Zhou v Li

1. [1]

   HER HONOUR: This case is the ‘wash up’ of years of investments, loans and business activities undertaken by family members. The first plaintiff, Wenliang Zhou (the uncle), is a Chinese businessman who provided the funds. The first defendant, Qiang Li (also known as John Lee, the nephew), is his nephew, who lives in Australia and used the funds. There were three chapters in their dealings.

2. [2]

   First, in 2011, the second plaintiff, Q & L Pty Ltd, was used as the corporate vehicle to acquire a 7-Eleven franchise in Emu Plains. The uncle provided the funds. The nephew managed the business until the uncle took it out of the nephew’s hands in 2014. Q & L now seeks equitable compensation from the nephew in respect of his misuse of company funds.

3. [3]

   Second, in 2013, the uncle lent $2.4 million to enable the nephew’s company, second defendant Aus Ray International Pty Ltd, to acquire a property in Epping. The issues are whether the borrower was the nephew or his company, whether interest was payable, whether the loan was secured by an equitable charge over the land, and whether the loan was repaid.

4. [4]

   Third, the uncle owned a property in Burwood. The nephew offered to help develop it through his new real estate business conducted through Aus Ray. The uncle provided funds to do so. In dispute is whether the uncle provided funds in excess of, or less than, what Aus Ray expended on the Burwood development and, further, whether there was an agreement that payments in relation to the Burwood property could be set-off against the balance of the loan.

5. [5]

   Given the family relationships, their arrangements were poorly documented. Given the passage of time, limitation issues arose. In the result, the plaintiffs are entitled to succeed so far as the law will permit.

Evidentiary matters

1. [6]

   In what follows, I have generally referred to family members by reference to their relation to the uncle. The plaintiffs relied on the evidence of the uncle and his son, Jianyi (Joseph) Zhou (the son). The plaintiffs also served two affidavits by Xinhau (Angela) Guo, who was the uncle’s niece (the niece). The niece did not ultimately give evidence. No adverse inference was sought, nor drawn.

2. [7]

   The uncle did not speak nor read English. He gave evidence via an interpreter. He was cross-examined at considerable length. The uncle gave evidence in a straightforward manner. He made reasonable concessions. He was candid. The uncle’s recollection of the detail of conversations and events more than a decade ago was limited, “I cannot remember all of them. My memory is getting worse and worse.” I have generally accepted his evidence save that, on occasion, the uncle’s memory of what happened was imperfect in light of contemporaneous material.

3. [8]

   The son gave evidence without an interpreter, although English was not his first language. He was an open and impressive witness who gave evidence in a fair manner. I accept his evidence.

4. [9]

   A Jones v Dunkel inference was sought in respect of the uncle’s failure to call his wife to give evidence. The wife was said to have had something to do with the preparation of Q & L’s financial statements. I do not necessarily accept this. The 2014 financial statements left a place for the wife to sign, presumably because she was a director of Q & L at the time. But there is no evidence that she signed the financial statements or was otherwise involved in giving instructions to the accountant.

5. [10]

   The plaintiffs submitted that no Jones v Dunkel inference should be drawn, where there was no suggestion that the nephew provided her with the bank statements or the financial records of Q & L. The uncle’s wife could not have been expected to elucidate any particular matter. There was no suggestion that the wife had anything to answer; she was not involved in any material way, had not signed documents and was not said to have been involved in any relevant conversations.

6. [11]

   It is not necessary for a party to call an unnecessary witness: Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474 at 490 (Lockhart, Gummow and Lee JJ). In that case, the persons responsible for the choice of packaging were not called as witnesses but their superiors gave evidence of the decision they made and their reasons for doing so. In those circumstances, the Court held that the principle in Jones v Dunkel was not of assistance.

7. [12]

   Here, the wife was a director of Q & L. The wife signed the franchise agreement with 7-Eleven Stores Pty Ltd (7-Eleven). At various times, the wife held shares in Q & L; her shareholding gradually increased over time. But the wife’s role in the company was for the purposes of obtaining a visa. There is no evidence that the wife participated in the management of the 7-Eleven business or operated Q & L’s bank accounts. The uncle did not tell his wife about the contentious transactions.

8. [13]

   Where the nephew accepted at trial that he had breached the fiduciary duties which he owed to Q & L as a director, the only relevance of the wife’s evidence may have been to limitation issues, specifically, when Q & L discovered that it had an action against the nephew. Where the wife was a director of Q & L over the relevant period, she was in a position to say whether she had actual knowledge of the facts which would give rise to such an action. In these circumstances, I will infer that the wife’s evidence would not have assisted Q & L.

9. [14]

   The defendants relied on the evidence of the nephew, his mother (being the uncle’s older sister) Shuqin Zhou (the sister) and his father (being the uncle’s brother-in-law) Zhonglin Li (the brother-in-law).

10. [15]

    The nephew was fluent in English, having lived in Australia for nearly 20 years and studied at an Adelaide university. He was very well-dressed, softly spoken and appeared meek. The defendants conceded that the Court would not consider the nephew to be a reliable witness. This was an appropriate and unavoidable concession. The nephew was a most unsatisfactory witness. He was evasive. Not infrequently, the nephew gave one answer, then an inconsistent answer almost immediately, followed by a return to the first answer: see, for example, [92]. He frequently responded to fairly obvious questions with “I’m lost” or “I don’t understand”. The nephew said “I can’t remember” in respect of a schedule that he had prepared fairly recently: see [60]. His evidence was, on occasion, disingenuous; see also [110].

11. [16]

    The nephew, now aged 44, continues to live with his parents. The sister described the nephew at the time of these events as “only a child”, even though he was then 32 years old: see [78]. Perhaps understandably, the nephew’s parents were prepared to say whatever they thought would help him. I say this for three reasons.

12. [17]

    First, both parents specifically recalled the details of a contentious bank transfer in November 2012 but, unsurprisingly, could not recall the details of any other transactions from so long ago. The sister agreed that she had memorised the details of the contentious transfer.

13. [18]

    Second, the sister sought to interpose herself and the brother-in-law in the loan arrangement between the uncle and the nephew, but only in the witness box: see [73]. As the plaintiffs’ senior counsel fairly put it, “I think that took everyone a little bit aback.” Not even the nephew gave evidence of such an arrangement.

14. [19]

    Third, the sister was keen to reject whatever the uncle had said in his affidavit but, after some cross-examination, agreed that the uncle’s description of arrangements was broadly correct. In the result, and without any disrespect to the parents, I have preferred the uncle’s evidence to their evidence.

15. [20]

    The plaintiffs sought a Jones v Dunkel inference in respect of the defendants’ failure to call someone from L'Orient Legal to give evidence in respect of payment of the firm’s invoice. The nephew said he paid the invoice with $30,000 in cash, but did not have a receipt and could not identify the source of the cash. The nephew agreed that he continued to use the solicitor “sometimes”.

16. [21]

    The defendants submitted that no Jones v Dunkel inference should be drawn as the uncle did not assert in his reply evidence that the invoice was not paid. In the absence of a clear denial, adducing the invoice was said to be sufficient. It was equally open to the uncle to call someone from the firm, where he was the client.

17. [22]

    As to whether the invoice sufficed, the uncle put the matter in issue in the Commercial List Cross-Claim Response. The uncle deposed that he did not agree to pay $30,000. Beyond this, the uncle was not in a position to say whether the invoice had been paid by the nephew or not. That is, I do not accept this submission.

18. [23]

    As to the second submission, if a witness is equally available to both parties, the condition for drawing the inference usually stands unsatisfied: Payne v Parker [1976] 1 NSWLR 191 at 202 (Glass JA). On the face of the solicitor’s invoice, the client was the nephew and Aus Ray. But the solicitor’s fees were rendered for a visa application for the uncle. There was nothing to stop the uncle approaching the firm to see whether the invoice had been paid – it was not a matter of client legal privilege – and issuing a subpoena to the solicitor to give evidence. Where the solicitor was equally available to both parties, I decline to draw the inference.

19. [24]

    As for documentary evidence, there are few contemporaneous documents. This was largely because the uncle made the mistake of leaving it to the nephew to keep records of their financial dealings. The uncle said, “I had no idea how much he actually owed me. … Whenever I transferred to him I never make a record myself. It was always he who do the record ….”

20. [25]

    Where the nephew was in Australia and the uncle was usually in China, they communicated by WeChat. But there is an incomplete set of WeChat messages. The uncle’s “phone broke” in 2022 and he was unable to recover all of the records, “I was at home, and it was in my pocket, and I don't know what happened, but it just locked itself and cannot be opened again, and I have lost many important information in relation to my business in China as well.” The uncle was able to retrieve some screenshots from an album on the phone, with the assistance of the son. Although the nephew did not break his phone, he accepted that he had not produced all WeChat messages with the uncle either.

21. [26]

    The main source of relevant material was a lever arch folder of bank statements, obtained on subpoena after these proceedings had commenced. The nephew was otherwise unprepared to produce the same or, as he put, “I don't know how they get it, but I never gave it to him.”

The uncle

1. [27]

   The uncle and his wife own a seafood farming business in China through a company. The uncle agreed that it was a very successful company. The nephew knew that his uncle was a very successful businessman with a multi-million dollar business.

2. [28]

   The uncle employed the sister and brother-in-law to manage the business. The uncle’s business did not have a bookkeeper or accountant, “… no accountant; it was all my sister who collect and made records.” The sister said the business employed a manager, who calculated monthly expenses. The manager told the sister what was needed, and she told the uncle. The uncle transferred funds to the sister, who then made further transfers to the business manager, who paid external sources.

3. [29]

   The uncle said the sister also collected money from the business and held the money in her personal accounts but for him. The uncle explained, “My sister had, for the time, been managing money for me in China. … My sister also had a personal account with which she helped me manage my money as well. … My sister did hold money and collect money … for me, whether in relation to my company or for myself personally.” The uncle said there was no documentation recording what his sister was holding for him, where it came from and how she paid it, “Not between myself and my sister.” Nor did he and his sister communicate by WeChat, “she would call me, and we would talk about the money, and if she felt like there [was] quite a lot of money there, then she would transfer some to me.” The sister certainly appears to have occupied a trusted position.

4. [30]

   The sister was not the only family member who held funds on behalf of the uncle. It was uncontroversial that the uncle had funds placed with a number of family members who, on request, then transferred the funds at his direction. Many of the funds transferred to pay for the 7-Eleven business or, later, to advance the $2.4 million loan or pay for expenses for the Burwood development, were transferred from the bank accounts of the niece, the uncle’s wife, the grandmother and other nieces and nephews living in Australia.

7-Eleven business

1. [31]

   In 2006, the nephew moved to Australia to study a Master of Business (Accounting) at the University of South Australia. The nephew had already completed a four-year undergraduate degree in China in E-business.

2. [32]

   By 2009, the nephew had graduated. His bank statements (for HSBC Bank Australia Ltd account number ending 9412, the nephew’s HSBC bank account) indicate that the nephew was spending some time at Adelaide casinos. This spending pattern can be seen in the years which follow, across the various bank accounts which the nephew operated.

3. [33]

   In 2010, the nephew told his parents that he didn’t really want to get a job and work for other people, but wanted to run his own business. The nephew needed some money to do so. The uncle was approached. At the time, the uncle wanted to migrate to Australia. As a businessman, the uncle was thinking of applying for a visa as a business owner. The uncle had been transferring funds to Australian bank accounts of family members in preparation for this.

4. [34]

   The uncle agreed to provide funds to buy a business in Australia. The nephew would run the business. The business would support the uncle’s immigration plans and provide a source of income for the uncle when he arrived in Australia. The nephew understood that his uncle was going to put up all of the money for the business, and would be entitled to the entire profits of that business.

5. [35]

   The nephew started investigating 7-Eleven stores and undertook some financial analysis of the possibilities of these businesses, including working out the payback period and what the return on investment would be. According to the uncle, the nephew said that he had looked at a 7-Eleven petrol station business which required an investment of $1 million but was expected to earn $300,000 a year, “You can get your investment back in about three years.” The nephew said he told the uncle that the payback period was four to five years. It does not matter.

6. [36]

   The uncle asked his nephew to establish a company to purchase the business, adding, “This company has to be in my name because I need to use it for migration purposes.” The nephew liaised with an accountant to establish a company. In January 2011, Q & L Pty Ltd was incorporated. Presumably, “Q” and “L” were derived from the nephew’s initials. The nephew and the uncle’s wife were appointed as directors. The nephew remained a director until shortly before these proceedings were commenced.

7. [37]

   The nephew was the sole shareholder of Q & L. The nephew agreed that he did not ask whether his uncle should be a shareholder but just took it upon himself to become the sole shareholder. Nor did the nephew tell his uncle this, even though the nephew understood that it would be his uncle’s business. But the nephew agreed that he held the shares in Q & L on behalf of his uncle. The nephew understood that, effectively, it was his uncle’s company as he had not put in any money himself.

8. [38]

   In March 2011, the nephew opened a bank account for Q & L with the Commonwealth Bank of Australia, with an account number ending 7385 (the Company Account). The nephew was the only person who operated this account. The uncle did not know at the time that the nephew had opened the Company Account, nor where the nephew banked in relation to the 7-Eleven business. Nor did the uncle ask the nephew about this at the time.

9. [39]

   The nephew understood that his uncle was entitled to see the company’s financial records and bank statements and that he should provide copies of these documents to his uncle if asked. The nephew understood that it would be wrong for him not to give these records to his uncle, if asked. It was the nephew’s position, however, that the uncle never asked. Whether, and when, the uncle asked for the bank statements for the Company Account became relevant to limitation issues.

10. [40]

    In April 2011, Q & L entered into a franchise agreement with 7-Eleven in respect of a petrol station and convenience store in Emu Plains. The nephew and the uncle’s wife executed the agreement. The franchise fee was $665,000 plus GST. It is not in dispute that the uncle provided these funds. The uncle informed the sister of these arrangements. The sister agreed that she was aware that the 7-Eleven business was the uncle’s store and the nephew was managing it for the uncle.

11. [41]

    The Emu Plains 7-Eleven premises was owned by a company affiliated with 7-Eleven. Under the franchise agreement, rent and outgoings were borne by 7-Eleven. Perhaps for this reason, 7-Eleven was entitled to a charge of 57% of the gross profit: cl 23(a) and Ex D(i), Store Agreement.

12. [42]

    Under the franchise agreement, Q & L was entitled to draw $1,500 a week for anticipated profits. In May 2011, 7-Eleven began to make these weekly payments to the Company Account. The nephew asked the uncle whether he could be paid $500 from the company as income every week. The uncle agreed.

13. [43]

    7-Eleven maintained a ledger in respect of the Emu Plains store, recording income and operating expenses, including payroll, superannuation, workers compensation, supplies, cleaning, repairs and maintenance, bank fees, interest and security. At the end of the 2011 financial year, 7-Eleven tallied up the performance of the franchise store for the two months it had been operating, before deducting its 57% fee. Nett income was $21,092.

14. [44]

    In September 2011, the uncle visited Australia. The uncle sought assurance that the Q & L shares were in his name. A visit to an accountant followed. In October 2011, the uncle was appointed as a director of Q & L. The nephew transferred nine shares in the company to the uncle and continued to hold one share himself. The nephew explained to the uncle, “I need at least one share as the director of the company to allow me to manage the company”. The uncle was not familiar with Australian law and believed his nephew. And the nephew was probably right in the sense that 7-Eleven was reluctant for the directors and shareholders to change from those in the franchise agreement, at least, not without payment of a franchise fee.

15. [45]

    In late October 2011, expenditure from the Company Account noticeably increased. The transactions bear a strong similarity to the transactions on the nephew’s HSBC bank account that are in evidence. Expenditure from the Company Account now included multiple payments at Star City, to “3 Mobile”, petrol stations, eateries, restaurants, computer stores, “Big W”, taxis, convenience stores, “TPG Internet”, barbers, fast food, seafood, parking, supermarkets, health insurance, “Gumtree Australia”, online internet purchases, pet stores, CTP insurance, car registration and Myer. Withdrawals from ATMs became larger, including multiple transactions on the same day totalling thousands of dollars. (In addition, there were three transfers to “Faisal Salary” and two transfers to “GINISH salary” totalling $3,506.) It is apparent from the Company Account bank statements, and as the nephew said, “I treat company account as a personal account”.

16. [46]

    From January 2012 on, the same pattern of expenditure can be seen on the Company Account, although the figures were getting bigger. Withdrawals continued to be made at Star City as well as TAB Ltd, women’s clothing stores, hotels, hardware stores, Bing Lee, IKEA, airport parking, car rentals, a jet ski, a BMW dealer, restaurant meals costing some $1,600 and veterinary bills.

17. [47]

    In parallel, Q & L’s weekly drawings from 7-Eleven increased from $1,500 a week to $3,000 a week. From time to time, additional drawings were made. In March 2012, an additional drawing of $30,000 was made, deposited to the Company Account and then withdrawn from the Company Account the next day at a bank branch. The Company Account was also being used to pay bills to Vodafone, E-tolls, traffic fines, “Executive Services”, dentist and imaging, David Jones, Apple iTunes, pharmacy, Target, sportswear, medical expenses and physiotherapy.

18. [48]

    The uncle spoke to his nephew at about this time, asking how much profit the 7-Eleven business could make each year. The nephew said that, currently, the net profit was about $300,000 a year. The uncle asked how much profit was in the company’s account now and the nephew said that was about $90,000. The uncle asked the nephew to transfer the $90,000 profit to the account of the grandmother, and the nephew agreed. The uncle followed up this request many times and was assured that the funds would be transferred shortly. But it never happened.

19. [49]

    In May 2012, Q & L made an additional drawing of $23,000 from 7-Eleven. Q & L also began making regular payments to Audi of $1,090.84 a month. The uncle agreed that he began driving an Audi car but was not aware that Q & L was making monthly payments for the vehicle, “I’m not too clear about that, but that’s possible.” His evidence on this subject was candid. Withdrawals continued to be made on a regular basis from the Company Account at Star City.

20. [50]

    In June 2012, the uncle was advised by his migration agent that Q & L and the 7-Eleven business could be used for the purposes of obtaining a visa. The uncle decided to change the main applicant for the visa to his wife. He decided to have the shares in the company transferred to his wife and for her to be the only director of the company. The uncle asked the nephew to attend to this, and the nephew agreed. In June 2012, the uncle’s wife became the sole director, secretary and shareholder of Q & L.

21. [51]

    At the end of the 2012 financial year, 7-Eleven calculated that Nett Income was $221,077, of which weekly drawings had already been received of $123,795.13 plus additional drawings of $50,147.14. Some $47,134.72 remained to be paid to the franchisee. The nephew agreed that the profit for the 2012 financial year, being $221,077, should have been paid to his uncle but was not, “Because it has other expenses”. In addition, the nephew said that the uncle did not ask for the profit. The nephew then said that he transferred the profit to his uncle later. As will be seen, none of these explanations were true.

22. [52]

    As the 2013 financial year began, payments continued to be made from the Company Account as earlier described. The expenditure indicates that the nephew had a lavish lifestyle, gambling frequently, dining in fine restaurants, staying in fine hotels (including Hilton Hotel and Shangri La) and travelling to the southern highlands, Melbourne, Adelaide, Cairns and Surfers Paradise.

23. [53]

    For his part, in October 2012, the uncle borrowed Chinese Yuan (CNY) 12 million from a third party for two years with interest payable at 2% per month.

Money for “inventory”

1. [54]

   In November 2012, the uncle received a call from the nephew, who said that the 7-Eleven business needed to get more stock and this would cost over $200,000. (This was about CNY 1.5 million.) The uncle was a little surprised, but was told by the nephew that this was just a usual increase in inventory. The uncle agreed to arrange for the transfer.

2. [55]

   According to the uncle, he told the sister that the nephew needed CNY 1.5 million. The uncle told the sister to do the transfer, and “It was transferred from the money that my sister has collected on my behalf from my business.” The uncle said he did this as the sister helped him manage his financials and accounts for himself and his companies in China. The uncle added “I did not specify, and I did not know how exactly the money was transferred to him.” As to why some of these details were not in his affidavit – where the uncle simply said that he “caused” the monies to be converted to Australian dollars and transferred to Q & L’s account – the uncle said, “Because we are family. If anything [is] needed, I will tell her what to do, and I wasn’t planning for anything else.”

3. [56]

   The sister agreed that sometimes she was involved in the transfer of money from the uncle to the nephew in Australia, “Sometimes my brother will transfer to me, and then I transfer to the son.” For example, the sister helped the uncle to transfer the loan funds of $2.4 million to her son. The family generally used foreign exchange services provided by KVB FX Pty Ltd in Park Street, Sydney.

4. [57]

   In November 2012, the Company Account received a foreign exchange deposit of $228,484.39. These funds were immediately transferred to the nephew’s bank account with the Commonwealth Bank of Australia, with an account number ending 7973 (the nephew’s CBA bank account). The next day, the funds were transferred from the nephew’s CBA bank account to other bank accounts for which no bank statements are in evidence. The funds were retrieved from these accounts to the nephew’s CBA bank account from time to time to fund ongoing living expenses including Ermenegildo Zegna, Prada, cinema, quad bikes, Star City, the Park Hyatt in the Rocks and a trip to Adelaide, the Barossa Valley and Crowne casino. By February 2013, these funds had been exhausted.

5. [58]

   On 23 January 2013, a Confirmation of Foreign Exchange Transaction document from KVB FX was printed off in respect of the transfer. The uncle said the nephew gave this document to him. This would be consistent with the nephew recognising that the uncle had provided the funds. The nephew denied giving the receipt to the uncle, but not in his affidavit.

6. [59]

   The sister and brother-in-law said these funds came from their personal funds, and the nephew agreed. It was put to the uncle in cross-examination that his sister had made an affidavit saying that the funds were her own money, “Well, there’s nothing I can do about that”. But in the 2012 year, the uncle said that his sister would collect “[t]ens of millions” of CNY that she held on behalf of the business. Whilst the uncle thought that the sister probably gave him a receipt for the funds transfer at the time, and there would have been records at the time, he tried to look for these records in 2019 and “… couldn’t find it due to the long time it had been.” But the uncle clearly recalled the transfer of these funds and his nephew giving him a receipt for the money in Australian dollars.

7. [60]

   The nephew said that these funds were from his parents, where his parents sent him two payments of some $200,000 each. The nephew said the first payment was money to set up Aus Ray and its business. There are two such payments. Aus Ray was incorporated on 9 January 2013 and $200,000 was deposited to the nephew’s account on 14 January 2013, from his parents. The funds came via KVB FX in the amount of $211,864.41. His parents sent a further $200,000, which was deposited to the Company Account on 29 January 2014. As such, the initial payment of $228,484.39 is an unexplained further transfer of funds from his parents. The nephew then professed himself to be confused when making an affidavit not long ago, in April 2025, in respect of these two payments.

8. [61]

   The sister said that in late 2012, she learned from the nephew that he was not very happy working for the uncle. The nephew said he felt that the uncle was always dissatisfied with his way of doing things, expecting the nephew to take care of family members in Australia while working full-time at the petrol station. Further, the uncle often complained that the petrol station was not making enough money. The nephew said he really wanted to start his own business instead of working for the uncle. The sister discussed this with the brother-in-law and then told the nephew that she would transfer some money to him so that he could start his own business and not feel the need to work for the uncle anymore. The sister attended the local branch of a bank in China and transferred CNY 1.5 million from her account to the nephew’s account through KVB FX.

9. [62]

   According to the brother-in-law, he was told by the sister that she had CNY 1.5 million cash available which she would convert into Australian dollars and transfer to the nephew so that he could use the money to start his own business.

10. [63]

    In their affidavits, the sister and brother-in-law were non-specific as to the source of the funds standing in their account. In cross-examination, the sister said that the money was transferred out of her personal account “so it’s my personal money.” She no longer had any bank records in respect of the funds transferred.

11. [64]

    As earlier mentioned, the sister and brother-in-law both specifically recalled the details of a contentious bank transfer in November 2012, but could not recall the details of any other transactions from so long ago. The sister agreed that she had memorised that the transfer was CNY 1.5 million and $228,000. But what helped the sister remember the transfer was that the nephew had told her that he was going to start up his own business, and she made a payment to the nephew from her own account shortly afterwards. The brother-in-law agreed that he spoke to the nephew shortly before he started up his new company and agreed to give the nephew some money to start the business up.

12. [65]

    What I draw from these varying accounts and the limited contemporaneous documents is that the nephew was in need of funds. It was just not possible to fund his lifestyle on $500 a week. I accept the uncle’s evidence that the nephew sought further funds, ostensibly for “inventory” for the 7-Eleven business. The nephew likely perceived that the uncle would be unwilling to send him $200,000 to fund living expenses. The sister accepted, as a general proposition, that she helped the uncle transfer funds to the nephew from time to time. The sister and brother-in-law did transfer personal funds to the nephew, but not until after the nephew had in mind to establish a new business; the nephew was not talking about this in November 2012. The sister’s denial that she helped the uncle to transfer funds to the nephew on this occasion is because she had in mind the funds that she transferred in January 2013.

13. [66]

    The precise bank account from which these funds were transferred is not now known. The FVB FX document sheds no light on the subject. As earlier mentioned, it was uncontroversial that the uncle placed funds with family members who, on request, then transferred those funds at his direction. It is likely that whatever bank account these funds came from, the uncle was the ultimate source of those funds. I accept that the uncle arranged for these funds to be transferred, probably with the assistance of the sister. It is also clear that the nephew used these funds for his own purposes.

A big loan

1. [67]

   The nephew described his relationship with the uncle in late 2012 as strained. The uncle was worried about where his profit from the 7-Eleven business was, and concerned about the nephew’s management of the business. Some corroboration for the nephew’s perception may be found in his complaints to the sister: see [61].

2. [68]

   The nephew decided that he wanted to go into real estate. He had his eye on a property in Epping, which was on the market for a little over $6 million. The nephew was advised by a broker that $4 million could be borrowed from a bank, but he needed to raise the balance of the purchase price. At the time, the nephew had no idea how he would be able to repay such a loan, as he had no money or assets of his own.

3. [69]

   In late 2012, the nephew approached the uncle for a loan. The nephew told the uncle that he wanted to do real estate and had found a very good property. It was currently being used as an office and generated annual return of some $600,000 a year. (The nephew agreed that he told his uncle that the property would generate income of some $600,000, so that the uncle would believe that he could repay the money.) The nephew said the area was zoned as high-density residential development. The owner was looking to retire and the agent was the nephew’s close friend. The nephew said it was a good chance for him and he had asked his parents to call the uncle, but he probably needed to borrow between $2 million and $3 million from the uncle to complete the purchase.

4. [70]

   According to the uncle, the nephew also offered that, if the development made money, then he would also give his uncle a cut of the profit or some interest in the development. The nephew denied this in his affidavits and in cross-examination:

5. [71]

   The fact that the uncle was “already not happy” makes it more likely that the nephew would have offered some additional ‘upside’ in the development. That would have made his proposal more attractive to a disgruntled relative.

6. [72]

   According to the uncle, he then asked how long the nephew needed the money for and when he thought the loan could be repaid. The nephew said the amount would be repaid in full in a year’s time. The conversation continued:

7. [73]

   It is the italicised text which is now relied on by the uncle as supporting an equitable charge over the land. As to the suggested charge, the nephew agreed that he had no money to repay the loan, while Aus Ray would be able to do so, including by drawing on $2 million of equity in the Epping land. In cross-examination:

8. [74]

   The nephew’s version of the conversation is different. He simply asked whether he could borrow $2.4 million from his uncle to buy some land, and the uncle said “Sure”. There was no discussion about interest or when the loan needed to be repaid, nor any security for the loan. The nephew said there was “nothing” for the uncle in the deal beyond the fact that “[h]e normally support us.” The nephew said he understood that the uncle was doing this because his parents had worked for the uncle for a long time.

9. [75]

   I agree that there was “nothing” in this deal for the uncle, in the sense that he was being asked by the nephew to lend a large sum of money at a time when the nephew’s operation of the 7-Eleven business would not have instilled confidence in the nephew’s ability to repay the loan. I agree that the uncle likely only contemplated the loan at all by reason of his relationship with the sister. The fact that the uncle was prepared to waive interest on the loan, if repaid within a year, was also clearly referable to familial relations, where the uncle was then paying interest at 2% per month to a third-party.

10. [76]

    Where relations between the uncle and the nephew at the time were strained, the uncle’s glib agreement to lend $2.4 million with no questions asked is unlikely. Where repayment of the uncle’s loan from a third-party was due in October 2014, there was good reason for the uncle to be concerned with ensuring that any loan to the nephew was repaid by then.

11. [77]

    The nephew did agree that he wanted to make sure that the uncle believed that the loan would be a safe loan. Where, even on the nephew’s version of this conversation, he said various things in an effort to assure the uncle that he would be able to repay the loan, it is plausible that the nephew assured his uncle that, even if he could not repay the loan “the land will still be here”. More likely, the nephew said whatever he thought would procure the funds. Where the nephew was an unreliable witness and the uncle was not, I accept that the nephew said the words attributed to him by the uncle.

12. [78]

    Somewhat unexpectedly, the sister said that she and the brother-in-law borrowed the $2.4 million from the uncle, although she was unsure about the details. It was suggested to the sister that she was giving this evidence out of love for the nephew and wished to protect him, to which the sister replied, “It’s the two of us who borrowed the money from … my brother. My son is only a child, so my brother couldn’t have lent to him.” Although the nephew was 32 years old at the time, the sister explained, “Well, he’s the younger generation, and as the older generation, my brother could have agreed to lend to us. … he lent to my son through us, the older generation.” The sister also said that she had repaid the loan gradually, but could not recall these details either. The nephew made the repayments for her. The sister had no bank documents to support this and nor had she looked for such documents, “I did repay him, so I didn’t look for it.” Where not even the nephew gave evidence of such an arrangement, I do not accept the sister’s evidence on this subject.

13. [79]

    On 9 January 2013, the nephew incorporated Aus Ray, of which he was the sole director and shareholder. This was the corporate vehicle which acquired the Epping land and undertook the nephew’s real estate enterprise.

14. [80]

    According to the son, the nephew approached him in the New Year period and asked to borrow $200,000, as he needed to use it urgently. The son said he did not have that money to hand and suggested that the nephew ask the uncle. The son recalled this well “… because it was really vivid, if a person over 30 years … to asking $200,000 from me asked 15/16 child … from my recollections.” The nephew accepted this conversation. The son spoke to the nephew sometime later and asked whether he had resolved his money issues. The nephew said, “Yes, it’s okay now. [The sister] will exchange and transfer me RMB1,400,000 worth of Australian dollars to me.” On 14 January 2013, the nephew’s CBA bank account was replenished with a foreign exchange deposit of $211,864.41. It was these funds which came from the sister and brother-in-law for the nephew’s new business: see [59]-[62].

New Company Account

1. [81]

   On 16 January 2013, a new bank account was opened for Q & L with the Commonwealth Bank, with an account number ending 9305 (the New Company Account). The uncle said he arranged for his wife, as a director of Q & L, to open the account. The uncle said he had no choice but to open the New Company Account, as he had asked the nephew for details of the Company Account and bank statements but the nephew did not give him either. The nephew denied that he was asked for details of the Company Account. He said the uncle never asked for bank statements or financial statements but only asked for the profit.

2. [82]

   It is unlikely that the uncle would have opened the New Company Account for no reason. By now, the uncle had outlaid some $960,000 to buy the 7-Eleven business and fund an increase in “inventory”. But the uncle was yet to receive any return on his investment. The uncle was not happy about this; as the nephew told the sister in late 2012, “he often complains that the petrol station is not making enough money.”

3. [83]

   What is also known is that the Company Account bank statements thoroughly documented the nephew’s misuse of company funds. The nephew was likely disinclined to provide the bank statements to the uncle, if asked. Surviving WeChat messages between the uncle and the nephew – albeit in later years – suggest that the nephew responded to his uncle’s terse demands for information with a combination of obsequiousness and diversion.

4. [84]

   I accept that the uncle, as a successful businessman living in China, probably only asked for the profit of the 7-Eleven business, at least initially. But it was now nearly two years since the 7-Eleven business had been purchased. The uncle’s efforts to receive profits from the business had proved futile. In these circumstances, it is likely that the uncle began asking the nephew, not only about the profit, but for underlying financial information which would shed light on what was going on. The fact that the New Company Account was opened indicates that the uncle had been unable, despite request, to obtain information about the Company Account. I accept the uncle’s evidence that he did ask for details of the Company Account and bank statements. The fact that the uncle went to the effort of opening the New Company Account is also an indication that relations between the uncle and the nephew had, indeed, become strained.

5. [85]

   The problem was, however, that 7-Eleven was not instructed at the time to pay income to the New Company Account. Whilst the uncle understood that his wife had certain rights in relation to the management of Q & L, he said the nephew was still managing the company and his wife had no idea how the franchisor could be contacted.

6. [86]

   7-Eleven continued to pay weekly drawings to the Company Account. The nephew continued to withdraw funds from this account to pay for hotels, cosmetics, medical expenses, women’s fashion and underwear, pharmacy, groceries, car lease payments (now also to Volkswagen), jewellery, homewares, groceries, fast food, Christian Dior and Star City. At the same time, the nephew’s CBA bank account continued to have a minimal balance, replenished from time to time from the Company Account and other bank accounts for which no bank statements are in evidence. These funds were expended in an apparently lavish lifestyle involving frequent visits to Star City and staying at the Park Hyatt in the Rocks.

7. [87]

   For his part, in February 2013, the uncle borrowed a further CNY 6.5 million from a third party for two years with interest payable at 2% per month.

8. [88]

   In early 2013, the uncle was informed by the nephew that 7-Eleven was not agreeable to the uncle’s wife holding shares in Q & L and being a director of the company. 7-Eleven required the nephew to hold the shares and be the sole director as he was the franchisee. On 21 March 2013, the uncle’s wife resigned as a director of Q & L, replaced by the nephew. The wife’s shares were transferred to the nephew too. This suggests that the uncle continued to trust the nephew.

9. [89]

   In early 2013, the uncle also asked the nephew how much profit the 7-Eleven business had earned in the previous year. The nephew said it was about $300,000. The uncle asked the nephew to transfer all the profits and show him financial statements for the company. The nephew said he would show the uncle the financial statements once they were ready. The uncle then spoke to his nephew on multiple occasions, requesting the financial statements and profits. But each time, the nephew said he would “get it sorted soon”. The uncle received neither the profits nor the financial statements. The uncle said, “I did ask him every year, and he did not give me an account, and I did not know what was happening.”

Advancing the loan

1. [90]

   In April 2013, the nephew told the uncle that the contract for the Epping land had been exchanged and he needed to borrow $2.4 million for settlement. The uncle said he had $2 million in a fixed-term deposit, which matured in a few days. He asked whether the nephew could wait, otherwise the uncle would lose a lot of interest. The nephew pressed for the funds straight away.

2. [91]

   So the uncle and nephew attended a branch of the Commonwealth Bank to arrange a transfer of funds. As the uncle did not understand English, he asked the nephew to speak to the bank teller for him. The nephew provided the uncle with a piece of paper, which he explained concerned the transfer of $2 million, and said, “The land will be held in my company’s name, so the money will be made into my company’s account for settlement. If there is no problem, are you able to sign it?” The uncle answered, “Then this money is lent to your company?” And the nephew replied, “yes”. The uncle signed the document. On 4 April 2013, the uncle transferred $2 million to Aus Ray’s bank account.

3. [92]

   The nephew denied that he told the uncle that Aus Ray would be borrowing the funds, but had difficulty explaining how events unfolded before the bank teller:

4. [93]

   As to who to believe, if anyone, the uncle had agreed to lend a large sum of money to assist the nephew to acquire land. Given the nephew’s lacklustre business acumen displayed to that point, there was good reason for the uncle to be concerned as to whether the loan would be repaid. Likely, any such concerns would have been lessened by the fact that the funds were being used to buy land, coupled with the nephew’s assurance that, even if the nephew could not repay the loan, “the land will still be here”.

5. [94]

   The uncle was then informed at the bank counter that the funds were to be transferred to Aus Ray. The uncle was an experienced businessperson. Obvious questions would have presented themselves. Who is Aus Ray? What is this company which is about to receive my $2 million? What is Aus Ray’s connection to the land which is being purchased? What are the implications of this fact for my ability to retrieve my $2 million in due course? I consider it unlikely that the uncle would have asked no questions as to who Aus Ray was. Further, the uncle must have got a satisfactory response from the nephew to whatever questions he did ask, as the uncle proceeded to transfer the funds.

6. [95]

   The nephew agreed (in answer to some questions but not others) that he told the uncle that Aus Ray was buying the land. On the uncle’s evidence, he sought clarification, “Then this money is lent to your company?”, and the nephew replied, “Yes”. That was an obvious clarification to seek. Again, I consider it likely that the nephew said whatever he thought would procure the funds. Where the nephew was an unreliable witness and the uncle was not, I accept that the nephew said the words attributed to him by the uncle.

7. [96]

   On 29 April 2013, the uncle transferred a further $400,000 to Aus Ray’s bank account. On 30 April 2013, the purchase was completed. A mortgage was registered in favour of Westpac, securing a $4 million loan. The nephew did not tell the uncle that he would be borrowing money from a bank, or that the bank would be given a mortgage over the land. The nephew had no explanation for not disclosing this to the uncle. For his part, the uncle was not familiar with the concept of mortgages in Australia and “wasn’t across how things worked in Australia” in terms of lodging security against the Epping property.

8. [97]

   At the same time, according to the Company Account, the nephew was holidaying in Fiji and buying jewellery. On his return to Australia, the Company Account records that the nephew made purchases at Hugo Boss and Ferragamo, a florist, shoe shops, as well as a visit to the Sydney Aquarium, trips to Nelson Bay, the Blue Mountains, Hunter Valley and Japan. On his return to Australia, the nephew made multiples purchases at Prada.

Burwood property

1. [98]

   The uncle had bought a property in Burwood. The uncle wanted to build some townhouses on the land. In early 2013, the nephew asked to manage the development application process. The nephew said he was starting a business in the real estate industry and wanted to gain as much experience as he could. He asked to handle the property for his uncle, who agreed. The nephew expressed gratitude and said he would put the project on his website and bring his business partner to have a look at the property.

2. [99]

   The nephew visited the Burwood property with business partner, Nan (Steve) Wang, who was said to have a lot of experience in development applications and could apply for development approval for eight townhouses, “You can leave it with us.” The uncle agreed. The nephew also asked whether he should pay for design fees and approval fees first, “or how should we do this?” The uncle said the nephew should let him know if he needed money and the uncle would either transfer the funds to him or to the supplier directly, “But you need to tell me what they are for before incurring them, and the accounts must be clear. You also need to give me the invoices. I will then pay it to you or pay them directly.”

3. [100]

   On 6 August 2013, a development application was lodged in respect of the Burwood project. The development application fee was paid from an Aus Ray bank account. From time to time thereafter, the nephew sought funding and the uncle either paid Aus Ray or the supplier directly. But, despite requests, the uncle did not receive any invoices or receipts from his nephew.

Loan repayments

1. [101]

   In August 2013, the uncle told the nephew that he needed a large sum of money to buy a property in China. The uncle did not have enough money but had to have the money before 1 October 2013, otherwise he would lose the opportunity. He asked whether the nephew could repay the loan by then, and the nephew said he could.

2. [102]

   The nephew agreed that, in September 2013, the uncle wanted him to repay the loan. The nephew told the sister and brother-in-law that the uncle was pressing for payment of the loan; they told the nephew that they could let him have $900,000. On 24 September 2013, $857,722.91 was deposited to an Aus Ray bank account. The funds came from the sister and brother-in-law. The same day, $900,000 was transferred from the Aus Ray bank account to the uncle as a loan repayment.

3. [103]

   The same day, the uncle spoke to the nephew and sought reassurance that the balance of the loan could be repaid in the next few weeks, “If you cannot, you need to tell me now. I can arrange for funds elsewhere. Just bear in mind that there will be 2% interest a month if you cannot pay within a year.” The nephew reassured the uncle that the loan would be repaid in time. The uncle spoke to the nephew twice, seeking reassurance that the balance of the loan would be repaid in time so that the uncle could settle on the purchase of the land in China. But the nephew did not repay the funds as promised.

4. [104]

   After the loan repayment of $900,000, the nephew agreed that his uncle wanted more to be repaid. The nephew did not agree, however, that he was concerned that his uncle might commence legal proceedings to recover the remaining $1.5 million, because the nephew was “family”.

5. [105]

   On 29 January 2014, $200,000 was deposited to the Company Account. This was the second payment by the sister and the brother-in-law: see [59]. On 5 February 2014, the nephew transferred these funds to an Aus Ray bank account and, with other funds, Aus Ray made a loan repayment to the uncle of $350,000.

6. [106]

   By April 2014, being a year after the $2.4 million loan was advanced, only $1.25 million had been repaid. The uncle contends that interest began to accrue. The uncle did not speak to his nephew about the amount of interest owing “because not even the principal was repaid, and I don’t know how much interest that would incur.” When asked why the uncle never asked his nephew to pay some interest, he said, “Because I treat him as one of the child in our family. So I expect him to first repay the principal, then the interest.” The uncle agreed that he had never told the nephew that that was why he had refrained from requesting interest, “I did not say that to him in front of him.” The uncle said “In my heart, I was waiting for him to repay me the principal together, and then the money from the [7-Eleven business]. When these two amounts of money ha[d] been repaid, then I would ask him to repay the interest.”

Change of management

1. [107]

   By the end of the 2013 financial year, 7-Eleven calculated that Nett Income was $210,475, of which weekly drawings had already been received of $113,745.10 plus additional drawings of $109,633.88. That is, drawings exceeded Nett Income.

2. [108]

   On 29 August 2013, $2,676.45 was paid from the Company Account to the National Hearing Centre in Burwood. The nephew said he used funds from the Company Account to pay for the grandparents’ expenses. The uncle said he did ask the nephew to assist in making purchases for the grandparents but always repaid the nephew in cash. The nephew denies that he was reimbursed.

3. [109]

   The son recalled that, not long after the nephew took their grandmother to purchase a hearing aid, the son saw his grandmother hand the nephew some cash and say, “This is money for the hearing aid”. When challenged on this in cross-examination, the son said:

4. [110]

   The nephew became upset after he denied that his grandmother gave him cash to reimburse him for buying her a hearing aid. The son had given open and compelling evidence of witnessing their grandmother do this. The nephew’s emotions, I think, reflected his appreciation that he was even prepared to lie about his grandmother.

5. [111]

   The uncle travelled to China and spoke to the sister, complaining that the nephew had not provided him with a cent of the profit from the 7-Eleven business. The uncle asked the sister to speak to the nephew and find out what was happening. The sister agreed to do so. The sister later reported that she had spoken to the nephew over the phone, “He said that he would definitely give you every cent of the profits generated. I cannot ask him any further questions. He started crying over the phone and was sobbing. He sounded so emotional that I am concerned that if I asked any further question, he would take things too hard and commit suicide.” The uncle said he agreed with the sister that he would not to ask the nephew “anymore for now”, but would wait for the nephew to give him the profits.

6. [112]

   The sister denied these conversations. But in cross-examination, the sister agreed that at the end of 2013 or the beginning of 2014, her brother mentioned that there were profits from the business and he wanted the nephew to transfer the profits to him. The sister said she did not pass on the message to her son. I prefer the uncle’s evidence to that of the sister, for reasons already given. The uncle said he dared not ask the nephew any more about the profits of the 7-Eleven business but constantly had conversations with the sister on the subject. That is, the uncle was navigating wider family relations in his efforts to extract profits from the 7-Eleven business. While the uncle sought to enlist the sister in these efforts, the nephew used his mother as a shield.

7. [113]

   By early 2014, the uncle still had not received any profits from the 7-Eleven business, nor had he dared to ask his nephew any more about the profits. But the uncle had become increasingly concerned with how his nephew was managing the business. The niece agreed to take over the management of the business. The uncle asked the nephew to give the Company Account to the uncle’s wife and to give a copy of the bank statements to the uncle. The nephew agreed but, despite repeated follow-up, the uncle’s wife was never given control of the Company Account and the uncle never received the bank statements.

8. [114]

   7-Eleven made the last payment to the Company Account on 18 February 2014, leaving a balance of $2,359.76. From 18 March 2014 on, 7-Eleven made payments to the New Company Account. The nephew agreed that he continued to use the Company Account as his personal account. The remaining funds in the Company Account were rapidly depleted by expenditure at a restaurant, an optometrist, Myer, David Jones, supermarkets and beauty suppliers.

9. [115]

   On 31 March 2014, an accountant likely prepared tax returns and financial statements for Q & L for the 2011, 2012 and 2013 financial years. I say this because the 2011 and 2012 financial statements were undated, whilst the 2013 financial statements were dated 31 March 2014. The three financial statements appear to have been prepared in a batch, as the documents have the same layout and font. Financial statements for the financial years from 2014 on have a different format.

10. [116]

    Preparation of a batch of tax returns and financial statements at this time would be consistent with the niece getting Q & L’s affairs in order. It is possible, however, that the 2011, 2012 and 2013 financial statements were not prepared until May 2015, as no accounting expense was recorded in the financial statements until the 2015 financial year: see [137]. On balance, given the date of 31 March 2014 on the 2013 financial statement, and the proximity of that date to the niece taking over the management of Q & L, I find that this batch of financial statements was prepared at this time. In any event:

11. [117]

    The nephew agreed that he signed the financial statements for Q & L. The financial statements recorded a loan by him to the company of $635,958.17 (in 2012) and $533,895.64 (in 2013). The nephew agreed that he never actually made such loans.

12. [118]

    It is relevant to limitation issues to understand what this batch of financial statements revealed. By comparing the financial statements to 7-Eleven’s ledger, it is apparent that the accountant largely drew on 7-Eleven’s ledger when preparing the financial statements and tax returns for Q & L. 7-Eleven’s figures for salaries, superannuation and workers compensation were reproduced in the financial statements.

13. [119]

    The nephew said that 7-Eleven’s ledger did not include all expenses. There were also cash wages and other expenses which he could no longer recall. The nephew said that sometimes he withdrew cash for cash wages while at the casino. The nephew did withdraw cash from the Company Account while at casinos. I note that there were some transfers from the Company Account – as opposed to the cash withdrawals described by the nephew – which may have been for staff: see [45].

14. [120]

    No additional expense was claimed for cash wages in the financial statements, beyond what was recorded in 7-Eleven’s ledger. The fact that the nephew signed these financial statements suggests that there were no additional wage expenses. I do not accept the nephew’s evidence that he withdrew cash for wages while at the casino. It is inherently unlikely that those withdrawals were for wages, as opposed to gambling. That unlikelihood is increased by the nephew’s action in signing financial statements which did not include additional cash wages.

15. [121]

    The fact that the financial statements did not include payments made to staff by bank transfers recorded on the Company Account also suggests that the accountant did not have the bank statements either. This would be consistent with the scope of the accountant’s task as detailed in the compilation report. The accountant there noted that he had compiled special purpose financial statements on the basis of the information provided by the director, being the nephew (and also the uncle’s wife for the 2013 financial statements). The accountant had collected, classified and summarised the financial information provided by the director, but had not verified or validated that information, nor performed any audit or review.

16. [122]

    This batch of financial statements faithfully reported the Nett Income of the 7-Eleven business in the previous three financial years. But, after a series of deductions for, essentially, amortisation and depreciation, there was either a loss or modest taxable income. As the nephew later explained to the uncle, “the figures on the tax returns are different from [the 7-Eleven] numbers to minimise taxes”: see [167]. What these financial statements did not reveal was what the nephew had done with the Nett Income of the 7-Eleven business. That was revealed by the Company Account bank statements, which the nephew had not then provided.

17. [123]

    Going forward, 7-Eleven agreed that the uncle’s wife could hold a 49% interest in Q & L on payment of a franchise fee of $74,220. But the nephew told the uncle that 7-Eleven fees and stamp duty totalled $120,000. The uncle asked if there were enough profits in Q & L to pay for this, but was told that there was not. On 28 April 2014, the uncle wrote a cheque for $120,000, which was deposited to the Company Account. On 8 May 2014, a bank cheque was drawn in favour of 7-Eleven for $81,642. The son later obtained a copy of the bank cheque from 7-Eleven. That is, the nephew over-charged the uncle for the franchise fee.

18. [124]

    As to what happened to the $120,000, the nephew transferred these funds to the nephew’s CBA bank account and then to an Aus Ray bank account. It was then repaid to the uncle as part of $1.12 million transferred back to the uncle later that month, so the uncle was not ultimately ‘out of pocket’.

19. [125]

    The transfer of $1.12 million became important, as the nephew later told the uncle that this transfer was his payment of profits from the 7-Eleven business: see [167]-[168], [172]. In May 2014, the uncle transferred $1 million to Aus Ray’s account in five payments of $200,000 each. The funds were related to the uncle’s immigration plans. On 12 May 2014, $1.12 million was transferred back from Aus Ray’s account. The nephew agreed that the uncle wanted his money back for other purposes and did not want to worry about his immigration at that time.

Mr Kim

1. [126]

   On 30 May 2014, the council made an interim heritage order over the Burwood property. By now, Mr Wang had been replaced by Elijah Kim at Aus Ray. Mr Kim’s email signature stated that he was the development manager. Mr Kim wrote to the Minister for Environment on behalf of the nephew, seeking the removal of the interim heritage order.

2. [127]

   According to the uncle, the nephew said Mr Kim’s fee was $750 a fortnight, but the uncle did not have to pay as the nephew wanted to use this opportunity to gain experience. The nephew said that Mr Kim was his employee “… and there isn’t that much work involved anyways. You have also lent me more than 2 million without interest for a year. There’s no need for you to pay this management fee.”

3. [128]

   Against this, the nephew said the uncle agreed to pay Mr Kim’s salary. What may corroborate the nephew’s version is that, on 26 May 2014, the uncle transferred $15,000 to Aus Ray’s account, followed by a further $50,000 transferred by his wife and described as “wage”. However, the uncle later referred to a transfer of “$50,000 for my salary”, in a WeChat message of 12 August 2019. The uncle did transfer funds to Aus Ray’s accounts on occasion, to pay salary to himself in support of his application for a visa: see [144]. The nephew accepted that was what these payments were for.

4. [129]

   In July 2014, a heritage consultant was engaged to assist Mr Kim, who “has taken carriage of the project”. A new site plan was prepared for presentation to the council. On 22 July 2014, Mr Kim emailed the heritage consultant and architect, setting out his conclusions on the way forward, having run a feasibility study. The architect provided two options. But the council required a new development application. The architect advised that further survey work would be needed and the architect would need to prepare a new design. On 26 September 2014, the architect circulated preliminary drawings for the Burwood development to consultants, copied to the nephew, for quotation. Mr Kim provided the heritage consultant with details for the heritage impact statement, copied to the nephew. On 9 October 2014, Mr Kim reported to the nephew that he had spoken to most people and they would be ready to lodge the new development application the following week.

5. [130]

   On 17 October 2014, the second development application was lodged in respect of the Burwood development. Mr Kim submitted his fees to the nephew for the second development application, totalling $32,622.01. In October 2014, the uncle transferred $55,000 to Aus Ray for expenses in respect of the Burwood development. In November 2014, the uncle transferred another $50,000 to Aus Ray for Burwood expenses.

6. [131]

   For his part, on 16 October 2014, the uncle was due to repay the loan of CNY 12 million. On 8 November 2014, the uncle borrowed CNY 5 million at an interest rate of 2% per month, to be repaid on 8 November 2016.

7. [132]

   On 16 December 2014, Aus Ray retained solicitors to assist in relation to the heritage listing of the Burwood property. The solicitor’s fee note indicate that Mr Kim was the person with whom the solicitors largely dealt.

8. [133]

   In late 2014 or early 2015, the nephew asked the uncle for $65,000 to pay for legal fees in relation to removal of the heritage listing from the Burwood property. The uncle transferred $64,984 to the nephew on 9 January 2015.

9. [134]

   On 2 February 2015, the NSW Minister for the Environment advised that he had decided not to revoke the interim heritage order. Mr Kim forwarded the letter to the heritage consultant and architect, copied to the nephew, noting that they were meeting with their legal team to finalise a strategy in respect of the second development application, which was then still under preliminary assessment. On 2 February 2015, Mr Kim and the nephew attended a conference with senior counsel. On 12 February 2015, the second development application was cancelled.

10. [135]

    On 16 April 2015, the niece transferred $5,000 to Aus Ray for the uncle, bringing the uncle’s total payments in relation to the Burwood development to $169,984. On 17 April 2015, the niece transferred a further $11,000 in relation to the uncle’s immigration.

11. [136]

    On 4 May 2015, Mr Kim emailed the nephew with an updated list of costs in respect of the Burwood development, which then totalled $100,810.86. On 11 May 2015, Mr Kim emailed council officers, copied to the nephew, raising some issues for discussion. On 11 May 2015, Mr Kim and the nephew had a telephone call with Aus Ray’s solicitors regarding options. On 18 May 2015, the nephew spoke to the solicitors again regarding the possibility of lodging an appeal. On 19 June 2015, the development application was approved.

12. [137]

    On 11 May 2015, Q & L’s accountant completed the 2014 financial statements, leaving room for the uncle’s wife and the nephew to sign as directors. Whether the uncle’s wife signed the financial statements is not known. As earlier mentioned, the company first recorded an accounting expense in its financial statements at this time ($4,450), which roughly corresponds with two payments to an accountant made from Aus Ray’s bank account on 3 July 2015. This may suggest that the earlier batch of the 2011, 2012 and 2013 financial statements and tax returns were also prepared at this time.

13. [138]

    On 1 July 2015, L’Orient Legal rendered an invoice to the nephew and Aus Ray for $31,080 in respect of a visa application for the uncle. The nephew called the uncle and told him that his application for a visa had been approved and asked for $30,000 to pay the legal fees. The uncle queried why it was so much, when he understood that the market rate was a little over $10,000. There matters lay.

14. [139]

    The nephew said he paid the $30,000 invoice with cash, but did not have a receipt and could not identify the source of the cash. I draw no adverse inference from the defendants’ failure to call the solicitor in question. But I am not satisfied that the nephew paid this invoice with cash, as there is no obvious place from which this cash would have come. There is no withdrawal of such an amount in the bank statements. I am not prepared to accept the nephew’s evidence alone.

15. [140]

    The nephew also said, in mid 2015, that he agreed with his uncle that Aus Ray would pay for Mr Kim “and deduct [from] the loan.” The uncle rejected this.

16. [141]

    On 6 July 2015, a building designer submitted a fee proposal to the nephew “c/o: Mr Elijah Kim” in respect of a s 96 modification of the development application and a construction certificate for the Burwood development. On 24 August 2015, Marvian Rusli, Assistant Development Manager at Aus Ray, circulated team minutes for a meeting in respect of the Burwood development. The nephew attended the meeting. On 31 August 2015, the niece transferred $10,000 to Aus Ray for the uncle, in relation to the uncle’s immigration. On 15 September 2015, Mr Rusli circulated Burwood inspection notes to Mr Kim and the nephew.

17. [142]

    In early to mid 2016, the uncle decided to have his niece manage the Burwood development application instead. He asked the nephew to hand everything over to the niece, and the nephew agreed. From then on, the niece assisted the uncle with the development application. By June 2016, Mr Kim’s schedule of development costs for the Burwood project totalled $122,629.36.

18. [143]

    According to the uncle, the nephew said he had incurred expenses of $345,850 in relation to the development application and asked whether he could deduct these amounts from the loan. The uncle agreed but added, “But you are telling me the amount is $345,850. Where are all the details of the expenses, the invoices, and the receipts? I need to first have a look at whether the accounts are correct, and if there are no issues and all the amounts are accurate, then of course it can be off-set against the loan amount.” The nephew assured his uncle that he had kept good records, which he would give to the niece, “You can have a look at them and let me know if you have any questions or if I can apply the off-set.”

19. [144]

    On 28 and 29 July 2016, the niece transferred $20,000 and $11,722 to Aus Ray with the description “zwl”, which I take to be the uncle’s initials. At the end of the month, Aus Ray issued a monthly pay slip to the uncle for net pay of $10,574, noting that his annual salary was $190,020. Further payslips followed. The uncle agreed that he was paid a salary to support his visa application, but said he also did work for the company, finding Chinese buyers for ‘off the plan’ properties in the development. Whether he did or not, it does appear that the uncle transferred funds to Aus Ray with which to pay himself. Similarly, superannuation guarantee payments were made by Aus Ray in respect of the uncle on 19 January 2017 totalling $4,512.96. Similar monthly payments followed.

Final loan repayments

1. [145]

   It will be recalled that Aus Ray made a loan repayment of $900,000 in September 2013 and a further repayment of $350,000 in February 2014. The nephew then told the uncle that he was currently in legal proceedings and did not have enough money to pay for legal fees. (Presumably, this was a reference to the challenge to the heritage order on the Burwood property.) As such, there was not enough money to repay the loan. The nephew asked to repay the loan after the proceedings had finalised and he was not tight with money. The uncle agreed, “But as we discussed that there is a cost of this money I lent you. You need to pay the interest when you repay me.” The nephew agreed.

2. [146]

   In November 2016, Aus Ray resumed making loan repayments to the uncle. Aus Ray paid $209,668 that month for “loan pay back”. In addition to the monthly pay slips, Aus Ray also made two payments, each $95,166, for “salary”. Aus Ray paid a further $100,000 in December 2016.

3. [147]

   There were no further repayments for another 18 months. In July 2018, Aus Ray paid a further $170,000. In August 2018, Aus Ray paid $30,000. In October 2018, Aus Ray paid $20,000. In December 2018, Aus Ray paid a further $20,000.

4. [148]

   On 19 March 2019, the nephew sent a WeChat message to the uncle, expressing difficulty in making a further repayment of $60,000, “I really feel bad about this.” The uncle was unhappy:

5. [149]

   Whilst the translation of the original Chinese text is ambiguous, the meaning is tolerably clear. The uncle’s WeChat message corroborates an existing arrangement that the nephew would pay interest on the loan, given the high interest rates that the uncle was then paying to others.

6. [150]

   On 12 April 2019, the nephew sent further WeChat messages to the uncle advising that he would repay $30,000 that month, and apologising for the delay. (Aus Ray paid this amount.) The uncle replied:

7. [151]

   The reference to $200,000 was to the additional funds provided by the uncle for “inventory”. The uncle said he never made a record of the money that he had lent his nephew, but his nephew had made a record “so I was asking him about the $200,000 that I lent.” The uncle had spoken to the sister about this, who said she would ask the nephew to pay him an extra $200,000. But the uncle said he was not going to take the money, “because if its unclear, then I would just leave it.” As there was no record of the $200,000, the uncle told the sister, “I will give up this amount, and I will not take it.”

8. [152]

   The nephew replied, “Uncle, I’ve already repaid 270,000. I still owe 80,000. That 200,000 isn’t included.” The uncle replied, “Then how much in total did you borrow from me?” The nephew replied that he had a record of it in the office but did not have it with him then. He offered to “sort out the record” and send it to the uncle. The uncle replied:

9. [153]

   The uncle said “I had no idea how much he actually owed me. … Whenever I transferred to him I never make a record myself. It was always he who do the record, but when I ask him about the 200,000, he said it did not happen.” The nephew sent a screenshot setting out repayments made:

10. [154]

    It will be recalled that the first and second repayments had been largely made by the sister and brother-in-law. The third and fourth repayments were not made at all. (Nor can the suggested 2019 repayment of $270,000 be viewed as a summary of the payments made that year, when only $90,000 was paid.) In cross-examination, the nephew ultimately agreed that he had not transferred $500,000 to his uncle in May 2018, but disagreed that he was telling his uncle that he had paid back more than he actually had in the hope that his uncle did not have proper records. The nephew made no verbal reply to the proposition that the figure of $270,000 was not true either. The nephew did not agree that he was hoping to get away with not paying back all of the loan.

11. [155]

    The uncle queried the nephew’s calculation of how much the uncle had lent, “plus later I transferred another 200,000 or so, right?” Further WeChat messages passed, with the nephew advising the uncle, “there was no transaction of 200,000 as you said”. The nephew messaged again, clarifying that the loan monies which he had tallied related to the Epping property and the uncle’s immigration, “As for the money related to [7-Eleven], I’ve already verified it with you in person at Grandma’s home, and [the niece] didn’t say anything about it being wrong either. I can’t find any more (records).” The nephew’s WeChat message indicates that he appreciated that the $200,000 which the uncle was asking about related to the 7-Eleven business, which it did.

12. [156]

    The uncle was not particularly happy, responding, “What did you verify with me in person? That day your dad was talking about the car’s money, and you said the other money was used by [the niece], I didn’t say anything then! What do you think I could say at that time to be appropriate?” The nephew replied that his uncle should “just ask me directly” if he had any questions. The uncle replied, “No need, you can take your time, think it over yourself and find it.”

13. [157]

    The nephew sent further messages along the same lines but the uncle was clearly not happy, replying, “You see how you go! Did you check how much was transferred in 2015? Was there nothing else? You’ve more or less achieved what you wanted. I’m almost done now, my family’s family bond is almost there! You would know very well what caused it, wouldn’t you?” The nephew replied, “There was nothing in 2015, nothing else.”

14. [158]

    The uncle asked the nephew to provide records for reconciliation. The nephew said he had given his records to the niece. The uncle ultimately obtained the records which the nephew had given the niece, but the receipts totalled only some $40,000. The uncle also wanted to know what had happened with the profits from the 7-Eleven business, and was told there was no profit left. The uncle then obtained the financial statements for Q & L for the 2011 to 2014 financial years. The uncle continued to ask the nephew for bank statements for the Company Account.

15. [159]

    In May 2019, Aus Ray paid $30,000 to the uncle in repayment of the loan. In July 2019, Aus Ray paid a further $30,000. On 24 July 2019, the nephew sent a WeChat message to his uncle about the potential renewal of the 7-Eleven franchise agreement. On 8 August 2019, the nephew and the uncle had the following WeChat exchange:

16. [160]

    The nephew later advised the uncle that he had called 7-Eleven and “they no longer charge franchisees so much transfer fees.” That is, the nephew did not disclose to the uncle that he had over-charged the uncle on the previous occasion but explained the differing fees by reference to a change at 7-Eleven.

17. [161]

    The defendants rely on the uncle’s “Okay” as an acknowledgement that the $20,000 paid by the nephew in August 2019 was, in fact, the final repayment of the loan. As I read it, the uncle simply agreed that the payment should be made to his wife’s account, before returning to other topics that were then being discussed between them. It was clear from WeChat messages exchanged between these two gentlemen in the lead up to this exchange that the uncle was not happy with the nephew’s tally of the amounts which the uncle had lent him, including by reason of the omission of the $200,000 advanced in November 2012 for “inventory”. Nor could the nephew have thought that the uncle accepted that this was the last loan repayment, given the WeChat messages which followed.

18. [162]

    On 12 August 2019, the uncle messaged the nephew, “Have you really forgotten about the money transferred to you in 2015?”, and, “If you think about what you told me about the money in Burwood, you should remember it!” The nephew responded, “Uncle, what money was transferred in 2015? What did I say in Burwood?” The uncle replied, “You don’t know what was the money transfer in 2015? You told me in Burwood that I transferred the money for salary. It should be the money for the lawsuit and my salary. You used it for the full-time salary of [Mr Kim]. I asked you how could I have given him a full-time salary? You didn’t answer me! How come you forget about this?” The nephew replied, “Uncle, how much did you transfer”. The uncle retorted, “Think for yourself! Surely you [wouldn’t] forget it in such a short time!” The nephew replied, “Uncle, if I remember it, I wouldn’t have asked,” and further, “How much did you transfer, you don’t remember[?]”

19. [163]

    The uncle replied that the transfer was about $65,000 for the lawsuit and $50,000 for his salary, “It will surely be on WeChat. Find it and listen to it yourself. [It] started in February 2015, and you can listen to the voice message you sent me on 17 March 2015,” followed by, “In addition to the more than $60,000 you [sent] in 2016, I [sent approximately] $200,000 at the time!”

20. [164]

    The nephew replied, “Uncle, let’s not talk about these few transactions, whether those were transferred or not. According to what you said, the three transactions add up to $170,000 not 200,000. What’s up, what is the issue that you want to prove?” The uncle replied, “Are you asking me what the issue is?” The nephew replied, “Yes, uncle, I want to figure out, and then I will give you an answer,” and further, “I will answer your question to you.” The uncle replied, “No need to explain! I just want to know whether you received the money transferred.”

21. [165]

    The uncle appeared understandably frustrated in getting a clear answer from his nephew as to how much was owed. Clarifying the matter was probably not assisted by the fact that the uncle recalled that the $200,000 – presumably being a reference to the amount transferred for “inventory” – was made in 2015, when those funds were advanced in November 2012.

22. [166]

    In August 2019, the nephew met with the uncle at the Burwood property. The nephew gave the uncle a piece of paper regarding the issue that the uncle had “raised recently about the accounts being unclear”. In respect of the uncle’s complaint that “gas station profits [were] not handed in for four years”, the nephew’s document stated:

23. [167]

    The nephew’s document then provided some notes in relation to the profit figures as follows:

24. [168]

    This document was riddled with falsities. The nephew was aware that the annual 7-Eleven profits that he was telling his uncle fell short of what was disclosed in the 7-Eleven documents. He said the difference between the profit recorded by 7-Eleven and the actual figure was due to other expenses, of which he had no record.

25. [169]

    The nephew accepted that he had a record of profit figures at the time but did not tell his uncle about this. Instead, he suggested to the uncle in his document that the figures were from memory and just asked the uncle to believe his calculations. Nor did the nephew give the uncle the 7-Eleven annual statements, because he said the uncle never asked for the documents. The nephew has since lost those records but did not remember when.

26. [170]

    The nephew agreed that the suggestion that the company had paid $80,000 for the uncle’s Audi car was “a mistake”. The suggestion that the nephew had transferred the “remaining money” to the uncle on 12 May 2014, in the amount of $112,000 was not correct either. There was no such transfer. Perhaps it was a reference to the transfer of $1.12 million on 12 May 2014: see [124]. But the nephew agreed that this transfer was a return of the uncle’s funds, which had been briefly placed with Aus Ray for immigration purposes. In closing submissions, the defendants submitted that the reference was to the $120,000 which formed part of the $1.2 million. That was not a transfer of the remaining profit from the 7-Elevan business either, but a return of the (excessive) amount sought by the nephew to pay the 7-Eleven franchise fee.

27. [171]

    The nephew agreed that he still had access to the Company Account at the time and could have provided his uncle with bank statements but did not. The nephew said that was because the uncle did not ask for the bank statements, “He asked for the number,” and further, the bank statements were in English. The nephew accepted that the uncle’s wife was an English teacher who could readily read documents to the uncle in English. The nephew also accepted that, if his uncle had read these documents, then he would have learned that the nephew had been spending hundreds of thousands of dollars on himself.

28. [172]

    The uncle did not believe that the loan was now repaid and told the nephew, “that is definitely incorrect. … the account is not right”. He began investigating records and “asked for details to reconcile the account.” In October 2019, the uncle sought to enlist the brother-in-law, advising that the uncle had not received any profit from the nephew in relation to the 7-Eleven business, “Can you ask him for me?” The brother-in-law agreed. The uncle was later informed by the brother-in-law that, according to the nephew, he had transferred the profits to the uncle in May 2014 in the sum of $112,000. Again, the reference to $112,000 is unclear but may have been to the repayment of $1.12 million to the uncle in May 2014 or, perhaps, the $120,000 included in that figure: see [124]. Either suggestion was untrue.

29. [173]

    On 16 March 2020, the nephew sent a WeChat message to his uncle asking that the uncle “reconcile the doubtful accounts” with the nephew and not his parents. On 17 March 2020, the uncle and nephew met at the Burwood property again. According to the uncle, the nephew acknowledged their arrangements and his deficiencies.

30. [174]

    On 8 October 2020, Q & L sold the 7-Eleven business. On 31 December 2020, the uncle commenced these proceedings. On 10 March 2021, the uncle lodged a caveat on the Burwood property, claiming a lien by reason of an agreement between himself and Aus Ray, arising from a loan agreement for monies that went towards the purchase of the land.

31. [175]

    On 12 April 2021, the uncle obtained access by subpoena to bank statements for the Company Account. The uncle was unable to make much sense of the many transactions there recorded.

32. [176]

    In August 2021, the nephew and Aus Ray filed a cross-claim seeking, relevantly, an order that the uncle pay $499,096.69 to the nephew or Aus Ray. These monies were said to be expenses which the nephew incurred in relation to the Burwood project.

33. [177]

    On 3 February 2022, Q & L was joined to these proceedings. On 9 February 2022, the plaintiffs amended their pleadings to add a claim for equitable compensation in respect of misuse of the company’s funds. This brings me to the first claim to be determined.

Equitable compensation

1. [178]

   Q & L sought equitable compensation from the nephew in respect of company funds that were disbursed by the nephew in breach of the fiduciary duties which he owed as a director of the company. These funds comprised the profits from the 7-Eleven business that were paid into the Company Account, together with the $228,484.39 transferred by the uncle to the Company Account on the nephew’s request for funds to purchase “inventory”.

2. [179]

   The defendants conceded that the nephew breached his fiduciary duties. The issues were whether Q & L’s claim was time barred and, if not, how much the nephew was obliged to pay.

3. [180]

   As mentioned, this claim was added to the Further Amended Summons on 9 February 2022. The plaintiffs submitted that a company director who pays money to themselves in breach of their fiduciary duty holds the money on constructive trust for the company. But when the director converts that money for their own use, that is a breach of trust to which s 47(1)(b) of the Limitation Act 1969 (NSW) applies, being a 12-year period: Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454; (2013) 305 ALR 648 at [193] (Basten JA, Macfarlan JA agreeing at [200], Beazley P dissenting); followed by Gleeson JA (Meagher and Barrett JJA agreeing) in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [393]. If s 47 did not directly apply, then equity would, by analogy, apply that provision: Cassegrain at [194].

4. [181]

   In the alternative, if the appropriate provision from which equity should act by analogy was s 1317K of the Corporations Act 2001 (Cth) (as in Re Auzhair Supplies Pty Ltd (in liq) [2013] NSWSC 1; (2013) 92 ACSR 554 at [78]-[81] (Brereton J)), then the plaintiffs submitted that reliance upon such a provision would in all the circumstances be unconscionable and unjust. The nephew concealed his breaches of duty by ignoring repeated requests for financial information and bank statements. He misrepresented the financial performance of the business. He knew what he was doing was wrong. The nephew refused to provide access to the Company Account; why else would the plaintiffs have opened the New Company Account and re-directed the 7-Eleven income to that account?

5. [182]

   Further, the plaintiffs submitted that the uncle was unaware of the nephew’s defalcations at the time as the uncle, in April 2013, was prepared to advance a further $2.4 million, deposited $1 million to the nephew’s Aus Ray account in May 2014, and continued to provide funding for the Burwood development until July 2016. In the circumstances, time did not begin to run until 12 April 2021, when the Court granted access to Company Account bank statements produced on subpoena. It was then that the plaintiffs obtained knowledge of the nephew’s wrongdoing.

6. [183]

   As to the 12-year limitation period in s 47 of the Limitation Act, the nephew submitted that the views of the primary judge (Barrett J) and the dissenting judge of appeal (Beazley P) was correct rather than the majority in Cassegrain at [193]. Section 47(1) of the Limitation Act only applies to claims for fraudulent breaches of trust and recovery of trust property and does not extend to claims for equitable compensation arising from a non-fraudulent breach of fiduciary duty: see also Sze Tu at [393]; Nolan v Nolan [2004] VSCA 109 at [63] (Ormiston JA). The nephew accepted that this Court is bound by the majority in Cassegrain but reserved his position for any appeal.

7. [184]

   The nephew submitted that equity would apply a six-year limitation period by analogy to s 1317K of the Corporations Act: Re Auzhair Supplies at [79], not challenged on appeal in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70] (Meagher JA, Beazley P and Emmett JA agreeing); Port Ballidu Pty Ltd v Frews Lawyers (2019) 1 Qd R 276; [2018] QCA 110 at [10]-[11], [19] (Fraser JA, McMurdo and Boddice JJA agreeing). The fact that Q & L may have a good cause of action which was defeated by a limitation period applied in equity by analogy was not unconscionable: Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118 at [29]-[30] (Leeming JA, Sackville JA agreeing).

8. [185]

   The nephew submitted that, for the limitation period to run from a date later than March 2014, it was necessary for Q & L to demonstrate active concealment by him: Sze Tu at [368]-[369]; Gerace at [78]; Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664 at [315]-[317] (Riordan J). But the evidence suggested that the uncle did not concern himself with details in respect of bank statements or financial statements. Nor would active concealment assist Q & L if the company had knowledge of the facts which gave rise to the claims, or its suspicions were aroused, but it refrained from making enquiries. The uncle had knowledge of the material facts, was suspicious and deliberately did not enquire into the matter. Financial statements that were prepared after the niece took over management of the 7-Eleven business included the figures for the prior 2013 financial year.

9. [186]

   In reply, the plaintiffs submitted that it was not put to the uncle in cross-examination that he was aware of the nephew’s misfeasance but decided not to enquire. (I agree that this proposition was not squarely put.) Further, it was inherently unlikely that the uncle knew that the nephew had misappropriated funds from the Q & L business and yet continued to deal with the nephew as he did, including transferring large sums of money to Aus Ray.

10. [187]

    As Gleeson JA (Meagher and Barrett JJA agreeing) explained in Sze Tu, two questions arise, at [363]:

11. [188]

    As to the first question, the general limitation period is six years from when a cause of action first accrues: s 14, Limitation Act. This limitation period does not apply to a claim for equitable relief “except so far as [it] may be applied by analogy”: s 23, Limitation Act. Further, s 47(1) of the Limitation Act provides:

12. [189]

    Section 11(1) of the Limitation Act contains the following definitions:

13. [190]

    In Cassegrain, Basten JA (Macfarlan JA agreeing) explained the operation of s 47 in respect of a company’s claim against its director for equitable compensation, following the director’s fraudulent transfer of company funds. At [193]-[194]:

14. [191]

    This was followed by Gleeson JA (Meagher and Barrett JJA agreeing) in Sze Tu at [393]. As the defendants acknowledged, I am bound by Cassegrain.

15. [192]

    In this case, Q & L brings an action against its former director, who withdrew funds from the Company Account in breach of his fiduciary duties. As a consequence, the nephew held those funds on constructive trust for the company. The company does not seek recovery of the trust property from the director, as he no longer holds the funds. Rather, the company seeks equitable compensation. Section 47 applies, such that the limitation period is 12 years from the date on which the company first discovered, or may with reasonable diligence have discovered, the facts giving rise to the cause of action and that the cause of action has accrued: Cassegrain at [193]. Twelve years prior to 9 February 2022 was 9 February 2010, which was before the incorporation of Q & L or purchase of the 7-Eleven business on 5 April 2011. The claim is not time-barred.

16. [193]

    If I am wrong about this, then the second question posed by Gleeson JA in Sze Tu is whether the equitable claim corresponds to a legal claim to which a limitation statute applies and, if so, whether reliance on the statute would be unconscionable in the circumstances. As to whether reliance on the statute would be unconscionable, “The circumstances in which such an equity arises include where fraudulent conduct of the defendant has denied the plaintiff the opportunity to sue within the statutory period. That equity is satisfied by preventing the defendant from taking advantage of the plaintiff’s omission to do so”: Gerace at [72]. The equitable doctrine is not confined to common law fraud or deceit but “requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing”: Gerace at [75] (citations omitted).

17. [194]

    Gleeson JA also considered this question in Sze Tu at [368]-[369]:

18. [195]

    As the person engaged in fraud or deceit, the nephew’s knowledge cannot be attributed to Q & L when he was managing the 7-Eleven business and operating the Company Account: Aidzan Pty Ltd (in Liq) v K & A Laird (NSW) Pty Ltd (in Liq) (2024) 115 NSWLR 93; [2024] NSWCA 185 at [68], [76] (Meagher JA, Ward P and Adamson JA agreeing).

19. [196]

    Over the period when the nephew was misusing Q & L’s funds, the uncle lived in China but visited Australia from time to time. Specifically, in the two and a half years between when the 7-Eleven business was acquired and when the management of that business was taken away from the nephew, the uncle was in Australia for a total of a couple of months. Although the uncle was a successful businessperson in China, he was not familiar with Australian company, taxation or banking procedures. Nor was the uncle involved in the day-to-day operation of the Australian business endeavours. The uncle left that to his nephew and, later, the niece.

20. [197]

    I have accepted the uncle’s evidence that he asked the nephew for the Company Account bank statements for some time. That he did so is corroborated by the fact that he went to the effort to open the New Company Account in January 2013. The uncle did not know at the time that his wife, as a director of Q & L, could make enquiries of banks to see whether they held the Company Account.

21. [198]

    The niece’s knowledge of the operation of Q & L can be attributed to the uncle, after she took over management of the business in March 2014. The uncle said he did not then cause his niece to investigate the company’s performance whilst it was managed by the nephew because of family relationships and because he believed that the nephew would give him all of the profits of the company eventually. Once the niece began to run the 7-Eleven business, the uncle became aware that 7-Eleven had previously paid income to the Company Account. The uncle did not appreciate that he could have asked the niece to obtain information from 7-Eleven about those payments. Nor did the uncle understand that Q & L’s accountants might have had information about which bank account the nephew had used for the company. (As earlier described, the contents of the financial statements largely drew on the 7-Eleven annual statements and suggest that the accountant did not have the Company Account bank statements either.)

22. [199]

    I infer that the wife’s evidence on this subject would not have assisted Q & L. I do not infer that her evidence would have been damaging: Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [232] (Heydon J). Nor is there evidence to support a conclusion that the wife knew more at any particular point in time than the uncle. A place did appear for the wife to sign the 2013 financial statements. Presumably, this was because she was a director of Q & L at the time. But there is no evidence that the wife signed the financial statements or was otherwise involved in giving instructions to the accountant.

23. [200]

    Q & L’s cause of action against its former director is not for the lacklustre financial performance of the 7-Eleven business. Such a cause of action may have been revealed by the 2011 to 2013 financial statements likely prepared as a batch in March 2014, when the niece took over management of the business. The company seeks equitable compensation for its funds, withdrawn from the Company Account by the nephew in breach of his fiduciary obligations, held on constructive trust and then dissipated. While the financial statements indicated that Q & L was not making much money, the document did not reveal what had happened to that money. That was to be found in the elusive Company Account bank statements.

24. [201]

    Q & L obtained access to the Company Account bank statements in these proceedings. As earlier mentioned, the nephew had been unprepared to produce these or, as he put it, “I don't know how they get it, but I never gave it to him.” Obviously enough, the bank statements revealed the nephew’s misappropriation of company funds. It was not until the bank statements were produced to the Court that Q & L had actual knowledge of the facts which gave rise to its action against the former director.

25. [202]

    The fact that Q & L could have discovered which bank held the Company Account and obtained bank statements using the services of the accountant, or obtained information indirectly via 7-Eleven, “is not enough”: Sze Tu at [369]. Nor was it put to the uncle that he “deliberately refrained from inquiry”: Sze Tu at [369]. I consider that it would be unconscionable in these circumstances for the nephew to rely on the six-year limitation period prescribed by s 1317K of the Corporations Act to defeat Q & L’s claim, where that claim was brought promptly once the company learned of it.

26. [203]

    As for the amount of equitable compensation, the parties broadly agreed on the nett income of the 7-Eleven business which Q & L was entitled to retain, but which was dissipated by the nephew. There were two points of difference.

27. [204]

    The first point of difference was as to timing. The plaintiffs’ calculations went to 18 March 2014, when 7-Eleven began to remit payments to the New Company Account. The defendants submitted that profits should be calculated to 28 February 2014, being the midpoint between the last payment to the Company Account and the first payment to the New Company Account. The parties ultimately agreed that the Court should ‘split the difference’.

28. [205]

    Doing so, over the period when the nephew ran the company, 7-Eleven paid nett income to Q & L of $654,671.90. From this amount should be deducted bank charges of $595.35, the nephew’s wages of $77,000, Audi payments of $18,754.28 and the franchise fee of $82,318 paid in May 2014 (I thought the fee was $81,642 but will defer to the parties). These deductions reduce the nett income of the 7-Eleven business to $476,004. It is these funds which were held by the nephew on constructive trust and for which equitable compensation was sought via the 12-year limitation period provided in s 47(1) of the Limitation Act.

29. [206]

    The second point of difference was cash wages. The defendants submitted that the fact that such wages were paid was corroborated from Company Account bank statements, albeit only to the tune of $15,117.50. In addition, the fact that the wages expense substantially increased after the niece took over management of the 7-Eleven business suggested that cash wages stopped being paid and the full payroll expense was then recorded. While the monthly wages bill for the 2012 and 2013 financial years was $2,925.83 and $5,595.25 respectively, the monthly figures increased to $15,993 in the 2014 financial year and $16,819.42 in the 2015 financial year. It was said to be unlikely that a store operating 24 hours a day would have monthly wages of $2,925.83, being a little over $4 per hour. Taking the latter years as a basis to estimate actual wages, the defendants submitted that wages were probably $15,000 for each month that the nephew managed the 7-Eleven business. Over 33 months, that amounted to $495,000, which is $349,869 more than the payroll recorded in the 7‑Eleven reports. As such, the defendants submitted that $349,869 should be reduced from the nett income, which leaves a balance of $126,135 to be paid by the nephew as equitable compensation.

30. [207]

    The defendants’ efforts to extrapolate from the wage expenses of Q & L under the niece’s management is not a solid foundation for such a substantial deduction. I know nothing about how the niece ran the business. I do not know to what extent the wages bill was less when the nephew managed the business, because he was being paid a wage to work there and actually did so.

31. [208]

    I do know that, by the end of the 2014 financial year, 7-Eleven calculated that Nett Income was $274,041 (up from $210,475 the previous year), of which weekly drawings had already been received of $73,196.13 (reduced from $113,745.10 the previous year) plus additional drawings of $95,685.56 (also down from $109,633.88 the previous year). Nett Income now exceeded total drawings. According to the 2014 tax return, the financial position of Q & L improved, reporting profit of $64,147 and taxable income of $72,998. The 7-Eleven business was now generating more income and keeping more of that income in the business. On the face of it, this was a big turnaround in the few months that the business was being run by the niece. I do not have 7-Eleven’s ledger for the 2015 financial year.

32. [209]

    Further, as the plaintiffs submitted, the defendants’ calculations were obviously wrong, as the estimated cash wages exceeded total cash withdrawals from the Company Account, where the nephew acknowledged that at least some of these withdrawals were for gambling.

33. [210]

    While the nephew said he withdrew cash from the Company Account, including whilst he was at casinos, to pay cash wages, I have not accepted that evidence: see [120]. I accept that there were some transfers from the Company Account for “Faisal Salary” and “GINISH Salary”. But, according to the Company Account bank statements, these payments totalled $3,899.

34. [211]

    The defendants’ higher figure of $15,117.50 comes from a schedule prepared by the nephew, which was admitted as evidence of the deponent’s understanding or belief only. The nephew’s schedules identified transactions on the Company Account that were for Q & L and those which were for personal expenses. But it became clear during cross-examination that no weight can be attached to these schedules. The nephew agreed that he could not now remember one way or the other whether an expense was a business expense. He could not recall the transactions. He did not keep any records at the time.

35. [212]

    In the result, I do not accept that a further deduction is warranted on account of cash wages. It follows that the nett income from the 7-Eleven business, after allowing for appropriate deductions, was $476,004.

36. [213]

    The plaintiffs submitted that the Court would be confident that the whole of this amount fell within the 12-year limitation period, as the Company Account bank statements recorded that substantially more than this was transferred to the nephew. A total of $640,612.77 was transferred to the nephew, being direct transfers of $85,630.64, withdrawals at casinos of $25,352.95 and other cash withdrawals of $529,629.18. As such, the Court need not be concerned that part of the equitable compensation may fall foul of a six-year limitation period.

37. [214]

    The defendants submitted that there was insufficient ‘clearance’ between the total payments received by the nephew from Q & L, on the one hand, and the nett income of the 7-Eleven business, on the other hand, such that there remained a question as to whether the equitable compensation sought was subject to the six-year limitation period or the 12-year limitation period.

38. [215]

    It is not necessary to deal with the various deductions which the defendants suggested should be made from the $640,612.77 posited by the plaintiffs, where I have concluded that, if I am wrong about the 12-year limitation period, then I consider that it would be unjust for the nephew to rely on the six-year limitation period in the circumstances.

39. [216]

    In addition to the nett income received from the 7-Eleven business, Q & L sought equitable compensation in respect of the $228,484.39 transferred to Q & L for “inventory” but used by the nephew for personal purposes. These monies were recoverable by Q & L from the nephew for wrongful dissipation of its money, in breach of the fiduciary duty that he owed to the company.

40. [217]

    The defendants submitted that the Court would not be satisfied that there was any conversation with the nephew in November 2012 regarding additional stock. Further, it was said that the evidence did not establish that the funds were the uncle’s. It was said to be undisputed that the funds were in the sister’s account. The uncle’s assertion that the sister held those funds for him was not raised until cross-examination and was said to be implausible. There was no evidence whether the concept of a trust under Australian law even existed in Chinese law such that the funds in the sister’s account could be said to be held for the uncle. Absent proof of a trust arrangement, it was said that the uncle suffered no loss.

41. [218]

    It is not the uncle who seeks to recover these funds. Q & L seeks equitable compensation from the nephew for misuse of its funds. For reasons earlier given, I am satisfied that there was a conversation between the nephew and uncle in November 2012, as described by the uncle. I am satisfied that the uncle was the source of the funds which were transferred to the Company Account and then withdrawn by the nephew and used for his own purposes. Where the nephew’s misuse of these funds was not revealed until access to the Company Account bank statements was obtained in these proceedings, my earlier conclusions in respect of limitation issues apply. The company is entitled to equitable compensation for these funds. This brings the total equitable compensation to $704,488.

Loan repayment

1. [219]

   The parties agreed that Aus Ray had made loan repayments totalling $1,909,668. The plaintiffs submitted that, if the two salary payments paid by Aus Ray in November 2016 were treated as a deduction to the loan, then total repayments were exactly $2.1 million. In the result, $300,000 remained outstanding. But the loan was not repaid within one year and thus interest was payable at the agreed rate. The uncle sought judgment against Aus Ray in the sum of $300,000, together with interest at the rate of 2% per month from 29 April 2014 on, on the outstanding principal owing from that time onwards. Alternatively, interest was sought under s 100 of the Civil Procedure Act 2005 (NSW).

2. [220]

   The issues were: who was the borrower, was interest payable, has the loan been repaid and, relatedly, was there an agreement that payments in respect of the Burwood property could be ‘set-off’ against the loan? In addition, the uncle sought a declaration that the amount owing was secured by an equitable lien or charge over the Epping property, together with orders for the judicial sale of the property. The defendants relied on s 23C of the Conveyancing Act 1919 (NSW) as precluding any equitable charge from being enforced, while the uncle argued that there were sufficient acts of part performance to preclude reliance on s 23C, by operation of s 23E.

3. [221]

   The plaintiffs submitted that the uncle’s evidence as to what was discussed in respect of the loan was inherently likely and should be accepted. The plaintiffs submitted that the fact that the nephew said, “Also, even if I cannot repay you, the land will still be here. So don’t worry,” was consistent with the borrower being the owner of the land. Only if that was the case could the continuing existence of the land be a reassurance to the uncle that the loan would be repaid. The fact that loan repayments were made by Aus Ray was said to be post-contractual conduct consistent with an admission that the loan was to that company. Where the uncle was an experienced businessperson who was already unhappy with the nephew’s stewardship of the funds entrusted to him for the 7-Eleven business, the uncle would likely have felt more inclined to make the loan to the registered proprietor of the land than to the nephew, who had no assets or means.

4. [222]

   The defendants submitted that the uncle’s evidence in respect of the terms of the loan agreement was implausible. The self-serving evidence of the uncle, in his reply affidavit, of the conversation before the bank teller, was improbable and should not be accepted.

5. [223]

   As to how this Court ought determine the parties to a contract, one need go no further than Brereton JA’s summary (with whom Bell CJ and White JA agreed) in Mills v Walsh [2022] NSWCA 255 at [73]:

6. [224]

   That is, what would a reasonable observer of the communications that led to entry into the contract, together with knowledge of the background facts known to the parties, conclude who the parties intended that the contract would be with: Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [54] (Campbell JA, Beazley and Basten JJA agreeing).

7. [225]

   The legal onus is on the party asserting that a particular party is in fact and law a party to the contract: Pethybridge at [54]. As Judge Rein (as his Honour then was) observed in Blackmore Design Group Pty Ltd v Mudge (2006) 4 DCLR (NSW) 30; [2006] NSWDC 160, the question of who in fact were parties to the contract is a mixed question of fact and law and “is often a very difficult question”: at [23], citing the pertinent examples of Southdown Publications Pty Ltd v ACP Magazines Pty Ltd [2003] NSWCA 347; MacMilllan v Mumby [2006] NSWCA 74.

8. [226]

   These principles are not easy to apply when dealing with an informal family agreement. Here, the uncle and the nephew spoke twice about the $2.4 million loan. The first conversation occurred in late 2012, before Aus Ray was incorporated. It is uncontroversial that the nephew told the uncle that the loan would be used to buy land. I have also found that the nephew reassured the uncle, “even if I cannot repay you, the land will still be here.” The simplest way for that assurance to have any significance in the uncle’s deliberation as to whether to provide the loan would be if the borrower and the land-owner were the same.

9. [227]

   The second conversation took place on 4 April 2013 at the bank counter, when the uncle was asked to transfer the funds to Aus Ray. I have accepted the uncle’s evidence as to what was said on that occasion, specifically, the nephew agreed that the money was being lent to Aus Ray. As events had unfolded, the nephew’s assurance – “even if I cannot repay you, the land will still be here” – would continue to have significance in the uncle’s deliberation as to whether to sign the bank slip and approve the transfer of $2 million, as the borrower and the land-owner continued to be the same entity.

10. [228]

    The post-contractual conduct of the parties is consistent with Aus Ray being the borrower, where all loan repayments were made by that company. Given the parties’ communications, the objective circumstances and post-contractual contractual conduct, I conclude that the borrower was Aus Ray.

11. [229]

    The defendants submitted that post contractual conduct was admissible to prove the terms of an oral contract: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [325] (Campbell JA); Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 at [101]-[149] (Campbell JA, Giles JA agreeing at [42]-[43], [58]). The fact that the uncle did not record the suggested terms of the loan in WeChat exchanges with the nephew was said to be telling. It was submitted that the WeChat messages between them on 19 March 2019 pointed in the opposite direction. (I disagree: see [148]-[149].) The Court should be suspicious of the uncle's evidence that his "phone broke". I am not.

12. [230]

    The defendants submitted that the fact that the nephew’s screenshot of 12 April 2019 did not include interest was said to point in the other direction. (I accept this, but where the screenshot was prepared by the nephew and included a number of false entries, the absence of an interest calculation does not advance matters.) The fact that the uncle did not remonstrate was said to support the fact that there was no agreement to pay interest. In the alternative, there was no agreement to pay compound interest and thus simple interest applied: El Khoury v Harsany [2018] NSWSC 1774 at [118] (Sackar J). (The plaintiffs did not suggest otherwise.) Finally, the defendants submitted that if the Court concluded that there was no agreement as to interest but there remained principal owing on the loan, any pre-judgment interest should only accrue from the commencement of these proceedings on 31 December 2020, as this was said to be the first time that the uncle demanded repayment: Goulston v Bogasi Pty Ltd [2025] NSWSC 989 at [924], [934] (Kunc J).

13. [231]

    I have accepted the uncle’s evidence as to their discussion in respect of interest. The uncle said he would charge interest of 2% a month, because that was his cost of funds. The nephew agreed. What did this mean? That interest would be calculated at monthly rests, that is, interest would be calculated on the balance of the loan at the end of each month, with 2% applied to that balance. The WeChat message of 19 March 2019 corroborates that arrangement. It is not in dispute that the loan was not repaid in full within a year and, thus, the uncle is entitled to interest calculated on this basis from 29 April 2014 on.

14. [232]

    The nephew contended that he had an agreement with the uncle that moneys expended on the Burwood property or the uncle’s visa application could be set-off against amounts owing under the loan. Further, the quantum of the set-off exceeded the balance of the loan, being $300,000. The existence of the set-off agreement was said to be corroborated by the nephew’s WeChat screenshot of 12 April 2019, where he identified a set-off for “Property approval and immigration advance payment by me”. The uncle did not deny this in his WeChat messages in reply. Alternatively, the defendants sought a set-off under s 21 of the Civil Procedure Act.

15. [233]

    The fact that the nephew asserted such an arrangement in his WeChat message does not advance matters greatly, where the nephew also asserted in that message that he had made loan repayments to the uncle of $500,000 and $270,000 respectively. Neither was true.

16. [234]

    But the uncle accepted that he agreed to set-off such payments on conditions. First, the payments were required to be supported by documentation. Second, the uncle would check the expense against the documentation to ensure that there was no issue. The fact that the uncle imposed these conditions is corroborated in the nephew’s WeChat screenshot of 12 April 2019, “All accounts ha[ve] been handed over to [the niece] and have been checked with you.” The nephew had, in fact, handed a bundle of documentation over to the niece but, when checked, the bundle substantiated only some $40,000 in expenses.

17. [235]

    The real issue is whether, on the evidence now before the Court, the nephew should be permitted to set-off the amounts now claimed. The nephew contended that the quantum of the set-off was $382,942.31, of which $300,000 was applied as repayment of the principal of the $2.4 million loan and the remaining $82,942.31 sought from the uncle by cross-claim or, alternatively, as a set-off against the uncle’s claim in restitution. The $382,942.31 figure was comprised of: $161,766.75 for Mr Kim’s salary, $110,950 for immigration expenses and $110,225.56 for Burwood expenses.

18. [236]

    As to Mr Kim’s salary, the defendants submitted that the nephew’s evidence should be accepted in respect of Mr Kim’s salary, where it was said to be corroborated by the uncle’s WeChat message of 12 August 2019. (I reject the submission in respect of the WeChat message. The uncle there objected to the nephew using $50,000 transferred to Aus Ray for the uncle’s salary to pay Mr Kim instead.)

19. [237]

    The uncle disputed any agreement to pay Mr Kim’s salary and noted that the nephew made no claim in this regard until these proceedings were commenced some years after those wages were paid. It was clear that Mr Kim was working on other projects at Aus Ray. Aus Ray’s bank statements indicate a plethora of other expenses (including substantial expenses) being paid in respect of matters unconnected to the Burwood property. Few transactions on the account were said to relate to the Burwood property. After June 2015, Aus Ray paid no expenses in relation to the Burwood property but its bank statements record a hive of other activities. The suggestion that the uncle agreed to bear Mr Kim’s salary, including for the latter period, was without foundation, where the employee was being put to other uses.

20. [238]

    Having examined Aus Ray’s bank statements, the plaintiffs’ description is apt. Whatever Aus Ray was doing, the resources expended on the Burwood property can fairly be described as ‘incidentals’. At the time of the uncle and nephew’s conversation about Mr Kim’s salary in May 2014, Aus Ray had enjoyed an interest-free loan of $2.4 million for one year, of which $1.15 million remained owing. The uncle had recently removed the management of Q & L from the nephew in the absence of receipt of profits. That the nephew told his uncle that he did not have to pay Mr Kim’s salary in the circumstances is not unlikely. I also prefer the uncle’s evidence to that of the nephew in respect of their discussion.

21. [239]

    Further, there is no corroborative evidence in the contemporaneous documents of the arrangement described by the nephew. As the plaintiffs submitted, the burden rests on the borrower to prove the repayment or discharge of any debt: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566, 569-570 (Dixon CJ, McTiernan and Taylor JJ); [1956] HCA 51. That onus had not been discharged.

22. [240]

    As to immigration expenses, the defendants submitted that this was $30,000 paid in cash to L'Orient Legal on 1 July 2015 (which I have not accepted), $62,898 paid to the Australian Taxation Office (ATO) for the uncle's PAYG and $18,051.84 paid to the ATO in respect of the super guarantee. I note that these expenses do not include the $190,332 paid by Aus Ray for “salary” in November 2016: see [146]. As such, off-setting these expenses would not involve ‘double counting’ by either party.

23. [241]

    As to Burwood expenses of $110,225.56, the defendants relied on an aide memoire assembling 40 expenses and the accompanying evidentiary material to support these expenses.

24. [242]

    The uncle disputed some $60,000 of the claimed $110,225.56 but, given the nature of the proceedings, did not ask the Court to adjudicate on these expenses: s 56, Civil Procedure Act. Rather, the uncle sought to ‘cut through’ the immigration and Burwood expenses on the basis that the defendants accepted that they had already received well in excess of both amounts claimed.

25. [243]

    Specifically, the defendants accepted that Aus Ray received $105,000 from the uncle and the nephew received a further $64,964, being a total of $169,964. In addition, the nephew accepted that Aus Ray received from the uncle, or people on his behalf, further amounts totalling $117,772. In combination, therefore, the defendants accepted that funds of $287,736 had been received. That sum completely accounted for any purported obligation to reimburse Aus Ray for PAYG and superannuation paid for the uncle ($80,949.84), any cash purportedly paid to L’Orient Legal ($30,000) and all Burwood expenses ($110,225.56). In these circumstances, the plaintiffs accepted that the claimed expenses pertained to the Burwood property, for which the defendants had not been reimbursed.

26. [244]

    It is the case that the defendants have, in either their pleadings, the nephew’s affidavits or cross-examination, accepted receipt of the amounts referred to by the plaintiffs. Where the plaintiffs are prepared to accept all of the immigration expenses and Burwood expenses asserted by the defendants, I will proceed on that basis. By my calculations, the result is a surplus of $66,560 paid by the uncle. Where the uncle paid $66,560 more to the defendants than they expended on his behalf in relation to the Burwood property or immigration expenses, there is nothing to set-off against the $2.4 million loan. As such, $300,000 remains to be paid, together with interest on the monthly balance of the loan from 29 April 2014 to date.

27. [245]

    The plaintiffs submitted that the Court would be satisfied that it was a term of the loan agreement that the Epping property would be charged as security for repayment of the loan. This was even stronger if the loan was to the nephew personally as, absent security being granted, recourse could not be had to the land. There was no other sensible way of construing the nephew’s words, “Also, even if I cannot repay you, the land will still be here. So don’t worry”. Even if the loan was to the nephew and not Aus Ray, there was no reason why the nephew (being the sole director of Aus Ray) could not grant an equitable charge over Aus Ray’s land as security for the loan.

28. [246]

    The defendants submitted that the uncle did not intend or understand at the time that he would be obtaining a charge over the Epping property. His claim was an ex post facto characterisation, encouraged by the litigation. Were it otherwise, the uncle would have taken steps to enforce the security in the six years when the loan was in default and not wait until commencing these proceedings. Nor were the words ascribed to the nephew, if said, supportive of a charge over the land as opposed to a statement by the nephew that he (through his shareholding in Aus Ray) had assets of value with which he could repay his debts. Nor was Aus Ray bound by the terms of a conversation which took place before its incorporation. Nor did the nephew have the power to grant a charge over the Epping land. (I reject the last submission, where the nephew was the sole director and shareholder of the company.)

29. [247]

    The defendants submitted that s 23C of the Conveyancing Act applied. While the uncle sought to rely on s 23E, the defendants argued that the doctrine of part performance did not assist the uncle, as the doctrine only applies to contracts for the sale or other disposition of land: Pipikos v Trayans (2018) 265 CLR 522; [2018] HCA 39 at [50] (Kiefel CJ, Bell, Gageler and Keane JJ). The advance of the loan did not qualify, including because that act said nothing about whether the loan was secured or not: c.f. Shawyer v Amberday Pty Ltd (in liq) [2001] NSWSC 399 (Bryson J).

30. [248]

    The plaintiffs submitted that s 23C(1)(a) of the Conveyancing Act posed no difficulties given the doctrine of part performance applied: s 23E(d), Conveyancing Act; Cooney v Burns (1922) 30 CLR 216 at 233 (Isaacs J); [1922] HCA 8; Pipikos at [3], [49]-[58]; Ciaglia v Ciaglia [2010] NSWSC 341 at [82] (White J); Li v Tao (2023) 113 NSWLR 131; [2023] NSWCA 310 at [56] (Kirk JA, Ward P and Mitchelmore JA agreeing); Khoury v Khouri (2006) 66 NSWLR 241; [2006] NSWCA 184 at [89]-[90] (Bryson JA, Hodgson and Handley JJA agreeing). The act of part performance was the payment of the $2.4 million loan. That was the only act capable of being performed by the uncle. It was unequivocally referrable to a contract involving the lending of money on security of the land being purchased by the loaned funds. Shawyer concerned a written mortgage (not an equitable charge) and was distinguishable on the facts.

31. [249]

    The nature of an equitable charge was explained by Buckley LJ in Swiss Bank Corporation v Lloyd’s Bank Limited [1982] AC 584 at 594: an equitable charge is “created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale”. This description was endorsed by Bathurst CJ ( Beazley JA and Tobias AJA agreeing) in Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134 at [27].

32. [250]

    Whether an equitable charge has been created – by contract or otherwise – is a question of construction of the language used to create the security: P Parkinson, Principles of Equity (2nd ed, 2003, Thomson Reuters) at 65. As Romer J noted in Cradock v Scottish Provident Institution (1893) 69 LT 380 at 382:

33. [251]

    The intention to create an equitable charge may be expressed or may be inferred: Swiss Bank v Lloyd’s Bank at 595. As Ward CJ in Eq put it in Morris Finance Ltd v Free [2017] NSWSC 1417 “an equitable charge is a creature of intention”: at [30].

34. [252]

    I have accepted that the nephew said the words attributed to him by the uncle. The question is whether those words express an intention to make the Epping property liable or specially appropriated to the discharge of the $2.4 million loan, and conferred a right on the uncle to realise the land by judicial process. The words were uttered by the nephew in the course of assuring the uncle that the loan that the loan would be a safe loan that could be repaid when the uncle needed the funds, “Also, even if I cannot repay you, the land will still be here.” The nephew was indicating that, if he could not repay the uncle (this being at a time when it was the nephew who was going to buy the land) then the uncle was entitled to look to the land as a source of repayment. This meets the description in Swiss Bank Corporation v Lloyds Bank. An equitable charge was created.

35. [253]

    Turning then to whether the equitable charge is enforceable, s 23C(1) of the Conveyancing Act provides:

36. [254]

    “Disposition” is defined in s 7 of the Conveyancing Act as:

37. [255]

    Further, “Conveyance includes any assignment, appointment, lease, settlement, or other assurance by deed of any property; and convey has a meaning corresponding with that of conveyance”, while “Assurance includes a conveyance and a disposition made otherwise than by will; and assure has a corresponding meaning”: s 7, Conveyancing Act.

38. [256]

    These definitions “are no more than definitions of inclusion and do not purport to state meanings exhaustively”: Khoury at [37] (Bryson JA, Hodgson and Handley JJA agreeing). Likewise, in PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241, Giles J noted that the definition of “disposition” is inclusory and points to a wide concept: at 249.

39. [257]

    In Khoury, Handley JA also noted that an agreement to mortgage or charge land is an agreement to create an interest in land and “struck at by the Statute of Frauds”: at [5], quoting Lord Dunedin in Dalgety & Co Ltd v Gray (1919) 26 CLR 249 at 254-5; followed in Ciaglia at [86].

40. [258]

    Here, the creation of an equitable charge is a creation of an interest in land (s 23C(1)(a)) rather than the disposition “of an equitable interest … subsisting at the time of the disposition” (s 23C(c)). But as Handley JA noted in Khoury, “A contract for the creation of a new interest, legal or equitable, in land is nevertheless a contract for the disposition of that interest.” at [4]. Either way, s 23C(1) required writing, and there was none.

41. [259]

    But s 23E(d) provides that nothing in s 23C “shall … affect the operation of the law relating to part performance.” The seminal case on the doctrine of part performance is Maddison v Alderson (1883) 3 App Cas 467, where Lord Selborne explained at 474:

42. [260]

    In considering when the equity of part performance will arise, Lord Selborne noted, “In a suit founded on such part performance the defendant is really "charged" upon the equities resulting from the acts done in execution of the contract, and not (within the meaning of the statute) upon the contract itself. If such equities were excluded, injustice of a kind which the statute cannot be thought to have had in contemplation would follow”: at 475. Further, at 479:

43. [261]

    The requirement of unequivocal referability to “some such agreement as that alleged” was further explained in Vlahos Pty Ltd v Vlahos [2017] VSCA 166 at [101] (Kyrou JA, Tate and McLeish JJA agreeing):

44. [262]

    In Pipikos, Kiefel CJ and Bell, Gageler and Keane JJ explained further at [54]-[55]:

45. [263]

    It is thus necessary to consider what acts were performed which established the equity, where the payment of money is an equivocal act in itself. As White J observed in Ciaglia, cases on contracts for the sale or lease of land apply by analogy to the enforcement of agreements to mortgage or charge land “but the nature of the acts which suffice as acts of part performance differ, because the subject matter of the latter class of agreements is not the ownership or possession of land, but the debt to be repaid and the security to be taken”: at [87].

46. [264]

    In Phung v Phung [2019] NSWSC 117, Darke J considered that a plaintiff may rely upon payments in conjunction with other acts of part performance to reinforce the conclusion that the equity has arisen in the case: at [71]. As Edelman J concluded in Pipikos, whether an act is unequivocally referable to “some such agreement” as the agreement alleged will “ultimately depend on evaluative conclusions based upon all the circumstances surrounding the act or acts. Those conclusions should be drawn with regard to the nature and rationale of the doctrine of part performance and the need to keep the doctrine within narrow limits”: at [158].

47. [265]

    As to what acts of part performance will suffice, some examples may assist. A bank successfully relied on part performance to enforce an equitable mortgage in Australian & New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21. There was an oral agreement between the bank and the customer: the bank agreed to provide a commercial bill facility and endorse bills drawn by the customer, while the customer agreed to indemnify the bank in respect of the bills and to provide a mortgage on a property to secure that indemnity. The bank performed the whole of its side of the bargain, endorsing bills, selling the bills to the market at a discount and crediting the proceeds to the customer’s account. The bank also took a mortgage in blank together with an authority to complete, albeit both documents were deficient. The acts of the bank, seen in this context, led to the conclusion that they were unequivocally and in their own nature referable to a contract of the general nature of that alleged by the bank, namely, that the customer would grant a mortgage over his property to secure the bank’s right of indemnity: at 37 (Hill J, Wilcox and Foster JJ agreeing).

48. [266]

    In Ciaglia, the plaintiff owned a boarding house with his brother. On becoming embroiled in family law proceedings, the plaintiff orally agreed with the brother to transfer his share of the property to the brother, who would raise a mortgage of $195,000 on the property and lend that money to him. The plaintiff executed a memorandum of transfer. The brother provided $195,000. The plaintiff repaid the loan and interest. White J considered that the repayments of the principal and the payment of interest qualified as acts of part performance of the agreement for loan and mortgage, even if the payments would not by themselves be sufficient: at [95]. The plaintiff’s execution of the transfer of land, coupled with his repayment of the loan with interest were acts that were unequivocally referable to an agreement for the grant of a mortgage: at [102].

49. [267]

    By contrast, in Shawyer v Amberday, Bryson J concluded the acts were not sufficient to demonstrate part performance of an agreement to grant a mortgage. Mrs Shawyer was a protected person, whose affairs were managed by her son. The son advanced a loan to the defendant company out of his mother’s funds, and claimed an equitable mortgage over the company’s property. Bryson J described the mortgage document on which the plaintiff relied as “a strange document”, which was incomplete and differed from the parties’ oral agreement: at [18], [36]. His Honour accepted that there was an oral agreement that a mortgage would be granted to secure the mother’s loan, but there were sufficient acts of part performance. At [50]:

50. [268]

    Recently, in O’Brien v Grabowski; Airvest Pty Ltd v O’Brien [2024] NSWSC 692, a trustee agreed orally to lend funds to a beneficiary to buy property, and the beneficiary would sign formal documents for a loan and mortgage. The trustee sought security over the property on the basis of a single act of part performance, being its conduct in paying “all but 1% of the payments for the purchase of the property to be made into the trust account of [the solicitor] for the sole purpose of purchasing the property”: at [64]. Peden J did not consider that this conduct was “unequivocally” referable to a loan agreement which included, as a term, that the trustee would at some later date be given a mortgage over the property to secure repayment: at [65].

51. [269]

    More recently in Kolevski v Timber Creek Holdings Pty Ltd [2025] NSWSC 487, the plaintiffs sold two properties to a friend at an undervalue, for the amount required to discharge mortgages held by a bank over the properties. By oral agreement, the friend agreed to lend the plaintiffs the combined purchase price at 6.5% interest per annum. The plaintiffs could repurchase the properties by repaying what the friend had outlaid plus a return of 6.5% per annum. The plaintiffs remained in the properties and paid rent to their friend, which rent counted towards that return. Hmelnitsky J considered that the oral agreement gave rise to an equitable mortgage, where the friend acquired the properties as security and not as an outright conveyance: at [218]-[219]. Further, the original transfers of the properties constituted sufficient acts of part performance, where the transfers took place at an undervalue, this being part of the arrangement that would entitle them to recover the properties at some future date at the same undervalue plus the friend’s return: at [232].

52. [270]

    Cases concerning equitable charges are harder to find. In Moloney v Coppola [2012] NSWSC 728, Nicholas J held that an unsigned costs agreement granting an equitable charge over land was enforceable. The acts of part performance were the solicitor’s continuing rendering of legal services and the making of payments by the clients: at [41]; followed in MJ Leonard Pty Ltd v Bristrol Custodian Ltd (in liq) [2013] NSWSC 1734 at [46] (Windeyer AJ).

53. [271]

    Returning to the case at hand, what are the acts performed which establish the equity? At this stage of the analysis, one must put to one side the evidence of the parties’ oral agreement. The nephew incorporated Aus Ray. The uncle signed a document at the bank counter. The uncle transferred $2.4 million to Aus Ray in two payments. Aus Ray completed the purchase of the Epping land. Aus Ray progressively repaid $2 million to the uncle. Beyond bank statements and later WeChat messages quibbling about how much of the loan remained to be paid, there are no documents.

54. [272]

    I do not consider that these acts are consistent only with part performance of an agreement to grant an equitable charge over the land. The uncle’s two payments totalling $2.4 million are equivocal acts absent parol evidence. The acts are also consistent with the uncle’s agreement to lend the money unsecured. It follows that the equitable charge is unenforceable by operation of s 23C(1) of the Conveyancing Act.

Burwood expenses

1. [273]

   The expenses which Aus Ray and the nephew paid on the Burwood development, and the funds advanced by the uncle for that purpose, were primarily relevant to whether, by reason of a ‘set-off’ arrangement, the $2.4 million loan had been fully repaid. But, secondarily, the uncle sought restitution of the excess funds advanced to Aus Ray and the nephew for such expenses, while Aus Ray and the nephew sought reimbursement for additional expenses that they had borne.

2. [274]

   The issues were: was the claim for restitution time barred, what monies did the uncle provide for Burwood expenses, what funds did the defendants use for that purpose, and what surplus (if any) remained.

3. [275]

   To the extent that there was a surplus of funds paid by the uncle in relation to the Burwood property, and not used for that purpose, the plaintiffs sought to recover these monies as restitution for unjust enrichment. That surplus was calculated at $59,738.44. The payments were made under a mistake of fact or law: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 375-376 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ); [1992] HCA 48; Citigroup Pty Ltd v National Australia Bank Ltd (2012) 82 NSWLR 391; [2012] NSWCA 381 at [48]-[49] (Barrett JA). The uncle made the transfers in the belief that those monies were required in order to pay costs properly incurred in relation to the development of the Burwood property. That belief was mistaken to the extent of the surplus funds. The payments were also recoverable for failure of consideration: Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at [31] (French CJ, Crennan and Kiefel JJ); Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68 at [16] (Gleeson CJ, Gaudron and Hayne JJ), [102] (Gummow J).

4. [276]

   The plaintiffs submitted that the relevant limitation was six years: s 14, Limitation Act. A cause of action for restitution based on a total failure of consideration accrued when the consideration failed: G E Dal Pont, Law of Limitation (2nd ed, 2021, LexisNexis) at 109 [5.40], citing Crombie v Crombie [1903] SASR 147 at 150. That was in mid 2016, when Aus Ray and the nephew ceased working on the Burwood property and could no longer apply the funds received from the uncle to that project. So far as the cause of action for restitution was based on mistake, the uncle did not discover, nor with reasonable diligence could have discovered, his mistake until years after the payments were made: s 56, Limitation Act. Either way, the proceedings were in time. The defendants submitted that the claim was outside the six-year limitation period.

5. [277]

   Looking at the cause of action sought to be pursued by the uncle, he provided funds to Aus Ray / the nephew from time to time, to be used on the development of the Burwood property. Time does not begin to accrue until a cause of action is complete. It is not the payment of funds to Aus Ray / the nephew which caused them to be unjustly enriched, but the fact that they were no longer engaged in the development of the Burwood property and thus could no longer deploy those funds for that purpose. It was only then that Aus Ray / the nephew were unjustly enriched, to the extent that they retained any excess funds for their own benefit. As Lord Wright explained in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 61, (cited by Brennan J in David Securities at 389-390):

6. [278]

   Here, “the period available for contractual performance” came to an end when the uncle handed over the Burwood development to the niece in early to mid 2016. The restitutionary claim was made in the Summons filed on 31 December 2020 and was within time. The authority relied on by the defendants does not suggest otherwise. Sims v Commonwealth of Australia (2022) 109 NSWLR 546; [2022] NSWCA 194 concerned a restitutionary claim based on a mistake of fact. Such a cause of action accrues on payment: David Securities at 389. But that is not the restitutionary claim made here.

7. [279]

   The defendants submitted that the uncle had not established an obligation to use the monies for a stipulated purpose and that there was a mutual intention that the monies should not become part of the nephew’s assets but should be used exclusively for a specific purpose: Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353 (Gibbs ACJ, Jacobs and Murphy JJ agreeing); [1978] HCA 45; Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135 at [49] (Campbell JA, Meagher and Barrett JJA agreeing). I reject this submission. The nephew and the uncle discussed funding for the Burwood property and it was agreed that the nephew would seek funds when needed to pay fees in relation to the development, which the uncle would transfer for that purpose.

8. [280]

   It follows from the parties’ varying concessions and my conclusions in respect of set-off that the uncle has paid $66,560 more to the defendants than they have expended on his behalf in relation to the Burwood property or immigration expenses. The uncle is entitled to restitution for this amount, as the defendants will otherwise be unjustly enriched at his expense. With one exception, the uncle made all payments to Aus Ray. The uncle seeks an order that the defendants be jointly and severally liable to make restitution, and is entitled to an order in that form.

Orders

1. [281]

   Where the plaintiffs have almost entirely succeeded and the cross-claim against the son fell away, I consider that they should have their costs of their claim and the cross-claim. For these reasons, I make the following orders:

   1. (1)

      Judgment for the second plaintiff against the first defendant in the amount of $228,484 together with interest pursuant to s 100 of the Civil Procedure Act 2005 from 23 November 2012 to date.

   2. (2)

      Further judgment for the second plaintiff against the first defendant in the amount of $476,004 together with interest pursuant to s 100 of the Civil Procedure Act 2Loan

   3. (3)

      Judgment for the first plaintiff against the second defendant for $300,000 together with interest from 29 April 2014 to date, calculated at 2% of the balance of the loan from the first plaintiff to the second defendant made on 29 April 2013, at the end of each month.

   4. (4)

      Judgment for the first plaintiff against the defendants for $66,560 together with interest pursuant to s 100 of the Civil Procedure Act 2005 from 1 July 2016 to date.

   5. (5)

      Otherwise dismiss the Summons and Cross-Summons.

   6. (6)

      Direct the parties to provide calculations in respect of the interest in Orders 1 to 4 within 7 days so that the orders may be varied to include a final amount.

   7. (7)

      Direct the first plaintiff to withdraw the caveat lodged with dealing number AQ860446 over the property comprising Lot 4 in Deposited Plan 6385 and known as 41 Rawson Street, Epping NSW 2121 within 28 days.

   8. (8)

      NOTE that the second defendant is not to take any step to enforce the Charge referred to in Order 2 made by the Court on 12 May 2021 without leave of the Court.

   9. (9)

      Liberty to apply on 7 days’ notice in respect of any application for leave to enforce the Charge.

   10. (10)

       Order the defendants to pay the plaintiffs’ and cross-defendants’ costs of the proceedings.

   11. (11)

       Should either party seek a special costs order, direct that party to provide submissions (limited to 3 pages) and any affidavits in support within 7 days and further direct that any submissions (limited to 3 pages) and affidavits in reply be provided within 14 days of judgment, with any such application to be determined on the papers.

   12. (12)

       Parties to notify any errors or omissions within 7 days.