Lym International Pty Ltd v Chen; Marcolongo v Lym International Pty Ltd [2009] NSWSC 98 (2 March 2009)

Last Updated: 11 March 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Lym International Pty Ltd v Chen; Marcolongo v Lym International Pty Ltd [2009] NSWSC 98


JURISDICTION:
Equity

FILE NUMBER(S):
5533/06
5049/07

HEARING DATE(S):
13 – 17, 20 – 24, 27 – 31 October, 3 – 7, 10 – 12, 17, 21 November and 5 December 2008

JUDGMENT DATE:
2 March 2009

PARTIES:
5533/06
Lym International Pty Limited (P1)
Limin Yang (P2)
Yang Liu (P3)
Yu Po Chen (D1)
Westpac Banking Corporation (D2)
5049/07
Leonilda Marcolongo (P)
Lym International Pty Limited (D1)
Yu Po Chen (D2)


JUDGMENT OF:
Hamilton J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
T S Hale SC & S A Wells (Lym International, Yang & Liu)
D R Pritchard SC & J S Emmett (Chen)
T A Alexis SC & D H Mitchell (Marcolongo)
Submitting appearance (WBC)


SOLICITORS:
Unsworth Legal Pty Ltd (Lym International, Yang & Liu)
Middletons (Chen)
Dunstan Legal (Marcolongo)
Henry Davis York (WBC)



CATCHWORDS:
BANKRUPTCY [209] - Fraudulent disposition of property - Conveyancing Act 1919 s 37A - Proof of intent to defraud - Proof that alienation not to a purchaser in good faith not having notice of the intent to defraud - Onus of proof
EQUITY [35] – General principles – Fiduciary obligations – Conflict of interest and duty – Attorney under power sells to self.

LEGISLATION CITED:
Bankruptcy Act 1966 (Cth)
Contracts Enforcement Act 1956 (NZ)
Conveyancing Act 1919 s 37A
Statute 13 Eliz I c 5

CATEGORY:
Principal judgment

CASES CITED:
Andrew (as trustee for the estate of Ward (dec’d)) v Zant Pty Ltd (rec and mgr apptd) (2004) 213 ALR 812
Barton v Deputy Commissioner of Taxation of the Commonwealth of Australia (1974) 131 CLR 370
Chan v Zacharia (1984) 154 CLR 178
CSR Ltd v Della Maddalena (2006) 80 ALJR 458
Fox v Percy (2003) 214 CLR 118
Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186
Green v Schneller (2002) 11 BPR 20,935
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Huynh v Helleh Holdings Pty Ltd (2001) 10 BPR 19,333
Kang v Kwan (2002) 11 BPR 20,623
Maguire v Makaronis (1997) 188 CLR 449
McKenzie v McDonald [1927] VLR 134
National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd [1998] FCA 564
P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515
Pedersen v Larcombe [2008] NSWSC 1362
Silvera v Savic (1999) 46 NSWLR 124
Skinner v Frappell [2008] NSWCA 296
Tate v Williamson (1866) LR 2 Ch App 55
The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165
Tu v Primary Contracting Services Pty Ltd [2009] NSWCA 7

TEXTS CITED:
P D Finn, Fiduciary Obligations (1977) at [392]
P W Young and ors, 2 Conveyancing Service New South Wales [30597.1] - [30597.30]

DECISION:
Impugned transaction was entered into in breach of fiduciary duty and of s 37A of the Conveyancing Act 1919.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


HAMILTON J

MONDAY, 2 MARCH 2009

5533/06 LYM INTERNATIONAL PTY LIMITED & ORS v YU PO CHEN & ANOR

5049/07 LEONILDA MARCOLONGO v LYM INTERNATIONAL PTY LIMITED & ANOR

JUDGMENT

1 HIS HONOUR: This judgment concerns two sets of proceedings. In 5533/06 (“the first proceedings”) Lym International Pty Limited (“Lym International”) is the first plaintiff, Limin Yang (“Ms Yang”) is the second plaintiff and her daughter, Yang Liu (“Jasmine”), is the third plaintiff. No disrespect to Jasmine is intended by referring to her by her first name. This is done only for the sake of convenience, because she was referred to in this fashion by the parties throughout the proceedings. Yu Po Chen (also known as Paul Chen) (“Mr Chen”) is the first defendant. Westpac Banking Corporation (“the Westpac Bank”) is the second defendant. In 5049/07 (“the second proceedings”) Leonilda Marcolongo (“Mrs Marcolongo”) is the plaintiff, Lym International is the first defendant and Mr Chen is the second defendant.

2 Lym International engaged in two townhouse development projects at Mona Vale, the first at 1 – 5 Darley Street (“Project 1”) and the second at 34 - 36 Golf Avenue (“Project 2”). The land at 34 - 36 Golf Avenue is referred to as “the subject property”. By mid 2006 Project 1 had been completed and the townhouses had been sold, but Lym International was the subject of proceedings for $600,000 brought by Mrs Marcolongo against it in the District Court at Sydney. She is the owner of a property adjoining Project 1 that she claims was damaged by the removal of support during the execution of Project 1.

3 By mid 2006 Project 2 was partly completed. On 31 July 2006 Lym International executed a contract to sell the subject property to Mr Chen for $15 million (“the contract for sale”) and transfer the subject property (“the transfer”). The contract for sale did not come into effect on 31 July 2006. It did not come into effect until 15 August 2006, when Mr Chen executed the contract for sale. It was settled on the same day. On settlement, Mr Chen mortgaged the subject property to the Westpac Bank.

4 Between 31 July and 15 August 2006 Mr Chen removed $1.2 million from a bank account of which Ms Yang and her husband, Guiting Liu (“Mr Liu”) were the joint proprietors (“the Yang Account”) and $120,000 from a bank account of which Jasmine was the proprietor (“Jasmine’s Account”).

5 The claims in the first proceedings are that the contract for sale ought be set aside and that the moneys removed from the bank accounts ought be repaid, on the ground that the transactions were in breach of fiduciary duty owed by Mr Chen. The claim in the second proceedings is that the contract for sale ought be set aside as having been entered into by Lym International with the intention of defrauding creditors in breach of s 37A of the Conveyancing Act 1919 (“the CA”).

FACTUAL FRAMEWORK

6 The following facts are not contested or are easily found.

7 Mr Liu is a Chinese businessman. He was chairman of Beiya Industrial (Group) Co Limited (“Beiya”), which, on Mr Chen’s evidence, was one of the largest public companies in China. Jasmine, who is Mr Liu and Ms Yang’s daughter, was born in 1982 and is presently 26 years of age.

8 Mr Liu has substantial investments in Australia and New Zealand. These were conducted in New Zealand by companies including Top International Limited (“Top International”), Rotorua International Villas Limited (“Rotorua”) and Dacha International Limited (“Dacha”). Mr Liu has always remained resident in China. Ms Yang and Jasmine became resident in Sydney in 1998 and resident in New Zealand in 2003.

9 Neither Mr Liu nor Ms Yang can speak or read English. Jasmine has some ability to speak, read and write English. Her reading and writing are good enough for her to have obtained a degree from a New Zealand university. However, her ability in spoken English is far from perfect.

10 Mr Chen is a New Zealand businessman of Chinese origin, who speaks fluent English and Mandarin. He is the principal of Heard Park Limited (“Heard Park”). Mr Chen is married to Amanda Chen (“Amanda”). As with Jasmine (see [1] above), no disrespect to Amanda is intended by referring to her by her first name. Again, this is done only for the sake of convenience, because she was referred to in this fashion by the parties throughout the proceedings. Amanda is a chartered accountant with Liew & Associates Chartered Accountants in New Zealand. In early 2003, Mr Liu and Ms Yang engaged Liew & Associates as the accountants for themselves and their companies. It was through this connection that Mr Liu and Ms Yang began their association with Mr Chen and Amanda.

11 A business and personal association developed between the couples. Mr Chen, in particular, provided Mr Liu and Ms Yang with advice concerning their business interests in New Zealand, which he was able to do due to his business experience in New Zealand and his fluency in English. This was of particular importance, as Mr Liu was resident in China and only visited New Zealand from time to time. Mr Chen was made a director and manager of Top International. On Mr Chen’s evidence, Mr Liu introduced Mr Chen to business opportunities in China.

12 Lym International was set up by William Mao (“Mr Mao”) in 1998. Mr Liu and Mr Mao were initially the shareholders of the company, each owning 50 per cent. During 2000 Mr Liu transferred his shares to Ms Yang. Ms Yang and Mr Mao were and remain directors of Lym International. There is in evidence a letter dated 29 January 2006, apparently signed by Mr Mao, whereby he resigned as a director of Lym International (“the Mao resignation letter”). Mr Mao swore, and it is accepted by all the parties, that Mr Mao’s signature on the Mao resignation letter is a forgery. It was not signed by him and he has not otherwise resigned as a director of Lym International.

13 After the town houses in Project 1 were sold, the subject property remained as Lym International’s only asset of substance in Australia. The proceedings, brought by Mrs Marcolongo for damage to her property through loss of support, were commenced by an ordinary statement of claim in the District Court for $400,000 damages issued on 9 August 2004. A defence was filed on 6 October 2004. On 5 September 2005 an amended statement of claim was filed increasing the claim to $600,000. There was in 2004 and 2005 considerable correspondence between solicitors concerning these proceedings and interlocutory motions for security for costs and for a freezing order.

14 Mr Mao as a director of Lym International managed Project 2. In 2003, Lym International entered into a construction contract with Kich Constructions Pty Ltd (“the builder”) for the construction of Project 2 for $6.6 million. In 2004, Lym International started the development of Project 2. In March 2004, Lym International raised a loan of $12 million to fund Project 2 from Kingsway Group Limited (“Kingsway”) secured by mortgage (“the Kingsway mortgage”). In April/May 2005, Lym International increased the limit of the Kingsway mortgage from $12 million to $13 million. It is clear that the construction costs considerably exceeded $6.6 million. Mr Mao recalled that the cost over run was greater than $1.5 million, although he was not prepared to say whether it was as much as $2.1 million. By December 2005, the Kingsway loan was over $12.5 million.

15 Before December 2005, the estimated value of the subject property once Project 2 was completed was $22.5 million. In December 2005, the estimated value of the completed project was revised to $18.5 million. Lym International’s accounts indicate that the company’s debts exceeded $18.5 million. Also, by late 2005, a major dispute had arisen with the builder, due to Lym International’s failure to pay for construction costs. As at November 2005, it appears that there were unpaid construction costs of around $400,000. Mr Mao told the builder that Lym International did not have sufficient funds to meet those unpaid costs.

16 In January 2006 there were disagreements between Mr Mao on the one hand and Mr Liu and Ms Yang on the other concerning the management of Project 2. They entered into an agreement that is in evidence whereby Mr Mao withdrew from the management of Project 2 and of Lym International. He acknowledged a debt to Lym International of $2.1 million. There is no evidence of that debt having been repaid. Mr Mao subsequently returned to China to pursue business interests there. Thereafter there is no evidence of Ms Yang having any contact with him, until she met him by chance in October 2006. Ms Yang gave evidence that Mr Mao would only benefit from Project 2 if there was a profit. Mr Mao was not on the contact list prepared by Jasmine for Ms Yang and her to take to the meeting with Mr MacAvoy on 24 July 2006 (as to which, see below).

17 After Mr Mao returned to China in February 2006, Sandy Lai was appointed to manage Project 2 and the affairs of Lym International in Australia. She had worked in the Commonwealth Bank, spoke fluent Mandarin and had business experience.

18 There is no doubt that by this time there were financial transactions between Mr Chen’s company, Heard Park, on the one hand and companies associated with Mr Liu and Ms Yang on the other. These included transactions whereby there were borrowings from Heard Park by one or more companies whose names included the word “Shenzhen” (“the Shenzhen companies”). The borrowings (“the Shenzhen loans”) were in each case for the purpose of the purchase by the borrower of satellite communication facilities. It seems established on the evidence that borrowings of this sort did take place. One of the difficulties that faces Mr Chen’s case, is, however, that it is not established on the evidence precisely how much was owing under any or which of the Shenzhen loans at the time of the transfer of the subject property. What is plain, however, was that the debts were owed in each case to Heard Park and there is no evidence that there was any sum owing to Mr Chen personally.

19 There was also belated reliance upon an allegation that Ms Yang personally guaranteed to Mr Chen the payment of the Shenzhen loans. The fact already noted that any obligation was to Heard Park rather than to Mr Chen personally and the lack of precise quantification at any relevant time of the amounts owing are sufficient to prevent this allegation having any material operation in the determination of the first proceedings.

20 I should add that, even if these considerations were not fatal, I should not be prepared to find any guarantee to be established. The onus of proof of the guarantee is on Mr Chen. The guarantee is alleged to have been given in dinner table conversations after the Shenzhen loans were made. The conversations were deposed to in the most general terms by Mr Chen and Amanda. They were denied by Ms Yang. The guarantee was not supported by any other evidence. If it were necessary to determine this matter, I should not be inclined to accept Mr Chen and Amanda’s versions of these conversations. But, even if I did, the conversations are in terms so vague as to be inappropriate to create a legally binding guarantee of millions of dollars, quite apart from the question of whether or not any guarantee could be taken to be supported by consideration.

21 The plaintiffs also sought to rely on the Statute of Frauds provision, which is still in force in New Zealand as s 2 of the Contracts Enforcement Act 1956, requiring guarantees to be in writing to be enforceable. However, this is not pleaded. It does not in my view arise under the plaintiffs’ general pleading of fraud. The statute could not be relied on in the absence of its being pleaded and, even if an amendment had been sought at the very late stage at which this matter was raised, which I do not perceive that it was, I should not be inclined to grant it.

22 In early March 2006, the builder terminated its retainer in relation to Project 2. On 7 April 2006, Lym International’s quantity surveyor, Ian Richmond (“Mr Richmond”), estimated that it would cost around $3.4 million to complete Project 2. This was approximately double the estimated cost to complete in January 2006; the increase was due to defective work that had come to light.

23 In April 2006, Kingsway revalued the subject property on an “as is” basis at $11.45 million. As a result, Kingsway required an additional $4.2 million to be repaid at once under the Kingsway mortgage. Sandy Lai told Ms Yang that $4.5 million needed to be repaid. Mr Liu and Ms Yang told Mr Chen that they needed $4.5 million and asked him if he could arrange for it to be made available to make repayment to Kingsway. Heard Park lent the $4.5 million to Lym International in late April 2006 out of which $4.2 million was repaid to Kingsway. It was alleged that the $4.5 million was repayable to Heard Park in July 2006. There is considerable dispute and confusion as to whether any of these moneys were in fact repaid. Whatever the basis was on which Heard Park provided the funds, it is relatively clear that Ms Yang and Mr Liu were unable or unwilling to provide this money to Kingsway from some other source.

24 In May 2006, Mr Liu was detained by the authorities in China and remains imprisoned. Although it does not appear that he has been charged with or convicted of any offence, it appears that his detention arose out of the affairs of Beiya. Ms Yang and Jasmine were concerned and fearful about steps that the Chinese authorities might take against them and in relation to the family’s assets in Australia and New Zealand. I do not accept a suggestion by Mr Chen that it was of the shareholders of Beiya rather than of the Chinese authorities that they were apprehensive. Furthermore, Ms Yang was deprived of the business advice and access to funds in China of Mr Liu. She and her husband already depended on Mr Chen for financial advice in New Zealand. After her husband’s detention, Ms Yang became more dependent on Mr Chen and Amanda for friendship, business advice and assistance in attempts to conceal herself and her assets from the Chinese authorities (as to which see the immediately succeeding paragraph).

25 In early May 2006, Mr Chen became aware of information concerning Mr Liu’s detention in China by Chinese authorities, which he discussed with Ms Yang. As stated above, Ms Yang and Jasmine were concerned about steps that the Chinese authorities might take. They sought to avoid the Chinese authorities tracing them and the family’s assets in Australia and New Zealand. During May, Ms Yang withdrew funds from bank accounts that might be traced to her or her husband. She deposited in excess of $67,000 in the bank account of Heard Park, which was Mr Chen’s company. This was money she could access for living and other expenses. At the same time, she transferred her shares in family companies to Mr Chen, who on 12 May 2006 signed a document in respect of those shares. The effect of that document is disputed and is in contest in proceedings in the High Court of New Zealand.

26 It appears that little substantive work had been done on Project 2 since January 2006. After the repayment to Kingsway of $4.2 million, Lym International had a liability of around $7.6 million in respect of the Kingsway mortgage. Ms Yang had guaranteed that debt personally. In light of that obligation, the apparent need for $3.4 million to complete the project and the loss of the support of her husband, Ms Yang made some inquiries concerning the sale of Project 2 or finding an investor who would be prepared to fund its future. However, on the evidence, I do not find that she had by 24 July 2006 made any firm decision to sell the subject property.

27 On 15 July 2006 Ms Yang met Sandy Lai at Auckland Airport, where she signed two documents. They were a letter dated 11 July 2006 authorising Sandy Lai to transfer $3.5 million from the Kingsway mortgage to Heard Park and a letter dated retrospectively 1 February 2006 appointing Sandy Lai as the manager of Project 2.

28 On 16 July 2006, Ms Yang and Jasmine met socially at their home with Mr Chen and Amanda. Ms Yang mentioned that she had signed the documents brought by Sandy Lai the previous day. At Mr Chen’s suggestion, Ms Yang telephoned Sandy Lai and asked her to fax the documents to the Chens’ home, as Ms Yang did not have a fax. This occurred after dinner. They all then drove to the Chens’ home, by which time the faxed documents had arrived. Ms Yang and Mr Chen spoke about these documents and Sandy Lai’s role that night and subsequently. Mr Chen offered to go to Sydney (where Ms Yang was reluctant to go) to investigate Lym International’s affairs, if Ms Yang would give him a power of attorney. Undoubtedly a reason for Mr Chen going to Sydney was to investigate the state of Project 2 and of Lym International’s affairs generally, including the possibilities of the sale of Project 2, and to report on them to Ms Yang.

29 It is clear on Mr Chen’s evidence that by 24 July 2006 he considered as a possible course that he should buy the subject property from Lym International as a means of obtaining the discharge of debts from the Liu interests to him or his associates. Despite his low credibility, as to which see [78] below, this piece of evidence is contrary to his interests. Furthermore, as appears below, on 25 July, the day of his arrival in Sydney, he proceeded to inform his Sydney solicitors of this intention, even before he had seen the subject property or obtained any of the documentation relating to it. On the evidence, I accept that by 24 July 2006 Mr Chen was considering as a possible course that he should buy the subject property. Whether or not this state of mind was communicated to Ms Yang prior to 25 July 2006 is hotly contested and will be dealt with below.

30 On 24 July 2006, Amanda made an appointment to see Timothy MacAvoy (“Mr MacAvoy”) at Kensington Swan, Solicitors of Auckland. Mr Chen knew a partner at that firm. Later that day, there was a meeting at the offices of Kensington Swan at which Mr MacAvoy, Mr Chen and Amanda and Ms Yang and Jasmine were present. There may have been a meeting earlier that day at which only Mr MacAvoy, Mr Chen and Amanda were present, but that probably does not matter very much.

31 Mr MacAvoy kept diary notes of what happened on 24 July 2006, but they are scrappy and not entirely easy to understand. He did undoubtedly record that there was a loan agreement between Heard Park and Lym International; that on 19 and 27 April Heard Park transferred $A4.5 million to Lym International for the purpose of Project 2; that on 5 May 2006 $A3.5 million was transferred by Ms Yang back to Lym International; that the total funding to Australia was $8 million (although the meaning of this expression is not entirely clear); and that Mr Chen wanted a caveat on the subject property. The only way a total of $8 million can be produced from the figures in the diary note is by adding to Heard Park’s $4.5 million the $3.5 million said to have been transferred by Ms Yang.

32 It was further recorded that on 17 July $3.5 million was repaid and the balance of the $4.5 million should also have been repaid the previous week. No mention was made of the Shenzhen loans, on the existence of which Mr Chen has subsequently relied. Nor is any mention made in the diary notes of any intention by Mr Chen to buy the subject property. Mention is made of the Haymarket Branch of the Commonwealth Bank of Australia (“the CBA”) and its manager, Rodney Tucker, and also of Middletons, solicitors of Sydney, of which firm Steven Mackay (“Mr Mackay”) was and is a partner. Phone numbers are noted. On all the evidence it seems reasonably clear that Mr MacAvoy that day telephoned Mr Mackay in Sydney and asked him if he would see Mr Chen the next day.

33 It is clear that instructions were given by Ms Yang for the revocation of Sandy Lai’s authority from Lym International and a draft revocation is included in the diary notes. It is also clear that instructions were given for a grant to Mr Chen of powers of attorney by Lym International and Ms Yang. The participants withdrew while Mr MacAvoy prepared documents.

34 Undoubtedly that day Ms Yang signed the revocation of the authority of Sandy Lai. In a meeting of Mr MacAvoy with Ms Yang and Jasmine only, Ms Yang executed powers of attorney to Mr Chen from Lym International and herself. In the power of attorney of Lym International Ms Yang was described as the sole director of that company. Mr MacAvoy prepared a handwritten diary note concerning the separate meeting with Ms Yang and Jasmine in the following terms:

“I attended Mrs Yang & her daughter separately and advised of potential problems with Mr Chen as attorney eg selling units at undervalue to repay her company’s mortgage, but she wished to proceed nevertheless. She was quite happy with the arrangement. Her daughter understood the issues, and translated them to her mother, who was happy with the situation and knew she could revoke the attorneyship. I explained I was acting for Mrs Yang & her company in the matter.”

It is clear that on this day Mr MacAvoy was acting for Lym International and Ms Yang, although the account was sent to Mr Chen and paid by him.

35 There is controversy as to what else was said at the meeting or meetings on 24 July 2006. Ms Yang gave evidence that on 24 July 2006 she spoke on the telephone to Sandy Lai and talked to her about the termination of her power of attorney. There was discussion as to the payment to her of a sum of $250,000 or $300,000 as remuneration for her services up to that point. At some stage Ms Yang conveyed this information to Mr Chen. There is no reason to doubt Ms Yang’s evidence to this effect.

36 Mr Chen travelled to Sydney on 25 July 2006, arriving mid morning. He made a number of contacts on that day.

37 Mr Chen’s first call was on Mr Mackay. By 2pm Mr Mackay had obtained a real property search of the subject property. There is no doubt that on that day Mr Chen instructed Mr Mackay to act for him on the purchase of the subject property. Mr Mackay and, under his supervision, Mr Ben Everitt (“Mr Everitt”) did act for Mr Chen in that transaction.

38 In the afternoon, Mr Chen went to the Haymarket Branch of the CBA, where, using the powers of attorney, he gained access to three bank accounts, one in the name of Lym International (“the Lym International Account”), the Yang Account in the joint names of Ms Yang and Mr Liu, and Jasmine’s Account (together, “the CBA Accounts”). He had himself made a signatory on the CBA accounts and removed Sandy Lai as a signatory, insofar as she was.

39 After he had done that, he telephoned Sandy Lai from the Bank and informed her of her dismissal and his appointment as her replacement.

40 Late in July 2006 (whether in the conversation mentioned in [35] above or another conversation) Ms Yang asked Sandy Lai to repay $1.08 million that she owed to Ms Yang. Sandy Lai said that she would so. The money was thereafter paid into the Yang account and formed part of the $1.2 million taken from that account by Mr Chen in August 2006 and paid into the Lym International Account.

41 The following day Mr Chen went and inspected the subject property. On subsequent days he made various inquiries and had various conversations concerning Project 2. Mr Chen learned that many contractors needed to be paid for work done on Project 2. He collected from Sandy Lai a large quantity of books and records.

42 There is no doubt that while he was in Sydney and she was in Auckland Mr Chen had numerous telephone conversations with Ms Yang. In them he conveyed to her various information concerning Project 2. It was in these conversations that it was agreed that Mr Chen would buy the subject property from Lym International. There is no doubt that the price of $15 million was specified by Mr Chen and was not the subject of any negotiation. As to other contents of the conversations, there is controversy.

43 As early as 27 July 2006, the contract for sale had been prepared by Middletons in Sydney on Mr Chen’s instructions, and emailed, together with a transfer, to Mr MacAvoy, for execution by Ms Yang on behalf of Lym International.

44 By about 26 July 2006, it had become clear that Mr Mao was still registered with ASIC as a director of Lym International. By some means, on either 24 July 2006 or 31 July 2006, Mr MacAvoy was provided with a copy of the Mao resignation letter, apparently signed by Mr Mao. It is not disputed that the signature on the Mao resignation letter was not put there by Mr Mao. It is not clear on the evidence who signed his name on the letter.

45 On 31 July 2006, Ms Yang, Jasmine and Amanda attended on Mr MacAvoy at his office. His diary notes of this occasion are sparse. They commenced:

“Resource consent expires Oct.

William Mao was business partner.

1) Notice of resignation of William Mao to Co’s office

- if not. How is transfer signed?”

Mr MacAvoy also noted a telephone conversation with Mr Everitt in which he was informed that GST would be payable at 10 per cent and that $7.265 million was the amount of the Kingsway loan. There was a floating and unexplained notation “- 8m”.

46 There is in evidence a diary note of Mr Everitt of 31 July recording a telephone conversation with Mr MacAvoy who was said to have Ms Yang in his office wanting to sign documents. Mr MacAvoy said that he was getting an acknowledgement from her that he had not advised her. The note continued:

“- discussed loan. He says she has repaid $3.50m – I said that is not my instructions – there is $8m owing. Paul’s taking on $7.625 debt and so $15m will be less than what is owed.”

There is a further undated diary note by Mr MacAvoy that contains the following:

“$4.5 is balance due on loan to Paul (orig 8m)

$2.875 is to be applied by Paul to complete the property and is therefore treated as another debt due to Paul Chen.”

Mr MacAvoy has no recollection as to when he made this note nor of the source of its contents.

47 On 31 July 2006 Ms Yang signed the contract for sale and the transfer on behalf of Lym International as sole director, as she had signed the corporate power of attorney on 24 July 2006. Ms Yang also signed a document as Lym International’s sole director confirming that Mr MacAvoy had not provided any legal advice in respect of the transaction.

48 The contract for sale was for a purchase price of $15 million and contained the following Special Condition 33:

“Price

The Purchaser must pay the Purchase Price as follows:

(a) $7,625,000 to the mortgagee of the Land; and

(b) the balance to be applied to the debts owed to the Purchaser by the Vendor or a related entity (as that term is defined in the Corporations Act 2001 (Cth)) of the Vendor.”

It is of significance that by the terms of the Special Condition the debts referred to include debts owed not only by the vendor but by an entity related to the vendor, but they include only debts owed to the purchaser and not to entities related to the purchaser.

49 The contract for sale and the transfer executed by Ms Yang were sent to Middletons in Sydney, but were not immediately executed by Mr Chen. In early August 2006, Ms Yang asked Mr Chen why he had not yet signed the contract. Mr Chen said he was still investigating the project and had not made up his mind.

50 Between 1 August and 15 August 2006, Mr Chen transferred $1.2 million from the Yang Account and $120,000 from Jasmine’s Account to the Lym International Account. Those moneys were used in part to make payments upon the subsequent completion of the contract as set out below.

51 On 15 August 2006, Mr Chen signed the contract for sale, which brought it into operation. Pursuant to Special Condition 32, he nominated 15 August 2006 as the completion day. On Mr Chen’s instructions, given on behalf of Lym International under the power of attorney, completion took place on the same day and the transfer was delivered to Mr Chen.

52 This occurred without any reference to Ms Yang, who did not give instructions on behalf of Lym International for completion to take place. Lym International was not represented by solicitors at the settlement. It must be inferred that whatever was done on its behalf was done by, or on the instructions of Mr Chen. This receives some express confirmation in evidence of Mr Chen, which I accept. No settlement statement showing the amount paid to the mortgagee, the amount attributed as payment of any debts under Special Condition 33(b) or any excess of the purchase price over the amount paid out to discharge the Kingsway mortgage was prepared. The only document that shows any of these matters is the resolutions of Heard Park prepared by Amanda. They were not prepared contemporaneously, but at a later time and backdated. It is impossible to tell when they were prepared. It was after, but it was not specified how long after, settlement on 15 August 2006. It appears from the evidence that Kingsway was paid a total of $7,679,645.31 on settlement to procure the discharge of its mortgage.

53 Lym International received none of the proceeds of sale. Not only was there no settlement statement, but Mr Chen has not provided any accounting to either Lym International or Ms Yang for any of the proceeds of sale nor any statement as to what debts owed by the Liu interests to the Chen interests were satisfied by credit out of the proceeds of sale. On completion, Mr Chen used money in the Lym International Account to pay $360,000 towards the discharge of the Kingsway mortgage and $810,504.80 for stamp duty.

54 On 29 August 2006 Ms Yang and Jasmine again attended on Mr MacAvoy. In his diary note of that day, Mr MacAvoy did a sum by which he subtracted from the $15,000,000 purchase price $7,679,645.31 paid to Kingsway and $4,500,000 “owed by Lym International”, which is said (wrongly) to leave a balance of $3,179,645. There is a note as follows:

“This is effectively the money used by Paul to complete the property. He spent that on completing the property so that it would be worth the $15m sale price. Otherwise he would have bought it for $12m & paid the $3m himself to complete it.”

55 It is not at all clear what the source of Mr MacAvoy’s knowledge was that provided the foundation of these statements. I certainly do not find that this information was furnished to Mr MacAvoy by Ms Yang on 29 August or at any other time, rather than being noted by him as information he had from some other source.

56 In another place in the diary note the following sums are listed:

“7.679 Kingsway

4.5 Heard Park

3.0 Paul Chen”

A complaint was then recorded:

“Paul has debited a further $818,000 [sic] from Mrs Yang’s account. This was not contemplated by either Mrs Yang or ourselves.”

Despite the inaccuracies in this complaint as recorded, it is clearly a reference to the stamp duty. The diary note does not record any specific complaint about the use of money from the CBA Accounts, other than for the stamp duty. Mr MacAvoy did note as follows:

“I offered to speak to Paul Chen, but they did not want me to mention the fact that they had consulted us about the matter.”

57 Also on 29 August 2006 Mr MacAvoy received a telephone call from Jasmine concerning which he made the following diary note:

“I received a call from Jasmine complaining her Australian Bank had closed her account on the instructions of Paul Chen. She was in tears and terminated the call saying she would call back later.”

58 In October 2006 Mr Mao had returned to Australia and by chance met Ms Yang and Jasmine in the CBA Haymarket Branch. Ms Yang’s evidence is that Mr Mao told her that he had never resigned as a director of Lym International, whereupon she said, “Paul Chen has been lying and has cheated me”, and burst into tears. Mr Mao confirmed that both Ms Yang and Jasmine said “that everything been stealing by Paul Chen [sic].” They both burst into tears in front of him.

59 Not long afterwards, the first proceedings were commenced by the filing of a summons on 27 October 2006.

THE PLAINTIFFS’ CLAIM IN THE FIRST PROCEEDINGS

60 This claim is quite complicated but needs to be set out at some length. In pars 15 and 16 of the plaintiffs’ amended statement of claim filed on 30 October 2008 (“the amended statement of claim”) the plaintiffs plead the powers of attorney. In pars 17 and 18 they plead the management of Project 2 by Mr Chen from 25 July to 15 August 2006 and that Lym International and Ms Yang reposed trust and confidence in Mr Chen in connection with the project. In par 19 they allege that by reason of the matters in pars 15 to 18 Mr Chen was in a fiduciary relationship whereby he owed fiduciary duties to Lym International and Ms Yang.

61 In par 20 those duties were enumerated as including a duty to account for any benefit or gain obtained in circumstances where there was a conflict between Mr Chen’s fiduciary duty and his personal interest or obtained or received by use or by reason of his position or opportunity or knowledge resulting from it; to investigate the affairs of Lym International’s development of the subject property and to acquire knowledge of its current status and the steps needed to complete the project; to pass all such knowledge on to Lym International and to Ms Yang and not misuse his position for his personal advantage; to give full disclosure to Lym International and Ms Yang and be fair and open in his dealings with them; and not to convert himself into a purchaser of the subject property unless he dealt with Lym International and Ms Yang at arm’s length and after a full disclosure of all he knew about the subject property and the project.

62 In par 21 there was alleged in detail the information that Mr Chen as manager of the project and attorney under the powers acquired, including all of the books, records and financial information of Lym International and details of Project 1 which had been completed by Lym International and that he acquired the following opportunities:

“(i) unrestricted access to the bank accounts of the first and second plaintiffs;

(ii) unrestricted access to all of the books and records of the first plaintiff;

(iii) control of the manner in which the Project continued; and

(iv) an opportunity to exploit the trust and confidence that the second plaintiff had in him.”

63 In par 22 Mr Chen’s breaches of his duties were pleaded as follows:

“Breach of duties

22 Over the period of 25 July to 15 August 2006, the first defendant used the information and opportunities to advantage himself and to the disadvantage of the first and second plaintiffs by making the following representations and engaging in the following conduct:

(a) on 25 July 2006, the first defendant represented to the second plaintiff that William Mao and Sandy Lai had cheated and misled the second plaintiff and that they just wanted to spend more and more money on the Project;

Particulars

Paragraph 52 of the affidavit of Limin Yang sworn 27 October 2006.

(b) in late July 2006 (prior to 31 July 2006), the first defendant represented to the second plaintiff that the first plaintiff had some problems with its first real property project and that all of the purchasers of properties in that project had decided to sue the first plaintiff for up to $0.6 million as the builder of that development had gone into liquidation;

Particulars

Paragraph 54 of the affidavit of Limin Yang sworn 27 October 2006.

(c) in late July 2006 (prior to 31 July 2006), the first defendant represented to the second plaintiff that if she did not transfer the Property the purchasers in the aforesaid first development would freeze any dealing in relation to the Property and the Project and that if that happened the first plaintiff would suffer a big loss;

Particulars

Paragraph 54 of the affidavit of Limin Yang sworn 27 October 2006.

(d) in late July 2006 (prior to 31 July 2006), the first defendant represented to the second plaintiff that he had found a document which proved that William Mao had resigned from his position as a director of the first plaintiff since 29 January 2006;

Particulars

Paragraph 57 of the affidavit of Limin Yang sworn 27 October 2006.

Paragraph 72 of the affidavit of Limin Yang sworn 2 December 2007.

(d1) on 31 July 2006, prior to the second plaintiff executing the contract for sale of land at the offices of Kensington Swan Lawyers in New Zealand, the first defendant represented to the second plaintiff through his agent, Amanda Chen, that the effect of the contract was that the first plaintiff would transfer the Property to the first defendant for a purchase price of $15 million of which $7.6 million would be used to repay the loan to Kingsway and that the balance of the $15 million ($7.4 million) would be a debt owed by the first defendant to the first plaintiff;

Particulars

Paragraphs 80 and 81 of the affidavit of Limin Yang sworn 2 December 2007.

Paragraph 63 of the affidavit of Limin Yang sworn 27 October 2006.

(d2) the first defendant failed to disclose to the first and second plaintiff his intention to purchase the Property referred to in paragraph 14C, above, and that in travelling to Sydney on 25 July 2006 he was doing so for that purpose;

(e) the first defendant then took steps to forward the said document he had allegedly found concerning Mr Mao’s alleged resignation of his directorship to his wife, Amanda Chen, who then gave the document to the second plaintiff;

(f) in late July 2006 (prior to 31 July 2006), the first defendant represented to the second plaintiff that she could transfer the Property to him and then neither the first or second plaintiffs would be liable for any money to any of the purchasers, otherwise the first plaintiff would be liable and the second plaintiff could go to gaol;

Particulars

Paragraph 60 of the affidavit of Limin Yang sworn 27 October 2006.

(g) in late July 2006 (prior to 31 July 2006), the first defendant represented to the second plaintiff that she should not worry about anything and that he would look after it all.

Particulars

Paragraph 60 of the affidavit of Limin Yang sworn 27 October 2006.

(h) over the period 1 – 15 August 2006, the first defendant transferred the sum of $1.2 million from the second plaintiff’s joint bank account to the first plaintiff’s account;

(i) on 15 August 2006, the first defendant, without the knowledge or consent of the third plaintiff, transferred the sum of $120,000 out of the third plaintiff’s bank account and into the first plaintiff’s account.

(j) on 15 August 2006, the first defendant became the registered proprietor of the Property without paying any funds to the first plaintiff and used $1.17 million funds from the first plaintiff’s bank account to pay for:

(i) stamp duty on the transfer in the sum of $810,504.81; and

(ii) part of the amount owing to the outgoing mortgagee (Kingsway) in the sum of $360,000.00.”

64 In pars 23 and 24 it is charged that Mr Chen improperly used the information and opportunities acquired in his position as project manager, attorney and fiduciary to advantage himself and cause detriment to Lym International and Ms Yang and that consequently he holds the title to the subject property on trust for Lym International and it is entitled to have the transfer to him of the subject property set aside and an order that he retransfer the subject property to Lym International.

65 In pars 25 to 29 of the amended statement of claim the plaintiffs allege the making of fraudulent misrepresentations inducing entry into the contract for sale that I do not set out at length. Paragraph 30 makes the further allegation concerning fraudulent conduct by Mr Chen:

“30 Further to making the fraudulent representations pleaded in paragraph 25, above, the first defendant engaged in the following fraudulent conduct in order to obtain the Property for himself at an undervalue:

(aa) the first defendant, by his agent Amanda Chen, represented to the second plaintiff that the effect of the contract was that the balance of the sale price would be paid back to the first plaintiff as a loan;

(bb) the first defendant did not disclose the effect of special conditions 33(b);

(cc) the first defendant did not disclose his intention that no money would be paid to the first plaintiff on settlement of the sale of the Property to himself;

(a) the first defendant created the resignation of director document referred to in paragraph 22(d), above, and forged the signature of William Mao thereon;

(b) the first defendant used the following funds to pay out the sum of $7,625,000 to the outgoing mortgagee, Kingsway:

(i) $3.5 million which had been originally advanced by the LGT & Y Family Trust to the first plaintiff for the benefit of the first plaintiff, not the first defendant;

Particulars

LGT & Y trust account statement for the period 11 April to 10 May 2006 transaction on 28 May described as “PAID LYM MORTGAGE”, a copy of which is annexed to the affidavit of Limin Yang sworn 27 October 2006, page 14; letter from Kingsway dated 10 May 2006, a copy of which is annexed to the affidavit of Limin Yang sworn 27 October 2006, page 15; International Money Transfer Application dated 13 July 2006, a copy of which is annexed to the affidavit of Limin Yang sworn 27 October 2006, page 16

(ii) $360,0000 of the first plaintiff’s funds; and

Particulars

First plaintiff’s bank account statement for the period 9 August to 3 October 2006, a copy of which is annexed to the affidavit of Limin Yang sworn 27 October 2006, page 59; paragraph 69 of the affidavit of Limin Yang sworn 27 October 2006.

(c) the first defendant applied the balance of the sale price of the Property in the sum of $7,375,000 ($15 million less $7,625,000 paid to the outgoing mortgagee) towards debts allegedly owed to him when in fact there were no debts owed by the first plaintiff or a related entity to the first defendant in the sum of $7,375,000 or at all;

(d) the first defendant paid no amount on account of Goods & Services Tax to the first plaintiff;

(e) the first defendant used funds from the first plaintiff’s account to pay stamp duty on the transfer of Property to the Office of State Revenue in the sum of $810,504.80; and

(f) the first plaintiff received no funds from the first defendant in consideration for the transfer of the Property.”

66 By pars 33 and 34 Jasmine claims the repayment of the $120,000 taken from her bank account.

MRS MARCOLONGO’S CLAIM IN THE SECOND PROCEEDINGS

67 A short statement of claim filed by Mrs Marcolongo on 17 October 2007 alleges that the claim made in her District Court proceedings establishes that she was at all material times a potential creditor of Lym International and that the transfer of the subject property by Lym International to Mr Chen was undertaken with an intent to defraud her.

68 Foremost among the particulars appended to par 4 of her statement of claim are that Mrs Marcolongo is and was at the date of the transfer a potential creditor of Lym International and that the consequence of the transfer was to denude Lym International of any assets which could satisfy a judgment obtained by Mrs Marcolongo in her District Court proceedings.

CREDIT OF WITNESSES

69 The principal witnesses who gave oral evidence whose credit needs to be dealt with at some length were Mr Chen, Amanda, Ms Yang, Jasmine and Mr MacAvoy. On their evidence depends the decision of a number of important issues of fact in the proceedings. None of them was an entirely satisfactory witness. Some general remarks will be made concerning the other witnesses who gave oral evidence.

Mr Chen

70 Mr Chen was a most unimpressive witness. A detailed and methodical critique of his credit was given in written submissions by Mr Alexis of Senior Counsel on behalf of Mrs Marcolongo.

71 There were many inconsistencies in Mr Chen’s evidence. In cross examination he initially denied that Ms Yang and Jasmine feared for their safety following Mr Liu’s arrest. He later conceded that they were fearful but said that he believed that they were fearful of the shareholders of the Beiya company not of the Chinese authorities. It seems to me that the high probabilities were that they were fearful and of the Chinese authorities rather than the Beiya shareholders. Mr Chen claimed to have told the 24 July 2006 meeting of an intention on his part to consider buying the subject property as part of the purpose of his visit to Sydney, against the evidence of other witnesses. In particular Mr MacAvoy was quite certain that this was not said and, bearing in mind that the purpose of the meeting was for Ms Yang to give Mr Chen powers of attorney, it seems highly likely that Mr MacAvoy would have remembered as highly pertinent in the context any statement to that effect. It also seems highly likely that this would have been noted in Mr MacAvoy’s diary notes (which formed the only contemporaneous record of the meeting). There is no such mention in the diary notes.

72 Although he had sworn more than ten affidavits, Mr Chen alleged for the first time in cross examination the important suggestion that Ms Yang had told him in a telephone conversation that Mr Mao had transferred his shares in Lym International back to her. This seems to me to bespeak a willingness to give answers to explain away awkward matters without regard for the facts.

73 Mr Chen changed twice in cross examination his evidence as to whether Amanda had told him on 31 July 2006 that it was Mr MacAvoy before whom the contract was signed. Mr Chen did not provide Ms Yang during the interregnum between her signing the contract on 31 July and his entering into it on 15 August with a copy of Mr Richmond’s revised estimate of the cost of completing the work on the subject property of $1.8 million rather than the earlier $3.4 million which he had repeated to her. This reflects on his appreciation of his duties as a fiduciary and in my view goes to his credit. The reasons that he gave for not doing this appear to me to be quite spurious.

74 Again the account he gave of what passed between them when he met Mr Mao in Sydney on 5 August 2006 seems to me to go to his credit, nothing was said at that meeting concerning Lym International or the subject property. If he was acting honestly it would seem natural that he would tell Mr Mao that he was proceeding to purchase the subject property. Equally, it seems very strange that, presented with Mr Mao, he did not ask him the facts about his resignation as director. These omissions appear to me to reflect on the honesty of the manner in which he was proceeding and therefore go to his credit.

75 Similarly, he did not tell Mr Lowes, Lym International’s accountant, on 26 July 2006 that he was looking to purchase the subject property; rather he told Mr Lowes that he was looking at taking over managing the project. Also derogatory of his credit is the statement that I accept from Mr Lowes that Mr Chen made to him concerning GST, that he “was instructed by the overseas director to pay the money directly to her and pay the mortgage, therefore it is Lym’s problem, not mine”. Both the untruthfulness of the statement that he was instructed to pay the money to Ms Yang and his attitude towards the problem created by the GST liability are derogatory of his credit.

76 I am well aware that appellate courts have of recent times warned against over reliance by trial judges on the demeanour of witnesses in assessing credit and I have borne these strictures in mind in assessing Mr Chen’s credit: see Fox v Percy (2003) 214 CLR 118 at [28] – [31] and [90] per Gleeson CJ, Gummow and Kirby JJ and [131] – [148] per Callinan J; CSR Ltd v Della Maddalena (2006) 80 ALJR 458 at [19] – [23] and [44] – [46] per Kirby J; Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186 at [11] - [31] and [84] – [87] per Ipp JA; Skinner v Frappell [2008] NSWCA 296 at [57] – [64] per Young CJ in Eq.

77 However, I must say that observation of his demeanour over a long period made his word on relevant subject matters difficult rather than easy to accept. The manner in which he considered questions before answering them and the manner in which he gave his answers, coupled with matters of the type that I have indicated concerning the content of his evidence, conduced to the conclusion that I came to that he was an unreliable witness, ready to say anything that he thought advanced his case.

78 As a result, except where his statements are against his interests or not contested, I am not prepared to accept Mr Chen’s evidence except where it is corroborated by the evidence of a credible witness or by documentary evidence or extrinsic circumstances. This means that, where the establishment of contested facts depends solely on Mr Chen’s word, even if I do not accept countervailing evidence, I shall not find those facts established.

Amanda

79 A deal of Amanda’s evidence had an air of unreality and improbability. This related particularly to her evidence of the degree of her communication with Mr Chen when he was in Australia and she remained in New Zealand, particularly concerning the subject transaction. She said that she had no concern about the transaction, although she conceded that it would impact upon her family’s fortunes. She was not interested in the price for which the subject property was being purchased and did not want to make an enquiry of Mr Chen concerning the price. Her evidence concerning her minimal involvement with the relevant business matters I find improbable in face of the fact that she was the accountant for the family businesses. Indeed, she said concerning Heard Park that, although she had minimal involvement in the day to day administrative decisions of the company, as a director she actively monitored and had a good understanding of the company’s transactions.

80 Her evidence actually conflicted with Mr Chen’s in important regards as to what was said between them while he was in Sydney and she was in New Zealand. She denied that Mr Chen asked her to make an appointment that resulted in the meeting of 31 July 2006, whereas he said that he did make such a request. He said that he spoke to her concerning the readiness of the contract for sale for signature, but she denied that he said that. Despite the low esteem in which I hold Mr Chen’s evidence, I find his account of these conversations probable in the circumstances and hers most improbable.

81 Her evidence concerning the meeting on 24 July 2006 was at odds with the other participants (apart from Mr Chen) and the absence from Mr MacAvoy’s diary notes of any reference to an intention by Mr Chen to purchase the subject property. I also find inherently improbable her evidence concerning the degree of Ms Yang’s contribution at that meeting.

82 Her evidence about the preparation of the formal resolutions concerning the crediting of the purchase price of the subject property against debts owed to Heard Park that were backdated to 31 July 2006 was conflicting and unsatisfactory.

83 Again, I carefully observed her demeanour in the witness box. The conclusion that I have come to is that she is a witness of low credibility, whose evidence I am not inclined to accept unless it is corroborated by the evidence of a credible witness or by contemporaneous documents.

Ms Yang

84 It was submitted by Mr Pritchard of Senior Counsel on behalf of Mr Chen that Ms Yang should not be accepted by the Court as a witness of truth.

85 It is, of course, true that she was self interested in the evidence that she gave and this must be borne in mind in evaluating her evidence.

86 Mr Pritchard submitted that, despite assertions to the contrary, she did understand some English. She recognised the figure $15 million as the purchase price when she saw the contract for sale. She answered two questions before they were translated. I do not doubt that Ms Yang understands a few words of English. However, nothing in the evidence or the manner in which she gave it detracts from the finding that I have made at [9] above that she could not read or speak English, nor is there any other evidence that suggests that she could. On all the evidence, I conclude that her understanding of spoken English is very limited.

87 Reliance was also placed on what was characterised as Ms Yang’s readiness to be involved in the “forging” of signatures. The evidence shows she authorised Mr Mao to sign her signature on finance documents. Although this practice is not to be recommended, on the evidence, Ms Yang did it only when she was not present to sign the documents and she was prepared to accept liability under them. I do not regard it as detracting seriously from Ms Yang’s honesty or her credit as a witness.

88 It was said that she was evasive and that this was evidenced by the fact that in cross examination she repeated what was said in her affidavits. This, it was said, showed that she had rote learned her evidence. It was submitted that she was consequently evasive by declining to expand upon her original evidence, particularly as to the contents of telephone conversations between her in New Zealand and Mr Chen in Sydney and concerning the funds in the Yang Account. There are two things to be said about this. The first is that I did not form an impression of her as a generally evasive witness, bearing in mind the difficulties always created by evidence through an interpreter. There was some vagueness concerning her evidence about the various family bank accounts, but that is perhaps not surprising at this distance of time. The second thing to be said is that, if her oral evidence had varied from that in her affidavits, no doubt it would have been contended on behalf of Mr Chen that this was derogatory of her credit. In fact, my general impression was that Ms Yang in cross examination adhered to her evidence in chief without slavishly repeating it.

89 It was said that there were inherent improbabilities in her evidence, for example, she denied that she had knowledge of business, whereas the evidence shows that she had held responsible business positions in China before coming to Australia and New Zealand and had engaged in considerable business transactions here. However, as to the latter, it must be borne in mind that she was in strange countries, had the disadvantage as to language that I have found that she had and relied heavily in her dealings both on Mr Liu and on Mr Chen and Amanda.

90 It was alleged in relation to the meetings of 24 July 2006 that her evidence was at odds with Mr MacAvoy’s diary notes. There is certainly a conflict in one regard, in that in his diary note, of the separate meeting Mr MacAvoy recorded that he “advised of potential problems of Mr Chen as power of attorney, selling units at undervalue to repay his company’s mortgage”. In cross examination, Ms Yang denied that Mr MacAvoy mentioned the problems of appointing Mr Chen as an attorney, but just asked if she understood the meaning of the power of attorney (Jasmine also denied that the problems were mentioned). Despite this, I accept Mr MacAvoy’s evidence, supported by his diary note that he did give an explanation as recorded in the diary note, with Jasmine apparently translating what he said to her mother. However, conflict in this one regard does not derogate greatly from Ms Yang’s credit as a witness.

91 It was alleged that she changed her evidence. This included changes as to when she signed the guarantee of the Kingsway mortgage, what documents brought by Sandy Lai were signed at Auckland airport in July 2006 and whether she spoke to Sandy Lai after the meeting of 24 July 2006. I do not regard what changes there were as substantially derogating from her credit. The time of signature of the guarantee and the precise documents signed in July were matters of detail. In any event, what concessions she made do not substantially derogate from the proposition that in substance she did not speak with Sandy Lai after 24 July 2006 concerning Project 2 or the affairs of Lym International.

92 One of the stronger points made against acceptance of the thrust of Ms Yang’s evidence that she was cheated by Mr Chen arises from the limited nature of the complaint she made against him at the meeting with Mr MacAvoy on 29 August 2006, limited to the use of $810,000 odd for the payment of the stamp duty. It must be said that on that occasion the evidence shows that the use of that sum and the taking of money from Jasmine’s Account were in the forefront of her mind. There is no doubt that at that time she was substantially upset (as was Jasmine) at the discovery of some acts that she regarded as cheating on Mr Chen’s part. That that was a lasting upset is corroborated in text messages saved on a telephone of Jasmine’s that were put into evidence. These showed a conflict between Ms Yang wanting redress and being terrified at the prospect of losing the friendship and support of Mr Chen and Amanda, on which she had so heavily relied. That was borne out by her declining Mr MacAvoy’s offer on 29 August 2006 to telephone Mr Chen about the stamp duty, concerning which she was undoubtedly complaining. The evidence showed that she and Jasmine continued upset as witnessed by their bursting into tears when they encountered Mr Mao at the CBA in October 2006. Before the end of October the first proceedings were commenced. The significance of the incompleteness of the complaint to Mr MacAvoy on 29 August is in my mind greatly diminished by these facts.

93 I observed Ms Yang closely during her giving of oral evidence. Despite the criticisms recorded above, I formed the impression that she was trying to give the Court the best possible account of the events that she was dealing with. There must be some detraction from her credit by reference to the conflict of her evidence with Mr MacAvoy’s diary notes, the changes in her evidence and her self interest. Whilst her evidence must be approached with some caution, in general terms her evidence on any particular matter must be assessed as a possible version of the facts along with other evidence bearing on the particular subject matter. Further, in general terms I am inclined to prefer her evidence to that of Mr Chen and Amanda where they conflict.

Jasmine

94 There were two elements in the main attack on Jasmine’s credit. The first was that a great deal of her evidence corroborating her mother was given in an affidavit sworn as recently as 3 October 2008 and had not been contained in her earlier affidavit evidence. Furthermore, she conceded that she saw her mother’s affidavits before she recorded at least some of her corroborative evidence. It is submitted that it should be inferred that her corroborative evidence is recently invented and untrue. Secondly, there was sharp conflict between the evidence of Jasmine on the one hand and Amanda, Huang Rui and Xing Zhan (“Ms Zhan”) on the other concerning whether or not Jasmine was working in Heard Park’s office during 2006.

95 As to the second of these matters, I find it very hard to make a determination of the facts. I do not accept Amanda’s evidence that she saw Jasmine working in Heard Park’s office during the relevant period. Concerning the evidence of Jasmine, Huang Rui and Ms Zhan, on this subject matter it is to be observed that Jasmine is self interested and Huang Rui was and is closely associated with the Chens. Ms Zhan appears to be a more independent witness. On the other hand, Ms Zhan first gave evidence in September 2008 concerning events which had supposedly occurred in 2006. They were not particularly memorable events and may have occurred in some form at an earlier time. I find that I am unable to come to any conclusion as to the degree of presence of Jasmine in the Heard Park office or her activities there during 2006. In those circumstances, the matters alleged against her credit arising from those facts cannot operate and are not to be taken as derogating from her credit.

96 As to the recency of her corroborative evidence, it is true that a deal of Jasmine’s evidence was late and favourable to the plaintiffs. However, in my experience it does not flow from that fact that the evidence is not true. Some of the material she said she had given to the solicitor earlier, but it had not been included in an earlier affidavit. In my experience, it is quite common for parties and their lawyers not to face up squarely or thoroughly to what evidence should be put on from witnesses until late in the piece. It is obviously undesirable that Jasmine saw her mother’s affidavits before swearing her own. However, I do not conclude from any of those matters that the relevant evidence was deliberately made up and false.

97 The manner in which she gave her evidence appeared to me to show that she was doing her best to give a truthful account of matters as she recalled them. The evidence that she gave late must be approached with some caution, although not rejected out of hand. As with the evidence of her mother, her evidence must generally be considered as a possible version of the facts as to any particular matter, to be assessed with the other evidence of those facts. Again, where they conflict, I am inclined to accept Jasmine’s evidence in preference to that of Mr Chen and Amanda.

Mr MacAvoy

98 It is conceded on Mr Chen’s behalf that Mr MacAvoy was giving evidence of the events to the best of his ability, but that he did not have a good recollection of the events. These propositions are unexceptionable.

99 Mr MacAvoy was said on behalf of Mr Chen to have shown a partisan alignment to the plaintiffs, although it was added that this might have been innocent because he regarded them as his clients and his loyalty lay on that side. I find these last propositions meaningless. I did not see in his evidence any partisan alignment to the plaintiffs.

100 It was also pointed out that it was in his own interest to establish that he was not acting for the vendor of the subject property on 31 July 2006. It is claimed that there were inconsistencies between Mr MacAvoy’s evidence and the plaintiffs’ evidence as to what occurred at the meeting of 31 July 2006.

101 I do not regard any of these complaints as substantially compromising Mr MacAvoy’s evidence, so far as it went. There is no doubt that he did not have a good recollection of events and that largely his recollection did not go beyond what was contained in his diary notes. However, this is natural enough, since the events were of minimal importance in his life as compared with the lives of the parties. However, I do not find that he had no recollection that would permit him to give any evidence at all beyond the ambit of the diary notes. I regard as inherently probable his evidence that he would recall if it were communicated to him that the proposed donee had an intention to buy a property that was the subject of powers of attorney being granted. This would be a very unusual situation and I accept that it would have “rung alarm bells” and it would be likely that he would remember a matter of that nature and would have acted in a different way in the situation had he been apprised of that. I accept his evidence that no such thing was said in his presence on 24 July 2006. Whilst it is true that it was in Mr MacAvoy’s own interest that he was not acting for the vendor on 31 July 2006, it is made plain by the document that he had Ms Yang sign on that day that that was undoubtedly the situation. There is no reason to think that he would have had her sign a false document and no reason to think that the content of the acknowledgement was not conveyed to her.

102 The value of Mr MacAvoy’s evidence is chiefly limited by his lack of recollection of detail of the events, aggravated by the lack of detail and clarity of his diary notes. However, I accept that he was generally doing his best to give the Court his recollection of events, being careful to distinguish between what he actually recalled and things that seemed to him likely from the circumstances. I therefore regard him as a witness of good credit, whose evidence in general terms I am inclined to accept, so far as it goes.

Other witnesses

103 Other witnesses who gave oral evidence included Mr Mao, Mr Lowes, Mr Browne, Mr Easton and Mr Mackay. In general terms they appeared to me to be witnesses who were doing their best to give the Court an accurate account of events as they recalled them.

CONTESTED FACTS AND FINDINGS ON THEM

Intention by Mr Chen to purchase

104 I have found at [29] above that by 24 July 2006 Mr Chen considered as a possible course that he should buy the subject property as a means of obtaining the discharge of debts from the Liu interests to him or his associates. Whether or not this state of mind was communicated to Ms Yang prior to 25 July 2006 depends on the conversations that took place at the meetings of 24 July 2006. Mr Chen gave evidence that he indicated at the 24 July meeting that, among the matters that he was to investigate when he went to Sydney, was whether or not he would buy the subject property and on what terms. Amanda corroborated that this was said at the 24 July meeting. Ms Yang, Jasmine and Mr MacAvoy denied that any such thing was said at that meeting. Nothing concerning such an intention is recorded in Mr MacAvoy’s diary notes. Mr MacAvoy said that any mention of such an intention would have “rung alarm bells“ concerning the grant of the powers of attorney and that he would not have advised the grant of those powers had he known that Mr Chen regarded himself at that time as a potential purchaser.

Findings

105 I accept the denials of Ms Yang, Jasmine and Mr MacAvoy that any such thing was said. Although Mr MacAvoy’s diary notes are somewhat perfunctory, on the probabilities he would have recorded a matter as significant as an announcement to this effect. In any event, I accept as inherently probable that such a suggestion would have rung alarm bells in his mind and would have made a difference to his attitude to the grant of the powers of attorney. I accept his recollection that no such thing was said. In addition, I am inclined to accept the word on this subject matter of Ms Yang and Jasmine, whom I regard as more credible witnesses than Mr Chen and Amanda.

106 The only evidence other than Mr Chen and Amanda’s that his intention to purchase was mentioned on 24 July 2006 is in the affidavit of Mr Mackay of Middletons in Sydney, who deposed that, while he could not recall the detail of the conversation, Mr MacAvoy said not only that his referral of Mr Chen was in relation to the potential sale of a development project, but that Mr Chen was the purchaser. That affidavit was not sworn until September 2007 and the account of the conversation is not supported by any contemporaneous diary note. The very next day (25 July) Mr Mackay was in fact instructed that Mr Chen was to be the purchaser. Cross examined concerning what was said on 24 July, he conceded that he had no clear recollection of anything being said by Mr MacAvoy about Mr Chen purchasing a property. I find that this equivocal evidence should not prevent my accepting the denials of Ms Yang, Jasmine and, particularly, Mr MacAvoy. I therefore decline to find that anything was said on 24 July by Mr Chen about his having any interest in purchasing the subject property.

Sole directorship and the Mao resignation letter

107 It is clear that it was generally accepted at the 24 July meeting that Ms Yang was the sole director of Lym International. Mr MacAvoy included a reference to this fact in the Lym International power of attorney. Ms Yang undoubtedly signed the Lym International power of attorney as that company’s sole director. There is no credible evidence that Ms Yang gave this information to Mr MacAvoy. But it seems plain to me that at that stage she was the only possible source of that information. In those circumstances, the information must have emanated from her and must have been conveyed to Mr MacAvoy, either by her directly or by Mr Chen, to whom she had conveyed the information. It does not follow from that and I do not find that she did not at that day believe that Mr Mao had ceased to be a director of Lym International. She may well have believed that Mr Mao had in fact resigned as a director when he otherwise departed from the company in January 2006. I certainly do not find that she was aware when she gave that information on or shortly before 24 July 2006 that he continued to be a director of the company.

108 Mr Chen deposed that on 26 or 27 July 2006 he telephoned Ms Yang from Sydney and had a conversation in the following words:

“Me: ‘You told me that you were the sole director of Lym International. My lawyers in Sydney have told me that a William Mao is also a director of the company.’

Yang: ‘No, I am the sole director. William Mao resigned as a director of Lym International in January when he returned to China. That is why Sandy Lai took over the running of the project. I have his resignation letter. I am the sole director.’”

109 Ms Yang denied having had such a conversation. Mr Chen deposed that he had not seen the Mao resignation letter before the commencement of these proceedings. Ms Yang deposed that Mr Chen telephoned her from Sydney and there was a conversation to the following effect:

“Paul: ‘I have found a document which proves that William has resigned his director position in company since 29 January 2006.’

Me: ‘Really?’

Paul: ‘I will fax a copy to Amanda. She will give you [sic].’”

110 Ms Yang deposed that prior to the 31 July 2006 meeting Amanda gave her a copy of the Mao resignation letter saying, “this is the document that Paul was talking to you about, give it to Tim”, and that it was given to Mr MacAvoy at that meeting. Amanda denied that this occurred.

Findings

111 Concerning the Mao resignation letter, I essentially accept the evidence given on behalf of the plaintiffs. Despite Mr MacAvoy’s uncertainty as to during which of the two meetings it was that it was handed to him, I find that it was in fact handed to him at the commencement of the meeting on 31 July 2006. Although the diary note of 31 July is not specific concerning this, reference to the Mao resignation letter early in the diary note appears to be corroborative of this. Furthermore, it seems clear that it was only after Mr Chen went to Sydney that the continued presence of Mr Mao on the official record was established. In so far as it matters, I accept that the Mao resignation letter emanated from Mr Chen. I have already found that Mr Mao’s signature on it is not genuine. That does not mean that it was put there by Mr Chen or that he had anything to do with the creation of the letter. There is no evidence that would support such a contention. It may be that he did in fact find it among Lym International or Ms Yang’s papers upon his taking possession of them in Sydney. But I do find that he conveyed it to Amanda to convey to Mr MacAvoy for the purposes of the 31 July 2006 meeting; that she took it to the meeting; and that it was there that it came into Mr MacAvoy’s possession. It flows from this finding that I find that neither Ms Yang nor Jasmine had anything to do with the creation of the Mao resignation letter.

The terms of the contract for sale and authorisation of the use of the CBA Accounts

112 These subject matters are somewhat disparate, but I deal with them together because the evidence concerning them is intermingled. In the case of each of these subject matters, Mr Chen’s case depends entirely on acceptance of his version of telephone conversations that he said he had with Ms Yang while he was in Sydney and she was in New Zealand.

113 Mr Chen deposed that on about 28 July 2006 he telephoned Ms Yang from Sydney and the following conversation took place:

“Me: ‘I have been informed by Kingsway finance that the mortgage over the property is [sic] currently stands at around $7.6 million Australian dollars. The development has not been completed. It does not appear to have been managed property and has not progressed for some months. I think the project is viable, but it has problems. I need to check that there are no serious construction problems and how much it might be worth. If everything is OK I am prepared to consider taking the property, paying its mortgage and forgiving your other debts.’

Yang: ‘But I thought it was being marketed for sale.’

Me: ‘No. A lot of work needs to be done before it will be ready to sell. Sandy gave me a Quantity Surveyors report from April this year which estimates a cost of $3.4 million to complete. I will send a copy of this to you. Some of the contractors have not even been paid. They are demanding payment from me.’

Yang: ‘Please pay the contractors.’

Me: ‘The Bank gave me access to Lym’s internet banking. I seem to have access to 3 bank accounts. I think one is for the company and the others may be family accounts.’

Yang: ‘Please use the money in all the accounts.’”

114 Ms Yang admitted that Mr Chen said words to the effect contained in the first paragraph of the above quotation, except for the last sentence. She denied that he said, “if everything is ok I am prepared to consider taking the property, taking its mortgage, and forgiving your other debts.” She recalled that there was some discussion about paying the contractors. She denied that he said, “the bank gave me access to Lym’s Internet banking ...”, and the rest of that paragraph. She denied that she said, “please use the money in all the accounts.”

115 Mr Chen deposed that on 28 or 29 July 2006 there was a telephone conversation in which Ms Yang said, “you can take the project if you agree to discharge the mortgage. The project can be part payment of my family’s debts.” He also deposed that she said, “you can use the money from all of the accounts, including the money from Sandy, towards finishing the project and paying off the mortgage. I don’t expect any of the money back ...”. Ms Yang denied having a conversation with Mr Chen to that effect.

116 Mr Chen deposed that around late July there were telephone conversations as follows:

“Me: ‘If I decide to go ahead, I propose a contract purchase price of $15 million. This will become the cost base for any capital gains tax I have to pay in the future. As you know, the Quantity Surveyors [sic] estimate that it will cost $3.4 million to complete. I am owed over $5 million by your husband’s company from the telecommunications shipments and $1 million dollars is still outstanding from the loan to your family trust. The cost of discharging the mortgage over the property is $7.6 million. If you wish I can pay off the mortgage direct to Kingsway Finance & Investment. If you want me to do this deal, the balance of the purchase price will have to be the forgiveness of all the other debts owed to me. I don’t want to put more than $7.6 million of my own cash into the project. I can’t do the deal otherwise.’

......

Yang: ‘OK. I will sell on the terms you propose. I would like you to pay off the mortgage directly so that I am relieved from the liability and I agree that the balance is the forgiveness of all the other debts owed to you.’

Me: ’Okay, but I will give it some further thought. I will arrange for my lawyers in Australia to send the contract of sale to your lawyers in Auckland. However, I have to do further investigations before I decide to buy.’”

Ms Yang denied that conversation.

Findings

117 I am inclined to accept Ms Yang’s evidence concerning these conversations. That inclination flows from my general preference of her evidence to Mr Chen’s. The inclination also flows from the inherent improbability of his evidence. I regard it as inherently improbable that Ms Yang would agree to the crediting of the whole of the purchase money to debts owed by the Liu interests to Mr Chen’s interests without any discussion concerning the identification and quantum of the particular debts involved. I also regard it as inherently improbable that she would have given a blanket authorisation of the use of all the moneys in bank accounts without those accounts being specifically identified, particularly as one of the accounts belonged to Jasmine rather than to her or Mr Liu.

118 However, in the end such a finding will not be necessary for the disposal of the first proceedings. Whether or not I accept Ms Yang’s evidence concerning these conversations, I am not prepared to find it established on Mr Chen’s uncorroborated evidence that conversations took place in the terms he alleged.

Conversations at meeting on 31 July 2006

119 I have in [45] to [47] above set out the documentary evidence relating to the meeting on 31 July 2006 at Mr MacAvoy’s office. Evidence was given concerning this meeting by all four participants, Mr MacAvoy, Ms Yang, Jasmine and Amanda. There were radically different accounts.

120 In his affidavit, Mr MacAvoy deposed that he could remember little of what occurred at the meeting except by reference to his diary notes and not much by reference to them. One of the things he recalled was that Amanda “primarily spoke at this meeting”. He was sure from the reference in the diary notes to Mr Mao that Mr Mao was discussed at the meeting. The position of the reference to Mr Mao in the diary notes suggests that the discussion was early in the meeting. In cross examination Mr MacAvoy did not recall what discussion there was concerning GST or whether that subject was raised in the presence of the others at the meeting.

121 Amanda deposed that the meeting was conducted in English and Jasmine translated for her mother. Amanda expressed doubt as to whether she should be there, but Jasmine said:

“Yes, because Paul is taking over the project and she needs to know what is going on because Paul is not here.”

122 Amanda said that Mr MacAvoy explained the main provisions of the contract and transfer to Ms Yang section by section with Jasmine translating the explanation. She deposed that:

“As Mr MacAvoy explained the documents to Mrs Liu, I recall Mr MacAvoy saying words to the following effect:

TM: ‘The purpose of the documents is to transfer the property from Lym International to Paul. The purchase price is stated as AU$15 million. This figure includes Australian GST meaning that Lym International will have to account for the GST to the tax office.’

Mr MacAvoy read out the section of the contract dealing with payment of the purchase price and said words to the following effect:

TM: ‘This means that Paul has to pay off the Kingsway mortgage. This would relieve you from any liability for the mortgage. The balance of the purchase price after payment of the mortgage is to be set-off against the debts which are owed to Paul. With this arrangement, you will not receive any money into your personal bank account or Lym International’s bank account for the transfer of the property. Is this what you want to do?’

Mrs Liu: ‘Yes.’

TM: ‘Are you sure you want to do this in New Zealand? As I’ve told you before, we are not Australian lawyers and cannot advise you on Australian law.’

Mrs Liu: ‘Yes.’”

123 In cross examination Mr MacAvoy had put to him Amanda’s account as set out above. He said that he was almost certain that he would have said that the purchase price was $15 million. He denied Amanda’s account of what he said about the GST. He conceded that he said that Mr Chen was going to have to pay off the Kingsway mortgage. He said that he could not recall the detail of what he said about Special Condition 33, but conceded that he may have said that Ms Yang would not receive any money into her personal accounts or Lym International’s Bank account on the transfer of the subject property. He said that he could not deny that Jasmine did most of the translating but that “bearing in mind that they were all on very friendly terms and all speaking, I could not be sure at any one time who was actually translating or clarifying certain issues. I simply didn’t know.” He said that to the best of his recollection that they both did some translating to Ms Yang.

124 Ms Yang deposed as follows:

“During the course of that meeting, Amanda Chen did most of the talking with Tim MacAvoy. He said ‘the purchase price is $15m’. I said to Amanda Chen ‘Why is the purchase price $15m’ and she said ‘I don’t know, Paul was taking care of that – trust him.’ He turned over another page and let Jasmine read it. She said to me and Amanda ‘I cannot understand it’. I said to Amanda ‘Can you explain it’. Amanda then read the page and said ‘It says here $7.6m is to repay the loan and the balance is owed by Paul to Lym’. Tim then referred to GST. Amanda then said to me ‘there is GST of about $1.5m. Don’t worry about GST as it’s a later thing and I think after the sale Lym will get money and we can discuss GST then’. I accepted Amanda Chen’s explanation and signed the document. I would never have signed the contract if Amanda Chen had not said [sic] to me that Paul Chen would not pay the balance of the purchase price to Lym.”

125 Jasmine deposed as follows:

“On 31 July 2006, my mother and I went to Mr MacAvoy’s office with Amanda Chen. Amanda was late for the meeting and came in flustered. Before we went into that meeting, Amanda Chen gave my mother a document which is annexure C and said ‘this is the document Paul was talking about’. My mother gave that document to Mr MacAvoy during the meeting. Mr MacAvoy showed us the special conditions to contract to transfer the property to Paul Chen and said to us words which I did not understand. We asked Amanda to explain, and she said:

‘the contract price is $15 million, part of the proceeds of sale will be paid to the finance company, Kingsway, and that the balance will be a debt due by Paul Chen to Lym International’.”

126 In cross examination Jasmine was asked concerning the contract:

“Q He explained it to you?

A WITNESS: He explained it briefly, you mean? He didn’t every page explained.

Q But he explained a few pages, is that right?

A WITNESS: A few things.

Q What do you recall that he explained?

A WITNESS: He just referred the price first and he referred GST and he also let me see the special condition page.

..........

Q Mr MacAvoy showed you the special condition page?

A WITNESS: Yes.

Q To your recollection did he say anything about what was in the special condition page?

A WITNESS: He just, before he, the contract is in front of him and now he turn this way and show me that page and I read and I remember he refer 7.6 million mortgage.

Q That was at the time that he was showing you the special condition page?

A WITNESS: Yes. I remember that and then I read, there is more words after that and I read, I tell my mum, ‘I can’t understand’.”

Findings

127 On this confused evidence, I make the following findings concerning what was said at the 31 July meeting.

128 I find that Mr Mao was discussed at the meeting near its beginning. I find that Amanda had given a copy of the Mao resignation letter to Ms Yang and that it was given to Mr MacAvoy at this meeting.

129 There are aspects of Amanda’s evidence concerning events leading up to and at this meeting that I do not accept. I do not accept her evidence of the paucity of communication between her husband and herself, particularly concerning the contract for sale, while he was in Australia prior to its execution. I do not accept her evidence of her reluctance to attend the 31 July meeting and her minimal participation in it. I accept Mr MacAvoy’s evidence that she participated freely in the meeting. I find that she attended the meeting as her husband’s agent with the aim of ensuring that the contract for sale was in fact executed by Ms Yang.

130 I find that the meeting was conducted in English and that at least part of what was said was translated to Ms Yang. I find that both Jasmine and Amanda participated in translations to Ms Yang. I cannot make any comprehensive findings as to what was said in English at the meeting and I cannot make any finding at all as to what parts of what was said in English were translated to Ms Yang, by whom and in what terms.

131 I find that Mr MacAvoy did not go orally through all the terms of the contract for sale, but referred to only some of them. I find that he mentioned the purchase price of $15 million and made some reference to Special Condition 33. I am not prepared to find, on the confused evidence, whether he merely turned the page to Jasmine and drew attention to the Special Condition or whether he said something in English concerning its content. If he said anything in English concerning its content, I am not prepared to make any finding as to what it was or whether or in what terms it was translated to Ms Yang. I find that it was said by someone that Mr Chen had to discharge the Kingsway mortgage of $7.6 million.

132 If it were necessary, I should be prepared to find, on the evidence of Ms Yang and Jasmine, that Amanda did say that the balance of the purchase price would be a debt due by Paul Chen to Lym International. However, despite the purpose of her attendance at the meeting, I am not prepared to find that Amanda was authorised by Mr Chen to make such a representation (fraudulently or otherwise) on his behalf. There is no evidence that he authorised the making of such a representation or ever himself expressed such a proposition. It may have been a representation made by Amanda of her own motion or may have been a misunderstanding by her at the meeting of the terms of Special Condition 33. In any event, there can be no finding that such a representation should be attributed to Mr Chen.

133 However, the long and short of these findings is that I do not find it established that Ms Yang ever had conveyed or explained to her the terms of Special Condition 33 as contained in the contract for sale.

Problem with Project 1

134 Ms Yang said in her first affidavit sworn 27 October 2006 that about early August 2006 she had a conversation with Mr Chen in which he said:

“Paul: ‘The Company has got some problems with its first real property project. [when he was referring to the company I took him to mean Lym] The company has completed that project and all properties have been sold. Now, all the purchasers of those real properties have decide to sue, your company, because of the quality problems of those properties. As the builder of those properties has gone into liquidation. Your company will be solely liable for a damage of more than $0.6 million to those purchasers. If you are not [sic] going to transfer the development property, you must do it quickly, the plaintiffs will freeze any dealing in relation to the development property. If that is the case, the company will suffer a big loss.’”

135 However, at the time that she swore that affidavit she believed that the contract was executed by her only about a week before its settlement on 15 August 2006 and I take it that she meant that the conversation took place before her execution of the contract. Mr Chen denied that conversation.

136 At about the same time she deposed that Mr Chen said to her:

“You can transfer the project to me, and then neither the company nor you can then be liable for any money to the purchasers, otherwise the company will be liable to these purchasers and you could go to Gaol. Don’t worry about anything, I will look after it all.”

137 In her affidavit sworn 2 December 2007 Ms Yang deposed that in a telephone call from Australia after he had gone there Mr Chen said to her:

“Lym has to pay $600,000 to purchasers (of the other project) otherwise they may sue Lym and its assets will be frozen. The project must be completed within 2 months because the construction licence only has 2 months left and it will cost about $3.4 million to finish the project”

138 Concerning the $600,000 claim Ms Yang said in cross examination:

“Q By 31 July you were anxious to sell this property; correct?

A INTERPRETER: After Paul came to Sydney and examined the property, he gave me a lot of information. We did a lot of discussion over telephone. He told me the mortgage was still there, it’s still 7.6 million and the product was still there but another 3.4 million was required to complete it. He also said the construction licence would expire in two months so the product needed to be completed within two months. After that he told me a lot of other information. He said there was quality problem with the first product, so Lym owed the project that of over 600,000. I said, ‘Where can I find the 3.4 million to invest in it?” There were all the pressures and many things happened to my family. I was very unwell at the time, so at last I agreed to sell the project.”

139 In reference to the mention by Mr Chen of the Project 1 claim, Jasmine did not give any evidence concerning this in her affidavits. However, asked about it in cross examination she immediately responded that her mother told her after a telephone conversation with Mr Chen in Sydney that there was a $600,000 liability arising from Project 1.

140 Mr Chen denied these conversations with Ms Yang. Furthermore, a complex submission was made on his behalf that he had not and could not have heard of the Project 1 claim before 31 July 2006 and so could not have made these representations before Ms Yang executed the contract for sale. This submission depended upon a detailed analysis of the evidence concerning the identity and contents of the boxes of records handed over to Mr Chen by Sandy Lai.

Findings

141 After careful consideration, I have accepted the evidence of Ms Yang (with limited corroboration from Jasmine) that these statements were made to her by Mr Chen, including the reference to Ms Yang going to gaol. I have also accepted that they were made before she executed the contract for sale. Mr Chen was determined to induce her to enter into the contract for sale to solve his problem with the debts owed by the Liu interests. He knew the reference to imprisonment would be alarming to her because of her fears of the Chinese authorities. These matters increase the likelihood of her version and reinforce my general preference of her evidence to his. I am not unmindful that her account of what he said was somewhat garbled and inaccurate in that the claimants of the $600,000 were said to be purchasers of town houses rather than the next door neighbour. However, there was in fact only one potential source of debt and what Mr Chen was referring to in reality was the $600,000 claim by Mrs Marcolongo in the District Court proceedings, whether he erroneously referred to purchasers or the mistake was made in Ms Yang’s recounting of the conversation. I find that he did make representations to her that there was an outstanding claim or claims against Lym International of $600,000 and that Lym International should divest itself of the subject property as a matter of urgency in order to deflect that liability from the company and herself. This information contained in the representations came into his possession as Lym International and Ms Yang’s fiduciary agent and the representations were used by him to encourage them to enter into the transaction with him that he desired.

142 I find the suggestion that he could not have known of the claim arising from Project 1 before 31 July unconvincing. Although there is no express evidence of his having learnt of it before, as opposed to after, 31 July, it is clear that he had access before then to copious written records of Lym International and Ms Yang and opportunities to speak to a variety of people concerning their affairs, including Project 1, which were potentially sources of the information. I infer that he had obtained it from some source before 31 July 2006.

Whether the transaction was entered into with intent to defraud creditors

143 Concerning Mrs Marcolongo’s claim in the second proceedings, significant admissions as to the intent with which the transaction was entered into were made in cross examination by Ms Yang. The most relevant passages are as follows:

“Q So the judge should understand that when you came to sign the contract in Tim MacAvoy's office, you did so because you wanted to get the property, the second project, out of Lym International’s name and away from those who might be making a claim against the company. Is that right?

A INTERPRETER: That’s one of the reasons ...

.............

Q ... Do you remember that he telephoned you and said that you can transfer the project to him, then neither the company, that is Lym International, or you would be liable for any money to the purchasers?

A Yes, his address is that he called me and told me that.

Q He also said otherwise the company, Lym International, will be liable to those purchasers?

A He says Lym International will be in big trouble and suffer a big loss.

Q That was a matter that concerned you at the time?

A Yes.

Q In addition he said to you that you could go to gaol?

A Yes.

Q No doubt you were concerned about that as well?

A Yes, of course.

Q We should understand, should we, that you signed the contract at page CB1056 so as to avoid the company, Lym International, suffering a big loss, is that right?

A Yes. I signed that contract but he also told me other things.”

144 It was submitted that I should not accept this evidence of Ms Yang’s as self serving. Whilst it is against her interests in the second proceedings, she herself in the first proceedings is seeking the setting aside of the transaction.

Findings

145 The objection that those admissions were self serving, because they support Mrs Marcolongo’s case, the success of which would achieve the setting aside of the transaction, which Ms Yang also sought, is not without force. However, particularly in the context of cross examination in which the admissions were made, including the promptness of the responses, I did not have any impression that the answers were calculated to advantage Ms Yang, rather than being frank and straightforward responses to the propositions put to her. I accept her evidence to this effect. Incidentally, Ms Yang’s preparedness to admit that avoidance of the $600,000 claim was a reason for her entering into the contract for sale also conduces to acceptance that she knew of the claim before the contract was entered into.

THE LAW

Fiduciary relationships

146 The circumstances in which persons will be taken in equity to stand in a fiduciary relationship so as to attract equity’s jurisdiction to regulate such relationships was stated by Lord Chelmsford LC in Tate v Williamson (1866) LR 2 Ch App 55 at 60 – 61 as follows:

“The jurisdiction exercised by Courts of equity over the dealings of persons standing in certain fiduciary relations has always been regarded as one of a most salutary description. The principles applicable to the more familiar relations of this character have been long settled by many well-known decisions, but the Courts have always been careful not to fetter this useful jurisdiction by defining the exact limits of its exercise. Wherever two persons stand in such a relation that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person so availing himself of his position will not be permitted to retain the advantage, although the transaction could of have been impeached if no such confidential relation had existed.”

This statement was adopted in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 per Dawson J at 142. And see Chan v Zacharia (1984) 154 CLR 178 at 198 - 199 per Deane J.

147 There must constantly be borne in mind in determining whether or not a fiduciary relationship exists and its ambit the warning by Mason J in the Hospital Products case at 102 that the categories of fiduciary relationships and the duties imposed on fiduciaries are infinitely varied in accordance with the circumstances which generate the relationship.

148 One of the ways in which the fiduciary may be relieved from what would otherwise be the consequences of the relationship is by agreement between the parties: per Mason J ibid. As was said by Lindgren J in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd [1998] FCA 564, “... the scope of the fiduciary aspect of a relationship must be consistent with any agreement between the parties which is effective to control the relationship: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (Mason J).”

149 If a person is placed in a fiduciary relationship with another in relation to a piece of property special rules apply in relation to the purchase by that person of the property. They have been well defined and were stated by P D Finn in Fiduciary Obligations (1977) as follows at [392]:

“For several centuries at least, the courts have refused to allow a person to use for his own advantage in purchasing property, information or knowledge acquired about that property, if it was acquired as a result of or in the course of some confidential dealing with that property for another’s benefit. That other, and not he, is entitled to the benefit of that information in any dealing between them. The possibility that such knowledge or information could be so acquired and misused has led the courts to impose an exacting standard of proof upon the confidential purchaser if he wishes to maintain his purchase. This proof stems from the broad equitable rule that –

Whenever a person (F) is acting or has acted in a confidential position for another (B) in relationship to specific property, any purchase by F of that property for himself or for another is voidable at the suit of B unless F can show that B was aware of and consented to F’s dealing, and can prove that the transaction was fair, ie,

(1) that full value was given for the property; and

(2) that he disclosed to B any and all the information which he has acquired concerning the value of the property, and concerning the contract itself.” (footnotes omitted)

As to the need for full disclosure and the free giving of consent, see Maguire v Makaronis (1997) 188 CLR 449 at 466 - 467 per Brennan CJ, Gaudron, McHugh and Gummow JJ.

150 The application of these rules and their ambit in a case with significant resemblances to the present was discussed in McKenzie v McDonald [1927] VLR 134 per Dixon AJ. That was a case in which the defendant, an estate agent, assumed the function of advising and assisting a woman in a difficult situation concerning the disposal of her farm property. In the course of carrying out his function he entered into an agreement with her to exchange her property for his suburban shop and dwelling. Dixon AJ said at 143 – 144:

“The plaintiff impeaches the transaction of exchange upon the ground that a confidential relationship had been established between herself and the defendant ‘in hac re,’ which placed him under a duty of full disclosure and impartial and fair dealing when he assumed the position of a contractor with her.”

His Honour continued at 145:

“Did the defendant occupy such a position of confidence towards the plaintiff as to bring him within the equitable requirements of full disclosure and fair and open dealing? In my opinion he did. He assumed the function of advising and assisting a woman in a difficult situation in the acquisition of a residence by means of the disposal or pledging of her property. He was necessarily furnished with an intimate knowledge of her financial position, her obligations, and family needs. He proceeded to advise her upon the wisdom and practicability of raising money by mortgage, and acted for her in an effort to do so. He undertook the sale of her farm, and acquired such information as he could in relation to it, and offered his counsel as to its condition and the price she had asked and in effect should ask. In this circumstance he was, in my opinion, an agent who came within ‘the rule of the Court; which, however, does not prevent an agent from purchasing from his principal, but only requires that he shall deal with him at arm’s length, and after a full disclosure of all that he knows with respect to the property’: per Sir E Sugden, LC, Murphy v O’Shea [1845] 2 Jones & Lat 422, at p 425; 69 R R 337, at pp 339-40. This is part of ‘that great rule of the Court, that he who bargains in matter of advantage with a person placing confidence in him is bound to show that a reasonable use has been made of that confidence; a rule applying to trustees, attorneys, or anyone else’: per Lord Eldon, Gibson v Jeyes [1801] 6 Ves J 266 at p 278; 31 ER 1044 at p 1050. ‘A principle ... resting upon grounds connected with the clearest principles of equity and the general security of contracts, viz, that an agent to sell shall not convert himself into a purchaser unless he can make it perfectly clear that he furnished his employer with all the knowledge which he himself possessed’: per Lord Erskine, Lowther v Lord Lowther [1806] 13 Ves J 95, at p 103; 33 ER 230, at p233.”

A recent not dissimilar case is the decision of Palmer J in this Division in Pedersen v Larcombe [2008] NSWSC 1362, in which a sale to a real estate agent was set aside.

151 It is quite apparent from the foregoing authorities that it is the fiduciary who bears the onus of proof that he has made reasonable use of his position of confidence, including, where disclosure is required, that full and proper disclosure has been made. It is equally clear that once it is established on the evidence that a fiduciary relationship exists, if the fiduciary relies upon agreement between the parties to discharge him from some duty that would otherwise be imposed, it is for the fiduciary to establish the agreement upon which he relies.

Conveyancing Act 1919 s 37A

152 The section derives from the Statute 13 Eliz I c 5, which was in force in New South Wales until 1930, when replaced by s 37A. Section 37A(1) and (3) are as follows:

“(1) Save as provided in this section, every alienation of property, made ... with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

.......

(3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.”

153 A useful recent summary of the law relating to s 37A is embedded in the monumental judgment of Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239 at [9146]; and see generally P W Young and ors, 2 Conveyancing Service New South Wales [30597.1] - [30597.30].

154 It is important to note that s 37A, unlike the corresponding provisions under the Bankruptcy Act 1966 (Cth), requires only that there be an intent to defraud creditors, not that that be the sole or principal intention with which the transaction is carried out: see Andrew (as trustee for the estate of Ward (dec’d)) v Zant Pty Ltd (rec and mgr apptd) (2004) 213 ALR 812; The Bell Group case ibid; and see also Barton v Deputy Commissioner of Taxation of the Commonwealth of Australia (1974) 131 CLR 370 at 375 per Stephen J.

155 As to the meaning of “creditors”, Owen J said in The Bell Group case ibid:

“It is not necessary that the disposition affects creditors as a class generally; it is sufficient if one or some creditors are adversely affected. In this context ‘creditor’ is not confined to those to whom a debt is (at the time of the disposition) presently due and owing. It extends to impending liabilities and future creditors: Trustees of the Property of Cummins (a bankrupt) v Cummins [2006] HCA 6; (2006) 227 CLR 278, 290-291.”

And see Kang v Kwan (2002) 11 BPR 20,623 at [187], [188] per Santow J.

156 The onus of proof under s 37A rests on the party seeking to avoid the transaction, including the onus concerning absence of good faith under s 37A(3): see the decision of the Full Court in P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 527 – 528; my judgment in Huynh v Helleh Holdings Pty Ltd (2001) 10 BPR 19,333 at [18]; and The Bell Group case ibid.

CONCLUSIONS

5533/06 – Lym International, Ms Yang and Jasmine’s application to set aside transaction

157 From the factual framework and the findings I have made concerning the contested facts, the conclusions I have reached concerning the plaintiffs’ case are as follows.

158 There is no doubt that prior to May 2006 Mr Liu and Ms Yang depended upon Mr Chen for advice and assistance relating to their property and business in New Zealand and Australia. After Mr Liu’s detention in May 2006, the dependence of Ms Yang on Mr Chen became greater, owing to her deprivation of the financial and other support of Mr Liu. There is no doubt that she reposed deep trust in Mr Chen. In her attempts to hide money from possible pursuit by the Chinese authorities she paid some $67,000 to Mr Chen to be placed in a bank account of Heard Park and simply to be returned to her as requested.

159 Mr Chen conceded in his evidence that, prior to 24 July 2006, he was anxious to buy the subject property by a transaction taking a form that would effect the discharge of debts from the Liu interests to him and his interests. This was obviously because he had fears that, by reason of Mr Liu’s detention, these debts would never be repaid. It was with this intention in mind that he procured the powers of attorney from Lym International and Ms Yang that were executed in his favour on 24 July 2006 in Mr MacAvoy’s presence, although without, as I have found, revealing at the time that this was his intention.

160 Ms Yang undoubtedly signed the Lym International power of attorney as that company’s sole director. It seems plain to me that at that stage she was the only possible source of information as to the directors of that company. It does not follow from that and I do not find that she did not on that day believe that Mr Mao had ceased to be a director of Lym International. It may well be that she believed that Mr Mao’s departure in January/February 2006 had included his ceasing to be a director of the company. I certainly do not find that she was aware that he continued to be a director of the company when on or before 24 July 2006 she gave the information that she was the sole director of the company. However, I have already found, contrary to evidence given by him, that Mr Chen’s intention to acquire the subject property was not revealed on 24 July 2006, nor was it revealed to Ms Yang before that time. The very next day Mr Chen set out for Sydney to investigate Lym International and Ms Yang’s affairs relating to the subject property and to report to her concerning it.

161 There can be no doubt that in Sydney on 25 July 2006 Mr Chen went first to Middletons Solicitors and there he instructed Mr Mackay and Mr Everitt to prepare a contract for sale from Lym International to him of the subject property. This was before he had contacted Sandy Lai or inspected the subject property. There is no doubt that he specified the purchase price of $15 million. There is equally no doubt that that purchase price had not been discussed with or mentioned to Ms Yang up to this point in time. The contract included Special Condition 33, the terms of which can have emanated only from Mr Chen in conjunction with drafting input from his solicitors. Paragraph (b) was to the effect that, in addition to the payment by the purchaser of the Kingsway mortgage, the vendor was to take in satisfaction of the purchase price debts owed to Mr Chen by Lym International or a related entity as defined in the Corporations Act 2001. The terms of the Special Condition show an awareness of the distinction between an individual person, a corporation and a corporation related to another corporation, as a party to a debt: see above at [48]. The Special Condition provides for the use as part of the purchase price of debts owed only to Mr Chen personally.

162 The contract was sent off to Mr MacAvoy in New Zealand for Ms Yang’s signature as the sole director of the vendor to be obtained on it.

163 As appears below, I have come to the conclusion that, in so far as it is material, it is not clear on the evidence that Ms Yang had any knowledge of the terms or understanding of the effect of Special Condition 33(b). Her subjective understanding may well not matter, since, if this clause were relied on, the fact that she had signed a document containing the clause might well lead to it being regarded as binding upon her in the absence of the establishment of one of the exceptions to the rule concerning the binding nature of executed written agreements: see Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 180 - 181 per curiam; Tu v Primary Contracting Services Pty Ltd [2009] NSWCA 7 at [26].

164 However it is not Special Condition 33 in the form in which it is contained in the contract for sale that Mr Chen relied on. There is good reason for this. On the evidence, there was no debt owing to him personally that fell within the Special Condition. Instead, Mr Chen relied upon an oral agreement that he said was come to in a telephone conversation while he was in Sydney and Ms Yang was in New Zealand during the last days of July 2006. I have already recorded that I am not prepared to find that the alleged conversation or conversations took place: see above at [118]. In any event, as deposed to, they were in equivocal terms. Even if I accepted that conversations took place as deposed to by Mr Chen, the references to the debts were in terms as equivocal as “your other debts”, “part payment of my family’s debts” and “I don’t expect any of the money back”. There is nothing in the evidence that indicates with any precision what it was that was being adverted to by either of the parties to this conversation, if it did in fact take place, so as to enable the conversation to be given effect to as forming a contractual obligation that would affect the destination of hundreds of thousands or millions of dollars.

165 The only references more precise than this that Mr Chen claimed to have made were in the alleged conversation set out in [116]. I do not accept that that conversation took place, but in any event the references in this conversation are no more precise than, “I am owed over $5 million by your husband’s company for the telecommunications shipments and $1 million is outstanding from the loan to your family trust”. Even if they were used, these words are totally lacking in precision, particularly bearing in mind the other evidence that suggests that those debts, to the extent that they existed, were not owed to Mr Chen but to related entities, principally Heard Park. Similarly the expression allegedly used by Ms Yang on this occasion, that the “forgiveness of all the other debts owed to you”, is utterly imprecise.

166 There was a belated attempt to establish that Ms Yang was liable to Mr Chen upon a personal guarantee of what have been called the Shenzhen debts: see [19] above. However, I have not found that guarantee established and, even if it were, the liability would have been to Heard Park rather than Mr Chen.

167 Equally, it is in telephone conversations at about the same time as those relied on to establish the alternative version of Special Condition 33 that Ms Yang is said to have authorised Mr Chen to take from the CBA Accounts any moneys he was minded to and use them in any way he chose, including satisfaction of the purchase price of the subject property and the payment of the stamp duty to which he became liable upon entry into the contract for sale. Again, I have already indicated at [118] above that I do not accept on the evidence that those conversations took place.

168 Again, I accept that it was at about this time, before she had signed the contract for sale, that Mr Chen urged upon Ms Yang the urgency of the sale of the subject property bearing in mind the consequences that might arise from her retaining it. I have in fact found at [141] above that he did indicate to her that there was a potential debt of $600,000 arising from Project 1 that both Lym International and she would escape if Lym International divested itself of the subject property as a matter of urgency. I have taken into account the submissions that Mr Chen put against his having said this to her. I have come to the conclusion on the balance of probabilities that, as garbled as her version was of what he said, he did make a representation to this effect to her and that what he was referring to was the claim by Mrs Marcolongo in the District Court proceedings. This information came into his possession as Lym International and Ms Yang’s fiduciary agent and the communication was used by him to encourage those parties to enter into the transaction with him that he desired. I also find on the balance of probabilities that he did say to her at about this time that if she did not avoid this liability that it was possible that she could be gaoled, a consequence he undoubtedly knew she would fear by reason of her husband’s predicament in China.

169 On 31 July 2006 there was a meeting in Mr MacAvoy’s office in Auckland at which Ms Yang signed the contract for sale. Present were Mr MacAvoy, Ms Yang, Jasmine and Amanda. I have already found in [111] above that the Mao resignation letter was brought to the 31 July 2006 meeting by Amanda and was handed to Mr MacAvoy at that meeting. The evidence of what occurred at that meeting is again in large part very unclear.

170 It seems to me that it was clear enough that Amanda was attending on Mr Chen’s behalf with the aim of ensuring that the contract for sale was in fact executed by Ms Yang. It was equally clear that Mr MacAvoy was not acting as solicitor for Lym International and Ms Yang in the transaction but was merely procuring Ms Yang’s signature to the documents. It is not at all clear what explanations he in fact gave to Ms Yang concerning the contents of the documents. It is equally, or more, unclear as to the terms in which those explanations were translated to Ms Yang. It is not even clear who translated them. On the evidence, I have concluded at [130] above that both Jasmine and Amanda participated in the translation process.

171 There seems little doubt that the purchase price of $15 million was mentioned. There is no doubt that there was some adversion to Special Condition 33. The evidence is conflicting as to whether Mr MacAvoy simply turned the Special Condition towards Jasmine, drawing attention to it or the extent to which he gave an explanation of it. I am inclined to accept the evidence of Ms Yang and Jasmine that Amanda gave an explanation that its meaning was that the mortgage debt of $7.6 million was to be repaid and that “the balance is owed by Paul to Lym”. This was on any basis inaccurate but, despite the fact that I have found that in general terms Amanda attended the meeting as Mr Chen’s agent to see if Ms Yang’s signature could be procured, I am not prepared in all the circumstances to find a sufficient degree of authorisation to fix Mr Chen with the making through Amanda of a deliberately false representation to procure the execution of the contract for sale.

172 The long and short of it is that by the time Ms Yang executed the contract for sale she had not, on the evidence, had a satisfactory explanation of its effect, in particular that the basis on which it was being signed was that the whole balance of the purchase money over and above the mortgage debt could be taken by Mr Chen, who was in a fiduciary relationship with Lym International and Ms Yang, in satisfaction of any debts that were owed by anyone associated with Ms Yang to anyone associated with Mr Chen.

173 Upon carrying out investigations in Sydney, Mr Chen was to report the results to Ms Yang and, as a fiduciary agent, was obliged to report them in a complete and truthful fashion. He conveyed to her the quantity surveyor’s estimate of $3.4 million to complete the project contained in his report of 7 April 2006. Mr Chen subsequently received a report from the quantity surveyor dated 3 August 2006 revising this estimate to $1.8 million. This was received some time before the contract for sale was brought into effect by Mr Chen executing it on 15 August 2006. Although this report was undoubtedly received before the contract for sale became binding, Mr Chen did not convey this revised estimate or any advice concerning its significance to Ms Yang. In evidence he gave various explanations, including that she would not wish to hear it, none of them convincing, for his failure to do so. Whatever his beliefs concerning the significance of this report he was in my view obliged to report it to Ms Yang with a frank and truthful explanation concerning it.

174 After the execution of the contract for sale by Ms Yang on 31 July 2006, Mr Chen continued to investigate the situation for more than a fortnight until 15 August 2006. It was not until that day that he brought the contract for sale into operation by executing it and organised for its virtually simultaneous completion.

175 There can be no doubt that Lym International had no solicitor acting for it in connection with the completion of the contract for sale and that this was well known to Mr Chen. He conceded in evidence that it was he who dealt with Kingsway on Lym International’s behalf to arrange for the calculation of the correct amount outstanding and the discharge of the Kingsway mortgage.

176 On completion of the transaction, no settlement statement was drawn up and presented to Lym International or Ms Yang, either before or after the settlement took place. Particularly significant in view of the contractual basis on which it was said that the transaction was being settled, there was no identification of the debts which it was said were being satisfied by the completion of the contract for sale; their quantum; or the degree to which they were being satisfied. There was not any identification of any surplus of those debts over the amount satisfied by settlement of the transaction. There was not the provision of any acknowledgement of satisfaction of the debts which the debtors could at any time in the future produce as evidence of their discharge from the debts.

177 Furthermore, the evidence shows that on settlement the fund that included the moneys transferred from the Yang Account and Jasmine’s Account was used in part (as to $360,000) to pay out the Kingsway mortgage and to pay some $810,000 stamp duty for which Mr Chen was liable on the transfer.

Summary

178 In summary, the factual situation as I have found it is as follows. By 24 July 2006 Mr Chen had come to regard himself as a potential purchaser of the subject property. His intention was to enter into this transaction in a way which would not only obtain the subject property for him, but would discharge debts owed to him or his associates by Mr Liu, Ms Yang and their associates, the recoverability of which Mr Chen regarded as dubious because of Mr Liu’s imprisonment in China. He did not on 24 July 2006 inform Ms Yang, Jasmine or Mr MacAvoy of these intentions at the time that he procured the execution of powers of attorney in his favour from Lym International and Ms Yang. Upon his procuring those powers of attorney and going to Sydney the next day to investigate and report upon the progress of Project 2, its completion and its possible sale, he entered into a fiduciary relationship with Lym International and Ms Yang. The duties imposed under that fiduciary relationship included duties to report to them fully and frankly concerning the results of his investigations. Furthermore, in relation to his intention to purchase the subject property he came under a duty of dealing with his principal at arm’s length, after a full disclosure of all that he knew with respect to the subject property and in circumstances in which he could prove that the transaction was fair. In this context, he procured Ms Yang’s execution of the contract for sale containing the unusual and in some ways uncertain Special Condition 33 in circumstances where it is not established that the effect of that Special Condition was explained to her. Whilst her execution of the contract for sale was witnessed by a solicitor, that solicitor made it plain that he was not acting for Lym International or for Ms Yang upon the transaction. The execution also took place in the presence of Amanda, who attended as Mr Chen’s agent to ensure that the execution took place. Amanda on that occasion misrepresented to Ms Yang the effect of Special Condition 33, although I do not find that this representation was authorised by Mr Chen as a fraudulent misrepresentation. However, as I have said, on the evidence I do not find it established that Ms Yang understood the effect of Special Condition 33. In the end, Special Condition 33 was not put into effect according to its terms. It could not be, because, on the evidence, there were no debts that fell within its terms. It would seem that, apart from moneys paid in discharge of the Kingsway mortgage, the purchase price was satisfied by being credited to debts owed by the Liu and Yang interests to interests associated with Mr Chen, probably Heard Park. Concerning this the following observations must be made. It is said that Mr Chen was authorised in this course by Ms Yang in a telephone conversation between them. I have found that that authorisation was not established: see [118] above. Moneys were taken from the Yang Account and Jasmine’s Account and placed in the Lym International Account. Mr Chen achieved this by the use of the powers of attorney. Again, he said that he was authorised in this course (including the taking of money from Jasmine’s Account) in a telephone conversation with Ms Yang. Again, I have found that such a telephone conversation was not established: see [118] above.

179 I do find that in a telephone conversation Mr Chen said to Ms Yang that if she did not dispose of the subject property quickly the existence of a $600,000 claim or claims arising out of Project 1 could have disastrous consequences for her, including her imprisonment, but that both Lym International and she personally, would escape those consequences if the subject property were disposed of quickly. Having informed Ms Yang of Mr Richmond’s $3.4 million estimate of the cost of completing Project 2, Mr Chen received, but did not communicate to Ms Yang, Mr Richmond’s revised estimate of $1.8 million. This he was bound to do, whether or not he regarded it as accurate, not that I accept what he said concerning his view of it. All these things occurred before the contract for sale came into operation by Mr Chen’s execution of it on 15 August 2006. On the same day he gave instructions for completion of the contract for sale on behalf of Lym International as well as on his own behalf. Again, no solicitor acted for Lym International. Mr Chen did as agent whatever was necessary for the completion of the contract by Lym International, including negotiation and agreement with Kingsway as to the amount necessary to pay out the Kingsway mortgage. The fund that included the moneys transferred from the Yang Account and Jasmine’s Account was used in part (as to $360,000) to pay out the Kingsway mortgage and to pay some $810,000 stamp duty for which he was liable on the transfer. No settlement statement was produced or delivered to Lym International or Ms Yang and there was no specification to them or to any relevant debtor of any particular debts to the payment of which any part of the balance purchase price was attributed.

180 The pleading of the plaintiffs’ case as set out in [60] to [66] above is not particularly neat or orderly. However, in my view, the relevant elements necessary to be proved to support findings for the plaintiffs in this matter are sufficiently contained in the pleading allegations as they are set out.

181 I conclude that, under the circumstances set out, the transaction was entered into and carried out in breach of Mr Chen’s fiduciary duties to Lym International and Ms Yang. Again, in view of the lack of authorisation of the taking of $1.2 million from the Yang Account and $120,000 from Jasmine’s Account, these amounts were misappropriated by him. The plaintiffs are entitled to declarations accordingly.

5049/07 MRS MARCOLONGO’S APPLICATION TO SET ASIDE TRANSACTION

182 My acceptance of Ms Yang’s admissions concerning the avoidance of the potential $600,000 liability at [145] renders the decision of the second proceeding comparatively simple. Turning to the words of s 37A of the CA, I find that the alienation of property was made “with intent to defraud creditors”. Mrs Marcolongo is a person prejudiced by the transaction and therefore entitled to bring proceedings. She had at the time and has a claim for some $600,000 against Lym International. Although she was not within the terms of the category of creditors as expressed in the admissions it was indeed her potential debt of $600,000 intended to be referred to. Mr Chen cannot characterise himself as a purchaser in good faith not having notice of the intent to defraud. This equally flows from the fact that I have found at [141] above that he pressed upon Ms Yang the existence of the claim and urged her to carry out the transaction expeditiously in order to avoid its effect. Mrs Marcolongo is therefore entitled to have the transaction declared voidable.

RESULT

183 Bearing in mind supervening events, including the grant on settlement of a mortgage over the subject property to the Westpac Bank and the expenditure of funds by Mr Chen on the subject property, further submissions are necessary as to the actual relief to be granted in both the first proceedings and the second proceedings, beyond the declaratory relief mentioned above: see Maguire v Makaronis ibid; Silvera v Savic (1999) 46 NSWLR 124 at [72] per Hodgson CJ in Eq (as his Honour then was); Green v Schneller (2002) 11 BPR 20,935 at [101] per Barrett J. I shall put the matter in before me on a day in the near future for those submissions, which are invited from the Westpac Bank as well as from the other parties. Any debate about costs may take place on that occasion.

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LAST UPDATED:
10 March 2009