FEDERAL COURT OF AUSTRALIA

Wu v Li [2015] FCAFC 109 

Citation:	Wu v Li [2015] FCAFC 109	
		
Appeal from:	Li v Wu [2013] FCA 1067	
		
Parties:	TAO WU v YU XIN LI; YU XIN LI v TAO WU	
		
File number:	ACD 116 of 2013	
		
Judges:	FOSTER, DAVIES AND RANGIAH JJ	
		
Date of judgment:	17 August 2015	
		
Catchwords:	CONTRACTS – appeal from decision of a single judge of the Federal Court of Australia – construction of contract – shareholder agreements – claim by respondent of entitlement under indemnity provisions –  meaning of “member loan” in indemnity provisions – whether primary judge erred in quantification of respondent’s entitlement – where respondent alleged misleading and deceptive conduct by appellant – whether primary judge erred in holding that respondent had not proved his loss – where respondent alleged breach of contract by appellant – whether primary judge erred in finding no contravention of shareholder agreements

EVIDENCE – when statement in an agreement or contractual document will constitute admissible evidence of an admission

COSTS – where respondent succeeded on one claim but not others – whether the primary judge erred in ordering appellant to pay respondent’s costs 	
		
Legislation:	Fair Trading Act 1992 (ACT) s 46
Evidence Act 1995 (Cth) s 191
Federal Court of Australia Act 1976 (Cth) s 43  	
		
Cases cited:	Lustre Hosiery Ltd v York (1935) 54 CLR 134
Australian Competition and Consumer Commission v Pratt (No 3) (2009) 175 FCR 558; [2009] FCA 407
Metwally v University of Wollongong (1985) 59 ALJR 481; [1984] HCA 28
Van Gervan v Fenton (1992) 175 CLR 327
Nudd v The Queen (2006) 80 ALJR 614; [2006] HCA 9
Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 3) [2007] FCAFC 119
Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261
Roadshow Films Pty Ltd v iiNet Ltd (No 4) (2010) 269 ALR 606; [2010] FCA 645
Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) (2005) 225 ALR 569; [2005] FCA 1400
Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10 	
		
Date of hearing:	22 May 2014, 4 August 2014	
		
Place:	Melbourne (Heard in Canberra)	
		
Division:	GENERAL DIVISION	
		
Category:	Catchwords 	
		
Number of paragraphs:	94	
		
Counsel for the Appellant and Cross-Respondent:	Mr A Sullivan QC with Mr C S Ward	
		
Solicitor for the Appellant and Cross-Respondent:	Dibbs Barker	
		
Counsel for the Respondent and Cross-Appellant:	Mr I Neil SC with Mr A K Flecknoe-Brown 	
		
Solicitor for the Respondent and Cross-Appellant:	Goodman Law	

IN THE FEDERAL COURT OF AUSTRALIA		
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY		
GENERAL DIVISION	ACD 116 of 2013	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	TAO WU
Appellant

YU XIN LI
Cross-Appellant
	
AND:	YU XIN LI
Respondent

TAO WU
Cross-Respondent

JUDGES:	FOSTER, DAVIES AND RANGIAH JJ	
DATE OF ORDER:	17 AUGUST 2015	
WHERE MADE:	MELBOURNE (HEARD IN CANBERRA)	

THE COURT ORDERS THAT:

1.	The appeal be dismissed. 
2.	Paragraphs 1 to 3 of the orders of Jagot J made 6 November 2013 be set aside and in lieu thereof it be declared that:
“1. The applicant is entitled to be indemnified by the respondent for the sum of   $ 1,076,767.”
and it be ordered that: 
“1. There be verdict and judgment for the applicant against the respondent in the sum of $1,076,767.
2. The respondent pay the applicant interest on the judgment sum, from 14 November 2011 to 17 August 2015, calculated at the rates prescribed by 
r 39.06 of the Federal Court Rules 2011 (Cth).” 
3.	The cross-appeal otherwise be dismissed.
4.	The appellant pay the respondent’s costs of the appeal.
5.	The appellant (cross respondent) pay 60% of the respondent’s (cross appellant’s) costs of the cross appeal.

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

IN THE FEDERAL COURT OF AUSTRALIA		
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY		
GENERAL DIVISION	ACD 116 of 2013	

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA	

BETWEEN:	TAO WU
Appellant

YU XIN LI
Cross-Appellant
	
AND:	YU XIN LI
Respondent

TAO WU
Cross-Respondent

JUDGES:	FOSTER, DAVIES AND RANGIAH JJ	
DATE:	17 AUGUST 2015	
PLACE:	MELBOURNE (HEARD IN CANBERRA)	

REASONS FOR JUDGMENT
THE COURT:
INTRODUCTION 
1		In 2004, Mr Li (the respondent/cross-appellant) and Ms Ji, both Chinese nationals, decided to seek permanent residency in Australia and, to do so, they needed a business activity in Australia. They formed a business relationship with Mr Wu (the appellant/cross-respondent), an Australian resident and with Mr Wu, they set up two companies: (1) Golden Enterprise Investment Pty Ltd (“GEI”) to undertake a property development project at Fox Place, Lyneham, Australian Capital Territory (“the GEI Project”); and (2) Spring Grove Enterprises Investment Pty Ltd (“SG”) to purchase a farm at Harden, New South Wales (“the SG Project”). Mr Li, Ms Ji, and Mr Wu all took shares in the companies and each were appointed directors, with Mr Wu having responsibility for the day to day operations of the companies. It appears that Ms Chen, Mr Li’s wife, also became a shareholder in, and was appointed a director of, GEI sometime later.
2		In 2006, two shareholder agreements were entered into, one shareholder agreement referable to GEI (“the GEI Shareholder Agreement”) and the other shareholder agreement referable to SG (“the SG Shareholder Agreement”) (together “the Shareholder Agreements”),  under which it was agreed that the capital required by the companies would be funded by unsecured loans from the shareholders and external borrowings. It was an agreed fact at trial that funds for the projects “were provided by, or on behalf of, Mr Li” to GEI and an agreed fact that GEI credited those funds to Mr Li’s loan account in GEI’s books. 
3		In 2011, GEI and SG both went into voluntary administration and, ultimately, both were placed into liquidation by resolution of their creditors. At the time when they went into liquidation, the advances had not been paid back by GEI (other than one amount). 
4		Mr Li and Mr Wu are in dispute over whether Mr Wu is liable under clause 5 of the Shareholder Agreements to indemnify Mr Li for a proportionate share of his outstanding loans. Clause 5 (which is in identical terms in each agreement) provided that in the event that the company was unable to repay any “[m]ember loan” (including interest), the other members, jointly and separately, agreed to indemnify that member for their proportionate share of the loan amount. The full text of clause 5 is as follows:
5.  INDEMNITY

In the event that the Company is unable to repay any Member loan (including interest), the other Members, jointly and separately, agree to indemnify that Member for their Proportionate Share of the loan amount. 

For example, if [Mr Li] has loaned the company $100,000,000 and at the completion of the Project the Company is only able to repay $500,000 of that loan, [Mr Wu] will indemnify [Mr Li] against 25% of the unpaid amount (being $125,000) and [Ms Ji] will indemnify [Mr Li] against 20% of the unpaid amount (being $100,000). 

The proportions in the example reflected the shareholdings held in GEI by Mr Li (55%), Mr Wu (25%) and Ms Ji (20%) as at 11 August 2006. 
5		In the Court below, Mr Li successfully sued Mr Wu in reliance on clause 5 of the Shareholder Agreements and obtained an order that Mr Wu pay him the amount of $976,866.80. Mr Li was unsuccessful on his other claims against Mr Wu, namely: (1) a claim for damages against Mr Wu under the Fair Trading Act 1992 (ACT) (“the FTA”) for misleading and deceptive conduct; (2) a claim for damages for breach of contract; and (3) a claim for equitable compensation for breaches of fiduciary duties owed by Mr Wu to Mr Li. 
6		Mr Wu has appealed the decision of the primary judge that he is liable to indemnify Mr Li in the amount of $976,866.80. Mr Li has cross-appealed the decision of the primary judge:
·	on the quantum for which Mr Wu is liable under clause 5 of the Shareholder Agreements;
·	that Mr Li had failed to prove loss and damage in the misleading and deceptive conduct claim; and
·	that Mr Li had not proved any breach of contract by Mr Wu.
THE APPEAL
7		Nine grounds of appeal were raised by Mr Wu. 
(1)	Ground 1: whether the primary judge was in error in holding that the funds provided through third parties to GEI were “member loans” within the meaning of clause 5 of the GEI Shareholder Agreement. 
8		This ground was abandoned during the reply on day two of the appeal.  
(2)	Ground 1A: whether the primary judge was in error in characterising as “member loans” for the purposes of clause 5 of the GEI Shareholder Agreement funds which had been provided to GEI other than for the “purpose” of the “Project” as that term was defined in the GEI Shareholder Agreement.  
9		This ground was an additional ground, which Mr Wu was given provisional leave to raise. 
10		The primary judge expressly found that “member loans” for the purposes of clause 5 must be loans that were for the purpose of the “Project” as that term is defined in the GEI Shareholder Agreement. The primary judge also found that the “Project” under the GEI Shareholder Agreement was the acquisition and development of land at Fox Place, Lyneham. Having so found, the primary judge included in her calculation of the amount of Mr Li’s “member loans” for the purposes of clause 5, two further amounts totalling $270,812 that Mr Li advanced to GEI after February 2008: $134,448.76 on 15 December 2010 and $136,363.24 on 11 January 2011 (identified in the evidence respectively as “payment 25” and “payment 27”) (“the additional loan amounts”).  It appears that the inclusion of these additional loan amounts was in error as it was common ground that those amounts were lent by Mr Li to GEI for purposes unconnected with the Fox Place project, namely for the construction of Mr Li’s personal residence at O’Malley, ACT. It was conceded for Mr Li that unless he was successful on ground 1 of his cross-appeal then these additional loan amounts should not have been taken into account. 
11		It was further contended that the primary judge wrongly had regard to a subsequent agreement that Mr Li and Mr Wu entered into in February 2008 (“the 2008 agreement”) to quantify the amount that Mr Li had advanced to GEI as “member loans” for the purposes of clause 5. The primary judge held that Mr Wu, by entry into the 2008 agreement, both “admitted and is bound by” that agreement as to the amount that Mr Li had lent to GEI as member loans. That finding is the subject of ground 2 of the appeal and is considered under that ground. For present purposes, it is sufficient to record the contention for Mr Wu that the correct starting point for the calculation of the amount of the indemnity under clause 5 of the GEI Shareholder Agreement (on the assumption that the indemnity was confined to moneys advanced by Mr Li to GEI for the GEI Project) was the Statement of Agreed Facts, which listed 28 advances (or “transactions”) made by or on behalf of Mr Li totalling $6,790,069.02. It was contended that Mr Li’s own evidence established that the only advances made specifically for the purposes of the GEI Project were transactions 1, 2, 3, 4, 5, 6, 10, 11 and 12, totalling $2,764,548. 
12		We give leave to Mr Wu to rely on this further ground. However, for the reasons that follow under ground 2, we have rejected the contention that the primary judge erred in holding that Mr Wu’s agreement as to the amount that Mr Li loaned GEI, as recorded in the 2008 agreement, could be relied upon as an admission by Mr Wu. Furthermore, for the reasons that follow under the heading “Alternative Calculation”, we have rejected the calculation based on the advances that were agreed in the Statement of Agreed Facts.
(3)	Ground 1B: whether the primary judge was in error in characterising as “member loans” for the purposes of clause 5 of the GEI Shareholder Agreement funds which had been provided to GEI other than in accordance with clause 4.3 of the GEI Shareholder Agreement.
13		This ground was another additional ground, which Mr Wu was given provisional leave to raise. This ground was also abandoned during the reply on day two of the appeal. 
(4)	Ground 2: whether the primary judge was in error in relying upon the 2008 agreement to conclude that Mr Li had loaned by way of “member loans” to GEI a sum of $6,022,737.30.

14		In February 2008, an agreement was reached between Mr Wu and Mr Li which records  the amounts that each had respectively “invested” into the GEI and SG projects. The primary judge held that Mr Wu, by entry into the 2008 agreement, both “admitted and [was] bound by” that agreement as to the amount that Mr Li had lent to GEI as member loans and that “the effect of the 2008 agreement” was that as between Mr Li and Mr Wu “it must be taken that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008”. To that amount, the primary judge then added the two additional loan amounts (totalling $270,812) made after February 2008, making a total amount of $6,022,737.37. 
15		The primary judge considered that the 2008 agreement performed at least two functions. Her Honour stated first that it is a contract between Mr Li and Mr Wu and operates according to its terms; and secondly, that it contains admissions by both Mr Li and Mr Wu. The primary judge concluded that she saw no reason why the parties should not be bound by those admissions. The primary judge’s analysis at [23]-[25] was as follows:
… Although Ms Ji is not a party to that agreement and thus cannot be bound by it, Mr Li and Mr Wu are parties and are bound by its provisions. That agreement records that GEI had completed the project at Fox Place, Lyneham. It is apparent this project was profitable whereas SG’s operations were not. The agreement records that the shareholders (in fact, just Mr Li and Mr Wu) wished to consolidate the finances of the two companies and have funds repaid according to their proportionate shareholdings in each. The 2008 agreement records that, on this basis, Mr Li was due to be repaid $5,336,422.91 on account of his shareholding in GEI and $735,894.15 on account of his shareholding in SG, or a total of $6,072,317.06. All other shareholders had sustained losses due to their lesser holding in GEI and greater holding in the loss-making SG. The agreement then records that if the losses of Hong Chen (by then a part substitute shareholder for Mr Li) and Ms Ji (but not Mr Wu) were deducted from Mr Li’s entitlement he was owed $5,751,925.37 by GEI and SG. The 2008 agreement continues as follows:

This figure ($5,751,925.37) shall be treated as a shareholder’s loan given by [Mr Li] to [GEI], for the project operations of [GEI]. The amount owed by [Mr] Wu, ie AUD $88,277.48 shall be taken as an amount owed to [GEI]. Interest shall be calculated on the abovementioned amounts owed to/by based on Australia’s prevailing interest rate(s) of comparable length. 

In other words, Mr Li and Mr Wu agreed that the amounts owed to Mr Li by GEI and SG, netted off against the losses incurred by Hong Chen and Ms Ji, were to be treated as a shareholder’s loan by Mr Li to GEI. Accordingly, as between themselves, Mr Li and Mr Wu agreed that this amount, $5,751,925.37, was a member’s loan for the purposes of the GEI shareholder agreement, “Golden” in the 2008 agreement being a reference to GEI. By this Mr Wu and Mr Li agreed that this amount was a member loan within the meaning of the GEI shareholder agreement including cl 5, the indemnity provision. The terms of the 2008 agreement also included Mr Li’s loans to SG up to that point. Hence, the figure of $5,751,925.37 is all inclusive. Mr Li cannot have any separate claim under cl 5 of the SG agreement for money he lent to SG before the 2008 agreement because the figure of $5,751,925.37 is the amount he and Mr Wu agreed represented the total owed to Mr Li and the debt was that of GEI alone. In this regard, it does not matter that GEI is not itself a party to the 2008 agreement. The 2008 agreement binds Mr Li  and Mr Wu and the present claim is by Mr Li against Mr Wu. 

For these reasons as at 18 February 2008, by entry into the 2008 agreement, Mr Wu admitted and is bound by the provision of the agreement to the effect that Mr Li had lent to GEI as members’ loans the sum of $5,751,925.37 and that such loans were subject to the indemnity in cl 5 of the GEI shareholder agreement. The figure of $4,520,349.20 on which Mr Li relies is also set out in the 2008 agreement. That agreement records that Mr Li in fact lent GEI $4,520,349.20 “excluding amounts used for O’Malley, personal amounts and amounts used for the farm”. On the same principle it is not now open to Mr Wu, a party to that agreement, to resile from the position recorded therein. Although Mr Li relied on this latter figure it is clear from the 2008 agreement that the deal between Mr Li and Mr Wu went further and treated all loans by Mr Li to GEI and SG as loans to GEI within the meaning of the GEI shareholder agreement. As between themselves Mr Li and Mr Wu were free to make that agreement and both remain bound by it.
16		The primary judge concluded at [32] and [34]:
… As should be apparent, I consider that the agreement performs at least two functions. First, it is a contract between Mr Li and Mr Wu and operates according to its terms. Second, it contains admissions by both Mr Li and Mr Wu. I can see no reason why the parties should not be bound by those admissions. As set out above, the 2008 agreement, at least as between Mr Li and Mr Wu for the purposes of cl 5 of the GEI shareholder agreement, effectively deems that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008. …

…

… I consider that the effect of the 2008 agreement is that as between Mr Li and Mr Wu it must be taken that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008. The statement of agreed facts records additional loans by Mr Li to GEI after 18 February 2008 of $134,448.76 on 15 December 2010 and $136,363.24 on 11 January 2011. There were no loans from Mr Li to SG after 18 February 2008.
17		It was common ground on appeal (but for different reasons) that the primary judge was wrong to use the figure of $5,751,925.37 as the starting point for the quantification of the indemnity amount under clause 5 of the GEI Shareholder Agreement. 
18		It was argued for Mr Wu that the primary judge erred in her approach to, and reliance on, the 2008 agreement by treating it as an “admission” by Mr Wu as to GEI’s indebtedness to Mr Li for the purposes of clause 5 of the GEI Shareholder Agreement and by finding that the sum of $5,751,925.37 represented the indebtedness of GEI to Mr Li.  Three reasons were advanced: (1) the 2008 agreement was a prospective agreement prepared for the purposes of a change in shareholding (which ultimately did not happen); (2) GEI was not a party to the agreement; and (3) it was a consolidation of the total contributions made by each of Mr Wu and Mr Li to all of the companies in the Golden Group then in existence. Further, it was argued that “[i]t follows” that there was no evidentiary foundation for the primary judge’s finding that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008 as that finding was based solely on the 2008 agreement.
19		It was argued for Mr Li that the primary judge was correct to hold that Mr Wu’s agreement as to the amount that Mr Li loaned GEI, as recorded in the 2008 agreement, could be relied upon as an admission by Mr Wu. It was submitted, however, that the figure of $5,751,925.37 was the wrong figure and that the relevant figure, as recorded in that agreement, as the starting point for the calculation was $4,520,349.20. 
20		The 2008 agreement did not have to be binding on Mr Wu, or for that matter, GEI, to constitute admissible evidence of an admission by Mr Wu as to GEI’s indebtedness to Mr Li for the purposes of clause 5 of the GEI Shareholder Agreement. In Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 143-44, the High Court held that where a party acknowledges the existence of a fact, it may be received in evidence as an admission against them regardless of their knowledge of the true facts. Rich, Dixon, Evatt and McTiernan JJ in a joint judgment concluded, after reviewing the relevant authorities:
This course of authority seems consistent with the view that words or conduct amount to an admission receivable in evidence against the party if they disclose an intention to affirm or acknowledge the existence of a fact whatever be the party’s source of information or belief. In determining whether he intends to affirm or acknowledge a state of fact the party’s knowledge or source of information may be material. For if he states that another person has told him of it, and it appears that he has additional sources of information to the like effect, it may be right to understand him as implying a belief in what he repeats. Or, again, a person who fails to contradict a statement concerning matters within his own knowledge may be understood as acquiescing in the statement if the circumstances are such as to make it unlikely that he would allow an erroneous statement to pass unchallenged. But, although the meaning of his words or conduct may depend upon the state of his knowledge, once that meaning appears and an intention is disclosed to assert or acknowledge the state of facts, its admissibility in evidence as an admission is independent of the party’s actual knowledge of the true facts. When admitted in evidence, however, its probative force must be determined by reference to the circumstances in which it was made and may depend altogether upon the party’s source of knowledge. 
As the High Court made clear, the question of admissibility is separate to the question as to the weight to be accorded to the evidence.
21		In Australian Competition and Consumer Commission v Pratt (No 3) (2009) 175 FCR 558; [2009] FCA 407 at [77] Ryan J observed that an agreement does not ordinarily constitute a representation by a contracting party. His Honour explained:
One reason for that is the difficulty in attributing a particular statement in the agreement to one party or the other. It is also notorious that parties to an agreement may elect to conduct their contractual relations and, if necessary, enforce the rights arising from them on a basis which is contrary to fact. 

As his Honour also went on to explain, that is not to say that no statement in an agreement or contractual document can ever constitute a representation in the sense used in the definition of “admission” in the Evidence Act 1995 (Cth) (“the Evidence Act”):
A recital to a deed or other written contract may, in its context, be so expressed as to warrant the conclusion that both contracting parties intended it to operate as an assertion of actual fact. In that event, the recital, in my view, would be admissible in later proceedings as an admission against either contracting party.
A statement in an agreement is capable of constituting an admission for this purpose: see also Stephen Odgers, Uniform Evidence Law (9th ed, 2010) at [1.3.4740] 365.
22		In the present case, the evidence showed that the sums referred to in the 2008 agreement had been derived as a result of a reconciliation of GEI’s and SG’s accounts conducted by Mr Li’s assistant, Mr Fu, in consultation with Mr Wu and that following that reconciliation, Mr Li and Mr Wu, as between themselves, agreed upon how much each of them had loaned to GEI and SG as recorded in the 2008 agreement. 
23		The 2008 agreement recorded, relevantly that as at 18 February 2008, the amount “invested” by Mr Li in the GEI Project was: 
$4,520,349.20 excluding amounts used for O’Malley, personal amounts and amounts used for the farm.
“O’Malley” is a reference to the construction of Mr Li’s personal residence at O’Malley. “Personal amounts” were amounts expended on Mr Li and his family while in Australia. “Amounts used for the farm” was a reference to the amounts passed through to SG for the SG Project.
24		The 2008 agreement also recorded, relevantly that as at 18 February 2008, the amount “invested” by Mr Li in the SG Project was $644,865.76. 
25		Further, the 2008 agreement recorded, relevantly, that “[a]s at now” (ie 18 February 2008), the amount of investment in GEI to be repaid to Mr Li was $5,421,126.61, comprising capital of $4,520,349.20 and interest of $900,777.41; and the amount of investment in SG to be repaid to Mr Li was $817,198.68, comprising capital of $644,865.76 and interest of $172,332.92.
26		Moreover, Mr Wu, in his Defence, both admitted the fact of entering into the agreement and the material terms of the agreement, including relevantly that Mr Li and Mr Wu had agreed: (1) that Mr Li had advanced $4,520,349.20 to GEI, “excluding expenses incurred by GEI for the O’Malley property, personal expenditures and expenditures on the Harden property for [SG]”; and (2) that Mr Li’s loans to SG with interest amounted to $817,198.68. 
27		In our view, it is not to the point that the 2008 agreement was entered into for the purposes of a proposed change in shareholding that did not eventuate. The making of the agreement and the material terms were admitted and, moreover, the correctness of the figures in the 2008 agreement as to the amounts lent by Mr Li to GEI and SG was neither the subject of challenge nor contradicted. We therefore reject the contention that the “admissions” in the 2008 agreement could not be relied upon as evidence of GEI’s indebtedness to Mr Li for the purposes of clause 5 of the GEI Shareholder Agreement.
28		It is a separate question though whether the primary judge was correct in her conclusion that the effect of the 2008 agreement was that as between Mr Li and Mr Wu  “it must be taken that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008” for the purposes of clause 5 of the GEI Shareholder Agreement. In this respect both parties submitted that the figure of $5,751,925.37 should not have been used.
29		It is necessary to explain how the figure of $5,751,925.37 was arrived at. As at 18 February 2008, it was intended that the shareholding would change and that Ms Ji’s and Ms Chen’s share of GEI’s losses would be assumed by Mr Li. The 2008 agreement recorded that:
Subsequent to the settlement and change of shareholding structure ... [Mr Li] shall be repaid AUD6,072,317.06 whereas [Ms Ji] owes AUD271,989.58 and [Ms Chen] owing AUD48,402.11, giving a net total of AUD5,571,925.37. This figure (AUD5,571,925.37) shall be treated as a shareholder’s loan given by [Mr Li] to [GEI], for the project operations of [GEI]. 
30		The figure of $6,072,317.06 was the sum of the “original investment amounts” to be repaid to Mr Li as set out at [25] above (ie $5,421,126.61 in respect of GEI and $817,198.68 in respect of SG) less Mr Li’s share of the deficit.
31		The primary judge considered that the effect of the 2008 agreement was that as between Mr Li and Mr Wu, it must be taken that Mr Li loaned GEI $5,751,925.37 as at 18 February 2008. The primary judge reasoned at [33]:
… the whole purpose of the 2008 agreement was to work out the net position of each party and provide a basis for future work together between Mr Li and Mr Wu. Hence, the 2008 agreement sets out calculations under which the total (netted off) amount owing to Mr Li was $5,336,422.91, Mr Wu was owed $13,353.19 with Hong Chen and Ms Ji both having incurred a loss of $48,402.11 each. The 2008 agreement says that if these figures are not repatriated (that is, repaid) then these amounts shall continue to be regarded as the amounts of individual investment into any new project and the corresponding interest shall continue to be calculated. In other words, at least as between Mr Li and Mr Wu, for any new project these amounts, if not repaid (which they were not), were to be treated as loans for the new project and also subject to the indemnity provisions in cl 5.
32		We accept the contention of both parties that the consolidated position going forward was not the correct starting point for the purpose of the calculation of the indemnity under clause 5 of the GEI Shareholder Agreement, as the agreed position that Mr Li be repaid $5,751,925.37 was predicated on a change of the shareholding, which did not ultimately eventuate. The relevant admissions concern the amounts that it was agreed that Mr Li had actually lent GEI and SG: viz, $4,520,349.20 and $644,865.76 respectively (not including interest). 
(5)	Ground 3: whether the primary judge was in error in holding that the true construction of the 2008 agreement was to the effect that the sum of $4,520,349.20 represented the indebtedness of GEI to Mr Li after deducting personal expenses paid to Mr Li.
33		As previously stated, the 2008 agreement recorded, relevantly, that as at 18 February 2008, the amount “invested” by Mr Li in the GEI Project was: 
$4,520,349.20 excluding amounts used for O’Malley, personal amounts and amounts used for the farm.
34		The primary judge accepted that personal expenses of Mr Li paid for by the moneys that he lent to GEI had to be deducted from the total loan funds in calculating the extent of GEI’s indebtedness to Mr Li for the purpose of clause 5 of the GEI Shareholder Agreement. The primary judge also found that the figure of $4,520,349.20 recorded in the 2008 agreement as the amount invested by Mr Li in GEI had already been netted off against Mr Li’s personal expenses paid by GEI as at 18 February 2008.  The primary judge reasoned at [33]: 
… I see no basis to construe this provision as indicating that these personal expenses have not been deducted from the amount of $4,520,349.20. The language of the 2008 agreement does not support the submission for Mr Wu. In context, it also makes little sense because the whole purpose of the 2008 agreement was to work out the net position of each party and provide a basis for future work together between Mr Li and Mr Wu. Hence, the 2008 agreement sets out calculations under which the total (netted off) amount owing to Mr Li was $5,336,422.91.  
35		The particulars to this ground of appeal stated that the “true construction” of the 2008 agreement is that the indebtedness of GEI to Mr Li “remained subject to setoff of any amounts paid by GEI or any subsidiary of GEI (including Golden Constructions Pty Ltd) to or on behalf of [Mr Li]”. No written or oral submissions were advanced in support of this ground and we are not persuaded that there was any error in the primary judge’s reasoning. Accordingly, ground 3 fails.
(6)	Ground 4: whether the primary judge erred in finding that any “admission” by GEI about any obligation of repayment to Mr Li was admissible or relevant in respect of his claims against Mr Wu. 
36		This ground was not abandoned though it appears to be related to the now abandoned ground 1. 
37		At first instance, Mr Wu argued that the moneys that Mr Li provided to GEI were not “member loans” for the purposes of clause 5 of the GEI Shareholder Agreement because the funds came from third parties. The primary judge rejected that argument finding, amongst other things at [28] that:
GEI’s own books and records are an admission that Mr Li lent money to GEI which GEI had an obligation to repay to Mr Li.
38		GEI’s books and records were not in evidence but the Statement of Agreed Facts recorded as an agreed fact that the funds provided were credited in GEI’s books to Mr Li’s loan account. Nonetheless, it was argued for Mr Wu that the Statement of Agreed Facts could not be relied on as an admission by GEI as to its indebtedness to Mr Li because GEI was not a party to the proceeding and, in any event, it was argued, an admission by GEI as to its indebtedness to Mr Li could not be viewed as an admission by Mr Wu of the amount of any “member loan” for the purpose of the 2008 agreement. It was also argued that the only admissions in the Statement of Agreed Facts were to the effect that the various amounts were credited to Mr Li’s loan account and that this was not an admission that any such amounts were properly so recorded or that by reason of being so recorded, the relevant amount became a member loan for the purpose of the 2008 agreement. We do not accept these contentions.
39		First, the Statement of Agreed Facts is binding on Mr Wu for the purpose of this proceeding as an admission by him as to the fact, and correctness of the fact, that the relevant funds in each transaction were treated by GEI as loans to Mr Li: s 191 of the Evidence Act. 
40		Secondly, and contrary to the submissions for Mr Wu, the primary judge did not hold that by reason of being so recorded in GEI’s books, the relevant amount became a member loan for the purpose of the 2008 agreement. The finding based on the admission went no further than that the relevant moneys were lent by Mr Li to GEI. 
41		Thirdly, the primary judge did not rely on that fact as an admission by Mr Wu of the amount of any “member loan” for the purpose of the 2008 agreement. 
42		Accordingly, ground 4 fails.
(7)	Ground 5: whether the primary judge erred in holding that at best the completion of the liquidation of GEI might see the companies repay to the creditors less than 1 cent in the dollar when there was evidence before the primary judge from the liquidator that Mr Li owed a substantial debt to Golden Constructions Pty Ltd and that Golden Constructions Pty Ltd was liable to repay a sum to GEI.
43		The indemnity conferred by clause 5 was conditional upon the event that the company was unable to repay any member loan. The primary judge held at [39] that:
Leaving aside any claim the liquidator might have against Mr Li it is apparent that, at best, the completion of the liquidation might see the companies repay to creditors less than 1 cent in the dollar.
It was contended that the primary judge erred in reaching that conclusion because it was 
44		Mr Kazar, the liquidator of GEI and other Golden Group companies, gave evidence that on the information then available to him, creditors would receive a dividend of 0.88 cents in the dollar which may be greater if GEI successfully pursued a claim against a related company, Golden Constructions Pty Ltd (“Golden Constructions”), for the repayment of moneys that GEI had advanced Golden Constructions which Golden Constructions had used for the construction of Mr Li’s personal residence at O’Malley. Whilst he did not agree with the proposition put to him by counsel for Mr Li that the final dividend from GEI would not exceed 0.88 cents in the dollar, he gave evidence that GEI’s only creditor other than Mr Li had not expressed any intention to indemnify Mr Kazar for any further work on GEI’s liquidation and that he had taken no step towards obtaining any litigation funding and that obtaining litigation funding was merely a “possibility”. He also gave evidence that he was considering disallowing Mr Li’s proof of debt but he accepted that the only consequence of doing so would be to reduce the dividend payable to him below the 0.88 cents in the dollar. In summary, the only definite evidence available about the amount that might be payable to Mr Li in GEI’s liquidation was the sum of 0.88 cents in the dollar and that as at 19 August 2013, the liquidator had intended to declare a first and final dividend on that basis. 
45		In light of that evidence, it was open to the primary judge to find, as her Honour did, that Mr Li would only recover less than one cent in the dollar in respect to the amounts that he had lent to GEI.
46		Accordingly, ground 5 fails.
(8)	Ground 6: Fresh evidence on appeal of the expected dividend to creditors of GEI.
47		Mr Wu was granted leave to adduce, and rely on, further evidence from Mr Kazar concerning the potential claim against Golden Constructions. In substance, Mr Kazar’s further (and unchallenged) evidence was to the effect that had Mr Li made good his debts to Golden Constructions, Golden Constructions would in turn have been able to repay its indebtedness to GEI with the effect that the expected dividend to creditors of GEI would have been 49 cents in the dollar, provided that the debt shown in the books and records of the Golden Group as being owed by Mr Li to Golden Constructions was immediately repaid. 
48		It was put that by failing to make good his obligations to Golden Constructions, Mr Li was the author of his own misfortune and should not be permitted to take advantage of the clause 5 remedy in those circumstances, as to do so would be to enable him to profit from his own wrong. The submission is tendentious as it assumes the existence of a liability which is yet to be proved and which, on the evidence, is disputed by Mr Li. Accordingly, the fresh evidence does not advance Mr Wu’s case any further and ground 6 fails.
The Alternative Calculation
49		Before dealing with the question of costs in ground 7, it is appropriate to deal with the alternative calculation put to the Court on behalf of Mr Wu in reply on day two of the appeal.
50		This alternative calculation posits as the starting point the Statement of Agreed Facts which lists 28 transactions, being advances made by or on behalf of Mr Li “for various purposes”. It was put that the Statement of Agreed Facts:
… represents an admission by Mr Li of the total amounts that he advanced for all projects …
51		The analysis then proceeded as follows:
(a)	a “simple adding up” of the relevant amounts results in a total “advance” of $6,970,069.02;
(b)	from this amount must be deducted those amounts which on Mr Li’s own evidence were not advanced for the purposes of the GEI Project;
(c)	on Mr Li’s own evidence, the only transactions made specifically for the purpose of the GEI Project which it was submitted for Mr Wu “could possibly attract the indemnity under clause 5 of the GEI Shareholder Agreement” totalled $2,764,584 (being transactions 1, 2, 3, 4, 5, 6, 10, 11 and 12);
(d)	thus, the starting point for the indemnity calculation is the sum of $2,764,584;
(e)	from the sum of $2,764,584 must be deducted amounts paid by GEI for Mr Li’s personal expenses and the amount of any likely dividend from GEI.
52		It was further argued that transactions 7, 8, and 9 of the Statement of Agreed Facts (totalling the sum of $389,102.27) were not “member loans” because on Mr Li’s pleaded case, those funds were loaned by Mr Li to GEI for the purpose of enabling GEI to lend those funds to SG to assist with the purchase of the Harden property.  Thus, it was submitted, it was then GEI which loaned those funds to SG, not Mr Li.
53		This alternative calculation was not argued before the primary judge. Significantly, the case was not conducted on behalf of Mr Wu before the primary judge raising the two premises on which the alternative calculation is based, viz: (1) that the Statement of Agreed Facts represented an admission by Mr Li of the total amounts he advanced to GEI; and (2) that on Mr Li’s own evidence the only funds advanced to GEI and used for the purpose of the GEI Project were transactions 1, 2, 3, 4, 5, 6, 10, 11 and 12. In the circumstances, Mr Li was not required to meet such a case and it was not addressed by the primary judge. Nor was the point taken that transactions 7, 8, and 9 of the Statement of Agreed Facts were not “member loans” under the SG Shareholder Agreement because the funds were advanced by GEI. 
54		Senior counsel for Mr Li contended that the Statement of Agreed Facts did not represent an admission by Mr Li of the total amounts that he advanced. Rather, it was said, the Statement of Agreed Facts was only an admission as to the facts and particulars of transactions that, for various reasons, were “the subject of particular attention in [Mr] Li’s evidence” and that the role that those transactions had played in the factual substratum of the case as pleaded was misrepresented. Mr Li deposed that between 12 November 2004 and 1 February 2011, he made or arranged for a total of 28 payments to be made to GEI at Mr Wu’s request. Mr Li set out the payments made and the purposes for which Mr Wu had requested that the funds be provided. It was submitted that these loan transactions were not the foundation of Mr Li’s case at trial on the indemnity claim but rather the evidence was directed at supporting other claims made by Mr Li against Mr Wu and “at no stage did [Mr] Li contend that they were the only transactions which ever occurred” and “that is why the amounts in the 2008 agreement, upon which Mr Li relies, are higher than the sum of the individual transactions in the [Statement of Agreed Facts] up to that date”. It was submitted that the indemnity claim as pleaded relied directly on the loan figures as set out in the 2008 agreement. These submissions are supported by a review of the Second Further Amended Statement of Claim, in particular at [184] and [194].
55		In view of the basis upon which Mr Li put his case below and the failure of Mr Wu below to answer that case by advancing the alternative case as it is now put, Mr Wu should not now be permitted to advance that alternative case on appeal. Parties are bound by the way in which their cases are conducted by their counsel, who make forensic decisions about what issues to contest, what witnesses to call, what evidence to lead or to seek to have excluded, and what lines of argument to pursue: Metwally v University of Wollongong (1985) 59 ALJR 481; [1984] HCA 28; Van Gervan v Fenton (1992) 175 CLR 327; Nudd v The Queen (2006) 80 ALJR 614; [2006] HCA 9 at [9]. As the High Court cautioned in Metwally at [7], except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so. There is no reason to depart from that principle in the present case. 
(9)	Ground 7: whether the primary judge erred with respect to the order as to costs.
56		At trial, Mr Wu contended that Mr Li should only receive 20% of his costs on the basis that Mr Li succeeded on one issue only and failed on all the other issues. The primary judge ordered Mr Wu to pay Mr Li’s costs of the proceeding. The primary judge reasoned that although Mr Li had failed in his claims for damages for misleading and deceptive conduct, breach of contract and equitable compensation, it was the conduct of Mr Wu in putting many matters into issue concerning the 2008 agreement rather than the failed claims of Mr Li which involved substantial money and cost. The primary judge reasoned that it followed that the actual course of the proceeding did not support the making of an order which reduced Mr Li’s entitlement to costs. Her Honour concluded at [15]-[16]:
[Mr Li] succeeded in respect of the claim fundamental to his case and, in so doing, was forced by [Mr Wu’s] defence to adduce evidence about the relationship between parties over many years. [Mr Wu] cannot now be heard to complain that, had [Mr Li] run his case differently, the hearing would have taken one or two days. The issues on which Mr Li failed were subsidiary both conceptually and in terms of time. 

The usual order as to costs should be made.
No legal error in the reasoning has been demonstrated. The starting point is that costs should follow success in a proceeding. Where there are several issues and the successful party failed on some issues, it may be appropriate to deprive the successful party of their costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant amount of time at trial. Ultimately it is a matter for evaluation by the judge. The question of apportionment is discretionary and no legal error in the approach taken by the primary judge has been shown: Federal Court of Australia Act 1976 (Cth) s 43; Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 3) [2007] FCAFC 119 at [11]; Dodds Family Investments Pty Ltd (formerly Solar Tint Pty Ltd) v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272; Roadshow Films Pty Ltd v iiNet Ltd (No 4) (2010) 269 ALR 606; [2010] FCA 645 at [21]-[23], per Cowdroy J; Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No 2) (2005) 225 ALR 569; [2005] FCA 1400 at [2], per Crennan J.
57		Accordingly, ground 7 fails.
CROSS-APPEAL
58		Seven issues were originally raised in the cross-appeal, but grounds 3 and 4 were abandoned. 
(1)	Ground 1: whether the primary judge was in error in the quantification of the amounts in respect of which Mr Li was entitled to be indemnified under clause 5 of the Shareholder Agreements.
59		It was contended for Mr Li that judgment ought to have been given for him on the indemnity claim in the sum of $1,178,052.28 plus interest calculated from 14 November 2011.
60		The starting point was said to be the following facts as found or agreed:
(a)	the 2008 agreement comprised representations of fact made by each party to the other as to the contributions of capital made by each of them to GEI and SG;
(b)	according to that document, the principle sums loaned by Mr Li to GEI and SG were $4,520,349.20 and $644,865.76 respectively;
(c)	as agreed between the parties, the relevant personal expenses of Mr Li paid by GEI were $1,275,123.54 before 18 February 2008 and another $807,644,50 after that date;
(d)	also as agreed between the parties, after 18 February 2008, Mr Li made three further relevant loans to GEI, for sums totalling $405,140.76; and
(e)	that the dividend that Mr Li is to receive in the liquidation of GEI is $50,502.11. 
61		It was submitted accordingly that the correct determination of Mr Wu’s liability to Mr Li under clause 5 was as follows:
$4,520,349.20 (GEI loan) + $644,865.76 (SG loan) + $405,140.76 (post 2008 loans) – $807,644.50 (post 2008 personal expenses) – $50,502.11 (GEI liquidation dividend) × by 0.25 
and therefore that judgment ought to have been given for Mr Li on the indemnity claim in the sum of $1,178,052.28 plus interest calculated from 14 November 2011. 
62		It was argued that the primary judge was wrong to use as the starting point the “consolidated amount” of $5,751,925.37 as that “consolidated” figure was the amount that would have been paid to Mr Li after the shareholdings in GEI had been formally restructured (but which did not proceed). It was submitted that the correct way to determine Mr Li’s entitlement to indemnity from Mr Wu under clause 5 of the Shareholder Agreements was to start with GEI’s and SG’s pre-existing loan liabilities to Mr Li, then to add the three post 18 February 2008 loans by Mr Li to GEI totalling $405,140.76 (which included transaction 26). It was stated that “for unknown reasons” the primary judge only included transactions 25 and 27 for a sum of $270,812.00. 
63		For the reasons given above, we have accepted the argument that the consolidated post restructure figures should not have been used. However, we do not accept the submission that the three further loans after 18 February 2008 which were not used for the purpose of the GEI Project (which had been completed) should be taken into account in calculating the indemnity under clause 5 of the GEI Shareholder Agreement. It is unclear to us how this point was intended to be put. In the written submissions, it was put that contributions made after February 2008 were made on the basis that they were “member loans” to GEI “whatever their purpose” and reliance was placed on the 2008 agreement for this proposition. That submission was not addressed in oral submissions. Rather in oral submissions the proposition was put that the “Project” as defined in the GEI Shareholder Agreement included the construction of Mr Li’s house at O’Malley. Whichever basis is relied on, the point is unmeritorious in our opinion. 
64		First, the primary judge was correct to hold for the reasons that she gave at [15] that the “Project” for the purposes of clause 5 of the GEI Shareholder Agreement was the GEI Project. “Project” is a defined term in the GEI Shareholder Agreement and means, amongst other things, “the subdivision of the Land”. “Land” is also a defined term but is blank. The primary judge reasoned at [15]:
As noted, I do not accept the submission for Mr Li that the GEI shareholder agreement leaves the identification of the land deliberately blank with the intention that the agreement defines “Project” as any project which GEI might take on. At the time of the agreement GEI owned and proposed to develop the land at Fox Place, Lyneham. Had the agreement been intended to define as part of the “Project” anything other than the development of the land at Fox Place, Lyneham then the agreement could have provided to this effect. There are a number of parts of the agreement which remain incomplete, not only the definition of the land. The loan agreement in schedule 2 is missing from the executed copy although this may be inferred to have been intended to be the loan agreement executed between Mr Li and GEI on the same day. Further, there is a date missing from the definition of “Initial Monthly Program”. The name “Tom” has been inserted between two // marks followed by a question mark in the definition of “Managing Director”. Construed in the context of the objective surrounding circumstances it is plain that the parties all intended the land defined in the GEI shareholder agreement to be the land at Fox Place, Lyneham. To this extent I accept the submissions for Mr Wu.
It was argued for Mr Li that the “correct effect” of the evidence was that the parties had intended that the “Land” would include any land on which GEI was conducting or would conduct a building development project, including the land at O’Malley. We do not accept that contention. The construction given by the primary judge was plainly open and no error is shown in the primary judge’s reasoning. 
65		Secondly, we do not accept that the 2008 agreement is open to the construction that the parties’ intention was that any further loans after 18 February 2008 would be “member loans” to GEI “whatever their purpose”. The 2008 agreement contemplated that after the settlement and distribution of funds upon the change of shareholding, GEI would be “at liberty to take on further projects or to engage in other activities” and that to the extent that the original investment amounts had not been repaid to Mr Li or Mr Wu, such amounts “shall be treated as the amounts invested by the respective shareholders into the new projects”.  However, the proposed shareholding change did not eventuate and the 2008 agreement did not become effective. 
66		It was then submitted that based upon the primary judge’s finding that the pre 18 February 2008 personal expenses had already been netted off against the principal sums loaned by Mr Li to GEI, the “GEI repayment of Li” loans section should have included only $807,644.50 not $2,064,768.00, which was the figure that the primary judge used. The $2,064,768.00 figure used by the primary judge was the sum of the pre and post February 2008 amounts spent by GEI on Mr Li’s personal expenses. The primary judge accepted the submission for Mr Wu that to the extent that GEI paid any personal expenses by or for Mr Li or his family then that must be treated as a repayment of Mr Li’s loans to GEI. The primary judge then stated at [37]:
According to a summary created by Mr Wu from GEI’s accounts as agreed between the parties the total in Mr Li’s account for GEI (meaning his personal expenses paid by GEI) is $1,257,123.54 before 18 February 2008 and another $807,664.50 after that date.
67		It was argued for Mr Wu that the sums said to represent an agreement as to the extent of Mr Li’s personal indebtedness to GEI were not so agreed, and that the figures relied upon by the primary judge did not represent that indebtedness. It was submitted that the figures relied on by the primary judge were derived from MYOB figures in Mr Wu’s Exhibit TW-13 but that the primary judge relied on only some of the figures in that document. The Court was told that the circumstances giving rise to the error were that, following the conclusion of the hearing but pending judgment, the primary judge invited the parties to identify the total of the figures contained in that document that bore the code GEIYXL, which the parties did, and that the primary judge relied on that figure as the full extent of Mr Li’s personal expenses paid for by GEI. It was submitted that the approach was in error because other MYOB codes (GCYXLoan, wages and O’Malley) in Exhibit TW-13 also obviously related to Mr Li’s personal expenditure and should have been included in the calculation and that the primary judge erred (assuming the “consolidated approach” was correct) in failing to include as personal indebtedness of Mr Li, his significant debts to other companies in the wider group. Mr Wu had deposed that according to the records of the Golden Group of companies between 2005 and 2011, the funds spent by those companies for Mr Li and his family on his instructions totalled $6,511,101 and that those figures were before the primary judge in Exhibit TW-13. 
68		The response for Mr Li was that:
(a)	the amounts listed in Exhibit TW-13 against the accounting code GCYXLoan recorded amounts paid by, and debited to Mr Li’s loan account with Golden Constructions and that amounts paid by Golden Constructions cannot be treated as repayments of Mr Li’s loan to GEI which was why, it was submitted, the primary judge correctly relied only on transactions coded GEIXYLoan, being transactions on GEI’s loan account with Mr Li;
(b)	there was no evidence that the “wages” were other than business expenses;
(c)	amounts spent on O’Malley before 18 February 2008 were already netted off as recorded in the 2008 agreement; and
(d)	the claim about Mr Li’s alleged debts to other entities was “essentially the same point as the first”. 
69		For the reasons already given, the primary judge was wrong to use the consolidated figure as the starting point. The correct figure to use as the starting point was the amount of $4,520,349.20 which, for the reasons also already given, was net of Mr Li’s personal expenses. As to the other matters, we do not accept the mere assertion that other MYOB codes “obviously” related to Mr Li’s personal expenses, when no attempt was made to substantiate those assertions by reference to the evidence to show that the payments in question could have had no explanation other than payments by GEI of Mr Li’s personal expenses. 
70		In summary:
(a)	The primary judge was correct to hold that Mr Wu’s agreement as to the amounts that Mr Li loaned GEI, as recorded in the 2008 agreement, could be relied upon as an admission by Mr Wu, namely the sums of $4,520,349.20 (GEI) and $644,865.76 (SG) respectively;
(b)	The primary judge erred by not taking those figures as the starting point for the calculation as to the amount of the indemnity under clause 5 of the Shareholder Agreements;
(c)	The sum of $4,520,349.20 (GEI) was net of Mr Li’s personal expenses;
(d)	The primary judge has not been shown to be wrong in quantifying the post February 2008 amounts spent by GEI on Mr Li’s personal expenses in the amount of $807,644.50;
(e)	The post February 2008 loans should not have been included in the calculation; and
(f)	The GEI liquidation dividend was calculable at $50,502.11.
71		Accordingly, the correct way to determine Mr Li’s total entitlement to indemnity from Mr Wu under clause 5 of the Shareholder Agreements was:
$4,520,349.20 (GEI loan) plus $644,865.76 (SG loan) minus $807,644.50 (post 2008 personal expenses) less $50,502.11 (GEI liquidation dividend) multiplied by 0.25.
72		The result is that judgment ought to have been given for Mr Li on the indemnity claim in the sum of $1,076,767.
(2)	Ground 2: whether the primary judge erroneously rejected the method by which Mr Li had quantified his claim for damages under the FTA and erroneously held that Mr Li had not proved his loss by reason of Mr Wu’s misleading and deceptive conduct.
73		Although the primary judge found that Mr Wu had engaged in misleading and deceptive conduct, the primary judge went on to find that Mr Li had not proved his loss and damage. In the cross-appeal, Mr Li claimed that he ought to be awarded damages under s 46 of the FTA in the sum of $446,960.67; alternatively that the Court should endorse the approach to the quantification of damages contended for on behalf of Mr Li and remit the matter to the primary judge to determine damages in accordance with that approach. 
74		In short compass, the primary judge found that Mr Wu had borrowed $95,019.00 from GEI to fund the purchase of a property but had represented to Mr Li that he had used his own funds. The primary judge inferred from Mr Li’s evidence that there was no possibility that he would have done any further business with Mr Wu had he known the true position before 18 February 2008, reasoning that “had he known” about the misrepresentation, “it would have been obvious to Mr Li that he could not trust Mr Wu”. The primary judge continued at [56]-[57]:
Even though Mr Li genuinely wanted to keep doing business in Australia, it is inconceivable that he would’ve wanted to do business with a person who used GEI’s own money to give himself a credit as a debtor to that amount of GEI. The conduct of Mr Wu in this regard was inescapably dishonest and designed to advance himself at Mr Li’s expense. The fact that this was done in a context where Mr Wu had paid to himself from GEI $1,106,028.00 whereas Mr Li had been repaid nothing at that time is inconsistent with any willingness on Mr Li’s part to continue to do business with Mr Wu had Mr Li known the truth.

As a result, the business relationship between Mr Li and Mr Wu would have ended at that time subject to finalisation of all outstanding matters relating to the development at Fox Place Lynham, and the project at Harden. Mr Li would not have lent any further money to GEI or to any of the companies of Mr Wu that Mr Li did ultimately find out about.
75		The method of calculation of loss put forward for Mr Li was as follows. It was submitted that the amount that GEI and SG would have realised from their assets after 18 February 2008 may be determined from the evidence, most obviously from the 2008 agreement itself. The written submissions stated:
GEI’s net cash as at that date, as set out on that agreement, would have been available for that purpose (there being no evidence to the contrary). There was evidence not just of the valuation of the remaining Fox Place apartments at that date, but also of the prices for which they were in fact subsequently sold. The same applied to the Harden farm.

On that basis the Court could readily calculate a dividend that would have been payable in a notional liquidation of GEI after 18 February 2008, after paying out Li’s existing loans. This component of Li’s losses came about through Wu’s misrepresentation having caused Li not to liquidate GEI and SG immediately. The parties themselves calculated such a notional dividend in the 2008 agreement: they agreed the amounts which Li, Wu, Ms Chen and Ms Ji were entitled to be paid out of (or obliged to pay into) GEI and SG at that date.

To this must be added the second element of Li’s loss, being that which reflects the transactions Li actually engaged in with Wu and the various entities after the date of the 2008 agreement. The payments Li made to the various entities were agreed upon by the parties.

From the sum of these losses must be deducted: a value to be attributed to the property at O’Malley (since Li would have proceeded with building that house anyway, albeit without Wu’s or Golden Constructions’ involvement); the amounts that were spent on Li’s personal expenses after 18 February 2008; and the amount that Li is entitled to recover in these proceedings under the indemnity provisions of the Shareholder Agreements. 
76		In summary Mr Li’s loss was said to be quantifiable as:
(a)	the sum of his outstanding net loans to GEI as at 18 February 2008; plus
(b)	the likely dividend to which he would have been entitled if the entities had been wound up thereafter; plus
(c)	the actual amounts he proceeded to lend to the various entities after that date; less
(d)	the indemnities recovered in these proceedings; less
(e)	the value of the O’Malley house and land; and less
(f)	the value of personal and family expenditure on Mr Li’s behalf after 18 February 2008.
77		The primary judge did not agree with the method of calculation of loss put forward for Mr Li. The primary judge reasoned at [58]:
It is not at all clear what Mr Li’s net position would have been had GEI and SG been wound up in February 2008. The February 2008 agreement does not support an inference that GEI and SG would have been then able to repay Mr Li’s loans whichever way they might be calculated. This is where the evidence of an accountant would have been critical. I have no basis for knowing what the alternative position would have been if GEI and SG had been wound up in February 2008 without engaging in pure speculation. However, what I do know is that Mr Li would not have advanced any further funds to GEI or to any company associated with Mr Wu. The difficulty in this regard is that I am not satisfied on the evidence that Mr Li did not get the benefit of at least some or perhaps all of the funds through the construction of his house at O’Malley and I am not able on the evidence to work out what Mr Li’s real loss might be. It was for Mr Li to prove the loss or damage that he claimed that he suffered. 

78		The primary judge correctly stated that while damage need only be proved “with as much precision as the subject matter reasonably permitted” (Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257: [2003] HCA 10 at [37]), a calculation based entirely on speculation rather than rational inference is not permitted. 
79		In our opinion the primary judge correctly rejected the claim that Mr Li’s loss was quantifiable by this methodology for the reasons given. As the primary judge stated, the 2008 agreement did not support an inference that GEI and SG would have been then able to repay Mr Li’s loans. The inbuilt assumption in the calculations put forward at trial was that the financial positions of GEI and SG were as recorded in the 2008 agreement but there was no evidence, or no evidence that the primary judge was bound to accept, to that effect. The financial position of the companies in February 2008 was a matter that was capable of proof and, as the primary judge rightly stated, without the expert accounting evidence, the measure of damages involved integers that were “pure speculation”.  Mr Li failed to discharge the burden of proof as to the quantum of his damages.
(3)	Ground 5: whether the primary judge should have found, but erroneously did not find, that Mr Wu had contravened the Shareholder Agreements. [Grounds 3 and 4 were abandoned]
80		Mr Li had pleaded several breaches of contract. They were summarised by the primary judge as follows at [64]:
Mr Li also relied on the GEI and SG shareholder agreements. Clauses alleged to have been breached by Mr Wu are cll 2.2(d), 2.2(e), 2.2(f), 2.2(g), 9(e), 17.2, 17.4 and 17.6. Unfortunately, the evidence and submissions for Mr Li remained at high level of generality in this regard. … Many of the pleaded breaches were not pressed in final submissions and thus I do not deal with them. However, three classes of (more or less) specific breaches are also identified as follows:

(a) Wu caused GEI to lend substantial sums of money to other ‘Golden’ companies. He managed both ends of each such transaction. Each transaction was effected without Li’s knowledge, approval or consent. So far as Li knew, with one qualification the money that he lent to GEI remained in that company, together with the money that GEI earned, and the assets that were created as a consequence of Li’s investment in GEI. The qualification relates to the money lent by GEI to Spring Grove insofar as it is reflected in the February 2008 Agreement. Li’s evidence was that, if he had known of loans made by GEI to other ‘Golden’ companies, he would never have approved them.
(b) Wu caused ‘Golden’ companies other than GEI and Spring Grove to acquire and hold assets. Again, he did so without Li’s knowledge, approval or consent.
(c) Wu failed to comply with Li’s direction in February 2008 to pay GEI’s liability for GST in the amount of approximately $900,000, and then concealed his default in that respect.

81		The primary judge dismissed the second allegation first, stating at [65] that:
The second allegation may be dismissed immediately. I am unable to see that those facts (which I accept) constitute breach of the shareholder agreements. If the general good faith obligation is relied upon then breach of it could not be proved by the mere fact that Mr Wu caused other companies to acquire properties and no more. The submissions for Mr Li did not assist in understanding how this conduct is said to give rise to a breach of the shareholder agreements.
82		The primary judge then dismissed the first allegation, stating at [66] that:
The first allegation was pleaded as Mr Wu having procured GEI to:

Ÿ	lend GII $95,000 in 2007 (which was used for the purchase of the De Burgh Street property);
Ÿ	increase an authorised loan to SG from $165,500 to $200,800 thereafter; 
Ÿ	between June 2007 and June 2008 lend Golden Constructions approximately $1.6 million and Golden Crop $338,123 and increase the unauthorised loan to GII from $95,019 to $346,915 and to SG from $200,800 to $251,712;
Ÿ	between 1 July 2008 to 30 June 2009 lend SG $607,036 and Mr Wu’s company Fairstar Computers Pty Ltd $154,868

all without the knowledge or consent of Mr Li other than the initial loan by GEI to SG of $165,500.
83		The primary judge reasoned as follows at [67]-[69]:
What loans have been proved leaving aside the Viisum accounts which I do not accept as reliable?

Mr Wu admitted that he caused GEI to lend GII $95,019 for the purpose of financing, in part, GII’s purchase of the De Burgh Street property. I accept Mr Li’s evidence that he did not know about this loan and did not authorise it. However, at this time Mr Wu was the sole director of GEI and thus cl 9(e) of the GEI shareholder agreement did not prohibit him from arranging this loan. No other provision of the GEI shareholder agreement has been proved to have been breached by this transaction. …

All other transactions rely on the Viisum accounts and thus have not been proved.
84		The primary judge then dismissed the third allegation, reasoning at [70] that:
The third allegation appears to depend on the purported March 2005 agreement as a source of Mr Wu being obliged to comply with Mr Li’s directions. The submissions for Mr Li did not suggest this obligation arose from the GEI shareholder agreement. As such, the claim must fail because I do not accept that the March 2005 agreement was a contract. 
85		It was submitted that the primary judge erred in rejecting these three categories “globally”, without considering each pleaded breach individually. It was submitted that there were three pleaded categories of breaches of contract. 
86		It is first useful to set out the relevant clause said to have been breached. Clause 2.2 set out the “Obligations of Members”. Relevantly, clause 2.2 provided as follows:
Each Member must:
(a)	…
(b)	not reasonably [sic] delay any action, approval, direction, determination or decision which is required of the Member;
(c)	…
(d)	make approvals or decisions that are required of the Members in good faith and in the best interests of the company and the conduct of the Project as a commercial venture; and
(e)	be just and faithful in the Member’s activities and dealings with the other Members;
…
87		The first category of breach of contract claims was said to be breaches of clauses 2.2(d) and (e) of the Shareholder Agreements relating to property finance arrangements. Three transactions were said to fall into this category. It was alleged that Mr Wu, without the knowledge or consent of Mr Li, caused GEI:
(a)	to loan $95,019.00 to Golden International Investment Pty Ltd (“GII”), a company set up and controlled by Mr Wu, to purchase two blocks of land at De Burgh Street, Lyneham, ACT;
(b)	to lend money to Golden Crop Australia Pty Ltd (“Golden Crop”), another company set up and controlled by Mr Wu, to acquire properties at Belconnen, ACT and Mitchell, QLD; and 
(c)	to provide security for bank loans to Golden Crop to acquire those properties.
88		It was contended that the primary judge erred in finding that these transactions had not breached clauses 2.2(d) and (e) when it was accepted by the primary judge that these transactions were effected without Mr Li’s knowledge or consent and that GEI “necessarily” stood to lose from these arrangements and “[o]nly Wu stood to gain”. 
89		The second category of breach of contract claims was said to be breaches of clauses 2.2(d) and (e) of the Shareholder Agreements by arranging intercompany loans on behalf of GEI to other Golden Group companies. It was argued that the primary judge erred in finding that proof of all but one of the claims depended entirely upon the Viisum accounts, Viisum being an accounting firm engaged by the liquidator, and in rejecting those claims based upon the “global conclusion” that the Viisum accounts were unreliable. It was submitted that that the primary judge failed to have regard to the evidence concerning each particular transaction.
90		The third breach of contract claim was said to be a breach of clause 2.2(b) of the GEI Shareholder Agreement by reason that Mr Wu “unreasonably delayed an action which was required of him as director and general manager of GEI” by failing to cause GEI to pay its GST liability arising from the sale of the Fox Place units in 2007. It was put that the primary judge did not refer to this clause but rather, in error, saw it as depending on acceptance of a different argument which is not now pressed.
91		In our opinion it is open to argument that the primary judge should have found a contravention of clauses 2.2(d) and (e) in relation to the De Burgh transaction. In relation to that transaction, the making of the loan was found to have been established and that GEI’s funds were used without Mr Li’s knowledge or approval. We therefore do not think that it was a complete answer to rely on clause 9(e) of the GEI Shareholder Agreement, which provided that “[n]o member may without the consent of the Directors … lend any money on behalf of the Company”. It may be that Mr Wu did not require Mr Li’s consent to make the loan but the question was whether there was a breach of clause 2.2 in the context where the company was wholly funded by shareholder loans, and where the moneys were applied to the acquisition of a property by a company owned and controlled by Mr Wu. It is also open to argument that the primary judge should have found a contravention of clause 2.2(d) and (e) in relation to the Belconnen and Mitchell property acquisitions by Golden Crop. It is at least arguable that there was other evidence apart from the Viisum accounts which was sufficient to prove the fact of the loan of funds from GEI to Golden Crop and again it appears that this loan was made without Mr Li’s knowledge or approval. However, it is unnecessary to form any concluded view on whether there was a breach of clause 2.2 or concerning the third category of breach relating to the tax debt because loss and damage by reason of those breaches was not proved.
92		The primary judge did not address loss and damage because of her finding that no breach of contract had been proved. On appeal, the Court was provided with a detailed explanation of the damages calculation advanced at trial. It was submitted that Mr Li’s loss consisted of the difference between (1) his actual losses; and (2) his losses in the counterfactual scenario in which Mr Wu had not committed the relevant breaches of contract but instead GEI had remained a going concern and had acquired the various properties for itself. The analysis put forward suffers from the same defect as the quantification of the indemnity claim – that is, it involves integers that are “pure speculation”.  The first integer is that the company would have acquired the various properties for itself – we were not taken to any evidence to support such a claim. The second integer involves the assumption that GEI had the capacity to pay the tax liability in full when it fell due and payable, and so remained a going concern, which also was not the subject of evidence. The failure to adduce evidence to substantiate those matters meant that Mr Li failed to discharge the burden of proof as to the quantum of his damages.
(4)	Grounds 6 and 7: whether the primary judge erroneously concluded that the parties all intended the “land” in the GEI Shareholder Agreement would include any land on which GEI was conducting, or would conduct, a building development project (which included the land at O’Malley); and whether the primary judge erroneously concluded that any “member loan” in clause 5 of the GEI Shareholder Agreement meant loans for the purpose of the project at Fox Place, Lyneham.
93		Mr Li was given provisional leave to advance these further grounds in response to the further grounds raised by Mr Wu. There should be leave to advance these further grounds but for the reasons given in paragraphs [64] and [65] these grounds also fail.
CONCLUSION
94		Mr Wu has not succeeded on any of his grounds of appeal and the appeal should be dismissed. Mr Li has succeeded on the cross-appeal to the extent of showing that judgment ought to have been given for Mr Li on the indemnity claim in the sum of $1,076,767 plus interest from 14 November 2011 (in lieu of $976,866.80 plus interest). The cross-appeal should otherwise be dismissed. We consider that it is appropriate that Mr Wu should only bear a portion of Mr Li’s costs of the cross appeal by reason that Mr Li succeeded on only one of the several grounds of the cross appeal. We consider a discount of 40% is reasonable having regard to the number of grounds of the cross appeal on which Mr Li was unsuccessful and the time involved at the hearing of appeal in respect of those grounds.

I certify that the preceding ninety-four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Foster, Davies and Rangiah.	

Associate: 
Dated:	17 August 2015