On 4 March 2021, I published my reasons (the Principal Reasons) for reaching certain conclusions in relation to two sets of proceedings arising out of the actions of the late Kut Sze Tu (KST). [1] On 30 September 2021, I published my reasons (the Supplementary Reasons) for further conclusions reached in relation to those proceedings. [2] In these reasons I shall use terms as defined in the Principal Reasons and the Supplementary Reasons.
A further question has now arisen as to the extent to which Mary and Geoffrey should be required to account for a benefit said to have been received from funds belonging to the Partnership. It is now common ground that Mary will bring to account a sum of $80,000 distributed to her from a St George interest-bearing term deposit. The question that remains concerns a payment.
It is common ground that a payment of $25,000 was made to Geoffrey on 4 March 1981. However, there is a dispute as to how the payment should properly be characterised. There is some evidence it was a repayment by KST on behalf of the Partnership to Geoffrey of a loan made by Geoffrey to KST for the benefit of the Partnership. On the other hand, there is also evidence that it was a loan made to Geoffrey from funds of the Partnership. If the latter is the correct characterisation, there is a further question as to whether the loan has been repaid.
A balance sheet included in the income tax return for the Partnership for the year ended 30 June 1981 records an unsecured loan to Geoffrey in the sum of $25,000, as an asset of the Partnership. The returns for the Partnership for the years ended 30 June 1982 and 1983 are not in evidence. However, balance sheets included in the tax returns for the Partnership for 1984 and 1985 do not record an asset of the Partnership consisting of an unsecured loan to Geoffrey. The Partnership returns were prepared by Mr Johnson Wong, who also prepared returns for Mary. However, he did not prepare Geoffrey's personal tax returns.
Mr Wong was cross-examined on 17 August 2012. He said that he prepared the Partnership tax returns on instructions from KST and sometimes from Mary. He agreed that, during the course of doing work for KST, he came to know Geoffrey although he seldom saw him. Mr Wong said that he only came across Geoffrey's name in relation to the distribution of income to him from the Partnership. He did not agree that he met Geoffrey on many occasions and did not meet him on more than half a dozen occasions. He said that he never spoke to Geoffrey on the telephone. It appears that Mr Wong was not asked specifically about the treatment of the payment of the sum of $25,000 to Geoffrey.
The matter of the payment of $25,000 was addressed in Geoffrey's affidavit evidence. The matter was also raised in his oral evidence before Smart AJ on 18 June 2009, before Gzell J on 17 August 2012 and before me on 13 August 2020.
In his affidavit of 8 December 2006, Geoffrey said that, prior to the payment of the sum of $25,000, he had a conversation with KST concerning money that he said the Partnership owed him, in which he said to KST:
"We will need the money for your grandchildren and a house. Remember I lent you money when you needed to set up the business … How about at least returning the money I lent the business …"
Geoffrey said that KST responded:
"I agree to sign a cheque for $25,000 …"
In a subsequent affidavit of 21 August 2007, Geoffrey said as follows:
"I did not borrow $25,000 from the Partnership. I am aware that the Partnership accounts for the financial year ended June 1981 record a loan to me in the amount of $25,000 … That entry was incorrectly recorded in the Partnership accounts. I recall I had a discussion with Johnson Wong about that in words to the following effect:
I said: The loan was not a loan from WYT. It is a loan I gave to Mr Sze Tu to make up for the shortfall when John withheld the money he promised from Honiara.
He said: The proper accounting for the loan will be to increase Mr Sze Tu's drawing account or reduce the loan the business owes Mr Sze Tu since he used WYT money to pay you back. I will check with Mr Sze Tu and correct in the next year's accounts.
The accounts were subsequently corrected and the loan entry did not appear in the 1984 accounts … I do not have a copy of the 1983 accounts and so am unable to say whether the loan entry had been removed by that time."
Johnson Wong was an independent professional accountant who prepared income tax returns for KST and the Partnership.
On 18 June 2009 before Smart AJ, the following exchange took place in the course of Geoffrey's cross-examination:
"Q. Is it your evidence that after [Mary] ceased to work … in January 1981 your concerns that there were undisclosed revenues from those businesses is evaluated because they were concerning the shares at last, which reduced their profit.
A. It didn't help immediately, over a period of time, in 81. In effect you see I got my money back. Because there were still profits in the business.
Q. They were declining, you said?
A. In 81 it was fine. So I asked for my contribution back so I could buy a house because my son was living in a flat.
His Honour:
Q. What contribution are you talking about.
A. About 25,000 contribution. And I got that back although it was mis-recorded and then it was sorted out later on with Johnson Wong, the accountant."
On 14 August 2012, in Geoffrey's cross-examination before Gzell J, the following exchange took place:
"Q. Mr Lowe you have accepted that Kut Sze Tu provided all of the monies for the purchase price, haven't you?
A. I do not say that. I say provided by loan agreement and that loan was countersigned by me.
Q. You have seen these green books before they were produced in these proceedings haven't you?
A. No.
Q. You accept, don't you, that you did receive in 1981 $25,500 from the partnership?
A. I agree with that.
Q. And you used it to purchase your house at Vaucluse?
A. Yes.
Q. And that was not a return of the loan that you made the partnership was it?
A. I did not claim it to be?
Q. I'm sorry?
A. It was shown on the accounts as a loan to me …
Q. That payment to you was not a return of a loan that you had made to the partnership was it?
A. No.
Q. When you received the cheque for $25,500 there was no discussion about you having lent the Partnership money of that nature was there?
A. No.
Q. It was Kut Sze Tu who signed the cheque together with you for that payment to go to you wasn't it?
A. At that time I would not be quite short because Margaret was signing quite a few cheques.
Q. The cheque was not signed in the context of you asking for the return of money you lent the business was it?
A. No.
Q. Could you turn to your affidavit …
A. Yes.
Q. You claim in the third paragraph that you said this "how about at least returning the money I lent the business". See that?
…
A. Yes I do.
Q. And you say that shortly after you said those words Mr Kut Sze Tu said "I agree to sign a cheque for $25,500."… Do you see it?
A. Yes.
Q. That is not what happened though is it?
A. No.
Q. The evidence you have given about that matter is false isn't it?
A. No, it turned up as a loan account.
Q. You didn't ask him about returning the money that you had lent the business, did you?
A. I did.
Q. That is just directly contrary to what you told me a few minutes ago, isn't it?
A. You asked me what happened to the, how was it recorded in the accounts, I thought.
Q. Mr Lowe, I asked you about whether there had been a conversation about returning the money that you had lent the business and you said there wasn't such a conversation?
A. There was a conversation, exactly as to -
Q. What I want to suggest to you is you are changing your evidence because you think it will suit your case?
A. No.
Q. You realised you have sworn a different version?
A. No.
Q. Than [sic] what you have given evidence of a short time ago?
A. No.
Q. You are not giving honest evidence, are you?
A. The cheque was given to me, it was recorded in the accounts as a loan.
Q. You are not giving honest evidence about the conversations leading up to that transaction, are you?
A. I am giving an honest answer.
Q. You made mention of the fact that the accounts recorded this as a loan to you, remember saying that a moment ago?
A. Yes, I do.
….
Q. You did borrow that amount from the business at that time, didn't you?
A. Well, we finally came to an agreement that that would be reflected as a loan.
Q. You say you finally came to an agreement that that would be reflected as a loan. With whom did you come to that agreement?
A. With KST and also Margaret.
Q. So is this the case, after discussion you agreed with him that it would be recorded as a loan?
A. Yes.
Q. If you had come to an agreement with Kut Sze Tu that it would be recorded as a loan it wouldn't have been necessary to seek to have the accounts changed, would it?
A. What do you mean by that?
Q. Didn't you seek [sic] to have the accounts changed?
A. What accounts changed?
Q. The accounts that record it as a loan?
A. I tried it but then basically l decided to repay it.
Q. You decided to repay it?
A. Yes. In 1981/82 I sold five properties in Bondi Junction.
Q. Is that what you now claim? You now claim that after the money was advanced to you for the purchase of your house that you then repaid the money to the partnership. Is that what you now claim?
A. Yes.
Q. That is a false bit of evidence, isn't it?
A. How could I afford a house worth that much?
Q. Could I remind you of some evidence you gave … about this matter.
A. I actually tried to get - I can't recall whether I got it changed or repaid it, but I'm almost certain I repaid it.
Q. When you are saying you repaid it, you repaid it after it was advanced to you in 1981, is that what you now say?
A. Yes. I - don't have any record of it, but, basically, there were quite a lot of properties sold, we settled our debts.
…
Q. You wouldn't have agreed to repay that 25,000 odd dollar loan if you had been owed that amount in respect of your contributions to the purchase of the businesses, would you?
A. I agree with that.
Q. And the reason that you agreed to repay that loan is because the business did not owe you $25,000 in respect of monies you would advance for the purchase?
A. After 1985 when I had to cover the outstanding rent for the business I was able to get an agreement to cancel the loan.
Q. The evidence you have given today … is to this effect, that in 1981 you obtained a loan from the partnership which you utilised to purchase the Vaucluse property, is that step right?
A. Yes, I agree with that.
Q. And you now claim that at some point after that you repaid that loan, is that what you now say?
A. I advanced monies to the business to keep it solvent.
Q. Is what you say that you advanced monies to the partnership after that time to repay that loan?
A Effectively.
Q. And when do you say you advanced monies to repay that loan?
A. About 1985."
Geoffrey subsequently accepted in the course of that cross-examination that the two accounts given by him as to the payment in question were "inconsistent".
In cross-examination of Geoffrey before me on 13 August 2020, the following exchange took place:
"Q. You received an amount of $25,000 or thereabouts in 1981 from the partnership, didn't you?
A. Yes.
Q. And you used it to purchase your house at Vaucluse?
A. Yes.
Q. How much did you purchase the house for?
A. I don't recall. About 125, I'd say, I don't know. I can look up the records, so.
Q. That receipt was not a return of any loan that you'd made to the partnership, was it?
A. Sorry? Please clarify exactly what you mean by that?
Q. That receipt was not a repayment of any loan that you had made to the partnership, was it?
A. I, I sort of regarded it as such.
Q. You had never lent $25,000 to the business, had you?
A. Would you like to look at the records?
Q. You had never lent $25,000 to the partnership business?
A. It was my bank. My guarantees. My loan.
Q. You had never lent $25,000 to the partnership business, had you?
A. You're insistent on it, but I, I, I, I deny that.
Q. Is this the case, that when you received the $25,000 for the purchase of your house, that wasn't a repayment of any loan that you'd made to the partnership, was it?
A. No, it wasn't regarded like that. It was, it was written by some, some of the people as a loan. I, I read it as a loan, Margaret declined to receive it as a loan, even though I regarded it as such.
Q. Can I ask you to go to your transcript … of the hearing before Gzell J. … you'll see:
"Q. You accept, don't you, that you did receive in 1981, 25,500 from the partnership?
A. I agree with that.
Q. And you used it to purchase your house at Vaucluse?
A. Yes.
Q. And that was not a return of a loan that you'd made to the partnership, was it?
A. I did not claim it to be.
Q. That payment to you was not a return of a loan that you'd made to the partnership, was it?
A. No.
Q. When you received the cheque for $25,500 there was no discussion about you having lent money to the partnership, money of that nature, was there?
A. No."
Q. Do you see that evidence?
A. Yes.
Q. That evidence is all correct, isn't it?
A. Well, obviously that's 20 years, I'd probably have to say yes."
The FC Chow plaintiffs contend that the Court should find that the payment to Geoffrey was a loan from the funds of the Partnership and would not accept his allegation that he has repaid the loan. Thus, they say, in circumstances where Geoffrey has denied receiving the money as a loan, he should not be heard to say that he has repaid the loan.
There is no reason to doubt that Mr Wong prepared the tax returns for the Partnership for the years 1984 and 1985 on instructions from KST. Those returns do not record any indebtedness of Geoffrey to the Partnership. Whether that is because the payment of $25,000 was a repayment by the Partnership to Geoffrey or whether it was a loan by the Partnership to Geoffrey that was subsequently repaid is by no means clear. However, I consider that, in the circumstances, it is more likely than not that, by 30 June 1984, Geoffrey was not indebted to the Partnership in respect of a loan of $25,000. It follows that there is no basis for Mary and Geoffrey to bring any such payment to account.
[2]
Endnotes
See Lowe v Pascoe (No 9) [2021] NSWSC 163.
See Lowe v Pascoe (No 10) [2021] NSWSC 1232.
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Decision last updated: 28 October 2021