Ying Mui Pty Ltd (ACN 009 992 449) and ORS v Frank Kiang Ngan Hoh and ORS [Relief]
[2018] VSC 214
•4 MAY 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
S CI 2012 06147
| YING MUI PTY LTD (ACN 009 992 449) & ORS | Plaintiffs |
| v | |
| FRANK KIANG NGAN HOH & ORS | Defendants |
| and | |
| FRANK KIANG NGAN HOH & ORS | Plaintiffs by Counterclaim |
| v | |
| KIANG PO HOH (ALSO KNOWN AS GEORGE HOH) & ORS | Defendants by Counterclaim |
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JUDGE: | VICKERY J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 9 APRIL 2018 |
DATE OF JUDGMENT: | 4 MAY 2018 |
CASE MAY BE CITED AS: | YING MUI PTY LTD (ACN 009 992 449) & ORS V FRANK KIANG NGAN HOH & ORS [Relief] |
MEDIUM NEUTRAL CITATION: | [2018] VSC 214 |
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CORPORATIONS — Civil penalty provisions — Corporations Act 2001 (Cth) ss 1317E — Declaration of contravention — No declaration sought by Plaintiffs — No formal election made by Plaintiffs — Compensation granted on equitable not statutory basis.
EQUITY — Availability of declaratory relief — No utility in repeating earlier findings of the Court as declarations — Earlier orders annexed to judgment — Declarations made in respect of certain other issues — Constructive trust declared over certain real property — Indemnity granted in respect of Plaintiffs’ liability to repay loans secured against assets of trust — Purpose of indemnity to provide finality and assist incoming trustee — Whether interest payable on money received by trust — Interest already accounted for in disgorgement of profits — Sixth defendant liable to disgorge profits — Calculation of interest on compensation — Interest calculated at mercantile rate from payment date.
TRUSTS — Constructive trusts — Whether constructive trust remedial or institutional — Constructive trust institutional — Appointment of trustee considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Osborne QC with Mr P Creighton-Selvay | Strongman & Crouch |
| For the First to Fifth Defendants | Mr P Bick QC with Mr C Truong | Arnold Bloch Liebler |
| For the Sixth Defendant | Mr M G R Gronow | Tribeca Legal |
| For the Seventh and Eighth Defendants | Mr C E Shaw | Norton Gledhill |
| For the Fifth Defendant by Counterclaim | Mr T J F McEvoy | Herbert Smith Freehills |
HIS HONOUR:
The following remaining issues remain for determination (Third Tranche Questions) on the question of relief (other than the costs of the proceeding):
(a) in respect of the First Tranche Questions and the Second Tranche Questions, what orders and declaratory relief should be made;
(b) who should be appointed as the trustee of the Ying Mui Trust, the Amore Trust and the FRG Investments Trust;
(c) in respect of Lot 201, what is the amount of compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) and equitable compensation, having regard to:
(i) the current market value of Lot 201;
(ii) the income foregone by the Ying Mui Trust following the sale of the property;
(iii) any interest saving derived by the Ying Mui Trust as a result of the sale of the property;
(d) in respect of the Sydenham Property and Lot 202:
(i) should the Ying Mui Trust be obliged to pay interest to Lumarkye on the purchase moneys received by the Ying Mui Trust or any other amounts in addition to repayment of the purchase price, and if so, at what rate should the interest or any other amounts be calculated;
(ii) what are the profits (if any) earned by Lumarkye from its ownership of the Sydenham Property and Lot 202.
Whether Orders to Include any and what Declaratory Relief
Declaratory Relief
The question here is whether the findings made in answer to the First Tranche Questions and the Second Tranche Questions ought to be further stated as declarations in the orders to be made by the Court.
Zamir and Woolf succinctly explain a declaration in The Declaratory Judgment in the following terms:[1]
A declaratory judgment is a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs. It is to be contrasted with an executory, in other words coercive, judgment which can be enforced by the courts.
[1]Sir Harry Woolf et al, Zamir & Woolf: The Declaratory Judgment (Sweet & Maxwell, 3rd ed, 2000) 1.02.
In Ainsworth v Criminal Justice Commission, the plurality of the High Court said:
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which "[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise."[2]
[2] (1992) 175 CLR 564 [38] (Mason CJ, Dawson, Toohey and Gaudron JJ), quoting Forster v JododexAust Pty Ltd (1972) 127 CLR 421, 437 (Gibbs J).
Although the grant of a declaration was first made in a court of equity,[3] whether a declaratory order is purely equitable relief remains a question which has not been settled.[4] In this context it is to be noted that the rules of equity, including those which govern the making of declaratory orders, were recognised in Victoria by Judicature Act 1883 (Vic) s 8, which in turn became incorporated into the Supreme Court Act 1986 (Vic) in s 29. This section provides in subsection (1) for law and equity to be concurrently administered:
(1)Subject to the provisions of this or any other Act, every court exercising jurisdiction in Victoria in any civil proceeding must continue to administer law and equity on the basis that, if there is a conflict or variance between the rules of equity and the rules of the common law concerning the same matter, the rules of equity prevail.
[3]Chapman v Michaelson [1909] 1 Ch 238, 241–2.
[4]R Meagher, D Heydon and M Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 4th ed, 2002) 641.
The answer to the question as to whether declaratory relief is purely equitable may have practical effect in relation to whether a court may refuse the grant of a declaration upon application of traditional equitable defences such as laches (delay), failure to do equity and unclean hands. The question does not arise in this case for resolution because no equitable defences have been pleaded.
The reach of the remedy, from its original form, was expanded by statute. This evolution occurred because of the restrictive practice of equity courts to grant a declaration only as ancillary to some other form of relief. However, the inherent usefulness of the declaration came to be recognized as being unjustifiably inhibited in this way. This gave rise to legislation which freed the remedy from the restriction and facilitated relief by declaration without the need for other remedies being sought.
Section 36 of the Supreme Court Act 1986 (Vic) provides an example of this approach:
Declaratory judgments
A proceeding is not open to objection on the ground that a merely declaratory judgment is sought, and the Court may make binding declarations of right without granting consequential relief.
In a growing number of cases, legislation operates to regulate the power of a court to grant declaratory relief. A statute may expressly, or by implication, oust a court’s jurisdiction completely.[5] In other cases, a statute may be the source of the power to grant a declaration.[6] In yet a further category of cases, a statute may alter the basis upon which declaratory relief may be granted.[7]
[5]Liverpool & London & Globe Insurance Co Ltd v J W Deaves Pty Ltd [1971] 2 NSWLR 131; Taylor v Minister [1973] 1 NSWLR 352.
[6]See, for example, Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’) s 250, which provides the power to the court to declare that a consumer contract or a small business contract contains an unfair term.
[7]See, for example, Corporations Act 2001 (Cth) s 1317E, where a court is in fact required to make a declaration upon making a finding of a prescribed contravention under the section, including subsections 180(1), 181(1) and (2), 182(1) and (2), 183(1) and (2), relating to breaches of directors’ and officers’ duties. The usual discretion as to whether to grant or refuse a declaration, which is a hallmark of the remedy, has been removed in these cases.
The discussion which follows is confined to declarations which have their jurisdictional source in the inherent power of the superior courts to grant declaratory relief.
The utility of declarations is well-accepted. Speaking extra-curially in 2007, Justice French said of the remedy:
The utility of the declaration that makes it worth talking about derives from its flexibility and procedural simplicity. Sarah Worthington made the point explicitly in her monograph "Equity":
Declarations can be made that a person is a member of a club; that her purported expulsion is invalid; that she is the owner of land; that the terms in a will or a trust have a particular meaning; that a contract exists or has been breached or terminated; that an agreement is binding or illegal; or that a form of notice is reasonable. The list is endless. Indeed a declaration may prove appropriate in virtually any situation imaginable.[8]
[8]Justice R S French, ‘Declarations - Homer Simpson's Remedy - Is there Anything they Cannot Do?’ (2007) Federal Judicial Scholarship 24 [22], quoting Sarah Worthington, Equity (Clarendon Press, 1st ed, 2003) 42-3.
Justice French in the same speech posed the question:
Well may we ask rhetorically of declarations as Homer Simpson asked of donuts - "is there anything they can't do?"[9]
[9] Ibid [8].
Declarations made by courts have serious legal consequences. It is an important characteristic of a declaration that it does not operate to create rights, but rather to authoritatively state what they always have been.[10] This does not mean that a declaration is ‘a mere opinion devoid of legal effect’.[11] It ‘operates in law either as a res judicata or an issue estoppel and such an order is a final order for the purposes of appeal’.[12]
[10] P W Young, Declaratory Orders (Butterworths, 2nd ed, 1984).
[11] Woolf et al, above n 1, 1.07.
[12] Young, above n 10, 213.
Nevertheless, if an appeal is lodged against a declaratory order, conceptually there can be no stay of proceedings because there is nothing about a declaratory order that can be stayed.[13] As Justice French has said: ‘a curial declaration says something about something. It has a legal effect but otherwise does nothing.’[14]
[13] Ibid.
[14] French, above n 8 [7]. See also Arnhem LandAboriginal Land Trust v Northern Territory of Australia[2007] FCAFC 31.
Although the jurisdiction to make a declaration is a very wide one, a discretion resides in the Court as to whether or not to grant the relief. It was observed in Rivers v Bondi Junction-Waverley RSL Sub-branch Ltd that ‘a plaintiff does not have an automatic right to a declaration because he can point to a failure by the defendant to comply with some requirement’.[15]
[15] (1986) 5 NSWLR 362, 376 (Hope and Priestley JJA).
The discretion to be exercised to grant a declaration, reflecting its origins in equity, ensures that the remedy remains appropriately flexible and is not root-bound by the strictures of immutable rules which, in particular circumstances, can work against achieving justice. It is a discretionary judgment that can never be replaced by a formulaic and artificial intelligence divorced from this fundamental principle.
Nevertheless, the exercise of the discretion to grant a declaration is not open-ended. It remains governed by accepted principles developed in the case law.
First, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions: Ainsworth v Criminal Justice Commission.[16] As was said in Cruse v Multiplex Ltd, ‘a declaration may be refused where the dispute said to underlie the proceeding as a whole is entirely hypothetical’.[17]
[16] (1992) 175 CLR 564 [38] (Mason CJ, Dawson, Toohey and Gaudron JJ).
[17] [2008] FCAFC 179 [50] (Goldberg and Jessup JJ).
Second, and ancillary to the first principle, relief will not be granted on the ground that the question ‘is purely hypothetical’, if relief is ‘claimed in relation to circumstances that have not occurred and might never happen’.[18]
[18] Ibid.
Third, the person seeking relief must have ‘a real interest’ in the subject matter such as to have the standing to make the application for the declaration.[19]
[19] Ibid.
Fourth, if ‘the Court's declaration will produce no foreseeable consequences for the parties’ the declaration may be refused.[20] Put another way, a declaration ‘must have some effect on the rights and obligations of the parties to the proceeding in which the declaration is pronounced’.[21]
[20] Ibid.
[21] Australian Competition and Consumer Commission v Francis (2004) 142 FCR 1.
Fifth, the discretion to grant a declaration must be exercised judicially and there must be some utility in making an order by way of a declaration. As Brennan J said in Ainsworth:
After all, it is doubtful if there is more of principle involved than the undoubted truth that the power to grant a declaration should be exercised with a proper sense of responsibility and a full realisation that judicial pronouncements ought not to be issued unless there are circumstances that call for their making.[22]
[22] (1992) 175 CLR 564 [24] (Brennan J), citing Ibeneweka v Egbuna(1964) 1 WLR 219, 225.
Applying these principles to the case at hand, I am of the opinion that, subject to the exceptions identified below, the orders should not merely attempt to replicate the answers to the questions which have already been provided in response to the First Tranche Questions and the Second Tranche Questions.
The answers to the questions which have already been provided by the Court in response to the First Tranche Questions and the Second Tranche Questions record the findings of fact made in those proceedings. There is no utility in repeating the findings in the form of declarations.
Secondly, the making of declarations in addition to the making of the findings which have already been made will have no effect on the rights and obligations of the parties to the proceeding.
Thirdly, there is at least some risk that in the framing of declarations, inconsistency may arise with the answers given, or at least give rise to unnecessary argument as to whether this is so.
Declarations which should be made
The exceptions which justify the making of declarations in the orders are those which arise from the desirability of making declarations, first as to an indemnity, and second in relation to the constructive trusts found in respect of the Sydenham Property and Lot 202.
As to the declaration to grant an indemnity, as analysed further in these reasons, I am of the opinion that it is desirable to declare that Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay two loans secured by an equitable lien over the assets of the Ying Mui Trust.
Second, in relation to the constructive trusts found in respect of the Sydenham Property and Lot 202, declarations are warranted and should be made in respect of both items of real property. This is so because the rights of third parties may be affected, and an order should be made to formally and publicly declare the ownership of the properties in equity consequent upon the findings of fact earlier made. Further, there is clear utility in making a declaration as to an interest in land for the purposes of the Transfer of Land Act 1958 (Vic), pursuant to which, for example, a caveat founded upon the interest in land declared may readily be lodged and made good.
Consequently, and subject to determining whether a temporal limitation should be imposed, or whether the declarations should be expressed to operate as and from the date of the order to be made, it will be declared that:
(a)Lumarkye holds the Sydenham Property on a constructive trust for the new trustee of the Ying Mui Trust, pending transfer of the legal title to the Sydenham Property in accordance with [a further order]; and
(b)Lumarkye holds Lot 202 on a constructive trust for the new trustee of the Ying Mui Trust, pending transfer of the legal title to Lot 202 in accordance with [a further order].
Statutory relief claimed by the Plaintiffs
Pursuant to s 1317E of the Corporations Act 2001 (Cth), the Court is required to make a declaration of contravention if it is satisfied that a person has breached a civil penalty provision as defined. Section 1317E(1) provides in relation to declarations as to contravention:
(1)If a Court is satisfied that a person has contravened a civil penalty provision, it must make a declaration of contravention. The provisions specified in column 1 of the following table are civil penalty provisions.
| Civil penalty provisions | ||
| Item | Column 1 provisions that are civil penalty provisions | Column 2 brief description of what the provisions are about |
| 1 | subsections 180(1), 181(1) and (2), 182(1) and (2) and 183(1) and (2) | officers' duties |
It is to be noted that breaches of directors’ and officers’ duties arising from contraventions of sections 181 and 182 are included.
The importance of this provision is that once a declaration has been made, ASIC can then seek a pecuniary penalty order (section 1317G) or a disqualification order (section 206C).
Further, pursuant to Section 1317E(2), a declaration of contravention must specify the following:
(a) the Court that made the declaration;
(b) the civil penalty provision that was contravened;
(c) the person who contravened the provision;
(d) the conduct that constituted the contravention;
(e) the corporation or registered scheme to which the conduct related.
It is noted that, in the declarations sought by the Plaintiffs in their submissions, declarations relating to contraventions of sections 181 and 182 are struck out.
Further, no declarations of contravention have been sought by the Plaintiffs pursuant to s 1317E of the Act.
It is also noted that, although mention is made of statutory relief in some paragraphs of the Plaintiffs’ written submissions and in some of their oral submissions, in fact the thrust of the Plaintiffs’ submissions was directed to claiming equitable compensation.
From this course of conduct, although no formal election has been made, I consider it appropriate to award compensation as equitable compensation, and not on the statutory basis available under the Corporations Act 2001 (Cth).
Whether declarations to operate retrospectively as ‘institutional constructive trusts’ or whether the declarations should be expressed to operate as and from the date of the order to be made as ‘remedial constructive trusts’
The Plaintiffs seek declarations that Lumarkye holds the Sydenham Property and Lot 202 on constructive trust for the new trustee of YMT, pending the transfer of legal title of those properties to the new trustee.
In an earlier formulation, the Plaintiffs expressed this order effectively as: ‘it is declared that as and from the date of this order Lumarkye holds the Sydenham Property [and Lot 202] on a constructive trust for the new trustee of YMT, pending the transfer of legal title of those properties to the new trustee’. [Emphasis by underlining added]. In effect, what this sought was a declaration by way of a remedial constructive trust.
The Plaintiffs, however, in a final formulation, adopted the position that no temporal limitation should be imposed, leaving the declarations as simply ‘that Lumarkye holds the Sydenham Property and Lot 202 on constructive trust for the new trustee of YMT, … etc.’ This would open the way to an institutional constructive trust in effect being declared.
The Sixth Defendant contended that the earlier formulation of the Plaintiffs was to be preferred, namely that the constructive trust ought to be expressed to operate as and from the date of the order, in recognition of the order appropriately recognising that a remedial constructive trust was declared.
The usual rule, as stated in Ford and Lee’s Principles of the Law of Trusts, is that ‘the constructive trust takes effect from the date of the circumstances giving rise to the imposition of the constructive trust and not the date when the trust is declared’.[23]
[23] H A J Ford, William Anthony Lee and Peter M McDermott, Thomson Reuters, Principles of the Law of Trusts, vol 2 (at Update 124) [22.660].
To similar effect, the learned authors of Dal Pont, Equity and Trusts in Australia observe:
The so-called “institutional” constructive trust it has been said, “arises by operation of law as from the date of the circumstance which give rise to it: the function of the court is merely to declare that such trust has arisen in the past”. Those circumstances are often premised on a breach of a pre-existing trust or fiduciary duty; the constructive trust is used to make a person account for a fiduciary breach … Institutional constructive trusts can also make non-fiduciaries accountable for property received with knowledge that it is property transferred in breach of fiduciary duty.[24]
[24] G E Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2014) [38.10].
The Plaintiffs have amended the precise form of orders they seek. They seek a declaration as to an ‘institutional’ constructive trust. This arises from arising from the knowing receipt, by Lumarkye, of the Sydenham Property and Lot 202 as found by the Court. In my opinion, the Plaintiffs are entitled to this relief on the application of the usual rule as I have described based on the cited authorities.
A necessary incident of such relief is that Lumarkye, as constructive trustee, also holds the profits generated by the Sydenham Property and Lot 202 on trust for the new trustee of the YMT.
In any event, in my opinion even if an order was to be made which in effect declared a remedial constructive trust, this would have had no effect on the rights of the Plaintiffs to claim against Lumarkye as a third party for disgorgement of profits.[25]
[25] Grimaldi v Chameleon Mining (No 2) 200 FCR 296, 404 [510], 405 [513].
The proprietary declarations in relation to the Sydenham Property and Lot 202 will be expressed as declarations which give effect to an institutional constructive trust in each case, arising as and from the date of the circumstances which gave rise to those trusts. For this reason and to give effect to this intention, the orders made will not include the temporal limitation to the effect that the constructive trusts arise ‘from the date of this order’.
Who should be appointed as the trustee of the Ying Mui Trust, the Amore Trust and the FRG Investments Trust?
The Plaintiffs’ position is that either Mr Stewart Peters or Mr Ian Morrison should be appointed as trustee of each of the Ying Mui, Amore and FRG Investments trusts.
The First to Fifth Defendants contend that an institutional trustee, being either Perpetual Trustee Company or Australian Executor Trustees, should be appointed.
As was observed by Brereton J in Hancock v Rinehart: ‘the advantages and disadvantages of the competing proposals [for the appointment of trustees] must be seen in the context of the functions that the trustee will be required to discharge’.[26]
[26] [2015] NSWSC 646 [128].
An examination of the evidence demonstrates that each of the nominees of the parties for appointment are well-qualified to undertake the duties of trustee in this case.
However, it appears to me that an institutional appointee is to be preferred. An institutional trustee will have the advantage of providing a guaranteed continuity in the administration of the trusts. This is likely to be of particular advantage given the length of time that the trusts are likely to require administration in the hands of an independent trustee, and the possibility that Mr Peters or Mr Morrison, if appointed, may seek to be relieved of their ongoing duties during the currency of their engagement. Secondly, an institutional trustee will have the further advantage of having access to a greater level of professional expertise ‘in house’, than an individual trustee, who is more likely to require the engagement of professional outside advice from time to time, and at additional cost to the trusts.
Of the two institutional trustees advanced by the First to Fifth Defendants, in my opinion Australian Executor Trustees is to be preferred. This is because it has offered to provide its services on the basis of a fixed lump sum fee, whereas the fee structure proposed by Perpetual Trustee Company is quoted on an hourly rate, with the hours open-ended.
Accordingly, Australian Executor Trustees will be appointed as the trustee of the Ying Mui Trust, the Amore Trust and the FRG Investments Trust.
In respect of the Sydenham Property and Lot 202, should the Ying Mui Trust be obliged to pay interest to Lumarkye on the purchase moneys received by the Ying Mui Trust or any other amounts in addition to repayment of the purchase price, and if so, at what rate should the interest or any other amounts be calculated?
The Sixth Defendant’s position is that the Ying Mui Trust is obliged to pay allowances (the ‘allowances’) for the interest expenses and management fees it incurred in respect of the Sydenham Property and Lot 202, in the following sums:
(a)$321,750, or alternatively $214,285, as a just allowance in respect of the Sydenham Property; and
(b)$536,250, or alternatively $357,142, as a just allowance in respect of Lot 202.
The Plaintiffs’ position is that the Ying Mui Trust is not be obliged to pay any allowance in respect of interest to Lumarkye on the purchase monies received or any other amounts, including management fees.
They say that expenses incurred by Lumarkye arising from its ownership of the Sydenham Property and Lot 202 have already been taken into account in calculating the profits earned by Lumarkye from its ownership of those properties.
Further, in the exercise of the Court’s equitable jurisdiction, the Plaintiffs say that Lumarkye is not entitled to claim any amounts as a ‘just allowance’.
In my opinion, the appropriate way to proceed is to take the amounts claimed by Lumarkye as allowances for interest and expenses in purchasing and managing the properties into account in calculating the profits made by Lumarkye which are to be disgorged.
Further, any such allowances which are to be taken into account should not include any legal expenses Lumarkye incurred in defending legal proceedings, which will be dealt with separately in a costs order.
The expert witness called by Lumarkye on this issue was Mr Lipson. I accept the net profit calculation of $530,293.20 made by Mr Lipson. This net profit calculation already incorporates, as a deduction from the gross profit made by Lumarkye, interest payments of $526,481.98 actually incurred and management fees of $61,339.15.[27]
[27] Expert witness statement of Mark Lipson dated 14 March 2018 [8], [12].
I do not accept that there is any proper basis for Lumarkye to recover an additional interest allowance above $526,481.98 which has already been taken into account in the profit calculation to Lumarkye’s benefit. I accept the submission of the Plaintiffs that to do so would be tantamount to allowing Lumarkye a double recovery, namely, as an interest expense it actually incurred (by way of $530,293.20, as a deduction from its gross profit which it will be required to disgorge for reasons which follow) plus a further interest expense (of $858,000, in the form of ‘just allowance’) to ‘compensate it’ for being ‘kept out of that money’.
Disgorgement of Profits by Lumarkye
The Plaintiffs seek orders that Lumarkye pay the new trustee of the YMT all profits it has derived from its ownership (as constructive trustee) of the Sydenham Property and Lot 202.
Disgorgement of profits gained in breach of trust is a basic component of discretionary equitable relief. [28] I accept that, as submitted by the Plaintiffs, it is well established that ‘the constructive trustee (so recognised) is liable to account’,[29] and that an order for an account of profits ‘may be made as a supplement to a declaration of a constructive trust’.[30] This is because a knowing recipient is ‘subject to the full range of relief that equity makes available against a wrongdoer’.[31]
[28] Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) WASCA 157 [1236] (Lee AJA).
[29] J A Watson, The Duty to Account, Development and Principles (Federation Press, 2016) [406]. See also: Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9 [121] (Warren CJ).
[30] Ford and Lee, above n 23, [22.7700].
[31] Ibid [22.10620].
Further, as Finn, Stone and Perram JJ held in Grimaldi v Chameleon Mining NL:
A knowing recipient will ordinarily be liable to hold what is trust property in the strict sense (or its traceable proceeds) as well as any profit received which is attributable to the trust property, to the extent that these remain extant and to return these to the claimant: see for example Commissioner of Taxation v Macquarie Health Corporation Ltd (1998) 88 FCR 451 at 497–8. As was said in Zhu at [121]:
“Intervention against a third party who obtains trust property from a trustee in breach of trust is based on the need to protect the proprietary interests of the beneficiaries. Intervention against a third party who obtains some other advantage as a result of a trustee’s breach of trust is based on the need to ensure that the trust receives property which, if it were to be acquired at all, should have been acquired for the trust.”[32]
[32] (2012) 200 FCR 296 [510], quoting Tao Zhu v Treasurer of New South Wales [2004] HCA 56 [121] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ).
Lumarkye submitted that it ought not be required to account for the profits it has made from the properties it holds on constructive trust, namely, the Sydenham Property and Lot 202.
Two reasons advanced by Lumarkye in oral submissions as to why it was that the ordinary rule as to disgorgement of profits should not be applied in this case as a matter of discretion which brought it out of the usual case were:
(a) Lumarkye in fact paid above full market value for the properties when it purchased them in 2011; and
(b) The money it paid to YMT was in fact used to pay off bank debt of the trustee and it received this benefit.
However, against this, I take into account that YMT in fact suffered a detriment in that it lost the benefit of capital growth in the two properties, as well as the capacity to earn income from the two properties.
It was further submitted by Lumarkye that it is not appropriate it to be required to disgorge the profits it has made ‘in the absence of fraud involving actual moral turpitude or dishonesty by Lumarkye’.
I do not accept this submission. The findings of the Court as a whole when read together do amount to findings of fraud involving actual moral turpitude or dishonesty by Lumarkye. Two examples will suffice.
As a first example, the Court made the following finding in the Second Tranche Reasons:[33]
The Sydenham Property and Lot 202 were sold as part of “an underhand scheme designed to cheat another”, namely, George, Han and Maureen, of the assets of the Ying Mui Trust and the Amore Trust.
[33] Ying Mui Pty Ltd v Hoh (No 6) [2017] VSC 730 [657].
As a second example, the Court made the following further finding in the Second Tranche Reasons:[34]
[….] I am satisfied that the evidence compels a finding that Frank, Lynn and Ian, through Lumarkye, engaged in “an underhand scheme designed to cheat another”. Lumarkye through Lynn had knowledge of the conduct and was used and was involved as an instrument of the fraud.
[34] Ibid [678].
I find that Lumarkye is liable to disgorge the profits it made from holding the Sydenham Property and Lot 202.
As to the quantum of the profits to be disgorged, the Plaintiffs adduced expert evidence from Mr Lom as to the profits Lumarkye derived from holding the Sydenham Property and Lot 202. The evidence of Mr Lom, after reviewing the rental payments received by Lumarkye in respect of those properties, and taking into account management fees paid to Lynn (or the company Linjoshan, the directors and shareholders of which comprise Frank, Ian and Lynn), taxes and expenses (including interest), is that Lumarkye has made profits of $624,429.
In response, Lumarkye adduced expert evidence from Mark Lipson of Hall Chadwick Forensics. His evidence was that ‘Lumarkye Pty Ltd has made a total net profit of $530,293.20’.
The differences between the calculations of Mr Lom and Mr Lipsom are identified in a (draft) joint report ordered to be prepared by the experts.
Commendably, given the relatively small amount in dispute, and conscious of their obligations under the Civil Procedure Act 2010 (Vic), the Plaintiffs are content for the Court to adopt the calculations of Mr Lipsom, provided that Lumarkye is directed to pay all outstanding land tax owing on the Sydenham Property and Lot 202, prior to the transfer of those properties to the new trustee of the YMT.
In this respect, and as noted in the (draft) joint experts’ report, Mr Lom has deducted, as an expense incurred by Lumarkye, pro-rata land tax for the period up to 31 March 2018, which has not yet been charged or paid.
Accordingly, the Court adopts the calculations of net profit at $530,293.20, and will do so on the basis that Lumarkye is directed to pay all outstanding land tax owing on the Sydenham Property and Lot 202, prior to the transfer of those properties to the new trustee of the YMT.
Calculation of payment of interest on compensation
The question here is what is the amount of interest payable in respect of the compensation payable arising under the various impugned payments, namely: the Impugned Ying Mui Payment; the Impugned Amore Payment; the 2011 Distribution Payments; the 2012 Distribution Payments made to Lokit; the 2013 Distribution Payments made to Lokit; and the 2012 and 2013 Distribution Payments made to Jonathon Hoh, Alicia Briggs, Samantha Hoh, Kian Howe Hoh, Cordelia Hoh and Leonard Hoh.
There is no dispute between the parties as to the quantum of the compensation payable in each case. The only outstanding issue is the basis calculation of interest, and not the arithmetical calculation in each case.
The questions divide into three possible approaches, as summarised below:
(a) Plaintiffs’ approach (option 1): interest at penalty rates calculated from the commencement of the relevant claim through to 31 March 2018.
The question raised by this option is whether, in the circumstances of this case, statutory interest should be applied to the equitable compensation to be awarded at the rates prescribed under s 2 of the Penalty Interest Rates Act 1983 (Vic), or whether the Count, in the exercise of its inherent equitable jurisdiction, should apply interest in equity, independently of statute, in which case mercantile rates of interest may be applied.
(b) First to Fifth Defendants’ primary approach (option 2): interest at the mercantile rate (4%) calculated from the commencement of the relevant claim through to 31 March 2018.
The question raised by this option is whether interest should run from the commencement of the relevant claim.
(c) First to Fifth Defendants’ alternative approach (option 3): interest at the mercantile rate (4%) calculated from the date of payment through to 31 March 2018.
The question raised by this option is whether interest should run from the date of payment.
Statutory interest or equitable interest
As to the statutory regime, s 60 of the Supreme Court Act 1986 (Vic) provides that:
The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.
It has been held that the expression ‘debt or damages’ is ‘very wide’ and covers ‘any sum of money which is recoverable by one party from another, either at common law or in equity or under a statute’.[35] Further, interest may be awarded on damages payable by way of equitable compensation pursuant to section 60 of the Supreme Court Act 1986 (Vic) or pursuant to equitable principles.[36]
[35] BP Exploration Co (Libya) Ltd v Hunt (No 2) [1982] 1 All ER 925, 992.
[36] Giller v Procopets (No 2) (2009) 24 VR 1 [37]; Talacko v Talacko [2009] VSC 579 [9], [29]-[30].
The time for calculating interest is ‘from the commencement of the proceeding to the date of the judgment’. In this respect, interest should only be granted from the date of the writ,[37] and can be awarded ‘from the commencement of the proceeding in which the application for interest is made’, even though damages are granted on a claim inserted by way of amendment.[38] Further, where proceedings have been consolidated, interest may be awarded from the time of commencement of the original proceeding in which judgment is ultimately given, not merely the date of consolidation.[39]
[37] David Leahey (Aust) Pty Ltd v McPherson's Ltd [1991] 2 VR 367, 380; Tankard v Chafer [2005] VSC 171 [77].
[38] See, for example, Braeside Bearing Pty Ltd v HJ Brignell & Associates (Boronia) (a firm) [1996] 1 VR 17 [19]–[21].
[39] Brenner v First Artists' Management Pty Ltd [1993] 2 VR 221, 272–5.
The Plaintiffs press for interest under the statue to be applied in this case. They contend that, whilst section 60 of the Supreme Court Act 1986 (Vic) provides that damages in the nature of interest must be awarded at a ‘rate not exceeding’ that stipulated from time to time by section 2 of the Penalty Interest Rates Act 1983 (Vic), it has been held that ‘as a general rule, the starting point is the penalty rate. In practice, unless the defendant seeks to argue for a lesser rate, the penalty rate is routinely awarded by the court’.[40] On this basis, they submit that the penalty rate should be awarded by the Court. I accept that this equates to an interest rate of somewhere between 10-12% over the relevant period.
[40] Kalenik v Apostolidis (No 2) [2009] VSC 410 [78].
However, the First to Fifth Defendants, supported by the Sixth Defendant, submit that a more flexible approach should be adopted pursuant to the inherent power of the Count in equity. They submit, in essence, that the purpose of interest on equitable compensation is not punitive. It is aimed at restoring the beneficiary to the position it would have been in but for the breach.
I accept this as a general proposition.
The observations of Kyrou J (as his Honour then was) in Talacko v Talacko summarised the applicable principles in the context of a case which considered the award of interest consequent upon judgment for equitable compensation for breach of fiduciary duty. The principles for awarding interest in such a case were stated in this well researched passage as follows (with footnoted citations omitted):
[10] The Court has inherent equitable jurisdiction to award interest when the interests of justice so demand, including in circumstances where money has been withheld or misappropriated by a fiduciary. The right to interest in equity exists independently of statute.
[11] Traditionally, in fixing the rate of interest, equity broadly distinguished between two classes of case. In cases involving a breach of trust or misconduct, the fiduciary was charged interest at the mercantile rate of five per cent per annum. In all other cases, the defaulting fiduciary was charged interest at a rate of four per cent per annum.
[12] More recently, however, the courts have departed from the fixed interest rates of four and five per cent. In Hagan v Waterhouse, McKearney J said:
I think that the volatile range of fluctuations in interest rates in recent times ought to be taken into account in applying to these changed conditions the policy of the Court which was settled in times of greater monetary stability. Since then a fundamental change has resulted from financial deregulation and its consequential uncertainties. I consider that it is no longer appropriate to apply a policy fixing a settled mean rate of interest, but rather that the mercantile rate should reflect the reality of the market place as it exists under a regime not in contemplation at the time of the foregoing pronouncement of judicial attitudes.
[13] An example of this more flexible approach is provided by Murdocca v Murdocca (No 2). In that case, Campbell J decided that the appropriate rate to be paid in respect of the late performance of a personal equitable obligation to transfer money was the standard rate specified in the relevant court rules for interest upon judgments.
[14] Equity does not award interest in order to punish the defaulting fiduciary. Rather, interest is awarded in order to restore to the innocent party the benefit derived by the defaulting fiduciary from his or her use of the property.[41]
[41] [2009] VSC 579 [10]–[14].
Although Kyrou J in the exercise of his discretion ultimately applied the statutory rate, I respectfully accept and adopt the principles stated above as a correct statement of then law on the question.
In the interests of justice I am of the view that, in this case, the Court should apply its inherent equitable jurisdiction to award interest, with the result that a mercantile rate which reflects the reality of the market place should be applied.
Rate of Mercantile Interest
The question then becomes, what rate of mercantile interest should be applied?
In Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd, Garde AJA said this:
Over the period since 2007, and since September 2008 prevailing bank interest rates have fallen to substantially lower levels than prevailed prior to the global financial crisis. Doing the best that I can to be fair to both parties, and in the absence of evidence as to how RSF invested the funds received by it, I consider an interest rate of 6% should be adopted. This represents a balance between the higher rates of interest available before the global financial crisis and the lower rates available subsequently. The Court is entitled to use its own experience and memory of rates during the relevant period.[42]
[42] [2015] VSCA 9 [322] (‘Rowley’).
Garde AJA, citing Meerkin & Apel v Rossett Pty Ltd, further found that ‘evidence is unnecessary’.[43]
[43] Ibid, citing Meerkin & Apel v Rossett Pty Ltd (No 2) [1999] 2 VR 31 [11] (Callaway JA, Batt and Charles JJA agreed).
I adopt the approach of Garde AJA in Rowley, and fix an interest rate which best approximates the prevailing commercial interest rate over the relevant period (after deducting any lending margin). Adopting the calculations reflected in Mr Lom’s expert report, I accept that an interest rate of 4% best reflects the prevailing commercial interest rate over the relevant period.
Date of payment most appropriate start date for interest calculation
As to the period to commence the calculation of interest, I am of the view that the date of payment in each case is to be preferred to the date of commencement of the proceeding in each case claiming the compensation alleged to be due.
I am satisfied that the equity of the present case will be met if the period to commence the calculation of interest is fixed at the date of payment in each case.
I accept the calculation undertaken by Mr Lom, as reflected in the table prepared by Junior Counsel for the First to Fifth Defendants, Mr Truong. This is based on the dates of payment of the impugned payments, which I regard as the most appropriate start dates for the calculation, rather that the dates of distribution as recorded. It is also based on the end date of 31 March 2018, which I accept for present purposes.
Conclusion
It follows that the First to Fifth Defendants’ alternative approach (option 3) is to be preferred.
As to the precise calculation in each case, I have had the advantage of further written submissions being provided by the Plaintiffs and the First to Fifth Defendants at the invitation of the Court, on the calculation of interest on the compensation payable, which I have considered and take into account. My findings are set out below:
Impugned Ying Mui Payment
The Plaintiffs’ position is that Lokit, Frank, Lynn and Pooi forthwith pay to the new trustee of the Ying Mui Trust $715,932.27, plus interest in the sum of $233,482.19, whilst the First to Fifth Defendants’ position is that interest should be calculated at either $95,091.50, or alternatively $189,869.16, in respect of the Impugned Ying Mui Payment.
Applying option 3, the award of interest will be $189,869.16 in respect of the Impugned Ying Mui Payment.
Impugned Amore Payment
The Plaintiffs’ position is that Lokit, Frank, Lynn and Pooi forthwith pay to the new trustee of the Amore Trust $13,365.35, plus interest in the sum of $4,358.75, whilst the First to Fifth Defendants’ position is that interest should be calculated at either $1,775.21, or alternatively $3,544.56, in respect of the Impugned Amore Payment.
Applying option 3, the award of interest will be $3,544.56 in respect of the Impugned Amore Payment.
2011 Distribution Payments
The Plaintiffs’ position is that Lokit, Frank, Lynn and Ian forthwith pay to the new trustee of the Ying Mui Trust $1,433,753, plus interest in the sum of $467,580.24, whilst the First to Fifth Defendants’ position is that interest should be calculated at $190,433.82, or alternatively $365,545.27, in respect of the 2011 Distribution Payments.
Applying option 3, the award of interest will be $365,545.27 in respect of the 2011 Distribution Payments.
2012 Distribution Payments made to Lokit
The Plaintiffs’ position is that Lokit, Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $1,092,904, plus interest in the sum of $272,655.43, whilst the First to Fifth Defendants’ position is that interest should be calculated at $112,335.22, or alternatively $121,940.36, in respect of the 2012 Distribution Payments made to Lokit.
Applying option 3, the award of interest will be $121,940.36 in respect of the 2012 Distribution Payments made to Lokit.
2013 Distribution Payments made to Lokit
The Plaintiffs’ position is that Lokit, Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $79,894, plus interest in the sum of $21,506.81, whilst the First to Fifth Defendants’ position is that interest should be calculated at $8,860.57, or alternatively $0, in respect of the 2013 Distribution Payments made to Lokit.
Adopting option 3 in this case yields the conclusion that nothing is payable in respect of interest, because the 2013 distribution was never in fact paid. Nevertheless, all relevant parties are in agreement that Lokit, Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $79,894, with the result that this order should be made.
2012 and 2013 Distribution Payments made to Jonathon Hoh, Alicia Briggs, Samantha Hoh, Kian Howe Hoh, Cordelia Hoh and Leonard Hoh
The Plaintiffs’ position is that Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $200,000, plus interest in the sum of $48,454.52, whilst the First to Fifth Defendants’ position is that interest should be calculated at $22,180.82, or alternatively $26,624.66 in respect of the 2012 and 2013 Distribution Payments made to Jonathon Hoh, Alicia Briggs, Samantha Hoh, Kian Howe Hoh, Cordelia Hoh and Leonard Hoh.
Applying option 3, the award of interest will be $26,624.66 in respect of the 2012 and 2013 Distribution Payments made to Jonathon Hoh, Alicia Briggs, Samantha Hoh, Kian Howe Hoh, Cordelia Hoh and Leonard Hoh.
Declaratory Indemnity in respect of the First and Second Loans
The ‘First Loan’ is defined in paragraph [363] of the Third Further Amended Statement of Claim as: ‘prior to 2005, George provided Ying Mui with a total of $1,076,749.67, by way of an interest free loan which was to be repaid upon demand by George’.
The ‘Second Loan’ is defined in paragraph [364] of the Third Further Amended Statement of Claim as: ‘prior to 2005, Robert provided Ying Mui with a total of $1,076,749.66, by way of an interest free loan which was to be repaid upon demand by Han’.
In the Second Tranche Reasons at [724], the Court held that: ‘Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the loans comprising the First Loan and the Second Loan, upon demand’.
It is on this basis that the Plaintiffs seek a declaration in the following terms:
It is declared that Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the First Loan (comprising $1,076,749.67) to George Hoh and the Second Loan (comprising $1,076,749.66) to Han Hoh, secured by an equitable lien over the assets of the Ying Mui Trust.
The Plaintiffs submit that it is appropriate for the Court to make a declaration in these terms, having determined many contested legal and factual matters, in both the First and Second Tranche Reasons, which culminated in the finding that Ying Mui was entitled to an indemnity out of the assets of the Ying Mui Trust in respect of the First and Second Loans.
The Court has already answered question 19 in the following terms: Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the loans comprising the First Loan and the Second Loan, upon demand.
The First to Fifth Defendants submit that, in circumstances where the Court has already answered question 19 in the way it has, the making of a declaration to the same effect is not appropriate and will serve no useful purpose.
In my opinion, it is appropriate in the circumstances of the case to make a declaratory order in support of the finding made in answer to question 19. The issue was strongly contested at trial. Two subsidiary questions raised themselves for determination, namely: (i) whether loan funds were lent by George, Han and Lokit to Ying Mui or whether those funds were lent (or indeed otherwise provided) by Artimax Investments Ltd, and (ii) whether Ying Mui borrowed those monies whilst acting as trustee. Both of these questions were determined by the Court in favour of the Plaintiffs. However, this involved a very detailed tracing analysis of the money trail and character of funds remitted from Malaysia to Australia and invested in the Ying Mui Trust over the relevant period of time. The findings made resulted in the conclusion that Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the loans comprising the First Loan and the Second Loan. The purpose in making this declaration is to produce a state of finality in relation to the issue such that it will give rise to a res judicata (subject to a right to appeal) and bind the parties. The utility in granting relief of this kind is that the declaration will also assist the newly appointed trustee in preparing financial statements.
I will make an order for a declaration as to the indemnity.
Orders Made
The orders made consequent upon these reasons are set out in Schedule ‘A’ annexed below.
Schedule ‘A’ - Orders
IN THE SUPREME COURT OF VICTORIA AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
No S CI 2012 06147
BETWEEN
YING MUI PTY LTD (ACN 009 992 449) AND OTHERS
(according to the schedule of parties)
Plaintiffs
and
FRANK KIANG NGAN HOH AND OTHERS
(according to the schedule of parties)
Defendants
AND BETWEEN
FRANK KIANG NGAN HOH AND OTHERS
(according to the schedule of parties)
Plaintiffs by Counterclaim
and
KIANG PO HOH (ALSO KNOWN AS GEORGE HOH) AND OTHERS
(according to the schedule of parties)
Defendants by Counterclaim
GENERAL FORM OF ORDER
JUDGE:The Honourable Justice Vickery
DATE MADE: 4 May 2018
ORIGINATING PROCESS: Writ
HOW OBTAINED: At the judgment
ATTENDANCE: Mr M Osborne, of Queen’s Counsel, and Mr P Creighton-Selvay, of Counsel, for the Plaintiffs
Mr P Bick, of Queen’s Counsel, and Mr C Truong, of Counsel, for the First to Fifth Defendants
Mr M G R Gronow, of Queen’s Counsel, for the Sixth Defendant
OTHER MATTERS: These orders are intended to give effect to the Reasons for Decision made on 8 February 2017 (First Tranche Reasons) and 15 December 2017 (Second Tranche Reasons).
In these orders a reference to:
(a)a ‘First Tranche Question’ is a reference to the questions stated in paragraph 4 of the orders made on 31 August 2016.
(b)a ‘Second Tranche Question’ is a reference to the questions annexed to the orders made on 16 March 2017.
(c)a ‘Third Tranche Question’ is a reference to the questions stated in paragraph 1 of the orders made on 1 February 2018.
At the hearing of the Second Tranche Questions, the Plaintiffs abandoned their claims in relation to Questions 13, 20 and 21.
Defined terms used in the paragraphs of these orders have the meaning given in the First Tranche Reasons and the Second Tranche Reasons.
THE COURT ORDERS THAT:
Answers to the First Tranche Questions
Question 1
In or about April 2001, or at any other and what time, was the alleged Joint Investment Agreement (the “JI Agreement”) formed between George, Frank and Robert Hoh to undertake property investment in Victoria through the vehicle of Ying Mui Pty Ltd, and if so:
(a) what were the terms of the JI Agreement?
(b)was property investment in Victoria subsequently undertaken by George, Frank and Robert Hoh pursuant to the JI Agreement?
(a)No legally binding agreement came into existence. However, an arrangement or understanding for a joint endeavour arose and operated between Frank, Robert (later Han) and George between October 2001 and early 2010 for investment in property in Australia.
The arrangement or understanding was governed by the trust deeds of the three trusts and the control of the trusts was governed by the trustees of the trusts, namely by the Ying Mui, Amore and Olrey companies, managed in accordance with the applicable company constitutions and the corporations law.
(b)No. The property investment was undertaken pursuant to a joint endeavour under the arrangement or understanding described.
Question 2
If not, in and after April 2001, was any or all property investment in Victoria undertaken by the Hoh family:
(a) for and on behalf of the family company, SYM; and/or
(b) pursuant the alleged benevolent purpose; and/or
(c) paid for by capital advanced by SYM, and not by loan funds;
(d)and if so, should any and what assets be held wholly or partly on a resulting and/or a constructive trust for SYM?
No in each case.
Question 3
Did Lumarkye, in receiving the Sydenham Property and Lot 202 from Ying Mui, knowingly receive trust property?
Yes.
If so, is Lumarkye a constructive trustee with respect to the Sydenham Property and Lot 202 or is required to pay compensation to Ying Mui?
The Court was, at the time of publication of the First Tranche Reasons, unable to answer the second part of question 3 in the light of the submissions that had been made to that point.
Answers to the Second Tranche Questions
Question 1
Did Frank owe a fiduciary duty to the other Joint Investors not to pursue his interests in conflict with the interests of the Joint Investors (the No Conflict Rule)?
Frank owed to George and to Robert (later Han) a fiduciary duty not to pursue his interests in conflict with those of George and Robert (later Han).
Question 2
Did Frank breach the No Conflict Rule by purporting to appoint himself to the office of appointor of the Ying Mui Trust? If so, should Frank’s purported appointment be set aside?
Frank did not breach the No Conflict Rule by simply purporting to appoint himself to the office of appointor of the Ying Mui Trust. It follows that his appointment as appointor of the Ying Mui Trust should not be set aside.
Question 3
Did Frank breach the No Conflict Rule by purporting to appoint himself to the office of appointor of the Amore Trust? If so, should Frank’s purported appointment be set aside?
Frank did not breach the No Conflict Rule by simply purporting to appoint himself to the office of appointor of the Amore Trust. It follows that his appointment as appointor of the Amore Trust should not be set aside.
Question 4
From July 2010, did Frank, with the knowledge and approval of Pooi, Lynn and Ian, decide to: (a) Procure the sale by Ying Mui of certain of Ying Mui’s property assets; (b) Distribute the proceeds of sale of those assets to himself, his family or to entities controlled by him or his immediate family or at their direction, or in any event, to the exclusion of George, Han and Maureen; and (c) Otherwise transfer the assets of Ying Mui and Amore to entities controlled by him or his immediate family or at their direction, or in any event to the exclusion of George, Han and Maureen (the Asset Sale and Distribution Decision)?
The property sales programme was undertaken with the knowledge and approval of Pooi, Lynn and Ian. It involved the following principal elements and followed a decision taken in the period from July 2010 to effect the following things (the ‘Asset Sale and Distribution Decision’):
(a) procuring the sale by Ying Mui of certain of Ying Mui’s property assets;
(b)distributing the proceeds of sale of those assets to Frank, his family or to entities controlled by him or his immediate family, or at their direction, or in any event, to the exclusion of George, Han and Maureen; and
(c)otherwise transferring the assets of Ying Mui and Amore to entities controlled by Frank or his immediate family, or at their direction, or in any event to the exclusion of George, Han and Maureen.
Question 5
Did Frank breach the No Conflict Rule in entering into the Impugned Ying Mui and Amore Agreements? If so, should the Impugned Ying Mui Agreement be set aside?
In executing the Impugned Ying Mui and Amore Agreements, Frank breached the No Conflict Rule. His conduct, in executing the Impugned Ying Mui and Amore Agreements behind the backs of George and Han and in pursuit of his self-interest, constituted a breach of the fiduciary duty he owed to George and Han not to pursue his interests in conflict with those of George and Robert (later Han).
It was not in the interests of George or Han, or in the interests of Ying Mui and Amore, for Ying Mui and Amore to pay management fees to Lokit when there was no pre-existing obligation to do so.
For these reasons, the Impugned Ying Mui and Amore Agreements should be set aside, as having been executed by Frank in breach of the No Conflict Rule.
Question 6
Did Frank breach any fiduciary or statutory duties to Ying Mui or Amore by arranging, authorising or facilitating the Impugned Ying Mui and Amore Payments? If so, are any of the pleaded equitable defences established and/or should Frank be relieved from liability pursuant to s 1318 of the Corporations Act 2001 (Cth)?
Frank breached his duty to Ying Mui and Amore by arranging, authorising and facilitating the Impugned Ying Mui and Amore Payments. Franked breached his duty in two ways:
(a) he failed to exercise his relevant powers for a proper purpose; and
(b) he failed to act in good faith in the best interests of the relevant companies.
Frank is not able to avail himself of the equitable defences of:
(a)fully informed consent in respect of the Impugned Ying Mui and Amore Payments; or
(b)any waiver on the part of Ying Mui or Amore of their rights and/or any release of Frank in respect of his obligations.
Frank did not act honestly in the relevant sense.
Frank ought not be fairly excused under s 1318 of the Corporations, and the discretion to grant relief in his favour, even if it is enlivened, fails.
Question 7
Did Lynn breach any fiduciary or statutory duties to Ying Mui by executing the Impugned Ying Mui Agreement? If so, should Lynn be relieved from liability pursuant to s 1318 of the Corporations Act? Are Frank or Pooi liable for knowingly assisting, or being involved in, any breaches?
Lynn breached fiduciary duties and statutory duties owed to Ying Mui by executing the Impugned Ying Mui Agreement. She did so in two ways:
(a) she failed to exercise her relevant powers for a proper purpose; and
(b) she failed to act in good faith in the best interests of the company.
Lynn did not act honestly in the relevant sense.
Lynn ought not be fairly excused under s 1318 of the Corporations Act, and the discretion to grant relief in her favour, even if it is enlivened, fails.
By reason of the matters not being pleaded by the Plaintiffs, the Court makes no findings on the allegations as framed by the Plaintiffs in their submissions in relation to Question 7(3), namely that ‘Frank, Pooi, Lynn and Ian acted in concert to implement the asset sale process, which was a dishonest and fraudulent design, intended to covertly misappropriate the assets of the Ying Mui Trust and [the] Amore Trust for the benefit of Frank and his immediate family and to the exclusion of George, Han and Maureen’. It is not a question which arises on the pleadings.
Question 8
Did Pooi breach any fiduciary or statutory duties to Amore by executing the Impugned Amore Agreement? If so, should Pooi be relieved from liability pursuant to s 1318 of the Corporations Act? Are Frank or Lynn liable for knowingly assisting, or being involved in, those breaches?
Pooi acted in breach of fiduciary and statutory duties to Amore by executing the Impugned Amore Agreement.
In the circumstances of her executing the Impugned Amore Agreement, Pooi ought not be fairly excused under s 1318 of the Corporations Act.
Frank and Lynn are liable for knowingly assisting, and being involved within the meaning of s 79 of the Corporations Act, in Pooi’s breaches of fiduciary and statutory duty in executing the Amore Agreement on behalf of Amore.
Question 9
Did Frank, Lynn, Pooi or Ian breach any fiduciary or statutory duties to Ying Mui or Amore by voting in favour of resolutions that Ying Mui and Amore be authorised to pay the Impugned Ying Mui and Amore Invoices? If so, should any of them be relieved from liability pursuant to s 1318 of the Corporations Act?
Frank, Lynn, Pooi and Ian breached their fiduciary and statutory duties to Ying Mui and Amore by voting in favour of resolutions authorising Ying Mui and Amore to pay the Impugned Ying Mui and Amore Invoices.
They should not be relieved of liability under s 1318 of the Corporations Act.
Question 10
In receiving the Impugned Ying Mui and Amore Payments, whether pursuant to the Impugned Ying Mui and Amore Invoices or otherwise, did Lokit or Lynn knowingly receive trust property? If so, are Lokit or Lynn: (a) liable as constructive trustees with respect to the Ying Mui and Amore Payments; or (b) liable to pay compensation to Ying Mui and Amore?
Frank had sufficient knowledge of the contravening conduct such that, when properly imputed to Lokit, it rendered Lokit liable as a knowing recipient. Therefore, Lokit is liable as a knowing recipient, and holds the Impugned Ying Mui and Amore Payments as a constructive trustee. In addition, following any necessary election to be made by the Plaintiffs, Lokit is liable to pay equitable compensation to Ying Mui and Amore, plus interest.
The Plaintiffs did not press a claim against Lynn for knowing receipt of trust property and only pursued the claim against Lokit.
Question 11
Was Frank and/or Lokit entitled to fair and reasonable remuneration in respect of the services they provided to Ying Mui and Lokit? (with quantum to be determined later)
In the exercise of the Court’s equitable jurisdiction, neither Frank nor Lokit are entitled to any remuneration in respect of any of the services they provided to Ying Mui or Amore or the Ying Mui Trust or the Amore Trust.
Question 12
Did Frank, Lynn, Pooi and/or Ian breach any fiduciary or statutory duties to Ying Mui by arranging, authorising and facilitating the sale of the Docklands Property, Unit 10, or Lot 201 to third parties? If so, should any of them be relieved from liability pursuant to s 1318 Corporations Act?
Frank, Lynn, Pooi and Ian each breached their fiduciary and statutory duties owed to Ying Mui in arranging, authorising and facilitating the sale of the Docklands Property, Unit 10 and Lot 201.
Frank, Lynn, Pooi and Ian should not be relieved from liability pursuant to s 1318 of the Corporations Act.
Question 14
Did Ying Mui and/or Frosthollow act in breach of trust by making the 2011, 2012, 2013 & 2014 Distribution Payments? If so, did Frank, Lynn or Ian knowingly assist those breaches of trust?
Frank, Lynn and Ian knowingly procured Ying Mui to make the 2011 Payments in breach of trust and thereby knowingly assisted in breach of trust.
Lynn knowingly procured Frosthollow to make the 2012 to 2014 Distribution Payments in breach of trust and thereby knowingly assisted in those breaches of trust.[44]
[44] Ying Mui Pty Ltd v Hoh (No 6) [2017] VSC 730 [712]–[713].
Question 15
In receiving the 2011, 2012 & 2013 Distribution Payments, did Lokit knowingly receive trust property? If so, is Lokit: (a) liable as a constructive trustee with respect to the 2011, 2012 & 2013 Distribution Payments; or (b) liable to pay compensation to Ying Mui?
In receiving the 2011, 2012 and 2013 Distribution Payments, Lokit knowingly received trust property.
Lokit is liable:
(a)as a constructive trustee with respect to the 2011, 2012 and 2013 Distribution Payments; and
(b) to pay compensation to Ying Mui.
Question 16
What duties did Frank owe as appointor of the Ying Mui and Amore Trusts and did he breach those duties by removing Ying Mui and Amore and appointing Frosthollow as trustee of those trusts? If so, is the appointment of Frosthollow as trustee of the Ying Mui and Amore trusts invalid or liable to be set aside?
Frank, in removing Ying Mui and Amore and appointing Frosthollow as trustee of the relevant trusts, owed a fiduciary duty to the beneficiaries of the trusts to act in their best interests and not for a collateral purpose, for his own benefit or with any ulterior purpose.
Frank breached those duties by removing Ying Mui and Amore and appointing Frosthollow as trustee of those trusts.
It is appropriate to grant a declaration that the appointment of Frosthollow as trustee of the Ying Mui and Amore trusts was and remains invalid, and consequently should be set aside.[45]
[45] Ibid [716]–[718].
Question 17
Did Frosthollow and Olrey act in breach of trust by executing the Impugned Frosthollow and Olrey Agreements? If so, did Frank or Lynn knowingly assist those breaches of trust?
The Plaintiffs have not established that the execution of the management fee agreements, being the Impugned Frosthollow and Olrey Agreements, were undertaken in breach of trust.
Given the finding that the Impugned Frosthollow and Olrey Agreements were not executed in breach of trust, there is no need to consider this matter further.[46]
[46] Ibid [719]–[720].
Question 18
Is it expedient for the Court to remove Frosthollow as trustee of the Ying Mui and Amore Trusts and/or Olrey as trustee of the FRG Investments Trust and appoint independent trustees, Ying Mui or Amore as trustee of those trusts?
It is expedient for the Court to:
(a)remove Frosthollow as trustee of the Ying Mui and Amore Trusts and for an independent trustee to be appointed; and
(b)remove Olrey as trustee of the FRG Investments Trust and for an independent trustee to be appointed.[47]
[47] Ibid [721]–[722].
Question 19
Is Ying Mui entitled to an indemnity out of the assets of the Ying Mui Trust in respect of the First Loan and Second Loan?
Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the loans comprising the First Loan and the Second Loan, upon demand.[48]
[48] Ibid [723]–[724].
Question 22
Is proprietary relief available against Lumarkye in light of s 42 of the Transfer of Land Act 1958 (Vic) (with the terms of such proprietary relief to be determined at the quantum stage of the proceeding)?
Lumarkye cannot avail itself of the indefeasibility provisions under s 42 of the Transfer of Land Act 1958.
It follows that, as a knowing recipient of the Sydenham Property and Lot 202, Lumarkye holds those properties on constructive trust for Ying Mui.[49]
[49] Ibid [725]–[726].
Question 23
If no to 22, is the First Plaintiff entitled to relief against Lumarkye:
(23.1) by way of equitable compensation or alternatively an account of profits (with the quantum of any such compensation or the amount of any account to be determined at the hearing of the quantum stage of the proceeding)?
(23.2) alternatively to 23.1, is the Plaintiff entitled to equitable relief against Lumarkye in the form of rescission and ancillary relief thereto including an order that Lumarkye transfer Lot 202 and the Sydenham properties to Ying Mui?
In light of the answer to Question 22, there is no need to answer these questions.[50]
[50] Ibid [727].
Answers to the Third Tranche Questions
Question 1
In respect of the First Tranche Questions and the Second Tranche Questions, what orders and declaratory relief should be made?
The orders which should be made are those set out below.
Question 2
Who should be appointed as the trustee of the Ying Mui Trust, the Amore Trust and the FRG Investments Trust?
Australian Executors and Trustees is appointed as trustee of each of the trusts.
Question 3
In respect of Lot 201, what is the amount of compensation pursuant to equitable compensation, having regard to:
(a) the current market value of Lot 201;
(b) the income foregone by the Ying Mui Trust following the sale of the property;
(c) any interest saving derived by the Ying Mui Trust as a result of the sale of the property?
The amount of compensation payable by Frank, Lynn and Ian in respect of Lot 201 is $1,045,012.[51]
[51] This is agreed by the parties – see T12.3-26 and T70.9-14.
Question 4
In respect of the Sydenham Property and Lot 202:
(a)should the Ying Mui Trust be obliged to pay interest to Lumarkye on the purchase moneys received by the Ying Mui Trust or any other amounts in addition to repayment of the purchase price, and if so, at what rate should the interest or any other amounts be calculated?
The Ying Mui Trust is not obliged to pay interest to Lumarkye on the purchase monies received or any other amounts by reason that all expenses incurred by Lumarkye arising from its ownership of the Sydenham Property and Lot 202 have already been taken into account in calculating the profits earned by Lumarkye from its ownership of the Sydenham Property and Lot 202.
Further, in the exercise of the Court’s equitable jurisdiction, Lumarkye is not entitled to claim any amounts as a ‘just allowance’.
(b)what are the profits (if any) earned by Lumarkye from its ownership of the Sydenham Property and Lot 202?
The profits earned by Lumarkye from its ownership of the Sydenham Property and Lot 202 are $530,293.20.[52]
[52] This figure is the amount assessed by the Sixth Defendant’s expert, Mr Lipsom (SSCB at 435), and is now agreed by the Plaintiffs (see Plaintiffs’ Outline of Submissions dated 28 March 2018 [69]).
Further orders of the Court consequential upon answers to First, Second and Third Tranche Questions
Appointment of new trustee
Australian Executor Trustees be appointed as trustee of each of the Ying Mui Trust, Amore Trust and the FRG Investments Trust.
Frosthollow shall forthwith transfer all property held by it on behalf of the Ying Mui Trust and Amore Trust to the new trustee of the Ying Mui Trust and Amore Trust.
Olrey shall forthwith transfer all property held by it on behalf of the FRG Investments Trust to the new trustee of the FRG Investments Trust.
Liberty to apply is reserved to the new trustee of the Ying Mui Trust, Amore Trust and FRG Investments Trust.
Payment of compensation
Lokit, Frank, Lynn and Pooi forthwith pay to the new trustee of the Ying Mui Trust $715,932.27 plus interest in the sum of $189,869.16 in respect of the Impugned Ying Mui Payment.
Lokit, Frank, Lynn and Pooi forthwith pay to the new trustee of the Amore Trust $13,365.35 plus interest in the sum of $3,544.56 in respect of the Impugned Amore Payment.
Frank, Lynn and Ian forthwith pay to the new trustee of the Ying Mui Trust $1,045,012 in respect of the sale of Lot 201.
Lokit, Frank, Lynn and Ian forthwith pay to the new trustee of the Ying Mui Trust $1,433,753 plus interest in the sum of $365,545.27 in respect of the 2011 Distribution Payments.
Lokit, Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $1,092,904 plus interest in the sum of $121,940.36 in respect of the 2012 Distribution Payments made to Lokit.
Lokit, Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $79,894 (with no interest) in respect of the 2013 Distribution Payments made to Lokit.
Frosthollow and Lynn forthwith pay to the new trustee of the Ying Mui Trust $200,000 plus interest in the sum of $26,624.66 in respect of the 2012 and 2013 Distribution Payments made to Jonathon Hoh, Alicia Briggs, Samantha Hoh, Kian Howe Hoh, Cordelia Hoh and Leonard Hoh.
Orders concerning Sydenham Property, Lot 202 and Lumarkye
The contract of sale between Ying Mui as vendor and Dominic Low and/or nominee as purchaser for the Sydenham Property and dated 30 September 2011 is set aside and Lumarkye shall forthwith:
(a)apply to the State Revenue Office for a land tax clearance certificate and pay all accrued land tax on the Sydenham Property;
(b)take all necessary steps to transfer the Sydenham Property to the new trustee of the Ying Mui Trust, subject to the payment by the said trustee of the amount of $990,000 from the assets of the Ying Mui Trust to Lumarkye.
It is declared that Lumarkye holds the Sydenham Property on a constructive trust for the new trustee of the Ying Mui Trust, pending transfer of the legal title to the Sydenham Property in accordance with the preceding paragraph.
The contract of sale between Ying Mui as vendor and Dominic Low and/or nominee as purchaser for Lot 202 and dated 28 October 2011 is set aside and Lumarkye shall forthwith:
(a)apply to the State Revenue Office for a land tax clearance certificate and pay all accrued land tax on Lot 202;
(b)take all necessary steps to transfer Lot 202 to the new trustee of the Ying Mui Trust, subject to the payment by the said trustee of the amount of $1,650,000 from the assets of the Ying Mui Trust to Lumarkye.
It is declared that Lumarkye holds Lot 202 on a constructive trust for the new trustee of the Ying Mui Trust, pending transfer of the legal title to Lot 202 in accordance with the preceding paragraph.
It is ordered that Lumarkye pay to the new trustee of the Ying Mui Trust all profits derived by it from its ownership of the Sydenham Property and Lot 202, being the amount of $530,293.20.
The profits to be paid by Lumarkye pursuant to paragraph 16 above are to be set off against the amounts to be paid to Lumarkye pursuant to paragraphs 13(b) and 15(b) above.
Other orders
The Impugned Ying Mui Agreement and the Impugned Amore Agreement are set aside.
It is declared that Ying Mui is entitled to an indemnity out of the assets of the Ying Mui Trust in respect of its liability to repay the First Loan (comprising $1,076,749.67) to George Hoh and the Second Loan (comprising $1,076,749.66) to Han Hoh, secured by an equitable lien over the assets of the Ying Mui Trust.
The Counterclaim filed by Frank, Poo, Lynn and Ian is dismissed.
All questions of costs are reserved and are to be determined at a further hearing.
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