LDY Pty Ltd v GE & L International Investment Pty Ltd (No 5)
[2024] VSC 738
•29 November 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 00793
| LDY PTY LTD & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| GE & L INTERNATIONAL INVESTMENT PTY LTD & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | COSGRAVE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 22 November 2024 |
DATE OF JUDGMENT: | 29 November 2024 |
CASE MAY BE CITED AS: | LDY Pty Ltd & Anor v GE & L International Investment Pty Ltd & Ors (No 5) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 738 |
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FINAL ORDERS – Form of order to give effect to judgment – Principled approach to the payment of funds held in Court – No statutory interest – Orders as proposed by the defendants.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Clarke KC Ms V Plain | MGA Lawyers |
| For the Defendants | Mr P Noonan | Waterson Legal |
HIS HONOUR:
I delivered my primary reasons for judgment in this proceeding on 1 November 2024 (“the primary reasons”).[1] Having answered the various questions which the parties determined the Court had to address, I advised the parties that they should file and serve, by 4.00pm on 22 November 2024, written submissions on the question of costs and the form of final order. Shortly before the date for filing, it became apparent that the parties had very different views about the nature of the orders required to give effect to my judgment. They sought a directions hearing to obtain a ruling from the Court.
[1]These reasons should be read in conjunction with the primary reasons. I use the same references and abbreviations in the judgment.
The Genie parties, who were successful at trial, submitted an order which provided for the payment to GE & L of funds currently held in Court by agreement, but otherwise dismissed the proceeding.
The Lydia parties sought:
(a) a declaration that $915,465.22 constituted the balance of a loan which Genie owed Lydia;
(b) an order that Genie pay Lydia that amount together with statutory interest of $588,708.75;
(c) the money paid into Court pursuant to order 4 of the orders made by Delany J on 17 June 2022 be applied to pay Lydia the amounts set out in subparagraph (b);
(d) the remaining balance of the said funds in Court be paid to GE & L; and
(e) the proceeding be otherwise dismissed.
Lydia’s submissions
The Lydia parties argued that proposed order (a) flowed from the finding that Lydia lent Genie money on an interest-free basis, such loan to be repaid upon completion of the Armadale project. Lydia referred to Genie’s further and better particulars of defence filed 5 July 2021 in which Genie said that the debt owed to Lydia was $1,232,786.92. This amount comprised the following:
· nett payments into the Bankwest account from sources other than Genie $803,037.00
· Lydia’s profit from the Radnor Street property $342,145.92 · Lydia’s profit from the Box Hill and Balwyn properties $320,630.00 · funds contributed by Lydia other than from the Bankwest account $727,974.00
· funds repaid by Genie to Lydia before the commencement of the proceeding ($961,000.00)
On 17 June 2022, the Court made an order whereby, from the funds held in Court, the amount of $661,684 was repaid to the plaintiffs. This had the effect of reducing Lydia’s loan account to $571,102.92.
Thus, Lydia argued that, even on the defendant’s own case, Lydia was entitled to a minimum loan balance of $571,102.92. Lydia argued that the amounts payable to her were to be amended or varied in connection with three matters: the Bankwest account; the share of profits from the sale of the Radnor Street property; and the payment of capital gains tax on the sale of the Radnor Street property.
The Bankwest account
The Lydia parties said that the sum of $803,037 should be increased by $163,564.46 to reflect the findings made in the primary reasons regarding transactions 2.2, 23, 35, 38, 55, 58, 63, 64, 139, 184, 535 and 540. At paragraph 10 of their submissions, the plaintiffs set out a table showing the transaction number, date, amount in issue, the paragraph in the judgment containing the relevant finding and the financial effect of the finding. The ultimate effect was said to be that the amount payable to Lydia increased.
The Radnor Street property
Genie said that the nett profit realised from the sale of the Radnor Street property was $711,381.64. Genie’s further and better particulars allowed Lydia an amount of $342,145.92, representing a 48% interest in the property. Genie credited herself with an amount of $369,235.72, being a 52% interest in the property. Because I found that Lydia and Genie bought the Radnor Street property on the basis of Lydia owning a 60% interest and Genie a 40% interest, Lydia’s share of the nett profit needs adjustment to $426,828. This represents an increase of $57,592.28 in the amount payable to her.
Payment of capital gains tax
Lydia says that she paid all of the capital gains tax payable upon the sale of the Radnor Street property.[2] In the plaintiffs’ opening submissions,[3] they contend that Radnor Street sold in November 2015 for $2.895m and the nett capital gain was $633,206. In her witness statement affirmed in February 2024,[4] Lydia said that she paid tax on the capital gain associated with the sale of the Radnor Street property. The supporting document Lydia relied upon in making this statement[5] was an electronic declaration form comprising part of Lydia’s tax return to the Australian Taxation Office (“ATO”) for the financial year ending 30 June 2016. It shows that Lydia’s taxable income was $419,565. The document does not disclose how much she paid as capital gains tax. Nor does it make clear whether the capital gains tax component was dealt with in a different part of the tax return because the progressive tax regime applicable to income tax does not apply to capital gains tax.
Szary Affidavit
[2]I note in passing that there was no evidence addressing why capital gains tax was payable in relation to the Radnor Street property. Lydia and Genie bought the property in June 2009 and it was registered in Lydia’s name. Lydia, Genie and their respective families lived together at the property with their parents. Once Lydia and her family and parents returned to China, Genie and her family continued to reside there. The tax may have been triggered because the property was not Lydia’s prime place of residence for the whole of the period from June 2009 to November 2015, when she sold the property.
[3]At [45(e)].
[4]Exhibit P1 at [87].
[5]CB 3719.
At the recent hearing, the Lydia parties sought to rely upon an affidavit of Marcin Szary affirmed on 22 November 2024 (“Szary Affidavit”) which exhibited a Notice of Amended Assessment from the ATO in relation to the financial year ended 30 June 2016. This said that Lydia’s taxable income was $417,008[6] (in respect of which Lydia paid tax of $174,393.75) and the amended income was $573,971. This meant that Lydia had to pay additional tax amounting to $84,804.04. The Notice of Amended Assessment said that Lydia’s taxable income included “$571.414.00” (sic) of capital gains. Lydia submitted that[7] she paid $240,286.95 as capital gains tax. Szary said that he only received the notice for the first time on 18 November 2024. Because I found that Lydia and Genie shared ownership of the Radnor Street property, Lydia says that Genie must pay to her an amount equal to 40% of the capital gains tax payable in respect of the sale of the property. Lydia says this amounts to $96,114.28.
Statutory interest
[6]I note that figure was different from that which appeared in the electronic declaration form.
[7]T8: 14 of the transcript of the directions hearing held on 22 November 2024.
The Lydia parties claim that they are entitled to statutory interest in the following amounts:
(a) interest on $1,577,149.22 from 17 February 2020[8] to 6 July 2022[9] at 10%, being $431.66 per day for 872 days which equals $375,978.73; and
(b) interest on $915,465.22 from 6 July 2022[10] to 1 November 2024 at 10%, being $250.56 per day for 849 days which equals $212,730.02.
[8]The day the plaintiffs issued this proceeding.
[9]Being the date upon which the sum of $661,684 was paid to Lydia pursuant to the Court order.
[10]Being the date upon which the sum of $661,684 was paid to Lydia pursuant to the Court order.
The plaintiffs say that, under the prayer for relief, they should recover interest in relation to the moneys contributed to the purchase and development of the Armadale property.[11]
[11]Plaintiffs’ submissions dated 21 November 2024 at [15].
Section 60 of the Supreme Court Act 1986 (Vic) provides that a Court must, unless good cause is shown to the contrary, give damages in the nature of interest over and above the debt awarded and by reference to the rate fixed under the Penalty Interest Rates Act 1983 (Vic) from the date of the commencement of the proceeding.[12]
[12]Ibid at [16].
The ‘good cause’ requirement is to be measured against the two-fold purpose of the provision. First, it is to compensate a plaintiff who has been kept out of his or her money. The second purpose is to encourage the early resolution of disputes.
In the present case, I have found that Lydia made an interest-free loan to Genie which was to be repaid upon completion of the Armadale project. There was no dispute between the parties that units 1 to 4 inclusive of the Armadale property sold and settled in December 2018. Units 5 and 6 sold and settled in 2023, well after the plaintiffs issued this proceeding. The plaintiffs argued that the development and construction of the Armadale project was completed in December 2018 when the first group of units sold. It was on this basis that they sought interest from the day they issued the writ. In doing so, they relied upon the case of Truran v Cortorillo.[13] The plaintiffs submitted that, in that case, the Court found that the plaintiff made an interest-free loan of $375,000 to the defendant but nonetheless awarded the plaintiff statutory interest when she sued to recover the loan.[14] Hence, the plaintiffs contend that the Court should do the same in the present case.
Genie’s submissions
[13][2011] VSC 488.
[14]Plaintiffs’ submissions dated 21 November 2024 at [20].
The defendants deny that the plaintiffs have any entitlement to the orders which they seek in paragraphs 3(a)–(c) above. Put broadly, the defendants contend that:
(a) there can be no order requiring payment to Lydia of the proceeds of sale of the Armadale property. The money currently belongs prima facie to GE & L as the owner of the Armadale property and the developer of the project. There is no legal basis to justify an order of the kind sought by the plaintiffs. The orders depend upon pleadings and the running of a case which the plaintiffs did not conduct at trial;
(b) the interest sought depends upon a loan agreement where the principal was repayable in 2018. The plaintiffs did not plead and run such a case at trial;
(c) the plaintiffs depend upon a finding by the Court that they advanced a particular sum to the borrower and that the loan was due and payable some time ago. Again, this was a case which the plaintiffs did not plead or run at trial;
(d) the orders assume factual and/or legal findings in respect of matters which were not issues before the Court in the trial. They were not pleaded. Nor were they included in the agreed list of issues which the parties said the Court should determine;
(e) the plaintiffs cannot change their case or introduce material at this point to obtain the findings they now seek; and
(f) the plaintiffs cannot rely upon the Szary Affidavit.
Analysis
I will not make the declaration sought in the paragraph 3(a) above.
The Lydia parties alleged that GE & L undertook the purchase and redevelopment of the Armadale property as trustee of Lydia’s family trust. Hence, any financial benefit flowing from that work was, according to Lydia, hers.
Alternatively, Lydia said that she contributed her own funds to the purchase and redevelopment of the Armadale property. It followed that GE & L held the funds upon a resulting trust for Lydia.
A further alternative was to allege that the Court should make orders under s 175 of the Corporations Act 2001 (Cth) (‘Corporations Act’) with the result that Lydia would have retained control of GE & L.
I found that GE & L acted in its own capacity and not as trustee when buying and redeveloping the Armadale property. This meant that Lydia’s primary case failed.
I found that Lydia did not invest her own funds in the purchase and redevelopment of the Armadale property, either directly or through a trustee. The extent of her financial involvement was to lend money to Genie which she then injected into the project through GE & L. The resulting trust argument therefore failed.
Because I declined to make orders under s 175 of the Corporations Act, Genie, and not Lydia, maintained control of GE & L.
In response to the plaintiffs’ case, the defendants pleaded that in about June 2015, Lydia and Genie entered into a loan agreement whereby Lydia agreed to advance an interest-free loan to Genie to assist in the purchase of the Armadale property. Genie was to repay the loan after completion of the Armadale project.[15]
[15]See the Defence to Further Amended Statement of Claim dated 21 September 2020, para 39 (“Defence to FASOC”).
The plaintiffs in their Amended Reply dated 21 October 2020 denied Genie’s allegations (contained in paragraph 39) and said that:
·completion of the Armadale project required only the sale of units 5 and 6 which were being leased at the time; and
·completion of the Armadale property was wrongfully thwarted by the defendants’ failure and refusal to have units 5 and 6 sold independently and have the nett proceeds paid into Court.[16]
[16]Amended Reply dated 21 October 2020 at [20] (‘Amended Reply’).
I acknowledge, as the plaintiffs’ counsel pointed out, the defendants also pleaded that:
·Lydia is entitled to repayment of the loan amount after completion of the sales;[17] and
·the defendants do not oppose orders for the disposition of the fund established by Robinson Gill to include provision for repayment of the loan amount to Lydia.[18]
[17]Defence to FASOC at [41].
[18]Ibid para 42(b).
In response to these pleas, the plaintiffs admitted that Lydia was entitled to repayment of amounts contributed to the purchase and development of the Armadale property from the proceeds of sale held in the trust account of Robinson Gill solicitors.[19] They otherwise denied paragraph 41. They denied paragraph 42 of the Defence to FASOC and said that:
·the defendants’ entitlement to funds cannot be determined until the Court hears and determines the position, save for the repayment of contributions made by Lydia and other parties; and
·units 5 and 6 ought to be sold to complete the Armadale project to enable the division of profits to be concluded with certainty.
[19]Amended Reply at [22].
Thus, it was not a situation in which the Lydia parties alleged that Lydia lent money to Genie and the prayer for relief claimed the recovery of a debt against her. The plaintiffs did not run their case in that way and cannot in the present circumstances seek to introduce such a claim at this point.
In any case, the remaining proceeds of sale arising from the purchase of the six redeveloped units on the Armadale property are currently held by the Court pursuant to the order of Delany J made on 17 June 2022.
In circumstances where I have found that:
·Lydia lent money to Genie and not GE & L in relation to the Armadale project;
·GE & L undertook the redevelopment in its own right and not as trustee;
·there can be no resulting trust in Lydia’s favour; and
·the Lydia parties at trial did not run a debt claim against Genie
I consider that there is no proper legal basis upon which the Court can order that GE & L pay to Lydia moneys which Genie might, subject to certain contingencies, owe Lydia.
I will not make the order sought in paragraph 3(b) above. As set out, the Lydia parties did not make any claim at trial that they lent money to Genie and that such loan was repayable. I have referred in paragraphs 27, 28 and 30 above how the pleadings framed the case. While I expect Genie to repay any money she owes to Lydia, that figure cannot be determined accurately until the question of costs is finalised. Given the parties’ obligations under the Civil Procedure Act 2010 (Vic), the parties should in due course seek to agree upon the amount owing to Lydia once the details of the loan and the costs are known.
The extent of any debt which Genie owes Lydia will probably be affected by the costs orders made in this case. It seems to me expedient to have the issue of costs decided promptly. It is important that the Court adopts a principled approach to the payment of moneys held in Court. The Court should adopt an orderly, staged process in determining what money is payable to whom.
In the primary reasons, I found that Lydia decided not to participate in the Armadale project, that Lydia agreed to lend funds to Genie on an interest-free basis, and that the loan would be repaid upon completion of the Armadale project.[20] I reject the plaintiffs’ argument that the Armadale project was completed when GE & L finished building the units, or even possibly when it sold four units in 2018. I infer that the aim of the arrangement between Lydia and Genie was for GE & L to sell all the units, make a profit (which would then be distributed to Genie as shareholder) so that Genie could repay Lydia. For this reason, it is my view that there could be no obligation to repay before settlement of all the unit sales. Indeed, before there was a full reconciliation of all the income and outgoings from the project, the extent of any profit which GE & L made could not be known or quantified.
[20]Primary reasons at [467].
In saying this, I acknowledge that there is no necessary connection between GE & L making a profit on the Armadale development and Genie repaying Lydia. Genie was legally obliged to repay Lydia whether or not GE & L made a profit. However, prior to the collapse in friendly relations between Lydia and Genie, I am satisfied that they both contemplated Genie repaying Lydia from the profits derived through the Armadale project.
I reject the plaintiffs’ claim to statutory interest set out in paragraph 14 hereof. Lydia made no claim for debt against Genie and even if she had, any alleged debt was not due and payable when Lydia began the proceeding in 2020. This was because there was no requirement to repay any loan to Lydia until after the sale and settlement of the six units in the Armadale project. Further, the decision in Truran’s case is distinguishable. There the plaintiff became infatuated with the defendant. She moved to Victoria from interstate at a time when she was depressed and vulnerable and fell in love with the defendant. During a period of six months:
· Truran bought for the defendant and registered in his name a BMW motor vehicle costing approximately $188,000;
· Truran transferred the title of her house at Indented Head into the defendant’s name; and
· Truran sold two properties she owned in South Australia and lent moneys to the defendant and/or his company.
Truran began the proceeding on 15 March 2010, making various claims for the recovery of property and monetary compensation for what she had lost to the defendant. There was documentation which proved the loan agreement for $345,000 and the advance of funds to the borrower.
Once Truran broke off the relationship, she retained solicitors who demanded repayment of the loan. The defendant refused to repay the money. The Court was satisfied that the money was repayable on demand because there was no other date agreed. There is a long-established principle that where there is a simple loan of money (that is, with nothing said as to the date of repayment), the money is repayable immediately. Therefore, if A lends money to B, then B is instantly detaining A’s money. In order to prevent a cause of action for recovery arising instantaneously upon paying the money, the parties to the loan must expressly contract out of that situation by clearly inconsistent words.[21] Thus, the Court ordered interest in favour of Truran from the date of demand pursuant to s 58 of the Supreme Court Act 1986 (Vic).
[21]Ogilvie v Adams [1981] VR 1041, 1043.
It follows from what I have already written about the orders sought in paragraphs 3(a) and (b) above that I will not make the order sought in paragraph 3(c) of the judgment.
In the present case, while the Armadale project is now completed, there are three factors to note. First, the Lydia parties made no claim in debt against Genie and the actual amount of the debt is currently unclear. Secondly, the potential amount of indebtedness is likely to be affected by the issue of costs. If Lydia recovers her costs from Genie, then the debt will likely increase. If Genie recovers her costs against Lydia, then the debt will diminish and, depending upon the amounts involved, might be extinguished. Thirdly, by order of Delany J on 17 June 2022, the remaining proceeds of sale have been paid into Court and, therefore, it is not within Genie’s power to make any unilateral payment to Lydia.
Reliance upon the Szary Affidavit
I consider that the Court should reject the Szary Affidavit together with its exhibits. The plaintiffs relied upon the affidavit to advance an aspect of the case regarding the payment by Lydia of capital gains tax in relation to the Radnor Street property. On the basis that Lydia paid the whole of the capital gains tax applicable to the property, they wished to obtain reimbursement from Genie so that Lydia and Genie paid the capital gains tax in the same proportions in which they owned the property.
Lydia ran the trial on the basis that she was the sole legal and beneficial owner of the Radnor Street property. She did not run an alternate case that she and Genie owned the property in the proportions alleged by Genie.
Lydia did not explain why it was only now that she sought to rely upon the ATO document. The document was dated 12 December 2019 so I infer that it has been in the plaintiffs’ possession for nearly five years. One possible explanation is that the plaintiffs now seek to advance a case which they did not previously run. I am not satisfied that there is a sufficient and appropriate basis disclosed by the evidence to allow reliance upon the affidavit.
Even if I did allow the plaintiffs to rely upon the Szary Affidavit, the plaintiffs’ evidence remains unclear as to:
·how much capital gains tax Lydia paid in relation to the sale of the Radnor Street property;
·how much capital gains tax Lydia ought to have paid according to the ATO on the assumption that she was the sole registered proprietor and the legal and beneficial owner of the property; and
·how much additional tax in the Notice of Amended Assessment was referable to the capital gains tax arising from the sale of the Radnor Street property.
Not only did the plaintiffs not run such a claim at trial but they cannot discharge their onus of proof in any event.
Conclusion
For the reasons set out, I reject the proposed orders submitted by the plaintiffs and accept minutes 1 and 2 of the orders proposed by the defendants. These orders provide for the payment of the money held by the Court to the solicitors acting for the first defendant and otherwise dismiss the proceedings.
By 2:30pm on 5 December 2024, the parties should file any material and submissions relating to the costs of the proceeding. The submissions are limited to five A4 pages, a minimum of 12-point typeface, 1.5 spacing and 40mm margins on either side of the page. Unless I consider an oral hearing necessary, I propose to determine the issue of costs on the papers.
SCHEDULE OF PARTIES
| LDY PTY LTD (ACN 629 727 224) | First plaintiff |
| LIANGDI GE | Second plaintiff |
| - and - | |
| GE & L INTERNATIONAL INVESTMENT PTY LTD (ACN 139 294 590) | First Defendant |
| LIANGYAN GE | Second Defendant |
| GEWC INTERNATIONAL PTY LTD (ACN 140 282 613) | Third Defendant |
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