Oz Envision Development Pty Ltd v Yuan
[2018] VSC 607
•11 October 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PRACTICE COURT
PROPERTY LIST
S ECI 2018 01669
| OZ ENVISION DEVELOPMENT PTY LTD (ABN 60 876 176 657) | First plaintiff |
| OZ ENVISION PROPERTY DEVELOPMENT PTY LTD (ABN 75 609 595 600) | Second plaintiff |
| v | |
| XINHUI YUAN | Defendant |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 October 2018 |
DATE OF RULING: | 11 October 2018 |
CASE MAY BE CITED AS: | Oz Envision Development Pty Ltd & Anor v Yuan |
MEDIUM NEUTRAL CITATION: | [2018] VSC 607 |
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REAL PROPERTY – Caveats – Application to remove caveat – Whether caveator had an interest in property pursuant to a resulting trust – Serious issue to be tried that property acquired with funds advanced by caveator which were not by way of loan – Balance of convenience favoured removal of caveat – Proceeds of sale from property subject to caveat to be paid into trust account until trial – Transfer of Land Act 1958 s 90(3).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr D G Robertson QC with Mr L C Hogan | AJH Lawyers |
| For the Defendant | Mr M Clements, Solicitor | Harris Carlson |
HIS HONOUR:
The plaintiffs make an application pursuant to s 90(3) of the Transfer of Land Act 1958 (‘the Act’) for the removal of caveats lodged by the defendant over properties situated at Heath Avenue, Oakleigh, and Deborah Court, Mount Waverley. The first plaintiff is the registered proprietor of the properties. The properties were acquired with funds advanced by the defendant in or about 2013 totalling $5,010,000.
There is a significant controversy between the parties as to whether or not these funds were advanced by way of loan. The existence of the caveats has frustrated the settlement of contracts of sale for three units at 40 Heath Avenue, Oakleigh. The total value of the contracts in respect of these three properties is $2,665,000.
Pursuant to a deed of arrangement executed on 21 March 2016 (‘the deed’) these funds are to be paid to the second plaintiff for the purpose of it undertaking the business of property development. There is a significant controversy between the parties regarding the circumstances in which the deed was executed. The defendant, who does not read or write English, has deposed that he was misled at the time he signed the deed.
The defendant contends he has a caveatable interest pursuant to an implied or resulting trust, the properties having been acquired with funds which he provided to the first plaintiff. Whether the defendant has a caveatable interest turns on the question of whether the $5,010,000, which the defendant advanced to the first plaintiff, was a loan.
If this question is answered in the affirmative the defendant will not be able to establish an interest in the properties pursuant to an implied or resulting trust.[1]
[1]See J D Heydon and M J Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016) 212–215 [12.10]; Calverley v Green (1984) 155 CLR 242, 246 (Gibbs CJ).
The principles governing an application for removal of a caveat pursuant to s 90(3) of the Act are well established. A two-stage test is applied by the court when considering an application under s 90(3). The onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief.
The two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish the balance of convenience favours the maintenance of the caveat on the register of titles until trial.[2]
[2]Piroshenko v Grojsman (2010) 27 VR 489, 491 [7] (Warren CJ).
I turn then to the question of whether there is a serious issue to be tried that the defendant has a caveatable interest in the properties pursuant to an implied or resulting trust. It is not in dispute that the subject properties were acquired with funds advanced to the first plaintiff by the defendant for the purpose of acquisition. There is no documented loan agreement. There is no evidence of any discussion regarding the terms of any loan as between the defendant and the first plaintiff, for example, where and in what circumstances the loan was to be repaid, whether the loan would attract interest and whether the loan would be repayable on demand.
Paragraphs 3 to 6 of the affidavit of the defendant filed on 10 October 2018 are as follows:
Payment to the First Plaintiff
Between December 2012 and June 2013, I transferred a total of $5,010,000 to the First Plaintiff to acquire properties, including the following:
a. 40 Heath Avenue, Oakleigh VIC 3166, which has since been subdivided into three units, being more particularly described in Certificates of Title Volume 12012 Folio 470, Volume 12012 Folio 471 and Volume 12012 Folio 472 (Oakleigh Property); and
b. 4 Deborah Court, Mount Waverley VIC 3149, being more particularly described in Certificate of Title Volume 8618 Folio 858 (Mount Waverley Property).
The reason for the payment to the First Plaintiff was to invest $5 million dollars in Australia, which I decided to invest in property and property development. I was required to invest this amount of the purpose of seeking Australian residency as I was and remain a Chinese national.
Eric was appointed as a Director of the First Plaintiff, because he held the required residency status for Directorship of a company in Australia and I did not.
I understand the concept of a loan, but I did not have the intention at the time and do not believe now the payment was a loan to the First Plaintiff. The reason I believe this is:
a. At no time was a “loan” ever mentioned to me by Eric or anyone else at or around the time of my payment.
b. My understanding of a loan would be that I would receive interest and have loan terms for my payment. That is not the case in the present circumstances.
c. I only became aware of the suggestion that my payment may be a loan when I obtained legal advice in relation to the documents filed by the First Plaintiff in this proceeding.
d. My understanding and intention at the time of making the payment (and since that time) was that the money I paid to the First Plaintiff meant that the properties purchased by the First Plaintiff were my properties.
Mr Robertson QC, who appeared with Mr Hogan for the plaintiffs, relied upon tax and financial returns of the first plaintiff as evidencing a loan in respect of the $5,010,000 advanced by the defendant to the first plaintiff. Entries in the unaudited balance sheet of the trust for the 2014 financial year record, under the heading 'financial liabilities', unsecured beneficiary loans from the defendant and his wife totalling $5,177,258.
Similar entries appear in the unaudited balance sheets for the financial years up to and including 30 June 2017. I treat these records with some caution. While they lend some weight to the existence of a loan as between the defendant and the first plaintiff, they are not conclusive. The accounts have been signed off by Mr Tan, a director of the plaintiffs. As discussed below, the evidence currently before the court raises a question about Mr Tan's credit. Those questions cannot be resolved in the current application.
The bulk of the material relied upon by Mr Robertson was filed in court after the luncheon adjournment on 10 October 2018. The defendant and his legal representatives had no meaningful opportunity to respond to that evidence. True it is that Mr Yuan bears the onus of establishing that he has an interest in the properties as a result of an implied or resulting trust. However, the plaintiffs rely upon the financial records in aid of the proposition that no implied or resulting trust was created by the advance of $5,010,000 to the first plaintiff in or around 2013 because the funds were advanced by way of loan.
The plaintiffs had ample opportunity to place material before the court in respect of that issue prior to the hearing on 10 October 2018, the summons having been filed on 6 October 2018. I have noted the absence of any evidence of a written or verbal agreement that the funds were advanced by way of loan. The absence of any such agreement is consistent with the terms of the deed, executed by the plaintiffs and the defendant.
Paragraphs 1 to 12 of the deed state:
Part B - Background
1. Oz Old [first plaintiff] is the Trustee for the Yuan Family Trust, which is in the business of property development;
2. Xin [defendant] is a 50% shareholder in Oz Old;
3. Shi [Tan] is the sole director and secretary of Oz Old and Oz New [second plaintiff], which is in the business of property development;
4. Shi hold 100 fully paid ordinary shares in Oz New;
5. Oz Old has passed a shareholder resolution for Oz Old to invest a total of $ 5 million AUD into Oz New (‘Purchases 50% Share In Oz New’) for the purposes of operating a new property development business. The Investment amount will be paid into Oz New Immediately when fund is available or received payment from purchaser of the property at settlement which currently building from Oz Old until a total of $5 million AUD is invested;
6. Oz New has passed a shareholder resolution to issue a further 100 new ordinary shares in the company which are to be issued in the name of Oz Old, by reason of its Investment.
7. In consideration of Oz Old making the Investment in Oz New, Shi has agreed to operate the business as Director of Oz New and to apply for all finance required to conduct the business and to personally guarantee all finance borrowed by Oz New as a guarantor.
Part C – Operative Terms
8. Oz Old agrees it must investment $5 million AUD (‘Purchases 50% Share in Oz New’) for the purposes of operating a new property development business. The Investment amount will be paid into Oz New Immediately when fund is available or received payment from purchaser of the property at settlement which currently building from Oz Old until a total of $5 million AUD is invested;
9. Oz New agrees in consideration of Oz Old’s investment, that upon the investment being made, it will issue Oz Old with 100 new ordinary shares in Oz New.
10. Both Parties agrees from the effective date of this contract Oz Old and Oz New agree for all profit, Capital, Asset and Distribution of fund will be equally distributed and equally own In Oz New.
11. In consideration of Oz Old’s investment in Oz New, Shi agrees to operate the business as Director of Oz New and to personally guarantee all finance taken out by Oz New for the purposes of the business.
12. Both Parties from Oz Old and Oz New is agrees with all term above and Julius Teo from 8 Cherry Tree Court Doncaster East Vic 3109 Australia will be witness the Signature of two Parties on Page 2 Below.[3]
[3]Affidavit of Shi Keong Tan sworn 5 October 2018, exhibit ‘SKT-6’.
As discussed below, Mr Yuan has deposed that he was misled by Mr Tan at the time he executed the deed. For present purposes, however, I have regard to the deed on the basis of the plaintiffs’ contention that the deed was validly executed and is enforceable.
The net effect of the deed is that, in circumstances where Mr Yuan advanced $5,010,000 to the first plaintiff, the deed does not facilitate repayment of that sum to Mr Yuan from the sale of the properties which were acquired with those funds; rather, the deed requires the proceeds from the sale to be invested into a new property development company, the second plaintiff.
The practical effect of the deed is consistent with the absence of any agreement between Mr Yuan and the first plaintiff that the $5,010,000 was advanced by way of loan. I am satisfied that there is a serious issue to be tried, that Mr Yuan has a caveatable interest in the Heath Avenue and Deborah Court properties under a resulting trust. As to the balance of convenience, I accept that the caveats are having a significant adverse effect upon the business operations of the first plaintiff.
The settlement of units 1, 2 and 3, 40 Heath Avenue has been frustrated by the defendant's caveats. Also, there are the interests of innocent third parties, namely the purchasers of the properties, to be taken into account. Their interests weigh in favour of the removal of the caveats.
I am not satisfied that the balance of convenience favours the maintenance of the caveats until the trial. I shall order the Registrar of Titles to remove the caveats on the Heath Avenue and Deborah Court properties. The question then arises as to whether the funds from the sale of the properties should be distributed in accordance with the terms of the deed.
Mr Yuan's primary concern relates to the potential dissipation of the proceeds of sale. That concern can be readily accommodated by orders that the proceeds of the sale from the Heath Avenue and Deborah Court properties be paid into trust pending the trial of the proceeding. I consider that such an order strikes an appropriate balance between the interest of the parties.
Mr Robertson submitted that no such order should be made because it will have the effect of frustrating the implementation of the deed, which expressly provides for the proceeds of sale to be invested in the second plaintiff. The difficulty in accepting this submission is that an affidavit filed by Mr Yuan makes very serious allegations regarding the conduct of Mr Tan at the time the deed was executed. Mr Yuan has deposed that he does not speak or read English. He has deposed that when he signed the deed, he relied upon Mr Tan to explain to him the contents of the deed. In effect, Mr Yuan alleges that Mr Tan misrepresented to him the terms of the deed.
Paragraphs 7 to 10 of the Affidavit of Mr Yuan, filed 10 October 2018, state:
Following discussions with Eric in or around late 2015 and early 2016, Eric informed me that I needed to sign a document to comply with Australian Government requirements for Foreign Investment requirements. During these discussions, Eric suggested that I could invest money in a new company, but my understanding was in broad terms that:
a. I would be able to pay funds to the company in the same way I paid money to the First Plaintiff in or around 2012 and 2013.
b. I would own 100% of the company, and of the properties, which we discussed was 100 shares.
c. Eric would share in the profits, if and when the properties were developed.
d. I would not be required to pay money for the new properties if I was not happy with how the other properties had been developed.
Eric explained the document to me, but because I cannot read English, I trusted what he told me the document said. I understood the document to be as described in paragraph 7 above.
In September 2018, upon my required, I received from Eric’s solicitors a document which was purported to be an agreement signed by me in 2016 (“First Signed Agreement”).
I asked a friend to translate the document for me. When it was translated, I was immediately concerned because it did not reflect my understanding of what was discussed with Eric at the time of signing the document. I then sought legal advice, which confirmed my concerns. In particular, paragraphs 5, 6, 8, 9 and 10 are all different to my understanding of what was intended and agreed.
These are very serious allegations, tantamount to Mr Tan having procured the deed by fraud. It is not possible to come to any conclusion as to whether the allegations are of substance. That would only be possible after examination and cross-examination of witnesses at trial. However, absent an order for payment of funds into trust, if the funds were paid to the second plaintiff in accordance with the terms of the deed and a court was subsequently to uphold Mr Yuan's allegations against Mr Tan, there is a risk that Mr Yuan would suffer irreversible prejudice. For example, the funds might be invested by the second plaintiff into a loss-making venture. The prudent course, pending trial, is for the funds to be paid into trust.
I propose to give the parties an opportunity to have discussions regarding the form of the order. I do propose, in relation to the caveats, subject to anything the parties say, to make an order in the terms of paragraph 4 and 5 of the summons filed 6 October 2018.
As to the question as to what is to occur with the proceeds from the sale of the properties, I propose to give the parties an opportunity to have discussions regarding that matter, whether the funds are to be paid into one or other of the respective solicitor’s trust fund or, alternatively, whether or not a separate interest bearing account is to be established. If the parties cannot come to an agreement about that matter, I will simply make an order in terms I consider to be appropriate, but I will give the parties an opportunity to reach an agreement.
As to the question of costs, I have come to the clear view in this matter, having regard to the material before the court, that the appropriate course is to reserve costs. I have no doubt that the costs of this application will fall to be determined out of what findings are made at trial, in respect of the allegations which have been aired in the affidavit material.
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