Hoh v Ying Mui Pty Ltd

[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 Kliger Partners (2008) 20 VR 377; ASIC v Rich (2009) 75 ACSR 1 considered – evidentiary value of financial statements to be considered in context of all the evidence as a whole.

PRACTICE AND PROCEDURE – Judge imposed ’sequential trial model’ on parties, which did not involve trial of separate questions under Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 47.04 – Civil Procedure Act 2010 (Vic) ‘overarching purpose’ – Use of ‘sequential trial model’ disapproved in circumstances of the case – Ying Mui v Hoh [2016] VSC 519 (Ruling No 1) disapproved.

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APPEARANCES:	Counsel	Solicitors
For the Applicants in S APCI 2018 0069	P J Bick QC with C H Truong QC and A Ounapuu	King & Collins
For the Applicant in S APCI 2018 0067 and the Eighth Respondent in S APCI 2018 0069	M G R Gronow QC with N Chow	Tribeca Legal
For the First to Fourth Respondents in S APCI 2018 0067 and S APCI 2018 0069	M S Osborne QC with P J T Creighton-Selvay	Strongman & Crouch
For the Fifth to Seventh and Ninth Respondents in S APCI 2018 0069	No appearance	--

TABLE OF CONTENTS

Factual narrative

Summary of trial judge’s conclusions

Key evidence on which judge’s conclusions were based

Proposed grounds of appeal

Legal principles: challenges to factual findings and inferences

Question 1: What was the basis of the relationship between the shareholders in Ying Mui?  In particular, did Ying Mui (as trustee) conduct its business for and on behalf of SYM for the purpose of furthering the benevolent purpose?

Contentions

Analysis

Conclusion

Question 2: Were the Malaysian advances to Ying Mui loans or capital contributions from SYM?  If the advances were loans, is Ying Mui entitled to an indemnity from the assets of the Ying Mui trust in respect of its liability to repay those loans?  If the advances were capital contributions from SYM, did the Frank faction have standing to seek a declaration of a resulting or constructive trust in SYM’s favour?

Contentions: loans or capital advances by SYM?

Analysis: loans or capital advances by SYM?

Conclusion: loans or capital advances by SYM?

Contentions: if loans, is Ying Mui entitled to an indemnity?

Question 3: In addition to his fiduciary and statutory duties to the three trustees, did Frank owe a fiduciary duty to George and Robert (and later Han), as the other shareholders in Ying Mui?

Contentions

Analysis

Conclusion

Question 4: Did the Frank faction make the asset sale and distribution decision, and implement that decision by the asset sale process?

Introduction to remaining questions

Question 5: Did Frank breach his fiduciary or statutory duties by causing Ying Mui and Amore to enter into management fee agreements?  Did Lynn breach her fiduciary or statutory duties to Ying Mui by executing the Ying Mui management fee agreement?  Did Pooi breach her fiduciary or statutory duties to Amore by executing the Amore management fee agreement?

Question 6: Did Frank, Lynn and Pooi breach their fiduciary or statutory duties to Ying Mui or Amore by arranging, authorising or facilitating payments under the impugned management fee agreements?  If so, did Lokit receive those management fees in the knowledge that they were paid from trust property in breach of trust?

Question 7: Did Ying Mui (in 2011) and Frosthollow (in 2012–14) act in breach of trust in making trust distribution payments?  If so, did Frank, Lynn or Ian knowingly procure those breaches?  Did Lokit receive those distributions in the knowledge that they were made in breach of trust?

Management fee issues

Contentions: management fee issues

Analysis: management fee issues

Conclusion: management fee issues

Trust distribution issues

Contentions and analysis: trust distribution issues

Conclusion: trust distribution issues

Question 8: Is Frank or Lokit entitled to a just allowance for managing the trusts?

Contentions

Analysis

Conclusion

Question 9(a) and (b): As to the sales of the Sydenham property and lot 202 by Ying Mui to Lumarkye: (1) Were the sales made in breach of the Ying Mui trust?  (2) Did Lumarkye knowingly receive the two properties in breach of trust?

Breach of trust issues

Contentions and analysis: breach of trust

Conclusion: breach of trust

Knowing receipt issues

Contentions: knowing receipt issues

Analysis: knowing receipt issues

Conclusion: knowing receipt issues

Question 9(c): Is the constructive trust claim against Lumarkye defeated by the indefeasibility provisions under s 42 of the Transfer of Land Act 1958?

Contentions

Analysis

Conclusion

Question 9(d): What consequential orders should be made if a constructive trust is found?

Question 10: As to the sales by Ying Mui of the Docklands property, unit 10 and lot 201 to third parties, did Frank, Lynn, Pooi and/or Ian breach their fiduciary or statutory duties to Ying Mui?

Contentions, Analysis and Conclusion

Summary of conclusions

The ‘sequential trial model’

BEACH JA

HARGRAVE JA
SIFRIS AJA:

1. This case concerns a bitter family dispute between two factions of the Hoh family — the George faction, based in Malaysia, and the Frank faction, based in Australia.  Following a fragmented trial under a novel ‘sequential trial model’,[1] the trial judge found in favour of the George faction. He found that the Frank faction — and companies under their control acting as trustees of discretionary trusts — had engaged in a dishonest and fraudulent asset sale scheme which was designed to liquidate the commercial real estate owned by the trusts and pay or distribute the sale proceeds to the benefit of the Frank faction and to the total exclusion of the George faction. On the basis of this principal factual finding, the trial judge concluded that the asset sale scheme involved many breaches of trust and fiduciary duties, with consequential findings of knowing receipt and knowing assistance,[2] and granted relief accordingly.[3]  The Frank faction and related companies now seek leave to appeal.  In order to understand the issues arising at trial, and on appeal, it is necessary to set out the key facts.

   [1]Ying Mui Pty Ltd v Frank Kiang Ngan Hoh (Ruling No 1) [2016] VSC 519 (Sequential trial reasons).

   [2]Ying Mui Pty Ltd v Hoh (No 3) [2017] VSC 29 (First Reasons); Ying Mui Pty Ltd v Hoh (No 6) [2017] VSC 730 (Second Reasons).

   [3]Ying Mui Pty Ltd v Hoh [2018] VSC 214 (Relief Reasons).

Factual narrative

1. It is first necessary to set out the relevant Hoh family structure.[4]

   [4]The following description of the Hoh family structure is taken from the First Reasons [18]–[32].

1. The Hoh Family was headed by Hoh Ying Chye (Father) who was married to Madam Yow Mui (Mother).  They are both now deceased.  They had seven children.

1. The seven children of Father and Mother were:

(1)       Robert Hoh Kiang Chan (Robert), who died on 24 December 2007.  He is survived by his son Han Kayet Hoh (Han);

(2)       Linda Hoh Yuet Ngo (Linda), who died in 1959;

(3)       Maureen Yuet Ming Oborn (nee Hoh) (Maureen, also nicknamed Binky);

(4)       Derek Hoh Kiang Howe (Derek);

(5)       George Hoh Kiang Po (George);

(6)       Frank Hoh Kiang Ngan (Frank); and

(7)       Richard Hoh Kiang Seong (Richard).

1. Frank married Pooi Yoke Lim Hoh (Pooi, also nicknamed Kit).  They had two children, Lynn Yook Lien Hoh (Lynn) and Ian Han Lok Hoh (Ian).  In late 1987, Frank, his wife and their children migrated to Australia.

1. Disputes have divided the Hoh family into factions.  Richard and Derek split from the Hoh family in 2000 and 2001.  This split is referred to below.  In 2010, disputes led to a further split, which is the subject of this case.  On the one side is the faction led by George (the George faction), supported by Han and Maureen.

1. On the other side is the faction led by Frank (the Frank faction), supported by his wife Pooi and their children, Lynn and Ian.  Lynn’s husband, Dominic Weng Khong Low (Dominic), is also a relevant player on the side of the Frank faction, but is not a party. 

1. The two opposing factions are set out in the table below.

George faction	Frank faction
George	Frank
Maureen (George and Frank’s sister)	Pooi (Frank’s wife)
Han (Robert’s son and George’s nephew)	Lynn (Frank’s daughter)
Ian (Frank’s son)

1. Father was a successful businessman in Malaysia. He made various investments in Malaysia, primarily through Sharikat Ying Mui Sdn Bhd (SYM), a company which he founded. The business interests of SYM included acting as a financier to four pawnbroking businesses at high interest rates, investments in shares in those pawnbroking businesses, and property investments in commercial, industrial and retail properties throughout Malaysia, combined with trading in gold and jewellery, and general trading.

1. SYM is a private limited company incorporated in Malaysia on 26 September 1968.  The original subscribers of SYM’s shares were Father and Mother, each holding one share.

1. SYM owned shares in four pawnbroking companies incorporated and operating in Malaysia (collectively the pawnshops).

1. The commercial activities of SYM generated wealth and prosperity for the Hoh family.

1. Father gave each of his children shares in SYM.  This gave them an entitlement to dividends — as SYM did not act as a trustee.

1. In 1986, George took over the management of SYM, as Father was 84 years old and had suffered a series of strokes.  Father died in 1988.

1. Before his death, Father endeavoured to set up a structure to ensure that the family wealth would be applied for the benefit of present and future generations of the broader Hoh family.  The Frank faction describe this as the ‘benevolent purpose’, which they contend governed the Australian investments described below (the benevolent purpose contention).  After referring to the evidence on this issue, including quoting excerpts from SYM’s articles of association and Father’s final instructions in a supplement to his will,[5] the trial judge accepted that Father: ‘intended to set up SYM as his “living will” and legacy … to provide financial assistance and support to members of the broader Hoh family’.[6] 

   [5]First Reasons [35]–[42].

   [6]First Reasons [43].

1. While accepting that these were Father’s intentions, the judge found that they were not able to be put into effect after Derek and Richard split from the other family members.[7]  This finding is referred to here because of its importance to the overall disposition of the issues.  In summary, the Frank faction contends that the benevolent purpose continued and, as a result, their conduct which the trial judge characterised as a dishonest asset sale scheme was in substantial part undertaken for a proper purpose, namely, to further the benevolent purpose.

   [7]First Reasons [44], [83]–[90].

1. We return to the factual summary.  In 1986 Father and his wife purchased a property in Sydney known as the ‘Red House’ through a company which later changed its name to Ying Mui Pty Ltd.  The Red House was occupied by Richard.  Without consulting other family members, Richard sold the Red House in 1997 or 1998 and net sale proceeds of about $1 million were realised.  At the time of this sale, Ying Mui was not acting as a trustee, and its shares were owned by Mother, Richard and George. 

1. By July 1998, the shareholders in Ying Mui had become Robert, Maureen, Derek, George, Frank and Richard.  Following disputes between Frank, Robert and George on the one side and Richard and Derek on the other side, Derek and Richard ceased to be shareholders in Ying Mui by April 2001 — in return for cash payments representing their shares of the proceeds of sale of the Red House.[8] 

   [8]First Reasons [83]–[89].

1. Frank and Lynn were the only directors of Ying Mui from July 2000 until December 2011 when, as a result of the current dispute, George, Hoh and Maureen were appointed as majority directors.

1. Ying Mui did not carry on any business, or make any investments, until after Richard and Derek ceased to be shareholders by April 2001. 

1. At this time, Ying Mui held about $600,000 on cash deposit, representing the remaining sale proceeds of Red House after paying out Richard and Derek.  Further funds were later advanced to Ying Mui, as discussed below.

1. Ying Mui then commenced purchasing property in Victoria. 

1. Then, on 6 July 2001, Frank established the Ying Mui discretionary trust for tax reasons.  That trust was then used for the purpose of investing in Australian real estate.  Frank, George, Robert and Maureen, and companies associated with Frank, George and Robert were named as ‘specified beneficiaries’.  One of the specified beneficiaries is Lokit Pty Ltd, a company owned and controlled by Frank, his wife Pooi, and his son Ian.  The ‘general beneficiaries’ of the Ying Mui trust included all members of the broader Hoh family. 

1. In April 2002, Maureen ceased to be a shareholder in Ying Mui.  Unlike Derek and Richard, Maureen did not receive a cash payment, but she was provided with an assurance by Frank, in a letter of comfort dated 31 May 2002 — written on behalf of him, Robert, and George — that she and her husband would continue to benefit from Ying Mui.

1. Next, on 30 June 2002, Amore Pty Ltd — a company wholly owned by Ying Mui and controlled by Frank and Lynn as its only directors — was appointed as trustee of the Amore discretionary trust. As with the beneficiaries of the Ying Mui trust, the specified beneficiaries included Frank, Robert, George and Maureen, and companies associated with the three brothers,[9] and the general beneficiaries included all members of the broader Hoh family. Again, the Amore trust was used to invest in real property in Australia.

   [9]Pooi, Lynn and Ian were also specified. 

1. Robert died on 24 December 2007.  On 27 April 2009, his shares in Ying Mui were transferred to his son Han.  From that time, the shareholders in Ying Mui were George, Han and Lokit (representing Frank).

1. On 11 November 2009, Olrey Pty Ltd was incorporated, with Frank and his wife Pooi holding one third of the issued shares; a company owned by Frank and his children, Lynn and Ian (Linjoshan Pty Ltd), holding another third; and the remaining third was held by a Malaysian company (Beaustate Sdn Bhd) associated with George.  Frank and Pooi were appointed directors of Olrey.  Later, on 18 July 2011, Lynn was appointed a director.[10]

   [10]Frank and Pooi have since ceased to be directors, but that is not relevant to the issues in dispute.

1. On 23 December 2009, Olrey was appointed as trustee of the FRG Investments trust.  Specified beneficiaries were Frank, Lynn, Ian, George, George’s son Braden, Han, Maureen, Ying Mui — and entities associated with Frank, George and Han, including Lokit.  The general beneficiaries of that trust included all members of the broader Hoh family.  In that capacity, Olrey acquired real estate in Victoria.

1. The company and trust structures set out above involved Frank having effective control of Ying Mui, Amore and Olrey, and the three trusts of which they were trustees.  Frank was a director of the three companies, supported by his daughter Lynn — and his wife Pooi in Olrey.  The evidence as a whole shows that all decisions were made by Frank.  Further, Frank arranged that he was the sole appointor of each of the three trusts. 

1. One of the properties acquired by Ying Mui was ‘the Hampton property’.  Between 2003 and 2009, Ying Mui developed and sold residential units in that property, save for unit 10.  Unit 7 was transferred to Frank at cost in return for his role in managing the purchase, development and sales.[11]

   [11]Second Reasons [344].

1. As at March 2010, the Australian assets of the three trusts consisted of the following real estate:[12]

   [12]First Reasons [176]–[178].

(1)       Ying Mui trust: a Glen Waverley property, a Sydenham property, a Docklands property, a Wantirna South property, unit 10 of the Hampton Street property, and lot 201 and lot 202 (lot 202) of the Hampton Street property.

(2)       Amore trust: ‘Knox properties’.[13]

(3)       FRG Investments trust (Olrey): Camberwell property.

[13]Two properties in Wantirna South; see First Reasons [177].

1. Since March 2010, the trusts have sold all properties except Glen Waverley (Ying Mui) and Camberwell (FRG/Olrey).  In 2014, the Amore trust purchased a property in Pakenham.  That purchase was partly funded by the sale of the Knox properties.[14]

   [14]First Reasons [177], [288].

1. At all relevant times after the Ying Mui trust was established in 2001:

(1)       Frank resided in Melbourne, was a director of each trustee company and managed the day to day operation of the three trusts;[15]

[15]Second Reasons [148].

(2)       George, Robert and Han resided in Malaysia, where George was in effective control of SYM;

(3)       Maureen resided in Adelaide and had no day-to-day management role in the companies or trusts,

(4)       Frank communicated regularly with George and Robert regarding the trusts’ investments;[16]

[16]First Reasons [166]–[179], [186], [190].

(5)       Frank requested George, and occasionally Robert, to send funds from Malaysia to fund the investments;[17]

(6)       Frank arranged bank finance to fund the investments;[18] and

(7)       Frank provided a range of services to the three trusts, including the provision of his and Pooi’s personal guarantees — supported by a mortgage over their home — in respect of bank finance for investments.

[17]First Reasons [225]–[226].

[18]First Reasons [225]–[226].

1. In mid-2010 Frank and George fell into dispute.  The dispute arose from Frank’s complaints regarding George’s management of SYM.[19]

   [19]First Reasons [440].

1. There quickly followed correspondence between Frank and George airing their differences.  Frank adopted the position that he would proceed to sell all of the assets of ‘YM Australia’ and distribute the proceeds (without saying how); and that he expected George would ‘do likewise’ with the three brothers’ investments in the Malaysian pawnshop businesses, through their jointly owned company FRG Investments Ltd (FRG).[20]

   [20]First Reasons [440]. The shares in FRG were held equally by Frank, Robert (later Han) and George.

1. Lynn then intervened in an endeavour to bring about a ‘less disruptive solution to achieve my dad’s desire to exit from SYM and continue with YMA on his own’.  With Frank’s authority, Lynn wrote to George proposing an ‘asset swap’ to resolve the dispute (asset swap proposal)[21] — which involved the following key elements:

   [21]First Reasons [442].

(1)       The Frank faction and related entities would give George and Han all of their shares and dividend rights in SYM and the related entities and businesses in Malaysia, and would release a loan which was owing to Frank.

(2)       In exchange, George and Han would give the Frank faction all of their interests in Ying Mui and related entities in Australia; procure that they and all related beneficiaries and trusts in Australia would relinquish any future claim to the assets of the three trusts; and would arrange to remove Frank as a personal guarantor of loans made to SYM and associated entities.

(3)       On completion of the above elements, Frank would resign as a director of SYM and a related Malaysian company — Tonkhin.  Further, the Frank faction would withdraw its deposits in the Malaysian pawnshops when the pawnshops had sufficient funds to repay those deposits, and in the meantime would be paid a ‘normal rate’ of interest rather than the existing ‘shareholders’ preferential rate’.

1. Unfortunately for all concerned, George and Han did not accept this proposal.  Han responded on his and George’s behalf and proposed a family meeting to resolve the outstanding issues between Frank and George so that: ‘these issues can be discussed and resolved without the break-up of SYM, FRG and YMA (Ying Mui Australia)’.[22]  Lynn’s response on behalf of her father was swift and firm.  By letter dated 31 July 2010, she rejected the proposed meeting and stated that the dispute was ‘past the point of discussion’ because: ‘MY DAD HAS MADE HIS DECISION — in his words, he wants “out” of all business associations with the extended Hoh family’.[23] 

   [22]First Reasons [443].

   [23]First Reasons [444].

1. Lynn said in her letter that her proposal: ‘was a “cleaner” solution to my dad’s initial intentions to effectively wind up all these businesses with a view to distributing the proceeds to relevant parties’,[24] and continued: ‘[t]he only decision that needs to be made here is by you and uncle George — whether you want to accept my proposal as set out in my letter, or take your chances with what my dad will do if you reject my proposal’.[25]  She set a deadline of 6 August 2010 for acceptance of her proposal and, on Frank’s instructions, threatened that he would ‘do it his way’ if the proposal was not accepted by that time.[26]

   [24]First Reasons [444].

   [25]First Reasons [444].

   [26]First Reasons [444].

1. George and Han did not accept the asset swap proposal.  They continued to press for a meeting to discuss the outstanding issues.

1. 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]. 

1. 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].

1. 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].

1. 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].

1. On receipt of the 12 October 2011 letter, George, Han and Maureen took steps to try and prevent the threatened sales of the assets of the Ying Mui trust.  On 21 October 2011, their solicitors requisitioned a general meeting of Ying Mui for the purposes of considering resolutions that Lynn, Pooi and Ian be removed as directors; and George, Han and Maureen be appointed in their place.  The letter also stated that they objected to the proposal in the 12 October 2011 letter to sell the assets of the Ying Mui trust.[38]  It is likely that this letter caused or contributed to the sale of lot 202 on 28 October 2011.

   [38]First Reasons [479(a)].

1. On 11 November 2011, Lynn gave notice of a general meeting of Ying Mui to consider the resolutions proposed by George’s solicitors.[39]  By letter dated 17 November 2011, Lynn stated on behalf of Ying Mui that it would ‘take no immediate steps to sell the Trust’s assets except where, in the opinion of the trustee, such a sale is reasonable in all the circumstances and in the best interests of the beneficiaries’.[40]  Again, given the sales that had already taken place — and the purpose of those sales as set out below — this letter can only be characterised as misleading.

   [39]First Reasons [479(b)].

   [40]First Reasons [479(c)].

1. Pending the shareholders meeting scheduled for 21 December 2011, Frank exercised his power as appointor of the Ying Mui trust to remove Ying Mui as trustee and appoint Frosthollow Pty Ltd, a company owned and controlled by Lynn,[41] as trustee with immediate effect.  The deed of removal and appointment was witnessed by Pooi and signed by Lynn.  Frank took this step because he knew that George and Han had the majority shareholding, that they would take control of Ying Mui, and that this would cause the asset sale process to cease.[42]

   [41]Second Reasons [512].

   [42]First Reasons [480].

1. Frank, Lynn and Ian then arranged for the unsold properties held by Ying Mui to be transferred to Frosthollow.[43]

   [43]First Reasons [481]–[482].

1. At the special general meeting of Ying Mui on 21 December 2011, George’s proposed resolutions were passed and George, Han and Maureen assumed the position as the majority directors.  Continuing their path of secretiveness, neither Frank nor Lynn disclosed to George and Han at the meeting that the asset sales had taken place, distributions had been made, or that Ying Mui had been replaced as the trustee of the Ying Mui trust.[44]

   [44]First Reasons [483].

1. On 23 December 2011, Frank caused Ying Mui to transfer its cash at bank of about $1 million to Frosthollow as the new trustee.[45]

   [45]First Reasons [484].

1. A similar pattern of transactions occurred in relation to the Amore trust.  Frank exercised his power of appointment to remove Amore as trustee and replace it with Frosthollow.  The trust assets were transferred to Frosthollow.  Lynn and Pooi were involved in these transactions.[46]

   [46]First Reasons [485]–[487]. 

1. By this time, Ying Mui had paid trust distributions of $1,443,753 to Lokit for the 2011 financial year.[47]  In 2012, Frosthollow distributed $1,012,904 to Lokit from the Ying Mui trust, and $20,000 each to children of Derek and Richard.[48]  In 2013, Frosthollow distributed $280,604 to Lokit from the Ying Mui trust, $50,000 to Derek, and $90,000 to children of Derek and Richard.[49]  These trust distributions were all funded by the net proceeds of the asset sale process.[50]

   [47]First Reasons [490].

   [48]First Reasons [490].

   [49]First Reasons [491].

   [50]First Reasons [493].

1. At a board meeting of SYM held on 3 September 2012, Frank and other board members (including Derek and Richard) passed a series of resolutions removing George and Han from their management positions within SYM — and appointing Lynn, Richard and Richard and Derek’s children in their place.[51]  Reading the minutes of this meeting as a whole, it is clear that Frank, Derek and Richard were by this time working together to exclude George and Han. 

   [51]First Reasons [492].

1. In December 2013, Frosthollow (as trustee of the Amore trust) sold the Knox properties for a total of $2.4 million, and (as trustee of the Ying Mui trust) sold the Wantirna South property for $1.1 million.[52]   The Amore trust used the net sale proceeds of the Knox properties to fund a $596,394 trust distribution to SYM and towards the purchase of another property.  The Ying Mui trust used the net sale proceeds to fund a $631,471 trust distribution to SYM.[53]  Although the trial judge made findings about the trust distributions to SYM, finding that they were made in breach of trust,[54] no relief was granted in respect of those distributions.[55]

   [52]First Reasons [488].

   [53]First Reasons [492].

   [54]Second Reasons [463].

   [55]Relief Reasons, Schedule A — Court’s Final Orders made 4 May 2018, Orders 8-11 (Final Orders), which concern monetary relief in respect of wrongful trust distributions in the 2011, 2012 and 2013 years only. 

1. Against this background, the trial judge framed a series of questions for determination at the trial, which may be referred to as the first, second and third tranche questions.  Some issues were not pressed at trial.  The trial judge considered each live question separately, answered it as part of the Court’s orders, and made necessary consequential declarations and orders.[56] 

   [56]Final Orders.

1. On the basis of the answers to the questions which remained for determination at the conclusion of the three tranches of the trial, the Court ordered as follows:

(1)       A new trustee be appointed to each of the three trusts and the trust assets be transferred to the new trustee.[57]

[57]Relief Reasons [49]–[55]; Final Orders [1]–[4].

(2)       Lokit, Frank, Lynn and Pooi pay equitable compensation to the new trustee in respect of:

(a)       the amount of the management fees paid by Ying Mui and Amore to Lokit; and

(b)      the trust distributions by Ying Mui and Amore in the 2011-2013 financial years, and interest.[58]

[58]Final Orders [5]–[11].

(3)       The sales of the Sydenham and lot 202 properties to Lumarkye be set aside and the properties retransferred to the new trustee of the Ying Mui Trust on the following terms:

(a)       a declaration that Lumarkye holds the properties on a constructive trust for the new trustee pending re-transfer; and

(b)      upon re-transfer, the new trustee repay to Lumarkye the purchase prices it paid for the properties.[59]

[59]Final Orders [12]–[15]; there was also a condition relating to Lumarkye obtaining a land tax clearance certificate and paying accrued land tax on the properties: Final Orders [12](a) and [14](a).

(4)       Lumarkye pay equitable compensation to the new trustee of the Ying Mui Trust for the amount of its net profits from ownership of the properties, such profits to be set-off against the new trustees’ liability to repay the purchase prices to Lumarkye.[60]

[60]Final Orders [16]–[17].

(5)       The Ying Mui and Amore management fee agreements be set aside.[61]

[61]Final Orders [18].

(6)       A declaration that Ying Mui is entitled to an indemnity out of the assets of the Ying Mui trust in respect of its liability to repay the shareholder loans from George and Robert, secured by an equitable lien over the assets of the trust.[62]

(7)       The counterclaim by the George faction be dismissed.[63]

(8)       Orders as to costs.[64]

[62]Final Orders [19].

[63]Final Orders [20].

[64]Final Orders [22]–[27].

1. As there is substantial overlap in the subject-matter of the questions which remain for consideration on appeal, we have grouped them together as follows:[65]

   [65]The Court is grateful to the parties for their assistance as to the topics to be addressed by these reasons.

(1)       What was the basis of the relationship between the shareholders in Ying Mui? In particular, did Ying Mui (as trustee) conduct its business for and on behalf of SYM for the purpose of furthering the benevolent purpose?[66]

[66]First tranche questions 1 and 2. 

(2)       Were the Malaysian advances to Ying Mui loans or capital contributions from SYM?  If the advances were loans, is Ying Mui entitled to an indemnity from the assets of the Ying Mui trust in respect of its liability to repay those loans?[67]  If the advances were capital contributions from SYM, did the Frank faction have standing to seek a declaration of a resulting or constructive trust in SYM’s favour? 

[67]First tranche question 1; Second tranche question 19.

(3)       In addition to his fiduciary and statutory duties to the three trustees, did Frank owe a fiduciary duty to George and Robert (and later Han), as the other shareholders in Ying Mui?[68]

[68]Second tranche question 1.

(4)       Did Frank make the asset sale and distribution decision, and implement that decision by the asset sale process?[69]

[69]Second tranche question 4.

(5)       Did Frank breach his fiduciary or statutory duties by causing Ying Mui and Amore to enter into management fee agreements?[70]  Did Lynn breach her fiduciary or statutory duties to Ying Mui by executing the Ying Mui management fee agreement?[71]  Did Pooi breach her fiduciary or statutory duties to Amore by executing the Amore management fee agreement?[72]

[70]Second tranche question 5.

[71]Second tranche question 7.

[72]Second tranche question 8.

(6)       Did Frank, Lynn, Pooi and Ian breach their fiduciary or statutory duties to Ying Mui or Amore by arranging, authorising or facilitating payments under their impugned management fee agreements?[73]  If so, did Lokit receive those management fees in the knowledge that they were paid from trust property in breach of trust or fiduciary duty?[74]

[73]Second tranche questions 6 and 9.

[74]Second tranche question 10.

(7)       Did Ying Mui (in 2011) and Frosthollow (in 2012–14) act in breach of trust in making trust distribution payments?[75]  If so, did Frank, Lynn or Ian knowingly procure those breaches?[76]  Did Lokit receive distributions in the knowledge that they were made in breach of trust?[77]

[75]Second tranche question 14.

[76]Second tranche question 14.

[77]Second tranche question 15.

(8)       Is Frank or Lokit entitled to a just allowance for managing the trusts?[78]

[78]Second tranche question 11.

(9)       As to the sale of the Sydenham and lot 202 properties by Ying Mui to Lumarkye:

(a)       Was that sale in breach of the Ying Mui trust?[79] 

[79]First tranche question 3. 

(b)      Did Lumarkye knowingly receive those properties in breach of trust?[80]

[80]First tranche question 3.

(c) Is the constructive trust claim against Lumarkye defeated by the indefeasibility provisions under s 42 of the Transfer of Land Act 1958?[81]

[81]Second tranche question 22.

(d)      What consequential orders should be made if a constructive trust is found?

(10)     As to the sales by Ying Mui of the Docklands property, unit 10 and lot 201 to third parties, did Frank, Lynn, Pooi and/or Ian breach their fiduciary or statutory duties to Ying Mui?[82]

[82]Second tranche question 12.

Summary of trial judge’s conclusions

1. The trial judge’s conclusions are contained in his answers to the questions set out above.  In his Second Reasons, the trial judge summarised his conclusions on the questions — as we have set them out above — in the following way.

1. Question 1: What was the basis of the relationship between the shareholders in Ying Mui? In particular, did Ying Mui (as trustee) conduct its business for and on behalf of SYM for the purpose of furthering the benevolent purpose?

1. Answer to Question 1: There was no legally binding investment agreement between Frank, George and Robert to undertake property investment in Victoria through the vehicle of Ying Mui.  ‘However, an arrangement or understanding for a joint endeavour arose and operated between Frank, Robert (later Han) and George between October 2001 and early 2010 for investment in property in Australia.  The arrangement or understanding was governed by the trust deeds of the three trusts and the control of the trusts was governed by the trustees of the trusts, namely by the Ying Mui, Amore and Olrey companies, managed in accordance with the applicable company constitutions and the corporations law.’[83]  Ying Mui’s property investment business was not conducted on behalf of SYM, or to further the benevolent purpose.[84]

   [83]Second Reasons [17]. See First Reasons [192]–[193].

   [84]First Reasons [360]–[361].

1. Question 2: Were the Malaysian advances to Ying Mui loans or capital contributions from SYM?  If the advances were loans, is Ying Mui entitled to an indemnity from the assets of the Ying Mui trust in respect of its liability to repay those loans?  If the advances were capital contributions from SYM, did the Frank faction have standing to seek a declaration of a resulting or constructive trust in SYM’s favour?

1. Answer to Question 2: The Malaysian advances were shareholder loans advanced by Frank, George and Robert to Ying Mui (the loans finding).[85]  As the loans were made to Ying Mui in its capacity as trustee, it is entitled to be indemnified from the assets of the Ying Mui Trust in respect of its liability to repay the loans from George and Robert (Frank making no claim).[86]  If the advances had been capital contributions from SYM, the Frank faction had no standing to seek relief in SYM’s favour.[87]

   [85]First Reasons [222]–[318].

   [86]Second Reasons [626]–[627].

   [87]First Reasons [345].

1. Question 3: In addition to his fiduciary and statutory duties to Ying Mui and Amore, did Frank owe a fiduciary duty to George and Robert (and later Han), as the other shareholders in Ying Mui?

1. Answer to Question 3: Yes, Frank owed a fiduciary duty not to pursue his interests in conflict with those of George and Robert (and later Han).[88]

   [88]Second Reasons [64]–[102].

1. Question 4: Did Frank make the asset sale and distribution decision, and implement that decision by the asset sale process?

1. Answer to Question 4: Yes, and the asset sale process was undertaken with the knowledge and approval of Pooi, Lynn and Ian.[89]

   [89]Second Reasons [109]–[112], [687].

1. Question 5: Did Frank breach his fiduciary or statutory duties by causing Ying Mui and Amore to enter into management fee agreements?  Did Lynn breach her fiduciary or statutory duties to Ying Mui by executing the Ying Mui management fee agreement?  Did Pooi breach her fiduciary or statutory duties to Amore by executing the Amore management fee agreement?

1. Answer to Question 5: Yes to each question.[90]

   [90]Second Reasons [113]–[120], [688] (Frank); [193]–[203], [696] (Lynn); [229]–[246], [700] (Pooi).

1. Question 6: Did Frank, Lynn and Pooi breach their fiduciary or statutory duties to Ying Mui or Amore by arranging, authorising or facilitating payments under their impugned management fee agreements?  If so, did Lokit receive those management fees in the knowledge that they were paid from trust property in breach of trust or fiduciary duty?

1. Answer to Question 6: Yes, each of them breached their fiduciary and statutory duties in this regard.[91]  Lokit received the payments with knowledge that they were made in breach of trust or fiduciary duty, and is thus liable as a constructive trustee to pay equitable compensation to Ying Mui and Amore.[92]

   [91]Second Reasons [121]–[184], [691]–[693], [703] (Frank); [262]–[277], [703] (Lynn, Pooi and Ian).

   [92]Second Reasons [281]–[297], [705]–[708].

1. Question 7: Did Ying Mui (in 2011) and Frosthollow (in 2012–14) act in breach of trust in making trust distribution payments?  If so, did Frank, Lynn or Ian knowingly procure those breaches?  Did Lokit receive distributions in the knowledge that they were made in breach of trust?

1. Answer to Question 7: In 2011, Frank, Lynn and Ian knowingly procured Ying Mui to make trust distribution payments to Lokit in breach of trust, and thereby knowingly assisted the trust breaches.  In 2012–14, Lynn knowingly procured Frosthollow (as trustee of the Ying Mui and Amore trusts) to make trust distribution payments to Lokit and others[93] in breach of trust, and thereby knowingly assisted those trust breaches.[94]  Frank, Lynn and Ian are liable to pay equitable compensation in the amounts of the trust distributions plus interest.[95]  Lokit received its part of such trust distributions with knowledge of the trust breaches, and is liable as a constructive trustee or to pay equitable compensation to Ying Mui in respect of those payments.[96]

   [93]Apart from Lokit, Lynn also procured Frosthollow to make trust distribution payments from the Ying Mui trust — to Jonathan Hoh, Alicia Briggs, Samantha Hoh, Derek Hoh, Leonard Hoh and Cordelia Hoh (ie to Derek and to his and Richard’s children); and from the Amore trust to SYM: First Reasons [489]–[494]; Relief Reasons [106].

   [94]Second Reasons [452]–[463], [712]–[713].

   [95]Relief Reasons [91]–[113], Final Orders [5], [6], [8]–[12].

   [96]Second Reasons [475]–[489], [714]–[715].

1. Question 8: Is Frank or Lokit entitled to a just allowance for managing the trusts?

1. Answer to Question 8: No.  Although Frank and/or Lokit provided valuable services, Frank’s dishonest behaviour disentitled him and Lokit to any allowance for their services.[97]

   [97]Second Reasons [298]–[357], [709].

1. Questions 9(a) and (b): Were the sales of the Sydenham and lot 202 properties by Ying Mui to Lumarkye made in breach of the Ying Mui trust?  Did Lumarkye knowingly receive the two properties in breach of trust?

1. Answer to Questions 9(a) and (b): Yes. The Sydenham and lot 202 properties were sold in breach of trust,[98] and Lumarkye received those properties knowing that they were transferred in breach of trust.[99]

   [98]First Reasons [574]; Second Reasons [42].

   [99]First Reasons [534]–[570]; Second Reasons [44]–[47].

1. Question 9(c): Is the constructive trust claim against Lumarkye defeated by the indefeasibility provisions under s 42 of the Transfer of Land Act 1958?

1. Answer to Question 9(c): No,[100] because Lumarkye’s registration was the result of fraud.[101]  Thus, Lumarkye holds the two properties on a constructive trust for Ying Mui.[102]

   [100]Second Reasons [725].

   [101]Second Reasons [654]–[679].

   [102]Second Reasons [680], [726].

1. Question 9(d): What consequential orders should be made if a constructive trust is found?

1. Answer to Question 9(d):  (1)  Lumarkye should re-transfer the two properties to the new trustee of the Ying Mui trust;  (2)  the new trustee of the Ying Mui trust should, subject to any adjustments to mould relief to do equity, repay the purchase prices to Lumarkye;[103]  (3)  Lumarkye is liable to account to the new trustee for its net profits from ownership of the two properties;[104] and  (4)  Lumarkye’s liability to account for its net profits should be set off against the new trustee’s obligations to repay the purchase prices to Lumarkye.[105]

   [103]Relief Reasons [1(d)], [56]–[80].

   [104]Relief Reasons [46], [64]–[74]. 

   [105]Final Orders [17].

1. Question 10: As to the sales by Ying Mui of the Docklands property, unit 10 and lot 201 to third parties, did Frank, Lynn, Pooi and/or Ian breach their fiduciary or statutory duties to Ying Mui?

1. Answer to Question 10: Yes, each of them breached their duties.[106]

   [106]Second Reasons [358]–[397], [710].

Key evidence on which judge’s conclusions were based

1. While the trial judge made many factual findings to support his conclusions as summarised above, there was some key evidence from Frank, Lynn and Ian — against the interests of the Frank faction — on which he placed much emphasis in reaching his conclusions.

1. First, Frank’s evidence as to the reasons why he made the asset sale and distribution decision and caused Ying Mui to commence and implement the asset sales process.[107]  Frank’s evidence in this regard was that, in the context of his dispute with George, he decided to implement the asset sales process because he wanted to:

   [107]First Reasons [449]–[459]; Second Reasons [110], [384]–[389].

(1)       repay the bank loans so as to eliminate his, and his wife Pooi’s, contingent liabilities under their personal guarantees;

(2)       pay management fees and trust distributions to Lokit; and

(3)       use the trust distributions as a ‘fighting fund’ to defend the inevitable legal action by George.[108]

We will refer to these objectives as Frank’s three objectives.

[108]See, eg, Second Reasons [350], [417] (Lynn).

1. Second, Frank’s evidence was that he intentionally concealed the asset sales process from George and Han, because he knew that they would try and prevent him implementing that process — ‘If I told them they would stop me straight away’.[109]

   [109]First Reasons [365].

1. Third, Frank’s evidence that he made a deliberate decision to prefer his and Lokit’s interests over those of Ying Mui:

You chose didn’t you to advantage your company, Lokit and yourself personally at the expense of Ying Mui, didn’t you? — As you have said in the last sentences, yes.[110]

[110]First Reasons [464], [514]–[515]; Second Reasons [385].

1. Fourth, Lynn’s evidence that she deliberately backdated the impugned management fee agreements, in circumstances where Frank admitted having taken the funds in Ying Mui’s bank account: ‘as quick as I could because they were coming to control the company and I wouldn’t have the opportunity to take my management fee’.[111]

   [111]First Reasons [459].

1. Fifth, Ian’s evidence was that the investments made in Australia were made for the benefit of Frank, George, Robert (Han) and Maureen, and not for any other members of the extended Hoh family.[112]

Proposed grounds of appeal[113]

[112]First Reasons [214].

[113]For convenience, these will be referred to simply as ‘grounds of appeal’.

1. The Frank faction and Lokit (collectively the ‘Frank faction’ where the context requires) rely on the following grounds of appeal:

1(a)The learned trial judge, after correctly finding that George, Frank (Frank) and Robert Hoh (the three brothers) intended to carry out their father’s wishes that the Hoh family’s Malaysian company, Sharikat Ying Mui (SYM), provide financial assistance to and support of members of all six branches of the Hoh family (the Benevolent Purpose) (First Reasons [41]), erred in finding that the three brothers changed their positions in 2001 (First Reasons [41], [44]), such that property investment in Victoria undertaken by them using funds obtained directly or indirectly from SYM and funds borrowed commercially by the trustees was only for their own exclusive benefit rather than for the broader Hoh family (First Reasons [196]).

1(b)The learned trial judge should have found that, at all relevant times, the  three brothers undertook property investment in Victoria using funds obtained directly or indirectly from SYM for the benefit of SYM and the broader Hoh family pursuant to the Benevolent Purpose.

2(a)The learned trial judge erred in finding that there was an arrangement or understanding for a joint endeavour between the three brothers between October 2001 and early 2010 (First Reasons [192]), which joint endeavour was not alleged by any party, was contrary to compelling inferences and was against the weight of the evidence and which was in conflict with the learned trial judge’s findings that the Victorian investments were governed by the trust deeds of the trusts holding the Victorian investments.

2(b)The learned trial judge should have found that, at all relevant times, the three brothers undertook property investment in Victoria using funds obtained directly or indirectly from SYM and borrowed commercially by the trustees for the benefit of SYM and the broader Hoh family pursuant to the Benevolent Purpose.

3(a)The learned trial judge erred in finding that Frank owed fiduciary duties to George and Robert as parties to a joint endeavour in respect of the Victorian investments (Second Reasons [93], [100]) in addition to owing fiduciary and statutory duties to the trustee companies of which he was a director holding the Victorian investments.  Such finding was an error of law.

3(b)The learned trial judge should have found that Frank did not owe separate fiduciary duties to George and Robert.

4(a)The learned trial judge erred in finding that the first to fourth defendants below did not have standing to seek declaratory relief in favour of SYM (First Reasons [345]).  Such finding was an error of law.

4(b)The learned trial judge should have found that the first to fourth defendants had standing to seek declaratory relief in favour of SYM.

5(a)The learned trial judge erred in finding that the financial records of Ying Mui accurately reflected loan transactions by the three brothers (First Reasons [236]).  Such finding was not reasonably open on the evidence, was glaringly improbable, against the weight of the evidence and was contrary to compelling inferences.

5(b)The learned trial judge should have found that the financial records of Ying Mui were not accurate in that the three brothers did not borrow funds directly or indirectly from SYM to invest on their own account through trusts in Australia.

6The learned trial judge erred in finding that Ying Mui was indebted to George Hoh in respect of the First Loan and to Han Hoh in respect of the Second Loan (Second Reasons [625]), and that such loans were secured by an equitable lien over the assets of the Ying Mui trust (Second Reasons [627]).  The learned trial judge should have found that there were no such loans.

7(a)The learned trial judge erred in finding that:

(i)the money remitted to Australia from Malaysia was the subject of loans advanced to the three brothers by SYM or other entities; and which

(ii)money was on-lent by the three brothers as loans by them to the Ying Mui Trust, Amore Trust and the FRG Investments Trust (First Reasons [293]).

Such findings were not reasonably open on the evidence, against the weight of the evidence, glaringly improbable and contrary to compelling inferences.

7(b)The learned trial judge should have found that the money remitted to Australia from Malaysia was money beneficially owned by SYM remitted by SYM for investment in Australia by property purchases by Ying Mui and Amore for the trusts.

8Having regard to the objective evidence concerning the money remitted from Malaysia to Australia, the learned trial judge erred in not finding a resulting trust and/or constructive trust arose in favour of SYM in relation to the Victorian trust assets.

9(a)Having found that the investments by the trusts in Victoria were governed by the trust deeds of the trusts (First Reasons [188]) the learned trial judge erred in finding that the directors of Ying Mui and Amore breached their fiduciary and statutory duties and/or knowingly assisted in breaches of trust by passing resolutions and other conduct including entry into and implementation of the impugned Ying Mui and Amore agreements and making the impugned payments and distributions and in relation to selling various trust properties, and paying management fees to Lokit.

9(b)The learned trial judge should have found such conduct was a valid exercise by the directors of their powers and by the trustees of their powers and discretion and did not result in any breach of trust, misuse of directors powers and/or breach of fiduciary or statutory duties.

10(a)Whether or not there were breaches of duty by Frank, the learned trial judge erred in finding that Frank was not entitled to a just and fair allowance in equity and/or remuneration for the services he and Lokit provided to the three Australian trusts over many years (Second Reasons [357]), remuneration having been previously agreed.

10(b)Whether or not there were breaches of duty by Frank, the learned trial judge should have found that Frank was entitled to a just and fair allowance in equity and/or remuneration for the services he and Lokit provided to the three Australian trusts over many years.

11(a)The learned trial judge erred in finding that Frank, Ian Hoh and Lynn Hoh (Lynn) were knowingly involved in and assisted a breach of trust by Ying Mui in making the 2011 distribution (Second Reasons [473]) and that Lynn was knowingly involved in and assisted breaches of trust by Frosthollow in making the 2012, 2013 and 2014 distributions (Second Reasons [474]) and Lokit knowingly received trust property being such distributions (Second Reasons [488]).

11(b)The learned trial judge should have found there were no such breaches.

1. Lumarkye relies on the following grounds of appeal:

1His Honour erred in finding[114] that the applicant knowingly acquired or received the Sydenham property and Lot 202 in late 2011 as the result of or in the course of a breach of trust in relation to the Ying Mui Trust (of which the first respondent was then trustee) in circumstances where:

[114]First Reasons [512]–[533]; Final Orders [13], [15]; answers to first tranche question 3 and second tranche question 22.

(a)the applicant paid above full market value for each property, and

(b)the entire funds paid by the applicant were used by the first respondent trustee to repay properly incurred trust debts which were then due to be repaid. 

2His Honour erred in finding[115] that the proceeds of sale of either the Sydenham property or Lot 202 to the applicant in 2011 were diverted to Lokit Pty Ltd (the fifth defendant below) by Frank Hoh and Ian Hoh (the first and fourth defendants below) as part of a fraudulent scheme to obtain a direct personal advantage in breach of fiduciary duty by misappropriating trust property of the Ying Mui Trust. 

3His Honour erred in finding[116] that the Ying Mui Trust had suffered any compensable detriment by reason of the sale of the Sydenham property and Lot 202 to the applicant for above full market value and the use of the proceeds by the first respondent trustee to repay properly incurred trust debts that were due to be repaid.

4His Honour erred in finding[117] that the applicant was a party to equitable or legal fraud or moral turpitude in relation to the acquisition of the Sydenham property or Lot 202, so as to prevent it obtaining indefeasible title to those properties pursuant to s 42 of the Transfer of Land Act 1958 (Vic).

5His Honour erred in finding[118] that it was unconscionable for the applicant to continue to hold legal and beneficial ownership of the Sydenham property and Lot 202 and imposing a constructive trust in circumstances where the applicant paid above full market value for the properties, and the amounts the applicant paid were used by the first respondent trustee to repay properly incurred trust debts which had to be repaid in late 2011 in any event. 

6His Honour erred in finding[119] that the applicant was liable as a constructive trustee of the Sydenham property and Lot 202 as a “knowing recipient” of them, in circumstances where the properties were not alienated by the first respondent as trustee of the Ying Mui Trust in breach of trust and the applicant paid above full market value for the properties and the funds it paid were used by the trustee of the Ying Mui Trust for the proper purpose of repaying properly incurred trust debts which were due to be repaid in late 2011. 

7His Honour erred in finding[120] that the applicant was not entitled to retain any profits it had made from its ownership of the Sydenham property and Lot 202, and was liable to allow or repay the sum of $530,293.20 to the respondents in respect of the properties.

8Further and alternatively, His Honour erred in finding[121] that the Ying Mui Trust was not obliged to pay interest to the applicant on the purchase monies it received for the Sydenham property and Lot 202 in 2011, and was not entitled to claim any amounts as a ‘just allowance’.

[115]First Reasons [527]–[533].

[116]First Reasons [527]–[533].

[117]Second Reasons [679], [725]; Final Orders [13], [15]; answer to second tranche question 22.

[118]Second Reasons [680], [726]; Final Orders [13], [15]; answer to second tranche question 22.

[119]Second Reasons [680], [726]; Final Orders [13], [15]; answer to second tranche question 22.

[120]Relief Reasons [46]–[48], [64]–[80]; Final Orders [16].

[121]Relief Reasons [56]–[63]; Final Orders; answers to third tranche question 4.

1. By their notices of contention, George, Han, Ying Mui, and Amore (who for convenience we will refer to as the George faction) seek to support the trial judge’s conclusions on the following alternative bases:

1The finding of the trial judge that Frank Hoh (Frank) acted in breach of his fiduciary duties in authorising and effecting the sale of the properties located at 530 Melton Highway, Sydenham (Sydenham Property) and Lot 202, 440A Hampton Street, Hampton (Lot 202) to Lumarkye Pty Ltd (Lumarkye)[122] should be affirmed on the additional basis that Frank had a conflict of interest given that:

[122]First Reasons [512]–[517].

(a)Dominic Low (Dominic) was married to his daughter Lynn Hoh (Lynn) and a director and shareholder of Lumarkye;

(b)Frank and his wife, Pooi Hoh, guaranteed the loan taken out by Dominic to fund the acquisition of the Sydenham Property;

(c)50% of the purchase price of the Sydenham Property was paid by Lumarkye from funds which Frank had misappropriated from Ying Mui and then transferred to Lokit Investments Pty Ltd (Lokit) and then Lynn, before Lynn then transferred those funds to Lumarkye; and

(d)upon the request of Lynn, Frank arranged for Lokit to provide funds to Dominic to enable Lumarkye to pay 50% of the deposit required for the purchase of Lot 202.

2The finding of the trial judge that Lynn was the key instrument and directing mind and will of Lumarkye in effecting the sale transactions of the Sydenham Property and Lot 202[123] should be affirmed on the additional basis that Lynn was actively involved in arranging and providing to Dominic, and procuring from Frank and Lokit, the funds used by Lumarkye to purchase the Sydenham Property and Lot 202.

3The finding of the trial judge that Lumarkye was not entitled to be paid a “just allowance” in respect of legal fees it incurred in the proceeding below[124] should be affirmed on the additional basis that Lumarkye acquired and retained ownership of the Sydenham Property and Lot 202 in its capacity as trustee of the Whoolshed Unit Trust, but did not incur any such legal fees in its capacity as trustee of that trust.

4The finding of the trial judge that Frank Hoh (Frank) acted in breach of his fiduciary duties in authorising and effecting the sale of the properties located at 530 Melton Highway, Sydenham (Sydenham Property) and Lot 202, 440A Hampton Street, Hampton (Lot 202) to Lumarkye Pty Ltd (Lumarkye)[125] should be affirmed on the additional basis that Frank had a conflict of interest given that:

(a)Dominic Low (Dominic) was married to his daughter Lynn Hoh (Lynn) and a director and shareholder of Lumarkye;

(b)Frank and his wife, Pooi Hoh, guaranteed the loan taken out by Dominic to fund the acquisition of the Sydenham Property;

(c)50% of the purchase price of the Sydenham Property was paid by Lumarkye from funds which Frank had misappropriated from Ying Mui and then transferred to Lokit Investments Pty Ltd (Lokit) and then Lynn, before Lynn then transferred those funds to Lumarkye; and

(d)upon the request of Lynn, Frank arranged for Lokit to provide funds to Dominic to enable Lumarkye to pay 50% of the deposit required for the purchase of Lot 202.

[123]First Reasons [550].

[124]Relief Reasons [61].

[125]First Reasons [512]–[517].

1. There is significant overlap in the grounds of appeal and notices of contention, each of which is dealt with in answering the questions for determination set out above at paragraph 56, and forming the headings below.  Before considering the questions, it is first necessary to say something about the principles to be applied in considering an appeal against a trial judge’s findings of primary fact, and inferences drawn from primary facts.  This is because many of the grounds of appeal seek to challenge factual findings and inferences. 

Legal principles: challenges to factual findings and inferences

1. Before turning to the principles to be applied, we note the context in which the trial judge made factual findings.  This was a hard-swearing case involving heavy credit attacks.  In such circumstances, although an appeal court is required to conduct a ‘real review’ of the evidence given at first instance and of the trial judge’s reasons for judgment in determining factual questions, an appeal court should not interfere with a judge’s findings of primary fact unless they are demonstrated to be wrong by ‘incontrovertible facts or uncontested testimony’, or they are ‘glaringly improbable’ or ‘contrary to compelling inferences’.[126]

   [126]Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550, 558–9 [43] (‘Robinson’) (citations omitted). 

1. There is, however, a distinction with respect to appellate review of findings of primary fact and inferences to be drawn from evidence and findings of primary facts.[127]  In Bauer Media, this Court summarised the approach to be adopted by an appeal court when considering challenges to inferences in the following terms:

   [127]Bauer Media Pty Ltd v Wilson [No 2] (2018) 56 VR 674, 736–8 [272]–[276]; (‘Bauer Media’). 

For completeness, we should add this: the phrase ‘contrary to compelling inferences’ in Robinson [43], drawn from earlier authorities, should not be understood, in our opinion, as suggesting that an intermediate court of appeal may only set aside an inference if the inference itself is contrary to compelling inferences. That is not the history of the phrase.

Some, not all, of the decisions in this Court subsequent to Robinson were reviewed in Southern Colour.  There, this Court said:

On appeal, the Court is required to undertake a ‘real review’ of the evidence in respect of the findings made by the judge, and the reasons for the judge’s conclusions.  Where the finding, that is under review, depended on the acceptance or rejection by the trial judge of the evidence of a particular witness or witnesses, the appellate court should only set aside that finding if, after making due allowance for the advantages enjoyed by the trial judge, that finding is ‘glaringly improbable’ or ‘contrary to compelling inferences’.  On the other hand, in general, an appellate court is in as good a position as the trial judge to decide the proper inferences to be drawn from facts which are undisputed, or which have been established by the evidence.  In deciding the proper inference to be drawn, the appellate court should, however, give respect and weight to the conclusion of the judge, but, having reached its own conclusion, it must give effect to it.

Some, not all, of the decisions in this Court subsequent to Robinson were also reviewed in Geary.  The Court said this:

The better view seems to be that Robinson Helicopter governs the approach that should be taken to appeals on questions of fact that involve challenges to findings of fact based substantially upon the credibility of witnesses who have testified during the trial.  Once the primary facts have been established, however, the question whether particular inferences should be drawn from those established facts is a matter as to which an appellate court is generally in as good a position as a trial court to consider for itself.  The strictness with which Robinson Helicopter approaches findings of primary fact is not applicable to purely inferential reasoning. 

In Geary, the Court went on to observe that in some cases the admixture of findings of primary facts and inferences might be such as to complicate the necessary analysis.  That possible complication was not a complication in the present case… [128]

[128]Ibid [273]–[276] (citations omitted).

1. More recently, in Lee v Lee,[129] Bell, Gageler, Nettle and Edelman JJ said:

A court of appeal is bound to conduct a ‘real review’ of the evidence given at first instance and of the judge's reasons for judgment to determine whether the trial judge has erred in fact or law.  Appellate restraint with respect to interference with a trial judge's findings unless they are ‘glaringly improbable’ or ‘contrary to compelling inferences’  is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence.  It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts.  Thereafter, ‘in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge’.[130]

[129][2019] HCA 28.

[130]Ibid [55] (citations omitted).

1. This case does involve ‘the admixture of findings of primary facts and inferences’, referred to in Australian Securities & Investments Commission v Geary.[131]  In Geary, this Court considered a case involving ‘a blend of findings of fact that stem directly from the evidence given in Court by various witnesses, and the inferences that were sought to be drawn from primary facts thereby established; and involves inferences that were sought to be drawn from the numerous documents that were tendered’.[132]  The Court in Geary described a ‘real review’ of the evidence in such circumstances as one which ‘can be extremely difficult’.[133]  This case also involves a blend of factual findings and inferences arising from oral and documentary evidence, requiring a real review of the evidence.  The Court has, however, been assisted by very detailed factual findings by the trial judge, supported by a thorough review of the oral and documentary evidence. 

   [131](2018) 126 ACSR 310 (‘Geary’). 

   [132]Ibid 344 [224].

   [133]Ibid.

1. At the outset of the First Reasons, the trial judge stated his approach to the fact finding task in the following general terms:

Approach to this proceeding

Having regard to the lengthy period which has elapsed since the occurrence of so many of the events in question, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In this context, the subjective interpretation the parties placed on the meaning, significance and effect of the objective evidence, must be approached with caution.[134]

[134]First Reasons [13].

1. The trial judge then referred to the approach that a court should adopt in drawing inferences where there is no direct evidence of a fact, by extensively quoting from this Court’s decision in Nolan v Nolan.[135]  In the passage quoted from Nolan, the Court emphasised that, when drawing inferences from ‘various items of indirect evidence’, a court must ‘consider the combined or cumulative effect of the evidence.’[136]  The Court in Nolan also referred to the judgment of Tadgell JA in Transport Industries Insurance Co Ltd v Longmuir,[137] that, in both civil and criminal cases where direct proof of a fact is not available, the Court (in a civil context) should stand back and consider the evidence as a whole:

where direct proof of the disposition contended for is not available, [the task] is to ascertain … whether the evidence paints a picture [‘]to be derived from an accumulation of detail.  The overall effect of the detailed picture can sometimes be best appreciated by standing back and viewing it from a distance, making an informed, considered, qualitative appreciation of the whole…’.[138]

[135][2004] VSCA 109 [119]–[121] (‘Nolan’). 

[136]Ibid [120].

[137][1997] 1 VR 125 (‘Longmuir’).

[138]Nolan [2004] VSCA 109 [120], quoting Longmuir [1997] 1 VR 125, 141.

1. Having set out this approach to the drawing of inferences, the trial judge continued: ‘I have approached the task of assessing the items of evidence and arriving at the conclusions expressed in these reasons by considering the evidence in its totality’.[139]  Reading the trial judge’s reasons as a whole, it is apparent that he faithfully applied that approach.  We will do the same, much assisted by the detailed reasons and the submissions, particularly the written cases, of the parties. 

Question 1: What was the basis of the relationship between the shareholders in Ying Mui?  In particular, did Ying Mui (as trustee) conduct its business for and on behalf of SYM for the purpose of furthering the benevolent purpose?[140]

[139]First Reasons [16].

[140]First tranche questions 1 and 2.

1. This question concerns the basis on which George, Frank and Robert undertook property investment in Victoria through the vehicle of Ying Mui.  The trial judge decided that there was an arrangement or understanding between the three brothers for a ‘joint endeavour [joint endeavour] … for investment in property in Australia’[141] (joint endeavour finding).  This answer involved rejection by the trial judge of the Frank faction’s benevolent purpose contention — that the property investment activities in Australia were undertaken on behalf of SYM in order to further the benevolent purpose — [142] and also involved rejection of the George faction’s case that there was an enforceable joint investment agreement between the three brothers on specific terms.[143]

   [141]First Reasons [192].

   [142]First Reasons [196]–[215].

   [143]There is no cross-appeal against this finding.

1. In further answer to the first question, the trial judge concluded that the joint endeavour was an ‘arrangement or understanding [which] was governed by the trust deeds of the three trusts and the control of the trusts was governed by the trustees of the trusts … managed in accordance with the applicable company constitutions and the corporations law’.[144]  Further, it was in that capacity that the property investments were undertaken by the three trusts.[145]  Neither side seeks to challenge those conclusions. 

   [144]First Reasons [193].

   [145]First Reasons [194].

1. The first question was central to the trial judge’s determination of many of the issues in this case.  In simple terms, the judge had to decide whether Ying Mui was carrying on business for the benefit of the three brothers and Maureen, as a family faction separate from Derek and Richard; or whether it was carrying on business for the benefit of SYM, so as to further the benevolent purpose and benefit the family as a whole.  In our view, the answer to this question necessarily involves answering the second question, as to whether Ying Mui was, apart from external bank finance, funded by the three brothers or by SYM.  Given the interplay between the first and second questions, we consider that they cannot be answered in isolation.  For the reasons given below in answering the second question, we conclude that the three brothers funded the Australian investments by loans from them, and that no capital advances were made by SYM towards any of the Australian property acquisitions.  As will appear, this is an important factor supporting our conclusion that the trial judge was correct to reject the benevolent purpose contention and find, instead, that there was a joint endeavour under which the Australian investments were undertaken for the benefit of Frank, Robert, George and Maureen. 

1. The principal reason for the judge’s conclusion was that, although the benevolent purpose may have been relevant to Ying Mui’s purchase and holding of the Red House before the dispute arose between Frank, Robert, George and Maureen on the one hand, and Richard and Derek on the other, from the time Richard and Derek had surrendered their shareholdings in Ying Mui in 2001, Frank, Robert, George and Maureen were free to pursue investments in Australia on their own behalf using the ‘seed money’ arising from the remaining sale proceeds of the Red House.[146]  They did so by establishing the Ying Mui trust and naming each of them as specified beneficiaries; with the intention that they should benefit from the Australian investments — to the exclusion of Richard and Derek.  The trial judge considered that this conclusion was supported by the following matters.

   [146]First Reasons [197].

1. First, although Maureen gave up her shareholding in Ying Mui in 2002 for no cash payment, the letter of comfort from Frank, George and Robert expressed an intention that she and her husband would continue to benefit from the trust; as Maureen was a specified beneficiary of the Ying Mui trust.  Maureen was also later made a specified beneficiary of the Amore and FRG Investment trusts.  In contrast, as with the Ying Mui trust, Richard and Derek were only general beneficiaries.

1. Second, there was a consistent body of evidence, principally in the form of business records, which recorded both the intention to pay and the fact of payment of ‘dividends’ to the shareholders of Ying Mui.[147]  The three brothers continued to use this language after the Ying Mui trust was established.

   [147]First Reasons [206].

1. Third, there was a body of evidence which demonstrated that Frank, Robert and George consistently excluded Derek and Richard from all information concerning their investments activities in Australia through the three trusts; notwithstanding that Derek and Richard remained as shareholders in SYM.[148]

   [148]First Reasons [208]–[211].

1. Fourth, the evidence supported a finding that Frank, Robert and George were responsible for providing the funds for investment in Australia; and Richard and Derek — who continued to hold beneficial interests in SYM — provided no funds and were completely unaware of the status of the Australian investments.[149]

   [149]First Reasons [213(a)].

1. Fifth, the correspondence between Frank and George pointed to Frank considering the Australian investments by Ying Mui were made for the benefit of him, Robert and George.[150]

   [150]First Reasons [213(b)].

1. Sixth, the asset swap proposal was inconsistent with any members of the extended Hoh family, or SYM, having any interest in the assets of the three Australian trusts.[151]

   [151]First Reasons [213(c)].

1. Seventh, when the dispute between the Frank faction and the George faction arose in 2010, Richard and Derek — who continued to be interested in SYM — had no involvement in endeavours to resolve that dispute.[152]

   [152]First Reasons [213(d)].

1. Eighth, Lynn’s 12 October 2011 letter was also inconsistent with the Australian investments being for the benevolent purpose.  The letter specifically stated that Frank had decided to sell the assets of the trusts ‘for distribution among the beneficiaries’, and this strongly indicated that Frank considered the only other beneficiaries of the trusts to be George, Han and Maureen in their capacities as ‘the heads of [their] respective families, the members of whom, together with [Frank’s], comprised the beneficiaries of the Trust’.[153]  This was inconsistent with the general beneficiaries, especially Richard and Derek, being intended to benefit — at least without consent of Frank, George,  or Robert (Han) — in any substantial way.

   [153]First Reasons [213(e)].

1. Ninth, the trial judge relied on the oral evidence given by Ian at trial, which he characterised as ‘wholly inconsistent with the case of the [Frank faction] that investments were made in Australia for the benefit of the broader Hoh family’.[154]  In the trial judge’s view, this evidence assumed ‘greater weight where it was given against Ian’s own interest and that of his immediate family members’ [i.e. the Frank faction].[155]

Contentions

1. In summary, the trial judge based his conclusions on the following reasons:

(1) the two properties were sold by Ying Mui for the purpose of implementing the asset sale and distribution decision,[500] and that decision and its implementation should be characterised as an ‘underhand scheme designed to cheat’ George, Han and Maureen by depriving them of benefitting from the assets of the Ying Mui trust;[501] 

[500]Second Reasons [656].

[501]Second Reasons [657].

(2)       the scheme was underhand as it was concealed from George, Han and Maureen;[502] Lynn was involved in that intentional concealment;[503]

[502]Second Reasons [659]–[662]. 

[503]Second Reasons [661]–[662]. 

(3)       the two properties were valuable assets with the potential for long term growth, and thus likely to have been of long term benefit to the Ying Mui trust and its beneficiaries;[504] and

(4)       the driving motivation for the sale of the two properties was to further Frank’s personal interest.[505]

Contentions

[504]Second Reasons [665]–[672]. 

[505]Second Reasons [676].

1. On the basis that the Court upholds the findings that the sale of the two properties were in breach of trust and that Lynn was Lumarkye’s controlling mind for the purposes of its purchase of the two properties (as has transpired), Lumarkye nevertheless contends that Lynn’s conduct on its behalf was not dishonest.  First, Lumarkye contends that the two purchases were for full value — indeed for slightly more — following negotiations as to the price, and therefore cannot be characterised as dishonest.  Lumarkye contends that, in these circumstances, the Ying Mui trust suffered no detriment — it was not cheated of anything.  To the contrary, it was able to pay out a $3.5 million bill facility which was due for repayment. 

1. Second, Lumarkye contends that the judge’s finding of dishonesty was, even assuming Lynn well knew of the asset sale and distribution decision and Frank’s three objectives for making it, infected by the judge’s earlier mistake in confusing the application of the sale proceeds of lot 201 of the Hampton Street property with the application of the sale proceeds of lot 202. 

Analysis

1. We reject Lumarkye’s contentions.  They repeat contentions which have been made and rejected above, in finding that the two sales were in breach of trust.  We agree with the trial judge that the two sales occurred in the context of the implementation of the broader asset sale and distribution decision, that Lynn well knew of Frank’s three objectives, and that the two sales can properly be described as part of an underhand scheme designed to cheat George, Han and Maureen by depriving them of the benefit of the assets of the Ying Mui trust.  As we have already accepted, the two properties were valuable assets with the potential for long-term growth and thus likely to have been of long-term benefit to the Ying Mui trust and its beneficiaries. 

1. In considering this issue, we have taken into account that the trial judge found dishonesty in the context of a civil case, and that this is a particularly grave thing to do.  In the context of a civil case, a finding of dishonesty requires the Court to assess the evidence in light of what is commonly referred to as the Briginshaw standard,[506] which requires a court to take account of the gravity of the matters alleged and feel an actual persuasion before making a finding.  That does not, however, require the court to exclude every rational inference which is inconsistent with a finding of serious impropriety.[507]  While the trial judge did not make express reference to these accepted principles, it is clear from his thorough examination of the facts that he felt an actual persuasion that the conduct of Frank and Lynn was, considered as a whole, dishonest in the sense which he discussed and found.  As we have said, we agree with his conclusions and findings. 

Conclusion

[506]Briginshaw v Briginshaw (1938) 60 CLR 366, 361. See also NEAT Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170, 170-1; Evidence Act 2008 (Vic), s 140(2)(c).

[507]Chong v CC Containers Pty Ltd (2015) 49 VR 402, 418-23 [41]–[54].

1. For the above reasons, the trial judge was correct to hold that Lumarkye was the knowing recipient of property transferred to it in breach of trust, and thus held the two properties as a constructive trustee for the Ying Mui trust.  The trial judge was also correct to hold that Lumarkye was an integral part of an underhand scheme to cheat the Ying Mui Trust and its beneficiaries, with the result that it cannot rely on the indefeasibility provisions of the Transfer of Land Act 1958 (Vic).[508]

Question 9(d): What consequential orders should be made if a constructive trust is found?

1. By ground 8 of its appeal grounds, Lumarkye contends that the trial judge ‘erred in finding that the Ying Mui trust was not obliged to pay interest to [Lumarkye] on the purchase moneys it received for the Sydenham property and lot 202 in 2011, and was not entitled to claim any amounts as a “just allowance”’.  This ground concerns the form of the relief to be ordered as a consequence of the declaration that Lumarkye holds the two properties on a constructive trust for the new trustee of the Ying Mui trust. 

1. It seems to have been agreed that consequential orders should be made that:  (1)  Lumarkye re-transfer the two properties to the new trustee of the Ying Mui trust; and  (2)  the new trustee should, subject to any adjustments to mould the relief to do equity, repay the purchase prices paid to it by Lumarkye.[509]

   [509]Relief Reasons [1(d)], [56]–[80].

1. The trial judge held that Lumarkye was liable to account to the Ying Mui trust for the net profits it made from its ownership of the two properties.[510]  No appeal ground challenges that decision in the event that this Court upholds the constructive trust finding, as we have done.  The judge accepted expert evidence that the net profits were $530,293.20.[511]  That amount was calculated by deducting, from Lumarkye’s gross rental receipts, amounts including:  (1)  $526,481.98 in respect of interest payments by Lumarkye on its borrowings; and (2)  $61,339.15 for management fees paid by Lumarkye.[512] 

   [510]Relief Reasons [46], [64]–[74]. 

   [511]Relief Reasons [75]–[80]. 

   [512]Relief Reasons [62].

1. In his Final Orders, the trial judge ordered that the net profits of $530,293.20 be paid to the new trustee, but that such amount be set-off against the new trustee’s obligation to repay the purchase prices of the properties paid by Lumarkye upon re-transfer of the two properties.[513] 

   [513]Final Orders [17].

1. The judge considered Lumarkye’s contention that the Ying Mui trust should, in addition to repaying the purchase prices, pay Lumarkye interest on those amounts from the time of receipt (in 2011) to the time of repayment.  The trial judge held that no such interest was payable, as to order it would be to allow ‘double recovery’ to Lumarkye.  The trial judge’s reasons for this conclusion are brief and somewhat difficult to follow.[514]  Doing the best we can from the face of the Relief Reasons, it appears that the trial judge understood Lumarkye’s ‘just allowance’ claim to include two components:  (1)  $858,000 as interest on the purchase prices to be repaid;[515] and  (2)  Lumarkye’s legal expenses in defending the proceeding against it.[516] 

   [514]Relief Reasons [56]–[63]. 

   [515]Relief Reasons [56], [63]. 

   [516]Relief Reasons [61].

1. The trial judge refused to make any allowance for Lumarkye’s legal costs, stating that they would be ‘dealt with’ by his costs orders.[517]  That was plainly correct.  Following further argument, the trial judge ordered that Lumarkye pay the costs of the proceeding against it on a standard basis.[518]  There is no ground of appeal challenging that costs order. 

   [517]Relief Reasons [61].

   [518]Final Orders [26].

1. The trial judge refused to order that the new trustee pay interest on the purchase prices.  His short reasons were as follows: [519]

The expert witness called by Lumarkye on this issue was Mr Lipson. I accept the net profit calculation of $530,293.20 made by Mr Lipson. This net profit calculation already incorporates, as a deduction from the gross profit made by Lumarkye, interest payments of $526,481.98 actually incurred and management fees of $61,339.15.[520]

I do not accept that there is any proper basis for Lumarkye to recover an additional interest allowance above $526,481.98 which has already been taken into account in the profit calculation to Lumarkye’s benefit. I accept the submission of the Plaintiffs that to do so would be tantamount to allowing Lumarkye a double recovery, namely, as an interest expense it actually incurred (by way of $530,293.20, as a deduction from its gross profit which it will be required to disgorge for reasons which follow) plus a further interest expense (of $858,000, in the form of ‘just allowance’) to ‘compensate it’ for being ‘kept out of that money’.

[519]Relief Reasons [62]–[63] (citation in original). 

[520]Expert witness statement of Mark Lipson dated 14 March 2018 [8], [12].

1. Lumarkye’s written contentions in support of ground 8 are briefer than the judge’s reasons:

Further and alternatively, if constructive trust and disgorgement of profit relief was to be granted against Lumarkye, as a party that had not been unjustly enriched at the expense of the Ying Mui Trust, and had not engaged in morally reprehensible conduct, Lumarkye should have been entitled to interest on the purchase monies it paid, and to a ‘just allowance’ in equity.

1. Lumarkye did not make further oral submissions in support of ground 8.  It simply relied upon its written submissions.

1. The short answer to these contentions is that, as the trial judge found and we agree, Lynn was the controlling mind of Lumarkye for the purposes of the purchases of the two properties, and she did engage in morally reprehensible — or dishonest — conduct by arranging both sales with knowledge of Frank’s three objectives. 

1. While one may debate the correctness of the trial judge’s reference to an order that Lumarkye pay interest on the purchase prices as being ‘tantamount to allowing Lumarkye a double recovery’, we agree with the trial judge’s conclusion that no order should be made in Lumarkye’s favour that, Ying Mui, in addition to repaying the purchase prices, should pay interest to Lumarkye on the purchase moneys for the period between settlement of the two property sales and the repayment of those moneys.  First, before the first of the two property purchases, Lumarkye owned no property, had no money and no debt.  It was acquired by Dominic and River Ventures for the purposes of entering into the first of the two property sales.  On the other hand, at this time, the Ying Mui trust owned the two properties, had rental income from those properties and bank debt. 

1. Second, following the two property purchases, Lumarkye had the properties, rental income and bank debt.  In comparison, the Ying Mui trust had transferred the two properties, lost the rental income from them, and had its debt reduced. 

1. Third, following re-transfer of the two properties and repayment of the purchase prices to Lumarkye — albeit reduced by the amount of Lumarkye’s net profits from ownership of the properties — Lumarkye was left in substantially the same position in which it started.  The two properties had obviously generated sufficient gross rental income to pay interest on bank debt and yield a profit.  The repayment of the purchase prices was thus sufficient to repay the bank debt and any equity contributed by Lumarkye’s shareholders.  As a result, Lumarkye is placed in the same position as it was before it placed itself in funds for the sole purpose of acquiring the two properties:  it owns no property, has no income and no debt.  The trustee is also placed in the same position as it was before the two property sales: it has the properties, rental income and debt to fund the repayment of the purchase prices to Lumarkye. 

1. Fourth, in these circumstances, Lumarkye would be unjustly enriched if it was to also be paid interest on the purchase moneys for the period that the Ying Mui trust was held out of the property.  It would achieve a windfall benefit of $858,000 — at least according to Lumarkye’s calculations— from its own improper conduct in knowingly receiving trust property.  Such an order would offend equity, rather than do equity. 

1. For these reasons, Lumarkye’s appeal ground 8 has not been made out. 

Question 10: As to the sales by Ying Mui of the Docklands property, unit 10 and lot 201 to third parties, did Frank, Lynn, Pooi and/or Ian breach their fiduciary or statutory duties to Ying Mui?[521]

[521]Tranche 2 question 12.

1. After the dispute erupted, Ying Mui sold three properties to third parties as follows:

(1)       the Docklands property was sold on 21 October 2010.  The sale was authorised by a resolution of Frank, Pooi and Ian as directors of Ying Mui made on 1 October 2010;[522]

(2)       unit 10 of the Hampton Street property was sold on 10 February 2011.  The sale was authorised by a resolution of Frank, Lynn and Ian as directors of Ying Mui;[523] and

(3)       lot 201 of the Hampton Street property was sold on 27 May 2011.  The sale was authorised by a resolution of Frank, Lynn and Ian as directors of Ying Mui.[524] 

[522]Second Reasons [361].

[523]Second Reasons [362].

[524]Second Reasons [363].

1. As the trial judge noted, each of the sales was made prior to Lynn’s 12 October 2011 letter.[525] 

   [525]Second Reasons [364].

1. Apart from the fact that the three sales were to third parties, the trial judge could see no distinction between the purpose of these three sales and the purpose of the sales of Sydenham and lot 202 to Lumarkye. Thus, he held that the three sales ‘represented part of the implementation of the asset sale and distribution decision’,[526] and thus formed ‘part of the broader asset sales programme initiated by Frank for his personal purposes’,[527] namely, to achieve Frank’s three objectives.[528] 

   [526]Second Reasons [382].

   [527]Second Reasons [383].

   [528]Second Reasons [384].

1. On this basis, the trial judge found that each of Frank, Lynn, Pooi and Ian breached their fiduciary or statutory duties to Ying Mui, and Ying Mui acted in breach of trust, by selling the three properties.[529] 

   [529]Second Reasons [382]–[395]. 

1. In this context, the trial judge found that each of Pooi and Lynn was aware of Frank’s three objectives at the time they voted in favour of these sales;[530] Ian knew of the fighting fund purpose but otherwise gave no consideration as to whether it was in the best interests of Ying Mui to sell the properties;[531] and each of Pooi, Lynn and Ian were well aware that the three properties were being sold to further Frank’s personal interest.[532] 

   [530]Second Reasons [386]–[388]. 

   [531]Second Reasons [389].

   [532]Second Reasons [386].

1. Finally, the trial judge held that there was ‘no commercial reason which required the sale of any of the three properties’,[533] and noted specific aspects about the properties, including that:

   [533]Second Reasons [390].

(1)       the Docklands property had been owned since 2000, was tenanted and Frank and George had previously consulted and decided not to sell it;[534]

(2)       unit 10 of the Hampton Street property had been owned (post-development) since 2004 or 2005 and was the subject of a ‘very long’ lease to a tenant with a special permit to use it as an office.  Frank and George had discussed whether to give the tenant an option to purchase, but had decided against it;[535] and

(3)       lot 201 of the Hampton Street property had also been owned since 2004 or 2005.  It was tenanted by Australia Post which had at the time of sale recently extended the term of its lease until 2018.[536]

[534]Second Reasons [391].

[535]Second Reasons [392].

[536]Second Reasons [393].

1. For unexplained reasons, the trial judge ordered final relief in respect of the sale of lot 201 only.  Paragraph 7 of the Final Orders ordered Frank, Lynn and Ian to pay $1,045,012 to the new trustee of the Ying Mui trust, as equitable compensation ‘in respect of the sale of lot 201’.  The basis of this order appears in paragraph [1(c)] of the Relief Reasons, which posed the following question for determination as part of the ‘third tranche questions’:

(c)in respect of Lot 201, what is the amount of compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) and equitable compensation, having regard to:

(i)        the current market value of Lot 201;

(ii)the income foregone by the Ying Mui Trust following the sale of the property;

(iii)any interest saving derived by the Ying Mui Trust as a result of the sale of the property [?];

1. The trial judge determined that the George faction had impliedly elected to receive, and it was appropriate to award, equitable compensation instead of relief under s 1317G of the Corporations Act 2001 (Cth).[537]  No ground of appeal challenges this finding. 

   [537]Relief Reasons [37]–[38].

1. Paragraph [82] of the Relief Reasons records that the amount of the compensation was agreed by the parties. 

Contentions, Analysis and Conclusion

1. The Frank faction contentions on this issue are repetitive of their contentions as to why the sales of the Sydenham property and lot 202 were not made in breach of fiduciary duty.  They contend that the three sales were made at attractive market prices and substantially motivated by the proper purpose of reducing debt and thus reducing Frank and Pooi’s exposure under their guarantees. 

1. We do not accept these contentions.  Taking the evidence as a whole, it is clear that the substantial motivating purpose of the three sales was, as with the sales of Sydenham and lot 202, to further Frank’s asset sale and implementation decision and thus achieve his three objectives.  The grounds of appeal which seek to challenge the judge’s findings in this regard are not made out. 

Summary of conclusions

1. None of the proposed appeal grounds has been made out.

1. Although many of the Frank faction’s grounds of appeal were barely arguable, especially once the benevolent purpose contention and the challenge of the loans finding were rejected, we will simply grant leave to appeal in their appeal and dismiss that appeal. 

1. We will grant leave to appeal in the Lumarkye appeal and dismiss that appeal also. 

The ‘sequential trial model’

1. The sequential trial model was suggested to the parties by the trial judge.  It was supported by the Frank faction, and opposed by the George faction.  After hearing from the parties, the judge decided to implement the sequential trial model.  As the George faction were wholly successful at trial, there is no appeal ground which brings the decision to adopt the sequential trial model into question.  However, we feel that some comment from this Court is necessary, as guidance for any other judge who may be considering implementing such an approach. 

1. The Sequential Trial Reasons disclose that the trial judge imposed the sequential trial model in an endeavour to provide the optimum conditions for the parties, after delivery of the First Reasons, to settle their differences — or, if not, at least after the Second Reasons.[538] 

   [538]Sequential Trial Reasons [4], [52]. 

1. The trial judge took this approach by reference to what he described as the ‘extraordinary breadth’ of the issues in dispute,[539] which he described as calling for ‘special management’ of the trial.[540] 

   [539]Sequential Trial Reasons [42].

   [540]Sequential Trial Reasons [43].

1. The trial judge described his sequential trial model in the following terms:

The trial Judge may:

(a)       conduct the trial by first taking in all of the evidence;

(b)at an appropriate time during the trial, if appropriate to do so, state  questions to be addressed in final address in tranches;

(c)hear the first tranche of final addresses which are confined to addressing the first tranche of questions stated; and

(d)then deliver judgment on the first tranche of questions stated, before proceeding to the next tranche, and so on, until the case is complete.[541]

[541]Sequential Trial Reasons [46].

1. The trial judge then considered whether the cautious approach adopted by courts to the trial of separate questions, as stated by this Court in Murphy v State of Victoria,[542] was relevant to his decision whether to adopt the sequential trial model.[543]  In Murphy, this Court summarised the caution to be exercised before ordering the trial of separate questions under Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 47.04, in the following terms:

   [542](2014) 45 VR 119 (‘Murphy’). 

   [543]Sequential Trial Reasons [47]–[48]. 

1)A separate trial should be ordered under r 47.04 only with great caution and only in a clear case.

2)The attraction of trials of issues rather than of cases in their totality, ‘are often more chimerical than real’, so that separate trials should ‘only be embarked upon when their utility, economy and fairness to the parties are beyond question’.

3)The advantages of trying separate questions for one party may unfairly disadvantage another party, including because the questions will be determined without the benefit of all the evidence relevant to the proceeding.

4)There should be no trial of a separate question on the basis of assumed facts unless the facts are agreed or can readily be determined judicially. Otherwise, the parties remain free to dispute the relevant facts at any later trial.

5)As a general rule, it is inappropriate to order that a preliminary issue be isolated for determination unless the determination of the issue in favour of the plaintiff or the defendant will put an end to the action, or where there is a clear line of demarcation between issues and the determination of one issue in isolation from the other issues in the case is likely to save inconvenience and expense.

6)Factors which tell against making order under r 47.04 include that the separate determination of the question:

a)may give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial;

b)may result in significant overlap between the evidence adduced on the hearing of the separate question and at trial; possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding; and

c)may prolong rather than shorten the litigation.[544]

[544]Murphy (2014) 45 VR 119, 126 [28] (citations omitted).

1. The trial judge quoted this passage but decided it was not applicable to his sequential trial model because Murphy was decided in ‘a different context [where] the preliminary questions were stated for determination prior to the trial of the evidence in the principal proceeding’.[545] 

   [545]Sequential Trial Reasons [48].

1. In the trial judge’s view, because the sequential trial model involved hearing all of the evidence as to liability in full before the hearing and determination of the stated questions:  ‘a number of the concerns with the separate question process fall away’.[546]  The judge referred in particular to the Murphy principles numbers (3), (4), (6)(a) and 6(b) as being inapplicable to the sequential trial model.[547]  Importantly, however, the trial judge did not consider whether he was embarking upon a process which, if it did not achieve its stated purpose of promoting a settlement of the proceeding before the conclusion of reasons for judgment on all issues, would lead to the trial being prolonged rather than shortened — see Murphy principle 6(c). 

   [546]Sequential Trial Reasons [49].

   [547]Sequential Trial Reasons [49].

1. The trial judge expressed his conclusion as to why the sequential trial model was appropriate in the circumstances of this case by referring to what he described as ‘significant advantages’ to be achieved, as follows:

(a)The hearing of submissions and delivery of judgment on three significant issues in the case at the earliest possible time in the sequence will narrow the issues for addresses and the judgment in the balance of the proceeding by the elimination of a number of alternative ways in which the balance of the case is advanced;

(b)Consistently with the CPA, in particular s 7(2)(c), the adoption of the sequential trial model will give to the parties the maximum opportunity to resolve the proceeding by any appropriate dispute resolution process;

(c)The sequential trial model will also enable the Court to hear and determine important issues in the case in a focussed fashion, and thereby promote the objective of efficiency and timely resolution of those issues in accordance with the overarching purpose of the CPA.[548] 

[548]Sequential Trial Reasons [52] (emphasis added). 

1. We do not accept the judge’s rationale for imposing the sequential trial model on a party which opposed it.  We accept, of course, that the trial judge decided to implement the approach with the best of intentions, to further the overarching purpose under the Civil Procedure Act 2010 (Vic). We also accept that complex civil litigation poses a drain on Court resources, and sometimes novel approaches to the resolution of a proceeding are called for; but here, the sequential trial model served only to reduce the burden on the trial judge in determining all the issues in one judgment, in the hope that the reasons for judgment on the first tranche questions may yield a settlement.

1. The judge would have been better advised to consider the context of the litigation — a bitter civil dispute involving family members.  It would have been preferable if he had kept in mind that if settlement was not achieved after the First Reasons, there would be considerable delay in the finalisation of the proceeding, and considerable further costs to the parties in having to attend a mediation, analyse the First Reasons, and then, after considerable delay, work up the case again and come back for the hearing of further submissions on the remaining questions.  That is exactly what has occurred. 

1. In the event, the sequential trial model ran contrary to the efficient conduct of the business of the Court;[549] the efficient use of judicial and administrative resources;[550] prolonged the timely determination of the proceeding;[551] and increased the complexity of the case by resulting in a multiplicity of judgments —thus causing increased cost to the parties and the disproportionate use of Court resources by both the trial judge and this Court on appeal.[552] 

   [549]Civil Procedure Act 2010 (Vic) s 9(1)(c).

   [550]Civil Procedure Act 2010 (Vic) s 9(1)(d).

   [551]Civil Procedure Act 2010 (Vic) s 9(1)(f).

   [552]Civil Procedure Act 2010 (Vic) s 9(1)(g).

1. Indeed, given the credit issues involved in causation and loss, this was a case where all the issues, including causation, loss and the form of relief should have been tried at the one time and resulted in one judgment. 

1. Further, the sequential trial model increased the likelihood of error or, at least, inconsistency between the judgments resulting from the various tranche hearings.  It also gave the parties the opportunity to re-argue matters decided adversely to them on earlier tranches of the hearings, as in fact occurred. 

1. It will rarely — if ever — be appropriate over the opposition of one or more parties to take the approach adopted in this case.  And, even if all parties urge such a course on a court, the court should exercise great caution before adopting such an approach.   

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SCHEDULE OF PARTIES (S APCI 2018 0069)

FRANK KIANG NGAN HOH	First Applicant
POOI YOKE LIM HOH	Second Applicant
LYNN YOOK LIEN HOH	Third Applicant
IAN HAN LOK HOH	Fourth Applicant
LOKIT INVESTMENTS PTY LTD (ACN 006 855 741)	Fifth Applicant
YING MUI PTY LTD (ACN 002 992 449)	First Respondent
AMORE CORPORATION PTY LTD (ACN 097 964 175)	Second Respondent
KIANG PO HOH (GEORGE HOH)	Third Respondent
HAN KEYET HOH	Fourth Respondent
SHARIKAT YING MUI SDN BHD	Fifth Respondent
FROSTHOLLOW PTY LTD (ACN 151 816 401)	Sixth Respondent
OLREY PTY LTD (ACN 140 494 319)	Seventh Respondent
LUMARKYE PTY LTD (ACN 131 575 785)	Eighth Respondent
AUSTRALIAN EXECUTOR TRUSTEES LIMITED (ACN 007 869 794)	Ninth Respondent

SCHEDULE OF PARTIES (S APCI 2018 0067)

LUMARKYE PTY LTD (ACN 131 575 785)	Applicant
YING MUI PTY LTD (ACN 002 992 449)	First Respondent
AMORE CORPORATION PTY LTD (ACN 097 964 175)	Second Respondent
KIANG PO HOH (GEORGE HOH)	Third Respondent
HAN KEYET HOH	Fourth Respondent