Su v Qi

Case [2018] SASC 108 26 July 2018

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SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
SU v QI & ORS
[2018] SASC 108
Judgment of The Honourable Justice Vanstone
26 July 2018
EQUITY - EQUITABLE REMEDIES - RESCISSION - BREACH OF FIDUCIARY OBLIGATIONS
Plaintiff seeks rescission of a joint venture agreement and return of funds advanced to the joint venture in the basis of alleged breaches of fiduciary duty by joint venture partners. Defendants counterclaim for profit foregone on account of plaintiff’s repudiation of the joint venture agreement.
Where agreement was to purchase and build on land and sell the finished products - where the defendants’ contribution to the joint venture was to erect dwellings on the land and to sponsor the plaintiff on a 457 visa - where plaintiff was to advance all the funds to the joint venture and the defendants were to provide their expertise and local knowledge.
Whether plaintiff entitled to withdraw from the joint venture in circumstances where no visa was obtained - whether it was agreed that the first and second defendants would take share of the profit only or of equity in the joint venture - whether defendants breached fiduciary duty owed to the plaintiff.
Held: A fiduciary duty was owed to the plaintiff by the first and second defendants by virtue of their control of the joint venture funds. Removal of funds in payment of their legal expenses was a breach of that duty and the plaintiff should have equitable compensation but not rescission.
The agreement contemplated that the first and second defendants would take a share of net profits rather than equity.
The plaintiff’s withdrawal was not justified. The first and second defendants should be compensated for loss of the chance to enjoy profits from the joint venture.
Evidence Act 1929 (SA) s 34, referred to.
Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; Breen v Williams (1996) 186 CLR 71; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, applied.
Maguire v Makaronis (1996-1997) 188 CLR 449, distinguished.
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001] WASC 190; Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332; The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64, considered.

SU v QI & ORS
[2018] SASC 108
Civil.

VANSTONE J: The plaintiff’s claim arises from what has been referred to by the parties as a joint venture agreement with the defendants to develop property. Representations made by the defendants in the discussions leading to that agreement, the terms of it and the consequences of the plaintiff’s withdrawal from it are matters of dispute.
Background
The plaintiff and the first and second defendants (‘D1’ and ‘D2’ respectively) agreed that the plaintiff would advance funds to finance the purchase of land and the construction of one or more dwellings…

Grounds of appeal

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

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

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

Consideration

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

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

Continue reading Su v Qi

Details

AGLC: Su v Qi [2018] SASC 108
Case: [2018] SASC 108
Decision Date: 26 July 2018

CaseChat Overview and Summary

The case of Su v Qi involves a dispute over the terms of an agreement, the nature of fiduciary duties owed by the defendants, and potential breaches of those duties. The plaintiff, Su, sought equitable remedies, including rescission, due to alleged breaches of fiduciary obligations by the defendants, Qi and others. The defendants counterclaimed for damages and quantum meruit for work performed, the summary termination of employment, and lost profits. The central legal issues for the court to determine included the specific terms of the agreement, whether the defendants owed fiduciary duties to the plaintiff, and if so, whether those duties were breached and what remedies were available to the plaintiff.

The court assessed the evidence of each witness, noting significant difficulties with the interpretation of the plaintiff's evidence, primarily due to the use of technical terms and the inexperience of the interpreter. Despite these challenges, the court found that the plaintiff was intelligent and well-versed in the issues and dealings with the defendants. The court rejected the characterisation of the plaintiff as merely a "housewife with a lot of money" and found her to be a sophisticated investor based on her business exposure and proactive approach to seeking expert advice. The court then turned to the principal issues, examining the terms of the agreement, the existence and nature of fiduciary duties, and potential breaches of those duties.

In determining the terms of the agreement, the court clarified that it was a 25% share of the profits, not the entirety of the assets, that was agreed upon. The court found that obtaining a visa was not a condition of the continuation of the joint venture. Regarding fiduciary duties, the court found that such duties were owed by the defendants, given their control over the funds and the plaintiff's limited business experience and language barriers. The court found breaches in the process of issuing shares and in making unauthorised withdrawals from the joint venture's account. The court also found that the plaintiff had not exhausted all avenues to obtain a visa.

The court concluded that the plaintiff was entitled to equitable remedies for the breaches, which would be determined in further proceedings. The court found that the defendants' counterclaims for damages and lost profits would be addressed in subsequent proceedings, with specific assessments of the damages to be determined.

In summary, the court found that the defendants owed fiduciary duties to the plaintiff, breached those duties, and that the plaintiff was entitled to equitable remedies. The court will address the specific remedies and the defendants' counterclaims in further proceedings.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

For their part, D1 and D2 counterclaim for damages for the plaintiff’s alleged breach of contract and/or a quantum meruit amount for work performed by them, for the summary termination of D1’s employment with the joint venture and for profits they claim would have accrued to them and were lost through termination of the joint venture. Constructions also counterclaims for the loss of profits it would have earned on the construction of the houses.The main issues for decision Against that brief background, I now set out in short form the principal issues for decision.1.What were the terms of the agreement struck in October 2015, as supplemented subsequently, and in particular:a.was it agreed that D1 and D2 would have the benefit of 25 per cent of the profits of the joint venture, or 25 per cent of the entirety of the assets of the joint venture;b.was it an express condition of the continuation of the joint venture that the plaintiff would obtain a 457 visa, or any visa.2.Did D1 and D2 owe duties to the plaintiff as fiduciaries, either on account of her limited English and limited business experience, or because they, and D1 in particular, had immediate control of the funds of the joint venture.3.If there were a fiduciary duty, did D1 breach it in any of the ways claimed by the plaintiff, and if so, to what remedy is the plaintiff entitled. Potential breaches might include:a.overseeing a process in which the plaintiff was given B class shares in Investments;b.deregistering Investments;c.making unauthorised withdrawals from the account of the joint venture for any of the following purposes: placing funds into term deposits, making loans to Constructions, paying the legal fees of D1 and D2, paying D1 in excess of the amount agreed for her salary;d.overseeing the process in which the Maple Homes companies were incorporated having Constructions as the sole shareholder.4.If the continuation of the joint venture were conditional upon the plaintiff obtaining a visa, did she exhaust all avenues to obtain one.5.To what extent, if any, should D1 and D2 and Constructions succeed in their counterclaim for damages for the plaintiff’s breach of contract and how should those damages be assessed.Assessment of the witnesses Before dealing with the matters which arise for decision I propose to discuss the evidence of each witness who gave oral testimony. The plaintiff gave evidence which spanned five sitting days. She gave evidence with the assistance of an interpreter, the plaintiff being a native Mandarin speaker with little English. There were significant difficulties in the interpretation of, not only the plaintiff’s evidence, but also that of Mr Ma. That was perhaps caused partly because of the extent of usage of technical terms, and by counsel’s generally lengthy and detailed questions, but also perhaps because of the inexperience of the interpreter. Nevertheless, the difficulties made any attempt to assess the witnesses in terms of demeanour rather pointless. I gained the impression that the plaintiff was an intelligent woman who well understood the issues raised in the trial and who had a good understanding of the negotiations and dealings generally between herself and D1 and D2. Although the plaintiff’s counsel suggested to D1 (at 497) that the plaintiff was ‘basically a housewife with a lot of money’, I reject that characterisation of her. I find that her exposure to her husband’s business dealings over a long period and the roles she took on in various Chinese companies after his death, together with her readiness to seek and heed expert accounting and legal advice when appropriate, indicates that she was not an unsophisticated investor.

Ratio Decidendi

Legal Principle Established

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Citations

Su v Qi [2018] SASC 108

Cases Citing This Decision

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Cases Cited

Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309
Citation 1 (Para 7)

…lity in which the former is placed gives rise to a fiduciary duty by the latter to the former; citing Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 16 and Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001]…
Hallmark Consolidated Ltd v Centaur Mining and Exploration Ltd (Administrators Appointed) (Receivers and Managers Appointed) [2001] WASC 190
Citation 2 (Para 7)

…09; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 16 and Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001] WASC 190, [48]. Although the decision in Say-Dee was reversed on appeal, counsel put that the general principle was not undermined.…
Pilmer v Duke Group Ltd (In Liq) [2001] HCA 31
Citation 3 (Para 9)

…y of loyalty to the beneficiary not to obtain an unauthorised benefit from the relationship or to put oneself in a position of conflict; relying on Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, 198 approving Breen v Williams (1996) 186 CLR 71, 113. He argues that once a relevant duty is identified and a prima facie breach made out…
Maguire v Makaronis [1997] HCA 23
Citation 4 (Para 11)

…the argument that the breaches gave rise to a right to rescind, Mr Douglas cited the High Court decision in Maguire v Makaronis (1996-1997) 188 CLR 449. There, the defendant solicitors had loaned monies to the plaintiffs, their clients Mr and Mrs Makaronis, for the purchase of a poultry farm. The solicitors to…
Breen v Williams [1996] HCA 57
Citation 5 (Para 9)

…ionship or to put oneself in a position of conflict; relying on Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, 198 approving Breen v Williams (1996) 186 CLR 71, 113. He argues that once a relevant duty is identified and a prima facie breach made out, then the fiduciary bears the onus to prove that he or she ac…
Sellars v Adelaide Petroleum NL [1994] HCA 4
Citation 6 (Para 5)

…In Sellars v Adelaide Petroleum NL (1992-1994) 179 CLR 332 at 349 the plurality observed that where a contract contains a promise to provide a chance of reward, and breach of the contract results in the loss of that chance, then the loss is compensable and difficulties involved in estimating the quantum of the…
Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54
Citation 7 (Para 5)

…rent in the aggrieved party succeeding, had he been allowed to exploit the chance given by the contract. In The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 the Court concluded that a lost opportunity was a compensable loss, even though there was a less than 50 per cent likelihood that the commercial adva…
United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49
Citation 8 (Para 7)

…y the latter to the former; citing Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 16 and Hallmark Consolidated Ltd & Anor v Centaur Mining and Exploration Ltd [2001] WASC 190, [48]. Although the decision in Say-Dee was reversed on a…
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64
Citation 9 (Para 10)

…charge those obligations. It referred with approval to the formulation of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103. The plurality said: [78]In particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the…
The Commonwealth v Amann Aviation Pty Ltd 115 ER 1000
Citation 10 (Para 5)

…ee of probabilities, or possibilities inherent in the aggrieved party succeeding, had he been allowed to exploit the chance given by the contract. In The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 the Court concluded that a lost opportunity was a compensable loss, even though there was a less than 50 per cent likelihood that the comm…

Legislation Cited

Evidence Act 1929 (SA) 34
2 mentions (from Para 11)