Crown Commercial Construction Limited v Lee

[2012] NZHC 2473

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-006063 [2012] NZHC 2473

BETWEEN  CROWN COMMERCIAL CONSTRUCTION LIMITED Plaintiff

ANDWON HE LEE Defendant

Hearing:         10 September 2012

Counsel:         I F Williams and E Krishnan for Plaintiff

M H Benvie for Defendant

Judgment:      25 September 2012

JUDGMENT OF MILLER J

Introduction

[1]    Crown  Commercial  Construction  Ltd  transferred  a commercial  property at Henderson to Won He Lee in 2005, for what both parties agree was less than market value.  It now asks the Court to set the agreement aside, forcing Won He Lee to re- transfer the property on repayment of the purchase price and to account for the rent she has received.

[2]   The central question is one of fact: whether Won He Lee forced Crown Commercial to accept the price by threatening to tell the Immigration Service that one of Crown’s principals was in New Zealand unlawfully.   If she did, I must consider what relief ought to follow in duress, undue influence or unconscionable bargain.

The protagonists

CROWN COMMERCIAL CONSTRUCTION LIMITED v WON HE LEE HC AK CIV-2011-404-006063 [25

September 2012]

[3]    The principal players are members of two Korean families linked by marriage. On the plaintiff’s side, Ha Young So and her husband Byung Min Lee have two adult sons, Sang Gi Lee and Joong Ki Lee.  The plaintiff itself is a company that they formed to develop the property.

[4]    On the defendant’s side, Won He Lee and her husband Tae Jong Chung have a

daughter, Yee Seung Chung, who was formerly married to Sang Gi Lee.

The immigration scheme

[5]    Sang Gi Lee and Yee Seung Chung married in Korea in 2000.  They emigrated to New Zealand, having secured residency, in November 2001.  At about the same time Ha Young So, Byung Min Lee and Joong Ki Lee also entered New Zealand.

[6]    Ha Young So sought residency as a business investor but that option was not open to Byung Min Lee, who had a failed business in Korea.  As a bankrupt he was not permitted to leave that country, but he managed to do so by bribing customs officials.  He entered New Zealand as a visitor, using his Korean passport.

[7]    Won He Lee and Tae Jong Chung entered New Zealand in 2001.  They later secured  residency,  having  been  sponsored  by  Won  He  Lee’s  brother,  who  was already in business here.

[8]    Attempts were made early in 2002 to extend Byung Min Lee’s stay.   Those attempts included visits to Immigration Service offices as far south as Palmerston North.  On that trip by car he and Sang Gi Lee were accompanied by Won He Lee and Yee Seung Chung.   These attempts failed, the Immigration Service agreeing only that Byung Min Lee could remain until Yee Seung Chung, who was pregnant, gave birth to his grandchild.

[9]    So a scheme was hatched under which Byung Min Lee would gain entry using a false passport.  He travelled to Ecuador, where he acquired a passport in the name of Ramiro Lee Lima.  Using that passport he returned to New Zealand at the end of

2002 or beginning of 2003.  He worked for another Crown company, Crown Cars

Clinic Ltd, as a mechanic, securing a work permit which expired in 2007.  Crown sponsored him, using his false name and without disclosing the familial connection. Sang Gi Lee explained that he got “Ramiro Lee Lima” a visa to enter New Zealand by giving him a letter of introduction, while Yee Seung Chung signed what seems to have been an Immigration Service employment questionnaire promising him work.

[10]  Joong  Ki  Lee  also  experienced  immigration  problems.    He  came  to  New Zealand as a visitor initially, then sought a work permit, relying upon a job offer which Sang Gi Lee had made for immigration purposes without disclosing that the two were brothers.   He was denied a work permit and eventually became an overstayer.

[11]  The parties dispute whether Won He Lee knew at the time about the deceit practiced upon the Immigration Service by or for Byung Min Lee and Sang Gi Lee. She denied it, but I find that she did know, either directly or via her daughter Yee Seung Chung, who was privy to the details through Sang Gi Lee.  As noted, both women shared the journey to Palmerston North.  I find it inconceivable that they did not know the purpose of the trip or its unsatisfactory outcome.  Yee Seung Chung was party to the job offer to Byung Min Lee in his false name.   The undisputed evidence is that mother and daughter were and are very close.  I reject as entirely implausible their claims that not until much later was Won He Lee told that Byung Min Lee had returned to New Zealand under a false passport.

The development and sale of Unit 10

[12]  The family of Byung Min Lee and Ha Young So had some capital.  Through a family trust they owned the property at Henderson on which the Crown car yard was situated.    In  2003  an  opportunity  arose  to  acquire  a  neighbouring  site  at  42

Paramount Drive, Henderson.  The plaintiff, Crown Commercial, was formed to own and develop the site as a series of 11 commercial units.  Seven of the units were sold off the plans.  One of the remaining units, unit 10, was intended for a café.  Crown Commercial maintains that it meant to keep that unit, regarding it as the jewel in the crown because of its proximity to passing foot traffic.

[13]  However,  on  19  September  2003  Crown  Commercial  and  Won  He  Lee executed an agreement for sale and purchase under which Won He Lee agreed to buy unit 10 for $350,000 plus GST.  Sang Gi Lee says that his wife badgered him until he agreed to sell.  He accepts that the price was fair.  The agreement provided for a deposit  of $10,000,  which  was  paid  three days  later, and  a further payment  of

$150,000 when building consent was obtained and work began on site.

[14]  Won He Lee claims that the price of $350,000 was a mistake on her part, the result of her unfamiliarity with English and her trust of Sang Gi Lee and Joong Ki Lee.   She says she did not read the agreement, and the agreed price was actually

$215,000 plus GST.  That price was admittedly less than market value, but she says that was agreed because she offered to advance the purchase price at short notice and before settlement, to help Crown Commercial fund the development.

[15]  It is the plaintiff’s case, by stark contrast, that within days after signing the agreement Ha Young So and Won He Lee met at the Crown Cars yard, at Won He Lee’s instigation, and that Won He Lee there demanded that the price be reduced to

$200,000 or she would tell the Immigration Service that Byung Min Lee was in New Zealand under a false passport.  Ha Young So gave way, fearing not only for Byung Min Lee but also for other family members who had been party to the deception.

[16]  The agreement for sale and purchase was changed, but not immediately.  On

10 May 2004 Corban Revell, which acted for all parties, wrote to Won He Lee explaining that work had begun and asking for the next payment (of $150,000) due under the contract.   She did not pay at once.   A file note of 17 September 2004 records that the agreement was away with Sang Gi Lee to have an alteration to the sale price initialled.  On 27 September the further payment of $150,000 was made. It  seems  a  reasonable  inference  that  the  amendment  was  initialled  before  that payment was made.

[17]  The  amendment  simply  involved  striking  out  the  price  and  substituting

$215,000.  Joong Ki Lee and Won He Lee initialled it.

[18]  Won He Lee denies that the amendment involved changing an agreed price. She says the parties were merely correcting an error, so that the agreement correctly recorded the price originally agreed.

[19]  I find this claim false, for several reasons.  First, I observe that nothing else about the agreement or the parties’ circumstances and behaviour is consistent with the alleged funding arrangement.   There is no suggestion that Crown Commercial needed so costly a financing arrangement, under which unit 10 was sold for far less than its market value.  The company obviously did require money to complete the development but most units had been presold and the unchallenged evidence is that the company did not need to borrow.  The agreement does not provide that the entire price  would  be  paid  on  demand;  it  provides  rather  that  a  second  payment  of

$150,000 would be made when construction began, with the balance on completion. That substantial second payment would presumably fund construction costs.  Won He Lee did not in fact finance the project by advancing the purchase price earlier; far from it, she was months late in paying the $150,000.   She claims that Crown Commercial never called on her for the funding, but it surely would have done so had she been given a major concession on price for that very reason.

[20]  Second, even on Won He Lee’s case the transaction was dishonest, for Sang Gi Lee’s money was used without his knowledge to fund the purchase.  Won He Lee and Yee Seung Chung agree that they made the purchase together, although Won He Lee’s name alone appeared on the agreement.  The deposit of $10,000 came from a bank account of Sang Gi Lee’s family trust.  His wife, a signatory to that account, paid it to her mother who in turn used it as the deposit.  Of the $150,000 paid on 27

September 2004, $95,000 came from Sang Gi Lee’s personal bank account.  Again, his wife paid that money to Won He Lee so that she could pay Crown Commercial. It is common ground that Sang Gi Lee was not told that his wife was party to the purchase, nor was he told about these transfers at the time.  In evidence Yee Seung Chung claimed an entitlement to the money, either in her own right or as relationship property, but I found her an evasive witness and she offered no satisfactory explanation for taking the money from these accounts, which were not hers, without telling him.  I also find that Won He Lee probably lacked the financial resources to advance a significant sum to Crown Commercial before settlement.  She claimed to

have had access to about $200,000 in Korea, but there is nothing to corroborate that and there are indications to the contrary.   Of the pre-settlement payments, which totalled $160,000, I am prepared to accept only that she evidently paid $55,000, and at settlement she borrowed $90,000 to complete the purchase.

[21]  Third,  Won  He  Lee’s  e1xplanation  that  she  did  not  know  what  she  was agreeing to because she could not read the document confronts several difficulties. The evidence is that the Korean language uses Arabic numerals, as does English. The price was prominently written in pen, in Arabic numerals, on the front page of the agreement.   She initialled an alteration to the legal description, which was recorded just above the price.  She does not dispute that she knew she was signing an important document.  Yee Seung Chung does and did speak and read English, and she not only acted as interpreter and saw the contract at the time but also kept a copy.  Her claim that she too did not read it, either then or after they left the office, is implausible.  Finally, the agreement was drawn up by the solicitors who acted for all the parties, Corban Revell, and signed at their offices.   I think it unlikely that a solicitor would have failed to establish through Yee Seung Chung that Won He Lee knew what she was signing.

[22]  Fourth, there is no suggestion that Crown Commercial shared Won He Lee’s alleged misunderstanding about the original price of $350,000.  She and Yee Seung Chung say they trusted Sang Gi Lee and his family, but they do not suggest that Crown Commercial intended to mislead them.   If that was Crown Commercial’s intention, I cannot see why it would meekly correct the agreement when later asked to do so.   In closing Mr Benvie suggested that Crown Commercial too may have been mistaken, but in that case there is simply no evidence about how $350,000 appeared in a formal agreement which had been drawn up by a solicitor who acted for all parties.

[23]  Finally,  Won  He  Lee  does  not  claim  that  the  ultimate  price  of  $215,000 resulted from any other cause, such as family ties.  It is common ground that there was no love lost between Won He Lee and the family of Ha Young So, and as noted above Sang Gi Lee did not know that Yee Seung Chung was involved.

[24]  Mr Benvie pointed out that the alleged threat implicated Won He Lee’s own daughter in the immigration scheme, since Yee Seung Chung had supported Byung Min Lee’s work permit application.  However, the Immigration Service would find out about that only if the threat were rejected and Won He Lee delivered on her threat to identify Byung Min Lee.   Further, the evidence suggests that Yee Seung Chung  was  not  especially  concerned  about  her  secondary  role  in  that  scheme, because she eventually disclosed the true position to the Immigration Service in

2011.

[25] Mr Benvie also submitted that the long delay in commencing proceedings invites the inference that the threat was not made. He suggested that this proceeding has been brought for collateral purposes, to give Sang Gi Lee an advantage in relationship property litigation with Yee Seung Ching. But I find the delay explicable for reasons given at [32] below.

[26]  I find accordingly that the original price of $350,000 plus GST was altered to

$215,000 plus GST because Won He Lee threatened Ha Young So that she would expose Byung Min Lee to the Immigration Service if the price was not discounted. There was an element of negotiation about it, in that Won He Lee demanded a price of $200,000 but agreed to pay Crown Commercial’s cost price of $215,000. Nonetheless, it was the threat of exposure that caused Crown Commercial to vary the agreement by reducing the price to that level.

[27]  In reaching these conclusions I have relied principally on the contemporaneous documentation and the circumstantial evidence, conscious that none of the witnesses has an impressive record of honesty when dealing with the authorities.   I should record my impressions, however.  I found Ha Young So a reliable witness, and Sang Gi Lee mostly straightforward if a little inclined to argue with counsel.  Won He Lee and Yee Seung Chung suffered from the disadvantage that even on their own evidence they duped Sang Gi Lee, and I have already mentioned that I found Yee Seung Chung evasive.

Byung Min Lee and Joong Ki Lee leave New Zealand

[28]  In 2005 the Immigration Service investigated Joong Ki Lee.  Sang Gi Lee was interviewed.  He conceded that he had lied by not disclosing that Joong Ki Lee was his brother.  Steps were taken to deport Joong Ki Lee, who left the country late in

2006 or early in 2007.  He has not been permitted to return to give evidence in this proceeding.

[29]  In the same interview Sang Gi Lee was asked about Ramiro Lee Lima.  The Immigration Service did not know his true identity at the time, but it understandably wanted to know whether Sang Gi Lee had also lied about him.  Sang Gi Lee falsely claimed that he had had a car accident when travelling in Europe in 1995, and had been helped out by a distant relative called Byungshin Lee, who later asked him to give “Ramiro” a job.

[30]  This  lie  seems  not  to  have  satisfied  the  Immigration  Service,  because  it continued to investigate “Ramiro” and tried to interview him.  For that reason Sang Gi Lee asked Byung Min Lee to leave New Zealand.  He did so in July 2006, the family harbouring hopes that he would eventually be able to re-enter under his Korean passport.  Ha Young So has returned to live with him in Korea.

Subsequent events

[31]  It may come as small surprise to the reader to learn that the marriage of Sang

Gi Lee and Yee Seung Chung was unhappy.  Eventually they separated in February

2011, when she secured a protection order against him while he was visiting Korea. Within a short time she had spoken to the Immigration Service, disclosing Byung Min Lee’s Ecuadorian passport fraud.  That dashed any hopes that Byung Min Lee might retain of returning to New Zealand.  The Immigration Service has given Sang Gi Lee a formal warning but, Byung Min Lee and Joong Ki Lee having long left New Zealand, no one has been prosecuted.

[32]  This proceeding was commenced in 2011.  I accept that Crown Commercial’s delay in bringing it is attributable to the hope that Byung Min Lee might return and the fear that Sang Gi Lee might be prosecuted.

[33]  Relationship property litigation followed the separation of Sang Gi Lee and Yee Seung Chung.  During the course of that litigation Corban Revell, which acted for Sang Gi Lee until Yee Seung Chung pointed to its conflict of interest, asserted an interest in unit 10 resulting from the now-disclosed use of his money to fund the purchase.  The litigation is still on foot.  I accept that it may give Sang Gi Lee an added reason to pursue this litigation, but it does not alter my conclusion that the price of $215,000 resulted from Won He Lee’s threat to reveal “Ramiro’s” true identity to the Immigration Service.

The claim

[34]  Crown Commercial has brought three causes of action: duress, undue influence and unconscionable bargain.   The relief sought under each cause of action is the same: a declaration that the entire agreement is void and orders requiring Won He Lee, on payment of counter restitution, to return the property and to account for rent received.   Mr Williams drew no distinction among the causes of action, accepting that relief in duress, as in equity, should be subject to counter restitution.[1]

[1] This proposition finds support in Halpern v Halpern [2008] QB 195 at [76].

[35]  The parties have joined issue on whether the threat was made.   There is no limitation plea, and no suggestion that the agreement was ever affirmed.  Counsel did not differ about the principles applicable.  Further, Mr Benvie accepted, I think inevitably, that if the threat was made I might find that the price of $215,000 resulted from  duress  or  undue  influence.    In  the  circumstances  I  need  not  review  the authorities on which counsel relied, principally McIntyre v Nemesis DBK Ltd[2](for

[2] McIntyre v Nemesis DBK Ltd [2009] NZCA 329.

duress), Royal Bank of Scotland plc v Etridge (No 2)[3] (undue influence), and Gustav

[3] Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773.

& Co Ltd v Macfield Ltd[4]  (unconscionable bargain).   I observe that a threat to instigate a criminal prosecution is generally considered illegitimate for the action in duress.[5]    Undue influence may be found where a party acquires influence through trust that has been placed in her, and abuses that influence by preferring her own

interests.    And  equity  will  intervene  in  a  transaction  in  which  one  party  has

unconscientiously  taken  advantage  of  the  other,  knowing  that  the  weaker  party cannot protect its own interests and is acting to its detriment.

[4] Gustav & Co Ltd v Macfield Ltd [2008] NZSC 47.

[5] Pharmacy Care Systems Ltd v Attorney General CA 198/03, 16 August 2004 at [94].

[36]  I  find  that  the  price  eventually  agreed  was  the  result  of  duress  or  undue influence or the unconscionable use of advantage or influence.  I have identified an element of negotiation about the price; Won He Lee wanted to pay $200,000 but agreed to pay Crown Commercial’s cost of $215,000.   Nonetheless, I have found that the price would not have been agreed but for the threat.  Further, I accept that Crown Commercial had no real alternative to submission.  Mr Benvie pointed out that it might have taken legal advice, which doubtless would have brought an end to the agreement, but that could not save Byung Min Lee.

Relief

[37]  As noted, Mr Williams submitted that Crown Commercial is entitled to a declaration  that  the  entire  agreement  is  void  and an  order  that  the  property be transferred to it on counter-restitution of the purchase price of $215,000 plus GST. He accepted that Crown Commercial must pay interest on the purchase price but argued that it is also entitled to the net rent that Won He Lee has obtained.  Won He Lee not having disclosed her expenses associated with the rent despite request, a rough and ready assessment must be made.  He suggested that I might simply deduct from the gross rent the interest that Crown Commercial would pay as part of its counter restitution.

[38]  Mr Benzie did not dispute that the Court normally grants rescission of an agreement resulting from duress, undue influence or unconscionable bargain.   He argued rather that in this case the remedy must be confined to a money sum, the difference between $215,000 and the original price of $350,000, for the latter price was freely agreed.   He accepted that Crown Commercial might claim the net rent since 2005, but invited me to call for further evidence and submissions should I decide that such relief is warranted.

[39] Mr Williams conceded in reply that I might set aside the variation but not the original agreement. I agree that partial rescission is possible,[6] and note that Kolmar Group AG v Traxpo Enterprises Pvt Ltd supplies an example in duress.[7]

[6] Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102.

[7] Kolmar Group AG v Traxpo Enterprises Pvt Ltd [2010] EWHC 113 (Comm).

[40]  This issue necessitates further findings of fact.  Mr Williams argued that the original agreement was part of Won He Lee’s plan; first she secured agreement to a sale then she brought pressure to bear to alter the price.  She never intended to buy the property for $350,000.   I accept these submissions, for several reasons.   First, Won He Lee accepted in evidence that she would not have purchased the property for $350,000.  Second, the original agreement was never bona fide, if only because Yee Seung Chung was an undisclosed buyer and intended to use her husband’s money or (putting the most charitable interpretation upon it) their relationship property, without his knowledge or agreement.   Won He Lee plainly knew that. Third, it is doubtful whether she and Yee Seung Chung together had access to enough money to pay $350,000.  Finally, she delivered the threat very soon after the original agreement was signed.  Her use of illegitimate pressure at that point invites the inference that she always intended to force Crown to accept a lower price.

[41]  For the same reasons I also find that had Crown Commercial not agreed to vary the price, the original transaction would not have been completed.

[42]  It follows that while Crown Commercial’s decision to sell at $350,000 was not the result of illegitimate pressure, the original agreement cannot be viewed as a separate transaction from the variation.  I find that the sale of unit 10 was a single dishonest and unconscionable transaction.

[43]  It appears that unit 10 now has a government valuation of $375,000.

[44]  As  noted,  counsel  agreed  that  rescission  of  the  transaction  is  the  normal remedy, along with any recovery of fruits such as rent.   The aim is not to award damages but to restore the parties to their original positions.[8]   I accept that principle,

while noting that rent is recovered not strictly as an account of profits, under which

indirect gains may be recovered from a fiduciary, but (like the modest increase in the nominal value of unit 10) as a direct incident of the restitution of the property.[9]

[8] Newbigging v Adam (1886) 34 Ch D 582 (CA) at 592-593.

[9] Dominic  O’Sullivan,  Steven  Elliott  and  Rafa  Zahrzewski  The  Law  of  Rescission  (Oxford

University Press, Oxford, 2008) at [2.18].

[45]  In the end I am satisfied, based on the findings of fact that I have just made, that the entire transaction must be rescinded to satisfy the equity arising from Won He Lee’s unconscionable dealing.[10]    The sale of unit 10 is set aside, restoring the plaintiff to beneficial ownership.   That will allow the plaintiff to caveat the title without delay.   There will be an order that Won He Lee re-convey unit 10 to the plaintiff on payment of counter restitution.   However, the quantum of counter restitution remains to be settled, because I agree with Mr Williams that interest should be paid on the purchase price of $215,000 and there is no evidence about the

appropriate rate.

[10] Bridgewater v Leahy (1998) 194 CLR 457 at 493.

[46]  There will also be an order that Won He Lee must account to the plaintiff for rent earned from unit 10.  However, the quantum remains to be settled.  As noted, Mr Williams accepted that the amount payable should be net of expenses, which have not been proved.  I agree, and do not preclude other adjustments to meet the justice of the case.

[47]  The Registrar is to convene a teleconference early in November at which a timetable will be set for further evidence and submissions.   Counsel must seek agreement about the timetable.  They must also seek agreement on costs, which I am provisionally inclined to fix on a 2B basis with provision for one counsel.

Miller J

Solicitors:

Central Park Legal Ltd, Auckland for Plaintiff

D N Jury, Auckland for Defendant