Tse v Ngo - [2025] NSWSC 117 - NSWSC 2024 case summary — Zoe

NSWNSWSC

Tse v Ngo

[2025] NSWSC 117

Supreme Court of NSW|2024-12-18|Before: Rees J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2024-12-18

Before

Rees J

Catchwords

[2018] HCA 43 Aucare Dairy (Aust) Pty Ltd v Huang (No 3) [2019] FCA 412
[1929] HCA 24 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
[2001] NSWCA 61 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833
2001 FCR 424 Briginshaw v Briginshaw [1938] HCA 34

Source

Original judgment source is linked above.

Catchwords

[2018] HCA 43 Aucare Dairy (Aust) Pty Ltd v Huang (No 3) [2019] FCA 412[1929] HCA 24 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153[2001] NSWCA 61 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 18332001 FCR 424 Briginshaw v Briginshaw [1938] HCA 34[1970] HCA 11 Huntington Copper Co v Henderson (1877) 4 R 294 JR Consulting & Drafting Pty Ltd v Cummings (2016) 239 ALR 625204 CLR 333 TX Australia Pty Ltd v Australian Competition and Consumer Commission [2020] FCA 1100(2020) 147 ACSR 201 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1

Judgment (25 paragraphs)

[1]

Ltd v Gulliver [1967] 2 AC 134 Ryan v Starr [2005] NSWSC 170 Scott v Davis [2000] HCA 52; 204 CLR 333 TX Australia Pty Ltd v Australian Competition and Consumer Commission [2020] FCA 1100; (2020) 147 ACSR 201 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; [1986] HCA 49 Williams v Nicoski [2003] WASC 131 Wright v Lemon (No 2) [2021] WASC 159 Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678 Texts Cited: Graw, Stephen, An Outline of the Law of Partnership (5th ed, 2018) Parkinson, Patrick, The Principles of Equity, (2nd ed, 2003) Category: Principal judgment Parties: Gordon Tse (First Plaintiff) Tiehong Chen (Second Plaintiff) Viet Ngo (Defendant) Representation: Counsel: S Jacobs / V Misra (Plaintiffs)

[5]

Evidentiary matters

The burden of proof rests on the plaintiffs. The standard of proof is the civil standard, being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: Evidence Act 1995 (NSW), section 140(2); Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 at 362 (per Dixon J). Further, at 361: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found." If the Court is unable to choose between competing versions, the party on whom the onus lies will not succeed: Neville v Lam (No 3) [2014] NSWSC 607 at [99], Beech-Jones J.
Turning to the documentary evidence, the parties' dealings run from 2011 to 2015 (when the warehouse was purchased) and onto 2023. Few documents are in evidence from the early years, perhaps because it is more than a decade ago. The volume of material in evidence from later years is greater. But the critical date at which to ascertain the nature of the parties' legal relationship is when the Chester Hill warehouse was acquired in 2015. The parties' subsequent conduct is also admissible as to whether there was a partnership, joint venture or agency agreement: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]-[26]; Deputy Commissioner of Taxation v O'Donoghue [2022] WASC 153 at [16] per Archer J, citing Fazio v Fazio [2012] WASCA 72. Such conduct may also amount to an admission against interest as to the terms of the agreement: JR Consulting & Drafting Pty Ltd v Cummings (2016) 239 ALR 625; [2016] FCAFC 20 at 637, [54] (per Bennett, Greenwood and Besanko JJ). When considering subsequent conduct, however, I have borne in mind that the parties' business arrangements were not static and did evolve over time.
Turning to the witnesses, the plaintiffs, Gordon Tse and Tiehong (Donald) Chen, gave evidence together with bookkeeper Hai (Elaine) Xia Song, accountant Yang Liu and solicitor Kanin Lwin. All but the solicitor were cross-examined. Mr Chen and Ms Song gave evidence using a Chinese translator. No issues of credit arose.
The defendant, Viet (Tom) Trung Ngo, gave evidence through a Vietnamese translator, even though he has lived in Australia for 30 years and studied English for a short time. Whilst the defendant professed to have little English capability, he obviously communicated with the plaintiffs in English (and Cantonese), where there was no suggestion that the plaintiffs spoke Vietnamese.
Mr Ngo appeared stressed and gave evidence in a hesitant and halting manner. He looked uncomfortable, often looked down and cleared his throat frequently. Whilst the plaintiffs' witnesses were at ease, confident and forthcoming, he was guarded. The defendant proved to be an unsatisfactory witness, giving evasive and non-responsive answers.
Some of the defendant's evidence was unlikely, for example, that his frequent use of the abbreviation "SS" in documents was not a reference to "Smart Shop". Rather, the plaintiffs said, "I like to use SS, because it sounds - it sounds nice. Smart. … It doesn't mean that I'm actually part of Smartshop." In re-examination, the defendant gave a different answer, saying that he copied the plaintiffs' business name when he first started the business, as his business was not well known, "and that's why I copied the name. I didn't have much experience, so I actually copied the name so that … they will think that I'm smart." I did not accept this evidence.
Another example is the defendant's evidence in respect of the multilingual contract. There was no suggestion in the defence that the defendant had not executed the document, but simply that he did not recall the document. The defendant denied that the signature was his during cross-examination: see [37]. I attach no weight to the defendant's late disavowal of his signature.
The defendant also disavowed his frequent use of the words "we", "our" and "us" in his emails and texts to the plaintiffs, when discussing their business arrangement, "My English is not good. Therefore, sometimes I actually got mixed up of the use of "I" and "we"." The defendant said "we" was, in fact, a reference to "I"; "we was used just in a polite way, that's all." The fact that the defendant also used the word "I" in his various contemporaneous communications did not change his answer. Similarly, the defendant distanced himself from a text referring to "our business in China": "I believe that there was a typo mistake there in the word "business". I think that I meant businesses, our businesses. It means that between Australia and China." The defendant denied that the numerous emails between himself and the plaintiffs evidenced a partnership relationship, suggesting that the communiques were explained by the closeness of his relationship with Mr Chen, "Well, we actually were doing business together just as friends, and that's why sometimes we actually talk and share with each other." This evidence was unlikely, where there was no suggestion that the two were friends.
The defendant was not writing in his first language. I accept that this led to infelicities in expression from time to time. Indeed, none of the authors were communicating in their first language; the precise import of some of their emails and text messages is unclear. But the overall picture which emerges from contemporaneous communications over more than a decade is that of a collaborative business relationship. The issue in this case is the type of business relationship and the legal duties, if any, which that relationship imposed on the defendant.
The defendant's version of events also bears no resemblance to what emerges from the contemporaneous documents. In the result, I have not accepted the defendant's evidence unless corroborated by a contemporaneous document, the evidence of another reliable witness, or evidence given against his own interest.

[6]

Initial dealings

Mr Chen is a businessman from the Guangdong province in The People's Republic of China. He is the majority shareholder and a director of Guangzhou Four Bang Technology Ltd Co (Four Bang). Four Bang sells car accessories. In 2011, Mr Chen wanted to sell car accessories in Australia.
Mr Tse is an Australian-Chinese businessman. He has a company in China called Golden Sample International Ltd (Golden Sample). Mr Tse also has businesses in Australia and regularly travels between the two countries. Mr Chen and Mr Tse discussed selling car accessories in Australia. Mr Chen said, "we need a partner in Australia to look after the shipment."
Mr Tse approached Australian colleague, Eli Shamon, to see whether he wanted to be part of a business selling car accessories online. Mr Shamon thought it was a good idea.
The defendant's brother-in-law was in business with Mr Shamon through a company called Tano International Pty Ltd trading as "Baron Office Furniture". The defendant was also doing some business with his brother-in-law through a company called Great Current Pty Ltd. The defendant met Mr Shamon through his brother-in-law. To this point in time, the defendant had explored various business opportunities including car detailing, selling home insulation and flooring, exporting Australian vitamin products to Vietnam and exporting Australian milk powder products to China.
On 5 September 2011, the defendant created two eBay stores called "gordonsmartshopsmartshop" and "donaldsmartshopsmartshop" (which later became "greatcurrent-donald"). Mr Chen said that the defendant worked for Mr Shamon at the time; presumably the defendant created these eBay stores on Mr Shamon's instructions. But the two stores belonged to the joint business between the plaintiffs and Mr Shamon.
Some support for this may be found in the contemporaneous documents. On 16 September 2011, an employee of Mr Tse in China reported that application had been made to establish a new company "For Dr Eli", called Shop Smart International Ltd, "This company is to run business for the eBay project that Tom and [the brother-in-law] will be working for." At the time, Chinese regulations limited foreign currency transfers. Mr Chen said that Shop Smart International was registered in Hong Kong and used by the plaintiffs to consign car accessories to Australia. Money earned in Australia was sent to Shop Smart International or Golden Sample's Hong Kong bank accounts, before being forwarded onto mainland China.
Mr Chen drafted an agreement between the plaintiffs and Mr Shamon, which was signed by all. The plaintiffs no longer have a copy of the signed agreement, given the passage of time and that Mr Shamon has since passed away. (Mr Shamon died in November 2013.) It would appear that Mr Chen retains an electronic copy of the agreement on his computer, as he said that the document was 'last saved' on 30 September 2011. The electronic copy was not produced. It is open to infer that the contents of the document do not assist the plaintiffs. I will return to this at [36].
The plaintiffs said that they went into business with Mr Shamon, consigning car accessories from China for sale through e-commerce stores in Australia. Mr Chen was responsible for purchasing the goods and sending them to Sydney. Mr Shamon was responsible for organising people to pack and post the items. The plaintiffs described their relationship with Mr Shamon as a partnership in which each would invest equally and profits would be shared equally.
Mr Tse said he invited the defendant to join as an employee of the partnership, which he did. The defendant's role was to open e-commerce stores and fulfill orders placed by customers via the e-commerce stores. Some support for this may also be found in the contemporaneous documents. In October 2011, Mr Tse's employee emailed the defendant instructing him to buy a laptop and printer in Australia and "Katrina will explain Ebay shop setting to you". Katrina Cho was Mr Tse's bookkeeper. Ms Cho emailed the defendant in relation to setting up Paypal and eBay accounts in Australia and the shipment of the first consignment to Baron Office Furniture, "Donald said ebay would call the seller and ask some questions could you help me to set up the selling function of ebay?". The defendant asked for assistance, "Selling function on eBay. I have not done that before. … I will try to do it." Ms Cho provided instructions. In November 2011, Mr Tse's employees pressed the defendant to complete these tasks, "We are really running out of time. … Otherwise, we are paying expenditures here and waiting."
The first shipment of products was sent to Baron Office Furniture, which Mr Chen understood was a company that was cooperating with Mr Shamon. (Mr Shamon was a director and shareholder of Tano International, trading as Baron Office Furniture.) The shipment arrived in March 2012. In May 2012, the defendant transferred funds to Mr Tse in Hong Kong.
Turning then to the defendant's version of events, the defendant said that he set up Great Current with a view to providing logistic services to companies selling products online and importing the products from overseas. He intended to store the products and send the items out by post or courier to customers in Australia. The defendant said he provided logistic services to the plaintiffs, charging a fee for storage and delivery or postage of the items sold. The defendant did not consider himself to be an employee but a contractor providing logistic services for a fee.
The defendant's explanation as to why he was establishing eBay stores with the plaintiffs' names in the title is more complex. In short, he purchased the car accessories in the first container shipped by the plaintiffs. He opened the eBay stores with their advice and thus decided to name the stores in their honour. The defendant said that he sold car accessories on these two stores for Great Current.
There are two problems with the defendant's version of events. The first problem is that there are no contemporaneous documents supporting the charging of a fee by the defendant to the plaintiffs for logistic services. Second, the suggestion that the two eBay stores were established in September 2011 to sell a container of car accessories does not make sense where the container did not arrive in Australia until six months later, in March 2012.
I find that the business arrangements between the plaintiffs, Mr Shamon and the defendant were as described by the plaintiffs, leaving to one side the legal character of that relationship.

[7]

The contract

The arrangement with Mr Shamon was short-lived, only lasting for six months. Mr Chen said there was no profit share when Mr Shamon left the partnership, as the partnership had only operated for a short period of time "so there wouldn't be profits … for the initial stage of the business; it's usually more investment rather than making profits."
Mr Shamon's resignation left the plaintiffs without a partner in Australia to oversee the receipt and sale of car accessories. The plaintiffs approached the defendant, who confirmed that he would like to be involved in the business. According to Mr Chen, "it was Tom who asked us to give him this opportunity to join the business." Mr Tse recalled, "When Tom asked me one day, he call me, that, "Can I - boss, can I take over Eli share?" and I said, "I got to ask Donald," you know, because Donald the one originally started, you know, the business, and then - and then Donald said, "Okay, fine."
No agreement was signed at the time. Mr Chen said, "we already told Tom that we will follow what's ever written in the agreement with Eli, so we don't have to make any changes." The plaintiffs continued to supply the defendant with products. The defendant continued to perform his role in fulfilling customer orders.
The contemporaneous records indicate that the defendant, with the assistance of his brother-in-law, was then running the Australian operations for the importation and distribution of car accessories supplied by Mr Chen, and using Great Current to do so. On 21 March 2013, Great Current transferred $40,000 to Shop Smart in Hong Kong. On 11 April 2013, the defendant emailed Ms Cho in respect of Smart Shop's operations, noting the business' revenue and expenses. The (apparently) weekly expenses were $1,900 plus postage, which "I mention to Donald". Further: I have paid all mine share $20.000 We are reaching $1300 to $14.000 / week. I will open 2 more stores.
The defendant agreed that the reference to $20.000 was intended to refer to AUD$20,000. Mr Chen said the defendant paid $20,000 to Mr Shamon to buy his share in the business. The defendant denied this.
The defendant continued in his email of 11 April 2013: (emphasis added) End of financial year I wil report all Turn over. Money sent back. Expense and tax pay in Australia. So that You can keep track on the operation as a whole. For tax purpose we want minimise the tax income for company. … [My brother-in-law] is no longer working with me. So he is not in Smart shop any more. I will create another company. Everything is still the same. Will inform you once everything is done.
On 17 April 2013, the defendant incorporated Great Current Australia Pty Ltd. He was the sole director and shareholder. As I read the defendant's email of 11 April 2013, Great Current Australia would now be the corporate vehicle used for "Smart Shop", rather than Great Current. (In September 2014, Great Current was deregistered.) The defendant opened a bank account in the name of the new company, together with a PayPal account and an account with eBay.
On 23 April 2013, Mr Tse emailed the defendant and Mr Chen: (emphasis added) In Business world, as a shareholder, they must contribute more than normal employee does. … On the positive side. Shopsmart business has been doing well. … As a partner, we all have our own roles ot enter this business, like Tom is in charge of the logistic. … I believe Donald and his team perform their work in professional standard. That is one of the reasons why the business doing well. … That's all about TAKE AND GIVE.
Mr Chen said that, as the defendant had paid Mr Shamon for his share in the business, they decided to sign another agreement with the defendant. Mr Tse and Mr Chen drafted a contract. In June 2013, the plaintiffs and defendant signed an 11-page multilingual contract entitled "Shop Smart International Limited Contract". The contract began, "This agreement is about the establishment and the operation of the cooperation of Shopsmart International Limited". Of course, Shopsmart International had already been established. The Hong Kong company was registered in September 2011, when the contract between the plaintiffs and Mr Shamon was 'last saved'. I infer that the "Shop Smart International Limited Contract" was prepared using the contract between the plaintiffs and Mr Shamon as its starting point.
In his affidavit, the defendant said that he did not recall signing the contract in June 2013. In cross-examination, however, the defendant went further and said "I actually never saw this contract before. … This signature just looks like mine. I didn't sign that document." I attach no weight to this late denial. Any suggestion that the defendant's signature was falsified should have been pleaded in the defence and was not.
The defendant submitted that the Court should be wary of the suggested partnership agreement signed in 2013. I consider that the imperfections in the document tend to support its authenticity. If the plaintiffs had created the document more recently, it would have been a simple matter to correctly record the state of affairs for which the plaintiffs contend, including that Shop Smart International had already been incorporated and that the parties were "partners". Instead, the document refers to a "cooperation" and contains errors based on, likely, incomplete amendments to the original contract signed by Mr Shamon in September 2011. Whilst it is not open on the pleadings for the defendant to contest that he signed the document, I am satisfied that the contract was authentic and signed by the defendant at the time.
The first clause of the contract, "Investment Proportion", provided that Shop Smart International would be "invested jointly" by the plaintiffs and defendant. Share capital was 400,000 shares at a par value of RMB1.00 per share. The plaintiffs and defendant were each allotted one-third of the shares. The defendant submitted that the Court would not be satisfied that $20,000 was equivalent to one-third of RMB 400,000, where there was no evidence of the exchange rate between the two currencies in June 2013. Nor do I think it matters. The first clause attributed a par value to the shares, this being the face value or nominal value of a company's share, unrelated to actual or market value.
The defendant's email of 11 April 2013, reporting that he had paid his "share" of $20,000, is equivocal as to whether this was his share of, say, business expenses or Mr Shamon's share of the business. However, the fact that the parties signed the "Shop Smart International Limited Contract" two months later suggests that "I have paid all mine share $20.000" was indeed a reference to acquiring Mr Shamon's share in the business, and I so find.
The second clause of the contract, "Benefit Distribution", provided that benefit distribution was according to the proportion of investment of the parties, being one-third each.
The third clause, "Operation Mode", provided: "Basing on www.ebay.com.au as platform for online product sales and customer service in China. Product manufacture and purchase base in China, and storage base in Australia. Attachment 1 [shows] the specific IDs. If new IDs need to be added, they should be confirmed and signed by two parties as attachment mode. The attachment has common legal effect with this agreement."
The attachment to the contract provided details of the two eBay stores set up by the defendant: see [18]. As will be seen, additional e-commerce stores were established by Mr Chen and the defendant in the years which followed, but Attachment 1 was not formally amended.
The third clause continued to describe each gentleman's role. Mr Tse was responsible for financial and accounting oversight, marketing and business development and was the "leading party" of the three parties. Mr Chen was responsible for daily operations, the supply of goods, quality control and the management of staff and professional training. The defendant was in charge of online sales, warehouse management and online delivery management.
The fourth clause of the contract, "Finance Management", provided that the defendant "should send the money back to the major bank account on the 1st & 15th of each month." A monthly shareholders meeting was to take place, at which Mr Tse would provide monthly accounts for discussion. (So far as the evidence reveals, this did not happen.) The contract further provided, "During the cooperation, the expenses of project should meet the agreement of two parties." The fourth clause then provided for the distribution of business proceeds "Only when the proceeds after deducting costs is more than the total investment capital", and then leaving 40% of the funds for project development. Further, "The specific proceeds distribution principle is made every three months or decided by the shareholders." The clause also set out the procedures for approving bank transfers or acquiring additional assets "in the co-operation period", as well as the distribution of net assets "Once the project is terminated (during the co-operation or at the expiration of the project)".
The fifth clause of the contract concerned "Account Management". The contract listed four bank accounts: Shopsmart International's Hong Kong account, a bank account in mainland China, Shopsmart International's PayPal account and Great Current Australia's bank account. For each of these accounts, the contract provided "all account information and funds belong to the company". As I read it, "the company" was a reference to Shopsmart International. As such, Great Current Australia's bank account was described as an account used by the parties "in the co-operation period" and for the project pursued through Shopsmart International.
The contract proceeded to deal with the misappropriation of funds by any party (which could not be regarded as part of the project cost) and the sale of shares (requiring the consent of the other parties, who had an option to buy the shares). The contract imposed restrictions on each party: a party could not obtain finance in the name of the other parties without their consent; Further, "Without the consent of three parties, any party or individual shall not change any account and any information about the EBAY shop."
The contract could be terminated for breach, "If any party violate any terms in the agreement and fail to fulfill their respective responsibilities and management systems". While the contract did not specify a fixed term of the agreement, the contract provided, "At the expiry of the agreement, three parties have the right to renewal of the contract under the same conditions." The contract addressed intellectual property, providing "The patent rights of project trademarks … belong to tripartite."
Finally, in the event of a dispute which the parties could not resolve "on the friendly principles", then the parties "may apply to the Guangzhou People's Court in Guangdong Province, China." Contrary to the defendant's submission, the dispute resolution clause was permissive but not mandatory: Ace Insurance Ltd v Moose Enterprise Pty Ltd [2009] NSWSC 724 at [33] (Brereton J). It was a non-exclusive jurisdiction clause: FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 117 at 126-7 (Giles J). This Court is not thereby deprived of jurisdiction. Nor did the defendant seek a stay.

[8]

"The partnership"

Mr Chen continued to organise the consignment of car accessories to the defendant in Australia, at cost without any mark-up. Four Bang's employees monitored the inventory levels for each e-commerce store and organised the consignment of further car accessories whenever the online inventories appeared low. The listing of items and the prices of those items was also done by Mr Chen's team in China. The defendant's role was to pack the items sold in the eBay store and take them to Australia Post for dispatch. According to Mr Chen, the defendant then ran Great Current Australia "on behalf of the partnership. That's our understanding."
Mr Chen said the business practice was that the defendant would send Great Current Australia's financial statements to Mr Tse's bookkeeper, Ms Cho. The bookkeeper used these financial statements to prepare reports for Mr Tse in respect of the revenue and expenses of Great Current Australia. Mr Tse then provided these reports or verbal summaries of the reports to Mr Chen. Mr Chen's team also provided Ms Cho with financial statements about the expenses incurred by Four Bang with respect to the consignment of car accessories to Australia and inventory management for the e-commerce stores. Ms Cho would then determine the profit generated by the business. Mr Chen said the defendant would periodically remit money to Shop Smart to cover the expenses incurred by Four Bang with respect to the car accessories business and the profit to be distributed to the plaintiffs for that financial year.
Mr Tse said, "We split the profit four or five times." The defendant and plaintiffs discussed that they had been lucky to get their money back, "You know, whatever we put in, I think we get it back [in] the first two years." Mr Tse added that the money that the partners sent to the Hong Kong bank account "we just borrow the money for purchasing the next lot of goods, and then - with whatever left over … we just share it three way". Mr Chen said that after 2015, the defendant did not provide financial figures regarding the Australian operations "so we couldn't calculate the profits."
Turning then to the defendant's version of events, the defendant denied that there was any partnership and said that he was only using the plaintiffs' services to obtain quality assurance and quality control on goods being imported from China for a monthly fee. Mr Tse denied this, "Never, ever. We never do that thing. For all my memory … we never, ever charge Tom any service fee."
As was pointed out in cross-examination of the defendant, but not squarely answered, there is no mention of any monthly fee in the contemporaneous records. There were no invoices in respect of such fees, either in these early years or at all. While the financial statements for Great Current Australia were prepared by a local accountant on the defendant's instructions, the profit and loss statements do not record any fee paid to the plaintiffs for the services described by the defendant. Nor does the revenue disclose income from logistics services said to have been provided.
Also in evidence are bank statements for the Great Current Australia's bank account in these early years. The bank statements record deposits made by (apparently) customers and PayPal. From time to time, funds were transferred from Great Current Australia to Golden Sample in Hong Kong. That is, the defendant was collecting revenue and remitting it to his business associates in Hong Kong and onto mainland China. On the face of it, the defendant was conducting himself in accordance with his responsibilities described in the "Shop Smart International Limited Contract".

[9]

The warehouse

In 2014, the defendant called Mr Chen and said that the existing warehouse (in the defendant's backyard) was inadequate. The defendant said he had found a new warehouse which was about 300 square metres and the rent was some $3,000 a month. The defendant said it would be enough to support their business operations. Mr Chen gave this information to Mr Tse, "Because three of us are partners … until three of us all agree, then we can go ahead with the warehouse." The plaintiffs gave the defendant the 'go ahead' to lease the warehouse.
In fact, the warehouse was purchased by the defendant and his wife. In October 2014, the defendant and his wife exchanged contracts to buy the warehouse in Chester Hill for $463,000 plus GST. The couple paid a 5% deposit of $23,150 by redrawing on their home loan. In January 2015, the couple made a further redraw on their home loan of $133,754.80. The defendant said this amount paid for 25% of the purchase price plus stamp duty. The balance due on settlement was $487,700.43. The purchase was completed in April 2015, with the assistance of bank finance. The defendant said the mortgage was $370,400.
Great Current Australia paid the rent on the warehouse. The defendant fixed the rent at $3,250 a month so as to cover the mortgage payments, outgoings, strata fees, insurance as well as some personal spending money.
The defendant accepted that he never told the plaintiffs that he was the owner of the warehouse, "I didn't advise them … nor did I tell them the rent amount because to me it was not any of their business". Nor did he accept that leasing the new warehouse was a joint business decision. The defendant did not agree that he looked for the warehouse after discussing it with the plaintiffs but, rather, said that he moved into the bigger warehouse and provided the plaintiffs with the new address afterwards, "I only boasted to them how big the warehouse was." The defendant said he only told them about the change of address as there was a change of shipping address, "And as friends, I actually sort of, like, boasted about my new warehouse."
I prefer the plaintiffs' evidence to that of the defendant. Contrary to his evidence, the defendant did report to the plaintiffs on the rent expense: for example, see [63]. As will be seen, the defendant regularly provided the plaintiffs' bookkeeper with financial information, which included the rental expense. The annual financial statements for Great Current Australia recorded a rental expense of $39,000; these financial statements were provided to the plaintiffs each year.
Further, on any view of it, the main source of the defendant's business was his dealings with the plaintiffs. I consider it likely that the defendant would have been careful to ensure that the plaintiffs were agreeable to renting the warehouse before he took the significant step of buying it, and borrowing funds to do so. Noteworthy, the Shop Smart International Limited Contract required that "the expenses of project should meet the agreement of two parties". Rent paid by Great Current Australia might be thought to be an expense of the project. The fact that the defendant consulted the plaintiffs before proceeding with the new warehouse is consistent with the procedures laid down in the contract.
The defendant later paid some $38,500 to install a raised storage platform in the warehouse. He retained an engineer. The defendant said he did not tell the plaintiffs about this, as it was "not any of their business what I do with my company … or my warehouse." The defendant and his wife later separated. In June 2020, the wife transferred her interest in the Chester Hill warehouse to the defendant, who refinanced the mortgage with another bank.

[10]

Business continues

In May 2015, the defendant sought approval from Mr Chen to pay a supplier some $26,000, where the GST on the sale could not be claimed, "Should I go ahead to pay him … and suffer the lost GST from this sale." In February 2016, the defendant emailed Mr Chen with monthly expenses, noting that annual turnover was then $1.3 million. Warehouse rent was $1,000 a week. Wages were $4,500 a week. Postage was $25,000 a month.
In late 2016, Ms Cho resigned. Mr Chen agreed to take over responsibility for bookkeeping. Mr Chen's bookkeeper, Ms Song, was tasked with reviewing the profit and loss statements, interim expense reports and other financial documents and statements emailed by the defendant. Ms Song said that the defendant emailed her these documents from time to time. Ms Song stored this material on her computer and extracted and consolidated the contents of these documents into spreadsheets. Ms Song provided Mr Chen with regular reports about the revenues and expenses of Great Current Australia.
In February 2017, Mr Chen sent a WeChat message to the defendant "can u stocktaking our stock product before this month?". The defendant agreed. In June 2017, the defendant sent Mr Chen the financial statements for Great Current Australia for the 2016 financial year. In August 2017, Mr Chen exchanged WeChat messages with the defendant, "We need to apply a BRAND to improve our company … it's more and more important in the future eBay sale … Our eBay salesmanager told us that BRAND can let our product listing up and up and if someone who want to buy our share, We can add the value". The defendant agreed to "seek some advice to make brand and develop brand".
In September 2017, Mr Chen exchanged WeChat messages with the defendant, instructing him to open a website on Pinterest.com. The defendant enquired, "Is this another channel to sell our products." Mr Chen confirmed this. In October 2017, Mr Chen instructed the defendant to open e-commerce stores on Amazon.com, "Pls register Amazon when u free … if easy to do, pls open 2". The defendant agreed.
In 2017, there was a change in Chinese regulations which meant that money could be paid directly from Australia to China as opposed to indirectly via Hong Kong. As a result, Mr Chen stopped using the Hong Kong company, Shop Smart International, and began using Four Bang to consign car accessories to Australia. At Mr Chen's request, the defendant began to remit money directly to Four Bang.
The e-commerce stores which Four Bang was operating in China were also then able to extend their operations into Australia. Mr Chen discussed with Mr Tse and the defendant using the Chinese e-commerce stores to help expand the eBay presence of the Australian car accessory business. Mr Chen proposed that the defendant would fulfill any orders that came through the Chinese e-commerce stores and any profits generated by these e-commerce stores in relation to Australia would be shared between each partner. Mr Tse and the defendant agreed. Mr Chen said that goods were sent from China to the defendant to be packed and posted to customers who had bought the items, either on the Chinese e-commerce stores (of which there were three) or the Australian e-commerce stores. Mr Tse said that the e-commerce stores in China and Australia were "always in one group. … They work together. It's under … one partnership. … The e-commerce store and the sourcing and exporting is one operation."
In January 2018, the defendant advised Mr Chen that the trademark "Autoszone" was available. Mr Chen agreed that the defendant should register the name. In March 2018, Ms Song, contacted the defendant, advising "now I want to make a full account of Shop Smart". Details were sought of all fixed assets in Australia worth more than 1000 yuan, together with the date of purchase and details of usage, "There will be a lot of information to ask for later". The defendant agreed. Mr Chen also asked the defendant, "PLS register Amazon's account ASAP. … We need some products use Amazon's FBA post service to promote our store". The defendant agreed.
In July 2018, the defendant exchanged WeChat messages with Ms Song, asking, "Pls sent me the cost of running in china. Also the money we buy stock". The defendant asked for this information to be sent quarterly, noting, "I sent you all the cost of running in here". On 1 August 2018, Ms Song provided a spreadsheet with the file name "SS 2017.10 … Fee summary", where Ms Song explained that "SS" was a reference to "Shop Smart". The defendant denied that he was asking for the cost of running the business in China because he was in a business relationship with the plaintiffs.
The defendant's request for financial information from Mr Chen may also have been related to his complaint in these proceedings, that the combination of the Australian and Chinese e-commerce stores led to problems. According to the defendant, as the e-commerce store did not specify the source of the goods for sale, "This led to the Chinese staff responsible for calculating my monthly payments to include Donald's stocks for me to pay as well."
In October 2018, Mr Chen instructed the defendant to open e-commerce stores on etsy.com. The defendant agreed. Mr Chen also asked the defendant to contact a customer who had given negative feedback, in order to avoid a bad review.
In January 2019, Mr Chen pressed the defendant "PLS sent the financial's data to Elaine. We need the data to finish the annuals report." The defendant agreed. It would appear that Mr Chen was waiting on Great Current Australia's figures to prepare the annual report of, presumably, the business conducted by the plaintiffs and the defendant.

[11]

Discrepancies

Ms Song said that, at the end of each month, she would log into the PayPal or eBay account for each eBay store and download the PayPal or eBay statement for that month. Ms Song stored and filed each statement on her hard drive. Ms Song observed from the statements obtained from PayPal and eBay, on the one hand, and the financial documents provided by the defendant, on the other hand, that the total online revenue for Great Current Australia as recorded by the defendant was less than the amounts paid out by PayPal and eBay. Ms Song informed Mr Chen that there was a shortfall in the total online revenue for Great Current Australia as recorded by the defendant as against the amounts paid out by PayPal and eBay. Ms Song also reported that she was having to chase the defendant repeatedly for financial information.
In March 2019, Ms Song sent the defendant a template report, "Please fill in the data from October 2017 to February 2019". The template called for the insertion of dates, eBay accounts and money. Ms Song also sent a screenshot of a PayPal statement and three example statements to illustrate how to complete the template report using the information from the PayPal statements. In April 2019, the defendant emailed a detailed profit and loss statement for Great Current Australia for the 2017 financial year. Presumably, this was in answer to Ms Song's request for a report to be provided on the money received for each to the eBay stores from October 2017 to February 2019. It was not particularly responsive, as the information did not refer to any of the eBay stores nor cover the requested timeframe.
Ms Song promptly replied, supplying the defendant with a more detailed spreadsheet for completion from July 2017 to December 2018. Ms Song explained that she had inserted some data into the form. In short, Ms Song had populated the table with the amounts withdrawn from PayPal, the amounts transferred to China, GST and cargo fees and the remaining balance which remained to be accounted for. The monthly unexplained amounts ranged from $30,000 to $136,000. Ms Song added, "you can send the data of one month to me now for recording, and the remaining months will be sorted out slowly, thank you!"
In May 2019, Mr Chen also queried various expenses referred to by the defendant. The defendant explained by WeChat, "The advertising was the fee that I put on advertising when I was look long for employees in 2016. … the filing fee was the company's registration annually". Ms Song followed up the defendant for the 2018 financial statements. The defendant emailed a profit and loss statement for Great Current Australia for the 2018 financial year. In August 2019, the financial statements for Great Current Australia for the 2018 financial year were signed by the defendant and a tax return lodged. In September 2019, the defendant sent Ms Song the monthly expenses for July 2019. The defendant advised that the figures for August 2019 would follow.
Mr Tse was told by Mr Chen of Ms Song's concerns about the defendant's operation of the business. Mr Chen said that he had also noticed a large increase in the postage expenses for Great Current Australia. Mr Tse tried to meet with the defendant to discuss these concerns. In September 2019, Mr Tse tried to arrange a meeting with the defendant at the warehouse, but the defendant advised that he needed to fly to Vietnam to attend to an urgent family matter. Mr Tse complained, "Unfortunately you are unavailable again, which Donald ask me need to talk to you about a few issues with shop smart business!"
In November 2019, the defendant sent Ms Song a profit and loss statement for Great Current Australia for the 2019 financial year. Mr Tse arranged to meet the defendant on 19 November 2019, but the defendant cancelled the meeting, "I got emergency. My dad is having operation in [Vietnam]. I am going to [Vietnam]. Pls call me when you need me". Ms Song sent a WeChat message to the defendant, requesting bank balances from June to November 2018, "Now my balance is much different from yours, and I need to check it monthly."
In December 2019, the defendant sent Ms Song two bank statements for accounts in the name of Great Current Australia. The defendant also emailed Ms Song with the subject line, "SS Expenditure …" for November 2019, attaching a spreadsheet entitled "SS- Tom Australia cash flowaccount …" For each of July to November 2019, a rough reconciliation was provided of the amounts withdrawn from PayPal less expenses and the amount "Sent China". Ms Song sought the same information for January to June 2019, suggesting that the figures provided were "short" by $100,000. The defendant asked, "Pls explain then I will tell my accountant to recheck. I need to know where is missing."
In March 2020, the defendant sent Ms Song two bank statements for Great Current Australia. In May 2020, the financial statements for Great Current Australia for the 2019 financial year were signed by the defendant and a tax return lodged. In June 2020, the defendant sent a WeChat message to Ms Song. As I read it, the defendant said he would find the template report for March, April and May (likely) 2020 and send next week "Together with all the banks statements". In July 2020, Ms Song enquired of the defendant as to why the revenue was $85,196 "short", which I take to be the difference between the funds received according to PayPal and those reported by the defendant. The defendant advised, "I will Audit the statement and get back to you".
In September 2020, Ms Song sent a series of WeChat messages to the defendant, trying to identify the bank accounts used by the business. The defendant advised that there were three bank accounts and one credit card; another bank statement had been sent in error, "This account nerver involve I the business … I sent wrong before this account nothin business". (According to the liquidator's report to creditors of Great Current Australia, albeit as at March 2024, the company had 26 bank accounts.) On 23 September 2020, the defendant emailed Ms Song with a spreadsheet "SS- Tom Australia cash flow account", now including the expenses for July and August 2020.
In December 2020, Mr Chen became concerned that, given the lack of financial information provided by the defendant, it would be necessary to declare a loss. Mr Chen and the defendant exchanged WeChat messages, which I read as Mr Chen requesting that the necessary information be provided by the end of that month "Or the missing money Elaine will [report] as Operating loss." The defendant suggested that they wait until accounts had completed their task but Mr Chen replied, "We had waited year by year [tearful emoji]. In China, the accountant will be fired years ago".
Ms Song also provided the defendant with two spreadsheets, comparing the figures obtained from PayPal and those provided by the defendant. Ms Song noted that, from January to November 2020, "Tom has fewer withdrawals than PayPal" in the amount of $327,955. The defendant replied, "Just wait for my accountant finalised the paperwork. Because you don't know the GST we pay to ATO by PayPal." The defendant advised that he would get his accountant to answer any queries, "According to you I overdrew 350,000 is an impossible figure".
Mr Chen spoke to the defendant in relation to the three Chinese e-commerce stores which sold products in Australia. They agreed to transfer the stores back to China "to cover the operation cost in China." In March 2021, the defendant exchanged WeChat messages with Mr Chen, "I just spoke to EBay about the eBay stores move back to china. He said if we created from Australia I can change to payment to Australia." Mr Chen followed up the defendant as to whether he had charged the payment to Australia, and the defendant advised "I am waiting for him to contact me today". The defendant sought assistance from eBay "to change country" and registered business address.
The defendant's explanation of these events is difficult to follow. Apparently, eBay changed their payment system from PayPal to eBay Managed Payments. The defendant transferred all but three of the e-commerce stores to the new system; Mr Chen would not do what was required to change the remaining three stores back but took the sales revenue. The defendant said that his staff were processing orders made on these three e-commerce sites but the income was going directly to Mr Chen. Mr Chen was said to have agreed over the telephone that, as he was receiving the revenue from these three stores, the defendant no longer needed to send money to China each month to pay for the plaintiffs' goods and services.
As I read the contemporaneous documents, for two years Ms Song had been pressing the defendant to provide information and an explanation as to why there was a significant shortfall between the moneys which Great Current Australia was receiving from PayPal and eBay, and the moneys which were being remitted to China. The defendant had never really answered that question. The defendant was also proving difficult for Mr Tse and Mr Chen to meet with. The lack of funds being remitted to China was having an impact on the overall financial performance of the business, such that Mr Chen thought it necessary to declare a loss. In these circumstances, the transfer of the three Chinese e-commerce stores back to China appears to have been a measure to better fund the costs of the business.
In April 2021, the defendant emailed Ms Song a cashflow statement for Great Current Australia for the 2020 financial year. He also provided a summary of lodgements by himself and Great Current Australia for the 2019 and 2020 financial years, being Business Activity Statements (BAS), Instalment Activity Statements (IAS) and tax returns. He also provided a spreadsheet which followed the format earlier provided by Ms Song, with the figures for March 2021 and accompanying bank statements. The defendant remitted some $50,000 to Four Bang. This was the last transfer of funds by the defendant.
On 24 May 2021, the defendant texted Mr Chen, asking about payment for "3 shop you change to china. Did you change best shop to china." As I read it, the defendant wanted to know how much money Mr Chen had received from the three e-commerce stores changed back to China. The defendant continued, "I need to put the report. At the moment I don't have enough money to sent for cargo". As will be seen, the transfer of the three Chinese e-commerce stores appears to have caused cashflow difficulties for the defendant.

[13]

For his part, the defendant said the Australian and Chinese staff applied two very different accounting systems and "I have to constantly explain to them about the files that I send them." The defendant became "really busy" and, over time, "gave up chasing and just trusted them to make the correct offset every time they tell me how much to pay for the stock and their services every month." But the defendant said the amount that he was required to send to China each year continued to increase.
On 4 June 2021, Mr Tse contacted the defendant to seek his assistance to add Mr Tse's name to "great current company", apparently with the Australian Securities and Investments Commission (ASIC). Mr Tse said he had asked to have shares in Great Current Australia, "We asked many, many times … Tom just kept giving excuses." The defendant agreed that, in 2021, the plaintiffs "actually did have the intention of joining my company."
Mr Tse approached accountant, Yang Liu. Mr Tse gave instructions that he was in partnership with Mr Chen and the defendant. Further, the plaintiffs had become concerned that the defendant was not providing accounting data and had not issued shares to them in Great Current Australia, which was being used for the purposes of the partnership. Mr Liu was asked to become the accountant for the partnership. Mr Liu discussed with Mr Tse whether the solution to the problem was for the plaintiffs to be issued shares in Great Current Australia, but advised against it given capital gains tax implications.
On 7 June 2021, Mr Tse asked the defendant to contact accountant Mr Liu on "some important issues for our company." Mr Liu also asked the defendant to provide the contact details for the company's accountant, so that he could contact the accountant to transfer the account. On 8 June 2021, the defendant replied, "I am a bit busy with the account changing. Can I get back to you later." On 9 June 2021, Mr Tse complained: I don't know what is your problem, as partners in the company more than 8 years, including the time you working for us. Tell me why you are so difficult to respond with important messages …
Mr Liu requested access to the historical and financial data from the defendant and approval to act as an accountant on behalf of Great Current Australia. Mr Liu did not receive approval from the defendant and so was unable to proceed with his engagement.
On 2 July 2021, the defendant texted Mr Chen, asking "Can you help me to transfer the eBay account back to Australia. We are having short fall of money. Also I received the cargo this month. My book have to ballance. Can you push eBay china to change back Australia." The defendant was clearly unhappy about the three Chinese e-commerce stores which had been transferred back to China. Mr Chen said that the three e-commerce stores created in China could not be transferred to an Australian company due to eBay policy, "But these three stores always considered to be the assets of the company, and we never treated them as individual assets."
At the same time as the plaintiffs and the defendant's conflict was crystallising, the defendant changed Great Current Australia's arrangements with respect to postage. The defendant said he retained Water Transfer Pty Ltd to streamline deliveries. On 10 July 2021, Water Transfer Pty Ltd rendered an invoice to Great Current Pty Ltd (which I note was deregistered). The invoice was for some $44,000 for handling, postage and freight. Further monthly invoices were rendered along the same lines. Hieu Nguyen was the sole director and shareholder of Water Transfer. According to the application for registration, the principal place of business for Water Transfer was the Chester Hill warehouse.

[14]

A new corporate vehicle?

Mr Tse told the defendant, "Ok, if you … have difficulty to put our name in the Great Current, we open a new company …". On 15 July 2021, the defendant responded to Mr Tse: As I talked to you about the new company and put share holder name in it. Mr yang want me to bring the business to his account his accountant company. I said I have intention to do that. I open new company and transfer thr information to new company. Your share will be in there. I talked to you and we agree that that we open new company to avoid capital gain tax. I still have to transfer money to this PayPal to pay eBay fee for 3 accounts that china receive money. This is weight on australia financial operation since I have received less money. And book even more not balance. Pls act quickly for the transfer back those 3 accounts back to australia If you request me to transfer more for any other reason I still can hold on the operation. But if we still doing like this my book is not balance even more
Mr Chen replied that they would talk the next day with another Four Bang director, John Gu. On 16 July 2021, Mr Chen replied, "Gordon said we'll hold a meeting now." The plaintiffs spoke with the defendant on WeChat. Mr Tse told the defendant that they would need him to set up a new company to replace Great Current Australia and receive car accessories shipped to Australia, and to take over the ownership of the e-commerce stores. Mr Tse requested that, instead of the defendant being the sole director and shareholder, the plaintiffs and the defendant would be shareholders together and Mr Tse and the defendant would be directors. The defendant agreed, "we actually agreed to open a new Shop Smart company and create a new - a new partnership, but it actually wasn't about Great Current Australia."
On 17 July 2021, the financial statements for Great Current Australia for the 2020 financial year were signed by the defendant and a tax return lodged. This was the last time that the defendant completed these tasks, or lodged a BAS. In October 2021, Ms Song texted the defendant, asking him to send statements from May to September 2021. The defendant said he had finished May, June and July but needed "to do a bit of balance before sending out to you. I got new way of doing it. Easy for you to follow." A week later, Ms Song asked again for the statements.
In March 2022, Ms Song asked the defendant to send her the statements from September to December 2021. The defendant asked for more time. In April 2022, Ms Song requested the reports from November to December 2021. Ms Song also requested the tax returns and financial statements for the last two years, together with the last two years of payroll, "China needs these materials for accounting." The defendant agreed, "Yes I'm doing doing it and sent you soon." In May 2022, Ms Song emailed the defendant, again requesting the information from November and December 2021, "There are a lot of missing data now. The cash balance in Australia is unbalanced." The defendant emailed Ms Song with the financial report for November 2021, together with three accompanying bank statements.
On 12 May 2022, Mr Tse send a text message to the defendant: (emphasis added) Understand, my opinion is we been partners this business (car accessories) for more than 10 years, we need to have more communication in terms of purchasing, operating costing, marketing development ect.
The defendant promptly replied: (emphasis added) I understand your inquiry. As I mentioned above. I still owe the job of finishing the report. I want to update all the business activities to all partners. I am doing the reports for Jan. February. March. April. Get them balance with Elaine and we can meeting. I working with Elaine to get balance very soon. Pls understand and be patient
The defendant submitted that his reference to "partners" in his email referred to the intention to join forces with the plaintiffs through the proposed new corporate vehicle; references to 'partners' was a reference to the 'shareholders' of that company. I disagree. At this time, the defendant was being asked by Mr Chen and Mr Tse to account for the historical financial activities of Great Current Australia. A new corporate vehicle had been mooted but had not then progressed.
On 17 May 2022, the defendant provided Ms Song with a financial statement for January 2022, together with four bank statements. In June 2022, Ms Song reminded the defendant "The total amount you withdraw from PayPal must be the same as that in your form." Ms Song sent the defendant a spreadsheet "SS Withdrawal 17~22", explaining "This is the withdrawal details I downloaded from PayPal, which is quite different from the amount in your statement."
On 6 July 2022, the defendant sent a WeChat message, proposing to establish a new company with the shares to be held by himself (40%), Mr Tse (30%) and Mr Chen (30%), "Reason I put this because it is easier for me to do paperwork. Bank or lease". The gentlemen agreed that the new company should be called "Smartshop". Mr Tse added, "To remind you, that's what we agreed and want to change our company structure and improve our management and transparency.
On 7 July 2022, the defendant messaged Mr Liu, advising that they had discussed setting up a new company with the name Smartshop Pty Ltd. Mr Liu was asked to assist. The defendant explained: "As all my partner are reside in China. I am the director in Australia. Should we take all equal share or I take a bit more share to sign paperwork".
A staff member from Mr Liu's firm checked with ASIC and confirmed that the name Smartshop Pty Ltd was unavailable. On 12 July 2022, Smartshop International Pty Ltd was incorporated instead. The defendant was initially the sole director and shareholder. In September 2022, Mr Liu lodged forms with ASIC to appoint Mr Tse as a director and to change the shareholdings, so that the parties held equal shares of one-third each.
The defendant said that he and the plaintiffs discussed starting a new company to combine all their resources including the defendant's online stores, Mr Chen online stores (including the three stores he was said to have taken from the defendant) and Mr Tse as "just the big boss". The defendant was keen to get his three stores back and was amenable to mingling the profits of the Chinese and Australian stores. The three gentlemen discussed forming a partnership. The defendant said he incorporated Smart Shop International to implement their agreement to merge Great Current Australia's online stores with those of Four Bang. The defendant said, "Donald and Gordon wanted me to establish another company together to form a partnership, and with this company, we all agree that we actually would share the profit and loss of this company."
I prefer the evidence of Mr Liu on this subject. Whilst the defendant characterised the incorporation of Smartshop International as the starting point for a partnership with the plaintiffs, Mr Liu said the parties explained to him that the purpose of this was to transfer the business holdings of Great Current Australia, to operate their partnership through this business, and so that he could be the accountant for all of them and maintain the books and records in a transparent manner in order to quell the dispute surrounding the access by the plaintiffs to the defendant's records. That is, the business relationship between the plaintiffs and the defendant was to continue in a new corporate vehicle in an effort to address the problems which had been experienced in the structure deployed to that date. Mr Liu advised the parties that, to give effect to their instructions, cash at bank, business assets, employee and employee entitlements, eBay shop registrations and stock were to be transferred from Great Current Australia to Smartshop International.
In the last quarter of 2022, Mr Liu met with the defendant. Mr Liu cannot say precisely when the meeting took place, given multiple cancellations by the defendant. In any event, Mr Liu said he discussed with the defendant how the terms of the partnership were to be given effect within Smartshop International. In order to implement his instructions, Mr Liu asked the defendant to provide him with historical financial data for Great Current Australia. However, the defendant did not provide these documents and, for this reason, Mr Liu was unable to assist the parties to migrate the business from Great Current Australia to Smartshop International. Mr Liu also discussed with the defendant the prospect of issuing shares in Great Current Australia to the plaintiffs. Mr Liu did not recall whether the defendant agreed or disagreed to issuing shares in Great Current Australia to the plaintiffs, but it did not happen.
In October 2022, Mr Chen asked the defendant to transfer funds, as recent shipments had been entirely paid for by Four Bang. The defendant replied that no funds were available, "we just have enough to pay postage and expenses and tax. We might short even. The money that you got from the 3 accounts is enough to cover?". Mr Chen replied that it was not enough, "We need to reinvest if still go on". The defendant enquired as to why "this time too expensive" and Mr Chen advised "Because we prepare 6 months sales from now on". The defendant replied, "Oh I see". In November 2022, Mr Song asked the defendant to send her "the bill" from April to October 2022. In January 2023, the defendant sent Ms Song a financial report for June 2022 and August 2022 and accompanying bank statements.
On 15 February 2023, Mr Liu met with the plaintiffs and the defendant at his offices, together with Benjamin Lou (a prospective director and shareholder). The plaintiffs and defendant argued about the defendant's provision of financial information, or lack thereof. The defendant complained about the transfer of the three Chinese e-commerce stores. Mr Liu said the plaintiffs and defendant asked him for advice on how to ascertain each partner's interest in respect of the entities. He advised that the businesses should be consolidated and the profits split amongst them. The parties said that they agreed with his advice and that the historical financial data of Great Current Australia would be provided to allow Mr Liu to prepare a set of consolidated accounts. The meeting concluded on that note.
On 20 February 2023, the plaintiffs, the defendant and Mr Lou signed a one-page document, proposing to restructure the business arrangements. The defendant agreed to transfer the Australian eBay stores to the new company, Smartshop International. The next day, on 21 February 2023, Mr Chen sent a message to the defendant, "we'll go back to China today. Pls transfer Ebay stores to new company today." WeChat messages passed between the defendant and the plaintiffs' employee, transferring eBay stores and bank account details to the new company, Smartshop International.
On 10 March 2023, Mr Tse sent a message to the defendant via WeChat advising that he had found an accountant in China named Carmen; she would shortly begin supervising all records and bookkeeping in Smartshop. The plaintiffs requested the defendant to open a new bank account for Smartshop, where all three were authorised to operate the account. The defendant said that, for the plaintiffs to be added as authorised operators, they would need to provide their identity documents in person in Australia. As the plaintiffs had both returned to China, it would be faster if Mr Tse temporarily resigned his directorship and the plaintiffs temporarily gave their shares to the defendant. Mr Tse understood that, if the defendant was made the sole director and shareholder of Smartshop, he would open the necessary bank accounts and then add the plaintiffs back as shareholders and Mr Tse as a director shortly afterwards.
On 17 March 2023, the defendant sent a WeChat message to the plaintiffs asking that Mr Liu appoint him as the sole director, as the bank manager at St George had advised that otherwise all the bank accounts would be blocked, "once Gordon is back end of April we can change it back." On 20 March 2023, the defendant signed a resolution as the sole director of Smartshop International, transferring the plaintiffs' shares in the company to himself. The defendant became the sole shareholder of the company. As events unfolded, the defendant remained the sole director and shareholder of the company.
On 31 March 2023, the defendant sent a message to Mr Chen, "I will send all the banks statements and invoice to Elaine and the new girl from Gordon". On 11 April 2023, Mr Tse' bookkeeper sent a WeChat message to the defendant asking for the Australia Post account and password. The defendant said he was a bit busy and needed more time. The bookkeeper pressed "it won't take you long to send the account and password." Instead, on 13 April 2023, the defendant sent the bookkeeper invoices rendered by Water Transfer for December 2022 and January 2023, being some $35,000 and $46,000 respectively. The bookkeeper queried these charges.

[15]

Discovery about warehouse

The Chester Hill warehouse formed part of a strata plan. On 11 April 2023, the owners corporation issued a reminder notice to the defendant for unpaid levies. The plaintiffs' bookkeeper queried the reminder notice for the unpaid strata levies, suggesting that it should be paid by the owner where the warehouse was rented. The defendant replied that the strata levies were paid "by us. Because you use the warehouse". Mr Tse queried whether that was a condition of the lease. The bookkeeper asked for a copy of the lease. The defendant replied, "We rent this in private. If we all agree want everything legal documents. We ask agent to value the warehouse renting price and the[n] we pay through agent. Ben can stand for Lease". Mr Chen pressed for a copy of the lease. The defendant maintained, "we rent this private Donald. If we want lease contract We will organise lease contract".
The defendant agreed that he was trying to convey that the plaintiffs and himself were renting from some other landlord. The plaintiffs spoke to each other and noted that it appeared from the strata levy notice that the defendant actually owned the warehouse. They agreed to seek an explanation from the defendant at their next meeting.
On 18 April 2023, Four Bang director, Mr Gu, asked the defendant to "make a table of the current postage, Don't let us guess, check, be clearer. So far, it has been almost three months and we have not yet been able to provide a clear list of postage fees. … on behalf of our sales team, I just want you to make it correct, formal and cost per package." On 19 April 2023, the bookkeeper sent a WeChat message to the defendant, again requesting details of Australia Post charges, not only from January to March 2023 "but also the data from 2019 to 2023 including bank statements. The bookkeeper sought further details on 24 April 2023.
Mr Gu then experienced difficulties logging in to the Australia Post account. The bookkeeper, Mr Tse and Mr Chen pressed the defendant to provide the information sought, asking whether anything was wrong and what was going on. Mr Chen said that the password was incorrect but the defendant never provided the correct password. Nor did the defendant ever explain why he could not provide the details in relation to postage.
On 27 April 2023, the plaintiffs had a call with the defendant on WeChat. Mr Chen pressed the defendant to provide the financial documents and invoices which had already been requested. The defendant declined. The defendant also demanded that the plaintiffs sign a document in which they promised to stop asking for financial documents and invoices and not to investigate the defendant's previous conduct.

[16]

Changing the locks

On 28 April 2023, a local employee reported that he could not open the warehouse and nor was the defendant answering his phone. Nor did the defendant answer repeated calls from Mr Chen, simply texting "I am really stressed now". Mr Chen finally spoke to the defendant over WeChat. The defendant said he could not give the plaintiffs the true financial records for Great Current as it would expose him to tax issues. Unless the plaintiffs signed a legal document stating that they would stop asking him for those records and would not investigate his past conduct any further, then the defendant said he would keep the warehouse shut and would close the e-commerce stores of Smartshop. Mr Chen rejected this request. The call was disconnected.
Mr Chen sent a message, asking to talk. The defendant replied that he had family issues and had to go back to Vietnam, "if you want to see me pls go to Vietnam". Mr Chen then discovered that the defendant had shut the plaintiffs and their employees from Smartshop's e-commerce stores and the PayPal and eBay accounts by removing their administrator access. Mr Chen reported "all our Ebay and Amazon stores are closed now". Mr Chen's numerous requests to talk to the defendant were rebuffed. Mr Chen also asked the defendant, "Sent me the agreement which you want".
On 11 May 2023, Mr Chen enquired, "why are you change the password? What benefit can you be, if all stores down what benefit for our business?" On 12 May 2023, the defendant replied that he could reopen the warehouse anytime "if you talk clearly with me in [Vietnam]". Mr Chen queried why he would travel to Vietnam, "Great current belong you and me and Gordon, she is our son, we need face to face together". The defendant would only agree to meet face to face in Vietnam.
On 13 May 2023, Mr Chen asked the defendant to open the warehouse, "we need to get back our goods". The defendant replied that he did not know "what our business in China for long time, have profit or not? So I want to know it. If you not show it clearly that I think it have some things wrong with me." Mr Chen replied that, as he had said in Australia in February 2023, "You can see anytime anywhere. meanwhile you have to show OUR company Great current all the history bank statement and financial statement." The defendant declined, "no, i want to know from 2012 to 2023." The defendant declined to do so "until everything is cleared. Because you think that i had done something wrong and you want to take control of this company without me, and now I didn't believe you anymore what you said by mouth. And also I want to check the business of our company in China to clear every thing." Mr Chen replied, "You have no right to keep our goods".
On 19, 21 and 23 May 2023, the defendant sent a series of WeChat messages to the plaintiffs which, as I read them, pressed for information of the business in China for the last ten years "to know our business have profit or not … For 10 years no one between us had received money from profit of our company, Right???". The defendant suggested that his role in Australia had been significant and complained that the plaintiffs had taken the profits from Australia and left him to bear the fixed costs "And now I just want know where is the profit or costs, is it balanced??? … don't you want our company is running on??"
The defendant accepted that he locked up the warehouse so that the staff could not get inside and took steps so that the plaintiffs could no longer access the Australian registered eBay stores. The defendant agreed that the plaintiffs were then pursuing him for financial information. He agreed that he wanted the plaintiffs to stop asking questions about the finances of Great Current Australia, "Yes, because it's actually my personal thing." That is, the defendant considered that the plaintiffs had no right to access the financial information of that company as they were not shareholders, "I only agree to be in partnership with them of the Smartshop International." The defendant considered that he had performed his part of the deal by transferring the Australian eBay stores to the new company, but the plaintiffs had not transferred the Chinese eBay stores, in particular, "the three shops that were taken away from me". Instead, the plaintiffs "wanted to look at or to investigate … about the old information. … Your clients have no right."

[17]

Asset divestment

On 23 June 2023, the defendant refinanced the Chester Hill warehouse. Liberty Financial advanced $1 million to the defendant, secured by a first registered mortgage. According to investigations undertaken by the defendant's trustee in bankruptcy, $551,103.43 of the loan monies were used to discharge the existing mortgage. The remaining $450,000 was to be used by the defendant to purchase a property. The defendant had not provided details of how the surplus loan moneys were expended.
In June 2023, the plaintiffs became aware that the defendant had re-opened Smartshop's e-commerce stores and resumed selling car accessories. Mr Chen deduced this from the fact that the e-commerce stores each appeared to have available online inventory on the eBay pages.
On 30 June 2023, the defendant signed a Contract for the Sale of Business on behalf of Great Current Australia, selling e-commerce stores to Hieu Investment Pty Ltd for $100,000. The director and sole shareholder of that company was Hieu Nguyen, being the sole director and shareholder of Water Transfer. The sale included 16 eBay stores, of which 13 stores had recently been transferred to the Smartshop International.
On 12 July 2023, the plaintiffs' solicitor sent a letter of demand. On 20 July 2023, the defendant sold another investment property in Vista Street, Chester Hill for $1.25 million. The net proceeds of sale is unknown. The same day, the plaintiffs commenced these proceedings.
On 29 September 2023, the defendant signed an agreement to extend the trial period under the Contract for Sale of Business. The same day, an application was made for the voluntary deregistration of Smartshop International. On 13 November 2023, the plaintiffs' solicitor wrote, noting that it had come to their attention that Smartshop International was in the process of being deregistered. An explanation was sought. The defendant's solicitor replied that Smartshop International was a shell company with no purpose.
On 12 December 2023, eBay produced documents to the Court on subpoena, indicating that 11 eBay stores were now held by Hieu Investment Pty Ltd. On 15 December 2023, the plaintiffs' solicitor enquired of the defendant's solicitor about the transfer of the eBay stores previously registered to Smartshop International. An undertaking was sought that the defendant arrange for the voluntary application for the deregistration of Smartshop International to be withdrawn and to re-transfer the eBay stores to the company. Further, the defendant was asked to agree to the appointment of a receiver to Smartshop International, to agree not to deal with the warehouse and to advise whether it had been encumbered since July 2023. On 20 December 2023, the defendant's solicitor confirmed that the application to deregister Smartshop International had been withdrawn. He also undertook not to deal with the warehouse. Otherwise, there was no agreement.
On 19 January 2024, the plaintiffs wrote to Hieu Investment, seeking an undertaking not to deal with the eBay stores. Further undertakings and disclosure was sought from the defendant. On 29 January 2024, the defendant's solicitor replied that the eBay stores were owned by Great Current Australia, which was entitled to sell them. The stores had been sold. The defendant declined to give any further undertaking.
On 29 January 2024, the plaintiffs' solicitor made an affidavit deposing that three of the eBay stores, which had been apparently sold to Hieu Investment, continued to display the Smartshop logo. On 12 February 2024, the plaintiffs filed an Amended Statement of Claim, joining Great Current Australia and Smartshop International as defendants.
On 16 February 2024, orders were made for expedition of these proceedings, which were listed for hearing on 13 May 2024. On 4 March 2024, Great Current Australia and Smartshop International went into a creditors voluntary liquidation. On 7 March 2024, the defendant declared bankruptcy.
According to the liquidator's report to creditors of Great Current Australia, the company had two Lexus cars and a Jaguar, two of which were subject to finance. In addition, the company had entered into a finance agreement in relation to a Porsche Macan, but the motor vehicle was not in the company's name. According to the report to creditors prepared in respect of the defendant's bankruptcy, the Porsche is registered in the defendant's name; the defendant told the trustee that he had made the lease payments from his personal funds. According to the initial report to creditors, the defendant had 30 bank accounts. In the year before declaring bankruptcy, the defendant made 64 withdrawals totalling some $2 million from 30 personal bank accounts, albeit the trustee noted that some of these moneys may be the surplus received when refinancing the Chester Hill warehouse or the net surplus from the sale of the property at Vista Street, Chester Hill. The warehouse is one of the defendant's few remaining assets.
The plaintiffs bought the e-commerce stores back from the liquidator of Great Current Australia and Smartshop International. On 26 April 2024, the proceedings were dismissed against the second and third defendants, with each party to bear their own costs. On 10 July 2024, Perry J granted leave to proceed against the defendant under s 58(3)(b) of the Bankruptcy Act 1966 (Cth).

[18]

Nature of business arrangement

What was the nature of the business arrangement between the plaintiffs and the defendant? The plaintiffs submitted that, where a partner is bought out, the "old" partnership ends and a new partnership commences: Graw, Stephen, An Outline of the Law of Partnership (5th edition) at [9.160]. On the defendant replacing Mr Shamon, there was an arrangement between them in the nature of a partnership, as they carried on a business in common to sell car accessories on e-commerce stores with a view of profit: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1, [5]. Alternatively there was a joint venture with each contributing money, property and skill to the venture with the view to making a profit: Pola, Leo Vincent & Ors v Commonwealth Bank of Australia [1997] FCA 1476, 12-13. Alternatively, there was an agency relationship, where the defendant became the plaintiffs' agent to receive monies from the Australian side of the car accessories e-commerce operation: Scott v Davis 204 CLR 333; [2000] HCA 52 at [229].
The plaintiffs submitted that the defendant was entrusted to conduct the Australian side of the e-commerce business, using Great Current Australia as the corporate vehicle. The plaintiffs supplied the stock by consignments from China. The stock was advertised for sale on various e-commerce stores. The plaintiffs had administrator access to the e-commerce stores, monitored the online inventory of each store and despatched stock when inventory ran low. The defendant fulfilled the orders placed by customers via these stores. The money from sales was banked into an Australian bank account controlled by the defendant. The defendant periodically remitted funds to the plaintiffs, together with financial and business records of Great Current Australia. The defendant was required to provide these records by virtue of the partnership or, alternatively, it became a term of the relationship by conduct: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; 2001 FCR 424, [369] - [372]; Kriketos v Livschitz [2009] NSWCA 96, [115]. The parties shared profits on at least four occasions.
The defendant submitted that the plaintiffs had failed to establish: the existence of a partnership with Mr Shamon; what e-commerce stores were established as part of that partnership; or that the defendant was employed by the partnership. Nor would the Court be satisfied that the defendant entered that partnership after Mr Shamon resigned. Rather, the Court would accept the defendant's description of his relationship with the plaintiffs from 2012: the plaintiffs were a supplier of stock and a service provider of e-commerce store maintenance and bookkeeping. Whatever the plaintiffs charged the defendant for stock and services, he paid.
The defendant submitted that the Court would not be satisfied that the defendant had, in fact, signed the "Shop Smart International Limited Contract". (I will put this submission to one side, given that the defendant has not pleaded such a case.) The only evidence of the alleged partnership was the plaintiffs' evidence of conversations with the defendant; this was insufficient and the Court would not find the existence of a partnership nor consequential fiduciary duties. There was no obligation on the defendant to provide accurate financial records as part of the alleged partnership relationship, given that the defendant regularly failed to provide such information but the supply of car accessories continued nonetheless. The defendant did voluntarily provide such information, which became routine; but this routine was not the same as a positive obligation to provide financial documents under any fiduciary obligation. Rather, the plaintiffs and the defendant were then providing services to each other and offsetting the costs of doing so. The defendant sent financials to assist in calculating the offset, not as a discharge of any mandatory duty or obligation.
The defendant submitted that the parties' description of themselves as "partners" or references to "our business" in contemporaneous documents was of little weight. The defendant extended loans to Great Current Australia when needed. He did not seek reimbursement from the plaintiffs. This was consistent with him operating the company as his own and not in partnership with the plaintiffs. (I note that the financial statements for Great Current Australia recorded loans by the company to the defendant, and by the defendant to the company, over the years.)
The defendant submitted that the parties' dealings increased over time, but no partnership existed. There was no evidence of profit or loss sharing, beyond the plaintiffs' oral evidence, which was denied by the defendant. It was not until 2022 that there was a common intention to create a new company to take over all e-commerce stores, inclusive of stores created by Mr Chen and three stores which Mr Chen took from the defendant in 2021. But there was no partnership before this. The defendant complied with his obligations to bring over the e-commerce stores from Great Current Australia, but the plaintiffs failed to discharge their obligations to bring over their e-commerce stores and the three e-commerce stores taken from the defendant. The defendant ceased trading with the new entity due to this breach of the terms of the agreement with the plaintiffs.

[19]

Principles

It is convenient to start with the features of a joint venture, where "it has been said that all partnerships involve a joint venture but not all joint ventures involve a partnership": Yacoub v Commissioner of Taxation (2012) 292 ALR 128; [2012] FCA 678 at [24] (Jagot J). The nature of a joint venture was considered in United Dominions Corp Limited v Brian Pty Limited (1985) 157 CLR 1; [1985] HCA 49 at 10 (Mason, Brennan and Deane JJ): The term "joint venture" … connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. … The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may, on occasion, be blurred.
Their Honours also noted that whether the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken: at 11. More recently in Gibson Motorsport Merchandise Pty Limited v Forbes [2005] FCA 749, Crennan J noted that the recognisable and common characteristics of joint ventures include, at [80]: 1. Participants hold proprietary interests in the assets of the joint undertaking, often, but not necessarily, as tenants-in-common … 2. Participants exercise joint control of the undertaking. 3. Participants contribute to the joint undertaking, not necessarily equally; such contributions may be disparate: Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327; Television Broadcasters Limited v Ashton's Nominees Pty Ltd (No.1) (1979) 22 SASR 552. 4. Participants in the joint undertaking enjoy rights and assume obligations, which are often several, and calculated by reference to ownership of shares and/or contributions made. 5. Participants have a joint (or community of) interest in the performance of the undertaking's purpose: Cummings v Lewis (1993) 41 FCR 559 at 314/315 (per Cooper J). 6. Participants associate in the undertaking for mutual commercial gain which can be mutual profits.
Her Honour noted that these characteristics could be "found in various permutations and constellations such that it is not appropriate to attempt to isolate which characteristics would be both necessary and sufficient for the constitution of a joint venture agreement" and it was always a question of fact whether any particular undertaking constituted a joint undertaking for mutual commercial gain: at [81].
And, as Vickory J explained in Ambridge Investments Pty Limited (in liq) (receiver appointed) v Baker [2010] VSC 59 at [32]: A joint venture, properly called, may be constituted as an incorporated joint venture in which the participants become shareholders in a joint venture corporate vehicle. Alternatively, it may be structured as an unincorporated joint venture having the characteristics of a partnership, with a separate legal personality, or it may simply be an association which does not exist as an entity separate from the legal personality of its participants.
As to whether there was a partnership, Jagot J summarised the indicia of a partnership in Yacoub v Commissioner of Taxation at [23]-[25]: "The existence of a partnership is determined by reference to the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to the relationship of the parties" (Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 172). "The indicia of the existence of a partnership include: - (i) a mutual interest in the carrying on of the business for the purpose of profit or gain …, (ii) mutual confidence that the parties will engage in the venture for joint advantage only (for example, Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407-408), (iii) sharing of profits and losses from the venture or a so-called community of profit and loss (Fenston v Johnston (1940) 23 TC 29 at 34), and (iv) mutual agency in the sense that each party is a principal of the business and may bind the other (for example, Momentum Productions Pty Ltd v Lewarne (2009) 174 FCR 268; [2009] FCAFC 30 at [36]-[44] (Momentum Productions)). "Statements of intention by the parties may be relevant but do not determine whether a partnership exists, as the issue is determined by reference to the "substance and reality of the transaction being adjudged to be a partnership" (Fenston v Johnston at 35-36)."
Her Honour observed that an important distinction between a partnership and a joint venture is that, in a partnership, there is an agreement to make profits for sharing amongst the partners, whilst in a joint venture the participants may generate a product to be shared as each go their separate ways: at [26]-[27]. Further, at [28]: "According to Lindley & Banks on Partnership (19th ed, Sweet & Maxwell Ltd, 2010) at 5-23: … persons who agree to share profits and losses will normally find themselves treated as partners, whether or not they have themselves used that word. However, it is not the necessary corollary of such an agreement that each party will enjoy all the rights and privileges normally associated with partnership, eg a right to participate in the management of the business, to dissolve the firm, or to share in the value of goodwill on a dissolution. Rather, the partners' rights and duties will in each case be determined by the terms of their agreement …"
As to whether there was an agency relationship, Jagot J reviewed the authorities in TX Australia Pty Ltd v Australian Competition and Consumer Commission [2020] FCA 1100; (2020) 147 ACSR 201 at [44]-[51]. The key feature of agency is that the agent acts on behalf of the principal. The agency relationship requires the consent of both principal and agent; they do not need to consent to a relationship which they understand or accept is that of principal and agent, as long as they have agreed to what amounts in law to such a relationship: at [46], [50]. To determine whether an agency relationship exists, it is necessary to look at the written document and how the relationship operates in practice: at [48]. The labels which the parties apply to their relationship are not determinative: at [50]. An independent contractor may be an agent, but it must do more than undertake work for another party and for its benefit; the independent contractor must represent the interests of the principal and be subject to their control or direction: at [49], [50].

[20]

Consideration

As noted at the outset, assimilating the parties' business arrangement into common law concepts of partnership, joint venture or agency is not easy. I have found that the business arrangements between the plaintiffs, Mr Shamon and the defendant were as described by the plaintiffs. The signed contract between the plaintiffs and Mr Shamon was not in evidence. Its contents were probably similar to the contract later signed by the defendant, as that contract bore signs of having been initially prepared when the contract with Mr Shamon was signed: see [36].
I have found that, by April 2013, the defendant had paid $20,000 for Mr Shamon's share in the business. On 11 April 2013, the defendant reported to the plaintiffs in respect of the revenue and expenses of Smart Shop's operations in Australia. He recorded a commitment to report revenue, expenses and "money sent back" at the end of each financial year "So that you can keep track on the operation as a whole." This suggests that the defendant understood that he was in business with the plaintiffs. The defendant was collecting revenue and paying expenses and tax in Australia, periodically remitting funds to the plaintiffs, and undertaking a business endeavour together. While, to that date, the defendant had been working with his brother-in-law and using Great Current as the corporate entity where necessary, he intended to proceed without his brother-in-law and with a new corporate entity, Great Current Australia, thereafter, and did so. Mr Tse's response of 23 April 2013 is also noteworthy, describing themselves as partners, each of whom performed different roles in the business.
The plaintiffs and the defendant formalised the business relationship by signing a contract. The contract provided that the parties would both invest and share the benefits of their "cooperation" equally. The contract included details on how and in what circumstances those benefits would be distributed. Each of the parties was given a defined role to perform. The contract had no fixed term. The contract provided that the business would operate through a number of bank accounts, including Great Current Australia's bank account, but the funds in each account belonged to Shopsmart International. The contract imposed some limitation on the authority of the parties, in particular, to obtain finance or make changes to the eBay stores.
As explained at the outset, post-contractual conduct is admissible as to whether there was a partnership, joint venture or agency agreement. In the years which followed, the parties conducted themselves in accordance with their responsibilities assigned under the contract. The defendant collected revenue and remitted it to Hong Kong and, later, to mainland China. The defendant obtained the approval of the plaintiffs before committing the business to a new warehouse. The defendant consulted with the plaintiffs from time to time on business matters and took instructions from Mr Chen on marketing and the establishment of new e-commerce stores. He provided financial information to the plaintiffs' bookkeepers. The defendant also requested, and was provided with, financial information on business operations in China. The plaintiffs and the defendant referred to themselves as "partners" in contemporaneous emails. They gave instructions to Mr Liu that they were in partnership and that Great Current Australia was a partnership vehicle.
Returning to the indicia described in Yacoub v Commissioner of Taxation, the parties had a mutual interest in carrying on the business for the purpose of profit or gain. The contract set out how the business would be conducted, how funds would be remitted and how the "benefit" would be calculated and distributed.
There was a mutual confidence that the parties would engage in the venture for joint advantage only; there was no hint in the contract that the car accessories would be imported to Australia for the defendant to sell for himself, or his company, and keep the proceeds.
Although the parties agreed to share profits, there is no evidence of a profit distribution beyond the oral evidence of the plaintiffs. There are few contemporaneous records from the early years of the business arrangement, and no accounting records beyond (incomplete) Great Current Australia bank statements. The first financial statement for Great Current Australia in evidence is for the 2016 financial year. Earlier financial statements appear to have been prepared, as the profit and loss statement referred to retained profits at the beginning of the financial year.
There does appear to be a reasonable explanation for why there was no distribution of profits, in the years for which contemporaneous records do exist. A key responsibility of the defendant under the contract was to remit sales proceeds twice a month. Unless the sale proceeds were so remitted, there was nothing to distribute. Nor could the "benefits" be calculated. The contractual mechanism for sharing the profits (or losses) from the project broke down when the plaintiffs became concerned that the defendant was not remitting the whole of the sales proceeds, and the defendant did not satisfactorily address those concerns. In 2020, Mr Chen was contemplating declaring a loss: see [83].
There was mutual agency as each party could bind the others, save for some exceptions spelt out in the contract in respect of finance or changes to the eBay stores. Beyond this, each party was given particular roles and responsibilities. Each proceeded to fulfill their assigned role, with occasional consultation or direction, but largely as they saw fit. Indeed, the plaintiffs reposed a significant amount of responsibility and trust in the defendant to collect and remit sales proceeds.
The fact that the contract had no fixed term is also noteworthy, where the plaintiffs and defendant were not, for example, cooperating in the importation of specified shipping containers of car accessories, for sale by the plaintiffs and defendant individually. Rather, the parties agreed to work together in an ongoing business, from which the profits would be distributed periodically. I am satisfied that the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to their relationships meets the criteria for a partnership.

[21]

Partnership assets

The plaintiffs seek a declaration that the warehouse is partnership property. The plaintiffs submitted that by virtue of the partnership / joint venture / agency relationship with the defendant, he owed fiduciary duties inter alia to not put himself in a position of conflict between his interests and duties. He owed a duty to act towards the plaintiffs, at all times, honestly and in good faith. He could not derive a profit and was required to avoid any situation in which there is a sensible possibility of a conflict of interest (or of interest and duty): per Deane J in Chan v Zacharia (1984) [1984] HCA 36; 154 CLR 178, 198-199.
The plaintiffs submitted that the defendant requested and received a mandate from the plaintiffs to procure a warehouse for the partnership on the basis of a lease. He was entrusted by the plaintiffs to do this on behalf of the partnership / joint venture / agency. He acted dishonestly by arranging for an unwritten lease of the Chester Hill warehouse between himself and his wife and Great Current Australia, without disclosing these matters or obtaining the plaintiffs' concurrence or ratification. Business revenue was used to pay rent. The rent was set to take care of mortgage payments, strata fees, outgoings and insurances. The defendant used partnership / joint venture / agency funds for his collateral advantage without the knowledge or consent of the plaintiffs. He acted in breach of his fiduciary duty to not put himself in a position of conflict: United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; 157 CLR 1, [6] (Gibbs CJ) and [9] (Mason, Brennan and Deane JJ). He derived a secret profit in breach of his fiduciary duty not to put himself in position of conflict by entering into a lease for his own property and subsequently utilising the secret profits derived towards payment of the mortgage/strata fees on the Chester Hill warehouse: Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, 408. A fiduciary cannot be heard to say that he or she would have derived the same benefit had the duty been discharged: Mao v Bao (2023) 113 NSWLR 26; [2023] NSWCA 278, [238]. He breached his duty to act in good faith towards the plaintiffs.
The plaintiffs submitted that there was a direct causal connection between the breach of fiduciary duty and acquisition of the Chester Hill warehouse, given that ownership of it was acquired as a result of his mandate to lease premises for the partnership, and ownership was acquired by utilising funds of the partnership/joint venture/agency. The "but for test" was satisfied; "the concern of equity is to vindicate the equitable obligation that has been breached, the "but for" connection will be sufficient even though other contributing causes might be in play": Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43, [88]. The circumstances were said to warrant the imposition of a constructive trust, and the imposition of a proprietary remedy rather than merely a personal remedy: Ancient Order of Foresters at [70]; Aucare Dairy (Aust) Pty Ltd v Huang (No 3) [2019] FCA 412; 135 ACSR 450, [114].
The defendant submitted that the plaintiffs had not established that they approved the lease of the warehouse, as opposed to being told about it after the event. Nor had the plaintiffs proved that their monies were used to purchase the warehouse, or that they paid more rent to the defendant for the warehouse than they would have had to pay to someone else in any event. There is no suggestion that the plaintiffs contributed to the improvements later made to the warehouse by the defendant. (It is not clear why the plaintiffs would have paid for these renovations, where they understood that the warehouse belonged to a third-party landlord). Nor did the rent increase after these renovations were made. The plaintiffs had not proven that they had any rights, proprietary, on trust or otherwise, to the warehouse.

[22]

Principles

Partners owe fiduciary obligations to each other to act in good faith and in the best interests of the partnership; not to use their position as partner to obtain a benefit for themselves or another person, without the fully informed consent of their fellow partners; and not to use their position as partner to cause detriment to other partners, without the fully informed consent of such partners. Partners are in a fiduciary relationship and, as such, owe reciprocal fiduciary obligations: Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407-408 (Dixon J).
One consequence of the fiduciary relationship is that each partner is liable to account to the other partner for any benefit or gain obtained or received in circumstances where a conflict or significant possibility of a conflict existed between the partner's fiduciary duty and the partner's personal interest; or by reason of the partner's fiduciary position or of opportunity or knowledge resulting from it: Chan v Zacharia at 199 (Deane J).
Section 29 of the Partnership Act 1892 (NSW) provides: Accountability of partners for private profits (1) Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership, or for any use by the partner of the partnership property, name, or business connexion. (2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner. …
This restates the general obligations imposed on fiduciaries, being a principle that is strictly adhered to such that no question may be raised as to the fairness or unfairness of a contract so entered into: Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471 per Lord Cranworth. As Einstein J explained in McKensey v Hewitt (Supreme Court of New South Wales, 15 October 1997, unrep) at 24-25: The Court approaches the situation with a wide discretion applying the principle that persons should not be permitted to take advantage of their own wrongs. A fiduciary who profits from his breach of duty is liable to account for the profit. This is the appropriate remedy here. The remedy "is available to strip the defaulting fiduciary of the profit whether or not the principal has suffered a loss commensurate with the profit made by the fiduciary, or any loss, by reason of the breach, and even in cases where it might be thought that the result is an unmerited windfall for the plaintiff.": Meagher Gummow and Lehane in Equity; Doctrines and Remedies 3rd ed (Butterworths, Sydney, 1992) at 157. It is irrelevant to a fiduciary's liability that he acted honestly, or that his act prejudiced or benefited or that the profit was not available to, the party to whom the fiduciary duty was owed.
More recently in Wright v Lemon (No 2) [2021] WASC 159, Le Miere J explained at [303] (footnotes omitted): Unauthorised conflicts or profits give rise to fiduciary liability. There is no defence other than informed consent. It is immaterial that a transaction might be fair. It is of no consequence that others may realize a windfall gain.
Having breached their fiduciary duties and thereby made a secret profit, a partner is obliged to account to their fiduciary - not as to the partner's share of the profits but all of the profit - as "he will not be permitted to retain, but be compelled to make it over to his constituent": Huntington Copper Co v Henderson (1877) 4 R 294 at 308; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144-5 per Lord Russell; Chan v Zacharia at 198 per Deane J.
Equity may also compel the defendant to honour the unregistered interest of the partnership by imposing a constructive trust: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 654. The purpose of the equitable remedy is to address the unconscientious insistence by the legal owner of property that they own title free of the equitable interest: Ryan v Starr [2005] NSWSC 170 at [92].

[23]

Consideration

As a partner, the defendant owed the plaintiffs each of the fiduciary obligations I have described. The contract modified these obligations slightly, providing that funds misappropriated by any party would not be regarded as part of the project cost. This did not affect the defendant's obligation in respect of the warehouse. He used his position as a partner to obtain a benefit for himself and his wife, without the fully informed consent of his partners. The defendant did not disclose the true position to his partners. This was in breach of his fiduciary obligations.
The defendant is liable to account to his partners for any benefit obtained in circumstances where there was a conflict between his fiduciary duty and personal interest. While there was no evidence as to whether the rent charged was market rent, it does not matter, "It is immaterial that a transaction might be fair": Wright v Lemon. The partner is obliged to account to his fiduciary for all of the profit or benefit, not only his partners' share. It is appropriate in the circumstances to impose a constructive trust on the proceeds of sale of the warehouse.
It ought not be forgotten that the defendant made contributions to the acquisition of the warehouse (see [57]) and, later, to its improvement (see [62]). The defendant refinanced the warehouse loan following a property settlement with his ex-wife. The amount of that loan is not in evidence. Nor is there evidence as to whether that loan simply refinanced the previous loan or included additional borrowings to fund any payment to the wife in their property settlement.
As the learned authors of Parkinson, The Principles of Equity, 2nd ed (2003) note at [2109]: (citations omitted) "The liability of the fiduciary to disgorge any profit or benefit is strict, that is, it applies whether or not the fiduciary was acting honestly or dishonestly … The stringent rule is said to have as one of its purposes to ensure that fiduciaries generally conduct themselves at a level 'higher than that trodden by the crowd'. However, although the bona fides of the fiduciary will not excuse him or her from liability, it will be relevant when the court is considering whether or not the fiduciary is entitled to recompense or reimbursement for work done or expenditure incurred in making the gain which is now held for the benefit of the principal … in Warman International Ltd v Dwyer (1995) 182 CLR 544, … the High Court held, despite the finding that the defendant fiduciary in that case was 'actively dishonest' and had obtained a 'identifiable profit from that dishonesty' that the defendants were entitled to an 'appropriate allowance' for expenses, skill, expertise, effort, and resources contributed by them'. Whether such an allowance should be made is a matter of judgment which will depend on the facts of the given case, … subject to the notion that the strict liability of the fiduciary should not be a 'vehicle for the unjust enrichment of the plaintiff".
The onus is on the errant fiduciary to show why the full value of an advantage obtained in a situation of conflict of duty should not be disgorged: Ancient Order of Foresters at [13].
Applying these principles, the trustee in bankruptcy may be entitled to retain a portion of the proceeds of sale of the warehouse as recompense for the expenditure incurred by the defendant in acquiring or improving the warehouse. I am unable to calculate this figure on the basis of the evidence before the Court.
Further, as a partner, the defendant is also entitled to a one-third share of the "benefits" of the partnership. The trustee in bankruptcy may also be entitled to retain a portion of the proceeds of sale to reflect the defendant's share in the partnership. That figure would, however, also need to take into account any monies which the defendant may owe the partnership by reason of his suggested under-reporting of revenue: see [183].
I have drawn a distinction between the two entitlements that the trustee in bankruptcy may have to the net proceeds of sale of the warehouse. The former entitlement may be of a proprietary nature whilst the latter may be in personam, however, I did not have the benefit of submissions on this topic. I will grant liberty to the trustee in bankruptcy in the event that the parties cannot agree on what these figures should be, or what priorities should attach to these amounts in the defendant's bankruptcy.

[24]

Orders

The plaintiffs sought declarations in respect of the existence and dissolution of the partnership. Further, the plaintiffs sought a declaration that the Chester Hill warehouse was a partnership asset, as were the proceeds of sale of that warehouse. The plaintiffs also sought a declaration that the e-commerce stores were the property of the partnership. As the plaintiffs have since purchased the stores from the liquidator of the companies which held them, such declarations would be otiose. It follows from my judgment, however, that the e-commerce stores were the property of the partnership. Otherwise, I consider it appropriate to grant declaratory relief as sought.
Finally, the plaintiffs contended that the defendant fraudulently under-reported revenue by $644,000. The plaintiffs sought orders to refer the matter to a referee for the taking of an account in respect of all car accessories consigned by the plaintiffs for sale via the e-commerce stores since 2017, and to determine whether revenue was under-reported as suspected. Given the defendant's bankruptcy, the proof of debt process may be a more efficacious route to recover any such funds. I will give the plaintiffs liberty to apply in the event that they wish to proceed with a reference.
The plaintiffs have obtained the relief sought and thus should have their costs of the proceedings. For these reasons I make the following orders: 1. Declare that the plaintiffs and defendant were in a partnership from April 2013 until April 2023, importing car accessories into Australia for sale via e-commerce stores. 2. Declare that the warehouse situated at Unit 5, 115-117 Orchard Road, Chester Hill was property of the partnership, as are the proceeds of sale of the warehouse. 3. Declare that the trustee in bankruptcy of the defendant's estate holds the proceeds of sale of the warehouse on constructive trust for the partnership. 4. Grant liberty to apply to the parties to apply in respect of: 1. orders to refer the taking of accounts; and 2. orders in respect of any portion of the proceeds of sale of the warehouse which may be retained by the defendant's trustee in bankruptcy. 1. Order the defendant to pay the plaintiffs' costs of the proceedings. 2. In the event that either party seeks to vary Order 5, direct: 1. the party seeking such variation to provide any affidavits and submissions (limited to three pages) within seven days; and 2. any affidavits and submissions (limited to three pages) in reply to be filed within seven days, with any such application to be determined on the papers. 1. The parties to notify any errors or omissions within seven days.

Tse v Ngo

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (25 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (52)