3 Apples Childcare Centre Pty Ltd v MMC Pacific International Pty Ltd
[2023] VSC 21
•6 February 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2021 00903
BETWEEN:
| 3 APPLES CHILDCARE CENTRE PTY LTD (ACN 115 182 968) | First Plaintiff |
| LEI YU XIN (also known as LUCY LEI) | Second Plaintiff |
| and | |
| MMC PACIFIC INTERNATIONAL PTY LTD (ACN 069 970 930) (and others according to the schedule) | Defendants |
| AND BETWEEN: | |
| MMC PACIFIC INTERNATIONAL PTY LTD (ACN 069 970 930) (and others according to the schedule) | Plaintiffs by Counterclaim |
| and | |
| 3 APPLES CHILDCARE CENTRE PTY LTD (ACN 115 182 968) | First Defendant by Counterclaim |
| LEI YU XIN (also known as LUCY LEI) | Second Defendant by Counterclaim |
---
JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15-19 August 2022, 22-26 August 2022, 29 September 2022 |
DATE OF JUDGMENT: | 6 February 2023 |
CASE MAY BE CITED AS: | 3 Apples Childcare Centre Pty Ltd v MMC Pacific International Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 21 |
---
EVIDENCE – Competing accounts of parties – Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 – Objective documentary evidence compared to memory and demeanour of witnesses – Reliability of interested witness evidence – Grace Shipping Inc v C F Sharp & Co (Malaya) Pte Ltd (1987) 1 Lloyds Rep 207 – Armagas Ltd v Mundogas SA (the Ocean Frost) (1985) 1 Lloyds Rep 1 – Fox v Percy (2003) 214 CLR 118.
CORPORATIONS – Whether share transfers were procured by misrepresentation, fraud or unconscionable conduct – Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 – Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 – Petelin v Cullen (1975) 132 CLR 355 – Whether improper procedure renders share transfers invalid.
COMMERCIAL AND RETAIL LEASES – Whether rental obligation otherwise than as provided under signed lease agreement – Whether subsequent written terms apply – Whether the Retail Leases Act 2003 (Vic) applies to the lease – Whether tenant acted as landlord’s agent – Cassegrain v Gerard Cassegrain & Co Pty Ltd (2015) 254 CLR 425 - Whether tenant can rely on subsequent conduct contrary to lease agreement via promissory estoppel – Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 – Whether landlord acted unconscionably.
REMEDIAL CONSTRUCTIVE TRUSTS – Breakdown of alleged joint endeavour – Whether company is entitled to proprietary interest in real property by trust – Muschinski v Dodds (1985) 160 CLR 583 – Baumgartner v Baumgartner (1987) 164 CLR 137 – Individuals conducting business interests through corporate vehicles – Whether remedial constructive trusts apply in commercial contexts – Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392 – Australian Receivables Ltd v Tekitu Pty Ltd (Subject to Deed of Company Arrangement) (Deed Administrator Appointed) (2011) 7 ASTLR 480 – Joint endeavour between the companies has not failed – Recipient of payments was intended to enjoy benefit of payment despite any failure of alleged joint endeavour – Whether relationship has broken down without attributable blame – Party bringing the claim at fault.
DEBT – Whether defendant owes money to plaintiff through unauthorised spending of company funds – Alternative restitution claim – Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 – Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 – Plaintiff obtained tax benefit due to spending by defendant – Counterclaim by defendant that income and like was not paid by plaintiff – Dismissed.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C Pierce of counsel | SBA Legal |
| For the Defendants | Mr C Charnley of counsel | Mahons with Yuncken & Yuncken Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
The evidence....................................................................................................................................... 6
Evidence not in dispute or evidence recorded in contemporaneous documents.................. 8
Pre-establishment of the companies........................................................................................... 8
Incorporation of MMC, including Lucy’s loan to MMC......................................................... 9
Purchases and development of various properties, including the Balwyn Road Property 10
Establishment of 3 Apples and the initial rental payments.................................................. 11
The Juliya proceeding................................................................................................................. 12
Establishment of Lei Ming Investment and the Lei Family Trust....................................... 14
Lei Ming Investment share transfer and officeholder variations......................................... 15
Acquisition of the Station Street Property and related loan................................................. 15
Lei’s Family Trust....................................................................................................................... 16
3 Apples share transfer............................................................................................................... 16
Yerrin Street Property acknowledgment and Balwyn Road Property Loan repayment.. 17
MMC share transfer.................................................................................................................... 17
Officeholder resignations of 3 Apples and MMC.................................................................. 18
The one page lease agreements and rent fee document........................................................ 20
The standard form Balwyn Road Lease................................................................................... 21
Financial statements of MMC and 3 Apples........................................................................... 21
MMC. .................................................................................................................................. 21
3 Apples.............................................................................................................................. 22
Historical changes in the directorships and shareholdings of MMC and 3 Apples......... 25
MMC. .................................................................................................................................. 25
3 Apples.............................................................................................................................. 26
Balwyn Road Property valuation, notice of withdrawing and ending of lease................ 26
The Share Transfer Issue................................................................................................................ 27
3 Apples........................................................................................................................................ 28
MMC............................................................................................................................................. 28
Lei Ming Investment................................................................................................................... 29
Lucy’s account............................................................................................................................. 29
Peter’s account............................................................................................................................. 31
Agnes’ account............................................................................................................................ 34
The approach to evaluating the competing accounts............................................................ 36
Reliability of the evidence of Lucy, Peter and Agnes............................................................ 38
Resolution of the competing accounts..................................................................................... 39
Unconscientious exploitation.................................................................................................... 43
The non-payment of the consideration.................................................................................... 46
Absence of meetings approving the transfer.......................................................................... 49
Failure to comply with pre-emptive rights provisions......................................................... 50
The Balwyn Road Rental Issue..................................................................................................... 51
3 Apples’ claims.......................................................................................................................... 52
MMC’s response.......................................................................................................................... 54
Jurisdictional issues.................................................................................................................... 54
Conclusions with respect to 3 Apples’ claims........................................................................ 56
The Constructive Trust Issue......................................................................................................... 61
Some introductory observations............................................................................................... 61
3 Apples’ contributions.............................................................................................................. 65
The doctrinal basis for the Muschinski/Baumgartner remedial constructive trust............. 67
Application of the principle....................................................................................................... 73
Sundry factual findings.............................................................................................................. 84
The 3 Apples indebtedness issue.................................................................................................. 95
3 Apples’ claim against Peter.................................................................................................... 95
Peter’s claim against 3 Apples................................................................................................... 99
Conclusion....................................................................................................................................... 100
HIS HONOUR:
Introduction
The first plaintiff, 3 Apples Childcare Centre Pty Ltd (‘3 Apples’), has carried on business as the operator of a childcare centre (the ‘Childcare Centre’) at the property located at 104 Balwyn Road, Balwyn (the ‘Balwyn Road Property’) since about March 2006. The registered proprietor of the Balwyn Road Property is the first defendant/plaintiff by counterclaim, MMC Pacific International Pty Ltd (‘MMC’).
Both 3 Apples and MMC are, or have been, associated with the second plaintiff/ defendant by counterclaim, Lei Yu Xin (also known as Lucy Lei) (‘Lucy’) and her brother, the second defendant/plaintiff by counterclaim, Lei Zhen Ji (also known as Peter Lei) (‘Peter’).
Immediately prior to the events which call for determination in this proceeding, Lucy was the registered owner of all 100 issued shares in 3 Apples. She was also the registered owner of six of the 11 issued shares in MMC. The remaining five issued shares in MMC were registered in the joint names of Lucy and Peter. Lucy and Peter were the two directors of 3 Apples and MMC.
Although the specific circumstances and timing of events is a matter of controversy, it is not in dispute that at some time between late 2016 and early to mid-2017, Lucy executed a share transfer in respect of 50 of her 100 issued shares in 3 Apples to Peter. She also executed two separate share transfers in respect of her shareholdings in MMC; by the first, she transferred six shares to Peter and by the second, she and Peter, as transferors together, transferred their jointly held five shares to Peter solely.
In each transfer, the consideration stipulated was nominal, being $1 for each share transferred.
On 19 May 2017, Lucy resigned as a director of MMC and Peter resigned as a director of 3 Apples. Whilst the exact circumstances which led to their respective resignations is controversial, it is not in issue that the respective company records now show Lucy as the sole director of 3 Apples and Peter as the sole director of MMC.
Notwithstanding Lucy’s execution of the share transfer form with respect to 50 of the shares in 3 Apples, the company register still shows Lucy as the sole shareholder, in contrast to the records maintained by the Australian Securities and Investments Commission (‘ASIC’) which show Peter’s ownership of 50% of the shares. Both the ASIC records and the company register of MMC show that Peter is the holder of the 11 issued shares in MMC.
In this proceeding, Lucy seeks relief which if granted, will have the effect that, notwithstanding her execution of the share transfers, she remains:
(a) the sole holder of all shares in 3 Apples;
(b) the sole holder of six shares in MMC; and
(c) the joint holder with Peter of the remaining five shares in MMC,
giving her an effective 100% interest in 3 Apples and (an approximate) 77.3% interest in MMC.[1]
[1]On Lucy’s case, she is entitled to six of the 11 shares of MMC in her own right and half of the five shares; giving her effectively 8.5 of the 11 shares in MMC.
By way of counterclaim, Peter seeks orders pursuant to s 175 of the Corporations Act 2001 (Cth) (the ‘Corporations Act’) that 3 Apples correct its share register to show that Peter is the holder of 50 of the 100 shares in 3 Apples.
By an undated document headed ‘Residential Tenancy Agreement’, which is signed by Lucy on behalf of 3 Apples and by Peter on behalf of MMC, MMC leased the Balwyn Road Property to 3 Apples for a term of 10 years, commencing 1 August 2017, at a rental of $25,000 per month, increasing every year by CPI (presumably the Consumer Price Index, ‘CPI’), or approximately 3.5% (the ‘Balwyn Road Lease’). In addition, the Balwyn Road Lease provides for 3 Apples to pay outgoings in the form of gas, water, electricity, telephone, internet, council rates and land tax.[2]
[2]Primary Court Book filed 18 July 2022 (‘PCB’), Tab 174.
It is not in dispute that 3 Apples has not made payment of rental to MMC at the rate of $25,000 per month. On 14 May 2020, MMC served a notice of default and intention to re-enter the premises on 3 Apples and in June 2020, the Victorian Civil and Administrative Tribunal (‘VCAT’) made interlocutory orders which, inter alia, restrained MMC from re-entering the Balwyn Road Property on the basis of an agreement between 3 Apples and MMC made without prejudice to their rights which, among other things, provided for 3 Apples to make payment of monthly rental in the amount of $15,000 per month.
In this proceeding, Lucy and 3 Apples seek relief to the effect that the terms of the Balwyn Road Lease do not require 3 Apples to pay rental at the rate of $25,000 per month and that, in fact, the rental obligation is to pay rent at a rate equivalent to 3 Apples available net earnings (being turnover or income, less expenses). 3 Apples then pleads in the alternative that this agreed term is void pursuant to ss 33 and 34 of the Retail Leases Act 2003 (Vic) (the ‘RLA’) and as such, the rent must be determined by a specialist retail valuer appointed by agreement or by the Small Business Commission. 3 Apples also alleges that in mid-2019, it entered into an agreement with MMC that an independent market rate valuation would be obtained and that subsequently, the valuation firm Bertacco Ferrier determined the market rental as at 1 July 2019 at $121,725 per annum plus GST and outgoings, which amounts to a little over $10,000 per month. MMC counterclaims for the unpaid rental which, as at 31 May 2022, totalled $620,000, and is increasing at the rate of $328.77 per day.
Lei Ming Investment Pty Ltd (‘Lei Ming Investment’) was registered on 20 August 2010. Lucy was a director along with Peter and the 100 issued shares were registered in the names of Lucy as to 50 shares and Peter as to the remaining 50 shares. Lucy executed a share transfer document dated 16 October 2011 in respect of her 50 shares in Lei Ming Investment in favour of Peter as transferee, again for nominal consideration of $1 per share. Since 29 October 2011, ASIC records show Peter as the sole shareholder and as the company’s sole director.
By a trust deed stamped 12 April 2013, Lei Ming Investment was appointed as the trustee of a discretionary family trust, known as the Lei’s Family Trust. The corpus beneficiaries of that trust comprise Peter, his daughter Lei Ming Xi (also known as Jessica Lei) (‘Jessica’), and his other daughter Lei Ming Xuan (also known as Rebecca Lei) (‘Rebecca’). Peter is the appointor under the trust. The wider definition of beneficiaries extends to siblings of the corpus beneficiaries, which relevantly, includes Lucy.
On or about 23 May 2013 (being the settlement date listed in the contract of sale), Lei Ming Investment became the registered proprietor of a property located at 800 Station Street, Box Hill (the ‘Station Street Property’). The acquisition arose pursuant to a contract of sale of real estate dated 23 February 2013 entered into between Peter and/or a nominee as purchaser and the vendor, pursuant to which the purchaser agreed to acquire the Station Street Property for the price of $1,870,000, payable as a 10% deposit on signing, with the balance payable at settlement.
In this proceeding, Lucy seeks relief which, if granted, will have the effect that she remains the owner of 50 of the 100 shares in Lei Ming Investment. Of course, if Lei Ming Investment holds the Station Street Property as trustee on behalf of the Lei’s Family Trust, as Peter and Lei Ming Investment contend, the value of the shareholding would be nominal,[3] (as Lei Ming Investment does not engage in any other business activities). Although no relief is claimed, Lucy submits that there is in fact no evidence that Lei Ming Investment holds the property as trustee.
[3]Also including because of the fact that Peter, as the appointor of the trust, could replace Lei Ming Investment as trustee in any event.
Lucy and 3 Apples also seek declarations to the effect that MMC holds the Balwyn Road Property on a constructive trust for 3 Apples, in recognition of the financial assistance given by 3 Apples toward the Balwyn Road Property in the form of a contribution to mortgage repayments, improvements and the payment of land tax.
3 Apples seeks declaratory relief on a similar basis that Lei Ming Investment holds the Station Street Property on a constructive trust for 3 Apples, again reflecting 3 Apples’ alleged contributions to mortgage repayments, improvements and land tax in respect of the Station Street Property.
The existence of each constructive trust is said to be of the remedial kind recognised in Muschinski v Dodds (‘Muschinksi’),[4] and Baumgartner v Baumgartner (‘Baumgartner’),[5] and is founded upon an allegation that each of 3 Apples, MMC and Lei Ming Investment were incorporated for the purpose of conducting the business activities of Lucy and Peter in order to provide them and certain members of their family with income, which joint endeavour is said to have come to an end upon the breakdown of Peter and Lucy’s professional and business relationship in or around March 2019, or alternatively, August 2019.[6]
[4](1985) 160 CLR 583.
[5](1987) 164 CLR 137.
[6]Plaintiffs’ Closing Submissions filed 27 September 2022 (‘PCS’), [158]-[159], [209].
Separately, 3 Apples alleges that Peter is indebted to it in respect of various payments made by 3 Apples for Peter’s benefit, totalling $168,602.42. Peter counterclaims against 3 Apples for, allegedly, unpaid superannuation, director’s fees and wages.
The critical issues in dispute in the proceeding arise broadly from the above. Those matters have spawned a broad array of claims and counterclaims and the parties have identified, by way of an agreed list of issues, some 43 points at issue.
Nevertheless, the essential matters in dispute distil to the following:
(a) Are the circumstances which attended Lucy’s execution of the share transfer forms such that Lucy remains the owner of all of the issued shares in 3 Apples, as well as the 11 issued shares in MMC, of which five are held jointly with Peter, and 50 of the 100 shares in Lei Ming Investment (the ‘Share Transfer Issue’)?
(b) Are the circumstances such that 3 Apples is only required to pay rental calculated by reference to its net earnings (ie, turnover less expenses) or alternatively, an assessed market rental and not the $25,000 per month specified in the Balwyn Road Lease (the ‘Balwyn Road Rental Issue’)?
(c) Has there been a breakdown in a joint endeavour between Lucy and Peter such that the Balwyn Road Property and the Station Street Property are held by their respective registered proprietors MMC and Lei Ming Investment on a remedial constructive trust for the benefit in part of 3 Apples (the ‘Constructive Trust Issue’)?
(d) Is Peter indebted to 3 Apples, or does 3 Apples owe Peter money (the ‘3 Apples Indebtedness Issue’)?
The evidence
Lucy was the only witness called by the plaintiffs. Lucy gave evidence in part by way of the tender of a witness statement which, for the most part, related to uncontentious parts of her evidence. The balance of Lucy’s evidence was given in chief orally over about two days and she was cross-examined for about one day.
The defendants called four witnesses:
(a) Peter who, like Lucy, gave evidence in part by way of the tender of a witness statement as to uncontentious matters and otherwise gave evidence orally in chief over one day and was cross examined for about one and a half days;
(b) Sharon Smith (‘Sharon’), a former employee of 3 Apples at the Childcare Centre, who gave brief evidence as to her observations as to the conduct of the Childcare Centre during her employment;
(c) Peter and Lucy’s sister, Lei Xia, (also known as Joyce) (‘Joyce’), who gave brief evidence; and
(d) Agnes Deng (‘Agnes’), the former accountant for Peter, Lucy, 3 Apples and MMC.
Agnes was subpoenaed to give evidence. She is the principal of the accounting firm H Chiu & Co, and had provided taxation and accounting services for MMC, 3 Apples, Lucy and Peter since about 2006. As a result of the events that led to this proceeding, Agnes no longer acts as their accountant or tax adviser.
Lucy, Peter and Joyce gave evidence with the assistance of an interpreter, although Lucy and Peter had an obvious competence in the English language, in both reading and speaking throughout the trial.
Lucy’s evidence was sharply at odds with that of Peter and Agnes, particularly in relation to the Share Transfer Issue. The nature of the differences is dealt with in more detail below. In closing submissions, the parties advanced various arguments as to why the evidence of their respective clients should be preferred. Peter argued that the version of events proffered by him and Agnes should be preferred as it was consistent with and corroborated by contemporaneous documents and objectively verifiable events. Lucy argued that her version should be preferred, as it was the product of a clear recollection, in contrast to that of Peter and Agnes, whose evidence was a reconstruction.
In addition, there was a substantial body of documentary evidence tendered by the parties. A large part of the documentary evidence concerning 3 Apples’ financial transactions comprises primary source records such as bank statements and invoices. Lucy gave evidence that her duties and responsibilities concerning 3 Apples included government compliance and inspections, bookkeeping (for both 3 Apples and MMC) and assisting the accountants in the preparation of 3 Apples financial statements.[7] Lucy explained that the process of preparation of the financial statements for MMC and 3 Apples involved her gathering up bank statements, receipts and her own notes and diaries and taking them to the accountants, who would then prepare the financial statements and tax returns. She explained that her practice extended to writing notations against the various line entries in the bank statements. This evidence was relevantly undisputed and corroborated by Agnes, save that Agnes explained that the discussions with Lucy as to the preparation of the financial statements and income tax returns also involved Peter, and that a focus of the discussions involved reducing the income tax payable by the companies as far as possible, including by providing for the payment of consultancy fees to family members. Notwithstanding this evidence as to a regular and orthodox process of preparation of the financial statements and tax returns, 3 Apples’ case placed emphasis on the primary source documents such as bank statements, and not on the entries in the financial statements. Such financial statements varied in nature and amounted to less than a complete record of events. The significance of this is referred to below.
[7]Supplementary Court Book filed 12 August 2022 (‘SCB’), Tab 266 [42]-[44].
Before moving to highlight the competing evidence which was largely given orally, it is convenient to identify matters which are either not in dispute or which are recorded in contemporaneous documentation, the authenticity of which is largely not in dispute. After I set out those matters, I will then identify the critical aspects of the oral evidence where Lucy’s evidence differs from that of Peter and Agnes in particular.
Evidence not in dispute or evidence recorded in contemporaneous documents[8]
[8]Save where there is a specific document referred to, many of the events set out in this section is taken from Peter’s witness statement in proceeding number S CI 2010 3712, involving Peter, Lucy and his sister; see below [49]. Peter’s witness statement in that proceeding was tendered by 3 Apples and Lucy in this proceeding, and is contained in PCB, Tab 140.
Pre-establishment of the companies
In early 1988, Peter migrated from Shenyang, China to live in Melbourne to study English. The rest of his family remained in China. From about 1984 to 1988, Peter worked as a manager in the import/export department at the Shenyang Airconditioning Company.
In 1988, Peter brought Zhang Jiang (Jian) Jun (also known as John Zhang) (‘John’) to Australia. He had known John from their shared hometown and they had worked together at the Shenyang Airconditioning Company.
In about 1992, Peter became the sales representative and agent for the sale of cables into China for MM Cables – Communication Products (‘MM Cables’), a division of Metal Manufacturers Limited and its subsidiary, MM Cables New Zealand Ltd. His job involved assisting MM Cables to export telephone and optical fibre cables into China. At Peter’s direction, John registered a business in Australia for Peter’s benefit called MMC Trading International Co and that business obtained a tax file number in Australia.
On 18 March 1995, Peter arranged for the purchase of a property located at 23 Yerrin Street, Balwyn (the ‘Yerrin Street Property’). The property was purchased in John’s name. At the time, John was a permanent resident in Australia, unlike Peter. Lucy and Peter provided part of the purchase price, with the balance provided by a bank loan made to John, but paid off a short time later by MMC with the aid of funds provided to it in the past by Lucy.
On or around 27 May 1995, Lucy migrated from China to Australia. Whilst in China, Lucy worked as a doctor of traditional Chinese medicine. Other members of the Lei family also migrated to Australia. Lucy and Peter’s sister, Lei Yuhui (also known as Juliya Lei) (‘Juliya’), arrived via New Zealand, as did their mother, Zhu Yuchen (also known as Dr Zhu) (‘Dr Zhu’).
Although the extent of Lucy’s work and assistance was in dispute, it was common ground that, when Lucy’s work commitments as a doctor allowed, and, where necessary, Lucy assisted at the Dalian office of MM Cables with the clearance through customs and the delivery from the seaport into mainland China of cables imported by MM Cables. It is uncontroversial that Lucy did not receive payment for her work at the Dalian office when she performed it. As an agent for MM Cables, Peter was paid a commission for his work, with the amount he was paid calculated as a percentage of sales.
Incorporation of MMC, including Lucy’s loan to MMC
On 21 June 1995, MMC was incorporated.[9] Its initial shareholders were John as to five shares and Lucy as to six shares. In the memorandum of association, John’s address is listed as 23 Yerrin Street, Balwyn, whilst Lucy’s address is listed in Shenyang, China. Lucy and John were the initial two directors. John was also the secretary of the company.
[9]PCB, Tab 28, 221.
By a loan agreement dated 25 June 1995,[10] Lucy lent MMC $410,000 for a term of 36 months, with interest payable at 8.5% per annum. The loan agreement is signed by Lucy as lender and by John on behalf of MMC and their signatures are witnessed by Peter.
[10]SCB, Tab 252.
The accountants K.K. Lau & Co prepared a document headed ‘Schedule of Personal Assets and Liabilities’ for Lucy as at 31 December 1999.[11] The assets include reference to an 80% interest in the Yerrin Street Property as well as shares in MMC valued at $150,000, which is recorded as the cost value, together with a receivable in the form of a loan to MMC in the amount of $263,181. Another document purports to have been signed by Peter, in John’s presence, on 28 September 2000.[12] The document, inter alia, records Peter transferring approximately US$400,000 to a bank account of Lucy’s in Australia in 1995, which amount supposedly represented Lucy’s share of commission earned by Peter from MM Cables. The document records that Lucy was Peter’s business partner from 1991 to 1995 when she established MM Cables’ Dalian office. Peter denies that it is his signature on the document.
[11]PCB, Tab 29.
[12]PCB, Tab 30.
Purchases and development of various properties, including the Balwyn Road Property
In late 1997, Peter also arranged for the purchase a property at 11 Kintore Crescent, Box Hill (the ‘Kintore Crescent Property’). Once again, John was involved, apparently because he was an Australian resident. Peter later arranged for the redevelopment of the Kintore Crescent Property into two units. He undertook a similar development in relation to the Yerrin Street Property between May 2000 and early 2003. The evidence suggests that Peter largely funded both the development of the Yerrin Street Property and that of the Kintore Crescent Property.
John, Peter, Lucy, Lucy’s husband and their daughter moved into one of the Kintore Crescent Property units. Later, Peter, his then wife and daughter moved into one of the Yerrin Street Property units, whilst Juliya and Dr Zhu moved into the other unit.
On 28 June 2003, Peter attended the auction of the Balwyn Road Property. Although the contract of sale could not be found and was not in evidence, it is common ground that the purchase price was $800,000. When the time came for Peter to sign the contract, he had a discussion with an estate agent who said that if the property was purchased in a company name there might be GST advantages. In the result, Peter decided to purchase the property in MMC’s name.
In order to complete the purchase of the Balwyn Road Property, a residential investment loan (the ‘Balwyn Road Property Loan’) was taken out in Lucy’s name, with an amount drawn down of $350,000.[13] Lucy was the named borrower, apparently because by that time, she (unlike Peter) was on the title to one of the subdivisions of the Yerrin Street Property, which was given as security for the loan.
[13]PCB, Tab 34.
By a tax invoice dated 12 February 2004 addressed to MMC, care of Peter Lei,[14] Camberwell Drafting Services rendered an account for drafting services provided in relation to the preparation of plans for a town planning permit for a three unit development at the Balwyn Road Property. The invoice records that, in addition, work had been undertaken to provide town planning schemes for a kindergarten business, which works included alterations, an addition to the existing building and the preparation of a childcare centre local policy study. Attached to the invoice were drawings for the three unit development.
[14]PCB, Tab 35.
Establishment of 3 Apples and the initial rental payments
By letter dated 29 March 2005 addressed to MMC and Peter Lei,[15] VCAT advised of the grant of a permit for the Balwyn Road Property, permitting the construction of building and works and the display of a sign associated with the use of the land as a childcare centre.
[15]PCB, Tab 37.
By an application signed by Lucy on 5 July 2005,[16] an application was made for the registration of a company to be called 3 Apples Childcare Centre Pty Ltd. The application form specified that if ASIC had a query about any aspect of the form, Peter was the contactable person. The application form specified that the directors of the company would be Lucy and Lei Ming Zhi (‘Ming Zhi’), who Peter variously referred to in evidence as his nephew, stepson and adopted son. The issued share capital of the company was to be $100, divided into 100 shares issued at $1 per share, and which were to be owned, fully paid and beneficially, by Lucy.
[16]PCB, Tab 39.
In 2004, Lucy enrolled in and by November 2005 had obtained a Certificate III in childcare from Box Hill TAFE Institute.
By letter dated 20 January 2006 and signed by Peter,[17] Sharon was offered a position as the manager and kindergarten teacher at 3 Apples. 3 Apples commenced operation of the Childcare Centre in 2006. Whilst the extent of Lucy’s work at the Childcare Centre is in dispute, it is not in issue that Lucy worked at the centre.
[17]PCB, Tab 43.
3 Apples’ financial statements for the year ending 30 June 2009 record,[18] inter alia, expense items which include rent in the amount of $109,200, wages, including in the form of director’s fees and an amount of $1,491.10 for interest. The balance sheet records assets comprising investments in the form of various term deposits, and liabilities, which include current liabilities in the form of shareholders loans of $26,018.91 and non-current liabilities described as beneficiary loans owed to shareholders in the amount of $116,077.41. MMC’s income tax return for the same financial year correlatively records revenue in the form of rental in the amount of $109,200.[19]
[18]PCB, Tab 58. See also other financial documents below [81].
[19]PCB, Tab 74.
The Juliya proceeding
In 2010, Peter, Lucy and Dr Zhu (as plaintiffs) commenced proceeding number S CI 2010 3712 in this Court against Juliya (the ‘Juliya Proceeding’). The parties to the Juliya Proceeding also included John, MMC, the Registrar of Titles and 3 Apples. The Juliya Proceeding arose in circumstances resulting from, in part, the allotment of 149,994 shares in MMC to each of Juliya and Lucy and an alleged transfer of Lucy’s shares to Juliya, said to have occurred on or about 20 May 2005. The effect of that share issue and allotment was that it resulted in the ASIC records for MMC recording Juliya as the sole shareholder in MMC. Peter, Lucy and Dr Zhu sought orders which, in effect, would invalidate the issue and transfer of shares to Juliya so as to effectively wrestle back control of MMC. Other issues in the Juliya Proceeding included, relevantly, the question of the beneficial ownership of the Balwyn Road Property.
It is common ground that as a result of Juliya’s assertion of ownership and the taking of control of MMC, Lucy and Peter refrained, from about 2010 onwards, from making payments from 3 Apples or otherwise into the bank accounts of MMC and that the legal costs and disbursements incurred by variously Peter, Lucy and Dr Zhu for the purposes of the Juliya Proceeding were paid primarily from funds held in a bank account of 3 Apples.
On 18 August 2010, Peter and Lucy lodged a caveat over the title to the Balwyn Road Property,[20] asserting that MMC held it on constructive trust for them, arising from their contribution to the purchase price of the property.
[20]PCB, Tab 69.
On 17 June 2016 (and followed by a revision on 29 July 2016), Justice Riordan handed down reasons for decision (the ‘Juliya Proceeding Reasons’) in the Juliya Proceeding,[21] following a trial which had occurred in March 2016. Juliya and John had appeared in person. It seems that MMC, 3 Apples and the Registrar of Titles did not participate. Lucy, Peter and Dr Zhu were represented by solicitors and counsel. Both Peter and Lucy gave evidence at the trial. The orders and declarations made by the Court, dated 17 June 2016,[22] included, inter alia, declarations and orders to the effect that:
[21]PCB, Tab 144.
[22]PCB, Tab 145.
(a) the (then) current shareholders of MMC were Lucy as to six shares and John as to five shares;
(b) John held his five shares in MMC on trust for Lucy and Peter; and
(c) MMC is beneficially entitled to the Balwyn Road Property.
On 6 July 2016, Maria Verginis, a solicitor at James Hopper & Associates (which firm had acted for the plaintiffs in the Juliya Proceeding) emailed Agnes, informing her of the result of the Juliya Proceeding and in effect, requesting that she advise as to the steps necessary to ensure that the ASIC records reflect the orders and declarations made in the Juliya Proceeding.[23]
[23]PCB, Tab 146.
In the result, on 4 August 2016, Ms Verginis lodged a Form 484 at ASIC regarding MMC,[24] signed by Peter which, inter alia, referred to John ceasing as director and secretary, Peter and Lucy’s appointment as directors, the cancellation of 300,000 shares pursuant to the Supreme Court order, and the issue of 11 shares, which would be held as to five shares jointly between Peter and Lucy and six shares by Lucy.
[24]PCB, Tab 149.
Establishment of Lei Ming Investment and the Lei Family Trust
On 20 August 2010, an application was made with ASIC for the registration of Lei Ming Investment.[25] Its directors were Lucy and Peter. Peter was also to be the secretary and the 100 issued shares were to be owned in equal parts by Peter and Lucy.
[25]PCB, Tab 75.
By a deed of trust dated 20 August 2010,[26] a trust was constituted on the terms set out in a deed and known as the Lei Family Trust. The settlor under the trust was Agnes, Lei Ming Investment was the trustee, Peter was the appointor and the corpus beneficiaries comprised Peter, his ex-wife, his “nephew” Ming Zhi and his daughters Jessica and Rebecca. An undated minute of meeting of directors of Lei Ming Investment,[27] which bears both Peter’s and Lucy’s signatures and which was evidently prepared by Agnes, resolves that the trusts contained in the Lei Family Trust deed be accepted and the deed be executed by the trustee. The deed was lodged for stamping on 18 October 2010 and had been executed by Peter, Lucy and Agnes.
[26]PCB, Tab 71.
[27]Ibid.
Lei Ming Investment share transfer and officeholder variations
By a share transfer form which is undated but which records the date of purchase as 16 October 2011, Lucy transferred 50 shares in Lei Ming Investment to Peter (the ‘Lei Ming Investment Share Transfer Form’).[28] The Lei Ming Investment Share Transfer Form is signed by both Peter and Lucy. Peter’s signature also appears on a minute of meeting of directors of Lei Ming Investment, held at 104 Balwyn Road on 16 October 2011, at which Peter and Lucy are said to be present and which minutes record a resolution to accept Lucy’s resignation as a director of the company and approve the transfer of shares from Lucy to Peter. The minute had been signed by Peter as chairperson of the meeting.
[28]PCB, Tab 83.
Consistent with that minute, on 28 October 2011,[29] documents were lodged with ASIC by Agnes' firm H Chiu & Co which record Lucy’s cessation as a director and the change to the register of members.
[29]PCB, Tab 86, 87.
Acquisition of the Station Street Property and related loan
By a contract of sale dated 23 February 2013 between Peter and/or nominee as purchaser and the legal personal representative of a deceased estate as vendor,[30] Peter agreed to acquire the Station Street Property for the price of $1,870,000, payable as to a deposit of 10% on signing, with the balance of $1,683,000 due at settlement, scheduled to take place on 23 May 2013.
[30]PCB, Tab 101.
Bank statements obtained from the Westpac Banking Corporation record an initial drawdown of a ‘rocket investment loan’ in the joint names of Peter and Lucy of $660,000 on 5 May 2013 (the ‘Rocket Investment Loan’).[31] The Rocket Investment Loan was linked to a deposit account. The bank statements show the Rocket Investment Loan balance being reduced by a deposit on 5 March 2013 of $659,389.70, followed by a later drawdown in April 2013, with the result that the account had a balance at 22 April 2013 of $540,947.93. The balance of the Rocket Investment Loan as at 22 July 2013 was $535,525.32, with a credit balance in the deposit account on that same date of $90,968.03.
[31]PCB, Tab 102.
Lei’s Family Trust
On 12 April 2013, a further deed of trust was entered into by Lei Ming Investment and settled by Agnes, known as the Lei’s Family Trust (in contrast to the earlier trust, known as the Lei Family Trust).[32] The deed shows that it was stamped on 12 April 2013. Once again, Peter is the appointor. The income and corpus beneficiaries of the trust are confined to Peter and his two daughters, Jessica and Rebecca. Neither Peter’s ex-wife or Ming Zhi are specifically named, in contrast to the beneficiaries of the Lei Family Trust.
[32]PCB, Tab 106.
3 Apples share transfer
On 6 December 2016, Agnes received a document sent by facsimile from 3 Apples, written partly in English and partly in Chinese (the ‘6 December 2016 3 Apples Share Instruction’).[33] The translation reads (abridged for clarity):
[Agnes,] please transfer 50% of 3 Apples shares to [Peter]. The other 50% remains unchanged, belonging to [Lucy]. The date of change starts from 6th December 2016.
Thanks.
The 6 December 2016 3 Apples Share Instruction had been signed by Lucy.
[33]PCB, Tab 154.
The documentary evidence also includes a document headed ‘Minutes of Meeting of the Directors of 3 Apples Childcare’ (the ‘Minute of Meeting of 3 Apples held 6 December 2016’),[34] which purports to be a minute of a meeting held at the Balwyn Road Property on 6 December 2016, at which both Lucy and Peter were present. The minutes record that it was resolved to approve the transfer of 50 shares from Lucy to Peter. The document has been signed by both Lucy and Peter. There is no issue as to the document being signed by Lucy and Peter, but there is controversy as to whether the meeting occurred and when the document was signed.
[34]PCB, Tab 155.
In addition, a document entitled Standard Share Transfer Form records a transfer signed by both Lucy as seller and Peter as buyer in respect of 50 shares in 3 Apples, specifies a date of purchase as 6 December 2016 and the consideration of $50 (the ‘3 Apples Share Transfer Form’). There is no issue as to the document being signed by both Lucy and Peter, but again, there is controversy about when it was signed and where.
On 8 December 2016, Agnes lodged a Form 484 with ASIC in respect of 3 Apples,[35] which, on its face, contains a signed certification as to its accuracy by Lucy and records the change in the shareholders of 3 Apples which occurred on 6 December 2016, consistently with the 6 December 2016 3 Apples Share Instruction, the Minute of Meeting of 3 Apples held 6 December 2016 and the 3 Apples Share Transfer Form, such as to record that Peter and Lucy both held 50 shares in 3 Apples.
[35]PCB, Tab 157.
Yerrin Street Property acknowledgment and Balwyn Road Property Loan repayment
The documentary evidence also includes a document headed ‘Acknowledgement’,[36] signed by Lucy, in which she acknowledges that she has always held her interest in the property at Unit 2/23 Yerrin Street, Balwyn for her brother, Peter (the ‘Unit 2/23 Yerrin Street Acknowledgement’). The acknowledgement provides, by way of explanation, that the money to purchase and develop the property came from Peter, not Lucy, and provides details as to Peter’s contribution and the alleged source of the funds. The document has been signed by Lucy and is dated, by hand, 6 December 2016.
[36]PCB, Tab 156.
On 7 December 2016, the extant balance of the Balwyn Road Property Loan of $123,926.71 was repaid.[37] It is not in dispute that Peter funded the repayment.
[37]PCB, Tab 59 at 1956.
MMC share transfer
On 8 December 2016, Agnes also lodged two forms 484 with ASIC (the ‘8 December 2016 MMC Forms 484’) with respect to MMC,[38] which purport to have been certified as true and correct by Peter and to have been signed by him. The first records the change in shareholding of MMC such as to decrease Lucy’s shareholding in MMC by six shares and increase Peter’s by the same amount; the second records the decrease in the joint shareholding of Peter and Lucy by five shares and a commensurate increase in Peter’s shareholding. Together, the 8 December 2016 MMC Forms 484 record Peter as the sole shareholder of MMC.
[38]PCB, Tab 158, 159.
The documentary evidence also includes two ‘Standard Share Transfer Forms’ in respect of MMC,[39] which have been signed by both Lucy and Peter and record the transfer by Lucy and Peter of their five shares to Peter for a consideration of $5 and a separate, but relevantly identical, form which records the transfer by Lucy of six shares in MMC to Peter for a consideration of $6 (the ‘MMC Share Transfer Forms’). The MMC Share Transfer Forms have both been signed by Peter and Lucy, however the date of purchase and date of signing sections on each of the MMC Share Transfer Forms were not completed.
[39]PCB, Tab 163.
In addition, the documentary evidence also includes a minute of a separate meeting of directors of MMC which was held at the Balwyn Road Property. The date of the meeting is not specified, however Peter and Lucy are said to be present. The document records that at the meeting, the directors resolved to approve the transfer of both the five jointly held shares and Lucy’s six shares to Peter. Two copies of the document were in evidence. The first contains Peter and Lucy’s signatures. On the second, no signatures are present, however, a date is handwritten on the bottom right side of the document, which was subsequently crossed out. The crossed out date appears above another handwritten date of ‘21-04-17’.
Officeholder resignations of 3 Apples and MMC
Lucy’s signature also appears on two other documents that relate to MMC. By the first document signed by her and dated 21 April 2017, Lucy resigns as a director of MMC; by the second which is also dated 21 April 2017, Lucy resigns as the secretary of MMC (the ‘MMC Officer Resignation Documents’).[40]
[40]PCB, Tab 163 at 3332, 3333.
Peter’s signature also appears on a document headed ‘Minutes of Meeting of Directors of MMC’, which records a meeting purportedly held at the Balwyn Road Property on 21 April 2017 (the ‘Minute of Meeting of MMC held 21 April 2017’), at which Lucy and Peter are said to have been present. The minutes record resolutions accepting Lucy’s resignation as director and secretary and Peter’s appointment as secretary.
The documentary evidence also includes a letter signed by Peter resigning as a director of 3 Apples, which is dated 21 April 2017 (the ‘3 Apples Director Resignation Document’).[41]
[41]PCB, Tab 165.
The MMC Officer Resignation Documents and the Minute of Meeting of MMC held 21 April 2017 bear indicia that they have been sent by facsimile, received by the recipient on 19 May 2017.
On 24 May 2017, Agnes lodged a series of Forms 484 with ASIC, relating to both 3 Apples and MMC. A Form 484 relating to 3 Apples records a change in Lucy’s residential address and a separate Form 484 for 3 Apples records Peter’s resignation as a director and Lucy’s appointment as a secretary of that company (the ‘24 May 2017 3 Apples Forms 484’). Both forms contain a certification by Lucy that the information in the forms is true and correct and both purport to have been signed by her on 24 May 2017.[42]
[42]PCB, Tab 166.
The Form 484 relating to MMC contains a certification as to its accuracy by Peter and purports to have been signed by him on 24 May 2017. It also records Lucy’s cessation as a director and secretary of the company and Peter’s appointment as secretary with effect from 19 May 2017 (the ‘24 May 2017 MMC Form 484’).[43]
[43]PCB, Tab 168.
The one page lease agreements and rent fee document
The documentary evidence also includes five separate documents, each of one page, headed ‘Lease Agreement,’ which were signed by Peter on behalf of MMC as ‘the lesser’ [sic] and Lucy on behalf of 3 Apples as the lessee (the ‘One Page Lease Agreements’). Each of the documents follows the same format and specifies a rental and ‘period for leasing’ for each of the five years, with the rental for each year as follows:
(a) 1 July 2011 to 30 June 2012 as $273,453;
(b) 1 July 2012 to 30 June 2013 as $315,754;
(c) 1 July 2013 to 30 June 2014 as $348,080;
(d) 1 July 2014 to 30 June 2015 as $354,931; and
(e) 1 July 2015 to 30 June 2016 as $420,003.
They are otherwise in identical form and, in summary, provide:
MMC… hereby agree[s] to lease the following premise[s] to 3 Apples…. of 104 Balwyn Road, Balwyn at [the following agreed terms:]
Property: 104 Balwyn Road, Balwyn 3103
Rental[:] [the relevant figure is inserted]
Period for leasing[:] [the relevant period is inserted].
Lucy says that each of the documents were prepared by Agnes and signed at her office on 24 July 2017. There is a handwritten date under each signature which has been written in the same handwriting, which Lucy says she inserted. Peter agrees he signed them but says they were not dated when he signed them and does not know when they were signed. Both he and Agnes say Agnes did not prepare the documents.
The documentary evidence also includes a single page headed Rent Fee (the ‘Rent Fee Document’), which contains a table in Lucy’s handwriting with 3 columns headed ‘date’, ‘rent fee annual’ and ‘monthly’, which contain the (financial) year, the annual rental and the monthly rental, with annual rent corresponding to the rent set out in the One Page Lease Agreements.[44]
[44]PCB, Tab 23.
The standard form Balwyn Road Lease
Peter and Lucy’s signatures also appear on the Balwyn Road Lease.[45] As mentioned earlier, this document takes the form of a headed ‘Residential Tenancy Agreement’,[46] which purports to be in compliance with s 26 of the Residential Tenancies Act 1997 (Vic) and specifies the rent as $25,000 per month, with the due date for the first rent payment on 1 August 2017. The period of the tenancy is expressed to be 10 years, commencing 1 August 2017 and expiring on 1 August 2027. It is not in dispute that Peter completed the information on that document, nor is it in dispute that Peter signed it on behalf of the lessor and that Lucy signed it on behalf of the lessee. The document also records that the tenant would pay gas, water, electricity, telephone, internet, council rates, bills and land tax and that the rent would increase every year by CPI or 3.5%. The document is not dated; Peter says that it was signed at the end of June 2017 or on 1 July 2017 at the Balwyn Road Property; Lucy says it was signed at the Balwyn Road Property on 25 July 2017, one day after Lucy and Peter had signed the One Page Lease Agreements at Agnes’ office.
Financial statements of MMC and 3 Apples
[45]PCB, Tab 174.
[46]Ibid.
MMC
The documentary evidence also includes MMC’s income tax returns for the financial years ending 30 June 2015, 30 June 2016 and 30 June 2017.[47] They have evidently been prepared by Agnes. It is not clear on the evidence when they were prepared,[48] although there is a strong indication that the 2015 return was prepared on 26 June 2017 and it is a fair inference that the 2016 return was prepared either at that time or at some time afterwards.
[47]PCB, Tab 132.
[48]Whilst unsigned tax returns comprising PCB, Tab 132, were tendered in evidence; the signed lodgement declarations were not.
Relevantly, in the case of the 2015 tax return, the public officer is identified as Lucy, the main business activity of the company is the leasing of non-residential buildings as owner or leaseholder and disclosed income is in the form of gross rent, at $377,977. MMC’s expenses include wages in the amount of $110,021, consultancy fees of $200,000 and superannuation in the sum of $88,066.
In the case of the 2016 return, the public officer is identified as Peter, the gross rental income is $420,003, the expenses include wages in the sum of $111,000, superannuation of $85,955 and consultancy fees of $36,000 to Ming Zhi’s mother-in-law of $36,000, $36,500 to Ming Zhi’s father-in-law and $15,000 to Dr Zhu.
In the case of the 2017 return, Peter is again identified as the public officer, the income comprises gross rent in the sum of $420,000 and superannuation expenses comprise $105,000. There is some handwriting to the right of that typed entry which splits the superannuation between Peter, Lucy and Lucy’s husband, in the amount of $35,000 each. Consultancy fees appear as expenses totalling $277,000, broken up between Lucy ($60,000), Peter ($52,000), Dr Zhu ($37,000), Weiguo Dai ($32,000), Feng Xiu Chen ($36,000), Ma Tie Yun (which could be presumed to be a reference to Lucy’s husband, Ma Tie Jun) ($40,000), and Rebecca ($20,000).
3 Apples
The documentary evidence also includes a trial balance for 3 Apples for the financial year ending 30 June 2011.[49] The trial balance records:
[49]PCB, Tab 90.
(a) income for the year of $778,552.14;
(b) nil paid under rental;
(c) wages in the amount of $435,056.40; and
(d) wages in the form of director fees in the amount of $88,200.
The current assets at the time comprise the term deposits to substantially the same effect as in financial year 2009 and the non-current liabilities include loans from shareholders. 3 Apples trial balance for the subsequent financial year ending 2012 is not materially different,[50] save that the non-current liability shareholder loan was reduced to nil.
[50]PCB, Tab 94.
Also in evidence is 3 Apples financial statements for the year ended 30 June 2014.[51] The financial statements of the previous year are not in evidence, but the comparative 2013 figures are listed in the 2014 financial statements, as is common. The profit and loss statement records items relevantly similar to previous years save that, once again, there is no reference to a rental expense but the expenses include rates and taxes in the amount of $7,022.21. Other expense items include superannuation of $145,005.71, wages of $531,948 and directors fees of $200,000. The balance sheet records assets of a similar kind to those shown in financial statements or trial balances as tendered for earlier years, save that the assets relevantly include a receivable in the form of a loan made to Peter with a balance of $20,000,[52] and a further current asset described as pre-payment legal fees in the amount of $84,955.51. The non-current liabilities include what is rather incongruously described as ‘Beneficiaries Loans’, with a balance of $159,003.04, which is further described in the notes as ‘Loans – ANZ #191’. This is evidently a reference to the loan taken out in Lucy’s name in 2003 in order to complete the purchase of the Balwyn Road Property.[53]
[51]PCB, Tab 130.
[52]The previous year’s loan balance to Peter was $90,523.46.
[53]Which was, of course, acquired in the name of MMC Pacific International Pty Ltd, not 3 Apples Childcare Centre Pty Ltd.
3 Apples financial statements for the year ending 30 June 2016 record, inter alia, rent expense for the years ending 30 June 2016 and in the comparative column for 30 June 2015 of $420,003 and $377,977 respectively.[54] The notes to the financial statements record, as an asset, prepayments in the form of legal fees of $353,335. The current asset receivable comprising the loan made by 3 Apples to Peter listed in the 2014 financial statements does not appear and nor is it listed in the prior year figures, which suggests that Peter discharged that loan during the course of the 2015 financial year. 3 Apples’ liabilities included the beneficiary loan, ANZ #191, now with a balance of $130,337, together with a further liability described as ‘Loans Shareholders’ with a balance of $255,788, a substantial increase from $18,788, which was recorded for the previous year. The expense items include wages in the sum of $462,290 and ‘rates and taxes’ in the amount of $8,792. The statements disclose that they had been prepared by Agnes on 21 November 2016 and there is reference to a directors declaration from Lucy dated 21 November 2016 along with an accompanying minute, unsigned, recording a meeting attended by Lucy, approving the accounts on 21 November 2016.
[54]PCB, Tab 153.
The documentary evidence also includes 3 Apples income tax return for the financial year ending 30 June 2017.[55] There was no direct evidence as to when it was prepared but there are various indicia to the effect that it was prepared by Agnes Deng on 20 December 2017. Lucy is specified as the public officer; 3 Apples’ income is in the sum of $1,241,023 and its expenses include rent in the sum of $420,000, together with superannuation in the sum of $35,907. The return also identifies 3 Apples’ current assets in the sum of $412,021, total assets of $427,707, total liabilities as $352,616 and total salary and wages expenses of $501,242.
[55]PCB, Tab 178.
In early 2019, Agnes also prepared, at Lucy’s request, a document which recorded for 3 Apples amounts specified as being ‘to taxation for director fee [sic]’ as well as amounts for superannuation, rent fee and the income and profit for each of the financial years from 30 June 2006 to 30 June 2019.[56] The part of the document headed ‘to taxation for director fee [sic]’ lists various amounts received for Lucy, Peter, Dr Zhu, Lucy’s husband, Ming Zhi’s wife (with a handwritten annotation referring to her parents, being Ming Zhi’s mother and father-in-law) and Peter’s ex-wife. In the case of the 2018 financial year, the only recipient of director fees is Lucy in the amount of $80,267 and her husband in the amount of $35,175. The amounts listed for rent for financial years 2015 to 2016 correspond with the amounts in the One Page Lease Agreements; the amount for rental in the 2017 financial year corresponds with the tax returns of MMC and 3 Apples whilst the rental amounts for financial years 2018 and 2019 total $180,000 and $190,000 respectively.
[56]PCB, Tab 193.
Historical changes in the directorships and shareholdings of MMC and 3 Apples
The officeholders and shareholders in 3 Apples and MMC changed regularly for reasons not explored in the evidence, although Peter’s seminal role in the affairs of both companies appeared to remain constant regardless of his formal status, save possibly in relation to MMC during the period of the Juliya Proceeding.
MMC
In the case of MMC,[57] from the time of its registration on 21 June 1995, its secretaries were:
[57]PCB, Tab 221.
(a) Ma Hui (also known as Ellen) (‘Ellen’), Lucy’s daughter, from 24 April 2005 to 1 December 2009;
Peter’s claim against 3 Apples
Peter brings a counterclaim against 3 Apples in which he alleges variously that 3 Apples is indebted to him on the basis that it has purported to pay him income which he has recorded in his tax returns but he has not in fact either received the funds said to have been paid to him or the benefit of moneys allegedly paid to him. This claim too fails; first, Peter has never made any demand for the amounts purportedly paid but not handed over which is consistent with no moneys in fact being due; secondly, if such a claim did exist, then one would expect that Peter would be able to point to entries in 3 Apples’ financial statements which recorded an indebtedness on 3 Apples’ behalf to him. He has not done so.
Peter otherwise gave evidence of an overriding entitlement to superannuation, directors fees and wages based on an alleged oral agreement between himself and Lucy. There is no other evidence which supports such an agreement. In fact, Lucy’s evidence and that of Agnes was to the effect that at year end when it became time to prepare the company’s annual financial statements, Peter, Lucy and Agnes sat around and worked out how the moneys that had in fact been paid for their respective benefit would be treated in the annual financial statements. Otherwise, they sat down and worked out how payments could be treated in the financial statements and the tax returns of other family members in a way which would legitimately minimise the tax payable by 3 Apples and Lucy, Peter and other family members.
Further, and in any event, the 2019 document prepared by Agnes is supportive of various payments classed in various ways such as consultancy fees and the like as having been paid to Peter. As noted above, no party sought to interrogate or otherwise break down the various payments shown in the document as having been made by 3 Apples to or for Peter’s benefit and attempt to explain how they were accounted for in 3 Apples financial statements.
There is every chance that some of the credit card payments made for Peter’s benefit and the payment for the school fees and such matters have been accounted for as consultancy payments or directors fees and the claim by Peter that he has not been paid what he should have been is explained by such payments. In any event, there is insufficient evidence to establish Peter’s counterclaim relating to alleged unapplied or unpaid entitlements.
Peter’s counterclaim included a detinue claim relating to some documents said to have been improperly retained by Lucy. It is not necessary to deal with this as the claim was not pressed.
Conclusion
This is an unfortunate case. The members of the Lei family have built successful and ostensibly prosperous lives since moving to Australia. Peter and Lucy had a very close sibling relationship from at least 1995 until about 2018. It is unfortunate that their personal relationship has broken down. It is also regrettable that, despite their commercial success, Peter and Lucy have spent considerable amounts of time and no doubt money in litigating disputes of a quasi-familial nature in this Court. Their dispute with their sister Juliya extended over a six year period. This dispute will take up near on two years. Overall, they have spent some eight of the last 12 years involved in legal proceedings in this Court.
The parties’ legal advisers have prosecuted their clients’ claims and defences diligently. However, in the result, the claims fail for relatively straightforward reasons. Lucy signed the Balwyn Road Lease on behalf of 3 Apples which obliged it to pay $25,000 per month in rent to MMC from 1 August 2017, which it did not pay. The share transfer claims fail because Lucy signed numerous easily understood documents at various times by which she transferred her shares in 3 Apples, MMC and Lei Ming Investment to her brother, Peter.
The proprietary claims for relief in the form of a trust over the Balwyn Road Property and the Station Street Property fail because the circumstances are far from those that lead to the imposition of a remedial constructive trust. The registered proprietors of those properties own them unencumbered by these unregistered equitable interests which do not arise.
In the result, the plaintiffs’ claims fail. On the counterclaim, MMC is entitled to an order for payment of the unpaid rental for the Balwyn Road Property, together with interest. Given the validity of the transfer of Lucy’s 50 shares in 3 Apples to Peter, Lucy and 3 Apples’ failure to recognise that transfer in the company share register justifies the making of an order that the register be rectified to reflect this pursuant to s 175 of the Corporations Act. Otherwise, the counterclaim shall be dismissed. I shall hear the parties as to the final form of orders including as to the orders that need to be made in the VCAT proceeding and as to costs.
SCHEDULE OF PARTIES
| S ECI 2021 00903 | |
| BETWEEN: | |
| 3 APPLES CHILDCARE CENTRE PTY LTD (ACN 115 182 968) | First Plaintiff/Defendant by Counterclaim |
| - and - | |
LEI YU XIN (also known as LUCY LEI) | Second Plaintiff / Defendant by Counterclaim |
| - and - | |
| MMC PACIFIC INTERNATIONAL PTY LTD (ACN 069 970 930) | First Defendant/Plaintiff by Counterclaim |
| LEI ZHEN JI (also known as PETER LEI) | Second Defendant / Plaintiff by Counterclaim |
| LEI MING INVESTMENT PTY LTD (ACN 145 895 478) | Third Defendant / Plaintiff by Counterclaim |
5
2
7