Zeng v Mossensons

The parties 2The first plaintiff, Mr Zeng Zhao Qin, is a native of the People's Republic of China and, as I understand it, hails from the province of Shandong. The second plaintiff (Shandong Mining China) and the third plaintiff (Shandong Group Australia) are companies associated with him. Although it is not a party, there is another relevant associated company known as Shandong Tianye Group (Shandong Group China). 3The first defendant, Mossensons, is an incorporated legal practice in Perth. The second defendant, Mr Ian Mossenson, is the principal of that practice. 4The third defendant (to which I shall refer by its stock exchange code, SDT) is the listed vehicle through which the venture that I have very briefly outlined was to be undertaken. 5The fourth defendant, Mr Ehrenfeld, is a person of, it seems, much experience in the corporate world. The fifth, sixth and seventh defendants are companies associated with him. The fifth defendant, Tilapia, has been deregistered, as has the seventh defendant, Steinbruck. The sixth defendant, Fundamental Capital, appears to be alive, but was not represented in these proceedings. 6Mr Ehrenfeld, who apparently controlled SDT, put it into voluntary administration the day before the commencement of the hearing. I granted leave to proceed under s 440D of the Corporations Act 2001 (Cth) with the usual limitations as to enforcement of any judgment or order. Thereafter, SDT took no active part in the proceedings. 7The third to seventh defendants, who may be called conveniently the Ehrenfeld defendants, cross-claimed for relief against Mr Zeng and Shandong Mining China. The cross-claim also extended to Shandong Group China, a legal firm known as HWL Ebsworth, and two Chinese nationals, Mr Li and Mr Hu.

Outline of agreements and payments 8The first relevant agreement is known as the "acquisition agreement". It was made on 26 October 2007. The parties were Mr Zeng and Shandong Group China as "Party 1" and Mr Ehrenfeld as "Party 2". I shall return to the terms of that agreement. However, its essence was to acquire, and to permit the Party 1 parties to retain control of, a listed public company into which they could transfer certain mining assets. There were arrangements of a relatively high level nature, for the funding of that process and for the capitalisation of the target company. 9That agreement was varied by a "variation agreement" made on 26 August 2008 between the same parties. One purpose of the variation agreement was to substitute, for the mining assets referred to in the acquisition agreement, a different mining asset. Another was to provide for Party 1 to make an additional capital subscription. 10The next relevant agreement is a deed of novation, also made on 26 August 2008. The principal relevant effect of that deed was, in substance, to substitute Shandong Mining China for Shandong Group China as part of Party 1 in the earlier agreements. 11In August 2008, and it may be on the 26th, there was made a "controlled monies agreement" under which the reconstituted Party 1 agreed to pay the sum of $1,800,036 into the trust account maintained by DLA Phillips Fox, on the terms set out in that controlled monies agreement. At about the same time, it would appear, Party 1 executed an irrevocable authority. There is some contention as to the duration of that irrevocable authority. 12On 17 March 2009, Mr Zeng, Shandong Mining China and Mr Ehrenfeld made an agreement in the form of a written "memorandum". That agreement dealt with a number of matters relevant to the recapitalisation of what became SDT, including recognition that the shares to be issued to Mr Zeng or his nominee would be held by Tilapia as trustee and that Mr Ehrenfeld might have the right, on terms set out, to a success fee from SDT. 13On 9 June 2010, Mr Zeng and Shandong Mining China (collectively called "Shandong") and Tilapia and Mr Ehrenfeld (collectively called "Ehrenfeld") made what was called a "representation and warranty deed". The principal purpose of that deed appears to have been to "firm up" the conditions on which money was to be paid into trust and paid out to SDT, and "Shandong" was to obtain the benefit of a shareholding in SDT. 14In September 2010 (the precise date of execution or delivery appears to be unclear), "Shandong" and "Ehrenfeld" (i.e. the parties so described in the representation and warranty deed) made a further deed, which has been referred to as the "final deed". Under that final deed, Shandong was to pay a further sum of $1,800,036 into a trust account controlled by Mossensons and that sum was to be held for the purposes, and paid out in the manner, described in the final deed. 15Under those agreements, Mr Zeng or the companies controlled by him, paid various sums of money over the period from November 2007 to September 2010. The total paid was $3,520,000. That does not include the payment of $1,800,036 to DLA Phillips Fox, because, as I understand it, those amounts were paid out at the direction of or to Mr Zeng or his entities. In effect, the obligation to pay that amount was renewed by the final deed, with the payment to be made into an account controlled by Mossensons.

Outline of the issues 16To understand what follows, it is necessary to note that, on its proper construction (for reasons I shall give), the final deed permitted no more than $100,000 to be paid out of the Mossensons trust account, for the purposes of achieving the re-quotation of SDT, until the "Release Date" as defined had occurred. The permitted amount ($100,000) was paid out, at the direction of Mr Ehrenfeld. However, further sums exceeding in total $523,000 were also paid out, again at the direction of Mr Ehrenfeld. 17The plaintiffs claimed, against Mossensons, that those payments out were made in breach of trust because they were not made on the terms permitted by the final deed. The plaintiffs sought to recover from Mossensons the total of the amounts said to have been wrongly paid out. Mossensons resisted that claim. However, shortly before the commencement of the hearing, the plaintiffs and Mossensons reached a settlement. Under that settlement, Mossensons agreed to pay $310,000 (approximately one half the amount wrongly paid out, if allowance is made for interest) together with $50,000 on account of the plaintiffs' costs. 18As between the plaintiffs and the Ehrenfeld defendants, the plaintiffs say that they were entitled to, and did, terminate the final deed and the earlier agreements made between them. As a result, the plaintiffs say, they are entitled to be repaid all the amounts paid by them pursuant to those various agreements. The plaintiffs say either that those amounts were paid for purposes which have failed, so that upon failure of the purposes there is a resulting trust in their favour; or that the payments were made for a consideration which has failed totally. 19The active Ehrenfeld defendant (that is, Mr Ehrenfeld) disputes those claims. He says, first, that the termination was unlawful; and, secondly, that there has been no failure of purpose and no failure of consideration. 20Mossensons has a cross-claim against the Ehrenfeld defendants. In that cross-claim, Mossensons says that if it paid out money wrongly and in breach of trust, it did so at the direction of Mr Ehrenfeld. Those directions, Mossensons says, were by hypothesis not in accordance with the trust deed. It says that in the circumstances Mr Ehrenfeld is guilty of misleading or deceptive conduct, or breach of warranty of authority. Alternatively, Mossensons says, Mr Ehrenfeld procured the breaches of trust. Mr Ehrenfeld denied those allegations. 21In addition, Mr Ehrenfeld sought to say that in any event Mossensons was the author of its own misfortunes, because it did not inform itself of, and adhere to the terms of, the trust. That defence was not articulated by way of pleading or particulars. The defence to the cross-claim consisted of simple denials. In those circumstances, Mossensons submits that Mr Ehrenfeld should not be entitled to rely on the defence. 22Finally, for present purposes, the Ehrenfeld defendants have cross-claimed against the plaintiffs and the others that I have indicated. In substance, they seek damages for breach of the various agreements. As to that cross-claim, it must be noted that:

1. SDT took no part in the hearing; the cross-claim is in any event stayed because SDT did not seek, and was not given, leave to proceed with it;
2. Tilapia and Steinbruck have been deregistered; they have no legal existence; their cross-claim could not be prosecuted, nor was it; and
3. Mr Ehrenfeld prosecuted his own cross-claim but did not seek leave to prosecute the cross-claim by Fundamental Capital; he did not establish that he was authorised by Fundamental Capital to represent it to prosecute its cross-claim; and hence the cross-claim by Fundamental Capital was not prosecuted.

An application for leave to amend 23In the course of the hearing, Mr Ehrenfeld sought leave to amend his list response and cross-claim to seek rectification of the final deed. As I understand it, the purpose of the rectification that was sought was to allege that if the final deed did in fact (or as a matter of construction) provide for the payment of $1,800,036 made by the plaintiffs to Mossensons to be held on trust for "Shandong" until it was to be paid out one way or the other on the terms of the deed (a matter which Mr Ehrenfeld disputed), this did not represent the common intention of the parties. In those circumstances, Mr Ehrenfeld sought to argue that the deed should be rectified to provide that the sum was to be held on trust for SDT until payment out. 24The plaintiffs opposed that application. I refused it and said that I would give reasons later. I now do so. 25In essence, the reasons why I refused leave were twofold. First, it would have derailed the hearing, which by then was well advanced. It would have required a recasting of the evidentiary landscape, so as to adduce evidence of what were said to be the ways by which the parties manifested to each other the alleged common intention (being the intention that, Mr Ehrenfeld said, was not enshrined in the final deed). 26Secondly, the rectification sought was flatly inconsistent with admissions made by the Ehrenfeld defendants on the pleadings. Although Mr Ehrenfeld appeared for himself at the hearing, he had up until shortly before the commencement of the hearing been represented by solicitors and counsel. The pleadings had been drafted and settled by them. I have no doubt that they reflected Mr Ehrenfeld's instructions (he did not suggest to the contrary). There was no basis shown on which leave should be given to withdraw the admissions made. In those circumstances, it would be both vexatious and embarrassing to permit Mr Ehrenfeld to plead a cross-claim for relief that was inconsistent with those admissions.

The relevant factual background 27The corporate vehicle that was chosen, and that became SDT, was a listed public company known as Water Wheel Holdings (referred to by its stock exchange acronym, WWH). The shares in that company were suspended from trading in February 2000, and administrators were appointed to it. Later in 2000, SDT and its creditors made a deed of company arrangement. In August 2007, SDT emerged from external administration. 28Also in 2007, Mr Zeng and Mr Ehrenfeld met, apparently introduced by a mutual acquaintance. 29As I have said, the acquisition agreement was made on 26 October 2007. 30Between November 2007 and March 2008, Mr Zeng or his companies paid the total "Party 1 Contribution" required under the acquisition agreement: $1,050,000 (with an additional $12 for some unexplained reason). 31On 28 March 2008, Mr Zeng or his companies paid, on account of the "Subscription Deposit" of $200,000 required by the acquisition agreement, some $199,964. The shortfall may be referable to bank fees and the like. 32As I have noted, the variation agreement, the controlled monies agreement and the deed of novation were made on or around 26 August 2008. At or about or somewhat after that time, Shandong Group China signed the irrevocable authority addressed to DLA Phillips Fox. 33By various payments in September 2008, Shandong Group China paid the "Initial Subscription" of $320,000 (together with a further $105) required under the variation agreement. 34On 28 November 2008, the shareholders of SDT in general meeting passed resolutions intended to progress the deal between the plaintiffs and the Ehrenfeld group. One of those resolutions authorised the issue of 320 million shares to a trustee, to be held for the purposes of the recapitalisation of the company. Another resolution authorised the company to enter into a management contract with Steinbruck, which would require the payment of $45,000 (indexed) plus disbursements and GST for a period of five years commencing from requotation. Another resolution authorised the payment of a success fee of 25%, on all capital raised, to Tilapia. There were other resolutions relating to the expenses of the capital raising. 35On 24 December 2008, Tilapia entered into a deed of settlement under which it became the trustee of a trust known as the WWH Distribution Trust. The beneficiaries of that trust included Mr Zeng. However, with the consent of the settlor (Mr Sanderson, the company secretary of SDT), Tilapia could appoint other beneficiaries, or cause persons who were beneficiaries no longer to be included as beneficiaries. 36Also on 24 December 2008, SDT issued some 336 million ordinary shares. 320 million of those were to raise capital of $320,000. Of those shares, 250 million were issued to Tilapia as trustee for the WWH Distribution Trust. It is not in dispute that those 250 million shares were about 70.79% of the then issued share capital of SDT. 37On and after 24 December 2008, Mr Zeng and his companies took issue with those of the resolutions passed at the general meeting which had the effect of authorising the management agreement, and the success fee, for the benefit of Mr Ehrenfeld or his entities. 38On 16 March 2009, the memorandum agreement was made. 39Three weeks later, on 10 April 2009, another company apparently associated with Mr Zeng was granted a prospecting licence for a gypsum mine in Shandong. That is of some relevance, because it was to be that mine, as I understand it, which would be the subject of the variation agreement. 40On 20 April 2009, Shandong Mining China paid $1,800,036 into the trust account of DLA Phillips Fox. That was done pursuant to the controlled monies agreement, and Mr Ehrenfeld was notified. 41On 7 March 2009, SDT entered into an agreement to acquire the shares in the company that held the rights to the gypsum mine in Shandong. Mr Ehrenfeld regards that agreement as being of some significance. However, I do not think that it bears on the resolution of the issues in these proceedings. 42A timetable for the requotation of SDT's shares (issued on 8 May 2009) was not achieved. Thereafter, Mr Zeng withdrew first $900,000, then a further $750,000 from the trust account of DLA Phillips Fox. There is a dispute as to whether he was entitled to do this, but clearly he was. In any event, there is no pleaded issue as to those withdrawals. 43SDT lodged a prospectus with ASIC on 7 January 2010. It lodged a supplementary prospectus on 18 January 2010. There is no suggestion that those documents were valid or efficacious. 44On 5 February 2010, the shareholders of SDT in general meeting resolved to authorise the transfer from the WWH Distribution Trust to Shandong Mining China of 250 million fully paid ordinary shares on certain conditions. A few days later, WWH changed its name to "Shandong Tianye Australia Limited" - SDT. 45There were further dealings in relation to the prospectus thereafter. It appears that ASIC, or ASX, was not satisfied as to aspects of the prospectus. Further, it is clear, Mr Zeng and his entities were unhappy with the prospectus because of the provision (referred to in the notice of meeting) for the payment of a success fee, the effect of which would be to reduce the cash available to SDT (on requotation) by about $800,000. 46On 10 June 2010, Mr Zeng or his entities paid $150,000 to Fundamental Capital. That was necessary to achieve a sufficient shareholder spread. It was a payment contemplated by cl 3.2.2 of the acquisition agreement and required by cl 3.1(h) of the representation and warranty deed. 47Mossensons opened a controlled moneys account on 23 June 2010, pursuant to requests made by Mr Ehrenfeld on 21 and 22 June 2010. Mr Ehrenfeld gave details of the account to the plaintiffs. 48The final deed was made on 17 September 2010. Thereafter, on 21 September 2010, Shandong Group China transferred the sum of $1,800,036 into the Mossensons controlled moneys account. It was taken out of that account and placed into a controlled interest bearing account, although a deduction of $1,277.33 was made (at Mr Ehrenfeld's direction) for the fees then owing to Mossensons. 49The "End Date" under the final deed was 16 December 2010. The requotation of SDT, and the other conditions necessary to satisfy or achieve the "Release Date", had not been achieved by then. However, it is common ground that the parties continued to work to see if they could consummate their deal. 50One continuing bone of contention related to the form of the prospectus and the consents of the proposed directors to be nominated by Mr Zeng. It is apparent that the plaintiffs were still concerned at matters, including the success fee to be paid to Mr Ehrenfeld or his entities, and the negative impact that this would have on the cash available to SDT on requotation. 51While all this was happening, SDT and its advisers continued to negotiate with ASIC over the form of the prospectus, and Mr Ehrenfeld gave directions to Mossensons from time to time authorising (or purportedly authorising) various transfers out of the controlled moneys account. 52On 2 September 2011, a further replacement prospectus was lodged. That purported to signify the consent of Mr Zeng's nominee directors to be named as directors. They were not prepared to be named. Ms Cook of HWL Ebsworth told ASIC that they did not consent to be named. Thereafter, the supplementary prospectus was withdrawn. 53A due diligence committee was set up. The purpose appears to have been to enable the various concerns to be satisfied, and a compliant prospectus which would have the consent of the directors properly given, to be prepared. Ultimately, that did not happen before the plaintiffs purported to terminate the various agreements. 54The plaintiffs commenced proceedings on 29 June 2012. They did so, they say, because they discovered that unauthorised payments, exceeding $523,000, had been made out of the controlled moneys account. 55About three weeks later, on 18 July 2012, the plaintiffs by HWL Ebsworth terminated (or purported to terminate) the acquisition agreement, the variation agreement and the final deed. They relied on various matters, including what they said were the unauthorised payments out of the controlled moneys account. 56On the same day, and I infer in response to the letter of termination, Mr Sanderson of SDT offered a transfer from Tilapia to Mr Zeng or his nominee of the shares (250 million) held in the WWH acquisition trust, and SDT purported to issue 7 million fully paid shares in Shandong Mining China to SDT. 57Thirteen months later, on 30 August 2013, SDT was removed from the official list maintained by ASX.

Relevant provisions of the agreements 58The drafting of the agreements is in many ways unsatisfactory. However, there is no doubt that the parties sought to achieve legally binding agreements on the terms that the documents record. 59The acquisition agreement postulated three "stages". Stage 1 is defined in cl 2.1 of the document. Stage 2 is defined in cl 3.1. Stage 3 is defined in cl 4.1. I set out cls 2, 3 and 4: 2. STAGE 1 2.1 Stage 1 Definition Stage 1 of the Project is defined as the completion of the Initial Objectives set out in clause 2.3 of this agreement. 2.2 Costs 2.2.1 Party 1 will incur significant costs and disbursements in the implementation of this agreement. 2.2.2 Additionally, Party 1 will charge a professional fee for this work, which is partly payable in cash, and partly paid by the issue of equity in the Company. 2.2.3 Party 1 will pay to Party 2 the fixed sum of AU$1,050,000 (ONE MILLION AND FIFTY THOUSAND Australian dollars) for its cash contribution to the fees, costs and disbursements (Party 1 Contribution). 2.2.4 Party 2 will contribute the amount of $650,000 (SIX HUNDRED AND FIFTY THOUSAND Australian dollars) to the fees, costs and disbursements (Party 2 Contribution). 2.2.5 In addition, Party 1 will pay into a trust account as specified by Party 2 an amount that is 10% of the capital subscription set out in clause 3.1 of this agreement, 10% being AU$200,000 (TWO HUNDRED THOUSAND Australian dollars), at the same time as remitting the Party 1 Contribution. 2.2.6 The Party 1 Contribution and the subscription deposit are to be remitted by Party 1 to Party 2 within ten (10) days of the date of this agreement. For this purpose, Party 2 is to advise Party 1 of the bank account details of Party 2 to which the Party 1 Contribution is to be remitted, and the trust bank account details to which the subscription deposit is to be remitted, within seven (7) days of the date of this agreement. 2.3 Initial Objectives The Initial objectives are defined as: 2.3.1 The identification of a suitable Company; 2.3.2 Negotiation with the Administrators or Controllers of a Company; 2.3.3 Preparation and submission of a proposal to put before creditors for the recapitalisation of a Company and compromising that Company's debts; 2.3.4 Preparation of a Deed of Company Arrangement or other formal agreement for the compromise of the liabilities of a Company, in exchange for a settlement involving cash and or equity in the Company; 2.3.5 Instructing as necessary any valuers, accountants, lawyers, consultants and other necessary professional advisers for Stage 1 of the project; 2.3.6 Negotiations with the ASX, the Australian Securities and Investment Commission (ASIC) and other regulators if and as required for approval of the re-quotation of the securities of a Company; 2.3.7 Preparation and presentation of necessary documents to facilitate any necessary meetings of existing shareholders of a Company for approval of the issue of shares and options to the Parties as set out in this agreement; 2.3.8 Approval by a Company for the issue of shares so that the issued capital of that Company will be held such that the existing shareholders will hold not more than 20%; 2.3.9 All other necessary steps up to and including finalisation of a Deed of Company Arrangement and Meeting of Shareholders to facilitate Stage 1 of the Project; 2.3.10 For the avoidance of doubt, at the conclusion of Stage 1, the Company will have no debts or liabilities. 2.4 Application of Contribution The Party 1 Contribution will be applied to achieving the Initial Objectives, and will also cover all costs associated with Stage 2 of the Project. 2.5 Timeframe 2.5.1 Party 2 shall use its best endeavours to ensure that Stages 1 and 2 are complete within 9 months of receiving the Party 1 Contribution. 2.5.2 If after a reasonable time Stages 1 and 2 have not been completed, then Party 1 can provide Party 2 with a notice advising of their intention to terminate the agreement within 28 days in accordance with clause 9 of this agreement, unless Stages 1 and 2 are completed or substantially completed within that period or any other period as may be agreed between the Parties. 2.5.3 If due to the fault of Party 2, this agreement is terminated by Party 1 pursuant to Clause 2.5.2, then Party 1 shall be entitled to seek a refund of any unexpended portion of the Party 1 contribution. 2.5.4 Nothing in this agreement shall prevent Party 2 from accelerating the implementation of this agreement by utilising for the Project a Company with which Party 2 has already commenced negotiations or taken steps towards controlling. 3. STAGE 2 3.1 Stage 2 Definition Stage 2 of the Project is defined as the subscription of AU$2,000,000 (TWO MILLION Australian dollars) to recapitalise the Company, facilitate the lifting of the suspension of the Company on the ASX, and the reinstatement to quotation of the Company's shares. 3.2 Capital Raising 3.2.1 Party 1 will be responsible for ensuring the subscription of AU$2,000,000 for new share capital in the Company occurs in accordance with instructions from Party 2 (Party 1 Subscription). For the avoidance of doubt, the subscription is the same subscription referred to in 3.1 above. 3.2.2 If so requested by Party 2, Party 1 will also be responsible for ensuring that the subscription of a further combined total of AU$150,000 (ONE HUNDRED AND FIFTY THOUSAND Australian dollars) for new share capital in the Company occurs at the same time from a number (which number will be specified by Party 2) of individual investors at the same time and on similar terms to the Party 1 Subscription (Public Subscription). This request will only be made if the Company needs to satisfy spread or market test requirements demanded by the ASX. 3.2.3 The Party 1 Subscription and the Public Subscription sums will be paid into a bank account operated by the Company. 3.3 Party 1 Shareholding It is intended that Party 1 will hold at least 51% of the fully paid issued share capital of the Company at the end of Stage 2. 4. STAGE 3 4.1 Stage 3 Definition Stage 3 of the Project is defined as the acquisition by the Company of a suitable business. 4.2 Nature of Business 4.2.1 The Company will define its business as investment or such other definition as considered appropriate from time to time. 4.2.2 It is intended that the Company will acquire assets in China, including mining and prospecting assets, and the Parties agree to use their best endeavours to ensure that this occurs. 4.2.3 The Parties agree that the Company can issue cash and or new shares as consideration for any businesses or other assets acquired by it pursuant to clause 4.2.2. 4.2.4 The person subscribing for these new shares shall receive the benefits of those shares. 4.3 Timing of Stage 3 4.3.1 It is intended that Stage 3 will commence following the completion of Stage 2. 4.3.2 If considered either prudent or appropriate by Party 2, there is nothing in this agreement that shall prevent Stage 3 occurring concurrently with Stage 2. 4.3.3 In this case, the parties agree that the mining and prospecting assets set out in the attached schedule to this agreement will be sold to the Company in exchange for the issue of new shares in the Company, such that the total shareholding of Party 1 including these shares for the acquisition by the Company of the mining and prospecting assets will represent 70% of the ordinary share capital of the Company. 60It is not necessary to set out cls 5, 6 and 7. 61Clauses 8 and 9 dealt with termination. I set them out: 8. DISPUTES 8.1 Any Party can advise the other Party in writing if they have any dispute in relation to this agreement. 8.2 The Parties agree to negotiate in good faith to resolve any disputes as quickly as possible. 8.3 If after genuine efforts have been made by the Parties to resolve a dispute, but the same cannot be resolved, then the Parties agree to submit to a formal mediation process in Sydney, New South Wales. The costs of any such mediation will be borne equally by the Parties. 8.4 This agreement may be pleaded as a bar to any court action in relation to a dispute, if no formal mediation process in relation to that dispute has yet taken place. 9. TERMINATION 9.1 This agreement shall remain in full force and effect until each of Stage 1, Stage 2 and Stage 3 have been completed, unless otherwise terminated pursuant to clause 9. 9.2 Either Party can terminate this agreement by providing the other Party with 28 days written notice of their intention to do so, if there is an unrectified breach of the agreement by the other Party, and a formal mediation in accordance with clause 8 has occurred. 9.3 Nothing in this clause shall remove the liability of the terminating Party for any damages suffered by the other Party as a result of their termination. 62It is not necessary to set out cl 10 and 11. 63The schedule to the agreement referred to the "Shandong Tianye Group Mine Resources". The resources identified were an iron mine, a copper mine, a gold/paste/beryllium mine, an iron/lead/zinc mine, and a coal mine. 64Clause 2 of the variation agreement dealt with a change in those mining assets. Clauses 2.1 and 2.2 provided: 2.1 The mining assets referred to in clause 4.3.3 of the Acquisition Agreement and set out in a schedule attached thereto are replaced with the mining asset described in clauses 2.2 and 2.3 below. 2.2 The new mining asset is the Gypsum Mine in Yangjiapo Area, Taian, Shandong Province, China (Gypsum Mine). 65The further detail contained in cl 2.3 need not be set out. 66Clause 3 provided for an "initial subscription". Clause 4 provided for a "Party 1 Subscription". Clause 5 provided for the sale of the gypsum mine. I set out those clauses: 3. CASH SUBSCRIPTION 3.1 In addition to the Part 1 Subscription as set out in clauses 3.1 and 3.2.1 of the Acquisition Agreement, the Parties further agree that Party 1 will subscribe AUD320,000 (THREE HUNDRED AND TWENTY THOUSAND Australian Dollars) in seed capital for shares in the Company (Initial Subscription). 3.2 The Initial Subscription shall replace the obligation of Party 1 under clause 4.3.3 of the Acquisition Agreement and under the Acquisition Agreement generally to sell mining and prospecting assets to the Company in exchange for shares in the Company. 3.3 The number of shares to be issued pursuant to the Initial Subscription will be the same number that were previously to be issued to Party 1 in consideration of the mining and prospecting assets referred to in clause 4.3.3 of the Acquisition Agreement. 3.4 Party 1 shall remit the amount of the Initial Subscription to Party 2 within two weeks of the date of execution of this Variation Agreement. For this purpose, Party 1 will remit the money to the same trust account as the subscription deposit remitted pursuant to clause 2.2.5 of the Acquisition Agreement. 3.5 Party 1 must obtain all approvals of Chinese authorities necessary to give effect to the change in ownership and control of the Gypsum Mine to the Company, and provide written confirmation to Party 2 when all approvals have been obtained, including copies of all approval documents(Confirmation). Provided Party 1 has complied with Clauses 3 & 4 of this Variation Agreement, if the Company does not issue the required shares in the Company that are to be issued pursuant to the Initial Subscription within 6 months after the date the Confirmation is provided to Party 2, then Party 2 must within 14 days pay to Party 1: 3.5.1 The amount of the Initial Subscription together with any interest accrued thereon, nett of any bank, government or other charges; 3.5.2 The $199,964 paid by Party 1 to Party 2 on account of the subscription deposit remitted pursuant to clause 2.2.5 of the Acquisition Agreement, less any ASX listing fees paid by Party 2 on behalf of the Company 4. PARTY 1 SUBSCRIPTION 4.1 The Parties agree that the balance of the Party 1 Subscription which amount is $1,800,036 (ONE MILLION EIGHT HUNDRED THOUSAND AND THIRTY SIX Australian Dollars) (Party 1 Subscription Balance) shall be forwarded to the trust account of DLA Phillips Fox in Sydney New South Wales, Australia, by no later than 30 September 2008. DLA Phillips Fox shall concurrently be instructed in irrevocable terms and in a manner acceptable to Party 2 that a bank cheque for this amount in favour of the Company shall be drawn from the funds held in trust within 24 hours of the shareholders of the Company approving the issue of the shares to be issued in the Company pursuant to the Initial Subscription. DLA Phillips Fox will further be instructed to hold that bank cheque until directed by Party 2 to provide it to the Company as consideration for the subscription of ordinary shares in the Company at an issue price of $0.20 each. 4.2 For this purpose, a certificate from Party 2 to DLA Phillips Fox certifying that the shareholder approval was obtained will be sufficient. 5. SALE OF GYPSUM MINE 5.1 Upon receipt of the Initial Subscription money by Party 2, and provided that Party 1 has remitted the Party 1 Subscription Balance, Party 2 will procure the Company to enter into an agreement to purchase the Gypsum Mine from Party 1 for the sum of AUD300,000 (THREE HUNDRED THOUSAND Australian Dollars), payable in cash. 67I have described the relevant effect of the deed of novation. It is not necessary to set out the clauses achieving the novation. However, since Mr Ehrenfeld relied on cl 5 (particularly insofar as it included an indemnity), I set out that clause: 5 Guarantee from Retiring Party 5.1 The Retiring Party unconditionally and irrevocably guarantees the punctual and complete performance of all of the Substitute Party's obligations under the Acquisition Agreement with effect from the Effective Date. 5.2 The Retiring Party unconditionally and irrevocably indemnifies the Continuing Party against all losses, damages, costs, charges, liabilities and expenses which the Continuing Party may at any time suffer or incur if the Substitute Party fails to perform an obligation under the Acquisition Agreement. 68Mr Ehrenfeld laid particular stress on cl 5.2. 69The relevant sections of the memorandum agreement are: those dealing with the shares held on trust; the success fee; the gypsum mining assets; the payment to be made; and the issue of the shares. I set out those sections: ISSUE OF 320,000,000 SHARES 250,000,000 of the 320,000,000 shares issued are held by Tilapia Pty Ltd as trustee. Ehrenfeld will allow DLA Phillips Fox to inspect the trust deed on a without prejudice basis. B CLASS OPTIONS Subject to payment of the option fee, the transfer of the gypsum mining assets, payment of the $1.8 million, payment of the success fee and entry into the management contact as contemplated by this document, at settlement, Zeng will receive 70% of the B Class Options. SUCCESS FEE Regarding the 25% success fee, Zeng acknowledges that Ehrenfeld retains the right to enter into such an agreement with WWH, and does not require the consent of Zeng to do so. Ehrenfeld undertakes to ensure that, after the payment of any such success fee, WWH. will (at the time of re-quotation of shares of WWH on ASX) have cash of at least $2 million (less ASX listing and other fees, registry charges and similar disbursements accrued during the period since execution of the original agreement, estimated at $50,000) and Zeng (or his nominees) will hold not less than 70% of issued shares in WWH. GYPSUM MINING ASSETS Zeng has confirmed that he anticipates receiving final approval for the owner to transfer the gypsum mining assets to WWH on or about 30 March 2009. Following written confirmation to Ehrenfeld by that time that approval has been obtained, Ehrenfeld will provide an agreement for execution to effect the same, which parties intend to execute and complete within 15 business days. $1.8 MILLION The remaining subscription amount of $1,800,036 will be transferred by Zeng and Shandong to the trust account of DLA Phillips Fox on or about the time of receipt of the final approval for the transfer of the gypsum mining assets. Ehrenfeld will liaise with DLA Phillips Fox and Gilbert + Tobin to determine an appropriate method for delivery of the subscription amount to WWH when required for the final subscription of shares in WWH. WWH will pay the legal costs of Gilbert + Tobin at their usual rates in respect of their involvement in this process. SHARES Subject to the transfer of the mining assets and the payment of the $1,800,036, Ehrenfled will procure that Zeng controls the 250 million shares currently held by Tilapia Pty Ltd. 70The representation and warranty deed is important, principally because it effectively defines the parties to the final deed. They are Shandong Mining Group and Mr Zeng as "the Principal", and Mr Ehrenfeld and Tilapia (both in its own right and as trustee of the WWH Distribution Trust) as "Ehrenfeld". 71The definition of "Conditions Precedent" is also important, and I set it out: Conditions Precedent means (a) preparation and completion of a new set of Accounts to 3 December 2009 for the Company; (b) preparation of a Prospectus to be issued by the Company for the purpose of compliance with ASX requirements in relation to the reinstatement to quotation of the Company's securities; and (c) Ehrenfeld procuring subscribers for Ordinary Shares in the Company for not less than the subscription amount of AUD$150,000.00. 72As I have noted already, cl 3.1(h) provided for the payment of the "Public Subscription" of $150,000: (h) it is a further condition precedent to the operation of the warranties set out in Schedule 1 of this Deed that the sum of $150,000 payable by the Principal to the WWH Acquisition Trust pursuant to the Agreement between the Principal and Gabriel Ehrenfeld with respect to the Principal's proposal for recapitalisation of the Company is paid to Ehrenfeld. In this respect, the Principal irrevocably undertakes to transfer to the WWH Acquisition Trust the sum of $150,000 in cleared funds within 2 Business Days of the date of execution of this Deed, time being of the essence for this payment. 73Mr Ehrenfeld relied on cl 10.2, dealing with costs and expenses: Costs and expenses The Principal must pay all reasonable costs (including legal costs as between solicitor and client) expenses and other amounts incurred or paid by Ehrenfeld and the Principal in respect of this Deed (including any further actions in consequence or on account of the exercise or purported or attempted exercise of any of the Principal's rights or powers or for the preservation of or in any manner in reference to this Deed including the reasonable internal administration costs of Ehrenfeld, the Principal and their officers). 74The final deed is, fortunately, relatively brief. The clauses of particular significance are cls 2, 3 and 4. I set them out: 2. Payment of Share Money 2.1 Shandong agrees to procure payment of the Share Money to the Mossensons Trust Account, to be held on trust for Shandong in accordance with this Deed. Shandong agrees to transfer the Share Money on or before 14 September 2010. 2.2 Before the End Date Shandong must not direct Mossensons to release the funds to any person except to SDT or such other persons as SDT agrees. 2.3 Before the Release Date Ehrenfeld must not (in any capacity) direct Mossensons to release the Share Money as per the Warranty Deed. 2.4 The parties agree that all amounts payable by Shandong under the Implementation Agreement and Warranty Deed has been paid upon receipt of the Share Money. 3. Confirmation of holdings 3.1 The parties agree that, pursuant to payments by or on behalf of Shandong made under the Implementation Agreement and the Warranty Deed, Shandong is entitled to the following: 3.1.1 the Trust Shares; and 3.1.2 (provided Shandong has procured payment of the Share Money to the Mossensons Trust Account), upon Ehrenfeld being entitled to give the direction for the payment of the Share Money to SDT - a further 7,000,000 SDT Shares, such that, Shandong (and/or its nominees) will hold 70% of all issued ordinary shares in SDT on a fully diluted basis (such fully diluted basis calculated by including all shares that may be issued pursuant to the Prospectus and by assuming that all options in SDT issued for ordinary shares have been exercised, even if they have not at that time been exercised) ("70% Holding") and in the event that the SDT Shares referred to in clause 3.1.1 and 3.1.2 of this Deed do not amount to the 70% Holding, then the number of SDT shares referred to in clause 3.1.2 of this Deed to be issued to Shandong and/or its nominees must be increased (at no further cost to Shandong) by such number as is necessary to ensure Shandong (and/or its nominees) have the agreed 70% Holding. 3.2 The parties agree that, upon Shandon being entitled to the 7,000,000 SDT Shares referred to in clause 3.1.2. those SDT Shares will immediately be issued by SDT to Shandong (and/or its nominees) and Shandong's (and such nominees') names will be entered in the register of members in respect of those shares. 4. Use of Share Money and transfer of shares 4.1 The parties agree that after payment of the Share Money to the Mossensons Trust Account those funds will be held by Mossensons in the manner set out in the Warranty Deed. 4.2 On transfer of the Share Monies to SDT, SDT and Ehrenfeld agree that those funds will be used only for the purposes of ensuring the money is maintained by SDT in its bank account in cash for the purposes of ensuring re-quotation and thereafter for the other purposes referred to in the Implementation Agreement and the Warranty Deed. Shandong agrees that up to $100,000.00 of the share monies may be used by SDT for the purposes of ensuring re-quotation. 4.3 On or after the Release Date Ehrenfeld may direct Mossensons to release the Share Money from the Mossensons Trust Account to SDT as per the Warranty Deed. 4.4 If the Release Date has not arisen on or before the End Date then Shandong may: 4.4.1 extend the End Date; or 4.4.2 direct Mossensons to release the Share Money to Shandong or its nominee and Shandong will cease to be liable for any further payments under or in connection with the Implementation Agreement or the Warranty Deed. 4.5 Provided the Share Money has not been returned to Shandong, and subject to the payment for the issue of the SDT shares having been made, Shandong may, in the case of any of the following, at any time: 4.5.1 on or after lodgement of the Prospectus with ASIC; or 4.5.2 on or after a change in trustee of the WWH Distribution Trust without its consent; or 4.5.3 if for any reason the Release Date has not arisen on or before the End Date direct that the Trust Shares be transferred to it and/or its nominee/s and Ehrenfeld must ensure that the Trust Shares are immediately transferred to the person/s nominated by Shandong in or pursuant to such direction. 4.6 Ehrenfeld, will keep Shandong fully informed at all times of all matters relating to SDT, including of the progress of preparations for re-quotation of SDT, including preparations for the Prospectus. 75The deed also contained a section headed "Intention". That preceded both what are undoubtedly operative clauses of the deed (the numbered clauses) and the statement of the "Background". I set out the "Intention" and the "Background": INTENTION It is agreed by the parties to this agreement that the intention of the parties is the following: A. That Shandong transfer to Mossensons Trust Account the sum of $1,800,036 for the purposes as so described in prior executed agreements between the parties; B. That the sum of $1,800,036 be held on trust for Shandong for the purpose of the re-quotation of the SDT; a. Interest earned on the monies, i.e. $1,800,036, being held on trust for Shandong, is to be for the benefit of and paid to SDT; C. That Ehrenfeld is only able to use up to $100,000.00 of the $1,800,036 for the purposes of ensuring re-quotation. D. That the sum of $1,800,036 be released to SDT at the same time that: a. Shandong is issued with the shareholding that would equate to no less than 70% of SDT; and b. Shandong is able to appoint directors the amount of which corresponds proportionately to the shareholding as held by Shandong. E. That upon the Share Money being transferred from the Mossensons Trust Account to the Company, i.e. SDT, SDT will appoint Shandong and/or it's nominee(s) as the signatories to the company's bank account. The intention being for Shandong and/or it's nominee(s) to have control of the Share Money after the money being held on trust for Shandong in the Mossensons Trust Account, i.e. $1,800,036, has been transferred to the company. F. That if re-quotation is not successful, then the amount of monies equal to the sum of monies that was held on trust for Shandong in the Mossensons Trust Account, i.e. $1,800,036, be returned to Shandong on or before the End Date. BACKGROUND A. Shandong has previously agreed to pay the sim of $1,800,036 to SDT. B. Tilapia Pty Ltd is the holder of the Trust Shares in trust for Shandong and/or his nominee/s. 76The definitions of "End Date", "Release Date", "Share Money" and "Trust Shares" are important. I set them out: End Date means 16 December 2010 or such later date as extended in accordance with this Deed; Release Date means the date on which all of the following have been satisfied: (a) the Trust Shares have been transferred to Shandong and/or his nominee/s in accordance with clause 4.5 of this Deed; (b) Shandong and/or his nominee/s has the opportunity to appoint Directors to SDT if so desired by Shandong and/or his nominee/s (being any number up to 3, and more than 3 if such number would not exceed the proportion that corresponds to the proportion of all shares in SDT held by Shandong and its associates) the persons nominated by Shandong will be appointed at the later of: the time Shandong directs; and immediately after receipt by SDT of the necessary consents to act. Enrenfeld is not required to comply with any direction given by Shandong where such direction requires Ehrenfeld to appoint Shandong nominated directors before Shandong is entitled to have the Trust Shares transferred to it; and (c) the Prospectus is lodged with the ASIC and the other Conditions Precedent have been satisfied (or Shandong has waived in writing the need for compliance with any particular Conditions Precedent). Share Money means the sum of $1,800,036 payable by Shandong pursuant to the Implementation Agreement as the balance of the Subscription Amount for the issue of SDT Shares. Trust Shares means 250,000,000 fully paid ordinary shares in SDT held in the WWH Distribution Trust by Tilapia for Shandong and/or his nominee/s; 77It is not necessary to set out the definition of "Implementation Agreement". It is clear, following that definition through, that it means the acquisition agreement.

The payments made by the plaintiffs and payments out of the trust account 78For convenience, I summarise the payments in issue. The plaintiffs paid: (1) $1,050,000 between 30 November 2007 and 31 March 2008; (2) $199,964 on 28 March 2008; (3) $320,000 on 10 September 2008; (4) $1,800,036 (to DLA Phillips Fox) on 20 March 2009; (5) $150,000 on 10 June 2010; (6) $1,800,036 (to Mossensons) on 20 September 2010. Excluding the payment to DLA Phillips Fox, the relevant total paid is $3,520,000. 79Again for convenience, I summarise the payments out of the Mossensons controlled moneys account (excluding the payment of $100,000 that, as has been seen, was authorised to be paid out for the purposes of the costs of requotation): (1) $1,277.33 on 21 September 2010 (for Mossensons' fees); (2) $16,400 on 5 August 2011, to SDT; (3) $66,000 on 26 August 2011, to SDT; (4) $100,000 on 1 November 2011, to SDT; (5) $100,000 on 21 December 2011, to SDT; (6) $45,000 on 25 January 2012, to SDT; (7) $110,000 on 6 March 2012, to Steinbruck; (8) $50,000 on 3 May 2012, to SDT; (9) $35,000 on 31 May 2012, to SDT. 80Thus, some $412,400 was paid to SDT and $110,000 to Steinbruck. There was in addition the first and relatively small amount for Mossensons' fees. The plaintiffs' claims against the Ehrenfeld defendants: the competing submissions 81For the plaintiffs, Mr Jammy of counsel submitted that the payments made out of the controlled moneys account that I have just summarised were not authorised by the terms of the final deed. He submitted, and as I have noted it was common ground on the pleadings, that the payment into the Mossensons' trust account had been made on the terms of the final deed. Thus, Mr Jammy submitted, the payments out were made both in breach of trust and in breach of contract. He submitted that Mr Ehrenfeld, in directing those payments, had breached his obligations under the deed and had procured the breaches of trust. 82In respect of the payment of $1,050,000, Mr Jammy submitted that there was no evidence that it had been applied towards the purposes for which it was paid: namely, the obligation of Mr Zeng and his entities to make a contribution to the costs of achieving Stage 2 of the project in accordance with the acquisition agreement. He submitted that the plaintiffs were entitled to have an account of the payments made, but accepted that this must be at their risk as to costs in circumstances where there was no actual evidence of misappropriation. 83As to the other payments, Mr Jammy submitted that they had been made for a purpose that had wholly failed, or for a consideration that had not been in any way received, and thus were repayable. 84Mr Ehrenfeld put his submissions in many and various ways. I think that the simplest course to take with those submissions is to state them and deal with them in the course of resolving the various issues. 85Thus, I turn to a resolution of the various matters in dispute between the plaintiffs and the Ehrenfeld defendants.

The proper construction of the contract 86There were various matters in issue. As to the acquisition agreement, the key points of contention were the purpose of the Party 1 subscription of $2,000,000, what assets were to be transferred, and the effect of the dispute and termination clauses. 87The answers are relatively clear. The acquisition agreement itself makes it plain that the Party 1 subscription was to be made in exchange for 70% of the total issued shares in the company to be acquired, as set out in cl 3.1. That is a matter of some significance when one comes to consider the claim of total failure of consideration. 88Likewise, it is clear that the assets to be transferred into the company to be acquired were those set out in the schedule. It may be wondered whether the description is sufficiently certain, but for reasons that I hope will become clear in a moment, that does not matter. 89The dispute and termination clauses were raised by Mr Ehrenfeld in the course of submissions as a bar to the action. However, if they have that effect, they can only do so in relation to the acquisition agreement (as from time to time varied). They can have no effect on (for example) the termination of the final deed. 90As to the variation agreement, there was a dispute as to the effect of cl 2. Mr Ehrenfeld submitted that the failure to transfer the assets set out in the schedule to the acquisition agreement was a breach of that agreement and was not cured by the variation agreement. That is not correct. Clause 2.1 makes it clear that the asset described in cls 2.2 and 2.3 is to be substituted for the assets described in the schedule to the variation agreement. And cl 3.2 makes it clear that the initial subscription is intended, as it were, to complement that substitution. It is not a case of breach, but a case of variation. 91That reading of the effect of the initial subscription is confirmed by cl 3.3, which says that the shares to be issued for the initial subscription are those that were in any event to be issued to Party 1 under the acquisition agreement. 92As to the deed of novation, the real dispute was as to cl 5.2. Mr Ehrenfeld submitted that this gave him an absolute entitlement to be indemnified by the "Retiring Party" - that is to say, Mr Zeng and Shandong Group China. However, the obligation to indemnify is only in respect of any damage etc. suffered by reason of the Substitute Party's failure of performance. It does not extend beyond that, for example (as at one stage Mr Ehrenfeld appeared to suggest) to any liability that Mr Ehrenfeld may have under the various agreements. 93As to the memorandum agreement, Mr Ehrenfeld relied on what had been said as to the issue of the shares to Tilapia as trustee. He submitted that the plaintiffs' concurrence in this being done constituted some form of waiver. That cannot be right in circumstances where the dealings in those shares were expressly the subject of the final deed, which among other things made it plain that the shares were to be transferred out of the trust and to Mr Zeng or his nominee. 94Mr Ehrenfeld also pointed to the recognition, in the memorandum agreement, of his entitlement to a success fee. However, that entitlement was conditional. The condition was that after payment of the success fee WWH (or SDT) would have, on requotation, available cash of $2 million less about $50,000 for listing fees and other charges. The ultimate success fee proposed and authorised would have had a much more significant impact on the available cash than that which was authorised by the memorandum agreement. 95As to the representation and warranty deed, I have noted already the significance of the way in which it defines "the Principal" and "Ehrenfeld" and the way that it defines the "Conditions Precedent". I have also noted cl 3.1(h). Clause 2.4 of the final deed acknowledges that the sum specified in cl 3.1(h) has been paid (as have others). 96Mr Ehrenfeld relied on cl 10.2. It seems to me that it goes no further than providing that to the extent that Mr Ehrenfeld incurs costs in relation to activities undertaken by the Principal in respect of the deed, including in pursuance of its rights, they are to be reimbursed. The parties could not have intended that, by such a simple and common-place mechanism, Mr Ehrenfeld was to be in effect absolved from the consequences of any wrongdoing that he might visit upon the Principal. 97As to the final deed, the first question is whether Mr Ehrenfeld was a party to it. He submitted that he was not. He said that he signed it only as a director of Tilapia (and as a director of SDT). 98It is correct to say that the final deed did not provide in terms for Mr Ehrenfeld to execute it in his own right. It is also correct to say, as Mr Ehrenfeld submitted, that his signature only appears as part of the execution by Tilapia and SDT. 99However Mr Ehrenfeld is said to be a party to the final deed (as one of the parties described as "Ehrenfeld"). By that means, the final deed purports to impose liabilities on him: for example, by cls 2.3 and 4.6. It includes agreements by him: for example, cl 2.4, 3.1 and 3.2. And in the same way it gives him rights or discretions: for example, clause 4.3. 100Thus, objectively, it is plain that Mr Ehrenfeld was intended to be a party; was intended to be bound as one of the "Ehrenfeld" parties; and was intended to take the rights and benefits given to the "Ehrenfeld" parties. 101The clear intention appearing from the deed, read objectively and as a whole, is that Mr Ehrenfeld was to be a party to it. Thus, on the same basis, his signature (even though not in terms on his own account) must be taken as an acknowledgment by him that he is indeed a party. 102I conclude that Mr Ehrenfeld is bound by the final deed. 103The next dispute, or rather question, relates to the effect to be given to the "Intention" provisions of the final deed. They seem to be more than mere recitals. First, there are what are clearly recitals set out in the "Background" section. Secondly, the chapeau to the Intention provisions is expressed in terms of agreement. 104It seems to me that the statement of Intention should be read as a statement of the parties' corresponding contractual intention, but that the numbered clauses are those by which they sought to translate their stated intentions into contractual obligations and rights. 105On that analysis, the contractual agreement as to intention would be available as an aid to construction of the numbered clauses, but not as an independent source of rights and obligations. 106The next question raised is as to how SDT might get hold of the $1.8 million held in trust. 107First, of course, cl 4.2 authorised SDT to get up to $100,000 for the purposes of requotation. The deed did not (contrary to a submission put by Mr Ehrenfeld) give him a separate right to use a further $100,000 (para C of the statement of Intention). Paragraph C is to be read as a statement of intention, referring to Mr Ehrenfeld and Tilapia collectively, which intention is then given specific contractual force by cl 4.2. There is only one amount of $100,000 authorised to be paid out for the purposes of requotation. 108Secondly, as cl 4.3 makes clear, SDT can get the money once or after the Release Date, as defined, has been achieved. That means that the three requirements set out in the definition of Release Date have been satisfied (or perhaps waived). Those three requirements include, by the third requirement, the three Conditions Precedent as defined in the representation and warranty deed. 109Thirdly, SDT can get hold of the money if Shandong were to proceed down the path authorised by cl 4.5. In effect, cl 4.5 gives Shandong the right to call for and obtain a transfer of the Trust Shares (as defined) even if the Release Date requirements have not been satisfied. As one would expect, if that happens, SDT is able to get the money. 110It is only if one or other of those various paths is traversed to its end that SDT is entitled to the proceeds held in the controlled monies account. And even if that happens, the money is effectively to be under the control of Mr Zeng and his parties (see in particular cl 4.2, informed as to its construction, by para E of the statement of Intention). 111The next question is whether, to achieve the Release Date as defined, it was sufficient that Tilapia should hold the 250 million shares in trust for "Shandong". The answer is plainly "no". There are a number of reasons. 112First, the definition of "Release Date" itself makes it plain. That requires the transfer to Shandong of the "Trust Shares" as defined. If it were sufficient for the shares merely to be held in trust, that provision would serve no requirement. Again, that definition, informed by para D of the statement of Intention, assumes or requires that Shandong will become the legal owner of the shares. 113Secondly, cl 3.1 is to the same effect. 114Thirdly, the requirement (coming from the definition of Release Date) that the shares be "transferred...in accordance with clause 4.5" requires the transfer of the Trust Shares to Shandong. It recognises that more than a mere beneficial interest is necessary if the Release Date is to be achieved. 115I turn to the remaining issues raised by Mr Ehrenfeld. Many of those, if I may say so without being disrespectful, appear to me to have been misconceived. Others of them appear to me to be addressed to matters that were either not in issue on the pleadings or, to the extent that they were, were so peripheral that they do not require attention. 116Mr Ehrenfeld focused on what he said was the overall transaction or "deal". However, that approach overlooks the fact that what is required is the construction of the various interlocking agreements by which the "deal" was intended to be consummated. It is the rights and obligations created by those agreements, and not some (I have to say, essentially subjective) purpose or ambition arising out of them, with which the Court is concerned. 117Mr Ehrenfeld laid great stress on what he said were the plaintiffs' "repetitive" breaches of the agreements; Mr Zeng's motivation in entering into them; and the plaintiffs' desire to escape their obligations. It is sufficient to say that there is no evidentiary foundation for those submissions. To the extent that there is evidence of breach, it seems to be relatively clear that Mr Ehrenfeld was prepared to treat the agreements as binding on him, in accordance with their proper construction, only to the extent that it suited him to do so. I will return to this in dealing with the letter of termination. It is enough at present to say, as I have done, that those aspects of Mr Ehrenfeld's complaints are not supported by the evidence. 118Mr Ehrenfeld addressed the question of total failure of consideration. I will return to that in dealing with the plaintiffs' claim to be reimbursed. 119Other submissions put by Mr Ehrenfeld related to the way in which the share issues were structured, the agreement to hold them in trust, and the like matters. For the reasons I have indicated, they go nowhere. 120Mr Ehrenfeld sought to argue that a compliant prospectus had been lodged as long ago as 29 July 2011. That is inconsistent with the pleaded case for the Ehrenfeld defendants, which makes it clear that the only allegedly compliant prospectus on which they relied was lodged much later. In any event, because the proposed directors had never given their consents, none of the prospectuses was valid. 121Mr Ehrenfeld contended that the proposed directors had not acted in good faith or for proper reasons in withholding their consents. I do not agree. Their concerns were valid. I have described already their concerns relating to the success fee, the effect of which would have been to reduce the available cash by some $800,000. 122Further, when the history is looked at in its entirety (and not just through the selective documents tendered by Mr Ehrenfeld), it is plain that Mr Ehrenfeld from time to time imposed extremely unreasonable deadlines on Mr Zeng and his entities. For example, Mr Ehrenfeld was given to submitting documents and allowing only a day or so for Mr Zeng and his entities to express a view on them. In circumstances where, as Mr Ehrenfeld well knew, the documents had to be translated into Mandarin Chinese, this was entirely unreasonable. 123I have dealt with Mr Ehrenfeld's submissions, to the extent that I understand them, in relation to the final deed. Likewise, I have dealt with the case that Mr Ehrenfeld sought to make (contrary to his pleadings) that the monies were not held in trust on the terms of the final deed.

The termination of the agreements 124I conclude that it was open to the plaintiffs to terminate the agreements when they did so, for at least one of the reasons that they gave. That reason relates to the unauthorised, unnotified and unexplained withdrawals that Mr Ehrenfeld directed to be made, from the controlled moneys account, in breach of trust and breach of contract. That breach was, in my view, fundamental and repudiatory. 125The terms of the final deed emphasised repeatedly the only circumstances in which SDT could have the benefit of the funds. Further, they emphasised that when SDT was to become entitled to that benefit, it would be under the effective control of the plaintiffs, and would have $2 million (less $100,000 for requotation) available to it. 126As I have noted, the payments out to SDT exceeded greatly the authorised amount. There was, further, another payment made, to Steinbruck, which was not even a party to the deed. 127In my view, those breaches were gross and flagrant. I do not accept that Mr Ehrenfeld, who impressed me as an intelligent and capable businessman, could have misunderstood the terms of the deed. Indeed, in dealing with the cross-claim by Mossensons, Mr Ehrenfeld accepted readily that the terms of the deed, as to entitlement, were "crystal clear". 128It is open to infer, and I do infer, that Mr Ehrenfeld decided that, regardless of any question of legal entitlement, he would treat the money held by Mossensons in its controlled moneys account as his own. He continued to do so even after the plaintiffs protested. He did not disclose that he had done so when it would have been appropriate: for example at meetings of the due diligence committee, or in response to the plaintiffs' repeated requests for information. 129As to the due diligence committee meetings: if, as Mr Ehrenfeld now claims, the money was needed for the purposes of "requotation", that was the obvious occasion on which someone acting honestly would have disclosed what had been done. He did not do so. 130I infer that Mr Ehrenfeld was prepared to ignore the restrictions on access and to use the money as his or his companies' own, regardless of right. That was a consistent pattern of conduct. In all the circumstances, that conduct indicates clearly and, to my mind, unequivocally that Mr Ehrenfeld was not prepared to be bound by the terms of the final deed to the extent that it did not suit him to be bound, but on the contrary, was prepared to act in a manner entirely inconsistent with his obligations under it. 131As I have said, I conclude that his breaches were both fundamental and repudiatory. 132It follows that the plaintiffs were entitled to act on those breaches, as they did. 133Given the interlinked nature of the substantive agreements, the termination of the last in the series must necessarily bring down those of its predecessors that are inextricably connected with it. 134Although it is a little out of sequence, I should deal with a submission put by Mr Jammy that in effect each agreement replaced or brought to an end its substantive predecessor. 135I do not think that this submission should be accepted in absolute terms. However, it is plainly correct, to the extent that any agreement varied a provision of a predecessor. That point is of particular relevance to Mr Ehrenfeld's claim that he is entitled to damages for failure to deliver the iron ore assets.

The balance held in trust 136For the reasons I have given, that money was held in trust on the terms of the final deed. Those terms apply to the balance presently residing in the controlled moneys account. The Release Date has not occurred, nor will it ever occur. The final deed has been terminated. The required shares were not issued before termination (I do not regard the responsive submission of a transfer, and the responsive submission of a document purporting to show that 7 million shares had been issued to Mr Zeng or his entities, as showing to the contrary). 137Mr Ehrenfeld and SDT breached the final deed in the way that I have described as fundamental and repudiatory. They procured what was in my view the breach of trust committed by Mossensons in permitting the payments out to be made. There was no justification for that. 138Further, were it necessary to do so, I would conclude that there has been a total failure of consideration. I say that because, as I have indicated, the actions purportedly and belatedly taken to get some shares into the name of Mr Zeng or his entities, after the agreement had been justly terminated, is ineffective to provide any consideration. 139It follows that the trust balance must be refunded to the payers, who appear to be Shandong Mining China and Mr Zeng. 140It follows further that SDT as the recipient of some of the moneys wrongly paid out is liable to repay them, together with interest, to those payers. 141The same would apply to Steinbruck, but for the fact that it has been deregistered and no longer exists. 142Further, in my view, Mr Ehrenfeld is liable for the whole of the money in various ways, although not so that the payers recover more than once overall. First, he is liable to pay by way of damages the amounts paid out in breach of trust. Secondly, he is liable coordinately with Mossensons for procuring the breach of trust (see Hasler v Singtel Optus [2014] NSWCA 266 at [77], [78]). That gives rise to a liability to account as a constructive trustee (see Hasler at [79].) It would also give rise to a liability to make equitable compensation. 143In short, one way or another, the plaintiffs are entitled to the repayment of the balance held in the controlled moneys account and to recover, against those involved in the payments out or the recipients of them, the amounts paid out. I would note only that SDT must have been aware, through the knowledge of Mr Ehrenfeld, that the payments were made out in breach of trust. Were it necessary to do so, that would found liability to account as a constructive trustee or to pay equitable compensation.

The Party 1 Contribution, $1,050,000 144The Party 1 contribution was paid by Mr Zeng and Shandong Group China to Mr Ehrenfeld. The payment was required by cl 2.2 of the acquisition agreement. It represented Party 1's "cash contribution to the fees, costs and disbursements" to be incurred "in the implementation of this agreement". See cls 2.2.3, 2.2.1. 145The purposes of those payments were, in summary, to achieve the initial objectives and the Stage 2 objectives. They were thus related to the fees, costs and disbursements to be incurred in getting to Stage 2. By contrast, Stage 3 was to be funded either by the Stage 2 capital raising or by subsequent capital raisings. 146The plaintiffs complain that they have had no accounting of the Party 1 contribution. In circumstances where the purposes have not been achieved, and where there is a question as to the legitimate expenditure of the funds, the plaintiffs have an entitlement to an account. I say that there is such a question, partly because the purposes have not been achieved and partly because of the propensity demonstrated by Mr Ehrenfeld to treat and use as his own moneys paid for other specific and limited, purposes. 147In those circumstances, Mr Zeng and Shandong Group China may have, if they wish it, an account of the Party 1 contribution, but for the reasons indicated, that should be at their risk as to costs. 148If there is to be an accounting, it should be by way of reference out. The precise form of any orders to be made, including both the identity of a suitable and willing referee and directions to minimise the costs, should be dealt with once the election to have an account is confirmed.

The Subscription Deposit, $199,964 149That amount was paid by Party 1 pursuant to cl 2.2.5 of the acquisition agreement. It was payable and paid for a specific purpose, and supposedly to be paid into a "trust account". For the reasons I have given, there is a clear inference of a resulting trust arising on failure of that purpose. 150Party 2 - Mr Ehrenfeld - nominated a bank account of Fundamental Capital as the recipient account. The money was paid into that account. Fundamental Capital is liable to repay it and the payers are entitled to judgment accordingly. 151There is no basis on which Mr Ehrenfeld could be made liable.

The Initial Subscription, $320,000 152For essentially the same reasons, that sum (paid into the account of Fundamental Capital at the direction of Mr Ehrenfeld) was paid for a purpose that has failed, and must be repaid. Fundamental Capital is liable to repay it with interest and the payers are to have judgment accordingly. 153Again, there is no basis for making Mr Ehrenfeld liable.

The Public Subscription, $150,000 154That subscription was payable on request by Mr Ehrenfeld (see cl 3.2.2 of the acquisition agreement). Clause 3.1(h) of the representation and warranty deed provided for its payment into the "WWH Acquisition Trust" apparently maintained by Fundamental Capital. The evidence shows that the payment was made, and the final deed agrees that this is so (cl 2.4). 155It does not appear to have been paid to Fundamental Capital as trustee but, rather, into the earlier nominated account. The purpose for which it was paid has failed. Fundamental Capital is liable to repay it, together with interest. The payers are entitled to judgment accordingly. 156There is no basis on which Mr Ehrenfeld could be made liable.

Mossensons' claim against the Ehrenfeld defendants 157The first issue is whether the settlement between Mossensons and the plaintiffs was reasonable. Mr Ehrenfeld did not contend otherwise. Indeed, on the way he approached the cross-claim, Mossensons was liable to the plaintiffs in full for the misapplied funds. 158In my view, the settlement was objectively reasonable. Mossensons, as trustee, was obliged to acquaint itself with the terms of the trust and to obey them. It does not appear to have done the former, and certainly did not do the latter. 159If Mossensons had acted reasonably, and done all that it could to perform, there might be a case for excusing the breach of trust. However, on the evidence, it is unlikely that any such excuse would be made in circumstances where, although Mossensons was repeatedly warned that the money had been paid on terms, it did not acquaint itself with them. 160In circumstances where Mossensons has settled for substantially less than the amount of the claim (including interest), and in circumstances where its liability was clear and its prospects of being excused not so clear, I conclude that the settlement was reasonable. 161The real dispute related to the basis of the claim for contribution or indemnity. Mossensons submitted that Mr Ehrenfeld had directed the payments out. It is plain that he did. It is submitted that in doing so, he represented that the payments were authorised when in fact they were not. Thus, as I have indicated, it is said that there was misleading or deceptive conduct, and breach of warranty of authority. In addition, it claimed to be entitled to indemnity on the basis that Mr Ehrenfeld had knowingly procured the breaches of trust. 162Mr Ehrenfeld disputed vigorously these aspects of the cross-claim. He submitted that it must have been obvious to Mossensons that the payments were in fact made in breach of trust and that its actions were the real source of the problems that followed. As I have said, no such case was pleaded or particularised. 163Mr Ehrenfeld appeared to suggest that in those circumstances it was inappropriate to conclude that Mossensons had relied on the directions given by him. However, that submission fails to take account of the contrary, unchallenged, evidence given by Mr Mossenson, who was not required for cross-examination. 164To the extent that Mr Ehrenfeld sought to justify his directions, by submitting that SDT was entitled to the money on the proper construction of the final deed and in the events that have happened, that submission fails, for the reasons I have given. 165In my view, Mossensons is entitled to indemnity from Mr Ehrenfeld. It is clear, on the unchallenged evidence of Mr Mossenson, that it did, through him, rely both on the fact of the instructions given by Mr Ehrenfeld and on the implicit representation that those instructions were authorised, having regard to the purposes for which the money had been paid into trust. It is, I infer, equally clear that if Mr Ehrenfeld had not directed the payments out to be made, they would not have been made. 166In circumstances where the failures on the part of Mossensons and Mr Mossenson to acquaint themselves with, and to perform, the terms of the trust were not pleaded or particularised, I do not think it appropriate to apportion liability in some way. Mr McManus of counsel, for Mossensons, accepted that I could do so. However, he submitted I should not. 167In my view, it is clear that Mossensons limited its evidence by reference to the issues as they were disclosed by the pleadings. It is equally clear that if any question of apportionment of responsibility had been raised on the pleadings, Mossensons could well have taken (and in all likelihood would have taken) a very different evidentiary course. 168On the issues as pleaded, Mossensons has made good its claim for indemnity. It is neither necessary nor appropriate to go beyond those issues.

The Ehrenfeld defendant's cross-claim against the plaintiffs 169The only claims that need be addressed are those brought by Mr Ehrenfeld in his own right and those brought by Fundamental Capital. 170Mr Ehrenfeld's cross-claim fails, for two fundamental reasons. 171First, he has failed to prove any breach of any of the contracts, to the extent that they imposed obligations on the plaintiffs that were not varied or superseded by a later contract. As to the last of those contracts - the final deed - I have concluded that the plaintiffs' termination of it was valid. 172Secondly, Mr Ehrenfeld has failed to prove that he suffered loss. This reflects the form of his cross-claim, which neither pleaded nor particularised any particular loss suffered by him. 173The case, as put in submissions, was that Mr Ehrenfeld in some way lost the benefit of the overall transaction. But for the reasons I have given, it is necessary to look at the individual agreements, and the rights and obligations that they impose on the various parties to them. 174The cross-claim by Fundamental Capital was not pressed, and in any event, had it been pressed, would fail for want of evidence.

Objections to evidence 175Mr Ehrenfeld tendered a bundle of documents. They comprised, in part, business records and other documents which appeared to be contemporaneous with the events that gave rise to this litigation. 176Mr Jammy objected to many, principally on the grounds of relevance. In many cases those objections were well founded. They are described in a schedule that I will mark for identification as "A". 177In the event it is not necessary to rule on those objections. Had it been necessary to do so, the ambit of Mr Ehrenfeld's documentary case is likely to have been somewhat smaller than in fact it was.

Conclusions 178Mr Zeng and Shandong Mining China are entitled to the balance presently held in Mossensons' controlled moneys account. That amount is to be paid out to them. 179Mr Zeng and Shandong Mining China are entitled to recover from SDT the total of $412,400 paid to it out of that controlled moneys account, together with interest on each of the components of that total from the date it was paid. 180Mr Zeng and Shandong Mining China are entitled to recover from Mr Ehrenfeld the total of $523,677.33 paid out of that controlled moneys account, together with interest on each of the components of that total from the date it was paid out. 181Mr Zeng and Shandong Group China are entitled to an account from Mr Ehrenfeld of the amounts totalling $1,050,000 paid by them as the Party 1 contribution under the acquisition agreement. If they elect to pursue that remedy: (1) it is to be at their risk as to costs; (2) it will be conducted by way of reference out, unless the parties agree otherwise; and (3) directions must be framed to ensure that the account is taken as quickly and cheaply as possible, consistent with the interests of justice. 182Mr Zeng and Shandong Group China are entitled to recover from Fundamental Capital the subscription deposit of $199,964 paid to it, together with interest from the date it was so paid. 183Mr Zeng and Shandong Group China are entitled to recover from Fundamental Capital the initial subscription of $320,000 paid to it, together with interest from the time it was so paid. 184Mr Zeng and Shandong Group China are entitled to recover from Fundamental Capital the public subscription of $150,000 paid to it, together with interest from the time it was so paid. 185Mossensons is entitled to indemnity from SDT and Mr Ehrenfeld for its liabilities to the plaintiffs under the settlement between them and for its costs of defending the plaintiffs' claim. 186The cross-claims by Mr Ehrenfeld and Fundamental Capital fail and must be dismissed. 187In principle, costs of the various claims should follow the events that I have described.

Orders 188I make the following orders: (1) I direct the plaintiffs to prepare and submit to the defendants by 5pm on 22 August 2014 a draft minute of the orders that they seek in pursuance of the conclusions I have just stated; (2) I direct Mossensons to prepare and submit to Mr Ehrenfeld by 5pm on 22 August 2014 a draft minute of the orders that it seeks in pursuance of my conclusions; (3) I direct the defendants and Mr Ehrenfeld to submit to the plaintiffs and Mossensons by 5pm on 26 August 2014 any comments on or disputes as to the draft orders prepared by the plaintiffs and Mossensons; (4) Copies of those documents are to be submitted to my associate at the time they are given to the recipients; (5) I stand the proceedings over to 9.30am on 28 August 2014 for the making of final orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 December 2014