Knatchbull v Hallett (1880) 13 Ch D 696
Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75
[2004] NSWCA 82
Warman International Ltd v Dwyer (1995) 182 CLR 544
Source
Original judgment source is linked above.
Catchwords
[2016] NSWCA 164
Re Hallett's EstateKnatchbull v Hallett (1880) 13 Ch D 696
Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75[2004] NSWCA 82
Warman International Ltd v Dwyer (1995) 182 CLR 544
Judgment (2 paragraphs)
[1]
Judgment - EX TEMPORE
The case has come before the Court today on an application by the defendant for summary dismissal, or alternatively, for the striking out, of part of the proceedings. The application is made pursuant to the Uniform Civil Procedure Rules 2005 (NSW) r 13.4(1) in the case of summary dismissal and r 14.28 in the case of strike-out.
The plaintiffs in these proceedings live in China. They are the parents of the defendant, who apparently lives in Australia.
Yang v Yang [2017] NSWSC 603 | Case summary | Zoe
The factual basis for the claims as pleaded in the Statement of Claim in its current form is that the plaintiffs wished to purchase residential properties in Australia, migrate to Australia and acquire citizenship. The plaintiffs allege that a number of properties were acquired in Australia with the use, at least in part, of moneys provided by them. Relief is sought in relation to four properties, one at Rhodes and three in Queensland.
In relation to the Rhodes property, it is alleged that the property was acquired for $630,000 in about July 2013, and that amounts totalling RMB 457,000 were provided by the plaintiffs by way of cash or bank transfer in order to effect the purchase. The Queensland properties were allegedly purchased "[a]t about the same time" and it is alleged that RMB 1,220,000 was provided by the first plaintiff, who is the defendant's father, for that purpose. Apparently the properties were acquired in the name of the defendant, although it is alleged in the Statement of Claim that this is contrary to what had been agreed with the plaintiffs and that the purchase of the properties was supposed to be in the name of the plaintiffs or one of them. Apparently finance for the purchases was also obtained in the name of the defendant.
It is also alleged that a fifth property was acquired at Little Bay somewhat earlier, in the latter half of 2012, with funds provided by the plaintiffs totalling RMB 340,001, and that this property had been registered in the name of the second plaintiff. However, it is alleged that subsequently, without the knowledge or authority of the second plaintiff, the defendant arranged with the financier, Westpac, to borrow a sum of $75,000 against the property which, it is alleged, the defendant appropriated to her own purposes. Furthermore, it is alleged that when the property was sold in 2015 the defendant appropriated the sale proceeds (after payment of the mortgage) to her own purposes.
The relief sought in the notice of motion is limited in each case to "the relief sought in paragraphs 1 and 2" of the Statement of Claim. In its current form, paragraph 1 seeks a declaration that the four properties (that is, the Rhodes property and the three Queensland properties) "are held by the Defendant on trust for the First Plaintiff." Paragraph 2 seeks an order "that the Defendant transfer the Legal titles of the said properties to the First Plaintiff." The other prayers for relief in the Statement of Claim relate to the misappropriation claims and seek relief in favour of the second plaintiff in that regard. The pleading does not contain the conventional prayer for such further or other order as the Court sees fit.
In making the application, the defendant put at the forefront of her case the recent decision of Kunc J in CTI Resort Holdings Group Pty Ltd v Chen [2017] NSWSC 142. That was a case in which the plaintiff was bringing an action for the loss of a corporate opportunity, being an opportunity to acquire certain land on the north coast of New South Wales. The plaintiff's case was that it was entitled to acquire the land but the opportunity had been diverted by the defendants to themselves, in breach of fiduciary and statutory duties owed to the plaintiff.
In its statement of claim in those proceedings, the plaintiff sought an order for the delivery up of all documents of title required to enable the registration of the plaintiff as the legal owner of the property in question "upon the Plaintiff paying to the Second Defendant [the entity which had acquired the property] the amount of $1,350,000.00." As Kunc J noted, the requirement of payment was a reflection of the equitable doctrine that he who seeks equity must do equity; more specifically, it was a recognition that proprietary relief of the sort claimed by the plaintiff could not be obtained without the plaintiff assuming or discharging liabilities which the second defendant had undertaken in order to purchase the property.
In that case the defendants moved for summary dismissal on the footing that the plaintiff had not demonstrated it would be in a position to make the relevant payment and, accordingly, had no realistic prospect of obtaining the relief sought. Kunc J accepted this submission, although he did allow in his orders an opportunity for the plaintiff to present further evidence demonstrating an ability to obtain the necessary funds before the order dismissing the proceedings took effect.
In his decision, Kunc J referred to earlier decisions in the Court at first instance before Black J in Huang v Wang [2015] NSWSC 510 and on appeal in Huang v Wang (2016) 114 ACSR 586. Those were proceedings in the Corporations List involving another case of alleged diversion of corporate opportunity, being a purchase of premises to be used as professional consulting rooms. The allegation was that the opportunity had been diverted from a company, and leave was sought to bring proceedings in the name of that company pursuant to the Corporations Act 2001 (Cth), s 237. The relief to be sought, should leave be granted, was to have the premises transferred to the company whose corporate opportunity it was said to be.
Black J refused the application. The essential ground for doing so was that his Honour was not satisfied that the bringing of the proceedings was in the best interests of the allegedly defrauded company. This was because his Honour was not satisfied, on the evidence, that the company would be in a position to do equity by taking over or assuming the liabilities undertaken by the proposed defendants in order to purchase the premises.
The decision of Black J was upheld by the Court of Appeal, which considered that his Honour had not made any error in taking into account, for the purpose of determining whether the bringing of proceedings was in the interests of the company, the company's ability or otherwise to make the payments which would be necessary in order for it to do equity to obtain the relief sought.
The defendant in this case sought to rely upon these decisions. It was said that the first plaintiff, in whose favour the orders in relation to the four properties were to be made, lacked the funds to do equity. The defendant's contention was that doing equity would require the paying out of the existing mortgages on the properties which apparently currently stand at something more than $1 million. More specifically, it was contended that the first plaintiff needed to be able to show that he could make the relevant moneys available in Australia now.
It seems to me that there are substantial differences between these proceedings and the CTI and Huang cases.
This is not a claim about a loss of corporate opportunity. The starting point for the plaintiffs' case in these proceedings is that moneys were entrusted to the defendant by the plaintiffs for a particular purpose. The defendant has pleaded to the allegations. She does not admit receipt of the funds, but she contends that any funds that were received were given to her by way of gift. Obviously this gives rise to a triable issue which cannot be determined on this application. However, it is clear that if the plaintiffs' allegations are successful then they will have a basis for claiming against the defendant as trustee or at least as some other type of fiduciary.
Although the plaintiffs' pleadings refer to constructive trust (at least in a remedial context), if the plaintiffs' allegation is successful it seems to me that the plaintiffs would establish there was an express trust; or, at the very least, a resulting trust based upon the provision of funds by the plaintiffs. On the express trust analysis, the defendant would be a trustee of the moneys provided to her, and the agreement between the parties as to how those moneys would be applied would be a term of the trust.
Were the plaintiffs to succeed on this point, then at the very least they would be entitled to obtain an account from the defendant in relation to the trust property; that is, an order requiring the defendant to identify, in relation to the moneys received by her on trust, what she had done with the moneys; and to account for the remaining moneys held by her to the plaintiffs. But obviously, on the facts of this case, the relief would not end there because questions would arise as to tracing. On the face of it, the plaintiffs might well have an entitlement to trace moneys provided on trust to the defendant into assets which had been acquired by the defendant with those moneys.
Of course, the principle that he who seeks equity must do equity remains a fundamental element of equitable jurisprudence and I accept that the plaintiffs would not be able to obtain equitable relief in relation to assets to the extent that, after the application of tracing rules, the funds to acquire those assets came from the defendant's own moneys. But, on the facts of this particular case, it cannot be said at this stage of the proceedings that the plaintiffs will not obtain any equitable relief.
On the plaintiffs' case, a significant amount of cash was provided by them, and the defendant will have to account for that cash if she is found to be trustee of it. Even if the cash represents only a proportion of the moneys expended to acquire the properties, the plaintiffs will, it seems to me, likely be entitled to proprietary relief to that extent. For instance, should the cash amount to, say, 20 per cent of the value of the properties, then one would think there would be entitlement at least to 20 per cent of the current value of the properties. The grant of relief of this type in no way infringes the principle that a party seeking equity must do equity.
The position is complicated by the fact that four properties have been acquired. On the evidence before the Court, it is not possible to make any assessment, but it is possible that the tracing rules in Re Hallett's Estate; Knatchbull v Hallett (1880) 13 Ch D 696 will come into play and, for all the Court knows at present, it may be that the first plaintiff would have, or at least would be entitled to elect to have, an entitlement to receive the whole of one of the properties, assuming sufficient funds were in fact provided by the first plaintiff.
At this stage of the proceedings, of course, this is all a matter of speculation. It will not be possible to determine what proprietary relief, if any, is available until an account has been provided by the defendant, or the plaintiffs are otherwise able, through evidentiary procedures in the course of this case, to piece together the flow of funds and where the moneys the plaintiffs provided have gone.
The position may be more complex still. As I have noted, the relief is sought in the name of the first plaintiff but the allegation in the pleading is that the moneys were provided by the plaintiffs. It is conceivable that the transactions involving moneys provided by the defendant's mother (the second plaintiff) and the fifth property will have led to flows of money which would need to be taken into account in determining the application of tracing rules so far as the claims arising out of the acquisition of the four properties still in the defendant's name are concerned.
So far I have referred to proprietary relief. The relief claimed by the plaintiffs is described as a "constructive trust." As I have endeavoured to show, the plaintiffs' claim may well prove to be derived from an express trust and therefore constructive trust relief might be obtained on an institutional rather than a remedial basis, to use the dichotomy recognised in the authorities: see, for example, Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [115].
But there are also other forms of equitable relief which may be available. One would be an account of profits. If the properties have increased in value, the plaintiffs may, depending on the terms of the entrustment of the defendant with the moneys and the degree of contribution to the profit from those moneys, be able to claim by way of account the whole or some proportion of any increased value. Again, the grant of relief of this character would in no way infringe the principle that a party seeking equity must do equity. If the relief were confined to profits, there would be no obligation on the plaintiffs to offer to assume the defendant's liabilities.
Alternatively, if the value of the properties has declined, it is conceivable that there may be a claim available for equitable compensation, at least if the plaintiffs are able to show that they would have caused the sale of the properties at a more advantageous time.
Again, the grant of equitable compensation is not subject to some prior requirement of assuming liabilities of a defendant. An example of a case in which proprietary relief of a constructive trust nature was refused on the ground that the plaintiff would not do equity, but equitable compensation was nonetheless awarded to that plaintiff, is found in Greater Pacific Investments Pty Ltd v Australian National Industries Ltd (1996) 39 NSWLR 143.
As I understand the law, it would not be until the end of the case that the plaintiffs would be put to specifying the particular relief sought and, where necessary, electing between alternative remedies (for instance, the plaintiffs would not be entitled both to an account of profits and compensation): see Warman International Ltd v Dwyer (1995) 182 CLR 544 at 569-70.
Black J in Huang did not confine his consideration of possible remedies to the grant of proprietary relief. At [60]-[61] his Honour considered whether the company in question might be able to claim an account of profits or make a claim alternatively for equitable compensation. However, his Honour noted that there was no evidence before the Court which would demonstrate that any profit had been gained or any loss was likely to be suffered, and for that reason he was not satisfied that the possibility of the existence of such a claim was sufficient to justify the proceedings being brought. I emphasise, in his Honour's decision, the conclusion which appears in [62] that his Honour was not satisfied that the proposed proceedings were in the company's best interests "as the evidence stands."
Apparently counsel for the plaintiffs was given an opportunity in that case to reformulate the claim for relief or to identify other possible claims for relief that the company might make in the event it could not get the orders which it sought and which required the company to assume the liabilities of the proposed defendant, but no application to reformulate the case in terms of different relief was made.
In the present case, of course, no question of leave arises. The plaintiffs do not have to persuade the Court that they are likely to obtain relief of substantial value. Rather, the defendant has to persuade the Court that there is no prospect of the plaintiffs obtaining any relief at all.
In my opinion, it is abundantly clear that if the plaintiffs succeed in the factual allegation that they entrusted the relevant moneys to the defendant, they will have a wide array of equitable relief, potentially both proprietary and non-proprietary, to choose from. It is impossible to say at this stage of the proceedings that they will not necessarily be entitled to obtain equitable relief without assuming the finance liabilities on the properties; still less is it possible to say that they would have no potential claim for relief at all.
Indeed, it appears that the defendant does not really contend that the plaintiffs would have no entitlement to equitable relief. Paragraph 17 of the Defence pleads that:
[E]ven if the first plaintiff advanced the monies pleaded...for the purposes of the defendant acquiring the properties...in the name of the plaintiffs, which is denied, the remedy of constructive trust is inappropriate as there are other remedies capable of doing full justice, in the circumstances of the case, between the parties.
When I pressed counsel for the defendant as to whether the defendant was really seeking to have the proceedings summarily dismissed, despite conceding in the Defence that if the plaintiffs' factual allegations are made out the first plaintiff would be entitled to equitable relief, he informed me, upon taking instructions, that the defendant would not press the application to the extent that it sought the summary dismissal of the proceedings but merely would pursue the strike-out aspect of the application.
I do not, however, propose to accede to the application even to that extent. In my opinion, the provisions of the Statement of Claim as currently formulated sufficiently disclose facts which, if established at trial, would justify the grant of equitable relief.
The problem, if there is one, is that the Statement of Claim does not identify alternative forms of relief. I am not sure that it is a strict requirement of the rules that all forms of relief sought should be pleaded; as I understand it, it is always open to the Court, if sufficient facts are established, to grant appropriate relief even if that does not correspond to the relief sought by the plaintiff. Having said that, it is always desirable that the relief sought should be identified as precisely as the nature of the case permits, particularly where the grant of relief may be dependent upon the establishment of other facts.
Another criticism, which does not persuade me that the Statement of Claim is defective, might, however, be that it appears to have been drafted without reference to the trust analysis which I have put forward in these reasons, and it may be that the pleading would benefit from reconsideration in that regard. As I have said, the body of the pleading itself speaks of a constructive trust but does not plead an express trust of the sort that, it seems to me, might reflect the proper legal analysis of the facts put forward by the plaintiffs.
Accordingly, while dismissing the application, I propose to make directions to allow the plaintiffs a further opportunity to consider whether there are amendments to the Statement of Claim that they would like to make. I appreciate the difficulty that the precise nature of the relief, for reasons I have given, may not be capable of being determined at this point; and all of the facts which would be required to sustain that relief may not be available to the plaintiffs at this point. But I think, consistently with the view I have expressed above, that the relief should be specified and supporting facts pleaded to the maximum extent possible.
As to costs, the defendant has failed on this application. On the other hand, the plaintiffs did not comply with the Court's directions to put on submissions prior to the hearing; and, as I have stated, I think that the existing form of the Statement of Claim, although it has survived challenge to this point, could, with advantage, be reconsidered further. In the circumstances, I propose to make no order as to the costs of the application.
The orders I make are:
I dismiss the defendant's notice of motion filed 14 December 2016;
I order that there be no order as to the costs of the proceedings on that motion;
I direct that the parties confer and lodge an agreed timetable for the continuation of the proceedings, such timetable to include an opportunity for the plaintiffs to make an application to make further amendments to the Statement of Claim, either in the prayers for relief or in the pleaded allegations, should they be so advised.
[2]
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Decision last updated: 17 May 2017