Xu v Cao & Du Management Pty Ltd (No 3)

A number of matters were listed for hearing before me today, mostly having their origin in my decision handed down on 22 September 2025 (Xu v Cao & Du Management Pty Ltd [2025] NSWSC 1077). These reasons assume familiarity with the above decision.

The primary matter before me was the continuation of the case against the second defendant. As explained in my earlier decision the action against the second defendant had been stayed because the second defendant had entered into a personal insolvency agreement under the Bankruptcy Act 1966 (Cth).

Following my decision the insolvency agreement was set aside on 30 October 2025, by Judicial Registrar Morgan in the Federal Court of Australia, who also made a bankruptcy order against the second defendant, but gave leave for the case in this Court against the second defendant to continue.

An application for review of the Judicial Registrar’s decision was lodged by the second defendant and is due to be heard by Perry J on 3 March 2026. This application was at the core of the second defendant asking me to adjourn the case against him pending the decision in the Federal Court.

The adjournment application was essentially based on the effects of a successful review, which might undermine any judgment that I entered against the second defendant in the primary proceedings. In addition, the second defendant said that s 56 of the Civil Procedure Act 2005 (NSW) favoured the granting of an adjournment so as to avoid a duplication of proceedings and that the identity of the trustee in bankruptcy, still apparently in flux, also favoured an adjournment.

I was satisfied that whether the second defendant is bankrupt, or alternatively subject to a personal insolvency agreement, will ultimately not have a different consequence to the existence of a judgment against him. For this reason, I did not think the duplication point had any weight, and I did not see the relevance of any issue arising from the identity of the trustee. I therefore refused the adjournment.

The refusal of the adjournment lead me to consider the case against the second defendant. Written submissions had been filed by the second defendant in opposition to the case against him. Before examining the submissions, I think it necessary to recall some of the basic facts of the case, at least as I found them to exist.

On 17 October 2016, the plaintiff entered into an agreement with the first defendant to lend the first defendant $3,300,000, repayable on 31 October 2018 in the sum of $6,600,000. Interest provisions then governed the future repayment of the loan. The loan agreement was guaranteed by the second defendant. Other than $300,000, the loan was not repaid.

The first defendant strenuously opposed the validity of the agreement claiming that it was a sham agreement, or alternatively, that there had been representations made to the second defendant to the effect that the agreement would never be enforced.

The sham agreement allegation was withdrawn, and I found that the representations had never been made. This led to the judgment in favour of the plaintiff against the first defendant.

I should add that the first defendant was successful in attacking the interest clauses in the agreement to the extent that I found that the claimed interest was a penalty and I adjusted the amount of interest to which the plaintiff was entitled. The result was a judgment for the plaintiff against the first defendant in the sum of $21,984,458.90.

The second defendant had originally relied on the defences of the first defendant to defend the claim, as well as a number of defences arising under the Contracts Review Act 1980 (NSW) and the Australian Securities and Investments Commission Act 2001 (Cth).

It is clear from my findings in the primary judgment that the core of these defences could not succeed primarily because my findings excluded any suggestion of unfairness, unequal bargaining power, or unconscionability (other than in respect of interest) which might have assisted the second defendant.

This brings me back to the second defendant’s written submissions which, at least by implication, accept what I have said in the previous paragraph and have raised certain other matters by way of defence.

Four points were made by the second defendant to resist the judgment against him. They are:

As I have already pointed out the sham allegation was withdrawn and cannot now be revived. In respect of the representations, I did not accept that they had been made by the plaintiff’s agents (Daniel and Henry). The same conclusion was reached in respect of the allegation of improper conduct on behalf of the agents.

The result of my findings about the agents also extends to the suggestion that their misleading conduct procured the guarantee. I did not find misleading conduct; therefore, any such conduct could not have procured the guarantee.

It follows from the above analysis that the four points made in resistance to the claim against the second defendant are without merit. To the extent that I did find the interest provisions amounted to a penalty, I adjusted the ultimate judgment sum against the first defendant which will in turn benefit the second defendant.

I should add that Mr Tomaras, who acts for the second defendant offered to withdraw his submissions recognising their shortcoming.

There is accordingly no basis upon which the second defendant can resist a judgment against him, or a costs order, and I will order accordingly.

The remaining matters that were listed before me today concerned the withdrawal of a notice of motion that had been filed by the first defendant on 17 November 2025, the extension of various freezing orders, the practical execution of search orders (including the identification of documents covered by legal professional privilege), and the provision of a password to the independent solicitor, Mr Peter Hegarty, who was conducting the search process.

All of the matters in the previous paragraph were dealt with by consent orders which I made earlier today.

In order to include all of today's orders in one document I vacate the orders made earlier today and make orders and notations in accordance with the Short Minutes of Orders dated today and attached to these reasons.