Macquarie Bank Limited v Lin
[2005] QSC 221
•12 August 2005
SUPREME COURT OF QUEENSLAND
CITATION:
Macquarie Bank Limited v Lin [2005] QSC 221
PARTIES:
MACQUARIE BANK LIMITED ACN 008 583 542
(plaintiff)
v
KONRAD LIN
(defendant)
RAYMOND CHENG-YUNG WU
(first third party)
BRENDON AUSTRALIA INTERNATIONAL CORPORATION PTY LTD ACN 058 439 740
(second third party)
CHINESE INVESTMENT GROUP PTY LTD ACN 063 208 364 in its own right and as trustee for the RAYMOND WU FAMILY TRUST
(third third party)
PENELOPE JACKSON-KNAGGS
(fourth third party)
PETER ROSS CLAPIN and GERARD JOSEPH PAGLIARO
(fifth third parties)FU-SHUN LIN and PAO-LAN CHANG LIN
(plaintiffs)
v
KONRAD LIN
(first defendant)
MACQUARIE BANK LIMITED ACN 008 583 542
(second defendant)FILE NO/S:
S1035 of 2001
S7421 of 2001DIVISION:
Trial Division
PROCEEDING:
Hearing
ORIGINATING COURT: Brisbane DELIVERED ON:
12 August 2005
DELIVERED AT:
Brisbane
HEARING DATES:
31 January 2005; 1, 2, 3, 4, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18 February 2005; 14, 15, 16, 17, 18, 21, 22, 23, 24 March 2005; 11, 12, 13, 14 April 2005
JUDGE:
McMurdo J
ORDER:
In S1035 of 2001:
1. There will be judgment for the plaintiff against the defendant for $9,436,857.70
2. The counterclaim by the defendant against the plaintiff is dismissed3. The claim by the defendant against the fifth third parties, Peter Ross Clapin and Gerard Joseph Pagliaro, is dismissed
In S7421 of 2001:
1. It is declared that the first defendant holds upon trust for the plaintiffs the property described as:
(a) Lot 2 on RP 92983 in the County of Stanley, Parish of Bulimba, title reference 13287136
(b) Lot 4 on RP 12550 in the County of Stanley, Parish of Bulimba, title reference 11641206
(c) Lot 1 on RP 92982 in the County of Stanley, Parish of Bulimba, title reference 132871352. The plaintiffs are at liberty to apply, upon notice to the defendants, for any further or other relief in consequence of that declaration and consistently with the reasons for judgment
CATCHWORDS:
TRADE AND COMMERCE – TRADE PRACTICES AND RELATED MATTERS – CONSUMER PROTECTION – MISLEADING, DECEPTIVE OR UNCONSCIONABLE CONDUCT – REPRESENTATIONS – IN GENERAL – where the family trustee company of which the defendant and his parents were directors became a shareholder in a development company and the defendant became a director of that company – where the development company entered into a fixed fee facility and guarantee agreement with the plaintiff bank for a loan for a development project – where the defendant, together with the other directors of the development company, provided an unlimited personal guarantee to the plaintiff bank – where the defendant provided to the bank a solicitor’s certificate of independent legal advice prior to providing the guarantee – where the obligations of the development company were not met under the agreement – where the plaintiff bank claimed its debt from the defendant – where the defendant claimed that he entered the agreement on the basis of misleading or deceptive representations made by the plaintiff bank as to the limit of his liability and the financial prospects of the development project – whether the representations were made by the officers of the plaintiff bank – whether the bank engaged in conduct that was misleading or deceptive – whether the defendant understood his liability was unlimited
TORTS – NEGLIGENCE – WHERE ECONOMIC OR FINANCIAL LOSS – CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE – PARTICULAR PERSONS AND SITUATIONS – BANKS AND FINANCIAL INSTITUTIONS – whether the bank was negligent in making the alleged representations to the defendant
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – PENALTIES AND LIQUIDATED DAMAGES – GENERAL PRINCIPLES – where the original agreement was varied to extend the termination date – where the fixed fee payable to the plaintiff bank was altered from $750,000 to $375,000 plus $25,000 per month after the termination date – where the interest payable also accrued at an increased rate after the termination date – whether the additional $25,000 per month a “penalty”
TORTS – NEGLIGENCE – ESSENTIALS OF ACTION FOR NEGLIGENCE – WHERE ECONOMIC OR FINANCIAL LOSS – CARELESS ADVICE, STATEMENTS AND NON-DISCLOSURE – PARTICULAR PERSONS AND SITUATIONS – PROFESSIONAL ADVISORS – where the defendant provided an unlimited personal guarantee to the plaintiff bank – where the defendant provided to the bank a solicitor’s certificate of independent advice prior to providing the guarantee – whether the solicitor had properly advised the defendant as to the effect of the guarantee
EQUITY – TRUSTS AND TRUSTEES – CONSTITUTION AND CLASSIFICATION OF TRUSTS GENERALLY – IMPLIED TRUSTS – RESULTING TRUSTS – WHERE INTENTION PRESUMED – REBUTTAL OF IMPLICATION – PRESUMPTION OF ADVANCEMENT – where the plaintiff bank brought proceedings against the defendant to enforce personal guarantee – where the defendant had, registered in his name, a large, luxurious residence – where the bank had relied upon the defendant’s ownership of the house in accepting the guarantee and financing the development – where the parents of the defendant brought a separate action against him for a declaration that he held the house on resulting trust for them – where the plaintiff bank joined as a defendant to the action – where the parents caused the house to be purchased – where the house was paid for from accounts not held in the parents’ names – whether the parents provided the purchase monies – whether the presumption of advancement rebutted
ESTOPPEL – ESTOPPEL IN PAIS – THE REPRESENTATION – IN GENERAL – where the defendant represented to the plaintiff bank that he beneficially owned the house – where the defendant held the house on resulting trust for his parents – where the parents had attended a meeting with representatives of the bank prior to the development project commencing – where the parents were directors of the trustee company which took a share in the development company – whether the parents were “complicit in, alternatively permitted or suffered” the defendant’s representations to the bank that the defendant was the beneficial owner of the house – whether the parents were estopped from asserting their claim to the house vis a vis the bank
Trade Practices Act 1974 (Cth), s 52
AMEV-UDC v Austin (1986) 162 CLR 170, cited
Australian Securities Commission v Marlborough Goldmines Ltd (1993) 177 CLR 485, cited
Brown v Brown (1993) 31 NSWLR 582, followed
Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, cited
Commonwealth v Verwayen (1990) 170 CLR 394, cited
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, applied
Esanda Finance Corp Ltd v Plessnig (1989) 166 CLR 131, cited
Franklin v Manufacturers Mutual Insurance Ltd (1935) 36 SR(NSW) 76, cited
Giumelli v Giumelli (1999) 196 CLR 101, cited
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, discussed
Murphy v Overton Investments Pty Ltd (2001) 112 FCR 182. discussed
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359, cited
Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2003] 2 Qd R 661, applied
Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164, cited
Thompson v Palmer (1933) 49 CLR 507, discussed
Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295, cited
Voss v Suncorp-MetwayLtd (No 2) [2004] 1 Qd R 214, cited
Waltons Stores (Interstate) Ltd v Maher (1987-1988) 164 CLR 387, discussed
Williams v Frayne (1937) 58 CLR 710, discussed
Zenith Engineering Pty Ltd v Queensland Crane and Machinery Pty Ltd [2001] 2 Qd R 114, cited
COUNSEL:
R G Bain QC with A W Duffy for the plaintiff in S1035 of 2001 and for the second defendant in S7421 of 2001
G J Gibson QC with K A Barlow for the defendant in S1035 of 2001 and for the first defendant in S7421 of 2001
M J Liddy for the fifth third parties in S1035 of 2001
J C Bell QC with P P McQuade and D J Kelly for the plaintiffs in S7421 of 2001SOLICITORS:
Hogan Besley Boyd Commercial Lawyers for the plaintiff in S1035 of 2001 and for the second defendant in S7421 of 2001
Lowes and Co for the defendant in S1035 of 2001 and for the first defendant in S7421 of 2001
Allens Arthur Robinson for the fifth third parties in S1035 of 2001
James Conomos lawyers for the plaintiffs in S7421 of 2001
J: McMURDO
Contents
Background [1] THE PROCEEDINGS IN OUTLINE S1035 of 2001 [2] S7421 of 2001 [6] MR AND MRS LINS’ CLAIM FOR THE HOUSE 62 Wynnum Road is purchased [10] Whose money was used in the purchase? [20] Was there a gift of the house? [38] Presumption of advancement [39] The resulting trust is proved [46] MACQUARIE v KONRAD LIN Background to Konrad’s guarantee [48] The first mandate letter [53] The second mandate letter [56] Konrad learns of the project [58] Konrad Lin’s pleaded case [65] Meeting at the house – 27 May 1999 [69] Events before the loan is made [72] The third mandate letter [79] Events after the initial advance [99] The first variation agreement [101] Further events in 2000 [102] The limited guarantee case [108] Konrad’s belief as to his guarantee [133] The representations as to the development [145] Would the alleged representations have been misleading or deceptive, or negligent? [161]
Would the alleged representations as to the project have mattered to Konrad? [163] Quantification of Macquarie’s claim [167] Macquarie’s fees [168] Barker Gosling fees [191] Debt owing to Macquarie [194] Third Party Proceedings against the solicitors [196] THE LINS’ CLAIM TO THE HOUSE Are Mr and Mrs Lin estopped? [198] Konrad’s representations as to the house [204] Was there reliance by Macquarie? [246] CONCLUSIONS [266]
Background
In 1999 and 2000, Macquarie Bank Limited lent money for the construction of units and houses on land near Coolum Beach on the Sunshine Coast. The development was called “Papillon Villas”, and the developer, which was Macquarie’s borrower, was Merlin Pacific Developments Pty Ltd (“MPD”). The development, as originally agreed to be financed by Macquarie, involved some 48 units and houses to be built over five stages. But before the completion of Stage 1, which involved 17 units, the development was experiencing serious cost overruns and delays. By November 2000, Stage 1 had not been completed and MPD was in default of its obligations and on 22 November 2000 Macquarie went into possession of the site. Macquarie caused Stage 1 to be completed and sold the units and houses together with the remaining land which was to have been used for the subsequent stages. There was still a debt owing which Macquarie claims is in an amount now exceeding $9,000,000.
THE PROCEEDINGS IN OUTLINE
S1035 of 2001
There are two proceedings which have been tried together. In S1035 of 2001, Macquarie claims its debt from a guarantor of MPD, Mr Konrad Lin. He was introduced to this project by Macquarie and became a director of MPD. A family trustee company, of which he and his parents were the directors, took a 25 per cent shareholding in MPD.
He claims that he is not liable, or should be relieved from his liability, under his guarantee because it was procured by misrepresentations by Macquarie. Broadly speaking, the misrepresentations were of two kinds. First he says that Macquarie made him believe that his liability as a guarantor would be limited to an amount of $1 million. Secondly, he says that Macquarie misrepresented the financial prospects of the project, causing him losses through his liability as a guarantor and in other respects.
Mr Konrad Lin has joined as a third party a firm of solicitors, Clapin Pagliaro, who were retained to advise him as to the legal effect of his guarantee. He claims that they negligently failed to advise him that the guarantee was relevantly unlimited, rather than limited to a liability of $1 million as he says he then believed. He says that he received no advice or, alternatively, no proper advice. If he is liable to Macquarie as it claims, he says that he should be effectively indemnified by the solicitors by an award of damages. When the guarantee was given, Macquarie required Konrad Lin to provide a certificate from solicitors to the effect that he had been properly advised as to its effect. Mr Clapin signed such a certificate and Konrad Lin provided it to the Bank. The solicitors’ case is that he was properly advised.
Prompted by Konrad Lin’s allegation that he received no advice from Clapin Pagliaro, Macquarie has made an alternative claim against Konrad Lin, which is that he defrauded Macquarie, by representing that he had received advice from the solicitors. So Macquarie says that if it cannot enforce its guarantee, it can recover the same amount as damages for deceit. In turn, this alternative claim has inspired a further claim by Konrad Lin against the solicitors. He says that if he is liable in tort (in deceit) to Macquarie, then the solicitors are obliged to indemnify him or make an appropriate contribution, on the basis that they also owed a duty of care to Macquarie, which they breached by failing to adequately advise him.
S7421 of 2001
The other proceedings involve a contest between Macquarie and the parents of Konrad Lin. I shall now refer to them as Mr and Mrs Lin and to their son as Konrad, as counsel did throughout the hearing. Mr and Mrs Lins’ claim is to the beneficial ownership of the house in which they live at 62 Wynnum Road, Norman Park. They caused it to be purchased in 1994 for a price of $6,800,000 in the name of Konrad who remains its registered owner. They claim that they provided all of the purchase money and that he holds it for them upon a resulting trust.
After Macquarie issued its proceedings against Konrad, and out of an apparent concern that it would look to the house to satisfy any judgment, Mr and Mrs Lin issued these proceedings. They sued not Macquarie but Konrad. Over their objection, Macquarie successfully applied to be joined as a defendant to their claim, which is for declaratory relief and an order that Konrad transfer the house to them. Konrad has never contested their claim, but Macquarie does, denying that Konrad holds the house on trust for them. In particular, it denies that they provided the purchase monies and it argues that if they did, Mr and Mrs Lin intended Konrad to be a beneficial owner, not a trustee. There is an issue as to whether the presumption of advancement can be rebutted, in circumstances where Konrad was a 17 year old schoolboy when he became the registered owner. Alternatively, Macquarie says that it is entitled to the benefit of an estoppel against Mr and Mrs Lin, which precludes them from asserting any entitlement to the house as against Macquarie.
With the agreement of all parties the evidence in one proceeding was received also in the other, except for such evidence as was the subject of a specific objection by Konrad or, more often, by Mr and Mrs Lin.
Save for the estoppel issue, the proceedings between Mr and Mrs Lin and Macquarie turn upon the facts which occurred well prior to the Papillon Villas project and Macquarie’s financing of it. It is convenient to discuss then the evidence in relation to whether the house is held by Konrad as a trustee before dealing with Macquarie’s estoppel case against Mr and Mrs Lin, for which there is some overlap with the evidence which is relevant to the other proceedings.
MR AND MRS LINS’ CLAIM FOR THE HOUSE
62 Wynnum Road is purchased
Mr and Mrs Lin were born in Taiwan, he in 1951 and she in 1952. Neither speaks English and each gave evidence through an interpreter. Mr Lin has a primary school level of education and no formal trade qualification. In his early twenties he went to work for his cousin’s construction and property development business in Taiwan through which he made his fortune. He worked there from 1974 until 1989 when he retired due to ill health. In the 1980s he made investments in shares and real estate in Taiwan and in a tuna fishing business. Mrs Lin worked in a sales office in Taiwan until the early 1980s when she gave up work coinciding with the birth of her youngest child. They have three children: Konrad who was born in 1976, a daughter, Lulu, born in 1978, and another daughter, Lily, born in 1983.
In 1989 Mr and Mrs Lin decided to migrate to Australia and Mrs Lin and Konrad have lived in Brisbane since that year. It seems that for a while the daughters remained at school in Taipei where Mr Lin remained to look after them. The Lins retained their family home in Taipei where Mr Lin’s aging mother also lived. In 1989 Mr and Mrs Lin bought a house at Calamvale, of which they became the registered owners. They also bought three investment properties at Belmont and Gumdale, again in their own names.
By late 1993 Mr and Mrs Lin, their three children and Mr Lin’s mother were all living in the Calamvale house. Mr and Mrs Lin were looking to move the family to another house. Mr Lin said that one reason for moving was to be closer to the children’s schools, but it was clear that they were looking for a bigger and more luxurious residence. Plainly any new house was to be for the accommodation of Mr and Mrs Lin, their children and Mr Lin’s mother.
Through a real estate agent, Mr Hsu Cheng Guang, they were taken to the house at 62 Wynnum Road, Norman Park. It had been built by its then owner, Mr Keith Lloyd, on a prominent position alongside the Brisbane river. It is a large and noticeable house. Mr and Mrs Lin at first offered to buy it for $6,300,000 before agreeing on the price of $6,800,000, which some evidence suggests was then a record for a Brisbane house.
What happened on the Lins’ first inspection of the house was, they say, of particular importance to the present case. On entering the large foyer area, they noticed a metal plaque which is still fixed on the iron balustrade of the stairs leading from that area. The plaque is situated so as to be seen by persons as they enter the house. It has an oval shape, is about 40 cm in length and bears the letters “KBL” which are Mr Lloyd’s initials. There is a similar, although smaller, plaque installed in a fixed bed head in the main bedroom, which is also still present.
According to the evidence of Mr and Mrs Lin, they were very affected by the plaque, because the letters “K” and “L” corresponded with the initials of their son’s English name. Mr Lin said that they believed that this was:
“a good omen given by God and … that if we were able to buy this house, we would consider using my son’s English name to sign the contract and by doing this we can maintain this good luck … the future generations would maintain that good luck and would have a better future in Australia and would be able to make a bigger contribution.”
Mrs Lin’s evidence was to the same effect. They each said that they saw the letter “B” on the plaque to be significant as corresponding with the word “building”, so that the letters KBL would refer to “Konrad Lin Building”. In the way in which the letters were arranged on the plaque, it is possible that Mr and Mrs Lin read the letters as “KLB” rather than “KBL”.
There is some support for this in the evidence of Mr Hsu, the real estate agent. He recalls that on entering the house, Mr Lin looked at the plaque and asked Mr Hsu “Is it KLB?” and that when Mr Hsu said it was, Mr Lin seemed “very satisfied” and nodded his head. Mr Hsu said that Mr Lin asked him to prepare the contract in Konrad’s name because “Mr Lin reckon that is good luck because Konrad Lin’s initial is matched to Mr Lloyd’s symbol”. That evidence of Mr Hsu was challenged but I accept it. There is no obvious reason for Mr Hsu to give false evidence to support Mr and Mrs Lin; for example there is no evidence that he has any existing or prospective business association with them. Nor is it so improbable that Mr Lin would have said to Mr Hsu that this was his reason to have the contract in Konrad’s name. Statements such as that related by Mr Hsu are admissible even in favour of the party who made them, because they are made at a point relative to the purchase as to make them effectively part of the transaction: Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353; Jacobs’ Law of Trusts in Australia (6th ed) at [1213].
Konrad was not involved in any negotiations towards the purchase. They were conducted by Mr and Mrs Lin. In response to their offer of $6,300,000 the vendor counter offered $8,000,000 saying, in a letter to Mr and Mrs Lin, that he had rejected an offer of cash and property which effectively represented $6,750,000. Mr and Mrs Lin then offered $6,800,000 which the vendor accepted. When offering $6,300,000 they had submitted a contract signed by Konrad, and they had Konrad initial the changes to that contract for their offer of $6,800,000. They did not consult Konrad as to the price or any other term of the purchase. He was simply asked on occasions to sign as the purchaser. I accept the evidence of Konrad and Mr and Mrs Lin to that effect. I accept also the evidence of Konrad and his parents that they did not discuss with him the basis upon which he would own the house.
Mr and Mrs Lin instructed an employee of a firm of solicitors, Ms Chiang, who speaks Mandarin, to act in the purchase. Ms Chiang’s firm opened the file in Konrad’s name. I accept her explanation that this was because the firm’s usual practice was to open a conveyancing file in the name of the party on the contract, and that it was not the result of some instruction from Mr and Mrs Lin. Konrad had no dealings with the solicitors. They were instructed to attend to the conveyance to Konrad, without being told why the purchase was in his name. The settlement of the purchase and the registration of the transfer were uneventful. Settlement occurred on 15 February 1994 and Konrad became the registered owner, free of any registered interest. Prior to the settlement, there was some question concerning a jetty which required Ms Chiang to obtain instructions, which she obtained from Mr Lin. She did meet Konrad, but only in the course of his signing the necessary documents, including a stamp duty declaration that he was acquiring the property as his principal place of residence. The solicitors were given no instructions as to the existence or otherwise of a trust.
Mr and Mrs Lins’ evidence is that the certificates of title were kept in a safe in the house, the keys to which were kept by Mrs Lin and that only they had access to its contents. I accept that evidence which was not challenged. Instead, it was suggested to Mr Lin that he kept the title deed in the safe, out of the reach of Konrad, “better that [Mr Lin’s] wishes [as to the house] were obeyed”, which he denied. It was part of Macquarie’s case that whilst the Lins intended Konrad to be the beneficial owner, still it was their intention that Konrad would do with the house what they said. There is a tension between these two intentions to which I will return. In 1997, Mr Lin removed the certificate of title from the safe to enable the house to be mortgaged to BankWest for a loan to the trustee of the Lin family trust, Pao Lin Investments Co Pty Ltd. That was not inconsistent with the Lins’ evidence that they had possession of the title deeds and Konrad did not.
Whose money was used in the purchase?
As the contract required, a deposit of $315,000 was paid to the selling agent. It was paid by $1,000 in cash and a subsequent payment of $314,000. The cash was given to the agent at the Lins’ house at Calamvale, on the occasion when they submitted their offer of $6,300,000. I accept that the $1,000 came from a pool of cash which Mrs Lin kept at the house. I also accept that it belonged to Mr and Mrs Lin.
The balance of the deposit ($314,000) was paid to the agent by a cheque drawn on an account at the Commonwealth Bank at Sunnybank. The account was in the name of Mr Lin’s mother, Ms Chen Mei Lin, who is now deceased. On 25 November 1993, the account had a credit balance of $66,256 until $299,995 was deposited on that day. This was an interest bearing passbook account. The passbook entry records that deposit as “INTL FUNDS”, signifying that it was by a transfer from overseas.
On settlement, the balance of the price was paid by a bank cheque purchased with funds in the purchaser’s solicitors’ trust account. The adjusted purchase price paid at settlement was $6,485,754.59. Earlier that day the sum of $6,496,655.59 was paid to the solicitors’ trust account, by a bank cheque purchased with funds from another passbook account at the Commonwealth Bank at Sunnybank. That account was in the name of Miss Hsing-Suei Lee, who is Mr Lin’s niece and who has always lived in Taiwan. On the day before settlement, $6,499,995 had been deposited to that account and (again) the passbook describes the deposit as from “INTL FUNDS”.
The case for Mr and Mrs Lin is that the funds from each of these passbook accounts belonged to them and not to the account holder. I accept that Mr and Mrs Lin caused the account in his mother’s name to be opened and that they, and not Mr Lin’s mother, operated it. Mr Lin said that he caused the account to be opened “using my mother’s name because my mother was afraid of not having money while she was living in Australia”. This suggests that at least some of the funds in the account did belong to Mr Lin’s mother. However, of the $314,000 drawn from that account to pay the deposit, $299,995 had been paid into the account only on the previous day, and I accept that Mr and Mrs Lin caused that deposit to be made. The source from which that deposit was made will be discussed. But I accept that the $299,995 deposited to the passbook account on 25 November 1993 was then under the control of Mr and Mrs Lin. So, too, were the funds already to the credit of that account. Perhaps Mr Lin intended that his mother would have some benefit from this account, although it is also likely that Mr and Mrs Lin had another purpose for opening and operating an account in another name, consistently with some accounts being in Ms Lee’s name, as I will discuss. Mr Lin’s mother was then aged and unwell. She died in January 1995. She lived in the Lin house at Calamvale and there is no evidence to suggest that she had any substantial assets of her own, at least apart from this account. Mr Lin’s evidence is that he had built his own fortune from a humble background. I infer that the circumstances were such that Mr Lin’s mother could not have claimed, as against them, a right to operate the account, and the common understanding was that it was to be operated according to their directions.
Ms Lee has never claimed any interest in the passbook account in her name from which the settlement funds were drawn. I find that this account was at all times operated and controlled by Mr and Mrs Lin who treated the account as theirs. Between Ms Lee and Mr and Mrs Lin, she was bound to act according to their directions.
There is no document, such as a bank statement or accounting records which evidences the transfers to these passbook accounts. I find that that the funds transferred in each case came from an account or accounts in the name of Ms Lee, which the Lins maintained at the National Australia Bank in Hong Kong. I thereby accept the evidence of Mr and Mrs Lin in that respect. Ms Lee was called in the case of Mr and Mrs Lin. Her evidence is that she allowed her name to be used for various Hong Kong bank accounts operated by Mr and Mrs Lin, at their request, but that she did not operate the accounts. She could not say whether the deposits to the passbook accounts at Sunnybank came from a Hong Kong account in her name.
Ms Lee identified an application[1] signed by her for the opening of a bank account with the National Australia Bank at Hong Kong. I accept her evidence that the document shows Mr and Mrs Lins’ home address in Taipei as the account holder’s address, and the signatures of Mr and Mrs Lin as those of the persons authorised to operate the account. There are some documents bearing Mrs Lin’s signature which evidence her operation of this account in late 1990.[2] I accept also Ms Lee’s evidence that she did not receive documents from the National Australia Bank which record the operation of this account, such as bank statements, and that she has no records in relation to it. Mr and Mrs Lin say that documents such as bank statements were sent to them but that Mrs Lin’s practice was to quickly discard them. Whether in truth there was such a practice, I am prepared to accept that Mr and Mrs Lin no longer have records in relation to this account other than those few documents which they have disclosed. I am also satisfied by evidence from the National Australia Bank that with the passage of time it no longer has records in relation to the account. However, there are still a few documents which indicate that the account held substantial funds. In particular there are two documents dated 18 January 1991[3] which refer to this account and are addressed to Ms Lee but at the postal address which was the Lin house in Taipei. They record a conversion of US$3,403,614.95 to 453,872,054 Japanese yen, and a deposit of those yen for a period of 90 days from 22 January 1991. Although these documents constitute but two of what must have been many documents in relation to the account, they support the evidence of Mr and Mrs Lin that there was the equivalent of millions of Australian dollars kept in this interest bearing account. There was no substantial challenge to their evidence that the funds which were transferred to the passbook accounts at Sunnybank came from this Hong Kong account or some successor to it. What was strongly challenged was their evidence that they owned these funds. I find that the deposits to the Sunnybank accounts were from funds in this account, or an account which replaced it, at the National Australia Bank at Hong Kong. And I find that funds in that account were at all times under the control of Mr and Mrs Lin. Between the account holder Ms Lee and Mr and Mrs Lin, the circumstances were such that Ms Lee held those funds according to their directions.
[1]Exhibit 33
[2]Exhibit 34
[3]Exhibit 80
The case for Mr and Mrs Lin is that the house is held for them upon a trust which results, that is to say which is implied, from their having paid for it. They bear the onus of proving that they did pay for it. Macquarie argues that they have not discharged that onus, and that in particular, I should be unpersuaded that the particular funds which passed through the Sunnybank passbook accounts were funds to which Mr and Mrs Lin were entitled. It is not suggested that Ms Lee was entitled to any of the funds in her Hong Kong account or her Sunnybank passbook account, and nor did I understand Macquarie’s ultimate argument to suggest that it was Mr Lin’s late mother who was the true owner of the funds paid as the contract deposit from the account in her name. But Macquarie submits that it is at least as likely that the true owner was some other person or entity, and not Mr and Mrs Lin, so that they have failed to prove this essential element of their case.
Mr and Mrs Lin sought to explain the Hong Kong account in Ms Lee’s name in this way. They gave evidence of the prevalence of crimes, including kidnapping, against wealthy families in Taiwan. They were fearful that if they were perceived to be wealthy they or their children would be at risk. They said that they were concerned that some persons working in a bank in Hong Kong might have associations with criminal elements in Taiwan, to whom they would pass on the information that millions of dollars were held by Mr and Mrs Lin. For this reason they said that they put their money into an account opened in Ms Lee’s name, so that the funds would not be associated with them. I do not accept that explanation as true. As I have mentioned, Mr and Mrs Lin signed documents in relation to this Hong Kong account which identified them as authorised signatories and which specified their residential home address in Taipei as effectively that of the account holder. The type of person of whom they say they were concerned, who might have been working for the bank in Hong Kong and with access to the records of this account, might have readily traced the ownership of the funds to their house. Moreover, Mr and Mrs Lin do not appear to have attempted to disguise their wealth in the way they have lived in Australia. The noticeable and very expensive house at Norman Park was obviously the Lin family home. Mr and Mrs Lin drove expensive cars and Mr Lin was active in an organisation of Taiwanese business people in Brisbane, called the Taiwanese Australian Business Association (Qld) Ltd. The Lins have often gone back to Taiwan for extensive periods, and they still have what was the family home in Taipei. Apparently they were not concerned by the appearance of their wealth in this country and the possibility that it would put them at risk in Taiwan. A related question is their explanation or otherwise for opening and operating bank accounts in Brisbane in the name of Ms Lee or Mr Lin’s mother. Notably, Mr Lin did not offer the same explanation for the account in Ms Lee’s name here which he gave for the Hong Kong account.
But the rejection of their explanation for having an account in Ms Lee’s name does not mean that they fail to prove that the money in the account was theirs. There could be another explanation, although not volunteered by them, for why they would represent that these large interest bearing cash deposits belonged to someone else. One possibility is that they wished to evade their liability for Australian income tax on the interest. In Macquarie’s cross-examination of Mr and Mrs Lin, particular attention was paid to their tax returns in relevant years, and it is demonstrated that the Lins did not declare any income from the Hong Kong deposits or from the (Sunnybank) passbook accounts in the names of Ms Lee and Mr Lin’s mother. Mr and Mrs Lin said, in effect, that they were unaware that this income had to be declared. Understandably Macquarie did not press for a finding that they believed it should be declared as their income, because that would be consistent with the funds being their funds. In my view, however, it is a probable explanation for the accounts in Ms Lee’s name, and probably also that in Mr Lin’s mother’s name, that the Lins were attempting to evade taxation. There are other possible explanations, of which some, but not all, are consistent with the Lins being beneficially entitled to these funds.
For Macquarie it was strongly argued that I should infer the funds belonged to one or more companies with which the Lins were or had been associated in their various enterprises in and out of Taiwan. It was submitted that the Lins are likely to have simply uplifted funds from a company or companies in circumstances by which, at least according to Australian law, they would be susceptible to remedies at the suit of the true owner, such as that of a constructive trust. There is little evidence as to the businesses conducted by the Lins or with which they were associated. The relevant records would date back to the 1980s and it is understandable that records were destroyed or lost with the passage of time, the cessation of businesses and the migration of the Lin family to Australia.
However, there are a number of circumstances which suggest that, contrary to Macquarie’s argument, Mr and Mrs Lin had not come to control these funds in circumstances in which they were obliged to account to others. The first is that there is no indication of any claim ever having been made to the money by any company, creditor or other person. As I have said, the Lin family’s wealth in Australia has been quite conspicuous and as I will discuss, this very valuable house has been either unencumbered or (later) mortgaged for only a relatively small sum. Secondly, whilst the Lins have moved to Australia, they have maintained a property in Taiwan and regularly return there. And their movement to Australia was not sudden: Mrs Lin and Konrad moved here for some time in advance of Mr Lin and Konrad’s sisters whilst they finished their primary schooling.
Mr Lin’s evidence is that the Lins received the monies which they deposited to the Hong Kong account as follows:
“You’ve owned companies through which you’ve carried on business on a regular basis throughout your business life, haven’t you, Mr Lin? -- Yes.
Do you still have companies trading in Taiwan and holding property in Taiwan? -- Before I migrate to Australia I closed up my companies.
Well, you still have property in Taiwan, don’t you? -- I had one house in Taiwan.
What happened to the money from the companies when you closed them in Taiwan? I take it they had valuable assets and the company was realised by closing up the companies? -- I sold the asset first before I closed the company, so when I closed the company there wasn’t any asset left.
Well, what happened to the company’s property? -- I sold them all, including desk and chairs.
What happened to the money? -- As I had planned to – for migration well before that, I had been dispose – or treat my asset in certain ways. Otherwise where could I get the money in Australia?
Did you put the money from the Taiwanese companies into some Australian companies? -- No, it’s not the case. When I sold my asset in Taiwan I transferred the money overseas.
Into what account? -- In the end it end up in NAB account, then transferred to my niece’s account.
So we’re clear, Mr Lin, you have spoken of closing up the companies and selling off assets, but the companies themselves still exist. The names still exist and the companies still exist in Taiwan, don’t they? -- No.
Mr Lin, think carefully about what you’re saying, because you came to Australia – you emigrated from Taiwan in 1989, I think you said? -- Yes.
And you are saying to his Honour that you had closed your companies under this plan you had and sent the proceeds to the accounts in Hong Kong by the time you emigrated to Australia? -- Yes.”
Assuming that the monies used for this house were generated by businesses owned wholly or in part by the Lins, there are several alternative possibilities as to how those funds came under their control. One of those, broadly speaking, is that suggested by Macquarie, which is that the funds were misappropriated: they were either stolen or misused in circumstances which would attract equitable or other remedies under Australian law. Another is that Mr and Mrs Lin came by them legitimately either as dividends or as distributions upon a valid reduction of capital or winding up. A further possibility is that the funds were appropriated by the Lins in circumstances where, absent the consent of all of the shareholders of the relevant company, they would have been liable to the company for some breach of duty, but that all members of the company had consented and the company was solvent. Yet another is that the funds were borrowed, so that whilst the Lins might have been obliged to repay the lender, the relevant monies were the property of Mr and Mrs Lin when used in this purchase. On many of the possibilities then, the funds were the Lins’ at the time, although they were generated by the successful businesses of companies. Especially having regard to the passage of time and the absence of any evidence of anyone else claiming the funds, in my view it is more probable than not that the Lins were in control of these funds in circumstances in which they were not themselves trustees. The generality of Mr Lin’s evidence is concerning. However, the absence of records after this time is not so unlikely and, if so, it could be difficult for him to give a detailed account. I am persuaded that more probably than not, the funds which they caused to be channelled through the passbook accounts for the purchase of this house were their funds beneficially so that they have proved this element of their case.
There is an alternative basis upon which I would conclude that Mr and Mrs Lin provided the purchase monies in the sense required for the implication of a trust. The monies in the solicitors’ trust account which were used to purchase the bank cheque delivered to the vendor were held by the solicitors as trustees. They were obliged to act according to their clients’ instructions. Although the solicitors’ file was opened under Konrad’s name, in truth the solicitors’ clients were Mr and Mrs Lin. Unless and until the solicitors became aware that some third party, and not Mr and Mrs Lin, was entitled to funds which the Lins had caused to be paid to their trust account, the solicitors held those funds, and in turn the bank cheque purchased with them, as trustees for Mr and Mrs Lin: see Port of Brisbane Corporation v ANZ Securities Limited (No 2) [2003] 2 Qd R 661 at 677-681 per McPherson JA with whom Davies JA and Mullins J agreed. In that case, an employee of the Port Corporation stole monies which he caused to be deposited to the trust account of ANZ Securities Limited, a stockbroker. The employee had caused a company to represent to ANZ Securities that as a new client, it had deposited the monies to the trust account. Before ANZ Securities learnt that the funds had been stolen, and that their true owner was the Port Corporation, it had paid out the amount in the account. The Court of Appeal held that ANZ Securities was not liable for a breach of trust to the Port Corporation. The trust under which it held the funds was a trust for the client company, and ANZ Securities could not be liable for a breach of duty or breach of trust until aware of the true entitlement to the funds. In the meantime the broker had been authorised and bound to act according to its client’s instructions and the trust by which it was bound was a trust for the client.[4]
[4]At 681
So as to the $314,000 paid as a deposit in the present case, at the time those funds were held in the account of Mr Lin’s mother, she could not have asserted a claim to them against Mr and Mrs Lin. As I have found, if she had been minded and able to operate the account, she could have done so only according to the Lins’ direction. She was a trustee for them unless and until she became aware of some other person’s beneficial entitlement. Similarly, when the funds for settlement were transferred from the Sunnybank account in Ms Lee’s name, she could not have asserted a claim to them against Mr and Mrs Lin. The same applies to the Lee account at the National Australia Bank in Hong Kong. And as I have said, the solicitors held the funds in their trust account for their clients, Mr and Mrs Lin. In each case, the relevant funds were held under a trust, in which the account holder was a trustee for Mr and Mrs Lin. Given that trust, what then is the relevance of a sub-trust, if any, to which Mr and Mrs Lins’ interest was subject?
Artificial though it may seem in the present context (where Konrad does not resist his parents’ claim to the house) the question is still whether, when the house was purchased, Konrad became a trustee for his parents. Assuming for the moment that the presumption of advancement is rebutted, in principle there is the same reason to imply a trust from the fact of payment of the price by or on behalf of Mr and Mrs Lin, whether or not they were themselves subject to obligations of trusteeship or other equitable obligations in relation to the monies paid. The existence of any such obligations, and the facts from which they existed in a particular case, could be relevant to whether, for discretionary considerations, equitable relief should be refused to a person who paid for the property with funds subject to those obligations. In the present case, equitable relief could be refused if its effect would be to assist the Lins in some wrongdoing; but there is no evidence that it would. The interest of any person having relevant rights against them is likely to be assisted by the enforcement of the trust which they seek to prove.
To deny the operation of the presumption of a resulting trust in circumstances where the payer of the purchase monies was in some respects a trustee could lead to unjust outcomes in many cases. In not all of those cases will the party who has paid the purchase price and who seeks to enforce the trust be a wrongdoer. Where that person is a wrongdoer, the equitable principles affecting the discretion to grant or refuse relief would provide ample protection against the imposition of a resulting trust which might further the wrongdoing. In summary, the existence of any trust or other equitable obligations owed by Mr and Mrs Lin in relation to the relevant funds is not fatal to their claim. Had I not been persuaded that the funds were probably theirs beneficially, I would have concluded still that they had provided the purchase price in the relevant sense, because the funds were held by Ms Lee, Mr Lin’s mother or the Lins’ solicitors on trust for the Lins, whether or not the Lins were themselves trustees.
Was there a gift of the house?
When this house was purchased, Konrad was a 17 year old school student living with and wholly supported by his parents. The presumption of advancement applies and it is for Mr and Mrs Lin to rebut it.[5] If that presumption is rebutted, it is presumed that their intention was to have Konrad hold the house on trust for them, unless it is established otherwise. It is for Mr and Mrs Lin to rebut the presumption of advancement, and if they do so, it is for Macquarie to rebut the presumption of the resulting trust. There is an overlap between the facts and circumstances which are relevant to those presumptions.
[5]Brown v Brown (1993) 31 NSWLR 582, 589-590
Presumption of advancement
Especially in the context of 1993, an amount of $6,800,000 was a very large sum by any standard to give a 17 year old by way of parental provision, even allowing for the fact that Mr and Mrs Lin were wealthy. Mr Lin gave evidence to the effect that this house constituted almost all of their accumulated capital. I do not accept that: it is clear that they had other property. Mr and Mrs Lin do not appear to have worked since coming to Australia and Mr Lin said that he had retired before he left Taiwan. The Lins appear to have lived comfortably, educating their children at private schools and owning expensive cars. They have made frequent returns to Taiwan for extensive periods, staying in the family house they have kept in Taipei. They have been able to maintain this large house in Brisbane. Undoubtedly they had what most people would consider to be substantial wealth beyond the money they used for this property. Of the assets specifically proved by the evidence, this house appears to have used up most of their money but I am not satisfied that the evidence presents a complete picture of their affairs and I infer from the circumstances I have mentioned that they must have had other substantial capital.
Mr and Mrs Lin intended this to be the house in which not only Konrad but the entire family, including Konrad’s grandmother, would live. That intention is not in dispute. The Lins argue that they could not have intended Konrad to have been the beneficial as well as the legal owner because that would have put in Konrad’s hands the control of an asset which was of particular importance for the welfare of their entire family. Macquarie submits that they intended a gift, but with an expectation that Konrad would be “culturally obliged to respect and obey them” and to “do what his father [said]” in any respect concerning the house. On Macquarie’s argument, Konrad was to be the beneficial owner, subject to a moral but not legal obligation that he would act in relation to the house in the way which was directed by his parents. That argument involves a tension between the suggested intention of a gift to Konrad and the suggested intention that Konrad would do with the house whatever they said. That tension is not fatal to the argument, but it does attribute a subtlety to the Lins’ thinking which makes it relatively less likely to have been the fact.
I accept that the Lins expected no difficulty from Konrad about the family’s use of the house. But that could have been because they intended that the house would be their property beneficially, and that to the extent that Konrad’s concurrence might be required in any respect, they expected that it would be provided. And regardless of what expectation they had of Konrad, the use of this house as the family home for many years would be more at risk by a gift of it to him, because of the potential for events in his personal and business life to have an impact, regardless of his attitude, as the present case starkly illustrates. Mr Lin was an experienced businessman whose fortune was self made, and who, as I see him, was unlikely to have intended to give away the beneficial ownership of such an important and valuable asset to a schoolboy son who had no business experience or demonstrated acumen. Whatever faith he might have had in Konrad, it is my view of him that he would not be inclined to empower Konrad to deal with the house. That view is fortified by the Lins’ keeping the certificates of title in their possession, in the safe to which Konrad did not have access.
Clearly a house such as this was going to require considerable upkeep and other expenditure for things such as rates and insurance. In 1994, Konrad was beginning his last year of schooling, and he seems to have had no other property, except for such money as his parents would provide from time to time. In theory, the Lins could have intended to give him the house and also to make further gifts by paying for its upkeep. And although it would be Konrad who would have the legal authority to decide what should be done for the maintenance or improvement of the house, it might be said that the Lins expected that he would not interfere and that they would make the relevant decisions as well as providing the necessary funds. There is some evidence that some expenses were paid from an account of Konrad’s, or with his credit card. However, it is far from the case that most of the expenses of the house were paid in that way. To the extent that a relevant expense was paid from funds apparently belonging to Konrad, it was because Mr and Mrs Lin felt that they could treat those funds as their own. Of course Mr and Mrs Lin cannot rely on the evidence of their own contributions to the maintenance and improvement of the house, as evidence of their intention at the earlier point when the house was purchased. But the point is that at that time, Konrad had no apparent means of meeting the substantial costs of the house’s ownership. That makes it less likely that he was intended to be the beneficial owner.
If Konrad was to act in all respects according to his parents’ directions, then he was unable to realise or otherwise deal with the house, or in any other way to exploit it as property. The only sense in which he would enjoy the property, at least during his parents’ lives, would be by living there, albeit with the other members of the family. There is no indication that he could not have expected that benefit absent any ownership of the house, legally or beneficially. But Macquarie suggested that there was an explanation for a gift, in that Mr and Mrs Lin had not made wills (because, according to Mr Lin’s evidence, it would bring them bad luck). Macquarie’s argument is that this was effectively an act of estate planning. That involves the premise that they wished this property to pass to only one of their three children, upon the basis that the only son should hold what Macquarie’s submissions described as the family seat. That premise is not demonstrated or indicated.
I accept that there were no discussions between Konrad and his parents as to who would be the beneficial owner. That is another circumstance which makes it more likely that there was no intended gift. Had the Lins been giving the house to Konrad, it is likely that they would have told him, so as to promote his loyalty and sense of obligation. Instead they said nothing, because in their own minds the house would remain theirs.
Conceivably the Lins saw some benefit to Konrad in having the legal ownership of such a prominent and obviously expensive property, in that it might provide him with a certain standing to begin a business or professional career. That would not have been inconsistent with his holding the property on trust for them. Instead it is a plausible explanation for it. It was not the explanation which the Lins gave in evidence. They said they put the house in Konrad’s name because they believed that it would bring them good fortune to do so because of the coincidence of the “KLB” on the plaque. Macquarie submits that I should reject that explanation as contrived. I have accepted the evidence of Mr Hsu, the real estate agent, that Mr Lin was impressed by the plaque and saw it as some favourable sign. Ultimately, I accept the Lins’ evidence that it was for this reason that the house was put in Konrad’s name. That evidence, of course, is considered with everything else and what I see as a number of circumstances which make it improbable that they intended to give Konrad the house. Instead their intention was that they would remain beneficially entitled the house, as it was for example, in respect of the bank accounts in Ms Lee’s name. Whilst Mr Lin was prepared to put very valuable assets in the names of others, my view of him is that he was unlikely to have seen fit to give away the family house to his schoolboy son.
The resulting trust is proved
In my conclusion the Lins have proved that they did not intend to provide this house by way of advancement. There is then a resulting trust in their favour unless Macquarie can rebut it. In the way the matter was argued, there is no particular matter upon which Macquarie relies to rebut the presumption of resulting trust, apart from those matters which I have considered already.
Subject to the bank’s estoppel case, Mr and Mrs Lin have proved that Konrad holds the house upon a resulting trust for them. It is convenient to discuss that estoppel case after consideration of the other issues, and in particular those between Konrad and Macquarie.
MACQUARIE V KONRAD LIN
Background to Konrad’s guarantee
I turn then to the events leading to the transaction under which Konrad gave his guarantee. I shall discuss first the uncontroversial facts and the respective contentions.
MPD was a company owned and controlled by Mr and Mrs Jackson-Knaggs. He was an accountant who went into the building business. They owned another company which was a house builder.
Mr Jackson-Knaggs approached Macquarie Bank in July 1998 in relation to the subject development, later known as Papillon Villas. Through a firm of accountants, he wrote to Macquarie that he was “searching for equity to assist with the purchase of the site”, adding that another institution (Esanda) had expressed interest in funding the construction. Merlin Pacific Pty Ltd (another Jackson-Knaggs company) contracted to buy the site by a contract dated 17 August 1998. The purchase price was $2,500,000 with a deposit of $50,000. The contract was conditional upon the grant of certain development and building approvals within 10 months. It was also conditional upon the obtaining of a finance approval within 30 days of the grant of the development and building approvals. The date for completion was 30 days from the obtaining of the finance approval. At this stage, Jackson-Knaggs had found no person to provide equity to assist with the purchase. But Macquarie expressed an interest in lending to fund the purchase and construction.
On 28 October 1998, Macquarie’s Mr Jim Cossart wrote to Mr Jackson-Knaggs to “set out our understanding of the status of your application and our attitude to the proposal”. Mr Cossart has worked for Macquarie since 1996 and in the banking industry since 1972. In 1998-1999, his position, as he described it, was the director in charge of new business, working in Macquarie’s Brisbane office. The letter enclosed a copy of what was described as “the Bank’s feasibility model”. Similar documents were prepared by Macquarie in 1999 at about the time of its dealings with Konrad. These documents involved an employment of expertise from within Macquarie, but they were based upon information provided by Jackson-Knaggs. In particular, they used his company’s estimates of construction and development costs and sales revenue. In October 1998, the then feasibility model was said to be based upon a total development cost of $15.13 million, a gross revenue of around $19.5 million and a net development profit of just over $3.5 million. The model assumed that in addition to Macquarie’s finance, the developer would provide initial capital of $800,000. As to that, Mr Cossart wrote that “[we] are also considering the possibility of the $800,000 equity being by way of a Bank Guarantee as opposed to an actual upfront cash injection”. Under the heading “Security”, he wrote that “[s]ecurity will consist of charges over the project assets together with guarantees from the principals involved in the project. The Bank expects that support to include … [g]uarantees from the directors of the company”. The letter details the likely returns to Macquarie as being interest at one per cent above the Macquarie Bank Prime Rate, an establishment fee of $76,500 and a “Fixed Project Development Fee” of $1 million. The feasibility model showed the projected net profit of $3.5 million apportioned as to that $1 million to Macquarie and the balance to the developer. Jackson-Knaggs was unable himself to provide that equity of $800,000 or to procure a bank guarantee. He needed to find another investor.
By April 1999, Jackson-Knaggs had not found someone and the matter had not progressed further with Macquarie. The contract to purchase the site was yet to be settled. The precise progress of its approvals is not clear but it does appear that Jackson-Knaggs was concerned to obtain funds by about June, for fear of not completing the purchase and losing the deposit and other funds which had been spent on the project. There were meetings between Jackson-Knaggs, Mr Steven Morris, who was his solicitor and a director of his companies, and Mr Cossart. Mr Morris’ firm, Barker Gosling, wrote to Mr Cossart on 27 April 1999, referring to their discussions and to a number of concerns which Macquarie had expressed about the project. They included the fact that the developer proposed to engage as the builder another Jackson-Knaggs company, MHD Constructions Pty Ltd, and that Jackson-Knaggs had a “perceived inability” to manage a project of this kind. The letter also referred to the prospect of “presales” of units, of which it appears that there were none at the time.
The first mandate letter
On 7 May 1999, Macquarie wrote to Mr Jackson-Knaggs as the managing director of Merlin Pacific Pty Ltd, what Macquarie calls a “mandate letter”. That is a letter which sets out proposed terms of a transaction, which the author offers to submit for consideration by Macquarie’s credit committee, a group of more senior executives who together have authority to approve it. The borrower is asked to proceed by signing a copy of the mandate letter and returning it together with a cheque for a so-called application fee, upon which the proposal is then put to the credit committee. Jackson-Knaggs signed this letter, which I shall call the “first mandate letter”, and returned it to Macquarie together with a $30,000 application fee upon the same date, 7 May 1999. This letter, like later versions, was signed for Macquarie by Mr Cossart and co-signed by Mr Steven Wiltshire, who also worked in the Brisbane office. He was of the same seniority as Mr Cossart but was less involved in day to day dealings with customers.
This first mandate letter proposed a loan of $14,432,000 although the “peak debt” was not to exceed $6 million. The development was to involve five stages, the first of which would involve the construction of 17 of the 48 villas, and the sales of earlier stages were to partly fund subsequent stages. In this way, the amount owing to Macquarie at any time was to be much less than the aggregate of the advances it was to make over the five stages. That aggregate of $14.432 million was apportioned as to $3.072 million for land acquisition and associated establishment costs, $11.157 million for progressive funding of the development and $203,000 for capitalised interest. The rate of interest was to be 3 per cent above the Macquarie Bank Fixed Rate or certain alternative Macquarie rates (or 6 per cent above that rate in the event of default). The establishment fee was $70,000 and there was to be a fixed project development fee of $750,000. There was an attached one page feasibility study, showing net development costs of $14.432 million, net sales revenue of $17.704 million and a net development profit of $3.272 million, of which $750,000 (the fixed project development fee) was described as Macquarie’s profit share and the balance the borrower’s profit share. The provision of the first advance was conditional upon, amongst other things, the existence of eight presales of the 17 units within Stage 1, by unconditional contracts at “arm’s length” from the borrower and its associates, and with a 10 per cent deposit paid. There was a condition that the borrower would provide a certificate from a solicitor acting for the borrower or any guarantor, confirming that that party was aware of the legal obligations created under the terms of the relevant security document. There was a further condition that there be a certificate of advice from a financial advisor confirming that the borrower or guarantor was aware of “the financial implications of the transaction”.
The letter provided that security was to be in the form acceptable to the bank and its solicitors and was to include, but not be limited to, certain securities which were there listed. They included a registered first mortgage over the site, a registered first fixed and floating charge over the borrower and guarantees by Mr and Mrs Jackson-Knaggs and certain other Jackson-Knaggs companies. They included MPD, which ultimately became the developer and the company to which Macquarie lent, and it was to that company that the land was conveyed. And it stipulated a further security of:
“An unconditional and irrevocable Bank Guarantee of $1,000,000 (provided by a third party) from a Bank acceptable to Macquarie Bank.”
The second mandate letter
On 19 May 1999, Macquarie sent a second mandate letter, again addressed to Mr Jackson-Knaggs as the managing director of MPD, and again signed by Mr Cossart and Mr Wiltshire. This letter proposed total advances of $13,382,000. The interest rate and fees were unchanged as were the presently relevant conditions. The proposal was different because it provided for a contribution by the borrower to the land acquisition and other initial costs. The proposed contribution was $1 million which was to be paid by MPD from a capital contribution by a third party. This was in lieu of the requirement of the first mandate letter that there be a $1 million bank guarantee. Mr Jackson-Knaggs accepted this second mandate letter, again on the date that it was sent.
The changes from the first to the second mandate letter would suggest that some investor had been found, who was prepared to contribute $1 million. However, apart perhaps from Konrad Lin, there was no potential investor in sight, and it was not until 27 May 1999 that Konrad met or spoke to Jackson-Knaggs. His knowledge of the project before 27 May, and whether he had a copy of the first mandate letter before then, are matters in dispute. But it is common ground that there was no agreement by him to be involved in this project, until at least the meeting which occurred at the Lin house at Wynnum Road on the afternoon of 27 May. It is also common ground that whether or not Konrad had a copy of the first mandate letter before that meeting, he had not seen the second mandate letter and that it was not discussed with him at any time.[6]
[6]Macquarie suggested to Konrad, when he was cross-examined, that he had seen the second mandate letter, on or before the 27 May meeting, but Macquarie later conceded that he did not
Konrad learns of the project
Konrad was introduced to this project by Macquarie. Konrad had met Mr Cossart on at least one occasion prior to these events, but they had had no business dealings. Konrad had had frequent contact with another Macquarie employee, Mr Dale Evans. He worked in a similar position to that of Mr Cossart but until May 1999, he had had no involvement with this project. Mr Evans had known Konrad from 1997 when he then worked for the Bank of Western Australia (“BankWest”) in its Brisbane office. Whilst working for BankWest, Mr Evans had developed a substantial custom from the Taiwanese community in Australia. The Lin family had borrowed from BankWest for investment in shares, and by that means Konrad had met Mr Evans. It was also during his employment with BankWest that Mr Evans had come to know Mr Raymond Wu. Mr Wu was not employed by BankWest, but he acted on effectively a commission basis in bringing customers to it, and it was largely through his efforts that Mr Evans procured so much business from the Taiwanese community. Mr Evans is considerably older than Konrad, and by May 1999 he had assumed a role of something of a career advisor to Konrad, whom he must have seen as a source of considerable potential business.
After leaving school, Konrad had graduated with a Bachelor of Commerce from the University of Queensland. He then went to work for stockbrokers, Morgans, at their office in Chatswood in Sydney. In that work, he no doubt gained experience in the share market but he gained no experience in property development. He left Morgans in early 1999 and returned to Brisbane, moving back into the house at Wynnum Road. He was wanting to work for Macquarie, and Mr Wu re-introduced him to Mr Evans in early 1999. Mr Wu, who is also considerably older than Konrad, had known Konrad for some years. Mr Wu had done some work for Mr and Mrs Lin. Konrad sat an examination to become employed by Macquarie in its share division but he was not offered a position.
In the first half of 1999, Konrad was keeping frequent company with Mr Wu and Mr Evans. Consistently with the role Evans had assumed, Konrad called him “Uncle Dale”, an expression which is used in the Chinese community for an older and respected person. Similarly, he would call Mr Wu “Uncle Wu”. From time to time, Mr Wu and Mr Evans discussed with him different property developments in which Konrad might invest, and the three of them visited some development sites.
According to Konrad, Mr Wu told him that Macquarie had this (Papillon) project which might interest him and Mr Wu arranged the meeting which took place at the house on 27 May 1999. On Konrad’s version, he knew nothing of the project until that meeting and he had not seen any mandate letter. His case is that the representations of which he now complains were made at that meeting or subsequently.
It is common ground that there was a meeting at the house on the afternoon of 27 May, attended by Konrad, Mr and Mrs Lin, Mr Cossart, Mr Evans, Mr Wu and Mr Jackson-Knaggs. What occurred at the meeting is strongly in dispute. There is also a dispute as to the events leading up to the meeting.
Macquarie’s case is that Konrad had been informed of the project about a fortnight prior to the meeting and he was then given a copy of the first mandate letter. Mr Cossart says that he gave a copy to Mr Evans and Mr Evans says that he gave it to Mr Wu with the request that Mr Wu show it to such persons as he thought might be interested. Mr Evans says he took the letter to Mr Wu’s house on 13 May 1999. Mr Wu agrees with that, but says that Mr Evans requested him to approach not any interested party but specifically Konrad. Mr Wu says that he did just that and gave him the first mandate letter soon after.
It is also common ground that on the morning of 27 May, there was a brief meeting at the office of Macquarie in Queen Street between Konrad, Mr Wu, Mr Cossart and Mr Evans. Konrad’s evidence is that there was then no discussion of the project and that he was simply calling upon Cossart and Evans to personally extend an invitation to come to the house that afternoon. The other persons present at that meeting say that there was some discussion of the project although none says that it was extensive. As I mentioned, Konrad’s case is that there was no relevant representation to him before the meeting at the house. Similarly, the Macquarie case does not rely upon any statement at this morning meeting which would affect the impact of what Konrad alleges was said in the afternoon. The significance, if any, of this dispute as to what was said at the morning meeting in Queen Street is that each side relies upon its version to show that Konrad was or was not familiar with the project before the afternoon meeting. That issue involves whether Mr Wu’s evidence that he gave the first mandate letter to Konrad some days or weeks earlier, is to be accepted in preference to Konrad’s evidence that he did not.
Konrad Lin’s pleaded case
Konrad claims to be relieved from his obligations as a guarantor because he was induced to give the guarantee by misrepresentations by Macquarie, which were misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth). The representations are of two kinds. First, he says that the legal effect of the guarantee was misrepresented. Secondly, he says that Macquarie misrepresented the commercial merit of an investment in this project. He says that misrepresentations of this second kind were not only in breach of s 52 but also in breach of a duty of care which Macquarie owed to him.
He pleads that at the meeting at the house on 27 May 1999, Mr Evans made statements to the effect that his potential loss would be only in relation to his contribution to the discharge of a bank guarantee of $1 million, which he and Mr Wu would cause to be provided. He pleads that Evans represented that Konrad’s “maximum personal exposure in respect of the Project would be $500,000.00”, on the basis that his contribution would be no more than one half.
Konrad then pleads that “[a]t a further meeting in or about June 1999”, Evans made further representations to this effect: that a bank guarantee was no longer required, Konrad and Mr Wu would now provide personal guarantees, “the personal guarantees would mean that, should the Project fail, [Konrad] and Mr Wu would [each] have to pay up to $500,000 to the plaintiff” and that “[Konrad’s] maximum personal exposure … would therefore remain $500,000”. He then pleads that Macquarie did not at any time correct or alter the effect of what Mr Evans had said, and that Konrad thereafter signed the documents by which he became bound under the misapprehension that his liability as a guarantor was limited to an amount of $500,000.
The representations as to the commercial merit of the project were allegedly made by Mr Evans and Mr Cossart at the meeting at the house on 27 May. They are pleaded as representations that:
· The project had “minimum risk”.
· There were contracts for the sale of 10 of the 17 units in Stage 1 and a 10 per cent deposit had been paid in each case.
· Those contracts were at “arm’s length”, not involving parties related to MPD.
· The “worst scenario for [Konrad] was that 7 of the 17 units would have to be discounted 30% off their list price … [resulting] in a reduction of the projected return for Stage 1 of the Project by $1,050,000.00 … [reducing] the overall net development profit … to $2,272,000.00. Even in that event, … the Project would not necessarily suffer any loss or overall reduction in profit as any such reduction would be absorbed by significant increases in the market value of the remaining land”.
· Certain monies to be paid by Konrad to purchase an interest in (MPD) would be recoverable “early in the Project”.
· Macquarie was highly experienced in financing and managing developments of this nature and that it would have full management and control over each stage of the project.
· Impliedly, that Macquarie had reasonable grounds for making such representations.
Meeting at the house – 27 May 1999
With some exceptions, Konrad’s evidence, if accepted, would prove that each of those representations was made. One exception is the alleged representation as to the worst scenario. The apparent difference between Konrad’s pleaded case and his evidence in that respect is discussed below. Another is the representation that Macquarie would have “full management and control over each stage of the project”.
The representation as to the monies paid by Konrad being recoverable early in the project is not alleged to have been false or wrongful in any respect; nor is the representation as to Macquarie’s experience (although that is a relevant context for other representations).
The making of each of the other representations is disputed and according to the evidence of each of Mr Evans, Mr Cossart and Mr Wu, none of them was made. Mr Lin and for most of the time Mrs Lin were present at this meeting. Neither of them could understand what was being said in English. All witnesses agree that from time to time things were translated to Mr Lin by Konrad. There is some difference between the witnesses as to the extent to which Konrad did so, but he agrees that he was intending his father to understand the effect of the discussions, what was being said about the development and the proposed terms of an investment, because he wanted the benefit of his father’s business experience.
Events before the loan is made
On all accounts of the house meeting, there was discussion of Konrad and Mr Wu each taking a 25 per cent shareholding in MPD and of their lending in total $250,000 to it, which was to be repaid from Macquarie’s first advance. Jackson-Knaggs had said that he had spent $500,000 towards the development and that they should reimburse him for half of that by a loan to the company, to the end that he would be also repaid $250,000 from the first advance. Within a few days of the house meeting, Konrad and Mr Wu had caused $250,000 to be lent and they, or more precisely companies associated with them, had become the owners of in total 50 per cent of MPD. Konrad caused 25 per cent of MPD to be acquired by Pao Lin Investments Co Pty Ltd (“Pao Lin”). It was the trustee of a discretionary trust in which members of the Lin family were potential beneficiaries. Its directors were Mr and Mrs Lin and Konrad. According to its Balance Sheet at 30 June 1999, it had no assets apart from those held upon trust. Its assets were shares in listed companies and short term deposits, totalling about $900,000. Its liabilities were about $1,285,000 of which $1,250,000 was non-current and was probably the borrowing from BankWest for share trading. Konrad says that he used Pao Lin because he wanted in some way to reduce his potential tax liability upon a profit from this development, although he says that in discussions with his parents, it was clear that the shareholding and income was to be his. Mr Wu took a 25 per cent shareholding through his company Chinese Investment Group Pty Ltd.
The new shareholding in MPD was the subject of a contract, entitled Shareholders Agreement, executed by Pao Lin and Chinese Investment Group on 31 May 1999 and by the other shareholder, Merlin Pacific Pty Ltd, at about the same time. It recorded the agreed transfer by Merlin Pacific of 50 shares in MPD for the sum of $50, and the agreement of the new shareholders to provide the sum of $249,950 to MPD as loans. They agreed to “join with Merlin in providing the requested securities and guarantees required by [Macquarie] to complete the acquisition and development of the Project”. A share certificate was issued to Pao Lin for its 25 shares, which was dated 28 May, as were the minutes of a directors’ meeting of Merlin Pacific recording its resolution to sell one half of MPD. There are varying accounts of a visit to the development site by Mr and Mrs Lin and Konrad, which Konrad said occurred on 28 May as the day after the house meeting. It may be that Konrad had not decided to go ahead until after this inspection. But on any view, a decision to invest had been made, whether by Konrad alone or with his parents, by 31 May.
Konrad’s case is that he ultimately signed the guarantee under the mistaken belief that his liability was limited to $500,000. As mentioned, the case is that on 27 May, he thought that a bank guarantee was to be provided, but that at a subsequent meeting he was told by Mr Evans that he and Mr Wu would provide personal guarantees although each with a limit of $500,000. Yet, in his examination-in-chief, he could not recall that subsequent meeting or being told about a personal guarantee with a monetary limit. All he could say was:
“… At some time was there a discussion between yourself and Mr Evans to the effect, or regarding the dropping of the bank’s requirement for a bank guarantee and a personal guarantee being accepted as an alternative? Do you recall any conversation with Mr Evans or indeed Cossart about that?-- No, I can’t remember.
… I’m not referring to a particular date now, it might be 27 May or 2 June, just as to whether the question of a personal guarantee in lieu of a bank guarantee was discussed?-- No.”
In cross-examination, Konrad said that at some point “Macquarie Bank didn’t ask us to provide bank guarantee anymore” but he did not go on to say anything of any meeting, and in particular with Evans, in which that change was discussed. In re-examination, he said this:
“… What was - what, if anything, was said to you by any representative of Macquarie Bank regarding the absence of an ongoing requirement for a bank guarantee?-- Well, the reason why I know we don’t have to provide a bank guarantee anymore is because both Mr Wu and I have joined the project and we were told - see, $1 million explained to us was if the project makes a loss and then that $1 million will be called by the bank to pay for a loss, and when Mr Wu and I join the project, we were then told that instead of giving the $1 million upfront, if - when the project is completed and if there’s loss, then we’ll be called to give that $1 million guarantee.
Well, who said those things to you?-- Mr Evans.
Who explained - Mr Evans?-- Yes.
When did that occur; if on more than one occasion can you assist us with that?-- No, he just say that once.
Approximately when was that by reference, perhaps for your assistance, to the meeting in the afternoon of 27 May?-- No, it was after the meeting.
After the meeting, but the same day or a later day?-- I think it was a later date.
Do you remember you said to me that it was, as best you could recall, the next day, 28 May, that you contacted someone at Macquarie, telling them that you were going to go ahead?-- Yes.
Does that assist your recollection?-- I can’t – I cannot give you a date.
…
I think in the answer you gave to me a couple of questions ago, you used a phrase to the effect of “putting” or “giving $1 million upfront”. Do you recall saying that?-- Yes.
What did you mean when you said that?-- Well, this is the $1 million bank guarantee I was referring to. What my understanding was to provide the $1 million bank guarantee upfront was, you know, when we join the project, but when I said later I meant, you know, after the project.
Go on. Can you finish that, “After the project”, what?-- Is completed. If, for example, the market takes a dive and those units have to be sold at a discounted price, then we’ll be called to pay that money.”
Mr Evans denies that he in any way represented that the guarantees to be given by Konrad and Mr Wu, as distinct from the proposed bank guarantee, were to be to a limited amount. But assuming everything in Konrad’s favour, it would seem that any such statement by Mr Evans was likely to have been after Pao Lin became a shareholder and it contributed $125,000.
On 31 May, Konrad signed a further document when he inserted details within a standard form used by Macquarie headed “Statement of Assets and Liabilities”. Konrad listed his assets as worth $23,502,000 and his liabilities as nil. Against “deposit” he wrote $500,000. Against “real estate” he referred to three properties: the house at 62 Wynnum Road and the two investment properties in the names of his parents. The house was given a value of $12 million and the investment properties a total value of $590,000. He listed three motor vehicles with a total value of $412,000. He represented that he had shares worth $2 million, furniture and fittings worth $3 million and jewellery worth $5 million. He showed his monthly income as a “trading net profit” of $21,000, together with rent of $550, and his monthly expenditure as $16,170. He was unemployed at the time and there was no basis for what he represented as his income. He was in receipt of no rent because the rental properties were owned by his parents. Yet they were included within his assets, as were two very expensive cars which were owned and driven by his parents. The representation of $2 million of shares had no basis in fact and nor did that of $5 million worth of jewellery. The house at Wynnum Road had been bought fully furnished and conceivably much of the furniture was valuable. But there is no apparent basis for an estimate of $3 million as its value. Upon any view, this document comprised several misrepresentations, as Konrad must have known. He explained it by saying that Mr Evans told him what to write in it, which again is denied by Mr Evans.
[17]Transcript 773-777
[18]At 775
[19]Transcript 777-778
I have already set out some of the re-examination of Mr Lin which is relevant to the present point. To that must be added this reference:[20]
“Mr Lin, what was your understanding in May 1999 of why the Bank was doing business with Konrad? -- Because I had helped Raymond Wu before and Raymond Wu said he had good relationship with the Bank, he could assist Raymond – assist Konrad, and Bank gave Konrad this learning opportunity hoping in the future that together with my friends, I could do bigger project with them.”
That is a plausible explanation. It is likely that, at least as Mr Lin saw things, Macquarie was motivated in part by the prospect of doing future business with him and his “friends” or business associates. I have mentioned Mr Evans’ pursuit of clients within the Taiwanese community in Australia. Insofar as the Brisbane representatives of Macquarie were concerned, it is likely that this prospect of further business involving the Lin family was influential. There were many circumstances from which this transaction might have been attractive to Macquarie absent Konrad’s owning the house. As well as the formation of a business relationship with the Lin family, there was the expectation of a large return, having regard to a fee of $750,000 as well as the high interest rate. Mr Lin was not privy to any assessment by Macquarie of the risks, or Macquarie’s internal rules and guidelines for risk management. And Konrad’s guarantee might have been considered valuable, without his owning the house, because of the likelihood that the Lin family would stand behind him. There was no clear admission then by Mr Lin that he believed that Macquarie was not only assuming but relying upon Konrad’s ownership of the house, in that it was going ahead on terms which would have been unacceptable but for that assumption. And I am not prepared to infer that Mr Lin had that belief.
[20]Transcript 900
I have concluded that the Lins were not knowing participants in the conduct alleged to have been the respects in which Konrad represented himself to be the owner. And I am not persuaded that the Lins relevantly induced any assumption by Macquarie as to ownership of the house by failing to speak up, because I am not persuaded that they believed that Macquarie was relying upon an assumption, and absent that, they were not bound to speak up. At least for those reasons, the estoppel case is not established. It is appropriate however that I consider some other aspects of it. There is a further reason why that case fails, which is that any reliance by Macquarie was unreasonable.
Was there reliance by Macquarie?
Macquarie pleads that it undertook this transaction in reliance upon the representation that Konrad owned the house. The Lins deny that allegation and, in particular, deny that Macquarie did assume that Konrad was the owner. Macquarie has identified its employees whose minds were relevant in this respect as being:
“(a) Mr Cossart;
(b)further or alternatively, Mr Wiltshire;
(c)further or alternatively, Ms Paschke;
(d)further or alternatively, Mr Munro;
(e)further or alternatively, Mr Munro, Mr Sacks, Mr Minogue and Mr Moss conjointly.”
Ms Paschke was employed in Macquarie’s Brisbane office as a Senior Portfolio Manager. Her manager was Mr Wiltshire. Her role was to assist him in the documentation and implementation of new transactions and the subsequent administration of the loans. Her evidence was given by a statement and by oral evidence. The statement was subject to a number of objections by counsel for Mr and Mrs Lin. The result was that some of her statement was admitted only against Konrad, and not against Mr and Mrs Lin.[21] She was on leave when the first, second and third mandate letters were prepared. When she returned in June 1999, she was involved in “processing the further information required by the bank to satisfy the conditions precedent in the Mandate letter dated 2 June”. She “reviewed” Konrad’s Statement of Assets and Liabilities and the “property searches” of the house and the two Gumdale properties. Of course those searches showed Konrad as the registered owner of the house but his parents as the registered owners of the Gumdale properties. Ms Paschke says that the only “hard” asset which had been disclosed by any of the proposed guarantors was the house. She saw copies of correspondence between the solicitors for MPD (Mr Morris’ firm) and Macquarie’s solicitors dated 5 and 6 July 1999, in which there was some debate as to the terms of the covenant to be given by Konrad as to the house. She attended a meeting at Macquarie’s offices on 7 July at which Mr Wiltshire, Mr Cossart, Konrad, Mr Wu and Mr Morris were present, when there was discussion as to that subject although she cannot recall the detail. She had a role in the administration of this facility after the original advance in July 1999, and she participated in meetings in late 1999 and in July 2000 with, amongst others, Konrad. In this administration work, she caused searches of the house to be carried out on 12 October 1999 and 11 January, 12 April and 11 July 2000. The Macquarie file also shows searches on 23 October 2000 and 16 January 2001. There was no specific statement in her written or oral evidence to the effect that she believed that Konrad was the beneficial owner. But her evidence that when she reviewed Konrad’s Statement of Assets and Liabilities, the house seemed to be the only substantial asset, indicates that she believed it was his. That explains why she dismissed the Gumdale properties as irrelevant. If it mattered, I would infer that she believed that it was Konrad’s house in every relevant respect. But she was not a decision maker for Macquarie. It was not her responsibility, either alone or with others, to make a judgment as to whether Macquarie should lend, and on what terms.
[21]The difference appears from a comparison of exhibits 143 and 143A
Macquarie does not list Mr Evans as being one of those whose mind is relevant in identifying Macquarie’s state of mind. Nevertheless, it is necessary to discuss his thoughts at least because of the chance that his thoughts affected those of others in Macquarie. On this, there is a substantial conflict between his evidence and that of Mr Foreman, who was called in the case for Mr and Mrs Lin. Mr Foreman has been involved in property development and management for about ten years, and now he operates his own business from the Sunshine Coast. From 1996 to 1999, he worked for Mirvac in property development. He met Mr Evans in about mid 1998. Mr Evans was with Macquarie by then. There was no business between them for their respective employers, but Mr Foreman was then minded to start his own business, and with that prospect in mind, Mr Foreman saw some potential advantage in an acquaintance with Mr Evans. Occasionally they would lunch together. Mr Evans does not dispute any of that, but Mr Foreman says that he lunched one day with Mr Evans and a group with him, which included Mr Wu and Konrad. According to Mr Foreman, he and Mr Evans later discussed Konrad and the fact that the Lin family lived in this prominent house at Wynnum Road, and this inspired Mr Foreman to himself look at the details of the house on a database of property information. Mr Foreman says that when he saw that Konrad was the owner, he rang Mr Evans to tell him of his surprise that it was owned by Konrad, and that Mr Evans said “No, no, it’s only owned – it’s not owned by Konrad. It’s owned by his father. It’s just in his name.” This conversation is said to have taken place before Mr Foreman left Mirvac in April 1999. Mr Evans denies having this conversation with him.
Mr Foreman had nothing to do with the Papillon project or any other event relevant to these cases. His evidence was strongly challenged by Macquarie, as being deliberately false. It was suggested that Mr Foreman was giving a false account to further some business relationship with the Lin family, which Mr Foreman denied. I am not sure that Mr Foreman is so distinct from the Lin family or the prospect of business with them as he maintained. But it is difficult to simply dismiss his evidence as a fabrication. In some respects, the evidence is not so unlikely. It is probable that after Mr Foreman met Konrad, he and Mr Evans did discuss who the Lin family were, especially when they lived in a house which only a few years earlier had been regarded as the most expensive in Brisbane. It is the kind of small talk which two men involved in the property business would have. It is quite likely that Mr Foreman would search the database, at least to find out the price paid for the house, and if so, that he would have seen it as worth saying to Mr Evans that it was the young Konrad who was shown as the owner. And it is likely that Mr Evans supposed that Konrad was not the beneficial owner. It was such an expensive house, the Lin family and not just Konrad lived there, and Konrad must have been so young when it was purchased. In the same way, as I have mentioned already, other employees of Macquarie doubted Konrad’s ownership: Mr Wiltshire says that he was asked to confirm the matter with Konrad. This is not to say that Mr Evans knew that Konrad was a trustee for his parents. There is no suggestion that he had been told that by Konrad or any other member of the family. But I find that more probably than not, he did know that Konrad was the registered owner but that he supposed that Mr Lin had an interest. I accept the substance of Mr Foreman’s evidence that Mr Evans told him of that supposition.
Mr Evans worked closely with Mr Cossart, including in work which progressed this proposed transaction. For the Lins, it is submitted that if Mr Evans thought that Konrad was not the true owner, so too did Mr Cossart. The Lins seek a finding that both Mr Evans and Mr Cossart were actually aware that Konrad did not own the property. But as I have said, I would not infer that Mr Evans knew that Konrad was not the true owner; I would infer that he supposed that he was not. More probably than not, he and Mr Cossart discussed the subject at some time during the negotiations leading to the conclusion of the agreement and the first advance on 12 July 1999. There was considerable negotiation with Konrad as to the terms of what became Item 27, and as to what restraints were appropriate in relation to dealings with the house. It is very likely that in the circumstances the two men did discuss whether any decision in relation to the house was one which was only for Konrad. Each of them is experienced in banking and in the financing of property transactions. Neither is a lawyer and there is little chance that their discussions descended to the detail of trusts, and the types of circumstances which might have made Konrad a trustee. I find that, like Mr Evans, Mr Cossart supposed that Konrad owned the house subject to what his father might say should be done with it. I reject the evidence of Mr Evans or Mr Cossart which is inconsistent with that position. Each had a personal interest, through Macquarie’s bonus schemes, in furthering this transaction. It was not in their interests to have Macquarie make a bad transaction. But they may well have believed that a call upon Konrad’s guarantee would be unlikely, and that if it did occur, the family would stand behind him. There was a disincentive for them to say to the actual decision makers within Macquarie that they at least doubted Konrad to be the owner.
Once a mandate letter had been accepted, it fell to Mr Wiltshire to progress the transaction and in particular to prepare a submission to the Bank’s credit committee, all of whom worked in the Sydney office. I have already accepted Mr Wiltshire’s evidence that he queried Konrad as to the house, to which Konrad replied that he could deal with the house although he would have to speak to his father about the matter. But there is no evidence from Mr Wiltshire that he followed up with Konrad the question of whether Konrad had spoken with his father about the matter. That seems curious, because Mr Wiltshire must have been left in doubt after Konrad had said this to him.
Mr Wiltshire began to draft his submission to the credit committee on or about 18 May 1999. There is a copy of a draft of that date on a backup tape which was ultimately disclosed by Macquarie.[22] There are other versions of Mr Wiltshire’s draft, also located on backup tapes, which are dated 11, 17 and 21 June 1999.[23] The hard drive of the computer used by Mr Wiltshire has been cleaned so that only these backup copies are available. For Mr and Mrs Lin it is submitted that the destruction of relevant documents, including this hard drive as well as some email records, should make it more difficult for Macquarie to discharge its onus that it relevantly relied upon Konrad’s alleged representation. Some of Macquarie’s disclosure was late, and the copy of the original draft of 18 May 1999 was disclosed only some weeks into the trial and after I was persuaded to make an order against Macquarie pursuant to r 223. However, I am unpersuaded that Macquarie deliberately failed to disclose documents and, in particular, that it destroyed relevant documents with the intention that they would not be disclosed. To the extent that documents were disclosed late, there was an inattention to the task of disclosure by Macquarie, but not involving the sinister motive which is suggested.
[22]In its solicitors’ letter of 22 March 2005: exhibit 146
[23]Exhibits 107 to 109
Mr Wiltshire’s draft of 18 May 1999 makes no reference to any investors, other than the Jackson-Knaggs, and it reflects the proposal set out in the second mandate letter, which Mr Wiltshire signed on the following day. The draft as at 11 June 1999 does refer to Mr Wu and Konrad, as being each the owner of 25 per cent of MPD and as “professional investors with a combined net worth [of] $10.513m”. Those details remained in subsequent drafts including the final version. Mr Wu is also referred to as having been a guarantor under a previous Macquarie facility, in relation to which his interest in that project had been sold and his guarantee had been released. In his 11 June draft, Mr Wiltshire had shown the net worth of the Jackson-Knaggs’ interests at $0.785m and those of Raymond Wu and Konrad “and associated entities” at $10.513 million, noting that “the financial statements held indicate a combined net worth of $26.298m, however, these have been scaled according to probable realisable values – refer to 5.0 Financial Summary and the Financial Analysis located in Annexure I for details”. The Financial Summary showed that of that $10.513 million, $1.301 million was allocated to Mr Wu and his entities and $9.212 million to Konrad. The Annexure showed that Konrad’s assets were $6.8 million for the house, $412,000 for motor vehicles and $2 million for shares. There was a note that the investment properties were in Konrad’s parents’ names.
But in the draft as at 21 June 1999, this had been added:
“Konrad Lin is the only significant asset holder. His primary asset is arguably the most expensive residence in Brisbane (claimed to be worth $11.6 million but discounted by MBL to the $6.8 million purchase price). It appears that the asset was gifted to Konrad Lin by his parents and that the whole family still lives there. There is a risk therefore that if the Bank sought to recover from Mr Lin, this asset may be transferred back to his family. To mitigate this risk, a condition of the facility is that Mr Lin undertakes not to dispose or encumber the asset. MBL will undertake at least three monthly title searches to verify this so that if the covenant is breached, MBL will be able to declare default and if necessary invoke preference payment arguments if necessary in bankruptcy proceedings.”
In all drafts there is also this said about Konrad:
“Konrad Lin is 23 years of age. He was born in Taiwan and educated to Tertiary level at the Taipei American School in Taipei. He migrated to Australia 9 years ago with his family and moved to Brisbane where he attended Brisbane Boys College and obtained a Commerce degree at the University of Queensland, St Lucia. He was employed until recently at Morgans Stockbrokers Sydney where he worked as a successful stockbroker.
Konrad resigned his position so that he could focus on property development.
Konrad’s father is said to be one of the most successful property developers in Taipei.”
According to Mr Wu’s evidence, at some stage after the third mandate letter (2 June 1999), at a meeting at the bank between Mr Wu, Konrad, Mr Cossart and Mr Evans, Mr Cossart asked that Mr and Mrs Lin be guarantors to which Konrad answered that this was “impossible”, and that Konrad said the same to a suggestion that there be a mortgage “on Konrad’s houses”. There is no support for that in the evidence of Mr Cossart or Mr Evans, and it was challenged by Konrad’s counsel when cross-examining Mr Wu. It is understandable that Konrad would challenge this evidence because it is more likely that he did appreciate that his guarantee was unlimited if Macquarie was asking for guarantees also from his parents, or alternatively a mortgage. It is also understandable that Mr Cossart and Mr Evans would not wish to volunteer that evidence, lest it indicate that they were concerned about Konrad’s standing. The evidence was given by Mr Wu in a very definite way, as he gave much of his evidence. It is difficult to assess whether there were these requests of Konrad. It is quite likely that Mr Cossart and Mr Evans would request those things, especially when, as I have found, they supposed that Konrad was unlikely to be in all respects the owner of the house. Mr Wu was not an entirely reliable witness, and although he may have been doing his best to recall things, he could well be mistaken as to this, but so too could Mr Cossart and Mr Evans. Ultimately, I do accept Mr Wu’s evidence on that point. But assuming that the conversation was related to Mr Wiltshire, it does not follow that Mr Wiltshire believed that Konrad was not the owner.
At the time of his final version of the submission to the credit committee, Mr Wiltshire was writing in terms which seemed consistent only with a premise that Konrad was the owner in the sense that the house would be available property in the event that Konrad’s guarantee was to be enforced, albeit through his bankruptcy.
Yet it is difficult to see how Mr Wiltshire could have reasonably accepted that premise in his own mind. He had had one conversation with Konrad which was at best equivocal. There is no evidence of a search of the register. No inquiry had been made of the Lins themselves. Of course that inquiry would have needed the assistance of an interpreter, but that should have presented no practical difficulty. If there was another person interested in the house, almost inevitably that person was Mr Lin or an entity associated with him. Macquarie was requiring a solicitor’s certificate of advice to Konrad, and it would not have been unrealistic to have asked for a solicitor’s letter, written on behalf of Mr Lin, confirming that he had no interest. Nor did Macquarie ask for any certificate from an accountant for Konrad as to his financial position. I am mindful of the benefit of hindsight in all of this, but Mr Wiltshire seems to have taken none of the steps which might have been expected of him in the circumstances.
For the Lins it is submitted that an unreasonable adoption of and reliance upon an assumption of Konrad’s ownership cannot found an estoppel. An estoppel can be denied upon the basis that the relevant assumption by the party claiming the estoppel was unreasonable: Waltons Stores at 397 per Mason CJ and Wilson J; Commonwealth v Verwayen (1990) 170 CLR at 414 per Mason CJ; Australian Securities Commission v Marlborough Goldmines Ltd (1993) 177 CLR 485 at 506 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ; Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295 at 297-8 per de Jersey J (with whom the other members of the court agreed); Standard Chartered Bank Australia Ltd v Bank of China (1991) 23 NSWLR 164 at 180-181 per Giles J; Murphy v Overton Investments Pty Ltd (2001) 112 FCR 182 at 202 per Branson J, 208 per R D Nicholson J; Voss v Suncorp-MetwayLtd (No 2) [2004] 1 Qd R 214 at 222 per Davies JA. The reasonableness of the representee’s reliance is an element of an estoppel by representation: Franklin v Manufacturers Mutual Insurance Ltd (1935) 36 SR(NSW) 76 at 82. And in terms of an equitable estoppel (or an overarching doctrine of estoppel) the reasonableness of the conduct of the party in acting upon the assumption is a circumstance relevant to whether a departure from the assumption would be unconscionable: Verwayen at 445 per Deane J.
If Macquarie, specifically Mr Wiltshire and those who relied upon his credit submission, did believe Konrad to be the owner, that was an unreasonable assumption and insufficient to justify the estoppel which is claimed. As Giles J said in Standard Chartered Bank v Bank of China at 181, the question here is not one to be framed in terms of constructive notice: “instead the preferable approach is to take account of the representee’s actual knowledge in asking whether the representee reasonably adopted and relied upon the representation”. On what Mr Wiltshire actually knew, it was unreasonable for him to adopt the assumption from the conduct attributed to Konrad, and to rely upon it. And no member of the credit committee, none of whom was called as a witness, seems to have done other than to rely upon what was put up by Mr Wiltshire.
The absence of any reasonable basis for Mr Wiltshire’s alleged assumption also throws considerable doubt upon whether, in fact, he did make that assumption. The alternative is that, in his own mind, he was not assuming that Konrad was the owner but he was prepared himself to represent that to the credit committee as he plainly did by his submission to it. I am not prepared to find that this was his state of mind and, ultimately I accept that he simply assumed, although unreasonably, that the house was Konrad’s and specifically his for the purposes of his potential bankruptcy.
There is no evidence then from any of Mr Munro, Mr Sacks, Mr Minogue or Mr Moss. There is a document which evidences their decision making, which is a hard copy of a document which had been in electronic form and is headed “Credit approval/discretion”. It records Mr Munro’s approval on 21 June 1999, as the first of those four on the committee to grant approval. Importantly, it records Mr Munro writing this before it was in turn approved by the other members of the committee:
“There is some risk that much of the wealth from the guarantors comes from 1 individual whose main asset is an expensive residence in Brisbane may disappear. The effects of such an occurrence have been reduced by imposition of a negative pledge and non disposal covenant on this asset (to be checked by regular title searches) which will empower the Bank to act, even though it will be after the fact, at least the Bank may be able to rely on a claw back of preference payments in the event of bankruptcy.”
I infer from this document, read with the submission to the committee by Mr Wiltshire, that the committee members did assume that Konrad was the owner of the house, such that it would be treated as his property in a bankruptcy. The representation by the covenant in Item 27 could only have confirmed that understanding. If it mattered, I would hold that Konrad’s representation was an inducement to Macquarie’s assumption. But it does not affect my conclusion that Macquarie’s assumption was unreasonable. It was unreasonable for Macquarie to hold this assumption simply on Konrad’s say so when the circumstances so clearly raised the question of his ownership, and that question did arise in the minds of at least Mr Munro and Mr Wiltshire without its being reliably answered.
Macquarie says that it continued to rely upon the house being Konrad’s after 12 July 1999 and as it made further advances through to November 2000. I accept that nothing occurred after July 1999 which altered or should have altered Macquarie’s state of mind in relation to the house, until after Macquarie had made its last advance. Accordingly, I accept that Macquarie continued to assume, through Mr Wiltshire at least, that Konrad was the owner.
Ultimately, the assumption upon which Macquarie relies is established, according to the findings I have made about Mr Wiltshire and the members of the credit committee. But the element of reliance is not established, because Macquarie’s assumption and reliance was not reasonable.
It is unnecessary then to consider what relief might have been given to Macquarie in the event that it otherwise established its entitlement to an estoppel. Macquarie claimed, even in final argument, that the relief should be by the Lins being estopped from asserting their title against Macquarie, to the end that Macquarie should have a charge upon the house for the entire amount of the outstanding debt. The Lins submitted that Macquarie had not proved that, everything else being in its favour, this relief was warranted. If an equitable estoppel had been established, it would have entitled Macquarie to no more than that relief which was necessary to prevent unconscionable conduct and to do justice between the parties: Waltons Stores at 404; Verwayen at 411, 413, 429, 454, 487. Macquarie could have put its case no higher than that, prima facie, the estoppel should preclude departure from the assumed state of affairs unless to do so would “exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party”: Verwayen per Deane J at 442; Giumelli at 125. I have accepted that Macquarie did rely on its assumption as to the house. I infer that Macquarie would not have lent on those terms but for that assumption, from what appears in the document recording the decision making of the credit committee. However, the progress of the mandate letters, together with Mr Wiltshire’s evidence, show that a transaction upon the terms of, for example, the first mandate letter, under which there was to have been a $1 million bank guarantee, would also have satisfied the relevant Macquarie guidelines. I infer that more likely than not, had that security been offered, Macquarie would have proceeded. The detriment from its reliance was not in failing to properly secure its debt, and in particular to obtain security of the value of the amount which it now claims. Its detrimental reliance is not shown to have been more than failing to require a bank guarantee of $1 million or its equivalent in value. Had I been otherwise persuaded that there was an estoppel, and that the relief should be according to the operation of an equitable estoppel, I would not have been persuaded to grant Macquarie any relief beyond a charge to the value of $1 million upon the house. The estoppel case is pleaded in the language of estoppel by representation, so that it is not certain upon the present authorities that the (equitable) approach is appropriate. Given my findings it is unnecessary to explore that legal question.
I conclude then that Macquarie fails in its estoppel case. Given my conclusion that Konrad holds the house on trust for Mr and Mrs Lin, there should be a declaration to that effect. I shall hear the parties upon what further orders are appropriate.
CONCLUSIONS
S1035 of 2001
There will be judgment for the plaintiff against the defendant for $9,436,857.70 The counterclaim by the defendant against the plaintiff is dismissed.
The claim by the defendant against the fifth third parties, Peter Ross Clapin and Gerard Joseph Pagliaro, is dismissed.
S7421 of 2001
It is declared that the first defendant holds upon trust for the plaintiffs the property described as:
(a) Lot 2 on RP 92983 in the County of Stanley, Parish of Bulimba, title reference 13287136;
(b) Lot 4 on RP 12550 in the County of Stanley, Parish of Bulimba, title reference 11641206;
(c) Lot 1 on RP 92982 in the County of Stanley, Parish of Bulimba, title reference 13287135.
The plaintiffs are at liberty to apply, upon notice to the defendants, for any further or other relief in consequence of that declaration and consistently with the reasons for judgment.
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