FEDERAL COURT OF AUSTRALIA

Xie v Moshav Financial Wholesale Pty Ltd [2025] FCA 250

ORDERS

THE COURT ORDERS THAT:

1.    Subject to Order 2 below, by 9 April 2025 the parties are to provide draft short minutes of order for the disposition of the proceeding.

2.    In the event that the parties cannot agree on the form of orders or any party wishes to vary the proposed orders as to costs:

(a)    by 9 April 2025 they are to inform the Associate to Markovic J of the nature and extent of the disagreement between them or of the proposed variation of the costs orders; and

(b)    the proceeding will be listed for case management hearing to allow all outstanding matters in dispute to be determined and for final orders to be made.

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

REASONS FOR JUDGMENT

MARKOVIC J:

1 In May 2018 Xinwen Xie, the plaintiff, invested in the Hyperbuild Unit Trust.  As a result of making that investment Mr Xie brings this proceeding against Moshav Financial Wholesale Pty Ltd and Raymond Yu as first and second defendants respectively.

2 Mr Xie claims damages from Mr Yu who he alleges made certain representations to him in relation to his investment into the Hyperbuild Unit Trust.  In making those alleged representations, Mr Xie asserts that Mr Yu breached the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and/or the Australian Consumer Law which is Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL).

3 At the time of the alleged representations Mr Yu was an employee of Moshav and, it is contended, of AXL Financial Pty Ltd, which was, in turn, an authorised representative of Moshav.  Mr Xie alleges that Moshav is responsible for the loss and damage he suffered which was caused by Mr Yu and for the actions taken by Mr Yu as an employee of Moshav or, in the alternative, as a representative of Moshav within the meaning of Pt 7.6 of the Corporations Act.

4 Moshav has filed a cross-claim against Mr Yu.  It contends that Mr Yu was acting as Moshav’s agent in carrying out investor responsibilities, in that capacity he owed fiduciary duties to Moshav and, in the event that Moshav is found liable to Mr Xie, Mr Yu breached those duties and his employment contract with Moshav.  As a result Moshav claims that it has suffered loss and damage.

THE PLEADED CASE

5 Mr Xie relies on a further amended originating process (FAOP) and a further amended statement of claim (FASOC) each filed on 5 March 2024.

6 As against Mr Yu, Mr Xie alleges that:

(1)    in about May 2018 Mr Yu made the following Representations to him:

(a)    Oliver Roths, who was at all material times the controller of AXL in the role of Group Chief Risk Assessment Officer, planned for AXL, an authorised representative of Moshav, to acquire 51% of the shares in PLC Financial Solutions Limited through Hyperbuild Pty Ltd as trustee for the Hyperbuild Unit Trust.  The board of PLC would then be changed so that AXL could control PLC through a backdoor listing by selling the Hyperbuild operations at a combined value of $60 million to PLC (collectively, Hyperbuild Transaction);

(b)    the Hyperbuild Transaction would be complete by the end of 2018;

(c)    PLC would raise $100 million in a fund for property development;

(d)    upon a new unit holder purchasing 500 units in the Hyperbuild Trust (representing 5%) from Hyperbuild for a consideration of $700,000, the new unit holder would be provided with a 5% shareholding in PLC which would lead to a forecast return of at least 6-8 times on its investment; and

(e)    the investment was safe because of:

(i)    the financial position and management of the Hyperbuild Trust;

(ii)    the Hyperbuild Transaction being sure to be “100% successful” as any outstanding matters were “formalities only”; and

(iii)    a guaranteed refund of investment if the Hyperbuild Transaction failed;

(2)    on or about 8 May 2018 Mr Xie agreed to borrow $170,000 from Mr Yu to invest in the Hyperbuild Trust;

(3)    on or about 9 May 2018 Mr Xie invested $700,000 (which included the sum borrowed from Mr Yu) in the Hyperbuild Trust and signed a unit subscription agreement in relation to that investment (Unit Subscription Agreement);

(4)    Mr Xie relied upon the Representations, which he believed on reasonable grounds to be true, in agreeing to invest in the Hyperbuild Trust and in transferring funds and signing the Unit Subscription Agreement.  If the Representations had not been made and/or if they had not been misleading or deceptive, Mr Xie would not have agreed to invest in the Hyperbuild Trust, transfer the funds or sign the Unit Subscription Agreement;

(5)    on or about 17 May 2018 Mr Roths on behalf of Hyperbuild, and without Mr Xie’s knowledge, transferred $150,000 of Mr Xie’s investment in the Hyperbuild Trust into PLC’s solicitors’ trust account;

(6)    on 18 May 2018 three million shares in PLC were allotted to Mr Xie and on 13 July 2018 500 units in the Hyperbuild Trust were allotted to Mr Xie;

(7)    on or about 15 June 2018 PLC issued 50 million new shares causing Mr Xie’s shareholding to be significantly diluted;

(8)    by 16 August 2018 Mr Xie had repaid the loan from Mr Yu, including accrued interest;

(9)    the Hyperbuild Transaction did not complete and contrary to the Representations, Mr Xie’s investment in the Hyperbuild Trust was not refunded to him;

(10)    on or about 27 August 2019 Hyperbuild went into external administration; and

(11)    on or about 6 October 2020 PLC was removed from the official list of the Australian Securities Exchange.

7 Mr Xie further alleges that:

(1)    the making of all or some of the Representations was conduct in relation to a financial product or financial service, or both, within the meaning of the Corporations Act and the ASIC Act;

(2)    all of the Representations were made with respect to future matters within the meaning of s 769C of the Corporations Act, s 12BB of the ASIC Act and/or s 4 of the ACL and, for the purposes of those sections, Mr Xie relies on the presumption that Mr Yu is taken not to have reasonable grounds for making the Representations unless evidence is adduced to the contrary;

(3)    the making of each, some or all of the Representations was conduct in this jurisdiction within the meaning of s 1041H of the Corporations Act and s 12DA of the ASIC Act;

(4)    the Representations were misleading or deceptive, likely to mislead or deceive or false in a material particular or materially misleading or were misleading representations that an investment in the Hyperbuild Trust was of a particular standard, quality, value or grade, or was conduct liable to mislead the public as to the nature, characteristics, suitability for purpose or quantity of an investment in the Hyperbuild Trust;

(5)    in the alternative, the Representations were likely to induce Mr Xie to apply for or acquire a financial product within the meaning of s 1041E of the Corporations Act and Mr Yu did not care, or ought to have known, that they were false in a material particular or materially misleading.  Therefore, in making the Representations Mr Yu engaged in conduct in contravention of s 1041E of the Corporations Act;

(6)    further or in the alternative, in making the Representations, Mr Yu engaged in conduct in contravention of s 1041H of the Corporations Act by engaging in conduct in relation to a financial product or financial service that was misleading or deceptive or likely to mislead or deceive; and

(7)    further or in the alternative, in making the Representations, Mr Yu engaged in conduct in contravention of ss 12DA, 12DB(1)(a) or 12DF of the ASIC Act or s 18 of the ACL.

8 As against Moshav, Mr Xie alleges that:

(1)    Mr Yu’s conduct in making the Representations and contravening s 1041E and/or s 1041H of the Corporations Act was undertaken by Mr Yu as Moshav’s employee, on Moshav’s behalf and within the scope of Mr Yu’s actual or apparent authority and thus is taken, for the purposes of a proceeding under Ch 7 of the Corporations Act, also to have been engaged in by Moshav pursuant to s 769B of that Act. Mr Xie makes the same allegation in respect of the contravention of ss 12DA, 12DB(1)(a) or 12DF of the ASIC Act, relying on s 12GF and s 12GH of that Act; and

(2)    further or in the alternative, Moshav was responsible and liable for Mr Yu’s conduct as he was its employee and therefore its representative within the meaning of ss 917B, 917E and 917F of the Corporations Act.

9 Mr Xie claims damages from Mr Yu pursuant to s 1041I of the Corporations Act, s 12GF of the ASIC Act and/or s 236 of the ACL and, further or in the alternative, seeks an order that Moshav pay compensation or damages pursuant to s 917E and s 917F of the Corporations Act.

10 Both Mr Yu and Moshav have filed defences in relation to the allegations raised by Mr Xie, albeit the most recent defence filed by Mr Yu (who at the time of the hearing was not legally represented) was dated 3 September 2021 and responded to the statement of claim filed on 6 July 2021.  That defence was prepared with the assistance of a barrister.  I do not intend to set out the effect of Mr Yu’s and Moshav’s respective defences at this stage.

11 Consideration of the relief sought by Moshav set out in its cross-claim only arises if Mr Xie is successful in his claim against Moshav.  In summary, in its amended notice of cross-claim filed on 19 April 2022 Moshav contends that:

(1)    Mr Yu was an employee of Moshav from 18 September 2015 to 31 July 2020 and in the same period was an employee of AXL (or at least performed tasks for AXL at the direction of Mr Roths);

(2)    in the course of Mr Yu’s employment with Moshav he was responsible for identifying potential investors willing to invest in mortgage products in Australia and for communicating with potential investors about those financial products (Investor Responsibilities);

(3)    by reason of his employment with Moshav and the Investor Responsibilities Mr Yu owed a fiduciary duty to Moshav to:

(a)    act in its best interests in his communications with AXL and third parties;

(b)    not place himself in a position of conflict;

(c)    differentiate any communications he had with AXL and third parties that were in his own capacity from those that were in his capacity as an employee of Moshav; and

(d)    act within the scope of his actual or ostensible authority and avoid any personal communications which could give the incorrect impression to a third party that such communications were on behalf of Moshav;

(4)    Mr Yu’s contract of employment with Moshav contained certain express and implied terms;

(5)    if the Court finds that Moshav is liable to Mr Xie on a cause of action pleaded by him and the cause of action is not apportionable, such that Moshav’s share in the loss and damage is not reduced because it is not found to be a concurrent wrongdoer with others, then Mr Yu is in breach of his fiduciary duties to Moshav and in breach of his contract of employment with Moshav in the ways particularised; and

(6)    further and in the alternative, if the Court finds that Mr Yu made the Representations and that Mr Xie has established certain facts pleaded in his statement of claim filed on 6 July 2021 then Mr Yu, in trade or commerce, represented that Moshav was offering an investment opportunity, that representation was misleading or deceptive or likely to mislead or deceive and, in the premises, Mr Yu breached s 18 of the ACL.  As a result of that breach, Moshav has suffered loss and damage to the extent of the relief and costs orders which Mr Xie obtains against it in this proceeding.

12 Mr Yu filed a defence to the amended notice of cross-claim at a time when he was legally represented.  Once again, I do not intend to set out the contents of that defence at this stage.

WITNESSES

13 Mr Xie relied on:

(1)    his own evidence.  Mr Xie gave his evidence in chief orally and was cross-examined by Moshav’s counsel, in both cases through an interpreter.  Although Mr Xie can write and understand everyday conversations in English, he cannot understand complex language or concepts expressed in English.  I found Mr Xie to be an honest witness who attempted to assist the Court by giving considered and frank answers to the questions posed;

(2)    evidence given by David Stuart Watt, a chartered accountant, accredited forensic accounting specialist and partner of Hall Chadwick.  Mr Watt prepared a report in which he assessed the fair market value of 3 million shares in the business and assets of Irich Financial Solutions Limited (formerly PLC).  Mr Watt was not cross-examined; and

(3)    evidence given by Wenfu Liu, a National Accreditation Authority for Translators and Interpreters (NAATI) certified translator in Chinese languages.  Ms Liu translated a series of WeChat messages from Chinese into English.  Ms Liu was not cross-examined.

14 Moshav relied on evidence given by:

(1)    Tal Silberman, a director of Moshav.  Mr Silberman gave his evidence in chief orally and was cross-examined.  Mr Xie submits that I would find Mr Silberman to be an unsatisfactory witness.  I do not accept that submission.  While there were some aspects of Mr Silberman’s evidence which lacked clarity or required further probing, on balance I found him to be a satisfactory witness; and

(2)    Zhuzi Lin, a NAATI certified translator in Chinese languages including Chinese Mandarin.  Ms Lin translated a series of documents from Chinese Mandarin to English.  She was not cross-examined.

15 Mr Yu gave evidence in his own case.  As Mr Yu was self-represented, rather than give his evidence in chief orally, he relied on an outline of his evidence dated 29 July 2022 which had been prepared pursuant to Orders made on 8 June and 13 July 2022 and notified to Mr Xie and Moshav.  Mr Yu had legal assistance at the time of the preparation of his outline of evidence.

16 Mr Xie filed and served his FAOP and FASOC after Mr Yu had prepared his outline of evidence.  By the FAOP and the FASOC Mr Xie alleges, among other things, that the representations made by Mr Yu were made in relation to future matters within the meaning of s 769C of the Corporations Act, s 12BB of the ASIC Act or s 4 of the ACL and that he relies on the statutory presumption that Mr Yu did not have reasonable grounds for making the representations unless Mr Yu adduces evidence to the contrary.

17 To permit Mr Yu to give evidence relevant to the issues raised by that aspect of the FAOP and the FASOC, counsel for Mr Xie prepared a series of questions designed for that purpose (Additional Questions).  The Additional Questions were provided to Mr Yu to consider prior to giving evidence.  Mr Yu agreed to proceed with his evidence including by providing answers in the witness box to the Additional Questions.  At the hearing I asked each of the Additional Questions and Mr Yu provided answers.  Mr Yu was then cross-examined.

18 Mr Yu was not a satisfactory witness.  Although he answered the questions put to him, at times his answers were seemingly intentionally vague and at other times he changed his evidence, either in an attempt to place himself in a better light or to meet what he perceived to be a weakness in his defence.

THE FACTS

Mr Xie

19 Mr Xie is a Chinese citizen.  He graduated from high school in China in 2008.  Mr Xie then attended Shandong Finance and Economics University and, upon graduating, came to Australia to further his studies.  Between July 2013 and December 2015 Mr Xie undertook post graduate study in accounting at Macquarie University.  When Mr Xie completed his studies, he returned to China to visit his family before returning to Australia in March 2016.

20 Mr Xie presently resides in Australia on a subclass 485 visa.  He is sponsored by his current employer, described as a construction materials company, for whom he works as an accountant.

Moshav

21 Moshav is a fund manager.  It raises and lends money for the purpose of investing in real property.

22 As a fund manager Moshav derives its capital for investment by issuing units in various managed investment schemes.  Upon investment in a scheme and once the scheme is fully subscribed Moshav on lends the funds for commercial property transactions and derives income via interest payments.  It returns interest to investors in the relevant scheme.  The managed investment schemes are typically secured by a registered first or second mortgage over real property or via general security arrangements.

23 Moshav holds Australian Financial Services Licence (AFSL) no. 439903 (Moshav AFSL).  The Moshav AFSL permits Moshav to carry on a financial services business, among other things, to:

(a)    provide general financial product advice only, for the following classes of financial products:

…

(iv)    interests in managed investment schemes excluding investor directed portfolio services; and

…

(b)    deal in a financial product by:

(i)    issuing, applying for, acquiring, varying or disposing of a financial product in respect of the following classes of financial products:

(A)    interests in managed investment schemes limited to:

(1)    own managed investment scheme only; and

(B)    securities; and

…

AXL

24 AXL was registered on 16 December 2014.  At the time of AXL’s registration, Derek Errol Ziman and Alexander Harmstorf were its directors.  Mr Ziman ceased to be a director on 11 May 2015 and Mr Harmstorf ceased to be a director on 24 March 2016 but was reappointed for two further periods: 12 May 2016 to 13 July 2016: and 20 January 2017 to 30 September 2019. AXL has had various other directors since its registration.  Relevantly, Mr Roths was appointed a director of AXL on 10 September 2019 and has, since 25 January 2020, been AXL’s sole director.

25 One of the shareholders in AXL was A.C.N. 117 688 356 Pty Ltd, a company of which Mr Silberman is sole director, secretary and shareholder.  Mr Silberman explained that A.C.N. 117 688 356 was issued the shares in AXL, at no cost to it, as part of the arrangement for AXL to become an authorised representative of Moshav, as explained below.

26 AXL was an authorised representative under the Moshav AFSL.  AXL was issued with a limited authorisation to source investors for Moshav’s funds and for that purpose, on a collaborative basis, Moshav and AXL issued a white label information memorandum to invite investors, via AXL, to invest in one of Moshav’s funds called “premium fund series”.  Mr Silberman also described the funds in this series as white label products.

27 In order to put the authorisation in place, by letter dated 15 July 2015 addressed to AXL (Authorisation Letter), Moshav set out the terms on which it had agreed to appoint AXL as its authorised representative under the Moshav AFSL.  The Authorisation Letter relevantly provided:

1 Appointment

1.1    [Moshav] agrees to appoint [AXL] as our authorised representative of [Moshav] under the [Moshav AFSL].

1.2    [AXL] accepts the appointment as an authorised representative of [Moshav] under the [Moshav AFSL].

2 Authorisations

[Moshav] authorises [AXL] to provide the financial services as our representative under the authorisations in the [Moshav AFSL] set out in Schedule 1

(the Financial Services).

3 Term

The term of the Agreement shall be 3 year [sic] from the date of this Agreement.  Renewal of the Agreement shall be for further terms as agreed between the parties.

4 Sub-authorised Representatives

4.1    [Moshav] gives its consent and authorises [AXL] to appoint the following natural persons to act as sub-authorised representatives so that they may provide one or more of the Financial Services under the [Moshav AFSL] held by [Moshav] (the Sub-Authorised Representatives):

(a)    Alexander Gordon Johann Harmstorf

…

28 Schedule 1 to the Authorisation Letter was headed “Authorisation of Authorised Representatives” and provided:

Moshav Financial Wholesale Pty Ltd (ACN 163 365 937) appoints AXL Financial Pty Ltd (ACN 603 393 317) to act as its Authorised Representative for the purposes of providing the following financial services:

1

(a)    provide general financial product advice only, for the following classes of financial product:

(i)    interests in managed investment schemes excluding investor directed portfolio services,

to wholesale clients.

29 Schedule 2 to the Authorisation Letter was titled “Written Notice to be issued by [AXL] authorising a person to act as a Sub-Authorised Representative of [Moshav]”.  Mr Silberman explained that Mr Harmstorf, who he understood was a lawyer who represented Chinese investors looking to invest in Australian funds and who was the person with whom he negotiated in relation to selling the premium fund series, was the only person who signed a letter in accordance with the Authorisation Letter.  That is, Mr Harmstorf was the only person AXL appointed as a sub-authorised representative of Moshav.

30 The information memorandum for the premium fund series was issued by AXL.  It set out an investment offer to wholesale investors in two funds, a premium mortgage fund and a high yield mortgage fund and included:

(1)    information about Moshav, the trustee and custodian of the funds, including its board of directors.  At the time its directors were Mr Silberman and Bao Cheng Luo, the latter of whom was described as an executive director;

(2)    information about AXL.  The information memorandum noted that AXL is “an authorised representative of [Moshav], and is the Manager of the AXL Financial Premium Fund Series”; and

(3)    corporate organisation charts for each of AXL and Moshav.

31 Mr Silberman says that when AXL applied to be an authorised representative of Moshav, he would have undertaken a company search to identify its directors and shareholders and completed a credit check.  He recalls that he undertook a reasonable amount of due diligence including requiring AXL to complete “know your own client” documents.  Mr Silberman’s understanding was that AXL’s only business was the sale of the premium fund series products.

32 At the time that AXL became an authorised representative of Moshav, Mr Harmstorf asked if he could use some of the space in Moshav’s office situated in Double Bay, New South Wales, on a temporary basis.  Mr Silberman agreed.  Mr Silberman understood that AXL had staff which it temporarily needed to house and Moshav had some capacity to enable what Mr Silberman described as some temporary “hot desking”.  The number of AXL staff working from Moshav’s Double Bay office changed but at a maximum it was four to five people.  Moshav did not receive any rental or other payment from AXL for the use of its office space.

33 One of the AXL staff members who worked from Moshav’s Double Bay offices from time to time was Izabela Kwoka, Mr Roths’ wife.  Ms Kwoka was a registered auditor and, from time to time, she did some work for Mr Silberman.  Occasionally, when Ms Kwoka was in the office, Mr Silberman spoke with her, but his discussions did not relate to AXL’s business.

34 Mr Silberman was not aware of AXL’s business interests other than its role as an authorised representative of Moshav and was not aware that it was involved in matters outside of that role, for example, property development.  At no stage did Mr Silberman have any form of management role in AXL and he was never a director of AXL.  In the absence of a specific business need to do so, including for example for the purpose of AXL introducing prospective borrowers to Moshav (see [38] below), he only spoke with Mr Harmstorf on an ad hoc basis and speculated that over a period of six months he probably spoke to Mr Harmstorf three times.

35 Mr Silberman terminated AXL’s status as an authorised representative of Moshav on about 9 April 2019 because of AXL’s lack of performance.  That is, there had been no investors introduced by AXL in its capacity as an authorised representative.

36 AXL was placed into voluntary administration on 18 August 2021 and into liquidation on 22 September 2021.

Mr Silberman and Mr Roths

37 Mr Silberman first met Mr Roths in about 2003.  He was aware that Mr Roths had a role in AXL between about 2015 and 2019. He did not know exactly what that role involved but believed that Mr Roths had undertaken credit analysis for Mr Harmstorf.

38 Between about 2015 and 2020 Mr Silberman met with Mr Roths on an ad hoc basis usually in relation to the introduction of potential borrowers from Moshav.  Mr Silberman understood that Mr Roths was acting as a finance broker looking to introduce potential borrowers.  If there was a particular deal that Mr Roths was seeking to introduce, Mr Silberman might see Mr Roths two to three times per week but otherwise he might not see Mr Roths for several months.

39 Mr Silberman understood that when Moshav was dealing with Mr Roths, he was acting in his capacity as an agent or employee of one of Mr Harmstorf’s companies, of which there were a number, other than AXL.

40 Mr Silberman was unaware of the extent of the businesses in which Mr Roths was involved beyond his involvement in introducing clients to Moshav and undertaking some work with Mr Harmstorf on the credit side.

41 Mr Silberman does not recall when he first became aware of Hyperbuild but he recalls that it was involved in construction on the south coast of New South Wales.  He does not recall Hyperbuild ever being the subject of specific discussions between him and Mr Roths, although it was possible that Mr Roths may have sought to introduce Hyperbuild as a potential borrower but no transaction eventuated.

42 Mr Silberman first heard about the Hyperbuild Transaction when he received a letter from Mr Xie’s solicitors, WB Legal.

Mr Yu

43 Mr Yu was born in Shandong Province in 1988.  He came to Australia in 2008 to attend university.

44 In 2013 Mr Yu obtained a Bachelor of Accounting from Central Queensland University and in 2014 he obtained a Master of Applied Finance from the University of Western Sydney.

45 In 2014, after Mr Yu had completed his studies, he joined AusLink Investment and, in early 2015, one of his colleagues introduced him to Mr Harmstorf as “the boss of AXL Legal”.  At one stage, while in the employ of AusLink, Mr Yu attended AXL Legal’s offices where he met Mr Roths for the first time.

46 During 2015 and 2016 Mr Yu developed a friendship with Mr Roths.  They would often go out for a drink or a meal.  According to Mr Yu, during their discussions Mr Roths told him that he and Mr Silberman were business partners, and their businesses were “50-50” but he did not specify which business.  Mr Roths also told Mr Yu that he was preparing to set up AXL so that the AXL brand could expand from legal, at the time there was a business in existence called AXL Legal, to financial.

Mr Yu’s employment with Moshav

47 In 2015 Mr Yu informed Mr Roths that he needed a new job and an employer sponsor for his visa.  Mr Roths later contacted Mr Yu indicating he may have a job opportunity for him and, at the time, mentioned Moshav.

48 At Mr Roths’ instigation in mid to late 2015 Mr Yu attended a meeting with Messrs Silberman and Roths at the Intercontinental Hotel in Double Bay.  Mr Yu recalls that at that meeting he was asked questions about his qualifications and his experience.  Mr Silberman recalls that he was introduced to Mr Yu but cannot now recall if Mr Roths was at the initial meeting.

49 A few days after the meeting referred to in the preceding paragraph, Mr Roths contacted Mr Yu to inform him that he was successful in obtaining a role with Moshav in sales and marketing focussing on the Chinese market.  Mr Roths did not “offer” Mr Yu the job at Moshav, he just told Mr Yu that he got the job.

50 On 18 September 2015 Moshav as “Employer” and Mr Yu as “Employee” entered into an employment agreement (Yu Employment Agreement).  The terms of the Yu Employment Agreement relevantly include:

1. ENGAGEMENT

1.1.    The Employee is hereby employed by the Employer. The Employee's employment commences on 5 October 2015. The Employee must report for work on 5 October 2015 at 8:30 am at the Employer's premises at 442 New South Head Road Double Bay NSW. The Employee must report to Tal Silberman. In the course of employment the Employee's place of employment may change.

1.2    The Employee is employed in the position of Sales and Marketing Manager (ANZSCO 131112).

1.3    The Employee's duties and responsibilities (“Duties”) in this position include all the duties and responsibilities that would normally attach to that type of position. The Employer may change these Duties during the course of the Employee's employment after consultation with the Employee.

1.4    In addition to the Duties, the Employee is required to fulfill the list of duties and responsibilities set out in Attachment No 1.

…

3. EMPLOYEE’S OBLIGATIONS

3.1    The Employee must at all times in the course of the Employee’s employment:-

(a)    act honestly and always in the best interests of the Employer;

(b)    promptly follow all lawful and proper directions of the Employer in respect to the carrying out of the Duties;

(c)    punctually attend each work day at the designated place of work at the times stipulated by the Employer;

(d)    carry out all the Duties carefully, responsibly and competently; and

(e)    co-operate and assist management and other employees as and when required.

3.2    Except with the prior consent of the Employer, the Employee must also use computers, telephones, equipment, machinery and vehicles (“Items”) belonging to the Employer for proper and legitimate purposes of carrying on the Employer’s business and in fulfilling the Duties.  The Employee must not use any of the Items for the Employee’s personal benefit without the prior written permission of the Employer.

…

18. CONFIDENTIALITY AND TRUST

18.1    During the term of employment the Employee must not work for a competitor of the Employer.

51 I pause to note that in cross-examination Mr Yu accepted that his Moshav email was part of the equipment that belonged to Moshav and that, pursuant to cl 3.2 of the Yu Employment Agreement, he could only use his Moshav email address with Moshav’s prior consent.

52 Attachment 1 to the Yu Employment Agreement is headed “Employee’s duties and responsibilities” and includes:

Sales and Marketing Manager ANZSCO Code 131112

Reporting to:    This position reports to the Director

Direct Reports:    Future Sales Representatives will be reporting to this position

Tasks Include:

1.    The Employee is tasked with developing a product distribution channel for Moshav Financial investment products throughout Chinese speaking markets in Australia, Hong Kong and China.

2.    His predominant target product range will be the Moshav Financial and AXL Financial Mortgage Fund Series and direct investments into Property investments as facilitated by Moshav.

…

5.    The Employee will be required to promote the Moshav and AXL product range through the WeChat application and other popular media/ advertising solutions in accordance with guidelines set by the Directors from time to time.

53 Mr Yu commenced work at Moshav in about October 2015.  His role was to source onshore and offshore Chinese investors to invest in Moshav managed funds.  Upon commencing his employment he was trained by Mr Silberman in relation to Moshav’s information memoranda.  He was also informed that Moshav held an AFSL, the terms of which were explained to him by Mr Silberman.  Mr Yu understood that Moshav was licensed to sell managed investment schemes to wholesale investors but not to retail investors.

54 During the course of Mr Yu’s employment, Mr Silberman met with Mr Yu to discuss marketing to Chinese investors, both Moshav’s products and the AXL premium fund series.  As an employee of Moshav, these were the only products that Mr Yu was authorised to sell.

55 Mr Yu also came to learn that AXL was an authorised representative of Moshav, he thinks at about the time AXL obtained that status.  Mr Yu understood that as authorised representative of Moshav, AXL was limited to selling the products that Moshav was licensed to sell and that it could not go beyond the terms of its authorised representation.

56 Mr Yu worked at Moshav’s Double Bay office.  About four to six weeks after commencing his employment, Mr Yu was given a business card which appeared (both front and back) as follows:

57 Mr Yu attended Moshav’s office almost every morning.  However, as Mr Yu’s role was to introduce investors, Mr Silberman’s preference was for him to be “out seeing clients”, rather than in the office.  When Mr Yu was in the office Mr Silberman spoke with him regularly about his work in progress and answered any specific questions Mr Yu may have had in relation to particular investors and day to day business matters.

58 Apart from sourcing investors for Moshav’s managed investment schemes, which was his principal role, Mr Yu was, as set out above, also able to facilitate investment in the AXL premium fund series that Moshav was trying to sell.  However, Mr Yu only worked for Moshav and, given that his 457 visa was sponsored by Moshav, he was not able to work for any other entity. Despite, Mr Yu believed that his 457 visa did not restrict him from incorporating a company and registering for an Australian Business Number, which he did on multiple occasions for the purpose of doing business in Australia.

59 According to Mr Yu, in late 2015 and early 2016 he often attended AXL’s offices at 1 Market Street, Sydney to meet with Mr Roths.  At the time he believed that both Messrs Silberman and Roths were his bosses.

60 Mr Yu said that at times, although not often, Messrs Yu, Silberman and Roths met to discuss how to market products to Chinese investors.  In 2015 Mr Yu was, at Mr Roths’ request, marketing products which were not offered by Moshav.  According to Mr Yu he did not do so in a secretive way and, while he cannot clearly recall, he thinks he mentioned what he was doing to Mr Silberman.

Mr Xie meets Mr Yu

61 In March 2016 Mr Xie returned to Australia to undertake a NAATI course for translation from Mandarin to English in Sydney.  It was at that time that Mr Xie first met Mr Yu in the circumstances described below.

62 Whilst still in China Mr Xie saw a room for rent advertised online.  He responded to the advertisement and arranged for rental of the room, dealing at the time with Mr Yu’s then partner.  Upon his return to Australia in March 2016 he moved into the room as arranged which was in an apartment located in Epping, New South Wales in which Mr Yu and his then partner lived.  Mr Xie continued to lease the room from Mr Yu and his partner until June 2016 (although nothing turns on it, I note that Mr Yu said that he lived in the same apartment as Mr Xie until the end of 2016).

63 After Mr Xie moved out of the room he sublet from Mr Yu, they continued to keep in touch on WeChat.

Mr Xie works for Hyperbuild and AXL

64 Mr Xie did not complete the NAATI course and by September 2016 he had commenced working for Anderson Recruitment, a labour hire company.  He continued to work for Anderson Recruitment until the end of 2018.

65 In September 2016 Anderson Recruitment placed Mr Xie at Hyperbuild in the role of assistant accountant, working three to four days per week.  In that role, Mr Xie undertook accounting and bookkeeping work for Hyperbuild and AXL.  From September 2016 until about April 2017 Mr Xie worked at Hyperbuild/AXL’s office located at New South Head Road, Double Bay, New South Wales and from April 2017 to November 2017 Mr Xie worked at Hyperbuild/AXL’s office located at Shellharbour.  In November 2017 Mr Xie returned to China to marry.

66 I pause here to note that there was scant evidence about Hyperbuild.  A company search in evidence before me showed that it was registered on 7 January 1998, was placed into external administration on 4 July 2019 and subsequently into liquidation on 1 September 2021.  It was deregistered on 11 August 2023.  It is apparent that AXL or what appear to be related companies and companies associated with Mr Roths jointly held parcels of different classes of shares in Hyperbuild.

67 Mr Xie understood, from his discussions with Mr Yu in the initial months of his employment with Hyperbuild/AXL, that Mr Roths was “the boss” of AXL and Hyperbuild, AXL was a developer, Hyperbuild undertook building projects for AXL and AXL used Moshav’s AFSL to raise funds for its development projects.

68 In his curriculum vitae Mr Xie describes his duties while working at Hyperbuild/AXL as follows:

*    Documenting, reviewing and providing assurance about accuracy and timing of financial transactions by entering account information, creating and updating database and excel spread sheets.

*    Applied mathematical abilities on daily basis to calculate and check figures in all areas of accounting systems

*    Preparing financial reports, BAS and tax return.

69 At the time Hyperbuild and AXL used MYOB to record transactions.  Mr Xie explained that while he was working there, all moneys in Hyperbuild came from AXL by way of loan.  As Hyperbuild was a builder, the loan funds were used to pay its expenses.  Hyperbuild did not make any profits prior to finalisation of a project.

70 Mr Xie knew that AXL had funds available in its accounts.  However, he did not know whether AXL ever made a profit and he did not know from where it sourced its income.

71 As part of Mr Xie’s duties he worked on and did book entries in relation to staff credit cards and staff reimbursement.  As a result of that work, Mr Xie knew that AXL reimbursed Mr Yu for his travel costs to China.  Mr Xie understood that Mr Yu worked for AXL and Moshav at the same time.

72 Mr Xie reported to Ms Kwoka who was the chief accountant and, as set out above, Mr Roths’ wife.  At the end of each week Mr Xie reported by email to Mr Roths in relation to payment of wages, banking reconciliation, credit card usage and bank statements.

73 According to Mr Xie, Hyperbuild/AXL shared its Double Bay office with Moshav.  At the time that Mr Xie worked from the Double Bay office there were approximately four staff working for Moshav, one of whom was Mr Yu, who he understood worked as a marketing manager for Moshav, and approximately three staff working for Hyperbuild/AXL.

74 Mr Xie recalls that Mr Roths attended the Double Bay office approximately once per week and that Mr Silberman attended the Double Bay office daily but he rarely spoke to him.

75 Mr Xie often spoke with Mr Yu when he was in the Double Bay office.  There were periods of time when Mr Yu was absent in China sourcing investors for Moshav’s project development, including from September to December 2016.  Messrs Xie and Yu had lunch together about once a month when Mr Yu was in the Double Bay office, on some occasions, with other staff members.

Mr Roths asks Mr Yu to market products for AXL

76 At a time between 2016 and 2018, Mr Yu can no longer recall precisely when, Mr Roths told Mr Yu to market products not offered by or through Moshav to Chinese investors.  Mr Yu recalls that at the time Mr Roths said words to the following effect:

AXL has now become a sub-licensee under Moshav.  There will be two lines of products.  The original Moshav line is less risky but less reward.  The new line will be more risky and more reward.  I would like you to try to market some of the new products to Chinese investors.

77 Mr Yu explained that the “new line” referred to by Mr Roths was the premium fund series and, because the return on those products was higher than on the Moshav products, he considered them to be more risky.

78 At the time Mr Yu understood that it was not Moshav asking him to promote the non-Moshav products.  This was because Mr Roths offered him 1% commission on successful investment in those products.  Mr Yu did not expect to be paid, and was not paid, a salary (in addition to the 1% commission) by AXL or Mr Roths.

79 In cross-examination by Ms Castle, counsel for Moshav Mr Yu gave the following evidence about the request by Mr Roths that he market products for AXL to Chinese investors:

Ms Castle:    You gave some evidence yesterday about – and it’s in your outline – about Mr Roths saying that now that AXL was an authorised representative, he had in mind two products. Do you remember that evidence?

Mr Yu:    Yes.

Ms Castle:    One, the Moshav product, which was less risky, and the other products which were more risky?

Mr Yu:    Yes.

Ms Castle:    Did you understand the more risky products to be part of the authorised representation that AXL had?

Mr Yu:    Yes.

Ms Castle:    And did Mr Roths tell you what products they were?

Mr Yu:    Yes.

Ms Castle:    Was it just what we’ve been referring to as the white-label product?

Mr Yu:    Yes.

Ms Castle:    And if Mr Roths had wanted AXL to invest in, let’s say, a soft drink bottling plant, did you – would you have considered something like that to be under the terms of the authorised representation?

Mr Yu:    No.

Ms Castle:    What was your understanding of the products that you saw AXL involved in? So which of the products that you saw AXL involved were authorised as part of its representation?

Mr Yu:    From my memory, it’s only the white-label premium fund series. That’s the only products being offered by Moshav to AXL to sell.

Ms Castle:    And you were aware, were you, that AXL was involved in doing things other than trying to promote that product?

Mr Yu:    Yes.

Ms Castle:    Is it true to say that it was your understanding that AXL was involved in a number of separate business interests?

Mr Yu:    Yes.

Ms Castle:    And was it your understanding that the only one that it was doing as a representative of Moshav was the white-label product?

Mr Yu:    Yes.

Ms Castle:    And so when you were asked by Oliver to promote other products to investors, was it your understanding that you were doing that outside of the authority of the licence?

Mr Yu:    Yes.

Ms Castle:    And when you accepted an arrangement to receive a one per cent commission in relation to Hyperbuild, was that – you didn’t tell Mr Silberman about that, did you?

Mr Yu:    I didn’t tell Silberman.

80 In about March 2018 Mr Roths arranged an AXL email address for Mr Yu: raymond.yu@axlfinancial.com.au.  Mr Yu also had an AXL business card, in addition to his Moshav business card.  He does not know if Mr Silberman was aware of his AXL email address, he did not inform Mr Silberman about it .  When Mr Yu travelled overseas he gave out either his Moshav or his AXL business card depending on the product he was promoting at the time.

81 In May or June 2018, Mr Yu went to China to seek out investors for the Hyperbuild Transaction.  He did not tell Mr Silberman that he was going to China for that purpose as this was an occasion during which Mr Yu was on a period of annual leave.

January 2018

82 On the evening of 13 January 2018 Mr Xie and his wife met with Mr Yu in the lobby of the Star Casino in Sydney for approximately 15 to 30 minutes.  Mr Xie explained that the meeting was arranged for two reasons: first, because his wife wanted to meet with Mr Yu as she had not seen him for two or three months; and secondly, because Mr Yu had previously mentioned an investor who came from Mrs Xie’s home town who she might know.

83 At the time of their meeting Mr Xie recalls that he and Mr Yu had a conversation to the following effect (as recounted by Mr Xie through the interpreter):

Mr Xie:    Mr Yu long time no see.  Where have you been for the past few months?

Mr Yu:    I went back to China to look for investors.  AXL has borrowed the AFSL to assist with its fundraising for its project development.

Mr Xie recalls that Mr Yu showed him a screenshot of a bank transfer of a large sum exchanged from RMB into Australian dollars.

84 Mr Yu has no recollection of meeting with Mr and Mrs Xie at the Star Casino in early 2018 and disagrees that he had a conversation to the effect set out in the preceding paragraph.  Nor does Mr Yu recall ever having any conversation with Mr Xie about the arrangement between Moshav and AXL in relation to Moshav’s AFSL.

85 Despite the fact that Mr Yu cannot recall it, I am satisfied that he did meet with Mr and Mrs Xie on the evening of 13 January 2018 at Star City Casino and that Messrs Yu and Xie had a conversation to the effect set out at [83] above.  That finding is reinforced by the exchange of the following WeChat messages between Mr Yu and Mrs Xie on 13 January 2018 between about 6.48 pm and 9.29 pm (as translated):

Mr Roths introduces the Hyperbuild Transaction to Mr Yu

86 According to Mr Yu, Mr Roths first told him about the Hyperbuild Transaction in early 2018. Mr Yu recalls that it was one of the products that Mr Roths asked him to market to Chinese investors.  On 20 April 2018 Mr Roths sent Mr Yu two emails, the first of which had a series of attachments, in relation to the Hyperbuild Transaction.

87 According to Mr Yu at some point he mentioned the Hyperbuild Transaction to Mr Silberman, although he cannot recall when he did so or what he said to Mr Silberman about it.  Mr Silberman denies ever having a discussion with Mr Yu, or indeed at all, in relation to the Hyperbuild Transaction.  The first he heard of the Hyperbuild Transaction was when he received a letter from Mr Xie’s solicitors.

May 2018 – Mr Yu introduces an investment opportunity to Mr Xie

88 At the end of April 2018 Mr Xie’s wife learned that Mr Yu’s new wife was coming to Australia for the first time and so extended an invitation to Mr and Mrs Yu to come to their home, at the time in Epping, New South Wales, on 1 May 2018.

89 Mr and Mrs Yu arrived at Mr and Mrs Xie’s house on 1 May 2018 at about 3 pm.  After greeting them at the door Mr and Mrs Xie took Mr and Mrs Yu into their backyard where they had tea.  Mr Xie recalls that his wife was sitting at one end and he and Mr and Mrs Yu were sitting on the other side with Mr Yu next to him.

90 Mr Xie recalls that he and Mr Yu had a conversation to the following effect (as recounted by Mr Xie through the interpreter):

Mr Yu:    Oliver plans to list his company.

Mr Xie:    Which company is that?

Mr Yu:    Hyperbuild wants to become a listed company through a backdoor listing.  Previously Hyperbuild and AXL borrowed an AFSL from Moshav to do development projects and now Oliver wants to purchase 50% of the shares of a listed company which has a financial services licence.  That way he can provide financial services using the listed company’s licence.

Mr Xie:    When would Hyperbuild become a listed company?

Mr Yu:    Oliver has already acquired over 30% of a listed company’s shares and Oliver will continue to acquire more shares from this company up to 51% before the shareholders’ meeting this week.  The whole listing plan will be finalised before September 2018 and Oliver said that if this plan goes successfully, the share price would increase tenfold.  According to my estimates even if it’s not as high as tenfold at least six to eight fold is guaranteed.

Mr Xie:    How much do I need to invest?

Mr Yu:    5% of the original shares of Hyperbuild amounts to $700,000 and you will be given as a gift 5% of the shares of the listed company.  When the shareholders’ meeting is held next week if the stock purchase is finalised and if the contracts are signed then there is no more chance for you to purchase so you have to act quickly if you want to make this investment.

Mr Xie:    How many shares has Hyperbuild issued so far?

Mr Yu:    Because Hyperbuild is not a listed company yet its shares are called units.  Currently it has issued 10,000 units and 500 units equals $700,000.

Mr Xie:    What is the name of the listed company?

Mr Yu:    This is confidential.  What I can tell you is the value of the company is not very big.  The market value is only $2 million but this company holds a financial services licence which is the most precious thing.

Mr Xie:    So how many shares has this listed company issued?

Mr Yu:    About 70 million.  You will be given as a gift 3 million stocks which is about 5%.

Mr Xie:    Have you invested yourself?

Mr Yu:    Yes.  I purchased 5% of the shares.  This is a very rare universe-opportunity.  Only internal could have a chance to invest.  Oliver asked me to keep this confidential, but because Oliver knows you that it’s ok to let you know about it.  But you have to make a decision quickly because time is tight.

Mr Xie:    What is the deadline for the investment?

Mr Yu:    Next Tuesday because the shareholders’ meeting is going to be held next week.

Mr Xie:    I see.  But I need to discuss this with my family.  Can you guarantee this listing plan will go successfully, 100%?

Mr Yu:    Yes.  Because the purchase price of the stocks has already been discussed what needs to be done next week is just signing the contract and then the money used to purchase the stocks will be transferred to the listed company.  After that Oliver will change the shareholders of the listed company to his people and he will sell the assets of Hyperbuild into the listed company to finalise the listing process.  But these are all formalities, if the listing plan fails Oliver will return all of your money invested.

Mr Xie:    Do you confirm that if this fails the money will be returned?

Mr Yu:    Yes. Oliver states so in his email and I will forward it to you later.

Mr Xie:    Okay.  Can you tell me the profit situation of Hyperbuild for the past few years?

Mr Yu:    Not including its subsidiaries, Hyperbuild for this financial year – the profits are $3 million.

Mr Xie:    Okay.  So can you send those documents you just mentioned to me for me to have a look at?

Mr Yu:    I will bring those to you in the next few days.  Do you know Oliver is working on something big?  Oliver has acquired a block of land, a very big block of land, in Sydney and he is going to raise $100 million for developments.  So it is trustworthy.  If this listing plan goes successfully then the stock will increase tenfold.

91 Mr Yu recalls that the conversation set out above occurred on 2 May 2018 at a meeting which took place at AXL’s Milsons Point offices (see [94] below).  Whether it occurred on 1 or 2 May 2018 is in my view of little consequence.  Both Messrs Xie and Yu agree that they had an initial conversation about the Hyperbuild Transaction on one of those days.  Insofar as Mr Xie’s version of the conversation recorded in the preceding paragraph is concerned, Mr Yu:

(1)    denies that:

(a)    he said “previously Hyperbuild and AXL borrowed an AFSL from Moshav to do development projects”;

(b)    he said “Oliver has already acquired over 30% of a listed company’s shares”.  Rather Mr Yu recalls that he said words to the following effect:

Next week, 4 May, the shareholders meeting will be held.  We’ve got to take 51% of the shares.  Then we will get control of the company”.

(c)    he said “according to my estimates even if it’s not as high as tenfold at least six to eight fold is guaranteed”;

(d)    he said “5% of the original shares of Hyperbuild amounts to $700,000”.  Mr Yu said that he referred to the Hyperbuild Trust, not Hyperbuild shares;

(e)    Mr Xie said “[h]ow many shares has Hyperbuild issued so far?” and that he responded “[b]ecause Hyperbuild is not a listed company yet its shares are called units”;

(f)    he said: “[w]hat I can tell you is the value of the company is not very big.  The market value is only $2 million” or that he described the financial services licence held by the company as “the most precious thing”;

(g)    Mr Xie said: “[s]o how many shares has this listed company issued?” and that he responded “[a]bout 70 million” or that 3 million shares was “about five per cent”;

(h)    he said “I purchased 5% of the shares”.  Mr Yu said that he used the word “invest” not “purchase” and accepted that at that time he had an agreement with Mr Roths about a 5% investment but that no moneys had yet passed to implement the investment;

(i)    he said “[t]his is a very rare opportunity.  Only internal staff have an opportunity to invest.  Oliver asked me to keep this confidential, it is because Oliver knows you that he told me about it.  But you have to make a decision quickly because time is tight”;

(j)    Mr Xie said “[c]an you guarantee this listing plan will go successfully, 100%?” and he replied “[y]es.  Because the purchase price of the stocks has already been discussed what needs to be done next week is just signing the contract and then the money used to purchase the stocks will be transferred to the listed company.  After that Oliver will change the shareholders of the listed company to his people”.  As to the last sentence, Mr Yu said that he recalls that he said that Mr Roths would change the chairman of the company to his person, not the shareholders;

(k)    he said “[b]ut these are all formalities, if the listing plan fails Oliver will return all of your money invested”.  Mr Yu recalls that he used the Chinese word “kai shi” which in English means “begin” or commence”.  He recalls telling Mr Xie that if the acquisition of PLC was not commenced then his $700,000 investment would be returned and, in that event, Mr Xie would have to return his 3 million shares.  However, Mr Yu also gave evidence in cross-examination that at the time of his meeting with Mr Xie, whether on 1 or 2 May 2024, Mr Roths must have already purchased shares in PLC because he was attending a shareholders’ meeting the following week and needed to hold 51% of the shares in PLC before attending that meeting.  That is Mr Yu agreed that by the time of his conversation with Mr Xie on 1 or 2 May 2018, Mr Roths had commenced purchasing shares in PLC.  In my view it follows that by that time the acquisition of PLC had commenced.  When this proposition was put to him in cross-examination, Mr Yu changed his evidence saying that “commenced” means 51% or control of the company.  According to Mr Yu, if Mr Roths could not get control of the company, by acquiring 51% of its shares, the acquisition had not commenced and the $700,000 investment would be returned.  Mr Yu’s evidence on this issue should be rejected.  I accept Mr Xie’s evidence that Mr Yu told him that “if the listing plan fails”, Mr Roths would return his money to him.  Indeed, Mr Yu made a similar representation to another investor, Ms Gu (see [98] below);

(l)    Mr Xie said “[w]ill you confirm that if this fails the money will be returned?” and that he responded “[y]es.  Oliver says so in his email”;

(m)    Mr Xie said “Okay.  Can you tell me the profit situation of Hyperbuild for the past few years?”;

(n)    he said “do you know Oliver is working on something big?  Oliver has acquired a block of land, a very big block of land, in Sydney and he is going to raise $100 million for developments.  So it is trustworthy” but says that he said something about “raising $100 million through the listing company in the future”; and

(2)    cannot recall saying:

(a)    “[w]hen the shareholders’ meeting is held next week if the stock purchase is finalised and if the contracts are signed then there is no more chance for you to purchase so you have to act quickly if you want to make this investment”; and

(b)    “[n]ext Tuesday because the shareholders’ meeting is going to be held next week”.

92 There were parts of the conversation with Mr Xie which took place on 1 or 2 May 2018 which in cross-examination, Mr Yu agreed that either he or Mr Xie said.  For ease I have underlined those parts in the extract at [90] above.

93 After having tea Mr and Mrs Xie and Mr and Mrs Yu dined at a Japanese restaurant.  There was no further discussion during the dinner about the investment opportunity.

94 Mr Xie next met with Mr Yu on Wednesday, 2 May 2018. Mr Yu organised the meeting via WeChat.  Mr Xie drove to AXL’s Milsons Point office to meet with Mr Yu at about midday.  He met Mr Yu downstairs and was taken up to a meeting room.  The purpose of the meeting was for Mr Xie to obtain documents about the investment opportunity he had discussed with Mr Yu the previous day.  The meeting lasted for about 30 minutes.

95 At the meeting Mr Yu provided two documents to Mr Xie.  One was an email from Mr Roths to Mr Yu sent on Friday, 20 April 2018 at 7.18 am with subject “ASX: … Confidential” (20 April 2018 Email) and the other was a letter dated 30 April 2018 on AXL letterhead from Mr Roths, group chief risk assessment officer, to Mr Yu in relation to “The Hyperbuild Unit Trust” (30 April 2018 AXL Letter).  In both documents parts of the text had been redacted.  Mr Xie’s evidence was that in each case the redacted portions were the parts that identified the company in which Hyperbuild anticipated acquiring a 50% share to achieve its backdoor listing.  Mr Yu provided the two documents to Mr Xie by way of further introduction to the investment.  Mr Xie recalls that Mr Yu also showed him a draft unit subscription document at the meeting.

96 About halfway through the meeting Mr Roths joined.  Mr Xie recalls that Mr Roths asked him if he had any further questions.  Mr Xie responded that he did not “because Raymond told [him] everything”.

Mr Yu’s dealings with another potential investor in the Hyperbuild Transaction

97 This was not the first backdoor listing in which Mr Yu was involved.  He had earlier been involved in a backdoor listing concerning BIR Financial Limited with Mr Silberman for which he sourced one investor, Ms Yinghua Gu, who invested $1 million.

98 Mr Yu also offered Ms Gu the opportunity to invest in the Hyperbuild Transaction.  Set out below are screenshots taken from Mr Yu’s WeChat account on 13 April 2018 (which have been translated into English) of text exchanges with Ms Gu which clearly relate to Mr Yu introducing the Hyperbuild Transaction to Ms Gu:

Mr Yu explained that he referred to Ms Gu as “Boss GU” because she is the director of a company.

Mr Xie considers investing in the Hyperbuild Transaction

99 On the evening of 2 May 2018 Mr Xie telephoned his father in China to discuss the investment opportunity.  He recalls that during the conversation he said words to the following effect to his father:

There is a rare investment opportunity.  The amount required is $700,000.  If the company is successfully listed the profit will be tenfold.  The backdoor listing approach will be successful 100%.  The boss has already said that if the listing doesn’t work, if it’s not successful, the investment amount will be returned 100%.

At the time Mr Xie did not have $700,000 but was able to borrow $530,000 from his parents for the purposes of making an investment.

100 On 3 May 2018 Messrs Yu and Xie exchanged the following WeChat messages (as translated):

Mr Xie:    (at 00:17am) Hi Boss Yu, are you asleep yet?

Mr Yu:    (at 8:22am) I was asleep last night.

Mr Xie:    (at 10:31am) Ohh.

Mr Xie:    (at 1:12pm) Boss Yu, if you and Oliver have made a decision, could you please send me a copy of the contract?

Mr Yu:    Yes the decision has been made, and he is preparing the contract.

Mr Xie:    (at 1:29pm) Ok (emoji).

Mr Xie:    (at 7:25pm) Has the contract been finalised?

Mr Yu:    Oliver is working overtime on it.

Mr Xie:    Oh god …

101 Mr Xie next spoke with Mr Yu by telephone on 4 May 2018.  According to Mr Xie they had a conversation to the following effect:

Mr Yu:    Good morning.  Have you made a decision about the investment?

Mr Xie:    I am very interested in this project.  The problem is that the total amount required is $700,000.  Well, I currently only have $530,000.

Mr Yu:    How about this?  You can find another investor or other investors who will jointly hold this 5% of shares with you.

Mr Xie:    It’s impossible for me to find another investor in such a short timeframe.

Mr Xie recalls that there was a short pause in the conversation after which it continued to the following effect:

Mr Yu:    I have $190,000 at hand currently and I can lend you $170,000 but you have to return this money to me in time because I have a property to settle in September.

Mr Xie:    Can I pay it back to you over a three month period?

Mr Yu:    Would that be June, July and August?

Mr Xie:    Yes.

Mr Yu:    Okay but you have to return the money to me on time because I need to settle my property.

Mr Xie:    That’s no problem.

And:

Mr Xie:    Since I’ve made a decision to invest can you disclose the listed company’s name to me?

Mr Yu:    The ASX code for this company is PLC.

Mr Xie:    Okay.  I will look it up online.

102 Mr Yu does not recall the conversation set out in the preceding paragraph.  However, he recalls that Mr Xie told him that he only had $530,00 available and was short $170,000.  Mr Yu says that he did not offer to loan Mr Xie the balance of $170,000.  Rather, Mr Xie asked whether Mr Yu could loan him $170,000 to make up the funds required for the investment.

103 On 4 May 2018 commencing at 1.29 pm Messrs Yu and Xie also exchanged WeChat messages.  As translated the exchange was as follows:

Mr Xie:    I have checked it.  The market cap for this company is indeed 2 million, with shares worth 75 million.

Mr Yu:    Yes.

Mr Yu:    It is not a remarkable company.

Mr Yu:    Just using it as a shell company.

Mr Xie:    Then we merge HB into it.

Mr Xie:    Yes, then 3 million shares would equal 4%.

104 Later on 4 May 2018 Mr Yu forwarded three emails with attachments to Mr Xie:

(1)    the first email was at 4.24 pm and attached an unredacted version of the 30 April 2018 AXL Letter that had been provided to Mr Xie at the 2 May 2018 meeting.  The 30 April 2018 AXL Letter was now addressed to Mr Xie and its date updated to 4 May 2018.  That letter provided:

We confirm that we have acquired Hyperbuild Pty Ltd on 1 July 2015 which structure has changed as of 1 July 2016 when the Hyperbuild Units Trust was formed and that we are the majority unit holder in the Hyperbuild Unit Trust since formation.

Hyperbuild Pty Ltd, now acting as trustee of the Hyperbuild Unit Trust, carries on the business know as “Hyperbuild” and effectively controls, through a majority shareholding, the subsidiaries of GLFB Pty Ltd trading as Harvest Homes, Harvest Homes Properties, Hyperbuild Holdings Pty Ltd and HOLZ DC.

It is proposed that all assets of the Hyperbuild Unit Trust will be sold to PLC Financial Services Limited in due course.

Yours faithfully

AXL FINANCIAL PTY LTD

(2)    Mr Yu sent the second email to Mr Xie at 4.26 pm.  It, in turn, forwarded an email from Mr Roths to Mr Yu dated 20 April 2018 with subject “Commercial in confidence – Hyperbuild Unit Trust”.  Mr Roths’ email provided (as written):

Raymond,

As requested please find attached consolidated summary for Hyperbuild and Harvest Homes for the current financial year.  We are unable to provide any financial information for Barrington Homes (as we do not own them yet) but we can say that the operation is comparable to our two operations in all aspects and numbers.

I have also attached the proposed unit holder agreement for the issue of units in the Hyperbuild Unit trust which effectively owns GLFB Pty Ltd trading as Harvest Homes, Harvest Homes Properties Pty Ltd, Holz DC Pty Ltd and Hyperbuild Pty Ltd. (The attached ASIC company searches confirm the shareholding of the various companies).

It is proposed that a new unit holder will effectively obtain 5% of unit trust.  In the event we proceed with ASX:PLC we will also a lot them 5% on issue in PLC.

If you have any further questions please do not hesitate to call.

With kind regards

Oliver Roths

(3)    the third email was also sent by Mr Yu at 4.26 pm.  That email forwarded the 20 April 2018 Email, the second of the two documents given by Mr Yu to Mr Xie at the 2 May 2018 meeting, in unredacted form.  It provided:

Raymond,

As discussed, following of us obtaining 51% of shares on issue in ASX:PLC on 7 May we anticipate that the board of directors will be changed.

As a shareholder it is my plan to sell into PLC the Hyperbuild operation (including Harvest Homes) together with the Barrington Homes operation at a combined value of $60 million based on a 10x earnings rational which is accepted by the market.

I anticipate this transition will take 3-6 months and should be completed by the end of 2018. I also anticipate that PLC will raise a further $100 million in a development funds which will be used for strategic land purchases south and north of Sydney which will be developed by either of our operations hence maximising profits for shareholders over the next 3-5 years.

With kind regards

Oliver Roths

105 Each of the emails sent by Mr Yu on 4 May 2018:

(1)    was sent by Mr Yu from his email address at Moshav, Raymond.Yu@moshavfinancial.com.au; and

(2)    included the following sign off by Mr Yu:

106 Mr Yu accepted that it was common for him to use his Moshav email address for non-Moshav business and that he did so throughout the course of his employment with Moshav.  He used his Moshav and AXL email addresses interchangeably, without thinking much about their respective use.  Mr Yu also accepted that at the time he sent the emails described at [104] above he had no authority from Moshav to use his Moshav email address other than for the business of Moshav.

107 Mr Silberman said that the use by Mr Yu of the Moshav logo and contact details was highly irregular.  Mr Silberman’s evidence, which I accept, is that investment in the Hyperbuild Transaction was not a product that Mr Yu was authorised to sell, that to do so was outside Mr Yu’s job description and it was a transaction or product with which Mr Yu should not have been dealing.

108 As set out at [104(2)] above, the second email provided by Mr Yu to Mr Xie attached, among other things, a consolidated financial summary for Hyperbuild and GLFB Pty Ltd trading as Harvest Homes for the period July 2017 to March 2018 (consolidated financial summary).  Mr Xie was cross examined about the consolidated financial summary:

(1)    in relation to Hyperbuild, it disclosed that its profit to date was $1,277,833.  This was contrary to Mr Xie’s evidence that Mr Yu had told him that Hyperbuild had made a profit of $3 million.  Despite this, Mr Xie did not raise the difference between the profit figure as disclosed by Mr Yu and that included in the consolidated financial summary with Mr Yu or raise any query with Mr Yu about that matter; and

(2)    in relation to Harvest Homes, it showed that its shareholders were Hyperbuild Holdings Pty Ltd as to 51% and Steve Taylor and Dean Turner as to 49%.  Mr Xie said that he did not pay attention to this information and, while he read the consolidated financial summary carefully, he may have missed some information that did not seem important to him at the time.  He was focussed on the valuation figures, the progress of projects and total values.

Mr Xie decides to invest in the Hyperbuild Trust

109 On 4 May 2018, after his telephone conversation with Mr Yu, and with the knowledge that Mr Yu would loan him $170,000 required to make up the total $700,000 investment, Mr Xie decided that he would invest in the Hyperbuild Transaction. He decided to do so for the following reasons:

(1)    the project involved AXL which was a representative of Moshav.  For that reason, Mr Xie assumed that the project “would be legal” and “protected by law”;

(2)    Mr Yu told him that this was a “rare and precious opportunity” which was only going to be provided to internal staff members;

(3)    Mr Yu invested himself;

(4)    Mr Yu had often spoken to him about how he successfully sourced investors to make investments into AXL and Moshav projects.  Mr Xie was aware that since 2017 Mr Yu had undertaken many successful cases, so he trusted his expertise and advice; and

(5)    most importantly Mr Yu told him that the project would be 100% successful and, if it was not, his investment would be returned.  Mr Xie trusted Mr Yu and had reason to believe that his investment would be safe.

110 Mr Xie was cross-examined about his conversation with Mr Yu on 1 or 2 May 2018 (see [90] above) and his decision to invest in the Hyperbuild Transaction.  He had the following exchange with counsel for Moshav:

Ms Castle:    Did you ask for a contract setting out your rights and any promises that you thought had been made to you?

Mr Xie (through interpreter):    On 1 May, I requested from him some relevant documents, including the unit subscription agreement to buy original shares from Hyperbuild.  But Yu told me the reasons for his confidentiality, and he only showed me two emails from Oliver, and also a draft agreement without Hyperbuild or my personal information.

Ms Castle:    And did you read the agreement when a copy was given to you?

Mr Xie (through interpreter):    I did, but because it’s not my expertise, so I couldn’t fully understand its clauses.

Ms Castle:    And did you ask Mr Yu or a solicitor or anyone else to explain it to you?

Mr Xie (through interpreter):    Firstly, I very much trusted Yu. Secondly, it was the end of the week, and by next Monday/Tuesday, I need to get the money ready, because after the shareholders meeting I had no chance to make the investment any more. So I didn’t have sufficient time during that one two-day period to find a lawyer to read this to me.

Ms Castle:    Is – was the amount of 700,000 a significant amount to you?

Mr Xie (through interpreter):    Of course. I don’t have that available to me. I borrowed it from my parents.

Ms Castle:    And so you would take care to ensure that you were comfortable with what – with the investment that was being offered, wouldn’t you?

Mr Xie (through interpreter):    Yes, because I triple confirmed with him that this project will be successful. If not, the investment amount will be returned to me 100 per cent. Also, Yu talked to me before, often about the successful stories of his investments. Also, he introduced Anderson to me and through that I got my 457 visa. Plus, his successful investment stories. I trusted him a lot.

Ms Castle:    And after hearing successful investment stories, you wanted to get in on a good investment, didn’t you?

Mr Xie (through interpreter):    Yes. But this is the first investment in my life. Also, this money was borrowed from my parents. If he didn’t tell me this investment is guaranteed to be 100 per cent successful, if not, it will be returned to me in full, I would have rejected the opportunity.

Ms Castle:    And I put it to you that he didn’t say that it would be 100 per cent successful and he didn’t say that if unsuccessful it would be returned to you.

Mr Xie (through interpreter):    I’m positive he said those things to me, because I triple confirmed with him. Because this was my first – very first investment and I would like to ensure the risks involved were not very high.

Ms Castle:    And anyone who was trying to ensure the risks weren’t high would have done more due diligence; don’t you agree?

Mr Xie (through interpreter):    Because Yu told me before next week I need to get the money ready and I need to borrow money in a very short period of time. I had very little time and too much trust in him.

Mr Yu and Mr Xie enter into a loan agreement

111 At some time after 4 May 2018 and before 8 May 2018, probably on 7 May 2018, Mr Xie met with Mr Yu in a café downstairs from AXL’s office in Market Street, Sydney.  Mr Xie recalls that during that meeting he had a conversation with Mr Yu to the following effect:

Mr Xie:    Raymond I have already decided to make the investment like we discussed on the phone.  Can you lend me $170,000?

Mr Yu:    Okay.  I will draft a loan agreement in between friends.

Mr Yu opened his mobile banking app to show Mr Xie his bank balance and informed Mr Xie that he would bring the agreement to his house for signature.

112 On 8 May 2018 Mr Yu came to Mr Xie’s house.  Mr Yu telephoned Mr Xie upon his arrival and asked him to come out to his car, where they met.  Once Mr Xie was in the car Mr Yu took out a loan agreement which already included Mr Yu’s signature, address and, as described by Mr Xie, “some of his basic information” (Yu Loan Agreement).  Mr Xie recalls that at the time Mr Yu said to him: “this is a standard version of a loan agreement”.  Pursuant to the terms of the Yu Loan Agreement, Mr Yu agreed to loan $170,000 to Mr Xie repayable in three instalments.

113 Mr Yu asked Mr Xie to provide a copy of his passport photo page and for him to sign each page of the Yu Loan Agreement.  As Mr Yu had informed Mr Xie that it was a standard template, Mr Xie looked at it briefly, signed it and provided Mr Yu with a copy of his passport photo page.  In doing so, when Mr Xie saw the payment schedule he discussed with Mr Yu whether he could change the order of payment so that the largest payment would be the final, rather than the first, payment.  Mr Yu agreed to that change and it was made in handwriting.

Mr Xie makes his investment in the Hyperbuild Trust

114 Mr Yu next arranged to meet with Mr Xie at 9 am on 9 May 2018 in Double Bay.  They met in the public carpark next to Moshav’s Double Bay office.  Mr Yu had a unit subscription agreement with him.  Mr Xie recalls that Mr Yu informed him that this was “the investment agreement”, asked Mr Xie to sign it and told him that he could only return it after it was signed by other shareholders.  Mr Yu says that he described the document as a “unit subscription agreement” not an “investment agreement”.  Mr Xie signed the agreement.

115 At approximately 10 am, Mr Xie accompanied Mr Yu to the ANZ bank in Double Bay where Mr Xie and Mr Yu transferred $530,000 and $170,000 respectively to Hyperbuild’s solicitors’, Piper Alderman, trust account held with the ANZ, the details for which Mr Yu provided to Mr Xie.

116 On 14 May 2018 Mr Yu sent Mr Xie photos of two share transfer forms which respectively referred to the transfer of 1 million and 2 million shares in PLC to Mr Xie.

117 On or about 17 May 2018 $150,000 was transferred into the trust account of Nicholas James lawyers, the solicitors for PLC.  The narrative in the trust account statement records that those moneys were received from “Xie”.

118 On 15 June 2018 PLC issued 50 million fully paid ordinary shares in PLC, thereby diluting the percentage of shares acquired by Mr Roths or entities associated with him in PLC as at that date.  Neither Mr Yu nor Mr Roths told Mr Xie that this had occurred.

Mr Xie repays the loan from Mr Yu

119 On 29 June 2018, 23 July 2018 and 15 August 2018 Mr Xie transferred funds from his account held with Westpac Banking Corporation Limited in the sums of $50,000, $50,000 and $70,000 respectively in repayment of the loan from Mr Yu to Mr Xie in accordance with the terms of the Yu Loan Agreement.  Mr Xie borrowed the funds to make those repayments from his parents.

The Hyperbuild Trust

120 On or about 13 July 2018 Mr Yu provided Mr Xie with a letter dated 13 July 2018 from AXL which enclosed an original unit trust certificate for 500 units, a circular resolution by the directors of the trustee company, Hyperbuild, and a unit subscription agreement.  The letter included:

Advanced Share Registry, on behalf of the issuer, will be issuing 3,000,000 shares in ASX:PLC in the name of Xinwen Xie.  The shareholding certificate will be mailed to you directly by the Registry when available.

121 The enclosed unit certificate provided that Mr Xie was the registered holder of 500 units in the Hyperbuild Trust which are subject to the terms and conditions in the unit trust deed dated 1 July 2016 and to the terms and conditions, if any, annexed to the unit certificate.  The enclosed circular resolution of the directors of the trustee included the following resolution:

2.    It is resolved that, subject to approval from the existing unit holders of the Trust by special resolution]:

(a)    the Trustee be authorised to allot and issue to each Subscriber 500 New Units at an issue price of $1,400 per New Unit on the terms that each New Unit ranks equally with existing units of the Trust on issue; and

(b)    any two directors or director and secretary of the Trustee be authorised to execute under section 127(1) of the Corporations Act and despatch to each Subscriber a new unit certificate for its proportion of the New Units.

122 From about June 2018 to November 2019 Mr Xie had monthly contact with Mr Yu, by telephone or through WeChat, usually at the end of each month.  Mr Xie would ask Mr Yu how the listing of Hyperbuild was going and Mr Yu’s usual response was that: “Oliver was working on it”; and “so far everything is going smoothly”.  During that period Mr Yu did not raise any concerns about the Hyperbuild Transaction.

123 In the meantime, on 3 August 2018, and unbeknownst to Messrs Xie or Yu, proceeding no VID 929 of 2018 (Recovery Proceeding) was commenced in this Court by nine applicants, including Messrs Xie and Yu, all of whom it seems were investors in the Hyperbuild Transaction (together Investor applicants) against Nikola Terziovski and Nicholas James Lawyers Pty Limited as first and second respondents seeking recovery of $860,000 that had been paid to existing PLC shareholders.  Additional parties were added to the proceeding as respondents so that ultimately there were nine respondents (together PLC respondents).

124 Again, unbeknownst to Mr Xie, proceeding no VID 1146 of 2018 was commenced in this Court in 2018 by the PLC respondents as applicants (PLC Proceeding).  The Investor applicants, including Mr Xie, were named as respondents in the PLC Proceeding.

125 Mr Xie never gave Mr Roths, Mr Yu or anyone else instructions to be included as a party to any litigation.

126 In November 2019 Mr Xie had a conversation with Mr Yu, either by telephone or via WeChat, which he recalls was to the following effect:

Mr Xie:    How is the listing progressing?

Mr Yu:    Oliver sued the shareholders of PLC because PLC wilfully issued more stocks.  So as a result Oliver cannot be the main shareholder of PLC.

Mr Xie:    So will Oliver win the case?

Mr Yu:    I don’t think that’s going to be an issue.  If Oliver wins this court case, the shares that have been issued will be cancelled.  After that Hyperbuild will still be listed successfully.

127 On 27 November 2019 orders were made in the Recovery Proceeding and in the PLC Proceeding.  Relevantly, the Recovery Proceeding was dismissed and in the PLC Proceeding, orders were made for summary judgment in favour of the PLC respondents.  In that regard there was judgment in favour of the sixth applicant, Pickle Pants Pty Limited, and the seventh applicant, H2H Holdings Pty Limited, against Mr Xie as seventh respondent for $50,000 and $100,0000 respectively in that proceeding.

128 On 9 December 2019 Mr Xie received an email from Mr Yu, sent from his AXL email address at Raymond.yu@axlfinancial.com.au, forwarding, among other things, an email from Mr Roths dated 8 December 2019 with subject “Letter to Unit holders” (9 December Email). The attached letter dated 6 December 2019 was addressed to the unit holders of the Hyperbuild Trust.  It included:

We are writing to you with regard to the investment which we have facilitated on your behalf with Hyperbuild Pty Ltd (acting as Trustee of the Hyperbuild Unit Trust) (the "Trust") and the Hyperbuild Group of Companies including Holz DC Pty Ltd and Harvest Homes (HYP). In particular we would like to refer to the proposed acquisition of PLC Financial Solutions Limited (PLC) and the litigation we have been advancing on your behalf with a number PLC Shareholders (the "PLC Litigation").

The purpose of this letter is to highlight a number of significant events which have occurred with respect to the affairs of the Trust and in particular the PLC Litigation. A small number of individuals (which includes Hyperbuild staff and unitholders) seemingly have embarked upon a destructive pathway which has the potential to significantly impact success prospects for the Trust and your investment. Given the interferences of 'our own’ people as outlined in this letter and given that adverse court orders have been made against 'our side' of the transaction there are some important questions each unitholder needs to consider:

Question 1:  What actions should I take in the PLC Litigation?

…

Question 2: Prospects for the Trust if the PLC Litigation is not determined in favour of 'our' unitholders, if no action is taken from here and/or if we do not have your support?

AXFL is of the opinion that if the PLC Litigation is not successfully resolved the Trust has no prospects of recovery or success going forward. Your investment would consequently be lost with the Trust wound up.

…

129 The 9 December Email also attached: a letter dated 21 June 2018 from Piper Alderman to Nick Terziovski of Nicholas James Lawyers and Harry Fung of PLC in which those solicitors nominated their clients who included Mr Xie and Mr Yu; and Orders made on 27 November 2019 in the PLC Proceeding in which Mr Xie was named as the seventh respondent.

130 Mr Xie read the 9 December Email and its attachments upon receipt.  He said that:

(1)    upon reading the attached letter from AXL, in particular question 2 and the response to it, he understood that PLC had sued Hyperbuild and as a consequence it was very likely that the listing of Hyperbuild would fail; and

(2)    he does not recall ever giving anyone, including Mr Roths, Mr Yu or any lawyer, any instructions to be included as a party to the PLC Proceeding.

131 After receiving the 9 December Email Mr Xie contacted Mr Yu to ask him about its attachments.  Mr Xie recalls that Mr Yu informed him that he could not help him and told him to speak with Mr Roths.  By this time it was clear that the Recovery Proceeding had failed and the back door listing that was an integral part of the Hyperbuild Transaction would not succeed.

132 Mr Xie arranged to meet with Mr Roths.  That meeting took place in about February 2020 at AXL’s Milsons Point office and lasted for approximately 20-30 minutes.  Only he and Mr Roths attended.  Mr Xie recalls that he said the following things to Mr Roths during the meeting:

Can you tell me what exactly is going on?

You told me I will be given a gift of 3 million shares and now I have discovered that without my knowledge you spent $150,000 to purchase these shares and I am a defendant in this case.

As the boss of AXL and Hyperbuild you control the listing plan so you are the one who is going to deal with the court case, not me.

At the very beginning I trusted what you and Raymond said.  You told me if the listing plan fails my investment will be returned.

I don’t have access to sufficient fund to hire a lawyer and I have a property that is going to be settled soon but the bank loan I can obtain is less than expected so I need money now can you return the investment amount to me?

133 Following his meeting with Mr Roths, Mr Xie understood that if Mr Roths did not hire a lawyer to defend the PLC Proceeding Hyperbuild would become bankrupt, and he would lose his investment.

134 In early 2021 Mr Xie approached WB Legal to act for him.  It took him over a year following his meeting with Mr Roths to take any steps because of the impact of the COVID-19 pandemic and the 2020 lockdowns.

135 Despite the failure of the planned backdoor listing of Hyperbuild Mr Xie has not seen the return of his $700,000 investment.  Had Mr Yu not told him that the Hyperbuild listing was certain to be 100% successful and, if it was not successful, his total investment would be refunded, Mr Xie would not have made the investment.

Termination of Mr Yu’s employment with Moshav

136 On 15 October 2020 Mr Silberman sent an email to Mr Yu, copied to Mr Roths which relevantly provided:

Three very important things.

1.    You can’t use Moshav emails for any correspondence outside of Moshav business

2.    You cannot represent AXL or any other financial services business, you are an employ of Moshav and as a holder of an AFSL anything you do in financial services can affect our licence.

3.    Emails you have sent from AXL refer to AXL as being an authorised rep of Moshav.  This is not the case please ensure that in any email or other correspondence you do not refer to AXL as an authorised rep of Moshav

Please acknowledge this email at your earliest.

Mr Yu responded providing the requested acknowledgment.

137 Mr Yu’s employment with Moshav was terminated on 19 October 2020.  Moshav’s letter to Mr Yu of that date provided:

I am writing to you about the termination of your employment with Moshav Financial Wholesale Pty Limited.  I refer to our discussion of today’s date where we discussed the non-authorised sales of products for other companies.

We discussed how this has lead to the termination of employment without notice by your deliberate behaviour that is inconsistent with the continuation of your contract of employment.

Your conduct has caused a serious and imminent risk to the reputation viability and profitability of Moshav Financial Wholesale Pty Limited and in the circumstances your continued employment during a notice period would be unreasonable.

We consider that your action constitute serious misconduct warranting summary dismissal.

138 Mr Silberman explained that a number of things led to the termination of Mr Yu’s employment with Moshav, including events related to this proceeding.  Mr Silberman was concerned that Mr Yu was involved in activities not related to Moshav.

139 Mr Yu never told Mr Silberman about the Hyperbuild Transaction.  Mr Silberman first learnt about it upon receipt of a letter of demand from WB Legal, the solicitors for Mr Xie, in connection with the claims made in this proceeding.  Had Mr Yu informed Mr Silberman that he was approaching potential investors for the purposes of entering into the Hyperbuild Transaction, Mr Silberman would have disciplined Mr Yu and explained to him that was not part of his role and that he could not undertake that activity.

Hyperbuild and AXL enter external administration

140 As set out above, on 4 July 2019 Hyperbuild went into external administration, on 1 September 2021 it went into liquidation and on 11 August 2023 it was de-registered.

141 On 22 September 2021, after a period of external administration, the creditors of AXL resolved that it be wound up.  In their first report to creditors dated 21 December 2021, the liquidators expressed the view that AXL had likely been insolvent as at 30 June 2017 and remained insolvent at all times up to the date of the liquidators’ appointment as administrators on 18 August 2021.  The Liquidators also reported that AXL ceased to trade on or around 30 June 2019.

Valuation of shares in PLC (now known as Irich Financial Solutions Limited)

142 As set out above, Mr Watt prepared a report in which he calculated the fair market valuation of 3 million shares in the business and assets of PLC as at 19 February 2024.  He notes that the valuation he has carried out does not represent his concluded opinion on the value of the business and assets of PLC because he has not been provided with all of the material that he considers necessary and appropriate to form a concluded opinion.

143 Mr Watt selected an asset-based approach as the preferred method of valuation for the purposes of his report and concluded that the valuation of the business and assets of PLC and 3 million ordinary shares in PLC was $nil.

STATUTORY FRAMEWORK AND SOME LEGAL PRINCIPLES

144 As set out above, Mr Xie brings his claims in the alternative under the Corporations Act, the ASIC Act and the ACL.  I set out below the relevant provisions and related legal principles.

Corporations Act

145 Chapter 7 of the Corporations Act concerns financial services and markets.

146 Part 7.10 of Ch 7 is titled “Market misconduct and other prohibited conduct relating to financial products and financial services”.  Division 2 of Pt 7.10 concerns various prohibited conduct, other than insider trading, in relation to financial products and financial services including the conduct prohibited by s 1041E and s 1041H.

147 Section 1041E of the Corporations Act prohibits the making of false or misleading statements and relevantly provides:

(1)    A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if:

(a)    the statement or information is false in a material particular or is materially misleading; and

(b)    the statement or information is likely:

(i)    to induce persons in this jurisdiction to apply for financial products; or

(ii)    to induce persons in this jurisdiction to dispose of or acquire financial products; or

(iii)    to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and

(c)    when the person makes the statement, or disseminates the information:

(i)    the person does not care whether the statement or information is true or false; or

(ii)    the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.

(Notes omitted.)

148 Section 1041H of the Corporations Act prohibits a person in this jurisdiction from engaging in conduct in relation to a financial product or a financial service, that is misleading or deceptive or is likely to mislead or deceive.  Section 1041H(2)(a) provides that the reference in s 1041H(1) to engaging in conduct in relation to a financial product incudes relevantly “dealing in a financial product”.

149 For the purposes of Ch 7 of the Corporations Act the term “dealing” is defined in s 766C as follows:

(1)    The following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

…

(b)    issuing a financial product;

…

150 Section 769C of the Corporations Act concerns representations about future matters and relevantly provides:

For the purposes of this Chapter, or of a proceeding under this Chapter, if:

(a)    a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken to be misleading.

151 Section 1041I of the Corporations Act provides:

(1)    A person who suffers loss or damage by conduct of another person that was engaged in in contravention of section 1041E, 1041F, 1041G or 1041H may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention.

(1A)    Subsection (1) has effect subject to section 1044B.

(1B)    Despite subsection (1), if:

(a)    a person (the claimant) makes a claim under subsection (1) in relation to:

(i)    economic loss; or

(ii)    damage to property;

caused by conduct of another person (the defendant) that was done in contravention of section 1041H; and

(b)    the claimant suffered the loss or damage:

(i)    as a result partly of the claimant’s failure to take reasonable care; and

(ii)    as a result partly of the conduct referred to in paragraph (a); and

(c)    the defendant:

(i)    did not intend to cause the loss or damage; and

(ii)    did not fraudulently cause the loss or damage;

the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.

(Notes omitted.)

152 Division 2A of Pt 7.10 of Ch 7 concerns proportionate liability for misleading and deceptive conduct.  Section 1041L sets out when Div 2A applies and provides:

(1)    This Division applies to a claim (an apportionable claim) if the claim is a claim for damages made under section 1041I for:

(a)    economic loss; or

(b)    damage to property;

caused by conduct that was done in a contravention of section 1041H.

(2)    For the purposes of this Division, there is a single apportionable claim in proceedings in respect of the same loss or damage even if the claim for the loss or damage is based on more than one cause of action (whether or not of the same or a different kind).

(3)    In this Division, a concurrent wrongdoer, in relation to a claim, is a person who is one of 2 or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim.

(4)    For the purposes of this Division, apportionable claims are limited to those claims specified in subsection (1).

(5)    For the purposes of this Division, it does not matter that a concurrent wrongdoer is insolvent, is being wound up or has ceased to exist or died.

153 Section 1041N sets out the way liability is to be apportioned by the Court in a proceeding involving an apportionable claim.

154 Insofar as Mr Xie’s claim against Moshav is concerned, he relies on provisions found in Div 7 of Pt 7.1 of the Corporations Act, titled “preliminary”, and Div 6 of Pt 7.6 of Ch 7 of the Corporations Act which concerns liability of financial services licensees for representatives.

155 Division 7 of Pt 7.1 includes s 769B which relevantly provides:

(1)    Subject to subsections (7) and (8), conduct engaged in on behalf of a body corporate:

(a)    by a director, employee or agent of the body, within the scope of the person's actual or apparent authority; or

(b)    by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of a provision of this Chapter, or a proceeding under this Chapter, to have been engaged in also by the body corporate.

(2)    Conduct engaged in by a person (for example, the giving of money or property) in relation to:

(a)    a director, employee or agent of a body corporate, acting within the scope of their actual or apparent authority; or

(b)    any other person acting at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of a body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of a provision of this Chapter, or a proceeding under this Chapter, to have been engaged in also in relation to the body corporate.

156 Division 6 of Pt 7.6 includes ss 917A-917F.  Section 917A(1) provides that Div 6 applies to any conduct of a representative of a financial services licensee that relates to the provision of a financial service on which a third person, the client, could reasonably be expected to rely and on which the client in fact relied in good faith.  Section 917A(2) relevantly provides:

In this Division, a reference to a representative's conduct being within authority in relation to a particular financial services licensee is, subject to subsection (3), a reference to:

(a)    if the representative is an employee of the licensee or of a related body corporate of the licensee--conduct being within the scope of the employee's employment; or

…

157 Section 917B provides that if the representative is the representative of only one financial services licensee, the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within authority.

158 Section 917E provides that the responsibility of a financial services licensee under Div 6 extends to make the licensee liable to the client in respect of any loss or damage suffered by the client as a result of the representative’s conduct.

159 Section 917F relevantly provides:

(1)    If a financial services licensee is responsible for the conduct of their representative under this Division, the client has the same remedies against the licensee that the client has against the representative.

(2)    The licensee and the representative (along with any other licensees who are also responsible) are all jointly and severally liable to the client in respect of those remedies.

ASIC Act

160 Part 2 of the ASIC Act concerns consumer protection in financial services.  Division 2 of Pt 2 concerns unconscionable conduct and consumer protection in relation to financial services.

161 Mr Xie relies on s 12BB in Subdiv B of Div 2 of Pt 2 of the ASIC Act and ss 12DA, 12DB(1)(a) and 12DF, each of which is in Subdiv D of Div 2 of Pt 2 of that Act.

162 Section 12DA is in analogous terms to s 1041H of the Corporations Act and provides, among other things, 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.

163 Section 12DB(1)(a) of the ASIC Act provides that a person must not, in trade or commerce, in connection with the supply or possible supply of financial services or in connection with the promotion by any means of the supply or use of financial services make a false or misleading representation that services are of a particular standard quality, value or grade.

164 Section 12DF(1) provides that a person must not engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for their purpose or quantity of any financial service.

165 Section 12BAB sets out the meaning of “financial service” and relevantly provides that “[f]or the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they deal in a financial product”: s 12BAB(1)(b).  The term “dealing” is also defined in s 12BAB(7) and relevantly provides that for the purpose of s 12BAB issuing a financial product constitutes dealing in a financial product.

166 Section 12BAA of the ASIC Act includes the following related definitions:

General definition of financial product

(1)    Subject to subsection (8), for the purposes of this Division, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:

(a)    makes a financial investment (see subsection (4));

(b)    manages financial risk (see subsection (5));

…

Meaning of makes a financial investment

(4)    For the purposes of this section, a person (the investor) makes a financial investment if:

(a)    the investor gives money or money’s worth (the contribution) to another person and any of the following apply:

(i)    the other person uses the contribution to generate a financial return, or other benefit, for the investor;

(ii)    the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);

(iii)    the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor; and

(b)    the investor has no day‑to‑day control over the use of the contribution to generate the return or benefit.

Meaning of manages a financial risk

(5)    For the purposes of this section, a person manages financial risk if they:

(a)    manage the financial consequences to them of particular circumstances happening; or

(b)    avoid or limit the financial consequences of fluctuations in, or in the value of, receipts or costs (including prices and interest rates).

…

(Notes omitted.)

167 In Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932; 140 ACSR 561 O’Bryan J observed (at [91]) that s 1041H and s 12DA(1) prohibit conduct that is misleading or deceptive or likely to mislead or deceive.  His Honour also observed (at [93]) that s 12DB(1) is framed in different terms.  That is, s 12DA(1) (and s 1041H) prohibit conduct that is misleading or deceptive or likely to mislead or deceive  while s 12DB(1)(a) prohibits the making of a false or misleading representation.  At [94] O’Bryan J said:

… Conduct that contravenes ss 1041H and 12DA may involve, but need not involve, the making of a false or misleading representation: Campbell at [102] per Gummow, Hayne, Heydon and Kiefel JJ, referring with approval to Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [103] per McHugh J. …

168 As was the case in Dover Financial, in this case Mr Xie alleges that Mr Yu made false, misleading or deceptive representations or representations that were likely to mislead or deceive.  In Dover Financial O’Bryan J said at [95]:

Although ss 1041H and 12DA(1) take a different form to 12DB(1)(i), the prohibitions are similar in nature. Whilst s 12DB(1)(i) uses the phrase “false or misleading” rather than “misleading or deceptive”, it has been said that there is no material difference in the two expressions: see ACCC v Dukemaster Pty Ltd [2009] FCA 682 at [14] per Gordon J; ACCC v Coles Supermarkets Australia Pty Ltd [2014]FCA 634; (2014) 317 ALR 73 at [40] per Allsop CJ; Comité Interprofessionnel du Vin de Champagne v Powell (2015) 330 ALR 67 at [170] per Beach J.

See too Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306; 147 ACSR 266 at [47] (Yates J).

169 In Dover Financial, his Honour summarised the applicable principles at [98]:

The applicable principles concerning the statutory prohibition of misleading or deceptive conduct (and closely related prohibitions) in the Australian Consumer Law, the Corporations Act and the ASIC Act are well known. The central question is whether the impugned conduct, viewed as a whole, has a sufficient tendency to lead a person exposed to the conduct into error (that is, to form an erroneous assumption or conclusion about some fact or matter): Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 (Puxu) at 198 per Gibbs CJ; Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 (Taco Bell) at 200; Campomar at [98]; ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640 (TPG Internet) at [39] per French CJ, Crennan, Bell and Keane JJ; Campbell at [25] per French CJ. A number of subsidiary principles, directed to the central question, have been developed:

(a)    First, conduct is likely to mislead or deceive if there is a real or not remote chance or possibility of it doing so: see Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 (Global Sportsman) at 87; Noone (Director of Consumer Affairs Victoria) v Operation Smile (Australia) Inc (2012) 38 VR 569 at [60] per Nettle JA (Warren CJ and Cavanough AJA agreeing at [33]).

(b)    Second, it is not necessary to prove an intention to mislead or deceive: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228 per Stephen J (with whom Barwick CJ and Jacobs J agreed) and at 234 per Murphy J; Puxu at 197 per Gibbs CJ.

(c)    Third, it is unnecessary to prove that the conduct in question actually deceived or misled anyone: Puxu at 198 per Gibbs CJ. Evidence that a person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential. Such evidence does not itself establish that conduct is misleading or deceptive within the meaning of the statute. The question whether conduct is misleading or deceptive is objective and the Court must determine the question for itself: see Taco Bell at 202 per Deane and Fitzgerald JJ.

(d)    Fourth, it is not sufficient if the conduct merely causes confusion: Puxu at 198 per Gibbs CJ and 209-210 per Mason J; Taco Bell at 202 per Deane and Fitzgerald JJ; Campomar at [106].

170 Justice O’Bryan observed that in assessing whether conduct is likely to mislead or deceive, courts had distinguished between conduct directed to the public generally and conduct directed to an identified individual.  In relation to the latter his Honour said that “the Court is able to assess whether the conduct is likely to mislead or deceive in light of the objective circumstances, including the known characteristics of the individual concerned”.  His Honour also observed that in both cases, that is where the conduct is directed to the public generally and where the conduct is directed to an individual, “the relevant question is objective: whether the conduct has a sufficient tendency to induce error.  Even in the case of an express representation to an identified individual, it is not necessary (for the purposes of establishing liability) to show that the individual was in fact misled”: Dover Financial at [99].

171 In Australian Securities and Investments Commission v Vanguard Investments Australia Ltd [2024] FCA 308 O’Bryan J, in considering s 12DB and s 12DF of the ASIC Act, observed (at [21]) that those sections “are part of a suite of legislative prohibitions of misleading conduct in trade or commerce which originated in the [ACL] …. and are now also contained in the ASIC Act and the Corporations Act”.  His Honour noted that the central conception of misleading conduct, which lies at the heart of each of the prohibitions, has been interpreted in a consistent manner across the various prohibitions with the applicable principles being most recently summarised in the context of s 18 and s 29 of the ACL in Self Care IP Holdings v Allergan Australia [2023] HCA 8; 97 ALJR 388 at [80]-[84].

172 Australian Securities and Investments Commission v Mercer Superannuation (Australia) Ltd [2024] FCA 850 concerned admitted breaches of s 12DB and s 12DF of the ASIC Act.  At [56] Horan J referred to Vanguard Investments at [21] before setting out a distillation of the principles applicable to the prohibitions in s 12DB and s 12DF having regard to the decision in Self Care and the facts before his Honour at [57]:

(a)    The first step is to identify with precision the contravening “conduct” – that is, the relevant representation that was made in relation to the standard, quality, value or grade of any financial services or as to the nature, characteristics, suitability for purpose or quantity of any financial services that is said to contravene ss 12DB(1)(a) or 12DF(1).

(b)    The second step is to consider whether the identified conduct or representation was engaged in or made in trade or commerce.

(c)    The third step is to consider what meaning was conveyed by the conduct or representation to its intended audience.

(d)    The fourth step is to determine, in the light of that meaning, whether the representation was false or misleading in the requisite sense for the purposes of s 12DB(1)(a) or whether the conduct was liable to mislead the public in the requisite sense for the purposes of s 12DF(1).

173 His Honour continued at [58]:

The third and fourth steps require an objective characterisation of the conduct or representation viewed as a whole and its notional effects, judged by reference to its immediate and broader context, on the state of mind of the relevant person or class of persons.  Where the conduct was directed to the public – as is expressly contemplated by s 12DF(1) – those steps “must be undertaken by reference to the effect or likely effect of the conduct on the ordinary and reasonable members of the relevant class of persons”, so as to avoid assessing the effect or likely effect by reference to the very ignorant or the very knowledgeable, or those credited with habitual caution or with exceptional carelessness, or by considering the assumptions of persons which are extreme or fanciful: Self Care at [82]-[83].

174 Section 12BB of the ASIC Act, like s 769C of the Corporations Act, concerns representations as to future matters.  It relevantly provides:

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

175 Section 12GH(2) of the ASIC act provides:

Any conduct engaged in on behalf of a body corporate:

(a)    by a director, employee or agent of the body corporate within the scope of the person's actual or apparent authority; or

(b)    by any other person at the direction or with the consent or agreement (whether express or implied) of a director, employee or agent of the body corporate, if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of this Division, to have been engaged in also by the body corporate.

176 Section 12GF(1) of the ASIC Act, like s 1041I(1) of the Corporations Act, provides that a person who suffers loss or damage by reason of the conduct of another person that contravenes, relevantly, ss 12DA, 12DB or 12DF, may recover the amount of the loss or damage against that other person or against any person involved in the contravention.

177 Section 12GR of the ASIC Act, which mirrors s 1041N of the Corporations Act, sets out the way liability is to be apportioned by the Court in a proceeding involving an apportionable claim.

ACL

178 Mr Xie also relies on the similar prohibition against misleading or deceptive conduct in the ACL.

179 Section 18 of the ACL prohibits a person, in trade or commerce, from engaging in conduct that is misleading or deceptive or is likely to mislead or deceive.  The applicable principles are set out in Self Care at [80]-[84].  It is not necessary to repeat them here.

180 Section 4 of the ACL concerns misleading representations as to future matters and relevantly provides:

(1)    If:

(a)    a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and

(b)    the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

(2)    For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:

(a)    a party to the proceeding; or

(b)    any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

(3)    To avoid doubt, subsection (2) does not:

(a)    have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or

(b)    have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.

181 In Lin v Zheng [2023] NSWCA 174 Payne JA (with whom Bell CJ and White JA agreed) summarised the principles relating to s 4 of the ACL at [34]-[36]:

34    Section 4 of the Competition and Consumer Act 2010 (Cth) sch 2 – Australian Consumer Law (ACL) derives from s 51A of the predecessor to the ACL, the Trade Practices Act 1974 (Cth). Section 4 applies where a representation is made and that representation is with respect to a “future matter”. As such, it places an evidential burden on the person who made the relevant representation to adduce evidence that there were reasonable grounds for making it. The term “future matter” is not defined in the ACL. Whether a statement related to a future matter depends upon the words used and the context in which they were used: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184 at [99]-[102]; Australian Competition and Consumer Commission v Woolworths Group Ltd (2020) 281 FCR 108; [2020] FCAFC 162. A representation will only be with respect to a future matter if it is in the nature of a promise, forecast, prediction or other like statement about something that will only transpire in the future.

35    A statement of what the representor believes a future position will be may be a representation with respect to a future matter even if it implies a representation as to the representor’s state of mind, depending on the words used and the context: Digi-Tech at [99]; Sykes v Reserve Bank of Australia (1998) 88 FCR 511; [1998] FCA 1405.

36    There will not be reasonable grounds for making a representation if, at the time of making it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation: Australian Competition and Consumer Commission v Dateline Imports Pty Ltd (2015) 161 FCR 513; [2015] FCAFC 114 at [100]. The fact that a representor may believe in a particular state of affairs does not necessarily mean that there are reasonable grounds for that belief: Cummings v Lewis (1993) 41 FCR 559; [1993] FCA 190. Reasonable grounds for making a representation about a person’s intention in relation to a future matter involve both an intention to perform the representation and an ability to perform it: Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200; see also HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [13], referring with approval to Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 at 238-239 and 240-241 per Ormiston J.

182 Section 236 of the ACL relevantly provides that a person, referred to as the claimant, who suffers loss or damage because of the conduct of another person in contravention of a provision in Ch 2 (which includes s 18), can recover the amount of the loss or damage by action against that other person.

CONSIDERATION

183 I turn to consider whether Mr Xie has established his pleaded case against Mr Yu and/or Moshav.  I will first consider liability and, if liability is established, damages.

The case against Mr Yu

184 In summary, Mr Xie alleges that Mr Yu: engaged in conduct that was either false in a material particular, materially misleading, misleading or deceptive or likely to mislead or deceive in contravention of s 1041E and/or s 1041H of the Corporations Act and/or s 12DA(1) of the ASIC Act and/or s 18 of the ACL; and/or that he made false or misleading representations in contravention of s 12DB(1)(a) of the ASIC Act: and/or that he engaged in conduct that was liable to mislead the public as to the nature and/or characteristics of the financial services provided in contravention of s 12DF of the ASIC Act.  Mr Xie only need establish one of these allegations to succeed against Mr Yu.

185 The relevant conduct in this case is the Representations.  As set out at [6] above, they are that:

(1)    Mr Roths planned for AXL, an authorised representative of Moshav, to acquire 51% of shares in PLC through Hyperbuild as trustee for the Hyperbuild Trust and that the board of PLC would then be changed so that AXL could control PLC through a backdoor listing by selling the Hyperbuild operations at a combined value of $60 million to PLC;

(2)    the transaction described above (which I have referred to as the Hyperbuild Transaction) would be complete by the end of 2018;

(3)    PLC would raise a further $100 million in a fund for property development;

(4)    once a new unit holder purchased 500 units in the Hyperbuild Trust (representing 5%) from Hyperbuild for a consideration of $700,000, they would be provided with a 5% shareholding in PLC which would lead to a forecast return of at least 6-8 times on their investment; and

(5)    the investment was safe, because of:

(a)    the financial position and management of the Hyperbuild Trust;

(b)    the Hyperbuild Transaction being sure to be “100% successful” as any outstanding matters were “formalities only”; and

(c)    guaranteed refund of investment if the Hyperbuild Transaction failed.

186 Save in one respect, I am satisfied, having regard to Mr Yu’s defence to the statement of claim first filed by Mr Xie and the evidence before me, that Mr Yu made each of the Representations in the period from 1 or 2 May 2018 to 4 May 2018 and in particular during the meeting on 1 or 2 May 2018 between Messrs Xie and Yu (see [90] above) and in the email correspondence sent by Mr Yu to Mr Xie on 4 May 2018 (see [104] above).  For example, and without wishing to repeat the facts set out above:

(1)    Mr Yu admits in his defence that he told Mr Xie that Mr Roths had planned that he or entities controlled by him would acquire 51% of the shares in PLC, the board of PLC would change on completion of the Hyperbuild Transaction, at that time Mr Roths would control PLC, Hyperbuild’s operations would be sold to PLC at a combined value of $60 million and the Hyperbuild Transaction could be commonly described as a “backdoor listing”;

(2)    Mr Yu accepts that during the conversation with Mr Xie on 1 or 2 May 2018 he said that “the whole listing plan would be complete before September 2018”, that is it would be complete by the end of 2018;

(3)    Mr Yu admits in his defence that he represented to Mr Xie that Mr Roths had planned, after completion of the Hyperbuild Transaction, to raise $100 million for the purchase of land and property development;

(4)    Mr Yu admits in his defence that he represented to Mr Xie that once Mr Xie purchased 5% of the units in the Hyperbuild Trust for $700,000 and if the Hyperbuild Transaction completed, Mr Xie would be allotted 3 million shares in PLC which at the time would be approximately 5% of all shares on issue in PLC;

(5)    the correspondence provided by Mr Yu to Mr Xie on 4 May 2018 contains some of the Representations including that:

(a)    a new unit holder will obtain 5% of the Hyperbuild Trust;

(b)    upon AXL obtaining 51% of the shares in PLC, the board of PLC will change, the Hyperbuild operation will be sold for $60 million to PLC;

(c)    the Hyperbuild Transaction should be complete by the end of 2018; and

(d)    PLC will raise a further $100 million for land purchases to be developed; and

(6)    as set out at [91(1)(k)] above, I am satisfied that Mr Yu told Mr Xie that any outstanding matters were formalities and that if the Hyperbuild Transaction failed, his investment would be returned.

187 Mr Xie has not established that the Representation that the investment was safe because of the financial position and management of the Hyperbuild Trust (see [6(1)(e)(i)] above) was made by Mr Yu.  Mr Yu denies that he made that representation and there is no evidence to support the making of a representation to that effect either at the meetings between Messrs Xie and Yu or in the correspondence provided by Mr Yu to Mr Xie.

188 Moshav submits that I would not accept Mr Xie’s recollection of the conversation that took place on 1 or 2 May 2018 and that the best evidence of the Representations are the contemporaneous documents, namely the emails provided by Mr Yu to Mr Xie.  Moshav relies on Watson v Foxman (1995) 49 NSWLR 315 where McLelland J stated at 318-319:

In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

189 The considered observations in Watson v Foxman about the fallibility of human memory are always present in cases of this kind where it is alleged that some of the Representations were made orally and are sought to be proved through evidence given some years later about the conversations that took place.  My observations about Mr Yu as a witness are set out at [18] above and the evidence in relation to the conversation between Messrs Xie and Yu together with my findings about that evidence are recorded at [186] and [187] above.  Those findings were made having regard to both the evidence given by each of Mr Xie and Mr Yu and other relevant evidence, including Mr Yu’s dealings with Ms Gu, another investor, about the same transaction and the contemporaneous documents provided to Mr Xie on 4 May 2018.  Further, a number of the Representations are admitted by Mr Yu in his defence.

190 Moshav also submits that as the Representations were directed at Mr Xie, an individual, whether they are misleading or deceptive is determined in the relevant circumstances including by reference to the known characteristics of the individual in question.  I accept that Mr Xie is educated.  He has a Bachelor of Science and a post graduate degree in accounting.  Mr Xie knew Mr Yu and first met him in 2016 when he rented a room from Mr Yu and his then partner. He continued to keep in touch with Mr Yu after he moved out of those premises.  I also accept that Mr Xie worked at AXL/Hyperbuild performing bookkeeping work and, according to his CV, preparing BAS statements, financial reports and tax statements.  I would infer that Mr Xie had some financial literacy.  But it does not follow that he was a sophisticated investor or that, as such, he understood the Representations as expressions of belief or opinion rather than statements of fact.

191 At the time that Mr Xie invested in the Hyperbuild Transaction he was 27 years old, relatively inexperienced and, my impression of him was that he was somewhat naive.  This was the first investment Mr Xie had made.  Indeed, he did not have the funds to make the investment but had to borrow most of the amount required, from his parents and the balance from Mr Yu.  Mr Xie clearly trusted Mr Yu.  He had, as counsel for Moshav pointed out, known him for some time and maintained contact with him, including while working out of Moshav’s premises for AXL/Hyperbuild.  It was that relationship that seemed to underpin Mr Xie’s trust of Mr Yu.

192 In the reasons that follow I will refer to the Representations which I have found were made as the Proved Representations.

193 I am satisfied that the Proved Representations were made in trade or commerce.  They were made by Mr Yu in his role assisting Mr Roths and AXL to market the Hyperbuild Transaction to potential investors.

194 The next question that arises is whether the Proved Representations concerned future matters.  I am satisfied that they did.  The statements made by Mr Yu both in his conversations and in the correspondence provided to Mr Xie concerned the Hyperbuild Transaction which was to be implemented in the future, the steps to be taken once the backdoor listing through the acquisition of shares in PLC was achieved and the return to be earned on the investment of $700,000 in the Hyperbuild Trust including that if the Hyperbuild Transaction (i.e. the backdoor listing) failed, Mr Xie’s investment would be refunded.  Having regard to the words used and the context in which they were used, that is in promoting the investment by Mr Xie in the Hyperbuild Trust, it is clear that the Proved Representations were in the nature of a promise, forecast or prediction about events that would occur in the future.

195 That being so, the Proved Representations are taken to be misleading unless there is evidence adduced by Mr Yu that he had reasonable grounds for making them: see s 769C Corporations Act, s 12BB(2) ASIC Act, s 4 ACL.

196 In Australian Competition and Consumer Commission v ACM Group Ltd (No 2) [2018] FCA 1115 Griffiths J at [173] stated:

In the case of representations as to future matters, it is necessary to determine whether ACM had reasonable grounds for making such representations.  The effect of s 4(1) of the ACL is that if a person makes a representation with respect to any future matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading.  Furthermore, the effect of s 4(2) of the ACL is that, for the purposes of applying s 4(1), the person is taken not to have had reasonable grounds for making the representation unless evidence is adduced to the contrary.  Whether or not there are reasonable grounds for making a representation is a question of fact to be determined as at the date of the making of the representation (see Sykes v Reserve Bank of Australia (1999) 88 FCR 511).  It is insufficient that the person making the representation had a genuinely held view that the representation was not misleading or deceptive (see Cummings v Lewis (1993) 41 FCR 559).  There will not be reasonable grounds for making a representation if, at the time it was made, the person who made it did not have facts sufficient to induce in the mind of a reasonable person a basis for making the representation, which is to be assessed objectively and not by reference to the maker’s subjective state of mind (see ACCC v Jones (No 5) [2011] FCA 49 at [32] per Logan J, applying George v Rockett (1990) 170 CLR 104).

197 In Australian Competition and Consumer Commission v Woolworths Ltd [2019] FCA 1039 at [113], Mortimer J (as her Honour then was) found that in the context of s 4 of the ACL “the authorities make clear that no onus is imposed on [the defendant]; the onus remains with [the plaintiff] to prove an absence of reasonable grounds, if the deeming effect of s 4(2) of the ACL is negated”.  That is, Mr Yu need only adduce evidence that he had reasonable grounds for making the Proved Representations in order to negate the deeming effect of s 4 of the ACL.  If such evidence is adduced, Mr Xie will thereafter carry the burden of proving an absence of reasonable grounds in making those representations.

198 In City of Botany Bay Council v Jazabas Pty Limited (ACN 060 105 053) [2001] NSWCA 94 Mason P stated at [85] (in relation to s 51A of the Trade Practices Act 1974 (Cth), the predecessor to s 4 of the ACL):

… the sections effectively require the representor to identify the facts or circumstances (if any) actually relied upon before turning it over to the trier of fact to decide whether they were objectively reasonable and whether they support the representation made…

199 As set out above, to facilitate Mr Yu giving evidence as to whether he had reasonable grounds for making the Proved Representations, I asked him the Additional Questions.  This course was adopted as a matter of procedural fairness.  Mr Yu was not legally represented at the time of the hearing or at the time the FASOC was filed (as set out above his most recent defence was filed on 3 September 2021 and responded to the statement of claim filed on 6 July 2021 (which did not make any allegation as to future representations)).  The Additional Questions, which were provided to Mr Yu before he gave evidence, appear as annexure A to these reasons.  Mr Yu gave the following answers:

(1)    in response to question 1:

First of all, the source of the information is not from me. I got all this information from Mr Roths. The evidence is from the emails – emails from – sent by Mr Roths to me in April 2018. Yes.

(2)    in response to question 2:

Again, the – the source of the information is not from me. It’s from Mr Roths. It’s – or it’s – it’s in the emails that Mr Roths sent to me in April 2018.

(3)    in response to question 3:

The source of the information is from Mr Roths. So I just, like – passing the information to Mr Xie.

(4)    in response to question 4:

Again, the – the source of the information is from Mr Roths. I didn’t make up those figures.

(5)    in response to question 5:

Mr Yu:    I did not make this kind of representations to Mr Xie.

Her Honour:    I see. All right. And in the event that the court was to find otherwise, do you say – do you have any evidence to give as to the reasonable grounds you had for making the representation?

Mr Yu:    I do not have.

(6)    in response to question 6:

I did not make this representation to Mr Xie, and the – if the court found that in the future, I cannot provide any more evidence to support me.

(7)    in response to question 7:

I didn’t make this representation to Mr Xie, and I cannot provide further evidence to support me.

200 Counsel for Mr Xie submits that the evidence Mr Yu gave as to the “reasonable grounds” he had for making the Proved Representations was unsatisfactory.  I accept that submission.

201 Mr Yu’s evidence falls into two categories.

202 First, Mr Yu says that in making some of the Proved Representations he relied on Mr Roths or simply on sent material provided to him by Mr Roths.  That is, he suggests that he was no more than a conduit for information supplied by Mr Roths, either orally or in writing.  Moshav makes a similar submission.

203 In Care A2 Plus Pty Ltd v Pichardo [2024] NSWCA 35 Bell CJ (with whom Stern JA and Basten AJA agreed) summarised the principles in relation to “direct liability for misleading and deceptive conduct”, noting at [106] that more than one individual may engage in the same or related misleading or deceptive conduct.  At [107]-[110] his Honour continued:

107    The status of an employee or officer does not necessarily immunise him or her from liability for contravening conduct engaged in in that capacity: Anchorage Capital Master Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 at [362] (Anchorage); Australian Securities and Investments Commission v Narain (2008) 169 FCR 211; [2008] FCAFC 120 at [94]. The question is whether the role of the individual was more than merely ministerial.

108    In Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [39] (Butcher), Gleeson CJ, Hayne and Heydon JJ explained that determining whether a person is a mere conduit of information involves a holistic assessment of the nature of the information conveyed, surrounding circumstances and the relationship between the parties:

“In applying those principles, it is important that the agent’s conduct be viewed as a whole. It is not right to characterise the problem as one of analysing the effect of its ‘conduct' divorced from ‘disclaimers' about that ‘conduct’ and divorced from other circumstances which might qualify its character.”

109    An intermediary is more readily inferred to be merely passing on information (and therefore not directly liable for misleading and deceptive conduct) where: (i) the alleged victim possesses experience or knowledge of the subject matter relating to the representations made; (ii) the conduct relates to information which is not ordinarily within that individual’s expertise or knowledge; and (iii) the intermediary “does nothing more than provide or refer to a document that, on its face, was prepared by another”: ….

110    Conversely, an intermediary is more likely to have adopted information where: (i) the underlying third-party document has been altered before being passed on; (ii) the individual knows that the representations passed on may not be reliable; and (iii) the representation concerns a “relatively simple matter”, supposedly within the intermediary’s “professional judgment”: …

(Citations omitted.)

204 I am not satisfied that Mr Yu was a mere conduit of information.  To the contrary, during the discussion that took place on 1 or 2 May 2018, in which Mr Yu made a number of the Proved Representations, Mr Yu did not say that he was simply passing on information that had been provided to him by Mr Roths.  Mr Yu described the Hyperbuild Transaction in some detail, he referred to “my estimates” of the likely return on investment, said that it was “confidential”, that he purchased 5% of the shares and that it was a rare opportunity.  The language used by Mr Yu suggested that it was information of which Mr Yu was aware and which he had considered.  In circumstances where I have found to the contrary, Mr Yu’s assertion that he was doing no more than passing on information provided to him by Mr Roths is not sufficient to induce in the mind of a reasonable person a basis for making any of the Proved Representations.

205 Nor do I accept Moshav’s submission that, because Mr Yu was a sales and marketing manager for Moshav, the information he passed on was not within his knowledge.  Mr Yu sold financial products to investors.  He did so on behalf of Moshav and AXL.  I infer that in doing so he acquainted himself with the product and its features.  On the other hand, Mr Xie had no knowledge of the Hyperbuild Transaction.  That he worked for AXL/Hyperbuild as a bookkeeper and accountant preparing financial reports did not give him knowledge about that transaction or a detailed knowledge of the financial position of AXL or Hyperbuild.

206 Moshav also submits that it was reasonable for Mr Yu to rely on Mr Roths’ emails because it was clear that Mr Roths had an intention to perform the backdoor listing and an ability to perform it or a part of it (even though the backdoor listing was not a certainty).  Moshav points to a number of steps which it says Mr Roths took towards achieving the backdoor listing.  But Mr Yu did not give evidence to support such a submission.  As recorded above, his evidence goes no further than to record that he was acting as a conduit for Mr Roths or otherwise to deny that he made some of the Representations.  Mr Yu did not say that he had a reasonable basis for making any of the representations because it was clear to him that Mr Roths intended to perform the backdoor listing.

207 The mere assertion by Mr Yu that he relied on Mr Roths and passed on information provided by him does not support a finding as to reasonableness of the Proved Representations so as to negate the deeming effect of s 4(2) of the ACL and the cognate provisions under the Corporations Act and ASIC Act.

208 Secondly, Mr Yu says that he did not make some of the Representations.  I have found that Mr Yu did not make the Representation that was the subject of question 5 of the Additional Questions.  I have otherwise found that the Mr Yu made the Proved Representations.  In any event, at least in the case of two of the Proved Representations Mr Yu accepts that, if the Court, as it has done, finds that he made those representations, he does not have any evidence to support the reasonableness of making them.

209 It follows that either the evidence given by Mr Yu does not establish reasonable grounds for making the Proved Representations or, in the case of two of the Proved Representations (see responses to nos, 6 and 7 of the Additional Questions), Mr Yu had no evidence to support the reasonableness of them. Accordingly, the Proved Representations are taken to be misleading for the purposes of s 1041H of the Corporations Act, ss 12DA, 12DB(1)(a) and 12DF(1) of the ASIC Act and s 18 of the ACL.

210 I am satisfied, having regard to Mr Xie’s evidence recorded at [109] above, that in reliance on the Proved Representations Mr Xie:

(1)    signed the Yu Loan Agreement and received the loan of $170,000 from Mr Yu and subsequently repaid that amount with interest in three tranches;

(2)    signed the Unit Subscription Agreement on 9 May 2018; and

(3)    paid the sum of $700,000 to Hyperbuild by transferring the sums of $530,000 and $170,000 to Hyperbuild’s solicitors’ trust account on 9 May 2018.

211 That Mr Xie relied on the Proved Representations was reinforced in evidence he gave in cross-examination by counsel for Moshav (at T142.13-144.10).  During that exchange Mr Xie said, among other things:

(1)    in response to a question that he would take care to ensure that he was comfortable with the investment being offered:

Yes, because I triple confirmed with him that this project will be successful.  If not, the investment amount will be returned to me 100 per cent.  Also, Yu talked to me before, often about the successful stories of his investments.  Also, he introduced Anderson to me and through that I got my 457 visa.  Plus, his successful investment stories.  I trusted him a lot.

(2)    in response to a question that after hearing “successful investment stories”, Mr Xie wanted “to get in on a good investment”:

Yes.  But this is the first investment in my life.  Also, this money was borrowed from my parents.  If he didn’t tell me this investment is guaranteed 100 per cent successful, if not, it will be returned to me in full, I would have rejected the opportunity.

212 I am satisfied that Mr Yu engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 1041H of the Corporations Act, s 12DA of the ASIC Act and s 18 of the ACL and that Mr Yu made false or misleading representations in contravention of s 12DB(1)(a) of the ASIC Act.

213 Moshav submits that Mr Xie has not established that Mr Yu breached s 12DF of the ASIC Act which requires that the conduct in question is liable to mislead the public as to the nature characteristics, suitability for purpose or quantity of financial services (my emphasis).  That is because Mr Xie has not pleaded or explained how the conduct in question was liable to mislead the public or a class of the public.  His claim is in relation to representations made to him as an individual.  I accept that submission.  As Jackman J explained in Australian Securities and Investments Commission v HCF Life Insurance Company Pty Ltd [2024] FCA 1240, in summarising the principles in relation to s 12DF, “the words ‘the public’ do not mean the world at large or the whole community; there will be a sufficient approach to the public if the approach is general and random, and if the number of people approached is sufficiently large”: at [103].

214 The final claim to consider is that brought for breach of s 1041E of the Corporations Act.  Section 104IE has three elements to it.  First, the statements in question, in this case the Proved Representations, must be false in a material particular or materially misleading.  Secondly, they must, among other things, induce a person to apply for or acquire financial products.  Thirdly, when the person, in this case Mr Yu, makes the Proved Representations or disseminates the information either he must not have cared whether they were true or false or he must have known, or ought reasonably to have known, that the Proved Representations were false in a material particular or materially misleading.

215 In ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1 at [748]-[749] and [753] a Full Court of this Court (Jacobson, Gilmour and Gordon JJ) set out the process to assess whether s 1041E of the Corporations Act is engaged in relation to impugned statements, and if so, the questions to be addressed in ascertaining whether such conduct amounts to a breach of that provision.  First, there must be a proper identification of statement or information upon which the aggrieved party relied.  Next, it is necessary to ask whether s 1041E was engaged.  At [753] the Full Court identified the statutory question posed by s 1041E in that case to be: whether a party has made statements or disseminated information; if the answer to that question is yes, did that person know, or should they have reasonably known, that the statement or information was false in a material particular or was materially misleading.

216 Conduct necessary to establish contravention of s 1041E is treated differently to the conduct necessary to establish contravention of s 1041H.  Although the same facts may be relied upon in establishing contravention of both sections, s 1041E requires that there be proof of deliberate, negligent or reckless conduct: Kumova v Davison (No 2) [2023] FCA 1 at [152].

217 In Kumova v Davison Lee J summarised the elements of a contravention of s 1041E in the following way at [121]:

…the elements of a contravention of s 1041E are that: (1) a person makes a statement or disseminates information; (2) that is false in a material particular or is materially misleading; and (3) is likely to (a) induce persons to apply for financial products; or (b) induce persons to dispose of or acquire financial products; or (4) is likely to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market; and (5) when making the statement or disseminating the information, the person (a) does not care whether the statement or information is true or false; or (b) knows or ought reasonably to have known that the statement or information is false in a material particular or is materially misleading.

218 His Honour continued at [124]-[127]:

124    First, a statement is “materially misleading” if its likely effect is to induce investors to purchase a company's securities: Australian Securities Commission v McLeod [2000] WASCA 101; (2000) 22 WAR 255 (at 265 [42] per Owen J). The Court is to ask whether inducement of the reader to act in an erroneous belief is a natural and probable result of a statement: McLeod (at 265 [42] per Owen J). This question is to be determined objectively.

125    Secondly, the word “likely” in s 1041E(1)(b) has the same meaning as in s 1041H, that is, a “real and not remote chance”: James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85 (at 128 [184] per Spigelman CJ, Beazley and Giles JJA). In James Hardie Industries, Spigelman CJ, Beazley and Giles JJA explained earlier authority where it was held that “likely” meant “more probably than not”: see also McLeod (at 266 [47] per Owen J); Australian Securities Commission v Nomura International plc (1998) 89 FCR 301 (at 395-396 per Sackville J). However, their Honours invoked the comment of Baroness Hale of Richmond in Boyle v SCA Packaging Ltd [2009] ICR 1056; [2009] 4 All ER 1181 (at 1075 [68]) that “Parliament can always use the word ‘probable’ if that is what it means”.

126    The word “likely” is liable to change with the context in which it is used (Boughey v The Queen (1986) 161 CLR 10 (at 20 per Mason, Wilson and Deane JJ)), but, as pointed out by Edelman J in Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023; (2016) 336 ALR 209 (at 330 [634]), it has long been established that conduct is likely to mislead or deceive if there is a “real and not remote chance” it will mislead or deceive: Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 27 ALR 367 (at 380-381 per Bowen CJ, with whom Evatt J agreed). This is consistent with the meaning given to the word in analogous legislative contexts: see Australian Competition and Consumer Commission v Pacific National Pty Ltd [2020] FCAFC 77; (2020) 277 FCR 49 (at 115-116 [242]-[244] per Middleton and O'Bryan JJ).

127    Thirdly, as to the knowledge criterion in s 1041E(1)(c)(i), whether a person ought reasonably to have known that a statement is false in a material particular or is materially misleading is an objective question: Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (Responsible Entity) v Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed); In the Matter of Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (No 5) [2018] FCA 11; (2018) 124 ACSR 115 (at 134-136 [88]-[103] per Foster J).

219 Moshav submits that, because the Proved Representations are statements of belief or opinions, they alone did not have the effect of inducing investors to make the relevant purchase and therefore they were not “materially” misleading.  I have already rejected the proposition that the Proved Representations were statements of Mr Yu’s belief or opinions.  Moshav also submits that Mr Xie has not established that Mr Yu did not care whether the Proved Representations were true or false given that Mr Yu was willing to invest in the Hyperbuild Transaction and had provided the opportunity to do so to his aunt, both of which were inconsistent with the lack of care as to truth or falsity required by s 1041E.

220 I am satisfied that the Proved Representations were false in a material particular or materially misleading.  Among other things, the statement that funds would be returned if the Hyperbuild Transaction failed was false or materially misleading as was the statement of the likely returns.  I am also satisfied that those representations created a real and not remote chance that Mr Xie would be induced by them on the erroneous belief as to their veracity to apply for and acquire units in the Hyperbuild Trust.

221 As to the third element, I am satisfied on balance that when Mr Yu made the Proved Representations or disseminated the information, he did not care whether the Proved Representations or information was true or false.  The evidence before me demonstrated that Mr Yu accepted the information provided to him by Mr Roths at face value.  He made no inquiries of Mr Roths or any other person about that information nor did he consider the information and the underlying material in any detail.  It seems that Mr Yu was more concerned with sourcing investors so that he might receive his commission (even if no commission was ever actually paid) rather than conducting any due diligence in relation to the Hyperbuild Transaction to ensure that the information he provided about it was accurate.

222 Mr Yu’s decision to prefer his own interests in this way and in failing to take steps to ensure that he made representations in relation to the Hyperbuild Transaction that were not false in a material particular or materially misleading demonstrates a lack of caution or concern for its consequences.

223 It follows that Mr Xie has established that Mr Yu breached s 1041E of the Corporations Act.

The case against Moshav

224 Mr Xie makes two alternative claims against Moshav.

225 First, Mr Xie alleges that, as Mr Yu’s unlawful conduct was undertaken while he was an employee of Moshav, on behalf of Moshav and within the scope of Mr Yu’s actual or ostensible authority, Moshav is taken for the purpose of a proceeding under Ch 7 of the Corporations Act (which includes a claim under s 1041I) to have engaged in the conduct pursuant to s 769B of the Corporations Act.

226 Secondly, Mr Xie alleges that under ss 917A-917F of the Corporations Act, in particular s 917E, Moshav, which was at the relevant time Mr Yu’s employer and holder of an AFSL, is responsible for any loss or damage suffered by Mr Xie as a result of the conduct of its “representative”, Mr Yu, whether or not Mr Yu’s conduct was within authority, relying on s 917B of the Corporations Act.

227 I consider each of these alternate claims below.

The first claim: s 769B Corporations Act and s 12GH(2) ASIC Act

228 It is not in dispute that Mr Yu was an employee or agent of Moshav.

229 The questions to be resolved are whether Mr Yu’s conduct was engaged in “on behalf of” Moshav and, if so, whether that conduct was within the scope of his “actual or apparent authority”.

230 Section 769B of the Corporations Act and s 12GH(2) of the ASIC Act were considered in Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 2) (2022) 162 ACSR 1; [2022] FCA 786.  After observing that the two sections were in materially identical terms, Abraham J set out the applicable principles, including at [42]-[43]:

42    Those sections (and their statutory counterparts, for example in the Competition and Consumer Act 2010 (Cth) (CCA)), expand the concept of attribution beyond the common law which is intended to make proof of corporate responsibility easier: Perpetual Trustee Company Ltd v Burniston (No 2) [2012] WASC 383; (2012) 271 FLR 122 at [274]-[275]. The purpose of such provisions is to attribute liability to a corporation for the acts of others and to facilitate proof of corporate responsibility beyond the position which would otherwise obtain at common law: Walplan Pty Ltd v Wallace (1985) 8 FCR 27 (Walplan) at 36-38.

43    Both limbs of the sections require that the person in question engage in conduct “on behalf of” the relevant corporation. This essentially requires that the individual act in the course of the corporation’s business, affairs or activities or as the representative of the corporation, however it is “neither necessary nor sufficient” that the conduct be engaged in for the benefit of the corporation: NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270 (NMFM) at [1243]-[1244] per Lindgren J. In this context, the phrase “on behalf of” suggests some involvement by the person concerned with the activities of the corporation; it conveys a meaning similar to the phrase “in the course of the body corporate’s affairs or activities” and encompasses acts done by a corporation’s employees in the course of their employment, but it is not confined to the employment relationship: Walplan at 37. The phrase conveys that something is done “for” the company: Lisciandro v Official Trustee in Bankruptcy [1995] ATPR 41-436 at 40,903-40,904; NMFM at [1244]; Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016] FCAFC 78; (2016) 250 FCR 136 at [78]-[80] per Davies, Gleeson and Edelman JJ. As to the second limb, in Walplan at 37, Lockhart J observed (in respect to s 84(2) of the Trades Practices Act 1974 (Cth)) that:

“…the second limb of the subsection extends the corporation's responsibility to the conduct of other persons who act at the behest of a director, agent or servant of the corporation. Hence the phrase ‘on behalf of’ casts a much wider net than conduct by servants in the course of their employment, although it includes it.”

231 In Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liquidation) (No 3) [2020] FCA 208 Beach J observed (at [469]) that expressions such as “acting within the scope of an agency” should be construed liberally and more particularly so in the context of investor protection legislation that renders it sufficient that the act complained of falls within the agent’s apparent authority.  His Honour continued at [470]:

Further, whether an agent is determined to be acting within its apparent authority is to be determined from the perspective of the third party who engages with that agent.

232 Mr Xie submits that if the Court finds that Mr Yu was acting within his actual or ostensible authority then it must find Moshav is liable to Mr Xie for any loss or damage he has suffered, subject to any arguments about apportionment of the loss as between the parties and the alleged concurrent wrongdoers pleaded by Moshav.

233 Relevantly Mr Xie contends that: Mr Yu was working “50-50” with Mr Roths and Mr Silberman; Mr Yu was an employee of both Moshav and AXL; when he was marketing the Hyperbuild Transaction, Mr Yu was probably doing so for both AXL and Moshav but he was at least doing it for Moshav because he was an employee of Moshav; it was common for Mr Yu to use his Moshav email address for non-Moshav business; Mr Yu sent the emails about the Hyperbuild Transaction to Mr Xie on 4 May 2018 using his Moshav email address; and in Mr Roths’ sign off, those emails described AXL as an authorised representative of Moshav.

234 It is for Mr Xie to establish that Mr Yu had apparent or ostensible authority to act on Moshav’s behalf: Pegela Pty Ltd & Ors v National Mutual Life Association of Australasia Ltd [2006] VSC 50 at [496].

235 I am not satisfied that the evidence relied on by Mr Xie establishes that, when marketing the Hyperbuild Transaction to him, Mr Yu was engaged in conduct on behalf of Moshav and/or that in doing so Mr Yu was acting within the scope of his actual or apparent authority.  That is for the following reasons:

(1)    the evidence establishes that the Moshav AFSL is limited and only extends to the products described in it, namely deposit and payment products, certain derivatives, government issued debentures, stocks or bonds, managed investment schemes, securities and certain custodial or depository services, limited to wholesale clients.  In giving evidence about Moshav’s business, Mr Silberman observed that the managed investment schemes which Moshav offers to investors are always backed by a form of real property security;

(2)    from about 15 July 2015 until about 9 April 2019 AXL was Moshav’s authorised representative under the Moshav AFSL.  In that capacity AXL, as Moshav’s representative, was authorised to provide to wholesale clients general financial product advice only for interest in managed investment schemes excluding investor directed portfolio services.  For the whole of the period during which AXL was an authorised representative under Moshav’s AFSL, Mr Harmstorf was Moshav’s only sub-authorised representative (see [29] above);

(3)    on 5 August 2015 AXL was issued an AFS representative number by ASIC;

(4)    neither Moshav’s AFSL nor the terms of AXL’s authorisation extended to the Hyperbuild Transaction or the backdoor listing of PLC;

(5)    Mr Silberman was not aware of AXL’s business interests or its day to day business activities beyond its role as an authorised representative of Moshav.  Nor was he aware of Mr Roths’ role in AXL or the extent of the businesses in which Mr Roths was involved.  In the period from 2015 to 2019 Mr Silberman met with Mr Roths on an ad hoc basis when Mr Roths introduced potential borrowers to Moshav;

(6)    prior to this proceeding, Mr Silberman had limited knowledge of Hyperbuild.  He knew it was involved in construction on the south coast of New South Wales and does not recall that it was ever the subject of discussion with Mr Roths;

(7)    between 18 September 2015 and 19 October 2020 Mr Yu was employed by Moshav.  The terms of his employment were governed by the Yu Employment Agreement.  Mr Yu’s “duties and responsibilities” in his role as sales and marketing manager were set out in attachment 1 to the Yu Employment Agreement.  They included the development of a product distribution channel for Moshav products in Chinese speaking markets with his predominant target product range being “Moshav Financial and AXL Financial Mortgage Fund Series and direct investments into Property Investments as facilitated by Moshav”.  Mr Yu was also required to promote the “Moshav and AXL product range” through WeChat and other media solutions in accordance with “guidelines set by the Directors”.  While somewhat inelegantly expressed, it is clear that Mr Yu’s role involved him marketing Moshav products and the AXL premium fund series, as opposed to AXL products at large, to Chinese speaking markets.  Mr Yu’s “duties” did not extend to finding investors for a transaction such as the Hyperbuild Transaction;

(8)    cl 3.2 of the Yu Employment Agreement provided that, except with Moshav’s prior written consent, Mr Yu was only permitted to use “Items” as defined, which included computers and equipment belonging to Moshav, for the “proper and legitimate purposes of carrying on [Moshav’s] business and in fulfilling the Duties”.  Mr Yu accepted that his Moshav email was “equipment” for the purposes of cl 3.2.  There is no evidence that Moshav provided its consent to Mr Yu to use his Moshav email address for the purpose of promoting the Hyperbuild Transaction;

(9)    upon commencing his employment with Moshav, Mr Silberman trained Mr Yu in relation to Moshav’s information memoranda which described the investments Moshav had on offer.  Mr Yu was only authorised to sell Moshav products and the premium fund series.  That was made clear to Mr Yu during training and in conversation with Mr Silberman on numerous occasions;

(10)    contrary to Mr Xie’s submissions, Mr Yu was not an employee of both Moshav and AXL.  Mr Yu gave no evidence to that effect, there was no documentary evidence which established that to be the case and, contrary to an oral submission made by counsel for Mr Xie, Mr Yu did not admit that to be the case in his defence;

(11)    Mr Yu understood that, upon AXL becoming an authorised representative of Moshav, AXL could only sell those products which Moshav authorised it to sell and that it could not go beyond the terms of its authorised representation.  Mr Yu understood those products to be limited to the premium fund series;

(12)    Mr Yu also understood that when he was asked by Mr Roths to promote or market products other than the premium fund series to investors, he was doing so outside the terms and authority of AXL’s authorised representation;

(13)    Mr Roths instructed Mr Yu to promote the Hyperbuild Transaction.  Mr Yu did not inform Mr Silberman about the arrangement he struck with Mr Roths to receive a 1% commission on investments made into the Hyperbuild Transaction by investors he introduced.  Mr Yu considered that this was an agreement with Mr Roths that he could implement because his visa allowed him to set up his own business and he could receive the commission into one of his own companies;

(14)    there is no evidence that links Moshav to the Hyperbuild Transaction or that Mr Yu held himself out as an employee or agent of Moshav in promoting the transaction.  Nor is Moshav named or referred to in any of the documents provided to Mr Xie in relation the Hyperbuild Transaction.  Mr Xie relies only on the use by Mr Yu of his Moshav email address to send the emails to him on 4 May 2018, which Mr Xie thought was “relevant”; and

(15)    Mr Xie worked for AXL/Hyperbuild.  He was aware from doing so that Moshav was a separate business to the AXL/Hyperbuild businesses and in carrying out his accounting duties for AXL/Hyperbuild he could see no involvement by Moshav in AXL or Hyperbuild.

236 Nor does the fact that Mr Silberman had dealings with Mr Roths over a period of time assist Mr Xie.  The evidence before me is that Mr Silberman did not know about the Hyperbuild Transaction until he received a letter from Mr Xie’s solicitors.

237 Even if I accepted that in sending the emails to Mr Xie on 4 May 2018 from his Moshav email address, Mr Yu was acting on behalf of Moshav, I am not satisfied that Mr Yu acted within the scope of his actual or apparent authority.  The only matters or evidence connecting Moshav to the Hyperbuild Transaction is the fact that that Mr Yu worked for Moshav and Mr Yu’s use of his Moshav email address to despatch the emails on 4 May 2018.  That Mr Yu worked for Moshav is not sufficient to demonstrate that he was acting within the scope of his actual or apparent authority, particularly when viewed in light of Mr Xie’s knowledge of the separate business of AXL and Hyperbuild, on the one hand, and Moshav, on the other.  Nor does the fact that Mr Yu used his Moshav email to despatch correspondence about the transaction assist me in reaching the conclusion contended for by Mr Xie.  There is no evidence that Moshav was involved in the Hyperbuild Transaction and the documents which Mr Xie signed did not include or refer to Moshav.

The second claim: ss 917A-917F of the Corporations Act

238 Mr Xie submits that Moshav as Mr Yu’s employer is responsible for any loss or damage he suffered as a result of its “representative” Mr Yu, whether or not Mr Yu’s conduct was within authority.  Mr Xie relies in particular on s 917E of the Corporations Act (see [8(2)] above).

239 In Cascalang v WealthSure Pty Ltd [2015] FCA 761 the applicants claimed that the respondent, WealthSure, should pay damages for losses caused by the conduct of Colin Oberg, who previously was an authorised representative of WealthSure, the holder of an AFSL.  Mr Oberg, who was not a party to the proceeding, was an accountant, tax adviser and financial planning representative who it was alleged, recommended certain investments to the applicants and, in one case, took money under a power of attorney.  The funds were lost and the applicants claimed that WealthSure was liable to compensate them for their respective losses.

240 Among others, the applicants relied on ss 917A, 917B, 917E and 917F of the Corporations Act.  In considering the application of these sections, Buchanan J observed (at [199]) that subject to the limitation in s 917F(3) of the Corporations Act “the provisions in Division 6 apply according to their plain terms to give effect to an evident statutory intent that for all purposes (but without extending liability) conduct of a representative within or without authority is also the responsibility of a licensee for which a licensee is directly liable to a client”.

241 Mr Xie relies in particular on Cascalang at [204]-[207] where Buchanan J said:

204    Within the boundaries I have identified, s 917B assigns responsibility to WealthSure for the conduct of Mr Oberg while he was an authorised representative even if he was (as Barrett J said in Zhang v Minox Securities Pty Ltd; Liu v Minox Securities Pty Ltd [2008] NSWSC 689 at [33]) on a “frolic of his own”. The colloquial content of this phrase is not without importance in an understanding of this issue at the heart of the present case. The phrase appears to have its origins in a summing up by Parke B, recorded in Joel v Morison (1834) 6 C & P 501; 172 ER 1338; [1834] EWHC KB J39, where he said:

5. … This is an action to recover damages for an injury sustained by the plaintiff, in consequence of the negligence of the defendant’s servant. There is no doubt that the plaintiff has suffered the injury, and there is no doubt that the driver of the cart was guilty of negligence, and there is no doubt also that the master, if that person was driving the cart on his master’s business, is responsible. If the servants, being on their master’s business, took a detour to call upon a friend, the master will be responsible. If you think the servants lent the cart to a person who was driving without the defendant’s knowledge, he will not be responsible. Or, if you think that the young man who was driving took the cart surreptitiously, and was not at the time employed on his master’s business, the defendant will not be liable. The master is only liable where the servant is acting in the course of his employment. If he was going out of his way, against his master’s implied commands, when driving on his master’s business, he will make his master liable; but if he was going on a frolic of his own, without being at all on his master’s business, the master will not be liable. …

205    In the present case, Mr Oberg may be said to have been, to a substantial extent, engaged on an enterprise of which WealthSure neither knew or would have approved. He may truly be said, in those respects, to have been on a frolic of his own, well outside his authority. Nevertheless, s 917B makes WealthSure responsible, and intendedly so.

206    Under this scheme the “client” need have no relationship with WealthSure. The client is simply a third party who could reasonably be expected to rely on the conduct of the representative (s 917A(1)(b)).

207    If s 917B applies, then s 917E is engaged to make WealthSure liable for any loss or damage suffered by any of the applicants as a result of Mr Oberg’s conduct (at least while he was an authorised representative) and s 917F(1) gives the applicants the same remedies against WealthSure as they have (under the Corporations Act and otherwise) against Mr Oberg.

242 At the time of the Proved Representations, s 910A of the Corporations Act (now repealed and replaced) defined a representative of a person to mean, if the person is a financial services licensee, relevantly “an employee or director of the licensee” (that definition is now found in s 9 of the Corporations Act).  Mr Yu was thus a representative of Moshav.

243 Section 917A sets out the conditions to be met before Div 6 will apply to the representative’s conduct.  They include that a third person (referred to as the client) could reasonably be expected to rely on the conduct: s 917A(1)(b).  Moshav submits Mr Xie’s claim under Div 6 fails because he has not established that requirement.

244 The question that arises is whether Mr Xie could reasonably be expected to rely on Mr Yu’s conduct.  Moshav says that the requirement in s 917A(1)(b) effectively mirrors the general law requirement that ostensible authority will only be established where it was reasonable for the third party to rely on the representation of authority and that, in that context, there is no reasonable reliance where the party knows that the conduct of the agent was for its own benefit rather than the benefit of its employer, relying on Combulk Pty Ltd v TNT Management Pty Ltd (1993) 41 FCR 59 at 66-68; Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421 at 430-431.

245 Combulk was an appeal from orders dismissing a claim for damages alleging contravention of s 52(1) and s 53(g) of the Trade Practices Act 1974 (Cth) (now repealed).  In issue in the appeal was whether Mr Gardin, manager, resources and development of TNT Roadfast, a division of the respondent, had the respondent’s express or implied actual authority to make the representations found by the primary judge.  A Full Court of this Court (Neaves, Beaumont and Burchett JJ) found that Mr Gardin had no authority to bind the respondent.  At 66 the Full Court said:

It is well established that it is not within the scope of an agent's authority to bind his or her principals by a contract which, although made ostensibly on their behalf, is, to the knowledge of the other party, really made for his or her own benefit, even though the contract is of a kind which he or she had general authority to make; and that, therefore, when an agent purports to make such a contract, and the party with whom he or she is dealing is aware of the circumstances, the principal is not bound (see Lysaght Bros & Co Ltd v Falk (1905) 2 CLR 421).

246 In Cascalang Buchanan J deferred discussion of the proposition put by the licensee in that case that certain of the applicants could not “reasonably be expected to rely” on Mr Oberg’s conduct and dealt with the question in the context of addressing the particular representations.  In other words, his Honour considered that the question was one aligned to the facts.

247 Moshav urges a somewhat narrow approach to determination of whether in this case Mr Xie could reasonably be expected to rely on Mr Yu’s conduct.  The problem with its approach is that it seems to be contrary to the otherwise liberal approach taken to construction of consumer protection provisions such as those found in Div 6 of Pt 7.6, Ch 7 of the Corporations Act and, indeed to the express provisions, in particular s 917B which confers liability whether or not the representative’s conduct is within authority.

248 In my view having regard to the facts in this case, the requirements of s 917A(1)(b) are met.  I am satisfied that Mr Xie could reasonably be expected to rely on Mr Yu’s conduct for the same reasons as I have found that he was entitled to and did rely on the Proved Representations.  Mr Xie trusted Mr Yu and was entitled to rely on the statements he made in relation to the proposed investment.  As Buchanan J observed in Cascalang (at [206]) under the scheme in Div 6 there is no requirement for the client to have any relationship with the AFSL holder, the client is simply a third party who could reasonably be expected to rely on the conduct of the representative.  That Moshav was not named as part of the Hyperbuild Transaction does not lead me to a different conclusion.

249 There was no dispute that the requirements of s 917A(1) were otherwise met.  That is that Mr Yu’s conduct related to the provision of a financial service and that Mr Xie relied on Mr Yu’s conduct in good faith, and thus that the provisions in Div 6 apply.  It follows that, subject to the application of s 917D of the Corporations Act, Moshav is responsible for the conduct of Mr Yu, whether or not his conduct was within authority, and that Moshav is responsible for any loss or damage suffered by Mr Xie as a result of Mr Yu’s conduct.  Mr Xie has the same remedies against Moshav as it has against Mr Yu (whether under the Corporations Act or otherwise): see Cascalang at [207].

250 Moshav relies on s 917D which provides that a financial services licensee is not responsible under, relevantly, s 917B for the conduct of its representative if the conduct is not within authority in relation to the licensee, the representative disclosed that fact to the client before the client relied on the conduct and the clarity of the disclosure was such as a person would reasonably require for the purpose of deciding whether to acquire the relevant financial service.

251 In Dover Financial O’Bryan J summarised the provisions found in Pt 7.6 of the Corporations Act noting that Div 6 sets out general rules governing the responsibility of financial services licensees for the conduct of their authorised representatives.  His Honour noted (at [20]) that “[t]he Division applies to any conduct of an authorised representative that relates to the provision of financial services on which a third person (the client) could reasonably be expected to rely and on which the client in fact relied in good faith” and set out the “the general rules of responsibility” by reference to s 917B and s 917C.  His Honour then turned to s 917D saying at [21]:

However, s 917D provides that a financial services licensee is not responsible under ss 917B or 917C for the conduct of an authorised representative if:

(a)    the conduct is not within authority in relation to the licensee (that is, for a representative that is an employee, not within the scope of employment or, for a representative that is not an employee, not within the scope of the authority given by the licensee); and

(b)    the representative disclosed that fact to the client before the client relied on the conduct; and

(c)    the clarity and the prominence of the disclosure was such as a person would reasonably require for the purpose of deciding whether to acquire the relevant financial service.

252 In Smith v Leveraged Equities Ltd [2020] WASCA 122, the West Australian Court of Appeal (Buss P, Beech and Vaughan JJA) after summarising the legislative scheme in Div 6 of Pt 7.6 of the Corporations Act observed at [257]:

Subject to s 917D and s 917F(3), the responsibility and liability cast on the financial services licensee is strict and unyielding. Section 917B makes the licensee responsible even if the representative is on a frolic of his or her own, well outside his or her authority. In this way div 6 of pt 7.6 serves a purpose of providing protection for clients.

253 Moshav submits that it has satisfied s 917D.

254 The requirements of s 917D are cumulative.  That is, to succeed Moshav must establish each of the requirements in subss (a), (b) and (c).

255 While for the reasons set out at [235] above, Moshav can, as it submits, establish that it is not responsible for Mr Yu’s conduct because the conduct was not within authority as required by s 917D(a), I am not satisfied that it can establish the remaining requirements in subs 917D(b) and (c).

256 Section 917D(b) requires that the representative must have disclosed the fact that he or she was acting outside of authority before the client relied on the conduct.  Moshav submits that s 917D(b) does not require the disclosure to be express or in any particular form and that the only requirement is, as set out in s 917D(c), that it be sufficiently clear and prominent.  Moshav submits that the Court can be satisfied that such disclosure was made in this case because on Mr Xie’s evidence Mr Yu expressly stated that the PLC backdoor listing was only for “internal staff”, a select group of people at AXL, not connected with his role at Moshav.

257 I do not accept that a statement by Mr Yu that the PLC backdoor listing was only available to “internal staff” was a disclosure by Mr Yu that he was acting outside his authority, let alone that it was clear and prominent.  The statement that the transaction was only available to “internal staff” or as Moshav put it, “a select group of people at AXL” would signify its exclusivity, that it is not open to the public generally and possibly that Mr Xie is being invited to be part of that select group.  But it does not in my view amount to a statement that it was not connected to Mr Yu’s role at Moshav.  There was no mention that the offer to participate in the Hyperbuild Transaction was not an offer provided by Moshav and no clear statement by Mr Yu that he was acting outside of his authority as an employee of Moshav.

258 It follows that Moshav cannot rely on s 917D of the Corporations Act and is therefore responsible for Mr Yu's conduct.

259 Moshav is therefore liable to Mr Xie for any loss or damage suffered by him as a result of Mr Yu’s conduct, Mr Xie has the same remedies against Moshav as he does against Mr Yu and Mr Yu and Moshav are jointly and severally liable in respect of those remedies:  see s 917E and s 917F of the Corporations Act.

Apportionment and contribution

260 Moshav relies on s 12GF of the ASIC Act and s 1041L of the Corporations Act (see [152] and [176] above) as those sections respectively apply to findings of contravention of s 12DA of the ASIC Act and s 1041H of the Corporations Act: Selig v Wealthsure Pty Ltd (2015) 255 CLR 661; [2015] HCA 18 at [24]-[25], [37].

261 It was not in dispute that s 12GF permits reliance on the proportionate liability provisions in s 12GR of the ASIC Act (as was the case in Latol Pty Ltd v Gersbeck (2015) 303 FLR 298; [2015] NSWSC 1631 at [51]) and that s 1041L of the Corporations Act by its terms allows for an apportionable claim if the claim is a claim for damages made under s 1041I for economic loss caused by conduct done in contravention of s 1041H.

262 However, the proportionate liability regime in Pt 7.10 of Div 2A of Ch 7 of the Corporations Act (which includes s 1041L) and, by analogy, subdiv GA of Div 2 of Pt 2 of the ASIC Act (which includes s 12GP and s 12GR), does not apply to other statutory claims including those under s 1041E of the Corporations Act and s 12DB of the ASIC: see ABN AMRO at [1589]-[1590].

263 Given that I have found that Mr Yu contravened both s 1041H and s 1041E of the Corporations Act and s 12DA and s 12DB(1)(a) of the ASIC Act it is not necessary for me to consider the question of proportionate liability or the application of s 1041L of the Corporations Act or s 12GF(1B) of the ASIC Act.  For the same reasons I do not need to consider the question of proportionate liability insofar as it applies to a claim under s 18 of the ACL: see s 87CB of the Competition and Consumer Act 2010 (Cth).

Causation and Damages

264 The evidence establishes that Mr Xie relied on the Proved Representations in entering into the Hyperbuild Transaction.  It is clear that if Mr Yu had not made the Proved Representations, Mr Xie would not have invested in the Hyperbuild Transaction.  In particular, Mr Xie gave evidence that Mr Yu’s representation to the effect that if the Hyperbuild Transaction failed his investment would be returned was important to his decision to invest and, had the representation not been made, he would not have entered into the transaction (see [109] and [110] above).

265 As Mr Xie submits, he relied on the Proved Representations, which he believed on reasonable grounds to be true, in agreeing to invest in the backdoor listing of AXL, through the Hyperbuild Trust, signing the Yu Loan Agreement and the Unit Subscription Agreement and transferring $700,000 to Hyperbuild.  Had the Proved Representations not been made, or had they not been false, misleading or deceptive, Mr Xie would not have agreed to invest in the Hyperbuild Transaction and enter into the Yu Loan Agreement and/or the Unit Subscription Agreement and, it follows, would not have transferred the sum of $700,000 to Hyperbuild.

266 Mr Xie seeks damages on a “no transaction" basis, namely he seeks as damages the difference between what he paid for his investment in the Hyperbuild Transaction and the true value of that investment.

267 On that basis Mr Xie seeks the difference between what he paid for his units in the Hyperbuild Trust, $700,000, and their value when he acquired them less the value of the shares in PLC which were transferred to him as a gift.  Mr Xie submits that his 500 units in the Hyperbuild Trust were worthless either from:

(1)    9 May 2018, when he acquired them on the basis that AXL’s liquidator formed the opinion that AXL was likely insolvent from 30 June 2017 or the unit agreement was merely executory as there was no evidence that any of the other unit holders in the Hyperbuild Trust ever agreed to allow Mr Xie to become a unit holder;

(2)    30 June 2019 when AXL ceased to trade;

(3)    4 July 2019 when Hyperbuild went into administration;

(4)    27 November 2019 when this Court made orders dismissing the claims made by investors with the support of Mr Roths in the PLC Proceeding;

(5)    1 September 2021 when Hyperbuild was wound up; or

(6)    11 August 2023 when Hyperbuild was deregistered.

268 Mr Xie submits that the Court should use the date he acquired the 500 units or, alternatively, either of the dates referred to in the preceding paragraph or the trial date as the valuation date for the purpose of calculating damages and that on either of those dates the value of his 500 units in the Hyperbuild Trust is nil.  Mr Xie still owns three million shares in PLC which does not trade.  Mr Xie acknowledges that there must be a credit for the value of those shares but relying on the valuation of those shares carried out by Mr Watt notes that their value is nil.

269 In HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 the High Court set out the principles to be applied when assessing damages in a case such as this at [34]-[40].  The usual approach, although not inflexible or rigid, is to subtract value from price paid.  The High Court identified two qualifications to the rule which prevented it from being inflexible: HTW Valuers at [36]-[37].  The first is that the test does not depend on the difference between price and market value but on the difference between price and “real value” or “fair value” or what the asset was “truly” or “really worth”.  The second is that the distinction between a value which answers one of those tests and market value means that market value can be disregarded if it is “delusive or fictitious” because it is the result of, for example, “manipulation of the market or some other improper practice on the part of the defendant”.  In relation to shares the Court observed that it is common to refer to shares as overvalued or undervalued and continued at [38]:

The last point is supported by another matter to which Dixon J referred, in the context of shares:

“[T]he real value of what the plaintiff got must be ascertained in the light of the events which afterwards happened, because those events may show, for instance, that what the shares might have sold for was not their true value or that it was a worthless company.”

He referred to Sir James Hannen's observation in Peek v Derry:

“[S]ubsequent events may shew that what the shares might have been sold for was not their true value, but a mistaken estimate of their value."

Dixon J continued:

“[L]ooking back from subsequent events to the earlier state of the company it may appear that at the time the shares were taken the assets of the company did not correspond in value to the money paid.”

(Footnote omitted.)

270 After noting that in many fields of law assessments of value are made taking into account all matters known at the later date when the assessment is carried out, the Court said at [40]:

Finally, although the court is entitled to take into account events after the date of acquisition, it must distinguish among possible causes of the decline in value of what has been bought.  “If the cause is inherent in the thing itself, then its existence should be taken into account in arriving at the real value of the shares or other things at the time of the purchase.  If the cause be ‘independent’, ‘extrinsic’, ‘supervening' or ‘accidental’, then the additional loss is not the consequence of the inducement.”

(Footnote omitted.)

271 I turn to the assessment to be undertaken in this case.  The task requires a comparison between the price Mr Xie paid for his 500 units in the Hyperbuild Trust, $700,000, and the real value of those units which in my view is to be assessed as at 4 July 2019, the date on which administrators were appointed to Hyperbuild.  Given that event and that Mr Xie has not received any return or value for his units, I accept that their true value is nil.

272 Mr Xie’s contended that his units in the Hyperbuild Trust may have had nil value at the date of their acquisition.  However, there was no evidence to support a finding as to true value at that date.  That AXL, a shareholder in Hyperbuild, was likely insolvent from 30 June 2017 does not establish the value of units in the Hyperbuild Trust.  Nor am I satisfied on the evidence that the units in the Hyperbuild Trust were not infact issued to Mr Xie.

273 Mr Xie also claims the interest he paid on the loan from Mr Yu.  That amount, $1,022.76, should be added to the amount assessed.  As set out above, if Mr Yu had not made the Proved Representations, Mr Xie would not have entered into the Yu Loan Agreement and incurred the interest expense.

274 A credit should be allowed for the value of Mr Xie’s PLC shares.  However, the unchallenged evidence before me establishes that as at 19 February 2024 the shares issued to Mr Xie in PLC had a nil value.

275 It follows that Mr Xie’s damages are assessed at $701,022.76.  Mr Xie has claimed, and should be allowed, interest on that amount pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act).  Interest should be calculated from 4 July 2019.

THE CROSS-CLAIM

276 Given my findings on Mr Xie’s claim, Moshav’s cross-claim against Mr Yu arises for resolution.  A summary of the claims made by Moshav in its amended notice of cross-claim is set out at [11] above.

277 In summary, in his defence to the amended notice of cross-claim, Mr Yu contends that he:

(1)    was acting as Moshav’s agent and owed fiduciary duties to Moshav only to the extent he was communicating with any potential investors about products offered by Moshav;

(2)    was not Moshav’s agent in identifying potential investors, and that he was not communicating to Mr Xie as Moshav’s agent;

(3)    owed Moshav fiduciary duties in communicating with potential investors about Moshav’s products, but did not owe Moshav fiduciary duties at large;

(4)    was not prohibited from using his Moshav email account to offer products and services not authorised by Moshav to investors or potential investors if there were circumstances where the email communication would pose no or minimal risk of creating a misunderstanding that the products were authorised by Moshav;

(5)    differentiated communications sent by him in his capacity as an employee of Moshav from communications sent by him in other capacities; and

(6)    did not exceed his actual or ostensible authority, did not breach any fiduciary or other duties and did not breach the Yu Employment Agreement.

278 Moshav brings two claims in the alternative against Mr Yu.  The first is an allegation that Mr Yu was acting as Moshav’s agent in carrying out the Investor Responsibilities and owed fiduciary duties to Moshav and, in the event Moshav is found liable to Mr Xie, Mr Yu breached the Yu Employment Agreement and his fiduciary duties owed to Moshav, as a result of which Moshav has suffered loss and damage.  The second is an allegation that Mr Yu, in trade or commerce, represented that Moshav was offering an investment opportunity, that representation was misleading or deceptive or likely to mislead or deceive and, in the premises, Mr Yu breached s 18 of the ACL as a result of which, in the event Moshav is found liable to Mr Xie, Moshav has suffered loss and damage.

279 In response to the first allegation Mr Yu admits that he was acting as Moshav’s agent and that he owed fiduciary duties to Moshav at least to the extent that Mr Yu was offering Moshav products.

280 Mr Yu also admits that the Yu Employment Agreement contained the express terms in cll 1.2, 1.3, 3.1, 3.2 and attachment 1 (see [50] and [52] above) and certain implied terms, namely that he would act in Moshav’s best interest, would act within the scope of his authority and would not represent to investors or potential investors that Moshav offered products or services which it did not offer.  In addition, as Moshav points out, it was a condition of Mr Yu’s 457 visa that he could work only for Moshav.

281 Mr Yu does not accept that there was an implied term in the Yu Employment Agreement that he would not use his Moshav email account to offer products and services to investors or potential investors which were not products authorised by Moshav.  Rather, he contends that the Yu Employment Agreement did not prevent him from using his Moshav email account to offer products and services not authorised by Moshav to investors or potential investors where the circumstances were such that the email communication would pose no or minimal risk of creating a misunderstanding that the products were authorised by Moshav.

282 In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 a majority of the Privy Council held that, for a term to be implied, it must be reasonable and equitable, necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it, so obvious as to go without saying, capable of clear expression and not contradict an express term of the contract.

283 I accept Moshav’s submission that, given the nature of Moshav’s business described at [21]-[23] above, and the need for it to comply with its AFSL and the nature of the term which clearly meets the requirements specified by the Court in BP Refinery, the term as to use by Mr Yu of his Moshav email account would be implied into the Yu Employment Agreement.  That is, that Mr Yu could only use that account to offer products and services to investors or potential investors which were products authorised by Moshav.

284 As to Mr Yu’s conduct, the following facts are established:

(1)    during Mr Yu’s employment, he was trained and instructed by Mr Silberman about the Moshav products he was authorised to sell (see [53] above);

(2)    the document entitled “Premium Fund Series Information Memorandum” dated 1 June 2015 describes these products which, in turn, Mr Silberman described as Moshav’s products and the AXL “white label” product authorised by Moshav (see [26] and [54] above).  There is no mention of the Hyperbuild Transaction or PLC backdoor listing or anything of that nature in that document;

(3)    Mr Yu only had authorisation to sell Moshav products and the AXL white label product (see [54] above);

(4)    despite that, Mr Yu did the following without informing Moshav or seeking its prior consent:

(a)    incorporated two companies to do business (see [58] above);

(b)    entered into an arrangement with Mr Roths that he would receive 1% commission on the sale of non-Moshav products (see [78] above);

(c)    marketed the Hyperbuild Transaction to potential investors; and

(d)    used his Moshav email account on about 20 April 2018 to correspond with Mr Roths about the Hyperbuild Transaction and on or about 4 and 9 May 2018 to send Mr Xie information about that transaction (see [86], [95] and [104] above).

285 By that conduct Mr Yu breached cl 3.1 and cl 3.2 of the Yu Employment Agreement in that he did not act in the best interests of Moshav, failed to follow the directions given to him by Moshav as to the products he was authorised to offer to investors and used his email account other than in accordance with the terms of that agreement without prior written consent.   Further, as Moshav submits, Mr Yu’s actions were not within the scope of his authority (actual or otherwise).

286 It is clear that Mr Yu’s conduct summarised above was not in the best interests of Moshav.  Moshav did not gain any benefit from the Hyperbuild Transaction.  In fact, as Moshav says, it has been exposed to liability through this proceeding.  Further, Mr Yu agreed in cross-examination that, in using his Moshav email account for products which were not authorised by Moshav, he was not acting in Moshav’s best interests.

287 Given the Proved Representations, Mr Yu also represented to potential investors that Moshav offered products which it did not in fact offer and thus breached an implied term of the Yu Employment Agreement, namely that he would not represent to investors or potential investors that Moshav offered products that it did not offer.

288 I turn to consider the question of whether Mr Yu owed Moshav fiduciary duties.

289 While Mr Yu denies that he owes fiduciary duties to Moshav at large, he admits that, to the extent he was communicating with any potential investor about mortgage products offered by Moshav, he owed fiduciary duties to Moshav including a duty not to place himself in a position where his duties to Moshav were in conflict with his own interests.

290 In my opinion Mr Yu owed fiduciary duties to Moshav as his employer.  Given his position marketing Moshav products to Mandarin speaking clients and his ability to communicate with those clients, he had the ability to exercise power or discretion to the detriment of Moshav.  This was particularly so in circumstances where Mr Silberman does not speak Mandarin: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96- 7.

291 The conduct described at [284]-[286] above equally establishes that Mr Yu breached his fiduciary duty owed to Moshav.

292 In those circumstances I am satisfied that Moshav has made out its claim against Mr Yu for breach of the Yu Employment Agreement and breach of the fiduciary duties he owed to Moshav.  As a result of those breaches, Moshav has suffered loss and damage to the extent and for the amount that it has been found liable to Mr Xie and there should be judgment in its favour against Mr Yu for that amount.  Given this finding, it is not necessary for me to consider Moshav’s alternate claim that Mr Yu, in trade or commerce engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL as a result of which Moshav suffered loss and damage.

CONCLUSION

293 It follows from the above that:

(1)    Mr Xie has made out his claim against Mr Yu for breach of s 1041E and s 1041H of the Corporations Act, s 12DA and s 12DB(1)(a) of the ASIC Act and s 18 of the ACL.  He is entitled to an order for damages under each of the relevant provisions of the Corporations Act, ASIC Act and ACL in the sum of $701,022.76 plus interest pursuant to s 51A of the Federal Court Act from 4 July 2019;

(2)    Mr Xie has made out his claim against Moshav for breach of s 917E of the Corporations Act and pursuant to s 917F is entitled to the same remedies as against Moshav as he is entitled to against Mr Yu.  Accordingly, Mr Xie is entitled to an order that Moshav pay the sum of $701,022.76 plus interest pursuant to s 51A of the Federal Court Act from 4 July 2019; and

(3)    Moshav has made out its cross-claim against Mr Yu and is entitled to an order for damages suffered by it as a result of Mr Yu’s breach of the Yu Employment Agreement and for breach of his fiduciary duties.  Those damages are equal to the amount for which Moshav is found by the Court to be liable to Mr Xie (although in fact will be limited to the amount which it is ultimately required to pay Mr Xie).

294 As Mr Xie has been successful, he should have his costs of the proceeding.  Accordingly, Mr Yu and Moshav should pay those costs.  Moshav seeks its costs of the cross-claim.  As it has been successful on its cross-claim, Mr Yu should pay those costs.

295 As discussed with the parties present on the final day of the hearing I will hear from any party that wishes to vary the proposed orders as to costs.

296 The parties should provide draft orders necessary to give effect to these reasons.  To the extent the parties cannot agree, or any party wishes to apply to vary the costs orders, the parties or party should notify my Associate of that fact explaining the nature of any disagreement or the basis for variation of the proposed costs orders.

297 I will make orders accordingly.

Associate:

Dated:    26 March 2025

ANNEXURE A