Guojin Huang v Jinghong Wei (No 3)

[2022] NSWSC 662

Supreme Court

New South Wales

Medium Neutral Citation:

Guojin Huang v Jinghong Wei (No 3) [2022] NSWSC 662

Hearing dates:

On the papers – written submissions 16 and 23 May 2022

Decision date:

25 May 2022

Jurisdiction:

Equity - Real Property List

Before:

Kunc J

Decision:

Defendant to pay plaintiff’s costs on the indemnity basis pursuant to Calderbank offer; terms of reference for accounting as to rent determined

Catchwords:

COSTS – Party/Party – Bases of quantification – Calderbank offer – No issue of principle

LAND LAW – Co-ownership – One owner bare trustee for other – Account for rent – Terms of reference to determine amount owed (if any)

Cases Cited:

Calderbank v Calberbank [1975] 3 All ER 333; [1975] 3 WLR 586

Li v Xin (No 2) [2013] VSC 139

Category:

Procedural rulings

Parties:

Guojin Huang (Plaintiff)

Jinghong Wei (Defendant)

Representation:

Counsel:

C Withers SC with N Riordan (Plaintiff)
J Foley (Defendant)

Solicitors:

Thomson Geer (Plaintiff)
Yau & Wang Lawyers (Defendant)

File Number(s):

2020/209064

Publication restriction:

No

Judgment

Summary

1. The Court delivered its principal judgment in these proceedings on 20 April 2022: Guojin Huang v Jinghong Wei (No 2) [2022] NSWSC 473 (the Principal Judgment). These reasons assume familiarity, and should be read with, the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons.

2. In the Principal Judgment, Guojin was completely successful against Jinghong in establishing Guojin’s entitlement to the whole of the Property. Moreover, as will become significant in considering Guojin’s application for indemnity costs, the Court concluded in the Principal Judgment (at [59]) that “The Court has come to the firm view, on the Briginshaw standard, that Jinghong’s case is built on a lie, assisted by his mother, Chunhua”.

3. The parties agreed that two outstanding matters could be resolved by the Court on the papers:

1. By orders made on 29 April 2022, the Court ordered Jinghong to pay Guojin’s costs of the proceedings, subject to any special costs application. In reliance upon Jinghong’s failure to accept a Calderbank offer, Guojin now seeks a variation to the Court’s earlier order so that Jinghong should pay Guojin’s costs on the indemnity basis from the date of that offer. For the reasons which follow, Jinghong will be ordered to pay Guojin’s costs on the indemnity basis from the day after that offer closed.

2. In the Principal Judgment (at [71]) the Court concluded that Guojin was entitled to an inquiry to determine the amount for which Jinghong had to account to Guojin for rent which Jinghong had received in respect of the Property. While the parties were agreed on the identity of the referee, there were certain details of the reference upon which the parties were unable to agree and which these reasons resolve.

4. The legal representatives remain the same as at the hearing. Guojin’s submissions were prepared by Mr C H Withers of Senior Counsel with Mr N D Riordan of Counsel. Jinghong’s submissions were prepared by Mr J Foley of Counsel.

The Calderbank offer – the parties’ submissions

5. During the course of the litigation, each party made an offer to the other in accordance with the principles set out in Calderbank v Calberbank [1975] 3 All ER 333; [1975] 3 WLR 586.

6. On 26 March 2021, Jinghong’s solicitors wrote to Guojin’s solicitors making such an offer (the terms of which are no longer relevant), but which included:

“We note the following in relation to the Proceedings:

1.   Our client’s evidence discloses that our client paid valuable consideration for the transfer of property the subject of the proceedings (Property).

2.   Your client has not advanced any satisfactory explanation in relation to his delay in asserting any interest in the Property.

3.   Mr Dai’s evidence does not support your client’s contention that the transfer of Property was purportedly for migration purposes.”

7. In response to that letter, Guojin’s solicitors wrote to Jinghong’s solicitors on 15 April 2021 (the Calderbank Offer):

“We refer to your letter dated 26 March 2021.

Our client does not accept the offer contained in your letter.

We note that our client has now served his evidence in reply and there should be no doubt in respect of the parties’ respective cases.

In relation to the three points in your letter which are said to support the likelihood of your client's success in these proceedings:

1   The Court will not accept your client's position that he paid valuable consideration for the property. Your client invites the Court to accept what can only be described as an extraordinary proposition, that is, that your client paid our client 1.68m RMB in cash, taken from various safes in your client’s parents’ house and placed into carry bags. The only evidence to corroborate this proposition is given by a person in your client’s interest, his mother. There is no banking or transaction record to substantiate the claim. We note that even your client's evidence, being the affidavit of Mr Dai, does not support that proposition.

2   We do not understand your point 2. Our client’s “interest” in the property is, and at all material times has been, that of an owner in fee simple and registered proprietor who has suffered, by reason of the conduct of your client the subject of this proceeding, the effective loss of his exclusive legal interest in the property. There has been no “delay” by our client in asserting his interest. If the point you were seeking to make is that the court will draw some adverse inference against our client because a number of years had elapsed before the proceeding was brought, we disagree and, in any event, note that the circumstances which led to the commencement of this proceeding have been explained in the evidence. The explanation is both logical and reasonable and we have no doubt that the Court will accept it.

3   There are a number of inconsistencies between your client's affidavit and that of Mr Dai's. We do not consider that Mr Dai's evidence assists your client.

Furthermore, it is clear that you (sic) client's evidence in respect of personal matters between him and his former wife do not reflect the objective contemporaneous evidence and, it would appear, these matters have been introduced into the proceeding by your client in an effort to distract the Court from the real issues. We consider that for this reason the Court will not look favourably upon your client and in any event, if these issues are allowed to be run, the Court will prefer our client’s evidence over that of your client.

Nevertheless, to avoid the significant costs of a 3 to 4 day trial and the investment of time that such a hearing will require, our client is prepared to compromise the proceedings on the basis that the following orders be entered by the Court by consent:

1.   judgment is to be entered in favour of the plaintiff in respect of the prayers for relief numbered 2, 4 and 6 of the Statement of Claim filed on 22 October 2020; and

2.   your client to pay our client's costs of the proceedings as agreed or assessed.

In making this offer, our client would be foregoing his claim for an accounting of the benefits your client derived over the period of his unlawful ownership and occupation of the Property, including the rental payments received by your client, and his alternative claim for equitable compensation. Given the significant amount of time during which your client has been receiving rental payments, we have no doubt this will be considered to be a reasonable compromise.

This offer is open for acceptance until 5pm on 14 May 2021 and shall lapse thereafter.

This offer is made on the basis of the principles in Calderbank v Calderbank and will relied upon in respect of an application for a special costs order if not accepted and our client achieves a superior result at trial.”

8. There was no dispute between the parties as to the applicable principles, including that the Court had to be satisfied that the Calderbank Offer represented a genuine compromise and that it fell to Guojin to satisfy the Court that Jinghong’s failure to accept the Calderbank Offer was unreasonable. The essential dispute between the parties focused on the first of these propositions.

9. Two matters may not be doubted. First, in the final result Guojin has done better than what was proposed in the Calderbank Offer. This is because Guojin has obtained the declarations and consequential orders that he sought to the effect of those referred to in the Calderbank offer, an order for his costs and an order for an account in relation to rent. Second, the reasons advanced by Guojin’s solicitors in the Calderbank Offer as to why their client would be successful are substantially to the effect of the dispositive reasons in the Principal Judgment.

10. Jinghong’s response is that the Calderbank Offer was not a genuine offer of compromise because while the Calderbank Offer could have made some concession as to Guojin’s costs, it did not do so. The only purported concession was in relation to the claim for account in relation to rent, which Jinghong’s counsel submits was vague and unquantifiable at the time of the Calderbank Offer and will remain so until the result of the reference which the Court will order.

11. Furthermore, the Calderbank Offer’s reference to all the evidence having been served, while correct at the time it was made, was not what ultimately happened. Mr Foley, for Jinghong, places considerable emphasis on the fact that at the time of the Calderbank Offer, there was nothing in Guojin’s evidence that supported the action for account in relation to rent or any other benefit that Guojin might have received. That evidence did not come until several months after the Calderbank Offer, when Guojin served the affidavit of Pavlos Stavropoulos on or about 27 September 2021. As is apparent from the Principal Judgment at [42]-[43], it is that evidence which satisfied the Court (Principal Judgment at [71]) that Jinghong received rent from tenants during the period he had exclusive use of the Property and that there should be an inquiry as to the amount for which Jinghong must account to Guojin.

12. Reduced to its essentials, it was submitted for Jinghong that the Calderbank Offer was not a genuine offer of compromise because it only compromised on an aspect of the claim that was unquantifiable and in respect of which there was no admissible evidence while the Calderbank Offer was open. These same features supported the further conclusion that Jinghong’s failure to accept the Calderbank Offer was not unreasonable.

The Calderbank Offer – determination

13. Whether any informal offer to compromise litigation represents a genuine compromise will depend upon the nature of the litigation and the relief sought. As I pointed out more than once to the parties during the course of the hearing, and as is reflected in the Principal Judgment, the case was a binary one. Only one side or the other could be right and, given the evidence and the way in which the case was presented, the party that was not right had to be lying. Guojin was either entitled to the declarations and costs order which he sought, or he was not. The order for an account in respect of benefits Jinghong may have received by reason of his occupation of the Property was consequential upon Guojin succeeding in his fundamental claim.

14. While it is true that Guojin could have made some compromise in relation to costs in the Calderbank Offer, the fact that he did not do so does not demonstrate the Calderbank Offer was not a genuine compromise when it is read as a whole. The Calderbank Offer contained a cogent account of why Guojin considered he would succeed which the Principal Judgment has demonstrated was entirely prescient. Read as a whole, it did not bespeak a lack of genuine compromise because it failed to make an offer in relation to costs to which Guojin would otherwise be entitled upon such success. That is because there was another potentially substantive part of the claim which could be conceded, being the claim for an account. That concession was made in the context of the point which the proceedings had reached, the identification of the issues and the arguments made in the Calderbank Offer. In that context, that concession was sufficient to make the Calderbank Offer a genuine compromise.

15. However, that is not the end of the matter. The terms of any compromise are themselves one of the factors which the Court must take into account in determining whether Jinghong’s failure to accept the Calderbank Offer was unreasonable. This is why Jingong’s submissions make the same points concerning lack of a genuine compromise in support of the proposition that his failure to accept the Calderbank Offer was not unreasonable.

16. It is at this point that Jinghong’s resistance to the present application fails. That is because, as I have set out in [2] above, the Court was well satisfied that Jinghong’s defence of these proceedings was based upon a deliberate lie. Furthermore, the Court was satisfied that Jinghong had in fact received rent. Putting it shortly, the Court is satisfied to the Briginshaw standard that Jinghong must have known at the time of the Calderbank Offer that his defence was built upon a lie and that he had in fact received rent. Knowing those matters, it was unreasonable of him to persist in the litigation. Had he accepted the Calderbank Offer, the incurring of further costs by the parties and the taking up of public resources in the Court’s time and the time required to prepare the judgment would have been avoided.

17. I am fortified in this conclusion by the fact that where a case has been brought on a fraudulent basis, that in and of itself may be sufficient to order the unsuccessful party that has propounded that basis to pay costs on the indemnity basis, even in the absence of a Calderbank letter. For example, such an order was made by Habersberger J in the Supreme Court of Victoria in Li v Xin (No 2) [2013] VSC 139. This extract from his Honour’s reasons demonstrates the remarkable similarity between the case before his Honour and the present proceedings (emphases added):

“22    The second aspect of the claim against the defendant is the costs of the proceeding itself. The general rule is the costs follow the event and that is not really disputed by Mr Lim, on behalf of the defendant. The only question is whether the plaintiff's claim for indemnity costs is an appropriate order. This was an unusual case in that the decision revolved around determining who was telling the truth and who was not telling the truth as the competing versions of what had occurred with respect to the purchase of the property could not sit with each other. One side or other had to be telling complete falsehoods.

23    At a very early stage of the trial, if not on the day preceding the start, I pointed out to the parties that this appeared to be the case, and I warned the parties that whoever was found to be not telling the truth might suffer the consequences in terms of costs. I understand that Mr Lim, on behalf of the defendant, and the non-parties, both still maintain their position, no doubt saying that I have reached the wrong result. However that may be, that is the conclusion which I have reached, namely that the plaintiff and his witnesses were telling the truth and the defendant and her witnesses were not. One of the grounds for indemnity costs is that the case is a result of fraud. It seems to me that a case such as this fits into that category. One can hardly get a better example of fraud than telling complete falsehoods about circumstances of the purchase, as to whether or not it was purchased beneficially by the defendant or on trust for the plaintiff with the plaintiff's family making all the payments.”

18. In that case, Habersberger J ordered the unsuccessful defendant to pay some of the costs of those proceedings on the indemnity basis. The Court has no doubt that is what should occur in these proceedings by reference to the Calderbank Offer.

19. There is only one slight variation which the Court will introduce to the orders proposed for Guojin. Guojin’s draft order has the indemnity costs period running from the date of the Calderbank Offer. However, the Calderbank Offer was open for acceptance at any time up to and including 14 May 2021. This means that the indemnity costs period should commence on and from 15 May 2021 and conclude with the date of Jinghong’s most recent submissions dated 23 May 2022. Thereafter, while the further costs of the parties will be incurred in respect of the proceedings, they will be directed to the reference which the Court will order. As I will next explain, the costs of the reference will be a matter to be determined in the light of its outcome.

The terms of reference – the parties’ contentions

20. There were three areas of difference in the respective orders proposed by the parties concerning the terms of the reference to give effect to Guojin’s entitlement to an account from Jinghong:

1. What fell within the description of “rent”;

2. The period to be considered; and

3. The extent to which any order should be made for costs of the reference at this time.

21. I will deal with each of these in turn.

22. In relation to the fundamental subject matter of the reference, Guojin’s draft order referred to a “report into the value of the benefit” that Jinghong received in respect of the Property. It was put for Jinghong that the term “benefit” was unclear and that in the Principal Judgment the Court had found that the evidence demonstrated an entitlement to an accounting only in relation to any rent Jinghong may have received.

23. For his part, Jinghong also submitted that the subject matter of the inquiry should be the “Net Rent”, which was defined in Jinghong’s proposed orders as “the total rental income received by Mr Jinghong Wei in respect of the [Property], less the total expenses incurred and paid by Mr Jinghong Wei in respect of the [Property]”.

24. The second issue was the period in respect of which the inquiry should be conducted. It was submitted for Guojin that because the Court found that Guojin had returned to Australia without Manjing and their child in late 2014 and that thereafter Jinghong had enjoyed exclusive use of the Property, the starting point should be 1 January 2015. This submission also took into account the Court’s finding that the relationship between Jinghong and Manjing broke down and the couple separated in February 2015, thereby ending any justification for Jinghong remaining on the title to the Property.

25. Jinghong’s submission was that the period of the inquiry should commence from the date Guojin demanded that Jinghong should reconvey his interest in the Property, being 20 August 2019. This submission drew attention to the Court’s conclusion in the Principal Judgment at [69] that “the arrangement was to convey only a legal interest to Jinghong to assist with his residency application and that once that was achieved it was always open [to] Guojin to call for a reconveyance”. It was submitted that it was not part of the arrangement that Jinghong had to account for rent and that, in light of the Court’s conclusions in the Principal Judgment, there was nothing wrongful about his occupation of the Property before the demand for a reconveyance was made.

26. Finally, Guojin’s proposed form of reference included an order that Jinghong pay the costs of the reference.

27. In response, Jinghong submitted that while, in the first instance, the parties should be jointly and severally liable to the referee for her costs, how the costs of the reference should ultimately be borne should abide the outcome of the reference. It was submitted that at this stage there was no basis for concluding, one way or the other, whether an amount would be payable to Guojin as an outcome of the reference and, in any event, Jinghong might make an offer during the course of the reference that could be relevant to the question of the costs of the reference.

Terms of reference – determination

28. In relation to the subject matter of the reference, the Court accepts Jinghong’s criticism of the expression “the value of the benefit”. The Court’s findings in the Principal Judgment dictate that the fundamental subject matter of any inquiry is what amount of rent received by Jinghong in respect of the Property should be accounted to Guojin.

29. However, that being said, I do not accept Jinghong’s attempt to confine the subject of the inquiry to “Net Rent”. The remedy of account is a flexible one, intended ultimately to achieve a fair and just result between the parties, noting that a party which seeks equity must also do equity.

30. Questions such as what expenses Jinghong incurred in relation to the Property, the extent to which Guojin must make allowance for those expenses in seeking an account for rent, and any other matters which one side may have to allow to the other to achieve a fair and just outcome in accordance with the relevant principles, have not been litigated in the proceedings to date. They are all matters properly for the reference. There may be others. The orders which the Court will make are intended to give the parties the widest latitude to put any matters before the referee which they may wish to submit ought properly be taken into consideration in determining the final figure (assuming it to be a positive one) for which Jinghong is liable to account to Guojin in respect of rent received for the Property.

31. In relation to the question of the period of any inquiry, the Court accepts the submissions put on behalf of Guojin. With respect, the submission made for Jinghong is based on a misconception. By its orders on 29 April 2022, the Court declared that at all material times Jinghong held his interest in the Property on trust for Guojin. The request for a reconveyance is the means by which Guojin could bring Jinghong’s trusteeship to an end, but did not end the trust. As a bare trustee, Jinghong is required to account to the beneficial owner for any rent which Jinghong may have received in respect of the Property. His trust obligations to account for rent were in relation to rent received until the trust came to an end. That would only occur upon reconveyance of his legal interest in the Property. The trust was not brought to an end by the demand for reconveyance.

32. Finally, in relation to the costs of the reference, the Court accepts Jinghong’s submissions. The Court can and should make an order in relation to the costs of the substantive hearing to date. The next stage of the litigation will be the reference. The costs of that stage, for the reasons advanced for Jinghong, cannot be determined until the results of the reference are known.

33. In the first instance, the best person to determine which party should bear the costs of the reference is the referee, although the parties will be free to argue whether or not that part of the referee’s report (or any other part), should be adopted by the Court. In the meantime, the only order the Court should make as to costs is that the parties are jointly and severally liable to the referee for her fees of conducting the reference. How those costs should ultimately fall between the parties will be a matter, in the first instance, for the referee.

Conclusion

34. The orders of the Court are:

“1. Pursuant to Part 20 rule 14 of the Uniform Civil Procedure Rules (the "UCPR"), refer to Meg O’Brien, Barrister, for enquiry and report the matters in the Schedule hereto.

2.   With respect to costs, direct that (without affecting the powers of the Court as to costs) the plaintiff and defendant be jointly and severally liable to the referee for the referee's fees.

3. Direct that the parties deliver to the referee a copy of this order together with a copy of Division 3 of Part 20 of the UCPR no later than 31 May 2022.

4.   Direct that:

4.1 subject to paras 4.2 and 4.3 hereof, the provisions of Pt 20 r 20 shall apply to the conduct of proceedings under the reference;

4.2   the reference will commence on 4 July 2022 unless otherwise ordered by the referee;

4.3   the referee consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination to be made including, if the referee thinks fit:

4.3.1   the exchange of submissions by the parties; and

4.3.2   the issuing of subpoenas for production of documents.

4.4   any evidence in chief before the referee shall, unless the referee otherwise permits, be by way of written statements signed by the maker of the statement;

4.5 the referee submit the report to the Court in accordance with Pt 20 r 23 addressed to the Associate to Kunc J on or before 30 September 2022.

5.   Amendments to the Schedule, whether by agreement or on a contested basis, are to be the subject of an order made by the Court.

6.   If for any reason the Referee is unable to comply with Order 4.5 for delivery of the report to the Court, the Referee is to provide to Kunc J an Interim Report setting out the reasons for such inability and an application to extend the time within which to deliver the report to the Court to a date when the Referee will be able to provide the Report.

7.   Grant liberty to the referee or any party to seek directions in the first instance by email to the Associate to Kunc J with respect to any matter arising in proceedings under the reference upon application made on 24 hours' notice or such less notice ordered by the Court.

8.   Vacate Order 8 as to costs made on 29 April 2022.

9.   The defendant is to pay the plaintiff’s costs of the proceedings on the ordinary basis up to and including 14 May 2021.

10   The defendant is to pay the plaintiff’s costs of the proceedings on the indemnity basis on and from 15 May 2021 up to and including 23 May 2022.

11.   Stand the proceedings over for further directions before Kunc J on 14 October 2022.

Schedule

1.   The total amount of any rent received by the Defendant in respect of XXXX (the Property) for any time during the period on and from 1 January 2015 and up to and including 31 May 2022 (the Period) (the Rent).

2.   The nature and amount of any expenses (including outgoings) incurred and paid by the Defendant in respect of the Property during the Period (Expenses).

3.   The amount of Rent for which the Defendant must account to the Plaintiff for the Period, including the extent to which either party is entitled to the benefit of such amounts as are referred to in paragraph 4 of this Schedule.

4.   In determining the amount of Rent referred to in paragraph 3:

(a)   the extent to which, if at all, the Defendant is entitled to the benefit, whether by way of set-off or otherwise, of any of the Expenses; and

(b)   whether as a matter of fairness and justice any other allowances should be made as between the parties in respect of the Defendant’s entitlement to, or occupation of, the Property during the Period.

5.   How the costs of the reference should be borne as between the parties.

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Decision last updated: 25 May 2022