ms Zhao forthwith transfer or otherwise deliver up to the second plaintiff (Blockchain Tech) free title to 13.65 bitcoin.

...

3. Alternatively to paragraphs 1 and 2:

(a) Ms Zhao pay equitable compensation and/or damages to Blockchain Tech in the amount of $[1,334,970]1 (being the sum of 13.65 bitcoin converted at the rate of [$97,800 per bitcoin as at 16 April 2024], being the rate of exchange prevailing on the date of judgment); and

...

1. Alternatively to paragraphs 1, 2 and 3, equitable compensation and/or damages measured by reference to the price received by Mr Zhang in BTC Markets account ending *4659 for the realisation of the 25 Bitcoin out of wallet address 36FLV8rPmpdKmFEfbhg4kVLN95uHXsmg5f) (being a wallet associated with the BTC Markets account ending *4659 held by Mr Zhang), less $82,838, plus interest.

________________________

1. For indicative purposes, the highlighted text describes amounts calculated by reference to the price of bitcoin as at 16 April 2024 at 2.17 pm (see SCB6 page 50). The plaintiffs submit the appropriate measure should be the price as at the date of judgment.

1. Proposed orders 1 and 2 seek relief against Ms Zhao and Mr Zhang. As noted above, Mr Zhang has not filed an appearance or defence in the proceeding, and in those circumstances is taken to admit the allegations made against him.
2. The 25 Bitcoin were transferred from Blockchain Tech to Ms Zhao impressed with a specific purpose: to realise them in order to pay the working capital expenses of the Blockchain Business. Ms Zhao admits the 25 Bitcoins were transferred to her, and pleads that the proceeds of sale of the 25 Bitcoins were used to pay for various expenses of the Blockchain Business and Galaxy Crowdfunding.
3. Only $82,838 was repaid to Blockchain Tech. Proposed order 1 seeks the transfer or delivery up 13.65 bitcoin, being the balance of the 25 Bitcoin not realised for the Bitcoin Conversion Purpose.

1. Proposed order 3 seeks, in the alternative, equitable compensation and/or damages in respect of the 13.65 bitcoin. That compensation should be valued as at the price of bitcoin at judgment, consistently with the principles governing equitable relief (as noted above) and cases regarding the conversion of foreign currency judgments. Where a plaintiff makes out an entitlement to an award of foreign currency, the plaintiff may elect to receive judgment converted to the Australian dollar equivalent amount as at the date of judgment. This analysis should be preferred, because it most accurately recognises the fluctuations in value of bitcoin (similar to, though more accentuated than, those in foreign currency). The proposed orders include dollar values as at 16 April 2024 (based on the document at SCB6 50). If the Court considers such an order is appropriate, the plaintiffs will file further evidence to assist the Court in identifying the correct value in final orders following judgment (effectively equivalent to the evidence at SCB6 50).

1. Proposed order 4 seeks an alternative measure of equitable compensation and/or damages, being the price that Mr Zhang actually received on realisation of the 25 Bitcoin. This measure should not be preferred because it assumes that realisation of the 25 Bitcoin, had they been kept by BTC Markets, would have taken place at the time when the 25 Bitcoin were in fact realised. It would not provide compensation to Blockchain Tech: it would be inconsistent with Blockchain Tech's intention to "preserve the bitcoin contributions as long as possible". Bearing in mind that equitable compensation should be assessed at the time of trial with the full benefit of hindsight and common sense, and on the assumption that Blockchain Tech would have sought to use its bitcoin "in the most advantageous way possible", relief in the form of proposed order 3 should be preferred over that in proposed order 4.

Paragraph 1 of the plaintiffs' proposed order for final relief

472 This is the subject of paragraph O of the prayer for relief. Blockchain Tech is not entitled to an order against Ms Zhao for the transfer or delivery up of 'free title' to the 13.65 Bitcoin. The 25 Bitcoin have been sold.

Paragraph 3(a) of the plaintiffs' proposed order for final relief

473 This is the subject of paragraph P of the prayer for relief.

474 Blockchain Tech seeks equitable compensation in the form of a monetary amount equivalent to the value of 13.65 Bitcoin at the date of judgment. The plaintiffs submitted that as at 16 April 2024, 13.65 Bitcoin had a value of $1,334,970, being an amount of $97,800 per Bitcoin. It may be readily seen that the price of Bitcoin has very significantly increased since late March/early April 2019.

475 It is well established that a trustee in breach of trust must restore or pay to the trust estate the assets which have been lost to the estate by reason of the breach or compensation for such loss.[117] The provision of a money remedy for breach of an express trust may vary to reflect the terms of the trust and the breach of which complaint is made.[118] As the High Court said in Youyang Pty Ltd v Minter Ellison Morris Fletcher (Youyang)[119] of such a remedy: 'Generalisations may mislead.'[120]

476 Losses are to be assessed as at the time of trial and with hindsight.[121]

477 In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd,[122] Gageler J (as his Honour then was) said:

Obviously enough, as with any other question of causation in equity, the causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain must be judged using common sense and 'with the full benefit of hindsight'. And as with other questions of causation in equity, the inquiry into causation is not to be constrained by normative limitations imported from the common law. To introduce those limitations would risk confusing distinct legal policies underlying distinct bases of legal liability and limiting equity's capacity to mould equitable relief to the circumstances of the individual case.[123]

478 More recently, in Break Fast Investments Pty Ltd v Rigby Cooke Lawyers (A Firm) (Break Fast),[124] the Court of Appeal said:

1. Macaulay J summarised the legal principles that he applied on the issue of causation as follows:

(a) a claim for equitable compensation requires proof of a causal link between the breach and the loss, a principle expressed memorably by Mummery LJ in Swindle v Harrison, quoted by the High Court in Youyang Pty Ltd v Minter Ellison Morris Fletcher ('Youyang'), that '[t]here is no equitable by-pass of the need to establish causation' and that '[i]n questions of causation it is important to focus on the relevant equitable duty';

(b) the basic equitable principle applicable to breach of trust (and breach of fiduciary duty) is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach;

(c) in approaching the issue of causation for breach of trust or fiduciary duty, once the 'but for' link is established equity does not enquire as to whether the loss was also caused by other acts or omissions, including those of a third party;

(d) whilst the onus is upon the plaintiff to establish a causal link and there is no equitable by-pass to causation, it was explained in GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors ('GM Pearce') -

Nevertheless, one must have regard to the principle that the court is entitled not to speculate against the interest of the plaintiff or to make assumptions against the defendant on the issue of causation. This allows the plaintiff to lead only a minimum of evidence to discharge the evidentiary burden of causation. Indeed, in this regard it has been said that -

[e]quity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily ... [and] the courts being seen to wink at wrong-doing.

(e) once a causal link to the loss claimed is established, the onus shifts to the defendant to establish that it is inequitable to order the defendant to account for the whole of the identified benefit or gain (or compensate for the whole of the claimed loss).

...

[T]he entitlement to not speculate against the plaintiff does not justify making assumptions of fact that are otherwise necessary to establish the sufficient 'but for' connection between the breach and loss. Further, it is for the trial judge to determine what inferences may reasonably be drawn from the known facts. Where findings of fact enable a judge to be satisfied that, but for the breach of fiduciary duty loss would not have occurred, yet there remains a question as to the extent of the loss, the Court is entitled to make assumptions in favour of the plaintiff in determining the character and dimension of the loss. Seen this way, the principle in subparagraph [(d)] above is reinforced or re-stated by the principle in subparagraph [(e)], and both are harmonious with the principle in sub-paragraph [(a)].

Not speculating against the plaintiff in this sense does not entail supplementing the existing evidence with favourable assumptions in order to establish the sufficient causal connection to some loss.

1. In our opinion, the above principles are correct and are sufficient for present purposes.[125]

479 It is also well established that a trustee who improperly sells a trust asset which should have been retained is liable to account for that asset at its value assessed at the date of judgment.[126] But as observed by Lindsay J in ACI Operations Pty Ltd v Tallant:[127]

The object of an award of equitable compensation, in a case such as the present one, is generally to require a defendant, against whom a plaintiff has established an equity, to restore the plaintiff's property to it, as is in good conscience required... Different considerations may apply where equitable compensation is to be assessed without reference to restoration of property...[128]

480 I am satisfied that Blockchain Tech is entitled to an order against Ms Zhao that she pay equitable compensation to it.

481 First, I have found that the 25 Bitcoin were provided on trust to be sold and the proceeds provided to Blockchain Tech to be used for working capital. They were sold and not all of the proceeds were provided to Blockchain Tech.

482 Second, Blockchain Tech, as the only beneficiary under the trust, can require Ms Zhao to pay it compensation directly.

483 The appropriate measure of that compensation is the amount not remitted to Blockchain from the sale of the 25 Bitcoin.

484 First, Ms Zhao properly sold the 25 Bitcoin. This was her duty as trustee. Ms Zhao could not have retained the 25 Bitcoin. This would have been a breach of the trust.

485 Second, Ms Zhao breached her duty as trustee by not remitting all of the proceeds from the sale of the 25 Bitcoin.

486 Third, Blockchain Tech is entitled to be compensated for any loss it would not have suffered but for the breach. The breach was the failure to remit all of the proceeds. The loss is the proceeds not remitted. Blockchain Tech does not submit that it has suffered any other loss by reason of the loss of the proceeds.

487 Finally, there is no basis for an award of equitable compensation based upon the value of the 25 Bitcoin at the date of judgment. This is because Ms Zhao had a duty to sell the 25 Bitcoin at the time when she sold them. In addition, this is not a case in which there is a need of providing a remedy to restore or replenish trust property to be then held on a trust to be performed.[129] Ms Zhao was not to hold the 25 Bitcoin for indeterminate or contingent beneficial interests.

488 I find that Blockchain Tech is entitled to equitable compensation calculated upon the amount reflecting the realised value of the 25 Bitcoin (net of fees) less $82,838 remitted by Ms Zhao to Blockchain Tech. I refer to paragraph 458 of my reasons. I calculate this as amount to be $86,080.00. By way of explanation:

(a) The average proceeds (net fees) per 1 Bitcoin sold from Mr Zhang's BTC Markets account in the period 29 March to 12 April 2019 was $6,701.15. This is an appropriate value ascribable to the 20 Bitcoin which were sold during the period 29 March to 12 April 2019.

(b) There is no evidence concerning the amount of proceeds (net fees) for the 5 Bitcoin in Mr Zhang's BTC Markets account on 12 April 2019. In those circumstances, it is appropriate to ascribe those 5 Bitcoin a value of $6,979.00 per Bitcoin. This amount reflects the total net proceeds derived from the sale of 1 Bitcoin effectuated via two transactions executed on Mr Zhang's BTC Markets account on 12 April 2019. This is appropriate because the terms of the trust required those Bitcoin to be sold and I find that they were sold shortly after 12 April 2019, given the terms of the trust and that all of the other Bitcoin (i.e. 20 Bitcoin) had been sold.

(c) Upon this methodology, the total amount of net proceeds (net fees) are as follows:

(d) The total amount of equitable compensation can accordingly be calculated as $168,918.00 less the amount of $82,838 remitted back to Blockchain Tech by Ms Zhao, which amounts to $86,080.00.

Paragraph 4 of the plaintiffs' proposed order for final relief

489 It is not necessary to consider this relief as it was claimed in the alternative.

If Blockchain Tech provided the 25 Bitcoin to Ms Zhao for the alleged 25 Bitcoin Conversion Purpose, did Mr Zhang receive proceeds from the sale of the 25 Bitcoin as a volunteer and/ or with notice of Blockchain Tech's interest?

490 The plaintiffs allege that Ms Zhao, in breach of her obligations to Blockchain Tech to only deal with the 25 Bitcoin in accordance with the 25 Bitcoin Conversion Purpose, made further realisations of the 25 Bitcoin, such that between 1 April 2019 and 19 September 2019, those further realisations, commingled with other funds, were transferred to Mr Zhang as a volunteer and/or with notice of Blockchain Tech's interest.

491 The Zhao parties admit that these funds were commingled with other funds, but otherwise deny the allegation and allege further that the 25 Bitcoins were realised between 29 March 2019 to 12 April 2019.

492 The plaintiffs submitted that Mr Zhang had failed to file a notice of appearance and is therefore taken to have admitted that he received the 25 Bitcoin as a volunteer and with notice of Blockchain Tech's interest.

493 Ms Zhao submitted at trial that the evidence would show whether the 25 Bitcoin were sold to her husband.

494 I have already set out the applicable law concerning a 'volunteer' and the equitable obligation of a volunteer and any associated remedy arising at paragraphs 398 and 399 of these reasons.

495 I do not accept that Mr Zhang received proceeds from the sale of the Bitcoin as a volunteer.

496 First, I accept that Mr Zhang did not file an appearance and is taken to have admitted the following facts in the amended points of claim:

(a) proceeds from the sale of Bitcoin in the total amount of $363,616.05 were transferred from Mr Zhang's BTC Markets account into Mr Zhang's bank account;

(b) the plaintiffs did not know how much of the amount of $363,616.05 was constituted by the realisations of the 25 Bitcoin;

(c) Mr Zhang had notice of 'Blockchain Tech's interest'.

497 Mr Zhang is not taken to have admitted that he was a 'volunteer' as that is not a fact but a legal conclusion.

498 Second, as I have already said, the gist of the cause of action against a volunteer is that upon notice being given of the plaintiff's interest in, for example, property, the person keeps the property. It is at that time that the person becomes liable as a volunteer and not before. Mr Zhang had notice of 'Blockchain Tech's interest' but that interest was a beneficial interest in the express trust I have found and addressed earlier in these reasons. The matters of which he had notice are consistent with the trust and Ms Zhao's proper exercise of powers as the trustee. There is no plea, evidence or submission that at the time Blockchain Tech gave notice to Mr Zhang of its claim (i.e. the breaches of trust), that Mr Zhang had the 25 Bitcoin or their traceable proceeds.

499 As a result, Mr Zhang is not liable to Blockchain Tech as a volunteer.

Is Blockchain Tech entitled to relief against Mr Zhang?

500 The plaintiffs allege that Mr Zhang holds proceeds of the 25 Bitcoin on constructive trust for the benefit of Blockchain Tech, and alternatively is liable to account to Blockchain Tech for the amount of those proceeds. The Zhao parties do not plead to this as no allegations were made against them. Mr Zhang has not filed a notice of appearance nor any defence.

501 I have already set out the plaintiffs' submissions concerning paragraphs 1, 3 and 4 as they also concern its claims for relief against Ms Zhao. In addition, the plaintiffs seek final relief against Mr Zhang in paragraphs 2 and 3(b) of their proposed final order as follows:

1. Further or alternatively to paragraph 1, the fifteenth defendant (Mr Zhang) forthwith transfer or otherwise deliver up free title to 13.65 bitcoin.

...

1. Alternatively to paragraphs 1 and 2:

...

(b) further or alternatively to paragraph 3(a), Mr Zhang pay equitable compensation and/or damages to Blockchain Tech in the amount of $[1,334,970] (being the sum of 13.65 bitcoin converted at the rate of [$97,800 per bitcoin as at 16 April 2024], being the rate of exchange prevailing on the date of judgment).

502 In addition, they also submitted specifically with respect to Mr Zhang:

1. As a knowing recipient of proceeds of the 25 Bitcoin, Mr Zhang holds those proceeds on constructive trust, and is otherwise liable to account for the amount of those proceeds.

...

1. Proposed orders 1 and 2 seek relief against Ms Zhao and Mr Zhang. As noted above, Mr Zhang has not filed an appearance or defence in the proceeding, and in those circumstances is taken to admit the allegations made against him.

...

1. Proposed order 2 is also directed to Mr Zhang as a knowing recipient of the 25 Bitcoins. The Zhao parties (and Mr Zhang) admit that the 25 Bitcoins were transferred to a BTC Markets trading account held by Mr Zhang. "In the case of knowing receipt, where some or all of the trust property received no longer exists (or is not traceable) and so cannot be returned, the knowing recipient is obliged (no less than the wrongdoing trustee) to restore the trust fund by way of monetary compensation for the assets which have been lost".

503 I have already found that Mr Zhang is not liable as a volunteer. In addition, although the plaintiffs did submit that Mr Zhang is a volunteer the plaintiffs do not claim relief against Mr Zhang as a volunteer with respect to the 25 Bitcoin in their closing submissions. Instead of relying upon him being a volunteer they claim he knowingly received the proceeds of the 25 Bitcoin. I refer to paragraph 166 of the plaintiffs' closing submissions.

504 I find that Blockchain Tech is not entitled to relief against Mr Zhang as a knowing recipient in relation to the 25 Bitcoin or the proceeds from the 25 Bitcoin.

505 First, Blockchain Tech is not entitled to make a claim against Mr Zhang that he is liable as a knowing recipient of the 25 Bitcoins or their proceeds. This claim is not pleaded. It was only made in the plaintiffs' closing submissions at paragraphs 166 and 231. No explanation was provided as to why it is only made in the plaintiffs' closing submissions. Such a claim involves establishing requisite knowledge on the part of the recipient that a breach has been committed.[130] The plaintiffs relied upon the decision of the Full Federal Court in Grimaldi v Chameleon Mining NL (No 2),[131] in which the Full Court said:

1. So far as the recipient is concerned, it is its knowledge of the directors' misapplication of the company's funds, ie their breach of fiduciary duty, that can turn it into a constructive trustee and thus give the company its proprietary base justifying both following its property into the recipient's hand and tracing into its substitutes...[132]

The equitable principle of knowing receipt of trust property, which is commonly referred to as the first limb of the rule in Barnes v Addy, liability on persons who receive trust property with notice that the trust property was being dealt with in a manner that involved a breach of trust ...[133]

507 Blockchain Tech makes no allegation in the pleadings that Mr Zhang is a knowing recipient in respect of the 25 Bitcoin or the proceeds in the amended points of claim or the further amended points of claim. He has no had no notice of such a claim.

508 Second, there is no evidence that Mr Zhang is the knowing recipient of any property in breach of trust. The plaintiffs submissions were inconsistent. First, they submitted he was a knowing recipient of the 25 Bitcoin. Second, they also submitted that he was a knowing recipient of the proceeds from the sale of the 25 Bitcoin. There is no evidence, however, that he was aware that Ms Zhao sold the 25 Bitcoin but did not apply all of the proceeds to the working capital of the Blockchain Companies in breach of her duty as trustee.

509 Accordingly, I find that Blockchain Tech is not entitled to any order against Mr Zhang.

Did Ms Zhao use funds for non-business purposes as follows: Blockchain Tech to Ms Zhao's accounts: $119,230 and Ms Zhao's credit card accounts: $16,444.23

510 The plaintiffs allege that Ms Zhao, wrongfully and, inter alia, in breach of the Blockchain Business Agreement, transferred and/or procured the transfer of funds from Blockchain Tech to her personal bank accounts in the amount of $115,665 (revised from $119,230 as had been particularised in table 1 of Part E of the plaintiffs' chronology), and to her credit cards in the amount of $11,365.59 (revised from $16,444.23 as had been particularised in table 5 of Part E of the plaintiffs' chronology).

511 The Zhao parties deny this, though admit that Ms Zhao transferred money to her personal bank accounts and credit cards and allege that it was for the purpose of reimbursing herself for business expenses she had paid from her own funds and that the reimbursement occurred with the knowledge and consent of Mr Chen.

512 It is convenient to address the relevant background when addressing the analysis.

513 The plaintiffs particularised in the tables annexed to the plaintiffs' reimbursement submissions the amounts sought against Ms Zhao in relation to the alleged funds used by Ms Zhao for non-business purposes. The plaintiffs' reimbursement submissions are Annexure B to these reasons. The plaintiffs submitted that the tables include transactions where there was no evidence of authorisation of that transaction by the company or otherwise no invoice clearly evidencing the basis of the transaction.

514 The plaintiffs addressed Blockchain Tech and the alleged use of funds by Ms Zhao in:

(a) table 1 of the plaintiffs' reimbursement submissions (part of Annexure B to these reasons), concerning payments to Ms Zhao's personal accounts (excluding credit cards);

(b) table 5 of the plaintiffs' reimbursement submissions (also part of Annexure B to these reasons), concerning payments to Ms Zhao's personal credit cards.

515 The plaintiffs sought an order that the books of account of Blockchain Tech be adjusted by adding $115,665 and $11,365.59 as debts due from Ms Zhao.

516 Ms Zhao submitted at trial that she would go through the claims made in relationship to the personal credit cards.

517 Ms Zhao provided submissions that addressed Part E of the plaintiffs' chronology. These are Ms Zhao's reimbursement submissions. These are in a table format. She also attached documents to her submissions. These were not filed as they were provided on the morning that she then did not appear at trial. They are summarised in the plaintiffs' reimbursement submissions.

518 Ms Zhao submitted that the first three entries in table 5 related to Lenovo laptops, a payment to a British company, and an office desk respectively, and that the office desk payment can be found in table 6 of her chronology as the Temple & Webster order.

519 I find that Ms Zhao transferred $115,665 to her personal accounts from Blockchain Tech and that this was not a reimbursement for any expense incurred by her on behalf of Blockchain Tech. I also observe that Ms Zhao was only the secretary of Blockchain Tech from 17 January 2019 to 19 June 2019 and was never a director. Some of the transfers took place prior to 17 January 2019.

520 First, Ms Zhao transferred $115,665 to her personal bank accounts from Blockchain Tech. Ms Zhao did not dispute this. I refer to Ms Zhao's reimbursement submissions in response to the plaintiffs' submissions in table 1 of Part E of the plaintiff's chronology.

521 Second, I accept table 1 of the plaintiffs' reimbursement submissions in (part of Annexure B to these reasons) except I do not accept all of their submissions as to the sum of $5,498.87 on 26 February 2019. I do not accept the plaintiffs' reimbursement submissions based upon Mr Chen's witness statement at paragraph 373 as that was struck out. Nonetheless, I find that this amount was paid to Ms Zhao's account and there is no evidence that it was, as submitted by Ms Zhao, 'returned' to Blockchain Tech on 27 February 2019. This is because Ms Zhao did not give evidence that the payment of $9,000 to Blockchain Tech on 27 February 2019 included a remitter of the sum of $5,499. I refer to page 279 of the court book.

522 The amount of $115,665 is constituted by all of the payments as set out in table 1 of the plaintiffs' reimbursement submissions (part of Annexure B to these reasons).

523 I also find that Ms Zhao transferred $11,365.59 to her personal credit card accounts from Blockchain Tech and that this was not a reimbursement for any expense incurred by her on behalf of Blockchain Tech.

524 First, Ms Zhao transferred $11,365.59 to her personal bank accounts from Blockchain Tech. Ms Zhao did not dispute this. I refer to Ms Zhao's reimbursement submissions.

525 Second, I accept table 5 of the plaintiffs' reimbursement submissions insofar as it concerns the total amount of $11,365.59. Apart from the particulars and attached documents, Ms Zhao also did not give any evidence that the payments she made to her personal accounts were reimbursements of amounts she had paid on behalf of Blockchain Tech. The amount of $11,365.59 is constituted by the following payments as is set out in table 5 of the plaintiffs' reimbursement submissions:

(a) 3 October 2018: $3,897.00;

(b) 12 December 2018: $2,365.55;

(c) 3 January 2019: $3,608.00;

(d) 18 January 2019: $1,055.10; and

(e) 26 March 2019: $439.94.

Did Ms Zhao use funds for non-business purposes as follows: Dashboard to Ms Zhao's accounts: $124,340 and Ms Zhao's credit card accounts: $9,000

526 The plaintiffs allege that Ms Zhao, wrongfully and, inter alia, in breach of the Blockchain Business Agreement, transferred and/or procured the transfer of funds from Dashboard Management to her personal bank accounts in the amount of $118,340 (revised from $124,340, as particularised in table 2 of Part E of the plaintiffs' chronology), and to her credit cards in the amount of $9,000 as particularised in table 5 of Part E of the plaintiffs' chronology. The Zhao parties deny this, though admit that Ms Zhao transferred money to her personal bank accounts and credit cards and allege that it was for the purpose of reimbursing herself for business expenses she had paid from her own funds and that the reimbursement occurred with the knowledge and consent of Mr Chen.

527 Again, it is convenient to address the relevant background when addressing the analysis.

528 The plaintiffs addressed Dashboard Management and the alleged use of funds by Ms Zhao in:

(a) table 2 of the plaintiffs' reimbursement submissions (part of Annexure B to these reasons), concerning payments to Ms Zhao's personal accounts (excluding credit cards);

(b) table 5 of the plaintiffs' reimbursement submissions (also part of Annexure B to these reasons), concerning payments to Ms Zhao's personal credit cards.

529 The plaintiffs sought an order that the books of account of Dashboard Management be adjusted by adding $118,340 and $9,000 as debts due from Ms Zhao.

530 Ms Zhao relied upon her reimbursement submissions.

531 Ms Zhao submitted that Mr Chen would normally pay expenses incurred by Dashboard Management, but if he was short from the arbitrage, he would ask Ms Zhao to put funds in temporarily, but most of the time this didn't happen, so she would just withdraw the funds straight after. At trial, Ms Zhao provided examples of money transfers, which can be found in table 3 of her chronology, showing withdrawals and deposits for each amount. Ms Zhao submitted that she paid costs for Dashboard Management which can be found in the expert report of Mr Bailey, and in table 3 of her chronology. She submitted, for example, that she paid $3,404 in marketing costs which would be evidenced by the supplementary court book and that she would provide the page number.

532 I find that Ms Zhao transferred $118,090 to her personal accounts from Dashboard Management and that this was not a reimbursement for any expense incurred by her on behalf of Dashboard Management. This excludes an additional sum of $250 sought by the plaintiffs. I address this shortly.

533 First, Ms Zhao transferred $118,090 to her personal bank accounts from Dashboard Management. Ms Zhao did not dispute this. I refer to table 2 of Ms Zhao's reimbursement submissions.

534 Second, I accept table 2 of the plaintiffs' reimbursement submissions except as to the sum of $250 on 23 July 2018. The receipt dated 27 July 2018 was for $250 (receipt 2.2 attached to Ms Zhao's reimbursement submissions) and the debit to the bank account of Dashboard Management was for $250 on 23 July 2018 identified as 'IP Australia new applica' [sic].

535 Apart from Ms Zhao's reimbursement submissions and the attached documents, Ms Zhao did not give any evidence that the payments she made to her personal accounts were reimbursements of amounts she had paid on behalf of Dashboard Management. The amount of $118,090 is constituted by all of the payments as set out in table 2 of the plaintiffs' reimbursement submissions, except the sum of $250 I have already addressed.

536 I also find that Ms Zhao transferred $9,000 to her personal credit card accounts from Dashboard Management and that this was not a reimbursement for any expense incurred by her on behalf of Dashboard Management.

537 First, Ms Zhao transferred $9,000 to her personal credit card accounts from Dashboard Management. Ms Zhao did not dispute this. I refer to Ms Zhao's reimbursement submissions table 5 of the plaintiffs' reimbursement submissions and attached documents.

538 Second, I accept the plaintiffs' reimbursement submissions insofar as they concern Dashboard Management. Apart from Ms Zhao's submissions and attached documents, Ms Zhao did not give any evidence that the payments she made to her personal accounts were reimbursements of amounts she had paid on behalf of Dashboard Management. The amount of $9,000 is constituted by the following payments as is set out in table 5 of the plaintiffs' reimbursement submissions:

Did Ms Zhao use funds for non-business purposes as follows: Digital Silo to Ms Zhao's accounts: $31,167 and Ms Zhao's credit card accounts: $101.84

539 The plaintiffs allege that Ms Zhao, wrongfully and, inter alia, in breach of the Blockchain Business Agreement, transferred and/or procured the transfer of funds from Digital Silo to her personal bank accounts in the amount of $31,167 as particularised in table 3 of Part E of the plaintiffs' chronology, and to her credit cards in the amount of $101.84, as particularised in table 5 of Part E of the plaintiffs' chronology. The Zhao parties deny this, though admit that Ms Zhao transferred money to her personal bank accounts and credit cards and allege that it was for the purpose of reimbursing herself for business expenses she had paid from her own funds and that the reimbursement occurred with the knowledge and consent of Mr Chen.

540 Again, it is convenient to address the relevant background when addressing the analysis.

541 The plaintiffs addressed Digital Silo and the alleged use of funds by Ms Zhao in:

(a) table 3 of the plaintiffs' reimbursement submissions (part of Annexure B to these reasons), concerning payments to Ms Zhao's personal accounts (excluding credit cards);

(b) table 5 of the plaintiffs' reimbursement submissions (also part of Annexure B to these reasons), concerning payments to Ms Zhao's personal credit cards.

542 The plaintiffs sought an order that the books of account of Digital Silo be adjusted by adding $31,167 and $101.84 as debts due from Ms Zhao.

543 Ms Zhao relied upon her reimbursement submissions.

544 Ms Zhao submitted that she loaned funds to Digital Silo (seen in table 2 of her chronology), but Mr Bailey did not count the funds she loaned to the company, but only the funds transferred back to her.

545 I find that Ms Zhao transferred $31,167 to her personal accounts from Digital Silo and that this was not a reimbursement for any expense incurred by her on behalf of Digital Silo. I also observe that Ms Zhao was the a director of Digital Silo from 16 May 2018 to 12 July 2018, and 6 August 2018 to 9 September 2019, and secretary from 16 May 2018 to 12 July 2018 and 6 August 2018 to 9 September 2019. Two transactions took place on 27 and 31 July 2018 when Ms Zhao was not a secretary or director of Digital Silo.

546 First, Ms Zhao transferred $31,167 to her personal bank accounts from Digital Silo. Ms Zhao did not dispute this. I refer to table 3 of Ms Zhao's reimbursement submissions.

547 Second, I accept table 3 of the plaintiffs' reimbursement submissions. Apart from Ms Zhao's submissions and attached documents, Ms Zhao did not give any evidence that the payments she made to her personal accounts were reimbursements of amounts she had paid on behalf of Digital Silo. The amount of $31,167 is constituted by all of the payments as set out in table 3 of the plaintiffs' reimbursement submissions.

548 I find that Ms Zhao also transferred $101.84 to her personal credit card accounts from Digital Silo and that this was not a reimbursement for any expense incurred by her on behalf of Digital Silo

549 First, Ms Zhao transferred $101.84 to her personal credit card accounts from Digital Silo. Ms Zhao did not dispute this. I refer to table 5 of Ms Zhao's reimbursement submissions and attached documents.

550 Second, I accept table 5 of the plaintiffs' reimbursement submissions insofar as they concern Digital Silo. Apart from Ms Zhao's reimbursement submissions and attached documents, Ms Zhao did not give any evidence that the payments she made to her personal accounts were reimbursements of amounts she had paid on behalf of Digital Silo. The amount of $101.84 is constituted by the following payments as is set out in table 5 of the plaintiffs' reimbursement submissions:

Did Ms Zhao use funds for non-business purposes as follows: Blockchain Tech to Apex: $168,886.15 and Digital Silo to Apex: $9,767

551 The plaintiffs allege that Ms Zhao, wrongfully and, inter alia, in breach of the Blockchain Business Agreement, transferred and/or procured the transfer of funds from companies in the Blockchain Business to Apex in the amount of $561,883.

552 The Zhao parties deny the alleged breaches, but otherwise admit that Ms Zhao transferred money to Apex to reimburse Apex for the payments of wages, superannuation, and contractor payments, and further allege that Apex was used as a conduit to pay the wages of the employees and some contractors of Blockchain Tech, employees of Dashboard Management and Coin Loop, and some Digital Silo employees, with all payments made with Mr Chen's knowledge, approval and consent. The Zhao parties allege that neither Apex nor Ms Zhao benefited from any funds received by Apex from Blockchain Tech, Dashboard Management, Coin Loop or Digital Silo.

553 In his expert report, Mr Bailey summarised the payments to Apex as follows:

(a) $498,365 from Blockchain Tech;

(b) $21,600 from Dashboard Management;

(c) $13,605 from Digital Silo.

554 The plaintiffs also relied upon the matters set out in Part E of their chronology.

555 The plaintiffs sought an order that the books of account of Blockchain Tech be adjusted by adding '$178,886.15' (this appears to be an erroneous reference to the sum of $168,886.15) as a debt due from Apex and Ms Zhao and the books of account of Digital Silo be adjusted by adding $9,767 as a debt due from Apex and Ms Zhao.

556 I do not accept that payments were made to Apex by Blockchain Tech and Digital Silo that were not used by Apex to pay the expenses of Blockchain Tech and Digital Silo. This is because the plaintiffs have only identified the amounts that they 'accept' as being payments to Apex by Blockchain Tech, and Digital Silo that were used by Apex to pay their expenses. They do not identify why they accept the particular payments. In addition, the plaintiffs did not otherwise identify the payments that they did not accept or why they did not accept them.

Did Ms Zhao use funds for non-business purposes as follows: Blockchain Tech to account of Galaxy Crowdfunding: $24,945

557 The plaintiffs allege that Ms Zhao, wrongfully and, inter alia, in breach of the Blockchain Business Agreement, procured the transfer of $24,945 from the Blockchain Business to Galaxy Crowdfunding. The Zhao parties deny the breaches alleged but otherwise admit that Ms Zhao transferred money to Galaxy Crowdfunding, and allege that all transfers were made with Mr Chen's knowledge, approval and consent.

558 The Blockchain Tech account bank statement recorded a debit of $5,000 with the description 'INTERNET WITHDRAWAL 29MAY 11:07 Coinloop transfer' dated 29 May 2018. A bank statement for an account held by Coin Loop recorded a credit of $5,000 on 29 May 2018, with the transaction details as 'Direct Credit Blockchain TEC H Coinloop Transfer'. The Blockchain Tech account bank statement recorded a debit of $10,000 with the description 'INTERNET WITHDRAWAL 18SEP 18:52', dated 18 September 2018. A bank statement for the same account held by Coin Loop recorded a credit of $10,000 on 19 September 2018 with the transaction details as 'Direct Credit Bct Tfr Coin Loop', and a debit of $15,000 on 24 September 2018 (which comprised the whole account balance), with the transaction details as 'Account Closing Bank Cheque'. A transaction acknowledgement for this account indicated that this account was closed on 24 September 2018.

559 The Blockchain Tech account bank statement recorded a debit of $5,000 with the description 'INTERNET WITHDRAWAL 29MAY 11:10 Dashboard transfer' dated 29 May 2018. A bank statement for an account held by Dashboard Management recorded a credit of $5,000 on 29 May 2018 with the transaction details as 'Direct Credit Blockchain TEC H Dashboard Transfer'. A further bank statement for this account recorded two debits of $4865.12 and $10 on 21 August 2018 (which comprised the whole account balance), with the transaction details as 'Account Closing Tfr to New Account 22828641' and 'Account Maintenance Fee', respectively. The account with the account number 22828641 was also held by Dashboard Management, and received a credit of $4,865.12 on 21 August 2018. A further bank statement for this account recorded two debits of $4,955.14 and $10 on 24 September 2018, with the transaction details as 'Account Closing Bank Cheque' and 'Account Maintenance Fee', respectively. A transaction acknowledgement for this account indicated that this account was closed on 24 September 2018.

560 The Blockchain Tech account bank statement recorded a debit of $5,000 with the description 'INTERNET WITHDRAWAL 29MAY 11:12 Bitgrowth transfer' dated 29 May 2018. A bank statement for an account held by Bitgrowth Advisory recorded a credit of $5,000 on 29 May 2018, with the transaction details as 'Direct Credit Blockchain TEC H Bitgrowth Transfer'. A further bank statement for this account recorded a debit of $5,000 on 24 September 2018 (which comprised the whole account balance), with the transaction details as 'Account Closing Bank Cheque'. A transaction acknowledgement for this account indicated that this account was closed on 24 September 2018.

561 A Commonwealth Bank of Australia receipt records a cheque deposit into a savings account ending in 8112 of $24,945.14 on 24 September 2018. The cheque appears to be addressed to Galaxy Crowdfunding.

562 The plaintiffs submitted that the amount of $24,945 comprises amounts transferred by Ms Zhao from Blockchain Tech to Galaxy Crowdfunding via accounts held with the Bank of Queensland. They submitted that the reason for the transfer of funds is unclear, does not emerge from the evidence, had no authorisation by Blockchain Tech, and the transactions represent a transfer of Blockchain Tech's funds for the ultimate benefit of Galaxy Crowdfunding, not for the benefit of Blockchain Tech.

563 Ms Zhao submitted that a cheque was deposited into Galaxy Crowdfunding's bank account of $24,945.14 as set out in table 1 of her chronology, but the cash was then transferred back to Blockchain Tech or Dashboard Management, and this can be shown in the expert report of Mr Bailey. Ms Zhao pointed to two transactions from Galaxy Crowdfunding to Dashboard Management on 27 March 2019 in the expert report of Mr Bailey. Ms Zhao submitted that Blockchain Tech transferred funds to Galaxy Crowdfunding as seen in the expert report of Mr Bailey and that Galaxy Crowdfunding would then return the money when Blockchain Tech lacked funding, but the payments going from Galaxy Crowdfunding were not accounted for by Mr Bailey.

564 I accept that the sum of $24,945.14 paid to Galaxy Crowdfunding on 24 September 2018 was from the funds of Blockchain Tech.[134] I am not satisfied that this amount was then paid back to Blockchain Tech. Ms Zhao did not give evidence in support of her submissions that it was. There is evidence that Galaxy Crowdfunding did make some payments to, inter alia, Dashboard Management. I refer to the payments on 27 March 2019 that are set out in page 332 of the court book. There was no evidence, however, as to why it made these payments or that they concerned the monies that had otherwise been contributed by Blockchain Tech.

Did Ms Zhao fail to keep adequate books and records of the Blockchain Business?

565 The plaintiffs allege that Ms Zhao failed to keep proper books and records of the Blockchain Business. The Zhao parties deny this and allege further conduct and responsibility of those associated with the companies in the alleged Blockchain Business.

566 Ms Zhao held the following roles in the companies in the alleged Blockchain Business:

(a) Blockchain Tech: Ms Zhao was the secretary from 17 January 2019 to 19 June 2019.

(b) Dashboard Management: Ms Zhao was director from 7 May 2018 to 28 December 2018, and 4 June 2019 to 9 September 2019, and secretary from 26 April 2018 to 10 September 2019.

(c) Coin Loop: Ms Zhao was the sole director from 16 May 2018 to 9 September 2019, and secretary from 9 April 2018 to 9 September 2019.

(d) Digital Galaxy: Ms Zhao was the director from 9 April 2018 to 9 September 2019, and secretary from 9 April 2018 to 9 September 2019.

(e) Digital Silo: Ms Zhao was director from 16 May 2018 to 12 July 2018, and 6 August 2018 to 9 September 2019, and secretary from 16 May 2018 to 12 July 2018 and 6 August 2018 to 9 September 2019.

567 I have already found that Ms Zhao was the Chief Financial Officer of Blockchain Tech, Coin Loop, Digital Galaxy, Dashboard Management and Digital Galaxy.

1. My review is primarily based on a review of the bank statements of the entities in the Blockchain Group and an attempt to identify the receipts (credits) and payments (debits) recorded in the bank statements. Based on this review I have completed a statement of cash flows summarising identified and unidentified transactions (refer Section F of this report).
2. This approach was adopted as based on my review, in my opinion the:

1. Financial statements for entities in the Blockchain Group were not provided and or not reliable

1. In a meeting with Mr Weinberger and Mr Andreou on 6 November 2019, I was advised that "that some entities have financial statements, some only draft and some entities have none".
2. During the course of the Engagement, I received one set of signed, audited financial statements out of a possible 18 (6 entities over 3 financial years (FY18 to FY19; YTD 20)).

b. Income tax returns were not provided

1. In a meeting with Mr Weinberger and Mr Andreou on 6 November 2019, Mr Weinberger advised that there were no income tax returns for the Blockchain Group as far as he was aware.

2. During the course of the Engagement, I received one income tax return out of a possible 12 (6 entities over 2 financial years (FY18 and FY19)).

c. Management accounts are not reliable

1. Management accounts (profit and loss and balance sheets) received for Blockchain Group entities are marked 'DRAFT UNCHECKED';

2. Blockchain Tech's balance sheet includes a clearing account (liability) with a balance of ($581,894) as at 30 June 2018; ($614,090) as at 30 June 2019 and 31 October 2019.

3. History and Notes report for Blockchain Tech for the period 1 April 2019 to 13 September 2019 indicates on 11 July 2019, a total of 42 transactions with a value of $583,337 have been edited, unreconciled, deleted, or voided.

Although it is unclear as to the nature and or purpose of the editing of these transactions, I have not been able to identify that any of the amounts have been deleted in respect to payments for the benefit of the Plaintiff or Defendants.

569 The plaintiffs submitted that Ms Zhao had obligations in each of her roles as director in Dashboard Management, Digital Silo, Digital Galaxy, and Coin Loop, and secretary of Blockchain Tech, to keep proper books and records of the companies. They submitted that the extent of Ms Zhao's control was apparent when Mr Chen's access to Xero was blocked. The plaintiffs submitted:

1. Mr Bailey's evidence is that the books and records of the companies had been kept in such a way that it was impossible for him to rely on the Xero and Quickbooks accounts to prepare his report. Instead it was necessary for him to examine the underlying bank accounts and, effectively, reconstruct what had occurred from scratch.

570 I am not satisfied that Ms Zhao failed to keep proper books and records for Dashboard Management, Digital Silo, Digital Galaxy, Coin Loop and Blockchain Tech.

571 First, the plaintiffs in their closing submissions do not adequately identify the books and records that they say Ms Zhao failed to keep. The plaintiffs allege in their further amended points of claim a list of books and records that they allege that Ms Zhao failed to keep. None of these were adequately addressed in the plaintiffs' closing submissions. Instead they submitted that 'Mr Bailey's evidence is that the books and records of the companies had been kept in such a way that it was impossible for him to rely on the Xero and Quickbooks accounts to prepare his report'. They did not otherwise develop or explain this submission.

572 Second, the plaintiffs in their closing submissions do not adequately identify why the books and records are inadequate.

573 Third, the plaintiffs in their closing submissions do not adequately identify how Ms Zhao was responsible for any particular inadequacy in any particular books and records.

Did Ms Zhao void or delete entries in the general ledger of Blockchain Tech?

574 The plaintiffs allege that Ms Zhao amended, voided and deleted numerous entries in Blockchain Tech's general ledger with no or no proper justification, with the effect that Ms Zhao's liabilities to Blockchain Tech were decreased. The Zhao parties deny this, though admit that Ms Zhao changed the account name 'Loans - Leah and Jin' in respect of account 910 to 'Loan - Jin', as alleged by the plaintiffs.