Li v So
[2021] VSCA 32
•26 February 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2019 0122
| HUA LI | Applicant |
| v | |
| JOHN HONG PING SO | Respondent |
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| JUDGES: | TATE, EMERTON and SIFRIS JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 4 February 2021 |
| DATE OF JUDGMENT: | 26 February 2021 |
| MEDIUM NEUTRAL CITATION: | [2021] VSCA 32 |
| JUDGMENT APPEALED FROM: | [2019] VSC 515 (Croft J); [2019] VSC 655 (Costs) (Croft J) |
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EQUITY – Applicant and respondent acquired investment property in Melbourne as tenants in common – Applicant recently arrived in Australia with poor language skills – Respondent obtained loan from bank to fund share of property acquisition – Applicant executed guarantee for respondent’s loan – Property sold for profit – Applicant denied giving fully informed consent to guarantee – Applicant also alleged forgery of her signature on guarantees – Whether primary judge erred by finding no breach of fiduciary duty by respondent – Where primary judge’s decision based on factual and credibility findings – No basis to overturn factual or credibility findings by primary judge.
EQUITY – Equitable relief – Discretion to refuse equitable relief for illegality – Where primary judge found that applicant disentitled to equitable relief due to non-compliance with s 26A of the Foreign Acquisitions and Takeovers Act 1975 (Cth) – Within discretion of the primary judge to refuse equitable relief on the basis of illegality.
PRACTICE & PROCEDURE – Discovery – Application for discovery and other orders under r 64.03 of the Supreme Court (General Civil Procedure) Rules 2015 – Proper role of appellate court in conducting appeal – Documents and other orders sought not relevant to appeal – Application refused.
COSTS – Indemnity costs – Allegation of fraud not made out – Whether primary judge erred in awarding indemnity costs – Where award of indemnity costs in respect of part of proceeding not in dispute in proceeding below – Position on appeal inconsistent with position below – Application for leave to appeal costs order refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | In person | |
| For the Respondent | Mr C Caleo QC with Mr D McAloon | b2b Lawyers |
TATE JA
EMERTON JA
SIFRIS JA:
Introduction
On 27 March 2010, the applicant, Ms Li, and the respondent, Mr So, purchased a property at 589 King Street, West Melbourne (‘the Property’) as tenants in common for $1,355,000. They did so on the understanding that each would contribute equally to the purchase costs and would share equally the income generated by the Property. After the purchase, they carried out works to increase the number of rooms for lease and to improve the attraction of the Property to tenants. They then let the eight rooms in the Property to individual tenants, who were principally young women from China studying in Melbourne.
At the time of the purchase, Mr So was 24 years old, an ambitious young man who already owned an investment property in North Melbourne. He had been born and raised in Melbourne, educated at an exclusive private school and had a combined degree in commerce and law. His father was the former Lord Mayor of Melbourne and the family was well known in Melbourne’s Chinese community. Ms Li was a Chinese national aged in her early forties who had moved to Melbourne from China with her husband and two young children a year earlier. Her command of English was poor. She had come to know Mr So through community connections and had engaged him to tutor her children. Mr So attended Ms Li’s family home once or twice per week for that purpose. He was otherwise working in a securities firm and was living with his parents.
Mr So financed part of his share of the costs of acquiring the Property by borrowing $580,000 (‘the first loan’) from the National Australia Bank Ltd (‘NAB’). NAB required, by way of security for the first loan, a mortgage over the Property supported by a personal guarantee from Ms Li. Mr So says that he obtained Ms Li’s agreement to these arrangements, explaining to her that he could obtain the funds from his parents as an alternative.
In April 2010, prior to the settlement of the Property acquisition, Ms Li attended NAB’s Chinatown branch and met with a Mandarin-speaking NAB employee, Ms Vivian Liao. Ms Li conversed with Ms Liao in Mandarin. During the course of that meeting, Ms Li signed the mortgage documents and the guarantee (‘the 2010 guarantee’) that was required to support the first loan. Among the documents signed by Ms Li was an acknowledgement that she had received an explanation of the nature and effect of the 2010 guarantee. Mr So did not attend that meeting.
In 2013, Mr So restructured the first loan by replacing it with two separate loan facilities (‘the replacement loans’) in order to take advantage of a promotional program offered by NAB that provided a fixed interest rate for a specified period. One loan facility was for $480,000 and the other for $100,000, and the total loan amount remaining unchanged. New security documents were required in connection with the replacement loans, including guarantees from Ms Li (one for each of the replacement loan facilities) to replace the 2010 guarantee.
At trial, NAB produced signed copies of the 2013 guarantees together with related documents, but Ms Li denied, and continues to deny, that she executed the 2013 guarantees. She contends that she only found out about them in May 2015, when she approached NAB for a facility to fund part of another, much larger, property development in Carnegie (‘the Carnegie project’) at which time the existence of the 2013 guarantees was disclosed to her. Ms Li blames the existence of the 2013 guarantees for her inability to proceed with her investment in the Carnegie project.
In December 2015, Mr So arranged for the repayment of the replacement loan facilities, with the consequence that the related security provided to NAB, including the 2013 guarantees, no longer secured any amount. The 2013 guarantees were discharged.
Ms Li and Mr So sold the Property in September 2017 for $2 million, realising a profit of $645,000. There is no suggestion that the Property was sold for an undervalue. The joint investment in the Property undertaken by Mr So and Ms Li was, by any measure, financially advantageous for each of them.
However, by the time the Property was sold, mistrust and animus had been growing between Mr So and Ms Li for some time. On 18 February 2016, Mr So commenced a proceeding in the Victorian Civil and Administrative Tribunal against Ms Li seeking an order compelling the sale of the Property and damages for losses incurred by reason of the delay in its sale, and Ms Li commenced another VCAT proceeding on 6 April 2016 seeking an account of profits and expenses from the rental of the Property (collectively, ‘the VCAT proceedings’). The VCAT proceedings were settled on 2 May 2017 on the basis that the Property would be sold and that there would be an adjustment to the division of the sale proceeds in favour of Ms Li in the amount of $43,000.
On 20 October 2016, Ms Li also commenced a proceeding against Mr So in the Trial Division of the Supreme Court seeking declarations that Mr So had breached fiduciary duties owed to her and that he had engaged in unconscionable conduct towards her; an order that Mr So account to Ms Li for his share of the profit made on the sale of the Property or, alternatively, equitable compensation or damages; and damages for loss of opportunity in respect of the Carnegie project.[1] Ms Li also sought an injunction pursuant to s 232 of the Australian Consumer Law restraining Mr So for a period of three years from using any guarantee or mortgage provided by a third party without that third party confirming that they had obtained independent legal advice. The settlement of the VCAT proceedings had expressly reserved Ms Li’s right to pursue the proceeding below.
[1]This was articulated in the pleadings as the loss of opportunity to invest in property in the eastern suburbs of Melbourne.
Ms Li was entirely unsuccessful in the proceeding below. On 4 October 2019, the primary judge dismissed the proceeding and ordered Ms Li to pay Mr So’s costs of the proceeding on the indemnity basis.
Ms Li now seeks leave to appeal the decision of the primary judge.
On 15 November 2019, Ms Li filed an application for leave to appeal setting out three proposed grounds of appeal:
1.The learned trial judge erred in mixed fact and law in holding that the applicant’s signature on the 2010 guarantee was procured with her fully informed consent in circumstances where the respondent owed her a fiduciary duty not to be in a position of conflict of interest.
2.The judge erred in law in finding that the applicant ought to be denied relief by reason of non-compliance with s 26A of the Foreign Acquisition and Takeovers Act 1975 (Cth) in circumstances where s 38 of that Act provides that ‘an act is not invalidated by the fact that it constitutes an offence against this Act’.
3.The judge erred in mixed fact and law in ordering indemnity costs on the basis of an incorrect finding that an allegation that the respondent had forged or procured the forgery of the applicant’s signature in the 2013 guarantees lacked a proper basis, in circumstances where the uncontested evidence showed that the 2013 guarantees were forgeries, had been in the respondent’s personal possession prior to and perhaps also following the forgery, and operated for the sole benefit of the respondent.
It will be seen that the grounds arise from the judge’s findings in relation to three discrete matters: the circumstances in which the 2010 guarantee was entered into; the consequences of Ms Li’s non-compliance with Commonwealth foreign investment laws; and costs.
On 11 June 2020, Ms Li’s former solicitors filed an amended written case which addressed the three proposed grounds of appeal cogently and in detail.
Ms Li’s application for leave to appeal was initially listed for hearing on 11 August 2020. On 14 July 2020, Ms Li requested an adjournment as she was in China, suffering health problems and unable to return to Australia. Mr So objected to the grant of an adjournment. However, as Ms Li’s solicitors concurrently applied for leave to cease acting for her, the hearing of the application was adjourned. Ms Li’s application for leave to appeal was re-listed for 4 February 2020.
On 16 December 2020, Ms Li requested a further adjournment, which was refused.
On 14 January 2021, two weeks before the hearing of her application for leave to appeal, Ms Li made an application pursuant to r 64.03(3) of the Supreme Court (General Civil Procedure) Rules 2015 for orders requiring Mr So to provide information and produce documents relevant to the sum of $43,000 agreed in the settlement of the VCAT proceedings, along with ‘all tax invoices, purchase orders, delivery orders, Construction Certificates (Electrical, plumbing and water proofing), photos of the work done or such other documentation to substantiate the $21,283.00 for alleged toilet renovations or Capital Works & Improvements in Sep & Oct FY2015 at the premises known as 589 King Street, West Melbourne’ (‘the discovery application’). Ms Li advised the Court that she was self-represented and that she required an estimated two months to obtain the assistance of counsel to address the material that would be discovered.
The discovery application was considered by the Court and refused ‘on the papers’. The Court of Appeal Registry informed Ms Li that the Court’s reasons for refusing the discovery application would be given in conjunction with its reasons for decision on her application for leave to appeal.
On 4 February 2021, the Court heard Ms Li’s application for leave to appeal. Ms Li appeared in person by video link from China with an interpreter. However, after some time, it was apparent that Ms Li was having difficulty addressing the proposed grounds of appeal or responding to questions from the bench about those proposed grounds. Ms Li asked the Court to allow Mr Alex Hoe, an English-speaking friend and business acquaintance of Ms Li here in Melbourne, to address the Court on her behalf. With the consent of senior counsel for Mr So, the Court permitted Mr Alex Hoe to represent Ms Li as a ‘McKenzie friend’.[2] A court, in its discretion, will only permit a non-legally trained person to represent a litigant as a McKenzie friend where there are special circumstances as an exception to the rule that only qualified legal practitioners are permitted to appear for litigants. The discretion is exercised where it is necessary for the administration of justice.[3] The permission may extend to the giving of assistance to the litigant by way of making oral submissions.[4] In this instance, and given the difficulties Ms Li was facing in understanding the nature and scope of the application for leave to appeal, Mr Hoe was permitted to make oral submissions on Ms Li’s behalf. Mr Hoe’s submissions were largely directed to the matters referred to in the materials supporting the discovery application. We deal with those submissions immediately below before considering the three proposed grounds of appeal.
[2]McKenzie v McKenzie [1970] 3 WLR 472.
[3]Gabriele v Gabriele [2015] VSC 115, [3] (Kaye JA); Giancaspro v SHRM (Australia) Pty Ltd (2005) 93 SASR 32, 35 [12] (Bleby J), 47 [77] (Gray J); [2005] SASC 340.
[4]Nepal v Minister for Immigration and Border Protection [2015] FCA 366, [14]–[15] (Edelman J) (by way of an extension of the concept of McKenzie friend).
For the reasons that follow, leave to appeal will be refused.
Discovery application
The discovery application was accompanied by a 46-page affidavit sworn by Ms Li that exhibited no less than 23 documents: largely, but not exclusively, relating to the VCAT proceedings, their settlement and, in particular, the calculation of and rationale for the $43,000 settlement sum. The discovery application raised other accounting issues arising from the management of the Property, and made allegations that Mr So had engaged in ‘nefarious’ conduct and was dishonest. Ms Li submitted that ‘what is behind the numbers’ is relevant to ‘the character of each party’s conduct in the joint partnership as well as in respect of both the tribunal and Supreme Court, and also determines whether a duty to the courts has been breached or a fiduciary duty to a joint partner has been breached’.
Mr So filed a notice of opposition to the discovery application, submitting, in substance, that the relief sought did not relate to any dispute in this Court. While referred to in passing during the course of evidence given at trial, the judgment of the primary judge made no reference to the fact or details of the VCAT proceedings or to the terms upon which the parties resolved the claims that were the subject of those proceedings.
Our reasons for refusing the discovery application are as follows.
Matters arising from the VCAT settlement and the rationale given by Mr So for the $43,000 adjustment in favour of Ms Li were not in issue in the trial. They did not arise on the pleadings or as a matter of dispute in the trial as conducted by counsel. The Supreme Court proceeding was a separate and independent proceeding from the VCAT proceedings; in particular, the Supreme Court proceeding was not an application for leave to appeal from the VCAT proceedings. The VCAT proceedings had come to an end by the settlement reached between the parties.
The basis for Ms Li’s claims against Mr So at trial was what was described in her statement of claim[5] as the ‘2010 impugned conduct’ and the ‘2013 impugned conduct’.
[5]Further amended statement of claim dated 5 February 2018.
As pleaded, the ‘2010 impugned conduct’ consisted of:
(a) procuring from NAB the first loan to fund the purchase of the Property based in part on a guarantee and indemnity and mortgage to be provided by Ms Li as the other purchaser;
(b) procuring Ms Li to sign the 2010 guarantee and indemnity and mortgage without receiving independent legal advice; and
(c) procuring the transfer of $716,000 (Ms Li’s contribution to the purchase price of the Property) from a bank account held in Ms Li’s name to a bank account held in Mr So’s name.
The ‘2013 impugned conduct’ was pleaded as follows:
In or around May 2013, So entered into a new loan with National Australia Bank (the Second King Street Loan) using two guarantees in [Ms Li’s] name without [Ms Li’s] knowledge or informed consent, the respective signatures on which guarantees he forged himself or alternatively, he knew were forged or alternatively, he procured or arranged for someone else to forge...
The pleadings therefore contained a serious allegation of fraud.
Mr So’s conduct in managing the Property — that is, his accounting to Ms Li for the income from the Property and the expenses incurred in generating that income — was not in issue at trial. The pleaded breaches of fiduciary duty concerned events that took place at the time of the purchase of the Property, not its ongoing management. As a result, the trial judge was not called upon to make any findings about Mr So’s accounting of income from or expenditure for the Property and, in turn, Ms Li’s proposed grounds of appeal are unrelated to those issues.
So much was recognised by Ms Li’s own barrister at trial. When counsel for Mr So asked him a question about why there was an adjustment of $43,000 in favour of Ms Li in the VCAT settlement, counsel for Ms Li objected to the question on the ground that it could not possibly be relevant to any of the issues in the proceeding. He said that he had asked a question of Ms Li about the settlement simply ‘for the purpose of showing the arc of the history between them and how it was resolved’. The judge said that he would not exclude the question on the basis that ‘it might be marginally relevant, or irrelevant’ and that it was a matter that could be resolved by cross-examination and submissions if need be. Counsel for Mr So was permitted to ask the question and Mr So answered that the $43,000 was what Ms Li thought he owed her and he paid it because he did not want to go to court and have the matter drag out. He thought the bulk of the sum represented things for which there were no invoices such as the monthly management fee to ‘Sharon’ and things like cleaning or internet. The issue was pursued no further at trial.
The documents sought by Ms Li and the issue she apparently seeks to agitate by their discovery — whether Mr So told the truth about what the $43,000 was made up of — are not relevant to the proposed grounds of appeal.
Notwithstanding the Court’s decision to refuse the discovery application, Ms Li effectively renewed it in documents filed on the day of the hearing and in Mr Hoe’s oral submissions at the hearing. Ms Li sought to rely on a further (unsworn) affidavit dealing with the VCAT settlement and alleged discrepancies between explanations given by Mr So at VCAT and in his evidence at trial. She also provided a lengthy written submission on these allegations which concluded with a request for orders that:
(a) ‘the courts should not be confined to the issues of the original pleadings as the new issues from recent discoveries of alleged false evidence or statements made under oath knowingly that appear to have material effect and consequence over the then Judicial proceeding SCI 2016 04256 [the proceeding determined by the primary judge] are material to the administration of Justice by the Courts’;
(b) ‘leave to appeal be granted’;
(c) ‘the new discoveries be admitted for consideration as there was no material objection or defense [sic] from the respondent that the alleged statements or evidence tendered were false’;
(d) ‘the Court clarify its cause of intervention if the alleged statements or evidence have been found to be false’;
(e) ‘the Court provide a determination of the relief, that could be afforded to the applicant … in regards to the respondent’s conduct of the false evidence or statements tendered that have impeded the course of justice’;
(f) ‘the Court provide a determination of the relief, that could be afforded to the applicant … in regards to the respondent’s conduct of the false evidence or statements tendered that led to a consequence that caused substantial loss in reputations and financially’.[6]
[6]It appeared that Mr Hoe had drafted the documents in the discovery application and the documents filed on the day of the hearing. He was very familiar with their contents and with the accounting matters on which Ms Li sought to rely to assert that Mr So had given false evidence to the Court below.
These submissions misunderstand the role of this Court on appeal from a decision of a judge in the Trial Division. Its role is to determine whether the decision of the primary judge was or was not correct, on the evidence and the law as it stood at the time of the original decision.[7] In so doing, the Court will confine its attention to the alleged errors of fact or law specified in the grounds of appeal, rather than conduct a general review of the decision below or consider all of the evidence afresh.[8] Furthermore, any attempt to put new or fresh evidence before the Court on appeal must be done by way of formal application[9] and the Court’s acceptance of such evidence is subject to strict limitations.[10]
[7]Allesch v Maunz (2000) 203 CLR 172, 180–1 [22]–[23] (Gaudron, McHugh, Gummow and Hayne JJ); [2000] HCA 40.
[8]Grounds of appeal must be sufficiently specific to enable an appeal court to correctly perform its function: see, eg, Victoria v Bacon [1998] 4 VR 269, 285–90 (Phillips JA). See analogously, in the context of appeals on questions of law under s 148 of the Victorian Civil and Administrative Tribunal Act 1998, DH v NS (Unreported, Victorian Court of Appeal, 29 April 2005), where Batt and Vincent JJA observed (at [6]) that the Court of Appeal should not retry a matter before VCAT but only deal with the questions of law identified by the applicant.
[9]Supreme Court (General Civil Procedure) Rules 2015, r 64.13.
[10]Rule 64.13(1)(b) of the Supreme Court (General Civil Procedure) Rules2015 provides ‘evidence which was not before the court or tribunal whose decision is sought to be appealed or is being appealed shall not be relied upon’ in an application for leave to appeal or an appeal. In Clark v Stingel [2007] VSCA 292, the Court of Appeal reiterated that leave to adduce fresh evidence on appeal in civil matters should be given only if: (a) by the exercise of reasonable diligence, such evidence could not have been discovered in time to be used in the original trial; (b) it is reasonably clear that if the evidence had been available at the trial, and had been adduced, an opposite result would have been produced; and (c) the evidence proposed to be adduced is reasonably credible: at [25] (Warren CJ, Chernov and Kellam JJA).
In his oral submissions, Mr Hoe exhorted the Court to cure an alleged injustice to Ms Li by inquiring into the accounting issues underpinning the VCAT settlement, because, he said, they showed Mr So not to have given a credible account as to how the $43,000 settlement sum was calculated. Mr Hoe said that had the primary judge known this, he would not have made the credit findings that he did, believing Mr So and not Ms Li, and would then have reached different conclusions about whether Mr So breached duties to Ms Li.
This is a very long bow to draw. The argument is in essence that the Court should investigate a matter not in issue at trial or in the appeal in order to determine whether Mr So was an honest witness at trial purely for the purpose of determining whether the primary judge erred in one of his credit findings. This, in circumstances where the notice of appeal makes no challenge to the judge’s findings on credit.
Moreover, it is patently not within the jurisdiction of this Court to conduct its own investigation of matters not in issue at trial, and not raised by the grounds of appeal. Furthermore, even if Mr So were found to have been dishonest in his accounting for the $43,000 figure that features in the VCAT settlement (in respect of which we express no opinion whatsoever), it would not affect the judge’s rejection of Ms Li’s evidence that she was not told about the nature and effect of the 2010 guarantee by the NAB bank officer at the time of its execution. Nor would it affect the judge’s acceptance of the documentary evidence as to what occurred at that meeting, or his finding that Ms Li was not as financially inexperienced and naïve as she purported to be. Those findings were not based on Mr So’s evidence. The judge observed Ms Li give evidence and he did not find her to be a credible witness. This Court is not in a position to overturn that finding.
We turn to consider the proposed grounds of appeal.
Proposed ground 1
Proposed ground 1 is that the trial judge erred in mixed fact and law in holding that the applicant’s signature on the 2010 guarantee was procured with her fully informed consent in circumstances where the respondent owed her a fiduciary duty not to be in a position of conflict of interest.
This ground therefore concerns only one of the three matters alleged to constitute the 2010 impugned conduct, namely, the alleged procuring of the 2010 guarantee. It relies on Ms Li establishing that Mr So owed her fiduciary duties in respect of her giving the 2010 guarantee, Mr So being in a position of conflict of interest in relation to Ms Li giving the 2010 guarantee and breaching his duty by not ensuring that she gave her fully informed consent to giving the 2010 guarantee.
The primary judge held that Ms Li had failed to establish any of these matters and, further, that he would not grant the relief sought even if Ms Li had successfully established both duty and breach.
Ms Li submits that on the evidence and the findings of the primary judge, the only available conclusion was that Mr So failed to obtain Ms Li’s fully informed consent to her guaranteeing his loan for his contribution to the purchase price of the partnership asset. Ms Li now argues that she could not have given her fully informed consent to the 2010 guarantee without independent legal advice.
Ms Li submits that Mr So owed her a fiduciary duty not to be in a position of conflict of interest without her fully informed consent, such duty arising from the fact that they were partners in a partnership and, separately, from the relationship of trust and confidence between them and the circumstances that Ms Li lacked any functional command of English and was dependent on Mr So, who is fluent in both English and Mandarin, to arrange and manage all aspects of the purchase and management of their investment. According to Ms Li, her lack of English skills and experience with Australian real estate transactions, combined with the fact that the proposed guarantee and indemnity would be voluntary and improvident, required that she receive independent legal advice and a full explanation of the important effects of the guarantee.
The primary judge found that Mr So did not procure the 2010 guarantee.[11] He accepted Mr So’s evidence that he told Ms Li that if she was not comfortable with providing a guarantee, he ‘could get money from my parents’ and that what he was doing was not giving her advice, but giving her options.[12] The judge found that Mr So gave Ms Li the option of providing the 2010 guarantee and that he sought to explain the operation of the 2010 guarantee to her in that context.
[11]Li v So [2019] VSC 515, [54] (Croft J) (‘Reasons’).
[12]Ibid [48].
The judge also found that Mr So was aware that Ms Li was to meet a Mandarin-speaking bank officer for the purposes of executing the documents required by NAB and that he had no prior relationship with the relevant bank officer, concluding that Mr So was entitled to expect that NAB, which had sought the 2010 guarantee as security for the loan, would ensure that it was properly executed and would be enforceable by NAB if ultimately required.[13]
[13]Ibid [54].
The judge’s finding that Mr So gave Ms Li the option of providing the 2010 guarantee and did not ‘procure’ it is not challenged and it is sufficient to dispose of proposed ground 1.
The judge further found that Ms Li knew what she was doing when she executed the 2010 guarantee. He considered it to be ‘telling’ that Ms Li had signed a guarantee advice certificate acknowledging that she had received an explanation of the nature and effect of the 2010 guarantee, a recommendation that she obtain independent legal advice prior to signing the 2010 guarantee and confirmation that she could refuse to sign the 2010 guarantee.[14] His Honour found that there was no apparent reason why the relevant bank officer would sign the certificate containing full acknowledgements by Ms Li if Ms Li had not made those acknowledgements, given that NAB would need to rely on the 2010 guarantee in the event of default by Mr So.[15]
[14]Ibid [52].
[15]Ibid.
Insofar as Ms Li asserted that she was a financial ingénue and did not understand the effect of the 2010 guarantee, the primary judge referred to her dealings with the Commonwealth Bank of Australia to purchase her family home and the fact that her professed lack of understanding stood in stark contrast to her apparently sophisticated understanding of the alleged opportunity provided by the Carnegie project.[16] He viewed Ms Li’s professed lack of understanding of financial matters with scepticism having regard to her age, her ability to seek counsel from her successful businessman husband, and her lifestyle, including her ownership of the residential property purchased for in excess of $3.6 million in 2008. He observed that in discussions with Mr So, it was Ms Li who had expressed interest in purchasing property in Australia, raised the prospect of a joint purchase and told Mr So about her existing property holdings.[17]
[16]Ibid [47].
[17]Ibid [58].
Ms Li submits that Mr So failed to disclose, and the judge did not recognise, that the guarantee was an ‘all moneys’ guarantee which, though limited in amount, nonetheless exposed Ms Li to liability for other borrowings of Mr So from the same lender, that Mr So had an existing loan and intended to borrow further funds in the future and that, unlike a classical guarantee, the 2010 guarantee exposed Ms Li to primary liability, not secondary liability. The effect, so Ms Li contends, was to expose her unwittingly to substantial risk. As a result, Mr So should have been required to account for at least so much of his profit as was referable to Ms Li’s additional liability rather than to his own contribution of capital.
Ms Li submits that the judge was wrong to conclude that she must have received an adequate explanation from the bank officer at the time of signing the 2010 guarantee. Based on her evidence that the meeting lasted 10 to 12 minutes, during which period she not only signed the guarantee and mortgage among other documents but also produced identification and opened an account, it is ‘glaringly improbable’ that the guarantee could have been properly explained to her in that time. Errors in the guarantee advice certificate give rise to the ‘only safe conclusion’ that it was completed by someone who did not understand it or what it required a bank officer to do. Moreover, NAB was not independent and Mr So could not delegate his obligation of disclosure to NAB.
The primary judge rejected the proposition that the guarantee was an ‘all moneys’ guarantee, finding that it was limited to $580,000 plus associated costs and interest. Moreover, in spite of any inability with respect to speaking or reading English, it was clear that Ms Li could read Arabic numbers and the 2010 guarantee prominently displayed a reference to $580,000.[18] In any event, so the judge found, Ms Li attended a meeting with a Mandarin-speaking employee of NAB arranged for the purpose of the documents being explained to her and executed by her. Even if the meeting only lasted for 10 minutes, as Ms Li said in her evidence, it would not be insufficient time to provide a proper explanation to her, particularly as it was provided by a fellow Mandarin speaker. While Ms Li denied receiving any explanation of the documents signed at this meeting, she conceded that her recollection of the meeting was poor. However, her evidence in relation to a different commercial document was that if she did not understand any aspect of the document, she would have asked about it.[19]
[18]Ibid [50]–[51].
[19]Ibid [51].
It will be apparent that the judge’s conclusions that Mr So did not procure the signing of the 2010 guarantee — in that he told Ms Li that his parents would otherwise be prepared to provide the funds for his share of the Property — and that, in any event, Ms Li well understood the nature of the 2010 guarantee and what she was doing when she executed it, were based on his findings of fact. The Court will exercise restraint in interfering with a primary judge’s factual findings.[20]
[20]Fox v Percy (2003) 214 CLR 118, 125 [22] (Gleeson CJ, Gummow and Kirby JJ); [2003] HCA 22.
Furthermore, the judge’s findings were based in part on his assessment of the credibility of Ms Li. He described Ms Li as ‘a very unimpressive and unreliable witness’, notwithstanding his recognition that language and cultural issues may have imposed difficulties for her as a party to proceedings of this nature. He described her as ‘prone to making speeches rather than answering questions directly’ and observed that she had been ‘frequently unresponsive to questions’, particularly where she declared that an honest or direct answer would be against her interests. He found that she had consciously avoided making concessions that might be considered harmful to her pleaded case. Moreover, much of her evidence was characterised by overstatement.[21] Finally, his Honour found that Ms Li’s evidence at trial did not align with her pleaded case,[22] and witnesses who gave evidence or could have given evidence at the trial failed to corroborate material aspects of her evidence.[23]
[21]Reasons [14].
[22]Ibid.
[23]Ibid [15].
An appeal court will not readily overturn a trial judge’s findings as to credibility, given the natural advantage the trial judge has in seeing the witnesses give evidence in the context of the overall trial.[24] When based on credibility findings, an appeal court should not overturn a primary judge’s factual findings ‘unless they are demonstrated to be wrong by “incontrovertible facts or uncontested testimony”, or they are “glaringly improbable” or “contrary to compelling inferences”’.[25] The point was made the following way by McHugh, Kirby and Callinan JJ in Walsh v Law Society of New South Wales:[26]
the appellate court will be bound generally to defer to any conclusions on the question of credibility formed by the court or tribunal from whom the appeal is brought where the latter has seen and heard the witnesses. In particular circumstances, it will be open to an appellate court to reach conclusions contrary to those of the court or tribunal below, notwithstanding a credibility finding. Sometimes it will be authorised to reject those findings where they are ‘glaringly improbable’ or ‘contrary to compelling inferences’ of the case. But the caution required of all appellate courts in such matters has long been recognised and frequently upheld in decisions of this Court.[27]
[24]See, eg, Fifteenth Eestin v Rosenberg (2009) 24 VR 155, 171–3 [112]–[117] (Maxwell P, Neave and Redlich JJA); [2009] VSCA 112, and the authorities cited therein.
[25]Robinson Helicopter Company Inc v McDermott [2016] HCA 22, [43] (Full Court); Lee v Lee (2019) 266 CLR 129, 148 [55]; [2019] HCA 28 (Bell, Gageler, Nettle and Edelman JJ).
[26](1999) 198 CLR 73; [1999] HCA 33.
[27]Ibid 91–2 [54] (footnotes omitted).
In our view, the judge’s findings as to what Ms Li was told and what she knew about the 2010 guarantee are neither ‘glaringly improbable’ nor ‘contrary to compelling inferences’. The judge’s findings are based, among other things, on his assessment Ms Li’s credibility. That assessment was in turn based on the way in which she gave her evidence in court, as well as how it aligned with other evidence about her personal circumstances and the documentary evidence from the NAB meeting. The judge’s approach was entirely orthodox. We consider these factual findings to be unimpeachable. Given the findings of the primary judge, even if Mr So owed Ms Li fiduciary duties as alleged, he was not in breach of any such duty by failing to insist that Ms Li obtain independent legal advice about the nature and effect of the 2010 guarantee.
Ground 1 is not made out.
Proposed ground 2
Proposed ground 2 is that the judge erred in law in finding that Ms Li ought to be denied relief by reason of non-compliance with s 26A of the Foreign Acquisition and Takeovers Act 1975 (Cth) (‘the FATA’) in circumstances where s 38 of that Act provides that ‘an act is not invalidated by the fact that it constitutes an offence against this Act’.
The utility of proposed ground 2 depends on proposed ground 1 being made out and Ms Li being eligible for relief. She is not.
We will, however, briefly consider the merits of that ground.
The primary judge considered whether, if an entitlement to relief had been established, Ms Li’s contravention of the FATA disentitled her to the relief claimed. He found that at the time of entering into the agreement to acquire the Property, Ms Li was a ‘foreign person’ for the purposes of s 21A of the FATA and that she had failed to provide the requisite notice of the acquisition to the Treasurer and had therefore contravened s 26A of the FATA. The finding that Ms Li contravened the FATA is not challenged.
The primary judge observed that despite committing this offence, Ms Li not only sought to retain the profit that she derived from the acquisition of the Property, but to have the Court order that Mr So account to her for profits that he derived from realising his interest in the Property. Recognising that the law ‘should be coherent and not self-defeating, condoning illegality by giving with the left hand what it takes with the right hand’,[28] his Honour continued:
In the present case granting the relief sought by the plaintiff would lack coherence and would subvert the efficacy of the FATA by tacitly approving non-compliance with the notice requirements prescribed by the FATA. It would permit a person that has committed an offence not only to profit from their own (the plaintiff’s) resultant property ownership but to attain a further benefit referable to the interest in the subject property of the non-offending co-owner (the defendant). Consistent with the approach in cases such as Nauru Local Government Council v Australian Shipping Officers Association,[29] the Court should not exercise its discretion to assist the plaintiff to benefit in that fashion where, insofar as she was concerned, the relevant commercial opportunity was pursued illegally. Unlike where claims have been made by beneficial (but not legal) owners that have breached the FATA, declining relief to this plaintiff involves no risk of ‘double punishment’. The plaintiff is no longer the owner of the King Street property, she is not proposing to give notice to the Treasurer in the manner that was required by FATA and, if the relief sought is not granted, she will still retain the benefits that she has already derived from her ownership of the King Street property.[30]
[28]Referring to the decision of Lord Toulson JSC in the United Kingdom Supreme Court in Patel v Mirza [2016] 3 WLR 399, 428.
[29][1978] FCA 37.
[30]Reasons [101].
Ms Li submits that the FATA does not disclose any purpose that a purchase in contravention of that Act should deprive the purchaser of recourse against a wrongdoer. This is to be contrasted with the situation in Sevastopoulos v Spanos,[31] where the Court refused a quantum meruit claim for work done in breach of legislation that expressly prohibited the recovery of money for such work. Ms Li relies on the decision of the New South Wales Supreme Court in Menezes v Salmon,[32] where the Court held that a purchaser’s contravention of s 26A of the FATA did not deprive him of the right to relief in equity. She further submits that her failure to meet an obligation under s 26A of the FATA in respect of her share of the Property is not essential to a claim arising from the circumstances of Mr So’s purchase of his share.
[31][1991] 2 VR 194.
[32][2009] NSWSC 2, [106]–[118] (Macready AsJ).
In our view, s 38 of the FATA is not relevant to whether the judge erred in stating that he would have declined to grant discretionary relief to Ms Li because of her contravention of the FATA. There was no question of setting aside the transaction from which she ultimately derived a profit, namely, her acquisition of the Property as a tenant in common. That is the transaction for which she was obliged to give notice to the Treasurer and in respect of which s 38 provides protection. Ms Li has retained the benefit of that transaction, but wants in addition to have the benefit that Mr So derived from his purchase of his share of the Property.
As Mr So submitted, when considering a party’s entitlement to equitable relief in circumstances where a statutory provision has been contravened, the court must assess the totality of the circumstances.[33] It is necessary to consider ‘the nature, significance and impact’ of the contravention.[34] The judge did so, concluding that the grant of relief to Ms Li would lack coherence and subvert the efficacy of the FATA by tacitly approving non-compliance with the notice requirement. It was well open to the judge to state that he would have exercised his discretion not to grant equitable relief in this way.
[33]CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd (2017) 55 VR 62, 98–9 [94] (Redlich, Tate and Ferguson JJA); [2017] VSCA 11.
[34]Ibid 99 [96] (Redlich, Tate and Ferguson JJA).
Moreover, Menezes v Salmon[35] is not on point. That case concerned a person who was not the legal owner of land seeking to have their beneficial interest in the land recognised. The relief sought — the declaration of a resulting trust — was not only not inconsistent with the policy of the FATA, it furthered it, in that the declaration triggered the requirement to notify the Treasurer of the interest.[36]
[35][2009] NSWSC 2.
[36]Ibid [116] (Macready AsJ).
Proposed ground 2 is not made out.
Proposed ground 3
Proposed ground 3 is that the judge erred in mixed fact and law in ordering indemnity costs on the basis of an incorrect finding that there was no proper basis for an allegation that the respondent had forged or procured the forgery of the applicant’s signature in the 2013 guarantees — in circumstances where the uncontested evidence showed that the 2013 guarantees were forgeries, had been in the respondent’s personal possession prior to and perhaps also following the forgery, and operated for the sole benefit of the respondent.
Ms Li submits that the fact that there was a proper basis for the forgery allegation is established by the following:
(a) Ms Li’s evidence that she had not signed the 2013 guarantees was unchallenged.
(b) The handwriting expert’s unchallenged evidence that the 2013 guarantees had been signed by two different people whom he was otherwise unable to identify. It is a corollary of this evidence that at least one set of signatures on the 2013 guarantees was not by Ms Li.
(c) Mr So was the only person to benefit from the 2013 guarantees.
(d) Mr So had submitted a false declaration to NAB in 2009.
(e) Mr So had submitted an untruthful statement of financial position when applying for the NAB loan in 2010.
(f) Mr So signed an auction authority for the Property without Ms Li’s consent.
(g) Mr So had no communication with Ms Li in respect of the 2013 guarantees.
(h) Mr So’s account of collecting documents for Ms Li to sign from the NAB, leaving them at the Dragon Boat Restaurant for her to sign and later collecting them and delivering them to the NAB, rather than telling Ms Li to go to the bank, half a block away, to sign them as she had done in 2010, was implausible.
Ms Li submits that these matters provided a proper and reasonable basis upon which to pursue the allegation that Mr So forged or procured the forgery of Ms Li’s signature on the 2013 guarantees. That the Court was ultimately not prepared to find that fraud should not ipso facto result in indemnity costs if the allegation was reasonably and responsibly pursued. The ‘other possibilities’ explaining the signatures on the 2013 guarantees raised by Mr So were either plainly wrong, contrary to unchallenged evidence, or far-fetched, and lacking rational support and common sense.
Mr So submits that the proposed ground is misconceived for the fundamental reason that in her submissions in response on costs below,[37] Ms Li accepted that she should pay Mr So’s costs in relation to the 2013 impugned conduct on an indemnity basis. In other words, the entitlement to indemnity costs was acknowledged and conceded by Ms Li. This, so Mr So submits, amounts to a concession that the allegation of fraud was not properly founded.
[37]Submissions dated 6 September 2019.
Mr So points out that while it was common ground between the parties before the primary judge that Ms Li’s unsuccessful allegations about the 2013 impugned conduct merited an award of indemnity costs, the application for leave to appeal makes the single challenge that the primary judge erred in ordering indemnity costs of the proceeding and gives particular reasons for that challenge. It would have been open to Ms Li to argue that the judge should have confined indemnity costs to the 15 percent previously identified as representing the trial of the 2013 impugned conduct, but such a challenge was not advanced. There is now no scope for Ms Li to adopt a position that contradicts the one she adopted before the trial judge, as that is a matter in respect of which the parties were not in dispute.
In addition, Mr So submits that if the costs decision had been challenged on the basis that the primary judge should have confined indemnity costs in the manner now proposed by Ms Li, then such an issue — involving a discretion on a matter of practice and procedure — would not give rise to a question of principle that could possibly justify the grant of leave to appeal to this Court.
We accept the respondent’s submissions on proposed ground 3. Ground 3 is misconceived, having regard to the way in which costs were argued below and the concession made by Ms Li in relation to the costs of the 2013 impugned conduct. Proposed ground 3 challenges a matter that was not in dispute below.
Even without this difficulty, we would not upset the judge’s decision on costs.
Appeals against costs orders are exceptional.[38] The authorities make it clear that a strong presumption arises in favour of the correctness of an exercise of discretion on costs.[39] The discretion regarding costs has been described as absolute, unconfined or unfettered, although it must be exercised judicially, that is, not by reference to irrelevant or extraneous considerations, but on facts connected with or leading up to the litigation.[40] Furthermore, this Court cannot interfere, by granting an application for leave to appeal a decision on costs, unless it is satisfied that the appeal has a real prospect of success.[41] This requires consideration of whether the decision to make the costs order was manifestly wrong or attended by sufficient doubt to warrant appellate intervention. However, the Court retains a discretion whether or not to grant leave even when it is so satisfied. The exercise of the discretion may be informed by considerations including the possibility of substantial injustice or the character of the matter as one of practice and procedure. Another consideration may be whether any point of principle is raised.[42]
[38]PCCEF Pty Ltd v Geelong Football Club (No 2) [2019] VSCA 148, [38]–[41] (Whelan, McLeish and Emerton JJA).
[39]Australian Coal and Shale Employees Federation v Commonwealth (1953) 94 CLR 621, 627 (Kitto J); Protec Pacific Pty Ltd v Steuler Services GmBH & Co KG (No 2) [2015] VSCA 123, [38] (Tate, Santamaria and Kyrou JJA).
[40]Oshlack v Richmond River (1998) 193 CLR 72, 86 [34] (Gaudron and Gummow JJ); [1998] HCA 11.
[41]Supreme Court Act 1986 s 14C.
[42]Etna v Ariv [1999] 2 VR 353, 378–9 [68] (Batt JA); [1999] VSCA 99.
In this case, the judge exercised his discretion having paid proper attention to the facts connected with the conduct of the litigation and there is plainly no point of principle involved.
Proposed ground 3 is rejected.
Disposition
None of the proposed grounds of appeal having been made out, leave to appeal is refused.
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