Tsan and Tsan v Chiu and Chiu

[1995] QCA 409

IN THE COURT OF APPEAL	[1995] QCA 409
SUPREME COURT OF QUEENSLAND

Appeal No. 47 of 1995

Brisbane

Before	Macrossan C.J. McPherson J.A. Ambrose J.
[Tsan v. Chiu]
BETWEEN

CHONG THE TSAN and LI-YING LEE TSAN

(Plaintiffs) Respondents

AND

DAVID CHIU

(Defendant) Appellant

AND

LIGI CHIU

(Defendant)

REASONS FOR JUDGMENT - THE COURT

Judgment delivered the 8th day of September 1995

If this appeal from the District Court is approached without undue attention to some

aspects of either the pleadings or the reasons for judgment, the questions presented for

decision here can readily be resolved according to settled principles.

The facts are these. The plaintiff Mr Tsan and the defendant Mr Chiu are both from

Taiwan, where they were friends at school. The defendant has lived and worked in

California, but settled in Australia with his family in 1988. He is a reasonably fluent speaker

of English. By contrast, the plaintiff is not proficient in English and needs a translator to understand or to be understood in that language. In late September 1990 he and his family

visited the Gold Coast, where the defendant showed them round. He took them to see a

house at 30 Garden Grove, Carrara, which was next to an adjoining vacant lot 32 Garden

Grove, which the defendant said he had bought. In point of fact, it was the defendant’s

company ACT International Pty. Ltd. that was the purchaser under a contract dated 5

September 1990 (ex. 1) for a price of $225,000; but it is convenient for the moment to

speak of the defendant himself rather than his company. He told the plaintiff that the house

at no. 30 was on the market for $1 million, but he believed the owner Cohn. Bros. Limited

needed money urgently and would sell for less than $500,000, which he said would be a

bargain. At about this time the house was being advertised for sale at that price.

After returning to Taiwan the plaintiff decided to migrate to the Gold Coast, and on

8 October 1990 he sent a facsimile letter to the defendant asking him to negotiate or

“bargain” a price of $500,000 or less, at which the plaintiff was interested in buying the

house. The defendant replied on 9 October saying he would try to “bargain it down to the

lowest price for you”. Further communications passed between them, the upshot of which

was that by 25 November 1990 the plaintiff had agreed to buy the house for $450,000 and

signed facsimile pages of a contract (ex. 4) requiring his signature, which were returned

to the defendant in Australia. He also transmitted sums of money totalling $130,000 to the

defendant on account of the purchase price. On 22 April 1991 the plaintiff attended at the

Gold Coast office of Mr O'Neill, a solicitor whom the defendant had engaged to act for him

in the settlement and transfer. On that occasion the defendant acted as translator for the

plaintiff in conversations with O'Neill. The contract to purchase the house at no. 30 was

settled on due date, which was 26 April 1991.

According to the plaintiff’s account, it was only later that he found out what had really

happened. Contrary to what he had believed to be the position, the defendant had on

5 November 1990 exercised a power he had to rescind his contract ex. 1 to purchase the

vacant lot at 32 Garden Grove. He did so on the basis of a minor boundary problem. Cohn

Bros. Limited, which was the owner of that land, was also the owner of the house at 30

Garden Grove which the plaintiff was buying. The defendant had in fact succeeded in

negotiating a sale of both lots together for a total price of $627,000. There is a facsimile

letter dated 19 November 1990 to the defendant from a Mr Hutchins, of the vendor Cohn.

Bros Limited, confirming that the defendant “and your friend” had offered to buy the house

and the land at 30 and 32 Garden Grove for $637,000 subject to the return of the deposit

paid by the defendant under his earlier contract ex. 1 to buy no. 32. Mr Hutchins said in

evidence at the trial that there were further negotiations with the defendant which reduced

the total price for the two properties to $627,000. The deposit paid on no. 32 is said to

have been refunded on 22 November 1990, but it may in fact have been carried over and

applied to the new transaction.

The transaction to purchase the two properties for $627,000 was effectuated by two

separate contracts exs. 4 and 6, each of which incorporated a special condition which

made settlement of one dependent on settlement of the other. Despite the plaintiff's

agreement to pay $450,000 for 30 Garden Grove, ex. 4 was written up as a contract by the

plaintiff to buy that property for $377,000; and ex. 6 as a contract by the defendant to buy

no. 32 for $250,000. This apparent departure from the price of $450,000 agreed on for the

house at no. 30 was explained at the trial as an attempt to reduce the incidence of capital

gains tax. If that was the explanation, the device could have benefited only the defendant.

Capital gains tax would not have been payable by the plaintiff, as the house he was buying at no. 30 was intended to be his residence. Despite the appearance of exs. 4 and 6, there

is no dispute that, as between the plaintiff and the defendant, it was agreed that the plaintiff

would be paying $450,000 for the house property at no. 30. That left the balance of the

combined price of $627,000 for both properties to be met by the defendant. The balance

was $177,000. It may be compared with the price of $225,000 which the defendant had

agreed to pay under his earlier contract ex. 1 for the purchase of the vacant land at no. 32.

The plaintiff said he knew nothing of this and, indeed, from what he had been told,

continued to believe that the defendant had already bought the vacant lot at 32 Garden

Grove. As to his own contract of purchase ex. 4, he said he believed the price was

$450,000. The pages of ex. 4 which he had signed in Taiwan and returned to Australia did

not include the page of the contract setting out the price of $377,000. On appeal it was

submitted by the defendant that, at least by the time of settlement, the plaintiff knew the true

state of affairs; but there is a dispute about this which may be passed over for the moment.

What is not and cannot be disputed is that it was the defendant who determined what each

of them would pay to purchase his particular property. Mr Hutchins, whose evidence was

accepted, said at the trial that it was immaterial to him what price was paid for the house

at 30 Garden Grove and what was paid for the vacant land at no. 32. He was interested

only in the overall price of $627,000 for both properties, and had “no input” with respect to

the prices that were recorded in either of the contracts exs. 4 and 6 so long as they totalled

$627,000. The contrary was not put to him when he was cross-examined by counsel for

the defendant.

On this footing, the plaintiff claimed that the defendant had received an undisclosed

benefit in the form of a disproportionate reduction on the purchase price payable or paid

under his contract ex. 6 for the vacant land at no. 32. That benefit was, it was said, earned by the defendant in breach of a fiduciary duty to which he was subject in negotiating for the

plaintiff the contract to purchase the house at no. 30.

There can be no doubt that, given the facts as they have been set out here, the

defendant came under a fiduciary duty to the plaintiff in negotiating the contract to buy no.

30. In the communications passing between them in October and November 1990, the

defendant undertook on behalf of the plaintiff the function of bargaining the price “down to

the lowest price for you”. He was in Australia and the plaintiff was in Taiwan. It was he who

was treating with Mr Hutchins, with whom the plaintiff himself never communicated. The

defendant was a competent speaker of English; the plaintiff was not. It is apparent from

the written communications between them that throughout the plaintiff was relying on the

defendant for advice both about the purchase of the property as well as local practices and

conditions generally. It was the defendant who chose Mr O'Neill as solicitor for the plaintiff;

he was also the defendant's solicitor. In these circumstances the defendant assumed

duties of a fiduciary character in relation to his dealings with and on behalf of the plaintiff,

which required him to disclose to the plaintiff details of any personal benefit he might be

expecting to derive from performing his commission to negotiate for the purchase of no.

30 Garden Grove.

The defendant would be entitled to retain any such personal benefit only if he made

full disclosure of it and obtained the plaintiff's consent to his retaining it. In relation to the

claim by a selling agent to retain a profit received on the resale by him of his principal's

ship, Thesiger L.J., speaking on behalf of the Court of Appeal in de Bussche v. Alt (1878)

8 Ch.D. 286, 313, said:

"... before the principal can properly be said to have ratified or adopted the act of the agent or waived his right of complaint in respect of such acts, it should be shown that he has had full knowledge of its nature and circumstances, in other words, that he has had presented to his mind proper materials upon which to exercise his power of election, and it by no means follows that, because in a case like the present he does not repudiate the whole transaction after it has been completed, he has lost a right actually vested in him to the profits derived by his agent from it."

Evidence of any such waiver should, the learned Lord Justice added, be "clear and

cogent"; far from its being so there, the plaintiff in that case had been kept in entire

ignorance of the amounts of purchase money payable by, and the terms of credit given to,

the ultimate purchaser, as well as the important fact that the defendant had abstained from

binding himself to buy the ship until he had concluded the contract to resell it.

What is required is, as was said by the Privy Council in New Zealand Netherlands

Society 'Oranje' Inc. v. Kuys [1963] 1 W.L.R. 1126, 1132, "full and frank disclosure of all

material facts"; or, as Dean J. expressed it in Chan v. Zacharia (1984) 154 C.L.R. 178,

204, "the informed and effective assent of the person to whom the obligation is owed, to

act in the manner in which he has acted". The onus of proving such disclosure and assent

rests on the defendant. The trial judge found specifically that the defendant "did not

disclose the financial benefit accruing to his company [ACT International Pty. Ltd.]". His

Honour said he preferred the evidence of the plaintiff to that of the defendant, whom he did

not regard as a reliable witness, and he expressed himself as satisfied that "the defendant,

in breach of his fiduciary duty, concealed the true facts from his principal, and acted to his

own financial advantage and to the financial detriment of his principal".

His Honour's finding of non-disclosure was challenged on appeal. It was, not without

some justification, argued that it failed to identify precisely what it was that the defendant

had failed to disclose. His difficulty is, however, that it was for him to establish that he had

made full and frank disclosure of the material facts and had obtained the informed and effective assent of the plaintiff to the manner in which he was acting. The plaintiff's

evidence having been preferred to his own, all that the defendant could point to on appeal

was a passage in the evidence of the plaintiff under cross-examination where it was put to

him that what was agreed was that, as a result of the purchase of the two properties in one

deal, "you secured a price reduction from $500,000 to $450,000 for the house, while David

[the defendant] secured a price reduction from $225,000 to $177,000 for the vacant land".

The defendant's response was:

"The fact of that deal as what you said just now, I come to - I came to know

of it at a very late stage. At that time I wasn't aware of that details ...".

It was then put to the plaintiff that he had been told "that" before signing the contract, and

had at that time agreed with "that arrangement". His answer was:

"As I said just now, I was at that time in Taiwan, and I didn't quite know the situation here and David - at David's request with my reluctance I did agree".

The problem with this answer is that it is by no means clear what the witness

understood by "that arrangement", to which he said he had agreed with reluctance. On

appeal the defendant contended that it was the arrangement by which the two properties

were bought as one deal with the price reductions referred to. For the defendant that is the

most favourable interpretation it is capable of bearing. Even so, it can scarcely be

considered a full and frank disclosure of the critical fact that it was immaterial to Hutchins,

who was acting for the vendor in the negotiations, how the total price of $627,000 was

apportioned between the two properties being sold together, and that it was the defendant

himself who had allocated the price of $450,000 to the plaintiff's contract to purchase no.

30, as well as the price of $177,000 to his own contract to purchase no. 32. The plaintiff

was at all times left with the impression that the price of $450,000 was the outcome of the defendant's vigorous negotiations with Hutchins, whereas the truth was that both it and the

price of $177,000 were purely the defendant's apportionment.

Given this state of affairs, the defendant's conduct overall amounted to more than

mere non-disclosure. It is fairly capable of being regarded as active misrepresentation on

his part. Initially he did not forward to the plaintiff in Taiwan the page of ex. 4 which set out

the price of $377,000. The plaintiff did not see this part of the contract ex. 4 until shortly

before settlement on 26 April 1992. Even the facsimile letter ex. 11 (which the plaintiff said

he did not receive) says "I am negotiating with the owner ... he has lowered his price to

$475,000. I hope he can still lower his price to $450,000". It was suggested that at least

by the time of settlement he knew from his solicitor Mr O'Neill the basic elements of the

contract but nevertheless went ahead with the settlement. However, O'Neil was obliged to

rely on the defendant to interpret his explanation to the plaintiff; and, like the plaintiff himself,

O'Neill was not aware that the purchase prices for the two properties had not been

genuinely bargained for but were arbitrary allocations arrived at by the defendant alone.

The defendant's failure to explain that he was the true and only author of the figures of

$450,000 and $177,000 makes it impossible to accept that, either at settlement on 26

April 1992 or before it, he discharged his duty of full and frank disclosure, and received the

plaintiff's informed assent to it.

Breach of fiduciary duty is therefore not in doubt. Remedies are another matter.

The plaint made claims for moneys had and received, or alternatively damages for breach

of fiduciary duty, against the defendant. The point was taken that the defendant's company

ACT International Pty. Ltd. was not a party to the action, and that this was fatal to the

plaintiff's claim. It was the company and not the defendant personally that received the

benefit of the transaction reducing the price it paid for no. 32 to $177,000 from $250,000,
or at least from $225,000, which was the price payable under the earlier contract ex. 1.

However, it is settled that, as Gibbs J. said in Consul Development Pty. Ltd. v. DPC

Estates Pty. Ltd. (1975) 132 C.L.R. 373, 396-397, liability to account as constructive

trustee:

"... extends to the case where a stranger has knowingly participated in a breach of fiduciary duty committed by a person who is not a trustee even though nothing that might properly be regarded as trust property - even property stamped with a constructive trust - has been received."

As the decision in that case shows, there must be actual knowledge of the breach of

fiduciary duty before such liability can attach. Here, however, both the defendant and,

through him, the company knew of and participated in the breach of fiduciary duty. The

defendant negotiated the transaction, and the company participated in his breach of

fiduciary duty by entering into the contract ex. 6 to purchase no. 30 Garden Grove for a

price of $177,000.

A recent example of the application of the principle in circumstances comparable

to those in the present case is afforded by the decision of the Full Court of the Capital

Territory in Ravinder Rohini Pty. Ltd. v. Krizaic (1991) 30 F.C.R. 300. There the corporate

first defendant, which was controlled by one of two joint ventures associates, was held

liable to the other for a share of the profit, which had been realised on resale of joint venture

property but intercepted by the first defendant, who knew it had resulted from a breach of

fiduciary duty on the part of the first joint venture associates to account for it to both of them.

An express arrangement between the plaintiff and the defendant to combine their

purchasing power and resources to enable the defendant to negotiate a favourable

purchase of the two properties would bear a close resemblance to a partnership or joint

venture. Agreeing to act together, would involve an element of mutual confidence attracting a fiduciary obligation on the part of each of them to account for benefits received. See

Birtchnell v. Equity Trustees Executors & Agency Co. Ltd. (1929) 42 C.L.R. 384, 407-

408; United Dominion Corp. Ltd. v. Brian Pty. Ltd. (1985) 157 C.L.R. 1. The fact that each

party expected to purchase and acquire a property of his own would not prevent such an

obligation from arising out of their joint undertaking, which, on this view of the facts, would

have been to purchase the two properties together in a single transaction for their mutual

benefit. See Russell v. Austwick (1826) 1 Sim. 52; 57 E.R. 498, where the partnership or

joint venture was superimposed on an express agreement by which the parties agreed to

conduct separate businesses in conjunction.

The benefit acquired here comprised the reduction in the separate purchase prices

achieved by purchasing both properties together at the lower combined price of $627,000.

Agreement aside, the general rule is that partners share in proportion to their capital

contributions. The rule is founded on the equitable principle that "Equality is equity",

exemplified in the observations of Jekyll M.R. in Lake v. Gibson (1729) 1 Eq.Ca.Abr. 294

that where two or more persons purchase lands and advance the purchase money in

unequal proportions, it makes them in the nature of partners, so that they take in proportion

to the sums advanced by each : 2 White & Tudor's Equity Cases (7th ed.) at 958. Cf. also

Baumgartner v. Baumgartner (1987) 164 C.L.R. 137. In the present case the purpose

was to reduce the amount that each of them would pay for the property he was purchasing,

rather than to make a profit; but that is no reason for refusing to apply the equitable

principle. On the face of it, therefore, one would expect the plaintiff and defendant to share

the benefit of the price reduction achieved, and to do so in proportion to the contributions

which each of them made to it. A possible view is that the parties impliedly agreed to share the benefit of that reduction in the proportion 450:177, which was the ratio in which

the total price of $627,000 was to be met; but this is to ignore the impact of the defendant's

failure to disclose that he was the author of the apportionment of total price which produced

that ratio.

As it turned out, the actual money contributions to the price of $627,000 did not

accord with even that apportionment. At settlement the plaintiff placed the solicitor in funds

to the extent of $359,310.83 (ex. 8). He had previously paid the defendant sums amounting

to $130,000 on account of the purchase price, which must therefore be added to his

contribution. From the total thus contributed of $489,310.83, there are to be deducted

various private outlays totalling $10,967 (ex. 11, beginning with the down payment for 4

WXW), which produces an aggregate net contribution from the plaintiff of $478,343.73.

The defendant's total contribution was $187,256.42, comprising the price of $177,000 for

the land plus costs and adjustments of $10,256.42 (ex. 11). The aggregate of the

contributions on both sides is $665,600.15, which was the amount applied in discharging

all the liabilities arising out of the transaction on the transfer of the two properties, including

the consideration payable to the vendor, stamp duty, conveyancing costs and adjustments

on both sides. The ratio in which the plaintiff and the defendant should have shared in the

saving resulting from combining their purchasing power was therefore approximately

478:187, which is close to 5:2.

In determining the amount of the saving, it seems appropriate to adopt a figure of

$225,000 as the full undiscounted price payable for no. 32 Garden Grove. It was the

amount which, under his earlier contact ex. 1 dated 5 September 1990, the defendant had

agreed to pay for that land before any reduction for purchasing both properties came into

prospect. It is not possible with confidence to say what would have been paid for the house at no. 30 if it had been purchased in isolation. However, there was evidence it was on the

market for $500,000, which was accepted by the defendant on appeal. It therefore does

him no injustice to adopt that figure as the undiscounted price. On that footing, the net

aggregate price payable for the two properties if they had been bought and sold separately

would have been $725,000, and on that basis it could be accepted that the saving effected

by buying them together was $98,000. An alternative method of calculating the saving

might be to compare the actual purchase price and notional undiscounted price adjusted

in each case for stamp duty, outstanding rates and purchasers' conveyancing costs which

were respectively paid or would have had to be paid. However, the notional costs and

adjustments on the higher figure of $725,000, were not identified in the submissions of

either side.

Applying to the saving the ratio in which the parties actually contributed to the result

produces a figure considerably more than that assessed for the respondents below. The

judgment in his favour, which is the subject of appeal here, was for $43,000 with interest,

which arrived at after allowing an amount of $5,000 to recompense the defendant for the

time, trouble and expense to which he was put in carrying out his commission of

negotiating the transaction: cf. Phipps v. Boardman [1967] 2 A.C. 46. In fixing the figure

of $48,000 before deducting the allowance of $5,000, the trial judge used a different

method to arrive at the judgment sum of $43,000. The plaintiff is, however, not concerned

here to dispute it so as to increase its amount, and there is no cross-appeal directed to that

end. Accordingly, the judgment for that amount should not be disturbed.

Several other submissions were advanced by Mr Sheahan of counsel for the

defendant on appeal. They may be disposed of briefly. One was that the plaintiff's claim

was not put forward in his plaint as one for an account of profits but as moneys had and received or equitable damages. The criticism is, however, directed at the prayer for relief,

and not to the substance of the allegations pleaded in the body of the plaintiff. The trial

itself appears to have been conducted without reference to that blemish, and, subject to

one qualification, it was not suggested that the relevant issues were not fully explored,

litigated or presented for decision. The qualification is said to arise from the fact that, if the

appropriate relief had been claimed, the defendant would have been in a better position

at trial to establish his claim to recompense for his efforts, for which the allowance of

$5,000 was made. There are at least three answers to this complaint. One is that at an

early stage in the negotiations the defendant himself declined an offer by the plaintiff to pay

him for his time and effort. Another is that the invitation to make some such allowance was

issued by counsel for the defendant in the submissions at trial. The third is that, as the

calculations show, the plaintiff was, strictly speaking, entitled to judgment for an even larger

sum.

The remaining matter which attracted criticism is the form and quality of the reasons

for judgment. They comprise some 30 typed pages, of which two simply incorporate a

chronological sequence provided by plaintiff's counsel which the judge adopted as correct;

then there are four pages representing 15 paragraphs of an affidavit of the plaintiff, which

it is plain from the record was admitted in evidence at the trial without objection from the

defendant; followed by a three-page extract from the transcript of evidence, and 11 or 12

pages of submissions made by counsel at the trial. The form in which the submissions are

set out in the reasons makes it at several points very difficult to determine whether what is

being recorded is simply a bare submission, or is something the judge accepted and found

as a fact. Indeed, in some instances, where a submission appears or is said to be

accepted, it is followed by a statement that it is not accepted, or by some other observation which leaves it in doubt whether or not it has been accepted. The result is a mass of

undigested material which is difficult to follow or review in a rational manner.

The result is unsatisfactory both to the parties and to this Court. It is not the function

of an appellate tribunal to isolate and try to piece together for itself the essential features

of the oral and documentary evidence at the trial in an effort to identify critical issues and

findings. That is the duty of the trial judge. If it is not performed, one remedy available may

be to remit the matter to the trial judge to have the task carried out adequately. The

inclination to follow that course in the present case is strong; but, fortunately, it is possible

to extract from the reasons those essential findings that are needed to enable a proper

conclusion to be reached on the appeal. In the circumstances, we are not prepared to say

that the judgment is so defective or deficient as to bring it within the scope of the line of

decisions, of which Soulemezis v. Dudley Holdings Pty. Ltd. (1987) 10 N.S.W.L.R. 247

is an example, holding that failure to give adequate reasons is a valid ground of appeal.

In balancing the considerations which arise in such cases, we have concluded that it would

not serve the interests of either party here to order the retrial of an action which, on the view

we take of the undisputed evidence in the record, is a strong one for the plaintiff.

The appeal is dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 47 of 1995

Brisbane

[Tsan v. Chiu]

BETWEEN

CHONG THE TSAN and LI-YING LEE TSAN

(Plaintiffs) Respondents

AND

DAVID CHIU

(Defendant) Appellant

AND

LIGI CHIU

(Defendant)

Macrossan C.J. McPherson J.A. Ambrose J.

Judgment delivered 8/09/95

Reasons for judgment by the Court

APPEAL DISMISSED WITH COSTS.

CATCHWORDS	CONTRACT - BREACH OF FIDUCIARY DUTIES - Whether defendant made full and frank disclosure of material facts - New Zealand Netherlands Society 'Oranje' Inc. v. Kuys [1963] 1 W.L.R. 1126 - Whether defendant's conduct amounts to active misrepresentation - Whether defendant was in an adequate position at trial to establish his claim to recompense for his efforts - Whether trial judge's reasons were so defective or deficient so as to justify a re- trial.
Counsel:	J.C. Sheahan for the appellant
G.J. Radcliff for the respondent
Solicitors:	Michael J. McInnes for the appellant
Greenhow & Associates for the respondent
Hearing Date:	17 July 1995