Lei v Lei
[2016] VSC 336
•17 JUNE 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2010 3712
| ZHENJI LEI (ALSO KNOWN AS PETER LEI) & ORS (According to the Schedule) | Plaintiffs |
| v | |
| YUHUI LEI (ALSO KNOWN AS JULIYA LEI) & ORS (According to the Schedule) | Defendants |
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JUDGE: | RIORDAN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 7, 8, 9, 10, 11, 15, 16, 17, 30 MARCH 2016 | |
DATE OF JUDGMENT: | 17 JUNE 2016 | |
CASE MAY BE CITED AS: | LEI v LEI | |
MEDIUM NEUTRAL CITATION: | [2016] VSC 336 | First Revision: 29 July 2016 |
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CORPORATIONS – Effect of registration of various transfers of shares with ASIC without entries in company share register – The requirements for a valid allotment and issue of shares – Determination of beneficial entitlement to shares in company.
PROPERTY – Determination of beneficial ownership of properties – Whether overarching agreement established?
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Nunns | James Hopper & Associates |
| For the First Defendant | In person | |
| For the Third Defendant | In person |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Who are the beneficial owners of the shares in MMC Pacific?................................................. 2
Was Peter Lei engaged as the agent for MM Cables in China?............................................. 4
Did Peter Lei register the business name ‘MMC Trading International Co’ for the purpose of conducting an agency business to facilitate him acting as sole agent for MMC Cables in China?................................................................................................................................................ 8
Was MMC Pacific incorporated by Peter Lei and Lucy Lei for the purpose of conducting their business interests?............................................................................................................. 10
Was the 1999 share allotment of 149,994 shares in MMC Pacific to each of Juliya Lei and Lucy Lei valid?................................................................................................................................... 16
Was the purported transfer of shares from Lucy Lei to Juliya Lei on or about 19 April 2005 effective?.............................................................................................................................................. 20
Conclusion as to beneficial ownership of the originally subscribed shares in MMC Pacific 21
The Properties................................................................................................................................... 22
23 Yerrin Street, Balwyn............................................................................................................. 22
11 Kintore Crescent, Box Hill.................................................................................................... 24
104 Balwyn Road, Balwyn......................................................................................................... 26
The Overarching Agreement..................................................................................................... 28
Conclusion on the Overarching Agreement.................................................................. 31
1119 Whitehorse Road, Box Hill............................................................................................... 32
Orders................................................................................................................................................. 32
HIS HONOUR:
Introduction
By this proceeding:
(a) the first plaintiff/first defendant by counterclaim (Mr Zhenji Lei also known as Peter Lei), and
(b) his sister, the second plaintiff/second defendant by counterclaim (Ms Yuxin Lei also known as Lucy Lei), and
(c) their mother, the third plaintiff/third defendant by counterclaim (Dr Yuchen Zhu),
by this proceeding sue:
(d) their sister/daughter, the first defendant/first plaintiff by counterclaim (Ms Yuhui Lei also known as Juliya Lei), and
(e) the second defendant/second plaintiff by counterclaim being a family company, (MMC Pacific International Pty Ltd hereafter ‘MMC Pacific’), and
(f) the third defendant/fourth defendant by counterclaim (Mr Jian Jun Zhang also known as John Zhang), and
(g) the fourth defendant/sixth defendant by counterclaim (the Registrar of Titles).
A further party is the fifth defendant by counterclaim, another family related company (3 Apples Childcare Centre Pty Ltd).
The plaintiffs and the plaintiffs by counterclaim bring a myriad of claims and alternative claims against each other based on transactions over approximately 25 years relating to the beneficial ownership of, principally, the following assets:
(a) the shares in MMC Pacific;
(b) a property at 23 Yerrin Street, Balwyn;
(c) a property at 11 Kintore Crescent, Box Hill;
(d) a property at 104 Balwyn Road, Balwyn.
Many of the pleaded claims were not pressed at trial. These reasons deal with the issues finally pressed by the parties (unless they are alternative claims, which are made redundant by anterior findings).
MMC Pacific was not represented at trial and the first and third defendants represented themselves. The plaintiffs and first and third defendants speak Mandarin as his or her first language and each gave evidence through an interpreter. The evidence was ordered to be by witness statement. Much of the content of the witness statements was conclusionary or based on the witnesses’ understanding of events. Not surprisingly, the unrepresented defendants did not take objection to the form of the plaintiffs’ witness statements; and the plaintiffs’ counsel limited objections to significant matters and allowed the trial to proceed on the basis that he would make submissions as to the weight to be accorded to such evidence. By reason of this matter and the fact that much of the evidence relates to events that occurred between 10 and 25 years ago, I have been careful to have particular regard, wherever possible, to documentary evidence confirming versions of events.
Who are the beneficial owners of the shares in MMC Pacific?
With respect to the beneficial ownership of the shares in MMC Pacific, the plaintiffs allege as follows:
(a) Peter Lei established a business as an agent promoting the sale of cables into China for MM Cables Communication Products (‘MM Cables’), a division of Metal Manufacturers Ltd and its subsidiary MM Cables New Zealand Ltd, initially operating his agency business under the business name, MMC Trading International Co.
(b) Peter Lei and Lucy Lei instructed John Zhang to incorporate; and provided the start-up funding for MMC Pacific in 1995 for the purposes of conducting their business interests.
(c) The subsequent various issues and transfers of shares in MMC Pacific are invalid.
Juliya Lei alleges as follows:
(a) She was the intermediary for MM Cables in its Chinese operations and the business name MMC Trading International Co was solely John Zhang’s business. Peter Lei was assigned to the promotion of MM Cables as part of her businesses based in China.
(b) She instructed John Zhang to incorporate; and provided the start-up funding for MMC Pacific in 1995 for the purposes of conducting her Chinese businesses.
(c) She is the sole shareholder in MMC Pacific and is beneficially entitled to the 300,000 shares, as is confirmed by ASIC records.
For the purpose of determining the beneficial entitlement to the shares in MMC Pacific, it is necessary to determine the following questions:
(a) Was Peter Lei engaged as the agent for MM Cables in China?
(b) Did Peter Lei register the business name ‘MMC Trading International Co’ for the purpose of conducting an agency business to facilitate him acting as sole agent for MMC Cables in China?
(c) Was MMC Pacific incorporated by Peter Lei and Lucy Lei for the purpose of conducting their business interests?
(d) Was the 1999 share allotment of 149,994 shares in MMC Pacific to each of Juliya Lei and Lucy Lei valid?
(e) Was the purported transfer by Lucy Lei of her shareholding in MMC to Juliya Lei on or about 19 April 2005 effective?
(f) Who are the beneficial owners of the originally subscribed shares in MMC Pacific?
Was Peter Lei engaged as the agent for MM Cables in China?
Peter Lei was employed by the Shenyang[1] Airconditioning Company as a manager of the import/export department from 1984 to 1988. In about 1985 or 1986, he promoted John Zhang from a position as a labourer to be his assistant in the import/export department; and he worked with him until they left the company in 1988 to travel to Australia where Peter Lei studied English.
[1]In some documents this is spelt ‘Shen Yang’. For consistency I will spell it ‘Shenyang’ throughout these reasons, except when quoting from documents.
In 1991, a Mr David Bell was employed as the export sales manager of MM Cables. In October 1991, MM Cables secured its first major contract in China when its parent company, British International Cable Co, ‘off-loaded’ a contract to supply cables to Shenyang Telecom Bureau, a company owned by the Shenyang municipal government.
Chinese law required that a Chinese import contract have an intermediary trading broker, which was responsible for approving the payment to the foreign exporter subject to being satisfied that there was a valid contract and that the payment was being made for the stipulated purpose. The trading broker for Shenyang Telecom Bureau was Shenyang Technical Import and Export Corporation (‘STIEC’); and the departmental manager of STIEC, who was assigned to this contract, was Juliya Lei.
Mr Bell gave evidence as follows:
(a) During the course of this ‘off-loaded’ contract, he had a conversation with Juliya Lei about how MM Cables could obtain more business in China; and Juliya Lei told him that she could not assist because she was employed by STIEC, which was a State owned company. However, she said she would ask her brother, Peter Lei, if he was prepared to act as MM Cables’ agent.
(b) In 1992, Peter Lei travelled to New Zealand and was interviewed by Mr Bell who appointed him as agent for MM Cables for a trial period of 12 months from 20 October 1992 to 20 October 1993. This is supported by a certificate authorised by MM Cables New Zealand Ltd showing Peter Lei as its representative for the purpose of ‘Consultation, Liaison of trade’ for the period 20/10/1992 to 20/10/1993.
(c) Peter Lei secured many contracts during the trial period and, as a result, he was appointed as sole agent of MM Cables in China in late 1993 when he opened a representative office of MM Cables in Beijing.
As to Peter Lei’s employment with MM Cables, Mr George Khor, former MM Cables commercial manager (from about the middle of 1987 to about the middle of 1994) and the export business manager (from about the middle of 1994 to about December 1998), gave evidence as follows:
(a) Peter Lei was the sole agent of MM Cables in China and achieved sales for MM Cables into China of approximately AU$50 million.
(b) Peter Lei was paid commission calculated as a percentage of the total value of each contract. Mr Khor arranged for MM Cables to make commission payments of US$747,505.78, which are referred to in his letter of 11 December 1997, to Peter Lei’s nominated bank account.
The fact that Peter Lei was appointed as the agent of MM Cables is also overwhelmingly supported by the contemporary documentary evidence including the following:
(a) The tax registration documentation for MM Cables New Zealand Ltd in China dated 2 February 1994 which noted Peter Lei as the MM Cables representative.
(b) A letter dated 27 January 1994, in which the Chinese Ministry of Foreign Trade and Economics approved the establishment of a permanent representative office for MM Cables New Zealand Ltd in Beijing and named the representative as Peter Lei. The business scope of Peter Lei’s agency was noted as ‘Liaison and consultation work in relation to cables and equipment for energy, power, and communication industry’.
(c) The registration form for MM Cables New Zealand Ltd Beijing office dated 24 February 1994 which noted Peter Lei as the MM Cables representative.
(d) The Bank of China, Beijing branch, ‘Signature Card’ which recorded Peter Lei as the authorised signatory for the Bank of China Beijing branch account for New Zealand Metal Manufacturers Telecommunication Products Cables Co Ltd from 2 March 1994.
(e) A fax dated 7 April 1994 from Mr Bell to Mr Khor, both of MMC Cables, in which contract details for the supply of cables to Dalian on a BTA contract are summarised and commission noted at ‘3% for Peter Lei’. In addition, a fax of the same day, which noted a contract for the supply of cables to Dalian on a Shanghai contract notes commission of 5% for Peter Lei.
(f) A service agreement dated 17 February 1995 between Metal Manufacturers Ltd and Peter Lei, in consideration of specified agency services with respect to Xinjiang PTA (‘the Xinjiang project’), by which MM Cables agreed to pay Peter Lei commission. The agreement was executed by Mr Bell on behalf of MM Cables and by Peter Lei for himself.
(g) A letter dated 1 June 1995 to the Department of Immigration and Ethnic Affairs, from MM Cables which requested the grant of the necessary visa to enable Peter Lei to assist the company ‘on a major project we have secured in China’, i.e. the Xinjiang project.
(h) A fax from Mr Bell to Peter Lei dated 29 June 1995, in which MM Cables New Zealand Ltd set out the ‘Agent Management/Project Office Management Functions’ of Peter Lei with respect to the Xinjiang project. The fax set out the duties under the service agreement that Peter Lei ‘must continue to look after, to earn [his] commission during the full course of the contract’.
(i) A purchasing contract dated 16 July 1995 in which MM Cables purchased equipment for delivery to Beijing which was signed on behalf of MM Cables by Peter Lei. Peter Lei deposed that he was able to sign because he was the sole agent of that company in China.
(j) A letter dated 23 February 1996 to Peter Lei and John Zhang from Mr Khor which recorded the total commission paid into ‘your bank account’ as US$314,502.25.
(k) A letter dated 26 August 1996 to the Office of the Australian Minister for Immigration and Multicultural Affairs, in which Mr Khor noted that he ‘strongly supports’ the grant of a further visa to Peter Lei because ‘Mr Lei is an agent appointed by MM Cables-Communication Products and has played an important and pivotal role in securing a number of major telecommunications projects for our export business to China’.
Juliya Lei denied that she told Mr Bell that she could not help to expand MM Cables’ business and that at the time she was employed by a State owned company. Her evidence, was that:
(a) Mr Bell accepted her proposal to act as agent for MM Cables and she introduced Peter Lei to set up the Beijing office;
(b) she established the agency business with the assistance of John Zhang, who owned the business ‘in a way’;
(c) Peter Lei was assigned to the promotion of MM Cables on her instructions; and
(d) she earned income from MM Cables for taking the currency risk, which MM Cables considered to be a commission.
She explained Mr Bell’s evidence to the contrary on the basis that - ‘He forgot, because he has been – his testimony has been interfered with’. She said of Mr Khor’s evidence that he had been in charge of paying commission to Peter Lei, that ‘I don’t think their testimonies are reliable because these events occurred 20 years ago’.
I accept the evidence of Mr Bell, Mr Khor and Peter Lei that Peter Lei was appointed as the sole agent for MM Cables in China in about 1993. I reject the evidence of Juliya Lei to the contrary principally because, in my opinion, Mr Bell and Mr Khor were independent witnesses who gave their evidence convincingly. Juliya Lei gave no explanation for the above documentation, which was inconsistent with her testimony.
Did Peter Lei register the business name ‘MMC Trading International Co’ for the purpose of conducting an agency business to facilitate him acting as sole agent for MMC Cables in China?
Peter Lei deposed that, in March 1994, he directed John Zhang to register the business name ‘MMC Trading International Co’ in Australia for the purpose of conducting an agency business to facilitate Peter Lei acting as sole agent for MMC Cables in China. He gave evidence that he arranged for John Zhang to be the proprietor of the business name because he was principally operating out of the Beijing office and John Zhang was permanently in Australia awaiting the grant of his permanent residency.
John Zhang did not dispute that he registered this business name on the instruction of Peter Lei and conceded that he was made the owner of the business name because he was the only person who had Australian permanent residency. I do not consider whether he was made the owner because he had permanent residency (as deposed by John Zhang) or was awaiting permanent residency (as deposed by Peter Lei) is of any significance.
The fact that Peter Lei operated the MMC Cables business as agent through MMC Trading International Co is further supported by the following:
(a)The limited records available with respect to MMC Trading International Co’s foreign currency account with the ANZ Bank included entries showing Peter Lei depositing and withdrawing money from the account.
(b)A letter from the Australian Taxation Office dated 21 November 1994 records John Zhang and Peter Lei as the owners of the tax file number for MMC Trading International Co.
(c)A memorandum from MM Cables dated 19 July 1995 includes an instruction to raise an order on the account of MMC Trading International Co with respect to the Xinjiang project. It notes that it was the responsibility of MMC Trading International Co to raise letters of credit with each of the equipment suppliers (at MM Cables’ cost) and that payments by purchasers would be made to MMC Trading International Co’s bank account. As noted above, Mr Bell’s evidence was that Peter Lei was acting as the agent of MM Cables generally and in respect of the Xinjiang project in particular. This document is consistent with Peter Lei operating his agency business through MMC Trading International Co.
(d)In a contract for telecommunications accessories with RXS Kabelgarnituren GmbH, Germany, John Zhang signed ‘for Peter Lei, MMC Trading International’ as the buyer whereas, when Peter Lei signed a purchase contract for the same company dated 26 July 1995 on behalf of MMC Trading International Co, he did so on his own behalf.
(e)A fax from BICC Cables of 27 November 1996 confirmed that a commission payment payable to Peter Lei had been made into the account of MMC Trading International Co.
I find that Peter Lei did arrange for John Zhang to register the business name of MMC Trading International Co for the purpose of conducting his agency business with MM Cables and that John Zhang was the business name proprietor as Peter Lei’s nominee.
Was MMC Pacific incorporated by Peter Lei and Lucy Lei for the purpose of conducting their business interests?
On 21 June 1995, MMC Pacific was incorporated. The directors were Lucy Lei and John Zhang and the memorandum of association records the subscribers as John Zhang taking 5 shares and Lucy Lei taking 6 shares. It was not disputed that the start-up funds for the company consisted of the sum of $457,368.03 invested in a MMC Pacific account with the National Australia Bank (‘NAB’) at Box Hill on 17 August 1995.
Peter Lei and Lucy Lei gave evidence that they established MMC Pacific for the purpose of conducting their business relating to the sale of cables. Their evidence was that the start-up funding of the company was provided by Lucy Lei, who had the necessary funds available because Peter Lei ‘had paid her a commission of $450,000.00 for the work she had undertaken for [him] in the Da Lian office of [his] Beijing Representative Office’.
Juliya Lei contends as follows:
(a)From 1989, she conducted her businesses (the ‘Chinese businesses’) involved in importing telecommunications and other products into China, which was conducted through Huamai company (established in 1993) and MMC Pacific.
(b)MMC Pacific was incorporated to control the Australian operations of the Chinese businesses on her instructions, which she had communicated to Peter Lei or John Zhang.
The evidence of Juliya Lei was that the MMC Trading International Co business belonged to John Zhang and not to Peter Lei; and that Peter Lei’s business did ‘not have anything to do with [MMC Pacific]’.
Juliya Lei was not entirely clear about what business was being conducted by MMC Trading International Co and MMC Pacific; but she did give evidence about being entitled to a commission from MM Cables by reason of her taking a currency risk. Paragraphs 7, 8 and 9 of her witness statement state as follows:
The market price of Foreign Currency Quota not only fluctuates like the share market, but there was often a shortage of Foreign Currency Quota, there was virtually no one that would undertake the risk and become the adventurer between two currencies - when payment figures are in the millions, any fluctuation in either rates or the supply of the Quota will have devastating consequence to the entire contract between MM Cables and the Chinese telecommunication companies. My decision to be that riskbearer made MM Cables the only foreign cable manufacturing company that dealt in RMB at the time.
My decision to be this risk-bearer earns me a percentage of the contract value between MM Cables and Chinese telecommunication companies, this percentage varies.
This earning of a percentage of the contract value is not exactly what was called a commission. Because commissions are taken by middle-man between two contract parties. My role was to purchase MM Cables' goods with US dollars, and sell these goods to Chinese telecommunication companies in RMB, therefore shielding both parties from the significant risks of currency exchange. MM Cables considers my earnings as a commission they paid, but what actually happened is that I would pay MM Cables these earnings before my next assignment with MM Cables even start, in case the exchange rate or Quota changed, and telecommunication companies' RMB would not be sufficient to pay MM Cables. This was my business strategy.
I accept the evidence of Mr Bell that Juliya Lei said she could not assist MM Cables because she was employed by a State owned company and that she was neither appointed as the agent for MM Cables nor paid commission. He denied the suggestion by Juliya Lei that the contracts organised by Peter Lei for MM Cables were payable in the Chinese currency renminbi (‘RMB’) and said they were all payable in US dollars.
Mr Khor also denied Juliya Lei’s suggestion that MM Cables accepted RMB as payment and said that all contracts and payments were in US dollars.
Juliya Lei gave evidence that she had instructed John Zhang to establish the company for the purpose of continuing her Chinese businesses. She contended that the sources of the start-up funding were the following:
(a)By a fax dated 30 November 1994 to MMC Trading International Co, the Australia and New Zealand Banking Group Limited (‘ANZ Bank’) records the receipt of $908,966 which was paid into MMC Trading International Co’s ANZ Bank foreign exchange account. An ANZ Bank Documentary Bills Lodgement Letter records that this amount related to a shipment of optical fibre cables departing Melbourne for Hong Kong on 21 June 1994 with the buyer recorded as ‘Shen Yang Machinery Import and Export Huamai Branch’ (‘Huamai company’). The letter is from MMC Trading International Co to the ANZ Bank and purports to attach an invoice, a weight certificate, a bill of lading and a quality certificate. The letter instructs the ANZ Bank that these documents are to be surrendered on payment of the sum of $908,966.
(b)On 25 May 1995, MMC Trading International Co’s ANZ Bank foreign currency account statement shows US$197,682.80 deposited by ‘Shen Yang Tech’. This payment appears to relate to an ANZ Bank Documentary Bills Lodgement Letter from MMC Trading International Co to the ANZ Bank dated 3 May 1995 which records a shipment of optical fibre which departed from Melbourne for China on 13 February 1995. The letter is from MMC Trading International Co to the ANZ Bank and purports to attach 3 invoices, a bill of lading and a ‘CERT ACCEPT’. It instructs the ANZ Bank to surrender the documents on payment of US$198,122 from STIEC. By a letter dated 25 May 1995 to MMC Trading International Co, the ANZ Bank states that it had credited an amount of US$197,682.80 into MMC Trading International Co’s foreign exchange account.
The issue is whether these payments can be related to the following transfers, which provided the sum of $457,368.03 being the start-up funding for MMC Pacific.
(a)By loan agreement dated 25 June 1995, Lucy Lei is recorded as lending MMC Pacific the sum of $410,000 for a term of 36 months.
(b)An undated NAB term deposit record notes that a term deposit of $451,843.32 was opened in the name of Lucy Lei at the Footscray branch invested for 30 days at an interest rate of 7.1% which was to mature on 8 July 1995.
(c)On 17 August 1995, the sum of $457,368.03 was invested in an MMC Pacific account with the NAB at Box Hill for 30 days at an interest rate of 7.3%. This sum is the start-up fund.
(d)On 21 August 1995, the following sums were deposited in the following accounts each held in the joint names of MMC Pacific and Lucy Lei:
(i)$420,000 in an ANZ Bank term deposit account at an interest rate of 7.31% which was to mature on 21 September 1995.
(ii) $30,000 in an ANZ Bank cash management account.
(iii) $7,368.03 in an ANZ Bank business account.
(f)As at 30 June 1996, the MMC Pacific balance sheet shows a single shareholder loan of $454,889 to Lucy Lei.
The contemporaneous documents do not support Juliya Lei’s contention with respect to the funding of MMC Pacific for the following reasons:
(a)It is common ground that the funding of MMC Pacific was sourced from the deposit into the NAB term deposit account for MMC Pacific on 17 August 1995. However, it is likely that those funds were sourced through Lucy Lei for the following reasons:
(i)Lucy Lei had approximately the amount, which was invested in the MMC Pacific NAB term deposit, maturing on 8 July 1995, from an investment in her name with the NAB at its Footscray branch.
(ii)The amount invested in the MMC Pacific NAB account at Box Hill was transferred on 21 August 1995 into three accounts all in the joint names of MMC Pacific and Lucy Lei.
(iii)The balance sheet of MMC Pacific for the year ending 1996 shows a shareholder loan in the name of Lucy Lei in the sum of $454,889.
I am unable to make any finding about how Lucy Lei acquired these funds, although she may well have been funded by Peter Lei, as he says. I consider it unlikely that Peter Lei paid Lucy Lei an amount of $450,000 for ‘the work she had undertaken for [him] in the Da Lian office’. The fact is that I do find that Lucy Lei loaned $450,000 to MMC Pacific in August 1995 and I am not able, and it is not necessary, to determine how she acquired the funds over 20 years ago.
(b)Juliya Lei’s contention that the initial company funding was financed from the US$908,147.74 or the US$197,682.80 payments to MMC Trading International Co is not supported by the documentary evidence. The ANZ Bank Documentary Bills Lodgment Letters relating to these payments evidence that the payments were in consideration for the supply of optical fibre. Presumably, such amounts (possibly net of any commission) would have been on-payable to MM Cables as the supplier of the optical fibre. Juliya Lei was unable to explain how it was that these payments from the Huamai company and STIEC were her money or even partly her money for the purposes of funding MMC Pacific.
The fact that MMC Pacific was incorporated and used, at least initially, for conducting Peter Lei’s and Lucy Lei’s business interests is also supported by the following evidence:
(a)John Zhang’s evidence was that it was Peter Lei who arranged for the incorporation of MMC Pacific.
(b)Lucy Lei was one of the original shareholders but Juliya Lei was not.
(c)The evidence of Ms Lorraine Duff, the ANZ Bank manager at the Balwyn branch from 1996 to 2005 was that Peter Lei and Lucy Lei were the authorised signatories and the persons with whom she dealt with respect to the accounts of MMC Pacific during the period 1996 to 2005.
(d)The evidence of Ms Yuet Fong Ng was that she was an employee at the Balwyn branch of the ANZ Bank from September 1998. She recalled that the signatories to the MMC Pacific account were Lucy Lei and, she believed, Peter Lei. She could not recall Juliya Lei as a signatory. She thought her first dealing with Juliya Lei would probably have been after 2008 or 2009.
As noted above, the evidence that Peter Lei was the sole Chinese agent of MM Cables and that he used the business name of MM Trading International Co for the purpose of conducting his agency business is overwhelming. I do not accept the evidence of Juliya Lei that:
(a)she believed that MMC Trading International Co was solely John Zhang’s business;
(b)MMC Pacific was incorporated on her instructions (which was also contrary to the evidence of John Zhang); or
(c)Peter Lei did not use MMC Pacific to conduct his business interests.
Accordingly, for the above reasons, I find that MMC Pacific was incorporated by Peter Lei for the purpose of conducting business interests of Lucy Lei and himself; and was used exclusively by Peter Lei and Lucy Lei in the period 1995-1996 for this purpose. Juliya Lei did not provide the start-up funds and did not use the company to conduct her Chinese businesses until about 1997, as is referred to in the next paragraph.
Was the 1999 share allotment of 149,994 shares in MMC Pacific to each of Juliya Lei and Lucy Lei valid?
By 1997, it is common ground that Juliya Lei used MMC Pacific to acquire and export equipment from and to China. It is also common ground that, in about 2000, Juliya Lei decided that MMC Pacific should change accountants to Mr Kenneth Lau. Lucy Lei deposes that she was told of the change ‘one day in 2000’. However, the change must have occurred by 18 February 2000 because that date appears on a note that Juliya Lei admits is recorded in her handwriting headed ‘Mr Kenneth Lau’. The note, despite being dated ‘18/2/2000’ appears to include a reference to a share issue occurring in the financial year ending 30 June 1999. The note states as follows:
98.1.30-99.6.30
Company’s Business Asset
Property: 300,000
Current cash: 400,000
Would you contact us if you have any question.
The shareholder’s shares: Lei Yu Zin [Lucy Lei] 50%
Lei Yu Hui [Juliya Lei] 50%
MMC Pacific International Pty Ltd.
On 2 March 2000, Mr Kenneth Lau signed the accountant’s report to MMC Pacific regarding the company’s financial statements for the period ended 30 June 1999. The balance sheet appears to reflect the issue and allotment of 299,988 ordinary shares in MMC Pacific by the following entries:
(a)The shareholder loan of Lucy Lei is reduced by exactly $149,994 presumably reflecting the consideration for the issue of 149,994 shares at $1 per share.
(b)Juliya Lei is noted as having a shareholder loan which increased from zero to $15,210.
(c)The accounts reflect, under the heading ‘Capital’, an entry ‘Other Reserves - $299,988’.
(d)The notes to the accounts include the following:
The Directors of the Company, with the consent of all Members, authorise the Issue and Allotment of 299,988 Ordinary Shares of $1.00 each in the Capital of the Company. The amount for the same is transferred from Directors’ Loan Account with the Company to a Special Reserve Account for this purpose. The procedures for the Issue and Allotment are underway at date of the Balance Sheet and the processes finally completed on 1st December 1999.
The evidence of Mr Frederick Macaulay, an expert accountant called on behalf of the plaintiffs, was that the creation of the ‘Other Reserves’ line in the balance sheet was to create a place ‘to park the loan accounts before the issues of the shares’. In his opinion, the only reason for this unusual accounting entry was to ‘mask the fact that shares were issued for which there was no payment’. Ms Pamela Banks, the expert accountant called on behalf of the first defendant, said that the ‘Other Reserves’ entry was ‘highly unusual’.
Section 231 of the Corporations Act 2001 (Cth) provides as follows:
Membership of a company
A person is a member of a company if they:
(a) are a member of the company on its registration; or
(b)agree to become a member of the company after its registration and their name is entered on the register of members; …
Accordingly, a valid allotment and issue of shares requires:
(a)the agreement of the subscriber to become a member;
(b)a resolution of the board of the company or at least a ministerial act on the part of the company accepting the person as the shareholder;[2] and
(c)the due and proper entry of the person’s name in the company’s register of members.[3]
[2]Precision Data Holdings Ltd v Titan Hills Australia Ltd (1990) 2 ACSR 707, 723 (Tadgell J).
[3]Bodikian v Sproule (2009) 72 ACSR 598 [22] (Austin J).
The fact that there may be no company register does not change the result. In Maddocks v DJE Constructions Pty Ltd, the High Court stated:
The authorities are clear that in the case of a person who subsequently to incorporation applies for shares to be allotted to him, or purchases shares from an existing shareholder, does not become a member of the company until his name is entered in the share register. In the present case the name of the appellant was at no time entered in the share register. It is irrelevant that for a long period the company had not had a register of shareholders.[4]
[4](1982) 148 CLR 104, 117 (Stephen, Mason, Murphy, Aickin and Brennan JJ).
As s 231 provides, the requirement for the member of a company to be entered onto the company register does not apply to the original subscribers for shares referred to in the application for registration.[5] This is in accordance with s 120(2) of the Corporations Act 2001 (Cth) which provides that:
The shares to be taken up by the members as specified in the application are taken to be issued to the members on registration of the company.
[5]In re London, Hamburgh, and Continental Exchange Bank (Evan's Case) (1867) 2 Ch App 427 cited in Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104, 117; Sigma X-Ray Flux Pty Ltd v Evans (2002) 168 FLR 1, 4-5 [14]-[15] (Master Sanderson) considering s 120(2) of the Corporations Act 2001 (Cth).
Accordingly, subject to rectification of the register, no allotment or transfers of shares in MMC Pacific, other than the original 6 shares to Lucy Lei and 5 shares to John Zhang, are valid without their names being entered in the company register.
In my opinion, the purported issue and allotment of 299,988 shares was not validly effected for the following reasons:
(a)I consider it is unlikely that there was ever a meeting of directors to approve the allocation for the following reasons:
(i) The only record of an intention to make the purported allotment is a note by Juliya Lei of 18 February 2000. Whether this was the instruction of Juliya Lei to the accountant or, as was suggested by Juliya Lei, a record of her recording the accountant’s idea to increase the share capital, it appears plain that the idea arose well after the 1998-1999 financial year. In fact, it occurred after the processes were purportedly ‘finally completed on 1st December 1999’, as recorded in the notes to the accounts of 1 December 1999.
(ii) No party produced any minutes of any directors’ meeting. The particulars to paragraph 15 of the Statement of Claim refer to ‘purported minutes’ of a meeting of directors apparently written and signed by John Zhang and stating that Lucy Lei, Juliya Lei and John Zhang were present at a meeting at 23 Yerrin Street, Balwyn on 1 December 1999. No party sought to tender such a document and the evidence of Lucy Lei was that there was no such directors’ meeting on 1 December 1999. John Zhang did not recall any directors’ meeting to approve issuing further shares. Juliya Lei, when asked whether there was a meeting to discuss the increase in the share capital, said ‘Yes I told Lucy this. I took Lucy and John with me. The three of us attended the accountant’s office’. Mr Kenneth Lau, the accountant, was not called to give evidence.
(iii)The evidence of the expert accountant called by the plaintiffs, Mr Macaulay, was that the company did not maintain ‘conventional records’ and he described generally the poor record keeping he had observed from his exposure to the company accounts. Accordingly, this is not a case where, because of a normally meticulous attention to detail, one could infer that such a minute of the meeting must have existed but is now lost.
(b)The company register was not produced and the evidence was that Juliya Lei and John Zhang cannot recall ever seeing a register. Similarly, the plaintiffs were not aware of a share register. The documents provided to the expert witnesses did not contain a reference to a company register.
(c)Juliya Lei did not pay for the shares issued. The notes to the accounts record that her payment was by reduction in the loan account. As noted above, her loan account as at 30 June 1998 was zero. There was no evidence of Juliya Lei loaning any money to the company during the 1998-1999 financial year and neither expert was able to identify any such loan.
Section 1274B of the Corporations Act 2001 (Cth) provides that the contents of an ASIC search is ‘proof of such a matter in the absence of evidence to the contrary’. In my opinion, in this case the evidence to which I have referred constitutes evidence to the contrary.
Was the purported transfer of shares from Lucy Lei to Juliya Lei on or about 19 April 2005 effective?
In April 2005, Lucy Lei agreed to transfer her shares to Juliya Lei at the suggestion of the new accountant Mr Chiu who advised that otherwise the assets of MMC Pacific might be at risk of a claim made against her childcare business, 3 Apples Childcare Centre Pty Ltd.
The plaintiffs allege that the transfer was a result of the unconscientious conduct of Juliya Lei or the lack of consideration for the transfer gives rise to a resulting trust. However, the anterior question is whether the transfer was effective and, for the reasons expressed above, I find that the agreement by Lucy Lei to transfer these shares to Juliya Lei was not effective for the following reasons:
(a)The purported issue and allotment of the 149,994 shares to Lucy Lei was not valid, for the reasons set out above. Accordingly, she could not have transferred the 149,994 shares to Juliya Lei.[6]
(b)The evidence of the transfer was limited to a facsimile dated 19 April 2005 from Lucy Lei stating ‘I agree to transfer MMC’s share to my sister Yu Hui Lei’ and ASIC Form 484 (change to company details) lodged on 20 May 2005,[7] which discloses Juliya Lei as the sole shareholder in MMC Pacific with 300,000 shares.[8]
(c)The transfer of the shares was not entered into the company register.
[6]It was not contended by the defendants that the transfer could be effective to transfer the 6 shares Lucy Lei did hold.
[7]Not tendered but admitted on the pleadings.
[8]The evidence disclosed that the share capital of MMC Pacific consisted of the original 11 shares (see [39]) plus 299,988 shares purportedly issued to Lucy Lei and Juliya Lei – a total of 299,999 shares. How the ASIC records came to show Juliya Lei as holding 300,000 shares was not explained.
The failure to enter a transfer in the company share register could be subject to a claim for rectification. However, such a claim was not made and, if it had been, it would be affected by the fact it was common ground that there was no consideration for the transfer and no compliance with the pre-emptive rights provisions in cl 22 of the Articles of Association of MMC Pacific.
Conclusion as to beneficial ownership of the originally subscribed shares in MMC Pacific
As a consequence of my finding that there had been no entries in the company share register for the issue, allocation or transfer of shares since the incorporation of the company, the shares in MMC Pacific are still held by the original subscribers, namely Lucy Lei as to 6 shares and John Zhang as to 5 shares. The plaintiffs contend that John Zhang held his shares on trust for Peter Lei and Lucy Lei. I accept the plaintiffs’ submission for the following reasons:
(a)MMC Trading International Co was the business established by Peter Lei to act as agent for MM Cables, as the name suggests. In my opinion, the evidence that MM Cables considered that its agent was Peter Lei personally supports the proposition that, to the extent that the business was conducted under the trading name of MMC Trading International Co, it was still Peter Lei’s business.
(b)John Zhang does not dispute that he had no equity in the business and that Peter Lei was, at least, an owner of the agency business. He concedes that he was made an owner of the business name, MMC Trading International Co, because he was the only person who had permanent Australian residency.
(c)John Zhang also agrees that it was Peter Lei who arranged the incorporation of MMC Pacific and that he was only made a director of that company because he had permanent Australian residency.
(d)From the financial year 1995-1996, Peter Lei operated his business interests through MMC Pacific and the group certificates support the proposition that John Zhang was an employee of the company.
(e)John Zhang concedes that he made no payment for his shares in MMC Pacific. The initial funding of the company came from an advance by Lucy Lei of approximately $450,000.
(f)There is no evidence of John Zhang ever exercising rights as a shareholder or receiving dividends. He did give evidence that he attended some meetings but he was unable to recall the details of any such meetings and there were no records produced which supported his attendance at any meetings.
(g)The evidence of the officer of the company’s bank establishes that Peter Lei and Lucy Lei were the persons who operated the company bank account at all relevant times.
(h)Over the years, John Zhang has been prepared to act as a nominee for Peter Lei with respect to 23 Yerrin Street and 11 Kintore Crescent and execute transfers as directed by Peter Lei.
Accordingly, I consider that John Zhang holds his five shares in MMC Pacific on a bare trust for Peter Lei and Lucy Lei.[9]
[9]The plaintiffs requested that, if the Court was satisfied that John Zhang held the shares on trust for Peter Lei and/or Lucy Lei, the Court should distinguish between their interests.
I turn now to consider competing claims with respect to the properties.
The Properties
23 Yerrin Street, Balwyn
The relevant facts with respect to 23 Yerrin Street are as follows:
(a)On 18 March 1995, Peter Lei and John Zhang attended an auction at 23 Yerrin Street, Balwyn. Peter Lei deposed that a real estate agent advised him that he could not buy the property because he was a foreigner and suggested that, as John Zhang was a permanent resident, he should sign the contract. John Zhang accepts that, although he was the named purchaser, he did not make any financial contribution to the purchase of 23 Yerrin Street. The purchase price of the property was $300,000 and on settlement John Zhang nominated the purchasers as Lucy Lei and himself.
(b)By a declaration of trust dated 16 June 1995, John Zhang and Lucy Lei declared that 23 Yerrin Street was held as to eight 1/10th shares on trust for Lucy Lei and as to two 1/10th shares on trust for John Zhang.
(c)In February 2007, 23 Yerrin Street was subdivided into unit 1 being Certificate of Title Volume 10992 Folio 734 and unit 2 being Certificate of Title Volume 10992 Folio 735.
(d)By a transfer dated 1 April 2009, unit 1 and unit 2 of 23 Yerrin Street were transferred by John Zhang and Lucy Lei to Peter Lei and Lucy Lei with the consideration recorded as ‘ENTITLED IN EQUITY’. On 18 April 2009, John Zhang signed a statutory declaration before a Constable at Boroondara Police Station declaring as follows:
1.I am registered as the half owner of two units at Units 1 and 2, 23 Yerrin Street, Balwyn, respectively being the land contained in Certificate of Title Volume 10992 Folio 734 and Certificate of Title Volume 10992 Folio 735.
2.The titles of the units were issued out of the parent title Certificate of Title Volume 4594 Folio 735.
3. The other half owner is Yu Xin Lei.
4.In early 1995, Yu Xin Lei and her brother, Zhenji Lei, decided to purchase the property at 23 Yerrin Street, Balwyn, being the land contained in Certificate of Title Volume 4594 Folio 735 ('the Property').
5.At that time, Mr Zhenji Lei was a Foreigner (as defined by the Foreign Acquisitions and Takeovers Act (Cth) 1975), and therefore, prohibited by the Foreign Acquisitions and Takeovers Act (Cth) 1975 to purchase the Property.
6.Mr Zhenji Lei approached me and asked that I become the Purchaser of the Property together with her (sic) sister, which I agreed. ·
7.The settlement took place some time in June 1995 and we were registered on the title as tenants in common in equal shares on 26 June 1995.
8.All the initial deposit, stamp duty, purchasing expenses and the settlement money, apart from the ANZ loan, were provided by Mr Zhenji Lei and his sister, Yu Xin Lei and I did not contribute anything to the purchase of the property.
9.From the settlement until the mortgage was discharged in February 2007, I did not make any loan repayment to ANZ.
10.I also did not paid or contributed (sic) in any way to the construction costs of the two units.
11.I understand that the correct stamp duty was paid at the time when the Property was transferred to me and Yu Xin Lei.
12.I did not receive any consideration from Zhenji Lei for the transfer of the property.
John Zhang confirmed in the witness box that the contents of this statutory declaration were true.
(e)On or about 14 July 2010, unit 1, 23 Yerrin Street was sold by Peter Lei and Lucy Lei for $1,352,000.
(f)Peter Lei and Lucy Lei remain as the registered proprietor of unit 2, 23 Yerrin Street.
Juliya Lei claims an entitlement to unit 2, 23 Yerrin Street and the proceeds of the sale of unit 1, 23 Yerrin Street on the basis of the alleged Overarching Agreement. The Overarching Agreement also relates to 11 Kintore Crescent, Box Hill and 104 Balwyn Road, Balwyn and I will deal with it below.
11 Kintore Crescent, Box Hill
In November 1997, Peter Lei deposed that he successfully bid at an auction for 11 Kintore Crescent, Box Hill. As the Australian resident, John Zhang signed the contract as purchaser and paid the deposit of $21,000.
Peter Lei deposes that the $21,000 was paid on his behalf from money provided by him. In his witness statement, John Zhang states that the deposit of $21,000 was from his own money and implies that it has not been repaid. However, in a statutory declaration declared on 18 August 2010, John Zhang declared that Peter Lei had paid him back for the $21,000 deposit and said that he had not paid or contributed in any way to the construction costs of the two units, which were subsequently constructed at 11 Kintore Crescent, Box Hill. Under cross-examination, John Zhang stated that the contents of the statutory declaration were true.
Similarly, by an open letter dated 26 May 2014, John Zhang stated:
I confirm my open offer to convey the legal title to Unit 1, 11 Kintore Crescent (‘the land’) to whomsoever the Court directs or all of the parties agree … Should the mediation not resolve today I shall amend my defence accordingly – although I do not believe it is necessary, and will submit to any order of the Court in relation to the land.
In the witness box, John Zhang resiled from the position in the open letter on the basis that he was only given a short time to make the decision, and an interpreter was not present. He said the letter was a product of some ‘misleading legal advice’, the fact that he had a newborn baby; and he thought the letter was for the limited use of the mediation.
By the time the purchase of Kintore Crescent settled in December 1997, the property was transferred to MMC Pacific, Juliya Lei, Peter Lei and John Zhang, presumably by nomination.
By 1999, it was proposed to register a plan of subdivision to divide 11 Kintore Crescent into two lots. By a declaration of trust dated 19 February 1999, the registered proprietors declared that unit 1, 11 Kintore Crescent was held on trust for MMC Pacific and unit 2 was held on trust for Peter Lei, John Zhang and Juliya Lei jointly. Peter Lei and Lucy Lei contend that the declaration of trust was signed at the request of Juliya Lei. Juliya Lei says that the signing of the document was organised by Peter Lei, and John Zhang says that he was ‘provided with a document to sign and to return to Michael Nolan, the solicitor’. Mr Nolan was not called to give evidence. However, these matters are of little significance because there is no challenge to the validity of the declaration of trust.
On or about 8 April 2004, unit 2, 11 Kintore Crescent was sold for $442,000.
Juliya Lei contends that her signature on the transfer of land was forged and alleges that the plaintiffs have failed to account for the proceeds of approximately $442,000 received on 21 May 2004. Lucy Lei concedes that Juliya Lei was in China and did not sign the transfer; but she deposed that Juliya Lei told her that she ‘could sign for her’ and that ‘It was not unusual for Juliya to authorise me to do things on her behalf.’ This was not challenged or contested by Juliya Lei.
Further, the writ in this proceeding was filed on 7 July 2010 and consequently the claim for failure to account is barred by s 5(2) of the Limitation of Actions Act 1958 (Vic).
Accordingly, subject to the claim of Juliya Lei to unit 1, 11 Kintore Crescent based on the Overarching Agreement (which I deal with below), MMC Pacific, Juliya Lei, Peter Lei and John Zhang hold their interest as registered proprietors of unit 1 being the land described in Certificate of Title Volume 10531 Folio 507 on trust for MMC Pacific pursuant to the declaration of trust dated 19 February 1999.
104 Balwyn Road, Balwyn
On 28 June 2003, Peter Lei was the highest bidder at a property being a disused police station at 104 Balwyn Road, Balwyn for $800,000. The purchaser under the contract of sale was MMC Pacific, which Peter Lei explains was as a result of advice from the real estate agent who said that ‘If you have a company you could purchase it in your company’s name. If you purchase it in a company name, you get 10% GST back’. His evidence was that he had no concern with purchasing the property in the name of MMC Pacific because he believed that it was a company controlled by Lucy Lei and himself. The purchase of the property was settled on 27 August 2003.
Peter Lei deposes that in 2005 he decided to develop 104 Balwyn Road as a childcare centre. The property was developed and a company called 3 Apples Childcare Centre Pty Ltd was incorporated on 7 July 2005 for the purpose of operating the childcare business on the site. Lucy Lei was the sole director and shareholder of 3 Apples Childcare Centre Pty Ltd.
Juliya Lei accepted that Peter Lei and Lucy Lei or the associated entity 3 Apples Childcare Centre Pty Ltd would own and operate the childcare business at 104 Balwyn Road. However, she contended that there was an agreement with respect to the childcare business, the terms of which were as follows:
(a)Juliya Lei or MMC [Pacific] would partly fund the purchase and redevelopment of 104 Balwyn Road and own that property;
(b)Peter Lei and Lucy Lei or an entity associated with them (subsequently 3 Apples), would operate a childcare business at 104 Balwyn Road (the childcare business) and own that business;
(c)the Balwyn Road Agreement would be continued until either Peter Lei or Juliya Lei wished to terminate it;
(d)at the conclusion of the Balwyn Road Agreement there would be a taking of accounts and that Juliya Lei and MMC [Pacific] on the one hand and Peter Lei, Lucy Lei and 3 Apples on the other hand would share the profits of the childcare business in accordance with their contributions to the Balwyn Road Agreement.
Juliya Lei alleged that the agreement was partly oral and partly implied. The oral part consisted of conversations between her and Peter Lei by telephone to the effect alleged in about 2003. The implied part was said to arise from unspecified conduct of the parties and to give efficacy to the agreement.
The only evidence given by Juliya Lei about a conversation in 2003 with respect to 104 Balwyn Road was as follows:
In June 2003, I was in China, Lucy telephoned me and asked me to use the funds held in my personal account at HSBC bank, in the purchase of the property at 104 Balwyn Road. I agreed. Lucy claimed that she used $34,000 from my HSBC account for the purchase of the property, but my account showed a withdrawal of $52,000, so $18,000 was unaccounted for. Lucy never informed me where did these missing funds go, despite my inquiries.
I do not consider that this conversation with Lucy Lei could support the agreement as alleged and no conduct was identified which could support the inference of such an agreement.
Accordingly, subject to the claim of Juliya Lei to 104 Balwyn Road based on the Overarching Agreement (which I deal with below), MMC Pacific is the registered proprietor of 104 Balwyn Road and holds its interest beneficially.
The Overarching Agreement
Juliya Lei alleges in the further amended defence and amended counterclaim that in about 1995, she, Peter Lei, Dr Zhu and John Zhang reached an agreement or arrangement in relation to the use of funds, all ultimately sourced from her Chinese businesses together with the property at 23 Yerrin Street, Balwyn, to purchase or build properties to provide accommodation for Peter Lei, Lucy Lei, Juliya Lei and John Zhang. The terms of the Overarching Agreement were alleged to be:
(a)the existing old house at 23 Yerrin Street would be demolished and two new units constructed there;
(b) Peter Lei would live at Unit 1/23 Yerrin Street;
(c)Juliya Lei would live at Unit 2/23 Yerrin Street and Dr Zhu would live with her;
(d) two units would be constructed at 11 Kintore Crescent;
(e) Lucy Lei would live at Unit 1/11 Kintore Crescent;
(f) John Zhang would live at Unit 2/11 Kintore Crescent;
(g)the Overarching Agreement would continue until either Peter Lei or Juliya Lei desired to terminate it;
(h) upon termination of the Overarching Agreement:
(i)there would be a taking of accounts as between the Juliya Lei, Peter Lei, Lucy Lei, Dr Zhu and John Zhang ;
(ii)the properties purchased and/or developed, the assets owned in accordance with the Overarching Agreement, together with the proceeds of sale of any such properties and assets would be divided between the Lei family and John Zhang in accordance with their respective contributions to the Overarching Agreement;
(iii)contributions to be taken into account in the division according to sub-paragraph (h)(ii) were to be both financial and non-financial.
The Overarching Agreement was said to be partly oral and partly implied. The oral part was alleged to consist of conversations by telephone and between the parties at 23 Yerrin Street to the effect alleged.
The implied part was alleged to be implied from the following circumstances:
(a) the family relationship between the plaintiffs and Juliya Lei;
(b)the relationship of close and trusted family friend between the plaintiffs and Juliya Lei on the one hand and John Zhang on the other hand;
(c)the fact that the funds to be utilised in the Overarching Agreement were sourced from Juliya Lei’s Chinese businesses;
(d)their Chinese immigrant culture and experience and their aim to contribute their resources, financial and non-financial to build up assets for the benefit of all the family who all agreed to contribute their resources to the Overarching Agreement;
(e)the acts of the parties in the purchase and/or development of 23 Yerrin Street and 11 Kintore Crescent and (until this dispute arose) the occupation of:
(i) Unit 1/23 Yerrin Street by Peter Lei and his family;
(ii)Unit 2/23 Yerrin Street by Juliya Lei, her daughter and Dr Zhu;
(iii) Unit 1/11 Kintore Crescent by Lucy Lei and her family;
and by the construction of Unit 2/11 Kintore Crescent for John Zhang, until he left that property; and
(f)the widespread transfers of funds between MMC Pacific and family members to facilitate the Overarching Agreement.
With respect to these matters, I make the following observations:
(a) The family relationship between the plaintiffs and Juliya Lei is uncontested.
(b)The fact that, throughout most of the relevant period, John Zhang was a close and trusted family friend of the plaintiffs and Juliya Lei is apparent from the evidence.
(c)There was no evidence about the Chinese immigrant culture.
(d)The question of how funds were sourced and the acts of the parties in the purchase and development of 23 Yerrin Street, 11 Kintore Crescent and 104 Balwyn Road, and the transfer of funds between MMC Pacific and family members requires some consideration of the financial relationship between the parties and the relevant assets.
The expert witness for the plaintiffs, Mr Macaulay, and the expert witness for the first defendant, Ms Banks, agree that the moneys lent and moneys drawn by the various persons with respect to MMC Pacific, Kintore Crescent and 104 Balwyn Road are in accordance with the following table.
To and from Company To and from Kintore To and from Balwyn To and from Total Capital contributed Lucy Lei 150,000 150,000 Loans Lucy Lei Money lent 613,388 613,388 Money drawn -473,495 -50,000 -523,495 Total net 139,893 -50,000 0 89,893 Peter Lei Money lent 101,878 298,897 9,221 409,996 Money drawn -422,511 -422,511 Total net -320,633 298,897 9,221 -12,515 Dr Zhu Money lent 528,580 147,574 676,154 Money drawn -1,300 -208,989 -210,289 Total net 527,280 -61,415 0 465,865 All Plaintiffs Money lent 1,243,846 446,471 9,221 1,699,538 Money drawn -897,305 -258,989 0 -1,156,295 Total net 346,540 187,482 9,221 543,243 Xia Lei Money lent 205,149 205,149 Money drawn -4,309 -4,309 Total net 200,840 0 0 200,840 All Plaintiffs/Xia Lei Money lent 1,448,995 446,471 9,221 1,904,687 Money drawn -901,615 -258,989 0 -1,160,604 Total net 547,380 187,482 9,221 744,083 Juliya Lei Money lent 760,053 760,053 Money drawn -319,213 -319,213 Total net 440,840 0 0 440,840 Company Money lent 36,900 1,043,815 1,080,715 Money drawn -174,193 -174,193 Total net 137,293 1,043,815 906,522
This table assumes that the $457,368.03 contributed on 17 August 1995 was a loan from Lucy Lei as it was recorded in the company’s financial statements. The accountants were unable to determine the source of the sum of $457,368.03.
As I have already found, I am unable to accept Juliya Lei’s contention that this amount was sourced from the US$908,147.74 or the US$197,682.80 paid into the foreign currency account of MMC Trading International Co. Accordingly, however Lucy Lei was able to source these funds, I find that on the basis of the evidence, particularly the contemporaneous records, Lucy Lei was the lender of the start-up funds to MMC Pacific.
Further, the expert accountants were able to agree that the sources of the moneys to buy and develop 23 Yerrin Street were as follows:
Plaintiffs Funds In Peter Lei buy land 150,000 development 274,141 Dr Zhu development 171,282 Lucy Lei buy land 150,000 development 10,800 756,223 Juliya Lei development 33,785 Company development 3,688
Conclusion on the Overarching Agreement
There is no evidence of conversations between the parties at 23 Yerrin Street or any other venue to the effect alleged by Juliya Lei. Neither do I consider that the facts relied upon could support the inference of the Overarching Agreement and its alleged terms. Accordingly, I reject the submission of Juliya Lei that the parties entered into an Overarching Agreement.
Juliya Lei pleaded an alternative claim with respect to the units at 23 Yerrin Street based on a resulting trust. Apart from the joint evidence from the experts that, with respect to the development, an amount of $33,785 was sourced from Juliya Lei, there was no evidence as to when, for what purpose or generally as to the circumstances in which such money was paid. I am unaware whether the money may have been loaned, a repayment of a loan, consideration for accommodation or part of some other family arrangement. In the circumstances, I am unable to infer that anyone ever intended that Juliya Lei would acquire an interest in 23 Yerrin Street.
1119 Whitehorse Road, Box Hill
The final asset, which was not the subject of submissions, is 1119 Whitehorse Road, Box Hill.
On 30 June 2000, Juliya Lei and Lucy Lei were registered as proprietors of the property.
By her counterclaim, Juliya Lei seeks a declaration that Lucy Lei holds her interest in 1119 Whitehorse Road on trust for Juliya Lei and MMC Pacific.
In the plaintiffs’ defence to counterclaim, they admit that Lucy Lei does not have any beneficial ownership of the property and assert that MMC Pacific has no beneficial ownership of the property.
Accordingly, I propose to make a declaration that Lucy Lei holds her legal interest in 1119 Whitehorse Road, Box Hill being the land described in Certificate of Title Volume 11301 Folio 641 on trust for Juliya Lei.
Orders
I propose to make the following declarations and orders:
(a)A declaration that the current shareholders of MMC Pacific are Lucy Lei as to 6 shares and John Zhang as to 5 shares.
(b)A declaration that John Zhang holds his 5 shares in MMC Pacific on trust for Peter Lei and Lucy Lei.
(c)An order that John Zhang sign, and give to Peter Lei and Lucy Lei, all documents required to transfer the legal title in his 5 shares in MMC Pacific to Peter Lei and Lucy Lei.
(d)A declaration that Peter Lei and Lucy Lei are beneficially entitled to Unit 2, 23 Yerrin Street, Balwyn being the land described in Certificate of Title Volume 10992 Folio 735.
(e)A declaration that MMC Pacific, Juliya Lei, Peter Lei and John Zhang hold their interests as registered proprietors of Unit 1, 11 Kintore Crescent, Box Hill, being the land described in Certificate of Title Volume 10531 Folio 507 on trust for MMC Pacific pursuant to the declaration of trust dated 19 February 1999.
(f)An order that Juliya Lei, Peter Lei and John Zhang sign and give to MMC Pacific all documents required to transfer the legal title in Unit 1, 11 Kintore Crescent, Box Hill to MMC Pacific.
(g)A declaration that MMC Pacific is beneficially entitled to 104 Balwyn Road, Balwyn being the land described in Certificate of Title Volume 10759 Folio 315.
(h)A declaration that Lucy Lei holds her legal interest in 1119 Whitehorse Road, Box Hill being the land described in Certificate of Title Volume 11301 Folio 641 on trust for Juliya Lei.
(i)An order that Lucy Lei sign, and give to Juliya Lei, all documents required to transfer the legal title in 1119 Whitehorse Road, Box Hill to Juliya Lei.
(j)The counterclaim of the first and second defendants is otherwise dismissed.
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