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Liang v Chen

Liang v Chen

Case [2020] VSC 106 10 March 2020

Misleading or Deceptive Conduct

Unconscionable Conduct

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IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2018 00147

JIE LIANG	Plaintiff
v
LEO CHEN	First Defendant
PIIMAX GROUP PTY LTD (ACN 616 711 454)	Second Defendant
- and -
LEO CHEN	First Plaintiff by Counterclaim
PIIMAX GROUP PTY LTD (ACN 616 711 454)	Second Plaintiff by Counterclaim
V
JIE LIANG	First Defendant by Counterclaim
LIYAN CHEN	Second Defendant by Counterclaim

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JUDGE:	LYONS J
WHERE HELD:	Melbourne
DATE OF HEARING:	25 November 2019
DATE OF JUDGMENT:	10 March 2020
CASE MAY BE CITED AS:	Liang v Chen
MEDIUM NEUTRAL CITATION:	[2020] VSC 106

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MISLEADING OR DECEPTIVE CONDUCT – Whether first defendant borrower engaged in misleading or deceptive conduct in entering into loan agreement with plaintiff lender for purchase and development of land – Where nomination of first defendant’s alter ego company under contract of sale not disclosed to plaintiff – Whether alter ego company involved in misleading or deceptive conduct – involvement established.

EQUITY – Trusts – Breach of trust – Knowing receipt - Knowing assistance – Whether funds advanced pursuant to loan agreement held on trust – Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 – No mutual intention that funds advanced be used for exclusive and specific purpose and not form asset of defendant borrower.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Black	Wisewould Mahony
For the Defendants	No appearance

HIS HONOUR:

Introduction

This proceeding relates to a loan of $1.5 million advanced to the first defendant, Leo Chen, in May 2017. The loan was made pursuant to an undated agreement entered into on or about 6 May 2017 between the plaintiff and Liyan Chen (no relation) as ‘Lenders’ and Mr Chen as ‘Borrower’. The recitals to the agreement recorded, among other things, that:

(1)Mr Chen intended to acquire the land known as 1043 Toorak Road, Camberwell (the ‘Land’) and develop three dwellings on it; and
(2)the loan was only to be used to pay for the acquisition of the Land and construction of the dwellings, as well as incidental and associated costs.

The recitals also provided that the plaintiff would contribute $1.48 million and Liyan Chen would contribute $20,000 (together, the ‘Principal’). The agreement provided that:

(1)the Principal was to be repaid by 1 June 2018 together with interest to that date, calculated as a ‘Fixed Return Amount’ lump sum of $225,000, of which $222,000 was payable to the plaintiff; and
(2)interest accrued thereafter on any outstanding Principal and Fixed Return Amount at the rate of 15% per annum.

The Principal was advanced on 9 May 2017. However, the Principal was used to purchase the Land by the second defendant, PIIMAX Pty Ltd (‘PIIMAX’) of which Mr Chen at all relevant times was the sole shareholder, director and secretary. In fact, Mr Chen nominated PIIMAX as the purchaser of the Land on 3 February 2017 (the ‘Nomination’).

The plaintiff alleges that she was unaware of the role of PIIMAX in the purchase…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Liang v Chen

Details

AGLC: Liang v Chen [2020] VSC 106
Case: [2020] VSC 106
Decision Date: 10 March 2020

CaseChat Overview and Summary

The matter of Liang v Chen involved a dispute over allegations of misleading or deceptive conduct by the first defendant borrower in relation to a loan agreement entered into with the plaintiff lender. The plaintiff sought the purchase and development of land, with the first defendant’s company being nominated under the contract of sale. The plaintiff alleged that the nomination was not disclosed to them, constituting misleading or deceptive conduct. Additionally, the plaintiff contended that the first defendant’s company, acting as an alter ego, was also involved in such conduct, which was established during the proceedings.

The legal issues before the court included determining whether the first defendant borrower engaged in misleading or deceptive conduct by not disclosing the nomination of the alter ego company and whether the alter ego company was also involved in such conduct. Furthermore, the court had to assess whether the funds advanced under the loan agreement were held on trust according to the principles established in Barclays Bank Ltd v Quistclose Investments Ltd. The court needed to establish if there was a mutual intention that the funds should be used for a specific purpose and not form part of the borrower’s assets.

The court held that the first defendant borrower did engage in misleading or deceptive conduct by not disclosing the nomination of the alter ego company. The alter ego company was also found to be involved in such conduct. The court further determined that there was no mutual intention that the funds advanced should be used for a specific purpose and not form part of the borrower’s assets. Therefore, the funds were not held on trust as per the principles in Barclays Bank Ltd v Quistclose Investments Ltd. The court ruled in favour of the plaintiff on the allegations of misleading or deceptive conduct but did not find a breach of trust in relation to the funds advanced.

The court ordered that the first defendant borrower and the alter ego company were liable for the misleading or deceptive conduct. However, the court did not find that the funds advanced were held on trust, and no orders were made in relation to the trust issue. The plaintiff was awarded damages for the misleading or deceptive conduct, but the specific amount was not detailed in the provided text.

Orders