Shi v Ou

LEGISLATION CITED : Conveyancing Act 1919 Uniform Civil Procedure Rules 2005

Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 Wratten v Hunter (1978) 2 NSWLR 367 CASES CITED : Barnes v Addy (1874) LR 9 Ch App 244 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1987-1988) 165 CLR 107

Jin Cheng Shi (First Plaintiff) Run Lian Ma (Second Plaintiff) PARTIES : Somnit Ou (First Defendant) Siyong Ou (Second Defendant) Bounxay Phanthavong (Third Defendant)

COUNSEL : P W Bates (Plaintiffs) P Tregenza (Second and Third Defendants)

SOLICITORS : Armstrong Legal (Plaintiffs) Watson Stafford Zipkis (Second and Third Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2174/08 JIN CHENG SHI & ANOR v SOMNIT OU & ORS JUDGMENT Synopsis 1 Jin Cheng Shi is the first plaintiff. Run Lian Ma, his wife, is the second plaintiff. Their daughter, Lily Shi was in a relationship with Somnit Ou, the first defendant. Mr Shi and Mrs Ma provided them with $100,000 so they could purchase a house at Currawong Street, Green Valley. 2 The relationship between Lily Shi and Somnit Ou broke down. Mr Shi and Mrs Ma alleged they were entitled to repayment of loans and obtained judgment by default against Somnit and Lily in the District Court. 3 Somnit Ou, his brother Somchit Ou, his mother Siyong Ou, the second defendant and his father Bounxay Phanthavong, the third defendant, bought land at Bentinck Drive, Green Valley. 4 Somchit Ou was subsequently removed from the title to the Bentinck Drive land. After Somnit Ou, Mr Phanthavong and Mrs Ou were aware that Mr Shi and Mrs Ma claimed that Somnit owed them over $100,000, Somnit was removed from the title. 5 The Bentinck Drive land was subsequently sold but one third of the net proceeds after discharge of the mortgage and the payment of reasonable costs of sale has been preserved. 6 Mr Shi and Mrs Ma claim that money. They say that Mr Phanthavong and Mrs Ou hold what was Somnit Ou's interest in the Bentinck Drive land on trust for them. 7 Mr Phanthavong and Mrs Ou claim that Somnit Ou and Somchit Ou held no beneficial interest in the Bentinck Drive land and the money is theirs. They say that Somnit and Somchit held their interests in the land on trust for them. Were moneys lent? 8 Both Mr Shi and Mrs Ma said that Somnit Ou and Lily Shi wanted to buy the Currawong Street property but they were $100,000 short. They both said they agreed to provide the shortfall on the basis that Somnit and Lily would make all the bank repayments. Mr Shi and Mrs Ma mortgaged their house to provide the $100,000. Their testimony was unshaken in cross-examination. 9 Lily Shi agreed that her parents had lent the $100,000 to her and Somnit Ou. It was put to her in cross-examination that her parents said words to the effect: "We will help you and give you $100,000". She answered, "I wish. No". That had the air of reality about it. 10 Mr Shi and Mrs Ma acted consistently with respect to the $100,000. They visited Mr Phanthavong and Mrs Ou in their home on three occasions after Somnit Ou ceased making repayments to the bank. They said that Somnit owed them over $100,000 and they sought his parents' assistance to recover the moneys. When they received no assistance they commenced the District Court proceedings. 11 Somnit Ou said the $100,000 for the house was a gift for their marriage. Nobody else supported that view. Mr Shi and Mrs Ma were adamant that they raised a loan of $100,000 secured on their home and deposited it into a joint account in the name of Somnit and Lily Shi, telling them they had to make the repayments to the bank. 12 I prefer the evidence of Mr Shi, Mrs Ma and Lily Shi on this aspect of the matter rather than that of Somnit Ou. I find that $100,000 was lent to Somnit and Lily upon terms that they would make the repayments to the bank for which Mr Shi and Mrs Ma were responsible, they having raised the funds by a loan to them secured against their house. 13 There was a second loan of $100,000, which I find was made on the basis that Somnit Ou and Lily Shi would make the repayments to the bank for which Mr Shi and Mrs Ma were responsible. Mr Shi and Mrs Ma raised the further amount for the purchase of a motor vehicle. Somnit withdrew $80,000 for the motor vehicle and Mrs Ma asked Lily for repayment of the balance of $20,000, which she said occurred. 14 Somnit Ou denied receiving the second loan. He said he bought the motor vehicle for $62,000 from moneys borrowed from Colonial. I reject that evidence and prefer that of Mr Shi and Mrs Ma. 15 The amount claimed in the District Court of $110,586.99 was the outstanding balance of the $180,000 loans. Judgment, which included interest to 19 September 2007, was entered for $128,532.38.

Did Somnit Ou have a beneficial interest in the Bentinck Drive property? 16 Mr Phanthavong said that he and Mrs Ou found the land at Bentinck Drive with a for sale sign on it. They approached a sales booth and Mr Phanthavong paid $500 as a holding deposit. Their sons were not involved in choosing the land. Nor were they involved in the approach made by Mr Phanthavong and Mrs Ou to the Commonwealth Bank when they were told that their income was not enough to support the loan they sought. 17 Nor were their sons involved in their approach to Lily Homes and the assistance given to them by a broker, Mr Loan. He told them he could help but they needed to include Somnit Ou and Somchit Ou to show sufficient income to service the loan. 18 A loan of $223,000 was obtained from Westpac in the names of Mr Phanthavong, Mrs Ou, Somnit Ou and Somchit Ou. Upon settlement of the purchase in about September 1997, the Bentinck Drive land was registered in their four names. 19 It was after Mr Loan recommended that the sons be joined in the loan application that Mr Phanthavong said he approached Somnit Ou and Somchit Ou. He said he told his sons: "With only your mother and I as the borrowers for the loan to buy and build the house we will not be able to obtain the loan. We need to put your names down to help out with the loan, but your mother and I will make all of the repayments. The house will be your mother's and mine we just need your names down as being able to help out with the loan." 20 Mr Phanthavong said his sons agreed. It was then that Mr Loan took the four of them to Westpac. 21 Mr Phanthavong said that neither Somnit Ou nor Somchit Ou contributed any funds to the purchase. 22 Mr Phanthavong was subjected to an exhaustive cross-examination. He was a precise and careful witness who said "no" or "I do not remember" when that was the case. For example, he was pressed with the proposition that Somnit Ou had told him, about the time he bought the motor vehicle, that he was borrowing money from Lily Shi's parents to pay for the motor vehicle. He said that was not correct. He said he first learned of the suggestion that Somnit owed Lily's parents money when they came to his house. They said that Somnit had told them to ask him and his wife to grant a loan to Somnit so he could repay them. He had said to Somnit that if he owed money he should repay it. 23 Mr Phanthavong said that in about 2001 he became concerned that Somchit Ou drank too much alcohol and had had a number of motor vehicle accidents. He was concerned that at some time in the future Somchit might become liable to somebody else for money. He said he spoke to Somchit telling him that he was going to take him off the title of their home. Somchit agreed. 24 Mr Phanthavong said he and his wife went to the solicitor they had seen when they obtained the loan from Westpac. He told the solicitor that he wanted Somchit Ou's name to be taken off the title. The solicitor asked whether they were going to pay Somchit money. Mr Phanthavong said that they were not because his name was only ever on the title to get the loan. 25 In order to obtain title in three names it was necessary to refinance the loan with Westpac. Mr Phanthavong said he asked Westpac if he could have Somnit Ou's name removed as well. The bank officer said he could not because he would not have sufficient income to support the loan. 26 Mr Phanthavong, Mrs Ou and Somnit Ou borrowed funds from Westpac and paid out the loan to them and Somchit Ou. The Bentinck Drive property was transferred to the three of them. Somchit was not paid any consideration. 27 It was put to Mr Phanthavong on a number of occasions that the Bentinck Drive property was owned by him, his wife and his sons and subsequently by him Mrs Ou and Somnit Ou. He consistently answered that they were named together but the property was owned by him and his wife. 28 To effect the change of title to the Bentinck Drive property on 24 March 2006 that excluded Somnit Ou, Mr Phanthavong and Mrs Ou obtained a loan of $95,000 from the ANZ Bank on 22 February 2006 to discharge the Westpac loan and pay other expenses. 29 Instructions were given to a Laotian-speaking solicitor and then repeated to a Laotian-speaking broker who filled out a loan application form that was signed and lodged with the bank on 9 February 2006. It contained the statement: "Currently property is owned in three names. Somnit Ou is being removed as joint owner. Applicants will be only 2 owners of property. Transfer will be provided before settlement." 30 It was put to Mr Phanthavong and to Mrs Ou that this statement meant that Somnit had a one third interest in the property and that was true. Both Mr Phanthavong and Mrs Ou denied this and were not shaken from their denial. The title was in three names but it was they who owned the property. 31 The solicitor was retained to effect the removal of Somnit Ou from the title. To achieve this end he prepared a transfer from Somnit to his parents of his interest in the Bentinck Drive property in consideration of $1. 32 That is consistent with the evidence of Mr Phanthavong, Mrs Ou, Somnit Ou, Somchit Ou and Lily Shi that Somnit was on the title to the property in name only. It does not suggest that the solicitor interpreted his instructions as meaning that Somnit had a one third interest in the Bentinck Drive property. 33 Mrs Ou corroborated her husband's evidence about their finding the Bentinck Drive land and paying a holding deposit; the rejection by the Commonwealth Bank on the basis that they lacked sufficient income; the meeting with Mr Loan who introduced them to Westpac; and the need to include their sons in the loan application. Mrs Ou said her husband spoke with their sons: "We need two of you to help out on the loan because both mum's and my income is not enough. Mum and I will be the owner of the house and we will be making repayments. With only your mother and I as the borrowers for the loan to buy and build the house we will not be able to obtain the loan. We need your names down to help out with the loan." 34 Mrs Ou said their sons agreed. 35 Mrs Ou also confirmed the decision that Somchit Ou drank too much and caused them concern that he might have a big accident and become liable to someone else. She confirmed that her husband spoke to Somchit: "If you are like this we are going to remove you from the title". She said Somchit agreed. 36 Mrs Ou said the loan was refinanced to allow title to be transferred to her, her husband and Somnit Ou. She said the bank officer would not allow Somnit's name to be removed, as they would not have enough income to keep the loan. 37 Mrs Ou was also cross-examined in great detail. It was put to her on numerous occasions that there were four owners of the Bentinck Drive property. She disagreed. There were four names on the documents in order to obtain the loan from Westpac but she, like her husband, maintained that they were there in name only and the property belonged to her and her husband. 38 Mrs Ou was not shaken from her testimony that Somnit Ou was on the title of the Bentinck Drive property in name only. The following is a typical exchange in the course of her cross-examination: "Q: Four names initially, initially in 1997 it was you, your husband, Somnit and Somchit, wasn't it? A. Yes. Q. And all four of you were equally responsible for that mortgage, weren't you? A. No, only me and my husband. Q. All four of you were on the title correct? A. Yes got the name there but -- Q. And all four of you borrowed the money for the mortgage from the bank? A. Yes. They have name there, you know, just have name there, they did not pay anything, when we remove them we did not give them anything or pay them anything, the first and the second son." 39 Notwithstanding persistent cross-examination along these lines Mrs Ou remained adamant that her sons were on the title to the Bentinck Drive property in name only. 40 Mrs Ou said that neither Somnit Ou nor Somchit Ou made, or contributed to, the repayments of the loan to Westpac. 41 It was put to Mrs Ou that Somnit Ou and Somchit Ou paid $100 per week towards household expenses before the family moved to Bentinck Drive and that when they did, the payments increased to $150 per week, $50 being contributed towards discharge of the mortgage over the property. 42 Mrs Ou denied these propositions. She said she did not ask for anything. It was up to Somnit Ou and Somchit Ou. When they had money they contributed to household expenses. When they did not she did not ask for anything. 43 Somnit Ou said that his father told him that he and his mother had found a block of land they wished to buy and were going to look at a house to build on the land. His father said: "We will need to borrow some money to buy the land and build the house. Although we are both working we will need your brother and yourself to be shown on the title so that the bank will lend us the money we need." 44 Somnit Ou said he responded: "That's fine but you know that Lily and I want to buy our own property. I cannot afford to pay any loan because I have to save up to buy a property with Lily." 45 Somnit Ou said his father then said: "That's not a problem. You will not need to pay the loan. Your mother and I will look after this." 46 Somnit Ou was unshaken from his testimony that he was on the title to the Bentinck Drive property in name only: "Just, they used my name, that's it." 47 Somnit Ou said he never paid one dollar to the house, the mortgage or anything. 48 Somnit Ou said that he signed a transfer of his interest in the Bentinck Drive property to his parents. At that time he said he did not believe he had any interest in the land other than being registered on the title and that he was entitled to transfer it to his parents. 49 On 13 October 2003, Somnit Ou signed Westpac personal guarantor documents in support of the loan application by his parents. The documents were filled in by somebody else. They stated that he had a 20% interest in the Bentinck Drive property. He said he did not regard himself as having such an interest, and nor he did on any view of the matter. 50 On the other hand, on 5 October 2003, Somnit Ou signed a document prepared by Lily Shi in connection with their application for a loan to purchase the Currawong Street property that stated that Bentinck Drive was his parents' property. 51 Somnit Ou said he paid $100 per week towards family expenses and his mother never asked him for an increase. He only paid $100 and the rest was for his mortgage. He was unshaken from this testimony. He denied that he paid an extra $50 towards the mortgage over the Bentinck Drive property.

52 Somchit Ou said that when his parents found the Bentinck Drive land his father said to him: "Both you and your brother will need to be on the title so that we can borrow enough money from the bank to buy the house". 53 Somchit Ou said that some time later his father said to him: "Your name has been removed from the house because of the money you owed to Westpac. I'm afraid they may come and take the house away from us to pay for your debt." 54 Somchit Ou acknowledged that he had signed a transfer of his interest in the Bentinck Drive property but he had no recollection of the circumstances of having done so. 55 Somchit Ou said that he paid his mother $100 per week when they lived in rented accommodation. He said that soon after moving into the completed house he paid $150 per week to his mother as board because she asked for extra money to pay for the mortgage. 56 After Somnit Ou and Lily Shi split up and the house and car were sold, Mr Shi and Mrs Ma went to the home of Mr Phanthavong and Mrs Ou seeking the repayment of the loans to Somnit and Lily Shi. There were a number of visits in January 2006 or early February 2006. 57 It was submitted that the removal of Somnit Ou from the title to the Bentinck Drive property moved with speed suggestive of a collusive act to prevent recovery of the judgment debt against that property. 58 That is a case of fraud, but fraud was not pleaded. 59 While Mr Phanthavong said he was not worried about the claim that Somnit Ou owed in excess of $100,000, he did move quickly to remove Somnit from the title thereby preventing any recourse against the Bentinck Drive land. It was concern that Somchit Ou might incur a large debt that caused him to have Somchit removed from the title. 60 But a case of fraud does not arise unless Somnit Ou's interest in the Bentinck Drive property was worth more than $1. 61 An express trust is dependent upon the intention of the parties as Mason CJ and Wilson J said in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1987-1988) 165 CLR 107 at 121. 62 The intention of Mr Phanthavong and Mrs Ou when the Bentinck Drive land was acquired was that they would be the owners and their sons would be on the title only for the reason that the bank required additional income support before it would grant a loan. Neither Somnit Ou nor Somchit Ou objected to this course. They accepted that their parents owned the property. In so doing they made declarations of trust of their interests in it for their parents. If a person agrees to a proposition that he or she should hold an interest in land in trust for the person making the proposition, I fail to see why the agreement should not constitute a declaration of trust. 63 The Conveyancing Act, s 23C(1)(b) provides that a declaration of trust respecting any interest in land must be manifested and proved by some writing signed by some person who is able to declare such trust. There was no such writing in this case. Nor was the statute raised by Mr Shi and Mrs Ma. 64 The Conveyancing Act, s 23C(1)(b) cannot be used to cloak a fraud. Thus where the court holds that it would be a fraud for a party to proceedings to set up the statute so as to prevent evidence of a beneficial interest being proved, the principle is applied and evidence is admitted to prove an oral declaration of trust over an interest in land (Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538; Wratten v Hunter (1978) 2 NSWLR 367). 65 That is what has occurred in this case. The evidence of what was said by Mr Phanthavong, Mrs Ou, Somnit Ou and Somchit Ou establishes the trusts upon which the sons held their interests in the Bentinck Drive property and that evidence was not excluded by challenge under the statute. To do so would have constituted the cloaking of a fraud. 66 It was submitted that the defendants bore the onus of rebutting the presumption of advancement. 67 If one person pays for property and it is transferred to another person to whom the purchaser has an obligation of support, it will be presumed that the purchaser intended the transferee to take beneficially. 68 But in this case each of the parents and the children were on the title and each was a party to the borrowing from Westpac that enabled them collectively to purchase the Bentinck Drive land. There was no intention of the parents to benefit Somnit Ou and Somchit Ou. They were to hold their interests for the benefit of their parents. 69 Somnit Ou held no beneficial interest in the Bentinck Drive property. The problem with the pleading 70 Since Somnit Ou held no beneficial interest in the Bentinck Drive property, there was no value in Somnit's interest in the property that his parents and he sought to put beyond the reach of the judgment debtors. 71 At the opening of the trial, counsel for Mr Phanthavong and Mrs Ou drew attention to the fact that the pleading did not raise the Conveyancing Act 1919, s 37A(1) that every alienation of property with intent to defraud creditors is voidable at the instance of any person thereby prejudiced. The plaintiffs chose to rely on the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 252 as a case of "knowing assistance" as described in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at 140-141, [111]-[112]. 72 The problem about that course is that there was no breach of trust by Somnit Ou to which Mr Phanthavong and Mrs Ou gave their assistance. 73 Counsel for the plaintiffs sought leave to amend to raise fraud during his closing address. 74 Counsel for Mr Phanthavong and Mrs Ou conceded that there was a discretion in the court under the Uniform Civil Procedure Rules 2005, Pt 36 r 36.1. It provides that at any stage of the proceedings, the court may give such judgment, or make such order, as the nature of the case requires, whether or not a claim for relief extending to that judgment or order is included in any originating process or notice of motion. Quite properly, counsel said that he could not say that he would have run the case differently if an amendment had been sought at the commencement of the proceedings. 75 In view of the findings I have made, Mr Shi and Mrs Ma are not entitled to the relief claimed in their summons and would not have been entitled to relief under the Conveyancing Act, s 37A whether or not fraud had been pleaded in those terms.

22/02/2010 - Names of counsel wrongly listed - Paragraph(s) Coversheet

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