Kenway Investments & Anor v Teamda Developments & Ors

CASES CITED : Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144

Kenway Investments (Australia) Pty Limited (First Plaintiff) Tradelite Investments (Australia) Pty Limited (Second Plaintiff) Teamda Development Pty Limited (First Defendant) Liwa Pty Limited (Second Defendant) Konnie Pty Limited (Third Defendant) PARTIES : Glisan Pty Ltd (Fourth Defendant) Wen Kai Tan (Fifth Defendant) Hong Ying Ruan (Sixth Defendant) Wen Hui Tan (Seventh Defendant) Lawrence Luk (Eighth Defendant) Watsin International Pty Limited (Ninth Defendant)

COUNSEL : R R I Harper SC/T T Bors (for Kenway & Tradelite) C R C Newlinds SC/P T Newton (for Teamda, Liwa and Konnie)

SOLICITORS : Massey Bailey (for Kenway & Tradelite) Heidtman & Co (for Teamda, Liwa and Konnie)

Kenway Investments & Anor v Teamda Developments & Ors [2007] NSWSC 48

The issues 4 Relationship between the parties 5 Factual background 7 Disputes; the deed of arrangement 20 The retainer of Mr Chow 26 Mr Chow's report 34 Mr Chow's evidence 40 Issues 1-4: the Deed 45 Issues 5-9: factual issues 56 Issues 10-12: the taking of accounts 65 Conclusion 86

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50157/04 KENWAY INVESTMENTS (AUSTRALIA) PTY LIMITED & ANOR v TEAMDA DEVELOPMENT PTY LIMITED & ORS REASONS FOR JUDGMENT

1 HIS HONOUR: During 1999, the plaintiffs (respectively Kenway and Tradelite) and the first three defendants (respectively Teamda, Liwa and Konnie) agreed to acquire and develop land at 62-74 Beamish Street, Campsie (the project). Management of the project was entrusted to Mr Wen Kai Tan (also known as Kenneth Tan), a director of Kenway and Teamda. He held a power of attorney from the plaintiffs and the first three defendants. It had been thought that the project would produce a gross return of about $24.6 million based on a gross cost of about $19.3 million: a gross profit, in monetary terms, of about $5.3 million. However, for a number of reasons (including a substantial increase in construction costs), the expected profit did not materialise; on the contrary, there is likely to be a substantial loss. 2 In these proceedings, the plaintiffs seek declarations as to the existence and amounts of, and orders for the repayment of, loans that they claim to have made to the project over and above the amounts of their respective capital contributions. The defendants (more accurately, the first three defendants) seek an order that accounts be taken both in relation to the project generally and, specifically, in relation to Mr Tan's management as attorney under power. The fourth to ninth defendants took no active part in the proceedings. They were joined so that they might be bound by the Court's decisions as to the amounts lent to the partnership and the identity of the lenders, and filed submitting appearances. 3 At the conclusion of the evidence on 13 December 2006, I indicated certain tentative conclusions to counsel (Mr R R I Harper SC with Mr T T Bors of counsel for Kenway and Tradelite; Mr C R C Newlinds SC and Mr P T Newton of counsel for Teamda, Liwa, and Konnie) and suggested that they give particular consideration to those tentative conclusions and to the consequences that would follow if they matured into firm conclusions. This they did. It became apparent, from both written submissions produced overnight and oral submissions on 14 December 2006, that there was little difference between the parties in terms of a number of the declarations and orders that should be made. In those circumstances, and after considering the submissions that were put, I indicated the orders that I thought were appropriate to make. The parties asked that I make those orders forthwith (in fact, I made them the following day, following some checking of and revision to their terms) and that I give reasons at a later date. These are my reasons for making the orders that were made on 15 December 2006.

The issues 4 The parties agreed that the issues to be decided were as follows: " The Deed dated May 2004. 1. Do the terms of the Deed dated May 2004 estop the defendants from denying that loans were made as alleged in the terms of the Deed? 2. Did Herman Chow determine the quantum of the loans within clause 3 of the Deed, and if so, has the liability to repay the loans under clause 4 accrued? 3. Is any determination of Herman Chow final and binding upon the parties, and if so, what consequences flow? 4. If Herman Chow has not made a determination for the purposes of the Deed what consequences flow? Factual issues: 5. Were monies advanced for the purposes of the Beamish Street Project by the following person or entities in the following amounts or at all: 5 August 2003 Glisan/Tradelite (see below) $200,000 Kenway $100,000 Kenneth Tan & Linda Ruan $100,000 6 August 2003 Denise Tan & Lawrence $100,000 11 September 2003 Glisan $800,000 21 October 2003 Glisan $100,000 Watsin Pty Ltd $ 50,000 31 October 2003 Tradelite $ 50,000 Kenway $ 50,000 3 November 2003 Kenway $ 50,000 7 November 2003 Glisan $400,000 10 November 2003 Z&Z Pty Ltd $ 50,000 13 November 2003 Glisan $ 50,000 21 November 2003 Konnie $300,000 2 December 2003 Kenway $ 40,000 Tradelite $ 60,000 4 December 2003 Kenway $100,000 9 December 2003 Kenway $150,000 12 December 2003 Kenway $ 60,000 24 December 2003 Tradelite $ 50,000 6 January 2004 Tradelite $150,000 7 January 2004 Kenway $ 50,000 12 January 2004 Watsin $ 25,000 23 January 2004 Kenway $150,000 27 January 2004 Watsin $ 25,000 29 January 2004 Kenway $ 30,000 Glisan $100,000 17 February 2004 Ms Tan $100,000 24 February 2004 Kenway $ 50,000 27 February 2004 Kenway $ 50,000 28 March 2004 Kenneth Tan & Linda Ruan $100,000 ($50,000 repaid to Glisan) 15 April 2004 Tradelite $100,000

Were the amounts advanced by way of loan to the plaintiffs who lent them to the joint venture?

Were the amounts advanced by way of loan [sic] the joint venture directly by the nominated persons or entities?

Did any of the loans carry interest, and if so at what rate, and by whom among the joint venture parties is the interest to be paid?

What orders, if any, for repayment should be made from the available assets of the joint venture.

Should an account in common form be ordered against some or all of the cross defendants?

If the court holds that an account should be ordered, ought the cross claimants be required to identify the cross defendants in respect of the costs of an account in common form?

If the court holds that an account should be ordered, does this have any impact upon the relief sought by the plaintiffs?". Relationship between the parties 5 In the "pleadings" and other documents, the relationship between Kenway, Tradelite, Teamda, Liwa and Konnie, in relation to the project, was described as one of joint venture. However, I think, it is plain that they were partners in that project, in that they were carrying on business in common with a view to profit (see s 1(1) of the Partnership Act 1892). Indeed, the accountant for the joint venture, Mr Herman Chow, prepared partnership returns for the financial years 2001, 2002 and 2003. 6 In the result, no one submitted that the relevant relationship was anything other than one of partnership.

Factual background 7 On 2 February 2000, Mr Tan produced a "Cost Analyst [sic] Report", in which he projected the outcome to which I have referred. That report noted that the cost of the project would be contributed by the five partners (as together I shall call them) in the sum of $5.5 million and that $12 million would be borrowed from a bank. It is not immediately apparent how the shortfall between the funds thus available and the total estimated cost was to have been met; presumably, at least some of the costs would not be incurred, or would not be paid, until after the partnership had begun to receive funds from settlements of sales. 8 The relationship between the partners was not reduced to writing. It seems that the project was undertaken substantially on the basis of Mr Tan's projection. It appears to be common ground that capital of $5.5 million was to be contributed as follows: · Kenway 25% $1,375,000 · Tradelite 20% $1,100,000 · Teamda 20% $1,100,000 · Liwa 15% $ 825,000 · Konnie 20% $1,100,000 9 However, expert accountants retained by the parties, in a joint report dated 8 December 2006, expressed the view that the capital in fact contributed amounted in total to $5,225,800. 10 On 5 October 1999, each of the partners gave Mr Tan a power of attorney whereby in substance he was authorised on behalf of each of them individually to do whatever was necessary for the undertaking and completion of the project. Teamda revoked that power of attorney by notice dated 23 April 2004. Liwa revoked it by notice dated 6 May 2004, as did Konnie also. By then, the project was substantially complete, and most of the units comprised in the development had been sold. 11 On 20 February 2002, the partners entered into a building works contract with a company known as Isak Constructions (Aust) Pty Ltd (Isak Constructions). The contract provided, among other things, for a lump sum price of $12 million plus GST, for Isak Constructions to give security in the sum of $5 million and for practical completion to occur by 20 February 2003. 12 The principals of Isak Constructions were Mr Mick Isakka and Mr Adib (also known as Eddie) Faress. Messrs Isakka and Faress fell out during the course of construction, with detrimental results to the progress of the work. Ultimately, Mr Faress undertook responsibility for the completion of the project, through a company apparently controlled by him known as Emerald Development Pty Ltd (Emerald). 13 The cost of the project proved to be substantially more than projected. Accordingly, the plaintiffs say, some of the partners decided to contribute loan funds to enable the project to be completed. The details of the plaintiffs' case as to those contributions have changed from time to time. However, as finally propounded in the agreed issues, it appears to be either that amounts were advanced by way of loan by the various parties, in the various amounts and on the various dates referred to in issue 5 or, alternatively, that the amounts said to have been provided (to use a neutral term) by anyone other than Kenway, Tradelite or Konnie were in fact advanced to Tradelite which in turn advanced them by way of loan to the partnership. That structure is reflected in the statement of contentions in the plaintiffs' further amended summons, whereby it is alleged (para 23) that Kenway advanced $928,000 and Tradelite advanced $2,392,000. 14 In my view, it is plain that no one other than Kenway, Tradelite and Konnie made loans to the partnership, and that to the extent that the other persons named in issue 5 did provide funds, they lent those funds to Tradelite which in turn lent them to the partnership to enable the project to be completed. 15 It follows that one of the questions to be determined is what were the amounts lent by Kenway, Tradelite and Konnie to the partnership, and what are the amounts of those loans that are now outstanding. 16 After Messrs Isakka and Faress fell out, Isak Contructions opened a new bank account into which funds were paid from time to time. Payments were made out of that account. At all relevant times, the account was under the control of Mr Tan, and Mr Tan seems to have been largely, if not solely, responsible for authorising or making payments out. 17 The partnership conducted its own bank account. Again, the operation of that account, including payment in and out of funds, was under the control of Mr Tan. 18 It is apparent that Mr Tan's record keeping was less than satisfactory. He did not keep adequate records of payments into and out of the two accounts to which I have referred. Thus, on many occasions (amounting to many millions of dollars in total) the question, whether a particular payment out was made for a legitimate partnership purpose falls to be answered either by inference from inadequate and incomplete material or, in some cases where there is simply no material, by reference to explanations from time to time given by Mr Tan. 19 It is plain that Teamda, Liwa and Konnie became dissatisfied with the state of the project, and that they (through their directors) asked Mr Tan for an accounting. Mr Tan has asserted that he provided an adequate accounting of the relevant dealings. I have to say that the evidence does not make good that assertion.

Disputes; the deed of agreement 20 Matters came to a head in the first part of 2004. As I have said, in late April or early May 2004 Teamda, Liwa and Konnie revoked the powers of attorney given by them to Mr Tan. Kenway and Tradelite say that, prior to the revocation of the powers of attorney, Mr Tan, acting as attorney under power on behalf of each partner, certified the amount due to each of them in respect of the loans that they claimed to have made. That was done by letters on the letterhead of the Beamish Street Project bearing the date 18 April 2004. Mr Tan certified the amounts due as follows:

(1) To Kenway : $ 980,000 (2) To Tradelite : $ 2,250,000 (3) To Konnie : $ 300,000. 21 In each case, Mr Tan provided what purported to be corroborating details. In relation to Tradelite, those corroborating details referred to amounts coming from Glisan Pty Ltd (Glisan), Watsin Investment Pty Ltd (Watsin) and Z & Z Investment (Australia) Pty Ltd (Z&Z). (Those entities, and others who at times have been said to have lent money to the partnership, are the fourth to ninth defendants. As I have said, they took no part in the hearing.) 22 On the same date, Mr Tan wrote to Glisan, Watsin and Z&Z. In each case, he wrote on the letterhead of Tradelite and signed for Tradelite as a director. In each case, he confirmed receipt (ie, by Tradelite) from the addressee of a "loan for Beamish Street Project" as follows: (1) Glisan - $1,450,000 (2) Watsin - $ 100,000 (3) Z&Z - $ 50,000. 23 Mr Tan said that all the letters were prepared with the assistance of his wife and his sister, both of whom are qualified accountants. His wife, Ms Hong Ying Ruan (also known as Linda Tan), gave evidence. She agreed that in her view as an accountant, the schedule attached to the letter (which letter, I repeat, was on partnership letterhead) to Tradelite accurately recorded the transactions that were listed in it, made up in the way set out in the schedule to that letter. I accept that evidence, to the extent that it confirms that whatever may be the actual total amount of the loan, it was a loan made by Tradelite; and that whatever may be the actual amounts of the contributions received by Tradelite, those contributions were made to Tradelite and not as loans to the partnership. It is for this reason, among others (including the clear terms of the various letters to which I have referred) that I have reached the conclusion set out in para [14] above. 24 There was some dispute as to whether the letters to which I have referred were prepared on or about the dates they bear (ie, before the revocation of the powers of attorney) or afterwards, and backdated. It is unnecessary to go into the detail of that dispute because I am satisfied that Mr Tan has given an adequate explanation of the apparent discrepancy that provoked the dispute. In other words, I accept his evidence that the letters were prepared on or about the date they bear, notwithstanding that documentation including those letters was not provided to Teamda before 31 May 2004. 25 In May 2004, Kenway, Tradelite, Teamda, Liwa and Konnie entered into a "Deed of Agreement" whereby they sought to resolve their differences in principle, and provide for the final resolution of those differences in practice. The relevant recitals and operative provisions of that deed are as follows: " RECITALS … G. The parties have borrowed funds from the Commonwealth Bank of Australia for the purpose of the Project ( the CBA Funds). H. Konnie has provided a loan to the parties for the purpose of the Project ( the Konnie Loan). I. Tradelite has provided a loan to the parties for the purpose of the Project (the Tradelite Loan). J. Kenway has provided a loan to the parties for the purpose of the Project (the Kenway loan). … OPERATIVE PROVISIONS: … 3. The actual quantum of the Konnie, Tradelite and Kenway Loans will be determined by Tan and a representative of Teamda and a representative of Liwa and Konnie within a reasonable time of the date of this Deed and upon production of evidentiary documents in support of the said bonus. 4. The parties agree that the Loans in Recitals H, I, and J and in Operative Provision 3, will be repaid in full (within a reasonable time). … ". The retainer of Mr Chow 26 Mr Chow's accounting firm performed accounting services for Kenway and Tradelite up until 30 June 2003 and has performed and continues to perform accounting services for Liwa and Konnie. 27 On 14 June 2004, there was a "partnership" meeting at Mr Chow's offices. All the partners were represented. The bulk of the meeting occurred in Mr Chow's absence. It is apparent that there was discussion of the way in which the partners could give effect to clause 3 of the deed of agreement. A resolution was passed in the following terms:

"Beamish St Partnership Meeting. All shareholders consent to the following: 1. Guarantee that no one will harm each other. Guarantee personal safety. Other issues will be solved by ways [sic] of discussion. 2. In regard to the financial results, Herman's final accounts will be taken as final. 3. In regard to shareholders' loan [sic], all current accounts will be audited. The figure will be confirmed. The money will be repaid immediately. 4. In regard to auditing, it is decided that Herman, Linda [Ms Tan] and Ah Tuo carry out the auditing together and it will be done as soon as possible. The progress will be looked at on next meeting. 5. Special fees will be discussed together next time as [sic] how to solve it. 6. Internally verified report will be summarised together by Linda, Ah Tang and Herman. ……". (This comes from a certified translation of the original minutes, which were written substantially in "the Chinese language".)

28 On 19 July 2004, Ms Denise Tan (Mr Tan's sister) on behalf of Tradelite and Ms Ruan (on behalf of Kenway) wrote to Mr Chow, apparently with copies to Teamda, Liwa and Konnie. The letter referred to loans that Tradelite and Kenway claimed to have made "to Beamish Street Project" and noted that "once the loan amount is confirmed by your office, the partners will be repaying both the principle [sic] and the interest (compounded monthly) of the loan …..". The letter then stated:

"In order to help the partners to understand how much interest is repayable [sic], could you please assist to identify: 1. The daily interest amount (compounded monthly) 2. The monthly interest amount (compounded monthly) 3. Total interest amount up to 31/07/2004. ….". 29 There were attached to that letter copies of the letters on Beamish Street Project letterhead to Tradelite and Kenway to which I have referred in para [20] above, together with what appear to be three pages of spreadsheets purporting to summarise deposits to the Beamish Street Project bank account (which was frequently referred to in the proceedings as account 1817) and the Isak Constructions bank account (which was frequently referred to in the proceedings as account 2772). 30 On 20 July 2004, Mr Chow sent a retainer letter to the partners. It stated his understanding that his firm had been appointed "to conduct a review on [sic] the partnership's financial information" and stated the scope of the review of the financial records that was to be undertaken. That review would include the following matters:

"(4) Loans and Advances We will examine the partnership records to determine the amount of loans and advances made to the partnership by some project partners, their associates and Commonwealth Bank of Australia. (5) Other Matters During our review, where there are unusual and/or irregular transactions, we will report to the partnership for further attention." 31 The letter pointed out certain limitations on the scope of the review, including that it was to be "restricted to information and documents of the partnership." 32 The partners accepted that the scope of Mr Chow's retainer was as he had set out, and agreed to his retainer accordingly. 33 Ms Ruan and Ms Tan complained about delays in the performance of the review. Mr Chow replied on 3 September 2004, asserting that the relevant information had not been ready for the review and that he had been requesting further information, not all of which had been provided.

Mr Chow's report 34 Mr Chow provided his report in late September 2004, and corrected it, in uncontroversial respects, by a letter dated 23 September 2004. 35 Dealing with the topic of loan accounts, the report noted that "[a]s at 30 June 2004, the partnership's book [sic] shows a total loan of $3,320,000 from" specified sources. That amount was broken up as follows: (1) Glisan Pty Ltd $1,394,000.00 (2) Watsin Pty Ltd 100,000.00 (3) Kenway Investments (Aust) Pty Ltd 928,000.00 (4) Tradelite Investments (Aust) Pty Ltd 448,000.00 (5) Konnie Pty Ltd 300,000.00 (6) Z & Z Pty Ltd 50,000.00 (7) Unknown 100,000.00 __________ $ 3,320,000.00 .

36 The report then commented on a number of matters, including deficiencies in supporting evidence, discrepancies between the total of the amounts stated in the "loan acknowledgements" of 18 April 2004 ($3,638,000) and the amount shown in the partnership's records ($3,320,000). It referred to drawings and other transactions, stating that "[t]he nature of these drawings needs to be determined in order to derive the correct debts owing." After referring to the need to identify the lenders correctly, the report stated: "7. We are satisfied that a net sum of $3,320,000.00 was transferred to the partnership's bank account. It is not our concern as to how individual lenders derived those funds. Our focus is to ensure that the partnership did receive such funds from the individual lenders as stated." 37 Having expressed that somewhat qualified conclusion, the report raised a concern as to the validity of the interest rate of 10%. 38 After dealing with a number of "areas of concern" (which included what were in substance findings very critical of Mr Tan's management of the project and his record keeping in respect to it), the report set out a number of conclusions. I set out those conclusions in full : " SECTION FOUR CONCLUSIONS When the expectations of the partners in a seemingly profitable investment turn out to be a disastrous deficit, it is understandable that the investors want answers. Our findings are based on information and documents of the partnership that are made available to us. Mr Kenneth Tan was a paid consultant for managing the project as well as a custodian of the partnership's assets under the Power of Attorney. On both ends, he failed to fulfil his obligations. He was given the opportunity to control the finance of three conflicting parties, the partnership, the builder and a project partner. There was no supervision overseeing his performance and no evidence that he presented regular management reports to the partners. This gave him a lot of freedom to manipulate the bank accounts as he wished. Mismanagement is the main contributing factor to this catastrophic result. As soon as the deposit of $1,056,000.00 was released to the builder without the promised security bond, there is no exit for a soft landing. He manipulated the partnership funds by frequent fund transfers between the bank accounts under his control, taking funds released for the partnership, paying expenses and making donations that are of private nature. He even directed rental income on the crane to Kenway. Also, the partnership's financial records have not been properly maintained. Based on these findings, we consider that Mr Tan is in breach of his fiduciary duties. As construction costs account for over 90% of the development costs (not including site cost), the partnership should consider engaging a qualified quantity surveyor to asses the reasonableness of the project's construction costs. Also there is a contentious issue as to whether the partnership has the right to review the expenditure paid out of Isak's CBA account which was at all times controlled by Mr Tan. Legal advice should be sought to determine this issue. Due to the complicated arrangements between the partners in regard to capital contributions, we confirm that a total amount of $5,451,295.15 has been received by the partnership. The shortfall of $48,704,85 has been taken up as drawings and allocated on a pro-rata basis to individual partners as per Mr Tan's instruction. In regard to loans to the partnership, we can establish that a net sum of $3,220,000.00 has been transferred to the partnership's bank account. This amount remains outstanding as at 30 June, 2004. The partnership should identify the true lenders and consider prompt repayments to avoid accruing interest. We have requested CBA to supply a selection of bank withdrawal and deposit slips for our review. Should there be any irregularities, we will furnish a supplementary report." 39 It will be noted that, in the penultimate paragraph, Mr Chow referred to the amount of $3,220,000 in terms that make it plain that he considered this to be made up of "loans to partnership". In this respect, the wording is consistent with the reference to "total loan amount", "borrowings" and "lenders" in the earlier section of the report where the loan accounts were discussed.

Mr Chow's evidence 40 Mr Chow swore two affidavits, in each of which he referred to his report's findings as to the state of the loan accounts. In paragraph 55 of his affidavit sworn on 11 May 2005, Mr Chow said that he was "unable to determine the ultimate source of [those] funds and whether or not they are loans or return of capital." In paragraph 56, he said that he was satisfied that the amount in question was transferred to the partnership account but was not "satisfied that these were loans from any of the entities." 41 In his affidavit in reply sworn on 30 September 2005, Mr Chow said in paragraph 17 that he "could not determine at the conclusion of [his] exercise, whether such transfers were loans or represented something else, such as return of capital". He stated further that "simply because they were corresponding transfers and deposits of the same amount did not mean that those transactions were loans." 42 I do not accept Mr Chow's attempts, in his affidavits, to explain away what in my view are the clear findings in his report. He was retained, among other things, to determine the amount of loans and advances made to the partnership by some "project partners" and "their associates". He gave no indication either in his report or in the letter correcting certain aspects of it that he had not performed that task. On the contrary, the relevant parts of the report make it plain that he considered the amount of $3,320,000 to be "a total loan amount" from the seven identified sources. It is plain from the commentary that he regarded the amount as made up of "loans", but that he was unable:

(1) "to verify source of borrowed funds"; and (2) "to derive the correct debts owing." 43 Mr Chow impressed me as an astute and intelligent man. I do not accept his evidence to the effect that he had not determined whether the amount of $3,320,000 represented loans or some other source of cash inflow. In particular, I regard his suggestion of an alternative possibility - "return of capital" - as manifestly implausible. Firstly, if there were to have been any return of capital, it would have been from the partnership to the partners; something that is unlikely to have happened in circumstances where the partnership needed more, not less, money. Secondly, even if one accepts Mr Chow's oral evidence that he intended to say "further contributions of capital", it could not be a plausible explanation in circumstances where only three of the sources that he named - Kenway, Tradelite and Konnie - were partners (and therefore possible candidates for further contributions of capital), and the remaining sources were not partners (and therefore not entities that could be called upon to contribute capital). Finally, in this context, I note that Mr Chow was unable to suggest any remotely plausible "something else" that might explain the transactions in question. 44 I am satisfied that Mr Chow intended to find, and did find, that as at 30 June 2004 loan funds in the total (net) amount of $ 3,320,000 had been contributed to the partnership, by sources that included Kenway, Tradelite and Konnie.

Issues 1-4: the Deed 45 It is plain that the parties to the deed of agreement accepted that Kenway, Tradelite and Konnie had advanced funds to the partnership by way of loan - see recitals J, I and H respectively. It is equally plain that the parties were unable to agree on the amounts of those loans: see clause 3. 46 The mechanism subsequently chosen by the parties for resolution of the disputes as to amounts was that of reference to Mr Chow. That mechanism was not the mechanism proposed by clause 3, which required Mr Tan to meet with representatives of Teamda, Liwa and Konnie to settle the question. It would appear that the parties agreed to abandon the precise mechanism specified by clause 3, and to substitute for it the mechanism of reference to Mr Chow. 47 The resolution pursuant to which Mr Chow was engaged for this purpose specified that his accounts would be "taken as final" as to "the financial results". However, there was no express statement to the same effect in relation to his quantification of the loan accounts. In any event, I think, this does not matter. It is plain from Mr Chow's report that, although he quantified the amount advanced, he was not able, and did not purport, to quantify the amounts actually outstanding. 48 Thus, there has been no quantification - whether in a form intended to be binding or not - of the amount actually owing to each of the lenders. Further, although the parties now appear to be agreed that the only lenders were the two plaintiffs and Konnie, that is not something determined by Mr Chow; on the contrary, as I have said, he reported that he was unable to determine the sources of the funds. 49 As I understand the parties' positions, it is that if I were to conclude that Mr Chow had determined the amounts advanced to the partnership (totalling $3,320,000) I should then conclude that Kenway advanced $928,000 and that Konnie advanced $300,000, and that the balance, $2,092,000, should be treated as having been advanced by Tradelite. In my view, for the reasons that I have indicated in paras [14] and [23] above, that would be the correct approach, adapting the amounts shown in the various letters of 18 April 2004 to the total advance actually found by Mr Chow. 50 It follows from all this that Mr Chow, not having found (or purported to find) the balances actually owing, no liability to repay has accrued in terms of clause 4 of the deed. It follows also that it is necessary to establish by some mechanism the net amounts currently owing. In my view, that is something to be done through the taking of partnership accounts. 51 The parties agreed on the actual amounts paid, from various sources, into the partnership account. I made declarations accordingly, although on the basis that (for the reasons I have given) the actual "lenders" were declared to be Kenway, Tradelite and Konnie. 52 Mr Newlinds submitted that I should not make any such declarations, because it had not been shown that the advances so made had been used for the purposes of the partnership. Whilst he accepted that the evidence showed that the advances had been paid into account 1817 (the Beamish Street Project account), he did not accept that they had been paid out of that account for purposes properly connected with the project. 53 In my view, it is the fact of making the advances, and the account (or, in a loose sense, entity) to which they were made, that govern the form of the declarations. It will be a matter to be ascertained, on the taking of accounts, whether the moneys so advanced to the partnership, by payment into its bank account, were applied to proper purposes of the partnership, or to some other purpose. But there was no evidence that the moneys were paid into the partnership account with the intention that they be used for purposes other than partnership purposes. By contrast, there was evidence (which I accept) that the moneys were gathered together and paid for the purpose of funding the continuation of the project. In those circumstances, I do not think that the moneys lose their character as advances to the partnership simply because, after payment into the account, they may have been misapplied. (In saying this, I wish to make it perfectly plain that I express no view one way or the other as to the application of the funds; that is a matter to be dealt with on the taking of accounts.) 54 The declarations that were made were not intended to establish, and in my view do not establish, that any part of the amounts so advanced remains owing. 55 Thus, I think, it is unnecessary to return exact answers to issues 1-4. The plaintiffs have made out an entitlement to declarations that they and Konnie each advanced to the partnership the specified sums on the specified dates. However, there should be no order for repayment; and the consequential matters raised by issue 4 are to be dealt with in the context of taking of accounts. Issues 5-9: factual issues 56 The conclusions that I have expressed render it unnecessary to deal in great detail with issues 5, 6 and 7. I have concluded that as at 30 June 2004, the state of the loan account was as determined by Mr Chow, but on the basis that the only lenders were Kenway, Tradelite and Konnie. To the extent that Tradelite's advances were funded by third parties, those third parties must look to Tradelite, not to the partnership, for repayment. That I think is plain from the letters of 18 April 2004 to which I have referred more than once already. 57 There was some disagreement between the parties as to whether the loans to the partnership (or so much of those loans as was from time to time outstanding) carried interest. Mr Tan's evidence was that he had agreed orally with his sister, representing Tradelite, that any amount to be advanced by it would carry interest at the rate of 10% per annum (affidavit sworn 11 March 2005, para 18). He said that, a little later, he had a similar discussion with Ms Lee (representing Glisan; I have found Glisan to have been a lender to Tradelite, not a lender direct to the partnership). He had a similar conversation, although without specifying a particular rate, with Ms Gui Lin Shui (representing Watsin; again a lender to Tradelite and not direct to the partnership). 58 Mr Tan was not challenged on any of this evidence, nor (perhaps not surprisingly) was I referred to any evidence controverting it. It was not put to Mr Tan or Ms Lee that the relevant conversations had not occurred. In the circumstances, notwithstanding my reservations as to Mr Tan's credibility, I think that I should accept this aspect of his evidence. 59 Mr Newlinds accepted that if there were an agreement that one of the partners - Tradelite - should be paid interest, then it was appropriate that the other partners should be paid interest, although there was no evidence of any express agreement to that effect. 60 Accordingly, I conclude that the loans made should carry interest at the rate of 10% per annum from the time they were made and, on the amount from time to time outstanding, until repayment. However, because of the structure whereby the amounts were lent, the partnership is not liable to pay interest to the fourth to ninth defendants, whose funds were advanced to Tradelite and onlent by it to the partnership. 61 As to issue 9: prima facie, the debts that are ultimately found to be owing should be paid, in priority to any return of capital, from the assets of the partnership. If those assets are insufficient to satisfy the debts (together with any order for interest that may be made) then there may be a question of further capital contributions. However, a final resolution of this issue should await the taking of accounts. 62 The plaintiffs submitted that the amount contributed by the ninth defendant (Watsin) should be ordered to be repaid now, out of the proceeds of sale of units held in trust awaiting the determination of these proceedings. I do not think that it is appropriate to make such an order. Watsin did not make advances direct to the partnership. It advanced money to Tradelite, to enable Tradelite to advance money to the partnership. Watsin has no entitlement to be repaid by the partnership, and must look to Tradelite for repayment. 63 No doubt, Watsin could be paid out at Tradelite's direction, so that the payment would go in reduction of the amount (if any) owing to Tradelite. But in circumstances where the amount owing to Tradelite has not been decided, and bearing in mind that Tradelite may be liable to contribute to the funds of the partnership to make good any losses, I do not think that it is appropriate to permit some payment on account of whatever its ultimate debt might be found to be. In substance, I think that this is a case for the precautionary or anticipatory application of what is known as the rule in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171. I refer in particular to the formulation of the "rule" by Sargant J in Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144, 150:

"where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has filled his duty to contribute." 64 Although it has not been established that Tradelite is liable to contribute, there is at least a realistic possibility that it may be found so liable. Mr Harper did not argue otherwise, although he submitted that this should not affect Watsin's "entitlement" to be repaid.

Issues 10-12: the taking of accounts 65 As I have indicated, the plaintiffs and the first three defendants each retained expert accountants to assist in the presentation of their respective cases. In substance, the accountant retained by the plaintiffs, Ms Jones, concluded that she had been given sufficient material (including explanations from Mr Tan both in relation to payments "vouched" by documents that did not specifically refer to the Beamish Street Project and in relation to payments for which there were no supporting documentation) to provide an adequate level of assurance that payments from account 1817 and account 2772 relate to the "Beamish St Project." Ms Reid, who was retained by the first three defendants, concluded that "[t]he level of documentation that evidences a connection between a payment from Account 1817 and Account 2772, and the Beamish St. Project, is not sufficient for us to form an opinion that all the payments from those accounts were for the Beamish St. Project." 66 Ms Jones gave oral evidence, and was cross examined. Ms Reid was not called. The only evidence of her conclusions, and of her reasoning in support of them, is that contained in the joint report to which I have referred and in an earlier joint report that was also tendered. 67 The payments in question were, in round figures, $27 million from account 1817 (the partnership account) and $11 million from account 2772 (the Isak Constructions' account). The total of those payments greatly exceeds the total expenditure on the project, because at least some of the payments from account 1817 were made to account 2772; and it may be that there were payments the other way. 68 It is apparent that there is a disagreement between Ms Jones and Ms Reid as to what Ms Jones acknowledged (T103.2) was a question of "professional judgment" as to the degree of proof required to support the conclusion that the payments had (or had not) been satisfactorily explained. Very fairly, Ms Jones acknowledged that "the reasonable and careful exercise of professional judgement, applied to the information [she had] taken into account could produce a different outcome [as to satisfaction] in a different accountant" (T103.27-32). 69 It is not necessary that I should resolve the apparent disagreement between Ms Jones and Ms Reid, as to whether payments out of the accounts have been sufficiently matched to payments for the project. Nor is it desirable that I should attempt to do so when, as the parties now have accepted must happen, there should be an order for the taking of accounts of the partnership. 70 There are a number of reasons why it is appropriate to order the taking of accounts. One is that, as I have said, it is now effectively accepted that the relationship between the plaintiffs and the first three defendants was that of partners in relation to the Beamish Street Project. Another is that on no view has there been a full or proper accounting for the affairs of the partnership. In this context, Mr Chow's evidence was that whilst partnership returns had been prepared for the financial years 2001, 2002 and 2003, the accounts for the financial year 2004 had not been finalised. I infer that the reason is that he was not in a position to do so. 71 Further, Mr Chow undertook to notify the partners of "unusual and/or irregular transactions" that came to his attention in the course of his review. It is plain, from the acceptance of his letter of engagement, that the partners agreed that he should do so. His report identified a substantial number of "unusual and/or irregular transactions". Those matters, or at the very least the great majority of them, appear to relate to Mr Tan's management, as attorney under power, of the affairs of the partnership. Some of them (for example, a question relating to the leasing of a tower crane) may have been explained by Mr Tan's evidence. But a number of matters remain for consideration. They could include, for example, why Mr Tan authorised the commencement of construction, and started to pay progress payments, before Isak Constructions had provided the security deposit of $5,000,000; the relationship between Mr Tan and Mr Faress (or Emerald), including a number of undocumented payments amounting in total to a very considerable sum; and Mr Tan's decision to pay some sort of completion bonus to Emerald in circumstances where the project finished eleven months late and 50% over budget. 72 In addition, there are, as I have said, very serious deficiencies in the records apparently kept by Mr Tan: at least, in so far as records have been made available to the Court. These deficiencies reflect, in at least some respects, what appear to be very serious deficiencies in Mr Tan's operating practices: for example, his practice of paying a claim after (as he says) sighting supporting documentation, but without retaining a copy of it. 73 Again, there is some evidence that at least some payments were made out of the partnership account for purposes not related to the Beamish Street Project, although the effect of Mr Tan's evidence is that those payments have all been identified, and are limited in scope and amount. I express no view as to whether that evidence should be accepted. 74 Ms Jones relied very heavily on Mr Tan to give her the level of assurance, or satisfaction, that she expressed in her report as to the propriety of payments out of the two accounts. She did this in two ways. Firstly, it appears, she accepted Mr Tan's explanation of documents, as relating to the project, where on the face of the documents in question they did not. Secondly, in cases where there was no documentation, she accepted explanations given by Mr Tan in his various affidavits. 75 I did not find Mr Tan to be an impressive witness in all respects. Making every allowance that I can for the fact that he has a different cultural background and that English (in which language he elected to give evidence) is not his first language, I found his evidence difficult to accept in its entirety. For example:

(1) I find his attempts to explain away cash payments to Emerald to be entirely unconvincing (T55.51-56.47; T72-16-76.56).

(2) I find his evidence as to the way in which the loans to the partnership were constituted shifting and unreliable (in this context, it may be noted that the plaintiffs have sought at different times to characterise the loans in different and inconsistent ways) (affidavit sworn 11 March 2005, paras 17-78; the letter of 18 April 2004; T60.3-64.20);

(3) I found his evidence as to his payment practices (to which I have referred above; but see also T56.49-58.54) entirely unacceptable;

(4) I do not accept his attempts to rationalise, and explain away, the clear wording of his various letters of 18 April 2004 and the differences between them (T60.3-64.20);

(5) I do not accept his assertions that, in response to "reasonable" requests from Mr Wei Tang He (also known as John He) of Teamda for accounts, he had provided such accounts; and I regard those unfounded assertions as reflecting significantly and adversely on his credibility. (I have apostrophised the word "reasonable" because Mr Tan twice agreed in cross-examination that Mr He's requests were reasonable.) (See eg T79.3-80.58.)

(6) I have found his attempted rationalisation of para 31 of his affidavit sworn 27 July 2005 to be implausible (T66.15-69.46). 76 To the extent that Ms Jones' degree of satisfaction rests on acceptance of Mr Tan's explanation or evidence, I am not satisfied that the foundation is adequate to bear the weight placed upon it. Thus, whilst I have no doubt that Ms Jones' evidence reflected opinions genuinely held by her, the inadequate factual foundation for those opinions means that I do not accept them as decisive of the relevant accounting issues. 77 In my view, Mr Chow's report raises very serious questions as to Mr Tan's exercise of his powers, functions and responsibilities as attorney under power and in effect, manager (in a fiduciary capacity) of the project on behalf of the partnership. Notwithstanding my view on the acceptability of one aspect of Mr Chow's evidence, I should make it plain that there was no attack on those sections of his report in which he criticised aspects of Mr Tan's management. Thus, whilst I should not be taken to be making findings of mismanagement, either in terms of the report or more generally (except in so far as I have adverted to particular features of Mr Tan's management above), I do think that the report, read in the context of the manifest deficiencies in record keeping and procedures to which I have referred, makes out a plain case for Mr Tan to account to the partnership. 78 The plaintiffs (and Mr Tan, as a cross defendant) sought to avoid that conclusion on two bases. Firstly, they submitted, an adequate account had been provided already. Secondly, they submitted, there would be no utility in ordering any (according to their submission, further) account. 79 It is a little difficult to understand these submissions, in circumstances where the plaintiffs have now agreed that there should be an accounting (in common form) of the partnership. In case it should be thought that I am expressing, or implying, some criticism of the plaintiffs in what I have just said, I should make it plain that I am not. It was at least an available interpretation of the claim made by Teamda, Liwa and Konnie as cross claimants (as put in their statement of contentions provided prior to the hearing) that the plaintiffs and Mr Tan should account to them. However, once it became clear in the course of argument that what was sought was an account in common form of the partnership, the plaintiffs indicated that they would not oppose the making of such an order. 80 If an account in common form of the partnership is to be ordered, then there will inevitably be raised questions of Mr Tan's receipt and application of moneys. In those circumstances, I think, any order for the taking of accounts should include Mr Tan as well as the partners. 81 As I have said, I do not accept that Mr Tan has ever provided any, let alone any adequate or proper, accounting of his management as attorney under power. Plainly, Mr Chow did not purport to provide any full accounting for the partnership, either in his report of September 2004 or otherwise; and, as I have noted, it would appear he has not been able to complete the partnership accounts for the year ended 30 June 2004. 82 If the plaintiffs' case is that an appropriate accounting has been provided through the medium of the various experts reports, including their joint reports, then I reject that, substantially for the reasons already given: namely, that any acceptance of the views of the one expert or the other must depend on acceptance or rejection of Mr Tan's evidence. 83 To the extent that it is said that Mr Tan should not be held liable to account because he does not have adequate records to enable an account to be taken, that seems to me to be no more than a request that he be excused from the consequences of his breach of his obligation to maintain adequate records simply because his failure to do so may put him in a position of disadvantage vis-à-vis those to whom he owed fiduciary obligations. I do not accept that proposition. 84 Finally, I think, it is necessary for accounts to be taken so that the true state of the capital and loan accounts of the partnership can be determined. Once those matters are determined, the plaintiffs' claims for repayment of the amounts outstanding on their loan accounts can be dealt with. 85 Since it is the defendants who (as cross claimants) are seeking orders for the taking of accounts, I should note that, although I neither intend nor wish to bind any future exercise of discretion, they run the risk of costs in the event that the outcome of the accounting exercise is not substantially different to that revealed by the evidence before me. The defendants have made it plain that they are prepared to accept that risk.

Conclusion 86 For the reasons I have given, whilst I am satisfied that the plaintiffs and Konnie made contributions to the partnership by way of loan in the manner explained in para [14] above, I am not satisfied of the current balances outstanding on those loans, and I do not think that it is appropriate now to make any order for payment (with or without interest). I think that, absent agreement between the parties, any payment from the account must await the taking of accounts. 87 It was for these reasons that on 15 December 2006 I made declarations and orders and gave directions in accordance with the short minutes of order produced by the parties in the circumstances outlined in para [3] above. ******

13/02/2007 - Amendment to file number on judgment - Paragraph(s) n/a

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