Shun Sheng Pty Ltd v Lei [2023] NSWSC 1176 (29 September 2023)

Last Updated: 29 January 2024

Supreme Court New South Wales

Case Name:	Shun Sheng Pty Ltd v Lei
Medium Neutral Citation:	[2023] NSWSC 1176
Hearing Date(s):	14, 15, 16 and 18 August 2023
Date of Orders:	29 September 2023
Decision Date:	29 September 2023
Jurisdiction:	Equity - Expedition List
Before:	Parker J
Decision:	See [296]
Catchwords:	PARTNERSHIPS AND JOINT VENTURES – dissolution – date of termination – parties agree that partnership terminated but disagree on date – insufficient evidence to establish terminated at earlier date – partnership taken to have been dissolved at later date PARTNERSHIPS AND JOINT VENTURES – winding up – taking of partnership accounts
Legislation Cited:	Evidence Act 1995, s 136 Partnership Act 1892, ss 39, 44
Cases Cited:	Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645 Shazbot Pty Ltd v Warner Capital Pty Ltd (No 2) [2019] NSWSC 1114 Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315
Texts Cited:	JD Heydon, Heydon on Contract (2019, Lawbook Co)
Category:	Principal judgment
Parties:	Shun Sheng Pty Limited (First Plaintiff) Sunshine Island (Aust) Pty Limited (Second Plaintiff) Xue Feng Wei (Third Plaintiff) Jun Lei (First Defendant) Theo Kitsos (Second Defendant) Cross-Claim: Jun Lei (First Cross-Claimant) Theo Kitsos (Second Cross-Claimant) Shun Sheng Pty Limited (First Cross-Defendant) Xue Feng Wei (Second Cross-Defendant)
Representation:	Counsel: D Allen (Plaintiffs/Cross-Defendants) M S White SC/ B Adam (Defendants/Cross-Claimants) Solicitors: Du & Associates Lawyers (Plaintiffs/Cross-Defendants) Lloyd & Lloyd Solicitors (Defendants/Cross-Claimants)
File Number(s):	2021/365823
Publication Restriction:	Nil

Equity Division Supreme Court New South Wales

JUDGMENT

1. These proceedings arise out of a partnership dispute. The relationship between the parties has broken down and they seek orders for winding up and terminating the partnership’s affairs. The main area of dispute is when the partnership was terminated, and which party is, or parties are, liable to account.
2. The partnership business involved the operation of a brothel at Guilford in Western Sydney. The brothel operated (and apparently continues to operate) lawfully, and subject to development approval granted by the local council. Neither party suggested that the nature of the partnership business had any effect on the legal principles which the Court is required to apply.
3. The main protagonists to the dispute are two Chinese-Australian women. The business appears to have been founded by Wei Xue Feng. In English, Ms Wei uses the first name Wendy or Nancy. In 2008, Ms Wei went into business with Lei Jun. In English, Ms Lei uses the first name “Coco” as well as “Jun”.
4. Ms Lei is married to Theo (also referred to as “Leo”) Kitsos. Mr Kitsos has at times been involved in the operation of the brothel business, and has been drawn into the dispute, as I will describe.
5. The clientele of the brothel is largely Asian, and, it seems, predominantly Chinese. The brothel operated (and operates) at premises owned by a company named Sunshine Island Pty Limited (“Sunshine Island”). That company is owned and controlled by Ms Wei.
6. The brothel is known by a variety of names. Those names include: “Gentleman’s Club Number 1/181”; “No 181 Smithfield” (Smithfield is a suburb which adjoins Guildford); “181 Smithfield Brothel”; “Amazing Lady”; and “Guildford Brothel”. During the period with which I am concerned, the practice of the parties was for the non-cash earnings and expenditure associated with the brothel business to be channelled through a company. I will refer to these companies as the “operating companies”.
7. The first operating company was named Yin Yang Relaxation Centre Pty Limited (“Yin Yang”). According to ASIC records, Ms Wei and Ms Lei were equal shareholders in the company. They were also named as directors.
8. Yin Yang functioned as the operational company from the inception of the business, in 2008, until 2015, when it was replaced by a company named Shan Xi Australia Pty Limited (“Shan Xi”). According to ASIC records, the sole director and shareholder of the company was Lei Feng, who is the sister of Lei Jun. But Ms Wei, at least, appears to have functioned as a shadow director and both Ms Wei and Lei Jun were signatories to the company’s bank account. There is no evidence that Lei Feng played any part in directing the company’s affairs.
9. In the first half of 2019, Shan Xi ceased to be used as the operating company and was replaced by Shuang Pty Limited (“Shuang”). Mr Kitsos was the sole director and shareholder of that company. Again, however, Ms Wei appears to have operated as a shadow director. She was also a signatory (alongside Mr Kitsos) to the company’s bank accounts.
10. There is a dispute between the parties about when their business relationship ended. According to Ms Wei, Ms Lei stopped working in the brothel in mid-2019, although Mr Kitsos continued to work there. Ms Lei disputes that she ceased working in the brothel at that point.
11. But it is common ground that the relationship between Ms Wei, on the one hand, and Ms Lei and Mr Kitsos, on the other definitively broke down in October 2021. Ms Wei set up a new company, Shun Sheng Pty Limited (“Shun Sheng”) which took over occupation of the premises and the operation of the brothel business. Ms Wei holds 75% of the shares in Shun Sheng. Her new business partner, Lei Wang, holds the remaining 25%. Ms Wei and Mr Wang are the directors of the company. At the same time, Ms Wei changed the locks, excluding Mr Kitsos (and, if she had not previously been excluded, Ms Lei) from the premises. It is common ground that, if not terminated before, the partnership came to an end on 18 October 2021.

Claims and issues for determination

12. When Ms Wei and Ms Lei established the partnership in June 2008, they executed two formal agreements. One was an agreement among themselves styled “Business Partnership Agreement” (“BPA”). The other was an agreement with Sunshine Island styled “Business Premises Leasing Tenancy Agreement” which provided for a lease of the Guildford premises (“Tenancy Agreement”). Replacement versions of those two agreements were executed in April 2009.
13. The parties do not appear to have had professional assistance in preparing either version of the BPA or the Tenancy Agreement. The BPA refers to the business as having been established “in the form of Australian company” [sic], namely Yin Yang. But the parties to the BPA were named as Ms Wei and Ms Lei, personally. The Tenancy Agreement likewise identified Ms Wei and Ms Lei, jointly, as the lessee. The parties agree that, on its true construction, the BPA is not a shareholder’s agreement but a partnership agreement between Ms Wei and Ms Lei, personally, for the conduct of the brothel business; Yin Yang was merely a nominee or trustee for the partners individually (as in an earlier partnership case I decided, Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645; see [208]). The same was so for the successor operational companies, Shan Xi and Shuang.
14. The Tenancy Agreement, both in its original and replacement forms, provided for a lease term of 25 years, expiring in 2033. The Agreement was, however, never registered. Following the breakdown in the relationship between the parties in October 2021, Sunshine Island granted a lease of the premises to Shun Sheng for a period of 10 years (with an option to renew for a further 10 years). That lease has been registered.
15. The proceedings were commenced in December 2021. Shun Sheng is the first plaintiff. Sunshine Island is the second plaintiff. Ms Wei herself is the third plaintiff. Initially, the defendants were named as Ms Lei (first defendant) and Mr Kitsos (second defendant). They brought a cross-claim against Shun Sheng and Ms Wei. In the course of final submissions, the parties agreed that Shuang should be joined as the third defendant. Yin Yang and Shan Xi are both de-registered.
16. Originally, the statement of claim included a claim by Shun Sheng for damages and injunctive relief against Ms Lei, for allegedly disparaging the business of the brothel. But this claim was not pursued, and the statement of claim was amended to remove reference to it. Thereafter, Shun Shen had no ongoing claim as plaintiff, but it continued to be a party to the cross-claim by Ms Lei and Mr Kitsos (see below).
17. The hearing took place between 14 and 18 August. I shall, for convenience, refer to counsel and solicitors for the plaintiffs/cross-defendants as the counsel and solicitors for Ms Wei. Likewise, I shall refer to the counsel and solicitors for the defendants/cross-claimants as counsel and solicitors for Ms Lei.
18. In Shazbot Pty Ltd v Warner Capital Pty Ltd (No 2) [2019] NSWSC 1114, I stated (at [8]-[11]) that in partnership litigation such as the present, there are usually four elements to the orders which the Court is asked to make. The parties adopted a similar approach in the present case.
19. The first requirement is to make a declaration identifying the parties to, and business of, the partnership. In the present case, that is agreed. As I have mentioned, the parties agree that Ms Wei and Ms Lei, personally, were the partners. They also agree that the nature of the partnership business was the conduct of the brothel at Guildford. The evidence referred to brothels in other locations which the parties were involved in operating for periods of time. Neither party, however, suggested that there should be any reference to those other premises in the declaration to be made by the Court.
20. The second element is a declaration that the partnership has been terminated, or if it has not been terminated, an order terminating it. In the present case, the parties agree that the partnership has been terminated. The dispute concerns when that happened.
21. Ms Wei alleges that Ms Lei had a long history of unsatisfactory behaviour, which involved appropriating partnership monies and failing to pay her share of the rent due to Sunshine Island. The suggestion was that Ms Lei had gambling problems. In 2019, it was reported to Ms Wei that she was using drugs in the partnership premises, offering drugs to the staff, and borrowing money from them.
22. Ms Wei alleges that she confronted Ms Lei about these problems, but, despite Ms Lei’s promises, the problems continued. This culminated in an alleged agreement on 30 June 2019, between Ms Wei and Ms Lei, whereby Ms Lei would: cease to be involved in the conduct of the brothel; account to Ms Wei for a half share of the partnership monies which had been appropriated; and pay Sunshine Island her unpaid share of the rent.
23. According to Ms Wei, Mr Kitsos and Ms Lei were short of money at the time. Ms Wei alleges that, soon after 30 June, she agreed with Mr Kitsos that, as the ongoing owner of the business, she would employ him to help out at the brothel until the amount due from Ms Lei was ascertained and paid. For this, he was to receive a fixed salary of $4,000 (later increased to $5,000) per month.
24. The contention for Ms Wei is that the 30 June 2019 agreement had the effect of terminating the partnership as at that date. Ms Lei disputes that there was any agreement to terminate the partnership at that time. It is accepted on behalf of Ms Wei that if there was no termination in June 2019, the partnership was terminated on 18 October 2021.
25. The third and fourth elements to which I referred in Shazbot (No 2) can be taken together. They are the making of orders for the winding up of the partnership’s affairs and the taking of partnership accounts, and the giving of directions to the parties (or to the receiver, if a receiver is appointed), prescribing details of how the winding up and the accounting process is to take place.
26. Ms Wei alleges that after 30 June 2019, in the context of Ms Lei’s ongoing obligations to account and the ongoing payments to Mr Kitsos, there were some supplementary agreements between the parties. First, Mr Kitsos allegedly agreed to give a personal guarantee to Ms Wei for the amounts ultimately due to Ms Wei (and Sunshine Island) from Ms Lei. Second, Mr Kitsos and Ms Lei agreed that they would pay the sum of $1.1 million towards Ms Lei’s liability, and would do so from the proceeds of sale of a property which they owned at Castle Hill. These agreements were allegedly made in July 2019 and October 2020, respectively.
27. In the present case, the contention for Ms Wei is that the agreements between the parties involved a surrender by Ms Lei of her rights in the partnership. All that was required by way of partnership account was to take an account of the monies which Ms Lei owed the partnership (and Sunshine Island), and to make payment accordingly.
28. The statement of claim has attached to it lists of monies allegedly taken by Ms Lei. The first alleges that Ms Lei took over $2.1 million in cash. The second alleges that Ms Lei took almost $800,000 in bank account withdrawals. The third alleges that Ms Lei took over $26,000 by way of personal credit card expenses paid by the business. But it is not suggested that, at least at this stage of the proceedings, the Court would determine the quantum of any monies which may have been taken. Rather, Ms Wei seeks judgment against Mr Lei and Mr Kitsos for $1.1 million, by way of enforcement of the alleged agreement of October 2020. In addition, the Court is asked to make orders for the determination, by way of account, of the full amount which Ms Lei owes Ms Wei (and Sunshine Island), following which Ms Lei and Mr Kitsos are to be liable for the balance.
29. Ms Lei and Mr Kitsos deny the supplementary agreements alleged by Ms Wei. They say that the payments to Mr Kitsos were, at least in part, advances on Ms Lei’s ongoing share of profits from the partnership business. They accept that as part of the process of winding up the partnership, they must give credit for those monies, and that Ms Lei must account for any monies taken by her, although Ms Lei denies that she has actually taken any such monies.
30. Ms Lei and Mr Kitsos accept that, to the extent that partnership monies passed through Shuang when it was the operational company, Shuang will be obliged to account to the partnership. But they contend that Ms Wei has herself received funds from the partnership, as has Sunshine Island. Those parties will therefore be obliged to account as well. Furthermore, Ms Lei and Mr Kitsos contend, by way of cross-claim, that Shun Sheng holds the benefit of the lease of the Guildford premises and the income it has received from the business since October 2021 on trust for the partnership.
31. A further area of dispute concerns the practical steps required to conduct the winding up and the account. Ms Lei seeks the appointment of a receiver to undertake these tasks. Ms Wei opposes the appointment of a receiver. Her counsel contends that any necessary accounting or other procedures should be referred out to a referee.
32. In April this year, Ms Wei applied for an order in the nature of a freezing order against Ms Lei and Mr Kitsos. The application was for an order requiring them to pay into Court the net proceeds of sale of their matrimonial home at Bella Vista, which they were selling. It resulted in a consent undertaking by Ms Lei and Mr Kitsos, until further order of the Court, not to settle the sale.
33. In the course of the hearing before me, counsel indicated that there were negotiations going on between the parties to allow settlement to proceed, on terms that part of the proceeds would be put into a controlled monies account. In the end, an application was brought after I had reserved judgment, which resulted in consent undertakings being given.

Summary and analysis of evidence

Overall chronology

34. The original application to use the premises as a brothel was made by Ms Wei in 2006 or earlier. Following a deemed refusal of consent from the local council, consent was granted by the Land and Environment Court on 29 March 2007. The conditions of consent involved renovation works, and a construction certificate for these works was granted on 30 January 2008. Meanwhile, Yin Yang had been incorporated, with Ms Wei and Ms Lei as shareholders and directors, in September 2007.
35. The building works were completed, and an occupation certificate was granted on 11 June 2008. Presumably, this was when the operations of the brothel began. The original BPA and tenancy agreement were dated 19 June.
36. The 2007 conditions of consent limited the operations to six days a week: 10am to 10pm on weekdays, and 10am to 8pm on Saturdays. Later, it seems, the consent conditions were varied so as to remove any limitation on the opening hours. Ms Wei’s evidence was that the brothel operated seven days a week from 10 am to 2am the following morning. There was a day shift from 10am to 6pm and a night shift from 6pm to 2am.
37. Two later amendments to the conditions of consent are referred to in the evidence. The approvals in question were granted in August 2009 and March 2015. The terms of the amendments were not in evidence, but I was informed from the Bar Table, without objection, that building works were undertaken in 2012-2013 and again in 2015-2016. In all, eight service rooms were added to the original three.
38. Meanwhile, the second operational company, Shan Xi, was incorporated in January 2015. Yin Yang was deregistered in March of that year. There was no evidence about the circumstances in which this change took place, or the reasons for it.
39. The third operational company, Shuang, was incorporated on 9 April 2019. There is a dispute about the circumstances surrounding the incorporation, and I will address that issue in more detail below.
40. In August 2019, the Council granted approval for further amendments to the development consent, in response to an application lodged in May of that year. The amendments included the construction of three further service rooms, taking the total to fourteen, and an increase in the permitted staffing to twelve sex workers and two management/office staff.
41. The operation of the brothel was of course affected by public health measures taken during the Covid pandemic. The brothel was closed during the first Sydney lockdown from 24 March to 30 June 2020. It reopened on 1 July 2020 but was closed again during the second lockdown from 1 July 2021 to 8 October 2021.
42. The written evidence does not record when the building works were done to take advantage of the 2019 approval. One page of the application for the completion certificate is in evidence; it is undated, but the footer appears to indicate that the form was completed in 2020 or later. This is consistent with correspondence with the local council in December 2020 about obtaining a building certificate. Mr Kitsos referred in a May 2021 text message to some “final works” being done at that time.
43. The brothel apparently reopened as planned on 8 October 2021. This was the date on which Shun Sheng was incorporated and the commencement date of the lease granted to it by Sunshine Island. Mr Kitsos and Ms Lei were probably excluded from that point forward. What is clear is that the locks to the premises had been changed by 18 October. As already mentioned, the parties agree that, if not terminated in 2019, the partnership was terminated on that date.

Witnesses

44. Evidence was given at the trial by each of Ms Wei, Ms Lei and Mr Kitsos. Both Ms Wei and Ms Lei gave evidence through a Chinese language interpreter.
45. Both Ms Wei and Ms Lei were born in China and, according to their affidavit evidence, speak only limited English. Conversations between them took place in Mandarin. Mr Kitsos, however, does not speak Mandarin and conversations in which he was involved presumably took place in English.
46. Each of the witnesses were cross-examined and in each case their credit was attacked by opposing counsel. I deal with credit issues in a separate section of the judgment, below.

Operation of partnership business

47. There appears to be no dispute that, broadly speaking, Ms Lei focused mainly on front-of-house activities, dealing with the customers. There was also a receptionist whose tasks included allocation of rooms and taking payments. Ms Wei operated more on the back-office side of things. In particular, according to Ms Lei (and this does not seem to be disputed), the incorporation and ongoing corporate administration of the operating companies, including the preparation of company tax returns, was undertaken by an accountant on Ms Wei’s instructions.
48. The conditions of consent required that records be kept, in the form of what were referred to as “worksheets”, of the operations of the brothel. These were detailed forms which identified, for each day, which sex workers had occupied which rooms at the brothel and for how long. The forms also recorded, for each job, the sex worker’s share of the amount charged to the client and the house’s share. It seems that usually it was the responsibility of the receptionist on duty to fill in the worksheets.
49. Most of the clientele paid in cash, and it was the practice to pay some of the brothel’s operating expenses in cash. In particular, the sex workers were paid in cash, and cash payments were also made for miscellaneous tasks such as cleaning, in some cases to Ms Lei. The receptionists were also, it seems, paid in cash.
50. At the end of each day, a summary of cash received and paid out was entered on the final page of the worksheet. The worksheet for the day and the cash were then put in the safe on the premises (or at least that was how the system was supposed to work).
51. A large number of the worksheets were in evidence, amounting in total to several thousand pages. These worksheets were exhibited to an affidavit from Ms Lei, who presumably must have obtained possession of them at some point before the relationship between the parties broke down. According to Ms Lei’s affidavit, the worksheets in question covered the periods from July 2008 to December 2018 and January 2020 to March 2020; these dates were not disputed in cross-examination.
52. Mr Kitsos also exhibited to his affidavit a spreadsheet printout showing similar takings information, covering the period July 2019 to June 2021. In the affidavit, he described the information in the spreadsheet as having been transcribed at Ms Lei’s request from “the information in her diary of the daily activities of the business”. In re-examination, Mr Kitsos said that the request was made in early 2022.
53. It was not clear exactly what Mr Kitsos meant by Ms Lei’s “diary”, but the figures in the spreadsheet appear to coincide with the worksheet figures, where they are available. The suggestion was that the existence of the spreadsheet showed that, directly or indirectly, Ms Lei had had access to the cash takings data right up to June 2021 (except perhaps the first six months of 2019). In the end, I did not understand this to be disputed.
54. Each operating company had one or more bank accounts. Electronic payments made by customers were deposited automatically into the corresponding account. Some expenses were paid by cheque or direct debit. Ms Wei and Ms Lei were both (individually) signatories to the accounts.
55. Company credit cards were also obtained for Ms Wei and Ms Lei. Initially, these were obtained through Yin Yang. When that company ceased to be the operating company and was deregistered, its bank accounts appear to have been closed but the credit card facility continued to operate. Presumably, the payments were made from the successor operating company’s bank accounts or otherwise from business funds.
56. These arrangements changed somewhat in April 2019 when Shuang was incorporated as the operating company. New business accounts were opened in the name of Shuang but Mr Kitsos (and apparently Ms Wei) were the signatories, and Ms Lei was excluded. The facility for Ms Lei’s credit card, however, appears to have continued at least until October 2019.
57. Full sets of the bank account and credit card statements (to the extent that they still exist) are not in evidence. The parties limited themselves to tendering some extracts from the statements which dealt with particular transactions which were in issue.
58. The tax returns for Yin Yang for the years ending 30 June 2008 to 30 June 2011 and for Shuang for the years ending 30 June 2020 and 30 June 2021 are in evidence. The returns for the intervening years, ending 30 June 2012 to 30 June 2019, are not. Nor is there any return for Shuang covering the period from July to October 2021.
59. The four Yin Yang returns show a combined net profit for tax purposes of only about $10,000. The two Shuang returns show a combined loss of almost $50,000.
60. It appears to be common ground that that over the years the brothel has been very profitable. That is difficult to reconcile with the returns in evidence. The returns for the 2020 and 2021 years are particularly difficult to understand. Total earnings were about $500,000 per year, with salary and wages of $220,000 in 2020 and $120,000 in 2021. Although I have not conducted a detailed check, these figures seem well below what the worksheets show, both for revenue and payments to the sex workers. It seems that the returns may reflect mainly, if not exclusively, the takings which passed through the operating companies’ bank accounts, and expenditure from those accounts, together with non-cash items such as depreciation.
61. According to Mr Kitsos, he was involved in the business from 2008 onwards. In his affidavit, he stated the that he helped Ms Lei in the business by finding builders and contractors, and by liaising with contractors and with town planners, private certifiers, and council client officers. He also stated that he dealt with the body corporate for the building of which the premises formed part, and undertook maintenance tasks at the premises. Although describing himself as undertaking these tasks to help Ms Lei, he went on to imply that he was helping Ms Wei as well, stating that neither of them had sufficient proficiency in English to undertake the tasks themselves.
62. Mr Kitsos exhibited to his affidavit some items of correspondence with the council, planning consultants and certifiers. He also attached copies of correspondence with the body corporate. These documents were not, however, very extensive. They covered only parts of the period from 2008 to 2021 (there was nothing, for instance, post-dating December 2020) and some of them were addressed to Ms Wei as well as to Mr Kitsos.
63. According to Mr Kitsos, he was initially not authorised to make payments from the business’ bank accounts. Instead, Ms Lei would make payments at his request, or sometimes he would make payments and later be reimbursed. But this changed following the setting up of Mr Kitsos’ company, Shuang, as the operating company for the brothel, in April 2019. Thereafter, Mr Kitsos was able to draw directly on partnership funds in Shuang’s account.
64. Mr Kitsos estimated, in his affidavit, that he spent 20-25 hours a week on work related to the business. But at the same time, he described himself as a traffic signs and signals technician for the State Roads and Maritime Service and stated that he had held this position, which sounded like a full-time job, since 2005. Furthermore, the renovation works only occupied a relatively small proportion of the period from 2008 to 2021 and it seems unlikely, based on Mr Kitsos’ description of the work, that, at least during ordinary periods of operation, maintenance would have taken as much time as he estimated. I was also left in some doubt as to how much of Mr Kitsos’ work was done for the partnership (that is, for Ms Wei and Ms Lei jointly) and how much was done to help out Ms Lei. These questions were not, however, taken up with Mr Kitsos in cross-examination. As a result, they were left unresolved.
65. Mr Kitsos gave evidence in his affidavit that, although he recalled hearing some discussion suggesting that he should be paid, that did not actually happen, and he did not receive any payment for his work. As I discuss in more detail below, between 2019 and 2021, Mr Kitsos received regular weekly payments from the business ranging between $3,500 and $6,000. According to the submissions presented by counsel for Ms Wei, these were payments to Mr Kitsos for services rendered. But Mr Kitsos’ evidence that he never received payment for his work was not contested in cross-examination.
66. Exhibited to one of Ms Wei’s affidavits was a 54-page document which assumed some importance at the hearing of the case (strictly speaking it appears to have been a series of documents produced by different authors over time, but for convenience I will refer to all 54 pages as a single document). When and why the constituent parts of the document were created is a matter of debate and I will address that debate in further detail below. For the moment, I will describe the document as it appears in the evidence.
67. Broadly speaking, the document consists of a chronological list of dates and dollar amounts, with some annotations. Years (where they appear), months and days are identified using Hindu-Arabic numerals. Other text and annotations are in Chinese. A translated version of the document was not provided. I will refer to this document as the “cash receipts list”.
68. The initial pages of the document were identified by Ms Wei as being in Ms Lei’s handwriting. The commencement date is unclear on the document (it was said to be 2012: see [79] below) and the early pages are somewhat scrappy. But later a recognisable format appears: each page consists of two, three or four columns, each column representing a month, and with a figure shown for every (or almost every) date in the month.
69. Ms Lei’s handwriting goes up until the end of March 2016. There is then a page covering the months of April to June 2016 in a different handwriting, which Ms Wei identified as hers. Handwritten pages written by Ms Lei then resume in July 2016 and continue until December 2017. Then there are further handwritten pages by Ms Wei until the end of 2020. The figures for 2020 may not be complete; they are difficult to interpret but apparently show only six months. The lockdown period was only two and half months, but the explanation may have been that the brothel was closed for part of the time for renovation works; this, however, was not explored in evidence.
70. The final page of the document (which is typed, and was apparently prepared by Ms Wei or at her direction) shows figures for the first six months of 2021. This coincides with the period up to the 2021 lockdown, which took effect on 1 July and lasted until 8 October, when the business was transferred to Shun Sheng.
71. As I will describe in more detail below, there is a dispute between the parties about what the figure shown against each day represents (and what it represents may vary over time). But it is common ground that the figure relates in some way to the cash takings for the day. Ms Lei says that it represents cash takings shared between herself and Ms Wei. Ms Wei says that it represents takings appropriated by Ms Lei to herself and which she was obliged to repay.
72. The pages in the document which cover the period from 2019 to 2021 contain an additional feature. Those pages record, at the foot of the column for each month, payments to Mr Kitsos. Most of the months record four or five amounts, and it is common ground that they represent weekly payments. There also appears to be no dispute that the payments recorded were not necessarily in cash: bank statements covering a period between September 2019 and March 2020 show that the payments for that period were made out of Shuang’s bank account.
73. The payments begin in February 2019 (there are three payments for that month). Initially, they are $4,000 per week (except for two weeks where $3,500 was paid). In July 2019, there are two payments for $4,000 and the payments thereafter are $5,000 per week for the rest of the year. Weekly payments of $5,000 continue in 2020 (for the months shown: as already noted, the year is incomplete), except during a three-month period. That period, which apparently corresponds to the July to September quarter, show payments of $5,000 plus $1,000 in July (twice), August (three times) and September (four times). The final page of the list shows weekly payments of $5,000 for the period up to 30 June 2021. Again, while the making of the payments is not in dispute, the parties disagree on what they represent, and I will address this below.

Alleged 2019 agreements

74. Affidavit evidence of Ms Wei: Ms Wei’s principal affidavit was made in December 2022. It replaced an earlier affidavit which had been made in December 2021 and was later tendered.
75. In her affidavit, Ms Wei alleged that her agreements with Ms Lei and Mr Kitsos, in 2019, were made in the context of a long history of behaviour by Ms Lei which threatened the partnership business. The suggestion was that Ms Lei had problems both with gambling and drugs. Her behaviour allegedly included the appropriation by Ms Lei of partnership funds and the use and sale of drugs at the partnership premises.
76. Ms Wei identified three ways in which Ms Lei allegedly appropriated partnership funds to her own purposes. These were: taking cash from the safe on the premises; making unauthorised withdrawals from the operating companies’ bank accounts; and making unauthorised payments on her business credit card.
77. According to Ms Wei, from the inception of the business the procedure was for surplus cash (after payment of the sex workers and other cash expenses) to be left in the safe, along with the worksheets, and divided between the parties at the end of the month. But Ms Lei soon started helping herself to the money. Ms Wei stated that she had a conversation with Ms Wei about this in late 2008:

[Wei]: "Why are you taking cash from the safe every day?"

[Lei]: "I need some cash urgently for my personal use - I can't wait till the end of the month."

[Wei]: "How am I supposed to reconcile the account if you are taking money from the safe every day?"

[Lei]: "Why don't we do this - every time I take some cash from the safe , I will tell you how much I took, and you can take an equal amount."

[Wei]: "What about the Partnership's expenses? We cannot just take the money without taking into account the expenses."

[Lei]: "Okay, how about this - at the end of every month, you work out how much expenses the Partnership needs to pay, and I will pay money back to the Partnership if the cash in the safe is not enough to pay off our Partnership's expenses and your share of the Partnership's profit."

78. Ms Wei stated that a further conversation took place in late 2008, with particular reference to the rent payable to Sunshine Island:

[Wei]: "You are taking too much cash from the Partnership, we will not have enough money to pay for rent."

[Lei]: "I don't have any money to pay for rent - can you pay my share of the rent? I promise I will pay you back. "

[Wei]: "But we agreed that we will be equally responsible for rent payment."

[Lei]: "Well, like I said, I don't have any money to pay for rent. Do you want me to sell my blood and use the money to pay for rent?"

79. Ms Wei’s affidavit (to the extent read) did not say whether Ms Lei ever complied with her alleged undertaking to reimburse Ms Wei for her share of any monies she (Ms Lei) appropriated. But it is clear from the rest of Ms Wei’s evidence that, on her version of events, the problem continued. Ms Wei exhibited to her affidavit the cash receipts list which I have discussed above, describing it on a covering page (in translation) as Ms Lei’s “original copy of her cash arrears list by writing herself” (the last three words apparently referring to the fact that the initial part of the document was written by Ms Lei). Ms Wei stated that originally there had been records going back to July 2008, but when preparing her affidavit, she had only found records from 2012 onwards.
80. As to the partnership bank accounts, Ms Wei stated that it had initially been expressly agreed between herself and Ms Lei that the accounts were only to be used for partnership expenses. But in about April 2009, she discovered a withdrawal of over $20,000 from the Yin Yang bank account. She confronted Ms Lei about it, and they had the following conversation:

[Wei]: "Did you take money from the business bank account? Didn't we agree that the money in the bank account is to be used for the Partnership expenses?"

[Lei]: "There is not enough cash in the safe - I need money urgently for my personal reasons. I will return the same amount back to the bank account before the end of the month. If I do not pay the money back by the end of the month, just record my withdrawal and account for it when we split profit at the end of the month."

[Wei]: "Okay, as long as you can pay back by the end of the month."

According to Ms Wei, Ms Lei did not return the amount.

81. Ms Wei stated that when she discovered a transaction or withdrawal made without her knowledge or consent, she would, on most occasions, tell Ms Lei not to take money from the accounts, and she would tell her that there was barely enough in them to pay partnership expenses. But according to Ms Wei, Ms Lei “always had a reason for the removal”, including, “I need some cash urgently”, and, “my family in China needs me to send them money urgently”.
82. It was a similar story with Ms Lei’s business credit card. Ms Wei again stated that there had been an express agreement before the application was made to the bank that the cards would be used for business purposes only, and any personal payments would be immediately reimbursed. But in late 2009, Ms Wei identified some personal expenses on the statement for Ms Lei’s card. They had the following conversation:

[Wei]: "Did you use the Credit Card at Bing Lee and Gloria Jeans?"

[Lei]: "Yes.”

[Wei]: "Didn't we agree that the Credit Card is only to be used for the Partnership's expenses? You have been taking so much cash from the Partnership, please do not use the Credit Card for your personal expenses.”

[Lei]: "Okay Okay, I will not do it again."

83. Ms Wei gave evidence that she continued to confront Ms Lei whenever she saw transactions on the credit card statement that she considered to be unauthorised. According to Ms Wei, she would say words to the effect of, “Why are you still using the Credit Card for your own expenses? Please do not use the Credit Card for your own expenses”, and Ms Lei would normally apologise and promise not to repeat her conduct. But the unauthorised payments continued.
84. Ms Wei stated that in around 2012 or 2013, she came to suspect that Ms Lei was using drugs on the premises and selling drugs to sex workers there. Ms Wei also recounted reports to that effect, which she stated she had received from some of the workers (the use of this evidence was limited, pursuant to Evidence Act 1995, s 136, to the fact of the statements and not their truth). According to Ms Wei, she told Ms Lei that “you must stop using illegal drugs immediately, otherwise you are going to get us in trouble”.
85. Ms Wei did not say whether Ms Lei’s behaviour changed in this regard. But Ms Wei did state that in the first half of 2019, several sex workers complained to her that Ms Lei had borrowed money from them which had not been repaid (amounts ranging between $500 and $30,000). This evidence was also admitted on a limited basis under s 136.
86. Ms Wei deposed that matters came to a head with Ms Lei in early 2019. According to her, they had a conversation (presumably in Mandarin) to the following effect:

Wei: "You are taking so much money from the partnership that there is barely any left to pay for the company's expenses; you are borrowing money from our staff without paying them back, and I have to deal with it for you. You are also using drugs at work, and selling drugs to the girls here! What you are doing is illegal and simply unacceptable! I cannot continue this partnership with you any more."
Lei: Please don't end this partnership, what should I do to change your mind?"
Wei: "You caused all this problem, you must fix them [sic]."
Lei: "I can make amends. I will give you an account of all the money I have taken from the partnership, and I will pay back your share of the profit. I will also pay my share of the rent. I will stay clean of drugs, and stop borrowing money from the girls any more. Just give me another chance."
Wei: "I really cannot tolerate your actions anymore. But for the sake of all these years that we have worked together, I will give you another chance. If you promise that you will pay back my share of the profit from the partnership, pay your share of the rent, ensure that you are not on drugs when you work, not to sell drugs in the business, and stop harassing the girls for money, I can consider giving you another chance."
Lei: "Okay, I promise I will do it. I will fulfill my promise."

87. Ms Wei deposed that matters did not improve after this conversation. In particular, Ms Lei continued to take money from the safe. Ms Wei also found drug paraphernalia in the office of the brothel. That office was used only by Ms Wei and Ms Lei. The implication was that the paraphernalia was Ms Lei’s.
88. According to Ms Wei, she and Ms Lei had a later conversation on the subject, which took place “in or around late March 2019”. The conversation (presumably in Mandarin) was, according to Ms Wei, to the following effect:

Wei: "You are taking too much money from the partnership. I cannot let you continue to be the signatory to our bank account. "
Lei: "How about I ask Theo to open a company? He can be the director. This way you and him will be the signatories of the new company"

It was this conversation, on Ms Wei’s case, which led, in April 2019, to the incorporation of Shuang as the operating company for the brothel business, with Mr Kitsos as sole director and shareholder (see [9] above).

89. The first of the agreements which were the subject of these proceedings was allegedly reached by Ms Wei and Ms Lei on 30 June 2019. According to Ms Wei’s affidavit, there was a conversation (presumably in Mandarin) to the following effect:

Wei: "Many staff have come to me recently to tell me that you owe them money. I am shocked by this information."
Lei: "Yes, I do owe staff money."
Wei: "I cannot handle this relationship anymore. I can't work with you anymore, I can't trust you. How can you borrow money from staff when you have already taken so much money from the partnership, which includes my money too? You also told staff not to tell me about your loans."
Lei: "I have been gambling. I have given some money to my boyfriend, he asked me for money."
Wei: "I can't be in a partnership with you anymore. I am terminating our partnership now."
Lei: "Okay. I accept and I will leave the keys to the business in our office today."

90. According to Ms Wei’s principal affidavit, Ms Lei handed in her the keys to the brothel on that date. Later in that same affidavit, Ms Wei deposed that on 1 July, she saw the keys on a table in their shared office (in the upper level) and recognised them as Ms Lei’s, because she was the only person with a copy of the keys. According to Ms Wei, Ms Lei’s involvement in the business ceased from that date.
91. According to Ms Wei, she later discussed the situation with Mr Kitsos. Her affidavit stated that the conversation occurred “some time in July or August 2019”, but it must have happened in the first half of July to fit in with the rest of Ms Wei’s case. Her version of the conversation (which presumably would have taken place in English) was to the following effect:

Wei: "Coco has constantly disappointed me and breached our agreements. The partnership has ended. I am going to ask her to repay all the money that she has taken from the partnership, if she doesn't, I will have no other option but to sue her."
Kitsos: "We are currently in the process of selling a property at Castle Hill. Coco will have the money to pay you back after the Castle Hill property is sold. "
Wei: "Okay, when are you going to sell the Castle Hill property?"
Kitsos: "We are preparing for its sale. However, we need to maintain the mortgage repayments so that the bank does not foreclose on our property at Bella Vista. With Coco now gone, you will need someone to help you around the shop. Why don't I work for you and you can pay me $4,000 per week, so that Coco and I can continue paying the mortgage for the Bella Vista property, and once the sale of the Castle Hill property is complete Coco can pay you back whatever she owes you in the business and rent."
Wei: "Who owns the Castle Hill property?"
Kitsos: "Coco and I jointly own it."
Wei: "Well if you guarantee that you will repay me the debt Coco owes me if she doesn't repay me, and that you will repay me after the Castle Hill property is sold, I will hold off on suing Coco."
Kitsos: "Okay I will, and I will let Coco know that you won't sue us because I promised to pay you if she doesn't. Thank you."

92. According to Ms Wei, she then had a further conversation with Ms Lei about the arrangement. Ms Wei’s evidence was (expressly) that the conversation was in Mandarin, and that it was to the following effect:

Lei: "Theo told me about your discussion. Thank you for accepting his proposal."
Wei: "When are you going to sell the Castle Hill property?"
Lei: "We are in the process of putting it on the market. I know that Theo asked you to pay him $4,000 per week to keep the mortgagee from foreclosing on the Bella Vista property. Our tenants for the Castle Hill property recently left, and we are not receiving any more rent from there. We need $5,000 per week in order to pay the mortgagee for the Bella Vista property. Theo is too embarrassed to ask you as we already owe you so much money, but we do need to extra $1,000 per week to survive."
Wei: "Okay but can you promise me that you will only use the money to pay off your mortgage?"
Lei: "Yes, we will use the money to pay off the mortgage, and after the Castle Hill property is sold, we will pay you all the money I owe you."
Wei: “Okay.”

93. According to Ms Wei, this conversation took place “in or about mid-July 2019”. Ms Wei continued by stating that Mr Kitsos started working for her, “assisting [her] with the work around the business”, and she paid him $5000 each week.
94. Ms Wei deposed that she gave Mr Kitsos a set of keys to the business, her office, and the safe, when he began working for her. Her evidence was that she told him words to the effect of, “please do not copy the keys without my permission, or give the keys to anyone else, especially not to [Lei]”. But according to Ms Wei, while Mr Kitsos was working for her, she observed that Ms Lei “was able to get into the business on a number of occasions, even though she [did] not have a copy of the keys to the business”.
95. Ms Wei also claimed that Ms Lei continued to use her partnership credit card for personal expenses. Ms Wei deposed that she tried to cancel the card in or around late 2019. But she was allegedly told that Ms Lei’s consent was required, because they had jointly applied for the card.
96. According to Ms Wei, she stopped using her credit card in or around May 2022 (seven months after transferring the business to Shun Sheng). But in July 2022, when she received a statement spanning 23 May to 21 June, she saw a payment of $4,700 that she did not recognise (implicitly asserting that someone else had made it without her knowledge). The statement, in evidence, makes clear that there were in fact several “cash advances” in June, totalling $4,700 (with cash advance fees added).
97. Ms Wei exhibited to her affidavit tables setting out Ms Lei’s alleged appropriations of partnership monies. There were three tables, one each for cash, bank withdrawals, and credit card payments. The tables for bank withdrawals and credit card payments were accompanied by extracts from bank statements showing the transactions in question.
98. The bank withdrawals included withdrawals from accounts held in the names of each of the operating companies, including Shuang. As Ms Lei was not a signatory to Shuang’s bank accounts, the withdrawals from those accounts must, on Ms Wei’s case, have been withdrawals made by Mr Kitsos (or by Ms Lei with his permission).
99. The amounts which Ms Wei claimed had been misappropriated by Ms Lei, which were marginally higher than the figures in the statement of claim (see [28] above), were as follows:

(1) Cash (from 7 July 2012 to 30 June 2019), less amounts repaid: approximately $1.96 million.

(2) Cash (from 3 July 2019 to 8 April 2021): approximately $110,000.

(3) Unauthorised bank transactions (from 3 April 2009 to 6 April 2021): approximately $818,000, with approximately $16,000 of this amount attributed to the period after 30 June 2019.

(4) Unauthorised credit card transactions (from 14 November 2009 to 21 October 2019): approximately $60,000, with approximately $7,000 of this amount attributed to the period after 30 June 2019.

100. Ms Wei also exhibited another table, setting out the rent payable to Sunshine Island over the life of the lease (2008 to 2032). Based on this table, she stated that Ms Lei’s share of the rent over the period up to 30 June 2019 was $1.06 million.
101. Affidavit evidence of Ms Lei: Ms Lei’s affidavit was made in March this year.
102. Ms Lei denied taking the amounts of cash alleged by Ms Wei, or for that matter, “any cash from the business that was not agreed”. Ms Lei also denied giving Ms Wei a record of unauthorised cash withdrawals (a reference to Ms Wei’s characterisation of the cash receipts list). According to Ms Lei, every couple of weeks, she and Ms Wei would count the cash, reconcile it with the net figure in the worksheets, and then divide the cash equally between themselves – apart from this, Ms Lei claimed that she did not take any cash from the business.
103. Ms Lei gave evidence that the practice of dividing net cash after reconciliation continued until February 2019. According to Ms Lei (and this evidence was admitted as her assertion of what the payments were for), from that point, she received her profit share as a “reduced fixed amount” – initially, $4,000 per week, and then, from mid-July 2019, $5,000 per week.
104. Ms Lei also denied having made any unauthorised withdrawals and transfers from the business’ bank accounts. Ms Lei gave evidence that most of the items in the schedule to the statement of claim were business-related payments, but noted that in some cases she was unable to identify the withdrawals and transfers (due to insufficient particularisation and the passage of time).
105. Ms Lei responded to Ms Wei’s allegations about rent, by acknowledging the joint obligation to pay rent to Sunshine Island, but claiming that she and Ms Wei had agreed that the business would pay the rent on their behalf. Ms Lei pointed out that the tax returns in evidence recorded the payment of rent. Ms Lei also denied using drugs, borrowing money from workers, or having a gambling problem.
106. Ms Lei gave evidence that, contrary to Ms Wei’s assertion, she did not agree to a termination of the partnership in June 2019 or at any time. Ms Lei did not, however, specifically address the conversations alleged by Ms Wei, or provide her own version of those alleged conversations. Ms Lei maintained that she continued to work in the business after 30 June. According to Ms Lei, she “continued to manage the day-to-day activities of the brothel and participated in decisions about the future of the brothel, including the re-opening of the brothel after the lifting of the COVID restrictions”. In support of this, she exhibited a copy of a WeChat message chain between herself and Ms Wei, beginning on 1 October 2021 (see below). Ms Lei also stated that she continued to have access to the bank accounts used for the business and continued to assist Mr Kitsos with carrying out renovations to the premises.
107. In her affidavit, Ms Lei made her own claims of appropriation of partnership funds against Ms Wei. Ms Lei set out what she alleged were unexplained withdrawals and transfers on the part of Ms Wei, in a schedule to her cross claim, and gave evidence that she had formally requested an account of those amounts. She also alleged that Ms Wei diverted Eftpos payments to non-business accounts, belonging to Sunshine Island, from April 2019. According to Ms Lei, she confronted Ms Wei about this in April 2019, and was told that the old machines were not working, but that she shouldn’t worry, because everything would change soon.
108. Ms Lei gave evidence that the Sunshine Island machines continued to be used, despite her having protested against this on multiple occasions. She obtained copies of Sunshine Island’s bank statements covering March 2019 to April 2021 (January 2021, in the case of one bank), with three different banks. She alleged that they contained deposits consistent with Eftpos payments routinely made in the business.
109. Affidavit evidence of Mr Kitsos: Mr Kitsos’ affidavit was also made in March this year.
110. Mr Kitsos acknowledged his appointment as director of Shuang in early 2019. According to Mr Kitsos, he accepted the appointment because Ms Lei and Ms Wei wanted him to. But he stated that he “was not a good person for this position”, because he did not speak or read Chinese (the language of the personnel and records).
111. Mr Kitsos also gave evidence responding to Ms Wei’s allegations of unauthorised transactions. To the extent that Mr Kitsos was able to identify the payments listed in the schedule to Ms Wei’s statement of claim, it appears that he denied them. He exhibited copies of invoices and payment records corresponding to the payments. He also exhibited a bundle of invoices for works and other business expenses, including summaries. He stated that he was unable to identify some payments, due to the way in which they had been particularised.
112. Mr Kitsos appeared to deny Ms Wei’s evidence that Ms Lei had no involvement in the business after June 2019. He maintained that Ms Lei continued to attend the premises. According to Mr Kitsos, at this time, he supervised the final stages of renovations and maintained the premises. As with Ms Lei, Mr Kitsos did not directly deal with the conversations alleged by Ms Wei.
113. Affidavit evidence of Ms Wei in reply: Ms Wei affirmed an affidavit in reply, in July this year. She maintained that Ms Lei did not pay rent. She gave evidence that the parties met every couple of weeks to reconcile revenue, but that there was usually not much cash left to be paid to her. According to Ms Wei, Ms Lei would say, “I have taken cash”, and Ms Wei would take a record of what Ms Lei had taken. Ms Wei acknowledged that Ms Lei “had possession of the daily books and records”, as had been exhibited to Ms Lei’s affidavit. Ms Wei maintained that Ms Lei was not involved in the management of the brothel after 30 June 2019. She also maintained that “the alleged $4,000 and subsequent $5,000 payments were made to [Kitsos], as set out” in her earlier affidavit. Ms Wei also gave evidence that prior to 1 July 2019, Ms Lei had been responsible for recruiting and managing staff, but that since that date, she (Ms Wei) had been responsible for those matters.
114. Ms Wei also responded to Ms Lei’s allegations about the Sunshine Island Eftpos machines. She gave evidence of having discussed with Ms Lei that the Eftpos machines were not working, and having suggested that they use Sunshine’s. According to Ms Wei, Ms Lei agreed to this. Ms Wei responded to the allegations about her making unauthorised withdrawals, by indicating that she had responded to this in her defence to the cross-claim. Ms Wei also gave evidence that as a result of Ms Lei’s withdrawals from the business bank accounts, the business did not have enough money to pay rent.
115. Further affidavit evidence of Ms Lei: Ms Lei swore a further affidavit in August of this year. In it, she denied that the cash receipts list was a list of monies taken by her. Instead, she deposed that the document appeared to be an amalgamation of cash summaries earlier prepared by her, along with other material and notations created by Ms Wei. Ms Lei also exhibited various documents to establish that she had been overseas or hospitalised for certain periods, during which Ms Wei had alleged cash taking behaviour.
116. Ms Lei did not recall the conversation set out by Ms Wei in her July affidavit, by which, according to Ms Wei, Ms Lei had agreed to the use of the Sunshine Island Eftpos machines. Ms Lei also exhibited further evidence, in the form of annotated bank statements of Yin Yang and Shan Xi, in support of her allegation that Ms Wei had appropriated partnership monies.
117. Ms Lei responded to Ms Wei’s reply evidence about the $4,000 and $5,000 payments. Ms Lei’s evidence, which was admitted on the basis that it be read as an assertion, was that the basis for these payments was her “interest in the partnership business”.
118. Oral evidence of Ms Wei: In examination in chief, Ms Wei was taken through the cash receipts list (see [67] above), and asked who created the different parts of the document and when. I understand Ms Wei to have given the following evidence:

(1) The pages up until the end of 2014 were created by Ms Lei. Ms Wei first saw them between 2015 and 2016. According to Ms Wei, when Ms Lei gave them to her, Ms Lei said, “This is a kind of record to show that ... half of the amount on this record owned by ... should be mine, which is [my] own”.

(2) Pages covering 2015 and part of 2016 were created by Ms Lei. Ms Wei first saw these during the first COVID-19 lockdown in 2020, when Mr Kitsos gradually gave them to her (about once every two weeks). Ms Wei did not think that Mr Kitsos said anything to her at the time of providing the records. After receiving the first page of those records, Ms Wei discussed it with Ms Lei over the telephone and said, “Altogether you owe me a lot of money. When can you pay money back?”. According to Ms Wei, Ms Lei responded by indicating that she could repay the money after she sold the Castle Hill property, and if that was not enough, a further property.

(3) A page covering part of 2016 was created by Ms Wei during the 2020 lockdown. Ms Lei and Mr Kitsos gave her all of the worksheets covering the period from 2015 to 2018. According to Ms Wei, they (presumably a reference to Ms Lei and Mr Kitsos) had “done part of it” and she prepared the rest herself, because they didn’t indicate how much they still owed her. After completing the document (to what point was left unclear), Ms Wei calculated a total figure.

(4) Pages covering the rest of 2016 and 2017 were created by Ms Lei, who gave them to Ms Wei during the 2020 lockdown period. At the time, Ms Lei said something similar to what she had said before, which was to the effect of the document being a kind of IOU, with the figures recording how much she owed Ms Wei.

(5) Pages covering parts of 2017 and 2018 were created by Ms Wei during the lockdown period. According to Ms Wei, she was asked by them (presumably a reference to Ms Lei and Mr Kitsos) to prepare them. After preparing them, she made calculations, kept the documents, and asked Ms Lei if she could repay the money as soon as possible, but made clear that this could be done in instalments.

119. Ms Wei was also asked about further pages exhibited to her affidavit, which appeared to show cash amounts for 2019 and 2020. She said that she prepared them around 2019 to 2021. According to Ms Wei, she created the first four pages (covering through to part of 2020), by every day taking the working records and cash from the safe. She created the fifth page according to the daily record of the business (kept in the safe).
120. Ms Wei was cross-examined on her allegations of cash-taking. When asked whether she was alleging that Ms Lei had taken all of the cash from the safe, every day, Ms Wei responded:

Not every single day she took all of the stuff from the safe. Sometimes, I did but most of the days, it was her

Counsel asked if when Ms Lei took the cash, she took all of it. Ms Wei said that of course she took all of it. Counsel then asked whether Ms Wei took all of the cash, when she took cash from the safe. Ms Wei responded, “if I did, I also took the cash and the worksheet from the safe”. When pressed on why she did so, Ms Wei explained that on one occasion, Ms Lei went back to China, and she needed money to pay expenses. Counsel then asked if both she and Ms Lei, from time to time, each took cash out of the safe and applied it to their own expenses. Ms Wei responded:

Most of time, it was taken by her. I rarely took them. Only when she was not available – she was not there

121. Counsel took Ms Wei to a page of the cash receipts list, covering part of 2018, which Ms Wei had prepared. Ms Wei was shown a page from the business’ daily worksheet, and Ms Wei agreed that she prepared the page of the receipts list by taking figures from that worksheet page. She said that she looked at the last figure on the form, counted the cash, and, if they matched, put the figure on the list. She described the figure as a net cash amount, which was then divided by two to calculate the shares of herself and Ms Lei. Counsel then asked, “it’s not an amount of cash that was recorded on the list as cash entirely taken by Jun, is it?”. Ms Wei said that this was incorrect, and that the figure was the amount taken by Ms Lei.
122. At one point, Ms Wei referred to the fact that Ms Lei had prepared notes indicating who had taken what. When asked where those notes were, Ms Wei said they were on the document she was being shown at the time. Counsel pointed out the absence of notes on the relevant page. Ms Wei responded:

I can’t recall - I can’t recall, it’s quite confused. I shouldn’t say that this is the entire amount of what Jun had taken away, because on the document you can see there are some notes. For example, I - I put the notes, like, “I took $1,000” on that day, or maybe Jun put the notes, like, “I took $1,000” on that day. So, I shouldn’t say that this is the entire amount of what Jun took away.

Counsel then pointed out that in the table annexed to Ms Wei’s affidavit, she had not recorded any of the amounts that she had taken, or taken account of any figures in the handwritten notes.

123. Counsel suggested that the figures which appeared in the cash receipts list were the net cash figures taken from the daily worksheet. Ms Wei responded:

I would like to say that, regarding this document, there were - there is an original document written by Lei Jun and after that someone transcribed the written document into this table, so after this I didn’t check the accuracy of the figures.

So, I can’t say that - whether this is 100% accurate or not, but I have seen the written document by Lei Jun. She gave it to me and also I checked the - that written document, together with the working records, so I would say that document was accurate. But, regarding this document, I can’t say. I’m not sure whether this is 100% accurate.

Can I say something more? For example, in the - on the original document, probably she wrote down, for example, who took how much money on which day, but there’s nothing on this document. So, without checking, how should I know that whether this is 100% accurate with the original document?

124. When pressed on this, Ms Wei’s responses were:

If there it says, like, all, maybe it's not very precise or not very accurate. I shouldn’t say all, because I did take some cash, but very, very little. Most of the cash taken by Coco, and also everyone we owe made notes about it.

...

Maybe it's not very precise, but, well, yeah. Maybe it's not, yeah.

...

I did sign the document, but at that time it was impossible for me to calculate every single figure. Over ten years, it's impossible for me to calculate every single figure together over - over ten years. So, just approximately the figure, just to set out the rough figures. So, it's impossible for me to calculate every single figure together.

...

Even if it's not accurate it would not much of a difference.

125. Despite these responses, Ms Wei maintained that Ms Lei “took most of the cash” – she conceded that she herself had taken “a little”.
126. When asked why she had permitted this to happen, Ms Wei explained that Ms Lei was in charge of the day shift (whereas she was in charge of the night shift), and very early, almost every morning, Ms Lei took the cash away. Ms Wei alleged that she would ask Ms Lei:

Why did you take all the cash? Why didn’t you leave some cash?”

Ms Wei added, rhetorically, “What else can I do?” Elaborating on her answer, she added, that after finishing the night shift at 2am or 3am, she needed a rest. Ms Lei would arrive at the brothel at some point between 6am and 8am, and would take the money. According to Ms Wei, she could only ask Ms Lei for her portion, but could not do anything else.

127. Counsel put to Ms Wei that she could have changed the lock on the safe. In response, Ms Wei explained that even if she had done this, Ms Lei could have asked her for cash as well, because there had been a partnership. Counsel then put to Ms Wei that after changing the lock on the safe, or having the cash paid into the bank, measures could have been taken to ensure that the net cash was protected and divided up equally. Ms Wei suggested that these steps would not have helped, because Ms Lei could simply ask the receptionist for money. When counsel suggested that this did not answer the question he had asked, Ms Wei explained that Ms Lei would have had an argument with her, and that if she deposited cash into the bank, Ms Lei would have withdrawn it.
128. I found this evidence from Ms Wei very unconvincing. But even more was to come when counsel produced envelopes bearing notations which Ms Wei accepted represented calculations for the division of cash takings between herself and Ms Lei. The calculations had been performed in Ms Wei’s own handwriting. The cross-examination demonstrated quite clearly that, for the periods of time covered by those calculations (in each case, a week or so, in November 2017 and January 2018, respectively), the cash had been divided equally between the two partners. In one case, this was after $4000 had been paid to Mr Kitsos and other payments had been made to Ms Lei for cleaning. Ms Wei accepted that after the calculations were done, she kept her share of the balance.
129. Counsel for Ms Lei challenged Ms Wei’s claim that the establishment of Shuang had been Mr Kitsos’ suggestion. Counsel referred Ms Wei to the final page of the final entry in the Shan Xi bank statement, which covered the period up to March 2019. The statement records that on 6 March 2019, the entire balance (approximately $46,000) was removed from the account. The narration for the entry was “Confiscation Warrant”. On 31 March, the account (still with a nil balance) was closed.
130. Counsel asked me to infer from the statement that in March 2019, the brothel’s operations had attracted the attention of the tax authorities to the point where its assets were being seized, presumably to satisfy tax liabilities. Counsel suggested that this was the real reason for the incorporation of Shuang as the operating company for the brothel, in place of Shan Xi, which took place in the following month. The request to establish Shuang, counsel suggested, was from Ms Wei to Mr Kitsos, rather than the other way around.
131. Under cross-examination, Ms Wei claimed to have little or no understanding of the relevant events. She referred to the debit entry in the bank account as a “freezing” of the account. In its usual meaning, that is a temporary step, whereas the phrase “confiscation warrant” connotes a permanent appropriation of the contents of the bank account, pursuant to some prior legal process.
132. Even after the distinction was put to her, however, Ms Wei continued to describe what had happened as a freezing of the bank account. She said that the bank’s staff had described what had happened in that way. But according to Ms Wei, the bank staff member she had spoken to had not known why the account had been “frozen”. According to Ms Wei, she had read the description when the bank statement had arrived by post, but had not checked the meaning of the words at that time – she only understood those words for the first time when interpreted to her during the cross-examination.
133. I did not find Ms Wei’s response to this line of questioning at all persuasive. I find it difficult to believe that she was unaware of what was going on. In the end, she did not have any real response to counsel’s suggestion that Shuang was incorporated, with Mr Kitsos as the sole identified shareholder and director, in order to try to stay one step ahead of the tax authorities.
134. Counsel also referred Ms Wei to evidence in her 2021 affidavit, in an effort to show that it was she who had approached Mr Kitsos. Counsel showed Ms Wei the following paragraph from that affidavit:

From around 30 June 2019 after my business partnership with the Defendant terminated, I decided to approach the Defendant's husband, Theo Kitsos to try and help me run the business under a temporary arrangement where he would help out in the business. I hoped this temporary arrangement would work out because the Defendant owed both Sunshine and I so much money that I could not afford to lose the relationship with Theo and through him, with her (over the years both the Defendant and Theo made various and numerous promises that they would pay me back).

135. Counsel then suggested to Ms Wei that it was the case that she had approached Mr Kitsos, and it had been her idea to set up a new arrangement with a new company in April 2019. Ms Wei denied this. When Ms Wei was pressed on having affirmed this in her affidavit, she replied:

What they proposed - they - they proposed it, and I agreed it. After I agreed, I decided yes.

136. Ms Wei was challenged on her accounts of the alleged July 2019 conversations with Mr Kitsos and Ms Lei. Counsel for Ms Lei took Ms Wei to parts of her December 2021 affidavit (which was tendered but not read). Ms Wei agreed that there was no mention in the 2021 affidavit of a conversation with Mr Kitsos or Ms Lei about them selling their house, agreeing to an account or using the word, guarantee. Counsel suggested that this was because Ms Wei had never had conversations where such matters were discussed, and that the alleged conversations in Ms Wei’s 2022 affidavit were subsequent invention. Ms Wei denied these suggestions, but did not offer any other explanation for omitting reference to these matters in her earlier affidavit.
137. In the course of cross-examination, Ms Wei also cast doubt on her affidavit evidence that she started paying Mr Kitsos $4000 a week after the alleged conversation with him in the first half of July (see [91] above). She appeared to suggest that prior to the conversation in her affidavit, there had been an earlier conversation to the effect that they (Mr Kitsos and Ms Lei) did not have enough money, and so borrowed money from her.
138. Ms Wei was cross-examined on her evidence that Ms Lei’s involvement in the partnership business ceased after 30 June 2019. Counsel put to her that Ms Lei kept working in the business, continued assisting Mr Kitsos, and net cash from each day continued to be shared between herself and Ms Wei. Ms Wei denied these propositions.
139. Counsel also sought to challenge Ms Wei’s evidence that Ms Lei left her keys at the brothel, pursuant to the alleged agreement of 30 June 2019. In the course of cross-examination, counsel produced two sets of keys and showed them to Ms Wei. Ms Wei appeared to agree that one set was Mr Kitsos’. Counsel suggested that the other was Ms Lei’s. Ms Wei prevaricated somewhat but eventually her evidence was that she did not know.
140. Counsel asked Ms Wei about a notation which appeared on the worksheet for 24 January 2020. She agreed that the notation meant that Ms Lei purchased fruit as an offering to Buddha, and that it was in her handwriting. She also agreed that she was recording the fact that Ms Lei had purchased fruit as an offering to Buddha, which was the fruit being put in the brothel for that purpose. Counsel suggested that Ms Lei did so because she was working in the business. Ms Wei denied this. Somewhat unconvincingly, Ms Wei suggested that business money had been used to purchase the fruit, even though there was no connection between the business and the offering. When asked why she had paid with business money then, she answered:

because she said she bought some fruits for the Buddha but I didn’t want to use her fruits to offering the Buddha, so I wanted to give her money. But at that time, I didn’t have money with me so I used the business money to pay her first.

Counsel asked Ms Wei if she was saying that Ms Lei turned up, out of the blue, for no reason, just to give her fruit for the Buddha. Ms Wei agreed.

141. Counsel also asked Ms Wei about a page of the worksheet for 25 February 2020. Ms Wei appeared to accept that it contained a note, “Give Yun Long Jun Lei payslip fee $150 equals left $1000”, in her handwriting. Ms Wei agreed that Yun Long is Ms Lei’s nephew. Counsel asked if Ms Wei recalled that Ms Lei had requested that Yun Long have a payslip prepared for him for a car loan application, to which Ms Wei responded, “maybe, probably. I really can’t recall”. Counsel then asked if the cost of preparing the payslip by the accountant was $150, and Ms Wei thought this was right. But Ms Wei denied counsel’s suggestion that this amount was deducted from money payable to Ms Lei of $1000, and also denied counsel’s suggestion that the note was about an adjustment to money owed to Ms Lei because she was still working in the business at that time.
142. A Shuang bank statement in evidence contained a credit, received from the ATO, on 20 September 2020, of $18,000. Ms Wei accepted that this was money received by the business through the Commonwealth Government’s JobKeeper program. There were then various debits made on 26 September, each in the amount of $1308. Two had as their description, “PAYG”. A further two were described, “PAYG Jun”. And a further two were described, “PAYG Wei”. Ms Wei accepted that the two payments represented JobKeeper payments to Ms Lei, but she denied that she arranged for those payments because Ms Lei was working in the business at the time. Ms Wei confirmed that she asked her accountant to apply for JobKeeper, but suggested that “they” (presumably, Mr Kitsos and Ms Lei) had asked her to.
143. When asked to explain why Ms Lei was paid JobKeeper, despite supposedly not working in the business, Ms Wei responded:

They requested me to do so. I was very hesitated because we are - we could apply for it, for the initial three months, but after that, actually we shouldn’t apply for it anymore because the business started running. But [Kitsos] said we should continue, and [Kitsos] said, please add my wife's name on it as well.

144. When asked why she did not tell Mr Kitsos not to make Jobkeeper payments to Ms Lei, because she was not working in the business, Ms Wei responded:

Because they were - because he said they didn’t have enough money to use.

145. Oral evidence of Ms Lei: When the time came for Ms Lei to give her oral evidence, counsel for Ms Lei sought to supplement her evidence in chief. Counsel intimated that she would testify that the bunch of keys identified in Ms Wei’s cross-examination did indeed belong to her, and had been in her possession since 2019.
146. Counsel for Ms Wei, however, objected to the grant of leave to lead this evidence. Counsel noted that the keys had not been referred to in earlier testimony. Counsel accepted that it was a legitimate forensic tactic not to do so, and to confront Ms Wei with the keys for the first time in cross-examination. But, counsel argued, having failed to obtain a clear admission that the keys were Ms Lei’s, it was not legitimate to supplement the evidence in chief, which should have been reduced to documentary form in advance of the hearing. Counsel for Ms Wei submitted that she would be prejudiced if that course were permitted, as she would not have had proper notice to meet the allegation that the keys produced at the hearing were in fact the same keys allegedly left in 2019. Counsel suggested that there were many places that the keys could have come from.
147. In reply, counsel for Ms Lei submitted that the issue was an important one which she should be permitted to develop. Counsel also suggested that there was no real prejudice to Ms Wei.
148. I cannot accept these submissions. Directions that the parties present their evidence in chief by means of affidavit are an important way of ensuring that the proceedings are conducted openly, fairly and efficiently. They are of particular importance to proceedings in this List.
149. In some cases, it would be legitimate to wish to confront the witness in cross-examination with evidence the witness has not previously seen. But in such cases, the Court may be asked to vary the usual pre-trial directions to permit that to happen (within the limits of procedural fairness, of course). Where a party chooses to confront the witness without obtaining such a variation, there is every reason to hold that party to its forensic choice.
150. Furthermore, I think that there would have been clear prejudice in allowing the evidence to be led belatedly. Had the evidence come forward in advance of the trial, it might indeed have been possible for Ms Wei to address the allegation about the keys, and in particular the possibility that they had been obtained at some point after 30 June 2019. It might also have been possible to obtain expert or other evidence about whether the keys fitted the same locks as Mr Kitsos’ keys. For these reasons, I refused the application to lead the evidence.
151. Ms Lei was cross-examined on the cash receipts list. She was shown the first page, and said that some of the handwriting on it was hers, and some was Ms Wei’s. She agreed that the left-hand column contained lines with a date, which she wrote at the time when she and Ms Wei would sit down together and “do the reconciliation”. The date was written by reference to the worksheets. Later, she described the process as: “we sat down together and we checked against accounts and I wrote this thing”. According to Ms Lei, she had not written any part of the document before sitting down with Ms Wei.
152. The cross-examination continued by reference to two of the pages in the list:

Q: Do you agree that a particular point in time you and [Wei] were together looking at the documents at page 1435 and 1436?

A. INTERPRETER: It should be, but it was a long time ago, so, I can't - so I can't be 100% sure.

Q. Do you recall what year it was?

A. INTERPRETER: I didn't put any year on those two pages, so I can't recall which year that was.

Q. Was it before 1 January 2020? Or after 1 January 2020?

A. INTERPRETER: Before.

Q. Is the document at page 1435 and 1436 an attempt to account for cash the brothel business had taken in?

A. INTERPRETER: Yeah, pretty much.

153. It was put to Ms Lei that she, on occasion, went to the safe and took out cash for herself. She denied this. Counsel asked if she had never taken cash for herself out of the safe. Ms Lei replied, “there should be a note”. I then asked her if she was saying, “never once”, to which Ms Lei replied, “No, it was a long time ago, I can’t remember”.
154. Ms Lei was not cross-examined about the allegations about bringing drugs into the brothel and borrowing from the sex workers. But she was cross-examined briefly on her gambling activities. When asked if she was at Parramatta Leagues Club gambling, she answered, “occasionally”. When asked if she played poker machines at Wentworthville Leagues Club from time to time, she gave the same response. She confirmed that she also used to be a member of Castle Hill RSL Club. She could not remember when she stopped being a member but confirmed that she played poker machines there. The cross-examination continued:

Q. I suppose every time you played the poker machines, you came out a winner?

A. INTERPRETER: Not necessarily.

Q. Do you agree with the proposition that from all your poker machine gambling you have made a loss?

A. INTERPRETER: No, I just did that for recreational purpose.

Q. Do you agree that over all your time using poker machines you have lost money?

A. INTERPRETER: Yes. Yes, it happened.

Q. Is it the case, between 1 January 2019 and 30 June 2019, that you played poker machines at least once per week?

A. INTERPRETER: No, not really.

...

Q. Could you tell me in the period 1 January 2019 to 30 June 2019, how much money you put through poker machines at Wenty's Leagues Club?

A. INTERPRETER: I don’t know. I don’t know.

...

Q. Between 1 January 2019 and 30 June 2019, you agree that you gambled using poker machines at Wentworthville Leagues Club?

A. INTERPRETER: Yeah.

Q. And you'd agree that you put over $100,000 through the poker machines at Wentworthville Leagues Club in the period 1 January 2019 to 30 June 2019?

A. INTERPRETER: No.

Q. You know the fact that you put over $100,000 through the poker machines in that period, don’t you?

A. INTERPRETER: No.

Q. When you use a poker machine, do you put in cash?

A. INTERPRETER: Yes.

Q. In the period 1 January 2019 to 30 June 2019, you obtained the cash for your poker machine recreation from the brothel, didn’t you?

A. INTERPRETER: No.

155. Some documents produced by Castle Hill RSL Club and Wentworthville Leagues Club were in evidence. These were records of Ms Lei’s use of poker machines at those clubs for particular periods. The Wentworthville records showed: between October 2013 and August 2014 – a total turnover of $656,000, with winnings of $631,000 (and so a “spend” of $25,000); between November 2018 and June 2019 – a total turnover of $180,500, with winnings of $166,000 (and so a “spend” of $14,500). A document said to contain Castle Hill records, showed amounts spent between February 2009 and January 2014 totalling $107,000. It did not show winnings.
156. Counsel put to Ms Lei that she was not receiving any profit share after 30 June 2019, to which Ms Lei replied, “I received profit share all the time”. I then suggested to counsel for Ms Wei that his questions should distinguish between payments to Mr Kitsos and payments to Ms Lei. The cross-examination continued:

Q. After 30 June 2019, [Kitsos] was receiving money for the brothel, wasn't he?

A. INTERPRETER: Both of us were receiving money.

Q. Do you agree that for a period of time payments were made to you and [Kitsos] by cheque?

A. INTERPRETER: For a period - for a period of time we were paid by cheque, but I can't remember exactly.

Q. The cheques were given to [Kitsos], weren’t they?

A. INTERPRETER: No.

Q. Theo banked the cheques to your knowledge, didn't he?

A. INTERPRETER: Yes.

...

Q. Do you see that's a Commonwealth Bank statement for Shuang for the period of 4 February 2020 to 1 May 2020?

A. INTERPRETER: Yep.

Q. Do you see there's a debit entry on 7 February of $5,000?

A. INTERPRETER: Yeah, I see that.

Q. Do you see there's a notation next to the $5,000 Leo?

A. INTERPRETER: Yes.

Q. If you look at the notation withdrawal branch, Stockland Mall, Baulkham Hills?

A. INTERPRETER: Yes.

Q. Do you accept that shows that a cheque was drawn to pay somebody $5,000?

A. INTERPRETER: If I remember that correctly, this was actually cash was drawed, and I wish for this cash with [Kitsos] and it - it was our profit share.

Q. When you say, our profit share, you're referring to you and [Kitsos], are you?

A. INTERPRETER: [Kitsos], my husband.

157. Ms Lei was re-examined on the first page of the cash receipts list. She was asked to clarify what she had meant by “an account”, when she had said “it was an attempt to account for cash from the business”. I allowed the question, over objection, but made clear that it was limited to what Ms Lei meant when she used the word translated as “account”. Ms Lei answered:

So, for every two weeks we sat together in the office and we got the worksheet and also the cash with us, and then we do the calculation and then we split the money. That’s what we do.

158. Ms Lei was also re-examined about her answers to “questions about cheques for $5,000 which were provided to [her] and [Mr Kitsos]”. The re-examination proceeded:

Q. And you were asked “Were the cheques given to [Kitsos]?” Do you remember that question?

A. INTERPRETER: Yes.

Q. And you said “No”?

A. INTERPRETER: I probably didn’t hear the question very clearly at the first time, but the cheque was profit share that I deserved from the business, and [Wei] didn’t give us cash at that time. She gave us a cheque for us to withdraw money from the bank.

...

A. INTERPRETER: So, that $5,000 was my profit share. [Wei] took all the money and she gave us a cheque for us to go to the bank and to withdraw the $5,000 from the bank.

159. Ms Lei was then taken to a page in the Court Book displaying three photocopied cheques. All of them were made payable to Mr Kitsos for $5000, by Shuang, and were signed by Mr Kitsos. They were dated 2 September, 12 September and 17 September, respectively. Counsel then asked if those were the cheques Ms Lei had been talking about, and she agreed.
160. Oral evidence of Mr Kitsos: Mr Kitsos was, like Ms Lei, cross-examined on Ms Lei’s gambling activities. When asked if he agreed that in May 2021, Ms Lei played poker machines, Mr Kitsos answered, “possibly”. He agreed that he had seen Ms Lei play poker machines between 2002 (when he first met her) and May 2021. When asked how often he would see her play poker machines during that period, Mr Kitsos answered, “only if we were together”. He was then asked how often he would see Ms Lei play poker machines between 2004 and May 2021, and answered, “not very often”. He accepted that Ms Lei may have played poker machines on occasions, when he did not know she was doing so.

Alleged October 2020 agreement

161. Ms Wei’s case was that she reached a further oral agreement with Ms Lei and Mr Kitsos in October 2020, at the same time as Ms Lei signed an IOU. The IOU was in evidence. It was written in Chinese. The translation with which I was provided reads:

Loan Receipt

Jun Lei, [driver licence number and address], owes money to Wei Xue Feng. The specific amount is unknown to both parties and is being counted. If the calculation is over the amount is agreed by both parties, Jun Lei will repay Wei Xue Feng according to the final amount. This loan receipt is hereby signed.

Eventually pay off all the amounts owed to Wei Xue Feng.

Signed by: Jun Lei

2020.10.09

162. In her affidavit, Ms Wei gave evidence that she had a conversation with Mr Kitsos on 30 September 2020, (prior to the making of the IOU) which led to payments to him being suspended. Her evidence of the conversation was:

[Wei]: "It has been more than a year since you told me you are going to sell the Castle Hill Property and pay me what Coco owes me. When is that happening?"

Theo: "We are still waiting for a suitable offer”

[Wei]: "This is ridiculous, I keep paying you and you are not holding up your end of the bargain. You and Coco did not live up to your promise. I am not paying you anything.”

163. She then gave evidence of an alleged conversation between her, Mr Kitsos and Ms Lei, on or about 9 October 2020. The conversation (presumably in English) was to the following effect:

Wei: "You promised that you will sell the Castle Hill property, it has been more than one year since you made the promise and nothing has happened. I can't keep waiting. Coco, you need to repay me all the money you owe me now."
Kitsos: "We can't afford to pay you, we have not sold the Castle Hill property yet. We are going to list it for auction sale, this should speed things up."
Wei: "This is ridiculous! You cannot just keep delaying and not pay your debt."
Lei: "Yes, I know I owe you a lot of money. Can you please give us more time to sell the Castle Hill property?"
Wei: "No, I am not going to believe you. You need to write me an IOU."
Lei: "I can give you an IOU, but how much do I actually owe you?"
Wei: "You owed me at least $1.1 million. Leave the amount out on the IOU I will calculate how much you owe me and fill it in. Once the Castle Hill property is sold, you need to pay me back all the money that you owe me."
Lei: "Okay, the proceeds from the Castle Hill property is definitely enough to cover the $1.1 million that I owe you. Will you keep paying Theo $5,000 per week?"
Wei: “Okay, I will give you and Theo another chance. If you don't pay me after the Castle Hill property is sold, I will seriously consider suing you and Theo."

Ms Wei exhibited a copy of the IOU and its translation (which I have extracted above).

164. Ms Wei gave evidence that after the above 9 October conversation, she recommenced paying Mr Kitsos $5,000 per week.
165. In her affidavit, Ms Lei did not expressly deny Ms Wei’s account of the 9 October conversation. She did, however, give evidence of an argument between her and Ms Wei, in around October 2020, about Ms Wei’s failure to provide financial records. According to her, they had a conversation (presumably in Mandarin), to the following effect:

Wei: "You owe me money!"

[Lei]: "Why you do not give me a number"

[Wei]: "/ need money now!"

166. Ms Lei gave evidence that:

Foremost in my mind at that time was the need to preserve our business relationship, for this reason I promised to pay Wei whatever was found owing after a proper account was conducted

She also exhibited a copy of the IOU agreement, and the translation of it provided by Ms Wei. But she disagreed with the use of the word “loan” in the translated document. According to her, it should read, “IOU Agreement”.

167. Mr Kitsos did not, in his affidavit, respond to Ms Wei’s account. Ms Wei, in her reply affidavit, did not respond to the conversation alleged by Ms Lei either.
168. Ms Wei was cross-examined on her evidence that she stopped making weekly payments to Mr Kitsos between 30 September and 9 October. She agreed that the note recording those payments on the cash receipts list, which she had prepared, showed five payments in October 2020, and that this was what had happened. Counsel suggested that the statement in the affidavit about stopping payments to Mr Kitsos was incorrect. Ms Wei did not agree. I think, however, that this position was untenable. The statement was falsified by a document written by Ms Wei herself.
169. Ms Wei was also cross-examined about a note made next to the October 2020 column in the receipts list. Ms Wei agreed that it was in her handwriting. She also agreed that it said, “1 July 2020 to 30 September”, “account cleared” or “account settled”, and in brackets, something to the effect of, “similar to what we did between 2008 and 2012”.
170. Counsel put to Ms Wei that she made the note because Ms Lei had asked her to carry out a reconciliation for the period 1 July to 30 September 2020, so as to check whether the $5,000 weekly payments fairly reflected Ms Lei’s profit share at the time. Ms Wei denied this. The cross-examination continued as follows:

Q. I want to suggest to you that that conversation I put to you did occur between you and Jun in about October 2020.

A. INTERPRETER: What conversation?

Q. The conversation in which she asked you to carry out a reconciliation with her for the period 1 July 2020 to 30 September 2020 in order to check whether the profit share of the business was reflected, more or less, in the $5,000 payments.

A. INTERPRETER: Incorrect. No, it didn't occur. No.

Q. But you certainly agree you made that note?

A. INTERPRETER: That's my handwriting.

Q. And that it records the fact that a reconciliation for that period was done?

A. INTERPRETER: No. No.

...

Q. Why did you make a note of the period 1 July 2020 to 30 September 2020 account settled or cleared? Why did you make that note?

A. INTERPRETER: I think it was when I prepared my bookkeeping, because I need to pay the GST, and I made this note, because all the accounts already settled at that time.

Q. The note doesn't refer to GST, does it?

A. INTERPRETER: Didn’t settle with her.

Q. But the note doesn't refer to GST, does it?

A. INTERPRETER: This refers to GST.

Q. What I want to suggest to you is that a reconciliation was carried out and you understood the reason for it being carried out was that a check was being done on the profit share of the business against the $5,000 payments.

A. INTERPRETER: No, incorrect.

HIS HONOUR

Q. What were you reconciling for GST?

A. INTERPRETER: Ever quarter I provided a bank statement to our accountant. Our accountant will do that for us.

Q. A bank statement?

A. WITNESS: Bank statement and some cash. Not 100%, but some cash.

Q. What was the significance of the reference to 2008 to 2012?

A. INTERPRETER: Because I think from 2008 to 2012 maybe not 2012 or yeah should be 12, and because during that period we did GST lodgement, also the tax lodgement, but afterwards because we couldn't get the time worksheets in time, so we didn't do that.

171. I have reservations about Ms Wei’s evidence on this issue. She did not seem to dispute that the note indicated that some sort of reconciliation and settlement was undertaken by the parties at the time. Ms Wei’s attempt to explain this away by reference to GST made no sense to me. I am left with the impression that the cash receipts list (or at least that part of it) may well have been prepared for reconciliation or settlement purposes.
172. Counsel also cross-examined Ms Wei on the version of events in her December 2021 affidavit. In that affidavit, she had not mentioned any conversation in which Ms Lei or Mr Kitsos said they owed her a sum of at least $1.1 million, or at least that amount. Ms Wei was asked to explain the omission. The cross-examination continued:

A. INTERPRETER: This affidavit actually was not about the account, it was about the allegation from the other party. So, that's why I didn’t include the conversation regarding the account in this affidavit.

Q. But this is an affidavit that you prepared and affirmed and filed in the proceedings when you commenced the proceedings. Isn't that right?

A. INTERPRETER: Yes.

Q. And, clearly, these conversations that you rely on now are important conversations from your point of view, aren't they?

A. INTERPRETER: Yes.

Q. And if you thought that Jun or Theo owed you a debt of $1.1 million, which you were capable of suing on, that's something that, I suggest to you, you would have included in your affidavit when you commenced proceedings.

A. INTERPRETER: No, they are two different things.

Q. See, why didn’t you communicate to Jun and Theo and the Court when you commenced proceedings that you thought you had a debt of $1.1 million that you could sue on? Why didn’t you do that?

A. INTERPRETER: I had a communication a long time ago with them.

Q. I don’t think that answered my question. My question was, why didn’t you communicate in your affidavit to Theo and Jun and the Court when you commenced proceedings that you thought you had a debt of $1.1 million you could sue on? Why didn’t she do that?

...

Q. Why didn’t you indicate in your affidavit when you started these proceedings that you thought you had a debt of $1.1 million you could sue on?

A. INTERPRETER: Because regarding the figure, I knew that the figure actually - I don’t know how much the exact figure it is, but definitely it's higher than $1.1 million, so, at that time I was not sure about the exact figure. That's why I didn't bring the figure at that time.

Q. Is it something that you thought of after December 2021?

A. INTERPRETER: December 2021? I thought about it. I'm not sure about this, because I told them before that if you don’t repay me money I will sue you.

173. Counsel also put to Ms Wei that the version of events in her 2022 affidavit did not include Mr Kitsos, as distinct from Ms Lei, acknowledging a debt of $1.1 million. Ms Wei denied this. But when Ms Wei was asked to identify where Mr Kitsos had said that, the cross-examination continued in the following way:

A. INTERPRETER: In this conversation he didn’t say that, but he said in this conversation that after this sale, because of your property, they would repay the money to me.

Q. But he never said to you, did he, that he acknowledged that [Lei] owed a debt of $1.1 million or at least $1 million. That was never said, was it?

A. INTERPRETER: Who - who are you referring to? Who?

Q. In this conversation, as you’ve recorded it, [Mr Kitsos] does not say to you anything about him acknowledging that Jun owed a debt of $1.1 million or at least $1.1 million.

A. INTERPRETER: No. Incorrect.

Q. Where in the conversation, as you’ve recorded it, does [Mr Kitsos] say anything to that effect?

A. INTERPRETER: [Ms Lei], together with [Mr Kitsos], they acknowledged, that’s why they wrote down an IOU. So, what else do they need to say in this conversation.

174. After making each of these points (and others) to Ms Wei, counsel put to her that the September and October conversations alleged in Ms Wei’s 2022 affidavit (above) did not occur. But Ms Wei did not accept this, and maintained her position.
175. Ms Lei was briefly cross-examined on the IOU. She gave evidence that after she wrote the document, she handed it to Ms Wei. According to Ms Lei, she was also having a conversation with Ms Wei at the time she wrote the document, and at the time she handed it to her. She was not asked about what was said in the conversation.

Events in 2021

176. February 2021: In her 2022 affidavit, Ms Wei gave evidence that on or about 13 February 2021, she became aware that the Castle Hill property had been sold. She stated that she had a conversation with Ms Lei to the following effect:

[Wei]: "Now that the Castle Hill Property is sold, can you and Theo repay me now?"

[Lei]: "There is some thing special about this sale, the settlement period is really long, we will receive the proceeds in or around May or June ."

177. According to Ms Wei, after that conversation she frequently asked Ms Lei and Mr Kitsos whether they had settled and received the proceeds of sale. On each time they would tell her to wait, as they had not been paid.
178. In the end, this evidence does not appear to have been disputed by Ms Lei or Mr Kitsos.
179. April 2021: In April 2021, there was an incident at the brothel. Ms Wei and Mr Kitsos exchanged text messages on 22 April. The first text was sent at “7:05” and attached a video. This video was in evidence – the Court was provided with a copy by Ms Wei’s representatives. It is only ten seconds in duration. I was told that it was recorded on a CCTV camera at the brothel. It does not have a date or time stamp.
180. In the video, a woman enters a room from the bottom right corner. She is wearing a hooded item of clothing and carrying something in her right hand. She walks immediately to the CCTV camera and covers it. Most of the woman’s face is visible just before she covers the camera. It is common ground that the woman in the video is Ms Lei.
181. Below the video, were the following messages:

Kitsos: Criminal behavior!

Wei: Hi [Kitsos] Yesterday 19:18-19:20 Only two minutes She used some thing covered camera

Kitsos: Yes I got the video

182. The following messages were dated 23 April, with the first message timestamped, “9:59”:

Kitsos: Hi [Wei] [LEI] was not at home when I left this morning So she still have keys Don’t leave any money in safety box pls Sorry Tnx

Wei: Ok yes thanks

183. At “5:50” on 23 April, Mr Kitsos messaged Ms Wei:

Hi [Kitsos] If u need any money for use u just tell me. Or other way Every week I still give you $5000, U pick up from the receptionist When I send u msg after

184. In her principal affidavit, Ms Wei deposed that on about 22 April 2021, she discovered that cash was missing from the safe. She spoke to Mr Kitsos by telephone that morning, shortly after making the discovery.
185. Each witness was cross-examined about the April 2021 video. Ms Wei described the room visible in it as a storage room, where the workers could store valuables. Ms Wei also indicated that the safe was located in that room. Ms Lei agreed that there was a safe in that room. Ms Lei also gave evidence that people change clothes in that room. Mr Kitsos gave evidence, in cross-examination, that the room was the locker room or changeroom and agreed that the safe was kept in it.
186. It was put to Ms Lei that she covered the camera so it could not record what she was doing. According to Ms Lei, she covered the camera because there were sex workers getting changed next door. When pressed on the coverage of the CCTV camera, Ms Lei gave evidence that the camera did not cover the adjoining room, but that sometimes the workers came to the room in the video when changing.
187. Ms Lei was also cross-examined on what she was wearing in the video. She agreed that she was wearing a jacket that is often worn outside to protect the wearer from rain and cold. She did not agree that she was wearing the hood so as to obscure her face. Counsel put to her that she was wearing clothes that normally would not be worn inside a brothel, to which Ms Lei answered, “not really”. Counsel then put to her a series of questions, the thrust of which was that in a brothel, of all places, it would not be cold indoors, but Ms Lei would not agree.
188. It was put to Ms Lei that after she covered the video camera, she opened the safe with a key. Ms Lei denied this. When asked where the key was, she answered, “at home”. She also denied that she had taken the key from Mr Kitsos, that morning, without his permission. It was further put to Ms Lei that she had opened the safe, and that after she had done so, she took out cash, and then spent the cash gambling – Ms Lei denied each of those propositions.
189. Counsel put to Ms Lei that when she arrived at the brothel on that day, she went straight to the room where the safe was kept. Ms Lei denied this and indicated that she had been at the brothel “for a while” before the events shown in the video.
190. I asked Ms Lei why she went into the room. She answered that she had a few clothes with her which the workers needed to try on. Counsel asked Ms Lei about the fact that she was not carrying clothes for the workers in the video. Ms Lei explained that she had the clothes with her and put them on another table – she had entered downstairs, had a chat with workers there, went upstairs, put the clothes on a table, and then entered the room depicted in the video.
191. In his cross-examination, Mr Kitsos confirmed that Ms Wei had sent him the video by text message (see above), and that by saying “criminal behaviour” he was commenting on what he saw in the video.
192. Mr Kitsos was also cross-examined on some of the other text messages exchanged between him and Ms Wei. He was taken to the messages on 23 April, commencing at 9:59 (see above). Counsel put to Mr Kitsos that he was concerned, at the time, that Ms Lei was going to use a key to the safety deposit box to open it and take money. Mr Kitsos denied this. I then asked Mr Kitsos why he asked Ms Wei not to leave any money in the safety box. The following exchange occurred:

Kitsos: Your Honour, I was just being sarcastic. These people are adults, they can work all this stuff out themselves. I’m—

His Honour: Why did you say it?

A. Why did I say it? Because if it was an issue, she shouldn’t leave money in the safe.

Q. Why write to her at all? Why send her a message at all?

A. Well, the first message with the video, I don’t even know if my wife’s been identified in that video. But I just - sarcastic, it’s criminal behaviour. I don’t know - I’m - these people are running the business themselves, it’s got nothing to do with me.

Q. Yes, I’m just asking you though.

A. Yeah, sorry, yeah, that’s—

Q. I’m asking you why you sent the message?

A. Because she’s asking me - well, she just showed me that video.

Q. Well no, that’s the day before, isn’t it?

A. Okay.

...

Q. My question is, why did you send that [email] at that particular date [23 April] at that particular time [9:59]?

A. Can I see previously to that what I - what was sent to me? Is that possible or not?

Q. Well—

A. No, okay. Well, I - I just sent that message.

Q. If you can remember?

A. Not really, no.

Q. Can you remember why you sent the message?

A. Not the specific reason, no.

Q. Can you remember the context?

A. Not really, no.

193. Counsel put to Mr Kitsos that by saying, “[s]o she still has keys”, he was referring to his set of keys. Mr Kitsos denied that. Counsel also put to him that by saying, “[d]on’t leave any money in safety box, please” he was giving a warning to Ms Wei. Mr Kitsos answered, “I was being sarcastic, there’s no warning”. Counsel asked what was sarcastic about that, to which Mr Kitsos responded, “I don’t know what else to say to her”. Counsel suggested that Mr Kitsos’ text message was unsolicited, but Mr Kitsos denied this too.
194. Mr Kitsos was then taken to the 23 April, 5:50 message (see above). Counsel asked Mr Kitsos whether Ms Wei was paying him $5000 per week at the time. Mr Kitsos answered, “Not me personally”. Mr Kitsos agreed that Ms Wei was leaving cash at the brothel for him to collect at that time, and the sum of money that she was leaving was $5000. But Mr Kitsos denied that he had personally collected the $5000 each week.
195. June 2021: In her principal affidavit, Ms Wei deposed that in or around June 2021, she a had a conversation with Mr Kitsos to the following effect:

[Wei]: "Have you received the proceeds from the sale of the Castle Hill Property? Can you pay me Coco 's debts owed to me?

[Kitsos]: "We have received the proceeds from the sale, and deposited the proceeds into the Bella Vista Property mortgage. We cannot repay you now”

[Wei]: "What do you mean? You promise to repay me when you sell the Castle Hill Property if I pay you $5,000 per week to help you get by"

[Kitsos]: "I've repaid a lot of Coco 's debt, I borrowed money from my dad and my son, I need the $5,000 to pay off their debt. I am sorry, there is nothing else I can do"

Ms Wei alleged that she stopped paying Mr Kitsos $5000 per week after the telephone call.

196. Ms Lei gave affidavit evidence that she stopped receiving her profit share at around the end of June.
197. Ms Wei was cross-examined on her evidence that she stopped paying Mr Kitsos $5000 per week after the June 2021 telephone call (see above). But Ms Wei denied that she ceased paying him after this call. Counsel then put to her that she stopped paying him in June 2021 because the business ceased to trade. Ms Wei denied this.
198. October 2021: Ms Lei exhibited to her March affidavit what she claimed was a copy of a WeChat message chain, between her and Ms Lei, beginning on 1 October 2021. At that time, the lockdown, which had begun on 1 July, was still continuing, but the end was in sight. The exhibit is typed in English. No record of the original messages (which presumably would have been in Mandarin) was in evidence.
199. The messages from 1 October are all from Ms Wei and there may be responses from Ms Lei which have been left out. They read:

1/10/2021 11:33

[Wei]: The lockdown will be ended in October. Let's go over all the accounts on the phone before that. We can check the accounts just like the way we do when we meet in person. For example, we can tum the page one by one and ask for an explanation directly once we have something unclear or do not understand. I can start early. It is convenient to finish these matters on telephone.

[Wei]: Why I say so? I have always talked to the accountant on the phone about all the matters we handle. It is quite convenient. Neither of us need to travel. It is convenient. Both the accountant and l can stay at home to work. Everything is closed now. I contact the accountant on telephone. Things can be handled by WeChat voice calls. How can issues between us not be handled? That is not right.

[Wei]: Moreover, girls' application and vaccine certificate can also be dealt with online and by phone. We are in the age of internet. It is unnecessary and unrealistic to meet in person to solve problems. Is that right? We can check the documents one by one and read them page by page. It is exactly the same as what you do at home. It is very easy. Then, if it is OK for you, we can start tomorrow. I just inform you of it today.

[Wei]: If you cannot do tomorrow, you can choose another day and tell me. It will be better and convenient for us. Nothing else.

[Wei]: Today is 1st Oct. If the government decides to end lockdown on the 11th we have 11 days, or let's count as 10 days, it will be done. If the government wants to end lockdown on the 18th or 25th, it can be done. We are not sure of the date yet. We are waiting on the final decision from the government. The government announced that reopening on 11th is expected. But "expected" is not the same as confirmed. Some say it will be 18th. Some say 25th. The final date is subject to the government's decision.

[Wei]: As 181 will reopen, we must wait for official announcement of the government. I don't want the others think that we reopen when we hear that lockdown ends on the 11th. If someone report to the police, we will be fined. During this pandemic, the police have issued many fines. We should avoid this circumstance. They can do whatever they want. l really don't want to argue with them. There is no need for conflict. Since we have been waiting for so long, there is no problem in waiting any longer. We can handle it.

1/10/2021 11:38

[Wei]: I don't think anyone will fail to get through it with government's payments. I mean, we shall resume our business when the government says it's okay. It means, it will be between October 11th and the end of October. We have get it done.

[Wei]: As for the messages you sent me before, I didn't want to have any conflict with you or argue anything, so I didn't reply. I should say that part of your statement is absolutely wrong in some messages, but there is no need to argue, right? What we should do now is to work out the money. The key is to decide which amount is to be calculated. Right? We will decide the money you and I agree on. We should work out that money first and then solve other problems. Let's solve problems one by one.

[Wei]: All of your statements have to be proved by a lot of evidence. l don't want to argue pointless things with you. First let's check each sum of money. After reaching a unified opinion on every sum of money, there will be a result. You always say that l am delaying this. But, to be fair, you can calculate the money, too. Why don't you? You can give me a figure after calculating, right? Then, if I don't agree with the figure, I can show my evidence and put forward the figure l think reasonable.

[Wei]: There is no doubt that I have much more to do than you. Of course, I don't know about your circumstance. Maybe you also have a lot of things to do. But at least for me I have my mother. Regarding the business, your husband is in charge of the renovation. In terms of other issues, I mean issues like girls' applications, vaccines, and now vaccine certificate.

[Wei]: Well, I've informed them that they can't come to work without receiving two doses of vaccine or without a vaccine certificate. No one can afford the consequence.

[Wei]: If the customer hasn't received two jabs, the girls won't agree to serve him. Everyone is afraid. Is life more precious or money? Everyone knows this truth. Needless to say.

1/10/2021 11:45

[Wei]: If you require that we have to meet, then I'll still say that it is not realistic. As a modern person and a boss of the shop, if you can't even do things on the phone or online, you must force yourself to learn it. If you don't even want to learn this kind of thing, how can you be qualified to be the boss? I'm really surprised. So, you can practice by yourself this time. Go to practice. Try how things work out over the phone to see whether they can be done on the phone. This is the basic first step.

[Wei]: And then consider whether they can be completed online in the future.

[Wei]: Every account and every number are written clearly in black and white and is fixed, different from the laws that have loopholes. This is mathematics. The data are fixed. It is black and white. Since the data are fixed without ambiguous concepts. I think there is no more other issues to negotiate. This is it.

[Wei]: That is to say, these are the exact issues that can be solved clearly over the phone. It is not something like it can be said in different ways in law. Or in tax, it is not something like that I want to pay less tax or avoid something. We check the account. Everything is crystal clear. For, you don't want to suffer a loss. For me, why should I lose? This is what happens to everyone. So what we are doing now is very simple. We don't need to mention anything. Forget about other things. First, we need to confirm each sum of money, and then the figures will naturally come out, right? Now it is the time to determine each sum of money.

[Wei]: To put it bluntly, in the end, we should check every sum of money, and the figures will come out. Nothing else.

200. The messages from 2 October (a Tuesday) read:

2/10/2021 07:18

[Lei]: Good morning! 181 will resume the business after being notified by the government. Leo said the news reported that the lockdown would be ended on the 11th. He didn't mean to open on that day. He wanted to say that we should make preparations in advance to arrange our work. None of us want to make trouble and be fined.

2/10/2021 10:08 [Lei]:

You said that you don't agree with me or want to argue with me about some things I said before. Could you please tell me what it is? You are an open and aboveboard person. Everything should be brought to the table to make it clear. This is your own wisdom and character. The account must be calculated as soon as possible, but issues can still be discussed. Settling accounts first and then have a discussion. How does this work? You want to check account via mobile phones. I can do it, but I think it may be slower. Our account is very different from what you and the accountant have communicated via the phone for the shop and what girls do during this period. Don't forget that our account calculated is for more than ten years. Why do I want to sit down and check together? It will be clear as crystal and fair. You said if I don't want to suffer a loss, why would you? When did I say such inhuman words? The law, paying less taxes and find loopholes. I don't understand what they mean? Do you want me to learn the law and know how to play tricks? I don't need it. Simple life brings happiness. I can afford to make a profit or a loss in doing business. Money should be earned fairly, rather than by taking advantage of others. I'm not so mean. Always thinking about taking advantage of others should not bring a good outcome. During this period when the shop is closed, even without income, Leo and I are still surviving and breathing. Thank you for showing your care! Let's start the reconciliation on Monday. You said that the part you paid in cash will be given to me. I'm still waiting. During this period, you said you could not go out to eat, and you have been having take-aways. You must have calculated all the accounts already. They are written in black and white and cannot be changed. Then you won' t mind sending me your accounts and I will give you the money after checking. Please list the part that you and I should settle each year and the tax and final data, and send to me. After we get the results, I will pay you the money. Is this ok? Thank you!

2/10/2021 10:30

[Wei]: I didn't seem to have mentioned what Leo said in WeChat with you, did I?

[Lei]: You didn't. I know Leo sent you a message, and there was no problem! You think too much. Keep it simple,

2/10/2021 10:36

[Lei]: We all hope to open soon, but we also need to abide by the rules. No one wants to be fined. Before opening, girls should also be arranged. It is not easy at this stage,

[Wei]: The first thing we need to know now is which transaction is not clear to you or you don't understand. And which transaction is not clear to me or I don't understand. Let us check and ask each other clearly before next [steps].

...

[Wei]: Monday [8 October] then. What time.

[Lei]: I said before that I won't read a lot of things. l really can't understand them. This is not an excuse. This matter is really a headache for me. I hope to solve it quickly and have less trouble,

[Wei]: Last time, it seemed to be checked till 2012, right?

[Lei]: What time? I am easy.

2/10/2021 10:49

[Wei]: Between 9:00 and 10:00 in the morning. I will call you or you will call me.

[Lei]: I'll wait for your call then.

2/10/2021 10:55

[Wei]: Every day it must be like going to work. It is better to finish work at 5:00 to 6:00. You can smoke, go to the toilet, and have food. No problem. Same for me.

[Lei]: ok

201. On 7 October (a Sunday), the following messages were exchanged between Ms Wei and Mr Kitsos:

4:30pm

Wei: Hi [Kitsos] and Jun Lei. I received the call from my family person on the 1/10/2021. Two of them very very sick and real need money save them life. So I really need money to help and save my family’s members life, please can you pay me back A$500000.00 at once Please and I’ll give you the receipt after I receive the money. I know me & [Lei] have not tell you how much money you owed me. But I know 100% over half million. So I asking you less than you owe me. Thanks

Kitsos: Hi [Wei] Sorry to hear about your family’s sickness When I get home I will talk to [Lei] You should of said something earlier than waiting 7 days to tell us Hope family will be ok until we work this out 500 thousand for medical care must be very serious Talk soon Tnx

Wei: Ok, please answer me as soon as possible. Thanks

8:20pm

Kitsos: Hi [Wei] This situation that both of you have created over many years has put me in a VERY difficult situation. We have been talking about this for nearly 5 years. Shop has been in lockdown 2x3 months and still NO results. We have both spoken to you sent txt, vchat telling you we will pay. I told you When both of you agree on final total I will PAY and you agreed. Over the years you have told me many different amounts owing Even counting this week you are both finding items that are changing the amounts. You both only started talking about [Blakehurst] [the location of another brothel] today. We know each other for many years now and I don’t want you to think I am mean nasty bad heartless or empathetic. But I don’t agree on making a payment at this time. I know you only want 500K as you said. Not enough Too much I still don’t know. No one should lose out as you told [Lei]. Sold a property in middle of February to fix this situation but still waiting. Sorry about your family’s situation. As soon as you both agree and give me total I will make full payment in 5 days. Sorry.

202. It will be recalled that on Monday 8 October, the following day, the brothel re-opened after the lockdown. Shun Sheng was incorporated on that day. The lease granted to Shun Sheng also bore that date. By 18 October, Ms Lei and Mr Kitsos had been locked out of the business (see above at [43]).
203. On 18 October, there was a change of position by Mr Kitsos and Ms Lei. Mr Kitsos obtained a bank cheque for $500,000. He texted a picture of the cheque to Ms Wei with the following message:

Hi Nancy The money that you asked from me is ready to pay you Tnx

204. The date and time of Mr Kitsos’ text is not recorded in the evidence. But on 20 October at 3:28 pm, Ms Wei sent the following reply:

Hi [Kitsos] I just got your message, can you post it to my P.O. Box [Address]. You can do [registered] post thanks

205. According to Mr Kitsos, he drew the cheque and sent a photo of it, as “a gesture of good faith to preserve the business relationship between [his] wife and Wei”. He stated that it was always his intention to not hand the cheque over “until there was proper accounting between the parties”.
206. In her July affidavit, Ms Wei responded to some of Mr Kitsos’ evidence about the $500,000 cheque. She stated that after 9 October, she had a telephone conversation with Mr Kitsos, with words the following effect:

[Wei]: “Can you repay me at least $500,000 for now? I need the money to pay for [my] father’s medical treatments.”

Theo: “Coco and I can pay you $500,000, but only if you agree to forgive our debts owed to you, and let Coco back to the business.”

[Wei]: “No, Coco is not coming back into the business, and you two owe me at least $1.1 million. I will not accept anything less than that.”

207. Ms Wei confirmed that Mr Kitsos later sent her a photograph of the cheque. She stated that she did not accept it, because she understood that the $500,000 offered by him, “was intended to settle the entirety of the money they owed” her, and she did not want to settle the debt owed by Ms Lei for that sum, or, “most importantly” to let Ms Lei back into the business.
208. In cross-examination, counsel put to Ms Wei that the arrangements with Ms Lei and Mr Kitsos came to an end in October 2021, not because they had failed to pay Ms Wei a specific debt, but because Ms Wei had decided she did not want them in the business anymore. Ms Wei denied this. Counsel then took Ms Wei to a part of her December 2021 affidavit, where she stated (emphasis added):

Most significantly, by around October 2021 I decided that Theo was not a suitable person to help me with the business, most importantly because he was unable to control the Defendant who still came to the business premises to ask the staff for money. I no longer wished for Theo or the Defendant to be involved in the business.

Counsel put to Ms Wei that she had said that because at that time, both Mr Kitsos and Ms Lei were involved in the business. Ms Wei disagreed.

209. Mr Kitsos was also cross-examined about the 7 October text messages (see above). He was asked whether the reference to “property” (“Sold the property in middle of February to fix this situation, but still waiting”) in his 8:20 message was to the Castle Hill property. He agreed. Counsel asked Mr Kitsos if he had put “PAY” in capital letters for emphasis, to which he answered, “when all this was done and dusted, of course, if we were owing anything, we’d pay”.
210. I also asked Mr Kitsos some questions about his message. According to Mr Kitsos, by “both of you”, he was referring to Ms Lei and Ms Wei. Mr Kitsos said that the situation was that they kept saying to each other that they owed each other money. That had put him in a very difficult situation, because he was dealing with both of them, and they were both asking him for assistance. In response to a question from counsel, Mr Kitsos confirmed that one of the things he heard on a regular basis was Ms Wei demanding that Ms Lei pay her money.
211. Counsel then took Mr Kitsos to the 18 October cheque (see above). Mr Kitsos confirmed that he had drawn that cheque to pay Ms Wei $500,000. But he denied that he had drawn it because he had accepted that Ms Wei was owed at least $500,000. Mr Kitsos said that he never gave the cheque to Ms Wei.

Credit: general

212. I have already referred to various aspects of Ms Wei’s evidence which I found unsatisfactory or unconvincing. Further such references appear below. These are only some of the adverse credit points which could be made. In some cases, the adverse effect on Ms Wei’s credit was magnified by the failure to concede in cross-examination that statements made in her affidavit were plainly untenable.
213. As will be seen, I have rejected Ms Wei’s evidence on major parts of her case. Overall, I am left with no confidence that her evidence on any disputed issue was candid or reliable.
214. Similar comments however apply to Ms Lei’s evidence. In particular, in her attempts to explain away the April 2021 video footage, I thought she came close to trifling with the Court. In some instances, such as the practice usually followed for division of the cash takings, her position was vindicated. But in other cases it was not. Again, I cannot bring myself to assume that her testimony on disputed issues, where no other evidence is available, is reliable.
215. Nor do I accept that Mr Kitsos was a reliable witness. No doubt, as he said at one point in his messages to Ms Wei, the conflict between her and Ms Lei had put him in a difficult position. I think it is clear from those communications that he knew or suspected in April 2021 that his wife had been using his keys to get access to the brothel, presumably so as to take money to feed her gambling habit. But he evidently could not bring himself to be candid about this matter with the Court. I found his attempts to explain this away as “sarcasm” to be wholly unconvincing.

Conclusions

216. It is convenient to consider the factual issues by reference to the case made by Ms Wei. Her case can be analysed as consisting of five conceptually distinct elements.
217. The first element was a decision by Ms Wei to terminate the partnership, which was accepted by Ms Lei. This reflects the alleged conversation between Ms Wei and Ms Lei on 30 June 2019 ([89] above).
218. The second element was an agreement between Ms Wei and Ms Lei that Ms Lei was to pay a one-half share of the monies appropriated by her and a one-half share of the rent charged by Sunshine Island, and Ms Wei was to retain the partnership business for herself. In effect, (although it is not suggested that the parties used this language) this would be an agreement to compromise the parties’ partnership entitlements on that basis. As I understand it, this agreement also derives from the alleged 30 June conversation.
219. The third element was an agreement between Ms Wei and Mr Kitsos that he would be employed by Ms Wei to work for her at a salary of $4,000 per week. This reflects the alleged conversation between Ms Wei and Mr Kitsos in the first half of July 2019 ([91] above). The amount payable was then increased to $5,000 per week, pursuant to the conversation between Ms Wei and Ms Lei in mid-July 2019 ([92] above).
220. The fourth element was an agreement by Ms Wei and Mr Kitsos that Mr Kitsos would be personally liable for the amounts for which Ms Lei was to account to Ms Wei (and Sunshine Island). The consideration was a promise by Ms Wei to give Ms Lei time to pay. This is based on the alleged conversations between Ms Wei and Mr Kitsos and Ms Lei in July 2019.
221. The fifth and final element was an agreement by Mr Kitsos and Ms Lei that Ms Lei’s liability was at least $1.1 million, and that they would pay that amount in advance of the final amount due being determined, in consideration of being given further time to sell the Castle Hill property. This reflects the alleged conversation between Ms Wei, Mr Kitsos and Ms Lei in October 2020 ([163] above).
222. These elements of Ms Wei’s case are interdependent and have clearly been crafted with care. They are not necessarily obvious and straightforward. For instance, consider the substantial weekly payments made to Mr Kitsos over the period from 2019 to 2021. Ms Lei treats these payments, at least in part, as advance payments which must be accounted for. But the case presented for Ms Wei rejects that characterisation, even though it would operate to her advantage. On Ms Wei’s case, the payments were for services rendered by Mr Kitsos and there is no obligation to repay them. Rather, Ms Wei’s case against Mr Kitsos is that, quite separately, he personally guaranteed Ms Lei’s obligations to account for different monies that she owed to Ms Wei (and Sunshine Island). Without that allegation, Mr Kitsos could not have been made a party to the proceedings at all.
223. The factual issues which I have to decide all arise out of the five alleged agreements which I have identified (as I will call them for convenience, although the first might arguably be classified as unilateral). The onus lies squarely on Ms Wei to establish that those agreements were in fact made, and that they were made in the terms for which she contends.
224. The only contemporaneous written document which is relevant is the October 2020 IOU, which is contemporaneous with the fifth alleged agreement, but does not contain any record of the critical $1.1 million term alleged by Ms Wei. Her case is thus entirely dependent upon the Court accepting her account of the five oral conversations which she alleges. The principles stated by McLelland CJ in Eq in Watson v Foxman [1995] NSWCA 497; (1995) 49 NSWLR 315 at 318-319, about the difficulties facing a plaintiff making a case based on alleged oral representations, clearly apply.
225. In the present case, I think those principles apply with increased force. On Ms Wei’s case, the alleged conversations with Ms Lei took place in Mandarin. The versions given by Ms Wei in her affidavit, and her oral evidence, must therefore represent translations of the actual words spoken, with all of the difficulties which that entails, especially where different meanings might result from subtle nuances of language (see Watson v Foxman at 318). The alleged conversations involving Mr Kitsos, give rise to a similar problem: on Ms Wei’s case, they took place in English, a language which is foreign to her and in which she is not proficient.
226. There were some submissions from counsel for the parties about the significance of the failure of Ms Lei and Mr Kitsos to contradict, or at least contradict directly, the versions of the conversations alleged by Ms Wei in her affidavit. In the end, however, there was no dispute about the applicable principles. Failure to contradict Ms Wei’s affidavit is relevant to my assessment of the probabilities, but it is not decisive. Its weight depends upon the circumstances.
227. In the present case, I do not think that it is of great significance. Ms Lei and Mr Kitsos may not have dealt with the conversations alleged by Ms Wei in detail, but they did deny that they had acted in accordance with the promises which Ms Wei said they had made. In these circumstances, their failure to deal expressly with the conversations does not necessarily supply credibility to Ms Wei’s account if, as I think, such credibility is otherwise lacking.
228. Context: Not all of the evidence concerning Ms Lei’s alleged misconduct was rejected or limited by rulings made under Evidence Act 1995, s 136. Counsel for Ms Wei, however, did not seek any finding that Ms Lei in fact engaged in drug taking or borrowing money from the sex workers. But the allegation that Ms Lei was a gambler was pressed, and, in my view, it was sustained. The documentary evidence, to which I have referred, demonstrates that Ms Lei gambled significant sums of money in the first half of 2019. It was clear that Ms Lei gambled at other times, and her level of expenditure may have been heavy during some of those other times as well.
229. I have rejected Ms Wei’s allegation that Ms Lei appropriated all, or substantially all, of the cash takings from the business, over a period of years up until 2019, or even later. However, I have rejected Ms Lei’s explanation for her conduct in April 2021 which was recorded on the video camera. I am satisfied that she did indeed cover the camera so as to allow her to obtain unobserved access to the safe. Furthermore, the communications between Ms Wei and Mr Kitsos show them cooperating to keep her away from cash takings held by the business. I infer that this was as a result of previous occasions on which she had appropriated such takings to herself.
230. I find it quite plausible that such conduct could have begun, episodically, in 2019 or even earlier. In the end, it is not necessary to make any final decision on this. Ms Lei accepts that to the extent that she may have appropriated monies she will need to account for them, and the extent of any appropriations can be determined in subsequent proceedings.
231. Alleged termination of partnership: In my view, the first major factor which tells against Ms Wei’s version of events is that the 30 June date does not really fit with the sequence of events. It is notable that when Shuang was established, Ms Lei appears to have been excluded from being a cheque signatory. But this happened in April 2019, and Ms Wei did not attempt to explain the discrepancy. On the other hand, Ms Lei apparently continued to have access to a corporate credit card, but that does not fit with the 30 June date either. The evidence shows that Ms Lei had the credit card at least until October 2019, and, as already noted, I was not convinced by Ms Wei’s attempts to explain this away.
232. There is a further point about the sequence of events. In her affidavit, Ms Wei placed the weekly payments to Mr Kitsos as having been agreed in July 2019. In fact, they began as early as February 2019. Ms Wei herself, in cross-examination, changed her story about this (see [137] above). Once it is accepted that the payments had already begun before 30 June, then the whole story about matters coming to a head on that date becomes illogical.
233. The second difficulty with Ms Wei’s allegation about the termination of the partnership is that it is difficult to reconcile with the subsequent conduct of the parties. On Ms Wei’s case, there would have been no ongoing role for Ms Lei in the business after 30 June 2019. Ms Wei indeed claimed that Ms Lei did not attend the premises (except surreptitiously, as demonstrated in the April 2021 video) after that date. But I do not accept that this was so.
234. I was not satisfied with Ms Wei’s explanation of the episode in January 2020, when Ms Lei was apparently at the premises setting up an offering to Buddha and using business funds to pay for it. Furthermore, Ms Wei herself alleged that Ms Lei appropriated $110,000 in cash, and taking that amount of money would have required many (probably dozens) of visits. The allegation seems to proceed on the basis that Ms Lei had a significant degree of unchallenged access to the business over the period. I am not saying that Ms Lei was necessarily present all the time after 30 June 2019, but I accept that she visited the premises and took part, at least to some extent, in the operation of the brothel, on occasions.
235. Furthermore, it is not merely a question of access to, and working in, the business premises. The evidence about the February 2020 payment to Ms Lei’s nephew (see [141] above) was not easy to follow, but it is difficult to see how it would have happened if Ms Lei had nothing more to do with the business, as Ms Wei claimed.
236. The Jobkeeper payments (see [142]-[144] above) are an even clearer acknowledgement of Ms Lei’s ongoing interest in the business. Ms Wei presented as an experienced and capable businesswoman, and the issue fell squarely within her area of responsibility. I was not at all impressed by Ms Wei’s attempt to present herself as acting at the dictation of Mr Kitsos and Ms Lei. It was inherently implausible, as well as making no sense if Ms Wei was the only ongoing proprietor.
237. There is also the apparent fact that Ms Lei had custody of the worksheets for the business after 30 June 2019. I appreciate that, on Ms Wei’s case, Ms Lei needed to work out how much she owed. But I think it is unlikely that, if the partnership had been terminated, Ms Wei would have allowed its original primary records, which its conditions of consent required it to maintain, to be retained by Ms Lei. Certainly, there would have been no reason to entrust Ms Lei with the records for the period after 30 June 2019, when, on Ms Wei’s case, she was conducting the business as a sole trader, for her own exclusive benefit.
238. A final difficulty for Ms Wei’s case is the evidence about the events of October 2021. First, the WeChat messages between Ms Wei and Ms Lei on 1 and 2 October [199]-[200] above) show that there was an accounting process going on between them, which was co-operative in nature, and involved input from both sides. Mr Kitsos’ text message of 7 October ([201] above) is to the same effect. Indeed, Mr Kitsos records that the process had, by then, been going on for almost five years. This does not strike me as the sort of way in which the task would have been undertaken if the partnership had in fact been terminated more than two years before.
239. Furthermore, in their WeChat messages of 1 and 2 October, Ms Wei and Ms Lei were clearly proceeding on the basis that once the lockdown ended, Ms Lei would be resuming an active role in the partnership; indeed, she was to be “boss of the shop” ([199] above). On the evidence, that remained the case until 8 October, when Ms Wei had Shun Sheng incorporated and, it seems, transferred the business to it. Although it is not essential to decide what made her change her mind, the sequence of events suggests that this was a response to Mr Kitsos’ refusal, on 7 October, to pay her the $500,000 she was asking for.
240. Finally, there is Ms Wei’s own evidence, in the form of her December 2021 affidavit, that she locked Mr Kitsos and Ms Lei out of the business in October 2021, because she no longer wished for them to be involved in it ([208] above). This was a clear acknowledgement that, as at October 2021, Ms Lei, as well as Mr Kitsos, had a role in the business. Ms Wei had no explanation for this, and I found her attempts to deal with it in cross-examination unconvincing.
241. As already noted, Ms Lei may have been causing problems for the operation of the partnership, including by appropriating some of the takings, in 2019. It is plausible that the parties agreed that Ms Lei would repay any monies she had appropriated (together with advances on her profit share, see below) and would not come into the premises, or at least would not have keys to the premises, until she had straightened herself out. But such an agreement would only have been a temporary arrangement concerning the management of the partnership business. It would not have been inconsistent with Ms Lei having a continuing interest in the partnership. What Ms Wei must prove is a final and immediately effective termination of that interest. Having regard to the factors I have mentioned, and the general difficulties with Ms Wei’s credibility, I am not satisfied that she has done so.
242. Alleged obligation on Ms Lei alone to account: There is no dispute that Ms Lei accepted an obligation to account for partnership assets appropriated by her, and to contribute to partnership liabilities (including the rent charged by Sunshine Island). Such an obligation arose anyway as a matter of law. The critical question is whether the equivalent obligation on Ms Wei was released by agreement.
243. On my findings, there was no agreed termination on 30 June 2019 and therefore no question of an agreement to limit the parties’ rights and obligations upon termination can arise. But in any event, Ms Wei does not, even on her version of the alleged conversation on 30 June, say that there was any mention of her own obligation to account for partnership assets retained by her on termination. Indeed, on the evidence, there never seems to have been any discussion between the parties on the subject at all.
244. At most, if the parties discussed Ms Lei’s obligation to account on 30 June, there was a failure to mention Ms Wei’s obligation to account. I do not think that would be enough to give rise to some sort of tacit or implied agreement. There is nothing to suggest that it was part of the context for any discussion which took place on that date. Indeed, it seems to be accepted that Ms Lei was unaware of the extent of monies appropriated by Ms Wei to herself and to Sunshine Island.
245. Nature of weekly payments to Mr Kitsos: In my view, Ms Wei’s assertion that the weekly payments to Mr Kitsos represented a salary for services rendered is inherently implausible. The payments could theoretically have been payments for supervising renovation works, but that would have been for a limited period, and it is not how the payments were explained in Ms Wei’s version of events. It is hard to see how, if the partnership had been terminated, it would have made economic sense for Ms Wei to keep Mr Kitsos on at $4,000 or $5,000 per week, for month after month and year after year.
246. I think that an inherently more likely explanation for these payments is that they were an advance against Ms Lei’s entitlements from the partnership, which were being calculated by Ms Lei and Ms Wei. Presumably, they would have been paid to Mr Kitsos out of a joint desire on the part of Ms Wei and Mr Kitsos to ensure that they were not gambled away by Ms Lei and would be properly accounted for.
247. Support for this view comes from the language attributed to Ms Lei by Ms Wei herself, in her version of the alleged conversation in mid-July 2019. In that conversation, Ms Lei is presented as having an interest in the payments. That would explain why it was she who might have discussed the matter with Ms Wei and sought the increase in the weekly payment, rather than Mr Kitsos. Later, it could well have been thought that, once the weekly payments were added in, the amount to be paid by Ms Lei at the end of the account would be a substantial one. That would explain why Mr Kitsos and Ms Lei might have given undertakings to pay a sum to Ms Wei once the Baulkham Hills property had been sold.
248. It is not, however, necessary to reach an affirmative conclusion on any of this. It is sufficient to say that I do not accept Ms Wei’s characterisation of the payments.
249. Alleged personal guarantee by Mr Kitsos and undertaking to pay $1.1 million on account: Even putting aside for the moment my general reservations about Ms Wei’s evidence, her account of the alleged conversation with Mr Kitsos in the first half of July 2019 does not inspire confidence. Ms Wei starts by referring to the possibility of suing Ms Lei. She then has Mr Kitsos propose a $4,000 salary arrangement for himself, to enable him to service the mortgage on the Bella Vista property until the Castle Hill property can be sold. Then Ms Wei asks him for a personal guarantee of Ms Lei’s liabilities, and an undertaking to repay after the Caste Hill property is sold, in return for Ms Wei “holding off”, for some unidentified period, on suing Ms Lei. Mr Kitsos agrees and obligingly undertakes to tell Ms Lei (thereby bringing her in as a party). In doing so, he repeats back that “you won’t sue us because I promised to pay you if she doesn’t”, conveniently underlining the alleged quid pro quo.
250. I appreciate that a promise to refrain from suing, even for an unspecified period, may be good contractual consideration: JD Heydon, Heydon on Contract (2019, Lawbook Co) at 155 [15.370]. But even if I did not have severe reservations about Ms Wei’s credibility, it would stretch credulity to accept that an obligation of a liability of hundreds of thousands or even millions of dollars would have been proposed and accepted in this way. It is simply too good to be true. In any event, I have rejected the characterisation of the weekly payments to Mr Kitsos asserted in Ms Wei’s version of the conversation. Once that it is gone, the whole edifice collapses.
251. Nor do I accept Ms Wei’s version of the alleged October 2020 conversation, in which Ms Lei and Mr Kitsos supposedly agreed to make payment of $1.1 million, on account of Ms Lei’s liability (as supposedly guaranteed by Mr Kitsos). The conversation as alleged by Ms Wei, is, in my view, quite inconsistent with the IOU signed on that occasion. That IOU conspicuously failed to specify any particular amount as being due. Nor was it signed by Mr Kitsos as the supposed guarantor. Furthermore, it stated that the amount would only be paid once the amount due is determined. That is quite inconsistent with an obligation to pay $1.1 million immediately.
252. It must be acknowledged that in October 2021, Mr Kitsos did send text messages to Ms Wei in which he undertook (using the word “I” rather than “we”) to pay the amount due when determined (see [201] above). Indeed, Mr Kitsos also obtained, for the purpose of tendering to Ms Wei, a cheque for $500,000. Clearly, he intended it to be applied against Ms Lei’s liability under the partnership account then being conducted.
253. This conduct is, however, not relied upon separately as creating any contractual obligation and Ms Wei did not accept the money. In the context of the case advanced on behalf of Ms Wei, Mr Kitsos’ undertakings to pay could, at most, have been some sort of acknowledgement of an earlier agreement.
254. On balance, those undertakings do not cause me to reconsider the views which I have expressed. In the first place, Mr Kitsos did not expressly refer back to any promise supposedly made in July 2019 (or October 2020 for that matter). Mr Kitsos simply said that he had said that he would pay, which could refer to an undertaking given at any earlier point in time. He did not link that earlier undertaking with any particular request for a quid pro quo on the part of Ms Wei. In short, the later undertakings are not an acknowledgement of an earlier contract of guarantee. Furthermore, it is clear that the finances of Ms Lei and Mr Kitsos were intertwined. In that context, Mr Kitsos could readily have undertaken to make a payment on Ms Lei’s behalf, without accepting personal liability for her debts.

Partnership termination date

255. I have concluded that the evidence does not establish that Ms Wei terminated the partnership on 30 June 2019, as she claimed. As already noted, the parties agree that, given my conclusion, the termination date was 18 October 2021.

Partners’ obligations to account

256. In the usual case, upon dissolution of a partnership, the partners are entitled to require the assets of the partnership to be realised, so as to meet partnership liabilities. To the extent that the assets exceed liabilities, the partners are then entitled to receive a half share of the balance: Partnership Act 1892, ss, 39, 44. This process requires the partners to account, or give credit, for any funds appropriated to themselves during the operation of the partnership.
257. The case for Ms Wei was that these obligations and entitlements were qualified or supplemented by agreements between the parties. The agreements were said to have a twofold effect.
258. The first effect was that, upon dissolution, Ms Lei abandoned or forfeited her partnership entitlements. The result was said to be that, while Ms Lei was obliged to account for a half share of monies appropriated to her, Ms Wei retained the partnership assets for herself and had no obligation to account.
259. The second alleged agreement was supplementary to Ms Lei’s obligation to account. Ms Wei’s claim was that Ms Lei agreed (in October 2020) to pay the sum of $1.1 million towards her liability. As I understood the claim, this was an immediately enforceable obligation to pay that amount, effectively on account, before the amount due was finally determined.
260. These alleged agreements were legally and factually distinct. It is convenient to deal with them separately.

Ms Wei

261. Counsel put the contention that Ms Lei had abandoned or forfeited her interest in the partnership in two ways. First, counsel contended that the parties had made an ad hoc agreement to this effect. In that regard, counsel relied upon the evidence of Ms Wei. Ms Wei’s claim of an ad hoc agreement was tied up with her claim that the partnership had been terminated on 30 June 2019. Having rejected the termination claim, I am not sure whether the ad hoc agreement could, even if established, have any effect. But in any event, I have rejected the claim that any such oral agreement was made.
262. Counsel relied, in the alternative, on the terms of the BPA dealing with the termination of the partnership. The relevant clauses were clauses 3, 4 and 7, which provided:

3. In case one party wants to sell its shares, the selling party must inform the other party first and can not sell the shares to the buyer unless with the permission from the other party who is given the first priority to consider purchasing the shares.

4. In case one party can no [longer] operate the partnership business as a result of sickness, death or other passable reasons and therefore has to transfer the half of the business ownership/shares to a replacement, the transferral is not allowed without the permission from the other party. Again, the other party has the first priority to consider purchasing the half business ownership and shares. If the agreement can not be reached within 1 year, both parties must sell the whole business to any buyer within reasonable time.

...

7. Both parties must equally involve the daily business activities. Any party who stops working for the joint business on a full time basis without passable reasons is taken to be out of the joint business and therefore will be taken to have given up 50% ownership/shares unless selling the 50% ownership/shares unless selling the 50% ownership/shares to a replacement. The selling agreement must be reached within 1 year, or otherwise both parties must sell the whole business to any buyer.

263. Counsel for Ms Wei relied on clause 7. He submitted that after 30 June 2019, Ms Lei ceased to be involved in the partnership without “passable reasons” for doing so. The result, in his submission, was that, in the language of the second sentence of clause 7, she was to be “taken to have given up” her share of the partnership.
264. Clause 7 is a difficult provision. The second sentence, considered on its own, did use the language of forfeiture. On the other hand, the third sentence contemplated that the defaulting partner would have twelve months to sell her share, failing which the whole business was to be sold. That was not consistent with the forfeiture of the defaulting party’s interest in favour of the other party. And, on a practical level, the clause lacked the notice provision one would expect to see, fixing the date of commencement of the one-year sale period, or of the forfeiture, so that both parties would have known where they stood.
265. I would be reluctant to construe the clause as effecting a forfeiture, with the drastic effect which that would have entailed, unless the language was clear. In the result, however, it is not necessary to reach a final view.
266. Counsel’s submissions left unclear the date on which the clause supposedly took effect. Initially, counsel appeared to be contending that it took effect on 30 June 2019. The difficulty, however, was that, even on Ms Wei’s case, it was only after that date that Ms Lei ceased work at the brothel.
267. Elsewhere in his submissions, counsel appeared to suggest that Ms Lei had abandoned her interest by October 2020. But on my findings, there was no such abandonment by Ms Lei. Even if she was not working full-time at the brothel after 30 June 2019, that would clearly have been with the consent of Ms Wei, which would have given her a “passable reason”.

Ms Lei

268. As already noted, there is no dispute that Ms Lei is obliged to account for any partnership monies she may have appropriated. But, for reasons I have given, Ms Wei’s claim that Ms Lei was obliged to pay $1.1 million on account of her liability fails on the facts.

Appointment of receiver

269. As already noted, it was contended on behalf of Ms Lei that a receiver should be appointed for the purpose of winding up the partnership affairs and taking the partnership accounts. Mr Alan Hayes, a chartered accountant in private practice, was proposed as the receiver. No objection to Mr Hayes was taken on behalf of Ms Wei, if a receiver were to be appointed, but it was contended that this was unnecessary. Counsel submitted that the matter should instead be dealt with by a referee.
270. I discussed the choice between appointing a receiver and appointing a referee, in partnership proceedings, in Shazbot (No 2). The essential difference between the two types of appointment is that receivers are appointed to administer the property of the partnership, and, to that end, they exercise power of ownership over that property. This includes the conduct of litigation affecting the property, but it extends beyond that. Receivers can undertake investigations and compromise claims before they go to hearing. More broadly, they can exercise ownership powers to secure partnership property and realise it, as well as carry out any associated administrative tasks.
271. A referee’s role is different. Referees are appointed to determine specified parts of legal proceedings pending in the Court. That is as far as their authority extends. If extra-curial steps are necessary or desirable for the purpose of winding up by the partnership, the parties must do that themselves.
272. In the present case, the winding up of the partnership and the taking of accounts is likely to be a complex matter. That is for three reasons.
273. First, there is the fact that the partnership business has been transferred to a third party, Shun Sheng. On my findings, the business should be realised, including any goodwill, and the proceeds divided among Ms Lei and Ms Wei. Counsel for Ms Lei recognised that the most practical outcome would be for Shun Sheng to buy the business at a fair market value, rather than have it realised on the open market. Counsel also accepted that it would be appropriate for Ms Wei to continue to manage the business in the meantime. But it will still be necessary to protect the partnership’s interest in the meantime, and to deal with the possibility that agreement will not be reached, and that action may need to be taken against Shun Sheng.
274. The second feature of the case is that the accounting exercise is not limited to the partners. Third parties will need to account to the partnership as well. Appointing a receiver would allow the partnership interest to be represented for that purpose. Negotiations could then take place between the receiver, on behalf of the partnership, and the third parties. Those negotiations might avoid the need for accounting proceedings. If such proceedings are necessary, they can then be conducted by the receiver on behalf of the partnership.
275. The third feature of the winding up and accounting is the need to deal with taxation issues. As I have stated, it seems clear that the partnership received substantial taxable income on which tax has not been paid. If any tax has been paid by any of the operating companies, it will have been paid at a 30% tax rate, rather than the individual tax rate applicable to the partners. It will seemingly be necessary for partnership tax returns to be lodged, potentially going back to the beginning of the partnership in 2008. At the very least, advice will need to be obtained on this issue.
276. There may be other taxation compliance issues as well. It seems that pay-as-you-go deductions were not withheld, at least as far as the sex workers were concerned. The same appears to be so to the extent that any payments were made by way of salary for services rendered to Mr Kitsos. There may be liabilities or penalties associated with this. Furthermore, there may be a doubt about whether the handling of the Jobkeeper receipts was correct. It is not clear that those receipts were fully passed on to sex workers or other employees of the business, nor whether they were properly applied when paid to Ms Wei and Ms Lei as partners, and thus as owners, of the business. There may be repayments or penalties associated with this as well.
277. In Shazbot (No 2), I made an order appointing a receiver, but this order was set aside on appeal. The circumstances, however, were unusual. On appeal, neither party supported the receivership order; the parties instead effectively made a joint application to the Court of Appeal to set the order aside. And in that case, many of the winding up tasks had been completed by the parties several years beforehand. In these circumstances, the Court of Appeal took the view that any remaining tasks, once the accounting proceedings in the Court were completed, could be undertaken by arrangement between the parties: see Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 at [175].
278. As the outcome in Shazbot shows, the choice facing the Court in a case such as this, is between allowing the parties to conduct the winding up process (and report to the Court on its satisfactory completion) or appointing a receiver to carry it out. In the present case, the winding up is not nearly so advanced nor so simple as it was in Shazbot. It is unrealistic to think that the process can be completed by the parties. Indeed, one of the parties wishes to have a receiver appointed. Although it will cause expense, I think that there is no practical alternative in the circumstances of this case.
279. The minute of order proposed by counsel for Ms Lei included various directions about the conduct of the receivership. Many, if not most of these, did not appear to be contentious. If that is so, I will leave it to the parties to formulate an agreed set of directions. There will also be liberty to apply, in case there is any disagreement.

Rent claim by Sunshine Island

280. For reasons given above, I think that Ms Wei’s version of events in 2019 and 2020 is questionable. But it is not necessary to decide whether Ms Lei made a specific express promise to pay the amounts of rent due to Sunshine Island. The obligation to pay rent was joint and several. Ms Lei is therefore liable for any unpaid rent, whether she expressly promised Ms Wei to pay it or not.
281. Ms Wei is, of course, also jointly and severally liable for the rent. She claims she has paid more than her fair share, but even if in fact she has paid less than her fair share, that would not be a defence to a demand by Sunshine Island against Ms Lei for any unpaid balance. Of course, if Ms Lei were to meet such a demand, that payment would be credited in her favour in the partnership accounting process, just as any payments Ms Wei has made personally would be a credit to her in the taking of partnership accounts.
282. There is however a complication. The terms of the Tenancy Agreement provided that the rent would increase at a maximum of the CPI each year. It seems from some of the accounts in evidence that the partnership rent increased at a higher rate. On the face of it, Sunshine Island must give a credit for rent received by it which goes beyond the maximum allowed under the Tenancy Agreement.
283. Neither party addressed the quantification of Sunshine Island’s claim in any detail in the final submissions. Nevertheless, the claim has been made and, on the face of it, Ms Lei may be liable. The calculation of the amount ought not to be complicated. I propose to hold this claim over for further determination so that it may be resolved as part of these proceedings, if that is possible. The parties will need to confer and see if they can agree a figure, or at least identify any further issues which need to be determined, in order to resolve the claim.
284. As I have already noted, it seems that Sunshine Island has received some of the partnership income, for which it appears to be liable to account. I will deal with that separately below. What I have said is confined to Sunshine Island’s claim for rent under the Tenancy Agreement.

Guarantee claim against Mr Kitsos

285. For reasons I have given, I am not satisfied that Ms Wei has established that Mr Kitsos in fact made any agreement to pay Ms Lei’s debts to Ms Wei (or Sunshine Island). It is not necessary to consider whether any such agreement was supported by good consideration. The guarantee claim against Mr Kitsos fails on the facts. However, Mr Kitsos may have an obligation to account to the partnership and I will deal with that below.

Accounting by third parties

286. On the face of it, Shun Sheng has received the benefit of the transfer of the partnership business, including goodwill, and the other assets used in that business, for no consideration. It seems that in her role as director and majority shareholder of Shun Sheng, Ms Wei simply continued to operate the business using a new operating company. If that is so, then, on the face of it, Shun Sheng would be liable to account to the partnership for the assets appropriated to it by Ms Wei, and the income derived from the partnership business since then.
287. Counsel for Ms Wei submitted that it had not been pleaded that Shun Sheng was a recipient, with notice, of partnership assets (or that it had received the assets as a volunteer, for that matter). In the end, counsel for Ms Lei asked me not to make any orders at this stage. I am content to reserve further consideration of Shun Sheng’s liability to account, to see whether it can conveniently be dealt with by way of supplement to this judgment. In any event, of course, it will be open to the receiver to pursue a claim against Shun Sheng, either in these proceedings or in separate proceedings, by way of direct claim on behalf of the partnership.
288. There appears to be no contest that Sunshine Island and Shuang must account also for any partnership income or assets which they received. Again, I propose to reserve consideration of their liability to account, with a view to making orders, if that is possible, by way of supplementary order in these proceedings.
289. Finally, there is the position of Mr Kitsos. I have rejected the allegation by Ms Wei that the weekly payments made to him were made for services rendered. Counsel for Ms Lei accepted that, at least in part, the monies paid to Mr Kitsos represented an advance on her share of partnership income. Counsel suggested that the payments should be split 50/50 between Mr Kitsos (as payments for services rendered) and Ms Lei (as distributions of partnership income).
290. But I do not think that is tenable. It would be nothing more than a guess. The parties’ entitlements will need to be properly worked out. The first step will be for Mr Kitsos to say what, if anything, he claims to be entitled to, by way of payment for services rendered.
291. There may also be a question as to whether, to the extent that the payments were made on account of Ms Lei’s partnership entitlements, Mr Kitsos is personally liable to account for them. Again, I propose to leave this to the parties for further consideration in the light of my judgment, with a view, if possible, to making supplementary orders which would define the scope of Mr Kitsos’ obligation to account to the receiver on behalf of the partnership.

Conclusions and orders

292. The parties agree on the scope of the partnership. They are also agreed that the income and assets used in the partnership, which were acquired and held by the operational companies, were acquired or held on trust for the partners. I will make declarations accordingly.
293. On the issues debated at the trial, I have concluded that:

(1) Ms Wei’s contention that the partnership was terminated in June 2019 fails, with the result that the date of termination was 18 October 2021;

(2) Ms Wei’s contention that she is not required to account for partnership income or assets appropriated by her fails, with a result that both Ms Lei and Ms Wei are obliged to account;

(3) Ms Wei’s claim for judgment for $1.1 million on account of Ms Lei’s liability to account also fails;

(4) so too do the claims against Mr Kitsos as alleged guarantor of Ms Lei’s liabilities;

(5) Mr Hayes should be appointed as receiver and manager for the purposes of winding up the affairs of the partnership and taking the partnership accounts.

294. I will make orders reflecting these conclusions. I will also grant liberty to the parties to apply for directions concerning the conduct of the receivership. I will reserve for further consideration the rent claim by Sunshine Island and the question of an account to the partnership from each of Shun Sheng, Sunshine Island and Shuang. There may also be a question about whether the asset preservation undertakings given by Ms Lei and Mr Kitsos should continue until the accounts have been finalised.
295. The parties should confer on these issues and, if possible, present agreed orders to deal with those matters. If costs are not agreed, they should also be dealt with.
296. The orders of the Court are:

(1) Order that Shuang Pty Ltd ACN 632 816 758 be joined to the proceedings as third defendant.

(2) Declare that, on and from 19 June 2008, the third plaintiff and the first defendant carried on, in partnership, a business consisting of the conduct of a brothel at 1/181 McCredie Street Smithfield, New South Wales under the name, among others, “181 Smithfield Brothel”.

(3) Declare that income or assets of the partnership received by, or acquired in the name of, each of the following companies, or acquired by those companies with the proceeds of such income or assets, were received and held by the company in question as trustee for the partners:

(a) Yin Yang;

(b) Shan Xi;

(c) Shuang;

(4) Declare that the partnership was dissolved on 18 October 2021.

(5) Order that the partnership be wound up and the assets of the partnership be applied to the debts and liabilities of the partnership and any surplus applied in accordance with Partnership Act 1892, s 39.

(6) Order that Mr Alan Hayes be appointed as receiver and manager of the partnership assets for the purposes of winding up the affairs of the partnership and taking the partnership accounts.

(7) Grant liberty to the parties, and to the receiver, to apply for directions concerning the conduct of the receivership.

(8) Reserve for further consideration:

(a) The claim by the second plaintiff against the first defendant for unpaid rent on the premises;

(b) The claim by the first defendant/cross-claimant against the first plaintiff/cross-defendant for an account of partnership assets appropriated to the first plaintiff by the third plaintiff, and any income derived from the conduct of the business;

(c) Any account to be given by any of the second plaintiff, the second defendant, or the third defendant for assets or income of the partnership received by them.

(9) Otherwise dismiss the plaintiffs’ claim against the first and second defendants.

(10) Reserve costs of the proceedings to date.

(11) Adjourn the proceedings to 13 October 2023 or such other time or date as may be arranged with my Associate, and;

(12) Direct that the parties confer on the form of orders to be made to give effect to this judgment and to deal with the remaining claims in the proceedings, including costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

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Amendments

29 January 2024 - Spelling error [224]