fEDERAL COURT OF AUSTRALIA

Lin v Chu [2025] FCAFC 130

ORDERS

THE COURT ORDERS THAT:

1.    The respondents’ notice of contention be allowed.

2.    The appeal be dismissed.

3.    The appellant pay the respondents’ costs of the appeal.

Note:     Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The respondents’ notice of contention be allowed.

2.    The appeal be dismissed.

3.    The appellant pay the respondents’ costs of the appeal.

4.    Each party bear its own costs of the cross-appeal.

Note:     Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The appellant be granted leave to rely on the draft notice of appeal.

2.    The appellant be granted leave to appeal.

3.    The appeal be allowed.

4.    Order 9 of the orders made by the primary judge on 23 August 2024 against the appellant be set aside.

5.    In lieu thereof, the respondents pay the appellant’s costs of the proceeding below and of the appeal.

Note:     Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

Introduction

1    In 2014, Ms Hong Chu and Mr Xueping Xu, who were citizens of the People’s Republic of China, each wished to obtain a “significant investor visa” (SIV) from the Australian government. In order to do so, they were required under relevant regulations to make an investment of at least $5 million in “complying investments”, which included loans secured by mortgages over real property in Australia.

2    In May and August 2014 respectively, each of Ms Chu and Mr Xu (who did not know each other) invested $3.5 million in a fund called the Gold Stone Secured Income Mortgage Fund (the Fund), which was an unregistered managed investment scheme (MIS) of which Gold Stone Capital Pty Ltd (Gold Stone) was the trustee. The Fund was constituted by a trust deed dated 10 February 2014 (the Fund Constitution), and Ms Chu and Mr Xu were unitholders in it. Gold Stone’s sole activity was to act as trustee of the Fund.

3    Gold Stone then lost almost all of Ms Chu’s and Mr Xu’s investments, and in 2022 they commenced proceedings in this court against it and six other defendants.

4    Each of the first to sixth defendants was involved in the management or administration of the Fund. The seventh defendant was Gold Stone.

5    The first defendant, Ms Louise Carol Lin, was a de facto director of Gold Stone. She was a licenced conveyancer and migration agent. The primary judge found that she was a driving force in the establishment and operation of the Fund and that she played a very substantial role in directing the affairs of Gold Stone and the Fund. See Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (Trial Judgment) [2024] FCA 766 (J) at [212].

6    The second defendant, Mr Cai (who was the husband of Ms Lin), was appointed as a director of Gold Stone. He was also a licensed real estate agent.

7    Ms Lin and Mr Cai together owned DCK Asset Holding Pty Ltd, which owned 50% of the shares in Golden Destiny Investments Pty Ltd (GDI), which in turn had a 95% shareholding in Gold Stone.

8    The third defendant, Mr David Darmali, was a director of a company called Fiducia Resources Pte Ltd (Fiducia Singapore), which owned 5% of the shares in Gold Stone and was the ultimate owner of all the shares in the fourth defendant, Fiducia Asset Management Pty Ltd, of which Mr Darmali was the sole director. He was the manager of the Fund. He did not pursue an appeal in respect of the findings made against him by the primary judge, and orders were made on 19 May 2025 dismissing it with costs.

9    The fifth defendant, Mr Xiao Wu, was a director of Gold Stone until 19 March 2018. He was also the secretary of Wei Feng (Australia) Pty Ltd, which held the other 50% of the shares in GDI. The claims made by Ms Chu and Mr Xu against Mr Wu failed, including because the primary judge held that they were statute-barred.

10    The sixth defendant, Ms Josephine Darmali (Mr Darmali’s daughter), was appointed a director of Gold Stone in February 2014. She did not appear at trial. The primary judge found that she had no involvement in Gold Stone, save for her name appearing on the ASIC records (J [8] and [39]). The primary judge said that “the most plausible explanation [was] that Mr Darmali caused his daughter (rather than himself) to be appointed as a director on the ASIC records in an attempt to avoid personal liability in the event that anything went wrong, and to preserve his record of never having been a director of an insolvent company” (J [39]).

11    The third, fourth, sixth and seventh defendants played no part in the appeals, and their respective roles in the events that occurred are relevant to the appeals only insofar as they explain the context in which the events relevant to the parties to the appeals occurred.

12    Most of the funds that Ms Chu and Mr Xu had invested in the Fund were lost because the loans that Gold Stone made with their invested monies to companies associated with a property developer called Mr Victor Fong were never repaid to Gold Stone.

13    Mr Fong was not a party to the proceedings. In or around early 2014, Mr Darmali introduced Mr Fong to Gold Stone with the intention that Mr Fong’s companies could borrow from it to fund various property developments in New South Wales, including in Lane Cove and Manly.

14    Mr Darmali was subsequently involved in negotiating and drafting three loans from Gold Stone (using monies entrusted to it by Ms Chu and Mr Xu) to entities controlled by Mr Fong, called MV Developments (Lane Cove) Pty Ltd (MVLC) and MV Developments (Aust) Pty Ltd (MVDA). Mr Fong’s companies subsequently went into liquidation, and Mr Fong was made bankrupt.

The allegations made by Ms Chu and Mr Xu

15    In their third further amended statement of claim dated 3 June 2024 (3FASOC), Ms Chu and Mr Xu alleged that Gold Stone committed breaches of trust in four ways, by making three loans totalling $6.4 million to entities controlled by Mr Fong:

(1)    that fell outside the power of investment conferred by cl 20.4 of the Fund Constitution (J [195]) (the unauthorised investments breaches);

(2)    that were imprudent investments (J [204]) (the imprudent investments breaches);

(3)    for the improper purpose of Gold Stone achieving a performance fee under cl 17.1 of the Fund Constitution (J [206]) (the performance fee improper purpose breaches); and

(4)    for the improper purpose of procuring Mr Fong’s investment in an unrelated property development in Turramurra in which GDI had an interest but in which Ms Chu and Mr Xu had no commercial interest (J [207]) (the Turramurra project improper purpose breaches).

16    Ms Chu and Mr Xu also alleged that Ms Lin and Mr Cai:

(1)    knowingly procured or induced the four alleged breaches of trust by Gold Stone (J [194]); and

(2)    knowingly assisted in a dishonest and fraudulent design by Gold Stone in committing the alleged breaches of trust (J [194], [228]).

17    Ms Chu and Mr Xu also alleged that Ms Lin and Mr Cai:

(1)    contravened s 601ED(5) of the Corporations Act 2001 (Cth) (the Corporations Act) by operating an unregistered MIS that was required to be registered (J [254]); and

(2)    breached the equitable and statutory duties they owed to Gold Stone in its capacity as trustee (J [295]).

18    Ms Chu and Mr Xu also alleged that Ms Lin engaged in misleading or deceptive conduct contrary to s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), or alternatively s 1041H(1) of the Corporations Act, by failing to disclose various matters to them (J [281]).

19    Unlike the breaches of trust alleged, which have an applicable limitation period of 12 years, the actions brought by Ms Chu and Mr Xu under the Corporations Act and/or the ASIC Act have a six-year limitation period.

20    Ms Chu and Mr Xu further alleged that Gold Stone also misappropriated to its own use and benefit monies held on trust for Ms Chu and Mr Xu, in breach of trust. They alleged that Gold Stone misappropriated the proceeds of a settlement with the liquidators of MVDA and MVLC (which proceeds were essentially derived from the money that Ms Chu and Mr Xu had invested) by making various other payments on behalf of the Fund. They further alleged that Ms Lin and Mr Cai knowingly procured or, alternatively, assisted with knowledge in the misappropriation of the money.

21    In their second further amended originating processes, Ms Chu and Mr Xu sought compensation or damages from Ms Lin and Mr Cai totalling $3.5 million each (being the amount of their investments lost), or orders requiring the restoration of the Fund.

22    The trial occupied 15 hearing days. Numerous witnesses were called and cross-examined, including Mr Cai, Mr Wu and Mr Fong. Ms Lin did not give evidence.

Summary of the primary judge’s conclusions

23    The primary judge found that, in making the three loans to entities controlled by Mr Fong, Gold Stone committed breaches of trust in three of the four ways alleged by Ms Chu and Mr Xu, being the:

(1)    unauthorised investments breaches (J [203]);

(2)    imprudent investments breaches (J [205]); and

(3)    Turramurra project improper purpose breaches (J [207]).

24    As to Ms Lin, the primary judge found that the allegations made against her were not confined to conduct by her merely in her alleged capacity as a director (J [210]).

25    As to Mr Cai, his Honour found that Ms Chu and Mr Xu did not allege that he acted in any capacity other than as a director of Gold Stone (J [211]).

26    His Honour also found that Ms Lin and Mr Cai knowingly procured or induced those three breaches of trust by Gold Stone, including through negotiating and agreeing to the loans and signing documents to give effect to them (J [212], [216], [217], [223]).

27    The primary judge also rejected Ms Lin and Mr Cai’s contention that those claims were not properly pleaded (J [227]).

28    The primary judge found that the breaches of trust by Gold Stone in knowingly making unauthorised investments and in having the improper purpose of procuring Mr Fong’s assistance with the Turramurra project were dishonest and fraudulent (J [228]).

29    The primary judge found that Ms Lin and Mr Cai knowingly assisted in the dishonest and fraudulent design by Gold Stone in two of its three breaches — viz, (i) the unauthorised investments breaches and (ii) the Turramurra project improper purpose breaches (J [228]) — and that they were liable under the “second limb” of the rule stated in Barnes v Addy (1874) LR 9 Ch App 244 at 251–252 (Lord Selborne LC) (that is, a defendant will be liable if that defendant assists a trustee with knowledge of a dishonest and fraudulent design on the part of the trustee).

30    The primary judge held that a director of a trustee company, whose conduct is the conduct of the trustee that involves a breach of trust, can be personally liable for either (i) knowingly procuring or inducing a breach of trust (J [209] and [211]), or (ii) knowingly assisting in a dishonest and fraudulent design (J [228]).

31    The primary judge also rejected Ms Lin and Mr Cai’s contention that the claims made under the second limb of Barnes v Addy (knowing assistance in a dishonest and fraudulent design) were not properly pleaded (J [229]).

32    The primary judge also held that Ms Lin and Mr Cai were liable for various sums he found they had misappropriated or otherwise improperly spent (J [238]–[248]).

33    The primary judge dismissed the claims against Ms Lin and Mr Cai for misleading or deceptive conduct and for breaches of the MIS provisions, because the limitation period in each case started accruing more than six years before the commencement of the proceeding, such that the claims were statute-barred (J [269]–[272] and [294]).

34    In relation to the alleged breaches of the MIS provisions (which Ms Chu and Mr Xu submitted enlivened the court’s power under s 1325(2) of the Corporations Act to award compensation for loss suffered as a result of such breaches), his Honour also found, as a matter of statutory construction, that the limitation period under s 1325(4) could not be extended pursuant to s 1322(4)(d) (J [277]).

35    His Honour also dismissed the derivative actions for breaches of directors’ duties, on the basis that Ms Chu and Mr Xu had not established the “special circumstances” required under the Corporations Act to bring claims on behalf of Gold Stone against Ms Lin and Mr Cai in their personal capacities (J [297]).

36    In relation to relief, his Honour ordered as follows in Chu v Lin, in the matter of Gold Stone Capital Pty Ltd (No 4) [2024] FCA 980 (J2):

1.    Each of the first, second, third, and seventh defendants is to pay the first plaintiff equitable compensation in the amount of $3,100,386.79, together with compound interest in the sum of $1,844,581.31, pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

2.    Each of the first, second, third, and seventh defendants is to pay the second plaintiff equitable compensation in the amount of $3,100,386.79, together with compound interest in the sum of $1,816,550.42, pursuant to s 23 of the FCA Act.

3.    The first and seventh defendants pay equitable compensation to the first plaintiff in the amount of $42,771.08, together with compound interest in the sum of $111,377.52, pursuant to s 23 of the FCA Act.

4.    The first and seventh defendants pay equitable compensation to the second plaintiff in the amount of $42,771.08, together with compound interest in the sum of $111,377.52, pursuant to s 23 of the FCA Act.

5.    The second and seventh defendants pay equitable compensation to the first plaintiff in the amount of $196,659.70, together with compound interest in the sum of $62,093.90, pursuant to s 23 of the FCA Act.

6.    The second and seventh defendants pay equitable compensation to the second plaintiff in the amount of $196,659.70, together with compound interest in the sum of $62,093.90, pursuant to s 23 of the FCA Act.

7.    The plaintiffs’ claims against the fourth, fifth, and sixth defendants be dismissed.

8.    The first, second, and third defendants pay the plaintiffs’ costs of the proceedings.

9.    The plaintiffs pay 20% of the costs of each of the fourth and fifth defendants.

…

The relevant facts

37    The court was not taken in any detail to the primary judge’s factual findings, or to many of the underlying documents. What follows is taken largely from the reasons of the primary judge.

Requirements for a significant investor visa

38    As I have already noted, Ms Chu and Mr Xu were citizens of the People’s Republic of China who wished to obtain a SIV. The SIV program commenced on 24 November 2012, introducing a new type of visa to promote innovation and business. Among the requirements for SIV applicants was the making of investments of at least $5 million in complying investments, which included ASIC-regulated managed funds with a mandate for investing in Australia. Regulation 1.03 of the Migration Regulations 1994 (Cth) defined “managed fund” as follows:

managed fund means an investment to which all of the following apply:

(a)    the investment is a managed investment scheme (within the meaning of the Corporations Act 2001) in which members acquire interests in the scheme;

(b)    the interests are not able to be traded on a financial market (within the meaning of section 767A of the Corporations Act 2001);

(c)    no representation has been made to any member of the managed investment scheme that the interests will be able to be traded on a financial market;

(d)    the issue of the interest is covered by an Australian financial services licence issued under section 913B of the Corporations Act 2001.

39    For an ASIC-regulated managed fund to qualify as a complying investment, it had to be limited to categories of investments specified by the relevant Minister in a legislative instrument in writing. The relevant legislative instrument (known as IMMI 13/092) specified a number of categories of investments, including relevantly “bonds or term deposits issued by Australian financial institutions”, “real property in Australia” and “loans secured by mortgages over” real property in Australia.

Gold Stone established

40    After Gold Stone was incorporated on 7 February 2014, it was appointed as trustee of the Fund (with Mr Cai and Mr Wu as its directors) (J [71]–[73]).

41    The Fund was structured as a unit trust and was governed by a deed poll dated 10 February 2014. The primary judge called it the “Fund Constitution”, and I also adopt that term to describe it. Consistently with legislative instrument IMMI 13/092, clause 20.4 provided as follows:

20.4    On the behalf of the Trust [Gold Stone] is permitted only to invest in the following:

(a)    infrastructure projects in Australia;

(b)    cash held by Australian deposit taking institutions (including negotiable certificates of deposit, bank bills and other cash-like instruments);

(c)    bonds issued by the Commonwealth Government or a State or Territory Government;

(d)    bonds, equity, hybrids or other corporate debt in companies and trusts listed or expected to be listed within 12 months on an Australian Stock Exchange;

(e)    bonds or term deposits issued by Australian financial institutions;

(f)    real property in Australia;

(g)    Australian Agribusiness;

(h)    annuities issued by an Australian registered life company in accordance with section 9 or 12A of the Life Insurance Act 1995;

(i)    derivatives used for portfolio management and non-speculative purposes which constitute no more than 20 per cent of the total value of the Net Asset Value;

(j)    loans secured by mortgages over the investments listed in paragraphs (a) to (h) above;

(k)    other managed funds that invest in the investments listed in paragraphs (a) to (j) above;

(h)    [sic] and other investment categories contained in the list of "Eligible Investments" as gazetted by the Minister from time to time for purposes of Regulation 5.19B of the Migration Regulations 1994 (Cth) or the said regulation's successor.

(Emphasis added.)

42    In February 2014, Gold Stone issued an information memorandum in relation to the Fund. It stated that the investment strategy of the Fund was “[t]o invest directly or indirectly in Australian real estate mortgages, property mezzanine finance, term deposits and interest deposits”. The fund manager would “manage the investment in the most professional and competent way to achieve the target return”, and would manage investment risks “through a conservative lending policy and by diligent management …”. The target return for the Fund was 8% per annum. Further, Gold Stone was entitled to pay quarterly distributions to the unit holders.

The Turramurra project

43    On 17 December 2013, GDI entered into contracts to purchase six properties in Turramurra, New South Wales for a total purchase price of $13,558,389, for the purpose of developing those properties (J [64]).

44    Mr Cai personally guaranteed the contracts (J [64]). At around that time, Mr Darmali caused Fiducia Singapore to enter into a joint venture agreement with MVLC in relation to future property development projects (J [65]).

45    By early 2014, Ms Lin (who along with Mr Cai, as I have noted, were directors and shareholders of DCK Asset Holding Pty Ltd, which held 50% of the shares in GDI, which in turn owned 95% of the shares in Gold Stone) had lost confidence in GDI’s ability to conduct the Turramurra development, and formed the view that for GDI to do so would be a “financial disaster” (J [69]). Ms Lin then took various steps to seek to extricate herself, Mr Cai and GDI from the Turramurra project (J [70], [83]–[84], [89]–[90]).

46    On 17 March 2014, GDI failed to attend the scheduled settlement of the contracts to purchase the Turramurra properties. At that time, Ms Lin was seeking funding, and she discussed with Mr Darmali the possibility of finding a new investor to take over the Turramurra development (J [90]).

47    On 4 April 2014, the solicitors for the vendors of the Turramurra properties served notices to complete on GDI (J [97]).

48    On 10 April 2014, Mr Darmali sent an email to Mr Fong, Mr Cai and Ms Lin in which he:

(a)    referred to their discussions to date in which they had all agreed that Mr Fong would take over the Turramurra project from GDI; and

(b)    attached a draft joint venture agreement between the Fund and Mr Fong which contemplated the incorporation of a jointly held special purpose vehicle (SPV) through which Mr Fong could manage the Turramurra project once GDI’s interest in that project had been novated to the SPV (J [98]).

49    On 17 April 2014, Ms Lin sent an email to Mr Darmali and Mr Fong, telling them that “[w]e are negotiating a replacement contract with the vendor with 3 months addition settlement period. That gives everyone time for the proposed SPV. Either NGI [New Galaxy Investments Pty Ltd] or Gold Stone Capital can be the funding partner for the SPV …” (J [100]).

50    On the same day, the solicitors for the vendors of the Turramurra properties wrote to the solicitors for GDI, stating that GDI had had ample time to settle the purchase and that the vendors were not prepared to wait any longer for completion beyond three months from the expected date of exchange of the new contracts for sale, namely 22 July 2014 (J [103]).

51    On 23 April 2014, GDI entered into six new contracts for the purchase of the Turramurra properties and, before the exchange of those contracts, Ms Lin “expressed that she no longer wanted to take the risks associated with the project and wanted to get out of the project” (J [103]).

52    In July 2014, a deed of novation was executed pursuant to which GDI novated its interest under the Turramurra purchase contracts to MV Golden Destiny Development (Turramurra) Pty Ltd (MVGD), a company half-owned by each of GDI and Mr Fong (J [125], [207]). The Fund had no commercial interest in MVGD (and therefore no interest in the Turramurra project).

The investments by Ms Chu and Mr Xu in Gold Stone, and the loans made by Gold Stone with the invested monies

53    On 3 April 2014, Ms Chu was invited by the Department of Immigration and Border Protection to make a $5 million complying investment for a SIV. On 17 April 2014, she received and signed a letter from Fiducia Fund Management Pty Ltd (Fiducia Fund), of which company Mr Darmali was the sole director, providing a mandate to Fiducia Fund to obtain $1.5 million of investments in “Waratah bonds” issued by the NSW government (J [95]).

54    In late April 2014, Ms Chu deposited a total of $5 million into the Fund’s Macquarie Bank account (J [104]).

55    On 30 April 2014, Mr Darmali gave written confirmation to Ms Chu on behalf of Gold Stone of her investments of $1.5 million in the Waratah bonds and $3.5 million in the Fund. He also confirmed as much to the Commonwealth Government (J [106]).

56    On 5 May 2014, Gold Stone, as trustee of the Fund, agreed to lend $500,000 to MVLC (of which Mr Fong was the sole director), which was developing a property in Lane Cove (the MVLC loan agreement). Mr Cai signed the agreement on Gold Stone’s behalf. The loan was for a term of 9 months at an interest rate of 30% for 9 months (and 40% per annum in relation to unpaid amounts of interest) (J [108]).

57    Clause 12.1 of the MVLC loan agreement provided that “[t]he Borrower hereby charges with payment of monies hereby secured all the right, title and interest of the Borrower in the Land Mortgaged”. The term “Land Mortgaged” was defined in clause 1.1(g) as “Unit 1.06/3–9 Finlayson Street, Lane Cove, NSW unregistered plan which is part of Lot 71–74 Plan 10155 …” (J [109]–[110]).

58    At the time that the MVLC loan agreement was executed, MVLC was developing Lot 71–74, but the proposed strata plan was unregistered. There were also two mortgages already registered on the title of the Lane Cove property in favour of third parties (J [110]).

59    The loan under the MVLC loan agreement was advanced on 6 May 2014 out of the funds invested by Ms Chu, pursuant to a withdrawal form signed by Mr Cai (and Mr Darmali) (J [112]).

60    On 26 May 2014, Gold Stone, as trustee of the Fund, agreed to lend $2.7 million to MVDA, another company of which Mr Fong was the sole director (the first MVDA loan agreement). The loan was for a term of 12 months with an annual interest rate of 18% (or a default rate of 25% per annum) (J [116]). The “Mortgaged Property” for the loan was 12–13 Marine Parade, Manly and 102 Bower Street, Manly. At the time of the loan, MVDA did not own those properties. The primary judge found that Mr Fong told Mr Darmali, Ms Lin and Mr Cai at the time that that he did not own either of the two Manly properties and that he was trying to borrow funds to buy the properties. The agreement was signed by Mr Cai on behalf of Gold Stone. Mr Wu’s signature was not genuine (J [56], [116]–[117]).

61    The loan under the first MVDA loan agreement was advanced on 27 May 2014 from the Fund’s Macquarie Bank account out of the funds invested by Ms Chu, pursuant to a withdrawal form signed by Mr Cai (and Mr Darmali) (J [121]).

62    On 4 July 2014, Mr Darmali provided a letter to Mr Xu on behalf of Gold Stone in relation to Mr Xu’s proposed investment of $1.5 million in bonds issued by the Victorian government and $3.5 million in the Fund. In that letter, Mr Darmali confirmed that the Fund was a complying fund for the purpose of the SIV requirements (J [126]). The primary judge also found that this letter was designed to assure Mr Xu as a potential investor that Gold Stone’s loans were secured over the real property assets of the relevant projects (J [126]). That investment plan was amended in late July 2014.

63    On 28 July 2014, Mr Xu was invited to make a $5 million complying investment for a SIV (J [131]).

64    On 31 July 2014, Ms Lin requested from Mr Darmali an investment mandate letter for Mr Xu, and Mr Darmali provided the letter on the following day (J [132]).

65    Mr Xu paid $3,069,229.12 into the Fund’s Macquarie Bank account between 5 and 7 August 2014 and paid further amounts of $892,540.10 on 11 August 2014 and $1,746.06 on 14 August 2014, totalling $3,963,515.28 (J [133]).

66    That same month, Mr Darmali gave written confirmation to Mr Xu of his investment of $3.5 million in the Fund “as per [the] mandate” (J [144]). The balance of Mr Xu’s $5 million investment (being $1.5 million) was transferred to the Treasury Corporation of Victoria in accordance with his instructions (J [147]).

67    On 8 August 2014, after the Turramurra project deed of novation had been executed, Gold Stone, as trustee of the Fund, agreed to lend $3.2 million to MVDA, (the second MVDA loan agreement) (J [134]). The “Mortgaged Property” for the loan was “Unit 4, 12–13 Marine Parade, Manly, NSW 2095 and 102 Bower Street, Manly, NSW 2095. Unregistered Plan: Lot in an unregistered Strata Plan …” as well as two units in the Lane Cove development (in which MVDA had no interest). The loan was for a term of 6 months with an interest rate of 10% for 6 months (20% per annum) or a default rate of 25% per annum (J [134]).

68    Mr Cai executed the second MVDA loan agreement on behalf of Gold Stone (J [137]). Mr Wu’s signature was not genuine (J [56]).

69    On 8 August 2014, Ms Lin and Mr Darmali signed withdrawal forms for the advance of $3.2 million from the Fund’s Macquarie Bank account to MVDA (J [138]). The loan was advanced in two tranches (i.e. $3 million on 11 August 2014 and $200,000 on 13 August 2014). The loan advance was predominantly paid out of the funds invested by Mr Xu, with the balance from funds invested by Ms Chu.

The Manly properties completed

70    On 18 August 2014, MVDA completed the purchase of the Manly properties. Mortgages to three other lenders were registered shortly thereafter. MVDA did not at that time execute a mortgage in favour of Gold Stone (J [145]).

Gold Stone’s loans to MVLC and MVDA were never repaid

71    MVLC and MVDA did not repay any of the loans when due (J [153], [155], [274]).

The wash up

72    On 31 August 2015, MVDA and MVLC were wound up (J [168]).

73    In November 2017, Gold Stone’s claims were settled with the liquidators of MVLC and MVDA for a payment to Gold Stone of $445,000, of which $395,504 was received by Gold Stone (net of legal fees) (J [179]). Mr Cai misappropriated all of those monies (J [180]–[193]).

The pleaded case against Ms Lin and Mr Cai

74    The claims made by Ms Chu and Mr Xu as plaintiffs were ultimately contained in their 3FASOC.

75    The pleaded case against Gold Stone, Ms Lin and Mr Cai for breach of trust was relevantly as follows:

THE FUND

…

28    In its capacity as trustee of the Fund, Gold Stone owed fiduciary and other equitable duties to the unit holders of the Fund, including duties:

(a)    to act in good faith and in the best interests of the unit holders (“Best Interests Duty”);

(b)    to comply with the terms of the trust, including the terms of the [information memorandum];

(c)    not to place itself into a position in which its interests or those of its principals may conflict with those of the unit holders (save with the fully informed consent of the unit holders) (“No Conflicts Duty”);

(d)    not to derive, or seek to derive, an unauthorised profit or benefit (“No Profits Duty”); and

(e)    to exercise due skill and care in administering the trust property (“Skill and Care Duty”).

29    In its capacity as trustee of the Fund, in exercising its power to invest the trust funds, Gold Stone owed a duty to the unit holders of the Fund pursuant to s 14A(2) of the Trustee Act 1925 (NSW), to exercise the care, diligence and skill that a prudent person engaged in the business of fund management would exercise in managing the affairs of other persons (“14A(2) Duty”).

30    Pursuant to s 14C(1) of the Trustee Act 1925 (NSW), in its capacity as trustee of the Fund, Gold Stone was required, when exercising its power to invest the trust funds, to have regard to the following matters (“14C(1) Matters”):

(a)    the purposes of the trust and the needs and circumstances of the beneficiaries;

(b)    the desirability of diversifying trust investments;

(c)    the nature of, and the risk associated with, existing trust investments and other trust property;

(d)    the need to maintain the real value of the capital or income of the trust;

(e)    the risk of capital or income loss or depreciation;

(f)    the potential for capital appreciation;

(g)    the likely income return and the timing of income return;

(h)    the length of the term of the proposed investment,

(i)    the probable duration of the trust;

(j)    the liquidity and marketability of the proposed investment during, and on the determination of, the term of the proposed investment;

(k)    the aggregate value of the trust estate;

(l)    the effect of the proposed investment in relation to the tax liability of the trust;

(m)    the likelihood of inflation affecting the value of the proposed investment or other trust property;

(n)    the costs (including commissions, fees, charges and duties payable) of making the proposed investment; and

(o)    the results of a review of existing trust investments in accordance with section 14A(4).

…

BREACH OF TRUST BY GOLD STONE

145    At the times that the MVLC Loan and the First MVDA Loan were made, Chu:

(a)    was the sole unit holder in the Fund; or, alternatively

(b)    held a substantial majority of the units in the fund …

146    At the time that the Second MVDA Loan was made, Chu and Xu, between them:

(a)     held all of the units in the Fund; or, alternatively

(b)    held a substantial majority of the units in the fund (save for the units held by Yi Zhou and Yu Sheng).

147    At the times that each of the MVLC Loan, the First MVDA Loan, and the Second MVDA Loan (together, “Loans”) was made, each of Lin [and] Cai … knew the matters pleaded in paragraphs 145 to 146 above [particulars omitted].

147A    Lin [and] Cai caused Gold Stone to make each of the Loans for the purpose of furthering the proposed relationship between GDI and Fong in relation to the Turramurra development in which GDI held an interest because Lin [and] Cai … were concerned that if Fong did not become involved in the Turramurra development then GDI might:

(a)    lose the money it had contributed to the Turramurra development (including a deposit of about $1.5 million);

(b)    lose any opportunity to profit from the Turramurra development; and

(c)     become liable to the vendors of the Turramurra properties for damages for failure to complete the purchase contracts, which liability would be guaranteed by Cai and Xufeng Wu [particulars omitted].

147B    The purposes referred to in the preceding paragraph did not advance the interests of the unit holders of the Fund in any respect.

76    Paragraphs [148]–[150] and [152] next alleged that:

(a)    the Loans were contrary to the interests of the unit holders;

(b)    the Loans were imprudent and highly risky;

(c)    Ms Lin and Mr Cai knew as much;

(d)    it was likely that the Fund would lose its investment; and

(e)    the investments were not permitted by cl 20.4 of the Fund Constitution.

77    Paragraph [153] continued:

153    In the premises of paragraphs 145 to 152, by making each of the Loans, Gold Stone:

(a)    in breach of the Best Interests Duty (as defined at paragraph 28 above), acted otherwise than in good faith and in the best interests of the unit holders;

Particulars

The making of the Loans was otherwise than in good faith and was contrary to the best interests of the unit holders because Gold Stone knew that the best interests of the unit holders was for it to make low risk investments that would preserve their funds, but it chose instead to make high risk investments with a substantial probability that the invested funds would be lost. Further, to the extent that Gold Stone acted for the purpose of furthering the relationship between Fong and GDI in relation to the Turramurra development, that was not in the best interests of the unit holders.

(b)    in breach of the No Conflicts Duty (as defined at paragraph 28 above), placed itself in a position where its interests and those of its principals were in conflict with those of the unit holders; and

Particulars

The interests of Gold Stone and its principals were: (i) to maximise the returns achievable on the investments Gold Stone made, even if that risked losing the invested funds; and (ii) to further relationship between GDI and Fong. That was contrary to the interests of the unit holders, which was to preserve their invested funds through low risk investments.

(c)     in breach of the No Profits Duty (as defined at paragraph 28 above), sought to derive an unauthorised profit or benefit.

Particulars

The unauthorised benefit was the potential benefit that Gold Stone stood to receive from high-risk, high-return investments, and the benefit that Gold Stone’s major shareholder, GDI, stood to receive from the Turramurra development should Fong become involved.

78    Paragraph [154] contained a plea, among others, that a reasonable prudent fund manager exercising due skill and care would not have made each of the loans.

79    Paragraph [155] alleged that “in the premises of paragraphs 145 to 152 and 154, by making each of the Loans, Gold Stone breached”: the “Competence Term” and the “Investment Risk Term” of the information memorandum; its duty of skill and care; its duties as trustee under s 14A(2) of the Trustee Act 1925 (NSW); and cl 20.4 of the Fund Constitution.

80    Paragraph [156] pleaded the loss suffered by the Fund by reason of the breaches of trust, being: the entirety of the first MVDA loan and the second MVDA loan; the shortfall from the MVLC Loan after receipt of the settlement payment (see paragraph 73 above); and the opportunity to earn interest through prudent investments.

81    The pleas against Ms Lin and Mr Cai commenced at paragraph [157], as follows:

Knowing Involvement by Lin [and] Cai …

157     At the times that each of the Loans was made, each of Lin [and] Cai … knew:

(a)     of the terms of the [information memorandum] and the Trust Deed; and

Particulars

(i)     Lin knew the terms of the IM and the Trust Deed because of her role in promoting the Fund.

(ii)     … Cai knew, or [is] taken to have known, the terms of the [information memorandum] and the Trust Deed because of [his] role[] as [a] director[] of Gold Stone and … he had executed the Trust Deed on behalf of Gold Stone.

(iii)     Alternatively, in the circumstances, if any of Lin … or Cai did not have actual knowledge of those matters, they had knowledge of matters which would have led an honest person in their position to suspect those matters and make inquiries through which the matters would have been revealed.

…

(b)     of the matters pleaded at paragraph 152.

Particulars

(i)     Lin knew the terms of the Loans because of her role in negotiating the Loans, as particularised in the particulars to paragraph 19.

(ii)     Cai knew the terms of the Loans because he signed the Loan Agreements.

…

(iv)     Each of Lin [and] Cai … knew that the Loans were risky because they were experienced businesspeople and it is obvious that a high-interest, short term loan of the type of the Loans with no registered security is risky.

(v)     Alternatively, if the knowledge was not actual knowledge then by reason of the matters in sub-paragraphs (i)-(iv), each of Lin [and] Cai … had knowledge that would have caused an honest and reasonable person in their position to suspect the matters in paragraph 152, such that an honest and reasonable person in their position would have conducted inquiries as to the terms and risk profile of the Loans, which inquiries would have revealed those matters.

…

158     Lin … negotiated the Loans on behalf of Gold Stone [particulars omitted].

159     Cai signed each of the MVLC Loan Agreement, the First MVDA Loan Agreement, and the Second MVDA Loan Agreement …

160     In the premises of paragraphs 145 to 157, each of Lin … and Cai, through their respective conduct pleaded at paragraphs 158 to 159, assisted with knowledge in the Breaches of Trust and, or alternatively, knowingly procured the Breaches of Trust.

Particulars

(a)     As pleaded above, the acts comprising the Breaches of Trust are the making of the Loans.

(b)     Lin’s involvement in the making of the Loans is pleaded at paragraph 158 above.

(c)     Lin’s knowledge is as pleaded at paragraph 157 above and also as follows:

(i)     in relation to paragraph 153(a) above, Lin knew:

(A)     that it was in the best interests of the unit holders for Gold Stone to make low risk investments, by reason of:

(1)     her knowledge of the Chu Characteristics by reason of her being told them by Chu (see paragraphs 43 and 46 above);

(2)     her knowledge of the Xu Characteristics by reason of her being told them by Xu (see paragraph 59 above);

(3)     her knowledge of the plaintiffs’ investments in the Fund, which can be inferred from matters pleaded at paragraphs 39 to 53 above (in relation to Chu) and 55 to 66 above (in relation to Xu); and

(4)     her knowledge of the terms of the Trust Deed and IM (see paragraph 157(a) above), which included the Competence Term and the Investment Risk Term; and

(B)    that the Loans were high risk investments (see SOC paragraph 157(b));

(ii)     in relation to paragraph 153(b) above, Lin knew:

(A)     of the interests of the unit holders (see sub-paragraph (i) above); and

(B)     of the interests of Gold Stone and its principals because of:

(1)     her own interest in Gold Stone, through DCK (see paragraphs 18 and 20 to 24 above); and

(2)     her knowledge of the terms of the IM, including the remuneration to which Gold Stone was entitled under the [information memorandum];

(iii)     in relation to paragraph 153(c) of the SOC, Lin knew:

(A)     that Gold Stone stood to benefit from the Loans, because this was obvious from the terms of the Loans, having regard to the remuneration to which Gold Stone was entitled under the [information memorandum] (of which Lin was aware); and

(B)     that Gold Stone had not been authorised to enter into the Loans, because:

(1)     the Loans were contrary to the plain terms of the [information memorandum], of which Lin was aware, including the Competence Term and the Investment Risk Term; and

(2)     there was no basis on which Lin could reasonably have believed that those terms had been dispensed with or waived by the unit holders.

(d)     Cai’s involvement in the making of the Loans is pleaded at paragraph 159 above.

(e)     Cai’s knowledge is as pleaded at paragraph 157 above and also as follows:

(i)     in relation to paragraph 153(a) above, Cai knew:

(A)     that it was in the best interests of the unit holders for Gold Stone to make low risk investments, by reason of his knowledge of the terms of the [information memorandum] (see paragraph 157(a) above), which included the Competence Term and the Investment Risk Term;

(B)     that the Loans were high risk investments (see paragraph 157(b) above);

(ii)     in relation to paragraph 153(b) above, Cai knew:

(A)     of the interests of the unit holders (see sub-paragraph (i) above); and

(B)     of the interests of Gold Stone and its principals because of:

(1)     his own interest in Gold Stone (see paragraph 151 above); and

(2)     his knowledge of the terms of the [information memorandum], including the remuneration to which Gold Stone was entitled under the [information memorandum];

(iii)     in relation to paragraph 153(c) above, Cai knew:

(A)     that Gold Stone stood to benefit from the Loans, because this was obvious from the terms of the Loans, having regard to the remuneration to which Gold Stone was entitled under the [information memorandum] (of which Cai was aware); and

(B)     that Gold Stone had not been authorised to enter into the Loans, because:

(1)     the Loans were contrary to the plain terms of the [information memorandum], of which Cai was aware, including the Competence Term and the Investment Risk Term; and

(2)     there was no basis on which Cai could reasonably have believed that those terms had been dispensed with or waived by the unit holders.

…

161     In the premises, each of Gold Stone, Lin … and Cai should be ordered to restore the Fund’s Losses to the Fund.

Dishonest and Fraudulent Design

162     The Breaches of Trust:

(a)     were effected by Gold Stone:

(i)     through Lin … and Cai, through their respective conduct pleaded at paragraphs 158 and 159; and

(ii)     in circumstances where Lin … and Cai had the knowledge pleaded at paragraphs 157 and 160 above;

(b)     in the premises, were effected by persons who had knowledge that they were causing Gold Stone to act in breach of trust; and

(c)     in those circumstances, were committed with dishonesty or at least some knowledge of the impropriety of the conduct involved.

The findings of the primary judge

Unchallenged findings made by the primary judge in respect of Gold Stone’s liability for breaches of trust

82    Neither Ms Lin nor Mr Cai challenged the finding of the primary judge that Gold Stone was in breach of trust by making the three loans because each of them was an imprudent investment in a hazardous security. That is to say, because the breaches of trust were of such a nature, they were breaches of trust ab initio, which equity will do everything necessary to prevent or to redress. As Dixon, McTiernan and Fullagar JJ explained in Fouche v The Superannuation Fund Board (1952) 88 CLR 609 at 636–637:

It has been necessary to deal with the facts of the case at considerable length, but, when once the facts are understood, the case may be disposed of comparatively shortly. Such difficulties as it presents do not arise from any doubt as to the commission of very serious breaches of trust. The execution of the deed, with the obligations which it imposed on the board, was a breach of trust. And every payment under it was a breach of trust and a misapplication of the board's funds in a sense which will be considered later. Such difficulties as the case presents relate to the remedies to be applied in a somewhat peculiar situation. The case seems to us to be very plainly a case in which a trustee would be held liable for any loss resulting from the investment, but it is not the ordinary case in which a security has been realized for less than the amount invested. And the trustee is a corporation which has no assets worth mentioning apart from the funds which it holds in trust. Up to a point, however, the position seems reasonably clear, and we think that most of the difficulties disappear when the nature of the breach of trust is properly understood.

As to the nature of the breach of trust, we agree with the learned Chief Justice of Tasmania. It is no mere case of a trustee advancing too much on a proper security ... The investment was of such a kind that it ought never to have been made at all for any amount large or small ... What is important is that the investment was, in itself and by reason of its inherent nature, and not merely because of the investment of an excessive amount, a breach of trust. The words of Lindley LJ in Re Whiteley (1886) 33 ChD 347 apply with redoubled force to this case. Speaking of the investment there in question he said: – “A security of so hazardous a nature as this, though in one sense and to some extent a real security, is not a proper security for trust money; it is not in truth a real security for any sum beyond the value of the land as land. The security for more than this value is the solvency of the borrower, and the trade carried on by him” (1886) 33 ChD, at pp 356, 357. In Royds v Royds (1851) 14 Beav 54 (51 ER 207), although the security was found to be ample in point of value, the whole case proceeded on the footing that the investment was in breach of trust because of the hazardous nature of the security. The importance of the fact that the vice of the investment lay in its inherent nature is this. It follows that there was a breach of trust ab initio, and that at any moment early or late after the execution of the deed, equity would be both able and bound, at the suit of any competent plaintiff, to do everything necessary both to prevent the breach of trust from being carried out or further carried out, and to redress the position and restore the trust fund.

83    The fact that neither Ms Lin nor Mr Cai challenged the finding of the primary judge that the three loans were imprudent investments in hazardous security is hardly surprising in light of the fact that Ms Chu and Mr Xu led unchallenged expert opinion evidence, from a mortgage fund manager, that each of the three loans was a high risk unsecured loan, and that no competent fund manager would have made any of them. Further, there was “no evidence that anything resembling a due diligence process was undertaken in relation to any of the loans” (J [205]).

84    Ms Lin and Mr Cai also did not challenge the finding of the primary judge that Ms Chu and Mr Xu had established breaches of trust on the basis that the MVLC loan and the first MVDA loan were made for an improper purpose, principally the purpose of procuring Mr Fong’s assistance for the Turramurra project. His Honour found (J [207]) that “Ms Lin was determined to extricate herself from the Turramurra project by enticing Mr Fong to assume the burdens of developing that project, and expressly recognised the need to provide financial incentives to Mr Fong in doing so”, explaining as follows:

Mr Darmali’s and Ms Lin’s emails of 17 April 2014 (copied to Mr Fong), are explicit as to that purpose … as too was Ms Lin’s affidavit in the NSW Supreme Court of 27 November 2015 which stated that all three loans were “In the interests of furthering the proposed relationships between GDI and Fong” … Although the Deed of Novation was entered into in July 2014 …, and therefore before the Second MVDA Loan Agreement of 8 August 2014, there was a commercial imperative to keep Mr Fong and his entities in funds in order to meet the payment obligations under that deed, and in any event the company receiving the novation, namely [MVGD], was half-owned by each of GDI and Mr Fong …

85    His Honour concluded that:

(1)    “Ms Lin thus retained a substantial commercial interest in the Turramurra project”;

(2)    “[t]he purpose of enticing Mr Fong to assume a substantial part of the burden of the Turramurra project was of no benefit to the unitholders in the Fund because the Fund had no interest in the Turramurra project”;

(3)    “[r]ather, Ms Lin was exposed to the failure of that project by reason of GDI’s investment in it, and Mr Cai was exposed by reason of the guarantee which he had given”; and

(4)    accordingly, “the three loans were procured for an improper purpose in breach of Gold Stone’s duty as trustee of the Fund”.

Conclusion of primary judge that a director acting purely in their capacity as director of a company is capable of procuring or inducing a breach of trust

86    The primary judge held that as a matter of principle, a director acting purely in his or her capacity as director of a company may be found liable for knowingly inducing or procuring a breach of trust (and knowingly assisting in a dishonest and fraudulent design) (J [209] and [211]).

87    In reaching that conclusion, his Honour turned first to the reasons of Leeming JA (with whom Bell P and Brereton JA agreed) in Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62 (Pittmore v Chan) and summarised what he said, relevantly as follows:

208    … I gratefully adopt the analysis of Leeming JA, which may relevantly be summarised as follows (omitting references):

(a)    “inducing” and “procuring” a breach of trust are synonyms or substantial equivalents: [161];

(b)    a third party’s liability for inducing or procuring a breach of trust has two elements, the first of which is the intentional conduct which causes, and is intended to cause, the breach of trust, which requires more than merely assisting a breach of trust: [186] and [192]–[194];

(c)    the second element is that the third party knew that he or she was bringing about a breach of trust, with any of the following four categories of knowledge being sufficient: (i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; and (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable person: [186] and [191]–[192]; and

(d)    what is required is knowledge of the essential matters which go to make up the breach of trust, even if the procurer or inducer did not know that those matters amounted to a breach of trust: [195].

209    Leeming JA also dealt with the question whether a director “acting as such” is capable of procuring or inducing a breach of trust by the director’s company: [162]–[170]. It was not necessary for Leeming JA to decide the point, although his Honour said that he was far from convinced about the correctness of the proposition that a director acting as such could be so liable for his or her company’s breach of trust: [162]. (I note that Leeming JA’s hesitation appears to have been shared by Ward P, Brereton JA and Griffiths AJA in Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304 at [293].) Leeming JA regarded the proposition as sitting awkwardly with the position concerning the tort of inducing a breach of contract, as expressed in O’Brien v Dawson (1944) 66 CLR 18, in which Starke J (at 32–33) and McTiernan J (at 34) said that a director could not be liable for inducing a breach of contract by the company where he was acting in pursuance of his authority as a director: [163]–[164]. However, Leeming JA said that none of that reasoning is to deny that directors who act other than in their capacity as one of the organs of a company may be found to have procured or induced a breach of trust of fiduciary duty: [166]. Even so, Leeming JA observed that the reasoning of Finn J in Australian Securities Commission v AS Nominees Ltd [1995] FCA 915; (1995) 62 FCR 504 at 523 proceeds on the basis that directors exercising the powers of the board who thereby cause their company to commit a breach of trust are “peculiarly vulnerable” to liability for knowing assistance: [168]. I can see no reason why the reasoning of Finn J would not also extend to the cause of action of knowingly procuring or inducing a breach of trust.

88    At J [210], his Honour said that the question whether a director acting purely in his or her capacity as director as one of the organs of a company is capable of procuring or inducing a breach of trust was academic insofar as it concerned the accessorial liability allegations against Ms Lin because they were “not confined to conduct by [her] merely in [her] alleged capacity as [a] director[]”, citing paragraph [19(d)] of the 3FASOC.

89    As to Mr Cai, his Honour said (J [211]):

[T]he plaintiffs do not allege that he acted in any capacity other than as a director … However, I do not share Leeming JA’s hesitation as to whether a director of a trustee company acting as such can be liable for knowingly procuring or inducing the company’s breach of trust. The question is now the subject of an illuminating article by Ms Max McHugh, “Directors’ Liability for Inducing a Breach of Trust or Fiduciary Obligation” (2024) 140 LQR 223, which advances a compelling argument as to why there should be no objection in principle to a director acting as such being found liable for knowingly inducing or procuring a breach of trust.

90    His Honour adopted Ms McHugh’s analysis of the relevant principles, and her conclusion, in her article (J [211]). He also referred in passing to the decision of the UK Supreme Court in Lifestyle Equities CV v Ahmed [2024] UKSC 17 (since reported in [2025] AC 1), relevantly as follows:

…

(d)    However, there is a body of authority holding that a director who knowingly causes a company to breach its contract is not personally liable for the tort of inducing breach of contract: Said v Butt [1920] 3 KB 497 at 505–6 (McCardie J); O’Brien v Dawson (1942) 66 CLR 18 at 32–3 (Starke J) and 34 (McTiernan J); this line of authority should be regarded as weak and anomalous, but in any event any analogy between inducing breach of trust and inducing breach of contract is imperfect and should not be pressed too far. (I note that about a month after Ms McHugh’s article was published, the Supreme Court of the United Kingdom held in Lifestyle Equities … at [54]–[63] that the rule stated in Said v Butt as a principle of the law of tort is sound but does not apply to civil wrongs which do not depend on any contract or voluntary arrangement between the parties. That may require some qualification to Ms McHugh’s argument but does not strike me as adversely affecting the central thrust of the argument. In particular, while a unit trust as in the present case may be regarded as a kind of voluntary arrangement, the Supreme Court did not consider whether the rule in Said v Butt has any analogical application to directors inducing a breach of trust by their company. I doubt whether (to adopt the language of Lord Leggatt at [54]) there is any “general norm or social understanding” that if a director knowingly induces a trustee company to commit a breach of trust then only the trustee company (which often has very minimal paid up capital, and no assets of its own other than its right of indemnity over trust assets for liabilities which are properly incurred) and not its directors will incur liability to the beneficiaries. Further, the Supreme Court at [63] acknowledged that the law in this area is not completely coherent.)

(e)    A considerable number of cases have recognised the existence of liability on the part of directors (acting as directors) for knowing assistance in their company’s breach of trust or fiduciary duty (including ASC v AS Nominees Ltd [(1995) 62 FCR 540] to which I have referred at [209] above), and there is no sufficient justification for taking a different approach to directors’ liability for inducing a breach of trust;

(f)    A director causing a company to commit a breach of trust or fiduciary duty is best seen as inducement rather than assistance, and a director who induces such a breach with (at least) knowledge of facts which would indicate a breach to a reasonable person should be in no better position than a stranger; in both cases, their conscience is sufficiently affected to attract the intervention of equity.

(g)    Just as a director should not be liable merely by virtue of their position as a director, so too should they not escape liability due to their position.

Finding made by the primary judge that Ms Lin knowingly induced or procured Gold Stone’s breaches of trust

91    The primary judge found that there was “no doubt that Ms Lin induced or procured the breaches of trust” which he found Gold Stone had committed (J [212]) because she:

(1)    referred to Gold Stone as “my company” and to the Fund as “my mortgage fund”;

(2)    had accepted that she controlled Gold Stone as the trustee of the Fund; and

(3)    played a very substantial role in directing the affairs of Gold Stone and the Fund and was a driving force in the establishment and operation of the Fund.

92    Dealing first with Ms Lin’s knowledge of the unauthorised investments breaches, the primary judge made the following findings:

213    … I accept Mr Cai’s evidence that Ms Lin gave him the Fund Constitution and asked him to sign it … and that he observed in 2014 that Ms Lin had a copy of the Fund Constitution in her possession … That evidence is inherently plausible. Ms Lin clearly knew the terms of the three loan agreements, as she acknowledged in her affidavit in the Supreme Court of New South Wales of 20 November 2015 that she was the person on behalf of Gold Stone who carried out the discussions and negotiations with Mr Fong, including in relation to the three loan agreements ... She therefore knew the nature of the so-called security referred to in the Schedules. As a licensed conveyancer, she must have been aware that a mortgage could not validly be granted over a proposed lot in an unregistered strata plan. In relation to the MVLC Loan Agreement, Ms Lin was aware that Gold Stone had purported to take security over lots in an unregistered strata plan in Lane Cove … In relation to the First MVDA Loan Agreement, I have accepted at [117] above the evidence of Mr Fong that he told Ms Lin (as well as Mr Darmali and Mr Cai) at the time that he did not own either of the two Manly properties which were referred to as the Mortgaged Property in the Schedule. In addition, in relation to the Second MVDA Loan Agreement, Ms Lin was a signatory to the withdrawal forms … which withdrew the total of $3.2 million and advanced that money to MVDA. She was also copied in on the emails of 11 and 12 August 2014 concerning the substitution of the Schedule to that loan agreement.

93    His Honour concluded that there was accordingly “no doubt that Ms Lin had actual knowledge of the facts constituting the breaches of trust by way of unauthorised investments”.

94    With respect to the imprudent investments breaches, he concluded (J [214]) that:

(a)    it followed from Ms Lin’s knowledge of the terms of the three loan agreements that “she knew that the loans were high-risk unsecured loans at high interest rates”; and

(b)    she understood “the importance of security and serviceability for loans”, “that high interest rates were associated with high risk” and “that it was wrong to speculate with investors’ funds”.

95    Dealing next with Ms Lin’s knowledge of the Turramurra project improper purpose breaches, the primary judge made the following findings:

215    … Ms Lin was very concerned to extricate GDI from the Turramurra project because she had invested her own funds and perceived that her investment, and the assets of Mr Cai (her then husband) as guarantor, were at significant risk. Her concern was sufficiently great that she considered GDI to risk “financial disaster” if it was unable to extricate itself from the project … The avoidance of that disaster was the primary reason for the engagement with Mr Fong … That rationale is a principal theme of her affidavit in the Supreme Court proceedings dated 17 October 2014 … It is also apparent from her cross-examination in that case … As Ms Lin expressed the matter succinctly in her affidavit of 27 November 2015, Gold Stone agreed to lend money to MVLC and MVDA pursuant to the three loan agreements “In the interests of furthering the proposed relationship between GDI and Fong”.

96    His Honour concluded (J [215]) that “[a]ccordingly, Ms Lin knowingly used the trust money in the Fund for the purpose of advancing her own commercial interests in circumstances which were detrimental to the interests of the plaintiffs as unitholders in the Fund”.

97    The primary judge concluded that Ms Lin procured or induced the breaches of trust by Gold Stone in making the three loans in question with actual knowledge of the circumstances constituting those breaches of trust. His Honour said that he so concluded on the basis of direct evidence and inferences, and that, to the extent that he had drawn inferences against her, he drew them with greater confidence because she did not give evidence in circumstances where she was in a position to cast light on whether such inferences should be drawn (J [216]).

Finding made by the primary judge that Mr Cai knowingly induced or procured Gold Stone’s breaches of trust

98    The findings of the primary judge in respect of the allegation that Mr Cai knowingly induced or procured Gold Stone’s breaches of trust by way of the three loan agreements were relevantly as follows:

217    … [H]e played a central role in negotiating the loan agreements with Mr Fong (along with Ms Lin and Mr Darmali), as his affidavit in support of the statutory demand on 23 June 2015 expressly acknowledged … He signed each of the three loan agreements and signed the bank withdrawal forms in order to make the advance of $500,000 to MVLC and the advance of $2.7 million under the First MVDA Loan Agreement.

218    As to Mr Cai’s knowledge, I have found at [28] above in relation to Mr Cai’s credibility that he had a copy of the Fund Constitution which Ms Lin gave to him after he signed it, that he read it and that Ms Lin explained some of it to him … In addition, Mr Cai read cl 20.4 and he understood that Gold Stone as trustee could only invest in loans secured by mortgages … He plainly knew the terms of the three loan agreements, including the purported security referred to in the Schedule to each of them. As a licensed real estate agent, he knew what a mortgage was ... He understood that strata plans had to be registered, and indeed had been involved in a lot of off-the-plan sales … Mr Cai was a participant in the conversation with Mr Fong in which Mr Fong said that he did not own either of the two Manly properties referred to as the Mortgaged Property in the First MVDA Loan Agreement, and was trying to borrow funds to buy those properties.

219    As to the First MVDA Loan Agreement, Mr Cai understood at the time that the proposed lot referred to in the Collateral Documents was in a strata plan which was not registered at the time of the loan … In relation to the Second MVDA Loan Agreement, Mr Cai said that he was told by Ms Lin that Mr Fong planned to build on a block of land and “afterwards, when the construction is complete, all these properties would be used to – as security” … It follows that he was aware that the purported security comprised non-existent properties[.] Mr Cai accepted that he knew at the time that the strata plans referenced in Item 6 of the Second MVDA Loan Agreement had not been registered …

220    Mr Cai denied that he knew that the MVLC Loan Agreement was not secured by mortgage over real property in Australia … He accepted that he took no steps to check that the payments to MVLC and MVDA were authorised by the Fund Constitution, and in relation to the MVLC Loan he accepted that he made a deliberate decision not to take such steps … Mr Cai said that he did not look at the loan agreements properly and did not see that the proposed security property was unregistered … but he was aware that the Lane Cove development had not been completed … I do not accept that evidence except for the last proposition. I find that Mr Cai had actual knowledge that the three loan agreements were not secured by mortgages over real property, and that they were not authorised by the Fund Constitution. However, even if I were to accept Mr Cai’s evidence, I would have found that his knowledge fell within one or more of the other categories sufficient to render him liable, namely wilfully shutting one’s eyes to the obvious, wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make, and knowledge of circumstances which would indicate the facts to an honest and reasonable man.

99    The primary judge also found that “Mr Cai also knew of the facts which rendered the three loans recklessly imprudent investments” because “he knew that the security for the loans was non-existent”, and “must have observed that the interest rates referred to in the three loan agreements were extraordinarily high, reflecting the very high risk involved in making the loans”. He also found that Mr Cai “did not undertake any due diligence, and did not believe that anyone else on behalf of Gold Stone had done so” (J [221]).

100    As to Mr Cai’s knowledge of the improper purpose of the loans, the primary judge made the following findings (J [222]):

Mr Cai knew that he was a guarantor under the contracts to purchase the Turramurra properties and that GDI did not have sufficient funds itself to complete those contracts … Mr Cai denied that Ms Lin conveyed to him that GDI would not be able to develop the Turramurra properties without assistance …, that it was in his financial interest for Mr Fong to take over the project …, and that the loans had anything to do with the Turramurra project … I reject those denials, which are not at all credible in the face of the contemporaneous documents. It is obvious from the contemporaneous documents that Ms Lin was highly concerned about those matters and Mr Cai was involved in the discussions concerning Ms Lin’s purpose of seeking to extricate GDI (and therefore herself and Mr Cai) from the Turramurra project. He must have been well aware of the financial risks which he was facing personally as guarantor, and the fact that Mr Fong’s involvement was intended to extricate him (as well as Ms Lin and GDI) from those risks. He was obviously paying attention to what was happening with the Turramurra project, because he was heavily involved in selling units off-the-plan …

101    His Honour concluded accordingly (J [223]) that Mr Cai knowingly induced or procured the breaches of trust by Gold Stone in relation to the three loan agreements.

102    In summary, his Honour found that both Ms Lin and Mr Cai knowingly induced or procured all of the breaches of trust by Gold Stone (that is, the unauthorised investments breaches, the imprudent investments breaches and the Turramurra project improper purpose breaches).

Finding made by the primary judge that Ms Lin and Mr Cai knowingly assisted in a dishonest and fraudulent design

103    The primary judge found (J [228]) that he was “comfortably satisfied that the breaches of trust by Gold Stone in knowingly making unauthorised investments and in having the improper purpose of procuring Mr Fong’s assistance with the Turramurra project were dishonest and fraudulent within the ordinary and natural meaning of those words, as discussed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [(2007) 230 CLR 89] at [159]–[186]”. It is to be assumed that his Honour had in mind the following statements of principle in that case (per Gleeson CJ and Gummow, Callinan, Heydon and Crennan JJ):

(1)    the second limb of Barnes v Addy makes liable a defendant who assisted a trustee or fiduciary with knowledge of a dishonest and fraudulent breach of trust or breach of fiduciary duty on the part of the trustee or fiduciary: at 159 [160];

(2)    as a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards: at 162 [173];

(3)    it is customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the following four categories of knowledge: actual knowledge; wilfully shutting one’s eyes to the obvious; wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; and knowledge of circumstances which would indicate the facts to an honest and reasonable man: at 163 [174]–[177], citing Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575–576, 582; [1992] 4 All ER 161 at 235, 242–243 (Peter Gibson J); and Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398 (Gibbs J); at 412 (Stephen J); at 376–377 (Barwick CJ concurring).

104    It is clear from other parts of his Honour’s reasons that he found that Ms Lin and Mr Cai had actual knowledge of the relevant dishonest and fraudulent breaches of trust, being the unauthorised investments breaches and the Turramurra project improper purpose breaches. See, for example, J [213] (“[T]here is no doubt that Ms Lin had actual knowledge of the facts constituting the breaches of trust by way of unauthorised investments”; J [216] (“I find that Ms Lin procured or induced the breaches of trust by Gold Stone in making the three loans in question with actual knowledge of the circumstances constituting those breaches of trust”); and J [220] (“I find that Mr Cai had actual knowledge that the three loan agreements were not secured by mortgages over real property, and that they were not authorised by the Fund Constitution”). The primary judge found that because “assisting” is a lower level of involvement than “inducing” or “procuring”, that element was also satisfied.

105    For those reasons, his Honour held that Ms Lin and Mr Cai were liable under the second limb of Barnes v Addy in respect of the unauthorised investments breaches and the Turramurra project improper purpose breaches.

Finding made by the primary judge in respect of the misappropriation claims and the clear accounts rule

106    Under a deed of settlement with the liquidators of MVLC and MVDA, on 20 November 2017 Gold Stone was paid $395,504.40 (J [241]).

107    From 2019 to early 2020, an aggregate amount of $340,169.40 was paid out of the Fund, under the authority of Mr Cai, by way of a repayment of a (genuine) loan from GDI (J [244] and [245]).

108    The primary judge also considered it relevant that on 21 July 2016, under the authority of Ms Lin, the Fund paid $300,000 to G3 Asset Holdings Pty Ltd (a company controlled by Ms Lin as sole director and shareholder). He explained as follows (at J [241]):

… I have also included in this section of the judgment the payment on 21 July 2016 of $300,000 to G3, even though it was paid well before the settlement deed of 14 November 2017. As I have said at [163] above, this amount should be treated as having been paid at the request or direction of GDI, and thus was a partial repayment by Gold Stone of its loan account with GDI. I have included it here along with the post-14 November 2017 repayments to GDI because it raises the same issue of legal principle concerning the clear accounts rule.

109    His Honour held (J [246] and [247]) that the above payments were in breach of what is often called the “clear accounts rule”, because Gold Stone as trustee was not entitled to exercise its right of indemnity against the trust assets before such time as it had restored to the trust estate the amount of the loss incurred by reason of its breaches of trust in having made the three loans in question (citing RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 (Brooking J); Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420; (2011) 286 ALR 346 (Gordon J); Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2002] FCAFC 285 at [138] (Lee, Hill and Drummond JJ); and Queensland Nickel Sales Pty Ltd v Park (2023) 299 FCR 169 at [185]–[186] (Markovic, Banks-Smith and Halley JJ).

110    The primary judge held that although he “did not find” that Ms Lin or Mr Cai was aware of the clear accounts rule or of its effect in the present case, each of them nonetheless had actual knowledge of the matters which constituted the breaches of trust and knew that Gold Stone had not restored the Fund. His Honour held that Ms Lin and Mr Cai were liable for the amount claimed against them by Ms Chu and Mr Xu on the ground that they knowingly induced or procured Gold Stone’s breaches of trust in making the repayments to GDI in circumstances where the Fund had not been restored or compensated for the losses caused to it by Gold Stone (J [248]).

111    The primary judge also made findings about seven withdrawals that were made from the settlement proceeds, totalling $54,100, which his Honour said “cannot be regarded as having been intended as repayments to GDI of the loan made by GDI to Gold Stone”. It appears that the primary judge found that by making those withdrawals, Mr Cai was liable for knowingly inducing or procuring several breaches of trust, or knowingly assisting in a dishonest and fraudulent design (J [242]–[243]). Ms Lin was found to have been liable as a knowing recipient of two of the withdrawals (J [242]).

Finding made by the primary judge in respect of the unregistered MIS claim

112    Section 601ED(5) of the Corporations Act provides that “[a] person must not operate in this jurisdiction a managed investment scheme that this section requires to be registered under section 601EB unless the scheme is so registered.”

113    The term “operate” refers to the management of, or the carrying out of, the activities which constitute the scheme, which includes formulating and directing the scheme, actively promoting and implementing it and otherwise taking steps to effectuate it.

114    The primary judge found, and Ms Lin and Mr Cai did not contest, that by operating the Fund they operated a scheme within the meaning of s 601ED(5) because they were responsible for formulating it, promoting it, implementing it by way of negotiating and agreeing to the three loan agreements, and causing the loan monies to be advanced. He held that, accordingly, both of them were liable for having operated the Fund in contravention of s 601ED(5).

115    The primary judge held that the claim by Ms Chu and Mr Xu seeking compensation under s 1325(2) of the Corporations Act for loss suffered because of that contravening conduct (put by them on the basis that if Ms Lin and Mr Cai had not contravened s 601ED(5), the Fund would not have been operated at all, and therefore they would not have lost their investments) was statute-barred. His Honour reasoned as follows (J [270]–[271]):

Section 1325(4) provides that an application under subs (2) may be made within 6 years after the day on which the cause of action arose. These proceedings were commenced on 18 January 2022, and accordingly the defendants must show that the plaintiffs’ causes of action arose before 18 January 2016 …

The plaintiffs rely on a number of authorities in support of the proposition that their loss did not crystallise until 14 November 2017, when Gold Stone entered into the settlement deed by which it released its right to seek repayment of the loans such that repayment of the loans at that time was impossible. The plaintiffs submit that in a case involving a loan, loss occurs only when recovery can be said with some certainty to be impossible, because up to that point the loan may be repaid, albeit late … However, in the present case the plaintiffs did not make a loan. They purchased units in a managed investment scheme, and it was the trustee of that scheme which made the loans. Accordingly, I do not regard the cases concerning claims by lenders to be apposite. Rather, for the purpose of a claim by an investor in an investment scheme, damage is suffered when it becomes ascertainable that the investor has suffered an overall loss on the investment …

116    The primary judge held (J [272]–[274]) that it was at least ascertainable, if not practically certain, that Ms Chu and Mr Xu had suffered an overall loss on their investment in the Fund well before 18 January 2016, and that Ms Chu and Mr Xu had suffered such a loss so as to give rise to a claim pursuant to s 1325(2) of the Corporations Act by 8 August 2014, including because by that date “Gold Stone had invested $6.4 million of [the] $7 million in three loans which were unsecured, high risk and unreasonably imprudent”.

117    He also held that, as a matter of statutory construction, it was not possible to grant to Ms Chu and Mr Xu an extension of the 6-year limitation period under s 1325(2) of the Corporations Act, citing Kennett J in Binqld Finances Pty Ltd (in liq) v Binetter [2024] FCA 361.

118    In any event, his Honour held that an order pursuant to s 1322(4)(d) is available only if the court is satisfied that no substantial injustice has been or is likely to be caused to any person (s 1322(6)(c)) and that he was not satisfied of that matter because (J [280]):

[t]here is a presumptive injustice of a substantial kind in granting any extension of time for a stale claim. That has a particular resonance in the present case, where the memories of witnesses have clearly eroded over the decade since 2014, and some of the documents which may have been relevant to the proceedings have been lost at unknown times during that period. While the plaintiffs point to the fraudulent nature of the wrongdoing, and also contend that Ms Lin, Mr Cai and Mr Darmali have been guilty of fraudulent concealment of their wrongs, I do not regard those matters as being of particular significance in terms of s 1322(6)(c). That provision does not call for a balancing exercise between substantial injustice to the defendants, on the one hand, and substantial injustice to the plaintiffs, on the other hand. It merely asks relevantly whether no substantial injustice has been or is likely to be caused to Ms Lin, Mr Cai, Mr Darmali and Fiducia Asset if I were to extend the 6 year limitation period. Even if, contrary to my reasoning above, I had regarded such a discretionary power as being otherwise available, I would not have been satisfied of that matter.

Findings made by the primary judge in respect of the misleading and deceptive conduct claim

119    The misleading and deceptive conduct claims were made by Ms Chu and Mr Xu, relevantly, only against Ms Lin, pursuant to s 12DA(1) of the ASIC Act (or alternatively s 1041H(1) of the Corporations Act) by way of non-disclosure of certain matters.

120    Section 12DA(1) of the ASIC Act provides that “[a] person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive”.

121    Section 1041H(1) of the Corporations Act provides that “[a] person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive”.

122    The primary judge found that conduct may be misleading or deceptive or be likely to mislead or deceive by reason of non-disclosure of facts when the circumstances are such as to give rise to a reasonable expectation that, if some fact does exist, it will be disclosed (J [282]).

123    Ms Chu pleaded that she had a reasonable expectation that Ms Lin would disclose that:

(a)    the Fund was being, or was proposed to be, operated illegally, in that it was a managed investment scheme that was required to be registered and was not registered;

(b)    at the time the investment was made by Ms Chu (that is, in the last week of April 2014), the Fund had made only one investment, being a high-risk, short-term loan of $500,000 to MVLC;

(c)    at the time Ms Chu made her investment, the only investments that it was proposed the Fund would make were risky, short-term, high interest loans secured by an unregistered charge over properties in relation to which there were already, or there were proposed to be, multiple registered mortgages;

(d)    at the time Ms Chu made her investment, the Fund proposed to lend all of the money Ms Chu was investing to a company operated by Mr Fong, and the loan would be secured by an unregistered charge over a property that did not yet exist, or that was already subject to multiple registered mortgages; and

(e)    the reason Ms Lin wanted to lend the money to Mr Fong’s company was because she wanted Mr Fong to agree to be involved in another project that Ms Lin had invested in.

124    The primary judge agreed, except as to (a), that those matters were wrongful non-disclosures (J [289]).

125    Mr Xu pleaded that he had a reasonable expectation that Ms Lin would disclose that:

(a)    the Fund was being, or was proposed to be, operated illegally, in that it was a managed investment scheme that was required to be registered and was not registered;

(b)    at the time that Mr Xu made his investment in the first half of August 2014, the only investments that the Fund had made were risky, short-term, high interest loans secured by unregistered charges over properties in relation to which there were already, or there were proposed to be, multiple registered mortgages (particularised by reference to the MVLC loan agreement and the first MVDA loan agreement);

(c)    at the time that Mr Xu made his investment, the only investments that the Fund proposed to make were risky, short-term, high interest loans secured by unregistered charges over properties in relation to which there were already, or there were proposed to be, multiple registered mortgages (particularised by reference to the second MVDA loan agreement);

(d)    at the time that Mr Xu made his investment, all of the Fund’s current or proposed investments were loans to entities associated with Mr Fong;

(e)    at the time that Mr Xu made his investment, there were no other, or alternatively only one other, substantial investors in the Fund, which was Ms Chu;

(f)    at the time that Mr Xu made his investment, the Fund proposed to lend all of the money that Mr Xu was investing to a company operated by Mr Fong, and the loan would be secured by an unregistered charge over a property that did not yet exist, or that was already subject to multiple registered mortgages; and

(g)    the reason Ms Lin wanted to lend the money to Mr Fong’s company was because she wanted Mr Fong to agree to be involved in another project that Ms Lin had invested in.

126    The primary judge accepted that (b), (c), (f) and (g) were matters of wrongful non-disclosure, but not (a), (d) and (e).

127    As to causation, loss and damage, and the limitation period, his Honour said the following (J [293]–[294]):

I infer that if the non-disclosed matters which I have found ought to have been disclosed were conveyed by Ms Lin, Mr Darmali and Fiducia Asset, then the plaintiffs would not have made their investments. It is not incumbent on the plaintiffs to demonstrate how, if at all, they would have invested that money in Australia in order to satisfy the requirements under the SIV scheme, or whether any such alternative investments would have been more successful than the Fund … Accordingly, putting to one side the application of the limitation period, the plaintiffs would be entitled to damages pursuant to s 12GF(1) of the ASIC Act or s 1041I(1) of the Act in the amount of their investments, namely $3.5 million each.

However, s 12GF(2) of the ASIC Act provides that an action under subsection (1) may be commenced within 6 years after the day on which the cause of action that relates to the conduct accrued. Similarly, subsection 1041I(2) provides that an action under subsection (1) may be begun at any time within 6 years after the day on which the cause of action arose. The cause of action under each of those provisions arose or accrued on the date when the three loan agreements were made, in that what the plaintiffs were actually investing in by then was substantially less valuable than what they were told (and what they understood) they were investing in, as I have indicated at [273] above in relation to the cause of action concerning s 601ED(5) and s 1325(2) of the Act. Further, by October 2015, the risks inherent in the plaintiffs’ investment in the Fund had fallen in to the point where it was practically almost certain that their investments in the Fund were worth very substantially less than the amount of $3.5 million which each of them had invested: see [274]–[275] above. Accordingly, the limitation period expired well before the commencement of these proceedings on 18 January 2022. It is not necessary to consider the date from which subsequent amendments to the pleadings should be treated as being effective for the purpose of the limitation period.

Findings made by the primary judge in respect of the derivative claims for breach of directors’ duties and other equitable duties

128    As the primary judge said (J [295]), Ms Chu and Mr Xu, as unitholders and beneficiaries of the Fund, brought claims against Ms Lin and Mr Cai for breach of the equitable and statutory duties they owed to Gold Stone in its capacity as trustee.

129    As he observed (J [295]), it is well-established that a beneficiary who can establish “special circumstances” may sue in his or her own name on a cause of action against a third party which belongs to a trustee if the trustee fails to sue to protect the trust property. His Honour said that the requirement of special circumstances is typically met by demonstrating, as Ms Chu and Mr Xu contended was the case here, that there is a proper case for proceedings to be taken, and the trustee has either refused to sue, or its position makes it unlikely that it will do so.

130    But his Honour found (J [297]) that there were no special circumstances here because he held that:

the plaintiffs as beneficiaries of the Fund have a direct cause of action against Ms Lin [and] Mr Cai … as parties who knowingly procured or induced the breaches of trust by Gold Stone, and who knowingly participated in Gold Stone’s dishonest and fraudulent design … which yields substantially the same remedial outcome as the proposed derivative suit on their part to sue in Gold Stone’s name as trustee …

131    He also said that there was thus no need to consider the application of any arguable limitation periods in respective of the derivative claims (J [297]).

Findings made by the primary judge about s 47(1)(a) and (e) of the Limitation Act (NSW) 1968

132    Subsections 47(1)(a) and (e) of the Limitation Act 1969 (NSW) provide:

(1)     An action on a cause of action —

(a)     in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person’s successor,

…

is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable —

(e)     a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued …

133    After summarising those provisions, the primary judge continued (J [230]):

In the present case, I have found that the breaches of trust by Gold Stone were fraudulent, and that the conduct of Ms Lin, Mr Cai and Mr Darmali was engaged in with actual knowledge of the fraudulent breaches of trust. In those circumstances, the relevant limitation period is 12 years from the date when the plaintiffs first discovered, or could with reasonable diligence have discovered, the facts giving rise to the cause of action. As the relevant events occurred in 2014, the present proceedings which were commenced on 18 January 2022, were brought well within the 12-year period which has still not expired. There is no need for me to deal with the question of whether the fraud to which s 47(1)(a) refers must involve actual dishonesty, rather than merely a consciousness of wrongdoing (as the NSW Court of Appeal held in relation to s 55 of the Limitation Act in Seymour v Seymour (1996) 40 NSWLR 358 at 372 (Mahoney A-CJ, with whom Meagher JA and Abadee AJA agreed), given that the conduct in the present case did amount to actual dishonesty. Further, there is no need to decide whether the limitation period of 12 years applies to Ms Lin, Mr Cai and Mr Darmali by way of analogy, rather than by way of the direct application of s 47. As Leeming JA explained in Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118; (2018) 355 ALR 703 at [61]–[65], s 47 provides the appropriate analogy for a claim under the second limb of Barnes v Addy, and s 47 may also be regarded as applying in terms to such a claim, irrespective of whether the defendant received any trust property, as such a defendant will be required to account to the plaintiff as a constructive trustee (noting that the term “trust” is defined in s 11(1) to include constructive trusts which arise only by reason of a transaction impeached). In my view, the same reasoning applies to the claim in the present case for knowingly procuring or inducing breaches of trust.

134    No challenge was made to that reasoning.

Findings made by the primary judge with respect to relief

135    With respect to relief, his Honour concluded that the appropriate remedy for the breaches of trust by Gold Stone, the liability of Ms Lin and Mr Cai for knowingly procuring or inducing those breaches of trust and for their knowing assistance in the dishonest and fraudulent design by Gold Stone, and the liability of Ms Lin and Mr Cai for the various sums they had misappropriated or otherwise improperly spent was the award of equitable compensation in favour of Ms Chu and Mr Xu (J [231]).

136    In awarding equitable compensation in respect of the breaches of trust and the liability of Ms Lin and Mr Cai for knowingly procuring or inducing those breaches of trust and for their knowing assistance in the dishonest and fraudulent design by Gold Stone, the primary judge did not differentiate between the different breaches (namely, the unauthorised investments breaches, the imprudent investments breaches and the Turramurra project improper purpose breaches). His Honour concluded that Ms Chu and Mr Xu were entitled to a total of $6.4 million, calculated as follows:

(a)    $500,000 plus interest in relation to the MVLC loan;

(b)    $2.7 million plus interest in relation to the first MVDA loan; and

(c)    $3.2 million plus interest in relation to the second MVDA loan (J [232]).

137    Ms Lin and Mr Cai did not contend on the appeal that a different quantum of equitable compensation would be payable in respect of the different breaches. In other words, the same amount of equitable compensation would be payable in respect of each loan if any one of the breaches of trust had occurred (provided the relevant breach or breaches affected that loan).

138    The primary judge noted that Ms Chu and Mr Xu conceded that it was necessary to credit Ms Lin, Mr Cai and Mr Darmali with the net settlement proceeds of $395,504.40 received on 23 November 2017 from the liquidators of MVLC and MVDA (J [233]). The primary judge separately addressed the calculation of equitable compensation for the wrongful misappropriation of the credited funds, which I summarised at paragraphs 106–111 above.

139    His Honour concluded that each of Ms Chu and Mr Xu was entitled to 50% of the net amount of equitable compensation calculated, together with 50% of the interest on that amount, because each of them held 50% of the units in the Fund (J [234] and [248]).

The appeals

The Lin and Cai appeals

140    On the hearing of the appeals, Mr NC Hutley SC appeared with Mr T Bagley of counsel for Ms Lin. Mr DR Pritchard SC appeared with Mr DH Southwood and Dr N Lennings of counsel for Mr Cai. Mr V Bedrossian SC appeared for Mr Wu. And Mr D Thomas SC appeared with Mr D Meyerowitz-Katz of counsel for Ms Chu and Mr Xu.

141    Each of Ms Lin and Mr Cai raised numerous grounds of appeal. Ms Lin’s grounds of appeal were stated in an amended notice of appeal dated 17 February 2025 and Mr Cai’s grounds of appeal were stated in an amended notice of appeal dated 20 September 2024 (which, for reasons I explain at paragraph 145 below, was not supplemented by a further amended notice of appeal). Many of the grounds overlapped, but some of the grounds were raised only by Ms Lin or by Mr Cai respectively. As identified below, during the hearing of the appeal some grounds were abandoned.

Grounds advanced on the appeal

142    The grounds advanced on the appeal, as stated in the notices of appeal, were as follows:

(a)    Ms Lin and Mr Cai contended that the primary judge erred in finding (J [195]–[202]) that the MVLC loan agreement and the first and second MVDA loan agreements made by Gold Stone were not empowered by cl 20.4(j) of the Fund Constitution (set out at paragraph 41 above), and should have found that each of those loans was authorised by either the Fund Constitution or s 14 of the Trustee Act 1925 (NSW) (Lin ground 1; Cai grounds 1 and 1A);

(b)    Ms Lin and Mr Cai contended that the primary judge erred in finding (J [207]) that the second MVDA loan was made for the improper purpose of procuring Mr Fong’s assistance with the Turramurra development, and ought to have found that that claim for breach of trust was not made out (Lin ground 2; Cai ground 2);

(c)    Mr Cai contended that the primary judge failed to give adequate reasons for finding that he had knowledge of the breaches of trust by Gold Stone to render him liable for procuring those breaches or being knowingly concerned in them in circumstances where the primary judge allegedly did not engage with Mr Cai’s evidence that he:

(i)    relied upon the advice and assurances given by Ms Lin, who the primary judge found controlled Gold Stone;

(ii)    relied upon the assurances that Ms Lin had undertaken due diligence; and

(iii)    believed, in part because of Ms Lin’s assurances and his own understanding, that the loans were, or were to be, secured by mortgage (Cai ground 3);

(d)    Ms Lin contended that the primary judge erred (J [210]) in finding that the allegations against her were not confined to conduct in her capacity as a director, and ought to have found that she negotiated the loans on behalf of Gold Stone solely in her capacity as a director (Lin ground 3);

(e)    Ms Lin and Mr Cai contended that the primary judge erred (J [229]) in finding that:

(i)    Ms Chu and Mr Xu had pleaded a dishonest and fraudulent design on the basis of “having the improper purpose of procuring Mr Fong’s assistance with the Turramurra project”, and ought to have found that this allegation did not form part of the pleaded dishonest and fraudulent design by Gold Stone (Lin ground 6; Cai ground 5); and

(ii)    the breaches of trust by Gold Stone were dishonest and fraudulent, and ought to have found that Ms Chu and Mr Xu had failed to establish that the breaches of trust by Gold Stone formed part of a dishonest and fraudulent design (Lin ground 7; Cai ground 6);

(f)    Mr Cai contended that the primary judge erred in concluding (J [248]) that he had actual knowledge of the misappropriation breaches of trust relating to the repayment of loans to GDI (Cai ground 8);

(g)    Ms Lin and Mr Cai contended that, in any event, the primary judge erred (J [211]) in reasoning that a director acting as such can knowingly procure or be knowingly involved in a breach of trust by a company of which that person is a director, and ought to have found that these causes of action are unavailable against a director acting as such because a director of a trustee company, whose conduct is the conduct of the trustee that involves a breach of trust, cannot be liable for knowingly procuring the breach or being knowingly involved in the breach (Lin ground 4; Cai ground 4); and

(h)    Mr Cai made a similar contention to the one summarised in paragraph (g) above in relation to the primary judge’s findings at J [238]–[249], which concerned the separate breaches of trust found to have been occasioned by the payment of $340,169.40 to GDI and the withdrawal of $54,100 (referred to at paragraphs 106–111 above) (Cai grounds 9 and 12).

143    It was not obvious from the notices of appeal, nor from the written submissions filed in advance of the appeal, that ground 7 of Ms Lin’s appeal and ground 6 of Mr Cai’s appeal were confined to a contention that the relevant findings made by the primary judge had not been properly pleaded. Nevertheless, in the course of oral submissions on the appeal, Mr Hutley made clear that grounds 6 and 7 of Ms Lin’s appeal raised “the same point”, which was put as a “pleading point”. Mr Hutley also observed that Lin ground 2 (concerning the second MVDA loan) would only become relevant if the pleading challenge in Lin ground 6 (and 7) that the Turramurra project improper purpose allegations did not form part of the pleaded fraudulent and dishonest design were rejected. In other words, Ms Lin did not dispute that if the pleading challenge in ground 6 (and 7) failed (which, as is explained below, it does), the following findings of the primary judge would remain in any event: (i) all three loans constituted imprudent investments, and (ii) the MVLC loan and the first MVDA loan were each made for the improper purpose of procuring Mr Fong’s assistance with the Turramurra project. Mr Pritchard “unreservedly adopt[ed] all of Mr Hutley’s submissions made mutatis mutandis in respect of … [Mr Cai]”. Lin ground 7 and Cai ground 6 were thus not intended to raise any issues beyond the pleading points contained in Lin ground 6 and Cai ground 5, respectively, and I have proceeded accordingly.

Grounds not pressed

144    Ground 8 of Ms Lin’s amended notice of appeal was as follows: “The primary judge ought to have found that the claim for knowing procurement by a third party of Gold Stone’s breaches of trust had not been properly pleaded”. Mr Hutley said that this ground was not pressed.

145    On 20 March 2025, Mr Cai’s solicitors filed an affidavit of Yu Chen affirmed on the same day. Annexed to it was a proposed “further amended notice of appeal” which contained a proposed new ground 6A in these terms: “The primary judge erred at J [227] in finding that the plaintiffs had properly pleaded the claim for knowing procurement by a third party of Gold Stone’s breaches of trust and ought to have found that allegation had not been properly pleaded”. As can be seen, the ground is materially the same as ground 8 of Ms Lin’s appeal (which was abandoned at the hearing of the appeal). An interlocutory application seeking leave to file the amended notice was also filed on the same day. Mr Cai’s amended reply and cross-appeal submissions dated 20 March 2025 (as further amended on 13 May 2025) reiterated that Mr Cai sought leave to file it. On 25 March 2025, Mr Cai’s solicitors sent an email to the court and to the solicitors for the other parties stating, among other things, that “[t]he Second Appellant, during its submissions would be bringing … their Honours attention to this interlocutory application” seeking leave to file a further amended notice of appeal. The application was not mentioned at the hearing, and no such document was ever filed. Mr Thomas was also not contradicted when he submitted that, “[n]otably and importantly, the appellants no longer press their third pleading point, which concerned knowing inducement”. I therefore proceed on the basis that neither Ms Lin nor Mr Cai pressed a case that the primary judge ought to have found that the claim for knowing procurement had not been properly pleaded.

146    Mr Cai’s amended notice of appeal also raised other grounds, which were not pressed, viz:

(a)    the primary judge ought not to have applied the clear accounts rule (J [246]) where Gold Stone had not committed a breach of trust (Cai ground 7);

(b)    the primary judge erred in finding that Mr Cai was liable in equity for procuring the payments to GDI in circumstances where:

(i)    Ms Chu and Mr Xu had not pleaded the clear accounts rule (J [248]);

(ii)    Ms Chu and Mr Xu pleaded that the payments were not for the benefit of Gold Stone; and

(iii)    he concluded (J [245]) that GDI was a genuine creditor of Gold Stone (Cai ground 10);

(c)    the primary judge erred in finding that Mr Cai was liable for $3,300 because of a fraudulent breach of trust (J [239]) in circumstances where he was not cross-examined on that specific payment (Cai ground 11); and

(d)    the primary judge erred in finding that Mr Cai had fraudulently misappropriated trust funds (J [243]) in circumstances where it was not put to Mr Cai in cross-examination that he knew, at the time of various payments, either that there was no proper basis for them or that he dishonestly made the payments (Cai ground 13).

The Chu and Xu cross-appeal

147    Ms Chu and Mr Xu cross-appealed, contending that, if ground 4 of the Lin and Cai appeals is successful, then the primary judge erred in finding that:

(a)    the limitation period in respect of their MIS claims and misleading or deceptive conduct claims against Ms Lin and Mr Cai had expired because the limitation period in each case started accruing more than 6 years before the commencement of the proceedings;

(b)    the limitation period under s 1325(4) of the Corporations Act cannot be extended pursuant to s 1322(4)(d), and further erred in finding that even if such an extension of time were available in respect of their MIS claims such extension could not be granted by reason of s 1322(6)(c); and

(c)    because they had direct causes of action against Ms Lin and Mr Cai as parties who knowingly procured or induced the breaches of trust by Gold Stone and who knowingly assisted in Gold Stone’s dishonest and fraudulent design, the requirement for “special circumstances” justifying leave to bring a derivative claim was not satisfied.

148    On the cross-appeal, Ms Chu and Mr Xu each sought judgment in the sum of $3.5 million plus interest, or alternatively an order that the matter be remitted to the primary judge to consider whether the requirement of special circumstances in respect of their claims against Ms Lin and Mr Cai for breach of their duties owed under the Corporations Act was satisfied, and if so, how they ought to be determined.

The Wu appeal

149    Mr Wu appealed against the primary judge’s orders made in respect of his costs, contending that his Honour erred in exercising his discretion to award him only 20% of his costs. He contended that he was the substantially successful party, and that he is thus entitled to all his party/party costs on the basis that costs should ordinarily follow the event.

Consideration of the Lin and Cai appeals

Which grounds of appeal need to be determined?

150    As I have explained above, numerous grounds of appeal and cross-appeal were argued in the Lin and Cai appeals.

151    The findings of the primary judge have been described earlier. Although it involves some repetition, it is convenient to summarise the principal findings to explain the grounds of appeal that I have determined.

152    The primary judge found that, in making the three loans to entities controlled by Mr Fong, Gold Stone committed three types of breach of trust, being the unauthorised investments breaches, the imprudent investments breaches and the Turramurra project improper purpose breaches. Ms Lin and Mr Cai:

(a)    challenged the finding that the making of the three loans constituted unauthorised investments breaches;

(b)    did not challenge the finding that the making of the three loans constituted imprudent investments breaches; and

(c)    contended that the finding that the making of the second MVDA loan constituted one of the Turramurra project improper purpose breaches should be set aside because it was not pleaded or proved (but otherwise did not challenge the finding that each of the MVLC loan and the first MVDA loan constituted one of the improper purpose breaches).

153    As there is no challenge to the finding that all three loans constituted imprudent investments breaches, the claim by Ms Chu and Mr Xu for relief against Gold Stone is made out on that basis, without the need to consider the challenge to the finding that the loans made by Gold Stone were not authorised by the Fund Constitution. It follows that it is unnecessary to address ground 1 in both appeals (or the supplementary ground 1A in Mr Cai’s appeal).

154    The primary judge also found (J [216] and [223]) that Ms Lin and Mr Cai knowingly procured or induced those three breaches of trust by Gold Stone. Again, as the finding of imprudent investments is not challenged, it is not necessary to consider the challenge to the findings that Ms Lin and Mr Cai knowingly induced or procured Gold Stone to make unauthorised investments. It is necessary, however, to determine whether:

(a)    Ms Lin’s conduct was undertaken in her capacity as a director of Gold Stone (ground 3 in Ms Lin’s appeal);

(b)    a director of a trustee company, whose conduct is the conduct of the trustee company that involves a breach of trust, can be liable for knowingly procuring or inducing the breach (ground 4 in both appeals, as well as grounds 9 and 12 in Mr Cai’s appeal); and

(c)    the primary judge failed to give adequate reasons for finding that Mr Cai had knowledge of the breaches of trust by Gold Stone to render him liable for procuring or inducing those breaches (ground 3 in Mr Cai’s appeal).

155    As I will explain, I would:

(a)    uphold ground 3 in Ms Lin’s appeal, which has no bearing on the outcome of the appeals as I would reject ground 4;

(b)    dismiss ground 4 in both appeals, as well as grounds 9 and 12 in Mr Cai’s appeal; and

(c)    dismiss ground 3 in Mr Cai’s appeal.

156    His Honour also found (J [228]) that Ms Lin and Mr Cai knowingly assisted in a dishonest and fraudulent design by Gold Stone comprising the unauthorised investments breaches and the Turramurra project improper purpose breaches. Again, for reasons I have explained, it is not necessary to consider the challenge to the finding that Ms Lin and Mr Cai knowingly assisted Gold Stone in the making of unauthorised investments.

157    In light of the view that I have formed about ground 4 in both appeals (and grounds 9 and 12 in Mr Cai’s appeal), it may, strictly speaking, also be unnecessary to address the grounds of appeal relating to the findings that: (i) the second MVDA loan was made for the improper purpose of procuring Mr Fong’s assistance with the Turramurra project, (ii) the Turramurra project improper purpose breaches were dishonest and fraudulent, and (iii) Ms Lin and Mr Cai knowingly assisted in the dishonest and fraudulent design by Gold Stone in committing those breaches. But it is as well to deal with those grounds — namely, ground 2 in both appeals, grounds 6 and 7 in Ms Lin’s appeal, and grounds 5 and 6 in Mr Cai’s appeal — because the question of the bona fides (or lack thereof) of Ms Lin and Mr Cai is central to the resolution of ground 4 in both appeals. As I explain below, I would reject each of those grounds.

158    For the above reasons, it is also unnecessary to address any of the issues raised in the cross-appeal by Ms Chu and Mr Xu.

159    The final ground of appeal which requires determination is ground 8 in Mr Cai’s appeal, which concerns the question whether Mr Cai had knowledge of the separate misappropriation breaches of trust relating to the repayment of loans to GDI (as Ms Chu and Mr Xu received separate equitable compensation in respect of those breaches of trust).

Ms Lin’s appeal – Ground 3 (capacity in which conduct undertaken)

160    The primary judge found (J [210]) that the breach of trust allegations against Ms Lin were not confined to conduct by her merely in her alleged capacity as a director of Gold Stone. In my view, that finding is, with respect, erroneous.

161    Mr Hutley submitted, and I agree, that:

(1)    the only conduct that formed the basis for the knowing procurement and knowing assistance pleas against Ms Lin was that she negotiated the relevant loans on behalf of Gold Stone (see 3FASOC [158] and [160]);

(2)    Ms Lin was alleged to be the agent or organ of the company through which the breaches of trust were committed (see 3FASOC [162(a)(i)]) — which in turn was consistent with his Honour’s finding that she was a driving force in the establishment and operation of the Fund and played a very substantial role in directing the affairs of Gold Stone and the Fund (J [212]);

(3)    because she was an organ and thus an agent of Gold Stone, the conduct alleged against her was its conduct; and

(4)    the primary judge relied upon the same conduct that formed the basis for the accessorial liability claim to find that Ms Lin’s conduct would have been a breach of her duties as a director (J [296]).

162    I would therefore allow ground 3 of Ms Lin’s appeal — although, as Mr Thomas said, that “is likely of no moment because its purpose appears to be to bring Ms Lin within the rule in Said v Butt [1920] 3 KB 497, and, as submitted below, that rule has no application”. As he also said, ground 4 in each appeal is “the heart of the case”.

163    I therefore proceed on the basis that both Ms Lin and Mr Cai (i.e. not only Mr Cai, as the primary judge held) relevantly acted in their capacities as directors of Gold Stone, and not in their individual capacities.

Both appeals – Ground 4 (director’s liability for knowingly procuring or inducing breach of trust)

Said v Butt

164    In Said v Butt [1920] 3 KB 497, Mr Said, knowing that he would not be sold a first night theatre ticket because of a dispute he had with the managers of the theatre company, bought a ticket through a friend. On the orders of the theatre company’s managing director, Sir Alfred Butt, Mr Said was refused admission. Mr Said sued Sir Alfred Butt for procuring the theatre company to break the contract he alleged was constituted by the sale of the ticket. The claim failed because it was held that Mr Said had no contract with the company (because he bought the ticket from his friend).

165    Justice McCardie, who tried the action, went on to consider what the position would have been if there had been a contract between Mr Said and the theatre company. Having referred to the general principle that knowingly inducing a breach of contract is a tort, McCardie J said (at 504–506):

It is well to point out that Sir Alfred Butt possessed the widest powers as the chairman and sole managing director of the [theatre]. He clearly acted within those powers when he directed that the plaintiff should be refused admission … I am satisfied, also, that he meant to act and did act bona fide for the protection of the interests of his company. If, therefore, the plaintiff, assuming that a contract existed between the company and himself, can sue the defendant for wrongfully procuring a breach of that contract, the gravest and widest consequences must ensue.

…

I have searched in vain for any decision which indicates that a servant is liable in tort for procuring a breach of his master’s contract with another. If such a cause of action existed, I imagine that it would have been successfully asserted ere this. The explanation of the breadth of the language used in the decisions probably lies in the fact that in every one of the sets of circumstances before the Court the person who procured the breach of contract was in fact a stranger, that is a third person, who stood wholly outside the area of the bargain made between the two contracting parties. If he is in the position of a stranger, he will be prima facie liable, even though he may act honestly, or without malice, or in the best interests of himself; or even if he acts as an altruist, seeking only the good of another …

But the servant who causes a breach of his master’s contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent … must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract …

I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. I abstain from expressing any opinion as to the law which may apply if a servant, acting as an entire stranger, or wholly outside the range of his powers, procures his master to wrongfully break a contract with a third person. Nothing that I have said to-day is, I hope, inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.

(Citations omitted.)

O’Brien v Dawson

166    The decision of the High Court in O’Brien v Dawson (1942) 66 CLR 18 also concerned conduct related to theatres. Mr O’Brien brought an action in the Supreme Court of New South Wales against the defendants, Messrs Dawson and Doyle and Bligh Street Holdings Pty Ltd, alleging that they had conspired to injure him by terminating the agreements by which he was in occupation of certain theatres, taking possession of them and ejecting him from them.

167    At trial, a jury awarded Mr O’Brien £7,000 in damages.

168    The NSW Full Court set aside the verdict and ordered that verdict and judgment be entered for the defendants. See O’Brien v Dawson (1941) 41 SR (NSW) 295.

169    Having rejected the contention that the mere fact that contracting parties who commit a deliberate breach of their contract are several in number makes their breach a conspiracy, Jordan CJ (with whom Halse Rogers and Roper JJ concurred) said (at 307ff):

The next question is whether, if an ordinary limited liability company is a party to a contract, and its directors acting as such, and in the course of conducting the company’s business at a Board meeting, resolve that the company shall refuse to perform a contract to which it is a party, the directors knowing that the refusal cannot be legally justified, and effect is given to this resolution, the directors concerned are guilty of the tort—and presumably also of the crime—of conspiracy. I am of opinion that in such a case it is entirely artificial to speak of the directors as “procuring” the company to break its contract in the sense in which this word is used in the Lumley v Gye type of case. An incorporated company is a figment of the law. It is incapable of acting except through agents. Its directors are persons who have been authorised by the constituent members of the corporation to cause acts to be done on its behalf. They are its agents who have power to control its acts. It cannot act at all except through them or through some other authorised agents. They are not in the position of outsiders who are influencing the independent volition of a contracting party who is capable of exercising volition for himself. It is their volition and theirs only which determines the making, the performance, or the breach of the company’s contracts. In my opinion, on the state of facts assumed, they stand in the same position as regards liability to a charge of conspiracy as do joint contractors. This is not to say that every board room constitutes an Alsatia in which persons may conspire to their heart’s content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect. It means only that the mere fact that the directors who determine whether or not a company shall perform the obligations of a contract are several in number makes them no more subject to the law of conspiracy than would be a single managing director if it were he who determined it: G. Scammell & Nephew Ltd v Hurley; De Jetley Marks v Greenwood. Directors of a company are, however, personally responsible for any torts committed by their company in the procuring of which they are personally implicated: Rainham Chemical Works Ltd v Belvedere Fish Guano Co; Performing Rights Society v Ciryl Theatrical Syndicate; British Thomson-Houston Co v Sterling Accessories Ltd; cf. Street, Doctrine of Ultra Vires, 315-8. But there is authority for the proposition that the fact that one or more directors of a company, acting as such, are the instruments by which the company, without just cause, refuses to perform a contract does not confer on the other party to the contract a right to sue the directors in tort on the footing that they have procured a breach of contractual rights: Said v Butt; G. Scammell & Nephew Ltd v Hurley.

(Citations omitted.)

170    Sir Frederick concluded (at 309):

For the reasons which I have stated, I am of opinion that the defendants’ motion succeeds. The action resembles the recent case of Cabassi v Vila in being an attempt to apply the civil action of conspiracy to other than its legitimate purposes. The case is one in which the plaintiff’s causes of action, if he has any, are in assumpsit against the defendant company for breach of contract, and in tort for any particular torts which he may be able to prove.

(Citation omitted.)

171    Mr O’Brien appealed to the High Court. Justice Williams, with whom Rich J agreed, held (at 41) that, on the proper construction of documents relied on (mainly letters), there were no enforceable agreements of the type pleaded by Mr O’Brien and “that he did not acquire any legal possession of the premises, but became entitled as a licensee to their use for carrying on the theatre businesses”. It followed that “[s]eeing that the issue before the jury was whether the defendants conspired to deprive the plaintiff of his rights under an enforceable contract for the grant of leases for twelve years when no such contract existed, and the damages were assessed on this basis … the verdict cannot stand”.

172    Justices Starke and McTiernan wrote separate judgments. They agreed that the appeal was to be dismissed. Both of them were satisfied that there was in existence at the relevant time an agreement between Mr O’Brien and Bligh Street Holdings Pty Ltd that entitled him to possession of the theatres, and that the company was not entitled to eject him from the premises without giving him a reasonable time to quit. But they held that the NSW Full Court was correct to set aside the jury’s verdict, on the ground that a breach of contract by a company acting through the medium of its board of directors did not amount to a tortious procurement of a breach of contract or to a conspiracy by those directors.

173    Justice Starke wrote as follows (at 32–33):

So there was evidence that the company was guilty of an unlawful act in breaking its contracts of July and August 1939 … But was there any evidence that the defendants were all engaged in common wrongful acts in concert or as joint tortfeasors? A company “cannot act in its own person for it has no person” (Ferguson v Wilson). So it must of necessity act by directors, managers, or other agents. The company, if it were guilty of a breach of its contracts in this case, acted through its director the respondent Doyle, but it is neither “law nor sense” (Lagunas Nitrate Co v Lagunas Syndicate) to say that Doyle in the exercise of his functions as a director of the company combined with it to do any unlawful act or become a joint tortfeasor. Again, it is equally fallacious to assert that Doyle knowingly procured the company to break its contract. The acts of Doyle were the acts of the company and not his personal acts which involved him in any liability to the plaintiff. But I would add that it does not follow that a director of a company would escape personal liability under cover of the company’s responsibility if he himself became an actor and invaded the plaintiff's rights, as by trespassing on his land, or seizing his goods and so forth. And for similar reasons the contention is equally untenable that Doyle and the respondent Dawson combined together or engaged in common in knowingly procuring a breach by the company of its contracts.

(Citations omitted.)

174    Justice McTiernan said (at 34) that Jordan CJ was “clearly right” to conclude that “the position of each of the individual defendants who was a director of the defendant company deprived the allegation of conspiracy between the company and them of any substance”. His Honour continued:

A commits an actionable wrong against B if he procures C to break his contract with B (Lumley v Gye; Quinn v Leathem; South Wales Miners’ Federation v Glamorgan Coal Co Ltd). … But an action by the plaintiff would not lie against the company for procuring a breach of its own contract with him nor against the individual defendants on that cause of action if in terminating the agreement they were acting in pursuance of their authority as directors (Said v Butt). There is no evidence that they were not acting in pursuance of that authority.

(Citations omitted.)

175    It is true, as the Singapore Court of Appeal said in PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] 1 SLR 818 at 839–840 [58], that Starke and McTiernan JJ approved the principle in Said v Butt without specifically addressing the bona fides requirement. But the reason for that is simple: it was clear on the facts in O’Brien v Dawson that the directors were acting bona fide.

176    The same is true of Knights Capital Group Ltd v Bajada and Associates Pty Ltd [2016] WASC 69 (Pritchard J). There her Honour dealt with an application for summary judgment by the plaintiff company and its directors seeking to strike out a counterclaim by the defendant company which contended that the directors of the plaintiff were not entitled to the Said v Butt immunity that they claimed, because their conduct was not in good faith or in the best interests of the company of which they were directors. Her Honour granted the application because the defendant did not identify any evidence which, if accepted, would be capable of establishing that the directors of the plaintiff acted other than in the best interests of the company. See Knights Capital Group at [80]–[81] and [83].

Consideration

177    The submissions on appeal, both oral and written, focused principally on what might be called a question of general principle — namely whether, in light of the views expressed by Starke J and McTiernan J in O’Brien v Dawson, a director acting as such can knowingly induce or procure a breach of trust, or knowingly assist in a dishonest and fraudulent design, by a trustee company of which that person is a director.

178    There is something to be said on both sides of that question of general principle, as Leeming JA explained in part in his obiter remarks in Pittmore v Chan at 96–97 [162]–[169], to which the primary judge referred in his reasons.

179    On the one hand, as Leeming JA said (at 96 [162]–[163]), holding both the company and its director liable for a breach of fiduciary duty in circumstances where the company did exactly what the director procured it to do with the director’s mind “sits ill with the position of inducing breach of contract” where the foundation of the relationship is contractual and where fiduciary relationships must accommodate themselves to the terms of the parties’ agreement.

180    Further, as Carthy JA (with whom Laskin and Goudge JJA agreed) said in ADGA Systems International Ltd v Valcom Ltd [1999] OJ No 27; 168 DLR (4th) 351 at 357 [15], the rule in Said v Butt:

provides an exception to the general rule that persons are responsible for their own conduct. That exception has since gained acceptance because it assures that persons who deal with a limited company and accept the imposition of limited liability will not have available to them both a claim for breach of contract against a company and a claim for tortious conduct against the director with damages assessed on a different basis. The exception also assures that officers and directors, in the process of carrying on business, are capable of directing that a contract of employment be terminated or that a business contract not be performed on the assumed basis that the company’s best interest is to pay the damages for failure to perform.

181    On the other hand, as Leeming JA also observed (at 97 [169]), “[t]he essence of a fiduciary relationship is to act in the best interests of another, as opposed to tort and contract where the parties are taken to be independent and equal actors concerned primarily with their own self-interest … Conceivably the character of the fiduciary relationship might result in a broader approach to ancillary liability than would be the case at common law for inducing breach of contract”, citing Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 500–501 [40] and Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 196–197 [71], the former of which quoted with approval this statement by McLachlin J in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 543:

The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.

182    In Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 523, Finn J observed:

Legal decision and scholarly opinion in common law jurisdictions are converging in the view that at least what is known as the second (the “knowing assistance”) limb of the rule in Barnes v Addy is a fault-based form of accessorial liability. For present purposes that liability rule can be formulated (conservatively) as one which exposes a third party to the full range of equitable remedy available against a trustee if that person knowingly or recklessly assists in or procures a breach of trust or of fiduciary duty by a trustee: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; see Royal Brunei Airlines Sdn Bhd v Tan and the cases and writings referred to therein; Wickstead v Browne; Equiticorp Finance Ltd (In liq) v Bank of New Zealand (1993) 32 NSWLR 50 per Kirby P; Bogert, par 901; Oakley, “Liability of a Stranger as a Constructive Trustee”, in M Cope (ed), Equity: Issues and Trends (1995).

As has long been recognised in case-law in the United States — see, eg Shuster v North American Mortgage Loan Co (1942) 40 NE 2d 130; Seven G Ranching Co v Stewart Title & Trust of Tucson (1981) 627 P 2d 1088; see also Scott on Trusts, par 326.3 (“Directors and officers of corporate trustee”); Bogert, par 901, fn 10 — this form of liability is one of no little significance to the directors of a trust company for the very reason that, often enough, it will be their own conduct in exercising the powers of the board which causes their company to commit a breach of trust. They are, in other words, peculiarly vulnerable to this rule. Recent Australian case-law is demonstrating an appreciation of this: see, eg Young v Murphy (1994) 13 ACSR 722; see also Biala Pty Ltd v Mallina Holdings Ltd (1993) 11 ACSR 785 at 832 [(1993) 13 WAR 11 at 58].

(Emphasis added.)

183    And as Ipp J concluded in the passage from Biala that Finn J doubtless had in mind:

Whatever liability attaches to Dempster Nominees for such breach also attaches to Dempster; he knowingly having assisted Dempster Nominees in that breach and having deliberately persuaded Mallina to give up its rights to the exclusive mandate so as to be able to substitute Connell for Mallina as the co-joint venturer of Dempster Nominees: Barnes v Addy; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.

184    Further, as Pritchard J observed in Knights Capital Group at [77] and [81]:

(a)    the rule in Said v Butt emerges from an obiter judgment;

(b)    the limits of the rule in Said v Butt upon which the defendant in that case sought to rely are set out in obiter of only two of the members of the High Court in O’Brien v Dawson;

(c)    where the appeal to the High Court in O’Brien v Dawson was dismissed on the basis that it was without prejudice to the plaintiff’s rights to pursue other actions against the defendants, including actions for other torts, it is arguable that Starke and McTiernan JJ were simply intending to emphasise that the mere fact of being a director of a company does not absolve a person from liability as a joint tortfeasor with a company (apart from liability for the tort of procuring a breach of contract);

(d)    outside the realm of the torts of procuring a breach of contract, or interfering with contractual relations, a director can be personally liable for a tort committed by the corporation; and

(e)    the principle in O’Brien v Dawson does not sit entirely comfortably with the body of law which recognises that a director may be personally liable for procuring other wrongs by the corporation.

185    Here, however, in my view, it is not, with respect, necessary to decide the question of general principle identified above, because, if I may borrow what Dixon, McTiernan and Fullagar JJ said in Fouche at 636, “most of the difficulties disappear when the nature of the breach of trust is properly understood”.

186    In my view, a director acting as such can knowingly induce or procure a breach of trust, or knowingly assist in a dishonest and fraudulent design, by a trustee company of which that person is a director, when the director lacks the relevant bona fides because they acted (i) in their own personal interest, and (ii) contrary to the interests of the company, in breach of their duties to it.

187    In this case, the primary judge made the following findings about the conduct of Ms Lin and Mr Cai in relation to the imprudent investment breaches:

(a)    Ms Lin and Mr Cai knew that the three loans were high-risk, unsecured loans at high interest rates (see J [214] in the case of Ms Lin: “she understood that high interest rates were associated with high risk” and that “it was wrong to speculate with investors’ funds”; and see J [221] in the case of Mr Cai: “he knew that the security for the loans was non-existent” and knew that no one had undertaken any due diligence); and

(b)    Mr Cai knew that the purported security with respect to the first MVDA loan comprised non-existent properties (J [219]).

188    Further, in relation to the loans, the primary judge found (among other things) that:

(a)    Ms Lin and Mr Cai used trust money for the purpose of advancing their own commercial interests knowing that such use was detrimental to the interests of Ms Chu and Mr Xu (J [215] and [222]);

(b)    in agreeing to make the three loans, Ms Lin knowingly used the trust money in the fund for the purpose of advancing her own commercial interests, being her investment in the Turramurra project and her perception that that investment and the assets of her then-husband Mr Cai were at risk because he was a guarantor of the project, in circumstances where such use was detrimental to the interests of Ms Chu and Mr Xu (J [215]);

(c)    Ms Lin procured or induced the breaches of trust by Gold Stone in making the three loans in question with actual knowledge of the circumstances constituting those breaches of trust (J [216]);

(d)    Mr Cai also knew of the improper purpose of the loans, including because he knew the financial risks which he faced as guarantor, and the fact that Mr Fong’s involvement was intended to extricate him (as well as Ms Lin and GDI) from those risks, and that he knowingly induced or procured the breaches of trust by Gold Stone in relation to the three loan agreements (J [222]–[223]); and

(e)    the breaches of trust by Gold Stone in having the improper purpose of procuring Mr Fong’s assistance with the Turramurra project were dishonest and fraudulent (J [228]).

189    For the reasons given above at paragraphs 143 and 157 (including because no challenge is made to the imprudent investments breaches, and the grounds of appeal in relation to the Turramurra project improper purpose breaches fail), insofar as the findings summarised at paragraphs 187 and 188 above relate to the imprudent investments breaches or to the improper purpose of the MVLC loan and the first MVDA loan, they are unimpeachable.

190    Further, I would have no hesitation in concluding that the conduct of Ms Lin and Mr Cai in knowingly procuring, or knowingly assisting in, Gold Stone’s imprudent investments breaches was dishonest and fraudulent (see Farah Constructions at 160 [162]–[163]).

191    It may be accepted for present purposes, as Lord Leggatt JSC said in Lifestyle Equities at 36 [85] that it “seems unjust that anyone whose act causes another person to commit a tort should be held jointly liable for the tort as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person tortious”. But, in my view, there is nothing unjust in saying that anyone whose act causes another person to commit a tort should be held jointly liable for the tort as an accessory if the individual was not acting in good faith and acted with knowledge of facts which made the act of the other person tortious. And that is exactly the position here with respect to Ms Lin and Mr Cai.

192    The primary judge did not decide the question raised by ground 4 on the basis that I favour. He did not expressly mention the notion of “bona fides”; he held in the passages set out at paragraphs 86 to 90 above that Ms Lin and Mr Cai were liable as accessories, in substance, by answering in the affirmative what I have called the question of general principle.

193    No doubt alive to that fact, Ms Chu and Mr Xu filed a notice of contention in the Lin and Cai appeals, contending that the judgment of the primary judge should be affirmed on grounds other than those he relied on, as follows:

If the primary judge was in error by finding at J[211] that a director of a trustee company acting as such can be liable for knowingly procuring or inducing the company’s breach of trust, or for being knowingly concerned in a breach of trust by the company, then the plaintiffs’ claims should nevertheless have succeeded because:

(a)     to the extent that a director acting as such cannot be liable as an accessory to a breach of trust by the company, that exception only applies where the director is acting bona fide, within the scope of the director’s authority, and in accordance with the director’s duties to the company;

(b)     the conduct for which Lin [and Cai were] found to have been liable was not bona fide, was not within the scope of [their] authority as [directors] of Gold Stone, and was in breach of [their] duties as [directors], for the reasons the plaintiffs had alleged; and

(c)     accordingly, if there is an exception to accessorial liability for a director acting as such, the exception does not apply in this case.

194    Counsel for Ms Lin and Mr Cai objected to the notice of contention. They submitted that it raised a new argument, not made below, that there is an exception to the rule in Said v Butt and the exception is engaged because Ms Lin and Mr Cai were not acting bona fide within the scope of their authority.

195    They submitted that the “new case” should be rejected for that reason, and because it was said to be inconsistent with the case pleaded by Ms Chu and Mr Xu below “(which relevantly included an allegation that Ms Lin’s authority extended to ‘identifying and negotiating investments into which Gold Stone would invest the Fund’s money’: 3FASOC (c)(iii) and (d)(i)(C)) being the precise conduct relied on as the act of procurement in 3FASOC [158]”.

196    It was also submitted that it could not be said that Ms Lin acted other than bona fide because her purpose was the purpose of Gold Stone (which Ms Chu and Mr Xu alleged was to further the relationship between GDI and Mr Fong: see 3FASOC [153(a)]).

197    In the alternative, it was submitted that if the argument were allowed to be run, “then the short point is that the [Said v Butt] ‘exception’ does not form part of the law of Australia and is irrelevant on the case as run below”.

198    I do not accept those submissions.

199    First, the matters raised by the notice of contention are consistent with the pleaded case and the case run at trial. As I explain below at paragraph 230 and following, the pleading made sufficiently clear that the case alleged was that Ms Lin and Mr Cai caused Gold Stone to enter into each of the three loans, and that they knowingly assisted in the company’s dishonest and fraudulent design. (As I have noted above, no pleading complaint was pressed about the knowing procurement pleas.)

200    Secondly, the submissions filed and made on behalf of Ms Chu and Mr Xu below made it quite clear how the case was put. The submissions below also made it clear that counsel for Ms Lin and Mr Cai understood that the plea of knowingly procuring a breach of trust included the making of three loans to further the proposed relationship between GDI and Mr Fong, and to facilitate the commercial interests of GDI and their own personal interests.

201    Thirdly, the notice of contention does not raise a “new case” because counsel for Ms Lin and Mr Cai below well understood that the principle in Said v Butt, and whether it applies in the context of directors of a trustee company, was in play. In that regard, I refer, without repeating at any length, and by way of example, to:

(a)    Ms Lin’s written closing submissions below at [4] (“The rule in Said v Butt remains good law in both Australia and in the United Kingdom and cannot be described as ‘weak as a matter of authority’. Nor is the rule anomalous. Rather, it is consistent with the wealth of authority that directors are not liable as accessories to a tortious claim unless they are found to personally owe and breach a direct duty of care …”); and

(b)    Mr Bagley’s closing oral submissions at transcript pages 739 and following (see Appeal Book Part C at page 1038), citing Said v Butt, O’Brien v Dawson and Leeming JA in Pittmore v Chan, and at transcript pages 966 and following (see Appeal Book Part C at page 1265). Counsel for Mr Cai adopted those submissions at transcript page 1013 (see Appeal Book Part C at page 1312).

202    Fourthly, as Mr Thomas said in the course of his oral address, and I agree, “it is inherent in the [cause of] action and therefore inherent in the rule in Said v Butt that it only offers protection to a director, officer or agent of a company if they can bring themselves within it; that is if it was a bona fide exercise of the power of the company in the ordinary course and without knowledge of the facts that would elicit or identify the wrong. And that is not this case”.

203    Fifthly, as Mr Thomas also said, the findings of fact set out at paragraphs 187 and 188 above — in particular, that (i) Ms Lin and Mr Cai knew that the investments were hazardous and that there was no proper security for the trust money loaned; and (ii) they used trust money for the purpose of advancing their own commercial interests knowing that such use was detrimental to the interests of Ms Chu and Mr Xu — “stand in the way clearly of a finding that there was a bona fide reasonable exercise of power by a director without notice or knowledge of wrongdoing”.

204    Counsel for Ms Lin and Mr Cai further submitted that to allow the notice of contention would cause them “prejudice” because, as Mr Hutley put it, “one has made decisions about how one runs a case, who one calls and when, on the basis of a case as run” and because it “raises the whole question of what does ‘bona fide’ mean in that context”.

205    I do not accept those submissions either, in particular because it was not explained quite what different case counsel for Ms Lin and Mr Cai might have run.

206    If a plaintiff proves that directors breached their duties to the company, the directors will not be afforded the immunity contemplated by the principle in Said v Butt. That is what is meant by the words of limitation used by McCardie J in that case (at 506): “if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract … he does not thereby become liable …” (emphasis added). And the words of limitation were important in the context, and were a product, of the facts of that case because, as McCardie J was careful to explain (at 504), “[i]t is well to point out that Sir Alfred Butt … clearly acted within [his] powers [as chairman and managing director] when he directed that [Mr Said] should be refused admission [and] … that [Sir Alfred Butt] meant to act and did act bona fide for the protection of the interests of his company”.

207    Absent such a limitation, a boardroom would be permitted by operation of the immunity to do exactly that which Sir Frederick Jordan in the NSW Full Court said the principle would not allow — namely, to “constitute[] an Alsatia in which persons may conspire to their heart’s content and with complete impunity so long as they do so in the character of directors of a company and employ the machinery of their company for carrying their conspiracy into effect”: O’Brien v Dawson (1941) 41 SR (NSW) 295 at 308. (Alsatia was in the Whitefriars district of London. Until 1697, it was a haven for debtors and criminals, where law did not run. See Woods v Multi-Sport Holdings Pty Ltd (2002) 208 CLR 460 at 483 [79] and footnote 58 (McHugh J). See also Lord Hoffmann in Standard Chartered Bank v Pakistan National Shipping Corporation (No 4) [2003] 1 AC 959 at 968 [22] (Lords Mustill, Slynn and Hobhouse agreeing) (“[n]o one can escape liability for his fraud by saying: ‘I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable’”).)

208    The so-called principle in Said v Butt only operates to confer immunity on a director for inducing a breach of contract in circumstances where the director acting qua director acted bona fide and within the scope of his or her authority. And nothing that McCardie J said in his reasons, or in what Starke and McTiernan JJ said in O’Brien v Dawson, has been read to suggest otherwise. See, by way of example only, Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304 at 347 [293] (Ward P, Brereton JA and Griffiths AJA) (“In order to incur liability as a joint tortfeasor, the director must be so personally involved in directing or procuring the tort as to ‘make it his or her own’ above and beyond reasonably and in good faith directing the company’s decision-making as a director”); ADGA Systems at [35] (Carthy JA) (“an officer is disentitled to the Said v Butt defence if he is not acting bona fide in the interests of the company”). As Steven Chong JA for the court said in PT Sandipala [2018] 1 SLR 818 at 843 [65]–[66]:

[O]ur view is that the most appropriate elucidation of the Said v Butt principle is that a director would ordinarily be immune from tortious liability for authorising or procuring his company’s breach of contract in his capacity as a director, unless his decision is made in breach of any of his personal legal duties to the company. … Such breach may be a breach of a fiduciary duty to act in the best interests of the company, or it may be a breach of his contractual duty towards the company to act within the scope of his authority as granted by the company. …

Importantly, the applicability of the principle focuses on the director’s conduct and intention in relation to his duties towards his company, and not towards the third party. This was succinctly explained by Kan Ting Chiu J in his decision in Otech Pakistan Pvt Ltd v Clough Engineering Ltd [2005] SGHC 98 (“Otech”) at [25], where he interpreted the requirement of bona fide in the Said v Butt principle to mean that the defendant was acting in good faith in the discharge of his office, and not that he was acting in good faith in the action complained of; a director may believe that it is for the good of the company to breach a contract intentionally.

(Emphasis in original.)

209    And there can be no doubt that whatever arguable ambiguity might exist in the expression “bona fides” in this context, the uncontested findings in relation to the conduct of Ms Lin and Mr Cai in their capacity as directors of Gold Stone, make irresistible the conclusion that their conduct was not bona fide within the scope of their authority, including because they acted in their own personal interest and in breach of their duties to Gold Stone under the Corporations Act and as fiduciaries. It seems to me trite to say that if a director knowingly procures or assists in a serious and dishonest breach of trust by a trustee company, he or she could not be said to be acting in its best interests. In any event, in light of his Honour’s findings of fact, it is not open to Ms Lin or Mr Cai to contend — and they did not contend — that they acted reasonably and in good faith with respect to any of their impugned conduct.

210    As the primary judge said in the context of the claims pleaded by Ms Chu and Mr Xu, as unitholders and beneficiaries of the Fund, seeking to bring claims against Ms Lin and Mr Cai, among others, for breach of the equitable and statutory duties they owed to Gold Stone in its capacity as trustee (J [296]):

Ms Lin and Mr Cai owed duties to Gold Stone as directors of the company, both under the Act and as fiduciaries … For the reasons given above in relation to the liability of those … defendants for the breaches of trust committed by Gold Stone, there is a compelling case that [they] breached those statutory and equitable duties, thereby causing loss to Gold Stone, which had an obligation to restore the Fund to the position it would have been in if Gold Stone’s breaches of trust (procured by them) had not been committed.

211    As the primary judge also said (J [295]), it is well-established that a beneficiary who can establish “special circumstances” may sue in his or her own name on a cause of action against a third party which belongs to a trustee, if the trustee fails to bring a proper claim to protect the trust property. His Honour said (J [297]) that because he had held that Ms Chu and Mr Xu (as beneficiaries of the Fund) had a direct cause of action against Ms Lin and Mr Cai (as parties who knowingly procured or induced the breaches of trust by Gold Stone and who knowingly assisted in Gold Stone’s dishonest and fraudulent design) which yielded substantially the same remedial outcome as the proposed derivative suit on their part to sue in Gold Stone’s name as trustee, the requirement of special circumstances was not satisfied. It was for that reason only that it was not part of the ratio of his Honour’s reasons that Ms Lin and Mr Cai breached their statutory and equitable duties to Gold Stone. In any event, the conclusion that they did is ineluctable.

212    Ms Lin and Mr Cai were obliged to “act in good faith to ensure that the company administer[ed] the trust in accordance with the trust deed having regard to the rights and interests of the beneficiaries”. See Australasian Annuities Pty Ltd (in liq) (receivers and managers appointed) v Rowley Super Fund Pty Ltd [2015] VSCA 9; (2015) 318 ALR 302 at 350 [228] (Garde AJA, with whom Neave JA agreed). That they self-evidently did not do. On the contrary, they acted in their own commercial interests and in breach of their duties to Gold Stone (to the detriment of the rights and interests of the beneficiaries).

213    Much was said in the course of submissions about the maxim “equity follows the law”. In a case such as this, involving breaches of trust which were serious and dishonest, and where the investments were “of such a kind that [they] ought never to have been made at all for any amount large or small” (see Fouche at 637), equity would not “follow” any law that would fix the directors with immunity. On the contrary, it would “do everything necessary both to prevent the breach of trust from being carried out or further carried out, and to redress the position and restore the trust fund” (see Fouche at 637).

214    For those reasons, I reject the submission by Ms Lin and Mr Cai that they “cannot” be liable — either for knowingly inducing a breach of trust or under the second limb of Barnes v Addy — because the primary judge found that their conduct was the conduct of Gold Stone. In my view, they are liable, for the reasons set out above.

215    Accordingly, I would allow the notice of contention.

216    For those reasons, ground 4 in both Ms Lin’s and Mr Cai’s appeals should fail.

Both appeals – Ground 2 (alleged failure to plead or prove that the making of the second MVDA loan was for the improper purpose of procuring Mr Fong’s assistance with the Turramurra project)

217    Ground 2 in both appeals alleged that the primary judge erred in finding (at J [207]) that the second MVDA loan was made for the improper purpose of procuring Mr Fong’s assistance with the Turramurra development, and ought to have found that that claim for breach of trust was not made out.

218    The primary judge’s conclusion was based on several unchallenged factual findings. First, his Honour found that Ms Lin was determined to extricate herself from the Turramurra project by enticing Mr Fong to assume the burdens of developing that project, and that she expressly recognised the need to provide financial incentives to Mr Fong in doing so. Secondly, in relation to the second MVDA loan specifically, his Honour found that although that loan was made after the deed of novation had been entered into in July 2014, there was a commercial imperative to keep Mr Fong and his entities in funds in order to meet the payment obligations under that deed, and in any event the company receiving the novation, MVGD, was half-owned by each of GDI and Mr Fong.

219    Mr Hutley described ground 2 as a “pleading issue” in the course of his oral address (see transcript at page 43). But the ground of appeal was not confined to a pleading point (indeed, it made no mention of the pleading). And Mr Thomas argued the ground on the basis that it raised both a pleading point and an “evidence point” (see transcript at pages 178–179) — namely that, as Mr Hutley put it, “the objective factual material should have led the primary judge to reject the contention that [Gold Stone’s] purpose was to secure [its] interest in the Turramurra development for the second [MVDA] loan”.

220    To the extent that ground 2 sought to raise an evidence point, it must be rejected. Quite apart from anything else, in an affidavit dated 27 November 2015 (which the primary judge relevantly mentioned at J [101], [207] and [215]), Ms Lin positively asserted that Gold Stone agreed to make the MVLC loan, the first MVDA loan and the second MVDA loan “[i]n the interests of furthering the proposed relationship between GDI and Fong”. That is more than enough “objective factual material” to found the primary judge’s conclusion that Gold Stone’s purpose in making the second MVDA loan was to secure its interest in the Turramurra development.

221    The relevant pleading for the purposes of ground 2 is contained in paragraph [147A] of the 3FASOC which is as follows:

Lin, Cai and Darmali caused Gold Stone to make each of the Loans for the purpose of furthering the proposed relationship between GDI and Fong in relation to the Turramurra development in which GDI held an interest, because Lin, Cai and Darmali were concerned that if Fong did not become involved in the Turramurra development then GDI might:

(a)     lose the money it had contributed to the Turramurra development (including a deposit of about $1.5 million);

(b)     lose any opportunity to profit from the Turramurra development; and

[(c)]    become liable to the vendors of the Turramurra properties for damages for failure to complete the purchase contracts, which liability would be guaranteed by Cai and Xufeng Wu.

222    On its terms, the allegation in paragraph [147A] is directed to each of the loans, and therefore necessarily includes the second MVDA loan. However, Ms Lin and Mr Cai focused on the second half of the paragraph which refers to Mr Fong becoming involved in the Turramurra development. The appellants argued that Mr Fong became involved in the Turramurra development when GDI entered into a deed of novation with MVGD (a company half-owned by each of GDI and Mr Fong) in July 2014, which was prior to the execution of the second MVDA loan on 8 August 2014 and the advance of the loan in two tranches ($3 million on 11 August 2014 and $200,000 on 13 August 2014). Having regard to that chronology, the appellants argued that paragraph [147A] could not be understood as referring to the second MVDA loan.

223    In my view, the pleading point in this ground of appeal should be rejected for three reasons.

224    First, the allegation concerning the improper purpose for making the second MVDA loan is adequately pleaded at paragraph [147A]. As already noted, the allegation expressly extends to all three loans. Pleadings are not to be construed like a contract or statute. As explained by the High Court in Dare v Pulham (1982) 148 CLR 658 at 664, the purpose of a pleading is to ensure procedural fairness in the conduct of a proceeding: to furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it, and to define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial. The express allegation that Ms Lin, Mr Cai and Mr Darmali caused Gold Stone to make each of the loans for the purpose of furthering the proposed relationship between GDI and Mr Fong in relation to the Turramurra development in which GDI held an interest was sufficient to put Ms Lin and Mr Cai on notice of the case they had to meet, notwithstanding the infelicity in the remainder of the pleading.

225    Secondly, the allegation concerning the improper purpose for making the second MVDA loan was addressed in the opening and closing submissions below of Ms Chu and Mr Xu. In their opening submissions at trial dated 28 May 2024, Ms Chu and Mr Xu submitted that the second MVDA loan was made for improper purposes (at [29]), and submitted that each of the loans was made for the improper purpose of procuring Mr Fong’s assistance for the Turramurra project (at [62]). The allegation was clearly opened on the basis of all three loans. Those submissions were repeated by Ms Chu and Mr Xu in their closing submissions at trial dated 17 June 2024 at [31], [37] and [221].

226    Thirdly, I am not persuaded that Ms Lin and Mr Cai raised this specific pleading issue at trial. In the course of argument on the appeal, the appellants conflated other pleading complaints (which are the subject of other grounds of appeal below) with this pleading complaint. Indeed, in her opening submissions at trial, Ms Lin specifically recited paragraph [147A] of the pleading and referred to the “loans to MVLC and MVDA” without any reference to, or complaint about, the express inclusion of the second MVDA loan (at [20] and [21]). In her closing submissions at trial, Ms Lin squarely confronted the allegation on the basis of the evidence and submitted that the court “will not be satisfied that the three loans were entered into for the purpose of furthering the relationship between GDI and Fong in relation to the Turramurra development” (at [70]) and, in relation to the second MVDA loan specifically, submitted (at [72]):

The Court will also not be satisfied that the second MVDA loan of 8 August 2014 was entered into for the purpose of furthering GDI’s relationship with Fong. By the time of this loan, the novation deed between GDI and MV Golden Destiny Development (Turramurra) Pty Ltd had been executed.

227    Mr Cai’s opening submissions at trial did not advert to this specific allegation, and Mr Cai’s closing submissions at trial confronted the allegation on the basis of the evidence by submitting that the second MVDA loan “took place” after the novation deed between GDI and MVGD and that, logically, the second MVDA loan “could not have been used as an influencing factor” (at [32]).

228    No submission was advanced that Ms Chu and Mr Xu had failed to plead that the second MVDA loan was made for the improper purpose of procuring Mr Fong’s assistance with the Turramurra development.

229    It follows, in my view, that ground 2 in both appeals, whether put as a pleading point or an evidence point, should fail.

Both appeals – Lin grounds 6 and 7; Cai grounds 5 and 6 (allegation that second limb of Barnes v Addy was not properly pleaded in respect of Turramurra project improper purpose breaches)

230    His Honour’s finding in relation to the pleading complaint about the knowing assistance plea was as follows (J [229]):

A pleading point is also taken concerning this allegation. Again, it is without merit. The pleading of liability pursuant to the second limb in Barnes v Addy is made in para 162 of the Third Further Amended Statement of Claim, which is supported by ample cross-references to the earlier paragraphs which are relied upon. The sub-heading immediately before para 162 is “Dishonest and Fraudulent Design”. The Full Federal Court has held that there is no express requirement that the pleading use the words “Dishonest and Fraudulent Design”: Zibara v Ultra Management (Sports) Pty Ltd [2021] FCAFC 4 at [116] (McKerracher and Anderson JJ). However, as I have said, the pleading in the present case expressly uses that expression.

231    Ground 6 of Ms Lin’s amended notice of appeal dated 17 February 2025 was as follows: “The primary judge erred at J [229] in finding that the plaintiff had pleaded a dishonest and fraudulent design on the basis of ‘having the improper purpose of procuring Mr Fong’s assistance with the Turramurra project’ and ought to have found that allegation did not form part of the pleaded dishonest and fraudulent design by Gold Stone”.

232    Ground 5 of Mr Cai’s amended notice of appeal was identical.

233    It is unnecessary to deal separately with Lin ground 7 and Cai ground 6 because, as I have already explained at paragraph 143 above, those grounds were not intended to raise any issues beyond the pleading points contained in Lin ground 6 and Cai ground 5.

234    Mr Hutley’s principal complaint about the pleading (which Mr Pritchard adopted) was, in substance, that the cross-referencing in paragraph [160] of the 3FASOC (“In the premises of paragraphs 145 to 157, each of Lin … and Cai, through their respective conduct pleaded at paragraphs 158 to 159, assisted with knowledge in the Breaches of Trust and, or alternatively, knowingly procured the Breaches of Trust”) was not clear about which of the breaches of trust referred to in paragraphs [145]–[157] were relied on for the purposes of the allegation that Ms Lin and Mr Cai had been relevantly dishonest. Mr Hutley submitted that such a pleading was insufficient, citing a number of cases for the undoubted proposition that particulars of fraud must be pleaded with precision.

235    There is, in my view, no merit in the pleading point, and the primary judge was correct to reject it in J [229].

236    First, the pleading makes sufficiently clear, in particular at [160], that the case alleged was that Ms Lin and Mr Cai caused Gold Stone to enter into each of the three loans “through their respective conduct pleaded at paragraphs 158 to 159” and that “[i]n the premises of paragraphs 145 to 157” they assisted with knowledge in the “Breaches of Trust” and/or knowingly procured them.

237    The reference to paragraphs [145]–[157] self-evidently included the plea of the Turramurra project improper purpose breaches ([147A]); the plea of the imprudent investments breaches ([152(a)]); the plea of the unauthorised investments breach ([152(c)]); and the plea of Gold Stone’s breaches of its duties as a trustee ([153]).

238    Secondly, the submissions made on behalf of Ms Chu and Mr Xu below made it quite clear how the case was put, and that counsel for Ms Lin and Mr Cai (despite making the same pleading point below that they pressed on appeal) understood that the pleas of breaches of trust included dishonestly making the three loans (including by negotiating and agreeing to them and by signing documents to give effect to them) to further the proposed relationship between GDI and Mr Fong and to facilitate the commercial interests of GDI as well as their own personal interests.

239    In their written opening submissions below, counsel for Ms Chu and Mr Xu submitted as follows:

2     Almost all of the money invested by the plaintiffs was lost by Gold Stone, as trustee, through unsecured loans to companies associated with Mr Victor Fong, a property developer. The provision of loans without effective security was prohibited by the Fund’s Trust Deed, cannot be reconciled with the Fund’s claim to adopt a “conservative lending policy”, and was contrary to its very purpose as a “secured” income mortgage fund. The loans to Mr Fong were not only imprudent, they were improperly made to benefit the defendants and not the Fund’s unitholders. Other monies were misappropriated in various smaller transactions.

…

20    … The plaintiffs say that the MVLC Loan was unsecured and was made for the improper purposes of benefitting Gold Stone’s stakeholders (not the unitholders of the Fund) and procuring Mr Fong’s assistance for a separate property development in Turramurra, in which the Fund had no interest but in which interests associated with Ms Lin [and] Mr Cai … were involved) …

…

22    … The plaintiffs say the First MVDA Loan was unsecured and was made for improper purposes.

…

29    … The plaintiffs say the Second MVDA Loan was unsecured and was made for improper purposes.

…

59    Gold Stone committed numerous breaches of trust by making the Loans. Clause 20.4(j) of the Trust Deed only permitted Gold Stone to invest in loans if they were secured by mortgage over defined classes of assets, including real property (CB 5/2087). It is also a breach of trust to make recklessly imprudent investments on a hazardous security: Fouche v Superannuation Fund Board (1952) 88 CLR 609 at 637. Gold Stone also had duties under ss 14A(2) and 14C(1) [of the Trustee Act 1925 (NSW)] to invest prudently. It held itself out as a professional corporate trustee and should be held to a high standard: ASIC v Drake (No 2) [2016] FCA 1552; 340 ALR 75 at [272]-[273], [276].

…

62    The Loans were also made for the improper purpose of procuring Mr Fong’s assistance for the Turramurra project …

63    It follows that the Loans were negligent and were procured for an improper purpose in order to benefit Gold Stone’s shareholders rather than the Fund’s unitholders. In short, the Loans were procured in breach of trust. …

64    Each of Ms Lin [and] Mr Cai … was involved in effecting the breaches of trust through negotiating and agreeing to the Loans or through signing documents to give effect to the Loans. Each of them thereby knowingly procured or instigated Gold Stone to act in breach of trust: Pittmore Pty Ltd v Chan [2020] NSWCA 344; 104 NSWLR 62 at [186]-[196]; or assisted Gold Stone with a dishonest and fraudulent design: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [173]-[179]. Because of their involvement in the breaches, they are liable to restore the trust fund: Twigg v Twigg [2022] NSWCA 68; 402 ALR 119 at [175]-[183].

(Emphasis added.)

240    Mr Thomas’ oral opening submissions below were to similar effect:

MR THOMAS: Your Honour, an immediate question we say that arises, having regard to even that, we say, uncontestable statement of documentary facts is why [Gold Stone] as trustee would engage effectively from the outset of its existence in a clear violation of its investment mandate.

…

Our submission, your Honour, in the absence of an explanation from the defendants is that the overwhelming inference from the documents, even getting to – before one gets to cross-examination, is that the lending, the unsecured lending, took place in order to further the private interests of the first to third defendants: that’s Ms Lin, Mr [Cai], her husband at that time, and Mr [Darmali]. Those private interests included, in our submission, a need to find a developer to rescue Ms Lin and Mr [Cai] from a substantial investment that they had made through a corporate vehicle called Golden Destiny Investments, or GDI, in a Turramurra property development.

Now, at the time the mortgage fund was established, GDI needed to source almost $15 million to complete a contract to purchase that development. And Mr [Cai] had personally guaranteed those obligations. Ms Lin herself tells this court in her evidence that for Golden Destiny to go it alone without the support of a property developer would be “a financial disaster”. The documents, in our submission, reveal that Mr [Darmali] introduced Mr Fong to Ms Lin, and that the payments made to Mr Fong from the mortgage fund were to further the proposed relationship between Golden Destiny and Mr Fong. Now, they are not my words. Those are the words of Ms Lin herself in sworn affidavit evidence she gave in earlier Supreme Court proceedings. So she has sworn that the payments were made, all of the payments, the three loans that we impugn, were used to “further the proposed relationship between GDI and Mr Fong”.

…

MR THOMAS: The intention being, in our submission, that Mr Fong would take over the project and relieve GDI and Mr [Cai] from their obligations, as he ultimately did. Those private interests we say also included placing Mr Fong’s companies in funds so that they were able to repay loan – a loan that Mr [Darmali’s] mother had made to Mr Fong’s companies. We say private interest both with Ms Lin and Mr [Cai] and with Mr [Darmali] that aligned, unfortunately for our clients, in a fundamental collateral purpose contrary to the terms of the trust deed.

…

MR THOMAS: Now, our submission is that the private interests that I’ve identified were plainly foreign to the fund. No clause of [the Fund Constitution] permitted the trustee to breach its investment mandate in order to further those private interests, and therefore, among other things, we will submit to the court that your Honour should find that Ms Lin, Mr [Cai] and Mr Darmali knowingly procured or instigated breaches of trust or otherwise assisted in a design on the part of the trustee that was fraudulent and dishonest in the relevant sense. I emphasise that we advance our accessorial liability case on two bases; the Barnes v Addy second limb bases but also on the, as it were, perhaps more classic knowing instigation or procurement cause of action that Farah recognised was still available under Australian law and does not require us to demonstrate the existence of a fraudulent and dishonest design on the part of the trustee.

(Emphasis added.)

241    It is thus quite plain that the case being opened included the case that the claim for dishonest and fraudulent design against Ms Lin and Mr Cai was founded on the improper purposes of the three loans.

242    Further, counsel for Ms Lin and Mr Cai understood as much. In Ms Lin’s written opening submissions below, for example, having made the pleading point at [3], counsel make clear that they understood how the case was being put, as follows:

20    The core breach of trust case against Lin is centred on two allegations. First, that Lin caused Gold Stone to make loans to MVLC and MVDA using the Plaintiffs’ investments into the Fund “for the purpose of furthering the proposed relationship between GDI and Fong in relation to the Turramurra development in which GDI had an interest” [citing 2FASOC [147A]]. And second, that it was in Lin’s interests (which were at odds with the interests of Gold Stone’s unit holders) for the Fund to make investments which were risky … because Lin had interests in Gold Stone through her interests in GDI and DCK Assets Holding Pty Ltd (DCK) [citing 2FASOC [151]].

21    It is through these allegations that Gold Stone is said to have breached [citing 2FASOC [153]–[155]]: various common law and statutory duties as trustee of the Fund [citing 2FASOC [28]], terms of the [information memorandum], and the trust deed. To establish these alleged breaches, the Plaintiffs must establish that Lin caused Gold Stone to make the loans to MVLC and MVDA, that Lin had a purpose in furthering her relationship with Fong, and that Lin had an interest in the Fund making risky investments. The Court will not be so persuaded. The case for breach of trust depends on assertion, not evidence. There is no contemporaneous evidence supporting the assertion that Lin caused the loans to be made to MVLC and MVDA, let alone that Lin had a purpose in furthering the relationship between GDI and Fong.

243    And, at the risk of stating the obvious, contrary to that submission, the plaintiffs did establish that Ms Lin caused Gold Stone to make the loans to MVLC and MVDA, that she had a purpose in furthering her relationship with Fong, and that she had an interest in the Fund making risky investments.

244    In counsel’s written closing submissions, the accessorial liability case put by Ms Chu and Mr Xu was articulated as follows:

223    Each of Ms Lin [and] Mr Cai … was involved in effecting the breaches of trust through negotiating and agreeing to the Loans or through signing documents to give effect to the Loans. The plaintiffs put these claims in two ways. They say that these defendants either knowingly procured or induced Gold Stone to act in breach of trust … or assisted Gold Stone with a dishonest and fraudulent design …

…

227    In the plaintiffs’ submission, the following matters constituted dishonest conduct, such that Gold Stone was engaged in a dishonest and fraudulent design:

(a)    entering into the Loans despite knowing that they were unauthorised under cl 20.4 of the Trust Deed;

(b)    entering into the Loans in order to obtain Performance Fees well in excess of the 8% per annum payable to investors and with the knowledge that the Loans were high-risk; or

(c)    entering into the Loans in order to procure Mr Fong’s assistance for the Turramurra contract.

…

236    Ms Lin had sufficient knowledge of the breaches that she is liable as an accessory to them. As the plaintiffs have submitted, she was well aware of the terms of the Trust Deed, the [information memorandum], and the Loan Agreements, and was heavily involved in the establishment and operation of the Fund. She knew that the Loans were made using the Fund’s money. She knew that the security for the Loans was non-existent, and given her background as a conveyancer she was well aware that this was unsatisfactory but that the Fund could charge extraordinarily high interest as a result. She knew that this was to Gold Stone’s benefit because of the Performance Fee and that GDI thus stood to benefit as a shareholder of Gold Stone. As per her earlier sworn evidence, her primary motivation in procuring Mr Fong’s assistance was to protect the money she had invested in the Turramurra project, and one of her … purposes in procuring the Loans was to encourage Mr Fong to come on board.

245    And Mr Thomas’s oral closing submissions before the primary judge were to similar effect. See, by way of example, transcript at page 857 (“… our third strand is one going to foreign or collateral purpose. No provision of the trust deed … authorised the paying away of trust monies in order to facilitate the commercial interests of GDI or the personal interests of Ms Lin [or] Mr Cai … with respect to absolving themselves from guarantees and liability in respect of Turramurra …”).

246    In those circumstances, it is clear that Ms Lin and Mr Cai well understood the nature of the accessorial liability claims being brought against them, and that the pleaded case was consistent with the way the case was both opened and closed before the primary judge.

247    I should mention one other point about the pleaded case against Ms Lin, lest it be thought that I overlooked it. Mr Hutley took the court to some correspondence between the solicitors, in which the solicitors for Ms Lin requested further particulars of the accessorial liability case. See the letter from SHL & Associates Lawyers to McCabes dated 26 August 2022. The reply is dated 9 September 2022. The primary judge was taken to the correspondence, but did not refer to it. In my view, that is not surprising, because it did not advance the case one way or the other, as the correspondence predated the incorporation of paragraph [147A] into the second further amended statement of claim by about 18 months and the commencement of the trial by about two years.

248    It follows, in my view, that grounds 6 and 7 in Ms Lin’s appeal, and grounds 5 and 6 in Mr Cai’s appeal, should fail.

Mr Cai’s appeal – Ground 3 (alleged inadequate reasons and insufficient evidence)

249    A trial judge is, of course, under an obligation to give reasons for his or her decision.

250    The adequacy of reasons will depend on the circumstances of the case and the nature of the proceedings.

251    In Lee v Lee (2019) 266 CLR 129 at 148–149 [55], Bell, Gageler, Nettle and Edelman JJ summarised the well-known applicable standard of appellate review of credit findings as follows:

A court of appeal is bound to conduct a real review of the evidence given at first instance and of the judge’s reasons for judgment to determine whether the trial judge has erred in fact or law. Appellate restraint with respect to interference with a trial judge’s findings unless they are glaringly improbable or contrary to compelling inferences is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. …

(Citations and internal quotations omitted.)

252    Ground 3 of Mr Cai’s amended notice of appeal was in these terms:

The primary judge failed to give adequate reasons for finding that [Mr Cai] had knowledge of the breaches of trust by Gold Stone to render him liable for procuring those breaches or being knowingly concerned in them in circumstances where he did not engage with [Mr Cai’s] evidence that:

a.    he relied upon the advice and assurances given by Ms Lin, who the primary judge found controlled Gold Stone;

b.    he relied upon the assurances that she had undertaken due diligence;

c.    he believed, in part because of Ms Lin’s assurances and his own understanding, that the loans were, or were to be, secured by mortgage.

253    In Mr Cai’s amended reply and cross-appeal submissions, counsel submitted (at [17]) the following in support of ground 3:

In the face of the[] findings that Ms Lin and Mr Darmali were primarily responsible for Gold Stone’s conduct and in circumstances where (i) Mr Cai’s evidence that he relied on Ms Lin was not meaningfully challenged by the plaintiffs’ counsel … and (ii) Mr Cai’s evidence was accepted in certain respects (J [73], [184], [212], [213]), detailed reasons were necessary in order to make the inconsistent finding that “Mr Cai was also directly involved as a central participant in Gold Stone entering and performing the three loan agreements”: J [26], [158] and [217]. That did not occur.

(Citations partially omitted.)

254    It was further submitted (at [19]) that:

the primary judge’s fact-finding process miscarried. The “proper inference to be drawn from the facts … established by the findings of the trial judge” in respect of Ms Lin and Mr Darmali is that, in light of them being principally responsible for Gold Stone’s conduct, Mr Cai did not play a significant role in its affairs and thus did not have the requisite knowledge to be liable as an accessory: Warren [v] Combes (1979) 142 CLR 531, 551 (Gibbs A-CJ, Jacobs and Murphy JJ); see also Fox v Percy (2003) 214 CLR 118, [25] (Gleeson CJ, Gummow and Kirby JJ). Put in the context of the findings made against Ms Lin and Mr Darmali and Mr Cai’s evidence that he relied on Ms Lin, the finding that Mr Cai had the requisite knowledge as an accessory in equity was “glaring[ly] improbable”: Devries v Australian National Railways Commission (1993) 177 CLR 472, 479 (Brennan, Gaudron and McHugh JJ). … Mr Cai’s written opening and closing submissions clearly put his reliance on Ms Lin in issue and that he should not be found liable as an accessory by reason of his reliance on Ms Lin and Mr Darmali: Mr Cai’s opening written submissions, [5], [8], [9], [14]-[16], [18], [22]; Mr Cai’s closing written submissions, [50] (C149). Those submissions required that the primary judge provide more detailed reasons for his apparent rejection of his evidence: Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77, [63]-[67].

(Citations partially omitted.)

255    The primary judge set out most of his findings about the credibility of the various witnesses who testified at the trial at the beginning of the reasons, after a brief introduction to the proceeding, commencing at J [10].

256    As to Mr Cai, the primary judge said (J [25]) that he “regard[ed] Mr Cai as an unsatisfactory and unreliable witness who was determined to say whatever he perceived to be in his forensic interests”. He said that he did “not accept his testimony except where it consist[ed] of admissions against interest, or where it [was] corroborated by the contemporaneous documents, or where it [was] consistent with the objective probabilities”. His Honour gave the following “three telling instances in his evidence”:

26    First, Mr Cai adamantly denied with great confidence in his cross-examination that he was the person who had the dealings with MVLC and MVDA in relation to the three loan agreements to which I refer below: T435.21–29. However, he was then confronted with an affidavit which he made to support Gold Stone’s statutory demand for unpaid amounts pursuant to those loan agreements on 23 June 2015 (CB9/3900) in which he said expressly that he was the person who, on behalf of Gold Stone, had the dealings with MVLC and MVDA that gave rise to the debt which was claimed. Mr Cai continued to deny the truth of that proposition, claiming that he made the affidavit because Ms Lin asked him to do so (T436.28–33). Ultimately, Mr Cai accepted that the affidavit was a true statement (T436.43–45).

27    Second, as I explain in detail below, after Gold Stone received the proceeds of the settlement with the liquidators of MVLC and MVDA in November 2017, Mr Cai paid a large amount of those funds to himself (T493.35–510.16). He did so having signed the settlement agreement, and being aware that the funds received were trust monies and were the only monies that were recovered from the three loans (T490.40–491.7). Mr Cai was aware that he should not have dealt with the funds without the consent of the plaintiffs (T493.16–33). Mr Cai conceded on a number of occasions that he knew that there was no proper basis for the withdrawal of those funds. He then brazenly told the plaintiffs’ representative that it was Ms Lin who had taken all the money (T510.18–511.2). Mr Cai’s conduct was dishonest.

28    Third, Mr Cai denied having read the Fund Constitution, but then found himself in the awkward position of being forced to accept as a result that he was wilfully blind to his obligations as trustee (T456.34–40). However, after a break in his cross-examination over the King’s Birthday long weekend, Mr Cai admitted that he had had a copy of the Fund Constitution which Ms Lin gave him after he signed it, that he read it and that Ms Lin had explained some of it to him (T469.39–471.15). He also accepted, after having thought about his evidence over the long weekend, that he read cl 20.4 dealing with the trustee’s powers of investment, and that he understood that the trustee could only invest in loans secured by mortgages (T472.12–20).

257    Later in his reasons, the primary judge made further findings in respect of Mr Cai, as follows:

158    On 23 June 2015, Gold Stone as trustee of the Fund sent a creditor’s statutory demand for payment of a debt to MVLC in the amount of $7,853,367.40, signed by Mr Cai as director (CB9/3898–9). The affidavit accompanying the statutory demand was made by Mr Cai and stated in para 2 (CB9/3900):

I am the person who, on behalf of the Gold Stone Capital, had the dealings with the debtor company that gave rise to the debt and I have inspected the business records of Gold Stone Capital Pty Ltd in relation to the debtor company’s account with Gold Stone Capital Pty Ltd.

Mr Cai ultimately accepted in his cross-examination that that statement was true (T436.43–45), in contradiction of his earlier denials (which were expressed with great confidence and absolute certainty) that he had not had any dealings with MVLC or MVDA in relation to these loans (T435.12–29, 436.28–32). There is an element of exaggeration in the statement quoted above from Mr Cai’s affidavit accompanying the statutory demand, in that Mr Darmali also had extensive dealings with MVLC on behalf of Gold Stone, and Ms Lin was also centrally and directly involved in these dealings. I have referred above to the evidence given by Ms Lin in NSW Supreme Court proceedings in her affidavit dated 27 November 2015 that she was the person who discussed and negotiated the three loans with Mr Fong. However, Mr Cai was also directly involved as a central participant in Gold Stone entering into and performing the three loan agreements.

258    His Honour also found at J [213], set out at paragraph 92 above, that Mr Fong told Mr Cai during their negotiations and discussions that he did not own either of the two Manly properties which were referred to as the “Mortgaged Property” in the schedule to the first MVDA loan agreement.

259    In addition to his findings that Mr Cai executed each of the three loan agreements and executed transfers of trust money from Macquarie Bank that enabled funds to be advanced under the MVLC loan agreement and the first MVDA loan agreement (J [112], [121] and [217]), his Honour also made the findings in J [218], set out at paragraph 98 above — namely, that Mr Cai:

(a)    read cl 20.4 of the Fund Constitution and understood that Gold Stone as trustee could only invest in loans secured by mortgages;

(b)    plainly knew the terms of the three loan agreements, including the purported security referred to in the schedule to each of them;

(c)    as a licensed real estate agent knew what a mortgage was;

(d)    understood that strata plans had to be registered; and

(e)    was a participant in the conversation with Mr Fong in which Mr Fong said that he did not own either of the two Manly properties referred to as the Mortgaged Property in the first MVDA loan agreement, and was trying to borrow funds to buy those properties.

260    His Honour also made the findings in J [220], set out at paragraph 98 above, including that:

(a)    he did not accept Mr Cai’s denial that he knew that the MVLC loan agreement was not secured by mortgage over real property in Australia; and

(b)    Mr Cai had actual knowledge that the three loan agreements were not secured by mortgages over real property, and that they were not authorised by the Fund Constitution.

261    In his amended reply and cross-appeal submissions at [16], Mr Cai sought to make something of that fact that the primary judge accepted his evidence in other respects (including at J [73]; [162]; [181]; [184], [188], [189], [212] and [213]), and contended that such acceptance serves to make “glaringly improbable” his Honour’s finding that Mr Cai was directly involved and a central participant in Gold Stone’s breaches of trust. I do not accept that submission. There was more than ample evidence to support the conclusion that Mr Cai was also a central participant in the making and performing of the three loans. And there is nothing glaringly improbable in the finding that Ms Lin, Mr Darmali and Mr Cai were each central participants in Gold Stone’s breaches of trust. The fact that the primary judge did not reject as dishonest all of Mr Cai’s evidence is, rather, indicative of the care that he took in evaluating the whole of his evidence.

262    Mr Cai even sought to contend that the primary judge erred in relying on the affidavit he swore in support of a statutory demand made on 23 June 2015 on behalf of Gold Stone against MVLC in the sum of over $7.853 million. He submitted that his sworn statement that he was “the person who, on behalf of … Gold Stone Capital, had the dealings with [MVLC] that gave rise to the debt” needed to be read in light of the fact that the affidavit was a “standard form” document. See J [158] set out at paragraph 257 above. The submission about it was put as follows on appeal (at [18]):

[T]his Court would be slow to place any weight on Mr Cai’s apparent admissions in cross examination that he signed the affidavit accompanying a statutory demand because its content was true. The transcript at T436.16-T438.10 (C733-735) suggests that Mr Cai did not understand the propositions put to him in cross examination. Indeed, Mr Cai first answered that he signed the affidavit as “Louise Lin asked me to sign it” (T436.32-33) (C733), which is consistent with both his affidavit evidence and the subsequent cross-examination at T437.18-28 (C734). The contents of the statutory demand affidavit were not merely exaggerated (J[158] A486), they were incompatible with the primary judge’s findings summarised above (particularly those at J[213] A506 and J[224] A509) and consistent with Mr Cai’s evidence that he relied on Ms Lin in relation to Gold Stone’s entry into the loans.

263    I do not accept that submission. The statutory demand is no doubt defective, because MVLC did not owe Gold Stone $7.853 million — that is more likely the total of the three loans plus interest. But the fact remains that Mr Cai did say on his oath that he was the person who, on behalf of Gold Stone, had relevant dealings with MVLC that gave rise to a debt of that amount. It follows that the primary judge did not err in having regard to it as evidence of Mr Cai’s involvement in Gold Stone and of his actual knowledge of the facts giving rise to the breaches of trust.

264    His Honour gave detailed reasons for his conclusion that Mr Cai was dishonest in many significant respects and that, contrary to his sworn evidence, he did know all of the various matters described above, and thus, despite his denials, he did knowingly induce Gold Stone’s breaches of trust and knowingly assist in a dishonest and fraudulent design by way of the three loan agreements.

265    It is neither here nor there that the primary judge did not refer in terms to bits of evidence given by Mr Cai to the effect that: (i) he relied upon the advice and assurances given by his then-wife, including that she had undertaken due diligence, and (ii) “he believed, in part because of [her] assurances and his own understanding, that the loans were, or were to be, secured by mortgage”. His Honour quite plainly did not believe him. So it was not necessary for him to trawl through every skerrick of evidence that Mr Cai gave. In my view, it is abundantly clear from his Honour’s findings and the reasons given for them that the fact-finding process did not miscarry.

266    For those reasons, in my view, ground 3 in Mr Cai’s appeal should fail.

Mr Cai’s appeal – Ground 8 (knowledge of misappropriation breaches of trust relating to the repayment of loans to GDI)

267    Ground 8 of Mr Cai’s amended notice of appeal states as follows:

The primary judge erred in concluding (at J [248]) that the appellant had actual knowledge of the breaches of trust.

268    The primary judge made the following findings at J [248]:

The amount of $300,000 paid on 21 July 2016 is claimed against Ms Lin, whereas the other repayments of GDI’s loan are claimed only against Mr Cai. Both Ms Lin and Mr Cai had actual knowledge of the essential matters which went to make up the breaches of trust, and of the matters which obliged Gold Stone to pay more than $6 million in restoration of, and compensation to, the Fund. They obviously knew that Gold Stone had not made such restoration or compensation to the Fund. As Leeming JA said in Pittmore Pty Ltd v Chan at [195], it is not necessary for third parties involved in the breach of trust to know that the matters amounted to a breach of trust, and I do not find that Ms Lin or Mr Cai was aware of the clear accounts rule or of its effect in the present case. However, that is irrelevant to their liability, which is founded on their actual knowledge of the relevant facts, not their knowledge of the law pertaining to a trustee’s right of indemnity. Accordingly, both Ms Lin and Mr Cai are liable for the amounts claimed against them by the plaintiffs on the ground that they knowingly induced or procured the breaches of trust in making those repayments to GDI in circumstances where the Fund had not been restored or compensated for the losses caused to it by Gold Stone. They are liable to pay the respective amounts plus interest as to 50% to each of the plaintiffs.

(Emphasis added.)

269    The focus of ground 8 is the primary judge’s finding that Mr Cai was not aware of the clear accounts rule. Mr Cai submitted that the primary judge erred in concluding that Mr Cai had the requisite knowledge that the payments made to GDI were in breach of trust in circumstances where: (i) GDI was a creditor of the Fund and the payments made to GDI out of the Fund were by way of repayment of amounts loaned by GDI to the Fund; and (ii) Mr Cai did not know that the clear accounts rule precluded those payments being made to GDI by Gold Stone out of the Fund until Gold Stone had restored or compensated the Fund for the breaches of trust in the amount of approximately $6 million.

270    In Pittmore v Chan, Leeming JA (with whom Bell P and Brereton JA agreed) considered whether there is an element of “dishonesty” in the test applicable to a person who induces or procures a breach of trust. His Honour doubted that “dishonesty” is the right word to describe the test of liability of a person who procures or induces a breach of trust or fiduciary duty (at 99 [176]) and concluded that the weight of authority has focused on the need to establish knowledge on the part of the third party of the breach of trust or fiduciary duty (at 101 [185]). His Honour noted the five categories of knowledge referred to in Baden, and the High Court’s conclusion in Farah Constructions that each of the first four Baden categories (actual knowledge; wilfully shutting one’s eyes to the obvious; wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; and knowledge of circumstances which would indicate the facts to an honest and reasonable man) are sufficient to satisfy the knowledge requirement for knowing assistance (at 102 [191]–[192]). His Honour concluded (at 102 [192]):

… Consistently with equity’s regard for conscience and the reasoning in Farah Constructions, the same is true for a third party who procures or induces a breach of trust or fiduciary obligation. It is sufficient if the inducer or procurer of a breach of trust or fiduciary duty knew of the facts which, to a reasonable person, would indicate a breach of trust or fiduciary duty. That accords with what Brereton J said in Mitreski at [165] reproduced above.

(Emphasis added.)

271    As also observed by Leeming JA in Pittmore v Chan (at 103 [195]), that conclusion sits harmoniously with other areas of ancillary liability such as the statutory provisions regulating ancillary criminal liability considered in Giorgianni v The Queen (1985) 156 CLR 473 and those regulating ancillary liability under the Trade Practices Act 1974 (Cth) (now named the Competition and Consumer Act 2010 (Cth) (Competition and Consumer Act)) considered in Yorke v Lucas (1985) 158 CLR 661. The High Court recently rejected an argument that knowing involvement in a breach of the statutory prohibition of unconscionable conduct in the Australian Consumer Law (being Sch 2 to the Competition and Consumer Act) requires knowledge that the conduct has the legal characterisation of being unconscionable: see Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission [2024] HCA 27; (2024) 419 ALR 30 at 37 [12], 54–55 [82]–[84] (Gageler CJ and Jagot J), 70–72 [148]–[154] (Gordon J), 96–98 [267]–[272] (Edelman J), 109 [308] (Steward J), 120 [352] and 123–124 [361]–[365] (Beech-Jones J).

272    Mr Cai did not submit that Leeming JA’s analysis of the knowledge requirement for procuring or inducing a breach of trust involved error. Mr Cai’s argument was that the knowledge requirement was not satisfied in the circumstances of this case because Mr Cai was not aware of the clear accounts rule and therefore did not know that the payments made to GDI from the Fund involved a breach of trust.

273    In my view, the primary judge was correct to conclude that Mr Cai knew of the facts which, to a reasonable person, would indicate a breach of trust by causing Gold Stone to make the payments to GDI before Gold Stone fully restored the Fund. His Honour found that Mr Cai had actual knowledge of the essential matters which went to make up the antecedent breaches of trust (by making the loans to MVDA and MVLC), and of the matters which obliged Gold Stone to pay more than $6 million in restoration of, and compensation to, the Fund. His Honour also found that Mr Cai knew that Gold Stone had not made such restoration or compensation to the Fund. Mr Cai executed the deed of settlement with the liquidator of MVLC on behalf of Gold Stone, pursuant to which the net sum of $395,504.40 was paid to the Fund in settlement of Gold Stone’s claims against MVLC, and therefore Mr Cai knew that those monies were trust monies. By causing Gold Stone to pay some of those trust monies to GDI (and thereby purporting to exercise a right of indemnity out of the trust funds), Mr Cai procured Gold Stone to engage in a breach of trust by failing to restore the Fund before exercising its right of indemnity. Mr Cai was aware of the relevant facts which, to a reasonable person, would indicate a breach of trust. The fact that Mr Cai was unaware of the applicable legal principle (namely, the clear accounts rule) does not absolve him of liability. The moral foundation for the clear accounts rule should be taken to be apparent to an ordinary person. As observed by the High Court in Farah Constructions (at 163–164 [177]), the morally obtuse cannot escape liability by failing to recognise an impropriety that would have been apparent to an ordinary person.

274    For those reasons, in my view, ground 8 in Mr Cai’s appeal should fail.

Disposition of Ms Lin and Mr Cai’s appeals

275    It follows that I would dismiss the Lin and Cai appeals, with costs. As it was unnecessary to address the cross-appeal, I consider that each party should bear their own costs of the cross-appeal.

Consideration of Mr Wu’s appeal

276    The primary judge found (J [55]) that Mr Wu was “a reliable and credible witness, who gave clear and direct answers to the best of his ability to the questions put to him in cross-examination”, and he dismissed (J [311]) all of the claims brought by Ms Chu and Mr Xu against him.

277    Nonetheless, the primary judge ordered that Ms Chu and Mr Xu pay only 20% of Mr Wu’s costs of the proceeding below (J2 [7]).

278    His Honour was not persuaded that costs should follow the event. In his ex tempore reasons, he reasoned as follows:

6    In relation to … the fifth defendant (Mr Wu), [he was] successful only on a limitation question which occupied relatively little time. … [He] would also have been liable for substantial amounts to the plaintiffs but for the limitation question. The limitation question was a clearly severable issue.

7    In my view, the appropriate order is that the plaintiffs pay 20 per cent of the costs of … [the] fifth defendant[], reflecting the relative amount of time which is likely to have been spent by their legal representatives on that particular issue compared to the other issues, and bearing in mind also the fact that the … fifth defendant[] ultimately succeeded on that issue.

8    I note that Hall J reached the same conclusion in comparable circumstances in Artistic Builders Pty Limited v Nash [2011] NSWSC 350. The fifth defendant sought to distinguish that case on the basis of the prolonged factual investigation into the circumstances concerning breach of duty in that case, compared to, what he submitted, was a relatively short exercise in the present case of establishing liability. I note that there is a difference in terms of the amount of time having been spent in establishing the factual allegations concerning breach of duty, but in the present case, the fifth defendant would have saved a very substantial amount of preparation time and court time if the breach of duty had been conceded and the fifth defendant simply maintained the limitation point.

…

12    [Mr Wu] seeks indemnity costs from such time as it appeared that [he] was not involved in the conduct of the transactions engaged in by Gold Stone, which are the subject of the proceedings. I reject that submission. Mr Wu’s non-involvement and apathy towards the company’s affairs were the fundamental reason for his breach of director’s duties. Accordingly, establishing by way of pleadings and correspondence that Mr Wu was not involved and appeared to have engaged in a degree of apathy, although not as extreme as was ultimately revealed in cross-examination, does not indicate that the plaintiffs’ claim against him was unreasonable. On the contrary, that was the very basis for the merit in the plaintiffs’ allegations that Mr Wu had breached his duties.

279    In summary therefore, the primary judge reasoned that Mr Wu should only recover 20% of his costs because:

(a)    he only avoided liability because of the limitation question;

(b)    the limitation question was a severable issue;

(c)    relatively little time would have been spent by Mr Wu’s legal representatives in establishing the limitation period defence; and

(d)    Mr Wu “would have saved a very substantial amount of preparation time and court time if the breach of duty had been conceded and [he] simply maintained the limitation point”.

280    Senior counsel for Mr Wu, Mr Bedrossian, relied on an undated document headed “draft notice of appeal”. No objection was taken to him doing so. Leave will be granted accordingly.

281    Mr Bedrossian volunteered that the document contained a surfeit of grounds, but the gist of the case he made was that leave to appeal should be granted and the appeal allowed, because the primary judge arrived at a determination that was unreasonable and plainly unjust, mistook the facts, failed to take into account relevant and material considerations and acted upon wrong principles. Once any one of those grounds is made good, an appeal court is required to substitute its own discretion. See, by way of example only, Norwest Refrigeration Services Pty Ltd v Baine Dawes (WA) Pty Ltd (1984) 157 CLR 149 at 176 (Brennan J).

282    It is not clear from his reasons what principles his Honour had in mind to guide the exercise of his discretion, but in my respectful view, his discretion did miscarry in awarding Mr Wu a meagre 20% of his costs, for the following reasons.

283    His Honour was mistaken in saying that Mr Wu was only successful on the limitation question.

284    Mr Wu in fact succeeded on many of the claims against him which were not the subject of any limitation plea, including in respect of his defences denying allegations that he had:

(a)    responsibility for management of the Fund, including because he was a signatory to the bank accounts and had executed transaction documents (3FASOC [14A]);

(b)    executed the Fund Constitution (3FASOC [26A]);

(c)    signed the first and second MVDA loan agreements (3FASOC [93], [100]);

(d)    operated the Fund in breach of s 601ED(5) of the Corporations Act (3FASOC [143]);

(e)    breached his statutory and general law duties owed to Gold Stone by making the first and second MVDA loans (3FASOC [163]–[169]);

(f)    been in breach of duty by failing to cause Gold Stone to bring other claims within the applicable statutory limitation periods (3FASOC [179]–[183]); and

(g)    breached a “direct diligence duty” (3FASOC [184]–[191]).

285    As to (a) and (c), his Honour accepted Mr Wu’s case that none of the three loan agreements bore his genuine signature and his evidence in relation to the documents which he said were not signed by him (J [56]–[57]). His Honour made no finding that Mr Wu was a participant in any relevant decisions on behalf of the Fund or any dealings with the Fund’s assets.

286    As to (b) and (d), the primary judge found that Mr Wu had not signed the Fund Constitution (J [57]) and had not “operated the scheme so as to fall within s 601ED(5)”, such that he was not liable for any contravention of that provision (J [268]).

287    As to (e), Mr Wu denied being liable for such breaches because he did not cause the loans to be made (amended defence dated 11 April 2024 [61]–[67]), which defence the primary judge accepted (J [55]–[57]).

288    As to (f), Mr Wu denied being in breach of such duty, including because he had ceased to be a director of Gold Stone by no later than 19 March 2018, which was more than two years before the expiry of any relevant limitation period (amended defence [75]–[78]), and no part of the claim made by Ms Chu and Mr Xu was upheld by the primary judge.

289    As to (g), no breach of any such duty was found.

290    Ms Chu and Mr Xu also alleged (as an alternative claim) that Mr Wu had breached his statutory and general law duties owed to Gold Stone by failing to prevent the loans being made (3FASOC [169A]–[169C]). Mr Wu denied that claim (amended defence [68A]–[68C]) and pleaded that any such causes of action arose upon the making of the relevant loans or upon the advance of funds under those loans (i.e. in May 2014 and August 2014), all of which events occurred more than six years before the commencement of the proceedings. The primary judge concluded that Mr Wu had breached his duties (J [299]–[310]) but dismissed the claims because they had been brought “well outside the applicable limitation periods” (J [311]).

291    It follows that the primary judge wrongly concluded that Mr Wu was successful only on a limitation question. He was successful on a raft of allegations pleaded against him, and which remained part of the case made by Ms Chu and Mr Xu until the end.

292    The primary judge also erred in reasoning that Mr Wu “would have saved a very substantial amount of preparation time and court time if the breach of duty had been conceded and [he] simply maintained the limitation point”.

293    The time taken by Mr Wu’s counsel at trial in defending the allegations against him was modest. Mr Wu’s opening oral submissions occupied 16 pages of transcript; there was no cross-examination by his counsel of any of the witnesses called by Ms Chu or Mr Xu; his counsel’s cross-examination of Mr Cai and Mr Darmali occupied 13 and 11 pages of transcript, respectively; and closing oral submissions occupied 16 pages of transcript. (The cross-examination of Mr Wu (and Ms Holt, Mr Wu’s other witness) was also minimal.)

294    And as Vandongen J said to junior counsel for Ms Chu and Mr Xu in the course of oral submissions, it must also be true that whatever preparation and court time was spent in Mr Wu defending the claims brought against him by his clients would have been saved if the proceedings — which, as the primary judge observed, were well out of time — had not been brought in the first place. As Vandongen J asked rhetorically:

[W]hat’s sauce for the goose is sauce for the gander, isn’t it? So if Mr Wu could have saved a substantial amount of preparation time and court time by conceding the breach of duty and dealing with the limitation period, if you commenced well outside the applicable limitation period, wouldn’t the same reasoning apply in reverse?

295    The primary judge also suggested that comparable circumstances existed in Artistic Builders Pty Limited v Nash [2011] NSWSC 350, where Hall J ordered that the first to fourth defendants were entitled to 20% of their costs on the basis that their liability had been established but their limitation defence had succeeded.

296    But the facts in that case were distinguishable from those here, including because the relevant defendants in Artistic Builders were deprived of 80% of their costs on the basis that the non-limitations issues in respect of which they failed (namely, breach and causation) “occupied most of the hearing time, perhaps even 80%”. See Artistic Builders at [67]. Here, Mr Wu was successful overall and on the overwhelming majority of issues that he contested. And his defence in respect of those issues occupied a tiny fraction of the trial as a whole.

297    The result in Artistic Builders was unremarkable. But, in any event, as Lee J said in Abbott v Zoetis Australia Pty Ltd (No 2) [2019] FCA 462 at [2], care must be taken to avoid reading judgments on fact specific interlocutory issues of practice and procedure as if they were determinative of precepts and principles of general application.

298    In my view, the errors made by the primary judge which I have identified are material, with the result that his Honour’s exercise of the discretion to award costs miscarried. The exercise of that discretion must therefore be revisited.

299    In my view, the preferable approach to the question of Mr Wu’s costs in this case is the one usually taken — that is, costs should follow the event. As in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 90 ALJR 270 at 271 [6] (French CJ, Kiefel, Nettle and Gordon JJ), “[t]his is not a case where it may be said that the event of success is contestable, by reference to how separate issues have been determined” and “[t]here are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like”.

Disposition of Mr Wu’s appeal

300    For those reasons, I would grant Mr Wu leave to appeal, allow his appeal, and order that Ms Chu and Mr Xu pay his costs of the proceeding below and of the appeal.

Associate:

Dated:    12 September 2025

REASONS FOR JUDGMENT

O’BRYAN J:

301    In respect of each of the appeals, I agree with the reasons of O’Callaghan J and the orders proposed by his Honour for the disposition of the appeals and the cross-appeal. I write separately to express additional reasons why ground 4 of the appeals brought by Ms Lin and Mr Cai, two of the directors of the trustee company Gold Stone Capital Pty Ltd (Gold Stone), should be rejected. In doing so, I gratefully adopt all that has been written by O’Callaghan J about the relevant events.

302    By ground 4, Ms Lin and Mr Cai (whom I will refer to as the appellants) contended that the primary judge erred (at J [211]) in reasoning that a director, acting as such, can knowingly procure or be knowingly involved in a breach of trust by a company of which that person is a director. They contended that the primary judge ought to have found that this cause of action is unavailable against a director “acting as such”.

303    Directors of a trustee company are not themselves trustees and, therefore, are not personally subject to the duties of trustees (which are imposed on the trustee company): Wilson v Lord Bury [1880] 5 QBD 518. Nevertheless, non-trustees may incur accessorial liability for breaches of trust by the trustee, including by knowingly inducing or procuring a trustee to commit a breach of trust or by knowingly assisting a trustee in a dishonest and fraudulent design of the trustee (the so-called second limb of Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy)). The two forms of accessorial liability for breaches of trust were confirmed by the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, where the Court noted (at [161]) that, before Barnes v Addy, there was a line of cases in which it was accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or procured breaches of duty by a trustee where the trustee had acted with no improper purpose, including the decisions of Lord Langdale MR in Fyler v Fyler (1841) 3 Beav 550 at 561-562, 567-568; 49 ER 216 at 221, 223-224, of the Irish Court of Chancery in Alleyne v Darcy (1854) 4 I Ch R 199 at 209, and of Sir John Romilly MR in Eaves v Hickson (1861) 30 Beav 136; 54 ER 840. The requisite elements of such accessorial liability include conduct that satisfies the requirement of procuring or inducing the breach or assisting the dishonest and fraudulent design, and a sufficient degree of knowledge of the facts and circumstances that disclose the breach of trust or dishonest and fraudulent design.

304    Unlike liability under the second limb of Barnes v Addy, liability for knowingly inducing or procuring a breach of duty by a trustee does not require the breach of trust to be of a sufficient level of gravity to answer the description of dishonest and fraudulent: Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 (Hasler) at [77] (Leeming JA, Barrett and Gleeson JJA agreeing). Indeed, the trustee’s breach of duty may be innocent: Sino Iron Pty Ltd v Palmer (No 3) [2015] 2 Qd R 574 at 598 (Jackson J). Liability attaches where the third party’s conduct can be characterised as intentionally procuring or inducing the breach of trust, and the third party has knowledge of the facts and circumstances which, to a reasonable person, would indicate a breach of trust: Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62 (Pittmore) at [192] (Leeming JA, Bell P and Brereton JA agreeing). In Hasler at [81], Leeming JA referred to the following explanation for the imposition of liability in these circumstances given by Professor Gummow (W Gummow, “Knowing assistance” (2013) 87 Australian Law Journal 311 at 319):

The better view of all species of accessorial or participatory liability is that they are not based upon inflexible formulae, nor are they parasitic upon pre-existing property rights. Rather, the liability is ‘fault based’, in the sense of responding to what in the eye of a court of equity is unconscientious conduct. The participation of the third party may be presented by a range of circumstances; they may include activity as participant, inducer or procurer.

305    There is no doubt about the application of the foregoing principles to persons who act as agents of the trustee. As long ago as 1844, Lord Langdale MR said “it cannot be disputed, that if the agent of a trustee, whether a corporate body or not, knowing that a breach of trust is being committed, interferes and assists in that breach of trust, he is personally answerable”: A-G v Corporation of Leicester (1844) 7 Beav 176 at 179; 49 ER 1031 at 1032. That was one of a line of cases in which agents of trustees have been found liable for procuring or assisting in breaches of trust, including Wilson v Moore (1834) 1 My & K 337 at 353-354; 39 ER 709, Fyler v Fyler (1841) 3 Beav 550; 49 ER 216, and Lee v Sankey (1873) LR 15 Eq 204 at 211. It is not apparent why any distinction should be drawn between the position of an agent of the trustee and that of a director of a trustee company. In Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504, Finn J did not recognise any such distinction, expressing the view that the directors of trustee companies are peculiarly vulnerable to liability for acts which constitute breaches of trust or of fiduciary duty on their company’s part (at 522); and that this is so for the reason that it will often be the director’s own conduct which causes the company to commit a breach of trust (at 523).

306    In their submissions advanced in support of appeal ground 4, the appellants nevertheless sought to differentiate the position of a director of a trustee company from the position of other agents of a trustee company. They did so primarily on the basis of the decisions of Said v Butt [1920] 3 KB 497 (Said v Butt) and O’Brien v Dawson (1944) 66 CLR 18 (O’Brien v Dawson). Both cases involved claims for inducing or procuring a breach of contract, and concerned the question whether a director of a company can incur liability for knowingly inducing a breach of contract by the company. The principle by which liability is imposed for inducing a breach of contract was stated by Erle J in Lumley v Gye (1853) 2 E & B 216 at 232; 118 ER 749 as follows:

It is clear that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong … he who procures the wrong is a joint wrongdoer, and may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of.

307    Neither Said v Butt nor O’Brien v Dawson concerned the question that arises in this proceeding: whether a director of a trustee company, whose conduct is the conduct of the trustee company that involves a breach of trust, can be liable for knowingly procuring or inducing the breach of trust. Despite that, the appellants sought to elevate the decisions in Said v Butt and O’Brien v Dawson into a general principle that a director of a company, acting in his or her capacity as such and whose conduct is the wrongful conduct of the company, cannot incur personal liability for the wrongful conduct. Not only is such a broad principle not supported by either Said v Butt or O’Brien v Dawson, it is inconsistent with long-standing lines of authority that define a range of circumstances in which a director may incur personal liability for conduct undertaken as a director, concurrently or jointly with the company or as an accessory to the company’s liability.

308    In Said v Butt, McCardie J expressed the obiter view (at 506) that where a servant, acting bona fide within the scope of their authority, procures or causes a breach of a contract between their employer and a third person, the servant does not thereby become liable to an action in tort at the suit of the person whose contract has thereby been broken. The foregoing statement was subject to two significant qualifications. First, the statement was expressly confined to liability for inducing a breach of contract. His Honour stated that the conclusion did not apply more broadly to accessorial liability for knowingly procuring or inducing the commission of tortious wrongs such as trespass to property or nuisance. Secondly, the statement was confined to circumstances in which the servant was acting bona fide within the scope of their authority.

309    O’Brien v Dawson similarly raised the question whether a director of a company, who procures or causes a breach of a contract between the company and a third person, can incur liability in tort for inducing a breach of contract. Williams and Rich JJ concluded that there were no enforceable contracts of the type alleged by the plaintiff, Mr O’Brien, and, accordingly, no breach of contract. Each of Starke and McTiernan JJ concluded that there were enforceable contracts and that the company which was party to the contracts had breached them. However, their Honours concluded that the directors of the company, who made the relevant decisions that constituted the breach of the contracts, were not liable for procuring the breaches (Starke J at 32 and McTiernan J at 34). Their Honours’ reasons in that regard are expressly confined to the question of the liability of a director of a company for inducing a breach of contract by the company, and do not apply more broadly to liability for knowingly procuring or inducing the commission of tortious wrongs (let alone a breach of trust by a trustee company).

310    The appellants’ contention gains some support from obiter statements made by Leeming JA in Pittmore. While the views of Leeming JA are entitled to great respect, the views expressed by his Honour in Pittmore were not only obiter but equivocal. The views were also expressed in a context of an alleged breach of fiduciary duties where the duties arose from a joint venture between the parties which had a contractual foundation. Leeming JA stated that he had a reservation with respect to the correctness of the proposition that a director of a company, acting as such, is capable of procuring or inducing a breach of trust or fiduciary duty by the company (at [153]). The reason for the reservation was that, in his Honour’s view, the proposition sits ill with the position of inducing a breach of contract (as per Said v Butt and O’Brien v Dawson) and the foundation of the fiduciary relationship in Pittmore was contractual (at [162]). Despite expressing that reservation, his Honour acknowledged (at [168]) the statement of Finn J in AS Nominees referred to above, and recognised an argument favouring a distinction between the two forms of ancillary liability in equity (breach of fiduciary duty) and at common law (breach of contract). His Honour continued (at [169]):

169    … The essence of a fiduciary relationship is to act in the best interests of another, as opposed to tort and contract where the parties are taken to be independent and equal actors concerned primarily with their own self-interest: see Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [40] and Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [71], in both cases approving statements by McLachlin J (in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 543 and Norberg v Wynrib [1992] 2 SCR 226 at 272). Conceivably the character of the fiduciary relationship might result in a broader approach to ancillary liability than would be the case at common law for inducing breach of contract.

170    If I had otherwise concluded that Mr Tan were liable for procuring or inducing a breach of fiduciary duty by Pittmore, I would have invited submissions from the parties on whether that liability extended to Mr Tan for acts undertaken merely in his capacity as director. None of the foregoing was the subject of submissions; indeed, the only decision to which the court was taken was Kation. However, on the view I have reached, it is unnecessary to take that course. I shall assume, favourably to Mr Chan, that the fact that the steps taken by Mr Tan which are alleged to have amounted to procuring a breach of fiduciary duty by Pittmore were taken in his capacity as director does not disentitle Mr Chan’s claim against him.

311    With great respect to his Honour, I do not share Leeming JA’s reservation with respect to the correctness of the proposition that a director of a trustee company, acting as such, is capable of procuring or inducing a breach of trust by the company. In my view, there is no support in the authorities for extending the principle stated in Said v Butt and O’Brien v Dawson beyond the circumstance of a director being knowingly involved in the company’s breach of contract. Indeed, even in that context the principle can be seen to be limited to circumstances in which the director is acting bona fide in the performance of his or her duties as a director. Further, there is no logical basis for differentiating the position of an agent of a trustee and the position of a director of a trustee company.

312    The question whether a director of a company may incur personal liability for conduct undertaken as a director that constitutes wrongful conduct by the company arises in many different circumstances, and includes liability incurred concurrently or jointly with the company and liability incurred as an accessory to the company’s wrongful conduct. It is difficult, if not impossible, to state any overarching principle that guides the determination of a director’s personal liability for acts performed on behalf of the company that involve wrongful conduct by the company. However, it can be confidently stated that a director of a company is not immune from personal liability for his or her conduct merely because the conduct constitutes wrongful conduct of the company for which the company incurs liability. That can be demonstrated by the following survey of long-standing authorities.

313    Hamilton v Whitehead (1988) 166 CLR 121 (Hamilton v Whitehead) concerned a contravention of s 169 of the Companies (Western Australia) Code which prohibited, in certain circumstances, the public offer or issue of ‘prescribed interests’ in a company, and s 38(1) of the Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code which imposed accessorial liability upon a “person who aids, abets, counsels or procures, or by act or omission is in any way directly or indirectly knowingly concerned in or party to, the commission of an offence against any relevant Code”. The relevant company was charged and convicted of contraventions of s 169, and the managing director of the company, Mr Whitehead, whose acts were the wrongful acts of the company, was charged as an accessory under s 38(1). The High Court (Mason CJ, Wilson and Toohey JJ) affirmed that Mr Whitehead was liable as an accessory. The Court stated (at 127-128, citations omitted, emphasis added):

There can be no doubt, on the facts of the present case, that the respondent [Mr Whitehead], in placing the advertisement and in dealing with those who replied to it, was the company. He was its managing director and his mind was the mind of the company. The company therefore was liable as a principal for the breaches of s. 169 of the Code. The liability was direct, not vicarious.

It is against this background that the liability of the respondent falls to be considered. As we have said, the applicant relies upon s. 38(1) of the Interpretation Code, the terms of which have been set out. Since the respondent was the actor in the conduct constituting the offences and had knowledge of all the material circumstances, it must follow, according to the applicant, that the respondent was "knowingly concerned" in the commission of the offences committed by the company.

In our opinion, the submission is plainly right. Counsel for the respondent sought to gain some comfort from the words of Dixon J. in Mallan v. Lee. But, as we have sought to explain, the inversion of which his Honour spoke has no application here. The company is not vicariously liable for the actions of the respondent. The company is the principal offender and the respondent is charged as an accessory. Franklyn J. [the trial judge] thought that it was “wrong and oppressive” to prosecute the respondent for the identical acts and decisions as were relied on as the acts of the company. There is nothing conceptually wrong in such a course since “it is a logical consequence of the decision in Salomon’s Case that one person may function in dual capacities": Lee v. Lees Air Farming Ltd. In Reg. v. Goodall, Bray C.J. discussed what his Honour described as: “some sort of metaphysical bifurcation or duplication of one act by one man so that it is in law both the act of the company and the separate act of himself as an individual” and expressed his conclusion as follows: “my view is that the logical consequence of Salomons Case ... is that the company, being a legal entity apart from its members, is also a legal person apart from the legal personality of the individual controller of the company, and that he in his personal capacity can aid and abet what the company speaking through his mouth or acting through his hand may have done.” We agree with this view.

314    In the course of their reasons in Hamilton v Whitehead, the High Court contrasted the circumstances in Mallan v Lee (1949) 80 CLR 198, explaining (at 126, citations omitted):

In Mallan v. Lee, a complaint was laid in a court of summary jurisdiction against a limited company and Mallan, its public officer. The company was charged with having contravened s. 230 of the Income Tax Assessment Act 1936 (Cth) in that Mallan, as its public officer, had knowingly and wilfully understated, in the company’s income tax return, the amount of the company’s income for the relevant year. Mallan was charged on the basis that he was directly knowingly concerned in the commission of the offence of the company and reference was made to s. 5 of the Crimes Act. Section 230(1) of the Income Tax Assessment Act provided:

“Any person who, or any company on whose behalf the public officer, or a director, servant or agent of the company, in any return knowingly and wilfully understates the amount of any income or makes any misstatement affecting the liability of any person to tax or the amount of tax shall be guilty of an offence.”

The Court held that the complaint against Mallan wrongly relied on s. 5 of the Crimes Act for the reason that s. 230 made him directly liable as a principal for the offence of knowing and wilful understatement of the amount of any income in a return. The offence of the company consisted only in its vicarious responsibility for the act of Mallan undertaken on its behalf. After construing the section in this way, Dixon J. continued:

“On the interpretation I have given to s. 230(1), for more than one reason s. 5 of the Crimes Act cannot apply to a public officer so as to make him an accessory to the offence of the company. In the first place, the public officer’s act on behalf of the company making it an offender ipso facto amounts to a substantive offence on his part under s. 230(1). In the second place, the sub-section makes him the actor, the principal, for whose guilty conduct the company is responsible vicariously. It would be an inversion of the conceptions on which the degrees of offending are founded to make the person actually committing the forbidden acts an accessory to the offence consisting in the vicarious responsibility for his acts.”

315    The High Court in Hamilton v Whitehead also referred (at 129) to certain statements made by the plurality (Mason ACJ, Wilson, Deane and Dawson JJ) in Yorke v Lucas (1985) 158 CLR 661 which expressed doubt that a director of a company, whose acts were the acts of the company that constituted a contravention of s 52 of the Trade Practices Act 1974 (Cth), could incur liability as an accessory within the meaning of ss 75B and 82 of that Act, relying on the reasoning of Dixon J in Mallan v Lee. The High Court in Hamilton v Whitehead observed (at 129-130):

It would seem to us, with respect, that this reservation, made no doubt out of an abundance of caution, was unnecessary. The provisions of the Trade Practices Act, like the Code in the present case but unlike s. 230 of the Income Tax Assessment Act, were such that the alleged accessory was indeed a true accessory since the offence committed by the company was not the consequence of a vicarious liability for the actions of its servants carried out on its behalf. It was the consequence of actions undertaken directly by it, that is to say by a person who was the embodiment of the company.

316    A different question arose in Houghton v Arms (2006) 225 CLR 553. In that case, the High Court confirmed that employees of a company who engaged in misleading and deceptive conduct in the course of their employment may incur personal liability for contravening the prohibition against misleading and deceptive conduct in s 9(1) of the Fair Trading Act 1999 (Vic), notwithstanding that they had been acting in the trade or commerce of the company and not of themselves. In other words, the employees were directly liable under s 9(1), and not liable merely as accessories. Relevantly for present purposes, the High Court (at [40]) referred with approval to the statement of Lord Rodger of Earlsferry in Standard Chartered Bank v Pakistan National Shipping Corporation [No 2] [2003] 1 AC 959 (Standard Chartered Bank) at 973-974 that, in the world of tort, the status of an individual as an employee does not divest that person of personal liability for wrongful acts committed while an employee. The High Court concluded that there was no good reason for treating the text of s 9(1) any differently. Standard Chartered Bank concerned an action in tort against a managing director of a company (Mr Mehra) for fraudulent misrepresentation. Mr Mehra argued that he could not be liable because he made the fraudulent misrepresentations in his capacity as managing director of the company (Oakprime). Lord Hoffmann observed (at 968) that the fact that, by the law of agency, the conduct and knowledge of Mr Mehra is attributed to Oakprime (and would be relevant in an action against Oakprime) does not detract from the fact that they were the conduct and knowledge of Mr Mehra for which he was personally liable. Lord Rodger of Earlsferry stated (at 973-974, emphasis added):

36    … The company is a separate entity, distinct from the directors, employees and shareholders. The law has rightly insisted that the distinction should be duly observed: Lee v Lee’s Air Farming Ltd [1961] AC 12. In particular the company does not act as the agent of the directors and, in general, they do not incur personal liability for the acts of the company or its employees: Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, 488, per Lord Parmoor. Directors may, however, be personally liable if they directed or procured the commission of a wrongful act. The exact scope of this type of liability has been discussed in a line of cases. Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1, 14, per Atkin LJ and C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317 may serve as examples.

…

39    At the heart of the Court of Appeal’s decision is the view that, because Mr Mehra was a director of Oakprime and acted as such when cheating Standard Chartered, his acts must be regarded solely as the acts of Oakprime and he should have no personal civil liability for them. As Mr Cherryman acknowledged, no man could escape the clutches of the criminal law by the simple device of showing that he had carried out his frauds in his capacity as a director of a company and in circumstances where his acts were to be attributed to the company: Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500. In R v ICR Haulage Ltd [1944] KB 551, 559, for example, both the managing director and, through him, the haulage company were convicted of conspiracy to defraud. His acts “were the acts of the company and the fraud of that person was the fraud of the company”. In the world of tort, however, all was said to be more happily arranged for the fraudster. He could use the device of acting as a director to escape any liability to his victims: they were to be regarded not as his victims but just as the victims of the company’s fraud. His fraud might be the fraud of the company but, somehow or other, it was not his own fraud.

40    My Lords, the maxim culpa tenet suos auctores may not be the end, but it is the beginning of wisdom in these matters. Where someone commits a tortious act, he at least will be liable for the consequences; whether others are liable also depends on the circumstances. … His status as a director when he executed the fraud cannot invest him with immunity.

317    It is well established that infringement of a trade mark or copyright is tortious and the common law principles as to the liability of joint tortfeasors are applicable. As such, a director of a company may be liable as a joint tortfeasor for infringement by the company. Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 (Performing Right Society) concerned alleged copyright infringement by a company and its managing director in authorising musical works to be performed. Atkin LJ observed that “[p]rima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done” (at 14). The principles to be applied in determining whether a director of a company has become a joint tortfeasor with the company in the context of an infringement of intellectual property rights were discussed in Keller v LED Technologies Pty Ltd (2010) 185 FCR 449 (Keller) (which concerned the infringement of a registered design) and JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20; 329 ALR 625 (JR Consulting) (which concerned infringement of copyright). The two judgments reveal that the applicable principles may not be entirely settled. Nevertheless, after a detailed survey of the authorities, the Full Court in JR Consulting, concluded (at [350]-[351], emphasis in original):

350     We suspect that there is ultimately not a great deal of difference between these lines of authority as the director must be shown to have directed or procured the tort and the conduct must, clearly enough, go beyond causing the company to take a commercial or business course of action or directing the company’s decision-making where both steps are the good faith and reasonable expression of the discharge of the duties and obligations of the director, as a director. The additional component required is a “close personal involvement” in the infringing conduct of the company and inevitably the quality or degree of that closeness will require careful examination on a case by case basis. That examination might show engagement by the director of the kind or at the threshold described by Finkelstein J in Root Quality at [146] (as earlier discussed) which would undoubtedly establish personal liability in the director or a less stringent degree of closeness (perhaps described as “reckless indifference” to the company’s unlawful civil wrong causing harm), yet sufficiently close to demonstrate conduct of the director going beyond simply guiding or directing a commercial course and engaging in (perhaps vigorously) decision-making within the company as a director.

351     Ultimately, the question, on the facts, is what was the conduct of the director said to go beyond the proper role of director so as to descend into the realm of “close personal involvement”?

318    The applicable principles in determining whether a director has become a joint tortfeasor in the context of trade mark infringement were recently considered by the United Kingdom Supreme Court in Lifestyle Equities CV v Ahmed [2025] AC 1 (Lifestyles Equities). Lord Leggatt JSC delivered judgment on behalf of the Court. His Lordship commenced with the foundational principle that infringements of trade marks (and other intellectual property rights) are regarded as torts, and the principles by which, under the common law, a person may be held jointly liable with another person for a tort are applied to infringements of statutory intellectual property rights (at [27]). With respect to the principles by which a person may incur liability for procuring or assisting a tortious act, his Lordship concluded (at [135]):

135    To summarise, there is a general principle of the common law that a person who knowingly procures another person to commit an actionable wrong will be jointly liable with that other person for the wrong committed. The liability of the procurer is an accessory liability. Where the primary wrong is a breach of contract, this accessory liability takes the form of a distinct tort. Where the primary wrong is a tort, however, there is no need to posit a separate tort of procuring another person to commit a tort. Where the general principle applies, the procurer is made jointly liable for the tort committed by the primary wrongdoer.

136    There is a further, distinct principle of accessory liability by which a person who assists another to commit a tort is made jointly liable for the tort committed by that person if the assistance is more than trivial and is given pursuant to a common design between the parties. On the facts of a particular case both principles may be engaged. But on the present state of the law assistance which falls short of procuring the primary wrongdoer to commit the tort cannot lead to liability unless it is given pursuant to a common design.

137    Although procuring a tort and assisting another to commit a tort pursuant to a common design are distinct bases for imposing accessory liability, they must operate consistently with each other and such that the law of accessory liability in tort is coherent. Considerations of principle, authority and analogy with principles of accessory liability in other areas of private law all support the conclusion that knowledge of the essential features of the tort is necessary to justify imposing joint liability on someone who has not actually committed the tort. This is so even where, as in the case of infringement of intellectual property rights, the tort does not itself require such knowledge. As Paul Davies says in his excellent book on Accessory Liability (2015) p 211: “Strict liability might suffice for the primary tort but should not be sufficient for accessory liability.”

319    As to the position of a director of a company who is involved in the commission of a wrongful act by the company, Lord Legatt JSC stated (at [33]) that there is no general principle of English law - whether of company law, the law of agency or the law of tort - which exempts a director, acting in that capacity, from ordinary principles of tort liability. His Lordship observed (at [35]) that rules of attribution, by which acts of individuals are attributed to a company, do not operate in reverse to cause acts attributed to the company to be treated as if they were not acts of the individual who did those acts. It does not follow that, because an act done by a director or other individual is treated as the company’s act for which the company can be held liable, the director is immunised from liability.

320    In the course of his reasons, Lord Leggatt JSC considered the principle stated in Said v Butt and concluded that there was good reason for limiting the principle to inducing a breach of contract, explaining (at [54]):

I think that the rule stated in Said v Butt is sound and that there is a good reason to distinguish between an agent who procures a breach of contract by the principal and an agent who commits or procures the commission of such torts as those mentioned by McCardie J in the passage quoted at para 49 above. Essentially, it is the reason suggested by the Singapore Court of Appeal in Arthaputra for limiting the principle to breach of contract. I would explain it in this way. When parties make a contract, unless the contract is personal in nature, the general rule is that a party may employ agents to carry out its obligations. When the contracting party is a company, that is of course the only possible means of performance. If a company breaks a contract, that must be because one or more agents of the company have caused the breach. When an agent, acting as such, makes a contract, the normal understanding is that the agent assumes no liability towards the other contracting party. Only the principal does. Similarly, the normal understanding is that, if the agent causes the principal to break the contract, only the principal will incur liability to the other contracting party, and not the agent. This is, I think, a general norm or social understanding which the law should and does reflect.

321    As can be seen from the foregoing statement, the principle in Said v Butt is not based on any form of immunity that is afforded to directors of a company for intentionally procuring the company to undertake wrongful conduct. The principle is based on the nature of the wrongful conduct, being a breach of contract. In that respect, no distinction is drawn between a director of a company and any other agent of the company.

322    There is no support in the authorities, and no reason in principle, to treat a director differently from any other agent of a trustee company when considering whether the conduct and knowledge of the director or agent involves the knowing procurement or inducement of a breach of trust. If the director intentionally causes the trustee company to engage in conduct in breach of trust, and has knowledge of the facts and circumstances which, to a reasonable person, would indicate a breach of trust, the director will incur liability for knowingly procuring or inducing the breach of trust. The findings of fact made by the primary judge, which are also set out in the reasons of O’Callaghan J, overwhelmingly support the primary judge’s conclusion that the appellants knowingly induced or procured the breaches of trust by Gold Stone.

323    I would also dismiss ground 4 for those additional reasons.

Associate:

Dated:    12 September 2025

REASONS FOR JUDGMENT

VANDONGEN J:

324    I agree with O’Callaghan J that Ms Lin’s appeal and Mr Cai’s appeal must both be dismissed and that the orders he proposes should be made. I also agree with his Honour’s reasons in respect of Ms Lin’s grounds 1, 2, 6 and 7, and Mr Cai’s grounds 1, 2, 5, 6, and 8.

325    I agree that ground 4 in Ms Lin’s appeal and grounds 3, 4, 9 and 12 in Mr Cai’s appeal should be dismissed. However, I wish to separately state my reasons for reaching those conclusions. I will also explain why I am of the view that ground 3 in Ms Lin’s appeal should be dismissed, although I will do so in short form as I am in the minority and, as O’Callaghan J has explained, the outcome of that ground of appeal has no effect on the outcome of Ms Lin’s appeal.

326    I agree with O’Callaghan J, for the reasons he has expressed, that Mr Wu’s appeal should be allowed, and that the orders he proposes in respect of that appeal should be made.

327    I am indebted to O’Callaghan J for his Honour's detailed description of the factual context in which these appeals were argued and for his clear elucidation of the many intertwined contentions made on behalf of Ms Lin, Mr Cai and Mr Wu in support of their grounds of appeal. I have adopted the various defined terms used by O’Callaghan J in his reasons and the short titles of cases used by both O’Callaghan J and O’Bryan J in their respective reasons. I am also grateful to O’Bryan J for his Honour's analysis of the authorities relating to the liabilities of directors of companies.

328    For the sake of convenience, I will first deal with Ms Lin’s ground 3 and then Mr Cai’s ground 3. I will then deal with Ms Lin’s ground 4, together with Mr Cai’s grounds 4, 9 and 12, as they raise the same issues.

329    Before turning to those grounds of appeal, it is important to emphasise that Ms Lin’s grounds of appeal are focused on the primary judge’s findings that Gold Stone made three loans that were not authorised by the Fund Constitution (ground 1) and, in respect of only one of the loans, that it was made for an improper purpose (ground 2). Further, Ms Lin contends that the primary judge erred in finding that she was personally liable in respect of all of the breaches of trust because she knowingly procured those breaches (grounds 3 and 4) and on the further basis that she had knowingly assisted in those breaches (grounds 6 and 7). However, Ms Lin has not challenged the primary judge’s finding that Gold Stone committed breaches of trust by making three imprudent loans. This means that even if Ms Lin is successful on all of her other grounds, unless she is successful in her challenge (by ground 4 of her notice of appeal) to the primary judge’s conclusion that she knowingly induced or immediately procured Gold Stone to make imprudent loans, her appeal cannot succeed.

330    Mr Cai is in a similar position. However, Mr Cai also challenges the primary judge’s conclusion that he knowingly induced or immediately procured Gold Stone to make the three loans on the basis that his Honour gave inadequate reasons for reaching that conclusion (ground 3). Accordingly, for Mr Cai to succeed in his appeal against the orders made by the primary judge that are concerned with the three loans, at least one of ground 3 or ground 4 in his appeal must be allowed.

331    Mr Cai was also found to have knowingly induced or immediately procured two other categories of breaches of trust that were committed by Gold Stone. By ground 8, Mr Cai challenges only one category of those breaches of trust, which the primary judge found had been committed by Gold Stone by making various repayments to GDI from settlement funds that had been paid to Gold Stone by the liquidators of MVLC and MVDA (J [244]).

332    Grounds 9 and 12 raise the same issue that is raised by Mr Cai in the context of his ground 4, and that is raised by Ms Lin’s ground 4. Ground 9 is specifically concerned with the category of breaches of trust constituted by Gold Stone’s repayments to GDI. Ground 12 is concerned with the second category of breaches of trust, which relate to several payments that were made by Gold Stone from the settlement funds, and which the primary judge found amounted to misappropriations.

Ms Lin’s appeal – Ground 3

333    Ms Lin’s ground 3 is in the following terms:

The primary judge erred at J[210] in finding that the Plaintiffs’ allegations were not confined to conduct in Ms Lin’s capacity as a director and ought to have found that [Ms] Lin negotiated the Loans on behalf of Gold Stone in her capacity as a director.

334    The relevant passage at J [210] about which Ms Lin complains is as follows:

In the present case, except in relation to Mr Cai, the question whether a director acting purely in his or her capacity as director as one of the organs of a company is capable of procuring or inducing a breach of trust is academic, in that the plaintiffs’ allegations for this cause of action against Ms Lin and Mr Darmali in the Third Further Amended Statement of Claim are not confined to conduct by them merely in their alleged capacity as directors (see paras 16(e) and 19(d)). For completeness, I note that Ms Lin by her counsel conceded that she was a director within the extended meaning of para (b) of the definition of ‘director’ in s 9 of the [Corporations Act]. That definition covers a person who is not validly appointed as a director if (i) they act in the position of a director (commonly referred to as a de facto director), or (ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (commonly referred to as a shadow director).

335    For context, in the immediately preceding paragraphs the primary judge referred to the judgment of Leeming J in Pittmore v Chan, where the question of whether a director, in their capacity as a director, can procure or induce a breach of trust by the director’s company was discussed.

336    A difficulty with the ground is that it wrongly asserts that the primary judge erred in finding that the plaintiffs’ allegations that Ms Lin negotiated the Loans on behalf of Gold Stone were not confined to conduct that occurred in her capacity as a director.

337    At paragraph 158 of the 3FASOC, it was relevantly pleaded that Ms Lin ‘negotiated the Loans on behalf of Gold Stone’. The particulars provided in connection with that plea referred to the particulars provided earlier in the 3FASOC at paragraph 19. Those particulars were provided in support of pleas that Ms Lin was an employee of Gold Stone and, in the alternative, that she was a person ‘who had a relationship with Gold Stone’. Insofar as it was alleged that Ms Lin was an employee of, or that she was someone who had a relationship with, Gold Stone at paragraph 19(c) and 19(d) of the 3FASOC, respectively, it was pleaded that she was someone who, on behalf of Gold Stone, in its capacity as trustee of the Fund, had responsibilities for ‘identifying and negotiating investments into which Gold Stone would invest the Fund’s money’.

338    However, as O’Callaghan J has observed, the real purpose of this ground may have been to bring Ms Lin within the rule in Said v Butt, to provide a platform for the arguments raised in support of Ms Lin’s ground 4. That this is so emerges from the contention that is made in ground 3 that the primary judge should have found that Ms Lin negotiated the Loans on behalf of Gold Stone in her capacity as a director.

339    The problem with ground 3 is that Ms Lin was never formally appointed as a director of Gold Stone. It is true that Ms Lin conceded at trial that she was a director under the extended definition in s 9 of the Corporations Act. However, while satisfaction of that statutory definition may have consequences for a person under that Act, the label of ‘director’ that is assigned by operation of that provision adds nothing of itself to the question of whether such a person will otherwise fall within the rule in Said v Butt.

340    Accordingly, I would dismiss ground 3 on that basis.

341    Whether the ‘rule’ in Said v Butt applies does not, in my view, depend on whether a person who is alleged to have induced a company to breach a contract with a third party was formally acting as a director of that company, or whether they happened to satisfy the definition of ‘director’ under the Corporations Act. The real question is whether that person was acting as an organ of the company such that their acts of inducement were the acts of the company. This was the underlying rationale for McCardie J’s conclusion that if a servant acting bona fide within the scope of their authority procures or causes the breach of a contract between their employer and a third person, they are not liable for the tort of inducing a breach of contract. As his Honour said at 505:

But the servant who causes a breach of his master’s contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v. Gye [(1853) 2 El & Bl 216; 118 ER 749] principle must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract.

(Emphasis added.)

342    In this case, the primary judge found that Ms Lin played a ‘very substantial role in directing the affairs of Gold Stone and the Fund’ and that she was the ‘driving force in the establishment and operation of the Fund’ (J [212]). Significantly, his Honour accepted affidavit evidence Ms Lin had given in other proceedings in which she referred to Gold Stone as ‘my company’ and to the Fund as ‘my mortgage fund’ (J [212]). The primary judge also found that Ms Lin ‘was the person on behalf of Gold Stone who carried out the discussions and negotiations with Mr Fong, including in relation to the three loan agreements’ (J [213]). Based on those findings, Ms Lin was plainly a ‘directing mind and will’ of Gold Stone, and a relevant person whose acts were to be attributed to the company.

343    Accordingly, while I would dismiss ground 3, the primary judge’s findings provide a sufficient basis to justify a conclusion that Ms Lin’s acts of negotiating the three loans on behalf of Gold Stone were the acts of Gold Stone. However, this conclusion can only offer cold comfort to Ms Lin. That is because I am of the view that Ms Lin’s ground 4 must be dismissed.

Mr Cai’s appeal - Ground 3

344    I agree with what O’Callaghan J has written about this ground. I only wish to add some further reasons for why I would also dismiss this ground.

345    It should be noted that although Mr Cai’s ground 3 was expressed in general terms, consistently with Mr Cai’s submissions, I have proceeded on the basis that the ground is concerned only with the breaches of trust found to have been committed by Gold Stone by making the three loans.

346    The content and level of detail required in reasons will vary, depending on the nature of the jurisdiction which a court is exercising and the particular matter the subject of the decision. However, ‘the usual baseline for adequacy of reasons is that they “identify the principles of law applied by the judge and the main factual findings on which the judge relied”’: Chief Commissioner of Police (Vic) v Crupi [2024] HCA 34; (2024) 98 ALJR 1131 at [19] (Gageler CJ, Edelman and Beech-Jones JJ).

347    As I have already noted, Mr Cai does not challenge the primary judge’s finding that in making the three loans, Gold Stone committed breaches of trust because they were imprudent investments. Accordingly, before this ground can have any effect on the relief granted by the primary judge, Mr Cai must at least establish that his Honour’s reasons for concluding that Mr Cai had the requisite knowledge, in the context of the claims of knowing inducement to make imprudent loans, were inadequate. If Mr Cai fails in that endeavour, then the finding that Mr Cai was liable based on that claim is sufficient in and of itself to justify the relief granted to Ms Chu and Mr Xu.

348    Even if I were to proceed on an assumption favourable to Mr Cai that aspects of the primary judge’s reasons were inadequate, the difficulty for Mr Cai is that his Honour’s reasons very clearly identify and explain his factual findings that lead to his conclusion that Mr Cai had the requisite knowledge in the context of the claims of knowing inducement to make imprudent loans. In that regard, the primary judge made the following findings about Mr Cai’s knowledge of the facts that rendered the three loans imprudent at J [221]:

Mr Cai also knew of the facts which rendered the three loans recklessly imprudent investments. As I have said, he knew that the security for the loans was non-existent, and must have observed that the interest rates referred to in the three loan agreements were extraordinarily high, reflecting the very high risk involved in making the loans. He did not undertake any due diligence, and did not believe that anyone else on behalf of Gold Stone had done so.

349    Plainly, a finding that Mr Cai knew that the security for the loans was non-existent was a sufficient basis in and of itself to conclude that Mr Cai had the requisite knowledge to be liable for knowingly inducing or immediately procuring Gold Stone’s breach of trust by making imprudent investments. Importantly, it is patently clear from the primary judge’s reasons that this finding about Mr Cai’s knowledge was based on some earlier findings of fact, namely:

(a)    As a licensed real estate agent, Mr Cai knew what a mortgage was, understood that strata plans had to be registered, and had been involved in several off-the-plan sales: J [218].

(b)    Mr Cai took part in a conversation with Mr Fong in which Mr Fong said that he did not own the properties that were referred to as the mortgaged property in the First MVDA Loan Agreement: J [218].

(c)    In relation to the First MVDA Loan and the Second MVDA Loan, Mr Cai was aware that the purported security comprised non-existent properties: J [219].

(d)    Mr Cai had ‘actual knowledge that the three loan agreements were not secured by mortgages over real property’: J [220].

350    In relation to the last finding, at J [220], the primary judge explained that he reached that conclusion having rejected Mr Cai’s evidence to the contrary. Earlier in his Honour's reasons, the primary judge very clearly explained why he reached the view that Mr Cai was ‘an unsatisfactory and unreliable witness who was determined to say whatever he perceived to be in his forensic interests’: J [25].

351    The primary judge’s reasons for concluding that Mr Cai had the requisite knowledge to be liable for knowingly inducing or immediately procuring Gold Stone’s breach of trust by making imprudent investments were not inadequate.

352    Ground 3 must be dismissed.

Ms Lin’s appeal - Ground 4; Mr Cai’s appeal - Grounds 4, 9 and 12

353    By ground 4 in each of their appeals, Ms Lin and Mr Cai challenge the primary judge’s findings that they knowingly procured three of the four breaches of trust that are referred to at [15] of the reasons of O’Callaghan J.

354    At trial, Ms Chu and Mr Xu relevantly alleged that Gold Stone committed four breaches of trust by ‘making’ three loans, in circumstances in which each of those loans were unauthorised by the Fund Constitution, were imprudent investments, or were made for improper purposes. Ms Lin was alleged to have knowingly procured each of those breaches of trust by ‘[negotiating] the Loans on behalf of Gold Stone’: 3FASOC at paragraph 158. Mr Cai was alleged to have knowingly procured the breaches because he ‘signed each of the MVLC Loan Agreement, the First MVDA Loan Agreement, and the Second MVDA Loan Agreement’: 3FASOC at paragraph 159.

355    Neither Ms Lin or Mr Cai suggest that the primary judge did not find, or that he was in error in finding, that they did engage in the conduct relied on by Ms Chu and Mr Xu as constituting the acts of procurement. Ms Lin does not challenge the primary judge’s finding that she had the knowledge required to otherwise justify a conclusion that she was a participant in the relevant breaches of trust found to have been committed by Gold Stone. Mr Cai does challenge that finding, but only on the basis that the primary judge failed to give adequate reasons for that finding (ground 3). As has been seen, I would dismiss that ground of appeal.

356    Further, having regard to what I have said in the context of Ms Lin’s ground 3, and as Mr Cai was formally appointed as a director of Gold Stone, it may be accepted that when they engaged in such conduct, both Mr Cai and Ms Lin were acting as the controlling organs of Gold Stone.

357    It is against this factual background that Ms Lin and Mr Cai argue that because their relevant conduct was conduct that was carried out only in their capacity as a director (or organ) of Gold Stone, and not in their personal capacity, it was not open to the primary judge to conclude that they were liable for having knowingly procured the relevant breaches of trust.

358    Mr Cai presses the same argument in support of his grounds 9 and 12, which, as I have explained, relate to several other separate breaches of trust which concerned payments made by Gold Stone out of settlement funds paid by the liquidators of MVDA and MVLC. Once again, Mr Cai does not challenge the primary judge’s findings that the payments were made, or that Mr Cai authorised each of the payments, or that he had the knowledge required to be liable as a participant in the breaches of trust when those payments were made. However, Mr Cai argues that when he authorised the payments he was acting, and only acting, in his capacity as a director of Gold Stone. On that basis, Mr Cai argues that the primary judge erred in finding that he was liable because he knowingly induced or immediately procured Gold Stone’s breaches of trust.

359    By their grounds of appeal, Ms Lin and Mr Cai appear to make two separate although related contentions. The first is that, as a matter of general principle, a person cannot be liable as a participant in a breach of trust committed by a company, on the ground that the person knowingly induced or immediately procured the breach, where the alleged acts of inducement or procurement are carried out by that person while acting only in their capacity as a director of the company. It appears to be asserted that such conduct could only ever be an act of the company and therefore could not, at the same time, amount to an independent act of the director. In support of this contention, Ms Lin and Mr Cai rely on what was said by McCardie J in Said v Butt, and what was later separately said by Starke J and McTiernan J in O’Brien v Dawson.

360    The essential principle that has now emerged from Said v Butt and O’Brien v Dawson is that a director of a company, acting as such, will not incur tortious liability to a party to a contract with that company, for knowingly procuring or inducing the company to break the contract. This principle has been regularly applied in Australia: see, for example, Realtek Holdings Pty Ltd v Wetamast Pty Ltd [2019] NSWSC 1869 at [242]-[243], citing Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 328 at [17]-[29], Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231 at [125]-[136], Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285 at [11]-[14] and Multinail Australia Pty Ltd v Pryda (Aust) Pty Ltd [2002] QSC 105 at [121]-[126].

361    Importantly, as the obiter reasons in each of Said v Butt and O’Brien v Dawson demonstrate, the underlying premise or rationale for this principle is that when a director of a company acts as such, their acts are the acts of the company, and that they are not at the same time the personal acts of the director. Earlier in these reasons at [341] I reproduced the passage from McCardie J’s judgment in Said v Butt where this is made clear. The relevant passages from the separate reasons of Starke J and McTiernan J in O’Brien v Dawson are reproduced in the reasons of O’Callaghan J and need not be repeated here.

362    Ms Lin and Mr Cai submit that the underlying rationale for the rule in Said v Butt has been applied in other contexts, suggesting that it has broader application. Specifically, they rely on the following passage in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88; (2023) 111 NSWLR 304 at [293], a case in which it was argued that a company’s former chief financial officer and former treasurer were liable as accessories for the company’s alleged negligence or misleading or deceptive conduct:

Thus, the liability of a director for procuring a tort of the company is a form of joint liability, the director and the company being joint tortfeasors. Where the director or officer is merely acting as a corporate organ in the ordinary way, no such liability arises, just as a director of a company is not liable for inducing a breach of contract by the company where the director is no more than the individual through whom the company acts. In order to incur liability as a joint tortfeasor, the director must be so personally involved in directing or procuring the tort as to “make it his or her own” tort, above and beyond reasonably and in good faith directing the company’s decision-making as a director.

(Emphasis added, footnotes omitted.)

363    However, notwithstanding what was said in Anchorage, or in the decision of this Court in JR Consulting, upon which the New South Wales Court of Appeal placed considerable reliance, the underlying rationale for the rule in Said v Butt and in O’Brien v Dawson cannot be elevated to one of general application. To so hold would at least be inconsistent with the decision of the High Court in Hamilton v Whitehead.

364    The circumstances in Hamilton v Whitehead have been summarised by O’Bryan J. The facts of that case reveal that the acts comprising the conduct element of the offence alleged to have been committed by the company in question was physically carried out by its own managing director. In carrying out those acts, the director was the company. Therefore, the company was directly (not vicariously) liable. However, and importantly, it was in this context that the High Court said that there was nothing conceptually wrong with the company being liable as a principal offender while at the same time, and in respect of the same conduct, the managing director being liable as an accessory. The High Court evidently agreed with observations that were made in Lee v Lees Air Farming Ltd [1961] AC 12 at 26, that one person may function in dual capacities. Further, the High Court referred to what was said by Bray CJ in R v Goodall (1975) 11 SASR 94 at 101, that

the company, being a legal entity apart from its members, is also a legal person apart from the legal personality of the individual controller of the company, and that he in his personal capacity can aid and abet what the company speaking through his mouth or acting through his hand may have done.

(Emphasis added.)

365    The decision in Hamilton v Whitehead was referred to in a later decision of the High Court in Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553, with evident approval. In that case, employees of a company were alleged to have made misleading or deceptive statements to one of the company’s clients. At first instance, judgment was given against the company, but the proceedings against the employees were dismissed because neither of them had engaged in trade or commerce on their own account as distinct from their roles as employees of the company. An appeal against the decision to dismiss the proceedings against the employees was allowed. That decision was affirmed on appeal to the High Court.

366    In the High Court it was argued that if company employees, officers or directors act only as the company, it is the company that engages in the relevant conduct, not the individuals. In that regard, the appellants attempted to gain support from what had been said in Hamilton v Whitehead. However, the Court found that the reasoning in Hamilton v Whitehead assisted the respondent, and not the appellants.

367    Ms Lin and Mr Cai make a second, and narrower (although related), contention. They argue that a principle that emerges from Said v Butt, and from O'Brien v Dawson, namely, that a director acting as such will not be liable for inducing the company of which they are a director to breach a contract with a third person, also applies to deny liability for such a director for the equitable wrong of knowing inducement or immediate procurement of a breach of trust. However, because the rule in Said v Butt (and in O'Brien v Dawson) has no direct application to that equitable wrong, and in the absence of any authority to that effect, Ms Lin and Mr Cai are driven to argue that the rule applies because the wrong is analogous with the tort of inducing a breach of contract. As Ms Lin put it in her written submissions in reply at paragraph 25:

The question for this Court is whether – having regard to the High Court’s decision in O’Brien v Dawson … and the position at law concerning a director’s liability for inducing a breach of contract – equity must follow the law.

368    Ms Lin and Mr Cai say that this court should apply the maxim, ‘equity follows the law’, by adopting the same reasoning used by King CJ in Coulthard v South Australia [1995] SASC 4927; (1995) 63 SASR 531, a case which concerned the question of whether the doctrine of vicarious liability should be applied to equitable liability for breach of confidence, by analogy. As Ward CJ in Eq (as her Honour then was) noted in Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58 at [1732], King CJ reasoned in Coulthard on the basis of; first, the analogy of the particular equitable wrong with a common law tort; second, the equitable maxim that equity follows the law; and third, that equity would act upon the conscience of the employer to accept responsibility for the employee’s wrong.

369    It may be accepted that the tort of procuring a breach of contract and the equitable wrong of knowingly inducing or immediately procuring a breach of trust ‘share rationales and fulfill similar functions in their respective areas of law’: McHugh M, ‘Directors’ Liability for Inducing a Breach of Trust or Fiduciary Obligation’ (2024) 140 LQR 223-249, 238. However, as the Hon William Gummow AC said in his paper, ‘Knowing Assistance’ (2013) 87 ALJ 311 at 318, ‘[t]he analogy with the tort of intentional interference with contractual relations should not be pressed too far’.

370    In my view, it is sufficient to note in that regard that the remedies that are available for inducing a breach of contract are significantly different, when compared to the remedies available for knowingly inducing a breach of trust. The remedy for the former is an award of damages. On the other hand, knowing inducement renders a person accountable as a constructive trustee (Farah Constructions at [161]), which may give rise to an award of equitable compensation, an account of profits, or proprietary remedies. Those differences reflect the fundamentally different characteristics of the respective wrongs, and the purposes they seek to achieve. Further, as Lord Nicholls said in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 386-387:

Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary’s loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion.

371    That observation has obvious force in circumstances in which there is a corporate trustee.

372    As the respondents point out in their written submissions at paragraph 106, McLachlin J in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 543 (quoted with approval in Youyang Pty Limited v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [40]) said:

The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.

373    Pausing to highlight the last sentence in the above passage taken from Canson Enterprises, I express my agreement with O’Callaghan J that equity would not follow the law so as to, in effect, provide an immunity to a person who knowingly procures a breach of trust by a company, by dint of the fact that the person’s acts are also attributed to that company because they are one of its directors or organs acting as such. In my view, equity would act upon the conscience of a director (or other organ) of a corporate trustee to accept responsibility for having induced or immediately procured a breach of trust by that company.

374    In this context, it is important to appreciate that even before Barnes v Addy was decided, there had already been a line of cases (including Fyler v Fyler [1841] 49 ER 216; (1841) 3 Beav 550 at [561]-[562], [567]-[568]; Alleyne v Darcy (1854) 4 Ir Ch Rep 199 at 209 and Eaves v Hickson [1861] 54 ER 840; (1861) 30 Beav 136) where it was recognised that a third party might be liable in equity for knowingly inducing or immediately procuring a breach of trust (see Farah Constructions at [161]). As Ms McHugh points out at page 238 of her paper, to which I have already referred, this demonstrates that ‘[t]he inducing breach of trust claim evolved in Chancery to protect trust beneficiaries before the development of the [tort of inducing a breach of contract in] Lumley v Gye… [(1853) 2 El & Bl 216; [1853] 118 ER 749]’ (Footnotes omitted, emphasis added).

375    It must also be noted that while the two ‘limbs’ of accessorial liability in Barnes v Addy are concerned with two other distinct bases on which a third party may be treated as a participant in a breach of trust, namely ‘knowing receipt’ and ‘knowing assistance’ (Farah Constructions at [163]), and although Lord Selborne LC’s famous statement should not be read as a statutory enactment, it is nonetheless significant that the statement expressly contemplates that agents may be liable as a participant even if acting ‘within their legal powers’:

Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, 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 receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

(Emphasis added.)

376    Ms Lin and Mr Cai have not referred to any authority in which that statement has been qualified by the rule in Said v Butt, applied by analogy or otherwise. In fact, there are cases in which directors have been held liable as knowing assistants of breaches of trust committed by the companies of which they were a director: see, for example, Biala Pty Ltd v Mallina Holdings Ltd (No 4) (1993) 11 ACSR 785; (1993) 13 WAR 11 and NCR Australia v Credit Connection Pty Ltd [2004] NSWSC 1.

377    In the absence of any authority to support Ms Lin’s and Mr Cai’s contention, and having regard to equity’s long-standing recognition of the wrong of inducing or immediately procuring a breach of trust, which, as I have already said, pre-dated both Lumley v Gye and Said v Butt, I am of the view that equity would not follow the law in these circumstances and apply the rule in Said v Butt, by analogy.

378    I agree with O’Bryan J that the obiter statements made by Leeming J in Pittmore must be afforded great respect. However, in light of what I have said, I do not think that there is any relevant inconsistency between the rule in Said v Butt applying in the context of the tort of inducing a breach of contract, and it not being a rule that is applied to the equitable wrong of inducing or procuring a breach of trust.

379    Ms Lin and Mr Cai submit that the decision of the Supreme Court of the United Kingdom in Lifestyle Equities supports their argument. They contend that in that case, the Supreme Court confirmed the continued application of the rule in Said v Butt and, further, held that it was a rule of more general application to relationships that are equivalent to contract and involve an assumption of responsibility. However, while the Supreme Court did conclude that the rule in Said v Butt is ‘sound’ (at [54]), it did not reach that conclusion on the basis of the rationale upon which McCardie J originally reached his decision.

380    At [50] of his Honour's judgment, Lord Leggatt (with whom the other members of the Court agreed), identified the reason given by McCardie J in Said v Butt for the rule that an agent or employee who procures their principal or employer to break a contract with a third person is not liable in damages to that person, in the following terms:

[I]f an employee or agent acting within the scope of their authority causes their principal to break a contract, then their act (on ordinary agency principles) is to be attributed to the principal. Thus, if the agent could be held liable in tort for inducing a breach of the contract, so too could the principal. Yet this would result in the principal being liable not only for breaking the contract but for inducing himself to break the contract, which would be nonsensical. Therefore, the agent in this situation cannot be liable for inducing the breach.

381    Lord Leggatt then went on to say that he considered that this reasoning was ‘flawed’ (at [52]), explaining that:

Contrary to what was said by McCardie J, an employee is not the ‘alter ego’ of their employer. As discussed above, the fact that the employee’s acts ‘are in law the acts of his employer’ does not relieve the employee of liability if the act of the employee is tortious. That is the ‘disattribution fallacy’ discussed above. Thus, in my view, McCardie J’s argument does not provide a valid reason for his conclusion that an employee or agent cannot be liable in damages for inducing a breach of contract by their employer or principal.

382    The reference in this passage to the ‘disattribution fallacy’ is a reference to a term used in various academic articles that were cited earlier in Lord Leggatt's judgment (at [35]) in which it was argued that ‘it is fallacious to suppose that the attribution to B of an act done by A results in the dis-attribution of the act from A’.

383    Notwithstanding his conclusion that the reasoning in Said v Butt was flawed, Lord Leggatt did say that the rule in that case was sound. However, he provided a different justification for the rule, which did not rest on the rationale originally favoured by McCardie J. Adopting reasoning that emerged from PT Sandipala at [54]-[55] Lord Leggatt said:

I would explain it in this way. When parties make a contract, unless the contract is personal in nature, the general rule is that a party may employ agents to carry out its obligations. When the contracting party is a company, that is of course the only possible means of performance. If a company breaks a contract, that must be because one or more agents of the company have caused the breach. When an agent, acting as such, makes a contract, the normal understanding is that the agent assumes no liability towards the other contracting party. Only the principal does. Similarly, the normal understanding is that, if the agent causes the principal to break the contract, only the principal will incur liability to the other contracting party, and not the agent. This is, I think, a general norm or social understanding which the law should and does reflect.

It would be inconsistent with that understanding for the law of tort to make an agent who, acting within the scope of their authority, causes or procures a breach of contract by the principal liable to compensate the other contracting party for loss resulting from the breach. By the same token, to allow the injured party to recover damages from the agent would give them a free ride. That is because the same norm or understanding that, unless otherwise specifically agreed, only the contracting parties themselves will be liable in the event of a breach of the contract entails that, if a party wants a right of recourse against an agent of the other party, they must bargain for it.

(Emphasis added.)

384    This reasoning does not support Ms Lin’s and Mr Cai’s argument that the rule in Said v Butt should be applied by analogy to the equitable wrong of knowing procurement. In view of the long-standing authority to which the High Court referred in Farah Constructions at [161], which, as I have explained, pre-dated both Lumley v Gye and Said v Butt, the ‘normal understanding’ would be that a director acting as such will assume liability for knowingly procuring a breach of trust by the company of which they are a director.

385    For these reasons, I would also dismiss Ms Lin’s ground 4, as well as Mr Cai’s grounds 4, 9 and 12.

Associate:

Dated:    12 September 2025

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