Ying v Song

[2010] NSWSC 1500

CITATION:	Ying v Song [2010] NSWSC 1500 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	27-30 September, 1 October 2010
JUDGMENT DATE :	22 December 2010
JURISDICTION:	Equity
JUDGMENT OF:	Ward J
DECISION:	Plaintiff's claim dismissed
CATCHWORDS:	EQUITY - claim by plaintiff that company shares held on constructive trust for him - trust said to arise on application of principles considered in Barclays Bank v Quistclose - claim by plaintiff that company holds moneys paid to it allegedly by way of loan on trust for him - claim for an account of benefits obtained by first defendant from ownership of shares - claim for an account of benefits made by company's use of funds said to have been the subject of loan to company - claim for moneys said to be owing by way of loan to company - consideration of requirements for Quistclose trust - whether first defendant owed fiduciary obligations to plaintiff - HELD - no trust over shares - no trust over moneys as claimed - no moneys owing by company by way of loan as claimed - no entitlement to account - plaintiff’s claim dismissed
LEGISLATION CITED:	Family Law Act 1975 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
CATEGORY:	Separate question
CASES CITED:	Adamson v Ede [2009] NSWCA 379 Angaston & District Hospital v Thamm (1987) 47 SASR 177 Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335 Australian Postal Corp v Lutak (1991) 21 NSWLR 584 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; [1968] 3 All ER 651; [1968] 3 WLR 1097 Beach Petroleum NL v Kennedy and Ors [1999] NSWCA 408 (1999) 48 NSWLR 1; (1999) 33 ACSR 1 Beatty v Guggenheim Exploration Co 122 NE (1919) Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 Black & Black v S Freedman & Company [1910] HCA 58; (1910) 12 CLR 105 Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721; [1966] 3 WLR 1009 Brand v Monks [2009] NSWSC 1454 Breen v Williams (1986) 186 CLR 710 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 Cordon v Lesdor [2010] NSWSC 1073 Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426; (1912) 18 ALR 542; Dialog Pty Ltd v Addease Pty Ltd [2003] FCA 1359 Ehsman v Nutectime [2009] NSWSC 909 Expectation Pty Limited v PRD Realty Pty Limited [2004] FCAFC 189; (2004) 140 FCR 17 Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 Georges & anor v Peter Wieland & ors [2009] NSWSC 733 Gibson Motorsport Merchandise Pty Limited v Forbes (2006) 149 FCR 569 Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 Hadid v Redpath [2001] NSWCA 416; (2001) 35 MVR 152 Henderson v Merrett Syndicates Limited [1995] 2 AC 145 Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 Holt v Protective Commissioner (1993) 31 NSWLR 227 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; (1984) 55 ALR 417; (1984) 58 ALJR 587; (1984) 4 IPR 291; [1984] HCA 64 Idemaneo (No 123) P/L v Ticco P/L and Anor [2003] NSWSC 538 In the matter of Travel House of Australia Pty Ltd; Browne v The Deputy Commissioner of Taxation (Murray J, Supreme Court of Victoria, 1978, unreported) John Alexander's Clubs Pty Limited v White City Tennis Club Limited; Walker Corporation Pty Limited v White City Tennis Club Limited [2010] HCA 19 Kassem v Crossley & Anor; Kassem v Krayem & Anor [2000] NSWCA 276 Knight v Knight (1840) 3 Beav 148 Lipman Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548 Lyell v Kennedy (1889) 14 App Cas 437, 459-460; Boardman v Phipps [1967] 2 AC 46 Macquarie Developments Pty Ltd and Anor v Forrester and Anor [2005] NSWSC 674 Mario Salvo & 2 Ors v New Tel Limited [2005] NSWCA 281 McManus RE Pty Ltd v Ward [2009] NSWSC 440 Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22 and Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367; (1959) 32 ALJR 395; (1959) 76 WN (NSW) 278 Michael Wilson & Partners Limited v Robert Colin Nicholls [2009] NSWSC 721 Monie v Commonwealth of Australia [2005] NSWCA 25; (2005) 63 NSWLR 729 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583; (1985) 62 ALR 429 NAIS v Minister for Immigration and Multicultural and Indigenous Affairs [2005] HCA 77; (2005) 228 CLR 470 Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346 Peter Cox Ivestments Pty Ltd (In liq) v International Air Transport Association (1991) 161 ALR 105 Potter v Potter [2003] 3 NZLR 145; [2003] NZFLR 1035 Piras v Egan [2008] NSWCA 59 Public Curator of Queensland v The Union Trustee Company of Australia (1922) 31 CLR 66 Rasmanis v Jurewitsch (1961) 70 SR (NSW) 407; 90 WN (Pt 2) (NSW) 154 Rawley Pty Limited v Bell (No 2) (2007) 61 ACSR 648 Re Armstrong (1960) VR 202 Re Associated Securities Ltd and the Companies Act [1981] 1 NSWLR 742 Re Association of Architects of Australia; Ex parte Municipal Officers Association of Australia (1989) 63 ALJR 298 Re Edelsten; Ex parte Donnelly (1988) 18 FCR 434; (1988) 80 ALR 704; (1988) 12 Fam LR 294 Re Elizabethan Theatre Trust (1991) 30 FCR 491; (1991) 161 ALR 105 Re EVTR [1987] BCLC 646 Re Miles; Ex parte National Australia Bank Ltd v Official Receiver in Bankruptcy (1988-89) 85 ALR 216 Re Vandervell Trusts; White v Vandervell Trustee Ltd [1974] 1 All ER 47 Re Wall; Ex parte Official Receiver v Kemmis (1979) 25 ALR 615 Robb Evans of Robb Evans & Associates v European Bank Ltd [2004] NSWCA 82; (2004) 61 NSWLR 75 Samuel John Maloof v MBF Australia Limited [2007] NSWSC 1020 Seamez v Mclaughlin [1999] NSWSC Simpson v Donnybrook Properties Pty Ltd [2010] NSWCA 229 Spedding v Spedding (1913) 30 WN (NSW) 81 SZBEL v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 63; (2006) 228 CLR 152 Twinsectra Ltd v Yardley [2002] All ER (D) 321 (Mar); [2002] UKHL 12; [2002] 2 AC 164; [2002] 2 All ER 377; [2002] 2 WLR 802 Varma v Varma [2010] NSWSC 786 Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 Walker v Corboy (1990) 19 NSWLR 382 White City Tennis Club Ltd v John Alexander's Clubs Pty Ltd & Anor [2009] NSWCA 114 White v Overland [2001] FCA 1333 Wright v Atkyns (1823) Turn & R Zobory v Federal Commissioner of Taxation (1995) 64 FCR 86
TEXTS CITED:	Finn, The Fiduciary Principle, in Youdan (ed), Equity Fiduciaries and Trusts, Carswell, 1989 Glover J, Commercial Equity: Fiduciary Relationships, Butterworths, 1995 Heydon and Leeming, Jacob’s Law of Trusts, 7th edn, LexisNexis Butterworths, 2006 Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed, Butterworths, 1992 Parkinson (ed), The Principles of Equity, LBC, 1996 Swaddling W., (ed) The Quistclose Trust: Critical Essays, Hart Publishing, 2004 Young, Croft and Smith, On Equity, Thomson Reuters, 2009
PARTIES:	Ming Ying (Plaintiff) Lida Song (First Defendant) Budget Scaffold Supplies Limited (Second Defendant)
FILE NUMBER(S):	SC 06/257653
COUNSEL:	Ms R Winfield (Plaintiff) M Lawson (Defendants)
SOLICITORS:	William Chan & Co (Plaintiff) Colin Biggers & Paisley (Defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

WEDNESDAY 22 DECEMBER 2010

06/257653 MING YING V LIDA SONG AND ANOR

JUDGMENT

1 HER HONOUR: This matter involves a dispute between former family members over shares in the second defendant (Budget Scaffold Supplies Pty Ltd, to which I will refer as BSS) and in respect of amounts recorded at one stage in the financial records of BSS as a shareholder loan from the plaintiff (Ming Ying) to the company.

2 Ming Ying’s sister (Hua Ying) was formerly married to the first defendant (Lida Song). There are Family Court proceedings presently on foot between the couple (that I was told have been stayed pending the outcome of these proceedings). Mr Song explains the family relationship as the reason for his involvement in the events which have led to the present dispute with his former brother-in-law, Ming Ying.

3 There is a stark difference in the version of the relevant events proffered by Ming Ying and that proffered by Lida Song. According to Ming Ying, he paid some $106,025 to acquire shares in BSS, shares which Lida Song later transferred back to himself, without Ming Ying’s consent, in 2005. (Ming Ying, in these proceedings, seeks declaratory relief in relation to those shares and in relation to $106,000 of the funds he says he paid to the company for their acquisition and other funds he says were later provided to the company (in the order of some $30,775). According to Lida Song, however, the shares were only transferred to Ming Ying (and the company’s records recorded shareholder loans by Ming Ying) as part of an attempt to present a false impression of Ming Ying’s assets in Australia to the Department of Immigration so as to assist in Ming Ying’s attempt to obtain permanent residency in Australia.

4 What seems not to be in dispute is that, at some stage in 2002, Lida Song transferred to Ming Ying 25 shares which Mr Song then held in BSS and that, at the same time as the share transfer form in respect of those shares was signed, a second share form was also signed by Ming Ying (to be used if and when those shares were to be transferred back to Lida Song).

5 There was initially a dispute as to the time at which the initial transfer of shares was effected but by the time of the hearing it was accepted by Ming Ying that, although the share transfer form was dated 15 July 2002 (the date of incorporation of BSS), the transfer of shares to him did not take place until late 2002 (somewhere around October, November, December 2002). What remains in dispute is what was agreed between the brothers-in-law as to the circumstances in which the shares would be transferred back to Lida Song (if at all).

6 Ming Ying (whose evidence at various times was inconsistent on a number of matters, including as to critical points of the relevant conversation in 2002 with Lida Song) at first seemed to suggest that he had signed only one share transfer form but later accepted that he had signed two such forms. He has variously attributed to Mr Song a number of explanations for the request that he sign the second share transfer form. (In his first affidavit of 12 July 2006, and in his affidavit of 31 July 2008 (re-sworn on 1 July 2009), Ming Ying says that he was asked by Lida Song to sign the blank transfer form in case he (Ming Ying) failed to pay a sum of $100,000 in relation to the share transfer. He says in his affidavit of 5 November 2009 that Lida Song said that the (second) transfer form was for use in case Ming Ying had to return to China (which was at that stage a possibility, depending on the outcome of Ming Ying’s application for permanent residency) in order to protect Ming Ying’s ‘investment’ in BSS. The inconsistency between those two versions was explained by a third version of the relevant conversation in which both reasons were put forward – it being variously suggested that they were concurrent reasons or successive reasons (ie in the latter version that first it was for security in the event of non-payment of the $100,000 but that after the $100,000 was paid, the share transfer form was then only to be used if Ming Ying had to return to China).)

7 Lida Song, on the other hand, says that the purpose of the second signed share transfer form was to enable him to regain his shares after Ming Ying’s visa application had been determined and that the shares were simply “borrowed” by Ming Ying for the purpose of deceiving the Department of Immigration into believing that Ming Ying had established assets in Australia in support of Ming Ying’s application for a business residency visa.

8 There is no dispute that, in late 2005, Lida Song caused the transfer back into his name of the shares in question by completing and signing a share transfer form and providing it to BSS’s accountant (Stephen Poon). Curiously, it seems that Lida Song did so by using a copy of the transfer form which had been signed on the initial share transfer to Ming Ying (ie, as I understand it, not by using a blank signed form also signed on that date but by altering the copy form signed by Ming Ying in 2002) to which he applied liquid paper in order to transpose the names of transferor and transferee and which he dated 7 August 2005. (The original of the share transfer form was not in evidence. Mr Poon gave evidence to the effect that he had seen a share transfer form to which liquid paper had been applied but that the lodgment of the share transfer details took place electronically when the annual return was lodged and it appears that it is not his practice to retain the original documentation after the relevant details have been lodged electronically.)

9 Lida Song accepts that he effected the transfer of the shares back into his name at a time when the “special purpose” of deceiving the Department of Immigration had not yet achieved a result (ie when Ming Ying still had not obtained a permanent visa) but says he did so following a threat by Hua Ying and/or Ming Ying that he would be excluded from the company and the shares would not be returned to him. For Ming Ying, it is contended that the re-transfer of the shares was for the purpose of Lida Song drawing back into his control all the assets he could in circumstances where there was a marital dispute with his then wife.

10 Lida Song says that he told Ming Ying what he was doing in 2005 and Ming Ying said that was OK. Ming Ying says that he did not authorise the share transfer to Lida Song in 2005 and that he has received no payment for that transfer. (Both the 2002 and the 2005 share transfer forms record the consideration for the shares at $25.)

11 In these proceedings, Ming Ying contends that Lida Song now holds the 25 BSS shares on trust for him. (The basis of that claim was not, unfortunately, articulated by way of any pleading.)

12 Ming Ying also seeks the return from BSS (on alternative and inconsistent bases) of the moneys paid to BSS in 2002 that he says were for the acquisition of the shares. According to Ming Ying, the amount he paid in relation to the shares transferred to him by Lida Song in 2002 totalled $106,025 in all (that being the $25 cash he says he paid by way of the consideration noted on the share transfer form and a further amount of $106,000, the characterisation of which varied during the course of the hearing but which ultimately seemed to be put, on Ming Ying’s case, as a payment made by way of loan to BSS, that being said to be a condition of Lida Song’s agreement to transfer the shares to him). Lida Song denies receipt of the $25 (the amount of which equates to the par value for the shares) and denies that Ming Ying paid the sum of $106,000 to him (or by way of a loan to BSS), though Mr Song accepts that an amount of $106,000 was provided to (or “parked in”) BSS by Ming Ying and that the payment was recorded in the company’s books as a shareholder loan.

13 While it is accepted that Ming Ying provided a cheque in the sum of $106,000 (note, not the $100,000 referred to in the initial account of the relevant conversation) to BSS on about 31 January 2003, there is a dispute as to what it represented and whose funds were the source of that payment. If that sum represented part of the consideration for the purchase of Lida Song’s shares then one might have expected it to be paid directly to Lida Song. It could, of course, have been paid to BSS at the direction of Lida Song (by way of working capital, for example) and still have represented consideration to Lida Song for the purchase. However, that is not what is contended. Rather, what seems to be suggested is that the consideration for the share transfer involved the making of a loan to BSS (repayable on some undisclosed terms at an undisclosed time – perhaps on reasonable notice). If so, that assumes that Lida Song was prepared, in effect, to make a gift of the BSS shares to Ming Ying (since the only benefit Lida Song could have received from the provision of working capital or investment in BSS would be if he remained as a shareholder and could have a share in the distribution of company profits but, after the transfer of the shares, on Ming Ying’s account of events, Lida Song would have no expectation to receive back the shares at any later time).

14 What seems ultimately to be contended by Ming Ying (at least by the time of the closing submissions put by Ms Winfield of Counsel acting for Ming Ying) was that the payment to BSS in 2003 of $106,000 represented the satisfaction by Ming Ying of a condition imposed on him by Lida Song as part of the share transfer transaction, namely a condition that Ming Ying provide a loan to BSS in that amount in consideration for the transfer of the shares by Lida Song to him. Ming Ying does not, in his evidence, suggest that there was any discussion with Lida Song (or anyone else in BSS) in 2002 as to the terms of any such loan (ie as to the repayment terms or any interest payable on the loan) nor was there any apparent consideration provided by BSS for the loan.

15 In both the Summons and the Amended Summons, reference is made to various entries in the financial records of BSS (which disclose the balance of Ming Ying’s loan account with the company as being, as at 2003, $104,310; as at 2004, $123,443; and as at 2005, $17,970) as showing funds paid into the company by or on behalf of Ming Ying. Ming Ying claims the balance of moneys said to be owing on the loan accounts.

16 Lida Song's explanation of the recording (in the company’s books) of a loan account in Ming Ying's favour in the sum of $104,310 (as was said to be the case in respect of the share transfer to Ming Ying) is that these entries were part of a sham arrangement to create the false appearance that Ming Ying had substantial assets, and investments in an ongoing business, in Australia in order to assist his application for a business class visa.

17 For the reasons set out in an interlocutory judgment in these proceedings, I refused an application made on behalf of Lida Song, at the close of the plaintiff’s case, in advance of his affidavit being read in the proceedings, for a s 128A certificate to be issued in relation to this evidence. I acceded to an application, not opposed for Ming Ying, for the substantive hearing to be adjourned pending an application for leave to appeal from that ruling, given its import for the way in which Mr Song might conduct his defence of the proceedings. Hence there was, unfortunately, some delay in the completion of the hearing (delay having already been occasioned at an earlier stage by the difficulty apparently encountered by the plaintiff in having his evidence properly translated and certified). However, in considering the matters for judgment I have had the benefit not simply of the transcript of the proceedings but also of my contemporaneous notes taken during the course of the oral evidence and of the demeanour of the witnesses (see generally Hadid v Redpath (2001) 35 MVR 152 at 159 [34] per Heydon JA; Expectation Pty Limited v PRD Realty Pty Limited (2004) 140 FCR 17 at 33 [73]; Monie v Commonwealth of Australia (2005) 63 NSWLR 729 at 742 [43] per Hunt AJA; NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470 at 504 [109]-[111] per Kirby J, at 525 [169] per Callinan and Heydon JJ).

18 Also in issue in the proceedings is a sum (variously put at $30,770 and $30,775) paid by Ming Ying to BSS on or about 18 September 2003, which Ming Ying says is repayable to him and has not been repaid by BSS. As to this amount, Lida Song says that this money was paid by Ming Ying for the purposes of contributing to a fund to be paid (through BSS) to a company in China in order to make a payment to secure the release of Hua Ying from prison in China where she was then being held (either as a bribe or as some form of bail payment) and that there is no obligation on the part of BSS to refund those moneys. Hua Ying accepts that she was in prison in China for a period but says that she was detained there as a witness. Ming Ying denies that the payment in question was for the purpose asserted by Lida Song.

Basis for relief claimed

19 A constant difficulty throughout the hearing was in identifying precisely the basis on which the relief sought in these proceedings by Ming Ying is said to arise. (Indeed, there appeared to be a stark contrast between what Ming Ying said in the witness box as to his claim against the company in relation to the $106,000 and the basis on which his case was both opened and closed by Ms Winfield – who seemed to concede the inconsistency but to explain it by reference to her better characterization of the legal consequences of the facts to which Ming Ying had attested.)

20 Complaint was made more than once by Counsel for Lida Song (Mr Lawson) as to the confusion in respect of what was actually claimed by Ming Ying as the basis for the relief outlined in the Amended Summons. On more than one occasion, I also (largely unsuccessfully) attempted to clarify precisely what was being alleged as the basis for the claim. When I did so on the resumption of the part-heard hearing in September this year, Ms Winfield’s response was that the answer was to be found in the affidavits and to assure me that the plaintiff’s claim would be clarified in closing submissions.

21 With respect, it does not seem to me that it is in accord with the manner in which litigation is expected to be conducted in this Court for the legal basis on which relief is sought to be left for the opposing party to discern from a myriad of what were contradictory affidavits and with the benefit of articulation from the party seeking the relief only in closing submissions (even if, which regrettably was not the case here, the matter had been so clarified at that stage).) I note that in White v Overland [2001] FCA 1333, at [4], the public interest in the open identification of the issues in proceedings was recognized by Allsop J (as his Honour then was) who observed that “In the long run, the only consequence of keeping issues hidden or not clearly identifying them is to disrupt the business of the court leading to the waste of valuable public resources and to lead to the incurring of unnecessary costs by the parties, costs which ultimately have to be borne by someone”, a passage which has since received the approval of the New South Wales Court of Appeal in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346, at [28] and [46].)

22 The confusion was exacerbated by the lack of any pleadings. It is not apparent to me (particularly having regard to the basis on which the trust claim was ultimately sought to be put by Ming Ying) why this matter was not properly pleaded at least once it became apparent that Ming Ying was raising matters going to the alleged wrongful conduct of Lida Song in the use of the share transfer form to re-transfer the shares into Mr Song’s name. The Rules require specific pleading of matters that may take the defendant by surprise (Part 14.14 of the Uniform Civil Procedure Rules, 2005 (NSW)) and in particular of matters such as fraud (Part 14.14(3)) and require that there be proper particularization of allegations not only of fraud but also of breach of trust or wilful default (Part 15.3). They do so for the purpose of ensuring that each party has a proper opportunity to appreciate the case it has to meet and to be in a position properly to prepare its case.

23 Ms Winfield acknowledged more than once that this was a matter that should probably have been commenced by Statement of Claim (T 1.79, T 490.18). She seemed to suggest that, having adverted to the need for pleadings at the time (not identified) that she became involved in the matter (which I infer must have been at a stage after the initial summons had been filed), this had not been acceded to by the defendants. It is, of course, incumbent on a plaintiff properly to prosecute its claim, whether or not the defendant requires it to do so. Moreover, there is nothing before me to suggest that the defendants had resisted any application by the plaintiff that the matter proceed by way of pleadings.

24 Had it been apparent to me at the outset of the hearing, or even at the time it was adjourned part-heard, that what was sought to be put was a claim for relief based on an alleged wrongdoing on Mr Song’s part as an alleged fiduciary (rather than, as I had then understood it, as a claim alternatively based on a loan or a share sale transaction), then I would have been inclined to order pleadings at that stage (so as to elucidate the allegations made and the actual basis on which the relief was sought.) At the very least, it would have been appropriate for Points of Claim to be filed – to avoid a situation of the kind that ultimately arose, namely that at the conclusion of the hearing in the course of closing submissions it was asserted for the first time that Mr Song owed fiduciary obligations to his former brother-in-law (as a ‘self-appointed’ fiduciary) and it was suggested (though only faintly and then expressly disavowed) that there had been some misappropriation (or wrongful use) by Mr Song of funds or of “property” in the form of the blank share transfer form (so as to give rise to a constructive or resulting trust by analogy with cases such as Black & Black v S Freedman & Company [1910] HCA 58; (1910) 12 CLR 105.)

25 The Quistclose trust, on which Ming Ying now relies as the basis for the declaratory relief sought in relation to the BSS shares, was not articulated in opening (and indeed the only hint that could be said to have been given that such a claim might be made was that which might have been found in the list of authorities handed up at the commencement of the hearing, though that seemed to be a broad brush collection of authorities relating to constructive or resulting trusts without particular reference to the claim as ultimately put).

26 In that regard, I find apposite the comment by Bryson J (as his Honour then was) in Idemaneo (No 123) P/L v Ticco P/L and Anor [2003] NSWSC 538 (at [1]):

These proceedings were commenced by Summons dated 1 March 2002 and the claims now appear in Amended Summons of 7 June 2002. The Amended Summons has over six pages of claims for orders and alternatives. There were no pleadings, and this caused considerable difficulty as there were many contested issues of fact and the issues were too complex to be readily recognised on reading the parties’ affidavits in chief. If I had understood the complexity of the case in advance I would not have allowed it to go to trial without pleadings. For all the written definition of issues I had I might as well have been a District Officer adjudicating ownership of a pig under a tropic palm . (my emphasis)

27 I raise this because, in due course, it will be necessary to consider the submission by Mr Lawson that, having regard to the manner in which the case was opened, Ming Ying should be confined to the claims he has made for relief on the basis of the case as opened and not on the basis of some other case that was articulated at the close of the hearing and after Ming Ying and his sister had been cross-examined on the case as then understood by the defendant (based, inter alia, on the matters raised in opening).

28 Therefore, before identifying the issues now before me for determination, I set out how it was that Ming Ying’s claims were articulated over the course of the proceedings.

Summons – July 2006

29 The proceedings commenced by way of Summons in July 2006. At that time, the relief claimed related solely to the 25 shares in BSS. A declaration was sought that Lida Song held those shares on trust for Ming Ying. (The nature of the trust was not identified.) Ming Ying also sought that Lida Song account to him for all benefits received from BSS in his (Lida Song’s) capacity as holder of the 25 shares and that he do all things necessary to transfer the shares back to Ming Ying.

Amended Summons – September 2007

30 An Amended Summons was filed some 14 months later, in which the claims for relief were significantly expanded. Apart from the relief sought in relation to the alleged trust over the 25 shares (and the consequential relief which had been sought in that regard), as set out above (repeated in paragraphs 1, 2 and 3 of the Amended Summons, consistently with the relief sought in the original claim), additional claims were made for:

(i) a declaration that BSS holds on trust for Ming Ying the sum of the difference between the balance of the amounts said to have been lent to BSS ($104,000 and $30,775) less the stated balance of Ming Ying’s loan account in BSS (that being $17,970 as at 30 June 2005) (paragraph 4 of the Amended Summons) (ie seemingly seeking to reinstate what is said to be the correct balance of Ming Ying’s shareholder loan account in the company, but invoking a trust in favour of Ming Ying for that alleged debt, the basis of which trust was not identified other than by way of the ‘removal’ of funds corresponding to the amended loan account entry in the company’s books and records); and

(ii) an order that BSS account to Ming Ying for all benefits received from the use of those sums (paragraph 5).

31 Pausing there, and leaving aside for the moment the discrepancy between the $104,000 claimed to represent Ming Ying’s shareholder loan as at 2003/4 and the $106,000 said to have been paid in January 2003 by way of loan to BSS), it is hard to see the basis on which a trust is said to have arisen in respect of the bulk of the moneys in question if (as is contended for by Ms Winfield, though seemingly disavowed by her client) the underlying arrangement between Ming Ying and Lida Song in relation to the monies paid to BSS was that they were to be a loan to the company nor, indeed, why the company should in those circumstances account for the benefits of what has been done with the alleged borrowings).

32 If, as between Ming Ying and BSS, the payment of these separate amounts was no more than pursuant to a loan arrangement, then it is not clear how it is suggested that a borrower who fails to repay money lent to it has more than a liability in debt for the amount so borrowed (whatever the borrower may have done with that money in the interim), at least absent any particular arrangement that takes the matter beyond a debtor/creditor relationship. In that regard, I note what might have been thought to be obvious, namely that a loan is ordinarily understood to be an “advance of money coupled with a contract for its repayment” (Fisher J Potter v Potter [2003] 3 NZLR 145, at [13]; [2003] NZFLR 1035, where it was noted (at [13]) that the intention of the parties is usually that ownership in the funds passes to the borrower and the lender is left with an in personam right, secured or unsecured, of repayment.)

33 Thus, in Twinsectra Ltd v Yardley [2002] All ER (D) 321 (Mar); [2002] UKHL 12; [2002] 2 AC 164; [2002] 2 All ER 377; [2002] 2 WLR 802, Lord Millett noted (at [68]) that money advanced by way of loan normally becomes the property of the borrower, stating:

He is free to apply the money as he chooses, and save to the extent to which he may have taken security for the repayment, the lender takes the risk of the borrower in insolvency.

34 Nor was it made clear how it is asserted that if Mr Song, as a director of BSS, improperly directed the amendment to the company’s financial statements so as to remove the acknowledgement contained therein of a debt owing to Mr Ying and withdrew funds from the company in that amount to pay what is said to have been a personal debt to a third party, that gives rise to a trust by the company itself in respect of the funds in question (or any obligation on the part of the company to repay those funds other than by way of the alleged underlying loan transaction).

35 Unfortunately, it does not seem that the plaintiff’s case ever squarely grappled with those difficulties.

36 Returning then to the relief sought in the Amended Summons, in paragraph 6 of the Amended Summons, Ming Ying has sought the appointment of a referee (stated to be for the purposes of orders 3 and 5, ie for the purpose not only of the orders sought that Lida Song account for all benefits received from BSS in his capacity as shareholder of the 25 shares but also for the purpose of the claim that BSS account to Ming Ying for all of the benefits it received from the use of the money allegedly lent to it).

37 The appointment of the referee is sought for the stated purposes of taking accounts and enquiring into all dealings and transactions by or in relation to BSS (including loan accounts); the assets and liabilities of BSS; the respective interests of the parties in BSS; and amounts (if any), owing to Ming Ying in relation to the sums lent to the company by Ming Ying. Orders are then sought that the “Defendant” (by which Ming Ying presumably refers to Lida Song) pay the fees of the referee. Paragraphs 8 and 9 of the Amended Summons seek consequential relief following the referral of the proceedings to the referee.

38 Paragraph 10 of the Amended Summons, said to be an alternative to paragraphs 4 and 5 (those earlier paragraphs being the ones seeking a declaration and order in relation to the holding by BSS of sums of money on trust for Ming Ying), seeks an order that the “Defendant” (again, presumably Lida Song) forthwith cause BSS to pay to Ming Ying (and an order that BSS pay to Ming Ying) the sum of $104,000 (the stated loan balance as at 2003), plus interest from 31 January 2003, and $30,775, plus interest from 17 September 2003, less $17,970 (being the stated balance of Ming Ying's loan account as at 30 June 2005). (Presumably, the only capacity Lida Song would have to procure or cause BSS to do this would be in his capacity as a director of the company, given the limitations or the ability of a shareholder to exercise control over a company’s affairs; and it is noted by Mr Lawson that Lida Song is not the sole director.)

39 It was submitted by Mr Lawson (and herein lies the genesis of his complaint as to the basis on which the case was put in closing by Ms Winfield) that the claim advanced in the Amended Summons could therefore reasonably be seen as being limited to a claim that Lida Song held 25 shares in BSS on trust for Ming Ying and that BSS was in breach of a loan agreement and owed money to Ming Ying. While I note that this might explain order 10, that order was itself stated to be an alternative to orders 4 and 5 (which, as I say, seek declarations as to a trust over the monies the subject of the alleged loans). Therefore, it is by no means clear that the claim so advanced should be read in that way. Moreover, insofar as Mr Lawson submitted that the claim could be seen as a claim in the alternative (ie, either for the BSS shares or recovery of the moneys in question), this does not seem to be the case based on the relief as specified.

40 That said, Ms Winfield did on various occasions seem to suggest (as did Mr Ying in the witness box) that the relief sought was either for the 25 BSS shares or for the money paid to acquire them (whether the latter be from the company or from Mr Song). It was not until well in the hearing that it was made clear that what Mr Ying was then asserting was an entitlement both to the shares and to recover the $106,000 that he says he paid (albeit that Ms Winfield says he so paid by way of a loan to BSS) to acquire those shares. (If that contention were to be correct then in effect what Ming Ying says is that he was entitled to the shares for no more than nominal consideration, ie the $25 par value, or as a gift from Mr Song. There was nothing to suggest such philanthropy on the part of Lida Song.)

Principal Contentions of Fact and Law – 1 July 2009

41 In a document headed Principal Contentions of Facts and Law, dated 1 July 2009, Ming Ying’s contentions, relevantly, are summarised as:

(i) in relation to the shares:

[9] Lida Song holds 25 shares in BSS on constructive or resulting trust for Ming Ying;
[10] alternatively [and I emphasise this was put in the alternative] BSS holds the amount of $106,000 on constructive or resulting trust for Ming Ying;

(ii) in relation to the funds paid into the company:

[12] BSS holds $106,000 on constructive or resulting trust for Ming Ying [and while this appears on its face to be a cumulative, and not alternative, claim to that made in relation to the shares in (i); the difficulty in this regard is that the claims identified in paras [10] and [12] must logically be in the alternative and not cumulative, since there was no suggestion that there were two sums of $106,000 paid or credited to the company at any stage. Therefore, one might be forgiven for thinking that this too was in the alternative to the claim made in para [9]] ; and

(iii) Ming Ying is entitled to an account on a wilful default basis for “of the profits to date”.

Statement of Issues – 30 June 2009

42 Ming Ying’s Statement of Issues dated 30 June 2009 (provided in accordance with the usual pre-trial directions) raised the following factual and legal issues, not all of which appear to be mirrored in the Contentions referred to above:

1. Whether Lida Song holds 25 shares in BSS “for” Ming Ying [ This was put ultimately as a constructive trust invoking what was said in Quistclose, but was not identified as such in the Contentions or otherwise at this stage]

2. Whether Ming Ying obtained the shares by subscription at the time BSS was formed on 15 July 2002 [ While some of the evidence suggested that this was in issue, Mr Ying himself was adamant in the witness box that he had not acquired any shares in BSS by subscription at the time the company was formed on 15 July 2002 but acquired his shares later in 2002 ]

3. Whether Lida Song transferred 25 shares to Ming Ying to hold in trust for Lida Song while Ming Ying’s permanent residence application was considered [ I note that none of the parties has contended that this is the case – Lida Song’s contention is, rather, that the shares were transferred to Ming Ying – and I take that to mean that the beneficial interest in the shares was conveyed to him at the time – but as part of a sham arrangement in that Ming Ying had agreed that the shares would be transferred back to Lida Song when the latter chose to do so ]

4. Whether Ming Ying paid $260,000 into BSS from his own funds
5. Whether BSS holds $106,000 on trust for Ming Ying or whether that sum has been repaid to Ming Ying [ those apparently being put forward as alternatives ]
6. Whether BSS holds $30,770 on trust for Ming Ying or whether that sum has been repaid to him [ again, those apparently being put forward as alternatives ]
7. What is the true balance of Ming Ying’s loan account with BSS
8. Whether Ming Ying knew that Lida Song intended to transfer the 25 shares back to himself in the circumstances and at the time that he did
9. Whether Lida Song had Ming Ying’s consent to transfer the shares back to himself
10. Whether Lida Song had Ming Ying’s consent “to liquid paper” the share transfer document in order to transfer the 25 shares back to him
11. In the event that a sum of money is found to be owing to Ming Ying, whether there should be a taking of accounts to determine:
(a) whether Lida Song and BSS or either of them has received a benefit from retention of the funds; and
(b) whether Ming Ying has suffered loss arising from the retention of that money; and
if so, whether any accounting should be on a common fund or wilful default basis.

(issues 3 and 7 not being directly raised in the plaintiff’s Principal Contentions of Fact and Law).

Opening Submissions

43 In oral opening submissions, on 2 July 2009, Ms Winfield said (at T 1.40):

It is a case about shares in a company and monies lent to a company which is now the second defendant in the proceedings.

The plaintiff was issued shares in a company for which he says he paid $106,000 . There is an oddity about that, in that the [par] value of the shares is $25, and it shows up as paid up capital on the company accounts as $100,000 for the 100 shares but he paid $106,000. Either the money was lent to the company and is repayable or the $25 for the shares is still owing to [sic] the company and it is simply a loan that is owing by the company . I do not see that as a big issue in the matter. (my emphasis)

44 Ms Winfield went on to say:

In 2003 the plaintiff says that, at the time the shares were issued, he signed a transfer to the first defendant in case, he says, the money [presumably the sum of around $100,000 referred to in the conversation as initially alleged, although various figures have been referred to in that regard including $104,000 and $106,000] was not paid because at the time the shares are dated 15 July 2002 but he did not actually pay the money until January 2003. He says that he signed a blank share transfer form in case the money was not paid . The money was subsequently paid, $106,000 and $154,000 in two cheques. So, $260,000 was paid to the company on 31 January 2003. Subsequently, the $154,000 [an amount which singularly does not feature in the alleged agreement for the transfer of shares in the first place] was repaid to him with some interest that had accrued on it, as it had been kept in a term deposit, and that was repaid to him in April 2003. So that by the time one looks at the 2003 Budget Scaffold documents, there is a loan account in favour of the plaintiff from the company of $104,310. How, exactly, that is calculated and why it is less than $106,000 is not known, and there is no explanation from the company about that.

… However, at the end of 2005, the plaintiff says, without his knowledge and consent, the shares were transferred to the first defendant. The plaintiff did not receive the [par] value of the shares. He did not receive $25 for them and he never received the $106,000 that he says he paid in 2003. [I interpose to note that I had understood, from the complaint that Mr Ying had not received the $106,000 paid in 2003, that it was being suggested that Lida Song was in breach of an agreement for the purchase back of the shares at that price and hence that it was being suggested that there was a trust over the shares pending completion of the sale by the payment of the purchase consideration – akin to an argument that property did not pass until payment of that amount; though this was not put in so many words. The complaint, nevertheless, was seemingly that Mr Ying had not received any money for the shares as transferred back to Mr Song – a complaint echoed by him when he in due course was cross-examined] He says that he found out from another director of the company, from Huamin Yang that the shares have been transferred. He says the first defendant [Lida Song] had not told him that he was going to transfer the shares to him. (my emphasis)

… The issues, then, are whether or not the shares should be transferred back to the plaintiff. The plaintiff says that the defendant held them on trust for him because he has never received any funds for them [thus, again, seemingly a claim based on lack of any consideration for the 2005 transfer of the shares presupposing an agreement for their transfer] and he did not consent to their transfer to the first defendant for that purpose. He consented for another purpose but not for that purpose in 2005. [This might, in hindsight, have been intended to draw attention to the claim for a Quistclose trust but if so it was an oblique reference at best] And, of course, since that time, four years have passed. So, the plaintiff seeks in the alternative that the plaintiff is paid for the shares . What the current value of them would be, nobody would know as a value of the company. The plaintiff does not know. But the plaintiff seeks an accounting in the event that the court finds that the monies are held on trust for him and an accounting of any dividend paid on the shares and use of the benefit that the first defendant has had from the funds and use and benefit that the second defendant has had from the funds, because the plaintiff says that the funds were retained in the second defendant . (again, my emphasis)

45 I raised at that point the question whether the plaintiff was contending that the sum of $106,000 was a sum payable for the shares or a loan to the company and Ms Winfield (adverting there, it seems, to the difference between the case she was putting and the case Ming Ying was later to assert in the witness box) said that “Although the plaintiff says that he paid $106,000, for the shares, I think the proper construction is that it was a loan, it was treated as a loan to the company in the financial statements.” (T 3.4)

46 To this point, therefore, it seemed that what was being asserted was that there was a claim that the 25 shares were held in trust by Lida Song for Ming Ying (for failure to pay the purchase consideration), though noting that the transfer had been effected without consent and contrary to an ‘agreed purpose’, and a claim that BSS should account for the benefit of the use of moneys paid (or lent) to it at the time Mr Ying acquired the shares.

47 When I raised the question as to how an obligation to account for the benefits obtained from a borrowing arose, as opposed to a claim for recovery of the loan, Ms Winfield’s response was: “Yes, if it is a loan. If it was an investment in the company, for the purchase of the shares, which I do not think is actually a proper construction, then there might be an accounting as to what the value of the shares are. I think that it is, probably, not the proper construction although that is what the plaintiff says actually happened. Of course he is not a lawyer or an accountant. There is that issue as to how the funds were dealt with in the company“ (T 3.28).

48 In the witness box, the suggestion that there was a loan in respect of the $106,000 was emphatically denied by Ming Ying on more than one occasion (T 106.30; T 106.34; T 107; T 108.11ff; T 109; T 114; T 115.22). At T 106.30, Ming Ying said:

It not that BSS owed me that amount of money but I had an agreement with Lida Song to purchase those shares with $106,000 but after that they never paid back

at T 106.34, he said:

Since I put the money into the company’s account so I said BSS owed me this amount of money but in fact it is Lida Song he owed me this amount.

at T 107, having confirmed that he understood the difference between a loan and purchasing something (T 106), Ming Ying said:
No this is not money I lent out. I also want to ask a question. If I buy something, I pay the money, but the product that I paid for was taken back I actually received nothing In those circumstances where can I get the justice?

49 At T 108.11, Ming Ying said:

$106,000 is what I paid to purchase the shares. And because I paid his amount of money to BSS so if I received nothing shouldn’t I track back to where I put money to.

50 Ming Ying’s real complaint, therefore, about which he was imploring the court to give justice seems to be succinctly summarized in his answer at T 108 “I lost both my money and the shares”. In those circumstances, Ming Ying apparently considered that the appropriate remedy was for him to be repaid the money he said that he had paid for the shares (hence the allegation that there was a loan) although, as noted above, what he ultimately seeks is both the money and the shares.

51 However, what the complaint that he ended up with neither money nor shares ignores is the fact that the claim that has been made by Ming Ying is a claim based not on a failure of consideration for the purchase of the shares (which would admittedly be difficult since there is no dispute that the shares were in fact transferred to him and he had the benefit of them from 2002), nor is it based on a breach of any condition (contractual or otherwise) on which the shares were acquired (ie that the second share transfer form would not be used other than for the specific purpose(s) he now says it was subject), nor is it based on a representation that the second share transfer would not be used other than for a particular purpose.

52 Rather, it seems to be a claim for recovery of an amount the subject of a loan to the company that Ming Ying himself denies having made (and a claim to the shares as well, though that is put on a different basis).

53 The explanation given by Ming Ying in the witness box suggests to me that the case now put by him is one that has been fashioned to meet the relief sought, rather than by reference to the underlying facts of the case. In other words, the suggestion that there was a loan to the company seems to be on the basis of an assumption that it should be treated as a loan if Mr Ying did not receive back what he says he paid to acquire the shares (placing weight in this regard on the book entry showing a shareholder’s loan – any such loan having been denied by Mr Ying himself and there being no documentation other than the entry in the financial statements to support such a claim).

54 (This can be contrasted with what was said in opening submissions, as noted above, by Ms Winfield – and which Mr Ying accepted had been translated to him while he was in court during the opening and with which he had made no complaint – to the effect that the claim was primarily one for breach of a loan agreement and resisting the proposition that the proper construction of events was that the money had been paid to purchase the shares in BSS.)

55 No reference was made in opening submissions to any amount of $30,770 or $30,775.

56 Even if it be said (and I accept that this seems likely) that Ming Ying was not in a position to understand the legal consequences of the factual matters asserted in his case, the denial that he lent money to BSS (in light of the basis on which his claim is later made) is troubling and cannot in my view be satisfactorily explained away by reference to any misunderstanding in translation. (Mr Ying did not appear to have any difficulty responding to the questions as translated to him as to the difference between a loan and a purchase – and had there been an issue in the translation of the questions it would surely have been raised by those instructing Ms Winfield, who she was at pains to point out during the evidence were more than capable of understanding what was being put to the witnesses in Mandarin and who appeared to be following the translation closely.) At the very least, Ming Ying’s evidence extracted above disavows any expectation by Ming Ying that the money would be repaid to him which is inconsistent with the existence of a loan.

57 Ming Ying said that he had paid $106,000 to purchase the shares. His real complaint seems to be that the shares were transferred back to Lida Song and hence that he had paid $106,000 for something the benefit of which is now not retained by him (not a complaint that BSS or Lida Song had any obligation to repay him the $106,000 by way of a loan or otherwise).

58 When the hearing resumed (after the initial delay occasioned by the difficulties experienced by the plaintiff in having his evidence properly translated and certified in a form that would overcome the objections that had been raised (in my view with substance) by Mr Lawson), Ms Winfield said that the share transfer form was signed in 2003 [Mr Ying’s evidence being first that it was signed in July 2002 and then that it was signed in late 2002 but in any event before 2003 – and on neither case is that asserted]; that there were other earlier proceedings on a statutory demand (no evidence of which was before me) that were withdrawn by way of settlement [it later being clarified that the statutory demand was issued prior to the time at which these proceedings raised any claim for relief in relation to the alleged loan and were restricted to the claim in the Summons in relation to the shares]; and that these proceedings were commenced “in respect of the loan account” and said at T 59.40:

That is basically what the case is about. If the money is no longer in the company, the plaintiff says that there is a resulting trust for that $106,000 because the money was put in and has never been paid back, or the shares are still his ” (my emphasis)

thus putting the claims for shares/money squarely in the alternative.

59 When asked how the resulting trust arose (when, on the plaintiff’s case as then being put, there was a loan, Ms Winfield’s response was:

When the amount is written out of the books of the company, it is no longer shown as a loan, we say it then becomes a resulting trust. In any event, your Honour does have jurisdiction to find that it was a debt, if you find that it was debt still owed by the company. (T 59.49).

60 At the conclusion of the plaintiff’s case, Mr Lawson invited the plaintiff to argue a ‘no case to answer’ pursuant to Part 29 rule 10 of the Uniform Civil Procedure Rules in relation to either or both of the claims made in relation to the $106,000 loan or the $30,770 loan. Ms Winfield, on instructions, declined to do so. At that point, the proceedings were adjourned to permit the Court of Appeal to consider my ruling on the s 128A issue.

Close of Hearing

61 The case then resumed for hearing in September this year. Pressed by me again to articulate the basis of her client's claim, on 27 September 2010 Ms Winfield said that it was a claim that Lida Song held 25 shares in BSS on trust for Ming Ying (a claim that had been clear from the outset and so no issue could be taken with this) and that BSS owes money to Ming Ying (under a loan agreement) thus harking back to the Amended Summons (and inconsistent with Ming Ying’s own evidence) but without reference to the alternative claim there made that BSS was a trustee in some capacity of the money said to have been lent to it. Ms Winfield also referred to a claim for “correction of records” (and expanded that to indicate that Ming Ying was seeking an enquiry as to the assets and liabilities of BSS to establish the value of the shares Ming Ying claims are held in trust for him - T 306.6). The trust in relation to shares was said to be either a constructive trust or a resulting trust. The basis on which a trust of either kind had arisen or should be imposed was not identified and nothing was said about any trust of loan moneys.

62 In his closing submissions, Mr Lawson (with good reason in my view) was critical of the confusion surrounding the articulation of the plaintiff's claim. He contended that the only way the court should approach the matter was to hold Ming Ying rigidly to the relief he had sought (noting that Ms Winfield in her closing written submissions herself had asked the court to have regard to that). Mr Lawson correctly pointed out that no claim has been made for damages for breach of contract (whether that be a contract between Ming Ying and Lida Song for the transfer of BSS shares or a loan agreement between Ming Ying and BSS).

63 Relevantly, Mr Lawson submitted that Ming Ying should not be permitted to advance a case predicated both upon a declaration that shares were held in trust for him and for damages for breach of a loan arrangement in relation to the $106,000 (as appeared to be put by Ms Winfield on 27 September 2010), when he says the manner in which the case had been opened put these claims in the alternative and when that would be inconsistent with the evidence that Ming Ying himself had given. (In that regard, as illustrated by the above, it is fair to say that there were occasions both when the share/loan claims were put in the alternative and when they were treated in some way as cumulative.) Ultimately, however, it makes no difference whether they are treated as cumulative or alternative claims since neither claim is, in my view, made out on the evidence.

Submissions – 30 September 2010

64 The defendant’s evidence closed on 30 September 2010 and closing submissions were made. Ms Winfield's outline of (closing) submissions dated 30 September 2010 set out Ming Ying’s then contentions in relation to the (rather convoluted) factual background to the dispute, before listing (in paragraphs 34 and 35) a selection of cases (with no explanation as to how it was contended that those cases or the legal principles emerging from them should apply to the facts of this case). Ms Winfield’s list of authorities comprised Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583; (1985) 62 ALR 429; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; (1984) 55 ALR 417; (1984) 58 ALJR 587; (1984) 4 IPR 291; [1984] HCA 64; Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721; [1966] 3 WLR 1009; Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; [1968] 3 All ER 651; [1968] 3 WLR 1097 and Re Vandervell Trusts; White v Vandervell Trustee Ltd [1974] 1 All ER 47. (In passing, I note that paragraph 15 of these submissions seems to be inconsistent with the first set of contentions as to the payment of $154,000.)

65 Ms Winfield's written submissions asserted that Lida Song holds 25 shares in BSS on constructive or resulting trust for Ming Ying (at para [41]) and that BSS holds $106,000 on constructive trust or resulting trust for Ming Ying (at para [42]), repeating the contention earlier made in relation to payment of funds into the company but now confining it to the payment of $106,000 (at para [45]). As to the accounting sought, Ms Winfield asserted that Ming Ying is entitled to an account on the wilful default basis “of the profits to date”, relying on Meehan v Glazier Holdings Pty Ltd [2002] NSWCA 22 and Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367; (1959) 32 ALJR 395; (1959) 76 WN (NSW) 278 (in the latter regard, Ms Winfield pointed to a notice of motion which had been filed on behalf of Ming Ying at a much earlier stage of the proceedings seeking discovery of certain financial documents as evidence of attempts to obtain financial information, although I note that that motion was itself dismissed by the court).

66 The assertion is made that Lida Song has had the use and benefit of Ming Ying's shares from 2005 to date “and received any dividends paid or other benefits on the shares”. (I note in passing that there is no evidence of any dividends having been paid and in fact that the evidence of another director, Mr Huamin Yang, is that there were none paid over the period.) There is no evidence as to what other benefits it might be thought were or may have been received by a shareholder of the company over that period (other than dividends) of which an account could now be sought.

67 Again, and quite extraordinarily in my view, it is asserted that BSS has had the use and benefit of Ming Ying's funds, being about $106,000 from 31 January and $30,770 from 18 September to date. (Such a submission is extraordinary in that Ms Winfield opened the case on the basis that Ming Ying had lent those sums to the company; she insisted that this was the proper construction of events (contrary to her client’s own evidence); and had accepted, I thought, the force of the observation earlier made that if one or both of the payments in question was a loan to the company, then it was for the company to do what it wished with the funds so borrowed; if so, it is difficult to see why it is that the company should not have been entitled to make use of the funds without having to account for the benefit of those funds.)

68 When asked, during the course of oral closing submissions, to articulate the basis on which a constructive or resulting trust was said to have arisen from any agreement in relation to the sale by Lida Song of the shares to Ming Ying or from the loan agreement between Ming Ying and BSS (which is what I had then understood Ms Winfield to be then contending were the two claims made), Ms Winfield made a number of oral submissions, namely that:

the shares were incorrectly or wrongly transferred back to Mr Song (because the precondition for their transfer had not occurred) ie that the transfer in 2005 was in breach of the conditions in respect of use of the transfer form (T 484.25);
the sum of $106,000 represented payment into the company as a condition of the agreement to transfer the shares to Ming Ying (see exchange at T 484.39 – T 485.15);

It has rightly been said that “evaluations of contract terms between the parties is still the primary consideration in determining whether a relation is fiduciary. If there is a contract, and the contract allocates rights and duties between its parties, then fiduciary characterisation may be simple” (Glover J, Commercial Equity: Fiduciary Relationships, (1995) Butterworths, at [3.26]). The present is such a case so far as clause 3.7.1 of the MOU is concerned. As Mason J put it in Hospital Products , “the existence of a basic contractual foundation has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties” (at 97).

By contractually agreeing to a provision in terms of clause 3.7.1, the Club was relevantly placing itself in the hands of JACS. From that point on it had to trust that JACS would exercise any such option “on behalf of WCH”, as it said it would. It relied on JACS commitment to do so by surrendering its rights in respect of the White City site. It was vulnerable to abuse of that commitment by JACS as such abuse might lead to the loss to the Club of the opportunity to acquire a valuable property and the opportunity to continue on the White City site an activity it had been conducting there for over 55 years.

263 In Brand v Monks [2009] NSWSC 1454, I noted (at [348]) that the critical feature of a fiduciary relationship (as recognised in Hospital Products) is the undertaking or agreement to act on behalf of or in the best interests of another person in the exercise of a power or discretion which would affect in a legal or practical sense the interests of the other person. While the existence of a contract does not exclude the co-existence of concurrent fiduciary duties (and it is recognised that the contract may well be their source) (per Lord Browne-Wilkinson in Henderson v Merrett Syndicates Limited [1995] 2 AC 145, at 206) it is also recognised that “evaluation of contract terms between the parties is still the primary consideration in determining whether a relation is fiduciary. If there is a contract, and the contract allocates rights and duties between its parties, then fiduciary characterisation may be simple” (Glover J, Commercial Equity: Fiduciary Relationships, Butterworths, 1995, at [3.26]).

264 In Michael Wilson & Partners Limited v Robert Colin Nicholls [2009] NSWSC 721, Einstein J noted that contractual and fiduciary relationships may co-exist but said that “in such a case the fiduciary relationship must conform to the contract”. His Honour noted that where there is such co-existence the fiduciary relationship “owes its existence to the relationship of trust and confidence that exists between the parties so as to attract a reasonable expectation of loyalty, citing Gibson Motorsport Merchandise Pty Limited v Forbes (2006) 149 FCR 569 at 574-575, per Finn J; Rawley Pty Limited v Bell (No 2) (2007) 61 ACSR 648 at 710-711 [261]”.

265 A fiduciary relationship exists where a person has undertaken or agreed to act for or on behalf of or in the interests of another in the exercise of a power, and not in his own interests (Hospital Products, Gibbs CJ, at 68-72; Mason J (as his Honour then was), at 96-97, 99, 102-103; Wilson J, at 118; Deane J, at 122-123; Dawson J, at 140-149). The duty often arises where there is a relationship of trust and confidence (Hospital Products, Gibbs CJ, at 69) or where one person undertakes to perform a task or fulfil a duty in the interests of another (Breen v Williams (1986) 186 CLR 710, Brennan CJ, at 820 and Gaudron and McHugh JJ, at 107).

266 In what is described as the well known formulation of the circumstances that give rise to fiduciary obligations (Cordon v Lesdor [2010] NSWSC 1073, McDougall J, at [266]), Mason J (as his Honour then was) in Hospital Products, stated (at 96-97):

The critical feature of these [fiduciary] relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.

267 Recently, in Simpson v Donnybrook Properties Pty Ltd [2010] NSWCA 229, (a decision considering whether a financial adviser owed fiduciary duties) Young JA stated (with whom Hodgson and Macfarlan JJA agreed) (from [62]):

Basically, a fiduciary is a person who undertakes or had thrust upon him or her by the law an obligation to act for the benefit of another. This flows from Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; 156 CLR 41, 67. Although, as B H McPherson demonstrates in “Fiduciaries: Who are They” (1998) 72 ALJ 288 at 289, that statement is not open to too critical an examination, it is a useful starting point.

As McPherson says at 290–1, the law contrasts the position of people who are at arm’s length and accordingly can act solely in their own interests with people who have assumed by contract or conduct the burden of acting in another’s interests, or to look at the matter from the other person’s viewpoint, “Have I surrendered control of this function to another in whom I have confidence will be acting in my interests?”

An early statement in this area was made by Brennan J in Daly v Sydney Stock Exchange [1986] HCA 25; 160 CLR 371, 385, where he said:

Whenever a … person who holds himself out as having expertise in advising on investments is approached for advise on investments and undertakes to give it, in giving that advice, the adviser stands in a fiduciary relationship to the person whom he advises.

There is no doubt that at least some investment advisors will owe fiduciary duties. However, it is an error to think that merely because one can put the tag “investment advisor” on a defendant that he or she will be a fiduciary: Pilmer v Duke Group Ltd [2001] HCA 31; 207 CLR 165, 197. It will depend on the circumstances of the case, ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; 160 FCR 35, 75 at [266].

Examples of financial advisers not being fiduciaries are provided by Pavan v Ratnam (1996) 23 ACSR 214 (NSWCA) ; Townsend v Roussety & Co (WA) Pty Ltd [2007] WASCA 40 ; 33 WAR 321.

268 Even in relationships such as that of solicitor client, the court will still look to the particular circumstances of the relationship to determine the scope and content of the particular duty in question. As was reiterated in Beach Petroleum NL v Kennedy and Ors [1999] NSWCA 408 (1999) 48 NSWLR 1; (1999) 33 ACSR 1, where it was stated (from [187]):

Whether or not there is a duty to advise on the wisdom of a particular transaction depends on the circumstances of the case: see, eg, Haira v Burbery Mortgage Finance & Savings [1995] 3 NZLR 396 at 406.

Even in the case of a solicitor client relationship, long accepted as a status based fiduciary relationship, the duty is not derived from the status. As in all such cases, the duty is derived from what the solicitor undertakes, or is deemed to have undertaken, to do in the particular circumstances. Not every aspect of a solicitor client relationship is fiduciary. Conduct which may fall within the fiduciary component of the relationship of solicitor and client in one case, may not fall within the fiduciary component in another.

269 It is well-established that a person may take upon herself or himself the role of a fiduciary by a less formal arrangement than contract or by self- appointment (Lyell v Kennedy (1889) 14 App Cas 437, at 456, 459-460; Boardman v Phipps [1967] 2 AC 46, at 100, 118, 126-127; Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815, at 833; Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 3rd ed (1992) Butterworths, Sydney, par 505; Parkinson (ed), The Principles of Equity (1996) LBC, Sydney at 369-370; Beach Petroleum NL v Kennedy, at [192]).

270 The identification of a fiduciary relationship and the determination of the scope of any such fiduciary relationship is made through examination of the nature and circumstances of the particular relationship in question rather than forming a conclusion on the basis of the particular status or label given to that relationship. For example, as explained in Beach Petroleum (at [193]) whether the relationship derives from retainer, a less formal arrangement or self-appointment, it must be examined to see what duties are thereby imposed on the fiduciary and the scope and ambit of those duties (there citing Boardman v Phipps (at 127)).

271 The existence and scope of the duty may derive from a course of dealing. In a passage frequently cited with approval from Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, a partnership dispute, Dixon J, as his Honour then was, said (at 408):

… The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which partnership exists; and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.

272 As discussed in Beach Petroleum (at [193]), ultimately a fiduciary responsibility is an imposed not an accepted one, one concerned with an imposed standard of behaviour (there referring to Finn, The Fiduciary Principle, in Youdan (ed), Equity Fiduciaries and Trusts (1989) Carswell, Toronto, at 54).

273 Dawson J in Hospital Products, referred (at 149) to the “undesirability of extending fiduciary duties to commercial relationships and the anomaly of imposing those duties where the parties are at arm's length from one another”.

274 Vulnerability of some kind, coupled with reliance, may be identified as the source of fiduciary duty. In relation to the particular case there before it, the High Court said in John Alexander's Clubs Pty Limited v White City Tennis Club Limited; Walker Corporation Pty Limited v White City Tennis Club Limited [2010] HCA 19 (at [83]):

The only vulnerability of the Club was that which any contracting party has to breach by another. The only reliance was that which any contracting party has on performance by another. If JACS committed any breach of contract, it was quite open about it. If the Club could have established that JACS was in breach of contract, it had an ample array of contractual remedies to protect itself. It chose not to do so. It spoke of the difficulty of a social club giving an undertaking as to damages, and of the inutility of damages to a social club which wishes to continue its past activities in a new guise on the same site. It also said that monetary remedies against impecunious companies like JACS and Poplar were worthless. These factors do not justify converting the contractual relationship between JACS and the Club into a fiduciary relationship.

275 I do not consider that in the present case there is such a relationship of trust and confidence as to attract a fiduciary duty or loyalty simply because Mr Song had a better command of English than Mr Ying.

(ii) Does BSS hold the sum of $116,800 on constructive trust for Ming Ying or alternatively is Ming Ying entitled to repayment of that amount as a loan owing by the company to him?

276 If Ming Ying’s initial version of events is right and he paid $106,000 to acquire shares in BSS (in the sense that this was the purchase price the shares) then I cannot see on any basis on which he would have an entitlement to claim $106,000 from BSS. At best, his complaint would be that (having acquired the shares) they have subsequently been transferred back (he says without his knowledge) to Lida Song. Initially the complaint seemed to be a complaint that he had not been paid for the shares transferred back to Lida Song (although no agreement in relation to that had been alleged). Then there was a complaint that the shares had been transferred in breach of a condition placed on the exercise of the right to transfer the shares back (namely that this was only to occur if Ming Ying had to go back to China) but that claim itself seems to be a claim for breach of a contractual condition which was not articulated in opening or some form of Quistclose trust which again was not the subject of any discussion in opening.

277 If the making of a loan to the company was the basis of the agreement to transfer shares, then the only claim against the company would be for recovery of the amount of the loan ie a claim in debt not that the company holds an amount of trust for Mr Ying. The difficulty there is that there were no terms of the loan appearing anywhere in the evidence. It might have been said that this was a loan repayable on demand or repayable on reasonable notice but there is simply a paucity of any evidence which goes to the basis on which one could find that there was a loan being made to the company as such. Furthermore, any claim against the company for the sum of $106,000 based on a loan agreement does not carry with it an entitlement for an account as to what use or benefit the company has made from the receipt of funds.

278 I am therefore unable to find that there was any loan made to BSS by Ming Ying.

279 As to the $30,770, I do not accept, on the balance of probabilities, that this was an amount that was the subject of a loan to BSS rather than an amount paid through the use of the company accounts to China as part of a separate arrangement between Lida Song and Ming Ying for the purposes of enabling Ms Ying’s release from prison in China.

280 As to the significance of the entries on the shareholder loan accounts, there is a paucity of any evidence as to the terms on which any amounts would have been lent to the company. Mr Lawson points to the fact that there is no evidence as to the terms of the loan said to be in place between Ming Ying and BSS and hence he submits that even if the financial statements do record a loan it cannot be said that there was a breach sufficient to sound in damages.

281 Mr Lawson says that if both the $106,000 and the $154,000 were loans to BSS then there would be no reason for there to be two cheques or for the two cheques to be placed in two separate accounts. That seems to me to be a compelling factor against the version of events propounded by Mr Ying.

282 It is further said of the $106,000 that that was not Ming Ying’s money for the purchase of shares in, nor was it a loan to, the company. It was described as the “Tam money making its way back to Mr Tam via a route which would assist Ming Ying in deceiving the Department of Immigration”. Mr Lawson submits that is the only explanation for the two cheques is that $106,000 was not money being lent to BSS.

283 The actual source of the moneys diverted from AIC to the BSS accounts via cheques to and from Mr Ying is unclear. However, I accept that the purpose of the money being recorded as a shareholders loan in the BSS accounts was to make it appear that Ming Ying had assets in the company. If these had been funds lent to the company then one might have expected them to be used for some purpose other than placed in a term deposit the interest from which was paid out with the principal to a third party, Mr Tam.

284 Mr Song's version of events is corroborated by the documents exhibited to in his affidavit of 7 October 2008 and to which both Mr Ying (T 142 and T 150) and Ms Ying were taken. Mr Lawson says that Ms Winfield's explanation that money was paid into BSS as a loan makes no sense because if so, there would be no need for the funds to remain in that term deposit and the $106,000 would not then have been remitted to Mr Tam. I agree.

285 I am not satisfied that there is or was at any time a loan repayable by BSS to Mr Ying in the amounts for which Mr Ying now contends.

(iii) If either Lida Song does hold the shares on constructive trust for Ming Ying and/or BSS holds the sum of $116,800 on constructive trust for Ming Ying, should it account on a wilful default basis for any benefit obtained through use of the funds? Is he obliged to account on a wilful default basis for any benefits he may have received from the ownership of the shares over the relevant period?

286 Mr Lawson says that much of the relief which is sought on the Amended Summons is not available on the case as it unfolded at the hearing (in particular, the relief sought in paragraphs 4 to 11 of the Amended Summons). He says that there can be no order for referral out to a referee, where no referee has been put forward and there can be no mandatory declaration for the correction of the financial records of the company where all directors have not have not been made party to the proceedings.

287 Mr Lawson also says that evidence of Mr Huamin Yang was that he never received a dividend from the company and therefore one can infer that that no dividends were paid by the company to the shareholders and therefore there was no benefit to Lida Song in holding the shares in BSS for the period from 7 August 2005. Hence any order for an account would not be warranted.

288 In light of the findings I have made, it is not necessary for me to determine this third issue.

289 Had I found that Mr Song held the BSS shares on trust for Mr Ying then I would have been inclined to order an enquiry into the benefits obtained from the holding of the shares (except that if the evidence of Mr Yang is accepted, as I have done, there were no dividends and hence the enquiry would seem to be pointless). In such a case, however, I would have seen no basis for an inquiry as to the value of the assets of the company – if Mr Ying was entitled to the shares then he would have his own rights as a shareholder but this was not the occasion on which to explore them.

290 Had I found that there had been a loan to BSS (and that the company records had wrongly reflected a discharge of that loan) I nevertheless would not have found that there was any trust over the funds repayable in respect of that loan nor would I have found that BSS should account for the use or benefit of what on that hypothesis would have been loan funds it was entitled to use for its own benefit. Any remedy for Mr Ying would have been in debt, depending on whether the loan was presently due and payable. As it was, the claim against BSS seems to have been misconceived from the outset.

Conclusion

291 For the reasons set out above, I dismiss the plaintiff’s claim. I will hear submissions as to costs at a time convenient to Counsel.

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17/03/2011 - Defendants' solicitor's name amended - Colin Biggers & Paisley - Paragraph(s) Coversheet