Chung-Yi Pty Ltd v Chih-Yang Chang (No 2)

[2018] NSWSC 1112

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Chung-Yi Pty Limited v Justin Chih-Yang Chang (No 2) [2018] NSWSC 1112
Hearing dates:	30 April 2018, 1 to 4, 7 to 11, 14 to 18 and 21 to 25 May 2018
Decision date:	20 July 2018
Jurisdiction:	Equity - Commercial List
Before:	Ball J
Decision:	See paragraphs 175 to 178
Catchwords:	CORPORATIONS – Directors and officers – Directors’ duties – Duty of care and diligence – Business judgment rule – Relief from liability under ss 1317S, 1318, 1322(4) of the Corporations Act 2001 (Cth) CORPORATIONS – Directors and officers – Directors’ duties – Duty to act in good faith in the best interests of company and for proper purpose – Relief from liability under ss 1317S, 1318, 1322(4) of the Corporations Act 2001 (Cth) CORPORATIONS – Directors and officers – Directors’ duties – Duty not to use position as director or officer improperly – Relief from liability under ss 1317S, 1318, 1322(4) of the Corporations Act 2001 (Cth) EQUITY – Fiduciary duties – Unauthorised profit – Informed consent EQUITY – Defences – Unclean hands – Nexus between claim and claimant’s disentitling conduct EQUITY – General principles and maxims – Those who seek equity must do equity – Nexus between claim and claimant’s purported failure to do equity CORPORATIONS – Members’ rights and remedies – Oppression – Whether conduct is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member EQUITY – Defences – Statutes of limitation – Application by analogy – Application by analogy of exception for fraud and deceit pursuant to s 55 of the Limitation Act 1969 (NSW) EQUITY – Defences – Laches and acquiescence – Where a substantial part of the plaintiffs’ delay is justified or attributable to the defendant’s conduct – Whether the disadvantage or prejudice was caused by the plaintiffs’ delay EQUITY – Trusts and trustees – Breaches of trust – Misappropriation of trust property – Whether money held on trust for family members EQUITY – Fiduciary duties – Unauthorised profit – Remedial trust construed in favour of beneficiaries of fiduciary duties CORPORATIONS – Winding up – Grounds for winding up – Whether it would be just and equitable to wind up company under s 461(1)(k) of the Corporations Act 2001 (Cth)
Legislation Cited:	Corporations Act 2001 (Cth) Limitation Act 1969 (NSW)
Cases Cited:	Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256; [2006] HCA 27 Blatch v Archer (1774) 98 ER 969 Brady v Stapleton (1952) 88 CLR 332 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; (2009) 257 ALR 610 Cassegrain v Gerard Cassegrain & Co Pty Limited (2013) 305 ALR 648; [2013] NSWCA 454 Chase Corporation (Australia) Pty Ltd v North Sydney Brick & Tile Co Ltd (1994) 35 NSWLR 1 Chung-Yi Pty Limited v Justin Chih-Yang Chang [2018] NSWSC 410 Corbett v Corbett Court Pty Ltd [2015] FCA 1176 Crawley v Short [2009] NSWCA 410 Frith v Cartland (1865) 2 Hem & M 417 Gerace v Auzhair Supplies Pty Ltd (In Liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 Gibson v Goldsmid (1854) 5 De GM & G 757; [1854] 43 ER 1064 Henderson v Queensland (2014) 255 CLR 1 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 In the Matter of Auzhair Supplies Pty Ltd (in liq) (2013) 272 FLR 304; [2013] NSWSC 1 Langman v Handover (1929) 43 CLR 334 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 O’Neill v Phillips [1999] 1 WLR 1092 Re Ledir Enterprises Pty Limited [2013] NSWSC 1332 Swain v Waverley Municipal Council (2005) 220 CLR 517; [2005] HCA 4 Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; (1985) 61 ALR 225
Category:	Principal judgment
Parties:	Chung-Yi Pty Limited (ACN 003 775 764) (First Plaintiff) Chih-Shih Cheng (Second Plaintiff) Chih-Chung Cheng (Third Plaintiff) Chang Ling-Ling Wang (Fourth Plaintiff) Ching-Ching Cheng (Fifth Plaintiff) Shirley Chen Hsui-Ju Cheng (Sixth Plaintiff) Chen Tsui-Miao Cheng (Seventh Plaintiff) Chao-Ching Wang (Eighth Plaintiff) Justin Chih-Yang Chang (Defendant)
Representation:	Counsel: A Leopold SC with C Bova and B Ng (Plaintiffs) LV Gyles SC with C McMeniman (Defendant)   Solicitors: Watson Mangioni Lawyers (Plaintiffs) Martin Musgrove Lawyers (Defendant)
File Number(s):	2016/24917
Publication restriction:	None

Judgment

Introduction

1. Cheng Chung-Yi (Mr Cheng) was a highly successful businessman in Taiwan. He died in August 2012. He is survived by five children. The eldest, Chang Justin Chih-Yang (Justin), is the defendant. Mr Cheng’s two younger sons, Cheng Joseph Chih-Shih (Joseph) and Cheng Chih-Chung (Chih-Chung), are the second and third plaintiffs respectively. His two daughters, Wang Chang Ling-Ling (Ling-Ling) and Cheng Tiffany Ching-Ching (Tiffany), are the fourth and fifth plaintiffs respectively.

2. In 1988, Mr Cheng and his family obtained permanent residence and subsequently citizenship in Australia or, in the case of Chih-Chung, in New Zealand. Mr Cheng, his wife, Justin and Joseph moved to Australia in 1988. At about that time, Mr Cheng bought houses for himself and for Justin, who continues to live here. Joseph moved back to Taiwan in 2008. However, he, Ling-Ling and Tiffany all keep residences in Sydney and Ling-Ling and Tiffany spent substantial amounts of time here, at least in the 2000s. Mr Cheng returned to Taiwan in 2004, when his wife became ill. Mrs Cheng died in Taiwan on 4 December 2004 and Mr Cheng remained there until about mid‑2007, when he returned to Australia. He remained in Australia until December 2009, when he moved back to Taiwan because of the deterioration in his health.

3. In 1989, Mr Cheng established the first plaintiff, Chung-Yi Pty Limited (Chung-Yi), to hold his investments in Australia. Its original directors were Mr Cheng, his wife, Justin and Joseph. On 3 September 1993, Justin’s wife, Teresa, was appointed as a director. On 1 March 2001, Justin’s daughter, Yolanda, was appointed as a director and on 30 March 2004, Justin’s daughter, Christina, was also appointed as a director.

4. The shareholding in Chung-Yi changed following Mrs Cheng’s death and also following Tiffany’s divorce from her first husband. However, at all relevant times prior to 30 November 2016, Mr Cheng (or his Estate) held approximately 16.67 per cent of the issued capital of Chung-Yi, Justin held 10.83 per cent and Teresa held 8.33 per cent, Joseph held 10.83 per cent and his wife, Shirley, who is the sixth plaintiff, held 8.33 per cent, Chih-Chung held 10.83 per cent and his wife, Tsui-Miao, the seventh plaintiff, held 8.33 per cent, Ling-Ling held 6.67 per cent and her husband, Chao-Ching, the eighth plaintiff, held 8.33 per cent and Tiffany held 10.83 per cent.

5. Between 1989 and 1994, Chung-Yi bought the following properties:

1. 470 Northbourne Avenue, Canberra (Northbourne Avenue) on 31 July 1989 for $19,685,000;

2. 19-29 Moore Street, Canberra (Moore Street) on 22 December 1989 for $10,850,000;

3. 7-11 Barry Drive, Canberra (Barry Drive) on 2 November 1992 for $7,500,000;

4. AAMI House, 500 Queen Street, Brisbane (Queen Street) on 30 September 1993 for $15,591,418;

5. 88 Leichhardt Street, Spring Hill, Brisbane (Spring Hill) on 15 December 1993 for $6,136,325; and

6. 39 Sherwood Road, Toowong, Brisbane (Toowong) on 22 November 1994 for $6,555,661.

6. The purchase price for the properties was funded from the capital of the company, which totalled $11,000,000, loans made by Mr Cheng through individuals who were resident overseas and commercial borrowings from Westpac Banking Corporation. In his affidavit evidence, Justin refers to the accounts in the names of individuals through whom Mr Cheng lent money to Chung-Yi as “External Chung-Yi Money Fund” (ECYMF) accounts. It will be convenient to adopt that terminology in this judgment.

7. Most often, the ECYMF accounts were opened in the name of family friends or business associates of Mr Cheng, although the first ECYMF account was opened in the name of Tsiu-Miao and, in all, four ECYMF accounts were held in her name (together, the TM Accounts). In 2004, Chih-Chung became ill and in early 2005 Justin, exercising a power of attorney that Chih-Chung had given to him, opened accounts in Chih-Chung’s name with UBS in Singapore. Chih-Chung says that the accounts were opened for the purpose of receiving his share of distributions made to family members from Chung-Yi and ECYMF accounts at a time when he was too ill to focus on managing his own affairs. Justin, on the other hand, describes the accounts in his affidavit evidence as ECYMF accounts that were set up in anticipation of the sale of properties by Chung-Yi and the need to repatriate capital and distribute profits. Although it appears that two accounts were opened, nothing turns on which account money was paid into or out of; and it will be convenient to refer to the two accounts in this judgment as “Chih-Chung’s UBS account”.

8. Justin says in his affidavit evidence – and that evidence is consistent with evidence given by his siblings – that Mr Cheng was very “hands-on” in the way he managed the family business and that he made all important decisions in relation to it and in relation to Chung-Yi in particular. However, Justin, at his father’s direction, became responsible for managing the day to day affairs of Chung-Yi and for that purpose Justin had control of Chung-Yi’s bank accounts and operated each of the ECYMF accounts under powers of attorney that had been granted to him by the account holders. It is common ground that those accounts were not operated by the persons in whose names they were held and that the money held in those accounts generally belonged to Mr Cheng or his family and was controlled by Justin.

9. In the early years, the income earned from the properties acquired by Chung-Yi was used to fund later acquisitions and to repay bank loans or to pay interest on the ECYMF loans that was then used in Mr Cheng’s Taiwan businesses. However, from 2000 or thereabouts, the interest paid on money lent to Chung-Yi in the name of ECYMF account holders and any profit earned by Chung-Yi after the payment of interest was distributed to family members in accordance with directions given by Mr Cheng in handwritten notes (in Chinese) which he sent to each of his children. It was left to Justin to give effect to those directions. It will be necessary to say more about individual directions later in this judgment. It will also be necessary to return to the question whether Mr Cheng gave any relevant directions orally and, if so, what they were. For present purposes, it is sufficient to observe that Mr Cheng’s directions did not necessarily bear any relationship to the parties’ respective shareholdings in Chung-Yi and that all parties accept that, to the extent that Justin distributed money in accordance with his father’s directions, no criticism can be made and no claims arise out of the distributions he made.

10. On 11 July 2006, Chung-Yi sold Moore Street for $11,350,000 and Barry Drive for $8,150,000. There is a dispute about whether that occurred without Mr Cheng’s consent, but in any event, following those sales, Mr Cheng agreed to a sale of the other properties. On 29 October 2007, Chung-Yi sold Queen Street for $48,500,000. On 31 March 2008, it sold Toowong to JemCorp Pty Ltd, a company controlled by Justin, for $23,000,000. On 30 June 2009, it sold Spring Hill to Yi Shiu Pty Ltd, a company controlled by Ling-Ling and Tiffany, for $9,750,000 and on 22 October 2009 it sold Northbourne Avenue to Chung-Yi Developments Pty Ltd (CYD), a company controlled by Joseph and Chih-Chung, for $27,400,000. Mr Cheng gave various written directions in relation to the distribution of the proceeds of sale of those properties, which family members should buy which properties and at what price.

11. For reasons which were never adequately explained by Justin, from about 2007, he began making payments to ECYMF accounts from Chung-Yi accounts, payments between ECYMF accounts and payments from ECYMF accounts to the accounts of family members which bore no relationship to the payment of interest on the ECYMF loans or the repayment of those loans following the sale of the relevant properties. In addition, there is some evidence that on occasions Justin paid his own money into ECYMF accounts. There is, for example, evidence of direct payments by Justin of amounts into the ECYMF accounts held in the name of Tsui-Miao. The position is further complicated by the fact that Justin operated an account which in cross-examination he referred to as “the Big Family Account” into which it appears some money owned by Chung-Yi was paid and from which he says he paid some of his siblings’ household expenses, although, as will become apparent, there is no evidence that any of the money in question in this case was paid into or out of the Big Family Account and therefore the operation of that account is of no relevance to the resolution of the issues in this case.

12. The position is also further complicated by the fact that statements are not available for all relevant accounts. The result is that there is a labyrinth of payments between accounts belonging to Chung-Yi, ECYMF accounts and accounts of family members and, despite detailed investigations by the parties’ advisers, including forensic accountants, it is not possible to determine accurately what ultimately became of all the money belonging to Chung-Yi.

13. As finally put, the plaintiffs make two types of claim against Justin. First, they allege that Justin made five payments to himself from Chung-Yi money that were not authorised by Chung-Yi or Mr Cheng. It is alleged that those payments were made in breach of his duties as a director arising from ss 180-182 of the Corporations Act2001 (Cth) and his fiduciary duties, and that Chung-Yi is entitled to recover those payments plus interest.

14. Second, it is alleged that Justin paid to himself money held in the TM Accounts which was either held in those accounts on trust for the family or, alternatively, on a constructive trust in favour of Chung-Yi because the money was paid from Chung-Yi without authority.

15. In relation to the first claim, Justin disputes that he made any payments to himself without authority. He also maintains that his father told him on several occasions that the assets of Chung-Yi should be distributed equally between the five children and that to the extent that the distributions attracted tax, Chung-Yi “must pay all taxes”. Justin contends that after taking account of amounts paid in respect of tax, he distributed roughly the same amount to the five children. Justin also maintains that if the payments in question to himself were unauthorised, then so too were payments to, and other benefits received by, other family members and that it would be unjust if he were required to repay the moneys claimed by Chung-Yi if his siblings were not. That defence is put as a defence of unclean hands or as a cross-claim for relief for oppression. More will be said about that cross-claim shortly. In addition, Justin relies on a limitation defence, a defence of laches and defences under s 180(2) of the Corporations Act (where a director makes a business judgment in good faith and for a proper purpose). In response to the limitation defence, the plaintiffs rely on the exception to any six year limitation period created by s 55 of the Limitation Act 1969 (NSW) in respect of causes of action based on fraud or deceit or which were fraudulently concealed. Lastly, Justin seeks to be relieved of liability under ss 1317S, 1318 and 1322(4) of the Corporations Act (which gives the Court power in certain circumstances to relieve a person who has acted honestly from a liability in respect of a breach relevantly of ss 180-182).

16. In relation to the claim based on the amounts paid to Justin from the TM Accounts, Justin denies that he held that money on trust for “the family”, whatever precisely that expression means. He also maintains that the plaintiffs have failed to establish that the amount Justin was paid from the TM Accounts came from Chung-Yi.

17. The relationship between Justin and his siblings broke down following the sale of Moore Street and Barry Drive. The reasons are the subject of dispute. In any event, from about the time of those sales, Justin’s siblings began to distrust him. Some of them started asking for information about the affairs of Chung-Yi. In response, in January 2011, Justin’s son, Lawrence, went to Taiwan and provided each of them with a CD containing financial and other information relating to Chung-Yi together with a printout of the material on the CD. The material included a spreadsheet prepared by Wong & Mayes, Justin’s and Chung-Yi’s accountants, on Justin’s instructions (Justin’s spreadsheet), which purports to provide details of the payments made by Chung-Yi to each family member together with a number of Mr Cheng’s handwritten directions which were annotated by Justin. Without some explanation, the material contained on the CD provides little assistance in understanding the financial affairs of Chung-Yi. Justin’s spreadsheet has since been revised on at least two occasions by Justin. It will be necessary to say more about the final version later in this judgment. Justin’s siblings paid little attention to the information they were provided; and, for reasons which are not clearly explained in the evidence, they did nothing more in relation to the affairs of Chung-Yi for a period of time.

18. At some stage, however, Justin’s siblings began to investigate the affairs of Chung-Yi in more detail. There are some suggestions in the evidence that that was prompted in part by the receipt by Tiffany of a substantial tax bill and a conversation that Tiffany had with Ms Grace Law, an employee of Wong & Mayes, who informed her that Justin proposed to dissolve Chung-Yi.

19. On 23 April 2014, a meeting of shareholders of Chung-Yi was held in Taiwan. Joseph was elected Chairman and at that meeting, Justin, Teresa, Yolanda and Christina were removed as directors of Chung-Yi and replaced by the individual plaintiffs. On 17 October 2014, Chung-Yi commenced proceedings against Justin to obtain the company’s records. Those records were produced to the Court on 22 October 2014.

20. On 25 January 2016, the plaintiffs commenced these proceedings. On 14 October 2016, Justin sought security for costs in the proceedings in the sum of $475,000. After initially resisting the provision of security, Chung-Yi agreed to provide it. It raised the amount of security through a rights issue which was completed on 30 November 2016. Justin and Teresa elected not to take up their entitlements under the rights issue. Nor did the Estate of Mr Cheng take up its entitlement. The result is that Justin’s, Teresa’s and the Estate’s shareholding in Chung-Yi has been diluted. By his cross-claim, Justin seeks declarations that the conduct of Chung-Yi in bringing the proceedings against him and not his siblings, and in raising security through the rights issue, was oppressive, unfairly prejudicial to, or unfairly discriminatory against, him. He also seeks consequential orders including:

1. An order under s 233 of the Corporations Act that Chung-Yi take proceedings to seek recovery payments made to his sibling shareholders between 2006 and 2014;

2. Alternatively, orders pursuant to s 461(1)(e), (f) or (k) of the Corporations Act that Chung-Yi be wound up; and

3. A declaration that the rights issue was invalid and consequential orders cancelling or forfeiting the shares issued under it.

The claim based on payments to Justin

Further background

21. Before addressing the claim to recover money paid by Chung-Yi to Justin directly, it is necessary to say something more about the background.

21. As I have said, the Moore Street and Barry Drive properties were sold on 11 July 2006. The net proceeds of sale were paid to Chung-Yi and from there to ECYMF accounts where they were held on deposit until November 2007, when they were distributed in accordance with Mr Cheng’s directions.

22. Justin says that the sales occurred following a conversation he had with his father in 2006 in which his father said that he had “decided that the Company should be wound down”. I do not accept that evidence. In my opinion, it is more likely that the properties were sold without Mr Cheng’s knowledge or authority. Tiffany gives evidence of a conversation she had with Justin in about April 2007 in which Justin said that he wanted “to sell everything we have here and share it amongst ourselves” and that he was “sick of dealing with it”. Tiffany also gives evidence of a heated argument between Mr Cheng and Justin at Mr Cheng’s house in June 2007, which she witnessed, during which Justin first told Mr Cheng that he had sold the two properties. That evidence is consistent with evidence given by Ling Ling who says that Justin told her in early 2007 that he had sold the two properties and that he had not yet told their father. It is also consistent with evidence given by Joseph and Chih-Chung that, towards the end of his life, Mr Cheng was often critical of Justin and of the fact that he sold the two properties without his consent.

23. In my opinion, the evidence of Justin’s siblings is more plausible than the evidence given by Justin on this topic. It is apparent that Mr Cheng was proud of his achievements and that he was keen to leave what he had achieved as a legacy for his family, to whom he was devoted. Chung-Yi was structured in a way that suggested that Mr Cheng intended that it would continue as a family company after he and his wife had died. In July 2005, Mr Cheng gave detailed instructions in relation to the distribution of his wife’s Estate. In those instructions, he said (quoting from the English translation):

The assets of ChungYi Company, the business itself as well as you all are the outcome of all the efforts of our family. Your deceased mother carried out Father’s business insights with Chih-Yang [Justin], built this family business, and established the company structure. Wishing all my immediate family to work together with Chih-Yang to help or develop the business, and specifically pass the business down as per the share ratio for growth.

25. It is apparent from this note that Mr Cheng intended that Chung-Yi’s business would be passed down to family members. It is unlikely that two years later he would have proposed that his legacy be dismantled without any compelling reason to do so, as Justin suggests. The family relationship began to breakdown in about 2007 and it is difficult to understand what brought that about if all family members agreed that Chung-Yi should be wound-up and its assets distributed between the children. There is no suggestion that Mr Cheng wanted to wind-up Chung-Yi contrary to the wishes of his children other than Justin. The only plausible explanation of what happened was that Justin wanted Chung-Yi to be wound up, that he started that process without his father’s knowledge, that Mr Cheng was upset when he found out what had happened and that Justin’s siblings took their father’s side on the issue. That conclusion is supported by the fact that Mr Cheng did not give directions for the distribution of the net proceeds of sale of the Moore Street and Barry Drive properties until July 2007, approximately 12 months after the properties had been sold. It also explains the train of events that led to these court proceedings. To a greater or lesser extent Justin’s siblings tailored the evidence they gave in cross-examination in a way that they thought would assist their case. However, I do not think that any of them was dishonest and I do not think their evidence of the falling-out between Justin and Mr Cheng was manufactured. I accept that evidence, which is consistent with the objective facts.

26. Justin submits that there was no breakdown in the family relationship while Mr Cheng was alive. He points to the fact that none of Mr Cheng’s notes refer to a breakdown in the relationship; and to the fact that Mr Cheng took no steps to limit Justin’s authority in dealing with the affairs of Chung-Yi. I do not accept that submission. The matters that Justin points to are simply evidence that Mr Cheng was keen to preserve whatever family harmony he could, notwithstanding what had happened.

27. Mr Cheng gave directions for the distribution of the net proceeds of sale of Moore Street and Barry Drive in a handwritten note dated July 2007. That note recorded that the net proceeds of sale were approximately $9,960,740. The note then relevantly states:

The fund as listed above has now been transferred to overseas (Singapore), and can be distributed at an appropriate time (about 4 months later). Now Father makes the following allotment roughly according to the shareholding ratio (Father distributing to his children)

Chih-Yang, $2.3 million;

Chih-Shih, $2.3 million;

Chih-Chung, $2.3 million;

Ling-Ling, $1.8 million; and

Ching-Ching, $1.26 million

28. As I have said, on 29 October 2007, Chung-Yi sold Queen Street for $48,500,000. It is unclear how that sale came about, although it is common ground that that sale occurred with Mr Cheng’s consent. By that stage, it seems that Mr Cheng was resigned to the fact that Chung-Yi’s assets would be sold and divided between family members. In December 2007, Mr Cheng gave instructions for the distribution to each sibling of $4,800,000 out of the proceeds of sale of that property and stated that the balance was “to be used to pay back banks, private loans and taxes, and whatever is left shall be kept in the company account”. He also gave instructions that the sum of $1,400,000 should be paid to each sibling out of the private loan repayment of $7,728,487.46, which had been paid into one of the ECYMF accounts. Those distributions are shown on Justin’s spreadsheet, although that spreadsheet shows a distribution of $5,240,000 rather than $4,800,000 to Chih-Chung. The circumstances relating to the additional payment to Chih-Chung are not important to the resolution of the issues in this case.

29. Justin gives evidence of a number of occasions on which his father indicated that it was his intention that the five children benefit equally from Chung-Yi. In his affidavit evidence, he points to some passages of the hand-written notes of his father dated July 2005 dealing with the distribution of his wife’s Estate which it is said is evidence of that intention, including a statement that “Your deceased mother used to hold investment share capital of $1.375 million … in ChungYi Company in Australia … and asked Chih-Yang [Justin] to distribute one fifth to each of you brothers and sisters evenly as inheritance”. However, not all distributions from the mother’s Estate were equal and it is plain from the note that the equal distribution of the mother’s shares was the mother’s wish. And it is equally plain from the passage quoted earlier that Mr Cheng intended at that time to “pass the business down as per the share ratio”.

30. Justin gives evidence of three conversations in which his father said that he intended the five children to benefit equally from the company, although he could only remember two of them when he was cross-examined. The first was said to have occurred during 2007, in which Justin says that his father said words to the effect that “his intention was that my brothers, sisters and I were all to benefit equally from the Company”. Justin does not say when in 2007 that conversation occurred and gives no context for it. Although the conversation is consistent with distributions made from the sale of the Queen Street property, it is not consistent with the distribution of the proceeds of sale from the Moore Street and Barry Drive properties.

31. In a supplementary affidavit (sworn after objections had been successfully taken to evidence given in an earlier affidavit), Justin says that in around early 2008 “when we were considering the possible sale of the Brisbane properties”, he had a conversation with his father during which his father said words to the following effect:

All monies of the company, its profits and surpluses are to be distributed so as to benefit you and your siblings equally, with each to be in the same after tax position regardless of shareholding and the tax position in the country in which they are residing.

32. In early 2008, Mr Cheng agreed that Justin could buy the Toowong property. At that time, Justin had obtained two valuations of the property, one for $23,700,000 and the other for $23,000,000. Mr Cheng agreed that Justin could buy the property for the lesser amount and gave a written instruction to that effect in March 2008. Mr Cheng’s note indicated that out of the sales proceeds an amount of $2,500,000 should be distributed to each of the siblings and that “[f]or the time being, the balance shall be kept and be used for repayment of bank loans and for payment of taxes. The exact number shall be given to Father for put aside for backup”.

33. Following the sale of Queen Street and Toowong, Justin discussed the tax treatment and accounting consequences of the sales with Ms Law. On advice from Wong & Mayes, the proceeds of sale, which had initially been distributed in the form of loans to shareholders, were distributed through a pro rata reduction in Chung-Yi’s capital and the declaration of dividends. Justin says that he discussed the tax consequences of those transactions with his father and, in particular, the fact that the declaration of dividends would result in Australian resident shareholders having a substantial tax liability in respect of dividends that were notionally credited to them. Justin says that his father’s response was “Chung-Yi must pay all taxes”.

34. Before he returned to Taiwan, Mr Cheng called a family meeting, which took place on 17 April 2009 at his house in Sydney. At that meeting, Mr Cheng proposed that Joseph and Chih-Chung take over the Northbourne Avenue property and that Tiffany and Ling-Ling take over the property in Spring Hill.

35. Two days after the family meeting, Justin says that his father asked to see him at his father’s home. At that meeting, Mr Cheng asked Justin to carry out the procedures for the transfer of the two properties. According to Justin, Mr Cheng also said:

The dividends and capital gains should be divided evenly, as before, into 5 portions. The Company should also pay the stamp duty on the purchases.

Justin says that he raised the question of the tax that he and Teresa would have to pay. In response, he says that his father said “I asked you to take care of all your siblings, but that doesn’t mean you lose out”. Justin said that he could organise for all tax to be paid by Chung-Yi or from the ECYMF accounts. According to Justin, his father nodded in agreement.

36. Following the family meeting on 17 April 2009, Mr Cheng prepared detailed handwritten notes setting out how he wished the family assets, including assets held overseas, to be distributed, which he asked Lawrence to type up. The notes also summarise distributions that had been made to his children, including the distribution of interest paid by Chung-Yi to the ECYMF accounts from 2000 to 2007 and the distribution of their mother’s Estate. It appears that the notes were prepared some time after the meeting and over a period of time, although precisely when is unclear. In relation to the sale of Spring Hill, the notes state:

Ling-Ling and Ching-Ching are designated to purchase the family’s Brisbane property for the fixed price of AU$10,000,000 (the price is a fair one obtained through appraisal entrusted by Chi-Yang).

Amount of distributions: (Australian Dollars)

Father 1,000,000

Chih-Yang 1,800,000

Chih-Shih 1,800,000

Chih-Chung 1,800,000

Ling-Ling 1,800,000

Ching-Ching 1,800,000

The notes also state that “The amounts distributed to Ling-Ling and Ching-Ching, respectively, shall have the property purchasing expenses deducted. Chi-Yang is instructed to assist them in handling the property title transfer”. As I have said, the actual sales price was $9,750,000, but nothing turns on the difference.

37. In relation to the sale of Northbourne Avenue, the notes state:

(1)   To keep alive the original wish of your parents when they first came to Australia to acquire real estate properties, and to help the purchased assets last and maintain their value, it is decided that the building in this case shall be purchased by Chi-Shi and Chi-Chung, for the fixed price of AU$29,000,000 which was recommended by Chi-Yang.

(2)   All other shareholders of the building shall retire their shares. The future development and operation of the building shall be handled by the new company.

(3)   Payment of the purchase expenses or undertaking and transfer of loans shall be handled by the Development Division of ChungYi Company to be set up as proposed by Chi-Yang, with the assistance of Chi-Yang and Chi-Shih. …

The notes dealing with Northbourne Avenue conclude “Distribution of funds shall be handled separately”.

38. It is not easy to understand how effect was given to Mr Cheng’s directions in relation to the purchase of Spring Hill. The evidence is that Yi Shiu paid Chung-Yi $9,739,879.50 on 30 June 2009. It also paid stamp duty of $497,560. Of those amounts, $5,500,000 came indirectly from Joseph (through his company Sharp Mind Capital), $4,500,000 came indirectly (through an ECYMF account held in the name of Wu Min-Yueh) from Chih-Chung’s UBS account, $195,000 came from Chung-Yi and $10,000 came from Justin.

39. As to Northbourne Avenue, originally it was intended that, following the sale of Spring Hill (and presumably the distribution of any other cash held by Chung-Yi), all the shares in Chung-Yi would be transferred to Joseph and Chih-Chung so that they would hold Northbourne Avenue through Chung-Yi. However, Justin was told by Wong & Mayes that that was inefficient from a tax point of view. For that reason, CYD was incorporated and it became the purchaser. That must have been in contemplation at the time that Mr Cheng prepared his notes because he refers to “the new company” and “the Development Division of ChungYi”, although it is not clear that Mr Cheng fully appreciated how his directions would be implemented.

40. Justin gave affidavit evidence that he had a conversation with his father in September or October 2009 in which he told his father that the stamp duty on the sale of Northbourne Avenue was approximately $1,500,000 and he asked his father what his father wanted him to do about it. His father replied that the company should pay it. The plaintiffs submit that that was consistent with the written direction that had been given by Mr Cheng. That direction, however, is unclear. The direction that the “Payment of the purchase expenses … shall be handled by the Development Division of ChungYi Company” suggests that Mr Cheng originally intended that CYD would pay the stamp duty. Whether that is the case or not, it is common ground that Mr Cheng ultimately directed that Chung-Yi should pay the stamp duty and that that was achieved by a reduction in the purchase price to $27,400,000.

41. At the time of the sale of Northbourne Avenue, Chung-Yi still owed $4,000,000 to ECYMF lenders. Those loans were assumed by CYD, with the result that the cash purchase price was reduced to $23,400,000. The assumption of the loans appears to be consistent with Mr Cheng’s direction that the “transfer of loans shall be handled by the Development Division of ChungYi”. In cross-examination, Justin ultimately agreed, although only after a series of evasive answers, that he had suggested to his father that the loans could remain with the company, effectively reducing the purchase price by $4,000,000.

42. In fact, CYD paid Chung-Yi $13,400,000 on settlement of the sale, which occurred on 22 October 2009. The balance of the purchase price came from a bank loan of $11,000,000. Of the amount paid by CYD, $6,500,000 came from Chung-Yi and was paid to Chih-Chung, who then paid it directly or indirectly to CYD. A further $3,000,000 came from an ECYMF account in the name of Yang Cheng-Lung. The balance came from Chih-Chung and Joseph. CYD paid stamp duty, which came to $1,838,000. Chung-Yi also paid CYD a further $106,235.40 on 30 October 2009. How those figures were made up and why the payments were made in the way they were was never explained.

43. As I have said, in 2005, accounts were opened by Justin in Chih-Chung’s name with UBS in Singapore at a time when Chih-Chung was very ill. Justin’s evidence was that they were ECYMF accounts that he opened in anticipation of the sale of properties by Chung-Yi and the need to repatriate capital and distribute profits. I do not accept that evidence. Justin certainly used the accounts as he used other ECYMF accounts. However, in my opinion, the true reason the accounts were opened was to receive distributions payable to Chih-Chung. There is no evidence that Chung-Yi was considering selling its properties at the time the accounts were opened; and there was no reason why it was necessary to open further ECYMF accounts. Even on Justin’s evidence, the issue of the sale of properties belonging to Chung-Yi was first raised with him by his father in 2006.

44. The view that the accounts were intended to be personal accounts of Chih-Chung is consistent with Joseph’s evidence that Mr Cheng had originally asked Joseph to manage the accounts on behalf of Chih-Chung but Joseph had declined because he was pre-occupied with the construction of his mother’s tomb. More importantly, though, that version of the facts is supported by what occurred in late 2009. At that time, Joseph says that his father asked him to take over managing Chih-Chung’s UBS account. Joseph agreed. He says that, despite requests, Justin did not transfer the account to him. Instead, Joseph wrote on a piece of paper (which is in evidence) the amount that he thought should be in the account and gave it to Lawrence (Joseph was not speaking to Justin at the time) with the intention that Justin would cause that amount to be transferred to a new account in Chih-Chung’s name. The figures that Joseph wrote on the piece of paper were “A$5.5 million” and “US$1.5 million”. Joseph gave evidence in cross-examination that he calculated those amounts by reference to the amounts he had received as distributions from Chung-Yi and the ECYMF accounts and that he had deducted the amount of $10,500,000 which Justin had told him was owing in respect of the purchase of Northbourne Avenue. It is not disputed that Justin returned the piece of paper with his own calculation of the amount owing (A$5,565,556.79 and US$1,897,846.76). Joseph’s evidence on this matter was not seriously challenged, and I accept it. Although Joseph does not explain how he calculated the total distributions that had been made to the siblings during the period that Justin managed Chih-Chung’s accounts, it appears to be in the order of $19,000,000 (in a supplementary submission, the plaintiffs calculate the amount as $17,790,161.22). There is no suggestion that any part of that $19,000,000 was received by Chih-Chung into accounts other than Chih-Chung’s UBS account. There is no question that Justin accepted that he had to account to Chih-Chung for the amounts that he wrote on the sheet of paper. In fact, on 1 December 2009, Justin transferred $5,565,556.78 from Chih-Chung’s UBS account to an account in the name of Joseph and on 5 January 2010, he transferred $1,838,507.77 to the same account. How the figure of $1,838,507.77, which appears to represent an under-payment, was calculated is not explained. It seems plausible that Justin would have explained the difference between the amount he agreed he should pay and the total amount he held on behalf of Chih-Chung as a payment due by Chih-Chung and Joseph in relation to the purchase by CYD of Northbourne Avenue.

38. At some time in 2012, it became apparent that Tiffany was likely to have been a resident of Australia for tax purposes for the years 2006 to 2011 and Ms Law, on her behalf, lodged tax returns for those years on that basis. Most of the income disclosed in those tax returns was dividend income from Chung-Yi. The total tax payable on those returns was $1,847,414.30. It seems likely that Justin was also involved in giving Ms Law instructions in relation to Tiffany’s tax returns. In any event, it is common ground that of the total tax payable, Tiffany paid $1,000,000 and Chung-Yi, at Justin’s direction, paid the balance. It appears that Tiffany was happy to leave the details to Ms Law and Justin, although she must have appreciated from the material sent to her by Wong & Mayes that Chung-Yi was paying a proportion of her tax liability. Following the commencement of these proceedings, Tiffany repaid Chung-Yi the amount of tax that it paid on her behalf.

39. In addition, Tiffany has repaid to Chung-Yi the sum of $400,858 and Ling-Ling has repaid Chung-Yi the amount of $246,679 in respect of dividends paid to them in November 2009. Justin’s spreadsheet shows that at the same time, a dividend was paid to Justin in the amount of $709,142. No dividend was paid at that time to Chih-Chung or Joseph. The notes to Chung-Yi’s accounts for the year ended 30 June 2016 disclose that if Chung-Yi is successful in recovering the dividend paid to Justin, the repayments by Tiffany and Ling-Ling will be retained. Otherwise, they will be returned or dealt with in accordance with any order of the Court.

The claims

47. Chung-Yi claims five amounts from Justin:

1. An amount of $709,142 that Justin caused to be paid from Chung-Yi to himself on 9 November 2009 by way of a dividend;

2. An amount of $2,708,063.22. That amount comprises an amount of $2,343,321 withdrawn from a Chung-Yi account on 13 November 2009 which (apart from $3,321) was paid into a term deposit in the name of Tsui-Miao and an amount of $360,000 withdrawn from a Chung-Yi account on 21 December 2009, which was also paid into a term deposit in the name of Tsui-Miao. Those two amounts together with interest ($2,355,121.10 and $361,109.19) were paid into a TM Account on 27 January 2010. Then, on 29 January 2010, Justin withdrew $2,708,063.22 from the TM Account and used that amount to purchase three bank cheques, which were used to buy a house for Yolanda;

3. An amount of $600,030. That amount was withdrawn from a Chung-Yi account on 15 April 2010 and paid into Chih-Chung’s UBS account. An amount of $600,621.14 was then withdrawn from that account and paid into Justin’s personal account on 20 April 2010;

4. An amount of $1,100,000, which was paid from a Chung-Yi account into Justin’s personal account on 4 June 2012; and

5. An amount of $255,000, which was paid from a Chung-Yi account into Justin’s personal account on 18 February 2013.

48. The plaintiffs submit that, in making those payments, Justin breached his duties under the Corporations Act, s 180(1) (to discharge his duties as a director with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the corporation’s circumstances and had the same responsibilities as Justin), s 181(1) (to exercise his powers and discharge his duties in good faith in the best interests of the corporation and for a proper purpose) and s 182(1) (not to improperly use his position to gain an advantage for himself or someone else or cause detriment to the corporation). Each of those provisions is a civil penalty provision: see s 1317E. On that basis, Chung-Yi seeks an order for compensation under s 1317H(1), which relevantly provides that “A Court may order a person to compensate a corporation … for damage suffered by the corporation … if … the person has contravened a … civil penalty provision in relation to the corporation … and the damage resulted from the contravention”.

49. The plaintiffs also submit that Justin breached his fiduciary duties as a director and, in particular, his duty not to profit personally from his position as a director and seek equitable compensation from Justin for that breach.

Were the payments authorised by Mr Cheng?

50. It is not disputed that each of the amounts in question was paid from a Chung-Yi account directly or indirectly to the benefit of Justin; and it is not suggested that any of the payments were made as a consequence of a specific direction given by Mr Cheng. Indeed, Mr Cheng had died before the last payment was made and no doubt was very ill at the time of the payment on 4 June 2012. He returned to Taiwan because of his deteriorating health shortly after the first payment.

51. Justin was cross-examined extensively on each of the payments. It was apparent that he understood English well. However, he had difficulty expressing himself in English. Those difficulties arose as much from his accent as his command of the language. As a result of them, I ultimately required him to give his evidence through an interpreter, which itself gave rise to difficulties because of the particular dialect of Mandarin that he spoke. Even allowing for those difficulties and cultural differences, he was not a satisfactory witness and his answers were often non-responsive or evasive. He was given ample opportunities during cross-examination to explain the payments in question, but despite those opportunities he could only give vague and general explanations by reference to what was said to be his father’s wishes.

52. In final submissions, Justin sought to justify the first two payments by reference to what was said to be Mr Cheng’s expressed intention that there be equality of treatment among the siblings. On Justin’s case, he gave effect to that intention during the period from 2009 to 2014; and during that period he says that he distributed approximately $5,000,000 to each sibling (leaving the reimbursement of tax aside). Justin sought to justify the last three payments as the reimbursement of tax that he had paid in accordance with his father’s general direction that Chung-Yi should pay all taxes.

53. I do not accept that Mr Cheng gave Justin an instruction in relation to either equalisation or tax.

54. It is apparent from Mr Cheng’s written instructions that his general practice was to give instructions in relation to the division of assets or income on a case by case basis. In many cases, he directed that particular amounts be distributed equally. But on others he chose to distribute amounts differently, and in some cases to distribute amounts to himself or to his grandchildren as well as his children. On Justin’s case, Mr Cheng told him over a period of two years or more that there should be equality of treatment between siblings. I am prepared to accept that on occasions, Mr Cheng may have given oral instructions to Justin. However, it strikes me as implausible that he would have given the same instruction to Justin on a number of occasions over a lengthy period of time but that that instruction never found its way into one of his written notes. It also strikes me as implausible that Mr Cheng would give a general instruction given his practice, which he continued until he left Australia at the end of 2009, of giving specific instructions each time a sum of money was available for distribution.

55. The first time Mr Cheng is said to have given the instruction Justin relies on was in 2007. I have already pointed out that Justin gave no context for the conversation on which he relies. If Justin is right, it occurred sometime around the time Mr Cheng gave instructions for the distribution of the proceeds of sale of Moore Street and Barry Drive, which did not adopt the principle of equality. It is very difficult to reconcile the general oral instruction with the specific written one in relation to those two properties.

56. Similar points can be made about the other conversations relied on by Justin. The second conversation was said to have occurred in early 2008 before the sale of the “Brisbane properties”, which presumably is a reference to the sale of Toowong and Spring Hill. However, Mr Cheng gave specific instructions in relation to the proceeds of sale of those two properties and neither was completely consistent with a general instruction that the proceeds of sale should be divided equally. The instruction in relation to Toowong was that after a distribution of an amount of $2,500,000 to each of the children the balance should be kept “for the time being” with part of it being put aside “for backup”. The instruction in relation to Spring Hill was that $1,000,000 should be distributed to Mr Cheng.

57. The third conversation occurred two days after the family meeting. It seems extraordinary that if Mr Cheng had decided that all future amounts would be distributed between the five children equally, he would not have said something to that effect at the meeting. It is equally extraordinary that if that is what he decided, he would have reserved his decision in relation to the distribution of the proceeds of sale of Northbourne Avenue, which is what he did.

58. Had Justin given evidence of just one direction by his father to the effect that assets should be distributed equally between the children, that evidence might have been explained as a misunderstanding on Justin’s part. But the fact that he maintained that his father repeated the instruction on several occasions, each of which was implausible, and sought to justify the assertion that his father had given that direction by reference to Mr Cheng’s directions in relation to his wife’s Estate, leads, in my opinion, to the conclusion that Justin’s evidence on this topic was fabricated.

59. The same conclusion follows in relation to the instructions Justin says his father gave in relation to tax. The conversations Justin relies on were largely part of the conversations in which equalisation was also discussed. A conclusion that those conversations were fabrications affects the claim in relation to tax as much as it does the claim in relation to equalisation.

60. But, in addition, Justin’s evidence that his father directed that all tax should be paid by Chung-Yi suffers from similar problems as the evidence in relation to equalisation. If it was Mr Cheng’s view that Chung-Yi should pay the tax liability of each of the siblings on the amount that they received, it is to be expected that that is something that would have found its way into at least some of Mr Cheng’s notes; and that Mr Cheng would have made some allowance for it in the very specific instructions he gave about how much was to be paid to each of his children. Similarly, it is to be expected that Mr Cheng would have said something about it at the family meeting or in his detailed notes that he prepared after the meeting to record not only the decisions he announced at the meeting but what he had done over a number of years. His notes often address the tax that Chung-Yi had to pay and it is plain that the distributions he directed took account of what would be available following the payment of tax. However, not one of the notes made any reference to the payment of any tax that his children might have to pay; and not once did Mr Cheng make any allowance for tax payable by Chung-Yi on behalf of one or more of his children in calculating the amount available for distribution.

61. Mr Gyles SC, who appeared for Justin, submitted that Justin’s evidence concerning his father’s direction in relation to tax is supported by the surrounding circumstances. Justin, at his father’s direction, moved to Australia to manage the family business here. As a result, unlike his siblings, he was exposed to the Australian taxation system. It was natural in those circumstances that his father would agree that Chung-Yi should reimburse him for the tax that he incurred. However, in my opinion, the evidentiary basis for this submission is insufficient. It is insufficiently clear where each of the siblings was resident for tax purposes, what the tax arrangements were in those jurisdictions in relation to the distribution of money from an Australian company and what Mr Cheng knew of those matters to make it obvious or likely that Mr Cheng would have agreed that Chung-Yi should reimburse Justin for the taxes he had to pay on distributions it made, assuming that Justin asked him to do so.

62. Lastly, as the plaintiffs point out in their final written submissions, if Justin had really had a discussion with his father about Chung-Yi reimbursing him for the tax he had to pay, it is to be expected that the issue would have been raised when it first arose – that is, when Chung-Yi first started paying dividends. However, Justin’s evidence is that it was not raised until 2008.

Were the payments justified by the equalisation and tax directions?

63. The first two payments are said to be justified by the equalisation direction. What is said is that, leaving aside additional payments in respect of tax, but taking account of those two payments, Justin, between 2009 and 2014, paid to himself and his siblings approximately $5,000,000 each from Chung-Yi funds. Implicit in that submission is the proposition that any payments made before 2009 were specifically authorised by Mr Cheng and do not need to be considered further.

64. Justin’s spreadsheet is supposed to demonstrate that each sibling received approximately $5,000,000. But how it does so was never clearly explained. The spreadsheet purports to set out the payments made to each family member from Chung-Yi and ECYMF accounts from 2002 to June 2013 and certainly the final row shows a total of approximately $5,000,000 in each of the columns showing payments to the siblings. But how that total was arrived at and why each of the payments was made in the amount that it was is not explained.

65. In addition, the payments shown on Justin’s spreadsheet as payments to Justin are actual payments. The same cannot necessarily be said of the payments to his siblings. For example, the spreadsheet has a row showing as a “distribution to Siblings” the payment of a total amount of $2,800,000. Of that amount, $536,648 was paid to Justin, $886,662 is shown as having been paid to each of Chih-Chung and Joseph, $186,676 is shown as having been paid to Ling-Ling and $303,352 is shown as having been paid to Tiffany. Each of those payments is said on the spreadsheet to have been made in December 2009. There is evidence that the payments to Justin, Ling-Ling and Tiffany were made on 18 December 2009. However, there is no evidence that the amounts shown in the spreadsheet were actually paid to Chih-Chung and Joseph, although, as is explained below, Justin maintains that they were part of a larger payment made to Joseph alone.

66. The spreadsheet also includes as payments to Chih-Chung and Joseph of $2,000,000 each, the $4,000,000 in ECYMF loans that were novated to CYD at the time that CYD acquired Northbourne Avenue. But that was not a payment to them. On Justin’s evidence, it was a transaction that occurred with Mr Cheng’s approval. Moreover, it is an over-simplification to say that that $4,000,000 was a benefit to them. Justin submitted that it was a benefit to them because it was a non-recourse loan; and certainly the plaintiffs described the ECYMF loans as “non-recourse”. But caution needs to be exercised about what that expression means. It was common ground that the loans were made by Mr Cheng and that the money that was lent was his money. At the time the loans were made and at the time they were novated to CYD, Mr Cheng controlled Chung-Yi and, although not directly, the lenders. The loans were non-recourse in the sense that Mr Cheng could decide if and when the loans would be repaid. But there was no evidence from which it could be concluded that Mr Cheng somehow lost the right to insist on repayment of the loans if he chose to exercise that right. There is nothing to suggest that the position changed when the loans were novated to CYD. And it is not clear that the position changed on Mr Cheng’s death, although, of course, in that event, the right became a right of his executor or the administrator of his Estate.

67. Justin’s spreadsheet shows debits from the amount owing to Chih-Chung and Joseph of $5,000,000 each and credits of the same amounts to Ling-Ling and Tiffany seemingly on the basis that Chih-Chung and Joseph funded the acquisition of Spring Hill by Yi Shiu. But again, those entries do not represent the payment of money by Chung-Yi to anyone.

68. Standing back from the detail for a moment, following the sale of Spring Hill and Northbourne Avenue, Justin was entitled to receive $1,800,000 plus, if there was an equalisation direction in respect of the proceeds of sale of Northbourne Avenue, 20 per cent of $23,400,000 (that is, $4,680,000), or possibly 20 per cent of $27,400,000 (that is, $5,480,000), making a total of $6,480,000 (that is, $1,800,000 plus $4,680,000) or $7,280,000 ($1,800,000 plus $5,480,000). However, he was liable to account to Chih-Chung for the amount he was holding on his behalf, which was in the order of $19,000,000. Chung-Yi had no other assets. On that basis, it might be expected that an accounting between the siblings for the period 2009 to 2013 would show a net payment from Justin of $12,520,000 (that is $19,000,000 less $6,480,000, taking the lower figure for Northbourne Avenue). Instead, Justin’s calculations (leaving aside the reimbursement of tax) show that he received roughly the same amount as his siblings from Chung-Yi. No doubt, this is an over-simplification because it takes no account of money held by Chung-Yi and held in the ECYMF accounts (other than the money belonging to Chih-Chung) prior to the sale of Spring Street. But it raises a serious question whether the myriad of payments made by Justin gave effect to any equalisation direction, that was never satisfactorily answered by Justin.

69. As to the three payments said to have been made in respect of tax, it might have been expected that it would be possible to marry up those payments with relevant tax assessments. However, that is not the case. The most that Mr Gyles could say was that the payments of $600,030 and $1,100,000 were made at or around the time tax would have been due for payment. However, those amounts do not correspond to any actual liability for tax. In his final written submissions, Justin calculates the tax payable by him and Teresa on dividends received by them (after giving credit for franking credits). According to those calculations, the tax payable by them on dividends they received in 2010 was $180,708 and the cumulative tax payable by them since 2008 was $1,366,188.29, whereas the amount Justin paid to himself was $600,000. The tax payable by Justin and Teresa on dividends they received in 2012 was nothing. The cumulative unreimbursed tax was $2,715,954.91. However, the amount Justin paid to himself in 2012 was $1,100,000. In 2013, the tax was $8,113.02. The cumulative amount was $1,624,107.93, but the amount Justin paid to himself was $255,000. And that amount was paid before any tax for the year was due.

70. In the case of Tiffany, the amount that was paid in respect of her tax liability was actually paid directly to the Australian Tax Office and was paid in respect of an assessment she had received. But it was only a proportion of the assessment, although most of the assessment related to income in the form of dividends from Chung-Yi.

71. Far from demonstrating that the payments Justin made to himself were payments in respect of tax, this evidence demonstrates that they were not. The evidence also further undermines the case that Mr Cheng had given any directions in relation to the reimbursement of tax payable by Justin on the amounts that he received, since no such direction was ever implemented.

72. It follows that, subject to any defences Justin might have, he is liable for the five payments. On the conclusions I have reached, he plainly contravened s 182(1) of the Corporations Act and is liable to pay compensation under s 1317H. He also breached his fiduciary duties and is liable to pay equitable compensation.

The tu quoque defences

73. The defence that the plaintiffs should not be able to recover the five payments made to Justin because similar payments were made to them is put in two ways. First, it is said to be a defence of unclean hands or an application of the closely related maxim that those who seek equity must do equity. Second, it is said that the conduct in bringing the claims against Justin without bringing similar claims against his siblings is conduct that is “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity” within the meaning of s 232(e) of the Corporations Act, with the result that the Court can grant any of the relief set out is s 233. Section 233 gives the Court power to “make any order … that it considers appropriate in relation to the company” including orders that the company be wound up and orders restraining a person from engaging in specified conduct or from doing a specified act or requiring a person to do a specified act. Various orders were suggested by Justin in submissions, including an order that Chung-Yi be wound up and orders dismissing the plaintiffs’ claims or staying any judgment until proceedings had been brought by Chung-Yi to recover money from his siblings and those proceedings had been determined. However, it was largely left to the Court to fashion an appropriate order to undo the effect of the conduct that was said to be oppressive.

74. In support of this aspect of his case, Justin sought by a notice to produce dated 30 April 2018, to obtain any instructions given to Mr Loneragan, the forensic accountant retained by the plaintiffs, for any work he did for Chung-Yi between 1 January 2014 and 31 December 2015 and any report or communication prepared by Mr Loneragan during the same period. It was said that those documents would shed light on whether the plaintiffs had considered claims against the other shareholders. I set aside the notice to produce and said that to the extent necessary I would give my reasons for doing so in the judgment. As will become apparent, the question whether the plaintiffs considered other claims is irrelevant to the resolution of this aspect of the case. Consequently, nothing more needs to be said about the notice to produce.

75. In my opinion, the doctrine of unclean hands and the equitable maxim have no application in this case. Those principles apply where the conduct said to involve unclean hands or attract the operation of the maxim goes to the subject-matter of the suit. As Turner LJ explained in relation to the maxim in Gibson v Goldsmid (1854) 5 De GM & G 757 at 765; (1854) 43 ER 1064 (quoted with approval by Rich and Dixon JJ in Langman v Handover (1929) 43 CLR 334 at 351-2):

The rule, certainly, does not go so far as to entitle the Court arbitrarily to impose terms upon a plaintiff, who may be driven to ask for its assistance. It is restricted in its operation, and the true meaning of it, as I apprehend, is this, that those who ask for the assistance of the Court must do justice as to the matters in respect of which the assistance is asked.

Here, assistance is asked in relation to the recovery of five payments. The question is whether the plaintiffs have unclean hands, or have failed to do equity, in relation to those five payments. There is no suggestion that they have. In addition, the equitable defences have no application to the claims under the Corporations Act.

76. The requirement in s 232(e) of the Corporations Act that the conduct be “oppressive to, unfairly prejudicial to, or unfairly discriminatory” is to be viewed as a compound expression. As Young J said in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704, in a passage that was quoted with approval by Campbell JA (with whom Macfarlan and Young JJA agreed) in Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [140], “the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness”.

77. What constitutes commercial unfairness is to be judged objectively in light of what was known at the time: Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 704 per Young J; Chase Corporation (Australia) Pty Ltd v North Sydney Brick & Tile Co Ltd (1994) 35 NSWLR 1 at 26 per Cohen J. The High Court has framed the test in terms of whether the decisions of the board were such that no board acting reasonably could have made them: Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459; (1985) 61 ALR 225 at 231 per Mason ACJ, Wilson, Brennan, Deane and Dawson JJ. Accordingly, conduct may be oppressive even if the person responsible for it “thinks that he or she is acting rightly”: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; (2009) 257 ALR 610 at [176] per Gummow, Hayne, Heydon and Kiefel JJ.

78. Unfairness should be judged by reference to the context in which the question arises. So, for example, as Lord Hoffmann (with whom the other members of the House of Lords agreed) explained in O’Neill v Phillips [1999] 1 WLR 1092 at 1098 “[c]onduct which is perfectly fair between competing businessmen may not be fair between members of a family”. In such cases, the “fairness [of an act or omission] must be considered against the treatment of the whole body of shareholders having regard to the history of the family and the company and the purpose for which the company was formed and the company’s constitution”: Corbett v Corbett Court Pty Ltd [2015] FCA 1176 at [131] per Farrell J, citing Re Ledir Enterprises Pty Limited [2013] NSWSC 1332 at [178] per Black J.

79. I accept that, in principle, the commencement of court proceedings against one shareholder in a family company to recover amounts paid by the company to that family member could be conduct that was oppressive to, unfairly prejudicial to, or unfairly discriminatory against that shareholder if the company had similar claims against those shareholders who controlled the company and chose not to take them, particularly if the shareholders who were in control obtained control for that purpose. But such a claim requires the clear identification of the “similar” claims and an investigation of why those claims have not been brought.

80. In this case, the claim of oppression on this basis was relevantly put in paras 3, 5 and 6 of Justin’s Third Further Amended Cross-Summons and Commercial List Cross-Claim Statement. Those paragraphs are in the following terms:

3.   Between 2009 and 2014 payments and other benefits totalling more than $5,000,000 were made or provided by the First Cross Defendant to each of the Second, Third, Fourth and Fifth Cross-Defendants under the said agreement, arrangement or common understanding, and by the same authority or alternatively and irrespective of the authority pursuant to which they were made, the Cross-Claimant relies upon the fact that these payments were made and these benefits received by the Cross-Defendants from Chung-Yi and the fact that the Cross-Defendants have retained the benefit thereof.

Particulars

These payments and benefits are particularised in the Schedule of Payments and Benefits provided to the Cross-Defendants dated 3 August 2017.

…

5.   In 2016 these proceedings were commenced by the First Cross-Defendant against the Cross-Claimant upon the instructions and authority of the Second to Eighth Cross-Defendants, in relation to the payments made to him by the First Cross-Defendant between 2009 and 2014, on the basis that the payments were not authorised and hence the funds misappropriated.

6.   Despite similar claims being available to the First Cross-Defendant, either directly or as recipients of misappropriated funds, against all and each of the Second, Third, Fourth and Fifth Cross-Defendants, the First Cross-Defendant has at no time and without explanation:

(a)   sought recovery of payments made to, or benefits received by, all or any of the Second, Third, Fourth or Fifth Cross-Defendants from 2009 to date;

(b)   commenced proceedings against all or any of the Second, Third, Fourth or Fifth Cross-Defendants seeking recovery of the payments made to, or benefits received by, them;

(c)   undertaken or ordered an account in which the respective rights and liabilities of all of the shareholders are dealt with fairly and equitably.

The Schedule of Payments referred to in the particulars to para 3 sets out various adjustments and payments. It is not necessary to set out the schedule, although it will be necessary to say something about some of its items shortly.

81. A fair reading of the pleading is that the “similar claims” referred to in para 6 is a reference to claims in respect of payments to Justin’s siblings referred to in the schedule. That reading is consistent with the underlying thrust of Justin’s case, which is that between 2009 and 2014 he caused roughly equal amounts to be distributed to himself and his siblings (ignoring payments said to be in respect of tax), but that if he is required to disgorge the payments to him, then his siblings should be required to disgorge the benefits they received.

82. Ultimately, however, Justin sought to rely on a somewhat different list of payments which it is said ought to have been the subject of claims against his siblings. That list was first put in final oral submissions and reduced to writing in supplementary written submissions which were filed with leave after the hearing concluded.

83. It is noteworthy that that list does not, of course, include the dividend payments to Tiffany and Ling-Ling or the tax payment to Tiffany. Those payments might be said to be similar to the dividend payment to Justin of $709,142 and what are said to be tax payments to Justin. But the equivalent payments have been returned to Chung-Yi by Tiffany and Ling-Ling.

84. The first payment that is identified is the payment on 29 June 2006 of $4,500,000 from the ECYMF account in the name of Wu Min-Yueh, through Chih-Chung’s UBS account, to Yi Shiu in part payment for Spring Hill. The reference to “29 June 2006” appears to be an error. The payment was made on 29 June 2009. The difficulty in regarding this payment as being similar to the ones sought to be recovered from Justin is that, on the evidence, the source of the payment is the Wu ECYMF account, not Chung-Yi; and there is no explanation of how it is said the payment can be traced to Chung-Yi. Associated with that difficulty is the fact that it is difficult to understand the series of payments associated with the transfer of Spring Hill from Chung-Yi to Yi Shiu. Those payments were orchestrated by Justin. He was the only person who could give a logical explanation for them (assuming that there was one), but he never did so. In those circumstances, it is far from clear what action if any, Chung-Yi would have against relevantly either Tiffany, Ling-Ling or perhaps Yi Shiu in respect of the payment. Neither Tiffany nor Ling-Ling was a director of Chung-Yi at the time. They were not themselves the recipients of the money. They were not cross-examined specifically on the payment and it appears from the evidence they gave that they had no real understanding of how the sale would be accounted for. Although Yi Shiu was a beneficiary of the payment, it is not clear on what basis it could be required to account to Chung-Yi for it.

85. The second and third payments are two payments of $3,000,000 made on 31 July 2009 in connection with the transfer of Northbourne Avenue to CYD. The first was a payment from Chih-Chung’s UBS account to CYD. The second was a payment to CYD from the Yang ECYMF account, which appears to have been paid following payments of $338,400, $270,000, and $2,430,000 from Chung-Yi to that account.

86. One difficulty with the payment of $3,000,000 from Chih-Chung’s UBS account is that there is no evidence tracing that payment back to Chung-Yi. Another related difficulty is that Justin’s spreadsheet does not show the payment of either amount of $3,000,000. Mr John Temple-Cole, the accounting expert retained by Justin, analyses the two payments as part of a transaction recorded on Justin’s spreadsheet as the distribution of the sum of $4,147,200 in June 2009, which the spreadsheet describes as “Dist of OS Loans & Interest – Leichardt Street”, $1,008,320 of which was paid by Chung-Y to Justin and the balance of which ($3,138,880) was divided equally between Chih-Chung and Joseph (so that each is shown as receiving $1,569,440). In other words, according to Mr Temple-Cole of the $6,000,000, $3,138,880 came from Chung-Yi and, at the same time as it paid that amount for the benefit of Chih-Chung and Joseph, it paid $1,008,320 to Justin. Chung-Yi does not seek to recover the payment to Justin. It is difficult to see how, then, it could be expected to recover the payments from Chih-Chung and Joseph that were paid to them as part of the same transaction.

87. More importantly, as with the position in relation to Spring Hill, there was a series of payments made in relation to the acquisition of Northbourne Avenue that is difficult to understand and that was orchestrated by Justin. Justin has offered no explanation of precisely why the payments were made in the way that they were. Moreover, on the findings I have made, at about the time of the sale of Northbourne Avenue, Justin was supposedly holding approximately $19,000,000 on behalf of Chih-Chung. Of that amount, according to Joseph, whose evidence I accept, he gave credit for $10,500,000 in connection with the purchase of Northbourne Avenue and the agreed balance was paid to him. The result is that it is not possible to say whether the two amounts that were paid to CYD were amounts which were covered by the adjustment in connection with settlement of the amount owing to Chih-Chung. Finally, any claim would be a claim against CYD, but it is unclear on what basis that claim would be made. Certainly, such a claim is not similar to a claim against Justin for breach of his duties as a director in paying amounts to himself that was not authorised by Mr Cheng or by the company itself.

88. The remaining three payments can be considered together. The fourth payment is a payment on 5 January 2010 of $1,838,507.77 from Chih-Chung’s UBS account to Joseph. It appears that the source of those funds was a payment from Chung-Yi to Chih-Chung’s UBS account on 21 December 2009 of $1,835,981. The fifth payment of $64,830 was made on the same day from the Wu ECYMF account to Joseph. The source of the funds appears to be a payment of the same amount from Chung-Yi to the Wu ECYMF account on 21 December 2009. The last payment is a payment on 22 January 2010 of $3,982,388.91 from Chih-Chung’s UBS account to Joseph. It appears that the source of those funds was a payment from Chung-Yi to Chih-Chung’s UBS account of $4,000,000 on 19 January 2010. These payments suffer from similar difficulties as the others. None of them is specifically referred to on Justin’s spreadsheet, although Justin submits that the payment of $1,838,507.77 corresponds to the total of three amounts recorded on the spreadsheet as having been paid to each of Chih-Chung and Joseph, including the amount of $886,662, which is referred to in para 65 above. The payment of $64,830 is said to correspond to payments of $32,400 to each of Chih-Chung and Joseph and the payment of $3,982,388.91 appears to correspond to the total of two amounts of $150,000 and $1,841.194.45 which are recorded on Justin’s spreadsheet as having been paid to each of Chih-Chung and Joseph. In fact, there is a third amount recorded on the spreadsheet as having been paid to Chih-Chung and Joseph at the same time as the $1,841,194.45 of $8,805.55, which makes up the balance of $4,000,000. However, there appears to be no evidence that that amount was paid.

89. Once again, no explanation is given by Justin for why any of the amounts were paid or were said to have been paid in the way that they were. One possible explanation is that the payments form part of the adjustment of the amount owing to Chih-Chung. Certainly, Justin does not explain how else Chih-Chung obtained the benefit of approximately $10,500,000 in connection with the acquisition of Northbourne Avenue. In those circumstances, it is difficult to see what action Chung-Yi could bring against Chih-Chung and Joseph to recover any of the payments in question and what the basis of that action would be.

The limitation defence

90. The limitation period in respect of claims for breaches of ss 180-182 of the Corporations Act is six years commencing from the time of the contravention: s 1317K of the Corporations Act. There is no provision for extending that period in the case of fraud. Consequently, the statutory claim in respect of the first payment of $709,142 is time barred since the cause of action accrued on 9 November 2009, when the payment was made, but the proceedings were not commenced until 25 January 2016.

91. There is no specific limitation period in respect of a claim for equitable compensation for breach of fiduciary duties owed by a director. However, equity will apply statutory limitation periods by analogy: Gerace v Auzhair Supplies Pty Ltd(In liq) (2014) 87 NSWLR 435; [2014] NSWCA 181; and as Brereton J said in In the Matter of Auzhair Supplies Pty Ltd (In Liq) (2013) 272 FLR 304; [2013] NSWSC 1 at [79], the analogy between the statutory causes of action for breach of directors’ duties and the equitable claim is “as close an analogy as one can conceive”.

92. However, equity will not apply the statutory limitation period where it would be unconscionable to do so, such as where there has been fraudulent concealment. As Meagher JA (with whom Beazley P and Emmett JA agreed) said in Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181 (at [75]):

The grounds on which equity declines to permit a defendant to rely upon a statutory bar by analogy include where there has been fraudulent concealment, which requires either fraudulent conduct as an element of the right of action or conduct consisting of active concealment of a right of action that does not include fraud as an element… The equitable doctrine is not confined to common law fraud or deceit and requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing: see Beaman v A.R.T.S. Ltd [1949] 1 KB 550 at 559-560 (per Lord Greene MR); Kitchen v Royal Air Force Association [1958] 1 WLR 563 at 572-573 (per Lord Evershed MR); Applegate v Moss [1971] 1 QB 406 at 413 (per Lord Denning MR); King v Victor Parsons & Co [1973] 1 WLR 29 at 33-34 (per Lord Denning MR).

93. To that extent, the equitable principle mirrors s 55 of the Limitation Act; and although the plaintiffs rely on the statutory exception, there is no reason why they should not be permitted to rely on the equitable exception which, in substance, is the same.

94. In my opinion, Justin was guilty of fraudulent concealment in the sense explained by Meagher JA in Gerace v Auzhair Supplies Pty Ltd. On the findings I have made, Justin knew that he did not have authority from his father to make the payments to himself that Chung-Yi seeks to recover and, in particular, the payment of $709,142. Justin does not rely on any specific authority for that payment and there is no evidence that there was one, either from Mr Cheng or from Chung-Yi itself. Instead, Justin relies on the equalisation direction from his father. However, I have concluded that his evidence in relation to that direction was fabricated. As I have said, Justin made numerous payments from Chung-Yi’s accounts to ECYMF accounts and between ECYMF accounts which make no sense. He also made a large number of payments to himself and to his siblings which also make no sense. He offered no explanations for those payments. Although I think that for the most part he was correct when he said that his siblings paid little attention to the operation of Chung-Yi while their father was alive and well, it seems plain that at some stage they began to press Justin for an explanation of the amounts he had distributed. The explanation Justin ultimately offered was an early version of his spreadsheet which itself is confusing and contains a substantial number of entries which are not reflected in actual payments. The result is that it is very difficult to work out precisely what payments were made and why. In the absence of any other explanation, the only plausible explanation is that Justin appreciated that he was making payments to himself that he was not entitled to make and he sought to conceal that fact in what I have earlier called a labyrinth. That involves a consciousness that what he was doing was wrong and an attempt to conceal precisely what he was doing to avoid detection.

118. The second principle relied on by the plaintiffs is the rule stated by Page Wood VC in Frith v Cartland (1865) 2 Hem & M 417 at 420; (1865) 71 ER 525 at 526 that “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own”. See also Brady v Stapleton (1952) 88 CLR 322 at 336 per Dixon CJ and Fullagar J; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 109-110 per Mason J; Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [457] per Gleeson JA (with whom Meagher and Barrett JJA agreed). In the present case, to the extent that Justin claimed that money paid into the TM Accounts was money belonging to him, he bore the onus of proving that that was the case.

119. The plaintiffs – in particular, Chung-Yi – seek to recover money paid to Justin and Lawrence out of the TM Accounts after 29 January 2010. At that time, there were two main TM Accounts – a Westpac eSaver account (the TM eSaver Account) and a Westpac Cash Management account (the TM CM Account). Following the withdrawal on 29 January 2010 of $2,708,063.22 from the TM eSaver Account (which is one of the five amounts I have held Chung-Yi is entitled to recover as money paid from one of its accounts to Justin), the balance of that account was $11,560.18. On the same day, the balance of the TM CM Account was $11,851, making a total in the two accounts of $23,411.18.

120. The plaintiffs submit that Chung-Yi is entitled to recover that part of the credit balance of the TM eSaver Account and TM CM Account as at 29 January 2010 that Justin caused to be paid to himself. I accept that submission. The plaintiffs have not sought to analyse payments in and out of the TM Accounts before 29 January 2010 with a view to establishing that the credit balances in those accounts are, on the balance of probabilities, money belonging to Chung-Yi. However, Chung-Yi is the most likely source of the money. There is no evidence that it was paid into the TM Accounts as a result of a direction of Mr Cheng. In accordance with the principle stated in Frith v Cartland, Justin bore the onus of proving that the money was his. However, he made no attempt to discharge that onus. It follows that the money is most appropriately treated as money belonging to Chung-Yi, which it is entitled to recover from Justin as equitable compensation.

121. As to the balance of the claims relating to the TM Accounts, according to a schedule produced by the plaintiffs, which was not disputed, from 29 January 2010, all the amounts paid out of the TM Accounts were paid to either Justin or Lawrence. The schedule also shows that Justin himself paid $305,000 into the TM Accounts; and the plaintiffs accept that he should receive credit for that. So much is uncontroversial. The last step in the plaintiffs’ argument, which is controversial, is that they seek to establish that certain amounts paid into the TM Accounts came indirectly from Chung-Yi and therefore (after Justin is given credit for the $305,000) must represent money that was paid from Chung-Yi to Justin (or Lawrence).

122. The first amount the plaintiffs rely on is an amount of $70,000 that is said to have come from the Wu Min Yueh ECYMF account. The evidence is that from April 2010 to 17 February 2011, the balance of the Wu ECYMF account was approximately $70,000. Where that amount had come from is not clear from the evidence. It is noteworthy, however, that substantial amounts had been paid into the account from accounts in the name of Chung-Yi and Chih-Chung, but there is no evidence of Justin (or Lawrence) paying moneys into the Wu ECYMF account prior to 17 February 2011. It appears that the last occasion on which an amount was paid from a Chih-Chung account to a Wu ECYMF account was on 21 January 2010, when an amount of $30,000 was paid. On 17 February 2011, Justin paid from a personal account $273,337.40 into the Wu ECYMF account and on 21 February 2011, $273,000 of that amount was paid into a TM Account. The plaintiffs accept that Justin must be given credit for that amount. On 4 April 2011, Lawrence paid $150,000 into the Wu ECYMF account and on 5 April 2011 an amount of $220,000 was paid from the Wu ECYMF account to a TM Account. It is plain that $70,000 of that amount had been sitting in the Wu ECYMF account for some time. And it is plain that, since all the money in the TM Accounts was paid to Justin or Lawrence that $70,000 was paid to Justin or possibly Lawrence. The only question is whether it is reasonable to infer that the money came from Chung-Yi. In my opinion, it is. There is no evidence that it came from Justin. The evidence suggests that it either came from Chung-Yi or Chih-Chung’s UBS account. Chih-Chung makes no claim to the money. Justin says that he used Chih-Chung’s UBS account as an ECYMF account into which money was paid from Chung-Yi. He suggests no other source of the money. He was the person in control of each of the accounts and was in a position to explain what other sources there could have been for the money. However, he did not do so. The result is that $70,000 paid from the Wu ECYMF account to the TM Accounts after April 2010 came from Chung-Yi. There is no evidence that money was paid as part of a direction by Mr Cheng. Once it was paid into the TM Accounts, it was paid to Justin or Lawrence. It follows that Chung-Yi is entitled to recover the $70,000 from Justin as equitable compensation.

123. The two remaining claims by the plaintiffs relate to amounts said to have come from the Yang ECYMF accounts. One claim relates to two amounts totalling $700,000 that were paid directly from a Yang ECYMF account to a TM Account. The second claim totals $2,444,981. The plaintiffs submit that the Court should infer that that amount was paid from a Chung-Yi account to a Yang ECYMF account and from there to an account in the name of Lin Shihchen, who is Teresa’s nephew, and from there to a TM Account. Both claims depend on showing that the relevant sums of money in the Yang ECYMF account came from Chung-Yi. Once that hurdle is overcome, the claim in respect of the $700,000 is straightforward since it is accepted that that sum was paid from the Yang ECYMF account to a TM Account and money in the TM Account was paid without authority to Justin or Lawrence. The claim in respect of the $2,444,981 faces a further hurdle because it is necessary to establish that the money went from the Yang ECYMF account through the Lin Shihchen account to a TM Account.

124. Before addressing those questions, it is convenient to summarise what is known about payments into and out of the Yang ECYMF accounts. Less information is available in relation to the Yang ECYMF accounts than the Wu ECYMF accounts because, for the reasons I have explained, there are no bank records for those accounts.

125. According to a schedule that forms part of a joint report prepared by the accounting experts engaged by the parties, a total amount of $17,652,005 was paid into the Yang ECYMF accounts. It should be observed that that cannot be the total of all amounts that were paid into those accounts. Other amounts must have been paid into the accounts because the first record of a payment to or from the accounts is a payment out on 3 August 2006 of $400,000 to Chih-Chung’s UBS account, whereas the first record of a payment into the accounts is an amount of $3,000,000, which was paid in from Chih-Chung’s UBS account on 7 June 2007.

126. Of the total amount paid into the Yang ECYMF accounts, $5,652,005 came from Chung-Yi. Of that amount, $2,700,030 related to the repayment of the loan made to Chung-Yi by Mr Cheng through the Yang ECYMF account, and interest on that loan, in respect of the purchase of Spring Hill, which was paid in two tranches, one of $270,030 on 1 July 2009, which appears to relate to interest, and the other $2,430,000 on 2 July 2009, which appears to relate to the principal. The distribution of the total of those amounts was covered by Mr Cheng’s instructions in relation to the distribution of the total purchase price of Spring Hill – which was that $1,800,000 should go to each of the five children and that $1,000,000 should be distributed to himself. In fact, it appears that the $2,700,030 formed part of a payment of $3,000,000 from the Yang ECYMF accounts to CYD on 31 July 2009. That payment, in turn, appears to have been a partial reimbursement of Joseph’s contribution to the purchase price of Spring Hill. It is not easy to follow the arithmetic, but it was not submitted that anyone had a claim in respect of the $2,700,030.

127. In addition, a further amount of $1,770,720 paid into a Yang ECYMF account on 2 April 2008 from Chung-Yi related to a distribution authorised by Mr Cheng which Justin made by paying the total sum into the Yang ECYMF account and paying his siblings their share from a personal account. Consequently, that money belonged to Justin.

128. Chung-Yi paid further amounts to the Yang ECYMF account on 25 June 2007 ($459,390), 26 June 2008 ($338,430), 17 June 2009 ($338,430) and 29 December 2009 ($45,005.34).

129. It is not clear what each of the four payments was for. Given their timing and amounts, the payments appear to be payments of interest on the loans made to Chung-Yi by Mr Cheng through the Yang ECYMF account. In cross-examination, that is the explanation that Justin gave for the third payment, although by that stage the loan in respect of Spring Hill, but not Northbourne Avenue, had been repaid. The last payment appears to be the payment of interest accrued up until the sale of Northbourne Avenue and the novation of the loan to CYD.

130. Mr Cheng gave directions for the payment of interest in 2007 and in July 2008. The direction in relation to the payment of interest in 2007 can be found in Mr Cheng’s notes that were typed by Lawrence. The distribution is also referred to in Justin’s spreadsheet. According to Mr Cheng’s direction, $240,000 was to be distributed to each sibling. The amount paid to the Yang ECYMF account was less than that, but the likely explanation for that is the amount paid relates to the loans made through Mr Yang and not other loans. On that basis, each sibling was entitled to a one fifth share of the $459,390 – that is, $91,878.

131. The direction in 2008 related to what was said to be a total interest payment of $482,400, but it is reasonable to infer that that amount included the $338,430. According to that direction, an amount of $90,000 was to be paid to each sibling and the balance was to be retained by Mr Cheng. On that basis each sibling was entitled to $63,139.93 (that is, $338,430 X $90,000 / $482,400) and Mr Cheng was entitled to the balance of the $338,430. Although the direction was given after the payment to the Yang ECYMF account, it seems plausible that Mr Cheng discussed the direction with Justin before giving it in writing; and that Justin made the payment before the end of the financial year.

132. No directions appear to exist in relation to the other two payments. There is a question then whether the money should be treated as Chung-Yi money because it was paid out of its account without authority or whether it should be treated as Mr Cheng’s money on the basis that Chung-Yi owed the interest and that interest was paid. For the reasons I have already given, I prefer the latter explanation. The practice appears to have been that Chung-Yi paid interest on the loans to it, the amount of that interest was calculated by Wong & Mayes who told Justin how much interest was payable. Justin then told his father, who gave directions for its distribution. Until those directions were given, the amounts in question belonged to Mr Cheng. The result is that Mr Cheng’s Estate may have a claim for the second two payments, but I do not think that the plaintiffs do.

133. Justin was cross-examined extensively on the payment made on 17 June 2009 of $338,400. It seems that that amount was paid from the Yang ECYMF account on 19 June 2009 to an account in the name of Huang Shou Chen (Mr Yang’s wife) and from there to the Wu ECYMF account from where it eventually found its way, with other money, to an account in the name of Justin. It was not paid into a TM Account.

134. The sum of $4,000,000 was paid to the Yang ECYMF accounts by Justin on 14 February 2008. However, US$913,325.91 of that amount was repaid to him on 7 March 2008. It does not appear to be disputed that that amount was equivalent to $983,233.84. In addition, for the reasons I have explained, a further $1,770,720 paid into the Yang ECYMF account belonged to Justin. As a result, $5,770,720 paid into the accounts belonged to Justin of which he received back directly $983,233.84. It is also arguable that the payment of $338,400 indirectly to him should be treated as having been paid out of money belonging to him in the Yang ECYMF accounts, leaving a balance of $4,449,056.16.

135. A further amount of $8,000,000 was paid to the Yang ECYMF accounts from Chih-Chung’s UBS account. One amount of $3,000,000 was paid on 7 June 2007. The other amount of $5,000,000 was paid on 29 October 2008. It is unclear where that money came from or to whom it actually belonged.

136. The schedule agreed between the accounting experts also shows that amounts were paid from the Yang ECYMF accounts to Chih-Chung’s UBS account on 3 August 2006 ($400,000), 14 November 2007 ($2,080,643.39), 23 June 2008 ($80,000), 5 August 2008 ($140,000), and 1 December 2009 ($2,335,660.54), making a total of $5,036,303.93. It appears that the payment on 1 December 2009 found its way with other money to CYD as a further reimbursement of the amount Joseph had paid in relation to the acquisition of Spring Hill by Yi Shiu.

137. The only other known payments out of the Yang ECYMF accounts were the payments of $100,000 and $600,000 to TM Accounts on 17 August 2010 and 20 November 2013 respectively.

138. The result is that, according to the schedule agreed between the accounting experts, of the $17,652,005 known to have been paid into the Yang ECYMF accounts, $7,932,467 is unaccounted for (after conversion of the US dollar amount paid to Justin and adding the amounts paid to Chi-Chung’s UBS account, the amount of $3,000,000 paid the CYD and the amount of $700,000 paid to the TM accounts). However, that figure does not include the amount of $338,430 which appears to have found its way to Justin. Moreover, it does not take account of the fact that more must have been paid into the accounts because, as I have explained, one payment of $400,000 was made out of the accounts before there are any recorded payments into them.

139. Against that background, it is now possible to turn to the plaintiffs’ claims.

140. It is known that $700,000 was paid from the Yang ECYMF accounts to the TM Accounts. The plaintiffs submit that the Court should infer that that money belonged to them. On the evidence, I am not prepared to accept that submission. There was a sum of at least $4,449,056.16 held in the Yang ECYMF accounts on behalf of Justin. That amount was in those accounts before the payment of $700,000 to the TM Accounts. In my opinion it is reasonable to infer that when Justin paid the $700,000 to the TM Accounts and then paid that money out to himself he was dealing with money belonging to him. Neither of the principles relied on by the plaintiffs would permit the Court to infer that when Justin in effect paid $700,000 to himself, he did so out of money belonging to them when there was money in the account from which the payments were made that belonged to him.

141. It is not easy to follow the plaintiffs’ claim in respect of the $2,444,981. It was put in this way. According to them, an amount of $5,834,980 was transferred from the Lin Shihchen account to the TM Accounts after 29 January 2010, although the evidence suggests that that amount was $5,000 more. That $5,000 is to the plaintiffs’ benefit and can be put to one side. Of the amount paid from the Lin Shihchen account, Justin paid a total of $2,555,576 into that account. He is entitled to that amount, leaving a balance of $3,279,403 (in fact the amount is $3,279,404, but nothing turns on the difference).

142. According to the joint expert report, the payments to the Yang ECYMF accounts exceeded the payments from the Yang ECYMF accounts by $7,932,467. From that must be deducted the $700,000 paid directly to the TM Accounts. In addition, it is necessary to give Justin credit for the $4,787,486.16 belonging to him (this does take account of the $338,430 also apparently paid to Justin), leaving a balance of $2,444,981. It is said that the Court should infer that the payment of $3,279,403 from the Lin Shihchen account was funded in part by the $2,444,981, which belonged to the plaintiffs.

143. I do not accept this analysis. It suffers from the same difficulty as the claim in respect of the $700,000. Even assuming that it can be inferred that some part of the $3,279,403 came from the Yang ECYMF accounts, there is no reason to suppose that that money belonged to any of the plaintiffs rather than Justin. Assuming that the payment of $700,000 was funded from money belonging to Justin, that still meant that the amount of $3,749,056.16 held in the Yang ECYMF accounts belonged to Justin. That amount was available to fund all or part of the $3,279,403 paid from the Lin Shihchen account to the TM Accounts.

144. In addition, it is not easy to follow the logic of the plaintiffs’ calculations. There is no reason to suppose that the money held in the Yang ECYMF accounts to which Justin was entitled was used to fund any of the payments out of those accounts other than the $700,000 and the payments to himself. The other payments out of those accounts were to Chih-Chung’s UBS account and CYD. It is not apparent why Justin would fund the payments to Chih-Chung’s UBS account or the payment to CYD. There was an additional sum of at least $7,932,467 in the Yang ECYMF accounts (or $7,594,037.23 if it is assumed that a further $338,430 was paid indirectly to Justin), but deducting from that amount the amount belonging to Justin does not permit an inference to be drawn that the balance was distributed in a particular way. And such an approach begs the question of what happened to Justin’s money.

145. It follows that the only amounts that the plaintiffs are entitled to recover in respect of this second claim are the sum of $23,411.18 and the sum of $70,000. For the reasons I have explained, those are entitlements of Chung-Yi.

The rights issue

Factual background

149. It appears that there had been correspondence between the parties’ solicitors in relation to the provision by Chung-Yi of security prior to 14 July 2016 but nothing had come of that correspondence.

150. On 14 July 2016, Martin Musgrove, who by that stage had taken over as Justin’s solicitors, wrote to Watson Mangioni, who acted for the plaintiffs, indicating that they were prepared to accept security of $300,000 “subject to having the right to make application to top that amount up before the case goes to hearing”.

151. The Chung-Yi financial report for the year ended 30 June 2016 shows that, at that time, Chung-Yi had total assets of $2,133,555.07 and total liabilities of $1,366,434. The assets consisted of cash of $1,780,389.03, a receivable from Justin of $255,000 relating to this claim and a receivable of $96,643 from the ATO. The cash largely came from shareholder loans, the repayment of tax paid by the company on Tiffany’s behalf of $847,774.30 and the dividends refunded by Tiffany and Ling-Ling. The liabilities included the dividend payments that Tiffany and Ling-Ling had paid Chung-Yi but would reclaim if Chung-Yi failed in its claim to recover the equivalent dividend from Justin. They also included interest bearing loans of $180,000 made to the company by each of Chih-Chung, Tiffany, Ling-Ling and Joseph ($180,500 in the case of Tiffany), making a total $720,500.

152. Watson Mangioni resisted providing security, although they did offer an undertaking from Tiffany. That was rejected and, on 14 October 2016, Justin made an application for security for costs in the amount of $475,000. In response to that application, on 27 October 2016, Watson Mangioni indicated that the plaintiffs were willing to provide the security sought.

149. On the following day, Tiffany, as a director and the company secretary of Chung-Yi, sent an email to Justin and other shareholders giving notice of a rights issue at a price of $1 per new share to raise the required security. The rights issue was offered pro rata to each existing shareholder and, to the extent that existing shareholders did not take up their entitlement, other shareholders were entitled to apply for additional shares in proportion to the number of shares they held in the company. The notice stated:

The Board has determined that $1.00 per New Share is an appropriate issue price having regard to the Company’s current financial position. The last audited accounts of the Company as at 30 June 2015 are attached. They establish the NTA of the Company at approximately $1.00 per share. …

The offer was expressed to be open until 9 November 2016.

154. It is not disputed that the notice was not given to the personal representative of Mr Cheng’s Estate. It appears to be accepted that Mr Cheng died intestate and that no letters of administration have been taken out in respect of his estate.

155. Martin Musgrove accepted the offer of security on 31 October 2016 and orders for the provision of security were made by the Court by consent on 1 November 2016.

156. On 2 November 2016, Martin Musgrove wrote to Watson Mangioni pointing out that the financial information contained in the accounts for the year ending 30 June 2015 was out of date and requesting up to date financial information by 7 November 2016.

157. On 5 November 2016, there was a board meeting of Chung-Yi. At that meeting Joseph, who chaired the meeting, distributed a copy of the 2016 financial report. The minutes of the meeting record that:

The directors also discussed the company’s financial position, and confirmed that the price of AUD$1.00/per share to be an appropriate issue price under the share offer, and approved the issue of the attached share offer supplement letter by email to all shareholders.

The supplemental letter included a copy of the 2016 accounts. It was sent by email to Martin Musgrove by Watson Mangioni on 7 November 2016.

158. On 9 November 2016, Martin Musgrove wrote to Watson Mangioni in relation to the rights issue. Relevantly, the letter said:

Our client does not accept that the proposed new issue of shares by the Company pursuant to the Offers is the only (or even the most obvious) avenue of funding available to the Company for the purpose of providing the ordered security for his costs. Rather the effect of the Offers is to force him to choose between further funding litigation against himself or to suffer a dilution of his existing shareholding in the Company. That this was the intended effect of the Offers is made very clear by the Supplementary Letter where it states that “[i]f any Shareholder does not participate in the Offer for any reason, their shareholding will be diluted” notwithstanding that neither of the Offers appear to be formally underwritten.

We are instructed that our client does not propose to take up any entitlement he may have under the Offers.

The letter went on to allege that the offer “improperly attempts to shift the burden of providing the required security from the Company to our client. It is also oppressive to, unfairly prejudicial to, or unfairly discriminatory against our client in terms of s 232 of the Corporations Act 2001 (Cth)”.

159. On 17 November 2016, each of the shareholders who had made loans to Chung-Yi wrote to the company calling for repayment of their loans by 30 November 2016.

160. There was a further board meeting on 23 November 2016. It is apparent that the minutes of that board meeting, like all the documents relating to the rights issue, were drafted by lawyers. The minutes record that, after repayment of the loans, the company’s funds would be reduced to $901,000. In addition, they record the fact that $648,000 had to be set aside to repay Tiffany and Ling-Ling in the event that Justin was successful, leaving a balance of $253,000, and that a further amount of approximately $115,000 was owing in unpaid legal fees. In addition, the minutes record the fact that the company would incur further legal fees in connection with the case. The minutes also note that the existing shareholders “have indicated that they are not presently prepared to offer loan funding to the Company” and that “the Company has no security to offer any third party lender, so third party loans are not a practical option”. Taking those matters into account, the board resolved to issue new shares to those who had applied for them. The result is that Justin and Teresa’s interest in the company was diluted, as was the interest of the Estate of Mr Cheng. Justin’s interest was diluted from 10.83 per cent to 7.57 per cent. Teresa’s interest was diluted from 8.33 per cent to 5.82 per cent. The Estate’s interest was diluted from 16.67 per cent to 11.64 per cent.

161. One further factual matter that is relevant is that, at the invitation of the Court, the plaintiffs gave undertakings to the Court to the effect of those set out in Annexure A (31.2 KB, doc)  to this judgment.

Justin’s case

162. Justin submits that the rights issue was oppressive for four main reasons. First, the dominant purpose of the issue was to dilute his and Teresa’s interest in the company. Second, the rights issue was not necessary because there was no need for the shareholders to call on their loans and the security could have been provided by the individual plaintiffs, who are the ones who stood to benefit from the proceedings. Third, the rights issue was for an amount less than the shares were worth. Fourth, the company made no attempt to notify Mr Cheng’s Estate of the rights issue.

163. Justin also claims that by reason of (a) the removal of him, Teresa and his daughters as directors of Chung-Yi, (b) the failure to commence court proceedings to recover amounts from other family members, and (c) the rights issue, there has been an irreparable breakdown in the relationship between the shareholders, with the result that the Court should make an order for the winding-up of the company under s 461(1)(k) of the Corporations Act. That section gives the Court power to order the winding up of a company if “the Court is of opinion that it is just and equitable that the company be wound up”.

The rights issue

164. I do not accept that the rights issue was oppressive, or unfairly prejudicial, or unfairly discriminatory, to Justin.

165. It is a mis-characterisation to say that the purpose of the rights issue was to dilute Justin and Teresa’s shareholding in Chung-Yi. Justin and Teresa could have participated in the rights issue on exactly the same terms as the other shareholders. They chose not to. The context in which the rights issue was proposed was one in which Justin had made an application for security for costs. That application must be seen largely as an aspect of the tactical manoeuvring between the parties in relation to the litigation. It was made in a context where it was likely that Justin would be able to recover his legal costs if he was successful whether or not security was provided. The individual plaintiffs plainly had the capacity to meet any costs order and the likelihood is that if Justin had been successful, he would have obtained a costs order against all the plaintiffs.

166. The rights issue was a tactical response to Justin’s application for security. The likelihood is that it was designed to cause Justin to have second thoughts about the application for security by placing him in a dilemma about whether to contribute to the security or run the risk that he and Teresa would receive less if the claim against him succeeded. Justin was in as good a position as anyone to weigh up the advantages and disadvantages of taking up the rights issue. If he was confident of success, there appears to have been no significant advantage in pursuing the claim for security. On the other hand, if he was unlikely to be successful, there were advantages in taking up the rights issue. In that event, it is likely that he would have been liable to pay the costs in any event; and if he had taken up the rights issue, he would have had the benefit of receiving back as a shareholder a greater proportion of the amount he would have to pay as a result of the judgment against him than he would receive if he did not take up the rights issue.

167. It was not oppressive of the shareholders to call on their loans. They did not owe Justin or the company any obligations as lenders. As lenders, they were entitled to call on the loans whenever they wanted consistently with the terms on which the money was lent. It is not suggested that they did otherwise. Once it was apparent that the loans would have to be repaid, the company and its shareholders had to consider the best way of raising the money necessary to fund the provision of security. It seems clear that further funding was necessary for that purpose having regard to Chung-Yi’s financial position and, in particular, the analysis set out in the minutes of the board meeting on 23 November 2016. I accept that unless the shareholders were prepared to provide assistance to the company other than as shareholders (by, for example, lending money or giving guarantees), the only means available to Chung-Yi to raise the funds it needed was to raise additional capital. A pro rata rights issue appears to have been the most equitable way of doing that.

168. Justin suggested that the rights issue was at an under-value because, in valuing Chung-Yi, the board did not place any value on his claim. However, as I have said, Justin was in as good a position as anyone to assess that matter and factor it into his analysis of whether it was better to take up his entitlement or not. The outcome of the proceedings was uncertain and from the point of view of all shareholders, its value was likely to be the subject of considerable dispute. It was not unreasonable in those circumstances for the board to ignore the claim for the purposes of placing a value on the shares.

169. As to Justin’s fourth point, I accept the plaintiffs’ submission that this point was not pleaded. It was raised for the first time in oral submissions. Had it been raised earlier, it would have been open to the plaintiffs to lead evidence on the issue, including evidence of how the affairs of Chung-Yi had been conducted following Mr Cheng’s death. In my opinion, it is not open to Justin to raise the point now.

Winding up on the just and equitable ground

170. Justin did not develop the claim for relief under s 461(1)(k) of the Corporations Act in final submissions.

171. I am prepared to accept that Chung-Yi was a family company and that relations between its members have broken down to the point where it cannot continue to operate in the way that was envisaged by Mr Cheng. However, I do not consider it appropriate to make an order for the winding-up of the company under s 461(1)(k). There are a number of reasons.

172. First, the business for which the company was established came to an end when the properties it owned were sold. Currently, the only significant asset of the company is this litigation and the only matters to be resolved in relation to the company’s administration concern the litigation, and, in particular, the recovery of any amount payable as a result of it and the distribution of those recoveries. The plaintiffs have provided undertakings to the Court as a result of which the Court can be reasonably confident that Justin and Teresa will be treated fairly in that process.

173. Second, on the findings I have made, Justin was largely responsible for the breakdown in the relationship because of the way he managed the company. No doubt, he felt with some justification that the burden of the management of the company was placed on him for which he was not fairly rewarded. However, that did not entitle him to run the company in the way that he did.

174. Third, Justin’s siblings are opposed to the winding-up of the company given the sentimental value they attach to it because of its connection to their father. It would not be reasonable to wind-up the company in those circumstances when a winding-up would serve no purpose from Justin’s perspective.

Conclusion and orders

175. It follows from what I have said that Chung-Yi is entitled to judgment against Justin in respect of the following amounts:

1. The amount of $709,142 that was paid from a Chung-Yi account to Justin on 9 November 2009;

2. The amount of $2,343,321 that was paid from a Chung-Yi account to an account in the name of Tsui-Miao on 13 November 2009 together with the amount of $360,000 that was paid from a Chung-Yi account to an account in the name of Tsui-Miao on 21 December 2009;

3. The amount of $600,030 that was paid from a Chung-Yi account to an account in the name of Chih-Chung on 15 April 2010;

4. The amount of $1,100,000 that was paid from a Chung-Yi account to Justin on 4 June 2012;

5. The amount of $255,000 that was paid from a Chung-Yi account to Justin on 18 February 2013;

6. The amount totalling $23,411.18 held in the TM Accounts as at 29 January 2010; and

7. The amount of $70,000 that was included in an amount of $220,000 that was paid from an account in the name of Wu Min-Yueh to an account in the name of Tsui-Miao on 5 April 2011.

176. Chung-Yi is also entitled to interest on those amounts from the date the payments were made.

177. The cross-claim should be dismissed.

178. Within 14 days of the date of this judgment, the parties should bring in short minutes to give effect to these conclusions. If agreement cannot be reached on the terms of the orders, or on costs, within the 14 days, the matter should be relisted by contacting my Associate to deal with any outstanding issues.

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Amendments

20 July 2018 - Typographical errors in [120] change French FJ to French CJ and Kiefer to Kiefel.

03 August 2018 - Typographical error in last line of para 175(b) - changed 21 December 2008 to 21 December 2009

Decision last updated: 03 August 2018