Hoh v Ying Mui Pty Ltd

Case [2019] VSCA 203

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0069

BETWEEN:
FRANK KIANG NGAN HOH (and others according to the attached schedule) Applicants
AND
YING MUI PTY LTD (ACN 009 992 449) (and others according to the attached schedule) Respondents

S APCI 2018 0067

BETWEEN:
LUMARKYE PTY LTD (ACN 131 575 785) Applicant
AND
YING MUI PTY LTD (ACN 009 992 449) (and others according to the attached schedule) Respondents

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JUDGES: BEACH, HARGRAVE JJA and SIFRIS AJA
WHERE HELD: MELBOURNE
DATE OF HEARING: 15, 16 May 2019
DATE OF JUDGMENT: 18 September 2019
MEDIUM NEUTRAL CITATION: [2019] VSCA 203
JUDGMENT APPEALED FROM: Ying Mui Pty Ltd v Hoh [2017] VSC 29; [2017] VSC 730; [2018] VSC 214 (Vickery J)
CASE MAY BE CITED AS: Hoh v Ying Mui Pty Ltd [2019] VSCA 203

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EQUITY – Duties of director of corporate trustee – Whether director owed fiduciary duty to other shareholders of corporate trustee where arrangement or understanding for joint endeavour found – Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied.

EQUITY – Whether director breached fiduciary duties to corporate trustee – Whether director breached statutory duties to corporate trustee – Failure to exercise powers for proper purpose – Failure to act in good faith in the best interests of corporation – Whether breach ‘ought fairly to be excused’ under Corporations Act 2001 (Cth) s 1318 – Payment of management fees – Discharge of bank debt and personal guarantees – Improper purpose – Clear conflict of interest – Preference for own interests and clearly underhand conduct – Directors not excused.

EQUITY – Fiduciary obligations – Trust distributions from discretionary trust – Failure to exercise discretion in good faith upon real and genuine consideration and in accordance with purposes of discretion – Distributions made in bad faith and for improper purpose – Whether trustee entitled to just allowance for managing trust – Whether dishonesty will bar an order of a just allowance – Defaulting fiduciary should not be put in better position by dishonest breaches – Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; Deutsch v Deutsch [2012] VSC 227 considered.

EQUITY – Whether sale of trust property in breach of trust – Sale of trust property at full market value – Sale for improper purpose – Knowing receipt liability – Barnes v Addy – Sale of trust property to corporation connected with defaulting fiduciary – Whether knowledge of sale in breach of trust to be imputed to corporation – Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 applied.

REAL PROPERTY – Transfer of Land Act 1958 (Vic) s 42 – Meaning of ‘fraud’ in s 42 considered – Whether sale dishonest – Purchaser of property part of underhand scheme – Fraud exception applies.

EVIDENCE – evidentiary value of financial statements – Corporations Act 2001 (Cth) ss 296, 297, 295, 1305 and 1308 – ASIC v Hellicar (2012) 247 CLR 345; Livingspring Pty Ltd v…

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Hoh v Ying Mui Pty Ltd [2019] VSCA 203
Case
[2019] VSCA 203
Decision Date

CaseChat Overview and Summary

Hoh v Ying Mui Pty Ltd involved a dispute among the beneficiaries of the Ying Mui and Amore discretionary trusts, with Frank Hoh as the sole director of the corporate trustee, Ying Mui Pty Ltd. The beneficiaries were divided into two factions, with the Hoh faction (comprising Frank, Lynn, and Ian) and the George faction (comprising George, Hoh, and Maureen). The dispute centred on the sale of trust assets, the distribution of trust funds, and the payment of management fees. The Victorian Supreme Court was tasked with determining whether Frank breached his fiduciary duties as a director and trustee, and whether certain sales of trust property were valid.

The court needed to decide if Frank breached his fiduciary duties to the corporate trustee by selling trust assets for an improper purpose and failing to act in the best interests of the corporation. It also had to determine if Frank breached his statutory duties by exercising his powers for an improper purpose and failing to act in good faith. The court examined whether the breaches could be excused under the Corporations Act 2001 and if the trustee was entitled to a just allowance for managing the trust. Furthermore, the court had to assess whether the sales of trust property were in breach of trust, and if the fraud exception under the Transfer of Land Act 1958 applied.

The court found that Frank did owe fiduciary duties to the other shareholders of the corporate trustee due to an arrangement or understanding for a joint endeavour, as per the principles in Hospital Products Ltd v United States Surgical Corporation. Frank's actions in selling trust assets for personal benefit and misleading the George faction constituted a breach of fiduciary and statutory duties. The breaches were not excused under the Corporations Act 2001 as they were not in the best interests of the corporation and involved a clear conflict of interest. The court held that the sale of trust property to Lumarkye Pty Ltd, a company associated with Frank and Lynn, was in breach of trust due to an improper purpose and knowing receipt liability. The fraud exception under the Transfer of Land Act 1958 applied because the purchaser was part of an underhand scheme.

The court ruled that Frank's breaches of fiduciary duty were dishonest and thus he was not entitled to a just allowance for managing the trust. The sales of trust property were set aside as they were in breach of trust, and the Transfer of Land Act 1958's fraud exception applied. The court also disapproved the use of a 'sequential trial model' in this case, finding it inconsistent with the overarching purpose of the Civil Procedure Act 2010.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Following the rejection of Lynn’s proposal on his behalf, the trial judge found that ‘Frank determined to sell off as much as possible of the assets held by the Ying Mui trust’;[27] and noted Lynn’s oral evidence that in these circumstances Frank wanted to ‘put all the properties on the market’.[28] The trial judge characterised Frank’s decision as the ‘asset sale and distribution decision’,[29] and its implementation as the ‘asset sale process’,[30] or the ‘property sales programme’.[31] We will use the term asset sale process.[27]First Reasons [446]; Second Reasons [110].[28]First Reasons [447].[29]First Reasons [106]; Second Reasons [109]–[112].[30]First Reasons [363]. [31]Second Reasons [111]–[112]. As a result of the asset sale process considered as a whole, the Ying Mui and Amore trusts had sufficient cash and distributable profits to pay amounts totalling $2,727,261 to Lokit as trust distributions, and $729,297.62 as management fees.[32] As appears below, two of the property sales made by Ying Mui (the Sydenham property and lot 202) were to Lumarkye Pty Ltd, a company associated with Lynn and her husband Dominic. Lumarkye was only able to purchase the two properties with the assistance of Frank and Pooi, who provided both finance and their guarantees of bank loans to Lumarkye.[32]First Reasons [494]. The asset sale and distribution decision, and its implementation, was deliberately concealed from the George faction. Indeed, Frank, Lynn and Ian, by letter dated 12 October 2011 to George, Hoh and Maureen, deliberately misled the George faction, stating that it was their ‘present intention to cause [Ying Mui], in its capacity as trustee, to sell the Trust’s assets, for distribution among the beneficiaries.’[33] In fact, prior to the 12 October 2011 letter, Ying Mui had already sold the Docklands property, unit 10 of the Hampton Street property, lot 201 of the Hampton Street property and the Sydenham property for a total of approximately $4.2 million;[34] with the consequence that Frank had been able to pay $550,000 to Lokit or at its direction,[35] and — with Lynn and Ian — to vote in favour of a resolution that 100 percent of the net income of the Ying Mui trust be distributed to Lokit for the year ended 30 June 2011. On this basis, the trial judge found that the failure of the 12 October 2011 letter to mention any of the asset sales, distributions and payments which had already taken place was ‘patently false and misleading, and … deliberately so’.[36] [33]First Reasons [472]–[478].[34]First Reasons [474]; Docklands ($563,280), unit 10 Hampton Street ($645,000), lot 201 Hampton Street ($1.8 million) and Sydenham ($990,000).[35]First Reasons [474]; payment to Lynn ($300,000), at Lokit’s direction and/or on its behalf, payments to Lokit ($100,000 and $150,000).[36]First Reasons [478]. Further, soon after the 12 October 2011 letter, Frank and Ian voted in favour of a resolution that Ying Mui sell lot 202 of the Hampton Street property to Lumarkye for $1,680,000.[37] [37]First Reasons [474].

Ratio Decidendi

Legal Principle Established

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