Winau Australia Pty Ltd v LCC Property Development Pty Ltd

Background

1. The Applicants' notice of motion is filed in proceedings which have a lengthy history. The proceedings have already been the subject of five judgments in this Court and the Court of Appeal, the most recent of which concerns an application for injunctive relief that was the subject of Rein J's decision on 26 May 2021: Winau Australia Pty Ltd v LCC Property Development Pty Ltd [2021] NSWSC 612 (judgment).
2. In the judgment, his Honour summarises the factual and procedural history of the disputes in these proceedings which is unnecessary to repeat here. I simply record that these proceedings concern disputes that have involved 183 Eastwood as the former registered proprietor of three parcels of land in Eastwood (Properties), an alleged fraudster who purported to be the sole director and shareholder of 183 Eastwood (Mr Scott Chan), and the third to fifth defendant mortgagees mistakenly believing that they were dealing with the sole authorised officer of 183 Eastwood.
3. Relevant to this application are the claims made by each of the Applicants in the Second Further Amended Statement of Claim filed on 12 April 2021.
4. The Applicants allege that they each agreed with LCC Property to pay it sums of money in consideration for it to holding units in the Eastwood Unit Trust on trust for each of the Applicants in the following proportions: 22 units for Winau for payment of the sum of $1,980,000; nine units for Shunjiyuan for payment of the sum of $810,000; and ten units for Mr Hong for payment of the sum of $900,000. It is also alleged that Winau lent $450,000 to Mr Lin to enable him to acquire five units in the Eastwood Unit Trust.
5. The agreements between each of the Applicants and LCC Property said to give rise to the trusts are alleged to be partly oral and partly in writing. The oral parts of the agreements are based on telephone conversations that each of the Applicants had with Mr Lin. Several documents are relied on to support the writing giving rise to the alleged trust agreement, in particular, notes written in Mandarin and signed by Mr Lin in September and October 2016 which the Applicants assert acknowledge that LCC Property holds units in the Eastwood Unit Trust on trust for them.
6. According to the evidence of Mrs Yuan and Mr Lin, the alleged trust arrangements were created for reasons which included that Mrs Yuan, Mr Chuangwei Chen (the director of the second plaintiff), and Mr Hong could only hold a limited number of units in a property trust by reason of their non-resident status.
7. The Applicants claim that, between 25 February 2017 and 12 November 2018, 183 Eastwood was the registered proprietor of the Properties, having purchased the Properties for approximately $7.5 million using funds which they paid to LCC Property and 183 Eastwood in accordance with the alleged trust arrangements.

Summary judgment application

1. In order to succeed in an application for summary judgment under r 13.1 of the Uniform Civil Procedure Rules 2005 (NSW), the Applicants must adduce evidence: 1. establishing the facts justifying the claim for relief as pleaded in the second further amended statement of claim; and 2. of its belief that the defendants have no defence to the claim or part of the claim.
2. The threshold for summary judgment is a high bar. The power to summarily determine proceedings must be exercised with caution and with a high degree of certainty about the ultimate outcome of the proceedings: Spencer v Commonwealth (2010) 241 CLR 118; [2010] HCA 28 at [24] (French CJ and Gummow J), [53]-[55] (Hayne, Crennan, Kiefel and Bell JJ).
3. Generally, the Court will not deny a contested hearing on the merits to a party unless the absence of a cause of action or defence is clearly demonstrated by the party applying for the order. In summarily terminating proceedings, the Court must be satisfied that the relevant cause of action or defence is so obviously untenable that it cannot possibly succeed, is manifestly groundless or is so manifestly faulty that it does not admit of argument: General Steel Industries Inc v Commissioner for Railways (New South Wales) (1964) 112 CLR 125 at 129; [1964] HCA 69.
4. The Applicants' submissions in support of their application for summary judgment can be summarised as follows.
5. First, they submit that Mr Morelli has not established that he is authorised to run these proceedings on behalf of LCC Property, taking issue with the absence of the underlying security documents supporting the appointment of a receiver. Reference is also made to findings by Kunc J that an ASIC form had been forged in an earlier decision in these proceedings.
6. An executed deed of appointment of receiver and manager appointing Mr Morelli as the receiver of LCC Property is in evidence on this application, together with an ASIC Form 505 which records that Mr Morelli was appointed as receiver and manager on 5 May 2019. The deed of appointment identifies that Mr Morelli was appointed as receiver and manager of LCC Property by a company that was assigned the security in the form of a charge over the property of LCC Property and that he is empowered to act as the agent of LCC property. Accepting that these documents do not establish the validity of the underlying security documents upon which the appointment was made, in the absence of any evidence adduced by the Applicants or any challenge having been made to Mr Morelli's appointment thus far, for the purposes of this application, I am satisfied that the documents demonstrate, at a prima facie level, that Mr Morelli has been appointed and is entitled to appear in the name of LCC Property or to intervene as an interested party on this application.
7. As to the submission regarding Kunc J's decision, that decision concerned the determination of a separate question which, I understand, is unrelated to the Applicants' trust claim and concerned different ASIC forms and forms of security.
8. Further, in my view, if the Applicants wish to put into issue the receiver and manager's status as agent for LCC Property, the appropriate course would be for them to make an application to dismiss the defence on the basis of an invalid appointment supported by evidence, rather than raising the issue in correspondence and by assertions in submissions as part of the summary judgment application.
9. Second, the Applicants submit that Mr Morelli has not put forward any valid defence to the claims advanced by the Applicants. It is fair to say that the defence filed in the name of LCC Property comprises of, in the main, admissions, denials and non‑admissions without particulars. That said, Mr Morelli is yet to file any evidence, and it seems to me that he is entitled to challenge summary judgment based on the evidence relied on by the Applicants on this application and the nature of the arrangements asserted.
10. Third, the Applicants submit that, even if Mr Morelli's appointment is valid, it cannot cover, and there is no basis for him to deal with, the 46 units held by LCC Property in the Eastwood Unit Trust because those units are not beneficially owned by LCC Property, but constitute property belonging to the Applicants and Mr Lin. No issue was taken by counsel for LCC Property that the 46 units would not form part of the property of LCC Property if they are held on trust for the Applicants and Mr Lin. However, for reasons which I will come to, issue is taken with the bases of the trust claims themselves.
11. Fourth, it is submitted that the evidence adduced by the Applicants establishes the agreements that give rise to the trust arrangements and the payments made by the Applicants. They contend for the existence of trusts according to the principles in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (Quistclose) or in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58 (Black v Freedman).
12. As to a Quistclose trust, the Applicants submit that the funds remitted by Mrs Yuan, Mr Chen (on behalf of the second defendant) and Mr Hong to LCC Property were impressed with a trust for and on behalf of the Applicants because the funds were not intended as gifts to LCC Property forming part of its general assets, but were to be used to invest in property to be held in the Eastwood Unit Trust on their behalf. They submit it is to be implied that, if the purpose for which those funds were to be used cannot be effectuated, the money invested is held upon trust for them, and so are the units.
13. Reliance on Black v Freedman trust principles is advanced in response to the assertion that Mr Lin, who was not a director or officer of LCC Property, had no authority to represent the company in relation to the alleged arrangements. The Applicants submit that if Mr Lin did not have authority to agree for LCC Property to hold the units on trust for the Applicants, it would follow that Mr Lin also did not have authority to represent LCC Property to borrow money from them. It is submitted that, in those circumstances, the funds remitted by the Applicants to LCC Property were impressed with a Black v Freedman trust because the fund were not intended as gifts to the company and, according to Mrs Yuan's evidence, she, Mr Chen and Mr Hong would not have remitted the funds to it if Mr Lin had asked them to provide loans for the company to invest in the unit trust on its own behalf.
14. Finally, the Applicants submit that it would be a complete windfall for the secured creditor that appointed Mr Morelli as receiver to LCC property if it was able to establish a right to retain what is now 46% of the proceeds of sale of the Eastwood Unit Trust properties.
15. Mr Morelli on behalf of LCC Property submits that summary judgment should be refused in this case because there are real questions to be tried. The submissions raise nine questions. In my view, it is sufficient to mention only two of those questions to identify why I am not persuaded that the Applicants have established that the declaratory relief they seek should be granted on a summary basis and their application for summary judgment should be refused.
16. The first question raises the issue of whether there is sufficient evidence to establish that anyone with authority from LCC Property bound the company to an agreement to transfer units in the Eastwood Unit Trust to the Applicants for the sums alleged.
17. The agreements with LCC Property giving rise to the trust arrangements are pleaded as agreements made by Mr Lin on behalf of LCC Property and each of the Applicants. Relevantly, at the time of the alleged agreements, LCC Property's sole director was Mr Chan. Mr Lin was never a director of LCC - at the relevant times, he was a director of Winau and 183 Eastwood. Beyond an assertion in his affidavit that he solely managed the affairs and business of LCC Property, there are no documents or other facts referred to in the evidence that demonstrate that Mr Lin had authority to bind LCC Property in the manner alleged.
18. In that regard, I also note that the factual matters required to support the Applicants' contention that a Black v Freedman trust would arise if Mr Lin did not have authority to act on behalf of LCC Property are not specifically pleaded. Nor is there is any suggestion by the Applicants that Mr Lin was a rogue who disposed of their money, akin to the approach of O'Connor J in Black v Freedman who held that a thief holds stolen money on trust for the victim and cannot divest it of that character by paying it as a gift to a third party volunteer: Black v Freedman at 110. In those circumstances, I am not persuaded that the Applicants have established the factual basis on which a trust of the type in Black v Freedman trust might arise on this application.
19. The second question concerns the nature of the agreements, and the evidence in support of those agreements relied upon by the Applicants to establish their trust claims. As I have said, the Applicants plead that they entered into agreements with LCC Property whereby the company would hold a number of units in the Eastwood Unit Trust on trust for them.
20. Each of the Applicants rely on documents signed by Mr Lin as evidence of the pleaded trust agreements, which documents are expressed in similar terms. The document that Winau relies on states (translated from Mandarin): I hereby confirm the receipt by LCC Property Development Pty Ltd a total of 22% of the shares of Winau Australia Pty Ltd (ABN 20 614 471 984) through a shareholding entrustment arrangement. This statement is to act as the evidence for the above. Entrusted person: Eric Naijing Lin
21. As LCC Property submits, an ordinary and natural reading of that document does not suggest that LCC Property holds units in the Eastwood Unit Trust on trust for Winau. Rather, it reads as if it there may have been an intention for some trust arrangement in exchange for shares, and that the person intended to be the trustee was Mr Lin himself. In my view, the documents relied on by the Applicants raise triable questions as to their proper construction, what property is the subject to the alleged arrangements, and the identity of the trustee.
22. There are also questions regarding the reliability and form of the evidence of the oral conversations with Mr Lin supporting the alleged trust arrangements. Neither Mr Hong nor Mr Chen have given evidence, the Applicants' responses to objections referred to difficulties in the witness' recollection of the relevant conversations, and it appears that the Applicants' witnesses had read each other's affidavits.
23. Based on the evidence before the Court, there seems to be little doubt that money was advanced by the Applicants in the sums referred to at [7]. It may also be accepted that there were discussions between Mrs Yuan and Mr Lin, and Mr Lin and Mr Hong, to the effect that they would invest money for the purposes of acquiring the Properties and they were to be held by a trustee company. It may be that the evidence is in favour of the Applicants. Certainly, the fact that monies were paid for a particular purpose suggests that there could be some form of trust arrangement. But, even accepting that a Quistclose trust might arise if the Applicants had advanced money to LCC property (or 183 Eastwood) with the mutual intention that the funds were to be used exclusively for a specific purpose which failed, it seems to me that there is a real question to be tried as to whether the trust arrangement relates to units in the Eastwood Unit Trust as opposed to the funds paid over by each of the Applicants.
24. I need say nothing further in relation to LCC Property's submissions, other than to note that they raise a question as to the Applicants' entitlement to equitable relief having regard to operation of the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the issue of illegality, referring to Nelson v Nelson (1995) 184 CLR 538; [1995] HCA 25, which issues were not the subject of detailed submissions.
25. Finally, I note that courts are generally reluctant to make declarations on an application for summary judgment. As Young J (as his Honour then was) explained in GPI Leisure Corporation Ltd v Yuill (Supreme Court (NSW), Young J, 6 August 1997, unrep), there is no doubt that this Court is competent to make a declaration on an application for summary judgment, but it will only do so in exceptional cases. As far as possible, the Court should make such declarations only when the matter has been fully argued by counsel on each side and is then the subject of adjudication by the judge.
26. For these reasons, I have concluded that triable issues have been established and the application for summary judgment should be dismissed.

Costs and orders

1. The Applicants accept that costs should follow the event.
2. Counsel for LCC Property submits that an indemnity costs order is appropriate in circumstances where Mr Morelli sent letters to the Applicants in August and September 2021 inviting them to withdraw the application on the basis that costs be in the cause. It is submitted that the application was unreasonable having regard to the pleaded bases of the claims and the submissions advanced at the hearing, and reliance is placed on the Applicants' acknowledgement that they did not recall precisely some of the conversations on which their claims are based.
3. I am not persuaded that the Court should exercise its discretion and order indemnity costs on this application. The conduct of the Applicants in bringing the application was not plainly unreasonable or delinquent, and there is no evidence of the invitations to withdraw that are relied on. I also note that the defence filed in the name of LLC Property was only filed on 20 September 2021, sometime after the motion was filed. In my view, the appropriate order is for costs to follow the event, with the Applicants to pay the costs of LCC Property on an ordinary basis.
4. Accordingly, I make the following orders: 1. Dismiss the notice of motion for summary judgment filed by the first, second and fourth plaintiffs on 8 June 2021. 2. Order the first, second and fourth plaintiffs to pay the costs of the notice of motion on an ordinary basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 October 2021