Xie v Qin

MEAGHER JA: I agree with White JA.

WHITE JA: This is an appeal from orders of the Equity Division (Xie & Ors v Qin & Anor; Qin v Taylor International Investment Pty Ltd [2023] NSWSC 254 (Kunc J)).

The appellants were plaintiffs in the court below. The primary judge dismissed their claim. He did so notwithstanding that on his Honour’s findings arguably either the first appellant (Mr Xie) or the fifth appellant (Taylor International Investment Pty Ltd (“TII”)), or both, would have been entitled to relief, had TII made an appropriate claim.

The hearing before the primary judge took 10 days. The primary judge observed (at [2]) that an understanding of the relevant financial dealings between the parties was complicated by a lack of documentation, inconsistent versions of events, and habits of business which obscured the identity and contribution of the various participants. His Honour observed that it was those features which, in part, might have explained the difficulty which his Honour faced in identifying the main cause of action ultimately propounded by the appellants.

A Mr Donghua Jiang was described by the primary judge as the instigator and architect of the arrangements that ultimately gave rise to the dispute (at [1]).

Mr Jiang is resident in Shanghai. He ran a fruit wholesale business in Shanghai. The respondent, Ms Aiyi Qin, and her husband, Mr Peihong Qin, were at all material times resident in Australia. She knew Mr Jiang from high school in China. Mr Jiang deposed that he had frequent contact with Mr and Ms Qin in respect of the importation of Australian fruit to China. Mr and Ms Qin conducted the business of exporting Australian fruit into China through their company Hongyi Australia Pty Ltd (“Hongyi”). There were existing business dealings between the parties prior to the implementation of the venture which gave rise to these proceedings.

The primary judge held that the Venture (being a venture to grow grapes in Victoria and export them to China) was conceived by Mr Jiang and primarily funded by investors in China. The Venture was managed by Ms Qin. The parties established two business vehicles for the Venture. On 6 June 2018 a unit trust was established, of which Ms Qin was initially the trustee. In that capacity, she purchased a vineyard in Victoria near Mildura. The purchase price stated in the contract of sale was $2 million. She also arranged for the establishment of TII to conduct the business of growing grapes.

There were five plaintiffs in the court below: Mr Xie, Mr Qian, Mr Shen, Mr Zhang and TII. Mr Xie, Mr Qian, Mr Shen and Mr Zhang, together with Mr Qin, were the unit holders in the unit trust. They were shareholders in TII in the same proportions. The unit trust was called the “Taylor Investment Unit Trust”.

Money for the purchase of the land and operation of the vineyard came largely from funds transferred by Mr Jiang to Australia. On seven days between 29 June and 31 October 2018, Mr Jiang transferred RMB13,550,000 (which the primary judge found was approximately $2.67 million) to an account with an Australian foreign exchange company called IMBK Pty Ltd (“IMBK”) (at [20(3)]).

The primary judge found (at [35]) that the funds forwarded by Mr Jiang to IMBK were provided by persons other than the plaintiffs and there was no evidence that would enable the Court to determine what arrangements, if any, were made between those persons, Mr Jiang, and the plaintiffs. His Honour found that it was “…clear that the funds were intended for the Venture (and thereby for one or other of the Unit Trust or Taylor International)” (at [35]).

It was not in dispute that Ms Qin was the local manager of the Venture. She withdrew funds from IMBK and, in most cases, deposited them either into an account opened with the National Australia Bank for TII called the Taylor P Account, or into an account opened with that bank for her in her capacity as trustee of the Unit Trust, called the Taylor U Account.

On 19 November 2019, Ms Qin was removed as the director of TII and replaced by the second appellant, Mr Qian. On 8 January 2020, Ms Qin was removed as trustee of the Unit Trust by resolution of unit holders and replaced by the first appellant, Mr Xie.

It was admitted on the pleadings that the Taylor P Account was opened in order to facilitate the Unit Trust. But the significance of that admission is elusive.

Relevantly, by their Further Amended Statement of Claim, the appellants sought the following orders:

The pleading in support of these claims was as follows:

TII claimed compensation from Ms Qin for alleged breach of duties she owed as a director of TII, but that claim was ultimately not pressed.

The primary judge found that Mr Qin had made a contribution of $300,880 and there is no appeal from that finding.

Although not specifically pleaded in Ms Qin’s amended defence, it became common ground at the trial that, of the asserted shortfalls pleaded by the appellants, $374,607.10 was attributable to moneys withdrawn from Mr Jiang’s foreign currency account at IMBK by Ms Qin between 29 June 2018 and 14 September 2018. On 29 June 2018 she withdrew $67,016.10 in cash. On 2 July 2018 she transferred $185,000 to a bank account of Hongyi. On 13 September 2018 she withdrew $40,000 in cash and on 14 September 2018 she withdrew $46,435.60 in cash. By the time of closing submissions, these were the amounts in issue.

It was common ground that those moneys were not applied for the purposes of the Venture. Ms Qin contended without contradiction that Mr Jiang had used his IMBK account to transfer moneys to her for both Mr Jiang’s personal purposes and for the purpose of the grape-growing venture.

Ms Qin contended that Mr Jiang had authorised her to apply the amounts of $252,016.10 (comprising $67,016.10 plus $185,000) on 27 or 28 July 2018, and $86,435.60 (comprising $40,000 and $46,435.60) on 13 September 2018, as she did. This issue was not raised by the pleadings, but it was an issue fought before the primary judge. The appellants contended that the moneys paid by Mr Jiang into the IMBK account were to be applied by Ms Qin exclusively for the purposes of the Venture. They disputed that Mr Jiang had authorised the withdrawals and transfer effected by Ms Qin and contended therefore that she ought to have held and applied the moneys for the purposes of the Venture.

In relation to the withdrawal of $67,016.10 in cash, the primary judge found:

The primary judge’s reference to the obligation to repay the amount to Mr Xie as trustee of the Unit Trust must be read subject to his Honour’s other reasons. As explained below, that statement should be understood as saying that his Honour considered that Ms Qin was liable to repay that amount to Mr Xie as trustee of the Unit Trust, or to TII.

In respect of the transfer of $185,000 to Hongyi, the primary judge did not accept Mr Qin’s evidence that Mr Jiang had authorised the balance of the $252,016 transfer (being $185,000) to pay for purchases of fruit that had been made by Mr Jiang. Hence his Honour rejected Ms Qin’s “defence” to this claim (at [205]-[209]).

In respect of the two cash withdrawals on 13 and 14 September 2018 totalling $86,435.60, the primary judge was not satisfied that Mr Jiang had authorised Ms Qin’s cash withdrawals and subsequent payments (at [232]).

Those findings are not challenged by the respondent.

At no time during the trial did TII (the fifth plaintiff) make any claim to the sum of $338,451.70 which, on the primary judge’s findings, Ms Qin misapplied.

In further findings, which are unchallenged, the primary judge found:

That Ms Qin could allocate moneys for the Venture at her discretion, either as assets of the Unit Trust or to TII, was not an issue raised on the pleadings nor in the parties’ affidavits. Nonetheless it was an issue that was litigated at trial. In his written opening submissions at trial, counsel for the defendants, Mr Lees, submitted the following under the heading “What is the proper legal characterisation of the contributions made by the unit holders/shareholders?”:

Although that submission was not directly relevant to the present issue, it did draw attention to the need to consider whether Mr Xie as trustee of the Unit Trust or TII was the party entitled to maintain a claim in respect of the moneys allegedly misappropriated by Ms Qin.

In his written opening submissions, Mr Lees submitted that Ms Qin was entitled to rely on Mr Jiang’s authorisation to use some of the moneys she received from him via IMBK transfers for payments of Mr Jiang’s debts and for purposes unrelated to TII and the Unit Trust. Mr Lees submitted that, in agreeing to Ms Qin’s withholding or retaining part of the moneys transferred, Mr Jiang was either using part of the funds that he and his wife had contributed, or alternatively that he had either actual or ostensible authority to act on behalf of the first to fourth plaintiffs. He submitted that: “The result of this is that $338,451.70 of the total funds transferred by Mr Jiang to Ms Qin never formed part of the contributions to the Unit Trust and TII…”.

It does not follow from the above reference to TII that the defendants could be taken to have implicitly acceded to a claim that, without amendment to the pleadings, TII rather than the first to fourth plaintiffs could maintain a claim against Ms Qin for the moneys she withdrew. The submissions continued:

Mr Jiang did not sue as a co-plaintiff.

The hearing of the evidence concluded on 10 November 2022. At the conclusion of the evidence, Mr Lees said he had prepared a draft list of issues which he had shown to the plaintiffs’ counsel, Mr Norrie, which he handed up. The primary judge expressed reservations about the form of the pleading and the claim for relief which sought an account. His Honour observed that an application for an account would require a complete accounting of the operation of the business in order to suggest that the trustee had an obligation to account.

Mr Lees also said:

The parties prepared written closing submissions. In the closing submissions for the appellants, Mr Norrie of counsel submitted that, relevantly, the issue to be determined by the Court was:

His submissions did not address the question as to who would be the appropriate plaintiff to claim relief if Ms Qin were not so authorised.

In his submissions, Mr Lees for the defendants identified the first issue as follows:

He submitted that Ms Qin had a discretion to decide whether funds received from Mr Jiang should be allocated to the Unit Trust or TII.

Mr Lees also submitted:

The parties’ closing submissions are both dated 14 November 2022. The hearing before the primary judge resumed on 15 November 2022. Mr Lees repeated his submission that the funds did not become part of the assets of the Unit Trust. He submitted that Ms Qin allocated some of the IMBK moneys to the trust and some to the company so it did not automatically follow that all of the funds went to the trust.

The plaintiffs did not seek leave to amend the statement of claim to allege that either Mr Xie as trustee of the unit trust, or TII, or both, were entitled to the moneys Ms Qin had allegedly misapplied. Mr Norrie submitted that the moneys were advanced by the first to fourth plaintiffs (being unit holders and shareholders) and were received by Ms Qin on trust for them for the purpose of investing in the farmland “and all that that entailed”.

As noted above, the primary judge rejected the submission that the moneys had been advanced by the first to fourth plaintiffs, and there is no appeal from that finding.

In relation to the submission that Ms Qin had a discretion as to whom moneys should be paid, Mr Lees submitted:

The primary judge summarised the submission as follows:

The primary judge upheld this submission. He rightly observed that the plaintiffs had made no answer to it (at [38]). His Honour found:

There is one ground of appeal, namely, that the primary judge ought to have found that Ms Qin held the “Impugned Transactions” as defined in the judgment dated 22 March 2023 at [6] on trust for both the first and fifth appellants (Mr Xie in his capacity as trustee of the Unit Trust, and TII).

In support of that ground of appeal, the appellants sought leave to amend the statement of claim. Initially the statement of claim proposed to be filed relevantly only sought an amendment to the claim for relief as follows:

The basis for that claim for relief was not articulated in the Proposed Further Amended Statement of Claim. As I understood it, this was because the appellants proceeded on the basis that the parties had departed from the pleadings in their conduct of the trial and it was not necessary to bring the pleadings into line with the real issues to be determined.

That position was not sound. Where a trial is conducted on issues other than those pleaded, the pleadings should be brought into line with the issues as fought, even if that is done after the evidence is closed, or even after judgment and an appeal (Bell v Lever Brothers Ltd [1932] AC 161 at 191; National Australia Bank Ltd v Nobile (1988) 100 ALR 227 at 235-6; Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 446; Pringle & Ors v Everingham [2006] NSWCA 195 at [49]).

After suggestions from the Bench that the claim as now sought to be put should be pleaded, the appellants propounded the following additional paragraphs to the pleading:

If Ms Qin held the moneys the subject of the “Impugned Transactions” on trust for unit holders of the unit trust or TII at her discretion, then there would be a strong argument that Mr Xie as the new trustee of the unit trust and TII acting together could bring the trust to an end and require Ms Qin to account to them jointly for those moneys (Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 at 411).

The difficulty for the appellants is that they seek to propound on appeal a case that was not fought at trial. In such cases leave to amend so as to raise a new point on appeal will depend on whether the issue raised is purely one of law on which no unled evidence would be relevant or whether, if it raises a question of fact, that question has been decided beyond controversy. That will not depend merely on whether the judge’s findings of fact on the issues presented at trial are not sought to be controverted, but on whether, if the new issue sought to be raised on appeal had been raised at trial, the judge’s findings might possibly have been different (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; [1950] HCA 35).

The proposed amended pleading alleges the existence of a trust of which Mr Xie or TII were to be beneficiaries at the discretion of Ms Qin. The reference to Mr Xie is presumably to Mr Xie in his capacity as the successor to Ms Qin as trustee of the Unit Trust. So understood, the proposed pleading should be taken as alleging that Mr Jiang authorised Ms Qin to withdraw the particular funds in issue from the IMBK account to be used for the benefit of the Unit Trust of which she was then the trustee or, at her discretion, for the benefit of TII.

In their written submissions, the appellants characterised the trust alleged as in the nature of a trust recognised in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. They cited Gibbs ACJ in Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353; [1978] HCA 45:

In Barclays Bank Ltd v Quistclose Investments Ltd the lender, Quistclose, lent money to Rolls Razor Ltd to pay a dividend to its shareholders that had been declared. The moneys were paid into a separate bank account opened for the purpose of receiving the money to be paid by way of dividend. Both Quistclose and Rolls Razor intended that the moneys should not become part of Rolls Razor’s assets. In Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Gummow J (at 500-501) characterised the arrangements as:

It was essential to the decision in Barclays Bank Ltd v Quistclose Investments Ltd that the moneys advanced by Quistclose never became part of the assets beneficially owned by Rolls Razor.

Whether the arrangements between Mr Jiang and Ms Qin were such that the moneys she withdrew from the IMBK account never became part of the assets she beneficially owned was not an issue ventilated at trial. Nor was it addressed on appeal.

We were referred to no evidence that Mr Jiang expressly declared that the moneys he sent to the IMBK account were to be applied by Ms Qin solely for the benefit of the Unit Trust or TII. Ms Qin said that some of the moneys transferred could be treated as a personal loan. Mr Jiang did not demur.

Mr Jiang did not require that Ms Qin keep any of the moneys she withdrew separate from her own moneys.

In the absence of evidence of an express declaration of trust, a declaration will be presumed only where it necessarily appears that the settlor intended to create a trust (Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 187; [1920] HCA 45; Byrnes v Kendle (2011) 243 CLR 253 at 262 [16]; [2011] HCA 26).

Mr Jiang was not a party to the proceedings. He gave evidence for the appellants. As the respondent submitted he was not cross-examined in any detail as to whether the transferred funds as a whole were paid on condition that they be applied for a specific purpose and what that purpose was. Nor was he cross-examined on facts that would be relevant to whether an express trust was created, or whether the moneys transferred became part of the assets of Ms Qin but she was under a personal obligation to Mr Jiang to apply them to TII or for the benefit of the unit trust.

The respondent also submitted that although the primary judge found that some of the funds transferred by Mr Jiang were intended for the Venture, that was not true of all of the funds transferred. Some of the funds transferred related to other matters for Mr Jiang’s personal use which were not the subject of a claim.

If the claim now sought had been pleaded before trial, additional evidence may have been called. The primary judge’s findings of fact may have been different. There was a real issue, raised by Mr Lees, as to whether the appropriate plaintiff was neither Mr Xie nor TII, but Mr Jiang. That issue was not addressed on appeal. It cannot be addressed on appeal because evidence relevant to it might have been led at trial had the proposed amended pleading been raised before or at trial.

The appellants do not challenge the correctness of the primary judge’s reasons on the issues litigated before him.

For these reasons, the new issues sought to be ventilated on appeal should not be entertained.

I propose that the appeal be dismissed with costs.

BASTEN AJA: I agree with White JA.