In the matter of Vinidici Rushcutters Bay Pty Ltd — Vinidici Rushcutters Bay Pty Ltd v Zhang

These proceedings arise from an agreement entered into on 8 September 2016 between the plaintiff (Vinidici Rushcutters Bay Pty Ltd, or Vinidici) and TFM Rushcutters Bay Land Pty Ltd (TFMRB), pursuant to which Vinidici subscribed for a convertible note for a principal sum of $2,000,000 with the right to convert the note into shares in TFMRB at any time before the maturity date of 31 March 2017 (the Convertible Note Agreement).

TFMRB was incorporated on 31 August 2016 for the purpose of purchasing and developing residential apartments on land at 18-28 Neild Avenue, Darlinghurst, although the parties referred to the location as Rushcutters Bay (the Project). The apartment building that was subsequently developed was known as “Encore”. At the time of its incorporation, Dr Yihao Zhang (also known as Eric Zhang) was the sole director of TFMRB and Tasman Development Holdings Pty Ltd (Tasman) was its sole shareholder. Dr Zhang was also the sole director and sole shareholder of Tasman.

Vinidici was incorporated on 7 September 2016 for the purpose of investing in the Project. Mr Wei Shi (also known as Patrick Shi) and Mr Shengli Xi (also known as Victor Xi) have been the directors of Vinidici at all times since its incorporation. They each hold 40 per cent of the shares in the company. The remaining twenty per cent of the shares in Vinidici are held by Ms Mengjie Zhang.

TFMRB issued the convertible note to Vinidici on 9 September 2016. Vinidici paid the $2,000,000 principal sum to TFMRB in three instalments on 9 September 2016 ($1,000,000), 23 January 2017 ($500,000) and 9 February 2017 ($500,000).

On 7 September 2016, Tasman had entered into a Cooperation Deed with Australia Bai Fu Xin (International) Investment Pty Ltd (ABFX) setting out the terms on which those two companies agreed to “jointly invest in” the Project. Tasman had transferred all of its shares in TFMRB to ABFX on 5 September 2016. Eighty per cent of those shares were transferred in consideration of ABFX’s contribution of $20,000,000 to the Project. The remaining 20 per cent were transferred to ABFX as a pledge for TFMRB’s guarantee of a return of $9,600,000 on ABFX’s investment over two years.

Vinidici claims that it entered into the Convertible Note Agreement and paid the principal sum in the belief that TFMRB had been established as, and would remain, a special purpose vehicle for the Project within the Tasman group of companies, and that Dr Zhang knew or ought to have known that Vinidici held that belief. Vinidici claims that Dr Zhang did not disclose that Tasman had transferred its shares in TFMRB to ABFX.

TFMRB purchased the land for the Project for $24,500,000 in late 2016. Vinidici’s investment of $2,000,000 and the $20,000,000 invested by ABFX under the Cooperation Deed appear to have been applied to the purchase price. Construction of the apartments was financed by loans that TFMRB subsequently obtained from Perpetual Corporate Trust Limited and Westpac Banking Corporation Limited.

Vinidici did not convert its $2,000,000 loan into shares. It claims that $747,270.58 of the principal sum of remains owing and that this amount is unsecured and unlikely to be repaid by TFMRB in circumstances where a receiver and manager was appointed to that company on 15 September 2020, the apartments that remain to be sold are mortgaged to Assetline Capital Pty Ltd and the receiver’s most recent annual administration report states that there are no assets available to be realised to pay any dividend to unsecured creditors.

Vinidici claims that it would not have entered into the Convertible Note Agreement and would not have paid the principal sum if Dr Zhang had disclosed to Vinidici that Tasman had transferred its shares in TFMRB to ABFX.

Vinidici sues Dr Zhang for deceit, alleging that he deliberately concealed from Vinidici the transfer of 80 per cent Tasman’s shares in TFMRB to ABFX and the pledge of the remaining shares.

Alternatively, Vinidici claims that Dr Zhang’s alleged deliberate concealment or non-disclosure was misleading or deceptive conduct that contravened s 1041H(1) of the Corporations Act 2001 (Cth). Vinidici also relies on the equivalent cause of action under s 18 of the Australian Consumer Law if the Court finds that the convertible note is not a “financial product” for the purposes of Chapter 7 of the Corporations Act. As both parties submitted and as referred to later in these reasons, the convertible note is a financial product. Vinidici’s pleaded alternative claims that the alleged deliberate concealment or non-disclosure contravened s 1041E(1) and/or s 1041F(1) of the Corporations Act were not pressed after senior counsel acknowledged in opening submissions that those claims would “ultimately not rise higher than s 1041H(1)”.

By the end of the hearing, Vinidici’s misleading or deceptive conduct case was limited to the alleged conduct of Dr Zhang. In closing submissions, Vinidici abandoned its pleaded alternative case that the alleged concealment or non-disclosure was conduct of TFMRB in which Dr Zhang was “involved” within the meaning of s 79 of the Corporations Act.

Vinidici claims that it would not have entered into the Convertible Note Agreement and would not have paid the $2,000,000 if it had not believed that TFMRB was, and would remain, a company within the Tasman group of companies. Vinidici claims damages for deceit, or alternatively misleading or deceptive conduct, in the amount of the alleged outstanding principal sum of $747,270.58 plus accrued interest.

Dr Zhang denies the allegations of deliberate concealment or non-disclosure. He says that he disclosed to Vinidici before it entered into the Convertible Note Agreement that the majority of Tasman’s shares in TFMRB had been sold to an investor. If Dr Zhang is found not to have disclosed that matter, he denies that the non-disclosure was a deliberate concealment and denies that it constituted deceit or was misleading or deceptive. Dr Zhang also denies that Vinidici has suffered any loss. He contends that the whole of the amount owing under the Convertible Note Agreement has been repaid to Vinidici. Alternatively, Dr Zhang contends that Vinidici is estopped from resiling from representations allegedly made in 2019 and 2020 that certain waived interest charges and alleged discounts on the sale prices of apartments would be set off against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.

To the extent that he may be found liable, Dr Zhang contends that his liability should be reduced pursuant to s 1041I(1B) of the Corporations Act on the grounds of Vinidici’s alleged failure to take reasonable care by not making inquiries about the ownership of TFMRB and/or that he should be relieved of liability under s 1041I(4) and s 1317S of the Corporations Act. Dr Zhang did not press his pleaded proportionate liability defence.

For the reasons that follow, Vinidici’s claims fail.

The plaintiff read affidavits of Mr Shi affirmed on 5 July 2021 and 10 September 2021 and an affidavit of Ms Claire Tian affirmed on 11 September 2021. The defendant read affidavits of Dr Zhang affirmed on 13 August 2021 and 14 March 2022, an affidavit of Ms Peixun Zhang (also known as Penny Zhang) affirmed on 13 August 2021, an affidavit of Yuchen Gao affirmed on 13 August 2021 and an affidavit of Ms Xinian Liu (also known as Yvonne Liu) affirmed on 13 August 2021. The following summary is drawn from those affidavits, the evidence given by Mr Shi, Ms Tian and Dr Zhang in cross-examination [1] and the documents tendered by the parties. Disputed factual matters are identified in the summary and my findings of fact are set out in a later section of these reasons.

Mr Shi has been living in Australia for approximately 20 years. He studied at the University of Wollongong from 2001 and was awarded the degree of Bachelor of Marketing in 2005 and a Masters in International Studies in 2007. Since 2010, Mr Shi has been operating a real estate agency business through ACCE Investments Group Pty Limited (ACCE), including property developments and investing in property developments. Mr Shi is the sole director of ACCE.

Dr Zhang immigrated from China to Australia in 2003. He has a Master of Engineering from the University of Technology, Sydney and a Master of Science and doctorate in financial modelling from Macquarie University. Mr Zhang has been involved in residential property development since 2014 through his directorship of and shareholding in various companies in what he describes as the Tasman group of companies.

Mr Shi gave evidence that he was first introduced to Dr Zhang by a mutual acquaintance in about early 2016. By that time, Mr Shi was aware through his work in the property industry that Dr Zhang was the director of Tasman. Dr Zhang’s evidence puts their first meeting considerably earlier in about October 2014. Nothing turns on the timing of their first meeting.

According to Mr Shi, from early 2016 until about early 2020, he and Dr Zhang met “for a social chat” almost every week during which they would “discuss business opportunities and … just generally hang out”.

Dr Zhang disputed this but gave evidence in cross-examination that, in the period after about February 2016, he did occasionally meet Mr Shi at his apartment and that he often spoke with Mr Shi on the telephone.

Ms Claire Tian, who was living together with Mr Shi as his girlfriend during 2016 and 2017, gave evidence that Mr Shi met with Dr Zhang “on a very regular basis” when she and Mr Shi were living in an apartment in the city from late 2015 until May 2017. According to Ms Tian, these meetings often occurred in the evening and Mr Shi would go downstairs to meet Dr Zhang and have a smoke. Ms Tian also gave evidence that Mr Shi and Dr Zhang were often on the phone together during this period. However, despite this regular contact that Ms Tian described between the two men, she only met Dr Zhang a few times during this period.

Mr Shi’s evidence is that, during the course of those meetings in the period from early to mid-2016, Dr Zhang told Mr Shi that he was the sole director and shareholder of Tasman, that he was able to source money from Chinese investors to purchase development sites and then arrange loans from banks for the development activities on those sites. Mr Shi says that Dr Zhang told him that he had sites in Wolli Creek, Epping and the Blue Mountains that “I have purchased … through Tasman using investment money from Chinese investors”. In relation to the Epping site, Mr Shi says that Dr Zhang told him that the construction of about 90 units on that site was “being done through a sole purpose company TFM Epping which is owned by Tasman.” Mr Shi says that Dr Zhang also told him that he was eager to buy development sites in Australia, particularly in Sydney and Melbourne. Mr Zhang denies saying these things to Mr Shi and says that he treated matters about the funding of developments as confidential. In particular, Dr Zhang denies describing TFM Epping as a sole purpose or special purpose company owned or controlled by Tasman.

According to Mr Shi, he and Dr Zhang had conversations in about early 2016 during which they discussed the general idea of working together on property development projects. These discussions did not concern any particular existing or prospective development site. Mr Zhang denies discussing working together with Mr Shi and says that he neither had, nor intended to have, any direct business relationship with Mr Shi or his associated companies in early 2016. It appeared to Dr Zhang that Mr Shi was eager to have a business relationship with him. Dr Zhang’s evidence is that “it is common for sales agents to strike up a relationship with developers with the goal of securing an agency agreement with the developer so that the sales agent can sell lots in the development.”

Mr Shi gave evidence that, by mid-2016, he was “keen to do business with Eric, and ultimately to make money with him” because Mr Shi wanted to expand his own business “instead of being a lone wolf fighting in the battleground” and he believed that Dr Zhang’s ability to source money from China was “very beneficial” because it meant that “a project or multiple projects could grow quickly and things could get done at a faster rate”. Mr Shi was impressed with Dr Zhang’s enthusiasm, ambition and confidence and admired his aggressive approach to land acquisition. Mr Shi thought that he and Dr Zhang shared common values. He trusted Dr Zhang’s approach to business.

For some time prior to mid-2016, Mr Shi (or ACCE) was acting as the selling agent for residential apartments that were being developed by Lindsay Bennelong Developments Pty Ltd (LBD) at Neild Avenue, Darlinghurst. The development was being constructed in three stages. Stages 1 and 2 had been completed by mid-2016, when Mr Shi became aware that LBD was looking to sell the land for stage 3 at 18-28 Neild Avenue.

Mr Shi informed Dr Zhang about the opportunity to acquire the stage 3 land and introduced Dr Zhang to LBD as a prospective buyer in late July 2016.

According to Mr Shi, he had a conversation with Dr Zhang at about that time in which he told Dr Zhang: “I have 2 million dollars which I am prepared to invest with you and Tasman in this Rushcutters Bay site.” Mr Shi says that Dr Zhang responded: “Ok, let me secure the balance of the purchase monies from China and we can document it.” According to Dr Zhang, Mr Shi first informed him of his wish to invest in the Project at some time after LBD’s acceptance of Tasman’s offer to purchase the stage 3 land on about 10 August 2016, as referred to below.

Mr Shi arranged for Dr Zhang to inspect the stage 3 site on or about 3 August 2016. On 8 August 2016, Tasman made a written offer to LBD to purchase the stage 3 land for $24,500,000 subject to contract on acceptable terms, with a deposit of 20 per cent and settlement to occur on 31 March 2017.

Mr Shi informed Dr Zhang on about 10 August 2016 that LBD had accepted Tasman’s offer.

On 13 and 14 August 2016, Mr Shi and Dr Zhang exchanged a series of messages in which Mr Shi set out his calculation of the total sales revenue for stage 3 and a rate of return based on an assumed construction cost per square metre. Dr Zhang asked to see the calculations underlying Mr Shi’s estimates and Mr Shi forwarded him an excel document entitled “Feasibility”. Dr Zhang then sent messages to Mr Shi, saying: “This is almost the same, we measured similarly at the scene. 28%.” Further messages followed between the two men concerning the amount that would or could be borrowed. It appears from the messages that there were also telephone calls between Mr Shi and Dr Zhang concerning the Project during this period. Dr Zhang says that most of their communications were by telephone.

According to Dr Zhang, it was during this period after LBD accepted Tasman’s offer that Mr Shi first mentioned in telephone conversations his interest in investing in the Project. Dr Zhang could not identify the specific conversation, but gave evidence that he recalled that Mr Shi said words to the effect that: it was “good project” and a “viable project” and “I want to invest as well” and “I am thinking about how much to invest”. According to Dr Zhang, Mr Shi did not initially specify an amount that he wanted to invest, and first mentioned the amount of $2,000,000 just a few days before the first draft of the loan agreement referred to below was prepared.

At some stage during or after Dr Zhang and Mr Shi’s discussions about the rate of return, feasibility and financing of stage 3, Dr Zhang says that he told Mr Shi that he needed to get loans from the bank and that he was going to China on 23 August 2016 “to meet an investor for funding of the development”.

According to Dr Zhang, he and Mr Shi had telephone conversations prior to 23 August 2016 and he said to Mr Shi during one of those conversations: “If you want to be part of the project, tell me what you want to do. We will give you the agreement and you can modify it from there.”

Dr Zhang says that they had a separate telephone conversation to the following effect a few days before Dr Zhang left for China on 23 August 2016:

Dr Zhang’s evidence is that:

Mr Shi denies that he stipulated an interest rate of 4 per cent. He also denies asking Dr Zhang to give him two Epping units as security and denies referring to his investors. Mr Shi maintains that he “did not even have any ‘investors’ and was intending to put my own money into the project, which I did.”

Dr Zhang arrived in China on the evening of 23 August 2016. He received messages from Mr Shi following up on the “security contract”. Dr Zhang says that he instructed his assistant, Ms Yvonne Liu, that:

Ms Liu gave evidence to the same effect.

On 24 August 2016, Dr Zhang’s assistant sent Mr Shi a draft loan agreement between ACCE and Tasman. Ms Liu gave evidence that she prepared the document by making a few amendments to a standard template loan agreement. The draft agreement provided for a loan of $2,000,000 repayable on 31 March 2017 at an interest rate of 4 per cent per annum. The draft agreement provided that Tasman offered two off-the-plan units in its Epping development as “security” for the loan. The draft agreement set out an unorthodox series of steps for the provision of this “security”. Tasman would exchange contracts for the sale of those units off the plan to ACCE and provide a written acknowledgement that ACCE had paid the contract prices in full. Upon Tasman repaying the loan in full, ACCE would take all necessary steps to rescind the contracts. In the meantime, ACCE agreed not to sell, offer for sale, assign, pledge, transfer or encumber the units or its interest in the units.

Mr Shi gave evidence that he engaged Madison Marcus Lawyers to advise Vinidici in relation to the proposed transaction, and that:

Mr Shi and Dr Zhang exchanged the following WeChat messages on 25 August 2016 while Dr Zhang was in China:

The reference to “Auyeung” is a reference Auyeung Hencent & Day Lawyers, the solicitors acting for Tasman in relation to the purchase of the stage 3 site from LBD.

Dr Zhang gave evidence that he had a telephone conversation with Mr Shi during the exchange of WeChat messages above during which Mr Shi told him: “I want an agreement that debt can be converted into equity.” Dr Zhang then instructed his assistant, Ms Liu, to amend the agreement “so that the debt can be converted into equity”. Mr Shi accepted in cross-examination that he did not tell Dr Zhang that he wanted the right to convert the debt into equity so that he could be a partner or joint venturer in the Project with Dr Zhang.

Ms Liu gave evidence that Dr Zhang told her that Mr Shi wasn’t happy with the agreement, and that he wanted “a debt that can be changed to equity”. Dr Zhang asked Ms Liu to “just cooperate with Patrick with things he want.” According to Ms Liu, she also had a conversation with Mr Shi in which he told her that the loan agreement was “not what I want. I don’t want a loan. I want shares.”

On 26 August 2016, Ms Liu sent Mr Shi an email attaching a draft convertible note agreement, which Mr Shi forwarded on to Madison Marcus Lawyers. The parties to the draft convertible note agreement were Tasman (defined as “the Company”) and ACCE (“the Investor”). The terms of the convertible note were set out in Schedule 1 to the draft agreement. Schedule 1 specified a loan amount of $2,000,000, an interest rate of 4 per cent per annum and a maturity date of 31 March 2017. Clause 3.1 of Schedule 1 provided:

The term “Project Company” was not defined in the draft agreement.

Mr Shi sent Dr Zhang the following WeChat message shortly after Ms Liu’s email attaching the draft agreement:

Later on 26 August 2016, Mr Benoir Bayssari of Madison Marcus sent an email to Mr Shi outlining his comments following his preliminary review of the draft convertible note agreement. The comments included:

On 27 August 2016, Mr Shi prepared a draft email to Ms Liu by cutting and pasting the points Mr Bayssari’s email above, excluding points 9 and 17, and changing “you” to “we” so as to refer to ACCE. Mr Shi then forwarded that draft email on to Mr Xi for his consideration. In his affidavit affirmed on 5 September 2021, Mr Shi described Mr Xi as “an employee of mine who does all the development feasibility studies and reviews all the documents”. As I have referred to earlier in these reasons, Mr Xi has been Mr Shi’s co-director of Vinidici and has owned 40 per cent of the shares in that company since its incorporation on 7 September 2016.

In cross-examination, Mr Shi denied having read Mr Bayssari’s email before cutting and pasting it into a draft email to Ms Liu that he then sent to Mr Xi. Mr Shi answered: “Absolutely not. If I read, I don’t need to send it to Xi. … I’m not good at reading the legal clause. That’s why I copy and paste and let my people to read. Let the – my boss to read to double confirm this is correct, or good, or an agreement I can sign.” Mr Shi confirmed that he sent the email to Mr Xi to “[a]sk to give his opinion and explanation on something.” However, when asked whether Mr Xi in fact gave that opinion or explanation, Mr Shi answered: “Nothing significantly important, and because Mr Xi is not a - a lawyer. He’s a – he’s just a nerd.” That last answer is inconsistent with Mr Shi’s earlier evidence that he had sent the email to Mr Xi (who Mr Shi described as “my boss”) to confirm whether this was an agreement that Mr Shi could sign because he (Mr Shi) was “not good at reading the legal clause”. It was put to Mr Shi that he did read Mr Bayssari’s email because he took the trouble to delete paragraphs 9 and 17 of that email when preparing the draft email to Ms Liu. Mr Shi replied: “It could be”, but denied reading Mr Bayssari’s email carefully.

Earlier in his cross-examination, Mr Shi had given evidence that Mr Xi became a director of Vinidici, not because he wanted to be involved in the management of the company but because “… I know his mum. His mum is a heavy duty business woman back in China. His mum is also in our industry doing a property development. His mum want for her son who’s Mr Xi in my company trying to learn and more importantly his mum say, ‘Look, they going to transfer the money from China. Invest the money from China to Australia slowly, slowly” and because Mr Xi “… want to study. He want to learn. He want to do the feasibility report. That’s what he good at, and what he is trying to do.” That evidence is inconsistent with Mr Shi’s conduct referred to above in forwarding to Mr Xi the draft email prepared for Ms Liu and seeking an opinion or confirmation from Mr Xi (“my boss”) about whether “this is correct, or good, or an agreement I can sign.” It is also inconsistent with the WeChat messages exchanged between Mr Shi and Dr Zhang on 2 November 2016, which reveal that Mr Shi understood at that time that Mr Xi would put Vinidici in funds to pay part of the $2,000,000 principal sum under the Convertible Note Agreement that it had by then entered into. [2]

On 29 August 2016, Mr Shi emailed to Ms Liu a draft version of the convertible note agreement in which some amendments proposed by Madison Marcus Lawyers were marked up. The parties to the draft agreement remained Tasman and ACCE. The amendments did not cover all of the 17 points raised in Mr Bayssari’s email dated 26 August 2016. However, a new clause 9.3 had been inserted pursuant to which Tasman charged the stage 3 land in favour of ACCE as security for repayment of the $2,000,000 loan plus interest.

Ms Liu has given evidence that Mr Shi telephoned her shortly after he sent the email with the revised draft agreement referred to immediately above. Mr Shi told Ms Liu that his solicitor had advised that the “security for Epping is not strong enough” but that Mr Shi had “sorted this out” with his solicitor and that the “security is not critical because I want shares”.

I interpolate to note that, notwithstanding Mr Shi’s WeChat messages to Dr Zhang concerning the draft agreement [3] , his preparation of a draft email to Ms Liu based on his solicitor’s advice and his telephone conversations with Ms Liu referred to above, Mr Shi gave evidence in cross-examination that he only read the drafts of the agreement “very briefly, because like what I said, I can’t understand every clause of these legal terms”. Later in his cross-examination, in the course of answering questions about whether he read Mr Bayssari’s email of 26 August 2016, Mr Shi said: “Normally when you brief read you normally you read the last two sentence and the beginning first two sentences.”

Mr Shi has given evidence that, about two days after the conversation in which he says that he told Dr Zhang that he had $2,000,000 to invest (which Mr Shi says occurred in late July 2016 but which Mr Zhang says occurred a few days before he left for China on 23 August 2016 to meet with investors), Dr Zhang told him: “My investors have come in from China overnight. They have seen the Rushcutters Bay site and have agreed to go ahead with the purchase.”

Mr Shi says that he became aware at about the same as the conversation referred to immediately above (which Dr Zhang denies) that TFMRB had been incorporated for the purpose of the Project. According to Mr Shi, Dr Zhang said to him: “I have set up a new Tasman company for the Rushcutters Bay development. It is called TFM Rushcutters Bay Land.”

As I have already mentioned, TFMRB was incorporated on 31 August 2016. At the time of its incorporation, Dr Zhang was its sole director and Tasman was its sole shareholder. Dr Zhang has given evidence that he told Mr Shi in early September 2016 (and before 7 September 2016) that:

In cross-examination, Dr Zhang agreed with a version of this conversation in which he described the company established for the Project as a “new Tasman company”.

On 1 September 2016, Ms Liu sent a further draft of the convertible note agreement to Mr Shi including the new clause 9.3 charging the stage 3 land as security for repayment of the $2,000,000 loan plus interest.

Mr James Tenghui Zhang was the representative of Dr Zhang’s investor from China. Dr Zhang did not tell Mr James Tenghui Zhang that Mr Shi was planning on investing $2,000,000 in the Project by way of a convertible note. [4] However, according to Dr Zhang, he invited Mr Shi to attend an inspection of the stage 3 site together with Mr James Tenghui Zhang on 7 September 2016. Dr Zhang says that he introduced the investor to Mr Shi as “Mr Zhang” and that this was the first time that he had disclosed the identity of the investor to Mr Shi. Dr Zhang did not tell Mr Shi anything else about Mr James Tenghui Zhang during the site inspection. Mr Shi denies being introduced to Mr James Tenghui Zhang at the stage 3 site.

As I have mentioned earlier in these reasons, Tasman had already transferred its shares in TFMRB to ABFX on 5 September 2016. This was recorded in the Cooperation Deed that Dr Zhang says was executed by Tasman and ABFX on 7 September 2016 after the site inspection referred to above. Clause 3 of the Cooperation Deed set out certain warranties given by Tasman, including that Tasman “warrants for” legal and compliance issues relating to the Project, the management of working capital financing and the construction loan for the Project (including obtaining construction loans in a timely manner), completion of unit sales for the Project, completion of construction on time and settlement of all unit sales. Clause 3 also contained a guarantee by Tasman that “the return of the Project is 24% p.a., the Project’s completion will be approximately 24 months …” and that “the guaranteed return of the Project to Bai Fu Xin is $9,600,000 for 24 months”. Clause 4 of the Cooperation Deed required ABFX to contribute $20,000,000 in order to acquire 80 per cent of Tasman’s shares in TFMRB. Clause 4 recorded that this share transfer had occurred on 5 September 2016. Clause 4 also provided that:

Mr James Tenghui Zhang was nominated in the Cooperation Deed as ABFX’s representative. As referred to below, Mr James Tenghui Zhang was subsequently appointed as a director of TFMRB on 22 January 2017.

The Form 484 notifying the transfer of all of the 100 shares in TFMRB from Tasman to ABFX on 5 September 2016 was not lodged with the Australian Securities and Investments Commission (ASIC) until 23 November 2016. Neither Mr Zhang nor Ms Liu gave any evidence as to the reasons why the Form 484 had not been lodged sooner after the transfer of shares to ABFX on 5 September 2016. In cross-examination, Dr Zhang denied that the reason was to ensure that ABFX did not appear as a shareholder on any company search of TFMRB prior to 23 November 2016.

Dr Zhang says that he telephoned Mr Shi on the evening of 7 September 2016, after executing the Cooperation Deed, and told Mr Shi:

According to Dr Zhang, Mr Shi replied: “Good”.

In his affidavit affirmed on 13 August 2021, Dr Zhang deposed that it was his understanding at the time he entered into the Cooperation Deed that 80 per cent of Tasman’s shares in TFMRB had been sold to ABFX but that Tasman retained the remaining 20 per cent of the shares in TFMRB. Dr Zhang attributed his understanding to the terms of the Cooperation Deed:

Mr Shi is “absolutely certain” that the conversation described by Dr Zhang and referred to at [66]-[67] above did not occur.

As I have already mentioned, Dr Zhang did not tell Mr James Tenghui Zhang that Mr Shi was planning to invest $2,000,000 in the Project or that Mr Shi might become a shareholder in TFMRB. Dr Zhang accepted in cross-examination that, if Vinidici did convert the $2,000,000 loan into a 9 per cent shareholding in TFMRB, the 20 shares in TFMRB that Tasman had transferred to ABFX pursuant to the pledge under the Cooperation Deed would no longer represent 20 per cent of the shares in TFMRB. Dr Zhang also accepted that Mr James Tenghui Zhang had insisted on Tasman pledging 20 per cent of the shares in TFMRB. Dr Zhang denied, however, that the reason he did not tell Mr James Tenghui Zhang about Mr Shi and Vinidici’s involvement in the Project was because he knew that it meant the shareholding structure required by Mr James Tenghui Zhang wouldn’t work and that ABFX might not proceed with its investment.

As I have already mentioned, Vinidici was incorporated on 7 September 2016. Mr Shi and Mr Xi were the directors of Vinidici and, between them, held 80 per cent of the shares. The remaining 20 per cent of the shares were held by Ms Mengjie Zhang, whom Mr Shi described as his secretary. The directorship and shareholding of Vinidici have not changed since the incorporation of the company.

On 8 September 2016, Mr Shi received a further updated version of the convertible note agreement from Dr Zhang’s assistant, Ms Liu. At Mr Shi’s request, ACCE had been removed as a party to the agreement and replaced with Vinidici. Tasman had been removed as a party and replaced with TFMRB.

There is no evidence of any contemporaneous correspondence or discussion between the parties concerning the change from Tasman to TFMRB, save for an email from Mr Shi to Ms Liu (copied to Mr Xi) dated 7 September 2016 requesting her to finalise the agreement between Vinidici (instead of ACCE) and “Tasman Rushcutters Bay”. [5] As I have already mentioned, Mr Shi knew by this time that TFMRB had been incorporated for the purpose of the Project and Marcus Madison had advised Mr Shi on 26 August 2016 to ensure that the company that was the borrower under the convertible note agreement was the same company that purchased the stage 3 land.

Ms Liu sent Mr Shi a further draft convertible note agreement later in the afternoon on 8 September 2016. In this further draft, the due date for the second instalment of the $2,000,000 principal sum had been extended from 17 September 2016 to 15 October 2016.

According to Dr Zhang, he and Mr Shi had a few telephone conversations on 8 September 2016 prior to the execution of the Convertible Note Agreement. Dr Zhang says that, in one of those conversations, he exchanged words to the following effect with Mr Shi:

Mr Shi denied that any such conversation occurred. He deposed:

Dr Zhang also gave evidence that he had a conversation with Mr Shi before TFMRB exchanged contracts for its purchase of the stage 3 site on 9 September, in which he told Mr Shi:

The Convertible Note Agreement was executed by Mr Shi and Mr Xi as the directors of Vinidici (“the Investor”) and TFMRB (“the Company”) on the evening of 8 September 2016.

The Recitals to the Convertible Note Agreement stated:

Clause 2 of the Convertible Note Agreement provided:

The “Investment Amount” is defined as $2,000,000. The “Maturity Date” is specified in Schedule 1 to the Convertible Note Agreement as 31 March 2017. The term “Shares” is defined as meaning a percentage of ordinary fully paid shares in TFMRB calculated in accordance with a stated formula but being not less than 9 per cent.

Clause 4 of the Convertible Note Agreement provided for the “Investment Amount” to be paid in two tranches of $1,000,000, with the first being payable on 9 September 2016 and the second being payable on 15 October 2016.

Pursuant to clause 9.3, TFMRB charged the stage 3 land in favour of Vinidici as security for repayment of the $2,000,000 “Investment Amount” plus interest. The clause contained an express acknowledgement by TFMRB that the charge is a caveatable interest.

Clause 10.5 of the convertible note agreement provided:

The terms of the convertible note were set out in Schedule 1 to the Convertible Note Agreement, including the “Loan Amount” of $2,000,000, interest rate of 4 per cent per annum and the maturity date of 31 March 2017. The terms included:

As Dr Zhang submitted, neither the Convertible Note Agreement nor the terms of the convertible note in Schedule 1 contained any representation or warranty concerning the ownership of shares in TFMRB as at the date of the agreement or at any time thereafter. Clause 6.1 of Schedule 1 was directed to ensuring that Vinidici would be issued with the agreed percentage shareholding in TFMRB in the event of a restructure of that company’s share capital between the issue of the convertible note and the date of any election by Vinidici to convert the loan to shares. Clause 6.1 was not directed to changes in the ownership of shares, although the reference to any reorganisation of the share capital being “sanctioned by the meeting of shareholders” contemplated that there might be more than one shareholder in TFMRB before Vinidici exercised its right of conversion. A reorganisation of a company’s share capital may occur for many different reasons. Investment in the company by a new, incoming shareholder is one of those potential reasons, as Dr Zhang submitted, but only one of many.

Mr Shi gave evidence that he signed the Convertible Note Agreement at Dr Zhang’s office on 8 September 2016, after which they stood together for a photograph at Dr Zhang’s suggestion. According to Mr Shi, Dr Zhang said: “This will be historical moment for both of us, we will be very successful.”

Mr Shi gave the following evidence during cross-examination on the first day of the hearing about his desire for shares in TFMRB and his understanding that Vinidici’s right of conversion under the Convertible Note Agreement had to be exercised before the end of March 2017 (emphasis added):

On the second day of the hearing, Mr Shi gave the following evidence in cross-examination:

Mr Shi then gave the following evidence about the Madison Marcus email dated 26 August 2016, referred to at [50] above (emphasis added):

Although Mr Shi gave evidence that he was aware from the outset that Dr Zhang was procuring funds from investors in China to purchase the stage 3 land [6] , he also gave evidence that:

Mr Shi gave evidence that, at the time Vinidici entered into the Convertible Note Agreement, he did not know that Tasman had transferred its shares in TFMRB to ABFX on about 5 September 2016. Nor did he know that Tasman had entered into the Cooperation Deed. In paragraph 47 of his affidavit affirmed on 5 July 2021, Mr Shi gave evidence that he believed that he was investing in the Project together with Dr Zhang through their respective companies established for that purpose, albeit that Dr Zhang “had obtained money from his Chinese investors”. Mr Shi deposed that:

Mr Shi’s evidence is that he held that belief because that was the substance of what Dr Zhang had told him in their previous conversations. I have referred to Mr Shi’s evidence of those previous conversations at [24]-[25] and [57]-[60] above.

In paragraph 49 of his affidavit affirmed on 5 July 2021, Mr Shi gave the following further evidence of his state of mind at the time Vinidici entered into the Convertible Note Agreement and paid the first tranche of the $2,000,000 investment sum:

In paragraph 51 of his affidavit affirmed on 5 July 2021, Mr Shi deposed:

Mr Shi was asked in cross-examination whether his reference to Dr Zhang being “at least … major investor” meant that he understood in August and September 2016 that there might be other shareholders in TFMRB. Mr Shi answered: “Maybe. It could be.” However, when asked whether he thought in August and September 2016 that there might be other shareholders in TFMRB that were not associated with Dr Zhang, Mr Shi replied: “No. I didn’t think that way.”

According to Mr Shi’s evidence, Dr Zhang told him nothing about the identity of the investors or the structure or terms of their investment in the Project and Mr Shi did not ask him any questions because he did not want Dr Zhang to think that he (Mr Shi) was trying to poach his investors. In cross-examination, Mr Shi said: “Every business middle man will be very, very sensitive because to them, like the investors like the treasure vault, they don’t want other people to get involved, get in contact, communicated. So normally they protect their investors very well. They don’t want to tell people who are my money man.” Dr Zhang denied this sensitivity.

After some cross-examination about his reasons for wanting to invest in the Project, Mr Shi was asked in about his understanding in early September 2016 about the terms on which the other investors might invest in the Project. Mr Shi gave the following evidence:

The only information that Mr Shi says he sought from Dr Zhang about the investors was to ask at about the time that he made “my investment” whether the investors knew that “I am part of the deal and have invested $2 million into the development”. Dr Zhang replied: “I think he knows”. Mr Shi gave evidence that:

Returning to Mr Shi’s reasons for wanting to invest in the Project, Mr Shi maintained in cross-examination that his relationship with Dr Zhang and Dr Zhang’s “direct personal and financial involvement” in the Project were “truly the main reason for my investment”. Mr Shi was asked what were his other reasons for the investments and he answered: “A good project” and said that he thought he could make profit from selling the apartments. In cross-examination, Mr Shi initially said that he could not recall whether the potential for ACCE to profit as the sales agent for the Project was one of the reasons why he wanted to invest in the Project, and later denied that it was a reason. Having decided to invest, it was clearly important to Mr Shi to pursue the sales agency for ACCE. That is clear from his evidence referred to immediately above. Mr Shi consistently maintained that the opportunity to earn interest on the loan at the rate of 4 per cent per annum was not a reason for his decision to invest in the Project.

In cross-examination, Mr Shi was taken through the substance of the obligations of Tasman in relation to the Project under clause 3 of the Cooperation Deed referred to at [63] above. It was put to Mr Shi that, if he had been told about those provisions of the Cooperation Deed in late August or early September 2016, he would have understood that Dr Zhang was incentivised to ensure that the Project was undertaken quickly and profitably and that he (Mr Shi) would have been quite content for Vinidici to proceed with the $2,000,000 investment. Mr Shi rejected those propositions. Taken as a whole, I understood Mr Shi’s evidence about the importance he claims to have attached to Dr Zhang’s “direct personal and financial involvement” in the Project to be referring to involvement through ownership of TFMRB through Tasman.

Mr Shi denied in cross-examination that the decision to involve Vinidici in the Project was a decision that he made together with his co-director, Mr Xi. Mr Shi gave evidence that Mr Xi’s role was to “just give the technical advice. Like, doing the calculation of the feasibility report”. I have referred at [52]-[53] above to some other evidence given by Mr Shi to similar effect and also to some inconsistent evidence that was also given by Mr Shi in cross-examination.

Vinidici did not call Mr Xi to give evidence. Mr Shi gave evidence that he knows how to contact Mr Xi, who is in China.

In cross-examination, Dr Zhang agreed that he knew that Mr Shi believed that the two of them were going into the Project together and as “partners” but not as joint venturers. In closing submissions, senior counsel for Vinidici clarified that he used the term “partners” “in the way in which ordinary business people use that expression” and not as a description of any legal relationship between Mr Shi and Dr Zhang. I consider that this was sufficiently clear to Dr Zhang during his cross-examination. I understood Dr Zhang’s agreement to the proposition that they were “partners” as accepting that he and Mr Shi would both be involved in the work required to undertake the Project – Dr Zhang on the financing and construction side and Mr Shi (through ACCE) on the sales and marketing side, with each of them having a financial interest in the Project.

It was put to Dr Zhang in cross-examination that he knew that Mr Shi believed that TFMRB was a company within the Tasman Group. Dr Zhang denied this. It was also put to Dr Zhang that he knew that Mr Shi believed that both TFM Epping and TFMRB were under Dr Zhang’s control. Dr Zhang agreed with that proposition. Both propositions were directed to Dr Zhang’s knowledge of Mr Shi’s belief at the time when Vinidici and TFMRB entered into the Convertible Note Agreement. Vinidici submitted that it was “not really clear” how Dr Zhang’s responses to those propositions “sit together”. However, I understood Dr Zhang’s answers as distinguishing between the ownership of TFMRB, on the one hand, and “control” in the sense of directorship and the power to make decisions about how TFMRB would act in relation to the Project, being its only business activity, on the other hand. When Vinidici entered into the Convertible Note Agreement, Dr Zhang was the sole director and shareholder of Tasman and the sole director of TFMRB. As referred to at [63] above, clause 3 of the Cooperation Deed conferred responsibility on Tasman for legal and compliance issues relating to the Project, the management of working capital financing and construction finance for the Project (including obtaining construction loans in a timely manner), completion of unit sales for the Project, completion of construction on time and settlement of all unit sales. Dr Zhang remained the sole director and shareholder of Tasman and a director of TFMRB at all times relevant to these proceedings.

According to Mr Shi, he did not learn that Tasman had sold its interest in TFMRB to ABFX on 5 September 2016 until about March 2021 when his solicitors in these proceedings informed him of that fact.

As I have already mentioned, Vinidici paid $1,000,000 to TFMRB on 9 September 2016 as the first instalment of the $2,000,000 Investment Sum under the Convertible Note Agreement. TFMRB issued the convertible note to Vinidici on the same day.

TFMRB exchanged contracts with LBD on 9 September 2016 for the purchase of the stage 3 land for a price of $24,500,000. The deposit was $4,900,000, with the balance of $19,600,000 being payable on completion of the contract on 31 March 2017.

The completion date was subsequently brought forward to 25 January 2017 pursuant to a deed of variation that TFMRB and LBD entered into on 21 December 2016.

The Convertible Note Agreement required Vinidici to pay the remaining $1,000,000 in a second instalment on 15 October 2016. That did not occur.

On 2 November 2016, Dr Zhang sent a WeChat message to Mr Shi advising that TFMRB’s contract to acquire the stage 3 site was now planned to settle on 28 November 2016. Dr Zhang asked Mr Shi: “Will the fund on your side be ready?”. Mr Shi replied: “I guess Pisces won’t be ready”. Mr Shi’s reference to “Pisces” was a reference to Mr Xi. Dr Zhang asked: “So what shall we do?”. Mr Shi replied: “Not too much in short. I still have 300,000 here”. There were messages exchanged about Vinidici’s $2,000,000 total investment of which $1,000,000 had been paid so far. Mr Shi stated that he could invest the additional $300,000. Dr Zhang asked whether he could invest “a bit more”. Mr Shi replied:

In cross-examination, Mr Shi initially conceded with considerable reluctance that he was communicating to Dr Zhang in those messages that Mr Xi was not going to be ready with the additional funds required under the Convertible Note Agreement. However, Dr Shi then denied that the $700,000 was supposed to come from Mr Xi to add to Mr Shi’s $300,000 in order to pay the second $1,000,000 instalment of the loan. Dr Shi then reversed that position a few questions later:

Mr Shi was permitted to give an explanation. The only explanation forthcoming was:

In re-examination, Mr Shi referred to a requirement for Mr Xi to pay money to Stockland arising out of some business transaction involving Mr Xi’s mother. When asked why he said in the WeChat messages on 2 November 2016 that “I guess Pisces won’t be ready”, Mr Shi answered:

The substance of Mr Shi’s evidence about this subject in cross-examination and re-examination is that, as at 2 November 2016, neither he nor his co-director Mr Xi, were in a position to put Vinidici in funds to pay the second instalment of $1,000,000 that had been due to be paid under the Convertible Note Agreement on 15 October 2016. Vinidici ultimately paid $500,000 of the second instalment on or about 23 January 2017 and the remaining $500,000 on 9 February 2017. According to Mr Shi’s evidence in cross-examination, all of Vinidici’s payments under the Convertible Note Agreement were funded by him personally and Mr Xi made no financial contribution to those payments.

Dr Zhang gave evidence that, after the Convertible Note Agreement was executed and throughout 2017, he was in frequent (almost daily) contact with Mr Shi to discuss the progress of, and updates on the Project, including finance, marketing and sales. It is common ground that, after TFMRB completed its acquisition of the stage 3 land, the units were marketed and sold under the “Tasman” brand name. Mr Shi gave evidence that he (through ACCE) immersed himself in marketing and pre-sales activities for the 40 units to be developed on the site, leaving the development and construction activities to Dr Zhang to coordinate.

Mr James Tenghui Zhang became a director of TFMRB on 22 January 2017.

On 10 April 2017, TFMRB borrowed $6,000,000 from Perpetual for pre-construction project costs. That loan was secured by a registered first mortgage over the stage 3 land.

Construction work commenced on 18 July 2017.

On 10 October 2017, TFMRB borrowed $23,855,000 from Westpac for the refinancing and construction of the Project. This loan was also secured by a mortgage over the stage 3 land.

Vinidici did not take steps at any stage to register a caveat in respect of its charge over the stage 3 land as it was entitled to do under clause 9.3 of the Convertible Note Agreement. Mr Shi gave the following evidence about this:

However, in cross-examination, Mr Shi acknowledged that he knew that TFMRB had taken out a construction loan by at least 2018. Mr Shi was asked why he did not register a charge at that time. He gave the following answer:

Vinidici took no steps at any stage to obtain signed contracts for the Epping units referred to in clause 8 of Schedule 1 to the Convertible Note Agreement. Mr Shi gave evidence that he trusted that Dr Zhang would provide those contracts if and when he asked for them.

The maturity date specified in the Convertible Note Agreement – 31 March 2017 – passed without Vinidici exercising its right of conversion and without TFMRB repaying the loan. As referred to at [88]-[90] above, Mr Shi gave evidence on the first day of his cross-examination that knew that Vinidici’s right to convert the loan into shares in TFMRB under the Convertible Note Agreement had to be exercised by 31 March 2017, but that he did not cause Vinidici to exercise that right because the Project was not even finished by 31 March 2017. On the second day of his cross-examination, Mr Shi gave very different evidence to the effect that he did not know at the time that Vinidici had to exercise its right of conversion by 31 March 2017 and, indeed, he did not even know until about 2019 that Vinidici had made a loan to TFMRB that could be converted into shares.

Vinidici did not purport to exercise its right of conversion at any time after 31 March 2017.

It is common ground that TFMRB has paid down the $2,000,000 loan by:

Vinidici contends that, after allowing for the vendor incentives and deducting the monetary payments referred to above, an amount of $747,270.58 of the investment sum plus accrued interest remains outstanding under the Convertible Note Agreement. This is the quantum of the loss that Vinidici claims to have suffered as a result of the alleged deceit and misleading or deceptive conduct of Dr Zhang.

Dr Zhang contends that it was agreed that the following additional amounts would be offset against TFMRB’s liability to repay the loan under the Convertible Note Agreement:

Dr Zhang contends that, by reason of the $720,000 cash payments and vendor incentives, together with the alleged discounts and waiver of penalty interest referred to immediately above, there is no amount owing to Vinidici under the Convertible Note Agreement. Accordingly, Dr Zhang contends that Vinidici has suffered no loss by reason of any deceit or misleading or deceptive conduct (which are denied).

Vinidici disputes that the sale prices of Lots 8, 11 and 20 were discounted from market value. Vinidici also disputes that it agreed with TFMRB to deduct any difference between the sale prices and market value (which is denied) from the amount owing by TFMRB under the Convertible Note Agreement.

Vinidici acknowledges that TFMRB waived penalty interest that would otherwise have been payable by the purchasers of Lots 8, 11 and 37 but denies that it was agreed that the interest so waived would be treated as a partial repayment of the amount owing by TFMRB under the Convertible Note Agreement.

Before summarising the evidence concerning the sale prices of Lots 8, 11 and 20 and the waiver of penalty interest in respect the late completion of the sales of Lots 8, 11 and 37, it is convenient to record that:

As referred to earlier in these reasons, Mr Shi’s initial involvement with the Project was as the selling agent for LBD. [7]

On 12 March 2015, LBD’s senior development manager sent Mr Shi an email attaching a sales list dated 19 February 2015 for Stage 3. That list recorded:

On 3 September 2016, before TFMRB exchanged contracts for its purchase of the stage 3 land and in the midst of the exchange of draft versions of the convertible note agreement between Mr Shi and Dr Zhang, Mr Shi emailed to Dr Zhang a sales list dated 31 December 2015 in the same form as the 19 February 2015 list referred to above. Mr Shi gave evidence that he prepared the 31 December 2015 sales list for LBD. The subject heading of the email was: “Rushcutters Bay 3 ‘Encore’ previous sold price list”. The list recorded:

Many other units were recorded on the 31 December 2015 list has having been sold.

Mr Shi gave evidence that several of the purchasers named on the 31 December 2015 list decided not to proceed after LBD sold the stage 3 land to TFMRB. I infer that contracts had not been exchanged with those purchasers prior to September 2016.

Both Mr Shi and Dr Zhang gave evidence that Mr Shi prepared updated sales lists from time to time after September 2016 and sent the lists to Dr Zhang.

Mr Shi sent an updated sales list dated 14 November 2016 to Dr Zhang on 16 November 2016.

According to the 14 November 2016 sales list:

The 14 November 2016 sale list did not identify the purchasers of those units recorded as sold. It recorded fewer sales than the 31 December 2015 sales list, consistently with Mr Shi’s evidence referred to at [137] above.

Dr Zhang gave evidence that he did not know why some units on the 14 November 2016 sales list were marked as sold, that he had not been involved in the negotiation of the sales recorded in the 14 November 2016 list for Lots 8, 11 and 20, and that he did not know how the buyers had been secured for those lots. As at 14 November 2016, TFMRB had entered into the contract to purchase the stage 3 land from LBD but had not yet completed its purchase of that land. There is no evidence that TFMRB or Dr Zhang instructed the selling agent or Mr Shi at any time not to sell Lots 8, 11 and 20 at the prices listed in the 14 November 2016 sales list.

Dr Zhang gave evidence that, after sending him the 14 November 2016 sales list, Mr Shi asked him for a discount on three two bedroom units and said that he wanted Lots 8, 11 and 20. According to Dr Zhang, he then had a telephone conversation with Mr Shi in early or mid-December 2016 in which he said to Mr Shi:

Mr Zhang’s evidence does not refer to any discussion at that time about the amount or percentage of the discount that he says was agreed to be offset against Vinidici’s $2,000,000 investment. As will become apparent below, the amount of the alleged discount was not even discussed until late 2019, according to Dr Zhang’s evidence.

Mr Shi gave evidence denying the conversations referred to at [143] above.

It was put to Dr Zhang in cross-examination that he had invented his evidence about the conversation referred to at [143] above in order to try to avoid paying compensation in these proceedings. Dr Zhang denied this.

On 16 January 2017, Mr Shi sent Dr Zhang a further revised sales list dated 15 January 2017. That revised list recorded the same prices for Lots 8, 11 and 20 as the 14 November 2016 sales list and marked those units as sold.

According to Dr Zhang’s evidence, he had a telephone conversation with Mr Shi to the following effect in about mid-January 2017:

It will be recalled that Vinidici had paid $1,000,000 under the Convertible Note Agreement on 9 September 2016. The second instalment of $1,000,000 had been due on 15 October 2016 but was paid in two tranches of $500,000 each on 23 January 2017 and 5 February 2017. [8]

As referred to earlier in these reasons, TFMRB completed its purchase of the stage 3 land on 25 January 2017. [9]

On 23 March 2017, some six weeks after Vinidici paid the final instalment of the $2,000,000 investment sum, TFMRB exchanged contracts with Mr Xi for the sale of Lot 8 for $1,395,000. According to Dr Zhang’s evidence, the agreed completion date was 23 July 2019 but completion did not occur until 27 September 2019.

On 23 March 2017, TFMRB also exchanged contracts for the sale of Lot 20 to Min Lu for $1,395,000. Nothing turns on the date of completion of this contract, which was not specified in the copy of contract that was tendered in evidence. I assume that completion occurred on or before 27 November 2019 because there is documentary evidence that Ms Lu re-sold Lot 20 on that date for $1,705,000.

Dr Zhang deposed that he understood that Ms Min Lu was one of Mr Shi’s investors. According to Mr Shi, Ms Lu is merely a buyer to whom he had previously sold apartments in other property developments. Mr Shi had negotiated the sale of Lot 20 to her as agent for LBD before TFMRB acquired the Stage 3 land. There is no evidence supporting Dr Zhang’s understanding or assumption that Ms Lu was one of Mr Shi’s investors. There is no evidence contradicting Mr Shi’s evidence about Ms Lu, which was not the subject of cross-examination.

On 2 August 2017, TFMRB exchanged contracts with Mr Shi for the sale of Lot 11 for $1,302,000. According to Dr Zhang’s evidence, the agreed completion date was 23 July 2019 but completion did not occur until 20 January 2020.

Dr Zhang’s evidence does not refer to any discussion with Mr Shi during the conversation that he says occurred in mid-January 2017, or at any time prior to the exchange of contracts for Lots 8, 11 and 20, about the amount or percentage of the discount that he says he agreed TFMRB would accept on the sale price of those lots on the bases that the discount would be offset against TFMRB’s liability to repay the loan to Vinidici under the Convertible Note Agreement.

Dr Zhang gave evidence that he had a conversation with Mr Shi in late 2019 to the following effect:

Dr Zhang gave evidence that he understood from the conversation referred to immediately above that the difference between the amount of $1,700,000 and the contract sale price of each of Lots 8, 11 and 20 was to be applied to reduce the amount owing by TFMRB to Vinidici under the Convertible Note Agreement. It is on this basis that Dr Zhang claims that the amount owing was reduced by a total amount of $1,008,000 (being $305,000 in respect of Lot 8, $305,000 in respect of Lot 20 and $398,000 in respect of Lot 11).

Mr Shi denied saying to Dr Zhang that the actual value of these lots was $1,700,000 and denied that Dr Zhang said to him that this was the value and that he (Mr Shi) would “get $300,000 or $400,000 for each unit.”

It was put to Dr Zhang in cross-examination that he had invented his evidence about the conversation referred to at [156] above in order to try to avoid paying compensation in these proceedings. Dr Zhang denied this.

Dr Zhang gave the following evidence, by which he sought to prove by a different route his contention that the prices for which TFMRB sold Lots 8, 11 and 20 during the period March to August 2017 were discounted compared to their market value.

In his affidavit affirmed on 13 August 2021, Dr Zhang compared Lot 8 to Lot 26 on the basis that they had the same square metre area and the same number of bedrooms and bathrooms, a similar layout, and one car space each. Dr Zhang deposed that TFMRB exchanged contracts for the sale of Lot 26 on 1 May 2017 with a third party purchaser for $1,988,000. Dr Zhang observed that the difference between the Lot 8 sale price of $1,395,000 when contracts were exchanged on 23 March 2017 and the Lot 26 sale price of $1,988,000 was $593,000.

As was put to Dr Zhang in cross-examination, the sale price for Lot 8 did not materially change between the 19 February 2015 sales list, the 14 November 2016 sales list and the 15 January 2017 sales list and the price at which TFMRB sold Lot 8 on 23 March 2017. Dr Zhang accepted that the price for Lot 8 in the 19 February 2015 sales list was very similar on a price per square metre basis to the other units on level 1 of the building. The minor changes to the Lot 8 price in subsequent sales lists appear to reflect slight changes in the size of Lot 8 over time. Mr Xi was recorded as the purchaser of Lot 8 in the 19 February 2015 and 31 December 2015 sales lists. The subsequent sales lists did not identify the purchaser but described Lot 8 as sold. There was no indication on the face of those sales lists that Mr Xi had withdrawn his agreement to purchase Lot 8 at any time. Mr Xi was the purchaser under the contract that was exchanged on 23 March 2017.

Dr Zhang accepted in cross-examination that a comparison of the 19 February 2015 sales list and the 14 November 2016 sales list indicated that the purchaser to whom Lot 26 had been sold as at 19 February 2015 had dropped out by 14 November 2016 and that the asking price for Lot 26 had then increased. The price of $1,988,000 for which Lot 26 was ultimately sold was not fixed until about 1 May 2017, some two and half years after the per square metre price for Lot 8 appeared to have been fixed in or about February 2015.

Dr Zhang also accepted that, from as early as 19 February 2015, prices per square metre for units on level 3 of the building (including Lot 26) were generally higher than for units on level 1 of the building (including Lot 8).

Dr Zhang denied that, in presenting his comparison of Lot 8 and Lot 26 in his affidavit referred to at [161] above, he had deliberately ignored that Lot 8 and Lot 26 were on different levels of the building and that the price for Lot 8 had been agreed with the purchaser about two and half years earlier than the price for Lot 26.

In his affidavit affirmed on 13 August 2021, Dr Zhang compared Lot 20 to Lots 21 and 26 on the basis that they have the same number of bedrooms, bathrooms, and car spaces, and each have “similar” square metre areas. Lot 21 is in fact 10 square metres larger than Lot 20 and Lot 26. Dr Zhang observed that Lot 20 and Lot 21 are both located on level 2 of the “Encore” building and Lot 26 is located on level 3 of the building. Dr Zhang deposed that TFMRB exchanged contracts for the sale of Lot 21 on 17 February 2017 for $1,922,000 and for the sale of Lot 26 on 1 May 2017 for $1,988,000. Dr Zhang noted the differences between these prices and the Lot 20 sale price of $1,395,000 under the contract dated 23 March 2017.

In cross-examination, Dr Zhang agreed that the prices recorded for Lot 20 and Lot 21 in the 19 February 2015 sales list reflected very similar prices per square metre. As was put to Dr Zhang, the 19 February 2015 sales list, the 14 November 2016 sales list, the 15 January 2017 sales list and the contract for the sale of Lot 20 to Min Lu on 23 March 2017 consistently recorded the sale price as $1,395,000. Ms Lu was recorded as the purchaser of Lot 20 in the 19 February 2015 and 31 December 2015 sales lists. The subsequent sales lists did not identify the purchaser but described Lot 20 as sold. There was no indication on the face of those sales lists that Ms Lu had withdrawn her agreement to purchase Lot 20 at any time. By contrast, the 14 November 2016 sales list recorded a new purchaser and higher sale price for Lot 21 than the 19 February 2015 sales list. Dr Zhang agreed this indicated that the previous purchaser had withdrawn and an increased price had then been struck with a new purchaser in about November 2016. Dr Zhang nevertheless denied that he would expect the sale price for Lot 21 to higher than Lot 20 by reason of this time difference and due to Lot 21 having a different aspect.

As referred to at [163] above, the sale price of Lot 26 was not fixed until about 1 May 2017, more than two years after the price for Lot 20 appears to have been agreed with Ms Lu in about February 2015.

Notwithstanding the differences referred to at [167]-[168] above and his concessions about those differences, Dr Zhang refused to accept in cross-examination that the sale prices for Lot 21 and Lot 26 were not comparable to the sale price for Lot 20. He denied deliberately ignoring the differences referred to above when presenting the comparison in his affidavit referred to at [166] above.

In his affidavit affirmed on 13 August 2021, Dr Zhang asserted that Lot 11 was comparable or similar to Lot 12 by reason of having a “similar” square metre area, both being located on Level 1 of the “Encore” building and having the same number of bedrooms and bathrooms plus one car space. Dr Zhang deposed that TFMRB exchanged contracts for the sale of Lot 12 on 9 April 2017 with a third party purchaser for $2,484,000. Dr Zhang observed that the difference between the Lot 11 sale price of $1,302,000 when contracts were exchanged on 2 August 2017 and the Lot 12 sale price of $2,484,000 was $1,182,000.

In cross-examination, Dr Zhang agreed that Lot 12 was a bit bigger than Lot 11. He also agreed that Lot 12 had a northerly aspect whereas Lot 11 had an easterly aspect, but denied that a northerly aspect was more desirable. Dr Zhang agreed that the higher price recorded in the 19 February 2015 sales list for Lot 12 compared to Lot 11 appeared to reflect the slightly larger size of Lot 12. Dr Zhang accepted that Mr Shi had been recorded as the purchaser of Lot 11 since the 19 February 2015 sales list, whereas the Lot 12 purchaser recorded in that list appeared to have withdrawn by the time the 14 November 2016 sales list was issued and the higher asking price for Lot 12 then increased. Lot 12 ultimately sold on 9 April 2017 at a price that appears to have been struck with the purchaser at some time between 15 January and 9 April 2017, more than two years after the Lot 11 price was agreed between Mr Shi and LBD in about February 2015. Dr Zhang agreed that he would expect this two year time difference to result in a higher price for Lot 12 than for Lot 11. He denied deliberately ignoring this difference, and the difference in aspect, when presenting the comparison in his affidavit referred to at [170] above.

It was put to Mr Shi in cross-examination that the prices of Lots 8, 11 and 20 recorded in the 19 February 2015 sales list incorporated a discount from market value that Mr Shi had negotiated with LBD, and that Mr Shi had asked Dr Zhang to give him that same previously negotiated discounted price after TFMRB purchased the stage 3 land. Mr Shi denied this. The prices per square metre recorded on the 19 February 2015 sales list for each of Lots 8, 11 and 20 are in about the middle of the range of prices per square metre for other units on level 1 (for Lot 8 and Lot 11) and level 2 (for Lot 20) of the building.

Mr Shi gave evidence that the only discount or variation that he had agreed with Dr Zhang in relation to sale prices of units was the 10 per cent vendor incentive for Lots 8, Lot 11 and Lot 37. As referred to at [126] above, it is common ground that this incentive was applied to reduce TFMRB’s liability to Vinidici under the Convertible Note Agreement.

It is common ground that the sale of Lot 8 to Mr Xi settled late and that TFMRB agreed in late September 2019 to waive penalty interest that was payable under the contract in the amount of approximately $20,000.

It is common ground that the sale of Lot 11 to Mr Shi settled late and that TFMRB agreed in mid-January 2020 to waive penalty interest that was payable under the contract in the amount of approximately $50,000.

It is common ground that the sale of Lot 37 to a Lianxiang Wu settled late and that TFMRB agreed shortly before settlement in early March 2020 to waive penalty interest that was payable under the contract in the amount of approximately $120,000.

Each of Dr Zhang and Mr Shi gave evidence about their conversations in which Dr Zhang agreed that TFMRB would waive interest. In each instance, Dr Zhang deposed that either he or Mr Shi said words to the effect that they would “offset the interest from the investment”, and the other agreed. Dr Shi disputed that there was any agreement to deduct the interest from the amount owing by TFMRB under the Convertible Note Agreement.

In cross-examination, Dr Zhang gave evidence that, after the conversations referred to above in September 2019, January 2020 and March 2020, he informed Ms Penny Zhang that the penalty interest in respect of the relevant lot would be waived and that the amount would count towards the repayment of Vinidici’s $2,000,000 investment. Ms Zhang was the Senior Investment Coordinator for Tasman at that time. Her responsibilities included organising the settlement of contracts for sale of lots in developments being carried out by the Tasman group of companies and also managing the day to day finances (including payments in and payments out) for loans for those developments. In her affidavit affirmed on 13 August 2021, Ms Zhang gave an account of her conversations with Dr Zhang concerning waiver of penalty interest in respect of Lots 8, 11 and 37. Ms Zhang’s account of those conversations did not include Dr Zhang saying anything about the interest waived in respect of Lots 8 and 37 being offset against the loan from Vinidici to TFMRB. In relation to Lot 11, Ms Zhang deposed that Dr Zhang told her to waive the penalty interest payable by Mr Shi and added: “It’ll pay back his investment.”

Ms Zhang sent an email to Mr Shi on 17 March 2020 in which she requested Mr Shi to:

Mr Shi sent a short email in reply on 17 March 2020, which has not been translated. Ms Zhang replied to Mr Shi’s email stated:

Ms Zhang then responded to Mr Shi on the same day, stating: “Thanks for your confirmation”. I infer from this response that Mr Shi’s 11.50am email confirmed that the details in Ms Zhang’s 11.46am email were correct.

Vinidici relies on that email exchange as contemporaneous documentary evidence confirming that there was no agreement to deduct from the amount owing by TFMRB under the convertible note agreement any discount (if any) on the sale price of Lot 8, Lot 11 and Lot 20 or the interest that was waived by TFMRB on the late completion of the contracts for sale of Lot 8, Lot 11 and Lot 37.

Contemporaneous email correspondence between the solicitors acting for TFMRB on the sale of Lot 8, Lot 11 and Lot 37 and the solicitors acting for the purchasers of each of those lots record the agreement to waive penalty interest but make no reference to the amount so waived being offset against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.

As Vinidici submitted, Ms Zhang’s email sent to Mr Shi on 17 March 2020 makes no reference to any discount on the sale price of Lot 8, Lot 11 and Lot 20 as a “repayment” of the amount owing by TFMRB to Vinidici under the Convertible Note Agreement.

As referred to earlier in these reasons, Vinidici claims that $747,270.58 of the principal sum of $2,000,000 remains owing and that this amount is unsecured and is unlikely to be repaid given that a receiver and manager was appointed to TFMRB on 15 September 2020, the units that remain to be sold are mortgaged to Assetline Capital Pty Ltd, and the receiver’s most recent annual administration report states that there are no assets available to be realised to pay any dividend to unsecured creditors.

The evidence of Mr Shi and Dr Zhang included evidence of conversations as long ago as 2016, approximately four years before they each prepared their affidavits that were read in these proceedings and approximately five years before the final hearing. In assessing their evidence of such conversations, it is necessary to be mindful of the following well-known observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319:

The factors referred to by his Honour require primary emphasis on the objective surrounding facts that are either undisputed or established by contemporaneous documents, and on the inherent probabilities and improbabilities: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[31] (Gleeson CJ, Gummow and Kirby JJ); Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102 at [77] (Bell P, Leeming JA and Emmett AJA agreeing). In any commercial litigation, contemporaneous documents “generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony”. Witness testimony may still be of value and importance, including by providing evidence of the context in which relevant documents and events must be understood: ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (Bell P, Bathurst CJ agreeing).

I have considered all of the parties’ submissions in relation to the credibility and reliability of the evidence of Mr Shi and Dr Zhang.

For the reasons explained at [201]-[205] and [211] below, I have found that Mr Shi gave untruthful evidence during his cross-examination about the 26 August 2016 email from Marcus Madison and about his understanding of Vinidici’s right of conversion under the Convertible Note Agreement. In coming to those conclusions, and indeed in assessing all of Mr Shi’s evidence, I have taken into account that English is not his first language. I have also taken into account that Mr Shi has been living in Australia for approximately 20 years and has obtained a bachelor and masters degree at an Australian university in 2005 and 2007 (respectively). I assume that all course work and all work submitted by Mr Shi for those degrees was in the English language. I have also taken into account that Mr Shi has been operating a business in Australia since 2010. [10] Mr Shi prepared his affidavits without an interpreter and gave evidence during the final hearing without an interpreter. Senior counsel for Vinidici quite properly took objections during cross-examination on those occasions where he perceived that the terms of a question may have been unclear to Mr Shi. On those occasions, the problem lay in the terms of the question and not in any suggested difficulty for Mr Shi in understanding the English language.

Having regard to Mr Shi’s willingness to give that untruthful evidence where he perceived that it would advance Vinidici’s interests in these proceedings to do so, I do not accept his evidence about disputed matters except where it is corroborated by contemporaneous documentary evidence or the evidence of a reliable witness, where it is consistent with the inherent probabilities and improbabilities, or where it is against Vinidici’s interests.

For the reasons explained at [208]-[209] below, I have found that Dr Zhang’s evidence in which he claimed to have introduced Mr Shi to Mr James Tenghui Zhang of ABFX was untruthful. For the reasons explained at [228]-[232] below, I have also found that Dr Zhang gave false evidence about an agreement that he claims to have made with Dr Shi to discount the sale prices of three lots in the Project and to set off the amount of those discounts against the amount owing by TFMRB to Vinidici under the Convertible Loan Agreement. In coming to those conclusions, I have taken into account that English is not Dr Zhang’s first language. I have also taken into account that Dr Zhang has been living in Australia since 2003, has obtained a masters degree and doctorate from an Australian university (both of which I assume were undertaken in the English language), and has been operating a residential property development business in Australia since 2014. Dr Zhang made his affidavits without an interpreter. Senior counsel for Dr Zhang informed the Court that an interpreter was available for Dr Zhang if required during his cross-examination. However, senior counsel made no application for Dr Zhang to give his evidence through an interpreter at the outset of his cross-examination, having decided to “see how it goes”. It was open to senior counsel to make an application under s 30 of the Evidence Act 1995 (NSW) at any time during Dr Zhang’s cross-examination. I have no doubt that senior counsel would have done so if he had perceived that Dr Zhang was experiencing difficulties understanding and answering the questions in English. No such application was made.

Having regard to Dr Zhang’s willingness to give that untruthful evidence where he perceived that it would advance his interests in these proceedings to do so, I do not accept his evidence about disputed matters except where it is corroborated by contemporaneous documentary evidence or the evidence of a reliable witness, where it is consistent with the inherent probabilities and improbabilities, or where it is against his own interests.

In making the findings set out below, I have taken into account all of the evidence summarised earlier in these reasons and all of the parties’ submissions about the findings of fact that they contend should (or should not) be made.

On the basis of the evidence referred to at [20]-[26] above, I find that Mr Shi and Dr Zhang spoke to one another either in person or by telephone reasonably frequently from about early February 2016 until about late July 2016. Given their involvement in the real estate and property development industries respectively, it is inherently probable that they disclosed to one another in general terms during those conversations the nature of their businesses and the manner in which they operated their businesses. The contrary is inherently improbable. It is common ground that Mr Shi informed Dr Zhang of the opportunity to acquire the stage 3 land for the Project in late July 2016. [11] It is inherently probable that, when Mr Shi referred the stage 3 opportunity to Dr Zhang, he believed based on what Dr Zhang had told him about his business that Dr Zhang may be interested in purchasing and developing the stage 3 land and may be capable of raising the funds to do so. I find that Dr Zhang did tell Mr Shi at some stage during the period between early 2016 and late July 2016 that he (Dr Zhang) was the sole director and shareholder of Tasman, that he was able to source money from Chinese investors in order to purchase development sites and to then borrow money from banks to develop those sites. I further find that Dr Zhang mentioned the location of some of the sites that he had acquired “through Tasman using investment money from Chinese investors”, or words to that effect. I reject Dr Zhang’s evidence to the contrary. I accept as inherently probable Dr Zhang’s evidence that he regarded matters about the funding of developments to be confidential. However, the discussions that I have found occurred were in very general terms and did not result in disclosure of any detailed information about the funding of developments.

I accept Mr Shi’s evidence that he saw Dr Zhang’s ability to source investment money from China as “very beneficial” because it enabled projects to be undertaken quickly. I accept Mr Shi’s evidence that, for that reason, he was “keen to do business” with Dr Zhang by mid-2016 because he saw this as an opportunity to make money. [12] That evidence is inherently plausible as a matter of commercial reality and consistent with Dr Zhang’s observation at the time that Mr Shi appeared to be keen to have a business relationship with him. [13] It is also consistent with Mr Shi’s subsequent conduct in telling Dr Zhang about the opportunity to acquire the stage 3 land for the Project in late July 2016 and in negotiating his own involvement in the Project after conducting his feasibility analysis.

On the basis of the evidence referred to at [27]-[33] above, I find that Mr Shi first told Dr Zhang that he wanted to invest in the Project after about mid-August 2016, by which time Tasman had offered to purchase the stage 3 land from LBD and Mr Shi had conducted his own feasibility analysis. The contemporaneous WeChat communications establish that Mr Shi and Dr Zhang each conducted their own analysis and compared notes on 13 and 14 August 2016. On Mr Shi’s own evidence his interest in doing business with Dr Zhang was motivated by his desire to make money. [14] I reject as inherently improbable Mr Shi’s evidence that he offered to invest $2,000,000 in the Project in late July 2016, without knowing whether or at what price that Tasman would offer to purchase the stage 3 land from LBD. I infer that the purchase price would have been an important input into Mr Shi’s feasibility analysis. For those reasons, I reject Mr Shi’s evidence summarised at [29] above and accept Dr Zhang’s evidence referred to at [33] above about the timing of Mr Shi’s expression of interest in investing in the Project. Mr Shi had communicated the amount of the proposed $2,000,000 investment by 23 August 2016: see [39]-[41] above.

I accept Dr Zhang’s evidence referred to at [36]-[37] and [39] above, which is corroborated by Mr Shi’s WeChat messages to Dr Zhang on 23 August 2016 and by Ms Liu’s unchallenged evidence of the instructions she received from Dr Zhang. [15] On the basis of that evidence, I find that it was Mr Shi who stipulated that his proposed involvement in the Project would involve an investment of $2,000,000 at an interest rate of 4 per cent per annum and that he required security over two units from the Epping development project in which Dr Zhang and/or Tasman were involved. I reject Mr Shi’s evidence referred to at [38] above denying those matters. It is improbable that Mr Shi would have sent the message to Dr Zhang on 23 August 2016 chasing the security documentation if he had not asked Dr Zhang for the security. Mr Shi’s denial that he had “investors” at this time is highly improbable having regard to the fact that the investment was made just a few weeks later though Vinidici, which was established for that purpose and in which Mr Shi was only a 40 per cent shareholder. [16] It is also inconsistent with Mr Shi’s own evidence in cross-examination describing the other 40 per cent shareholder and his co-director in Vinidici as “my boss”. [17] I refer to this evidence further below.

The initial terms of Mr Shi’s proposed investment - $2,000,000 and an interest rate of 4 per cent - indicated that he intended at that time to invest by making a loan. On Mr Shi’s own evidence, it was after he consulted with his solicitors that he proposed a convertible note rather than a simple loan. [18] That is consistent with the evidence of Dr Zhang, which is in turn corroborated by the unchallenged evidence of Ms Liu. [19]

I reject Dr Zhang’s submission that Mr Shi wanted to be involved in the Project only by making a short-term loan of $2,000,000. The submission is contrary to the evidence that Dr Zhang adduced from Ms Liu. [20] More importantly, by the time Vinidici entered into the Convertible Note Agreement, Mr Shi had negotiated the right for Vinidici to convert the debt into shares in the company undertaking the Project. It is improbable that Mr Shi would have negotiated those changes if his intention at that time was that his investment would not extend beyond a short-term loan under any circumstances.

The contemporaneous messages sent by Mr Shi to Dr Zhang demonstrate that Mr Shi was not shy in negotiating the terms of the draft agreement with Dr Zhang. Mr Shi pressed in robust terms for any changes to the draft agreement that he required and did not hesitate to raise issues about aspects of the draft that did not seem to him to be right. [21]

Mr Shi had the benefit of independent legal advice in relation to the agreement from Madison Marcus Lawyers. Madison Marcus produced detailed comments for his consideration after reviewing the first draft convertible note agreement that Mr Shi had received from Ms Liu (on behalf of Dr Zhang). Madison Marcus communicated those comments to Mr Shi in a lengthy email of 18 paragraphs on 26 August 2016. [22] I find that Mr Shi did read and understand the substance of that email. As referred to at [51] above, Mr Shi amended the substance of the email so as to convert it into a draft email to Ms Liu before forwarding that draft email on to Mr Xi for his consideration. It is highly improbable that, without even reading the email, Mr Shi managed to make the appropriate amendments to its language in order to convert it into an email directed to Ms Liu and also managed to delete paragraph 9 of the email (which raised a potential matter that Mr Shi must have appreciated would not come to pass given the comparatively modest amount of his proposed investment (compared to the $24,500,000 price of the stage 3 land for which Mr Shi understood that Dr Zhang was procuring investment funds from China) and to delete paragraph 17 of the email (which raised a commercial matter solely for Mr Shi and his investors).

I reject Mr Shi’s evidence referred to at [52] above denying that he read the 26 August 2016 email from Madison Marcus, or that he read it carefully. In addition to the reasons already given, Mr Shi gave inconsistent evidence in seeking to bolster his denial. On the one hand, Mr Shi protested that he had no cause to read the email because he was simply passing it on to Mr Xi (“my boss”) in order for Mr Xi to determine whether he (Mr Shi) should sign the agreement. On the other hand, Mr Shi said that Mr Xi was “an employee of mine who does all the development feasibility studies” and was “just a nerd” who was installed as a director and 40 per cent shareholder of Vinidici at the behest of his mother as a learning experience. [23] Later in his cross-examination, Mr Shi said that he “briefly read” the Madison Marcus email and made the utterly implausible assertion: “Normally when you brief read your normally you read the last two sentence and the beginning of the first two sentence.” [24] I find that Mr Shi read the email in its entirety, created the draft email to Ms Liu, and sent that draft email to Mr Xi for his consideration for the first reason given by Mr Shi in cross-examination, being that Mr Shi considered that Mr Xi was his “boss” and Mr Shi therefore sought Mr Xi’s confirmation about whether he (Mr Shi) should sign the draft agreement. I reject the second reason asserted by Mr Shi as inherently improbable having regard to the subject matter of the Madison Marcus email (which was directed to the terms of the proposed agreement rather than feasibility questions) and the objective fact that Mr Xi was a 40 per cent shareholder and director of the entity that was incorporated a short time later as the vehicle to enter into the Convertible Note Agreement as “the Investor”.

I further find that the decision whether Vinidici would enter into the Convertible Note Agreement was a decision made by Mr Shi and Mr Xi jointly. I make that finding on the basis of Mr Shi’s evidence about his reasons for forwarding the draft email to Mr Xi, being the evidence that I have accepted immediately above, the objective fact that that Mr Xi was a 40 per cent shareholder and co-director of Vinidici which was established as the vehicle for the investment, the implausibility of Mr Shi’s evidence by which he endeavoured to characterise a feasibility study as a mere technical exercise undertaken by a “nerd” engaged in a learning experience rather than as an exercise of central relevance to an investment decision, and the evidence referred to at [111]-[115] above which reveals that Mr Shi understood in early November 2016 that Mr Xi would be contributing funds for Vinidici’s $2,000,000 investment in the Project. I consider that those matters support the inference that Mr Xi participated in Vinidici’s decision, irrespective of whether he subsequently made that financial contribution.

For all of the reasons explained at [201]-[203] above, I find that Mr Shi was not telling the truth when he denied reading the Madison Marcus email and also when he claimed that he only “brief read” that email. As the cross-examiner put to him, Mr Shi was making up an answer which he believed, at that point in his cross-examination, might assist him.

I further find that, irrespective of the extent to which he read the draft convertible note agreement as at 26 August 2016, [25] Mr Shi understood from paragraphs 3 and 4 of the Madison Marcus email that the draft agreement conferred a right on the investor to elect by 31 March 2017 to take shares in the borrower company (noting that Tasman was the proposed borrower at that time), failing which the borrower company’s obligation would be to repay the $2,000,000 loan plus interest at the rate of 4 per cent per annum. [26] As Dr Zhang submitted, the email was expressed in plain and concise terms.

I am not persuaded on the balance of probabilities that the conversation referred to at [57] above occurred in late July 2016. It is inherently improbable that Dr Zhang conveyed that information to Mr Shi at a time before Mr Shi had conveyed to Dr Zhang his own interest in investing the Project. As I have found above, Mr Shi first conveyed his interest after about mid-August 2016.

On the basis of the evidence referred to at [58]-[60] above, I find that Dr Zhang told Mr Shi on or shortly after 31 August 2016 that he had incorporated a “new Tasman company” called TFM Rushcutters Bay for the Project. Mr Shi is mistaken in placing that conversation as having occurred in or about late July 2016, more than one month before TFMRB was incorporated.

I reject Dr Zhang’s evidence referred to at [62] above to the effect that he introduced Mr Shi to Mr James Tenghui Zhang at the Project site on 7 September 2016 and accept Mr Shi’s evidence denying that this introduction occurred. It is inherently improbable that Dr Zhang made that introduction. Dr Zhang had not told Mr James Tenghui Zhang about Mr Shi’s proposed investment. [27] Dr Zhang does not claim to have subsequently disclosed Vinidici’s investment to Mr James Tenghui Zhang and there is no evidence to suggest that he ever intended or contemplated that he would do so. Dr Zhang did not give evidence of any reason why he claims to have taken the trouble to introduce Mr Shi to Mr James Tenghui Zhang in those circumstances. As Vinidici submitted, there was an obvious risk that, if they were introduced, Mr Shi would tell Mr James Tenghui Zhang about his intended $2,000,000 investment in the Project. At that time, Tasman was on the verge of signing a Cooperation Deed pursuant to which ABFX would provide $20,000,000 in equity funding for the Project on terms that included a warranty by Tasman that TFMRB did not carry any other liabilities or debts. [28] It is inherently improbable that Dr Zhang risked Mr Shi disclosing his proposed investment to Mr James Tenghui Zhang, which would have revealed to ABFX that TFMRB was proposing to imminently take on an obligation to repay a loan of $2,000,000 to Mr Shi’s company or (if the right of conversion was exercised) to issue shares to Mr Shi’s company. As Vinidici submitted, the $2,000,000 debt would immediately falsify the warranty in the Cooperation Deed. If the right of conversion were subsequently exercised, the issue of shares to Mr Shi’s investing company would result in the TFMRB shares pledged by Tasman to ABFX under the Cooperation Deed constituting less than 20 per cent of the issued shares in TFMRB. As Vinidici submitted and as was put to Dr Zhang in cross-examination, TFMRB’s proposed transaction with Mr Shi’s company undermined the TFMRB shareholding structure on which Tasman’s transaction with ABFX was predicated. There was an obvious risk for Tasman that ABFX would not proceed with its $20,000,000 investment if it became aware of Mr Shi’s proposed investment. [29] Dr Zhang’s denial of that risk in cross-examination was utterly implausible as a matter of commercial reality and I reject it. [30]

For all of the reasons at [208] above, I find that Dr Zhang did not introduce Mr Shi to Mr James Tenghui Zhang at the Project site on 7 September 2016 or at any other time. The implausibility of Dr Zhang’s evidence about this subject in cross-examination leads me to conclude that his evidence about the alleged introduction was untruthful rather than merely mistaken. I have reached that conclusion without finding it necessary to consider what (if any) inference should be drawn from the fact that Mr James Tenghui Zhang was not called to give evidence.

I do not feel a sense of actual persuasion that either of the conversations deposed to by Dr Zhang and referred to at [66]-[67] above and [75] above occurred. [31] Dr Zhang’s account of each alleged conversation (if accepted) would render it inherently unlikely that the other alleged conversation occurred. If the conversation referred to at [66]-[67] above had occurred as Dr Zhang claims, it is inherently improbable that Mr Shi would have later questioned why the transaction with the “investors” had not been structured as a loan secured over the stage 3 land as Dr Zhang claims. Equally, it is inherently unlikely that Dr Zhang would have made the statements to Mr Shi referred to at [75] above if he had already told Mr Shi (in substance) that 80 per cent of the shares in TFMRB had been transferred to the “investors” as referred to at [66]-[67] above. Dr Zhang’s submissions to the effect that it was “objectively likely” that there was some conversation about the form of the Chinese investment did not grapple with these issues arising from his evidence about the substance of the alleged conversations. For all those reasons, I accept Mr Shi’s evidence referred to at [69] and [76] above that neither of the two alleged conversations occurred. However, for the reasons explained at [212]-[227] below, I do not accept Mr Shi’s evidence referred to at [76] above to the effect that he would not have proceeded with his investment in the Project “if I had known that Eric was only a minority shareholder”.

I have already found that Mr Shi understood as at 26 August 2016 that the draft convertible note agreement conferred on “the Investor” the right to elect by 31 March 2017 to take shares in the borrower company (noting that Tasman was the proposed borrower at that time), failing which the borrower company’s obligation would be to repay the $2,000,000 loan plus interest at the rate of 4 per cent per annum. [32] I further find on the basis of Mr Shi’s evidence in cross-examination referred to at [88] above that he read the Convertible Note Agreement before executing it as a director of Vinidici on 8 September 2016 [33] and that he understood at that time that the only way in which Vinidici could exercise the right to convert the $2,000,000 into shares in TFMRB was to issue a notice to that effect under the Convertible Note Agreement on or before 31 March 2017. It is common ground that no such notice was given. I reject Mr Shi’s contrary evidence given on the following day of his cross-examination referred to at [89]-[90] above. Mr Shi’s evidence on that day was initially to the effect that he did not now know if he knew or properly understood in September 2016 that the only way in which he (through Vinidici) could participate in any profits from the Project was by obtaining shares in TFMRB, and he did not pay attention at the time to the fact that any election by Vinidici to convert the loan into TFMRB shares had to be exercised by 31 March 2017. As the cross-examination progressed, Mr Shi’s claimed uncertainty about those matters developed into a positive denial that he understood before signing the Convertible Note Agreement that the loan to be made by Vinidici could be converted into shares in TFMRB. That evidence (both the claimed uncertainty and the subsequent denial) is utterly implausible having regard to the plain terms of the 26 August 2016 email from Madison Marcus, the terms of the Convertible Note Agreement and Mr Shi’s evidence given during the first day of his cross-examination that is set out at [88] above. I formed the impression at the time that Mr Shi changed his evidence about these matters between the first and second days of his cross-examination because he perceived that the cross-examiner’s questions on the first day had highlighted an uncomfortable inconsistency between, on the one hand, Mr Shi’s insistence that he had no intention of being a lender to the Project and that he only wanted shares because (according to Mr Shi) he wanted to be “alongside [Dr Zhang] as a business partner in this venture” [34] and, on the other hand, Vinidici’s failure to exercise its right of conversion by 31 March 2017 or to seek to convert at any later time. I conclude that Mr Shi’s evidence on the second day of his cross-examination was false, as the cross-examiner put to him.

For the following reasons, I reject Mr Shi’s evidence that his “main reason” for investing in the Project (through Vinidici) was his relationship with Dr Zhang and Dr Zhang’s “direct personal and financial involvement” in the Project. [35]

First, Mr Shi claims to have known Dr Zhang for a period of only approximately six months before he informed Dr Zhang about the opportunity to acquire the stage 3 land. Mr Shi knew only very general information about the manner in which Dr Zhang operated his business. [36] According to Dr Shi’s evidence, his enthusiasm for “doing business with” Dr Zhang was driven by a belief that he could make money because projects with investment from China could grow more quickly and be done at a faster rate than would otherwise by the case. [37] Mr Shi did give evidence that he admired Dr Zhang’s enthusiasm, ambition and confidence and his approach to land acquisition and trusted his approach to business. However, taken at its highest, Mr Shi’s evidence does not reveal that he had any detailed information about Dr Zhang’s approach to business. As I have found at [196] above, Mr Shi first approached Dr Zhang offering to invest in the Project after he had undertaken his own feasibility analysis independently of Dr Zhang to assess the likely return on any investment.

Second, on Mr Shi’s own evidence, he was aware from the outset of his discussions with Dr Zhang about the Project that Dr Zhang would be seeking investment from investors in China. [38] As Mr Shi ultimately conceded in cross-examination, he knew at the time that one way in which an investor might invest in a project such as this was to acquire shares in the company developing the land in question. [39] As Dr Zhang submitted, it is plain from Mr Shi’s own affidavit evidence that he contemplated that some shares in TFMRB might be owned by parties unrelated to Dr Zhang. To the extent that Mr Shi suggested otherwise in cross-examination, I prefer his affidavit evidence. [40]

Third, on Mr Shi’s own evidence, he did not ask Dr Zhang, and Dr Zhang did not tell him, about the structure or terms of the investment that Dr Zhang had procured from China for the Project. [41] Although Dr Zhang had told Mr Shi that he had previously acquired property development sites “through Tasman using investment money from Chinese investors”, [42] the evidence does not establish that Mr Shi believed that the investment from China would be used to finance Dr Zhang’s participation in the Project “through Tasman”. In any event, any such belief would have logically given rise to questions about whether the Chinese investment had resulted in any change to the ownership or control of Tasman. Mr Shi did not ask any such questions. It was open to Mr Shi to ask Dr Zhang about the form of the Chinese investment without asking about the identity of those investors, which Mr Shi perceived Dr Zhang would prefer to keep confidential. It was also open to Mr Shi to cause Madison Marcus to undertake searches to ascertain the shareholding in TFMRB and Tasman immediately before Vinidici executed the Convertible Note Agreement. Any such searches undertaken on the date of execution of the Convertible Note Agreement, or when Vinidici paid the first $1,000,000 instalment of the $2,000,000 investment sum, [43] would not have identified ABFX as a shareholder of TFMRB. [44] Nevertheless, the fact that Mr Shi took no steps to cause such searches to be undertaken on behalf of Vinidici and asked no questions of Dr Zhang about the form of the investment made by the investors from China are objective facts that give rise to a strong inference that Mr Shi was not concerned about the ownership or majority ownership of TFMRB and that, when Vinidici executed the Convertible Note Agreement and paid the instalments of the investment sum, Mr Shi was primarily interested in the likely profitability of the Project. That inference is consistent with Mr Shi’s conduct in carrying out his own feasibility study before offering to invest in the project. It is also consistent with Mr Shi’s attitude to the right of conversion after Vinidici entered into the Convertible Note Agreement. It was plain from Mr Shi’s evidence in cross-examination that, notwithstanding the terms of the Convertible Note Agreement, he did not wish Vinidici to become a shareholder in TFMRB unless and until the Project had been completed and produced a profit. Answering questions about the right of conversion or any other mechanisms by which he thought he might be able to obtain shares in TFMRB in late 2016 and early 2017, Mr Shi said that he did not think about Vinidici obtaining shares in TFMRB at that time because “we plant the seeds, and the fruits not even grow up. No-one would think about it to – to exercise these things, you know?”. Mr Shi said that he did not cause Vinidici to exercise the right of conversion on or before 31 March 2017 “because the project is not even finished”. [45] As senior counsel for Vinidici submitted, Mr Shi and Dr Zhang did not conduct themselves strictly in accordance with the rights and obligations of TFMRB and Vinidici under the Convertible Note Agreement after it was executed. Their communications about Vinidici’s overdue second instalment of the principal sum on 2 November 2016 are one example of this. [46]

I reject Vinidici’s submission that Dr Zhang’s description of TFMRB as “a new Tasman company” induced Mr Shi to believe that TFMRB was (and would remain) within the Tasman group of companies and owned or majority owned by Dr Zhang through Tasman. [47] The notion that such a description of the newly incorporated company would cause Mr Shi to believe that TFMRB was and would and remain ultimately owned (or at least majority owned) by Dr Zhang (through Tasman) and that, without asking any questions about the structure or terms of the investment from China, Mr Shi believed that that investment would have no impact on the direct or ultimate ownership of TFMRB, is implausible. Mr Shi understood that the Chinese investors would be providing most of the funds required for TFMBR to purchase the stage 3 land [48] , and that an investor in a project such as this might invest by taking shares in the company that was to develop the land. [49] It is inherently improbable that a person with that understanding and with Mr Shi’s business experience [50] would be so naïve as to hold that belief without asking a single question of Dr Zhang about the structure or terms of the investment. I reject Vinidici’s submission that no reasonable business person in the circumstances would have thought it necessary to ask questions about the shareholding structure. For the reasons explained at [213] above, the evidence does not support Vinidici’s contention that the relationship between Mr Shi and Dr Zhang was one of trust, let alone the kind of trust that would induce Mr Shi to hold the belief that he claims to have held.

Vinidici does not submit that Dr Zhang induced Mr Shi to believe that they would be “partners” in the Project in any sense other than both of them being involved in and having an interest in the Project. [51] Mr Shi (through his 40 per cent shareholding in Vinidici) had an interest in either recovering the loan with interest or in Vinidici receiving a distribution of profits earned by TFMRB from the Project if Vinidici elected to convert the loan into a 9 per cent shareholding in TFMRB. Tasman had an interest in achieving the guarantees it had given to ABFX under the Cooperation Deed and in receiving a distribution of profits commensurate with the 20 shares it would own in TFMRB if those guarantees were achieved.

To the extent that Vinidici maintained the submission made in opening that Dr Zhang “induced [Mr Shi] to make his investment by holding himself out as his joint venture partner”, I reject that submission. As I have found above, it was Mr Shi who approached Dr Zhang to invest in the Project after he had carried out his own feasibility analysis and formed his own view about the likely profitability of the Project. Dr Zhang was involved in the negotiation of the terms of Mr Shi’s proposed investment, and Mr Shi and the interests associated with him had independent legal advice in relation to the terms under negotiation. Dr Zhang appears to have agreed to such changes to the draft agreement as were requested by Mr Shi in accordance with that legal advice. Dr Zhang told Mr Shi during the course of the negotiation that he had incorporated “a new Tasman company” called TFM Rushcutters Bay to develop the stage 3 land. Mr Shi did not seek any further information from Dr Zhang about the Project, Tasman or TFMRB before Vinidici entered into the Convertible Note Agreement.

Contrary to Vinidici’s submissions, the photograph taken of Dr Zhang and Mr Shi when the Convertible Note Agreement was executed, and Dr Zhang’s statement to Mr Shi that “[t]his will be a historical moment for both of us, we will be very successful”, [52] does not support the relationship between them being characterised as a joint venture or a relationship of trust. Nor does it support a finding that Dr Zhang held himself out as a joint venture partner to Mr Shi and thereby induced him to cause Vinidici to make the investment. Both of them stood to profit if the Project was successful.

As referred to at [105] above, Dr Zhang accepted in cross-examination that he knew that Mr Shi believed that TFMRB was under Dr Zhang’s control. Vinidici relied on this as a significant concession by Dr Zhang. For the reasons already explained at [105] above, Dr Zhang merely accepted that he knew that Mr Shi believed that he (Dr Zhang) would have the power to decide how TFMRB would act in undertaking the Project, which was TFMRB’s only business. That was correct at the time the Convertible Note Agreement was entered into. I do not consider that this evidence involved any concession by Dr Zhang. Nor do I consider that it assists Vinidici’s claims in these proceedings.

Neither Vinidici nor Mr Shi caused any search of ASIC’s register to be undertaken immediately before Vinidici entered into the Convertible Note Agreement or immediately before it paid each instalment of the principal sum of $2,000,000. A search undertaken before Vinidici paid the instalments totalling $1,000,000 in January and February 2017 would have disclosed that Tasman’s shares in TFMRB had been transferred to ABFX. For the reasons already explained at [210] above, I find that Mr Shi did not know when Vinidici entered into the Convertible Note Agreement or when it paid the instalments of the principal sum that 80 per cent of Tasman’s shares in TFMRB had been transferred from Tasman to ABFX. Nor did Mr Shi know that the remaining 20 per cent of the shares had been pledged in connection with the return that Tasman had guaranteed to ABFX on its investment in the Project. However, for the reasons explained at [214]-[217] above, I reject Mr Shi’s evidence that he signed the Convertible Note Agreement as a director of Vinidici and caused or permitted Vinidici to pay the instalments of the principal sum “in the belief that TFM Rushcutters Bay was the special purpose company owned by Tasman, which I knew was a company in which Eric was the majority shareholder and controlling director”. [53] For the same reasons, I also reject Mr Shi’s evidence that his relationship with Dr Zhang and Dr Zhang’s “direct personal and financial involvement” in the Project (in the sense of ownership) were “the main reason for my investment”. [54] I accept that, at the time of Vinidici’s execution of the Convertible Note Agreement and payment of the investment sum, it is probable that Mr Shi assumed from Dr Zhang’s description of TFMRB as a “Tasman company” at the time of its incorporation, [55] and from Dr Zhang’s personal involvement in the continuing negotiations for the Convertible Note Agreement and continuing involvement in the Project thereafter [56] , that there was a relationship between Dr Zhang (through Tasman) and TFMRB. The evidence does not support a finding on the balance of probabilities that Mr Shi had any belief about the precise nature or structure of that relationship. There was indeed a relationship between Dr Zhang (through Tasman) and TFMRB when Vinidici entered into the Convertible Note Agreement and when the instalments of the investment sum were paid. Tasman owned 20 per cent of the shares in TFMRB subject to the pledge in favour of ABFX, and had extensive contractual rights and responsibilities under the Cooperation Deed in respect of the Project to be undertaken by TFMRB. [57] I accept Vinidici’s submission that, as an 80 per cent shareholder in TFMRB, ABFX could have removed Dr Zhang as a director of TFMRB. However, ABFX could not have removed Dr Zhang as the director of Tasman or derogated from Tasman’s rights and responsibilities under the Cooperation Deed.

For all of the reasons at [214]-[221] above, I find that the principal reason for Mr Shi’s involvement in the Project (through Vinidici) was his assessment that the Project was a “good project” which provided an opportunity for him to earn profits (through his shareholding in Vinidici). [58]

It was submitted on behalf of Vinidici that a belief by Mr Shi that TFMRB had been established for the special purpose of the Project is the only objectively plausible reason for the $2,000,000 investment sum having been paid by Vinidici to TFMRB rather than to Tasman. I reject that submission. The objectively plausible reason is that Madison Marcus had advised in its 26 August 2016 email referred to at [50] above that the company entering into the Convertible Note Agreement as borrower and defined as “the Company” should be the same company that was undertaking the Project and exchanging contracts to purchase the stage 3 land. [59] That advice was not expressed to be based on any assumption about who would be the owner or owners of the shares in “the Company” at the time Vinidici came to enter into the Convertible Note Agreement with “the Company” or at any time thereafter during the course of the project.

Even if I had found that Mr Shi believed when Vinidici entered into the Convertible Note Agreement and paid the investment sum that TFMRB was owned or majority owned by Tasman, which was in turn owned and controlled by Dr Zhang, I would have found for all of the reasons explained at [214]-[221] above, that this belief was the result of an erroneous assumption made by Mr Shi that was not caused or induced by any representation or other conduct on the part of Dr Zhang.

One specific aspect of Dr Zhang’s conduct that Vinidici sought to impugn was his failure until 23 November 2016 to cause ASIC to be notified of Tasman’s transfer of shares in TFMRB to ABFX. Dr Zhang denied in cross-examination that this was to conceal from Mr Shi or Vinidici the fact that ABFX was a shareholder in TFMRB. [60] I accept Dr Zhang’s denial. As senior counsel for Vinidici very fairly acknowledged in closing submissions, it is not uncommon as a matter of commercial reality for there to be some delay between a change to a company’s membership or officeholders and submission of the requisite notice to ASIC. In the present case, it is inherently improbable that Dr Zhang deliberately delayed notifying ASIC of the changes concerning ABFX in order to conceal those changes from Vinidici, yet caused ASIC to be notified and the changes to be recorded on ASIC’s publicly available register for TFMRB before Vinidici paid the second tranche its $2,000,000 investment. [61]

Hypothetical, counterfactual evidence given after the event about what Vinidici would have done if it had been informed that Tasman had transferred 80 per cent of the shares in TFMRB to ABFX and pledged the remaining 20 per cent in support of Tasman’s guarantee of the rate of return on ABFX’s investment, must be closely scrutinised: Wormald v Maradaca Pty Ltd [2020] NSWCA 289 at [108] (Bell P, as the Chief Justice then was, with Bathurst CJ and Payne JA agreeing) and the authorities there cited. For the reasons at [212]-[224] above and the following additional reason, I do not accept Mr Shi’s evidence to the effect that Vinidici’s investment in the Project would not have proceeded and that it would not have paid the $2,000,000 investment sum if Mr Shi had known that Dr Zhang was “only a minority shareholder”. [62] The additional reason is that the investment was made by Vinidici. Mr Shi and Mr Xi each owned 40 per cent of the shares in Vinidici and were the two directors of that company. That remains the position. Mr Shi considered Mr Xi to be his “boss” and sought instructions or confirmation about whether he should sign the draft convertible note agreement as 26 August 2016. [63] There is no evidence of any resolution of the directors of Vinidici or any business record of Vinidici recording the reasons why Vinidici entered into the Convertible Note Agreement on 8 September 2016. Contrary to Vinidici’s submission, the evidence does not establish that Mr Shi was the sole decision-maker or controlling mind behind Vinidici’s entry into the Convertible Note Agreement. I have found that the decision was made jointly. [64] There is no evidence from Mr Xi about his reasons why Vinidici entered into the Convertible Note Agreement or his reasons for signing the agreement in his capacity as a director of Vinidici.

Contrary to Vinidici’s submissions, its unexplained failure to adduce evidence from Mr Xi has left such a lacuna in the evidence about its reasons for entering into the Convertible Note Agreement that it would be an exercise in speculation and conjecture for the Court to make any finding about those reasons, or about what Vinidici would have done if Mr Shi had known that Tasman had transferred 80 per cent of the shares in TFMRB to ABFX and pledged the remaining 20 per cent of the shares in support of its guarantee of the return to be generated on ABFX’s investment. I accept Dr Zhang’s submission that an inference that Mr Xi’s evidence would not have assisted Vinidici is available to be drawn, but the inference adds nothing meaningful to the analysis of the evidence as a whole.

For the following reasons, I find that TFMRB did not agree to sell Lots 8, 11 and 20 to Mr Shi or his associates at a price that was discounted from the market value of those units on the basis that the alleged discount would be set off against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement. Nor did Mr Shi make any representations to Dr Zhang to the effect that the alleged discounts would be credited to TFMRB in that manner.

Dr Zhang’s evidence about the conversations that he claims to have had with Mr Shi after receiving the 14 November 2016 sales list is both uncorroborated and inherently improbable. [65] It is inherently improbable for three reasons. First, it is implausible Dr Shi sought discounts from Dr Zhang in circumstances where the prices for Lots 8, 11 and 20 had been agreed with LBD in or before February 2015 and there is no evidence that Dr Zhang or TFMBR questioned those prices or indicated that it would not honour them. Dr Zhang’s evidence that he did not know why some of the units on the 14 November 2016 sales list (including Lots 8, 11 and 20) were marked as sold was a lie. [66] It was obvious from the face of the sales list that it recorded prices that LBD had agreed with purchases of those lots that were marked as sold albeit that contracts had not yet been exchanged. I note that Dr Zhang had no difficulty in understanding the meaning or significance of units being marked as sold in the sales lists during his cross-examination. [67] Second, it is highly implausible that Dr Zhang and Mr Shi agreed upon discounts in November 2016, and agreed to set off the discount amounts against repayment of the loan being made by Vinidici under the Convertible Note Agreement, without agreeing on the amount of the discounts. According to Dr Zhang, the discount amounts were not even discussed until late 2019. Third, there is no evidence of any commercial reason why Mr Shi would agree that any discount in respect of Lot 20 to the benefit of the purchaser (Ms Lu) would be set off against repayment of the loan being made by Vinidici under the Convertible Note Agreement. [68]

For the same three reasons, I reject Dr Zhang’s submission that the Court should infer from the timing of the exchange of contracts in respect of Lots 8 and 20 on 23 March 2017, shortly before the 31 March 2017 conversion/repayment date under the Convertible Loan Agreement, that there was an agreement to discount the prices of those lots and to set off the discount amounts against the $2,000,000.

I reject Dr Zhang’s uncorroborated and inherently improbable evidence that Mr Shi agreed in late 2019 that the amount owing under the Convertible Note Agreement should be reduced by $1,008,000 on the basis that the prices that he, Mr Xi and Ms Lu had agreed with LBD in about February 2015 and for which they had contracted with TFMRB in 2017 to purchase Lots 8, 11 and 20 (respectively) were lower than the market value of those lots on settlement of those contracts in late 2019. [69] The notion that a person with Mr Shi’s qualifications and experience would agree to cede the benefit of any upwards market movement between exchange and settlement to the vendor is fanciful. Moreover, if Mr Shi had conducted himself in such an uncommercial manner, it is inherently improbable that the alleged discounts and offset agreement would not have been included in the list of “repayments” in Ms Zhang’s 17 March 2020 email. The only discounts included in that email were the undisputed vendor incentives referred to at [126] above.

The lack of corroboration and implausibility of Dr Zhang’s evidence referred to at [229]-[231] above lead me to conclude that he invented the evidence of the conversations that he claims to have had with Mr Shi about discounts to market value, as senior counsel for Vinidici put to him in cross-examination, in order to avoid paying any damages in these proceedings if he were found to have engaged in misleading or deceptive conduct or deceit.

I also find that Dr Zhang constructed his comparisons of the sale prices of Lots 8, 11 and 20 with other lots on a flawed basis by ignoring important differences in the attributes of the lots and, more importantly, ignoring the fact that the sale prices for Lots 8, 11 and 20 had been struck in February 2015 whereas the sale prices for the lots selected by Dr Zhang for comparison purposes were agreed several years later. [70] Dr Zhang’s flawed comparisons provide no support for his contentions that the sale prices of Lots 8, 11 and 20 were less than the market value of those lots, bearing in mind that the purchasers agreed those prices with LBD in February 2015 and there is no evidence that Dr Zhang or TFMRB sought to renegotiate the prices after it acquired the stage 3 land and before it entered into the contracts for sale of those lots in March 2017 and August 2017.

Finally, I reject Dr Zhang’s uncorroborated evidence that he and Mr Shi agreed to set off the penalty interest waived in respect of Lots 8, 11 and 37 against the amount owing by TFMRB to Vinidici under the Convertible Note Agreement. [71] Ms Zhang’s evidence [72] was not inconsistent with Dr Zhang’s evidence in respect of Lot 11, but did not go so far as to corroborate his evidence in relation to that lot [73] and did not provide any support for his evidence in relation to Lots 8 and 37. Having regard to Ms Zhang’s responsibilities, it is inherently improbable that Dr Zhang would not have informed her about any agreement that he had reached with Mr Shi to deduct the waived penalty interest from the loan amount under the Convertible Note Agreement. It is equally improbable that Ms Zhang would not have included the waived penalty interest amounts in the list of “repayments” in the email that she sent to Mr Shi on 17 March 2020. For those reasons, I find that Vinidici did not agree and Mr Shi did not represent that the amount owing to Vinidici under the Convertible Note Agreement would be reduced by the amounts of penalty interest waived by TFMRB in respect of Lots 8, 11 and 37.

The principles applicable to Vinidici’s cause of action in deceit are well established and were not the subject of any dispute in these proceedings. Vinidici must establish that: [74]

Words or conduct by which a representation is made may be understood in different senses. For the purpose of determining whether any representation made by Dr Zhang was false, the sense in which the representation would be understood by a reasonable person in the position of Vinidici is relevant. For the purpose of determining whether Vinidici was induced by any such representation to act on it, the sense in which Vinidici understood the representation is relevant. For the purpose of determining whether any such representation was made fraudulently, the sense in which Dr Zhang intended the representation to be understood is relevant. [75]

Any finding of liability in deceit will involve a conclusion that Dr Zhang has acted dishonestly. [76]

Vinidici’s pleaded cause of action in deceit alleged false statements, the substance of which were not articulated in the pleading. However, senior counsel for Vinidici opened and ran its case at final hearing on the basis that its cause of action in deceit rested on Dr Zhang’s alleged concealment or failure to disclose Tasman’s transfer of 80 per cent of its shares in TFMRB to ABFX and the pledge of its remaining shares, in circumstances where Dr Zhang had previously told Mr Shi that he (Dr Zhang) was the sole director of Tasman through which he conducted the property development business and that he had established TFMRB as “a new Tasman company” for the Project. It is the combination of those statements with the subsequent alleged concealment or non-disclosure that is relied on as the foundation of Vinidici’s claimed belief that TFMRB, as the special purpose vehicle established for the Project, was and would remain within the Tasman group of companies. Vinidici alleges that Dr Zhang knew that it entered into the Convertible Note Agreement holding that belief and intended that it should do so.

It is appropriate to record that no objection was taken to Vinidici running that deceit case at trial, although the submissions made on behalf of Dr Zhang did identify that the case differed from that which had been pleaded. I do not suggest that any objection should have been taken.

I have found that, at some time between early 2016 and late July 2016 and prior to any discussion about the Project, Dr Zhang told Mr Shi that he was the sole director and shareholder of Tasman, that he was able to source money from Chinese investors in order to purchase development sites and to then borrow money from banks to develop those sites and that he mentioned some development sites that he had previously acquired “through Tasman using investment money from Chinese investors”. [77] There is no evidence that this statement was false at the time it was made.

I have also found that, in their discussions about the Project and negotiation of the terms of the Convertible Note Agreement, Dr Zhang told Mr Shi on or shortly after 31 August 2016 that he had incorporated a “new Tasman company” called TFM Rushcutters Bay for the purpose of the Project. [78] That statement was true at the time it was made.

At the time of the second statement, Mr Shi knew that Dr Zhang was seeking funding for the Project from investors in China. Mr Shi had no information and sought no information about the structure or terms on which that investment would be made or was likely to be made in the Project. Mr Shi had only the rather vague information conveyed by the first statement about the Chinese investment funds that Dr Zhang had procured for previous projects. In my opinion, Dr Zhang’s statements would not have conveyed to a reasonable person in Mr Shi’s position at the time that TFMRB was and would remain within the Tasman group of companies, with Dr Zhang as the sole or majority owner through Tasman. Nor would Dr Zhang’s statements have been understood in that way by a reasonable person in the position of Vinidici when it was subsequently incorporated and at the time that it entered into the Convertible Note Agreement.

For those reasons, Dr Zhang did not make any representation about TFMRB that was false when made or that was later falsified by his subsequent non-disclosure of Tasman’s transfer of 80 per cent of its shares in TFMRB to ABFX and the pledge of the remaining shares.

Dr Zhang’s non-disclosure of those matters cannot be characterised as dishonest or deliberate concealment. Irrespective of whether the relationship between Mr Shi and Dr Zhang was a friendship or a mere acquaintance, it was not a relationship of mutual trust and confidence. [79] As I have mentioned above, Mr Shi proposed investing $2,000,000 in the Project in the knowledge and expectation that Dr Zhang would source substantial additional investment funds from China. [80] Mr Shi chose to make no inquiries about the terms or structure of that investment. [81] Contrary to Vinidici’s submission, the negotiation of the Convertible Note Agreement was a commercial negotiation that was conducted at arm’s length, during which Mr Shi had the benefit of legal advice that he conveyed to Mr Xi. [82] Neither those circumstances nor any other evidence adduced in the proceedings supports a finding that the non-disclosure involved Dr Zhang deliberately holding back information that he knew Vinidici would want to know for the purpose of its investment decision. [83]

I have already rejected Vinidici’s contention that Dr Zhang delayed notifying ASIC of the TFMRB share transactions in order to deliberately conceal those transactions from Mr Shi or Vinidici. [84] I also reject Vinidici’s submission that Dr Zhang’s untruthful evidence in which he claimed to have introduced Mr Shi to Mr James Tenghui Zhang demonstrates that he deliberately concealed the terms of ABFX’s investment from Mr Shi. [85] Dr Zhang’s untruthful evidence reflects very poorly on him as a witness in these proceedings but it does not alter my assessment of the evidence as a whole and my findings referred to at [193]-[227] above or my conclusions at [240]-[244] above.

For the reasons explained at [213]-[224] and [226]-[227] above, Vinidici has not proved that it entered into the Convertible Note Agreement or paid the instalments of the investment sum to TFMRB in the belief that TFMRB was and would remain within the Tasman group of companies. Nor does the evidence establish that Dr Zhang intended that Vinidici should act on that basis.

For all of those reasons, Vinidici has failed to establish the key elements of its cause of action in deceit.

As Vinidici submitted, the Convertible Note Agreement is a “financial product” for the purpose of Chapter 7 of the Corporations Act 2001 (Cth). [86] Accordingly, it is the provisions of ss 1041H and 1041I of that Act rather than the provisions of the Australian Consumer Law that applies to Vinidici’s cause of action for alleged misleading or deceptive conduct.

Vinidici submitted that Dr Zhang’s non-disclosure was misleading or deceptive conduct because Vinidici entered into the Convertible Note Agreement and paid the instalments of the investment sum to TFMRB in the belief that TFMRB was (and would remain) a special purpose company owned by Tasman which was in turn controlled by Dr Zhang. Vinidici submitted that, by reason of their personal and business relationship, Dr Zhang knew or ought to have known that Mr Shi would reasonably expect to be told about Tasman’s sale of 80 per cent of its shares in TFMRB to ABFX and the pledge of its remaining shares. It was submitted that this was a reasonable expectation because disclosure of those matters was necessary to enable Mr Shi to consider whether or not he wished to proceed with the proposed investment through Vinidici.

I reject Vinidici’s submissions. The evidence adduced by Vinidici in relation to the alleged belief was directed solely to the state of mind of Mr Shi. For the reasons explained at [213]-[224] above, the evidence does not establish that Mr Shi held the alleged belief. Mr Shi and Dr Zhang were both experienced in the development and sale of residential apartment projects, [87] and the relationship between them was not one of trust and confidence. [88] Mr Shi proposed investing $2,000,000 in the Project in the knowledge and expectation that Dr Zhang would source substantial additional investment funds from China. [89] Mr Shi chose to make no inquiries about the terms or structure of that investment. [90] Mr Shi and Mr Xi conducted their own feasibility analysis for the Project and had legal advice during the negotiation of the terms of and structure of the investment that was made by Vinidici. [91] That negotiation was a commercial negotiation conducted with Dr Zhang at arm’s length. [92] In my opinion, those circumstances did not give rise to a reasonable expectation that Dr Zhang would disclose to Mr Shi or Vinidici the sale of 80 per cent of Tasman’s shares in TFMRB to ABFX to raise $20,000,000 for the Project and Tasman’s pledge of the remaining shares in connection with Tasman’s guarantee of the return to be generated by the Project for which Tasman had given “warranties” to ABFX that it would complete the construction of units on time and sell all units. [93] The evidence does not establish that the non-disclosure of the terms and structure of the Chinese investment that Mr Shi knew Dr Zhang was arranging for the Project, and about which Dr Shi asked no questions, was likely to lead or in fact led Vinidici into error in relation to its investment decision. [94]

Questions of causation and loss do not arise in light of my conclusions above that Dr Zhang did not deliberately conceal ABFX’s shareholding in TFMRB from Vinidici and that his non-disclosure of the transfer and pledge of Tasman’s shares in TFMRB was not misleading or deceptive in all the circumstances. In case a different view may be taken in any appeal, it is appropriate to record that, if Vinidici had succeeded in establishing the alleged deceit or misleading or deceptive conduct, I would not have been satisfied on the balance of probabilities that this had caused loss to Vinidici. That is essentially for the same reasons that Vinidici has failed to establish the alleged deceit and misleading or deceptive conduct, and for the further reasons referred to at [226]-[227] above.

If Vinidici had succeeded in establishing the alleged deceit and/or misleading or deceptive conduct and had also succeeded in establishing causation, I would have held that Vinidici had suffered loss in the amount claimed of $747,270.58 plus interest, having regard to Vinidici’s concessions referred to at [126] above and TFMRB’s inability to make further repayments in the circumstances referred to at [185] above. For the reasons explained at [228]-[234] above, I would have rejected Dr Zhang’s contentions that the whole of the amount owing to Vinidici under the Convertible Note Agreement has already been repaid. Dr Zhang’s estoppel defence would have failed because the alleged representations upon which that defence was founded were not proved.

Dr Zhang’s pleaded defences under s 1041I(1B) and ss 1041I(4) and 1317S of the Corporations Act are defences to the misleading or deceptive conduct claim only. If Vinidici had succeeded on its cause of action for misleading or deceptive conduct, but failed to prove dishonesty, I would have reduced the damages recoverable by Vinidici pursuant to s 1041I(1B) by 50 per cent on account of its failure to make any inquiries about the structure or terms of the Chinese investment in the Project and whether or how it would affect the ownership of TFMRB in circumstances where Mr Shi knew that the investor may take shares in TFMRB. [95]

The submissions made on behalf of Dr Zhang maintained that, if he were found to have engaged in misleading or deceptive conduct without dishonesty, it would be appropriate to excuse him from the contravention under ss 1041I(4) and 1317S of the Corporations Act. The submissions did not articulate any reason why that would be an appropriate exercise of the discretion under s 1317S. I would not have formed the view that Dr Zhang ought fairly to be excused for the contravention because, in that hypothetical scenario, there would have been findings that Vinidici had a reasonable expectation that the undisclosed matters would be disclosed and that the misleading or deceptive conduct had caused loss to Vinidici. I do not consider that the absence of dishonesty, which is not an element of the statutory cause of action for misleading or deceptive conduct, would have been a reason to excuse Dr Zhang from liability in this case.

For all of the foregoing reasons, Vinidici’s claims have failed and an order will be made dismissing the proceedings. I am not aware of any reason why costs should not follow the event, but I will hear the parties in relation to costs.