Xie v Qin

Xie v Qin - [2024] NSWCA 26 - NSWCA 2023 case summary — Zoe

HEADNOTE [This headnote is not to be read as part of the judgment] The appellants challenged a decision of the Equity Division of the Supreme Court to dismiss their claim to recover moneys alleged to have been misappropriated by the respondent. The respondent and her husband had previously conducted business exporting Australian fruit to China and had had dealings with a Mr Jiang. At the instigation of Mr Jiang, the parties engaged in a venture to grow grapes in Victoria for export to China. This venture was managed in Australia by the respondent. To facilitate the venture, a company (Taylor International Investment Pty Ltd ("TII")) and a unit trust (Taylor Investment Unit Trust) were established. The respondent was the sole director of TII and trustee of the unit trust. The first to fourth appellants and the respondent's husband were unit holders in the trust and shareholders in TII in the same proportions. Money for the operation of the business venture was sourced by Mr Jiang from persons other than the appellants and transferred from China to his personal account with an Australian foreign exchange company called IMBK Pty Ltd ("IMBK"). The respondent, as the local manager of the business venture, was tasked with withdrawing funds from the IMBK account and depositing them into two accounts with the National Australia Bank, one of which was an account for the unit trust and the other for the company. In most instances, funds withdrawn by the respondent from the IMBK account were deposited into the relevant venture accounts or applied for the purposes of the venture. However, certain withdrawals were not applied for the purposes of the grape-growing venture. On 19 November 2019, the respondent was removed as the director of TII and replaced by the second appellant, Mr Qian. On 8 January 2020, the respondent was removed as trustee of the unit trust by resolution of unit holders and replaced by the first appellant, Mr Xie. At first instance, the respondent (then a defendant) contended that Mr Jiang also used his IMBK account to transfer moneys for his own as well as her personal purposes. She argued that the part of the moneys withdrawn for non-venture purposes was not money which ever formed part of the contributions to the unit trust or company, but rather was authorised to be applied at her discretion, including in the manner that she had applied it. At first instance, the appellants contended that the respondent was required to account for the moneys in dispute to Mr Xie as trustee of the unit trust. The appellants did not seek leave to amend their statement of claim to allege that either Mr Xie as trustee of the unit trust, or TII, or both, were entitled to the moneys the respondent had allegedly misapplied. Mr Jiang gave evidence for the appellants but did not join as a co-plaintiff. The primary judge found that because the respondent had a discretion to pay the moneys either to herself as trustee of the unit trust or to TII, and because TII had made no claim to the moneys, Mr Xie, being the successor trustee, had not established an entitlement to the moneys. The issue raised on appeal was whether the statement of claim could be amended to include a claim by TII as well as Mr Xie that the respondent had held the moneys in dispute on trust for, and was obliged to account for the money to, one or both of them, and a claim that they had terminated the trust. As a result, the Court was required to determine if the appellants should be permitted to raise a claim that was not pleaded at trial. The Court (White and Meagher JJA, Basten AJA) dismissed the appeal, holding: Per White JA (Meagher JA and Basten AJA agreeing at [1] and [67] respectively): 1 Whilst the parties had departed from the pleadings in the conduct of the trial, it was still necessary that the pleadings be brought into line with the issues as fought, even if done so after evidence is closed, or after judgment and an appeal: [48], [49]. Bell v Lever Brothers Ltd [1932] AC 161; National Australia Bank Ltd v Nobile (1988) 100 ALR 227; Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437; Pringle & Ors v Everingham [2006] NSWCA 195, referred to. 2 In order to pursue a case on appeal which was not fought at trial, leave to amend will depend on whether the issue raised is purely one of law on which no unled evidence would be relevant or whether, if it raises a question of fact, that question has been decided beyond controversy. If there is a possibility that if the issue sought to be raised on appeal had been raised at trial the judge's findings might have been different, leave to appeal will not be granted: [52]. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35, referred to. 3 If the claims made by the appellants regarding the existence of the trust contended for had been pleaded before trial, additional evidence relevant to the issue may have been led at trial and the primary judge's findings may have been different: [63], [65]. 4 As the appellants did not challenge the correctness of any of the primary judge's reasons on the issues litigated before him, and their new submissions may have led to different findings at first instance, the appeal should be dismissed: [64], [66].

[4]

JUDGMENT

MEAGHER JA: I agree with White JA.
WHITE JA: This is an appeal from orders of the Equity Division (Xie & Ors v Qin & Anor; Qin v Taylor International Investment Pty Ltd [2023] NSWSC 254 (Kunc J)).
The appellants were plaintiffs in the court below. The primary judge dismissed their claim. He did so notwithstanding that on his Honour's findings arguably either the first appellant (Mr Xie) or the fifth appellant (Taylor International Investment Pty Ltd ("TII")), or both, would have been entitled to relief, had TII made an appropriate claim.
The hearing before the primary judge took 10 days. The primary judge observed (at [2]) that an understanding of the relevant financial dealings between the parties was complicated by a lack of documentation, inconsistent versions of events, and habits of business which obscured the identity and contribution of the various participants. His Honour observed that it was those features which, in part, might have explained the difficulty which his Honour faced in identifying the main cause of action ultimately propounded by the appellants.
A Mr Donghua Jiang was described by the primary judge as the instigator and architect of the arrangements that ultimately gave rise to the dispute (at [1]).
Mr Jiang is resident in Shanghai. He ran a fruit wholesale business in Shanghai. The respondent, Ms Aiyi Qin, and her husband, Mr Peihong Qin, were at all material times resident in Australia. She knew Mr Jiang from high school in China. Mr Jiang deposed that he had frequent contact with Mr and Ms Qin in respect of the importation of Australian fruit to China. Mr and Ms Qin conducted the business of exporting Australian fruit into China through their company Hongyi Australia Pty Ltd ("Hongyi"). There were existing business dealings between the parties prior to the implementation of the venture which gave rise to these proceedings.
The primary judge held that the Venture (being a venture to grow grapes in Victoria and export them to China) was conceived by Mr Jiang and primarily funded by investors in China. The Venture was managed by Ms Qin. The parties established two business vehicles for the Venture. On 6 June 2018 a unit trust was established, of which Ms Qin was initially the trustee. In that capacity, she purchased a vineyard in Victoria near Mildura. The purchase price stated in the contract of sale was $2 million. She also arranged for the establishment of TII to conduct the business of growing grapes.
There were five plaintiffs in the court below: Mr Xie, Mr Qian, Mr Shen, Mr Zhang and TII. Mr Xie, Mr Qian, Mr Shen and Mr Zhang, together with Mr Qin, were the unit holders in the unit trust. They were shareholders in TII in the same proportions. The unit trust was called the "Taylor Investment Unit Trust".
Money for the purchase of the land and operation of the vineyard came largely from funds transferred by Mr Jiang to Australia. On seven days between 29 June and 31 October 2018, Mr Jiang transferred RMB13,550,000 (which the primary judge found was approximately $2.67 million) to an account with an Australian foreign exchange company called IMBK Pty Ltd ("IMBK") (at [20(3)]).
The primary judge found (at [35]) that the funds forwarded by Mr Jiang to IMBK were provided by persons other than the plaintiffs and there was no evidence that would enable the Court to determine what arrangements, if any, were made between those persons, Mr Jiang, and the plaintiffs. His Honour found that it was "…clear that the funds were intended for the Venture (and thereby for one or other of the Unit Trust or Taylor International)" (at [35]).
It was not in dispute that Ms Qin was the local manager of the Venture. She withdrew funds from IMBK and, in most cases, deposited them either into an account opened with the National Australia Bank for TII called the Taylor P Account, or into an account opened with that bank for her in her capacity as trustee of the Unit Trust, called the Taylor U Account.
On 19 November 2019, Ms Qin was removed as the director of TII and replaced by the second appellant, Mr Qian. On 8 January 2020, Ms Qin was removed as trustee of the Unit Trust by resolution of unit holders and replaced by the first appellant, Mr Xie.
It was admitted on the pleadings that the Taylor P Account was opened in order to facilitate the Unit Trust. But the significance of that admission is elusive.
Relevantly, by their Further Amended Statement of Claim, the appellants sought the following orders: "4. An order that the First Defendant [Ms Qin] hand over outstanding property of the Unit Trust to the First Plaintiff [Mr Xie] comprising monies which are unaccounted for and which total $512,685.10. 5. An order that the First Defendant do everything necessary to vest the outstanding assets of the Unit Trust comprising monies which are unaccounted for and which total $512,685.10, in the First Plaintiff. 6. Alternatively to orders 4 and 5 above, a declaration that the First Defendant holds monies which are unaccounted for and which total $374,607.10 on trust for the First, Second, Third and Fourth Plaintiffs. 7. Further to order 6 above, judgment against the First Defendant in the sum of $374,607.10."
The pleading in support of these claims was as follows: "60. As noted at [16A] above, at the direction of the First Defendant, the First, Second, Third and Fourth Plaintiffs transferred RMB 13,500,000.00 (equivalent to approximately AU$2,707,919.90 in late 2018) over thirty-three (33) transactions to IMBK Pty Ltd for their investment in the Business. 61. As noted at [16B] above, the First Defendant represented that the Second Defendant [Mr Qin] contributed $300,880.00 as his investment in the Business. 62. By reason of the matters referred to at [60]-[61] above, the total of monies invested by the First, Second, Third and Fourth Plaintiffs and the Second Defendant was $3,008,799.90. 63. As noted at [20] above, the monies which were paid into the Taylor U Account from monies invested by the First, Second, Third and Fourth Plaintiffs amounted to $2,120,871.80. 64. As noted at [21E] above, the monies which were paid into the Taylor P Account from monies invested by the First, Second, Third and Fourth Plaintiffs amounted to $212,441.00. 65. Contrary to the representation of the First Defendant at [16B] above, the Second Defendant only contributed $1,000.00 to the Taylor U Account and $161,802.00 to the Taylor P Account. 66A. As the holder of 10 units in the Unit Trust and as a holder of 10 shares in the Fifth Plaintiff, the Second Defendant was required to contribute $300,880.00 to the Business. 66. The First, Second, Third and Fourth Plaintiffs have requested the First Defendant to provide transaction receipts confirming that [sic] the Second Defendant's contribution to the Business in the amount of $300,880.00. The First Defendant has failed and/or refused to provide any confirmation of the Second Defendant's contribution to the Business in the amount of $300,880.00. 67A. Accordingly, there is a shortfall of contributions made to the Business by the Second Defendant in the amount of $138,078.00. 67. By reason of the matters referred to at [63]-[67A] above, the total amount of monies actually paid into the Taylor U Account and the Taylor P Account was $2,496,114.80. 68. The difference between the total amount of monies invested by the First, Second, Third and Fourth Plaintiffs and the Second Defendant into the Business and those monies actually paid into the Taylor U Account and the Taylor P Account is $512,685.10. 69. By reason of the matters referred to at [63]-[64] above, the total amount of monies paid into the Taylor U Account and the Taylor P Account from monies invested by the First, Second, Third and Fourth Plaintiffs was $2,333,312.80. 70. The difference between the total amount of monies invested by the First, Second, Third and Fourth Plaintiffs into the Business and those monies actually paid into the Taylor U Account and the Taylor P Account is $374,607.10. 71. The figure of $374,607.10 represents the shortfall in monies invested by the First, Second, Third and Fourth Plaintiffs into the Business with such shortfall being otherwise unaccounted for by the First Defendant." (underlining in original)
TII claimed compensation from Ms Qin for alleged breach of duties she owed as a director of TII, but that claim was ultimately not pressed.
The primary judge found that Mr Qin had made a contribution of $300,880 and there is no appeal from that finding.
Although not specifically pleaded in Ms Qin's amended defence, it became common ground at the trial that, of the asserted shortfalls pleaded by the appellants, $374,607.10 was attributable to moneys withdrawn from Mr Jiang's foreign currency account at IMBK by Ms Qin between 29 June 2018 and 14 September 2018. On 29 June 2018 she withdrew $67,016.10 in cash. On 2 July 2018 she transferred $185,000 to a bank account of Hongyi. On 13 September 2018 she withdrew $40,000 in cash and on 14 September 2018 she withdrew $46,435.60 in cash. By the time of closing submissions, these were the amounts in issue.
It was common ground that those moneys were not applied for the purposes of the Venture. Ms Qin contended without contradiction that Mr Jiang had used his IMBK account to transfer moneys to her for both Mr Jiang's personal purposes and for the purpose of the grape-growing venture.
Ms Qin contended that Mr Jiang had authorised her to apply the amounts of $252,016.10 (comprising $67,016.10 plus $185,000) on 27 or 28 July 2018, and $86,435.60 (comprising $40,000 and $46,435.60) on 13 September 2018, as she did. This issue was not raised by the pleadings, but it was an issue fought before the primary judge. The appellants contended that the moneys paid by Mr Jiang into the IMBK account were to be applied by Ms Qin exclusively for the purposes of the Venture. They disputed that Mr Jiang had authorised the withdrawals and transfer effected by Ms Qin and contended therefore that she ought to have held and applied the moneys for the purposes of the Venture.
In relation to the withdrawal of $67,016.10 in cash, the primary judge found: "[203] There is no doubt that Ms Qin considered herself entitled to apply the $67,016.10 cash, which she kept "under the bed", for her own purposes. However, for the reasons set out in [201] and [202] above, the Court concludes that she has failed to discharge the onus of demonstrating on the balance of probabilities that she was authorised to use the money for something other than the Unit Trust and would, but for the Court's conclusion in [53] above, be liable to repay that amount with interest to Mr Xie as trustee of the Unit Trust."
The primary judge's reference to the obligation to repay the amount to Mr Xie as trustee of the Unit Trust must be read subject to his Honour's other reasons. As explained below, that statement should be understood as saying that his Honour considered that Ms Qin was liable to repay that amount to Mr Xie as trustee of the Unit Trust, or to TII.
In respect of the transfer of $185,000 to Hongyi, the primary judge did not accept Mr Qin's evidence that Mr Jiang had authorised the balance of the $252,016 transfer (being $185,000) to pay for purchases of fruit that had been made by Mr Jiang. Hence his Honour rejected Ms Qin's "defence" to this claim (at [205]-[209]).
In respect of the two cash withdrawals on 13 and 14 September 2018 totalling $86,435.60, the primary judge was not satisfied that Mr Jiang had authorised Ms Qin's cash withdrawals and subsequent payments (at [232]).
Those findings are not challenged by the respondent.
At no time during the trial did TII (the fifth plaintiff) make any claim to the sum of $338,451.70 which, on the primary judge's findings, Ms Qin misapplied.
In further findings, which are unchallenged, the primary judge found: "[40] There was no dispute that: (1) Mr Jiang transferred funds to Australia for the Venture which was to be set up and managed by Ms Qin. (2) To the extent the funds were not his own, Mr Jiang was the agent of those providing the funds and his authority extended (if he in fact did this) to permitting Ms Qin to apply those funds for purposes other than the Venture. (3) Mr Jiang transferred the funds by sending RMB from a bank in China to his account with IMBK, which would then convert the RMB into Australian dollars. [41] Although this point was little explored in the evidence, in particular by reference to the records of IMBK (as I shall next explain) the Court is satisfied that insofar as funds were to be applied to the Venture, how the funds that were sent via IMBK were to be applied specifically was left to Ms Qin…. [42] There is no suggestion that Mr Jiang ever tried to tell Ms Qin how the funds were to be applied as between the Unit Trust and Taylor International. The Court accepts, because it is supported by the IMBK records, Ms Qin's evidence in cross-examination about the IMBK account (Tcpt, 7 November 2022, p 290 (28-30)): 'Those monies, when they were transfer into that account, that account is not mine; that's Mr Jiang's. It's just, Mr Jiang trust me a lot, so he allowed me to use his account'."
That Ms Qin could allocate moneys for the Venture at her discretion, either as assets of the Unit Trust or to TII, was not an issue raised on the pleadings nor in the parties' affidavits. Nonetheless it was an issue that was litigated at trial. In his written opening submissions at trial, counsel for the defendants, Mr Lees, submitted the following under the heading "What is the proper legal characterisation of the contributions made by the unit holders/shareholders?": "19. It should be noted that Messrs Xie, Qian, Shen, Chang and Qin held the same proportions of units in the Unit Trust and shares in TII, and (understandably given their limited knowledge of Australian business structures) appear to have largely treated both the Unit Trust and the company as part of one business enterprise. Their contributions to both the Unit Trust and TII therefore need to be considered. In relation to the relief sought, however, particularly in relation to the relief sought in the Outstanding Contribution Claim, the specific entity to which contributions were or ought to have been made needs to be considered carefully."
Although that submission was not directly relevant to the present issue, it did draw attention to the need to consider whether Mr Xie as trustee of the Unit Trust or TII was the party entitled to maintain a claim in respect of the moneys allegedly misappropriated by Ms Qin.
In his written opening submissions, Mr Lees submitted that Ms Qin was entitled to rely on Mr Jiang's authorisation to use some of the moneys she received from him via IMBK transfers for payments of Mr Jiang's debts and for purposes unrelated to TII and the Unit Trust. Mr Lees submitted that, in agreeing to Ms Qin's withholding or retaining part of the moneys transferred, Mr Jiang was either using part of the funds that he and his wife had contributed, or alternatively that he had either actual or ostensible authority to act on behalf of the first to fourth plaintiffs. He submitted that: "The result of this is that $338,451.70 of the total funds transferred by Mr Jiang to Ms Qin never formed part of the contributions to the Unit Trust and TII…".
It does not follow from the above reference to TII that the defendants could be taken to have implicitly acceded to a claim that, without amendment to the pleadings, TII rather than the first to fourth plaintiffs could maintain a claim against Ms Qin for the moneys she withdrew. The submissions continued: "If the first to third [scil fourth?] plaintiffs did not authorise Mr Jiang to pay the $338,451.70 to Ms Qin, for the purpose of repaying his loans etc; or if that payment was contrary to some other agreement between them and Mr Jiang, then the complaint and remedy should be against him rather than Ms Qin."
Mr Jiang did not sue as a co-plaintiff.
The hearing of the evidence concluded on 10 November 2022. At the conclusion of the evidence, Mr Lees said he had prepared a draft list of issues which he had shown to the plaintiffs' counsel, Mr Norrie, which he handed up. The primary judge expressed reservations about the form of the pleading and the claim for relief which sought an account. His Honour observed that an application for an account would require a complete accounting of the operation of the business in order to suggest that the trustee had an obligation to account.
Mr Lees also said: "LEES: Your Honour, could I just note, for my friend's benefit, that for the defendants, the standing and relief is a live and real issue. At least on one view of the evidence, this was money provided by Mr Jiang and it wasn't always provided by the second to fourth Chinese plaintiffs in proportion to their contributions. But Mr Jiang's not a plaintiff, he's not a party, and so, the question is, who is the relief granted in favour of? And I also note that the trustee's not a party in his capacity as trustee; it's not a claim brought on behalf of the trust. It's only as, presumably, shareholders, and then the company as well. But that, for the defendants, is a live issue, as to, in favour of which plaintiffs and on what basis? HIS HONOUR: Who actually gets a judgment and in what capacity, seems to me to be a very real question, in the way the proceedings have been constituted. But there may be very clear and simple answers, but, at the moment, they're not straight-forward. But you'll need to address all of that, because this is, on one view - well, is this a claim by the trust? I don't know. LEES: That's not how it's pleaded. HIS HONOUR: It's not pleaded like that. Some of the evidence was presented as though it was a claim by the trust, but it's not a claim by the trust. So what right is being asserted by these plaintiffs, seems to me to be a very real question."
The parties prepared written closing submissions. In the closing submissions for the appellants, Mr Norrie of counsel submitted that, relevantly, the issue to be determined by the Court was: "b. Whether the First Defendant was authorised to deal with the following amounts other than applying such amounts to the Unit Trust or the Fifth Plaintiff: i. $67,016.10 which was withdrawn in cash by the First Defendant from IMBK on 29 June 2018. ii. $185,000.00 which was transferred by the First Defendant from IMBK to Hongyi's bank account on 2 July 2018. iii. $86,435.60, comprising cash withdrawals by the First Defendant from IMBK in the amounts of $40,000.00 on 13 September 2018 and $46,435.60 on 14 September 2018."
His submissions did not address the question as to who would be the appropriate plaintiff to claim relief if Ms Qin were not so authorised.
In his submissions, Mr Lees for the defendants identified the first issue as follows: "6. Issue One: (subject to the question of whether the first to fourth plaintiffs have standing and are the proper plaintiffs) of the funds transferred by Mr Jiang via IMBK, whether Ms Qin was authorised to apply either of the following amounts other than to the Unit Trust or TII: a. $252,016.10 (comprising $67,016.10 + $185,000) on 27 or 28 July 2018; or b. $86,435.60 (comprising $40,000 + $46,435.60) on 13 September 2018. And further: whether the orders in prayers 4 and 5 of the FASOC can or should be made; and whether the orders in prayers 6 and 7 of the FASOC can or should be made." (underlining in original)
He submitted that Ms Qin had a discretion to decide whether funds received from Mr Jiang should be allocated to the Unit Trust or TII.
Mr Lees also submitted: "32. In relation to prayers 4 and 5, it should also be noted that even if it is found that Ms Qin should not have withheld the 'unaccounted for monies', it does not automatically follow that those funds are property of the Unit Trust that should be vested in its trustee. 33. It appears that the investors allowed Ms Qin the discretion as to whether to allocate the funds they provided to the Unit Trust or TII. The court would not be satisfied that the 'unaccounted for monies' would have been paid to the Unit Trust, particularly given the Unit Trust had sufficient funds to purchase the farm land and pay associated costs whereas TII faced ongoing cashflow problems. TII has not, however, brought a claim to recover the 'unaccounted for monies'."
The parties' closing submissions are both dated 14 November 2022. The hearing before the primary judge resumed on 15 November 2022. Mr Lees repeated his submission that the funds did not become part of the assets of the Unit Trust. He submitted that Ms Qin allocated some of the IMBK moneys to the trust and some to the company so it did not automatically follow that all of the funds went to the trust.
The plaintiffs did not seek leave to amend the statement of claim to allege that either Mr Xie as trustee of the unit trust, or TII, or both, were entitled to the moneys Ms Qin had allegedly misapplied. Mr Norrie submitted that the moneys were advanced by the first to fourth plaintiffs (being unit holders and shareholders) and were received by Ms Qin on trust for them for the purpose of investing in the farmland "and all that that entailed".
As noted above, the primary judge rejected the submission that the moneys had been advanced by the first to fourth plaintiffs, and there is no appeal from that finding.
In relation to the submission that Ms Qin had a discretion as to whom moneys should be paid, Mr Lees submitted: "LEES: Yes, I suppose the starting point to take a step back is as I touched on earlier, the transfers were made by Mr Jiang via IMBK. But on receipt at the other end, they didn't automatically become trust monies in the hands of Ms Qin as trustee. Ms [Qin] had a discretion as to how to apply the funds. And so some of the funds were applied to the trust, in the earliest stages to allow it to purchase the farmland. But some of the contributions were also paid into the Taylor P account, the company account. And that there's no claim on behalf of the company for any misappropriation of funds there. But there's a preliminary step, on transfer by Mr Jiang those loan funds don't automatically become trust monies with the trust. HIS HONOUR: Right. Well, what's the evidence and support of that proposition? LEES: It's more from the course of conduct observed from the WeChat messages that there's no restriction or condition or control placed on the funds by Mr Jiang. He doesn't say this money has to go to the trust and this money has to go to the company. I had thought that it was touched on in oral evidence, but I haven't been able to find the reference. So if I later find one, I might. HIS HONOUR: I may well have missed something. But to be frank, it seems screamingly obvious from everything I have seen that this money was provided for the purposes of this [grape] project. Now, if you want to say to me that somehow there was a discretion in her to apply these monies for something else, then I think you're going to need to take me to the evidence upon which that proposition can be founded. Because everybody, the case seems to have been conducted on the basis that this was all for the [grape] project. And we're arguing about whether some money was not applied for the [grape] project. LEES: Yes. But the issue is that this claim's not brought by Taylor International for recovery of those monies. It's brought by the trustee of the trust. And so it can't be assumed that those monies were automatically trust property. They well [c]ould have become company property. For example, the trust had sufficient capital or funds to purchase the farmland. But beyond that point really had no need for it. Beyond that the company needed funds. And there was an issue with the company having a shortfall of funds. So it may be that if these funds that were received by Ms [Qin] were not authorised to be applied for other purposes, then they should have been paid to the company rather than the trust. It's not automatically following that the trust would've received those funds."
The primary judge summarised the submission as follows: "[36] Accepting for the sake of the argument that the plaintiffs' case was in account or for the vesting of trust assets, Mr Lees submitted that the plaintiffs' case failed at the outset in relation to the Impugned Transactions because they had not proven that the funds the subject of the Impugned Transactions were in fact assets of the Unit Trust. He submitted that the evidence demonstrated that Mr Jiang provided funds to Ms Qin and that it was in her discretion to appropriate them to the Unit Trust (as its trustee) by deposit into the Taylor U account, or to Taylor International (as its director) by deposit into the Taylor P account."
The primary judge upheld this submission. He rightly observed that the plaintiffs had made no answer to it (at [38]). His Honour found: "[39] The plaintiffs' case focussed on the funds being provided for the Venture and never descended to the detail of the funds being applied to either the Unit Trust or Taylor International… … [41] Although this point was little explored in the evidence, in particular by reference to the records of IMBK (as I shall next explain) the Court is satisfied that insofar as funds were to be applied to the Venture, how the funds that were sent via IMBK were to be applied specifically was left to Ms Qin. I do not accept Mr Jiang's affidavit evidence that "I was merely directed by the First Defendant to transfer the investment fund in the total sum of RMB 13,550,000…to nominated accounts provided by the First Defendant…" (emphasis added). The evidence is plain that the only account to which he transferred funds was his account with IMBK. As Mr Jiang admitted in cross-examination (Tcpt, 3 November 2022, p 178(15-16)), "I didn't have any means to transfer the money actually into the company's bank account". [42] There is no suggestion that Mr Jiang ever tried to tell Ms Qin how the funds were to be applied as between the Unit Trust and Taylor International. … [52] As with the first two Impugned Transactions, what emerges from paragraphs [49] to [51] above is that there is no basis on which the Court can conclude in what capacity Ms Qin took the funds from Mr Jiang's IMBK account or on which it can otherwise conclude that any of those funds were appropriated to the Unit Trust (or, for that matter, Taylor International). Assuming the Court otherwise were to accept Mr Jiang's evidence, the only available finding would be that Ms Qin had taken the money from the IMBK account for a purpose not authorised by Mr Jiang, namely a purpose other than the Venture. That, however, is not sufficient for the plaintiffs to succeed in a claim which depends upon those funds being assets of the Unit Trust. [53] It follows that the plaintiffs' claim in relation to the Impugned Transactions fails for want of proof that the funds were in fact assets of the Unit Trust..."
There is one ground of appeal, namely, that the primary judge ought to have found that Ms Qin held the "Impugned Transactions" as defined in the judgment dated 22 March 2023 at [6] on trust for both the first and fifth appellants (Mr Xie in his capacity as trustee of the Unit Trust, and TII).
In support of that ground of appeal, the appellants sought leave to amend the statement of claim. Initially the statement of claim proposed to be filed relevantly only sought an amendment to the claim for relief as follows: "6. Alternatively to orders 4 and 5 above, a declaration that the First Defendant holds monies which are unaccounted for and which total $374,607.10 on trust for the First, Second, Third, and Fourth and Fifth Plaintiffs. 7. Further or in the alternative to order 6 above, judgment against the First Defendant, in the sum of $374,607.10 in favour of the First and Fifth Plaintiffs." (underlining in original)
The basis for that claim for relief was not articulated in the Proposed Further Amended Statement of Claim. As I understood it, this was because the appellants proceeded on the basis that the parties had departed from the pleadings in their conduct of the trial and it was not necessary to bring the pleadings into line with the real issues to be determined.
That position was not sound. Where a trial is conducted on issues other than those pleaded, the pleadings should be brought into line with the issues as fought, even if that is done after the evidence is closed, or even after judgment and an appeal (Bell v Lever Brothers Ltd [1932] AC 161 at 191; National Australia Bank Ltd v Nobile (1988) 100 ALR 227 at 235-6; Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 446; Pringle & Ors v Everingham [2006] NSWCA 195 at [49]).
After suggestions from the Bench that the claim as now sought to be put should be pleaded, the appellants propounded the following additional paragraphs to the pleading: "72. Further or in the alternative to the above at least the following payments described in paragraph 16A above were made by Mr Donghua Jiang to the IMBK account for the benefit of the Business (as defined in paragraph 1A above): i) The payment of $67,016.10 described in paragraphs [171] to [203] of the Judgment; ii) The payment of $185,000 described in paragraphs [204] to [209] of the Judgment; iii) The payment of $86,435.60 described in paragraphs [210] to [236] of the Judgment. 73. For the purposes of the operation of the Business and the acquisition of the Property described in paragraphs [22] to [38] above Mr Jiang authorised the First Defendant to withdraw the funds described in paragraph [72] from the IMBK account to be utilised for the benefit of either the First Plaintiff or the Fifth Plaintiff at the discretion of the First Defendant as to which of these two objects received the benefit. 74. In the circumstances described at paragraph [73] above the First Defendant holds those funds on trust for the First and Fifth Plaintiffs. 75. Further, together the First and Fifth Plaintiffs are entitled to the trust property described in [74] above. 76. In the circumstances the First and Fifth Plaintiffs are entitled to demand (and do by this pleading make such demand) from the First defendant the trust funds described in paragraph [73] and thereby extinguish the trust described in paragraphs [73] and [74] above."
If Ms Qin held the moneys the subject of the "Impugned Transactions" on trust for unit holders of the unit trust or TII at her discretion, then there would be a strong argument that Mr Xie as the new trustee of the unit trust and TII acting together could bring the trust to an end and require Ms Qin to account to them jointly for those moneys (Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 at 411).
The difficulty for the appellants is that they seek to propound on appeal a case that was not fought at trial. In such cases leave to amend so as to raise a new point on appeal will depend on whether the issue raised is purely one of law on which no unled evidence would be relevant or whether, if it raises a question of fact, that question has been decided beyond controversy. That will not depend merely on whether the judge's findings of fact on the issues presented at trial are not sought to be controverted, but on whether, if the new issue sought to be raised on appeal had been raised at trial, the judge's findings might possibly have been different (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35).
The proposed amended pleading alleges the existence of a trust of which Mr Xie or TII were to be beneficiaries at the discretion of Ms Qin. The reference to Mr Xie is presumably to Mr Xie in his capacity as the successor to Ms Qin as trustee of the Unit Trust. So understood, the proposed pleading should be taken as alleging that Mr Jiang authorised Ms Qin to withdraw the particular funds in issue from the IMBK account to be used for the benefit of the Unit Trust of which she was then the trustee or, at her discretion, for the benefit of TII.
In their written submissions, the appellants characterised the trust alleged as in the nature of a trust recognised in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. They cited Gibbs ACJ in Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353; [1978] HCA 45: "I must now deal with the argument advanced by counsel for the Bank in reliance on the decision in Barclays Bank Ltd. v. Quistclose Investments Ltd. That case is authority for the proposition that where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust."
In Barclays Bank Ltd v Quistclose Investments Ltd the lender, Quistclose, lent money to Rolls Razor Ltd to pay a dividend to its shareholders that had been declared. The moneys were paid into a separate bank account opened for the purpose of receiving the money to be paid by way of dividend. Both Quistclose and Rolls Razor intended that the moneys should not become part of Rolls Razor's assets. In Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Gummow J (at 500-501) characterised the arrangements as: "…an express trust with two limbs rather than an express trust in favour of the shareholders and a resulting trust in favour of Quistclose which arose by reason of an incomplete disposition by Quistclose of the whole of its interest in the money lent to Rolls Razor. But, on either characterisation, Quistclose had a beneficial interest (although not at all relevant times an exclusive beneficial interest) in the money in question."
It was essential to the decision in Barclays Bank Ltd v Quistclose Investments Ltd that the moneys advanced by Quistclose never became part of the assets beneficially owned by Rolls Razor.
Whether the arrangements between Mr Jiang and Ms Qin were such that the moneys she withdrew from the IMBK account never became part of the assets she beneficially owned was not an issue ventilated at trial. Nor was it addressed on appeal.
We were referred to no evidence that Mr Jiang expressly declared that the moneys he sent to the IMBK account were to be applied by Ms Qin solely for the benefit of the Unit Trust or TII. Ms Qin said that some of the moneys transferred could be treated as a personal loan. Mr Jiang did not demur.
Mr Jiang did not require that Ms Qin keep any of the moneys she withdrew separate from her own moneys.
In the absence of evidence of an express declaration of trust, a declaration will be presumed only where it necessarily appears that the settlor intended to create a trust (Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 187; [1920] HCA 45; Byrnes v Kendle (2011) 243 CLR 253 at 262 [16]; [2011] HCA 26).
Mr Jiang was not a party to the proceedings. He gave evidence for the appellants. As the respondent submitted he was not cross-examined in any detail as to whether the transferred funds as a whole were paid on condition that they be applied for a specific purpose and what that purpose was. Nor was he cross-examined on facts that would be relevant to whether an express trust was created, or whether the moneys transferred became part of the assets of Ms Qin but she was under a personal obligation to Mr Jiang to apply them to TII or for the benefit of the unit trust.
The respondent also submitted that although the primary judge found that some of the funds transferred by Mr Jiang were intended for the Venture, that was not true of all of the funds transferred. Some of the funds transferred related to other matters for Mr Jiang's personal use which were not the subject of a claim.
If the claim now sought had been pleaded before trial, additional evidence may have been called. The primary judge's findings of fact may have been different. There was a real issue, raised by Mr Lees, as to whether the appropriate plaintiff was neither Mr Xie nor TII, but Mr Jiang. That issue was not addressed on appeal. It cannot be addressed on appeal because evidence relevant to it might have been led at trial had the proposed amended pleading been raised before or at trial.
The appellants do not challenge the correctness of the primary judge's reasons on the issues litigated before him.
For these reasons, the new issues sought to be ventilated on appeal should not be entertained.
I propose that the appeal be dismissed with costs.
BASTEN AJA: I agree with White JA.

At a glance

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Judgment (5 paragraphs)

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Cases Cited (13)