E S G Chi Investments v Lo
[2000] NSWSC 60
•23 February 2000
CITATION: E S G Chi Investments v Lo [2000] NSWSC 60 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 1800/98 HEARING DATE(S): 25 February 1999, 20 & 24 May 1999 JUDGMENT DATE: 23 February 2000 PARTIES :
E S G Chi Investments Pty Ltd (P)
Xavier Lo (D)JUDGMENT OF: Austin J
COUNSEL : D B Studdy (P)
S T Krishnar (Sol) (D)SOLICITORS: Deacons Graham & James (P)
S T Krishnar (D)CATCHWORDS: EVIDENCE - whether plaintiff authorised loan for purchase of scrap metal - whether plaintiff had purpose of evading capital gains tax - inferences from oral evidence and correspondence CASES CITED: Docker v Somes (1834) 2 My & K 655
Foley v Hill (1848) 2 HLC 28
Palette Shoes v Krohn (1939) 58 CLR 1DECISION: Proceedings for failure to account dismissed.
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONAUSTIN J
WEDNESDAY 23 FEBRUARY 2000
1800/98 - E S G CHI INVESTMENTS PTY LTD V XAVIER LO
JUDGMENT
HIS HONOUR:
The plaintiff's claims
1 By its statement of claim filed on 24 March 1998 and amended on 12 March 1999, the plaintiff has sought relief against the defendant on two grounds, namely failure to account and failure to manage the affairs of the plaintiff.
2 The failure to account was alleged to have arisen out of a sale of property by the defendant on the plaintiff's behalf. The plaintiff says that the defendant improperly and without authorisation withdrew money from a bank account which contained the proceeds of sale of the property, and is accountable for the difference between the sale proceeds and the amount which he eventually paid over to the plaintiff. The plaintiff also claims compensation for the interest and bank charges in respect of a mortgage which the defendant had been slow to discharge out of the proceeds of sale. The plaintiff seeks the recovery of all those amounts plus interest.
3 As to the complaint about failure to manage its affairs, the plaintiff says in its statement of claim that the defendant failed to keep proper accounts and lodge tax and company returns for the period from 1 July 1989 to 30 June 1995; and that it was accordingly necessary for the plaintiff to instruct a firm of accountants to rectify the problem, incurring costs of $13,454.71, as well as $3036.87 for additional tax for the 1991, 1992 and 1994 tax years. In its statement of claim the plaintiff sought recovery of those amounts plus interest.
4 After the defendant had failed to file a defence, the plaintiff entered judgment by default for a total sum of $124,433.88 plus interest. The defendant successfully applied to Master Macready to set aside the part of the judgment which dealt with the first ground, namely failure to account. On 7 August 1998 the Master varied the judgment by reducing it by the amount of $101,280.02 down to $23,153.85. The Master found on the evidence that there was a dispute in respect of part of the proceeds of sale in the sum of $47,000 and the consequential charges and interest relating to discharge of the mortgage, and his orders were intended to permit the issue of failure to account to be contested; but he did not set aside the judgment with respect to the plaintiff's second ground, relating to failure to manage the plaintiff's affairs.
5 At the hearing before me the defendant contested the plaintiff's claim on the ground of failure to account, and the present judgment deals with that question. The defendant also sought to contest the second ground, on the basis that he did not charge for the preparation of financial statements and tax and company returns for the years from 1989 to 1995, and should not be required to reimburse the plaintiff for its cost of obtaining that work elsewhere. The plaintiff says it is too late for him to raise such matters, since judgment was entered against him in 1998 and that judgment was not set aside in respect of the second ground. The defendant submits that Master Macready's judgment was the ‘product of vitiating factors’, but no detailed basis for this was advanced on the defendant's behalf, and no application was made to set aside the judgment except orally in submissions. I see no basis for setting aside the judgment against the defendant on the second ground, and it accordingly stands.
Facts not in dispute
6 The plaintiff is a company incorporated in New South Wales and the defendant is an accountant who at the relevant time was practising as ‘Xavier and Co’. The defendant was authorised by the plaintiff to act as its agent in the management and conduct of the plaintiff's affairs. The defendant was also a director of the plaintiff during the period from 11 February 1986 to 12 December 1990.
7 By a letter dated 21 September 1989, the plaintiff directed the defendant to sell on its behalf the plaintiff's property located at 8/219 Alison Road Randwick. The defendant completed the sale of the property on behalf of the plaintiff on 22 November 1989 for a net amount of $165, 534.74, and deposited these proceeds of sale into the plaintiff's bank account at the South Hurstville branch of the ANZ Bank.
8 The defendant made withdrawals from the plaintiff's account as follows:
23 November 1989 $22,000
28 November 1989 $50,000
1 December 1989 $28,000
8 December 1989 $60,000
9 The plaintiff admits that the defendant has accounted to it for the sum of $118, 534.74. At the hearing the defendant did not contest the plaintiff's allegation that the defendant has not paid it the remaining $47,000 of the proceeds of sale.
10 So much is admitted by the parties, but they disagree on other aspects of the facts.
The plaintiff's contentions
11 The plaintiff says that the defendant made the withdrawals without its knowledge or consent, and without authority. It asserts that the money in the bank account was under the control of the defendant who was either a trustee of the proceeds of sale or was entrusted to deal with the proceeds of sale as directed by the plaintiff and not otherwise. It says that the balance of the proceeds of sale, $47,000, remains unaccounted for, in breach of trust or in breach of fiduciary obligation. It denies that it was ever aware of any arrangement between it and the defendant (as alleged by the defendant in the manner explained below) that the proceeds of sale would be used to fund the purchase scrap metal in Australia on behalf of Malaysian entities. It denies that the defendant had its authority to use the proceeds of sale to fund the purchase scrap metal or for any purpose other than to repay the Citibank mortgage and account to it for the balance.
12 The plaintiff's submission is that the defendant occupied a fiduciary position because he was a director of the plaintiff and also the plaintiff's agent. Equity will, at least in certain circumstances, impose a fiduciary character on an agent: Palette Shoes v Krohn (1939) 58 CLR 1, 30. If a person entrusts his property to an agent to be sold, the property remains the property of the principal until the sale takes place, and the moment the purchase money is received it is the property of the principal: Foley v Hill (1848) 2 HLC 28, 35. Where a fiduciary misuses his principal's money in breach of duty, the law raises ‘a trust by implication’ (that is, a constructive trust) for the purpose of making the fiduciary accountable: Docker v Somes (1834) 2 My & K 655. As I understood him, the defendant did not dispute these propositions, and that is just as well, because in my opinion they are beyond contention. The issue to be resolved in the present case is one of fact rather than law.
13 The plaintiff says that it directed the defendant to repay its mortgage to Citibank Savings Ltd out of the proceeds of sale. However the defendant failed to repay the balance of the mortgage until about 30 March 1990, causing the plaintiff to incur additional interest to Citibank of $2574.05 plus bank charges of $29.69.
The defendant's contentions
14 The defendant admits that he was directed by the plaintiff to sell the Alison Road property and that he did so, paying the proceeds of sale into the plaintiff's ANZ Bank account at South Hurstville. Since the account was in the plaintiff's name, the defendant denies he held the proceeds of sale in trust. He denies that he has failed to account to the plaintiff for $47,000 out of the proceeds of sale.
15 The defendant says that in about April/May 1988 he was approached by Mr Lee Kay Whatt to locate scrap metal in Australia for export to Malaysia, for a fee for initial exploratory work and thereafter a fee per metric tonne for coordinating suppliers and shippers. The Malaysian purchasers paid for the scrap metal by telegraphic transfer to the defendant's account.
16 The defendant's case is that in about mid 1989 he had a discussion with Eddie Chi, a co-director of the plaintiff, in Malaysia. Mr Chi said he wanted to sell the Alison Road property due to the high interest rate in Australia and a recession in the Malaysian economy, and in furtherance of his plan to emigrate to New Zealand. The defendant says he advised Mr Chi of the tax position in Malaysia and Australia. He says Mr Chi expressed his desire to have the proceeds of sale transferred to his account in Singapore by some means other than through the normal banking system. He says he explained to Mr Chi that he was visiting Malaysia to meet clients in connection with scrap metal trading, and Mr Chi then inquired as to the possibility of the defendant using the proceeds of sale in payment for the scrap metal, on the basis that the Malaysian buyer would transfer an equivalent amount of money into his account in Singapore. The defendant says he subsequently made an arrangement with Mr Whatt that the money of the defendant's client (the plaintiff) would be used to pay for scrap metal in Australia and that a Malaysian buyer would pay for the scrap metal by placing funds in a Singaporean account as directed by the defendant (the defendant's intention being to nominate a Singaporean account of the plaintiff). In effect, on the defendant's evidence the plaintiff's money was used as a loan to the Malaysian buyer, repayable in Singapore.
17 According to the defendant, the plaintiff authorised him to enter into these arrangements for the purposes of:
· concealing the proceeds of sale of the Alison Road property so as to avoid the imposition of capital gains tax in respect of the profit on sale of approximately $70,000;
· avoiding the need to explain to Malaysian taxation authorities the source of the funds invested in Australia and the source of any Australian profits from such investment; and
· avoiding any other examination by Malaysian financial authorities of the plaintiff's affairs relating to the transfer of funds of the plaintiff to certain Singaporean accounts or entities for subsequent remittance to Australia.18 The defendant claims that with the plaintiff's authority, pursuant to these arrangements, he made withdrawals from the South Hurstville account in the total amount of $160,000 and applied those funds towards the purchase of scrap metal from the State Rail Authority and Ferris Foundry Ltd for shipment to a Malaysian company called Kuan Eik Leong Hardware Trading Co. When that company declined to pay for the scrap metal (which was already in transit) on the ground that the scrap metal market in Malaysia had collapsed, the defendant arranged for two other Malaysian companies, Metal Trading and Sri Jempul Sdn.bhd, to acquire the shipment at a reduced price. He says that the plaintiff received the reduced price but there was a shortfall of at least $47,000. He says he has taken legal action to recover the shortfall in Malaysia, without success. The repayment was made by way of a bank draft for $80,000 personally delivered by him to Mr Chi in Singapore in December 1989, and a deposit of $33,000 into the plaintiff's account with the ANZ South Hurstville branch in March 1990. He says he has no legal liability to repay the remaining balance of the proceeds of sale, although he has regarded himself as under a moral duty to compensate the plaintiff for its loss because he recommended the Malaysian buyer who defaulted.
19 The defendant also says that the plaintiff is precluded by laches from claiming repayment, because it was aware of all material facts and circumstances from about late 1989 but did not institute proceedings until 1998. I shall dispose of this submission at once. There is no evidence that there was any culpable delay on the part of the plaintiff at any stage. Nor is there evidence that the defendant has been prejudiced by the passing of time, or that there has been any conduct or acquiescence on the plaintiff's part which might have encouraged the defendant to alter his position, or that he has done so. What has happened is that the quantum of the plaintiff's claim has increased because of interest. I reject the defendant's submission based on laches or delay.
20 As far as delay in discharging the Citibank mortgage is concerned, the defendant says that discharge of the mortgage was the responsibility of the plaintiff's solicitor, and as the plaintiff's accountant he should not be held accountable for the solicitor's failure to discharge his responsibility.
Correspondence
21 The central issue in this case is a question of fact, namely whether the defendant was authorised by the plaintiff to withdraw part of the proceeds of sale from the ANZ South Hurstville account to pay for scrap steel bought from Australian suppliers for shipment to Malaysia. To a degree, my answer to this question will depend upon whether I prefer the affidavit and oral evidence of the defendant or of Mr Chi. But there is also some relevant correspondence between them.
22 The defendant's fax to Mr Chi dated 13 July 1989 refers to the high interest rate on the Citibank loan and suggests a number of options, including sale of at least one of the plaintiff's properties so that the debt and consequently the interest expense could be reduced. There is no mention of any scrap metal transaction. Mr Chi responded on 19 July 1989 instructing the defendant to sell one of the three properties which the earlier fax had mentioned. In that fax Mr Chi asked the defendant to ‘advise further regarding property gain tax and if possible indicate the rough amount to be paid’. There is no mention of any discussion between Mr Chi and the defendant about capital gains tax and its avoidance, but the defendant says that such a discussion took place in mid 1989.
23 There is no further correspondence in evidence until 20 September 1989, when the defendant reported to Mr Chi by fax that the agent had managed to obtain a selling price for the Alison Road property, recommending that the price be accepted and that the funds be used to pay off the loan, because the interest rate was too high. The defendant explained in that fax that he was unable to calculate the capital gains tax which would be applicable until he obtained information about the purchase price which the company had paid. Mr Chi responded on 21 September 1989 authorising the sale of the Alison Road property, without mentioning capital gains tax.
24 The sale then took place, and as I have said it was completed on 22 November 1989. The proceeds were paid into the ANZ South Hurstville account, and then the defendant made four withdrawals adding up to $160,000. He met with Mr Chi in Singapore on about 13 December 1989 and handed him a bank draft for $80,000. I shall return to that meeting later, but I note that its occurrence is confirmed in Mr Chi's faxes to the defendant dated 10 February 1990 and 3 March 1990.
25 On 15 January 1990 Mr Chi sent an urgent fax to the defendant, which stated that he had tried several times to contact the defendant over the telephone. The fax explained that Mr Chi had been given up to the end of the week to transact certain business and that he urgently needed the balance due to him (more precisely, due to the company) from the sale of the Alison Road property. He asked the defendant to send the balance after repaying the Citibank mortgage without any further delay, as a matter of urgency. The fax stipulated a bank account number in Singapore.
26 Then on 10 February 1990 Mr Chi sent the defendant another fax referring to a ‘recent NZ interview’ (presumably referring to his application to emigrate), in which he said he was ‘shot down proper and torn to pieces’ because the documents he presented showed that various properties were still subject to the Citibank mortgage. Mr Chi complained that since the December 1989 meeting the defendant had been specifically instructed by him to repay all loans due to Citibank out of the total proceeds of sale. He noted that the defendant had credited his account in Singapore for a ‘mere’ sum of $80,000. He expressed the view that the remaining proceeds of sale would be more than adequate to repay the Citibank loan and enable him to present clear titles to the New Zealand High Commissioner in a subsequent interview in Kuala Lumpur. He expressed surprise that although two months have passed since he had given the instruction, the problem still remained. He reiterated an earlier request for a statement of account regarding the investments under the defendant's control. He said he had placed complete trust in the defendant and ‘least expect that you will let me down so badly, so much so that it hurts because of our friendship which I presume both of us still value’. Neither the February nor the March fax makes any mention of any scrap metal transaction.
27 On 3 March 1990 Mr Chi sent another fax to the defendant complaining that he had still not obtained a statement from Citibank confirming that the loan had been fully paid. Mr Chi said that although he had been assured by the defendant during the December 1989 meeting that the remaining balance of the proceeds of sale would be credited to his account, he had still not received the sum of money as promised. He referred to several reminders and phone calls which are not otherwise in evidence, and said he was really puzzled as to why no progress had been made at all. He said he often wondered what had happened to the balance of $85,534.15 (after the payment of $80,000 in Singapore in December 1989), and said that this amount should be more than adequate to cover repayment of the Citibank loan. He said that the defendant's empty promises had worn out his patience, and unless the matter (presumably repayment of the Citibank loan) was settled ‘once and for all’ before 10 March 1990 he would have no other choice but to resort to a legal course of action. Again no mention was made of any scrap metal transaction.
28 On 30 March 1990 the defendant sent Mr Chi a fax confirming that the mortgage had been discharged and discussing arrangements for sending the documentation to Malaysia. On 11 May 1990 Mr Chi sent a fax to the defendant thanking him for sending the original discharge of mortgage document, which had been forwarded to the New Zealand High Commission. Mr Chi said his purpose in writing was to ‘appeal’ to the defendant for financial statements for the plaintiff company. He signed the fax with ‘warm regards’. On 12 October 1990 Mr Chi sent another fax to the defendant thanking him for a fax regarding the financial statements for the year ended 30 June 1989 and asking for financial statements for the year ended 30 June 1990. The fax also asked the defendant to send the company's monthly bank statements to him. The fax proposed a meeting in Australia in December 1990 to ‘go through the accounts in detail’ and asked the defendant to make himself available and to get all the accounts updated. It contained the following paragraph:
‘Recently there appear in our papers an article regarding non-compliance with existing Australian tax regulation by many foreign landlords including Malaysians. I trust you have submitted the yearly returns in compliance with the Australian law in respect of [the plaintiff]. Otherwise, I would advise you to do so immediately, as being a very law abiding person, I would surely not like to get into the bad books of the Australian Tax Authority. A copy of the article in question is included in this fax transmission for your information.’
29 Mr Chi's fax to the defendant dated 26 November 1990 complained that he had still not received the information requested on 12 October 1990, and confirmed that he would contact the defendant when he arrived in Sydney on 9 December 1990. Mr Chi said that the ‘main purpose’ of his visit was to go through the accounts. Although Mr Chi expressed his ‘warm regards’ he added as a postscript: ‘please do not fail me again this time’.
30 Mr Chi and the defendant had a meeting in December 1990. Mr Chi says that during that meeting he discovered for the first time that the defendant had withdrawn $160,000 from the proceeds of sale in the plaintiff's South Hurstville bank account, and made arrangements to transfer the management of the plaintiff's financial affairs from the defendant to Mr Chi's nephew, Mr Gerry Tan. And yet on 8 January 1991 he sent a fax to the defendant thanking him for ‘the valuable time you have spared’ in going through the accounts, and referred to the defendant's ‘kind assistance in matters relating to transfer of authority’. The fax noted that of the total amount of $160,000 withdrawn from the account only $113,000 could be accounted for (the latter figure comprising the $80,000 paid by the defendant in Singapore in December 1989 and the additional $33,000 which the defendant paid into the plaintiff's account in March 1990). This left the balance of $47,000. Mr Chi said he was ‘very impressed with your integrity in readily accepting responsibility for the outstanding amount’, and requested that it be remitted as soon as possible, at the latest by the end of March 1991. He said that Mr Tan would contact the defendant regarding audited accounts for 1989/1990 for submission to the ‘Income Tax Department and other relevant authority’. The letter concluded with Mr Chi wishing the defendant and his family the very best for the new year.
31 In a fax to the defendant dated 6 March 1993 Mr Chi made a demand for the $47,000, noting that the matter had dragged on for more than three years, and threatened legal action. He said that ‘as your friend I am giving you this opportunity to redeem yourself’. The defendant replied by facsimile dated 8 March 1993, thanking Mr Chi for his friendship and apologising for being difficult to contact. He referred to a visit to Malaysia in December 1992 in ‘another attempt to collect the funds outstanding’, and recorded that he was given excuses, and was ‘embarrassed’ that he could not meet his ‘commitments’ such as to Mr Chi. He also explained that his intentions were good but the times were hard and that he had ‘every intention of compensating [the plaintiff’s] losses’. He said to the plaintiff ‘I have given you my assurance that I will not let you suffer because of my recommendations’. He said ‘I want to discharge my responsibility to you for the sake of friendship with or without whatever legal actions you threatened’. But he explained that he could not pay at that time. He said that he had taken legal action in Malaysia to collect the money owing to him. The references in the facsimile of 8 March 1993 - to ‘funds outstanding’, ‘commitments’, ‘losses’, ‘recommendations’ and ‘legal action in Malaysia’ - appear to be oblique references to the scrap metal transaction and the failure of the Malaysian purchaser of the scrap to meet its payment obligation. There is no evidence of any reply by Mr Chi denying any involvement in those transactions.
The Scrap Metal Transactions
32 The defendant has adduced some evidence to support his account of the scrap metal transactions. Mr Lee Kay Whatt is the person identified by the defendant as approaching him in April/May 1988 to locate scrap metal for export to Malaysia. Mr Whatt has given affidavit evidence which corroborates the defendant's assertion on this point. Mr Whatt also says that around the middle of 1989 the defendant inquired as to the possibility of using his clients' funds for the purchase of scrap metal, on the basis that payment by the Malaysian buyer would be remitted to Singapore. He says the proposal was accepted. He says that beginning in 1990 the scrap metal market collapsed in Malaysia and his employer, Far East Trading, was unable to accept a shipment at the agreed price. The defendant asked him to find other buyers for the shipment and subsequently he informed the defendant that he had found two buyers, Sri Jempul and Metal Trading.
33 The defendant's evidence includes some correspondence about scrap metal transactions. There is a copy of a letter from a Mr Tan of Kuan Eik Leong Hardware Trading Co to the defendant dated 30 June 1989 saying that in view of the long delay of a shipment of scrap rails, the writer proposed ‘that you utilise the money from your friend to pay for the rails and we shall remit the money from here to Singapore’, and that if the friend's money were utilised the writer would pay for the interest incurred and transfer the money equivalent to Singapore whenever instructed to do so. There is a copy of a further letter from the same writer to the defendant dated 5 July 1989, asking him to remit money and send documentation, and saying ‘if we have utilised your friend's money to purchase the rails please let me know the expected time when I shall remit same to him in Singapore dollars to Singapore’.
34 In a letter dated 1 December 1989 to Kuan Eik Leong Hardware Trading Co regarding payment for a shipment of used rail lines, the defendant stated that he had used his client's money to pay for the freight and would have sufficient money from his client to pay for the materials, but he would need the purchaser's remittance shortly. It appears that the invoice price for the shipment was $20,557.50. In a letter to Mr Whatt dated 5 April 1990, enclosing invoices with respect to containers of rail axles, the defendant asked Mr Whatt to assist him in obtaining payment of all accounts owed by Mr Tan. The defendant said his client was no longer consenting to the use of his funds, and that it would be a relief to him personally to see the loan fully repaid and finalised as he was responsible for it.
35 The defendant's evidence also includes copies of some receipts which he says are for the purchase of scrap metal, though their dates do not correspond with the four withdrawals from the plaintiff's account in November/December 1989. There is also a document headed ‘Reconciliation of Steel Shipments’, which was not explained by the defendant's evidence.
36 Though this evidence is in some ways unsatisfactory, it was not specifically challenged by the plaintiff, who asserted instead that it knew nothing of the scrap metal arrangements at relevant times and did not authorise withdrawal of its money for purchase of scrap metal. On the basis of the defendant's evidence, I conclude on the balance of probabilities that he did in fact enter into an arrangement with Mr Whatt under which he arranged for the purchase of scrap metal from Australian suppliers for shipment to Malaysian buyers. I also conclude that he used $160,000 of the plaintiff's money to pay one or more suppliers, expecting that a Malaysian buyer, Kuan Eik Leong Hardware Trading Co, would pay for the scrap metal by placing funds to the plaintiff's bank account in Singapore as directed by the defendant. I accept the defendant's evidence that the Malaysian buyer refused to pay for the scrap metal because of the collapse of the Malaysian market, and that he arranged for other Malaysian buyers to acquire it at a reduced price. The evidence as to the price received for the scrap metal is particularly thin, but the defendant asserts that there was a shortfall of at least $47,000, the amount not paid to the plaintiff, and in the absence of other evidence I accept this assertion.
37 The question remains whether the defendant was authorised by the plaintiff to use its money in this way. If this question is answered in the affirmative, so that the defendant lent the plaintiff's money to the Malaysian buyer in the scrap metal transaction to which I have referred, acting as agent for the plaintiff, then the plaintiff rather than the defendant bore the risk of loss if the Malaysian buyer failed to pay . There is no evidence that the defendant gave any indemnity or warranty to the plaintiff which would hold the plaintiff harmless from that loss. There is evidence that the defendant accepted ‘responsibility’ for the $47,000 in subsequent discussions and correspondence, but as I shall explain, the proper construction of the discussions and correspondence is that the defendant accepted moral but not legal responsibility.
Did the plaintiff authorise the defendant to use its money for the scrap metal transaction?
38 Much of the affidavit and oral evidence has been directed to this issue. I must decide whether to accept the evidence of Mr Chi, on behalf of the plaintiff, or the defendant's evidence. I have decided, again on the balance of probabilities, that I should prefer the evidence of the defendant over the evidence of Mr Chi. My conclusion, therefore, is that in mid 1989 the plaintiff through Mr Chi authorised the defendant to use all or part of the proceeds of sale of the Alison Road property as a loan to the Malaysian buyer in a scrap metal transaction in order to move the proceeds of sale of the Alison Road property from Australia to Singapore for the purpose of evading capital gains tax on the sale. The defendant does not claim that the plaintiff was aware of the identity of the Malaysian buyer or the supplier of scrap metal, but rather that the plaintiff authorised him to make such arrangements as he thought fit. Therefore, it is not to the point that, at the time when he gave evidence, Mr Chi had not heard of the Malaysian entity and had not seen any correspondence with respect to scrap metal transactions. I make no finding as to whether the plaintiff’s purpose of tax evasion was followed through or effectuated.
39 I have decided to prefer the defendant's evidence to Mr Chi's for three specific reasons, as well as my observation of the witnesses in the witness box.
40 Firstly, there are some consistencies arising out of three parts of Mr Chi's evidence. The first part of evidence from which inconsistencies emerge is in his affidavit sworn on 3 November 1998, where he denied paragraphs 9 to 11 of the defendant's affidavit sworn on 21 July 1998 and said that he first became aware of the matters set out in those paragraphs when the plaintiff's solicitor informed him of a conversation he had had with the defendant to the effect of the matters set out in the paragraphs. The matters set out in paragraphs 9 to 11 of the defendant's affidavit, which were not themselves admitted into evidence, are the defendant's assertions that proceeds of sale were utilised as a loan to purchase scrap metal for and on behalf of Sri Jempul Metal Trading, that there was a slump in the price of scrap metal and the company failed to repay Mr Chi in Malaysia as agreed, that the amount outstanding was approximately $113,000, and that the defendant is not liable for the loss because it was with Mr Chi's full knowledge and consent.
41 The second part of evidence from which inconsistencies emerge is his oral evidence about his meeting with the defendant in December 1990 in Sydney. This was a meeting in which, at Mr Chi's request, he and the defendant ‘went through the accounts’ of the plaintiff. His evidence in cross-examination was that he first discovered that the funds had been removed from his account during that meeting, and before that he ‘had no knowledge about it at all’ (Transcript, p 23.40 to 23.51).
42 The third part of evidence from which inconsistencies emerge is his oral evidence about his meeting with the defendant in Singapore in December 1989. He was asked what the defendant had said to him in Singapore when he asked the defendant where the remainder of the money was. He answered:
‘Of course he did mention something, like, something to do with some scrap metal and all that but I thought that is nothing to do with ESG Chi and I told him 'I don't want to know about it'. I would expect a different answer from him.’43 I accept Mr Chi's evidence that the defendant mentioned to him ‘something to do with scrap metal’ during their meeting in December 1989 in Singapore. That is consistent with the defendant's evidence. I infer, given that the subject of scrap metal was raised in the meeting, that the defendant must have said that he had used money from the plaintiff's bank account to pay for scrap metal. I make this inference because of Mr Chi's evidence that the defendant referred to scrap metal when asked where the remainder of the money was. Once that inference is made, this evidence is plainly inconsistent with what I have called the first and second parts of his evidence. It also seems to me that the first and second parts are inconsistent with one another, since if Mr Chi found out about the withdrawals in December 1990 then he was aware at that time of part of the matters set out in paragraphs 9 to 11 of the defendant's affidavit. These inconsistencies go to the heart of the factual issue in this case, and lead me to the conclusion that Mr Chi's evidence on this issue should not be accepted.
44 Secondly, there is the question of the correspondence between Mr Chi and the defendant, which I have summarised above. The plaintiff's strong submission is that the correspondence demonstrates that the plaintiff did not authorise any scrap metal transaction, because no such transaction is mentioned anywhere in it. I disagree. My view is that, on balance, the correspondence tends to favour the defendant's case.
45 It is true that the correspondence does not expressly mention any scrap metal transaction. However, the defendant's letter of 8 March 1993 makes oblique references to some such arrangements, as I have mentioned, and there is no evidence that Mr Chi denied or queried those references or followed them up in any way. Moreover, given the terms of the conversation between Mr Chi and the defendant in Singapore in December 1989, the correspondence thereafter has an unrealistic air. Mr Chi had been told then that the defendant had used the plaintiff's money to pay for scrap metal. But the correspondence proceeds as if this information had not been conveyed. Mr Chi's omission to refer to it lends support to the defendant's explanation, which is that Mr Chi did not want to refer to the scrap metal transaction in correspondence because to do so would create evidence of his purpose of tax evasion.
46 It is noteworthy that, while capital gains tax is referred to in the faxes of 19 July and 20 September 1989, the subject of tax is not mentioned again until 12 October 1990 in Mr Chi's fax of that date which contains the rather self-serving paragraph about compliance with tax laws, which I quoted above. Yet this paragraph appears in a fax in which Mr Chi thanks the defendant for sending the financial statements for the year ended 30 June 1989, evidently only recently, asks for more information and proposes a meeting to go through the accounts in detail. Mr Chi must have realised that at that point in time it was unlikely that the defendant would have submitted any tax returns, even for the year 30 June 1989, and so the paragraph about tax is disingenuous as well as self-serving.
47 There is no evidence of any correspondence immediately after the December 1989 meeting, even though at that time the defendant had paid Mr Chi less than he had expected to receive and it would have been entirely reasonable for Mr Chi to follow up the meeting with a demand for payment of the balance, if he regarded it as immediately due and payable. When he eventually sent a fax on 15 January 1990 demanding payment, he evidently felt it necessary to explain that he needed the money to transact some urgent business. The fax of 10 February 1990 seems more concerned with discharge of the Citibank mortgage and preparation of a statement of account, than with payment of the balance claimed. The fax of 3 March 1990 again presses these issues, as well as noting that the balance of the money had not been credited to his account (presumably, the plaintiff's Singapore account) and threatening legal action. But after the Citibank mortgage was discharged on 30 March 1990, Mr Chi's correspondence is in a more friendly tone, his fax of 11 May 1990 ending with ‘warm regards’.
48 Thirdly, I attach significance to Mr Chi's evidence, set out above, that when the defendant referred to scrap metal at their meeting in Singapore in December 1989 he said ‘I don't want to know about it’. He did not say ‘you have acted without authority’ or ‘you had no right to use my money for that’. His reply suggests that his main concern was not to be put on notice of what the defendant was doing with the plaintiff's money, rather than to object or criticise the defendant. It is plausible to explain his response by saying that he authorised the scrap metal transactions for a purpose of tax evasion and did not want to be told the details, so that he could deny any knowledge subsequently (as indeed he has). If the defendant had acted totally without his knowledge or authority, such a reply would have been unlikely. The attitude lying behind his reply explains the bland nature of the correspondence and also explains why there is no correspondence about capital gains tax at around the time of the sale of the Alison Road property.
49 The plaintiff relies on the fact that Mr Chi could not obtain financial information from the defendant despite various requests in the correspondence. But the defendant's explanation is plausible, in light of the evidence as a whole. He says that he was not comfortable with the plaintiff's participation in the scrap metal transaction, and he did not feel comfortable about preparing accounts and lodging a tax return without disclosing the capital gain on the sale of the Alison Road property (Transcript, p 68.10 to 68.20). Although the defendant has admitted to participating with the plaintiff in a plan for tax evasion, there is no evidence that he or the plaintiff in fact lodged a false tax return.
50 At various times in correspondence and in evidence the defendant indicated that he was prepared to accept ‘responsibility’ for payment of the balance claimed by the plaintiff. But I am satisfied, considering his evidence as a whole, that he did not at any stage intend to undertake a legal obligation to pay the $47,000, as if on an account stated. Instead his intention, which must have been understood by Mr Chi (who said in his fax of 8 January 1991 that he was very impressed with the defendant's integrity in readily accepting responsibility for the outstanding amount), was to accept a moral obligation to pay that amount if he could, because he had recommended the Malaysian buyer to the plaintiff and therefore felt some ‘responsibility’ in a broader sense for the plaintiff's loss.
51 I am not entirely confident of the truth of all of the defendant's evidence. When the matter first came on for hearing he applied for an adjournment so that he could obtain legal representation, asserting that he had not received several letters from the plaintiff's solicitor. In my reasons for judgment granting the adjournment, delivered on 25 February 1999, I noted the implausibility of his assertion that some seven correctly addressed letters which were properly posted had not been received by him. On the other hand, on the crucial factual issue in this case the defendant's evidence has been, as far as I can see, internally consistent and also consistent with the correspondence. I therefore accept the defendant's evidence with respect to the scrap metal transaction and the plaintiff’s authorisation of it. In the witness box the defendant was guarded but clear about the basic facts, notwithstanding skilled cross-examination. In contrast Mr Chi appeared to me to give indirect and incomplete, if not evasive answers, and to try too hard to convince me that he should be believed.
Discharge of the Citibank mortgage
52 The plaintiff seeks interest and bank charges because, it alleges, the defendant failed until 30 March 1990 to comply with its instruction to discharge the Citibank mortgage out of the proceeds of sale of the Alison Road property, which was completed on 22 November 1989. The defendant says that the responsibility for discharging the mortgage rested with the plaintiff's solicitor, rather than with him.
53 On the evidence, the plaintiff has not made out its case on this matter. The defendant was the plaintiff's agent and I infer that the solicitors who were engaged in the conveyancing of the Alison Road property (from whom there is no direct evidence) took instructions from the defendant in his agency capacity. The evidence shows that completion of the sale took place on 22 November 1989 but that the mortgage was not discharged until 30 March 1990. The correspondence which is in evidence shows that the defendant had instructions to discharge the mortgage out of the proceeds of sale. But the evidence does not explain the lapse of time between November and March, and in particular it does not indicate whether failure to discharge the mortgage was referable to some failure by the defendant to carry out his instructions as agent with due care.
Conclusions
54 It follows that the plaintiff has not made out its entitlement to the relief which it claims for failure to account - that is, the relief claimed in paragraph 10 of the amended statement of claim, to the sums of $47,000, $ 2,574.05 and $29.69.
55 As to the plaintiff's claim for failure to manage its affairs, paragraph 12 of the amended statement of claim sought recovery of a total amount of $20,114.58 plus interest. Default judgment was signed on 19 June 1998 and on 7 August 1998 Master Macready varied the judgment by reducing it down to $23,153.85, which (I take it) represents the amount claimed in paragraph 12 plus interest to that time. For the reasons which I have given, I do not intend to disturb the judgment as varied by Master Macready.
56 In the result I propose to dismiss the proceedings except for the judgment already entered and varied by Master Macready. I have ordered the defendant to pay the plaintiff's costs of the hearing on 25 February 1999 on an indemnity basis. Except for those costs, and costs referable to the claim for failure to manage the plaintiff's affairs which is covered by Master Macready's varied judgment, I am inclined to order that the plaintiff pay the defendant's costs, but I shall hear submissions on costs and the appropriate form of the orders.
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