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Oakland Investment Group Ltd v Sino-Resource Imp & Exp Co Ltd QCA 92
SUPREME COURT OF QUEENSLAND
Oakland Investment Group Limited v Sino-Resource Imp & Exp Co Ltd  QCA 92
OAKLAND INVESTMENT GROUP LIMITED
SINO-RESOURCE IMP & EXP CO LTD
Appeal No 6155 of 2018
SC No 553 of 2017
Court of Appeal
General Civil Appeal
Supreme Court at Cairns –  QSC 98;  QSC 133 (Henry J)
21 May 2019
8 November 2018
Gotterson and Morrison and McMurdo JJA
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – SEPARATE DECISION OR DETERMINATION OF QUESTIONS AND CONSOLIDATION OF PROCEEDINGS – APPEAL FROM DECISION OR DETERMINATION ON SEPARATE QUESTION – where the appellant and respondent both lent money to an entity pursuant to loan agreements which were secured by mortgages over common areas and unsold residential lots at the Port Hinchinbrook Resort in North Queensland (“the estate”) – where the appellant had priority over the respondent’s loan under a Deed of Priority and Subordination – where the entity was wound up in insolvency and the appellant went into possession over the estate – where the respondent contested the appellant’s right to possess and sell the estate – where the respondent contested whether the appellant was owed money by the entity – where the appellant and respondent consented to an order requiring determination of the question whether any money was due and by virtue of a loan agreement between the appellant and the entity and secured by a mortgage over the estate pursuant to r 483 Uniform Civil Procedure Rules 1999 (Qld) – where the learned primary judge found the loan was a sham and that no money was owed by the entity to the appellant – whether the learned primary judge erred in determining the separate question – whether the learned primary judge erred by making further orders after the determination of the separate question and after hearing from the parties
EVIDENCE – PROOF – GENERALLY – where the learned primary judge found 14 circumstances which provided compelling support for the inference that the loan was a sham and excluded the possibility that the loan was legitimate – where the appellant argued that the circumstances identified by the learned primary judge do not support the necessary inferences in relation to each of the relevant transactions in the proceedings – where the appellant argued that the learned primary judge failed to appropriately apply the legal test for a sham and failed to address any evidence showing the test had been made out – where the appellant argued that the learned primary judge mischaracterised the burden of proof and placed on the appellant an obligation of disproving the sham – whether there was sufficient evidence to support a conclusion by inference of sham – whether the learned primary judge mischaracterised the burden of proof
APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – RIGHT OF APPEAL – WHEN APPEAL LIES – ERROR OF LAW – PARTICULAR CASES INVOLVING ERROR OF LAW – DENIAL OF NATURAL JUSTICE – where the respondent provided a written opening on the morning of the hearing of the separate question – where the learned primary judge rejected the appellant’s application for the separate question to proceed by way of pleadings – where the appellant argued that the rejection of the request for pleadings amounted to a denial of procedural fairness because of the claim of fraud effectively made by the respondent – where the appellant argued that the decision of the learned primary judge went beyond the respondent’s written opening – where the appellant also argued that the learned primary judge’s reasons contained pejorative statements and findings that give rise to an apprehension of bias – whether there was a denial of procedural fairness – whether the primary judge’s reasons gave rise to an apprehension of bias
EVIDENCE – PROOF – STANDARD OF PROOF – STANDARD OF SATISFACTION – PROBATIVE VALUE – FAILURE TO CALL, GIVE, PRODUCE EVIDENCE – where the learned primary judge made reference to the fact that if the loan truly existed, the appellant could have called the appellant’s director to give evidence of that fact and produce documents to corroborate it – where the appellant argued that the learned primary judge erred because his Honour used the failure to call this witness to fill gaps in the evidence or turn conjecture into inference – whether the learned primary judge made an error in inferring that the absence of evidence from the appellant’s director could not have advanced the appellant’s case and subsequently drawing the inference that the appellant’s loan was a sham
K C Morgan SC, with C A Schneider, for the appellant
D A Savage QC, with L M Copley, for the respondent
Carmody Lawyers for the appellant
Connolly Suthers for the respondent
- GOTTERSON JA: The Port Hinchinbrook Resort is a residential and marina development located at the Hinchinbrook Channel near Cardwell in North Queensland. It was developed by Williams Corporation Pty Ltd which, at the time of its liquidation in 2013, was the owner of common areas and certain unsold residential lots within the development. These real property interests have been referred to collectively in the litigation as “the estate”. The liquidation was a consequence of damage caused to the estate by Cyclone Yasi in 2011.
- The liquidator sold the estate to The Passage Holdings Pty Ltd as trustee for the Passage Unit Trust (“Passage”) by a contract dated 13 February 2015. It was completed on 26 September 2016. Prior to completion, two Loan Agreement documents were executed by Passage. In each case, Passage was the “Borrower” and the “Loan” was defined to be the amount of $4,150,000. Under one of the Loan Agreements, which was undated, the “Lender” was the respondent to this appeal, Sino-Resource Imp & Exp Co Ltd (“Sino”). Under the other, which was dated 22 September 2016, the “Lender” was Oakland Investment Group Limited BVI Company (“Oakland”). It is convenient to refer to these agreements as the Sino Loan Agreement and the Oakland Loan Agreement respectively.
- Sino is a venture capital company registered in the British Virgin Islands. Oakland was incorporated in the British Virgin Islands on 6 May 2016. The sole director of Oakland is Mr Pawel Gardas. He is also the sole director of Octal Investments Limited (“Octal”) which was incorporated in the British Virgin Islands on 4 August 2016. Sino and Oakland are not related corporations.
- Under each Loan Agreement, the parties agreed that “the Lender has or will advance the Loan to the Borrower”. By clause 2.2 headed “Purpose of loan”, the Borrower agreed that the Lender had advanced the Loan for the purchase of the estate pursuant to the Contract and the costs and expenses associated with the purchase. Interest was payable monthly in arrears at the rate of 18 per cent per annum. Further, the Borrower agreed to provide to the Lender a registered mortgage over the whole of the estate as security for monies owing by it under the Loan Agreement.
- Passage, as Borrower, executed separate mortgages over the estate in favour of Sino and of Oakland which were duly registered in the Queensland Titles Registry. In each mortgage the debt or liability secured was described as “All amounts owed from the Mortgagor to the Mortgagee pursuant to the Loan Agreement dated on or about 22 September 2016”.
- As additional security, Passage also executed two Security Deeds, one with Sino which was undated, and the other with Oakland which was dated 22 September 2016. Each created securities in favour of the respective Lender to secure payment of all monies that Passage might owe the Lender.
- A further undated document styled “Deed of Priority and Subordination” was executed by the parties to it, Oakland, Sino, and Passage, prior to the completion of the contract. Under it, Sino agreed that Passage’s indebtedness to it under the Sino Loan Agreement was subordinated to Passage’s indebtedness to Oakland under the Oakland Loan Agreement and that the latter indebtedness took priority over the former.
- Sino advanced the sum of $4,150,000 to Passage by payments to it. According to Sino’s representative, Mr David Haubert, the advance was made in stages; by payment of US$375,000 as bridging finance in April 2016 to secure an extension of the contract with the liquidator; by payment of $2,807,529.02 on 29 September 2016 as finance for the completion of the contract; and by payment of the balance of $777,470.98 on 5 October 2016.
- Oakland, however, did not pay any amount to Passage. On a footing that Passage was indebted to Mr Perry Cooper in an amount of $6,800,000 for financial assistance he had provided it from its incorporation, it directed Oakland to apply the $4,150,000 against Passage’s indebtedness to Mr Cooper. Oakland did this in its books of account by crediting that amount against a recorded indebtedness of Mr Cooper to it. Oakland did not make any payment to Mr Cooper. It was in this context that in his reasons for judgment, the learned primary judge referred to the advance Oakland claimed it had made under the Oakland Loan Agreement as “the debt cancelling loan”.
- The transactions to which I have just referred were documented in a deed dated 23 September 2016 (“the Settlement Deed”) in which Passage agreed to pay Mr Cooper $6,800,000 and Mr Cooper acknowledged that of that amount, $4,150,000 had been “discharged” by Oakland on behalf of Passage. Mr Cooper further acknowledged that the balance of $2,650,000 had been “discharged” by another entity. This deed was not disclosed to Sino before it made its advance to Passage.
- The legal documents which I have identified – the Loan Agreements, the Security Deeds, the mortgage instruments, the Deed of Priority and Subordination, and the Settlement Deed – were all prepared by Mr Daniel Clarke, solicitor. He arranged for the execution of these documents on behalf of the respective parties to them.
- Passage became insolvent and went into liquidation on 4 August 2017. Thereupon, Oakland went into possession of the estate as mortgagee relying on its prior ranking mortgage. On 26 October 2017, it took steps to exercise the mortgagee’s power of sale.
- Sino commenced proceedings against Oakland by way of originating application in the Supreme Court at Cairns on 31 October 2017. The principal substantive final relief sought by Sino was accounts of what was due by Passage to Oakland under the Oakland Loan Agreement as was secured by the mortgages in favour of Oakland, at both the date on which Oakland exercised the power of sale and the date when orders were made in the proceeding. An account of rent, profits or proceeds of sale received by Oakland as mortgagee was also sought by way of final relief. As well, interlocutory relief by way of injunction restraining any further sale of the mortgaged estate was sought.
- Interlocutory injunctions were made on 3 November 2017. They were discharged by a consent order made on 21 November 2017 which recorded certain undertakings given by Oakland. Importantly, Order 3 thereof made provision for the separate determination pursuant to r 483 of the Uniform Civil Procedure Rules (“UCPR”) of the question “whether there is any money due under and by virtue of a Loan Agreement between the Respondent as Lender (Oakland) and The Passage Holdings Pty Ltd ACN 602 422 891 as trustee of the Passage Holdings Unit Trust as Borrower (Passage) dated 22 September 2016 (Loan Agreement), secured by mortgage number 717541242 and mortgage number 717541414 (Mortgages) over the land described in Annexure A as at the date of the order made in this proceeding prior to the determination of the balance of the proceeding.” Further directions and orders were made for the hearing of the separate question on 20 and 21 December 2017.
- The separate question was partially heard on 20 December 2017. The parties had supplied brief written outlines of submissions as directed for the hearing. A large number of documents were disclosed on the day before the hearing.
- In its outline, Sino contended that “there was no consideration for” the loan from Oakland to Passage; that no loan was advanced by Oakland for the purpose stated in the Oakland Loan Agreement; that the settlement “did not occur or was a sham”; and that hence no amount was secured by Oakland’s mortgages. In response, Oakland contended that there was a valid loan agreement secured by registered mortgages and that “releasing” Mr Cooper was a cost or expense of purchasing the estate. It argued that Sino bore the onus of proving a fraud or sham to the Briginshaw standard and it had failed to do so.
- At the commencement of the hearing on 20 December 2017, Sino provided the court and Oakland’s legal representatives with a lengthy written opening of its case with comprehensive references to evidentiary material. That led to a request by senior counsel for Oakland for the opportunity to confer with Mr Gardas who was in Athens and was unwell. He had sworn affidavits on 3 and 8 November 2017 which had been filed and served. During the day, senior counsel managed to confer by telephone with Mr Gardas. Following the conference, senior counsel, on instructions, requested an adjournment to properly absorb and meet Sino’s foreshadowed case. The adjournment was granted at the conclusion of the hearing on 20 December.
- Also following the telephone conference, senior counsel for Oakland submitted, on instructions, that given the gravity of the allegations made in the written opening, the case should be pleaded. The learned primary judge observed that Sino’s case was that “there was actually no true loan that occurred, that the whole thing was a sham”. It seemed to him that “any document intended to show that the arrangement was a [sham] would be relevant… and that would include the genuineness of the allegation of who owed whom.” His Honour was of the view that pleadings were unnecessary given the extent to which Sino’s case had been detailed in the written opening.
- Towards the conclusion of the hearing on 20 December, the learned primary judge observed that he doubted that “anyone’s particularly surprised about the fundamental underlying complaint that the so-called loan was a sham”. Neither party questioned his Honour’s observation.
- The hearing resumed on 18 January 2018. Mr Haubert, Mr Cooper, and Mr Clarke, each of whom had sworn affidavits for the separate determination, were cross examined. Mr Gardas had been required to attend for cross-examination. Ultimately, Oakland did not read his affidavits. However, the second of them was then read by senior counsel for Sino for the purpose of relying on certain passages in it. The hearing continued on 19 January 2018 and again on 9 February 2018. The learned primary judge reserved his decision.
- On 14 May 2018, his Honour made a declaration “that no money is due under and by virtue of the (Oakland Loan Agreement) dated 22 September 2016, secured by mortgages numbered 717541242 and 717541414” (Order 1). He dismissed an application for security for costs made by Oakland (Order 2) and listed the matter for further hearing on 23 May 2018 with respect to consequential orders and directions (Order 3). Reasons for judgment were published that day.
- The further hearing took place on 24 May 2018 at the conclusion of which the learned primary judge ordered that Oakland pay Sino’s costs of the separate determination on the indemnity basis. His Honour reserved his decision as to further orders.
- On 6 June 2018, the learned primary judge made a range of orders. He ordered Oakland to prepare and lodge with the Land Titles Office documents necessary to effect removal of any reference to mortgages numbered 717541242 and 717541414 from the interests purportedly mortgaged by them, such removal to be effected by 4 pm on 13 June 2018 (Order 1). Provision was made for the registrar to execute releases of the mortgages if Oakland failed to comply with Order 1 (Order 2). The application was otherwise dismissed (Order 3). Further, Oakland was ordered to pay Sino’s costs of the application on the indemnity basis (Order 4). Reasons for judgment were also delivered that day.
- On 11 June 2018, Oakland filed a notice of appeal to this Court against Orders 1 and 3 made on 14 May 2018, the costs order made on 24 May 2018 and Orders 1, 2 and 4 made on 6 June 2018.
The findings at first instance
- The learned primary judge made a number of findings in relation to several topics in order to provide a context for determining the separate question. In the topic titled “Background”, his Honour traced the involvement of Sino and Oakland as “purported lenders” to Passage up to the completion date of the contract. In the next topic, titled “The “critical documents” relied on by Oakland”, he analysed the “real significance” of the documents on which Oakland relied as evidencing a “well documented and straightforward” loan transaction on its part. Thirdly, in a topic titled “The apparent money trail”, he examined “such evidence as there is of the flow of any funds in connection with the debt cancelling loan”.
- The following is a summary of a number of the findings. They have relevance for both the conclusion his Honour reached and the grounds of appeal.
- Background: The learned primary judge accepted evidence given by Mr Haubert that in late March or early April 2016, a business person he knew, Lewis Cohen, told him that his former neighbour in California, Craig Gore, had a property development in Australia that needed funding, and that he was undertaking a “due diligence” of the project on behalf of himself and his business associate, Stephan Pinto.
- On 7 April 2016, Mr Cohen provided Mr Haubert with a prospectus-like document. This document canvassed an equity investment of $8,000,000 in Mr Gore’s property development project at Port Hinchinbrook. The equity investment would yield an expected profit of about $17,000,000 over three years. Investors would receive shares in Hinchinbrook Development Inc (“HDI”), whose wholly-owned subsidiary, Passage, would invest directly in the project. Investors for 70 per cent of the investment sum were identified. They included consultants associated with the development, a Gore-related group, and Mr Clarke. A new investor group which potentially would include Sino, was proposed for the remaining 30 per cent. The investment via HDI ultimately did not proceed.
- On 5 July 2016, Mr Gore circulated an Investor Outline document to Mr Haubert, Mr Cohen, and Mr Pinto which represented that an entity described as “Mr Perry Cooper Orpheus Investments Pte Ltd… atf Orpheus Investment Trust” had invested between $2,500,000 and $4,000,000 in the project; that it had bought out Mr Gore’s investment in Passage for $4,000,000 in June 2015; and that it had “agreed to sell development rights to HDI” for $6,800,000.
- Sino then intimated to Mr Gore and Mr Pinto that it was prepared to contribute a maximum of 50 per cent of the $8,000,000 required for the acquisition and development of the estate. On 14 July 2016, Mr Gore emailed Mr Haubert, Mr Cohen, and Mr Pinto claiming to have received a “confidential written offer” from another investor. This email was followed by another sent on 31 July 2016 to which was attached an unsigned letter from Mr Pawel Gardas in which Oakland offered to lend Passage $4,150,000.
- The learned primary judge accepted oral evidence given by Mr Haubert that in August 2016, Mr Gore sent him a Business Plan document. This document included under the heading “Use of proceeds and funds for this investment” the words “Pay off Perry AUD $2,000,000”. I note that the document also provided for monthly interest payments to Oakland.
- His Honour noted that Mr Cooper had deposed that in about July 2016, he spoke with Mr Gardas of Oakland who proposed to him that if Mr Cooper would invest in Mr Gardas’ latest project, he would fund Passage so that it could repay Mr Cooper. Octal was incorporated to be the investment vehicle for Oakland’s Hakone project which was to involve the acquisition of premises at 60 Hakone Road, Woongarrah, in New South Wales.
- According to Mr Cooper, by August 2016, refinancing of Passage and hence repayment of what was owed to him by Passage, was taking longer than anticipated. At Mr Clarke’s suggestion, Oakland agreed to lend funds to Mr Cooper so that he could invest in the Hakone project.
- Mr Cooper further deposed that on or about 10 August 2016, he entered into “a loan agreement” with Oakland by which he borrowed funds from it for his investment in the Hakone project. He exhibited to his affidavit a document styled “Investment Agreement” dated 10 August 2016 between himself, Octal, and Oakland. This document recited that Mr Cooper wished to invest $4,014,314 in Octal for the purpose of enabling it to provide a loan to 60 Hakone Road Holdings Pty Ltd; Mr Cooper had expected to be paid $4,150,000 due to him by Passage; that settlement had been delayed; and that he had requested Oakland to lend him $4,014,314 so that he could invest in Octal. It also recited that Oakland had agreed to advance $4,150,000 to Passage and that Mr Cooper agreed to accept the loan to him “in full consideration of the $4,150,000 that will be owing to him by Oakland” (sic).
- Under the Investment Agreement document, Mr Cooper undertook to repay Oakland $4,150,000 on or before 31 December 2016, being the principal and interest of $135,686. There was an acknowledgment by Mr Cooper that Oakland might “offset” any amounts owing to him by it against his liability to repay. In return for his investment in Octal, Mr Cooper was to receive payment of the first six months interest collected by Oakland from Passage under the Oakland Loan Agreement, and a lump sum of $5,750,000 to be paid on 31 December 2019.
- The learned primary judge found that on 31 August 2016, Mr Clarke emailed Mr Haubert in relation to documenting an arrangement whereby Sino would lend $4,150,000 to Passage to purchase the estate and provide working capital to be secured by a second mortgage, such arrangements to include a deed of priority between the first mortgage and Sino as second mortgagee.
- In the course of a due diligence exercise undertaken by its solicitor, Mr S. Zhen, Sino was informed by Mr Clarke on 15 September 2016 that: “There are loans from Oakland for $4.15m and then another loan for the balance of the $6.8m purchase price ($2.6m – which will rank below you)…”. His Honour noted that there was “no reference to any loan or credit received by Passage from Mr Cooper”.
- On 22 September 2016, Sino’s principal, Mr J Koman, raised some concerns as to the relationships between the parties. In his response which was copied to Mr Zhen and Mr Haubert, Mr Clarke stated that he had never acted for Oakland before but had acted for Mr Gardas and that “Oakland’s investment has been used to pay out part of Perry’s money… as per the agreement between Perry, HID [sic] and the Passage”.
- To complete the chronology, the learned primary judge listed the three undated documents executed by Sino on or before 26 September 2016 and the mortgage in its favour. His Honour also referred to Mr Haubert’s evidence that he began to suspect a “less than arm’s length transaction” when he saw an email sent by Mr Clarke on 30 October 2016 to him and others which spoke of a need for them to make a payment to Orpheus rather than Oakland for its interest ($62,250). Reference was also made to an acknowledgement by Mr Haubert in cross-examination that after he was told by Mr Gore of delinquency in interest payments by Passage, he was informed that it had paid in excess of $250,000 by way of interest to Oakland between October 2016 and May 2017.
- The “critical documents” relied on by Oakland: The learned primary judge described the following documents as having been emphasised by counsel for Oakland: the Oakland Loan Agreement, the mortgage instruments and Security Deed in its favour, the Deed of Priority and Subordination, and the Settlement Deed. His Honour considered each of the documents individually.
- As to the Oakland Loan Agreement, the learned primary judge made several observations. First, accepting that it was properly executed, he considered that it was evidence of an agreement only to lend. It did not prove that a loan occurred. Next, it did not speak of any arrangement by which the Loan amount would not in fact be paid to Passage. Specifically, there was no reference to the “supposedly intended purpose – a debt cancelling loan” which could easily have been mentioned by the parties if they had been “acting legitimately”.
- In the course of discussing the mortgage instruments, his Honour considered whether loan funds that were not used for the purpose expressly stated in clause 2.2 of the Oakland Loan Agreement would be secured by the mortgage. He concluded that they would be secured because “[t]he agreement does not expressly bind the borrower to the stated purpose and the mortgage only requires that the amount in question is owed “pursuant” to the agreement”.
- The learned primary judge observed that, as with the Security Deed between Sino and Passage, the Security Deed between Oakland and Passage did not prove that a loan had actually been made to Passage by Oakland. His Honour made a similar observation of the Deed of Priority and Subordination. However, he gave no consideration to the commerciality of the ceding of mortgage priority by Sino to Oakland.
- As to the Settlement Deed, the learned primary judge noted that the parties to it were Passage, Mr Cooper, and D & M Technologies Pty Ltd (“D&M”). D & M was the trustee of the CLH Unit Trust. Mr Clarke was a director of D & M. He deposed that, as trustee, D & M became the owner of the issued shares in Passage on or about 11 March 2016. It was also the sole unit holder in The Passage Unit Trust.
- Mr Clarke accepted that he was the beneficial owner of the issued shares in D & M. However, he swore that, as trustee of the CLH Unit Trust, D & M held the units in The Passage Unit Trust “as a stakeholder or trustee for Mr Cooper and Mr Gore’s wife to be distributed as agreed between them”.
- An undated document titled “Unit and Share Sale Agreement” was executed by D & M as Vendor and HDI as Purchaser for the purchase by the latter of 90 per cent of the shares in Passage and 90 per cent of the units in the Passage Unit Trust. His Honour noted that, on the face of this document, D & M was purporting to sell the 90 per cent interest in the shares and units as trustee of the CLH Unit Trust, and not as trustee for Mr Cooper and the Gores. As I have mentioned, the sale to HDI did not proceed.
- The learned primary judge also noted that the Settlement Deed had been executed for D & M by Mr Clarke and for Passage by Mr Ian Stephens. His Honour referred to the agreement in it that Passage pay Mr Cooper $6,800,000 and to the latter’s acknowledgement that $4,150,000 had been “discharged” by Oakland on behalf of Passage. He observed in relation to this document:
“The content of this deed, in the context of such evidence as has been adduced, adds to Sino’s circumstantial case. It involves the purported settlement of vaguely described disputes, appearing as if from nowhere, on terms which are likely uncommercial.”
- The learned primary judge elaborated on factors and considerations which, in his view, provided reason for doubting the genuineness of the Settlement Deed. His Honour said:
“ Mr Clarke had actually been subpoenaed to produce an array of documents but, curiously, declined to comply, asserting it would take 10 to 12 weeks and citing an absence of conduct money. A more remarkable feature of Mr Clarke's behaviour was that having read the applicant's written opening and having elected to provide an affidavit which exhibited some documentary records, he did not, regardless of any subpoena, at least seek out and exhibit to his affidavit, documentary records tending to independently corroborate the transactions being asserted. As already mentioned, I infer there should, if the settlement recorded in the deed is genuine, exist a paper trail of emails and file notes and probably documentary proposals, corroborating the existence of the arrangement subject to the supposed disputes and the evolution of or negotiations leading to the settlement deed resolving it. He well knew his historical role in the matter left him very well placed to quickly identify, seek out and obtain copies of such documents to exhibit to his affidavit (or produce at least in partial compliance with the subpoena). Against this background his failure, and the failure of Mr Cooper, to exhibit such documents to their affidavits or otherwise produce them in their evidence supports the inference such documents do not exist and in turn supports the inference the settlement deed does not contain a genuine settlement.
 As to the likely uncommercial terms of the settlement deed, there is some evidence that Mr Cooper funded about $800,000 of payments made to Passage, although that appears to have been via the company Orpheus. The documents exhibited by the liquidator Mr Brennan include an undated but executed "Facility Agreement" between Orpheus and Passage, by which Orpheus committed to lend Passage $100,000 followed by multiple drawdown amounts of $40,000 twice monthly from 1 April 2015 for a year. Clause 2.3 of the Facility Agreement expressly precluded payments to Mr Cooper or Mr Gore. Exhibit 6 at the hearing contains a comparative table drawing together the evidence of the 2015 payments to Passage contemplated under the Orpheus agreement, the 2015 payments to Passage, recorded in its general ledger variously as a loan or advance as from Orpheus, and the 2015 payments made from Mr Cooper's bank accounts to the liquidator or Combined Legal Holdings law trust account for Passage. While the correlation is not complete there is significant correlation between the amounts and approximate dates of the payments made, respectively, a total of $780,000 under the Orpheus agreement, $775,376 in the Passage ledger and $800,420,000 in the Cooper bank statements…
 According to Mr Cooper, in addition to the payments of approximately $800,000 evidenced by his bank statements, he contributed a further $1.2 million through other companies controlled by him so that his total financial investment in Passage was about $2 million. Ignoring the lack of evidentiary support for that assertion and, for a moment, suspending disbelief that if investments by companies controlled by Mr Clarke were made that would entitle him personally to repayment of those amounts, this still leaves a credulous observer with a gap of $4.8 million in the settlement figure of $6.8 million.
 Admittedly the settlement deed did not assert $6.8 million represented a specific debt and rather it was identified as an amount Passage agreed to pay Mr Cooper to resolve the supposed disputes. It may also be accepted, as Mr Cooper asserted in evidence, that he was entitled to expect a return exceeding what he invested monetarily and which also allowed for his time and effort in contributing to the project. However, I do not believe those factors could conceivably justify an uplift of such enormous dimensions. This was clearly not an objectively commercial settlement. Parties are of course entitled to enter into binding agreements which on objective analysis are uncommercial. The fact that the deed is so obviously uncommercial does not of itself mean the settlement deed is a sham. However, it is a fact which very strongly supports Sino's circumstantial case.”
“Accepting for the sake of argument that "paid or credited" is what is meant by the term "discharged" in clause 2 of the settlement deed, I do not accept that the deed should be accepted as itself constituting binding evidence that the loan was in fact made. To so construe the deed's effect and status would be to ignore that such a construction would affect the rights of those who were not parties to the deed, particularly Sino.”
- The learned primary judge concluded his consideration of the “critical documents relied on by Oakland” with the following observation:
“The various circumstances canvassed above in respect of the settlement deed support the conclusion the deed is a sham, part of an arrangement conjured up to help create a fictional loan to cover up the free acquisition of a valuable secured priority interest.”
- The apparent money trail: The learned primary judge then proceeded to consider whether other circumstantial evidence also supported that conclusion. His Honour made findings of fact about four particular issues.
- First, he found that the authenticity of the Octal Investment Agreement was dubious because, at 10 August 2016, there was no agreed settlement between Mr Cooper and Passage. Further, there was no documentary trail to establish a background to the arrangement.
- The second finding was that on 10 August 2016, an amount of $4,014,314 was electronically transferred by Stacks Law Firm to Dibbs Barker’s Australian Law Practice which recorded it as held on trust for Octal. That amount was equivalent to the Loan Amount stated in the Octal Investment Agreement and in accordance with the direction for payment of it in that agreement. However, his Honour also found that some only of those funds, $2,774,940.75, was used by Octal to purchase the property known as Lot 60 Hakone Road. The remainder was distributed to Mr Clarke’s firm, Clamenz Lawyers, and Axion Investments Group Pty Ltd. His Honour concluded:
“The fact that only $2,774,940.75 of the supposed loan of $4,014,314 was lent to 60 Hakone Road Holdings Pty Ltd joins the list of circumstantial facts supporting the inference that the debt cancelling loan was a sham”.
- Thirdly, the learned primary judge found that Mr Gardas was “unlikely” to need Mr Cooper to “actually invest”. That was because the evidence showed that funds from other sources were readily available to Mr Gardas’ companies.
- Fourthly, his Honour referred to Octal’s obligation to Mr Cooper under the Investment Agreement to pay him the first six months interest collected by Oakland under its loan agreement to Passage. His Honour observed:
“This element of the agreement is significant because it provides such a readily identifiable means by which Oakland could have demonstrated the debt cancelling loan was not a sham. If such payments were made to Cooper, that fact would tend to confirm the debt cancelling loan was genuine and would be easily evidenced by Oakland.”
His Honour regarded Mr Cooper’s failure to produce such evidence as “telling”.
- In his determination, the learned primary judge noted that Sino acknowledged that it carried “the onus of proving that the debt cancelling loan is a sham”. His Honour referred to the exposition of sham by the plurality in the High Court decision in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd, to the observations of Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy with respect to inferences required for finding a sham, and to the explanation given by Kirby J in Raftland Pty Ltd v Federal Commissioner of Taxation of the key requirement for a finding of sham.
- His Honour then listed the “most noteworthy features” of the “significant body of circumstantial evidence in support of Sino’s case”. The features listed are:
“(a) Oakland had money available, yet rather than simply investing that money directly in the Hakone development it purportedly made the odd choice of lending that money by indirect means to Mr Cooper, supposedly for him to invest it in that same development.
- (b)In response to Mr Zhen's query of 15 September 2016, "How much loans or credit kind [Passage] has received to date and the respective lenders' names and their respective credit amount", Mr Clarke response made no reference to any loan or credit received by Passage from Mr Cooper.
- (c)Mr Clarke knew more relevant information than was disclosed by him in response to Sino's inquiry of 22 September 2016 about the "history and prior relationships" between himself, Oakland and others related to Oakland's loan transaction.
- (d)Mr Clarke's email of 30 October 2016, referring to the need to pay Orpheus $62,250 interest, is inconsistent with the settlement deed having existed by then.
- (e)The terms of the settlement deed were not disclosed to Sino before it proceeded with its loan to Passage.
- (f)The debt cancelling loan is inconsistent with the stated purpose in Oakland's loan agreement with Passage of the loan being for the purchase of the estate and costs and expenses associated with the purchase.
- (g)The settlement deed's reference to disputes was vague and uninformative and there is no documentary evidence of them, despite such evidence being likely to exist if the settlement deed was genuine.
- (h)There is no documentary evidence of the evolution or negotiation of the settlement described in the settlement deed, despite such evidence being likely to exist if the settlement deed was genuine.
- (i)There is no documentary record of any holding or agreement to hold the units, profit or revenue share referred to in recital B of the settlement deed.
- (j)Recital A of the settlement deed is untrue, as it was likely not Mr Cooper but companies controlled by him which provided the finances, goods and services referred to.
- (k)The agreement in the settlement deed to pay Mr Cooper $6.8 million involves a settlement sum so far exceeding any contribution of Mr Cooper or his companies that, even allowing for his time and effort and expectation of an investment return, it is obviously uncommercial.
- (l)The agreement in the settlement deed to pay Mr Cooper $6.8 The Octal investment agreement, was allegedly executed on 10 August 2016, in apparently confident anticipation of and reliance on an obviously uncommercially generous settlement agreement with Mr Cooper which was yet to occur.
- (m)Only $2,774,940.75 of the supposed loan of $4,014,314.00 pursuant to the Octal investment agreement was lent to 60 Hakone Road Holdings Pty Ltd despite recital A of the agreement announcing that Mr Cooper was to "invest $4,014,314.00 into Octal for the purposes of providing a loan to 60 Hakone Road Holdings Pty Ltd".
- (n)Clause 2.6(a) of the Octal investment agreement entitled Mr Cooper to payment of the first six months interest collected by Oakland from Passage, yet there is no documentary or other credible evidence that he was paid such interest.”
- The learned primary judge than stated his conclusion on the issue of sham. His Honour said:
“The circumstantial evidence combines to provide compelling support for the inference that the debt cancelling loan was a sham and exclude the possibility that it was legitimate. It compels the conclusion the subjective intention of those involved must have been to mislead (at least) Sino as to the fact no loan was made so as to safeguard its priority of security over the estate which was acquired without in fact lending the money secured. The evidence demonstrates a disparity between the reality of what occurred and the arrangement contended for pursuant to the settlement deed and the Octal investment agreement. That arrangement and the debt cancelling loan supposedly made pursuant to it was a sham. There was in fact no such loan.”
His Honour then added:
“In reaching that conclusion I am fortified by the unexplained absence of evidence from Mr Gardas, the man behind the corporate veil of Oakland. If the debt cancelling loan truly occurred he would be able to give evidence of that fact and produce documents corroborating it. I infer from his absence that, contrary to that expectation, his evidence could not have advanced Oakland's case. This allows me to be additionally confident in drawing the above inferences and concluding there was no loan.”
- It is apparent from his conclusion that the learned primary judge found that each of the Settlement Deed and the Octal Investment Agreement was a sham. They were facades concocted in order to give a false impression that Oakland had actually made an advance of $4,150,000 to Passage. On the basis of the finding that there was no such loan, his Honour answered the separate question in the negative.
The grounds of appeal
- Oakland’s appeal with respect to the orders made on 14 May 2018 is on the following grounds:
“1.The primary judge denied the appellant procedural fairness
- (a)The primary judge rejected Oakland’s application for the matter to proceed by way of pleadings despite the allegations in Sino’s “written opening”.
- (b)The primary judge determined the matter by reference to matters beyond Sino’s “written opening”, despite indicating Sino would be held to its “written opening”.
- (c)The primary judge’s reasons gives rise to an apprehension of bias.
- 2.The primary judge erred in the application of the legal test of sham including the application of the onus of proof, and the fact finding process in the same manner.
- 3.The primary judge erred in the identification of the available inferences on the application of Jones v Dunkel.”
The appeal with respect to orders made on 24 May 2018 is on a separate ground, namely:
“4. The primary judge erred in ordering, as consequential relief, the removal of Oakland’s registered mortgages in circumstances where the respondent had not sought such relief, procedural fairness was not accorded to the appellant and no evidence was received on the relevant issue.”
The appeal in respect of orders made on 14 May 2018
- In oral submissions, senior counsel for Oakland focused upon Ground 2 and made submissions on it before addressing Grounds 1, 3, and 4. It is appropriate to consider Ground 2 first.
- Oakland referred to the description given by Lockhart J in Sharrment to a sham as something that is intended to be mistaken for something else or that is not really what it purports to be and to his Honour’s discussion of certain features of transactions that do not necessarily characterise them as shams, notably, an intention to achieve an inacceptable purpose by a legally effective transaction. Lockhart J cautioned that a finding of sham is a strong one which cannot be made if another inference is at least equally open.
- Reference was also made to the observation by the High Court in Equuscorp that sham has a well-understood legal meaning. It refers to “steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences”.
- A number of observations made by Kirby J in Raftland were also relied upon by Oakland. They include that courts will usually give legal effect to documents according to their language even if the transactions effected by them do not appear to have been commercially sensible; that exceptional circumstances are required to enliven a conclusion that documents and acts amount to a sham; that the parties to a transaction must have subjectively intended to create rights and obligations different from those described in the document or documents recording the transaction; that the court will not confine its examination to the document or documents alone; and that it may examine and draw inferences from other evidence, including the parties’ explanations of their dealings and evidence of their subsequent conduct.
- Oakland then identified what it called “three fundamental errors” in the determination made by the learned primary judge. They are:
- (i)the fourteen evidential features listed by his Honour at paragraph 155 of the Reasons do not support an inference that each of the Oakland Loan Agreement, the Settlement Deed and the Octal Investment Agreement was a sham;
- (ii)his Honour did not articulate reasons for excluding the legitimacy of the three transactional agreements;
- (iii)his Honour mischaracterised the burden of proof.
- The 14 evidential features: Oakland made the following submissions with respect to each of the evidential features to illustrate that it did not support an inference of sham. As to (a), “there is nothing odd in an investor sharing risk with another investor.” His Honour made the observation that it was an “odd choice” notwithstanding that Mr Gardas had not given evidence as to the circumstances in which Oakland made a loan to Mr Cooper in order for him to invest in the Hakone Road project.
- Oakland submitted that (b) is problematic. His Honour had found that in July 2016, Mr Gore had circulated an Investor Outline Document which referred to Mr Cooper’s investment in the Port Hinchinbrook project. He had also found that Mr Clarke had told Sino representatives on 22 September 2016 that the Oakland investment had been used to pay out “Perry’s money”. As well, his Honour did not explain how the conduct of Mr Clarke, who was not a party to any of the three impugned legal agreements, justified a finding that they were shams.
- With regard to (c), Oakland submitted that Mr Clarke had no duty to disclose anything to Sino. His Honour did not explain why Mr Clarke did have such a duty or why information that had been given to Sino was insufficient. As to (d), the submission is that Mr Clarke’s unchallenged explanation was that his email sent on 30 October 2016 mistakenly referred to Orpheus and not to Oakland. It is irrelevant.
- Oakland submitted that (e) is irrelevant. Sino was aware of Oakland’s investment. The email sent on 22 September 2016 informed it that the investment was to be used to pay out Mr Cooper. Sino made no further inquiries. It was prepared to take a second ranking mortgage on what it had been told. With regard to (f), as his Honour observed, the loan agreement did not expressly bind the Borrower to the stated purpose. In any event, to use the Loan for a different purpose did not support the finding of a sham.
- The submissions with respect to (g) to (n) were prefaced with the observations that they concerned the relationship between Mr Gardas for Oakland and Mr Cooper and that at no point in the cross-examination of Mr Cooper, was it put to him that the Settlement Deed was to “safeguard” Oakland’s position, particularly its mortgage priority.
- Features (g) and (h) are complementary to one another. Oakland submitted that they reflected an inversion of the onus of proof by the learned primary judge. None of the parties to the Settlement Deed were parties to the litigation and none of them had contended that that deed did not reflect their intended rights and obligations. Yet the approach taken by his Honour involved an assumption on his part that antecedent documents relating to disputes and negotiation of the deed must have existed and that it was for Oakland as defendant to prove them.
- With respect to (i) and (j), they, too, display a reversal of the onus. It was for Sino to have subpoenaed Mr Cooper or pressured Clamenz Lawyers to produce documents which, if not produced might have permitted a finding that a documentary record with respect to the units, profit or revenue share referred to in Recital B of the Settlement Deed did not exist. Despite probable error in Recital A to the deed as to the identity of the provider of the finances and goods and services to Passage worth about $1,200,000, on Mr Cooper’s unchallenged evidence, it was his companies that had provided the same.
- Features (k) and (l) concern the commerciality of terms of the Settlement Deed and the Octal Investment Agreement. Yet it was not put to Mr Cooper that the Settlement Deed was “obviously uncommercial”. No other party to it had given evidence with respect to the commerciality of the Port Hinchinbrook project at the date of the deed, including its profit potential. As to (m), Mr Cooper was not questioned as to how the funds invested by him in Octal and sourced from Oakland were used. That, in any event, was not relevant to the genuineness of either the Oakland Loan Agreement or the Settlement Deed.
- Finally, with regard to (n), Oakland submitted that, in effect, his Honour had placed an evidential burden on Mr Cooper, rather than on Sino, to prove that the first six months interest collected on the Oakland loan to Passage was not paid to him.
- Excluding the legitimate inference: Oakland submitted that the learned primary judge did not set out any reasons for rejecting legitimate inferences that the Oakland Loan Agreement and the Settlement Deed were genuine. The reasons given by his Honour at paragraph 156 merely restated evidential features that supported the finding of sham.
- Further, his Honour excluded from consideration evidence that supported the genuineness of both documents. That evidence included:
- (a)that none of the parties to the agreements had acted otherwise than in accordance with them or sought to resile from them;
- (b)the fact that $4,150,000 owing by Passage was being paid by Oakland to Mr Cooper was disclosed to Sino;
- (c)that interest payments were made by Passage to Oakland;
- (d)that Passage handed possession of the estate to Oakland once it defaulted; and
- (e)once the Settlement Deed had been executed, Mr Cooper acted as if it terminated Passage’s indebtedness to him and any basis for participation by him in its affairs.
- By way of criticism, Oakland contended that the learned primary judge had considered the transactions recorded in the agreements from Sino’s perspective. He had not had regard for the subjective intentions of the parties to them. Moreover, even if the parties to the Deed of Settlement had intended to create obligations so that a secured debt with priority over that of Sino would exist, the subjective intention of the parties would have accorded with the agreements and there would be no sham.
- Burden of proof: Oakland submitted that the learned primary judge had placed upon it and the non-parties, Mr Cooper and Mr Clarke, the onus of disproving a sham. His Honour erred in doing so.
- Sino submitted that the 14 evidential features listed in paragraph 155 of the Reasons were drawn from findings and observations that his Honour had already made in the course of the Reasons and that they were relevant. The following illustrations of that were instanced.
- A fair reading of the Oakland Loan Agreement is that Oakland has or will advance a loan of $4,150,000 to Passage for the purpose of purchasing the estate and costs and expenses associated with the purchase. No other purpose was stipulated. Specifically, no mention was made in the Oakland Agreement or the Mortgage instruments of any arrangement whereby the loan, the receipt of which was acknowledged by Passage in the agreement, would not in fact be paid to Passage for the purchase but, instead, would be used to fund a settlement with Mr Cooper over an alleged dispute concerning unit, profit or revenue entitlements in or owed by a corporate trustee.
- The Deed of Settlement recorded the parties’ agreement to resolve their disputes on the terms set out in it which included:
- (a)a payment to Mr Cooper for $6,800,000 to resolve disputes between Passage and Mr Cooper; and
- (b)an acknowledgement from Mr Cooper that:
- (i)$4,150,000 of it had been discharged by Oakland on behalf of Passage; and
- (ii)$2,650,000 of it had been discharged by another entity.
However, there was no evidence of any disputes. The business records of Passage tendered through the liquidator did not otherwise evidence that Passage owed any money to Mr Cooper.
- Insofar as any funds had been advanced to Passage at Mr Cooper’s behest, the lender appeared to be Orpheus Investments Pty Ltd and not Mr Cooper. No more than a little over $800,000 was involved. According to Mr Cooper, the balance of the $6,800,000 was by way of a return on his investment in units which he deemed appropriate. It was not a debt.
- Sino challenged the matters that Oakland submitted were in evidence in support of the genuineness of the Oakland Loan Agreement and the Settlement Agreement but had been excluded from consideration by the learned primary judge. On Mr Cooper’s evidence, Passage had not been indebted to him for $4,150,000. Further, there was no evidence that Passage had, in fact, paid interest to Oakland. That Mr Haubert had been informed that it had was no proof of payment.
- The learned primary judge had not started from a presupposition that unless Oakland could prove an agreement was genuine, it was a sham. His approach was to examine the facts he found and the inferences he drew from them to determine whether a sham was proved by Sino. In a circumstantial case, the coincidence of circumstances is capable of conferring greater significance on each individual circumstance than it might have had by itself.
- The separate question for determination was whether any money was due from Passage to Oakland under and by virtue of the Oakland Loan Agreement. Only money that was so due was secured by the registered Mortgages in Oakland’s favour. His Honour called that loan the “debt cancelling loan” in light of the contention that, conformably with the Settlement Deed, money was advanced under the Oakland Loan Agreement at Passage’s direction to discharge, in part, Passage’s indebtedness to Mr Cooper.
- It is significant to resolving whether the Oakland Loan Agreement was intended by the parties to it to effect a loan that no monies were actually advanced by Oakland to Passage for the stated purpose, namely, for the purchase of the estate pursuant to the contract and costs and expenses associated with it. Secondly, a discharge of indebtedness to Mr Cooper would not have fulfilled the stated purpose of the loan. As his Honour recognised, these two factors by themselves gave solid reason to suspect that the Oakland Loan Agreement did not express the actual intentions of the parties to it.
- It was within that context that his Honour embarked upon an extensive consideration of the documentary evidence and testimony relating to the agreements on which Oakland had relied. He was concerned to determine whether there was ever a genuine intention on the part of the respective parties that Oakland actually advance $4,150,000 to Passage and whether such an advance was actually made. The inquiry that he undertook was of a kind endorsed by Kirby J in Raftland.
- I am unable to accept Oakland’s contention that the 14 evidential features identified by his Honour do not support a conclusion by inference of sham. With regard to (a), the characterisation of Oakland and Mr Cooper as risk sharers in the Hakone Road project is inappropriate given that Oakland did not by use of other funds available to it invest in the project. The oddity was that Oakland should fund an investment by Mr Cooper in a venture to be undertaken by its associate entity, Octal, rather than invest directly in it. Further, the criticism made implies that Oakland’s sole director, Mr Gardas, had evidence to give from his own knowledge of the circumstances of the loan that would have accorded conventionality to it.
- As to (b) and (c), what Mr Clarke did and did not disclose about funding of Passage by Mr Cooper, particularly in response to the legitimate enquiry made on 15 September 2016, was relevant if a discharge of a liability arising out of the funding involving Oakland was in contemplation. It is a distraction to view what was not disclosed from a perspective of a legal duty to disclose.
- With regard to (e), the non-disclosure of the terms of the Settlement Deed was relevant. Mr Clarke’s email sent on 22 September 2016 stated that there had been a payment to Mr Cooper from “Oakland’s investment”. No payment was in fact made to Mr Cooper. As to (f), I refer to my observations at the commencement of this discussion.
- As to (g) and (h), there was no inversion of the onus of proof by his Honour. His observations accurately reflected the state of the evidence in litigation in which Oakland was a party and in which it contended for legitimacy of the agreements. The fact that none of the parties to the Settlement Deed were parties to the litigation was no obstacle to a determination in the proceeding that it was a sham. It will be recalled that in Sharrment, the individual who had controlled that company and had executed the challenged series of elaborate transactions on its behalf, had died and was not a party to the litigation.
- Similarly (i) and (j) do not display a reversal of the onus of proof. Again, his Honour’s observations reflected the state of the evidence in litigation in which Oakland was a party and in which it contended for legitimacy of the agreements.
- In regard to (k) and (l), it was open to his Honour to conclude that a payment to Mr Cooper of $6,800,000 was “obviously uncommercial” having regard to the documentary evidence that showed that Orpheus Investments Pty Ltd, and not Mr Cooper, had provided funds of only a little more than $800,000 to Passage and to Mr Cooper’s description of the balance as a return on investment by him which he deemed appropriate.
- As to (n), the learned primary judge did not place an evidential burden on Mr Cooper in respect of the payment to him by Oakland of the first six months interest collected by it under the Oakland Loan Agreement. His Honour’s statement accurately reflected the state of the evidence before him.
- In summary, I agree with his Honour’s characterisation of the 14 evidential features as circumstantial evidence of sham. I also agree with his conclusion that the circumstantial evidence in the case combined to provide compelling support for a conclusion by inference that the debt cancelling loan was a sham. That is to say, that evidence strongly supported the conclusion that no actual loan was intended to be made by Oakland to Passage and none was made.
- I next turn to Oakland’s submission concerning “exclusion of the legitimate inferences” that the Oakland Loan Agreement and the Settlement Deed were genuine. I have difficulty in accepting the contention underlying this criticism, that there was evidence that did establish several of the five factors listed by Oakland.
- As to (a), Oakland and Passage did act otherwise than in accordance with the Oakland Loan Agreement. Oakland did not advance any money for the stated purpose of the loan, namely, a purchase by Passage of the estate. Passage did not receive loan monies from Oakland which it could use for that purpose.
- As to (b), there was no amount of $4,150,000 which Passage owed to Mr Cooper. As I have noted, his evidence was inconsistent with the existence of such a debt.
- As to (c), there was no documentary evidence that proved that Passage had actually paid interest to Oakland. There was no evidence that the records of Passage sourced from the liquidator showed that such interest had been paid. The information reportedly given to Mr Haubert was not proof of payment.
- As to (d), there was no evidence that Passage “handed possession” of the estate to Oakland. The liquidator gave evidence that he was informed by the solicitor for Passage that Oakland had taken possession of it.
- As to (e), insofar as it implies that Passage was indebted to Mr Cooper for $6,800,000 that is unsupported by Mr Cooper’s own evidence.
- Moreover, I do not accept that his Honour did not have regard to the subjective intentions of the parties to the respective agreements. Particularly, in relation to the Oakland Loan Agreement, he was concerned to determine whether Oakland and Passage intended to transact on the terms and conditions set out in that agreement. He concluded that they did not.
- With regard to the burden of proof, I reject the contention that the learned primary judge placed an onus of disproving sham on Oakland or Mr Cooper and Mr Clarke. That his Honour was aware where the onus of proof truly lay is evident from the following observation in the Reasons:
“This is a case in which Sino carries the onus of proving the alleged debt cancelling loan was a sham.”
- For these reasons, I conclude that Ground 2 has not been made out.
- This ground of appeal alleges a denial of procedural fairness in three respects. I propose to consider them separately.
- Pleadings: The complaint made by Oakland is that the rejection of the request for pleadings made at the hearing on 20 December 2017 amounted to a denial of procedural fairness. Sino’s case was akin to fraud and fraud must be specifically pleaded. A party who is to meet a case of fraud must know the facts upon which the case rests.
- The difficulty in this submission is that Oakland was appraised of the substance of the sham case against it by the time the principal deponents, Mr Haubert, Mr Cooper, and Mr Clarke, gave evidence at first instance. Sino’s brief written outline filed pursuant to the consent order identified its case as one of sham. Oakland, in its brief written outline, acknowledged as much.
- Sino’s lengthy written submission document elaborated the sham case. It was referenced to an indexed trial bundle of documents. At the hearing on 20 December 2017, references were made to Sino’s case being one of sham and that no loan was made under the Oakland Loan Agreement.
- In its lengthy written outline of submissions, Oakland identified the five critical documents it said precluded a conclusion of sham. It canvassed why each of them was genuine and not part of a sham. Oakland was able to organise affidavit evidence from Mr Cooper and Mr Clarke concerning them. No additional relevant evidence has been identified by Oakland that they might have given but was not given. That Oakland did not rely on the affidavits sworn by Mr Gardas was not attributable to any lack of awareness on its part of Sino’s case.
- Matters beyond Sino’s written opening: Oakland submitted that notwithstanding an indication from the learned primary judge that Sino would be kept to its written opening, a number of the evidential features relied on by his Honour for the finding of sham were not expressly referred to in that document. Evidential features (a), (b), (c), and (d) were identified.
- The availability of funds on Oakland’s part to invest in the Hakone Road project, (a), was addressed in the course of tracing a series of transactions and flow of funds at paragraphs 1 to 17 of Sino’s written outline. Sino’s case did not stray in this respect.
- As to Mr Zhen’s query of 15 September 2016, (b), while it was not referred to specifically in the written outline, it was referred to in Mr Haubert’s affidavit which had been served prior to the hearing on 20 December 2017. No comment was made by Mr Clarke concerning the query in his traverse of Mr Haubert’s affidavit.
- As to (c) and (d), Mr Clarke, who did not swear an affidavit until well after the written opening was served and Sino’s case had been opened, was cross examined about his knowledge of these events. No objection was taken to the cross-examination.
- Oakland further submitted that the deficiencies in the Settlement Deed identified by the learned primary judge in the evidential features had not been particularised by Sino in the written opening. The difficulty with this submission is that it was evident that Sino put in issue the legal efficacy of the five critical documents on which Oakland relied. It did not go beyond its case for Sino to have challenged the Settlement Deed as a sham.
- I am unpersuaded that the litigation ventured beyond Sino’s written opening in a way that occasioned procedural unfairness to Oakland.
- Apprehension of bias: Oakland submitted that pejorative statements and findings made by the learned primary judge in the Reasons give rise to a reasonable apprehension of bias on his Honour’s part. This submission is without merit. The statements and findings to which Oakland referred were made after his Honour had heard and considered the evidence and submissions. They reflect conclusions he drew about Oakland’s deponents and others associated with them and their conduct, upon a consideration of that evidence and those submissions.
- His Honour’s statements may be readily distinguished from the remarks made by a judge during a hearing at first instance that, in Vakauta v Kelly, were held by the High Court to have demonstrate actual bias. Here, Oakland has not submitted that anything said by the learned primary judge on any of the hearing days gives rise to an apprehension of bias.
- For these reasons, in my view, Ground 1 has not been established.
- In support of this ground of appeal, Oakland has focused upon paragraph 157 in the Reasons published on 14 May 2018. It will be recalled that his Honour complemented his conclusion of sham with the observation that in reaching it, he was fortified by the unexplained absence of evidence of Mr Gardas, the sole director of Passage. To have used the absence of evidence in that way, Oakland has submitted, was an error in applying the rule in Jones v Dunkel. The error was in using a failure to call a witness in order to fill a gap in the evidence or to turn conjecture and suspicion into inference.
“In my opinion a proper direction in the circumstances should have made three things clear: (i) that the absence of the defendant Hegedus as a witness cannot be used to make up any deficiency of evidence; (ii) that evidence which might have been contradicted by the defendant can be accepted the more readily if the defendant fails to give evidence; (iii) that where an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.”
- Here the learned primary judge did not use the absence of evidence from Mr Gardas to make up any deficiency in the evidence. Oakland has not identified any matter that his Honour found to be proved on the basis that Mr Gardas did not give evidence that he might have been able to give concerning it. His Honour did not use the absence of such evidence to fill in any gap in the case that Sino had to prove or to turn conjecture into inference. It is unsurprising that he did not do so given the following observations that he made:
“…This is a case in which Sino carries the onus of proving the alleged debt cancelling loan was a sham. To do this it is not enough to merely rely on the failure of Oakland to properly disclose and prove documents purportedly evidencing the making of the loan or its failure to call its principal Mr Gardas. While the rule in Jones v Dunkel looms as a problem for Oakland in this case, it does not remove the onus upon Sino to actually prove its case in the positive, by advancing evidence sustaining the circumstantial inference that the debt cancelling loan is a sham, that is, that the loan did not in fact happen.”
- What the learned primary judge did do once he had reached the conclusion by inference expressed at paragraph 156 of the Reasons was to derive from the unexplained absence of evidence from Mr Gardas, additional support for the inference of sham that he had already drawn from the circumstantial evidence. To have done so accords with the rule in Jones v Dunkel as articulated by Menzies J.
- This ground of appeal, too, has not been established.
Disposition – Appeal in respect of orders made on 14 and 24 May 2018
- Since none of the grounds of appeal against the orders made on 14 May 2018 has succeeded, the appeal insofar as it relates to them must be dismissed. So also must the appeal against the costs order made on 24 May 2018 be dismissed. That order was made consequent upon the orders that had been made on 14 May 2018. No separate ground of appeal has been raised in respect of it. Oakland ought to pay Sino’s costs of the appeal against the orders made on these two dates on the standard basis.
The appeal in respect of orders made on 6 June 2018
- Ground 4 was not addressed by senior counsel for Oakland in oral argument. In writing, the submission was made that in the event that the appeal against the orders made on 14 May 2018 is successful, the orders made on 6 June 2018 ought nevertheless be set aside. Two reasons for that were advanced. One was that Sino had not sought orders for removal of the Mortgages in the originating application. The other was that procedural fairness had not been accorded to Oakland on a relevant issue, namely costs incurred by Oakland while in possession of the estate.
- As to the first reason, that a removal order had not been sought was raised as an issue in submissions before the learned primary judge after reasons had been delivered on 14 May 2018. His Honour addressed it in the Reasons delivered on 6 June 2018 saying:
“An order effecting the removal of Oakland’s mortgages flows as such an inevitably appropriate consequence of the answer to the separate question being adverse to Oakland that the nature of the case requires such an order.”
- In light of his reference to the observations of Sofronoff P in Featherstone v Ashala Model Agency Pty Ltd (in liq) & Anor, his Honour was evidently of the view that there was no unfairness in his making the removal orders having regard to the inevitability of which he spoke. His Honour was plainly correct.
- As to the second reason, as Sino has correctly submitted, Oakland raised the issue of costs that it may have incurred while in possession of the estate at the hearing on 24 May 2018. It submitted that even if there was no advance secured by the Mortgages, they ought not be released on account of such costs. Oakland did not, however, seek to adduce any evidence of costs or expenses having been so incurred. Nor has it sought to advance such evidence on appeal. This reason is without substance.
- For these reasons, this ground of appeal fails.
Disposition – Appeal in respect of orders made on 6 June 2018
- As the single ground of appeal against them has failed, the appeal insofar as it relates to the orders made on 6 June 2018 must also be dismissed with Oakland to pay Sino’s costs on the standard basis.
- I would propose the following orders:
- Appeal dismissed.
- The appellant is to pay the respondent’s costs of the appeal including reserved costs on the standard basis.
- MORRISON JA: I have read the reasons of Gotterson JA and agree with those reasons and the orders his Honour proposes.
- McMURDO JA: I agree with Gotterson JA.
 Affidavit DG Haubert sworn 31 October 2017 at paragraph 8: AB193-213.
 Ibid paragraph 9.
 Clause 2.1(a).
 Clause 4.1.1.
 Clause 9.1.
 Item 5: AB273.
 Affidavit DG Haubert at paragraphs 36, 37.
 Clause 3.1.
 Affidavit DG Haubert at paragraphs 17, 35, 39.
 AB16 (“Reasons 1”) .
 Affidavit D Clarke sworn 9 January 2018 at paragraph 25: AB376-388.
 Affidavit DG Haubert at paragraph 64.
 Sino’s Outline of Submissions: AB95-102; Oakland’s Outline of Submissions: AB103-106.
 At paragraph 6: AB96.
Briginshaw v Briginshaw (1938) 60 CLR 336.
 Oakland’s Outline of Submissions at paragraphs 18, 21, 27: AB105-106.
 Reasons 1 .
 AB704 Tr1-23 ll4-5.
 AB705 Tr1-24 ll1-11.
 AB706 Tr1-25 ll8-9.
 AB717 Tr1-36 ll14-15.
 AB873 Tr3-12 ll22-37.
 AB58-67 (“Reasons 2”).
 Reasons 1 .
 Reasons 1 .
 An investment company incorporated in Singapore in 2015 in which Mr Cooper and Mr Clarke were the sole shareholders: Reasons 1 .
 Reasons 1 .
 Reasons 1 , .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 ; AB736 Tr2-16 ll36-37; AB739 Tr2-19 l41 – AB 740 Tr 2-20 l35. Banking statements showed that Mr Cooper’s company Orpheus Investments Pty Ltd had transferred $800,420 to Passage: AB784 Tr 2-64 ll1-9.
 Reasons –; affidavit P Cooper sworn 9 January 2018 at paragraphs 21-25: AB341.
 Reasons 1 .
 Exhibit “PC-01”: AB365-373.
 Clause 2.4 (a).
 Clause 2.4(b).
 Clause 2.6.
 Reasons 1 .
 Reasons 1 .
 Reasons 1 , .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 . According to Mr Haubert, Mr Gore told him that in August 2017: AB739 Tr2-19 l13.
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 , .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 -.
 Reasons 1 ; affidavit D Clarke sworn 9 January 2018 at paragraph 57. See also AB835 Tr2-115 ll43-45 and AB837 Tr2-117 ll1-14.
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 AB841 Tr2-121 ll1-3.
 T2 – l30 l2.
 Ex 11 p5 et seq.
 Ex 11 p923.
 T2-68 ll7-12.
 T2-68 ll10-20.
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1  – .
 Reasons 1  – . His Honour noted that documents of Stacks Law Firm showed that a representative of Oakland, Daniel Kay, requested that the transfer be made: Reasons 1 .
 Reasons 1 , .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
  HCA 55; (2004) 218 CLR 471 per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ at .
 (1988) 18 FCR 449 at 461.
  HCA 21; (2008) 238 CLR 516 at , .
 Reasons 1 , .
 Reasons 1 . Recital A to the Settlement Deed stated that “Cooper has been providing financial accommodation, management services and other goods and services to Passage for the purpose of running the business”. Recital B stated that “Passage and Cooper had an agreement to agree whereby Passage would issue units or pay a profit or revenue share in Passage to Cooper in part consideration for the financial accommodation provided to Passage”.
 Reasons 1 .
 Reasons 1 .
 Reasons 1 .
 At 454.
 At 455.
 At 461.
 At , citing Sharrment.
 At .
 At .
 At .
 Appellants’ Outline of Submissions (“AOS”) paragraph 52.
 AOS paragraph 54; AT1-34 l10.
 Ibid ll13-16.
 Reasons 1 .
 Reasons 1 .
 AOS paragraph 55; AT1-34 ll18-25.
 AOS paragraph 56; AT1-34 ll27-33.
 AOS paragraph 57; AT1-34 ll35-38.
 AOS paragraph 58; AT1-34 ll37-44.
 AOS paragraph 59; AT1-34 l46 – AT1-35 l5.
 AT1-35 l26 – AT1-36 l1.
 AT1-39 ll43-47.
 AOS paragraph 60; AT1-40 ll1-9.
 AOS paragraph 61; AT1-40 ll11-18.
 AOS paragraph 62; AT1-40 ll20-24.
 AOS paragraph 63; AT1-40 ll24-29.
 AOS paragraph 64; AT1-40 ll30-37.
 AOS paragraphs 70, 71.
 AOS paragraph 73.
 AOS paragraphs 76, 78.
 AOS paragraph 78.
 Clause 2.2; Respondent’s Outline of Submissions (“ROS”) paragraphs 32, 33.
 ROS paragraph 36.
 ROS paragraphs 43-45.
 AB785 Tr2-65 ll17-20.
 ROS paragraph 48, citing Seeley International Pty Ltd v Jeffrey  VSCA 288 per Warren CJ, Nettle JA and Whelan JA at -.
 AB932 Tr1-14 ll39-40.
 Reasons 1 .
 AOS paragraph 41, citing Wallingford v Mutual Society (1880) 5 App Cas 685 at 701.
 At paragraph 6: AB96.
 At paragraphs 5(b), 18 and 27: AB103-106.
 At paragraph 18 and following; AB156.
 At paragraphs 29-31: AB201.
 Affidavit D Clarke sworn 9 January 2018 at paragraphs 62-80: AB383-386.
 (1989) 167 CLR 568.
 AOS paragraphs 81-83.
 (1959) 101 CLR 298.
 At 312.
 Reasons 1 .
 AOS paragraphs 85, 86.
 Reasons 2 : AB 67.
  QCA 260 at , .
 AB943 Tr1-25 ll26-40.
- Published Case Name:
Oakland Investment Group Limited v Sino-Resource Imp & Exp Co Ltd
- Shortened Case Name:
Oakland Investment Group Ltd v Sino-Resource Imp & Exp Co Ltd
 QCA 92
Gotterson JA, Morrison JA, McMurdo JA
21 May 2019
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 98||14 May 2018||Declaration that no money due under loan agreement between respondent and a non-party (determined as a separate question); application for security for costs dismissed: Henry J.|
|Primary Judgment|| QSC 133||06 Jun 2018||Consequential orders following from determination of separate question. Respondent ordered to prepare and lodge with Land Titles Office the documents necessary to effect the removal of mortgages by 13 June 2018 (failing which the Registrar will secure releases of mortgages through execution by the Crown Solicitor); application otherwise dismissed; respondent to pay applicant's costs on the indemnity basis: Henry J.|
|QCA Interlocutory Judgment|| QCA 165||27 Jul 2018||Application for security for costs granted; Mr Cooper's application to be joined to the appeal as an appellant refused: Fraser JA.|
|Notice of Appeal Filed||File Number: Appeal 6155/18||11 Jun 2018||-|
|Appeal Determined (QCA)|| QCA 92||21 May 2019||Appeal dismissed: Gotterson and Morrison and McMurdo JJA.|