July 29, 2026 – Caveats Victoria

Credit Suisse AG v Gu (No 3) [2026] FCA 439, Cheeseman J.

This is the first Blog covering a Federal Court case, gratefully brought to my attention by a follower of this Blog. I use the word “gratefully” advisedly – as I traversed its 476 paragraphs I did not always experience this feeling! I occasionally reflected that, having done sundry misdeeds and contemplating whether to stop entirely, Macbeth said –

“I am in blood Stepp’d in so far, that, should I wade no more, Returning were as tedious as go o’er.” (Act 3, Scene 4)

This case is a long priority contest between three parties covering multiple grounds with a minor caveat element. No Victorian cases are cited, but the principles enunciated apply equally in Victoria. This Blog has been very difficult to format within the limits of WordPress, particularly in the case of the subsections of s. 121 of the Bankruptcy Act, and my friend Frank, who is responsible for putting the Blog into cyberspace, says it has taken 5 years off his life.

The facts were –

In 2017 Mr Gu entered a contract to purchase a residential property in Sydney (the Property) for $10 m. with a $1 m. deposit.
In March 2017 Credit Suisse agreed to advance $6 m. to Gu for this purchase.
At that time Gu was a director of i-Prosperity Pty Ltd (IPPL). On 3 and 15 March and 13 April monies were transferred from IPPL’s accounts into Gu’s HSBC account (the First, Second and Third IPPL Sums). On 18 April $3.2 m. was paid from that account to a solicitor’s trust account. That day $500,000 was also transferred from IPPL into that trust account (the Fourth IPPL Sum). On 21 April trust monies in the sum of $3,654,987.14 were applied by those solicitors towards the purchase price and acquisition costs.
The sale settled. On or about 3 May 2017 Gu became registered proprietor of the Property subject to Credit Suisse’s mortgage. The mortgage provided that the mortgagee’s consent was required before any further interest in the property was granted (cl. 5.7(c)).
Subsequently, $280,000 of IPPL’s funds were paid to Credit Suisse as follows: $200,000 on 12 May 2017, $30,000 on 5 July 2019 and $50,000 on 22 January 2020 (the Fifth, Sixth and Seventh IPPL Sums). Credit Suisse treated those sums as credits to the current account associated with the mortgage facility, applying them to meet interest due.
In June 2019 a series of related agreements involving Gu and Great Lands Investment Pty Ltd (Great Lands) were made. One was a loan agreement dated 28 June by which it lent him $3 m. repayable after two months secured inter alia by an unregistered mortgage over the Property, as to which a caveat was lodged that day. The loan agreement provided for a lower interest rate of 2% per month in the ordinary course, but in cll. 5.4, 5.5 and 5.7(a)(ii) stipulated a higher interest rate of 4% per month upon default, with compounding and capitalisation in the default regime.
Within Great Lands Mingjie (Jason) Zhang had authority to act in relation to this loan including in relevant discussions with Gu. IPPL on behalf of Gu paid Jason Zhang $700,000 on 20 September 2019 and $500,000 on 6 February 2020 (the Jason Zhang payments).
On 10 March 2020 four persons (the Hu Parties) sued IPPL and another company seeking repayment of monies invested pursuant to a convertible debenture arrangement. The Hu Parties obtained a freezing order for $5,750,000 against the defendants.
On 15 April 2020 this proceeding was settled on terms including payment by the defendants of an agreed sum. Following non-payment the Hu Parties obtained judgment on 14 May 2020 for $5,761,972.60. (the First Judgment Debt).
The parties to this litigation then negotiated during which Gu proposed that i‑Prosperity Capital Management Pty Ltd (IPCM) grant security over its assets in the Hu Parties’ favour. Their solicitor responded by seeking particulars of those assets and their value. The Hu Parties generally interrogated the financial information provided by IPPL and Gu, including proposed security, and conducted a title search disclosing the registered mortgage and the Great Lands caveat.
A draft Deed of Guarantee and Indemnity (the Hu Deed) between the Hu Parties (described as the Beneficiaries), Gu and IPCM (described as the Guarantors) and IPPL was circulated. On 1 June Gu’s solicitor sought to delete cl. 7.2 of the draft while otherwise preserving the broader package of the proposed deal. The Hu Parties’ solicitor refused this deletion, but that solicitor’s contemporaneous communications revealed that the caveat’s purpose was to provide the most uninvasive form of security pending payment on 30 June 2020, when the caveat would be removed immediately.
On or about 2 June 2020 the Hu Deed was executed. It recited or provided –
- the Hu Parties’ concern that the First Judgment Debt would be unpaid and their desire to pursue further relief (Recital D);
- for a standstill agreement lasting until 30 June 2020 (Recital E);
- that Gu and IPCM guaranteed payment of the First Judgment Debt by 30 June, indemnified the Hu Parties against loss from non-payment, and undertook not to dissipate assets pending payment (cls. 1.1, 5, 8);
- Clause 7, headed “Security” provided:

“7.1 Security for Beneficiaries
The Beneficiaries agreeing to the Guarantee Proposal … is subject to and conditional upon I[P]CM entering into a general security deed under which I[P]CM agrees to grant a security interest in and over all of the I[P]CM’s … property to the Beneficiaries …

7.2 Caveat
Gu hereby grants to the Beneficiaries a caveatable interest in the [Property] … and consents to the Beneficiaries lodging and maintaining a caveat on the title to the Property until … the Judgement Debt has … been paid and discharged in full.

7.3 No security for the Guarantors
The Guarantors have not taken, and will not take, security from the Debtors for or in consideration of the Guarantors assuming their obligations …”

The Hu Parties agreed to forbear from enforcement of the First Judgment Debt, or commencing certain proceedings until after 30 June 2020.

On or about 3 June the Hu Parties caveated, consistently with cl. 7.2.
In mid 2020 IPPL went into liquidation.
The First Judgment Debt was not paid by 30 June 2020. The Hu Parties sued Gu and IPCM as guarantors and on 21 August 2020 obtained judgment against Gu for $5,929,897.86 (the Second Judgment Debt).
In early 2021 the Property was sold by receivers appointed by Credit Suisse. Over $5.5m remained after they and it were paid out (the Surplus Funds). This proceeding concerned entitlements to those funds.
On 10 August 2021 Gu became bankrupt.
On 17 January 2022 a Deed of Assignment and Sale was executed by which Gu’s trustee in bankruptcy assigned to the Hu Parties the trustee’s right to pursue claims under ss. 120 and 121 of the Bankruptcy Act against Great Lands and others.
On 28 January 2022, the Hu Parties’ solicitor gave notice of this assignment.

Section 121 of the Bankruptcy Act provided (omitting headings) –

“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and

(b) the transferor’s main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.

…

(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

…

(4) Despite subsection (1), a transfer of property is not void against the trustee if:

(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

(b) the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and

(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:

(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b) having kept such books, accounts and records, has not preserved them.

…

(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

…

(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.

…

(9) For the purposes of this section:

(a) transfer of property includes a payment of money; and

(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

Section 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy)) permitted the trustee in bankruptcy to assign a right to sue conferred by the Act and s. 100-5(4) provided that if such a right is assigned, a reference in this Act to the trustee in relation to the action was taken to be a reference to assignee.

Legal issues raised were –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.
Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).
The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?
Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.
If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?
If the Great Lands mortgage had remained operative, would it have covered costs?
Whether, on the assumption that Great Lands had a surviving secured claim under the its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.
The legal principles for determining questions related to movement of monies.
Was IPPL the beneficiary of a purchase monies resulting trust?
Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?
Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?
Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?
Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?
Who between the Hu Parties and Great Lands had priority to the Surplus Funds?
Who between the Hu Parties and IPPL had priority to the Surplus Funds?
Who between IPPL and Great Lands had priority to the Surplus Funds?

Cheeseman J. held –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.

Whether cl. 7.2 of the Hu Deed created an equitable charge or other proprietary security interest, or merely the right to caveat, was a question of construction to be determined objectively by reference to its text, context and purpose, requiring a reading of the instrument as a whole. Relevant considerations included the presence or absence of the familiar language of charge or mortgage, the place of the clause within the instrument, the evident commercial purpose of the transaction, and whether the clause was directed only to the practical support of a caveat or to conferring a present security interest.
1. In favour of an equitable charge or other proprietary security interest was:
  1. the words of present grant in cl. 7.2;
  2. the heading “Security”;
  3. the linkage between the caveat and payment in full of the First Judgment Debt;
  4. the commercial purpose of the Deed as a forbearance and security arrangement. However, those considerations were not determinative: construing a commercial instrument did not require that every phrase be forced to perform independent proprietary work – the starting point remained the legal effect actually produced by the text read as a whole, not the avoidance of semantic redundancy. [58], [59]
2. In favour of a mere right to lodge and maintain a caveat was:

1. 1. Clause 7.2 did not employ the familiar language of charge or mortgage; nor expressly confer any right of realisation. In the setting of a solicitor-drafted commercial deed concerned at least partly with the provision of security, those omissions were significant and enhanced by the immediate adversarial setting of the Deed as a negotiated standstill. Clause 7.2 was capable of operating merely as employing a caveat as a practical restraint on dealings with the Property;
  2. The text and structure of cl. 7. Clause 7.1 expressly required IPCM to enter into a general security deed. By contrast, cl. 7.2 did not require Gu to grant security in those terms. Clause 7.3 reinforced that contrast in the way in which the subclauses of cl. 7 were framed;
  3. The commercial setting and course of negotiations. The Hu Parties were insisting on a package of protections rather than merely personal promises of payment. They were being asked to forbear until 30 June but continuing to seek information about the proposed security and unprepared simply to rely on Gu’s assurances of payment or of no undisclosed dealings. A caveat would impede dealings with the Property thereby reducing their informational disadvantage;
  4. The broader structure of the Deed. Read as a whole it was apt to establish a regime of guarantees, forbearance and preservation of assets pending payment. In that setting, cl. 7.2 was more naturally understood as part of that preservation regime rather than as conferring a proprietary security interest;
  5. The existence of the Credit Suisse mortgage and in particular the requirement in its cl. 5.7(c). [42], [60]-[72], [75]

In conclusion, the correct interpretation of cl. 7.2 was (b). [36], [38], [39], [74], [76], [470]

If, however, the Hu Deed did create an equitable charge, it would, on its proper construction, secure all amounts for which Gu became liable to the Hu Parties under it including the First Judgment Debt, interest and liabilities arising under the indemnity in cl. 5. Although the contractual liabilities under the Deed merged in the Second Judgment, such that the Hu Parties could not again sue on the underlying causes of action, the security was not lost by that merger while the judgment remained unsatisfied. The charge would continue to secure Gu’s liabilities as crystallised in the Second Judgment. [32], [81]-[87]

Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).

As to the challenge by the Hu Parties to the Great Lands mortgage based on s. 121(1) of the Bankruptcy Act:
1. For the purposes of s. 121, the grant of a mortgage or charge may constitute a transfer of property. The Hu Parties carried the onus of establishing that it was void under s. 121(1); [97], [98], [103]
2. The Hu Parties could not, by force that section alone, succeed to the position of a mortgagee or other proprietary claimant to the Surplus Funds. Rather, the statutory question was whether that mortgage was void against the trustee and, if so, whether the trustee’s statutory right to recover property or obtain restitution had been validly assigned to the Hu Parties and may now be enforced by them; [99]
3. The requisite purpose of the transferor may be established directly from the facts and circumstances of the transaction, or indirectly by operation of statutory presumptions; [104]
4. Establishment of insolvency, or impending insolvency, bore directly upon the purpose inquiry under s. 121(1); [105]
5. Great Lands having conceded that Gu was insolvent or about to become so when its mortgage was granted, the presumption in s. 121(2) applied and Gu’s main purpose in granting the mortgage was taken to be that described in s. 121(1)(b). The Great Lands mortgage was accordingly, subject to it establishing a good faith defence, void against the Hu Parties pursuant to s. 121(1); [107]-[108], [198], [471]

As to whether Great Lands established its good faith defence under s. 121(4) –
1. The transferee bore the onus of establishing each element in ss. 121(4)(a), (b) and (c); [109], [114]
2. The requirements in ss. 121(4)(b) and (c) were expressed in objective terms. The statutory question was not exhausted by the transferee’s assertion of its subjective belief. The inquiry was whether, on the facts known to the transferee at the time, the transferee proved that the relevant inference was not one that it could reasonably draw. This prevented the defence from succeeding by reason of the transferee’s wilful blindness, but it may be possible, in certain circumstances, for the defence to succeed even in the case of the transferee’s honest ineptitude; [119]
3. In applying ss 121(4)(b) and (c), the ordinary principles for drawing of inferences from proved facts applied. Where direct proof was unavailable, a reasonable and definite inference on the balance of probabilities may be drawn from proved facts, not being a matter of conjecture, guesswork or surmise. In the case of a corporate transferee, the inquiry proceeded by reference to the knowledge of the natural persons who had acted on its behalf in negotiating, arranging or implementing the transaction, applying ordinary principles of attribution; [120]-[121].
4. As to whether Great Lands as the transferee, had established the element of value for the purposes of s.121(4)(a) –
  1. The property transferred was the mortgage itself, ie, the proprietary interest granted over the Property to secure the $3 m. advanced not merely a chose in action to recover a fixed principal sum. It was a proprietary security interest securing a bundle of monetary rights defined by the Great Lands transaction documents, including contingent and accruing interest liabilities; [125]
  2. The term “consideration” imported its ordinary legal and commercial meaning; [129]
  3. Where, as here, the mortgage secured an expanded and potentially escalating set of liabilities, including interest liabilities, the market value of the proprietary interest transferred could not simply be equated with principal alone. It secured liabilities beyond the $3 m. advanced. The same conclusion followed from the Great Lands Loan. Great Lands had failed to discharge its onus under s. 121(4)(a). [133], [135], [136], [162]
5. Great Lands failed to discharge its onus under s. 121(4)(b). The proscribed purpose was reasonably inferable from facts known to it; [153], [156], [157], [162]
6. Great Lands failed to discharge its onus under s. 121(4)(c). Gu’s insolvency or impending insolvency was reasonably inferable at the time of the transfer. [158]-[161], [162].
7. The defence under s. 121(4) accordingly failed. [162], [198], [471]

The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?

As to the consideration to be repaid to Great Lands under s. 121(5) and s. 100-5 of the Insolvency Practice Schedule:
1. Great Lands bore the onus of proving the value of the consideration to be refunded; [167]
2. The Jason Zhang payments were accepted and treated by those concerned as being on account of Gu’s indebtedness under the Great Lands loan, and not as partial redemptions of an investment by Zhang. There was a binding arrangement to this effect – any contemplated written instrument was no more than a fuller record of an arrangement already concluded and implemented (ie this was not in the “third class” described in Masters v Cameron). Accordingly they must be brought to account in determining the refund; [186], [187]
3. As to the content of that arrangement in allocating those loan repayments between principal and interest, Zhang and Gu were proceeding on the footing that the relevant interest provisions were those in the Great Lands loan, including the higher interest rate, whereby the payment of $700,000 would comprise $200,000 of interest and $500,000 of principal and the payment of $500,000 would comprise $450,000 of interest and $50,000 of principal. However (see below) the higher-rate default provisions were void as penalties, entailing adjustment of the parties’ agreed allocation. Thus the excess amounts would be brought to account instead as reductions of principal, and so the payment of $700,000 would reduce principal by $532,328.77 and the payment of $500,000 would reduce principal by $274,461.61; [188]-[192]
4. With this gross reduction of principal by $806,790.38 the amount to which Great Lands was entitled was $2,193,209.62 being the amount equal to the value of the consideration of $3,000,000 given by Great Lands for the transfer avoided, less $806,791 repaid. [193], [199], [471]
In giving effect to this statutory entitlement the relief to which Great Lands was entitled would be moulded to avoid double recovery and ensure that it did not both retain the benefit of those payments and obtain a refund of the same value. This remedial outcome followed from the absence of any surviving proprietary security interest held by either Great Lands or the Hu Parties in the Surplus Funds. [194]
The amount to which Great Lands was entitled under s. 121(5) did not include any interest possibly recoverable by Great Lands if it had enforced its personal rights under the loan, rather than receiving the statutory repayment under s. 121(5). Interest was not payable on the amount due under s. 121(5), nor under s. 51A of the Federal Court of Australia Act 1976 (Cth). [196]-[197], [199]

Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.

A provision requiring payment upon default was not penal merely because engaged by breach. The question was whether the stipulated consequence was out of all proportion to, or exorbitant or unconscionable having regard to, the legitimate interest which the provision was designed to protect. A clause increasing the rate of interest on default, or one providing for compound interest, was not necessarily penal. The inquiry was fact specific. [204]
The higher interest rate clauses were void and unenforceable as a penalty. The combined effect of the increase from 2% per month to 4% per month, plus compounding and capitalisation upon default, imposed a substantially more onerous liability than before default, and Great Lands did not establish a legitimate interest justifing it. The consequences were out of all proportion to, or exorbitant or unconscionable having regard to, Great Lands’ legitimate interest in repayment which the provisions were designed to protect. [205], [209]

If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?

These payments were to be brought to account in reduction of Gu’s debt to Great Lands under its loan. [212]

If the Great Lands mortgage had remained operative, would it have covered costs?

Costs properly proved to be secured by the Great Lands mortgage would be recoverable. [213]

Whether, on the assumption that Great Lands had a surviving secured claim under its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.

The arrangements whereby Great Lands drew the funds lent to Gu did not involve the movement and use of RMB (the official currency of the PRC) funds in China in a manner engaging PRC foreign exchange controls and related provisions of PRC law: ie the proper characterization of the transaction did not involve the movement and use for the purpose of effecting what was, in substance, the provision of value to Gu in Australia outside the ordinary channels contemplated by such controls. The relevant documents recorded two distinct loan agreements, only one being the Great Lands loan. There was no applicable PRC civil law illegality, nor any basis in public policy or clean hands, for refusing enforcement of the Great Lands loan or mortgage. The transactions were also not tainted by PRC criminal law. [252], [253], [257], [260]-[262]

The legal principles to be applied in determining questions related to movement of monies.

The Court was required to determine questions related to the movement of monies. The following principles applied:
1. Factual issues were to be determined by reference to the whole of the evidence bearing upon the movement, application and character of the relevant monies, including the agreed facts, the contemporaneous banking records and solicitors’ trust account records, the witness evidence concerning those records, and the later accounting and ledger materials.
2. The inquiry was one of inference from the proved facts and the documentary record considered as a whole. Where direct proof was unavailable, factual findings were possible by inference from proved facts, including contemporaneous documents, but the inference must be a reasonable and definite inference on the balance of probabilities and not a matter of conjecture, guesswork or surmise; it was insufficient that the evidence permitted competing inferences of equal probability.
3. Primary recourse should ordinarily be had to any available contemporaneous documents, and findings should if possible be reasoned from contemporary materials, objectively established facts and the apparent logic of events rather than from demeanour alone.
4. To the extent that the competing characterisations include an allegation of misappropriation or other serious wrongdoing, the evidence must be scrutinised with appropriate care before such an inference was drawn, consistently with Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336, as reflected in s 140 of the Evidence Act 1995 (Cth). This approach did not alter the standard of proof, but directed a court not lightly to make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of serious wrongdoing.
5. Later bookkeeping descriptions and ledger labels were relevant, but not conclusive of the underlying legal character of a transaction; their weight depended upon their provenance, consistency and objective reliability.
6. In particular, to characterise a payment as a loan it was necessary to identify objective facts supporting the conclusion that the payment was made on terms for repayment. The essence of a loan was an advance of money coupled with an obligation of repayment. Neither a formal written loan agreement nor an agreement for interest were essential. But nor did the mere use of expressions such as “director loan”, without more, establish a concluded loan arrangement.
7. Where, as here, monies passed through an intermediate mixed account before transfer to the solicitors’ trust account, the tracing inquiry was to be undertaken by reference to orthodox equitable principle and not by treating later ledger classifications as dispositive. [275]-[278]

Was IPPL the beneficiary of a purchase monies resulting trust?

1. Funds sourced from IPPL were applied in the acquisition of the Property;
2. Those funds were not advanced to Gu under a concluded loan agreement;
3. The passage of funds through the Gu’s account did not alter their character as IPPL funds applied toward the acquisition. This conclusion accorded with orthodox tracing principles for trust money passing through a mixed account. If allocation of any deficiency within a mixed trust fund as between competing trust claimants was in question, there would be proportionate distribution rather than a first-in, first-out application of the rule in Clayton’s Case. [169], [176], [193].
4. Later accounting records and a ledger reclassification exercise did not reliably reflect the legal character of the underlying transactions at the time of payment.
5. Accordingly, with the qualification that $20,000 was withdrawn from Gu’s account after deposit of the First IPPL Sum and not applied toward the acquisition, the First to Third IPPL Sums formed part of the $3.2 m. transferred from Gu’s account to the solicitors’ trust account on 18 April 2017, and the Fourth IPPL Sum was also paid directly into that trust account that day. The total of IPPL Funds traced into the acquisition of the Property was $1,045,246.14. [337]-[341], [349]

1. Where property was acquired in the name of one person with money provided by another, equity may presume a resulting trust; rebuttable by evidence that the provider intended that the recipient take a beneficial interest, or that the money was provided on some different basis (eg gift or loan). The critical inquiry was the actual intention of the provider at the time of the purchase, objectively ascertained. The relevant evidence included the acts and declarations of the parties before or at the time of the purchase, or so immediately thereafter as to form part of the transaction, and the provider’s intention at the time may be proved by admissible evidence directed to that question.
2. The presumption was not displaced by material that was merely neutral, equivocal, or otherwise incapable of demonstrating an intention inconsistent with beneficial acquisition.
3. If the monies were provided on a footing inconsistent with beneficial acquisition, no resulting trust arose merely because they were later applied in the purchase.
4. Costs incidental to the acquisition may be treated as part of the relevant contribution.

[346]-[348], [352]-[354]

Subject to the deduction of $20,000, the First to Fourth IPPL Sums were contributions to the price in the requisite sense. There was insufficient evidence to displace any presumption of a trust. Accordingly Gu held the Property pursuant to a purchase money resulting trust for IPPL to the extent of $1,045,246.14 and any traceable accretions to that amount, reflected in the Surplus Funds. [349]-[351], [353], [354], [472]

Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?

A constructive trust based on Black v S. Freedman [1910] HCA 58; 12 CLR 105 arose where money had been stolen. It attached immediately to the money and adhered to it and its traceable product. The equitable obligations arose at the time of theft or, in the case of a volunteer recipient (regardless of notice), upon acquisition of knowledge. The trust was institutional rather than remedial. [272], [364]-[366]
The said funds of $1,045,246.14 were misappropriated by Gu from IPPL, not lent, given or having a consensual basis entitling him beneficially to retain or use them. Accordingly to this extent a constructive trust of the Black v S. Freedman kind existed. [368], [369], [372], [373], [374], [472]

Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?

As a director of IPPL Gu owed fiduciary duties to it under ss. 180, 181 and 182 of the Corporations Act. However a mere breach of fiduciary or statutory duty did not establish that the impugned property or its traceable proceeds were held on constructive trust for the company. Such a breach may only give rise to a right in equity to impeach the transactions and obtain personal or ancillary equitable relief – a mere equity or other personal equitable claim, such as an account of profits or equitable compensation, not a proprietary interest.

[264], [271], [273], [274], [357], [380], [382]-[384]

If the facts found did not support a purchase money resulting trust or a Black v S. Freedman constructive trust, Gu’s breaches of fiduciary and statutory duty would not have given rise to an immediate institutional constructive trust. On that conditional footing, and treating the impugned payments as dealings effected by Gu acting within the scope of his authority to cause IPPL to make payments, albeit in breach of duty, those dealings were at most voidable, with IPPL having a mere equity to impeach the transactions or obtain other equitable relief. [386]

Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?

As to subrogation –
1. Subrogation was an equitable remedy by which a person who had discharged, in whole or in part, a secured debt owed by another may be treated in equity as standing in the position of the creditor, to the extent of discharge. In a general sense, it was the process by which one party was substituted for another so that the former may enforce the latter’s rights against a third party for that party’s own benefit. The remedy was not confined to a single fixed category but was fashioned by reference to the particular circumstances and the nature of the unconscionability arising from retention of the payment without recognition of the payer’s position; [388]
2. Where an existing security was discharged, the equitable foundation of subrogation was unconscionability not unjust enrichment. It was unconscionable for a mortgagor, or those claiming through the mortgagor, to treat the payment as simply discharging the encumbrance, rather than preserving the benefit of the security for the person whose funds discharged the debt. A presumption existed that a third party discharging a mortgage intended to keep it for its own benefit, rebuttable by objective circumstances that the payment was made on some other basis, including as an unsecured advance; [389]-[390], [401]
3. Subrogation may also be available if funds were applied under a defective transaction, or in circumstances defeating the position of the person whose money was used. Relief in these circumstances did not depend upon proof of payer subjectively intending to take an assignment of the security but upon whether, absent subrogation, it would be unconscionable for the defendant to deny the proprietary interest claimed; [391]
4. The subrogated party being treated in equity as standing in the position of the original secured creditor, the original charge was not necessarily assigned or kept alive for all purposes, but equity regulated the parties’ legal relations as if the benefit of the security had been preserved and assigned to the payer to the extent necessary to prevent unconscionability. Equity did not treat the subrogated party as having acquired a wholly new interest at the time of payment, but treated the existing security as continuing for such party’s benefit, so enjoying to the extent of discharge the benefit of the pre-existing security and its priority. [392]

The payments from its funds were applied in reduction of Gu’s indebtedness under the mortgage and it was presumed that IPPL intended to keep the Credit Suisse mortgage alive for its own benefit. The other parties failed to discharge the onus of rebutting that presumption by proving objective circumstances showing the payments were made on another basis, such as any arrangement obliging Gu to repay them as loans or unsecured advances. IPPL was in equity subrogated to the rights formerly held by Credit Suisse to the extent of $280,000 and so acquired an proprietary interest in the Surplus Funds. [401], [409], [410], ]420], [421], [422], [472]

Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?

Where the original secured creditor remained unpaid and continued to have use for the security, any entitlement of a third-party payer to stand in that creditor’s position could not operate in a presently enforceable way in competition with the creditor’s subsisting rights. This conclusion was reinforced here by the further finding that the Great Lands Mortgage was void against the trustee. In light of both this finding, and that the Jason Zhang payments were to be brought to account in reduction of Gu’s indebtedness to Great Lands, IPPL had no present entitlement to compete with Great Lands while Gu’s debt to Great Lands remained unpaid. Accordingly IPPL’s Great Lands subrogation claim only mattered if Great Lands’ own entitlement did not exhaust the Surplus Funds. Accordingly IPPL had not established any presently enforceable right of subrogation to the position formerly held by Great Lands under its mortgage. [424], [425], [428], [431], [473]

Who between the Hu Parties and Great Lands had priority to the Surplus Funds?

As to priority between equitable interests:

1. The earlier in time would usually prevail if the merits were equal;
2. Nonetheless the Court must search for the better equity, and the holder of the later equity bore the onus of showing some circumstance sufficient to displace the earlier equitable interest. What was required is not mere lateness or absence of notice, but some act, default or other circumstance of tangible and distinct significance affecting the justice of the competing claims, assessed in light of the whole of the conduct and surrounding circumstances. The entire conduct of each party with an equitable interest must be taken into account;
3. The position of the second equitable claimant was not preferred simply because that claimant took their securities without notice of the first encumbrance, or because of both that fact and that the second claimant acquired a later interest for value;
4. Mere failure by the holder of a prior equitable interest to caveat did not, without more, constitute postponing conduct. [91], [444]-[447], [462], [463]
As to priority between the Hu Parties and Great Lands to the Surplus Funds:

1. Neither held any secured proprietary interest therein and as unsecured creditors of Gu their entitlement of either to participate in the Surplus Funds was subject to the statutory order of payment in bankruptcy. [194]-[195]
2. But Great Lands’ entitlement to refund under s. 121(5) of $2,193,209.62 took priority over the claims of unsecured creditors including the Hu Parties. The purpose of the statutory scheme would be undermined if a party’s entitlement to recovery of consideration for a transfer voided under s. 121 could be eroded by rateable participation with unsecured creditors. This priority reflected how the statutory scheme had balanced competing policy imperatives: the cost of voiding transfers pursuant to s. 121(1) and thereby enlarging the pool of unsecured creditors against the transferor was offset by the transferee’s closely confined entitlement to recover lost consideration pursuant to s. 121(5) above and beyond the claims of unsecured creditors. [433], [434], [474]

Who between the Hu Parties and IPPL had priority to the Surplus Funds?

As to priority between IPPL’s interests and those of the Hu Parties:

Each of IPPL’s equitable interests arose, for priority purposes, when each came into existence, because each arose by operation of law upon the application of IPPL’s funds, independent of discretionary curial intervention. This was in the case of –
1. the purchase money resulting trust, by 3 May 2017 at the latest;
2. the Black v S. Freedman constructive trust, immediately upon the wrongful taking and misapplication of the funds;
3. subrogation to Credit Suisse, when IPPL’s funds were applied to reduce the mortgage debt. [438], [439], [440], [441], [458]
IPPL did not represent to the Hu Parties either positively, or by omission in circumstances calling for disclosure or otherwise, that it had no beneficial interest in the Property. Mere non-disclosure of IPPL’s now-established proprietary claims did not constitute such a representation, still less one displacing its earlier equitable position. This was reinforced by the fact that the Hu Parties had entered the Hu Deed because they desired within a narrow period of forbearance to use the leverage available to obtain the best security and practical protection for satisfaction of the First Judgment Debt, not because of confidence in Gu or in the accuracy of what they had been told. And, even if it was reasonably foreseeable that a person in the Hu Parties’ position might rely on an assumption of the kind alleged, they did not in fact so rely. [452], [453], [454], [455], [460]
Also material was that the claim of the Hu Parties to postponement was on a different basis from that existing if they had succeeded in establishing an equitable charge or other security. They did not by force of s. 121 alone succeed to the position of a mortgagee or other proprietary claimant; rather, the statutory question was whether the Great Lands Mortgage was void against the trustee and its consequences. That difference told against any broad conclusion that IPPL should be postponed simply because the Hu Parties later obtained contractual protections and, as assignees, statutory rights arising from the trustee’s position. [456]
Accordingly interests of IPPL were not postponed to any interest claimed by the Hu Parties. [457], [460], [475]

Who between IPPL and Great Lands had priority to the Surplus Funds?

IPPL’s interests were not postponed to that (on the assumption that it retained a competing equitable interest) of Great Lands. IPPL did not by acquiescence or silence convey that it had no interest or assented to the creation or priority of the Great Lands Mortgage. The knowledge of Gu was not attributable to it. Its failure to caveat was not postponing conduct. [464]-[467]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, July 29, 2026

Day: July 29, 2026

Blog 102. A Federal Court case concerning a caveat, equitable priorities and much else besides.

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