Super Vision Resources Ltd v AC Holdings Co Pty Ltd

1. [1]

   On 31 August 2018 the second defendant, Mr Lawrence Xu, sold properties owned by him at Milsons Point and Sandringham in Sydney to the first defendant, AC Holdings Pty Ltd, for a total stated consideration of $8.8 million: $3.9 million for the Milsons Point property and $4.9 million for the Sandringham property.

2. [2]

   The sole director and shareholder of AC Holdings is, and was then, Ms Qiao Wang.

3. [3]

   Leaving aside adjustments for council rates and the like, on settlement AC Holdings paid Mr Xu $2.31 million for the Milsons Point property and $4.15 million for the Sandringham property: a total of $6.46 million. This was $2.34 million less than the total stated consideration of $8.8 million. Ms Wang has an explanation for this that I set out below. There is controversy about that explanation. Ms Wang arranged for AC Holdings to borrow the necessary funds from a third party lender.

4. [4]

   The properties were worth more than $8.8 million as at 31 August 2018. It is common ground that the value of the Milsons Point property was then $4.9 million and that of Sandringham was $5 million: a total of $9.9 million; $1.1 million more than the stated consideration.

5. [5]

   On 31 August 2018 the plaintiff, Super Vision Resources Pty Ltd, was a prospective creditor of Mr Xu. That is because Mr Xu had guaranteed to Super Vision the obligations of Hua Cheng International Holdings Group Ltd, a company of which he was the sole director and shareholder.

6. [6]

   In these circumstances, Super Vision seeks declarations under s 37A of the Conveyancing Act 1919 (NSW) to the effect that Mr Xu’s sales of the Milsons Point and Sandringham properties to AC Holdings are void on the basis that they were alienations made by Mr Xu with the intent of defrauding his creditors.

7. [7]

   Section 37A provides, relevantly:

8. [8]

   Three questions arise:

Decision

1. [9]

   Mr Xu has admitted that he alienated his interest in the two properties with intent to defraud his creditors. However, Super Vision is not a “person thereby prejudiced”. In any event, Ms Wang was a purchaser in good faith without notice of Mr Xu’s intent.

2. [10]

   The proceedings should be dismissed.

Background

1. [11]

   On 4 July 2014, Super Vision advanced some HKD 364 million (around $67.8 million) to Hua Cheng to enable it to undertake a residential and commercial development at Hurstville known as “Royal Plaza”. Hua Cheng defaulted under the loan. Super Vision appointed receivers. Hua Cheng is now in liquidation.

2. [12]

   On 1 December 2017, Super Vision commenced proceedings (the “Recovery Proceedings”) against Mr Xu as guarantor of Hua Cheng’s obligations in this Court seeking to recover the amount said to be due to it under that guarantee.

3. [13]

   On 10 April 2019, Ball J entered judgment in favour of Super Vision against Mr Xu in the sum some HKD 133 million (approximately $23 million) for the reasons he gave that day: Super Vision Resources Ltd v Xu (No 2) [2019] NSWSC 389.

4. [14]

   In the meantime, and arising from the 31 August 2018 transactions referred to at [1], Ball J made a freezing order in the Recovery Proceedings restraining AC Holdings from dealing with the Milsons Point and Sandringham properties, except in certain defined circumstances.

5. [15]

   These proceedings were commenced on 8 March 2019. The freezing order in the Recovery Proceedings has been extended until further order, pending the outcome of these proceedings.

Ms Wang’s credit

1. [16]

   Ms Wang affirmed six affidavits read before me. Three were affirmed in the fortnight before the hearing commenced.

2. [17]

   Each of those affidavits was in English and affirmed through a Mandarin interpreter.

3. [18]

   Ms Wang gave evidence before me in Mandarin and through an interpreter.

4. [19]

   Mr Zipser, who appeared for Ms Wang and AC Holdings, accepted that there were a number of unsatisfactory features about Ms Wang’s affidavit and oral evidence. As Mr Zipser said “there were inconsistencies concerning recollections of some events between affidavits, topics and details raised in later affidavits which were not raised in earlier affidavits, and occasions in cross-examination when Ms Wang did not give direct answers to questions asked of her”.

5. [20]

   However, only Ms Wang gave evidence of her dealings with Mr Xu. In that sense, there was no contradictor to Ms Wang’s account of those dealings.

6. [21]

   Mr Knackstredt, who appeared for Super Vision, submitted that Ms Wang’s credibility was so poor that I should not accept any evidence she gave unless it was against her interest or was corroborated by other independent evidence.

7. [22]

   Mr Knackstredt submitted that there should be excluded from consideration what he described as “self-generated” documents created by Mr Xu or Ms Wang herself.

8. [23]

   The “self-generated” documents were:

9. [24]

   Mr Knackstredt submitted that each of the documents was a “sham”; that is a concoction created by one or both of Mr Xu and Ms Wang deliberately designed to create a false picture.

10. [25]

    I do not accept this submission. I find that the 29 July 2015 IOU, the 7 May 2017 WeChat Exchange and the 25 May 2017 Mortgage were genuine documents. The 7 May 2017 Caveat was not signed by Ms Wang and was lodged on the title of the Milsons Point property by Mr Xu. It falsely asserted the existence of a Deed of Loan dated 1 May 2017. It is common ground that no such document existed. But it referred to a loan of $5 million that I find Ms Wang did make to or at the direction of Mr Xu. I discuss these matters in detail below.

11. [26]

    Mr Knackstredt in effect submitted that every utterance made by Ms Wang in her affidavits and in cross-examination was false.

12. [27]

    In my opinion, the evidentiary landscape in this case is more nuanced than this.

The dealings between Mr Xu and Ms Wang

1. [28]

   Ms Wang met Mr Xu in early 2010 through a mutual friend.

2. [29]

   She said that her relationship with Mr Xu was always a “purely business relationship”. She gave evidence that from the first time she met Mr Xu, and during her subsequent business dealings with him, she observed that Mr Xu “had a luxurious lifestyle”. She said she “formed the impression he was a successful businessman with substantial financial resources”.

3. [30]

   Ms Wang said that her observations and impression of Mr Xu made her feel comfortable to have dealings with him. She said:

4. [31]

   The relationship between Ms Wang and Mr Xu was complex. It involved multiple communications and dealings and interconnections between the dealings. As Mr Zipser submitted, “aspects of the business relationship between Ms Wang and Mr Xu did not involve prudent or rational conduct by Ms Wang, and did not involve approaches to business dealings undertaken by prudent Western business people”.

5. [32]

   There were unusual aspects of Ms Wang’s business relationship with Mr Xu. They shared office space on an informal basis. Mr Xu allowed Ms Wang to use his car. He paid rent on her behalf for some time (see [45]-[46] below). Ms Wang advanced large sums to Mr Xu on an informal basis, and often without documentation.

6. [33]

   Ms Wang assumed control of a company associated with Mr Xu, DJ Royal Plaza Construction Pty Ltd, for some time (see [117]-[125] below).

7. [34]

   It does seem clear that Ms Wang and Mr Xu had a very close relationship for a number of years. Ms Wang denied, strenuously and I thought genuinely, that the relationship was otherwise than a business relationship.

8. [35]

   To understand how the impugned sales of the Milsons Point and Sandringham properties came about, it is necessary to look in detail at the dealings between the parties, commencing in May 2010.

9. [36]

   In May 2010 Mr Xu told Ms Wang that he was having “difficulties in cash flow” and asked her to lend him $50,000.

10. [37]

    Ms Wang agreed and, on 31 May 2010, caused $50,000 to be transferred into Hua Cheng’s bank account.

11. [38]

    At the time she met Mr Xu, Hua Cheng was developing the Royal Plaza project.

12. [39]

    Ms Wang said that she agreed to buy three units in that development for $580,000 in respect of one unit and $590,000 in respect of the two others.

13. [40]

    There is in evidence what appear to be contracts for the purchase by Ms Wang from Hua Cheng of three units in the development dated 14 September 2010 and 29 and 30 June 2012. Ms Wang executed fresh contracts for the same units on 8 May 2014, evidently to overcome a sunset clause in the original contracts.

14. [41]

    Ms Wang said she paid to Hua Cheng a 10 per cent deposit for those units.

15. [42]

    The only evidence of those payments comprises three cheque butts dated 27 July 2010 recording a payment to “More Legal” of $58,000 and two payments of $59,000.

16. [43]

    There is a further cheque butt dated 29 July 2010 recording payment of $820,000 to Hua Cheng and a corresponding debit to a joint account maintained by Ms Wang and a person Ms Wang described as her “boyfriend at the time”, Zheng Xiaojun.

17. [44]

    Ms Wang said she “issued a cheque and transferred $820,000 to Hua Cheng as payment for the three units”.

18. [45]

    This payment appears to have led to an agreement by Mr Xu to pay rent for an apartment in which Ms Wang was to live.

19. [46]

    Thus she said she had this conversation with Mr Xu:

20. [47]

    On 21 September 2016, Hua Cheng issued a receipt to Ms Wang for a payment of $100,000 said to have been made that day to be “used as part of purchasing” one of the units in Royal Plaza.

21. [48]

    On 7 November 2016, a further $250,000 was transferred from Ms Wang’s joint account with Zheng Xiaojun to Hua Cheng. Ms Wang said this was intended to be the final payment for the three units.

22. [49]

    At around this time Mr Xu gave Ms Wang a letter, signed by him on behalf of Hua Cheng, acknowledging that Ms Wang “has paid in full for the purchase of the above [three identified] properties” and recording that “keys and new resident packs” of the properties had been given to Ms Wang. I see no reason to doubt that this document is genuine and that, as it states and as Ms Wang asserted, she paid to Hua Cheng the full purchase price for three units in the Royal Plaza development.

23. [50]

    Thereafter Ms Wang went into possession of the three units, evidently believing she had clear title to them. However, Ms Wang never received title documents for the units. On 17 May 2019, Super Vision obtained judgment for possession of the units.

24. [51]

    Ms Wang was not the only person in this position. Super Vision’s solicitor, Mr Ross McClymont, said in an affidavit that “Hua Cheng had handed over possession of a number of units [in the Royal Plaza development] to purchasers who had allegedly paid 100 per cent of the purchase price to Hua Cheng but had not obtained a discharge of mortgage from Super Vision or made any payments to Super Vision”.

25. [52]

    In these circumstances Mr Zipser submitted that:

26. [53]

    However, as Ms Wang said, this “is not an unusual way for Chinese people to do business” (see [30] above).

27. [54]

    Ms Wang’s communications with Mr Xu about the title documents for the units provides context for later developments.

28. [55]

    On 1 September 2012, Ms Wang caused a Chinese State owned corporation, Jin Guan Xinneng (Beijing) Architectural Engineering Design Pty Ltd, to advance $200,000 to Hua Cheng. On 6 March 2013, Ms Wang arranged for the same company to advance a further $400,000 to Hua Cheng.

29. [56]

    Both loans were recorded in documents which stated the purpose of the loans was “making the project of Imperial Building Hurstville in NSW Australia progress well”.

30. [57]

    Ms Wang said that Jin Guan “was owned by the Chinese government or by an agency of the Chinese government” and that she “ran and managed” Jin Guan.

31. [58]

    In cross-examination, Ms Wang said that:

32. [59]

    Mr Knackstredt submitted that this was “deeply unsatisfactory evidence about having used a Chinese state-owned enterprise to fund her private unit purchases from, as well as alleged lending to, Hua Cheng” and “appeared to amount to an admission of a complex and ongoing fraud on the Chinese government”.

33. [60]

    I do not see Ms Wang’s evidence as amounting to an admission of that kind. Ms Wang was clear that the funds she transferred were hers, and that she was able to use the name of Jin Guan in exchange for paying a “loyalty fee”. The explanation that Ms Wang gave was certainly curious. But it is not contradicted nor so inherently improbable that I feel able to reject it.

34. [61]

    What it does show is that, one way or the other, Ms Wang procured that $600,000 was advanced to Hua Cheng, evidently to assist in the Royal Plaza development.

Events in 2015 - the CNY 20 million advance

1. [62]

   Ms Wang gave evidence that between July and October 2015 she negotiated with her sister, Ms Ying Wang, to borrow CNY 20 million to on lend to Mr Xu.

2. [63]

   Ms Wang’s evidence was corroborated by her sister. Mr Knackstredt cross-examined Ms Ying Wang by audio visual link and did not, in final written submissions, challenge the truthfulness of her evidence.

3. [64]

   However, in final oral submissions, and after evidence belatedly emerged in relation to advances ostensibly made by Mr Xu’s father, Mr Buyuan Xu, to Hua Cheng and to DJ Royal Plaza Construction, Mr Knackstredt submitted that there was reason to doubt Ms Ying Wang’s evidence. I will return to that matter below.

4. [65]

   Ms Wang gave evidence that in early 2015, Mr Xu said he needed more money to complete the Royal Plaza project and that he asked Ms Wang whether she could lend him a further $10 million. Ms Wang said that Mr Xu said:

5. [66]

   Ms Wang said that she was cautious about lending further money to Mr Xu but was persuaded that she should do so because she had an interest in seeing the Royal Plaza development completed.

6. [67]

   Ms Wang said:

7. [68]

   Ms Wang said she asked her sister whether she could lend CNY 50 million and that her sister replied that she would “ask around and get back to you”.

8. [69]

   Ms Ying Wang corroborated that evidence and said that in July 2015 she and her husband and daughter had “signed a contract to sell the mining company” that they owned and that she had also sold some shares. She said that she then rang Ms Wang and said:

9. [70]

   Evidently, Ms Ying Wang was not able to procure the CNY 50 million sought by Ms Wang.

10. [71]

    Ms Wang said that shortly afterwards she had this conversation with Mr Xu:

11. [72]

    Ms Wang said that on 27 July 2015 she flew from Sydney to Beijing. She said that on 29 July 2015 she met Mr Xu and that at that meeting Mr Xu “had access to a draft declaration on his mobile phone” and that “through his mobile phone, he emailed the draft declaration to me”. Ms Wang said that she and Mr Xu negotiated terms of the document and that once those terms were agreed Mr Xu “signed the declaration in my presence”.

12. [73]

    Ms Wang said that Mr Xu then said:

13. [74]

    None of this evidence was challenged in cross-examination. I see no reason to doubt it. The “declaration” of which Mr Xu spoke came to be the 29 July 2015 IOU. I accept that the 29 July 2015 IOU is a genuine document and records the agreement then made between Mr Xu and Ms Wang. I am not satisfied the document is a “sham”. To attribute such a characteristic to the document is to attribute to Mr Xu and Ms Wang an intention, as far back at July 2015, to create false documentary trail intended by them to disguise some other reality. I think that most unlikely. There is nothing in the evidence to support a conclusion that Mr Xu and Ms Wang had any reason to behave this way.

14. [75]

    The 29 July 2015 IOU was written in Mandarin. Its English translation is headed “IOU” and reads:

15. [76]

    Mr Zipser submitted that the effect of the 29 July 2015 IOU was to give Ms Wang an equitable charge over the Milsons Point and Sandringham properties.

16. [77]

    For an equitable mortgage equitable charge to arise it is necessary that “property of the chargor is appropriated to the chargee for payment of a debt and the chargee has a present right to have it made available for the payment of its debt”. Further, “there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property”: Roberts v Investwell Pty Ltd (2012) 88 ACSR 689; [2012] NSWCA 134 at [26] and [29] (Bathurst CJ with whom Beazley JA and Tobias AJA agreed).

17. [78]

    In my opinion, the words in the 29 July 2015 IOU do not go this far.

18. [79]

    Mr Xu was in that document doing no more than expressing a willingness to refer Ms Wang to “a lawyer” with a view to that lawyer creating, at some time in the future, a document providing Ms Wang with security.

19. [80]

    Mr Xu’s words do not bespeak an intention to, there and then, confer on Ms Wang an interest in the properties or to “specially appropriate” the properties to the discharge of the proposed borrowing of CNY 20 million the properties (to adopt the language of Buckley LJ in Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 595: cited with approval in Roberts v Investwell at [27]).

20. [81]

    However, I read the words in the 29 July 2015 IOU as recording Mr Xu’s agreement that, in consideration of Ms Wang lending him CNY 20 million, he would arrange to provide Ms Wang with security for repayment of the loan over the Milsons Point and Sandringham properties.

21. [82]

    Mr Xu said in the document that he was “willing to refer” Ms Wang to his lawyers for this purpose. I read those words as meaning that Mr Xu agreed that he would in fact take that step. I think Mr Zipser was correct to submit that this was a specifically enforceable agreement. However, otherwise than by insisting that Mr Xu grant her a mortgage over the Milsons Point property (the 25 May 2017 Mortgage) Ms Wang did not seek to take this further.

22. [83]

    The 29 July 2015 IOU certainly bespeaks a willingness on Mr Xu’s part to give Ms Wang security over both properties. I find this to be a factor pointing to the probability that the 25 May 2017 Mortgage was intended by him and Ms Wang to create genuine interest in Ms Wang over the Milsons Point property. I will return to this.

23. [84]

    Ms Ying Wang said that by 29 September 2015 the sale of the mining company was completed and that there was CNY 20 million in a bank account in her name at the Commercial Bank of China.

24. [85]

    Ms Ying Wang said that she told Ms Wang that CNY 20 million “is now available in my account to lend you” and that Ms Wang replied that she would send “a list of nominated bank accounts in China” to which specified amounts should be paid.

25. [86]

    Ms Ying Wang explained that she understood that because of Chinese government “restrictions on the transfer of money out of China” it was necessary for money first to be transferred to the bank account of a “nominated third party in China”.

26. [87]

    Shortly after that, Ms Wang sent her sister a “list of nominated accounts written in Mandarin”. On 30 September 2015, Ms Ying Wang attended her bank and arranged for the amounts of money in the list to be transferred from her account to the nominated accounts. On 8 October 2015, Ms Wang sent her sister a further list of accounts and on that day Ms Ying Wang arranged for the amounts of money in that second list to be transferred to the nominated accounts.

27. [88]

    The amount so transferred on 30 September 2015 totalled CNY 8.5 million and the amount transferred on 8 October 2015 CNY 11.5 million: a total of CNY 20 million.

28. [89]

    I am satisfied from this evidence that Ms Wang borrowed CNY 20 million from her sister and directed her sister to pay the money to the accounts in the two lists she provided.

29. [90]

    I am also satisfied that those funds were borrowed by Ms Wang from her sister to enable Ms Wang to on lend the funds to Mr Xu.

30. [91]

    During closing submissions, Mr Knackstredt tendered caveats that Mr Xu’s father, Mr Buyuan Xu, lodged on the title of the Milsons Point and Sandringham properties on 9 September 2016.

31. [92]

    Annexed to the caveats was what purports to be a Deed of Loan dated 7 September 2016 which purports to record that Mr Buyuan Xu had:

32. [93]

    The Deed of Loan appears to have been executed by Mr Xu on behalf of both Hua Cheng and DJ Royal. Mr Xu executed the document purportedly on behalf of DJ Royal pursuant to “Power of Attorney Book 4713 No 398”. There is no evidence as to whether any such a power of attorney was registered pursuant to s 51 of the Powers of Attorney Act 2003 (NSW).

33. [94]

    On 7 September 2016 Ms Wang was the sole director of DJ Royal. I will refer below to the circumstances of Ms Wang’s involvement with that company (see [117]-[127]).

34. [95]

    It is common ground that HKD 10,050,000 was, on 30 September 2015, equivalent to CNY 11 million and that $2,481,441.40 was, on 8 October 2015, equivalent to CNY 9 million; a total of CNY 20 million.

35. [96]

    Those are the amounts remitted by Ms Ying Wang to the accounts in the lists provided to her by Ms Wang on those dates (see [88] above).

36. [97]

    That is unlikely to be a coincidence.

37. [98]

    Mr Knackstredt also tendered withdrawals of those caveats.

38. [99]

    The withdrawal of the caveat in respect of the Milsons Point property was, according to the title searches in evidence, registered on 7 July 2017: the same date that the 25 May 2017 Mortgage from Mr Xu to Ms Wang over the Milsons Point was registered.

39. [100]

    The withdrawal of the caveat over the Sandringham property was registered a few days earlier, on 2 May 2017: on the same date that an unidentified mortgage was registered on that title.

40. [101]

    None of these matters was explored in Mr Knackstredt’s cross-examination of Ms Wang or Ms Ying Wang. That is because the question of whether Mr Buyuan Xu had lodged a caveat on the titles on the properties only arose during discussion on the second of the three days of final oral submissions; well after evidence had closed.

41. [102]

    Until closing submissions, the only evidence concerning a caveat lodged by Mr Buyuan Xu came from Ms Wang in cross-examination when she said that she thought “my lawyer tell me that at that time his father has put a caveat on the property”; evidence which Mr Knackstredt then suggested was “absolutely false”.

42. [103]

    It was only following discussion during final submissions, after I raised the question and following Mr Knackstredt’s statement that he did not believe Mr Buyuan Xu had lodged caveats on the titles (which I accept was Mr Knackstredt’s state of mind at the time), that the caveats and the Deed of Loan were tendered.

43. [104]

    At all relevant times, the court book contained title searches of the Milsons Point and Sandringham properties. Those searches recorded Mr Buyuan’s caveats by reference to their dealing numbers. The caveats were publically available and could have been accessed and tendered on behalf of Super Vision at any time during the hearing. Evidently, the matter was overlooked by those advising Super Vision.

44. [105]

    It may be that, in circumstances not in evidence, Mr Xu’s father came into possession of the CNY 20 million that Ms Ying Wang advanced to Ms Wang on 30 September and 8 October 2015 and on lent it to Hua Cheng and DJ Royal.

45. [106]

    It may be that the Deed of Loan between Mr Xu and his father is a device adopted by them to disguise the source of the funds. The fact that the Deed of Loan purports to record loans made almost a year earlier suggests that Mr Buyuan Xu was content for any advance made by him to Hua Cheng and DJ Royal to be undocumented during that period. This suggests, at the least, a high level of informality between father and son and in relation to a significant sum.

46. [107]

    Further, it may be that, when Mr Xu agreed to give Ms Wang a mortgage over the Milsons Point property, he asked his father to withdraw his caveat on the title of the property to make way for Ms Wang’s mortgage. It may be that Mr Xu used part of the $5 million that Ms Wang advanced on 8 May 2017, and which was credited to the DJ Royal Investment Account, to repay his father.

47. [108]

    None of this was explored in cross-examination with Ms Wang or Ms Ying Wang. That is because the material, which was at all times publically available, was not timeously deployed in Super Vision’s case.

48. [109]

    Following closing oral submissions, and in response to my enquiry, Mr Knackstredt submitted:

49. [110]

    Mr Knackstredt submitted that I should infer that any evidence that Ms Wang could have given about this matter would not have assisted her case: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418-419 (Handley JA).

50. [111]

    But, as Mr Zipser pointed out, there is no evidence that Ms Wang was a party to these dealings. It was not for her to give evidence or make submissions about material not yet in evidence. The belated introduction of this material into evidence is not a matter that can give rise to an inference against Ms Wang.

51. [112]

    It would be unjust to Ms Wang to draw any inference adverse to her case by reason of the belated tender of these documents. It would, in particular, be unjust in these circumstances to draw any evidence adverse to the credit of Ms Ying Wang, who credit is otherwise unchallenged.

52. [113]

    Further, as Mr Zipser submitted, Super Vision has appointed a receiver to Hua Cheng and has since then, and throughout this proceeding, had power to access the books and records of Hua Cheng through the receiver. Indeed, Super Vision has deployed the evidence of Mr Marcus Ayres one of the receivers, in these proceedings. If Mr Buyuan Xu did advance funds to Hua Cheng, it would have been open to Super Vision to tender evidence from the records of Hua Cheng to that effect.

53. [114]

    In those circumstances, I am not able to come to any conclusion about these matters. In particular, I do not see these matters as a reason to disbelieve the evidence given by Ms Wang and her sister concerning the advance of CNY 20 million in September and October 2015.

Events in 2017 – Mr Xu’s request for a further loan of $5 million

1. [115]

   On Ms Wang’s account of it, the events leading to the impugned contracts of 31 August 2018 commenced shortly prior to May 2017 when Mr Xu made a further request of Ms Wang for a loan, this time for $5 million.

2. [116]

   Before turning to the circumstances in which Ms Wang says she made an advance pursuant to that request, it is necessary to consider some background matters.

3. [117]

   DJ Royal was registered on 12 July 2007.

4. [118]

   Ms Wang said that:

5. [119]

   The sole director of DJ Royal from 12 July 2007 until 3 June 2017 is stated in the ASIC Historical Extract to be “Hongxia Xia”. Ms Xia is, or was, Mr Xu’s wife. However, the address and birth details given in the ASIC records for Ms Xia are those of Ms Wang. Ms Wang accepts that, in fact, she was the sole director of DJ Royal throughout this period.

6. [120]

   Ms Xia became the sole director of DJ Royal on 3 June 2017, and was replaced by Mr Xu as sole director on 1 August 2018.

7. [121]

   The ASIC records show Ms Wang was the sole shareholder of DJ Royal at some stage and was later replaced as sole shareholder by Ms Xia and then by Mr Xu. The ASIC records do not state during what period Ms Wang was sole shareholder of DJ Royal. I infer it was during the same period she was sole director; from registration on 12 July 2007 until 3 June 2017.

8. [122]

   In an affidavit, Ms Wang said:

9. [123]

   In cross-examination Ms Wang said that “I was the builder; Hua Cheng was the developer”. This is consistent with Ms Wang’s evidence that, from the commencement of their relationship, she wanted to work with Mr Xu in property development.

10. [124]

    Ms Wang explained her transfer of control of DJ Royal to Ms Xia as follows:

11. [125]

    Ms Wang said in cross-examination that she sold her share in DJ Royal to Ms Xia for “one dollar” and that the reason she sold her share was:

12. [126]

    Mr Zipser submitted that another factor likely to be relevant to Ms Wang’s decision was the appointment by Super Vision of a receiver to Hua Cheng on 22 June 2017. However, that was not was Ms Wang’s evidence when asked the direct question of why she sold the share to Ms Xia. Rather, she gave the answer I recorded at [125] above. In any event, the receiver was appointed some two weeks after share transfer.

13. [127]

    This evidence concerning Ms Wang’s involvement with DJ Royal is another example of the peculiar and informal business relationship which existed between Ms Wang and Mr Xu. However, there is no evidence contradicting Ms Wang’s account of these matters and I see no reason to reject it.

14. [128]

    DJ Royal maintained a trading account at the Commonwealth Bank Australia styled “Premium Business Cheque Account” (“the DJ Royal Cheque Account”).

15. [129]

    Ms Wang said that she “controlled” the DJ Royal Cheque Account. She said that:

16. [130]

    In cross-examination Ms Wang said that she “gave authorisation” to Mr Xu to operate the DJ Royal Cheque Account. Ms Wang said:

17. [131]

    Ms Wang did not say, and was not asked, how she gave such “authorisation” to Mr Xu.

18. [132]

    The bank statements for the DJ Royal Cheque Account for May 2017 show numerous withdrawals from the account made otherwise than by the presentation of a cheque. Ms Wang gave no evidence, and was not asked about, her knowledge or involvement in the making of these withdrawals.

19. [133]

    Mr Zipser submitted that this was principally because of the late point at which the bank statements were made available.

20. [134]

    There was a further account at the CBA in the name of DJ Royal, styled “Direct Investment Account” (the “DJ Royal Investment Account”). It appears that this account was opened on 8 May 2017. Ms Wang said that she “did not know that there were actually two bank accounts” until Mr Knackstredt drew the bank statements for the DJ Royal Investment Account to her attention.

21. [135]

    Ms Wang said that “following the transfer of the share, I no longer had access to or control over the bank account of [DJ Royal]”.

22. [136]

    By April 2017, Hua Cheng was in default under its facility with Super Vision.

23. [137]

    On 21 April 2017, Super Vision served Notices of Default on Hua Cheng and demanded payment of $35.5 million.

24. [138]

    On 24 April 2017, Mr Xu travelled to Hong Kong to meet with representatives of Super Vision’s parent, China Orient Asset Management (International) Holdings Ltd.

25. [139]

    At that meeting, Mr Xu agreed that Hua Cheng would make a payment of HKD 30 million to Super Vision by 9 May 2017.

26. [140]

    Ms Wang said that shortly after this, Mr Xu said to her:

27. [141]

    Ms Wang said she responded:

28. [142]

    Ms Wang said that a short time later Mr Xu said that he had “now found HKD 20 million” and asked her to lend the shortfall of HKD 10 million. Ms Wang did not say what her response was to this request.

29. [143]

    Ms Wang said that, shortly afterwards, Mr Xu said:

30. [144]

    Mr Xu was thus looking for funds with which to satisfy his agreement with China Orient that Hua Cheng pay to Super Vision HKD 30 million by 9 May 2017.

31. [145]

    This suggests that, at this stage at least, Mr Xu was seeking to cause Hua Cheng to comply with its obligations to Super Vision, rather than evade them. The 9 May 2017 deadline was ultimately extended to 22 May 2017 and the HKD 30 million was paid by then; albeit not from funds advanced by Ms Wang. I will return to this.

32. [146]

    Ms Wang said that she asked how any such loan would be repaid. She said that Mr Xu responded by saying that if the dispute between Hua Cheng and China Orient was resolved Hua Cheng could sell the remaining unsold apartments in the Hurstville development, from which Ms Wang’s loan would be repaid and that:

33. [147]

    Ms Wang said in one of her affidavits:

34. [148]

    Ms Wang continued:

35. [149]

    Ms Wang said that, following this she contacted Mr Xu and said:

36. [150]

    Ms Wang said Mr Xu replied that he would “get my lawyer to arrange the security”.

37. [151]

    On 7 May 2017 Ms Wang and Mr Xu exchanged WeChat messages. This is the 7 May 2017 WeChat Exchange to which I referred at [23(b)] above. The messages read:

38. [152]

    The copy of the WeChat messages, in Mandarin, in the court book are in this form:

39. [153]

    As I have mentioned, Mr Knackstredt submitted that I should find 7 May 2017 WeChat Exchange to be a concoction. But Mr Knackstredt did not put that proposition to Ms Wang in cross-examination. Nor did he make the submission that the document was not genuine until oral submissions in reply, and only after Mr Zipser had emphasised its importance to Ms Wang’s case and noted that Mr Knackstredt had not mentioned it in his submissions.

40. [154]

    I accept that Mr Knackstredt made clear throughout the proceedings that Ms Wang’s credit was challenged and that Super Vision’s position was that Ms Wang should not be believed unless her evidence was corroborated from objective sources or was against her interest. Nonetheless, the proposition that the 7 May 2017 WeChat Exchange was not genuine was one which, as a matter of fairness, Mr Knackstredt was bound to put to Ms Wang directly. Because the proposition was not put, I do not have the benefit of seeing Ms Wang’s response to it. During final submissions, Mr Knackstredt sought to have Ms Wang recalled so that the matter could be put to her. I refused that application. Mr Knackstredt had cross-examined Ms Wang over three days between 23 and 25 October 2019. It would not have been fair to Ms Wang to be recalled, near the conclusion of final submissions, for further cross-examination.

41. [155]

    It is curious that in the 7 May 2017 WeChat Exchange Ms Wang enquired about a “shortfall” of HKD 10 million. By that time, on her account of her conversations with Mr Xu, Mr Xu told her he needed to find HKD 30 million; then roughly equivalent to the $5 million that Ms Wang said she had offered to advance. However, as Ms Wang was not asked about this, I am not prepared to draw any inference adverse to Ms Wang about this.

42. [156]

    In one of her affidavits, Ms Wang said that shortly after Mr Xu told her that he would “get [his] lawyer to arrange security” (see [150] above) she was contacted by “Shirley” from Pancific Legal who said to her (in Mandarin):

43. [157]

    Ms Wang said that she had not previously met “Shirley”. She said she had met lawyers at Pancific Legal and knew that Pancific Legal did legal work for Mr Xu.

44. [158]

    A caveat was lodged on the title of the Milsons Point property on 7 May 2017 by Pancific Legal. This is the 7 May 2017 Caveat to which I referred at [23(c)] above.

45. [159]

    The interest claimed by the caveat was said to be an “equitable interest” arising by virtue of a “Deed of Loan” dated 1 May 2017 between Ms Wang as lender and Mr Xu as borrower.

46. [160]

    The caveat recited that the “equitable interest” arose:

47. [161]

    It is common ground that there was no “Deed of Loan” of the kind asserted in the caveat. The statement in the 7 May 2017 Caveat about the “Deed of Loan” was false.

48. [162]

    A statutory declaration to the effect that “the caveator has a good and valid claim to the estate or interest” claimed in the caveat was made by Shu Juan Lau, who gave as his or her address the offices of Pancific Legal.

49. [163]

    Mr Xu endorsed the caveat signifying his consent to its registration.

50. [164]

    There is no evidence that Ms Wang played any role in the preparation or lodgement of the caveat. She said she was not aware of it until notified by “Shirley” in the conversation I have set out at [156] above. There is no evidence to the contrary.

51. [165]

    In cross-examination Ms Wang said:

52. [166]

    Mr Knackstredt asked Ms Wang whether she read the caveat before it was lodged. Ms Wang replied: “After it’s been made, I saw it”.

53. [167]

    Although Ms Wang said she asked Mr Xu to “apply for this caveat” I think it more likely that she did no more than ask Mr Xu to “arrange” the security of which he spoke.

54. [168]

    Mr Knacktstredt submitted that the caveat was a sham transaction and pointed, in particular, to the fact that it referred to a document, the 1 May 2017 “Deed of Loan” that, it is common ground, did not exist. The caveat is certainly a false document to that extent.

55. [169]

    But I see no reason to conclude that Ms Wang knew this. I am satisfied that she understood no more than that the caveat provided her with some form of security. As she said “if I hold a caveat on the property, the other party cannot sell this property”.

56. [170]

    Ms Wang maintained a cheque account at the Hurstville branch of Westpac Banking Corporation.

57. [171]

    On 5 May 2017, $4,997,865.51 was credited to that account. That credit was the proceeds of a telegraphic transfer from China of the equivalent in CNY. Ms Wang said that source of was Zheng Xiaojun, who as I have said, Ms Wang described as her boyfriend (see [43] above).

58. [172]

    On 8 May 2017, $4,997,856.51 was debited from Ms Wang’s Westpac account and credited to the DJ Royal Investment Account at the CBA.

59. [173]

    As I have mentioned, the DJ Royal Investment Account appears to have been opened that day. The $4,997,856.51 deposit is the first transaction recorded on the account statement.

60. [174]

    As I have said, Ms Wang was at that time the sole director and shareholder of DJ Royal. She said she “controlled” the DJ Royal Cheque Account (see [129] above) but had not realised there was a second account (i.e. the DJ Royal Investment Account).

61. [175]

    Ms Wang gave differing accounts of the circumstances of this deposit.

62. [176]

    In her 11 October 2019 affidavit, Ms Wang said that on 8 May 2017 she met Mr Xu at the Hurstville branch of Westpac. Ms Wang said:

63. [177]

    In fact, the transfer from Ms Wang’s Westpac account the DJ Royal Investment Account was by telegraphic transfer. Evidently, that fact was drawn to Ms Wang’s attention after she swore this affidavit.

64. [178]

    Thus, in her affidavit 22 October 2019, Ms Wang said:

65. [179]

    As I have set out at [129] above, Ms Wang said that it was her practice to sign blank cheques drawn on the DJ Royal Cheque Account, and later to instruct Ms Jiang to “fill in details of a payee and payment amount on a cheque”.

66. [180]

    Thus, Ms Wang’s evidence was that the last she knew was that Mr Xu would contact Ms Jiang and let her know to whom “the” cheque, presumably for the $5 million, would be drawn.

67. [181]

    The only bank statement for the DJ Royal Investment Account in evidence is that for the period 8 May to 1 October 2017. It does not record any amounts being withdrawn by cheque.

68. [182]

    The only bank statements in evidence for the DJ Royal Cheque Account are for 1 to 31 May 2017. Those bank statements show some withdrawals by cheque (denoted as “Chq” followed by a six digit number), but none for anything like $5 million: the largest is for $280,000.

69. [183]

    I infer from these facts that Mr Xu did not seek to utilise Ms Wang’s $4,997,865.51 deposit to the DJ Royal Investment Account by giving Ms Jiang a direction as to how she should fill out a cheque, signed in blank by Ms Wang and drawn on the DJ Royal Cheque Account.

70. [184]

    The largest withdrawals from the DJ Royal Cheque Account are shown in the bank statements as “Wdl” which I infer denotes withdrawals other than by cheque. Presumably those withdrawals were made by some form of electronic funds transfer.

71. [185]

    Following the credit of $4,997,865.51 to the DJ Royal Investment Account, representing the telegraphic transfer from Ms Wang’s Westpac account, there was a credit to that account on 9 May 2017 of $1,305,167.44 (the source of which is not revealed in the evidence), and two debits totalling $553,032.95 in respect of which there are corresponding credits in the DJ Royal Cheque Account.

72. [186]

    There is then recorded in the bank statement for the DJ Royal Investment Account under date 9 May 2017 an unidentified debit of $50,000 followed by a debit of $5,700,000.

73. [187]

    Thus:

74. [188]

    Documents produced on subpoena by the CBA show that the debit of $5,700,000 corresponds to an International Money Transfer remitted to Mr Xu at an unidentified account in Hong Kong.

75. [189]

    Applying the rule in Clayton’s Case (Devaynes v Noble; Baring v Noble (1816) 1 Mer 529; (1816) 35 ER 781), I have assumed that funds withdrawn from the running account were drawn on the funds first deposited. Thus the amount of the $5,700,000 debit referable to Ms Wang’s deposit of $4,997,865.51 is $4,394,832.56 ($4,997,865.51 - $553,032.95 - $50,000 = $4,394,832.56). The balance of the $5,700,000 debit was sourced from the unidentified deposit of $1,305,167.44.

76. [190]

    The document initiating the $5,700,000 transfer bears a signature. An issue arose as to whether the signature is that of Mr Xu.

77. [191]

    Each party produced evidence from a NAATI certified English and Chinese translator to give evidence about that signature.

78. [192]

    For Ms Wang, Mr Jiangu Yu gave evidence that the signature appeared to comprise three Mandarin characters for which the English translation was “Xu Xiaohui” (Mr Xu’s Chinese name).

79. [193]

    The weight I can give to that evidence is effected by the fact that the instruction given to Mr Yu by Mr Zipser’s instructing solicitor, Mr Wenaho Cai (in Mandarin and by WeChat message) was:

80. [194]

    Accepting that there was a limited time frame within which Mr Cai located and retained Mr Yu, this was an inappropriate instruction for Mr Cai to give to Mr Yu. In effect he proposed to Mr Yu the answer that he evidently wanted from Mr Yu.

81. [195]

    To his credit, Mr Yu recognised the difficulty and said that, even if he had not been “given any tip” he would “probably” have come to the conclusion that the signature was as he stated.

82. [196]

    Thus he said:

83. [197]

    On the other hand, Super Vision called another NAATI certified translator, Mr Roy Rong Shen, who gave this evidence:

84. [198]

    In light of this evidence I do not feel able to come to any conclusion as to whether the Mandarin characters on the document in question were those corresponding with Mr Xu’s name.

85. [199]

    Even if they were, it would not follow that I could conclude that those characters represented Mr Xu’s signature.

86. [200]

    The fact remains that the $5,700,000 was remitted to Mr Xu in Hong Kong.

87. [201]

    On 16 May 2017, there was a credit to the DJ Royal Cheque Account for $5,442,976 described on the bank statement as:

88. [202]

    That description suggests the transfer was initiated by Mr Xu and that he instructed the remitting bank to describe it as “Lending”. There is no evidence of the account from which transfer was initiated.

89. [203]

    Although Ms Wang in cross-examination said that she did not know what that deposit represented, Mr Zipser in final submissions said:

90. [204]

    That is an available inference, although the evidence is not clear. What is known is that on 8 May 2017 Ms Wang caused a little under $5 million to be transferred into the DJ Royal Investment Account, the bulk of that deposit funded the 9 May 2017 transfer of $5.7 million from that account to an account of Mr Xu in Hong Kong and on 16 May 2017 Mr Xu caused some $5.433 million to be transferred back into the DJ Royal Cheque Account a week later on 16 May 2017. It seems unlikely these transactions are unrelated.

91. [205]

    On the day following the $5,442,976 deposit, 17 May 2017, five withdrawals (four of which were for exactly $1,000,000) were made from the DJ Royal Cheque Account totalling $5,443,000. The close correspondence between that withdrawal and the 16 May deposit (the difference is only $24) is probably not a coincidence. But the destination of the $5,443,000 is unknown.

92. [206]

    On 19 May 2017, three amounts totalling $3,443,113.20 were credited to the DJ Royal Cheque Account and described as “Transfer In Branch Hurstville”.

93. [207]

    These deposits came from a “Sale Proceeds Account” that, under the 4 July 2014 Loan Agreement between Super Vision and Hua Cheng, Hua Cheng was obliged to maintain and into which it was obliged to pay the proceeds of sale of units in the Royal Plaza development.

94. [208]

    Email correspondence between Hua Cheng and Super Vision on 18 May 2017 shows that Super Vison agreed that the amount in the Sales Proceeds Account could be used by Hua Cheng as a contribution towards the HKD 30 million Hua Cheng had promised to pay Super Vision.

95. [209]

    Also on 19 May 2017, $3,470,415.01 was debited from the DJ Royal Cheque Account. That sum was equivalent to HKD 20 million and was remitted to Super Vision on account of Hua Cheng’s promise to pay HKD 30 million. The balance of HKD 10 million was sent to Super Vision from a source in China which is unidentified in the evidence.

96. [210]

    The only reason revealed in the evidence as to why Ms Wang would transfer almost $5 million (and, for convenience, I will from here refer simply to $5 million rather the precise amount) from her account at Westpac to an account in the name of DJ Royal is a request from Mr Xu.

97. [211]

    There is no suggestion in the evidence that Ms Wang or Mr Xu thought that DJ Royal itself required any such funding.

98. [212]

    Ms Wang did not explain why she preferred to pay the $5 million into a DJ Royal account, rather than directly to Mr Xu. It may be that she preferred to pay it into an account over which she had some control and so nominated a DJ Royal account.

99. [213]

    She said she expected that to access the $5 million she had deposited to the account Mr Xu would utilise one of the blank cheques that she left with Ms Jiang. That evidence is consistent with Ms Wang’s evidence that she did not realise there was a second DJ Royal Account, the DJ Royal Investment Account.

100. [214]

     There is no evidence explaining the operations on the DJ Royal Investment Account and the DJ Royal Cheque Account that led to:

101. [215]

     Mr Knackstredt did not suggest to Ms Wang that she was responsible for these debits and credits. I think it unlikely that she was. I think it I think it more likely that, as Ms Wang said, she authorised Mr Xu to conduct operations on the DJ Royal Cheque Account and that he initiated each of these transactions.

102. [216]

     Why Mr Xu would wish to cause the fund movements I have described to take place is not explained in the evidence. They show that Mr Xu did not use Ms Wang’s $5 million to pay Super Vision. Mr Xu used Ms Wang’s $5 million for other, unexplained, purposes. He used the funds in the Sales Proceeds Account, plus other funds from an unidentified source within China to pay Super Vision. Only Mr Xu had a reason to cause the funds from the Sale Proceeds Account to be paid into the DJ Royal Cheque Account and then immediately to be paid out to Super Vision. This provides a further indication that it was Mr Xu, rather than Ms Wang, who initiated the transactions I have described.

103. [217]

     But I do not see those facts as a reason to doubt that, as the 7 May 2017 WeChat Exchange suggests, Mr Xu told Ms Wang that he would use her $5 million to pay Super Vision.

104. [218]

     In an affidavit, Ms Wang said that after she paid the $5 million into the DJ Royal Investment Account she had this conversation with Mr Xu:

105. [219]

     Ms Wang said that shortly afterwards she spoke with “the person in China from whom I had borrowed money to lend to” Mr Xu and that this person “recommended to me that I get a government document to ensure that my loan to [Mr Xu] is secured over the two properties owned by [Mr Xu]”.

106. [220]

     Ms Wang said the following that conversation she had this further conversation with Mr Xu:

107. [221]

     Ms Wang said that shortly afterwards Mr Xu told her that Pancific Legal had “prepared a security document”. Ms Wang said that on 25 May 2017 she attended the office of Pancific Legal and met a lawyer who showed her a form of mortgage and asked her to sign it. She did so. Ms Wang said that the lawyer said there was a fee of $1,400 “for lodging the mortgage” and that she paid that fee in cash.

108. [222]

     The document Ms Wang executed was the 25 May 2017 Mortgage to which I have referred (see [23(d)] above).

109. [223]

     In cross-examination Ms Wang said:

110. [224]

     A short time later the following exchange occurred:

111. [225]

     The 25 May 2017 Mortgage is stated to secure a “Principal Sum” of $5 million and specifies an interest rate of 14 per cent per annum.

112. [226]

     The mortgage was registered on the title of the Milsons Point property on 7 July 2017.

113. [227]

     Ms Wang did not mention the 25 May 2017 Mortgage in her affidavits of 30 January 2019 and 31 July 2019. The 25 May 2017 Mortgage was, however, included in the court book tendered on behalf of Super Vision at the commencement of the hearing on 23 September 2019. Its provenance was at the time unexplained in the evidence.

114. [228]

     Mr Zipser was then very recently briefed to appear for Ms Wang and AC Holdings and raised the issue of the 25 May 2017 Mortgage in his opening submissions. That led to the adjournment of the proceedings until 23 October 2019. In the meantime, Ms Wang affirmed affidavits on 9 October 2019, 11 October 2019 and 22 October 2019 in which the issue of the 25 May 2017 Mortgage, and other matters, were agitated.

115. [229]

     As with the 29 July 2015 IOU, the 7 May 2017 WeChat Exchange and the 7 May 2017 Caveat, Mr Knackstredt submitted that the 25 May 2017 Mortgage was a “sham”.

116. [230]

     In support of this submission, Mr Knackstredt said that “there is no evidence of any A$5m advance from Wang to Xu (or from Wang’s company to Xu’s company”.

117. [231]

     It is true that Ms Wang did not pay the $5 million to which I have referred to into an account in Mr Xu’s name. Rather, she “preferred” to pay the $5 million into the DJ Royal Investment account.

118. [232]

     But, as I have discussed, Ms Wang authorised Mr Xu to operate on that account. I am satisfied that Ms Wang intended that Mr Xu could use the $5 million she paid into the account for his own purposes. There is no suggestion in the evidence that Ms Wang made any use of the $5 million once it was paid into the DJ Royal Investment Account.

119. [233]

     Mr Knackstredt also referred to evidence Ms Wang gave in her affidavits about a meeting she had with Mr Xu in the Sovereign Room at the Star Hotel. In her 30 January 2019 affidavit Ms Wang said this meeting occurred on 6 August 2018. In her 31 July 2019 affidavit, she said it occurred in July 2017.

120. [234]

     In both accounts of this meeting, Ms Wang said she complained to Mr Xu about his failure to repay to her an amount of CNY 20 million. In neither account did Ms Wang say that she had loaned $5 million to Mr Xu.

121. [235]

     However, there is no doubt that in May 2017 Ms Wang caused $5 million to be transferred into her Westpac account and then to the DJ Royal Investment Account. There is no evidence that there was in 2017 and 2018 a significant difference between $5 million and CNY 20 million. Indeed, in relation to the purported 7 September 2019 Deed of Loan between Mr Buyuan Xu and Hua Cheng and DJ Royal, Mr Knackstredt submitted that $2,481,442 was roughly equivalent to CNY 11 million; which suggests $5 million may well have been roughly equivalent to CNY 20 million at the time of Ms Wang’s conversation with Mr Xu.

122. [236]

     To attribute to Ms Wang and Mr Xu the intention to create a “sham” mortgage, that is, one that did not reflect any genuine underlying transaction, is to ignore not only the indication given by Mr Xu in the 29 July 2015 IOU of a preparedness to give Ms Wang security over the two properties, but also the 7 May 2017 WeChat Exchange and the fact of Ms Wang’s 8 May 2017 $5 million payment into the DJ Royal Investment Account.

123. [237]

     It is also to attribute to Ms Wang and Mr Xu the intention of creating a false document for no apparent purpose. As Mr Zipser submitted, if the 25 May 2017 Mortgage was a sham, why did Ms Wang and Mr Xu not utilise it by, for example, having Ms Wang purporting to enforce the mortgage, sell the property and then cause the funds to be paid to Mr Xu?

124. [238]

     If the mortgage was a sham, why would Ms Wang wait a year, contract to buy the properties, cause AC Holdings to borrow $7.2 million and to pay that money over at Mr Xu’s direction and then simply discharge the mortgage?

125. [239]

     I am not persuaded the 25 May 2017 Mortgage was a “sham”.

126. [240]

     I find that it was a genuine document, intended by both Mr Xu and Ms Wang to provide Ms Wang with security over the Milsons Point property for her $5 million advance. As I have mentioned, the 25 May 2017 Mortgage recorded that the $5 million advance was for two years from the date of the mortgage and accrued interest at the rate of 14 per cent per annum.

The impugned contracts

1. [241]

   In one of her affidavits Ms Wang said:

2. [242]

   Thereafter, Ms Wang said that she either directly, or through an intermediary, had the following negotiations with Mr Xu about the purchase by her of the Sandringham and Milsons Point properties:

3. [243]

   As Mr Knackstredt pointed out, Ms Wang did not call the intermediary through which she said she had these negotiations with Mr Xu. But the fact remains that the only evidence about these matters comes from Ms Wang and her evidence is not contradicted. I accept the evidence. It was given in detail in her affidavits and does not appear to me to be inherently improbable. On the contrary.

4. [244]

   At around this time, Ms Wang arranged for AC Holdings to borrow $7.2 million from an arms’ length lender, Golden J Wealth Pty Ltd for the purpose of acquiring the Sandringham and Milsons Point properties.

5. [245]

   That advance was confirmed on 28 August 2018 when AIG Capital Mortgages Pty Ltd wrote to Ms Wang confirming the availability of a 12 Month advance from it “or its nominee” to AC Holdings of $7.21 million to be secured over the Sandringham and Milsons Point properties. Ultimately the funds were advanced to AC Holdings by Golden J Wealth, evidently the nominee of AIG Capital Mortgages.

6. [246]

   Ms Wang said that, thereafter she had negotiations with Mr Xu as to what “deduction” Mr Xu should allow from the agreed total purchase price of $8.8 million for the two properties on account of the amount that Ms Wang said Mr Xu owed her. At around this time Ms Wang said that she told Mr Xu that she regarded him as owing her something in the order of CNY 33 million. Ms Wang said she told Mr Xu she had arranged for AC Holdings to borrow funds for the purchase, that “the lender will only lend me 7.2 million” and that “I won’t pay money from my own pocket to complete the purchase”.

7. [247]

   Ms Wang said the negotiations were as follows:

8. [248]

   Ms Wang said that she agreed to the latter proposal.

9. [249]

   AC Holdings was registered on 29 May 2018. Ms Wang said she arranged for this to be done for the purpose of acquiring from Mr Xu the Milsons Point and Sandringham properties.

10. [250]

    Again, Ms Wang did not call the intermediary or intermediaries through whom these negotiations were said to have taken place.

11. [251]

    Nonetheless, I see no reason to doubt that negotiations occurred as Ms Wang deposed. There is no evidence to contradict Ms Wang’s account these negotiations. That evidence does not strike me as being inherently improbable.

12. [252]

    On 9 July 2018, Prime Capital Securities Pty Ltd approved a loan of $7.9 million for AC Holdings.

13. [253]

    Ms Wang denied any knowledge of this loan approval. She said that what purports to be her signature on what purports to be an acceptance by AC Holdings of the loan is a forgery.

14. [254]

    Mr Knackstredt did not challenge that evidence. I am not prepared to reject it. I can only speculate as to how what purports to be Ms Wang’s signature came to be on the document.

15. [255]

    On 31 August 2018, Ms Wang and Mr Xu exchanged contracts for the sale by Mr Xu to Ms Wang of the Sandringham property for $4.9 million and the Milsons Point property for $3.9 million: a total of $8.8 million.

16. [256]

    Super Vision has adduced valuation evidence that the market value of the Sandringham property on 31 August 2018 was $5 million and that the market value of the Milsons Point property on that date was $4.9 million: a total of $9.9 millon.

17. [257]

    As I have mentioned earlier, there is no dispute about these matters.

18. [258]

    But there is no evidence that Ms Wang knew, at the time, that the contract prices were below actual value.

19. [259]

    Ms Wang did not obtain a valuation for either of the properties. But again, on Ms Wang’s account of it, that is not necessarily a cause for suspicion. On her case, which I accept, she bargained with Mr Xu to achieve the purchase prices recorded in the contracts. The process of bargaining might suggest that Ms Wang had some general idea about property values at the time. But it does not compel the conclusion that she knew, as a matter of valuation, that the agreed purchase prices were below actual value.

20. [260]

    Ms Wang annexed to one of her affidavits a valuation obtained by Golden Wealth which valued the Milsons Point property at $4.3 million. But Ms Wang did not say that she had seen that valuation prior to entry into the 31 August 2018 contract and she was not asked about this in cross-examination.

21. [261]

    Neither contract made provision for the payment of a deposit. However, again, on Ms Wang’s account of it, this is not necessarily suspicious. Her evidence was, as I have set out at [246] above, that she negotiated what was in effect a deduction of $2.34 million from the agreed purchase prices for the two properties on account of what she contended was Mr Xu’s antecedent indebtedness to her. Mr Xu has acknowledged in writing his agreement to this deduction (see [270] below). That figure equals the total of the amounts recorded in the settlement sheets as the “deposit paid” for the properties. This was a little irregular but not necessarily a basis from which to conclude knowledge of Mr Xu’s intent to defraud creditors.

22. [262]

    Neither contract provided for the intervention of an agent. But that is not surprising. On Ms Wang’s account of it, she negotiated the sale directly with Mr Xu.

23. [263]

    Although each contract provided that completion take place within 42 days of exchange, completion took place on 19 September 2018. I do not see this factor as significant.

24. [264]

    Each contract named Ming Wang & Co as the “Vendor’s Solicitor”. Ming Wang & Co are in fact accountants who acted for both Mr Xu and Ms Wang on the transaction. Again, this is slightly irregular but not of any relevant significance.

25. [265]

    The settlement sheet for the Milsons Point contract stated that:

26. [266]

    The settlement sheet for the Sandringham contract stated that:

27. [267]

    Although the settlement sheets stated that deposits totalling $2,340,000 ($1,590,000 plus $750,000) had been paid under the contracts, no deposits were in fact paid. The figure of $2,340,000 was, as I have said, the deduction Ms Wang and Mr Xu had agreed, allegedly on account of, and evidently in forgiveness of Mr Xu’s indebtedness to Ms Wang (see [245]-[246] above).

28. [268]

    In one of her affidavits, Ms Wang said:

29. [269]

    Ms Wang said that “not long afterwards” Ms Jiang said that Mr Xu agreed to do this.

30. [270]

    Thus, on 13 September 2018, Mr Xu made a “Declaration” that:

31. [271]

    On settlement, a representative from Pancific Legal attended with a discharge of Ms Wang’s mortgage over the Milsons Point property. No payment was made to Ms Wang or at her direction in exchange for the discharge of that mortgage.

32. [272]

    In effect, Ms Wang surrendered her entitlements under the 25 May 2017 Mortgage in exchange for the purchase by her company, AC Holdings of the two properties on the basis I have set out.

33. [273]

    As I said at [3] above, leaving aside adjustments for council rates and the like, on settlement AC Holdings paid Mr Xu $6.46 million for the two properties: the stated consideration of $8.8 million less the $2.34 million.

34. [274]

    The transfers of the property from Mr Xu to AC Holdings were, in due course, registered.

35. [275]

    The settlement sheets show that on settlement $1,135,687.25 was paid to Mr Xu’s father, Mr Buyuan Xu.

36. [276]

    As I have set out above at [91]-[114] there is in evidence a Deed of Loan dated 7 September 2016 pursuant to which Mr Buyuan Xu is recorded to have loaned Hua Cheng and DJ Royal the equivalent of CNY 20 million on 30 September 2015 and 8 October 2015.

37. [277]

    As I have set out, on 9 September 2016, Mr Buyuan Xu lodged caveats on the titles of the two properties purportedly to protect his interest under that Deed of Loan. Those caveats were withdrawn on 2 May 2017 and 7 July 2017 (see [99]-[100] above).

38. [278]

    On settlement, the cheques in favour of Mr Buyuan Xu were given to Mr Xu’s solicitor.

39. [279]

    Ms Wang agreed that she “knew that as part of the settlement, Mr Xu’s father, Buyuan Xu, was going to be paid over $1.1 million”.

40. [280]

    Mr Knackstredt asked Ms Wang about this in cross-examination:

41. [281]

    Whether or not Mr Xu really owed his father any money at this stage is a matter about which I can draw no conclusion. Ms Wang said, and I accept, that she had been told by her lawyer that Mr Buyuan Xu had lodged a caveat on “the property”. It turns out Mr Buyuan Xu’s caveats were withdrawn from the titles of both the Milsons Point and Sandringham properties more than a year before the August 2018 contracts: in May 2017. But there is no evidence Ms Wang knew this.

42. [282]

    The effect of Ms Wang’s evidence is that, though she knew that Mr Xu proposed to use part of the proceeds of sale for this purpose, she did not give the matter great attention. Her focus, she said, was to ensure that no part of the proceeds was paid to Mr Xu himself.

43. [283]

    I see no reason to doubt this evidence.

44. [284]

    Of the proceeds of the sale of the Milsons Point property, $400,000 was paid to Aojia Investment Pty Ltd.

45. [285]

    In her affidavit of 22 October 2019, Ms Wang gave this explanation for the Aojia payment:

46. [286]

    Evidently, that led to Mr Xu including in his declaration made on 13 September 2018:

47. [287]

    Thus Mr Xu accepted responsibility for the amount due to Aojia Investment and directed that this amount be paid out of the proceeds of sale of the Milsons Point property.

Subsequent transactions

1. [288]

   Golden J Wealth commenced proceedings against AC Holdings for possession of the Sandringham and Milsons Point property alleging that AC Holdings had made default under the relevant security documents (the “Possession Proceedings”).

2. [289]

   The Possession Proceedings were fixed for hearing on 29 August 2019. On the previous day, 28 August 2019, AC Holdings entered into contracts to sell to the third and fourth defendants, Yanqun Xue and Yibin Xu, the Sandringham property for $2,700,000 and the Milsons Point property for $1,880,000.

3. [290]

   These sale prices are less than half what is agreed by Ms Wang to be the value of the properties as at 31 August 2018.

4. [291]

   On 3 September 2019, Hammerschlag J made an order restraining completion of those sales pending the outcome of these proceedings.

5. [292]

   It is hard to see what Ms Wang thought could be achieved by entering these transactions.

6. [293]

   However, the consequence of those sales is not a matter presently before me for consideration.

The first limb of s 37A of the Conveyancing Act – did Mr Xu transfer the properties to AC Holdings with intent to defraud his creditors?

1. [294]

   It has been held that s 37A is to receive a liberal construction which gives effect to its legislative purpose of supressing fraud: Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 at [20] (French CJ, Gummow, Crennan and Bell JJ).

2. [295]

   An intent to defraud creditors includes an intent to hinder or delay creditors: Marcolongo v Chen at [56].

3. [296]

   Mr Xu has entered a submitting appearance in these proceedings.

4. [297]

   Mr Xu has admitted, by failing to respond to Notices to Admit Facts served on his solicitor on the record on 5 September 2019, that he transferred the Milsons Point and Sandringham properties to AC Holdings:

5. [298]

   Mr Xu is bound by these admissions, notwithstanding the fact that he has entered a submitting appearance as:

6. [299]

   Those admissions are sufficient to enliven the first limb of s 37A; that is that Mr Xu’s alienation of the two properties to AC Holdings was made with intent to defraud his creditors.

The second limb of s 37A - is Super Vision “thereby prejudiced”?

1. [300]

   Relief is available under s 37A only to “any person thereby prejudiced”; that is prejudiced by the alienation made with intent to defraud creditors.

2. [301]

   Super Vision is a creditor for the purpose of s 37A. The word “creditor” in s 37A has been held to include future and prospective creditors: Chen v Marcolongo; Chan v Lym International Pty Ltd (2009) 260 ALR 353; [2009] NSWCA 326 at [13], [18] and [27] (Allsop P, Giles JA agreeing). The decision of the Court of Appeal was reversed by the High Court, but this reasoning was not disturbed. This is not a case where there is any dispute about whether Super Vision’s case against Mr Xu would necessarily or probably succeed. Super Vision had judgment against Mr Xu.

3. [302]

   However, to establish that it is “thereby prejudiced” Super Vision must show, in addition to its being a creditor, that Mr Xu has “dispose[d] of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach”: to adopt, with emphasis, the words of Russell LJ in Lloyds Bank Ltd v Marcan [1973] 3 All ER 754; [1973] 1 WLR 1387 at 1390-1391, cited with approval by the High Court in Marcolongo at [32].

4. [303]

   At the date of the contracts for sale, 31 August 2018, the total value of the Milsons Point and Sandringham properties was $9.9 million.

5. [304]

   The properties were encumbered by mortgages to the NAB and the ANZ Bank. At settlement, the amount due to those banks was some $2.3 million in the case of the NAB, and some $2.4 million in the case of the ANZ: a total of some $4.7 million.

6. [305]

   The Milsons Point property was, I have found, also encumbered by the 25 May 2017 Mortgage in favour of Ms Wang under which $5 million, together with interest at 14 per cent was secured: a total in the order of $5.8 million as at the date of settlement of the sales of the Milsons Point and Sandringham properties.

7. [306]

   Thus, the total amount secured over the two properties was in the order of $10.5 million.

8. [307]

   Super Vision was a prospective unsecured creditor of Mr Xu. But the Milsons Point and Sandringham properties were fully encumbered to Mr Xu’s secured creditors. There is no suggestion in the evidence that the NAB and ANZ would discharge their mortgages without payment of the amount secured. Accordingly, and unless Ms Wang agreed to surrender her security without payment of the amount secured, the sale proceeds of the properties were not, and would not become available to Super Vision.

9. [308]

   It is true that Ms Wang had mortgage security only over the Milsons Point property whereas the NAB and ANZ had security over both the Milsons Point and Sandringham properties.

10. [309]

    But Ms Wang would have been entitled to compel the banks to marshal their securities in her favour and to have resort first to the property over which they had security but Ms Wang did not: Sandringham. This is because:

11. [310]

    On settlement of the sale, Ms Wang produced a discharge of the 25 May 2017 Mortgage which she caused to be handed over to Mr Xu’s solicitors without receiving any payment. In effect, Ms Wang surrendered her rights under the 25 May 2017 Mortgage. Ms Wang’s reasons for taking this course were not explored in the evidence. Presumably, she thought the acquisition of the properties by AC Holdings on the terms I have described to be a sufficient reason. Ms Wang negotiated the price she was prepared to pay for the properties, and the deduction she required on account of Mr Xu’s outstanding indebtedness to her in the manner I have set out above (see [241] and [246]). Although this proposition was not put to Ms Wang, and although she did not address it in terms in her affidavit evidence, I think it obvious, in all the circumstances of this case, that but for those negotiations Ms Wang would have maintained her position as a mortgagee of the Milsons Point property. That is, I would infer, Ms Wang only agreed to discharge the 25 May 2017 Mortgage in exchange for Mr Xu’s agreement to sell to AC Holdings the two properties on the terms I have described.

12. [311]

    In those circumstances, I think Mr Zipser was correct to submit that:

13. [312]

    To put that another way, Mr Xu’s disposal of the properties was not a disposal of “an asset which would be available to his creditors” as the assets were fully encumbered to Mr Xu’s secured creditors: the NAB, the ANZ and Ms Wang.

14. [313]

    It follows that Super Vision is not a “person thereby prejudiced” by Mr Xu’s alienation of the properties, notwithstanding his admitted intention.

15. [314]

    That conclusion is sufficient to dispose of the proceedings.

Was AC Holdings a purchaser in good faith not aware of Mr Xu’s admitted intention to defraud his creditors?

1. [315]

   It is a defence to a claim under s 37A if the transferee can establish that he she or it is a “purchaser in good faith” not having at the relevant time notice of the transferor’s intent to defraud creditors.

2. [316]

   It is common ground that, here, AC Holdings (and thus, in effect, Ms Wang) has the onus of making out this defence.

3. [317]

   A “purchaser” for the purposes of s 37A is a “purchaser for valuable consideration”: s 7 of the Conveyancing Act.

4. [318]

   As Ms Wang was the sole director and shareholder of AC Holdings, the question in substance involves consideration of Ms Wang’s state of mind.

5. [319]

   Did she cause AC Holdings to acquire the properties as a purchaser in good faith not having notice of Mr Xu’s intention to defraud his creditors?

6. [320]

   In my opinion, the answer is “yes”.

7. [321]

   For the reasons I have set out, I am satisfied that Ms Wang was, and genuinely believed she was, a substantial creditor of Mr Xu.

8. [322]

   Ms Wang contracted to purchase three units from the Royal Plaza development and had paid the requisite purchase price. And yet she did not acquire title to those units.

9. [323]

   Ms Wang had advanced to Mr Xu, or at his direction, the CNY 20 million she borrowed from her sister in September and October 2015, and the $5 million she paid into the DJ Royal Investment Account in May 2017.

10. [324]

    I am satisfied that, under the informal arrangements between Ms Wang and Mr Xu, both regarded these advances as having been made by Ms Wang to Mr Xu. This is notwithstanding the fact that the CNY 20 million was paid, I would infer at Mr Xu’s direction, to the entities nominated in the lists Ms Wang provided her sister in September and October 2015 and the fact that Ms Wang paid the $5 million into an account of DJ Royal rather than to Mr Xu directly.

11. [325]

    I find that Ms Wang negotiated the purchase price for the properties without knowing that, as a matter of valuation fact, that the agreed price was less than the actual value of the properties.

12. [326]

    I also find that Ms Wang negotiated the deduction of $2.34 million from that agreed price on account of the much larger amount that she genuinely believed Mr Xu owed her. I do not think it necessary to decide whether, to adopt an expression used in submissions, this deduction had the effect of “wiping the slate clean” as between Ms Wang and Mr Xu. Mr Xu’s reference in his 13 September 2018 “Declaration” to deducting the $2.34 million “from the business between Qiao Wang and me” suggests it did not.

13. [327]

    AC Holdings gave value to Mr Xu for the transaction. It paid some $6.46 million for the properties.

14. [328]

    Mr Knackstredt submitted that AC Holdings “did not itself provide any consideration for the transfers; there was no deposit paid, and the entirety of the purchase price was funded by the incoming mortgagee”. There was no deposit paid. But the funds AC Holdings borrowed from Golden Wealth and paid to Mr Xu represented consideration paid by AC Holdings to Mr Xu, notwithstanding AC Holding’s undoubted obligation in due course to repay a corresponding amount to Golden Wealth in accordance with the agreement between them. Once AC Holdings borrowed the funds from Golden Wealth, the funds were those of AC Holdings to dispose of as it saw fit.

15. [329]

    Mr Knackstredt also submitted that because the amount paid by AC Holdings to Mr Xu ($6.42 million) was less than the value of the properties ($9.8 million), AC Holdings should be seen as a “quasi-volunteer”.

16. [330]

    I do not accept that submission. To obtain the benefit of s 37A(3), AC Holdings must show it gave “valuable consideration”; that is, consideration that is real and valuable and is not illusory or a sham. However, as with the position in contract, AC Holdings need not show that the consideration was equivalent to the value of the property purchased. The consideration must be sufficient. It need not be adequate.

17. [331]

    Thus, in Saba v Plumb (2018) 97 NSWLR 278; [2018] NSWCA 60 at [99], the question was whether the purchaser was a purchaser for valuable consideration as defined in s 7 of the Conveyancing Act.

18. [332]

    Macfarlan JA said at [100]:

19. [333]

    The difference between the consideration given and value might, in other circumstances, bespeak an understanding by a party in AC Holdings’s position (that is, in effect by Ms Wang) that Mr Xu was seeking to defraud his creditors.

20. [334]

    But, in the peculiar circumstances of this case, I am satisfied that Ms Wang did not know that, by entering the transaction, Mr Xu intended to defraud his creditors. I am satisfied that Ms Wang’s focus was entirely directed to endeavouring to recover from Mr Xu all or part of what she believed he owed her. As she said:

21. [335]

    And, if it be relevant, Ms Wang gave consideration for the transaction.

22. [336]

    First, she discharged her mortgage over Milsons Point. I have found that mortgage was not a “sham”. It provided security to Ms Wang for the $5 million she had advanced to Mr Xu in May 2017 and paid into the DJ Royal account.

23. [337]

    Second, by causing AC Holdings to purchase the properties she in effect surrendered her right to enforce the promise made by Mr Xu to her in the 29 July 2015 IOU to provide her with security over the Milsons Point and the Sandringham properties for the CNY 20 million advance. That advance was at a “fixed interest rate of 15%” with a “penalty interest rate of 25%”. Mr Zipser calculated, and Mr Knackstredt did not dispute that the amount due to Ms Wang under the 29 July 2015 IOU as at August 2018 was equivalent to some $7.185 million.

24. [338]

    Third, Ms Wang agreed to reduce the amount owing to her by Mr Xu by $2.34 million being the amount of the agreed deduction from the stated total purchase price of $8.8 million and being the amount that Mr Xu agreed in his 13 September 2018 “Declaration” to accept in lieu of “the full amount of deposit” for the properties.

25. [339]

    Fourth, Ms Wang procured that AC Holdings actually pay Mr Xu some $6.46 million for the properties.

26. [340]

    Mr Knackstredt described the transaction as being a “cost neutral” acquisition for Ms Wang. That is true in the sense that Ms Wang caused AC Holdings to borrow all of the funds advanced to Mr Xu on settlement. But a commitment to repay those funds, some $7.2 million, is hardly “cost neutral”.

27. [341]

    I do not think that the fact that Ms Wang caused AC Holdings to be incorporated for the purposes of the transactions bespeaks bad faith on her part.

28. [342]

    The evidence does suggest Ms Wang was aware that Hua Cheng was in financial difficulty. For example, Mr Zipser accepted that it was clear that Ms Wang knew prior to entering into the 31 August 2018 contracts that Super Vision has appointed receivers to Hua Cheng.

29. [343]

    However, Ms Wang did not agree that she knew Mr Xu might be personally liable for Hua Cheng’s debts. Mr Knackstredt put to Ms Wang that she knew this and she replied:

30. [344]

    Overall, I am satisfied that Ms Wang has sustained her onus under s 37A(3).

Conclusion

1. [345]

   The parties should bring in short minutes to give effect to these reasons.