LL Up Pty Ltd v Kegland Distribution Pty Ltd
[2024] VSC 651
•25 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 02252
IN THE MATTER OF KEGLAND DISTRIBUTION PTY LTD (ACN 623 316 745)
BETWEEN:
| LL UP PTY LTD (ACN 620 485 994) ATF THE LL UP INVESTMENT TRUST (and another according to the Schedule) | Plaintiffs |
| v | |
| KEGLAND DISTRIBUTION PTY LTD (ACN 623 316 745) (and others according to the Schedule) | Defendants |
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JUDGE: | Croft J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 2, 7–10, 13–17 & 20–22 May, 17 & 30 July, 14 August 2024 |
DATE OF JUDGMENT: | 25 October 2024 |
CASE MAY BE CITED AS: | LL UP Pty Ltd v Kegland Distribution Pty Ltd [2024] VSC 651 |
MEDIUM NEUTRAL CITATION: | [2024] VSC 651 |
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CORPORATIONS — Oppression — Whether the appointment of director and dilution of shareholding was unfairly prejudicial, discriminatory or oppressive — Whether remedy for oppression required order that defendants purchase shares — No basis for making order that the defendants purchase shares— Minimum relief appropriate to neutralise oppression — Court to grant ‘least intrusive remedy’ — Hylepin Pty Ltd v Doshay Pty Ltd [2020] FCA 1370 — Fedorovitch v St Aubins Pty Ltd (1999) 17 ACLC 1558 — Corporations Act 2001 (Cth), s 233.
EVIDENCE — Burden of proof — Party that bears onus must discharge onus — Standard of proof — Court ‘must feel an actual persuasion’ of a facts ‘occurrence or existence’ — Actual persuasion achieved where affirmative of an allegation is made out to Court’s reasonable satisfaction — Mere mechanical comparison of probabilities cannot justify factual finding — Evaluation of witness evidence — Most compelling evidence is contemporaneous documentation — Assessment of credit — Indicators of unsatisfactory witness evidence — GJB Building Pty Ltd v AI&PB Property Pty Ltd [2023] VSC 782 — Webb v Getswift (No 5) [2019] FCA 1533 — Painter v Hutchinson [2007] EWHC 758 (Ch) — ASIC v Rich (2005) 216 ALR 320 — Corporations Act 2001 (Cth), s1305(1) — Evidence Act 2008, ss 140(1), (2).
EQUITY — Whether shares were the subject of a trust — Ordinary meaning of the words and actions the subject of relevant dealings between parties and the circumstances affecting the relationship between them — Oral agreement establishing trust with sufficient certainty — Future property in shares readily identifiable and would be impressed with trust obligations upon creation — Subsequent conduct of parties not relevant or admissible by way of an admission of the existence of the trust or its revocation— Whether equitable defences preclude relief — Unclean hands — Byrnes v Kendle (2011) 243 CLR 253 — Pilmer v Duke Group (2001) 207 CLR 165 — FAI Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343 — Norman v Federal Commissioner of Taxation (1962) 109 CLR 9 — Constitution Act 1975, s 85 — Supreme Court Act 1986, s 36.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr PG Cawthorn KC and Mr M Garrett | Moray & Agnew Lawyers |
| For the Defendants | Mr R Heath KC and Mr J Richardson | Hope & Co |
TABLE OF CONTENTS
Introduction and overview............................................................................................................... 1
Issues.................................................................................................................................... 1
Background.......................................................................................................................... 3
Evidentiary issues.............................................................................................................................. 7
Burden of proof.................................................................................................................... 7
Standard of proof................................................................................................................. 7
Evaluation of witness evidence and assessment of credit............................................. 9
Key principles relating to trusts.................................................................................................... 16
Express trusts..................................................................................................................... 16
Admissions against interest............................................................................................. 22
Resulting trusts.................................................................................................................. 24
Equitable defences........................................................................................................................... 25
Illegality.............................................................................................................................. 25
Unclean hands.................................................................................................................... 28
Oppression — relevant principles................................................................................................ 34
Credibility......................................................................................................................................... 43
Analysis of the evidence................................................................................................................. 56
September 2006 to 1 October 2017............................................................................................ 57
1 October 2017 to 4 December 2017.......................................................................................... 61
5 to 8 December 2017.................................................................................................................. 72
The provision of the AUD $100,000.......................................................................................... 86
12 to 15 December 2017 – the Hong alias email account and the ANZ bank account...... 95
Meeting at Hong’s house in Kew – the 16 December meeting............................................. 97
Early to mid‑2018...................................................................................................................... 109
The Smith Road warehouses................................................................................................... 115
Settlement of the MCH Proceeding........................................................................................ 126
Relevant events following the settlement of the MCH proceeding................................... 129
Hong, Leon and Jerry – “Fight the Landlord”...................................................................... 138
The continuation of the negotiations and Kee’s appointment as director of Kegland... 156
The share issue.......................................................................................................................... 164
The threshold question................................................................................................................. 180
Relief sought by the Plaintiffs.................................................................................................... 188
Preliminary....................................................................................................................... 188
No entitlement to relief pursuant to s 233 of the Corporations Act......................... 189
The shares are worthless................................................................................................ 190
Conclusions and orders................................................................................................................ 191
HIS HONOUR:
Introduction and overview
Issues
Kegland Distribution Pty Ltd (Kegland) was incorporated on 8 December 2017, and conducts a business of selling ‘home brewery’ equipment and ingredients. The first plaintiff, LL UP Pty Ltd (LL UP) holds 50 ordinary shares in Kegland. The second plaintiff, Hong Rui Liu (Hong), is and at all relevant times was a director of LL UP, and a director of Kegland.
On and from the time of Kegland’s incorporation, the directors of Kegland were Hong and the fifth defendant, Sam Jum Lie (Sam). At Kegland’s incorporation there were 100 ordinary shares on issue in Kegland, of which LL UP held 50 shares, and Sam held 50 shares.[1] No further directors were appointed and no further shares were issued until late 2020 and early 2021 respectively.
[1]Plaintiffs’ Amended Statement of Claim dated 8 May 2024 (SOC), [1], [8] (PSCB‑211–213), Defendants’ Amended Defence and Counterclaim dated 13 May 2024 (DCC), [1], [8] (DSCB‑7–8).
This proceeding concerns the circumstances in which and the basis, if any, on which the second defendant, Kee Doery (Kee) was purportedly appointed as a director of Kegland on 7 December 2020, and 400 ordinary shares in Kegland were issued on 1 February 2021 to entities respectively controlled by Kee and by the second plaintiff by counterclaim, Ari Luo (Ari). The entities to whom the shares were issued were the third defendant, Team KK Pty Ltd (Team KK) which is owned by Kee; and the fourth defendant, LTWQ Pty Ltd (LTWQ), which is owned and controlled by Ari.
The Plaintiffs allege on various grounds, inter alia, that Kee’s purported appointment as director was not valid, that the purported issue of 400 shares was void or voidable, and that the Plaintiffs neither consented to nor were aware of those matters until after the shares had been purportedly issued.[2]
[2]SOC [9–15], PSCB‑213–217; Plaintiffs’ Second Further Amended Reply and Defence to Counterclaim dated 19 May 2024 (Reply), [8–14] (PSCB 760–764).
The second to fifth defendants and plaintiffs by counterclaim in this proceeding (together the Defendants) deny those allegations by the Plaintiffs. They justify the purported share issue on the basis that in approximately late November or early December 2017, Kee and Ari entered an agreement with Hong. The terms of this agreement are claimed to include that Hong would hold 50% of the shares in Kegland on trust equally for Kee and Ari and would ‘transfer them to each of them, or at their direction’ and that Hong would ‘resign as director of Kegland when asked to by Kee and Ari, most likely once the MCH dispute had resolved’ (the Alleged Oral Agreement).[3] It is said that by reason of the Alleged Oral Agreement: ‘Hong undertook to hold 50% of the shares in the proposed company on trust for Kee and Ari until the issues with Maggie and MCH[4] were over (Hong Trust) and Hong used the first plaintiff to assume the role of trustee under the Hong Trust on 8 December 2017.’ Further, it is said that, subsequently, as against his own interest, and as against the interest of LL UP, Hong admitted the existence and/or the terms of the Hong Trust by conduct, primarily in the WeChat messages, after the Alleged Oral Agreement was made.[5]
[3]DCC [8D(b)], [8E.2], [8E.3] (DSCB 11–14); and see Plaintiff’s Amended Closing Submissions (16 August 2024), [48]–[49].
[4]The reference to “Maggie” refers to Maggie Hu (a director of MCH) and “MCH” refers to “MCH Australia Pty Ltd”.
[5]DCC [8E.2], [8E.3] (DSCB 12–14).
Hong denied the existence of the Alleged Oral Agreement and, consequently, that the shares were held on trust; hence Kee’s appointment in 2020 and the share issue cannot be justified.[6]
[6]Defendants’ Outline of Opening Submissions, [112].
On the basis of this position, the appointment of Kee and the dilution of the shareholding of LL UP is said by the Plaintiffs to be unfairly prejudicial or discriminatory or oppressive and LL UP is entitled to relief under s 233 of the Corporations Act 2001 (Cth) (the Corporations Act). The Plaintiffs also contended that the purported appointment and the purported share issue involved misleading or deceptive conduct under s 18 of the Australian Consumer Law (Cth) (ACL), s 1041H(1) of the Corporations Act and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).
The Defendants, on the other hand, contend that at the heart of this case is the factual dispute as to whether a trust was established on the morning of 6 December 2017 — the Hong Trust. This, they say, is the threshold issue. They do, however concede, that if the Court rejects the trust claim, then the Defendants could not resist the Plaintiffs’ entitlement to relief, the effect of which would undo the 2021 share issue and remove Kee as a director of Kegland (Reversal relief). If this position were reached, the Defendants say that the only issues that would arise for determination are: (1) whether the Plaintiffs are entitled to any relief above and beyond the Reversal relief; and (2) if the Court decides to make a purchase order (that is, an order requiring Kee and Ari to purchase the first Plaintiff’s shares in Kegland), the price for which the buyers are required to purchase those shares.
Background
The position of the Plaintiffs is, at a high level, that the documentary evidence does not support the Defendants’ claims, particularly the existence of the Hong Trust. As emphasised by the Plaintiffs in their oral closing submissions, they contend that there is no contemporaneous documentary evidence referring to the existence of the Hong Trust or its terms and, further, that there are many documents which negative its existence. Moreover, it is said that there is no written evidence that Kee and Ari ever sought to exercise their rights under the alleged agreement to call for Hong to transfer the shares to them, or to request that Hong resign as a director of Kegland. The Plaintiffs also emphasised that the Australian Securities and Investments Commission (ASIC) corporate records supported the position that Hong holds and, at all material times, held 50% of the shares in Kegland beneficially.
The Defendants, on the other hand, contend that a different picture emerges from the evidence, in particular the contemporaneous documentary evidence, viewed as a whole. On this basis it is said that a sufficiently clear picture emerges as follows:[7]
[7]Closing Submissions of the 2nd – 5th Defendants (the Kegland parties) (12 August 2024), [5].
(a) In the period leading to late November 2017, MCH was threatening legal action against Kee and Ari, former employees (and then shareholders) of that company. Kee and Ari feared that MCH would seek and obtain an injunction shutting down the new business they had established and were then operating (Kegland Business).
(b) In early December 2017, Kee and Ari registered Kegland Hardware Pty Ltd (Kegland Hardware) to own and operate this business. The share register shows that Kee and Ari were connected with this company (tellingly, it also shows that Hong never was). Hence Kee and Ari decided to register a new company. They wanted to instal their friend and business associate, Sam Jum Lie, as a stand‑in director; and they wanted Sam to hold shares in the company on their behalf. In this way, they hoped to disguise their respective interests in the proposed company. But Sam lived in Jakarta Accordingly, he could not act as the sole director of the proposed company. This is something that Kee only learnt from his accountant on 4 December 2017. But Kee, Ari and Sam did reach an agreement under which Sam would hold 50% of the shares in the new company on trust for Kee and Ari.
(c) Against this background, with Kee’s approval, Ari approached Hong on 6 December 2017.
(d) Prior to 6 December 2017, Hong was not involved in the Kegland business. Hong did not come up with the idea to form this business; he did not invest in this business; he did not own shares in Kegland Hardware Pty Ltd; and he did not help to run this business. Indeed, as he revealed in cross‑examination, Hong was unaware that Kee and Ari had registered Kegland Hardware. He was also unaware that, prior to the registration of Kegland Distribution Pty Ltd … , this company was the owner and operator of the Kegland business.
(e) On 6 December 2017, Ari (with Kee’s approval, albeit he did not know Hong) asked Hong to hold 50% of the shares in the proposed company for him and Kee until the disputes involving Maggie and MCH had ended. Ari did this because he and Kee wanted to disguise their respective interests in the proposed company (and, therefore, the Kegland business).
(f) Subsequently, Kee and Ari implemented an elaborate but naïve scheme to cover up their respective interests in the new company, Kegland Distribution. This scheme involved deception and dishonesty, some of which was egregious. Hong was an active participant in this scheme and, like Kee and Ari, he engaged in seriously dishonest conduct designed to mislead this Court, officers of this Court and MCH.
(g) In 2019 and 2020, on different occasions, Hong admitted the trust. These admissions occurred before the present dispute had arisen.
On this basis, the Defendants contend that this is not a case in which it is difficult or impossible to fit together almost all pieces of the jigsaw of evidence. Thus, it is said that no important pieces are missing; no important pieces are wrong; and no important pieces are distorted. It is said that the dishonest scheme to hide the Kegland arrangements from Maggie and MCH is an important piece in this puzzle. In relation to the picture for which the Defendants contend, this piece is said to be neither wrong nor distorted. Although the implementation and maintenance of that scheme involved deliberate dishonesty, it is said that the existence of such dishonest conduct does not necessitate the rejection of the picture. Nor does such dishonesty destroy or distort other pieces of the puzzle, particularly where those pieces rest on contemporaneous documentary evidence. Finally, it is said that, as problematic as the scheme clearly is, it is entirely consonant with the existence of the Hong Trust.
In relation to Hong’s case on the threshold issue, the Defendants emphasise that the critical question is this: if no trust came into existence, how and why did his family company receive the shares in question? In this respect it is said that there are too many missing, wrong and distorted pieces in the puzzle to justify support for the picture for which Hong contends. Moreover, it is said that there are many actual pieces that prevent the emergence of the full picture for which Hong contends. As to the missing pieces that relate to the threshold issue, the Defendants say that they relate to the following matters: (1) Hong’s alleged role in the creation of the Kegland business; (2) Hong’s alleged role in registering Kegland; (3) Hong’s alleged role in the allocation of the shares to his family company and Sam, a person whom he did not meet or speak with until after incorporation; (4) Hong’s alleged role in organising initial funding for Kegland (and, therefore, the Kegland business); (5) the basis on which Hong’s company acquired the shares; and (6) Hong’s alleged role in the running of the Kegland business. As to (5), for example, there is no evidence that Hong or his family company invested in Kegland or the Kegland business; there is no evidence that Kee and Ari gifted shares to Hong or his family company (nor does Hong allege that they did); and there is no evidence that Hong or his family company entered into a subscription agreement. Apart from the creation of the trust (the Hong Trust), in light of the missing pieces, there is no rational explanation for how and why the shares were allocated to Hong’s family company.
As to the distorted pieces, the Defendants refer to the evidence concerning the payment of $100,000 which is, they say, a central plank of Hong’s case. However, it is contended that a close examination of the evidence shows that, contrary to his first witness statement, Hong did not provide $100,000 to Kegland as start‑up capital. The Defendants contend that he was, in fact, never out of pocket financially. Clearly, it is submitted, that when putting together his first witness statement, Hong was aware of this. Using the jigsaw metaphor, it is said that Hong was aware of this distorted piece. In the circumstances, the Defendants ask, why did Hong attempt to use this distorted piece to create a misleading picture? The answer, it is said, lies in the relief that the Plaintiffs seek — namely they want a buy‑out order.
Lastly, in this overview, the Defendants re‑emphasise the existence of dishonest conduct of key persons in this case. Dishonest behaviour on the part of Kee and Ari, it is said, does not prevent the acceptance of their trust case, or necessitate the rejection of their evidence. Similarly, it is said, dishonest behaviour on Hong’s part does not prevent the acceptance his trust case, or necessitate the rejection of his evidence. Also, Kee and Ari confessed to lying, but said that they were no longer lying. Accordingly, ‘the old conundrum’ arises: whether one should believe an habitual liar when he or she asserts that he or she was lying.[8] In this case, notwithstanding these matters, the determination of the threshold issue hinges, it is submitted, on the following: (1) a close assessment of the available pieces of the puzzle, in particular contemporaneous documents; and (2) how those pieces fit together.
[8]In Re Petera Pty Limited v EAJ Pty Limited (1985) 7 FCR 375 at [17], Wilcox J referred to ‘the old conundrum’. In that case, the respondents had kept two sets of restaurant accounts. These accounts were mutually inconsistent, and there was no dispute that the respondents had deceived the applicants (who received one set of accounts) or the ATO (who received information based on the other set of accounts). The fundamental question was which set of accounts was correct. Wilcox J resolved this question in favour of the respondents on the basis of their discovered documents showing actual takings of the restaurant (see [22] to [25]).
For the reasons advanced by the Defendants, they say that the Court should reject Hong’s case in respect of the threshold issue, that this flows naturally from: (1) a careful consideration of the pieces of the puzzle, almost all of which rest on contemporaneous documents; and (2) a consideration of the overall probabilities of matters on which each side relies. Thus, it is said that a sufficient number of pieces fit together from which the trust picture emerges in favour of the Defendants.
Evidentiary issues
Burden of proof
Section 140(1) of the Evidence Act 2008 (Evidence Act) provides that, in a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. In this context the Defendants highlight the following principles:
(a) The fact that a witness is disbelieved does not prove the opposite of what he or she asserted.[9]
(b) The party that bears the onus must discharge that onus. However, where there are competing hypotheses, a court should assess which of these hypotheses is to be preferred (provided, of course, it always keeps in mind upon whom the onus lies).[10] In considering whether a party has discharged its onus, it will often be appropriate, or even necessary, for the judge to determine whether the alternative version of events put forward by the opposing party is to be accepted; for if that alternative version of events were to be positively accepted, then plainly the party that bore the onus would not have discharged it.[11]
[9]Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640, 694; Kuligowski v Metrobus (2004) 220 CLR 363, [60]; and Timeless Sunrise Pty Ltd v BigJ Enterprises Pty Ltd (No 10) [2023] VSC 524, [288].
[10]Melbourne Orthopaedic Group Pty Ltd v Stamford Aus‑Trade & Press Pty Ltd [2015] VSCA 150, [109] (Santamaria JA), a point with which the other members of the Court agreed.
[11]Eumeralla Estate Pty Ltd v Chen [2022] VSCA 78, [54].
Standard of proof
As to the standard of proof, and as to the concept of actual persuasion, the Defendants emphasise two principles; principles not doubted by the plaintiffs.
The first is that each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court ‘must feel an actual persuasion of its occurrence or existence’. Such satisfaction is ‘not … attained or established independently of the nature and consequence of the fact or facts to be proved’ including the ‘seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding’.[12]
[12]Helton v Allen (1940) 63 CLR 691, 712.
The second principle involves the relevance of s 140(2) of the Evidence Act which is relevant to the concept of actual persuasion. Under this provision, in deciding whether the court is satisfied that a case has been proved to the requisite standard the court must take the following matters into account: (1) the nature of the cause of action or defence; (2) the nature of the subject matter of the proceeding; and (3) the gravity of the matters alleged.
Moreover, as the Defendants contend, when proof of any fact is required, the court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the court. However, it is stressed, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the court. It follows that reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences.[13]
[13]Briginshaw v Briginshaw (1938) 60 CLR 336, 361–2. Section 140(2) of the Evidence Act is the statutory embodiment of the Briginshaw rule.
In the present case, the Plaintiffs bear the burden of proving their case and the Defendants, having alleged the existence of a bare trust in respect of the Kegland shares, bear the burden of establishing the necessary facts to support this case.
Evaluation of witness evidence and assessment of credit
At the outset, the Plaintiffs make reference to the important and general proposition that their most compelling evidence that the court should rely on is contemporaneous documentation. As Lee J said in Webb v Getswift (No 5):[14]
[14][2019] FCA 1533, [17]–[18].
17. As those experienced in commercial litigation in general, and in securities class actions in particular, would readily appreciate, what matters most in the determination of the issues in cases such as this is the analysis of such contemporaneous notes and documents as may exist and the probabilities that can be derived from these documents and any other objective facts. Take the example of the dealings between GetSwift and the customers: there is likely to be a documentary record both within the business records of GetSwift and their contractual counterparty which records dealings between them which go beyond the agreement itself. Additionally, experience suggests that it is also likely that there will be informal email exchanges, both between GetSwift and the customers, and within the relevant organisations.
18. As Leggatt J said in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm) at [15]‑[23], there are a number of difficulties with oral evidence based on recollection of events given the unreliability of human memory. Moreover, considerable inference with memory is also introduced in civil litigation by the procedure of preparing for trial. As his Lordship noted, a witness is asked to make a statement, often when considerable time has already elapsed since the relevant events. The statement is usually drafted by a solicitor who is inevitably conscious of the significance for the case of what the witness does nor does not say. The statement is often made after the memory of the witness has been “refreshed” by reading documents. The documents considered can often include argumentative material as well as documents that the witness did not see at the time and which came into existence after he events which the witness is being asked to recall. It may go through several iterations before it is finished. As Lord Buckmaster famously said, the truth “may sometimes leak out from an affidavit, like water from the bottom of a well”. This may be overly cynical, but the surest guide for deciding the case will be as identified by Leggatt J at [22]:
… the best approach for a judge to adopt in the trial of a commercial case, in my view, to place little if any reliance at all on the witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.
Gestmin has recently been cited with approval in this Court.[15]
[15]See White v Woodward [2020] VSC 258, [14], per John Dixon J; 3 Apples Childcare Centre Pty Ltd v MMC Pacific International Pty Ltd [2023] VSC 21, [144]–[145] per M Osborne J.
In this context, the Defendants helpfully set out 13 propositions, with reference to authorities, applicable to the assessment of credit and character of the witnesses in this proceeding. These propositions are as follows:[16]
[16]Closing Submissions of the 2nd – 5th Defendants (the Kegland parties) (12 August 2024), [22]–[39].
22.Proposition 1: The approach to the exercise of fact finding in a complex case (when faced with stark conflicts in witness evidence) as necessarily requiring all the pieces of the jigsaw to be fitted together is often both flawed and an exercise in the impossible. This is because individual pieces of the jigsaw may be wrong, distorted to a greater or lesser degree, or absent. Indeed, it is not possible to make findings if the state of the evidence or other matters mean that it is not proper to do so. However, often a sufficient number of pieces may be fitted together to allow the full picture to be seen.[17]
[17]Muyepa v The Ministry of Defence [2022] EWHC 2648, [11] (and the cases cited therein).
23. Proposition 2: When evaluating the evidence of a witness whose testimony has been challenged it should be broken down into its component parts. If one element is incorrect it may, but does not necessarily, mean that the rest of the evidence is unreliable. There are a number of reasons why an incorrect element has crept in. Apart from the obvious loss of recollection due to the passage of time, there may be a process of conscious or subconscious reconstruction or exposure to the recollection of another which has corrupted or created the recollection of an event or part of an event (see Proposition 3 below).[18]
[18]Muyepa v The Ministry of Defence [2022] EWHC 2648, [11] (and the cases cited therein).
24. Proposition 3: It is important to bear in mind that human memory is a fallible reconstructive process. In this regard, in Gestmin SGPS SA v Credit Suisse (UK) Ltd & Anor [2013] EWHC 3560 (Comm), Mr Justice Leggatt made the following points (at [15] to [21]):
(a) An obvious difficulty with allegations and oral evidence based on recollection of events which occurred several years ago is human memory.
(b) Human memory is fallible. Two common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate.
(c) Underlying both these errors is a faulty model of memory as a mental record which is fixed at the time of experience of an event and then fades (more or less slowly) over time. External information can intrude into a witness's memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else.
(d) Memory is especially unreliable when it comes to recalling past beliefs. Our memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time.
(e) The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings.
(f) Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been “refreshed” by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re‑read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness’s memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events.
(g) There is no clear distinction between recollection and reconstruction – all remembering of distant events involves reconstructive processes. Such processes are largely unconscious and that the strength, vividness and apparent authenticity of memories is not a reliable measure of their truth.
25. Having discussed these matters, Mr Justice Leggatt went on to say this (at [22]):
In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross‑examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.
26. Proposition 4: In light of Proposition 3, case law emphasises the importance of documentary evidence in assessing the credibility and reliability of witnesses. Courts should look to such contemporary evidence to see the extent to which it supports or undermines what a witness says. Such evidence often provides a valuable guide to the truth.
27. In Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431, having reviewed the various reasons that a witness’s oral testimony might not be credible, Lord Pearce stated as follows:
… all these problems compendiously are entailed when a judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.
28. Similarly, in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyd’s Rep 1, 57 Robert Goff LJ made this observation:
It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.
29. In Brookfield v Yevad [2004] FCA 1164 at [416], in relation to the importance of documents in terms of testing credibility, Lander J said relevantly as follows:
Often, especially in commercial causes, the best evidence of the events the subject of the inquiry in the trial is contained in the contemporaneous documents. Usually, documents are created in circumstances where parties do not expect the documents to surface in a trial. They often, therefore, contain the true account of the contemporaneous event.
30. In Wetton (as Liquidator of Mumtaz Properties) v Ahmed & Ors [2011] EWCA Civ. 610, Lady Justice Arden made an important point concerning the absence of contemporary documents. The judge said relevantly as follows (emphasis added):
[11] By the end of the judgment, it is clear that what has impressed the judge most in his task of fact‑finding was the absence, rather than the presence, of contemporary documentation or other independent oral evidence to confirm the oral evidence of the respondents to the proceedings.
[12] There are many situations in which the court is asked to assess the credibility of witnesses from their oral evidence, that is to say, to weigh up their evidence to see whether it is reliable. Witness choice is an essential part of the function of a trial judge and he or she has to decide whose evidence, and how much evidence, to accept. This task is not to be carried out merely by reference to the impression that a witness made giving evidence in the witness box. It is not solely a matter of body language or the tone of voice or other factors that might generally be called the 'demeanour' of a witness. The judge should consider what other independent evidence would be available to support the witness. Such evidence would generally be documentary but it could be other oral evidence …
…
[14] In my judgment, contemporaneous written documentation is of the very greatest importance in assessing credibility. Moreover, it can be significant not only where it is present and the oral evidence can then be checked against it. It can also be significant if written documentation is absent. For instance, if the judge is satisfied that certain contemporaneous documentation is likely to have existed were the oral evidence correct, and that the party adducing oral evidence is responsible for its non‑production, then the documentation may be conspicuous by its absence and the judge may be able to draw inferences from its absence.
31. Proposition 5: In the fact‑finding process, courts prefer evidence which is inherently probable in the circumstances. As to incontrovertible facts and probabilities, as a matter of common sense, the inherent improbability of an event having occurred will be a relevant factor in deciding whether it did in fact occur.[19] Proof of an improbable event may require more cogent evidence than might otherwise be required.[20]
32. Proposition 6: In the fact‑finding process, in addition to the significance of contemporaneous documents, courts prefer evidence which is consistent with (1) facts admitted by the parties or (2) matters of common knowledge or experience.
33. Proposition 7: Courts also prefer evidence that a witness gives against his or her interest.[21]
34. Proposition 8: Evidence of independent witnesses – that is, persons who have no reason to be partisan – may be decisive in resolving the conflicting evidence of interested parties. In many cases, it is necessary for the court to assess the credibility and reliability of such witnesses.
35. Proposition 9: There is an important difference between credibility and reliability. Credibility concerns honesty. However, reliability is different from credibility. A witness may be honest, but she may have a poor memory, or she may be mistaken. By way of example only, the Kegland parties refer to Ari’s inability to recall the day of the week on which the 16 December 2017 meeting occurred ([T 719]). This inability does not support an adverse credibility finding against Ari. In any event, the day of the week is unimportant, and, even if it were important, it could be discerned with reasonable accuracy from a careful analysis of contemporaneous emails and other documents (see Proposition 4).
36. Proposition 10: In terms of assessing credibility and reliability, an important factor is the inherent consistency of the account. If the evidence of the witness contains internal contradictions, it cannot be accepted as a whole. The question may be which part to reject.[22]
37. Proposition 11: Further to Proposition 1, there are risks in making global findings about the credibility of any particular witness. First, if it is found that a witness has lied about one thing, that finding does not mean that other parts of his or her evidence are untruthful.[23] Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern.[24] Second, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful.
38. Proposition 12: Further to Proposition 9, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. In reaching a conclusion in respect of a critical fact, it is dangerous to reject all of a person’s evidence on the basis that he or she has lied about a particular matter. The danger is that some evidence will be considered in isolation and rejected as improbable, rather than being given some (albeit limited) weight, and placed into the balance prior to reaching a conclusion in relation to a critical fact.[25] Contemporaneous documents play a significant role in this balancing process – see Proposition 2.
39. Proposition 13: In cross‑examination, if counsel does not challenge certain evidence, that failure can bear on the fact‑finding process.
[19]For example, see Helton v Allen (1940) 63 CLR 691, 712 and Gestmin SGPS SA v Credit Suisse (UK) Ltd & Anor [2013] EWHC 3560 (Comm), [22].
[20]Jones v Birmingham City Council [2023] UKSC 27, [51].
[21]Maria Saravinovksa v Krste (Chris) Saravinovski; Chris Saravinovski v George Saravinovski (No 6) [2016] NSWSC 964, [467].
[22]Pell v The Queen [2019] VSCA 186, [56].
[23]Sangha v Baxter [2009] NSWCA 78, [155]. Indeed, the court is not bound to accept or reject the evidence of a witness in its entirety: Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1, [118].
[24]Sangha v Baxter [2009] NSWCA 78, [155].
[25]King v Collins [2007] NSWCA 122, [44].
Further to these matters relevant in considering the credibility of witnesses, there are also more specifically articulated indicators of unsatisfactory witness evidence. In Painter v Hutchinson,[26] Lewison J (as he then was) identified a non‑exhaustive list of indicators of unsatisfactory witness evidence. This list included the following: (1) evasive and argumentative answers; (2) tangential speeches avoiding the questions; (3) blaming legal advisers for documentation (statements of case and witness statements); (4) discovery and evidence shortcomings; (5) self‑contradiction; (6) internal inconsistency; (7) shifting case; and (8) selective disclosure of documents or information.[27] As submitted by the Defendants, I accept that the following additional indicators should be added in appropriate circumstances where they may be relevant, namely: (1) blaming a translator for a translation; (2) maintaining the reliability or accuracy of an informal translation notwithstanding the existence of a certified translation; and (3) adoption of the evidence of the opposing party, notwithstanding that such evidence is inimical to the case of the party who called that witness.
[26][2007] EWHC 758 (Ch), [3].
[27]These indicators are also listed in Rancom Security Ltd v Girling & Ors [2023] EWHC 1115 (Ch), [33]. In the balance of these submissions, the defendants refer to these indicators as the ‘Rancom indicators’.
Finally, with respect to contemporaneous documentary evidence and its admissibility, reference should be made to provisions of an effect of s 1305(1) of the Corporations Act.
It should be stressed that the effect of these provisions is that a book kept by a body corporate under a requirement of that Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.[28] As to this, in ASIC v Rich,[29] Austin J said, relevantly, that this provision: (1) allows the admission of a company’s books into evidence without any ‘authenticating’ evidence from a witness; (2) also allows parties to rely on books to prove transactions recorded therein; and (3) ‘does not elevate matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document’.
[28]ASIC v Rich (2005) 216 ALR 320, [223]–[228].
[29](2009) 75 ACSR 1, [400].
Similarly, in GJB Building Pty Ltd v AI&PB Property Pty Ltd,[30] Nichols J made statements to like effect. Her Honour said relevantly as follows:
Section 1305(1) does not make the company’s books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact. Other evidence may suggest that the books are unreliable, including where there are drafts, or contain matters that require explanation.
[30][2023] VSC 782, [669].
Key principles relating to trusts
Express trusts
There are two methods of creating a non‑testamentary trust: (1) a trust arising from a transfer of property by a person having power to transfer it to another person to hold that property on trust (whether the transferee is an owner, donee of a power or otherwise); or (2) a declaration of trust in which a person declares that he or she holds, or will hold, property on trust and thereby assumes, or proposes to assume, the obligations of a trustee. Such a declaration is as much as a declaration of trust as one made by the beneficial owner of the property to be subjected to the trust. The existence of an express trust depends on three things: (1) certainty as to the subject matter of the trust; (2) certainty as to the beneficiaries, the objects of the trust; and (3) certainty as to intention.
Where there is an unambiguous statement of intention to create a trust which leaves no uncertainty as to the terms of the trust, it will not be necessary to look beyond that statement. In the absence of an expressed intention, however, the creation of a trust depends on an intention to create a trust. The test of intention to create a trust is objective.[31] The relevant intention is thus the outward expression of that intention, and not actual intention.[32] For all practical purposes, a person’s undisclosed intention is immaterial.[33] Moreover, it is not necessary that the creation of a trust is communicated to the trustee.[34] All that is required is a clear, express declaration that it is intended to be binding.[35]
[31]Byrnes v Kendle (2011) 243 CLR 253; Legal Services Board v Gillespie‑Jones (2013) 249 CLR 493, [119]; In re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 505; and Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 121.
[32]Byrnes v Kendle (2011) 243 CLR 253, [59].
[33]Twinsectra Limited v Yardley & Ors [2002] 2 AC 164, [71]; and Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 190–192 (Isaac J – in dissent on other grounds).
[34]Middleton v Pollock (1876) 2 Ch D 104; Rose v Rose (1986) 7 NSWLR 679, 686; Hyhonie Holdings Pty Ltd v Leroy [2003] NSWSC 624.
[35]Consequently, the defendant contends that whilst the discussion between Ari and Hong is central to the trust issue, this was arguably merely the appointment of Hong as a trustee of an already constituted trust, which was created when Kee and Ari determined to (a) decant their nascent business (Kegland Hardware) into a yet to be incorporated vehicle, (b) as promoters, incorporate Kegland Distribution for that specific purpose and (c) put 100% of the soon to be established Kegland Distribution shares (future property) into Sam’s name (later Sam and Hong’s names). The evidence of Kee and Ari regarding their intention to create a trust was not challenged.
As made clear in Byrnes v Kendle,[36] issues as to whether a trust has been created and on what terms are to be resolved according to the ordinary meaning of the words and actions the subject of the relevant dealings. It is an objective enquiry, and one that requires an examination of the ‘circumstances attending the relationship between the parties’.[37]
[36](2011) 243 CLR 253.
[37]Byrnes v Kendle (2011) 243 CLR 253, 286 per Heydon and Crennan JJ; and Braham Investments Pty Ltd v Wantrup [2018] VSCA 291, [279].
The Plaintiffs appear to be suggesting in their submissions[38] that there is some further constraint or reluctance on the part of the courts to find an express trust which is alleged to have been created orally. In this respect reference is made to the judgment of Gummow and Hayne JJ in Byrnes v Kendle, setting out the following passage:[39]
[38]Plaintiffs’ Amended Closing Submissions (16 August 2024), [226].
[39](2011) 243 CLR 253, [49].
In Bahr v Nicolay [No 2] [(1988) 164 CLR 604, 618)] Mason CJ and Dawson J approved of the expression of the “traditional attitude” by du Parcq LJ that “unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention”.
Reference to this passage in this judgment, as quoted, does, however, omit the remainder of that paragraph which, in my view, makes it clear that enquiry whether or not an express trust has been created orally is an objective enquiry as the authorities, more generally, indicate and without any previous position or presumption against a finding that such a trust was created.[40] This appears to be supported by the remainder of the paragraph to which reference is made in the judgment of Gummow and Hayne JJ, as follows:[41]
In the present case there was no degree of informality, the trust being manifested and proved by deed using the technical term “upon trust”. Accordingly, to adopt what was said in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) [(2000) 202 CLR 588, 605 [34]]:
This is not one of those cases where the language employed by the parties for the transaction is inexplicit so that the court is left to infer the relevant intention from other language used by them, from the nature of the transaction and from the circumstances attending the relationship between the parties. (footnote omitted)
[40]And see below, [34].
[41]Byrnes v Kendle (2011) 243 CLR 253, 272 [49].
Turning to the authorities more generally, in Eumeralla Estate Pty Ltd v Chen,[42] the Court of Appeal said:
(pp) Fourthly, whether it will be possible to infer an intention to create a trust in a particular case will depend upon a consideration of the language of the parties, construed in context, including the matrix of circumstances.
(qq) Fifthly, whether an intention to create a trust exists must be determined by reference to the “outward manifestation’ of such an intention, rather than to the subjective intention of the alleged settlor.
…
(ss) Sixthly, trust obligations arise where equity operates on the conscience of the holder of the legal interest. A person cannot be a trustee of property if that person is ignorant of the facts alleged to affect their conscience. That is, unless the putative trustee is aware that they are intended to hold the property for the benefit of others, their conscience will not be affected in a relevant way.
[42][2021] VSCA 78, [83].
Further, in Korda v Australian Executor Trustee Co,[43] French CJ said:
[43](2015) 255 CLR 62, [3]–[5].
[3] The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties.
…
Finding an express trust
[5] It has rightly been observed that “many express trust are not express at all. They are implied, or inferred, or perhaps imputed to people on the basis of their assumed intent”. The American Law Institute’s Restatement Third, Trusts uses the term “trust” to refer to an express trust as distinct from a resulting trust or constructive trust and defines it as:
“a fiduciary relationship with respect to property, arising from a manifestation of intention to create that relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of charity or for one or more persons, at least one of whom is not the sole trustee.”
The seventh edition of Jacobs’ Law of Trusts in Australia offers the usefully succinct observation that the creator of an express or declared trust will have used language which expresses an intention to create a trust:
“The author of the trust has meant to create a trust, and has used language which explicitly or impliedly expresses that intention, either orally or in writing. The fact that a trust was intended may even be deducted from the conduct of the parties concerned but if there is any uncertainty as to intention, there will be no trust.”(Footnote omitted).
In the present case, neither text nor context could elevate the propounded intention to the level of certainty.
In Flash Lighting Co Pty Ltd v Australia Kunqian International Energy Co Ltd,[44] Robson J emphasised that the onus of proving an intention to create a trust is on the person alleging the trust was created. In this respect, Robson J said:[45]
[44][2018] VSC 711.
[45][2018] VSC 711, [824], [826], [828].
[824] Where an explicit declaration of trust is absent, as is the case here, the court must determine whether intention is to be imputed. In this task, the court must refer to the language of the documents or conversations, having regard to the nature of the transactions and the circumstances attending the relation between the parties.
…
[826] In Korda, Keane J referred with approval to the statement by Dixon CJ, Williams and Fullagar JJ in Kauter v Hilton that ‘the established rule that in order to constitute a trust intention to do so must be clear and that it must also be clear what the property is subject to the trust, and reasonably certain who are the beneficiaries.’
…
[828] Where a trust is said to arise through an informal document, rather than through a deed or contract, then the court will assess the question of whether a trust was created by reference to all relevant circumstances. In Byrnes v Kendle, Gummow and Hayne JJ explained:
Where … an express inter vivos trust of personality is said to have been created by information writing or orally, then a dispute as to the presence of the necessary intention, despite inexplicit language, is resolved by evidence of what the Court in Kauter v Hilton identified as ‘[a]ll the relevant circumstances.’
Intention to create an express trust may also be found in circumstances where there is ‘a pattern of business dealings each in legal form intended to follow those before it, with a resulting abbreviation in attention to detail’.[46]
[46]Herdegen v Federal Commissioner of Taxation (Cth) (1988) 84 ALR 271 at 277. Accordingly, earlier dealings can explain the absence of express language or stipulations in subsequent dealings.
Clearly an unambiguous reference to a ‘trust’ in the words of the disposition of the relevant property gives rise to the presumption that the disponor intended to create a trust.[47] However, particularly in the cases to which reference has been made, there are cases in which the parties have used inexplicit language. In such cases, the court is left to infer the relevant intention from the following: (1) other language used by the parties; (2) the nature of the transaction; and (3) the relevant circumstances, including commercial necessity, attending the relationship between the parties.[48] In cases where no express or clearly implicit intention to create a trust is shown, such as where the parties give no actual thought to the matter, whether or not there was an intention that the subject monies be kept separate from the other general monies of the recipient is often decisive of the question whether the recipient is a trustee.[49] This, of course, is a particular circumstance, where the subject property of an alleged trust is money. It is, however, an example of the court directing its attention particular circumstances. Nevertheless, as the authorities make clear, ‘[a]ll the relevant circumstances must be examined in order to determine whether the depositor really intended to create a trust’.[50]
[47]Re Lamshed (deceased) [1970] SASR 224, 239.
[48]Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liquidation) & Anor (2000) 202 CLR 588, [34]; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 121; and Byrnes v Kendle (2011) 243 CLR 253, 277, 288–290. As to the breadth or scope of relevant circumstances, the Kegland parties refer to Re Tresdar Pty Ltd [2019] NSWSC 179, [4]–[9] (‘the Court may have regard to events which occurred after the alleged creation of a trust as either confirming or denying the existence of the trust’ – at [9]). See also Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278, [65]. As to the proposition stated in [230] of the plaintiff’s submissions dated 26 July 2024, it is incorrect (see the cases cited in Re Tresdar Pty Ltd, for example), and the contents of [33] and [34] in Associated Alloys do not support this proposition.
[49]In re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 505–506.
[50]Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liquidation) & Anor (2000) 202 CLR 588, 605 [33], [34] (Gaudron, McHugh, Gummow and Hayne JJ); referring to Kauter v Hilton (1953) 90 CLR 86, 100.
As the Defendants highlight, to these principles should be added the knowledge‑related principles expressed in Westdeutsche Landesbank Girozentrale v Islington LBC,[51] where Lord Browne‑Wilkinson said:[52]
(i) Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust).
(ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e. until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a constructive trust, of the factors which are alleged to affect his conscience.
[51][1996] AC 669.
[52][1996] AC 669, 705.
Moreover, having regard to the approach and technique of equity, as applied in Westdeutsche, it follows that after‑acquired property may be subject to an express trust.[53]
[53]For example, see Palmer v Simmonds (1854) 61 ER 704, a case in which Kindersley VC upheld a trust in respect of a person’s ‘residuary estate at death’. See also Re Bowden [1936] Ch 71, a case in which a settlor settled any property to which she might become entitled upon the death of her father. Ultimately, the trustees received the settlor’s interest under her father’s will, and such property as received was impressed with the trusts contained in the earlier settlement.
Admissions against interest
As the Plaintiffs submit, in Byrnes v Kendle,[54] Heydon and Crennan JJ said:
[54](2011) 243 CLR 253, 286 [102], [103].
102.The construction of trusts. The rules for the construction of contracts apply also to trusts. Although the two institutions are distinct, that is not surprising.
103.For one thing, as Mason and Deane JJ said [Gosper v Sawyer (1985) 160 CLR 548, 568–569 (emphasis added)]: “The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust”. By “establishment” their Honours referred to deciding whether a trust existed. By “definition” they referred to ascertaining its terms. The two inquiries are closely related: for the terms of a document or oral dealing determine whether it creates a trust.
On this basis, the Plaintiffs submit that to the extent that it is suggested that subsequent communications bear on the question of what agreement, if any, was made, means that they are not relevant or admissible. Conduct of the parties subsequent to the making of the contract is not relevant, or admissible, to the interpretation of a contract; referring in this respect to the decision of the Full Court in FAI Insurance Company Ltd v Savoy Plaza Pty Ltd.[55] Relying on this decision the Plaintiffs contend that the principle also extends to ‘so‑called’ admissions. The issue of admissions in this context is discussed in this case by Brooking J where his Honour said:[56]
The construction of a written contract is a question of law. But it seems that a question of law may be made the subject of an admission: see Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669, at p.684, per Mahoney JA. Where, however, the question of law is one of the construction of a written contract that is before the court, it seems to me that the court will derive no as opposed to little assistance in determining that question from the fact that one party or his predecessor in title has made an informal admission on the question. As a matter of strict analysis I would venture the suggestion that the admission, while theoretically available for use, is not admissible because it could not be given any weight at all by the court in construing the contract. It could be given weight if the question for the court was that of the subjective intention of the parties, for a party knows what he intended, but that is not the question, as was pointed out in a different connection by Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, at pp.550‑1. The fact of the admission is too remote to be admissible.
[55][1993] 2 VR 343.
[56]FAI Insurance Company Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343, 351; see also Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 where Campbell JA analysed a number of cases concluding that subsequent conduct cannot be used to interpret a contract.
However, as the Defendants submit, evidence said to constitute admissions against interest may also be relevant in terms of establishing the knowledge, actual or constructive, of an alleged trustee. Thus in Herdegen v FCT,[57] Gummow J said on this point:
In some factual situations where the existence of an express trust is in issue, it will be against the interest of the alleged trustee to admit the trust. Thus evidence of acts by him subsequent to the date of the alleged declaration of trust will be admitted as admissions against (but not for) his interest. Shephard v Cartwright [1955] AC 431 at 445; Calverley v Green (1984) 155 CLR 242 at 262.
[57](1989) 84 ALR 271, 276 [17].
In my view, this is not at odds with the decision of Sifris J in Australian Excecutor Trustees (SA) Ltd v Korda,[58] with respect to the possibility of an admission that assets were held on trust. Rather, the statements by Sifris J in this context indicate that had his Honour found it necessary to determine the issue, this would have depended upon the particular communications said to raise the admission. Thus Sifris J said:[59]
[93]The defendants submit that the question as to the existence of a trust must be resolved by reference to the Relevant Documents. They submit that subsequent communications in the form of admissions can only be taken into consideration in deciding whether there is a trust and not in relation to the construction of a trust. I did not understand AET to contend otherwise.
[94]The defendants submitted further that properly construed none of the communications referred to above constitute an admission as to the existence of any trust. They submit that Mr Nguyen did not have the requisite intention of admitting or confirming the existence of the trust and in any event had no authority to do so as he was not a director of either company. The position taken by the defendants was that in negotiating with its lenders it wished to do the best for Covenantholders and put their case at its highest. Mr Nguyen gave evidence that the submission made reflected a contractual position or ambit claim on the issue. The managing director of the companies, Mr L’Estrange and Mr Frame, the Chief Financial Officer of the companies both held the view that the lenders took priority ahead of any liabilities owed to Covenantholders.
[95]I have decided that it is neither appropriate nor desirable to determine this issue. If there is a trust, as I have found, there is no need to resolve this issue. If I am wrong and there is no trust it is unlikely that the admissions, such as they are, would be capable of creating an express trust. Despite the authority cited by AET, there may be difficulty in a trustee admitting that assets are held on trust when they are not. It is unlikely that an admission can create an express trust with retrospective operation with all its ramifications involving numerous proximate and remote parties (with vested interests) where none was intended or found to exist.
[58][2013] VSC 7.
[59]Australian Excecutor Trustees (SA) Ltd v Korda [2013] VSC 7, [93]–[95].
Resulting trusts
The possible question as to whether a resulting trust arises flows from the defence and counterclaim where the Defendants seek a declaration that the shares are held on trust for them and that an order be made that they be transferred to them. In the Reply to Defence to Counterclaim, the Defendants contend that if the trust was insufficiently certain then the trust property reverts to donors, namely Kee and Ari, on an automatic resulting trust.
The nature of a resulting trust was described in Vanta Pty Ltd v Mantovani:[60]
[60][2023] VSCA 53, [137].
[137] The remedy of a resulting trust applies in relation to real property in two circumstances. First, it may apply where the transferor or settlor of property is presumed not to intend to transfer or convey beneficial ownership to the transferee. In such a case, the holding by the transferee is qualified and conditional. Second, it may apply in other circumstances not dependent on intention and arises automatically, the most relevant of which, for our purposes, is the failure of an express trust. In such a case, the settlor or creator of a trust has failed to take a step that is essential to the creation of a trust in respect of the property in issue.
And in Bosanac v Commissioner of Taxation,[61] Gordon and Edelman JJ said:
[93] Like a constructive trust, which arises by operation of law, a resulting trust sometimes describes a trust in favour of a transferor that is imposed independently of the manifested intention of the transferor to create a trust. But, like an express trust, which arises due to objective or manifested intention to create a trust, a resulting trust sometimes describes a trust that was objectively intended by the transferor of property. These disparate categories are treated alike as “resulting” trusts merely by the pattern of their effect. From the Latin, resalire or resultare, the equitable interest is said to “jump back” to the settlor or those taking through the settlor.
[94] Examples of resulting trusts that have been held to arise by operation of law, irrespective of any objective intention to create a trust, are trusts that arise upon the failure of an express trust or by a transfer of a person’s legal rights without their consent or knowledge. Examples of resulting trusts that arise from objective intention to create a trust are trusts that arise in favour of a transferor of property (“voluntary conveyance resulting trust”) or a contributor of purchase money (“purchase money resulting trust”). This appeal concerns only this latter category of resulting trust, namely those trusts that arise by objective intention.
[61](2022) 275 CLR 37, [93]–[94].
In summary, an ‘automatic resulting trust’ arises by operation of law, automatically, where an express trust fails in recognition of the contributor’s intention that the trustee/recipient does not take the trust property beneficially. Where an express trust fails, the trust property is returned to the person who contributed the trust fund such as the ‘real’ settlor.[62]
[62]In this context, the Kegland parties refer to Mantovani v Vanta Pty Ltd (No 2) [2021] VSC 771, [108]–[112]. In this case, due to loss of the trust deed, it was impossible to ascertain the terms of trust. In these circumstances, McMillan J decided that the trust failed for uncertainty, in which case the trust property returned to the contributor.
However, clarifying their position, the Defendants say that this is not a case where the express trust fails. It is said that given that the trust relied upon is a bare trust, it is one to which an automatic resulting trust would not ever be likely to apply as the resulting trust would necessarily be a bare trust on the same terms as the trust said to have failed. Rather, the Defendants say that this point is raised to demonstrate the fallacy in the Plaintiffs’ attempts to impugn the trust insofar as it does not yield a different result.
Equitable defences
Illegality
The Plaintiffs did not advance an illegality defence and the Defendants proceeded on that basis. The Defendants submit that for various reasons, the non‑reliance upon the illegality defence is sound. They say these reasons are as follows: (1) Kee and Ari were entitled to allocate Kegland shares on the basis that they would retain the beneficial ownership of the shares;[63] (2) the alleged trust was not illegal; (3) the formation of the alleged trust did not involve the commission of a prohibited act; and (4) the relevant purpose — that is the concealment of the beneficial ownership of the shares — was not illegal in the Yango Pastoral[64] sense.
[63]As to the ability to hold shares beneficially or non‑beneficially, see section 169(5A) of the Corporations Act 2001 (Cth).
[64]See Yango Pastoral Co Pty Ltd v First Chicago Australia (1978) 139 CLR 410.
Notwithstanding these matters, the Defendants do, however, note the principles relating to the illegality defence. Moreover, the absence of illegality is relevant to the nature and scope of the unclean hands defence. In this case, it is contended that, in respect of the unclean hands defence, it is important to note that the alleged ‘depravity’ does not involve any form of alleged illegality.
In relation to the alleged ‘depravity’, the Plaintiffs submit that the MCH ruse[65] is at the heart of the supposed trust, and is the reason, on the case of the Defendants, that it came about or was needed or required. In Anaconda Nickel v Edensor,[66] it was said by Buchanan JA (quoting Attwood v Small[67]):
[65]This being conduct undertaken to obscure Kee and Ari’s involvement in Kegland from Maggie and MCH: See below, [186], [187] and [194].
[66](2004) 50 ACSR 679 [37].
[67](1836) 6 Cl & Fin 232.
… that general fraudulent conduct signifies nothing; that general dishonesty of purpose signifies nothing; that attempts to overreach go for nothing; that an intention in design to deceive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, and not only connected with the particular transaction, but must be made to be the very ground upon which the transaction took place, and must have given rise to this contract.
In Anaconda, Buchanan JA nevertheless found that the principle was not to apply, concluding:[68]
In the present case the equity sued upon arose from the assumption induced in [Edensor] by Anaconda that it would not complete the purchase of the shares. Its promise to do so was not induced by any anterior wrongdoing on the past of [Edensor]. The variation agreement was directed, not to Anaconda, but to the bondholders. Further, even if the variation agreement was brought into existence with aim of deceit, in fact no deceit was practised. The unmeritorious conduct now relied upon by Anaconda did not bear the requisite necessary relation to the equity sued by [Edensor] to found refusal of relief.
The principle was also considered by Davies J in King v Lynpete[69] but it did not apply because ‘Mr King’s claim for relief does not rest on him proving the deceit as the reason for the trust’.[70]
[68](2004) 50 ACSR 679 [38].
[69][2012] VSC 140.
[70][2012] VSC 140, [33].
In the present case, the Plaintiffs observe that Ari and Kee accepted that the reason for the alleged trust was to hide their involvement in Kegland from MCH and Maggie Hu. Hence they say it follows that the Court ought not enforce the alleged trust because to make good their claim and to obtain an order for the transfer of shares, Ari and Kee must prove and rely upon their own wrongful conduct which has an immediate and necessary relation to the equity sued for.[71]
[71]Ambridge Investments Pty Ltd (in liq) (recvr app’td) v Baker [2010] VSC 59.
As indicated, in the context of the possible relevance to the unclean hands defence, the Defendants refer to the illegality defence. As to each of the relevant types of illegality, they refer to the following passage in The Principles of Equity:[72]
Equity may refuse to grant relief with respect to an illegal transaction. A transaction may be illegal in at least three ways. First, it may be illegal because it consists in the formation of a prohibited contract or trust. Secondly, it may be illegal because it entails the commission of a prohibited act; for example, equity will not allow a claim in respect of an agreement to recover illegal gambling debts (Quarrier v Colston (1842) 1 Ph 147; 41 ER 587). Thirdly, a transaction may be illegal because, although entailing neither the formation of a prohibited contract or trust nor the commission of a prohibited act, it is “associated with or in furtherance of illegal purposes” (Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410, Jacobs J at 432, cited in Nelson v Nelson (1995) 132 ALR 133, Deane and Gummow JJ at 144). It is identifying and responding to this third type of illegality that the courts find most difficult and the law in relation to this third type is in a state of flux. [Defendants’ emphasis added]
[72]LBC, 2nd ed, 2003 (at 1019).
Concluding, in this context, the Defendants submit that the position as put by the Plaintiffs does not follow as they do not allege that: (1) the alleged trust is a prohibited trust; (2) the formation of the alleged trust entailed the commission of a prohibited act; or (3) the formation of the alleged trust was associated with an illegal or illegitimate purpose.
Unclean hands
The maxim that ‘they who come to equity must come with clean hands’ goes to the very origins and nature of the equitable jurisdiction. Emphasising this position, is the following statement in On Equity:[73]
The rather picturesquely expressed maxim, ‘they who come to equity must come with clean hands’, reflects the origins and discretionary nature of equity, as does the maxim ‘they who seek equity must do equity’. The two maxims complement each other, each looking to the conduct of the plaintiff, as it would appear that the ‘clean hands’ maxim is derived from the other maxim. However, while the maxim ‘they who seek equity must do equity’ looks to the plaintiff’s future conduct, the ‘clean hands’ maxim looks to past conduct. The combined effect of the maxims is that: (i) a plaintiff must be prepared to do what is right and fair going forward; and (ii) their previous conduct with respect to the particular transaction must be ‘clean’, because ‘he who has committed Inequity … shall not have Equity’.
The maxim is capable of being applied directly as a ‘discretionary defence’. In any case where a claimant seeks equitable relief, the court has discretion to refuse relief on the basis of the claimant’s ‘unclean hands’. It does so because ‘[n]o Court of equity could aid a man to derive advantage from his own wrong’. The principle is so fundamental to the equitable jurisdiction that it cannot be excluded by agreement between the parties.
Continuing, it is said:[74]
A plaintiff is not necessary debarred from equitable relief by reason of unclean hands if the misconduct has either ceased or as the result of an accident and will not recur. The court ‘declines to take the view that because the plaintiff’s hands were once dirty they can never be washed’. However, the plaintiff’s hands must be cleansed before the proceedings are commenced. Mere repentance expressed in counsel’s closing address is insufficient: EDPI Pty Ltd v Rapdocs Pty Ltd [2007] NSWSC 195.
[73]Young, Croft and Smith, On Equity (LBC 2009), 180–1 [3.320] (footnotes omitted).
[74]Young, Croft and Smith, On Equity (LBC 2009),182 [3.340] (footnotes omitted).
In order to establish the defence of unclean hands, a respondent must point to some type of impropriety on the part of the claimant which: (1) is ‘depravity in a legal as well as in a moral sense’; and (2) bears an immediate and necessary relation to the equity sought.[75] The defence is a discretionary one having regard to the nature of the equitable jurisdiction. In assessing whether the defence applies, the court must take into account all the circumstances of the case.[76]
[75]As to proposition (1), see Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184, 320. As to proposition (2), see Meyers v Casey (1913) 17 CLR 90 and Black Uhlans Inc v NSW Crime Commission [2002] NSWSC 1060, [181].
[76]For example, see Tinsley v Milligan [1994] 1 AC 340.
[636]CB 4554.
Turning to the submissions, the events surrounding the share issue is central to the Plaintiffs’ case in two ways. First, as the basis of their claim that the purpose of the share issue on 1 February 2021 was to dilute the shareholding of LL UP and this purpose was oppressive, prejudicial and discriminatory conduct within the meaning of s 232 of the Corporations Act.[637] By way of example, and without being exhaustive, in this regard they contend that Kee and Ari intentionally withheld information from Hong regarding the share issue, including by sending correspondence to his Urban Waste email which they knew was not monitored.[638] The oppression claim is dealt with below.[639]
[637]Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [203].
[638]Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [196]–[202].
[639]See [328]–[336].
However, I understand that the Plaintiffs also invite the Court to find that not only did Kee, Ari and Sam give false evidence regarding the timing of Share Option Agreement but also that the share issue had, in fact, never been discussed prior to mid‑December 2020 when Kee raised the matter with Sam via Skype and that it was never raised with Hong at all. In contending this, the Plaintiffs repeat their submission that the Court should find that the share dilution was not discussed at the meeting on 16 December 2017. The Plaintiffs rely on the absence of reference to a share issue in emails between Kee and Mansour Lawyers in November 2020, which concerned the share sale and not the share issue, and say that the Skype messages between Kee and Sam show this was the first time a share option and share issue had been raised. They also rely on the evidence of Kee and Sam in cross‑examination that at the time of their discussion on Skype the share issue was ‘pretty open ended’ and Sam had not yet discussed the Share Option Agreement with Ari at that point in time.[640] They also place emphasis on the Defendants’ failure to discover documents relating to the share option until April 2024.[641] For all of the reasons previously discussed, including in the context of my findings regarding the substance of discussions on 16 December 2017 and 11 August 2020, I decline to make a finding to this effect.
[640]Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [89]–[94].
[641]See, for example: Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [164]–[174]; T991/1–4.
Further, the Plaintiffs also contend that the manner in which the share issue came to be executed, and the knowingly false evidence given by Kee, Ari and Sam in regards to the Share Option Agreement, tells against there ever having been an agreement reached on 6 December 2017 and thus against the existence of the Hong Trust. In summary, the thrust of their submissions is that Kee and Ari’s conduct from mid‑October to early December 2020 and the documentary evidence of that conduct — in instructing their lawyers and accountants to prepare for a share sale, rather than a share issue — is inconsistent with the existence of the Alleged Oral Agreement, or the Hong Trust, on the basis that had such an agreement existed it would have been unnecessary for a share sale to occur (or for Kegland to be valued or for CGT advice be sought) as Kee and Ari could have simply directed Hong to transfer the shares. They say that the creation of the Sale of Shares Agreement, which was to be based on the valuation of Kegland in July 2020, has not been explained by the Defendants and is entirely inconsistent with the Alleged Oral Agreement having been reached. Instead, on the Plaintiffs’ case, Kee and Ari sought legal and accounting advice following the 11 August meeting because Hong had not acquiesced to their demands at that meeting.[642]
[642]Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [150]–[162].
The Defendants say they do not seek to underplay the seriousness of the concessions made by Ari, Kee and Sam that they lied with respect to their evidence regarding the Share Option Agreement and provided false evidence in the MCH proceeding. With respect to each Kee and Ari, the Defendants contend that both told serious lies, which reflects poorly on them, but say that they confessed to these lies and apologised to the Court which, in turn, reflects more positively on them. In this way, they contrast Kee and Ari’s conduct with Hong, who they say maintained the truth of evidence for which he had been granted a s 128 certificate. Further, they submit that although Kee and Ari’s lies regarding the Share Option Agreement are inexcusable they are explicable in the context of these proceedings, particularly the need for the MCH ruse,[643] the existence of the trust, and Hong’s reneging on the agreement in this respect. Aside from the lies told and confessed to, the Defendants contend that Ari and Kee’s evidence is inherently plausible and should not be rejected, particularly where that evidence is supported by contemporaneous documentary evidence. Importantly in this regard, they contend that, in any event, the backdating of the Share Option Agreement does not affect the formation of the trust three years earlier in 2017.[644] Similarly, the Defendants accept that Sam was not an impressive witness but say it is important to acknowledge that he gave evidence against his own self‑interest.[645]
[643]See above [186], [187] and [194].
[644]Closing Submissions of the 2nd to 5th Defendants (dated 12 August 2024), [267]–[270],[272](c), [275]–[278].
[645]Closing Submissions of the 2nd to 5th Defendants (dated 12 August 2024), [282]–[285].
As I discuss above in the section on credibility, Kee, Ari and Sam’s lies with to the Share Option Agreement are serious matters and weigh generally against their credibility as witnesses. Where I have accepted their evidence over Hong’s, I do not seek to minimise the significance of the lies they admitted to. However, nonetheless, I accept the thrust of the Defendants’ submissions. While it does not excuse their lies, contextualised by the fact Hong was denying the Hong Trust, and in circumstances Hong’s status in the community was considerable and Ari and Kee were cognisant of that, their conduct is comprehensible. Further, on balance, when viewing the broader evidence of Kee and Ari against that of Hong’s, their evidence is inherently more plausible within the mosaic of the evidence that has emerged as a whole. Finally, in this regard, I accept the Defendants’ submission that, in any event, the backdating of the Share Option Agreement in 2020 does not directly impact the alleged formation of the Hong Trust in 2017. Therefore, while their evidence regarding the Share Option Agreement as originally given was false, I do not conclude that I must reject their evidence relating to this period more generally.
As such, in line with my observations above,[646] I decline to make findings that Kee and Ari’s conduct in the latter part of 2020, whether relating to a share sale or share issue, is inherently inconsistent with the existence of the Alleged Oral Agreement. That agreement, as pleaded and particularised, is that Hong would hold 50% of Kegland’s shares on trust for Kee and Ari and would ‘transfer them to each of them, or at their direction’ and that he would ‘hold the shares until the issues with Maggie and MCH were over’.[647] Although misconceived in many regards, I consider that Kee and Ari’s conduct in this period is consistent with them attempting to practically implement this transfer. In this regard, I note Kee’s evidence that he was given advice from Elysium that they could not transfer the shares for ‘zero dollars’ from an ‘accounting perspective’ even though they would have ‘like[d] to do that because we felt we owned the shares already’[648] and that I have found that Mr Amos raised with Kee, in the context of the transfer of Kegland shares, the prospect of capital gains tax liability in around late 2017. I also consider broadly relevant in this regard Kee’s evidence, given in relation to the terms of the Partnership Agreement, that the Partnership Agreement was drafted for the ‘simplicity of writing’ and ‘it didn’t matter how we got there’.[649]
[646]See above, [290](d).
[647]DSCB 11.
[648]T993/24–30 (XXN of Kee).
[649]T1073/5–19 (XXN of Kee).
The threshold question
The threshold question is, as indicated previously, whether the Hong Trust arose as alleged.
It follows from the preceding reasons that if the Hong Trust did arise as alleged, the Kegland parties are entitled to a declaration that Kee and Ari are the beneficial owners of the shares in question.
On the other hand, if the Hong Trust did not arise as alleged, Kee and Ari were not entitled to engage in the conduct on which the Plaintiffs’ claims rest. In these circumstances, the Plaintiffs would become entitled to orders the effect of which would set aside (1) the share issue; and (2) the appointment of Kee as a director of Kegland. However, the Defendants submit that this is the extent of the relief to which the Plaintiffs would become entitled. For the reasons which follow, I accept this submission as, in my view, a buyout order would not be required. Indeed, as contended by the Defendants, such an order would not serve the purposes for which s 233 of the Corporations Act exists.
On the basis of the evidence, which has been considered in detail in the preceding reasons, the Defendants provide in their submissions, a summary of evidentiary matters in respect of the threshold issue. On the basis of the matters discussed and reasons given in the course of consideration of the evidence and in the course of the evidentiary narrative and findings which have been set out, I accept, with one reservation, that the following summary provide an accurate statement as to the picture which emerges on the basis of these matters:[650]
[650]Closing Submissions of the 2nd – 5th Defendants (the Kegland parties) (dated 12 August 2024), [332], [333].
…
(a) Having regard to the relevant circumstances surrounding 6 December 2017, the alleged trust is inherently plausible.
(b) An overwhelming body of contemporaneous documentary evidence supports the existence of the alleged trust.
(c) To the extent that contemporaneous documentary evidence shows that Hong’s company is and was the beneficial owner of the shares in question (for example, ASIC records, share certificates, and credit applications), such documents came into existence after the formation of the trust. It is clear, therefore, that such documents were created as part of the scheme to hide the respective interests of Kee and Ari in Kegland Distribution. This was a scheme in which Hong actively participated.
(d) Hong has admitted the trust. In two cases, he made this admission to Ari. In other cases, looking at the messages of Jerry and Leon, it is clear that Hong admitted the trust to each of them.
(e) For a variety of reasons, the contrary case is inherently implausible and, as such, it requires more cogent evidence than might otherwise be required … [see above, [23], referring to [31] of the Defendants’ submissions]. There is no such cogent evidence.
333. Paying close attention to the detailed narrative (see section F [‘analysis of the evidence’ in these reasons above), and paying close attention to the contemporaneous documents on which that narrative is based (see the extensive references in section F above), the following picture emerges:
(a) Contrary to his written evidence (Hong 1 at [17], [PSCB 5]), Hong did not establish the Kegland business.
(b) Prior to 6 December 2017, Hong had no involvement in the operation of the Kegland business. Similarly, he did not provide funds to Kegland Hardware, the owner and operator of that business.
(c) Hong was not involved in the establishment of Kegland Distribution. He had no say in the allocation of shares in that company.
(d) Hong’s company and Sam became shareholders in Kegland Distribution. This happened because Kee and Ari controlled the allocation of shares. Indeed, the only reason that Kee and Ari decided to “decant” their nascent business from Kegland Hardware to Kegland Distribution was because of the way in which they wanted the shares held (viz, by others).
(e) Hong did not meet with or talk to Sam until 13 December 2017 (after incorporation of Kegland Distribution). As at 6 December 2017, Hong knew nothing about Sam, his experience in the brewing business, his abilities in IT, his suitability in acting as a company director, his wherewithal, the utility of the YouERP system, nor indeed anything else about him.
(f) The shares were not allocated to Hong’s family company by reason of an investment of some sort. Neither Hong nor his family company made any investment in the Kegland Business or otherwise.
(g) Neither Kee nor Ari gifted shares to Hong’s family company.
(h) Contrary to his written and oral evidence, Hong did not loan $100,000.00 to Kegland Distribution. Hong understood that the provision of such working capital would support his case in respect of the threshold issue. Hence, he maintained that he provided such funding, and he did so in the face of contemporaneous documents wholly inimical to this evidence.
(i) Nor did Hong lend $100,000.00 to Ari (which Hong suggested, for the first time, in cross‑examination).
(j) Hong did not play any significant role in the day‑today operation of the Kegland Business. But he did play an active role in the scheme to disguise the respective interests of Kee and Ari in the company (and, therefore, the Kegland business).
(k) In 2018, 2019 and 2020, Hong admitted the trust.
The reservation is with respect to the admission of the Hong Trust as, for the reasons set out previously, my view is that the evidentiary matters relied upon by the Defendants are, in accord with authority, to be regarded as evidence consistent with such a trust rather than properly characterised as admission of the same.[651] In any event, the outcome is in substance the same as I have accepted the evidence with respect to the creation of the Hong Trust.
[651]See above, [40], [230] and [245].
Further, with respect to the Hong Trust, the Plaintiffs raise issues with respect to the establishment of the terms of such a trust and uncertainty to the extent that terms are said to be identified.[652] The requirements for the creation of a trust and relevant authorities have already been considered.[653] Critical is the position as made clear in Byrnes v Kendle,[654] that issues as to whether a trust has been created and on what terms is to be resolved according to the ordinary meaning of the words and actions the subject of relevant dealings between the parties and the circumstances affecting the relationship between them. Applying this approach, I have found that the evidence supports the alleged oral agreement, as contended by the Defendants.[655] This agreement clearly establishes the essential terms of the Hong Trust, with sufficient certainty and without the need for the implication of terms on the basis there were critical ‘gaps’ in the terms of the Trust.
[652]Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [45]–[240].
[653]See above, [28]–[37].
[654](2011) 243 CLR 253; and see above, [30].
[655]See above, [317]; and see [132]–[150].
The Plaintiffs also contend that the Defendants’ case with respect to the Hong Trust fails because the shares were never the property of Kee and Ari.[656] This is said to be because prior to incorporation the shares did not exist as property[657] — as they were only created or born on incorporation. It is hardly controversial that there can be no trust of future property and neither is it controversial that equity may find an enforceable contract to institute a trust when the property emerges.[658] The technique of equity in this respect is addressed in the following commentary in On Equity:[659]
[656]Plaintiffs’ Closing Submissions, [233].
[657]Citing in support of this proposition: FCT v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336, 427; and Pilmer v Duke Group (2001) 207 CLR 165, 179, [20] (McHugh, Gummow, Hayne, Aicken and Callinan JJ).
[658]See PW Young, CE Croft and ML Smith On Equity (Law Book Co, 2009), 396 [6.200].
[659]PW Young, CE Croft and ML Smith On Equity (Law Book Co, 2009), 718 [10.370].
[10.370] From time to time, equitable jurisdiction is exercised in connection with transactions that involve future property. Future property is property which (a) is not yet in existence; or (b) is not yet owned by a party: Akron Tyre Co Pty Ltd v Kittson.[660]
A person cannot own, either at law or in equity, what does not exist.[661] Accordingly, the common law does not recognise an attempt by someone to deal with future property. Equity also takes this approach to future property: “[a] man cannot in equity, any more than at law, assign what has no existence.”[662] However, while a transaction involving future property is “completely nugatory” at law,[663] equity affords it some recognition. Provided that (a) the property is sufficiently described so that it can be identified or ascertained at a future time; and (b) consideration is given, an agreement to assign future property operates as an agreement to assign the property when it is acquired by the assignor — that is, “the moment the property comes into existence the agreement operates upon it.” Equity treats dealings with future property in this way because it considers the conscience of the assignor to be bound from the moment the assignment becomes possible, thus applying the maxim that equity regards what ought to be done as having been done. In Norman v Federal Commissioner of Taxation, Windeyer J said:
In equity a would‑be present assignment of something to be acquired in the future is, when made for value, construed as an agreement to assign the thing when it is acquired. A court of equity will ensure that the would‑be assignor performs this agreement, his conscience being bound by the consideration. The purported assignee thus gets an equitable interest in the property immediately the legal ownership of it is acquired by the assignor, assuming it to have been sufficiently described to have been then identifiable.
The result is that an equitable assignment takes place at the time it is capable of being assigned without the need for the assignor to do anything more. The principle applies not only to assignments of property, but also to the giving of charges and declarations of trust over future property.
What must be remembered is that equity does not permit the assignment of future property — it simply recognises an agreement to assign future property as soon as the assignor obtained title to that property. As Maitland explained:
[L]awyers easily slipped into the way of saying that in equity one could make an assignment of goods hereafter to be acquired though one could not do so at law. This was a compendious way of putting the matter and was not likely to deceive any equity lawyer.
[660](1951) 82 CLR 477 at 484.
[661]Norman v Federal Commissioner of Taxation (1962) 109 CLR 9 at 24.
[662]Collyer v Isaacs (1881) 19 Ch D 342 at 351 (CA).
[663]Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 at 484.
It follows that having regard to the approach in equity to future property the Plaintiffs’ contention that there could be no trust of the shares fails because the Alleged Oral Agreement which, on the evidence,[664] I have found to have been established provides the agreement whereby the future property, the shares, are readily identified and so would on their creation be impressed with the Hong Trust.
[664]See above, [317]; and see [132]–[150].
The Plaintiffs also made the point that the ASIC documents and register with respect to the shares do not support the existence of the Hong Trust as the non‑beneficial ownership of the shares was not identified. I do not, however, regard this point as significant or in any way determinative in the circumstances of the company and the shareholders. First, though the state of the ASIC register may be significant in some circumstances, here it is not in the context of the weight of evidence, as discussed, in support of the evidence of the Hong Trust. Secondly, to have registered the shareholding as other than as beneficially owed would be at odds with and would have been likely to negate the MCH ruse — as Maggie and MCH would, in all the circumstances, have been alerted to what the true position was as to Kee and Ari’s involvement by a simple search of the ASIC register.[665] Thirdly, a court of equity, having found that the Hong Trust was created and that the shares were impressed with such a trust would not see this state of affairs undone by what, in context, is to be regarded as procedural or administrative provisions of the Corporations Act — and, in terms of maxims one might have regard to ‘Equity looks to the intent rather than the form’[666] or, possibly, ‘Equity will not permit a statute to be used as a cloak for fraud’.[667]
[665]A concern evident in the matters referred to in the Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [328].
[666]Young, Croft and Smith, On Equity (LBC 2009), 186–9 [3.410]–[3.440].
[667]Young, Croft and Smith, On Equity (LBC 2009), 194–7 [3.510]–[3.550].
The Plaintiffs in their submissions resisted submissions by the Defendants that Hong admitted the existence of the Hong Trust.[668] Many of these submissions have already been considered, particularly in the analysis of the evidence. As I have indicated previously,[669] I regard the matters relied on by the Defendants[670] in this respect as evidence not inconsistent with the creation of the Hong Trust; but not matters properly characterised as an admission of its existence.
[668]See Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [304]–[310].
[669]See above, [230]; and also [38]–[40].
[670]Including the matters set out in the Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [236]–[241].
The Plaintiffs also contend that the evidence of events after the company was incorporated, principally in late 2020 and early 2021, suggest that the shares were not held in trust.[671] As discussed previously,[672] the authorities on the creation and construction of trusts and the question whether admissions against interest may go to the creation of a trust and decisions such as FAI Insurance Company Ltd v Savoy Plaza Pty Ltd[673] indicate that the subsequent conduct of the parties is not relevant or admissible in this context. Hence it follows, both on general principles and having regard to these particular matters, that where it is found, as here, that the Hong Trust has been created subsequent conduct of the parties will not detract from this position unless it provides evidence of revocation of the trust.
[671]See Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [218]–[223] and [311]–[317].
[672]See above, [38]–[40].
[673][1993] 2 VR 343 (FC).
In the present circumstances, I am of the opinion that none of the matters relied upon which are said to be inconsistent with the evidence of the Hong Trust could be regarded as such a revocation. Moreover, having regard to the circumstances of this matter, I think they are not properly characterised as inconsistent matters. Rather, in my view, these matters show the Defendants seeking to give effect to the Alleged Oral Agreement, as lay people unaware of the niceties and technicalities of the law and the means that lawyers would likely, and more appropriately, seek to enforce the Alleged Oral Agreement and the Hong Trust. Additionally, the Defendants’ overwhelming concern to maintain the MCH ruse was clearly a very powerful factor in the steps they took — a concern which really drove the creation of the Hong Trust and certainly not a concern or factor inconsistent with that trust. Neither, for these reasons, do subsequent communications with third parties affect the position I have indicated.[674]
[674]See Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [327]–[328].
The Plaintiffs also submit that Sam was not a stand‑in director or shareholder of the company as is said to be evident in the arrangements he made with Kee and Ari, particularly in terms of the Partnership Agreement.[675] The evidence with respect to arrangements between Kee, Ari and Sam has already been considered.[676] In my opinion, none of the matters raised by the Plaintiffs in this respect detract from or are inconsistent with the existence of the Hong Trust. Moreover, it is accepted by the Plaintiffs that the Partnership Agreement and other matters relied on were events subsequent to the Alleged Oral Agreement and, consequently after the creation of the Hong Trust. For the reasons set out previously, I do not accept that these events, properly construed, could affect the finding that this trust was created and nor would they be regarded as evidence of revocation of this trust. Moreover, I am of the view that arrangements such as contained in the Partnership Agreement either go to matters and arrangements to take effect after resolution of the MCH dispute or for services and accounting software which Sam would provide in the meantime. None of these arrangements were inconsistent with the Alleged Oral Agreement or inconsistent with the Hong Trust — or, more generally, compromise or detract from Sam’s ‘stand‑in’ capacities.
[675]See Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [318]–[326]; and see also [327]–[328] (and above, [323], [324]).
[676]See above, [121]–[128] and [202]–[210] particularly.
Finally, it is contended by the Plaintiffs that the Alleged Oral Agreement, hence the Hong Trust, is unenforceable as its purpose was to deceive MCH and, consequently the Defendants should be denied relief as they do not come to the Court with clean hands.[677] The relevance of an unclean hands defence (short of illegality) does, however, depend on the nature and basis of the relief sought, it being an equitable defence. In this case, I have accepted that the relief that the Defendants are seeking is not equitable relief and so this defence does not arise.[678]
[677]See Plaintiffs’ Amended Closing Submissions (dated 16 August 2024), [329]–[336].
[678]See above, [51]–[60].
For the preceding reasons, I am of the opinion that the evidence simply does not support the Plaintiffs’ case in respect of the threshold issue. As discussed, at a very superficial level the ASIC searches support the Plaintiffs’ case, some of the documents also provide superficial support. Nevertheless, these documents stemmed from the implementation of the scheme and were necessary products of that scheme, without which Hong would never have been involved in Kegland at all.
Relief sought by the Plaintiffs
Preliminary
The following discussion of this issue proceeds on the basis that I had rejected the Hong Trust case on which the counterclaim rests. Consequently, having accepted the trust case as put by the Defendants, the discussion of this issue is only for the purpose of addressing possibly relevant issues in the event that this matter proceeds further. The Defendants accept that, in this scenario, the Plaintiffs would become entitled to orders setting aside (1) the share issue; and (2) the appointment of Kee as a director of Kegland.
The Defendants submit that the Plaintiffs should in these circumstances be given no further relief than the ‘setting aside’ relief and, particularly, ought not be the beneficiary of a further order compelling Kee and Ari to purchase the first Plaintiff’s shares in Kegland. For the reasons which follow, and having regard to the matters set out previously with respect to a nature of relief properly granted under s 233 of the Corporations Act, I am of the view that no such further order is necessary to remove any ‘oppression’. Moreover, I accept, as also indicated in the reasons which follow, that were a purchase order to be made against Kee and Ari (or their family companies) requiring them to purchase the shares at a price beyond a nominal value, such an order would harm them, each of whom in this scenario is merely an employee of Kegland. As indicated in these reasons, there is no basis to inflict such an intrusive, and harmful, order in all the circumstances of this proceeding.
There is also the question which would have arisen had I thought it appropriate to grant an order for the purchase of the shares as to the value of the shares. For the reasons which follow I am of the opinion that the shares are, in the present circumstances, not of any significant value; although this would not appear to be the view of the Plaintiffs who pursued this proceeding on the basis of a determination to establish a beneficial entitlement to those shares.
No entitlement to relief pursuant to s 233 of the Corporations Act
As discussed previously, the purpose of the relief under s 233 of the Corporations Act is to bring to an end to the claimed oppression, and to do so by the least intrusive remedy available.[679]
[679]See above, [61]–[70].
As the Defendants emphasise, the Plaintiffs’ primary relief all relates to financial remedies, whether damages or a buy‑out of the shares, but does not seek in any way to address the purpose of s 233 of the Corporations Act and, specifically, the task of removing the alleged oppression in the least intrusive manner. In my view, it is clear that if the Court found that Kee and Ari had no right to the shares, then what has taken place was not oppression by a fellow member or members of Kegland but, rather, an ‘attempted coup’[680] by employees. Leaving to one side for the moment that such conduct does not fit within the broad purpose of s 233 — and the conduct on any analysis is not oppressive conduct by a member or members of company — the obvious solution to ‘remedy’ the position is for the Court to dismiss the counterclaim, meaning that Kee and Ari are not the beneficial owners of the relevant shares. As indicated previously, it necessarily follows that the appointment of Kee as a director and the share issue were not binding on Kegland and declarations to this effect can be made and the ASIC record amended to reflect this.
[680]Closing Submissions of the 2nd – 5th Defendants (the Kegland parties) (12 August 2024), [340].
Not only does this course remove the ‘oppression’ — again, assuming that there can be oppression between an employer and employees — but this will mean that the Plaintiff has the benefit of two ‘critical employees’ operating the Kegland business for seven years. Any other ‘remedy’ would, in my view, not be aimed at curing any oppression, and would not be the least intrusive remedy available.
The shares are worthless
In relation to the valuation question, being a question relevant to the fixing of a purchase price for the purpose of an order requiring Kee and Ari to purchase the first Plaintiff’s shares in Kegland, the Court has received detailed expert evidence from Mr George Kompos and Mr Owain Stone.
For the preceding reasons, I am of the view that the Court should adopt Mr Stone’s valuation opinions in preference to the valuation opinions of Mr Kompos. More particularly, it emerged in cross‑examination that Mr Kompos did not conduct a market‑based valuation in accordance with his instructions and in accordance with the applicable accounting standards (viz. APES 225).[681] Initially, as the transcript shows, Mr Kompos was reluctant to accept that he had not conducted an arm’s length, market valuation.[682] Ultimately, after the Court’s intervention, Mr Kompos accepted what was plain.[683] Mr Kompos also accepted that, in preparing his valuations, he had not complied with APES 225.[684] In my view, such matters do, as contended by the Defendants, substantially undermine the opinions by Mr Kompos which were put forward as those of an independent expert whose first duty was to the Court. Other matters emerged in cross‑examination that undermine the opinions of Mr Kompos. By way of illustration, he failed to give any weight to key person and supplier‑related risks that Mr Stone identified, whether in his reports or in cross‑examination.[685]
[681]CB 1269–1272.
[682]T1271–1279; “That could be correct” at T1271/29.
[683]T1272/6.
[684]T1272/7–29.
[685]T1268–1269.
Lastly, there was the question of the date of the valuation. Mr Stone valued the shares as at 30 June 2022. On that basis, the Plaintiffs invited the Court simply to ignore Mr Stone’s opinions in their entirety.[686] What this information does, as submitted by the Defendants, is ignore completely the reasons why Mr Stone selected this valuation date.[687] In regard to these matters, Mr Stone valuation date should, in my view, be accepted.
[686]Plaintiffs’ Closing Submissions (26 July 2024), [369].
[687]Expert Report of Owain Stone, s 1.6; CB 797–798; and s 4.1 of the Joint Report, DSCB 692.
Conclusions and orders
For the preceding reasons, I am of the opinion that the threshold question is made out in favour of the Defendants and that, consequently, the shares in question were and are the subject of the Hong Trust in favour of Kee and Ari beneficially. Had the position been otherwise and the evidence established that Kee and Ari had no beneficial entitlement to the first Plaintiff’s shares, the only necessary remedy required to remove the ‘oppression’ is the claimed ‘setting aside’ relief which would avoid the share issue and the appointment of Kee as a director of Kegland. Such relief would remove the claimed ‘oppression’ and so there is no basis for making an order that Kee and Ari purchase the shares. This assumes, however, that relief is available under s 233 of the Corporations Act in circumstances such as the present where neither Kee nor Ari were at any relevant time a member or members of Kegland, a position which, fundamentally, follows from the basis upon which the Plaintiffs’ case has been put. It is not, however, necessary, given the position reached in these proceedings, to address this issue further.
It follows that orders will be made as sought by the Defendants (as the first and second plaintiffs by Counterclaim), save that the question of costs is reserved. The parties will be heard on the quantum of costs as required.
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SCHEDULE OF PARTIES
| BETWEEN: | |
| LL UP PTY LTD (ACN 620 485 994) ATF THE LL UP INVESTMENT TRUST | First Plaintiff |
| HONG RUI LIU | Second Plaintiff |
| - v - | |
| KEGLAND DISTRIBUTION PTY LTD (ACN 623 316 745) | First Defendant |
| KEE DOERY | Second Defendant |
| TEAM KK PTY LTD | Third Defendant |
| LTWQ PTY LTD (ACN 159 945 801) | Fourth Defendant |
| SAM JUM LIE | Fifth Defendant |
(by original proceeding)
| KEE DOERY | First Plaintiff by Counterclaim |
| ARI LUO | Second Plaintiff by Counterclaim |
| - v - | |
| LL UP PTY LTD (ACN 620 485 994) ATF THE LL UP INVESTMENT TRUST | Defendant by Counterclaim |
(by counterclaim)
4
34
0