Supreme Court New South Wales Medium Neutral Citation: City Garden Australia Pty Ltd (in administration) as trustee for the Ming Tian City Garden Unit Trust v Meng Dai [2023] NSWSC 1498 Hearing dates: 31 July, 1, 2, 3, 4, 7, 8, 9, 23, 24 August 2023 Date of orders: 5 December 2023 Decision date: 05 December 2023 Jurisdiction: Equity - Commercial List Before: Rees J Decision: Declare secretary not validly appointed; directions made to enable Court to specify amount in a compensation order against director under s1317H(1), Corporations Act 2001 (Cth) and judgment against solicitor for equitable compensation; summons and cross claims otherwise dismissed. Catchwords: CORPORATIONS — plaintiff undertakes property development with related company as builder — plaintiff has two directors, one of which is also director of builder — common director appoints wife as secretary of plaintiff, without other director's knowledge — common director obtains three loans for builder in the name of, or guaranteed by, plaintiff and secured over plaintiff's property — substantial purpose of loans was for builder's other property developments — finance documents executed by common director and wife. SECRETARY — constitution required directors to appoint secretary — meeting did not take place — whether directors passed informal resolution through 'meeting of the minds' — second defendant unaware of appointment until after first transaction — whether second director ratified appointment by inaction — no ratification in absence of full knowledge of material facts. DIRECTORS AND OFFICERS — authority —constitution and trust deed required resolution to borrow money — no written resolution — whether directors passed informal resolution through a 'meeting of the minds' — whether common director conferred with authority to borrow money without conferring with second director — no actual authority. STATUTORY ASSUMPTIONS – s129 Corporations Act — "dealings with a company" — whether lenders entitled to rely on assumptions — common director negotiating loans with lenders to the knowledge of second director, who took no steps —inaction conferred ostensible authority on common director — lenders entitled to rely on statutory assumptions that wife validly appointed — lenders did not actually know or suspect that assumptions were incorrect — knowledge of lenders' solicitor could not be imputed for purpose of s 128(4), Corporations Act — plaintiff not entitled to have transactions set aside. DIRECTORS' DUTIES — statutory and fiduciary duties — common director breached duties in obtaining — loans obtained without knowledge of second director — compensation order to follow under section 1317H of Corporations Act. LEGAL PROFESSION — fiduciary duties — plaintiff's solicitor proceeded to act for lenders — whether solicitor retained by plaintiff in respect of finance — whether solicitor in breach of duty to avoid conflicts between interests of clients — for first loan, solicitor had broad retainer including in respect of finance and was actively assisting the plaintiff to obtain finance — solicitor in a position of conflict by acting for lender on first loan — solicitor failed to obtain fully informed consent of plaintiff before acting for lender, where solicitor acting for corporation has a duty to ensure that their instructions are truly the instructions of the client — in breach of fiduciary duty to avoid conflicts with respect to first loan — solicitor aware of disconformity between borrower and recipient of the loan funds — solicitor made no enquiry of second director — breach of fiduciary duty. EQUITABLE COMPENSATION — causation — assessing compensation where 'conflict of duty and duty' — purpose of duty to avoid conflicts is to ensure that solicitor does not prefer one client's interests over the other — by acting in breach, solicitor disregarded plaintiff's best interests and focussed instead on lender's interests — had solicitor had regard for plaintiff's interests, solicitor would have taken steps to ascertain where plaintiff's interests lay — second director would have been notified of unauthorised loans, which would not have gone ahead — relevance of independent solicitor — solicitor liable to compensate plaintiff for indebtedness incurred as a result of entering and refinancing first loan. CIVIL LIABILITY ACT — equitable obligations —whether claim against solicitor apportionable under Part 4 of the Civil Liability Act 2002 (NSW) — s 34(1) of Civil Liability Act requires failure to take reasonable care to be an element of the plaintiff's cause of action — claim against solicitor was a claim for breach of 'no conflicts' duty — failure to take reasonable care not an element of claim — claim not apportionable. PROFESSIONAL STANDARDS SCHEME — whether solicitor's liability limited — scheme not in force when act or omission giving rise to cause of action occurred. Legislation Cited: Evidence Act 1995 (NSW), s 140(2)t Corporations Act 2001 (Cth), ss 126, 127, 128, 129, 180, 181, 182, 183, 198A, 204D, 204F, 1317H(1) Home Building Act 1989 (NSW), s 92(1) Civil Procedure Act 2005 (NSW), s 100 Civil Liability Act 2002 (NSW), ss 5A, 5O 34(1) Professional Standards Act 1994 (NSW), ss 4(1), 28 Cases Cited: 183 Eastwood Pty Ltd v Dragon Property Development & Investment Pty Ltd [2023] NSWCA 72 A v New South Wales [2007] HCA 10; (2007) 230 CLR 500 ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2015) 224 FCR 1 Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201 Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd (2013) 282 FLR 351; [2013] NSWCA 459 Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC1229 BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 Blatch v Archer (1774) 1 Cowp 63; (1774) 98 ER 969 Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362 Bristol & West Building Society v Mothew [1998] Ch 1 Canson Enterprises Ltd V Boughton & Co (1991) 85 DLR (4th) 129 Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; 113 ACSR 31; [2016] WASCA 84 CEO of Customs v Liang [2004] NSWSC 1240 (conviction); CEO of Customs v Liang [2005] NSWSC 591 Chan v Zacharia (1984) 154 CLR 178 Chappell v Hart (1998) 195 CLR 232; [1998] HCA 55 Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 CLGC Pty Ltd v Zhang [2021] NSWSC 946 Correa v Whittingham [2013] NSWCA 263 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 Dragon Property Development & Investment Pty Ltd v 183 Eastwood Pty Ltd [2022] NSWSC 910 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988] 14 NSWLR 523 Errichetti Holdings Pty Ltd v Western Plaza Hotel Corporation Pty Ltd [2006] WASC 113; (2006) 201 FLR 192 Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375 Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964] 2 QB 480 Furs Ltd v Tomkies (1936) 54 CLR 583 Gales Holdings Pty Ltd v Tweedy Shire Council [2011] NSWSC 1128 Gallop Reserve Pty Ltd v Matton Developments Pty Ltd [2019] QSC 113 George v Webb [2011] NSWSC 1608 Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 Hill v Rose [1990] VR 129 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Hudson Investments Group Ltd v Atanaskovic [2010] NSWSC 1055 In Perpetual Trustee Co Ltd v CTC Group Ltd (No 2) [2013] NSWCA 58 In the matter of Hot Frog Pty Ltd [2022] NSWSC 6 In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1 Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 Maguire and Another v Makaronis and Another [1997] HCA 23; (1997) 188 CLR 449 Minkin v Landsberg [2016] 1 WLR 1489 Motor Yacht Sales Australia Pty Ltd v Cheng [2021] NSWSC 1141 Neville v Lam (No 3) [2014] NSWSC 607 Nocton v Lord Ashburton [1914] AC 932 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Parker v McKenna (1874) LR 10 Ch App 96 Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 Payne v Parker [1976] 1 NSWLR 191 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1996) 115 CLR 266 Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Rahme v Benjamin Khoury Pty Ltd [2019] NSWCA 211; (2019) 100 NSWLR 550 Rama v Millar [1996] 1 NZLR 257 Re Earth Civil Australia Pty Ltd (in liq) [2021] NSWSC 966 Re Matlic Pty Ltd (in liq) [2014] NSWSC 1342; (2014) 102 ACSR 602 Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187 Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWCA 308 Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWSC 438 Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 Roden v International Gas Applications (1995) 18 ACSR 454 Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068 Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 Swindle v Harrison (1997) 4 All ER 705 Target Holdings Ltd v Redferns [1996] AC 421 Vrisakis v Australian Securities Commission (1993) 9 WAR 395 Yee v Robert [1997] 3 LRC 138 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: A Abadee et al., Professional Liability in Australia (Thomson Reuters, 4th ed, 2023) Matthew Conaglen, Fiduciary Loyalty (Hary Publishing, 1st ed, 2010) Patrick Parkinson, The Principles of Equity (Thomson Lawbook Co, 2nd ed 2003) Paul Finn, Fiduciary Obligations (Federation Press, 2nd ed, 2016) PW Young QC, Declaratory Orders (Butterworths, Second Edition, 1984) Solicitors Manual (LexisNexis Butterworths, last updated November 2023) Category: Principal judgment Parties: City Garden Australia Pty Ltd (Plaintiff) Meng Dai (First Defendant) Gerrard Toltz Pty Ltd (Second Defendant) Gemi 130 Pty Ltd (Third Defendant) Bridge Street Capital No 2 Pty Ltd (Fourth Defendant) Wallis Island Pty Ltd (Sixth Defendant) Maxmara Trinity Pty Ltd (Seventh Defendant) Lin Zhu (Eighth Defendant) Gemi Investments Pty Ltd (Ninth Defendant) Weriton Finance No 2 Pty Ltd (Tenth Defendant) Saddleback Mountain Estates No 2 Pty Ltd (Eleventh Defendant) Maxmara and JA International Pty Ltd (Fifteenth Defendant) Representation: Counsel: Mr P A Clarke (Plaintiff) Mr M Dai (First Defendant self-represented, Sixth, Seventh, Fifteenth Defendants) Ms M Hall (Second Defendant) Mr H Somerville/Mr J McEnaney (Third, Ninth Defendants) Mr MW Young SC (Fourth, Tenth, Eleventh Defendants) Ms L Zhu (Eighth Defendant self-represented) Solicitors: Francis Lim Barristers & Solicitors (Plaintiff) Sparke Helmore (Second Defendant) Summer Lawyers (Third, Ninth Defendants) VMV Lawyers (Fourth, Tenth, Eleventh Defendants) File Number(s): 2020/128125 Judgment WITNESSES DOCUMENTS ONUS AND INFERENCES INITIAL DEALINGS Mr Liang and related entities City Garden and related entities The development The solicitor Liang becomes an investor Mischaracterising Liang's investment City Garden acquires the site Acquisition finance – February 2017 – two mortgages – $10.93 million Solicitor instructed to keep Liang informed Solicitor's ongoing roles Liang becomes a director Actual authority Liang meets private lender Liang becomes majority shareholder Refinance – August 2017 – two mortgages – $9.21 million Construction finance - $25 million Paying out acquisition finance Shortfall in construction funding Zhu appointed as secretary FIRST DISPUTED TRANSACTION – NOVEMBER 2018 Did Liang know about the first disputed transaction? CLAIM IN RESPECT OF THE SECRETARY Consideration CLAIM AGAINST DIRECTOR: FIRST TRANSACTION Principles Consideration CLAIM AGAINST FIRST ROUND LENDER Ostensible authority "information provided by the company" "knew or suspected" CLAIM AGAINST SOLICITOR: FIRST TRANSACTION Scope of retainer Conflict of interest Fully informed consent Breach of fiduciary duty SECOND DISPUTED TRANSACTION – MAY 2019 Liang learns of caveat Advice over dinner Misdirecting funds Forged consent Did Liang know about the second disputed transaction? Claim in respect of the secretary Claim against director Claim against second round lenders Claim against solicitor More misdirected funds Nearing completion THIRD DISPUTED TRANSACTION – OCTOBER 2019 Did Liang know about the third disputed transaction? Claim in respect of the secretary Claim against director Claim against third round lenders Claim against solicitor Dai resigns Removal of secretary These proceedings DECLARATORY RELIEF COMPENSATION FROM DIRECTOR EQUITABLE COMPENSATION FROM SOLICITOR Causation Compensation Apportionable claim Section 5O Statutory scheme ORDERS Judgment 1. HER HONOUR: The plaintiff developer, City Garden Australia Pty Ltd, undertook a property development in North Rocks with related company, Ming Tian Real Property Pty Ltd (the builder). The first defendant Meng (Adam) Dai and Jian Wei (Victor) Liang were directors of the plaintiff. Mr Dai was also the sole director of the builder. 2. Mr Dai obtained three loans for the builder, but in the name of, or guaranteed by, the plaintiff and secured against the North Rocks property. The transaction documents were executed on behalf of the plaintiff by Mr Dai and his wife, the eighth defendant Lin (Julianne) Zhu, who was appointed as secretary of the company shortly before the first transaction. The plaintiff contends that Mr Dai had no authority to enter into these transactions without the agreement of fellow director, Mr Liang, who was unaware of either the transactions or Ms Zhu's appointment as secretary. The plaintiff seeks a declaration that Ms Zhu was not validly appointed. The plaintiff seeks damages from Mr Dai for breach of his duties as a director. 3. The lender on the first transaction, ninth defendant Gemi Investments Pty Ltd, lent $2 million to the plaintiff in November 2018 secured inter alia by a mortgage over the North Rocks site. Notionally, $1.1 million of the loan funds were provided to the builder to enable it to provide a bank guarantee in support of home warranty insurance, likely in respect of a development in Baulkham Hills. Some of the funds were probably used to pay the builder's subcontractors and suppliers in respect of the North Rocks development. 4. The lenders on the second transaction, tenth defendant Weriton Finance No 2 Pty Ltd and eleventh defendant Saddleback Mountain Estates No 2 Pty Ltd, lent $3.7 million to the builder in May 2019 secured inter alia by a mortgage over the North Rocks site. Initially at least, the loan was sought to provide a bank guarantee for the Baulkham Hills development, to provide cashflow for a development in Rouse Hill, to pay out the first loan and $900,000 for the North Rocks development. On drawdown, the lender on the first transaction was paid out, $390,000 was used to pay the plaintiff's land tax and $746,000 was paid to the builder, at least some of which was probably used to pay the builder's subcontractors and suppliers in respect of the North Rocks development. 5. The lenders on the third transaction, third defendant Gemi 130 Pty Ltd and fourth defendant Bridge Street Capital No 2 Pty Ltd, advanced $5.3 million to the plaintiff in October 2019, with which the lenders on the second transaction were paid out. The lenders on the third transaction have yet to be repaid, with interest continuing to accrue at 27% per annum. 6. The plaintiff seeks declarations that the three 'rounds' of finance documents are void and unenforceable as against it. The plaintiff also sues its solicitor, law firm Gerrard Toltz Pty Ltd trading as "Toltz Lawyers," for breach of fiduciary duty where the solicitor proceeded to act for the lenders on the transactions. In turn, the lenders have filed cross claims against the solicitor in the event that the finance documents are set aside. 7. Resolving the plaintiff's claims is no easy matter. The series of transactions are, on any view, complex. Mr Dai, Mr Liang and Ms Zhu proved to be unreliable witnesses. The informality of the arrangements between the parties led to what could fairly be described as a mess. The solicitor did not bring clarity to these arrangements, where its role in acting for the plaintiff, the lenders, or both, was fluid and not clearly defined at the time. I have endeavoured to try and work out what happened and what, if anything, should be done about it having regard to the pleaded claims and defences. WITNESSES 1. The plaintiff relied on the evidence of Mr Liang and the builder's former human resources manager, Jing Yuan. The plaintiff also relied on the expert evidence of forensic document examiner, Stephen Dubedat, who was cross-examined by Mr Dai. I accept Mr Dubedat's evidence and the views expressed in his report. 2. Mr Liang speaks English but gave evidence through an interpreter. This fact occupied a substantial amount of cross-examination, which was perhaps not the best use of the Court's time where Mr Liang accepted that he spoke English but not sufficiently well to be cross-examined without an interpreter. Although Mr Liang studied some English subjects at university in China as part of his engineering degree – which I would venture to say was some years ago – his teacher's ability to teach English was low and Mr Liang's English proficiency was then poor. Mr Liang has lived and worked in Australia for many years and his English has improved as a consequence. But Mr Liang said that reading legal documents was difficult; he could understand about 70% of his affidavits in the English language. Although he affirmed his early affidavits without an interpreter, everyone in the solicitor's office was bilingual and explained the affidavits to him where necessary. 3. A number of emails and WeChat messages authored by Mr Liang are in evidence. He writes variously in English and Chinese. Having read every document authored by Mr Liang which is in evidence, I consider that Mr Liang's decision to use an interpreter was wise; his grasp of English is imperfect and it would have been unfair for him to withstand extensive cross-examination in English, this being a language over which he may not have the necessary mastery. 4. It must be said that Mr Liang presented poorly as a witness. Although he began well enough, Mr Liang was suspicious of documents to which he was taken and, on occasion, disclaimed documents that were annexed to his affidavit or, on their face, were obviously his documents. This was perhaps understandable, where his signature had been forged on two significant documents and the bulk of correspondence was not copied to him at the time. Once reassured that the source of the document was reliable, Mr Liang was more willing to accept the contents of the document. 5. Mr Liang was clearly unhappy with how his business dealings with Mr Dai had unfolded and took opportunities to make unkind remarks. As will be seen, such remarks were warranted. Some of Mr Liang's evidence as to the business arrangements he had with Mr Dai was likely aspirational, that is, what the arrangements should have been. For example, in Mr Liang's first affidavit, he said it was agreed that Mr Dai would manage the North Rocks project but, in cross-examination, did not agree that he left this to Mr Dai, "Of course not. I am a businessman, so I would set up a team to look after the project. I would not just rely on him; I would set up a project. That's just common sense for a businessperson. I wouldn't just let him." As to why this was not mentioned in his first affidavit, Mr Liang said "That's just for politeness. How could I be so stupid." Mr Liang did not agree that Mr Dai would be managing the project by himself, "No. Would not." In fact, Mr Liang initially left it to Mr Dai to manage the North Rocks development but, over time, became more involved as his concerns about Mr Dai's financial management of the project deepened. 6. Some of Mr Liang's evidence was unlikely, for example, that a meeting with lenders was "social" and there was no discussion about a loan: see [113]. Mr Liang distanced himself from documents at odds with his version of events, suggesting that he had not opened an email or read its attachment. I have approached his evidence with caution. That said, the contemporaneous documents do provide considerable support for his version of events. Further, Mr Dai largely does not dispute Mr Liang's evidence: see [17]. 7. Ms Yuan was a forthright person who was most indignant that her Justice of the Peace (JP) stamp had been misused and her signature had been forged. Ms Yuan obviously did not much like Mr Dai, who owed her money. Ms Yuan's credit was challenged by a lender's senior counsel where, in her affidavit affirmed in March 2023, Ms Yuan said that she suspected that Mr Dai or someone else may have taken her JP stamp and stamped the document without her knowledge or consent. In chief, Ms Yuan said that she called Mr Dai a few days after becoming aware that her signature had been forged and he said, "I'm sorry. I did. I'm sorry." 8. The fact that Mr Dai's confession did not appear in her affidavit is obviously problematic and her explanation for this was not clear. Ultimately, Ms Yuan said, "I don't know if I – I'm not police. I can't say something – it might be later on changed. At that time, I still thought I – it's not my signature, that's it, full stop. … I wasn't sure what background that behind for him to do that. And that's why from beginning, I thought it might be someone else took – copied my signature. Okay, now, that conversation between me and him, very privately. Until then, I don't want to explore this conversation. … But he did. I did say to him. And he's here, okay. And I don't lie. Someone forged my signature. Only I don't know the background, the reason why he does that. But for my signature, this is forged. I just want to prove that. I come to the court. If I'm lying, I wouldn't able to come to the court." 9. Ms Yuan was cross-examined at length by Mr Dai. It is telling that Mr Dai never put to Ms Yuan that her evidence as to his confession was false. Whilst Mr Dai was self-represented, it remained stark that he asked her many questions but not this critical question. I am inclined to accept her evidence, subject to what the contemporaneous documents reveal. As will be seen, this material also points to Mr Dai as responsible for the misuse of Ms Yuan's JP stamp and signature: see [332]-[337]. 10. Mr Dai was self-represented and, with leave, also appeared on behalf of his family companies, the sixth defendant Wallis Island Pty Ltd, the seventh defendant Maxmara Trinity Pty Ltd and the fifteenth defendant Maxmara and JA International Pty Ltd. He was a pleasant fellow who gave evidence calmly and appeared to be familiar in doing so. 11. Mr Dai had sworn a substantive affidavit at a time when he was legally represented. By then, Mr Liang had affirmed three substantive affidavits totalling 50 pages of detailed material. Mr Dai's affidavit in response to this material was only four pages long and did not address Mr Liang's first or second affidavits at all. Most of the conversations described by Mr Liang were not addressed. I take it from the brevity of Mr Dai's affidavit that he largely does not demur from Mr Liang's version of events. 12. Regrettably, the cross-examination of Mr Dai was ineffective. It did not much matter. As will be seen, Mr Dai is associated with the forgery of Mr Liang's signature on two key documents, being Mr Liang's consent to the second transaction (see [328]-[332]) and his consent to the transfer of part of Mr Dai's interest in the property development (see [465]-[466]). In addition, Mr Dai obtained Mr Liang's approval for the payment of $876,000 to a subcontractor but, in fact, transferred the funds to his own company, Maxmara Trinity. 13. Of perhaps more concern to me as a trial judge is that, during the course of the hearing, Mr Dai prepared and tendered a table which suggested that the payments to Maxmara Trinity were, in fact, reimbursement of payments to another contractor: at [383]-[387]. His effort to mislead the Court is duly noted. In these circumstances, I can attach no weight to his evidence unless it is inherently likely, corroborated by a reliable source or against interest. 14. Ms Zhu was also self-represented. No issues of credit arose during the briefest of cross-examinations. I have not, however, accepted Ms Zhu's evidence on the primary subject covered by her affidavits, being whether she was appointed as secretary at a meeting attended by herself, Mr Liang and Mr Dai. The contemporaneous documents point strongly the other way: see [162]-[167]. 15. Gerrard Toltz gave evidence for the second defendant. Mr Toltz was a pleasant, older solicitor who professed to have limited recall beyond his file. As will be seen, his retainer for the plaintiff was sometimes performed in unusual ways: for example, see [96], [126], [314]-[316]. The cross-examination of this witness did not explore some of these matters adequately or at all. I am limited to what was explored and, essentially, what is revealed by the documents. 16. The third defendant, Gemi 130, and the ninth defendant, Gemi Investments, relied on the evidence of directors George Fleming and Michael Cooper and the Head of Credit, Hamish Tweedy. The fourth defendant, Bridge Street Capital, tenth defendant, Weriton, and eleventh defendant, Saddleback Mountain Estates, relied on the evidence of director Graham Werry. No issues of credit arose. DOCUMENTS 1. The facts are largely revealed by the considerable amount of contemporaneous documents tendered in this case, being some 9,000 pages of material. I was not able to make sense of some of these documents, for example, at [64], [136]. There remained gaps in documents, for example, at [145]. 2. The defendants criticised the plaintiff for the lateness of some of its allegations. To some extent, this may be explained by the plaintiff's difficulties in obtaining access to the documents which indicated what had happened. Mr Liang and his accountant did not take charge of the plaintiff's accounting until September 2019, at which time the accounts for the two proceeding financial years had yet to be finalised: see [391]. Mr Liang said his accountant took charge but "things were very messy. A lot of information was missing." It was not until four months after these proceedings had commenced that the plaintiff's solicitor asked the former registered agent, SSA Tax Services Pty Ltd trading as "Smart Wealth Advisors" (SWA), to deliver up its files, in particular, any documents in respect of the appointment of Ms Zhu as secretary. The plaintiff's efforts to obtain files from the solicitor were protracted indeed: see [456]-[467]. 3. In short, it does appear to have taken the plaintiff and its solicitors some time and a considerable amount of effort to reconstruct what, in fact, happened. Of course, these problems may have been avoided if Mr Liang had paid more attention at the time. Presumably, no one regrets this more than Mr Liang, who accepted that he was not alert at the time and was not careful enough, "I just did not have this type of experience." ONUS AND INFERENCES 1. In a case such as this, where the Court has little reliable evidence, inferences, where available, may prove important; onus may prove decisive. The burden of proof rests on the plaintiff. The standard of proof is the civil standard, being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: Evidence Act 1995 (NSW), section 140(2)t; Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 362 (per Dixon J). Further, at 361: "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found." 2. Here, the plaintiff contends that the actions of its director, Mr Dai, were unauthorised. As to whether the plaintiff has discharged its onus, it has been said that the "difficulty of proving a negative is well known": A v New South Wales [2007] HCA 10; (2007) 230 CLR 500 at [60] (per Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ). As Campbell JA (McColl JA and Handley AJA agreeing) explained in Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [78]: If a plaintiff has the onus of proving a negative proposition, the fact that the defendant has greater means to produce evidence which contradicts that negative proposition, does not mean that the plaintiff ceases to have the onus of proof of that negative proposition. However, once the plaintiff establishes sufficient evidence from which, if that evidence is accepted, the negative proposition may be inferred, an evidential onus shifts to the defendant to adduce evidence that tends to show that the negative proposition is incorrect. If a defendant adduces such evidence, the plaintiff must then, as part of its overall burden of proof, deal with that evidence either by submission or argument. … 1. Whilst the plaintiff bore the onus in proving that payments were unauthorised, "where material evidence is peculiarly within a party's knowledge, it may be sufficient for the opposing party to adduce slight evidence of a matter in issue": Gerard Cassegrain & Co Pty Ltd v Cassegrain (2013) 87 NSWLR 284; [2013] NSWCA 453 at [26] (per Beazley P), citing Lord Mansfield CJ's maxim in Blatch v Archer (1774) 1 Cowp 63; (1774) 98 ER 969 at 970. As Gleeson J likewise summarised in BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 at [125]: All evidence "is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted": Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said: [I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision … In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so … 1. Of course, the principle from Blatch v Archer does not alter the onus of proof, nor the position that "the circumstances in which … the absence of evidence may be taken to account are confined by known and accepted principles …": Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165] (per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). The Court may draw inferences to choose between competing versions of events. As Buchanan J explained in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151 at [31]: (citations omitted) Inference does not mean conjecture, even in a civil case. In civil proceedings the inferential process "may fall short of certainty, [but] must be more than an inference of equal degree of probability with other inferences, so as to avoid guess or conjecture" … A court is not authorised to choose between guesses, even on the ground that one guess seems more likely than another or others. See also Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [84]-[88] (per Spigelman CJ). 1. If the Court is unable to choose between competing versions, the party on whom the onus lies will not succeed. As Beech-Jones J (as his Honour then was) explained in Neville v Lam (No 3) [2014] NSWSC 607 at [99]: (citations omitted) [I]n some circumstances a Court may find itself unable to choose between competing versions. In such a case, the party upon whom the burden of proof lies will have failed to discharge it. See likewise Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 at [60], citing Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 955. 1. The parties submitted that Jones v Dunkel inferences should be drawn in respect of the failure to call various witnesses. I have dealt with these submissions where that witness becomes relevant to a finding of fact: at [114] (Steve Ju), [160] and [196] (Yan (Monica) Su), [167] (SWA) and [338] (Robert Riddell). 2. In respect of missing documents, a party's failure to produce documentary evidence to corroborate their account, where they might be expected to be in possession of such documents, may give rise to an inference that such documents would not support their account: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 320 (per Windeyer J). The lenders submitted that a Jones v Dunkel inference should also be drawn from the plaintiff's failure to produce financial statements which recorded the existence of the disputed loans, such that Mr Liang may be taken to have been aware of them. A problem with this submission is that the plaintiff's books and records were under the control of Mr Dai at the relevant time and incomplete. In these circumstances, whilst the plaintiff bears the onus of proof, its means to prove what happened in the years in which Mr Dai ran the company was somewhat limited. INITIAL DEALINGS 1. The evidentiary 'run-up' to the first transaction is long, comprising three years' of the plaintiff's operations. This material was relevant to three things, first, the management and decision-making in the plaintiff company, in particular, the extent of Mr Dai's authority to enter into the transactions without the knowledge or agreement of fellow director, Mr Liang. Second, Mr Liang's knowledge and involvement in the plaintiff's business, in particular, raising finance. Third, the scope of the solicitor's retainer. Otherwise, the first transaction is considered at [169]. Mr Liang and related entities 1. Mr Liang is a businessman who hails from China but has lived in Australia for many years. Mr Liang made his money importing clothing from China. His first company, New Century Clothing Co Pty Ltd, was incorporated in 1998, followed by a series of related companies with "NCC" or "NCC Fashion" in the company name. This is relevant where email addresses with "NCC" or "nccfashions" indicate that Mr Liang or his employee were copied in, and thus aware of, particular communications: see, for example, at [72]. 2. Mr Liang's business activities were not without incident. In 2003, Mr Liang was successfully prosecuted for, essentially, evading customs duty by understating the price paid for imported clothing. Substantial fines were imposed: CEO of Customs v Liang [2004] NSWSC 1240 (conviction); CEO of Customs v Liang [2005] NSWSC 591 (sentence). Of this, Mr Liang said he "had some issues with the custom because my bookkeeping at that time was not properly done … my record was no good." That would appear to be an understatement. Mr Liang said he did not appeal the conviction as he did not have money. That may have been an overstatement. The lenders pointed to this as one of many reasons I should attach no weight to Mr Liang's evidence. I have approached his evidence with caution for the reasons earlier stated. Where the evidence before James J is not before me, and the facts of this case are 'a world away,' I have otherwise taken Mr Liang as I have found him in this case and on the evidence before me. 3. In 2013, Mr Liang began to dabble in property development. He incorporated a series of companies to be deployed in this endeavour, the first of which was Ronghai Property Pty Ltd. A director and shareholder in this company was Libing Lin, who I infer was Jack Lin: see [72]. Mr Lin was Mr Liang's employee, albeit Mr Liang is no longer on speaking terms with him. Mr Lin later liaised with Mr Dai and the solicitor on behalf of Mr Liang. 4. In 2015, Mr Liang incorporated Rose Ives Pty Ltd. Mr Liang is the director and secretary of this company, which is wholly owned by himself and his wife's company, LV.Esb Pty Ltd. Rose Ives later held Mr Liang's interests in the North Rocks project. 5. Mr Liang is an experienced businessman familiar with corporations and the lodgement of documents with the Australian Securities & Investments Commission (ASIC). That said, having regard to Mr Liang's contemporaneous emails, his familiarity with complex finance documents and property transactions does not appear to be well developed. City Garden and related entities 1. In 2013, the builder was incorporated and traded as "Ming Tian Construction." Mr Dai was the sole director of the builder. The largest shareholder in the company was the seventh defendant, Maxmara Trinity; Mr Dai and Ms Zhu were equal shareholders of that company. The builder was formerly the fifth defendant but is now in liquidation. 2. In 2015, the plaintiff was incorporated. Mr Dai and Ms Zhu were appointed as directors and became equal shareholders. Mr Dai was also appointed as secretary. The plaintiff was appointed as trustee of The Ming Tian City Garden Unit Trust (the Trust). The units in the Trust were then held by Maxmara Trinity as trustee for the J&A Family Trust, where the initials stand for Julianne and Adam. 3. Other companies associated with Mr Dai were also incorporated in 2015, being Wallis Island, Maxmara and JA International and Crows Nest Property Development Pty Ltd. These companies became involved in finance transactions, generally to provide additional security. The development 1. North Rocks St Pty Ltd (the owner) owned a development site in North Rocks. The land had the benefit of a development consent to demolish the existing buildings and construct 50 townhouses. The owner had a short-term loan from NWC Finance Ltd of $9.15 million but was in default, with interest running at 66% per annum. 2. In July 2016, Mr Liang was approached by Mr Dai to invest in the North Rocks project. Mr Liang and Mr Dai had met the year before, when Mr Dai was the builder for Mr Liang on a development in Carlingford. Mr Liang was now undertaking a property development in Epping. Mr Dai told Mr Liang that they could buy the North Rocks project at a cheap price, as the owner did not have the capacity to develop the land. Mr Dai said the land would be about $11 million and they needed to purchase the land in cash first. They could then get a construction loan from a bank to cover all of the construction costs. Mr Dai said that he had about $7 million on hand and would allocate 40% of the shares to Mr Liang, so Mr Liang would need to invest about $5 million including stamp duty and other acquisition costs. 3. Mr Liang was amenable to Mr Dai's proposal but said, "I won't have much time to look after this project though as I am also busy with other matters. (Mr Liang was referring to his fashion business and the Epping development.) You will need to look after this project and make sure it is a profitable one like the one in Carlingford." Mr Dai agreed to manage the project, "You just need to invest and we can make good profits together. You will need to invest part of your capital first and I will get my accountant to transfer 40% of my shares in the unit trust to you." The solicitor 1. Mr Toltz mainly practices in conveyancing and private lending. He acts for property developers seeking finance to acquire a development site or seeking construction finance to carry out building works. His firm also acts on pre-sales and completion of contracts for sale on the issue of an occupancy certificate and registration of a strata plan. Mr Toltz also acts for financiers in the property development sector, who either lend individually or as part of a syndicate, providing financial accommodation to developers. 2. Amongst the private lenders for whom Mr Toltz has acted over the years is the Gemi group of companies associated with George Fleming. Mr Fleming said that Mr Toltz "acted for, at that time, all our lending. He was … the [solicitor] for every single loan that we did at that point in time." The Gemi companies involved in these transactions were Gemi Investments (on the first transaction) and Gemi 130 (on the third transaction). The other lenders, being Weriton and Saddleback Mountain (on the second transaction) and Bridge Street Capital (on the third transaction) used different solicitors, albeit Bridge Street Capital also retained Toltz Lawyers on the third transaction in the interests of time. 3. On 11 July 2016, Mr Toltz received a call from finance broker, Andrew Margi, who said he had a client, Mr Dai, who may be interested in buying out NWC Finance's loan over the North Rocks site. Within a few days, Mr Toltz met Mr Dai. Whatever Mr Dai may have told Mr Liang about the funds he had on hand to buy the North Rocks site, Mr Dai told Mr Toltz "Has $2m to put in … ano[ther] $2m in reserve …". That is, the only 'equity' available appeared to be the funds which Mr Dai had asked Mr Liang to contribute. 4. Mr Toltz said the North Rocks project was unusual in that capital was raised periodically as the project progressed rather than at the time of purchase. I take this to mean that Mr Dai did not have funding in place when embarking on the purchase or development of the site. Mr Toltz' file notes indicate that, from the outset, he contacted Mr Fleming and Mr Werry in respect of potential finance for the transaction. 5. On 18 July 2016, NWC Finance appointed receivers and managers to the North Rocks property. On 19 July 2016, Mr Liang assembled details of his bank account balances, which Mr Dai provided to the broker, "I got the income proof." (I note that the income referred to was that of Mr Liang). Mr Dai emailed Mr Toltz, copied to Mr Liang and the broker, authorising Mr Toltz to act on his behalf "for the JV agreement [with the owner] and negotiation of the present deal at North Rocks, Documentation … will be issued from Piper Alderman or similar category firm." As will be seen, in addition to using the services of Mr Toltz, from time to time Mr Dai also engaged other solicitors, including Piper Alderman and King & Wood Mallesons. 6. On 20 July 2016, Mr Dai provided Mr Liang with Toltz Lawyers' trust account details, advising "We are using [Mr] Toltz as Lawyer to represent us on the JV deal. Please when you are ready we could put our contribution money towards his trust account and it is only under our instruction the money where it goes." Mr Dai's email was copied to Mr Toltz, who presumably then understood that Mr Liang was providing funds for the proposed transaction. 7. On 28 July 2016, Mr Toltz circulated a draft heads of agreement to the owner, copied to Mr Dai and Mr Werry, proposing to pay out NWC Finance in full with finance of $10 million. Presumably, Mr Werry was then considering providing this finance. Mr Dai informed Mr Toltz that the plaintiff would be the company which would act as the developer of the land and be obliged to meet financial obligations for the benefit of the owner under the agreement. 8. On 4 August 2016, Mr Toltz sent Mr Dai a costs disclosure and costs agreement for his firm to act for the plaintiff on the North Rocks project. The client referred to in the document was the builder. Mr Toltz said that he initially thought that Mr Dai would use the builder for the development project but, as matters progressed, Mr Dai chose to use the plaintiff instead. Mr Toltz therefore considered himself to be retained by the plaintiff. The scope of works referred to in the costs disclosure and costs agreement was "to assist in financing, acquisition of development rights, sale of units and incidental matters relating to the [North Rocks development]." The terms of the retainer were wide. Toltz Lawyers opened a file for the plaintiff in relation to the North Rocks development. Mr Toltz had the conduct of the file, assisted by employed solicitor, Garth Andrews. 9. After his initial retainer by the plaintiff in 2016, Mr Toltz also acted for Mr Dai in a variety of capacities: for him personally, for him as a director of companies, for various companies with which he is associated and for various trusts with which he is associated. Mr Dai also had dinner with Mr Toltz every couple of months. Liang becomes an investor 1. According to a Deed of Agreement executed sometime later (see [128]), on 1 August 2016, Rose Ives entered into a contractual agreement with Maxmara Trinity to invest $4 million in the North Rocks project. In return, Rose Ives was allotted 40 units in the Trust. On 3 August 2016, Maxmara Trinity transferred 40 units in the Trust to Rose Ives. Ms Zhu ceased to be a director of the plaintiff, leaving Mr Dai as sole director and secretary. 2. Mr Liang was not allocated any shares in the plaintiff and did not become an officeholder "because I was supposed [to be] a silent partner only and Adam was supposed to be managing the project by himself." Mr Dai agreed that Mr Liang was not then actively involved in the project; Mr Dai provided regular updates by WeChat about the progress of the development and any issues that the project was facing. 3. On 8 August 2016, Mr Liang transferred $3 million to the solicitor's trust account. Fairly obviously, Mr Liang was the source of the funds, both in light of Mr Dai's email to the solicitor of 20 July 2016 (at [51]) and given that the deposit was recorded in the solicitor's trust account bank statement as "From Victor Liang." 4. On 10 August 2016, Mr Dai emailed Mr Toltz, "I will be the builder and my construction contract with [the owner] will be $22 million ex GST." The email was copied to Richard Winter of King & Wood Mallesons, who was acting for the builder in the review and settlement of documentation. Mr Dai later instructed Mr Toltz that Mr Winter was to handle all negotiations and communications with NWC Finance and the owner's solicitor on behalf of the plaintiff, whilst Mr Toltz was to "still represent me in a way of preparing all the relevant legal documents for 2nd mortgage, deed of development agreement etc." Toltz Lawyers' wide retainer (referred to at [53]) was thereby curtailed. 5. On 10 August 2016, Mr Toltz obtained a company search for the plaintiff: Mr Dai was the sole director; the company was equally owned by Mr Dai and his wife. That is, consistently with Mr Liang's role as a "silent partner," his interest in the North Rocks development was not revealed by the company search, where Rose Ives held units in the Trust only. 6. Later that evening on 10 August 2016, Mr Dai sent Mr Liang a draft development agreement between the plaintiff and the owner, for review. Mr Dai set out the current terms of the deal. The owner now wanted $10.6 million, given additional interest now owing to NWC. When taking into account other elements of the deal, Mr Dai advised that they were paying an extra $400,000 "to get the deal done … And because you trust me in this deal, I am happy to wear this extra $400,000 on my side and making sure you are not paying more than $4,000,000." Mr Dai also advised Mr Liang: In order to meet the 10.6 million payout, I have been able to persuade the current NWC borrower (sic?) for additional … term … on the $1,600,00[0] with [the builder] as the borrower and guarantees put North Rocks site as still the first mortgagees. So we are contributing $9 million (my $6million and plus $3million from yours in lawyers trust account) to reduce the loan from NWC, with no application fee only the interest capitalised on the loan, which I will be liable to pay the interest. The extra $1 million you got, we could be using as cash-flow for the development project. I will cover the $800,000 in 3 months plus the repayment of the loan for NWC. So in 3 months we could refinance to CBA, or I could use my money from selling Wallis Island to cover that, Please do not worry. I think it is a really good deal for us and the construction cost I could fix at $22 million so with no risk for you. 1. The development deed attached to Mr Dai's email proposed inter alia that the plaintiff would arrange a "Second Mortgage Loan" to reduce the amount owing to NWC to $7.7 million. That is, the Second Mortgage Loan was some $3 million, which appears to have been the funds in Mr Toltz's trust account provided by Mr Liang. On 15 August 2016, Mr Liang emailed Mr Dai with "some points for consideration," setting out his review of the development agreement. Mischaracterising Liang's investment 1. On 11 August 2016, Mr Winter enquired of Mr Toltz as to who the borrower of the Second Mortgage Loan should be. Whilst the documents provided by Mr Toltz proposed that the borrower would be the plaintiff, Mr Winter suggested that the borrower should be the owner, "if the payment is being made on behalf of North Rocks [St], then North Rocks [St] has to provide the guarantee to Crows Nest Property (lender) secured against its North Rocks property". Mr Toltz agreed, "as Adam is lending the funds, I have take up your response and amended the Loan Agreement … removing any requirement for guarantees. This simplifies the independent advice aspect." On 15 August 2016, Mr Toltz emailed Mr Winter, confirming "Adam is providing the $3m by the Second mortgage." On 16 August 2016, Mr Toltz asked Mr Dai "let me know if you require the funds from Graham Werry ($2.6m net) to release part of your $3m (+ some expenses) … Graham has another place to put the funds and needs to know." 2. A curious feature of these emails is that the $3 million was provided by Mr Liang, not by Mr Dai or his company, Crows Nest Property Development. Further, it appears to have been contemplated that Mr Dai would obtain finance from Mr Werry in order to release the $3 million for use himself. 3. On 18 August 2016, Mr Liang transferred a further $1.6 million to Mr Dai. The transfer was referred to in a Deed of Loan dated 15 August 2016, but likely prepared in August 2017 by Mr Dai's solicitor. The Deed of Loan was between Rose Ives (as lender), the builder (as borrower) and Mr Dai as guarantor. According to the recitals, Rose Ives lent the funds to the builder for 3 months, to be used for the purpose of partaking in the North Rocks development. The Deed of Loan was executed by Mr Dai for the builder, but not by Rose Ives. As I read it, Mr Liang was lending the builder the additional $1.6 million payable to the owner. The commerciality of this arrangement is not apparent. Against this, Mr Liang said the funds were simply part of his 40% of the purchase price of the North Rocks site, being $11.3 million under the contract attached to the Development Deed; Mr Dai was to cover the remaining 60%. 4. On 19 August 2016, the plaintiff and the owner executed the Development Deed. The owner granted a call option to the plaintiff to purchase the North Rocks site. The plaintiff agreed to reduce the owner's debt owed to NWC Finance by $7.7 million by the Second Mortgage Loan: clause 4.1(a). Toltz Lawyers used the $3 million in its trust account to purchase a bank cheque payable to NWC Finance, which Mr Toltz handed over on settlement. The Second Mortgage Loan was provided by Crows Nest Property Developments. The owner granted a mortgage over the North Rocks property to Crows Nest Property Development, second in priority to NWC Finance. Mr Toltz acted for Crows Nest Property Development in relation to the mortgage. 5. Mr Liang was not aware that the $3 million which he transferred to Toltz Lawyers' trust account was used by Crows Nest Development as a loan to the owner, nor that Crows Nest Development was granted a second mortgage by the owner. Although Mr Liang had reviewed the development deed, including the clause in respect of the Second Mortgage Loan (see [61]), the identity of the lender was not referred to in the deed. (The Second Mortgagee was defined as Crows Nest Development in the amended Development Deed dated 1 December 2016, but not in the initial deed.) 6. It is unclear why Mr Toltz proceeded on the basis that the $3 million was provided by Mr Dai or Crows Nest Development. Presumably, the solicitor was instructed to do so by Mr Dai. While there is a hint in the contemporaneous documents that Mr Liang did not then wish his identity to be known (see [72]), the manner in which the $3 million advanced by Mr Liang was provided to the owner is a little unusual. 7. On 21 August 2016, Mr Toltz invoiced the plaintiff for acting in "protracted negotiations over many weeks" in respect of the development agreement "and associated loan." Mr Dai forwarded Mr Liang "some legal documents" (I do not know which documents) together with Mr Toltz' invoice "for City Garden to pay." Mr Dai thanked Mr Liang for his support and trust, adding: Please deposit the $1 million dollar next week because we need to do more presales and starting to do the construction certificate from now on. 1. Mr Liang transferred $1 million to the plaintiff's bank account, bringing the total funds advanced in August 2016 to $5.6 million. 2. The plaintiff seeks no relief in respect of this transaction. As I understand it, the mischaracterisation of Mr Liang's investment in the North Rocks project goes to two matters. First, notwithstanding that the $3 million was fairly obviously from Mr Liang, the solicitor readily proceeded on the basis that the funds came from Mr Dai and documented a loan from Mr Dai's company. Second, and perhaps more relevant for my purposes, Mr Dai provided Mr Liang with the transaction documents, both in draft and, it would appear, after the transaction had completed. City Garden acquires the site 1. In October 2016, Mr Dai decided not to exercise the call option in respect of the North Rocks property. Mr Toltz informed the owner's solicitor that the property needed to be sold at auction. Mr Dai appointed CBRE as agents for sale. On 2 November 2016, the solicitor rendered an invoice to the plaintiff for advice in relation to "the finance and direction of the North Rocks project." The solicitor's retainer had broadened again, from the more confined remit of advising the plaintiff in respect of the development agreement alone: see [58]. 2. In late November 2016, the plaintiff and the owner entered a settlement agreement, withdrawing the North Rocks property from market and agreeing to split CBRE's fee. Mr Toltz prepared an amended Development Deed. 3. On 1 December 2016, at the request of Mr Lin, Mr Toltz answered a series of questions in relation to the amended Development Deed, copied to an email address beginning "nnccfash." Mr Toltz did not then appear to know whose email this was, noting "no name supplied." For reasons earlier stated, I take it to be Mr Liang's email. It is curious that the plaintiff's solicitor was not told who the recipient of these (confidential and privileged) communications was. Perhaps, Mr Liang did not want his identity revealed. Presumably Mr Dai gave instructions to the solicitor to provide the information and documents sought. The focus of the questions was on six townhouses to be provided to the owner under the amended Development Deed; Mr Liang was likely provided with a copy of the document. 4. On 1 December 2016, the amended Development Deed was executed and a contract of sale was exchanged. In short, the owner agreed to sell the North Rocks property to the plaintiff for $10 million plus six townhouses. Completion of the purchase was to take place on 24 January 2017. As a deposit of only $1,000 had been paid, the balance of $9,999,000 was then due. 5. On 14 December 2016, Mr Toltz rendered his invoice to the plaintiff in respect of the development agreement. Mr Lin continued to ask various questions of Mr Toltz in relation to the transaction and, on 19 December 2016, forwarded various documents to Mr Liang. On 20 December 2016, Mr Lin emailed Mr Toltz with further questions in respect of the purchase, adding: "Any north rocks issues, please CC nnccfash …" Acquisition finance – February 2017 – two mortgages – $10.93 million 1. On 19 January 2017, five days before completion, the plaintiff received a letter of offer for a six-month loan of $8.25 million, to assist in purchasing the North Rocks property. The loan – ultimately provided by Kenxue Pty Ltd – was to be secured by guarantees from Mr Dai and his wife, the builder, Maxmara and JA International, Maxmara Trinity, Wallis Island and Crows Nest Property Development. The plaintiff also signed a term sheet with Weriton in respect of a second mortgage facility of $2.68 million to supplement this funding, pending the plaintiff's "satisfaction of requirements for a construction facility from one of the major banks." This loan was to be guarantee by Mr Dai and the builder. 2. That is, rather than Mr Liang and Mr Dai contributing 40% and 60% respectively of the purchase price of the North Rocks site, the purchase price would be wholly funded by debt. This was notwithstanding that Mr Liang had already provided $5.6 million. Mr Liang understood that Mr Dai was taking a loan for himself, for his companies and his wife "because he did not have the money. … He used the company name to borrow money." Mr Liang spoke to Mr Dai about this, "I told him off. … I said to him, 'you were hurting the company.'". Mr Dai said he was sorry but he was a bit short of cash and had been trying to sell his property at Wallis Island "but the price is not right." Mr Dai said he would put his cash back into the property once his cashflow got better. Mr Liang said "OK." 3. Perhaps consistent with Mr Liang's disquiet, on 23 January 2017, he emailed Mr Dai: Could you add me as one of the DIRECTOR of City Garden … I like to understand the situation related to North Rocks project such as removal of Caveat, add caveat, or ANY refinance or mortgages. And Please also let solicitor email me as well, any emails related with this project. Because so many news around, it made me confusion. 1. Mr Dai responded the next day, 24 January 2017, "There is no problem with add you as of the director" but he needed to check whether the Commonwealth Bank was agreeable. Mr Dai explained in his email: In worse case, I will add you after the refinance of first mortgage to CBA for construction loan. Right Now, we need to take first mortgage and second mortgage on north rocks project due to my wallis island has not been sold in due time and we need to settle north rocks. Although, I've put my wallis island and home as security to get the loan from financier, and all that fees and interest will be on myself and nothing to do with City Garden… Let me get everything settle down with CBA construction loan and sell the wallis island in 6 months time. 1. Mr Dai also provided Mr Liang with a letter from Weriton's solicitor in respect of the proposed second mortgage and the proposed mortgages over the North Rocks and Wallis Island properties. Mr Liang let the matter of his directorship drop, "because at that time, I still trusted him a lot." 2. On 30 January 2017, Mr Toltz received an enquiry from the first mortgagee's solicitor; they discussed Rose Ives' interest in the Trust. Mr Toltz contacted Mr Dai in respect of the units held by Rose Ives. Mr Toltz' file note records, "adv[ised Rose Ives] is a passive investor." That is, although Mr Toltz had already received information which indicated that Mr Liang had provided $3 million in relation to the acquisition of the North Rocks site, the solicitor was now also aware that Rose Ives held units in the Trust. Presumably, the solicitor worked out that Mr Liang and Rose Ives were connected. 3. According to Mr Toltz, Mr Dai also said that Rose Ives was not prepared to give a guarantee. Mr Toltz said he passed this information onto the solicitor acting for the first mortgagee. Mr Toltz' file notes do not record being told that Rose Ives was not prepared to give a guarantee, nor did Mr Toltz appear to have good recall of anything not in his file notes. But I accept Mr Toltz' evidence, where Rose Ives was initially proposed to be a guarantor in the transaction documents but was struck-out in the execution copies. 4. Less clear, however, is whether Mr Liang was asked to give a guarantee at the time. As I read Mr Dai's email to Mr Liang of 24 January 2017, Mr Dai reassured Mr Laing that the obligations and expenses associated with the two loans "will be on myself and nothing to do with City Garden". More likely, Mr Dai did not ask Mr Liang to guarantee the two loans at the time. 5. Mr Toltz said that, because of his conversation with Mr Dai, he wanted to make sure that Mr Dai still had proper authority to instruct him. On 31 January 2017, Mr Toltz obtained a company search for the plaintiff, which confirmed that Mr Dai was the sole director and secretary. Mr Toltz was satisfied that Mr Dai had authority to instruct him on behalf of the company. Mr Toltz also rendered an invoice to the plaintiff in respect of services rendered in acting on the purchase of the North Rocks property. 6. On 1 February 2017, Mr Dai executed transaction documents in respect of a loan from Kenxue to the plaintiff of $8.25 million "to assist with the purchasing of the [North Rocks] property." The loan was guaranteed by Mr Dai, Ms Zhu, the builder, Maxmara and JA International, Maxmara Trinity, Wallis Island and Crows Nest Property Development. Mr Toltz rendered a further invoice to the plaintiff in respect of "advising you on funding for this project." The description of the services provided by the solicitor in its invoice suggests that the advice was not strictly legal. 7. On 6 February 2017, the plaintiff completed the purchase of the North Rocks property. The mortgages granted to NWC Finance and Crows Nest Property Development were discharged. The plaintiff granted a mortgage to Kenxue and a second mortgage to Weriton. Wallis Island and Mr Dai granted mortgages to Weriton over three additional properties. The loans from Kenxue and Weriton were both due to expire on 2 August 2017. 8. The plaintiff does not seek any relief in respect of these two loans. That is, although the funding of the acquisition of the North Rocks site was now proceeding on a basis other than what Mr Liang and Mr Dai had initially discussed, Mr Liang was appraised of the means by which Mr Dai sought to finance the purchase of the land and was amenable to this change. This may explain, however, why these two loans were to be secured by Mr Dai and his companies rather than by Mr Liang. Solicitor instructed to keep Liang informed 1. Mr Liang engaged a lawyer to do a title search on the North Rocks property. Perhaps a further indication of Mr Liang's disquiet, on 8 February 2017, Mr Dai sent an email to Mr Toltz and Mr Andrews, copied to Mr Liang and Mr Lin: (emphasis added) Please cc all the email correspondence with regarding city garden Australia pty ltd to Jack Lin and Victor as they are important shareholders of the trust. 1. Both Mr Toltz and Mr Andrews immediately and separately responded, "Noted." Also on 8 February 2017, Mr Lin sent a more specific request to Mr Andrews, including "Please email me first mortgage and second mortgage documentary to us." Mr Andrews promptly replied, copied to Mr Liang, noting that his office had already forwarded copies of all loan documents that morning. That is, as for Mr Liang's initial advance of $3 million, he was provided with details of the transaction, both before and after completion. The solicitor did not, however, thereafter comply with Mr Dai's instruction to copy emails regarding the plaintiff to Mr Lin and Mr Liang. 2. Ms Zhu was then doing a marketing campaign for the North Rocks development, including arranging a display kiosk in a shopping centre, obtaining the necessary insurance for the kiosk, and providing logos and the architect's details to prepare computer generated images. On 22 and 23 February 2019, Mr Dai and others exchanged emails in respect of the details of a 3D model of the project. These emails were copied to Mr Liang and Mr Lin. It would appear that Mr Liang was then interested to be involved in all communications in respect of the project. Mr Dai said that Mr Lin also attended the North Rocks site and provided Mr Liang with updates. 3. On 24 February 2017, Rose Ives lodged a caveat over the North Rocks property, claiming an equitable interest in the property on the basis that Rose Ives "contributed 100% of the money in relation to the purchase of the land." Certainly, it would appear that Mr Liang had contributed the only equity to the acquisition of the property. Mr Liang's disquiet with the change of funding arrangements is, again, apparent. 4. Consistently with this, on 9 May 2017, Mr Liang's employee, Weili Xu, was appointed as a director of the plaintiff. According to a later email from Mr Dai, on 13 June 2017, NCC Fashion Group Pty Ltd agreed to lend a further $1 million to the plaintiff. Mr Xu's appointment was short lived; he left Mr Liang's employee, ceasing to be a director of the plaintiff on 19 June 2017. Notwithstanding this, Mr Liang transferred $1 million to the plaintiff on 1 August 2017. Solicitor's ongoing roles 1. The plaintiff embarked on the development of fifty townhouse on the North Rocks site. Toltz Lawyers continued to act for the plaintiff in three roles. First, Toltz Lawyers acted for the plaintiff on all contracts for sale of lots in the development. Second, the plaintiff became embroiled in litigation with Kenxue; Toltz Lawyers was retained by the plaintiff in relation to the proceedings. Mr Toltz said that Kenxue alleged that the plaintiff was required to pay significant additional costs if the loan was not repaid by the due date of 2 August 2017. This created an urgent need for the plaintiff to find another financier to refinance the loan. 2. Third, and relatedly, Mr Toltz' file notes records communications with Mr Dai from 28 June 2017 on in respect of refinancing the first and second mortgages. It would appear that the solicitor was again giving advice in relation to finance, as he had earlier done. The notes include communications with Mr Fleming ("explained the position") and references to Mr Werry ("Graham as a fall back for bal[ance] of [first mortgagee's] debt if Adam's source not adequately verified/verifiable"). On 29 June 2017, Mr Toltz "Reviewed Werry Term Sheet." Various suggestions were noted, including the plaintiff borrowing funds with "The Guarantors of the initial loan to be the Guarantors (Adams connection)." As I read these notes, Mr Toltz apprehended that Mr Dai had a "source" or "connection" who may be able to provide "additional equity" or a guarantee. I take this to be a reference to Mr Liang, albeit Mr Toltz does not appear to have been clear on his name. 3. Mr Toltz recalls that Mr Dai told him in July 2017 that he needed to borrow more funds and asked whether Mr Toltz knew anyone who might be interested to lending to him, such as Mr Fleming. Mr Toltz said he would see if Mr Fleming was interested and prepare a finance submission, but also said that Mr Toltz would be acting for Mr Fleming and his companies for any loan obtained, "He has been a client of mine for years so I will act for him and not you. Is that okay?" Mr Dai said that was fine. 4. It is not clear precisely when this conversation took place. Mr Toltz' file notes continued to record his communications with Mr Dai in respect of finance, including finance from Mr Fleming. Over time, the focus of Mr Toltz' files notes shifted from the plaintiff to Mr Fleming. The solicitor continued to maintain the same set of files notes notwithstanding that he began the files notes in his capacity as the solicitor for the plaintiff but at some point was now acting for Gemi. The files notes are consistent with the solicitor acting for both the plaintiff and Gemi. It was not until 28 July 2017 that Toltz Lawyers opened a file for Gemi in respect of the proposed loan, being a few days before completion of the refinance: see [121]. The fluidity of the solicitor's role in acting variously for the borrower and the lender continued in some of the transactions which are the subject of the claim against that firm. Liang becomes a director 1. In July 2017, Mr Liang said Mr Dai told him that the repayment date for the loans from private lenders was approaching. Mr Dai could not sell his Wallis Island property and asked whether Mr Liang could lend Mr Dai some money to repay the loans. Mr Liang said he could lend about $3 million but that was all. However, Mr Liang also said that Mr Dai needed to add Mr Liang as a director and shareholder of the plaintiff. In addition, Mr Liang said "I need to approve any decision you make for City Garden in the future." Mr Dai is said to have agreed, adding that it would help the application for a construction loan if Mr Liang became a director of the plaintiff, as it would be easier for the bank to accept their financial situation. 2. This conversation was described in Mr Liang's third affidavit, sworn a year after these proceedings had commenced. Mr Liang said that he made no notes of the conversation and gave his evidence relying on memory. Further, he only remembered the approximate details of the conversation, "It's impossible I will remember everything." These matters reduce the weight that I am prepared to attach to Mr Liang's evidence of this conversation. Against this, Mr Dai did not dispute (or even address) this conversation in his substantive affidavit. 3. Mr Liang said he felt that he needed to have more control of the plaintiff as he had been putting more and more cash into the company in order to keep it going. Mr Liang said that one of the reasons that he became a director was that he had put in so much money, "This is a must." Mr Liang agreed that he did not describe, in his affidavits, a conversation in which he said that they needed to change the arrangement as he did not want to be a silent partner anymore, "I did not need to say that because once I put in the money, then of course, I would look after my own fund there. That's common sense." 4. On 8 July 2017, Mr Dai pressed Mr Liang to complete the forms to become a director, "Please signed the forms and scanned back to me ASAP as our CBA formal loan offer will be issue[d] really quickly." On 12 July 2017, Form 484s were lodged with ASIC in respect of Mr Xu's resignation and Mr Liang's appointment as a director, Mr Liang has remained a director of the plaintiff ever since. Actual authority 1. It is timely to consider any limits imposed on the authority of the plaintiff's directors, either by the constitution or the trust deed, where the plaintiff contends that Mr Dai was not permitted to execute finance documents absent a resolution of the board. The plaintiff's constitution provided: directors – powers 11.1 The business of the company is to be managed by or under the direction of the directors. 11.2 The directors may exercise all the powers of the company except any powers that the Corporations Act or this constitution (if any) requires the company to exercise in general meeting. 1. The constitution did not require the company to exercise any powers in general meeting, for the purposes of clause 11.2. As to the requirements for a meeting of directors, the constitution provided that a director could call a meeting of directors by giving reasonable notice to other directors: clause 22.1. The quorum for a meeting of directors was 51% of the directors: clause 24.1; Schedule 4. A resolution of the directors was passed if the majority of the votes cast by directors was in favour of the resolution: clause 25.1. 2. It will be recalled that the plaintiff was trustee of the Trust. Clause 19(e) of the Unit Trust Deed provided: (emphasis added) 19 TRUSTEE OBLIGATIONS The Trustee: - … (b) Shall keep or cause to be kept proper Minutes of its decisions relating to the Trust Fund. … (e) In exercising any of the powers or discretions of the Trustee hereunder, the Trustee, where it is a company shall act on the resolution of the Board of Directors made in accordance with the Constitution … All such resolutions shall be evidenced in writing and held with the records of the Trust. As will be seen, the obligation for the directors to act on resolutions recorded in writing was observed in the breach. 1. Clause 27(s) of the Unit Trust Deed also provided: 27 POWERS OF TRUSTEE GENERALLY … the Trustee in its absolute discretion shall have and may exercise the following powers in respect of the Trust Fund: … (k) The Trustee may borrow or raise money from time to time for the purposes of the Trust Fund without limitation … The Trustee shall further have power to give security over the Trust Fund or any part of it for any such raising or borrowing. … 1. As such, when Mr Dai was the sole director of the plaintiff, he had authority to make decisions on behalf of the company in respect to raising finance. The constitution of the plaintiff company did not require resolutions on this subject to be passed at a general meeting. The plaintiff did not observe the requirements of the Trust Deed, that is, keeping a proper minute of Mr Dai's decisions as the sole director of the company when exercising the power as trustee to borrow or raise money under clause 26(k) of the Unit Trust Deed. 2. It does appear that Mr Liang was initially content to be a silent investor and to leave the North Rocks project to Mr Dai's management, where Mr Liang had previously had a profitable experience working with Mr Dai on the Carlingford development. Mr Liang was, however, watchful of Mr Dai's activities and tasked staff, being Mr Lin and Mr Xu, to variously obtain information about the project from Mr Toltz or to become a director of the plaintiff. However, the funding arrangements for the project strayed from those initially discussed. Mr Liang provided more funding than had been discussed. He was now being asked to provide further funds. Mr Dai had been unable to provide his portion of funding, other than by obtaining loans secured inter alia over the plaintiff's property. I infer that Mr Liang was initially reluctant to become a director himself. As his investment in the North Rocks project increased, Mr Liang overcame that hesitation. He was no longer content to be a silent investor. This was hardly surprising in the circumstances. 3. Clause 11 of the constitution is in the same terms as section 198A of the Corporations Act 2001 (Cth). As I observed in In the matter of Hot Frog Pty Ltd [2022] NSWSC 6 at [82], while section 198A of the Corporations Act does not confer authority on a single director, directors may nevertheless make 'informal decisions' by a "meeting of the minds" which have the effect of a resolution passed in a duly convened meeting. Whether there was any such decision is a question of fact in each case: Roden v International Gas Applications (1995) 18 ACSR 454 at 456 (per McClelland CJ in Eq); In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332 at [122] (per Black J). 4. Where the plaintiff now had two directors, the question is whether the directors agreed – notwithstanding the absence of any formal resolution – that Mr Dai had authority to enter into the finance transactions without consulting Mr Liang. The very matters which prompted Mr Liang to become a director suggest that he was no longer content to leave financing decisions to Mr Dai alone. I accept that Mr Liang discussed the matter with Mr Dai. Mr Dai was likely aware, as a result of that discussion, that he could no longer make such decisions without conferring with his fellow director; indeed, Mr Dai had conferred with Mr Liang on this subject even before he became a director. 5. I do not accept the solicitor's submission that Mr Dai's email instruction to the solicitor on 8 February 2017 – to copy all email correspondence regarding the plaintiff to Mr Liang as an important unitholder – meant that Mr Dai had authority to act on the company's behalf and only tell Mr Liang afterwards what he had done. The email was sent before Mr Liang became a director. The suggested authority does not arise from the text of the email. Further, if Mr Toltz had complied with Mr Dai's instruction, Mr Liang would have been copied on communications from the inception of instructions on any particular issue to its conclusion, giving Mr Liang ample opportunity to intervene if he were not agreeable with what was then unfolding. 6. As to whether Mr Dai agreed that Mr Liang had to approve any decision Mr Dai made for the plaintiff, I consider it likely that Mr Dai understood and agreed that he was not at liberty to embark upon finance transactions without discussing the matter with Mr Liang and making a decision together and I so find. The Unit Trust Deed required such decisions to be documented in a resolution. Even if this formal requirement was not observed, the directors did need to make a decision by a 'meeting of the minds' on the subject That is, Mr Dai did not have actual authority to make such decisions alone, without consultation with his fellow director. Liang meets private lender 1. On 16 July 2017, Mr Toltz emailed Mr Dai seeking an update on the application to the Commonwealth Bank, as Mr Toltz wanted to finish a submission to Mr Fleming. Mr Dai replied that approval was imminent. Mr Toltz asked Mr Dai, "How much should we ask for from George? … 8.25m + his interest and fees, legals, brokerage + ???" Although Mr Toltz was going to be acting for Gemi on the proposed loan, he continued to communicate with Mr Dai as if he was also acting for the plaintiff. Mr Toltz arranged a meeting with Mr Dai and Mr Fleming on 21 July 2017. 2. On 20 July 2017, Mr Liang was asked by Mr Dai to attend a meeting with Mr Fleming. Mr Dai said he needed to get some loans from Mr Fleming, who was a private lender. Mr Liang queried whether he needed to be present, "I do not like to deal [with] these private lenders as they charge very high interest rates." Mr Dai assured Mr Liang that Mr Dai would be borrowing the funds and the loans would have nothing to do with Mr Liang, but Mr Fleming would have more confidence to lend money after meeting with Mr Liang as Mr Dai had told him that Mr Liang had strong financial backing. I note that the contemporaneous documents contain several examples of Mr Dai (or his broker) telling prospective lenders of Mr Liang's wealth, apparently as a way of giving comfort and enhancing Mr Dai's prospects of obtaining a loan: see, for example, at [307], [311]. Mr Liang agreed to attend. 3. On 21 July 2017, Mr Toltz' file note records a meeting with Mr Dai, Ms Zhu, Mr Liang, "Steve" and Mr Fleming. Mr Toltz said the meeting was to talk about refinancing. This was the first time that he or Mr Fleming had met Mr Liang. Mr Toltz was not then aware that Mr Liang had become a director of the plaintiff but knew that he was involved as a unitholder in the Trust. 4. Mr Liang brought his friend and business partner, Steve Ju. The lenders submitted that a Jones v Dunkel inference should be drawn from the plaintiff's failure to call Mr Ju. It is not necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490 (per Lockhart, Gummow and Lee JJ). The plaintiff seeks no relief in respect of this transaction. Given the factual complexity of this case, the number of transactions and potential witnesses who could have been called, I do not consider that Mr Ju was sufficiently significant overall to be regarded as a necessary witness. I decline to draw the inference. 5. According to Mr Liang, the meeting lasted for about 15 minutes. Mr Liang did not recall exactly what was discussed, and recalled nothing being mentioned regarding any loan or proposed loan. Mr Liang said the meeting was "a social thing. Nothing was signed. No promise whatsoever. … we did not discuss a loan. … So, the conversation, nothing much. Was just a social conversation about business and something like that and left quite quickly." Mr Liang said that the word "loan" was not mentioned. 6. No-one else proffered a recollection of what was discussed at the meeting. Nor does Mr Toltz' file note record the length of the meeting. Mr Toltz' note simply records that the Commonwealth Bank believed the plaintiff was undercapitalised; arrangements were also made for Mr Fleming to meet "Adam & ors" on 25 July 2017. Following the meeting, Mr Toltz understood that Mr Dai was keen to proceed with a loan from Mr Fleming. 7. That is, Mr Toltz' file note suggests that the application for a construction loan from the Commonwealth Bank was, at least, discussed. Where the parties had gone to the trouble of assembling the plaintiff's key stakeholders, the solicitor and Mr Fleming, and where Mr Liang had gone to the further trouble of bringing a colleague, I consider it unlikely that the meeting was "social." More likely, the subject of a loan from Mr Fleming was discussed. As much is confirmed by what Mr Liang did next. Liang becomes majority shareholder 1. On 26 July 2017, Ms Zhu's 50 shares in the plaintiff and 10 of Mr Dai's shares were transferred to Mr Liang, such that he now became the majority shareholder of the company, with 60 shares. Mr Liang said he asked Mr Dai to transfer the shares to him so that his investments would be more secure. 2. Becoming the majority shareholding likely reflected the fact that, by then, Mr Liang had made the largest financial contribution to the North Rocks project. It likely also reflected Mr Liang's wish to ensure his control of the plaintiff following his meeting with Mr Fleming and an appreciation that Mr Dai was continuing to provide his contribution to the project by debt finance. Mr Liang said "I actually told [Mr Dai] off because of this," telling Mr Dai that he should not borrow high interest loans, as it was unaffordable. Refinance – August 2017 – two mortgages – $9.21 million 1. A Gemi syndicate proposed to provide a loan of $6,453,844 to refinance the Kenxue loan. Fleming Family Super Fund Pty Ltd proposed to provide a second loan of $2,756,520 to refinance the Weriton loan. Both loans were for a period of four months. Mr Fleming said the purpose of the two loans was to enable the plaintiff to satisfy previous obligations before seeking construction finance approval. 2. It will be recalled that Rose Ives had lodged a caveat on the title of the North Rocks land. On 28 July 2017, Mr Toltz asked Mr Dai to obtain a withdrawal of the caveat, together with a written undertaking from Mr Liang not to re-lodge the caveat until after the first and second mortgages had been repaid, "You need this for your own protection." Mr Toltz also made a note to "make arrangements for Miles" – being independent solicitor Miles Holt – and to open a file for Gemi in respect of the loan to the plaintiff. On 31 July 2017, Mr Toltz prepared an email to be sent to Mr Dai, "Arrangements are being made for independent advice for you from Miles Holt … please make time available to call in with [Ms Zhu] …" On 1 August 2017, Toltz Lawyers prepared settlement instructions, which recorded that Spectrum Client Solutions was acting for the plaintiff. Presumably this was the firm for which Mr Holt then worked. For practical purposes, however, it does appear that Mr Toltz was continuing to work with Mr Dai on the transaction, albeit whilst also acting for Gemi. 3. On 1 August 2017, Mr Liang signed a withdrawal of caveat. Mr Liang then understood that Toltz Lawyers was acting for the plaintiff. He can be forgiven for having this understanding. Mr Liang said he was told by Mr Dai to remove his caveat, as they were applying for a construction loan. Mr Dai said he would transfer more units in the Trust to him very soon to protect his interest. On this basis, Mr Liang agreed to remove the caveat. Mr Liang denied that he removed his caveat in order to permit Gemi and Fleming Family Super to register their mortgages, "As to the loans, that got nothing to do with me. I don't know. And I don't need them." There was an air of unreality to this evidence. Given his attendance at the meeting with Mr Fleming, more likely Mr Liang was aware of what was going on at the time and agreed to remove his caveat to permit the acquisition finance to be refinanced. 4. On 1 August 2017, the plaintiff executed a loan agreement with the Gemi syndicate. The loan was guaranteed by Mr Dai, Ms Zhu and the builder. A further suite of documents was executed in respect of a loan by Fleming Family Super Fund to the plaintiff. The plaintiff granted a first and second mortgage over the North Rocks property to the respective lenders. Mr Dai and Ms Zhu declared that they had received independent legal advice. Mr Holt, solicitor, certified the documents. 5. On 2 August 2017, Toltz Lawyers issued settlement instructions in respect of the discharge of Kenxue's mortgage. Toltz Lawyers was noted as acting for both the plaintiff and the incoming mortgagee, Gemi Investments. The mortgages granted to Kenxue and Weriton were discharged and replaced by mortgages in favour of Gemi Investments and Fleming Family Super Fund. 6. On 9 August 2017, Toltz Lawyers emailed copies of the signed loan documents in respect of the loan from Gemi to Mr Dai, apart from the mortgage as it had not yet been registered. Mr Dai forwarded the documents by email to Mr Liang. Again, as for the Second Mortgage Loan and the acquisition finance, Mr Liang was informed about the proposed loan and also provided with the loan documents after completion. The plaintiff does not take issue with the validity of the transaction documents. I take this to reflect an acknowledgement that Mr Liang was aware of the proposed loans and was amenable to Mr Dai proceeding in this way. 7. On 17 August 2017, Toltz Lawyers rendered invoices to the plaintiff for fees in respect of acting for the first and second mortgagees. On 30 August 2017, Toltz Lawyers also rendered an invoice to the plaintiff for its costs of acting for the company in respect of the refinance of loans. That is, the solicitor acted for both the plaintiff and the lenders on the refinance and charged both sides of the transaction for its services. Construction finance - $25 million 1. Mr Dai started the process of applying for a construction loan with Westpac. On 9 August 2017, Westpac issued an expression of interest to the builder in respect of the North Rocks development, offering to provide a $25 million facility for two years. The proposed security included a first registered mortgage on the North Rocks property, together with a guarantee and indemnity from each of Mr Liang and Mr Dai. 2. On 10 August 2017, Mr Liang signed a Deed of Agreement between Maxmara Trinity, the builder, Rose Ives and Gold Enterprise Development Co Ltd. (Gold Enterprise was one of Mr Liang's companies.) Maxmara Trinity, Rose Ives and Gold Enterprise agreed to allow the builder to complete the North Rocks project for a fixed price of $20 million excluding GST, "there will be absolutely no variation [or] legal liabilities" for Rose Ives and Gold Enterprise: clause 1. Further, the builder agreed "to commence the construction works … as soon as possible upon the approval of construction loan from major financial institutions": clause 3. Gold Enterprise agreed to provide a loan of $3 million, for which Maxmara would provide 40 of its units in the Trust as security. 3. Between 29 August and 25 September 2017, Gold Enterprise transferred $3 million to the plaintiff. The funds provided by Mr Liang and his companies for the North Rocks project now stood at $9.6 million. 4. On 23 August 2017, the plaintiff entered into a construction contract with the builder, being a Design and Construct agreement in the form of AS 4902-2000. The plaintiff agreed to pay a lump sum of $17,394,500 exclusive of GST "as adjusted from time to time in accordance with the Contract". Under the contract, the builder was obliged to arrange for the supply of all materials, labour, plant and equipment and everything needed to complete the Works, and to pay for the supply of such services: clause 2.1(c)(i)(A). The builder was entitled to submit a series of progress claims, which would be certified by the superintendent: clause 37. In the event that the plaintiff had paid any workers, consultants or subcontractors directly, these payments could be set-off: clause 38. 5. On 14 September 2017, Westpac approved the plaintiff's request for finance, being a two year interest only business loan of $24.95 million. The facility was subject to various conditions and lending constraints, in particular, a Loan to Cost Ratio (LCR), such that the total amount owing under the construction loan was not to exceed 67% of development costs. The LCR would be tested at each drawdown of the facility against total development costs as certified by the bank's quantity surveyor. Funds would be provided by progressive advances on a "value and percentage of Works completed" basis and on a "cost to complete" basis, as certified by the bank's quantity surveyor. That is, the bank was not wholly funding construction costs, but roughly two-thirds of such costs. 6. On 15 September 2017, Mr Toltz's file notes record a two-hour meeting with Mr Dai and Mr Liang, "Rev & exec docs." Mr Toltz said the purpose of the meeting was to review the Westpac facility documents with them and execute the documents. A mortgage over the North Rocks property was executed in favour of Westpac. Mr Dai and Mr Liang provided guarantees. Mr Toltz signed a Verification of Identity Certificate in respect of Mr Liang as a director of the plaintiff. 7. On 28 September 2017, Toltz Lawyers obtained a company search for the plaintiff. The company search confirmed that both Mr Dai and Mr Liang were directors; Mr Liang was the majority shareholder. Notwithstanding this, Mr Toltz's communications about the land and finance continued to be with Mr Dai alone. Paying out acquisition finance 1. In order for the Westpac loan to be drawn down and for construction to commence, the loans from the Gemi syndicate and Fleming Family Super had to be paid out. Whilst $4.6 million of the Westpac facility could be used for this purpose, more was needed. Mr Liang was asked by Mr Dai to lend the plaintiff further funds to pay out these mortgages. Mr Liang queried the request and asked for an analysis of the project cost to date and exactly how much money was needed in the future. On 13 October 2017, Mr Dai emailed Mr Liang: As a simple summary the total additional borrowing on paper is $3.4 million, with the current $640,000 in CBA the net amount from HK shall be $2.76m The total my contribution so far is $600,000.00 and your contri[bu]tion shall be hence $400,000.00 So the total borrowing from you is $1.6m+$3m+$3.4m=$11m The capital investment is $4.4million. 1. Mr Liang did not believe that the loans which Mr Dai had raised were for the benefit of the Trust or the project. Mr Liang was hesitant to pay out the loans but felt he had no choice, as he could only recover his previous investments if the project commenced. Mr Laing voiced his displeasure. Mr Dai apologised and said that his cashflow had been unexpectedly tight because of his other projects. Mr Dai said that Mr Liang could have control of the company's accounts so that he would feel more comfortable. 2. On 16 October 2017, a Deed of Loan was executed between Gold Enterprise (as lender), the builder (as borrower) and Mr Dai (as guarantor). Gold Enterprise agreed to lend $3.4 million to the builder, secured by Mr Dai's guarantee and a call option to purchase shares in the builder. However, according to the deed, at least, the loan was to be used to complete the purchase of a property in Villawood – that is, it appears to have been unrelated to the North Rocks project. I also note that the Gemi syndicate and Fleming Family Super agreed to take alternative security over a development site at Villawood, owned by Mr Dai, in exchange for agreeing to discharge their mortgages without being paid out in full. 3. The terms of the Deed of Loan, at least, are at odds with Mr Liang's evidence that he agreed to provide the funds to enable Mr Dai to pay out the existing loans so that the Westpac construction loan could be drawn down. Indeed, the fact that Mr Liang was prepared to advance further funds to Mr Dai and his projects at this time may suggest that he was then satisfied with Mr Dai's actions. 4. From 23 October 2017 to 23 November 2017, Mr Liang progressively transferred funds totalling some $2.8 million and some US$300,000 to Mr Dai. Mr Liang said he transferred enough money to the plaintiff to repay the existing mortgages. As Mr Liang had invested over $10 million in the project by then, Mr Liang began to take control of the company's bank accounts. Mr Liang understood that all transactions in relation to the project went through the plaintiff's Westpac bank accounts, which he had control over and access to. 5. Settlement of the Westpac loan facility took place on 18 December 2017. The initial drawdown of the Westpac facility was $4.6 million. This was used to reduce the loans from the Gemi syndicate and Fleming Family Super by $4,581,836.64. The mortgages over the North Rocks property in favour of Fleming Family Super Fund and Gemi were discharged. After being partly paid out by Westpac, some $1.854 million remained owing to these lenders. It is not entirely clear how the additional funds provided by Mr Liang were used to pay out these loans. According to a loan statement for the Fleming Family Super Fund loan, $750,000 of the loan balance was transferred to "Villawood" and a further $750,000 was transferred to "Marco Apartments," reducing the loan balance to $900,000. According to Mr Fleming, Mr Dai told him "I paid out your second mortgage from my cashflow." However, some of the funds likely came from Mr Liang. 6. On 19 December 2017, Mr Dai emailed Toltz Lawyers, copied to Mr Liang, thanking them for their efforts. The plaintiff makes no complaint in respect of the transaction in these proceedings. As I have endeavoured to describe, Mr Liang was broadly appraised of the details at the time. Shortfall in construction funding 1. In November 2017, the builder rendered its first progress claim in respect of the North Rocks project for some $190,000. In January 2018, The builder issued two variation notices for $19,635 and $150,402.45 respectively. In February 2018, the builder's first and second progress claims were paid using Westpac's loan facility. On 23 February 2018, the builder made payment claim No 3 for some $288,000. In March 2018, the builder issued four variation notices, totalling some $465,000. In April 2018, the builder submitted progress claim No 5 for some $926,000. In May 2018, payment claim No 6 was submitted for some $1.3 million. Progress claim No 7 followed on 31 May 2018 for some $797,000 and, on 25 June 2018, progress claim No 8 for some $920,000. Variation No 8 also followed on 25 June 2018 for some $9,700. 2. On 23 June 2018, Yisheng Construction Pty Ltd rendered the first of many invoices to the builder. On 30 August 2018, the builder transferred the first of many payments to this contractor. On 24 July 2018, progress claim No 9 was issued for some $986,000. On payment of this claim, the Westpac construction facility was drawn down by $11,410,544.46. In August 2018, the builder made progress claims No 10 and No 11 for some $550,000 and $497,000 respectively. On 19 September 2018, the builder made payment claim No 12 for some $410,000. On 3 October 2018, the builder submitted progress claim No 13 for some $384,000. On 22 October 2018, the bank's quantity surveyor certified that the project was now 50% complete. 3. Mr Dai said that in about July 2018 he told Mr Liang that there was a shortfall in construction funds and they needed to raise funds in order to finish the project. Mr Liang said he would contribute "but now my money is tight because I'm having issues with my clothing business". According to Mr Dai, Mr Liang asked him to find a way to raise more funds. Mr Dai said he asked Mr Liang about providing a personal guarantee in relation to such loans, but Mr Liang rejected this. 4. I attach little weight to Mr Dai's evidence. What is known is that Mr Liang was asked by Mr Dai to transfer funds to pay for construction material. On 11 October 2018, Mr Liang transferred USD$267,358.22 to a Shanghai building material company on behalf of the builder. Mr Dai emailed the builder's accountant, Yvonne Zheng, copied to Mr Liang and his accountant, Anne Zhong, requesting that this be recorded in City Garden expenses. 5. Mr Dai appears to have been then speaking with Mr Toltz and Mr Fleming about obtaining further finance. I note that the documents executed for the first disputed transaction (which was completed on 14 November 2018) are dated 15 October 2018, suggesting that the documents were initially drafted at this time. On 18 October 2018, Mr Dai sent an email to Mr Toltz, copied to Mr Fleming, apparently attaching unitholdings in the Trust. There appears to be gaps in the documentation at this point. 6. On 15 October 2018, the builder submitted progress claim No 14 for some $730,000. On 16 October 2018, construction manager Will Sassine emailed Mr Dai, "We have a shortfall from the bank of almost $1M …". Mr Dai forwarded this report to Mr Liang, advising "North rocks has experiencing some cash flow issue due to the bank Westpac is short funded at the moment about 1 million." Mr Laing said he trusted Mr Dai and believed that there was a shortfall. Mr Liang agreed to provide a loan of $2 million through his company, Tempe Development Pty Ltd, to cover the shortfall. 7. On 20 October 2018, Mr Toltz provided Mr Liang with a loan agreement and letter regarding the loan from Tempe Development. According to the solicitor's letter, Mr Dai had informed Mr Toltz that Tempe Development agreed to lend $2 million to the plaintiff, to be secured by an unregistered second mortgage over the North Rocks land together with personal guarantees from Mr Dai and Ms Zhu. Further, "Adam has indicated that you have instructed this firm to act for your company on this loan. Should this be correct we thank you for your instructions. City Garden and the guarantors will receive separate independent legal advice from another legal firm." Mr Toltz attached a draft loan agreement for comment, "I will then have the Loan Agreement and other security documents signed by Adam and Julianne before the independent solicitor." 8. The solicitor submitted that it was clear from this letter that it was anticipated that Ms Zhu would be appointed as secretary, as had been discussed on-site on 20 August 2018: see [145]. Mr Liang's deliberate silence on this point was said to be telling. I do not agree. How Mr Liang should have drawn from this letter that Ms Zhu had been, or was about to be, appointed as a secretary of the plaintiff is not obvious. The execution page of the draft loan agreement also provided by Mr Toltz proposed that Mr Dai and Mr Liang would execute the document as directors. The portion of the letter relied upon by the solicitor is equally explicable by the fact that Mr Dai and Ms Zhu were giving personal guarantees for the proposed loan. 9. Mr Liang does not remember whether he signed the loan agreement sent by Mr Toltz, but said he did agree to lend $2 million to the plaintiff. Mr Liang transferred the funds progressively from 29 October 2018 to 16 November 2018, as can be seen from deposits to the plaintiff's bank account by "Ncc fashion." Specifically, on 29 October 2018, NCC Fashion deposited $1 million. On 2 November 2018, NCC Fashion deposited $510,000. A further $410,000 was deposited by NCC Fashion account on 6 November 2018. On 16 November 2018, NCC Fashion deposited a further $80,000. The funds were immediately disbursed to a range of contractors and suppliers. 10. On 23 October 2018, Mr Dai also emailed Mr Liang, proposing that various deeds of loan between the plaintiff and NCC Fashion Group be replaced with a new deed of loan. In evidence is a Loan Agreement between NCC Fashion Group (as lender), the plaintiff (as borrower) and Mr Dai and Ms Zhu as guarantors in respect of a loan of $13 million, to be advanced in six tranches. The agreement is signed by Mr Dai (witnessed by Mr Toltz) but not signed by Mr Liang. It appears to be the document referred to in Mr Dai's email. From this Loan Agreement and the proposed loan agreement with Tempe Development, Mr Toltz must have been aware that Mr Liang was providing substantial funding to the plaintiff. 11. On 31 October 2018, the quantity surveyor certified progress claim No 15 for some $572,000. On 1 November 2018, the builder rendered an invoice for variation PC11, for some $9,700. On 5 November 2018, the builder made payment claim (also) No 15 for some $487,000. On 7 November 2018, Progress Drawdown Report No 14 was issued. The project was now 53% complete. 12. On 7 November 2018, Toltz Lawyers obtained a company search for the plaintiff. The directors were Mr Dai and Mr Liang. Mr Dai was the secretary. Zhu appointed as secretary 1. Mr Dai and Ms Zhu said that, in August 2018, Mr Dai had suggested to Mr Liang that Ms Zhu be appointed as secretary of the plaintiff as both Mr Dai and Mr Liang were busy and "she may need to sign documents for the company." Mr Liang is said to have agreed. Ms Zhu said the subject was discussed again on site on 20 October 2018. Ms Zhu suggested that they contact their accountant to finalise the documentation to be signed. Mr Liang asked that they let him know when they were to meet with the accountant to sign the paperwork. 2. Mr Dai had recently appointed SWA as the plaintiff's registered agent. Ms Zhu instructed SWA to prepare the paperwork. Ms Zhu was informed by her husband that SWA had completed their task but needed the directors to come to a meeting. Mr Dai told her that he had time on 8 November 2018; so did Ms Zhu. Mr Dai said he would call Mr Liang to see if he was also available. Mr Dai variously said he gave Mr Liang one or two days' notice of the meeting or asked Mr Liang to come to the accountant's office straight away: see [165]. 3. Ms Zhu said that she met with Mr Dai and Mr Liang at the accountant's office, where they proceeded to sign the paperwork to appoint her as secretary of the company. According to "Minutes of Company Meeting" signed by Mr Dai only, at 1 pm on 8 November 2018, Mr Dai, Mr Liang and Ms Zhu participated in a meeting of City Garden at the SWA's offices in Elizabeth Street, Sydney. A resolution was passed: Ms Zhu would be appointed as secretary of the company effective from that day. It is not entirely clear from the minutes whether the meeting was of the plaintiff's directors or a general meeting. 4. At 2.22 pm on 8 November 2022, a Form 484 was lodged with ASIC by SWA, signed by Mr Dai, in respect of the appointment of Ms Zhu as secretary. The Form 484 was not accompanied by the minute of meeting. 5. Mr Liang said he was not notified of, and did not attend, the meeting. Mr Liang has a habit of recording his whereabouts in his Google account. According to these records, Mr Liang was then en route from his home to North Sydney to collect the keys for an apartment which he had purchased. After looking at the apartment and taking some photos, Mr Liang and his secretary, Yan (Monica) Su, walked to a nearby restaurant to have lunch. According to bank records, at 2.54pm, Mr Liang paid $45 at a Japanese restaurant in North Sydney. According to the Google account records, Mr Liang left North Sydney at 3.12 pm and drove to his office in Surry Hills. 6. Some doubt was cast upon the reliability of the Google account records. The records showed that, earlier that day, Mr Liang spent two hours at "Anytime Fitness." Mr Liang readily agreed that he had never gone to that gym. Nor did any family member belong to that gym. Before departing for North Sydney, Mr Liang travelled for 36 minutes near his home without stopping, before returning home and then leaving for North Sydney. Unsurprisingly, five years' later Mr Liang did not recall the details of the 36 minute drive. 7. The lenders submitted that, according to the Google account records, Mr Liang drove straight to the restaurant. I note, however, that the address of the apartment on the Pacific Highway, North Sydney is a short walk from the restaurant on Miller Street. The degree of accuracy of the Google account records is not known, nor the additional details which may have become apparent if the screenshot had been enlarged to focus on this precise part of the journey. The lenders further submitted that Mr Liang's subsequent route from the restaurant to his offices in Surry Hills would have passed near SWA's offices in the city. That may well be so, but the Google account record does not suggest that he stopped there on the way to his office. 8. The lenders submitted that a Jones v Dunkel inference should be drawn in respect of the plaintiff's failure to call Ms Su as a witness. I agree that Ms Su is a person who it would be natural for the plaintiff to call; she may be regarded as "in the camp" of the plaintiff or "a witness likely to be friendly to the interests of the other party": Payne v Parker [1976] 1 NSWLR 191 at 201-202 (per Glass JA); Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343 (per Kirby P with Mahoney and Clarke JJA agreeing). I accept that Ms Su may have corroborated Mr Liang's account of his movements on that day, if she now recalled them. Ms Su, however, was not referred to in either of Mr Liang's affidavits on this subject. The fact that Ms Su accompanied Mr Liang to inspect the apartment only became apparent during cross-examination. In the overall scheme of this case, I consider this factual matter to be relatively minor, such that calling Ms Su was likely not considered necessary. In an abundance of caution, I will draw the inference. 9. The defendants submitted that a Jones v Dunkel inference should also be drawn from Mr Liang's failure to produce his Google account records for 20 October 2018, being the day when Ms Zhu said she discussed her appointment as secretary with Mr Liang on site. Mr Liang denied meeting with Mr Dai and Ms Zhu on this date. It may well be that Mr Liang could have produced the Google account records for 20 October 2018. Mr Liang was clearly eager to demonstrate the features of his Google account records. Whether Mr Liang could or would have provided the records for 20 October 2018 was not raised with him in cross-examination. Nor was he asked about the site meeting. In the circumstances, I consider that it would be unfair to draw the inference and decline to do so. 10. If, as appears to have been suggested, Mr Liang concocted the Google records, then one might think that he would not have included a two-hour stop at "Anytime Fitness." Mr Liang's answers in respect of these entries were frank and clear. Whether "Anytime Fitness" was the only shop or business at that street address is not known, nor Google's method of selecting the name of a particular business to display on a Google account if there is more than one business at or near that location. On balance, the Google records – together with the photograph of the apartment keys and associated paperwork and the bank receipt for the North Sydney restaurant – point to the fact that Mr Liang was indeed en route to North Sydney at 1.00 pm on 8 November 2018 and not at a meeting at the accountant's offices in Elizabeth Street, Sydney as described by Mr Dai and Ms Zhu. 11. That this is so is confirmed by other contemporaneous documents. It was not until 3.17 pm on 8 November 2018 that SWA prepared and emailed the minutes of meeting to be signed. SWA then sent an email to Mr Dai and Ms Zhu as follows: Please kindly find attached Company Secretary Appointment Forms that require you to sign as the followings: • City Garden Australia Pty Ltd – Add Zhu, Lin as company secretary • City Garden Australia Pty Ltd – Consent to act as secretary • City Garden Australia Pty Ltd – Minutes of Meeting Please sign the above forms and email back to me, then I can lodge the 484 form to ASIC. 1. That is, as at 3.17 pm, the minutes of meeting had not been signed and, indeed, had not been prepared. Further, SWA did not appear to envisage that a meeting would necessarily take place but rather that the minutes would simply be signed and returned. SWA rendered an invoice for preparation and lodgement of the Form 484 and preparation of the resolution. SWA's invoice did not suggest that the firm had hosted, supervised or attended a meeting on its premises. 2. Of SWA's email, Mr Dai said he noticed that Mr Liang was not copied on SWA's email. Mr Dai said he called Mr Liang and told him that the accountant had now provided the documents to appoint Ms Zhu as secretary of the company. Mr Dai asked Mr Liang to come to the accountant's office straight away to sign the documents and minutes of meeting. Mr Liang said he would see him soon. Mr Dai also called his wife and asked her to come to the accountant's office. Shortly afterwards, Mr Dai said that he attended the accountant's office with Mr Liang and Ms Zhu and signed the company meeting to appoint his wife as secretary. I cannot reconcile Mr Dai's evidence with the time on the minutes of meeting, the timestamp on the lodgement of the Form 484 and the timestamp on SWA's email. 3. Further, the following evening, on 9 November 2018, Mr Dai replied to SWA, "Please see the signed form for appointment of company secretary." In evidence is a Consent to Act as a Secretary signed by Ms Zhu and dated 9 November 2018. Presumably, this was the attachment to Mr Dai's email. Ms Zhu said the document should have been dated 8 November 2018 and she recalled signing at the accountant's office as earlier described. I doubt it. More likely, Ms Zhu signed the document on the date it bears and shortly before Mr Dai provided the document to SWA. 4. The plaintiff and the defendants submitted that a Jones v Dunkel inference should be drawn from the other's failure to call a witness from SWA. SWA was initially appointed by Mr Dai and took instructions from him for some time before Mr Liang took over the accounting function for the plaintiff in September 2019. Mr Liang and his accountant continued to work with SWA for five months before changing the registered agent of the plaintiff, on the same day as he removed Ms Zhu as secretary: see [451]. I do not regard SWA as in any party's camp; a witness from this firm was equally available to all parties to call if thought appropriate. I draw no inference from any party's failure to do so. 5. I find that there was no meeting between Mr Dai, Mr Liang and Ms Zhu at SWA's offices at 1pm on 8 November 2018. Rather, SWA prepared minutes of meeting as instructed by Mr Dai, who signed the minutes on receipt, being sometime after 3.17 pm on 8 November 2018. SWA had already filed a Form 484, notifying ASIC of the appointment of Ms Zhu as secretary. I do not accept Mr Dai and Ms Zhu's evidence that a meeting, in fact, took place. That does not mean, of course, that the directors had not agreed informally that Ms Zhu should be appointed as secretary. While Mr Liang said he had no knowledge that Ms Zhu had been appointed as company secretary, I will consider further whether Mr Liang was aware, or subsequently became aware, of Ms Zhu's appointment at [193]. FIRST DISPUTED TRANSACTION – NOVEMBER 2018 1. The next day, on 10 November 2018, Mr Fleming emailed Mr Dai, apparently in answer to a request for finance to fund a bank guarantee for a home warranty insurance policy, "We are very tight but we will be able to provide the following facility …". Mr Fleming offered to provide a $2 million facility for six months, secured by a second mortgage over the North Rocks property, a charge over Mr Dai's units in the Trust, a mortgage over Wallis Island and guarantees from Mr Dai and Ms Zhu. The loan was to be drawn down in two tranches: the first tranche was $1.1 million and the second tranche was $900,000. Mr Dai was asked to advise if he was happy with these conditions "and we will get Documentation prepared." 2. The bank guarantee and home warranty insurance policy was likely unrelated to the North Rocks property, where construction was then well advanced. According to the builder's general ledger, the home warranty insurance premium for the North Rocks project was paid on 1 April 2017. The quantity surveyor's reports noted that the home warranty insurance policy was provided on 25 August 2017. A person is prohibited from carrying out residential building work under a contract unless "a contract of insurance that complies with this Act is in force in relation to that work": section 92(1) of the Home Building Act 1989 (NSW). More likely, the bank guarantee was needed in respect of a development in Baulkham Hills: see [291]. That development was being undertaken by the builder, but not by the plaintiff. 3. On 11 November 2018, Mr Dai asked Mr Fleming to go ahead with the funding and the paperwork, "I prefer $1.1 million to Ming Tian account because the funding need to have Ming Tian provide [bank guarantee]". Mr Dai's email was copied to Mr Toltz, who sought clarification: I take this as a loan to Ming Tian with guarantee from City Gardens…secured by an unregistered mortgage over North Rocks and the other security specified by George [Fleming]. We will arrange the documents asap tomorrow and ask Miles Holt to provide the independent advice. Let me know what time suits you and Julianne late pm tomorrow or Tuesday morning. 1. On 12 November 2018, emails ensued between Toltz Lawyers and Mr Cooper in respect of the terms of the loan. Mr Toltz was told, either by Mr Dai or Mr Fleming, that the loan would be to the plaintiff rather than the builder. Toltz Lawyers provided loan documents to Mr Cooper for approval. Shortly afterwards, Toltz Lawyers provided the loan documents to Mr Dai, "Please arrange for these to be signed in front of a solicitor, and deliver hard copies of documents to our office." 2. At 12.12 pm on 13 November 2018, Toltz Lawyers obtained various searches, including a company search for the plaintiff. The search confirmed that the directors remained Mr Dai and Mr Liang, but the company now had two secretaries, being Mr Dai and Ms Zhu. The shareholding remained as before, with Mr Liang being the majority shareholder. 3. Thirty minutes later, Toltz Lawyers provided Gemi Investments with a letter certifying the transaction, together with the law firm's fee note to Gemi Investments in respect of its costs of acting for the mortgagee in respect of a loan to the plaintiff. Toltz Lawyers reported that they had received executed loan documents for a further loan to the plaintiff, to be secured by unregistered mortgages over the North Rocks site and Wallis Island. The documents included a Loan Agreement (incorrectly dated 15 October 2018) between Gemi Investments and the plaintiff, guaranteed by Mr Dai, Ms Zhu, Maxmara Trinity and Wallis Island, and executed by Mr Dai as director and Ms Zhu as secretary. 4. The finance documents included a mortgage given by the plaintiff over the North Rocks property in favour of Gemi Investments, executed by Mr Dai and Ms Zhu as director and secretary respectively. A mortgage was also granted by Wallis Island. The plaintiff executed a General Security Deed with Gemi (executed by Mr Dai and Ms Zhu), as did Maxmara Trinity. Mr Dai and Ms Zhu each executed a guarantee and indemnity. Guarantees were also given by Wallis Island and Maxmara Trinity. A caveat was registered to protect the interests of the unregistered mortgagee; ultimately, loan funds were contributed by Gemi Investments, Vamico Pty Ltd and Fleming Family Super Fund. 5. Mr Dai and Ms Zhu declared that they had each received independent legal advice from Xiuping (Alice) Yang, who gave a certificate. Mr Toltz recalled that Ms Yang had acted for Wallis Island in relation to the purchase of a property. Ms Yang did not charge Mr Dai and Ms Zhu for her services. 6. On 14 November 2018, the first transaction was completed. Gemi Investments advised Mr Dai, "I have transferred $1.1m to City Garden Australia Pty Ltd. Please see the attached bank receipt." The bank receipt recorded a transfer with the description "Bank Guarantee – Adam D" to an account in the name of City Garden Australia Pty Ltd ending 0947. In fact, this was the builder's bank account. Mr Dai said the money was paid to the builder and used to pay contractors and suppliers that were working or supplying goods and services to the North Rocks project. 7. While the stated purpose of the first tranche of the loan was to obtain a bank guarantee, it appears from the builder's bank statement that the funds were expended within 48 hours on, apparently, suppliers, subcontractors, mortgage brokers ($10,000), director's loans ($50,000), tax ($150,000), American Express (some $135,000) and Mr Dai ($168,000). Whether the suppliers and subcontractors related to the North Rocks development site, or another project of the builder, is not known beyond Mr Dai's broad assertion. 8. Likely some of the expenditure, at least, related to the North Rocks project. Where the first tranche was deposited to an account with a credit balance of some $290,000, the loan funds were mixed in the builder's account and the precise portion of the funds used on the North Rocks development is also difficult to precisely quantify for this reason. It will be recalled, of course, that it was the builder's obligation under the construction contract to pay for the goods and services needed to complete the Works, at least in the first instance, and not the plaintiff: see [130]. 9. On 6 December 2018, Gemi Investments transferred the second tranche of the loan, being $900,000, to the builder's NAB account. The second tranche was rapidly deployed. According to the builder's bank statement, the funds were expended on the builder ($44,000), wages (some $81,500), SWA, consultants, contractors and suppliers. One of the suppliers was clearly related to the North Rocks development, where the invoice from the supplier (Selective Labour Hire) is in evidence. Other consultants may have been unrelated to the North Rocks development, including an architect. Where the North Rocks development was 53% complete, such fees more likely related to another development. 10. That is, some of the loan was used to pay contractors and suppliers in respect of the North Rocks project whilst other funds were used on the builder's business operations generally or on other developments. In short, the loan was used by the builder for its own purposes, one of which was the North Rocks project. It was, in truth, a loan to the builder for working capital. Did Liang know about the first disputed transaction? 1. Mr Laing said he first knew of the Loan Agreement between Gemi Investments and the plaintiff when he saw it attached to Mr Toltz' affidavit in these proceedings. He was not aware that the loan was advanced and did not see any funds received into the plaintiff's bank accounts. (Of course, the funds were paid to the builder.) Mr Dai did not tell him anything about it. If he had been aware, Mr Liang said he would not have permitted the plaintiff to enter into the transaction, "I had sufficient funds to cover any shortfall in construction finance and there was no need to borrow moneys by the plaintiff for that or any other purpose." Consistently with this, I note that Mr Liang readily acceded to Mr Dai's requests for further funds for construction, both by paying for construction material directly and advancing not only the shortfall identified by the construction manager "of almost $1M" but an additional $1 million as well. 2. Mr Dai said he told Mr Liang about the loan of $2 million and showed him the details but agreed that he did not provide Mr Liang with any of the loan documents, "I told him I would be the guarantor, and my wife would be guarantor, and all the associate parties will my guarantor. And he's not interested in knowing those facts." Mr Dai agreed that he did not forward any emails to Mr Liang or copy him on any emails with Mr Toltz in relation to the loan "but I had a chat with him with the loan." Mr Dai said "I did not because Mr Liang said he didn't want to know." Further, "he decided not to know it and I have to deal with it." Whilst Mr Dai knew that Mr Liang was "pretty wealthy", Mr Liang did not want to provide a guarantee for the loan, "I asked him multiple times." 3. Four matters point to acceptance of Mr Liang's evidence on this matter. First, for each of the finance transactions to this point in time, there is contemporaneous evidence that Mr Liang was appraised of the proposed transaction and, on completion, provided with some or all of the transaction documents. Whilst Mr Liang may not have been particularly happy that Mr Dai was obtaining these loans, he was informed about what was going on at the time and, perhaps begrudgingly, acceded to Mr Dai's proposal. This may be seen from Mr Liang's initial $3 million investment, which became the Second Mortgage Loan: see [70]. The same thing happened in respect of the acquisition finance ([79]-[80], [89]) and refinance of those facilities ([113], [125]). The same can be said when Mr Liang was asked to provide funds to assist in paying out those loans: at [134], [140]. In marked contrast, there is just no contemporaneous evidence that Mr Dai communicated with Mr Liang in respect of the first disputed transaction, either when the transaction was in view or after it had been completed. 4. Second, the first disputed transaction is also the first time that finance was sought for purposes unconnected with the North Rocks development. The purpose – as stated to Mr Fleming and Mr Toltz – was to obtain a bank guarantee in relation to a home warranty insurance policy which was probably for the Baulkham Hills project. Had Mr Dai asked Mr Liang whether the plaintiff could obtain a loan for such a purpose, Mr Dai could have expected Mr Liang to refuse. Such a loan was not in the interests of the plaintiff, but the builder. (Ultimately, of course, Mr Dai does not appear to have used the loan for that purpose.) 5. Third, this was also the first time that the loan funds were deposited in the builder's account, rather than the plaintiff's bank account, even though the loan was to the plaintiff. Mr Liang was now a director and had begun to take control of the plaintiff's bank accounts: see [138]. From 2018 onwards, Mr Liang decided to pay subcontractors directly so that the money would not go through Mr Dai. As a consequence of Mr Liang's increased involvement in the plaintiff's bank accounts, it may have become necessary for Mr Dai to have loan funds paid to the builder's bank accounts, so that he could use the money as he wished, without Mr Liang's imprimatur. 6. Fourth, the first disputed transaction occurred at a time when Mr Liang had increased, rather than decreased, his involvement in the plaintiff's governance. I do not accept the lenders' submission that Mr Dai's evidence that Mr Liang "didn't want to know" about further loans was eminently believable in the circumstances. Quite the contrary. I consider it unlikely that Mr Liang would at this point have given Mr Dai carte blanche to do whatever he wanted and to keep it to himself. 7. I find that Mr Liang was unaware of the first disputed transaction. Further, given the fact that Ms Zhu was appointed as secretary just two days' before completion of the transaction, I am also satisfied on the balance of probabilities, and having regard to the seriousness of the allegation, that Mr Dai instructed SWA to prepare the necessary documents to appoint Ms Zhu as secretary to bypass the obstacle which Mr Liang presented. CLAIM IN RESPECT OF THE SECRETARY 1. The plaintiff sought a declaration that Ms Zhu was not validly appointed and thus her execution of the finance documents was invalid. Mr Liang did not know of, nor authorise, her appointment. No resolution was passed. Nor was the constitution of the company complied with: clauses 11.1, 11.2 and 12.1. The Form 484 was lodged by Mr Dai without the consent or approval of the board of directors. 2. Mr Dai and Ms Zhu denied that Mr Liang did not know or authorise the appointment of Ms Zhu as secretary. The solicitor and lenders positively contended that Mr Liang knew that Ms Zhu had been appointed. Further, even if Ms Zhu was not validly appointed, the plaintiff was estopped from suggesting otherwise, having failed to correct ASIC's records until February 2020. Consideration 1. Clause 12.1 of the plaintiff's constitution provided: secretary 12.1 The directors may appoint one or more secretaries of the company, who shall hold office on the terms and conditions (including as to remuneration) that the directors determine. The clause follows sections 204D and 204F of the Corporations Act 2001 (Cth). 1. I have found that the meeting described in the minutes dated 8 November 2018 did not take place. Fairly obviously, the constitution's requirements for calling a meeting of directors were not complied with, nor the more onerous requirements in respect of calling a general meeting, if that is what the meeting was: see [102]. Notwithstanding this, Mr Dai and Mr Liang could make an informal decision which would have the effect of a resolution passed in a duly convened meeting; whether there was such a decision is a question of fact: Hot Frog Pty Ltd at [82]. 2. It is timely to return to whether Mr Liang was aware, or subsequently became aware, of Ms Zhu's appointment as secretary. On 28 November 2018 at 3.32 pm, Mr Dai sent an email to SWA, copied to Ms Zhu, entitled "2nd mortgage for north rocks". Attached to the email was eight documents being, apparently, details of the Westpac facility, a valuation of the North Rocks site, details of pre-sales and the most recent progress drawdown report. The email stated: (emphasis added) Please see the document that you need plus recent progress claim report. And also one of the director jian wei liang can not do personal guarantee and will not sign. Only me and secretary lin zhu will sign it. No personal guarantee from lin zhu as well. 1. One minute later, at 3.33 pm, Mr Dai sent precisely the same email but this time also copied to Mr Liang. Most likely, Mr Dai realised he had failed to copy Mr Liang on his earlier email and remedied the problem. 2. It is not clear what the email and its attachments related to. The second mortgage could be a reference to the loan recently obtained from Gemi Investments, but this can be ruled out where Ms Zhu had in fact given a personal guarantee in respect of that loan. It could be reference to the loan from Tempe Development, but there was no reason why Mr Liang would guarantee repayment of that loan to, effectively, himself. Most likely, the email related to a loan, or potential loan, from another lender. (I note that AUX Real Estate & Development (NSW) Pty Ltd deposited funds totalling some $2.37 million to the builder's bank account on 12 and 13 November 2018 and 3 December 2018; Mr Dai later transferred some of his units in the Trust to this company). Why Mr Dai would communicate with SWA on this subject is also not obvious. 3. The significance of the email, of course, is that Mr Dai stated that Ms Zhu was the secretary of the plaintiff, who could sign documents. Mr Liang said he did not receive the email copied to him; he had made a thorough search of his computer and had not found the email from Mr Dai. If he had received the email, Mr Liang said he would have immediately called Mr Dai to express his anger and disappointment regarding what he had done behind his back, and lodged a Form 484 with ASIC to notify that Ms Zhu was not the secretary. The lenders submitted that a Jones v Dunkel inference should be drawn where the plaintiff did not call Mr Liang's secretary in respect of the receipt of emails. I am not sure how Mr Liang's secretary could give evidence about what Mr Liang might have been aware of in respect an email; whether he received it or not is apparent from the email. I decline to draw the inference. 4. During the cross-examination of Mr Dai, plaintiff's counsel asked Mr Dai to produce the electronic version of the email sent at 3.33 pm, which he did. Plaintiff's counsel inspected Mr Dai's electronic email records and was satisfied that the email had been sent. As such, I consider it more likely that Mr Liang did receive the email and either paid it little heed at the time or was not concerned by its contents, specifically, that Ms Zhu was now a secretary of the plaintiff and able to execute documents on behalf of the company. 5. On 7 December 2018, the builder's accountant, Ms Zheng, assembled overdue invoices and emailed them to Mr Dai. Mr Dai replied, copying in Mr Liang and his accountant, Ms Zhong, "Please send all the invoices for City Garden to Anne and Victor". Amongst the attachments to Mr Dai's email was SWA's unpaid invoice of 8 November 2018 for the preparation and lodgement of the Form 484 to appoint Ms Zhu as company secretary and for preparation of the resolution, in the amount of $165. On 10 December 2018, the builder's accountant emailed Mr Liang and his accountant, attaching overdue invoices to be paid for the plaintiff. The attachments, again, included SWA's invoice of 8 November 2018 in respect of the documents required to appoint Ms Zhu as secretary. 6. Mr Liang said he did not see the attached invoice, "I did not see this because this is a matter between one accountant to another accountant. There were so many invoices. I will not check the details. The accountant would check it, so I will not pay attention to the particular invoice because that's the job of the accountant, and unless there is something particular, otherwise, I will not handle it. I will not read it." 7. On 13 December 2018, Mr Liang sent an email to his accountant and Mr Dai, setting out the scheduled payments for each of the overdue invoices, including SWA's invoice. Mr Liang said that his accountant "just put everything together and I just approve." I accept that Mr Liang may not have reviewed the bundle of overdue invoices, in particular, an invoice for only $165. However, the simple fact that SWA's invoice was provided to Mr Liang by Mr Dai suggests that the appointment of Ms Zhu as company secretary was no secret. 8. Further, the fact that Ms Zhu had been appointed as secretary was also public information, having been registered with ASIC. On 24 March 2019, SWA received the company statement for the plaintiff from ASIC. The company statement recorded the officeholders, including Mr Liang as director, Mr Dai as director and secretary, and Ms Zhu as secretary appointed on 8 November 2018. ASIC's annual fee of $263 was paid on 2 April 2019 from the plaintiff's BusinessOne Account. Mr Liang said he was not aware of the company statement until some years later, as it was sent to SWA. There is no evidence that the company statement came to Mr Liang's attention, nor that he attended to payment of ASIC's fee. Nor did Mr Liang check ASIC's records after he became a director of the plaintiff in July 2017 until February 2020, nor ask anyone else to do so, "Never search." 9. Although the meeting described in the minutes signed by Mr Dai did not take place, the contemporaneous documents indicate that the fact Ms Zhu was appointed as secretary was no secret. Mr Liang was squarely informed of that fact on 28 November 2018 by Mr Dai's email and took no issue with it. The email was sent after the first tranche but before the second tranche of the Gemi Investments loan. It is likely that Mr Dai spoke to Mr Liang about the appointment of Ms Zhu at some point before that email. The critical question is whether the directors spoke about the matter such that there was a 'meeting of the minds' which had the effect of a resolution passed in a duly convened meeting before that transaction was completed on 10 November 2018. 10. There are difficulties relying on the evidence of any of the witnesses involved. I have already found that Mr Dai instructed SWA to prepare the necessary documents to appoint Ms Zhu to bypass the obstacle which Mr Liang presented to the first disputed transaction. That transaction involved obtaining a loan of $2 million in the name of the plaintiff but for the builder's purposes. Mr Dai did not tell Mr Liang about the transaction, because he thought Mr Liang would say no. Mr Dai directed the lender to pay the funds to the builder's bank account. Did Mr Dai also wait until after the transaction was complete before speaking to Mr Liang about the appointment of Ms Zhu as secretary? 11. In the scheme of things, the unauthorised appointment of Ms Zhu as secretary was of relatively small moment when compared with the other steps Mr Dai was taking in order to access funds without Mr Liang's knowledge. If Mr Dai had told Mr Liang about the proposed appointment of Ms Zhu before completion of the first disputed transaction, Mr Liang may have objected. This would have presented a real problem in executing the transaction documents. If Mr Liang objected to Ms Zhu's appointment after the fact, then Mr Dai simply had to file another Form 484, un-doing her appointment. By then, the transaction documents would have been executed and the loan procured. On the balance of probabilities, I think it likely that Mr Dai waited until after the first transaction was complete before speaking to Mr Liang about the appointment of Ms Zhu as secretary. I am satisfied that the appointment of Ms Zhu as secretary on 8 November 2018 was not authorised. 12. What is also clear is that, having registered Ms Zhu's appointment as secretary and completed the first transaction, the fact of her appointment was shared with Mr Liang and he did not object in the years which followed: see, for example, at [444]. What Mr Liang did not know was that Ms Zhu had executed documents in respect of the first transaction as secretary, or that the transaction had been entered into at all. Although Mr Liang said that if he had been aware of Ms Zhu's appointment, he would have taken swift action, I think the more accurate statement is that if Mr Liang had been aware that Ms Zhu, as secretary, had executed documents in the first disputed transaction, then he would have taken action. I will return to whether declaratory relief should be granted at [469]. CLAIM AGAINST DIRECTOR: FIRST TRANSACTION 1. The plaintiff contends – and Mr Dai largely accepts – that as a consequence of his role as a director, Mr Dai owed statutory and fiduciary obligations to the company: sections 180 to 183, Corporations Act. The plaintiff contends that it received no benefit from the first transaction, where the proceeds were received by the builder and not applied for the benefit of the plaintiff. Where the transaction was in Mr Dai and the builder's interests, permitting the plaintiff to enter into the transaction in the circumstances was a breach of Mr Dai's statutory and fiduciary duties. But for this breach of duty, the plaintiff would not have entered into the first transaction, nor the second or third transactions required to refinance the first transaction, nor incurred any resulting indebtedness to the lenders. 2. Mr Dai denies this and contends that Mr Liang was informed about the first transaction. Specifically, Mr Dai told Mr Liang that the development needed further funding; a further loan was being obtained, which would require a further guarantee from him. Mr Liang was not prepared to provide a further guarantee or provide any further loans. Mr Dai says the loan funds were used for the benefit of the plaintiff in respect of the North Rocks development. Mr Dai submitted that he used his best efforts to complete the development and the plaintiff incurred no financial losses. Mr Dai submitted that Mr Liang was bound by the loan contracts by his conduct in failing to remedy ASIC's register, and given that the loan benefitted the plaintiff: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988] 14 NSWLR 523; 183 Eastwood Pty Ltd v Dragon Property Development & Investment Pty Ltd [2023] NSWCA 72 at [166]. Principles 1. There was no dispute as to the duties and obligations owed by a director. Directors have a duty of care at general law and pursuant to section 180(1) of the Corporations Act, which provides: (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. 1. Whether a director has exercised reasonable care and diligence is an objective test; the question is what an ordinary person with the knowledge and experience of the director might be expected to have done in the circumstances if they were acting on their own behalf and involves balancing the risk of harm and potential benefits to the company: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 6) [2007] NSWSC 124; (2007) 63 ACSR 1 at [1437] (per McDougall J); Daniels v Anderson at 501 (per Clarke and Sheller JJA). 2. Directors have a duty to act in good faith and for a proper purpose under section 181(1) of the Corporations Act, which provides: Good faith-directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. 1. Section 182(1) of the Corporations Act also provides: Use of position-directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. Similarly, section 183 provides that a person who obtains information because they are a director of a corporation must not improperly use that information to gain an advantage for themselves or someone else or cause detriment to the corporation. 1. Fiduciary duties operate alongside the statutory duties in sections 180 to 183 of the Corporations Act: section 185. The relationship between a director and corporation is one of the archetypal categories of fiduciary relationships: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 46 (per Gibbs CJ), 96-97 (per Mason J), 141 (per Dawson J). The strict standard applicable to trustees of traditional trusts applies equally to directors due to the inherently vulnerable nature of a corporation. As Spigelman CJ noted in O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 277: Policy favours a stringent test in the circumstances of this case. It is the vulnerability of a company which places its property in the power of directors, that makes it appropriate to adopt the approach to causation applicable to the trustee of a traditional trust in deciding issues of causation for the contravention by a company director of his or her duty not to exercise the power to dispose of property for an improper purpose. As McLachlin J put it in Canson Enterprises v Boughton (at 154): "… equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart". 1. The director, as fiduciary, has a duty not to promote their personal interests by making or pursuing a gain in circumstances where there was a conflict or a real or substantial possibility of a conflict between those personal interests and the interests of the company (the "no conflict" rule). Directors have a duty not to obtain any unauthorised benefits or profits from their positions as directors (the "no profit" rule): Chan v Zacharia (1984) 154 CLR 178 at 198-199 (per Deane J, Brennan and Dawson JJ agreeing); Clay v Clay (2001) 202 CLR 410; [2001] HCA 9 at [56] (per Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ); Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31; Breen v Williams (1996) 186 CLR 71; [1996] HCA 57. A fiduciary may overcome the operation of the "no profit" rule by making a full and frank disclosure of their material interest in the outcome of the relationship subject to that duty and seeking the active consent of the other party: Parker v McKenna (1874) LR 10 Ch App 96. Consideration 1. Mr Dai was the sole director of the builder as well as one of the directors of the plaintiff. There was a contract between the two companies, being the construction contract for the North Rocks development. This was a lump sum contract, where the builder was obliged to pay for the materials, labour, plant and equipment needed to complete the Works, and entitled to submit progress claims: see [130]. 2. The plaintiff had obtained construction finance from Westpac, which was being progressively drawn down to pay the builder's progress claims as certified by the bank's quantity surveyor. At the time of this loan, there is no suggestion that the plaintiff (or Westpac) was behind in paying the builder's progress claims. In addition, from time to time, Mr Dai called on Mr Liang to provide further funds, including to pay for building materials and to address cashflow issues on site where the bank had "short funded … about $1M." Mr Liang provided additional funding in answer to both requests. 3. The purpose for which this loan was sought was largely unrelated to the plaintiff and its North Rocks development but in respect of a development being pursued by the builder in Baulkham Hills. Notwithstanding this, Mr Dai ensured that the borrower was the plaintiff, not the builder. The plaintiff thereby became liable to repay funds which were not procured for its benefit. Mr Dai had no authority to enter into the loan transaction without the agreement of fellow director, Mr Liang. Mr Dai did not tell Mr Liang about the proposed loan and, in order to enable the transaction to be completed, appointed his wife as secretary without telling Mr Liang until afterwards. The funds was advanced to the builder at Mr Dai's direction. 4. Obviously enough, in so doing, Mr Dai failed to exercise his powers, and to discharge his duties, as a director of the plaintiff with reasonable care and diligence, as the loan was for the benefit of Mr Dai and his company, the builder, but not the plaintiff. Nor did Mr Dai exercise his powers in good faith in the best interests of the plaintiff and for a proper purpose, but for his own purposes and those of his company, the builder. Mr Dai also improperly used his position as a director of the plaintiff to gain an advantage for himself and the builder, to the detriment of the plaintiff. Mr Dai thereby breached his duties as a director in sections 180, 181 and 182 of the Corporations Act, as well as his fiduciary duties. Nor can it be said that Mr Dai, as a fiduciary, overcame the operation of the "no profit" rule by making a full and frank disclosure of his material interest in the outcome of this transaction; Mr Liang knew nothing of the transaction. It follows that the plaintiff's claim against Mr Dai is proved in respect of the first transaction. I will return to the matter of compensation at [468]. CLAIM AGAINST FIRST ROUND LENDER 1. In respect of the first transaction, the plaintiff contends that the solicitor's knowledge was imputed to the lender as a consequence of their solicitor client relationship. Specifically, Mr Dai had lodged the Form 484 with ASIC, appointing Ms Zhu as secretary. Mr Liang did not know of, nor authorise, the plaintiff to enter into the first transaction. Nor did Mr Liang know of, nor authorise, the appointment of Ms Zhu as secretary. The solicitor knew that Mr Liang was a director of the plaintiff. The solicitor also knew that the plaintiff's board of directors had not passed a resolution to authorise entry into the November 2018 transaction, nor authorised Mr Dai and Ms Zhu to execute the finance documents. The solicitor knew that Rose Ives was a substantial unitholder of the Trust. The solicitor also knew that the builder was carrying on at least four other building or property development projects. 2. Further, the plaintiff contended that the solicitor knew that Mr Liang had no involvement in the November 2018 transaction but took no steps to enquire whether Mr Liang was aware of the transaction or had authorised the plaintiff's entry into the first transaction. The solicitor also knew that Ms Zhu was the wife of Mr Dai and had only been appointed as secretary of the plaintiff shortly before entry into the transaction. The solicitor also knew that the loan was being advanced to the builder. Finally, the solicitor also knew that it was acting for the lender in respect of the first transaction in breach of fiduciary duties owed to the plaintiff, as there was an actual or potential conflict of interest between the interests of the plaintiff and the interests of the lender. 3. In addition to matters of imputed knowledge, the plaintiff contended that the transaction documents were executed by Mr Dai and Ms Zhu. The loan monies were advanced to the builder without the approval of the plaintiff's board of directors and applied other than for the benefit of the plaintiff. By reason of these matters, Gemi Investments was said to have known or been put on notice that Mr Dai caused the plaintiff to enter into the transaction other than for the benefit of the plaintiff. In these circumstances, it was said that the finance documents were void or liable to be rescinded vis a vis the plaintiff. 4. Gemi Investments contended that Mr Dai and Ms Zhu were duly appointed according to the records maintained by ASIC. Gemi Investments relied on these records, as it was entitled to do: sections 126 to 129, Corporations Act. The lender was entitled to assume that Mr Dai properly performed his duties in respect of the transaction, including the execution of the transaction documents, and did in fact make these assumptions. The lender did not know or suspect that Ms Zhu was not duly appointed or authorised to execute the documents and was entitled to, and did in fact make, these assumptions. In addition, Gemi Investments relied on the independent advice certificates provided by Alice Yang & Associates, when advancing the funds to the plaintiff. 5. In any event, Gemi Investments contended that equity would not declare the first transaction void, where it advanced money on the faith of documents apparently validly executed by the plaintiff and in accordance with a direction given by a director of the plaintiff. The funds were paid to the builder when the North Rocks development was under construction and, thus, for the benefit of the plaintiff. The lender promptly lodged a caveat on the title to the North Rocks property to notify its interest and was repaid in May 2019. The plaintiff did nothing to challenge the caveat or the first transaction until 2020. Through its inactivity, the plaintiff was said to have acquiesced in the first transaction and by laches ought not permitted to unwind a completed transaction. Alternatively, any relief should be conditional on the plaintiff accounting for the benefits received from the first transaction. 6. The plaintiff rejoined that the lender did know or suspect that the documents were executed without authority, where their mutual solicitor had been instructed in February 2017 to ensure that Mr Liang was copied on all emails concerning the plaintiff, both Mr Dai and Mr Liang had executed the Westpac (and other) documentation and no resolution had been provided authorising different arrangements for these documents. Further, Ms Yang did not act for the plaintiff but only for Mr Dai, Ms Zhu, Wallis Island and Maxmara Trinity, where there was no resolution by the plaintiff's board of directors to retain her: section 204D, 198A, Corporations Act; clauses 11.1, 11.2 and 12.1 of the plaintiff's constitution. Finally, the information lodged with ASIC by SWA in respect of Ms Zhu's appointment was also not provided by the plaintiff, where SWA was said not have been duly appointed either. It was said that there was no resolution by the plaintiff's board of directors to appoint SWA as its registered ASIC agent or to lodge the relevant form with ASIC notifying that it had been so appointed. Statutory assumptions 1. I have found that Mr Dai did not have actual authority to enter into the first transaction on behalf of the plaintiff: see [105]-[109]. I have also found that Ms Zhu was not validly appointed as secretary, when she executed the transaction documents. The lender contends, however, that it was entitled to make the assumptions in section 129 of the Corporations Act, such that neither matter invalidates the transaction. 2. Section 127(1)(a) of the Corporations Act provides that a company may execute a document without using a company seal if the document is signed by a director and a company secretary of the company. Sections 128 and 129 of the Corporations Act relevantly provides: (emphasis added) 128 Entitlement to make assumptions (1) A person is entitled to make the assumptions in section 129 in relation to dealings with a company. The company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect. … (3) The assumptions may be made even if an officer or agent of the company acts fraudulently, or forges a document, in connection with the dealings. (4) A person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect. 129 Assumptions that can be made under section 128 Constitution and replaceable rules complied with (1) A person may assume that the company's constitution (if any), and any provisions of this Act that apply to the company as replaceable rules, have been complied with. Director or company secretary (2) A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company: (a) has been duly appointed; and (b) has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company. 1. The first question is whether Gemi Investments had "dealings with" the plaintiff. "Dealings with a company" embraces purported dealings and is not confined to cases where the person representing the company has actual authority: Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 at 733 (per Gleeson CJ). However, some protection to the company is given by the requirement that the person must be engaged in dealings with the company in the first place: Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068 at [82] (per Hodgson CJ in Eq). 2. That is, while it is not necessary that the person representing the company has authority to commit the company to the relevant transaction or execute the relevant documents, it remains necessary that the person has authority to undertake some negotiations or steps, so that the dealings in relation to which the document is executed are properly considered to be dealings with the company: Soyfer at [82]. The person with whom the dealings were had must have actual or ostensible authority to engage in communications or negotiations on the company's behalf: Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd (2013) 282 FLR 351; [2013] NSWCA 459 at [32], [41]-[45] (per Meagher JA, Macfarlan and Barrett JJA agreeing); followed in Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; 113 ACSR 31; [2016] WASCA 84 at [592] (per Newnes and Murphy JJA), at [404] (per Buss JA). 3. Here, any dealings with the company were had with Mr Dai. Mr Dai did not have actual or ostensible authority to bind the company, where an individual director lacks such authority: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205 (per Dawson J). The question is whether Mr Dai had authority to engage in communications or negotiations with the lender on the plaintiff's behalf: ANZ v Frenmast at [32]. In determining this question, the principles remain those stated by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964] 2 QB 480 at 503, as applied in Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 at 78. Put shortly, there must be a representation made by the company to the third party – intended to be and, in fact, acted upon by the third party – that the agent had authority to make representations in the course of communicating with the third party on behalf of the principal. As the High Court observed in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [36] and [38]: It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company's conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company's constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal's conduct as a whole. … The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation. 1. These principles were applied in Essington Investments Pty Ltd v Regency Property Pty Ltd [2004] NSWCA 375, where Hodgson JA noted (Sheller JA agreeing) at [45]: In my opinion, one circumstance in which it may be said that representations are permitted to be made is where a principal knows that an agent engaged on the principal's behalf is making representations as to the agent's authority, is able to prevent such representations being made or countermand them, but does not do so. There is arguably, in these circumstances, something like a representation by silence: the circumstances call for some action by the principal to ensure that persons are not misled by the agent, and the principal does not take that action. 1. For example, in ANZ v Frenmast, one of three directors of a company, "Robert", was held to have apparent authority to communicate on behalf of the company with a bank. Since 2001, the bank had been communicating with Robert in relation to the company's banking facilities. Until 2006, these communications were taking place with the knowledge and agreement of the other directors. After 2006, those directors must be taken to have known, notwithstanding that they were no longer actively participating in the company's business, that Robert was continuing to act on the company's behalf in day to day communications with the bank concerning it ongoing banking facilities: at [33]. In these circumstances, the inactive directors created an apparent authority in Robert to be, at least, a point of communication between the bank and the company. By their conduct, they permitted Robert to manage the company's relationship with the bank, including receiving and responding to communications with the bank: at [34]. 2. As to whether Mr Dai had actual or ostensible authority to engage in communications or negotiations with lenders on the plaintiff's behalf, Mr Dai had been the face of the company when dealing with banks in respect of construction finance, and Mr Liang was aware of this. Mr Liang agreed that he had left it to Mr Dai to try and arrange a construction loan with the Commonwealth Bank, "First of all, his English is better. And second, [Mr Dai] said he knew a manager in Commonwealth Bank, so I let him approach." It should be borne in mind, however, that Mr Dai was the sole director of the plaintiff at the time, being in January 2017, such that Mr Dai, in fact, had actual authority to deal with the bank at that time. The same can be said for Mr Dai's dealing with Kenxue and Weriton in respect of the acquisition finance obtained in February 2017. 3. After Mr Liang was appointed a director in July 2017, Mr Liang attended a meeting with Mr Dai and Mr Fleming, at which the Commonwealth Bank application was discussed, as well as a loan from Mr Fleming: see [117]. The refinance documents were executed by Mr Dai in August 2017 on behalf of the plaintiff as "sole director/secretary," this being a fact in which the lenders placed great store. This is explained, however, by the fact that the solicitor had last obtained a company search for the plaintiff in January 2017: see [84]. Although Mr Liang had been recently added as a director, the solicitor was not aware of this. Likely, the transaction documents were drafted without the benefit of this information. 4. I do not accept the lenders' submission that Mr Liang allowed Mr Dai to be sole signatory on the August 2017 documents, thereby holding out Mr Dai as having authority to enter into finance transactions on his own. More likely, this occurred as a result of an oversight by Mr Toltz when preparing the documents, which was not detected at the time. (Nor do I accept that Mr Dai's execution of these documents alone indicated that Mr Liang was unavailable or unwilling to sign such documents, said to support the need to appoint Ms Zhu as secretary more than a year later). 5. Nor do I accept that this "inevitably impressed on the minds" of the solicitor and Mr Fleming that Mr Dai had the authority to sign loan and mortgage documents on behalf of the plaintiff without requiring Mr Liang to also sign. I doubt that either would have remembered – more than a year later in November 2018 – precisely who had signed the documents in August 2017, when the solicitor actually thought Mr Dai was the sole director. Nor do I accept the even more tenuous submission that the Weriton lenders, that is, being neither the solicitor nor Mr Fleming, would have had the same mindset. Nor that the solicitor continued to hold the same view when acting for the lenders in the third transaction, more than two years' later. In the meantime, the solicitor had obtained updated company searches and proceeded on the basis that Mr Dai was no longer the sole director of the company and two authorised officers needed to sign the documents. 6. But what the August 2017 transaction does indicate, however, is that Mr Liang was aware that Mr Dai was communicating with, and negotiating with, Gemi in respect of finance to be provided to the plaintiff. Mr Dai also signed the expression of interest in respect of the Westpac construction loan in August 2017 "For and on behalf of City Garden … by its authorised signatory." Mr Liang said Mr Dai did not tell him about this and should have also asked Mr Liang to sign as well, "Only because this was only a proposal. It's not formal." Mr Liang said he thought that Mr Dai had authority to negotiate loans with lenders but that he would need to sign the final loan document, "Of course." 7. Mr Liang was also aware that Mr Dai was communicating with Mr Fleming in respect of paying out the acquisition finance in December 2017, in order to enable the construction funding to be drawn down: see [140]. Indeed, in October 2018, Mr Liang knew that Mr Dai was negotiating with him in respect of the provision of further funding from NCC Fashion Group: see [150]. In November 2018, Mr Liang was aware that Mr Dai was communicating with SWA in respect of another loan, or potential loan, probably from AUX Real Estate: see [193]-[195]. 8. I am satisfied, having regard to the plaintiff's conduct as a whole, that Mr Dai had authority to communicate, or negotiate, with potential lenders on the plaintiff's behalf. Mr Dai had performed this role for the plaintiff, both while he was the sole director and after Mr Liang became a director. Mr Liang was aware of this and took no steps to curb Mr Dai's activities in this regard. At a time in the plaintiff's business, when construction was underway and Mr Dai was trying to raise funds from Mr Liang and, apparently, AUX Real Estate, Mr Liang must be taken to have known that Mr Dai was continuing to act on the plaintiff's behalf in day-to-day communications with potential financiers. In the circumstances, Mr Liang's inaction created an apparent authority in Mr Dai to engage in communications and negotiations with lenders. 9. As such, Gemi Investments had "dealings with the company" for the purposes of section 128(1) of the Corporations Act. It follows that Gemi Investments was entitled to make the assumptions in section 129 in relation to those dealings and the plaintiff is not entitled to assert that any of the assumptions are incorrect. There is no need for the person in question to actually make any of the assumptions in section 129: Correa v Whittingham at [115]; Caratti v Mammoth at [351], [619]; Gallop Reserve Pty Ltd v Matton Developments Pty Ltd [2019] QSC 113 at [77] (per Holmes CJ). "information provided by the company" 1. As to whether Gemi Investments was entitled to make the assumption in section 129(2) – that Ms Zhu had been duly appointed as company secretary – a question arises as to whether the Form 484 lodged with ASIC in respect of her appointment was "information provided by the company." By its Reply, the plaintiff contended that the Form 484 was not information provided by the plaintiff, as SWA had not been duly appointed. This contention was squarely at odds with the Second Further Amended Statement of Claim, where the plaintiff positively asserted that Mr Dai "through an agent, S[WA], lodged" the Form 484 with ASIC. 2. Mr Liang addressed this late contention in his seventh affidavit, being in reply, and provided three weeks before the commencement of the hearing. Mr Liang said that the Form 362 notifying ASIC of SWA's appointment was lodged without his knowledge and approval and absent a resolution of the board of directors of the plaintiff. I attach little weight to Mr Liang's late evidence. After its appointment by Mr Dai, SWA continued to be the plaintiff's registered agent and accountant for some time, including after Mr Liang took responsibility for the company's accounts out of Mr Dai's hands in September 2019: see [391]. The fact that Mr Liang continued to work with SWA for more than a year without comment on this subject indicates that he regarded the appointment of the agent as within the scope of Mr Dai's authority as a director at the time. I find that the Form 484 was provided to ASIC "by the company", that is, by the plaintiff's registered agent. Gemi Investments was entitled to assume that Ms Zhu had been duly appointed as company secretary: section 129(2)(a). 3. Gemi Investments was also entitled to assume that Ms Zhu had authority to exercise the powers and perform the duties customarily exercised or performed by a company secretary of a company like the plaintiff: section 129(2)(b). The secretary's authority ordinarily extends to countersigning documents pursuant to a resolution of the board of directors: Northside Developments at 204-205; Motor Yacht Sales Australia Pty Ltd v Cheng [2021] NSWSC 1141 at [134] (per Payne JA). Here, there was no resolution of the plaintiff's board of directors authorising the secretary to execute the transaction documents, but Gemi Investments was entitled to assume that the plaintiff's constitution had been complied with: section 129(1). "knew or suspected" 1. Gemi Investments is not entitled to make the assumptions in section 129 if "at the time of the dealings" it "knew or suspected" that the assumption was incorrect: section 128(4). The onus of proof in relation to section 128(4) lies on whoever is challenging a person's entitlement to make an assumption, being, in this case, the plaintiff: Soyfer at [69]. The entitlement to make an assumption is only lost if it is shown that the person "actually knew or actually suspected" that the assumption was incorrect, where the words of the statute are "plainly not apt to cover the case where circumstances are such as to put a reasonable person upon enquiry": Soyfer at [70]. 2. In Errichetti Holdings Pty Ltd v Western Plaza Hotel Corporation Pty Ltd [2006] WASC 113; (2006) 201 FLR 192, Master Newnes considered that suspicion is more than a mere idle wondering but a positive feeling of actual apprehension or mistrust, applying Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1996) 115 CLR 266 at 303 (per Kitto J). At [74]: In my view, s 128(4) does not preclude a person from relying upon a s 129 assumption simply because there has been a failure on their part to enquire, even where a reasonably prudent person would have made enquiries. The section does not incorporate the concept of being 'put upon enquiry'. Nor will such a failure be sufficient to establish that the person knew or suspected the fact that such enquiry would have revealed. The person must be found to have had at least an "actual apprehension or mistrust, amounting to a slight opinion" that the fact exists. Of course, in a particular case it might be inferred from what the person did know, or otherwise from the particular circumstances of the case, that no inquiry was made because the person suspected the fact existed and preferred not to have that suspicion confirmed. See likewise Re Matlic Pty Ltd (in liq) [2014] NSWSC 1342; (2014) 102 ACSR 602 at [45] (per Black J); Caratti v Mammoth Investments Pty Ltd (2016) 50 WAR 84; 309 FLR 1; [2016] WASCA 84 at [377] (per Buss JA), at [591] (per Newnes and Murphy JJA). 1. The relevant time to determine whether such knowledge or suspicion is present is "at the time of the dealings"; being put on notice after the event is not a sufficient basis: Correa v Whittingham [2013] NSWCA 263 at [127] (Gleeson JA, Barrett JA and Tobias AJA agreeing). 2. Whilst the plaintiff relied on the solicitor's knowledge said to have been imputed to the lenders, a solicitor's knowledge should not be imputed to their client for the purpose of section 128(4), because the provision "requires actual knowledge or actual suspicion that the relevant assumption is incorrect, not imputed knowledge": Correa v Wittingham at [168(d)]. It follows that the focus of the inquiry in this case should be on what the lender knew. 3. Mr Fleming first met Mr Dai in 2016, in the course of lending money to Wallis Island. Mr Fleming met Mr Liang on 21 July 2017: see [113]. Mr Dai had then told Mr Fleming, "Victor is a silent partner. I have all the expertise for construction at North Rocks. Victor is just an investor and doesn't want anything to do with the deal. He wants a share of the profits at the end. I will get a management fee for managing the construction of $3 million." Mr Fleming relied on Mr Dai's representation that he should deal exclusively with Mr Dai in respect of the plaintiff and that it was not necessary to involve Mr Liang in these discussions. All of Mr Fleming's interactions and discussions regarding the loan were with Mr Dai. Mr Fleming was not aware that Ms Zhu may not have been validly appointed as company secretary of the plaintiff. 4. Mr Fleming had been told by Mr Dai that Mr Liang was a wealthy person but had no interest in investigating whether this was the case, "The reason was we were very satisfied with [the] existing facility that we had [including] presales … it was very clear there was plenty of equity in the development, and we … were satisfied with that." Mr Fleming did not think it was necessary to ask Mr Liang and his company to also guarantee the loan, "Adam indicated that Mr Victor was a very passive investor, and he didn't want to get involved in the details, so on that basis it wasn't necessary." Mr Fleming said he did not necessarily expect all directors to be guarantors of a loan. If a lender believed that there was plenty of security in the property, then it was not necessary to insist that other directors sign. In this case, Mr Fleming was satisfied with the security of the property; guarantees were not that important. He was "absolutely" satisfied that the loan was very secure. Mr Fleming was "not bothered" about Mr Liang. 5. Mr Fleming said the funds were paid to the builder to meet construction costs for the North Rocks site, "It's not uncommon in our business that the funds are directed to the builder rather than the borrower." Mr Fleming said directions were often received by directors of companies to pay loan funds in a particular manner, "it's not unusual". Mr Fleming did not agree, however, that the loan was actually to the builder, "We lent the money to City Gardens. We took the security of City Garden." 6. One of the members of the Gemi syndicate which contributed loan funds to Gemi Investments was Vamico, which is the trustee for Mr Cooper's family trust. On 31 July 2017, Mr Cooper had inspected the North Rocks site with Mr Fleming. Construction had not yet started, nor had the existing buildings been demolished. Mr Cooper did not conduct his own due diligence on the loan for Vamico; he understood that Gemi would carry out due diligence and act as loan manager. As such, information regarding the loan, the borrower and the project came from Mr Fleming. 7. Where the focus is on what the lender actually knew or actually suspected, there is no evidence that the lender knew or suspected that Mr Dai did not have authority to enter into the transaction, nor knew or suspected that Ms Zhu had not been validly appointed as company secretary. The lender was entitled to make the assumptions in section 129; the plaintiff is not entitled to set aside the first transaction. CLAIM AGAINST SOLICITOR: FIRST TRANSACTION 1. The issues which arise in respect of the claim against the solicitor are, first, what was the scope of the solicitor's retainer to act for the plaintiff at the time of the first transaction. Second, was there a conflict of interest in the solicitor acting for the lender on the first transaction. Third, if so, did the plaintiff consent to the solicitor acting for the lender. Fourth, did the solicitor breach a fiduciary duty owed to the plaintiff. Scope of retainer 1. The plaintiff contended that, in July 2016, Toltz Lawyers was retained to act for and advise it in relation to the acquisition and development of the North Rocks site. Toltz Lawyers so acted continuously from July 2016 until April 2020, in particular, on the purchase of the site, in relation to the Westpac facility, in respect of 'off the plan' sales and generally in relation to the development. It was an implied term of the retainer that the solicitor would perform its work with due care and skill. The solicitor owed a duty of care requiring it to use all reasonable care, skill and diligence in the provision of its legal services to ensure that the plaintiff did not suffer loss or damage. In addition, by reason of the relationship of solicitor and client which existed, the solicitor owed fiduciary duties to the plaintiff inter alia to act for the plaintiff with undivided loyalty and not to act in, or put itself in a position of conflict, between the plaintiff and a third party for whom the solicitor also acted. In respect of the first transaction, the plaintiff contended that the solicitor acted as the solicitor for the lender in circumstances where the solicitor had an ongoing retainer to act as the solicitor for the plaintiff. 2. The solicitor denied the existence of a general retainer in relation to the North Rocks development. Rather, the solicitor was instructed to act on three specific matters, being: the purchase of the North Rocks property; putting into place an initial development structure for the plaintiff to conduct a development at the site; the Westpac facility; and conveyancing associated with 'off the plan' sales. The initial retainer was said to have come to an end in early February 2017, by which time the purchase had been completed and a Development Deed had been executed (and varied) with the previous owners of the site. The retainer in respect of the Westpac facility came to an end in December 2017, when the facility settled. While the conveyancing retainer continued from February 2017 until April 2020, it did not extend to providing advice in relation to the development. At the time of the first transaction, the solicitor admitted that it acted for the lender but denies that it had an ongoing retainer to act for the plaintiff, and only acted for the plaintiff in respect of 'off the plan' sales. The solicitor was not obliged to, or asked to, and did not in fact provide any legal services to the plaintiff in relation to the first transaction. 3. The terms of the solicitor's initial retainer were wide. The scope of works was "to assist in financing, acquisition of development rights, sale of units and incidental matters relating to the [North Rocks development]." By its description, the retainer was also likely to be of an extended duration, where the plaintiff had yet to acquire the North Rocks site when the costs agreement was issued in August 2016. This broad retainer became confined when the plaintiff retained King & Wood Mallesons to undertake part of the legal work for the plaintiff in August 2016, leaving Mr Toltz to act in relation to the second mortgage and Deed of Development: see [58]. By November 2016, however, the solicitor was invoicing the plaintiff for advice in relation to "the finance and direction of the North Rocks project." In February 2017, Mr Toltz rendered an invoice to the plaintiff for "advising you on funding for this project." From the description in the invoices, the solicitor's role had re-expanded after King & Wood Mallesons completed its retainer. Further, the solicitor's invoices indicate that the solicitor may have been giving more than legal advice, but also strategic or commercial advice. 4. Whilst the solicitor certainly acted for the plaintiff on the three specific matters identified by the solicitor, the solicitor also acted for the plaintiff on other matters. The solicitor acted for the plaintiff in legal proceedings with Kenxue. In June 2017, the solicitor was also giving the plaintiff advice in respect of the refinancing of the first and second mortgages: see [94]-[96]. The solicitor also assisted the plaintiff in paying out the acquisition finance, to enable the Westpac construction facility to be drawn down: see [140]. From 2017 on, Mr Dai also rang Mr Toltz from time to time and talked about issues to do with finance or other legal issues involving the North Rocks development if it was a matter that needed legal advice. 5. In Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWSC 438 at [163] (affirmed in Richtoll Pty Ltd v WW Lawyers Pty Ltd (in liq) [2016] NSWCA 308), Hoeben CJ at CL, citing Minkin v Landsberg [2016] 1 WLR 1489 at [38]-[39], said with evident approval: It has been said that solicitors who seek to limit their retainer ought to do so clearly and usually in writing as a matter of prudent practice. 1. There was no clear limit here. Rather, as the plaintiff submitted, the evidence indicates that the solicitor acted for the plaintiff under a broad, general, and somewhat informal retainer. The solicitor's retainer was not confined in the manner suggested by the solicitor. 2. Turning then to the lead-up to the first transaction, the contemporaneous documents are agnostic as to whether the solicitor was acting for the lender, the plaintiff, Mr Dai or 'all of the above.' Mr Dai appears to have been speaking with both Mr Toltz and Mr Fleming in respect of obtaining further finance from mid-October 2018: see [145]. On 20 October 2018, Mr Toltz sent Mr Liang a loan agreement and letter regarding the proposed loan from Tempe Development to the plaintiff, prepared on the instructions of Mr Dai. Notwithstanding this, Mr Toltz proposed to act for Tempe Development in respect of the loan, with the plaintiff and the guarantors to receive separate independent legal advice from another firm: see [147]. On or about 23 October 2018, Mr Toltz witnessed Mr Dai's execution of a proposed consolidated Loan Agreement between the plaintiff and Mr Liang's company, NCC Fashion Group: see [150]. These tasks suggest that the solicitor was then assisting Mr Dai to raise further finance for the plaintiff, either from Mr Fleming or Mr Liang. I note that such activities fall within the scope of the solicitor's initial retainer, being "to assist in financing" relating to the North Rocks development. 3. On 11 November 2018, the solicitor was copied on an email between Mr Dai and Mr Fleming, asking that the first tranche of the proposed loan be paid to the builder's bank account: see [171]. Mr Toltz said this was the first communication that he received in relation to this transaction. In the same email, Mr Dai also instructed the solicitor "please go ahead with the paperwork." The email may be fairly read as Mr Dai instructing Mr Toltz as the plaintiff's solicitor. Mr Toltz replied, copied to both Mr Dai and the lender, "We will arrange the documents asap tomorrow and ask Miles Holt to provide the independent advice. Let me know what time suits you and Julianne." 4. That is, the contemporaneous documents evidence the solicitor's continuing retainer by the plaintiff at the time of the first transaction, including "to assist in financing … and incidental matters relating to" the North Rocks development. I find that the solicitor had an ongoing retainer to perform such tasks for the plaintiff at the time of the first transaction. The plaintiff proposed to borrow money from Gemi Investments, for which the solicitor also acted. This brings us to the second issue, being conflict of interest. Conflict of interest 1. The plaintiff contends that there was an actual or potential conflict of interest between the interests of the plaintiff and Gemi Investments in relation to the first transaction. 2. The solicitor accepted that it acted for Gemi Investments on the first transaction but contended that there was nothing to prevent it so doing, where the firm was then only acting for the plaintiff in respect of conveyancing matters; the firm was not asked, nor obliged, to provide legal services to the plaintiff in respect of the first transaction. The plaintiff received independent legal advice from Ms Yang. Further, the solicitor did not possess any knowledge of a confidential or conflicting nature in respect of the plaintiff or its affairs relevant to the first transaction at the time. There was no actual or potential conflict of interest which prevented the solicitor from so acting. 3. The solicitor's defence is based on the existence of a limited retainer at the time of the first transaction, that is, it was then only retained to act for the plaintiff on 'off the plan' sales only. The retainer was not so limited; the solicitor was generally retained by the plaintiff at the time inter alia "to assist in financing … and incidental matters" relating to the North Rocks development. In the lead-up to the first transaction, the solicitor appears to have been doing just that: see [258]-[259]. 4. A solicitor owes a fiduciary duty of loyal to their client and a duty to avoid conflicting interests. Absent fully informed consent, a solicitor cannot place themselves in a position in which they owe a duty to another which is inconsistent with their duty to their client, this being a 'conflict of duty and duty': Paul Finn, Fiduciary Obligations (Federation Press, 2nd ed, 2016) at [580]. The fact that a fiduciary owes duties to both clients, and those duties must be performed by the same solicitor, creates a risk that one set of duties will not be performed properly: Matthew Conaglen, Fiduciary Loyalty (Hary Publishing, 1st ed, 2010) at page 148. The rule was stated by Millett LJ in Bristol & West Building Society v Mothew [1998] Ch 1 at 18-19: A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other… This is sometimes described as 'the double employment rule'. Breach of the rule automatically constitutes a breach of fiduciary duty. 1. As Professor Finn observed, the mere acceptance of multiple fiduciary engagements is not offensive in itself; the vice condemned by the courts only arises when the fiduciary, by their action or inaction in either or both of two relationships, brings about an actual conflict between duties owed in either relationship: at [581]. The test is whether there is "a real sensible possibility of conflict" (Queensland Mines Ltd v Hudson (1978) 18 ALR 1 at 3 (Privy Council)) or a "significant possibility of conflict": Chan v Zachariah (1984) 154 CLR 178 at 198-9 (per Deane J); see also Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 103 (per Mason J). Such a conflict most commonly occurs where the fiduciary effects some dealing between the respective beneficiaries, for example, an agent to sell acts as undisclosed agent of the purchaser: Fiduciary Obligations at [581]. 2. Acting for a lender in circumstances where a solicitor has been acting for the borrower in trying to raise finance might be thought to be a classic case of a conflict of interest. For example, the solicitor may be aware that the borrower's financial position is more tenuous than the lender realises, or that better security is available than is presently on offer. A solicitor who is acting for the borrower but proposes to act for the lender on the transaction has a conflict between keeping the borrower's difficulties confidential and informing the lender client of the additional risk inherent in the proposed loan. By performing the solicitor's duty to one client, the solicitor cannot property perform their duties to the other client. 3. I am satisfied that the nature of the solicitor's retainer by the plaintiff, on the one hand, and the lender, on the other, gave rise to a real sensible possibility of conflict in respect of the first transaction. Indeed, the solicitor recognised that acting for the plaintiff and Gemi Investments presented a conflict of interest; he arranged for the borrower to be separately advised by an independent solicitor when executing the transaction documents. Fully informed consent 1. This brings us to the issue of consent. The plaintiff contends that the solicitor did not obtain the fully informed consent of the plaintiff to act on behalf of Gemi Investments in relation to the transaction. The solicitor contended that Mr Dai gave consent to the solicitor acting from Gemi Investments; there must have been informed consent as Mr Dai was aware of who the solicitor was acting for. Mr Dai had authority to give such consent on behalf of City Garden. 2. While there is no duty as such on the fiduciary to obtain an informed consent, the existence of an informed consent negatives what is otherwise a breach of duty: Maguire v Makaronis at 467. Where one of the two beneficiaries has given an informed consent to the fiduciary's double employment, the resulting conflict is regarded as being that of the beneficiary's own making: Fiduciary Obligations at [583]. 3. What is required for a fully informed consent is a question of fact in all the circumstances; there is no precise formula to determine in all cases if fully informed consent has been given: Maguire v Makaronis (1996) 188 CLR 449 at 455. Generally, the fiduciary must disclose all relevant information necessary for the beneficiary of the obligation to make a proper judgement as to whether to give consent to an activity which would otherwise be a breach of duty: Patrick Parkinson, The Principles of Equity (Thomson Lawbook Co, 2nd ed 2003) at [1027]. The onus of proof is on the fiduciary to demonstrate that informed consent was given: Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 at 398 (per Isaacs J). 4. As to whether the plaintiff consented to its solicitor acting for the lender on the first transaction, I accept Mr Toltz' evidence that, in July 2017, he told Mr Dai that he would be acting for Mr Fleming and his companies for any loan obtained, and Mr Dai agreed: see [95]. I do not accept, however, that Mr Dai's consent on that occasion constituted fully informed consent for all subsequent transactions involving Mr Fleming and his companies, for two reasons. First, Mr Toltz only sought consent in respect of the transaction in July 2017 and did not seek consent 'for all time'. Second, even if such a consent had been sought and given, circumstances may arise such that it was not possible, or proper, for a solicitor to act even with such consent: Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 at 170-1 (per Street J); Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201; (2021) 105 NSWLR 542 at [100], [108]. 5. By the time of the first disputed transaction, more than a year had passed since Mr Toltz had spoken to Mr Dai in July 2017. Mr Toltz had then understood that Mr Dai was the sole director of the plaintiff. (Although Mr Liang was then a director, Mr Toltz did not become aware of this until sometime later.) It was now November 2018. The plaintiff had two directors. The solicitor had been aware of this since September 2017 and recently confirmed the position in a company search obtained on 7 November 2018. 6. Where instructions are received from a person purporting to act on behalf of a corporation, the lawyer should confirm that person's authority to act and to bind the corporation: Solicitors Manual (LexisNexis Butterworths, last updated November 2023) (at 3065.5). Where the solicitor is receiving instructions from a director who may not be acting completely in the interests of the corporation, the solicitor has a duty to ensure that the instructions they are receiving are truly the instructions of their client: Hudson Investments Group Ltd v Atanaskovic [2010] NSWSC 1055 at [55]-[56] (per Davies J); see also Yee v Robert [1997] 3 LRC 138, Court of Appeal of Singapore, at [44]-[45]. Nor can the statutory assumptions in section 129 of the Corporations Act be relied upon by a fiduciary who has dealings with a company, to defeat a breach of fiduciary duty owed to the company in circumstances where that duty required the fiduciary to investigate or satisfy themselves as to any of the matters in section 129: Beach Petroleum NL v Kennedy [1999] NSWCA 408; Correa v Whittingham at [142]. 7. Here, it is important to note Mr Toltz' initial response to Mr Dai's email informing him of the first transaction: "I take this as a loan to [the builder] with guarantee from [the plaintiff] … secured by an unregistered mortgage over North Rocks and other security specified by George [Fleming]". This was, with respect, a fairly obvious observation: there was a disconformity between the borrower (the plaintiff) and the recipient of the loan funds (the builder). Mr Toltz also knew that the builder was Mr Dai's company. 8. In these circumstances, I consider that the solicitor was on notice that the director giving instructions on behalf of the plaintiff may not be acting completely in the interests of the company. The solicitor had a duty to ensure, when obtaining the plaintiff's fully informed consent to the solicitor proceeding to act for the lender on the first transaction, that his instructions were truly the instructions of the corporation. Mr Toltz agreed that he took no steps to confirm that Mr Dai had authority on behalf of all directors in the company. 9. Whilst I do not doubt that Mr Dai was content for the solicitor to act for the lender on the first transaction, the solicitor made no attempt to contact Mr Liang to ensure that the instructions he was receiving were truly the instructions of the plaintiff. Nor did the solicitor disclose to either director all (or any) of the relevant information necessary for the directors to make a proper judgement as to whether to give consent to the solicitor acting for the lender. The plaintiff did not give its fully informed consent to the solicitor acting for the lender on the first transaction. Breach of fiduciary duty 1. The plaintiff contends that the solicitor knew each of the matters described at [218]-[219]. The solicitor breached its fiduciary duties owed to the plaintiff by acting for the lender on the first transaction where there was a conflict between the plaintiff's interests and those of Gemi Investments. Further, the solicitor effectively preferred the interests of its client, Gemi Investments, where it was not in the plaintiff's interests to obtain the loan. The plaintiff had the undrawn portion of the Westpac facility at its disposal, as compared to the more expensive facility provided by Gemi Investments. The Westpac facility required certification of works being performed and completed prior to moneys being released, while the loan from Gemi Investments did not. As a result, there was a real risk that moneys advanced by Gemi Investments would not be applied for the benefit of the plaintiff in respect of the North Rocks development or at all. This risk was said to have been realised. It was said to be in Gemi Investments' interests to advance the loan and thereby earn interest, fees and charges. 2. Of the matters it was said that the solicitor knew at the time, the solicitor admitted that it knew that Mr Liang was a director of the plaintiff and that Rose Ives was a substantial unitholder of the Trust. Further, the solicitor knew generally that the builder was a building and development company which serviced clients other than the plaintiff. However, the solicitor had no knowledge of Mr Liang's level of involvement in the plaintiff's decision making. Nor did the solicitor know that the moneys were paid to the builder. Rather, the funds advanced to the plaintiff were paid as directed by the plaintiff. The solicitor denied any breach of fiduciary duty. The matters on which the plaintiff suggested that the solicitor should have given advice – in respect of use of the Westpac facility instead of obtaining the loan from Gemi Investments – were not things a solicitor would advise on in any event, being matters relating to financial rather than legal advice. 3. It is obviously important to focus on the nature of the equitable obligation and the nature of the suggested breach. While the solicitor is classically a fiduciary to their client, it is necessary to ascertain the particular obligations owed to the client and to consider what acts and omissions amounted to failure to discharge those obligations: Maguire v Makaronis at 463-4. Similarly, in Beach Petroleum NL v Kennedy at [188]-[189]: 188 Even in the case of a solicitor client relationship, long accepted as a status based fiduciary relationship, the duty is not derived from the status. As in all such cases, the duty is derived from what the solicitor undertakes, or is deemed to have undertaken, to do in the particular circumstances. Not every aspect of a solicitor client relationship is fiduciary. Conduct which may fall within the fiduciary component of the relationship of solicitor and client in one case, may not fall within the fiduciary component in another. 189 The relationship of solicitor and client has at its core an element of confidence and influence which equity will preserve and protect. Nevertheless, the confidence and influence are not always so pervasive as to require equitable intervention in every facet of the relationship. 1. As the solicitor submitted, the plaintiff did not allege that the solicitor was obliged to advise the plaintiff in relation to the transaction but failed to do so. No alternative claim for breach of trust, tortious duty or contract is brought. Rather, the plaintiff set out in some detail in the Second Further Amended Statement of Claim the extent to which the solicitor had acted for the plaintiff since July 2016 in relation to the purchase of the North Rocks site, the Westpac facility and 'off the plan' sales, and the knowledge gained by the solicitor of the plaintiff's officeholders and unitholders in the Trust, including Rose Ives, during that time. Having acted for the plaintiff in relation to the Westpac facility, the solicitor knew that Mr Liang had provided a guarantee in respect of that facility and executed the transaction documents. The solicitor also knew that Ms Zhu had only recently been appointed as a secretary of the plaintiff and, unlike the Westpac facility, the transaction documents were to be executed by Mr Dai and Ms Zhu. He also knew that the moneys were to be paid to the builder, which was conducting other business projects. 2. That is, the plaintiff's complaint is that the solicitor knew or ought to have known that the board of directors of the plaintiff company had not passed a resolution to authorise the transaction, nor Mr Dai and Ms Zhu's execution of the transaction documents. Further, the first transaction was not in the interests of the plaintiff, given the features of the proposed loan and how it could be (and was) used. In this context, where the solicitor owed a fiduciary duty of loyalty to the plaintiff and a duty to avoid conflicting interests, the solicitor placed itself in a position in which it owed a duty to another which was inconsistent with its duty the plaintiff. As a consequence, the solicitor did not perform the duties owed to the plaintiff properly. 3. As to what the solicitor actually knew, Mr Toltz knew that Mr Liang was a substantial unitholder in the Trust. He knew that Mr Liang had advanced millions of dollars to the project, from the initial $3 million transferred to the solicitor's trust account in August 2016 (see [57]) supplemented by subsequent transfers. While the solicitor had been instructed by Mr Dai on 30 January 2017 that Mr Liang was a passive investor, he had also been instructed by Mr Dai on 8 February 2017 to copy all email correspondence regarding the plaintiff to Mr Liang, as an important unitholder. Apart from temporary observance with this instruction on 8 February 2017, Mr Toltz did not thereafter copy Mr Liang on email correspondence regarding the plaintiff. The solicitor said there was no deliberate intention not to do so. Initially, there was not much happening. Then, "It slipped through the cracks, nothing more than that." 4. The solicitor had also known, since September 2017, that Mr Liang was a director of the plaintiff. Notwithstanding this, Mr Toltz had continued to communicate with Mr Dai only. Mr Toltz understood (from Mr Dai) that Mr Dai was taking the project risk and that Mr Liang was a silent investor. It is not entirely clear how it was that Mr Toltz understood that Mr Dai was taking the project risk, where both Mr Dai and Mr Liang provided personal guarantees in respect of the Westpac facility, Mr Liang had advanced millions of dollars to the project and was the majority shareholder of the company. Nor is it entirely clear why Mr Toltz understood that Mr Liang was a silent investor, where he was now a director of the company. 5. The solicitor had obtained a company search in respect of the plaintiff on 7 November 2018, being the day before Mr Dai lodged the Form 484, notifying ASIC that his wife had been appointed as secretary. (I would have been interested to hear from the solicitor as to what prompted this search, in one of his five affidavits.) The search confirmed that the plaintiff had two directors. When asked whether Mr Toltz sought a resolution by the directors of the plaintiff authorising the loan, Mr Toltz replied: Look, it's - it's an interesting sort of process to go through for me to answer the question or to comment. Essentially, when you start a project, you take it to the end. And you do what has to be done to achieve that objective. And what happened at that start, I'm dealing with Adam, he was a sole director. We then had - there were all these milestones and things happening throughout the project. So, it was a continuation of assisting City Gardens into achieving an objective that they wanted. So far as the - doing anything beyond that, it didn't to see me, at the time, necessary. And I was conscious of, you know, the relevant provisions in - in the Corporations Act about - about execution of documents and that sort of thing. 1. As I understand Mr Toltz' answer, he was prepared to continue on the basis of his understanding of Mr Dai's authority at the inception of the firm's retainer – when Mr Dai was the sole director – notwithstanding that more than two years had passed and the plaintiff's circumstances, and its board of directors, had materially changed. 2. Mr Toltz took the view that it was not necessary to check whether Mr Liang was agreeable to the transaction. He knew that Mr Liang previously did not want to provide a guarantee "so, I think that may be I might have been influenced by that." Mr Toltz knew that Mr Liang had not provided guarantees in respect of the acquisition finance or the refinance of those loans, but had given a guarantee to Westpac "when there was no other alternative." Mr Toltz said there was a pattern that Mr Liang was not available as a guarantor. The source of Mr Toltz' instructions in this regard was, of course, Mr Dai. Mr Toltz was also now acting for the lender, not the borrower, and the lender gave him instructions as to what security it required. 3. And that was really the problem. Having proceeded to act for the lender, Mr Toltz considered himself to be acting in the interests of the lender alone. The solicitor was no longer performing its obligation to act in the best interests of the plaintiff. Discharge of that obligation required the solicitor, as a starting point, to ascertain what the plaintiff's interests were. Specifically, a solicitor acting in the best interests of the plaintiff needed to ensure that the plaintiff – as opposed to Mr Dai – wished to enter into the transaction, particularly where the loan was not sought for the plaintiff's purposes but primarily for the builder's Baulkham Hills development (albeit Mr Dai ultimately did not use the loan funds for that purpose). 4. This is precisely the problem which the 'conflict of duty and duty' rule seeks to avoid: the risk that a solicitor will prioritise the interests of one client over the other, such that it fails to properly perform its duties owed to the other. By acting for the lender on the first transaction, the solicitor disregarded the plaintiff's best interests, failing to ensure that the board of directors had resolved to obtain the loan. The solicitor could either have sought a formal resolution or simply checked with the plaintiff's other director, Mr Liang. The need to check this matter was highlighted by the disconformity between the borrower (the plaintiff) and the recipient of the loan funds (the builder), where the solicitor knew that the builder was Mr Dai's company. The solicitor thereby breached its fiduciary duties owed to the plaintiff. 5. There was no informed consent negativing this breach of duty: Maguire v Makaronis at 467. Nor does the involvement of an independent solicitor necessarily fix this problem. As Parker J explained in CLGC Pty Ltd v Zhang [2021] NSWSC 946 at [139]: A solicitor's duty in the case of a conflict is not a duty to refer the client to an independent solicitor as such. The duty is not to act without fully informed consent. Suggesting that the client take independent advice may be relevant to whether fully informed consent has been obtained, but it is not the same thing. If all the solicitor does is tell the client that independent advice can be obtained, without explaining the reasons why the solicitor's conflict may prejudice the client, the client's consent is unlikely to be fully informed: see Malouf v Constantinou [2017] NSWSC 923 at [103]-[104]. … 1. I will return to the role of the independent solicitor, Ms Yang, when considering causation and what remedy, if any, follows at [495]. SECOND DISPUTED TRANSACTION – MAY 2019 1. The second disputed transaction had a long gestation period, proposed in December 2018 but not completed until May 2019. On 11 December 2018, Mr Margi submitted a finance proposal to Mr Werry on behalf of the plaintiff, to raise $5 million for a $1.1 million bank guarantee and to provide cash reserves for ongoing projects. Mr Werry sought clarification as to how the loan facility was proposed to be used. Mr Dai responded on 12 December 2018: 1. $2 million is to repay George Fleming 2. $1.1 million is to have bank guarantee for 93 Windsor Road Baulkham Hills 3. $1 million is to fund the cash flow for 150 unit apartment at rouse hill caddies boulevard 4. $0.9 million is to fund the cashflow for North Rocks And if before Christmas I could have at least $2 million without paying back George Fleming would be great. 1. That is, the funds would be used to refinance the first disputed transaction and to provide funds for projects in Baulkham Hills and Rouse Hill, as well as a portion for the North Rocks project. Liang learns of caveat 1. On 14 December 2018, being a week after the second tranche of the first disputed transaction had been drawn down, Mr Liang sent Mr Dai a photograph of a title search of the North Rocks property by WeChat, specifically, the portion of the page listing the caveat recently lodged by Gemi Investments, Vamico and Fleming Family Super Fund: see [175]. Mr Liang had been given the title search by one of the directors of North Rocks St, who told Mr Liang that the fifth item on the title search was a caveat lodged over the land. Mr Liang asked Mr Dai by WeChat, "Who is the fifth one that has been frozen?" 2. Mr Dai sent Mr Liang a screenshot of The Westin Hotel in Sydney followed by "Monday 10am." On Monday 17 December 2018, Mr Liang sent a WeChat message to Mr Dai at 9.52 am, "Thanks." Presumably, Mr Liang and Mr Dai arranged to meet at the hotel to discuss the caveat and the arrangements which stood behind it, where Mr Liang would have understood from his previous dealing with Mr Fleming, and Mr Liang's withdrawal of Rose Ives' caveat in August 2017, that Gemi Investments and Fleming Family Super provided loans: see [122]. 3. Of this meeting, Mr Liang said that Mr Dai introduced him to a broker who could help to purchase "bankrupt townhouses" at Rosehill. Mr Liang was interested and went along but then later did not have enough money. Mr Liang said, "only met once and left. I actually do not know exactly who that person was." Mr Dai does not refer to the meeting in his affidavits. 4. I infer that Mr Liang and Mr Dai discussed the caveat, as it appears to have been what prompted the meeting. Whether Mr Liang understood, or was told by Mr Dai, that the caveators had already lent money to the plaintiff is unknown. It would have been easy to clarify the matter by obtaining a copy of the caveat, but there is no evidence that Mr Liang did so. 5. What is known is that, within hours of the meeting with Mr Liang at The Westin, Mr Dai continued his email communications with Mr Werry in respect of another loan. On 19 December 2018, Mr Werry provided Mr Margi with a Loan Facility Term Sheet for his consideration and, if acceptable, to be provided to Mr Dai. Mr Margi provided the document to Mr Dai, and also Anthony Apostolakos and Matthew Hower of KWS Capital. On 20 December 2018, Mr Margi replied to Mr Werry, copied to Mr Dai and Ms Zhu, with comments on the proposed facility including: Please remove Guarantor Jian Wei Laing (Rose Ives Pty Ltd … as Adam Dai is Director and Shareholder as well Julianne Zhu (Adam Dai's Wife) is a secretary. This gives consent for a mortgagee to register a mortgage over North Rocks asset. 1. Mr Dai's request that Mr Laing and Rose Ives be removed from the transaction may suggest that Mr Dai disclosed the proposed transaction to Mr Liang at their meeting at The Westin and understood from their discussion that Mr Liang was not prepared to provide a guarantee. It is equally consistent with Mr Dai keeping Mr Liang out of the transaction, as he did not want Mr Liang to know. 2. As for Mr Liang, he said he called Mr Dai several times and asked him about the caveat. Mr Dai said that he would have the caveat removed. The day after their meeting at The Westin, Mr Liang left Australia for an overseas holiday. On his return to Sydney on 28 December 2018, Mr Liang said he had forgotten about the caveat and thought that Mr Dai had had it removed. This seems unlikely. 3. In any event, Mr Werry agreed to Mr Dai's request to remove Mr Liang as guarantor. Mr Werry said "I was informed by Mr Dai, director of the borrower company, that Mr Liang would not agree to be a guarantor. … I was informed that Mr Liang ran other businesses, considered himself to be a silent partner of this particular business, and would not give personal guarantees." Mr Werry did not contact Mr Liang to find out why he was not prepared to be a guarantor. 4. On 20 December 2018, Mr Dai provided the signed term sheet, which proposed a $5 million loan from Weriton to the plaintiff, to be guaranteed by Mr Dai, the builder and Maxmara Trinity, together with inter alia a registered second mortgage of the North Rocks property. Proposed guarantors Mr Liang and Rose Ives were deleted. The stated purpose of the loan was to supplement funding from Westpac, to refinance the plaintiff's existing subordinated loans, to pay a bank guarantee for the construction contract in respect of the development in Baulkham Hills and to pay expenses associated with a development in Rouse Hill. 5. On 24 December 2018, Weriton's solicitors, Summer Lawyers, provided proposed loan documents to Siew Keng Tong of Hicksons Lawyers, who was then acting for the borrower. Mr Tong promptly replied that, having gone through the documents with his clients, "they do not believe that the documents reflect what they understood the terms of the loan. Accordingly, they have not executed the documents." On 28 December 2018, Mr Tong informed Weriton's solicitors that his client was not proceeding with the loan where inter alia the loan documents provided for Ms Zhu to be guarantor and "These figures are in my view mind boggling." 6. On 3 January 2019, Weriton's solicitors followed up Mr Tong, noting "This is not a bank loan … having dealt with your clients previously I am aware that they … have signed documents more severe than these." On 9 January 2019, Weriton lodged a caveat over the North Rocks property in respect of a charge said to arise by virtue of an agreement dated 20 December 2018, to secure Weriton's loan establishment fees. A caveat was also lodged by KWS Capital No 3 Pty Ltd. 7. Also on 9 January 2019, Revenue NSW issued a land tax assessment notice to the plaintiff in the amount of $651,805.60. The plaintiff applied to pay by instalments. Mr Dai said he told Mr Liang about the land tax bill and said that the plaintiff did not have the funds to pay. He asked whether Mr Liang could assist. Mr Liang said he did not have the funds and asked Mr Dai to raise money to pay the bill. Mr Dai said he would do so. As the Gemi loan needed to be refinanced, Mr Dai said he would raise those funds at the same time. Mr Liang is said to have agreed. I attach little weight to Mr Dai's evidence in this regard, where Mr Dai had already been seeking to refinance the loan from Gemi Investments for about a month before this conversation. 8. On 4 February 2019, Mr Dai provided Mr Margi with a revised term sheet, which was forwarded to both Mr Werry and Mr Hower of KWS Capital. The borrower was now proposed to be the builder. The guarantors were Mr Dai and the plaintiff. The purpose of the loan was to refinance existing subordinated loans and to supplement the builder's cashflow. On 12 February 2019, Mr Werry circulated a further revised term sheet in respect of the proposed loan of $5 million to the builder, to be guaranteed by the plaintiff, Mr Dai and Maxmara Trinity. Of the facility, $2 million was to refinance the existing second mortgage. After prepaid interest, fees and outstanding brokerage owing to KWS Capital and Mr Margi, the remaining $1,854,050 was to be used for costs associated with the North Rocks project as well as a project in Baulkham Hills and Rouse Hill. Mr Werry requested information in respect of these projects, including a clear land tax certificate for the North Rocks site. 9. Mr Dai signed the term sheet. Weriton's solicitors were instructed to prepare transaction documents. Mr Werry audited the pre-sale contracts for the North Rocks development and, in that context, dealt with Toltz Lawyers. (The solicitor was continuing to act for the plaintiff in respect of 'off the plan' sales.) 10. On 17 January 2019, the builder made payment claim No 17 in the sum of $774,597. On 18 January 2019, the quantity surveyor certified that the North Rocks project was now 66% complete. On 14 February 2019, the builder issued payment claim No 18 for some $327,000. On 18 February 2019, the quantity surveyor certified that the North Rocks property was 68% complete. On 6 March 2019, NSW Revenue approved the plaintiff's request to pay land tax by instalments. On 11 March 2019, the builder made progress claim No 19 for some $651,000. On 18 March 2019, the quantity surveyor certified that the development was 71% complete. 11. On 25 February 2019, Weriton's solicitors provided the loan documents to Hickson Lawyers. On 4 March 2019, Mr Margi emailed Mr Werry, querying the extent of the arrangements sought: I have been advised that the 40% shareholder of [North Rocks] has a net balance sheet of over 100m if this is the case and Adam was to forward it to you in confidence will you feel the take out is solid. This surely would mitigate the risk as it would be obvious he would have to purchase all the residual stock as he is a borrower/guarantor to [Westpac] for the 25m construction loan that in any event go into default or purchasers didn't settle on completion. Presumably Mr Margi was referring to the 60% shareholder, being Mr Liang. Whether Mr Liang had over $100 million in assets is unknown. The broker held out Mr Liang's financial position as a measure of comfort to the proposed lender. 1. It appears that the finance offered by Weriton were considered unattractive and Mr Dai wanted to extract himself from the signed term sheet. Mr Toltz recommended to Mr Dai that the plaintiff retain Piper Alderman to act in relation to the matter. On 8 March 2019, Piper Alderman wrote to Mr Dai, thanking him for his instructions to review the proposed security and documents in respect of the loan from Weriton, and noting that the solicitors were retained to negotiate the best available outcome. Piper Alderman proposed to terminate the arrangement with Weriton, together with a without prejudice letter "thus setting the ground work for negotiation of a resolution." 2. On 15 March 2019, Piper Alderman advised Weriton's solicitors that it acted for the builder, Maxmara Trinity, Maxmara and JR International, the plaintiff and Mr Dai. Piper Alderman contended that Weriton had failed to perform its obligations and sought the withdrawal of caveats and repayment of the application fee. Without prejudice, Piper Alderman proposed that the application fee could be retained in return for a release and withdrawal of caveats. 3. Separately, an alternative finance proposal was provided by Angas Securities Ltd. Mr Margi also advised Mr Werry that he had secured an unconditional facility with Gemi, apparently to underwrite the risk of the transaction and pay out the loan if the completed townhouses were not sold by a certain date. The broker enquired: Please can you advise what document ie loan approval is required from Toltz lawyers on whom represent GEMI investments to settle Adams facility. … Adam spoke to me today and advised me that if this wont satisfy your needs then he will arrange funds elsewhere as he believes the [due diligence] in this deal has incurred way to[o] many expenses and he cannot wait any longer. … I also attach an email in addition so you can see the capacity of for the borrower and guarantor Victor to the [Westpac] loan, please note it is private and confidential so please don't disclose to any third party as this wasn't a [condition precedent] but believe would make you feel comfortable knowing the share holder Victor will not allow [Westpac] loan to default. Again, the broker held out Mr Liang's financial position as comfort to the proposed lender. 1. On 20 March 2019, Mr Werry advised that he had instructed Weriton's solicitors regarding the conditions needed in Gemi's "residual stock" loan to the plaintiff. On 21 March 2019, Mr Fleming set out the conditions of any such facility in an email to Mr Cooper, Mr Margi and Mr Toltz, noting "I spoke with Adam and made it clear to him that we are not prepared to give him another $1M for the Insurance. I told him I have grave concerns about him proceeding with [Mr Werry] … and that if he proceeds that he had to get Piper Alderman to vet this to understand what he is signing …" That evening, Mr Toltz prepared a letter of offer, which he provided to Mr Fleming and Mr Cooper for approval. 2. On 5 March 2019, NCC Fashion deposited $233,075.79 to the plaintiff's bank account. The funds were promptly disbursed to, apparently, suppliers and contractors. On 22 March 2019, NCC Fashion deposited $94,931 to the plaintiff's bank account. The funds were paid to various contractors and suppliers, including Yisheng Air Con Pty Ltd ($32,510.36). Advice over dinner 1. On 25 March 2019, Piper Alderman provided Mr Dai with a memorandum in respect of issues identified with the Weriton term sheet and loan documents, "If a new deal is struck, you will need a clear release from the previous term sheet. I recommend we draft it." Mr Toltz and Mr Dai had arranged a social dinner that evening. At 6.24 pm, Mr Dai forwarded Piper Alderman's email and memorandum to Mr Toltz, "Could you please help me to look at this." Mr Toltz replied, "Of course … I will bring a copy to discuss." 2. At dinner, Mr Toltz said they generally discussed the content of Piper Alderman's advice. Mr Toltz pointed out areas that Mr Dai may wish to ask Piper Alderman to further explain to him. Mr Toltz said it was in the interests of having the transaction completed that he met with Mr Dai. Mr Toltz was there to help Mr Dai with the problem that he had "and it was in my client's interest for the deed of assignment to go ahead." Further, "I was there to help him … and it was going to help my client as well." 3. Later that evening, at 11.28 pm, Mr Toltz emailed Mr Dai, suggesting that he send an email to Piper Alderman and provided a draft. Eighteen points were raised. Later still, at 12.04 am, Mr Toltz reported to Mr Fleming, "Had dinner with Adam tonight … He has some good things going for him." Mr Toltz set out what he had been told in respect of Mr Dai's various building projects and the features of the refinance offered by Mr Werry, "On a final note … I am not acting for Adam on the Werry refinance … following my meeting this evening with Adam I felt inclined to get involved 'behind the scene'." 4. On 26 March 2019, Piper Alderman sent a without prejudice letter to Weriton's solicitors, proposing a seven month loan with 19 features. Agreement was sought on these issues 'in principle'. These issues then formed the basis for what proved to be protracted negotiations. On 27 March 2019, Mr Cooper reported to Mr Fleming and Mr Margi following a call with Mr Werry. Mr Cooper set out a proposed arrangement that was thought to be acceptable to both parties. Mr Toltz was instructed to review and update the loan offer and return it to Mr Werry, with a view to settlement that week. 5. Correspondence ensued between Gemi, Weriton, Mr Dai and their respective solicitors in respect of possible finance from Weriton and arrangements between Weriton and Gemi to provide further comfort in respect of the facility. Piper Alderman continued to correspond on behalf of Mr Dai and his companies, including the plaintiff. Toltz Lawyers continued to correspond on behalf of Gemi. On 4 April 2019, Weriton placed its solicitor in funds of $4.2 million. On 5 April 2019, Weriton's solicitors provided the proposed documents to Mr Toltz for review. Mr Toltz circulated the material to Gemi for review and comment. Misdirecting funds 1. On 11 April 2019, Mr Dai set up a payee account for the plaintiff's Westpac account, with an account name "Yisheng Air Con.". The payee account was a National Australia Bank account ending 8353. The payee account was, in fact, Maxmara Trinity's bank account. The bank details on Yisheng Air Con's invoices was for a different bank and an account ending 4332. 2. On 8 March 2019, Yisheng Air Con Pty Ltd had rendered an invoice to the builder for $215,000. Mr Liang said he approved the invoice. Mr Dai set up a payment from the plaintiff's Westpac account to "Yisheng Air Con" in the amount of $215,000. The payment was approved by Mr Liang 40 minutes later; presumably, payments had to be approved by both directors. Mr Liang assumed that the BSB and account number were correct and approved the payment when he saw Yisheng's name on the remittance request. Mr Liang thought the account details were for Yisheng Air Con. Later, however, the plaintiff was sued by the contractor for non-payment. 3. On 1 April 2019, the builder made progress claim No 20 for some $743,000. On 3 April 2019, NCC Fashion deposited $80,000 to the plaintiff's bank account, which was used to pay land tax. The plaintiff had then lodged an objection to land tax with NSW Revenue. On 4 April 2019, the quantity surveyor certified that the project was 76% complete. On 24 April 2019, the builder issued progress claim No 21 for some $430,000. On 30 April 2019, the quantity surveyor certified that the project was 78% complete. Progress on the North Rocks development appears to have been slow. On 3 May 2019, the plaintiff made a number of payments to contractors and suppliers, including Yisheng Air ($20,916.20 and $51,053.94). On 7 May 2019, the builder issued progress claim No 22 for some $414,000. On 10 May 2019, the quantity surveyor certified that the project was now 80% complete. 4. On 9 May 2019, Piper Alderman emailed Weriton's solicitors, complaining of extensive delays and a concern as to whether the lender would ever be prepared to funds which had been sought on an urgent basis. Accordingly, Piper Alderman advised that its client would not be taking a loan from Weriton and negotiations were at an end. Efforts to revive the loan continued between Mr Margi, Mr Werry and Mr Dai directly. Changes continued to be made to the transaction documents on 17 May 2019. It is clear from the contemporaneous emails that Mr Toltz was acting on the matter for Gemi, while Piper Alderman was acting for the plaintiff, Mr Dai and related entities. Forged consent 1. It will be recalled that the plaintiff was to give a guarantee in respect of the proposed loan to the builder. On 20 May 2019, Weriton's solicitor emailed Piper Alderman: Can you also provide me with a copy of the unit register for the Ming Tian City Garden Unit Trust and confirmation all unit holders have provided written consent for the trustee to ender into the loan. See clause 27(s) of the deed … 1. Clause 27(s) of the Unit Trust Deed provided: (emphasis added) 27 POWERS OF TRUSTEE GENERALLY … the Trustee in its absolute discretion shall have and may exercise the following powers in respect of the Trust Fund: … (s) The Trustee may give guarantees and/or indemnities with or without security for the payment of money or the performance of contracts or obligations by any person or corporation, to secure or undertake in any way the repayment of moneys lent or advanced to, or the liabilities incurred by any person or corporation and otherwise to assist any person or corporation, PROVIDED THAT the Trustee has first obtained the prior written consent of all Unitholders. … 1. This request appears to have caused some consternation. Mr Margi emailed Piper Alderman, copied to Mr Dai, advising that he had spoken to Mr Toltz to see if obtaining a unitholders' consent would create an issue, but had been advised that the clause only applied to guarantees and not borrowings. Piper Alderman disagreed, "I do not think an argument that the unit trust is borrowing, not guaranteeing is technically correct or is likely to prevail. I would be very happy to be corrected on this, but at the moment I don't see it." 2. After a noticeable pause in email traffic, Piper Alderman replied to Weriton's solicitor: (emphasis added) I have requested the trust register for [the] Trust. It is not yet in hand. I am however instructed there are 2 unit holders in the … Trust. Maxmara Trinity Pty Limited, which holds 60% of the units. Maxmara Trinity has already executed ample documentation to make a further formal consent academic. In respect of the other unit holder, the name of which I am not currently aware, I am instructed its principal is overseas and that a consent from it will not be available in time for the financing to proceed. Kindly take instructions as to whether your client will proceed given that the consent will not be available within time. 1. Mr Liang was not overseas. Mr Dai said he did not instruct Piper Alderman that Mr Liang was overseas but simply that Mr Liang was travelling a lot, "I didn't tell him when and where." Mr Dai also said in cross-examination that this was the first time he had seen the email. Mr Dai said he was not aware of any issue in respect of needing to get the consent of the other unitholder of the Trust. Mr Dai's evidence was most unlikely and I do not accept it. 2. Weriton pressed its request for written approval of the unitholder, where the borrower was the builder rather than the plaintiff, which was merely providing security. On 21 May 2019, Piper Alderman provided Weriton's solicitors with a Unitholders Consent addressed to Weriton and Saddleback Mountain Estates, apparently executed by Mr Liang as sole director and secretary of Rose Ives. The Unitholders Consent stated that Rose Ives consented to the plaintiff guaranteeing and indemnifying Weriton and Saddleback Mountain Estates in respect of the builder's obligations under the proposed loan of $4.5 million, secured by mortgage over the North Rocks property. 3. Meanwhile, Mr Margi was still trying to find a solution and emailed Mr Dai, copied to Piper Alderman, Mr Werry and Weriton's solicitors, suggesting that the borrower be changed from the builder to the plaintiff, as written consent from the unitholder would not be needed. Mr Dai promptly replied, "I've got the consent." 4. Mr Liang said he was not aware that Rose Ives' consent was sought for this transaction. Mr Liang said he did not sign the Unitholders Consent nor authorise anyone else to sign on behalf of Rose Ives. The signature is not his. 5. Next to Mr Liang's signature was a stamp and signature of a JP, Ms Yuan, certifying that the document was a true copy of the original document. Ms Yuan had a desk at the builder's office, which had a drawer in which she kept her JP stamp. The drawer did not have a lock. 6. Mr Dubedat examined Mr Liang and Ms Yuan's signatures on the Unitholders Consent and concluded that neither were genuine. The JP stamp was an original stamped impression and matched Ms Yuan's stamp used on other occasions. I accept his opinion. 7. Mr Dai denied forging the signatures on the document or using Ms Yuan's JP stamp. He also denied the confession described by Ms Yuan: see [14]-[15]. But Mr Dai clearly procured the document under significant time pressure to complete the transaction, advising the broker, "I've got the consent." Mr Dai variously said that he got the Unitholders Consent from Mr Liang, although Mr Liang did not sign the document in front of him. Mr Dai then said he got the document from Ms Yuan. Logically, if Mr Dai had got the document from either Mr Liang or Ms Yuan, that person (at least) would have been able to provide their genuine signature, where they had the document in their hand. Mr Dubedat's evidence makes plain that neither Mr Liang nor Ms Yuan signed the document, which suggests that Mr Dai's evidence is untrue. Still later, Mr Dai said he only told Mr Liang about the transaction after it had been completed. 8. There was some evidence that Mr Liang was not fastidious in the execution of documents personally. An annual company return for one of Mr Liang's companies, New Century Clothing Pty Ltd, should have been signed by his wife but appeared to have been signed by a staff member in 2001. Mr Liang said that if he was overseas, he would call and tell the staff member to "pay", but this "rarely happened … usually I would be the one to sign." On the annual return submitted to ASIC, "normally, nothing [in the company] would [have] changed." 9. There was also some evidence that Ms Yuan was not fastidious in the execution of documents as a JP. Some months later, on 6 September 2019, Ms Yuan exchanged WeChat messages with Mr Dai, advising that he needed to sign an urgent affidavit. Mr Dai replied that he was at home and unwell, "Can you sign it on my behalf?" Later that day, Ms Yuan advised Mr Dai "your affidavit has been made, and I have signed on your behalf." As I understood it, the relevance of these WeChat messages was that Ms Yuan was prepared to certify documents without attending to proper procedure, in support of a broader proposition that using her JP stamp and signing the Unitholders Consent in her name was done with her consent or in accordance with an existing practice, albeit this was not put squarely to Ms Yuan by Mr Dai. 10. As I understood Ms Yuan's evidence, she was, on occasion, prepared to certify documents in the absence of Mr Dai where she was familiar with his signature and the matter was urgent. As to the affidavit the subject of the WeChat messages, she did not specifically recall the matter but I understood Ms Yuan's evidence to be that the affidavit was made by someone else in the office such as the site manager. 11. Mr Dai's evidence on this subject was wholly unsatisfactory. I prefer the evidence of Mr Liang and Ms Yuan. As the plaintiff submitted, Mr Dai stood to benefit from completion of this transaction and the Unitholders Consent was created at his instigation. I do not suggest for one moment that Piper Alderman, the broker or the solicitor had anything to do with it. The obvious person who was involved was Mr Dai. Whether he personally forged the signatures of Mr Liang and Ms Yuan is of no moment; he was clearly aware that they had not signed the document when he handed it over to Piper Alderman for provision to Weriton. 12. Nor do I accept the lenders' submission that the forgery, or Rose Ives' lack of consent, was irrelevant, where Rose Ives is not a party and does not assert any rights against any of the lenders. Nor do I accept the solicitor's submission that a Jones v Dunkel inference should be drawn from the plaintiff's failure to call Robert Riddell of Piper Alderman as a witness. It is unclear to me what Mr Riddell would have added to this topic; he was an unnecessary witness. 13. In any event, on receipt of the Unitholders Consent, the second disputed transaction proceeded to completion. The documents in respect of the refinance were executed. The borrower was the builder. The plaintiff granted a mortgage over the North Rocks property to Weriton and Saddleback Mountain Estates. The mortgage was executed by Mr Dai and Ms Zhu. Piper Alderman witnessed their signatures and gave a certificate of legal advice. The plaintiff, Maxmara Trinity, Mr Dai and Maxmara and JA International were guarantors. Piper Alderman gave a certificate of legal advice to the plaintiff as guarantor, being far clearer in its terms as to whom the advice was being given than Ms Yang's certificate in respect of the first disputed transaction: see [494]. A deed of release was also executed between Weriton, Saddleback Mountain Estates, the builder, Mr Dai and the plaintiff in respect of the term sheet issued on 20 December 2018, subsequently varied on 12 February 2019 and since disputed. Again, Mr Dai and Ms Zhu executed the deed. Their signatures were witnessed by Piper Alderman. 14. A deed of guarantee was also executed between Gemi, Weriton and Saddleback Mountain Estates. Mr Cooper and Mr Fleming's signatures were witnessed by Mr Toltz. Clause 2.1 of the deed provided that Gemi Investments, Mr Fleming and Mr Cooper would underwrite the risk that, if sales of the completed units at North Rocks had not settled by 15 October 2019, they would pay out the Weriton and Saddleback Mountain Estates facility. 15. On the morning of 22 May 2019, Toltz Lawyers obtained a company search of the plaintiff, which reported that Mr Dai and Mr Liang were directors whilst Mr Dai and Ms Zhu were secretaries. The transaction completed. Weriton paid out Gemi in the amount of $2,355,086.66. The trust account for Weriton's solicitors records that the loan funds were paid to Mr Margi (brokerage fee), the builder ($746,164.02) and Piper Alderman ($67,000). Surplus funds of $536,575.82 were returned to Bridge Street Capital, leaving $412,673.50 in the trust account. These funds were retained to pay any land tax owing by the plaintiff. Mr Werry said this was his requirement, as it was normal practice to make sure that land tax was cleared before settling a loan, where NSW Revenue had priority over the claims of mortgagees. 16. After determination of the plaintiff's objection to the land tax assessment, these funds were used to pay the assessed amount: see [377]. Mr Werry said that some $391,000 was paid to NSW Revenue for land tax on the North Rocks property. The balance of the loan proceeds ($21,673.50) were applied towards Summer Lawyers' legal costs and disbursements in acting for Weriton and Saddleback Mountain Estates in relation to the loan. As a result of the (perhaps unnecessary) payment of land tax by the lender, the plaintiff received a refund for overpaid land tax of $422,755.95 on 12 September 2019. Did Liang know about the second disputed transaction? 1. Mr Dai agreed that he did not tell Mr Liang that he had signed a term sheet with Weriton. He did not provide a copy of the term sheet to Mr Liang. Mr Dai agreed that he never asked Mr Liang about using the plaintiff's funds to finance or support his other projects. According to Mr Dai, Mr Liang had earlier said that he did not want to know about what Mr Dai was doing in terms of obtaining finance for the plaintiff. (Assuming, for the moment, that Mr Liang said this, there was no suggestion that he was asked whether the plaintiff could borrow funds for projects other than North Rocks, which accounted for the bulk of the proposed use of the loan funds). As mentioned, Mr Dai also said he told Mr Liang about the transaction after it had been completed. 2. Mr Liang said he was not aware of this transaction. If he had been aware of it, he would not have permitted the plaintiff to enter into it. Mr Liang said he would also have taken steps to dispute the validity of the previous loan now sought to be paid out. At the time, he and his wife owned several properties and had investment funds at their disposal of some $7 million. 3. There are some common features between the first and the second disputed transactions. There is no contemporaneous evidence that Mr Liang was appraised of the proposed transaction or, on completion, provided with some or all of the transaction documents. This was in contrast to earlier transactions. Second, the finance was sought for (largely) purposes other than the North Rocks development. 4. A point of distinction is the forgery of the unitholder's consent. The fact that Mr Liang's consent was forged indicates that Mr Dai perceived that Mr Liang would not give his consent, if asked. This was hardly surprising, where the bulk of the loan facility was for purposes unrelated to the North Rocks development. It also points to the fact that Mr Dai did not want Mr Liang to know about the transaction. 5. The only matter which points against such a conclusion is that Mr Liang became aware of the caveat lodged on conclusion of the first disputed transaction and met with Mr Dai at The Westin on 17 December 2018 to discuss this. Whilst Mr Liang pressed Mr Dai to have the caveat removed, there is no contemporaneous evidence that Mr Liang was aware of the completed finance transaction which stood behind the caveat, nor Mr Dai's efforts over the next five months to refinance that arrangement. On balance, I find that Mr Liang was unaware of the second disputed transaction. Claim in respect of the secretary 1. The plaintiff contends that the transaction documents were not validly executed by the plaintiff and are void and unenforceable as against it as Ms Zhu was not validly appointed as secretary of the company. Whilst I have found that Ms Zhu was not validly appointed on 8 November 2018, Mr Liang had become aware of her appointment by 28 November 2018 and took no issue with this. 2. A similar situation was considered in Dragon Property Development & Investment Pty Ltd v 183 Eastwood Pty Ltd [2022] NSWSC 910, where a rogue lodged a Form 484 with ASIC, appointing himself as the sole director and secretary of a company. Although the true directors became aware of this, they did nothing for a period of time, whilst endeavouring to resolve the rogue's actions through family negotiations. Meanwhile, the rogue effected a fraud involving a third party, as he was able to hold himself out as a director of the company. Peden J observed at [42]-[43]: 42 … another way of looking at the factual situation is that [the company] impliedly ratified [the rogue's] conduct through acquiescence of what he had done, such that his conduct ought to be considered as though it was originally authorised by the true officeholders: see eg Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1 at 19 (Isaacs J). Silence, acquiescence or inactivity may be sufficient to demonstrate implied ratification: Taylor v Smith (1926) 38 CLR 48 at 54 (Knox CJ); Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56 at 234 (Young CJ in Eq); Pollard v Wilson [2010] NSWCA 68 at [121] (McClellan CJ at CL, with whom Macfarlan and Young JJA agreed). 43 … However, the [company] would have been required to prove that the true officeholders, as principals, had full knowledge of the material facts … : Learn and Play (Rhodes No 1) Pty Limited as Trustee for Rhodes 1 Childcare Centre Unit Trust v David John Frank Lombe [2011] NSWSC 1506 at [21]-[22] (Pembroke J), and the authorities cited therein. 1. It cannot be said that Mr Liang, as a director of the plaintiff, had full knowledge of the material facts which resulted in Ms Zhu's appointment as secretary by fellow director, Mr Dai. In particular, Mr Liang was not aware that Ms Zhu had been appointed as secretary in order to execute documents in respect of the first transaction, or that the first transaction had been entered into at all: see [205]. Nor was Mr Liang aware that Mr Dai had instructed SWA to prepare the necessary documents to appoint his wife as secretary to bypass the obstacle which Mr Liang had presented to that transaction. 2. As such, although Mr Liang became aware that Mr Zhu had been appointed as secretary of the company, he did not have full knowledge of the material facts which led to her appointment, such that I do not think it can be said that he, as a director of the company, ratified his co-director's actions. Claim against director 1. The plaintiff contends that it received no benefit from the second transaction, where the proceeds were received by the builder and not applied for the benefit of the plaintiff. Where the transaction was in Mr Dai and the builder's interests, permitting the plaintiff to enter into the transaction in the circumstances was a breach of Mr Dai's statutory and fiduciary duties. But for this breach of duty, the plaintiff would not have entered into the second transaction, nor the third transaction required to refinance it, nor incurred any resulting indebtedness to the lenders. The plaintiff submitted that the purpose of this loan was to assist Mr Dai with respect to projects in which he and his companies had an interest, but the plaintiff did not. Nor did the plaintiff benefit from this transaction, where the proceeds of the loan were used to pay out the lender on the first disputed transaction and a small portion used to pay the plaintiff's land tax. 2. Mr Dai submitted that he spoke to Mr Liang, who agreed that the second transaction was required to complete the North Rocks development. The loan funds were for the benefit of the plaintiff. 3. The circumstances are not dissimilar to the first disputed transaction. Mr Dai remained the sole director of the builder as well as one of the directors of the plaintiff, where there was a lump sum construction contract between the two companies. At the time of this loan, there is no suggestion that the plaintiff (or Westpac) was behind in paying the builder's progress claims. In addition, from time to time, Mr Liang provided additional funds on 5 March 2019 ($233,075.79), 22 March 2019 ($94,931) and 3 April 2019 ($80,000). 4. The purpose for which this loan was sought was largely unrelated to the plaintiff and its North Rocks development, but to pay out the first disputed loan (procured by Mr Dai in breach of his director's duties) and, initially at least, to assist with developments in Baulkham Hills and Rouse Hill. Ultimately, after paying out the first disputed loan and expenses related to the second disputed loan, the builder received some $746,000, which appears to have been mostly used in relation to the North Rocks development. 5. Although the borrower of the second loan was the builder, Mr Dai arranged for the plaintiff to guarantee the loan, including by granting security over the North Rocks site. The plaintiff and its asset was exposed to a liability to repay the loan which was not procured for its benefit, albeit the plaintiff did receive some benefit by payment of land tax. This was not a benefit which the plaintiff specifically requested, nor particularly needed. It was something that the lender did in order to ensure that its security did not lose priority to NSW Revenue to the extent of unpaid land tax. 6. Mr Dai had no authority to enter into the loan transaction without the agreement of fellow director, Mr Liang. Mr Dai did not tell Mr Liang about the proposed loan and, in order to enable the transaction to be completed, procured a unitholder's consent bearing forged signatures for Mr Liang and Ms Yuan. The funds were advanced to the builder. Obviously enough, in so doing, Mr Dai failed to exercise his powers, and to discharge his duties, as a director of the plaintiff with reasonable care and diligence, as the loan was for the benefit of Mr Dai and his company, the builder, but not the plaintiff. Nor did Mr Dai exercise his powers in good faith in the best interests of the plaintiff and for a proper purpose, but for his own purposes and those of his company, the builder. Mr Dai also improperly used his position as a director of the plaintiff to gain an advantage for himself and the builder, to the detriment of the plaintiff. 7. Mr Dai thereby breached his duties as a director in sections 180, 181 and 182 of the Corporations Act, as well as his fiduciary duties. It also cannot be said that Mr Dai, as a fiduciary, overcame the operation of the "no profit" rule by making a full and frank disclosure of his material interest in the outcome of this transaction; Mr Liang knew nothing of the transaction. It follows that the plaintiff's claim against Mr Dai is proved in respect of the second transaction. I will return to the appropriate compensation, if any, at [468]. Claim against second round lenders 1. The plaintiff contends that the documents were executed by Mr Dai and Ms Zhu in circumstances where Ms Zhu had not been validly appointed as secretary, the plaintiff's board of directors had not authorised the company's entry into the transaction, the constitution had not been complied with and where the loan was to benefit the builder. In these circumstances, it was said that the mortgage over the North Rocks property was not validly executed by the plaintiff and was void and unenforceable vis a vis the plaintiff. Further, the plaintiff contended that clause 27(s) of the Trust Deed required the written consent of all unitholders before giving a guarantee or indemnity. The lenders were aware that Rose Ives was a substantial unitholder and that its consent was required. The lenders' solicitor, Summer Lawyers, was aware of these matters and its knowledge was imputed to the lenders by reason of the solicitor/client relationship. Rose Ives did not give its consent. 2. Further, the lenders were said to have known, or been put on notice, that Mr Dai had caused the plaintiff to provide a mortgage which was not for its business or benefit. The schedule to the mortgage provided that the lender would receive copies of all progress claims under the Westpac facility. The lenders would also have had these documents as at the time of the second disputed transaction. (I am not sure why this follows). As such, the lenders would have known that the plaintiff had sufficient finance available from Westpac to complete the building works and did not need to assist the builder to obtain "high interest loans from private lenders" to complete the building works. 3. The second round lenders, Weriton and Saddleback Mountain Estates, contend that Mr Dai and Ms Zhu executed the transaction documents as director and secretary according to the records maintained by ASIC. The lenders relied on sections 127 to 129 of the Corporations Act, which entitled them to assume that the officeholders were validly appointed and that the plaintiff validly executed the mortgage, which binds the plaintiff. In the alternative, the lenders say that the plaintiff held out Mr Dai as its managing director or, alternatively, Mr Dai was the agent for the plaintiff with authority to bind it in any contract entered into by him on behalf of the company. The lenders relied on Mr Liang's evidence in his first affidavit, where he described himself as a silent investor. The lenders also relied on Mr Liang's omission to inform himself of the business and financial affairs of the plaintiff. 4. As to the Unitholders Consent, the lenders contended that the plaintiff's solicitor, Piper Alderman, represented that the plaintiff had obtained the consent of all unitholders; the lenders relied upon that representation to their detriment such that the plaintiff is estopped from suggesting otherwise. Having repaid the first round lender, the second round lenders were entitled to be subrogated to Gemi Investments' position. In any event, the second loan has since been repaid. Further, the plaintiff executed a deed of release as part of the third transaction, which now barred the plaintiff's claim. 5. The plaintiff's claim against the second round lenders involves many of the issues that I have already determined. I have found that Mr Dai did not have actual authority to enter into the first transaction on behalf of the plaintiff: see [105]-[109]. I have also found that Ms Zhu was not validly appointed as secretary. Although Mr Liang became aware of her appointment and did nothing about it, he cannot be said to have impliedly ratified the decision of his fellow director to make the appointment, where he did not have full knowledge of the material facts as to why she was appointed, or what she had done as secretary. 6. As to whether the second round lenders are entitled to make the assumptions in section 129 of the Corporations Act, the first question is whether the lenders had "dealings with" the plaintiff. This turns on whether Mr Dai had actual or ostensible authority to engage in communications or negotiations with the lenders on the plaintiff's behalf. I have found that Mr Dai had authority to communicate, or negotiate, with potential lenders on the plaintiff's behalf at the time of the first disputed transaction in November 2018. It remains to be considered whether this remained the position in May 2019, when the second disputed transaction was completed. 7. Here, the fact that Mr Liang learned of the caveat lodged following the first disputed transaction is significant. The caveators were Gemi Investments, Vamico and Fleming Family Super Fund. Mr Liang had previously dealt with Mr Fleming and withdrawn Rose Ives' caveat in August 2017, to permit these lenders to register mortgages on the North Rocks property. Where a caveat had now been lodged on the plaintiff's property, it must have been obvious to Mr Liang that Mr Dai was continuing to communicate or negotiate, with potential lenders. Whether Mr Dai was communicating with potential lenders on the plaintiff's behalf, or on behalf of another entity, may not have been obvious from the title search. It would have become apparent if a copy of the caveat had been obtained. The caveat disclosed a caveatable interest arising from a mortgage executed by the plaintiff in favour of Gemi Investments, Vamico and Fleming Family Super Fund dated 14 November 2018. 8. Mr Liang must be taken to have known that Mr Dai was continuing to act on the plaintiff's behalf in day-to-day communications with potential financiers. Beyond meeting with Mr Dai at The Westin, and making telephone calls to Mr Dai to press for the caveat to be removed, Mr Liang took no steps to curb Mr Dai's activities in this regard. So far as the evidence reveals, Mr Liang did not even obtain a copy of the caveat. In the circumstances, Mr Liang's inaction created an apparent authority in Mr Dai to engage in communications and negotiations with lenders. 9. As such, Weriton and Saddleback Mountain Estates had "dealings with the company" for the purposes of section 128(1) of the Corporations Act. It follows that the lenders were entitled to make the assumptions in section 129 in relation to those dealings and the plaintiff is not entitled to assert that any of the assumptions are incorrect. It is not necessary, in these circumstances, to consider the lenders' alternative argument that Mr Dai had authority as managing director to enter into the transaction without conferring with Mr Liang. 10. As to whether Weriton and Saddleback Mountain Estates were entitled to make the assumption in section 129(2) – that Ms Zhu had been duly appointed as company secretary – I have already concluded that the Form 484 lodged with ASIC in respect of her appointment was "information provided by the company". The lenders were entitled to assume that Ms Zhu had been duly appointed as company secretary, with authority to exercise the powers and perform the duties customarily exercised or performed by a company secretary of a company like the plaintiff: section 129(2). While there was, in fact, no resolution of the plaintiff's board of directors authorising the secretary to execute the transaction documents, the lenders were also entitled to assume that the plaintiff's constitution had been complied with: section 129(1). 11. The next question is whether Weriton and Saddleback Mountain Estates "knew or suspected" that the assumptions were incorrect "at the time of the dealings", being actual knowledge or suspicion: section 128(4). The knowledge of the lenders' solicitor, Summer Lawyers, should not be imputed to their client for the purpose of section 128(4): Correa v Wittingham at [168]. 12. Turning to what the lenders knew, Mr Werry said that he understood from email exchanges with Mr Dai and the broker, including the email of 20 December 2018 copied to Ms Zhu (see [297]) that Ms Zhu was an officer of the plaintiff and active in that role. Mr Werry said he relied on his solicitors to arrange appropriate and proper execution of security documents. He did not look at the constitution of the companies involved, "it would not be normal procedure [when] I'm lending to that company." Mr Werry said, "I would not have, and never have, made any enquiry over the many years I've been involved in providing finance to companies, to inquire why one officer or another executed the documents, or any – not all of the officers executed the document. So I would be satisfied if there was a director and secretary, or at least two officers of the company, if it was me. But this was a function that I had engaged Summer Lawyers to perform on my part, so no need for me to contact Mr Dai to inquire about the execution of the document." 13. Mr Werry said he had no reason to investigate if the plaintiff had an interest in the builder and did not communicate with Mr Liang in relation to this transaction, although he had dealt with Mr Liang in previous transactions. Of Mr Liang's suggested wealth, Mr Werry said "You must remember that Mr Liang was not a guarantor, so he wasn't my focus. His wealth or impecuniosity really wasn't my focus. The value of the security property was my primary focus." 14. As to the plaintiff's contention that the lenders were on notice of various matters from the schedule to the mortgage, it is not clear why the lenders would have known the details of the Westpac construction facility, including the amount which remained to be drawn down, from the schedule. The schedule to the mortgage provided that Weriton and Saddleback Mountain Estates were entitled to be notified of any proposed attendance at the North Rocks site by Westpac's quantity surveyor and to be provided with copies of progress claims and quantity surveyor reports. The schedule suggests that the funds would be used in association with the North Rocks development. Indeed, Mr Werry said the loan was to provide additional construction funding for the North Rocks project by providing additional cashflow for the builder. But where the loan was to the builder, it is not entirely clear why the features of the Westpac construction facility provided to the plaintiff would have been of any particular significance to the lenders. Further, where the relevant time to determine whether knowledge or suspicion is present is "at the time of the dealings", the schedule may have provided the lenders with such information after completion of the second transaction but not "at the time of the dealings". 15. Where the focus is on what the lenders actually knew or actually suspected, there is no evidence that the second round lenders knew or suspected that Mr Dai did not have authority to enter into the transaction, nor knew or suspected that Ms Zhu had not been validly appointed as company secretary. The lenders were entitled to make the assumptions in section 129; the plaintiff is not entitled to set aside the second transaction. Claim against solicitor 1. The plaintiff pleaded a claim against the solicitor in respect of the second transaction. In the plaintiff's closing submissions, however, the plaintiff addressed its claim against the solicitor in respect of the first and third transactions only. I take the plaintiff's claim against the solicitor in respect of the second transaction to not be pressed. More misdirected funds 1. On 4 June 2019, the builder made progress claim No 23 for some $599,000. On 12 June 2019, the quantity surveyor certified that the project was 83% complete. On 25 June 2019, the builder made progress claim No 24 for some $317,000. On 26 June 2019, the quantity surveyor certified that the project was 85% complete. 2. On 28 June 2019, Mr Dai arranged a second online payment to Yisheng Air Con for $220,000, which was approved by Mr Liang on 1 July 2019. (On 30 May 2019, Yisheng Air Con had rendered an invoice to the builder for $220,000). The payment of $220,000 was made using the same payee account details described at [319]. Consequently, the funds were deposited into Maxmara Trinity's bank account and transferred to J and A Family Trust. 3. On 5 July 2019, Mr Liang took photos of the North Rocks development, which he sent to Mr Dai by WeChat. Mr Dai replied, "Victor may have to find a way to solve the land tax problem which cannot be delayed for too long." Mr Liang replied "OK". On 15 July 2019, NSW Revenue determined the plaintiff's objection to the land tax assessment. The assessments remained correct. The amount outstanding was $382,480.18. On 16 July 2019, the remaining land tax was paid by trust funds held by Weriton's solicitors. 4. On 10 July 2019, the builder made payment claim No 25 for some $627,000. On 12 July 2019, the quantity surveyor certified that the project was 87% complete. On 23 July 2019, the builder made progress claim No 26 for some $302,000. The quantity surveyor certified that the project was now 89% complete. On 7 August 2019, the builder issued progress claim No 27 for some $259,000. On 15 August 2019, the quantity surveyor certified that the project was 91% complete. 5. On 15 July 2019, Mr Dai set up a third payment from the plaintiff to Yisheng Air Con of $250,000. (On 7 May 2019, Yisheng Air Con had issued an invoice for $250,000). Mr Liang approved the payment on 16 July 2019. The funds were deposited to Maxmara Trinity's account and transferred to J and A Family Trust. 6. On 14 August 2019, Mr Dai arranged a fourth payment by the plaintiff to Yisheng Air Con of $93,000, which was approved by Mr Liang. (The invoice issued by Yisheng Air Con is not in evidence). The funds were deposited to Maxmara Trinity's account and paid to American Express. 7. On 16 August 2019, Yisheng Air Con issued an invoice for $98,000. On 26 August 2019, Mr Dai authorised a fifth payment from the plaintiff to Yisheng Air Con of $98,000, which was approved by Mr Liang on 28 August 2019. The funds were deposited to Maxmara Trinity's account and paid to the J and A Family Trust. 8. In total, five payments to Yisheng Air Con totalling some $876,000 were, in fact, paid to Maxmara Trinity. Mr Dai denied representing to Mr Liang that he needed the money to pay for air conditioning. Mr Dai said he had paid Yisheng Air Con by credit card. Mr Dai said he told Mr Liang that he needed the money to reimburse himself for payments he had made to Yisheng Air Con or Yisheng Constructions. Mr Dai said the payments were in error and were, in fact, payments made to Yisheng Constructions. 9. When asked when the builder had paid Yisheng Air Con (for which the payment to Maxmara Trinity was said to be a reimbursement), Mr Dai said it should be in the builder's bank statements and agreed to bring this material to Court, "I will try all my best to get all that evidence so we're not wasting the Court time." Over the weekend, Mr Dai compiled a folder of documents. The last page in the folder was a table which Mr Dai had prepared in an effort to explain how five "Yisheng Air Con" payments were reimbursements of payments made by the builder to Yisheng Construction. Mr Dai explained how the table should be read, where he had colour-coded the details of the payment to "Yisheng Air Con" and the corresponding payments made by the builder, for which the "Yisheng Air Con" payment was said to be a reimbursement, together with cross-references to the relevant bank statements provided in the folder. Mr Dai tendered the folder and its table into evidence. 10. The problem with the table was fourfold. First – and I accept this is a minor point in the scheme of things – it is unclear why the plaintiff was obliged to reimburse the builder for payments made to its contractors, outside the progress claim regime under the construction contract. Second, Yisheng Air Con and Yisheng Construction were different companies, with different Australian Business Numbers and different bank account details. To this, Mr Dai insisted, "there are literally the same boss, the same people … to me they are the same." 11. Third, none of the five payments to "Yisheng Air Con" corresponded with any payment by the builder to Yisheng Construction, in terms of amount, while the payments precisely matched invoices issued by Yisheng Air Con (noting that one of the invoices is not in evidence). Fourth, all but one of the payments made by the builder to Yisheng Construction pre-dated the invoices issued by Yisheng Air Con, to which the payment was said to correspond, by several months. I conclude that, as the plaintiff submitted, Mr Dai simply highlighted payments made by the builder to Yisheng Construction which broadly approximated – and generally only after adding more than one payment together – the payments made to Yisheng Air Con. 12. In closing submissions, Mr Dai went so far as to suggest that the problem was not with his table but that the five "Yisheng Air Con" invoices were false, apparently on the basis that the total amount invoiced exceeded the contract sum of $454,000. The invoices referred – in the first line – to a "Mechanical Package," being either $454,000 or $650,000. On the face of the invoices, at least, Yisheng Air Con provided two Mechanical Packages to the North Rocks project, or the initial contract sum was increased. The circumstances in which a contractor may ultimately charge an amount which exceeds the contract sum are numerous and notorious. Mr Dai's submission also begs the question: if the Yisheng Air Con invoices were false, why did he pay the invoices? 13. Mr Dai maintained that the five payments were an error, where "Yisheng Air Con" should have been "Yisheng Construction", and relied again on his table in the face of the plaintiff's detailed submissions as to why the table was false. The fact that Mr Dai went to so much trouble, collating a folder of documents and preparing an accompanying colour-coded table, to explain away his dishonest conduct has the consequence that I can place no weight on his evidence, where he has actively sought to mislead the Court. 14. Mr Dai was then considering acquiring a site in Ingleburn for $4.5 million, by the plaintiff. Westpac asked Mr Dai to "get your lawyer to draft a letter … confirming $840k is for the payment/acquisition of Ingleburn." Westpac's email was copied to Toltz Lawyers, who replied internally "first I've heard of this matter." As it turns out, Weriton's solicitors were preparing the sales contract and offered to provide it to Toltz Lawyers. Toltz Lawyers advised that the email from Weriton's solicitors had been forwarded "to my client for instructions." On 28 August 2019, Toltz Lawyers provided Mr Dai with an update from Weriton's solicitors. On 30 August 2019, Toltz Lawyers obtained a company search for the plaintiff. On 5 September 2019, Toltz Lawyers pressed Mr Dai for instructions on the contract to purchase the Ingleburn property. Mr Dai replied, copied to Mr Liang, "I am waiting for instruction from my partner Victor Liang." Mr Liang said he was aware of this proposed purchase, which did not proceed. On 11 September 2019, Toltz Lawyers confirmed that it had been instructed that the plaintiff would not be proceeding with the purchase. As I understand it, the significance of this correspondence is that Toltz Lawyers continued to act for the plaintiff as matters arose from time to time. Nearing completion 1. On 21 August 2019, the builder made payment claim No 28 for some $413,000. On 23 August 2019, the quantity surveyor certified that the project was 93% complete. On 1 September 2019, the builder issued a variation claim for North Rocks development for some $1.6 million. 2. On 2 September 2019, Mr Dai emailed Mr Liang, advising that he had submitted a total of $885,926.24 (presumably a reference to funding or payment requests) for the North Rocks property "to finish and speed up the job in 5 weeks. … we need this big cash injection to boost the activity on site and finish the job in one go, I need to utilise good weather and momentum to finish the North Rocks once for all." On 3 September 2019, NCC Fashion deposited $210,000 to the plaintiff's bank account. On 11 September 2019, NCC Fashions deposited a further $100,000 to the plaintiff's bank account. 3. On 5 September 2019, the builder made progress No 29 for some $276,000. On 6 September 2019, the quantity surveyor certified the project was 95% complete. On 13 September 2019, the builder made payment claim No 30 for some $153,000. The quantity surveyor again certified that the project was 95% complete. On 20 September 2019, the builder issued an "Adjustment for Sep payment for construction costs for North Rocks" for some $1.3 million. 4. On 17 September 2019, Mr Liang's accountant emailed the builder's accountant, Mr Dai and Mr Liang, requesting various financial records up to 31 August 2019. Mr Liang's accountant advised that NCC Fashions would take over the accounting for the plaintiff from 1 September 2019. The builder's accountant asked SWA to forward all of the plaintiff's financial reports and tax returns to Mr Liang's accountant. On 18 September 2019, SWA provided "all financials I have." The financials for 2017 and the tax returns for 2017 and 2018 were yet to be finalised; instructions were also sought on entries in bank statements, which were not clear. Having taken over the accounts for the plaintiff, NCC Fashions' staff thereafter communicated with SWA in respect of various accounting queries. 5. On 1 October 2019, the builder issued an invoice to the plaintiff for some $610,000. On 17 October 2019, the quantity surveyor certified that the project was 96% complete. On 31 October 2019, the builder rendered an invoice to the plaintiff for unpaid invoices in October 2019, for some $1.5 million. THIRD DISPUTED TRANSACTION – OCTOBER 2019 1. Mr Werry approached Gemi, enquiring whether it would be interested in buying out the second mortgagee's loan securities "and come back into the North Rocks project." Gemi does not appear to have been keen. On 19 September 2019, Mr Werry enquired of Mr Dai whether he wished to rollover the $4 million facility which was due to expire on 15 October 2019. Mr Werry said it was apparent that the project would not be finished by then, and likely not until December 2019. On 27 September 2019, Mr Dai replied that he would be able to pay Mr Werry out before the due date and requested the payout figure. Later that evening, however, Mr Dai sought further details if he extended the loan for a further three months. 2. Mr Dai approached Gemi for finance. Mr Tweedy had recently commenced working for Gemi. On 30 September 2019, Mr Tweedy asked Mr Dai to confirm his asset and liability position, as well as a corporate structure chart. The corporate structure chart showed the plaintiff as owned equally by Mr Dai and Ms Zhu. Obviously, since then, the shareholdings had changed, with Mr Liang now the majority shareholder. Notwithstanding this, Mr Dai replied, attaching a signed version of these documents, "amazingly it is all current and correct." This was obviously untrue. 3. On 30 September 2019, Mr Dai signed a term sheet to refinance the existing second mortgage. The borrower was to be the plaintiff. The guarantors were to be Mr Dai, the builder and Maxmara Trinity. On 1 October 2019, Mr Tweedy provided the executed term sheet to Mr Toltz and instructed him to prepare a loan agreement. This was the first time that Mr Toltz became aware of this proposed transaction. Toltz Lawyers opened a file in respect of the loan, where the firm's client was Gemi 130. 4. Later on 1 October 2019, Mr Tweedy requested Toltz Lawyers to obtain a company search. Toltz Lawyers obliged. On 2 October 2019, Toltz Lawyers provided Gemi with a draft loan agreement for review and comment. Mr Tweedy sought clarification from Toltz Lawyers on the status of pre-sales, where Toltz Lawyers was acting on the sales. Toltz Lawyers provided the requested information and suggested that Mr Tweedy come to their offices to inspect the sales contract "as the files are extremely large." 5. On 10 October 2019, Mr Tweedy approved the transaction documents prepared by Toltz Lawyers. Toltz Lawyers informed Mr Dai that the loan documents had been finalised: Please let me know when it is convenient for you and Julianne to attend our office to sign the documents. I will arrange for Miles Holt to provide independent legal advice. 1. Mr Werry expressed interest in participating in the loan. Mr Cooper instructed Toltz Lawyers to update the transaction documents accordingly. Toltz Lawyers informed Weriton's solicitors that the firm was acting for Gemi on the refinance. Bridge Street Capital appointed Mr Toltz to act on its behalf in relation to the loan, as Gemi 130 had already engaged Mr Toltz to act on its behalf. Summer Lawyers acted for Weriton and Saddleback Mountain Estates on the discharge of the mortgage in respect of the second transaction. 2. On 14 October 2019, Weriton's solicitor emailed Piper Alderman, noting that the loan was due for repayment the next day and providing a payout figure, being some $4.5 million. Piper Alderman forwarded the payout letter to Mr Dai. Toltz Lawyers also emailed Mr Holt: Are you available tomorrow to provide independent legal advice to Adam in respect of a new 2nd mortgage loan from Gemi? 1. Mr Holt agreed to do so. Mr Tweedy emphasised to Toltz Lawyers that Mr Werry required that the loan security documents be correctly signed by the borrower and guarantors, and also required an independent solicitor's certificate. On the morning of 15 October 2019, the loan documents were executed by the borrower with Mr Holt as solicitor. Toltz Lawyers requested Mr Holt to attend again, when Mr Werry required further documents to be executed. Mr Holt made himself available. Toltz Lawyers informed Gemi and Mr Werry, "Adam and Julianne will be coming back to our office this evening to execute the Powers of Attorney and Deed of Release in the presence of an independent solicitor" The additional documents were signed that evening. 2. Toltz Lawyers certified the transaction for Gemi and Bridge Street Capital. Mr Holt rendered an invoice to the plaintiff but, at Mr Dai's request, re-issued the invoice to the builder. I note that Mr Dai gave instructions to re-issue the invoice in February 2020, by which time he had fallen out with Mr Liang. 3. The transaction completed on 16 October 2019. The plaintiff, as borrower, executed a loan agreement with Gemi 130 and Bridge Street Capital. The loan amount was $5,292,543, of which $4,292,543 came from Gemi 130. A General Security Deed was also executed, together with guarantees. The guarantors were the builder, Wallis Island, Maxmara Trinity and Mr Dai. The plaintiff granted a mortgage over the North Rocks property to Gemi 130 and Bridge Street Capital. Mr Dai and Ms Zhu executed the documents. Mr Holt certified the documents. The mortgages were unregistered. A caveat was lodged by Gemi 130 and Bridge Street Capital to protect their interests. 4. Weriton and Saddleback Mountain Estates were repaid their loan, receiving $4,507,617.77. A deed of release was also executed between the builder, Weriton and Saddleback Mountain Estates, guarantors Mr Dai, the plaintiff, Maxmara and JA International and Maxmara Trinity. Toltz Lawyers provided their fee note for acting for the incoming lenders to the plaintiff for payment. Did Liang know about the third disputed transaction? 1. Mr Liang said he was never notified by anyone of this transaction until after the plaintiff commenced these proceedings. He would not have permitted the plaintiff to enter into the transaction and, if he had been made aware of the preceding transactions, he would then have taken steps to dispute the validity of the earlier loans. He and his wife then continued to own several properties and had some $7 million in investment funds at their disposal. 2. Mr Dai agreed that he did not ask Mr Liang to be a guarantor of the loan for the third transaction "because he didn't want to provide … it." Mr Dai said he told Mr Liang that he would be seeking to refinance the loan. He did not provide Mr Liang with a copy of the loan documents but told him that the term of the loan was for six months and told him what the interest rate was, "I told him after everything was done." Whilst Mr Dai did not show Mr Liang the documents before they were signed, "I told him verbally I get the refinance done. … I notified him by sending the caveat and verbally told him what I'm doing." Mr Dai said he thought this would be sufficient as he had previously provided him with a notice of caveat and an explanation of the loan "and he didn't ask for any document." 3. As for the first and second disputed transactions, there is no contemporaneous evidence that Mr Liang was appraised of the proposed transaction or, on completion, provided with some or all of the transaction documents. The finance was sought for purposes other than the North Rocks development, being to pay out an earlier loan which was largely for other projects. Two matters point to the fact that Mr Liang was not aware of the third disputed transaction. First, on 14 October 2019, being the day before the transaction documents were executed, Mr Liang and Mr Dai exchanged WeChat messages, which appear to relate to queries concerning a payment to Yisheng Construction (not to be confused with Yisheng Air Con). No mention was made in this exchange of the impending refinance transaction. 4. Second, NSW Land Registry Services provided the plaintiff with a notice of caveat in respect of the caveat lodged by Gemi and Bridge Street Capital: see [403]. On 12 November 2019, Krystal Liang of the accounts department at Maxmara and JA International provided the Notice of Caveat to Ms Su at NCC Fashion, copied to Mr Dai and Mr Liang. Ms Su enquired, "Is this caveat regarding our purchasers?" Ms Liang replied, "I have no idea." Ms Liang then re-called her initial email. Mr Liang said he did not pay attention to the email or open it as it was sent to Ms Su. The fact that Mr Dai's employee re-called the email suggests that Mr Dai did not want the email to come to Mr Liang's attention, presumably because Mr Liang was not supposed to know about the loan. I find that Mr Liang was unaware of the third disputed transaction. Claim in respect of the secretary 1. The plaintiff contends that the transaction documents were not validly executed by the plaintiff and are void and unenforceable as against it as Ms Zhu was not validly appointed as secretary of the company. Whilst I have found that Ms Zhu was not validly appointed on 8 November 2018, Mr Liang had become aware of her appointment by 28 November 2018 and took no issue with this. I have also found that Mr Liang did not have full knowledge of the material facts which led to Ms Zhu's appointment, such that it cannot be said that he, as a director of the company, ratified his co-director's appointment. Claim against director 1. The plaintiff contends that it received no benefit from the third transaction. Where the transaction was in Mr Dai and the builder's interests, permitting the plaintiff to enter into the transaction in the circumstances was a breach of Mr Dai's statutory and fiduciary duties. But for this breach of duty, the plaintiff would not have entered into the third transaction nor incurred any resulting indebtedness to the lenders. The plaintiff submitted that it received no benefit from this transaction, where the advance was simply used to pay out the lenders on the second transaction. 2. Mr Dai submitted that he spoke to Mr Liang, who agreed that the third transaction was required to refinance for an additional six months. The loan funds were for the benefit of the plaintiff. 3. The circumstances are similar to the first and second disputed transactions. Mr Dai was the sole director of the builder and a director of the plaintiff, where there was a lump sum contract between the two companies. At the time of this loan, there is no suggestion that the plaintiff (or Westpac) was behind in paying the builder's progress claims. In addition, from time to time, Mr Liang provided additional funds, on 3 September 2019 ($210,000) and 11 September 2019 ($100,000). The purpose for which this loan was sought was to pay out the second disputed loan, procured by Mr Dai in breach of his director's duties. Although the builder was the borrower of the loan being paid out, Mr Dai arranged for the plaintiff be the borrower of this loan, secured by a mortgage over the North Rocks property. The plaintiff and its asset was exposed to a liability to repay the loan which was not procured for its benefit. Mr Dai had no authority to enter into the loan transaction without the agreement of fellow director, Mr Liang. Mr Dai did not tell Mr Liang about the proposed loan. 4. In so doing, Mr Dai failed to exercise his powers, and to discharge his duties, as a director of the plaintiff with reasonable care and diligence, as the loan was for the benefit of Mr Dai and his company, the builder, but not the plaintiff. Nor did Mr Dai exercise his powers in good faith in the best interests of the plaintiff and for a proper purpose, but for his own purposes and those of his company, the builder. Mr Dai also improperly used his position as a director of the plaintiff to gain an advantage for himself and the builder, to the detriment of the plaintiff. Mr Dai thereby breached his duties as a director in sections 180, 181 and 182 of the Corporations Act, as well as his fiduciary duties. It also cannot be said that Mr Dai, as a fiduciary, overcame the operation of the "no profit" rule by making a full and frank disclosure of his material interest in the outcome of this transaction; Mr Liang knew nothing of the transaction. It follows that the plaintiff's claim against Mr Dai is proved in respect of the third transaction. I will return to the appropriate compensation, if any, at [468]. Claim against third round lenders 1. In respect of the October 2019 transaction, the plaintiff contends that the documents were executed by Mr Dai and Ms Zhu in circumstances where Ms Zhu had not been validly appointed as secretary, the plaintiff's board of directors had not authorised the company's entry into the transaction and the constitution had not been complied with. In these circumstances, it was said that the finance documents were not validly executed and were void and unenforceable vis a vis the plaintiff. 2. Further, the plaintiff contended that the solicitor's knowledge – of the unauthorised nature of the transaction in which Mr Liang had no involvement, that the solicitor was acting in a position of conflict, and the fact that the transaction did not benefit the plaintiff – was imputed to the lenders via the solicitor. The loan was advanced to the builder and not for the benefit of the plaintiff. The lenders were said to have known or to have been put on inquiry that Mr Dai caused the plaintiff to enter into the transaction other than for the benefit of the plaintiff. In these circumstances, it was said that the finance documents were void or liable to be rescinded vis a vis the plaintiff and had been rescinded by the plaintiff's commencement of these proceedings. 3. Gemi 130 contended that Mr Dai and Ms Zhu were duly appointed according to the records maintained by ASIC. Gemi 130 relied on these records, as it was entitled to do: sections 126 to 129, Corporations Act. The lender did not know or suspect that Ms Zhu was not duly appointed or authorised to execute the documents and was entitled to, and did in fact make, these assumptions. In addition, Gemi 130 relied on the independent advice certificates provided by Mr Holt when advancing the funds to the plaintiff. The plaintiff failed to correct ASIC's register, thereby conferring ostensible authority on Ms Zhu: 183 Eastwood Pty Ltd v Dragon Property Development & Investment Pty Ltd [2023] NSWCA 72 at [137], [140]-[141] per Ward P; Dragon Property Development & Investment Pty Ltd v 183 Eastwood Pty Ltd [2022] NSWSC 910 at [42] and [43]. Gemi 130 obtained company searches and relied on the register. The plaintiff is estopped from contending otherwise. 4. In any event, Gemi 130 contends that equity would not declare the third transaction void where it advanced money on the faith of documents apparently validly executed by the plaintiff and in accordance with a direction signed by a director of the plaintiff. The funds repaid the second round lenders and, as such, benefitted the plaintiff. Through inactivity, the plaintiff acquiesced in the first transaction and by laches is not permitted to unwind a completed transaction. Alternatively, any relief should be conditional on the plaintiff accounting for the benefit received from the first transaction, including the discharge of the plaintiff's indebtedness under the second transaction. 5. Bridge Street Capital took the same position. Further, the funds were used to pay claims of subcontractors in respect of the construction of the North Rocks development, land tax and to discharge the second loan and mortgage such that it could not be said that the builder alone benefited from the second transaction. In those circumstances, Bridge Street Capital was entitled to be subrogated to the rights of Weriton and Saddleback Mountain Estates. The plaintiff was obliged to account for the benefit received from the third transaction. 6. The plaintiff rejoined that the lender did know or suspect that the documents were executed without authority. Further, Mr Holt did not act for the plaintiff but only for Mr Dai, Ms Zhu, Wallis Island and Maxmara Trinity, where there was no resolution by the plaintiff's board of directors to retain him: section 204D, 198A, Corporations Act; clauses 11.1, 11.2 and 12.1 of the plaintiff's constitution). Further, their mutual solicitor had been instructed in February 2017 to ensure that Mr Liang was copied on all emails concerning the plaintiff. Both Mr Dai and Mr Liang had executed the Westpac documentation and no resolution had been provided authorising different arrangements for these documents. The deed of release was executed by Mr Dai without authority. Contrary to the lenders' suggestion, the plaintiff received no benefit from the loan. Nor was the plaintiff estopped where Mr Liang only became aware of Ms Zhu's appointment as secretary on 17 February 2020. 7. I have found that Mr Dai did not have actual authority to enter into the third transaction on behalf of the plaintiff: see [105]-[109]. I have also found that Ms Zhu was not validly appointed as secretary. Although Mr Liang became aware of her appointment and did nothing about it, he cannot be said to have impliedly ratified the decision of his fellow director to make the appointment, where he did not have full knowledge of the material facts as to why she was appointed, or what she had being doing as secretary. 8. As to whether the third round lenders were entitled to make the assumptions in section 129 of the Corporations Act, the question is, again, whether the lenders had "dealings with" the plaintiff. I have found that Mr Dai had authority to communicate, or negotiate, with potential lenders on the plaintiff's behalf at the time of the first disputed transaction in November 2018 and this remained the position in May 2019, when the second disputed transaction was completed. Did this remain the position in October 2019? 9. Nothing had happened in the intervening six months to effect any change in Mr Dai's ability, or apparent authority, to represent the plaintiff in communications or negotiations with potential financiers. Mr Liang does not appear to have taken any steps to check whether the caveat discovered in December 2018 had, in fact, been withdrawn or to obtain a copy of the caveat. Mr Liang has done nothing at all. By his inaction, Mr Liang continued to create an apparent authority in Mr Dai to engage in communications and negotiations with lenders. 10. As such, in dealing with Mr Dai in respect of the third transaction, Gemi 130 and Bridge Street Capital had "dealings with the company" for the purposes of section 128(1) of the Corporations Act. The lenders were entitled to make the assumptions in section 129 in relation to those dealings and the plaintiff is not entitled to assert that any of the assumptions are incorrect. The lenders were entitled to assume that Ms Zhu had been duly appointed as company secretary, with authority to exercise the powers and perform the duties customarily exercised or performed by a company secretary of a company like the plaintiff: section 129(2). While there was, in fact, no resolution of the plaintiff's board of directors authorising the secretary to execute the transaction documents, the lenders were also entitled to assume that the plaintiff's constitution had been complied with: section 129(1). 11. The next question is whether Gemi 130 and Bridge Street Capital "knew or suspected" that the assumptions were incorrect "at the time of the dealings", being actual knowledge or suspicion: section 128(4). The knowledge of the solicitor should not be imputed to their client for the purpose of section 128(4): Correa v Wittingham at [168]. 12. As to what the lenders knew, Mr Tweedy said his primary purpose in obtaining the company searches via the solicitor was to check that the company details and officeholders were properly recorded in the security documentation and to ensure that the security documentation was properly executed. He reviewed the company searches and relied on the information provided in assessing compliance with the conditions precedent for the loan. 13. Mr Tweedy was aware that Rose Ives held 40% of the units in the Trust but understood from the term sheet that neither the company nor Mr Liang were providing security for the loan. He knew nothing about Mr Liang other than what was in the company searches. Mr Tweedy did not contact Mr Liang about the loan. Mr Tweedy said he would ask for the assets and liabilities of all directors of a company if they were providing security or a guarantee, but not otherwise. As Mr Dai was guaranteeing the loan, the focus of Mr Tweedy's due diligence was on Mr Dai. 14. Mr Fleming and Mr Cooper remained unaware of any dispute between Mr Dai and Mr Liang about the North Rocks project or Mr Dai's authority to bind the plaintiff. Had Mr Fleming known of any such dispute, he would have ensured that Mr Liang signed any necessary documents and may not have been willing to permit the Gemi companies to lend. 15. Mr Cooper met Mr Dai when attending a meeting between Mr Dai and Mr Fleming, as an observer. Mr Cooper visited the North Rocks site at least twice to look at the progress of construction. Mr Cooper said he was not actively involved in any commercial due diligence in respect of this loan, "it was a project that was well-known, we'd been a lender on that project previously, and then had some involvement during the period that Mr Werry was the lender … I was also attending some of the project management meetings … and receiving some paperwork for that." He thought Vamico and Gemi's loans were well secured and that Mr Dai was an experienced property developer who had signed guarantees for the facilities. Mr Cooper was unconcerned about the borrower's internal controls. 16. Mr Cooper was aware that there was a passive investor with Mr Dai in the development of the North Rocks site, but initially did not know who the investor was. At some point, Mr Cooper learned from Mr Margi that Mr Liang was that investor; Mr Liang was said to be wealthy. Mr Cooper said he had no reason to believe this or not; that was just what he was told. Mr Cooper never met or spoke to Mr Liang. Mr Cooper was not aware that Mr Liang controlled Rose Ives, which held units in the Trust. Mr Cooper was aware that Mr Liang was not a guarantor of the loan and could not recall exactly why that was the case, "we had dealt with Adam in the project for some time. … Adam as the sponsor … deemed appropriate … that he would put up those properties [and] tie them all together … in the loan." 17. Although the loan was given to the plaintiff and not to Mr Dai's company, Mr Cooper did not consider this unusual for Mr Dai's group to guarantee the loan, nor that Mr Liang and his company were not guarantors. Mr Cooper said it was not necessarily typical for all directors to be guarantors for a loan to a company. Typically, the lender worked with the primary sponsor for the project and identified who the guarantors should be. Guarantors typically included people actively involved in the business. 18. Mr Werry did not undertake any further due diligence on the developer, "For me, the focus was on the quality of the security. … I did know that intimately by that stage." Mr Werry also largely dealt with Gemi in relation to this facility and said he probably had minimal engagement with Mr Dai. 19. There is no evidence that the lenders actually knew or suspected that Mr Dai did not have authority to enter into the transaction, nor knew or suspected that Ms Zhu had not been validly appointed as company secretary. The lenders were entitled to make the assumptions in section 129; the plaintiff is not entitled to set aside the third transaction. Claim against solicitor 1. The plaintiff contends that the solicitor acted for the incoming lenders, Gemi 130 and Bridge Street Capital when it also had an ongoing retainer to act as the plaintiff's solicitor. The plaintiff contends that the solicitor knew that the plaintiff's board of directors had not passed a resolution to authorise entry into the October 2019 transaction nor to authorise Mr Dai and Ms Zhu to execute the finance documents. There was an actual or potential conflict of interest between the interests of the plaintiff and the incoming lenders. The solicitor did not obtain the fully informed consent of the plaintiff to act on behalf of the incoming lenders in relation to the transaction. The solicitor knew that Mr Liang had no involvement in the October 2019 transaction but took no steps to enquire whether Mr Liang was aware of the transaction. The solicitor also knew that the loan was being advanced for the benefit of the builder. 2. In the circumstances, the solicitor is said to have breached its fiduciary duties owed to the plaintiff, where there was a conflict between the plaintiff's interests and those of Gemi 130 and Bridge Street Capital. In particular, the plaintiff had the undrawn portion of the Westpac facility at its disposal, as compared to the more expensive facility provided by these lenders. It was in the lenders' interests to advance the loan and thereby earn interest, fees and charges. Further, the monies advanced did not benefit the plaintiff but the builder. But for the solicitor's breach of duty, the plaintiff would not have entered into the third transaction, nor incurred any resulting indebtedness to the lenders. 3. The solicitor's defence of these allegations is in the same terms as the first transaction, save that independent advice was now said to have been provided to the plaintiff by Mr Holt: see [253], [262]. The solicitor submitted that, objectively assessed, the intention of the parties was that Mr Toltz was not expected to provide any advice to City Garden in relation to the third transaction. There was therefore no duty to advise in relation to this transaction. Nor was there any breach of duty, absent a duty to advise on the matters alleged. 4. I have already found that, as at the time of the first disputed transaction in November 2018, the solicitor acted for the plaintiff under a broad, general and somewhat informal retainer. In the intervening eleven months until the third transaction, the solicitor continued to act for the plaintiff in respect of 'off the plan' sales and, in that capacity, dealt with Mr Werry in respect of the second transaction. 5. In March 2019, when Mr Dai wished to extract himself from the signed term sheet for the second transaction, Mr Toltz recommended that the plaintiff retain Piper Alderman, and Mr Dai did so. Mr Dai continued to call on Mr Toltz for advice when needed. Mr Toltz readily acceded to Mr Dai's request to review legal advice provided by Piper Alderman, notwithstanding that the solicitor was then acting for Gemi Investments in relation to the payout of its loan and in negotiations with Weriton and Saddleback Mountain Estates to underwrite the risk of the second transaction. Mr Toltz discussed the content of Piper Alderman's advice over dinner with Mr Dai, following which Mr Toltz provided Mr Dai with a detailed email to be sent to Piper Alderman. The solicitor accepted in closing submissions that the advice given at the dinner was legal advice, but did not necessarily accept that it was legal advice to the plaintiff, where Mr Dai "had many hats" on the second transaction. That is true, but one of those "hats" was a director of the plaintiff. 6. The fact that the solicitor gave advice over dinner and by a detailed email sent later that evening is consistent with a continuing retainer by the plaintiff "to assist in financing … and incidental matters" in respect of the North Rocks development. I note, however, Mr Toltz' email to Mr Fleming later that evening, "On a final note … I am not acting for Adam on the Werry refinance … following my meeting this evening with Adam I felt inclined to get involved 'behind the scene.' 7. I note also that, in May 2019, when Mr Werry requested a Unitholder's Consent, the plaintiff's broker, Mr Margi, approached Mr Toltz and was apparently told that the clause only applied to guarantees and not borrowings: see [325]. The solicitor also accepted instructions to act for the plaintiff in respect of the acquisition of a site in Ingleburn in August 2019. This does not advance matters, where the task did not relate to the North Rocks development. 8. It will be recalled that the scope of works referred to in the solicitor's initial costs disclosure and costs agreement was "to assist in financing, acquisition of development rights, sale of units and incidental matters relating to the [North Rocks development]." The retainer had not been terminated. By the time of the third transaction, however, the only work being done by the solicitor under that retainer was assisting in the sale of units. That was the only work that the solicitor had performed pursuant to its retainer for some time. In November 2018, the solicitor had chosen to act for the lender on the first transaction (albeit in breach of its fiduciary duty to the plaintiff). In March 2019, the solicitor recommended that the plaintiff retain Piper Alderman in respect of the second transaction, and it did. From March to May 2019, the solicitor acted for Gemi Investments on the payout of the first loan and the underwriting arrangement with the second round lenders. 9. By the third transaction in October 2019, the solicitor was acting for Gemi 130 and, later, Bridge Street Capital, while continuing to act for the plaintiff in respect of 'off the plan' sales, and providing information in respect of those sales to Mr Tweedy. The first and only communique between the solicitor and the plaintiff in respect of the third transaction was on 10 October 2019, when the solicitor simply informed Mr Dai that the loan documents had been finalised and arranged for Mr Holt to provide independent legal advice to Mr Dai and Ms Zhu at Toltz Lawyers' offices. This can be contrasted with the first transaction, where the solicitor was actively assisting the plaintiff in relation to finance in the month leading up to the transaction. 10. On balance, I am satisfied that the solicitor had no ongoing retainer to act for the plaintiff in respect of financing at the time of the third transaction. Whatever the terms of the initial retainer, over time the scope of the retainer had reduced; the solicitor had consistently not acted for the plaintiff in respect of financing, when opportunities arose to do so. The plaintiff's claim against the solicitor in respect of the third transaction fails at the first hurdle, being the existence of the solicitor's retainer. Dai resigns 1. According to Mr Liang, in November 2019, Mr Dai told him that he had lost a case in the District Court of New South Wales and was liable for a judgment of over $500,000 together with costs. Mr Dai asked Mr Liang to lend him $750,000, or else Mr Dai may go bankrupt. Mr Liang said he did not have any spare cash, as all of his money had gone into the North Rocks project. Mr Dai said he would think of another way to resolve this matter but, so as not to let Mr Liang and the plaintiff down, he thought he should resign as a director as soon as possible. 2. Mr Liang said he told Mr Dai to resign. Mr Liang said that he needed to be the director as he had invested everything he had into the project. On 27 November 2019, Mr Dai ceased to be a director and secretary of the plaintiff. SWA provided Mr Dai with the documents to be completed, which Mr Dai forwarded to Mr Liang. The forwarded email explained: (emphasis added) The attachments include: • 484 form – Jian Wei Liang or Lin Zhu please sign • Consent to resign as director and secretary – Adam please sign • Minutes of Meeting – Jian Wei Liang please sign 1. SWA's email reflected the fact that Ms Zhu was a secretary of the plaintiff company. There is no contemporaneous response from Mr Liang, suggesting that this was new information. As I have already found, Mr Liang became aware of Ms Zhu's appointment by 28 November 2018. Removal of secretary 1. On 10 February 2020, a creditor's petition was filed against Mr Dai. One of Mr Fleming's companies lent money to one of Mr Dai's companies to give Mr Dai a month to try to be able to avoid bankruptcy. On 13 February 2020, Mr Dai emailed Mr Liang: I just want to have your formal consent for me to take loan from George (Gemi Investment) for Sylvia personal bankruptcy it will be net around $780,000 (including 550,000 judgment and $220,00 for both legal costs) 1. On 14 February 2020, Mr Dai emailed Mr Liang, copied to Mr Toltz, referring to an earlier email: Just following the email previously that I am now go ahead with Documentation for Gerrard to prepare the loan documents for George loan from Gemi. 1. On 17 February 2020, Mr Toltz sent an email to Mr Liang, copied to Mr Dai, advising that he would draft loan documents, which would include a charge over Mr Dai's units in the Trust. Further: The relevant documents on behalf of the trustee of the City Gardens Trust will be signed by Adam acting with the Company's express or implied authority and acting on behalf of the company (in accordance with section 126 of the Corporations Act). Whether the solicitor was acting for Mr Dai, Gemi or the plaintiff is unclear. 1. Mr Liang replied, "I think I am on behalf of the trustee of the City Gardens Trust." That is, as I read Mr Liang's reply, he did not accept that Mr Dai had the authority suggested by Mr Toltz. It was then that Mr Toltz said he first suspected that there was any tension between Mr Dai and Mr Liang. Mr Toltz replied later that evening: The company is the trustee of the trust. You are the sole director … Adams wife is the sole secretary. Both parties are likely to be shareholders. The company is trustee of a Unit Trust with units held by both parties. 1. Mr Liang said this was the first he knew that Ms Zhu had been appointed company secretary. Mr Liang said he was scared after he saw this email. Mr Toltz seemed to imply that Ms Zhu would be able to sign the loan documents even after Mr Dai had resigned as a director. Mr Liang also became concerned that Mr Toltz appeared to be preferring Mr Dai's interests to those of Mr Liang or the plaintiff. Mr Liang can be forgiven for having this perception. 2. On 18 February 2020, Mr Toltz emailed Mr Liang further, advising that as he had not received a response to his email, "I will arrange for the documents to be prepared and signed by Adam." Mr Liang did not respond to Mr Toltz as he considered that the solicitor was helping Mr Dai. He considered it unreasonable for the solicitor to help Mr Dai to use company assets to borrow money, "it's unreasonable to force me like that." Mr Liang did not agree to Mr Dai using the company asset for him to borrow for a personal matter, "that's his own money matter." Within the hour, forms were lodged with ASIC, changing the plaintiff's registered agent and removing Ms Zhu as secretary. 3. On 20 February 2020, Mr Toltz provided Mr Liang with proposed transaction documents for a loan by Gemi 163 Pty Ltd to Maxmara. Mr Toltz advised that the loan was to Maxmara, to be secured by a guarantee by the plaintiff and a mortgage, presumably over the North Rocks site, to secure the guarantee. Further: (emphasis added) 4. I concluded a resolution of the Unit Trust was an adequate way to manage the obligation of Maxmara to repay the amount secured by the loan. 5. The Loan Agreement will be amended to replace Maxmara as guarantor with City Gardens. 6. Let me know if you have any questions. 7. As mentioned if these documents are acceptable Gemi will accept execution by Adam as the company's agent. It is unclear why Mr Toltz thought Mr Dai remained the company's agent given the results of the company search which his firm had undertaken and Mr Liang's earlier email: see [449]. 1. Mr Liang forwarded the transaction documents to a solicitor. On 21 February 2020, Ms Su of NCC Fashions emailed Mr Toltz, copied to Mr Liang, advising that Mr Liang "will get suggestion from our legal team this afternoon and then get back to you. Please hold below documents for execution." On 25 February 2020, Ms Su informed Mr Toltz, "Victor does not agree with the below loan covenant or agreement. Please do not execute it." 2. On 6 March 2020, Mr Dai and Mr Liang attended the Land Registry Office to lodge the strata plan for the North Rocks development. Mr Liang said he received WeChat messages from Mr Dai, attaching the application form and payment receipt. Mr Liang noted that Ms Zhu had signed the application form as the secretary for the plaintiff. Presumably, the documents were executed before Ms Zhu ceased to be a secretary. Mr Liang said he did not raise the matter with Mr Dai at the time, as title needed to be registered and Mr Liang had already lodged a Form 484 with ASIC to correct the record in respect of Ms Zhu, "there was nothing Adam or Ms Zhu could do to defraud City Garden or others who may deal with them. It will be apparent from my earlier findings that I have not accepted Mr Liang's evidence that he only became aware that Ms Zhu had been appointed as secretary at this time. On 18 March 2020, the deposited plan was registered. 3. On 16 April 2020, a final occupation certificate was issued. Mr Liang sent an email to Toltz Lawyers, which was clearly prepared by a lawyer. Mr Liang advised that he was now the sole director of the plaintiff and the only person authorised to make decisions on behalf of the company. Mr Liang advised that, on settlement of the sale of any lots in the North Rocks development, all sales proceeds would be paid to discharge the first mortgage with Westpac, Toltz Lawyers' costs incurred in relation to the sale, with the balance to be deposited directly to the plaintiff's bank account. 4. On 17 April 2020, Ma & Co Solicitors advised Toltz Lawyers that they were now instructed to act for the plaintiff and provided an authority to receive all files. Information was sought in respect of the caveat lodged on 19 October 2019 by Toltz Lawyers on behalf of Gemi 130 and Bridge Street Capital, "We are further instructed by Victor that he was not aware of any document signed by our Client company to grant a caveatable interest to the alleged caveators of the Caveat. We are also instructed that our Client did not receive any drawdown of loans from any party in or about October 2019 when the Caveat was lodged." It was said to be a serious conflict of interest for Toltz Lawyers to act for the caveators, whilst also acting for the registered proprietor of the North Rocks property. 5. Mr Toltz replied, "Adam Dai has spoken to the current director and was told that the letter was to enquire about the caveat and not to deal with other matters. If this is correct I expect a replacement letter. Perhaps in the replacement letter you may avoid scurrilous allegations." 6. On 20 April 2020, Mr Toltz received no less than six emails from Ma & Co, and also Mr Liang, requesting the delivery up of the files so that settlement of the lot sales could proceed. Mr Toltz steadfastly refused, demanding a response to his email of 17 April 2020. Ma & Co advised that nothing had changed and the firm would not be sending a replacement letter. Oddly, Mr Toltz advised "this office is closed to anyone other than employees." 7. Later that day, a more substantive response followed. Mr Toltz said that he acted for Mr Dai and Ms Zhu and was instructed that the removal of Mr Dai as a director was suggested by Mr Liang "to cover court action" and was a temporary measure, with Mr Dai to be reappointed after the proceedings were concluded. However, Mr Liang had refused to reappoint Mr Dai. Ms Zhu's removal as secretary was said to be without her consent. Mr Toltz's letter, with respect, is not easy to follow. Mr Toltz sought immediate reappointment of Mr Dai and Ms Zhu as director and secretary and maintained that the termination of Toltz Lawyers' retainer required a unanimous resolution of directors after Mr Dai's re-appointment. Mr Toltz suggested that the comments made in respect of the conflict of interest were scurrilous and defamatory. Ma & Co's correspondence was said to be "arrogant, offensive and unprofessional." With respect, these adjectives more aptly applied to Mr Toltz's communique. 8. Ma & Co persisted. On 24 April 2020, having obtained an email from Mr Dai agreeing that the firm was now retained by the plaintiff in respect of the settlement of the North Rocks development, Ma & Co sent a further letter to Toltz Lawyers pressing for delivery up of the files. The firm noted that they held instructions to commence proceedings, in which Mr Toltz would be joined as a defendant. Separately, Ma & Co wrote to Toltz Lawyers as the solicitors for Gemi 130 and Bridge Street Capital, maintaining that Mr Liang had no knowledge of the caveat lodged by these lenders, nor the loan agreement, and sought the lender's consent to the removal of the caveats on the basis that, without admission, the moneys said to be owed to the lenders would be paid into court pending the outcome of proceedings. 9. On 27 April 2020, Piper Alderman replied, now acting for Toltz Lawyers, which acted for Gemi 130 and Bridge Street Capital. As the plaintiff had failed to repay the loan on 15 April 2020, the borrower had irrevocably appointed the lenders as its attorney. In that capacity, the lenders had appointed Toltz Lawyers as the plaintiff's solicitor to act in relation to the pending sales of a number of properties owned by the plaintiff at North Rocks. Toltz Lawyers required its files in order to fulfill those instructions and thus was unable to deliver them up. As such, Ma & Co ought disregard any instructions given by Mr Liang with regard to the sales. This was also said to have the effect that instructions previously given to Ma & Co by the plaintiff were terminated. These proceedings 1. On 29 April 2020, these proceedings were commenced. The defendants were then Mr Dai, Toltz Lawyers, Gemi 130, Bridge Street Capital, the builder, Wallis Island and Maxmara Trinity. Interlocutory relief was sought to restrain Mr Toltz from acting on behalf of the plaintiff and for delivery up of the solicitor's files. Orders were also sought to restrain Gemi 130 and Bridge Street Capital from acting on the third transaction documents of 15 October 2019; their caveat was also sought to be removed on the condition that the plaintiff paid the moneys sought to be secured into Court. As final relief, a declaration was sought that the third transaction documents were void, together with damages. 2. On 1 May 2020, the first of many lot sales were completed, with the proceeds of sale deployed to pay down the Westpac loan. Toltz Lawyers continued to act on the sale of the lots in the North Rocks development. The plaintiff's solicitors proceeded to request files and documents in respect of the various transactions now the subject of these proceedings, including from the solicitors who had given independent advice to Mr Dai and Ms Zhu, being Ms Yang and Mr Holt. 3. In July 2020, the plaintiff filed a statement of claim adding further defendants: Ms Zhu, Gemi Investments, Weriton, Saddleback Mountain Estates, Alice Yang & Associates, Piper Alderman, Mr Holt and Maxmara and JA International. Additional declaratory relief was now sought in respect of the first and second transactions, in particular, that the transaction documents were void ab initio insofar as they related to the plaintiff. Further, a declaration was sought that Ms Zhu was not validly appointed as a secretary of the plaintiff. 4. Since July 2020, Mr Dai had been seeking to transfer 20 units in the Trust from Maxmara Trinity to AUX Real Estate. Mr Liang was not amenable to the transfer. The plaintiff's solicitors communicated repeatedly with Mr Dai, setting out the relevant procedure to transfer units under the Trust Deed and requesting a transfer notice. On 28 July 2020, Mr Dai provided a unit transfer form, executed by Maxmara Trinity and AUX Real Estate. The plaintiff's solicitor advised that the transfer was not valid as it did not comply with the procedure in the Trust Deed; a written transfer notice must first be served on the plaintiff, specifying the units and the price. Mr Dai took issue with this, suggesting that the procedure did not apply where AUX Real Estate was an existing unitholder, to which the plaintiff's solicitors responded that it was not. There the matter lay. 5. On 11 September 2020, the plaintiff's solicitors wrote directly to AUX Real Estate, enquiring whether the transfer had been completed. AUX Real Estate advised that the transfer had been completed on 22 July 2020 and provided the executed transfer form, bearing the signature of Mr Liang certified by Ms Yuan JP on 28 July 2020. Mr Liang did not execute these forms. The plaintiff's solicitor promptly informed AUX Real Estate that the signature of Mr Liang had been forged and the matter had been reported to NSW Police. The units were cancelled accordingly. 6. It was not until 12 October 2020 that Toltz Lawyers provided the plaintiff with access to its files; this was not for want of effort on the part of the plaintiff's solicitors. In June 2021, Maxmara and JA International went into external administration. In July 2021, the builder went into liquidation. In September 2021, receivers and managers were appointed to Maxmara Trinity. In December 2021, Westpac was paid out and its mortgages discharged. 7. In May 2022, the proceedings against Mr Holt were resolved by consent. In June 2022, the proceedings against Ms Yang were also resolved. The proceedings were transferred to the Commercial List. In December 2022, the proceedings against Piper Alderman were resolved. DECLARATORY RELIEF 1. The plaintiff seeks a declaration that Ms Zhu was not validly appointed as the secretary of the company. While the plaintiff has established that Ms Zhu's appointment as secretary on 8 November 2018 was not authorised, it does not necessary follow that a declaration should be made to this effect. The Court may exercise its discretion to refuse relief if the result on the proceedings will be of little practical value: PW Young QC, Declaratory Orders (Butterworths, Second Edition, 1984) at 703; The Dairy Farmers Co-Operative Milk Company Ltd v Commonwealth (1946) 73 CLR 381. 2. Within three weeks of Ms Zhu's appointment, Mr Liang was made aware of the fact. I have found that Mr Liang he did not have full knowledge of the material facts which led to Ms Zhu's appointment, such that it cannot be said that he, as a director of the company, ratified his co-director's appointment. Mr Liang finally removed Ms Zhu in February 2020, when it became apparent that Mr Toltz proposed to have further loan documents executed by Mr Dai and Ms Zhu, even though Mr Liang had made plain that he did not agree to the loan. Overall, I consider that it remains appropriate to make the declaration sought, to record the true position. COMPENSATION FROM DIRECTOR 1. Sections 180 to 182 of the Corporations Act are civil penalty provisions. Section 1317H(1) of the Corporations Act provides: (1) A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if: (a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. 1. Only damage that has "resulted from" the contravention of a civil penalty provision may be compensated under section 1317H. To satisfy this test, it must be shown that the defendant's acts or omissions were so connected with the company's losses that, as a matter of "ordinary common sense and experience" they should be regarded as the cause of those losses: Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC1229 at [7311]-[7312] (per Austin J). Courts have also applied a 'but-for' test to causation: Re Earth Civil Australia Pty Ltd (in liq) [2021] NSWSC 966 at [2248] (per Ward CJ in Eq, as the President then was); Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 at [451] (per Edelman J). However, common law principles as to the duty to mitigate are not directly applicable to claims under section 1317H: Re Earth Civil at [2249]. 2. But for Mr Dai's breach of his statutory duties as a director, the plaintiff would not have entered into the first disputed transaction, nor the second, nor the third. As a consequence of these transactions, the plaintiff variously became liable to repay the loans, either as the named borrower, a guarantor, or having granted a mortgage over the North Rocks property or executed a general security deed. 3. Relevant to the amount of any compensation order is whether the plaintiff benefitted from the loans. The lenders submitted that the plaintiff failed to adduce financial records to demonstrate that it did not require additional funds beyond a Westpac construction facility or to demonstrate the absence of benefit from the disputed loans, and suggested that a Jones v Dunkel inference ought be drawn. However, the plaintiff's books and records were under the control of Mr Dai at the relevant time and were incomplete. In these circumstances, whilst the plaintiff bears the onus of proof, its means to prove what happened in the years in which Mr Dai ran the company was somewhat limited. Mr Dai had greater means to contradict the plaintiff's contentions, having created and been responsible for records at the time. In these circumstances, it may be sufficient for the plaintiff to adduce slight evidence if that is all it has the ability to advance, such that the evidential onus may shift to Mr Dai to adduce evidence to show what he says really happened. 4. Nor do I agree that the onus of proving that the funds were not used for the benefit of the plaintiff necessarily fell on the plaintiff. The fact that the loan funds were provided to the builder and not the plaintiff prima facie indicates that the plaintiff did not receive the benefit of the funds. It was the defendants who contended that, notwithstanding that the funds were provided to the builder, the funds were used for the benefit of the plaintiff. I decline to draw the suggested inference. 5. The funds from the first loan were promptly disbursed by the builder for a variety of purposes, some of which were clearly unrelated to the North Rocks development, while others were probably related to the North Rocks development. The precise portion which benefited the plaintiff is difficult to quantify given the mixing of the loan funds with funds already in the builder's bank account: see [178]-[180]. 6. Whilst it can be said, in a broad sense, that the plaintiff received a benefit from a portion of the first loan, the builder was effectively using a loan advanced to the plaintiff to discharge the builder's contractual obligation to meet building expenses itself, at least in the first instance: see [130]. To the extent that the loan funds were deployed for the North Rocks development, the builder may have issued a progress claim in respect of those amounts and been reimbursed. Whether the builder did so is unknown, given the paucity of detail in the progress claims. 7. For the second loan, the builder received $746,164.02 and disbursed these funds promptly to Arc Steel, Selective Labour, Bingo-March, Yisheng Construction and the builder ($50,000). Presumably, some or most of these expenses related to the North Rocks site. It should not be forgotten, however, that the builder was obliged to pay these expenses under the construction contract. These were not the plaintiff's liabilities. The lender also paid some $391,000 to NSW Revenue for land tax. To this extent, it can be said that the plaintiff received a benefit, although not one which it necessarily asked for. The plaintiff received no benefit from the third loan, which was wholly used to pay out the second loan to the builder. 8. As the first loan was paid out by the second loan, which was paid out by the third loan, a convenient measure of the damage suffered by the plaintiff as a result of Mr Dai's contravention of the civil penalty provisions is the amount now owing to the third round lenders, Gemi 130 and Bridge Street Capital. Section 1317H(1) of the Corporations Act requires that an order for compensation must specify the amount of the compensation. Where the lenders did not adduce evidence as to the amount owing by the plaintiff under these facilities and, in any event, that figure would now be out of date, it is necessary for these lenders to provide this figure in order that an order may be made. The $391,000 paid to NSW Revenue for land tax ought be deducted from this figure, together with interest on the $391,000 from 16 July 2019 on. 9. The first round lender and second round lenders have also incurred costs in defending these proceedings. Whether these lenders intend to seek these costs from the plaintiff under the terms of their respective loan agreements, including on a solicitor and client basis, is not known. If that be the case, then these sums should also be captured in a further compensation order made when the amount of the lenders' costs is known. I have not made orders in this regard, however, as I suspect that Mr Dai will be in no position to pay the first compensation order, let alone a second compensation order. 10. I have also found that Mr Dai breached his fiduciary duties to the plaintiff. Where compensation under section 1317H will provide a remedy, it is not necessary to also consider the plaintiff's claim for equitable compensation. EQUITABLE COMPENSATION FROM SOLICITOR 1. The plaintiff contended that, but for the solicitor's breaches of fiduciary duty, the plaintiff would not have entered into the first transaction, nor the second or third transactions required to refinance the first transaction, nor incurred any resulting indebtedness to the lenders. Further, although the solicitor had been asked on 8 February 2017 to copy all emails regarding the plaintiff to Mr Liang, he did not do so. If the solicitor had complied with this instruction, Mr Liang would have told the solicitor that he would not approve the plaintiff obtaining high interest loans. 2. The solicitor submitted that causation had not been established: Maguire and Another v Makaronis and Another [1997] HCA 23; (1997) 188 CLR 449 at 467 (per Brennan CJ, Gaudron, McHugh and Gummow J); CLGC Pty Limited v Zhang [2021] NSWSC 946 at [196]. The plaintiff would still have proceeded with the transactions but for the alleged conflict because it received independent legal advice from Ms Yang, Piper Alderman and Mr Holt and no complaint was made about the advice so provided. But for the asserted conflict, it was said that Mr Dai's decision to cause the plaintiff to enter into the transactions would not have changed. (This is no doubt true; the problem is that Mr Dai's decision was without authority and in breach of his duties as a director). The plaintiff needed the transactions to occur; it was said to be for the plaintiff to establish otherwise. 3. The solicitor submitted that the Court would not be satisfied that Mr Liang could or would have come to the plaintiff's aid with the required funds. The Court would treat any such hindsight evidence with caution: Chappell v Hart (1998) 195 CLR 232; [1998] HCA 55 at [32] (per McHugh J); Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 at [24]-[25] (per McHugh J). It was submitted that the Court would be satisfied that Mr Liang had cashflow issues at the time. (There is no evidence of this, beyond Mr Dai's assertion, on which I attach no weight). The plaintiff would have been required to still proceed with the first transaction (and subsequent second and third transactions) even but for the alleged conflict, as there would have been no other way for the plaintiff to obtain the funds it needed. (This submission is based on the premise that the plaintiff received the benefit of the loan funds which, by and large, it did not). 4. Even if Mr Liang had provided the necessary funds, the solicitor submitted that the plaintiff would be in no better position where Mr Liang provided funds by way of loans. The interest rate proposed to be charged on the Tempe Development loan was between 15-17%. (I note that the proposed Tempe Developments loan agreement was put forward by Mr Toltz on information provided by Mr Dai; whether the interest rate in the proposed agreement was one which Mr Liang had requested is unknown but seems unlikely). There was said to be no evidence that Mr Liang would have provided the funds to the plaintiff at a lower rate than Gemi Investment and at what rate. (Again, this submission is based on the premise that the plaintiff had the benefit of the loan funds when, by and large, it did not). 5. In the alternative, the solicitor submitted that any loss should be limited so as not to include the default interest rate amounts that had accrued over the years of litigation. The plaintiff was said to have failed to mitigate its loss by paying the lenders what they were owed. Otherwise, the interest bill was said to be too remote such that there is no causal link between the solicitor's alleged breach and the loss complained of. Causation 1. The principles of causation in relation to a claim for equitable compensation for breach of fiduciary duty were summarised in ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2015) 224 FCR 1 at [1090]: … the principles are distinct. The court must identify "criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty": Maguire v Makaronis (1997) 188 CLR 449 at 473 and O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 276–277. What constitutes an adequate or sufficient connection is not predetermined or formulaic. Each case requires a precise focus on both the nature of the obligations and the nature of the breach: Beach Petroleum at 90 [431] and Maguire at 472–473. Any question of "direct" or "immediate cause" is a red herring. The required focus is the nature of the obligations and the nature of the breach because different obligations and breaches may raise different criteria that supply the necessary connection. So, for example, "several matters appropriately will be taken into account when there falls for consideration, in an action against the fiduciary arising other than out of breach of trust, the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty" which may not be relevant in breach of trust cases (emphasis added): Maguire at 473. 1. That is, questions of causation of loss said to arise from breach of fiduciary obligations are to be determined in a different way from breach of common law obligations. Where a defendant breaches an equitable duty and the plaintiff claims to have suffered loss, the criteria for a sufficient connection, or causation, between breach of duty and the loss is not susceptible to the formulation of a single test but instead depends on a variety of matters, including the nature of the equitable duty breached, the remedies sought, the identity of the fiduciary and the purpose of the particular rule underlying the equitable duty: A Abadee et al., Professional Liability in Australia (Thomson Reuters, 4th ed, 2023) at [1.1785]. Each case requires a precise focus on both the nature of the equitable obligations and the nature of the breach: Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at [430]-[431]. 2. ABN Amro v Bathurst Regional Council is a useful illustration of the application of these principles where a fiduciary acted in a position of conflict, in that case, being a conflict between the fiduciary's duty to the beneficiary and the fiduciary's own interest (a 'conflict of duty and interest'). An investment advisor purchased financial instruments, which it sold to its clients. The investment advisor held some $45 million of the instruments and was concerned that it may end up holding inventory with no available purchaser. The investment advisor's concerns as to its own financial position gave rise to a conflict of interest. Whilst the clients knew that the investment advisor would profit from the sale of the instruments, the clients were not told of the commercial pressures faced by the investment advisor, which made the sale of the instruments commercially imperative. The investment advisor did not disclose this conflict so as to permit the clients to make a free and fully informed decision on whether to proceed: at [1078]. The investment advisor's duty was not to be in a position of conflict of duty and interest and it breached that fiduciary duty: at [1080]. 3. The investment advisor made a gain from its dealings in the financial instruments, while the clients lost a substantial part of their investment: at [1089]. The adequate or sufficient connection between the breach of fiduciary duty and equitable compensation was the non-disclosure of the material facts which the clients were entitled to know in connection with their purchase of the instruments and, in breach of which, the investment advisor sold the instruments to the clients: at [1093]. Given the nature of the fiduciary obligation and the nature of the breach, it was not relevant to enquire whether the clients would have given informed consent; the consequences of non-disclosure of material facts are not discoverable, where justice and policy are against their investigation: at [1096] citing Furs Ltd v Tomkies (1936) 54 CLR 583 at 592. Further, the Court was entitled, with the full benefit of hindsight, not to speculate against the interests of the clients in respect of whom there was a breach of fiduciary duty. The clients were only obliged to establish an adequate or sufficient connection between the equitable compensation claim and the breach of fiduciary duty. Having discharged that obligation, it was for the investment advisor to establish that, as a matter of fact, the clients would have purchased the instruments even if the relevant disclosure had been made: at [1097]. 4. Elsewhere, it has been said that in claims for compensation for loss caused by breach of a fiduciary obligation, the plaintiff will have to establish that they would have acted differently had the fiduciary complied with its obligations: Jackson & Powell Professional Liability (Thomson Reuters, 9th ed, 2022) at 3-019 to 3-020 citing Rama v Millar [1996] 1 NZLR 257 at 260 (per Lord Nicholls). For example, in CLGC Pty Limited v Zhang [2021] NSWSC 946, the plaintiffs sued their solicitor to whom they had also provided loans. The claim failed where their case failed to identify the information which the solicitor should have disclosed and failed to prove that the disclosure of such information would have made a difference in the decision to proceed with the loan: at [196] (per Parker J). 5. It is not necessary to reconcile these authorities here, where it may readily be seen that the plaintiff would have acted differently had the fiduciary complied with its obligations. Had Mr Toltz contacted Mr Liang – either in the course of obtaining fully informed consent to act for Gemi Investments or, failing that, in discharging the solicitor's obligation to act in the plaintiff's best interests in the first transaction – then Mr Liang would have become aware of the proposed transaction. That would have been the end of the matter. I am satisfied that Mr Liang would not have agreed to the first transaction going ahead, as the purpose for which the loan was sought was predominantly the builder's Baulkham Hills development. (Ultimately, of course, Mr Dai did not use the loan funds for that purpose but for the builder's working capital.) There was no reason why Mr Liang would, or should, have agreed that the plaintiff should obtain a loan, secured over the North Rocks property, for this purpose. To the extent that the North Rocks development – as opposed to Mr Dai and his business – needed further funds, Mr Liang had been a steady source of such funds. It was in Mr Liang's interests to get the development to completion so that the townhouses could be sold and he could see any return on his significant investment. 6. Assessing compensation where there was a conflict of 'duty and duty' may be difficult, as Professor Finn observed in Fiduciary Obligations at [591]: The very obvious difficulty which can arise in claims for damages or compensation is that the fiduciary's breach of duty will often be simply a technical one with the consequence that the aggrieved beneficiary will not be able to show that he has suffered more than nominal damage. In many cases, and particularly where the conflict lies only in an undisclosed double employment, the aggrieved beneficiary's position would often not be one bit different had he in fact had the advantage of a fiduciary with undivided loyalties. 1. There is no such difficulty here. Because of the solicitor's breach of duty to avoid conflicting interests, the solicitor failed to ascertain and act in the plaintiff's best interests with respect to the first transaction. Had the solicitor discharged its obligation to avoid conflicts, it would have taken the steps necessary to ascertain that where the plaintiff's interests lay, in particular, given that there was a disconformity between the borrower and the recipient of the loan funds. The solicitor failed to ensure that the plaintiff, as opposed to Mr Dai, wished to enter into the transaction. 2. It is necessary to consider the implications of the independent solicitor on the issue of causation, noting that there is no translation into this field of discourse of the doctrine of novus actus interveniens: Maguire v Makaronis at 470. 3. On the first transaction, Mr Dai and Ms Zhu declared that they had each received independent legal advice from Ms Yang. It is not entirely clear who Ms Yang's client was. Mr Dai and Ms Zhu declared that they had received independent legal advice from Ms Yang in respect of their personal guarantees given in support of the loan. Mr Dai and Ms Zhu also signed a "Declaration by Borrower," which noted their offices of director and secretary of the plaintiff and that they had received independent legal advice regarding the loan and security documents. Whether the advice was to them as director and secretary and their obligations as such, or whether the advice was given to the plaintiff, is not clear. 4. Beyond the transaction documents and certificates, there is no evidence as to how Ms Yang went about her job, what she was told, or the advice she gave. Where Ms Yang appears to have been brought in at short notice and rendered no fees, it seems unlikely that any substantive advice was given in respect of the proposed transaction beyond the import of documents to be executed. If Ms Yang's client included the plaintiff, then it is unlikely that Ms Yang received comprehensive or accurate instructions as to Mr Dai and Ms Zhu's authority to execute the transaction documents on behalf of the plaintiff, where those instructions came from the couple. Nor did Ms Yang seek to clarify any instructions in respect of the plaintiff by contacting the other director, Mr Liang. 5. Independent advice must be "meaningful" advice enabling the person advised to make an independent, intelligent choice concerning the transaction: Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 at 36 (per Street J); Rahme at [106]. While an independent solicitor may explain the effect of the documents to be signed, the advice needed may be whether the transaction should be entered into at all: Bester at 33–5. The problem here was that the persons to whom Ms Yang was giving the advice were unauthorised. It did not really matter how comprehensive her advice was; Mr Dai and Ms Zhu were going to execute the documents come what may in order to obtain working capital for the builder. 6. And why was the plaintiff being 'signed up' with Ms Yang to a loan that was not in its best interests? Because its longstanding solicitor, who was reasonably knowledgeable about the plaintiff's officeholders and corporate history, had decided to act for the lender on the transaction instead. This was why the plaintiff – if it was the plaintiff being advised by Ms Yang – was receiving advice shortly before completion of the transaction from a solicitor, who probably knew very little about the company or the transaction. I do not see the independent solicitor as 'breaking the chain of causation' between the solicitor's breach of fiduciary duty and the consequences which followed for the plaintiff. Compensation 1. The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation: Nocton v Lord Ashburton [1914] AC 932 at 952 (per Viscount Haldane LC); Hill v Rose [1990] VR 129 at 144 (per Tadgell J); O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272 (per Spigelman CJ); Target Holdings Ltd v Redferns [1996] AC 421 at 432 (per Lord Browne-Wilkinson). 2. While common law considerations of remoteness and foreseeability are generally irrelevant to remedies for breach of fiduciary duty, in assessing compensation, the courts apply common sense views as to what loss resulted from the breach and so falls to be compensated: Canson Enterprises Ltd V Boughton & Co (1991) 85 DLR (4th) 129 at 163, followed in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35]; Jackson & Powell Professional Liability at 3-019 to 3-020 citing Rama v Millar [1996] 1 NZLR 257 at 260 (per Lord Nicholls); Swindle v Harrison (1997) 4 All ER 705 at 733 (per Mummery LJ); Target Holdings Ltd v Redferns [1996] AC 421 at 439. 3. The amount of compensation is to be assessed at the time of trial, with the full benefit of hindsight and common sense, not at the date of breach: O'Halloran at 273, 276. A duty to mitigate is not relevant to equitable compensation: Re Earth Civil at [2246]; following Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [86]-[87] (per McHugh, Gummow, Hayne and Callinan JJ), at [171]-[173] (per Kirby J). 4. I accept that, but for the solicitor's breach of fiduciary duty, the plaintiff would not have entered into the first transaction: see [494]. The loss which resulted from the breach was the plaintiff's indebtedness to the lender, which was paid out and became an indebtedness to the second round lenders, which was paid out and became an indebtedness to the third round lenders. 5. While a duty to mitigate is not relevant to equitable compensation, I do not accept that the plaintiff failed to act reasonably when it did not repay the loans. It is not entirely clear how the plaintiff was supposed to do this, and with what funds. I do not think, however, that the amount of compensation is the whole of the plaintiff's indebtedness to the third round lenders. This is because the loan advanced by the second round lenders not only paid out the first round lender but advanced additional funds. The plaintiff did not press its claim for breach of fiduciary duty against the solicitor in respect of the second transaction. I do not consider that the 'uplift' in the second loan, beyond paying out the first loan, resulted from the solicitor's breach of fiduciary duty on the first transaction and does not fall to be compensated. 6. Although Weriton placed its solicitor in funds of $4.2 million to complete the second transaction, not all of these funds were ultimately advanced. Surplus funds of $536,757.82 were returned to the lender, such that $3,663,242.22 was advanced. Of this, the first lender was paid out in the amount of $2,355,086.66. Some $391,000 was paid to NSW Revenue for land tax, which benefitted the plaintiff. The remaining $917,155.60 represents an increase in the plaintiff's indebtedness from the first transaction. This accounts for 25% of the loans advanced in the second transaction. Where the third transaction simply refinanced the second transaction, I consider that an appropriate measure of compensation is 75% of the current indebtedness of the plaintiff to the third round lenders. Apportionable claim 1. The solicitor contended that the plaintiff's claim was apportionable for the purposes of Part 4 of the Civil Liability Act 2002 (NSW) and that Mr Dai, Ms Zhu, Piper Alderman, Alice Yang & Associates, Ms Yang and Mr Holt were concurrent wrongdoers. Each of Ms Yang, Piper Alderman and Mr Holt were retained by the plaintiff to act in relation to the first, second and third transactions respectively, and to provide advice with reasonable care and skill. Each failed to provide appropriate advice or obtain proper authority from the plaintiff to act. The plaintiff relied on their advice and entered into the transactions in question, suffering loss. 2. An apportionable claim is "a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care": section 34(1), Civil Liability Act. Although an action for common law damages is conceptually distinct from equitable compensation, 'damages' in the Civil Liability Act includes any form of monetary compensation: George v Webb [2011] NSWSC 1608 at [312] (per Ward CJ in Eq). It follows that an action for equitable compensation arising from a breach of fiduciary duties may be treated as an action for damages for the purposes of section 34(1). 3. What is more difficult is whether the claim against the solicitor in this case can be regarded as a claim 'arising from a failure to take reasonable care.' In Reinhold v New South Wales Lotteries Corporation (No 2) [2008] NSWSC 187, Barrett J expressed the view that the requirement for an action to be 'arising from a failure to take reasonable care' would be made out where if, at the end of the trial, the evidence warrants a finding to that effect and regardless of the absence of any plea of negligence or a failure to take reasonable care: at [30]. In Perpetual Trustee Co Ltd v CTC Group Ltd (No 2) [2013] NSWCA 58, Macfarlan JA disagreed with Barrett J's reasoning in Reinhold, suggesting that section 34(1)(a) required the failure to exercise reasonable care to be an element of the cause of action brought against the defendant: at [22]-[23]. However, Macfarlan JA's views did not form the ratio of that case, as Barrett JA disagreed (at [37]-[38]) and Meagher JA chose not to express a view on the matter (at [36]). In Rahme v Benjamin Khoury Pty Ltd [2019] NSWCA 211; (2019) 100 NSWLR 550, however, the Court of Appeal adopted Macfarlan JA's approach: at [135] (per Macfarlan JA, Bathurst CJ and McCallum JA agreeing). 4. It follows from Rahme that, for section 34(1) of the Civil Liability Act to be engaged, the failure to exercise reasonable care must be an element of the cause of action pleaded against the defendant. In the present case, the claim brought against the solicitor is for breach of fiduciary duty by acting in a position of conflict. The failure to exercise reasonable care is not an element of that cause of action. Thus, notwithstanding any factual findings of carelessness made against the solicitor, it cannot be said that the cause of action against it is one that arises from a failure to exercise reasonable care for the purpose of section 34(1) of the Civil Liability Act. Accordingly, the proportionate liability regime under Part 4 of the Civil Liability Act does not apply to the claim brought against the solicitor. Section 5O 1. The solicitor contended that it had acted in a manner widely accepted in Australia by peer professional opinion as competent practice and thus was not liable for any loss: section 5O, Civil Liability Act. Section 5O provides a defence to 'liability in negligence,' where 'negligence' is defined as 'failure to exercise reasonable care': section 5. 2. Section 5O falls within Part 1A of the Civil Liability Act. Section 5A of the Civil Liability Act provides that Part 1A will apply to 'any claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise' (emphasis added). Accordingly, a similar question arises as to whether Part 1A of the Civil Liability Act applies to a cause of action for breach of a fiduciary duty to avoid conflicts, in which a failure to exercise reasonable care is not an element. 3. Different approaches have been taken to this question: Gales Holdings Pty Ltd v Tweedy Shire Council [2011] NSWSC 1128 (per Bergin CJ in Eq) at [346] cf Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 (per Leeming JA) at [40]. It is unnecessary to decide this as there is no evidence to suggest that the solicitor acted in a manner widely accepted in Australia as competent practice. Nor do I accept that it did. As the lenders put it, "it may be said that some aspects of Mr Toltz's conduct did not bespeak optimal practice." Statutory scheme 1. The solicitor participated in the Law Society of New South Wales professional standards scheme for the 2018/19 year (from 22 November 2018 to 21 November 2019) and the 2019/20 year. As such, any liability to the plaintiff was said to be limited to $1.5 million. A discretionary higher liability limit of $15 million applied for "Class of case: Property related matters/Transaction Type: All property related matters." 2. Section 28 of the Professional Standards Act 1994 (NSW) provides: 28 Limit of occupational liability by schemes (1) To the extent provided by this Act and the provisions of the scheme, a scheme limits the occupational liability, in respect of a cause of action founded on an act or omission occurring during the period when the scheme is in force, of any person to whom the scheme applied at the time when the act or omission occurred. (2) The applicable limitation of liability is the limitation specified by the scheme as in force at the time at which the act or omission giving rise to the cause of action concerned occurred. 1. The Law Society of New South Wales Professional Standards Scheme commenced on 22 November 2018. The solicitor, being Gerrard Toltz Pty Ltd, was a member of that scheme. Mr Toltz was also a member of an earlier professional standards scheme, but he is not the defendant in these proceedings. 2. The Scheme limits the civil liability (arising in tort, contract or otherwise) of a participating member for damages arising from a single cause of action founded on an act or omission in relation to the provision of legal services to the extent that those damages exceed a monetary ceiling specified in clause 4.4: clause 4.1, The Law Society of New South Wales Professional Standard Scheme; section 4(1), Professional Standards Act 1994. If a member of the scheme is able to satisfy the Court that they have the benefit of an insurance policy insuring them against the liability to which the cause of action relates, and the amount payable under that policy is not less than the amount of the monetary ceiling, then the member is "not liable for damages in relation to that cause of action above the amount of that monetary ceiling": clause 4.2. 3. Clause 4.4 provides that the monetary ceiling applicable "under the Scheme at the Relevant Time" is to be determined according to a table. Relevantly, Class 1, where members "were at the Relevant Time in a Law Practice consisting of up to and including 20 Principals and where the Law Practice generates total annual fee income for the financial year at the Relevant Time up to and including $10m," a monetary ceiling of $1.5 million applies. "Relevant Time" means, when referring to a cause of action founded on an act or omission, the time of that act or omission occurring: clause 1.2. 4. Here, the act or omission was the solicitor's breach of fiduciary duty in acting for the lenders on the first transaction. Where the first transaction completed on 14 November 2018, the breach of fiduciary duty occurred before the commencement of the Scheme. As such, the monetary ceiling does not apply to the cause of action brought against the member founded on that act or omission. ORDERS 1. The plaintiff's claims against the lenders have failed. Thus, it is not necessary to consider the lenders' cross claims. For these reasons, I make the following orders: 1. DECLARE that the eighth defendant was not validly appointed as the secretary of the plaintiff. 2. NOTE that Court intends to make a compensation order against the first defendant under section 1317H(1) of the Corporations Act 2001 (Cth) for any amount owing by the plaintiff to the third and fourth defendants. 3. NOTE that Court intends to enter judgment against the second defendant for equitable compensation in an amount being 75% of the amount owing by the plaintiff to the third and fourth defendants. 4. DIRECT the third and fourth defendants, within 7 days, to file and serve an affidavit or Dobbs' certificate setting out the balance owing by the plaintiff to the defendants. 5. DIRECT the first and second defendants, within 14 days, to file and serve any affidavit or submissions in respect of the affidavit or Dobbs' certificate served in accordance with Order 4. 6. DIRECT the parties to confer in respect of costs orders and, within 7 days, provide the Court with short minutes of order and, to the extent such orders are not agreed, submissions (limited to 3 pages) in support of the costs order sought by that party. 7. NOTE that the Court will make a compensation order, enter judgment for equitable compensation and make costs orders on the papers, unless any party seeks a further hearing in respect of these matters. 8. Otherwise dismiss the Summons and Cross Claims. 9. DIRECT the parties to notify any errors or omissions within 7 days. ********** 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: 05 December 2023