Supreme Court New South Wales Medium Neutral Citation: In the matter of Elsmore Resources Ltd [2016] NSWSC 856 Hearing dates: 12, 13, 17 and 19 May 2016 Decision date: 23 June 2016 Jurisdiction: Equity - Corporations List Before: Black J Decision: The Court holds that the Plaintiff is entitled to judgment against the Third Defendant in the amount of the Plaintiff's actual loss together with any applicable interest. The parties to bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 14 days, and in the event of any disagreement, their respective draft minutes of order and short submissions as to the differences between them. Catchwords: Contracts — Application of Contracts Review Act 1980 (NSW) — General contractual principles – where a settlement agreement was reached which required the defendant to guarantee payments by others to the plaintiff – where the potential liability of the defendant under its guarantee was significantly greater than the plaintiff's actual loss – where the defendant contended that the agreement should be set aside under the Contracts Review Act – whether section 6(2) applies to exclude the application of the Contracts Review Act in circumstances that the relevant business was carried on by a company as opposed to the defendant who entered into the settlement agreement – whether the agreement should be set aside or varied under the Contracts Review Act – whether the contract fails for lack of consideration. TRADE PRACTICES – Misleading or deceptive conduct claims under s 18 of the Australian Consumer Law – where a settlement agreement was reached which required the defendant to guarantee payments by others to the plaintiff – where one of the persons whose liability the defendant guaranteed had previously failed to make promised payments to the plaintiff – where the defendant contended that failure of plaintiff to disclose the previous failures by that person to make payments to the plaintiff amounted to misleading and deceptive conduct under s 18 of the Australian Consumer Law – whether misleading or deceptive conduct claim is established. EQUITY - general principles - innocent misrepresentation – where defendant sought to set aside settlement agreement reached with the plaintiff on basis that the provisions of the settlement agreement misrepresented the amount of the plaintiff's loss – whether innocent misrepresentation claim is established. EQUITY — Second limb of Barnes v Addy – where there was an initial public offering and the share subscription funds of investors were deposited to a bank account controlled by the defendant – where payments were later made out of that bank account in breach of trust – where plaintiff contended that the defendant was liable for knowing assistance in breach of trust – whether the relevant breach of trust was dishonest and fraudulent in character – whether knowing assistance claim is established. Legislation Cited: - Australian Consumer Law, ss 18 and 243 - Australian Securities and Investments Commission Act 2001 (Cth) - Contracts Review Act 1980 (NSW), ss 6, 7, 9 - Corporations Act 2001 (Cth), ss 722, 723 - Evidence Act 1995 (NSW), s 136 - Fair Trading Act 1987 (NSW), s 42 - Trade Practices Act 1974 (Cth), s 52 Cases Cited: - Agip Africa (Ltd) v Jackson [1990] Ch 265 - Agip Africa (Ltd) v Jackson [1991] Ch 547 - Attwells v Marsden [2011] NSWSC 38 - Australian Bank Ltd v Stokes (1985) 3 NSWLR 175 - Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553 - Bahr v Nicolay [No 2] [1988] HCA 16; (1988) 164 CLR 604 - Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 - Baltic Shipping Company, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 - Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513 - Betfair Pty Ltd v Racing New South Wales [2010] FCAFC 133; (2010) 189 FCR 356 - Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 - Chen v Song [2005] NSWSC 19; (2005) ANZ ConvR 130 - Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 - Crane Distribution Ltd v Yang [2016] NSWSC 620 - Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608; (1993) ATPR 41-203 - Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 - Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 - Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81 - Ford v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; (2009) 75 NSWLR 42 - G8 Communications Ltd [2016] FCA 297 - Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609 - Jones v Dunkel (1959) 101 CLR 298 - JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20; (2016) 329 ALR 625 - Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 62 - Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205 - Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 - L'Estrange v F Graucob Ltd [1934] 2 KB 394 - Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 - Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357 - OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 - Provident Capital Ltd v Papa [2013] NSWCA 36; (2013) 84 NSWLR 231 - Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [2014] FCAFC 70; (2014) 222 FCR 13 - Raupach v Macdonald [2010] NSWSC 1326 - Re Lehman Brothers International (Europe) (in admin) [2010] EWCA Civ 917 - Re Lehman Brothers International (Europe) (in admin) [2012] UKSC 6; [2012] 3 All ER 1 - Re MF Global Australia Ltd (in liq) [2012] NSWSC 994 - Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 - Sino Iron Pty Ltd v Palmer (No 3) [2015] QSC 94 - Spina v Permanent Custodians Ltd [2009] NSWCA 206 - Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 - Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 - Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 - Vitek v Taheri [2013] NSWSC 589 - West v AGC (Advances) Ltd (1986) 5 NSWLR 610 - Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1; 89 ACSR 1 - White v Wills [2014] NSWSC 1160 - Wilton v Farnworth (1948) 76 CLR 646 - Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97; 111 ALR 649 Texts Cited: - N Seddon et al, Cheshire and Fifoot Law of Contract (10th Australian ed 2012, LexisNexis Butterworths) - JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed 2006, LexisNexis Butterworths) - W Gummow, "Knowing Assistance" (2013) 87 Australian Law Journal 311 Category: Principal judgment Parties: Elsmore Resources Ltd (Plaintiff) Ashley Grant Howard (First Defendant) Periwinkle Investments Pty Ltd (Second Defendant) Harry Fung (Third Defendant) HF Global Corporate Financial Solutions Pty Ltd (Fourth Defendant) Representation: Counsel: E Cox (Plaintiff) D Hand (Third Defendant) Solicitors: Norton White (Plaintiff) Stevens Vuavan (Third Defendant) File Number(s): 2014/57738 Judgment The nature of the proceedings 1. The Plaintiff, Elsmore Resources Limited ("Elsmore") brought these proceedings against Mr Ashley Howard, Periwinkle Investments Pty Ltd ("Periwinkle"), Mr Harry Fung and HF Global Corporate Financial Solutions Pty Ltd ("HF Global"), broadly claiming an amount due under a settlement agreement, or alternatively compensation for breach of trust. Elsmore is a mining and exploration company and its directors are Mr John Gaffney and Mr Joseph Chung. Prior to December 2013, Elsmore was unlisted and it sought to raise capital and list on the Australian Securities Exchange Limited ("ASX") by an initial public offering. The Third Defendant, Mr Fung was and is the sole director and company secretary of the Second Defendant, Periwinkle. On 12 May 2014, summary judgment was entered against Mr Howard, Periwinkle and HF Global in the amount of $1,875,568 and this hearing proceeded only against Mr Fung. Affidavits and assessment of credit 1. Elsmore relied on several affidavits of its director, Mr Chung. Mr Chung's first affidavit dated 24 February 2014 referred to the listing process in respect of Elsmore including the issue of its 4th replacement prospectus dated 19 December 2013 and its listing on ASX on 23 December 2013. Mr Chung gave evidence, without objection (Chung 24.2.14 [16]) that: "The subscribers were required to deposit subscription monies into accounts held by or on behalf of [Elsmore]. If the listing did not eventuate, the subscribers' monies would have to be returned to them. If the listing did eventuate, as was the case, the subscribers would be issued shares in accordance with their subscription and [Elsmore] would be entitled to use the subscription monies for the purposes outlined above and contained in the 4th Replacement Prospectus." Mr Chung's evidence in this respect reflected a misunderstanding of the relevant statutory provisions, to which I will refer below. Mr Chung's evidence (led with a limiting order under s 136 of the Evidence Act 1995 (NSW) as limited to his understanding) was also that subscription monies totalling $2,209,000 including interest received by Elsmore had ended up being held in an account under the control of Periwinkle and Mr Fung and, after the listing, Periwinkle did not return those monies (Chung 24.2.14 [17]–[18]). That evidence was inaccurate as to the amount that had been raised by Elsmore by share subscriptions, which was substantially less as I will note below. I will also address other aspects of this affidavit in dealing with the chronology of events below. 1. A second affidavit of Mr Chung dated 10 March 2014 referred to a draft affidavit of Mr Howard, which was not read in these proceedings. I will also address Mr Chung's fifth affidavit dated 29 May 2014 in dealing with the chronology of events below. (Mr Chung's third and fourth affidavits dated 17 April and 10 May 2014 were not read.) 2. Elsmore also relies on further affidavits of its directors, Mr Gaffney and Mr Chung each dated 11 May 2016, which in identical terms assert their understanding and belief, at the time of a settlement meeting on 11 March 2014, that Elsmore had raised $2,209,000 in share subscriber fees and that those monies were held by Mr Howard or Periwinkle. Mr Chung also refers to a later meeting on 29 May 2014 with Mr Howard and Mr Fung and Messrs Chung and Gaffney also refer to the production of bank statements in response to subpoenas issued by the Court to St George Bank and the Bank of Melbourne which led them to become aware that Elsmore "may not have" (and, I interpolate, had not) raised $2,209,000 from share subscribers. Mr Chung also refers to his having attended the examination of Mr Fung before Brereton J on 2 June 2014, and to that examination also having indicated that Elsmore "may not have" (and, I again interpolate, had not) raised that amount. 3. Mr Chung was cross-examined at some length as to the fact that he had largely not made direct contact with Mr Fung, and dealt primarily with Mr Howard and an adviser to Elsmore, Mr Kerridge. While Mr Chung accepted that proposition, it does not seem to me to undermine the basis on which Elsmore puts its case. Mr Chung was generally a credible witness, who gave an honest account of the steps that he took, and failed to take, in respect of the transfer of funds from Elsmore to Periwinkle. 4. Elsmore also relied on the affidavit of its solicitor, Mr Cecil dated 11 July 2014, which dealt with events prior to and at the settlement meeting held on 11 March 2014, following which the handwritten terms of settlement ("Handwritten Terms") that are in issue in these proceedings were executed. Elsmore also relies on Mr Cecil's further affidavit dated 11 May 2016 which referred to events preceding the settlement meeting on 11 March 2014; to his instruction and belief, at the time of the settlement meeting, that Elsmore had raised $2,209,000 in share subscriptions and that those monies were held by Mr Howard or Periwinkle; and to the conduct of the settlement meeting. Mr Cecil also refers to the subsequent issue of subpoenas to St George Bank and the Bank of Melbourne after Mr Howard had defaulted in respect of the settlement, and to it then having become apparent to him, from bank statements for a bank account titled "Elsmore IPO" held by Periwinkle with the Bank of Melbourne ("Elsmore IPO Account") that were produced on subpoena, that Elsmore "may not have" (and, I again interpolate, had not) raised $2,209,000 in share subscriptions. 5. Mr Fung relies on his affidavit dated 11 July 2014, which refers to the deposit of amounts of $150,000 on 8 November 2013, $100,000 on 3 December 2013 and $779,000 on 13 December 2013 to the Elsmore IPO Account. That affidavit also refers to Mr Fung having set up a second "Elsmore IPO" account with the Bank of Melbourne ("Second Account") in mid-December 2013 and to his having transferred the deposits from the Elsmore IPO Account to the Second Account. Mr Fung acknowledges that, between 17 December 2013 and 21 January 2014, all of the funds were transferred out of the Second Account, although he attributes those transfers to Mr Howard. Mr Fung also gives evidence that he was informed by Mr Howard that Elsmore had brought proceedings against Mr Howard "for misappropriating funds" on 3 March 2014 and he refers to the settlement meeting that occurred on 11 March 2014. I will address Mr Fung's evidence of that meeting below. Mr Fung denies that he signed a subsequent typed Deed of Agreement dated 12 March 2014 ("Deed") which gave effect to the terms of settlement signed at that meeting ("Handwritten Terms"). 6. Mr Fung also relied on his affidavit dated 27 August 2014, which described his and Periwinkle's experience in capital raisings in expansive terms (from which Mr Fung later sought to retreat in cross-examination) as follows (at [2]–[4]): "[Periwinkle] is a company that provides services for listed ASX companies for the purposes of investor promotions, capital raisings, corporate advisory and marketing services. Periwinkle was successful in providing capital raising services for the IPOs of [named entities]. I am 38 years old with experience in financial markets, public company directorships and IPOs. I am the sole director and employee of [Periwinkle]. My previous experience in the ASX listed companies [sic] includes capital raisings and marketing and promotional services. Periwinkle also provided various other listed ASX companies with capital raising and services including [named companies]. I was previously successful in the relisting of [named company] via a backdoor listing where I completed capital raisings of approximately $4,000,000 as well as investor promotions and marketing services during my time as director from 2009 until 2011." In cross-examination, Mr Fung sought to retreat from that statement of his experience to suggest that he had little or no previous experience in initial public offerings, notwithstanding the express reference to them in these paragraphs, and had experience only with backdoor listings. 1. Mr Fung also gave evidence in that affidavit of his introduction to Elsmore's initial public offering by an adviser to Elsmore, Mr Kerridge, and of further contact from Mr Howard. Mr Fung refers to assurances that he was given by Mr Howard as to payment of Periwinkle's fees, to Elsmore's engagement of Periwinkle on the terms of an agreement dated 11 July 2013, to the "investor relation and promotional services" provided by Periwinkle and to the extensive work which Mr Fung claims to have undertaken in respect of the offering. Mr Fung also refers to the circumstances in which he demanded payment of his claimed fees and out-of-pocket expenses in November 2013 and certain payments were made from the Elsmore IPO Account, then under Periwinkle's control, to companies associated with Mr Fung, and other payments were made to Heat Resources Pty Limited ("Heat Resources"), which Mr Fung is now aware is a company owned by Mr Howard's brother. 2. Mr Fung also relied on a further affidavit dated 13 May 2016, which set out inquiries he had made of Mr Howard when he noticed an amount of $779,000 had been transferred into the Elsmore IPO Account in mid-December 2013, and his evidence is that he was told by Mr Howard that the money was "for Elsmore". Mr Fung's evidence is that Mr Howard and he went to a branch of the Bank of Melbourne and he had opened the Second Account to which both Mr Fung and Mr Howard were signatories into which those funds were transferred. Mr Fung's evidence is that he subsequently noted that money was going out of the Second Account and was advised by Mr Howard that that money was going to pay Elsmore's expenses. That advice will not assist him if, at the relevant time, the monies were held on trust such that they could not be applied for that purpose. Mr Fung also refers to the circumstances in which he paid a further amount of $350,000 into the Elsmore IPO Account, at Mr Howard's request, in early March 2014, from which it was transferred to the trust account of the solicitors acting for Mr Howard (and, I add for completeness, later to Elsmore, pursuant to the settlement documented by the Handwritten Terms). Mr Fung also refers to the circumstances in which he provided an electronic signature to a company with which he and Mr Howard were associated, which was subsequently applied to the Deed that gave effect to the Handwritten Terms. That affidavit also sets out, in admissible form, several conversations of which evidence had been led in inadmissible form in Mr Fung's earlier evidence. 3. Mr Cox submits that Mr Fung's evidence was shown to be unreliable in several material respects and that the Court should not accept his evidence unless it is corroborated by documents. There are, as I will note below, significant difficulties with aspects of Mr Fung's evidence, and his credit generally, and I approach his evidence with considerable caution. Mr Fung also claimed to be unable to recall several significant matters, although there was a significant degree of selectivity as to that lack of recollection, so far as he tended to recall conversations that might have been favourable to his position and not to recall conversations which might have been adverse to it. 4. Mr Fung also relies on an affidavit of Mr Terziovski, who represented Mr Howard at the settlement meeting on 11 March 2014. I will address Mr Terziovski's evidence in dealing with that meeting below. The pleaded cases, the relevant statutory provisions and factual background 1. Elsmore pleads, and Mr Fung admits, that, as part of its initial public offering, it and its appointed brokers procured subscribers to shares to be issued pursuant to the initial public offering, and that subscribers were required to deposit share subscription amounts into accounts held by or on behalf of Elsmore on the basis that, if a listing did not eventuate, subscribers' monies would be refunded (SOC [7], Defence [7]). That pleading, although admitted by Mr Fung, does not properly reflect the relevant statutory provisions, and I do not consider that I am bound by that pleading or that admission, where the effect of those provisions is a matter of law. Elsmore also pleads, and Mr Fung also admits, that between January and December 2013, Elsmore received $1,029,000 in share subscriptions (SOC [9], Defence [9]). 2. I should at this point refer to the applicable statutory provisions before returning to the narrative of events. Section 722 of the Corporations Act 2001 (Cth) relevantly provides that: "(1) If a person offers securities for issue or sale under a disclosure document, the person must hold: (a) all application money received from people applying for securities under the disclosure document; and (b) all other money paid by them on account of the securities before they are issued or transferred; in trust under this section for the applicants until: (c) the securities are issued or transferred; or (d) the money is returned to the applicants. (2) If the application money needs to be returned to an applicant, the person must return the money as soon as practicable." 1. Section 723(2) of the Corporations Act in turn deals with the position where a disclosure document contains a minimum subscription condition and provides that: "If a disclosure document for an offer of securities states that the securities will not be issued or transferred unless: (a) applications for a minimum number of the securities are received; or (b) a minimum amount is raised; the person making the offer must not issue or transfer any of the securities until that condition is satisfied. For the purpose of working out whether the condition has been satisfied, a person who has agreed to take securities as underwriter is taken to have applied for those securities." Note 1 to that section in turn refers to s 722 and the requirement that application money be held on trust until the issue or transfer of the securities. 1. It seems to me that the creation of a separate account in accordance with this section and a declaration of trust would generally be sufficient to establish a statutory trust over the relevant funds: Re Lehman Brothers International (Europe) (in admin)) [2012] UKSC 6; [2012] 3 All ER 1 at [2]–[3]; Re MF Global Australia Ltd (in liq) [2012] NSWSC 994 at [28]–[29]. General principles of trust law will be applicable to such a trust: Re Lehman Brothers International (Europe) (in admin) [2010] EWCA Civ 917 at [65]; Re MF Global Australia Ltd above at [102]. The Federal Court of Australia treated ss 722 and 723 of the Corporations Act as giving rise to a statutory trust in G8 Communications Ltd [2016] FCA 297 at [51]–[55], where Barker J observed that relevant monies were held on trust up to the point at which shares were issued. A question also arose in that case as to the position of that trust after shares were issued, in circumstances where there had been a delay in the company's admission to quotation. The time period that is in issue in this case is the period prior to issue of the shares and it is not necessary to address the complexity of the position after the issue of shares. 2. Returning now to the narrative of events, Elsmore engaged Mr Howard to assist in its initial public offering by a written agreement dated 22 April 2013 (Ex J1, 53) and Mr Howard was later appointed a director of Elsmore on 11 November 2013, in circumstances to which I will refer below. 3. Mr Kerridge and Mr Howard approached Mr Fung in respect of the offering and, by email dated 26 June 2013 from Mr Fung to Mr Howard, Mr Fung noted that he would set up an account named "Elsmore IPO" in which Mr Howard's clients or investors could deposit funds and he would provide a daily screen shot of the funds (Ex J1, 57). That email provides support for the view that that account was established for the purpose of depositing subscriber funds. 4. On 11 July 2013, Elsmore and Periwinkle entered into a mandate letter (Ex J1, 98) which provided for Periwinkle to assist Elsmore in its "corporate advisory and capital raising objectives" and indicated that Periwinkle "would like to assist [Elsmore] to raise equity funds and provide shareholder marketable parcels" (Ex J1, 98). The mandate letter provided that Periwinkle was to provide 300 shareholder marketable parcels of a minimum of $2,000 each or to total a minimum of $600,000 and specified a fee payable on those marketable parcels. There is no suggestion that Periwinkle delivered on that commitment. The terms of that letter, as pleaded by Mr Fung (Defence [10]), also included that Periwinkle would engage Mr Fung's services to help perform its obligations under that agreement and that Elsmore would pay an amount of $40,000 per month for a period of 12 months, of which an amount of $10,000 per month was to be satisfied by the issue of fully paid ordinary shares and the balance by cash. It is common ground (SOC [11], Defence [11]) that the mandate agreement also provided that Periwinkle would establish a bank account titled "Elsmore Resources Ltd – Share Issue Account No 2" ("Elsmore IPO Account"), of which Periwinkle would be signatory, and deposit certain share subscribers funds procured by Periwinkle into that account. The letter also provided that: "[Periwinkle] will provide a bank statement and screen shot of the funds for the Larger Investor Parcels and the Shareholder marketable parcels and such other documents as may be required by the ASX to satisfy themselves as to the provision of funds for the IPO. The balance of the funds representing the shareholder marketable parcels and the larger parcel No 2 shall be paid into the Elsmore share issue account. All application forms shall be provided forthwith to [the share registry] and a list provided to [the share registry] and [Elsmore] by email." That letter also provided for Periwinkle to deposit specified amounts into the Elsmore IPO Account no later than 15 July 2013; those amounts appear to have been deposited into that account and immediately thereafter withdrawn. Mr Fung attributes that to a delay in the listing in his evidence in cross-examination. I do not accept that evidence and find that course was taken in order to create an appearance that Elsmore had at that point raised significant subscription monies from investors. 1. Mr Fung pleads (Defence [11]) that there were further terms of that agreement that Periwinkle would retain control of $250,000 in that account and apply the amount of $30,000 per month from that account to the payment of fees that it was entitled to receive for services performed under that agreement. The mandate letter did not contain an express term permitting payment of such monthly amounts. No term to that effect could be implied, not least because it would be inconsistent with the express terms of that letter which provided that "ALL fees are payable within 3 days of listing", that is, after the listing of Elsmore. A term to the effect alleged by Mr Fung would also have been inconsistent with the requirements of s 722 of the Corporations Act, which required the relevant funds to be held on trust at least until the minimum subscription requirement under Elsmore's prospectus was satisfied. 2. Mr Fung subsequently established a bank account with the Bank of Melbourne styled "Elsmore IPO", of which he was the sole signatory. In his affidavit evidence, Mr Fung initially acknowledged that the Elsmore IPO Account was intended for subscriber funds to be received (Fung 11.7.14 [4]); although, on cross-examination, he sought to qualify that proposition to some extent, indicating that was not the only purpose of the account (Fung XXN, T132). 3. Elsmore's 4th Replacement Prospectus (Ex J1, 118) was issued in late 2013 and referred to a minimum share subscription condition. The prospectus incorrectly stated that that minimum subscription condition had previously been satisfied as follows: "As at the date of this Replacement Prospectus the Company has received 317 valid Applications for 11,030,000 Shares totalling $2,206,000. It has raised the minimum subscription provided for in the Prospectus of $2,000,000 but has not gained quotation within the time permitted by the Prospectus. While the Company has received valid Applications no Applications have been processed and no Shares have been issued pursuant to the Prospectus …" That statement was incorrect since Elsmore had neither received that number of valid applications nor had it received amounts by way of subscription totalling $2,206,000. As I noted above, Elsmore had only raised $1,029,000 by way of share subscriptions, and the deposit previously made by Periwinkle to the Elsmore IPO Account had been reversed immediately after it had occurred in mid-July 2013. 1. On 26 October 2013, Elsmore's share registry provider advised Mr Howard that ASX had requested individual addresses for subscribers to the initial public offering and Mr Howard then suggested to Mr Fung that "we can make up 50 addresses if that is the case [a]s long as the statements go to the one address". Mr Fung responded "fuck Ash … OK we will have to come up with something" (Ex J1, 110A). The only available inference from this email is that shareholder information, on which ASX presumably relied to satisfy itself that shareholding spread requirements had been met in respect of the listing of Elsmore, was falsified by Messrs Howard and Fung, or at least by Mr Howard to Mr Fung's knowledge. In cross-examination, Mr Fung claimed that he did not know what Mr Howard's suggestion as to making up 50 addresses with statements going to the one address, meant (Fung XXN, T184). I do not accept that evidence, where the meaning of that statement was plain, and the expletive in Mr Fung's response made clear that he recognised the significance of the issue. Mr Fung's failure to reject Mr Howard's suggestion at the time it was made and his evidence in cross-examination are both adverse to his credit. 2. By email dated 7 November 2013, Mr Howard advised Mr Kerridge, with copies to Mr Chung and Mr Fung (Ex J1, 114) that specified arrangements had "our approval", primarily Mr Fung's approval, namely that Mr Howard would be appointed to Elsmore's board and $150,000 would be transferred from Elsmore's share issue account to the Elsmore IPO Account and a daily bank statement for that account would be provided to Mr Chung "to show the funds remaining intact with the existing $1.18m and not moving". That statement was false, so far as $1.18m had not then been raised by Periwinkle. The reference to $1.18 million appears to reflect the amounts deposited, but then withdrawn, to the Elsmore IPO Account under Periwinkle's control on 18 July 2013, indicating that any suggestion that those amounts had been subscribed, still less that they continued to be held, was not correct. Mr Fung's evidence in cross-examination was that he believed that the full amount in excess of $2 million had been raised in November or December 2013 (Fung XXN, T188) although he also acknowledged in cross-examination that he knew as at 7 November that the account did not have a balance of $1.18 million and he did not seek to correct Mr Howard's email which had falsely stated that balance (Fung XXN, T189). The daily bank statement contemplated by that email was also not subsequently provided to Elsmore. 3. By email dated 7 November 2013 (Ex J1, 115), Mr Fung in turn advised, with reference to the delay that had then been experienced in listing Elsmore, that: "In light of the disappointment and my extreme frustration at the current situation, I am willing to accept these terms on the basis that we are now heavily involved in the process of the new supplementary prospectus and ultimately the quotation. We have demonstrated that we have the ability to assist and that we are all on the same ship." 1. By email sent the same day (Ex J1,115), Mr Chung advised that: "Only one thing need you guys to confirm is that the funds in CBA IPO Account is belongs [sic] to investor and refundable no matter what's happening." 1. The reference in that email to the funds in the "CBA IPO Account" was to the account in which share subscription funds were then held by Elsmore, from which the amount of $150,000 was to be transferred to the Elsmore IPO Account. Mr Hand, who appeared for Mr Fung, submitted in closing submissions that the reference to "investor" in that email is uncertain and may refer to Elsmore or to subscribers. However, I read that email as indicating, consistent with s 722 of the Corporations Act, that funds held in that account were held for subscribers and it does not seem to me that the reference to "investor[s]" could reasonably be read in any other way. In cross-examination, Mr Fung's evidence was that he did not recall receiving that email (Fung XXN, T178). 2. An email in response dated 8 November 2013 (Ex J1, 115), which on its face was sent by Mr Fung, stated "Yes, Joseph", plainly accepting that those funds were held on the basis stated by Mr Chung. It seems to me consistent with the objective probabilities that Mr Fung responded to Mr Chung's email of 7 November 2013, where that email was a response to an email from Mr Fung to him. In cross-examination, Mr Fung's evidence was that he did not recall sending that response and that Mr Howard may have used his telephone to send that response (Fung XXN, T178). Mr Fung's lack of recollection of sending that email does not establish that it was not sent by him and the suggestion that Mr Howard may have sent it was no more than speculation, first advanced in cross-examination. Before that suggestion was made by Mr Fung in cross-examination, Mr Chung had been cross-examined by Mr Hand on the basis that that response had been sent by Mr Fung, presumably in accordance with Mr Fung's instructions (Chung XXN, T40, T54), and that emphasises the lateness of Mr Fung's speculation in cross-examination that Mr Howard rather than Mr Fung may have sent that response. It seems to me that Mr Fung's suggestion that Mr Howard rather than he had sent that response sought to avoid the consequences of the acknowledgement of the nature of the funds held in the CBA IPO Account, from which the amount was to be transferred to the Elsmore IPO Account, in circumstances that it had by then become apparent to Mr Fung that that acknowledgement may support the existence of the trust over those funds. Mr Fung's attempt to avoid that result in that way is adverse to his credit. I find that Mr Fung sent the email in response and thereby accepted that the funds held by Elsmore in the CBA IPO Account, from which funds were transferred to the Elsmore IPO Account controlled by Periwinkle, were held for subscribers to the issue. 3. After that email correspondence, on 8 November 2013, Elsmore transferred $150,000 of monies that it had received from subscribers to the initial public offering from the CBA IPO Account into the Elsmore IPO Account under Periwinkle's control (Ex J1, 351) ("First Transfer"). Mr Chung's evidence in cross-examination was that he considered it appropriate to send the $150,000 comprising the First Transfer to the Elsmore IPO Account maintained by Periwinkle for "good faith" on Mr Kerridge's recommendation; and he accepted that Mr Fung had not directly asked him to send those funds, although his understanding was that Mr Fung had asked Mr Howard, Mr Howard had asked Mr Kerridge and Mr Kerridge had then asked him to do so (Chung XXN,T52). 4. Mr Fung was also asked about his knowledge of the nature of the funds deposited into the Elsmore IPO Account in examinations before Brereton J on 2 June and 14 July 2014, and Elsmore relied on extracts of those examinations in this hearing. In his first examination, Mr Fung's evidence was that he had not been told that and was not aware that the amounts deposited by Elsmore into the Elsmore IPO Account were "share subscriber fees" (Ex P3, 2, 7). I do not accept that evidence, since it must have been apparent to Mr Fung at the relevant time that Elsmore did not have access to large sums other than share subscriptions, quite apart from the email exchange on 7 and 8 November with Mr Chung as to the nature of the funds in the CBA IPO Account from which that amount was transferred to Periwinkle. Mr Fung also there accepted that he did not find "many" investors to subscribe to Elsmore and that none ultimately subscribed (Ex P3, 5). It appears that two of the suggested investors were Periwinkle and Bubbly Water Pty Ltd ("Bubbly Water"), another company associated with Mr Fung, and he could not recall the other two (Ex P3, 6). In his further examination before Brereton J on 14 July 2014, Mr Fung acknowledged that the purpose of the Elsmore IPO Account was "for investor funds" (Ex P4, 14.19–20, 15.9–23). 5. In mid-November 2013, Mr Fung raised concerns directly with Mr Chung as to delay in the provision of Elsmore's audited accounts (Ex J1, 111; Chung XXN, T47). Mr Kerridge subsequently advised Mr Chung that Mr Howard had stated that Mr Fung was not happy about the requirement for a 4th replacement prospectus and required the transfer of a further $100,000 into the Elsmore IPO Account maintained by Periwinkle (Chung 24.2.14 [34]). (This evidence was admitted with a limitation under s 136 of the Evidence Act that it was not proof of the asserted fact.) Mr Chung accepted in cross-examination that he made no attempt to contact Mr Fung directly to confirm that position (Chung XXN, T39). 6. That requirement was reflected by an agreement dated 2 December 2013 between Elsmore, Mr Howard and Periwinkle, titled "Points of Agreement" (Ex J1, 311), which was executed by Mr Chung for Elsmore, by Mr Howard in his personal capacity and also by Mr Howard for Periwinkle, after Mr Howard falsely advised Mr Chung that Mr Howard was a director of Periwinkle. The Points of Agreement provided that: "1. [Elsmore] will on signature transfer $100,000 from Elsmore Share Issue No 1 Account with CBA to Elsmore Share Issue Account No 2. 2. On allotment proceeds from Elsmore Share Issue Account No 2 will be released to ERL in full to the Share Issue Account No 1. 3. On the same day as the transfer referred to in clause 2 Periwinkle shall invoice ERL for the payments required under the Periwinkle Agreement which shall be paid subject to clear [sic] funds. 4. All shares required to be issued to Periwinkle or as it may direct shall be issued within five days of the date of listing." Nothing in those terms supports a suggestion that Mr Howard or Periwinkle were then able to deal with these funds for their own purposes, or that Elsmore was entitled to expend funds from that account before they were returned to the CBA IPO Account on allotment of shares to subscribers. 1. Following execution of the Points of Agreement, a further $100,000 of subscriber funds was deposited into the Elsmore IPO Account on 3 December 2013 (Ex J1, 312, 317) ("Second Transfer"). 2. Between 8 November and 13 December 2013, Periwinkle (by Mr Fung) made seven transfers out of the Elsmore IPO Account totalling $230,915.17, incurring $110.00 in fees (Ex J1, 351–352). Those transfers included, on or about 11 November 2013, a transfer of $49,965 to an account of Heat Resources and a transfer of $50,000 to an account of Bubbly Water (SOC [25]). On or about 14 November 2013, Periwinkle transferred $30,000 from the Elsmore IPO Account to another account. On or about 18 November 2013, Periwinkle transferred $19,950 from the Elsmore IPO Account to the account of Little Boxes Pty Ltd ("Little Boxes"), another company controlled by Mr Fung. On or about 4 December 2013, Elsmore transferred $70,000 from the Elsmore IPO Account to the account of Heat Resources. On or about 12 December 2013, Elsmore transferred $11,000 from the Elsmore IPO Account to the account of Little Boxes. Those transfers amounted to the bulk of the funds previously transferred by Elsmore from its subscription account into that account. 3. By an email from Mr Howard to Messrs Kerridge and Chung dated 13 December 2013 (Ex J1, 314) Mr Howard advised Messrs Kerridge and Chung that Mr Fung's investors were "very frustrated" but that Mr Howard had convinced them to either stay in or be replaced by Mr Howard's investors, on condition that: "I will be signatory in both No 1 and No 2 accounts to be released as per prospectus. I will take over all Accounts including IPO Account 1 and 2. Whatever [Mr Fung] has to withdraw I will replace into Account 1 and will cover any spread lost and will be responsible for managing the funds going from Account 2 to Account 1 on listing as per the prospectus working with [Mr Chung] and the board." 1. There is no evidence that any investors secured by Periwinkle, Mr Fung or Mr Howard had in fact subscribed any funds of substance for Elsmore at that time. Mr Fung's evidence in cross-examination was that he could not recall whether he had asked for a threat to be communicated to Mr Chung that he would withdraw all of his investors on or around 13 December, although he then, inconsistently, denied that he asked Mr Howard to do so (Fung XXN, T187). Mr Fung claimed that at that time he had commitments from investors, but acknowledged that he did not have any investors that had subscribed funds at that time and acknowledged that none of those commitments were binding or enforceable (Fung XXN, T187) and, I would add, none of those investors in fact subscribed any funds to the issue. 2. On 13 December 2013, presumably in order to persuade Mr Fung's or Mr Howard's "investors" to continue with the initial public offering, Elsmore transferred the balance of the funds held in its subscription account to the Elsmore IPO Account under Periwinkle's control, in the amount of $779,000 (Ex J1, 315, 317) ("Third Transfer"). Mr Chung accepted in cross-examination that Mr Fung had not directly suggested to him, around 13 December, that he did not wish to participate in the capital raising and that he had simply accepted Mr Kerridge's advice as to Mr Fung's position (Chung XXN, T64–65). That proposition does not seem to me to undermine Elsmore's case. 3. A false bank statement was provided to Elsmore on 15 December 2013 which indicated that the balance in the Elsmore IPO Account was then $2,209,000 (Ex J1, 316), and did not disclose either the reversal of deposits to that account in mid-July 2013, to which I referred above, or that further monies had been paid out of that account between 8 November and 13 December 2013 as I noted above. Elsmore does not allege that Mr Fung himself prepared or provided that false bank statement to it. In his first affidavit, Mr Chung's evidence is that he was provided with that bank statement by Mr Kerridge who advised Mr Chung that Mr Howard had given that document to him. 4. On 17 December 2013, Mr Fung established the Second Account with the Bank of Melbourne, titled "Harry Fung T/A Elsmore IPO", to which Mr Fung and Mr Howard were the signatories. Mr Fung pleads (Defence [32]) that he did so with Mr Howard's approval, consent or direction. On or about that date, Mr Fung transferred the large part of the subscription funds of $779,000 from the Elsmore IPO Account to the Second Account (SOC [34], Defence [34]), and Mr Fung again claims that he did so with Mr Howard's approval, consent and/or direction. The balance of funds in the Elsmore IPO Account of $18,950 were subsequently transferred to another account on 30 December 2013. 5. The funds in the Second Account were subsequently withdrawn (Ex J1, 550) in further transactions. Elsmore pleads and Mr Fung denies (SOC [35]–[37]; Defence [35]–[37]) that those transactions were unrelated to Elsmore's initial public offering and were made without Elsmore's authority, and that Mr Fung was involved in effecting those transactions which were in breach of trust and in breach of Periwinkle's duties as trustee. 6. A Schedule of Commitments dated 19 December 2013 (Ex J1, 333) released by Elsmore to ASX set out the manner in which it would apply the amount of $2,206,000 that it had purportedly raised (but had not in fact raised) by the initial public offering, inter alia to exploration development, administration costs, unpaid issue costs, and plant and equipment acquisitions. Elsmore was listed on the ASX on 23 December 2013 (Ex J1, 330), although it had then not satisfied the minimum subscription requirements set out in its prospectus and, was by the relevant provisions of the Corporations Act, at that point required to return the monies that it had raised from subscribers to them. It is likely that those matters were not known to Mr Chung at that time and, presumably, they were not disclosed to ASX at that time. 7. In his first affidavit, Mr Chung refers to subsequent correspondence in which he requested the delivery of the share subscription funds to Elsmore, and to the inquiries which he made that led to the discovery that the Elsmore IPO Account had been depleted and to subsequent attempts to recover those funds from Mr Howard. On 19 February 2014, the board of Elsmore resolved that these proceedings be commenced against Mr Howard to recover the funds raised by the initial public offering. The Court then made asset preservation and disclosure orders, but it appears the funds had been disbursed before that occurred. 8. On 11 March 2014, a settlement meeting was held at the offices of Elsmore's solicitors in Sydney. The Handwritten Terms that were signed between Elsmore, Mr Howard, Periwinkle, Mr Fung and HF Global on 11 March 2014 at that settlement meeting provided that Mr Fung would guarantee and indemnify full performance by Mr Howard of his undertakings in that agreement and, in the event of a default, would acknowledge that a debt of $2,209,000 was payable to Elsmore and agreed to entry of judgment in its favour for that amount, plus interest and legal costs on an indemnity basis, less payments already received by Elsmore under that agreement. 9. Mr Howard was represented by solicitors, Mr Terziovski and Mr Afrasiabi at that settlement meeting, who had been recommended to him by Mr Fung. It appears that, as I will note below, those solicitors were not acting for Mr Fung at that settlement meeting. Mr Howard and Periwinkle were then the only named defendants to the proceedings that Elsmore had commenced, and Periwinkle had only been joined to the proceedings on 10 March 2014 and the Originating Process had been served at its registered office on the morning of 11 March 2014, the day of the settlement meeting. Mr Fung's evidence was that he became aware that Periwinkle had been served with proceedings from the solicitors at the settlement meeting, since he was in Sydney when those proceedings were served at Periwinkle's registered office in Melbourne (Fung XXN, T139). 10. During the course of the settlement meeting, Mr Terziovski contended that that a substantial amount of the funds purportedly subscribed in Elsmore's initial public offering was never raised, and indeed that there was never an intent that it would be raised. Mr Terziovski also contended that that amount represented an "artificial spread", presumably referring to an amount apparently subscribed, but not in fact subscribed, so as to give the false impression that Elsmore met the requirements for listing on ASX. Elsmore was therefore at least on notice of that possibility from that point. During the negotiations at that settlement meeting, Elsmore requested that Mr Fung guarantee any default of the proposed settlement by Mr Howard or Periwinkle. 11. In his affidavit evidence, Mr Terziovski refers to the conduct of the settlement meeting, to the circumstances in which Mr Fung arrived at the mediation and to a conversation between Mr Fung and Mr Howard, part of which Mr Terziovski overheard, in which Mr Fung said he was "not happy" about signing a guarantee and Mr Howard said that (Terziovski 27.8.15 [8]): "If you don't sign a guarantee ASIC will investigate you and the police will end up involved and you will end up in jail." Mr Terziovski's affidavit evidence was also that, after that conversation between Mr Fung and Mr Howard, and prior to execution of the Handwritten Terms, Mr Fung said to Mr Terziovski that (Terziovski 27.8.15 [15]): "If [Mr Howard] does not make the payments I don't have the funds to bail him out, I have already had to borrow the $350,000 to get him to this stage so I am in a very bad position and I don't want to be going to jail." That conversation indicates that Mr Fung was conscious of the risk of investigation and prosecution, which does not seem to me to have been unfounded, but also that he understood, prior to executing the Handwritten Terms, the effect of his guaranteeing the payments which Mr Howard would be obliged to make under the Handwritten Terms. 1. Mr Terziovski's evidence in cross-examination was that his instructions at the settlement meeting were from Mr Howard alone, although he had been instructed by Mr Howard to run matters past Mr Fung who would fund any settlement on that day (T97). Mr Terziovski's evidence in cross-examination was also that he was not in contact with Mr Fung in the course of the settlement meeting, although Mr Howard was in contact with Mr Fung (T105). Mr Cecil also accepted in cross-examination that, to his knowledge, Mr Terziovski was acting only for Mr Howard at the settlement meeting, although his evidence was that he came to the view that Mr Terziovski and his colleague, Mr Afrasiabi, were also speaking with "some degree of authority" on behalf of Periwinkle and Mr Fung, although he fairly accepted that that was an assumption on his part (Cecil XXN, T95). 2. In his affidavit dated 11 July 2014, Mr Fung also refers to the circumstances in which he attended the settlement meeting on 11 March 2014, late in the day, at Mr Howard's request. Mr Fung also refers to Mr Howard's request that he sign a personal guarantee in order to allow Mr Howard to "do a deal with Chung"; to Mr Fung's initial refusal to sign that guarantee; and to Mr Howard's statement that (Fung 11.7.14 [20]): "Well, if you don't sign a personal guarantee ASIC will investigate you in relation to funds that went through your accounts and there is likely to be a police investigation which will land you in jail because you have committed fraud." Mr Fung's evidence (Fung 11.7.14 [21]) is also that he was: "worried, scared and convinced to the effect that I had done something wrong and that if I didn't sign a guarantee I would be sent to jail." Mr Howard's observations as to the risk of an investigation and prosecution and Mr Fung's concerns may well have been soundly based. There was every reason why at least the Australian Securities and Investments Commission should have investigated Mr Fung's conduct, and every possibility that proceedings could have been commenced against him, given the events to which I have referred above. 1. Mr Fung also refers to a further suggestion made by Mr Howard, after Mr Fung had left that meeting while other discussions were taking place, that if he did not sign a personal guarantee, he would be investigated, and to several other threats made by Mr Howard that he and his associates would end Mr Fung's business if he did not cooperate. Mr Fung's evidence is that he signed the Handwritten Terms after that conversation "because [he] was told that [he] would go to jail if [he] didn't" (Fung 11.7.14 [24]). 2. Mr Fung's evidence in his affidavit dated 13 May 2016, admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding only, is also that he did not have access to independent legal advice at the settlement meeting and did not have an opportunity to obtain such advice at that meeting, and he states that he did not retain Mr Terziovski, who acted for Mr Howard, to act for him at that meeting and that Mr Terziovski did not explain to him the meaning of the provisions set out in the Handwritten Terms. 3. Mr Fung's evidence on cross-examination was that he was persuaded by Mr Howard to sign the Handwritten Terms, on the one hand, because that was part of Mr Howard's plan to take over Elsmore and, not entirely consistently, because Mr Howard threatened him that Mr Howard would "say that what had been concocted from this listing from the beginning had [Mr Fung's] name all over it and if [Mr Fung] didn't play ball here [he would] be going to jail" (Fung XXN, T144). Mr Fung also referred to Mr Howard's international contacts who would make sure that Mr Fung would not work in the business any more. In cross-examination in this hearing, Mr Fung did not recall significant aspects of the settlement meeting, although he emphasised that no-one discussed the Handwritten Terms with him (Fung XXN, T150–151). Mr Fung's evidence was put in strong terms in cross-examination, initially that he felt "threatened, scared, frightened for my life" at the time of the settlement meeting, although he subsequently qualified that statement to refer to his having been "frightened for his business life [and his] position" (T151). 4. The circumstances in which Mr Fung signed the Handwritten Terms were also addressed at examinations of Mr Fung before Brereton J on 2 June and 14 July 2014, and Elsmore relied on extracts of those examinations in these proceedings. Mr Fung's evidence at the first of those examinations was that he was "conned into" signing the Handwritten Terms and that he was "instructed" by Mr Howard that that was what he needed to do for it "all to go away" (Ex P3, 9). Mr Fung also claimed, in answer to a question from Brereton J at that examination, that he did not know that he was providing a guarantee (Ex P3, 10). That evidence is contradicted by the evidence of a conversation between Mr Fung and Mr Terziovski to which I have referred above, which makes clear that Mr Fung understood not only that he was providing a guarantee, but the personal risk to which he was exposed if Mr Howard did not perform his obligations under the Handwritten Terms. In his further examination before Brereton J on 14 July 2014, Mr Fung gave somewhat inconsistent evidence as to whether he was content to sign the Handwritten Terms, to the effect that he was induced to believe that they would bring about the result that all his problems would go away or that he was "coerced" to sign them (Ex P4, 19.30–50, 20.1–2). Mr Fung also suggested, in answer to a question asked by Brereton J, that his reference to being "conn[ed] by Mr Howard" was a reference to having been threatened by Mr Howard (Ex P4, 20.21–26). The latter evidence also seems to me to be highly implausible. For completeness, I do not accept Mr Fung's evidence, in cross-examination before me, that his evidence before Brereton J was affected by threats made outside the Court by an investor identified only by the name "Tiger", which Mr Fung did not then draw to Brereton J's attention (T145). 5. In cross-examination before me, Mr Fung maintained the position that he had taken in his examination before Brereton J that he did not know that he was providing a guarantee and he also claimed that he did not understand "how serious" the signature of the Handwritten Terms was (Fung XXN, T147). I do not accept that evidence, since the conversation between Mr Fung and Mr Terziovski to which I referred above makes clear that Mr Fung in fact recognised the risk to which he was exposed by guaranteeing Mr Howard's obligations, if Mr Howard did not perform them. Mr Fung also claimed in cross-examination before me that he merely knew he was signing "something in regards to a settlement agreement" (T148), a matter which is also inconsistent with that conversation. Mr Fung then qualified, or reversed, that evidence to say that he knew that the Handwritten Terms contained a term by which he guaranteed Mr Howard's performance of the settlement agreement and his answer before Brereton J was incorrect (Fung XXN, T148). There was also significant inconsistency, both in Mr Fung's answers in the examination before Brereton J, and in his answers in cross-examination before me, as to whether he did not know of the obligations contained in the Handwritten Terms, and signed them on the basis that they would lead the claims against him to disappear, or that he was coerced into signing that document, presumably in circumstances that he wished to resist doing so, having understood it to be disadvantageous to him (Fung XXN, T159). 6. On 12 March 2014, Elsmore and the several parties, purportedly including Mr Fung, executed a deed of settlement, guarantee, release and indemnity ("Deed"). The Deed provided that, if Mr Howard defaulted on his obligations under it, Mr Fung would pay Elsmore $2,209,000 less any payments already received by it and, if such payment was not made, would consent to the entry of judgment against him for that amount plus interest and legal costs on an indemnity basis. Mr Fung denies that the Deed created any obligations enforceable against him, and claims that he did not sign or otherwise become bound by it. Also on or about 12 March 2014, an amount of $349,965 was paid to Elsmore from a controlled monies account arranged between the parties' solicitors on 7 March 2014. That payment was described as the residue of the "funds in question", although it appears that was not the residue of the funds raised by Elsmore's initial public offering since those funds had previously been fully disbursed and the funds in that account had subsequently been advanced by Mr Fung to Mr Howard (Ex J1, 441, 649). 7. Elsmore subsequently gave notice of default when Mr Howard failed to make the first payment of $200,000 due under the settlement on 10 April 2014 (Ex J1, 653, 655–6). On 12 May 2014, summary judgment was ordered against Mr Howard, Periwinkle and HF Global, which had not filed defences in the proceedings, in the amount of $1,859,035 plus interest and costs, being the sum of $2,209,000 referred to in the Handwritten Terms and the Deed, less the monies paid from the controlled monies account funds. 8. Mr Chung subsequently attended a meeting with Mr Howard and Mr Fung on 23 May 2014, at which Mr Howard advised him that "all of the money is gone" but that Mr Howard would pay it back to Elsmore, Mr Chung had accused Mr Howard and Mr Fung of destroying Elsmore's business, and Mr Fung had claimed that he now knew there was no money but Mr Howard had previously kept telling him the money was still all there. In cross-examination, Mr Fung's evidence was that he could not recall this conversation (Fung XXN, T135). I do not accept Mr Fung's evidence of a lack of recollection of this conversation, where a conversation of this character can hardly be an ordinary occurrence. It seems to me that Mr Fung here feigned a lack of recollection of this matter in order to seek to avoid cross-examination about this conversation. 9. Elsmore has made certain announcements to ASX in respect of the conduct of these proceedings. However, it appears that it has not announced the fact that it did not raise the amount contemplated by the minimum subscription condition contained in its prospectus (Gaffney XXN, T29). Elsmore's claim under the Handwritten Terms and Deed 1. Mr Cox, who appears for Elsmore, submits that Mr Fung is bound by the terms of the settlement agreement comprised in the Handwritten Terms to guarantee Mr Howard's default, where he had signed those terms: L'Estrange v F Graucob Ltd [1934] 2 KB 394; Wilton v Farnworth (1948) 76 CLR 646; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165. That appears to be common ground between the parties, subject to the several affirmative defences raised by Mr Fung. Mr Fung's defence under the Contracts Review Act 1. Mr Fung pleads (Defence [39]) that he was provided with a false and misleading description of the effect of the Handwritten Terms by Mr Howard, with insufficient explanation to enable an adequate understanding of the document and that unfair pressure or unfair tactics were applied to procure his signature to that document. Mr Fung also claims that threats were made to him by Mr Howard that, unless he signed the Handwritten Terms, he would be prosecuted and likely imprisoned. Mr Fung pleads that the Court should refuse to enforce the provisions of the Handwritten Terms under s 7 of the Contracts Review Act 1980 (NSW). 2. Mr Fung's defence under s 7 of the Contracts Review Act raises the question whether the Handwritten Terms were unjust in the circumstances relating to the contract at the time it was made. Before turning to that question, a preliminary issue arises as to whether the Contracts Review Act is applicable in the relevant circumstances. Section 6(2) of the Contracts Review Act provides that a person may not be granted relief under the Act in relation to a contract so far as it was entered into in the course of or for the purpose of a trade, business or profession carried on by that person or proposed to be carried on by that person. After the question whether that provision could apply was raised in the course of closing submissions, Mr Cox submitted that that provision prevents Mr Fung from relying on the Contracts Review Act on the basis that he entered into the Handwritten Terms and the Deed in the course of or for the purpose of a trade, business or profession that he carried on. In support of this submission, Mr Cox referred to the decision of the Court of Appeal in Ford v Perpetual Trustees Victoria Ltd [2009] NSWCA 186; (2009) 75 NSWLR 42 at [94]–[103] ("Perpetual Trustees"). Mr Cox fairly accepted that it was not sufficient to cause s 6(2) of the Contracts Review Act to apply that the agreement was commercial in character and he also acknowledged that his submission faced difficulty by reason of the decisions of McLelland J in Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 at 149 ("Toscano") and Rogers J in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 at 176 ("Australian Bank"), and that those decisions have been considered in Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [114ff]. 3. Mr Hand responded that the Handwritten Terms were entered into in the course of Periwinkle's business, as a broker assisting in procuring subscribers (although, as I noted above, it had failed to do so) rather than any business conducted by Mr Fung as a director and shareholder of Periwinkle, and that the authorities distinguish between an individual and director of a company, relevantly Mr Fung, and Periwinkle as the legal entity through which he carried on business. 4. In Toscano above, McLelland J held that, relevantly, a guarantee by a shareholder in a company of the other shareholder's obligations under a contract was not entered into "for the purpose" of a business carried on by the shareholder, although the relevant company carried on business. In Australian Bank above, Rogers J followed that decision, and noted the difficulty that would otherwise arise in deciding what sort of a relationship between a shareholder and a corporation would need to exist before a corporation's business was treated as carried on by its shareholder, although his Honour noted that that approach was potentially inconsistent with the apparent purpose of the section. The same approach, distinguishing the position of a company and the shareholder, was taken in Chen v Song [2005] NSWSC 19; (2005) ANZ ConvR 130 at [187]. In Perpetual Trustees above at [95], Allsop P and Young JA (with whom Sackville AJA agreed) observed that the question, in respect of the application of s 6(2) of the Contracts Review Act, was whether the person entered into the contract in the course of or for the purpose of a trade or business carried on by him or proposed to be carried on by him and referred (at [103]) to Toscano, Australian Bank v Stokes and Chen v Song without criticism. Those authorities were also reviewed, but the question did not need to be decided, in Brighton v Australia and New Zealand Banking Group Ltd above. 5. In Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [2014] FCAFC 70; (2014) 222 FCR 13, where company directors and shareholders had provided personal guarantees in support of a company's business, the Full Court of the Federal Court upheld a finding of the trial judge that the giving of those guarantees did not occur in the course of carrying on business by the guarantors and that the Contracts Review Act was not excluded. The Full Court there noted (at [110]) that s 6(2) of the Contracts Review Act did not authorise a piercing of the corporate veil and (at [119]) adopted the same approach as had been adopted in the decisions to which I have referred above. 6. Mr Cox did not contend that Mr Fung was carrying on a business in his own right, in addition to the business carried on by Periwinkle, although the agreement with Periwinkle provided for Periwinkle to use Mr Fung's services. Where that contention was not put, it does not seem to me that a basis has been established to hold that Mr Fung was carrying on a separate business, in respect of which he entered into the Handwritten Terms, from the business of Periwinkle. In those circumstances, the operation of the Contracts Review Act is not excluded by s 6(2) of the Contracts Review Act. 7. I turn now to the application of the relevant provisions of the Contracts Review Act in the relevant circumstances. Section 7(1) of the Contracts Review Act relevantly provides that: "(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract …" It seems to me that the reference to "the circumstances relating to the contract at the time it was made" in s 7(1) of the Contracts Review Act is not limited, in its terms, to those circumstances which were known to the party that seeks to rely on the contract at the relevant time, although a lack of knowledge of relevant matters may well be relevant to the exercise of the court's discretion. That will have some significance below, since one significant matter, the amount of the shortfall in the monies raised by Elsmore, was not known to it at the date of the Handwritten Terms. 1. In West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620 ("West v AGC (Advances)"), McHugh JA observed that a contract may be unjust, for the purposes of s 7(1) of the Contracts Review Act, in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. In Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205, Campbell JA (with whom Hodgson and McColl JJA agreed) similarly observed, by reference to authority, that a contract could be unjust by reason of substantive injustice, because its terms, consequences or effects were unjust, or because of procedural injustice, by reason of the unfairness of the methods used to make it. His Honour noted that two distinct steps are involved in applying the Contracts Review Act, the first being to determine whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9 of the Contracts Review Act, and involving a broadly based value judgment, and the second being whether any relief should be granted, and what that relief should be. 2. In Provident Capital Ltd v Papa [2013] NSWCA 36; (2013) 84 NSWLR 231 at [7], Allsop P (as his Honour then was) in turn summarised the evaluation involved in determining whether relief should be allowed under the Contracts Review Act as follows: "The broad evaluation of unjustness under the Contracts Review Act 1980, s 4, s 7 and s 9 involves the normative evaluation of the totality of relevant circumstances. Inevitably minds may differ as to conclusions about such questions. Also, it is often not fruitful to compare other cases with the particular circumstances at hand, lest one be deflected from an appropriate overall assessment by focus on particular aspects relevant to any such comparison. Central to the normative evaluation is the recognition that there is a need for the protection of some people in some circumstances, who are not able fully to protect their own interests against factors that may cause injustice. That vulnerability may come from one or more of many circumstances, such as lack of education or of intelligence, from gullibility, from the predation of fraud and greed, and also sometimes from loyalty and love. The characterisation of a contract as unjust and the sheeting home to the other contracting party of the consequences of its unjustness may be a difficult evaluative exercise. At its heart, however, is the recognition of the inadequacy of one party to protect her or his interests in the circumstances." The applicable principles in respect of an application under s 7 of the Contracts Review Act were also summarised by Sackar J in White v Wills [2014] NSWSC 1160 at [107]ff in similar terms, in a passage approved by Kunc J in Crane Distribution Ltd v Yang (2016) NSWSC 620. 1. Mr Hand pointed to several matters to support the submission that the Handwritten Terms should be set aside under the Contracts Review Act, if Mr Fung is unsuccessful in establishing the other matters on which he relied and which I address below. Mr Hand points to the suggested uncertainty of the "mutual releases" in support of this claim. For the reasons noted below, I do not accept the submission that there is uncertainty in those releases. In closing submissions, Mr Hand submitted that Mr Chung determined to seek to have Mr Fung provide a personal guarantee at the settlement meeting; that Mr Howard was unlikely to be able to pay the amounts that were the subject of the Handwritten Terms where he had previously failed to meet earlier promises to Mr Chung to pay the funds that Mr Chung believed were still under his control; that Mr Howard "intimidated, coerced and threatened" Mr Fung into signing the Handwritten Terms, with threats including that Mr Fung's career would be ruined, that he would face a jail sentence and that he would not be able to feed his children; that the detriment that Mr Fung suffered by entering into the Handwritten Terms outweighed any benefit that might accrue to him; that Mr Fung was not legally represented at the time the Handwritten Terms were made; and that the amount of $2,209,000 became immediately due and payable following Mr Howard's default in making payment under the Handwritten Terms, whereas only the amount of $1,029,000 had been raised by Elsmore. Mr Hand also relies on the fact that Elsmore did not negotiate directly with Mr Fung for the guarantee, but left it to Mr Howard to do so, in circumstances where Mr Fung was unrepresented, and submits that Mr Howard used "unfair tactics" in procuring Mr Fung's signature. I will address these matters below. 2. Mr Cox submits that there was no relevant unfairness to Mr Fung in the circumstances in which he signed the Handwritten Terms. He points out that Mr Fung accepted, in cross-examination, that he was aware that he could seek independent legal advice (T141). Mr Cox submits, but I do not consider it is necessary to decide, that Mr Fung was aware of the terms which had been negotiated by Mr Howard and Elsmore prior to his arrival at the settlement meeting, and there is evidence of at least some communication between Mr Howard and Mr Fung prior to and during the settlement meeting. There is a conflict of evidence between Mr Cecil on the one hand and Mr Terziovski on the other as to whether Mr Cecil had read the proposed Handwritten Terms to Mr Fung before they were signed, and Mr Fung's evidence was that he could not remember whether that had occurred (T151). I do not consider it necessary to determine that conflict, which seems to me to reflect a genuine difference of recollection between the solicitors, given the findings that I reach on other grounds below. I do not accept Mr Fung's evidence that he did not know that he was signing a guarantee, given Mr Terziovski's evidence of his conversation with Mr Fung and Mr Fung's earlier evidence in his examinations before Brereton J. 3. Section 9(2) of the Contracts Review Act directs the Court to have regard to specified matters to the extent they are relevant to the circumstances, without affecting the generality of s 9(1) of the Contracts Review Act. In West v AGC (Advances) above, McHugh JA noted (at 621) that the provisions of s 9(2) of the Contracts Review Act (to which I refer below) do not exhaustively indicate the criteria that may be taken into account in determining whether a contract or any of its provisions is unjust, and the Court is entitled to have regard to all the circumstances of the case, subject to s 9(4) of the Contracts Review Act, and the public interest; and a similar view was expressed in Spina v Permanent Custodians Ltd [2009] NSWCA 206 at [105]. 4. The first matter specified in s 9(2)(a) of the Contracts Review Act is whether or not there was any material inequality in bargaining power between the parties to the contract. Mr Cox submits that there was no inequality in bargaining power between Elsmore and Mr Fung at the settlement meeting on 11 March 2014, where Mr Fung was a sophisticated and experienced businessman with experience in the listing of companies and corporate governance. Mr Cox submits that Mr Fung had previously negotiated the mandate agreement between Elsmore and Periwinkle dated 11 July 2013 and was readily able to negotiate equally in the circumstances. I accept that Mr Fung was an experienced businessperson who was generally capable of protecting his own interests, although his bargaining power in respect of the Handwritten Terms was weakened by the fact that he then had significant reasons to seek to reach a settlement of the claim against Periwinkle and the potential claim against him, having regard to his exposure to regulatory action in respect of the matters which were the subject of those claims. 5. The second and third matters specified in ss 9(2)(b)–(c) of the Contracts Review Act are whether or not, prior to or at the time the contract was made, its provisions were the subject of negotiation, and whether or not it was reasonably practicable for the party seeking relief under the Contracts Review Act to negotiate for the alteration of or to reject any of the provisions of the contract. Mr Cox submits the Handwritten Terms were the subject of extensive negotiation at the settlement meeting over several hours. While that proposition is correct, Mr Howard and not Mr Fung was party to the negotiations with Elsmore over the large part of that period. Mr Cox also submits that, had Mr Fung needed additional time to negotiate for different terms or sought to modify the guarantee, it was open to him to consult an independent solicitor or to seek time to consider his position. Mr Cox submits that Mr Fung was not under the influence of Mr Howard or anyone else when he chose to sign the Handwritten Terms and that there was no practical limitation on Mr Fung's ability to negotiate. I will address the question of Mr Howard's influence below. It seems to me that it was reasonably practicable for Mr Fung to negotiate the alteration of or reject any of the provisions of the Handwritten Terms, subject to his assessment of the risks attached to his then position and the continuance of the proceedings against Periwinkle and the potential commencement of proceedings against him. 6. The fourth matter specified in s 9(2)(d) of the Contracts Review Act is whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract. In West v AGC (Advances) above, McHugh JA observed, referring to s 9(2)(d) of the Contracts Review Act that: "A contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision." 1. Mr Hand submits that the guarantee provided under the Handwritten Terms imposed upon Mr Fung an obligation that exceeded the amount that Elsmore ought to have known had been lost, and exceeded the value of any claim as to which Mr Fung might have required a release. Mr Hand places substantial weight on the fact that Elsmore seeks to "recover" a sum of money under the Handwritten Terms which was never lost, claiming to be entitled to payment of $2,209,000 on the basis of that agreement, although it had only raised the lesser amount to which I referred above in its initial public offering. The guarantee required of Mr Fung exceeded, by a substantial margin, the amount of Elsmore's loss. Mr Cox responds that the terms of the settlement could not be said to be unreasonably difficult to comply with or not reasonably necessary for the protection of Elsmore's legitimate interests. Mr Cox submits that the settlement required a guarantee to be given equivalent to the funds which ought to have been in the Elsmore IPO Account on listing, provided Mr Howard time to pay, and the guarantee only became operable on default by Mr Howard. Mr Cox also submits that, in the circumstances, a requirement that Mr Fung guarantee Mr Howard's and Periwinkle's performance of the settlement was reasonable. While that proposition, put with that generality, may be arguable, it does not follow that a guarantee required of Mr Fung for substantially more than Elsmore had lost was reasonable in the circumstances. 2. The fifth and sixth matters specified in s 9(2)(e)–(f) of the Contracts Review Act are whether or not any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity; and the relative economic circumstances, educational background and literacy of the parties to the contract (other than a corporation), and any person who represented any of the parties to the contract. The seventh matter specified in s 9(2)(g) of the Contracts Review Act is, where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed. Mr Fung has not established that he was not reasonably able to protect his interests by reason of any issue as to age or physical or mental capacity and I do not accept that he entered the Handwritten Terms by reason of any threat made by Mr Howard, as distinct from the objective risks of his then position to which Mr Howard had drawn his attention. Mr Fung's economic circumstances, educational background and literacy provide no basis for the grant of relief. Mr Cox submits, and I accept, that the Handwritten Terms were legible, did not use complicated language and their legal effect was within Mr Fung's commercial experience, if (I interpolate) they were read to him (as some of the evidence suggests) or had he read them for himself. 3. The eighth matter specified in s 9(2)(h) of the Contracts Review Act is whether or not and when independent legal or other expert advice was obtained by the party seeking relief under the Contracts Review Act. Mr Cox accepts that this consideration is relevant, if it is accepted (as I do accept) that Mr Fung did not have independent legal advice on 11 March 2014. However, Mr Cox submits that Mr Fung was an experienced businessman and that disadvantage does not render the settlement unjust without more. He submits that Mr Fung was able to protect his own interests in the negotiations and, it should be inferred, could have sought legal advice if he thought it was necessary. In Raupach v Macdonald [2010] NSWSC 1326, Price J observed at [106] that a self-represented businessman was at a disadvantage, in entering a settlement agreement, but noted that the significance of that disadvantage was diminished by his intelligence and experience, and that observation may also be made in respect of Mr Fung. I recognise that independent legal advice was not obtained by Mr Fung, and that provides some support for the relief which he seeks, but it must also be recognised that Mr Fung was a sophisticated businessman and acknowledged in the course of cross-examination that he knew that he could have taken such advice. 4. The ninth matter specified in s 9(2)(i) of the Contracts Review Act is the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under the Contracts Review Act, and whether or not that party understood the provisions and their effect. I have not found it necessary to determine whether the provisions of the Handwritten Terms were read to Mr Fung, where there is a dispute between the solicitors present at the meeting as to that matter, but I find that Mr Fung was at least aware of the fact that he had guaranteed Mr Howard's obligations and was exposed to the risk of non-performance by Mr Howard under the Handwritten Terms, a matter which he had specifically raised with Mr Terziovski. 5. The tenth matter specified in s 9(2)(j) of the Contracts Review Act is whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under the Contracts Review Act by any other party to the contract, by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract. Mr Cox submits that s 9(2)(j) of the Contracts Review Act is not applicable. He submits that Mr Fung conceded when he was examined before Brereton J on 2 June 2014 that "no one held a gun to [his] head" when he signed the Handwritten Terms and that his claim that Mr Howard "conned" or tricked him into signing the guarantee should not be accepted. Mr Cox also submits that any dispute between Mr Howard and Mr Fung in connection with the settlement meeting on 11 March 2014 was not indicative of vulnerability or unfair tactics and was a falling out between two reasonably equal individuals who were jointly involved in the misappropriation of the funds raised by the initial public offering. Mr Cox also submits that Mr Fung was not vulnerable in the relevant sense and was not an innocent functionary acting at Mr Howard's instigation in the relevant events. He submits that Mr Fung was actively and dishonestly involved in the deception of Elsmore regarding the amount of subscriptions raised in the initial public offering and misappropriation of the subscription funds raised prior to listing. I address the extent of Mr Fung's involvement in some but not all aspects of Mr Howard's conduct below. 6. I do not find that any unfair pressure or unfair tactics were exerted on or used against Mr Fung by Elsmore or by any person acting on its behalf, and I do not find that Mr Howard was acting on its behalf at the relevant time. I accept that some pressure was exerted by Mr Howard upon Mr Fung, but that pressure seems to me to largely have amounted to drawing Mr Fung's attention to the gravity of the risks that he in reality faced. In this case, as in Raupach v Macdonald above at [112], it seems to me that Mr Howard's reference to the threat of possible criminal proceedings is a matter that is likely to have focused Mr Fung's mind on his position, rather than a matter which impaired his judgment or gave rise to any injustice in the Handwritten Terms. 7. The eleventh and twelfth matters specified in ss 9(2)(k)–(l) of the Contracts Review Act is the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and the commercial or other setting, purpose and effect of the contract. There is no relevant conduct of the parties to the proceedings in relation to similar contracts. Mr Cox also submits that the commercial purpose of the Handwritten Terms was the resolution of serious misappropriation proceedings and a guarantee by a director of one defendant, Periwinkle, who was also a person substantially involved in the misappropriation. Mr Cox submits that the purpose of the Handwritten Terms does not suggest any injustice in that context. The commercial setting, purpose and effect of the contract, namely to bring about the settlement of proceedings, is a matter that tends in favour of its enforcement. Mr Cox also submits that the Handwritten Terms were not unjust to Mr Fung where they included a release from all liability that Mr Fung may have had in relation to the unauthorised transfer of the IPO funds from the Elsmore IPO Account to the Second Account and beyond and effectively removed any other civil liability that Mr Fung perceived was a risk to him if the dispute with Elsmore continued. However, that proposition does not address the question of the amount that Mr Fung was required to guarantee to obtain that release. Mr Cox also submits that, and I accept that, in considering whether the Handwritten Terms and the Deed were unjust, it is relevant under s 9(1)(a) of the Contracts Review Act that cl 1 of the Handwritten Terms providing for the immediate release of the controlled monies to Elsmore was complied with. 8. I have regard to the fact that Mr Fung's execution of the Handwritten Terms expressed his willingness to be bound by their terms, that the general policy of the law is that people should honour their contracts and that policy "forms part of our idea of what is just", and it seems to me that that factor is particularly applicable to a settlement of proceedings: Baltic Shipping Company, The Mikhail Lermontov v Dillon (1991) 22 NSWLR 1 at 9; Raupach v Macdonald above at [117]–[118]. Nonetheless, on balance, it seems to me that the Handwritten Terms were unjust in the circumstances relating to them at the time they were made, so far as they sought to have Mr Fung guarantee the payment by Periwinkle and Mr Howard of substantially more than Elsmore had lost by way of share subscription amounts. For the purposes of s 9(1) of the Contracts Review Act, it seems to me that the public interest would not be served, and that injustice would arise, where Elsmore seeks to rely on the Handwritten Terms to recover more than double the amount of its actual loss. It also seems to me that the Handwritten Terms imposed conditions that were not reasonably necessary for the protection of Elsmore's legitimate interests, where it sought to secure by a guarantee the recovery of more than double the loss that it had suffered. 9. The excess of the amount guaranteed by the Handwritten Terms over the amount of Elsmore's loss seems to me to give rise to so substantial an injustice that it warrants relief. However, the relief which properly follows from that matter is not that the Court should refuse to enforce the Handwritten Terms in their entirety, but rather that it should make an order varying the provisions of the Handwritten Terms so that the guarantee given by Mr Fung does not secure more than the amount that Elsmore had in fact lost, namely $679,035 (being the amount of $1,029,000 raised by share subscriptions less the amount it had previously recovered) plus any applicable interest. I will afford the parties a brief opportunity to make submissions as to the form of order that should be made to give effect to that result. 10. Mr Cox submitted that the Court may not have regard to the fact that the Handwritten Terms require Mr Fung to guarantee more than double Elsmore's loss, where that matter was not known to Elsmore at the time it was entered into. Mr Cox relies, in that regard, on s 9(4) of the Contracts Review Act which provides that, in determining whether a contract is unjust, the Court shall not have regard to any injustice arising from "circumstances that were not reasonably foreseeable at the time the contract was made". That section has an obvious application in respect of a subsequent event which may later cause a contract to be unjust, which was not foreseeable at the time the contract was made. However, the fact that the amount guaranteed under the Handwritten Terms was more than double Elsmore's loss of amounts subscribed for shares was not a subsequent event and no question of its foreseeability arose. That was an existing fact, at the time the Handwritten Terms were made, although it was not known by Elsmore by reason of a combination of its failure to take adequate steps to safeguard the subscriber funds that had been placed under its control and Mr Howard's and Mr Fung's failure to provide it with adequate information as to the way in which those funds had been treated. It seems to me that s 9(4) of the Contracts Review Act does not exclude the availability of relief, where the fact that made the Handwritten Terms unjust existed at the relevant time, although the matters to which I have referred had the result that it had not come to Elsmore's attention. 11. I should note, for completeness, that, in Attwells v Marsden [2011] NSWSC 38, Pembroke J reviewed the authorities as to whether an obligation to pay a specified amount under a consent order may constitute a penalty, where that amount is higher than would have been ordered to be paid in a determination on the merits. His Honour there noted, and I recognise, that there may be, on the particular facts, good reason for a party to agree to the creation of a new obligation to pay a specified amount, given the commercial benefits that he or she obtains under such an agreement. I do not consider that decision requires me to take a different view to that which I have reached in this case. First, and perhaps most importantly, Elsmore did not rely on that decision or the principles noted in it to resist Mr Fung's application under the Contracts Review Act. Second, by contrast with that decision, the present case is not one where, as a matter of substance, a claim to an existing debt owed by Mr Fung was compromised by acceptance of a lesser (or indeed a greater) amount on condition, with the existing debt being expressly or impliedly acknowledged in the settlement agreement, since the settlement agreement created a liability to pay a money amount in respect of an otherwise unliquidated claim that had yet to be brought against Mr Fung. Third, the exercise that is involved in a determination under the Contracts Review Act seems to me to raise additional, and different, considerations to those which arise in a claim that a contractual obligation is unenforceable as a penalty. 12. I should also note, again for completeness, that had I not reached that result by reference to the Contracts Review Act, I would have invited further submissions as to the application of statutory unconscionability provisions, including under the Australian Securities and Investments Commission Act 2001 (Cth). It seems to me that it would at least be strongly arguable that, accepting that Elsmore was not aware that the Handwritten Terms would deliver it a windfall gain of more than $1 million at the time they were executed, it would still be unconscionable, for the purposes of those provisions, for it to seek to maintain that result after it became aware of it. It has not been necessary to seek additional submissions as to that matter, given the result that I have reached under the Contracts Review Act. Mr Fung's defence of lack of consideration for the Handwritten Terms 1. Mr Fung also pleads (Defence [39A]) that the Handwritten Terms were not executed as a deed and his guarantee was not supported by consideration moving from Elsmore (or, alternatively, any consideration moving from Elsmore was illusory) and that agreement was not enforceable by Elsmore against him. 2. Mr Hand submits, correctly, that the Handwritten Terms were not executed as a deed and, unless the Handwritten Terms were supported by consideration, they do not create an enforceable right against Mr Fung. Mr Hand also rightly points out that the only potential source of consideration in the Handwritten Terms is cl 7, which provides for mutual releases and confidentiality. Mr Hand submits that, first, that term is uncertain, because the Handwritten Terms did not contain recitals to identify what was being released, although he accepts that the Courts will endeavour to avoid a finding that a commercial contract is void for uncertainty. In my view, the Handwritten Terms were sufficiently certain, because they would be read in the context of the surrounding circumstances known to both parties, which included the claim brought by Elsmore against Periwinkle and the fact that such a claim could readily be extended to Mr Fung, as the sole director and shareholder of Periwinkle and the person that had acted on its behalf throughout the transaction, at least on the basis that he was knowingly involved in any conduct of Periwinkle that involved a breach of trust. 3. Next, Mr Hand submits that there was no benefit to Mr Fung in giving the guarantee and no consideration moved from Elsmore, even if there was a benefit to Periwinkle so as to support the enforcement of the guarantee against it. Mr Hand accepts that the compromise of a genuine claim will provide consideration but refers to the summary of the case law in Cheshire and Fifoot Law of Contract (10th Australian ed 2012, LexisNexis Butterworths) at [426] as requiring that, in order to establish consideration on that basis, the plaintiffs must show that a claim was reasonable, that he or she had an honest belief in the chance of its success and that he or she had not knowingly concealed from the other party any fact that might affect its validity. Mr Hand submits that, in order to establish that it had an honest belief that it had a claim against Mr Fung, Elsmore would have been required to join him in the proceedings prior to the settlement meeting. I do not accept that submission. Where a claim was available against Mr Fung, arising from the same matters that had been pleaded against Periwinkle, it was not necessary for Elsmore to take the formal step of joining Mr Fung to proceedings in order for a release of the potential claim against him to constitute consideration for the Handwritten Terms. Mr Hand did not press the suggestion made, in opening submissions, that Elsmore had knowingly concealed the fact that it was claiming to recover more than it had lost in the Handwritten Terms, where the further evidence led by Elsmore suggested that it was not then aware of that matter. 4. I also do not accept the submission that the giving of the releases did not amount to consideration sufficient to support the Handwritten Terms. At the relevant time, it seems to me that a claim for receipt of trust property, and for knowing involvement of Mr Fung in respect of Periwinkle's breach of trust, was plainly available against Mr Fung, and the mutual releases contained in the Handwritten Terms released Mr Fung from that claim. In those circumstances, Mr Fung obtained a real benefit from the entry into the Handwritten Terms. 5. In closing submissions, Mr Hand also advanced an ingenious submission that relied on the evidence given by Mr Chung and Mr Gaffney that, at the time of the settlement meeting on 11 March 2014, each believed that Elsmore had raised $2,209,000 in share subscriptions and that those monies were then held by Mr Howard or Periwinkle. Mr Hand submitted that, if Mr Chung and Mr Gaffney held those beliefs, they could not have held a good faith belief, as at that date, that Mr Fung had been involved as an accessory to any dishonest or fraudulent conduct of the type alleged in the Statement of Claim filed on 23 January 2015 or that Elsmore had a claim, or potential claim, against Mr Fung for any such accessorial conduct or that any such claim, or potential claim, had a chance of success. While I acknowledge the ingenuity of that submission, I do not accept it. It fails because, at the relevant time, on the basis of the matters believed by Mr Chung and Mr Gaffney, the monies paid by Elsmore to Periwinkle were at least arguably the subject of a trust, and Periwinkle and Mr Fung had failed to account to the beneficiary or beneficiaries) of the trust, whether Elsmore or the investors, for those monies. That was sufficient to found a good faith belief in the existence of a claim against Periwinkle, and by extension Mr Fung, of the kind identified in the Statement of Claim. Mr Fung's non-disclosure case and his claim in misrepresentation 1. Mr Fung also pleads (Defence [39E]) that, in the course of negotiating the Handwritten Terms, Elsmore failed to disclose that Mr Howard had made several promises to return funds to Elsmore during January and February 2014 which had largely not been honoured by Mr Howard. Mr Fung pleads that that non-disclosure occurred in trade and commerce and was misleading and deceptive or likely to mislead or deceive in breach of s 18 of the Australian Consumer Law and that the Handwritten Terms are liable to be declared void under s 243 of the Australian Consumer Law. 2. The position as to when a non-disclosure will be misleading or deceptive under s 18 of the Australian Consumer Law is well established in the case law, and I have drawn on my review of the authorities in Redmond Family Holdings v GC Access Pty Ltd [2016] NSWSC 796 in the summary that follows. A non-disclosure can contravene the statutory prohibitions on misleading and deceptive conduct if, in all the circumstances, it has the effect that the conduct of the defendant was misleading or deceptive or likely to mislead or deceive and, in particular, if the failure to disclose a matter would allow one party to infer from the other's silence that that matter did not exist: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; 110 ALR 608; (1993) ATPR 41-203; Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97; 111 ALR 649. The materiality of information which is not disclosed will be relevant to whether a non-disclosure of it is misleading: Australian Securities and Investments Commission v PFS Business Development Group Pty Ltd [2006] VSC 192; (2006) 57 ACSR 553 at [362]. The question whether silence is misleading is normally answered by asking whether the person alleged to be misled or deceived had a reasonable expectation of disclosure. 3. The relevant principles were summarised by the High Court in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; (2010) 241 CLR 357 in respect of s 52 of the Trade Practices Act 1974 (Cth) and again by Sackville AJA in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209] in respect of s 42 of the Fair Trading Act 1987 (NSW) as follows: "(iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive … While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist. (iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context … The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged. (v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective. (vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by s 42 of the [Fair Trading Act]. (vii) In general, s 42 of the [Fair Trading Act] does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori, s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence … That summary was in turn cited with approval by Barrett JA (Bathurst CJ and Beazley P agreeing) in Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 at [192] and by Gleeson JA (with Macfarlan and Leeming JJA agreeing) in OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [178] . 1. Mr Hand submits that Elsmore engaged in misleading and deceptive conduct by failing to disclose to Mr Fung that Mr Howard had breached a number of promises made to it for repayment of amounts of money, prior to the point at which settlement was reached. Mr Hand also submits that there was misrepresentation by silence, so far as there was a reasonable expectation of disclosure by Elsmore of the fact that Mr Howard had failed repeatedly to make payments to Elsmore (T224). It does not seem to me that Mr Fung had any expectation that Elsmore would advise him as to the likelihood that Mr Howard would comply with his promises, particularly where Mr Fung had an existing business relationship with Mr Howard. The conversation between Mr Fung and Mr Terziovski to which I have referred above also makes clear that Mr Fung was conscious of the risk that Mr Howard might not comply with his obligations under the Handwritten Terms and of the adverse consequences if that occurred. Mr Fung's non-disclosure case and his claim in misrepresentation on that basis is not established. Mr Fung's claim in innocent misrepresentation 1. Alternatively, Mr Fung pleads (Defence [39F]) that the Handwritten Terms are liable to be set aside on the basis of innocent misrepresentation, by reason of a representation made by Elsmore that a debt of $2,209,000 was owing by Mr Howard to it, in circumstances that a substantially lesser amount had been raised by the initial public offering. 2. Mr Hand in turn submits that Mr Fung is entitled to rescind the guarantee contained in the Handwritten Terms on the basis of an innocent misrepresentation by Elsmore, arising, broadly, from a representation that it was seeking to recover the amount that it lost by way of share subscriptions. Mr Cox responds that Elsmore's presenting the Handwritten Terms for signature to Mr Fung was not a representation as to the merits of Elsmore's claim against Mr Howard or Periwinkle, and was no more than a recounting of the agreement that had been negotiated during the settlement meeting. Mr Cox also submits that, at that time, Elsmore believed that the amount of $2,209,000 had been raised, and the evidence supports that submission. However, it seems to me that the provision of the Handwritten Terms, and the conduct of the settlement meeting as a whole, contained at least a representation that the amount of Elsmore's loss, as to which it sought to be compensated, was $2,209,000 and that statement, albeit it reflected Elsmore's then belief, was false. 3. I have given careful consideration to the possibility that a representation as to the amount that had been lost by Elsmore may have been causative of Mr Fung's entry into the Handwritten Terms. I recognise that it is difficult to see why Mr Fung would have entered into the Handwritten Terms which provided for him to guarantee a payment of more than double the amount that Elsmore had lost, if he were not in error as to that matter. On the other hand, Mr Cox raises an alternative possibility, in closing submissions, that Mr Fung may have rationally considered that the larger amount should be paid, to keep his involvement in the matter hidden, or to avoid the risk of liability, and I recognise that that possibility is open. Mr Cox also submits that Mr Fung does not give evidence that he was induced by a representation as to the amount lost by Elsmore to sign the guarantee, and that his evidence is that he did so because of threats by Mr Howard. 4. Mr Cox also submits that Mr Fung must have known that there had never been $2,209,000 in the Elsmore IPO Account, of which he was the sole accountholder, and I accept that submission. It seems to me that there is no reasonable basis for any suggestion that Mr Fung had any belief that any additional amounts raised by shares subscriptions by Elsmore were held other than in the Elsmore IPO Account and the Second Account, prior to their being disbursed from those accounts. In those circumstances, Mr Fung cannot have been misled by the alleged misrepresentation, which seems to me to have had no causative impact. It therefore does not seem to me that reliance or causation is established in respect of the alleged misrepresentation or non-disclosure so as to support setting aside the Handwritten Terms or the Deed on this basis. The claim in innocent misrepresentation fails. 5. It is therefore not necessary or appropriate to determine the question whether rescission would have been excluded by the principle in Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 at 333, to which Mr Cox referred, which should be left to a determination in a case where it arises. I note only that it seems to me that there is substantial force in the comments made by Bergin CJ in Eq in Vitek v Taheri [2013] NSWSC 589 at [79]–[81], where her Honour referred to the application of the rule in Seddon's Case in executed contracts for the sale of land, but also noted that there was authority that had not applied that rule in respect of contracts for the sale of goods; that the application of that rule had been questioned in academic commentary and by Young J in Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 379–380; and that: "… it is difficult to understand why a party who has been induced into a contractual relationship on a totally false basis should not have access to the equitable remedy of rescission in the appropriate case." 1. I should add, for clarity's sake, that my finding that Mr Fung was not misled as to the amount raised by Elsmore is not inconsistent with my findings above that it would be unjust for Elsmore to rely on the Handwritten Terms to recover more than double its loss, or that the relevant terms were not reasonably necessary to protect Elsmore's interests, which depend on the substance of the settlement rather than on whether Mr Fung was misled as to that matter. Mr Fung's defence that he did not execute the Deed 1. In paragraph 43 of his Defence, Mr Fung pleads that the Deed was not signed by him and is not binding upon him. Mr Hand submits that Mr Fung did not accept the terms of the Deed, and points to the fact that the evidence indicates that Mr Howard directed a third party, Mr Monaco, to affix Mr Fung's electronic signature to that Deed. Elsmore sought, but was unable, to serve a subpoena on Mr Monaco to give evidence in the proceedings (Ex P6). Mr Cox submits that Mr Fung would be bound by the Deed, where the evidence indicates that he was copied on emails referring to his electronic signature being placed on the document by Mr Monaca (Ex J1, 507W), although Mr Fung also raised a question as to whether he had received those emails in cross-examination. Mr Cox also submits that the Court would more readily infer that Mr Fung had authorised the application of his electronic signature to the Deed where he did not call Mr Monaco, or Mr Afrasiabi, a solicitor with his former legal representatives who had delivered that Deed to Elsmore's solicitors, and where there also appear to be significant failures in discovery by Mr Fung as to this matter: Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]. 2. It is not necessary for me to determine this matter, since I have held above that the Handwritten Terms are enforceable against Mr Fung, subject to their variation under the Contracts Review Act (for the reasons that I noted above) to reduce the amount that was recoverable under them to the amount that Elsmore had lost. The position in respect of the Deed, if it were enforceable, would be the same as the position in respect of the Handwritten Terms. 3. I note, for completeness, that further claims for misleading and deceptive conduct on the basis that Mr Howard's conduct, in dealing with Mr Fung prior to the execution of the Handwritten Terms, could be attributed to Elsmore (Defence [39B]–[39C]) and by non-disclosure by Elsmore in settlement negotiations that it was seeking to recover more than the amount that it had lost (Defence [39D]) were not pressed. Elsmore's claim for knowing assistance in breach of trust 1. I should also address this claim, where the Handwritten Terms will be varied to reduce the amount recoverable by Elsmore and against the contingency that an appellate court may take a different view than I have taken as to the application of the Contracts Review Act in the relevant circumstances. Mr Cox made clear, in opening submissions, that this claim was advanced in the alternative if Elsmore was unable to rely on the Handwritten Terms or the Deed. Elsmore recognises that, obviously enough, the release contained in the Handwritten Terms and the Deed would apply if those documents are not set aside. Mr Fung accepts that, if the guarantee is set aside under the Contracts Review Act, he is unable to rely upon any release arising out of the Handwritten Terms or the Deed and Elsmore is free to advance the other claims brought against him in the proceedings. 2. Elsmore pleads (SOC [23]) that, by reason of the factual matters to which I have referred above, Periwinkle held monies from the First Transfer, Second Transfer and Third Transfer on trust for it and that Periwinkle was required to transfer those monies to Elsmore when it was listed on ASX or Elsmore was required to return share subscriber fees to subscribers as a result of the initial public offering not proceeding (SOC [24]). The latter pleading should be understood as a loose way of describing the obligation to return amounts subscribed to subscribers, when the minimum subscription condition in Elsmore's prospectus was not satisfied. Elsmore pleads (SOC [28]) that the Primary Transfers (as defined) were unrelated to its initial public offering, made without its consent or authority and effected by Mr Fung, as the sole signatory of the Elsmore IPO Account. Elsmore also pleads (SOC [29]) that Mr Fung knew or ought to have known that the First Transfer, Second Transfer and Third Transfer were to be held on trust by Periwinkle for Elsmore, and that the Primary Transfers (as defined) were a breach of trust and made in breach of Periwinkle's duties as trustee. 3. Mr Fung responds (Defence [25]) that he was the sole director and shareholder of Periwinkle, Little Boxes and Bubbly Water and that, on or about 11 November 2013, he spoke to Mr Howard and requested that amounts owing to Periwinkle for services provided under the mandate agreement be paid to Little Boxes or Bubbly Water and those payments were made with Mr Howard's knowledge and at his instruction. Mr Fung also pleads that if (which is not admitted) any payment of that amount involved a breach of trust, he was not aware, and could not reasonably have been aware, of that breach of trust, on the basis the payment was made with Mr Howard's knowledge and at his direction. Whether a trust is established 1. Mr Cox submitted that the funds transferred by Elsmore to the Elsmore IPO Account under Periwinkle's control were held on trust for the benefit of the subscribers to Elsmore's initial public offering until Elsmore listed on the ASX and, in the event that Elsmore was successfully listed, the funds were to be released to Elsmore. Mr Cox submitted that the terms of that trust were known to Mr Fung and had been confirmed in the emails of 7 and 8 November 2013 (Ex J1, 115). Mr Hand responded that the Elsmore IPO Account maintained by Periwinkle was not a trust account in the traditional sense on the basis that both trust funds and operating funds were deposited in it. However, he does no more than to point to a list of transactions for that bank account to establish that submission, and it is not self-evident that funds other than funds referrable to Elsmore's IPO were deposited to that account. 2. The matters necessary to give rise to a trust were summarised by the High Court in Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6; (2015) 255 CLR 62, where French CJ referred to a summary of the requirements for an express trust in JD Heydon and MJ Leeming, Jacobs' Law of Trusts in Australia, (7th ed 2006, LexisNexis Butterworths) at [306], where the authors note that an intention to create a trust may be found based on language which expressly or impliedly expresses that intention, or from the conduct of the parties concerned, but that no trust will be established if there is any uncertainty as to that intention. His Honour also referred to Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 at 619, where Mason CJ and Dawson J observed that, if the parties to a contract intended to create or protect an interest of a third party and a trust relationship was the appropriate means of creating or protecting that interest, there is no reason why an intention to create a trust should not be inferred. Hayne and Kiefel JJ also there noted (at [72]) that whether a trust should be found to exist depends on the proper construction of the documents which record the parties' intention, and Gageler J observed (at [109]) that whether recognition and enforcement of a trust is appropriate is to be determined according to ordinary principles of contractual construction. 3. The parties were here not legally represented at the time of the relevant dealings and the correspondence from which their intentions are to be inferred is brief and informal in character. It seems to me that the emails dated 7 and 8 November 2013 (Ex J1, 114–116) recognised that the monies held by Elsmore in its CBA IPO Account were held on trust, initially for the relevant investors, as was required by s 722 of the Corporations Act to which I have referred above. The funds transferred from the CBA IPO Account to the Elsmore IPO Account under Periwinkle's control had the character of trust funds and a straightforward application of following or tracing principles would treat those funds, when received by Periwinkle, as trust funds, even apart from the fact that the circumstances in which that account was established indicate that it had the same character. Whether the trust was breached 1. The question then arises whether the trust was breached. Mr Cox submitted that there is no credible evidence that the directors of Elsmore, including Mr Howard, authorised the transfer of the IPO subscriber funds out of the Elsmore IPO Account for a legitimate business purpose of Elsmore prior to its listing on 23 December 2013. That submission was not necessary to Elsmore's case since the trust recognised by the emails dated 7 and 8 November 2013, consistent with s 722 of the Corporations Act, to which the monies held in the CBA IPO Account and then the Elsmore IPO Account were subject, did not permit the use of subscriber funds for Elsmore's business purposes, at least before the minimum subscription condition contained in the prospectus had been satisfied and shares had been issued to subscribers. It seems to me that the initial disbursement of funds from the Elsmore IPO Account to companies associated with Mr Fung and Mr Howard's brother and the payment of the subscriber funds held in the Elsmore IPO Account to the Second Account, and their subsequent withdrawal (even if Mr Fung wrongly believed that was for Elsmore's purposes) was in breach of the trust that required the funds be held for subscribers, which continued at least until the point at which shares were issued, if not further to the point at which the minimum subscription condition in Elsmore's prospectus was satisfied, which has still not occurred. The parties' submissions as to whether Mr Fung knowingly assisted in the breach of trust 1. I now turn to the question then arise whether Mr Fung can be held liable in respect of any such breach of trust. 2. In opening submissions, Mr Cox submitted that Mr Fung could be held liable on the basis that he had transferred the funds held in the Elsmore IPO Account with knowledge of a "dishonest and fraudulent design" sufficient to engage the second limb of Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513 and Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609 ("Hasler") at [106]–[109]. Mr Cox also submitted, in reply, that Mr Fung knowingly assisted in a breach of trust, in respect of the transfers made from the Elsmore IPO Account, which Mr Cox submits were made by Mr Fung prior to the listing of Elsmore (or, I interpolate, relevantly, prior to satisfaction of the minimum subscription condition) with knowledge that the monies were to be held in trust until Elsmore listed (or, more precisely, until the minimum subscription condition was satisfied). 3. Mr Cox submitted that Mr Fung was aware that the funds in the Elsmore IPO Account were to be held on trust until Elsmore listed on the ASX, and were then to be released to Elsmore. This submission misstates the relevant statutory condition, as I have noted above. Mr Cox relies on the emails dated 7 and 8 November 2013 in this regard and also refers to Mr Fung's knowledge and experience as a businessman and consultant involved in marketing investments of this kind. Mr Cox also submits that when Mr Fung transferred the money to the Second Account, he knew that those funds were then to be disbursed for the personal benefit of Mr Howard and/or himself. Mr Cox also submits that Mr Fung's suggestion that he thought Mr Howard could authorise this transaction should be rejected. 4. Mr Hand, in closing submissions, recognised that Elsmore's claim extended to a claim that Periwinkle held those monies on trust for Elsmore; that Periwinkle, in breach of its obligations as trustee, transferred those monies out of its account; and that Mr Fung knew or ought to have known those matters, such that he was an accessory to Periwinkle's conduct. Mr Hand responds that Mr Chung, as a director of Elsmore, had permitted Mr Howard to deal with significant sums of Elsmore's money, without making the most rudimentary inquiries to confirm details of the accounts to which the money was being paid, and that Mr Chung's departure from the standard of care and diligence required of a director was exacerbated by the fact that the monies with which Mr Chung and Mr Howard were dealing were impressed with a statutory trust. There is force in that submission. However, it seems to me that it is not to the point, where any failure of care or diligence on the part of Mr Chung is not an answer to a claim for knowing assistance in a breach of trust, on the part of Mr Fung. 5. Mr Hand also submits that Mr Chung's description in his email dated 7 November 2013 of the funds held by Elsmore in Elsmore's CBA IPO Account as belonging to investors and "refundable" was not sufficient to put Mr Fung on notice that the funds were to be held on trust. I do not accept that submission. It seems to me that those statements were sufficient to put both Periwinkle and Mr Fung on notice of that matter, even if Mr Fung was ignorant of the statutory obligations attaching to those funds at that time. 6. Mr Hand submits that Mr Fung was not involved in the transfer of the sum of $1,029,000 by Elsmore into the Elsmore IPO Account that he maintained, and that sum was transferred by Elsmore on the basis of transactions that appeared on their face to be legitimate. Mr Hand submits that Mr Fung's evidence that the transfer of monies from the Elsmore IPO Account to the Second Account was done on the direction of Mr Howard should be accepted. Mr Hand also submits that Mr Fung's conduct was the consequence of his being misled by Mr Howard, rather than being a co-conspirator with Mr Howard in a dishonest and fraudulent design. Mr Hand submits, in closing submissions, that Mr Fung did not have knowledge of any matter that would alert him to a breach of fiduciary duty by Mr Howard until, at the earliest, 3 March 2014 when Mr Howard told him that proceedings had been commenced against him by Elsmore. Mr Hand also points to complaints that had been made by Mr Fung at this time (Ex J1, 111) as to delays in the transaction, and about the fact that Periwinkle had not been paid for its services, and to Mr Fung's evidence that Mr Howard subsequently authorised the application of some of those funds to pay Periwinkle's fees. It does not seem to me that those matters assist Mr Fung, since, whether or not Mr Fung was discontented with the speed of the transaction, or wished to be paid, or Mr Howard had authorised such payment, the relevant payment was inconsistent with the terms of the express trust on which the monies had been remitted to Periwinkle, as well as the statutory trust that was imposed upon them. Mr Fung was at least aware of the former, by reason of the emails of 7 and 8 November 2013 to which I have referred above. 7. Mr Hand also submits that the instruction which Mr Fung claims was later given by Mr Howard, inconsistently with Mr Chung's position stated in the earlier email, was not sufficient to put Mr Fung on notice of a prima facie breach of trust. I do not accept that that submission accurately identifies the relevant question. Where funds have had been transmitted to Periwinkle on the terms of an express trust, as communicated by Mr Chung, the later instruction by a single director of Elsmore did not extinguish that trust, and the application of those funds other than in accordance with the terms of the trust were sufficient to place Mr Fung on notice of the breach of trust. 8. Mr Hand also submits that the Second Transfer was the subject of the written agreement dated 2 December 2013 (Ex J1, 311) signed by Mr Howard as a director of Elsmore and purportedly as a director of Periwinkle. I have referred to that agreement above. Mr Hand submits that Mr Howard manufactured a crisis to justify the requirement for the transfer of $100,000 to that account, and points to Mr Fung's evidence that he understood that money was to be used to pay Elsmore's debts (T177–178). Mr Hand also submits that Mr Fung was not on notice that the relevant monies were trust funds, or that Mr Howard was acting in breach of fiduciary obligations. I do not accept that submission. It seems to me that that transfer should be understood as made on the same basis as the earlier transfer, and the deposit of funds to an account headed "Elsmore IPO", together with the statutory trust that applied to those funds, reinforces their characterisation as trust funds. 9. Mr Hand submits that Mr Howard again manufactured a crisis to bring about the Third Transfer on 13 December 2013, the last day on which subscribers could withdraw from the initial public offering, by advising Mr Kerridge that Mr Fung "wants to withdraw it all", and also makes submissions critical of Mr Chung's conduct in then permitting the Third Transfer of the funds. Mr Fung's evidence is that, once he identified the funds in Periwinkle's account arising from the Third Transfer, he contacted Mr Howard to inquire about them, and that Mr Howard advised him that he had arranged for the transfer on behalf of Elsmore (Fung 13.5.16 [5]). Mr Fung's evidence is, as noted above, that the monies were then transferred to the Second Account as to which Mr Fung and Mr Howard were signatories, and were then disbursed. Mr Hand submits that there was nothing that could reasonably have put Mr Fung on notice that the transfer of $779,000 was of trust monies or that Mr Howard was acting in breach of fiduciary duty. I also do not accept that submission. It seems to me that the transfer of funds into an account headed "Elsmore IPO", in the context of the email correspondence of 7 and 8 November 2013, was only consistent with those funds having been forwarded to that account as trust funds. Mr Fung then knew the relevant facts necessary to establish that the disbursement of those funds, other than for the purpose for which they were held in trust, was a breach of trust. 10. Mr Hand also points to evidence that Mr Howard alone made subsequent transfers between 17 December 2013 and 16 January 2014 and submits that the Court should infer that subsequent transfers between 17 January 2014 and 21 January 2014 to the same accounts were also made by Mr Howard. It does not seem to me that that submission is to the point, where the relevant breach of trust had occurred at the point at which the monies passed out of the Elsmore IPO Account under Periwinkle's and Mr Fung's sole control to another account, which was no longer under Periwinkle's sole control, placing those funds at the risk of the loss which thereafter occurred. Applicable legal principles and analysis 1. A person may be held liable for knowingly assisting in a breach of trust where that breach can be characterised as amounting to a "dishonest and fraudulent design" on the part of the trustee. This liability involves the application of the second limb in Barnes v Addy above at 251–252 where Lord Selborne LC observed that: "strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents … assist with knowledge in a dishonest and fraudulent design on the part of the trustees." 1. The matters that are required to establish the element of a "dishonest and fraudulent design" have been formulated in somewhat different terms in recent case law. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 ("Farah Constructions"), the High Court observed (at [179]) that Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 ("Consul Developments") established a requirement that any breach of trust or breach of fiduciary duty relied on to establish liability for knowing assistance must be dishonest and fraudulent, so that the impugned conduct must involve circumstances attracting a degree of opprobrium beyond an innocent breach of trust or duty (at [183]). A possibly wider view of the scope of liability for knowing assistance was taken by the majority on appeal in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1; 89 ACSR 1. At least in New South Wales, the way in which Consul Developments and Farah Constructions above are to be applied is now settled following the Court of Appeal's decision in Hasler above, where Leeming JA held (at [124]) that, in order to establish knowing assistance, a breach of trust must be dishonest as well as fraudulent, with dishonesty amounting to "a transgression of ordinary standards of honest behaviour", although it is not necessary to demonstrate that the relevant individual "thought about what those standards were". Gleeson JA agreed with the observations of Leeming JA and also observed that the concept of a dishonest and fraudulent design did not include all breaches of duty more serious than a trivial breach and not excusable by statute. 2. In Sino Iron Pty Ltd v Palmer (No 3) [2015] QSC 94, although a claim for knowing assistance in a breach of trust failed where the relevant contractual arrangements were not found to give rise to a trust, Jackson J (at [143]ff) referred to earlier authority that such a claim could be established if the defendant knew the facts as to the basis on which the relevant funds were held, and did not require that he or she knew that they were held on trust, and his Honour took the same view. His Honour also referred (at [117]ff) to the circumstances in which a party may be held liable for procuring or inducing a breach of trust, as an alternative to a claim for knowing assistance. 3. I first address the question whether the relevant breach of trust was dishonest and fraudulent in character. It seems to me that question must be determined by reference not only to the particular payments but also by reference to the circumstances in which they occurred. These involved the disregard of the express terms on which the monies in the CBA IPO Account and then the Elsmore IPO Account were held, as established by the emails dated 7 and 8 November 2013, but also included the process by which monies were initially paid in and then withdrawn from the Elsmore IPO Account in mid-July 2013, creating a false appearance of initial subscriptions, the false representations as to the extent of investors introduced by Periwinkle and Mr Fung, the false threats that those non-existent investors would withdraw from the offering and the proposal to provide false addresses for those subscribers to ASX, matters which in turn assisted Mr Howard to persuade Mr Chung to cause the payments to be made from the funds held for subscribers in the CBA IPO Account into the Elsmore IPO Account. In these circumstances, the breach of trust constituted by the payments of funds held on trust for subscribers out of the Elsmore IPO Account, partly to entities associated with Mr Fung and Mr Howard's brother and partly to the Second Account where they were placed partly under Mr Howard's control, and the subsequent disbursement of funds from that account had a fraudulent and dishonest character. 4. I now turn to the questions whether Mr Fung assisted in, and had sufficient knowledge to establish a claim for knowing assistance in, the relevant breach of trust. I have addressed aspects of the parties' submissions as to those matters above. Mr Fung as signatory to the Elsmore IPO Account held under Periwinkle's control was involved in the payments out of that account. It is not necessary to establish knowing involvement that Mr Fung knew each fact constituting the dishonest conduct or subjectively recognised its dishonesty. Mr Fung knew the terms of the trust recognised by the 7 and 8 November emails over the funds held in Elsmore's CBA IPO Account from which the funds were transferred to the Elsmore IPO Account under Periwinkle's control; that Periwinkle paid out the monies originally paid into the Elsmore IPO account in mid-July 2013; and that the monies held in the Elsmore IPO Account were applied partly to payments to Mr Fung's companies and partly transferred to the Second Account where they were partly under Mr Howard's control, and were used for other purposes other than being held for subscribers pending the listing of Elsmore or satisfaction of the minimum subscription condition in Elsmore's prospectus. Where that use was inconsistent with the trust recognised by the 7 and 8 November emails, and the statutory trust, it does not matter whether (as he claims) Mr Fung wrongly understood those purposes to be Elmore's purposes rather than Mr Howard's purposes. Mr Fung also knew that that had occurred in circumstances that Periwinkle and he had not secured a significant number of subscribers or funds for the offering and threats of their withdrawal were false, as a matter of substance, and that Mr Howard was contemplating providing false addresses for subscribers and Mr Fung had not objected to that course. It seems to me that these matters establish the necessary involvement in, and the necessary knowledge for, the claim for knowing assistance in Periwinkle's breach of trust. 5. Mr Cox submits that Mr Fung should be held liable on the basis of the decisions referred to in Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81 at [39]–[41], [45], to which I drew Counsels' attention in the course of the hearing. The Court of Appeal there referred to Agip Africa (Ltd) v Jackson [1990] Ch 265, affd [1991] Ch 547, where Millett J referred to two categories of knowing receipt, the first being where a person receives trust property transferred to him in breach of trust. His Honour then described the second category, which he observed was distinct, as referable to (at 291): "the person, usually an agent of the trustees, who receives the trust property lawfully and not for his own benefit but who then either misappropriates it or otherwise deals with it in a manner which is inconsistent with the trust. He is liable to account as a constructive trustee if he received the property knowing it to be such, though he will not necessarily be required in all circumstances to have known the exact terms of the trust." 1. In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 ("Metall und Rohstoff") at 474, the Court of Appeal in turn referred to a category of constructive trust where a party received trust property, other than as a purchaser for value without notice of the trust, and acquired notice of the trust and dealt with it in a manner inconsistent with the trust, which it described as a "wrongful dealing constructive trust". 2. In Fistar v Riverwood Legion and Community Club Ltd above at [39]–[41], [45], Leeming JA (with whom Bathurst CJ and Sackville AJA agreed), referred to Agip and Metall und Rohstoff above and observed (at [45]) that: "… liability under the first limb of Barnes v Addy is not the only way in which a recipient of trust property may become bound in conscience to account for it. A person who receives trust property, otherwise than as a bona fide purchaser for value without notice, but innocently, and thereafter acquires notice of the trust and deals with it in a manner inconsistent with the trust, will also be liable as a constructive trustee. Although this is similar to first limb Barnes v Addy liability, it is conceptually distinct, because it is the subsequent dealing, rather than the receipt of property, that founds liability, as Professors Dietrich and Ridge have observed: J Dietrich and P Ridge, Accessories in Private Law, (2015, Cambridge University Press) at 203. This class of liability was identified by Millett J in Agip (Africa) Ltd v Jackson [1990] Ch 265 at 291 and by the Court of Appeal in Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391 at 474; see also L Tucker et al, Lewin on Trusts (19th ed 2015, Sweet & Maxwell) at 2103–9. The distinction drawn by Millett J in Agip was cited with evident approval in Sze Tu at [143]." 1. It seems to me that the Court may arguably have had regard to those principles in determining the matter, even if they had not been squarely pleaded by Elsmore, where the function of pleadings is to afford procedural fairness, and the Court should conduct the proceedings so as to promote a just outcome: Betfair Pty Ltd v Racing New South Wales [1020] FCAFC 133 (2010) 189 FCR 356 at [55]; Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15; JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20; (2016) 329 ALR 625 at [410]–[411]. The possibility of an alternative approach on that basis was here raised in the course of the hearing, and there is no suggestion that Mr Fung could or would have led different evidence had that approach been raised at an earlier point. However, it does not seem to me that Elsmore needs to rely on those principles, or that I need to determine whether they extend to Mr Fung as well as Periwinkle, where I have held that Mr Fung was knowingly involved in Periwinkle's breach of trust for the reasons set out above. 2. I should add, for completeness, that it seems to me likely that Mr Fung would also have been liable under wider principles applicable to establishing the liability of a person who induces or procures a trustee to commit a breach of trust, which do not require that the breach be of a dishonest and fraudulent character, so far as Mr Fung plainly caused Periwinkle to take the steps which constituted the breach of trust on its part: Farah Constructions above at [161]; Hasler above at [77]; W Gummow, "Knowing Assistance" (2013) 87 Australian Law Journal 311. However, I do not determine the matter on that basis where it is not clear that Mr Cox put Elsmore's case on that basis. Orders 1. It follows that Elsmore is entitled to judgment against Mr Fung, varied to reflect the amount it actually lost, together with any applicable interest. However, there may be a question as to whether Elsmore holds that money beneficially, or on trust for subscribers to its initial public offering, where the minimum subscription requirement contained in its prospectus was never satisfied, by reason of ss 722–723 of the Corporations Act. That matter would need to be resolved before Elsmore was entitled to apply any monies recovered pursuant to this judgment for its own purposes. It may be that representatives of subscribers or the Australian Securities and Investments Commission will need to be joined to the proceedings and given an opportunity to be heard as to that question. 2. A real question also arises as to whether Elsmore ever satisfied, or now satisfies, the requirements for listing and quotation of its securities on ASX, which have an important public purpose in ensuring that investors can assume that listed companies are appropriately capitalised and have the requisite spread of shareholders. Subject to any other submissions of the parties, I propose to order that, within 14 days, Elsmore draw this judgment to the attention of each of ASX and the Australian Securities and Investment Commission, so they have the opportunity to consider the status of Elsmore's listing having regard to the findings that I have reached. 3. The parties should bring in agreed short minutes of order to give effect to this judgment, including as to costs, within 7 days, and in the event of any disagreement, their respective draft minutes of order and short submissions as to the differences between them. ********** Amendments 01 July 2016 - Para 68 - first sentence; Para 92 - second sentence; para 93 - final sentence; para 122 - second last sentence; para 128 - first sentence: correct typographical errors. 04 November 2016 - Para 20 line 7: typographical error corrected. 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: 04 November 2016