Linjing Fang v Xiaodan Sun & Ors

The Question of the $50,000 Advance 8At paragraph [76] of the principal judgment the Court reserved for further consideration the following question: "Ms Fang recalls that another tranche of Australian currency equivalent to US$50,000 was transferred in about November 2010. But Ms Fang was unable to provide any documentary evidence to support this payment. It is unclear from the course of final submissions whether this amount is admitted or not. I will reserve for further consideration the issue of the proof of this advance." 9The plaintiff contends that the question of the additional $50,000 can be resolved on the pleadings. I accept that is correct. The plaintiff submits that this "approximately $50,000" payment is referred to in paragraph 33 of the Statement of Claim as having been part of the payments she made. The defendant admits the payment of "about $50,000" at paragraph 18 of the Defence. The $50,000 payment also appears in the table on page 11 of the Statement of Claim. The Defence at paragraph 25(a) admits a variety of payments including the $50,000 payment in question. 10On the basis of these admissions on the pleadings the Court is satisfied that the $50,000 payment may be treated as having been made and the sum ought to be added to the quantum of the plaintiff's successful claim. The judgment amount will therefore need to be amended upwards by $50,000 to $693,850, exclusive of interest. Although this sum must be further adjusted on account of a payment made to the plaintiff, which has not yet provided for in the calculation of the final judgment sum, as is explained below.

The Appropriate Rate of Interest 11The plaintiff seeks interest up to judgment. Supreme Court Practice Note Gen. 16 provides that interest up to judgment shall be payable at the rate of 4 per cent above the cash rate published by the Reserve Bank of Australia. But the plaintiff also seeks compound interest, with yearly rests, on the basis of Ms Sun's dishonest breach of fiduciary duty. 12In Southern Cross Commodities Pty Ltd (in Liq) v Ewing (1987) 11 ACLR 818, Boehm AM stated at [843]: "... a trustee may, and normally will, be charged with compound interest with yearly rests not only where he has used the money for his own commercial purposes but also where he has been guilty of fraud or serious misconduct." 13Pembroke J recently examined the principles to be applied when the Court considers the award of compound interest, and the appropriate rate of such interest, in Thomas v SMP (International) No. 6 [2010] NSWSC 1311 ("Thomas"). His Honour cited with approval at [12] the principle in Southern Cross Commodities and his Honour ordered in Thomas and awarded interest at the rate of 4 per cent above the RBA rate, compounded with yearly rests. 14The Court has found that Ms Sun's breaches of fiduciary duty were dishonest: principal judgment (at [118]). Whilst the criterion of "fraud or serious misconduct" is not a necessary condition for an award of compound interest, it is certainly a sufficient basis for such an award. In my opinion in the instant case the plaintiff is entitled to interest at the same rate and the same compounding as in Thomas. 15The award of interest is compensatory, not punitive, in nature. It seeks to make good what the plaintiff has lost by the breach of equitable obligation. Given that the plaintiff has lost the whole of the original investment, in addition to subsequent sums transferred, and that Ms Sun's dishonesty occasioned the advance of all these monies, it is appropriate that interest be payable at the compound rate of interest over the whole judgment sum calculated from the date of each advance. 16Ms Fang's lawyers should undertake a calculation in accordance with these reasons. The calculation can then be submitted to Ms Sun's lawyers, if they remain on the record, and the Court will then make final orders as to the quantum of interest.

The Question of Indemnity Costs 17The principal judgment, at [124], noted that although costs ordinarily follow the event, the Court invited submissions as to any special costs order that may be sought. The plaintiff took that opportunity and now seeks indemnity costs against the defendant under UCPR, r 42.1. Mr Pesman SC for the plaintiff submits that, in defending the suit in the way that she did, Ms Sun acted dishonestly in attempting to further conceal her fraud. 18In assessing this issue it is important to distinguish between the defendant's original misleading and deceptive conduct toward Ms Fang, and her subsequent misleading the Court throughout these proceedings. 19In the principal judgment ([89] - [97]) the Court found that the defendant: (1) knowingly relied upon a fabricated document, the receipt, Exhibit B (even if she herself was not the author of that fabrication); and (2) attempted to invite Mr Kim to assist her and her mother-in-law in compounding the fraud. But in my view both by denying that fabrication and more importantly by continuing to maintain that she did not know the true purchase price of the business, the defendant also gave knowingly false evidence to the Court during these proceedings. The plaintiff argues, and I accept, that whether or not Ms Sun was the original author of the fraud is immaterial; she effectively adopted the fraud as her own in continuing her misrepresentations to Ms Fang, after she later became aware of the truth. After considering the appropriate measure of proof for such a finding (Briginshaw v Bringinshaw (1938) 60 CLR 336), I find that she advanced a case to the Court that she must have known to be false. 20The question before the Court is whether there is a sufficient nexus between Ms Sun's delinquency and the manner in which the proceedings were conducted, such that an order for indemnity costs is justified. I am persuaded that in these circumstances there is sufficient connection. 21Mr Pesman SC submitted that Degman Pty Ltd (In Liq) v Wright (No. 2) (1983) 2 NSWLR 354, in which Holland J examined the case for a special indemnity costs order in response to misconduct by a party, directly governs what is the proper result in this case. His Honour noted that "the discretion which the court has as to costs is, as has been said many times, to be exercised judicially, that is to say upon proper grounds and the court will not lightly depart from standard practice in awarding costs". 22Nonetheless the Court is satisfied that where the defences presented are "false and deliberately concocted in an attempt to deny the plaintiff its rights", a special order for costs is warranted. Ms Sun's continued deception of her aunt Fang facilitated the misapplication of Ms Fang's funds. But her deception also prolonged this litigation and caused other parties to incur liability for solicitors and client costs beyond what could have been reasonably expected in the litigation of genuine issues. 23In the result therefore the Court will order indemnity costs against the defendant. I see no reason why the order for indemnity costs should not cover the whole of the proceedings. And I will so order.

Conclusion and Orders 24In closing submissions, the plaintiff conceded that the total amount of her award should be reduced by $11,000 to $682,850 (being $693,850 - $11,000) to reflect what was said to be a "dividend" payment she received from Mrs Park, thereby reducing her losses by that amount. This figure has not been brought to account in the Court's calculations so far and should be deducted from the judgment sum. 25In the result therefore the Court makes the following orders:

1. Vary the principal amount of judgment to $682,850.
2. Order the defendant to pay interest on the said sum of $682,850 at the rate prescribed from time to time under Supreme Court Practice Gen. 16, compounded at yearly rests.
3. Direct the plaintiff to provide for the Court's and the defendant's consideration a calculation of the amount of interest to be awarded pursuant to Order 2, so that the final orders as to interest can be made in chambers.
4. An order that the defendant pay the plaintiff's costs of these proceedings on an indemnity basis.

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