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Hexin Pty Ltd & Anor v Fei [2023] VSC 476 (15 August 2023)

Last Updated: 15 August 2023

AT MELBOURNE

COMMON LAW DIVISION

GENERAL LIST

S ECI 2022 03909

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PRACTICE AND PROCEDURE – Preliminary discovery – Whether reasonable grounds to believe that applicants may have right to obtain relief against prospective defendant – Preliminary discovery granted in part – Supreme Court (General Civil Procedure) Rules 2015, r 32.05 – Pandolfo v Finadri [2018] VSC 211 – Alex Fraser Pty Ltd v Minister for Planning [2018] VSC 391 – Bougainville Copper Ltd v RTG Mining Inc & Anor  [2021] VSC 231. 

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TABLE OF CONTENTS

HER HONOUR:

Introduction

1 By originating motion dated 3 October 2022 and summons filed 1 December 2022, the Applicants seek orders from the Court pursuant to r 32.05 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) that the Respondent provide preliminary discovery of certain categories of documents to them.^[1]
2 From around 2011 to 2016, the Applicants purportedly invested in three property developments conducted by the Respondent. While I will go into this in more detail later, the Applicants contend that they have reasonable cause to believe that they did not receive all of the profits they were entitled to under the applicable development agreements and that the Respondent (among other things) misrepresented the profits and other matters relating to the developments.
3 The Applicants seek discovery of the documents set out in the schedule to the originating motion, which documents can be broadly described as financial documents (including source documents) relating to the developments.
4 The Applicants rely on the affidavits of Xiaohua (Koko) Shen affirmed 30 September 2022 (‘First Shen Affidavit’), 3 March 2023 (‘Second Shen Affidavit’) and 14 March 2023 (‘Third Shen Affidavit’) in support of the application (together, the ‘Shen Affidavits’). Ms Shen is the director of, and a shareholder in, each of the Applicants.
5 The Respondent opposes the application and relies on his affidavits affirmed 1 February 2023 (‘First Fei Affidavit’) and 13 March 2023 (‘Second Fei Affidavit’).
6 Both parties have provided helpful and comprehensive written outlines of submission: the Applicants filed an outline dated 17 March 2023 (‘Applicants’ Outline’); and the Respondent filed an outline dated 20 March 2023 (‘Respondent’s Outline’).
7 For the reasons which follow, the application for preliminary discovery will be granted in respect of two of the property development projects.

Background

Relevant background regarding the dealings between the parties

8 The uncontroversial facts are as follows.
9 The Applicants and the Respondent (or entities associated with them)^[2] entered into three projects to develop plots of land located at:

(a) 159 Chapel Road, Keysborough (‘Chapel Road Project’);
(b) 104 Church Road, Keysborough (‘Church Road Project’); and
(c) 20-24 Hepburn Road, Doncaster (‘Magnolia Project’)
(together, ‘the Projects’ and individually ‘a Project’).

10 In or around February to March 2011, Ms Shen met with Mr Fei on a number of occasions and entered into an oral agreement for the development of the Chapel Road Project.^[3] The Project was conducted through a company named Stanleyfield Pty Ltd (‘Stanleyfield’). Stanleyfield was registered on 1 June 2011 and Ms Shen and Mr Fei were appointed as directors of the company.^[4]
11 Between April 2011 and January 2013, the First Applicant invested a total of $1,235,712.80 in the Chapel Road Project.^[5] On 25 April 2013, Mr Fei and Ms Shen met and he provided her a document showing calculations as to the income and costs of the Chapel Road Project (‘Chapel Road Profit Calculations’). The document states that the First Applicant’s profit was $1,278,189.41.^[6]
12 On or about 10 May 2013, Ms Shen and her husband, Mr Li, met with Mr Fei. A written contract was signed between Mr Li and Mr Fei to develop the Church Road Project.^[7] The contract states, inter alia, that Mr Li will contribute $1,756,000 to the Project.^[8] That capital contribution was funded by the First Applicant.^[9]
13 There is dispute between the parties as to the genesis and timing of the oral contract between Ms Shen, Mr Fei, and Mr Fei’s sister, Ms Fei, regarding the Magnolia Project. Regardless, at some point before February 2015, it was agreed that the First Applicant’s capital of $1,235,712.80 invested in the Chapel Road Project was to be used as part payment for the Magnolia Project.^[10] The Second Applicant paid a further $2,500,000 on 27 March 2014 and $1,250,000 on 27 May 2014 as capital towards the Magnolia Project. The Applicants’ total capital provided for the Magnolia Project was $4,985,712.80.^[11]
14 In or about February 2015, when the Magnolia Project was nearing completion, Mr Fei and Ms Fei met with Ms Shen to discuss the profits of the development. A document containing calculations as to the income and costs of the Magnolia Project was provided by Mr Fei to Ms Shen (Magnolia Profit Calculations). That document states that the Second Applicant’s profit was $3,353,251.40.^[12]
15 On or around 25 May 2015, the First Applicant received payment of $1,278,190 from the Chapel Road Project, which it characterises as its share of the profits.^[13]
16 Regarding the Magnolia Project, Ms Shen elected to purchase 8 apartments, at the cost of construction, in lieu of her profits and by paying an additional $206,400.^[14] In June 2015, a document was signed by the parties to give effect to this (‘June 2015 Agreement’).^[15]
17 On or around 14 October 2015, when the Church Road Project was nearing completion, Mr Fei provided a document to Ms Shen in a meeting which contained calculations as to the income and costs of the Church Road Project (‘Church Road Profit Calculations’). The document states that Ms Shen’s profit was $1,539,439.62.^[16] On 19 October 2015, the First Applicant received payment of $1,539,439.62 as profits from the Church Road Project and the initial investment of $1,756,000.^[17]
18 On 20 December 2016, the Second Applicant received $3,353,251 as profits from the Magnolia Project. On 29 December 2016, the Second Applicant paid the total amount of $3,559,651 to Stanleyfield for the eight apartments in accordance with the June 2015 Agreement.^[18] In 2017, the capital invested in the Magnolia Project by the Second Applicant was returned to it in the amount of $5,000,000.^[19]
19 On 3 February 2017, Ms Shen ceased to be a director of Stanleyfield and the company was deregistered on 10 September 2020.^[20]
20 Thus by 2017, the Projects had been completed and the capital investment paid by the Applicants had been returned and the profit share/interest amounts had been paid to them.^[21]

Documents sought by the Applicants

21 The schedule to the originating motion sets out the documents sought by the Applicants in respect of each of the Chapel Road Project, the Church Road Project and the Magnolia Project. The documents sought in respect of each of the Projects are similar in type, and it is more efficient to describe them in these reasons as follows:

(a) any loans obtained by Stanleyfield in relation to each Project, including any documents submitted by Stanleyfield to banks or other financial institutions who made the loans;
(b) the sale of any lot comprised in each Project, including executed contracts of sale and settlement statements;
(c) the transfer of any lot, including completed transfer of land forms;
(d) price lists for the sale of one or more of the lots, including the original project price list;
(e) marketing materials in relation to the Project, including all communications with the sale agents in relation to marketing of the lots in the Project;
(f) details of any rental guarantee, sales rebates, revenue discounts and/or other incentives offered in conjunction with the sale of the lots;
(g) the sales and marketing costs incurred with respect to the Project, including any agency agreements or invoices from sales agents;
(h) the construction contracts (including any variations) for the Project and all progress claim reports;
(i) the engagement of any consultants in relation to the Project, including any consultancy agreements and consultants’ invoices;
(j) the expenses incurred for the purposes of the Project, including all invoices rendered to Stanleyfield with respect to the Project; and
(k) the financial and accounting records of the Project.

22 The Applicants also seek the following documents:

(a) in respect of the Chapel Road Project, the receipt by Stanleyfield of a council and authority rebate of $1.82m and of any other local government or authority rebates received by Stanleyfield with respect to the Chapel Road Project, including any banking and/or accounting records of the receipt of any such rebate and of how that receipt was accounted for;
(b) in respect of the Magnolia Project:

(i) the combination of lots 301, 317, 401 and 417 into a single lot (lot 301);
(ii) any rental agreements related to the Magnolia Project; and
(iii) the rental agreement, costs of its fit-out and any other costs associated with the development and use of the sales showroom for the Magnolia Project that was located at 18 Hepburn Road, Doncaster;

(c) Stanleyfield’s profit and lost statements for each financial year from 2011 to 2018;
(d) Stanleyfield’s tax returns for each financial year from 2011 to 2018;
(e) all financial records of any other business of which the Respondent is or was an officer or in which he has or has had a beneficial interest that relate to the development and sale of any of the Chapel Road and Church Road Projects, including (without limitation) for each financial year from 2011 to 2016:

(i) annual financial statements;
(ii) trial balances;
(iii) general ledgers;
(iv) tax returns; and
(v) any other financial and accounting records;

(f) all financial records of any other business of which the Respondent is or was an officer or in which he has or has had a beneficial interest that relate to the development and sale of the Magnolia Project, including (without limitation) for each financial year from 2011 to 2018:

(i) annual financial statements;
(ii) trial balances;
(iii) general ledgers;
(iv) tax returns; and
(v) any other financial and accounting records.

23 I shall refer to the documents described in the two preceding paragraphs as the Documents.

Applicable law and principles

24 Rule 32.05 of the Rules provides for discovery from a prospective defendant, as follows:

Where –

(a) there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description the applicant has ascertained;

(b) after making all reasonable inquiries, the applicant has not sufficient information to enable the applicant to decide whether to commence a proceeding in the Court to obtain that relief; and

(c) there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had in that person’s possession any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist the applicant to make the decision –

the Court may order that that the person shall make discovery to the applicant of any document of the kind described in paragraph (c).

25 In Vestas – Australian Wind Technology Pty Ltd v Lal Lal Wind Farm Nom Co Pty Ltd,^[22] Delany J summarised the three components that must be satisfied by the applicant before an order for preliminary discovery will be made:^[23]

(a) first, there is reasonable cause to believe the applicant has or may have the right to obtain the relief;

(b) second, after making all reasonable inquiries, the applicant does not have sufficient information to enable it to decide whether to commence a proceeding to obtain that relief;

(c) third, there is reasonable cause to believe the respondent has or is likely to have documents the inspection of which by the applicant would assist the applicant to make the decision.

The principles relevant to the first criterion are as follows:

(a) the applicant is not required to show it that has a prima facie case that it has a right to relief;

(b) it is also not necessary to show precisely what cause of action the applicant may have; such a requirement would defeat the object of the rule;

(c) rather, it merely needs be shown that the facts are such that it may reasonably be believed that the applicant may have a right to obtain relief;

(d) the test for determining whether the applicant has ‘reasonable cause to believe’ is an objective test;

(e) the word “may” indicates that the applicant’s belief does not have to amount to a firm view that there is a right to relief.

30 Riordan J observed in Alex Fraser Pty Ltd v Minister for Planning that:^[27]

The proper test is revealed by the words of r 32.05(a). What is required is the following:

(a) There is cause for a belief in the relevant proposition — a belief being an inclination of the mind towards assenting to a proposition.

(b) The relevant proposition is (on the second limb) that there ‘may be the right’ to relevant relief. The use of the word ‘may’ bespeaks possibility. Given the purpose of the Rule is to advance the administration of justice, r 32.05 should be interpreted as requiring a real (as opposed to a fanciful or remote possibility). However, even a real possibility may be highly improbable.

(c) The test is qualified by a requirement that the cause for the belief in the proposition must be reasonable. It is trite to say that what is reasonable in a particular case will depend upon all of the circumstances of the case.

31 In setting this out, his Honour accepted that a ‘fishing expedition’ is permitted. In considering what is meant by ‘belief’, his Honour referred to a number of ways some authorities had described what was not sufficient, that is, a ‘mere hunch’, ‘flimsy foundation’, ‘assertion’, ‘suspicion’ or ‘conjecture’.^[28] Riordan J rejected that approach, saying that:^[29]

... for my part I do not find the antonyms of ‘suspicion or hunch’ useful because they are not mutually exclusive with a ‘reasonable cause to believe’. In my opinion, the authorities that draw the distinction with suspicions etc are merely emphasising that a belief is not sufficient — there must be reasonable cause for the belief.

32 Riordan J also stated the following in Alex Fraser:^[30]

The critical element of the test is reasonableness rather than whether the circumstances would cause a belief as opposed to a suspicion or some other hypothetical state of mind. A reasonable belief may incorporate elements of each of these putative antonyms. As the High Court stated in George v Rockett:

Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.

In fact, conjecture is by definition ‘an opinion without sufficient evidence for proof’. Further, a suspicion can be on reasonable grounds, which can give rise to powers to arrest and other serious consequences. Accordingly, a reasonable suspicion, conjecture or assertion may each fall within the ambit of a reasonable belief.

33 It is important to note, as Riordan J said in Alex Fraser, that the jurisdictional threshold in relation to an order for preliminary discovery under r 32.05 is low.^[31] His Honour went on to note that:^[32]

This is consistent with the following:

(a) The primary purpose of the rule is to advance the administration of justice by allowing a prospective plaintiff to make an informed decision on proper material about whether or not to bring a claim. The importance of this rule to the advancement of the administration of justice has been accentuated by the certification requirements on filing of civil proceedings under Part 4.1 of the Civil Procedure Act 2010. It is well established that the rule should be interpreted benevolently.

(b) It would be incongruous if the jurisdiction to order preliminary discovery could not be enlivened because of the lack of evidence, which is the very cause of the application. The purpose of the Rule is to allow an applicant, who has inadequate proof of any cause of action, to discover whether or not evidence is available that will impact (positively or negatively) on the possible proceeding.

Evidence

34 Beyond the evidence already summarised above in the background section, it is necessary to describe the evidence regarding specific topics.

The Korda Mentha reports

35 In April 2021, the First Applicant’s solicitors engaged a forensic accounting firm, Korda Mentha, to review Stanleyfield’s financial statements and other documents which Mr Fei had provided to Ms Shen in relation to the Projects. Korda Mentha was instructed to identify the profit for the three Projects, whether the available financial records are accurate and complete, and whether there are any other documents which will be required to complete that work.^[33] Korda Mentha provided a preliminary report dated 27 April 2021 setting out its findings. After reviewing the First Fei Affidavit, Korda Mentha provided a letter dated 3 March 2023 commenting that further documentation was still required (together with the preliminary report referred to above, the ‘Korda Mentha Reports’).^[34]
36 At the hearing on 24 March 2023, the Respondent objected to the Korda Mentha Reports on the basis of them being opinion evidence that did not comply with the exception to the opinion rule in s 79 of the Evidence Act 2008 (Vic) and the Rules of Court in respect of expert opinions. The Respondent also objected to the purported valuation evidence, on the basis that Korda Mentha did not identify their expertise in that area. After hearing submissions from both parties, I ruled that the KordaMentha Reports would not be admitted into evidence and gave oral reasons at the hearing, which were recorded in the transcript of that day. I indicated that the Applicants could rely on the fact of the existence of the Korda Mentha Reports, for the limited purpose of establishing that they had sought advice from forensic accountants and that this informed their view that they required further information (‘Korda Mentha Ruling’).
37 To the extent that the Shen Affidavits rely on the Korda Mentha Reports, I have taken Ms Shen’s evidence into account only so far as is consistent with the Korda Mentha Ruling.

Evidence regarding general matters

38 Ms Shen deposes that it appears to her that the Applicants may have claims against Mr Fei and/or HF Property Development Pty Ltd (‘HF Property’)^[35] in relation to the Projects, where the Applicants were to receive a certain percentage of profits from each Project, including claims of the following nature:^[36]

(a) the First and/or Second Applicants may not have received the benefit of their full entitlement to the profits from each Project;
(b) Mr Fei may have misrepresented the profitability of each Project and the Applicants’ entitlements in relation to the profits; and
(c) Mr Fei appears to have deceived Ms Shen into signing false documents in December 2017 for the purpose of altering the Applicants’ rights in relation to the profits of the Projects.

39 Ms Shen deposes that she does not presently have sufficient information to decide whether or not to commence proceedings against Mr Fei and/or HF Property, and that she needs further information which she believes will enable:^[37]

(a) Korda Mentha to finalise their analysis of the profits of each Project and their findings; and
(b) her solicitors and/or counsel to advise in relation to the merits and potential value of any claims.

Reliance and alleged signature on Stanleyfield documents

40 Ms Shen deposes that she does not speak English and communicated with Mr Fei, who is also a native Chinese-speaker, only in Chinese.^[38] She says that she relied upon Mr Fei to interpret and translate for her when communicating with English-speaking third parties.^[39]
41 Ms Shen deposes that her primary occupation was that of a housewife and caregiver to her three children.^[40] She deposes that she understood Mr Fei to be an experienced and astute businessman, and therefore trusted and relied on him to manage the Applicants’ investment in the Projects.^[41]
42 Ms Shen deposes that on 30 November 2017, Mr Fei requested that she bring her passport to a meeting with him at his office on 1 December 2017.^[42] She says that at the meeting, Mr Fei provided Ms Shen with a list of dates and asked whether she was in Melbourne on those dates. Ms Shen deposes that he told her that his accountant required this information for the records of Stanleyfield and because she was a director of the company. She says that she did not understand why the information was required but complied and sent it to Mr Fei via WeChat.^[43]
43 Ms Shen deposes that sometime later in December 2017, Mr Fei asked her to sign a number of company documents relating to Stanleyfield (‘Company Documents’). She says that she could not read and did not understand the documents, but signed them because she trusted Mr Fei.^[44]
44 Ms Shen deposes that she had not seen the transfer of land documents in the Magnolia Project (‘Transfer Documents’) and did not authorise Mr Fei to sign any documents on her behalf.^[45]
45 Ms Shen deposes that she was not informed at the relevant times that she had been removed as a director of Stanleyfield in February 2017 and that the company had been deregistered in September 2020.^[46] She says she never signed, or was asked to sign, a letter of resignation as a director of Stanleyfield nor a share transfer form to convey the First Applicant’s shareholdings in Stanleyfield.^[47]
46 Mr Fei deposes that Ms Shen can speak English and has observed her doing so in business meetings.^[48] He says that Ms Shen was an active director who participated in Stanleyfield’s affairs.^[49]
47 In response to paragraph 42 above, Mr Fei deposes that he admits these matters to some extent but says that it was for the purposes of separate litigation which required him to explain Ms Shen’s [50]volvement.⁵⁰ Mr Fei deposes that he denies procuring Ms Shen’s signature for the Compan[51]Documents.⁵¹
48 Mr Fei deposes that he signed the Transfer Documents on behalf of Ms Shen but did so with her express permission.^[52]
49 Mr Fei says that Ms Shen had resigned on 3 February 2017 as a director of Stanleyfield.^[53]

The Chapel Road Project

Context and nature of the Chapel Road Profit Calculations

50 Ms Shen deposes that under the oral agreement the First Applicant is entitled to 49% of the profits from the Chapel Road Project which corresponded with its shareholding in Stanleyfield at that time.^[54] She says that the Chapel Road Profit Calculations were represented by Mr Fei to be the final distribution of profits between the parties, with the First Applicant’s share being $1,278,189.41.^[55]
51 Mr Fei deposes that the Chapel Road Profit Calculations was not a task undertaken by the parties to work out the final accounts for the Project.^[56] He says that in about March 2013, he had discussed with Ms Shen the prospect of carrying out the Magnolia Project and that he wanted to use Stanleyfield as the vehicle for it. He says that initially Ms Shen told him she did not want to be involved in that and would not agree to Stanleyfield being used as the project entity unless he agreed to carry out an assessment of the likely profit for the Chapel Road Project and agreed to a fix sum that Ms Shen (via the First Applicant) was to be paid in connection with her 49% investment in that Project. Mr Fei says that Ms Shen said she wanted to agree a figure and avoid the risk that the Chapel Road Project would be less profitable than anticipated. Mr Fei deposes that this is why he prepared the Chapel Road Profit Calculations.^[57]
52 Mr Fei says that initially, the agreement reached in April 2013 was that he would purchase 49% of Stanleyfield’s shares held by the First Applicant for a fixed sum of $1,278,190 in lieu of the First Applicant receiving a share of the profits. He deposes that this is why the Chapel Road Profit Calculations contained the following line at the bottom of the document:^[58]

‘I, Jinfeng Fei, will purchase 49% of shares of Stanleyfield Pty Ltd by Hexin Pty Ltd at $1,278,190.00 within 3 months upon completion of the project’.

53 Mr Fei deposes that in or about June 2013, the agreement made in April 2013 was varied when Ms Shen changed her mind about investing in the Magnolia Project. He says that they agreed to use Stanleyfield as the corporate vehicle for the Magnolia Project. He says it was agreed that under the varied agreement, the First Applicant would hold a reduced amount of 23% of the shares in Stanleyfield for the sum of $5m and that Mr Fei would still have to pay the $1,278,190 agreed in April 2013 for the Chapel Road Project, although it would no longer be paid for the purchase of the First Applicant’s shares in Stanleyfield but would be treated as a fixed interest payment for the investment of $1,235,712 that the First Applicant had made in the Chapel Road Project.^[59]

Accuracy of Calculations

54 In summary, Ms Shen identifies a number of matters which she says go to the accuracy of the calculation of the profit for the Chapel Road Project. These are the possible sale of two lots at undervalue; the so-called profit discounts of $200,000 and $250,000 which are said that may be erroneous and unfounded; and a council rebate of $1.82m which may have been paid to Stanleyfield but not accounted for in the calculation.

Lots sold at undervalue

55 Ms Shen deposes that she is concerned that the sale of two of the lots may have been sold at undervalue. She states that Lots 9 and 22 appear to have been sold by Stanleyfield to Golden Nest Holdings Pty Ltd (‘Golden Nest’) and then developed into three townhouses and sold by Golden Nest.^[60] Mr Fei denies that the sale to Golden Nest was not at arm’s length or at an undervalue.^[61]
56 The Korda Mentha Report dated 27 April 2021 refers to a possible sale of lots 16 and 18 at an undervalue. This is mentioned in the Applicants’ Outline but does not appear to be mentioned directly in Ms Shen’s affidavits. In any event, due to the Korda Mentha Ruling, there is no admissible evidence before the Court as to whether any of the lots from the Chapel Road Project may have been sold at undervalue.

Profit discounts of $250,000 and $200,000

57 Ms Shen deposes that Lots 9 and 22 were sold with two discounts, one of $250,000 and the other of $200,000.^[62] She says that at the time of presenting the Chapel Road Profit Calculations, Mr Fei had represented to her that the reason for the discounts was because the Council did not permit the lots to be sold and so the lots failed to generate any profit.^[63]
58 Mr Fei says that the $250,000 discount was given because the title documents for Lots 9 and 22 show that they were affected by an agreement under s 173 of the Planning and Environment Act 1987 (‘173 Agreement’) providing for garbage truck access, meaning that the lots cannot be transferred unless an access road for garbage trucks was constructed through those lots and to the satisfaction of the council.^[64] Mr Fei says that the $250,000 discount on Lots 9 and 22 was agreed on that basis as an estimate.^[65]
59 Mr Fei says that the $200,000 discount is described as ‘Sales inventory/profit discount’ in the Chapel Road Profit Calculations which is for a general discount for the sales inventory.^[66]
60 Ms Shen deposes, in response, that she agrees with Mr Fei’s explanation for the $200,000 discount however she denies signing the s 173 agreement on behalf of Stanleyfield and believe the purported signature is not by her.^[67]

Council Rebate

61 Ms Shen deposes that a document prepared for the Chapel Road Project which was submitted to NAB refers to a “Council and Authority Rebate” in the amount of $1.82 million (‘Council Rebate’). She says this was not included in the Chapel Road Profit Calculations, and says that she believes it presents a potential benefit to the developer in the form of a deduction to council contributions, or levy, or cash.^[68]
62 Mr Fei deposes that the reimbursement was used to repay construction costs for public works and he exhibits a contributions plan approved by the local planning authority. He says that the 'reimbursement' was not profit paid to Stanleyfield as it was to cover the construction of the external road. He says that the full amount was required to be paid to the civil contractor and it did not affect the feasibility of the project.^[69]
63 Ms Shen deposes that Korda Mentha told her that they would need to study all of the construction invoices and receipts to confirm Mr Fei’s explanation.^[70]

The Church Road Project

The First Applicant’s standing to sue regarding the Church Road Project

64 Ms Shen deposes that although the written agreement named Mr Li as the investor, rather than the First Applicant, Mr Li, Ms Shen and Mr Fei agreed before signing the agreement that the First Applicant would be the company investing in the project. She deposes that Mr Li signed the agreement on behalf of the First Applicant.^[71]
65 Mr Fei deposes that the First Applicant was neither mentioned in the written agreement nor raised in the discussions during which it was negotiated. He deposes that Mr Li was not a director of the First Applicant and that he had refused to re-sign the agreement with the First Applicant as a party when requested by Ms Shen in or about June 2015.^[72]
66 Ms Shen deposes that the First Applicant paid the investment amount for this Project and that it received the payments after it was completed.^[73]
67 Mr Fei agrees that the investment amount was paid and that the First Applicant received the payments for the Church Road Project when it completed.^[74] However, he deposes that he is not aware of the source of the payments and does not admit that the money was paid from an account in the name of the First Applicant.^[75]

Accuracy of Church Road Profit Calculations

Excessive sales and marketing costs

68 Ms Shen says that the sales and marketing costs for the Church Road Project were comparatively high when compared with the Chapel Road Project. According to the Church Road Calculations, these were approximately 6.4% of the total realisable value, whereas these were only 2.5% for the Chapel Road Project.^[76] She deposes that she did not know the costs of the development nor the breakdown of the sales of the project and that the Church Road Profit Calculations ‘was the only information [they] ever received’.^[77]
69 Mr Fei says that the 2.5% figure for the Chapel Road Project was an estimate taken from the initial feasibility document, and that the actual marketing and sales expenses exceeded this amount. Mr Fei deposes that marketing and sales expenses will increase in circumstances where a project is heavily marketed overseas. He says many properties from the Church Road Project were marketed and sold overseas.^[78]
70 Mr Fei deposes that he provided updates regarding the project to Mr Li and Ms Shen at meetings, that he had provided a project report which included every invoice for the project pursuant to clause 5 of the written agreement, and that Mr Li and Ms Shen had declined to check the original invoices when he presented them together with the Church Road Profit Calculations. He says that furthermore, Mr Li was entitled to have these project calculations verified by an accountant within one month after receiving the report on 14 October 2015 but neither Mr Li nor Ms Shen did so.^[79]

The Magnolia Project

Accuracy of Magnolia Profit Calculations

71 The evidence in respect of the main items relied upon by the Applicants regarding the accuracy of the Magnolia Profit Calculations are set out below.

Lots sold at undervalue

72 Ms Shen deposes that some lots of the Magnolia Project were sold at an “undervalue” to Mr Fei’s wife. She says four lots were amalgamated (‘Amalgamated Lots’) and sold to Mr Fei’s wife for $820,000. Ms Shen says a further lot, Lot 1401, was sold to Mr Fei’s wife for $1,680,000 even though the indicative price was $2,450,000. Ms Shen deposes that Lot 1401 was later sold for $2,020,000 in 2021.^[80]
73 Mr Fei deposes that he had informed of Ms Shen about his wife purchasing the Amalgamated Lots in February 2016. He says further that by February 2016, Ms Shen had agreed to take a fixed entitlement of $3,353,251 instead of a 23% profit entitlement under the June Agreement.^[81]

Excessive rental payment

74 Ms Shen says that a rental payment of $680,200 was paid to HF Property for the use of a display room.^[82]

Submissions

75 It is helpful here to set out a brief summary of the parties’ submissions, before going to their detailed submissions about particular issues.
76 The Applicants submit that the evidence adduced on the application demonstrate, at the very least, that they may have possible rights to relief based on claims of the following nature:

(a) Mr Fei may have misrepresented the profitability of each Project and thus the Applicants’ entitlements in relation to the profits;
(b) the Applicants may not have received the benefit of their full entitlements to the profits from each Project; and/or
(c) Mr Fei may have deceived Ms Shen into signing false documents in December 2017 for the purpose of altering the Applicants’ rights in relation to the profits of the Magnolia Project, to the detriment of the Applicants.

77 The Applicants submit that to the extent that Mr Fei’s evidence disputes or seeks to contradict Ms Shen’s evidence, that goes no further than raising contests of fact which may ultimately need to be resolved if the Applicants do commence a proceeding seeking relief against Mr Fei. The Applicants submit that such a contest does not negate the Applicants’ reasonable cause to believe that they have, or may have, the right to obtain relief against Mr Fei, and they require discovery in order to properly assess those claims and decide whether to commence such a proceeding.
78 Noting that Ms Shen denies that the profit calculations for the Chapel Road Project and the Magnolia Project were presented to her as estimates,^[83] the Applicants submit that even if they were based on estimates to some extent, there is reasonable cause to believe that the figures forming the basis of those calculations were misrepresented to Ms Shen. This is said to be fortified by the allegation that Mr Fei has signed documents in Ms Shen’s name without authority or misled her into signing false documents.
79 The Respondent submits that for each of the Projects, the Applicants’ capital or principal investment was returned in full and they also received a substantial additional payment in respect of each of them. The payments were made many years ago and the Projects have long since concluded. The Respondent submits that in each case, the payments were received without complaint or inquiry from the Applicants.
80 The Respondent submits that in respect of the Chapel Road Project and the Magnolia Project, the documents suggest and Mr Fei has verified that the Applicants agreed to take a fixed sum set before completion rather than a share of the profits. The Respondent submits that for the Church Road Project, Ms Shen and Mr Li were given the project calculations and opted not to have them scrutinised by an accountant.
81 The Respondent submits that the matters raised by Ms Shen and Korda Mentha as to the accuracy of the calculations do not form a proper basis to conclude that the Applicants may have a claim against Mr Fei. It is said that Mr Fei has explained the matters raised and there is no reason to doubt his explanations.
82 The Respondent also submits that limitation periods imposed by statute or by analogy are a barrier to the Applicants’ success and that if the Court takes the view that any potential claim is statute-barred, preliminary discovery should be refused.

The Chapel Road Project

Context and nature of the Chapel Road Profit Calculations

83 The Respondent submits that the Chapel Road Project Calculations, which were drawn in Mandarin, suggest that Ms Shen had agreed to take a fixed sum rather than a profit share. He submits that the following characteristics of the Chapel Road Project Calculations show this:

(a) a line entry stating: ‘Hexin Pty Ltd’ with the percentage ‘49%’ next to it.
(b) The figure of $1,278,189.41 appears in the same line (which, if rounded up, equals $1,278,190).
(c) At the bottom of the document, it states: ‘I, Jinfeng Fei, will purchase 49% of shares of Stanleyfield Pty Ltd by Hexin Pty Ltd at $1,278,190.00 within 3 months upon completion of the project’.

84 The Respondent submits that on 25 April 2013, the parties would not be engaging in the exercise of calculating a final distribution of profit. He submits that this was two years prior to completion and the profit could not accurately be calculated because the expenses and income of the project were not yet known. He submits that the parties would have calculated the share of profit at the conclusion of the project if that was what was agreed between them.
85 The Respondent submits that Ms Shen’s evidence is incomplete and opaque as her explanation was silent as to the characteristics mentioned above at paragraph 83 as to why the $1,278,190 payment was made over two years later, which corresponded precisely with the sale price stated in the Chapel Road Profit Calculations, and was received without comment or objection.
86 The Respondent submits that the Chapel Road Profit Calculations were prepared to reflect an agreement between Mr Fei and Ms Shen reached in April 2013 to purchase and sell the First Applicant’s shares in Stanleyfield at the price of $1,278,190. Mr Fei’s evidence is that the agreement was varied in about June 2013 when Ms Shen and he agreed to use Stanleyfield as the corporate vehicle for the Magnolia project. He says that it was agreed that Ms Shen would hold 23% of the shares in Stanleyfield (and would make a further investment for the Magnolia project), but that Ms Shen would still get a fixed return of $1,278,190 for the Chapel Road Project. The Respondent submits that a fixed sum explains why the sum of $1,278,190 paid in May 2015 was the same sum referred to in the Chapel Road Profit Calculations of April 2013.
87 The Applicants submit, in relation to paragraphs 83(a) and 83(b) above, that the documents do not show that the First Applicant has accepted a fixed amount of $1,278,190 because the ‘49%’ is a reference to the 49 per cent profit entitlements of the project. They submit that the amount agreed upon for that 49 per cent was dependent upon the profit and the underlying figures being accurately represented. They submit that the heading ‘Profit settlement proposed’ on the Chapel Road Profit Calculations and what Ms Shen has deposed to at paragraph 50 above supports this view.
88 The Applicants submit that the Chapel Road Profit Calculations were final and Ms Shen had trusted Mr Fei at that time which is why she did not question the numbers.

Accuracy of Calculations

Profit discounts of $250,000 and $200,000

89 The parties have now agreed that the $200,000 discount was for a general discount for the sales inventory. However, the Respondent submits that although Ms Shen has corrected her erroneous evidence regarding the $200,000, it shows that her evidence on important issues is unreliable.
90 The Respondent submits that Ms Shen’s erroneous evidence also confirms beyond a doubt that she and the Respondent were not attempting to make any final calculation of profits for the Chapel Road project in April 2013. He submits that by having conceded that the $200,000 discount was for townhouses that had not been sold yet at that point in time, Ms Shen could not then maintain that the Chapel Road Profit Calculations were complete and final.
91 The Applicants submit that it was clear from the documents that the $200,000 was a separate discount which did not relate to Lots 9 and 21 and it was not Ms Shen’s intention to say otherwise. They submit that regardless, even if she did, it should not be a basis for the Court to question her evidence and credibility due to the nature of a preliminary discovery application. The Applicants submit that even if her credibility was to be tested, the circumstances of her evidence do not warrant any attack on her credibility anyway.
92 The Applicants submit that despite Ms Shen knowing that the Chapel Road Project had not been completed, Mr Fei had represented to her that the figures were final and she had accepted this due to her trust in and reliance on Mr Fei.^[84] The Applicants submit that the key question is whether Mr Fei had a reasonable basis for putting the calculations contained in the Chapel Road Profit Calculations.
93 The Respondent submits that his explanation at paragraph 58 above formed the basis for the $250,000 discount for Lots 9 and 22 and it was agreed to by the First Applicant. He submits that a total rebate of $220,000 which was ultimately given to the purchaser is evidence that the estimate was reasonable.
94 The Applicants submit that Mr Fei had represented to Ms Shen that the reason for the $250,000 discount was because the Council did not permit the lots to be sold and so they failed to generate any profit.

Council Rebate

95 The Applicants submit that the Chapel Road Profit Calculations include costs which the Respondent was ultimately going to receive rebates for and so such costs should not have been essentially deducted from the revenue and profits calculation. Ms Shen submits that the Council Rebate is one such instance.
96 The Respondent submits that the Council Rebate was used to repay construction costs for public works and he has exhibited a contributions plan approved by the local planning authority.^[85] The Respondent submits further that the plan explains that the development contributions may be the subject of reimbursement where the developer carries out public works. The Respondent submits that the Council Rebate is not revenue or profit that Stanleyfield was entitled to retain and distribute to its shareholders and thus Ms Shen’s concerns do not afford a basis for any claim.
97 The Applicants submit, in response to the above, that it is not a matter for Ms Shen to comment on what Mr Fei had said in his affidavit. They refer to Ms Shen’s evidence that Korda Mentha has said that further information is required to confirm Mr Fei’s explanation.

The Church Road Project

The First Applicant’s standing to sue regarding the Church Road Project

98 The Applicants submit that all of the evidence tendered shows that the First Applicant invested the money in the Church Road Project and that the First Applicant received what was said to be the benefits from the Project. The Applicants rely on Ms Shen’s evidence that she told Mr Fei before the agreement was signed that Mr Li signed the contract on behalf of the First Applicant.
99 The Respondent submits that as the written contract was between Ms Shen’s husband, Mr Dong Li, and Mr Fei, neither of the Applicants are party to the agreement. Mr Fei denies that Ms Shen told him before the agreement was signed that the First Applicant would be the party making the investment and submits that, regardless, the First Applicant was not substituted as a party to the agreement even though this could easily have been done at the time of signing.
100 In response, the Applicants submit that this argument about substitution has no merit in the context of how they negotiated the Projects. The Applicants submit that neither they nor Ms Shen obtained legal advice in relation to any of the agreements for the Projects and that it was fanciful to suggest that Ms Shen could and should have arranged for a substitution of the name of the party in circumstances where the parties have proceeded on the basis that it was the First Applicant who was investing in the Project.

Accuracy of Church Road Profit Calculations

Lots sold at undervalue

101 The Applicants submit that at least five units, Units 13, 15, 19, 20 and 30, appear to have been sold under-value based on the price of comparable sales evidence. However, I note that given the Korda Mentha Ruling, there is no admissible evidence before the Court as to whether any of these lots in the Church Road Profit Calculations may have been sold at an undervalue.

Excessive sales and marketing costs

102 The Respondent submits that clause 6 of the written agreement gave an express right to Mr Li to have an accountant analyse and verify these calculations within one month of their receipt. He submits that regardless of whether Ms Shen and her husband were given an opportunity to inspect the original invoices for the Project, they were given the Church Road Profit Calculations on 14 October 2015 which was five days before receiving the final distributions from the Project and neither Mr Li nor Ms Shen (nor the Applicants) exercised the right to have an accountant review the numbers. The Respondent submits that the contractually agreed timeframe to review the calculations was allowed to expire, and the final distributions were made over seven years ago.
103 The Respondent submits that he has provided a plausible explanation for why the marketing and sales costs as a proportion of gross realisation value are higher for the Church Road Project (6.4%) than the Chapel Road Project (2.5%).
104 The Respondent submits that the 2.5% figure attributed by Korda Mentha to the Chapel Road Project was an estimate taken from the initial feasibility document, and that the marketing and sales expenses exceeded this amount. The Respondent relies on Mr Fei’s evidence that marketing and sales expenses will increase in circumstances where a project is heavily marketed overseas, that the Church Road and Magnolia Projects were heavily marketed overseas, and that Magnolia’s marketing and sales costs as a proportion of gross realisation value were even higher than those for Church Road (being in excess of 7%).
105 The Applicants submit that clause 6 is contingent on clause 5 which states that HF Property will provide a detailed project report, including all the original invoices. The Applicants submit that there is no evidence that such a report was provided.
106 In response to Mr Fei’s explanation regarding the marketing and sales costs, Ms Shen submits that it is all just an assertion and there is no evidence to verify it. The Applicants submit that, again, Korda Mentha require more information to understand the differences.

The Magnolia Project

Accuracy of Calculations

Lots sold at undervalue

107 The Respondent submits that as Ms Shen had elected to purchase eight apartments, in lieu of her profits and by paying an additional $206,400 in accordance with the June 2015 Agreement, her concerns about the Amalgamated Lots and Lot 1401 being sold at undervalue are irrelevant even if they were sold at undervalue. The Respondent submits that this is bolstered by the fact that the lots purchased by his wife occurred after the June 2015 Agreement was signed.
108 The Applicants submit that just because Ms Shen agreed to accept a fixed amount under the June 2015 Agreement, which was presented to her as a fair calculation of her entitlements from the Magnolia Project, it does not mean that she does not have a right to relief. The Applicants submit that the Documents sought are required so that they can understand how the figures in the Magnolia Project Profit Calculations were made, whether the particular fixed amount was accurate (based, in part, on the true value of the Amalgamated Lots and Lot 1401), and to test whether they were misled into accepting the particular fixed amount.

Excessive rental payment

109 The Applicants submit that on the face of it, the rental payment of $680,200 to HF Property for the use of a display room is incredibly high and that alone is sufficient to support their reasonable belief that they have a right to relief against Mr Fei with respect to that amount. They accept that it was included in the Mongolia Profit Calculations but submit that there is no evidence that it was actually paid to HF Property, such that it could be an over-statement of one of the costs of the Project.
110 The Respondent submits that there is no evidence to suggest this rental payment was excessive. He submits that given that the rent was expressly included in a discrete line item in the Magnolia Profit Calculations, the amount was disclosed to Ms Shen, and she took no issue with it in the two years after she received the profit calculations and before she received her final distributions.

Second Applicant’s standing to sue regarding the Magnolia Project

111 The Respondent submits that the contracts of sale for the eight apartments were signed on or about 8 June 2015, but the purchaser named in those contracts was LS3 Pty Ltd (‘LS3’, another company controlled Ms Shen and incorporated on 27 May 2015), not LD3 Pty Ltd (ie the Second Applicant). He submits that the June 2015 Agreement signed by Ms Shen stated: ‘In the above expressions, (Ms Shen) represents (herself), or Hexin Pty Ltd or LD3 Family Fund’.
112 The Respondent submits that the obvious inference to draw is that Ms Shen initially used LS3 Pty Ltd to enter into the contracts, and then changed her mind and novated the contracts over to LD3 Pty Ltd in late 2016. He submits that this does not mean that the Second Applicant is entitled to sue Mr Fei directly in connection with any of the concerns raised respecting the Magnolia Project and the proper analysis is that Ms Shen entered into legal relations with Mr Fei and/or Stanleyfield, and then nominated her companies to receive the benefits of those relations as they arose.
113 The Applicants submit that naming LS3 Pty Ltd was a typographical error which was later corrected to LD3 Pty Ltd rather than a subsequent request to change the purchaser.^[86]
114 The Applicants submit that the line in the June 2015 Agreement referred to in paragraph 111 above shows how the parties typically conducted dealings with each other, that the parties were loose with the entities involved and what they really mean is the entity through which the investment was made.

Reliance and alleged signature on company documents

115 The Applicants submit that based on paragraphs 40 to 45, they may have a right to relief in that Mr Fei may have deceived Ms Shen into signing false documents in December 2017 for the purpose of altering the First Applicant’s and/or the Second Applicant’s rights in relation to the profits of the Magnolia Project, to the detriment of First Applicant and/or the Second Applicant.
116 The Respondent submits that the allegations that Mr Fei affixed Ms Shen’s signature to documents are irrelevant to the proceeding and otherwise unsustainable on the evidence. As to the Transfer Documents, he submits that Ms Shen plainly authorised these transfers, as they related to the land on which the development was built. The Respondent submits that if Ms Shen claims that her company may not have received its full profit entitlement under that Project, it beggars belief that she would deny that the development land for the Magnolia Project was purchased with her consent.
117 The Respondent submits that Ms Shen’s denial of signing the share transfer form to convey her shareholding in Stanleyfield stands at odds with the June 2015 Agreement. He submits that under the June 2015 Agreement, Ms Shen accepted that she would have no further rights in respect of the Magnolia Project save for the purchase of the eight apartments at a fixed price. The Respondent submits that the circumstantial evidence therefore strongly suggests that Ms Shen did agree to transfer her shares after the June 2015 Agreement was signed. He submits that those shares had no value or benefit to Ms Shen after this as the agreement conferred upon her a new bundle of rights and obligations that were inconsistent with her enjoying the usual rights that a shareholder would possess.

Impact of limitation periods applying to claims arising from the Projects

118 The Respondent submits that in the present case, the specific nature of the potential causes of action is important because each of the readily identifiable actions would be statute-barred or barred in equity by analogy. He submits that the final distributions for the Projects were made respectively on 25 May 2015 (for Chapel Road), 19 October 2015 (for Church Road) and 20 December 2016 (for Magnolia) and, accordingly, any claim in contract or tort would be barred due to the effluxion of the six year time period.^[87] The Respondent submits that the same result would follow for a claim for statutory misleading and deceptive conduct.^[88]
119 The Respondent submits that claims for breach of fiduciary duty would be barred by analogy in equity and under s 5(8) of the Limitation Act, and/or under s 5(2) of that Act.
120 The Applicants submit that under ss 27(a) and (b) of the Limitation Act, the period of limitation does not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it if the action or right of action is based upon the fraud of the defendant or his agent, or of any person through whom he claims or his agent. The Applicants rely on Skrijel v Mengler^[89] in submitting that

“Fraud”, in this context, involves a consciousness that what is being done is wrong or that to take advantage of a relevant situation involves wrongdoing. The section is not confined to simple common law fraud, but extends to conduct beyond that, which involves some form of dishonesty or moral turpitude

121 The Applicants submit that in the circumstances that Ms Shen alleges, it is very likely that the bar for s 27 of the Limitation Act would be met given Mr Fei’s misrepresentations regarding the figures in the profit calculations.
122 The Applicants submit that a limitation period for a claim for statutory misleading and deceptive conduct under s 236 of the ACL would not run until damage was actually suffered. She submits further that deceit or misrepresentation based on tort or equity are not caught by that same limitation.

Consideration

Is there reasonable cause to believe that the Applicants have or may have a right to obtain relief?

123 The parties have gone into great detail about the three Projects and their versions of the factual scenario. However, as both parties have correctly submitted, the Court is not in a position, on an application for preliminary discovery, to make ultimate findings of fact. Based on the available evidence and the submissions made, in my opinion the Applicants have established that there is reasonable cause to believe that they have or may have a right to obtain relief in relation to the Chapel Road Project and the Magnolia Project, but not the Church Road Project. It is convenient to first deal with Church Road Project.

Church Road Project

124 It is agreed between the parties that the written contract for the Church Road Project was signed by Mr Li and Mr Fei. So much is apparent on the face of the document. The Respondent has also correctly submitted that Mr Li was not a director of the First Applicant. Indeed, the ASIC records exhibited to the First Shen Affidavit show that Mr Li was a mere shareholder of the First Applicant.^[90] Thus, it is not sufficient for the Applicants to rely solely on an affidavit by Ms Shen deposing that the parties agreed prior to the signing of the contract that Mr Li was signing on behalf of the First Applicant, particularly when his capacity to do so was not obvious and with Mr Fei deposing otherwise. I note that it was open to Mr Li (or the First Applicant) to record in the contract that Mr Li was signing for the First Applicant, as Ms Shen seems to have done something like that in other documents,^[91] but they did not do so.
125 Similarly, the fact that the First Applicant provided the capital and received the profits for the Church Road Project is not determinative that Mr Li had signed the contract on behalf of the First Applicant. As benevolent as the test under r 32.05 of the Rules is, more must be provided to overcome well established fundamentals of contract law such that it can be said that there is reasonable cause to believe that the First Applicant has or may have a right to obtain relief against Mr Fei.
126 As the Applicants have not established that they are parties to the contract or have some reasonable basis to seek relief from Mr Fei based on the written contract, it follows that they do not have reasonable cause to believe that they have or may have a right to right to obtain relief against Mr Fei in regards to their concerns regarding the accuracy of the Church Road Profit Calculations.
127 The source of the funds for the investment in the Church Road Project or the destination of the payments made after its conclusion do not assist the Applicants in relation to the question as to who was a party to the development agreement for this Project, as such matters are not determinative.
128 It may be true that Ms Shen and Mr Fei were somewhat ‘loose’ when dealing with each other as to what corporate entities they would ultimately contract through. But this is of little assistance to the Applicants in circumstances where there is a written contract which clearly identifies the relevant party as Mr Li. In circumstances where the Shen parties, as it were, commenced this action, they could have included Mr Li as an applicant or more satisfactorily explained the basis upon which the First Applicant was the relevant entity to obtain relief.
129 This being the case, it is unnecessary for me to go further in relation to the Church Road Project.
130 I will now turn to the Magnolia Project as the issue of standing arises there as well.

Magnolia Project

131 Much has been said by the parties about how LS3 being named in the contracts of sale for the lots Ms Shen had agreed to purchase should be treated. Various possibilities have been mentioned, such as a typographical error, or as an initial vehicle used by Ms Shen and the contracts were then subsequently novated to the Second Applicant, or as LS3 being the correctly named entity.
132 I do not think that it is appropriate on this application and on the evidence currently before the Court to infer that because LS3 was named as the purchaser of the lots Ms Shen had agreed to purchase, this means that LS3 was the contracting party for the development of the Magnolia Project. This seems to be the inference that the Respondent would have me make. In my view, the Applicants’ entitlements under the development agreement for the Magnolia Project are separate to how they later elected to receive them. This was not addressed directly by the parties in their submissions. I do not think that there is a sufficient basis for me to draw the inference urged upon me by the Respondent. It is arguable that Ms Shen is correct that LS3 being named was a typo or that there is some other explanation, such that there is reasonable cause to believe that the Second Applicant may be entitled to relief.
133 While the Respondent has submitted that the Court should view Ms Shen’s explanation with much scepticism given the timing of when LS3 was incorporated, in my view Ms Shen’s explanation is not so far-fetched as to be fanciful. The ultimate question of which version of events is accepted is a matter for trial. That there is such a contest of fact on this issue does not, therefore, negate there being reasonable cause to believe in the right to relief.
134 Unlike the Church Road Project, the Second Applicant’s belief that it may have a right to obtain relief, being damages or compensation arising from a breach of s 18 of the ACL or deceit or misrepresentation based on tort or equity, is reasonable based on the matters referred to in paragraphs 72 to 74 and paragraphs 108 to 109. I accept the Applicants’ submission that it is unclear from the Magnolia Project Profit Calculations as to what extent Mr Fei had disclosed to her the sales value of those lots that were later sold to his wife. Self-evidently, if the Magnolia Profit Calculations does not reflect the true value of the Amalgamated Lots and Lot 1401, then the Second Applicant’s profit from the Magnolia Project may have been misrepresented. Further, I accept that the rental payment of $680,200 may, on its face, be high. In doing so, I reject the Respondent’s submission that the fact that this amount was disclosed to Ms Shen and she did not take issue with it at the time means that the Second Applicant does not have a possible right to relief.

Chapel Road Project

135 Leaving aside the standing issue, which does not arise in this instance, the Chapel Road Project can be dealt with similarly to the Magnolia Project and in short summary.
136 The Respondent submits that Ms Shen had agreed to a fixed sum amount in lieu of her entitlement to 49% of the actual profits of the Chapel Road Project. Even if this turns out to be the case, then if the estimate upon which that agreement was reached was sufficiently inaccurate or misleading, that may still give rise to a right to relief. Hence, whether there was an agreement to a fixed sum return or the position remained that the First Applicant was to receive 49% of the profits, that does not mean, for the purposes of this application, that there is no reasonable cause to believe in a right to relief in respect of it.
137 Insofar as the dispute over the accuracy of the Chapel Road Profit Calculations is concerned:

(a) the true situation regarding the Council Rebate cannot be resolved on this application. It is possible that it may affect the accuracy of the Chapel Road Profit Calculations and it is sufficient for these purposes that more information is required; and
(b) while the $200,000 discount originally challenged by Ms Shen appears to have now been explained to her satisfaction, there remains some disagreement as to the $250,000 amount and how that should be treated. Again, there is insufficient material for me to form a concluded view about this and, as the parties recognise, that is not really the object of the exercise. If the Applicants are right about this amount, then that tends towards them having reasonable cause to believe in a right to relief.

Signing/authorising the Company Documents or the Transfer Documents

138 Much was made by the Applicants as to whether Ms Shen signed the Company Documents or authorised the Transfer Documents. The Applicants relied on Ms Shen’s version of events to explain how it was that Ms Shen came to distrust Mr Fei and to question her dealings with him. On the other hand, the Respondent relied on Mr Fei’s version of events to contend that the documents and Ms Shen’s signing/authorising them was consistent with the arrangements being as he contended they were.
139 In my view, such matters are impossible to resolve on an application for preliminary discovery. Nor is it necessary to resolve them at this point. It is sufficient for the purposes of this application that the Applicants’ version of events in this regard is arguable, which it is, such that there is reason to believe that the Applicants may have a right to relief.

Limitation issues

140 Turning now to the issue of limitation periods that the Respondent says would bar the Applicants’ actions in respect of the Projects, the starting point is that a limitation period bars the remedy but not the right; further, the bar does not arise unless it is pleaded by way of defence. As O’Bryan J in Polis v Zombor (No 5) stated, however, the existence of a clearly applicable limitation period is relevant to the Court’s assessment of whether a prospective application has a reasonable belief that he or she may have the right to obtain relief and whether the Court should order preliminary discovery.^[92]
141 In my view, it is not appropriate to refuse this application for preliminary discovery on the basis of limitation periods. This is particularly the case where it is accepted that an applicant is not required to identify its causes of action.^[93] That being the case, one cannot then be certain as to what limitation period may apply and when it may have started to run. I cannot be satisfied that due to limitation periods, there is no cause of action open to the Applicants here. For example, if a possible cause of action may be the tort of deceit, where it may be found that the limitation period does not begin to run until the deceit was discovered, then arguably such a claim is still within time. In light of this, I do not consider it necessary for me to go further and opine on what the relevant limitation periods are in this case.
142 Consequently, I do not regard the possible limitation periods as a barrier to finding that there is reasonable cause to belief that the Applicants have or may have a right to relief.

Summary of conclusion regarding whether there is reasonable cause to believe that the Applicants may have a right to relief

143 For the reasons set out above, I am satisfied that the Applicants have established that there is reasonable cause to believe that they have or may have a right to relief against Mr Fei in respect of the Chapel Road Project and the Magnolia Project, but not the Church Road Project.
144 While the Respondents’ approach was to try and negate the matters relied on by the Applicants, in respect of the Chapel Road Project and the Magnolia Project, this was not such as to prevent the Applicants from meeting what is a low threshold under r 32.05(a). This is both in respect of the nature of the agreements between the parties and as to the accuracy of the calculations for those two projects.
145 For the Church Road Project, the Applicants have not met the threshold of establishing that one or both of them has or may have a right to relief, since they have not been able to establish that they are the relevant contracting party for the development agreement for that Project. Even with the low threshold applying, they have not met it.

If there is reasonable cause, should the Court exercise its discretion to order preliminary discovery?

Applicable principles

146 Once the jurisdictional threshold has been reached, being the three requirements set out in r 32.05, the question then becomes whether the Court should exercise its discretion to make an order for preliminary discovery. I note, however, that:

Where each element of the rule is satisfied, the Court will ordinarily exercise its discretion in favour of the applicant.^[94]

147 In considering the principles relevant to the exercise of the Court’s discretion in respect of r 32.05, Riordan J stated in Alex Fraser that:^[95]

Although the jurisdictional threshold is low, its satisfaction only empowers the Court to exercise its discretion. In the exercise of its discretion, the Court can control any excesses; and assess whether there may be real benefit in making the order. It will be entitled to weigh the full range of relevant matters in determining whether an order is in the interests of justice – including the following:

(i) The level of inconvenience and cost that will be caused to the respondent.

(ii) Whether discovery may cause commercial or other damage to the respondent.

(iii) Whether the respondent will be reimbursed for its costs.

(iv) Whether an order would be inutile because the documents are privileged.

(iv) The prospect of the documents sought providing the information required by the applicant.

(v) Whether the fact that there is no real prospect of success is apparent or discovery will not serve any useful purpose. However, delving extensively in the merits of the existence of a possible cause of action will usually not be appropriate.

148 In Pandolfo, Derham AsJ stated that:^[96]

An applicant does not have to prove that there will be a real benefit in making the order, but simply that there may be some benefit. The benefit may be the preparation of an appropriate pleading and the avoidance of substantial amendments following discovery. Alternatively, the avoidance of unnecessary litigation.

Discussion

149 The only factors in paragraph 147 above referred to by the parties were those in sub-paragraphs (i) and possibly (v).
150 The Respondent submits that the Documents sought are potentially extensive and collating them will likely consume a great deal of time and money. The Respondent concedes, however, that despite the cost and inconvenience, it would not be oppressive for him to provide the preliminary discovery sought.
151 Given this submission and concession, I do not consider the level of inconvenience and cost that will be caused to the Respondent a reason not to exercise the discretion to grant an order for preliminary discovery.
152 The Respondent’s submission regarding the limitation period could also be said to support a view that it is apparent that the Applicants have no real prospect of success. For the same reasons as set out in paragraphs 140 to 142 above , I do not accept that at this stage one can say there is no real prospect of the Applicants succeeding.
153 Accordingly, the Court sees no discretionary reason not to order preliminary discovery in respect of the Chapel Road Project and the Magnolia Project, the jurisdictional threshold having been reached.

Conclusion

154 It follows from the reasons set out above that the application for preliminary discovery will be granted in part, for documents sought in respect of the Chapel Road Project and the Magnolia Project, but not the Church Road Project.
155 The proceeding will be listed for 18 August 2023 for the making of final orders. I will hear from the parties at that time in respect of costs.

^[1] For convenience, I will refer to the First and Second Applicants as the Applicants, unless it is necessary to differentiate between them.

^[2] The identity of the contracting parties is somewhat controversial, however for the purposes of describing the background facts, it is convenient to describe them in this way.

^[3] First Shen Affidavit, [9], [11]–[17].

^[4] First Shen Affidavit, exhibit XHS-1, pp. 18–20.

^[5] First Shen Affidavit, [19].

^[6] First Shen Affidavit, [21], exhibit XHS-1, pp. 45 and 46.

^[7] First Shen Affidavit, [27] and [28].

^[8] First Shen Affidavit, [29].

^[9] First Shen Affidavit, [30]–[32].

^[10] First Shen Affidavit, [25]-[26].

^[11] First Shen Affidavit, [42] and [43], exhibit XHS-1, pp 54 and 55.

^[12] First Shen Affidavit, [46], exhibit XHS-1, pp. 61 and 62.

^[13] First Shen Affidavit, [25] and [26].

^[14] First Shen Affidavit, [48].

^[15] First Shen Affidavit, [49] and [50], exhibit, XHS-1, [63] and [64].

^[16] First Shen Affidavit, [34], exhibit XHS-1, pp. 51.

^[17] First Shen Affidavit, [35], exhibit XHS-1, pp. 52 and 53.

^[18] First Shen Affidavit, [54].

^[19] First Shen Affidavit, [55].

^[20] First Shen Affidavit, exhibit XHS-1, pp. 18–20.

^[21] Noting that some of the payments had been re-invested from one Project to another or had been exchanged for lots in the Magnolia Project, as outlined.

^[22] [2020] VSC 554 (‘Vestas’).

^[23] Vestas, [24].

^[24] In respect of the second requirement, I accept the evidence relied upon, being the First Shen Affidavit, [70]‑[83]; in respect of the third requirement, it is clear from the First Shen Affidavit that the Respondent was the key figure involved in the Projects, albeit through corporate entities, and is likely to have documents responsive to the categories sought by the Applicants. In his affidavits, the Respondent does not dispute that he has, or once had, the Documents in his possession.

^[25] [2018] VSC 211 (‘Pandolfo’).

^[26] Pandolfo, [20] (citations omitted); followed in Vestas, [27].

^[27] [2018] VSC 391 (‘Alex Fraser’), [53] (citations omitted).

^[28] Alex Fraser, [46].

^[29] Alex Fraser, [49].

^[30] Alex Fraser, [51]-[52] (citations omitted).

^[31] Alex Fraser, [54].

^[32] Alex Fraser, [54(a)-(b)] (citations omitted).

^[33] First Shen Affidavit, [70].

^[34] Second Shen Affidavit, [17].

^[35] HF Property is described by Ms Shen as Mr Fei’s company: First Shen Affidavit, [15(d)]. This does not appear to be contradicted by Mr Fei.

^[36] First Shen Affidavit, [82].

^[37] First Shen Affidavit, [83].

^[38] First Shen Affidavit, [8].

^[39] Second Shen Affidavit, [8].

^[40] Second Shen Affidavit, [10].

^[41] First Shen Affidavit, [17], [24], [33] and [46].

^[42] Second Shen Affidavit, [33].

^[43] First Shen Affidavit, [61] and [62], exhibit XHS-1, pp. 403 and 404.

^[44] First Shen Affidavit, [63], exhibit XHS-1, pp. 405 – 408.

^[45] First Shen Affidavit, [59(c)]; Second Shen Affidavit, [31].

^[46] First Shen Affidavit, [69].

^[47] Second Shen Affidavit, [7] and [30].

^[48] First Shen Affidavit, [7].

^[49] First Shen Affidavit, [28].

^[50] First Shen Affidavit, [62].

^[51] First Shen Affidavit, [63].

^[52] First Fei Affidavit, [60].

^[53] First Shen Affidavit, [64].

^[54] First Shen Affidavit, [15].

^[55] First Shen Affidavit, [21], [24].

^[56] First Fei Affidavit, [19].

^[57] First Fei Affidavit, [19].

^[58] First Fei Affidavit, [19].

^[59] First Fei Affidavit, [20].

^[60] First Shen Affidavit, [75]-[76].

^[61] First Fei Affidavit, [69].

^[62] First Shen Affidavit, [22].

^[63] First Shen Affidavit at [22].

^[64] First Fei Affidavit, [23], Exhibit JF-1, pp. 29-44.

^[65] First Fei Affidavit, [23].

^[66] First Fei Affidavit, [22].

^[67] Second Shen Affidavit, [16].

^[68] First Shen Affidavit [77], exhibit XHS-1, pp. 446 and 469.

^[69] First Fei Affidavit, [70], Exhibit JF-1, pp. 147.

^[70] Second Shen Affidavit, [17], Exhibit XHS-2, pp. 5 and 6.

^[71] First Shen Affidavit, [30].

^[72] First Fei Affidavit, [34].

^[73] First Shen Affidavit, [31] and [32], exhibit XHS-1, pp. 50.

^[74] First Fei Affidavit, [35].

^[75] First Fei Affidavit, [35].

^[76] First Shen Affidavit, [78] and [79], Exhibit XHS-1, pp. 51.

^[77] First Shen Affidavit, [34].

^[78] First Fei Affidavit, [71].

^[79] First Fei Affidavit, [37].

^[80] First Shen Affidavit, [80] and [81].

^[81] First Fei Affidavit, [72].

^[82] First Shen Affidavit, Exhibit XHS-1, pp. 447.

^[83] Second Shen Affidavit, [12]-[14], [23].

^[84] Second Shen Affidavit, [12].

^[85] First Fei Affidavit, Exhibit JF-1, pp. 147.

^[86] Second Shen Affidavit, [27].

^[87] Section 5(1) of the Limitation of Actions Act 1958 (Vic) (‘Limitation Act’).

^[88] Competition and Consumer Act 2010 (Cth), Schedule 2, s 236(2), s 237(3) (‘ACL’).

^[89] [1998] VSC 71 (‘Skrijel’).

^[90] First Shen Affidavit, [5], Exhibit XHS-1, p.3. That ASIC search is a current and historical search, and reveals that Mr Li has never been a director of the First Applicant.

^[91] In this respect, see paragraph 111 above.

^[92] Polis v Zombor (No 5) [2022] FCA 122, [67].

^[93] Pandolfo, [20(b)].

^[94] Pandolfo, [23], referring to Australian Football League v Stadium Operations Limited [2009] VSC 264 [76] (Warren CJ) (‘AFL v SOL’).

^[95] Alex Fraser, [54(c)] (citations omitted).

^[96] Pandolfo, [19], referring to Beston Parks [2008] VSC 392, [53] and to AFL v SOL, [3].