Mao v Bao

1. [1]

   These proceedings arise out of a dispute between two former business associates about property and commercial dealings between them. The plaintiff seeks judgment for the amount outstanding under an alleged loan to the defendant in 2011 of 11 million Chinese yuan (¥): about $1.6 million at the then exchange rate. The defendant cross-claims for several million dollars said to be owing with respect to the parties’ dealings over a property at Vaucluse which the plaintiff purchased with funds provided by the defendant and held until 2014.

2. [2]

   Both the parties are businessmen of Chinese origin. The plaintiff, Mao Duoxiang, has been an Australian citizen since 1998 and lives in Sydney. The defendant, Bao Linchun, obtained Australian permanent residency in 2009 and then established a home in Melbourne for his wife and children. He himself spent considerable time in Sydney from mid-2010 until April 2011. Since then he appears to have been living back in China.

Claims and defences for determination

1. [3]

   The dealings between the parties go back to 2004. It was in that year that Mr Mao bought the Vaucluse property. The property was initially acquired as a home for Mr Bao, although as events transpired he appears not to have used it much, if at all.

2. [4]

   Mr Bao remitted about $2.1 million towards the purchase, which was supplemented with mortgage finance from the National Australia Bank (“NAB”). The amount borrowed from the NAB was $2.275 million. After the purchase was completed Mr Bao continued to make remittances to finance the loan repayments and other expenses of holding the property.

3. [5]

   Starting in 2010, Mr Bao became involved in further dealings concerning the purchase, through Australian companies, of properties at Parramatta and Burwood in Sydney for redevelopment purposes. Mr Mao became a fifteen per cent shareholder in the Burwood project.

4. [6]

   The ¥11 million payment which is the subject of Mr Mao’s claim was made in April 2011. By mid-2011 the relationship between the two men was under strain. Mr Bao’s remittances for the Vaucluse property ceased in October. All communication ceased in 2012.

5. [7]

   In 2007 and 2008, Mr Mao had obtained increases in the NAB loan facility and had drawn down the funds, largely, if not entirely, for his own benefit. According to Mr Bao, he was unaware of this at the time. After the final rupture between the parties in 2012, Mr Mao ceased to make payments on the loan. The NAB conducted a mortgagee sale of the property in 2014. The net proceeds amounted to $3.260 million, less than the amount outstanding under the loan.

6. [8]

   Mr Mao commenced these proceedings as plaintiff in late 2016. He alleged that the ¥11 million payment was a loan to Mr Bao which carried interest at two per cent per month. Mr Mao allowed a credit for $800,000 (¥5.2 million at the then exchange rate) received from the Burwood development company in November 2011.

7. [9]

   Mr Bao’s response to Mr Mao’s claim has developed over time. His initial defence was filed in April 2017. That defence simply put Mr Mao’s allegations in issue. Mr Bao denied any loan agreement. Indeed, he did not even admit that he had received the ¥11 million from Mr Mao.

8. [10]

   When the time came for Mr Bao’s affidavit evidence to be filed, his case expanded. Mr Bao alleged that the ¥11 million payment was not a loan but a part-payment by Mr Mao pursuant to an earlier agreement between the parties that Mr Mao would buy Mr Bao out of the Vaucluse property. In June 2018 Mr Bao’s defence was amended so as to reflect these allegations.

9. [11]

   On Mr Bao’s case, the ¥11 million had only partly discharged Mr Mao’s obligations under the alleged purchase agreement. But it was not until later in 2018 that a cross-claim was foreshadowed. The proposed statement of cross-claim pleaded a case of breach of contract. Anticipating a defence based on the statute of frauds, it also included an alternative claim for restitution.

10. [12]

    By this time Mr Bao had obtained access to documents from the Land Titles Office and from the NAB. On the basis of those documents, further claims were included in the proposed cross-claim. Those claims were independent of the claim based on the alleged agreement. It was alleged that Mr Mao received the remittances, and held the Vaucluse property, as trustee, or fiduciary agent, of Mr Bao. The claims included allegations of breach of trust (or breach of fiduciary duty; for simplicity, I will refer only to breach of trust in the description which follows).

11. [13]

    First, Mr Bao alleged that not all of the money remitted in 2004 was actually applied to the purchase of the property. The sum of $480,000 was unaccounted for, which Mr Bao alleged Mr Mao must have stolen. Mr Bao next claimed $1.226 million as monies received by Mr Mao from the drawdowns in 2007 and 2008. In each case, this was said to have been a breach of trust. Thirdly, it was alleged that Mr Mao’s conduct in allowing the NAB to sell the property was both a breach of contract and a breach of trust.

12. [14]

    On behalf of Mr Mao, objection was taken to the introduction of these claims by way of cross-claim in the proceedings. Any cross-claim should have been filed at the same time as Mr Bao’s defence, and Mr Bao therefore needed an extension of time from the Court. That extension was resisted by Mr Mao.

13. [15]

    The ground, or one of the grounds, for resistance was that limitation periods had expired in the meantime. Once the cross-claim had been filed, for limitation purposes the claims in it would relate back to the commencement of the proceedings (see Limitation Act 1969 (NSW), s 74, set out at [367] below). On Mr Mao’s behalf it was contended that the Court should only allow the extension of time on terms that the cross-claim would operate for limitation purposes from the date on which it was filed. It was agreed between the parties that this question would be reserved for determination by the trial judge, and in November 2018, consent orders were made for the filing of the cross-claim on that basis.

14. [16]

    As a result, the state of play when the case came on for hearing in May last year was as follows. Mr Mao maintained his claim for the balance of the ¥11 million, plus interest at two per cent per month. Mr Bao’s defence to this claim was that the payment was not a loan but a payment on account of an alleged agreement by Mr Mao to buy him out of the Vaucluse property. Alternatively, Mr Bao contended that, if the payment was a loan, it was a loan to the Parramatta development company and not to him personally.

15. [17]

    On his cross-claim, Mr Bao sought judgment for the total amount remitted (said to be $3.45 million), based on breach of contract (or breach of trust). Alternatively, Mr Bao sought judgment by way of restitution in that sum, less the ¥11 million paid by Mr Mao in 2011. Mr Bao also sought judgments against Mr Mao for breach of trust in the sums of $480,000 and $1.226 million.

16. [18]

    In his defence, Mr Mao denied the alleged purchase agreement. In response to the restitution claim, he alleged that he had applied the remittances by Mr Bao to the purchase of the property and the making of loan repayments. Mr Mao denied misappropriating the $480,000 remitted in 2004 for the purchase of the property. He admitted that he had drawn down $1.226 million from the loan increases in 2007 and 2008, but alleged that some of the monies had been applied to making loan repayments, or otherwise for Mr Bao’s benefit, and should be set off. Mr Mao denied liability for any loss suffered as a result of the mortgagee sale; he alleged that the sale was Mr Bao’s responsibility because he had ceased to make remittances to cover the loan repayments.

17. [19]

    As foreshadowed, Mr Mao also contended that the claims were statute barred. In reply, Mr Bao disputed that this was so. In particular, it was contended that one of the limitation periods upon which Mr Mao relied only began to run when Mr Bao discovered, or might with reasonable diligence have discovered, the cause of action: Limitation Act 1969, s 47(1)(e). Furthermore, other applicable limitation periods were extended because Mr Mao’s conduct amounted to fraud or fraudulent concealment: s 55. There was also the issue about the relation back of the allegations in the cross-claim.

18. [20]

    The hearing took place over five days between 25 and 29 May 2020. At the end of the hearing, issues arose as to how, if Mr Bao’s claim concerning the additional mortgage drawdowns succeeded, the amount due would be quantified. Counsel for Mr Bao accepted that Mr Bao was still responsible for ongoing interest to the extent of the $2.275 million originally borrowed with his approval.

19. [21]

    Counsel also raised further claims based on evidence given at the trial. Mr Mao’s ex-wife gave evidence in cross-examination that she spent the missing $480,000 (she said she paid $400,000 to two other real estate agents involved in the transaction and kept the other $80,000 for herself). Evidence also emerged of Mr Mao having received rent monies from a tenant he put into the property in 2011. Eventually counsel foreshadowed an application to amend the cross-claim so as to seek, in the alternative to specific sums by way of equitable compensation, the taking of a full account of all the monies paid over by Mr Bao or derived by Mr Mao from the property.

20. [22]

    Unfortunately, this resulted in a protracted delay. Mr Bao’s amendment application was opposed by Mr Mao. His contention was that the further claims and new prayers for relief were statute barred. Mr Bao countered that the subject matter of the amendments could not with reasonable diligence have been discovered before they emerged at the trial (or, at least, before the proceedings were instituted). Mr Bao also expanded his plea of fraud and fraudulent concealment.

21. [23]

    For Mr Mao it was contended that the claims could, and should, have been raised earlier. It became apparent that if the amendments were permitted, that would give rise to further factual issues which would require both parties to reopen their cases. In itself, this was, so it was submitted, sufficient to refuse the application on discretionary grounds. For similar reasons, it was contended that if the Court would otherwise have been inclined to allow the amendments, they should only operate from the date on which they had been notified. Should the Court take that view, it was contended, the claims would be clearly out of time and therefore leave should be refused in any event.

22. [24]

    Following a hearing on 1 September, I decided to allow Mr Bao to amend his cross-claim even though it would require a reopening. I directed that an amended statement of cross-claim, and a defence, be filed, reserving leave to Mr Mao to apply to disallow any amendments to the statement of cross-claim which went beyond those foreshadowed in Mr Bao’s application. I also reserved for the final hearing the question about the relation back of the amendments.

23. [25]

    The amended pleadings were filed. Mr Bao’s statement of cross-claim was amended to include the foreshadowed claim for a full account, and to make specific claims for the rental monies allegedly received by Mr Mao. The defence disputed the further claims on the merits, and pleaded limitation defences to them and to the claim for an account. The defence also pleaded the defence of laches to the equitable claims. On behalf of Mr Bao the application of the limitation and laches defences was disputed, including by reliance on s 55.

24. [26]

    No application was made on Mr Mao’s behalf to have any parts of the amended statement of cross-claim struck out. The parties agreed a timetable for the preparation of supplementary evidence.

25. [27]

    But after that evidence had been prepared, an application was made on behalf of Mr Mao to reagitate my decision to permit the amendments. I was asked to set aside the orders I had previously made. The parties agreed that there should be a formal hearing of this application, which took place on 16 March this year.

26. [28]

    In presenting the application, counsel for Mr Mao proceeded on the basis that my orders permitting amendment had been made on a provisional basis, so that they could be reconsidered once the revised pleadings and new evidence had been analysed. That was not reflected in the terms of my orders last September, and I am not sure that it is what I intended. But counsel for Mr Bao did not object and I dealt with the application on its merits.

27. [29]

    I decided to reject the application and reaffirm the approach I took last September. Set out below are the reasons which led me to this conclusion. I was influenced by five main factors.

28. [30]

    First, it had become quite clear (and it was clear by the end of the hearing in May last year) that if Mr Bao’s claims succeeded, some sort of accounting process would be required, covering at least the mortgage drawdowns and the subsequent dealings on the NAB loan account. It would have been unfair to Mr Mao to order compensation in the full amounts drawn down when the evidence showed that at least some of the monies were not spent for his benefit. Equally it would have been intolerable to refuse relief entirely because Mr Bao failed to prove an entitlement to the whole of the drawdown sums. While Mr Bao’s legal advisers could be criticised for failing to appreciate the need for an account earlier, it was clearly in both parties’ interests that if the Court was to grant any relief, it should be the proper relief.

29. [31]

    Second, there was clearly a substantial case that Mr Bao did not know about the $480,000. Senior counsel for Mr Mao himself described Mr Mao’s ex-wife’s evidence in cross-examination as having “come out of left field”. Whether Mr Bao could with reasonable diligence have found out about the payments might have been debatable. But the issue could only be properly decided by looking at the evidence as a whole, including evidence from Mr Bao himself. The same observations applied to Mr Bao’s attempt to invoke s 55. It was not possible on the papers to dismiss Mr Bao’s claims as being statute barred.

30. [32]

    Third, Mr Mao’s laches defence gave rise to the same considerations. That too was going to require evidence, including, it would seem, from Mr Bao. This defence also could not be determined on the papers.

31. [33]

    Fourth, there might have been stronger arguments against permitting Mr Bao to claim the rental monies. But once the conclusion had been reached that at least some of the amendments should be permitted and a reopening should take place, the convenient course was to deal with all of the further claims in that way.

32. [34]

    Fifth, there was force in Mr Mao’s discretionary argument based on the protracted delays in the proceedings up to May last year. But this argument arose out of essentially the same factual background as would be canvassed in reopening. By permitting the amendments I was requiring Mr Mao to face a further hearing which he said was unjustified. Orders for costs would go some way to curing the prejudice, but not the whole way. Nevertheless it was still open to Mr Mao to rely on essentially the same discretionary grounds to argue that the limitation dates should run from the date of the amendment, and thus defeat, or arguably defeat, the claims. On balance, the prejudice to Mr Mao was not a decisive factor.

33. [35]

    In these circumstances, I considered that the objectives set out in s 56 of the Civil Procedure Act 2005 (NSW) (“CPA”) were best reconciled by allowing Mr Bao’s cross-claim to proceed in its amended form. At the same time, there were some deficiencies in the statement of cross-claim and I directed a further round of pleadings. I fixed the further hearing before me on 1 and 2 July. Later it proved possible to move the hearing forward to 18 and 19 May.

Summary and analysis of evidence

1. [36]

   Mr Mao was originally from Ningbo in China. He was born in January 1959, and so was 44 or 45 years old in late 2003 or early 2004 when the dealings between the parties which are the subject of these proceedings began.

2. [37]

   At the time, Mr Mao was living in the Sydney suburb of Earlwood with his ex-wife, Zhang Xiaomei. They had divorced in August 1999 but continued to live under the same roof.

3. [38]

   Mr Mao has been an Australian citizen since 1998. His business, or his main business, is exporting Australian food and wine to China. In the course of this business he makes frequent visits to China.

4. [39]

   Mr Bao and his wife, Qiu Chunyue, are also from Ningbo. They are a few years younger than Mr Mao. Mr Bao was born in February 1966 and Ms Qiu was born in December 1967. Mr Bao was thus 36 or 37 years old when the dealings between the parties began.

5. [40]

   Mr Bao is a builder and property developer who specialises in residential properties in Ningbo. He operates through companies which are either wholly owned or majority owned by himself or his wife. According to Mr Bao, he has been very successful financially. In his affidavit he stated that in 2015 his income from property development was approximately ¥100 million, or $20 million.

6. [41]

   The parties first met in Ningbo in 2002 or 2003 when Mr Mao was on one of his visits to China. Mr Bao and Ms Qiu were interested in establishing a home in Australia. In late 2003 or early 2004 they visited Australia and met up with Mr Mao and his ex-wife, Ms Zhang (who apparently had some contacts among Chinese real estate agents). Mr Bao wanted to buy a property in Black Street, Vaucluse. The property was apparently a townhouse, but a very extensive one. It is said to have had eight bedrooms, eight bathrooms, two garages and a downstairs flat.

7. [42]

   There is no written evidence of the deal struck between the parties, but it appears to have been agreed that the property would be purchased in Mr Mao’s name, but for Mr Bao’s benefit. Mortgage finance was obtained in Mr Mao’s name for $2.275 million on the basis that Mr Bao would provide the additional funds required to complete the purchase and to cover the ongoing interest and holding costs.

8. [43]

   The funds for the purchase were provided by Mr Bao to Ms Zhang via an internet organisation called KVB Kunlun (see Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2021] NSWSC 614 at [81]-[84] for a description of how KVB Kunlun operates). Between March and May 2004 Mr Bao sent ¥12.6 million (equating to $2.1 million) to Ms Zhang by this means.

9. [44]

   The purchase was completed on 27 May 2004. A total of $2.275 million was drawn down from the NAB. In order to complete the purchase, the additional sum of approximately $200,000 was borrowed from Ms Zhang’s mother, Xia Zheng Bao.

10. [45]

    The NAB loan was established as a loan account together with an associated offset account, the credit from which was set off against the principal owing on the loan for the purpose of calculating interest. Monthly loan repayments were, for most of the period, automatically debited to the offset account.

11. [46]

    To cover the loan repayments, and other costs such as council rates, Mr Bao sent remittances on an as-required basis, typically every few months. The first payment was made on 8 June 2004. The initial remittances were made in cash, often to Mr Mao when he was visiting China. Later remittances were made by direct credit to Mr Mao’s offset account.

12. [47]

    In October 2007 the loan facility was varied so as to increase the limit by $950,000 to $3.25 million. At this point the amount drawn on the loan had been reduced to about $2.205 million. The capital repayment of about $70,000 was redrawn, with the result that Mr Mao received (after payment of fees) approximately $1.41 million. Of this, $200,000 was used to repay Ms Xia. About five months later, in March 2008, the loan facility was further varied to increase the limit by $190,000 to $3.44 million. A further $181,000 was drawn down by Mr Mao.

13. [48]

    According to Mr Bao he was never told about these borrowings. I discuss the evidence about the borrowings in more detail below. One thing which is clear is that Mr Mao appropriated most of the resulting funds, apart from the money used to repay Ms Xia, for his own use. Mr Bao received no benefit from those funds.

14. [49]

    Early in 2009 Mr Bao and Ms Qiu obtained residency visas for Australia. In April or May they bought a house at Balwyn in Melbourne and established a home there. They also bought (apparently so as to satisfy their visa requirements) a winery in rural Victoria.

15. [50]

    At about the same time as they bought the house in Balwyn, Mr Bao and Ms Qiu established an Australian company, Guang Tian International Group Pty Limited (“GTIG”). Its issued share capital was $100,000, with Mr Bao holding forty per cent of the shares and Ms Qiu sixty per cent. Mr Bao and Ms Qiu were also the directors.

16. [51]

    Once Mr Bao had bought the house in Balwyn, Ms Qiu began making some of the regular payments for the Vaucluse property on his behalf, and there seems to have been contact between Mr Mao and Ms Qiu for this purpose. By 2010, payments were being made approximately monthly. There seem to have been other dealings between the parties as well, involving liquor purchases, but the evidence does not contain any details about them, and generally speaking they seem to have been kept separate from the payments for the Vaucluse property.

17. [52]

    In the first half of 2010, Mr Bao visited Sydney on several occasions (accompanied by Ms Qiu) looking for property to invest in. Mr Mao put Mr Bao in touch with contacts of his for this purpose. In June 2010 Mr Bao looked at a property in Parkes Street, Parramatta (referred to in the evidence as the “Harris Park” site), for development purposes. On 28 July GTIG exchanged contracts on the purchase of the property. The price was $2.92 million and the purchase was completed in August.

18. [53]

    Mr Bao appears to be an enthusiastic gambler. When in Sydney he would gamble at the Star City Casino at Darling Harbour. Star City’s records for Mr Bao from 1 July 2010 to 31 October 2011 are in evidence. They show visits to the gaming rooms over 92 days between the first visit on 16 July 2010 and the last visit on 28 April 2011. During these visits Mr Bao would deposit $50,000 a time, and sometimes more, to gamble with.

19. [54]

    Although the Vaucluse property would appear to have been available at least until it was let in March 2011 (see [62] below), Mr Bao seems to have preferred to stay at the Casino itself. At one point he was prevented from staying at the Casino over an incident there, during which time he moved to a hotel nearby so he could continue to gamble at the Casino.

20. [55]

    As well as taking on the Harris Park project through GTIG, Mr Bao also became interested in a development site at Wynne Avenue, Burwood, which was being sold by Burwood Council. Also involved were Mr Mao and Doan Ngat, a Vietnamese businessman who was an acquaintance of Mr Mao. Contracts were exchanged with the Council to buy the property on 12 August 2010. The purchase price was $24.75 million.

21. [56]

    The vehicle used for the purchase was a company called Bond Varsity Lakes Complex Pty Limited. That company had originally been Mr Doan’s: it was incorporated in February 2010 with Mr Doan holding all of the shares then on issue and being the sole director.

22. [57]

    The deal between the three participants was that Mr Bao would have seventy per cent of the Burwood project, and Mr Doan and Mr Mao fifteen per cent each. Additional shares were issued by Mr Doan’s company so that the shareholdings were in these proportions. Mr Bao and Mr Mao were appointed as directors, and the company’s name was changed to Burwood Central Square Pty Limited (“BCS”).

23. [58]

    It was also agreed that the parties would contribute the $2.475 million deposit, and in due course the balance of the purchase price, in accordance with their shareholdings in BCS. Mr Mao’s fifteen per cent share of the deposit was $371,025. There is a factual dispute about whether Mr Mao actually contributed this amount from his own monies; Mr Bao claims that he put the money in for Mr Mao as a loan to him. I will refer to this in more detail below.

24. [59]

    BCS experienced difficulties in raising the funds necessary to complete the purchase. On 26 October, Burwood Council issued a notice to complete requiring payment to be made by 10 November. At this point, Mr Doan pulled out of the project. He sold his 1,500 shares in BCS to Mr Bao, who now had eighty-five per cent of it.

25. [60]

    BCS was unable to complete on 10 November, but an extension was agreed with the council to 25 January. In the meantime, on 10 January, Mr Mao became a director of GTIG. According to his evidence, he was asked to do so by Mr Bao because of the need to have a resident director.

26. [61]

    BCS was still unable to complete the purchase on 25 January. The purchase date was extended to 8 March, then to 30 March then to 8 June.

27. [62]

    Meanwhile, Mr Bao had been late with some of the regular monthly payments on the Vaucluse property. On 28 March, Mr Mao leased the property to a tenant, Mr Matthew Eaton. The rent was about $8,700 per month. A formal residential tenancy agreement was entered into, beginning on 28 March 2011 and extending for twelve months.

28. [63]

    Two days later, on 30 March, Mr Mao obtained a signature from Mr Bao on a handwritten document in which Mr Bao undertook that, in the event of termination of the contract for the purchase of the Burwood site, he would accept responsibility for all resulting “debts and compensation claims”. The date of this document coincided with BCS’ failure to complete on that day. On the following day the Council formally agreed to an extension until 20 April.

29. [64]

    According to Mr Mao, the indemnity document was signed by Mr Bao at the office of a solicitor, Mr Carl Ku, who was acting for Mr Bao (and BCS). This was not disputed by Mr Bao or Mr Ku. Mr Ku in fact acts for Mr Bao in these proceedings.

30. [65]

    The payment of ¥11 million, which is the subject of Mr Mao’s claim in these proceedings, was made twelve days later, on 11 April 2011. The payment was made by Mr Mao from a Chinese bank account of his to a bank account of Mr Bao, also in China. Mr Bao and Mr Mao appear to have both been in China at the time.

31. [66]

    According to Mr Mao this payment was made as a loan to Mr Bao following an agreement which had been made in Australia shortly beforehand. Mr Bao’s version of events was quite different. He said the payment was made by Mr Mao in effect to buy out his (Mr Bao’s) interest in the Vaucluse property. I deal with the evidence on this issue in more detail below.

32. [67]

    BCS again was unable to complete the purchase on 20 April. This resulted in a further extension granted by the Council to 8 June, but that date was not met either.

33. [68]

    By now the relations between Mr Mao and Mr Bao appear to have become strained at best. On 18 July Mr Mao notified the Australian Securities and Investments Commission (“ASIC”) that he had ceased to be a director and secretary of BCS. On 26 July, he prepared a memorandum of agreement between himself and Mr Bao. The memorandum provided that Mr Mao would transfer his fifteen per cent share of BCS to Mr Bao, would resign as secretary, would cease to be a signatory on the company’s bank accounts, and would be refunded the $371,250 paid towards the deposit. The memorandum also confirmed a promise by Mr Bao to repay the ¥11 million.

34. [69]

    Mr Mao dated the memorandum 27 July and signed it. It was however never signed by Mr Bao. According to Mr Mao, he showed the memorandum to Mr Bao in China and Mr Bao put him off on the basis that a more formal document should be drawn up in Australia in due course. Mr Bao denies this conversation and contends that he was never shown the document or asked to sign it. I address this conflict in the evidence as part of my analysis below.

35. [70]

    BCS still proved unable to complete the purchase of the Burwood property. On 27 September the Council sent a further notice to complete which was not complied with. On 12 October the contract was formally terminated and the deposit forfeited.

36. [71]

    BCS had earlier established a term deposit of $860,000 with the NAB, apparently as a condition of the NAB providing a finance facility for the purchase of the Burwood property. On 18 November the term deposit was redeemed, with the principal and accrued interest, totalling $894,000, being transferred to BCS’ operating account. On 22 November $800,000 was transferred from the operating account to a company called Five Links International Group Pty Limited (“Five Links”), which belonged to Mr Mao. At the same time, four payments were made from the operating account for expenses associated with the project.

37. [72]

    According to Mr Mao, the $800,000 transfer was agreed between himself and Mr Bao as part repayment of the ¥11 million borrowed by Mr Bao in April. Mr Bao denies that he ever agreed to the transfer, and says it was made without his knowledge or approval. Again, I discuss this conflict in the evidence when resolving the issue as to the true nature of the April payment, below.

38. [73]

    The withdrawals of the $800,000 and the other expenses left BCS with only $1,600 in its bank account, and the account was closed on 29 November. Nothing further appears to have been done with the company, and it was eventually struck off in May 2013.

39. [74]

    Meanwhile, the monthly payments by Mr Bao on the Vaucluse property ceased. The last payment occurred at the end of October 2011. Mr Mao sent text messages about this to Ms Qiu and Mr Bao, to which there was no reply. Over the months of December, January and February Mr Mao paid a total of $54,000 from his own money into the offset account. He also started to have the rent payments being made by Mr Eaton deposited directly to that account.

40. [75]

    At this stage, Mr Mao had possession of the certificate of title for one of the parcels of land making up the Parramatta property which had been acquired by GTIG in August 2010 (see [52] above). The certificate had been provided to him on Mr Bao’s instructions, apparently for safe keeping. On 13 February 2012, Mr Mao lodged a caveat over the parcel. The caveat claimed an interest in the land in the nature of an equitable mortgage by a deposit of title deeds as security for monies (unspecified) allegedly borrowed from Mr Mao by “the registered proprietor”.

41. [76]

    According to Mr Mao, he was later asked by Mr Ku to return the certificate. Mr Mao then gave it to Mr Ku on the assurance that it would be returned, but it was not. This evidence was not contested by Mr Ku.

42. [77]

    On 23 February Mr Bao placed a caveat on the Vaucluse property. The caveat was lodged by Mr Ku on Mr Bao’s behalf. It claimed an equitable interest in the property. It alleged that the property had been “purchased by” Mr Bao and that Mr Mao as registered proprietor held it on trust for Mr Bao.

43. [78]

    On 9 March, Mr Mao emailed a letter to Mr Ku complaining about Mr Bao’s conduct. He called on Mr Bao to repay the remainder of the ¥11 million together with his $371,250 deposit on the Burwood property, and $2 million representing his loan on the Vaucluse property (the loan balance at the time was actually over $3 million, owing to the additional borrowings by Mr Mao).

44. [79]

    On 12 April, an application was made to the Registrar-General to issue a lapsing notice against Mr Mao’s caveat on the Harris Park land. It appears that the notice was issued and the caveat was removed. Mr Mao said that he was in China for an extended period at the time and the lapsing notice did not come to his attention.

45. [80]

    The lease of the Vaucluse property to Mr Eaton had expired at the end of March 2012. On 2 May, it was renewed for a two year period at a rent of $9,125 per month.

46. [81]

    In the meantime, Mr Mao had stopped paying monies into the offset account. The loan payments on the Vaucluse property had fallen into arrears of approximately $39,000. On 7 May, the NAB issued a formal demand and notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW).

47. [82]

    By now Mr Mao saw himself as the victim of a fraud which had been perpetrated by Mr Bao. On 28 June he complained to the police and signed a statement detailing his complaints against Mr Bao.

48. [83]

    Mr Mao did not dispute the NAB’s enforcement action with respect to the Vaucluse property. On 20 July he submitted a hardship request form in which he asserted that he had been defrauded of about $2 million in 2011, and invited the bank to sell the property.

49. [84]

    On 30 August, the NAB began possession proceedings. The proceedings were not defended by Mr Mao but they were defended by Mr Eaton, who sought to remain in occupation of the property in accordance with his tenancy agreement.

50. [85]

    Judgment was given against Mr Mao for $3.42 million in December 2012 but it was not until September 2013 that a writ of possession was finally obtained. Then in February 2014, a last-minute caveat was lodged by Ms Zhang. It was lodged in the name of her mother, Ms Xia, and asserted that $200,000 which she had lent had not been repaid.

51. [86]

    This did not in the end stop the sale which took place in March 2014. On 5 May the proceeds of settlement of the sale ($3.26 million) were received and on 27 May the bank closed off the loan account. There was a shortfall of $338,000. It seems that the bank has never pursued Mr Mao for this amount.

52. [87]

    According to Mr Mao, when he visited China in March and April 2012, he consulted a lawyer there about Mr Bao’s conduct but was told that he would need to take action in Australia. It was not until June 2016 that Mr Mao’s current solicitors sent a letter of demand to Mr Bao. Mr Mao’s statement of claim in these proceedings is dated 1 November but it was not filed until 29 December 2016. I have set out the course of the proceedings thereafter in the preceding part of this judgment.

53. [88]

    At the hearing in May last year, the witnesses in Mr Mao’s case were Mr Mao and Ms Zhang. Both of them were cross-examined on their affidavits. Mr Bao and Ms Qiu both gave evidence in Mr Bao’s case, and were cross-examined. Mr Ku also gave evidence in Mr Bao’s case about Mr Mao’s letter of 9 March 2012 (see [78] above). He was not cross-examined.

54. [89]

    At the hearing in May this year, further affidavits were read from Mr Bao in support of his cross-claim and from Mr Mao in opposition to it. There was a brief further cross-examination of Mr Bao.

55. [90]

    Mr Bao and Ms Qiu do not read or speak English. All of the communications between the four witnesses who gave evidence took place in Chinese. All four of the witnesses gave evidence through interpreters.

56. [91]

    The witnesses were giving evidence years after the event about dealings which had largely been oral, with all of the frailties which that entails. In particular the witnesses could not be expected to be able to recall the precise words which were used in their conversations, and any evidence they did give about those conversations therefore involved the risk of misinterpretation. This risk would have been compounded by the need to translate the witnesses’ evidence about conversations which were originally in Chinese into English.

57. [92]

    The conditions under which the witnesses gave their oral evidence were challenging. All of the witnesses gave evidence remotely. Mr Mao and Ms Zhang were accompanied by an interpreter, but Mr Bao and Ms Qiu gave evidence from China with a remote interpreter in Australia. Naturally this made the task for the interpreters even more difficult than usual. I am sure the interpreters were doing their best but there were occasions on which I was informed through counsel that the lawyers on one side or another (who were bilingual) thought that the translation of questions or answers left something to be desired.

58. [93]

    Ms Qiu’s evidence was peripheral and her cross-examination was brief. No challenge was made to her credit. But the credit of the other three witnesses was challenged at various points in cross-examination and some of the challenges were pursued in final submissions.

59. [94]

    It is easy to understand why these challenges were made. As relayed by the interpreters, there were instances of answers which were non-responsive, sometimes repeatedly so. There were also contradictions between answers given orally and earlier affidavits and oral evidence.

60. [95]

    These difficulties were particularly pronounced in the case of Mr Bao, whose cross-examination was the most extensive. Counsel took up some of his challenges with Mr Bao, putting to him on some occasions that he was refusing to answer questions and on other occasions that evidence he gave which contradicted earlier evidence was false. But the limitations in the process made it very difficult to be satisfied that this was deliberate, as opposed to being the result of difficulties in the translation process (or, in the case of contradictions between the oral evidence and the affidavit evidence, in the translation given to Mr Bao when he made the affidavit).

61. [96]

    As will be seen, I have preferred Mr Mao’s evidence (supported in some instances by Ms Zhang) to that of Mr Bao on the key factual issues in the case. I was left with the impression that Mr Bao has little real recollection of the relevant events. Although I have not found it possible to decide whether Mr Bao was actually trifling with the Court in the manner in which counsel for Mr Mao suggested, I found the overall effect of his evidence so opaque that I was left with little confidence in the reliability of his evidence.

62. [97]

    As I have indicated, there were similar, if not so extensive, difficulties with some of the evidence given by Mr Mao and Ms Zhang. Although I have generally preferred their evidence to that of Mr Bao, I have not accepted it on every point, and I have generally treated it with circumspection.

63. [98]

    Documentary evidence: Although there are bank records which confirm the making of the payment in April 2011, there are no contemporaneous records of the dealings between Mr Mao and Mr Bao which led to that payment. The first written record which refers to it is the memorandum of agreement prepared by Mr Mao on 26 July 2011 (see [68] above).

64. [99]

    The memorandum identified the parties as Mr Bao (Party A) and Mr Mao (Party B). The parties were identified by reference to their passport numbers and telephone numbers (presumably mobile numbers). Mr Bao’s passport and telephone number were Chinese. Mr Mao’s were Australian.

65. [100]

    The operative provisions of the memorandum were (according to the translation provided; emphasis added):

66. [101]

    On 16 August Mr Mao sent Mr Bao a text message stating (in translation):

67. [102]

    On 20 August 2011 Mr Mao sent Mr Bao a text message stating (in translation; emphasis added):

68. [103]

    Following the payment of $800,000 from BCS to Mr Mao’s company, Five Links, on 22 November (see [71] above), Mr Mao sent a text message to Mr Bao on 6 December stating (in translation; emphasis added):

69. [104]

    Also in evidence are three further text messages from Mr Mao to Mr Bao which stated (in translation; emphasis added):

70. [105]

    I have already referred to Mr Mao’s caveat on one of the Harris Park properties which was lodged on 13 February 2012 (see [75] above) in which he claimed money was owing by the “registered proprietor” (that is, GTIG). The loan issue was also raised in Mr Mao’s letter to Mr Ku of 9 March 2012. Mr Mao stated (in translation; emphasis added):

71. [106]

    Witness evidence: In the particulars to his November 2016 statement of claim (which he verified), Mr Mao alleged that the oral agreement for him to lend Mr Bao ¥11 million was reached at a meeting between himself and Mr Bao at Mr Bao’s house in Melbourne. The purpose was allegedly to assist with the Harris Park development. But in his initial affidavit, made in September 2017, he recounted a conversation between mimself and Mr Bao in Sydney, after the meeting with Mr Ku on 30 March at which Mr Bao had signed the indemnity (see [63]-[64] above).

72. [107]

    In an affidavit sworn at the beginning of last year’s hearing, Mr Mao corrected himself. He stated:

73. [108]

    At the time Mr Mao was holding the certificate of title for one of the Harris Park parcels of land (see [75] above). In his initial affidavit Mr Mao stated that once he agreed to make the loan he saw the certificate of title as operating as a form of security.

74. [109]

    In his statement of claim, his initial affidavit and his correcting affidavit, Mr Mao stated that Mr Bao’s purpose in making the borrowing was to fund the Harris Park project. Mr Mao’s version of the conversation, quoted above, has him suggesting that the monies might be made available out of monies he (Mr Mao) had set aside for the Harris Park project. But this seems to be incorrect; the Harris Park project was entirely being carried out by Mr Bao (through GTIG) and there is no suggestion in the evidence that Mr Mao was making any contribution to funding that project. Mr Mao’s reference must have been to the Burwood project not the Harris Park project.

75. [110]

    In his cross-examination, it was suggested to Mr Mao that in his letter to Mr Ku of 8 March 2012, he had stated that the purpose given by Mr Bao for borrowing the money was to fund the Burwood project, not the Harris Park project. I am not sure that Mr Mao accepted there was a contradiction (and I do not think there clearly is). But in the end Mr Mao’s evidence left the purpose of the borrowing unclear. Mr Mao said that Mr Bao sometimes said the money was for the Harris Park project, and sometimes for the Burwood project.

76. [111]

    Returning to Mr Mao’s initial affidavit, he next referred to the July 2011 memorandum of agreement (see [68] above). Mr Mao stated that he showed the memorandum to Mr Bao at a meeting in Ningbo, but Mr Bao replied:

77. [112]

    In his affidavit Mr Mao presented the $800,000 payment in November 2011 (see [71] above) as having been initiated by Mr Bao. He said that he received a call from Mr Bao and the following exchange took place:

78. [113]

    Following this, no further repayments were made, despite requests, and Mr Bao also stopped making payments towards the Vaucluse loan (see [81] above).

79. [114]

    In his initial affidavit, made in March 2018, Mr Bao denied that he borrowed the ¥11 million from Mr Mao, or indeed that he borrowed any money from Mr Mao at any time. According to Mr Bao, the origin of the payment lay in the arrangement which had originally been made for the purchase of the Vaucluse property. He said that it was part of the arrangement that if he decided in the future that he did not want the property, Mr Mao would take it over and buy him out (the full version of Mr Bao’s version of the conversation is set out at [186] below).

80. [115]

    On Mr Bao’s version of events, he decided not to continue with the Vaucluse property in August 2010. He said that following the exchange of contracts on the Burwood redevelopment project on 12 August, he had the following conversation with Mr Mao:

81. [116]

    According to Mr Bao, when no monies had been forthcoming, he spoke again to Mr Mao. This was shortly after he agreed to purchase Mr Doan’s share of the Burwood project in November 2010 (see [59] above). He said they had the following conversation:

82. [117]

    Mr Bao stated that thereafter he continued to press Mr Mao for the Vaucluse property monies, but Mr Mao seemed to be avoiding him. Then, on 11 April 2011 or shortly afterwards, he received a call from Mr Mao and the following exchange took place:

83. [118]

    According to Mr Bao, he was also waiting for Mr Mao’s share of the monies required by BCS to complete the purchase of the Burwood site. Mr Bao stated that matters came to a head after BCS missed the deadline of 8 June 2011 (see [67] above). He spoke to Mr Mao and the following conversation ensued:

84. [119]

    Mr Bao stated that he did not speak to Mr Mao again after this conversation. He denied ever being shown the memorandum of agreement prepared by Mr Mao, or receiving any of Mr Mao’s text messages. According to Mr Bao, he was still at the time using a phone with a numeric keypad and it could not be used (or at least he did not know how to use it) to write text messages in Chinese characters.

85. [120]

    In his affidavit, Mr Bao denied that he had anything to do with the transfer of the $800,000 to Mr Mao’s company, Five Links, in November 2011. He noted that he had signed some cheques on BCS’ operating account in blank to allow for the payment of expenses. Mr Bao acknowledged that four of the payments were for expenses incurred in the Burwood project, albeit that he had never been informed by Mr Mao that the cheques were to be issued. The implication was that the fifth payment had been made (presumably by one of the pre-signed cheques) without Mr Bao’s knowledge or approval.

86. [121]

    Mr Bao stated that he noticed the debits to BCS’ account on the bank statement and as a result obtained copies of the cheques. He then reported the matter to a police station “in central Sydney” but was told that the matter was a civil one and he should consult a lawyer. A few days later he had a meeting with a solicitor in the CBD of Sydney. This was not Mr Ku, who had acted for Mr Bao on the BCS transaction. In his affidavit, Mr Bao stated that he could not recall the name of the solicitor that he consulted.

87. [122]

    Mr Bao said he did not take legal action at the time as he “did not have sufficient time to provide proper instructions” and that he “believed I could always pursue the money at a later time if I intended to do so”. He said he later returned to China and had “not been able to return to Australia for any significant period due to my work obligations”.

88. [123]

    Mr Bao did not refer in his affidavit to Mr Mao’s caveat over the Harris Park property, or his letter of 9 March 2012. But Mr Ku confirmed in his evidence that he did receive the email from Mr Mao, although he no longer had a copy of the letter itself, which had been an attachment to the email. He continued:

89. [124]

    This evidence from Mr Ku appeared in an affidavit he made on the second day of the hearing in May last year. There was no further affidavit evidence about the letter from Mr Bao.

90. [125]

    In reply to Mr Bao’s evidence about the text messages, Mr Mao stated that when he sent such messages to Mr Bao, it was Mr Bao’s practice to ring him back to discuss them rather than to send a text message in response. Mr Mao said however that he had on many occasions seen Mr Bao reading text messages he received on his phone, and sending responses. In cross-examination Mr Mao confirmed that Mr Bao would read text messages, although it was less clear whether he actually sent any himself.

91. [126]

    Conclusions: In evaluating the conflict of evidence between the parties, I think there are five features of the evidence which are of particular significance. I will deal with them in turn.

92. [127]

    First, the objective evidence supports Mr Mao’s contention that Mr Bao was short of money in 2011. There was unchallenged evidence from Mr Mao that work on the Harris Park site ceased and the site was left in a state of disarray. There is also the repeated failure of BCS to provide the money to settle the purchase of the Burwood property, and the eventual termination of the purchase contract by Burwood Council.

93. [128]

    There is also the indemnity document signed on 30 March 2011. The indemnity is consistent with Mr Bao being under financial pressure and wishing to keep Mr Mao in the Burwood property transaction.

94. [129]

    In his affidavit, Mr Bao attempted to blame the failure of the Burwood project on Mr Mao’s inability to raise his fifteen percent share, but as Mr Bao was himself responsible for the other eighty-five percent I did not find this credible. It was not put to Mr Mao in cross-examination. Nor did it explain the problems with the Harris Park project.

95. [130]

    On his own admission in his affidavit, Mr Bao set $17 million aside to fund the completion of the Burwood property purchase but then lost some of it gambling at Star City. In cross-examination, it was put to him that he lost $43 million at Star City in the period up to March 2011. Mr Bao did not directly answer this but did go on to give the following, rather startling, evidence:

96. [131]

    The second factor is that Mr Bao’s dealings with Mr Mao in 2011 are difficult to reconcile with Mr Mao having agreed to pay Mr Bao $2 million or more for to buy him out of the Vaucluse property. Counsel for Mr Mao put to Mr Bao in cross-examination that he would hardly have signed the indemnity document of 30 March 2011 if Mr Mao owed him money, and Mr Bao appeared to accept this.

97. [132]

    More important still was the fact that Mr Bao’s loan repayments on the Vaucluse property continued, even after April 2011 when Mr Mao made what, according to him, was a major down-payment on the purchase of the property. When cross-examined about this, Mr Bao could only say that he forgot to tell his wife about his deal with Mr Mao.

98. [133]

    I did not find this at all credible. It is especially difficult to accept when the payments continued after Mr Mao’s statement of 6 July 2011 (see [182] below). When challenged on this in cross-examination, Mr Bao said he had not seen the statement. But this was contrary to his own affidavit, which had exhibited the document in the first place, and in which Mr Bao expressly stated that he saw it when it was sent to him.

99. [134]

    The third point is that both the memorandum of agreement prepared by Mr Mao in July 2011 and the text messages from August support the existence of the loan. There was uncontested expert evidence which confirmed that the memorandum document had been created on 26 July 2011, the day before the date it bears, and that the text messages had indeed been generated and sent on the dates which they bear.

100. [135]

     This in itself makes it difficult to accept that Mr Bao would not have received the text messages. Mr Bao was pressed on this in cross-examination, and denied counsel’s suggestion that he must at least have received some form of notification that the text had arrived, even if he did not look at it. I did not find this evidence very persuasive but in the end, even if it were accepted, that would have only limited significance.

101. [136]

     The memorandum and the texts were written only a few months after the event and provide strong corroboration for Mr Mao’s evidence that the April 2011 payment was a loan. They also, incidentally, confirm Mr Bao’s gambling problem as being the source of the problems with the Burwood project, and in particular the cause of Mr Doan’s withdrawal (contrary to affidavit evidence of Mr Bao asserting that it was simply because Mr Doan lacked money). The messages in December 2011 and January 2012 are also entirely consistent with Mr Bao having had an ongoing obligation to finance the Vaucluse property.

102. [137]

     The fourth point is that what purports to be Mr Bao’s signature appears on the 22 November transfer authorisation form which resulted in $800,000 being paid from BCS to Mr Mao. This is consistent with Mr Mao’s evidence that it was an agreed, partial, repayment of the monies advanced in April. Mr Bao had no explanation for the payment except to say that the authorisation was a forgery.

103. [138]

     In the face of a purported signature by a party, that party faces a significant evidentiary onus in asserting that the signature is false: see Kunc J in In the application of Roderick Mackay Sutherland and Sule Arnautovic [2014] NSWSC 821 at [62]-[67]. There was no expert evidence to support Mr Bao’s assertion in this case, and his own evidence was unsatisfactory.

104. [139]

     Mr Bao’s initial affidavit was based on the inaccurate supposition that the money had been transferred by way of cheque withdrawal. When it emerged that there had been two signed transfers (see [71] above), Mr Bao did not dispute that the signature on the transfer which terminated the term deposit and credited the proceeds to the operating account was his. It was only the second signature which he maintained was false. Of itself this demonstrated that there must have been some communication between Mr Bao and Mr Mao about the term deposit. Mr Bao did not attempt in his evidence to explain how he had been so mistaken in his affidavit.

105. [140]

     Furthermore, when asked in cross-examination why he agreed to the term deposit transfer, Mr Bao said that he trusted Mr Mao. This conflicted with the evidence in his affidavit that by June he thought that Mr Mao was a liar and untrustworthy. When this conflict was put to Mr Bao in cross-examination he had no real explanation.

106. [141]

     The fifth important feature of the evidence is Mr Bao’s lack of action to recover the $800,000 BCS payment (or to pursue the further money supposedly owing on the Vaucluse property). Mr Bao’s evidence that he consulted some other solicitor about the payment was surprising, when Mr Ku had acted for BCS on the transaction. Mr Bao’s evidence of the consultation was unimpressively vague and his excuses for not taking action I thought were unconvincing.

107. [142]

     There was also Mr Bao’s lack of response to the letter of 9 March. It is clear from the evidence of his own solicitor, Mr Ku, that Mr Bao would have been told about the letter and asked whether he wanted to have it explained to him. Clearly he took no notice of the letter. In cross-examination, Mr Bao said only that he could not recall Mr Ku telling him about the letter.

108. [143]

     I suspect that, at least from Mr Bao’s side, the friendship between the parties ended in June 2011 when Mr Mao indicated that he no longer wished to be involved in the Burwood project or to assist with the management of the Harris Park project. That would explain Mr Bao’s failure to respond both to Mr Mao’s subsequent texts and to the letter of 9 March 2012. But if that is the explanation for what happened, it does nothing to undermine Mr Mao’s version of events.

109. [144]

     For his part, counsel for Mr Bao said little if anything to counter these points. But counsel did advance several arguments of his own as to why Mr Mao’s version of events should not be accepted overall.

110. [145]

     First, counsel referred to the inconsistences in Mr Mao’s account about where the alleged agreement to make the loan was made, and Mr Bao’s stated purpose in borrowing. But in my view any inconsistency about the purpose of the loan is unimportant. Whether the monies were to be used to fund the Harris Park project or the Burwood project (or for any other purpose) was irrelevant to the nature of the payment. And the inconsistency about where the conversation took place, while not irrelevant, seems to me to be of little significance in the scheme of things.

111. [146]

     Next, counsel submitted that the logic of events supported Mr Bao’s case. Counsel submitted that Mr Bao had invested a great deal of money in the Vaucluse property. Why, counsel asked, should Mr Bao have borrowed when Mr Mao had agreed to buy him out of the property? The first answer to this question is that I only have Mr Bao’s word that Mr Mao had promised to buy Mr Bao out. As will be seen below, I do not accept that Mr Mao ever agreed to buy the property from Mr Bao, let alone to pay Mr Bao everything he had spent on it since 2004.

112. [147]

     I suppose that, if he wished, Mr Bao could have required Mr Mao to sell the property and account to him for the difference between the amount received and the loan which he had authorised (which at that point would have been $2 million or so: see [269] below). But the fact that he continued to make repayments on the loan indicates that at the time Mr Bao wished to continue to retain it under the then current arrangements.

113. [148]

     Counsel for Mr Bao also pointed to the claim in Mr Mao’s caveat that he had lent money to GTIG. But I think this is of no real assistance to Mr Bao for present purposes. Indeed the caveat supports the assertion that the payment was a loan, rather than a payment for the Vaucluse property. I will refer to the issue about the identity of the borrower in the next part of this judgment.

114. [149]

     The evidence in Mr Mao’s initial affidavit about the transfer of the $800,000 in November 2011 also has its deficiencies. Clearly the impetus for the execution of the transfers and their lodgement with the bank would have come from Mr Mao, not from Mr Bao as Mr Mao suggested in the affidavit. But while that is a reason to suspect reconstruction in the affidavit, it does not negate the fact of the transfer with what appears to be Mr Bao’s signature on it.

115. [150]

     There is also the fact that Mr Mao was slow to bring his action against Mr Bao. It is not implausible that Mr Mao was advised by a Chinese lawyer in 2012 not to bring proceedings in China, but the further delay for more than four years is completely unexplained. However, this point was not the subject of cross-examination, and given the existence of contemporaneous, or near-contemporaneous, assertions of liability I think it has little weight.

116. [151]

     On balance I think the evidence clearly favours Mr Mao’s account over Mr Bao’s. I am satisfied that the ¥11 million payment in April 2011 was a loan and not a partial repayment of monies owed pursuant to the arrangement concerning the Vaucluse property.

117. [152]

     Remittances by Mr Bao: As I set out in Xinfeng at [84], the way in which the KVB Kunlun system operates is a form of barter. Where a KVB Kunlun customer wishes to receive money in Australia from a payer in China, KVB Kunlun nominates accounts in China to which the payer pays money in Chinese currency, and the Australian customer receives, in Australian currency, payments of an equivalent value organised by KVB Kunlun.

118. [153]

     The records of the payments made in China by Mr Bao were in evidence. They totalled ¥12,586,200. Mr Bao’s cross-claim also contained an Australian dollar figure for each payment. Those figures totalled $2,106,300. But it is not clear where the figures came from. They may simply have been calculated according to prevailing exchange rates, without reference to the specific rates offered and fees charged by KVB Kunlun.

119. [154]

     The documents included a copy of one KVB Kunlun deal sheet, apparently issued in Sydney. This showed Ms Zhang as KVB Kunlun’s “client”, and a Sydney account in the name of her mother, Ms Xia, as the account to which payment would be credited. The Australian dollar amount was less than the corresponding figure in Mr Bao’s cross-claim. Instead it reconciled with the figure in the July 2004 statement provided to Mr Bao (see [174] below).

120. [155]

     The July 2004 statement showed total receipts of ¥12,576,200, ¥10,000 less than the figure shown in the Chinese bank transfer records. But counsel for Mr Bao expressly took no point about this. Given that the Australian dollar figures in the statement appear to have been taken from the actual KVB Kunlun deal sheets, I propose to adopt those figures for the purposes of this judgment. They total $2,076,113.

121. [156]

     The KVB Kunlun remittances are summarised in the following table:

122. [157]

     As already noted, further remittances were sent by or on behalf of Mr Bao from June 2004 until October 2011. Some of the payments were made by Mr Bao and some by Ms Qiu. One payment was made by Jiang Hongya, who is the nephew of Mr Bao and worked for him as an accountant or bookkeeper in China. Other payments were made by Qiu Ailan and Han Xiangdong, who are not identified in the evidence, but there is no dispute that those payments were made on behalf of Mr Bao.

123. [158]

     Some of the payments were made in cash to Mr Mao, who would write out and sign a receipt for them, and those receipts are in evidence. The other payments were made by direct credit to Mr Mao’s offset account (or by cheque deposited to the offset account).

124. [159]

     The remittances totalled $1,162,475 and are summarised in the following table:

125. [160]

     Loan payments to the NAB: The NAB loan account statements showed that initially the automatic monthly loan payments debited to the offset account were $13,755. This amount covered both interest and a relatively small principal repayment. Automatic monthly payments continued until December 2005 at which point they were suspended (but occasional credits appear and during this period the loan balance remained below the facility limit).

126. [161]

     The automatic monthly loan payments resumed from January 2007. They increased following the drawdowns by Mr Mao in September 2007 and March 2008. Immediately before the September 2007 drawdown the payments were $13,962 per month. Following the March 2008 drawdown, they were $26,280 per month. The payments were debited to the offset account on the 5th of the month or the following business day.

127. [162]

     Offset account: The offset account was a conventional deposit account which could be used for regular banking transactions. Judging from the statements, not all of the cash remittances from Mr Bao seem to have found their way into the account, and from time to time there were debits to the account which seem to have had nothing to do with the Vaucluse property.

128. [163]

     By the same token, the credits to the account are not all made up of remittances from Mr Bao; some of them appear to have come from Mr Mao himself, and increasingly so after the borrowings were increased in October 2007 and March 2008. And not all of the expenses associated with the Vaucluse property appear to have been debited to the account; these expenses were presumably paid by Mr Mao from some other source.

129. [164]

     It is therefore clear that the offset account was not exclusively used for income and expenditure on the Vaucluse property. As will be seen, a full reckoning of both credits and debits concerning the Vaucluse property appears to have been undertaken separately.

130. [165]

     As already noted, no further remittances were made by Mr Bao after the end of October 2011. For several months Mr Mao used his own monies to keep the offset account in credit so that the automatic monthly payments were met. But from March 2012 onwards, there were insufficient funds to meet the automatic loan repayments from the offset account and they were dishonoured. As will be seen, some rental monies were paid into the offset account up until the end of May 2012, but early in June the then balance of $14,000 was transferred across to the loan account and thereafter the offset account remained inactive.

131. [166]

     Rent receipts: The lease to Mr Eaton (see [62] above) was organised by an agent retained by Mr Mao, Eastern Suburbs Prestige Properties Pty Limited (“ESPP”). Under the terms of the lease, the rent was payable to ESPP. From January 2012, ESPP accounted monthly to Mr Mao (after deduction of expenses and management fees) by way of direct credit to the offset account. These direct credits ceased after May 2012.

132. [167]

     In late October 2012, the NAB served a statutory notice as mortgagee requiring Mr Eaton to pay for the rent payable under his lease directly to it as mortgagee. In compliance with this notice, Mr Eaton paid the monthly rent into the loan account with the NAB from November 2012 through until September 2013, which is when the NAB obtained a writ of possession (see [85] above).

133. [168]

     The payments made by ESPP for the period from March to December 2011 and for the period from June to October 2012 are thus unaccounted for in the evidence. In January this year, Mr Mao’s solicitors wrote to ESPP seeking records about the Vaucluse property. The response was that ESPP did not hold any records, because records were not retained for more than seven years.

134. [169]

     Expenses of Vaucluse property: In an affidavit of August 2019, Mr Mao identified expenditure on the Vaucluse property totalling $11,903 between 2004 and 2008, and exhibited the supporting documents. They included:

     1. (1)

        rate notices from the local council;

     2. (2)

        bills covering water rates and water usage charges from the water authority;

     3. (3)

        electricity bills; and

     4. (4)

        a home insurance policy effected on 31 March 2004 in the name of Mr Mao and Ms Zhang.

135. [170]

     These records appeared to be incomplete. In particular, the only insurance documents dated from 2004 and there were no records of payment of strata fees (referred to in the February 2010 statement provided by Mr Mao to Mr Bao: see [176] below).

136. [171]

     At the hearing earlier this year there was evidence presented from Mr Mao’s solicitors of attempts to obtain records of the payments to the local council and the water authority. A summary of receipts obtained from the council, which went back to 2004, was produced and tendered. The evidence showed that the water authority has receipt records going back to 1987 which could be produced if necessary, but no actual record was tendered for the purposes of the hearing. There was no evidence of any inquiries having been made to the electricity authority, the insurer or the body corporate.

137. [172]

     The list of receipts produced by the council identified the rate payments made on the Vaucluse property from 2004 up to February 2011 as “agency payments”. The early council rate notices produced by Mr Mao show that payment was made over the counter at various different branches of the Commonwealth Bank of Australia, and presumably this continued up to February 2011, although the later rate notices are not in evidence.

138. [173]

     The next few rate payments, which were made between November 2011 and September 2012, were made by direct credit through the Australia and New Zealand Bank (“ANZ”). These coincided with the period during which ESPP was acting as agent, and may well have been paid by ESPP out of the rent received from Mr Eaton, but Mr Mao was not asked about this. Then there are no payments until a final payment, apparently representing several years’ rates, was made on 7 May 2014. This was the date on which the sale of the property settled, and the payment was presumably made directly out of the settlement proceeds.

139. [174]

     Statements provided to Mr Bao: Exhibited to Mr Bao’s March 2018 affidavit was a fax sent around July 2004 (but wrongly dated 22 July 2002) which was an informal statement of account covering the purchase of the Vaucluse property. The statement recorded that the property had been purchased for $4.28 million and that additional fees and expenses of $212,000 had been incurred. The bank loan was recorded at $2.47 million (presumably reflecting $2.275 million borrowed from the NAB and $200,000 borrowed through Ms Xia). Taking into account the receipts via KVB Kunlun ($2.076 million) Mr Bao was in surplus $55,000.

140. [175]

     Also exhibited to Mr Bao’s affidavit were three handwritten documents which he said he received from Mr Mao, containing details of the payments Mr Bao was making on the Vaucluse property. Mr Mao did not dispute that he sent these documents to Mr Bao, and the second one was signed by him.

141. [176]

     The first document was dated 17 February 2010 and headed “home loan repayment and miscellaneous fees list” for the period from February 2009 to January 2010. It showed remittances received during the period in question of $193,558, with deductions for “home loan repayment” of $215,335 (consisting of $130,651 in interest and $86,684 in principal) and “miscellaneous fees” of $3,013 (which included council rates, strata fees, water and electricity). Taking into account a remittance of $54,985 which had not been included in the prior calculation period, the result was a credit in Mr Bao’s favour of $30,196.

142. [177]

     Attached to the document was a breakdown of the “home loan repayment” figures. It consisted of a pre-printed table under the heading “AUD 2,275,000 home loan monthly repayment list”, with space for the date, which was filled out in handwriting as 10 February 2010.

143. [178]

     The table itself contained handwritten entries for each month from February 2009 to January 2010. In each case there was a monthly “repayment” figure, an opening balance, an interest rate (apparently reflecting the rate being charged by the bank), a figure for interest, and a reduced closing balance reflecting the amount by which the monthly repayment figure exceeded the interest calculated. The table also included the annual facility fee as a charge.

144. [179]

     The opening balance as at 1 February 2009 was $2,157,054. The monthly repayments totalled $215,335 and the interest totalled $129,651 (as recorded in the covering document). The result was that the closing balance on 31 January 2010 had fallen to $2,071,764, a reduction of $85,290 (the disparity with the principal repayment figure shown in the covering document was that it omitted to take account of the facility fee of $395).

145. [180]

     The “loan repayment” was given as $17,944.56 per month. Where this figure came from does not appear from the evidence. It bears no obvious relationship to the quantum of the automatic loan payments charged by the NAB, either before or after the automatic payment amount was increased following the further borrowings in 2007 and 2008.

146. [181]

     The second handwritten document was dated 5 June 2010 and headed “home loan preliminary verification”. It recorded remittances and “loan repayments” for the four months from February to May, with the loan repayment debited to Mr Bao again being $17,944.56 per month. Taking into account the opening balance of $30,196 in Mr Bao’s favour, the document showed the net amount owing to Mr Mao at the end of May as $22,998. It did not contain any interest and principal reduction calculations, or any record of other expenses such as rates.

147. [182]

     The third handwritten document was dated 6 July 2011 and headed “records in relation to home loan”. It began by stating (in translation):

148. [183]

     Mr Mao listed the further payments up to Ms Qiu’s payment of $8,000 on 1 July 2011, which, based on a requirement to pay $18,000 per month, left $18,000 owing. Mr Mao asked Mr Bao, once he had “verified the above information”, to transfer the amount payable. He reminded Mr Bao that if payment was not made by the end of the week, there would be a late repayment fee.

149. [184]

     Ms Qiu did in fact make a payment of $18,000 on 7 July, the day after the date of Mr Mao’s document. This brought the account back into balance and further payments of $18,000 were made at the beginning of August, September and October. The final $18,000 payment was made on 31 October and was presumably intended as the repayment for November.

150. [185]

     Although Mr Mao seemed to indicate in July 2011 that he would undertake the calculations breaking the monthly repayments down into notional interest and notional repayments of principal, as had been done in February 2010, he seems never to have done so. Nor did the July 2011 document itself contain any details of rates and other expenses incurred on the property.

151. [186]

     Witness evidence: According to Mr Bao, after he inspected the Vaucluse property, a conversation took place in the following terms:

152. [187]

     In his affidavit, Mr Bao presented the ensuing financial arrangements as having taken place between himself (or people in China acting on his behalf) and Mr Mao. He stated that the details of the bank transfers required by KVB Kunlun were telephoned through by Mr Mao. He also stated that initially he had intended to fund the entire purchase of the Vaucluse property himself, and it was Mr Mao’s suggestion which resulted in the mortgage being taken out with the NAB. Mr Bao asserted in his affidavit that the statement which he received in about July 2004 was sent to him by Mr Mao, although a successful objection was taken to the form of this part of the affidavit.

153. [188]

     In the course of Mr Bao’s cross-examination, it became apparent that the course of events had been more complicated than his affidavit suggested. Mr Bao said that he and his wife travelled to Australia for a total of about ten days, of which they spent four or five days in Sydney. They also spent time on the Gold Coast. Initially Mr Bao said that he, Ms Qiu, Mr Mao and Ms Zhang visited the Vaucluse property together, Mr Mao being the driver. An agent was also apparently present. The conversation set out in Mr Bao’s affidavit, which I have quoted at [186] above, took place in the car on the way back. Mr Bao maintained that, although an agent had been present, he was told about the purchase price of $4.28 million by Mr Mao.

154. [189]

     But later in his cross-examination, Mr Bao said that he visited the Vaucluse property on several occasions, sometimes with an agent, and sometimes by himself. He also said that initially the purchase price had been higher than $4.28 million and had been negotiated down. He volunteered that Ms Zhang had conducted the negotiations with the agents on the price.

155. [190]

     This was inconsistent in important respects with Mr Bao’s affidavit, and Mr Bao eventually described the conversation recounted in the affidavit as an amalgam of a number of different conversations at different times and in different places. Mr Bao’s altered version of events had not been put to Mr Mao or Ms Zhang when they gave their evidence.

156. [191]

     Mr Bao nevertheless maintained that Mr Mao had provided him with at least some of the details required to make the KVB Kunlun transfers, although he did say that these details would be provided either by Mr Mao or Ms Zhang. Mr Bao also maintained that it was Mr Mao who had wanted for him to borrow money, whereas his preference, and practice, would have been to pay the whole of the purchase price himself. At another point in his evidence, he said that he was told by Mr Mao that borrowing costs were low in Australia.

157. [192]

     Mr Bao was asked why he borrowed, and incurred the interest cost, at all. I did not find his response to this question, as relayed through the interpreter, clear. Mr Bao professed to be unfamiliar with borrowing. He was cross-examined on the borrowing activities of companies with which he was associated. As relayed by the interpreter, his response seems to have been that borrowing for the purposes of buying residential property is not permitted in China and that while the companies with which he was associated had engaged in borrowing, this had been done by the management.

158. [193]

     I did not find this evidence very plausible. In any event the borrowing arrangement with NAB was not complicated. I am sure that the concept of borrowing money and being obliged to pay it back, with interest payments in the meantime, would have been clearly understood by a man with Mr Bao’s commercial experience.

159. [194]

     On Mr Mao’s account, his involvement was much more peripheral than that alleged by Mr Bao. Mr Mao stated that he did not attend the inspection of the Vaucluse property with Mr Bao and Ms Qiu; that was handled by Ms Zhang. Mr Mao stated that following the inspection he had a conversation with Mr Bao to the following effect:

160. [195]

     Mr Mao denied that he was involved in making any of the arrangements for receipt of monies via KVB Kunlun. He left this to Ms Zhang. He also stated that he did not send the July 2004 statement to Mr Bao. In a later affidavit, he denied that he had ever seen the statement prior to it being produced by Mr Bao for the purposes of the proceedings.

161. [196]

     Ms Zhang’s affidavit account was consistent with Mr Mao’s account. She stated that she attended the inspection of the Vaucluse property with Mr Bao. She was also responsible for dealing with Mr Bao on the purchase, including organising the KVB Kunlun payments, which were received into her mother’s bank account. She was not party to any discussion about Mr Bao being able to “put” the property to Mr Mao in future.

162. [197]

     Ms Zhang made no comment in her affidavit about the July 2004 statement. She stated that her relationship with Mr Bao became strained in late 2008 or thereabouts, and that thereafter she did not deal with him about the Vaucluse loan. This tended to suggest that she might have dealt with Mr Bao on that issue before late 2008, but Ms Zhang did not go into any detail.

163. [198]

     In cross-examination, both Mr Mao and Ms Zhang said that it had been Ms Zhang alone who had dealt with Mr Bao over the KVB Kunlun remittances. It also appeared from their evidence that Ms Zhang provided all of the instructions to the conveyancer who was retained to act on the purchase, and Mr Mao’s role was confined to signing the contract. It also seemed that Ms Zhang set up the loan and offset accounts with the NAB. Mr Mao identified the handwriting on the July 2004 fax statement as being that of Ms Zhang, and Ms Zhang expressly confirmed that she wrote the fax and sent it to Mr Bao.

164. [199]

     Although the fax stated that the purchase price was $4.28 million, the transfer form records that the price received by the vendor of the Vaucluse property was in fact $3.8 million. Mr Mao said that he would have been aware that the purchase price was $3.8 million in 2004, as a result of signing the contractual documentation. He denied that he was aware of the disparity between that figure and the amount reported to Mr Bao.

165. [200]

     When she gave evidence Ms Zhang was cross-examined about the disparity. She said that she paid $400,000 to two agents involved in the transaction. She kept $80,000 for herself.

166. [201]

     Ms Zhang was pressed about this by counsel for Mr Bao. She said that she did not tell Mr Bao about the $400,000 paid to the agents, and her cross-examination continued:

167. [202]

     Moving to the later remittances, Mr Mao accepted that he received the cash referred to in the receipts which he signed. In cross-examination, he was asked some questions about what he did with the money, as not all of it appears to have been paid into the offset account. These questions were expressly put on the basis that they went only to Mr Mao’s credit, because at the time there was no claim for a general account. Mr Mao said that some of the monies were spent on airfares and other Australian expenditure for Mr Bao. Counsel for Mr Bao challenged this, but it is consistent with the fact that one of the expense items in the February 2010 statement is a charge for an air ticket.

168. [203]

     It appeared from Ms Zhang’s evidence that she was responsible for establishing the NAB accounts, and at least initially, for handling the deposit of money into them. It was not clear from the evidence how long this went on for. In cross-examination, Ms Zhang said that it ceased in 2004 or 2005, but as already noted, in her affidavit she said it was not until late 2008 that she ceased dealing with Mr Bao (and even if she did cease dealing with Mr Bao, that does not necessarily mean that she ceased handling the money and doing the accounts behind the scenes).

169. [204]

     One of the things which might have cast light on this question was what the living arrangements were between Mr Mao and Ms Zhang over the period from 2004 to 2014. The Earlwood property where they were living in 2004 belonged to Ms Zhang’s mother, Ms Xia. The ASIC forms lodged as late as 2011 showed that as Mr Mao’s address. By the time he came to verify his statement of claim in November 2016, he was living at an address in Bexley. There was, however, no evidence of when he moved.

170. [205]

     Mr Mao said little in his affidavits about the increases in the facility limit, and the drawdown of the resulting funds, which took place in October 2007 and March 2008. He simply stated that he had been “offered” the October 2007 increase, and exhibited the formal bank offer document. He stated that the idea had come from Ms Zhang. She had been frustrated by the amount of time required to repay the $200,000 borrowed through her mother and suggested to Mr Mao that he keep the money so as to cover himself in case Mr Bao proved unable to repay.

171. [206]

     According to Mr Mao, he told Mr Bao about the borrowing in about April 2008. He stated that they had a conversation to the following effect:

172. [207]

     In an affidavit made shortly before last year’s hearing, Ms Zhang went into some further detail about the additional borrowing through her mother. She stated that this was necessary because the bank would not advance any more than $2.275 million. She stated that she told Mr Bao and Ms Qiu about the additional borrowing (twice) in about July 2004. In reply, both Mr Bao and Ms Qiu denied that they were ever told anything about the loan, either in 2004 or in 2008, or about any further borrowing on the property.

173. [208]

     It is clear from the terms of the February 2010 loan statement provided to Mr Bao that there would have been earlier calculations of a similar nature undertaken. Somewhat surprisingly, Mr Mao did not give any evidence about the preparation of the statement, and Mr Bao was not asked in cross-examination what he made of it.

174. [209]

     Mr Mao did however state in his affidavit for the purposes of the resumed hearing this year that in about 2007 he sent a loan reconciliation (of an unspecified nature) by email to one of Mr Bao’s employees. That email is now inaccessible because the address has been deregistered.

175. [210]

     In the same affidavit, Mr Mao stated that he paid his $371,250 share of the deposit on the purchase of the Burwood site by means of a bank cheque drawn on the account of his company, Five Links, in about August 2010 when contracts were exchanged. He said he no longer had the cheque book for the Five Links account. This evidence was not the subject of cross-examination.

176. [211]

     Recent searches by Mr Mao’s solicitors have demonstrated that the real estate firm which received payment of the deposit has no extant records. The NAB, which produced records of BCS’ operating account for November 2011, did not become BCS’ banker until March of that year.

177. [212]

     Conclusions: I reject Mr Bao’s evidence that the arrangements for the remittance of money via KVB Kunlun for the purchase of the Vaucluse property were made with Mr Mao. The documentary evidence supports Ms Zhang’s evidence that it was she who held the account with KVB Kunlun and that the remittances were directed by her to her mother’s account. Whether some of the payments were made in Australia in cash, as Ms Zhang claimed in cross-examination, is irrelevant for present purposes.

178. [213]

     I also accept that Mr Mao was not responsible for preparing the July 2004 statement. There is simply no reason to disbelieve his evidence on this point. Still less is there any reason to disbelieve Ms Zhang, who, so far as appears, was a disinterested witness on this point.

179. [214]

     The pattern of the KVB Kunlun remittances is instructive. The first remittance, on 1 March 2004, was exactly $380,000, which was ten per cent of the purchase price and presumably represented the deposit, which would have been payable on exchange. The second remittance, on 16 March, was $480,000. This corresponds exactly with the sum of money Ms Zhang paid to the other agents and kept for herself, effectively as remuneration for their roles in the sale. It makes sense that this would have been paid at around the same time as the deposit. The remaining remittances came in late May, and would have been for the purposes of completion and payment of incidental expenses.

180. [215]

     All of this is consistent with Ms Zhang being the person who was generally responsible for making the purchase arrangements and handling the associated monies. That conclusion is also consistent with the evidence about the negotiations with the vendor (see [189] above) and the retainer of the conveyancer who acted on the purchase (see [198] above). The pattern of remittances also supports Mr Mao’s denial, which I accept, that he had anything to do with the payment of the $480,000 to the agents and Mr Zhang.

181. [216]

     In the end, there is no objective evidence that Mr Mao did anything more than allow Ms Zhang to put his name on the title and on the mortgage. I am not satisfied that he in fact did anything more.

182. [217]

     Mr Bao’s account of the conversation following his decision to buy the Vaucluse property is not easy to interpret. On his version it is unclear what was “the money” which Mr Mao allegedly promised to repay if Mr Bao decided to “put” the property to him (or, indeed, if Mr Mao decided to “call” the property). In any event, the conclusions I have already reached lead me to prefer Mr Mao’s version of events. I am not satisfied that he did anything more than agree with Mr Bao to hold the property and to pay the expenses, provided that Mr Bao contributed the necessary funds.

183. [218]

     Given my findings, it is not necessary to consider whether there was any justification for the difference between the $3.8 million paid to the vendor and the $4.28 million purchase price reported to Mr Bao. It is not impossible that the $400,000 payment to the agents resulted from some sort of bargain between the vendor, Ms Zhang, and the agents, under which the vendor agreed to take a reduced price and have the agents remunerated out of the difference. Ms Zhang may have thought herself entitled to take the remaining $80,000 for her trouble, on the basis that Mr Bao had been prepared to pay $4.28 million anyway. But what is sufficiently clear is that Ms Zhang did not disclose that to Mr Bao (or Mr Mao).

184. [219]

     On the other hand, it was clearly disclosed in the July 2004 statement that the amount actually borrowed to complete the purchase was $200,000 more than the $2.275 million borrowed from the NAB (the difference between $2.475 million and the $2.47 million shown in the document is not material). There is no reason to doubt that the $200,000 was in fact borrowed: the statement shows that additional monies were required to complete the purchase, and bank records show that on 19 May $194,000 was drawn down on Ms Xia’s home loan facility. Whether Ms Zhang specifically told Mr Bao about the borrowing from her mother does not seem to me ultimately to matter for the purposes of these proceedings. It is not unlikely that the point would have come up between them, although she may not have told Ms Qiu.

185. [220]

     On my findings none of the KVB Kunlun funds passed through Mr Mao’s hands. The later remittances from June 2004 to October 2011 were different. It is tempting to speculate that Ms Zhang may have been responsible for handling the money and doing the accounting up until February 2010, but ultimately there is no evidence on this question and the answer does not matter for the purpose of resolving the disputes in this case. Whether Ms Zhang was involved or not, the later remittances passed through Mr Mao’s bank account (or his hands, in the case of the cash) and he accepted responsibility for them in his reports to Mr Bao.

186. [221]

     It is clear from the February 2010 statement that by the time that document was prepared (and probably going back to 2008: see [224] below) the parties were working on a total loan of $2.275 million, not $2.475 million. This makes it likely, in my opinion, that the repayment of the additional $200,000 would have come up in discussions with Mr Bao, but again that does not seem to me to be of much importance in the resolution of this case. What is clear is that the $200,000 was borrowed, and was repaid, and the accounting statements provided to Mr Bao reflected that.

187. [222]

     This, however, does not mean that Mr Mao necessarily disclosed the additional borrowings in October 2007 and March 2008 to Mr Bao. Mr Mao’s explanation for these transactions is difficult to accept. In increasing the amount being lent he was increasing his exposure to the bank. It did not make any commercial sense for him to do that simply to raise a fund against the possibility that Mr Bao might later find it difficult to repay the bank debt. Nor, on the evidence, was there any other liability against which would have made sense to take some form of security.

188. [223]

     I think the more likely explanation is simply that Mr Mao wished to raise funds for his own purposes and borrowing against the Vaucluse property was a convenient way of doing so. I see no reason not to accept Mr Bao’s statement that he was never told about the additional borrowings. Even on Mr Mao’s account, the explanation only referred to paying off Ms Xia’s $200,000 loan and would have been incomplete. According to Mr Mao the explanation was given following the second drawdown, but in fact Ms Xia was paid off with the proceeds of the first drawdown, five months before.

189. [224]

     It is clear from the terms of the February 2010 statement that previous reconciliations had been carried out between the parties. What is especially suggestive is that the interest payment calculation which was attached to the February 2010 statement contains a typed year entry of 2008 which has been crossed out and replaced with 2010. It is tempting to suppose that the schedule was first prepared (perhaps by Ms Zhang) once additional funds had been borrowed on the mortgage and it had become necessary to carry out a separate calculation of the interest liability, rather than relying on the figures in the bank statements. But as I have noted, there was no evidence from Mr Mao or Ms Zhang about the preparation of the schedule.

190. [225]

     Having said that, however, the February 2010 statement shows that Mr Mao was accounting to Mr Bao on the basis that the loan for which Mr Bao was responsible was a loan for $2.275 million. Although this was a purely notional exercise, and the actual liability of Mr Mao to the bank was higher, the important fact is that Mr Bao was not being charged for the additional interest.

191. [226]

     It seems likely that there would have been discussions between the parties about the accounting arrangements reflected in the February 2010 statement, but there was no evidence about that from either side. Even so, it would have been obvious to Mr Bao that he was not actually making the monthly payments of $17,944.56 he was being credited with in the loan principal and interest calculation he received. Thus it would have been possible to deduce that the calculation was, at least to that extent, a notional one. Whether Mr Bao was actually curious enough to make the deduction himself, or to ask the question, is another matter, but again I do not think it matters. He had sufficient information to work it out.

192. [227]

     The reference in the July 2011 statement to the account having been settled in June 2010 is curious. The June 2010 statement was expressed as being preliminary, subject to further calculations, and did not include any of the expenses such as rates. Nor is there any record of any “wash up” payment being made in or after June 2010. It seems that the last proper accounting between the parties is that which was undertaken for the year ended 31 January 2010, and that, for reasons unknown, Mr Mao never conducted a further full accounting thereafter.

193. [228]

     The evidence does not reveal why Mr Mao decided to let the property to Mr Eaton in March 2011. In cross-examination, Mr Bao appeared to concede that he knew at some stage about the lease, but he was vague about when. It hardly seems likely that Mr Mao would have signed a lease if there had been a chance that Mr Bao would want to use the property himself during the lease period. For this reason, it is logical to suppose that Mr Mao would have sought Mr Bao’s permission before proceeding with the lease. But in the end there was no evidence on the question.

194. [229]

     One of the curiosities about this case is that the Vaucluse property should have stood empty from the time it was acquired for the benefit of Mr Bao in 2004 right up until it was leased to Mr Eaton in March 2011. Admittedly, at one point in his evidence Mr Bao indicated that there might have been a period of time after he bought the property before the vendor vacated. But it seems that neither Mr Bao nor Ms Qiu ever lived at the property, even when Mr Bao was spending much of his time in Sydney gambling at the Star City Casino in 2010-2011. There was reference in the evidence to Mr Bao and Ms Qiu having a daughter who lived in Sydney, but there was no evidence that she lived at the property either.

195. [230]

     In the instrument of transfer (and the later caveat lodged by Mr Mao over the Harris Park property) Mr Mao gave his address as being at the Vaucluse property. The insurance policies, council rate notices and water and electricity bills were likewise addressed to Mr Mao as the registered proprietor of the Vaucluse property. But other evidence showed that Mr Mao continued to live at Earlwood (see [204] above) and counsel for Mr Bao accepted that there was no evidence that Mr Mao had ever lived at the property either.

196. [231]

     In the end, I must deal with the case on the basis that Mr Mao kept the property available for Mr Bao’s use until he leased it, apparently with Mr Bao’s knowledge, in March 2011. Furthermore Mr Bao continued to make regular remittances as requested from the time when he acquired the property up until November 2011, and on my findings he never asked Mr Mao to hand the property over or sell it, but merely stood by while the NAB took enforcement action.

Debt claim by Mr Mao

1. [232]

   I have already found on the facts that the ¥11 million paid in April 2011 was a loan, not a payment under a supposed agreement to buy Mr Bao out of the Vaucluse property. Counsel for Mr Bao submitted that if I made this finding, I should conclude that the loan was a loan to GTIG rather than to Mr Bao personally. This is the remaining issue to be determined on the debt claim.

2. [233]

   Counsel relied on the caveat lodged over one of the Harris Park properties in February 2012 by Mr Mao in which Mr Mao referred to the loan as having been made to the “registered proprietor” (that is, GTIG). But I think that this “admission” is of little if any importance.

3. [234]

   In the end, determining whether an agreement was made with an individual or a company with which the individual was connected is a matter of construction. It is a legal conclusion from the relevant facts. An out-of-court admission made by one of the parties on the issue can therefore only be of value to the extent that implicitly it conveys admissions of fact which support that legal conclusion: see Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317 at 340-341 [68]-[71].

4. [235]

   There was no evidence that Mr Mao had any understanding of the legal issues which underlay the interest claimed in the caveat. He may simply have believed that the deposit of the certificate of title itself gave him a security interest in the property. But whatever Mr Mao’s belief was, it was ultimately just his opinion. It is impossible to identify anything factual conveyed by his “admission” in the caveat which is not directly before the Court.

5. [236]

   For these reasons I put the “admission” on the caveat to one side and turn to the objective circumstances which bear on the legal identity of the borrower. In my view there are two considerations of significance.

6. [237]

   The first is that the loan payment was made by way of deposit to a bank account in the name of Mr Bao in China. There is no evidence that the money ever went anywhere near GTIG. Certainly no accounts were produced by GTIG (which is apparently still functioning) recording receipt of the payment.

7. [238]

   Incidentally, I incline to the view that the currency of account for the purposes of the loan agreement was Chinese yuan. The loan payment was, as I have just pointed out, made in yuan. It is also I think significant that after receiving the repayment of $800,000 Mr Mao converted that amount into Chinese yuan. Mr Mao’s text message on 6 December 2011, quoted at [103] above, suggests that at the time the contemplation was that the money would be not only advanced in yuan but repaid in yuan. I return further to this in my conclusions below.

8. [239]

   The second important consideration is that all of the contemporaneous documentary evidence is consistent with Mr Bao personally having been the borrower. Mr Mao’s July memorandum confirming the loan showed Mr Bao personally as the borrower; GTIG was not mentioned. Nor was there any mention of GTIG in any of the subsequent text messages in which Mr Mao sought repayment.

9. [240]

   In fact there was no mention of GTIG either in the conversations recounted in the parties’ affidavits. That includes Mr Bao’s affidavits; his own case was that Mr Mao made the payment in partial discharge of his obligation under the alleged agreement to buy Mr Bao out of the Vaucluse property. Mr Bao’s interest in the Vaucluse property was a personal one; it had nothing to do with GTIG, which had not even been incorporated at the time the property was acquired.

10. [241]

    I am left with a loan which in fact was made to Mr Bao, and with nothing whatsoever to indicate that the parties intended that GTIG was to be the party liable to repay. I reject the submission by counsel for Mr Bao. I conclude that Mr Bao personally was the borrower.

Account/compensation claims by Mr Bao

1. [242]

   Mr Bao’s contractual claim concerning the Vaucluse property was based on an alleged agreement by Mr Mao to repay all of the remittances made by Mr Bao. An agreement in that form, which would in effect have required Mr Mao to repay all Mr Bao’s holding costs over the years during which the property had been kept available for him, would have been highly unlikely. It does not seem to be a reasonable construction even of the terms of the conversations between the parties alleged by Mr Bao.

2. [243]

   In any event, on my findings, Mr Bao’s contractual claim fails. I therefore turn to Mr Bao’s claims for an account, or equitable compensation, based Mr Mao’s duties as a trustee or agent.

3. [244]

   Mr Mao denied that he had any obligation at all to account to Mr Bao for the KVB Kunlun remittances. As already mentioned, he also relied upon statutory limitation. The scope of the statutory limitation defences was, of course, dependent in part on whether the Court should limit the relation back of the claims.

4. [245]

   Mr Mao also relied on the equitable doctrine of laches. In CSR Ltd v Amaca Pty Ltd [2016] VSCA 320, the Victorian Court of Appeal held that this is an independent equitable defence which is capable of applying, if its constituent elements are made out, so as to bar equitable relief even if the statutory limitation period (applicable either directly or by analogy) has not expired: see at [261]. Counsel for Mr Bao did not dispute that that was so.

5. [246]

   Accordingly, I propose to address the issues which arise with respect to Mr Bao’s equitable claims in three stages. First, I will consider what prima face right Mr Bao has to an account. Then I will consider the laches defence. Finally, I will address the statutory limitation periods, including the relation back question.

6. [247]

   The issues which arise on Mr Bao’s claim for an account have to be understood in the light of the historical development of the remedy. The action of account is one of the oldest common law actions, going back at least as far as the beginning of the 13th century in England. If successful, it resulted in the appointment of auditors independent of the parties to carry out the account. The action flourished in later medieval times but was later supplanted by the equitable remedy of account which exists today. The process is summarised by S J Stoljar in “The Transformations of Account” (1964) 80 LQR 203, and described in detail by J A Watson in The Duty to Account: Development and Principles (2016, Federation Press).

7. [248]

   The paradigm case of an equitable account was that which was required of a trustee. Typically the trustee would first be directed to prepare a statement of receipts and payments from the inception of the trust. Discovery would be available from the trustee to allow the beneficiary to evaluate the accuracy and completeness of the receipts admitted and the expenditure claimed. The beneficiary would then identify any expenditure items claimed by the trustee which were disputed and any income items which the trustee had not included but the beneficiary alleged should have been. Each disputed item was then the subject of a determination by the court in the usual way. The upshot would be a final balance due from the trustee to the beneficiary (this description assumes all of the assets in question were converted to cash; the same approach applied to assets held in specie).

8. [249]

   An order for account by a trustee was made in equity’s exclusive jurisdiction. But the remedy had procedural advantages over an account at law (particularly the availability of discovery). Over time equity made the remedy available, in the exercise of its concurrent jurisdiction, in cases where an action of account would have been available at law. Examples were accounts between partners in a partnership, or between principal and agent (see [348] below).

9. [250]

   As I have said, an account of this type is the primary remedy now sought by Mr Bao. Such an account was described by Austin J in Glazier v Australian Men’s Health (No 2) [2001] NSWSC 6 as an “account of administration”.

10. [251]

    A cardinal principle in undertaking an account is that all relevant debits and credits must be included, so as to produce a single final balance. As Hutley JA once said, one cannot have “little bits of accounts”: Colin D Young Pty Ltd v Commercial and General Acceptance Ltd (Court of Appeal (NSW), 24 August 1982, unrep) at 2, cited in Adams v Bank of New South Wales [1984] 1 NSWLR 285 at 296. Originally, therefore, to obtain an account of administration from a trustee it was necessary to bring an administration suit which would result in the trust being administered by the court.

11. [252]

    One of the powerful elements of an account from a plaintiff’s point of view is that it provides a way to deal comprehensively with a situation where there have been multiple breaches of duty by the trustee; indeed, an added strength is that the process allows for breaches to be uncovered of which the beneficiary may have been unaware.

12. [253]

    But if the dispute was limited to a specific claim of breach of which the beneficiary was already aware, then the requirement to bring that claim in the context of a full account of administration could be unnecessarily cumbersome and expensive. From the 19th century onwards, the courts therefore began to permit beneficiaries to bring direct claims for compensation for breach of trust as separate stand-alone claims rather than as part of a full account of administration. The process is described in J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [23-030]. Such an approach also naturally lent itself to claims against non-trustee fiduciaries.

13. [254]

    Rather than seeking equitable compensation for loss resulting from a specific breach of trust, the beneficiary could instead elect to obtain an account of profits made by the trustee from the breach. Such an account is limited to the profits derived from an identified breach of trust, and should be distinguished from a general account of administration: Glazier at [44]; see also Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1 at 64 [334].

14. [255]

    As will be seen, the application of the relevant statutory limitation period depends upon whether any entitlement Mr Bao may have to an account from Mr Mao is an entitlement in the concurrent or the exclusive jurisdiction. In the remainder of this section of the judgment, I will consider Mr Bao’s entitlement to an account generally, and if so, the scope of that account. I will return to the classification of the account later in the judgment, when considering statutory limitation.

15. [256]

    KVB Kunlun remittances: While Mr Bao formally sought an account covering all of the KVB Kunlun remittances, counsel focused on the $400,000 paid to the agents involved in the sale of the property and the $80,000 kept by Ms Zhang herself. As pointed out at [214] above, it seems that these payments equate to the $480,000 remittance received on 16 March 2004.

16. [257]

    Mr Bao’s cross-claim alleged that the KVB Kunlun remittances were received by Mr Mao, or Ms Zhang on his behalf, on trust for Mr Bao, and the payments in question were not properly incurred in carrying out the trust (that is, in effecting the purchase of the Vaucluse property).

17. [258]

    On my findings, the payments were paid by Mr Bao in China and the equivalent payments were received, via Ms Zhang’s KVB Kunlun account, into her mother’s bank account (or, on Ms Zhang’s evidence, partly in cash). There is no evidence that the money in question ever came into Mr Mao’s personal possession. The question is whether it was received by Ms Zhang, and dealt with by her, as his agent.

18. [259]

    Counsel for Mr Bao pointed out that there was no dispute that Mr Mao had agreed to act as the purchaser of the Vaucluse property and hold the property on behalf of Mr Bao. Counsel added that Mr Mao and Ms Zhang, although divorced, continued to live in the same house, and Mr Mao was aware that Ms Zhang was dealing with Mr Bao. Counsel submitted that in effect Ms Zhang was giving directions to Mr Bao on behalf of Mr Mao, with his knowledge and approval, and was therefore acting as his agent.

19. [260]

    I do not accept this characterisation. It is true that in a general sense Mr Mao was aware of what Ms Zhang was doing. But on my findings, he was not in any sense exercising any control over it. Ms Zhang dealt with Mr Bao without prior reference to Mr Mao. She also reported to Mr Bao afterwards. It would be more accurate to see her as playing the primary role, with Mr Mao in a supporting role as the nominal purchaser and holder of the property.

20. [261]

    I appreciate that Mr Mao himself received the later remittances and provided the accounting for those remittances to Mr Bao; but these subsequent events cannot be telescoped backwards for the purpose of interpreting the earlier ones. In my view Mr Mao was not an accounting party with respect to the KVB Kunlun remittances.

21. [262]

    The same conclusion applies a fortiori to the $480,000 received by Ms Zhang on 16 March 2004. These monies appear to have been paid out directly by Ms Zhang, quite independently of the conveyancing transaction. On my findings, Mr Mao had no knowledge whatever of the receipt or payment of the monies.

22. [263]

    Title to Vaucluse property and remittances from June 2004: There is no dispute that the property was acquired in Mr Mao’s name on the understanding that he would hold it on Mr Bao’s behalf. Nor is there any dispute that the loan from the NAB was also obtained for Mr Bao’s benefit.

23. [264]

    Implicitly, if not expressly, this arrangement conferred rights and obligations on both parties. Mr Bao was obliged to indemnify Mr Mao against his liability to the NAB and the other costs of holding the property. The payment of the remittances reflected that liability. On the other hand, Mr Bao was entitled to require Mr Mao to hand the property over (or sell it on Mr Bao’s behalf), thus benefiting from any increase in its value, upon indemnifying Mr Mao against the outstanding amount of the loan and any other resulting costs.

24. [265]

    Additional borrowings from the NAB: The additional borrowings in October 2007 and March 2008 complicated the position. They were not authorised by Mr Bao and were largely for Mr Mao’s personal benefit. To that extent they were not covered by Mr Bao’s indemnity. Nor were the additional interest and fees attributable to the increased borrowings. Had Mr Bao called on Mr Mao to hand the property over, it would have been necessary for Mr Mao to discharge the additional portion of the loan out of his own resources.

25. [266]

    In my view, this was clearly recognised by Mr Mao. It was the basis of the accounting to 31 January 2010 which Mr Mao provided to Mr Bao in February 2010 (even if Mr Bao was in fact unaware of the additional borrowings at the time). That accounting effectively partitioned the NAB loan into a component authorised by Mr Bao and an additional component which was Mr Mao’s responsibility, and applied Mr Bao’s remittances accordingly (see [177]-[178] above). The result was that the remittances were accounted for in part as payments of expenses and interest on Mr Bao’s component of the loan, and in part as principal reductions of that loan component.

26. [267]

    Implicit in this accounting approach is that, on sale of the property Mr Bao was entitled to the proceeds, less his component of the loan at that point. The precise figure would require calculation, but given that as at 31 January 2010 Mr Bao’s component of the loan was $2.157 million, and the net proceeds from the property amounted to $3.260 million, Mr Mao’s liability was substantial.

27. [268]

    On Mr Bao’s behalf it was alleged that the additional borrowing was a form of “stealing”, by which Mr Mao used the equity in the property to gain an advantage for himself to the tune of $1.226 million. But even if the additional borrowing was contrary to the express or implied terms of the arrangement between the parties, it is difficult to see that it resulted in any loss. As Mr Bao was unaware of the additional borrowing, it cannot have affected his decision to abandon the property. And, as I have just explained, on sale of the property Mr Mao came under an obligation to discharge his share of the loan.

28. [269]

    Account stated to 31 January 2010: The account provided by Mr Mao to Mr Bao in February 2010 for the year to 31 January 2010 showed Mr Bao in credit on the remittances in the sum of $30,000, and his share of the loan principal as $2.072 million (see [176] and [179] above). As I have noted, it is surprising that there was no evidence from the parties on this document. But clearly Mr Bao received it and took no action to query or challenge it. I must infer that he accepted it as correct.

29. [270]

    There is no reason why Mr Bao should now be permitted to re-open the February 2010 account. It was not suggested that the remittances and expenses it showed, or the calculations it contained, were incorrect. It must be taken as having been settled: see Meagher, Gummow and Lehane at [26-100].

30. [271]

    The February 2010 account only covered the year to 31 January 2010. But the form of the account suggests that it followed a pattern used in previous years, going back at least as far as the additional borrowings in 2007 and 2008. The opening balance for Mr Bao’s share of the NAB loan in the February 2010 account ($2.157 million at 1 February 2009) is plausible in the light of the initial loan amount of $2.275 million. There is also evidence of at least one other account having been provided before the 2007 borrowing, a copy of which can no longer be retrieved (see [209] above).

31. [272]

    I was not presented with any analysis of the chargeable interest and the other expenses incurred by Mr Mao on Mr Bao’s behalf (to the extent they can now be identified) over the period from June 2004 to January 2009. I therefore cannot say whether that expenditure was out of line with the remittances revealed by the evidence. Mr Bao had ample opportunity to seek accounts over this period, if such accounts were not in fact provided. I do not think I should order an account for the period merely because of the uncertainties which now exist.

32. [273]

    Remittances from February 2010: In the remittance reconciliation Mr Mao sent Mr Bao in July 2011, Mr Mao foreshadowed a calculation of the type undertaken in February 2010 for the year ended 31 January 2010 (see [176]-[179] above). That calculation would have brought to account the interest on Mr Bao’s share of the NAB loan and the additional expenses incurred by Mr Mao, and would have resulted in a new principal balance for Mr Bao’s share of the loan. But Mr Mao never provided it. Clearly Mr Bao is prima facie entitled to have such calculations undertaken from 1 February 2010 forward.

33. [274]

    Rent receipts: Before the Vaucluse property was let to Mr Eaton, the parties dealt with each other on the basis that the Vaucluse property was being kept available for use by Mr Bao or members of his family. I did not understand there to be any dispute that Mr Bao was therefore prima facie entitled to have the net rent paid by Mr Eaton brought to account in his favour.

34. [275]

    Proceeds of sale: In his pleaded case, Mr Bao alleged that Mr Mao was guilty of breach of contract (or trust) in allowing a situation to develop in which the NAB sold the Vaucluse property. But at no stage did Mr Bao offer to discharge his share of the loan to the NAB. Had Mr Bao offered to pay that amount, and had Mr Mao been unable or unwilling to discharge his part of the loan, and had such an impasse resulted in the sale of the property at an undervalue, then there might have been an argument for Mr Bao being entitled to compensation for the loss. But Mr Mao was never put to the test. Mr Bao ignored Mr Mao’s requests for payment and cannot complain that in the face of this Mr Mao threw up his hands and allowed the NAB to sell the property.

35. [276]

    Nevertheless, as I have already foreshadowed, Mr Mao must prima facie still account for the benefit that he received from sale of the property, in the form of a discharge of his own liabilities to the NAB. Mr Bao is prima facie entitled to recover from Mr Mao the difference between the net proceeds of sale and the principal amount of Mr Bao’s share of the loan, determined in accordance with the accounting process described at [273]-[274] above.

36. [277]

    In saying this, I have not forgotten that the proceeds were insufficient to discharge the whole of the loan. But Mr Mao remains liable to the NAB for the shortfall, and Mr Bao does not (there is nothing to suggest that the NAB could sue Mr Bao directly, especially as the later borrowings were on any view unauthorised). If the NAB does not pursue Mr Mao, Mr Bao is no worse off and cannot complain.

37. [278]

    Counsel for Mr Mao referred to a potential claim by Mr Mao for reimbursement of the $381,250 he said he had paid towards the deposit on the Burwood property. Counsel contended that Mr Mao was entitled to recover this amount pursuant to the indemnity document signed on 30 March 2011 (see [63] above).

38. [279]

    Counsel submitted that this claim should be allowed in Mr Mao’s favour in any account ordered in favour of Mr Bao. But counsel’s primary submission, as I understood it, was that because of the lack of evidence on this claim Mr Mao was prejudiced and this was a reason why no account should be ordered in the first place.

39. [280]

    I do not accept these submissions. Any claim to recover Mr Mao’s share of the deposit on the Burwood property is a contractual one which arises under the indemnity agreement of 30 March 2011. It has nothing to do with the Vaucluse property. Had Mr Mao wished to pursue such a claim, he could have pleaded it as part of his case in his statement of claim. In my view it is irrelevant to Mr Bao’s cross-claim with respect to the Vaucluse property.

40. [281]

    The elements of the equitable defence of laches are usually stated as “inordinate” delay in pursuit of a claim which is known to, or ought to be known to, the plaintiff, coupled with prejudice to the defendant resulting from that delay.

41. [282]

    I have already concluded that, by his conduct, Mr Bao in effect accepted the account which he received in February 2010 which covered the period up to 31 January 2010, but he is prima facie entitled to an account from that point forward. No question of laches can arise until the end of November 2011 at the earliest. Up until that point Mr Bao had made the monthly remittances which Mr Mao had asked him to make, and Mr Mao had indicated in his reconciliation of 6 July 2011 that he would undertake the necessary accounting in due course.

42. [283]

    But once Mr Bao decided that he would cease to make any payments to Mr Mao, which he evidently did by early December 2011, it would have been open to him to seek an account and call for the transfer of the Vaucluse property. Of course this would have required him to pay off his share of the loan (as determined through the account) and any other costs of discharging the mortgage. But even if Mr Bao had been unwilling or unable to pay off his share of the loan, he could always have required Mr Mao to sell the property and account to him for the balance.

43. [284]

    Instead, by his caveat lodged in February 2012, Mr Bao asserted equitable ownership of the property. The caveat was not challenged by Mr Mao and Mr Bao never abandoned the claim asserted in it; but he did nothing to pursue the claim. Instead he left it to Mr Mao to pay the outgoings and, eventually, submit to a mortgagee sale by the NAB.

44. [285]

    There was no good reason for Mr Bao’s failure to act from December 2011 onwards. I find the excuses which he offered for it in his affidavit insubstantial and unconvincing.

45. [286]

    There was thus a delay of more than eight years between when Mr Bao’s right to claim an account should have been known to him, and September 2020, when the claim for an account was first formally made. It is not necessary to decide whether, for the purpose of the laches defence, the relevant date of assertion of the claim should be placed somewhat earlier, perhaps when it was first foreshadowed in June 2020, or even in November 2018 when a claim was made about the sale of the property (see [13] above). On any view, there was an inordinate delay. The question is whether this delay resulted in any prejudice to Mr Mao.

46. [287]

    The quantum of the remittances over the relevant period is clearly established by the documentary evidence and was not ultimately in dispute. Leaving aside the rent receipts for the moment, there can be no prejudice to Mr Mao on the credit side of the ledger. On the debit side, all of the bank statements are in evidence and the interest of Mr Bao’s share of the loan can readily be calculated in the same manner as it was calculated in the period up to 31 January 2010. The only question is whether there is sufficient relevant prejudice to Mr Mao so far as the expenses are concerned.

47. [288]

    As I have mentioned, the evidence from Mr Mao focused on expenses in the period from 2004 to 2008. It was not clear from the evidence that the records for expenditure from February 2010 onwards were missing, and if so, why. In fact, a list of council rate payments was in evidence (see [171] above); and although there was no equivalent list of payments to Sydney Water, the evidence before me indicated that such a list was available for the relevant period.

48. [289]

    There was no evidence one way or another concerning other expenses such as electricity, strata fees, and insurance (if Mr Mao was still insuring the property later in the relevant period). Records of those expenses may be available from the service providers. But even if they are not, the Court can make an estimate, erring, if there is uncertainty because of a lack of records, on the conservative side. In my view the prejudice to Mr Mao from delay is insufficiently substantial to give rise to a defence of laches.

49. [290]

    This leaves the rental income from Mr Eaton. It appeared from Mr Bao’s evidence that he was aware that the property had been let (as one would expect: see [228] above). It is not clear from the evidence when he became aware of that, but it seems likely that it would have been before June 2011, when he was still speaking with Mr Mao. Although Mr Bao would not necessarily have known the details of the tenant and the length of the tenancy, there is no evidence that he made any attempt to find out.

50. [291]

    The rental payments began at the end of March 2011 and ended in early September 2013. They thus began nine years, and ended just more than seven years, before the claim for an account which included them was formally made. Again, the delay was inordinate and the question is whether it resulted in relevant prejudice to Mr Mao.

51. [292]

    It is true that there is no record of the rental payments between March and December 2011 and again between June and October 2012, and that the records of the agent, ESPP, appear to have been destroyed. It is also likely that those records were destroyed seven years or so after the end of the relevant financial years. That would have followed the ends of the 2017/2018, 2018/2019 and 2019/2020 financial years, while the proceedings were in full swing.

52. [293]

    Nevertheless copies of the leases to Mr Eaton are in evidence, and the gross rent is therefore known. The only doubts concern the extent of the commission and other expenses which may have been deducted by ESPP during the missing months.

53. [294]

    It may be that even if the actual records concerning this particular property have not survived, it is possible to obtain evidence from ESPP of what the management fee would have been at the time. It may also be possible to marry up deductions for expenses from the service provider receipt details, as I have tentatively done for the council rates (see [173] above). But even if that is not practicable, I think that again it should be possible to estimate the relevant figures in a way which would do practical justice to Mr Mao. The laches defences fail.

54. [295]

    In answer to the claim for an account, Mr Mao relies upon the Limitation Act 1969, s 15. That section provides:

55. [296]

    The section applies in its terms to an action “founded on a common law duty to account”. Counsel for Mr Mao contended that the provision applies directly to the claim made by Mr Bao in these proceedings. Alternatively, counsel contended that the provision applies by analogy.

56. [297]

    Legislative history: The original English Statute of Limitations 1623 (21 Jac I, c 16) (“1623 Act”) dealt with accounts in s 3. The enactment provided that “all actions of account, and upon the case” were to be “commenced and sued… within six years next after the cause of such actions or suit, and not after”, but excepted certain classes of mercantile account which thus remained free of any statutory limitation.

57. [298]

    Clearly the effect of s 3 of the 1623 Act was to bar an action for an account at law except in the case of exempted mercantile accounts. In theory the statutory limitation was applicable by analogy to a claim for an account in equity. Even so, it was not available to a trustee who was sued for an account.

58. [299]

    The reason for this was that there was a general rule that equity would not allow a trustee to plead the statute against a beneficiary. The rationale for this rule was that the trustee was seen as being under an affirmative obligation to carry out the terms of the trust until a discharge was obtained. Equity would not permit the trustee to rely on his own breach of trust to set the limitation period running.

59. [300]

    Furthermore, for the purposes of the rule, a defendant owing fiduciary obligations with respect to property could be treated as a trustee, even if not formally appointed as such. Equity’s approach is illustrated by the Chancery appeal case of Burdick v Garrick (1870) LR 5 Ch App 233. The plaintiff’s (first) husband was an Englishman who intended to go to the United States to live for an extended period of time. He executed a power of attorney in favour of his brother and a solicitor in London. The instrument granted them wide powers to call in, manage and invest his property in England. It was executed in June 1858. After he left, some of the assets were sold but an account was only made to him for part of those assets.

60. [301]

    The plaintiff’s husband died, in the United States, in November 1859. There was no executor and much later, in 1867, the plaintiff took out letters of administration. In February 1868 she commenced proceedings seeking an account. The defendants sought to rely on the statute. It was held that this was not permissible.

61. [302]

    Lord Hatherley LC said (at pages 239-240):

62. [303]

    Giffard LJ added (at page 243):

63. [304]

    The application of limitation periods to claims for an account in a more commercial context came before the House of Lords in Knox v Gye (1872) LR 5 HL 656. The United Kingdom Mercantile Law Amendment Act 1856 (19 & 20 Vict, c 97) (“1856 Act”) had closed the gap in the 1623 Act for mercantile accounts. Section 9 provided:

64. [305]

    The defendant in Knox v Gye, Mr Gye, was an impresario in London whose business involved putting on operas. He became partners with Mr Thistlethwayte, who put money into the venture. Mr Thistlethwayte died in November 1854, and left half of his share of the partnership to the plaintiff, Mr Knox.

65. [306]

    At the time of Mr Thistlethwayte’s death, the partnership was owed £5,000 by a third party, Mr Hughes. It seems that the partnership had been trading unsuccessfully to that point, and no accounts appear to have been prepared. Then, some years after Mr Thistlethwayte’s death, his surviving partner, Mr Gye, was able to obtain a payment of £2,500 from Mr Hughes. In October 1864, Mr Knox, as Mr Thistlethwayte’s executor, filed a bill for an account of the partnership assets, including the sum recovered from Mr Hughes. The bill was filed within six years of the payment by Mr Hughes, but almost ten years after the death of Mr Thistlethwayte had terminated the partnership. Mr Gye relied upon the statutory limitation.

66. [307]

    The claim came before Wood V-C (as Lord Hatherley then was) who decided that the limitation statute did not apply because the relationship between the parties was fiduciary in nature. Mr Gye successfully appealed to the Lord Chancellor, then Lord Chelmsford, who reversed the decision. Mr Knox then appealed to the House of Lords. By then Lord Hatherley had become Lord Chancellor. He sat on the appeal, as did Lord Chelmsford. Lords Westbury and Colonsay also sat.

67. [308]

    Over the dissent of Lord Hatherley, the appeal was dismissed. All of the majority judges emphasised that what was being sought was a full account of all of the assets and liabilities of the partnership at the date of Mr Thistlethwayte’s death. That cause of action had accrued on Mr Thistlethwayte’s death, which was more than six years before the account had been sought.

68. [309]

    The leading judgment was given by Lord Westbury. His Lordship said:

69. [310]

    His Lordship continued, expanding on what he meant by saying that an equitable remedy was “correspondent to” a remedy at law:

70. [311]

    Lord Westbury observed that partnership was one of the situations where an action of account at law would lie. A claim for a partnership account was thus one in equity’s concurrent jurisdiction, being made in aid of legal rights. The potential complication was whether an account could be obtained at law by the executor of a deceased partner against a surviving partner when there was no legal relationship of partner between them. His Lordship considered, however, that equity would grant relief in its exclusive jurisdiction in such a case.

71. [312]

    Lord Westbury accepted the proposition that if the defendant was a trustee, the statute could not be relied upon. But for this purpose the defendant had to be a trustee in a full and proper sense. His Lordship referred to the case of a vendor under a contract for the sale of land. He said that such a vendor had been described as a trustee, but that description was only metaphorical. He continued (at 675-676):

72. [313]

    Lord Hatherley had protested that, on Mr Gye’s argument, if money was recovered from a debtor to the partnership more than six years after the termination of the partnership, it would be impossible to recover. Lord Westbury did not directly address this problem, but Lord Chelmsford said (at 687) that while claim for a full account of administration would be barred, that would not prevent a specific claim being pursued for a share of the amount recovered (to the extent not covered by partnership expenses). Lord Colonsay (at 678) appears to have been of the same view.

73. [314]

    The United Kingdom Judicature Act 1873 (36 & 37 Vict, c 66) (“1873 Act”) put the equitable rule that limitation periods did not apply to claims against trustees on a statutory basis. Section 25(2) provided:

74. [315]

    Section 25 of the 1873 Act referred to a claim against the trustee of an “express trust”. This was seen as being merely declaratory of the previous rule in equity. The result was that a fiduciary entrusted with property could be a “express” trustee; as for example in Re Sharpe [1892] 1 Ch 154 (a company director who had been party to paying dividends, contrary to the company’s memorandum of association) and Soar v Ashwell [1893] 2 QB 390 (a solicitor who had acted for the trustees of a trust and thereby come into possession of some of the trust funds). The rule, however, did not apply to a “constructive” trustee who was treated as a trustee only for the purposes of granting relief against him, as in Metropolitan Bank v Heiron (1880) 5 Ex D 319 (a company director who was sued by the company to recover an alleged bribe).

75. [316]

    The 1623 and 1856 Acts were mainly concerned with actions and suits for accounts of personalty, and only incidentally with receipts from property. But from 1833 there was a separate limitation regime which applied specifically to real property and rents derived from such property.

76. [317]

    The United Kingdom Real Property Limitation Act 1833 (3 & 4 Wm IV, c 27) (“1833 Act”) imposed a twenty year limitation period on legal remedies (exercising a right of entry, distress, or bringing an action) to recover any land or rent (s 2). Section 24 imposed the same limitation on any suit in equity “claiming land or rent”. But the effect of s 25 was that in the case of an “express trust” time did not run under the Act against a trustee in a suit by a beneficiary.

77. [318]

    The courts adopted the same test for determining whether a defendant was a trustee under an “express trust” for the purposes of the Act as they applied to determining whether a defendant could be required to account despite the statute of limitations. Thus an agent who had received rents in the name of the deceased owner of property was treated as a self-appointed trustee and was not entitled to rely upon the limitation in the 1833 Act: see Lyell v Kennedy (No 3) (1889) 14 App Cas 437.

78. [319]

    But the idea that there should be no limitation periods at all in claims against trustees, particularly in the case of breaches of trust which occurred without any personal fault on the part of the trustee, was not to survive for much longer. The United Kingdom Trustee Act 1888 (51 & 52 Vict, c 59) (“1888 Act”) imposed a six year limitation period on claims for breach of trust against trustees. But this was subject to various exceptions where the period would not apply and there would be no limitation period. These included cases where the breach was fraudulent and where the trustee had appropriated assets of the trust to his or her own use.

79. [320]

    The 1888 Act was interpreted consistently with the distinction previously drawn between express trusts and constructive trusts in equity. Thus in Taylor v Davies [1920] AC 636, the Privy Council held that it applied to a claim by the beneficiaries of a trust against a third party defendant who had allegedly purchased an asset of the trust in breach of trust. If liable the defendant would have been a constructive trustee who could rely on the statute of limitations.

80. [321]

    It was in this context that the United Kingdom Limitation Act 1939 (“1939 Act”) was enacted. The Act was a consolidation of earlier limitation enactments and reflected a report by the Law Revision Committee.

81. [322]

    One of the terms of reference had required the Law Revision Committee to look generally at the limitation provisions applicable to common law causes of action. This was dealt with in s 2 of the resulting Act. Although the report did not refer specifically to an account, the Act provided for the limitation periods for accounts in s 3 of the 1623 Act and s 9 of the 1856 Act to be re-enacted in subsection (2) in the following form:

82. [323]

    Section 2 also contained a statutory recognition of the principle of limitation statutes by analogy. Subsection (7) provided:

83. [324]

    The operation of these provisions proved troublesome so far as they concerned accounts. They were discussed by Megarry V-C in Tito v Waddell (No 2) [1977] Ch 106. His Lordship observed (at 250) that taken on its own s 2(2) would not be read as being confined to the long obsolete action at common law; it would apply directly to an account in equity because of the width of the definition of the term “action” in the Act. But the first part of subsection (7) then expressly excluded the operation of subsection (2) so far as equitable claims were concerned, leaving them to be applied again, by analogy, by the second part of subsection (7). His Lordship described this (at 251) as a “tortuous scheme of indirection” which he was not prepared to attribute to Parliament. The upshot was that he concluded that claims for accounts against trustees remained outside the purview of the Act and consequently were not subject to any limitation period.

84. [325]

    The current position in England was summarised in the decision of the Court of Appeal in Paragon Finance PLC v DB Thakerar & Co [1999] 1 All ER 400. In that case a financier who had lost money on a mortgage of property tried to pursue a claim against the solicitors who had acted on the transaction outside the six year period by presenting the claim as one for an account.

85. [326]

    In the course of his decision, Millett LJ (as his Lordship then was) referred to an earlier case, Nelson v Rye [1996] 2 All ER 186. In that case the plaintiff was a musician who retained the defendant as his manager. The defendant was required to collect the plaintiff’s earnings and account to him annually. The plaintiff’s claim was brought more than six years after the relationship came to an end, but the judge concluded that because the defendant owed fiduciary duties, the limitation period for an action of account did not apply. Millett LJ considered that this was wrong. He said (at 415, citations omitted):

86. [327]

    In New South Wales, the 1623 Act applied from settlement. The provisions of the 1833 Act were reflected in a local statute passed in 1837 (Real Estate (Limitation of Actions) Act 1837 (NSW) (8 Wm IV, No 3), with the time limit being reduced from twenty years to twelve years in 1874. Thus matters stood at the time of the comprehensive reform effected by the Limitation Act 1969 (“NSW Act”).

87. [328]

    The enactment of the NSW Act followed a report from the Law Reform Commission: First Report on the Limitation of Actions (Report No 3, October 1967). For present purposes, three of the changes made in the Act should be referred to.

88. [329]

    First there was the enactment of s 15, the text of which I have already set out. The report dealt with this at [109]-[112]. After observing at [109] that s 3 of the 1623 Act applied “primarily, and perhaps exclusively” to the obsolete common law action of account, the report continued (at [110]):

89. [330]

    The report continued at [111] by referring to the potential difficulties created by the wording of s 2(2) and 2(7) of the 1939 Act, discussing the views taken in different textbooks and thus anticipating the problem discussed by Megarry V-C in Tito. The report concluded (at [112]):

90. [331]

    The second change was the enactment of s 23, just referred to. That section provides:

91. [332]

    The report explained (at [132]):

92. [333]

    The third relevant change was to replace the convoluted law concerning limitations against trustees deriving from the 1888 Act with a more direct set of statutory rules. By s 48, the standard limitation period for an action against a trustee was fixed at six years. Then s 47 provided for certain classes of trust claims, including claims for fraudulent breach of trust and claims for appropriation by the trustee of the trust property, which were, despite the application of any other limitation period, to have a limitation period of twelve years from the date on which the plaintiff knew of, or might with reasonable diligence have discovered, the existence of the cause of action.

93. [334]

    In Manufacturers Mutual Insurance Ltd v GIO (Supreme Court (NSW), 5 March 1993, unrep) the question before Cohen J was whether there was a limitation period applicable to a claim for contribution between insurers. His Honour recognised that the claim was an equitable one but rights of contribution had historically been recognised at law also. He considered that there was no limitation period which applied to a contribution claim, whether directly or by analogy.

94. [335]

    Cohen J went on to consider however whether there was a limitation which applied to an equitable claim for contribution. His Honour was seemingly prepared to assume that a claim for contribution between insurers might be classified as a claim for an account, but even so he considered that s 15 did not apply to it directly or by analogy. This was based on the reasoning of Megarry V-C in Tito which I have summarised at [324] above.

95. [336]

    On the other hand, in Faitrouni v El Omar [1999] NSWSC 84 Windeyer J was faced with an application for the taking of partnership accounts where the proceedings had been commenced more than six years after the dissolution of the partnership. His Honour considered that s 15 (which had not formally been pleaded) did not directly apply, but held that it did apply by analogy. However, his Honour does not appear to have been referred to authority.

96. [337]

    The Court of Appeal authoritatively considered the application of s 15 in Sze Tu v Lowe (2014) 89 NSWLR 317. That case arose out of a family partnership. One of the partners effectively appropriated the partnership assets to himself. He did not account to the other partners for the income, and applied some of it to the purchase of property in the names of himself and some of his children. When the partnership business ceased, he closed the partnership down without accounting to the partners for their share of the proceeds. More than six years later, two of the partners became aware of the use of the partnership monies to purchase the properties. They then instituted proceedings seeking a general account of all of the partnership dealings, including the proceeds of the sale of the partnership businesses, and a share of the properties in question, and the income which had been derived from them.

97. [338]

    The leading judgment was given by Gleeson JA, with whom Meagher JA and Barrett JA agreed. His Honour quoted with approval the passage from the judgment of Millett LJ in Paragon which I have set out at [326] above. His Honour stated (at [360]-[361]):

98. [339]

    It followed that the claim for a general account (including the proceeds of sale of the businesses) was a claim founded “on a duty at law to account”. Therefore s 15 applied directly so as to bar that claim. The conclusion reached by Windeyer J in Faitrouni was thus upheld, albeit by a different route.

99. [340]

    But this did not prevent the plaintiffs from litigating their specific claims with respect to the properties acquired by the defaulting partner, and the income derived from them. Gleeson JA characterised the claim as a purely equitable one. His Honour acknowledged the possibility that the claim could be characterised as a claim for an account of profits, to which s 15 might apply by analogy, but reasoned that an attempt to rely on s 15 by analogy with respect to those specific claims would be unconscionable until the fraud had been revealed (at [387]-[388]). In any event, his Honour preferred to analyse the claim as a claim to recover trust property, with the result that the time limit prescribed under s 47 had not expired (at [389]).

100. [341]

     Application of s 15: This brings me to the application of s 15 in the current case. The first question is whether s 15 applies directly. That depends on whether these proceedings can be described as an action “founded on a duty at common law to account”. As the Court of Appeal emphasised in Sze Tu, this wording is designed to include equitable relief as well as (obsolete) relief at law. If equity is acting in its concurrent jurisdiction s 15 will apply directly.

101. [342]

     Application of the reasoning in Paragon would suggest that the question is to be resolved by asking whether there was a “trust element” to Mr Mao’s obligations to account. I will address this first, before returning to the particular statutory language of s 15.

102. [343]

     Looked at in the broad, the relationship between Mr Bao and Mr Mao bears resemblances to the circumstances of both Burdick and Nelson. The distinction between the two cases lies, it seems, on the fact that in Burdick the property the subject of the power of attorney had to be separately held and accounted for on demand, whereas in Nelson the arrangement allowed the defendant to account only at defined intervals and make use of any monies received as his own in the meantime.

103. [344]

     This is a fine distinction, and the court must beware of falling into circular reasoning. A trustee is generally under a duty to keep trust property separate, so if the existence of such a duty is to make Mr Mao a trustee, that duty must arise independently out of the arrangements between the parties.

104. [345]

     In the present case, the arrangements were informal in the extreme, and may well have varied over time. There must have been discussions between Mr Bao and Mr Mao (or Ms Zhang) about the accounting procedure to be followed, but the evidence before me did not address those discussions.

105. [346]

     What is clear from the evidence is that Mr Mao did not in fact segregate the remittances from his own money: he used the offset account for his own purposes as well as to make the loan repayments. Nor did he segregate the loan account, in the sense of restricting the amount borrowed to the $2.275 million originally authorised by Mr Bao. But he may not have been asked to do so. And he did not segregate the expenses either: it seems that the holding costs such as council rates were often if not invariably paid by Mr Mao out of his own private account and only later recouped when an accounting was undertaken. Furthermore, the non-segregation of the loan (as I have described it) was something which was apparent, on analysis, from the way in which the accounts were presented to Mr Bao: see [226] above.

106. [347]

     I think there may be a shorter answer to the question, given the language of s 15. As we have seen at [338] above, Gleeson JA said if the relationship between the parties is “contractually based”, then a claim for an account in equity is made in the concurrent jurisdiction. As I have pointed out, the arrangement between Mr Bao and Mr Mao imposed obligations on both parties. It could readily be analysed as contractual, and thus as giving rise to a duty to account at law.

107. [348]

     The same ultimate conclusion is supported by the historical analysis undertaken by Watson in The Duty to Account (cited at [247] above). Long before trust law had even developed, the medieval action of account was available against many classes of defendant who were in possession of property but were subject to obligations to deal with that property in the interests of someone else. These included bailiffs or stewards ([217]), receivers ([225]), and other mercantile agents such as factors ([274]). Significantly, although originally based on servitude, these categories of legal relationship came to be based on agency. And although equity later came to see such relationships as fiduciary, exercise of its jurisdiction to order an account was not based on that characterisation but on the unavailability of relief at law, that is, as part of the concurrent jurisdiction: see at [387]-[388].

108. [349]

     In its essence, the relationship between Mr Bao and Mr Mao was a relationship of the same type. Mr Mao was effectively managing the Vaucluse property for Mr Bao. As a matter of history, therefore, the claim for an account against Mr Mao is indeed a claim “founded on a duty at law to account”.

109. [350]

     The alternative question is whether, if the claim for an account from Mr Mao is properly characterised as a claim against a trustee, s 15 applies by analogy.

110. [351]

     The report which preceded the introduction of s 15 contemplated explicitly that it would operate by analogy in claims in equity’s exclusive jurisdiction. As I have already noted, the paradigm case of a claim for an account in equity’s exclusive jurisdiction is a claim against a trustee for an account of administration. On the face of it, the application of s 15 by analogy to such a claim would have been the very thing which the authors of the report would have had in mind when framing the legislation.

111. [352]

     Such an approach is completely consistent with the application of the doctrine of analogy. The wording of s 15, unlike the earlier United Kingdom provisions, applied directly to an equitable account. The analogy is exact between a claim in equity for an account under a partnership (to which s 15 applies directly) and an account against a trustee in the exclusive jurisdiction. In fact, it might more accurately be said as a matter of history that the two claims are identical; they are simply applications in different jurisdictions of the same equitable remedy of account.

112. [353]

     It is true that historically equity did not apply statutes of limitation by analogy to a claim for account against the trustee of a trust. But as we have seen this was not so much because there was no analogy perceived, but because of a broader rule which prohibited the application of all equitable remedies against trustees. That rule has now been swept away and there is no reason why it should now be partially read back into s 15.

113. [354]

     All the more is this so because the NSW Act was deliberately drafted so as to allow the doctrine of analogy to apply in an untrammelled way. It is notable that s 23 does away with the reference in s 2(7) of the 1939 Act to the doctrine of analogy being applied “in like manner” to the way in which previous statutes were applied. In the application of the doctrine of analogy under the NSW Act there is thus no need to pick up the distinctions developed in the case law under those earlier statutes.

114. [355]

     More fundamentally still, there was a deliberate decision to omit reference to s 15 entirely from s 23. Presumably this was because, unlike the other legal remedies referred to by s 23, the legal remedy in s 15 was obsolete. The result is that there is no textual limitation whatever in the Act to applying the doctrine of analogy under s 15.

115. [356]

     Interpreting s 15 in this way causes no difficulty with the established principles governing specific breaches of trust, or specific breaches of fiduciary duty by non-trustee fiduciaries. Instead a six year limitation period is entirely consistent with the general limitation period by s 48 with respect to such claims. Indeed, to allow a plaintiff who is unable to pursue a specific claim for breach of trust (say for an innocent breach) to pursue the same claim through an account would be completely unsatisfactory.

116. [357]

     Nor is there any difficulty with a plaintiff being shut out of claims for fraudulent breaches of trust, or appropriation by the trustee of trust property. Because of the way s 47 is drafted, the limitation period prescribed by that section applies to such claims even if other provisions of the Act also apply. If the plaintiff can prove a specific breach of trust falling within s 47, it may still be pursued individually.

117. [358]

     For these reasons, if s 15 does not apply directly to Mr Bao’s claim for an account, I think it applies by analogy.

118. [359]

     These conclusions are contrary to the views expressed (in obiter) by Cohen J in Manufacturers Mutual Insurance. But I do not think those views are now persuasive. His Honour’s approach to the application of s 15 has been overtaken by the decision of the Court of Appeal in Sze Tu. And in any event, the reasoning by Megarry V-C in Tito upon which his Honour relied now appears questionable, at least in this country.

119. [360]

     The reasoning in Tito was later considered by the Western Australian Court of Appeal in Wheatley v Bower [2001] WASCA 293. The Court (which was considering a statutory provision more closely modelled on the 1939 UK Act than the NSW Act) decided not to follow that reasoning. The same conclusion has been reached in Victoria: Feiglin v Ainsworth [2011] VSC 454 at [33].

120. [361]

     Even more fundamentally, in adopting the Tito reasoning, Cohen J did not refer to the Law Reform Commission report. That report shows that the Commission was alive to the problem later discussed by Megarry V-C and took steps in formulating s 15 to deal with it. As the report itself states, the intention was that, in the exclusive jurisdiction, s 15 would apply by analogy. The historical analysis by Watson to which I have referred underlines how unsatisfactory it would be to decline to apply the statute by analogy (if it does not apply directly) in the present case.

121. [362]

     Relation back: The next question is whether, in the exercise of my discretion, I should limit the relation back of the claim for an account to the date on which it was introduced by filing the relevant pleadings, that is, September 2020. Two separate types of relation back are in issue.

122. [363]

     The first stems from the procedural rule that an amended pleading is deemed to relate back to the pleading which it replaces. If that relation back is applied, the account claim will be taken to have been made when the original cross-claim was filed, on 16 November 2018.

123. [364]

     The second type of relation back comes from s 74 of the NSW Act. That section provides that for limitation purposes, a cross-claim back against the plaintiff is deemed to have been made at the time the plaintiff’s action was commenced. Prima facie this has the result that Mr Bao’s cross-claim relates back to when Mr Mao’s statement of claim was filed, on 29 December 2016.

124. [365]

     The procedural rule that a pleading relates back to the date of its predecessor means that a plaintiff can, by amendment, introduce a cause of action which has expired since the proceedings were begun, and that newly introduced cause of action will be deemed to have been brought within the limitation period. This was thought unsatisfactory and resulted in the rule in Weldon v Neal (1887) 19 QB 394. That rule was that the court would not permit an amendment which would have the effect of introducing, by means of relation back, a statute barred cause of action.

125. [366]

     A similar rule was adopted when considering whether to permit a defendant to raise a claim by way of defence or counter-claim. A rigid distinction was drawn between set-off and a counter-claim. If the claim was purely defensive, and put forward by way of set-off, then it did not involve the introduction of any new claim against the plaintiff and was permitted. But a plaintiff would not be permitted to bring a separate cause of action by way of counter-claim if the limitation period had expired: McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 57.

126. [367]

     The counter-claim rule was reversed by s 28 of the 1939 UK Act. The equivalent provision in the NSW Act is s 74(1):

127. [368]

     The rule in Weldon v Neal has now been displaced as it applied to amendments as well. This first occurred in this State with rules of Court which were introduced in 1970: see McGee v Yeomans [1977] 1 NSWLR 273. Those rules are now reflected in CPA, s 65, which relevantly provides:

128. [369]

     But the power in s 65 to make an amendment which relates back is expressly made subject to a discretionary power to order otherwise under s 65(3). In the present case it was likewise accepted that a term might be imposed on the grant of leave to make an amendment under the court’s general power in s 64 limiting the relation back of the amendments so made. It was also accepted that a similar term could be imposed as a condition for the grant of leave to file a cross-claim out of time.

129. [370]

     I will deal first with the relation back of the amendments to the cross-claim introducing a claim for an account. The initial version of the cross-claim included specific claims of breach of duty on Mr Mao’s part. The new “cause of action” depends on proof of facts making Mr Mao liable to provide a full account of administration. Those facts had already been pleaded in the course of pleading the specific claims of breach of contract and breach of duty. The amendments thus fall within s 65(2)(c).

130. [371]

     It would be contrary to the evident purpose of s 65 to exercise the power in s 65(3) merely because the amendment introduces a statute barred cause of action. For reasons I have given, there is no sufficient prejudice to Mr Mao to refuse the amendment on that ground. Furthermore, in a general sense the amendment has been opened up by Mr Mao’s defence to the original cross-claim, in which he contended that payments for Mr Bao’s benefit should be taken into account in reduction of any compensation awarded (see [18] above). I see no reason to order otherwise under s 65(3).

131. [372]

     The second question is whether the institution of the cross-claim should relate back in accordance with the ordinary operation of s 74. I was not referred to any authority on the exercise of this particular discretion, and must deal with it as a question of principle.

132. [373]

     It seems to me that the considerations at play are somewhat different from those which apply to relation back by way of amending an existing pleading. Section 74 deals with claims back against the plaintiff. Limitation may be seen as a means of preserving the peace by preventing stale claims. It is one thing to prevent a plaintiff from introducing a stale claim by amending the statement of claim to include a claim which has hitherto not been pursued, and has become statute barred in the meantime. But arguably, a counter-claim is belatedly made back against the plaintiff should not cause the same concern. After all the plaintiff has chosen to launch the proceedings in the first place. Although this is not stated in the report of the Law Revision Committee it seems that the rationale behind s 28 of the 1939 Act was (and thus the rationale behind s 74 is) that in such a situation there is no injustice to the plaintiff in allowing the defendant to bring any cross-claim back against the plaintiff that was in existence at the time the plaintiff began his action.

133. [374]

     When he commenced the proceedings in December 2016, Mr Mao would have been well aware that he had borrowed money for his own purposes on the security of the Vaucluse property and that he had received the benefit of a partial discharge of that liability out of the proceeds of sale of the property in May 2014. Mr Mao could not have complained if, having brought a claim against Mr Bao, he was held to account for that gain. While Mr Bao’s delay in making a cross-claim may have led Mr Mao to hope that he would not, after all, be required to do so, he suffered no significant prejudice as a result. I see no reason to limit the relation back effect of s 74.

134. [375]

     Accrual of cause of action: Counsel for Mr Bao submitted that his right to an account did not accrue until the Vaucluse property was sold, which was in March 2014. According to counsel’s submission, if the claim was brought within six years of that date, Mr Bao was entitled to an account going back to the beginning of the financial relationship between the two men, in 2004.

135. [376]

     For their part, counsel for Mao relied upon what was said by Sifris J in Jane v Bob Jane Corporation Pty Ltd [2013] VSC 406. The plaintiff in that case, Bob Jane, had been the founder of the business conducted by the defendant and had been accustomed to depositing money with the defendant, BJC, and then drawing on the money for personal expenditure. The relevant dealings between the parties took place between 1 July 2001 and 30 June 2008. In March 2012 the plaintiff brought a claim for an account. BJC contended that any “matter” pre-dating March 2006 was statute barred under s 5(2) of the Victorian Limitation of Actions Act 1958 (the wording of which was equivalent of s 2(2) of the 1939 Act).

136. [377]

     The passage upon which counsel relied was at [78]:

137. [378]

     I have already concluded that Mr Bao is not on any view entitled to an account for the period up to 31 January 2010. I have also concluded that s 15 applies from six years prior to the commencement of Mr Mao’s proceedings, namely 29 December 2010. The issue is therefore confined to the period from 1 February to 28 December 2010.

138. [379]

     In the end, I do not find it necessary to decide between the parties’ submissions on this issue. That is for two reasons.

139. [380]

     First, I think that Mr Mao’s reconciliation of 6 July 2011 implicitly undertook to provide an account of the same type as had been provided for the period up to 31 January 2010 (see [182] above). Arguably that was a written acknowledgement which set the limitation period running again: NSW Act, s 54. If so, the claim is wholly within time.

140. [381]

     The second point is that, even if the right to an account was statute barred from 29 December 2010, for practical purposes it would still be necessary to determine the account balance at that date. This would require reference back to the previous transactions.

141. [382]

     The point arose in How v Earl Winterton [1896] 2 Ch 626. The defendant was the trustee of a trust established under the will of a testatrix who died in 1875. A claim of breach of trust was made against him in August 1895. The claim was successful, but the defendant was held entitled to rely on the six year period of limitation under the 1888 Act.

142. [383]

     Lindley LJ said (at 640):

143. [384]

     On this view the account against Mr Mao would, strictly speaking, be limited to the period from 29 December 2010 onwards, but the balance as at that date would be determined by an enquiry going back to 31 January 2010. Although, for the reasons given by Lindley LJ, there is a distinction between an inquiry and a full account, in the circumstances of this case there is likely to be little if any practical difference.

144. [385]

     The acknowledgement point I have outlined above was not pleaded. On the face of it, there would seem to be no relevant prejudice to Mr Mao, but I will entertain supplementary submissions from counsel on the point if they consider it worthwhile.

145. [386]

     Other bases for claim: These conclusions on the application of s 15 make it unnecessary to consider whether Mr Bao could have made individual claims concerning specific remittances or rent receipts which attract the longer limitation period under s 47. It was unclear to me whether any restitution claim was pursued if the contract claim failed, as it has, but even if so, it would also be unnecessary to consider that claim.

Conclusions and orders

1. [387]

   I have concluded that:

   1. (1)

      Mr Mao’s claim for repayment of the ¥11 million which he paid to Mr Bao in April 2011 (less the $800,000 received in November of that year), together with interest at 2% per month, succeeds;

   2. (2)

      Mr Bao’s cross-claim, to the extent based on an alleged agreement by Mr Mao to buy Mr Bao out of the Vaucluse property, fails;

   3. (3)

      Mr Bao’s claim for an account of the KVB Kunlun remittances, or for equitable compensation for the $480,000 paid out by Ms Zhang, fails;

   4. (4)

      Mr Bao is entitled to an account incorporating the net proceeds of the Vaucluse property when it was sold in May 2014, the rent received from Mr Eaton, and the remittances sent to Mr Mao, but only back to 31 January 2010 (or perhaps 29 December 2010, coupled with an enquiry going back to 31 January 2010).

2. [388]

   As a result of conclusion (1) it will be necessary to calculate the amount to which Mr Mao is entitled on the ¥11 million loan. The original payment was made in yuan and the repayment was made in Australian dollars, albeit that it was then converted to yuan. It will be necessary for the purpose of entering judgment to convert one or other of these payments into the other currency. The view I have expressed that the currency of account for the loan was yuan is a tentative one and either party is at liberty to make further submissions on that question. It will also be necessary to calculate the interest due.

3. [389]

   As a result of conclusion (4), it will be necessary to proceed with the taking of the account (or account and enquiry) to which I have found that Mr Bao is entitled. The parties will need to consider what further procedural steps, and what further evidence, will be required. If the task appears to be a fairly limited one I may be able to undertake it.

4. [390]

   I will adjourn these proceedings for a short period to allow the parties to consider the judgment and address these procedural issues. It will also be necessary to consider whether costs should be dealt with at this stage or should await the outcome of the account.

5. [391]

   The orders of the Court are:

   1. (1)

      Adjourn the proceedings to 9.15 am on 14 September 2021 or such other time as may be arranged with my Associate.

   2. (2)

      Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.