ET-China.com International Holdings Ltd v Cheung

1. [1]

   BATHURST CJ: I agree with Bell P.

2. [2]

   BELL P:

Introduction

1. [3]

   Madam Cheung, a Chinese national, was the sole shareholder in and had effective practical control of Vision Capital. Vision Capital was incorporated in the British Virgin Islands (BVI). She also controlled another BVI company, Wealthy Capital Enterprises Inc (Wealthy Capital), the role of which will be explained in due course.

2. [4]

   The claim was brought by Mr Matthew Ng (Mr Ng) on behalf of ET-China.com International Holdings Ltd (ETCI) (together the Appellants). Mr Ng was the founding director of ETCI and had been, prior to November 2010, its President and Chief Executive Officer.

3. [5]

   ETCI is a Jersey company, listed on the Alternative Investment Market of the London Stock Exchange (AIM). ETCI, through a wholly owned subsidiary (ETCH) incorporated in Hong Kong, held a 54.43% interest, through three Chinese entities (the ETC Subsidiaries), in a Chinese (PRC) State-owned entity, Guangzhou GZL International Travel Service Ltd (GZL).

4. [6]

   GZL was one of the largest group leisure travel companies in South China.

5. [7]

   ETCI’s indirect interest in GZL was its sole asset: PJ [506].

6. [8]

   The PRC’s interest in GZL was held ultimately by Guangzhou Lingnan International Enterprise Group Co Ltd (Lingnan) together with a number of PRC State entities.

7. [9]

   An organisational chart taken from the judgment at first instance is reproduced in the Appendix to these reasons. The broken line between ETC PRC and the three ETC Subsidiaries represents the fact that, although it is convenient to describe these entities as “subsidiaries”, ETCH’s interest in them existed not by way of shareholding but by means of various ultimately indirect contractual arrangements with PRC citizens, deployed by reason of restrictions in the PRC on foreign ownership of local businesses (and creating what is known in as a “Variable Interest Entity” structure).

8. [10]

   Messrs Rose and Marcou were directors of ETCI. Both were involved in the transfer on or about 25 July 2012 of ETCI’s shares in ETCH to Vision Capital (the ETCH Share Transfer). That transfer lies at the heart of these proceedings. On its face, at least, it had the consequence that ETCI lost its indirect interest in the ETC Subsidiaries and thus its economic interest in GZL. Ultimately, ETCI received AU$2 million for the transfer of its shares in ETCH but that was pursuant to a Share Sale Agreement with Vision Capital dated 7 June 2013 (the 2013 Share Sale Agreement) with the $2 million being paid in two tranches on 6 and 9 September 2016.

9. [11]

   Apart from the circumstances surrounding the disposal of its shareholding in ETCH, how ETCH (and thus ETCI) acquired or at least was said (in Court proceedings in China in both 2011 and 2013) to have acquired its interest in the ETC Subsidiaries in the first place was also, as will be seen, of critical contextual significance to the present proceedings.

10. [12]

    In holding that the various claims made on behalf of ETCI failed, the primary judge concluded that the breaches of duty alleged against Messrs Rose and Marcou had not been established and that, even if they had been established, his Honour held that no loss to ETCI had been established.

11. [13]

    At first instance, as recorded at PJ [151], ETCI ultimately confined its case concerning Mr Rose’s and Mr Marcou’s alleged breach of their duties as directors so far as concerns the ETCH Share Transfer to:

12. [14]

    The primary judge held that the opportunity to sell ETCI’s indirect interest in GZL was lost by 4 July 2012 and that no breach of directors’ duties had been established by that date (see PJ [568]–[574]), that no loss of commercial opportunity which had some non-negligible value had been established on the balance of probabilities and that, even if it had been, there was no basis in the evidence to make any assessment of that value: PJ [599]–[601].

13. [15]

    To the extent that ETCI received a sum of $2 million for the transfer of its shares in ETCH pursuant to the 2013 Share Sale Agreement, the primary judge also rejected a claim that that transfer had been at a gross undervalue and that Messrs Rose and Marcou were or ought reasonably to have been aware of this: PJ [605]–[612].

14. [16]

    It followed from the failure of the directors’ duties claims that the claims for knowing assistance and knowing receipt brought against Vision Capital and Madam Cheung necessarily failed.

Notice of Appeal, Notices of Contention and challenges to factual findings

1. [17]

   The Further Amended Notice of Appeal (the Notice of Appeal) contained some 21 grounds of appeal and ran to some 8 closely typed pages. These included challenges to particular factual findings which the primary judge had made to support aspects of his reasoning as well as to legal conclusions.

2. [18]

   The Appellants also filed a statement prepared in accordance with r 51.36(2) of the Uniform Civil Procedure Rules 2005 (NSW) specifying the particular factual findings challenged and the findings which it was contended should have been made (the Rule 51.36 Statement).

3. [19]

   The importance of such a Statement has been emphasised in a number of recent decisions of this Court: Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167 at [52]–[54]; Hamod v New South Wales [2011] NSWCA 375 at [774]; South Western Sydney Local Health District v Gould (2018) 97 NSWLR 513; [2018] NSWCA 69 at [135]; Best v Rosamond [2020] NSWCA 90 at [21]; Namrood v Ebedeh-Ahvazi [2017] NSWCA 310 at [61].

4. [20]

   There was an extensive overlap between some of the grounds of appeal and some of the challenges to factual findings.

5. [21]

   The Notice of Appeal is a complex and somewhat unwieldy document with many of the grounds of appeal containing multiple subparagraphs and a degree of repetition. For clarity’s sake, it will be necessary to group various grounds of appeal in the consideration which follows. It should also be observed that there was a dispute between the parties as to whether or not some of the matters sought to be argued on appeal were open to the Appellants to argue.

6. [22]

   Messrs Rose and Marcou, and Madam Cheung and Vision Capital both filed notices of contention seeking to uphold the primary judgment on grounds in addition to those found in their favour by the primary judge. There were detailed written submissions and the appeal was heard over three days.

7. [23]

   Before setting out the key facts which are necessary to understand and resolve the various ground of appeal, it is desirable to make a number of observations about witness credibility, documentary evidence and fact finding.

Witness credibility, documentary evidence and fact finding

1. [24]

   In reaching his decision, the primary judge rejected a submission that Mr Marcou was an untruthful witness and positively held that, save for one aspect of his evidence, Mr Rose was a witness who impressed as “calm and measured” and as someone who was “doing his best to recollect accurately the events in question”: PJ [64]–[66]. Those events relevantly occurred between 2010 and 2013 in a context that was complex, fraught and, in many respects, quite dramatic, as will be explained in further detail below.

2. [25]

   As with most commercial disputes, a proper understanding of the chronology of events is critical and, as has been regularly observed, contemporaneous documents generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony.

3. [26]

   In Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31] (Fox v Percy), Gleeson CJ, Gummow and Kirby JJ, having referred to increasing judicial awareness of scientific research that cast doubt on the ability to distinguish between truth and falsity in witness testimony from the mere appearance of the witness in the witness box, said:

4. [27]

   Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):

5. [28]

   Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents.

6. [29]

   Context is critical for at least two reasons. Documents and events take their meaning from their context. The context in which events occurred may not necessarily be apparent to a court many years later when hearing a case. A clear understanding of context, both commercial and cultural, is also important where, as in the present case, some or all of the events under consideration occurred overseas and in settings that may differ from those usually dealt with in domestic litigation.

7. [30]

   In what follows, key aspects of the background, context and chronology leading to the ETCH Share Transfer and beyond are highlighted, incorporating references to and drawing extensively on unchallenged findings of the primary judge. The reasons then turn to consider the key reasoning in the primary judgment before addressing the grounds of appeal in this Court.

Chronological overview

1. [31]

   ETCI acquired its interest in GZL, through the ETC Subsidiaries, at a time when Mr Ng was ETCI’s CEO.

2. [32]

   At all relevant times, the Board of ETCI comprised Messrs Ng, Rose and Marcou together with Ms Maria Ng (Ms Ng) and Mr Martin Simeon (Mr Simeon), representing interests associated with a Swiss company, Kuoni Travel Holding Ltd (Kuoni). Ms Ng was not related to Mr Ng who, for reasons explained below, did not participate in the affairs of the board after November 2010. Mr Rose evidently represented a group of shareholders referred to in some documents as the “Mintpine shareholders”. There was also an independent director, Mr Robert Drummond (Mr Drummond).

3. [33]

   Kuoni held the largest individual stake (some 30.27%) in ETCI and had, in 2010, been contemplating a takeover of ETCI so as to gain for itself a majority 54% indirect interest in GZL. As the primary judge recorded at PJ [72], on 2 June 2010, Kuoni and ETCI made a public announcement in the following terms:

4. [34]

   A little over two weeks later, on 18 June 2010, Lingnan wrote to ETCI and, according to Mr Ng, “demanded that it explain how it had gained control of GZL” and, on 5 July 2010, Lingnan wrote “an urgent letter” to Kuoni in which, again according to Mr Ng, Lingnan demanded that Kuoni not proceed with the takeover of ETCI and alleged that ETCI had “illegally taken control of GZL” and “has acted illegally when acquiring control of GZL i.e. corrupt practice”: PJ [74]–[75]. As a result of this letter, Kuoni suspended the proposed takeover of ETCI. It formally withdrew its offer on 20 December 2010.

5. [35]

   As will be seen, much had occurred in the intervening 6 months.

6. [36]

   On 23 August 2010, two senior employees of the ETC Subsidiaries, including ETCI’s finance director, Ms Kitty Yang (Ms Yang), were detained by Chinese authorities for 30 days: PJ [77].

7. [37]

   Mr Ng had urgently left the PRC on 6 September 2010 but returned in November 2010 and met with representatives of Lingnan who repeated the allegations that ETCI’s interest in GZL was held unlawfully and had been procured by corrupt practices: PJ [82].

8. [38]

   On 15 November 2010, Mr Ng was detained by Chinese authorities and arrested a short time later.

9. [39]

   Mr Ng was charged with various offences for which he was tried in the Intermediate People’s Court of Guangzhou Municipality (the Intermediate People’s Court) in August 2011. On 6 December 2011, he was convicted and sentenced to imprisonment for 14½ years. On appeal, the sentence was reduced to 11½ years. This occurred in March or April 2012.

10. [40]

    The charges in respect of which Mr Ng was convicted related to the manner in which ETCI acquired its indirect 54.43% interest in GZL. The Intermediate People’s Court made findings of “bribery”, “misappropriation of funds”, “misstatement of registered capital”, “official embezzlement” and “organi[s]ational bribery” concerning the circumstances in which the ETC Subsidiaries acquired their interest in GZL: PJ [124]–[129].

11. [41]

    At around the same time as Mr Ng was arrested, Ms Yang was again detained and arrested.

12. [42]

    Minutes of a meeting between representatives of ETCI and Lingnan, which apparently occurred on 10 November 2010, recorded that the commencement of Lingnan’s investigations to prove its allegations had “directly and indirectly caused chaos” in ETCH and GZL and “if left unchecked, could cause dramatic loss in business value of” ETCI and GZL. Those observations were made prior to Mr Ng and Ms Yang’s arrest and conviction.

13. [43]

    The effect of Mr Ng’s arrest and incarceration was obviously that he was unable to participate in the management of ETCI. This was of no little moment as Mr Ng, according to a filing relating to ETCI’s placement on the AIM in 2007, was responsible for establishing and maintaining ETCI’s key relationships with strategic partners and key suppliers. But the impact for ETCI went beyond the immediate loss of Mr Ng, significant though that obviously was. Its finance director, Ms Yang, was also imprisoned and, as recorded at PJ [86], “senior staff of the PRC businesses had … been detained or arrested, bank accounts had been frozen and financial records confiscated.”

14. [44]

    The primary judge referred to an email (PJ [90]) from Mr Ng’s then wife, Niki Chow (Ms Chow) to Messrs Rose and Marcou on 23 February 2011, prior to Mr Ng’s conviction, as follows:

15. [45]

    His Honour also referred to a further email Ms Chow sent Messrs Rose and Marcou on 16 March 2011 (PJ [91]):

16. [46]

    The difficulty of Mr Ng’s arrest was compounded by the fact that, other than Mr Ng, none of the other directors of ETCI had any direct involvement in the conduct of ETCI’s business in the PRC (PJ [86]) and none spoke Cantonese or Mandarin.

17. [47]

    The primary judge was correct to describe Mr Ng’s arrest and incarceration as providing a vital backdrop to the case brought against Mr Rose, Mr Marcou and Madam Cheung: PJ [130].

18. [48]

    After Mr Ng’s incarceration, ETCI was left vulnerable and, far from being “left unchecked” (see [42] above), Lingnan’s investigations had led to Mr Ng’s arrest, trial and incarceration. Internal documents subsequent to his incarceration recognised as much, recording, inter alia, the freezing of bank accounts and very tight liquidity.

19. [49]

    On the eve of Mr Ng’s and Ms Yang’s indictments in July 2011, Mr Marcou reported to the Board that “there is a risk to the ownership of the shares in GZL by [ETCI] with some of the charges against them”.

20. [50]

    In a letter to the directors from prison at about the same time, Mr Ng protested his innocence and noted that Lingnan wanted the GZL shares back. He said that without a lawyer to assist his defence, “[ETCI] would be destroyed by [Lingnan] so that they could just take GZL shares step by step”.

21. [51]

    At a board meeting of ETCI on 23 August 2011 after Mr Ng’s trial, Mr Simeon reported that, according to media reports, in his defence, Mr Ng had said that ETCI “does not own any asset, i.e. the Chinese entities at all.” The minutes recorded that “[i]f this comment is correct, the board needs to prepare for the worst scenario after the court case is closed”.

22. [52]

    The comment was correct. As the 2007 AIM placement document stated, and as noted above, ETCI had no equity interest in the ETC Subsidiaries, which were held by Chinese individuals who had issued what were, in effect, declarations of trust in favour of ETCI and had also entered into certain contractual arrangements with ETCI (see [9] above).

23. [53]

    The same board minutes recorded that negotiations between Kuoni and Lingnan “had not made any progress at the moment”.

24. [54]

    It was in about mid-2011 that, into the alleged breach, stepped Madam Cheung.

25. [55]

    On 8 June 2011, Madam Cheung had written to Mr Rose, who had assumed executive responsibilities within ETCI in Mr Ng’s forced absence:

26. [56]

    In an email sent from Ms Chow to Mr Marcou and Mr Rose on 22 June 2011, it was reported that:

27. [57]

    “Guanxi” is a Chinese term which refers to the system of social networks and influential relationships which facilitate business and other dealings.

28. [58]

    Madam Cheung’s name came up in an ETCI board meeting on 7 September 2011 in the context of a discussion about the need to appoint an official representative of ETCI in the PRC in place of Ms Yang who was imprisoned. In that context, the minutes record the following:

29. [59]

    At the same board meeting, Mr Simeon had observed that:

30. [60]

    By 9 November 2011, Mr Marcou had forwarded to Kuoni a proposal for what became known as the “Wealthy Capital Transaction”. The “Overview” section of this document provides a useful snapshot of the proposed transaction as at that time as well as outlining the proposal.

31. [61]

    Under the heading “Current Status”, the Proposal stated:

32. [62]

    Under the heading “Proposal”, the following was outlined:

33. [63]

    Of particular significance for reasons that will become clear, under the “Summary” section describing the proposed share sale agreement, it was noted that:

34. [64]

    This, together with the Call Option Agreement, made the proposed sale transaction reversible. That it could, however, be executed with right, title and benefit passing upon signing meant that the “Buyer” would be armed to present as the owner of the relevant shares. The “optics” of this picked up what had been alluded to in the board minutes of 7 September 2011 (see [58] above). Mr Drummond’s email to Mr Marcou of 9 November 2011 expressed, in perhaps blunter terms, what was being sought to be achieved:

35. [65]

    The Wealthy Capital Transaction was approved by the Board, over the objections of the two Kuoni directors, Mr Simeon and Ms Ng, in minutes dated 19 December 2011 and a share transfer was executed for an apparent consideration of US$10,000,000 on 20 December 2011.

36. [66]

    The primary judge found that Madam Cheung did attempt to broker a solution to what was euphemistically referred to in the Wealthy Capital Transaction documents as the “Legal Complication”, albeit without success (PJ [131]), and noted that, on 12 March 2012, Mr Marcou reported to the board that:

37. [67]

    On 25 May 2012, ETCI exercised its Call Option in relation to the ETCH shares and, in effect, brought the Wealthy Capital Transaction to an end. This had been foreshadowed at a board meeting held three days prior.

38. [68]

    The minutes of this meeting also make reference to a proposal that had been circulated by Mr Simeon to engage a Mr Mao as a Chinese-speaking adviser to assist in building a bridge between ETCI and Lingnan in a context where “a quick solution is needed before the [ET-China] Group is declared to be insolvent”. Mr Mao was also acting as a consultant or adviser to Kuoni. The minutes recorded that Mr Simeon would get Mr Mao to arrange a meeting between ETCI, Lingnan and Kuoni whilst Messrs Rose and Marcou would discuss between themselves any further future role for Mr Mao on behalf of ETCH

39. [69]

    At PJ [139]–[142], the primary judge noted that, in a briefing paper for the ETCI board meeting scheduled for 2 April 2012, Mr Marcou reported that it was “[h]ighly likely that Lingnan will now move on the disputed GZL holdings” and that ETCI should “consider engagement with Lingnan or related entity to facilitate exit from disputed equity holdings in GZL ... at best possible price”. Mr Rose reported to the same meeting that it was “highly likely that Lingnan will now move into a civil case on the disputed GZL holdings”.

40. [70]

    The board authorised Mr Marcou to contact Lingnan to pursue options “with Lingnan for the disposing of equity holding of [ETCH] in GZL at the best price that the group would accept”. The board minutes of 24 May 2012 made reference to Mr Marcou’s attempts to arrange a meeting with Lingnan.

41. [71]

    A meeting was ultimately arranged to occur on 5 June 2012 in Hong Kong between Mr Rose, Mr Marcou, Mr Simeon, Ms Ng and Mr Leser (an employee of Kuoni superior to Mr Simeon and Ms Ng) with representatives of Lingnan.

42. [72]

    According to the minutes of that meeting:

43. [73]

    The ETCI board minutes of the same day recorded that Lingnan’s final offer of RMB 70 million was arrived at after:

44. [74]

    In his affidavit, Mr Marcou gave this account of the meeting:

45. [75]

    In cross-examination, Mr Marcou said of the meeting:

46. [76]

    In his affidavit, Mr Rose gave this account of the meeting:

47. [77]

    In his evidence-in-chief, Mr Rose gave this further account of what the Lingnan representatives said of the RMB 70 million:

48. [78]

    The primary judge accepted Messrs Rose and Marcou’s account of what had transpired at this meeting (PJ [161]). That conclusion is challenged in the Appellants’ Rule 51.36 Statement at [6]. None of the other attendees at the meeting gave evidence in the proceedings at first instance.

49. [79]

    It is also relevant to note that, unbeknown to ETCI, on the very same day as the meeting with Lingnan, Lingnan wrote to GZL requesting that it commence legal proceedings against Mr Ng, Ms Yang and the ETC Subsidiaries, such proceedings obviously being separate to the criminal proceedings against Mr Ng and Ms Yang which had already been finalised: see PJ [163]–[165].

50. [80]

    On 8 June 2012, the ETCI Board met with the minutes recording that:

51. [81]

    On the same day, Mr Marcou wrote to a representative of Lingnan, Mr Tang Xin as follows:

52. [82]

    On 13 June 2012, Mr Tang replied:

53. [83]

    A meeting with Lingnan representatives was scheduled for the week beginning 2 July 2012 with the meeting potentially to run for the entire week.

54. [84]

    In June 2012, Madam Cheung re-emerged, evidently cognisant of ETCI’s discussions with Lingnan, and, as the primary judge found, told Mr Marcou that she continued to be interested in acquiring ETCH: PJ [183]. According to Mr Marcou’s evidence, Madam Cheung wanted to make an offer to acquire ETCH for US$13 million. This “offer” resulted in a term sheet which was sent to Mr Simeon, Ms Ng and Mr Drummond on 27 June 2012 by Mr Rose (PJ [189]) under cover of an email which stated:

55. [85]

    The “new offer” was set out in a term sheet which specified a total consideration comprising:

56. [86]

    A significant condition precedent specified in the term sheet was the Purchaser’s completion, to its satisfaction, of due diligence investigations, including “in its absolute discretion being satisfied that the findings of those investigations do not reveal any reason why it would not wish to proceed with the Transaction”.

57. [87]

    On the following day, Mr Marcou emailed the ETCI board, suggesting, in light of this development, that a postponement of the proposed meeting with Lingnan the following week be requested, and seeking “everyone’s view in relation to that”. Mr Drummond agreed with the suggestion of a postponement but cautioned that Lingnan not be given:

58. [88]

    On 29 June 2012, the board of ETCI resolved that:

59. [89]

    The minutes of this meeting also record that the board resolved that Mr Rose “will ask [Mr Marcou] to make a request to Lingnan that [ETCI] needs more time to make the documents ready and would like to postpone the meeting sometime after 10th of July”.

60. [90]

    The following day, Mr Marcou wrote to Mr Tang, a representative of Lingnan, as follows:

61. [91]

    At some time on or prior to 4 July 2012 (when Ms Ng supplied an English translation to fellow ETCI board members), Lingnan responded:

62. [92]

    On 5 July 2012, Lingnan commenced proceedings in the Guangzhou Tianhe District People’s Court against one of the ETC Subsidiaries, ETIC PRC. Those proceedings ultimately resulted in the judgment referred to at [122]–[126] below. These proceedings had been planned for at least a month as was recorded in the judgment (see [79] above).

63. [93]

    The primary judge held that this was “the end of negotiations between ETCI and Lingnan concerning the possible purchase by Lingnan of the ETC Subsidiaries’ shares in GZL” and observed that there was no evidence of any further discussions between ETCI and Lingnan about the matter. His Honour said that “[e]vidently, Lingnan determined to pursue the question of its acquisition of GZL through the court process”: PJ [207].

64. [94]

    Following receipt of Lingnan’s response to Mr Marcou’s email postponing the meeting that was to have commenced two days earlier (see [91] above), the board of ETCI met.

65. [95]

    As the primary judge noted at PJ [217], there are competing versions of the minutes of this meeting. The primary judge relied upon and accepted as accurate the version of the minutes signed by Mr Rose as accurately recording what transpired at that meeting as it was not suggested to him in cross-examination that they did not accurately record what had occurred: PJ [218]. The Appellants challenge his Honour’s reliance on these minutes as accurate in their Rule 51.36 Statement at [2] and detailed submissions were made on appeal in this respect. These submissions are considered further at [196]–[203] below.

66. [96]

    Aspects of the competing versions of the minutes were not, however, controversial. Both versions made reference to the need for Vision Capital to supply a term sheet. As reported to the board, Vision Capital’s then current proposal involved a non-refundable cash down payment of US$500,000 to be paid within two or four weeks with the balance to be paid within 12 weeks of the execution of the sale agreement. Both versions of the minutes also made reference to the previous Wealthy Capital Transaction being “called back by us in May 2012”, plainly a reference to the exercise of the Call Option referred to at [67] above and the reversible nature of that transaction.

67. [97]

    The primary judge recorded the following evidence of Mr Marcou in relation to this meeting (PJ [225]):

68. [98]

    The next piece of the factual puzzle concerns the transfer of ETCI’s shares in ETCH to Vision Capital in July 2012.

69. [99]

    On 5 July 2012, Mr Marcou and Mr Rose executed a term sheet in respect of the proposed acquisition of ETCI’s shares in ETCH by Vision Capital, in terms similar to those of the “new offer” described at [84]–[86] above. This term sheet provided for a “non-refundable deposit” of US$500,000 “within 4 weeks of execution of a Sale Agreement” between ETCI and Vision Capital. This arguably differed from what had been contemplated at the meeting of the previous day.

70. [100]

    The term sheet also provided that the balance of US$12.5 million be paid “within 12 weeks after the deposit has been received” and contained a number of conditions precedent to completion including that:

71. [101]

    The term sheet as executed was not approved by the board of ETCI prior to its execution but equally was not concealed from board members following execution. Thus, on 12 July 2012, Mr Rose sent an executed copy of it to Mr Simeon, who duly protested that:

72. [102]

    On 6 July 2012, Mr Marcou sent Madam Cheung a draft Sale of Shares Agreement (the draft SSA), providing, in accordance with the executed term sheet, for a purchase price of US$13 million with a $500,000 “down-payment” payable “on the date of this Agreement”. The draft SSA did not contemplate a transfer of the ETCH shares until receipt of the purchase price. Thus cl 4.4 provided that “[u]pon the Purchaser paying the Balance to the Seller, the Seller shall deliver a transfer of the Shares to the Purchaser”. The draft SSA also contained a condition precedent at cl 5.1(c) to the same effect as that that had been contained in the term sheet as noted at [86] and [100] above.

73. [103]

    Although a slightly amended version of the draft SSA dated 25 July 2012 was executed on behalf of ETCI, which had added to cl 4.4 the words “[i]f the Purchaser does not pay the balance, the Purchaser will not be entitled to any transfer of the Shares”, no copy of the SSA executed by Vision Capital was in evidence although an email sent by Mr Marcou on 1 August 2012 suggested a belief on his part that it had been signed by Vision Capital on 26 July 2012. Mr Rose was also of that understanding, confirming as much to Mr Simeon and Mr Ng on 2 August 2012 although noting that he was yet to receive a signed copy. The primary judge proceeded on the basis that Vision Capital never in fact executed a copy of this agreement.

74. [104]

    It was certainly the case that no monies, either by way of deposit or the balance of the purchase price pursuant to the draft SSA or term sheet that had preceded it, were ever received by ETCI. Notwithstanding this, on 25 July 2012, Mr Rose, on behalf of ETCI, executed the ETCH Share Transfer and caused it to be delivered to Madam Cheung. On the following day, according to an annual return lodged with the Hong Kong Companies Registry on 22 March 2013, the ETCH Shares were transferred to Vision Capital.

75. [105]

    On 26 July 2012, a notification of change of director appointing Vision Capital as a director of ETCH was also lodged with the Hong Kong Companies Registry. This was signed by Mr Marcou.

76. [106]

    The corporate documents that were in evidence recorded that the transfer was for a consideration of US$13 million however, as already noted, it was not in dispute that consideration in that amount was never paid.

77. [107]

    As shall be seen, notwithstanding and contrary to the fact of the ETCH Share Transfer and what it implied about ownership of the ETCH Shares, the 2013 Share Sale Agreement entered into between ETCI and Vision Capital almost a year later (see [10] above) contained the following recitals:

78. [108]

    Furthermore, cl 3.1 of the 2013 Share Sale Agreement described ETCI as the “absolute owner” of the ETCH shares.

79. [109]

    As noted below, notwithstanding the ETCH Share Transfer in July 2012, Messrs Rose and Marcou continued to engage in negotiations with Madam Cheung and Vision Capital in relation to the latter’s possible acquisition of the ETCH shares, and to report to the board in relation to such negotiations.

80. [110]

    The apparent paradox of this position in circumstances where the ETCH Share Transfer had already been effected was a central aspect of the factual and legal dispute between the parties both at first instance and in this Court.

81. [111]

    At a factual level, the primary judge set out key evidence given by Messrs Rose and Marcou as to why they transferred the ETCH shares to Vision Capital on or about 25 July 2012 without ETCI receiving payment for that transfer. His Honour’s summary of this evidence (at P [264]–[267]) was that:

82. [112]

    The primary judge then observed at (PJ [268]–[269]) as follows:

83. [113]

    His Honour accepted the veracity of their evidence. That conclusion attracts some further support from the terms of the amended cl 4.4 of the draft SSA to which reference has been made at [102] above.

84. [114]

    The primary judge held, based upon his analysis of emails and board minutes, that the ETCH Share Transfer was not known to and thus inferentially at least had not been disclosed to the other members of the board of ETCI by either of Messrs Rose or Marcou following the execution of the transfer. Mr Bagley, who appeared on behalf of Messrs Rose and Marcou on the hearing of the appeal, did not submit otherwise.

85. [115]

    In addition, the primary judge rejected Mr Rose’s evidence that he had disclosed the details of the ETCH Share Transfer to Mr Leser (a superior of Mr Simeon and Ms Ng) of Kuoni: PJ [297]. Indeed, the documentary record disclosed that Messrs Rose and Marcou reported to the board that they were still in negotiations with Madam Cheung in relation to completion of the sale of the ETCH Shares, implicit in which was the fact that a transfer of those shares had not yet occurred.

86. [116]

    In the course of August 2012, Mr Marcou unsuccessfully sought from Madam Cheung an executed copy of an amended version of the draft SSA (to reflect a minor adjustment in the purchase price to take into account Madam Cheung’s small existing interest in ETCH) together with payment of the deposit.

87. [117]

    On 29 August 2012, Mr Rose sent an email to Mr Simeon, Ms Ng and Mr Drummond as follows:

88. [118]

    Mr Rose’s references in this email to Wealthy Capital were plainly intended to be to Vision Capital (both companies being associated with Madam Cheung, with Wealthy Capital being the vehicle utilised in the attempted but terminated sale in 2011).

89. [119]

    The board of ETCI met next on 12 September 2012. Extracts from the minutes include the following:

90. [120]

    In November 2012, in response to an inquiry by Mr Simeon as to the status of the proposed sale to Vision Capital (although Mr Simeon also mistakenly referred to Wealthy Capital), Mr Marcou replied:

91. [121]

    The primary judge extracted the contents of an email from ETCI’s independent director, Mr Drummond, to Mr Ranjit Murugason, a former Chair of the board of ETCI and a shareholder in the company, on 22 November 2012, no doubt in recognition of the likely reliability of this document as accurately capturing the true position in which ETCI and its directors found themselves at that time. It was in the following terms (PJ [326]):

92. [122]

    As recorded at PJ [337]–[338], “[o]n 7 February 2013, the Guangzhou Tianhe District People’s Court delivered a Civil Judgment in the proceedings commenced the previous June. The Court determined that ETIC PRC (one of the three ETC Subsidiaries) was ‘not a shareholder’ of GZL, had ‘no right to hold’ 28.5% and was ‘not entitled to shareholder’s rights and interests’.”

93. [123]

    While the judgment related to ETIC PRC’s 28.5% interest in GZL, the primary judge recorded that there was other litigation on foot in relation to the remaining interests of the ETC Subsidiaries in GZL (that is the shareholding of Xinzhiye PRC and ETCCT PRC). No judgment was in evidence in relation to the outcome of this other litigation.

94. [124]

    The primary judge noted in this context that Mr Mao, the Chinese national who was providing advice to the Kuoni interests (see [68] above), had opined in May 2012 that the interests of ETIC PRC “appeared to be the most secure of those of the ETC Subsidiaries.” In that same letter, he had advised Kuoni that “[n]one can sell or buy the GZL shares[s] legally owned by those three Chinese companies without full support of the Guangzhou government” and “[a]ny delay for a solution beyond 2012 will successively destroy the value of collateral formalistically held by [ETCH] due to the deteriorating legality and compliance of the three Chinese companies and [ETCH].”

95. [125]

    At PJ [340], the primary judge observed that:

96. [126]

    The primary judge also noted that the final page of the Civil Judgment referred to the possibility of an appeal but (PJ [344]) accepted Mr Rose’s evidence that:

97. [127]

    On 11 February 2013, Mr Wong, an associate of Madam Cheung, contacted Mr Marcou and the following conversation occurred:

98. [128]

    On 12 February 2013, Mr Wong wrote Mr Marcou:

99. [129]

    These exchanges disclose that neither Madam Cheung nor Vision Capital took the view that a sale, still less a gift, of the ETCH shares had been effected notwithstanding the ETCH Share Transfer of July 2012, and that the suggested commercial terms represented an evolution of what Madam Cheung was prepared to pay for them following the due diligence she had done which, by this time, included “dealing with the court cases and the difficulties with the legal persons” (PJ [346]). The agreement was not executed “on Friday” as had been foreshadowed in Mr Wong’s letter and was in fact not executed until June 2013, as explained more fully below, and then for a consideration of $2 million rather than $3 million.

100. [130]

     Before that date, however, an inquorate board of ETCI (in the absence of the Kuoni representatives) purported to authorise an urgent rights issue which raised US$300,000 to meet (albeit partially) existing debts and administrative expenses. Significantly, both Kuoni and Madam Cheung (who had an interest in ETCI) participated in this rights issue.

101. [131]

     As to Madam Cheung’s participation in the rights issue, the primary judge said at PJ [382]:

102. [132]

     As the primary judge also noted (PF [360]), ETCI’s financial position at this time was summarised in a document attached to the board minutes of 22 March 2013 which authorised the rights issue:

103. [133]

     The primary judge held that on 7 June 2013, ETCI and Vision Capital executed the 2013 Share Sale Agreement. The terms of that document’s recitals and its cl 3.1 have already been referred to at [107]–[108] above. The 2013 Share Sale Agreement made no reference to the ETCH Share Transfer that had been effected on 26 July 2012 and was wholly inconsistent with it

104. [134]

     The primary judge accepted that the 2013 Share Sale Agreement “reflected the final agreement between ETCI and Vision Capital, as Vision Capital paid the $2 million referred to in the agreement, albeit not within three business days” (as had been provided for by the executed document): PJ [417]. The amount was paid in two tranches of $1 million each on 6 and 9 September 2013.

105. [135]

     On 20 September 2013, ETCI purported to hold a board meeting with only Messrs Rose and Marcou present and Mr Drummond recorded as an apology. The minutes of this meeting appear to record the following resolutions:

106. [136]

     The primary judge recorded at PJ [440] that “[t]he total amount returned to shareholders by the Special Distribution was some $1,534,000. It was funded by the $2 million received from Vision Capital.”

107. [137]

     Both at trial and on appeal, it was submitted that the 2013 Share Sale Agreement was not executed on the date it bore but was backdated. It is sufficient to flag at this point that (a) the primary judge rejected this submission, holding that it was not open in the absence of that matter having been specifically pleaded (PJ [414]–[433]); and (b) the primary judge’s ruling as to whether this submission was open was challenged on appeal (see further at [170] below).

108. [138]

     At PJ [405]–[408], the primary judge referred to the fact that there were in evidence copies of seven documents dated 21 June 2013, each entitled “Paper of Civil Mediation”, and that these documents purported to record a settlement of the ETC Subsidiaries’ appeal from the February 2013 Civil Judgment. His Honour recorded that (PJ [407]–[408]):

109. [139]

     At PJ [409], the primary judge held that, “[a]ssuming these documents accurately record a settlement of an appeal from the 7 February 2013 judgment, there is no evidence that the Guangzhou state owned corporations paid the RMB 80 million, or any sum at all, to the ETC Subsidiaries.”

110. [140]

     His Honour noted that Madam Cheung, by then in control of the ETC Subsidiaries by reason of the 2013 Share Sale Agreement, in an answer to an interrogatory in these proceedings, had denied that either she or any person or corporation at her nomination or direction had received the RMB 80 million referred to in the Papers of Civil Mediation. Although Madam Cheung did not give evidence in the proceedings at first instance, this answer was tendered, perhaps somewhat surprisingly, without objection by the plaintiffs and became, in the absence of an order pursuant to s 136 of the Evidence Act 1995 (NSW), evidence for all purposes notwithstanding its hearsay nature: see s 60 of the Evidence Act.

111. [141]

     At PJ [412]–[413], the primary judge recorded that:

112. [142]

     It is not entirely clear from the way in which these paragraphs are expressed as to whether the primary judge was here making findings of fact as to when Messrs Marcou and Rose respectively learnt of the Papers of Civil Mediation and the “settlement” they purported to entail but the key point, for reasons that will emerge, is that there was no evidence suggesting that they had learnt of the settlement prior to the execution of the 2013 Share Sale Agreement on 7 June 2013, or the purported ratification of that agreement on 20 September 2013 (see [137] above).

113. [143]

     Pursuant to the Convention on the Transfer of Sentenced Persons (1983) ETS 112 (entry into force 1 July 1985) and the International Transfer of Prisoners Act 1997 (Cth), Mr Ng was released to Australia in November 2014 from his incarceration in China and remained imprisoned at the St Heliers Correctional Centre in Muswellbrook. He was released on 15 June 2016.

114. [144]

     Two sets of proceedings against various defendants were commenced during 2017 and were subsequently consolidated in the proceedings presently under appeal in July 2018.

The case as pleaded and argued at first instance

1. [145]

   At the heart of the case as pleaded and argued at first instance was the contention that Messrs Rose and Marcou breached their equitable or general law duties as directors of ETCT by authorising and or effecting the ETCH Share Transfer in July 2012 for “nil consideration”. Thus, [61] of the Consolidated Commercial List Statement (CLS) pleaded that:

2. [146]

   The references to “nil consideration” and “misappropriated” in this pleading were central to the allegations. The effect of the pleading was that ETCI, through the actions of Messrs Rose and Marcou, lost for the company the value of its shareholding in ETCH (and thus its indirect interest in GZL) and received nil consideration for the transaction. This was said to have had the consequence that ETCI lost the opportunity to sell its interest because it had been transferred to Vision Capital.

3. [147]

   This pleading was, as the primary judge accepted, tantamount to a contention that Messrs Rose and Marcou had in effect given away the company’s sole asset, a claim that, if it were correct, would no doubt have involved a breach of one or more of the duties pleaded (although whether all of the duties pleaded in CLS [61] were “fiduciary” duties was an issue strongly contested, for obvious reasons, by Mr Entwisle, who appeared on behalf of Madam Cheung and Vision Capital, whose potential liability was predicated on knowing assistance in the breach of such duties).

4. [148]

   The other aspect of the case pleaded at first instance and still pressed on appeal related to the 2013 Share Sale Agreement, described in the CLS as the “Purported 2013 Agreement”. CLS [67] was in these terms:

5. [149]

   It should be noted that the CLS used the expression “Chinese Judgment” to refer not to the February 2013 Civil Judgment but to what were described in the CLS as the “orders” made in the seven “Papers of Civil Mediation” dated 21 June 2013 and referred to at [138] above. This was made plain by CLS [41].

6. [150]

   It may be noted in passing that there is a measure of artificiality or apparent inconsistency between the claim in CLS [61], to the effect that the ETCH shares were lost or misappropriated for nil consideration in July 2012, and the claim at CLS [67] that those same shares were transferred for AU$2 million at a gross undervalue just under one year later.

7. [151]

   It may be noted that the CLS also contained allegations that, by purporting to approve a rights issue in or about April 2013 and a special distribution in September 2013, Messrs Rose and Marcou breached their duties as directors: CLS [62]–[65] and [68]. These claims, which were also unsuccessful at first instance, were not pursued on appeal other than indirectly in response to a Notice of Contention. (What the primary judge inferred from Madam Cheung’s participation in the rights issue was challenged in grounds 5 and 6 which are dealt with at [229] below).

8. [152]

   CLS [69] pleaded that by reason of Mr Marcou’s and/or Mr Rose’s breaches of their fiduciary duties to ETCI, the Appellant company suffered loss or damage, particularised as “the difference between the market value of ETCI’s shares in ETCH and any monies purportedly paid to ETCI subsequently by Vision Capital”. The latter amount was AU$2 million.

The primary judgment

1. [153]

   In light of the issues raised on appeal, there are three central findings of the primary judge which fall to be highlighted:

2. [154]

   The primary judge dismissed this aspect of the claim by holding in effect that, despite transfer of the legal title to the shares from ETCI to Vision Capital on 25 July 2012, there had been no transfer of the beneficial interest in the shares at that time. As his Honour put it at PJ [522], there was no disposal of ETCI’s sole asset, namely its shares in ETCH, for nil consideration. In short, his Honour held that there was no disposal for nil consideration because there was no disposal of the beneficial interest in the shares at all.

3. [155]

   The primary judge’s analysis of this question began by considering the corollary of ETCI’s claim, namely that Messrs Rose and Marcou had in effect gifted ETCI’s Shares in ETCH to Madam Cheung and Vision Capital. In this context, he called in aid the following legal propositions:

4. [156]

   His Honour tested the matter by reference to a large body of evidence and considerations which he concluded were inconsistent with the existence of an intention to give away the company’s sole asset; conduct which, it may be observed, prima facie at least, would be extremely surprising and commercially irrational.

5. [157]

   The primary judge summarised the evidence of Messrs Rose and Marcou in relation to the ETCH Share Transfer at PJ [264]–[269] and reached the conclusions which have already been noted at [111] above. At [269], his Honour had observed:

6. [158]

   The primary judge did not find that the evidence of Messrs Rose and Marcou was knowingly false, made the credit findings referred to at [24] above, and ultimately accepted (PJ [520]) the following submission as advanced by Mr Entwisle, who appeared for Madam Cheung and Vision Capital, namely that:

7. [159]

   The primary judge then proceeded, in light of that conclusion, to consider and reject each of the breaches of duty alleged in CLS [61] (f)–(k): see [145] above. This consideration was unsurprisingly brief in light of his Honour’s principal factual conclusion.

8. [160]

   To the primary judge’s reasoning as to a lack of intention to transfer the shares for nil consideration may be added the fact that the draft SSA, even if not executed by Vision Capital, expressly provided in cl 4.4 that Vision Capital’s entitlement to the shares was dependent upon it paying the purchase price, which it never did. The inclusion of this clause was wholly inconsistent with the existence of an intention necessarily to be attributed to Messrs Rose and Marcou for the purposes of the allegations of breaches of directors’ duties.

9. [161]

   At PJ [568], the primary judge summarised an earlier conclusion he had reached at PJ [211], namely that:

10. [162]

    The primary judge also held that the decision to postpone the discussion with Lingnan was taken by the board of ETCI (PJ [197] and [570]) and that no complaint was made at first instance as to the manner in which Mr Marcou had expressed himself in his email to Lingnan of 30 June 2012, on which other board members were copied: see [90] above. Nor was the form or substance of this email the subject of any complaint by the board of ETCI at the time it was sent nor by the Appellants in these proceedings: PJ [214] and [572].

11. [163]

    The cancellation of the proposed meeting with Lingnan, and communication thereof, did not entail any breach of directors’ duties and the primary judge held that the loss of the opportunity to sell the ETCH shares (and thus the interest in GZL) to Lingnan could therefore not have been caused by any relevant conduct of Messrs Rose and Marcou.

12. [164]

    As a matter of inescapable logic, that loss of opportunity having already occurred by 4 July 2012, any breach of directors’ duties thereafter could not have caused that loss.

13. [165]

    To recap, this aspect of the Appellants’ case was that the sale of the ETCH shares for $2 million pursuant to the 2013 Share Sale Agreement was at a gross undervalue: see [148] above. On the basis that the date of that agreement was 7 June 2013 (a matter sought to be disputed by the Appellants as the true date of its execution), that is the date by reference to which the contention of sale at a gross undervalue fell to be assessed.

14. [166]

    The primary judge’s reasoning in respect of this allegation at PJ [605]–[612] was as follows:

Grounds of appeal

1. [167]

   Reference has already been made to the complex nature of the Notice of Appeal and to the fact that issue was taken by the Respondents with some of the grounds of appeal, it being contended that they raised matters which had either not been raised in the pleadings or argued at first instance. It is convenient to deal with these matters first.

2. [168]

   First, ground 12(d) of the Notice of Appeal (see [251] below) and part of [4] of the Rule 51.36 Statement were to the effect that the primary judge should have found that Messrs Rose and Marcou breached their duties as directors by “derailing” the negotiations with Lingnan in late June 2012.

3. [169]

   It was objected, correctly, that this was not an allegation which was pleaded against either Messrs Rose or Marcou. It would have been a serious allegation and involved a complex factual inquiry. The allegation was never made and it should not be entertained on appeal.

4. [170]

   The second contentious matter sought to be raised (in [7] of the Rule 51.36 Statement and ground 12(f) of the Notice of Appeal (see [251] below) was an allegation that the 2013 Share Sale Agreement was not executed on the date it bore, namely 7 June 2013, but was executed at a later date and only ascribed the date of 7 June 2013 after the event in order to place it temporally before Messrs Rose and Marcou learnt of the “settlement” referred to in the 21 June 2013 Papers of Civil Mediation. This was the “backdating” contention that the primary judge had rejected because it had not been pleaded (see [137] above). His Honour described the argument at PJ [418]–[420] as being akin to an unpleaded allegation of fraud:

5. [171]

   His Honour proceeded, notwithstanding this conclusion, to consider and reject each of the five matters that were advanced to support this allegation: see PJ [421]–[433].

6. [172]

   The primary judge was correct, for the reasons he gave, to reject the entertainment of this serious allegation and those reasons apply equally to the attempt to raise the matter on appeal. It is a fundamental requirement of procedural fairness that allegations of or akin to fraud are pleaded with particularity: Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 301–302; [1990] HCA 11. In the present case, not only was the backdating allegation not raised, but the Appellants’ opening submissions at first instance positively asserted that the 2013 Sale Share Agreement was entered into on 7 June 2013, i.e. the date it bore.

7. [173]

   To the extent that the Appellants sought to rely upon the description of the 2013 Share Sale Agreement in the CLS as the “purported agreement”, it is plain from the context of that description that the word “purported” was used because it was the Appellants’ primary case that the shares had already been transferred for nil consideration in 2012 so that ETCI had nothing to sell in 2013. The word “purported” was not used in the CLS to cast doubt upon the apparent date of execution of the 2013 Share Sale Agreement.

8. [174]

   Both of the two matters sought to be raised, namely the alleged derailing of negotiations with Lingnan and the backdating of the 2013 Share Sale Agreement, recognised major forensic obstacles which lay in the path of a successful appeal.

9. [175]

   As to the first matter, there was no challenge on appeal to the primary judge’s finding that ETCI had lost its opportunity to sell the indirect interest in GZL to Lingnan by 4 July 2012, when Lingnan sent a “chilly response” (PJ [203]) to the email sent by Mr Marcou on 30 June 2012 deferring the negotiation proposed for the following week: see [161] above. As has already been noted, the primary judge held that the sending of the email did not entail any breach of directors’ duties. Unless the Appellants could demonstrate a breach of duty prior to the date of the loss of opportunity, no subsequent breach could be held to have caused ETCI any such loss. This may explain the attempt to rely upon the “derailing” allegations.

10. [176]

    As to the second matter, chronological considerations are also of paramount importance. If the 2013 Share Sale Agreement was executed prior to the settlement referred to in the Papers of Civil Mediation becoming known to Messrs Rose and Marcou, a sale for AU$2 million made far more commercial sense because it took place at a time when ETCI was effectively the subject of the February 2013 Civil Judgment that held that the ETC Subsidiaries had no legal entitlement to the shareholdings in GZL. As that indirect interest was ETCI’s only asset at that time, the impact of the judgment was of direct relevance to the value of ETCI’s shares in ETCH as at the date of the 2013 Share Sale Agreement. This had been recognised by ETCI’s directors from as early as 2010, when Mr Ng was first detained, and certainly following the delivery of the February 2013 Civil Judgment. A sale of the ETCH shares for AU$2 million in truth would constitute a good deal in all of the circumstances but that may not have been the case had the settlement sum referred to in the Papers of Civil Mediation ben known. (Even then, and had that sum been known at the time of the 2013 Share Sale Agreement, it would not necessarily have followed that the sale for AU$2 million was at a gross undervalue. There were real questions as to whether the settlement amount could be moved out of the PRC and account would need to have been made for a fee or commission payable to Madam Cheung for her role in any settlement).

11. [177]

    Attention is now turned to the remaining grounds of appeal.

Grounds 15, 16, 3 and 4 — credit and the ETCH Share Transfer

1. [178]

   It is convenient to commence consideration of the grounds of appeal with grounds 15 and 16 and [7] of the Rule 51.36 Statement, all of which attack the primary judge’s substantial acceptance of Messrs Rose and Marcou as witnesses of credit. Grounds 15 and 16 were as follows:

2. [179]

   These grounds are of particular importance as the primary judge accepted Messrs Rose and Marcou’s evidence that they intended and believed that the ETCH Share Transfer to Vision Capital in July 2012 was reversible. This aspect of his Honour’s findings is related to grounds 3 and 4 of the Notice of Appeal which were as follows:

3. [180]

   The evidence of Mr Marcou referred to in ground 4 was as follows:

4. [181]

   The primary judge’s conclusions as to the credibility of Messrs Rose and Marcou were relatively brief but positive: see [24] above. Messrs Rose and Marcou were both cross-examined at considerable length and the primary judge had all the well-known advantages of observing them in the witness box: see Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479; [1993] HCA 78; Jones v Hyde (1989) 85 ALR 23; [1989] HCA 20; Abalos v Australian Postal Commission (1990) 171 CLR 167; [1990] HCA 47.

5. [182]

   These three cases were described as “the Abalos trilogy” in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 160 ALR 588; [1999] HCA 3 at [79] by Kirby J but, as has been pointed out in a subsequent trilogy of cases, namely Fox v Percy, Robinson Helicopter Co Inc v McDermott (2016) 331 ALR 550; [2016] HCA 22 at [43]; and Lee v Lee (2019) 266 CLR 129; [2019] HCA 28, the advantages of a trial judge in observing witnesses giving their evidence do not immunise an intermediate appellate court from its statutory obligation to conduct a real review of the trial.

6. [183]

   In Fox v Percy at [23], Gleeson CJ, Gummow and Kirby JJ referred to the "natural limitations" upon an appellate court proceeding wholly or substantially on the record. Their Honours pointed out in this context that an appellate court does not have the same advantage as a trial judge:

7. [184]

   In Fox v Percy at [25], consistently with Warren v Coombes (1979) 142 CLR 531 at 551; [1979] HCA 9, Gleeson CJ, Gummow and Kirby JJ also said:

8. [185]

   In Lee v Lee at [55], Bell, Gageler, Nettle and Edelman JJ provided the following important clarification:

9. [186]

   In addition to these authorities, it is also relevant to have regard to the value of and role played by contemporaneous documents as a means of assessing the truth of past events and the reliability of witnesses’ oral testimony about past events, as has been noted more generally at [25]–[29] above.

10. [187]

    It is important also to bear in mind that factual findings may inform or be informed by findings on questions of credit. As Leggatt J (as his Lordship then was) observed in Gestmin, an assessment of the facts, by reference to contemporaneous documents, may allow the credibility of a witness’ testimony to be assessed. Alternatively, a witness’ oral account of past events may ground factual findings or place particular matters in their proper factual or commercial context.

11. [188]

    It should further be noted that an adverse finding about an aspect of a particular witness’ evidence does not mandate that his or her evidence must or should be rejected on all issues. A trial judge is entitled to believe part of the evidence given by a witness and to reject the rest, and there is no rule of law or practice that states that an adverse finding on any aspect of the evidence of a witness means that the whole of that witness' evidence must be rejected.

12. [189]

    Mr Williams SC, who appeared with Mr Kaplan for the Appellants, sought first, through grounds 15 and 16, to defeat the primary judge’s substantial acceptance of Messrs Rose and Marcou as witnesses of credit with a view to undermining their evidence in relation to the ETCH Share Transfer. He developed his argument substantially by reference to a number of discrete aspects of the evidence, pursuant to other grounds of appeal. Two of these attacks concerned or at least drew upon the minutes of board or other meetings.

13. [190]

    In one instance, concerned with the minutes of a meeting held on 4 July 2012 (see [94]–[97] above), it was put in the Rule 51.36 Statement at [2] that:

14. [191]

    The second attack was based upon a discrepancy between the account given by Messrs Rose and Marcou in their evidence of the meeting with representatives of Lingnan on 5 June 2012, and minutes of that meeting. Thus it was put in the Rule 51.36 Statement at [5] that:

15. [192]

    In addition to these two matters, the Appellants relied upon the fact, which the primary judge accepted, that Messrs Rose and Marcou failed to inform their fellow directors, Ms Ng and Mr Simeon, of the ETCH Share Transfer which the primary judge described as “doubtless a breach of their duty to keep their fellow board members informed of vital developments”: PJ [528]. Indeed, Mr Williams sought to demonstrate that they had actively concealed the fact of the transfer to Vision Capital of the legal title to the ETCH shares in mid-2012 from their fellow directors.

16. [193]

    This submission also built on the primary judge’s disinclination to accept Mr Rose’s evidence that he had told Mr Leser, a superior to Ms Ng and Mr Simeon within Kuoni, of the ETCH Share Transfer at about the time it was made: see PJ [66] and [297].

17. [194]

    Turning to consider each of these lines of attack in turn, it is convenient to commence with the issue relating to the 4 July 2012 minutes.

18. [195]

    This issue is the subject of appeal grounds 1 and 2 which are in the following terms:

19. [196]

    The primary judge explained his reasons for accepting the accuracy of the minutes which Mr Rose signed (PJ [218]) on the basis that it was not suggested to Mr Rose in cross-examination that the minutes that he signed did not accurately record what occurred at the meeting. It must also be recalled that, apart from Mr Marcou, nobody else who attended the meeting gave evidence.

20. [197]

    It is not unknown, still less uncommon, for disputes to arise as to what may have been said at meetings of boards of companies: see, for example, Equity Nominees Ltd v Tucker (1967) 116 CLR 518; [1967] HCA 22 at 524–525; ASIC v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [111]–[122]; Southern Resources Ltd v Residues Treatment and Trading Co Ltd (1990) 56 SASR 455 at 469–473; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 at [2385]–[2402]; Magnacrete Ltd v Douglas-Hill (1988) 48 SASR 567 at 581; ASIC v Loiterton [2004] NSWSC 172 at [115]–[120]; Hudson Investment Group Ltd v Australian Hardboards Ltd [2005] NSWSC 716 at [102]–[115]; Jarrett v Perpetual Trustee Co Ltd [2007] NSWSC 1231; (2007) 64 ACSR 552 at [75]–[85]; ASIC v Rich (2009) 236 FLR 1; [2009] NSWSC 1229; ASIC v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098; ASIC v Macks (No 4) [2020] SASC 209 at [570]–[575]; Mirvac (WA) Pty Ltd v Binningup Nominees Pty Ltd [2020] WASC 28 at [234]–[248]. Sometimes, the differences may be substantial; sometimes, they may go to matters of emphasis or the extent of detail recorded about particular issues discussed. The mere fact that there may be competing versions of minutes does not mean, moreover, that one of the different versions is necessarily false: recollections of events may differ. Obviously it is desirable that directors reach accord as to the accuracy of minutes but that may not always be possible.

21. [198]

    It is difficult to criticise the primary judge’s reasons for accepting the accuracy of the minutes signed by Mr Rose, namely the absence of any challenge to him in the witness box (where he was cross-examined at length) that the minutes were not an accurate record of events. The cross-examination of Mr Rose in the transcript reference given in ground 1 related to Mr Rose’s recollection of that meeting of 4 July 2012, some seven and a half years after it had occurred, and not the minutes of that meeting.

22. [199]

    Further, it was put, with some justification on behalf of Mr Rose on appeal, that the rule in Browne v Dunn (1893) 6 R 67 HL(E), underpinned as it is by considerations of basic fairness, required the suggestion of the signing of a false minute to be put squarely to him (the more so when the allegation had not been pleaded) and the suggestion, made by the Appellants in their written submissions on appeal, that it was “implicit” in his cross-examination, was inadequate and unsatisfactory.

23. [200]

    Whether or not any challenge was even implicit is highly contestable but, even if it was, I accept the submission advanced on behalf of Mr Rose that any suggestion that the version of the minutes which he signed was not accurate needed to be squarely put to him. This is a matter which was recently explained by this Court in Gwe v Commissioner of the Australian Federal Police [2020] NSWCA 247 at [83]–[87]. Indeed, as Mr Bagley, who appeared for Mr Rose, submitted, not only was any suggestion of false minutes not put, the opposite was in fact the case:

24. [201]

    The first set of draft minutes had been prepared by Mr Daniel Tse, an employee of Kuoni. To the extent that appeal ground 1 refers to Mr Marcou’s alteration of the original draft of the minutes (as referred to at PJ [217]), the primary judge simply recorded this as a fact and did not suggest anything sinister about the fact of the “suggested” amendment. Moreover, the amendments to the draft minutes effected by Mr Marcou were not concealed from the other members of the board of ETCI; he circulated them to all other board members under cover of an email on 14 August 2012 and no subsequent emails were pointed to calling this revised version of the minutes into question.

25. [202]

    Mr Marcou’s evidence was that he altered the original draft minutes because he did not consider them to be accurate and he removed reference to his disclosure of a business association with Madam Cheung through a company called Fortis Mining “because the board knew already”. No evidence was led or pointed to which contradicted this matter.

26. [203]

    These grounds of appeal, both by themselves and as an aspect of the broader attack on the primary judge’s acceptance of Messrs Rose and Marcou as generally credible and creditable witnesses, in grounds 15 and 16, should be rejected.

27. [204]

    This is the meeting that has been referred to at [71]–[78] above and about which Messrs Rose and Marcou gave evidence to the effect that they perceived that the Lingnan representatives at the meeting were drunk, heavy handed and threatened them with arrest if they came to China.

28. [205]

    The Appellants submitted that this account should not have been accepted because it was not recorded in any minutes of the meeting or other contemporaneous documentary evidence: see [162] above.

29. [206]

    Messrs Rose and Marcou submitted that the primary judge was correct to accept their evidence and that it was “inherently plausible and consistent with Lingnan’s ‘big bully’ status (to use language from [Mr] Ng’s evidence) and their conduct in relation to Ng.” The evidence was also submitted to be consistent with the fact that, following the meeting, Lingnan commenced civil proceedings against Mr Ng, Ms Yang, and various ETC Subsidiaries.

30. [207]

    The evidence accepted by the primary judge does find support both in the matters referred to on behalf of Messrs Rose and Marcou and in Lingnan’s subsequent conduct in withdrawing from any further negotiations following receipt of Mr Marcou’s email of 30 June 2012. It is also evidence in respect of which the primary judge’s advantage in observing Messrs Rose and Marcou give their evidence over a lengthy period of time in the context of the evidence as a whole must be appreciated and respected: see Fox v Percy at [23], extracted at [183] above.

31. [208]

    The absence of any reference to Lingnan’s conduct in any minutes or record of the meeting of 5 June 2012 does not, in my view, supply a sufficient basis for interfering with the primary judge’s findings in this regard, and does not undermine the primary judge’s credibility findings.

32. [209]

    The first point to be made in this regard is that the primary judge made his assessment as to Mr Rose’s and Mr Marcou’s credibility notwithstanding his conclusion that they did not disclose the fact of the ETCH Share Transfer to the board. In other words, it was a matter that the primary judge took into account in his overall assessment of witness credibility.

33. [210]

    Secondly, even accepting that the ETCH Share Transfer was something that should have been disclosed to the other members of the board of ETCI, the non-disclosure is not necessarily commensurate with dishonesty especially in circumstances where, as discussed below and as the primary judge accepted, the ETCH Shares were not being gifted to Vision Capital or Madam Cheung.

34. [211]

    Thirdly, as noted at [188] above, even if there were some dishonesty in the non-disclosure, it does not follow that the whole of a witness’ evidence should be rejected or characterised as dishonest: see [178] above. This is particularly so where the challenged evidence is supported by objective considerations, as his Honour found was the case: see PJ [494]–[515].

35. [212]

    I would also reject the Appellants’ contention that the primary judge failed to give adequate reasons for his findings on credibility. To the contrary, the primary judgment discloses an exemplary approach to fact-finding and the assessment of witness credibility with the plausibility of witnesses’ testimony being tested against context and that which was revealed objectively by contemporaneous documents. As the primary judge said at PJ [70]:

36. [213]

    Consistently with the primary judge’s invocation of “the logic of events”, Mr Bagley on behalf of Messrs Rose and Marcou emphasised key unchallenged factual findings including Mr Ng’s arrest and incarceration in China in relation to ETCH’s acquisition of interests in GZL, and that ETCI was effectively locked out of this asset as a result, with bank accounts being frozen, all of which he submitted, and the primary judge found, supplied a contextual reason or explanation for the use of a reversible transaction.

37. [214]

    Finally, I would reject the Appellants’ submission that the “reversible nature” of the Vision Capital Transaction was “contrary to all the contemporaneous documentation concerning it”. That was not the case. The final sentence of cl 4.4 of the draft SSA as well as the recitals to the 2013 Share Sale Agreement are two cases in point, as has already been noted at [103] and [107] above.

38. [215]

    For the above reasons, I would reject grounds 15 and 16 of the Notice of Appeal and turn now to grounds 3–8.

Grounds 3–8 — the nature of the ETCH Share Transfer

1. [216]

   Grounds 3 and 4 have been set out at [179] above.

2. [217]

   Grounds 5 and 6 essentially challenged the primary judge’s finding that Madam Cheung’s participation in the rights issue in March 2013 could only be explained on the basis that she did not believe that, through Vision Capital, she was the beneficial owner of ETCH: see [131] above.

3. [218]

   Grounds 7 and 8 were, in many respects, the converse of the Appellants’ attack on the primary judge’s findings as contained in grounds 3 and 4. Grounds 7 and 8 are in the following terms:

4. [219]

   Contrary to ground 3 of the Notice of Appeal, the primary judge did not hold that the Vision Capital Transaction was a “sham transaction”. What he held was that the legal transfer of ownership of the shares was for a particular purpose but that it was ineffective to transfer beneficial ownership and was not intended by Messrs Rose or Marcou to do so. The primary judge said (at PJ [519]–[520]) that:

5. [220]

   Insofar as it asserts a finding of a sham transaction, subparagraph (a) of ground 3 of the Notice of Appeal is inaccurate and proceeds on a false premise.

6. [221]

   Reference has already been made to the various legal propositions and authorities relating to the gratuitous disposition of property and the need for a specific intent to do so: see [155] above. They support the conclusion that the absence of any intention to dispose of the beneficial interest was a complete answer to the submission that there had been an effective disposition of the beneficial interest in the ETCH shares.

7. [222]

   In addition to those propositions and authorities, Mr Bagley and Mr Entwisle drew attention to Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363–364; [1956] HCA 28 (Charles Marshall) and Napier v Public Trustee (WA) (1980) 32 ALR 153 at 158; per Aickin J (Stephen, Mason and Murphy JJ agreeing) and the presumption of a resulting trust where property is transferred without consideration. As Mr Entwisle submitted:

8. [223]

   In reply submissions, Mr Williams sought to rely on Moore v Whyte [No 2] (1922) 22 SR (NSW) 570 for the proposition that “voluntary transfers of personalty do not have the presumption attached to them as do transfers of another nature”. Whilst the decision of Harvey J at first instance may have lent some support to that proposition, citing George v Bank of England (1819) 146 ER 1089 at 1090, it was rejected by Street CJ, delivering the judgment of the Full Court who said at 579–580 that “[u]nless the evidence showing an intention to make a gift is sufficient to rebut the presumption of a resulting trust that presumption will prevail, and in that sense it may be true to say that the burden of proof lies upon those who assert a gift.” No special rule was identified in cases of personalty and it is difficult to identify any reason why one should exist: cf, JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016) at [12-21]. Indeed, the presumption was applied to the transfer of shares in Shephard v Cartwright [1955] AC 431 at 445, cited by the High Court in Charles Marshall at 365.

9. [224]

   An understanding of the legal propositions advanced by the Respondents puts both the ETCH Share Transfer and the primary judge’s discussion of it in proper context.

10. [225]

    Not only was the primary judge’s analysis supported by the presumption arising from Vision Capital’s failure to pay consideration but it was reinforced by evidence not only of intention but by the objective fact that both Vision Capital and ETCI continued to negotiate as to price after the ETCH Share Transfer. These negotiations were, in my opinion, “so immediately after [the transfer] as to constitute a part of the transaction” and thus constitute “evidentiary material from which the court might have drawn an inference as to the intention of the parties”: Charles Marshall at 365; Calverley v Green (1984) 155 CLR 242 at 262; [1984] HCA 81 (Calverley). Had the ETCH Share Transfer in truth been intended by all parties as gratuitous, these negotiations would have been a sham but no submission to that effect was made, as the primary judge noted at PJ [519].

11. [226]

    In Calverley at 262, Mason and Brennan JJ also observed that “[i]n some cases it is possible to treat the concurrence of one party with the other's payment of the mortgage instalments as an admission of the former's exclusive interest”.

12. [227]

    The primary judge referred to a wealth of objective evidence negating any conclusion that either Mr Rose or Mr Marcou, or Vision Capital and Madam Cheung considered that, notwithstanding the ETCH Share Transfer, beneficial title in the shares had passed: see PJ [495]–[515]. Prominent amongst this evidence was Madam Cheung’s participation in a rights issue which occurred subsequent to the ETCH Share Transfer and which would have had no obvious commercial purpose if title to the ETCH Shares had already passed. As the primary judge said (PJ [507]–[508]):

13. [228]

    The same point may be made in relation to Vision Capital’s payment of $2 million for the ETCH Shares in 2013.

14. [229]

    The Appellants challenged, in appeal grounds 5 and 6, the primary judge’s conclusion as to what could be drawn from Madam Cheung’s participation in the rights issue, submitting in writing that there was no basis for reaching this conclusion in circumstances where Madam Cheung did not give evidence. The conclusion that the primary judge drew, however, did not require Madam Cheung to give such evidence; it followed as a matter of commercial logic. If ETCI had disposed of its sole asset in July 2012, namely its indirect interest in GZL through its shares in ETCH, then participating in March or April 2013 for $160,000 (the amount Madam Cheung subscribed under the rights issue) to acquire further shares in ETCH lacked any rational commercial purpose.

15. [230]

    In addition to these considerations, given Mr Rose’s personal shareholding in ETCI of approximately 4.5%, the contention that he gave away that interest together with the interests of the other ETCI shareholders, through a gift of the ETCH Shares to Vision Capital also defies commercial common sense.

16. [231]

    Returning to the fourth ground of appeal, it also conflates the actual transfer of the ETCH Shares with the broader proposed Vision Capital Transaction. As at least proposed to be documented in the term sheet and the drafts of the SSA, I have little doubt that the sale of the ETCH shares was intended by both sides to be a genuine transaction but, importantly, one that was subject to Vision Capital’s satisfaction, pursuant to its due diligence inquiries and ultimate payment of the nominated consideration. The non-satisfaction of the due diligence condition and non-payment did not make it a “sham”, as asserted by the Appellants, but merely a transaction that did not come to fruition, as both parties acknowledged by the language used in the 2013 Share Sale Agreement which recognised that ETCI remained the owner of the ETCH shares.

17. [232]

    For this reason, the passage from Mr Marcou’s cross-examination relied upon by the Appellants (see [180] above) does not assist them. In any event, the Appellants’ reliance on that passage omits reference to Mr Marcou’s evidence which immediately followed that passage in answer to a question from the primary judge:

18. [233]

    Turning to grounds 7–8 of the Notice of Appeal, I do not accept that the primary judge “misunderstood the appellants’ case” in the way contended.

19. [234]

    The Appellants’ case at first instance was plainly that the ETCH Share Transfer had the effect that beneficial ownership of the shares had been lost. This may most clearly be seen in the use of the word “misappropriated” in CLS [61(j)] as set out at [145] above. It can also be seen in [66] of the Appellants’ closing submissions before the primary judge where the effect of the ETCH Share Transfer was described as the ETCI shareholders “losing their investment” and “their shares becoming valueless”. Moreover, [173(b)] of those submissions contended that the effect of the transaction was to “g[i]ve to Cheung and Vision Capital ETCI’s sole asset, thereby depriving shareholders in ETCI of their investment”.

20. [235]

    The primary judge addressed precisely the case which had been advanced on behalf of the Appellants at first instance. Mr Bagley’s submission in this Court that “the Appellants’ case below depended on the proposition that each of Rose, Marcou and Cheung understood and intended that, on the date of the ETCH Share Transfer, 25 July 2012, ETCI make a gift to Vision Capital of the ETCH shares” was correct and is borne out by the references given in the previous paragraph. It was also confirmed by Mr Williams in reply submissions as reflected in the following exchange with the Chief Justice:

21. [236]

    The qualification or gloss sought to be placed on the Appellants’ case at first instance, as reflected in appeal ground 8, namely that that the effect of the ETCH Share Transfer permitted “Vision Capital to take control of ETCH (whether it had beneficial ownership thereof or not), and that it was not a necessary element of the case that Vision Capital received actual, beneficial ownership of ETCH” (emphasis added) does not accord with the thrust or logic of the Appellants’ case at first instance and in any event, would fail on causation grounds because there is no evidence that Vision Capital took control of ETCH. To the contrary, there is a wealth of evidence that Messrs Rose and Marcou remained in negotiations with Madam Cheung for the sale of the shares after July 2012, and the 2013 Sale Share Agreement flies in the face of ETCI having lost control of ETCH from 25 July 2012. In any event, by the time of reply submissions in this Court, Mr Williams articulated the case as being that “the transfer occurred for no consideration, and I mean the transfer of the legal and beneficial interest occurred for no consideration”. This was the case which the primary judge dealt with and the suggestion that he “misunderstood the appellants’ case” has no merit.

Grounds 9–10

1. [237]

   Grounds 9–10 of the Notice of Appeal were as follows:

2. [238]

   These grounds, and in particular ground 10, are predicated on the ETCH Share Transfer entailing a disposition of ETCI’s beneficial interest in the ETCH shares. For reasons already given, the primary judge did not find that to have occurred and that conclusion was not only open to him but, in my view, correct. There was no relevant failure to act honestly and no “misappropriation of company property for their own, or a third party’s, benefit”.

3. [239]

   Furthermore, no improper purpose was pleaded. As submitted by Mr Entwisle:

4. [240]

   On the evidence accepted by the primary judge, the purpose of the actual ETCH Share Transfer was to give the appearance that control of ETCH had passed to a Chinese national on the basis that this was necessary to effect a resolution of the dispute regarding ETCH’s interests in GZL: see [158] above. That was the same, non-impugned purpose that animated the Wealthy Capital Transaction, albeit that the documentation surrounding that transaction, notably the Option Agreement, made it more readily reversible. By the time of the Vision Capital Transaction, however, it was perceived that such a transparently reversible mechanism may be counterproductive to ETCI’s aims of salvaging some value from its highly vulnerable investment in GZL.

5. [241]

   Thus, under cross-examination, Mr Rose had said that the contractual right to reverse the Wealthy Capital Transaction (the Option Agreement) was not “transferred to the Vision Capital deal” because “if this document was looked at by Chinese authorities, they might question whether it was a genuine sale. So, [Mr Marcou] explained to me that [Madam Cheung] needed clear title that was not reversible, but to present that optic”.

6. [242]

   A purpose of facilitating a commercial outcome that was in the interests of ETCI cannot be impugned as improper. As submitted by Mr Bagley, this was “the only logical purpose to infer from the evidence”. The company was in dire straits; its only real contact in China had been arrested; the value of its assets were very much dependent upon the outcome of litigation in China over which it had little or no visibility and none of the directors were Chinese speakers. The board had previously approved a transaction whereby optical control of ETCH was passed to a company (Wealthy Capital) associated with Madam Cheung, with a view to advancing ETCI’s interests. The primary judge accepted the evidence of Messrs Rose and Marcou that they believed the ETCH Share Transfer to Vision Capital was reversible if Madam Cheung, following her due diligence, was not prepared to complete the commercial transaction.

7. [243]

   The observations of Latham CJ in Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 135; [1937] HCA 42 are apposite:

8. [244]

   In the same case, Dixon J said at 143:

9. [245]

   On the basis of the primary judge’s findings, Messrs Rose and Marcou were not seeking to advance their own interests at all. Furthermore, what, out of context, may have appeared highly unusual, in context, in fact involved an attempt to advance the interests of ETCI as best they could in extraordinary circumstances.

10. [246]

    If the ETCH Share Transfer was reversible, as the primary judge held it was, and neither Madam Cheung nor Vision Capital asserted prior to the 2013 Share Sale Agreement that it was not, or that ETCI had lost its interest in ETCH, then even if the non-disclosure of the ETCH Share Transfer to the board entailed a breach of duty, no loss was caused thereby. Whether or not a concession was made that no liability arose in these circumstances if this was the only breach is not to the point (although, contrary to the Appellants’ submissions, such a concession does appear to have been made in closing submissions). No relevant loss was pointed to.

Ground 11 — causation

1. [247]

   Ground 11 of the Notice of Appeal stated that:

2. [248]

   In light of the primary judge’s findings on breach and my reasons for dismissing the grounds of appeal in respect of those findings, this ground does not strictly arise. It can, therefore, be dealt with relatively briefly.

3. [249]

   It will be recalled that the primary judge held that ETCI lost the opportunity of a sale of its shares to Lingnan on or about 4 or 5 July 2012 when a proposed meeting in Hong Kong was postponed, following the sending by Mr Marcou of an email on 30 June 2012 about which no complaint was made (other than the Appellant’s illegitimate attempt to introduce a new complaint for the first time on appeal that Messrs Rose and Marcou had deliberately derailed the Lingnan negotiations: see [168]–[169] above). Part of the Appellants’ submissions on causation (see Appellants’ Written Submissions at [73]) are based upon this contention which was not open to be made.

4. [250]

   Even if, contrary to the primary judge’s finding as to when the opportunity to sell to Lingnan was lost, the opportunity was not lost by 4 July 2012, the ETCH Share Transfer would not have had the effect of precluding a sale to Lingnan, had Lingnan wished to engage, for the reason that the transfer was reversible in equity and had not effected a transfer of the beneficial ownership in the shares. The ETCH Share Transfer, therefore, cannot have been causative of any loss of opportunity to sell to Lingnan even if, contrary to the primary judge’s finding (as to which there was no specific factual challenge), the opportunity was not lost at the time and by reason of the postponement of the proposed 4 July 2012 meeting.

Ground 12 — the 2013 Share Sale Agreement and the Papers of Civil Mediation

1. [251]

   This ground of appeal (as amended in the course of the hearing of the appeal and indicated by the underlining) was as follows:

2. [252]

   Of the various sub-paragraphs of this ground, (a), (b) and (e) have already been dealt with in substance. Subparagraphs (c) and (d) relate to unpleaded allegations which have already been held not to be open to be raised on appeal: see [162] and [168]–[169] above.

3. [253]

   Subparagraphs (f) and (g) are contentious and were objected to by the Respondents, in particular Madam Cheung and Vision Capital on the basis that the knowing assistance and/or knowing receipt case advanced against them at first instance was confined to a case in respect of the ETCH Share Transfer.

4. [254]

   Subparagraph (f) represented the Appellants’ attempt to formulate a ground of appeal in relation to the allegation that the 2013 Share Sale Agreement (in consideration of AU$2 million) represented the sale of shares at a gross undervalue. This argument had been advanced in writing in appeal submissions but was not reflected in the Notice of Appeal as originally formulated. It had been rejected by the primary judge: see [165]–[166] above.

5. [255]

   There was force in Mr Entwisle’s objection on behalf of Madam Cheung and Vision Capital as follows:

6. [256]

   Whilst the Court permitted the amendments and received argument in relation to them, they must fail. The allegation in (g) is premised on the illegitimate “backdating” argument as Messrs Rose and Marcou can scarcely have been in breach of their duties in circumstances where, prior to having any knowledge of the “settlement”, they had already caused ETCI’s shares in ETCH (and hence any indirect interest in GZL) to be sold. After that date, namely 7 June 2013, ETCI had no interest in ETCH and thus no ability to obtain the benefit of any settlement, even assuming that such a settlement was in truth payable and the funds represented by it were not to be set off against any other fines or penalties and could be transmitted out of the PRC.

7. [257]

   Reference had been made at [148] above to CLS [67] and the pleading that the sale of the ETCH shares for AU$2 million pursuant to the 2013 Share Sale Agreement was at a gross undervalue. The primary judge’s consideration of that matter has been referred to at [165]–[166] above.

8. [258]

   ETCH’s value lay solely in its indirect interests in the ETC Subsidiaries which had been the subject of a wholly adverse judgment in the PRC in February 2013. The impact of that judgment was recorded in contemporaneous correspondence at the time, as referred to in [125] above.

9. [259]

   As at the date of sale, namely 7 June 2013, Mr Rose had an utterly pessimistic view about any appeal prospects (see [126] above) and, on all of the evidence, was entirely justified in holding this view. Mr Marcou’s perception, shared with Mr Rose, that “we’ve been screwed in China”, has also been noted at [125] above.

10. [260]

    The Appellants’ “gross undervalue” case sought to place reliance on the original Lingnan “offer” as well as the $13 million referred to in the Vision Capital Term Sheet and the draft SSA in mid-2012. That reliance was quite misplaced. The former “offer” was subject to deductions for fines, penalties and possibly any illegally-paid dividends: see [74] and [77] above. It was also made long before the February 2013 Civil Judgment which completely and dramatically changed the landscape, as the board of ETCI recognised. The Vision Capital offer of $13 million was conditional upon due diligence. That due diligence resulted in the offer being reduced drastically. It was an offer that was also made well before the February 2013 Civil Judgment.

11. [261]

    The assessment of whether or not the sale was at a gross undervalue and whether that was or ought to have been known to Messrs Rose and Marcou must be by reference to the date of sale.

12. [262]

    At that point in time, with ETCI on the brink of insolvency and with no other assets, and subject to a powerful adverse judgment in the PRC, there is no basis for concluding that the sale was at a gross undervalue.

13. [263]

    As ETCI’s independent director Mr Drummond described in a draft email to Mr Ng, which he sent to Messrs Rose and Marcou on 3 August 2016:

14. [264]

    Ground 12 should be rejected.

Grounds 13–14 — damages

1. [265]

   Grounds 13–14 were as follows:

2. [266]

   The core of the primary judge’s reasoning on the question of damages is set out at PJ [586]–[596] as follows:

3. [267]

   In my opinion, the primary judge was justified in his conclusion at PJ [575] that there was “no evidence enabling [him] to form any view about what the value of any such loss of opportunity may have been”.

4. [268]

   Mr Samuel, the expert called on behalf of the Appellants, acknowledged that he had limited material upon which to base his attempted valuation and purported to adopt a market-based approach. For the reasons given both by the primary judge and in relation to the “sale at a gross undervalue” argument (see [260] above), his “data” did not sustain that approach.

5. [269]

   Insofar as he sought to make use of the Wealthy Capital and Vision Capital transactions, the “offers” of $10 million and $13 million respectively were highly conditional on the purchaser’s satisfactory due diligence. Plainly the due diligence undertaken did not see either of the “offers” being confirmed or maintained at that headline price. Indeed, as Mr Rose noted in his communication with the other directors on 29 August 2012, Vision Capital’s “adverse due diligence findings relating to the company operations in China” had “created a reluctance to move forward on their part …”

6. [270]

   As far as the Lingnan “offer” was concerned, that offer was subject to deductions for fines, penalties and possibly any illegally paid dividends, all of which would be set off against any price ultimately negotiated: see [74] and [77] above.

7. [271]

   It will be recalled that Mr Rose’s account of his discussion with representatives of Lingnan in June 2012 included the following exchange:

8. [272]

   With regard to the proposed sale to Lingnan, there was also, somewhat ironically, the difficulty to which Mr Bagley drew attention in his address, namely that, according to minutes of the ETCI board meeting of 12 September 2012, Mr Ng had “clearly communicated to [Mr Rose] that he would not agree to sign any documents relating to the disposal of [ETCH] to Lingnan”. Mr Ng’s signature was necessary as he was, at the time, the legal representative of all ETC entities; his consent, which he was unwilling to give, was effectively necessary for a sale to Lingnan.

9. [273]

   Contrary to the Appellants’ ground 13(d), there was no “valuation of the ETCI interest in ETCH at the [b]oard meeting on 8 June 2012”. Rather, various and different opinions were expressed by some board members on the question of value. This was, moreover, prior to the commencement of civil proceedings in the PRC in July 2012 which led to the February 2013 Civil Judgment. The reliance sought to be placed in ground 13(e), based upon a report of Mr Mao in May 2012 as to possible interest from Lingnan, was non-specific as to any price Lingnan may have been prepared to pay and pre-dated the difficult meeting with Lingnan on 5 June 2012 and the subsequent commencement of the Chinese proceedings.

10. [274]

    Mr Samuel’s assumption as to the negative asset position of ETCI as at 21 June 2013, the date of the Papers of Civil Mediation, supported the primary judge’s reasoning, and there was no evidence to support the assumption Mr Samuel then made as to the inflow of RMB 83 million to the ETC Subsidiaries consequent upon the “settlement” referred to in those Papers. As Mr Entwisle pointed out in his submissions, the only evidence pointed to at first instance in support of any receipt of this amount, and which was to a very large degree speculative, was in fact rejected.

11. [275]

    Insofar as Mr Samuel had relied upon the “offers” referred to above to establish a valuation in 2013, those “offers”, all of which were made in 2012, did not and could not have had regard to the devastating February 2013 Civil Judgment.

12. [276]

    Apart from these matters, the primary judge was being asked to calculate the value of the opportunity said to have been lost. Mr Samuel’s flawed exercise was merely a starting point for that. As has been explained, however, it was an insecure foundation. Even if it could have been used as reliable starting point, the primary judge did not have any reliable means of assessing the value of the opportunity said to have been lost; the contingencies were many and complicated by the fact that any assessment would need to take into account the fact that the value of the opportunity was necessarily affected by the underlying allegations, sustained in the February 2013 Civil Judgment, as to the illegal acquisition by the ETC Subsidiaries of their interests in GZL.

13. [277]

    The primary judge’s conclusion at PJ [601] was that:

14. [278]

    That conclusion was open to the primary judge and did not involve any demonstrable error.

Grounds 17–18 — accessorial liability

1. [279]

   Grounds 17–18 related to accessorial liability. They were the subject of very brief written and oral submissions.

2. [280]

   In circumstances where the Appellants have clearly failed in establishing primary liability and any entitlement to loss or damage or equitable compensation, it is not necessary to prolong this already lengthy judgment further (Boensch v Pascoe (2019) 375 ALR 15; [2019] HCA 49 at [8] and [101]) save to say, as Mr Entwisle submitted, that the Appellants failed to discharge their onus of proving that Madam Cheung or Vision Capital ever in fact received the proceeds of the purported settlement between the ETC Subsidiaries and Lingnan.

3. [281]

   A Notice of Contention was filed on behalf of Madam Cheung and Vision Capital to the effect that:

4. [282]

   In circumstances where this Notice of Contention raises issues of some doctrinal controversy, where the oral hearing which ran for three full days did not permit full argument, especially in response, on this point and where, for the reasons given in detail above, the issue does not need to be reached, it is neither necessary nor desirable to engage with it.

Other grounds and further Notice of Contention

1. [283]

   The Notice of Appeal also contained grounds 19–21 but these grounds were not the subject of either written or oral submissions and must be taken in these circumstances to have been abandoned.

2. [284]

   A Notice of Contention was filed on behalf of Messrs Rose and Marcou and supported by Madam Cheung and Vision Capital to the effect that the primary judge should not have granted Mr Ng leave to bring the proceedings on behalf of ETCI as an exception to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189.

3. [285]

   In light of the conclusions reached which mean that the appeal should be dismissed, it is not necessary to deal with this issue.

Conclusion

1. [286]

   For all of the above reasons, the appeal should be dismissed with costs.

2. [287]

   LEEMING JA: I agree with Bell P.