Luo v Windy Hills Australian Game Meats Pty Ltd (No 3)

1. [1]

   The plaintiff, Mr Aimin Luo, is a Chinese national. He speaks Cantonese and Mandarin. He cannot speak, read, write or understand English.

2. [2]

   In 2012 Mr Luo started his own business trading frozen meat products in China. In 2013, he visited Australia to seek “some business opportunities”. He was introduced to the third defendant, Mr Ivan Coulter. Mr Coulter told Mr Luo, through English speaking intermediaries, that he conducted a large meat exporting business, had a farm in South Australia and an abattoir in the Northern Territory.

3. [3]

   Between 2014 and 2015 Mr Luo did some business with Mr Coulter, again through English speaking intermediaries, and bought beef product before on-selling it to a Chinese company in which Mr Luo had an interest.

4. [4]

   In July 2016 the second defendant, Mr Eric Zhang, contacted Mr Luo by WeChat. WeChat is a mobile phone messaging application extensively used in China.

5. [5]

   Mr Zhang told Mr Luo he was a business partner of Mr Coulter. Mr Zhang said he knew that Mr Luo had had some business dealings with Mr Coulter in the past and that he was able to sell to Mr Luo beef omasum; a variety of tripe. I set out the detail of these messages below.

6. [6]

   Between September 2016 and February 2017 Mr Luo entered into a series of contracts with Windy Hills for the supply of nine shipping containers of dry salted Grade A beef omasum. These containers were to be shipped from Windy Hills’ supplier or suppliers in Pakistan to Mr Luo’s consignee in Hai Phong in Vietnam.

7. [7]

   Mr Coulter is the sole director of Windy Hills. Mr Zhang acted as agent or representative of Windy Hills and Mr Coulter in their dealings with Mr Luo. Mr Coulter agreed to pay Mr Zhang a commission on the sales.

8. [8]

   Mr Zhang’s involvement was necessary because Mr Coulter does not speak, write or understand Cantonese or Mandarin and, as I have mentioned, Mr Luo does not speak, write or understand English.

9. [9]

   Throughout the events with which these proceedings are concerned Mr Luo had no direct communication with Mr Coulter.

10. [10]

    Mr Luo paid Windy Hills a total of US$1,455,581 for the omasum. He received nothing of any value in return. The containers delivered from Pakistan to Hai Phong that supposedly contained omasum contained little else than salt, with only valueless traces of omasum. Although the defendants once disputed this, they now accept it to be true.

11. [11]

    As to three of the containers, Windy Hills did not provide Mr Luo, or his consignee Thanh Nga Commerce and Construction Joint-Stock Company, with the Telex Release code or the original Bill of Lading necessary to take delivery of the stock in Vietnam. Again, there is now no dispute about this.

12. [12]

    Mr Luo and Windy Hills entered into four consignment agreements.

13. [13]

    Following the failure of Windy Hills to deliver the first consignment, the parties agreed that the amount paid by Mr Luo for that consignment would be treated as a credit, which was subsequently applied to the fourth consignment.

14. [14]

    There are thus only three consignments in question, which the parties referred to as Consignment 2, Consignment 3 and Consignment 4.

15. [15]

    The details of those three consignments are common ground and are attached to these reasons (Schedule of Consignments 2, 3 and 4 (8.67 KB, pdf)).

The relief claimed by Mr Luo

1. [16]

   Mr Luo claims:

2. [17]

   The second plaintiff, AusChina Procurement Centre Pty Ltd, is a company controlled by Mr Luo. It claims damages or compensation arising from the defendants’ misleading or deceptive conduct because of its inability to fulfil its contracts to on-sell the omasum.

Decision

1. [18]

   Mr Luo has not demonstrated the existence of a Quistclose trust.

2. [19]

   Mr Luo and AusChina are otherwise entitled to the relief sought against each of Windy Hills, Mr Coulter and Mr Zhang, with some adjustments to the quantum of damages sought.

Representation

1. [20]

   Mr Livingston appeared for Mr Luo. Mr Law, a solicitor, appeared for Windy Hills and Mr Coulter. Mr Hogg appeared for Mr Zhang.

2. [21]

   I was greatly assisted by the opening and final submissions I received from Mr Livingston.

3. [22]

   Much of what follows, especially concerning uncontroversial background facts, is taken with gratitude from Mr Livingston’s written submissions.

Was there a fraud?

1. [23]

   By the time of final submissions, Mr Law and Mr Hogg accepted that Windy Hills supplied nothing of value to Mr Luo pursuant to the contracts and, therefore, that Mr Luo received nothing of value in exchange for the US$1,455,581 he paid to Windy Hills.

2. [24]

   That was not always the position adopted by Mr Coulter and Windy Hills. In their Commercial List Response, Mr Coulter and Windy Hills alleged that:

   1. (1)

      “all stock ordered by Mr Luo was supplied by the suppliers and delivered to [Mr Luo’s] consignee in accordance with the agreements”;

   2. (2)

      “Windy Hills’ two suppliers, Ajay at Mega Gold and Neamah Enterprises…supplied the stock”;

   3. (3)

      “copies of title documents in respect of same were received by Mr Luo’s consignee in Vietnam”; and

   4. (4)

      “documents of title were provided to Mr Luo’s consignee by the relevant shipping boarder [sic]”.

3. [25]

   That is, Mr Coulter’s and Windy Hills’ position, at the time their List Response was filed, was that there was no problem, everything was above board and Windy Hills’ suppliers had supplied the omasum to Mr Luo’s consignee in Hai Phong in accordance with the contracts.

4. [26]

   Implicit in this position was the unstated proposition that Mr Luo’s case was brought on a false basis.

5. [27]

   That position was revealed more clearly in the joint opening written submissions of Mr Law and Mr Hogg. In those submissions Mr Law and Mr Hogg stated that:

6. [28]

   Mr Law and Mr Hogg then referred to an incident that Mr Luo described as having occurred on 24 January 2017 in Hai Phong.

7. [29]

   By 24 January 2017 Consignment 2 had arrived in Hai Phong. But Mr Luo did not have the Telex Release code or other documents necessary to access the two containers.

8. [30]

   Mr Luo had by then on-sold all or some of the omasum in those containers and had been paid by his purchasers who, evidently, were unhappy that Mr Luo could not deliver. The dispute was “resolved” by Mr Luo’s purchasers seizing, under threat of violence, Mr Luo’s BMW X5. I will return to this when considering Mr Luo’s damages claim.

9. [31]

   In those circumstances, Mr Law and Mr Hogg submitted:

10. [32]

    Thus, by now, the defendants were no longer contending that any omasum had been delivered to Mr Luo. Rather they were alleging, in the alternative, that either “parties unknown” in Vietnam “interfered” with the omasum or, more seriously so far as concerns Mr Luo, Mr Luo had engaged in an “elaborate attempted deception” of the defendants and had himself “interfered” with the omasum “for a nefarious intent”.

11. [33]

    These are allegations of fraud.

12. [34]

    These allegations were not pressed in final submissions. In final submissions, both Mr Law and Mr Hogg abandoned any suggestion of wrongdoing by Mr Luo.

13. [35]

    Mr Law submitted:

14. [36]

    Of course, assuming that any “fraud or theft” that occurred in this case was “outside the control of the defendants” does mean that the defendants are thereby exonerated from the consequences of their conduct. For the reasons I set out below, they are not.

15. [37]

    Mr Hogg submitted:

16. [38]

    Mr Hogg submitted that “the suspicions” arose because of, amongst other things, the events of 24 January 2017 which:

17. [39]

    However Mr Hogg concluded:

18. [40]

    Thus the claim that Mr Luo had, in effect, engaged in fraud was abandoned. It should never have been made.

19. [41]

    There is, in any event, evidence pointing strongly to the conclusions ultimately accepted by Mr Law and Mr Hogg; namely, that there was in fact a fraud; albeit not one in which Mr Luo was involved. That evidence was carefully summarised by Mr Livingston. Mr Hogg, in terms, embraced those submissions. What follows is largely drawn from them.

20. [42]

    On multiple occasions in 2017, Mr Coulter made assertions in correspondence, to the effect that Mr Luo did not receive nine containers of omasum, alleging that this was by reason of fraud on the part of one or more of the Pakistani suppliers. That correspondence included:

    1. (1)

       an email dated 25 February 2017 to his supplier Ajay of Mega Gold (which was supposed to have supplied one container of goods under Consignment 4) in which Mr Coulter acknowledged that no Telex Release code had been provided for the stock and accused the supplier of fraud;

    2. (2)

       an email dated 15 March 2017 to the High Commission of Pakistan in Australia in which Mr Coulter alleged that Neamah Enterprises had defrauded him in relation to the promised supply of eight containers of omasum and had instead delivered salt;

    3. (3)

       an email dated 16 March 2017 in which Mr Coulter wrote in similar terms to the Australian Trade and Investment Commission;

    4. (4)

       emails dated 27 March 2017 and 28 March 2017 in which Mr Coulter wrote to various government agencies in Pakistan alleging fraud against Neamah Enterprises; and

    5. (5)

       emails dated 8 August 2017 that Mr Coulter wrote directly to Neamah Enterprises accusing it of fraud in relation to eight containers and demanding either the nine containers of omasum or a refund, as well as saying that he had ascertained that the other supplier, Mega Gold, was controlled by the same person who controlled Neamah and that he would bring Neamah’s principal, Mr Sohail Saleem (“Sohail”), to justice.

21. [43]

    Many of these allegations were made by Mr Coulter after he had arranged for a consultant, Top Most Freight Solutions, to make inquiries on behalf of the named consignee on the Bills of Lading regarding the missing stock.

22. [44]

    Similarly, on 16 March 2017, Mr Zhang wrote to the Pakistani Embassy in China alleging fraud by the Pakistani supplier. Mr Zhang accepted that, when he lodged this complaint, he considered that he had a proper basis to do so.

23. [45]

    Other evidence also indicates that the Pakistani suppliers failed to deliver Grade A beef omasum and that it did so in the course defrauding Windy Hills.

24. [46]

    Documents produced by Mr Ashraf from the Overseas Investors Chamber of Commerce and Industry in Pakistan show that that the Certificate of Origin provided by Windy Hills’ supplier, and forwarded to Mr Luo on 29 December 2016, had been falsified. Mr Coulter agreed in cross-examination that Neamah falsified the certificate.

25. [47]

    Documents provided by the Ministry of National Food Security and Research Animal Quarantine Department in Pakistan show that a Certificate of Health, which was provided by Windy Hills’ supplier and forwarded to Mr Luo on 29 December 2016, had also been falsified. Mr Coulter agreed in cross-examination that the most likely explanation is that Neamah Enterprises had provided to him a Certificate of Health which they had falsified.

26. [48]

    The Bill of Lading provided to Mr Luo in relation to Consignment 4, which identified the consignee as Thanh Nga, was falsified. The authentic Bill of Lading produced by the carrier’s insurer identified a different consignee. Mr Coulter agreed that the most likely explanation is that the alleged supplier of Consignment 4, Ajay of Mega Gold, had falsified the copy of the Bill of Lading and this was done so in the course of a fraud against Windy Hills.

27. [49]

    The only occasion on which Mr Luo, or his consignee, received a Telex Release code was for the six containers that were supposed to contain the stock the subject of Consignment 3. The contemporaneous and independent evidence includes photographs and video footage, the Working Report of Mr Luo’s consignee dated 3 March 2017, the Field Survey Record dated 24 March 2017, the inspection report of ACC Control and the oral evidence of the witnesses from China and Vietnam. All of this evidence indicates that those containers were full of packing salt.

28. [50]

    The Vietnamese customs department also found that the two containers in Consignment 2 contained used salt and only small amounts of omasum.

29. [51]

    Neither Mr Luo nor his consignee received any of the original three Bills of Lading. Nor did they receive Telex Release codes for the Bills of Lading under which the stock in Consignments 2 and 4 were supposed to be carried.

30. [52]

    A solicitor from Pakistan, Mr Kashif Sultan, gave evidence that the various alleged business addresses in Karachi of the alleged supplier, Neamah Enterprises, were false addresses or, in one case, a former address; and all its contact numbers were switched off or disconnected. Mr Sultan was not able to obtain, through his searches, any information regarding Sohail of Neamah Enterprises.

31. [53]

    In cross-examination Mr Coulter agreed that:

    1. (1)

       by late January 2017, Sohail of Neamah Enterprises was taking the position that the original Bill of Lading and the Telex Release code for the two containers that had arrived at Hai Phong port would not be provided until Mr Luo paid for the entire eight containers;

    2. (2)

       he regarded that as a highly unreasonable and suspicious position to take;

    3. (3)

       with the benefit of hindsight, the fact that Sohail was taking that position was highly suspicious; and

    4. (4)

       if it was proven that salt was sent from Pakistan, Mr Coulter would agree that Sohail’s conduct was consistent with engaging in fraud against Windy Hills.

32. [54]

    In the light of this evidence and Mr Law’s and Mr Hogg’s concessions during final submissions, I am satisfied that no omasum of any value was shipped by Windy Hills’ suppliers to Hai Phong and that the containers purportedly containing omasum contained little else but salt.

33. [55]

    It does appear that Windy Hills was a victim of a fraud practised on it by its suppliers in Pakistan.

34. [56]

    I see no reason to conclude that Mr Coulter or Mr Zhang were aware of this at the time. But they now accept it.

35. [57]

    The question is: what are the consequences for them, and for Windy Hills?

Mr Luo’s breach of contract claim

1. [58]

   Mr Coulter and Windy Hills now accept that the contracts between Windy Hills and Mr Luo were contracts for the sale of goods; those goods being the specified quantities and variety of omasum.

2. [59]

   Once again, that was not always Mr Coulter’s and Windy Hills’ position.

3. [60]

   In their List Response, Mr Coulter and Windy Hills alleged:

   1. (1)

      “Windy Hills’ role was to facilitate the sale and supply of the stock from its suppliers”; and

   2. (2)

      it was a term of each of the agreements between Windy Hills and Mr Luo that Windy Hills would “arrange for and facilitate the sale and supply” of the omasum.

4. [61]

   At one point in the cross-examination Mr Livingston challenged Mr Coulter about changes that he admitted making to some Bankwest documents. I will return to the detail of those changes later in these reasons. For present purposes, the point is what Mr Coulter said about the contract in response to that challenge.

5. [62]

   Mr Coulter gave this evidence:

6. [63]

   Finally, and perhaps most significantly, Mr Coulter gave this evidence in response to questions, initially from Mr Livingston, concerning what Mr Coulter had caused Windy Hills to do with the funds supplied by Mr Luo (a matter to which I will also return):

7. [64]

   Thus Mr Coulter acknowledged that he saw Mr Luo as “the purchaser” and, more significantly, understood Windy Hills’ “duty” as being to “supply”. Mr Coulter was speaking of the “supply” by Windy Hills to Mr Luo of the omasum. That made clear, as Mr Luo has always contended, that his contract with Windy Hills was one of purchaser and vendor.

8. [65]

   Windy Hills was no mere “facilitator”.

9. [66]

   In closing written submissions, Mr Law accepted that “there had been a breach of contract crystallised when Mr Coulter acknowledged during his cross-examination that ‘Windy Hills had a duty to supply’ to [Mr Luo]”.

10. [67]

    Thus, Windy Hills and Mr Coulter, until the very last moment, defended these proceedings on bases now abandoned.

11. [68]

    The fundamental plank of Windy Hills’ and Mr Coulter’s defence was their contention that the contract between Mr Luo and Windy Hills was not one whereby Windy Hills contracted to sell omasum to Mr Luo, but rather one where Windy Hills merely contracted to “arrange for and to facilitate” the supply of omasum.

12. [69]

    The readiness with which Mr Coulter was prepared to abandon that position, and to admit, indeed assert that Windy Hills’ contractual duty was to “supply” omasum to Mr Luo reveals that Windy Hills and Mr Coulter had, until the moment of Mr Coulter’s admission, defended this case on a basis that Mr Coulter must have known to be false.

13. [70]

    In making these remarks, I do not mean to offer any criticism of Mr Law, who only very recently appeared in these proceedings and who, in final written submissions, very fairly acknowledged the implication of Mr Coulter’s “acknowledgment” in cross-examination.

14. [71]

    In any event, and leaving aside Mr Coulter’s admissions, the objective evidence showed that the contract between Windy Hills and Mr Luo was that of vendor and purchaser.

15. [72]

    It was common ground there were four contracts between Windy Hills and Mr Luo and that each was partly in writing and partly oral.

16. [73]

    In Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90], Campbell JA (with whom Allsop P and Basten JA agreed) said that, “[w]here a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact”, “surrounding circumstances may be used as an aid to finding what the terms of the contract are” and “[i]f it is not possible to make a finding about the particular words that were used…the surrounding circumstances can be looked at to find what in substance the parties agreed”.

17. [74]

    As Mr Livingston submitted, and in final submissions there was no dispute about this, the terms of the four agreements between Mr Luo and Windy Hills were constituted by recorded text and voice messages between Mr Luo and Mr Zhang. This included the conversations between them as well as the documents they exchanged. Among the documents that were exchanged were:

    1. (1)

       a draft contract circulated between 5 and 9 September 2016 and again between 24 and 25 November 2016;

    2. (2)

       invoices sent by Windy Hills to Mr Luo on 25 August 2016 and 9 January 2017; and

    3. (3)

       a copy of the Bill of Lading sent by Mr Zhang to Mr Luo on 6 February 2016.

18. [75]

    None of those communications was to the effect that Windy Hills’ obligations were merely to “arrange and facilitate” the sale and supply of omasum. The draft contracts all specified that Windy Hills was to “sell” and to “provide” the omasum and identified Windy Hills as “the seller” and Mr Luo as “the buyer”. The invoices specified “Delivery Vietnam” and identified the “Payee Account” as Windy Hills’ account at Bankwest.

19. [76]

    None of the text and voice messages or conversations between Mr Zhang and Mr Luo was to the effect that Windy Hills’ obligation was merely to “arrange and facilitate” the sale and supply of stock.

20. [77]

    Otherwise, there was no dispute as to the terms of the four contracts between Mr Luo and Windy Hills, namely that, to adopt the language used by Mr Livingston in his final submissions, each of the contracts:

21. [78]

    In final submissions, the only answer Mr Law offered to Mr Luo’s case against Windy Hills in contract was that Mr Luo has “failed to discharge [his] duty to mitigate [his] loss when [he] had the opportunity to do so”.

22. [79]

    The first difficulty is that this allegation does not appear in Windy Hills’ and Mr Coulter’s List Response.

23. [80]

    In any event, there is no substance to the contention.

24. [81]

    The principles relevant to mitigation of loss are that:

    1. (1)

       it is for the defendant to prove that the plaintiff has failed to mitigate their loss: Munce v Vinidex Tubemakers Pty Ltd [1974] 2 NSWLR 235 at 239 (Glass JA);

    2. (2)

       the plaintiff “is not bound to take all possible steps to mitigate its loss, only those steps which are reasonable”: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38 at [134] (Hayne J);

    3. (3)

       this is not a “duty” owed to the party in breach in the sense of an independent obligation owed by the innocent party, but rather a principle to the effect that a plaintiff cannot recover loss or damage that could by reasonable action have been avoided: Chand v Commonwealth Bank of Australia [2015] NSWCA 181 at [180]; and

    4. (4)

       “ultimately, the question is not whether there was a better way of doing things but whether what the plaintiff did was reasonable”: Orica Investments Pty Ltd v McCartney [2010] NSWSC 488 at [56] (Ball J); Chand v Commonwealth Bank at [182].

25. [82]

    The purported failure on Mr Luo’s part was a failure to make an “official” report to the Vietnamese authorities after he discovered that there was only salt, and merely traces of omasum, in the containers.

26. [83]

    Mr Law relied upon evidence from given by Mr Coulter and Mr Zhang. Mr Coulter said in his affidavit:

27. [84]

    Mr Zhang said in his affidavit:

28. [85]

    There are a number of difficulties with this evidence.

29. [86]

    First, assuming that Mr Luo had made a report to the Vietnamese authorities, it is a matter of speculation as to what difference it would have made. In particular, it is a matter of speculation as to what Bankwest or Westpac could have done to recover the funds remitted by Windy Hills assuming they had been in possession of some kind of official report from the Vietnamese authorities.

30. [87]

    In any event, Mr Luo’s unchallenged evidence is that he did seek to report this matter to the authorities in Vietnam:

31. [88]

    On 26 April 2017 Mr Luo sent Mr Zhang the following text messages:

32. [89]

    Mr Luo said:

33. [90]

    Thus, Mr Luo’s unchallenged evidence is that he endeavoured to obtain a “police report” from the Vietnamese authorities but was advised that it was necessary for his “supplier”, that is Windy Hills, to take this action.

34. [91]

    Mr Luo relayed this information to Mr Zhang to encourage Mr Zhang or Mr Coulter to travel to Vietnam to “enable a police report to be filed”. Neither Mr Zhang nor Mr Coulter did so.

35. [92]

    In those circumstances, I am not satisfied that Windy Hills and Mr Coulter have satisfied their onus of showing that Mr Luo has failed to mitigate the loss that he otherwise has suffered as a result of Windy Hills’ failure to deliver the omasum called for by the contracts.

36. [93]

    This being the only basis on which, ultimately, Windy Hills sought to resist Mr Luo’s claim in contract, my conclusion is that Mr Luo’s claim in contract against Windy Hills succeeds. Mr Luo is entitled to damages against Windy Hills for breach of contract and for restitution of the amount paid by Mr Luo to Windy Hills on the basis of a total failure of consideration.

Damages against Windy Hills for breach of contract

1. [94]

   Mr Luo’s claim for damages arises from Windy Hills’ breach of contract.

2. [95]

   The principles governing damages for breach of contract are familiar. In Robinson v Harman (1848) 1 Exch 850; (1848) 154 ER 363 at 365, Parke B made the famous statement:

3. [96]

   In his recently published work, Mr Heydon QC pointed out that “the starting point turns” on this question and that “no Australian court has denied that”: J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [26.70].

4. [97]

   In Wenham v Ella (1972) 127 CLR 454 at 466; [1972] HCA 43 Walsh J observed that it would be an error to treat:

5. [98]

   On the question of remoteness of damages the principle remains as stated in Hadley v Baxendale (1854) 9 Exch 341 at 354; (1854) 156 ER 145 at 151:

6. [99]

   I deal with the issue of remoteness in respect of Mr Luo’s claims for damages below.

Mr Luo’s claim in restitution for total failure of consideration

1. [100]

   Neither Mr Luo nor his consignee received the means to take delivery of the three containers which were in Consignments 2 and 4 in Vietnam.

2. [101]

   The two containers in Consignment 2 contained used salt and only small amounts of omasum. The six containers in Consignment 3 contained packing salt and only trace amounts of omasum.

3. [102]

   In those circumstances, Mr Luo is entitled to restitution of the money he has paid.

4. [103]

   The relevant principle was described by Deane and Dawson JJ in Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 375; [1993] HCA 4:

5. [104]

   Here, the consideration has wholly failed.

6. [105]

   It is no answer to Mr Luo’s claim in restitution that Windy Hills was defrauded by its supplier.

7. [106]

   Mr Luo has received nothing of any value from Windy Hills and is entitled to restitution of the US$1,455,581 he paid Windy Hills.

8. [107]

   However, “full damages and complete restitution will not be given for the same breach of contract”: Baltic Shipping Co v Dillon at 359 (Mason CJ). Mason CJ went on to explain:

9. [108]

   As Mr Luo’s claim for damages in breach of contract succeeds, no extra amount is recoverable on this basis. The damages he has suffered for breach is at least equal to the amount recoverable in restitution.

The course of events: August 2016 to March 2017

1. [109]

   Despite these conclusions, consideration of Mr Luo’s case against Windy Hills, Mr Coulter and Mr Zhang for misleading or deceptive conduct requires examination of the course of events between August 2016 and March 2017.

2. [110]

   In his closing written submissions, Mr Livingston provided a detailed and careful summary of the evidence about those events. In their reply submissions, neither Mr Law nor Mr Hogg cavilled with Mr Livingston’s summary.

3. [111]

   What follows is drawn largely from Mr Livingston’s summary.

4. [112]

   Between July 2016 and February 2017 Mr Luo and Mr Zhang exchanged voice and text messages in Chinese on WeChat. A translation of those messages was admitted into evidence without objection. I have emphasised the passages which assume significance in Mr Luo’s case against the defendants and Mr Zhang in particular.

5. [113]

   On 5 July 2016 Mr Zhang and Mr Luo had this exchange:

6. [114]

   The first WeChat discussion between Mr Luo and Mr Zhang that mentions omasum took place on 12 July 2016.

7. [115]

   On 19 August 2016 Mr Luo and Mr Zhang had this exchange by WeChat:

8. [116]

   On 22 August 2016, Mr Luo and Mr Zhang had this exchange on WeChat:

9. [117]

   On 23 August 2016, in a series of voice messages sent by Mr Zhang to Mr Luo on WeChat, Mr Zhang made statements about the quality of the omasum and statements to the effect that it would be checked by a worldwide independent verification service known as SGS:

10. [118]

    On 25 August 2016, Mr Zhang sent Mr Luo a voice message which included the following:

11. [119]

    On 25 August 2016 Mr Zhang sent Mr Luo an invoice from Windy Hills in respect of the first consignment agreement.

12. [120]

    The text adjacent to the heading “Terms” on the invoice included the following: “1. Commercial Invoice[,] 2. Certificate of Origin[,] 3. Health Certificate[,] 4. Packing List[,] 5. Bill of Laden”.

13. [121]

    The invoice was in this form:

14. [122]

    On 2 September 2016 Mr Zhang said to Mr Luo:

15. [123]

    On 2 and 3 September 2016 Mr Zhang assured Mr Luo that the omasum would be Grade A:

16. [124]

    On 5 September 2016, Mr Zhang provided to Mr Luo a draft contract bearing the company seal of Windy Hills. Mr Luo caused his details to be entered into the draft contract and returned it, unsigned, to Mr Zhang on the same day.

17. [125]

    The opening words of the draft contract were:

18. [126]

    The draft concluded with the words:

19. [127]

    These are words of a contract for the sale of goods.

20. [128]

    Appearing immediately below the passage I have referred to at [126] is the seal of Windy Hills, adjacent to which is a signature that, although Mr Livingston did not ask Mr Coulter about this, appears to be Mr Coulter’s signature.

21. [129]

    The draft provided for the sale, by Windy Hills, to Mr Luo of 28 tonnes of Grade A beef omasum for a total price of US$168,000, including a 50% deposit of US$84,000.

22. [130]

    Also on 5 September 2016 Mr Zhang sent Mr Luo messages:

23. [131]

    Mr Luo paid the deposit under the first consignment agreement on 8 September 2016.

24. [132]

    Mr Zhang provided a further draft contract on 9 September 2016, albeit for an order that did not proceed.

25. [133]

    On 6 September 2016 Mr Zhang sent the following to Mr Luo in respect of the US$84,000 deposit for the first consignment:

26. [134]

    On 28 September 2016 Mr Zhang sent Mr Luo a voice message on WeChat:

27. [135]

    On 4 October 2016 Mr Luo deposited US$50,000 (less international transfer fees) into Windy Hills’ Bankwest account, on account of future orders.

28. [136]

    On 24 October 2016 Windy Hills transferred the sum of US$20,000 from that account to its own Westpac account.

29. [137]

    By WeChat voice messages sent on 17 and 18 November 2016, Mr Zhang invited Mr Luo to pay a sum, ultimately US$100,000, into Windy Hills’ Bankwest account in order to facilitate payment to the Pakistani supplier by means of a letter of credit from Bankwest. In particular, on 17 November 2016, Mr Zhang sent Mr Luo a WeChat voice message in which he said:

30. [138]

    On the following day, 18 November 2016, Mr Zhang sent a further WeChat voice message to Mr Luo:

31. [139]

    On 21 November 2016, Mr Luo deposited US$100,000, less international transfer fees, into Windy Hills’ Bankwest account.

32. [140]

    At the time of making the deposit Mr Luo believed, based on Mr Zhang’s voice messages, that a letter of credit had been established with Bankwest and that the funds would be held by Windy Hills to “match” any amount paid by Bankwest under the letter of credit.

33. [141]

    However, documents produced on subpoena by Bankwest show that, unbeknownst to Mr Luo, the whole amount was withdrawn by Windy Hills within the next few weeks.

34. [142]

    On 24 and 25 November 2016 Mr Zhang or his cousin, Hai Bin Zheng, provided to Mr Luo various draft contracts for the sale of omasum, each of which bore the company seal of Windy Hills and contemplated payment by means of a letter of credit.

35. [143]

    By an exchange of WeChat messages on 6 December 2016, Mr Zhang assured Mr Luo that SGS had inspected the goods:

36. [144]

    On 9 December 2016 Mr Zhang sent two messages to Mr Luo in the following terms:

37. [145]

    On 15 December 2016 Mr Coulter caused Windy Hills to remit US$90,000 to a supplier of donkey hide in Peru.

38. [146]

    Mr Coulter gave to Mr Zhang a document dated 15 December 2016 purporting to be a Bankwest “Confirmation of USD Money Market Call Account Transaction” which showed that the amount remitted was not US$90,000 but rather US$240,000.

39. [147]

    Mr Coulter agreed that he had changed the figure on the document from US$90,000 to US$240,000 before sending it to Mr Zhang.

40. [148]

    On 15 December 2016 Mr Zhang sent Mr Luo a WeChat message:

41. [149]

    In cross-examination, Mr Coulter readily agreed that he had altered the document and that he wanted Mr Zhang to tell Mr Luo that Windy Hills had made a payment of US$240,000 when the truth was that the payment was US$90,000. Evidently, this was to give Mr Luo the impression that Windy Hills was a successful trader.

42. [150]

    Although Mr Coulter did not accept his conduct to be dishonest, it clearly was.

43. [151]

    By WeChat messages sent on 23, 24 and 26 December 2016 Mr Zhang made further statements to Mr Luo regarding the quantity and quality of omasum available and emphasised that Consignment 2 and 3 were being sourced from a different supplier (or “factory”) than the first consignment which never arrived:

44. [152]

    On 27 December 2016, Mr Zhang told Mr Luo that Windy Hills’ supplier wished to change the payment arrangement from a letter of credit to a telegraphic transfer. On 27 December 2016, Mr Zhang sent a WeChat voice message to Mr Luo:

45. [153]

    This was reinforced on the following day when Mr Zhang sent a further WeChat voice message to Mr Luo which said:

46. [154]

    Mr Livingston relied on these communications in relation to his submissions concerning the existence of a Quistclose trust. I will return to this.

47. [155]

    On 29 December 2016 Mr Zhang sent to Mr Luo two voice messages which included the following:

48. [156]

    Later that day, Mr Zhang sent to Mr Luo a voice message which said:

49. [157]

    On 8 January 2017 Mr Zhang sent to Mr Luo a voice message which said:

50. [158]

    In reliance upon these statements Mr Luo transferred to Windy Hills sums totalling US$706,331 and AU$600,000, in various deposits made from 6 January 2017 to 24 January 2017. Mr Luo did so on the understanding that his funds would be retained by Windy Hills pending delivery of the stock. In particular:

51. [159]

    On or about 8 January 2017 the parties agreed to terminate the first consignment agreement and to credit the deposit of US$84,000 paid by Mr Luo under that agreement to the subsequent consignments.

52. [160]

    By 8 January 2017 Mr Luo had paid in full for the two containers in Consignment 2, which arrived at Hai Phong port in Vietnam on 19 January 2017.

53. [161]

    On 9 January 2017 Mr Zhang sent to Mr Luo an invoice bearing that date, on the letterhead of Windy Hills, for the six containers in Consignment 3.

54. [162]

    The text adjacent to the heading “Terms” on the invoice included the following: “1. Commercial Invoice[,] 2. Certificate of Origin[,] 3. Health Certificate[,] 4. Packing List[,] 5. Bill of Laden”.

55. [163]

    That invoice was in the following form:

56. [164]

    After the above amounts, totalling US$706,331, had been paid by Mr Luo, but before he paid the further sum of AU$600,000, Mr Luo received a WeChat voice message from Mr Zhang on 17 January 2017 which included the following:

57. [165]

    This is another of the documents Mr Livingston relied on to establish a Quistclose trust.

58. [166]

    On 23 and 24 January 2017 Mr Zhang informed Mr Luo that Windy Hills would provide the Telex Release code for the six containers in Consignment 3 provided that Mr Luo paid the further sum of AU$600,000.

59. [167]

    On 24 January 2017 Mr Luo made two deposits into Windy Hills’ Westpac account, in the sums of AU$550,000 and AU$50,000 respectively, totalling AU$600,000.

60. [168]

    Windy Hills did not hold any of the funds pending receipt by Mr Luo of the stock.

61. [169]

    Documents produced on subpoena by Bankwest and Westpac reveal that Windy Hills spent Mr Luo’s money very shortly after receiving each deposit. The statement made by Mr Zhang to Mr Luo on 17 January 2017, that the funds had been put into an Australian bank and not sent overseas, was not true.

62. [170]

    The true position was that the funds were withdrawn rapidly, without Mr Luo’s knowledge or consent, in favour of accounts in the names of entities other than the alleged Pakistani supplier, including to accounts located outside Pakistan, such as the United Arab Emirates.

63. [171]

    Windy Hills also transferred the sum of US$50,000 from the payments made by Mr Luo to its own Westpac account. The company’s Bankwest statement records a withdrawal, and its Westpac statement records a deposit, in that amount (converted into AU$67,791.61) on 11 January 2017.

64. [172]

    On 23 January 2017 Mr Coulter instructed Bankwest to transfer US$95,000 from Windy Hills’ Bankwest account to “Tex Mart” at a bank account in United Arab Emirates on account of the omasum that Windy Hills had contracted to supply to Mr Luo.

65. [173]

    Mr Coulter sent the funds to Tex Mart because he received email instructions from Windy Hills’ supplier in Pakistan, Neamah, to do so. Neamah had previously instructed Mr Coulter to make other payments to an entity called London Silk Trading LLC in Dubai.

66. [174]

    Earlier, on 3 January 2017, Mr Coulter had written to Sohail at Neamah querying these instructions and saying that his accountant and lawyer were “confused [about] why you need the deposit sent to another country with a different trading name”. Mr Coulter also wanted “proof [that] this company…is working with Neamah Enterprises” and an explanation for the need to make multiple payments for the goods.

67. [175]

    M Sohail replied saying “I can’t receive all this money direct to my Pakistan account because there is a 2.5% tax bank and government charges”. Sohail also said “we have many suppliers who belongs [sic] to other countries” and that the entity was “not our sister consult company they are our vendor, we need to pay them and they want payment in the Dubai account”.

68. [176]

    While Mr Coulter did not receive any “proof” of these matters from Neamah, he accepted Sohail’s explanation and said in cross-examination that he thought it “makes sense”. He did not accept that “with the benefit of hindsight” the explanation was “unconvincing and indeed suspicious”.

69. [177]

    However, Mr Coulter clearly thought that Mr Luo would be disturbed to know that Windy Hills was remitting funds otherwise than to Neamah.

70. [178]

    Thus, although Mr Coulter received an “Issuance Advice” from Bankwest showing that the US$95,000 had been remitted to Tex Mart, he altered that document to show the favouree to be Neamah.

71. [179]

    On 23 January 2017 Mr Coulter sent Mr Zhang a copy of the altered document under cover of an email:

72. [180]

    Mr Coulter agreed that he intended that Mr Zhang pass on the altered Issuance Advice to Mr Luo. He denied that this was dishonest and said:

73. [181]

    He then gave this evidence in answer to questions from me:

74. [182]

    On 23 January 2017 Mr Zhang sent Mr Luo a copy of that document was well as these text messages:

75. [183]

    Although there is no reason to think Mr Zhang knew that the Issuance Advice he forwarded to Mr Luo had had been altered by Mr Coulter, his text messages conveyed the representation that Windy Hills, Mr Coulter and Mr Zhang also had a financial interest in the transaction; thus his statements that “we are sitting in the same boat”, that “we also have to contribute money” and that “my money is also held up”.

76. [184]

    These matters are relevant to Mr Luo’s case for misleading or deceptive conduct, to which I will return.

77. [185]

    By WeChat messages sent on 6, 7 and 8 February 2017 Mr Zhang told Mr Luo that the goods which were meant to be in the first consignment agreement were now available for sale in a container which had arrived at Hai Phong.

78. [186]

    Mr Luo agreed to purchase those goods, this being Consignment 4.

79. [187]

    On 6 February 2017 Mr Zhang sent to Mr Luo, on WeChat, a copy of a Bill of Lading specifying the details of the container which was in Consignment 4 and identifying a “Shipped on Board Date” of 25 December 2016.

80. [188]

    On 9 February 2017 Mr Luo paid US$77,000 to Windy Hills for those goods.

81. [189]

    Windy Hills did not provide Mr Luo, or his consignee, the Telex Release codes or original shipping documents which were necessary to take delivery of the stock which was in Consignment 2 (two containers) or Consignment 4 (one container) in Vietnam.

82. [190]

    Mr Coulter agreed in cross-examination that Neamah Enterprises failed to provide original documents of title for Consignment 2. Nor did he dispute that Mega Gold failed to provide a Telex Release code for Consignment 4.

83. [191]

    Mr Coulter accepted that, on his understanding, the Telex Release codes were necessary in order for Mr Luo or his consignee to access the contents of the containers at Hai Phong port. This was confirmed by the evidence of Ms Hoa Anh Lai, the Export and Import Manager at Hai Phong Port Services Joint Stock Company.

84. [192]

    Mr Zhang admitted that Mr Luo was never given the original Bill of Lading for either Consignment 2 or 4.

85. [193]

    The six containers comprising Consignment 3 arrived at Hai Phong port on or about 2 February 2017. However, despite repeated and increasingly urgent requests from Mr Luo, Mr Zhang did not forward the Telex Release code for those six containers to Mr Luo until 2 March 2017.

86. [194]

    The witnesses who inspected two of the six containers at the Hai Phong customs bonded warehouse on 3 March 2017, and those who inspected all six containers at the Hai Phong customs bonded warehouse on 24 March 2017, gave evidence which establishes that the containers contained packing salt with only trace amounts of omasum.

87. [195]

    That direct evidence is corroborated by:

    1. (1)

       photographs and video footage taken during the inspection on 3 March 2017 under the supervision of the Vietnamese customs department;

    2. (2)

       the contemporaneous “working report” signed by representatives of Mr Luo’s consignee who were present during the inspection on 3 March 2017;

    3. (3)

       the “field survey record” dated 24 March 2017 prepared by Mr Nguyen of ACC Control;

    4. (4)

       the Survey Report dated 27 March 2017 prepared by ACC Control based on the inspection on 24 March 2017;

    5. (5)

       the hundreds of photographs taken during the inspection on 24 March 2017.

88. [196]

    Those reports, photographs and video footage were obtained by Mr Luo and sent to the defendants via Mr Zhang contemporaneously.

89. [197]

    Mr Xinfa Gao and Mr Guiqi Yang were both present during the inspection of two of the containers on 3 March 2017. Both witnesses confirmed that they saw that:

    1. (1)

       the container seals were intact before the inspection;

    2. (2)

       the seals were broken by the Vietnamese customs officer;

    3. (3)

       it was the Vietnamese customs officer who opened the container doors; and

    4. (4)

       each of Mr Gao and Mr Yang personally opened several bags and saw that they contained salt.

90. [198]

    Both witnesses emphatically rejected the suggestion put to them by Mr Hogg that they saw Grade A beef omasum in the containers.

91. [199]

    This was a matter about which Mr Gao and Mr Yang could not have been mistaken. If the bags in the containers contained omasum, not salt, their evidence would have been knowingly false. In effect, Mr Hogg was suggesting just that.

92. [200]

    As I have said, there is now no dispute about these matters. It is now common ground that Mr Gao’s and Mr Yang’s evidence was truthful. And Mr Hogg did not challenge other witnesses who deposed to seeing that the containers contained little else but salt.

93. [201]

    In closing submissions I had this exchange with Mr Hogg:

94. [202]

    I do not see Mr Hogg’s response to my questions as providing an adequate explanation. I cannot see what basis, apart from the “view” that Mr Zhang evidently had, Mr Hogg had to put to Mr Gao and Mr Yang that, in effect, their evidence was not truthful.

95. [203]

    Counsel have a heavy responsibility not to suggest to a witness that their evidence is untruthful unless there is “available material” providing a “proper basis” for such a suggestion: r 65 of the Legal Profession Uniform Conduct (Barristers) Rules 2015 (NSW).

96. [204]

    In my opinion, there was no available material which provided a proper basis for Mr Hogg to put to Mr Gao and Mr Yang that, contrary to their sworn evidence, they had seen omasum in the containers.

97. [205]

    The six containers were subsequently transported by Mr Luo’s consignee from the customs bonded warehouse in Hai Phong to their head office in another location in Vietnam, Mong Cai, so that the stock could be burnt or destroyed. This was done because:

    1. (1)

       the stock was worthless;

    2. (2)

       the costs of holding the six containers in the customs bonded warehouse at Hai Phong were prohibitive;

    3. (3)

       the defendants had failed to provide a practical solution; and

    4. (4)

       it was necessary for the salt to be disposed of outside the customs bonded warehouse so that Mr Luo’s consignee could avoid large penalties.

98. [206]

    As to the two containers which were in Consignment 2, the Vietnamese customs department inspected them and identified that they too contained salt.

99. [207]

    The department issued two notices, one establishing Vietnamese state ownership in the goods, the other authorising their destruction. Both notices recorded the contents of the two containers as follows:

100. [208]

     There was no challenge to the authenticity or provenance of those notices, or as to their meaning.

The plaintiffs’ claims for misleading or deceptive conduct

1. [209]

   All the representations relied upon by the plaintiffs are preserved either in recorded voice messages or text messages sent by Mr Zhang to Mr Luo on WeChat. As I have mentioned, a translation of those messages is in evidence.

2. [210]

   The defendants have not identified, let alone proven, any inaccuracy in any of the translations of those messages.

3. [211]

   In the relevant period, Mr Luo did not have any direct dealings with Mr Coulter. All of the representations relied on by Mr Luo were conveyed to him by Mr Zhang.

4. [212]

   Mr Luo contends that Mr Zhang was at all relevant times acting as agent for Windy Hills and for Mr Coulter.

5. [213]

   Although Mr Livingston pointed to s 84(2) of the Competition and Consumer Act 2010 (Cth), the applicable section when considering conduct “engaged in on behalf of a body corporate” for the purposes of the Australian Consumer Law is s 139B(2) of the Competition and Consumer Act. The sections are in the same terms.

6. [214]

   Section 139B(2) provides:

7. [215]

   Thus, any conduct engaged in on behalf of Windy Hills is taken to be engaged in by Windy Hills itself where:

8. [216]

   In Australian Competition and Consumer Commission (ACCC) v Cornerstone Investment Aust Pty Ltd (in liq) (No 4) [2018] FCA 1408 at [280]-[281], Gleeson J made the following observations about the legislative purpose of s 139B(2) and its relationship with s 84(2):

9. [217]

   Her Honour later referred to authorities dealing with s 82(2) and in particular the meaning of “on behalf of”: ACCC v Cornerstone at [298]-[299]; see also NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270; [2000] FCA 1558 at [1244] (Lindgren J); Walplan v Wallace at 37 (Lockhart J).

10. [218]

    Thus, the conduct of Mr Zhang will be taken to be conduct “on behalf of” Windy Hills for the purposes of s 139B(2) if it can be shown that he engaged in the conduct:

11. [219]

    Mr Livingston submitted, and Mr Law and Mr Hogg barely disputed, that Mr Zhang intended to engage in conduct as a representative of or for Windy Hills and did so in the course of Windy Hills’ business, affairs or activities thus satisfying both of the necessary conditions.

12. [220]

    Mr Coulter agreed in cross-examination that:

    1. (1)

       in the period from August 2016 to February 2017, he wanted Mr Zhang to communicate with Mr Luo on behalf of himself and Windy Hills;

    2. (2)

       without Mr Zhang, Mr Coulter had no way of communicating with Mr Luo;

    3. (3)

       Mr Coulter knew that Mr Zhang was making statements on his behalf to Mr Luo and that Mr Zhang was passing on the substance of Mr Coulter’s messages to Mr Luo on behalf of both himself and Windy Hills;

    4. (4)

       Mr Coulter intended that Mr Zhang would represent him and Windy Hills regarding the negotiations with Mr Luo in respect of the omasum; and

    5. (5)

       he consented to and directed Mr Zhang to do so.

13. [221]

    Mr Zhang agreed in cross-examination that:

    1. (1)

       in the period from August 2016 to February 2017, he understood that Mr Coulter wanted him to represent Mr Coulter in his negotiations with Mr Luo;

    2. (2)

       he agreed to represent Windy Hills in negotiations with Mr Luo regarding the omasum; and

    3. (3)

       he understood that he was communicating with Mr Luo, on behalf of Windy Hills, with the consent of Mr Coulter.

14. [222]

    Thus the conduct of Mr Zhang in sending WeChat voice messages and text messages to Mr Luo in the period from August 2016 to February 2017 was conduct engaged in:

    1. (1)

       as an agent or representative of Mr Coulter; and

    2. (2)

       “on behalf of” Windy Hills by Mr Zhang “at the direction” or “with the consent” of Mr Coulter, being the sole director of Windy Hills, where “the giving of the direction, consent or agreement [was] within the scope of” Mr Coulter’s authority as sole director: s 139B(2) of the Competition and Consumer Act.

15. [223]

    Mr Hogg submitted that Mr Zhang did no more than act “as an intermediary to effect communications between Mr Coulter in his dealings with Mr Luo and vis-a-versa [sic]” and that this was necessary because Mr Coulter did not speak, write or understand Mandarin or Cantonese and Mr Luo did not speak, write or understand English.

16. [224]

    It may be that this is how Mr Zhang saw himself.

17. [225]

    But whether or not, despite these matters, Mr Zhang made representations which were misleading or deceptive depends upon the terms of his communications with Mr Luo.

18. [226]

    As they were all in writing they speak for themselves.

19. [227]

    In my opinion, the words used by Mr Zhang in those messages show that he was not a “mere conduit”.

20. [228]

    Mr Zhang did not confine himself to communicating what Mr Coulter said, did or represented, without adopting or endorsing it. He certainly did not, expressly nor impliedly, disclaim any belief in the truth or falsity of the messages he was sending. That is evident from the express terms of the WeChat messages themselves.

21. [229]

    Mr Zhang expressed himself in many, if not most, of those messages as conveying unqualified statements of fact. Mr Zhang did not say in his messages to Mr Luo that he was merely passing them on, for what it was worth, information given to him by Mr Coulter. A reasonable person in the position of Mr Luo, receiving the messages he received, would have understood them as conveying statements made by all three defendants.

22. [230]

    Mr Zhang also stood to gain from his involvement in these transactions. Mr Zhang said that Mr Coulter agreed to pay him a commission of between 1% and 2% on the sales of omasum. As it turns out, it appears that “because problems arise” Mr Zhang received no commission despite having “done so much already and having made such a, a lot of efforts”.

23. [231]

    I turn now to the critical misleading or deceptive representations which I find Mr Luo relied upon.

24. [232]

    The critical representation relied on by Mr Luo is that the defendants had a present ability to supply the nine containers of Grade A beef omasum to Mr Luo.

25. [233]

    The ability of Windy Hills to supply such stock, readily, in that quantity and of that quality, from Pakistan to Hai Phong in Vietnam, was the central message repeatedly conveyed by Mr Zhang to Mr Luo.

26. [234]

    I am satisfied that, through numerous WeChat messages, Mr Zhang, as agent for Windy Hills and on his own account, made such a representation.

27. [235]

    The following table sets out the most salient of those messages.

28. [236]

    This representation was made on a number of occasions and it was false. Windy Hills did not have a present ability to supply omasum to Mr Luo.

29. [237]

    Windy Hills was, as is now accepted by all the defendants, a victim of a fraud practised on it by its Pakistani suppliers. No omasum of any value was shipped from Pakistan to Vietnam in any of the nine containers.

30. [238]

    There is no reason to think that either Mr Coulter or Mr Zhang knew that fraud was afoot. But the fact that it was renders Mr Zhang’s communications, and thereby his, Mr Coulter’s and Windy Hills’ conduct, misleading or deceptive.

31. [239]

    These statements, separately and together, constituted representations that Windy Hills had a present ability to supply omasum to Mr Luo. Mr Zhang did more than merely express a hope or belief that Windy Hills could supply. He was representing that, as a matter of fact, Windy Hills could do so.

32. [240]

    But, as the defendants now accept, this was not true. Windy Hills’ supplier in Pakistan was not bona fide. Thus Windy Hills could not supply the nine containers of stock from Pakistan to Vietnam. Nor could it procure original documents of title or omasum which conformed to the defendants’ representations as to quality.

33. [241]

    Mr Zhang’s representations that Windy Hills had a present ability to supply were thus misleading or deceptive.

34. [242]

    Mr Zhang may well have believed that what he was telling Mr Luo was the truth.

35. [243]

    But the test is objective. For the purposes of s 18 of the Australian Consumer Law it is immaterial whether the defendants subjectively understood, believed or intended that their representations were misleading or deceptive at the time the representations were made: Yorke v Lucas (1985) 158 CLR 661 at 666; [1985] HCA 65 (Mason ACJ, Wilson, Deane and Dawson JJ); Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [38]; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [102] (Gummow, Hayne, Heydon and Kiefel JJ); ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 at [1219] (Jacobson, Gilmour and Gordon JJ).

36. [244]

    And in Tobacco Institute (Aust) Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 46; [1992] FCA 962, Hill J made observations regarding the previous version of s 18 (s 52 of the Trade Practices Act 1974 (Cth)) that:

37. [245]

    The representations were made by Mr Zhang himself, but also as agent for and on behalf of both Mr Coulter and Windy Hills. Mr Zhang’s conduct thus amounts to misleading or deceptive conduct by all of the defendants.

38. [246]

    This representation was similar to the representation that Windy Hills had a present ability to supply beef omasum, except that it was directed to the quality of the omasum that Windy Hills claimed it could supply.

39. [247]

    The representations made by Mr Zhang are set out in the following table:

40. [248]

    These representations were false for the same reasons that the representations set out at [235] above were false: see [237]-[240] above.

41. [249]

    Mr Zhang represented to Mr Luo that the defendants had used a worldwide independent verification service known as SGS for the purpose of checking the quantity and quality of the stock before it was shipped.

42. [250]

    The representations are set out in the following table:

43. [251]

    These statements were misleading or deceptive because, as Windy Hills and Mr Coulter have admitted in their List Response, “SGS would not have inspected the six containers…as it was not within SGS’s line of work to inspect offal”.

44. [252]

    Mr Zhang represented to Mr Luo that Mr Luo's funds were being kept safe, and kept in Australia.

45. [253]

    Mr Zhang’s representations are set out in this table:

46. [254]

    Mr Coulter said that he did not instruct Mr Zhang to tell Mr Luo that Mr Luo’s funds would be retained in Australia and that he did not know that Mr Zhang had said this to Mr Luo.

47. [255]

    As I have mentioned, documents produced on subpoena by Bankwest and Westpac show that shortly after Mr Luo’s funds were deposited to Windy Hills’ account they were paid out by Windy Hills to entities outside Australia not authorised by Mr Luo.

48. [256]

    Mr Coulter said in cross-examination that he saw Windy Hills’ bank account as a trading account and understood that Windy Hills was free to use the funds deposited by Mr Luo as it saw fit provided that, ultimately, Windy Hills paid its supplier for the omasum to be supplied to Mr Luo.

49. [257]

    He thus agreed that Mr Zhang’s statements to the effect that Mr Luo’s funds would be kept in Australia were wrong.

50. [258]

    Mr Coulter gave this evidence:

51. [259]

    Following some argument, Mr Coulter gave this evidence in response to a question from me:

52. [260]

    Of course, Mr Law was correct to submit that the question of whether Mr Zhang’s statements were misleading or deceptive is a matter for me, not Mr Coulter, to determine.

53. [261]

    However, the fact that Mr Coulter’s state of mind was that it would have been misleading for Mr Zhang to tell Mr Luo that his funds would remain in Australia was, as Mr Livingston submitted, a striking example of Mr Zhang acting other than a mere mouthpiece for Mr Coulter.

54. [262]

    When Mr Zhang was taken to these messages, he seemed to accept that they were capable of leading a reader into error.

55. [263]

    Thus he gave this evidence in response to questions from me:

56. [264]

    I understood from this answer that Mr Zhang accepted that the words set out at [253] above did represent an accurate translation of what Mr Zhang said to Mr Luo. I do not understand what Mr Zhang meant by saying that the words did not “represent what the message mean”. Mr Hogg did not take the matter up in re-examination.

57. [265]

    Mr Zhang made these representations about shipping documents:

58. [266]

    In cross-examination, Mr Coulter agreed that, knowing what is now known, it is likely that (unbeknownst to Mr Zhang at the time), that statement was wrong, and thus misleading or deceptive.

59. [267]

    Mr Zhang made the following representations concerning documents of title and other shipping documentation:

60. [268]

    The provision by the defendants to Mr Luo of each of the falsified shipping documents referred to at [267] above, namely the Certificate of Origin, the Certificate of Health and the copy of the Bill of Lading, was itself misleading or deceptive conduct.

61. [269]

    That is so irrespective of whether or not any of the defendants subjectively knew or suspected that any of those documents might not be genuine.

62. [270]

    Mr Zhang represented to Mr Luo that the supplier of Consignments 2 and 3 was different from, and unrelated to, the supplier of the (undelivered) first consignment.

63. [271]

    These representations are set out in this table:

64. [272]

    Contrary to those representations, Mr Coulter agreed that, to the best of his current knowledge, both Neamah Enterprises and Mega Gold were managed and operated by the same individual: Mr Mohammed Salim, the older brother of Sohail.

65. [273]

    That is corroborated by the terms of an email dated 17 October 2016 from Ajay of Mega Gold to Mr Coulter, which Mr Coulter forwarded to Mr Zhang on 21 April 2017, commenting “here is proof Ajay work [sic] with Sohail Saleem”.

66. [274]

    Mr Coulter agreed that, in December 2016 and January 2017, he understood that when Mr Luo chose to place the order for Consignments 2 and 3, Mr Luo believed that the ultimate supplier of those consignments was different from, and unrelated to, the Pakistani supplier of the first and fourth consignments. Mr Coulter agreed that he understood that Mr Luo was relying on the representation that the supplier of Consignments 2 and 3 was different from the supplier who had failed to deliver the first consignment.

67. [275]

    Mr Zhang and Mr Coulter in effect represented that insurance could be obtained in respect of omasum by proposing contracts as “CIF” contracts.

68. [276]

    On 5 September 2016 Mr Zhang sent Mr Luo the contract referred to at [124]-[129] above which provided that the contract price was CIF and provided that CIF was the delivery condition. This means that Windy Hills was to pay the cost of insurance and freight (hence, “CIF”). Thus, as previously mentioned, Windy Hills was obliged to take out a policy of insurance to ship the omasum to the port of Hai Phong in Vietnam.

69. [277]

    On 24 November 2016 Hai Bin Zeng, Mr Zhang’s cousin, sent Mr Luo a copy contract which contained the same provision as did Mr Zhang on 25 November 2016.

70. [278]

    Mr Coulter’s evidence was that it was not possible for Windy Hills to obtain any insurance regarding omasum.

71. [279]

    Thus the representation implied in proposing a CIF contract was misleading.

72. [280]

    As I have set out at [148] above, on 15 December 2016 Mr Zhang sent Mr Luo the Bankwest confirmation which Mr Coulter had altered to show that US$240,000, rather than US$90,000, had been withdrawn from Windy Hills’ Bankwest account.

73. [281]

    Mr Zhang said to Mr Luo:

74. [282]

    This representation was misleading or deceptive for the simple reason that it materially misstated that amount that Windy Hills had sent “to South America”.

75. [283]

    It is immaterial whether Mr Zhang knew of this misstatement.

76. [284]

    As I have already observed, Mr Zhang’s subjective intention to mislead or deceive is irrelevant in determining whether a representation is, in fact, misleading or deceptive: see [243] above.

77. [285]

    On 13 November 2016 Mr Zhang said to Mr Luo by WeChat:

78. [286]

    On 23 January 2017 Mr Zhang sent Mr Luo the altered Bankwest document referred to at [178] above and said:

79. [287]

    As I have already mentioned, this money was almost entirely, if not entirely, Mr Luo’s money being withdrawn soon after the deposit was made: see [158]-[170] above. The particular funds had been transferred to the United Arab Emirates, not Pakistan, and in any event came from Mr Luo’s deposits into Windy Hills’ Bankwest account.

80. [288]

    Thus these statements were false; these funds were not those of any of the defendants being transferred to the Pakistani supplier. Mr Hogg did not direct my attention to any evidence from Mr Zhang to justify them.

81. [289]

    For the purposes of ss 236 or 237 of the Australian Consumer Law, Mr Luo must prove that he suffered loss or damage “because of” the misleading or deceptive conduct of the defendants.

82. [290]

    In Gould v Vaggelas (1984) 157 CLR 215 at 236; [1984] HCA 68 Wilson J summarised the applicable principles as follows:

    1. (1)

       “if a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that [he or she] was induced to do so by the representation”;

    2. (2)

       “the inference may be rebutted, for example, by showing that the representee, before [he or she] entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether [he or she] knew the true facts or not [he or she] did not rely on the representation”; and

    3. (3)

       “the representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract”.

83. [291]

    Brennan J stated in the same case, “[t]he relevant question…is whether the misrepresentation along, or with or notwithstanding other things that accompanied it, was a real inducement, or one of the real inducements to the plaintiff to do whatever caused his loss”: Gould v Vaggelas at 250-251.

84. [292]

    Here, the plaintiffs relied on the defendants’ misleading or deceptive conduct when paying Windy Hills, when entering into contracts for the on-supply of the omasum and when borrowing funds at high interest rates to fund the payments to Windy Hills.

85. [293]

    Mr Luo gave direct and unchallenged evidence to this effect. That evidence is inherently plausible and I accept it.

86. [294]

    It is likely that Mr Luo primarily relied on the representation that the defendants had a present ability to supply Grade A beef omasum from Pakistan to Vietnam: see [232]-[245] above.

87. [295]

    The other representations were likely to have been confirmatory but not necessarily determinative of Mr Luo’s decision to act.

88. [296]

    But overall, I am satisfied that Mr Luo’s decision to act, and to cause AusChina to act, was based on his reliance on a combination of all the representations I have set out.

89. [297]

    Mr Luo acted in reliance on the defendants’ representations, to his detriment, in two further respects:

    1. (1)

       he borrowed substantial funds from private lenders at high interest rates in order to pay the purchase price to Windy Hills; and

    2. (2)

       he caused AusChina to enter into its own supply contracts with its customer Thanh Nga (which was also Mr Luo’s consignee in Vietnam) to on-sell the omasum and Mr Luo agreed to on-sell some of the omasum to Mr Yang.

90. [298]

    The fact that the defendants intended Mr Luo to act on their representations, and that Mr Luo did so enables an inference more readily to be drawn that he did so: see [290] above and also Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993) 41 FCR 229 at 233-234; [1993] FCA 192 (Lockhart, Gummow and French JJ).

91. [299]

    Mr Coulter agreed in cross-examination that:

92. [300]

    Similarly, Mr Zhang agreed that he understood that, when he gave answers to Mr Luo, Mr Luo would believe those answers and rely on them.

93. [301]

    I find that the plaintiffs have suffered loss and damage because of the defendants’ conduct. But for that misleading or deceptive conduct, on which Mr Luo relied to his detriment, the plaintiffs would not have suffered most of the loss and damage of which they presently complain. The qualifications to this finding I outline below: see [337]-[340].

94. [302]

    For these reasons, I am satisfied that both Mr Luo and AusChina are entitled to damages or compensation from each defendant for misleading or deceptive conduct: ss 236 and 237 of the Australian Consumer Law.

The Quistclose trusts

1. [303]

   Mr Livingston submitted that trusts of the kind described in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 arose on two occasions.

2. [304]

   The first such trust is said to have arisen from the following WeChat messages sent by Mr Zhang to Mr Luo on 17 and 18 November 2016:

3. [305]

   Mr Livingston submitted that, pursuant to this trust, Windy Hills held the sum of US$99,962.21 paid by Mr Luo to Windy Hills on 21 November 2016 for a specific purpose. Mr Livingston submitted that those funds were to be held as security for a letter of credit to be issued by Bankwest, for the purpose of purchasing the omasum from Pakistan.

4. [306]

   The second trust is said to have arisen from these voice messages sent by Mr Zhang to Mr Luo on 27 and 28 December 2016, as well as 17 January 2017:

5. [307]

   Mr Livingston submitted that, pursuant to this second trust, Windy Hills held the sums of US$706,331 and AU$600,000 paid by Mr Luo in various deposits between 6 and 24 January 2017 for the specific purpose of keeping those funds in Australia and using them, upon issue of a bill of lading to Mr Luo or his consignee, for the purchase of the omasum from Pakistan.

6. [308]

   Mr Livingston submitted that a trust of the kind described in Barclays Bank v Quistclose arises where it is intended, in relation to monies transferred for a specific purpose, that (a) the transferring party shall retain a beneficial interest in the monies advanced; and (b) the monies shall constitute a fund separate from the assets of the receiving party: Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502-503 (Gummow J).

7. [309]

   The WeChat messages in question certainly reveal that Mr Luo and Mr Zhang (and thus Windy Hills) mutually intended that the funds advanced would be used by Windy Hills exclusively for the purpose of purchasing the omasum from a supplier in Pakistan. I do not see the words “it won’t be moved” as bespeaking any intention beyond this.

8. [310]

   However a trust does not necessarily arise because money is provided for a particular purpose. In Barclays Bank v Quistclose, Lord Wilberforce spoke of the intention of the parties that funds advanced by way of loan “should not become part of the assets” of the party that received the funds but “should be used exclusively” for a particular purpose; in that case the payment of a dividend.

9. [311]

   In Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353; [1978] HCA 45 the High Court (Gibbs ACJ, with whom Stephen, Jacobs, Murphy JJ agreed) observed that Barclays Bank v Quistclose:

10. [312]

    As Darke J observed in Coolbrew Pty Ltd v Westpac Banking Corporation [2014] NSWSC 1108 at [57]:

11. [313]

    I am not able to detect in any of the communications between Mr Luo and Mr Zhang an intention that the funds advanced by Mr Luo to Windy Hills would “not become part of the assets of” Windy Hills, or constitute a separate fund to be held by Windy Hills on trust for Mr Luo.

12. [314]

    This certainly did not seem to be Mr Coulter’s intention. Thus, as I have mentioned at [63] above, Mr Coulter stated in cross-examination that he saw Windy Hills’ bank account as a trading account; it was not a separate account solely to hold Mr Luo’s money to pay for the supply of goods to Mr Luo.

13. [315]

    Mr Zhang certainly represented that Windy Hills would “hold on to the money” and use it “for getting the goods”. But there is no suggestion in the communications that, for example, Windy Hills would keep the funds in a separate account. I think there is insufficient evidence in the communications to warrant the conclusion that the parties intended a trust to arise.

14. [316]

    The questions of a breach of any such trust, or of Mr Coulter’s and Mr Zhang’s knowing involvement in any such breach therefore do not arise.

Quantum of loss

1. [317]

   No objections were pressed in relation to any of Mr Luo’s evidence regarding the quantum of his loss.

2. [318]

   Mr Luo was not challenged in cross-examination on his affidavit evidence regarding loss, except to a limited extent regarding his loan liabilities.

3. [319]

   The defendants did not adduce any competing evidence regarding any aspect of the quantification of the plaintiffs’ loss.

4. [320]

   In final submissions:

   1. (1)

      Mr Law said nothing concerning quantum; and

   2. (2)

      Mr Hogg said no more than that “leave is sought to split this aspect of the case so that it can be property [sic] dealt with” because “the majority of evidence on the issues of damages was filed late and was unable to be property [sic] dealt with at the hearing”.

5. [321]

   Mr Hogg did not pursue that application in oral submissions. In any event, I would not have acceded to it. The trial had proceeded to final submissions without any suggestion being made that quantum might be later determined. The evidence served “late” was for the most part in reply and although initially objected to on the basis of late service, was ultimately admitted without objection.

6. [322]

   As I mentioned above, the amount Mr Luo claims in restitution from Windy Hills is not separately recoverable because the equivalent amount is claimed by way of breach of contract: see [108] above.

7. [323]

   Mr Luo’s claim for damages or compensation against Mr Coulter and Mr Zhang is pursuant to the Australian Consumer Law: ss 236 and 237. It arises from the conduct of each of the defendants that I have found to be misleading or deceptive (see [209]-[302] above). The same can be said for AusChina’s case against all of the defendants.

8. [324]

   Mr Livingston summarised the loss claimed by Mr Luo and AusChina in a schedule to his submissions that, with some adjustments, I have attached to these reasons (Schedule of Loss (181 KB, pdf)).

9. [325]

   Neither Mr Law nor Mr Hogg challenged or addressed the matters in Mr Livingston’s schedule.

10. [326]

    With the exceptions that follow, I accept that Mr Livingston’s schedule sets out the damages to which Mr Luo and AusChina are entitled.

11. [327]

    That detail in Mr Livingston’s schedule may be summarised as follows.

12. [328]

    Part A of the Schedule is the sum of US$1,455,581 that Mr Luo paid to Windy Hills for omasum that was not supplied. It is equivalent to AU$1,951,782.44. Mr Luo is entitled to this amount by reason of Windy Hills’ breach of contract, and the misleading representations of each of the defendants.

13. [329]

    Part B is AusChina’s loss of profit suffered by reason of the defendants’ representations. It includes the opportunity AusChina had to make a profit on-selling omasum to two purchasers: Mr Dabin Zhang and Thanh Nga.

14. [330]

    Part B1 are the amounts that AusChina is liable to pay its purchasers because of its failure to supply. It includes repayment of deposits made and payment of penalties or liquidated damages for non-supply.

15. [331]

    Part C represents Mr Luo’s existing interest liability for each of the loans he took out to pay Windy Hills. I refer to this at [297] above. The majority of the funds were borrowed by Mr Luo at high interest rates on short-term unsecured loans. The loans are in default and continue to accrue interest.

16. [332]

    Part C1 represents the liability that Mr Luo continues to incur by way of interest under those loans. It is expressed as a figure payable each month.

17. [333]

    In addition to these sums, there are other losses Mr Luo claims. These are listed in Part D of the Schedule.

18. [334]

    Mr Luo is now exposed by the enforcement proceedings that Mr Dabin Zhang has commenced against Mr Luo in China. He has had to pay court fees as a result. He is entitled to recover that cost: line 41 of the Schedule.

19. [335]

    The plaintiffs incurred port fees and incidental costs: line 42 of the Schedule. They also incurred the costs of destruction of the six containers of salt, and costs associated with that process: line 43 of the Schedule. These costs flow naturally from Windy Hills’ breach of contract and were caused by the defendant’s misleading or deceptive conduct.

20. [336]

    Finally, Mr Luo incurred travel, accommodation and incidental expenses: line 44 of the Schedule. These costs were incurred on Mr Luo’s eight visits to Hai Phong, between October 2016 and February 2017, and in hosting Thanh Nga and its customers there, in expectation of taking delivery of the stock which was the subject of the four consignments, and in liaising with the customs and inspection agencies in respect of Consignment 3. Mr Luo would not have made these trips were it not for his reliance on the misrepresentations made to him by the defendants. Thus the plaintiffs would not have incurred this expense. They are entitled to recover it.

21. [337]

    Mr Luo also claims the amount he will be liable to pay Mr Guiqi Yang for Mr Yang’s expected profit from the intended on-sale of the omasum.

22. [338]

    I am not prepared to allow this amount as part of Mr Luo’s damages. To recover this amount Mr Luo would have to prove, in these proceedings, the loss of profit Mr Yang is entitled to recover from Mr Luo. He has not done that.

23. [339]

    I have mentioned that Mr Luo lost his BMW X5 motor vehicle when it was seized on 24 January 2017 in Hai Phong by one of Thanh Nga’s customers, in partial satisfaction of the debt owing to it. The vehicle was purchased by Mr Luo in November 2015 for over RMB 1,120,000 and Mr Luo claims that amount, or amount calculated by applying a “small discount to that amount on account of depreciation”.

24. [340]

    I am not prepared to allow this figure as part of Mr Luo’s damages. I think it is too remote. It is not damage flowing “naturally” or “in the ordinary course of things” from Windy Hills’ breach of contract or damage that could reasonably be supposed to have been in the contemplation of the parties when they made their contracts: Hadley v Baxendale at 354; see [98] above. Nor do I think that the defendants’ misleading or deceptive conduct was a cause of this loss.

Conclusion

1. [341]

   Mr Luo and AusChina are entitled to damages calculated as I have set out. The total amount is AU$6,661,443.65 plus the monthly amount of AU$73,138.39 on account of continuing interest liabilities.

2. [342]

   I invite the parties to confer and agree on the orders necessary to give effect to these reasons.