Fan v Tang & Ors [2010] NSWSC 11 (28 January 2010)

NEW SOUTH WALES SUPREME COURT

CITATION:
Fan v Tang & Ors [2010] NSWSC 11

JURISDICTION:
Equity

FILE NUMBER(S):
1675/08

HEARING DATE(S):
2 September 2009

JUDGMENT DATE:
28 January 2010

PARTIES:
Plaintiff: Lap Kay Frank Fan
First Defendant: James Chi Kit Tang
Second Defendant: JV Capital Pty Limited
Third Defendant: Vicky Lai Ki Yang

JUDGMENT OF:
Slattery J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable

COUNSEL:
Plaintiff: Mr S Nixon
Defendants: No appearance

SOLICITORS:
Plaintiff: McCullough Robertson Lawyers
Defendants: No appearance

CATCHWORDS:
EQUITY
trusts and trustees
liabilities of trustees
proceedings between beneficiaries and trustees
general principles
fiduciary obligations
remedies and procedure
property purchased in name of another but purchase money not provided by that person
no evidence of intention to vest a beneficial interest in the property in the nominal purchaser
second and third defendants hold interests in the property on resulting trust
plaintiff not ordinarily resident in Australia
no contravention of Foreign Acquisitions and Takeovers Act 1975 (Cth)
property acquired by operation of law
exemption under s 12A(6)
second and third defendants encumbered trust property without receiving any corresponding benefits for the trust
second and third defendants breached their duty as trustees not to deal with trust property for their personal benefit and breached their duty of ordinary prudence as trustees
where breaches of trust by several persons contribute to the beneficiary's loss each is liable to pay compensation measured by the amount of loss attributable to their breach
third defendant breached the fiduciary duty he owed the plaintiff not to obtain any authorised benefit from his position as a fiduciary
equitable compensation ordered

LEGISLATION CITED:
Corporations Act 2001 (Cth) ss 9, 109X
Foreign Acquisitions and Takeovers Act 1975 (Cth) ss 12, 26A

CATEGORY:
Principal judgment

CASES CITED:
Barnes v Addy (1874) LR 9 Ch App 244
Breen v Williams (1986) 186 CLR 71
Calverley v Green [1984] HCA 81; (1984) 155 CLR 242
Fouche v The Superannuation Fund Abroad [1952] HCA 1; (1952) 88 CLR 609
Greater Pacific Investments Pty Limited (in liquidation) v Australian National Industries (1996) 39 NSWLR 143
Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271
Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Keech v Sandford (1726) 25 ER 223
Keith Henry & Co Pty Limited v Stuart Walker & Co Pty Limited [1958] HCA 33; (1958) 100 CLR 342
Manly Council v Byrne (2004) NSWCA 123
Pilmer v Duke & Group Limited (in liquidation) [2001] HCA 31; (2001) 207 CLR 165
State Bank of New South Wales v Brown [2001] NSWCA 223; (2001) 38 ACSR 715
Target Holdings Limited v Redferns (A Firm) [1995] UKHL 10; (1996) AC 421

TEXTS CITED:

DECISION:
See paragraph [103] of judgment

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SLATTERY J

THURSDAY 28 JANUARY 2010

1 HIS HONOUR: A trusted friend acting in the role of investment manager can himself become a source of unexpected investment risk. Frank Fan discovered this in early 2007 when he commenced investigating the management of his investments in Australia.

Introduction

2 Mr Fan lives in Hong Kong. He holds a British Person Overseas passport. He has never resided in Australia. Mr Fan and James Tang were family friends for 30 years up until early 2007. They had been introduced through members of Mr Fan’s family. Mr Fan needed someone to manage his financial affairs and investments in Australia. From about 1996 he entrusted Mr Tang with this task.

3 Mr Tang is married to Vicky Yang. Mr Tang and Ms Yang control a family investment company JV Capital Pty Ltd. They are its shareholders and directors. JV Capital is also the trustee of the James Tang Family Trust.

4 In his role as Mr Fan's investment manager, Mr Tang was a signatory on several of Mr Fan's bank accounts. In May 2003 Mr Fan authorised Mr Tang to apply funds from one of these accounts to an investment to be made in Mr Fan's name in a property in the Sydney suburb of Box Hill. Mr Tang withdrew more funds from the account than Mr Fan had authorised. He applied the funds to the acquisition of a part interest in the Box Hill property. Contrary to Mr Fan's instructions he acquired the Box Hill property in the name of JV Capital and Ms Yang.

5 Together JV Capital and Ms Yang acquired a 40% interest in the Box Hill property with Mr Fan’s funds. JV Capital acquired a 32% interest and Ms Yang acquired an 8% interest in the property. Members of the Cappello family, William, John and Emanuele Cappello hold the remaining 60% interest in the Box Hill property. All these respective shares are recorded on the title for the Box Hill property. Mr Fan has no dispute with the Cappello family who are not parties to these proceedings.

6 Mr Tang's unauthorised activities went further. Mr Tang and Ms Yang mortgaged her and JV Capital’s interests in the Box Hill property to St George Bank Ltd to secure advances to them. St George paid some of these advances into bank accounts controlled by Mr Tang and Ms Yang. Mr Tang and Ms Yang expended all these advances to their own use. These bank accounts have since been discovered to have nil balances.

7 Mr Tang also transferred other funds out of Mr Fan’s bank accounts that were not invested in the Box Hill property. Between July 2004 and February 2006 he withdrew and applied to his own purposes sums totalling $163,783.50.

8 Mr Tang, JV Capital and Ms Yang have not accounted to Mr Fan for their use of any of these monies. To remedy this Mr Fan commenced these proceedings as plaintiff, joining Mr Tang as first defendant, JV Capital as second defendant and Ms Yang as third defendant.

9 The Court has a policy of reducing the risk of identity theft through publication of its judgments. This judgment does not include the address of the Box Hill property. Nor does it include any other person's address or bank account details. If required this information is obtainable from the Court’s file.

The Claims

10 Mr Fan makes three sets of claims in these proceedings. These three sets of claims define the main issues for the Court's determination.

11 The first set of claims relates to the acquisition of the Box Hill property. In these claims Mr Fan alleges that he was the source of the monies that JV Capital and Ms Yang used to purchase their respective shares in the Box Hill property. He claims that as a result, each of JV Capital and Ms Yang holds those shares on trust for him. He seeks a declaration to that effect. He also seeks an order that JV Capital's and Ms Yang's interests in the Box Hill property be transferred to him.

12 The second set of claims relates to the mortgage of the Box Hill property. Mr Fan alleges that the Box Hill property was mortgaged without his authority, that the moneys St George advanced under the unauthorised mortgage were not used for Mr Fan’s benefit and that Mr Tang and Ms Yang used a substantial portion of those monies for their own purposes. Mr Fan claims that both JV Capital and Ms Yang committed breaches of trust by mortgaging the Box Hill property. He further claims that in mortgaging the Box Hill property Mr Tang is liable for breach of fiduciary duty, for assisting JV Capital's and Ms Yang's breaches of trust and for knowingly receiving funds resulting from their breaches of trust.

13 The third set of claims relates to Mr Tang's unauthorised withdrawals from Mr Fan's bank accounts during the period July 2004 to February 2006. Mr Fan alleges Mr Tang withdrew the total sum of $163,783.50 from these accounts without his authority.

14 None of the defendants appeared at the hearing. It is first necessary for Mr Fan to establish that he has served adequate notice of these proceedings on all the defendants against whom he seeks relief. Mr Fan’s proof of that service is dealt with in the next section.

15 Mr S Nixon of counsel, appearing for Mr Fan, read the following affidavits at the hearing on 2 September 2009. The first was an affidavit of Mr Lap Kay Frank Fan himself which was affirmed 5 August 2009. The second was an affidavit of Mrs Jan Fan affirmed 30 July 2009. Finally he read three affidavits of Trent Anthony Thorne affirmed 5 August 2009, 10 August 2009, and 31 August 2009.

16 Mr Tang and Ms Yang both resided in Australia when they and JV Capital dealt with the Box Hill property and Mr Tang withdrew the funds from Mr Fan's bank accounts. They have since both left Australia. Mr Fan has given adequate notice of these proceedings to the defendants. He has established this by complying with the Court’s substituted service orders for pleadings, evidence and for the giving of notice of this hearing. The adequacy of the notice given to the defendants is best appreciated with more procedural background.

17 Mr Fan commenced these proceedings on 28 February 2008 by statement of claim. His original statement of claim did not join Ms Yang and did not raise the issue of Mr Tang's unauthorised withdrawals. Through his own investigations and this Court's compulsory processes Mr Fan found out more about what happened to his money. As his knowledge improved he amended the statement of claim. He did this three times.

18 Mr Fan filed an amended statement of claim on or about 3 July 2008. This amendment raised for the first time allegations relating to Mr Tang's unauthorised withdrawals between July 2004 and February 2006.

19 Next Mr Fan filed a further amended statement of claim on 24 November 2008. This amendment joined Ms Yang and alleged that she had used Mr Fan's money to acquire the 8% interest in the Box Hill property held in her name.

20 Finally on 25 May 2009 Mr Fan filed a second further amended statement of claim. This pleaded the claims against Ms Yang of breach of duty as a trustee and the claims against Mr Tang of knowing assistance in breaches of trust and his knowing receipt of funds derived from breaches of trust.

21 By serving these various pleadings Mr Fan gave the defendants adequate notice of the progress of the proceedings towards hearing. Mr Tang and JV Capital filed a defence to the statement of claim on 17 April 2008 and an amended defence on 1 September 2008. Mr Tang and Ms Yang left Australia in the last quarter of 2008. Since that time neither Mr Tang nor Ms Yang has taken any active step in the proceedings to defend the claims against them. They have not filed defences in response to any pleading after the amended statement of claim. Nor have they appeared at any of the directions hearings on 28 January 2009, 25 March 2009, 6 May 2009, 29 May 2009 or 15 July 2009.

22 Mr Fan obtained orders for substituted service to facilitate giving notice of these proceedings to the defendants after Mr Tang and Ms Yang had departed the jurisdiction. On 13 January 2009 the Court granted an order for the substituted service of the further amended statement of claim. The orders provided for notice to be given to all defendants by service at two addresses associated with Mr Tang and Ms Yang, one in the Sydney suburb of Castle Cove and the other in the suburb of Gordon. Service of the amended pleading and other directed correspondence at these addresses was reasonably calculated to bring both the pleading and the Court’s orders to the attention of the defendants. Information about these two addresses is on the Court’s file.

23 On 29 May 2009 the Court made similar orders for substituted service of the second further amended statement of claim on all defendants by providing for its delivery to the same two addresses associated with Mr Tang and Ms Yang. Mr Fan's evidence establishes that service was effected at the two addresses in conformity with the Court’s orders for substituted service.

24 The substituted service orders for the last two pleadings did not bring the evidence and notice of the hearing on 2 September 2009 to the defendants’ attention. That was done by other means. On 15 July 2009 the Court ordered that the affidavit evidence filed for Mr Fan be served on Mr Tang and Ms Yang in accordance with the substituted service orders of 13 January 2009. The Court further ordered that the matter be stood over to 12 August 2009. It was proposed that if at that time there was no appearance by the defendants then the matter would be set down for hearing. Mr Fan's evidence of service establishes that on 7 August 2009 his affidavit evidence, together with a copy of the orders of the Court on 15 July 2009 was served on Mr Tang and Ms Yang in accordance with the Court orders of 13 January 2009 and 15 July 2009.

25 On 12 August 2009 these proceedings were set down for hearing on 2 September 2009. On 27 August 2009 Mr Fan caused a letter from the plaintiff’s solicitors notifying the defendants of the date fixed for the hearing to be served on Mr Tang and Ms Yang in accordance with the substituted service orders of 13 January 2009.

26 Mr Fan also caused other enquires to be made about Mr Tang and Ms Yang. On 6 November 2008 Mr Thorne, Mr Fan's solicitor, made formal complaint to the New South Wales police about the conduct of Mr Tang and Ms Yang. Police investigations have not led to any formal charges being laid against them. Detective Sgt John Botell, one of the detectives involved in the investigation, informed Mr Thorne earlier this year that his enquiries with the Australian Customs Service (ACS) revealed that Mr Tang had left Australia on a Cathay Pacific flight to Hong Kong on 28 November 2008. ACS did not have a record of Mr Tang re-entering Australia, after that date.

27 It is also necessary for Mr Fan to establish that JV Capital has been given adequate notice of these proceedings including notice of the hearing on 2 September 2009. JV Capital is a "company" as defined in s 9 of the Corporations Act 2001 (Cth). Service of a document on JV Capital may be effected by leaving a copy of it at or posting it to JV Capital’s registered office: s 109X Corporations Act. The company's registered office is at the Castle Cove address at which the Court’s substituted service orders already required documents to be served on the other defendants.

28 In accordance with s 109X Corporations Act Mr Fan caused to be served at the registered office of JV Capital, the second further amended statement of claim, the affidavit material read on behalf the plaintiff, the Court’s order of 15 July 2009 to the effect that if there was no appearance by the defendants at the directions hearing on 12 August 2009 the matter would be set down for hearing, a letter notifying JV Capital of the hearing date and a copy of Mr Fan's submissions and chronology. Mr Fan has given adequate notice to JV Capital of these proceedings including notice that the hearing would take place on 2 September 2009.

Acquisition of the Box Hill Property

The relationship between Mr Fan and Mr Tang

29 Prior to 2003 a general relationship of friendship, trust and confidence had developed between Mr Fan and Mr Tang. Mr Fan was introduced to Mr Tang through his family. They have known one another for approximately 30 years.

30 From approximately 1996 Mr Tang began advising Mr Fan in relation to various share investments in Australia. Mr Fan authorised Mr Tang to make share investments on Mr Fan's behalf and to manage share trading for him.

31 In January 2003 at Mr Fan's request, Mr Tang opened an ETrade account with the Australia and New Zealand Banking Group Ltd. This ETrade account was opened in the names of Mr Fan and his wife, Mrs Jan Fan. Mrs Fan is not a party to these proceedings. She has however sworn an affidavit disclaiming any interest in the proceeds of this ETrade account. She says that both her husband and herself regarded the moneys in that account as belonging to Mr Fan. At no stage did Mrs Fan communicate with Mr Tang about the ETrade account or the Box Hill property. The evidence supports Mr Fan's claim in these proceedings that he is solely entitled to recover the proceeds of this ETrade account.

32 When the ETrade account was opened Mr Fan deposited into it the proceeds of sale of nine houses on the Gold Coast that had belonged to Mr Fan’s father. Once the account was set up and placed in funds Mr Fan gave Mr Tang authority to operate the ETrade account for the purpose of investing in Australian listed shares. Mr Tang undertook share investments using this account. The account records show that Mr Tang traded in the shares of a number of well known Australian listed companies. Mr Tang operated the account under Mr Fan’s authority for share investment up until early 2003. It was then that a new venture was discussed between them.

33 Mr Tang made contact with Mr Fan in about April or May 2003 to explain to him that Mr Tang had identified an opportunity to purchase an option on real estate in Australia. Mr Tang explained to Mr Fan the features of options over real estate and how such options worked. Mr Tang suggested one particular property, the Box Hill property, as an appropriate subject for investment using options. He explained to Mr Fan that he, Mr Tang, thought this property had great potential for development and subdivision. Mr Fan’s evidence is that in this conversation, Mr Tang indicated that the cost of Mr Fan’s investment in the option would be in the order of $70,000. I accept Mr Fan’s evidence that this was the amount discussed. However, the evidence shows that the amount that Mr Tang actually withdrew from the ETrade account on 8 May 2003 shortly after this conversation, was the much greater sum of $270,000.

34 Mr Fan’s recollection is that Mr Tang said to him words to the effect “the cost of your investment in the option will be around $70,000”. Although Mr Fan does not specifically recall giving Mr Tang the authority to withdraw this amount to pay the option fee. Mr Fan does recall signing some ETrade paperwork at about that time. Mr Fan’s recollection though is that this paperwork only authorised a withdrawal to pay for the option fee in the order of $70,000.

35 On 21 May 2003 the then registered proprietors of the Box Hill property entered a put and call option with Ms Yang, JV Capital and the Cappellos by deed. The option deed required the purchasers to pay an option fee to the vendors of a sum equal to the deposit specified in the contract for the sale of the Box Hill property which contract was annexed to the option deed. This option fee was an amount of $270,000. The option deed relevantly provided for Ms Yang, JV Capital and the Cappellos the right to exercise a call option by 3 March 2004.

36 Mr Fan alleges that the $270,000 that Mr Tang withdrew from the ETrade account was used to pay the whole of the option fee due upon the execution of the option deed. Mr Tang and JV Capital admitted to this allegation in their verified defences. Although Ms Yang has not as yet filed any defence to any of the amended pleadings, the verification of this admission by JV Capital and Mr Tang provides some evidence that the $270,000 was used in this way. Indeed the simultaneous withdrawal of this sum from the ETrade account and the execution of the option deed requiring the payment of this sum is the basis to infer that the funds withdrawn were applied for this purpose.

37 In March or April 2004 Mr Tang and Mr Fan had a discussion about exercising the option to acquire the Box Hill property. Initially Mr Fan pressed on Mr Tang the opinion, “why can’t I just sell my option to someone else?”. Mr Tang was keen for the option to be exercised. He said “we can make a significant profit by purchasing the property under the terms of the option, and subdividing it for sale”. Mr Tang eventually persuaded Mr Fan that this was the course that should be taken.

38 However, in the course of persuading Mr Fan to this course Mr Tang misrepresented the ownership structure of the Box Hill property even further. At the time of this conversation Mr Fan was under the misapprehension already induced by Mr Tang, that he had an entitlement to exercise the option in his own name. Mr Tang contributed to a further misunderstanding on Mr Fan’s part by saying to him “I suggest we contribute almost equally to the balance of the purchase price of the property. The other investor in the property aside from you and me, may be my wife. You do not have any objections if my sister in law also provides a small percentage of investment funding for the property?”. Mr Fan indicated to Mr Tang he had no objections to Mr Tang’s sister in law providing funding for the property. Mr Fan understood that she would thereby obtain an interest of only a few percent in the property. Aside from this possible interest of Mr Tang’s sister in law, Mr Fan understood that he would share with Mr Tang an interest in the Box Hill property after exercise of the option of about 50%. His understanding flows directly from Mr Tang’s representations.

39 Mr Fan says that Mr Tang made no reference to the other investors in the property, William, John and Emanuele Cappello. I accept Mr Fan’s evidence that Mr Tang omitted to refer to the Cappellos.

40 The reality was quite different from what Mr Tang had represented. Contrary to the impression he gave about Box Hill property, the Cappellos had a 60% interest, JV Capital had a 32% interest and Ms Yang had an 8% interest. None of these interests coincided with what Mr Tang had told Mr Fan.

41 Mr Fan was persuaded to contribute $800,000 to the purchase of the Box Hill property for the exercise of the option. Mr Fan authorised the electronic transfer of $800,000 from the ETrade account to another account with the ANZ Bank, the ANZ Select Account. Mr Fan authorised Mr Tang to be made a signatory on the ANZ Select Account.

42 On 16 April 2004 $800,000 was deposited into the ANZ Select Account and then withdrawn by Mr Tang from that account. In their defences Mr Tang and JV Capital admit that this sum of $800,000 was applied to the purchase of the Box Hill property. The purchase was completed on 19 April 2004 resulting in the acquisition of the Cappello’s, JV Capital’s and Ms Yang’s respective interests.

43 There is a close alignment between Mr Fan’s percentage contribution to the total purchase price of the Box Hill property and the percentage ownership acquired by JV Capital and Ms Yang in the property and recorded on the title. The Box Hill property was acquired for $2.7 million. Mr Fan’s contribution was $1,070,000 ($800,000 + $270,000). Mr Fan therefore contributed 39.63% of the purchase price. JV Capital and Ms Yang acquired on title a 40% share of the property.

44 Mr Fan’s money contribution through Ms Yang and JV Capital can be roughly reconciled to 40% of the purchase price by factoring in the timing of Mr Fan’s payments. Mr Fan paid consideration of $270,000 in the form of the whole option fee a year in advance of the date of acquisition. The other parties to the option deed were thereby relieved of the burden of advancing their proper share of the option fee, in April 2003. The difference between Mr Fan’s actual contribution of 39.63% of the $2.7 million purchase price and his percentage entitlement to the property of 40% is 0.37%, or 0.0037. The dollar value of this percentage of $2.7 million is $9,990.

45 If one allows interest on the $270,000 Mr Fan advanced for a period of one year (April 2003 to April 2004) at say 8%, one reaches a figure of $21,600. The proportion of this $21,600 in interest which Mr Fan would need to bear himself fully to contribute his 40% of the purchase price is $8640 (being 40% of $21,600). This is in fact quite close to the gap of $9,900 (0.37% of $2.7 million) required to reconcile Mr Fan’s actual contribution to the 40% interest Ms Yang and JV Capital now hold on the title to the Box Hill property. Thus the 40% interest in the Box Hill property credits Mr Fan (through Ms Yang and JV Capital) with a slightly additional percentage interest in the property, apparently as reimbursement for interest on the advance of the option fee to the Cappellos. The figures are not exact but they work out sufficiently well for it to be inferred that some such arrangement was probably made.

46 Thus it can be concluded that Mr Fan’s actual money contribution to the acquisition of the Box Hill property, as against other purchasers was about 40% of the total consideration of the property. This finding is a basis to infer that JV Capital and Ms Yang hold their respective 32% and 8% interests in the Box Hill property on resulting trust for Mr Fan: see Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 246 per Gibbs CJ, at 255-256 per Mason and Brennan JJ, and at 266-267 per Deane J.

47 This conclusion in relation to JV Capital is further supported by an admission in JV Capital’s amended defence, verified by Mr Tang as director of the company, that the 32% share held by JV Capital in the Box Hill property has at all relevant times been held on trust for Mr Fan.

48 Mr Fan does not have the benefit of an admission on the pleadings from Ms Yang. Ms Yang did not file a defence to the further amended statement of claim. Nor did she file any subsequent pleadings. Nevertheless I infer that Mr Fan’s money was used to acquire her 8% interest in the Box Hill property for the following three reasons. First, no document in evidence shows that Ms Yang herself made any financial contribution from her own resources towards acquiring her interest in the Box Hill property. Second, the funds Mr Tang dealt with through the ETrade account and the ANZ Select Account were sufficient to acquire Ms Yang’s 8% interest in the Box Hill property. Third, the time at which Mr Tang dealt with Mr Fan’s funds was the very time the funds would be needed by Ms Yang to permit her to use them to acquire her interest in the Box Hill property. I find therefore that the respective interests of JV Capital (32%) and Ms Yang (8%) in the Box Hill property were acquired by them using Mr Fan’s funds.

49 Where a person purchases a property in the name of another and where that other has not provided any of the purchase money, unless there is presumption of advancement or evidence of an intention to vest a beneficial interest in the property in the nominal purchaser, the law presumes that the purchaser did not intend the other person to take beneficially: Calverley v Green at 246 per Gibbs CJ. There is no evidence that Mr Fan had any intention to vest any part of the Box Hill property in JV Capital or Ms Yang. The relationship between these parties is not one to which the presumption of advancement applies. I therefore conclude that JV Capital and Ms Yang held their respective 32% and 8% interests in the Box Hill property on resulting trust for Mr Fan. I grant Mr Fan the declaratory relief he seeks in relation to the acquisition of the Box Hill property.

50 Mr Fan's status as non-resident of Australia creates a potential impediment to a grant of declaratory relief. Before the Court can declare his interest in the Box Hill property Mr Fan must satisfy the applicable provisions of the Foreign Acquisitions and Takeovers Act 1975 (Cth). For the reasons set out here I am satisfied that he does.

51 Mr Fan is "a natural person not ordinarily resident in Australia" within the meaning of the Foreign Acquisitions and Takeovers Act. Mr Fan's claimed interest in the Box Hill property is an "interest in Australian urban land” within s 12 Foreign Acquisitions and Takeovers Act. Under the Foreign Acquisitions and Takeovers Act if a natural person, not ordinarily resident in Australia, acquires an interest in Australian urban land without giving notice to the Treasurer of the Commonwealth, the person is liable to conviction for an offence under s 26A of that Act.

52 On 20 March 2009 Mr Duncan Bedford of McCulloch Robertson, Mr Fan's solicitors, gave the prescribed form of notice on Mr Fan's behalf under s 26A of the Foreign Acquisitions and Takeovers Act of intention to acquire a 40% interest in the Box Hill property. The notice gave full particulars of the estate claimed by Mr Fan in these proceedings.

53 On 3 April 2009 the Foreign Investment Review Board wrote to Mr Bedford indicating that as Mr Fan appeared to have acquired an interest in the Box Hill property by operation of law that he is by reason of s 12A(6) of the Foreign Acquisitions and Takeovers Act “taken not acquire an interest in Australian urban land”. The Foreign Acquisitions and Takeovers Act is not an obstacle to the Court making the declarations Mr Fan seeks.

54 Mr Fan's second set of claims relates to the mortgaging of the Box Hill property.

55 Once JV Capital and Ms Yang purchased the Box Hill property they mortgaged their interest to St George Bank. What is known about this mortgage transaction (“the St George mortgage”) is to be inferred from documents that have been obtained under subpoena from St George Bank.

56 On 13 April 2004 Mr Tang at Ms Yang and JV Capital, together with the Cappellos, agreed to borrow $1.5 million from St George Bank (“the St George loan agreement”). Mr Tang and Ms Yang were principal borrowers under the St George loan agreement.

57 The Cappellos, Ms Yang and JV Capital committed the Box Hill property as security for the performance of the obligations of the borrowers under the St George loan agreement. Ms Yang executed the St George mortgage as one of the registered owners of the Box Hill property. Mr Tang and Ms Yang also executed the St George mortgage as directors of JV Capital.

58 St George bank advanced the agreed $1.5 million under the St George loan agreement on 19 April 2004. Together with Mr Fan’s $800,000 these funds of $1.5 million appear to have been applied to the acquisition of the Box Hill property. Under the St George loan agreement the borrowers obligations are only to pay interest.

59 The borrowers later arranged a second set of advances from St George Bank on the security of the Box Hill property. On 10 July 2005 St George Bank agreed to lend a further $490,000 to the Cappello's, Mr Tang, Ms Yang and JV Capital (“the second St George loan agreement”). Mr Tang and Ms Yang also executed the second St George loan agreement as principal borrowers and in their capacity as directors of JV Capital. Repayment obligations under the second St George loan agreement are also interest only.

60 The St George mortgage was altered to accommodate the creation of the second St George loan agreement. The borrowers paid increased stamp duty on the St George mortgage to reflect the increase in total borrowings to $1,990,000 effected by the second St George loan agreement.

61 Mr Tang and Ms Yang appear to have received the benefit of the advances under the second St George loan agreement. On 15 July 2005 the Cappellos directed St George bank to deposit the full advance of $490,000 under the second St George loan agreement into Mr Tang and Ms Yang's St George personal savings account.

62 The Cappellos’ direction was given effect on 18 July 2005 when $487,582.75 was deposited into their St George personal savings account. The amount of $487,502.75 is the agreed facility amount of $490,000 advanced, less the establishment costs of $2,494.50 specified in the second St George loan agreement (less an amount of $77.25 for mortgage registration which was not required because the St George mortgage already existed).

63 Within two years by 9 November 2007 Mr Tang’s and Ms Yang’s St George personal savings account had a nil balance. It should be inferred that Mr Tang and Ms Yang applied the whole of the $487,502.75 in funds from the second St George advance for their own purposes.

64 Mr Fan was unaware of any of these transactions with St George Bank. He has deposed to this and I accept his evidence. Neither Mr Tang nor Ms Yang told Mr Fan about the St George loan agreement, the second St George loan agreement or the St George mortgage. I accept Mr Fan’s evidence that he did not receive any part of the $1,990,000 which St George advanced on the security of the Box Hill property.

Claims against Ms Yang and JV Capital in Relation to the St George Mortgage

65 The starting point for claims against Ms Yang and JV Capital in relation to the St George mortgage is my findings that JV Capital and Ms Yang hold their interests in the Box Hill property on resulting trust for Mr Fan. I have found that they hold their interests in the Box Hill property on a resulting trust for Mr Fan and that each of them is a bare trustee for him.

66 As bare trustees Mr Fan and JV Capital each owes the duties of a trustee to their beneficiary: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281 per Gummow J.

67 Mr Fan alleges that Ms Yang and JV Capital breached their duties as trustees when they entered into the St George Mortgage, the St George Loan Agreement and the second St George Loan Agreement. Mr Fan alleges that by entering into these transactions they both breached their duties:

68 Mr Fan’s case is that through the St George Mortgage and related loan transactions JV Capital and Ms Yang received funds which they applied for their own purposes and thereby breached their trustees’ duties not to deal with trust property for their personal benefit. Alternatively Mr Fan alleges that JV Capital and Ms Yang encumbered the trust property without receiving any corresponding benefits for the trust and thereby breached their duty of ordinary prudence as trustees.

69 On the facts already found the Court also finds that these breaches occurred. Mr Tang and Ms Yang and therefore JV Capital all jointly played a part in mortgaging the 40% interest in the Box Hill property acquired with Mr Fan’s funds. They then applied the funds advanced by St George to their own purposes. There is no evidence of any of these funds being redeployed for Mr Fan’s benefit. The allegation of their imprudently encumbering trust property without receiving any benefit for the trust is also made out.

70 Mr Fan contends that he has suffered loss and damage as a result of the breaches of trust by JV Capital and Ms Yang. The result of their breaches of trust is that the interest in the property they hold on resulting trust for him is now encumbered by the St George mortgage to secure a total outstanding balance of approximately $2 million. Given that the funds Mr Fan advanced were sufficient to acquire a 40% interest in the Box Hill property without the need for a mortgage, the creation of the encumbrance and the advancing of moneys under it are all breaches of trust.

71 Mr Fan seeks equitable compensation from JV Capital and Ms Yang to restore him to the position that he was in prior to their breaches of duty. JV Capital and Ms Yang both committed a breach of trust. Their breaches of trust contributed to Mr Fan’s loss. Where two persons commit a breach of trust and where the breaches both contribute to the loss each is liable to pay compensation to the beneficiary measured by the amount of loss attributable to their breach: Target Holdings Limited v Redferns (A Firm) [1995] UKHL 10; (1996) AC 421 at 434-436. The method of calculation of that loss is discussed below under the heading “Equitable Compensation in Relation to the St George Mortgage”.

72 Mr Fan’s case against Mr Tang in relation to the St George mortgage is more complex. He alleges three separate forms of liability against Mr Tang. The claim is that Mr Tang

73 Knowing assistance. Mr Tang was well aware that JV Capital and Ms Yang were dealing with trust property in breach of their duties as trustees to Mr Fan. He gave assistance to and facilitated their breaches of duty.

74 As Mr Tang had the conversations with Mr Fan about the use of Mr Fan’s funds to acquire the Box Hill property and then facilitated its acquisition he was aware that JV Capital and Ms Yang held the property on resulting trust for Mr Fan. Mr Tang was the usual conduit for information about these transactions back to Mr Fan. As Mr Tang did not tell Mr Fan about the transactions himself, he could readily infer that Mr Fan did not know about them any other way. He should also have assumed Mr Fan was unlikely to approve the St George mortgage transactions, given the funds were to be diverted away from Mr Fan’s use, except upon the most complete disclosure and the most express authority by Mr Fan for their private use by JV Capital and Ms Yang. Mr Fan gave no such authority. Furthermore, as Mr Tang was a party to applying funds raised on the St George mortgage to his own and Ms Yang’s purposes, it can safely be inferred that he knew that Mr Fan was not getting the benefit of those moneys. Mr Tang’s knowledge of the breach of trust is therefore complete. The evidence also warrants the inference that Mr Tang assisted in the breaches of trust by JV Capital and Ms Yang. His assistance is constituted by his execution of the St George Mortgage, the St George loan agreement and the second St George loan agreement. Those were the documents needed to enable the funds to be raised. Mr Tang’s conduct was an essential step in the breaches of trust.

75 Knowing receipt of trust funds. When Mr Tang and Ms Yang received proceeds from the second St George loan agreement into their St George personal savings account and dealt with them they did so knowing those advances were obtained in breach of trust. Mr Tang thereby knowingly received trust property and applied it for his own purposes.

76 In the circumstances I accept Mr Fan’s submissions that Mr Tang attracts liability within both limbs of Barnes v Addy (1874) LR 9 Ch App 244.

77 Fiduciary relationship. The conversations between Mr Tang and Mr Fan about the Box Hill property investment and their mutual conduct in relation to it thereafter makes clear that Mr Tang undertook to act on behalf of Mr Fan in relation to the Box Hill property. Once Mr Tang had given that undertaking, Mr Fan was in a position of vulnerability in relation to Mr Tang in the management of this investment. He gave Mr Tang access to his bank accounts, and authority to operate on those bank accounts. With Mr Tang in Australia and Mr Fan in Hong Kong, Mr Fan had to place trust in Mr Tang to act in his interests without supervising Mr Tan closely. There are strong indicators here of a fiduciary relationship existing between Mr Tang and Mr Fan in relation to Mr Tang’s acquisition and management of the Box Hill property investment: Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 96-97 per Mason J and 142 per Dawson J. Mr Tang’s consequent duties as a fiduciary in the acquisition and stewardship of the Box Hill property investment were a duty not to obtain any unauthorised benefit from the relationship and a duty not to place himself in a position of conflict between his own interests and his duty as a fiduciary. If those obligations are breached Mr Tang must account to the plaintiff for any profits and make good any losses arising from the breach of duty: Breen v Williams (1986) 186 CLR 71 at 113 and Pilmer v Duke & Group Limited (in liquidation) [2001] HCA 31; (2001) 207 CLR 165 at [74].

78 Mr Fan’s allegations of breach of fiduciary duty against Mr Tang arise out of essentially the same facts as his allegations of breach of trust against JV Capital and Ms Yang. Mr Tang’s execution of the St George Mortgage, of the St George Loan Agreement and of the second St George Loan Agreement enabled funds to be raised on the security of the Box Hill property. Mr Tang’s creation of the St George Mortgage, his receipt of the funds that St George advanced, and then his use of those funds for private purposes, all caused Mr Fan’s loss.

79 Similarly as for the allegations of breach of trust against JV Capital and Ms Yang, Mr Fan suffered loss and damage by having the trust property that JV Capital and Ms Yang held for him encumbered under the St George mortgages to secure advances of $1,990,000.

80 Mr Fan can recover as equitable compensation the amount of the loss suffered by him as a result of JV Capital and Ms Yang’s breaches of trust and as a result of Mr Tang’s involvement in those breaches. The quantum of this loss should be assessed at the date of determination of the proceedings: Greater Pacific Investments Pty Limited (in liquidation) v Australian National Industries (1996) 39 NSWLR 143 at 153-154. The mere fact that an equitable right of action arises as soon as the breach is committed does not mean that the quantum of compensation is to be fixed as at the date of the breach.

81 Mr Fan contends that his loss should be assessed having regard to the fact that he provided 40% of the funds for a 40% share in the Box Hill property, which is now encumbered in respect of the sum of $2 million outstanding to St George.

82 Mr Fan proposes that an appropriate order for compensation is that “the defendants pay to the plaintiff an amount representing 40% of the outstanding liability to St George”. Mr Fan submits that such an award recognises that the value of the plaintiff’s 40% equity in the Box Hill property has been diminished by the encumbering of the whole of that 40% to secure the total liabilities under the St George loans.

83 Given the findings I have made about the unauthorised application of the $490,000 raised through the second St George loan agreement, Mr Fan is of course undoubtedly entitled to equitable compensation for the loss of that sum, together with interest on $490,000 at Supreme Court rates. That represents only 24.5% of the amount outstanding on the St George ($490,000 divided by $2,000,000 x 100). However Mr Fan’s claim for equitable compensation is greater than this and with justification.

84 The ultimate beneficiaries of a large part of the St George loan agreement may well have been the Cappellos, whose acquisition of their 60% interest in the Box Hill property was probably financed by the combined St George loan agreement and the St George Mortgage. Yet no claim is made against the Cappellos in these proceedings.

85 There is a logic on which Mr Fan’s claim for equitable compensation representing 40% of the outstanding amount owing to St George can be justified. Mr Fan has paid cash for 40% of the Box Hill property. No mortgage over the property was needed to acquire his 40% interest. The creation of this entire encumbrance to St George Bank was therefore a breach of trust. Each of Ms Yang, Mr Tang and JV Capital is responsible for discharging the mortgage to remove the encumbrance.

86 Assuming the St George loan agreement proceeds were applied to the acquisition of the Box Hill property, it would be impossible for the Cappellos to argue that they should have to meet any less than 60% of the amount outstanding on the St George Mortgage, representing their 60% of the property. Depending on precisely how the St George proceeds were applied they may have to bear more than that. As between themselves and the Cappellos, Ms Yang, Mr Tang and JV Capital may have to discharge up to 40% of the amount outstanding on the St George Mortgage in order to have it discharged.

87 Strictly the defendant’s accounting with the Cappellos can be ignored. They have created a mortgage over the Box Hill property that should not have been created in accordance with standards of ordinary prudence. The defendants Mr Tang, Ms Yang and JV Capital are liable to discharge the full amount outstanding on the St George Mortgage, which they allowed to be incurred. It is up to them to undertake an account with the Cappellos. They have not sought to do that in these proceedings. They are unlikely to do so in the future. Mr Fan will probably have to deal with the Cappellos and St George Bank himself. Mr Fan has chosen to limit his claim to 40% of that total amount outstanding. That is the proportion of the amount outstanding that will need to be paid to St George Bank to free Mr Fan’s interest in the Box Hill property from encumbrance. It is safe to award equitable compensation in this amount as it is probably less than the defendant’s actual liability. I will make that order. I will grant liberty to apply in case the dealings with the Cappellos or St George create unexpected complications.

88 Mr Fan's third set of claims relates to Mr Tang's withdrawals from Mr Fan's bank accounts between July 2004 and February 2006. There are eight sets of withdrawals during this period. The issues presented by this third set of claims are: first, whether the withdrawals occurred; second, whether they were unauthorised; and, third, what liability Mr Tang attracts for his involvement in them.

Eight withdrawals

89 Mr Tang used the same method for each of eight withdrawals from Mr Fan's accounts. On each occasion Mr Tang transferred a sum from the ETrade account to the ANZ Select Account. A short time later Mr Tang withdrew an identical or near identical amount out of the ANZ Select Account. With the withdrawals early in the period Mr Tang allowed some time to pass between the transfer from the ETrade account and his withdrawal of funds from the ANZ Select Account. By the time of the later withdrawals Mr Tang was moving funds into and out of the ANZ Select Account within 24 hours.

90 That these withdrawals occurred is not controversial. Each of the withdrawals was pleaded in the amended statement of claim. Before his active involvement in these proceedings ceased, Mr Tang pleaded in answer to the amended statement of claim. In his amended defence he admitted each of the pleaded withdrawals. Those admissions and Mr Fan's evidence, in his affidavit of 5 August 2009, are a basis now to infer that Mr Tang caused the transfers of funds from the ETrade account to the ANZ Select Account and caused the withdrawals from the ANZ Select Account to take place on the dates set out in the table below.

Transfer from E Trade Account to ANZ Select Account		Withdrawal from ANZ Select Account
Date	Amount ($)	Date	Amount ($)
8 July 2004	6,877.00	26 July 2004	6,876.00
1 November 2004	15,500.00	10 November 2004	15,000.00
13 January 2005	18,000.00	10 February 2005	18,000.00
1 September 2005	40,000.00	2 September 2005	40,000.00
10 November 2005	7,100.00	11 November 2005	7,100.00
15 December 2005	18,300.00	16 December 2005	18,707.50
16 December 2005	18,300.00	19 December 2005	18,300.00
20 February 2006	39,800.00	21 February 2006	39,800.00

91 Mr Fan has pleaded and has deposed that the eight withdrawals were unauthorised. In his amended defence Mr Tang takes issue with Mr Fan's contention the withdrawals were unauthorised. He pleads facts said to justify an inference that the withdrawals were authorised. It is necessary to analyse whether Mr Tang's contentions as to alleged authorisation have any substance.

92 In paragraph 15C of the amended defence Mr Tang first pleads that $21,608.06 of the withdrawals related to council rates and land tax. Secondly, he says that other amounts withdrawn were for the payment of consultants’ fees to obtain approval for the rezoning and development of the Box Hill property. The defence does not plead a specific document or conversation in which it is said that Mr Fan gave express authority for this expenditure. Rather paragraph 10A(c) of the defence pleads that Mr Fan gave Mr Tang a "general authority" to make withdrawals "for the purposes of advancing the progress of the investment by taking steps to gain approval for the development of [the Box Hill property] and for the purpose of meeting the plaintiff's share of expenses associated with owning the land, until that approval could be finalised".

93 Mr Tang's defence that these withdrawals were authorised encounters a number of problems. The principal problems for his defence are common to all the withdrawals. Some of the problems relate to the specific authorisations identified in Mr Tang's amended defence. Each of these problems is dealt with below.

94 First, Mr Fan gives unchallenged evidence that the only authority he gave Mr Tang to withdraw money from the ANZ Select Account was to fund the acquisition of the Box Hill property. Mr Fan specifically deposes to the fact that he did not give Mr Tang any general authority to withdraw money from his accounts to gain approval for the rezoning of or the development of the Box Hill property. Although Mr Tang has filed a verified amended defence disputing Mr Fan's case, he does not give any particulars of the occasions upon which he alleges Mr Fan gave such general authority. Nor did Mr Tang advance any affidavit evidence contradicting Mr Fan’s account that he, Mr Fan did not give authority for the withdrawals. Mr Fan's account of the limit of his instructions to Mr Tang about the withdrawals and that they were not for Mr Tang’s personal use is inherently probable. The absence of Mr Tang as a witness allows the court more confidently to draw inferences that are already open on the evidence, that Mr Fan did not give general authority for the withdrawals: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, see also State Bank of New South Wales v Brown [2001] NSWCA 223; (2001) 38 ACSR 715 at 718 per Spigelman CJ and Manly Council v Byrne (2004) NSWCA 123 at [54].

95 Secondly, the allegedly authorised payments Mr Tang does identify in the total sum of $21,608.06 are only approximately 12% of the full amount withdrawn of $163,783.50. The authority Mr Tang claims is at best only partial. On closer analysis the proportion of the withdrawn funds likely to be authorised is even lower than this figure of 12%. Only one of the third-party payments that Mr Tang claims in paragraph 10(e) of the amended defence was authorised actually coincides with the period of the withdrawals, from June 2004 to February 2006. The rest of the third-party payments lie outside the period that Mr Tang made the withdrawals from the ETrade account. Only one allegedly authorised payment of a little less than $3000 fell within the period. This was for the payment of land tax and council rates for the year ending 30 June 2005. If there was an authorisation of those payments from the withdrawn funds, it is to be expected that the withdrawals and the payments would be far more closely aligned in time.

96 Thirdly, on the evidence as it stands it is difficult to accept that Mr Tang even applied the withdrawn funds to the specific expenditure that he claims Mr Fan authorised him to make. There are no invoices or receipts available proving any expenditure on land tax, council rates or anything else Mr Tang says that Mr Fan had authorised. If Mr Tang engaged consultants to assist in the rezoning and development of the Box Hill property, they did not give Mr Tang invoices or receipts that are in evidence.

97 The Court does not accept that Mr Fan gave authority to Mr Tang to make the withdrawals. Even if Mr Tang were to establish he had that authority, he has not established that the moneys he withdrew were withdrawn for any of his claimed authorised purposes.

98 A finding that Mr Tang breached the fiduciary duty he owed to Mr Fan follows directly from the findings that have already been made in relation to the unauthorised withdrawals. I have already found above that Mr Tang owed the pleaded fiduciary duties to Mr Fan. Those fiduciary duties extended to his management of Mr Fan's funds in the ETrade and ANZ Select Accounts as they were acts incidental to Mr Tan’s fiduciary duties in relation to the acquisition and management of the Box Hill property investment.

99 Mr Tang was not authorised to withdraw the funds from these accounts for any purpose other than to further Mr Fan's investment interests. Mr Tang's claims of authorisation for the withdrawals all fail. I infer that Mr Tang made all these withdrawals for his own purposes, and not for any purposes or interest of Mr Fan.

100 Mr Tang thereby breached the fiduciary duty he owed Mr Fan not to obtain any authorised benefit from his position as a fiduciary. Having obtained unauthorised benefits in the amount of the withdrawals Mr Tang is required to make good any losses arising from the breach: Breen v Williams (1996) 186 CLR 71 at 113 and Pilmer v The Duke Group Ltd (in liquidation) [2001] HCA 31; (2001) 207 CLR 165 at [74]. The unauthorised withdrawals which Mr Tang has not yet made good to Mr Fan are the losses arising from Mr Tang’s breach. These losses can readily be measured. Mr Tang will be ordered to pay equitable compensation to Mr Fan of $163,783.50.

101 Mr Fan has claimed and is also entitled to on his award of equitable compensation interest at Supreme Court rates. The unauthorised withdrawals occurred at different times during the period July 2004 to February 2006. All withdrawals occurred by 21 February 2006. Mr Fan is entitled to interest on each respective withdrawal until 21 February 2006 and thereafter on the full amount of $163, 783.50. I will direct that Mr Fan’s legal representatives undertake an interest calculation in conformity with this judgment and provide it to the Court.

Conclusion and Orders

102 For the reasons stated above the Court will grant the relief which Mr Fan seeks on his three sets of claims for relief concerning the acquisition of the Box Hill property, concerning the mortgage of the Box Hill property and concerning the unauthorised withdrawals. The plaintiff has been wholly successful and is also entitled to an order for costs.

Supreme Court of New South Wales

Fan v Tang & Ors [2010] NSWSC 11 (28 January 2010)

Supreme Court of New South Wales Decisions

Fan v Tang & Ors [2010] NSWSC 11 (28 January 2010)