Fang v Sun (No 2)

[2014] NSWSC 1194

Supreme Court

New South Wales

Medium Neutral Citation:

Linjing Fang v Xiaodan Sun & Ors (No. 2) [2014] NSWSC 1194

Hearing dates:

10 June 2014

Decision date:

04 September 2014

Jurisdiction:

Equity Division

Before:

Slattery J

Decision:

Indemnity costs awarded. Compound interest up to judgment awarded at the RBA rate plus 4 per cent at yearly rests. Adjustments made to the principal judgment sum increasing it by $39,000.

Catchwords:

PROCEDURE - costs - indemnity costs - departing from the general rule that costs follow the event - conduct of the parties - whether the defendant's misconduct justifies the award of indemnity costs to the plaintiff -

INTEREST - which rate of interest should be applied - principle that where a party found to be in dishonest breach of fiduciary duty, interest may be claimed at a higher rate - whether interest payable at ordinary rate or compound rate.

JUDGMENTS - adjustment to judgment sum - Court reserved for further consideration whether a further sum of $50,000 should be included in the judgment sum - plaintiff acknowledges that $11,000 should be deducted from the judgment sum.

Legislation Cited:

Supreme Court Practice Note Gen. 16
UCPR, r 42.1

Cases Cited:

Briginshaw v Bringinshaw (1938) 60 CLR 336
Degman Pty Ltd (In Liq) v Wright (No. 2) (1983) 2 NSWLR 354
Linjing Fang v Xiaodan Sun & Ors [2014] NSWSC 713
Southern Cross Commodities Pty Ltd (in Liq) v Ewing (1987) 11 ACLR 818
Thomas v SMP (International) No. 6 [2010] NSWSC 1311

Category:

Costs

Parties:

Plaintiff: Linjing Fang
First defendant: Xiaodan Sun
Second defendant: Mal Soon Park
Third defendant: Chong Hung Park
Fourth defendant: Zozoen Pty Limited (ACN 139 566 528)

Representation:

Counsel:
Plaintiff: M. Pesman SC; C. Alexander
First & Third: G.W.McGrath SC
Solicitors:
Plaintiff: Albert Yau, Yau & Wang Lawyers
First & Third Defendants: Derek Xu, Jurisbridge Legal

File Number(s):

2013/25078

Publication restriction:

No

Judgment

1. This is the Court's second judgment in these proceedings. It follows upon the Court's principal judgment, given 10 June 2014: Linjing Fang v Xiaodan Sun & Ors [2014] NSWSC 713. Both judgments should be read together; events, persons and things are referred to in this judgment in the same way as they are in the principal judgment.

1. The principal judgment found that the defendant, Ms Sun, had engaged in misleading and deceptive conduct by concealing the true purchase price of a restaurant business from the plaintiff, Ms Fang. The Court also found that, through this misrepresentation, the defendant breached her fiduciary duty to the plaintiff. Judgment was entered in favour of the plaintiff in the amount of $654,850.

1. The principal judgment, at [122-124], invited the parties to advance further submissions in respect of three unresolved issues: (1) whether the plaintiff could show that an additional advance of $50,000 had been misapplied by the defendant; (2) what was the appropriate rate at which interest should be awarded up to judgment; and (3), whether the plaintiff is entitled to costs on the indemnity basis. This judgment resolves those three issues.

Background to the Present Issues

1. In late 2009 Ms Xiaodan Sun attempted to play a role as a business intermediary between her aunt in Beijing, Ms Linjing Fang, and her mother-in-law in Sydney, Mrs Mal Soon Park. Ms Fang wished to apply for permanent residence in Australia and it was a condition of her visa that she invest in a local business.

1. Ms Sun told Ms Fang of a potential investment opportunity - the Zozo Korean Restaurant in Sydney's World Square building. She put to Ms Fang that Ms Fang and Mrs Park would be joint investors in the restaurant. The overall purchase price was communicated to the plaintiff as being $750,000: Ms Fang was to contribute $450,000 of this sum, with the balance of $300,000 to be paid by Mrs Park.

1. In fact, the purchase price of the restaurant was only $450,000. The Court accepted Ms Fang's case that had she known that her contribution formed the entire purchase price, she would not have gone ahead with this investment. A primary issue between the parties was when Ms Sun became aware that the total consideration payable for the restaurant was only $450,000. The defendant claimed that it was not until September 2012 that she discovered the true purchase price of the restaurant. But the Court has found this version of events to be implausible: Ms Sun knew the true price of the business in September 2009.

1. Consequently, the Court determined that the defendant engaged in misleading and deceptive conduct in respect of the representations she made to the plaintiff. The Court also found that Ms Sun was Ms Fang's fiduciary with respect to the administration of all the funds Ms Fang remitted to her from China. Ms Sun was thus in breach of her fiduciary duty by misapplying the funds to transactions not authorised by Ms Fang.

The Question of the $50,000 Advance

1. At paragraph [76] of the principal judgment the Court reserved for further consideration the following question:

"Ms Fang recalls that another tranche of Australian currency equivalent to US$50,000 was transferred in about November 2010. But Ms Fang was unable to provide any documentary evidence to support this payment. It is unclear from the course of final submissions whether this amount is admitted or not. I will reserve for further consideration the issue of the proof of this advance."

1. The plaintiff contends that the question of the additional $50,000 can be resolved on the pleadings. I accept that is correct. The plaintiff submits that this "approximately $50,000" payment is referred to in paragraph 33 of the Statement of Claim as having been part of the payments she made. The defendant admits the payment of "about $50,000" at paragraph 18 of the Defence. The $50,000 payment also appears in the table on page 11 of the Statement of Claim. The Defence at paragraph 25(a) admits a variety of payments including the $50,000 payment in question.

1. On the basis of these admissions on the pleadings the Court is satisfied that the $50,000 payment may be treated as having been made and the sum ought to be added to the quantum of the plaintiff's successful claim. The judgment amount will therefore need to be amended upwards by $50,000 to $693,850, exclusive of interest. Although this sum must be further adjusted on account of a payment made to the plaintiff, which has not yet provided for in the calculation of the final judgment sum, as is explained below.

The Appropriate Rate of Interest

1. The plaintiff seeks interest up to judgment. Supreme Court Practice Note Gen. 16 provides that interest up to judgment shall be payable at the rate of 4 per cent above the cash rate published by the Reserve Bank of Australia. But the plaintiff also seeks compound interest, with yearly rests, on the basis of Ms Sun's dishonest breach of fiduciary duty.

1. In Southern Cross Commodities Pty Ltd (in Liq) v Ewing (1987) 11 ACLR 818, Boehm AM stated at [843]:

"... a trustee may, and normally will, be charged with compound interest with yearly rests not only where he has used the money for his own commercial purposes but also where he has been guilty of fraud or serious misconduct."

1. Pembroke J recently examined the principles to be applied when the Court considers the award of compound interest, and the appropriate rate of such interest, in Thomas v SMP (International) No. 6 [2010] NSWSC 1311 ("Thomas"). His Honour cited with approval at [12] the principle in Southern Cross Commodities and his Honour ordered in Thomas and awarded interest at the rate of 4 per cent above the RBA rate, compounded with yearly rests.

1. The Court has found that Ms Sun's breaches of fiduciary duty were dishonest: principal judgment (at [118]). Whilst the criterion of "fraud or serious misconduct" is not a necessary condition for an award of compound interest, it is certainly a sufficient basis for such an award. In my opinion in the instant case the plaintiff is entitled to interest at the same rate and the same compounding as in Thomas.

1. The award of interest is compensatory, not punitive, in nature. It seeks to make good what the plaintiff has lost by the breach of equitable obligation. Given that the plaintiff has lost the whole of the original investment, in addition to subsequent sums transferred, and that Ms Sun's dishonesty occasioned the advance of all these monies, it is appropriate that interest be payable at the compound rate of interest over the whole judgment sum calculated from the date of each advance.

1. Ms Fang's lawyers should undertake a calculation in accordance with these reasons. The calculation can then be submitted to Ms Sun's lawyers, if they remain on the record, and the Court will then make final orders as to the quantum of interest.

The Question of Indemnity Costs

1. The principal judgment, at [124], noted that although costs ordinarily follow the event, the Court invited submissions as to any special costs order that may be sought. The plaintiff took that opportunity and now seeks indemnity costs against the defendant under UCPR, r 42.1. Mr Pesman SC for the plaintiff submits that, in defending the suit in the way that she did, Ms Sun acted dishonestly in attempting to further conceal her fraud.

1. In assessing this issue it is important to distinguish between the defendant's original misleading and deceptive conduct toward Ms Fang, and her subsequent misleading the Court throughout these proceedings.

1. In the principal judgment ([89] - [97]) the Court found that the defendant: (1) knowingly relied upon a fabricated document, the receipt, Exhibit B (even if she herself was not the author of that fabrication); and (2) attempted to invite Mr Kim to assist her and her mother-in-law in compounding the fraud. But in my view both by denying that fabrication and more importantly by continuing to maintain that she did not know the true purchase price of the business, the defendant also gave knowingly false evidence to the Court during these proceedings. The plaintiff argues, and I accept, that whether or not Ms Sun was the original author of the fraud is immaterial; she effectively adopted the fraud as her own in continuing her misrepresentations to Ms Fang, after she later became aware of the truth. After considering the appropriate measure of proof for such a finding (Briginshaw v Bringinshaw (1938) 60 CLR 336), I find that she advanced a case to the Court that she must have known to be false.

1. The question before the Court is whether there is a sufficient nexus between Ms Sun's delinquency and the manner in which the proceedings were conducted, such that an order for indemnity costs is justified. I am persuaded that in these circumstances there is sufficient connection.

1. Mr Pesman SC submitted that Degman Pty Ltd (In Liq) v Wright (No. 2) (1983) 2 NSWLR 354, in which Holland J examined the case for a special indemnity costs order in response to misconduct by a party, directly governs what is the proper result in this case. His Honour noted that

"the discretion which the court has as to costs is, as has been said many times, to be exercised judicially, that is to say upon proper grounds and the court will not lightly depart from standard practice in awarding costs".

1. Nonetheless the Court is satisfied that where the defences presented are "false and deliberately concocted in an attempt to deny the plaintiff its rights", a special order for costs is warranted. Ms Sun's continued deception of her aunt Fang facilitated the misapplication of Ms Fang's funds. But her deception also prolonged this litigation and caused other parties to incur liability for solicitors and client costs beyond what could have been reasonably expected in the litigation of genuine issues.

1. In the result therefore the Court will order indemnity costs against the defendant. I see no reason why the order for indemnity costs should not cover the whole of the proceedings. And I will so order.

Conclusion and Orders

1. In closing submissions, the plaintiff conceded that the total amount of her award should be reduced by $11,000 to $682,850 (being $693,850 - $11,000) to reflect what was said to be a "dividend" payment she received from Mrs Park, thereby reducing her losses by that amount. This figure has not been brought to account in the Court's calculations so far and should be deducted from the judgment sum.

1. In the result therefore the Court makes the following orders:

1. Vary the principal amount of judgment to $682,850.

2. Order the defendant to pay interest on the said sum of $682,850 at the rate prescribed from time to time under Supreme Court Practice Gen. 16, compounded at yearly rests.

3. Direct the plaintiff to provide for the Court's and the defendant's consideration a calculation of the amount of interest to be awarded pursuant to Order 2, so that the final orders as to interest can be made in chambers.

4. An order that the defendant pay the plaintiff's costs of these proceedings on an indemnity basis.

**********

Decision last updated: 04 September 2014