Chan v Chen

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 7446 of 2003

KIM MAN CHAN	First Plaintiff
KWOK WAI CHAN	Second Plaintiff
EAST WORLD INTERNATIONAL (AUSTRALIA) PTY LTD (ACN 094 780 775)	Third Plaintiff
EAST WORLD INTERNATIONAL LTD	Fourth Plaintiff
v
DAVID WEIPING CHEN	First Defendant
RENMIN LU CHEN	Second Defendant
LUJIA CHEN	Third Defendant

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JUDGE:	GILLARD J.
WHERE HELD:	Melbourne
DATE OF HEARING:	26 - 30 September and 3-5, 10-13 October 2005
DATE OF JUDGMENT:	11 November 2005
CASE MAY BE CITED AS:	Chan and ors v Chen and ors
MEDIUM NEUTRAL CITATION:	[2005] VSC 432

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CONTRACT –Defendants allege three oral agreements – Contracts denied – Resolution of issues depend on credibility of witnesses – Defendants fail to prove contracts - Claims fail – Plaintiffs claim damages for detinue – Claim established – Plaintiffs seek account of funds paid to 1^st defendant for private and company expenditure – Defendants misappropriate moneys – Order for accounts.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr M. Colbran Q.C. with Mr M. Simon	Lily Ong
For the Defendants	Mr P. Cawthorn	Pointon Partners

TABLE OF CONTENTS

Parties

The dispute

Issues

Credibility Issues

Basic Facts

The Counter-Claim and Credibility

Plaintiffs’ claims

A. Claim in detinue and conversion
B. Recovery of moneys misappropriated

Conclusion

HIS HONOUR:

In this proceeding, instituted by writ, the four plaintiffs seek recovery of moneys unlawfully misappropriated by the first and second defendants and the recovery of certain chattels from the three defendants. The first and second defendants have counterclaimed against the first three plaintiffs. They claim against the first and second plaintiffs a half interest in a valuable property in Toorak and damages for breach of two oral agreements. They seek from the third defendant moneys owing and the first defendant seeks damages for breach of a contract of employment.

The first plaintiff and the first defendant are brothers, and the second plaintiff and second defendant are their respective wives. This case is a family dispute which like many family disputes has engendered a substantial amount of emotion and venom and divided the family.

Parties

The first plaintiff is Mr Kim Man Chan (“Mr Chan”). He is aged 54 years, was born, raised and educated in mainland China and is a successful Hong Kong businessman. He is married to the second plaintiff. They have a daughter, Sing Chan (“Ms Chan”).

The second plaintiff, Mrs Kwok Wai Chan (“Mrs Chan”) was born in mainland China, raised and educated in China and is a graduate from Nanjing University. She is involved in the company operating the Chan family business in Hong Kong.

The third plaintiff, East World International (Australia) Pty Ltd (“East World Australia”), is a company which was registered in Australia on 17 October 2000. At the time of its registration its three directors were Mr and Mrs Chan and the first defendant, who were also the shareholders. Mrs Chan had 4,000 shares and the two men had 3,000 shares each. The company was formed to operate a business on behalf of Mr and Mrs Chan in Australia and to meet the Australian Visa requirements of Mr and Mrs Chan.

The fourth plaintiff, East World International Ltd (“East World HK”) is a company established by Mr and Mrs Chan in Hong Kong in 1992 which operates an export business, exporting electronic items and equipment including car radio parts sourced mainly in mainland China. The business has been extremely successful.

In 1989, Mr Chan went to Hong Kong where he was employed and subsequently commenced the business East World HK. His wife joined him in 1992. By 1999 Mr and Mrs Chan owned properties in Hong Kong and had accumulated substantial wealth.

The first defendant, Mr David Weiping Chen (“Mr Chen”) is aged 52 years and was born, raised and educated in mainland China. In 1988 he commenced studying English and came to Australia. In 1989 he accepted an offer to stay in Australia. He commenced a Chinese medicine practice in Melbourne in 1989. He is the brother of Mr Chan. He remained in Australia. He has accumulated some assets but is not wealthy.

The second defendant, Mrs Renmin Lu Chen (“Mrs Chen”) is married to Mr Chen. She was born, raised and educated in mainland China and came to Australia to join Mr Chen in September 1991. She and Mrs Chan were childhood friends attending the same school.

The third defendant, Ms Lujia Chen (“Ms Chen”) is the daughter of Mr and Mrs Chen. She is a student and resides with them in a unit in Brighton.

The dispute

In January 1998, Mr and Mrs Chan and their daughter, who were then living in Hong Kong, visited Australia and stayed with the Chens in Melbourne for two days. On 10 December 1998, the Chans lodged an application to migrate to Australia. On 19 September 1999, they were granted a five years’ permanent residence visa which was subject to certain conditions, including establishing and operating a business in Australia. The Chan family came to Australia, arriving on 12 October 2000, and on 17 October 2000 East World Australia was registered. At this time Mr Chen was employed with Chubb Security, earning approximately $40,000 per year. He also operated a Chinese medicine practice from the family home in Austin Street, Footscray. The Chans and the Chens agreed that he should give up his employment and commence employment with East World Australia. The directors and shareholders were Mr and Mrs Chan and Mr Chen. On 20 October 2000, Mrs Chan sent $300,000 to Mr Chen. Mr and Mrs Chan contend that the money was to be used to establish the company’s business, pay for its expenses and to be used towards the purchase of a home. Mr and Mrs Chen maintain that the $300,000 was paid to Mr Chen either as compensation, a gift or security for giving up his employment and his practice, to work for East World Australia, because of the assistance he had provided to the Chans in their endeavours to establish a base in Melbourne and the help he provided to them to satisfy their visa conditions.

On 9 December 2000, Mr Chen, acting on behalf of Mr and Mrs Chan, successfully bid at an auction and purchased a property at 178 Kooyong Road, Toorak for M$1.65. On 23 January 2001, the sale was settled and the property was registered in the name of Mrs Chan. In the meantime, Mrs Chan had sent to Australia M$1.8 to cover the purchase.

It is the contention of Mr and Mrs Chen that they were to have a half interest in the property and that Mr Chen was entitled to be registered as a half owner. Mr and Mrs Chan deny these allegations. Mr and Mrs Chen moved into the property in February‑March 2001 to look after the house. The Chans spent very little time in Australia.

Between January 2001 and August 2003, Mr Chen, with some assistance from Mrs Chen, operated the business of East World Australia. In that period, Mr and Mrs Chan visited Australia on a number of occasions, staying for short periods of time. The company appeared to have very little business and Mr Chen commenced to trade in shares, securities and foreign currency using the company’s money. It is the contention of Mr and Mrs Chen he was entitled to do this, whereas Mr and Mrs Chan deny this. They say they found out after he had been trading for many months without their authority in August 2001. In March 2003, Mr Chen contacted Mrs Chan and demanded that the Chans put his and his wife’s names on the title to the Toorak property, and further stated that if they would not, he would not look after East World Australia.

Matters finally came to a head in June 2003 when the Chan’s daughter, Ms Sing Chan, came to Melbourne with the intention of commencing a post-graduate course at the University of Melbourne. Mr and Mrs Chen and their daughter were living in the Kooyong Road property. Ms Chan realised on the day of her arrival that she was not welcome. The Chens were in occupation of the property, according to Mr and Mrs Chan, as house sitters, whereas Mr and Mrs Chen maintain that they were entitled to be there and had an interest in the property. Ms Chan moved into other accommodation within 24 hours of arriving in Australia.

Mr and Mrs Chan were extremely annoyed by Mr and Mrs Chen’s attitude to their daughter and on 14 August 2003 came to Australia. They took steps to remove Mr Chen as a director of East World Australia and terminated his employment. On 20 August 2003, a demand was made on Mr Chen to hand over the company documents of East World Australia and he refused to do so. Mr and Mrs Chan also demanded that they be permitted to enter the property in Kooyong Road and requested that the Chens leave the property. Mr and Mrs Chen refused.

On 2 September 2003, the writ was issued. Mr and Mrs Chan claimed possession of the property, on behalf of East World Australia they sought an order that Mr Chen deliver up all company documents, and they claimed moneys from Mr and Mrs Chen for moneys unlawfully misappropriated by Mr Chen. The claims made for recovery of money were made on behalf of Mr and Mrs Chan and also East World Australia. A claim was made in detinue for the return of certain chattels or their value. As part of their relief the Chans and East World Australia sought the taking of inquiries and accounts because of problems experienced in tracing moneys which had been provided by the Chans and East World HK to the Australian company, and which had been taken by Mr and Mrs Chen.

The plaintiffs filed a summons seeking interlocutory relief and the application was heard before Habersberger J on 16 – 17 October 2003. On 5 December 2003, Habersberger J delivered his reasons and ordered Mr and Mrs Chen to deliver up possession of the property by 4 February 2004 to Mr and Mrs Chan. Subsequently orders have been made in relation to the company documents which have resulted in the documents being delivered to, and kept by, a firm of solicitors, independent of the parties.

As a result of the interlocutory orders, some of the claims made by the plaintiffs have been satisfied. Mr and Mrs Chen filed a counterclaim making a number of claims.

Issues

The statement of claim and the defence and counterclaim have been amended. Both documents suffer from excessive length and verbosity. The pleaders have employed a technique of referring to other documents as the statement of particulars of some of the allegations. By way of example, in the particulars sub‑joined to paragraph 9 of the amended statement of claim, the plaintiffs seek the recovery of certain chattels which are “referred to in paragraph 17 of the affidavit of Kwok Wai Chan sworn 1 September 2003 and filed herein”. This is but one example in the amended statement of claim. In the defence, in particulars sub‑joined to paragraph 76, a claim is made for loss of income “calculated as set out in the report of Stephen Thom dated 27 July 2004 comprising schedule 1 to the particulars of loss and damage etcetera”. The form of pleading is inappropriate and contrary to the rules of pleading. The particulars should be set out in the pleading and if lengthy, can be included in a schedule. It is both time consuming and annoying for the reader of a pleading to have to search and find some other document to determine the particulars of an allegation.

As stated, a number of claims brought by the plaintiffs have been overtaken by the interlocutory steps. Claims made for delivery up of possession of the property in Toorak and the company documents are no longer pursued although it is necessary to make an order requiring delivery of the documents to the company.

The issues on the plaintiffs’ statement of claim are:

(i)A claim by Mr and Mrs Chan against Mr Chen for the recovery of moneys paid by them to be used in the operation of East World Australia and unlawfully misappropriated by Mr Chen for his own use;
(ii)a claim by East World Australia against the three defendants for reimbursement of its moneys which were unlawfully misappropriated by Mr Chen;
(iii)a claim by Mr and Mrs Chan for the return of certain chattels or alternatively their value against Mr and Mrs Chen and their daughter.

The claims by Mr and Mrs Chen in their counterclaim are –

(i)A claim that Mr and Mrs Chan transfer a half interest in the Toorak property to Mr David Chen as a tenant in common in equal shares with Mr and Mrs Chan;
(ii)an order for sale in lieu of partition of the property;
(iii)a claim for moneys owing by East World Australia to Mr and Mrs Chen as employees;
(iv)a claim for damages by Mr Chen against East World Australia for damages for wrongful dismissal.

In their counterclaim, Mr and Mrs Chen have alleged that they entered into three agreements with Mr and Mrs Chan. The first agreement, called the Immigration Agreement (pleaded in paragraph 66), was alleged to have been made in late October 2000. As pleaded in the Amended counterclaim delivered just over two weeks prior to trial, there were at least 15 terms of the agreement. In a nutshell, it is alleged by Mr and Mrs Chen that the Chans would pay Mr Chen the sum of at least $300,000 as compensation and would permit the Chens to reside in the Toorak property, that all their living expenses would be paid by East World Australia, and that when the property was purchased the Chens and the Chans would own the property as tenants in common in equal shares. It is pleaded that these extraordinary acts of generosity were the result of, inter alia, Mr Chen giving up his employment, helping to start up and work in the East World business, helping the Chans with obtaining residency in Australia, giving up his Chinese medicine practice and locating and purchasing a property in Toorak. This is a brief and incomplete summary of the alleged agreement.

The second agreement, which is called the Registration Agreement (pleaded in paragraph 68), is said to have been made on or about 10 December 2001 between the Chans and the Chens, and this in effect varied the immigration agreement. It is alleged that because of reasons connected with the Chans’ visa requirements and their entitlement as first home buyers to a grant, Mrs Chan would be registered as the sole proprietor of the property and that David Chen’s name would be added later.

The third agreement, called the Reimbursement Agreement (pleaded in paragraph 69), is said to have been entered into in or about February 2001. It is alleged that Mr and Mrs Chan agreed with Mr and Mrs Chen that the former would transfer moneys to the Chens’ account, and that this money and any moneys over from the purchase of the property were to be used to reimburse Mr and Mrs Chen for moneys advanced by them to East World Australia, to pay expenses incurred by them for and on behalf of the company, and to pay all of their living expenses and expenses associated with the Toorak property.

This agreement was alleged to be partly oral and partly in writing. The so-called written part referred to some documents which may provide some evidence consistent with an agreement. The documents are not contractual.

Credibility Issues

The Chens maintain that there were three agreements, and the Chans, for their part, deny these agreements. Mr Chen was of the view that since he had given up his job and his Chinese medicine practice, and provided assistance in a number of ways, he was entitled to substantial compensation. In evidence Mr Chen described the payment of $300,000 variously as compensation, a gift and security. The versions of the Chans of the one part and the Chens of the other part are inconsistent and meet head on. It is difficult to escape the conclusion that one side is lying.

It is difficult to accept that either side could be mistaken about their versions concerning these alleged agreements. On the other hand the fact finding exercise is just not a question of believing one side and not the other. Credibility looms large in the resolution of the disputed facts in this proceeding.

As I stated early in the trial, there are a number of features of this proceeding which places a heavy burden on the Chens.

Mr and Mrs Chen assert that the agreements were made between the parties. Accordingly, they carry the burden of establishing them on the balance of probabilities.

Their versions of the events strains credulity; they are saying that the wealthy Hong Kong brother and sister-in-law were prepared to give them assets and money in excess of M$1.1 for Mr Chen giving up his job and a medical practice, helping the Chans become residents of this country and conducting a business in Australia in which Mr Chen was given a 30% interest. On proper analysis I do not accept that Mr Chen was in any way disadvantaged by giving up his employment and his medical practice because thereafter, for a number of years, he was in receipt of much the same income as he had been receiving in his job as a Chubb security officer. His medical practice according to his Tax Returns returned him very little money. Further, Mr and Mrs Chen and their child were living in a luxurious house in Toorak, rent free. His employment with the company was hardly demanding. It did very little business. The fact is that he enjoyed trading in shares commodities and the like and on the currency market, and it appears that he occupied his time doing that. Mr and Mrs Chen maintain that in China it is not unusual for families to live together and apparently also to share their assets. I have little doubt that in mainland China many families do share their residence but I am far from convinced that Chinese culture and family relationships lead to a very generous gift of property by one member of a family to another. The versions put forward by Mr and Mrs Chen fly in the face of what experience of life tells us. The Court is bound to closely scrutinise their evidence.

There is no document which evidences any of the alleged agreements. In particular there is no document evidencing the Chens’ alleged interest in the Toorak property.

I propose at the outset to state the basic facts which are not really in dispute. I will later deal with each of the alleged agreements which clearly are at the heart of this litigation. The determination of the issues in the counterclaim will decide most of the disputed questions in the proceeding and hence it is appropriate to deal with the counterclaim first.

Whilst the Chens’ versions of the event strain credulity, they have three members of the brothers’ family on their side. The witnesses gave evidence alleging that Mr Chan had made certain admissions about what he had done for Mr Chen. The brothers’ father, aunt and a cousin all gave evidence to the effect that at various times Mr Chan made statements to the effect that he had bought a house for his brother and set up a company for him. It will be necessary to closely consider their evidence. Each gave evidence from Shanghai by audio-visual link through an interpreter.

I will at the outset summarise the evidence that is not in dispute.

Basic Facts

Mr Chan was born in 1951, in mainland China, where he was raised and educated. He married Mrs Chan on 17 August 1979. He studied broadcasting and media and was employed as a public servant. He is a graduate of the University of China. In 1990 he was permitted to go to Hong Kong where he was employed in a State owned business. His wife was also born in mainland China, raised and educated there and graduated from Nanjing University in 1985 in Philosophy. She was employed as a public servant. They have a daughter Sing Chan who studied in Hong Kong and the U.S. of A. Mrs Chan was permitted to join Mr Chan in Hong Kong in 1992. On 15 September 1992 the Chans established East World HK. Its business was and is trading in motor vehicle radio and cassette parts, car alarms and other car accessories. It sources much of its produce in mainland China. As a result, Mr Chan regularly travels in the course of his business.

Mr Chen was born in May 1953. He married Mrs Chen in 1981. They have one daughter who is the third defendant Lujia Chen. She is aged 23 years. Mr Chen studied traditional Chinese medicine and obtained accreditation as a practitioner of Chinese medicine. He also studied English. He came to Australia in December 1988 to advance his studies in English. In June 1989 he accepted an offer from the Australian Government to take up permanent residence in this country. In September 1991 Mrs Chen and the daughter came to Australia and they have lived here ever since. In March 1997 Mr and Mrs Chen and their daughter became Australian citizens. I accept Mr Chen’s evidence that it is not unusual in mainland China for families to have shared living arrangements.

East World HK has been and is a successful business. The Chans have acquired a property in Hong Kong. Their daughter after completing studies in Hong Kong went to an American university to further her studies.

Mrs Chen after her marriage in 1981 worked with China Post and continued that employment until she joined her husband in Australia in 1991. Whilst the Chens were living in China, they moved into an apartment which was adjacent to Mr Chen’s parents and there was an internal door. Whilst there were separate meals and living areas, usually the families ate together.

When Mr Chen came to Australia he initially worked as a printer and in 1991 took up employment as a security officer with Chubb Security. He held that position with Chubb Security until he resigned in February 2001. In 1989 he established a traditional Chinese medicine practice in this State and from July 1991 the practice was conducted from his residence at 9 Austin Street, Footscray. He had purchased this property. He operated the medicine practice during the day and at night worked as a security officer. Mrs Chen provided some assistance in the Chinese medicine practice. The tax returns of Mr Chen reveal that he made little money in the Chinese medicine practice although there is other evidence to suggest that he saw more clients than the figures in the tax return reveal. By October 2000 his salary with Chubb Securities was approximately $40,000 per year which included superannuation contributions. Mr Chen self taught himself in trading shares, commodities, futures and foreign currency and engaged in those activities from about 1992. Mr Chen has been successful in his endeavours and by 2000 his family assets were in the order of $710,000 comprising the residential property in Footscray worth approximately $200,000, family investments held in funds in a cash management account with JB Were of approximately $210,000, a further $100,000 in a bank account and shares and securities worth approximately $200,000. By the year 2000 the Chens were thinking of purchasing another residential property. They were looking at buying a home in Brighton.

It appears that Mrs Chen has not had gainful employment in Australia although she did provide some assistance to her husband in his medicine practice.

During the period from about 1991 to 1998, the Chens and the Chans had infrequent contact. They corresponded approximately once or twice a year and in 1994 the Chens visited the Chans in Hong Kong. Mrs Chan and Mrs Chen went to the same primary school in China.

The Chans were interested in migrating to Australia and in January 1998 they visited this country. They arrived in Cairns and travelled down the east coast. When in Melbourne they stayed with Mr and Mrs Chen at their home in Footscray. They were there for a few days. I accept the evidence of the Chans that during this visit Mrs Chen told them that her husband worked very hard to support the family that he was working nights and did not have enough sleep. I also accept that she expressed to the Chans a concern about Mr Chen trading on the stock exchange.

The Chans left Australia on 2 February 1998. The Chans discussed immigrating to this country and they retained an immigration agent, Oliver Lai who is an accountant, carrying on business in Sydney. A decision was made to migrate to Australia and an application for a visa was lodged on 10 December 1999. Mrs Chan was the principal applicant because she was living in Hong Kong whereas Mr Chan spent much time travelling. Their daughter was included in the application. The application was for a migrant business skills visa. It is necessary to establish a number of qualifications for the visa, in particular to conduct a business in Australia during a three year period. It was the initial intention of the Chans to establish a business as an extension of the Hong Kong business. On 19 September 2000 the Chans were informed that they had been approved for a permanent entry visa to Australia. They were required to enter Australia prior to 27 October 2000. They were permitted to work in Australia. It was necessary to establish a business and if this was not established by 2003, there was a risk that the resident visas would be cancelled. Arrangements were made to come to Australia. The Chans’ daughter, who was then in Los Angeles, travelled to Australia to meet her parents. The family arrived on 12 October 2000 and resided with the Chens in Footscray.

I interpolate to observe that Mr and Mrs Chan gave their evidence through an interpreter. I am satisfied that they have some understanding of the English language but it is minimal. Mrs Chen also gave evidence through an interpreter and whilst I think she has a reasonably good understanding of English, and can speak some English, nevertheless she did require the assistance of an interpreter. It is not surprising that she has a better understanding of English than the Chans because she has been in Australia for the past 14 years. Mr Chen speaks very good English. He is obviously an intelligent man. There is no doubt that in the year 2000 he did have a good knowledge of English and Melbourne and its surrounds to provide substantial assistance to the Chans on their entry visit to this country as migrants.

The Chans initially thought of establishing a business in Sydney where their accountant and migration advisor, Oliver Lai, was, but Mr Chan thought it would be more appropriate to establish a business in Melbourne using the assistance of his brother. A conversation occurred as to how much Mr Chen earned per year and I am satisfied that the Chans informed Mr Chen that he could be employed by a business to be established and be paid a salary in the order of what he was receiving at Chubb Security. The Chans told Mr Chen that a company to be established would have a number of shares and he would be given a 30% shareholding in the company.

On 16 October 2000, Mr and Mrs Chan and Mr Chen went to Sydney to meet with Oliver Lai. On the following day, East World Australia was registered. During the discussions with Oliver Lai it was agreed that there would be three directors, namely Mr and Mrs Chan and Mr Chen, that Mr Chen would be employed by the company and that he would receive 3,000 shares in the company as a gift. Mrs Chan was issued with 4,000 shares and Mr Chan 3,000. It was put by the Chans that Mr Chen would be responsible for the daily operation of the company. There is some dispute as to whether Mr Chen agreed at that time to give up his employment and be employed by the company. The Chens say this occurred much later. It will be necessary to refer to this later. It is part of Mr Chen’s case that he was to receive compensation for giving up his job and his Chinese medicine practice. This was also very much in dispute and I will discuss this later.

On 17 October 2000, Mr and Mrs Chan opened personal bank accounts with the National Bank. On that day the Chans and Mr Chen made application to open a company bank account with HSBC. The account could not be opened on that day as the Bank had to be satisfied of proof of the company’s registration. On that day there was some discussion about the Chans purchasing a property in Melbourne. Mr Chen recommended Brighton whereas the Chans liked the Toorak area. They looked at a property at 176 Kooyong Road, Toorak, but it was not suitable. Also on 17 October there was some discussion between the Chans and the Chens about funds being provided for the company and Mrs Chan informed Mr Chen that she would transfer funds in the amount of A$300,000. There is a dispute as to what was said in relation to this matter. It is contended by the Chans that some of the money was to be used for the shareholders’ contributions, namely A$10,000, while the rest was for operational costs of the company and for a deposit on any house that may be purchased. Mr Chen denies this discussion. Mr Chen says that his brother stated that he would be receiving compensation for his assistance and because he was to give up a job and his Chinese medicine practice. These matters are very much in dispute and are relevant to the alleged immigration agreement. In the course of discussions, Mr Chen gave details of an account he had at JB Were Securities Limited in his name. I accept the evidence of Mrs Chan that she was given this information to enable her to send money for the company.

On 18 October 2000, the Chans left Australia and two days later Mrs Chan sent A$300,000 to what she believed was Mr Chen’s personal account. It is said by Mr Chen that the money was for him as compensation. This is denied by the Chans. Again, it is a matter that has to be resolved and I will discuss it later. It appears that the monies were not paid into Mr Chen’s account, but were paid into an account with J B Were Securities in the name of the three defendants.

It is said by the Chens that around about this time Mr Chen decided that he would give up his job and take employment with the company. This is contrary to the Chans’ version which was that it had all been agreed before they left Australia. Again, this is relevant to the alleged immigration agreement. Mr Chen, in November 2000, on behalf of the company, leased premises for use as an office at 370 St Kilda Road.

In late October 2000, Mr Chen telephoned Mrs Chan and informed her that there was a property for sale at 178 Kooyong Road, Toorak, and it would be auctioned on 9 December 2000. Shortly prior to the auction, Mr Chen made contact with a solicitor and spoke with a clerk, Olivia Brosnahan, of Eales and McKenzie. The Chens attended the auction. The Chans had indicated that they were very interested in purchasing the property. There is some dispute as to whether or not Mr Chen made contact with Mrs Chan during the course of the auction, but in my view it is unnecessary to resolve the question. There was some discussion after the property was passed in and eventually the vendor agreed to sell the property for M$1.65 with a settlement date of 30 days. Mrs Chen in fact signed the contract with a right to nominate a substitute purchaser. Mr Chen paid a deposit of $165,000 from the Chen Family Were Account. Contact was then made with Mrs Chan and arrangements were made to send out money for the purchase price. On Monday 11 December 2000, Mr Chen saw the solicitors in relation to the purchase and there was some discussion about making an application for a First Home Buyer’s Grant of $7,000. Instructions were given to register the title in the name of Mrs Chan. There is a dispute as to what the arrangements were. It is contended by Mrs Chan that because her husband was always travelling it was difficult to get him to sign a transfer and accordingly it was to be transferred in her name and his name was to be added later. On the other hand Mr Chen asserts that it was agreed that he would have his name added later because there was some concern about the First Home Buyer’s Grant. This is another matter which is in dispute and I will refer to this later. Mr Chen reported to Mrs Chan about the progress of the purchase of the house. Correspondence was sent to Mrs Chan containing the necessary documents for the completion of the sale. One of the documents was a statutory declaration by Mrs Chen acknowledging that she never had any interest in the property. Mrs Chan forwarded moneys for the purchase price, being $300,000 on 12 December, $500,000 on 9 January 2001, and $1,000,000 on 11 January 2001.

On 23 January 2001 settlement occurred and the property was registered in the name of Mrs Chan only. Application was made for a First Home Buyer’s Grant, which was granted. In January 2001, no stamp duty was payable where an interest in property was transferred from one spouse to another. On the other hand, the probabilities of the payment of stamp duty were high in relation to a transfer to a stranger, although if there was a trust for the transferee it may not have attracted stamp duty. It is contended by Mr Chen that there was an agreement that he was to get an interest in the property. This is in dispute. Again, it is a matter which will be dealt with later.

The Chans arrived back in Australia on 27 January 2001. Some furniture was purchased. At some point during the course of their stay, both the Chans and the Chens occupied the property on one evening. Again, there is some dispute about discussions had concerning occupation of the house. By this time, Mr Chen had given notice to Chubb. He evidently gave them notice some time in October – November the previous year and was enjoying accrued paid leave. His employment ceased with Chubb on 12 February 2001.

I am satisfied that when the Chans were in Australia in late January early February, a discussion took place concerning the Chens looking after the property. I accept the evidence of Mrs Chan that she told the Chens that the Chans would not stay in Australia until their daughter came to do her Master’s Degree in Melbourne in mid to late 2003. They would then consider coming to Australia to reside.

Again, there is a dispute as to the basis upon which the Chens moved into the house. It is the contention of the Chans that the Chens were asked to move into the house and be house sitters looking after the interests of the Chans, and that this would also make it easier for Mr Chen to operate the business from the St Kilda Road property. Ultimately it was agreed that the business should be conducted from the house. It appears that the Chens moved into the property some time in March 2001. In May 2001, the Chens sold their home in Austin Street, Footscray.

The Chans returned to Hong Kong in early February 2001 and after their return Mrs Chan forwarded the sum of $150,000 to Mr Chen to ensure there were sufficient funds to purchase furniture for the house and for the operation of the company.

At some time around June/July 2001, Mr Chen requested Mr Lai to prepare the company accounts and tax return. Mr Chen gave the information to Mr Lai to enable him to perform these tasks. It will be necessary to refer to the accounts later.

The Chans returned to Australia on 1 August 2001 and stayed in the home at Toorak with the Chens and their daughter. On this visit Mr Chen suggested that the Chans give him a Power of Attorney and this was executed through a local solicitor. Mr Chen said it was necessary for him to run the company properly and it was quite inconvenient and expensive to send company documentation overseas for signatures. It was during this visit that the Chans ascertained that Mr Chen was trading in derivatives and shares using the company’s money. Up to this time the company had very little business and there was some criticism made by the Chans of Mr Chen’s efforts. He said that he could make more money by trading.

There is a dispute between the parties as to whether or not the Chens were entitled to use company funds for their personal expenses. The Chans deny any such agreement. Again, this is a matter that is to be considered later. Whilst the Chans were in Australia in August 2001, Mr Chen took his brother to lunch to meet a man from Tricom Securities, Paul Markus Helsing. Mr Chan was induced to enter into a very detailed agreement on behalf of East West Australia with Tricom Securities. It was not the type of agreement that any person should sign unless the person had a very good understanding of its contents. Mr Chan did not to understand the contents of the documents and relied upon his brother for assistance. On no view could it be said that he had an understanding of the agreement when he signed it. It does, to some extent, reflect upon both his brother and Mr Helsing that he was induced to sign this very detailed agreement. The documents were a client agreement and risk disclosure document for margin foreign exchange services. The client agreement comprises some 32 pages of closely written type and purports to be an agreement with East World Australia. Both Mr Chen and Mr Chan signed the document on 3 August 2001. The risk disclosure statement states that the client should not enter into the transaction unless “you are an experienced and sophisticated investor” and “you understand the nature of and risks associated with the transactions”. Mr Chen suggests that his brother had a full understanding of what he was doing, but I do not accept that for one moment. It does reflect upon the credibility of Mr Chen that he induced his brother to enter into such an agreement. On any view, foreign exchange transactions and the like amount to educated gambling, and are very speculative. Mr Chen was self-taught and the evidence does suggest that he may have been successful as a trader over the years. However, the agreement was opening the company up to substantial losses if trading proved unsuccessful. There is no doubt that Mr Chan used company funds to trade in a variety of shares, derivatives, commodities and foreign exchange.

Going back in time, on 4 May 2001, Mr Chen opened an account with C A & L Bell Commodities. The firm was a broker, trading in commodities, currency and bonds. Mr Chen stated that he opened the account to have easier access to the market if his Tricom broker was unavailable. He opened the account with a cheque of $10,000 drawn on the company JB Were account, but did not inform the Chans about this until they visited him in August 2001.

The Chans returned to Hong Kong and on 10 October 2001 transferred $120,000 to the company. Mrs Chan forwarded the money in the belief that it was going into the company account.

In late 2001, Mrs Chen purchased some Coogee woollen jumpers and sold them to a purchaser in mainland China. There is some dispute about the true nature of this transaction. But I am satisfied on the evidence that the transaction was in fact a company transaction. The evidence is unclear as to who paid for what. Mrs Chen was extremely vague as to whether or not the Chinese purchaser ever paid for the goods.

In February 2002, the Chans returned to Australia and stayed in Toorak. This was the Chinese New Year. A question arose as to whether the title should be transferred into the name of Mr Chan, and Mr Chen took the Chans to the Title’s Office to arrange for registration. This was done. There was no question of any stamp duty being paid. More importantly, there was no suggestion made by the Chens that either should have his or her name registered on the title. The Chans and the Chens, including Lujia Chen travelled for a nine day visit to New Zealand. After returning to Hong Kong, Mrs Chan transferred on 20 March 2002, $220,000, as she understood it, to the company. The money was forwarded to the company’s JB Were account. On 19 April 2002, Mr Chen, without referring the matter to the Chans, opened an account with another broker, namely Man Financial Australia Limited. Mr Chen closed the Tricom account because he was unhappy with the service.

In August 2002, the Chans returned to Australia and stayed in the Toorak property. Their daughter also came to Australia and stayed with them. During this visit, it was necessary for the Chans to complete a survey for the Immigration Department. Mr Chen assisted Mrs Chan in filling in the document. The document was in English. The Chans and Mr Chen travelled to Sydney to meet with Mr Lai to enable the documents to be completed. Mr Chen had in the meantime provided to Mr Lai the information for the preparation of the accounts for the financial year ending 30 June 2002. Mr Lai completed the accounts quickly so that the information could be inserted in the survey. Mr Lai prepared the 2002 tax return and the documents were signed by Mrs Chan. The accounts revealed a loan to the company by Mrs Chan in the order of some $548,000 and this statement is evidence relied upon by Mr and Mrs Chen to support the alleged payment of compensation of $300,000. On 27 August 2002 the Chans returned to Hong Kong.

In January 2003, the Chens went to China to visit their families. During this visit they caught up with the Chans. Mrs Chan informed the Chens that Sing Chan was to return to Australia to study and that this was to take place some time in 2003. Evidently Mr Chen was unhappy with this proposal.

By letter dated 24 February 2003 from the Department of Immigration Mrs Chan was informed that the Australian company was not conducting sufficient trade activities and Mrs Chan became concerned about the lack of effort by Mr Chen. Efforts were made to purchase bullion gold for export through Mr Lai and from late February 2003 to the end of that year five transactions of bullion gold were exported to Hong Kong.

In early March 2003, a conversation occurred between Mrs Chan and Mr Chen. Mr Chen stated that he wanted his and his wife’s name to be added to the title and if this was not done, he would not continue with the company. He stated to Mrs Chan that he had given up his job, sold his house and he had nothing. There was some discussion about what Mr Chen had done for the company. There is a dispute about this conversation. Mr Chen said that Mrs Chan and he discussed his name being added to the title. According to Mrs Chan she informed him the Chens had no interest in the property and the conversation ended by Mr Chen saying that he would not continue with the company and suggesting that the Chans come to Australia so that he could hand the company over to them. On the other hand, Mr Chen said that Mrs Chan agreed that she would not object to his name being added to the title of the property. He said that he then spoke to Mr Chan, who was in China, about the same thing. Mr Chen then sought to arrange the transfer of an interest in the property using the Power of Attorney but was told that he could not use this by an employee of the Land Titles Office. Mrs Chan made a decision to come to Australia but because of the SARS outbreak she decided not to.

In the meantime, on 1 April 2003, unbeknown to the Chans, Mr Chen withdrew $50,000 from the East World Australia account with JB Were. The amount was paid into a Chen family JB Were account. Later it was suggested that the money was taken to cover the payment of expenses incurred and in lieu of wages. Later in the course of the interlocutory steps it was suggested that the money was made up of wages totalling $60,924 for the Chens for the years ending 30 June 2002 and 2003 and for reimbursement of sums paid. There is dispute in relation to this money.

On 16 June 2003, the Chans’ daughter, Sing, arrived in Melbourne to take up residence at Toorak preparatory to commencing her eduction at the University of Melbourne. Mr Chen met her at the airport and made it very clear that she was not welcome. She stayed at the Toorak property for 24 hours and then went to a hotel which Mr Chen had arranged for her. She was made most unwelcome in the home and was particularly upset. Evidently Mr Chen told her to leave or he would get the police. Mr and Mrs Chan made a decision to return to Australia. They were concerned about obtaining the company documents.

The Chans arrived in Australia on 14 August 2003. On 16 August 2003 they flew to Sydney to see Mr Lai. He referred them to a Melbourne solicitor to seek legal advice. Whilst with Mr Lai, the Chans resolved to remove Mr Chen as a director of East World Australia and his employment was terminated. On 20 August 2003 Mr and Mrs Chan tried to make contact with Mr Chen and twice tried to send facsimiles to him. Eventually a facsimile was sent in Chinese which informed him that he had been removed as a director and that the company bank account was frozen. A demand was made that he hand over all documents concerning the company. Mr Chen refused. Mr Chen informed the Chans that he was contacting a solicitor. An attempt was made by the Chans to meet Mr Chen over the next few days but he refused to meet. Eventually he informed the Chans on Friday, 22 August 2003, to ring his solicitor, Mr Noel McNichol-Smith. In the meantime the Chans had discussions with their solicitor. Discussions took place between the solicitors. Later that day the Chans went to the Toorak property. There was an argument. The police were called and the matter was then left to the solicitors.

On 22 August 2003 Mr McNichol-Smith sent a letter to the Chans’ solicitors, Lai and Hamilton. The Chans’ solicitors responded to the letter.

On 2 September 2003, the Chans issued a writ seeking inter alia possession of the property and the return of company documents. A summons was filed seeking interlocutory relief and the summons came on for hearing before Habersberger J on 16 October. The parties filed affidavits. It will be necessary to refer to some of the affidavits later. On 5 December 2003, Habersberger J delivered his reasons and he granted a mandatory interlocutory injunction giving possession of the house to the Chans on 4 February 2004. The Chans went to the property on 2 February 2004 and found that a lot of furniture had been removed from the home.

On 4 February 2004 the Chans obtained possession. The handing over of the company documents was very much in dispute and eventually the parties agreed that they would be delivered to an independent firm of solicitors, which was done. They were produced to the Court on the trial. Evidently there was concern expressed by Mr Chen that if the documents were handed over something might happen to them such as destruction or alteration.

On 19 December 2003 the defendants filed a defence and counter-claim. It was amended and again amended on 9 September 2005. The plaintiffs filed an amended statement of claim on 15 March 2005. It will be necessary to refer to the pleadings later. There is some variation between the matters pleaded in the defence and counter-claim in December 2003 and the recent version. This raises questions concerning the credibility of Mr and Mrs Chen.

The Counter-Claim and Credibility

Mr and Mrs Chan deny they entered into the three agreements pleaded in the counter-claim. As stated, the resolution of the issues concerning the three alleged agreements go a long way to deciding many of the issues in the proceeding including the plaintiffs’ claims. Accordingly, it is appropriate to deal with the counter-claim first. The credibility of each of the Chans and Mr and Mrs Chen is at the heart of the counter-claim. Mr and Mrs Chen allege there were three agreements and the Chans deny them. The agreements are pleaded in paragraphs 66, 68 and 69 of the counter-claim. I will briefly summarise the main obligations alleged. They are –

(i)Immigration Agreement – alleged between the Chens and Chans made in or about “late October 2000”.

David Chen would assist the Chans by establishing the business of East World Australia and assisting them to obtain permanent residency, that he would resign from his employment and commence employment with East World Australia, would close his medical practice, would sell the Chens’ property in Footscray, would refrain from purchasing a residential property in Brighton and would locate and purchase a property in Toorak.

It is alleged that in consideration of the above, the Chens and the Chans would own the property as tenants in common in equal shares, that Mr Chen and Mrs Chan would be registered as co-proprietors and hold the property on trust for their spouses, and that the Chens would reside in the property. Further, that the Chans would reside with them later, that the Chans would ensure the company would abide by the terms of Mr Chen’s employment agreement, that all living expenses of the Chens, all expenses of the Toorak property and all expenses of the company would be paid by the company. If the expenses were paid by the Chens they would be reimbursed and that “the Chans would pay suitable compensation to David Chen in the sum of at least $300,000” for the services that he would perform as set out above.

It is alleged that part of the agreement was in writing. The documents comprise advice forms concerning transfer of funds by Mrs Chan to Australia and a fax transmission from Mr Chen to Mrs Chan dated 12 December 2000. However, the documents referred to are not contractual documents. The documents came into existence after the date of the alleged agreement. It is contended by the Chens that they provide some support for their allegation that an agreement was reached. However, the documents do not bear out that contention. Indeed, the documents support the version by the Chans that there was no such agreement as alleged and that moneys were forwarded for the company and the acquisition of the house. The advice documents record the name and address of a beneficiary noted as “Were Securities Ltd” and there is a message to the beneficiary which records “Payment for David Weiping Chen”. The latter notation appears not only on the advance of the first A$300,000 but also the three payments made for the house totalling M$1.8. Mr Chen in evidence stated that because the money was sent to him it was meant for him. However, the observation is illogical and does not bear analysis. If his argument was correct, then it must follow that all the moneys up to M$2.1 were for him. He does not say that. So far as the facsimile he sent to Mrs Chan on 12 December 2000 after the house was purchased, there is absolutely nothing in the facsimile which in any way supports the Chens’ version that there was such an agreement. The facsimile first of all refers to the acquisition of the house and the importance of forwarding the money to Australia to pay for it. The facsimile notes that the initial 10% was paid, which would be $165,000, and that a further $100,000 was being deposited into the company bank account. This was from the original $300,000. The letter is consistent with the Chans’ version as to the reasons for forwarding the money and the facsimile, and the advice documents do not in any way support the Chens’ version.

It is noted that in the amended counterclaim the agreement was alleged to have been made “in or about late October 2000”, the Chans would pay “suitable compensation” and that it was “at least $300,000”. These allegations in my opinion raise doubts about the Immigration Agreement. They are couched in terms of uncertainty.

The Chens face formidable hurdles to establishing this agreement. They have the burden of proof. On proper analysis, the extraordinary kindness of Mr and Mrs Chan strains credulity. Whilst the evidence revealed that in the space of about 8 years, Mr and Mrs Chan established a very successful business in Hong Kong and obviously accumulated substantial wealth, there is absolutely no evidence that their alleged philanthropic attitude spilt over to the rest of the family. Mr Chen gave up his job. On the other hand, he entered into an agreement whereby he was to be paid at least the income that he had received from his employment, and was given a 30% interest in a business the success of which depended very much upon his activities. Giving up his medical practice did not appear to be a big financial loss based upon his tax returns. Why would the Chans be prepared to give the Chens assets worth in excess of A$1.1 million?

Mr Chen gave evidence of discussions with Mr and Mrs Chan in October 2000 in which he stated that promises were made that if he gave up his job and the medical practice he would receive proper compensation. Mr Chen gave evidence that he was reluctant to give up his job and the medical practice but was assured by his brother that money was no problem. He also gave evidence that he told the Chans that if he stopped work he would have no money to support himself and he asserts that Mr Chan said that all expenses would be paid by the company. According to his evidence there was no agreement on the amount of the salary that would be paid except that he was to be properly compensated and there was no mention of the amount of any compensation. Mr Chen gave evidence that he had not made up his mind about leaving his employment prior to the Chans leaving Australia in October 2000. He also gave evidence that there were discussions pursuant to which it was agreed that the Chans and the Chens would purchase a larger house which would be occupied by all of them when they visited Australia. The Chans left Australia on 18 October 2000 and on 20 October 2000 Mrs Chan rang and stated she was sending $300,000 into Mr Chen’s account. She sent by facsimile to Mr Chen a customer advice form recording the payment and in the beneficiary box on the document it is noted “payment for David Weiping Chen”. Mr Chen gave evidence that Mrs Chan did not say what the money was for but he thought that it was the compensation for giving up his job, ceasing the medicine practice and helping the Chans with their business and their visa. As earlier stated, Mr Chen, in evidence, said that the fact that the money was sent into his bank account was viewed by him as an indication that the money was meant to be for him. However, as noted, it is pertinent to observe that the next three sums of money paid during December and January totalling M$1.8 were also endorsed “Payment for David Weiping Chen”. Mr Chen’s reasoning does not bear analysis and is illogical. The advice documents do not support the Chens’ case.

The Chans in evidence denied any such agreement as alleged by Mr Chen.

The Chans gave evidence that it was agreed with Mr Chen that he would give up his employment and his medicine practice, that he would be paid at least the amount of his annual income, which was believed to be in the order of $40,000, that he would be employed by the new company, and that he would have 30% shareholding in the company partly as an incentive. Discussions took place about how the company could acquire goods from China. The Chans emphatically deny any suggestion of compensation or gift or security of $300,000 or that the purchase of any residential property thereafter would be jointly owned. Mrs Chan gave evidence that she told Mr Chen she would forward $300,000 upon her return to Hong Kong, which she did, and that $10,000 was to be appropriated as shareholders’ contributions and the rest used for setting up the business and for operational costs of the company, and that any moneys over could be used for the purchase of any house. She sent the money to Mr Chen’s bank account because when the Chans left Australia, the business bank account had not been opened. In fact, the evidence revealed that when the money was sent it ended up in the account held by the three Chens with J B Were Securities. The money in fact was spent by Mr Chen to establish the company, enter into a lease on behalf of the company, to pay the deposit on the purchase and to pay $100,000 into the company account. This amounted in all to about $280,000.

(ii)The Registration Agreement – this is alleged to have been agreed on or about “10 December 2001”.

On proper analysis it appears to be a form of variation agreement to the Immigration Agreement. It is alleged that for reasons connected with the Chans’ visa requirements and an entitlement to a First Home Buyer’s Grant, Mrs Chan would be registered solely as the registered proprietor of the property purchase, and that Mr Chen’s name would be added later. It is said that this agreement was oral and was agreed in a telephone conversation between Mr and Mrs Chan and Mr Chen on 10 December.

The property in Toorak was purchased on Saturday, 9 December 2000. Again the Chens face formidable hurdles in proving this variation agreement. The fact was that Mrs Chan provided all the funds for the purchase. Mr and Mrs Chen did not provide any money. The property was registered solely in the name of Mrs Chan. The Chans’ explanation for this was that because Mr Chan was travelling extensively throughout mainland China it was easier for Mrs Chan to complete the documents. Further, it was understood that a later transfer of an interest by Mrs Chan to Mr Chan would not involve any duty. On the other hand, a transfer of any interest in the property to Mr Chen would most likely attract substantial stamp duty although if it was proven that the property was held in trust there may not be any stamp duty. There is no documentary evidence supporting this alleged agreement. Further, the amount of the First Home Buyer’s Grant was of the order of $7,000 which was significantly less than any stamp duty that may have to be paid thereafter if an interest was transferred to the Chens. As the law clerk who handled the matter on behalf of the Chans on instructions of Mr Chen stated, she would not be a party to any device to mislead the State Government over the home grant by hiding the fact that a person had an interest in the property and was not a first home buyer. This alleged agreement also strains one’s credulity. The amount of the philanthropic gesture on this occasion was in excess of $800,000. Why would the Chans do that? Mr Chen gave evidence that he had a telephone conversation with Mrs Chan who told him it would be better for her visa requirements if she was registered as a sole owner and that his name could be added later. He then said that this would mean that she would qualify for a First Home Buyer’s Grant and she said that would be a good thing. This conversation is denied. No explanation was given as to how the Chans would benefit in respect of the visa requirements if Mr Chan’s name was the only name on the title. Mr Chen gave evidence of an earlier conversation some time in November concerning the property which was then on the market with the auction fixed for 9 December 2000. Mrs Chan said that her name had to be on the title because she was the main applicant for the visa and it did not matter whether her husband’s name was on it or not. It is difficult to understand how the registration in her name only, was better for visa requirements.

Mrs Chan gave evidence that she did tell Mr Chen she wanted both her name and her husband’s name on the title but because her husband travelled often and, as it was a quick settlement, her name should be registered and the husband’s name could be added later. She gave evidence that in addition to the purchase price of MA$1.65 she had to pay an additional $100,000 needed to cover stamp duty and expenses. She specifically stated she had no conversation with Mr Chen about his or his wife’s name being on the title. She paid A$1.8million in three tranches on 12 December 2000, 9 January 2001 and 11 January 2001.

(iii)The Reimbursement Agreement – this was said to have been made in or about February 2001.

It was alleged by the Chens that the parties agreed that the Chans would transfer money to the defendants’ account and the Chens would use that money and money already provided but not used, to reimburse the Chens for moneys advanced by them to the company for expenses incurred and to be incurred, their living expenses, and all expenses associated with the Toorak property. Again, the Chens face a formidable task to establish this agreement. It strains one’s credulity yet again, and in particular the allegation that moneys paid by the Chans to the company were to be used for the living expenses of the Chens. It is asserted that the agreement was partly oral and partly in writing. Again reference is made to an advice form dated 15 February 2001 forwarding A$150,000. As with the previous advices there is a notation that it is “payment for David Weiping Chen”. Reference is again made to the facsimile of 12 December 2000. Neither support the alleged agreement, and both are consistent with the Chans’ version. The documents identified again are not contractual documents. The particulars assert that there was a conversation between the Chans and Mr Chen in February 2001 when the Chans were in Australia. It was alleged they asked Mr Chen how much he had spent on monies transferred for the company’s accounts and expenses and Mr Chen estimated an amount between $150,000 to $200,000. Mrs Chan is alleged to have said that she would send over $200,000 to cover such expenses.

Mr Chen’s evidence was that he told the Chans he would advance money for the company, setting up its office and for expenditure on furniture for the house. It is difficult to understand why he would say this. There were more than adequate funds sent by the Chans to cover all the expenses. He also asserted that he had opened a company Tricom account and the company Were account and that he was trading in derivatives. He said that he had also incurred expenses and he estimated the total monies outlaid was between $150,000 to $200,000. According to Mr Chen, Mr Chan then said “not to worry about it” and that they would forward $200,000 to him when they returned to Hong Kong. In fact, as the evidence revealed, on 15 February 2001, the Chans forwarded $150,000 to the account with JB Were Securities Ltd.

The Chans denied this alleged agreement. Mrs Chan stated that they asked Mr Chen to purchase furniture for the house and she forwarded the sum of $150,000 to ensure there were sufficient funds to purchase furniture and to use the money for the company’s activities. The Chans gave evidence that they agreed, during the February 2001 visit, that because Mr Chen said it was difficult for him to look after the Toorak property, run the company from its office in St Kilda Road and also look after his own house, the Chens could move in to the property. The Chans told the Chens it was unlikely that the Chans would come to Australia to live permanently until some time mid to late 2003 when their daughter proposed to come to Australia. The Chans denied any agreement that they were sending $150,000 to the Chens for their expenses and to reimburse them for any company expenses paid by them.

Whether or not the Chens have proven any or all of these agreements depends very much upon the credibility of the two brothers and their wives.

Mrs Chan was the first to give evidence. She did so through an interpreter. I concluded that she had some slight understanding of English, but by and large she was dependant upon the interpreter. She was cross-examined over a number of days. She is obviously an intelligent woman. It was put to her that she had attempted to deceive the immigration people in relation to a business survey completed in the latter part of 2002 by altering a document relating to the sale of the Coogee jumpers to China. It was said that she changed a contract document by removing Mrs Chen’s signature from the documents and inserting her own. Mrs Chen in fact had the carriage of the transaction. The suggestion was that this would convey to the Immigration Department that she had been personally involved in the transaction. She was uncertain as to the circumstances, but in my opinion, assuming she did change the document by putting her signature on it, it hardly reflects upon her credibility. What the Department would be more concerned about was whether the company was doing any business. I am satisfied that the transaction was a company transaction even though Mrs Chen was the person responsible for putting the transaction in place. Other than that attack upon her credibility, I formed the view that she was an honest witness doing her best to remember the events and circumstances.

Mr Chan gave evidence also through an interpreter. I did not gain the impression that he had any real knowledge of spoken English. He was cross-examined at some length, although for not quite as long as his wife. But there was nothing in the way he gave evidence or what he said, to suggest that he was anything other than a witness honestly giving evidence and doing his best to remember the events and circumstances. In summary, I am satisfied that Mr and Mrs Chan were reliable and credible witnesses.

Mr Chen speaks good English. He is clearly an intelligent person. He is an able and determined person. He was able in the 12 years in Australia from 1988 to 2000 to accumulate assets in the order of some $700,000 on a salary of about $40,000 whilst supporting a wife and child. Although there was some evidence that his Chinese medicine practice had more patients than his tax returns reveal, the latter did suggest very little profit from the practice. He commenced trading in a variety of stocks, shares, commodities and foreign exchange from about 1992. He self-taught himself to pursue this endeavour and it would appear, although the evidence was extremely murky, that he was a reasonably successful trader. However, after observing him in the witness box, and based on what he said, I came to the conclusion that he was not a credible witness. He portrayed as a person who was cunning, devious, very well aware of the issues in the case and prepared to lie if he thought it would assist his case. He came across as a person obsessed with the case. Indeed when sworn, he told the Court that he was unemployed, and this was because over the last two years he had spent most of his thinking time preparing for the case and hence could not carry out any form of employment. It was revealed that he did attend some of the interlocutory hearings. Observing him in Court during the cross-examination of Mr and Mrs Chan, it was very clear that he was very active in the presentation of the Chens’ case. He continually conveyed messages to his counsel during the cross‑examination of the Chans. I do not accept his assertion that he has been unemployed for two years. That, in my opinion, was a deliberate lie. There was substantial evidence to reveal that he has been trading in stock, shares, derivatives commodities and foreign currency over the last few years. Indeed, the evidence leads to the conclusion that that was what he was doing when he was working for East World Australia. Some of its income came from the activity.

Mrs Chen, also known as Ms Remnin Lu, was loyal to her husband and gave evidence supportive of their case. She gave evidence through an interpreter but it was clear to me that she had a reasonably good understanding of English. I am not suggesting that for one moment she pretended that she did not, but it was clear that from time to time she had an understanding of the questions that were being put to her in English before translation. I did not find her an honest or credible witness either.

Turning to Mr Chen, I make the following findings concerning his credibility –

·He told a deliberate lie when he informed the Court at the beginning of his evidence he was unemployed. He stated he last worked with East World Australia in mid 2003 and stated that he was so distracted by the events and this case, that although he tried a few times to get a job, he found it all too difficult. The Court asked him whether he was still trading in securities and shares, he said he couldn’t concentrate. He was asked the question again and he conveyed by his answer that he was not trading in shares but he had some shares. Later evidence revealed that he has been trading in shares, commodities, a variety of other stocks and foreign currency over at least the last few months. It was extremely difficult for counsel for the plaintiffs to ascertain what precisely he was doing with respect to his trading and the movement of money between various accounts held in the names of one or more of the Chens. One thing is clear however. Some of the money invested and used to trade was East World Australia’s money.
·Mr Chen was cross-examined on his personal income tax returns. Some were prepared by accountants and some by himself. They revealed non‑disclosure of income and a wrongful inflation of some expenses. Mr Chen omitted in his returns over a number of years to reveal interest on moneys in investment accounts. Further, there was no reference to profits he had made in trading in stocks, shares, currency etcetera. He admitted that the Taxation Office had written to him pointing out that he had failed to disclose interest income. His dishonesty in this respect was exacerbated by his prevarication when giving evidence. He sought to blame his accountant, saying that he had given the information to the accountant and the inference being that it must have been the accountant’s fault. The obvious observation is that he is the one who provided the information. Mr Chen is not stupid. On at least two occasions he filled in his own tax return. He can hardly blame anyone for errors in these returns. He did have some understanding of his obligations as a tax payer completing a taxation return. On other occasions during cross‑examination he attempted to hide behind his ignorance of the English language and his understanding of the taxation system. I do not for one minute accept that he is ignorant of his obligations. Further, when requested to produce letters from the Taxation Office relating to the understatement of income, he failed to do so but produced the amended assessments. At the time he was being cross-examined with respect to bank accounts. It was extremely difficult for cross‑examining counsel to extract reliable information about the various bank accounts, who was the account holder and the movement of funds between various accounts. Production of a letter from the Taxation Office would have revealed the identity of bank accounts.
·Mr Chen was cross-examined about bank accounts. Again he prevaricated. It was very difficult to extract any information from him about his bank accounts. He was requested on occasions to produce documents which he failed to do. It is clear that moneys were transferred into a Macquarie Bank account. He was asked to produce statements. He failed to produce all statements. He alleged they did not hold an account despite proof that an account existed. In an affidavit sworn on 15 April 2005 Mr and Mrs Chen swore that none of them ever had in their possession custody or power any statement of a Macquarie Bank account. This was clearly untrue. Both Mr and Mrs Chen set out to cover their tracks, create confusion and uncertainty aimed at avoiding the tracing of the funds forwarded by Mrs Chan to the company in Australia.
·Mr Chen gave evidence that the Chans at one stage said they were going to establish another company and asked him to be a director. He stated he declined to do so. The next thing he knew was that in May 2001 he received a letter from Oliver Lai, including an account for the registration of a company. The letter was addressed to him as a director. He said that he rang Mr Lai and said he had never agreed to be a director. He then later signed a resignation form. It was untrue to say he had not agreed to be a director. He was cross-examined about it. It was put to him he did become a director. His response was “No, without my knowledge I became a director”. He was then shown a bundle of documents. They revealed a letter written by Mr Lai in Chinese to Mr Chen dated 3 May 2001 enclosing the necessary documents for registration of the company. Mr Chen signed a document in his capacity as a director on 7 May 2001. On 10 December 2001 he transferred shares to Mrs Chan. He resigned as a director on 3 December 2001. The company records obtained from ASIC showed the company was registered on 2 May 2001 and he was appointed a director on that date. His evidence that he was not a willing party was patently untrue.
·He took his brother to meet Mr Helsing at a lunchtime meeting and induced his brother to sign a very detailed agreement whereby East World Australia authorised Triton Futures Services Pty Ltd as agent, to enter into foreign exchange transactions. I have no doubt the brother did not understand the document. The document contained some 40 pages and one page headed “Risk disclosure statement for foreign exchange transactions” recommended to the client that the client should not enter into any transaction unless “you are an experienced and sophisticated investor”. The risks were substantial. Mr Chan did not understand the document. He relied upon his brother for information. There was no way that Mr Chan understood what he was doing. He was exposing the company to a risk of financial loss. The document was signed on 3 August 2001. The way in which Mr Chen induced his brother to sign it smacks of sharp practice.
·Mr Chen gave evidence concerning the movement of a substantial quantity of furniture to the property in Toorak in January 2001 which was aimed at showing that the move into the house was consistent with the alleged immigration agreement. However, the production of a Budget Rent-a-car receipt showed that he had the vehicle for less than two hours which hardly supports his evidence of the movement of a large quantity of furniture. Again, his explanation in cross‑examination was unconvincing and showed a man prepared to change his story as he was confronted with contradictory evidence.
·He was cross-examined at length about his trading activities in the latter part of 2003, and more recently, and in particular where moneys went into a variety of accounts. Documents were subpoenaed for the trial. It was very difficult to tie Mr Chen or indeed Mrs Chen down as to the movement of funds and where they went. In my opinion he was less than frank about the trading activities. He was requested to produce documents. He refused to provide bank statements. It was only when confronted with documents that he was prepared to make a begrudging admission as to the movement of funds. But even by the end of the trial it is impossible to say where the moneys went and into what accounts. In this regard it cannot be overlooked that his daughter was not called as a witness. She was in court for most of the trial save for the last few days. It was during the last few days of the trial that both Mr and Mrs Chen were cross-examined as to the movement of funds out of various accounts into other accounts during the latter part of 2003. The funds belonged to East World Australia. It is clear from the evidence that some of the funds were placed in the daughter’s bank account or accounts. It was proposed to call the daughter and a written witness statement was filed on her behalf. Cross‑examination of her concerning her bank accounts would have revealed where some of East World Australia’s money went and may have revealed where it is today. A decision was made not to call her. The inference is, that that decision was made because of concern that cross‑examination as to bank accounts that she had in her name may have revealed where money was moved to. I am quite satisfied that a decision was made not to call her, because her evidence would not have assisted the Chens’ case. The failure strengthens the inference in the evidence that the Chens have unlawfully misappropriated the company’s money and are seeking to hide the transactions and where money owing to East World Australia may be.
·After Mr Chen had made a demand upon the Chans in March 2003 to be registered on the title, he withdrew moneys from Man Financial in the sum of $40,355.69 and $150,000 from a JB Were account and the evidence leads to the conclusion that those were moneys of East World Australia. He prevaricated as to where the moneys went and why he took the money out. Again, the evidence was so vague and uncertain that it is very difficult to know where the money went. His cross-examination showed Mr Chen as a dishonest person prepared to lie to gain his own ends.
·After receiving the letter in August 2003 dismissing him as a director of the company, he cleared money out of the family JB Were account and both he and his wife were extremely evasive in cross-examination as to where the money went and what it was used for. The money or a substantial part of it was East World Australia’s money. It was during this cross‑examination that it appeared that funds were transferred to the daughter.
·In paragraph 220 of his witness statement, Mr Chen gave evidence as to the movement of funds out of a Chen family JB Were account in August 2003. The amounts total a substantial sum in the order of hundreds of thousands of dollars. He was cross-examined as to where the money went. He prevaricated about where it went. He was asked why he transferred the money. Initially he said he could not remember why he transferred the money. However, in the written statement it is said that it was his money. Later he then said that he needed the money for litigation. However, this is not believable. At that stage, although the parties were in a state of dispute, there was no reason to believe that there would be lengthy litigation.
·He was asked about how many clients he saw in his medicine practice. His tax returns suggested that he saw approximately four per week over a period of years. However, in an affidavit he swore on 22 September 2003 in support of his case against the application for an interlocutory injunction, he deposed to treating at least 30 patients per week by the year 2000. His tax return for the same period revealed an average of about four. He said that the return must have been wrong. He said at some stage during the litigation he realised his tax return was wrong. He was not sure when he realised the error. He said everything was done in a rush. His attempts to explain away the inconsistency between the tax returns and the affidavit lacked conviction.
·He was cross-examined on his claim for $6,841 for car expenses in his tax return for the year ending 30 June 2003. He was unable to explain the claim and how it was made up. He in fact completed the return himself. He was unable to say on what basis he calculated the amount. He accepted the Tax Officer permitted different methods of calculation. Again, in my opinion, he was not telling the truth.
·He did not disclose in the same tax return the fact that he received substantial interest in the year ending 30 June 2003 in his JB Were cash trust account which was in the name of he and his wife. He informed the Court that he had made an enquiry of the Australian Tax Office and was told it was not income. I do not believe him. In paragraph 17 of his witness statement, he deposed to the fact that in September 2000 the family investments included $210,000 in a cash management account with JB Were. The documentation showed that interest was received on that investment but never appeared in the taxation return. His attention was also drawn to the fact that he did not disclose any dividends in respect to shares and other securities which according to his statement as at September 2000 were valued in excess of $200,000. He asserted that some companies do not pay dividends. Up until then he was extremely vague. When it was put to him that that was most unusual, he was immediately able to remember the names of companies which did not pay dividends.
·His attention was drawn to paragraph 15A of his defence filed 19 December 2003. There was nothing in the defence which stated that it was part of any agreement with the Chans or indeed East World Australia, that the Chens would have all their personal expenses paid by the company. Indeed, paragraph 15A asserts that the agreement was that East World Australia would reimburse him for “all expenses incurred in and about the course of his employment with East World Australia.” He had some difficulty accepting this contention. It was pointed out to him that the pleading was inconsistent with the agreement later pleaded. In attempting to explain this, Mr Chen again demonstrated that he would say anything if he thought it would assist his case.
·He was cross-examined about the change in his story. Reference was made to paragraph 15A of his original defence which does not allege that the Chens were to receive money from the company to cover all their living expenses. Paragraph 30 of his affidavit sworn 22 September 2003 does not suggest that it was. Paragraph 34 of the affidavit states that after receiving the $300,000 he told the Chans he would work for them and told them that it was necessary he should have sufficient income to look after his family and to compensate him for the risk. His attention was then drawn to his witness statement. Paragraph 38 is in the same terms as paragraph 30 of his affidavit. However, paragraph 39 of his witness statement adds a further conversation in which, according to him, it was agreed he was to receive payment from the company for all living expenses. Again, his evidence in relation to this change was far from convincing. He prevaricated and was evasive.

·The thrust of his evidence concerning the payment of the deposit of $165,000 for the Kooyong Road property was that the money came from the original $300,000 which he claimed was his compensation. On the other hand, when he sent a letter to Mrs Chan on 12 December 2000 he made reference to the payment of the deposit and impressed upon Mrs Chan to transfer “the balance before the 12^th of January”. He noted that on top of the purchase price there would be stamp duty and other expenses adding up to A$100k. He also noted that $100,000 had been deposited into the company bank account. There is nothing in that letter suggesting that he was to be reimbursed for the $165,000 as if the money was his. When pressed in cross-examination he said he made a telephone call explaining this, but that was denied and I do not believe him.
·He was cross-examined about the schedule attached to the amended defence and counterclaim filed in September this year itemising expenses to which he was entitled to be reimbursed by the company. It was drawn to his attention that there were a number of personal items claimed which had not been claimed in original schedules. It was put to him that he had to do this to be consistent with his present version that he was to receive all personal expenses from the company. He has changed his version. Whilst it is correct that he did send a list of expenses to Mr Lai setting out some of the expenses claimed, the fact is that the list is incomplete and shows that he is changing his version as the case progressed through the interlocutory stages.
·The most telling observations about Mr Chen’s credibility are his prevarication and evasiveness in answering questions about where funds went after they apparently were transferred out of accounts in the names of the company and various members of the Chen family in August-September 2003. It is impossible to say from the evidence where the money has gone and to know the actual bank accounts controlled by the Chens from August 2003 to the present. Mr Chen and Mrs Chen were determined not to reveal anything that they did not have to reveal and on occasions obfuscated, and on other occasions did not answer the question and were evasive.

In my opinion Mr Chen is not an honest witness. He falls into that category of witnesses whose evidence the Court would not accept unless it was supported by some other evidence or admitted.

Mrs Chen also adopted the same stonewalling attitude as her husband. She was loyal to him. She had a story consistent with his version. She was warned on a number of occasions by the Court that she must answer questions when she refused to do so. It was made clear to her that the Court may draw the inference that if she refused to answer questions, she was not honest. She said she understood. However, on a number of occasions she sought not to answer questions, did so in an evasive manner and stonewalled. Much of her evidence concerning where the money had gone was not credible and I drew the conclusion that she was not an honest witness.

Mrs Chen was prone to guess. At times she said her memory let her down. She was cross-examined about a JB Were cash trust account in her name and that of her daughter. A cheque was drawn on that account of $200,000 on 2 September 2003, apparently payable to the daughter. She first of all stated she did not know what the money was for. Then she said it was for her daughter and maybe her education. Then she stated she did not want to say because it was private. She was pressed to answer and cautioned by the Court. She then stated she could not recall. Some $600,000 was removed from that account on 2 September 2003 which was right in the middle of the stand-off between the parties leading to the institution of this proceeding. Mrs Chen was cross-examined at length about the movement of funds between the various accounts held at JB Were Cash Trust, funds which appeared to go from an account in the name of the three Chens to an account in her name and that of her daughter. She accepted that moneys were moved when shown that funds had gone in and out of accounts, but she was very vague as to why the moneys were moved and where they went. A very large sum of money was moved on 21 August 2003 which was a few days after Mr Chen had received the letter stating that he was no longer a director of the company and, secondly, after a demand had been made to hand over the company documents and give possession of the property. Where the moneys have gone is a mystery made more so by Mrs Chen’s evasiveness. She was also asked about a movement of money out of an account in the name of herself and her daughter, with JB Were Cash Trust dated 2 September 2003 for $400,000. She refused to answer the question and was warned that the Court may draw an adverse inference against her. Again her answers were evasive and lacking conviction.

In my opinion, both Mr and Mrs Chen lack credibility, they obstructed the Court from finding out the truth where moneys have gone, were prepared to lie if they thought it would assist their case, prevaricated and were evasive. I do not believe either of them unless their evidence was corroborated by independent evidence or was admitted. I prefer the evidence of Mr and Mrs Chan.

Mr Oliver Lai was called as a witness by the Chans. He was cross-examined. In my opinion he was a truthful witness doing his best to recall the events. In addition, the Chans’ daughter was called and cross-examined. I accept her as a witness of truth. However, she gives very little evidence which bears upon the issue of the three alleged agreements. However, it is noted that she gave evidence of a conversation in October 2000 when Mrs Chen told her mother that life in Australia was difficult and she was emotional. This is consistent with the Chans’ evidence that Mrs Chen was unhappy with her husband working nights. She gives evidence, which I accept, that on 2 February 2004 she attended at the Toorak property to take possession with her parents and observed that a large quantity of furniture had been removed from the house. This is relevant to the detinue claim. The law clerk, Olivia Brosnahan, was called by the defendants and I accept her as a credible witness. The remaining three witnesses called on behalf of the Chens were the relatives of the parties in mainland China who gave their evidence by audio-visual link. I will discuss their evidence later.

Early in the trial the Court informed the parties that objective evidence was important in the resolution of the two contradictory versions. Mr Cawthorn drew attention to a number of pieces of evidence which he submitted supported the Chens. First, he referred to the fact that the $300,000 sent on 20 October 2000 was sent to Mr Chen’s personal account. He said that supports the conclusion that the money was for Mr Chen. That appears to be an argument which Mr Chen believed was a good one. He said as much in evidence. He took the view that since the money had been sent to his account it must have been for him. In my view, it does not stand up to analysis. It is not logical. It is consistent with the Chans sending money at an early stage in the life of the company when there was doubt whether the company’s account at HSBC was operating. The argument fails for another reason. The moneys forwarded up to 15 February 2001 also contained the same statement in the customer advice, namely, that it was payment for Mr Chen. Mr Cawthorn also relied upon the fact that the accounts of the company for the years ending 30 June 2001 and 30 June 2002 showed loans made to the company in the order of $548,101 and in the accounts to 30 June 2003 the loans were in the order of $449,000. The evidence revealed that all told the moneys that were forwarded by the Chans for the company totalled somewhere in the vicinity of $843,402. It was submitted that by approving the accounts and the tax returns, the Chans were accepting that the first $300,000 was compensation. The fallacy of that argument of course is that the information given to Mr Lai at all times came from Mr Chen. Further, there is no evidence to suggest that Mrs Chan at any stage was aware of the amount in the accounts or tax return, or that she, with knowledge, approved the accounts showing a lesser figure for the amounts forwarded to the company.

Further, there is a discrepancy between what Mr Chen told Mr Lai and what appears in the financial documents. But as Mr Lai pointed out in evidence he applied a particular formula which did not rely upon the exact amount sent by the Chans. In evidence which I accept, he stated he had to balance the books and the amount he determined as the loans made to the company was calculated considering the information given by Mr Chen and the final amount was the addition of all debits. This amount appeared as the loans’ sum in the accounts. The evidence relating to the loan accounts does not, in my view, support the contention that the $300,000 was paid as compensation. When the survey documents were prepared for the Immigration Department in late 2002 and signed by Mrs Chan, the survey revealed that the value of assets invested in the business by the Chans was in the order of $550,000. This information was provided by Mr Chen and Mr Lai, based upon the accounts which were prepared to 30 June 2002. Indeed, Mr Lai signed a letter in English addressed “to whom it may concern” that Mrs Chan had contributed $550,000 for the company business. This was consistent with the financial statements prepared by his firm and accord with his approach to balancing the books. In my opinion, although Mrs Chan signed the survey of business migrants document, it was in English and was completed by Mr Chen and Mr Lai. I am not in any way persuaded that Mrs Chan was aware of the statement that she had contributed $550,000 or indeed was aware of the full amount that she had contributed. In my view, the fact that she signed it in those circumstances does not amount to an admission which assists the Chens’ case. The fact was that the Chans’ eyes, ears and tongue were Mr Chen and they relied upon him for his assistance. He had the knowledge of English and an understanding of various business matters in Australia including taxation and accounts. When it came to the Chans signing any documents in English, they had to rely upon Mr Chen.

The Chens also relied upon evidence given by three members of the family. They were Mr Min Chen, the father of Messrs Chan and Chen, their aunt Ms Qian Zhang, who is the sister of their mother, and finally, Ms Ying Chung Zhang, who is their cousin and whose mother is a sister of Messrs Chan and Chen’s mother. Each of these witnesses gave evidence from Shanghai by audio‑visual link through an interpreter. Each gave evidence of what Mr Chan allegedly said to each of them concerning what he had done for his brother. The scope for misunderstanding and error was obvious. Their evidence does not bear close analysis. It was apparent by the way they gave evidence that each had formed a certain view as to the outcome of the family dispute. Ms Zhang, the cousin of the brothers, in her witness statement stated that at the end of 2002, and some time between June and July 2003, Mr Chan had returned to his parents’ home in Wuxi, China, and was present when certain statements were made. She stated that Mr Chan told her on both occasions that he had spent over HK$10m purchasing a luxurious home in Melbourne for his brother and had set up a company for him. She said that Mr Chan stated that this had improved the quality of life of his younger brother and furthermore his income would increase. She said that he stated that the main purpose was that they would all live together when they got old. She also gave evidence that he stated that the house was jointly owned by his younger brother and himself, that he wanted to put his brother’s name on the deed but his younger brother did not want to because he apparently did not want his name on the title with Mrs Chan. She asserted with confidence in cross‑examination that he said this on two occasions. Mr Chan denied making any such statements. But importantly, by June and July 2003 there was a dispute brewing between the brothers because in March 2003 Mr Chen had contacted Mrs Chan demanding that his name be put on the title and if it was not, then he would no longer do anything for the company and wished to disassociate himself from it. I think Ms Zhang is mistaken as to what was said. There is no doubt that a company had been set up and that the younger brother had an interest in it. There was no doubt that it was hoped that the company and he would prosper and this would be good for all concerned. Her statement about the house being jointly owned and the reluctance of the brother to put his name on the title deed was because he did not want to be on with Mrs Chan was, in my view, wrong. I do not accept Ms Zhang’s evidence and in my view she was mistaken as to what was said.

The aunt gave evidence that she and her husband in the latter part of November 2002 went to Hong Kong sightseeing and caught up with Mr Chan who took them to a restaurant for dinner. Mrs Chan was not present. The aunt stated that during the course of the dinner Mr Chan said that he had bought a house for his brother and set up a company for him and that he did not want him to work as a security guard. The witness was elderly and according to a son who was present in the room for part of the time when she was giving evidence, she was not in good health. However, in my view she was also mistaken as to what was said. This conversation was alleged to have occurred in November 2002. She stated she was only recently asked to cast her mind back on the alleged conversation. Mr Chan denied that he told her he had purchased a house for his brother. Cross-examination revealed some confusion in the mind of the witness as to when she spoke to the Chens’ solicitor. In addition, her statement that Mr Chan had purchased a house for Mr Chen does not accord with the Chens’ version that both families own the house. The witness is an elderly woman, aged over 70 years, and I think she misunderstood what she was told. I do not accept her evidence that Mr Chan told her that he had purchased a house for his brother.

Finally, the brothers’ father gave evidence. He said that he first heard about the matter back in the latter half of 2001. Mr Chan came to see him in Wuxi and during the visit told him he had bought a house for Mr Chen. He had also set up a company. The father said he was told Mr Chan had set up the company to assist the brother because of the arduous working conditions that he had been involved in. He said the same discussion took place at a restaurant. Mr Chen was casting his memory back some four years. He is an elderly man of 81 years. The possibility of misunderstanding or error was obvious. He stated that Mr Chan said the house was purchased for Mr Chen but this was not the whole story because the property was purchased in Mrs Chan’s name. It was clear from his evidence that the father had been talking to his son Mr Chen and had some understanding of the issues in the case. I also observed that even on the Chens’ version it is not correct to say that he bought the house for Mr Chen. The father then said that on another occasion, namely on 9 September 2003, Mr Chan visited the home again. He stated that Mr Chan again mentioned that he had bought a house for his younger brother and that Mr Chen did not want his name on the title and that the only names would be Mr and Mrs Chan. He also gave evidence that Mr Chan said that Mr Chen had taken them to Court. He admitted that he has been speaking to his younger son. Mr Chan denied any such conversation. It is noted that by 9 September 2003 the proceeding had been instituted and the parties were very much in dispute. Mr Chan could not have possibly stated that the Chans had purchased a home for the younger brother. Reference to the statement of claim attached to the writ which was issued on 2 September 2003 shows that the Chans claimed possession of the house as owners. In my opinion, the father was mistaken and misunderstood what had been said. He and the others have clearly discussed the case amongst themselves. I do not accept their evidence. I accept the evidence of Mr Chan in relation to these alleged conversations. In my opinion, each of the witnesses is mistaken as to what had been said.

It follows that in my opinion the Chens have failed to establish each of the three agreements alleged. They are not credible witnesses. I prefer the evidence of Mr and Mrs Chan. Not only have the Chens failed to prove the agreements but on the evidence I find that no such agreements were made. Further, there is other evidence which supports my conclusions.

Mr Chen gave evidence that the immigration agreement did not come into being until after the Chans had left Australia in October 2000 and he had received the $300,000. This was the evidence he gave at trial. It was important to the Chens’ case that the agreement came into being after they had received the $300,000. Mr Chen said that he was unsure whether he would accept employment with the new company and give up his employment. In the affidavit sworn in the interlocutory proceeding, on 22 September 2003, Mr Chen stated that he did not finally agree to the proposal until after the receipt of $300,000. Mr Lai gave evidence of a conversation he had with Mr and Mrs Chan and Mr Chen on Monday, 16 October 2000 in Sydney. His evidence was that he was introduced to Mr Chen and told that he would be the contact person in relation to the company they decided to set up in Melbourne. The Chans told Mr Lai in Mr Chen’s presence that Mr Chen would be employed in the company. Mr Lai gave evidence that he was told that Mr Chen was to receive 30% of the shareholding in the new company as an incentive to earn profits, that the capital funds would come from Mr and Mrs Chan and that Mr Chen would be employed by the company and handle the work because Mr and Mrs Chan would be living overseas. I accept the evidence of Mr Lai. It confirms the evidence of Mr and Mrs Chan. And it also accords with what one would expect on the setting up of the business in Australia, especially taking into account the Chans’ understanding of English, their desire to continue living in Hong Kong and the necessity to set up an Australian business.

Further, in the defence and counterclaim filed by the Chens on 19 December 2003, it is asserted in paragraph 15A what the terms of an employment agreement were but no mention was made that the family expenses were to be paid by East World Australia. There was no mention in the pleaded immigration agreement that the company would pay the personal expenses of the Chens. This has been added in the amended counterclaim. See paragraph 66(n). It is also noted that when first pleaded it was stated that the Chans would pay suitable compensation whereas in the later amended statement of claim it is alleged that the sum was at least $300,000.

Further, when the dispute arose in late August 2003, correspondence passed between lawyers acting for the parties. In a letter dated 22 August 2003, addressed to the Chans’ solicitors, the Chens’ then solicitor, Mr McNichol Smith, asserted –

“On instructions given to me, my clients have the present right to occupy the property at 178 Kooyong Road Toorak as a result of agreements made with your clients and representations made by them.”

Mr McNichol Smith went on to observe that there was a complex history to the present dispute and asserted “there are events and circumstances which will entitle my clients to compensation as a consequence of the conduct of your clients.” The conduct he was referring to was the demand that vacant possession be provided to the Chans. There is nothing in the letter suggesting that Mr Chen and/or Mrs Chen had any interest in the property. The Chans’ solicitors responded that same day and the following appears:

“Our clients own the property. As they were running a business in Hong Kong it was suggested that your client could live in the property rent free until our clients needed it. This is a perfectly straightforward arrangement within a family. There is and never has been any form of tenancy, periodic or for a fixed term, just an informal arrangement by which one family member could live in another family member’s home until the latter came to Australia.
Your client has never paid any rent or outgoings or insurance.”

I raised with counsel this correspondence and invited counsel to produce any other relevant correspondence. None was produced. The writ in fact was issued on 2 September 2003. The exchange of letters provide some evidence which is against the version of the Chens. The additional evidence reinforces the conclusion I have reached.

With respect to the registration agreement, the law clerk, Ms Brosnahan, who handled the conveyance, made a file note that “Mr Chan” was to be added later. I infer that is a reference to Mr Chan and not Mr Chen. Further, as the law clerk accepted, it would not be wise to permit a transfer into the name of one person on the basis that an interest would be later transferred to another person who was not the spouse of the first person because this would attract stamp duty. Further, as the law clerk stated, she would not be a party to any application for a first home buyer’s grant on the basis of covering up an interest of another. In addition, when the parties visited the Titles Office in February 2002 and the property was also transferred into the name of Mr Chan, there was no suggestion that Mr Chen’s name would be added. These facts also reinforce my conclusion. I also add that Mrs Chen, being the person who signed the contracts purchasing the property in Toorak, signed a declaration being the nominee purchaser statutory declaration, in which she declared that she received no benefit under the contract. On one view of the evidence put forward by the Chens, it was intended that she should have a half interest with Mr Chen in the property.

The Chens have failed to prove the agreements, and accordingly claims that the agreements have been breached must fail. The Chens also pleaded a claim based on promissory estoppel, the representations being much in accordance with the pleaded immigration agreement, namely, that David Chen would do certain things and the Chans would register Mr Chen as a joint registered proprietor of the Toorak property with Mrs Chan to hold it in trust for the spouses and them. This claim of course relies on the evidence of the Chens which I do not accept. That claim must fail. A claim is also made in the alternative that the Chans hold the property on a constructive trust. This is based upon the matters asserted in support of the promissory estoppel claim and again is based upon representations made. As I do not accept the Chens’ evidence that claim must also fail.

In addition, Mr Chen has claimed damages for wrongful dismissal. It was said that reasonable notice was in the order of three months. He was summarily dismissed. However, that was on the basis that he was misappropriating moneys of the company. Mr Cawthorn accepted that if the Chens failed to prove the immigration agreement and the reimbursement agreement then it followed that the Chans were entitled to cause the company to dismiss him. This claim fails.

It appears that according to East World Australia’s records that Mr and Mrs Chen were to be paid a salary for the years ending 30 June 2002 and 2003. The sums have not been paid. It is asserted that the damages for breaches of the Agreements included loss of income. These agreements have not been proven. However, it appears that the Chans accept that the Chens apparently were not paid the salaries. I will defer consideration of the claims until I deal with the claims made by the plaintiffs. Allied with this is a claim for reimbursement. However, it is clear that Mr and Mrs Chen have misappropriated moneys of East World Australia and any amounts that may be owing to them have been exceeded by the moneys which they have misappropriated.

It is now necessary to consider the claims made by the plaintiffs.

Plaintiffs’ claims

When the proceeding was instituted the plaintiffs had a number of claims which have now been overtaken by events. Mr and Mrs Chan are in possession of their property. They are registered as proprietors. It is unnecessary to make any order declaring their rights. Mr and Mrs Chen do not have any rights to the property. They should remove the caveat lodged on their behalf as soon as possible.

The company, the third plaintiff East World Australia, is entitled to its documents which at present are in the custody of the Court. If necessary an order can be made to that effect.

A. Claim in detinue and conversion

In paragraph 9 of their amended statement of claim, it is asserted that the three defendants wrongfully removed certain chattels belonging to Mr and Mrs Chan from the Toorak property and wrongfully detained same and converted them to their own use. In their amended further and better particulars filed 5 October 2005, Mr and Mrs Chan claim seven items of furniture, having a value totalling $11,950. Little attention was paid in the course of the trial to the claim. It originally was for some 13 separate items but the claim has now been reduced. Mrs Chan gave evidence that when she and her husband took possession of the property in February 2004 there were certain items of furniture which had been removed and which belonged to them. Her evidence was supported by her daughter. Mrs Chen has admitted that items 3, 5, 7 and 13 were taken by the Chens and the Chens state that they have allowed the value of those items against amounts owing to them. Their value is $6,150. She states that the bedroom suite being item 1, was a gift to their daughter. This has a value of $1,500. They say they know nothing about the white Chesterfield lounge valued at $4,000. They say the coffee table, valued at $300, was left behind. I accept the evidence of Mrs Chan and accordingly there will be a judgment for Mr and Mrs Chan against Mr and Mrs Chen in the sum of $11,950 being the value of the chattels itemised on the Amended Further and Better Particulars dated 5 October 2005, as numbered 1, 3, 4, 5, 7, 2 and 13.

B. Recovery of moneys misappropriated

Each of the plaintiffs have claims against Mr Chen and/or Mrs Chen and/or the daughter in relation to moneys which belong to Mr and Mrs Chan and the companies. The plaintiffs seek an account of the moneys misappropriated. The evidence establishes that Mr and Mrs Chen have misappropriated moneys belonging to the Chans and the companies and also that their daughter, the third defendant, at some time in 2003 had money of the companies in bank accounts in her name. An attempt has been made in the evidence to determine the amounts which are missing and which belong to one or other of the plaintiffs. However, it is quite clear also that moneys appear to be owing to Mr and Mrs Chen for moneys paid by them for some company expenses. They are entitled to be reimbursed amounts so paid. In addition, it is accepted that Mr and Mrs Chen did not receive the salaries which the company in its tax returns reveals were paid and it also appears that Mrs Chen was not reimbursed for the expenses involved in the sale of the Coogee woollen knitwear. I may say in relation to the latter that there is some doubt about whether or not the purchaser of the items in China paid Mrs Chen any money. Her evidence in relation to that issue was evasive and it is uncertain as to what the true position was. In the end it is said on behalf of the plaintiffs that taking into account allowances made, the sum owing by the defendants to all plaintiffs is in the order of $734,304.70.

Neither party called an accountant to determine what sums of money were owing to the Chens and what amount of money was owed by the Chens to each of the plaintiffs. On the other hand, counsel for the parties produced documents which set out in step‑by‑step form and by reference to tables, what each party contended was the true financial position after making allowances for moneys owed to the Chens. It is apparent from these documents that the lawyers have a fairly good understanding of the movement of the funds and what amounts are due and owing to each side. However, it is not possible for the Court on the evidence to state with any degree of certainty what is the final sum owing by the defendants to the plaintiffs other than to say that it is clear the Chens have misappropriated moneys belonging to at least the first, second and third plaintiffs.

There is evidence before the Court of payments of money by Mr and Mrs Chan to Mr Chen which were intended to be company money and money to be used for the purchase of the house. I am satisfied that some of the money has been misappropriated. There is also a very strong suspicion that some of the company’s money was invested and the Chens obtained interest on the investment. I am also satisfied that the Chens are entitled to some reimbursement for moneys paid by them for the expenses of the company, their salaries which were noted in the records but which were not paid, and it does appear that Mrs Chen was not paid for the Coogee transaction. The two documents prepared by the parties, namely, the amended further and better particulars dated 5 October 2005 filed on behalf of the plaintiffs, and the document prepared on behalf of the defendants being a commentary on summaries of funds claimed by the plaintiffs, produced by Mr Cawthorn in final address, indicate a degree of agreement between the parties as to the sums owing. However, some of the references are to documents which do not appear to be before the Court. Nevertheless, there are sufficient documents in evidence which enable the Court to make some findings of fact. In my opinion , justice is best served if orders are made that an account be taken of the dealings and transactions of Mr and Mrs Chen with the property of the plaintiffs during the period from 20 October 2000 to the present. The evidence did not enable the Court to determine what were legitimate company expenses and with a degree of certainty the moneys due by the company to the Chens in relation to expenses paid by them. I make the following findings based on the evidence before the Court –

· That Mr and Mrs Chen have mixed money of Mr and Mrs Chan and the third plaintiff, East West Australia, with their own funds.

· The three defendants have misappropriated substantial sums of money which belong to the plaintiffs and are obliged to account to the plaintiffs.

· That the plaintiffs forwarded to Mr Chen between 20 October 2000 and 20 March 2002 $853,402.86. This money has been intermingled with the Chens’ money. It is impossible to say what amount, if any, is left and where the money now is.

· That moneys are owing to the Chens for wages recorded in the books of the company East World Australia but which have not been paid to them.

· That the Chens are entitled to some amount for expenses paid by them on behalf of the company.

· That moneys are owing to the Chens in respect to the purchase of the Coogee knitwear but the Chens have failed to account for any money either may have received as a result of the sale of the knitwear in China.

In my opinion it is appropriate to make orders that accounts be taken. The parties appear to have a reasonably good understanding of the documentation and have prepared summaries which may in the light of the findings made enable the paties to determine what is owing. It may be that the parties can agree on an independent accountant determining what is owed taking into account the various allowances owing to the Chens.

I will hear the parties on the form of orders.

Conclusion

In my opinion, the plaintiffs are entitled to recover sums of money misappropriated by the Chens. The first and second plaintiffs are entitled to judgment for damages for goods and chattels taken and converted by the Chens. The judgment is against Mr and Mrs Chen. The claims brought by Mr and Mrs Chen are dismissed and there should be judgment for the plaintiffs on the counterclaim. The latter is subject to any moneys owing to the Chens and I will hear the parties on how to deal with the claims. In the light of the conclusion on the agreements, there may not be any cause of action pleaded in the counterclaim for recovery of the amounts.

I will hear the parties on the form of orders and interest on damages and costs.

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[2005] VSC 432

11 November 2005