Li v Perpetual Holdings Pty Ltd [2025] NSWSC 175 (12 March 2025)

Last Updated: 12 March 2025

Supreme Court New South Wales

Case Name:	Li v Perpetual Holdings Pty Ltd
Medium Neutral Citation:	[2025] NSWSC 175
Hearing Date(s):	24-26 February 2025
Date of Orders:	12 March 2025
Decision Date:	12 March 2025
Jurisdiction:	Equity
Before:	Peden J
Decision:	At [111]
Catchwords:	EQUITY — Trusts and trustees — Quistclose trusts — Whether funds advanced under unwritten agreement were only to be used for purpose of investing in specific land — Whether subsequent loan agreement had legal effect of wholly dealing with any equitable interest in funds — Where subsequent agreement was written EQUITY — Trusts and trustees — Breaches of trust — Whether defendants held traceable proceeds — Whether corporate defendants liable for knowing receipt or knowing assistance — Whether defendants liable as constructive trustees
Legislation Cited:	Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (NSW), rr 15.1, 15.3
Cases Cited:	Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294; (2023) 113 NSWLR 151 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 Blue Mirror Pty Ltd v Tan & Tan Australia Pty Ltd (in liq) [2024] NSWCA 253 Bosanac v Commissioner of Taxation (2022) 265 CLR 37 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732 Goo v Sim [2022] NSWSC 420 Grey v Inland Revenue Commissioners [1959] UKHL 2; [1960] AC 1 Hasler v Singtel Optus Ltd (2014) 87 NSWLR 608 Hillam v Iacullo [2015] NSWCA 196; (2015) 90 NSWLR 422 Lim v Cho [2018] NSWCA 145 Liu v Age Co Ltd [2016] NSWCA 115; (2016) 92 NSWLR 679 Patakas v Bevan [2017] NSWSC 1592 Pittmore Pty Ltd v Chan [2020] NSWCA 344; (2020) 104 NSWLR 62 Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16 PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 Radoman Pty Ltd v Vexapu Pty Ltd [2008] NSWSC 8 Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 Sze Tu v Lowe (2014) 89 NSWLR 317 Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164 Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119
Category:	Principal judgment
Parties:	Jiawen Li (Plaintiff) Perpetual Holdings Pty Ltd (Third Defendant) PIC Parramatta 1 Pty Ltd (Fourth Defendant) Parkroyal Investments Pty Ltd (Fifth Defendant) Cecil Developments Pty Ltd (Sixth Defendant)
Representation:	Counsel: S Ahmed (Plaintiff) A Ogborne (Defendants) Solicitors: Hanna Legal (Plaintiff) CBB Law (Defendants)
File Number(s):	2019/237630
Publication Restriction:	Nil

JUDGMENT

1. Jiawen Li has sought the return of $9,243,112.50 that he advanced to Nina and Marlas Zhu, and/or an interest in assets purchased with his money.
2. Jiawen is a Chinese national living in China. In 2017, a family friend, Mr Xiaoqing Zheng, introduced Jiawen and his father, Hongqing Li, to Nina and Marlas, who had experience in property development in Sydney.
3. Hongqing, rather than Jiawen, discussed with Nina a possible investment for Jiawen involving property. Mr Zheng also attended all relevant meetings, but did not give evidence, despite being available to do so.
4. Nina had told Hongqing that, based on her track record, there could be a substantial profit made within a single year by paying a deposit for property and on-selling it. Jiawen and Hongqing only wanted to invest for one year.
5. In December 2017, Jiawen agreed with his father’s suggestion that he ought to “invest” with Nina and Marlas. Jiawen paid just over $9.2 million, as directed by Marlas, into a bank account in the name of Perpetual Property Holdings Pty Ltd, a company Marlas controlled.
6. Jiawen, Nina and Marlas did not create any written agreement about the money. However, all the parties agreed that the agreement was at least that:

(1) Nina would use Jiawen’s principal for property investment/s together with others’ money;

(2) If Nina sold the property within one year, Jiawen would receive 35% of the profit earned; and

(3) If the property was not sold within one year, Nina would return Jiawen’s principal to him without interest or profit.

7. By December 2018, Jiawen knew Nina was not going to return the money within the year.
8. On 18 December 2018, Jiawen prepared a “Loan agreement” on his computer and it was executed by Nina, Marlas and Jiawen, requiring the repayment of Jiawen’s original advance and interest on terms.
9. Jiawen claimed that Nina and Marlas breached the Loan agreement, by failing to make repayments as agreed. However, Nina was never served with the statement of claim, and in late 2022, Marlas became bankrupt. Therefore, Jiawen could not enforce the Loan agreement against Nina and Marlas in these proceedings.
10. Jiawen only agitated for relief against the remaining corporate defendants. Until he was bankrupted, Marlas was the director of those entities. He has also been or controlled their major shareholder.
11. Jiawen alleged against the corporate defendants that:

(1) Jiawen only advanced money to Nina and Marlas for a specific purpose of investing in a property at Tahmoor. Therefore, after Perpetual’s failure to purchase the Tahmoor property, the purpose failed, and Perpetual held the money pursuant to a “Quistclose trust”.

(2) Marlas knew of the trust and caused Perpetual to breach that trust by disbursing the funds to his other companies, PIC Parramatta 1 Pty Ltd, Parkroyal Investments Pty Ltd, and Cecil Developments Pty Ltd, for purposes other than the purchase of the Tahmoor property. Those defendants knew of the breach of trust, because Marlas was their director. As a result, all those entitles were liable to pay Jiawen equitable compensation. It was also said that the trust funds could be traced into other assets or bank accounts held by those entities, and specifically some property owned by Cecil at Castle Hill.

12. The defendants denied liability, primarily because they said the 2018 Loan agreement only provided Jiawen with rights as an unsecured creditor of Nina and Marlas, and any trust created with the earlier advance ceased to exist. Further, they denied there was any Quistclose trust, because there was no apparent specific purpose, to which Jiawen’s funds were to be put, and the mutual intention was to create a loan only.
13. Therefore, the issues to be determined were:

(1) What was agreed in 2017 before Jiawen advanced his funds to Perpetual? Was it the parties’ mutual intention that the funds would be used for a specific purpose, demonstrating an intention to create a Quistclose trust?

(2) What was the legal effect of the 2018 Loan agreement, including its legal relationship to the 2017 agreement?

(3) Are the corporate defendants liable for breach of trust or as accessories in equity?

(4) Can Jiawen prove that any defendants hold any assets obtained with trust money, so as to allow those funds to be traced into those assets?

14. Jiawen’s claim against the defendants must fail for the reasons that follow.

What was agreed in December 2017?

15. The only evidence in the proceedings came from Jiawen and Hongqing; the defendants did not lead any evidence.
16. Jiawen’s pleaded case was that on 22 December 2017, he entered into an agreement with Nina and Marlas:

Jiawen “in reliance on” representations paid $9,243,112.50 into the bank account of Perpetual “in consideration of receiving a thirty-five percent (35%) net profit”.

17. That agreement was said to be found in:

(1) A conversation between Hongqing and Nina in a meeting on 13 December 2017; and

(2) Documents shown at that meeting. However, no documents were shown at the meeting. Instead, Jiawen relied in submissions on some WeChat messages sent by Marlas to Jiawen, Hongqing, Mr Zheng and Nina on 21 December 2017, which are discussed below.

18. The pleaded oral representations by Nina in the December 2017 meeting included:

a. there was an investment opportunity for residential subdivision in Tahmoor, Sydney (the ‘Property’);

b. the property comprised approximately 621 acres of land that would be purchased for $350,000 per acre, being a total purchase price of $217,420,000;

c. to secure the Property a payment plan of:

i. ten percent (10%) deposit was required up front;
ii. ten percent (10%) instalment in year two; and
iii. eighty percent (80%) balance paid in the year five;

d. [Jiawen] would be required to pay [10% deposit] as his only investment into the development of the Property;

e. In consideration of making the [10% payment] [Jiawen] would receive a thirty-five percent (35%) net profit;

f. Any payments [Jiawen] made would solely be used for the development of the Property;

...

i. by December 2018 the Property would be sold for a profit, being a sale rate of $450,000.000 to $500,000.00 per acre;

j. from the profit Marlas and [Nina] would be entitled fifteen percent (15%) of the net profit.

19. The defendants admitted words “to the effect of” those pleaded were said by Nina, but denied the agreement pleaded was formed.
20. The only terms of the agreement pleaded were that:

(1) Nina and Marlas would conduct and complete the “Tahmoor development”;

(2) Nina and Marlas would undertake that work with reasonable care; and

(3) On or before December 2018, Nina, Marlas and Perpetual would pay Jiawen 35% of the net profit of sale prices of $450,000 to $500,000 per acre.

21. To succeed, it was necessary for Jiawen to prove the agreement as pleaded, and that at the time he advanced his money, there was a mutual intention that his money would be used for a particular purpose and that if that purpose failed, it would be held on trust.

Conversation on 13 December 2017

22. Hongqing’s evidence was that on 13 December 2017, he met with Marlas, Nina and Mr Zheng in Sydney to discuss Jiawen investing with Nina and Marlas. During this meeting, Nina told Hongqing:

Nina: Right now there are roughly 800 acres of land available to purchase. It costs $350,000 per acre. The resale price can be increased by $100,000 to $200,000 per acre. ... We can pay in instalments when purchasing the land: [10%] in the first year, 10% in the second year and 80% in the fifth year. We only need to pay 10% of the total purchase price and resell it within one year. ... You can just purchase around 600 acres. ...

Hongqing: I will contribute towards the first instalment, but if the land is not sold within one year, I will be leaving the project.

Nina: That is for sure, the land will be sold within one year and we will not need to invest the amount for the second instalment. If the land is not sold, we can leave the project and get back the principal. ...

23. Jiawen’s evidence in cross-examination was that he understood from what his father had told him that after one year, “we will get profit or principal back”. Further, Jiawen said his father had told him that he would be entitled to 35% of “shares”, as would Mr Zheng. Nina and Marlas would hold 30% of the shares. However, no shareholders’ agreement or documentation was prepared or signed to that effect.
24. Jiawen never had a conversation with Nina or Marlas about the proposed investment sum, the proposed property (or properties), its location, or its size.
25. As noted above, no documents were provided during the 13 December 2017 meeting.
26. Therefore, during the conversation, the only portion of the pleaded agreement that can be found is that Jiawen would pay money representing 10% of the purchase price in return for a promise from Nina of 35% profit within one year or the return of the principal. There was no reference to a particular property or the specific value of Jiawen’s investment.

Documents

27. I have assumed that the defendants were able to meet the unpleaded case that the documents provided before payment formed part of the unwritten agreement.
28. On 21 December 2017, within about five minutes, Marlas sent various WeChat messages to Jiawen, Hongqing, Mr Zheng and Nina with the following attachments:

(1) Bank account details for Perpetual;

(2) An ASIC extract demonstrating that Perpetual had been established on 19 December 2017, with Marlas listed as its sole shareholder and director;

(3) An undated plan of corporate structures prepared by an accountant, that referenced various companies, including Perpetual, and trust structures involving Jiawen and Mr Zheng; and

(4) A photo from Google Maps with the description, "Moorland Road, Myrtle Creek Avenue, Tahmoor Road, Cross St. Tahmoor 528.9 acres".

29. Jiawen submitted that these documents included a representation that Jiawen’s money “would be solely used for the development of the [Tahmoor property]”. However, the agreement pleaded was that money would be paid “to facilitate the purchase of the [Tahmoor property]”. There is no reference to “solely” or a “development” in the pleaded agreement.
30. I do not accept that it can be inferred that by sending a map of land, Nina and Marlas were promising that Jiawen’s money would be used to purchase the property in the photo. Jiawen had shown no interest in visiting any property site or in knowing the details of any property, including its particular size or value.
31. The pleaded representation about the Tahmoor development site was that it was “approximately 621 acres”. However, the map sent on 21 December referenced land of only, and exactly, 528.9 acres. Before transferring his money, Jiawen was never provided with any document that showed a property of 621 acres. Marlas had not explained the purpose of the map sent to the group. Jiawen did not ask. Neither Jiawen nor Hongqing gave evidence that they understood the photo to depict the specific property, into which they were investing. I do not accept it can be inferred that the provision of a map with no explanation is alone sufficient to conclude a specific promise in relation to that land.
32. There was no evidence of any conversation or message where a calculation was provided to Jiawen to demonstrate how the precise figure he paid (and pleaded) was determined. In closing submissions in reply, Jiawen’s counsel suggested for the first time that the figure appeared based on the following calculation drawing from some of the pleaded allegations:

(1) $350,000 per acre multiplied by 621 acres = $217,350,000.

(2) $271,350,000 x 0.425 (being 0.35 representing Jiawen’s 35% future interest in profits, plus 0.075 representing funding of Nina and Marlas’ future entitlement to 15% of profits for their work) = $92,373,750.

(3) Therefore, the 10% for the deposit was $9,237,375.00.

33. However, even if that calculation occurred, it does not lead to the $9,243,112.50, which was the amount Jiawen transferred, nor does it relate to the map with fewer acres. Instead, I consider Jiawen paying his advance, when it was not obviously referrable to the purchase price of any identified land, demonstrated that Jiawen was prepared to pay what Marlas asked, without relying on the map or any other information about a particular piece of land.
34. Further, there is no evidence that Nina or Marlas, or by extension, their companies, had any intention of purchasing properties in Tahmoor at the time of the agreement and Jiawen’s advance. Jiawen’s counsel faintly sought to rely on “call options” referring to lots of land in Tahmoor that were provided to Jiawen in January 2018, after he had advanced his money. However, the parties accepted those call options were “shams”. I do not consider they assist Jiawen’s case in circumstances where there was no evidence of who created the documents or why, and where Jiawen did not have them at formation or claim he placed reliance on them at any other time.

Conclusion

35. I accept that while Hongqing, Nina and Marlas had discussions about property investment opportunities and possible structures for a joint venture or joint investment, the only certain agreement formed was a one-year interest free loan by Jiawen to Nina and Marlas to be used in Nina’s property development business, in return for a possible profit at the end of that year.
36. For the reasons that follow, I do not accept Jiawen has proved that the parties had a mutual intention to create a trust when he advanced his money, should the particular alleged purpose fail.

Perpetual’s use of Jiawen’s money

37. On 18 January 2018, Jiawen and Hongqing met with Nina and Marlas to discuss the progress of the investment. During this meeting, Marlas advised:

All of the money for the land purchase had been paid to the seller. We are in the process of going through formality procedures in relation to the nature of the land.

38. However, Perpetual had not purchased any properties and the land was not identified. If there was an agreement to purchase the Tahmoor property, then Nina and Marlas breached it. However, no case was advanced for breach of that agreement.
39. Perpetual dealt with Jiawen’s money in the following ways:

(1) Perpetual transferred $3,000,000 to PIC:

(a) On 29 December 2017, Perpetual transferred $1,000,000. Before 3 January 2018, PIC had on-transferred by way of 11 transfers $690,671 to other corporate entities that were not party to the proceedings.

(b) On 8 January 2018, Perpetual transferred $2,000,000. From then until 29 March 2018, through 48 transfers, PIC had on-transferred $3,275,000 to other corporate entities that were not party to these proceedings. As at 31 December 2018, PIC only had $29,923.08 in its bank account.

(2) Perpetual transferred $6,100,000 to Parkroyal:

(a) On 2 February 2018, Perpetual transferred $6,000,000. On 20 February 2018, Parkroyal used that money when it settled on the purchase of 38 properties for $23,824,680.92.

(b) On 14 May 2018, Perpetual transferred $100,000. By 28 June 2018, Parkroyal had $32,442.86 in its bank account. On 12 November 2021, Parkroyal was placed into administration. It does not own any properties.

(3) Perpetual transferred money to other persons:

(a) On 24 January 2018, there were two payments of $1,400 to accountants;

(b) On 28 February 2018, $1,980 was paid to lawyers;

(c) On 5 June 2018, there were two payments of $100,000 to construction consultants.

40. While Jiawen complained that Perpetual held all his money on trust as soon as the agreed purpose failed and Perpetual did not purchase the Tahmoor property, he only claimed equitable compensation from PIC, Parkroyal and Cecil in the sums they received from Perpetual. Jiawen did not make a claim against the accountants, lawyers, or construction consultants, who had received his money from Perpetual.

Was Jiawen’s money held by Perpetual pursuant to a Quistclose trust?

41. Above I have concluded that the terms of the agreement did not include the purpose pleaded, namely “to facilitate the Tahmoor development”, nor “to solely be used for the development” of the Tahmoor development. Therefore, the trust claim must fail.
42. However, below I provide further reasons why, even if there was a specified purpose, there was no intention to create a trust.

Legal principles

43. Usually, money advanced by way of loan becomes the property of the borrower, and if security is not agreed, then the lender is at risk of the loan not being repaid. However, it is possible for a loan to be for a particular purpose, such that the borrower holds the money on trust if the purpose fails: see eg Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164 (Twinsectra) at [86] (Lord Millett). This is often referred to as a Quistclose trust.
44. Without intending to depart from the authorities, it is useful to summarise Gleeson J’s statement of the relevant principles in Re BBY Ltd (in liq) and BBY Holdings Pty Ltd (in liq) [2022] NSWSC 29 (BBY) at [43]-[62] (citations omitted):

(1) Quistclose trusts involve the situation where money is advanced from A to B, with the mutual intention that the funds should not become part of the assets of B, but should instead be used for an exclusive purpose. In these cases, there will be implied (absent evidence of a contrary intention) a stipulation that where the purpose fails, the money is to be repaid to A, and the arrangement will give rise to a trust.

(2) Quistclose trusts are not a distinct species of trust and must satisfy the requirements for any private trust.

(3) The question of whether a trust arises depends on the parties' mutual intention, assessed objectively, by reference to the parties' outward manifestations of their intentions.

(4) Where the language of the parties is inexplicit, the Court may infer the relevant intention from the nature of the transaction and from the circumstances attending the relationship between the parties.

(5) The parties' mutual intention is central. The test is not merely whether the parties intended the money to be at the free disposal of the borrower. Equally, it is not sufficient to merely show that the parties intended that the funds were to be used only for a specified purpose communicated between the parties. Rather, there must be certainty of intention to create a trust in the nature of a Quistclose trust.

45. The use of the words, “exclusively” or “only” in the context of providing funds may be important in discerning whether the relevant intention exists: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 580 (Lord Wilberforce). For example, in Twinsectra, a lender was only prepared to advance money if a solicitor’s undertaking was given that set out the terms of the loan and its repayment, including that the funds would only be released “for the acquisition of property”. A trust was found.
46. One factor in assessing whether there was the requisite intention is whether the funds were transferred to a specific account earmarked for the particular purpose, or to a general account of the recipient: BBY at [48]. In Re Earth Civil Australia Pty Ltd [2021] NSWSC 966 at [2682], Ward CJ in Eq (as her Honour then was) noted that the transfer of funds to a general account, while not determinative, points away from the formation of a trust given that this indicates that the funds were at the recipient’s general disposal.

Application

47. Jiawen and Hongqing’s pleaded agreement was that the $9.2 million would be invested “to facilitate the purchase” of the Tahmoor property. Even if that was found, it would be insufficient to demonstrate an intention to create a trust.
48. Below I consider other features of the evidence that lead to the conclusion that there was no such intention.
49. Creation of Perpetual: Jiawen placed emphasis on the fact that Perpetual was created as the corporate vehicle for Jiawen, Mr Zheng and Nina to invest in the Tahmoor property. This was said to be a critical factor demonstrating an intention to create a trust. However, merely creating a joint venture vehicle does not alone demonstrate an intention to create a trust. Not all joint ventures will create fiduciary or trust relationships. However, it does not appear that the parties considered Perpetual was a joint venture vehicle; the parties intended multiple trusts and companies to be created for the purposes of a joint venture which never eventuated, as noted further below.
50. Bank account: I do not accept Jiawen’s counsel’s submission that there was a specific bank account for Jiawen’s money that kept his funds apart from Perpetual’s general assets. Only one bank account was provided to Jiawen and Mr Zheng. Further, Jiawen understood that others would deposit money into Perpetual’s bank account, including Mr Zheng and the Zhus. While Jiawen did not know whether Mr Zheng had actually deposited his money there, he thought Mr Zheng was “supposed to”. This is unlike cases where money is placed in a “trust account” or an additional bank account of a borrower. This factor is not determinative, but the co-mingling of funds and the expectation of co-mingling points away from the existence of a Quistclose trust.
51. Language used: At no time did either Jiawen or Hongqing communicate to Nina that the money was “solely” to be used for a particular property purchase. It appears that Jiawen was prepared to pay whatever sum of money Marlas requested from him, without any understanding of what land Nina would use it for. Further, he was prepared to pay that sum of money without any documentation recording the terms of his agreement with Nina and Marlas, despite his business sophistication as an investment manager, who bought shares in other companies, and had a precedent “Loan agreement” on his computer.
52. Hongqing also explained the 2018 Loan agreement, discussed below, was “not a standalone agreement”, but rather an “extension of [his] investment”. As noted below, the Loan included no reference to a trust or any security, and taken with Hongqing’s statement, suggests he never understood the arrangement as one involving a trust. No submissions were made concerning the use of that evidence. If the evidence was admissible as an admission against interest that there was no trust, it would support the view that there was no intention to create a trust: see discussion concerning admissible evidence to determine the creation of a resulting trust in Bosanac v Commissioner of Taxation (2022) 265 CLR 37 at [113] (Gordon and Edelman JJ). However, that evidence is not essential to my finding that there was no trust.
53. Other evidence of intention: Hongqing knew that if Jiawen was to withdraw from “the project”, Nina would need to “get back the principal”. However, Hongqing had no information about how the principal was to be returned. He only appeared to care that Nina would repay the sum of money advanced. This is consistent with a loan and the parties’ conduct when the principal was not returned. Hongqing did not suggest at any time that Jiawen had an interest in any property, into which the principal had been invested, when Nina told him she would be late in repaying the principal “because [she had] to raise money to repay”.

Conclusion

54. I do not consider there is sufficient evidence to demonstrate a mutual intention to create a trust. Therefore, Jiawen’s claims based on a Quistclose trust must fail.

Did the Loan agreement end any trust relationship?

55. On the contingency that the $9.2 million was held by Perpetual under a Quistclose trust, I consider whether Jiawen subsequently “converted his rights against Nina Zhu and Marlas Zhu for the [principal] under the Tahmoor Development Agreement into the principal of the Loan represented by the Loan Agreement”, as the defendants submitted.

Facts leading to the Loan

56. During 2018, Jiawen and Hongqing only had a few conversations with Nina and Marlas.
57. In April 2018, Marlas contacted Jiawen about possibly establishing a family trust, which never happened. Marlas also indicated that “we’re looking for people” to buy “our land”. The land was not identified, nor was it clear that “our land” referred to land, into which Jiawen had “invested”.
58. In August 2018, Nina told Jiawen and Hongqing that she had been negotiating with the council to change the use of the land, but there may be issues with coal beneath the land. Nevertheless, she indicated that she was talking to buyers. Again, no land was identified.
59. On 4 September 2018, Mr Zheng sent Jiawen, Hongqing, Nina and Marlas “minutes of shareholders’ meeting” that had been held in August 2018. The minutes included a note that decisions had been made about the following, inter alia:

(1) "Establish a joint venture company, ... clarify the rights and obligations of shareholders and the authorisation to managers, such as financial payment authority. ...”;

(2) Nina “shall also prepare the procedure for return of the first phase investment money before starting to finance the second phase of land investment, just in case”.

60. In early December 2018, Hongqing and Jiawen had various meetings with Nina and Marlas. By then, Jiawen was aware that there would be no profit from any property sale. He wanted his principal returned.
61. On 18 December 2018, in a meeting with Hongqing, Nina, Marlas and Mr Zheng, Jiawen created a “Loan agreement”, which was then signed by Jiawen, Nina and Marlas. Hongqing had recorded on his mobile the discussion before the Loan was executed. The transcript of the conversation revealed that Hongqing determined most of the Loan terms. The key features of the Loan were:

(1) The Loan was backdated to 22 December 2017 (being the first day of any advance by Jiawen), even though it was signed on 18 December 2018;

(2) Nina was stated to be the borrower of Jiawen’s $9.2 million, and she and Marlas were “guarantors”;

(3) No interest on Jiawen’s money was payable from 22 December 2017 to 22 December 2018 (being the original date for the return of Jiawen’s money if there had not been any property sale);

(4) Interest would be payable on the principal amount from 22 December 2018 until 22 March 2018 at the rate of 6% per annum;

(5) If the principal (and 6% interest) was not repaid by 22 March 2018, then a “penalty” interest rate of 0.5% was payable daily (in addition to the principal).

Effect of Loan agreement on any trust

62. Jiawen’s counsel submitted that the Loan agreement was intended to “add another term” to the unwritten agreement formed in 2017, namely a requirement to pay interest, rather than effecting a “conversion” of Jiawen’s equitable interest. The submission was:

The reason that is not a conversion is because what is being discussed and contemplated is the additional obligations that arise if the money is not returned after a year. It is contemplative of what occurs if the money has not been returned for a year. That wasn’t a part of the original agreement, what would happen, but it’s an additional term, it’s additional security in a time that post-dates what was in the contemplation of the parties.

63. I accept that the original 2017 agreement did not provide for any repayment of principal after December 2018, nor for the payment of interest, and therefore those terms might be considered “additional”. However, it was still necessary for Jiawen to prove that there was originally a trust arrangement, which he has not.
64. However, even if a trust relationship arose from the original 2017 agreement, Jiawen made no submissions against the way the defendants had framed their pleaded defence and submissions about the extinguishment of any equitable interest found in the original agreement.
65. I prefer the defendants’ submissions and I consider the better analysis is that any equitable interest Jiawen had in the $9.2 million was extinguished when he entered into the Loan agreement with Nina and Marlas for any of the following reasons:

(1) The Loan agreement came later in time and was inconsistent with the continuing existence of the unwritten agreement, which was said to have created the trust. The Loan agreement covered exactly the same subject matter in terms of the money advanced, the date on which it was advanced, and the original date it was repayable without interest. The Loan agreement also provided an agreement to extend the Loan on the basis of identified interest. Therefore, the later Loan agreement necessarily rescinded the earlier arrangement: see eg Hillam v Iacullo [2015] NSWCA 196; (2015) 90 NSWLR 422 at [51] and [72] (Leeming JA; Basten and Ward JJA agreeing).

(2) The Loan evidenced conduct of the parties abandoning their earlier unwritten agreement: see eg Protector Glass Industries Pty Ltd v Southern Cross Autoglass Pty Ltd [2015] NSWCA 16 at [95]- [99] (Barrett JA; Meagher and Gleeson JJA agreeing).

(3) The proper construction of the Loan was that Jiawen surrendered any equitable interest he had in the money advanced, in return for the rights he obtained under the Loan: see eg Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119 at 132 (Finkelstein J); Radoman Pty Ltd v Vexapu Pty Ltd [2008] NSWSC 8 at [22], where Barrett J cited Grey v Inland Revenue Commissioners [1959] UKHL 2; [1960] AC 1 at 16 (Lord Radcliffe) and PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 at 249 (Giles J).

66. Jiawen’s subjective understanding of the effect of the Loan is not admissible on its proper construction. However, the case he ran appears inconsistent with his understanding in cross-examination. He understood the Loan was “the way [he was] going to get out of this bad investment”, and if the Loan terms were satisfied, then “the agreement would be exhausted”. He did not indicate that he was seeking any remedy in relation to trust property acquired with his money in addition to the performance of the Loan agreement.
67. Whatever the appropriate analysis, I am satisfied that, to the extent that there was a Quistclose trust created by the original unwritten loan and the unfulfilled purpose, it was no longer effective from the time the Loan was signed. Therefore, Jiawen’s claims against the corporate defendants must fail.

Corporate defendants’ liability

68. On the contingency that the above is erroneous, and there was a Quistclose trust in relation to the principal sum that survived the 2018 Loan, I consider below what liability the corporate defendants would have.

Proprietary claims

69. Jiawen pleaded that the corporate defendants:

...hold any interests they have in:

a. the Castle Hill Development; and

b. the [money advanced by Jiawen]”;

c. any property into which the [money advanced by Jiawen was] diverted,

on

(a) resulting trust; or

(b) in the alternative, on a Quistclose trust arising from the intention of the Plaintiff that the Payments were to be applied and applied only for a specific purpose being the Tahmoor Development Agreement; and that intention not being fulfilled by dint of the Tahmoor Development Agreement not coming into effect; or

(c) in the further alternative, on a constructive trust,

(d) a trust arising under the principles of Black v Freedman

for [Jiawen].

70. There was no evidence that either Perpetual, PIC or Parkroyal held any of Jiawen’s money or property in their names.
71. Nevertheless, I deal briefly with each of the types of trusts claimed:

(1) I have dealt with the intention that would be relevant to a Quistclose trust above.

(2) No submissions were made concerning a resulting or constructive trust, apart from a Black v Freedman constructive trust.

(3) Submissions were made about whether the corporate defendants were voluntary recipients of trust property, such that they may be liable to account as constructive trustees. I deal with this claim first.

Liability as a voluntary recipient

72. A volunteer recipient of trust property transferred to her in breach of trust is bound in conscience to account for such property which remains in her hands from the point at which she acquires notice of the trust, whether that be at the time of receipt or subsequently. This is a form of liability to account as a constructive trustee which is separate and distinct from liability in knowing receipt: Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81; (2016) 91 NSWLR 732 at [29]- [31], [43]-[47] (Leeming JA; Bathurst CJ and Sackville AJA agreeing); Sze Tu v Lowe (2014) 89 NSWLR 317 at [142]-[145] (Gleeson JA, Meagher and Barrett JJA agreeing).
73. As evident from the reasons above, I do not consider that the parties had a mutual intention about a specific purpose for Jiawen’s advance that demonstrated an intention to create a trust. I do not accept that it can be inferred from the objective evidence that Marlas, and in turn the corporate defendants, knew that a trust arrangement existed, or that causing Perpetual to pay out money as he did, was in breach of trust.
74. Instead, I consider it possible and likely that Marlas understood the arrangement the way I have, namely, that Nina was going to invest the money from the Perpetual bank account and either pay Jiawen profit or return Jiawen’s principal sum in discharge of a personal obligation.

Liability as a Black v Freedman trustee

75. In Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105 at 110, O’Connor J held that “[w]here money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character”. That proposition is “settled law” in Australia: Fistar v Riverwood Legion and Community Club Ltd at [36]-[47] (Leeming JA; Bathurst CJ and Sackville AJA agreeing).
76. Jiawen’s counsel submitted that Jiawen’s money was “stolen”, because it was provided for a particular purpose to Perpetual, and it was divested for other purposes.
77. While the same purpose was deployed to ground the Quistclose trust and the Black v Freedman trust, it might be accepted at the level of principle that it would be possible to find the latter without finding the former.
78. For a finding that Marlas and Perpetual “stole” money, there must be an intentional taking of money he knew was not his. That is a very serious allegation and would require a finding of dishonesty against a person who is not a party to the proceedings and did not give evidence. Further, it would require evidence that is sufficiently persuasive, considering the nature of the allegation: see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 360-1 (Dixon J).
79. Jiawen’s counsel submitted that a Jones v Dunkel inference ought to be drawn that Marlas’ evidence, had he been called, would not have assisted the defendants’ case. However, the effect of a Jones v Dunkel inference is not to prove a plaintiff’s case, if it is otherwise lacking: see eg Lim v Cho [2018] NSWCA 145 at [41] (Sackville AJA; Leeming JA agreeing).
80. Here, I do not accept that there is any evidence of Marlas’ knowledge of the legal effect of the discussions and documents he attached to text messages, such that it can be concluded that he knew Perpetual was legally obliged to deploy Jiawen’s money as alleged, but then intentionally caused Perpetual to divert it. Obviously, whether there was the agreement Jiawen alleged was contentious and has required an expensive and protracted court case. In those circumstances, I do not accept it can be easily inferred that Marlas knew the legal conclusion that would be reached and intentionally acted dishonestly. I do not draw that inference.
81. For completeness, I note that I do not accept that the alleged dishonest taking of Jiawen’s money was adequately pleaded. I do not accept that it is sufficient to refer to the name of an authority in a pleading, in order to plead dishonesty. Instead, the factual elements necessary for a finding of a Black v Freedman trust ought to be identified with clarity, because of the seriousness of the allegation. While I accept that in Goo v Sim [2022] NSWSC 420, Henry J dismissed a claim for a Black v Freedman trust because it had not been pleaded at all and only mentioned in submissions, I do not consider Jiawen’s pleading, which merely referenced Black v Freedman is sufficient. As her Honour noted in Goo v Sim, an allegation of theft to establish a Black v Freedman trust is serious and parties are obliged by r 15.3 Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to plead and give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence, on which they rely: at [256]; see also r 15.1 UCPR. I do not accept that here there was sufficient particularisation of the allegation of dishonesty.

Tracing?

82. On the contingency that the above is erroneous, below I consider whether the corporate defendants hold any traceable assets.
83. Jiawen submitted that:

(1) Perpetual was liable to Jiawen for the whole advance of his advance or about $9,200,000.00;

(2) PIC was liable to Jiawen for $3,000,000.00;

(3) Parkroyal was liable to Jiawen for $6,100,000.00; and

(4) Cecil was liable to Jiawen for $6,100,000.00.

84. However, there was no evidence that Perpetual, PIC or Parkroyal hold traceable assets.
85. In relation to Cecil, Jiawen pleaded that between December 2018 and December 2021, Parkroyal had diverted the $6,100,000 it received from Perpetual to Cecil, and Cecil used the money to purchase real property in the Castle Hill development. Cecil still owns properties there.
86. The real issue is whether Jiawen has proved that Cecil used traceable funds to acquire any Castle Hill properties.
87. I am not satisfied that Jiawen has demonstrated on the balance of probabilities that Cecil obtained Jiawen’s money, whether in cash or by way of property bought with that cash.
88. The only evidence Jiawen served to prove this claim concerning Cecil was a DOCA report to Cecil creditors on 17 December 2021, which included a statement by Marlas dated 7 December 2021, inter alia:

In early 2018 [Parkroyal and Cecil] received $6,100,000 into their bank account that was transferred from Perpetual’s bank account.

89. However, Parkroyal’s bank accounts demonstrated that the whole of the $6,100,000 was received by it from Perpetual, and therefore Cecil did not receive anything from Perpetual. There was no evidence that Parkroyal purchased property in Cecil’s name either. Therefore, Jiawen had advanced a case with no reliable evidence to support a tracing process into Cecil’s assets.

Late application for urgent notice to produce and subpoena

90. The defendants’ written opening submissions had noted that Jiawen had not proved his case to justify tracing from Perpetual to Parkroyal to Cecil, including because none of Parkroyal’s bank statements were in evidence. It is likely that submission led to Jiawen issuing a notice to produce for Parkroyal’s bank statements on 19 February 2025, a few days before the commencement of the hearing.
91. The bank statements were produced on the second day of the hearing on 25 February 2025. As noted above, those bank statements demonstrated that on 2 February 2018, Parkroyal received $6,000,000 from Perpetual and that on 20 February 2018, Parkroyal spent $23,824,680.92 by way of 36 settlement cheques.
92. Shortly after the production of Parkroyal’s bank statements, and after the defendants had closed their case without calling any evidence, Jiawen’s counsel made an oral application to issue another notice to produce to Parkroyal for “the settlement bank cheques” dated 20 February 2018 referenced in the bank statements. I refused that application for many reasons recorded in a separate judgment, including the unexplained delay in seeking the information in a case against Parkroyal and Cecil that had been on foot since April 2024, and where Jiawen’s counsel submitted that a decision was made before the hearing commenced that Jiawen had sufficient evidence for his case. I further note that the bank cheques sought did not fall within Jiawen’s pleaded timeframe concerning Parkroyal’s conduct and would have required an amendment to the pleading, which was not foreshadowed nor sought.
93. After I refused that application, Jiawen’s counsel made an oral application for the issuing of a subpoena to obtain the settlement cheques from the issuing bank with a short return date and for an adjournment of the hearing until those documents were produced.
94. I refused that application. Reasons for my refusal were sought at the time, and I indicated those reasons would be provided in my final judgment. In closing, Jiawen’s counsel indicated that his client no longer required reasons. Nevertheless, I consider it appropriate to give brief reasons.
95. Jiawen’s counsel had repeatedly stated that about 50 subpoenas had been issued in these proceedings and it had been an expensive case to run since 2019.
96. In those circumstances, there was no explanation as to why investigations had not been undertaken in relation to Parkroyal’s use of Jiawen’s money and Cecil’s purchase of the Castle Hill properties.
97. I considered Jiawen must be held to the forensic decisions made in running his pleaded case based on the extensive evidence filed and served in support of it determined by counsel to be sufficient.
98. Where a party makes a forensic decision, from which it subsequently seeks to depart, whether the departure will be condoned requires at least a balancing of the prejudice caused to the other side with the utility of permitting the amended course: Patakas v Bevan [2017] NSWSC 1592 at [72]- [73] (Ward CJ in Eq, as her Honour then was). The defendants had decided not to lead any evidence based on the way Jiawen had run his case. Allowing further evidence could lead to further evidence and further hearing dates at some time in the future.
99. A factor that also weighs against allowing the altered course is the fact that the evidence being sought was reasonably available much earlier when Jiawen initially made the forensic decision not to seek the bank records and any other documentation in advance of the trial: Liu v Age Co Ltd [2016] NSWCA 115; (2016) 92 NSWLR 679 at [294] (Ward JA, as her Honour then was).
100. Jiawen’s case commenced in 2019, and he placed reliance on documents in an almost 2000-page court book. Further documents were tendered during the hearing. I did not consider it appropriate to either permit further investigations for more possible evidence, or to adjourn the hearing for that purpose; it would not advance the “overriding purpose” of the Civil Procedure Act 2005 (NSW).

Personal claims

101. Jiawen also brought claims in knowing assistance and knowing receipt against the corporate defendants. I deal with these claims below.

Knowing receipt

102. The relevant test for liability in knowing receipt under the first limb of Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 was set out by Gleeson JA (Beazley P; Barrett JA agreeing) in Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 (Simmons) at [88]:

(1) the existence of a trust, or a fiduciary duty, with respect to property (trust property);

(2) the misapplication of trust property by the trustee or fiduciary;

(3) the receipt of trust property by the third party;

(4) knowledge by the third party, at the time he or she received the relevant property, that it was trust property and that it was being misapplied or, in the case of breach by a fiduciary, that the trust property was transferred pursuant to a breach of fiduciary duty.

103. For Jiawen to succeed in knowing receipt, he had to establish that the corporate defendants had, at the very least, knowledge of “circumstances which to an honest and reasonable person would have indicated” that Jiawen’s money was trust property when received by the corporate defendants and was transferred to them in breach of trust: Blue Mirror Pty Ltd v Tan & Tan Australia Pty Ltd (in liq) [2024] NSWCA 253 at [30] (Leeming JA; Ward P and Mitchelmore JA agreeing); Simmons at [88]-[92].
104. As outlined above, I have not accepted that in December 2017, the parties reached an agreement that Jiawen’s money would be held by Perpetual for the “specific purpose” of the facilitation of the purchase of Tahmoor properties. Therefore, it cannot be found that Marlas, and in turn the corporate defendants, had knowledge that the money was used in breach of trust or fiduciary duty, which means Jiawen’s claims must fail.

Knowing assistance

105. To succeed, Jiawen must have established that there was a “dishonest and fraudulent breach of fiduciary duty” or trust on the part of Perpetual, the corporate defendants assisted in that breach, and the corporate defendants had “sufficient knowledge of the breach”: Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294; (2023) 113 NSWLR 151 at [243] (Gleeson, Leeming and White JJA); Pittmore Pty Ltd v Chan [2020] NSWCA 344; (2020) 104 NSWLR 62 at [152] (Leeming JA, Bell P and Brereton JA agreeing); Simmons at [111]-[115].
106. “Sufficient knowledge” is, at the very least, “knowledge of circumstances which would indicate the facts to an honest and reasonable man”: Simmons at [113].
107. A “dishonest and fraudulent” breach of fiduciary duty or trust is one that amounts to “a transgression of ordinary standards of honest behaviour”: Hasler v Singtel Optus Ltd (2014) 87 NSWLR 608 at [122]-[124] (Leeming JA; Gleeson JA agreeing).
108. For the same reasons as above, I consider that the corporate defendants lacked the requisite knowledge of breach of trust or fiduciary duty.
109. Jiawen’s knowing assistance claim consequently fails.

Costs

110. Jiawen has failed on every claim and costs ought to follow the event.

Orders

111. For these reasons, I make the following orders:

(1) Further amended statement of claim dismissed.

(2) Plaintiff to pay the defendants' costs of the proceedings as agreed or assessed.

(3) Grant liberty to the parties to apply for an alternative costs order within seven days of today's date, setting out the application and any evidence and submissions of no more than three pages upon which they rely.

(4) Should such an application be made for an alternative costs order, the responding party is to provide evidence and submissions of no more than three pages opposing any alternative costs order within seven days of receiving the first application.

(5) The Court will determine any such alternative costs application on the papers, if appropriate.

**********