Chow v Cheung

PARTIES : Man Chow - Plaintiff Wendy Lin Ho Cheung (also known as Cheung Lin Ho Chow) - Defendant

COUNSEL : Ms E A Cohen - Plaintiff Mr J F Hassett, Solicitor - Defendant

SOLICITORS : K R Hewlett & Co - Plaintiff Hassett Dixon - Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4031/06 MAN CHOW v WENDY LIN HO CHEUNG JUDGMENT 1 The plaintiff and the defendant were formerly husband and wife. The plaintiff claims damages for breach of a contract of agency. The breach is said by the plaintiff to have been committed by the defendant when, in 2002, she used a power of attorney given to her by the plaintiff. In exercise of the authority conferred by the power of attorney, the defendant executed a transfer to the parties' son Danny of the plaintiff's interest in a residential property at Matraville of which the plaintiff and the defendant were the registered proprietors as joint tenants. The transfer was made for an expressed consideration of $1-00. 2 The defendant says that, by using the power of attorney in that way, she was giving effect to an agreement made between the parties; and that the plaintiff, by becoming a party to the agreement, consented to the transfer. 3 Both parties conducted their cases on the footing that the plaintiff should be found entitled to the relief claimed unless the court found that the agreement alleged by the defendant had in fact been made between them. It was accepted on both sides that the agreement would be a complete answer to the plaintiff's claim. 4 The central issue is therefore whether the parties entered into the alleged agreement. The defendant bears the onus of proving that they did. 5 Before addressing that issue, I should refer to some matters of background. 6 The parties married in Hong Kong in 1977. They were Hong Kong residents. They together worked in and developed a business of printing faces for watches. In 1989, they moved to Australia with their two sons, Danny (born 1978) and David (born 1982). In accordance with conditions of immigration approval, they brought or remitted A$500,000 to Australia. The plaintiff remained in Australia for only a short time (perhaps a few days, perhaps somewhat longer) before returning to Hong Kong to attend to the business. 7 The parties purchased the Matraville property in 1990. They took title as joint tenants. The purchase price of A$238,000 was satisfied as to A$138,000 from the funds brought from Hong Kong and as to the balance by a loan from Westpac secured by mortgage of the property. The defendant and the two sons took up residence in the property. 8 The relationship between the parties had been strained before the move to Australia. It deteriorated thereafter: the defendant lived in Australia and the plaintiff in Hong Kong. The marriage was dissolved by order of the Family Court of Australia in 1993. It is unnecessary to go into the question of who initiated the divorce. It is fairly clear that it suited both of them to end the marriage. 9 In 1992, after the decision to separate had been made, the defendant went to Hong Kong and, during her visit, signed a "Change of Partners" form in respect of the parties' Hong Kong printing business. She signed as "Outgoing partner". The section for the names and signatures of "Existing partners" was left blank. The form was dated 19 June 1992 and was lodged with the Business Registration Office. 10 The power of attorney at the centre of the proceedings is dated 3 March 1994, that is, some ten months after the decree nisi in the divorce proceedings. By that power of attorney, the plaintiff conferred general authority on the defendant "limited to all matters and dealings in respect of or incidental to the sale of real property at and known as [address] Matraville". The defendant took steps to obtain registration of this power of attorney in the general register of deeds some four years later, in May 1998. It was registered as No 194 Book 4200. 11 When the power of attorney was created, the payments on the Westpac mortgage were in arrears. In June 1994, however, the plaintiff brought the payments up to date. He thereafter continued to make payments until the debt was paid in full in June 2000. 12 In 2001, the plaintiff created a second power of attorney in favour of the defendant. It is dated 6 December 2001. Again, there was a conferral of general authority subject to a proviso. The proviso was expressed in such a way as to allow the power to be used only for the purpose of raising loan finance on the security of the Matraville property. 13 On 29 January 2002, the defendant, using the 1994 power of attorney, executed a transfer of the plaintiff's interest in the Matraville property to the son Danny. The consideration was expressed to be $1.00. Stamp duty of $7,240 was paid on the transfer, indicating a value of $250,000 for the interest transferred. The transfer was registered. 14 The day after execution of this transfer, Danny created in favour of the defendant a power of attorney enabling the defendant to deal with the interest that had passed to Danny. 15 In May 2002, the defendant and Danny mortgaged the property to HSBC Bank as security for a loan of $235,000. 16 Soon afterwards, the defendant and Danny purchased a property at St Leonards. Some moneys for this were obtained by a loan from Westpac secured on that property. 17 On 30 December 2002, Danny transferred to the defendant his interest in the Matraville property. Again, the consideration was expressed to be $1.00. Stamp duty of $8,640 indicates a value of $290,000 for the interest transferred. 18 In July 2004, the defendant - by then the sole owner of the Matraville property - obtained a new mortgage loan from St George Bank on the security of that property. The loan was used in part to pay off the HSBC mortgage. A month later, she obtained a further loan from St George. The total sum secured was then $710,000. 19 In December 2005, the plaintiff discovered that he was no longer a registered proprietor of the Matraville property. He had solicitors in Sydney lodge a caveat. These proceedings followed service by the defendant of a lapsing notice in respect of the caveat. 20 I come now to the agreement said by the defendant to justify her use of the 1994 power of attorney in the way described at paragraph [1] above. It is pleaded as follows: "6. (c) In 1992, the Plaintiff and the Defendant entered into an agreement ('the Settlement Agreement') for the finalisation of their financial affairs following upon their separation on the following terms:- (i) The Defendant would transfer her interest in the business operated by her and the Plaintiff in partnership in Hong Kong to the Plaintiff. (ii) The Plaintiff would transfer his interest in the property [address] Matraville, being the property described in certificate of title Folio Identifier 163/16138 ('the Property'), to the Defendant. (iii) The Plaintiff would grant the Defendant a Power of Attorney for the purposes of dealing with the Property. (iv) The Plaintiff would discharge the mortgage in respect of the Property and would continue to make the mortgage payments in relation to the Property until the mortgage was discharged. (v) The Defendant would not make any claim for spousal or child maintenance or commence proceedings pursuant to the Family Law Act and would accept financial responsibility for the maintenance and education of their children Danny and David. Particulars The Agreement is partly oral and partly implied.

To the extent that the Agreement is oral, it comprises the effect of conversations between the Plaintiff and the Defendant over the telephone in early to mid 1992 and in Hong Kong in August 2002.

To the extent that the Agreement is implied, it is implied by: (aa) the execution by the Defendant of documents in Hong Kong to transfer ownership and give absolute control of the business carried on by the Plaintiff and the Defendant to the Plaintiff.

(bb) the execution of a Power of Attorney by the Plaintiff in favour of the Defendant dated 3 March 1994." 21 It is relevant to set out in full the plaintiff's reply to this part of the defence: "1. The plaintiff denies the agreement pleaded in paragraph 6(c) of the defence. 2. The plaintiff denies the allegations in paragraph 6(c)(i) of the defence and says that a. There was no agreement between the plaintiff and the defendant that the defendant would transfer her share in the business operated by the plaintiff and the defendant prior to 1991 to the plaintiff. b. The business operated by the plaintiff and the defendant prior to 1991 was in debt and was unincorporated and the parties were personally responsible for the debts of the business. c. On or about the 17th August 1992 the defendant attended at the Hong Kong Business Registration Office and removed her name from the business Register without the knowledge and consent of the plaintiff. d. In about August 1992 the defendant withdrew $HK100,000 in cash and cheques from the business without the knowledge and consent of the plaintiff. 3. The plaintiff denies the allegation in paragraph 6(c)(ii) of the defence and says that a. At the time of the separation of the parties the two children of the parties were still young and living in the property and the parties agreed orally during a number of telephone conversations that the plaintiff would continue to pay the mortgage until the children were finished their education in about 2000 and that thereafter the parties would own the property jointly. b. The property was purchased in the joint names of the plaintiff and the defendant after the plaintiff left Australia in 1990 with the joint funds of the parties and at no time was there any agreement that the property be transferred to the defendant or any other person. c. On 7th June 2000 the plaintiff made the last payment on the Westpac mortgage. d. On 26th June 2000 the plaintiff wrote to Westpac and requested that Westpac hold the Certificate of Title to the property in Safe Custody pending further instructions from the plaintiff. e. In 2001 the defendant requested that the defendant be permitted to borrow $50,000 to repair the property in preparation for a sale. f. The plaintiff agreed provided that the defendant paid the $50,000 from her share of the proceeds of sale when the property was sold. g. The plaintiff received no further communication from the defendant about the matter and assumed that no funds had been borrowed by the defendants. 4. The plaintiff denies the allegation in paragraphs 6(c)(iii) of the defence and says that: a. In 1994 the plaintiff was in default on the mortgage payments to Westpac. b. The plaintiff and the defendant agreed that the defendant should attempt to sell the property to repay the mortgagee. c. The defendant failed to sell the property. d. The plaintiff repaid all arrears to Westpac. e. The Power of Attorney was granted by the Plaintiff to the Defendant in March 1994 for the specific purpose of a sale in the circumstances mentioned in 4a, b and c above and the defendant was not authorised by the Power of Attorney to deal otherwise with the property. f. The Plaintiff, by granting a Power of Attorney to the defendant to deal with the property generally. g. The Power of Attorney was not granted by the plaintiff to the defendant pursuant to any earlier agreement between the plaintiff and the defendant in relation to any property settlement as alleged by the defendant. 5. The plaintiff admits the allegation in paragraph 6(c)(iv) of the defence and says that the plaintiff did make all mortgage repayments until the mortgage was discharged. 6. The plaintiff denies the allegation in paragraph 6(c)(v) of the defence and says that a. Between 1991 and the date hereof the plaintiff paid a total of $491,000 to the defendant and/or the children of the plaintiff and the defendant for the maintenance of the defendant and the children of the plaintiff and the defendant in addition the mortgage payments on the property. b. Between 1993 and 1995 the plaintiff supported the child of the parties David in Hong Kong. c. In 2004 and 2005 the child of the parties Danny lived with the plaintiff in Hong Kong." 22 On matters relevant to the question whether the agreement the defendant alleges was made, the parties gave conflicting evidence. The respective accounts are, in many areas, simply irreconcilable. The only witness, in addition to them, was their son Danny. 23 In order to decide whether to prefer the account of one party rather than the other, it is appropriate to concentrate on some key items and to see what is indicated by circumstances other than the parties' own evidence. 24 The first such item concerns the process by which the defendant ceased to be a partner in the Hong Kong printing business in 1992. The defendant says that the plaintiff gave her the "Change of Partners" form to sign and that she signed it at his request. The plaintiff says that the defendant prepared, signed and lodged the form without his knowledge. I am satisfied that the defendant's withdrawal was unilateral and that she signed and lodged the "Change of Partners" form without the knowledge or consent of the plaintiff. The form had provision for the signatures of "Existing partners". That space is blank. Had the withdrawal been a consensual matter, both of them would have signed - she as "Outgoing partner" and he as "Existing partner". 25 There is conflicting evidence of the parties about the financial health of the Hong Kong business in 1992. The defendant says that it was doing well. The plaintiff says that it was in financial difficulties and of little if any value. I am not in a position to make reliable findings about this as I have nothing but the conflicting accounts of the parties. However, my finding that the defendant withdrew unilaterally lends credence to the proposition that the plaintiff's assessment is the correct one. 26 I consider next the circumstances in which the 3 March 1994 power of attorney given by the defendant was prepared and executed. The defendant says that the plaintiff arranged for the document to be prepared and did so in order that he might give effect to the agreement she alleges. The plaintiff says that the preparation of the power of attorney was arranged by the defendant after he had told her that he was having trouble keeping up the mortgage payments and suggested to her that they should sell the house, to which she agreed. 27 I accept the plaintiff's contentions on this. The power of attorney is in the form prescribed by the Conveyancing Act 1919 as it stood in 1994. It may safely be inferred that it was prepared in New South Wales or, at least, by someone familiar with the law of New South Wales. At the relevant time, the defendant lived in Sydney but the plaintiff lived in Hong Kong. She had much easier access to New South Wales legal assistance than he did. Also, she spoke English but he did not. The instructing of a lawyer in New South Wales would have been a much more difficult matter for him. 28 Significantly, the scope of the power of attorney was limited to "all matters and dealings in respect of or incidental to the sale of real property at and known as" the Matraville address. This wording would have been quite inapt for the case of a gratuitous transfer by the plaintiff to the defendant. The terms of the power of attorney itself - contemplating matters and dealings in respect of or incidental to "the sale of" the property - strongly support the plaintiff's case in this respect. Sale of the property held in co-ownership was envisaged, not transfer of one co-owner's interest to the other. 29 The plaintiff's version is further borne out by the fact that, as the defendant herself accepts, the property was put to auction in 1994 but not sold. The attempt to sell it is consistent with the evidence given by the plaintiff and, while not wholly inconsistent with the notion that the defendant alone had become the owner, otherwise unexplained by her. 30 In relation to the second power of attorney (dated 6 December 2001) each party accepts that it was the defendant's desire to raise finance on the security of the property for the purpose of renovating it that led to the creation of the power of attorney. There are, however, different versions of the surrounding circumstances. The plaintiff says that he was eventually willing for the property to be used as security, provided that he was responsible for only $80,000 of the borrowed sum; also that the defendant had agreed that the renovation cost in full would be deducted from her half of the sale proceeds when the property was sold. There are differing accounts of how the second power of attorney came to be prepared and signed. 31 If, as the defendant alleges, the first power of attorney was given to her in order that she might transfer the property to herself, there was no real need for her to obtain the second power of attorney. If she wanted to mortgage the property to obtain funds for renovation, she could have simply used the first power of attorney to take the steps necessary to cause her to become sole registered proprietor and then undertaken a mortgage without any need for help from the plaintiff. She says that she did not proceed in that way because of the stamp duty that would have been payable on a transfer. 32 I consider next the matter of repayment of the Westpac loan obtained by the parties to finance their purchase of the property. The plaintiff made loan repayments over a period of ten years up to June 2000. The payments were sometimes irregular and he struggled to keep them up. In June 2000, Westpac wrote to the plaintiff to confirm that the loan had been repaid in full. Westpac told him of the courses available to obtain registration of a discharge of the mortgage. On 26 June 2000, the plaintiff wrote to Westpac stating that he wished to leave the mortgage undischarged pending his further instruction. This letter was drawn to the attention of solicitors acting for the defendant after they had approached Westpac seeking the certificate of title following repayment of the loan. The plaintiff says that he informed the defendant that he wished the certificate of title to remain with Westpac. 33 Westpac eventually discharged the mortgage and delivered the certificate of title to the defendant in January 2002. An authority for it to do so was signed by the defendant in her own right and by the defendant ostensibly as attorney of the plaintiff acting under power of attorney No 194 Book 4200. This is the first power of attorney (dated 3 March 1994). The defendant must be taken to have been aware of the attitude taken by the plaintiff and communicated to Westpac by means of the plaintiff's letter of 26 June 2000. Her solicitors were sent a copy of that letter by the bank. There is nothing to suggest that the plaintiff later changed his mind or that she became aware of any change of mind on his part. The defendant must therefore be taken to have known that she was acting contrary to the expressed wishes of the defendant when she used the power of attorney in that way. 34 The son Danny gave evidence that he had two telephone conversations with his father (the plaintiff) in the second half of 2001. By then, Danny was 23 and his brother David was 19. Danny recalled the content of the first conversation only. His evidence in chief was as follows: "Q. Do you recall what you said to your father and what he said to you in the first conversation? A. I remember specifically he said we have grown up, both myself and my brother David Chow and it is okay for him to transfer his name into either mine or my brother. I recall that conversation because we needed a renovation in the house and we needed to borrow money against the house in order to fund the renovation.

Q. You knew what works were contemplated by the renovation? A. Yes.

Q. Did you speak to your father about the nature of those works? A. Yes.

Q. What did you say to him about the nature of the works? A. We wanted to - the house is getting old, we wanted to upgrade the house with a new kitchen and extension of the bedroom.

Q. You told him those facts. Did you tell him how much it was going to cost? A. I wasn't aware of the total expenses.

Q. Now is that all you remember about the first conversation? A. Yes." 35 Let it be assumed that this conversation between the plaintiff and Danny occurred as Danny says. That did nothing to justify use of the 1994 power of attorney by the defendant to transfer the plaintiff's interest in the property to Danny. The fact that A tells B that "it is okay for" A to transfer A's property to B or C has no bearing at all on the propriety of actions taken by D, an agent of A. 36 Nor was that use of the power of attorney consistent with the agreement alleged by the defendant. As is set out at paragraph 6(c)(ii) within paragraph [19] above, the agreement, according to the defendant, was that the plaintiff would transfer his interest in the property to the defendant herself, not to one of their children. 37 I turn next to an affidavit sworn by the defendant on 15 March 2006 for the purposes of proceedings in the Federal Magistrates Court in which she sought certain relief under the Family Law Act in respect of the Matraville property. The orders she sought included an order that the plaintiff remove a caveat and an order that the defendant sell the property on the footing that the expenses of sale and any liabilities secured on the property be paid out of the proceeds and that the balance be retained by the defendant. The defendant eventually did not proceed with that application. 38 The affidavit of 15 March 2006 contains paragraphs as follows: "16. When my husband said he wished to divorce me, I said 'I want to do a property settlement'. I went to Hong Kong to see my husband. I went to the Family Court in Sydney. My English was not good and the children were young. I had no money. My husband said to me 'The business is in joint names I am going to increase the debt on the company and you will have to take responsibility for the debt because it is in your name. I will then take all the clients to a new business and you will be left with all the debts and you will go to gaol'. I was frightened. I then transferred all my shares in the business to the husband and did not do anything further. He did not pay me any money for the share in the business. [I interpolate here that the reference to transfer of shares seems to reflect a misunderstanding as the business appears to have been a partnership business at that stage, even though later incorporated.] 17. In 1992 or 1993, Man Chow and I divorced in the Family Court of Australia. 18. I heard nothing further from my husband in relation to property after that time. . . . 23. Man Chow left me a Power of Attorney in respect of the Matraville property. 24. In 2002 I refinanced the mortgage to do renovations. I notified Man Chow of the renovations and the re-finance. I secured a line of $230,000.00 over the home. To approve the refinance the bank required the home to be solely in my name. Man Chow's name was removed from title and I became sole owner of the property. I made all payments of mortgage on the property. I arranged all the work on the renovations. I made all the payments for the renovations from the line of credit and made the re-payments from my own income. Man Chow made no payments." 39 It is particularly noteworthy that the defendant made no suggestion whatsoever in this affidavit that there existed the agreement between the plaintiff and herself upon which she seeks to rely in these proceedings. 40 In addition, paragraph 24 of the affidavit is, at best, misleading and, at worst, false. The line of credit there referred to was obtained from HSBC Bank in Sydney. There is in evidence a bank document in which a bank has recorded, in respect of a loan application for $235,000: "The purpose of the loan is to assist Wendy to secure the purchase of an investment property. Wendy has recently contracted to purchase a newly developed property on the North Shore valued approx $680,000." 41 It may be that renovations were carried out at Matraville, but the HSBC loan was not obtained for that purpose. 42 I am bound to say also that there are anomalies in a statement of financial position filed by the defendant with the Federal Magistrates Court. It is sufficient to quote the following passage from the cross-examination of the defendant: "Q. In November 2003 a company in which you had a third interest purchased a property at Mosman for $2,850,000? A. INTERPRETER: Well, I did not have one third, I only had twenty percent.

Q. You had twenty percent of that? A. INTERPRETER: Twenty percent of that.

Q. And you managed to sell that in 2005 for, I think it was $4,200,000, isn't that the case? A. INTERPRETER: Not 4.2, 4.1 million.

Q. 4.1 million, was it? That was just before - that was only some six months before you swore this financial statement? A. INTERPRETER: That's a different company.

Q. It is still a company in which you had a, what you say a twenty percent interest? A. INTERPRETER: That's right. I put the whole money back into the company.

Q. In the financial statement of 2006 of the Family Law applications, where is your twenty percent interest in the company that bought the house at Mosman shown? A. INTERPRETER: I did not put that in because at that time the solicitor only want me to put in my own personal asset.

Q. Didn't you own twenty percent of the company involved in the Mosman transaction? A. INTERPRETER: Yes.

Q. So, that was something you owned? A. INTERPRETER: Yes.

Q. Where was that? A. INTERPRETER: Well, the solicitor she did not put it for me. She did not ask me." 43 I do not regard the defendant as a witness of credit. That, plus the evidence of relevant surrounding circumstances to which I have referred, causes me to prefer the evidence of the plaintiff in all areas where there is conflict between the testimony of the plaintiff and that of the defendant. 44 It follows that I accept that the agreement upon which the defendant seeks to rely was never made. In any event, and as I have already observed, the terms of the power of attorney of 3 March 1994 were inconsistent with any such agreement; and the action of the defendant in transferring the plaintiff's interest in the Matraville property to Danny by means of the power of attorney was not something contemplated by or within the scope of the agreement the defendant alleges. 45 The defendant's case is that the agreement allowed her to transfer the plaintiff's interest to herself. She did not do that. Using the power of attorney, she transferred the plaintiff's interests to Danny - but, it may be noted, in circumstances in which Danny immediately afterwards armed her with authority to deal with the interest thus acquired by him. 46 Had the agreement the defendant alleges existed, the defendant would simply have transferred the plaintiff's interest to herself rather than adopting the convoluted approach she in fact took. 47 In the result, therefore, the defendant has not made out the key element of her defence. The plaintiff is accordingly entitled to a remedy. 48 The remedy he seeks is damages. He should be awarded damages according to "the loss on the whole transaction": Peninsular and Oriental Steam Navigation Co v Johnson [1938] HCA 16; (1938) 60 CLR 189 at CLR 250. What he lost was, in essence, half the value of the property as at 29 January 2002. 49 The parties accept that the plaintiff's interest in the Matraville property had a value of $250,000 at that time. There should therefore be verdict and judgment for the plaintiff in the sum of $250,000 together with interest thereon from 30 January 2002 to the date of judgment, such interest being computed at the "prescribed rate" referred to in s 101 of the Civil Procedure Act 2005. There should also be an order that the defendant pay the plaintiff's costs of the proceedings. 50 I direct that the plaintiff's solicitors file by delivery to my Associate within seven days a minute of these orders, having first agreed the interest calculation with the defendant's solicitor. **********

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