And see Kang v Kwan (2002) 11 BPR 20,623 at [187], [188] per Santow J.
156 The onus of proof under s 37A rests on the party seeking to avoid the transaction, including the onus concerning absence of good faith under s 37A(3): see the decision of the Full Court in P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 527 - 528; my judgment in Huynh v Helleh Holdings Pty Ltd (2001) 10 BPR 19,333 at [18]; and The Bell Group case ibid.
CONCLUSIONS
5533/06 - Lym International, Ms Yang and Jasmine's application to set aside transaction
157 From the factual framework and the findings I have made concerning the contested facts, the conclusions I have reached concerning the plaintiffs' case are as follows.
158 There is no doubt that prior to May 2006 Mr Liu and Ms Yang depended upon Mr Chen for advice and assistance relating to their property and business in New Zealand and Australia. After Mr Liu's detention in May 2006, the dependence of Ms Yang on Mr Chen became greater, owing to her deprivation of the financial and other support of Mr Liu. There is no doubt that she reposed deep trust in Mr Chen. In her attempts to hide money from possible pursuit by the Chinese authorities she paid some $67,000 to Mr Chen to be placed in a bank account of Heard Park and simply to be returned to her as requested.
159 Mr Chen conceded in his evidence that, prior to 24 July 2006, he was anxious to buy the subject property by a transaction taking a form that would effect the discharge of debts from the Liu interests to him and his interests. This was obviously because he had fears that, by reason of Mr Liu's detention, these debts would never be repaid. It was with this intention in mind that he procured the powers of attorney from Lym International and Ms Yang that were executed in his favour on 24 July 2006 in Mr MacAvoy's presence, although without, as I have found, revealing at the time that this was his intention.
160 Ms Yang undoubtedly signed the Lym International power of attorney as that company's sole director. It seems plain to me that at that stage she was the only possible source of information as to the directors of that company. It does not follow from that and I do not find that she did not on that day believe that Mr Mao had ceased to be a director of Lym International. It may well be that she believed that Mr Mao's departure in January/February 2006 had included his ceasing to be a director of the company. I certainly do not find that she was aware that he continued to be a director of the company when on or before 24 July 2006 she gave the information that she was the sole director of the company. However, I have already found, contrary to evidence given by him, that Mr Chen's intention to acquire the subject property was not revealed on 24 July 2006, nor was it revealed to Ms Yang before that time. The very next day Mr Chen set out for Sydney to investigate Lym International and Ms Yang's affairs relating to the subject property and to report to her concerning it.
161 There can be no doubt that in Sydney on 25 July 2006 Mr Chen went first to Middletons Solicitors and there he instructed Mr Mackay and Mr Everitt to prepare a contract for sale from Lym International to him of the subject property. This was before he had contacted Sandy Lai or inspected the subject property. There is no doubt that he specified the purchase price of $15 million. There is equally no doubt that that purchase price had not been discussed with or mentioned to Ms Yang up to this point in time. The contract included Special Condition 33, the terms of which can have emanated only from Mr Chen in conjunction with drafting input from his solicitors. Paragraph (b) was to the effect that, in addition to the payment by the purchaser of the Kingsway mortgage, the vendor was to take in satisfaction of the purchase price debts owed to Mr Chen by Lym International or a related entity as defined in the Corporations Act 2001. The terms of the Special Condition show an awareness of the distinction between an individual person, a corporation and a corporation related to another corporation, as a party to a debt: see above at [48]. The Special Condition provides for the use as part of the purchase price of debts owed only to Mr Chen personally.
162 The contract was sent off to Mr MacAvoy in New Zealand for Ms Yang's signature as the sole director of the vendor to be obtained on it.
163 As appears below, I have come to the conclusion that, in so far as it is material, it is not clear on the evidence that Ms Yang had any knowledge of the terms or understanding of the effect of Special Condition 33(b). Her subjective understanding may well not matter, since, if this clause were relied on, the fact that she had signed a document containing the clause might well lead to it being regarded as binding upon her in the absence of the establishment of one of the exceptions to the rule concerning the binding nature of executed written agreements: see Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 180 - 181 per curiam; Tu v Primary Contracting Services Pty Ltd [2009] NSWCA 7 at [26].
164 However it is not Special Condition 33 in the form in which it is contained in the contract for sale that Mr Chen relied on. There is good reason for this. On the evidence, there was no debt owing to him personally that fell within the Special Condition. Instead, Mr Chen relied upon an oral agreement that he said was come to in a telephone conversation while he was in Sydney and Ms Yang was in New Zealand during the last days of July 2006. I have already recorded that I am not prepared to find that the alleged conversation or conversations took place: see above at [118]. In any event, as deposed to, they were in equivocal terms. Even if I accepted that conversations took place as deposed to by Mr Chen, the references to the debts were in terms as equivocal as "your other debts", "part payment of my family's debts" and "I don't expect any of the money back". There is nothing in the evidence that indicates with any precision what it was that was being adverted to by either of the parties to this conversation, if it did in fact take place, so as to enable the conversation to be given effect to as forming a contractual obligation that would affect the destination of hundreds of thousands or millions of dollars.
165 The only references more precise than this that Mr Chen claimed to have made were in the alleged conversation set out in [116]. I do not accept that that conversation took place, but in any event the references in this conversation are no more precise than, "I am owed over $5 million by your husband's company for the telecommunications shipments and $1 million is outstanding from the loan to your family trust". Even if they were used, these words are totally lacking in precision, particularly bearing in mind the other evidence that suggests that those debts, to the extent that they existed, were not owed to Mr Chen but to related entities, principally Heard Park. Similarly the expression allegedly used by Ms Yang on this occasion, that the "forgiveness of all the other debts owed to you", is utterly imprecise.
166 There was a belated attempt to establish that Ms Yang was liable to Mr Chen upon a personal guarantee of what have been called the Shenzhen debts: see [19] above. However, I have not found that guarantee established and, even if it were, the liability would have been to Heard Park rather than Mr Chen.
167 Equally, it is in telephone conversations at about the same time as those relied on to establish the alternative version of Special Condition 33 that Ms Yang is said to have authorised Mr Chen to take from the CBA Accounts any moneys he was minded to and use them in any way he chose, including satisfaction of the purchase price of the subject property and the payment of the stamp duty to which he became liable upon entry into the contract for sale. Again, I have already indicated at [118] above that I do not accept on the evidence that those conversations took place.
168 Again, I accept that it was at about this time, before she had signed the contract for sale, that Mr Chen urged upon Ms Yang the urgency of the sale of the subject property bearing in mind the consequences that might arise from her retaining it. I have in fact found at [141] above that he did indicate to her that there was a potential debt of $600,000 arising from Project 1 that both Lym International and she would escape if Lym International divested itself of the subject property as a matter of urgency. I have taken into account the submissions that Mr Chen put against his having said this to her. I have come to the conclusion on the balance of probabilities that, as garbled as her version was of what he said, he did make a representation to this effect to her and that what he was referring to was the claim by Mrs Marcolongo in the District Court proceedings. This information came into his possession as Lym International and Ms Yang's fiduciary agent and the communication was used by him to encourage those parties to enter into the transaction with him that he desired. I also find on the balance of probabilities that he did say to her at about this time that if she did not avoid this liability that it was possible that she could be gaoled, a consequence he undoubtedly knew she would fear by reason of her husband's predicament in China.
169 On 31 July 2006 there was a meeting in Mr MacAvoy's office in Auckland at which Ms Yang signed the contract for sale. Present were Mr MacAvoy, Ms Yang, Jasmine and Amanda. I have already found in [111] above that the Mao resignation letter was brought to the 31 July 2006 meeting by Amanda and was handed to Mr MacAvoy at that meeting. The evidence of what occurred at that meeting is again in large part very unclear.
170 It seems to me that it was clear enough that Amanda was attending on Mr Chen's behalf with the aim of ensuring that the contract for sale was in fact executed by Ms Yang. It was equally clear that Mr MacAvoy was not acting as solicitor for Lym International and Ms Yang in the transaction but was merely procuring Ms Yang's signature to the documents. It is not at all clear what explanations he in fact gave to Ms Yang concerning the contents of the documents. It is equally, or more, unclear as to the terms in which those explanations were translated to Ms Yang. It is not even clear who translated them. On the evidence, I have concluded at [130] above that both Jasmine and Amanda participated in the translation process.
171 There seems little doubt that the purchase price of $15 million was mentioned. There is no doubt that there was some adversion to Special Condition 33. The evidence is conflicting as to whether Mr MacAvoy simply turned the Special Condition towards Jasmine, drawing attention to it or the extent to which he gave an explanation of it. I am inclined to accept the evidence of Ms Yang and Jasmine that Amanda gave an explanation that its meaning was that the mortgage debt of $7.6 million was to be repaid and that "the balance is owed by Paul to Lym". This was on any basis inaccurate but, despite the fact that I have found that in general terms Amanda attended the meeting as Mr Chen's agent to see if Ms Yang's signature could be procured, I am not prepared in all the circumstances to find a sufficient degree of authorisation to fix Mr Chen with the making through Amanda of a deliberately false representation to procure the execution of the contract for sale.
172 The long and short of it is that by the time Ms Yang executed the contract for sale she had not, on the evidence, had a satisfactory explanation of its effect, in particular that the basis on which it was being signed was that the whole balance of the purchase money over and above the mortgage debt could be taken by Mr Chen, who was in a fiduciary relationship with Lym International and Ms Yang, in satisfaction of any debts that were owed by anyone associated with Ms Yang to anyone associated with Mr Chen.
173 Upon carrying out investigations in Sydney, Mr Chen was to report the results to Ms Yang and, as a fiduciary agent, was obliged to report them in a complete and truthful fashion. He conveyed to her the quantity surveyor's estimate of $3.4 million to complete the project contained in his report of 7 April 2006. Mr Chen subsequently received a report from the quantity surveyor dated 3 August 2006 revising this estimate to $1.8 million. This was received some time before the contract for sale was brought into effect by Mr Chen executing it on 15 August 2006. Although this report was undoubtedly received before the contract for sale became binding, Mr Chen did not convey this revised estimate or any advice concerning its significance to Ms Yang. In evidence he gave various explanations, including that she would not wish to hear it, none of them convincing, for his failure to do so. Whatever his beliefs concerning the significance of this report he was in my view obliged to report it to Ms Yang with a frank and truthful explanation concerning it.
174 After the execution of the contract for sale by Ms Yang on 31 July 2006, Mr Chen continued to investigate the situation for more than a fortnight until 15 August 2006. It was not until that day that he brought the contract for sale into operation by executing it and organised for its virtually simultaneous completion.
175 There can be no doubt that Lym International had no solicitor acting for it in connection with the completion of the contract for sale and that this was well known to Mr Chen. He conceded in evidence that it was he who dealt with Kingsway on Lym International's behalf to arrange for the calculation of the correct amount outstanding and the discharge of the Kingsway mortgage.
176 On completion of the transaction, no settlement statement was drawn up and presented to Lym International or Ms Yang, either before or after the settlement took place. Particularly significant in view of the contractual basis on which it was said that the transaction was being settled, there was no identification of the debts which it was said were being satisfied by the completion of the contract for sale; their quantum; or the degree to which they were being satisfied. There was not any identification of any surplus of those debts over the amount satisfied by settlement of the transaction. There was not the provision of any acknowledgement of satisfaction of the debts which the debtors could at any time in the future produce as evidence of their discharge from the debts.
177 Furthermore, the evidence shows that on settlement the fund that included the moneys transferred from the Yang Account and Jasmine's Account was used in part (as to $360,000) to pay out the Kingsway mortgage and to pay some $810,000 stamp duty for which Mr Chen was liable on the transfer.
Summary
178 In summary, the factual situation as I have found it is as follows. By 24 July 2006 Mr Chen had come to regard himself as a potential purchaser of the subject property. His intention was to enter into this transaction in a way which would not only obtain the subject property for him, but would discharge debts owed to him or his associates by Mr Liu, Ms Yang and their associates, the recoverability of which Mr Chen regarded as dubious because of Mr Liu's imprisonment in China. He did not on 24 July 2006 inform Ms Yang, Jasmine or Mr MacAvoy of these intentions at the time that he procured the execution of powers of attorney in his favour from Lym International and Ms Yang. Upon his procuring those powers of attorney and going to Sydney the next day to investigate and report upon the progress of Project 2, its completion and its possible sale, he entered into a fiduciary relationship with Lym International and Ms Yang. The duties imposed under that fiduciary relationship included duties to report to them fully and frankly concerning the results of his investigations. Furthermore, in relation to his intention to purchase the subject property he came under a duty of dealing with his principal at arm's length, after a full disclosure of all that he knew with respect to the subject property and in circumstances in which he could prove that the transaction was fair. In this context, he procured Ms Yang's execution of the contract for sale containing the unusual and in some ways uncertain Special Condition 33 in circumstances where it is not established that the effect of that Special Condition was explained to her. Whilst her execution of the contract for sale was witnessed by a solicitor, that solicitor made it plain that he was not acting for Lym International or for Ms Yang upon the transaction. The execution also took place in the presence of Amanda, who attended as Mr Chen's agent to ensure that the execution took place. Amanda on that occasion misrepresented to Ms Yang the effect of Special Condition 33, although I do not find that this representation was authorised by Mr Chen as a fraudulent misrepresentation. However, as I have said, on the evidence I do not find it established that Ms Yang understood the effect of Special Condition 33. In the end, Special Condition 33 was not put into effect according to its terms. It could not be, because, on the evidence, there were no debts that fell within its terms. It would seem that, apart from moneys paid in discharge of the Kingsway mortgage, the purchase price was satisfied by being credited to debts owed by the Liu and Yang interests to interests associated with Mr Chen, probably Heard Park. Concerning this the following observations must be made. It is said that Mr Chen was authorised in this course by Ms Yang in a telephone conversation between them. I have found that that authorisation was not established: see [118] above. Moneys were taken from the Yang Account and Jasmine's Account and placed in the Lym International Account. Mr Chen achieved this by the use of the powers of attorney. Again, he said that he was authorised in this course (including the taking of money from Jasmine's Account) in a telephone conversation with Ms Yang. Again, I have found that such a telephone conversation was not established: see [118] above.
179 I do find that in a telephone conversation Mr Chen said to Ms Yang that if she did not dispose of the subject property quickly the existence of a $600,000 claim or claims arising out of Project 1 could have disastrous consequences for her, including her imprisonment, but that both Lym International and she personally, would escape those consequences if the subject property were disposed of quickly. Having informed Ms Yang of Mr Richmond's $3.4 million estimate of the cost of completing Project 2, Mr Chen received, but did not communicate to Ms Yang, Mr Richmond's revised estimate of $1.8 million. This he was bound to do, whether or not he regarded it as accurate, not that I accept what he said concerning his view of it. All these things occurred before the contract for sale came into operation by Mr Chen's execution of it on 15 August 2006. On the same day he gave instructions for completion of the contract for sale on behalf of Lym International as well as on his own behalf. Again, no solicitor acted for Lym International. Mr Chen did as agent whatever was necessary for the completion of the contract by Lym International, including negotiation and agreement with Kingsway as to the amount necessary to pay out the Kingsway mortgage. The fund that included the moneys transferred from the Yang Account and Jasmine's Account was used in part (as to $360,000) to pay out the Kingsway mortgage and to pay some $810,000 stamp duty for which he was liable on the transfer. No settlement statement was produced or delivered to Lym International or Ms Yang and there was no specification to them or to any relevant debtor of any particular debts to the payment of which any part of the balance purchase price was attributed.
180 The pleading of the plaintiffs' case as set out in [60] to [66] above is not particularly neat or orderly. However, in my view, the relevant elements necessary to be proved to support findings for the plaintiffs in this matter are sufficiently contained in the pleading allegations as they are set out.
181 I conclude that, under the circumstances set out, the transaction was entered into and carried out in breach of Mr Chen's fiduciary duties to Lym International and Ms Yang. Again, in view of the lack of authorisation of the taking of $1.2 million from the Yang Account and $120,000 from Jasmine's Account, these amounts were misappropriated by him. The plaintiffs are entitled to declarations accordingly.
5049/07 MRS MARCOLONGO'S APPLICATION TO SET ASIDE TRANSACTION
182 My acceptance of Ms Yang's admissions concerning the avoidance of the potential $600,000 liability at [145] renders the decision of the second proceeding comparatively simple. Turning to the words of s 37A of the CA, I find that the alienation of property was made "with intent to defraud creditors". Mrs Marcolongo is a person prejudiced by the transaction and therefore entitled to bring proceedings. She had at the time and has a claim for some $600,000 against Lym International. Although she was not within the terms of the category of creditors as expressed in the admissions it was indeed her potential debt of $600,000 intended to be referred to. Mr Chen cannot characterise himself as a purchaser in good faith not having notice of the intent to defraud. This equally flows from the fact that I have found at [141] above that he pressed upon Ms Yang the existence of the claim and urged her to carry out the transaction expeditiously in order to avoid its effect. Mrs Marcolongo is therefore entitled to have the transaction declared voidable.
RESULT
183 Bearing in mind supervening events, including the grant on settlement of a mortgage over the subject property to the Westpac Bank and the expenditure of funds by Mr Chen on the subject property, further submissions are necessary as to the actual relief to be granted in both the first proceedings and the second proceedings, beyond the declaratory relief mentioned above: see Maguire v Makaronis ibid; Silvera v Savic (1999) 46 NSWLR 124 at [72] per Hodgson CJ in Eq (as his Honour then was); Green v Schneller (2002) 11 BPR 20,935 at [101] per Barrett J. I shall put the matter in before me on a day in the near future for those submissions, which are invited from the Westpac Bank as well as from the other parties. Any debate about costs may take place on that occasion.