Lowe v Pascoe
[2010] NSWSC 388
•7 May 2010
CITATION: Lowe v Pascoe [2010] NSWSC 388 HEARING DATE(S): 30 October 2008, 6 November 2008
4 & 6 February 2009
3 April 2009
15 – 19 June 2009
22 – 26 June 2009
29 – 30 June 2009
2 - 3, 8 - 9, 15, 29 July 2009
24 August 2009
7 – 9 October 2009
Written submissions closed 23 December 2009
JUDGMENT DATE :
7 May 2010JUDGMENT OF: Smart AJ DECISION: Declarations as to the existence of partnership between plaintiffs, the late KST, his deceased second wife, Margaret, Helen and Janet and that the five-sixths share of KST in the Maroubra Road property and the whole of the Queen Street property, held on trust for partnership.
Position as to individual portion of Haig Street property reserved for further argument.
Matter referred to ATO for resolution of payment of taxation issues.
Consequential relief to be determined.CATCHWORDS: Existence of partnership - Unusual signed partnership agreement - Family patriarch conducting partnership business (or businesses) as if it (they) was (were) his own and controlling all aspects - Numerous disputed questions of fact and law and subsidiary issues - Substantial cash businesses (grocery and butchery) - Non-disclosure of full partnership income to ATO - Evasion of tax - Patriarch determining what should be disclosed to tax agents and ATO and paying tax of all parties except first plaintiff - Non-distribution of partnership profits to partners although distributions shown in tax returns of partnership businesses and returns of partners - Splitting of income amongst partners - Partnership funds used to acquire properties in patriarch’s name - Patriarch putting Queen Street property purchased in 1988 in his name and names of his children - Children not contributing to cost - Children (all adults) holding property as to their shares upon a bare trust - Not established that Haig Street property purchased wholly out of partnership funds but use of income from rental properties at Wiley Park and Fairfield and possible use of patriarch’s cash resources - Whether bare trust created as to one-third shares of Sunly and Gordon in Haig Street property - Both sons being minors when trust created, not contributing any funds to purchase and would transfer their interests in that property to their father upon his request - Whether partnership agreement created an express trust - Whether personal equities created in favour of plaintiffs - Whether Margaret (daughter) had a one-fifth (or a one-sixth) share in Maroubra Road property - Ownership of property (cash) in commercial bill - Whether it belonged to KST or Margaret - Sale by KST of YS butchery prior to 30 June 1986 and no adequate accounting for proceeds of sale - Defences of Indefeasibility of Title under the Real Property Act 1900 (NSW) fail - Defences under Limitation Act 1969, defences of laches, gross laches, acquiescence and estoppel fail - Plaintiffs not aware of full facts until size of KST’s estate and the property assets standing in his name revealed in about November 2001 - Proceedings instituted in November 2005 LEGISLATION CITED: Land Act 1962 (Q)
Limitation Act 1969 (NSW)
Partnership Act 1982 (NSW)
Real Property Act 1900
Transfer of Land Act 1892 (WA)CATEGORY: Principal judgment CASES CITED: Bahr v Nicolay (No 2) (1988) 164 CLR 604
Bogdanovic v Koteff (1988) 12 NSWLR 472
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Breskvar v Wall (1971) 126 CLR 376
Dolman v Palmer [2005] NSWCA 361
The Duke Group Ltd (in liq) v Alamain Investments Pty Ltd [2003] SASC 415
Edmonds & Ors v Donovan & Ors (2005) 12 VR 513
Frazer v Walker [1967] 1 AC 569
Government of India v Taylor [1955] AC 491
Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491
Neat Holdings Pty Ltd v Karaja Holdings Pty Ltd (1992) 67 ALJR 170
Orr v Ford (1989) [1989] HCA 4; 167 CLR 316
Urquhart v M’Pherson (1880) 6 VLR (E) 17
Warman International Ltd v Dwyer (1994) 182 CLR 554
Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497TEXTS CITED: Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th Ed
Jacob’s Law of Trusts, 7th EdPARTIES: Geoffrey Alan Lowe (First Plaintiff)
Mary Lowe (Second Plaintiff)
Scott Pascoe (as trustee of the Estate of the late Kut Sze Tu) (First Defendant)
Margaret Sze Tu (Second Defendant)
Helen Sze Tu (Third Defendant)
Janet McNamara (Fourth Defendant)
Shiu Shing (Sunly) Sze Tu (Fifth Defendant)
Shiu How (Gordon) Sze Tu (Sixth Defendant)
Stella Sze Tu (as representative of the Estate of the late Chow Fung Chun) (Seventh Defendant)
FILE NUMBER(S): SC 2005/262284 COUNSEL: AA Henskens/ AR Zahra and RC Gration (7 – 9 October 2009 only) (First & Second Plaintiffs)
J Stoljar SC (excused for much of hearing) (First Defendant)
MB Lee to 6 February 2009 (Second and Third Defendants)
HJ Marshal SC 3 April 2009 (Second and Third Defendants)
(Second and Thirds Defendants self-represented from 15 June 2009)
MB Lee to 6 November 2008 (Fourth Defendant)
(Fourth Defendant filed submitting appearance on 28 November 2008)
VRW Gray (Fifth & Sixth Defendants)
(Seventh Defendant filed submitting appearance on 17 April 2008)SOLICITORS: Colin Biggers & Paisley (Plaintiffs)
Bartier Perry (First Defendant)
Levitt Robinson (Second and Third Defendants to 3 April 2009 and Fourth Defendant to 16 December 2008)
Birbas Attorneys (Fifth & Sixth Defendants)
(Seventh Defendant filed submitting appearance)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
Smart AJ
Friday 7 May 2010
2005/00262284
7736/2005 Geoffrey Alan Lowe & Mary Lowe v Scott Pascoe as Trustee of the Estate of the late Kut Sze Tu, Margaret Sze Tu, Helen Sze Tu, Janet McNamara, Shiu Shing (Sunly) Sze Tu (known as Sunly), Shiu How (Gordon) Sze Tu (known as Gordon) & Stella Sze Tu (Representantive for the purpose of these proceedings of the Estate of the late Fung Chun Chow).
JUDGMENT
Introduction Plaintiffs’ claims Appointment of Mr Pascoe (First Defendant – Administrator) Administrator’s Defences and approach to proceedings Submitting appearances Defences of Margaret and Helen Defences of Sunly and Gordon Assets of estate of KST Administrator’s actions as to properties Taxation returns and undisclosed income Representation History of Proceedings Background Purchase of WYT and YS August – September 1975 conversations Negotiations as to partnership agreement Agreement dated 1 October 1975 Some subsidiary issues Visit by Margaret to Solomon Islands KST’s ability to speak and understand English Meeting at Clayton Utz and their advice KST’s ability to speak and understand English (continued) Evidence of Geoffrey, Mary and evidential challenges Family of KST in business Preparation of tax returns 1975 – 1976 and Geoffrey’s alleged actions Revenue sources 1977 request for distribution of profits December 1978 – legal advice sought as to accounts 1981 profit distribution Financial contributions The cash component The partnership issue Properties allegedly held on trust Evidence of investigating accountant (M Hill) Non-production of documents Purchase of other properties by FC Chow and her children Claim of Margaret to one-fifth share in Maroubra Road Funds for purchase of Maroubra Road and Queen Street properties Financial contentions and conclusions Factors influencing the plaintiffs not to take action and related matters Sale of YS and closure of WYT Credibility of Margaret, Helen and Sunly Credibility of Gordon Miscellaneous The indefeasibility defences Limitation Act defences Defences of laches, gross laches and acquiescence Estoppel defences Further findings Relief
Introduction
1 This case involves events going back to 1975 and extending from that year. Questions of a partnership and its continuance, its subject matter, alleged defalcations and alleged trusts arise. The lapse of time has made it difficult to determine the truth and what happened. Recollections and the reliability of evidence have been seriously affected. Many documents are no longer available. There must also be injected bitter family relations, including the desire of each family member (including the first plaintiff) to establish that what each said on the various issues was correct, the devotion of the plaintiffs, the second, third, fifth and sixths defendants to money and the way that has coloured the evidence given. The proceedings concern, inter alia, the activities and conduct of the late Kut Sze Tu, an astute and successful businessman and a patriarchal autocrat who died in 1997 and left an estate estimated at, on one view, about $6.8 million. Steps were taken over the years to evade the tax payable and the need for a thorough taxation review emerges. The plaintiffs contend that the two related businesses of Wing Yuen Tai (“WYT”) and Yee Sing Butchery (“YS”), conducted by the late Kut Sze Tu in the Haymarket area of Sydney, received large amounts of cash some of which were never disclosed in their taxation returns.
2 Without any disrespect, I take the liberty of referring to each of the parties by their first names. The plaintiffs, Geoffrey and Mary, are husband and wife. Mary and all of the second to seventh defendants are children of the late Kut Sze Tu (“KST”), albeit that Stella, the seventh defendant, appears in a representative capacity and not in a personal capacity. KST was twice married. Mary (b 1949), Janet (b 1951), Margaret (b 1952) and Helen (b 1954) are children of the first marriage. There was an adopted son, John (b 1951). He is neither a party nor a participant in these proceedings. Fung Chun Chow (“FC Chow”) was the second wife of the late KST. Sunly (b 1966), Gordon (b 1965) and Stella (b 1962) are the children of the second marriage. Stella is the representative, for the purpose of these proceedings, of the estate of her late mother, FC Chow, who died on 11 January 1994, intestate. Relations between Margaret, Helen, Janet, Sunly and Gordon are cordial, but relations between Mary, on the one hand and Margaret, Helen, Janet, Sunly, Gordon and Stella on the other could not be so described. Relations between Geoffrey and Mary on the one hand and Margaret, Helen and Sunly on the other could be described as bitter.
3 The evidence satisfies me that KST ran the businesses of WYT and YS as if they were his businesses, received large amounts of cash from such businesses and never disclosed, in any income tax returns or in the accounts of either business, the full amounts of cash received. KST was the only person who knew what moneys in total were received by the businesses. The evidence includes:
- a) that of Geoffrey of amounts of cash received. He gave some examples;
b) that of Mary of the number of customers of WYT during the period August 1975 –1981. See paragraph 16 of her affidavit of 21 August 2007 and her affidavit of 6 August 2009 in reply. Later, I have endeavoured to resolve the conflict between the evidence of Mary as to the number of retail customers and the amounts spent with the evidence of Margaret;
c) that of Jeffrey Williden as to the large numbers of retail customers who attended the YS butchery. They paid cash for their purchases. Margaret and Helen substantially understated the number of retail customers who patronised the YS butchery. Mr Williden described the YS butchery as a busy one and said it continued to be a good and busy business after its sale in 1986. Three butchers were employed at various periods. This would not have happened unless necessary;
d) the cash takings of YS were delivered to KST at the end of each working day; this was not disputed;
e) that of the investigating accountant which established that:
- (i) the purchase of a property in Maroubra Road in 1983 necessitating the expenditure of about $600,000.00 and the purchase of a property in Queen Street in 1988 necessitating expenditure of about $1.655 million could not have been paid for from the known rental income of KST; and
(ii) the Queen Street property could not have been paid for from the known rental income of KST and the disclosed profits of WYT and YS. The size of the amounts paid was telling;
g) there were additional factors. No partnership distributions were made as suggested in the tax returns of WYT and YS and the various “partners”. The incomes of these businesses were split for tax purposes, KST paying the tax of each “partner” except Geoffrey;
h) the evidence of Helen that the business of YS improved over the years from 1980 onwards to its sale in about 1986;
i) the amounts of cash received from the retail customers of YS were substantial.
4 The plaintiffs also contended that the shortfall of about $1.3 million found by Mr Hill (i.e., the surplus KST needed or achieved) may have been the result of a manipulation by KST of the stock figures, particularly those relating to the cost of goods sold. The plaintiffs contended, in substance, that it was the shortfall and its size that mattered and that how it occurred was secondary. The latter was not necessarily within the plaintiffs’ knowledge or their ability to prove.
5 The Revenue Authorities of the Commonwealth were not told of the true income of WYT and YS and tax appears to have been evaded. These non-disclosures continued over the period August 1975 to June 1989. In addition to the tax evaded, there may to be a case for penalties of some magnitude. Interest at commercial rates may be payable.
6 As a result of the evidence adduced in these proceedings and the Court’s findings, the Administrator of the estate of the late KST is now on notice of the liability of the deceased’s estate for outstanding tax. It would be difficult for any distribution to take place or the partnership assets to be determined prior to the resolution of the tax issues. The evasion of tax is to be attributed to KST. I am satisfied that Margaret, Helen, Janet, Sunly and Gordon were not aware that he was evading tax during the years August 1975 – 30 June 1989. In late 1978 the plaintiffs had their suspicions, but lacked sufficient proof. The Court has been asked to order an account or the payment of equitable compensation. The plaintiffs have yet to indicate which they prefer. Although the estate is a large one, the tax liability of the estate should be settled prior to any consequential relief being granted by the Court. There are the further difficulties of the events taking place so long ago and KST being no longer available.
7 (a) The true income of the partnership has to be resolved and tax paid on any omitted income. Questions of penalties and interest may also arise and there could be some argument as to where the burden of the penalties and interest should lie.
- (b) The Administrator could not be expected to lodge amended tax returns, especially in view of the instructions of the beneficiaries other than Mary. Those beneficiaries contend that KST did not fail to disclose the whole of the cash income received from WYT and YS businesses. The Administrator is bound to protect the interests of the estate of KST which he represents. KST’s estate has a 20 per cent interest in the partnership by virtue of KST’s interest in the partnership. KST was the managing partner and controlled the operations and finances of WYT and YS, the partnership businesses.
(c) This is a case where the ATO, having received returns and issued assessments which were subsequently paid, must make its own appraisal of the income received and not disclosed in the tax returns of WYT and YS. The ATO should be given the opportunity to review the position and decide whether to take action in view of what the ATO was not told.
(d) Much will depend on the stance and approach of the ATO, but the matter cannot be allowed to drift indefinitely.
(e) Depending on the resolution of the first set of issues, there will probably be questions of the extent of their effect on the value of the estate and its distribution.
(f) There could probably be no distribution of the partnership assets and final winding up of the partnership until the taxation position is resolved. Alternatively, perhaps a suitable amount could be set aside to cover potential tax liabilities.
(g) Nor could there probably be any distribution in the estate of KST until the position in relation to the estate’s liabilities is resolved. That includes it taxation liabilities. Alternatively, perhaps a suitable amount could be set aside to cover potential liabilities.
(h) The hearing was conducted in public and included those parts of the affidavits which were admitted, the exhibits, the written submissions of the parties, the oral evidence (of which there is a transcript) and this Judgment. A copy of this judgment will be forwarded to the ATO and I so order. It will be a matter for the ATO to make arrangements to obtain such other documents as it needs.
8 These proceedings arise out of allegations that KST and Geoffrey entered into an agreement to purchase two businesses conducted by the late KST, namely WYT, a general store and mixed business, often referred to as a grocery business, in “Chinatown”, Sydney and YS Butchery located around the corner from WYT; the conduct of those businesses and allegations that there was a partnership involving the plaintiffs, KST, his second wife and Margaret, Helen and Janet; allegations that KST used partnership funds to purchase a property in Haig Street in December 1978 for $129,000 in his name, Sunly’s name and Gordon’s name each as tenants in common as to a one third share (both Sunly and Gordon still being infants aged respectively about 12 and 13), a property in Maroubra Road in February 1983 for $585,000 in the name of KST as to four one-fifth shares and Margaret as to one one-fifth share as tenants in common, and a property in Queen Street in July 1988 for $1.58 million in KST’s name as to six one-tenth parts with Margaret, Gordon, Helen and Sunly as to the remaining one-tenth parts each and as tenants in common.
9 It is alleged that these three last-mentioned properties were impressed with trusts and held on behalf of the alleged partnership.
Plaintiffs’ claims
10 Wide-ranging relief was sought in the Further Amended Statement of Claim filed 15 November 2008 (FASOC). In summary (excluding consequential relief), the plaintiffs in their final submissions sought:
- a) a declaration that the plaintiffs, the late KST, the late FC Chow, Margaret, Helen and Janet operated the WYT and YS business pursuant to a partnership in shares as found by the Court;
b) an order winding up the partnership under the directions of the Court;
c) a declaration that the interests of each of the first to sixth defendants (or the estates they represent) in the properties in Haig Street, Maroubra Road and Queen Street were held on trust for the partnership, such properties being acquired by the late KST using the moneys of the partnership;
d) an order that an inquiry be held to ascertain the assets of the partnership and in particular the application of partnership money towards the purchase of the three properties and the profits derived from the use of those properties, and to determine the financial payments to be made to the plaintiffs by each of the defendants in order to distribute to the plaintiffs their share of the partnership entitlements by the taking of an account or, alternatively, by way of equitable compensation.
11 In their FASOC filed 15 November 2008 a declaration was sought that the plaintiffs, the late KST, the late FC Chow, Margaret, Helen and Janet were partners during the period 1 October 1975 to 20 October 1997 in the following shares:
- a) KST – a 20 per cent share
b) Geoffrey and Mary – each a 10 per cent share
c) Margaret, Helen and Janet – each a 10 per cent share
d) FC Chow – a 30 per cent share.
In their FASOC the plaintiffs sought a declaration that the partnership was dissolved on 4 November 2005 (the day after the affidavits verifying the Statement of Claim which was filed 7 November 2005). 20 October 1997 was the date of death of the late KST.
Appointment of Mr Pascoe (First Defendant – Administrator)
12 The first defendant, Mr Scott Pascoe, a chartered accountant, was on 26 March 2001 appointed interim receiver of KST’s estate by order of this Court. On 22 November 2002 he was appointed by this Court as the Administrator of KST’s estate with the agreement of the second plaintiff and the second to sixth defendants. Initially a grant of Probate had been made by this Court on 2 October 1998 to Mary, Helen and Sunly on their application based on the wrongly alleged will of KST. Subsequently, on Mary’s application, that grant of Probate was revoked on the basis that the alleged will was not the will of KST. Prior to revocation the “executors” had made some distributions.
13 Order 3(d) of the Orders made on 26 March 2001 required Mr Pascoe to obtain an account and verify the distributions made from KST’s estate. In late November 2001 he submitted a draft interim detailed report of his investigations into KST’s estate and on 13 May 2002 he submitted his report which was little changed. It covered what had occurred with a number of investment and residential properties, bank accounts, other assets (mining shares), estate tax returns and distributions from the estate totalling $952,590.00. Gordon received $171,174.00, Helen $104,258.00, Margaret $217,932.00, Janet $63,000.00, John $80,000.00, Tang Fung (KST’s first wife) $100.00, Sunly $173,818.00, Mary $94,996.00 and Stella $47,310.00. These figures did not include any distribution from the Citibank Accounts. Section 7 of Mr Pascoe’s report summarises the sources from which the moneys distributed came. The period covered appears to be the 1997/1998, 1998/1999, 1999/2000 and 2000/2001 years. Some of the moneys came from the rental income of the Wiley Park, Fairfield, Maroubra Road and Queen Street properties – see Tables 5, 6 and 7 of the report. Some of the moneys came from an Interest Bearing Term Deposit with St George Bank, which matured on 24 November 1997. Table 8 shows that an amount of $287,138.34 was distributed in full. Mr Pascoe also included in his report post appointment income received as at 31 October 2001; cash at bank totalled $261,381.0. He also included the estimated position of the estate to 30 October 2001.
14 On 22 November 2002 Sunly, Helen, Gordon and Stella and Mary, John, Janet and Margaret were, by Court order, to specifically perform a Deed. Inter alia, it regulated the distribution of the estate of KST. It seems that the parties to the Deed probably executed it.
Administrator’s Defences and approach to proceedings
15 By the Administrator’s Defence to the Further Amended Statement of Claim, filed 17 December 2008, the Administrator, inter alia, admitted paragraphs 1 to 8, 8A.3 (relating to formal family details) and 50 – 51B (relating to the uncontested details of KST and his estate and sales of the Maroubra Road property and Queen Street property by the Administrator) of the FASOC, did not admit paragraphs 8A.1, 8A.2, 11 – 34, 35 – 49 (containing the allegations on which the plaintiffs’ claim was based) of the FASOC, and denied paragraph 52 (asserting the entitlement of the plaintiffs to the relief claimed) of the FASOC. In paragraph 13 of the Defence, the Administrator pleaded a Settlement Deed dated 22 November 2002. The first defendant pleaded that, in reliance upon the Settlement Deed, he had acted in accordance with that Deed with the plaintiffs’ knowledge and had commenced administering the estate. He pleaded that the plaintiffs were estopped from making the allegations of a partnership and were precluded from maintaining paragraphs 9 to 52 of the FASOC. He pleaded delay and laches by the plaintiffs and the provisions of the Limitation Act 1969 (NSW), referring to ss 15 and 48.
16 Senior counsel for the first defendant explained that, at the time his client’s various defences were filed, the Administrator took the view that he was bound to raise the available defences which would protect the interests of the estate. However, it now appeared that the principal protagonists were the plaintiffs and the second, third, fifth and sixth defendants (and, until 28 November 2008, the fourth defendant). Senior counsel was satisfied that all relevant points (from his client’s point of view) had been raised by the second, third, fifth and sixth defendants and advised that, in those circumstances, the Administrator preferred to adopt a neutral position and leave the contest to the plaintiffs and the second, third, fifth and sixth defendants. The plaintiffs stated that they were not seeking to impose any personal liability upon the first defendant.
Submitting appearances
17 On 28 November 2008 the fourth defendant, Janet, filed a submitting appearance in which she withdrew her defence and submitted to the making of all orders sought and the giving or entry of judgment in respect of all claims made, save as to costs. On 16 December 2008 I granted leave to the fourth defendant nunc pro tunc to file a submitting appearance with all questions of costs reserved. The seventh defendant, Stella as the representative of the estate of her mother, FC Chow, filed a submitting appearance dated 17 April 2008. An Amended Statement of Claim had been filed against her about 11 March 2008. She had been appointed on 7 March 2008 to represent the estate of FC Chow because of a possible conflict of interest between Sunly in his personal capacity and as Administrator of the estate of the late FC Chow. It was ordered that Stella be joined as the seventh defendant.
Defences of Margaret and Helen
18 Margaret and Helen admitted that their father was a party to the Purchase Agreement but denied, as alleged in paragraph 9 of the FASOC, that about 30 July 1975 their late father and Geoffrey entered into an agreement with the vendors of the WYT and YS to purchase those two businesses. They denied that Geoffrey was a party to such agreement. They contended that all of the funding for the purchase of these two businesses was provided by their father.
19 Margaret and Helen, while admitting that they signed a document purporting to be a partnership agreement, denied that they entered into a partnership agreement with Geoffrey, Mary, KST, Janet and FC Chow and became partners in a partnership. Margaret and Helen alleged that the “agreement” was a “sham”, or a device to protect KST’s assets from the British Solomon Islands Inland Revenue, and that they only signed that document because KST had signed it and they were accustomed to acting in accordance with his wishes. It may be, as the evidence emerged, that they were raising a defence of “non est factum”, but no amendment was sought.
20 There was no dispute as to the terms of the “agreement” bearing date 1 October 1975. Margaret and Helen denied the allegation that, in about August or September 1975, KST represented to Geoffrey that he would invest the profits of the partnership for all members of the partnership and all property purchased by KST using the proceeds of the partnership would be held by KST on trust for the partners of the partnership.
21 Margaret and Helen contended that, as there was no partnership, the issues of making distributions and use of the funds of WYT and YS did not arise. In the event of a partnership being found, Margaret and Helen denied that the three properties (Haig Street, Maroubra Road and Queen Street) were acquired by KST using profits of such a partnership.
22 Other issues arise out of the FASOC and the Amended Defence of Margaret and Helen.
23 Margaret and Helen relied on the losses allegedly made by YS, the sale of YS to Mr Tony Lam and WYT making alleged losses in 1986, 1988 and being closed by the deceased about 30 June 1989. In the event of a partnership being found, Margaret and Helen contended that such partnership was dissolved, at the latest, on 1 July 1989 and that any legal or equitable rights arising on dissolution arose no later than 1 July 1989. The plaintiffs submitted, correctly, that this had not been pleaded. It need not be further considered. Reliance was placed on s 32(b) of the Partnership Act 1982 (NSW) by Margaret and Helen.
24 Margaret and Helen relied upon defences under the Limitation Act 1969 (NSW) and upon delay, gross laches (or laches) and acquiescence. They also relied upon estoppel based primarily upon the Settlement Deed of 22 November 2002. They relied upon their title being indefeasible under s 42 of the Real Property Act 1900 once they became registered as the proprietors of a share in the Queen Street property. Margaret contended that, as to the Maroubra Road property, she had contributed about $100,000 or approximately one-fifth of the purchase price. Her actual contribution is closer to one-sixth of the cost of purchasing that property and associated expenses.
Defences of Sunly and Gordon
25 Sunly and Gordon, while admitting that on or about 30 July 1975 KST entered into an agreement with the vendors, Shiu Tong Leung, Cheun (or Chen) Cheung and Lin Sun Chun about the purchase from those persons of WYT and YS businesses, denied that Geoffrey was a party to the agreement. Sunly and Gordon did not admit that the agreement was partly oral. Sunly and Gordon admitted that the vendors sold the WYT business for $57,500.00 and the YS business for $30,000.00. Sunly and Gordon did not know and could not admit that the purchase agreement contained a term that the purchase price of the businesses would be paid to the vendors over time while KST operated the businesses, nor a term that the vendors would be paid for the stock associated with the businesses as that stock was sold over time while KST operated the businesses. Sunly and Gordon did not know and could not admit if the trading of the businesses proved satisfactory prior to completion. Sunly and Gordon admitted that the purchase of the businesses was completed and that these payments were made:
- $2,400.00 for stock in respect of the YS business – paid 22 June 1975
$18,975.00 for goodwill of the YS business – paid on 5 September 1975
$11,025.00 for the plant and equipment of the YS business – paid 5 September 1975
$51,125.00 for the goodwill of the WYT business – paid 3 October 1975
$57,180.91 for stock in respect of the WYT business – paid 11 December 1975
26 Sunly and Gordon, who were aged nine and ten as at August 1975, did not know and could not admit that funds for the purchase and for working capital of the businesses were sourced from:
- a) personal and/or borrowed funds of Geoffrey in excess of $46,000.00
b) personal and/or borrowed funds of Mary in excess of $2,500.00
c) personal funds of KST of about $32,400.00
d) finance of $70,000.00 from the Commonwealth Bank (CBA).
27 Sunly and Gordon did not know and could not admit that the finance provided by the CBA was supported by the guarantee and securities alleged by Geoffrey.
28 Sunly and Gordon admitted that a document titled “Agreement” and purporting to be a partnership agreement was signed by Geoffrey, Mary, KST, Margaret, Helen, Janet and FC Chow, but contended that, to the extent that the agreement binds any of its signatories, it refers only to the business of WYT and does not refer to YS. Sunly and Gordon did not admit that the signatories entered into a partnership agreement and became partners in a partnership. Sunly and Gordon did not admit that the document bearing date 1 October 1975 was intended by the parties thereto to operate, or did in fact operate, as an effective partnership. (There was debate in the final submissions of the parties whether this encompassed an allegation that the partnership was abandoned, but I do not think that it does.)
29 There was no issue as to the terms that the document bearing date 1 October 1975 titled Agreement contained.
30 Sunly and Gordon did not know and could not admit paragraphs 19, 20, 21, 22, 23, 24, 25, and 26 of the FASOC, including, by way of summary, that:
- a) in about August – September 1975 KST represented to Geoffrey that he would invest the profits of the partnership for all members of the partnership and all property purchased by KST using proceeds of the partnership would be held by KST pursuant to an express trust for the partners of the partnership;
b) at all material times the businesses were the property of the partnership and that the partners were entitled to share the profits of the businesses in accordance with the shares specified in the agreement;
c) the amounts owing to the vendors in respect of the purchase of the businesses were paid using moneys generated from the conduct of the businesses and funds advanced by KST and Geoffrey;
d) a significant proportion of the day-to-day operations of the businesses were conducted in cash; and
e) the financial statements and books and records of the businesses, and of the partnership, understated the turnover and profitability of the businesses.
31 Issue was joined as at 1 August 1975 of the extent of the beneficial interest of KST in real property in Australia. The Amended Defence of Sunly and Gordon does not put in issue that KST purchased and paid for properties in Haig Street, Maroubra Road and Queen Street, nor the purchase prices. I will not summarise all the further issues and admissions emerging from the pleadings.
32 In further answer to the whole FASOC, Sunly and Gordon say that the estates and interests each had at the start of the proceedings in the Haig Street property and the Queen street property were given to them by KST and that, upon them becoming registered as proprietors of such, each became indefeasibly entitled to a one-third share in the Haig Street property and a one-tenth share in the Queen Street property.
33 Sunly and Gordon contended as to Haig Street, that, upon registration of the transfer of the additional 16.67% interest to each, each became indefeasibly entitled to the additional interest free of any unregistered estate or interest claimed by the plaintiff. Sunly and Gordon denied that either was bound by any personal equity, allegedly enforceable against either by either plaintiff.
34 Sunly and Gordon pleaded that the plaintiffs’ causes of action fell within various sections of the Limitation Act 1969 and were barred. Sunly and Gordon pleaded that the plaintiffs were guilty of laches and, in the alternative, gross laches and/or acquiescence and were not entitled to relief.
35 Sunly and Gordon further relied on a settlement deed attached to consent orders filed and made by this Court in proceedings number 118302 of 2000, and raised a defence of conventional estoppel, the conventional basis being that the assets standing in the name of KST at his death would constitute the assets of his estate for the purposes of the deed and that the parties would respectively carry out their obligations in accordance with the deed and accept their entitlements under the deed in satisfaction of all their respective claims against the estate and against each other connected with property derived from KST or his estate, and that Mr Scott Pascoe was entitled to transfer to them severally such estates and interests as the deed provided, free from any claims by the plaintiffs of the nature advanced in these proceedings. One difficulty was that Geoffrey was not a party to the deed, but Sunly and Gordon sought to overcome this. While not abandoned, the defence of conventional estoppel was not a major consideration.
36 There was also a defence that the plaintiffs did not come to equity with clean hands.
Assets of estate of KST
37 KST’s estate’s assets as at 20 October 1997 (his date of death) included:
This list is taken from paragraph 9 of the affidavit of the Administrator, Scott Pascoe, of 28 March 2007, to which I have added the Citibank Term Deposit of $430,111.50.a) $31,514.80 held in CB Account
b) $120,236.19 held in St George Bank Account
c) $117,519.19 held in St George Bank Account
d) $287,138.34 held in St George IBD
e) $346,721.67 held in Citibank Term Deposit
f) $430,111.50 held in Citibank Term Deposit
g) 40,000 shares in Normandy Mining Ltd
h) ¾ share in Wiley Park property
i) 92,048/168,000 share in Fairfield property
j) 4/5 share in Maroubra Road property as tenant in common with Margaret
k) 6/10 share in Queen Street property
l) 2/3 share in unit in Coogee Bay Road
m) 1/3 share in Haig Street property
Administrator’s actions as to properties
38 Upon the grant of administration to him, Scott Pascoe began making arrangements to sell the estate’s properties.
39 The Administrator caused to be sold the Maroubra Road property and the Queen Street property and the proceeds of sale have been preserved pending the determination of these proceedings. The Maroubra Road property was transferred to a third party probably about September/ October 2005 for a large sum (see paragraphs 6 and 7 of Mr Pascoe’s affidavit of 4 November 2008). KST’s legal interest in Queen Street was transferred to Margaret and Helen on 15 November 2005 for $1 million. The certificate of title of the Queen Street property following the transfer records Margaret as having a 5/10 (or ½) share, Helen as having a 3/10 share and Sunly and Gordon each having a 1/10 share.
40 The Administrator caused to be transferred KST’s one-third interest in the Haig Street property to Sunly and Gordon in about June 2004. The plaintiffs alleged that the transfer was for a notional consideration of only $367,000.00. Sunly and Gordon contended that the transfer was made in part for valuable consideration paid to Scott Pascoe, and as to the balance, as a partial distribution of KST’s estate. Mr Pascoe said that this transfer was made prior to him having notice of the partnership claim.
Taxation returns and undisclosed income
41 At the directions hearings on 30 October and 6 November 2008 I raised questions that on the pleadings there appeared to be allegations the effect of which was that tax had not been paid and that there may be evidence of a conspiracy to defraud the Commonwealth of taxation revenue. Geoffrey contended that there was a partnership and that, in substance, for many years he was a “sleeping” partner.
42 There was a further problem with the taxation returns. Distributions of partnership income were not made as stated. KST caused the taxation returns of the second wife, Mary, Helen, Margaret and Janet to be prepared, as well as those of the partnership. Margaret, Helen and Janet acknowledged that they were not really partners and that the two businesses and the money were those of KST. KST paid the tax of his four daughters. Effectively, what KST did was to split the income received from the two businesses. That would have affected the taxation rate. Janet’s affidavit put the matter succinctly – “apart from the documents I appear to have signed, I am not aware that there ever was a partnership”.
43 The plaintiffs contended that KST used undisclosed profits from the two businesses alleged to be partnership businesses to purchase the three properties. The second, third, fifth and sixth defendants denied that there were any undisclosed profits and contended that the purchase moneys for the three properties must have come from resources of KST of which no one was aware. KST was secretive and controlling about his financial affairs and those of the family.
Representation
44 Throughout the whole of the proceedings the plaintiffs were represented by an experienced counsel, mostly assisted by a second junior counsel. Margaret and Helen were represented by counsel up to and including 3 April 2009. The matter was before the Court on 30 October, 6 November and 16 December 2008. On 4 February 2009 there was an application to amend the defence of Sunly and Gordon. I delivered judgment as to that on 13 February 2009. The hearing proper commenced late on the afternoon of 4 February 2009, when the Court commenced to read the many lengthy affidavits and rule on the objections. This continued on 6 February and 3 April 2009. On 15 June 2009 when the hearing resumed and for the remainder of the hearing Margaret and Helen represented themselves, although they did obtain assistance from their solicitor in respect of their closing submissions. They may have consulted him for advice at other times. The hearing continued for 10 days between 15 to 26 and on 29 – 30 June 2009 and on 2, 3, 8, 9, 15 and 29 July 2009. On 24 August 2009 the plaintiffs’ case in reply was heard. The parties made extensive written submissions and spoke to their submissions during 7, 8 and 9 October 2009.
45 Margaret and Helen were at a disadvantage in not being represented. This was particularly evident when it came to the cross-examination of witnesses. I did not think that they were engaging in tactical manoeuvres. I had regard to the heavy costs burden to which an extended court hearing gives rise. Being able to pay for 22 days in Court imposes a heavy burden and one that few individuals can shoulder, especially after the earlier costs.
46 Experienced counsel appeared for the fifth and sixth defendants during the whole of the proceedings. That counsel cross-examined the plaintiffs and their witnesses first and spoke with Margaret and Helen and obtained material from them for use in cross-examination and in the proceedings. Margaret and Helen heard each other’s evidence whereas Geoffrey remained outside the Court while Mary was cross-examined and she was not present in the Court when Geoffrey was cross-examined. Counsel for the fifth and sixth defendants technically cross-examined the second and third defendants. It was a restrained cross-examination and in total was generally more akin to an examination in chief than cross-examination. Counsel for the fifth and sixth defendants was careful not to take objectionable advantage of the situation.
47 The relationship between the second and third defendants and the fifth and sixths defendants and counsel for the latter was no substitute for the second and third defendants being represented by their own counsel and such counsel leading evidence and cross-examining on their behalf. This was a complex piece of litigation in which many difficult issues were raised which went back over many years.
History of Proceedings
48 The Statement of Claim was filed on 7 November 2005. There were numerous interlocutory applications. An Amended Statement of Claim was filed on 11 March 2008. On 6 November 2008, there was a contested directions hearing in which the future conduct of this matter was discussed. On that day, I ordered that there be a separate hearing in this matter pursuant to UCPR 28.2 on all issues in the proceedings except for the hearing of evidence on the taking of an account or with regard to equitable compensation.
49 In my Judgment of that date I stated:
a) the existence of a partnership between the plaintiffs and the defendants or any predecessors;“It emerged during the debate before me, of which a record has been kept, that there should be a separate trial of all issues of liability, including:
b) the dissolution of the partnership;
c) the fiduciary duties, if any, owed by the late Kut Sze Tu to the plaintiffs and the breaches of any of those duties;
d) whether the three properties, Haig Street, Maroubra Road and Queen Street, were held on the trusts alleged in the Statement of Claim;
e) the defences of laches, including gross laches and acquiescence;
f) the defences based on the Limitation Act 1969, sections 15, 47, 48 and 68A;
g) the defences based on estoppel, that is, that the plaintiffs were estopped from maintaining this action;
h) the defences based on indefeasibility of title.”
50 In paragraph 33 of my Judgment of 13 February 2009 I added some additional sections of the Limitation Act 1969 (NSW) on which the fifth and sixth defendants placed reliance. The issue of a lack of clean hands was also raised in that Judgment. There were further pleadings after 6 November 2008, namely a FASOC was filed on 15 November 2008, the first defendant, Scott Pascoe, filed an Amended Defence to the FASOC on 17 December 2008, the second and third defendants filed a Defence to the FASOC on 3 April 2009 and the fifth and sixth defendants filed a Defence to the FASOC on 22 May 2009. I have earlier referred to the course of the hearing. The fifth and sixth defendants provided further written submissions after 9 October 2009, to which the plaintiffs replied in writing about 23 December 2009. In this difficult matter, both as to the facts and the law, I would grant leave to the fifth and sixth defendants and the plaintiffs to rely on their further submissions. I have taken them into account. This case still has a considerable distance to run.
Background
51 For many years, probably starting in the early 1950s, KST had owned and conducted general stores in the British Solomon Islands and had other assets there. In about 1964 and 1965 Mary and Janet respectively were sent as boarders to St Gabriel’s School, Waverley for their education. When it closed down in 1966 they transferred to another private girls’ school. Margaret came to Australia with John in 1966 and Helen followed in 1968. All four daughters attended the second-mentioned private girls’ school. John attended a private boys’ school. For the Christmas holidays all five children returned to Honiara. In about 1969 KST purchased a 3-bedroom unit in Coogee Bay Road. The four daughters and John moved into the unit after it was purchased and ceased being boarders at the private schools.
52 Again in about 1969 KST purchased a property at Wiley Park with eight residential units. In about 1972 he purchased a property at Fairfield with 12 residential units. Mary said that from about the late 1960s or early 1970s KST started spending more time in Australia. In about mid 1974 KST and his first wife came to live in Australia. For a short period KST, his first wife and the four daughters lived at the Coogee Bay Road unit.
53 Margaret explained that it was an old Chinese custom that a man can have more than one wife, that her father followed that custom and went through a traditional Chinese marriage ceremony with FC Chow in Hong Kong. This was in 1956. Helen explained that there was nothing untoward in KST’s relationship with FC Chow. Helen said her mother agreed and approved KST’s second marriage. Helen added that KST and her mother were traditional Chinese, and KST wanted a son to carry on the family name. KST continued to financially support and care for his first wife.
54 Because KST wanted to bring FC Chow and his three children by her to Australia from Hong Kong and because of immigration requirements KST divorced his first wife and married FC Chow in 1976. On the arrival in Australia of FC Chow, Stella, Gordon and Sunly in about mid 1976, they all lived with KST’s first wife, Margaret and Helen in the Coogee Bay Road unit. Subsequently KST, FC Chow and their three children lived at Janet’s home at Bondi. On purchasing the Haig Street property in late 1978, KST moved there to live with FC Chow, Stella, Gordon and Sunly.
55 From at least February 1975 KST was aware that the Inland Revenue Branch of the Solomon Islands was investigating his financial affairs. About 12 August 1975 a tax assessment going back to 1950 for about $160,000.00 was issued.
56 Geoffrey and Mary met in 1972 and married in December 1974. Geoffrey said that he first met Mary’s parents in about 1974. He said that in about May 1975 he and KST held a discussion about going into business together, that their initial field of interest was hotels but they decided not to venture into that field. Geoffrey said that they then started inspecting a number of liquor stores which were for sale. In early June 1975 Geoffrey’s accountant, Mr H Rosser, prepared reports on two liquor stores. By letter of 3 July 1975 addressed to KST and the plaintiffs at the Randwick address of Geoffrey, the Commonwealth Trading Bank confirmed that it had approved accommodation of $145,000.00 to assist them to purchase and operate a liquor store at Glebe. The Bank required a satisfactory valuation of KST’s flat properties at Wiley Park and Fairfield and registered mortgages over both. It also required the transfer of all credit accounts from building societies and the ANZ Bank, both in Honiara and Sydney, to the Commonwealth Bank.
Purchase of WYT and YS
57 KST decided not to proceed with the purchase of the liquor store. According to Margaret and Helen, a friend of KST, who spoke the same dialect, Szeyap, introduced KST to the purchase of WYT and YS businesses. Margaret said that KST told her that he could easily accomplish the purchase of the two businesses and stock with his money in the various bank accounts. She said that KST began negotiations with the vendors, Messrs Leung and Cheung. She attended on one occasion in early July 1975 at WYT when Mr Leung showed KST and Margaret the ledger books. Margaret said that during weeks in June and July 1975 KST left home early to observe the businesses in operation. KST told her that the businesses were good investments and something that he was familiar with.
58 There is a version of subsequent events in Geoffrey’s affidavit of 8 December 2006. However, there is a later version given in Geoffrey’s affidavit of 21 August 2007 after he had been able to consider documents produced by Margaret as to the purchases of WYT and YS. There is a difference in the details of the two versions. In his affidavit of 21 August 2007, Geoffrey states:
- a) Mary and he attended a meeting at KST’s request on the ground floor of the WYT retail shop about 30 July 1975 with KST, Shiu Tong Leung and Chen Cheung. (Shiu Tong Leung died in 2000.)
b) The meeting was conducted partly in English and partly in Cantonese.
c) KST told Geoffrey that he had signed an agreement to purchase WYT and YS. It was very profitable. KST asked Geoffrey to look at the documents and he did so.
59 By letter of 30 July 1975 addressed to KST, Mr ST Leung on behalf of WYT offered to sell KST the business of WYT for $57,500.00; “plant and equipment to be at depreciated value as shown in our account books.” There is a handwritten notation of plant and equipment of $6,375.00 and goodwill of $51,125.00.
60 By letter of 30 July 1975 addressed to KST, Mr ST Leung on behalf of YS offered to sell KST the business of YS for $30,000.00: “plant and equipment to be at depreciated value as shown in our account books”. There is a handwritten notation of goodwill of $18,975.00 and plant and equipment of $11,025.00.
61 There are two further documents of 30 July 1975. That as to WYT was signed by Shiu Tong Leung, Cheun Cheung and Susan Quan. That as to YS was signed by ST Leung, Chen Cheung and Lin Sun Chan. One offered to KST the business and goodwill, plant and equipment of WYT for $57,500.00 and the other offered those of YS to KST for $30,000.00.
62 Both contained special terms:
- 1. Purchaser to take possession on 1 August 1975.
2. Purchaser to pay vendors on taking possession $10,000.00 in the case of WYT and $5,000.00 in the case of YS.
3. Balance of purchase moneys payable on completion of sale.
4. Subject to lessor’s approval to transfer or assignment of lease or tenancy of premises.
5. Subject to all permits and licences relating to business being transferred to purchaser without conditions. In the case of YS these words were added “including permit issued by Abattoirs of New South Wales”.
6. Purchaser to take over all stock at cost and pay for same in cash.
7. Vendors will enter covenant not to compete in similar business for three years within one mile radius.
8. Purchaser to keep accounts of trading and allow vendors to inspect same pending completion of purchase.
9. Plant and equipment shall be taken over at vendor’s book value.
63 Both offers were accepted and signed by KST. Underneath the signatures of the three vendors of each business and that of KST this appears:
- “Witness to all signatures
WJ Lee”
Mr WJ Lee was a well-known barrister at the Sydney Bar and a member of Chinese community in Sydney. The accounts mentioned in special term 8 have not been produced. It is improbable that after this lapse of time that they would still exist, assuming that they were created.
64 Geoffrey said that, during his conversations with KST about 30 July 1975, KST expressed the view that the businesses he had found were more profitable than a liquor store and that they should use the money from the bank to buy them.
65 By letter dated 5 September 1975, Mr ST Leung confirmed that $18,975.00 for the goodwill of the YS business had been received. By receipt dated 5 September 1975, Mr ST Leung acknowledged receiving $11,025.00 “being purchase price in full of plant and equipment of Yee Sing Butchery”. By letter dated 3 October 1975, Mr ST Leung confirmed that $51,125.00 for the goodwill of the WYT business had been received.
66 In his affidavit of 21 August 2007 Geoffrey stated that on 30 July 1975 KST stated that he did not want to look at any liquor stores and he had already paid a deposit on YS. Geoffrey stated that he refused to sign the purchase agreements. He was unhappy that the documents did not separately specify the amounts to be paid for goodwill and plant and equipment. He said he was also concerned that a deposit had been paid before “a full due diligence had been carried out”.
67 Geoffrey said that he told Mr Leung that he would like to look at the accounts for the businesses and that Mr Leung told him not to worry about the accounts, that there was a lot of cash and a lot of profit and that there was around $100,000.00 in stock. Geoffrey said that he told Mr Leung that they (the purchaser) could not pay for the stock immediately, that the funds were in term deposit accounts and that they could pay as they cashed in the term deposits. Geoffrey said that Mr Leung stated that would be acceptable.
68 Geoffrey said that, after a lengthy discussion, agreement was reached to pay the vendors for stock as it was sold for WYT and to collect, for the benefit of the vendors, amounts owing from restaurants which had not settled their accounts at the time of the sale. Geoffrey was not acting as a co-purchaser but negotiated the agreement in the presence of, with and on behalf of KST with the vendors. The agreement was between KST and the vendors.
69 The vendors to KST were looking for a purchaser who relied on his observations over a number of weeks, his instincts and the cash receipts and dealings of the businesses to assess them rather than one who based his approach on the formal accounts. KST had, for the better part of two months, visited the businesses daily for lengthy periods and observed what took place. With his experience he was in a position to assess their worth, how he would run them and whether they were the sorts of businesses with which he was familiar and wanted to run. The extended arrangement for the purchase of the stock, deposed to by Geoffrey, and evidence of the payment for stock in December 1975 were a little unusual, but understandable if there were cash transactions of consequence. Broadly, Geoffrey took a more conventional approach. He preferred acceptable accounts that could be submitted to a lending authority to support the granting of a loan and to carry out a full “due diligence” exercise.
70 It seems that Mr Leung provided a copy of the accounts of WYT and YS for the year ending 30 June 1974. WYT’s accounts revealed stock on hand at 30 June 1974 of $43,107.00. YS’s accounts revealed stock on hand at 30 June 1974 of $676.00.
71 Geoffrey appeared to be concerned about the stock position and payment for the stock. Geoffrey said that he told KST in about early August 1975 that they would need money to replace stock when goods were sold and to cover wages. Part of KST’s skill and experience was to organise stock purchases so that that the businesses had sufficient stock to meet orders but relatively little by way of surplus or slow-moving stock. Some reserves of stock would be needed, as would amounts to cover operating expenses. As to wages, the family seemed to render valuable help. This probably enabled the businesses to function effectively at low cost, especially in the early days. Further, the skill and hard work of KST should not be under assessed.
72 Geoffrey said that Mr Leung showed Mary and Geoffrey around the WYT premises and spent some time explaining how the businesses operated.
73 Geoffrey stated that, after the meeting with Messrs Leung and Cheung, he (Geoffrey) told KST that he would not invest until it was resolved whether the Solomon Islands could enforce the tax liability it had claimed against him. Geoffrey said he would arrange for Clayton Utz (his solicitors) to look into whether KST’s assets in Australia could be used to satisfy the Solomon Island’s taxation assessment. He disagreed with the suggestion that KST’s assets should be transferred to a trust. The transfers would be costly and they could subsequently be set aside. Geoffrey said that KST agreed to the retention of Clayton Utz on the taxation issue mentioned. It seems that Clayton Utz was also consulted about the future management and holding of KST’s assets so as to minimise the duties payable on his death. Written advice was given on these matters subsequently by Senior Counsel and Clayton Utz, but advice was given in conference in late September 1975 on the claims of British Solomon Islands Inland Revenue against KST.
74 In his affidavit of 8 December 2006 Geoffrey said that, before completing the purchase of the WYT and YS businesses for the price of $150,000.00, KST and he operated the businesses for a trial period of about three months from about 1 August 1975 and that this was extended to nearly 12 months. Whether there was a trial period was in issue.
75 In her affidavit of 3 May 2007 Margaret denied that there was a trial period. She said that the takeovers of both businesses took place on 1 August 2005. Margaret said there was a period during which the previous owners stayed on to show KST and the family how the business worked. There is evidence to the effect that Mr and Mrs Leung stayed on for about three weeks. Mr Cheung, one of the previous owners, stayed on for longer. He remained until a suitable replacement was found, that is, until John was employed. I do not think that there was a trial period of consequence and that Geoffrey has confused Mr Cheung staying on for as long as he did with a trial period. However, while KST took possession of the businesses on 1 August 1975, completion took place subsequently and the period between 1 August 1975 and the date of completion could be regarded as a trial period.
76 Geoffrey refers to a payment of $2,400.00 on 22 June 1975 for stock for the YS business and one of $57,180.96 for stock for the WYT business on 11 December 1975. Geoffrey described this as the last payment for the businesses (of WYT and YS).
77 Geoffrey said that, in early August 1975, KST asked him to contribute money to the purchase of WYT and YS, that he (Geoffrey) expressed the view that they would probably need the whole $145,000.00 they had already arranged to borrow from the Bank, that KST said he did not have $145,000.00 and that they would need to borrow money from the bank. Geoffrey said that KST asked him to join with KST in the businesses and to attend a meeting with KST and the ANZ Bank to secure a loan. Geoffrey said that he insisted on a formal agreement being drawn up showing everything they agreed. There was a high degree of risk and he wanted a part-ownership of the businesses. Geoffrey said that KST agreed to him (Geoffrey) being his partner and setting up a partnership to deal with both the WYT and YS businesses and any other businesses and to try to purchase properties in the partnership. I do not accept that at that early stage Geoffrey and KST discussed the matter in terms of a partnership, nor the acquisition of properties. A term along the lines of clause 20 of the agreement of 1 October 1975 is reasonably standard and not uncommon.
561 The Settlement Deed does not provide that assets standing in the name of KST shall be treated as assets of his estate not does it provide for any equitable interests or personal equities to be ignored. Geoffrey was not a party to the Settlement Deed, nor would that have been appropriate unless its scope was widened.
562 In my opinion the estoppel defence of the second and third defendants fails as against each plaintiff.
Findings
563 I do not accept that any of the defendants has by the time of the hearing suppressed relevant documents. Nor do I accept that any defendant has only produced documents when that person believed that production would advance the case of one or more of the defendants. Nor do I believe that any defendant feigned a lack of memory.
564 I have accepted that it has no longer been possible to find and obtain many documents created between 1975 and 2000. Documents were thrown out and discarded long before these proceedings were instituted. This includes documents and financial records of WYT and YS, KST and copy tax returns. Relatively few documents and financial records remain. There are limited numbers of copy tax returns.
565 I do not find that KST had no source of income other than from the WYT and YS businesses, his rental properties and interest income from moneys held in bank accounts or term deposits as disclosed in his tax returns. I would not assume that these returns are correct, nor that he did not have any other assets. The acceptable evidence does not enable me to make a finding or to exclude the possibility that KST had income producing assets other than those mentioned.
566 I find that the memories and evidence of all parties and witnesses have been adversely affected by the lapse of time. I have approached the reliability of the oral evidence of witnesses as to events occurring prior to 2000 with caution. Much of the oral evidence of events occurring prior to 1990 is in the absence of documentary substantiation insufficiently reliable to be acted upon. There are issues which I have not been able to resolve. As mentioned, I have treated the evidence of Margaret, Helen and Sunly with further caution because of the their involvement in the false will. I thought some of the evidence of each of them was correct. This does not mean that I have automatically accepted the evidence of Geoffrey and Mary. Their evidence was also influenced by self-interest.
567 There was one person responsible for the difficulties which have arisen, namely KST. As earlier indicated, none of Margaret, Helen, Janet, Sunly, Gordon or FC Chow were responsible nor had the requisite knowledge of what KST was doing. As mentioned, KST handled the receipts, decided what cash should be banked, directed what information should be supplied to Mr Wong to prepare the tax returns, controlled the ordering of stock and ran the businesses of WYT and YS. Gordon and Sunly were minors from 1975 to, respectively, 1983 and 1984. Margaret (from late May 1980 to July 1989) and Helen (from 1980 to July 1989) did as they were directed by KST and were paid what KST determined. Mary, when working at WYT, did as KST directed but she was also attentive to Geoffrey as her husband and kept him informed of what was happening at WYT. She probably had suspicions from late 1978. The financial responsibility for what occurred with both WYT and YS rested with KST alone. None of Margaret, Helen, Janet, Sunly and Gordon was aware that he was not disclosing all his income and that of the partnership, nor, probably, was FC Chow.
568 I have earlier held that there was a partnership between the plaintiffs and the first defendant, as the Administrator of the estate of KST, and the second, third and fourth defendants.
569 I have also held that there was a breach of an express trust created under the partnership agreement of the Maroubra Road property (excluding Margaret’s share) and the whole of the Campbelltown property.
570 I have also held that there was an express breach of trust as to portion of the Haig Street property.
571 Sunly and Gordon each holds his interest in portion of the Haig Street property and in the Queen Street property subject to the trust for the partnership.
Relief
572 During submissions I indicated that the final form of relief, if any, to be granted would be settled after the parties have had an opportunity to consider this Judgment. There is a further caveat. I doubt if other than limited relief should be granted pending the tax review, if any, and any re-assessment or amended assessment. Further facts may emerge if any taxation review takes place. There is also the possibility that further material may come to light as a result of that review which would lead to some changes in the findings I have made.
573 I am inclined to consider at this stage:
1. A declaration that Geoffrey Lowe and Mary Lowe, the late Kut Sze Tu, the late Chow Fung Chun, Margaret Sze Tu, Helen Sze Tu and Janet McNamara were partners as from 1 August 1975 and operated the businesses of Wing Yuen Tai (WYT) and the Yee Sing Butchery (YS) pursuant to a partnership in the following shares:
- a. the late Kut Sze Tu as to a 20 per cent share;
b. Geoffrey Lowe as to a 10 per cent share;
c. Mary Lowe as to a 10 per cent share;
d. Margaret Sze Tu as to a 10 per cent share;
e. Helen Sze Tu as to a 10 per cent share;
f. Janet McNamara as to a 10 per cent share;
g. The late Chow Fung Chun as to a 30 per cent share.
3. A declaration that five-sixths of the Maroubra Road property and the whole of the Queen Street property were acquired by the late Kut Sze Tu using moneys of the partnership.
4. A declaration that the legal interests of each of the first to seventh defendants (or the estates they represent) in five sixths of the Maroubra Road property and the whole of the Queen Street property were held on trust for the partnership.
574 I do not propose to make a declaration as to portion of the Haig Street property because that portion has not been defined. Provisionally, and subject to argument, I had in mind that on a broad assessment about $60,000.00 or about 45 per cent of the cost of purchasing the Haig Street property probably came from partnership funds.
575 Frequently in partnership proceedings an order is made for an account, but there are difficulties in following that course. Both KST and FC Chow are dead, the available accounts appear to be of limited use and the first and seventh defendants may not be in a position to account in that they may not have the requisite knowledge as to the operation of WYT and the operation of YS. The events occurred many years ago and there has been much delay. The availability and reliability of evidence, especially in the period 1975 – 1989, have been affected.
576 Margaret, Helen and Janet would have considerable difficulties in providing an account of the partnership and its dealings. They were told very little. Those who knew what was happening are dead. The available records are quite sparse.
577 As to any remedy, helpful decisions include that of the High Court in Warman International Ltd v Dwyer (1994) 182 CLR 554, especially at 559, and that of the Victorian Court of Appeal in Edmonds & Ors v Donovan & Ors (2005) 12 VR 513, especially at 543 – 545.
578 The interests of Sunly and Gordon in portion of the Haig Street property and the interests of Margaret, Helen, Sunly and Gordon in the Queen Street property are in a different category.
579 At the time the Haig Street property was placed as to their one-third shares in the names of Gordon and Sunly they were minors. This continued to be the situation until 1983 and 1984. They did not contribute to the purchase price of that property. While they agreed in evidence that they would, if they had been asked by their father to transfer their interests to him, have done so, this may not have been able to happen while they were minors.
580 The effect of their minority was not argued. It is a point that may need to be resolved. There is also the question of ratification, that is, consenting to the transfer after they turned 18 years of age.
581 It was assumed during the hearing that the whole of the rental income from the Wiley Park and Fairfield properties was available to KST. This appeared to be the fact. However, the title records show that the Wiley Park property stood in the names of KST, John, Mary and FC Chow from about June 1969 to about September 1975 when John transferred his interest to KST. As at May 2002 the title records show that KST’s estate owned a three-quarters share and Mary owned a quarter share.
582 The records show that in December 1972 the Fairfield property stood in the names of KST, FC Chow, Tang Fung Sze Tu, Mary, Janet, Margaret, Helen, Gordon and Sunly. As from June 1997, the ownership interests were:
KST (and later, his estate) 92,048/168,000 Tang Fung Sze Tu
(now deceased)
25,000/168,000 Mary 10,000/168,000 Margaret 10,000/168,000 Helen 10,000/168,000 Stella 6984/168,000 Gordon 6984/168,000 Sunly 6984/168,000
The questions which arises is whether the Court should proceed on the basis of the whole of the rental income being available to KST or only that portion which corresponds with his legal interest in the Wiley Park and Fairfield properties. This needs to be resolved and a direction given. Perhaps there will need to be separate proceedings, but hopefully this can be avoided.
583 I envisage, without being exhaustive, that the following may require attention once the taxation issues are resolved:
- (a) the net rental receipts of these properties will have to be collated:-
- (i) the Maroubra Road property from 14 February 1983 to the completion of its sale by the Administrator on or about 19 October 2005 (or 2 February 2006);
(ii) the Queen Street property from 1 July 1988 and extending to the completion of the sale by the Administrator of KST’s interest to Margaret and Helen on or about 15 November 2005;
All dates are provisional.(b) estimates or assessments of the value of the occupation of the Haig Street property from 1 December 1978 to the date of the transfer of the interests therein of the estate of KST to Sunly and Gordon on or about 14 May 2004;
(c) an estimate or assessment of the sale value of YS as at June 1986. This may be subject to it being established that the proceeds of sale of YS were not applied to the purchase of the Queen Street property. During the hearing it was suggested that the proceeds of sale of YS may have been so applied. If they were, such an estimate or assessment may not be necessary;
(d) directions as to the disposition of the moneys held by the Administrator;
(e) determination of where the burden of any additional tax, penalties and interest should lie;
(f) provision being made for the costs and expenses of the Administrator and any Receiver and Manager of the partnership business.
584 I do not propose to make any consequential orders at this stage. The question of what consequential relief should be ordered remains to be decided. In view of the lack of evidentiary materials and the length of time which has elapsed it may become necessary to make a number of broad assessments. I doubt if the conventional orders would be appropriate.
585 I detected a lack of enthusiasm by all parties for a taxation review and the use of partnership assets to meet outstanding taxation liabilities, although counsel for the plaintiffs recognised that there could be taxation liabilities. I am reluctant to allow these proceedings to progress in a way that would fail to alert the taxation authorities to the incorrect material with which they were supplied and the evasion which has occurred. There are strong financial incentives for the parties to conduct proceedings as between themselves and to refrain from disclosing the details to the taxation authorities.
586 The Court will not be involved in determining any issues between the Commissioner and the partners of WYT and YS.
587 These proceedings have not sought to resolve the issue whether Mary holds a one-quarter interest in the Wiley Park property.
588 I propose to adjourn the further hearing and the issue of further relief pending the Commissioner of Taxation advising whether he is considering any taxation review of the tax payable including the issue of amended assessments in respect of the partnership businesses of WYT and YS. While the matter is attended by many complexities and voluminous documentary materials, the Court would be reluctant to hold up the winding up of the partnership beyond 31 August 2010. The Commissioner should advise the parties what he proposes to do within that period and what further period, if any, is required to complete any taxation review and issue any re-assessment or any amended assessments. There is no point in referring the matter to an Associate Justice or a referee until the taxation position is resolved. Where the liability for tax is to fall and the liability for any possible penalties or interest is to fall may affect the determination of the assets of the partnership businesses and the distribution of assets. Taxation liabilities may also affect the value of the deceased’s estate.
589 I fix Tuesday 25 May 2010 or such other date as may be arranged with my Associate as the day on which I will consider the declarations and order(s) to be made at this stage. Thereafter I am considering fixing 9 September 2010 at 10 am as the next day on which the matter is to be listed to enable directions to be given as to the future course of these proceedings. It may be practicable on 25 May 2010 to appoint a Receiver and Manager of the partnership businesses, including making provision for payment of his or her fees. I am contemplating in the orders of 25 May 2010 giving all parties liberty to apply on seven days’ notice because of the matter being stood over to 9 September 2010 to allow the ATO to consider the position.
590 Rather than eventually refer the matter to an Associate Justice consideration may need to be given to whether it may be preferable to refer the matter to a referee and direct the plaintiffs and the second, third, fifth and sixth defendants to share the costs and expenses of a referee in the first instance. That may require provision to be made for the referee’s fees and an order to deal with the Administrator’s fees.
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