Da Yun Xu v Fang Lin

Da Yun Xu v Fang Lin - [2005] NSWSC 569 - NSWSC 2005 case summary — Zoe

[10]

The parties and the proceedings 1 The plaintiff is a man aged 57. The defendant is a woman aged 31. By contract made on 25 June 2003 and completed on 15 September 2003, the plaintiff sold and transferred to the defendant a house property at Chatswood. In these proceedings, the plaintiff claims relief against the defendant as follows: "(a) a declaration that the Plaintiff holds the beneficial interest in the right title and interest in the house subject to a charge in favour of the Defendant to secure repayment of the sum of $560,000; (b) a declaration that the Defendant holds on trust for the Plaintiff the house subject to a charge in favour of the Defendant to secure repayment of the sum of $560,000; (c) a declaration that the contract was unjust at the time it was entered into; (d) an order that the Defendant execute a Transfer of the house in registrable form in favour of the Plaintiff and deliver to him the same together with the duplicate certificate of title within thirty days or upon payment by the Plaintiff to the Defendant of the said sum of $560,000 whichever is the later date; (e) an order that the Defendant account to the Plaintiff for the rents and profits received in respect of the house; (f) a declaration that the Plaintiff has validly rescinded the contract for the sale of the house; (g) alternatively to the orders sought aforesaid, an order that the Defendant pay to the Plaintiff the sum of $140,000; (h) a declaration that the said sum of $140,000 in which the Defendant is indebted to the Plaintiff is charged upon the house; (i) an order that a receiver be appointed to the house; (j) such further or other order as the Court thinks fit; (k) costs." 2 Issues for trial are agreed. They are: (a) whether the sale of the Chatswood property by the plaintiff to the defendant was brought about by the undue influence of the defendant; (b) whether the plaintiff was in a position of special disadvantage or disability in relation to the defendant; (c) whether the defendant unconscionably took advantage of the plaintiff's disability in relation to the sale of the Chatswood property; (d) whether the contract of sale for the Chatswood property is an unjust contract for the purposes of section 7 of the Contracts Review Act , 1980; (e) whether the plaintiff is entitled to: (i) the sum of $140,000 being the purported deposit for the property subject of these proceedings; or (ii) the setting aside of the contract of sale subject to a charge in the defendant's favour for the purchase price. Basic facts 3 The parties met in 1997. The defendant was, at that time (and at all other material times), working as a prostitute. The plaintiff met her and engaged her services in that capacity. Over the ensuing years, the plaintiff sought out the defendant regularly and with increasing frequency so that he might procure sexual services from her for payment. They met at brothels where the defendant worked, she keeping him informed of her work schedule and the addresses of the premises she would be attending on different days. The plaintiff was one of four or five men with whom the defendant maintained arrangements of that regular kind. 4 Some sexual encounters between the plaintiff and the defendant (involving payment) occurred away from brothels and in the context of social activities. On one occasion they had dinner at the Sydney Casino after having sexual relations at the defendant's home. The plaintiff paid $500 on that occasion. The plaintiff's evidence also refers to an outing to The Rocks and to several outings to celebrate the defendant's birthdays, each of which involved gifts and payments by the plaintiff to the defendant. There was also an overnight trip to Canberra. 5 On one occasion, the defendant gave the plaintiff a greeting card on the face of which is a picture of a boy and a girl with their arms around each other. Inside is a printed message: "In you, I've found the love of my life and the closest, truest friend of my heart. Happy Anniversary."

[13]

Q. And you would give her amounts of money in addition to the money you gave her for sex? A. Yes." 9 The commercial nature of the relationship is further supported by the fact that the plaintiff paid rent to the defendant when he continued to occupy the house following transfer of it to her. The plaintiff occupied the house alone. The parties did not live together at any time. Except for the property transaction, the defendant was not involved in the personal matters (including the property interests) of the plaintiff. The defendant maintained that she was in no position to be involved, and was never involved, in the property interests of the plaintiff. I quote from her cross-examination: "Q. You understood that property at Chatswood was his main asset, didn't you? A. I don't think I have the right to get involved in his property matters." 10 Although the defendant was regularly visited by the plaintiff for sex and was apparently favoured by the plaintiff throughout some six years, there was no mutual commitment to an emotional relationship beyond the intimacy incidental to the prostitute-client relationship. While the plaintiff claims to have been infatuated with the defendant, it seems clear that he was not exclusively committed to a relationship with her and that she was one of several prostitutes he engaged. Indeed, the plaintiff deposed to having a "habit of attending brothels" and paying for "sexual intercourse with various ladies who worked" at the brothel where he met the defendant. This is consistent with the defendant's account that the plaintiff had told his wife at the time that he would continue seeing prostitutes (including the defendant) and enjoying sexual relations with other women. The plaintiff's evidence is that he said words to this effect to his wife and that his decision to continue seeing prostitutes had led to the breakdown of his marriage. 11 The defendant was aware that she was merely one of the prostitutes engaged by the plaintiff. I quote again from her cross-examination: "Q. You understood [your words in the card] would be taken as words in support of the love he had for you? A. … I wasn't sure at the time how deeply he loved me but I knew for sure he was seeing other girls at the time.

[14]

Q. And he expressed his love for you on many occasions? A. He said to me he liked me, he also told me he liked other girls." 12 The plaintiff's lack of commitment to the defendant undermines his claim of emotional dependence on her. 13 It is against this background that I return to the matter of the greeting card. The card was given to celebrate the birthday of the plaintiff some time before the transaction involving the Chatswood property. The defendant said in cross-examination that she wrote the message on the card at the request of the plaintiff and for his gratification, and that the message did not reflect her true attitude towards him. She characterised the episode involving the card as a game or a joke, saying that she was merely playing the role that the plaintiff wanted her to play. Although the plaintiff says he believed in the truth of the message, his evidence does not otherwise contradict the account of the defendant or, in particular, cast doubt on the proposition that she was role-playing. I accept that the defendant complied with the request of the plaintiff to express love for and an intention to marry the plaintiff even though she did not have those feelings. It was part of the service she provided. The message on the card did not represent the defendant's true attitude towards the plaintiff and, while he may have wished to think that it did, the circumstances were such that he should have realised that it did not. The property transaction 14 The defendant was, at the relevant time, interested in purchasing a property. She now owns several other properties and was obviously keen on property investment. The plaintiff was aware of the defendant's interest in purchasing real estate. He hoped that the transaction with him would secure the affections of the defendant for him and enable him to live with her. This is corroborated by a file note of Mr Nguyen, the solicitor acting for the plaintiff on the sale: "Girlfriend to live in with client". This must have been said to Mr Nguyen by the plaintiff. The plaintiff's willingness to sell to the defendant would be consistent with the defendant's evidence that, after his divorce, he wished to move away from Chatswood where he had lived with his wife. 15 The plaintiff was also aware that the defendant lacked the financial means to purchase the house. By selling the house to her and discouraging her from prostitution, the plaintiff hoped to make the defendant dependent on him financially (if not also emotionally), having regard to her need to meet the mortgage payments. His cross-examination contains the following passage:

[26]

Q. The truth of the matter is you had no idea as to how you would fund the difference between the purchase price and the money you were planning to borrow when you met Mr Xu on 25 June 2003? A. I have an idea, because he promised to pay the money." 19 Moreover, the written receipt by which the plaintiff acknowledged that the defendant had paid the deposit provides documentary evidence of the parties' intention that the defendant be discharged from her obligation to pay the deposit. Consistent with the plaintiff's keenness to sell his house to the defendant and his knowledge that her finances were limited, he also chose not to rely on rights that accrued to him when the defendant delayed in settling the transaction. 20 The defendant probably purchased the property as an addition to her property portfolio. The defendant gave evidence that she had inspected properties in suburbs including Chatswood before the transaction. Consequently, she was able to gauge the approximate value of the house based on similar properties. That she purchased the property for investment purposes is corroborated by her demanding rent from the plaintiff who continued to reside there after settlement. The reality of the transaction therefore differed from the plaintiff's stated expectation that it would commit the defendant to a closer relationship with him. 21 The plaintiff says that the defendant induced him to sell the house to her. Specifically, the plaintiff says that the defendant threatened to withdraw her affection for him if he did not sell and that she had expressed an intention to cease working as a prostitute, to live with him and to conceive a child by him, at the time that the contracts were exchanged. But the plaintiff's evidence in cross-examination on this topic was vague. For example: "Q. Mr Xu, your decision to sell the property to the defendant was motivated by your great love for the defendant and not motivated by any threat made by the defendant to withdraw her affections from you? A. It's a form of love. If I didn't sell, I would have lost her.

[30]

"The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of judgment in reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act. But the parties may antecedently stand in a relation that gives to one an authority or influence over the other from the abuse of which it is proper that he should be protected. When they stand in such a relation, the party in the position of influence cannot maintain his beneficial title to property of substantial value made over to him by the other as a gift, unless he satisfies the court that he took no advantage of the donor, but that the gift was the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee." 27 Equitable principles about undue influence are thus concerned with the quality of the consent or assent of the plaintiff: Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 (Deane J), and form a basis for relief where his independent and voluntary will is overborne: Amadio at 461 (Mason J). Undue influence may be either presumed from a relationship of trust and confidence (Johnson v Buttress at 119, 122 (Latham CJ), 124 (Starke J), 134-135, 138 (Dixon J), 142 (McTiernan J)) or proved by evidence of express influence by the defendant over the plaintiff: Johnson v Buttress at 134-135 (Dixon J). 28 Based on the commercial nature of the relationship between the parties, the lack of involvement of the defendant in the plaintiff's personal affairs, the lack of cohabitation and of exclusive commitment of the parties to one another, there was no relationship beyond that of prostitute and client. The plaintiff's desire for a closer relationship remained a wish. In the absence of any emotional relationship by which the plaintiff might have reposed trust and confidence in the defendant at the relevant time, I am not satisfied that the parties were in a relationship giving rise to the presumption of undue influence by the defendant. 29 In Bank of Credit and Commercial International SA v Aboody [1989] 1 QB 923 at 967, the English Court of Appeal propounded the requirements of actual undue influence:

[31]

"… a person relying on a plea of actual undue influence must show that (a) the party to the transaction (or someone who induced the transaction for his own benefit) had the capacity to influence the complainant; (b) the influence was exercised; (c) its exercise was undue; (d) its exercise brought about the transaction." 30 By analogy with the besotted solicitor in Louth v Diprose (1992) 175 CLR 621, the plaintiff may have been susceptible to the influence of the defendant because of the emotional attachment he says he developed for her. But it is not shown that the defendant was conscious of any dependence by him: she saw the relationship as commercial and non-exclusive. And even if the defendant was aware of the plaintiff's emotional attachment, she was never in a position to exert influence. She had no involvement in his personal matters. I do not consider the situation to have been one of actual undue influence. 31 To rebut the presumption or proof of undue influence, the defendant must establish that the plaintiff's decision to sell and transfer the house property to the defendant was independent, voluntary and conscientious: Johnson v Buttress at 123 (Latham CJ), 124, 126 (Starke J), 135 (Dixon J), 142-143 (McTiernan J). In Spong v Spong (1914) 18 CLR 544 at 552, Rich J stated the relevant test in these terms: "the question is, whether the person parting by way of gift, or entering into a contract, had a full and free opportunity of judging for himself. … 'The principle applies to every case where influence is acquired and abused, where confidence is reposed and betrayed': Smith v Kay [(1859) 7 HL Cas 750; (1859) 11 ER 299]." 32 I am satisfied, in the present case, that the plaintiff was able to judge for himself. He took steps to inform himself of the market value of the property before entering into the transaction on terms that were advantageous to the defendant. He sold to the defendant on those advantageous terms as a means of attempting to advance his relationship and to ingratiate himself with her. That he did not take advantage of the opportunity to reconsider the transaction when the defendant defaulted confirms the deliberate nature of his decision to sell to the defendant. The circumstances of the transaction thus show that the plaintiff's participation was free from any effects of undue influence. Unconscionable conduct 33 The plaintiff further challenges the transaction on the basis of unconscionable conduct. The relevant principle was explained by Deane J in Amadio at p.474:

[33]

"I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interest, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party." 35 Since Louth v Diprose, courts have accepted that infatuation and emotional dependency may amount to special disadvantage or disability: see Bridgewater v Leahy (1998) 194 CLR 457, at p.490 (Gaudron, Gummow and Kirby JJ). In the present case, however, the plaintiff's alleged infatuation did not affect the property transaction to the necessary extent. There was valuable consideration for the transaction and the plaintiff had entered into the transaction of his free will. I am not satisfied that the plaintiff suffered under a special disability or was in a position of special disadvantage vis-à-vis the defendant. 36 Any special disability or disadvantage suffered by plaintiff because of his alleged infatuation was not sufficiently evident to the defendant. Although the plaintiff's generosity towards the defendant was shown by the numerous gifts to her, as well as his regular and frequent custom over the years, the defendant was, on reasonable grounds, under the impression that he was not committed to her beyond their commercial prostitute-client relationship discussed above. 37 Even if the defendant had seen that the plaintiff was emotionally committed to her, principles of unconscionability will not operate unless it is shown that she took advantage of a special disadvantage or disability of the plaintiff. In Louth v Diprose, where the majority of the High Court (Mason CJ, Brennan, Deane, Dawson Gaudron and McHugh JJ, Toohey J dissenting) set aside a gift of a house from a man to a woman with whom he had been "utterly infatuated", the court found that woman had tolerated the man's attentions because of the material advantages to her, manufactured a false atmosphere of personal crisis and played upon his love for her by making suicide threats. Mason CJ at p.626 provided: "By dishonestly manufacturing an atmosphere of crisis with respect to the house, the appellant played upon the respondent's susceptibility where she was concerned. Her conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, him to enter into a transaction which was improvident and conferred a great benefit upon her." 38 Deane J at p.638 stated: "This case [ Louth v Diprose ] was one in which the appellant deliberately used that love or infatuation and her own deceit to create a situation in which she could unconscientiously manipulate the respondent to part with a large proportion of his property. The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to prevent his victimisation ." [emphasis added] 39 In Bridgewater v Leahy, the High Court held that it was unconscionable for the nephew to acquire land for "seriously inadequate consideration" from his uncle whom he knew to be emotionally dependent on him, particularly because the acquisition had been at the nephew's initiative.

[39]

(e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, … because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract … (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract." 43 The Act requires a twofold approach: first, the court must decide whether the contract was "unjust in the circumstances relating to the contract at the time it was made"; and second, if the contract is found to be so "unjust", it is "just" that the order sought should be made in relation to it: see S H Lock (Aust) Ltd v Kennedy (1988) 12 NSWLR 482; Nguyen v Taylor (1992) 27 NSWLR 48. As Professors J. W. Carter and D. J. Harland observe in their textbook Contract Law in Australia (4th edition, 2002) at paragraph [1522], the concept of the "unjust" contract is broader than undue influence or unconscionability in the general law. 44 Although the plaintiff's alleged infatuation may have done something to diminish his relative bargaining position, the plaintiff remained able to protect his own interests. His decision to sell his house to the defendant was clearly an informed and voluntary decision, free of any unfair pressure or tactics by the defendant. I have found that there was no undue influence or unconscionable conduct on the part of the defendant in the transaction. In the same way, a consideration of the factors identified in s.9(2) of the Act as indicative (but by no means conclusive) on the question of whether a contract is "unjust" leads me to conclude that it was not unjust in the sense relevant to s7(1)(d) of the Contracts Review Act. The deposit 45 The plaintiff claims an entitlement to the sum of $140,000 being the purported deposit for the house property, based on the allegedly outstanding obligation of the defendant purchaser to pay the sum under the contract for sale. The decision of the Full Court of the Supreme Court of Victoria in Pascon Pty Ltd v San Marco In Lamis Co-operative Social Club Ltd [1991] 2 VR 227 is relied upon. In that case, the vendor had mistakenly accepted less than the contract price but was able to sue the purchaser for the balance despite an acknowledgement in the transfer that the vendor had received the price. Brooking J (with whom Kaye and McGarvie JJ agreed) held that whether the purchaser is discharged from the obligation to pay balance of the contract price upon settlement depends on the intention of the parties: "But while I see no reason in principle why an obligation of a purchaser should not merge in the conveyance or transfer, I have no doubt that in this case the purchaser's obligation to pay the price did not merge in the transfer. Merger depends on intention, and it is clear that the parties did not intend that the purchaser's obligation to pay the balance of the price should be satisfied by the transfer." (p.229) 46 As the parties in Pascon Pty Ltd v San Marco had not intended that the purchaser's obligation to pay the balance of the contract price should be satisfied by the transfer, the obligation did not merge in the transfer upon completion, so that the purchaser remained liable to pay the balance after such completion. 47 The point of distinction in this case is as to the parties' intentions. Here, the plaintiff never required the defendant to pay the deposit and never intended that she should do so. Although the defendant does not rely on estoppel, the circumstances are such as to indicate an estoppel against the plaintiff. The plaintiff had represented to the defendant that he would not require payment of the deposit stated in the contract; his representation induced the defendant to purchase the property that she could not otherwise afford; the plaintiff was aware that the defendant relied on his representation; and, as the defendant would suffer detriment by the plaintiff acting inconsistently, he is estopped from requiring the defendant to pay the deposit: see Legione v Hateley (1983) 152 CLR 406. 48 The intention of the parties that the defendant be released from her obligation to pay the deposit is clear. This case is thus distinguishable from Pascon where such a common intention was absent.

At a glance

Court

Decision date

Before

Source

Judgment (41 paragraphs)

Parties

Cases Cited (8)

Cited By (2)