Supreme Court New South Wales Medium Neutral Citation: Gong v Tasman Funds Management Pty Ltd [2023] NSWSC 1366 Hearing dates: 8 November 2023 Date of orders: 10 November 2023 Decision date: 10 November 2023 Jurisdiction: Equity Before: Elkaim AJ Decision: See paragraph 65 Catchwords: PRACTICE AND PROCEDURE – pleadings – amendment – application to amend statement of claim – where second plaintiff may not have been aware of the hearing – where proposed fourth defendant was not represented – whether there was sufficient explanation for the delay in bringing the motion – whether the delay was a result of a tactical decision – whether pleadings were defective or embarrassing. CIVIL PROCEDURE – parties – joinder CORPORATIONS – voluntary administration – Deed of company arrangement – whether leave required under s 444E(3)(c) of the Corporations Act 2001 (NSW) EQUITY – Trusts and Trustees – resulting trusts – Quistclose Trusts Legislation Cited: Corporations Act 2001 (Cth), s 444D, 444E Partnership Act 1892 (NSW), s 50A Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101 Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32 General Steel Industries Inc v Commissioner for Railways (NSW); (1964) 112 CLR 125; [1964] HCA 69 Gunns Ltd v Marr [2005] VSC 251 Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Ltd (in liq) [2015] FCA 1098 White v Shortall (2006) 68 NSWLR 650; [2006] NSWSC 1379 Category: Procedural rulings Parties: Benyi Gong (First Plaintiff) Qingju Tian (Second Plaintiff) Deshen Wang (Third Plaintiff) Ruiyong Hao (Fourth Plaintiff) Tasman Funds Management Pty Ltd (First Defendant) TFM Epping Land Pty Ltd (receivers and managers appointed) (Second Defendant) Sino-Au Property Investments Pty Limited (Third Defendant) Tasman Development Holdings Pty Ltd (Proposed Fourth Defendant) Philip Campbell-Wilson and Said Jahani of Grant Thornton as joint and several Receivers and Managers of TFM Epping Land Pty Ltd (Proposed Fifth Defendant) John Melluish and Stephen Mitchell as Deed Administrators of TFM Epping Land Pty Ltd (Proposed Sixth Defendant) Perpetual Corporate Trustee Limited (CAN 000 341 533) in its capacity as custodian for the QCAX Australian Property Income Fund (ABN 43 973 061 248) (Atlas) (Proposed Seventh Defendant) Representation: Counsel: Mr T Castle and Ms A Elizabeth (First, Third and Fourth Plaintiffs) Mr A Oakes (First and Third Defendants) Mr M Rose (Second Defendant and proposed Fifth Defendant) Mr M Popplewell (proposed Seventh Defendant) Solicitors: L'Orient Legal (First, Third and Fourth Plaintiffs) Dentons Australia Limited (Second Defendant and proposed Fifth Defendant) Auyeung Hencent & Day Lawyers (First and Third Defendants) neolaw (proposed Seventh Defendant) File Number(s): 2018/122351 JUDGMENT 1. I am dealing with an amended notice of motion, originally filed on 18 July 2023, but then later amended to the form filed in court during the hearing. It seeks leave to file a further amended statement of claim. The application entails the joinder of further parties to the proceedings. 2. The source of the proceedings is a property development in the Sydney suburb of Epping. 3. Originally, the proceedings began with the filing of a summons in April 2018. On 23 April 2018, an order was made directing the matter to proceed by way of adversarial pleadings. 4. There were originally four plaintiffs. The plaintiffs, excluding the second plaintiff were referred to by the parties as the "active plaintiffs." I will refer to them as the plaintiffs. They (plus the second plaintiff) invested $6 million in the development in June 2015. This money was used to purchase land upon which a unit complex was built. 5. The development has engendered significant litigation in both this court and the Federal Court of Australia. As I understand it however, the plaintiffs have not been parties to any of this litigation. 6. The background to the disputes that have arisen from the development were concisely described by McKerracher J in Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2021] FCA 32, in particular from [18]. At [21], his Honour observed: "Precisely how the land purchases for the Epping Development were financed is not entirely clear. According to the Administrators, those purchases were financed by debt finance of $18,5000,000 and equity finance of $6,000,000." 1. The equity finance is the monies put in by the plaintiffs. The lack of clarity confronting McKerracher J is a reflection of the complexity and opaque character that has enveloped the Epping project. 2. On 8 June 2018, the (then) five defendants filed a notice of motion seeking security for costs. On 24 August 2018 Kunc J ordered the plaintiffs to provide security in the sum of $290,000 within 14 days. 3. On 20 March 2019, the same defendants filed a notice of motion seeking dismissal of the proceedings because the plaintiffs had not complied with the security for costs order. The security was then deposited although there have been some withdrawals since then. 4. On 24 September 2019, the plaintiffs filed an amended statement of claim. 5. The proposed statement of claim is a variation of a pleading served on 17 July 2023 but then further amended following orders made by Kunc J on 23 September 2023. The current proposal was served on 28 September 2023. It was yet further amended during the hearing of the motion. 6. When Kunc J made orders on 23 September 2023, his purpose was to ensure the whole of the issues that might arise would be before the court for the hearing of the motion. Two matters impeded the otherwise success of this intent: 1. the proposed fourth defendant (Tasman Development Holdings Pty Ltd) was not represented, and 2. the second plaintiff did not appear, was not represented, and may not have been aware of the hearing. 1. The second plaintiff's difficulty arises from the fact that she seems to have lost interest in the proceedings. However, there has not been a notice of discontinuance, which might have cost implications, and some of the parties thought it appropriate that she become a defendant. 2. I decided that it would be inappropriate to adjourn the motion to another date to allow for the possible participation of the second plaintiff. Bearing in mind the number of parties present, the cost applications would have been significant. In addition, the second plaintiff lives in China and could have difficulties in arranging representation on short notice. I therefore decided that I would proceed but direct that any orders I made be communicated to her and she be given the opportunity to raise any issues arising from the orders. 3. The fourth proposed defendant is in a slightly different position, being a company apparently closely associated with the first and third defendants but, for reasons unknown, not represented by a common solicitor. Some inquiries were made of the proposed fourth defendant, but these did not reveal any final stance on the motion. Counsel for the first and third defendants did however suggest that it would be unlikely that the proposed fourth defendant would take any different position to that of his clients. 4. Notwithstanding counsel's assistance, I thought the better way to proceed was in a similar fashion to that concerning the second plaintiff; to continue with the motion and then give the proposed fourth defendant leave to relist the matter in respect of its involvement. 5. The proposed sixth defendant neither objected to, nor consented to, its joinder to the proceedings. All of the other present defendants or proposed defendants objected to the orders sought. I will refer to them collectively as the opponents. 6. I note here that leave to amend and to join further parties was not the extent of the orders sought. The active plaintiffs also sought an order that: "If and to the extent necessary, pursuant to s 444E(3)(c) of the Corporations Act 2001 (Cth) the plaintiffs have leave, nunc pro tunc, to continue these proceedings." 1. With one exception, all of the opponents to the motion did not wish to be heard on the s 444(3)(c) order. The exception was the proposed seventh defendant. 2. The possibility of leave arises because the second defendant was placed into administration on 30 June 2022. A Deed of Company Arrangement was then entered into on 17 August 2020 with the proposed fourth defendant. 3. The plaintiffs' primary point, on this issue, was that they did not in any event need leave because they were not creditors of the second defendant (s 444D). I think this is probably correct, however in the whole of the circumstances of the matter and noting the ambivalence of the majority of the parties to the issue, I would in any event have granted leave. I will do so in case it is necessary. I also note the submission of the active plaintiffs that even if they were creditors, their rights of ownership were not affected by the Deed because of s 444D(3). 4. The involvement of the current plaintiffs began with their execution of a partnership agreement on 27 July 2015. The agreement was intended to be a limited partnership, with a term of three years, falling under s 50A of the Partnership Act 1892 (NSW). As is evident from this section the partnership is only formed upon registration under the Act. This partnership agreement was never registered. 5. The inability to pursue their rights under the partnership agreement, and the manner in which the development proceeded, including being mired in debt and litigation, has led the plaintiffs to assert that they have a proprietary interest in unsold units in the development as well as the proceeds of sale of two of the units, those proceeds now being held by the proposed fifth defendant. 6. This proprietary interest was said to arise from the failure to register the limited partnership, in turn giving rise to a trust, described in one of two ways. The trust was either a resulting trust or a Quistclose trust (derived from Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567). 7. The arguments opposing the motion were widespread and, in some cases, I thought endeavouring to litigate issues that ought to be dealt with at a final hearing. The opponents, although seemingly accepting the applicability of the test set out in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69, attempted to obtain rulings on causes of action as if they were being litigated rather than being identified as untenable or otherwise. 8. The opposing parties had arguments in common and also arguments relating to their individual positions. The primary argument in common was that the motion should be refused because of the delay that attended the motion being brought. 9. As noted above, the proceedings go back to 2018. It was asserted that all relevant facts were known in 2018. The opponents, relying primarily on Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 ("Aon"), submitted there was no good explanation for the delay and the granting of the orders sought would offend the principles of case management which are emphasised in the High Court decision. 10. The plaintiffs, submitted the opponents, had made tactical decisions as to when and how they should proceed. They should not be allowed to obtain the benefit of those decisions, all of which could have been made a long time ago. Thus, if the plaintiffs asserted the existence of a trust, then knowing that the limited partnership agreement had never been registered, they could have made the assertion in 2020, even if not in 2018. 11. The opponents pointed to the fact that the case had been listed for hearing in September 2020 with a one-day estimate. It could not proceed because the second defendant went into administration. Nevertheless, that should not have prevented the plaintiffs from pursuing, through appropriate applications, the case that they now wish to present. All of the facts upon which they currently rely, were known to them in 2020. 12. The plaintiffs responded that the matter was well prepared in 2018 with affidavits being gathered and the matter working its way towards the September 2020 hearing date. Although there were some delays in payment of the security for costs, the security was ultimately paid. 13. The plaintiff's submitted that the case went astray in 2020 with the appointment of administrators and receivers to TFM Epping Land Pty Ltd. The proceedings had to be adjourned. 14. A new complication soon arose with the solicitor having the carriage of the matter "disappearing." It was not until November 2022 that the current solicitor, who had had a minor role in the past, took on the matter on a full-time basis. Since taking over, the new solicitor has worked assiduously to bring the matter to its present stage. 15. In relation to the allegation of the plaintiffs making tactical decisions, the plaintiffs responded that their decisions were reactive, or responsive, to the facts as they arose. In particular it was said that even in 2020 the development was continuing so that the raising of the trust issues was not necessary. 16. In respect of Aon, the plaintiffs submitted that the amendments here were very different to those being dealt with by the High Court, in particular because the applications in Aon were being made in the course of a hearing. In addition, in Aon, the trial judge took an inordinately long time to deal with the applications. 17. I think there has been delay in this case and no doubt the applications could have been brought on earlier. However, the applications will not delay any already set hearing date and future case management of the matter should be able to make up for some lost time. I accept that the plaintiffs' current solicitor has done his best to put the matter in order. I also accept that the pursuit of an allegation of a proprietary interest has been responsive to matters out of the control of the plaintiffs and not a product of tactical decisions. 18. I am also mindful of the fact that although there are new defendants being added, none of them are strangers to the dispute or to the history of the development. 19. The opponents raised a number of pleading issues some of which were dealt with during the hearing by concessions from the plaintiffs, together with a preparedness to make consequent changes to the proposed further amended statement of claim. 20. The first and third defendants were particularly concerned that the pleading, as proposed, did not overtly limit their exposure to the approximately $6 million which might currently be available to the plaintiffs should they be successful. 21. It was also noted that paragraph 28 of the new pleading refers to relief against all of the defendants derived from the assertions put in paragraphs 8 to 27. The third defendant pointed out however that paragraphs 8 to 27 made no allegation against the third defendant. 22. The plaintiff accepted this point and said that a new paragraph 28 would be drafted so as to commence "In the premises" rather than "By reason of paragraphs 8-27 above". 23. The first and third defendants complained that paragraphs 17, 18 and 19 contained alternatives which were not open to the plaintiffs. They could not, it was submitted, plead inconsistent states of mind. I was referred to White v Shortall (2006) NSWLR 650; [2006] NSWSC 1379 where Campbell J said at [673]: "In other words, so far as declaration to create a trust is concerned, it is the subjective intention of the settlor that is critical. Even so, frequently the subjective intention is ascertained, as a matter of evidence, by inference from objective circumstances." 1. The plaintiffs responded by taking me to Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [69] and [73] per French J: "The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties." "The process of ascertaining whether the necessary intention to create a trust should be imputed is one of construction of the relevant text or oral dealings in their context." (citations omitted) 1. Accordingly, submitted the plaintiffs, an objective approach through alternatives, was a legitimate means of identifying the necessary subjective intention. 2. Whichever approach is correct is not a matter for me in the hearing of this notice of motion. There is not one side that is so obviously untenable. 3. The first and third defendants submitted that the pleadings were embarrassing. I was taken to an excerpt from Gunns Ltd v Marr [2005] VSC 251 at [57] per Bongiorno J: "Not only must the pleading inform the defendants of the case they must meet now, but it must clearly set out the facts which the plaintiffs must assert to make good their claim with sufficient particularity to enable any eventual trial to be conducted fairly to all parties. Vague allegations on very significant matters may conceal claims which are merely speculative. If this be not the case, the plaintiffs must put their allegations clearly." 1. It was submitted that the allegations were so vague as to be unfair. Paragraph 29, for example, did not identify the underlying facts. The plaintiffs conceded some fault with this paragraph and undertook to amend it, so that it reads: "Further, or alternatively, by reason of paragraphs 8-27 above, if and to the extent that any of the defendants Tasman Funds, Sino Au, TDH, the Receivers and/or the Deed Administrators has received and/or holds and/or has held any money from a sale of any of the Properties, the plaintiffs are entitled to an award of equitable compensation and/or damages to compensate the plaintiffs for any loss of the Trust Amounts together with interest thereon and costs". 1. I have no doubt that the defendants would not be satisfied with the above amendment, but I do think it goes some way to defining the plaintiffs' case at least sufficient to identify the claim being made by them. 2. Other amendments suggested by the plaintiffs during the hearing included the deletion of the proposed eighth defendant and a slight amendment to prayers 2, 3 and 10. 3. The second defendant and proposed fifth defendant took issue with the proposed paragraph 7A and in particular the use of the words "allegedly" and "purportedly". They were primarily concerned with the possibility of a challenge to the validity of the appointment of the receivers. 4. The plaintiffs assured the court that it was not intended to make such a challenge. I will note this assurance in my orders. 5. The seventh defendant (referred to as "Atlas") submitted that the second plaintiff should become a defendant, as should Dr Zhang. I have already discussed my intent in relation to the second plaintiff. As to Dr Zhang I do not see that I can direct the plaintiffs to include a further defendant, in particular one who has not been given notice of such an application. His exclusion is a risk that the plaintiffs must take. 6. The seventh defendant was primarily behind the submissions concerning the taking of tactful decisions. I have dealt with that issue above. This defendant also stressed the principles emanating from Aon and other cases concerning amendments to a pleading. I was referred to Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Ltd (in liq) [2015] FCA 1098, at [127] per Gleeson J: " … Relevant matters the Court is to consider include: (1) The nature and importance of the amendment to the party applying for it: Aon at [102]; (2) The extent of the delay and the costs associated with the amendment: Aon at [102]; (3) The prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at [5], [100] and [102]; (4) The explanation for any delay in applying for that leave: Aon at [108]; and (5) The parties' choices to date in the litigation and the consequences of those choices: Aon at [112] and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 ("Luck") at [44]; (6) The detriment to other litigants in the Court: Aon at [93], [95] and [114] and Luck at [44]; and (7) Potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at [5], [24] and [30]." 1. It is also necessary to look at [128]: "The weight to be given to the considerations identified in Aon, individually and in combination, and the outcome of the balancing process, may vary depending on the facts in the individual case: Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101 at [51]." 1. The qualification in [128] emphasises the need to look at each case on its own facts. In this matter I think the balance favours the plaintiffs, in particular through their current endeavours to bring all matters before the court and to positively respond to criticism, even in the course of the hearing. 2. I hope I have dealt with the substantive points made by the defendants and proposed defendants. As I have just said, my overall impression is that leave should be given to the plaintiffs to recover their losses. It is to be remembered that they invested some $6 million in the enterprise. They have received nothing in return. 3. I also note that the plaintiffs made it very clear that the extent of their claim would not exceed the approximately $6 million that was available when the notice of motion was filed. 4. The opponents made a number of valid points concerning the strength of the plaintiffs' claims. They are points however, which should be decided at a final hearing. For me to decide these points would be to engage in an exercise that would not be dissimilar to that which will be undertaken by the judge when hearing the substantive case. 5. It follows from the above that the orders sought in the Amended Notice of Motion, subject to some variation, should be made. This will include the joinder of the proposed fourth, fifth, sixth and seventh defendants. The second plaintiff should also be added as a defendant. The joinder of the second plaintiff and fourth defendant will of course be subject to variation should they wish to be heard. 6. The order giving leave will allow for 28 days for the second plaintiff and proposed fourth defendant to be contacted and raise any issues they might have. 7. A matter that arose in discussion concerned security for costs. The opponents submitted that the current security would not cover a costs order encompassing what will now be a longer hearing. I contemplated, as a means of saving time and costs, including the payment of extra security as a condition of the amendments. 8. The plaintiffs submitted that following orders in their favour an application for security for costs was inevitable and would have the advantage of full evidence concerning quantum. I think this is a valid argument and I will leave the security question in the hands of the opponents. 9. In relation to costs, the plaintiffs sought an order in their favour on the basis that they had appropriately responded to the observations made of previous attempts at amendment and responded to such an extent that the opponents should have consented to the final application. 10. The opponents also sought costs, pointing out the many steps that had been taken to bring the proposed pleading to an acceptable form, emphasised by the need for further amendments to occur during the hearing. 11. I think there is validity in both sides of the costs' argument. My purpose is to reach a just result which I think is found in an order that the plaintiffs pay the costs of the notice of motion up to the date of the hearing, including preparation, and that each party pays its own costs of the day of hearing. 12. I make the following orders: 1. If necessary, the first, third and fourth plaintiffs have leave to continue the proceedings nunc pro tunc, pursuant to s 444E(3)(c) of the Corporations Act 2001 (Cth). 2. The first, third and fourth plaintiffs have leave to file a further amended statement of claim after 28 days in the form commencing at p 105 of the Court Book (Exhibit A1) but including the amendments notified in the course of the hearing to the relief claimed and to paragraphs 7C, 28, and 29. 3. Order 2 above includes leave to join as defendants: 1. Philip Campbell-Wilson and Said Jahani as receivers and managers of TFM Epping Land Pty Ltd; 2. John Melluish and Stephen Mitchell as Deed Administrators of TFM Epping Land Pty Ltd; and 3. Perpetual Corporate Trustee Limited in its capacity as custodian for the QCAX Australian Property Income Fund. 1. The current second plaintiff is to be joined as a defendant to the pleadings. 2. The court notes: 1. that the plaintiffs do not allege that there was any impropriety or irregularity in the appointment of the receivers as set out in paragraph 7A; and 2. that the plaintiffs do not claim any amount not held by the receivers or any other party as at the date of the filing of this notice of motion. 1. The first third and fourth plaintiffs are to pay the costs of this notice of motion of the first, second, third, fifth and seventh defendants up to the date of hearing, and including preparation for the day of hearing, but each party is to pay its own costs of the day of hearing. 2. The current second plaintiff and proposed fourth defendant are to be notified of these orders and informed that they have leave to list the matter before me within 28 days should they wish to challenge the orders made concerning them. ********** Amendments 15 November 2023 - Jurisdiction amended to Equity DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 November 2023