Gang v You (No 3)
[2021] ACTSC 318
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Gang v You (No 3) |
Citation: | [2021] ACTSC 318 |
Hearing Date(s): | 18-22, 25-27 October 2021 |
Submissions Last Received: | 19 November (Plaintiff), 3 December (First Defendant), 10 December (Plaintiff in Reply) |
DecisionDate: | 15 December 2021 |
Before: | Crowe AJ |
Decision: | See [386] |
Catchwords: . | CIVIL LAW – CONTRACT – where the plaintiff claims there was an agreement to merge the plaintiff’s company with the first defendant’s company – breach of contract – where the plaintiff claims the first defendant breached the alleged merger agreement – sale of property – where the plaintiff sold his property to the first defendant – whether the proceeds of sale should have been paid to the plaintiff or the first defendant’s company EQUITY – EQUITABLE AND FIDUCIARY DUTIES – where the plaintiff claims the second defendant acted as his solicitor in the sale of property – where the plaintiff claims the first and second defendants owed the plaintiff equitable and fiduciary duties – whether those equitable and fiduciary duties were breached SOLICITOR – CONFLICT OF DUTIES – where the plaintiff claims the second defendant failed to disclose its conflict of duties – whether the second defendant breached r 11 of the Legal Profession (Solicitors) Conduct Rules 2015 (ACT) |
Legislation Cited: | Evidence Act 2011 (ACT) s 140 Legal Profession (Solicitors) Conduct Rules 2015 (ACT) r 11 |
Cases Cited: | Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1 Briginshaw v Briginshaw (1938) 60 CLR 336 Watson v Foxman (1995) 49 NSWLR 315 |
Parties: | Yeong Suk Gang ( Plaintiff) Jin Ho You (First Defendant) Colquhoun Murphy Pty Ltd Trading as Colquhoun Murphy Lawyers (Second Defendant) |
Representation: | Counsel Dr D Hassall ( Plaintiff) B Buckland (First Defendant) A Muller (Second Defendant) |
| Solicitors Maxwell & Co ( Plaintiff) Mills Oakley (First Defendant) Moray & Agnew (Second Defendant) | |
File Number(s): | SC 430 of 2018 |
Crowe AJ
Introduction
I provide the following summary of the central allegations made in this matter which underlie the specific claims explained in more detail in the account of the pleadings given below.
The plaintiff was born in Korea. He is about 56 years of age. He completed primary schooling in Korea. He worked as a tiler in that country. He came to Australia about 20 years ago. He was able to demonstrate sufficient proficiency as a tiler to obtain a Certificate III in General Construction (Wall and Floor Tiling).
For some years, the plaintiff worked as a tiler for various employers. From 2009 to 2014, the plaintiff worked as a tiler and waterproofer for D-Works Pty Ltd, a company owned and controlled by the plaintiff’s stepson. In 2014, the plaintiff took over the ownership and management of that company. The name was changed to CU Tiling Pty Ltd (CUT). Thereafter, CUT operated a tiling and waterproofing business in the Canberra region until it was placed under external administration on 30 November 2017.
The first defendant was also born in Korea. He is now 34 years of age. However, he attended school in Australia. He also commenced, but did not complete, tertiary studies in Commerce and Law. Over the past 10 years or so, he has owned and operated an apparently successful building and construction company, JY Contractors Pty Ltd (JYC).
The second defendant has at all material times carried on practice as a firm of solicitors in Canberra. The firm had prior to the latter half of 2017 acted on behalf of the first defendant on a number of occasions.
Over the years, CUT worked on building sites on which JYC had also been working. Indeed, from about 2015, CUT regularly undertook subcontracted work from JYC. In that way, and perhaps also through the Korean community in Canberra, the plaintiff and the first defendant became acquainted.
By early 2017, CUT was experiencing some liquidity problems. It was falling behind in payments that it owed to its workers. It was also unable to pay other operating costs as they fell due. At one point during that time, the plaintiff sought an advance of $30,000.00 on monies which would become payable by JYC upon the completion of subcontract works to be performed by CUT. That money was advanced, and duly set off upon completion of the works.
In March 2017, there was some discussion between the plaintiff and the first defendant about the difficulties facing CUT. This culminated in a dinner held at a Chinese restaurant at Forde in the Australian Capital Territory (ACT) towards the end of March 2017. There were four persons present. In addition to the plaintiff and the first defendant, there were Mr D Kim and Mr D J Kong. Mr Kim is a person who had worked for CUT for some years as an administrator. He was able to communicate reasonably well in English and assisted the plaintiff with documentation and communication in English. Mr Kong, who is the first defendant’s cousin, worked in the administration of JYC.
There is a stark disagreement about what transpired at the dinner. The plaintiff, supported by Mr Kim, says that an agreement was reached whereby the businesses of the two companies would be merged and, in consideration of that merger, the first defendant would undertake to pay the existing liabilities of CUT.
The first defendant, supported by Mr Kong, says that there was no discussion of a merger at all. On the contrary, there was some discussion of the first defendant and/or JYC lending CUT some money to assist in it continuing to operate. It was said that the plaintiff agreed to guarantee such loans.
Thereafter, in the next month or so, the business office of CUT moved to operate out of JYC’s office at Mitchell in the ACT. The plaintiff and Mr Kim say that this was due to the merger agreement, and that the first defendant and Mr Kong effectively took over control of CUT (and a related company Project Control Pty Ltd (Project Control) which, according to the plaintiff, the first defendant had suggested that he form in March 2017).
The first defendant and Mr Kong say that CUT moved into the JYC premises not because of a merger, but because CUT was behind in its rent in relation to its own office, and had to move out of that office. They deny that they took control over CUT and Project Control. Rather, CUT and Project Control continued to operate in their own right as subcontractors to JYC. JYC and the first defendant made a number of payments either directly to CUT and Project Control, or to creditors of those companies, by way of loans. This continued until December 2017.
The plaintiff says that in breach of the agreement made in March 2017, the first defendant failed to ensure that the debts of CUT were paid. That breach ultimately led to CUT being liquidated.
Against this background, on 21 September 2017, the plaintiff signed a contract for the sale of his residential property in Giralang in the ACT to the first defendant. The sale price was $750,000.00. The contract had been prepared by the second defendant on the instructions of the first defendant. Indeed, the second defendant then acted for the first defendant to complete the sale transaction on 1 November 2017. The plaintiff claims that the circumstances were such that, in addition to acting for the first defendant, the second defendant also acted as his solicitor for the purposes of the conveyance.
At the settlement, the plaintiff’s existing mortgage debt of a little over $404,000.00 was repaid. The balance of just over $335,000.00 was paid into trust and thence to JYC in accordance with written authority and direction signed by the plaintiff and dated 3 November 2017.
In relation to the contract, the plaintiff says that he signed it on the basis of the first defendant’s misrepresentation that the document provided for a 3-year option for the plaintiff to buy the property for the amount paid by the first defendant, that is, $750,000.00.
The plaintiff also says that he was not able to read English sufficiently well to understand the authority documents, and that he was tricked into signing them by the first defendant. He claims that he was entitled to the balance of the proceeds of the sale and that he did not agree to the payment of that money to JYC.
The first defendant denies that he deceived the plaintiff. He says that the plaintiff knew that he was directing the balance of the sale proceeds to JYC in payment of the loans that JYC (and the first defendant himself) had made to CUT.
The plaintiff also says that the circumstances of the conveyance were such that the second defendant was, or ought to have been, aware of his poor English and that he was thus vulnerable to exploitation by the first defendant. Given the unusual outcome of the transaction whereby the proceeds of the sale were to be paid, ultimately, to the first defendant’s company (JYC), the second defendant was under a fiduciary obligation to ensure that the plaintiff fully understood the nature of the sale transaction, and in particular, the contents of the direction documents which he was asked to sign.
There is also a dispute about an occupation agreement which was contained in the contract for sale. Pursuant to that agreement, the plaintiff was entitled to remain in possession of the property. He was obliged to pay an occupation fee fortnightly in advance, and also to continue paying the rates and other outgoings associated with the property.
In early 2018, the plaintiff ceased paying the occupation fee. In May 2018, the first defendant’s solicitor gave notice terminating the occupation agreement. The plaintiff commenced proceedings (SC 368 of 2018) seeking an injunction. On 10 August 2018, the parties entered into the following undertakings before Loukas-Karlsson J:
3.Upon the undertaking of the Plaintiff to pay into Mortgage Account Fixed Rate Investment Property Loan [BSB Number] and account number [Account Number] in the sum of $16,213.50 by 4:00 pm on Tuesday 14 August 2018, such payment being without prejudice to the Plaintiff being able to argue as to whether this amount or any part of it was or was not payable by the Plaintiff to the Defendant for the Plaintiff’s occupation of [the Giralang property].
4.Upon the further undertaking that the Plaintiff continue to pay the sum of $1,465.50 fortnightly while he occupies [the Giralang property], the Defendant undertakes to allow the Plaintiff to re-enter [the Giralang property] and undertakes not to convey or deal with the Defendant’s interest in [Giralang property] and undertakes not to convey or deal with the Defendant’s interest [Giralang property] until further order of the Court.
Thereafter, the plaintiff has on a number of occasions fallen into arrears in payment of the occupation fee. He has also failed to pay rates for some years. The first defendant counterclaims the amounts he has paid for rates, the legal costs which he incurred in relation to the injunction proceedings and the legal costs which he has incurred in recovering the arrears in occupation fee.
The pleadings
The plaintiff’s claim against the first defendant
I had cause to examine the statement of claim in this matter upon a challenge made to the relief sought by the first defendant: see Gang v You [2020] ACTSC 105. As a result of that decision, the plaintiff filed a Further Amended Statement of Claim (FASOC) on 9 July 2020.
In that pleading, the plaintiff asserted the following causes of action against the first defendant. The plaintiff claimed that in or about April 2017, he and the first defendant agreed to merge CUT with JYC (the Merger Agreement). Under the Merger Agreement, the plaintiff would continue to oversee site management and technical matters in relation to CUT and that its employees or subcontractors would become JYC employees/subcontractors (converted workers). CUT would channel income from their services to JYC, including $153,000.00 in accounts receivable for work completed prior to the merger, and transfer assets to JYC.
The plaintiff claimed that the first defendant would then pay outstanding CUT debts to the Australian Tax Office (ATO) as well as CUT operating expenses which included the plaintiff’s wages of $1,700.00 per week, and converted workers’ wages, as well as Pay as You Go (PAYG) taxation obligations.
The first defendant would account to the plaintiff for the income and expenditure in relation to work carried out by CUT and pay 80 per cent of the profit from the business to the first defendant and 20 per cent of the profit to the plaintiff. The first defendant would transfer 20 per cent of JYC shares and 20 per cent of JYC profit to the plaintiff. The value of the JYC shares was said to be commensurate with the value of CUT at the time of the merger.
The plaintiff characterised the Merger Agreement as a joint venture between himself and the first defendant. Pursuant to that venture, the parties owed equitable duties of good faith to each other.
In the alternative to the alleged joint venture, the plaintiff pleaded a claim of promissory estoppel based on the representations said to have been made by the first defendant. Those representations were, in substance, the same as the terms of the Merger Agreement.
The plaintiff further asserted the plaintiff and first defendant had signed a contract for sale for his property in Giralang mentioned above at [14]. Upon completion and settlement of the sale for $750,000.00, the first defendant was to pay the plaintiff all surplus funds including the deposit of $75,000.00 and balance of the surplus funds thereafter, that being $260,434.00. It was pleaded that the first defendant obtained the signature of the plaintiff on the contract by representing to him that the document contained an option for him to buy the property back for $750,000.00. The option was said to be exercisable for three years.
The plaintiff also pleads that the first defendant (together with the second defendant) “arranged” for the plaintiff to sign documents authorising the second defendant to pay the net proceeds of the sale to JYC. The documents were dated 3 November 2017, however, it is claimed that the plaintiff signed them at the second defendant’s offices on either 27 October 2017 or 3 November 2017.
Claimed breach of merger agreement/joint venture
The plaintiff pleaded that the first defendant breached his equitable and fiduciary duties to the plaintiff through breach of the Merger Agreement.
The plaintiff claims that the first defendant received income for accounts receivable for work completed by CUT prior to the merger, and generated income provided by converted workers. The first defendant characterized the income as “loans” to the plaintiff and treated CUT operating expenses incurred by converted workers as operating expenses incurred by CUT.
The plaintiff asserts that the first defendant then failed to apply the income received from April 2017 to pay all of CUT’s operating expenses and debts and, as a result, CUT was placed under external administration. The first defendant also failed to meet PAYG taxation obligations in relation to converted workers and purported to treat them as continuing employees of CUT for PAYG taxation purposes.
The plaintiff alleges the defendant failed to account to the plaintiff for the income and expenditure in relation to work carried out by CUT and converted workers and failed to pay 20 per cent of profits of JYC to the plaintiff and the first defendant failed to give any JYC shares to the plaintiff.
Breach of property agreement – unconscionable conduct
The plaintiff alleges the first defendant breached the terms of the contract for sale for the plaintiff’s house referred to above at [14]. The first defendant was obliged to pay the surplus funds of $335,434.00 to the plaintiff pursuant to the terms of the contract for sale of the property. The first defendant failed to pay the surplus funds to the plaintiff and instead paid the funds to JYC, thereby breaching the contract, causing loss and damage to the plaintiff.
It is further pleaded in relation to the contract for sale, that contrary to the representation made by the plaintiff as to the option, the contract did not make provision for that right at all.
In relation to the authority documents, the plaintiff claimed that the first defendant deceived him by telling him only that they were documents which were required to complete the sale transaction. In so acting, the first defendant acted unconscionably.
The relief claimed against the first defendant
The plaintiff seeks an order that the first defendant provide equitable compensation to the plaintiff for loss and damage incurred by reason of the first defendant’s failures to comply with the terms of the Merger Agreement and/or his fiduciary obligations under the joint venture.
The plaintiff also seeks equitable compensation by an order that the first defendant pay the plaintiff the sum of $335,434.27 for loss and damage suffered by the plaintiff because of the conduct of the first defendant.
The plaintiff further seeks an order that the first defendant re-convey the title to the Giralang property for the sum of $750,000.00 (to be then paid by the plaintiff to the first defendant) on a date nominated by the plaintiff on or before 1 November 2020.
The plaintiff’s claim against the second defendant
As against the second defendant, the plaintiff claims that, in effect, the second defendant ‘acted’ as a solicitor for both the plaintiff and first defendant in relation to the contract for sale and the conveyance.
The plaintiff asserts that the second defendant, as his solicitor, owed fiduciary duties to him. In the course of the sale and conveyance of the Giralang property, the second defendant breached its fiduciary duties by failing to ‘act in the best interests’ of the plaintiff. Further, the second defendant failed to disclose its conflict of interests in acting for the plaintiff and the first defendant. The second defendant failed to advise the plaintiff to obtain independent legal advice and failed to organise an independent interpreter to ensure the plaintiff understood the effect of contract for sale and the authority documents. The plaintiff also claims that this put the second defendant in breach of the Legal Profession (Solicitors) Conduct Rules 2015 (ACT) (Solicitors Conduct Rules). It is also alleged that having regard to all of the circumstances (including the plaintiff’s lack of understanding of English), the second defendant acted “unconscionably” and “against equity and good conscience”.
Relief claimed against second defendant
The plaintiff claims damages for loss suffered by the plaintiff as a result of the breaches of the second defendant’s fiduciary duties, and restitution or equitable compensation, or in the alternative, equitable damages, in the sum of at least $335,434.27 or such other sum as the Court may assess.
Defence of the first defendant
In response to the claims asserted by the plaintiff, the first defendant filed a Defence to Further Statement of Claim on 27 July 2020.
In relation to the alleged Merger Agreement, the first defendant denied that there was an agreement between the plaintiff and first defendant that CUT would merge with JYC. Rather, JYC had subcontracted the provision of tiling services to CUT in 2016 and early 2017. Through this subcontracting arrangement, JYC became aware that CUT was facing financial and administrative issues, including unpaid wages to workers employed from overseas on a subclass 457 visa and outstanding debts, including legal proceedings regarding taxation debts.
The first defendant stated he agreed to assist CUT in order to prevent it from going into liquidation or administration. He stated this was to benefit CUT’s workers and to allow CUT to complete its remaining work with JYC (the CUT Credit Agreement). The first defendant stated a term of the CUT Credit Agreement was that JYC would assist with some, but not all, of its outstanding liabilities. JYC agreed to loan funds to CUT and Project Control to enable CUT to continue to pay its employees’ wages, cover various expenses, and a taxation debt with the ATO. Some funds were also loaned directly by the first defendant to CUT for these purposes.
The first defendant denied he had undertaken to pay from his own money the debts of CUT as consideration for the alleged Merger Agreement pleaded by the plaintiff. Therefore, none of CUT’s income was channelled to JYC nor was any income from CUT characterised as income of the first defendant or JYC, or as loans by the first defendant or JYC to the plaintiff. Any incoming cashflow of CUT from parties other than JYC or the first defendant would be paid directly to suppliers and creditors of CUT.
Further, the first defendant denied he had breached his equitable and fiduciary duties to the plaintiff. The legal persons who would conduct the business of the joint venture would be CUT and JYC. Therefore, any equitable or fiduciary duties owed would be between CUT and JYC. However, they were not parties to the proceedings, nor were they pleaded to have been.
The first defendant also denied that there was any agreement for a joint venture. Indeed, it is said that the claim is bad at law having regard to the absence from the proceedings of CUT and JYC.
The first defendant also denies that any estoppel arises as claimed by the plaintiff.
In relation to contract for sale, the first defendant admitted that there was a contract for the sale of land between the plaintiff and first defendant on 21 September 2021. However, the first defendant stated that the surplus funds of $260,434.27 were paid into the second defendant’s trust account pursuant to a written direction from the plaintiff. The plaintiff directed this sum plus the deposit of $75,000.00 to be released to JYC for the purposes of paying suppliers and creditors of CUT, as well as other debts. The first defendant denied any ‘arrangement’ or ‘conspiracy’ with the second defendant and its employees.
Defence of the second defendant
The second defendant also filed a defence to the FASOC on 27 July 2020. While the second defendant admitted that the first defendant was obliged to pay $750,000.00 to the plaintiff for the sale of the Giralang property, it pleaded that the funds were to be paid to him “or as directed (by him)”. The second defendant stated that the first defendant paid the purchase price of the Giralang property, except for $2,286.30 paid to the second defendant in relation to legal fees. This latter amount was due to an error by the second defendant in the preparation of the settlement statement. Further, the second defendant denied it acted as solicitor for the plaintiff.
As to the fiduciary duties said to be owed to the plaintiff, the second defendant denied that it owed any such duties. If it did owe any duty to the plaintiff, the second defendant pleaded that it did not breach that duty.
Counterclaim of first defendant
Supplementary to its defence, the first defendant counterclaimed against the plaintiff for damages said to arise from the breach by the plaintiff of the occupation agreement entered into in relation to the Giralang property at the time of the contract for sale. The damages claimed included unpaid occupation fees, outgoings related to the property and legal costs incurred as a result of the breach.
Plaintiff’s answer to counterclaim
The plaintiff asserted that because the first defendant had not paid the net proceeds of sale to the plaintiff there was a failure of consideration under the contract for sale, such that the first defendant lost the entitlement to the occupation fee. Alternatively, it was pleaded, the obligation to pay the occupation fee was conditional on the first defendant having met his obligations under the contract for sale, including the payment of the purchase price to the plaintiff. By reason of the first defendant’s failure to meet his obligations, the plaintiff was relieved of the obligation to pay the occupation fee.
In relation to the claim for reimbursement of legal costs, the plaintiff says that the costs were only incurred as a result of the first defendant’s breach of his obligations under the contract for sale. In the circumstances the first defendant was not entitled to recover those costs as damages.
The Evidence
The evidence in chief was largely given by affidavits filed in the proceedings. The plaintiff read the following:
1 Affidavit of Mr Y S Gang sworn 28 May 2019
2 Affidavit of Mr H J Yoon affirmed 28 May 2019
3 Affidavit of Mr D H Kim affirmed 28 May 2019
4 Affidavit of Mr J H Lee affirmed 28 May 2019
5 Affidavit of Mr Y S Gang sworn 17 December 2020
6 Affidavit of Mr Y S Gang sworn 18 December 2020
7 Affidavit of Mr V M N Chin affirmed 12 February 2020
The affidavit of Mr Chin annexed the report of a forensic accountant, Mr P Green, dated 12 February 2020.
The first defendant read the affidavits of:
1 Affidavit of Mr Y-I Kwak affirmed 3 July 2019
2 Affidavit of Mr D J Kong affirmed 3 July 2019
3 Affidavit of Mr J H You affirmed 8 July 2020
4 Affidavit of Mr S B Yoon affirmed 10 November 2020
5 Affidavit of Mr J H You affirmed 17 November 2020
6 Affidavit of Mr E Senatore affirmed 17 November 2020
Mr Senatore’s affidavit annexed a copy of his report. Mr Senatore is an accountant and liquidator.
The second defendant read the affidavits of:
1 Affidavit of Ms K Fogarty sworn 21 June 2019
2 Affidavit of Ms T Russell sworn 21 June 2019
All of the witnesses as to fact, and both the expert witnesses, were cross-examined. Mr Yoon, who was called by the first defendant, was due to return to Korea before the trial. His oral evidence was therefore taken before the Chief Justice pursuant to r 6813 of the Court Procedures Rules 2006 (ACT) on 3 December 2020. An audio-visual record of the examination was tendered as was the transcript. They became Exhibits “1D2” and “1D3” respectively.
Apart from Mr Yoon’s evidence, the parties tendered a number of other documents. They were:
1Plaintiff’s Certificate III in General Construction (Wall and Floor Tiling)
2Text messages between the first defendant and Mr J H Lee
3Immigration Letter of Support
4S B Yoon’s ABN search dated 3 December 2020
5Highlighted invoices for JYC
6Request for Information – Mills Oakley
7Bundle of St George Bank statements for JYC between 30 April – 29 December 2017
8Contract of Sale attached to Ms N Flower’s affidavit of 25 February 2021
9Second defendant’s conveyancing file in relation to the purchase of the Giralang property
The Lay Witnesses
The Plaintiff
As noted in the introduction, the plaintiff is a tiler who came to Australia to work in that trade about 20 years ago. He claims to have little understanding of spoken or written English. Indeed, he relies on that lack of understanding to support his claim of vulnerability.
The plaintiff was cross-examined through an interpreter by counsel for both defendants (Mr Buckland for the first defendant and Mr Muller for the second defendant).
The interposition of the interpreter made it very difficult to assess the degree to which the plaintiff was attempting to answer questions in a straightforward way, or in contrast, attempting to give answers that assisted his case. I will return to the issue of credibility and the demeanour of witnesses below.
In his first affidavit, the plaintiff recounts that he became the owner of the residential property at Giralang in 2007. He also says that he had, prior to June 2014, been working as a tiler and waterproofer for the company which became CUT. The plaintiff became a shareholder and the sole director in June 2014.
CUT was not the first company to be controlled by the plaintiff. An ASIC search annexed to the first defendant’s affidavit (Annexure “JHY 3”) indicates that in 2006 the plaintiff became the sole director of YSK Contractors Pty Ltd (YSK). In 2011, the company was wound up by Court order and a liquidator appointed. YSK was deregistered in 2015.
The plaintiff says that he ran CUT with the assistance of Dong Hwan Kim and Jungwon Lee. Mr Kim managed the administration of the company from the office, while Mr Lee worked with the plaintiff on site as a site supervisor. Both Mr Kim and Mr Lee could speak, read and write in both Korean and English. Mr Lee translated for the plaintiff when required on site. All of the CUT workers were Korean.
According to the plaintiff, he met the first defendant in about 2015 in the course of carrying on the tiling business. He also knew him through a Korean church which the plaintiff’s wife used to attend. The plaintiff says that the first defendant’s mother is the “Chairperson” of the church, the first defendant the Treasurer and his sister the Secretary. In that context, the plaintiff believed that he could “trust [the first defendant] to act honestly and in good faith”.
Mr Kim
Mr Kim was born and raised in Korea. He confirmed that he is able to speak, read and write in that language. However, he came to Australia about 30 years ago and is able to communicate in English. Indeed, Mr Kim did not require an interpreter for his oral evidence.
Mr Kim has worked in the tiling trade for over 20 years. He has known the plaintiff since shortly after the latter came to Australia. In or about 2013, Mr Kim worked for a short period as a tiler and waterproofer for JYC. He subsequently commenced working for the company which became CUT. He worked as tiler and waterproofer with the plaintiff. He says that he always spoke to the plaintiff in Korean. He observed that, while the plaintiff does attempt to communicate in English, he does not have the fluency to be able to communicate properly. He also was not able to read and write in English.
After the plaintiff took over the operation of CUT, Mr Kim managed the paperwork in the office, with some assistance from Mr Lee. Mr Kim would deal with English-speaking customers and suppliers from the office, while Mr Lee would deal with such persons on site. However, the plaintiff made the decisions about CUT’s business, including the work to be undertaken, expenditure, hiring of staff and work allocation. Mr Kim would translate important documents for the plaintiff, such as contracts.
Mr Kim worked in CUT’s office until it was closed, probably around April 2017. He then moved, together with CUT’s paperwork and his work computer into the offices of JYC at Mitchell in the ACT. After a couple of months, he commenced working as an employee of JYC. He remained in that role until he left in October 2017.
Mr Lee
Mr Lee was also born in Korea. He was a much younger man than the plaintiff and Mr Kim. He came to Australia about 13 years ago. He confirmed that he can speak, read and write in both Korean and English. He did not require the assistance of an interpreter in Court.
Mr Lee started working as a tiler for the company which became CUT in about 2012. He became acquainted with the plaintiff at that time. He has always communicated with the plaintiff in Korean.
Mr Lee remained with the company after it was taken over by the plaintiff. He said that he had a good relationship with the plaintiff, who “...trusted me as if I was his son”. He, in turn, trusted the plaintiff. Part of his job was to translate for the plaintiff on building site with customers and suppliers who could not speak Korean. While the plaintiff could say a few single words in English, he did not know enough words to communicate with English speakers.
The work performed by Mr Lee for CUT was in the nature of site supervision, although he would also spend some time in the office where he worked closely with Mr Kim.
Some time after April 2017, Mr Lee also started working for JYC, performing the same duties as he had been performing at CUT. He continued working with JYC until March 2018. After leaving JYC, Mr Lee joined with Mr Kim to operate their own tiling business.
The First Defendant
As with many of the other witnesses in this case, the first defendant was born in Korea. He is now 34 years of age. The evidence does not disclose when he moved to Australia; however, it is apparent that he completed some years of schooling in this country. He also commenced, but did not complete, tertiary studies in Commerce and Law. The first defendant communicated fluently in English. It was apparent from the first defendant’s participation in the hearing that he is also fluent in Korean.
The first defendant has worked in the building and construction industry for over 17 years. He is the sole shareholder and director of JYC. At the time of his first affidavit, the first defendant said that JYC had an annual income of over $9 million. Under cross-examination, he estimated the average annual turnover of JYC to have been around $7.5 million. About $2 million of that was from tiling and waterproofing (including the supply of materials) for the financial year ending 30 June 2016. That figure increased to about $3 million for the years ending 30 June 2017 and 30 June 2018.
The first defendant confirmed that JYC subcontracted tiling work to CUT in and from 2016. There was no written contract, rather, he and the plaintiff would agree on a rate per square metre for each job. CUT would invoice JYC accordingly on the 15th and 30th of each month.
CUT employed a number of workers pursuant to subclass 457 visas. In order to qualify for permanent residence in Australia, a worker had to complete a certain period of employment with CUT.
In relation to the plaintiff’s understanding of English, the first defendant said that he believed that the plaintiff did understand “some” English, but that his English “wasn’t great”. He said that he had heard the plaintiff converse with others in broken English on a number of occasions. This included communicating on site with English speaking JYC foremen and project managers.
The first defendant said that JYC had employed his cousin, Don Jin Kong, from about 2016 to work within the office. Mr Kong was, within the areas of his work responsibility, a trusted and valued employee.
Mr Kong
Mr Kong confirmed that he had been employed by JYC since early 2016. His duties included accounting, general office administration, invoicing and budgeting for particular jobs. He said that his English was limited so he would sometimes need the assistance of the first defendant. Indeed, Mr Kong required the assistance of an interpreter for his affidavit and for his oral evidence. However, he was able to perform his work duties mostly without the need for an interpreter. On occasions, he would turn to “Google Translate” for help.
Mr Kong said that he was seven years older than the first defendant. He accepted that he had a close relationship with him, both as family member, and as an employee of JYC.
In his affidavit, Mr Kong said that most of JYC’s employees were Korean citizens. A number of these held subclass 457 visas, and Mr Kong was responsible for complying with certain obligations to maintain the validity of those visas.
Mr Kwak
Mr Young-il Kwak required an interpreter for his affidavit and oral evidence. In his affidavit, he said that he had worked for YSK from about 2008 until it went “bankrupt” in 2011. At the time, the company went bankrupt it failed to pay him everything that it owed him.
After the failure of YSK, Mr Kwak worked for other companies for a couple of years. From about 2014, he worked for CUT. For the first three years, he worked as an employee. For the last year, he worked as a sub-contractor. He said that he did not have any issues with the plaintiff, except that CUT was often late in paying him. Indeed, when he left CUT, he was owed money for three months’ work.
Mr Yoon
Mr Yoon was a fairly young man who came to Australia on a working holiday visa in 2015. He also required the assistance of an interpreter both for making his affidavit and for his oral examination. He said that he had started working for CUT in about November 2015. He worked for the company until about July 2017, when he transferred to JYC. Mr Yoon said that CUT was “always” late in paying his wages. Under cross-examination, he said that CUT was “mostly” late in paying wages. It had occurred more than 10 times, which is why he had used “always”. He said that when he finished with CUT, he was owed somewhere between $5,000.00 and $8,000.00.
In his affidavit, Mr Yoon said that wages for other workers were often delayed as well. Under cross-examination, he said he knew this because he shared a house with four other employees of CUT.
Under cross-examination, Mr Yoon said that he had registered for an Australian Business Number (ABN) and that while he was working for CUT, each fortnight he would submit a “paper” with the days he worked and his ABN. He was paid a daily rate.
Mr Yoon left CUT and started working for JYC for wages in July 2017. He was still working for JYC at the time he made his affidavit. He rejected the suggestion put to him in cross-examination that he had made the affidavit because he was fearful that he might lose his job if he failed to co-operate with the first defendant.
Mr Yoon said in his affidavit that on 5 June 2019 the plaintiff had contacted him by telephone and urged him not to “be a witness for” the first defendant. The plaintiff is said to have stated (presumably in Korean): “Don’t do it. The matter is unrelated to you.”
Ms Fogarty
Ms Fogarty has practiced as a solicitor since 1987. She became a partner in the firm of Colquhoun Murphy in 1992. The firm was corporatised in 2016. Ms Fogarty is the principal of the firm. She has a broad practice, although she now does not do criminal or family law work.
Ms Fogarty took instructions to act in the sale of the Giralang property from the first defendant. She was assisted in the transaction by Ms Tracy Russell who, at that time, was her executive assistant.
A file note (handwritten by Ms Fogarty) on the Colquhoun Murphy conveyancing file (Exhibit “P3”) indicates that, on 27 October 2017, Ms Fogarty met with the plaintiff on that day. In her evidence, Ms Fogarty recounted that the meeting included the first defendant and Ms Russell. It took place in what was referred to as the “upstairs meeting room” at the premises occupied by the practice in Torrens Street, Braddon in the ACT at that time.
Another file note (handwritten by Ms Russell) recorded a further meeting with the plaintiff on 3 November 2017. On that occasion, only Ms Russell and the plaintiff were present.
I will return to the detail of what occurred at these meetings below.
Ms Russell
Ms Russell is now a solicitor working for the Commonwealth Superannuation Corporation. She obtained legal qualifications in South Africa before moving to Australia in 2017. She commenced working at Colquhoun Murphy as Ms Fogarty’s assistant in 2017. After completing the process required for recognition of her qualifications, Ms Russell was admitted as a solicitor in December 2018.
Ms Russell confirmed that she was present at the 27 October 2017 meeting, together with Ms Fogarty, the first defendant and the plaintiff. She said that she had taken notes of the meeting on yellow file note paper, but that she was unable to locate those notes. They were not on the conveyancing file.
In relation to the 3 November 2017 meeting, Ms Russell said that after settlement of the sale (which had occurred on 1 November 2017) Colquhoun Murphy held the $75,000.00 deposit in the firm’s trust account, and a cheque in favour of the plaintiff for a little over $260,000.00 representing the net proceeds of the sale.
The first defendant instructed Colquhoun Murphy that the whole of the sum held for the plaintiff was to be paid to JYC in satisfaction of money owing to that company.
After a letter from Ms Fogarty sent by email on 2 November 2017, the plaintiff attended the firm’s premises on 3 November 2017 where he met with Ms Russell. Ms Russell gave an account of what occurred at that attendance. She confirmed that her file note was made on the 3 November 2017.
The expert witnesses
Mr P Green
Mr Green is a forensic accountant. He was qualified for the plaintiff. His report addressed a number of specific questions posed in the letter of instructions from the plaintiff’s solicitor.
By way of summary, the issues which Mr Green were asked to address were:
(1) The regularity of the invoices and other records evidencing the payment by the first defendant or JYC, by way of “loans”, of the debts of CUT before and after 1 April 2017.
(2)The probable income of CUT for the financial years ending 30 June 2017 and 2018 assuming it had continued trading as it had in 2015 and 2016. He was asked to identify the income actually generated by CUT in the 2017 and 2018 financial years, and also to report as to who actually received the income generated by the CUT tiling team during those years.
(3)Whether JYC expenses (such as subcontractor, wage and other costs) attributed to CUT during the financial years 2017 and 2018.
(4)The analysis of the payment (or otherwise) of the debts of CUT outstanding as at 1 April 2017, and incurred after that date. In particular, Mr Green was asked to report as to whether the debts were paid from funds generated by CUT, or from the funds of JYC or the first defendant.
I will return to Mr Green’s conclusions in relation to these issues below.
Mr E Senatore
Mr Senatore is also an accountant. He has practised in the area of insolvency and business reconstruction for over 30 years. He was qualified for the first defendant. The specific questions which he addressed in his report were:
(1) Was CUT insolvent in March 2017? If so, from what date was it insolvent, and by reason of what debt or debts?
(2)What is the difference between the income and profit of a company? Is the value of a company based on its income, or profit, or some other measure?
(3)What was the value of the shares in CUT as at 30 June 2016 and 30 March 2017, assuming that those shares were offered for sale on the open market to a willing but not anxious purchaser by a willing but not anxious vendor?
Again, I will return to Mr Senatore’s conclusions below.
The reliability and credibility of the witnesses
Submissions were made by counsel for the plaintiff (Dr Hassall) and the first defendant (Mr Buckland) as to conclusions which the Court should draw from the demeanour of various witnesses. However, it is fair to say that the modern approach to the use of demeanour to assess credibility requires the Court to adopt a cautious approach: see the useful discussion of the authorities by Loukas-Karlsson J in Ryan v Bunnings Group Limited [2020] ACTSC 353 at [21]-[25].
In Watson v Foxman (1995) 49 NSWLR 315, McLelland CJ in Eq said at 319:
…human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
In this case, I have little doubt that the comments of McLelland CJ in Eq are apposite, particularly as to the evidence of the plaintiff and first defendant. In my view, the testimony of all of the lay witnesses, and especially those of the plaintiff and first defendant and their immediate supporters, must be carefully assessed by reference to the contemporaneous records (such as they are), the objective facts, the motives of the witnesses (so far as they are discernible) and what Hallen J, in Evans v Braddock [2015] NSWSC 249 (Evans v Braddock) at [73], referred to as the “overall probabilities”.
In assessing those probabilities, regard must also be had to the considerations eloquently summarised by Emmett J in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers Appointed) (In Liquidation) (No 2) [2011] FCA 1123; 297 ALR 56, at [48] (also relied upon by Hallen J in Evans v Braddock at [72]):
When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2).
That is not to say that the impression made by a witness in Court is of no value at all. There are cases where the overall probabilities might be evenly balanced, but where the Court is met with starkly opposing testimony from the witnesses called by each side as to some crucial occurrence. In such cases, the only way of deciding the issue may be by the balancing of the relevant credibility of the key witnesses. That may, in turn, require the careful assessment of the way in which the witness has given his or her evidence in court.
In Craig v Silverbrook [2013] NSWSC 1687, Sackar J said (at [142]):
In the recent decision of McGraddie v McGraddie and another [2013] UKSC 58; [2013] 1 WLR 2477, the UK Supreme Court emphasised that, especially in cases where a trial judge is faced with a stark choice between irreconcilable accounts, the credibility of the parties' testimony, and the trial judge's assessment of the character of witnesses and the manner in which the witnesses give evidence, is of primary importance. Those observations are particularly relevant to the present case. Similar observations have been made in Australian authorities (Fox v Percy at [23]; Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [41] per McHugh J and see generally comments in Ritchie's Uniform Civil Procedure NSW at SCA s 75A.20).
In the light of the above, I will briefly record the impression made by each of the lay witnesses, although ultimately it seems to me that the outcome in this case will be substantially determined by reference to the objective facts and the overall probabilities of the events occurring as alleged by the plaintiff. In that context, it is of course important to note that the plaintiff bears the onus of proving his case on the balance of probabilities. It is also important to note that insofar as the plaintiff asserts that he was misled by the deliberate deception of the first defendant, he makes a serious allegation which requires the court to be satisfied in the way discussed in Briginshaw v Briginshaw (1938) 60 CLR 336 and as summarised by Emmett J in the extract set out in [114] above. This is consistent with the requirements of s 140 of the Evidence Act 2011 (ACT).
Lay witnesses
The first witness was the plaintiff. As noted at [66] above, the fact that the plaintiff gave evidence through an interpreter made it difficult to assess him as a witness. Nevertheless, I did form the impression that he was well aware of the crucial issues in his case, and that he was careful to provide answers which he saw as assisting that case. In particular, it seemed to me that he was exaggerating the extent to which he did not understand English. At one point, the plaintiff insisted upon producing his licence to check if the address of the Giralang property (where he has lived since 2007) was accurate. It is most unlikely, in my view, that the plaintiff would not have become familiar with the English characters of his address having regard to the period in which he has lived at the Giralang property.
There were also a number of occasions when the plaintiff responded to a question before it was translated to him. It seems to me that it would be most unlikely that a man could live and work in this country, again, operating his own business (albeit with assistance), without picking up some basic English. The plaintiff’s responses in that regard supported the assertion of the first defendant that the plaintiff did in fact understand some English, and that he was able to communicate with English speakers on building sites.
It was also notable that at one point the plaintiff was asked by Mr Buckland to look at the copy document at p 2337 of the Court Book (CB). That document was an ASIC “Application for voluntary deregistration of a company” form apparently signed by the plaintiff and dated 16 May 2018. The contents of the document had not yet been translated into Korean, however, after having looked at the document the plaintiff volunteered:
[Mr Kong] approached me where I work and told me this company need to be closed.
When he was challenged about his understanding of the document, the plaintiff said that he had taken a photo of it. He said that Mr Kong had brought him a copy of the document during the proceedings.
I do not accept this explanation. It seemed to me that the plaintiff was able to understand the words on the document sufficiently well to conclude that it related to the closing down of Project Control.
There were also a number of occasions when the plaintiff maintained answers that were just not credible. For example, he was asked, in cross-examination by Mr Buckland, about the proposal for a $100,000.00 loan from the first defendant in February/March 2017. In response, he denied that he had given instructions for such a loan. At one point, he even denied that the reference to that loan proposal in his own affidavit was his evidence. Overall, his evidence about that issue was evasive and unsatisfactory. I do not accept that he did not understand the questions he was being asked.
Having regard to these reservations, I approach the plaintiff’s testimony with some caution.
In relation to Mr Kim, he gave his evidence in a straightforward manner. However, his answers under cross-examination by Mr Muller in relation to a letter which he had signed on 20 June 2005 (which became Exhibit “2D2”) did not inspire confidence. It seemed to me that Mr Kim considered that the letter suggested that he had represented to the Department of Immigration and Multicultural and Indigenous Affairs that the plaintiff had a level of English proficiency which was greater than that suggested by the evidence before this Court. His attempts to reconcile what he had said in 2005 with the statements in his affidavit were unconvincing.
Overall, I was left with some reservation as to the extent to which I could rely on the evidence of Mr Kim.
In relation to Mr Lee, I found him to be a straightforward witness who appeared to be doing his best to recount the events of 2017.
With regard to the first defendant, I found him to be a confident witness who, as with the plaintiff, appeared to me to have a clear idea of the issues which were important to his case. I did gain the impression at times that he was cagey in his responses, although I do not believe that he was dishonest. It was clear that the first defendant had a more sophisticated understanding of commercial matters than the plaintiff.
Dr Hassall submitted that the first defendant was “evasive”. Overall, I do not accept that submission. While it seemed to me that he was very careful in his responses, and that he was conscious of what would and would not be of assistance to his case, I did not see him as evasive.
I also do not accept that the first defendant’s concern about the potential confidentiality of some of the invoices forming part of Exhibit “P1” indicated an obstructive attitude to the processes of the Court. There is a difference between discovery and the tendering into evidence of a document. The latter may expose the document to public scrutiny. I did not see the first defendant’s concern as going beyond the desire to protect a particular client’s wish for confidentiality.
As to Mr Kong, he was tested at considerable length under cross-examination. Although he gave evidence with the assistance of the interpreter, I formed the view that he did have a reasonable understanding of English. That is not to say that he did not need the interpreter.
Dr Hassall again urged me to conclude that Mr Kong was evasive. I did not form that impression. I do consider that he was supportive of the first defendant, as might be expected having regard to their relationship. However, overall, I did not see there to be any reason to reject his evidence having regard to the manner in which it was given.
I saw the evidence of Mr Kwak and Mr Yoon (albeit, by AVL recording) as straightforward. It seemed to me that they were both truthful witnesses.
Other witnesses
Both of the expert witnesses were impressive. They both answered questions directly engaging with the substance of the inquiry. They both made reasonable concessions when it was appropriate.
I also found both of the solicitors, Ms Fogarty and Ms Russell, to be reliable witnesses. It seemed to me that neither attempted to reconstruct events beyond what they were able to recall based upon the contents of the Colquhoun Murphy conveyancing file.
I do not accept the submission put on behalf of the plaintiff that Ms Fogarty’s evidence was “guarded” and “self-protective”. Nor do I accept that her evidence was “unsatisfactory”. The challenge which was made to Ms Fogarty’s evidence in that regard was premised on the reliability of the plaintiff’s recollection that he only attended one meeting at Colquhoun Murphy’s offices. For the reasons which I explain at [323]-[326] below, I have concluded that the plaintiff’s recollection must be faulty. It also appears that he was mistaken in his failure to recognise Ms Fogarty, and as to whether anyone took notes at the time of the meeting.
The joint venture agreement
Financial position of CUT in early 2017
The plaintiff said in his first affidavit that CUT was a “valuable asset”. He said that he had increased the company’s workforce from eight tilers in 2014 to 16-17 tilers by 2017. The gross income of the company was $1.571 million in the financial year to 30 June 2016, and $1.671 million in the following year.
The first defendant, however, said that he became aware that CUT was having financial difficulties (including with the ATO) as early as 2016. He said that a number of CUT’s workers were complaining to him about unpaid monies owed by CUT. This occurred in early 2017. Then, in about February 2017, he was approached by the plaintiff and Mr Kim who admitted that CUT was in debt and that they needed a loan to keep operating.
In addition to that conversation, the first defendant also recounted another conversation in which the plaintiff and Mr Kim had raised the possibility of sourcing tiling materials from China at extremely competitive prices (China tile proposal). As part of that proposition, it was put to the first defendant that he loan CUT $100,000.00. Emails were exchanged between Mr Kim and the first defendant about the proposal. Indeed, the first defendant provided a detailed spreadsheet as to JYC’s need for tiles and stone during the coming year. There was a meeting to discuss the proposition and the loan between the first defendant, and the plaintiff and Mr Kim, at the JYC office at Mitchell on 1 March 2017.
On 2 March 2017, Mr Kim emailed the first defendant about the matter. In that email he said (translated from Korean):
Also as mentioned yesterday if you lend minimum $100,000 we can bear until employees visa grants
In his affidavit in reply, the plaintiff denied the conversation referred to in paragraph [138] above. He did say, however, that in February/March 2017 he had asked the first defendant for an advance of $30,000.00 against subcontract monies to become due to CUT in respect of a particular job. The first defendant agreed to that advance. JYC shortly afterwards recouped the advance from the subcontract monies.
In relation to the China tile proposal, the plaintiff confirmed that there was discussion about that after he and Mr Kim had visited China in February 2017. In relation to the $100,000.00 loan, he admitted that Mr Kim asked the first defendant for such a loan to pay tax, wages and debts to suppliers. However, the plaintiff said that neither the China tile proposal nor the $100,000.00 loan went ahead.
I also take note of the letter written by the plaintiff to the ATO on 19 April 2017 seeking a repayment schedule in relation to a CUT tax debt of $123,321.19 (see CB 1418). When he was first asked (by Mr Muller) about the debt to the ATO, the plaintiff said that it was not that big. He said it was about $92,000.00. It was then put to him that it was over $123,000.00. The plaintiff agreed. Mr Muller asked the plaintiff whether he had written to the ATO on 19 April 2017 about a plan to pay off the debt. The plaintiff responded that it was after the merger and therefore a matter for the first defendant. He confirmed that the signature on the letter was his. However, he maintained that the letter was the work of the first defendant, Mr Kim and Mr Kong, and that he only just signed it.
I should say that I found the plaintiff’s denial that he knew about the plan to pay off the ATO debt unconvincing. The plaintiff’s reference to the tax debt being $92,000.00 is illuminating. In fact, that is the amount which was shown as owing to the ATO in the debtor/creditor schedule prepared by Mr Kim on or about 30 April 2017. I cannot accept that the plaintiff was uninformed about the CUT tax debt at that time, and the proposal to pay it by instalments. That is particularly so given the plaintiff’s awareness of the threat of legal action against him personally for the sum of over $63,000.00 in respect of a “Director Penalty”: see CB 1419.
The issue of CUT’s financial position as at March 2017 was examined in detail by Mr Senatore. By reference to the indicia discussed in paragraph 8.39 of his report, Mr Senatore concluded that CUT was insolvent from March 2016, most definitely insolvent from September 2016 and as at March 2017. He also said that he was unable to attribute any value to the shares in CUT as at 30 June 2016 or 30 March 2017 by reason of the following:
1. Lack of integrity of CUT’s financial records
2. Unstable financial position
3. No positive net maintainable earnings trend
4. Poor working capital position
5. Low barriers to entry
6. No differentiator as to service offerings
Dr Hassall challenged Mr Senatore’s conclusions by reference to the fact that CUT was a going concern with an established location, plant and team of workers, known in the market in which it operated (referred to as “a brand presence”) and established links to clients and suppliers.
In relation to the insolvency issue, Mr Senatore was unshaken as to his conclusion. He said that he had relied on the financial records of CUT. He particularly referred to the trade debtors of CUT as being problematic. He saw the increase in that figure from 2015 to 2017 as indicating a fundamental problem with CUT services and customers. He also thought that it was unlikely that the company would be able to borrow funds having regard to the state of its financial statements.
As to his valuation of the company, Mr Senatore responded as follows as to the matters put by Dr Hassall (summarised in [146] above):
My report takes into account the financial performance of this entity and despite those – despite those issues you have raised, the business has – a business only has value when it’s returning positive net maintainable earning over a sustainable period of time; regardless of whether it has been in the market for a number of years, regardless if it has an established workforce and clientele. It could turnover $1.5 million but if it’s losing money, it’s not worth it.
Mr Senatore went on to explain that, due to the omission of debts in the financial statements, even those which showed a small profit were misleading. In fact, the company was trading at a loss during each of those years. Dr Hassall put to Mr Senatore the possibility that by virtue of a tax strategy the profitability of a company could be artificially reduced. Mr Senatore distinguished between tax strategy and the valuation process.
In submissions, Dr Hassall suggested that Mr Senatore’s opinions were flawed because he had failed to take into account the matters summarised in paragraph [146] above. I reject that submission. In my view, Mr Senatore provided a clear explanation for why he did not see those factors as pertinent having regard to what was disclosed by CUT’s financial statements.
I accept Mr Senatore’s analysis and his opinions as to the insolvency of CUT as at March 2017 (and earlier) and as to its lack of value. I am reinforced in that conclusion by the evidence of the first defendant, which I accept, as to the requests for loans in February/March 2017. In that regard, I place particular weight on the email from Mr Kim of 2 March 2017. Not only does it confirm the request for a loan of $100,000.00, it also highlights the need to maintain the continuity of the subclass 457 visa workers to enable them to qualify for residency visas. I also note the concession made by the plaintiff in relation to the $100,000 loan in his affidavit in reply summarised in paragraph [142] above.
The March 2017 dinner at Forde – the “merger” agreement
The plaintiff in his first affidavit said that at some time in February/March 2017, the first defendant had suggested that they join the businesses of CUT and JYC together, so that the first defendant could manage the businesses overall leaving the plaintiff to manage tiling work on site. The plaintiff said that he was attracted by the idea.
The plaintiff described the essence of what was proposed in the following terms in his first affidavit:
24.I said to [the first defendant] in Korean language words meaning: “CU Tiling has debts that include debts to the Australian Taxation Office, debts to tilers for wages and debts to suppliers for materials. But CU Tiling is owed money by customers for work that has been done and invoices that have been sent to customers”.
25.[The first defendant] said to me in Korean language words meaning: “I will pay CU Tiling’s existing debts from my own money. That will be part of the price that I will pay you for your business if you agree to join your tiling business and customers with my building company.”
In relation to the dinner, which he agreed had occurred on or after 25 March 2017, the plaintiff said:
28.At the dinner with [the first defendant] and me were my manager, Mr Dong Hwan Kim, and [the first defendant]’s’s cousin, Mr Dong Jin Kong.
29.I said to [the first defendant] in Korean language words meaning: “I accept your offer for me to join my tiling business to your building company. You have agreed to pay my company’s existing debts from your own money. I have agreed to let you have the income that is owed to CU Tiling by customers for work that we have already done. The invoices have been sent to them. Your agreement to pay my company’s existing debts from your own money is part of the payment that you are to make to me for buying my business’.
30.[The first defendant] said to me in Korean language words meaning: “I agree. Your tiling business will join my building business. As part of the price that I pay you for your business, I will pay CU Tiling’s debts with my own money.”
31.I said to [the first defendant] in Korean language words meaning: “CU Tiling will keep doing tiling and waterproofing works, but the income will be paid to the combined company, which you will manage. The combined company will pay me and my staff wages and will pay all of the operating expenses.”
32.[The first defendant] said to me in Korean language words meaning: “I will also give you 20% of the shares in the company, and 20% of the profit from my company.”
Subsequently, the plaintiff asked Mr Kim to prepare a list of CUT’s debtors and creditors. That document was prepared partly in Korean. A translated copy appears at p 301 of the CB. It covers entries up to 30 April 2017, suggesting that it was prepared on or after that day. It shows that CUT’s debts to be a little over $294,000.00. The trade creditors were said to be around $153,000.00.
Mr Kim in his affidavit gives an account of the dinner which is very close in terms to that that of the plaintiff.
On the other hand, the first defendant gives a very different version of what was said about CUT’s situation and at the dinner. He described ongoing discussions about the Chinese tiles deal and the loan of $100,000.00 in the following terms:
30.In the course of these discussions regarding the supply of stone, Mr Kim said to me words to the effect that:
The total debt of CUT is $100,000.00 comprising tax, wages and debts to suppliers.
In reply I said words to the effect of:
I agree to offer a loan to pay these debts.
[The plaintiff] said words to the effect of:
I personally guarantee the loan and will make sure you can get the supply deal with the Chinese factory. The owner of the factory is also Korean and he and I are like brothers. Make sure you send the required tiles and stone samples to the Chinese factory.
In relation to the dinner, the first defendant said:
31.In reply to paragraphs 27 to 32 of [the plaintiff]’s affidavit, I recall having dinner with him, Mr Kim and my cousin DJ in March 2017 but I do not recall [the plaintiff] saying the things attributed to him in those paragraphs and deny that I agreed to a merger or anything like it, or that I otherwise said words to the effect of those attributed to me in those paragraphs.
32.At the dinner we mostly discussed the “great deal” that [the plaintiff] and Mr Kim could get JYC from the Chinese factory. They begged me to loan $100,000.00 to CUT, and said [the plaintiff] would personally guarantee the loan. They also made me feel sorry for the Immigrant Employees as they could miss out on the opportunity for permanent residency.
33.Prior to seeing [the plaintiff]’s affidavit I have never seen the list of accounts receivable that is attached at Annexure B to [the plaintiff]’s affidavit.
34.Following the discussions in April 2017 I agreed to loan CUT funds to pay off its debts on the condition that [the plaintiff] agreed to repay those debts personally. I did this because I was still investigating the Chinese stone and tile opportunity and wanted to maintain a good working relationship with CUT as part of that. I was also not concerned about loaning this money because even if it was not repaid for some time the money was made on the Chinese stone deal would more than cover the money loaned.
35.The agreement in April 2017 wasn’t for a “merger” of businesses. I never heard [the plaintiff] mention “channelling” CUT’s income to JYC, nor did I ask him to do so. I did not ask for CUT’s contracts to be assigned to JYC or for details of any such contracts.
36.I did not agree to pay all of CUT’s liabilities. The funds to be provided were to be provided as loans, and I would not obtain shares in CUT or an interest in its business as a result of these loans.
The first defendant said that he had not seen the document at p 301 CB prior to reading the plaintiff’s affidavit.
In relation to the China tile proposal, the first defendant said that although he, the plaintiff and Mr Kim continued to investigate it, he ultimately decided in June or July 2017 that it was not feasible.
In relation to the suggestion that he offered the plaintiff a 20 per cent share in JYC he said:
39.During this time CUT continued providing services to JYC as subcontractor, with [the plaintiff] performing duties on work sites as part of that role. This continued until October 2017 when CUT was placed in administration.
40.In the course of causing CUT to provide these services, I advised [the plaintiff] as to JYC’s budgets for certain projects. I had an agreement with [the plaintiff], as with the directors of other subcontractors, that if CUT completed the works for less than the amount budgeted by JYC to pay for those works, [the plaintiff] would get 20% of the difference between the amount budgeted and the actual cost. This was not an offer of shares in JYC, but rather an incentive for [the plaintiff] to get work done quickly and cheaply.
In response to the first defendant’s affidavit, the plaintiff said in his affidavit in reply:
19.In March 2017 [the first defendant] and I had a meeting with CUT’s workers at which we explained that CUT’s tiling business and JY Contractors’ painting business would be merged. [The first defendant] said that the workers would continue to be paid and if there were existing debts to any workers that he would pay them by the end of May 2017.
He also took issue as to what was said at the dinner. He said:
33.In relation to paragraph 32 of [the first defendant]’s Affidavit, I deny [the first defendant]’s assertions. At the dinner there was no discussion of the previous request for a $100,000.00 loan as that request had been overtaken by [the first defendant]’s proposal for a merger of CUT’s tiling business and JY Contractors’ painting business. The main topic for discussion at the dinner was [the first defendant]’s proposal for the merger, as explaining in paragraphs 27 to 32 of my Affidavit of 28 May 2019.
Mr Kong also addressed the Chinese tile deal and proposed loan to CUT in his affidavit. He said:
9.In about February or March 2017, [the first defendant] told me that JYC was going to loan money to CUT in addition to the amount payable to CUT for its work as a subcontractor.
10.[The first defendant] told me about the loan to CUT using words to the following effect:
The loan amount will be paid by JYC to CUT and in exchange for the loan, CUT has suggested a good opportunity, whereby JYC can import about $1 million worth of stones from China on a long term payment plan for a good price. CUT is not big enough but they will give JYC the opportunity. CUT needs money and is in financial hardship.
In relation to the dinner, he responded to the evidence of the plaintiff and Mr Kim in the following terms:
12.In response to paragraph 29 of [the plaintiff]’s affidavit of 28 May 2019, I remember having dinner with [the first defendant], Mr Kim and [the plaintiff] in March 2017, but I deny that [the plaintiff] said those words.
13. At the dinner we were talking about the stone from China and the deal with the company and the $100,000.00 loan, but there was no mention of [the plaintiff] selling CUT. [The first defendant] didn’t ask any questions about CUT’s debts; rather, [the plaintiff] and Mr Kim were talking about CUT struggling with finance but didn’t go into details as to how the debt arose, as it was a friendly atmosphere. [The first defendant] and [the plaintiff] had what appeared to be a good relationship and were committed to helping each other, but [the first defendant] and [the plaintiff] didn’t ask questions about each other’s business.
14.I deny that anything like what is stated in paragraphs 29 to 32 of [the plaintiff]’s affidavit and paragraphs 33 and 36 of Mr Kim’s affidavit was said. There was no discussion of combing CUT and JYC, or a transfer of shares in any company, or a sharing of profit.
None of the witnesses as to these events retreated from their evidence in chief under cross-examination. (At one point the plaintiff denied that he had requested the $100,000.00 loan. He later acknowledged that he had referred to it in one of his own affidavits and, as I understood his answers, sought to blame the interpreter. As noted above, his evidence about this was concerning.)
However, there is a high degree of improbability in the account for which the plaintiff contends. Accepting, as I do, that the first defendant is and was in 2017 an astute businessman, it would make no sense that he would make an agreement to pay the debts of a company which he knew to be in financial trouble without undertaking a close investigation of those debts. It would make even less sense that he would undertake to pay them without even knowing what they were in a broad way.
The plaintiff initially claimed that he had given the first defendant a document written in Korean relating to the debts of CUT before the “merger” which he said had occurred on 1 April 2017. He then said that he gave the first defendant that document after the merger, or about the time of the merger. For the first time, under cross-examination by Mr Buckland, the plaintiff then said that he had provided information to the first defendant about CUT debts and creditors verbally. This was in response to questioning on the suggestion that the first defendant had agreed to pay CUT’s debts before he saw the spreadsheet listing those debts.
I do not accept the evidence of the plaintiff and Mr Kim in relation to these matters. I do accept the evidence of the first defendant that he was provided no information about CUT’s debts before the Forde dinner. It is most unlikely, in my view, that the first defendant would have agreed to pay CUT’s debts based on a verbal representation by the plaintiff as to the quantum of those debts. In any event, I do not accept the evidence of the plaintiff on that issue. I find, having regard to the evidence of the first defendant and Mr Kong, and the inherent probabilities, that while there was some discussion about the first defendant or JYC lending money to CUT to keep it going at the dinner the first defendant did not agree or undertake to pay CUT’s debts in consideration of CUT merging with JYC. Moreover, I do not accept that the first defendant agreed to transfer 20 per cent of his shareholding in JYC to the plaintiff, and to pay him 20 per cent of the company’s profit, in consideration of that merger.
In the light of my findings as summarised above, I am unable to find that there was a joint venture agreement as alleged by the plaintiff.
Did CUT in fact merge with JYC? Was there a loan agreement?
The evidence of the respective parties was again starkly inconsistent on these issues. The plaintiff said in his first affidavit:
37.Following this agreement, I was involved in a number of discussions about the loans to CUT with [the plaintiff], Mr Dong Jin Kong and Mr Kim until about October 2017. These discussions mostly took place in the JYC office in Mitchell in the ACT.
38.[The plaintiff], Mr Kim and I continued investigating the Chinese stone opportunity, we sent samples to China but the returned product were low quality. We repeated this a number of times. In about June or July 2017 I decided not to pursue the deal. I made this decision because, on investigation, the Chinese supplier required orders of a minimum of 5,000 – 7,000 square metre per type of tile. This was uneconomic due to the cost of storage in Australia and the size of JYC’s jobs. The proposed terms were also unacceptable.
Mr Kim said in his affidavit that after 1 April 2017 he, together with his work computer and CUT’s records, moved into JYC’s offices at Mitchell in the ACT. Thereafter, the business of CUT was conducted from that office. Mr Kim described this process as “the merger”. He recounted the following in his affidavit:
49.During a period of four or five months after the merger, from April to August 2017, I prepared successful quotes for two projects totalling $2 million for building contractors who were existing CU Tiling customers. One project was for Banyan Constructions in Bruce, and the other was for Cockram Constructions at the Australian Catholic University.
50.I also prepared project cash flow for tiling work for Hindmarsh projects at the Cathedral in Manuka and at an apartment building in Woden. These two projects had been won by JY Contractors before the merger.
51. However, from the time of the merger, [the first defendant] removed my authority to manage receipt of the income in relation to the CU Tiling team’s work and payment of wages and operating expenses.
52.However, after the merger [the first defendant] took on CU Tiling’s tiling business. [The first defendant] indicated to me that he was very eager to expand the tiling business. He said to me in Korean language words that meant: “I want all tiling contracts in Canberra”.
53.I saw that [the plaintiff] and his team of tilers worked hard to get as much work done as possible. But I heard [the first defendant] say to [the plaintiff] in Korean language words that meant: “I don’t make money”. I do not believe that was correct, as I prepared the quotes for tiling jobs and in doing so, I factored in an amount for profit. I knew there was a profit in the tiling jobs. I prepared job costings every two weeks and submitted them to [the first defendant].
Mr Lee, in his affidavit, recounted conversations with the plaintiff about the joining of the CUT and JYC businesses together. When he asked the plaintiff why he wished to do that, the plaintiff said to him:
21.[The plaintiff] responded to me in Korean language words meaning: “[the first defendant] has agreed to pay CU Tiling’s debts from his own money. He will pay the money that I owe to tilers for wagers and other debts.”
Sometime around April/May 2017, Mr Lee commenced working with JYC. At that time, he was owed over $5,000.00 by CUT. He worked with JYC until March 2018. At the time he started with JYC, he continued to perform site supervisory duties. There were then about 15 or 16 CUT tilers and five or six working for JYC. The tilers worked as two separate teams. Mr Lee would supervise one, and there was another supervisor who looked after the other team. There was plenty of work.
The first defendant explained (at paragraph 61 of his affidavit) that the reason the CUT office was moved into JYC’s premises was because CUT had failed to pay the rent due on its own office. He said that the lease was terminated. He allowed CUT to move into spare space at JYC’s offices because he was keen to maintain a good working relationship, and he was still hopeful as to the prospects of the China tile proposal.
The first defendant further explained, in his affidavit, that in April 2017 he did agree to loan CUT money to cover debts and operating expenses. He said that he also did this in order to maintain a good relationship with CUT in the context of the China tile proposal.
The loans were made, according to the first defendant, in three ways. JYC paid certain monies direct to CUT and Project Control (The invoices raised by the latter recorded the amounts to be paid by JYC as loan monies.). JYC also paid certain amounts direct to CUT’s creditors. Finally, the first defendant himself paid amounts direct to some of CUT’s creditors. The total of these loans was said to be $343,783.39.
In relation to the operation of CUT after the office move, the first defendant said that CUT continued to work as a subcontractor of JYC. Over time, after June 2017, the majority of CUT’s workers became employees or subcontractors of JYC.
A little later, he explained:
So he asked me to tell you exactly. So, ‘$350,000 supposed to come to my bank account. It didn't come and my ownership of the house has been taken. And agreement he is going to resell that back to me three years later did not guarantee it because once he's frauded how can I trust him? So [the first defendant] told me to go and get the document from a lawyer about the agreement, then I will sign it’.
Mr Buckland asked the plaintiff directly whether he had gone to see Mr Yoon with his wife in December 2017. The plaintiff responded in the affirmative. He was not able to explain why the email said nothing about the $350,000.00 which he was claimed should have been paid to him by then.
Mr Buckland took the plaintiff to a further email from Mr Yoon to the first defendant. That email was dated 16 February 2018. It referred to the same subject, and stated:
We are yet to receive any response from you on this matter.
Our client confirms that you have told our client that you have responded to us by email but nothing has been received from our end, so please confirm.
The following exchange then occurred:
Mr Buckland: You didn't ask your solicitor to make a demand for that money at or around the time that email was sent, did you?
The Plaintiff: I didn't get it because the reason I hired the lawyer to get the money back.
Mr Buckland: And yet somehow your lawyer doesn't actually ask for the money back. Is that your evidence?
The Plaintiff: I don't know about this paperwork.
Mr Buckland: The truth is, [plaintiff], you asked your lawyer only to get an acknowledgment of your right to buy the property back and nothing else. Isn't that right?
The Plaintiff: I don't know about this paperwork. The reason I asked lawyer was to get the money back.
Mr Muller also questioned the plaintiff about Mr Yoon. At first, the plaintiff confirmed that he had first spoken with Mr Yoon in December 2017, along the lines of the explanation at [336] above. However, on further questioning, he appeared to suggest that the first time he first met Mr Yoon in May 2018. He then said that his wife met Mr Yoon in December 2017, but he (the plaintiff) did not meet Mr Yoon at that time.
The state of the evidence, and, in particular, the unsatisfactory, even evasive, responses of the plaintiff under cross-examination, makes it extremely difficult to understand the events in the immediate aftermath of the settlement. It is clear from the plaintiff’s own evidence that he knew by 1 December 2017 that he would not be receiving all of the proceeds of the sale. By that time, a substantial part of the $335,000.00 remaining after the sale had already been paid by way of loans to CUT by the first defendant and JYC. It is likely that the plaintiff realised at that time that there was a risk that he would not receive any money from the sale proceeds.
However, the probability is, if the plaintiff in fact considered that he had been defrauded of the $335,000.00 as he asserts, he would have been raising that serious allegation with a solicitor at the first available opportunity. Indeed, I would have expected the issue would have been raised by the plaintiff’s partner as well, given that she apparently claimed an equitable interest in the Giralang property.
Although it is not as clear as it might be (given the rather confusing loan and mortgage documents attached to the 13 December 2017 email), the principal issue of concern communicated by Mr Yoon in his email related to the need for documentation of the option.
It seems to me that whether the plaintiff attended Mr Yoon in December 2017, before the 13 December email, is an issue of some importance in assessing the plaintiff’s expectations as to the sale proceeds. If he did attend Mr Yoon as he initially said in his evidence, the fact that there was no demand made for the immediate payment of the $335,000.00 would, in my view, provide strong evidence against the plaintiff’s claim that he did not know what he was doing when he signed the 3 November 2017 authorities.
Even if he did not attend Mr Yoon in December 2017, the fact that Ms Kim did not raise the complaint weighs against the acceptance of the plaintiff’s claim. Mr Muller submitted that an inference should be drawn that the evidence of Ms Kim would not have assisted the plaintiff’s case, given that she was not called despite her apparent availability. There is force in that submission.
Mr Buckland argued that the plaintiff did not seek to ventilate a complaint about not receiving the sale proceeds until well into 2018 when he finally realised that he was not going to receive anything from the sale. He submitted that that sequence of events was inconsistent with the plaintiff’s claim of expecting the whole of the proceeds immediately after the settlement. Although the evidence as to when the first letter of demand in relation to the $335,000.00 was sent on behalf of the plaintiff is not clear I infer from his own evidence that it was probably not until May 2018.
Although I am not able to make a positive finding, on the balance of probabilities, that the plaintiff did attend Mr Yoon prior to 13 December 2017, I do find that in all of the circumstances the plaintiff did not expect to receive the net sale proceeds of $335,000.00 after the settlement. In that regard I prefer the evidence of Mr Kong. That evidence is, it seems to me, consistent with the absence of demand in relation to the sale proceeds in Mr Yoon’s emails. I conclude that the plaintiff was aware that some of the proceeds, probably a significant part of those proceeds, would be used in reimbursing the first defendant and JYC in relation to CUT’s debts. I find that the chief concern of the plaintiff and Ms Kim in December 2017 and February 2018 was to ensure that the option to repurchase the Giralang property was documented.
The plaintiff’s causes of action
The merger - joint venture – undertakings – promissory estoppel
I have concluded at [169]-[170] that there was no agreement to merge the plaintiff’s companies with JYC, and that there was no joint venture entered into between the plaintiff and the first defendant. I have also concluded at [203]-[205] that there was not in fact a merger as a result of deliberate machinations by the first defendant.
The conclusions I have reached in relation to the merger and joint venture are also fatal to the plaintiff’s claims based on contract and promissory estoppel. The essence of both of these causes of action is the assertion that the first defendant undertook, represented or promised that he would personally pay the debts of CUT. I have rejected that assertion. My conclusion that the agreement which was reached was one whereby the first defendant and JYC would finance the continued operation of CUT and Project Control in return for the plaintiff’s agreement to guarantee to repay those monies means that the claims in contract and estoppel must fail.
The plaintiff’s claim that the first defendant owed him equitable and fiduciary obligations is premised on his success on one or other of the elements of the causes of action referred to in the preceding two paragraphs. Having regard to my rejection of those claims, I am unable to find that the first defendant owed the plaintiff the duties as alleged.
The claim in relation to the Giralang property
The plaintiff claimed that the first defendant was in breach of the contract for sale in failing to pay to him the net proceeds of the sale. I have concluded that this claim must fail. I have found that the plaintiff signed the authority documents on 3 November 2017 which had the result that the choses in action which he then controlled (the right to the $75,000 deposit held in trust and the bank cheque for $260,434.27 in his favour held on the conveyancing file) were effectively assigned to JYC. It follows from that finding that the first defendant had complied with his obligations under the contract. The plaintiff had been paid the balance of the proceeds of the sale.
The plaintiff also claimed that the first defendant had tricked him into signing the 3 November 2017 authorities by telling him only that they were documents necessary for the settlement. This was in circumstances where the first defendant knew that the plaintiff was unable to read the documents in English and that the plaintiff did not understand the true effect of the documents.
I have found, contrary to the case advanced by the plaintiff, that he was not tricked into signing the authority documents, by the first defendant or anyone else. The plaintiff signed those documents in the presence of Ms Russell on 3 November 2017 after she had explained the effect of the authorities to him. He had indicated to her that he understood that explanation. If the first defendant did at one point tell the plaintiff that he had to sign a document for the sale to proceed that had occurred before the settlement at the 27 October 2017 meeting which they both attended. There is no basis for finding that the first defendant was liable for unconscionably inducing the plaintiff to sell his house to him and then diverting the proceeds to JYC.
The parties did not make submissions at the hearing as to the relief sought by the plaintiff at paragraph 59(f) of the FASOC, which is summarised in paragraph [40] above. On 3 November 2021, I offered the plaintiff and first defendant the opportunity to file and serve written submissions addressing the relief sought in paragraph 59(f).
After some communications about timing, I made the following directions:
(1) The plaintiff to file and serve written submissions limited to the relief sought in paragraph 59(f) of the further amended statement of claim by 5 pm on Friday, 19 November 2021.
(2) The first defendant to file and serve written submissions to the relief sought in paragraph 59(f) of the further amended statement of claim by 5 pm on 3 December 2021;
(3) The plaintiff to file and serve written submissions in reply by 10 December 2021.
Dr Hassall for the plaintiff, in written submissions dated 19 November 2021, argued that by reason of the failure of the first defendant to pay the plaintiff the net proceeds of the sale of the Giralang property, and the profits and shares relating to the joint venture, the plaintiff lacked the financial capacity to exercise the option. It followed that the time in which the option might have been exercised should be extended until the first defendant pays the plaintiff the sum of $335,434.27 plus interest and costs.
Dr Hassall took the opportunity to reinforce the submissions which had been made in support of the plaintiff’s substantive claims against the defendants. The submissions also extended to raise an issue as to the relationship between the amount of the occupation fee and the level of interest which might have been payable on the sum of $404,453.30 which was the amount required to discharge the plaintiff’s mortgage at the time of settlement.
In the context of those submissions, the plaintiff proposes that, in effect, the relief sought at paragraph 59(f) be amended by the addition of the following:
“…alternatively, that the Plaintiff be entitled to elect to re-purchase the said property for $750,000.00 within 3 months of the Defendants herein (or either of them) complying with such Orders as this Honourable Court may make herein awarding equitable compensation or equitable damages and/or damages for breach of contract in favour of the Plaintiff in the sum of at least $335,434.27 and with interest thereon at the Supreme Court interest rate; and upon the Plaintiff electing to re-purchase the said property for $750,000.00 the First Defendant shall, without any delay, execute all necessary documents and do all other acts and things necessary to enable the re-conveyance of the title of [the Giralang property] in the Australian Capital Territory to the Plaintiff.”
Mr Buckland, for the first defendant, in his submissions dated 3 December 2021, objects to the scope of the plaintiff’s submissions. He asserts that they go well beyond addressing the relief sought in paragraph 59(f). Mr Buckland says that, despite the expiry of the option, no amendment had been sought of paragraph 59(f), and no submission made in relation to it at the hearing. Therefore, the first defendant had assumed that the claim had been abandoned.
The position of the first defendant is that the plaintiff should not be permitted to amend paragraph 59(f), and that the relief sought in that paragraph should not be granted, having regard to the passage of time. It is also submitted that insofar as the plaintiff’s submissions range beyond the grant of leave, they should be ignored.
In his submissions in reply dated 10 December 2021, the plaintiff maintains the position adopted in the 19 November 2021 submissions. It is said that the order in the terms of that set out in [359] above would reflect the appropriate equitable relief having regard to the conduct and breaches of duty of the first defendant. The plaintiff rejects the proposition that the granting of the option was severable from those matters.
The position adopted by the plaintiff in relation to the option agreement is conditional on him recovering a substantial judgement against the defendants (or one of them). I have concluded that the plaintiff’s claims against the first defendant should fail. For the reasons which follow, I also conclude that the plaintiff’s claim against the second defendant must fail. In the circumstances, no useful purpose would be served by allowing the amendment of paragraph 59(f) as sought. Indeed, taking at face value the representation as to the plaintiff’s financial position contained in the plaintiff’s written submissions on this issue, it appears that no useful purpose would have been served by extending the option period beyond 1 November 2020 unless the plaintiff had succeeded in establishing a basis for equitable relief against the first defendant. In all the circumstances, I do not see any utility in making an order rectifying the contract for sale to include the option agreement.
The plaintiff maintains the claim that the second defendant acted for him in the conveyance of the Giralang property. It was submitted on his behalf that the following circumstances supported that conclusion:
(1)The second defendant drew the contract of sale;
(2)The second defendant charged the plaintiff fees for acting in the matter; and
(3)The internal settlement checklist which stated that the second defendant was acting for “both Buyer and Seller”.
There is no doubt that a solicitor who prepares documents affecting the legal relations between persons can tread a fine line when it comes to determining the duties which might be owed to those persons. Even in the absence of a formal retainer agreement, it is possible that the conduct of the solicitor might, in all of the circumstances, lead to an implied retainer. This was discussed by Anderson J (Kennedy and Ipp JJ agreeing) in Pegrum v Fatharly (1996) 14 WAR 92 (Pegrum) at 102 in the following terms:
When both parties to a transaction consult the same solicitor and together give him the information needed to prepare the documents in which their respective rights and obligations are to be set out and the solicitor accepts responsibility to prepare the documents without any indication that he cannot fully discharge his professional duties to them both there is a strong bias towards finding that the solicitor tacitly agrees to act for both parties and to undertake the usual professional responsibilities to them both: see Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 esp at 396. In the absence of a clear indication by the solicitor that the solicitor does not accept one of the parties as his client it is natural in such a case to assume both are relying on him for professional advice and assistance. This follows from the mere fact that both have consulted him. There may be other circumstances which show that there is no reliance by one or other of the parties on the solicitor, but, if not, reliance should be inferred as a fact. And when a solicitor accepts responsibility to do professional work requiring special knowledge and skill and there is in fact a reliance on him to apply his expert knowledge and skill in the performance of that work, there exist ''the elements which lie at the heart of the ordinary relationship between a solicitor and his client ... '': see Hawkins v Clayton (1988) 164 CLR 539 at 578, per Deane J…
This does not mean a solicitor whose services are sought by both parties is bound to accept that he is to serve both parties. He can refuse to do so and elect to act for one party only. This requires a very clear statement by the solicitor that this is to be his position. It has even been held that he is duty bound in such a case to positively recommend that the other party get another solicitor and take independent advice before entering into the transaction, and, in the event that recommendation is not followed, to give him proper advice as to the risks in signing the documents: see Irvine v Shaw [1992] ANZ Conv R 83.
In the same matter, Ipp J said (at 95-96):
A contractual relationship of solicitor and client will therefore be presumed if it is proved that the relationship of solicitor and client existed de facto between a solicitor and another person. Upon proof of that kind it would not be necessary to prove when, where, by whom or in what particular words the agreement of retainer was made. Applying the rule expressed by Thomas J in Australian Energy Ltd v Lennard Oil NL, the de facto relationship of solicitor and client has to be a necessary and clear inference from the proved facts before a retainer will be presumed…
... As Anderson J has pointed out, the learned trial judge found that Mr Pegrum in fact regarded the respondent as his solicitor and that he did in fact place reliance on the respondent to provide him with professional advice and assistance. The respondent did nothing to disabuse Mr Pegrum of his belief that he was being, in effect, looked after by the respondent. This suggests that the respondent was content that there be a solicitor, client relationship between him and the appellants. This inference is supported by the respondent's conduct in regard to the fees to which he was entitled for the work done in regard to the security documents.
The nature of the presumption referred to by Ipp J received attention in the NSW Court of Appeal in the matter of Steele v Marshan [2012] NSWCA 141. In that matter, the applicant for leave to appeal sought to challenge the correctness of the statement of principle by Ipp J extracted above. Basten JA (Whealey JA agreeing) rejected the challenge. After referring to the first paragraph in the extract above, which had been relied upon at first instance, His Honour said:
13This is not a case of a presumption: it is a case where a set of circumstances gives rise to a clear inference. This passage is entirely consistent with the language of Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1, at [208] (Spigelman CJ, Sheller and Stein JJA). Pegrum has been applied in the Victorian Court of Appeal in Shaw v Yarranova Pty Ltd [2011] VSCA 55 at [19] (Redlich and Mandie JJA).
14As noted by Giles JA in Hendriks v McGeoch [2008] NSWCA 53; (2008) Aust Torts Rep ¶81-942 at [8], the term "retained" may be seen as "legalese". The discussion which followed as to the circumstances in which a contractual relationship could be implied relied upon the reasoning of McHugh JA (Hope and Mahoney JJA agreeing) in Integrated Computer Services, which in turn relied upon the reasoning in Empirnall Holdings. Following that exposition, Giles JA stated at [11]:
"Whether a contract has been entered into is to be judged objectively on 'an objective assessment of the state of affairs between the parties': Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]. The status of the parties, the relationship between them and the nature of the putative contract will bear upon whether a contract should be inferred to have been made."
Basten JA set out the submission of the applicant which sought to draw a distinction between the Pegrum decision and the principles stated in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523. His Honour continued:
16The distinction sought to be drawn is an artefact. Hendriks involved a solicitor/client relationship, as did Pegrum. Empirnall Holdings involved a professional relationship, but not between solicitor and client. The language adopted by Ipp J in Pegrum, read in context, does not depart from well-established principle. It does not create a presumption. Indeed Ipp J in Pegrum expressly relied on Integrated Computer Services at 117 and thus Empirnall. Whether a solicitor has acted in a particular capacity is a relevant consideration in determining whether the services are supplied pursuant to a contractual arrangement. Another critical factor is, of course, the response of the person to whom the services are supplied…
I apply these principles in assessing whether, in all the circumstances, there was a “de facto” relationship of solicitor and client between the plaintiff and the second defendant – it being clear that there was no express contract of retainer between those parties.
The circumstances which weigh in favour of the plaintiff’s argument are:
(1) The transaction was one where legal skill and experience were required. It was clear that the parties to the conveyance would not be able to carry it into effect without legal assistance;
(2)It would be expected that, in the ordinary case, the seller would draw the contract to ensure that his/her interests were protected;
(3)It must have been obvious to Ms Fogarty that the plaintiff would be relying on the second defendant to complete the conveyance, given that he did not have the capacity to do so;
(4)The second defendant’s fees were paid from monies which would otherwise have formed part of the plaintiff’s sale proceeds;
(5)The internal settlement checklist suggested that the second defendant regarded itself as acting for both parties to the transaction.
However, it seems to me that there are a number of factors which weigh against drawing the inference that the second defendant was acting as the plaintiff’s solicitor. These are:
(1) There was no pre-existing relationship of any kind between the plaintiff and the second defendant;
(2)Ms Fogarty did not take instructions from the plaintiff in relation to the drawing of the contract. In circumstances where the plaintiff had not instructed a lawyer Ms Fogarty had no option but to draw the contract;
(3)The letter from Ms Fogarty to the plaintiff of 20 September 2017 expressly stated that the plaintiff was “self-acting” and advised that he should obtain his own legal advice. I have found (at [318]) that Mr Kim and the plaintiff did become aware of the contents of the letter by the morning of 21 September 2017. I have also found that in that context the plaintiff chose not to seek his own legal advice;
(4)Ms Fogarty, in the course of the 27 October 2017 meeting, asked the plaintiff if he wanted his own lawyer to act for him in the settlement of the transaction. It was implicit in such a request that Ms Fogarty would not be acting as the plaintiff’s solicitor for the purposes of the settlement;
(5)There was no evidence that the plaintiff in fact believed that Ms Fogarty was acting on his behalf, or that he relied on her to protect his interests;
(6)The plaintiff’s English was sufficient for him to communicate at a basic level. It was not such as to suggest to Ms Fogarty or Ms Russell that he was being misled about the documents he signed in their presence;
(7)The payment of the legal fees was made in error. (In fact, given the magnitude of the CUT debts if the cheque for the legal fees had not been drawn on settlement that money would have gone to JYC.) Because the fees were paid by error that fact did not constitute an acknowledgment that the second defendant was acting for the plaintiff;
(8)The settlement checklist referring to the second defendant acting on behalf of the plaintiff was also used in error. The use of the incorrect precedent did not signify that the second defendant saw itself as acting for the plaintiff. The contents of the conveyancing file were overall inconsistent with that conclusion.
Having regard to the competing circumstances as summarised above, it seems to me that the evidence falls short of establishing that there was a tacit understanding or agreement that the second defendant would act as the plaintiff’s solicitor in the conveyance generally, or indeed, in relation to the settlement.
That, however, is not the end of the matter. The authorities indicate that a fiduciary obligation might arise in a case such as this, even where there is no implied retainer. In Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1, the Court (Spigelman CJ, Sheller and Stein JJA) said:
192It is well established that a person may take upon herself or himself the role of a fiduciary by a less formal arrangement than contract or by self-appointment. (See Lyell v Kennedy [1889] 14 App Cas 437 at 456 and 459-460; Boardman v Phipps [1967] 2 AC 46 at 100, 118 and 126-127; Walden Properties v Beaver Properties Ltd [1973] 2 NSWLR 815 at 833; Meagher, Gummow and Lehane Equity: Doctrines and Remedies, 3rd ed para 505; Parkinson (ed) The Principles of Equity, 369-370). Ultimately a fiduciary responsibility is an imposed not an accepted one, one concerned with an imposed standard of behaviour; Finn, The Fiduciary Principle, in Youdan (ed) Equity Fiduciaries and Trusts, (1989) 1 at 54. But whether the relationship derives from retainer, a less formal arrangement or self-appointment, it must be examined to see what duties are thereby imposed on the fiduciary and the scope and ambit of those duties; see Boardman v Phipps (at 127).
193Beach relied on the reasoning of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97:
“The critical feature of these [fiduciary] relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.”
While I do not consider that the second defendant so conducted itself that fiduciary obligations should be imposed in relation to the conveyancing transaction, overall, it does seem to me that the circumstances under which the second defendant undertook to complete the settlement process on behalf of the plaintiff lead to a different conclusion. The simple fact is that by completing the transaction in the shoes of the plaintiff, the second defendant had the “special opportunity” to exercise power over the property of the plaintiff in the sense discussed by Mason J in the case of Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. Indeed, it seems to me that the second defendant in holding the deposit in its trust account, and in receiving the cheque for the net proceeds of sale at the settlement, became a trustee for those funds for the plaintiff, who was in a position of vulnerability by reason of his difficulties with English and lack of legal representation.
It is therefore necessary to assess the content of the fiduciary obligation owed by the second defendant to the plaintiff by reference to all of the circumstances.
Dr Hassall submitted that the second defendant owed the plaintiff a duty not to “suppress information, nor to misstate [its] intentions and motives, nor to adopt a form of expression likely to mislead” him. In the circumstances of this case, it is put that compliance with the duty required the second defendant to ensure that the content of the 3 November 2017 authorities was translated and explained to the plaintiff by an independent Korean interpreter. In the alternative, it is argued that the second defendant should have ceased to act in the matter (presumably upon receiving the instructions from the first defendant about the payment to JYC soon after the settlement) due to the conflict of duties which was apparent.
I accept that the circumstances here gave rise to a fiduciary obligation on the second defendant to take reasonable steps to ensure that the plaintiff understood that by signing the authority he was, in effect, assigning the proceeds of the sale to JYC. However, I do not accept that this required the second defendant to arrange for the intervention of an independent Korean interpreter. In coming to that conclusion, I have relied upon the following:
(1)The fact that Ms Fogarty was satisfied at the 27 October 2017 meeting that the plaintiff agreed that at some stage after the settlement the net proceeds would be paid to JYC. I draw that inference from the contents of the file note of that meeting, and the last paragraph of the 2 November 2017 letter to the plaintiff;
(2)Ms Fogarty’s view that the plaintiff was able to communicate in English, albeit at a basic level;
(3)The absence of anything to put Ms Fogarty on notice that the plaintiff was intending not to pay JYC in respect of the CUT debts which it had paid, and was still in the process of paying; and
(4)The sending of the 2 November 2017 letter and authorities to the plaintiff at the email address which he had provided to Ms Fogarty as his point of contact; and
(5)Ms Russell attended on the plaintiff and explained the contents of each authority to him before he signed the documents. Although this was done in English, the plaintiff gave Ms Russell no cause to suspect that he did not understand the nature and effect of the authorities. On the contrary, his responses indicated that he did understand.
Having regard to those matters, I find that the second defendant complied with its duty to the plaintiff as I have formulated it at [377]. For the same reasons, I do not consider that the second defendant was placed in a position where it was required to cease acting in the conveyance. The circumstances were such that, as far as Ms Fogarty and Ms Russell were aware, the interests of the plaintiff and first defendant were not in conflict. The latter had, through JYC, advanced monies to the plaintiff’s company which he (the plaintiff) had undertaken to pay from the sale proceeds. So long as the plaintiff was aware and understood the effect of the authorities, and agreed to sign them, there was no apparent conflict, and the occasion for ceasing to act did not arise.
The plaintiff pleaded that the second defendant had breached the Solicitors Conduct Rules. The plaintiff relied on r 11 which is as follows:
11CONFLICT OF DUTIES CONCERNING CURRENT CLIENTS
11.1A solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients, except where permitted by this Rule.
11.2If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients’ interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rule 11.3.
11.3Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor or law practice may, subject always to each solicitor discharging their duty to act in the best interests of their client, only act if each client:
11.3.1is aware that the solicitor or law practice is also acting for another client; and
11.3.2has given informed consent to the solicitor or law practice so acting.
11.4In addition to the requirements of Rule 11.3, where a solicitor or law practice is in possession of information which is confidential to a client (the first client) which might reasonably be concluded to be material to another client’s current matter and detrimental to the interests of the first client if disclosed, there is a conflict of duties and the solicitor and the solicitor’s law practice must not act for the other client, except as follows:
11.4.1a solicitor may act where there is a conflict of duties arising from the possession of confidential information, where each client has given informed consent to the solicitor acting for another client; and
11.4.2a law practice (and the solicitors concerned) may act where there is a conflict of duties arising from the possession of confidential information where an effective information barrier has been established.
11.5If a solicitor or a law practice acts for more than one client in a matter and, during the course of the conduct of that matter, an actual conflict arises between the duties owed to two or more of those clients, the solicitor or law practice may only continue to act for one of the clients (or a group of clients between whom there is no conflict) provided the duty of confidentiality to other client(s) is not put at risk and the parties have given informed consent.
I have doubts whether a breach of the rule would, without more, provide the basis for a cause of action for one of the relevant clients. However, in an appropriate case, the content of the rule would clearly be relevant to the assessment of the contractual and fiduciary duties owed by the solicitor to the client in question. Be that as it may, I have found that at no stage was there a solicitor-client relationship between the second defendant and the plaintiff. I do not believe that the contents of the rule add anything to my analysis of the scope of the limited fiduciary obligation which arose in relation to the settlement of the conveyance, as discussed above.
The plaintiff also alleged that the plaintiff should recover equitable compensation from the second defendant on the basis of unconscionable conduct. In that regard, the plaintiff relies on the decision in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. Leaving aside the issue of special disability, the plaintiff’s case in this regard depended upon a finding that the conduct of the second defendant (through Ms Fogarty and/or Ms Russell) was unconscientious. That is, that Ms Fogarty or Ms Russell was aware or ought to have been aware in the circumstances that there was something unfair or unjust about the transaction. To some degree, the plaintiff’s case against the second defendant on this ground turns on a finding that the first defendant engaged in unconscionable conduct to trick or deceive the plaintiff. I have rejected that assertion. Moreover, for the reasons I have found that the second defendant did not breach its fiduciary obligation to the plaintiff, I would also conclude that neither Ms Fogarty nor Ms Russell behaved unconscientiously in her dealings with the plaintiff.
The first defendant’s counterclaim
According to the affidavit of the first defendant dated 17 November 2020, the plaintiff fell into arrears in relation to his occupation fee in the sum of $9,670.65. As a consequence of that, the plaintiff incurred legal fees of $4,151.77 in taking advice, corresponding with the plaintiff and preparing for an application to the Court in relation to the undertakings given on 10 August 2018. There was no challenge to the quantum of the arrears or the fact of the plaintiff incurring the legal costs, or of the amount of the costs.
The plaintiff also claims the sum of $12,1290.29 which was said to have been the costs incurred by the plaintiff in relation to the proceedings culminating in the 10 August 2018 undertakings. Although that claim is said to be based on the failure of the plaintiff to pay the occupation fee in 2018, I note that the action was actually commenced by the plaintiff as the result of the first defendant having taken it into his own hands to lock the plaintiff and his partner out of the Giralang property. In my view, the issue of who should pay the costs of the injunction proceedings (SC 368 of 2018) should be left to the judicial officer who determines what (if any) costs should be payable by either side in those proceedings. The evidence as to the precise circumstances which lead to the 10 August 2018 undertakings is not before me, and it would, therefore, not be appropriate for me to effectively make a costs order in those proceedings.
The defence of the plaintiff to the claims in the counterclaim relied on him succeeding in his claim that there had been a failure of consideration in the sale of the Giralang property by reason of the first defendant not having paid the net proceeds of the sale to the plaintiff. As I have found against the plaintiff on that issue, it follows that I reject his defence to the counter claim.
Disposition
On the basis of my findings, the plaintiff’s claims against both defendants must fail. The counterclaim of the first defendant should succeed in relation to the outstanding occupation fee and the legal costs incurred in dealing with the plaintiff’s defaults, apart from those relating to the proceedings in SC 368 of 2018.
Orders of the Court
The orders of the court are:
(1)There be judgment in favour of the defendants in relation to the claims of the plaintiff.
(2) There be judgment in favour of the first defendant on the counter-claim in the sum of $13,822.42.
(3)Subject to order (4), the plaintiff pay the defendants’ costs of this proceeding.
(4)In the event that any party notifies my Associate in writing that he or it seeks an order different from that in (3) by 4:00 pm on 22 December 2021, order (3) shall be suspended until further order.
| I certify that the preceding three hundred and eighty-six [386] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Acting Justice Crowe. Associate: J Hester Date: |
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