Background
Wencheng Guo invested $20 million in a project with Changran Huang to acquire, operate and develop the Eastwood Shopping Centre. In an earlier judgment, the Court found that Guo was entitled to 30% of the project’s income and profits, that Huang owed him fiduciary duties, and that Huang dishonestly breached those duties by withholding Guo’s share and using sale proceeds for related companies or other persons. The Court also found that 152 Rowy Pty Ltd knowingly assisted that breach.
Relief was deferred because the defendants’ late disclosure had prevented Guo from investigating operating profits and making an informed election between equitable compensation and an account of profits. After further discovery, Guo elected an account of profits. The parties returned to court to address the scope and calculation of that account, including Guo’s initial investment, interest paid on a National Australia Bank facility, a proposed tax gross-up, and the commencement date for pre-judgment interest.
The Court’s Holding
Nixon J determined that the benefits obtained through the breach comprised Guo’s 30% share of both the operating profits and the net sale proceeds. The Court found that Huang and 152 Rowy were jointly and severally liable to account for those benefits, subject to Guo causing the trustee of the Guo Family Trust to transfer its 30% shareholding in Yufeng Investment Group (Australia) Pty Ltd to Huang or his nominee. That condition was intended to prevent double recovery and conclude the parties’ interests in the project.
The NAB facility was a project expense, so its interest reduced operating profits and its $33 million principal repayment reduced net sale proceeds. The agreed operating profit was $2,514,600, of which Guo’s share was 30%. Net sale proceeds were $94,998,343 after deducting capital gains tax and repayment of the NAB facility, making Guo’s 30% share $28,499,503. The Court rejected a tax gross-up on the facts because it would require disgorgement exceeding the gains obtained. It determined that pre-judgment interest on annual operating profits should run from the first day of the following financial year, while interest on the sale proceeds should run from settlement on 15 July 2021.
The Court also determined that a costs order in Guo’s favour was appropriate. It did not enter final monetary, accounting, or costs orders in this judgment; its sole formal order required the parties to confer and submit proposed orders giving effect to the reasons by 4 September 2026.
Key Takeaways
- An account of profits may extend beyond accounting profit to other benefits obtained through a fiduciary breach, including an investor’s agreed share of net sale proceeds.
- Financing costs properly attributable to the project may reduce the benefit to be accounted for; here, NAB interest reduced operating profit and repayment of principal reduced net sale proceeds.
- On these facts, grossing up the after-tax profits would have exceeded the gains obtained, while pre-judgment interest was required from the time the relevant annual profits or sale proceeds should have been shared.
Why It Matters
The decision illustrates how an Australian court may quantify gain-based equitable relief after a fiduciary diverts the proceeds of a joint commercial project. The inquiry focuses on the benefits actually obtained through the breach, while allowing legitimate project expenses and fashioning conditions to prevent double recovery.
It also underscores the distinction between substantive reasons and operative orders. Although the Court resolved the accounting methodology, quantified Guo’s shares, and found a costs order appropriate, the parties still had to formulate proposed orders before final relief was entered.