Dorchester Finance Limited v Christchurch Foodcourts Limited HC Auckland CIV 2005-404-6193
[2010] NZHC 1613
•3 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2005-404-006193
BETWEEN DORCHESTER FINANCE LIMITED Plaintiff
ANDCHRISTCHURCH FOODCOURTS LIMITED
First Defendant
ANDT N T SOON Second Defendant
CIV 2007-404-005811
AND BETWEEN T N T SOON AND ANOR AS THE TRUSTEES OF THE GLOBAL TRUST Plaintiffs
ANDDORCHESTER FINANCE LIMITED First Defendant
ANDDORCHESTER CAPITAL LIMITED Second Defendant
Hearing: 22-26 February, 1-4 and 29-30 March 2010
Counsel:A J Forbes QC and S E Rowe for Christchurch Foodcourts Ltd, T N T Soon and Trustees of the Global Trust
D H McLellan and M V Robinson for Dorchester Finance Ltd and
Dorchester Capital Ltd
Judgment: 3 September 2010
JUDGMENT OF WHITE J
This judgment was delivered by me on 3 September 2010 at 11:00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………….
Solicitors:
Simpson Grierson, Private Bag 92518, Auckland Buddle Findlay, PO Box 322, Christchurch Counsel:
D McLellan, PO Box 443, Auckland
A J Forbes QC, PO Box 2929, Christchurch
DORCHESTER FINANCE LTD V CHRISTCHURCH FOODCOURTS LTD AND ANOR HC AK CIV 2005-
404-006193 3 September 2010
Table of Contents
Para No Introduction [1] Issues [2]
The parties [13] Factual background [20] Oral evidence [78] Experts [111] Assessment of witnesses [118] Knowledge of GT and Mr Wuu [124] Mr Wuu’s disclosure to Mr Ng [132] Mr Jensen’s representations [137] Non-disclosure by Dorchester? [144] Dorchester’s failure to give advice? [149] Misleading or deceptive conduct? [156] Mistake? [175] Breach of fiduciary duty? [176] Breach of mortgage contract [182] Dorchester’s limitation defence [183] Result [189]
Introduction
[1] These proceedings involve two separate but related claims for damages against Dorchester Finance Limited (Dorchester). In the first claim (the second proceeding), Global Trust (GT) seeks to recover from Dorchester fees and payments of principal and interest totalling $2,519,370.95 plus interest and costs, principally on the grounds that the fees were incurred and the payments were made on the basis of alleged misleading representations and non-disclosure by Dorchester.
[2] In the second claim (the first proceeding), Christchurch Foodcourts Limited (CFL) and Tony Ng Thiam Soon (Mr Ng) seek to recover from Dorchester payments of principal, expenses, interest and costs totalling $1,998,984, principally on the grounds that the payments were made on the basis of alleged misrepresentations and misleading and deceptive conduct by Dorchester. The two claims are related and overlap because CFL borrowed $785,000 from Dorchester in order to lend $750,000 to GT for broker’s fees and CFL and Mr Ng provided guarantees to Dorchester for GT’s debt of $2,081,020.
[3] The claims arise against a background of loans, actual and proposed, by Dorchester to GT, a trust originally established by George Wuu Khek Chiang (Mr Wuu), a Singaporean businessman with interests in New Zealand, including the Dunedin Central Post Office building, which had been purchased for development as a five star hotel. GT claimed that Dorchester’s misrepresentations that the loans had been deposited into GT’s bank account pending receipt of security acceptable to Dorchester when the funds were in fact still held by Dorchester in a separate account in the name of GT induced it to enter into various loan agreements, and that it incurred fees and interest as a result.
[4] CFL and its owner, Mr Ng, a Singaporean business associate of Mr Wuu, agreed to lend GT $750,000 as the broker’s fee for procuring a bank guarantee as security for a loan of $16.75 million from Dorchester to GT and to guarantee GT’s indebtedness of $2,081,020 to Dorchester. CFL borrowed $785,000 from Dorchester and provided security by way of second mortgage over its Christchurch properties for both the loan and the guarantee. CFL and Mr Ng claim that Dorchester’s misrepresentations as to the status of the loan to GT and non-disclosure of material background information as to the relationship between Dorchester and GT, GT’s loan history with Dorchester and the purpose of the $16.75 million loan induced them to enter into these transactions.
[5] When no bank guarantee was forthcoming as security for the $16.75 million loan, Mr Wuu advised Dorchester that the loan was no longer required. After CFL defaulted on the loan from Dorchester, Dorchester took summary judgment proceedings against CFL and Mr Ng in the High Court at Auckland and CFL and Mr Ng took proceedings against Dorchester in the High Court at Christchurch challenging the whole underlying loan arrangement. CFL and Mr Ng also obtained an ex parte mandatory injunction requiring Dorchester to discharge its mortgage over CFL’s Christchurch properties on receipt of $1,639,072.12 paid on a without prejudice basis. Dorchester obtained rescission of the ex parte orders on terms and also an order striking out the Christchurch proceeding: Christchurch Foodcourts Ltd
v Dorchester Finance Ltd[1] and Dorchester Finance Ltd v Christchurch Foodcourts
[1] Christchurch Foodcourts Ltd v Dorchester Finance Ltd HC Christchurch CIV-2005-409-2528, 15
December 2005.
Ltd.[2]
[2] Dorchester Finance Ltd v Christchurch Foodcourts Ltd HC Auckland CIV-2005-404-6193, 6 April 2006.
[6] Dorchester’s summary judgment application was withdrawn and its claim proceeded as an ordinary action. It was consolidated with later proceedings issued by GT in the High Court at Auckland. CFL and Mr Ng also counterclaimed in Dorchester’s proceeding.
[7] Dorchester denies all of the claims by GT, CFL and Mr Ng, essentially on the grounds that as there was no security there was no loan of $16.75 million to GT, and therefore no misrepresentations, and it (Dorchester) was under no legal duty of further disclosure to CFL or Mr Ng in the circumstances of this case. Dorchester also relies on a limitation defence in respect of the Fair Trading Act claim.
[8] The factual background to the claims is contained in the documentary evidence, conveniently summarised by the parties in an agreed statement of facts, and in the oral evidence adduced at the trial by the parties. While there was a measure of agreement between the witnesses as to the sequence of events reflected in the documentary evidence, there was also conflicting evidence relating to their understanding of a number of the principal documents, their recollections of various discussions between representatives of the parties and the alleged misrepresentations. Issues of credibility were raised on both sides.
[9] Both sides also called expert evidence. For GT, CFL and Mr Ng, there were two independent banking consultants, Michael Taylor and Graeme Reid. For Dorchester, there was a chartered accountant with commercial experience, John Hagen. Reference is made to their evidence when relevant, but, as most of the issues in this case were factual ones, the expert evidence has not proved to be particularly significant.
Issues
[10] It is clear from the pleadings in both proceedings and from the submissions for the parties that the outcome of the claims by GT, CFL and Mr Ng depends in the first instance on resolution of the following factual issues:
a) Did GT and/or Mr Wuu know that Dorchester had set up a separate “Global Trust New Zealand” with its own separate bank accounts, which Dorchester owned and controlled, into which funds of $25 million and $16.75 million were deposited pending receipt of security for loans of those amounts from Dorchester to GT?
b)Did GT and/or Mr Wuu know that GT needed to obtain security to Dorchester’s satisfaction for any loan from Dorchester before Dorchester would authorise the release to GT of any funds held in the separate bank accounts in the name of Global Trust New Zealand which Dorchester owned and controlled?
c) Did Mr Wuu advise Mr Ng (CFL) that GT already had a loan of
$16.75 million from Dorchester, that GT sought a bank guarantee from Deustche Bank for that amount and that to obtain the guarantee broker’s fees of $750,000 needed to be paid to Ameritrade?
d)Did Dorchester’s representative (Mr Jensen) represent to Mr Ng (CFL) that Dorchester had already lent GT $16.75 million, deposited in GT’s bank account at HSBC and earning interest?
e) Did Dorchester fail to disclose to Mr Ng (CFL) that there was a separate “Global Trust New Zealand” with a separate account, owned and controlled by Dorchester, and that funds in the account would not be released to GT until GT provided security to Dorchester’s satisfaction?
f) Did Dorchester also fail to disclose to Mr Ng (CFL) background information relating to its views about GT’s proposed transaction, the previous inability of GT to obtain security in the form of a bank
guarantee, the existence of a documented formal loan to GT of $1.2 million for interest and fees charged on the $16.75 million “loan”, the views of HSBC, and that the purpose of the loan was to fund a hotel development of a property sold by GT in October 2003 with a buy- back clause operative until 2 January 2006?
g) Did Dorchester fail to advise Mr Ng (CFL) of the risks involved in the loan and guarantee documentation and that he (and CFL) should obtain independent legal advice before signing the Dorchester loan and guarantee documentation?
[11] The answers to these factual issues provide the basis for considering the legal issues raised for the parties in the context of the various causes of action for misrepresentation, misleading and deceptive conduct and non-disclosure, breach of the Fair Trading Act 1986, breach of contract, breach of fiduciary duties and contractual mistake. The legal issues include:
a) Whether the relationship between Dorchester and Mr Wuu and the various proposed loan arrangements between them, including in particular the creation by Dorchester of a separate GT bank account, were “unusual” in the sense that an obligation of disclosure was imposed on Dorchester.
b)Whether Dorchester, as lender, was under a legal duty to disclose to CFL/Mr Ng, as borrowers and guarantors, background information relating to the relationship with Mr Wuu, GT’s loan history and the purpose of the loan, including the risks involved.
c) Whether there was any breach of the Contractual Remedies Act 1979 or the Fair Trading Act 1986.
d)Whether the Fair Trading Act claims were precluded by Dorchester’s limitation defence.
e) Whether Dorchester owed a fiduciary duty to GT. f) Whether the disclaimer provision applied.
[12] Issues raised relating to the question of costs have been deferred pending judgment on the principal issues.
The parties
[13] There are two relevant Dorchester companies: Dorchester Capital Ltd and Dorchester Finance Ltd. The former brokered and marketed deals, while the latter approved and granted loans. It was Dorchester’s case that the functions of the two companies were kept separate and independent for financial and corporate governance reasons, but it also appeared from the documentary evidence that at least on some occasions the functions of the two companies were intermingled. In the end the distinction did not make much practical difference and it is convenient to refer to the two companies simply as “Dorchester”.
[14] Dorchester was a finance company. It provided second tier lending as an alternative to the more traditional lending institutions, such as banks. In December
2005 the Dorchester group had assets of approximately $480 million. In 2003
Dorchester Finance Ltd had total assets of about $160 million. If Dorchester’s proposed loans to GT of $31 million, $25 million and $16.75 million had proceeded, they would have been Dorchester’s largest loans and utilised a significant percentage of Dorchester’s assets.
[15] The principal witnesses for Dorchester were Brent King (Mr King), former managing director, and Michael Jensen (Mr Jensen), former senior financial manager. Mr King was the dominant of the two and Mr Jensen’s mentor. Mr Jensen gave evidence that when he and Mr King were both at meetings he (Mr Jensen) always deferred to Mr King.
[16] Mr Wuu was a well-known Singaporean businessman and patron of the arts, educated in Singapore in both Mandarin and English. He understood and did business in both languages. He set up both Global Trade Network (NZ) Ltd and the Global Trust. Details of the trust are given later. The evidence indicated that unknown to Dorchester and Mr Ng, the Supreme Court of Singapore made a bankruptcy order against Mr Wuu in July 2004. Mr Wuu claimed that he did not become aware of his Singaporean bankruptcy until 2007.
[17] Mr Wuu and Dorchester’s representatives, Mr King and Mr Jensen, established a relatively close relationship over the years. This was no doubt partly because of the number of loan proposals put forward and their size. Messrs King and Jensen and Mr Mark van Leewarden, an associate of Mr King, also travelled overseas to meet prospective international financiers at Mr Wuu’s suggestion and expense.
[18] Like Mr Wuu, Mr Ng was a well-known Singaporean businessman educated in Singapore in both Mandarin and English. He understood and did business in both languages. Mr Ng was clearly a very successful businessman with interests in a number of countries. He was an exporter of electronic goods, majoring in the Panasonic brand, with an annual turnover in 2004 of about NZ$100 million. His net worth was in the tens of millions of dollars, though he could not pinpoint the amount exactly. He had no difficulty or hesitation in making unsecured personal loans to business associates of Singaporean $1 million or $2 million.
[19] The relationship between Mr Wuu and Mr Ng was that of business colleagues and golfing mates, with shared club memberships. The relationship was sufficiently close for “friendly loans” to be made by Mr Ng to Mr Wuu. In 2000 Mr Ng had made two unsecured personal loans to Mr Wuu’s Singaporean businesses, one of Singaporean $2 million, which had been repaid, and the second one of Singaporean
$1 million, which remained outstanding. Mr Wuu had provided a personal guarantee for the loan to his business. Mr Wuu trusted Mr Ng and believed that Mr Ng trusted him.
Factual background
[20] Between 1994 and 2001, Global Trade Network (NZ) Ltd, a company owned by Mr Wuu, bought and sold various properties in Dunedin and Queenstown. One of these was the Dunedin Chief Post Office building which Global Trade Network (NZ) Ltd purchased in 1995 with plans to develop it as a five star hotel.
[21] In December 2001, Mr Wuu settled Global Trust with his Dunedin lawyer, Mr Albert Alloo, and his Dunedin property adviser, Mr Kingsley Kung, as trustees. Mr Wuu’s children were initially the discretionary beneficiaries of the trust, but they
were replaced as beneficiaries in July 2002 by a Peter Choo. GT’s address in Dunedin was Mr Alloo’s office and its bank account was with the ANZ bank in Dunedin.
[22] At the same time in December 2001 Dorchester entered into a loan agreement with Global Trade Network (NZ) Ltd to provide $750,000 working capital. This was the first of several loan agreements between Dorchester and Mr Wuu’s business entities, most of which were not in fact implemented.
[23] In early January 2002, Global Trust Network (NZ) Ltd transferred ownership of the Dunedin Central Post Office building to GT.
[24] During February 2002, Dorchester made a number of unsigned term loan offers to GT of $17 million to fund the development of the Dunedin CPO building. The loan offers proposed progressive draw downs against work in progress with security being a certificate of deposit by an overseas bank.
[25] Between late March and mid July 2002, Dorchester provided GT with a number of mandate agreements for $25 million to assist with the Dunedin CPO building development in terms broadly similar to those for the February 2002 offers. One of the agreements was executed by the trustees of GT, but most were not.
[26] In August 2002, Messrs King and Jensen of Dorchester travelled to London at Mr Wuu’s suggestion and expense to meet Ravi Chilukuri of PWC, who was Mr Wuu’s adviser in London. Mr Wuu acknowledged in cross-examination that the purpose of the trip to London was twofold: to persuade Dorchester that the proposed transaction was something that could happen and to allow Mr Chilukuri to meet Dorchester’s representatives so that he would have confidence in the ability of Dorchester to provide the finance for the undertaking.
[27] In August and October 2002, Dorchester and GT entered into term loan contracts of $500,000 and $1.4 million respectively to refinance existing mortgages and provide working capital for the hotel development.
[28] In January 2003, Messrs King and Jensen travelled to Sydney at Mr Wuu’s suggestion and expense to meet with Mr Wuu and representatives of Accor and Rydges about the hotel development.
[29] Between March and May 2003, Dorchester and GT entered into a mandate agreement and a term loan offer for $31 million for the hotel development. Under clause 2.2 of the offer of term loan the “availability date” of the loan was:
ten banking days after pre-advice is received from the bank issuing the
Certificate of Deposit, that is acceptable to the lender in all regards.
Fees of $1,096,875 were payable on acceptance and were non-refundable whether or not the loan proceeded. The fees included a two per cent procurement fee and a two per cent establishment fee. Security included a certificate of deposit and a bank guarantee. A separate term loan contract was also entered into for $263,109.38 as part payment of the fees. And a second term loan contract for the balance of the fees was entered into on 6 June 2003 after the transaction was aborted.
[30] On 15 May 2003, Mr Jensen wrote to Mr Wuu as follows:
Following on from that I understand that you and Brent [Mr King] made a verbal agreement that we would look to achieve a response from SFM [Co Ltd, described as “an international asset management company” with its registered office in the British Virgin Islands] on another basis i.e. we put the money on deposit with the BNZ so you can demonstrate to SFM that you have drawen [sic] down the $31 million.
Mr Wuu responded on the same day:
There is no change in this arrangement, save for my request that the principle [sic] loan sum be placed in a new sub account with BNZ controlled by you, but in account name of Global Trust. The Trustees and beneficiary will sign the necessary Power of Attorneys and indemnity to satisfy your legal requirement to acknowledge this. The signing authority by you will only be released to us after the receipt of the CD [Certificate of Deposit] by you and confirmed by BNZ. You should be totally satisfied with this procedure.
[31] The $31 million loan offer was not progressed because, as Mr Wuu acknowledged in cross-examination, GT was unable to obtain security for the loan to offer to Dorchester. Instead a new $25 million transaction was proposed in May
2003. Mr Jensen wrote to Mr Wuu about the proposed new transaction on 19 May
2003:
The new transaction involves $25m being placed on deposit with the BNZ in the name of The Global Trust for a period of up to 60 days. This new account (The Global Trust) is 100% owned and controlled by The Dorchester Group.
Mr Wuu signed the letter accepting this condition.
[32] Mr Wuu responded on 20 May 2003 in a letter in which he deleted what Mr
Jensen had stated and replaced it with the following wording:
We [Dorchester] will arrange to deposit NZ$25m with BNZ this week in the name of Global Trust.
To this Mr Jensen replied on the same day:
...
I can confirm to you that your new facility of NZ$25m should be finalised this week.
I will contact you as soon as we have been able to open you an account, which we hope to be this week.
[33] There was further correspondence from Mr Wuu to Dorchester as to the terms of the proposed loan on 23 May 2003 including a letter which stated:
1.Dorchester proceed to open a “Project Account” with your existing bank, ie National Bank.
2. Dorchester will control this as your sub-account in the name of
Global Trust.
...
4.I will arrange to deposit NZ$1,000.00 into this Project Account today.
...
6.Dorchester will remain the signatory to this account for the conventional drawdown.
7.If it is drawn down against the CD or from the proceeds of sale to REIT [Real Estate Investment Trust in Europe], Dorchester will then transfer the signing authority to Global Trust’s for this Project Account Under this arrangement, a Pre-advice will be issued for the CD. REIT’s bank officer (CD Issuing Bank) will check with National Bank to confirm that Dorchester’s account is current and ready for the NZ$25m drawdown for the project development before issue of CD or payment for the Novotel project.
[34] Once again Mr Wuu’s proposed drafting was not accepted by Dorchester and
Mr Jensen replied on 30 May 2003 deleting points 6 and 7 in Mr Wuu’s letter of 23
May 2003 and stating:
1.A bank account will be opened with the BNZ, Queen Street, Auckland in the name of Global Trust.
2.Dorchester will own and control this account in all regards. No other party will have any claim on these funds.
3. The account will be open for 60 days only and then will close.
4. No further extensions or variations will be entered into.
5. The outstanding fee under our loan offer dated 20th March 2003 for
$975,000 + GST is to be documented now and added to your existing mortgage facility with Dorchester.
6.An interest rate calculated at Dorchester Finance 6-month deposit rate plus 2% will be charged on the $25m for the 60 days and added to your existing mortgage facility.
7.Dorchester has the right to communicate with Accor in relation to progress with the Hotel Development, throughout the 60-period.
Again Mr Wuu signed the letter confirming that he accepted these terms.
[35] There was further correspondence between Dorchester and Mr Wuu and also letters from Mr Alloo to Mr Jensen, which culminated on 6 June 2003 in the execution by GT of a term loan contract with Dorchester for $1,096,875, being the remaining fee of $975,000 (plus GST) charged by Dorchester in the aborted $31 million loan transaction, mortgages and a letter of acknowledgement and instruction from GT to Dorchester, which stated:
1.Dorchester agreed to provide the borrower with certain facilities under a Loan Offer dated 20/03/03 (“Loan Offer”). The Borrower and Guarantor were unable to satisfy clause 2.2 of the Loan Offer and requested further accommodation from Dorchester to assist them in satisfying that clause.
2.Dorchester offered to provide further accommodation as requested by the Borrower and Guarantor in a letter to the Borrower dated
30/05/03 (“Letter”) which has been accepted by the Borrower and
Guarantor, such acceptance which is hereby confirmed.
3.The Borrower and Guarantor acknowledge that should clause 2.2 of the Loan Offer not be satisfied within 60 days after the date upon which Dorchester opens an account with BNZ Auckland in the name of Global Trust and deposits to such account the sum of NZD25.0M then Dorchester’s obligations under the Loan Offer and the Letter will be at an end and the Borrower and Guarantor will have no claim against Dorchester.
4. Under clauses 2.6.1 and 2.6.2 of the Loan Offer fees totalling
$1,240.000 plus GST of $155,000 = $1,395,000 (“Fees”) are payable.
5. At the request of the Borrower and Guarantor the sum of
$263,109.38 (being $298,125 of the above Fees plus $5,625 retainer less the sum of $40,640.62 previously paid) was advanced to the
Borrower by Dorchester Finance Ltd under a Term Loan Contract
dated 14/04/03 and applied in part payment of the Fees. (All sums include GST).
6.In consideration for the above further accommodation to be provided by Dorchester under the Letter the Borrower and the Guarantor agree to pay the balance of the Fees payable under the Loan Offer amounting to $1,096,875 including GST.
7. The Borrower and the Guarantor instruct and authorise Dorchester
Finance Limited to make an advance for the balance of the Fees of
$1,096,875 such advance to be secured by an existing first registered mortgage over the Borrowers properties in Dunedin contained in certificates of title 3A/120.147/153, 12D/1655, 12A/1352, 391/44,
391/45, 387/234 and to pay such sum to Dorchester settlement of the balance of the Fees.
[36] Mr Wuu was cross-examined closely about the terms of this letter of acknowledgement and instruction. In the end I am satisfied that he understood that he had 60 days, that is until 8 August 2003, to obtain security acceptable to Dorchester before the funds in the BNZ account would be released by way of loan by Dorchester to GT.
[37] As envisaged by Dorchester’s letter of 30 May 2003, on 9 June 2003
Dorchester established a separate trust named GT, which Dorchester owned and controlled. The trustees of Dorchester’s Global Trust were senior executives of Dorchester. Dorchester then asked the BNZ to open an account under the name of GT, which was wholly owned and controlled by Dorchester. The signatories on the account were senior executives of Dorchester. The BNZ accepted irrevocable instructions not to transfer funds in the account without approval of the account signatories. Dorchester placed $25 million in the account on a 60 day term deposit (expiring on 8 August 2003). The BNZ issued a letter to the trustees of GT confirming the deposit.
[38] During July 2003 Mr Wuu and Mr Jensen corresponded about the 8 August
2003 deadline for the completion of the transaction and an extension of the term deposit. They also met on 28 July 2003. Dorchester would not agree to a 12 month extension and the $25 million plus interest was transferred back to Dorchester in two tranches by the BNZ in August 2003. Mr Wuu acknowledged in cross-examination
that the money was taken off deposit with the BNZ and paid back into Dorchester’s main account on Dorchester’s instructions because no security had been provided by GT for the proposed loan. Mr Wuu also acknowledged that he did not complain to Dorchester about the withdrawal of the deposit.
[39] In September 2003, as a consequence of the GT loan facilities being in default, Mr Wuu arranged for the sale of the Dunedin CPO building to a Mr Thomson with a “Put Option” whereby Mr Wuu could purchase the building back on short notice for $3.5 million. The buy back period was to expire on 2 January 2006.
[40] On 21 October 2003, GT deposited $1.5 million into Dorchester’s account as repayment of outstanding loans.
[41] On 3 November 2003, GT and Dorchester entered into a term loan contract for $1.8 million for working capital, which was secured against GT’s other properties.
[42] In November 2003, Dorchester sent Mr Wuu two further mandate agreements: one in respect of a proposed loan of $16.5 million (later increased to
$16.75 million) and the other for $585,000 which represented the difference between GT’s then current facility in Dorchester of $4,009,000 and receipt of $3,450,000 being the final payment from the sale of the Dunedin CPO building.
[43] On 20 November 2003, a draft mandate agreement was prepared by
Dorchester, which stated:
Further to our meeting on Wednesday 19 November 2003, in relation to Dorchester arranging a NZ$16.5m deposit in the name of “Global Trust New Zealand” for a three month term. Dorchester will be the trustee of “Global Trust New Zealand”.
Again Mr Wuu acknowledged in cross-examination that the deposit of $16.5 million (later changed to $16.75 million) would be held in the Dorchester owned and controlled account for “Global Trust New Zealand” until GT was able to come up with securities to the satisfaction of Dorchester to enable the loan to be made to GT.
[44] This was followed by a letter from Mr Jensen to Mr Wuu dated 21 November
2003 and addressed to “Global Trust New Zealand, c/- PO Box 292, Dunedin” (the
Dunedin address of Global Trust) stating:
This letter serves to confirm that Dorchester is currently holding NZ$16.5m in trust for and on behalf of Global Trust New Zealand.
[45] In December 2003, Mr Wuu suggested that Mr King should become a trustee of GT. Instead Mr Mark van Leewarden, a security consultant and an associate of Mr King, was appointed. Dorchester charged GT a fee of $25,000 plus GST for appointment of Mr Leewarden as trustee of both the Global Trust and Global Trust New Zealand.
[46] On 5 December 2003, Mr Wuu and Mr Jensen met and signed a mandate agreement for the $16.75 million loan offer. The agreement stated:
Further to our meeting on Friday 5th December 2003, in relation to Dorchester arranging an NZ$16.75m deposit in the name of “Global Trust New Zealand” for a three month term. The term may be extended to 12 months when the associated fees and interest have been deposited with Dorchester. Interest at the rate of 12% pa is to be charged from the date of acceptance of this mandate. Dorchester will be the trustee of “Global Trust New Zealand”. The above deposit is to be exchanged for securities arranged by yourself (yet to be confirmed). Such securities are to be to the complete satisfaction of Dorchester. Confirmation of the securities offered for the exchange are to be confirmed and verified through the NZ based bank which the exchange is to occur through.
On acceptance of this mandate, Dorchester will arrange the letter outlined in Appendix 2 on the letter head of the bank holding the $16.75 million deposit (bank yet to be confirmed).
...
Appendix 2 to the agreement stated:
We hereby confirm that you have a total of NZ$16.75m (which at the current exchange rate to US 64.5 is equivalent to US$10.80m).
...
We understand you are negotiating a contract and on completion of these negotiations you will give us advice that the term is to be extended from call to one year.
[47] On 9 December 2003, Dorchester deposited $16.75 million into an HSBC
account in the name of “Global Trust New Zealand” for three months. HSBC
confirmed to Global Trust New Zealand at Dorchester’s PO Box in Auckland that it held the funds.
[48] In late January 2004, Mr Alloo was replaced as trustee of GT by Mr Wuu. Mr Kung remained as trustee and Mr Choo as discretionary beneficiary.
[49] Also in late January 2004, the sale of the Dunedin Post Office building was settled. GT transferred $3,495,723.06 to Dorchester.
[50] On 4 February 2004, Dorchester and GT entered into a loan agreement for
$725,000, to be used to repay the outstanding balance on a previous loan.
[51] At the same time, Mr Jensen and Mr Wuu corresponded about the wording of the bank confirmation letter to be provided by HSBC to the trustees of Global Trust New Zealand.
[52] On 18 February 2004, Dorchester and GT executed a mandate agreement extending the $16.75 million term deposit for a further 12 months on the basis that fees and charges of $1.28 million were paid. An offer for a term loan of $1.28 million was executed the next day. The mandate agreement included in the fees and costs:
A Trustee appointment fee to the Global Trust and Global Trust New
Zealand of $25,000 + GST.
[53] On 27 February 2004, Mr van Leewarden replaced Mr Kung as a trustee of
GT with an appointment fee of $28,125 payable by GT to Dorchester.
[54] In early March 2004, Mr Wuu sought to vary the agreement by suggesting that the funds ($16.75 million) be placed in an off-shore account with Clariden Bank (the private bank of Credit Suisse) under the control of Mark van Leewarden. Mr Jensen advised Mr Wuu that this proposal was not acceptable to Dorchester.
[55] On 18 March 2004, Mr Jensen gave Mr Wuu a statement from HSBC, addressed to Global Trust New Zealand at Dorchester’s Auckland PO Box, which stated that:
We are pleased to confirm your Term Deposit Account Number 003 152501 056 was re-invested on 9 March 2004.
We can confirm the Deposit will be invested for a period of Twelve Months from
9 March 2004, to mature 9 March 2005.
The interest rate has been set for this period at 5.65%p.a.
The balance of the Term Deposit at Maturity will be NZD$17,327,288.75.
[56] Later in March 2004, Messrs King, Jensen and van Leewarden, after attending Dorchester’s retreat for the Malaysian Grand Prix, travelled to London and Geneva at Mr Wuu’s suggestion and expense. Mr van Leewarden prepared a memorandum dated 25 March 2004 recording some of their discussions in Geneva with Mr Wuu:
1.It was confirmed that it was at George’s suggestion that Mark would not proceed and become a signatory of the Global Trust bank account with Clariden Private Bank. George stated that as the proposed bond deal scheme was not going ahead there was no necessity to proceed with the bank account.
...
4.It was agreed George is to seek a bank guarantee to in turn take out the Global Trust fund. George to use existing assets and he conceded that he now has to do this. Brent commented that when the bank is ready with the guarantee the documentation can be examined. It was confirmed the funds in Auckland are to stay blocked with a lien and the April 30 2004 deadline remains in place.
...
8.Brent summarized by stating that the funds in Auckland are there and available to George but subject to certain conditions. He reiterated that Dorchester was there to help George and that this had always been the case. George agreed with this and said he was grateful for the support.
[57] Mr Wuu acknowledged when cross-examined about paragraph 4 of this memorandum that it was his responsibility to make the transaction happen and that there was no change to the general deal with the funds blocked until 30 April 2004. Mr Wuu also acknowledged that paragraph 8 was an accurate summary of the position. Although Mr van Leewarden was called on subpoena to give evidence by GT, Mr Ng and CFL, he was unable to assist because, as a result of a recent serious head injury, he had no real memory of the relevant events or his memorandum. Mr King agreed in cross-examination that the reference in paragraph 8 to “a lien” was wrong, but otherwise did not dispute the accuracy of the memorandum. Mr Jensen acknowledged in cross-examination that, apart from the reference in paragraph 8 to
the funds being blocked by a lien, the memorandum was a fair summary of where things were at that stage.
[58] On 26 April 2004, Mr Wuu wrote to Mr Jensen suggesting that Dorchester arrange for HSBC to write to Banco de Finanzas e Inversiones SA in Spain:
We have been inform [sic] by our client, Global Trust New Zealand that you are to SWIFT to us a Guarantee issued by one of the following banks against your client’s account, M/s Ameritrade Group Financial Corp. Ltd. under your United States Dollar account No. 0186 1001 91 4207005378:
1. DEUSTCHE BANK (HEAD OFFICE)
2. ING BANK (HEAD OFFICE)
3. CREDIT SUISSE (HEAD OFFICE)
4. HSBC BANK (GENEVA BRANCH)
The Bank Guarantee is for value US$14 million with a term of 1 year + 1 day in favour of our client, Global Trust New Zealand.
Upon receipt of the Guarantee, subject to our verification, authentication and confirmation by SWIFT with the Issuing Bank, we have instruction to exchange the above Guarantee with you for the sum of US$9,100,000.00.
The above payment will be effected within 24 hours after our receipt of the Guarantee and SWIFT confirmation from you and the Issuing Bank that the Guarantee are in order.
[59] On 29 April 2004, there was a meeting between Mr Wuu and representatives of HSBC which Mr Jensen attended. Mr Jensen gave evidence, based on notes which he took at the meeting, that Mr Wuu advised HSBC of his overseas assets and there was a discussion about the HSBC criteria, how the transaction would work and how the overseas bank guarantee would be obtained.
[60] On 13 May 2004, Mr Steadman of HSBC, sent emails to Mr Wuu and
Mr Jensen stating:
Further to our discussion yesterday Mike I have now had chance to talk with Alan Bent, our current stance and conclusion to the new part of the money go round mentioned to us at our last meeting are as follows:
- The bank does not want to involve itself with the guarantee of funds to
Banco de Finanzas in any form...
- We still have concerns that our London has not been advised of this transaction, and before we would consider any more involvement in the
on-confirming of an L/C locally from our London to GTNZ as originally discussed we would like as a minimum for them to be advised and
a contact
point give to us at that office.
[61] Some time prior to 24/25 May 2004, Mr Wuu approached his Singaporean business colleague, Mr Ng, for a loan of $750,000 to cover the brokers’ fee for procuring the bank guarantee. Mr Wuu knew that the bank guarantee was for the purpose of providing security to Dorchester for the $16.75 million loan, but claimed that he did not disclose that fact to Mr Ng. Mr Ng claimed that he had been told by Mr Jensen, or at least led to believe, that the bank guarantee was for the purpose of providing security to GT and not Dorchester. I refer to their oral evidence in more detail later in this judgment.
[62] On 24/25 May 2004, Mr Wu arranged a meeting between himself, Mr Ng, Mr King and Mr Jensen at Dorchester’s offices in Auckland. The events at the meeting are disputed and will be addressed further, but there is no dispute that Mr Wuu introduced Mr Ng to Messrs King and Jensen as a Singaporean business colleague who owned CFL and who was prepared to borrow $750,000 from Dorchester and lend it to Mr Wu to use as payment for the brokers’ fee on the procurement of the bank guarantee which Mr Wu needed to obtain.
[63] There is also no dispute that during the meeting Mr Wu and Mr Ng were given a settlement statement that read:
Global Trust
Settlement as at 25 May 2004
Loan in Soveriegn[sic] Principal 560,402.24 25 Days Interest 3,928.71 Settlement 564,330.95
Fee as per Mandate 5 December 670,000.00
GST 83,750.00
753,750.00
Fee for extending term 18 Feb 150,000.00
18,750.00
168,750.00
Appointment of new trustee 25,000.00
3,125.00
28,125.00
Interest on $16,750,000 from 5/12 to 25/5 952,684.93 at 12% for 173 days
Less interest from HSBC (414,814.90)
173 days at 5.225%
537,870.03
Interest per mandate 18 Feb 28,195.00
$2,081,020.98
The oral evidence relating to this statement is referred to later in this judgment.
[64] On 26 May 2004, there was a second meeting between Mr Wu and Mr Ng and Mr Jensen during which Dorchester and CFL entered into a mandate agreement for a term loan of $785,000 to be secured against CFL’s Foodcourt. The mandate agreement, signed by Mr Ng for CFL and Mr Wuu for GT, stated:
Further to our meeting on Tuesday 25 May 2004 concerning the possibility of raising up to $785,000 by way of Second Registered Mortgage over your foodcourt in Christchurch. The proposed funds are to be applied to help Mr George Wuu and Global Trust arrange a Bank Guarantee. Additionally it is agreed that you and Christchurch Foodcourts Limited will guarantee the existing Global Trust debt currently owing to Dorchester of $2,081,000 together with a daily rate of $3109 up to the 16th of June 2004.
Upon payment by you of $2,081,000 Dorchester Finance Ltd will assign to you its mortgages over the properties at 1 Liverpool St and Cnr Princess Sts, Dunedin.
[65] It was also agreed that GT, CFL and Mr Ng would provide guarantees of the loan.
[66] On 3 June 2004, the $785,000 term loan agreement between Dorchester and CFL was executed by CFL’s solicitor, Mr Kannangara, as alternate director of CFL. A deed of guarantee of the loan was executed by Mr Wuu for GT and Mr Kannangara as alternate director of CFL and under a power of attorney for Mr Ng. A deed of guarantee of GT’s debt was executed by Mr Kannangara as alternate director of CFL and under the power of attorney for Mr Ng.
[67] On 9 June 2004, Dorchester deposited $742,812.50 into CFL’s account. [68] On 23 June 2004, CFL/Mr Ng transferred loan funds to GT.
[69] Mr Wuu’s efforts to obtain a bank guarantee were still unsuccessful.
[70] On 17 July 2004, Mr Wu sent an email to Mr Jensen, copied to Mr Ng, advising Dorchester that he no longer required the $16.75 million in the HSBC account.
[71] On 3 August 2004, Dorchester advised HSBC to break the deposit of
$16.75 million on 5 August 2004 and repay the principal plus interest to Dorchester. The faxed letter of advice was signed by the Dorchester executives who were trustees of Global Trust New Zealand.
[72] On 11 August 2004, Mr Jensen sent a memorandum to Mr Ng and Mr Wuu advising them that the $16.75 million with HSBC had been withdrawn and that the CFL facility of $785,000, which had matured on 8 August 2004, was in default. Mr Jensen proposed a meeting in early September to resolve the issue given that both Mr Wuu and Mr Ng had guaranteed the GT facility. Both Mr Wu and Mr Ng accepted Mr Jensen’s proposal to meet in Singapore in September 2004.
[73] On 17 August 2004, Mr Wuu sent an email to Mr Jensen with a copy to
Mr Ng about the possibility of still drawing down the $16.75 million loan.
[74] Meetings were held in Singapore in September 2004 and subsequently in Auckland in October 2004 between representatives of the parties and there were discussions about repayment. Mr Jensen recorded the position reached in a letter dated 8 November 2004 to GT’s solicitors, Albert Alloo & Sons:
Tony [Ng] and George [Wuu] requested that I put the following proposal forward to Dorchester Finance—
1)A $300,000 reduction is made on the 27th October, reducing the debt to $2.9m (Tony’s cash).
2)Dorchester take two further properties owned by George in Australia as additional security. George was going to get these properties valued (believed to be worth $500K).
3) The ANZ building is sold for between $700K to $750K
reducing the debt to $2.2m.
4)A further reduction of $500K would be made by Tony from his own resources within four months, reducing the debt to
$1.7m.
On the morning of Wednesday, 27th October I called George on his cell phone (in Christchurch) and told him no to their proposal.
I told George we require $1m within 5 days (being the 1st November 2004)
and a further $1m reduction within a 90 day period is required.
The rationale for the above was that 368 Princes Street would sell for $1m, the ANZ building $700K, plus Tony’s cash of $300K equated to $2m.
[75] By letter dated 1 February 2005, Corcoran French, Christchurch lawyers acting for GT and CFL, said that the liability of Mr Ng, as guarantor, was limited to
$2,081,000 with a daily interest rate of $3,109 up to 16 June 2004 and that any repayments would be made on a without prejudice basis without acknowledging that the amounts were actually payable by GT.
[76] Mr Wuu and Mr van Leewarden were replaced as trustees of GT by Mr Ng and Ms Betty Goh of CFL on 24 February 2005.
[77] Dorchester then took steps to recover the loan and the GT debt. Proceedings were issued by all parties as previously explained.
Oral evidence
[78] Mr Wuu’s evidence in chief was that he understood that Dorchester had made “loans” of $25 million and $16.75 million respectively to GT which were deposited in New Zealand bank accounts with the BNZ and HSBC in the name of GT with Dorchester’s representatives as signatories and that the funds would be made available to GT as soon as GT obtained a certificate of deposit or bank guarantee from a suitable overseas bank. Mr Wuu understood that he would obtain a letter from the New Zealand bank confirming that it held the “loan” for GT so that his overseas investors would know that the funds were available and they would then provide security to the overseas bank for the certificate of deposit or bank guarantee to be provided to the New Zealand bank. On receipt of the certificate of deposit or bank guarantee by the New Zealand bank it would then be assigned to Dorchester which would transfer signing authority on the GT bank account to Mr Wuu who would decide the amount of the funds to be transferred to the overseas fund managers with the balance retained by GT for the Dunedin CPO hotel development.
[79] Mr Wuu claimed not to know that Dorchester had established accounts in the name of GT New Zealand so as to retain ownership of the deposits pending receipt
of the bank guarantees. Mr Wuu said that he understood that once Dorchester had deposited the funds into the New Zealand bank accounts they were “drawn down” by GT. Mr Wuu also claimed that he had told Mr Ng that there was a $16.75 million loan by Dorchester to GT.
[80] Mr Wuu said, however, that he did understand that the bank deposits remained under the control of Dorchester until the guarantee was provided. In response to my questions Mr Wuu explained that he considered that once the funds were on deposit in the GT accounts they constituted loans “drawn down” to GT. He believed this money was “our money already”.
[81] Mr Wuu was cross-examined extensively on his evidence. He accepted that no security was ever provided to Dorchester for either loan and that no loan agreement was entered into for the $16.75 million. He also accepted that GT would have no ability to access the cash funds in either the BNZ or the HSBC accounts until satisfactory security was provided. He accepted that the funds remained under Dorchester’s control until security was provided, but seemed at times to believe that somehow GT nonetheless owned the funds on deposit.
[82] Mr Wuu’s belief as to ownership of the funds on deposit and his understanding that they had already been “drawn down” by GT were not supported by the documents. They made it clear that Dorchester retained ownership and control of the funds on deposit in the two accounts pending receipt of security by way of bank guarantee. In addition to Mr Jensen’s letter of 30 May 2003, signed by Mr Wuu, and the mandate agreement of 5 December 2003, the settlement statement of 25 May 2004 indicated clearly that the funds remained in the ownership of Dorchester. Dorchester’s ownership of the funds was also confirmed when they were returned by the banks to Dorchester when no security was provided.
[83] Mr Wuu was reluctant to acknowledge that the settlement statement of
25 May 2004 showed the true position. He said he was not an accountant and left the detail to others. When pressed in cross-examination, however, he accepted that the statement did show that the $16.75 million was on deposit with HSBC, but the interest of 12 per cent per annum, which GT had agreed to pay, was reduced by the
interest received from HSBC on the deposit and that GT’s total indebtedness to
Dorchester was $2.08 million.
[84] When the contemporary documents are examined and Mr Wuu’s concessions under cross-examination are taken into account, I conclude that Mr Wuu must have known that the funds would remain in Dorchester’s ownership until security was provided and they were released to his GT. A businessman of Mr Wuu’s experience would have understood that without security his GT would not receive a loan from Dorchester. It was a matter of common sense.
[85] In his evidence-in-chief on his approach to Mr Ng, Mr Wuu said that he told Mr Ng that he needed to raise approximately NZ$750,000 for fees to facilitate a bank guarantee. Mr Wuu said he explained to Mr Ng that GT had a loan from Dorchester of $16.75 million on deposit with HSBC and that he wanted to obtain an overseas bank guarantee for this amount maturing in 12 months with interest to be paid on the $16.75 million at the end of 12 months. Mr Wuu said he explained to Mr Ng that he needed roughly NZ$750,000 in fees to release the bank guarantee. Mr Wuu said he described the transaction as “a straightforward exchange of funds already borrowed from Dorchester and placed on deposit in HSBC for the exchange of the bank guarantee”. Mr Wuu said he told Mr Ng that on receipt of the bank guarantee for US$10 million (equivalent of NZ$16.75 million) US$8 million would be transferred overseas leaving US$2 million to repay “all of the loan fees and interest”.
[86] Mr Wuu said he told Mr Ng that Deutsche Bank would issue the bank guarantee, but did not mention Ameritrade or Fibanc as he did not think “the intricate details of how the bank guarantee was to be issued were relevant to Mr Ng”. Mr Wuu said he could not recall telling Mr Ng “any other details about the transaction”. Mr Wuu accepted that, with hindsight, he probably did not give Mr Ng a complete picture of the transaction.
[87] Mr Wuu said that at Mr Ng’s request he arranged the meeting with Messrs King and Jensen of Dorchester in Auckland on 25 May 2004 to obtain confirmation from Dorchester that the $16.75 million had been “loaned” to GT and that it had
been “drawn down” and deposited into GT’s HSBC account so it was available for exchange for the bank guarantee. Mr Wuu claimed that Mr Jensen of Dorchester confirmed this was so at the meeting. Mr Wuu also said that Mr Jensen gave Mr Ng the settlement statement and asked Mr Ng to guarantee the GT loan, which surprised Mr Wuu, but which Mr Ng, after discussion, agreed to do through CFL. Mr Wuu agreed with Mr Ng that neither Mr Jensen nor Mr King provided any further information about the $25 million loan, the separate GT accounts or other aspects of the background to the $16.75 million transaction.
[88] Mr Wuu was cross-examined closely on his evidence about his approach to Mr Ng and the meeting on 24/25 May 2004. He acknowledged that he approached Mr Ng in Singapore and had a face to face meeting with him there. He acknowledged that the money (NZ$750,000) was needed in relation to a transaction with Dorchester in New Zealand, but denied that he told Mr Ng he was in the process of negotiating a bank guarantee overseas. Then the following exchange occurred:
A.Ah, no I of course gave him the background of why I needed and what I needed. I explained to him that I needed the sum of the money, which is about $750,000, which Dorchester was willing to extend, and this money was intended to pay for the fees in Fibank to exchange, to facilitate it to be transferred to HSBC Geneva and then to London for it to be sent over to New Zealand and I said that I had taken a loan, I had a loan from Dorchester. The loan is put in deposit in HSBC account and once – that Dorchester was willing to fund a loan of $750,000 if I can provide the appropriate guarantee sir for the additional $750,000.
Q. You knew, didn’t you, that Mr Ng was able to finance a loan of
$750,000 to you without that money being borrowed, didn’t you?
A.I think so. I know him to be wealthy enough to do that if he wants to but I mentioned to him about the transaction, the purpose, the reason why I need it and that’s the reason why it moved forward sir.
Q.So however it was funded, whether directly by Mr Ng or by borrowings, you needed $750,000 to pay fees to an international bank, Fibank?
A. Correct sir.
Q. So you told him about Fibank?
A. Ah, I don’t think I told him about that sir. I don’t remember. He –
‘cos I don’t remember telling him about Fibank sir.
Q.You did however tell him surely that this fee was required in order to fund a bank guarantee?
A. No sir.
Q. Are you sure about that? A. I’m sure sir.
Q.You’re sure you didn’t tell him that you wanted to obtain an overseas bank guarantee?
A.No, I mentioned to him that the $750,000 I need to borrow was to pay for the fees to have it, ah, pay to the banks in Fibank, Geneva and London to get a guaran – to have the bank to, because the banks charge service charge just liked HSBC so there were charged involved. This facilitation was done by Ameritrade and I mentioned to him that – he didn’t know about that because he wasn’t interested in details of that. I just mentioned that I need this fee to get a guarantee to pay for a, to get a guarantee over. These are bank charges which I need to pay.
Q. You just said to get a guarantee.
A. No, not to get a guarantee, to send a guarantee over. These are the bank charges sir.
Q.But did you, was the word guarantee, your bank guarantee, mentioned by Mr Ng?
A. Sorry, what do you mean by your bank guarantee? It is not so much my bank guarantee, it’s a guarantee that’s been placed in Dorchester bank sir.
Q.Did you mention to Mr Ng that you were trying to get a guarantee and that’s what this money was needed for?
A. No sir. Not in that sense sir.
Q. So the words “bank guarantee” you believe were not mentioned to
Mr Ng?
A. Well, I mentioned to him that I need to sign the guarantee over and I need to pay those charges sir and I let him know that the loan has been drawn down into the account and I need to pay for the fees to send it over.
Q. To release the cash in the account?
A.To release the cash, to draw down, to transfer the signatory to my account sir.
Q. Right. So whether you mentioned the bank guarantee or not – A. Yes.
Q.- you made it clear it Mr Ng that these fees needed to be paid for a security of some kind so that you could get the money transferred, as you put it, to your control?
A. Correct sir.
[89] It is apparent from this exchange that Mr Wuu told Mr Ng rather more about the nature and purpose of the transaction than suggested in his evidence-in-chief. Mr Wuu’s attempt to back track about the bank guarantee was also unconvincing: his reference to a “guaran” was a revealing Freudian slip.
[90] Mr Wuu returned to the disclosure of information to Mr Ng in the following later exchange in cross-examination:
Q. I think you’d agree that as with your overseas investors, you told
Mr Ng that the money was there in the account?
A. Yes.
Q. It would be available to your Global Trust – to be released to your
Global Trust’s control upon a bank guarantee being released?
A.No, it’s not to that effect. It was if he really understood that the money had been drawn down for that purpose. It had already been drawn down in the account. He wanted to know that a loan had been drawn down. And I said yes, and he wanted to find out for himself. He got a verbal confirmation from Mike Jensen and it’s there, it’s been drawn down. And I think he wanted, then, ah, there was some kind of document that’s been shown, I can’t remember, I was just sitting down and observing, listening to them talking.
Q. We’ll come to that. I just want to be clear that what you told me before about your discussions in Singapore –
A. Yes sir.
Q.- was indeed what Mr Ng’s understanding from you was in Auckland, that the funds would be released to you, that is, the cash would become available to you to do with what you wanted –
A. No, that is not correct, sir. It is not released to me, it is already there.
That’s his understanding. That’s my representation. That was the understanding from Dorchester. And, ah, it was merely a signing authority, sir.
Q. It’s in the account, but you couldn’t get the cash?
A. Well, it’s just a signing authority sir, signing it over to my control, so it was already there. And that’s my understanding, too, from the onset, sir.
Q.For you to disperse moneys from that account on your signature, the bank guarantee would have to be received into New Zealand and validated by the HSBC?
A.That’s the, ah, arrangement I had with Dorchester. He didn’t know about that.
[91] Putting to one side Mr Wuu’s evidence about what Mr Ng may or may not have understood or known, this exchange is significant because it confirms that Mr Wuu appreciated that no money would be disbursed from the HSBC account without the bank guarantee validated by HSBC. Notwithstanding Mr Wuu’s recollection of what Mr Jensen may have said, he (Mr Wuu) knew that there was no loan unless and until the bank guarantee was received and validated. Mr Wuu’s reference to “my representation” is also significant because it suggests Mr Wuu, who was giving evidence in support of Mr Ng, appreciated the need to avoid saying anything inconsistent with Mr Jensen’s alleged misrepresentation about the loan having already been made. Again, I found Mr Wuu’s evidence unconvincing: the funds were simply on deposit and there was no loan until the bank guarantee was obtained.
[92] Mr Ng’s evidence-in-chief was that while he would have been able to have advanced $750,000 to Mr Wuu without difficulty personally, he did not think it unusual for Mr Wuu to ask him to borrow the $750,000 from Dorchester in the first instance. Mr Ng knew that Mr Wuu still owed him Singaporean $1 million from the previous “friendly loan”, but was confident it would be repaid. Mr Ng said he saw the transaction as straightforward and risk free. He said he thought the overseas bank guarantee would be exchanged for the funds already available. He thought the funds were to be advanced by GT to an overseas bank or investors against the security of the bank guarantee. Mr Ng claimed that when he entered into the transactions with Dorchester he was not aware that the bank guarantee was actually required as security for the $16.75 million loan from Dorchester to GT. Mr Ng said that he understood it was a loan of $16.75 million from Dorchester and that the funds were on deposit with GT. He assumed that security had already been provided. He said he did not know that the loan from Dorchester was for a hotel development in Dunedin.
[93] Mr Ng also said that before entering into the transaction with Dorchester he wanted confirmation from Dorchester that the $16.75 million had been loaned to GT and was on deposit in its bank account and consequently available for exchange for the overseas bank guarantee. Like Mr Wuu, Mr Ng said that at the 24 May 2004 meeting with Mr Jensen he asked Mr Jensen if there was a loan of $16.75 million to GT and whether the money was in GT’s bank account. According to Mr Ng, Mr Jensen answered “yes”.
[94] Mr Ng said no explanation was given to him about the GT settlement statement of 25 May 2004. He said he understood from Mr Jensen and the statement that GT had drawn down $16.75 million on deposit, and that Dorchester was charging interest to GT. He said that he calculated from the statement that there would be sufficient available from the US$2 million to be retained by GT to repay the loan, including fees and interest.
[95] Mr Ng said he was told nothing about the previous relationship between Mr Wuu and Dorchester or the background to the various proposed loans, the risks involved or the need to take independent legal or other advice. He said that, if he had been told all “relevant, unusual facts” about the Dorchester loan transaction, he would not have proceeded with it.
[96] Under cross-examination Mr Ng confirmed he had been approached by Mr Wuu about help for the fee of $750,000. Mr Ng thought that Mr Wuu was having “some cash flow problems” because he had not paid back the Singaporean $1 million still owing. Mr Ng understood from Mr Wuu that he needed a guarantee from Deutsche Bank so the $16.75 million in the GT account could be released.
[97] Although Mr Ng was adamant that he believed Dorchester had already lent the $16.75 million to GT, he had difficulty in explaining why the bank guarantee was necessary as security before the funds could be released to GT. His explanation that the bank guarantee was for GT rather than Dorchester was unconvincing. It was Dorchester that needed security for the loan.
[98] Mr Ng conceded that he was in a position to lend Mr Wuu the $750,000 from his own resources without any need to borrow that sum from Dorchester. He was also prepared to proceed with the Dorchester transaction without obtaining security
from Mr Wuu, although security in the form of properties in Australia and Dunedin was offered.
[99] Mr Ng claimed that at the meeting with Messrs King and Jensen on 24/25
May 2004 he was told that Dorchester had already made a loan of $16.75 million to
GT. When challenged on this claim by reference to the settlement statement of
25 May 2004 and the mandate agreement of 26 May 2004, Mr Ng’s answers were unconvincing. I do not accept that Mr Ng, as an experienced businessman, would not have understood from the settlement statement that the deposit of $16.75 million with HSBC had not yet been lent by Dorchester to GT and that the purpose of the loan referred to in the mandate agreement was to obtain the bank guarantee to provide Dorchester with security and thereby the loan to GT. Contrary to Mr Ng’s evidence, the mandate agreement, which he signed, also confirmed that he had agreed to provide a guarantee for GT’s indebtedness of $2.08 million.
[100] My conclusion that Mr Ng knew full well there was no loan by Dorchester to
GT without the bank guarantee is reinforced by the fact that when in August 2004
Mr Ng was notified that the HSBC bank deposit of $16.75 million had been withdrawn and the funds returned to Dorchester he did not suggest then that Dorchester had no right to receive the funds because they had already been lent to GT. The allegation of misrepresentation by Mr Jensen of Dorchester was not made until Mr Ng’s solicitors wrote to Dorchester’s solicitors on 14 June 2005.
[101] Dorchester’s former managing director, Mr King, who left Dorchester a number of years ago, gave evidence about his role in establishing Dorchester, how the companies in the group operated, the relationships between Dorchester and Mr Wuu, the various proposed loan transactions and the meetings with Mr Wuu and Mr Ng in Auckland on 24-25 May 2004. As Mr King had left Dorchester a number of years ago, he acknowledged that his recollection of detail was limited, but he was able to refer to the documents to refresh his memory and to confirm Dorchester’s position in relation to the proposed loans. In particular, Mr King confirmed that no loan would have been approved without security and that the $16.75 million was placed on deposit in the GT New Zealand account, which was owned and controlled by Dorchester, to show that Dorchester had sufficient resources to make a loan of
that amount when security was provided. In Mr King’s view both Mr Wuu and
Mr Ng were aware of Dorchester’s position in relation to the proposed loan.
[102] Under cross-examination, Mr King explained that a second tier lending business always had doubts or was sceptical about every client until a transaction was completed. Mr King was adamant that no loan would be drawn down without security. Mr King acknowledged that the mandate agreement of 5 December 2003 did not refer expressly to Dorchester “owning and controlling” the GT New Zealand account, but was confident that Mr Wuu was aware that the second trust had been created. Mr King also said he could not recall Dorchester establishing such an account on any other occasion.
[103] When cross-examined about the meetings on 24/25 May 2004, Mr King said that he was left with the impression that Mr Wuu and Mr Ng knew each other pretty well and had discussed the proposed transactions before the meeting. Mr King said that Mr Ng made it plain that he thought he was “aware of everything” and was “on top of everything”. Mr King did not remember Mr Ng asking for an assurance that the funds were on deposit, but did remember explaining to Mr Ng that $16.75 million was on deposit in the GT New Zealand account, which was owned and controlled by Dorchester. Mr King pointed out that if GT had already received a loan of $16.75 million there would be no need for a guarantee or a loan to obtain a guarantee.
[104] Under cross-examination Mr King summarised his position in the following answer:
A. Well, if you look at the sequence. The reason Mr Ng came to New Zealand is to assist Mr Wuu get this money to be able to pay somebody to get the loan drawn down. That is the sequence. So we’re there talking about that sequence. So he’s not there to lend him 750 to buy a boat. He’s there to assist him, ah, with the 750 to, um, get the transaction started. So if you think about this, because we understood they were associates, they knew each other, they’ve been involved in doing something which we weren’t aware of, but the man has come to New Zealand to assist Mr Wuu. The purpose of the assistance is to provide the deposit or the funding which would then allow our transaction to be complete. So whoever stated it, I believe all four of us knew exactly the purpose. Otherwise why was the 750 there?
[105] Having been cross-examined about a letter dated 6 May 2003 that Mr Jensen wrote to Mr Wuu referring to the proposed $31 million transaction as “the strangest transaction we have been involved in”, Mr King explained in re-examination that from his perspective it was the quantum and the non-traditional nature of the proposed security that made the transaction unusual.
[106] Dorchester’s former senior financial manager, Mr Jensen, who left Dorchester in January 2008, gave evidence about the various loan proposals and Dorchester’s security requirements. He described Dorchester’s relationship with Mr Wuu and his recollection of the meetings in May 2004 with Messrs King, Wuu and Ng. He confirmed that he made it clear at the meetings that Dorchester had sufficient funds available on deposit to make the $16.75 million loan to GT when suitable security was available. He denied telling Mr Ng that the funds on deposit with HSBC had actually been advanced to Mr Wuu’s GT. He said the settlement statement provided to Mr Ng recorded the true position.
[107] Mr Jensen was cross-examined closely and extensively on a large number of the documents. In the end, however, the documents speak for themselves. In response to suggestions that Dorchester had concerns about Mr Wuu’s proposals, Mr Jensen said Dorchester was always sceptical and was trying to double check as much as possible. His description of the transaction as the “strangest transaction” arose because it was the first time he had been involved in an off-shore transaction of that nature, but he had confidence in Mr Wuu completing the transaction. In response to suggestions that he (Mr Jensen) had become Mr Wuu’s “financial advisor”, Mr Jensen said one of the “golden rules” in his game was that you cannot give financial advice, because if you do you inherit the project and then if something goes wrong you are blamed.
[108] Mr Jensen was also cross-examined closely and extensively as to what was and what was not said at the May 2004 meetings. While Mr Jensen was unable to recall exactly what was said at the meetings, he remained unshaken in his evidence that Mr Ng would have been told that the $16.75 million was in the GT New Zealand HSBC account ready to transact when the security was available. He was reasonably sure that the figures involved in the proposed transaction, including the interest
differential referred to in the settlement statement, were explained to Mr Ng by Mr King on a whiteboard. He had no recollection of Mr Ng asking if there was already a loan of $16.75 million to GT. He thought Mr Ng and Mr Wuu had the whole deal worked out and was “shocked” when Mr Ng also offered to arrange for CFL to guarantee GT’s total indebtedness to Dorchester. In his view there was no need to link the loan of $750,000 for the bank guarantee and GT’s existing indebtedness to Dorchester. It was Mr Ng’s idea to do so.
[109] Mr Jensen agreed that Mr Wuu’s previous transactions with Dorchester had not been discussed with Mr Ng at the May 2004 meetings. Nor had Mr Wuu’s Dunedin hotel development been discussed.
[110] Mr Jensen denied that he told Mr Ng in the presence of Mr Wuu that Dorchester had already lent the $16.75 million to GT and that it was in GT’s bank account.
Experts
[111] The first expert witness called for GT, CFL and Mr Ng, was Mr Taylor, an independent banking consultant with 24 years experience working for both local and international banking organisations. In his evidence-in-chief Mr Taylor criticised both Dorchester’s operations and structure, which he described as “unusual”, and many aspects of the transactions in this case. He considered that Mr Wuu’s transaction was “cyclic”, unusual, and unlikely to succeed. In his view there was “very little risk” for Dorchester, notwithstanding its very substantial fees, which he considered excessive. Mr Taylor also considered the second GT trust established by Dorchester “very unusual” and “intended to mislead third parties and to generate exponential fees to its own benefit”. After providing comments on a number of the documents and the impact of the proposed transactions on the value of Dorchester’s shareholders’ funds, Mr Taylor expressed concerns at the apparent lack of disclosure of material facts to Mr Ng, which he considered was in breach of Dorchester’s duty of disclosure. Mr Taylor considered that Dorchester was “complicit in engineering Mr Ng’s loss by advancing funds directly to CFL to enable Mr Wuu to pay a fee to a nebulous third party in Europe that would supposedly unlock the international
banking transaction that had proved so elusive to settle in the past”. Mr Taylor concluded that what occurred with Mr Ng and CFL was, in his experience and on the basis of the evidence and documents he had seen, “the most serious, blatant and deliberate exploitation of an unsuspecting and unrelated third party guarantor that I have ever heard about”.
[112] Counsel for Dorchester objected to the admissibility of the evidence of Mr Taylor on the grounds that it extended beyond the scope of independent expert evidence in that it expressed opinions not supported by the evidence and included conclusions that were for the Court to reach. Mr Taylor’s evidence was received on the basis that I would consider the objections to it later. To the extent that Mr Taylor’s evidence is not supported by the primary documents and oral evidence, I give it no weight. To the extent that Mr Taylor’s evidence constituted conclusions on matters for the Court, I have not found it to be of particular assistance in this case. Mr Taylor’s allegations against Dorchester of complicity in engineering Mr Ng’s loss and exploitation of Mr Ng and CFL as guarantors amounted to advocacy and were not put in cross-examination to the Dorchester witnesses or ultimately advanced in the submissions for GT, CFL and Mr Ng, perhaps because fraud was not pleaded. I, therefore, put Mr Taylor’s allegations aside as unsubstantiated.
[113] The effect of Mr Taylor’s evidence was also undermined in cross- examination when he accepted that Mr Wuu must have known he would receive no money from Dorchester without security, the fees were being paid for the funds to be put on deposit pending receipt of security, Dorchester had the funds available to make the proposed loan and no loans were in fact made. Mr Taylor’s attempts during his cross-examination to suggest that the settlement statement of 25 May
2004 was unclear and raised more issues than it resolved was unconvincing.
[114] The second expert witness called for GT, CFL and Mr Ng was Mr Reid, a consultant to PWC and Canterbury Mortgage Trust, with 40 years’ experience in banking both at a local and international level. In his evidence-in-chief Mr Reid criticised the close relationship between Dorchester and Mr Wuu and the nature of the banking transaction contemplated by GT. Mr Reid considered that Dorchester should never have proceeded with the arrangements for the deposit of the $16.75
million into the HSBC account and the loan and guarantee with Mr Ng and CFL. While Mr Reid acknowledged Dorchester was not strictly bound by the New Zealand Code of Banking Practice issued by the New Zealand Bankers’ Association, he considered that similar disclosure obligations applied in this case and that they had been breached by Dorchester. Mr Reid also expressed the opinion that it would have been “deceitful” for Dorchester not to have made known to Mr Ng its “cynicism” about Mr Wuu’s transaction. Dorchester should have insisted that Mr Ng and CFL obtained independent advice. Mr Reid concluded that Dorchester charged excessive fees and interest and the loan to CFL and guarantee from Mr Ng and CFL was an “unconscionable act”.
[115] Under cross-examination Mr Reid acknowledged that he had no direct experience in the bundling of overseas assets for the purpose of procuring securities from overseas financial institutions by way of bank guarantees or certificates of deposit. He also acknowledged that he relied on Mr Taylor’s evidence about the suggested excessive fees and had carried out no independent analysis himself. He agreed that ultimately it was for the borrower, in this case Mr Wuu, to determine how he was going to come up with the security that was required for the loan. He agreed that in this case security was the key to the transaction and that it was a simple sort of security of a very certain type. In the end he agreed it was for Dorchester and Mr Wuu to reach agreement on the arrangements for the $16.75 million loan. Mr Reid was not aware that the funds had been placed on deposit for
60 days. Mr Reid accepted that determining how a lender should operate in a particular situation was dependent on the context of the transaction and the proposed borrower or guarantor. Mr Reid accepted that the knowledge of the guarantor about the proposed transaction and the guarantor’s relative sophistication in business matters were important in determining how vulnerable the guarantor was. Mr Reid considered that cultural factors were relevant and that extra care was required because Mr Ng was from another country. While Mr Reid believed he had not seen the May 2004 settlement statement before he gave his evidence, he acknowledged it disclosed the make-up of GT’s total indebtedness to Dorchester and that any questions about the statement could have been asked.
[116] The only expert witness called for Dorchester was Mr Hagen, a senior chartered accountant with extensive commercial experience. After referring to the factual background, Mr Hagen in his evidence-in-chief said that it was obvious to him that Dorchester could not be expected to release the funds from its control prior to receiving the bank guarantee. Mr Hagen pointed out that, had Dorchester released the funds before the guarantee was received, there would have been no need for any party to provide a guarantee. In response to Mr Taylor’s evidence, Mr Hagen considered there was no circularity in the transaction. It was a straightforward lending and borrowing arrangement where Dorchester would provide funding to GT on receipt of adequate security from Mr Wuu and his interests. In response to Mr Taylor’s suggestion that the proposed loan of $16.75 million would have had a significant adverse impact on Dorchester if anything went wrong, Mr Hagen pointed out that, while it would have been a significant transaction for Dorchester, it needed to be put in perspective in that most finance companies have net assets of somewhere between five per cent and ten per cent of their total assets. For example, in 2004
Dorchester had total assets of around $350 million, so that its net assets represented around 8.6 per cent of its total assets. Thus, the loan contemplated would have represented less than five per cent of its total book of advances. Mr Hagen said that while this was significant, it was not unusual.
[117] Under cross-examination Mr Hagen acknowledged that the transaction had some unusual features in that it involved an off-shore guarantee and might have been done in a different way, and that there was some potential for confusion as a result of the two GTs, but in the end Mr Hagen remained convinced that Mr Wuu must have known that the funds in the GT New Zealand HSBC account were not his and would not be released by Dorchester until the guarantee was in place. When cross- examined about the 25 May 2004 settlement statement, Mr Hagen said that as a settlement statement it showed the amount that GT owed Dorchester on that date. He had no difficulty in understanding it and considered that, if someone with no background to the case had asked questions, the explanation would have been quite simple.
Assessment of witnesses
[118] On the crucial issues whether Dorchester had made loans of $25 million and
$16.75 million respectively to GT, and whether Mr Jensen told Mr Ng that the loan was in GT’s account, the evidence from Dorchester was inherently more credible. It is most unlikely that Dorchester would have made loans of these amounts to GT without first obtaining satisfactory security for them. It would be contrary to commercial common sense. Dorchester had every incentive to retain ownership and control of the funds until security was provided in the form of a certificate of deposit or a bank guarantee.
[119] Mr Wuu’s acknowledgement that he knew that deposit funds could not be released to GT’s control until security had been provided reflected commercial reality. There was no loan without security. When Mr Wuu tried to suggest otherwise he was not convincing. He was also not supported by the documentary evidence.
[120] Mr Ng’s acknowledgement that he too appreciated that the $16.75 million would not be released without the bank guarantee was consistent with the absence of any loan having already been made without security. Mr Ng’s acknowledgement was also consistent with the terms of the mandate agreement in the form of the letter dated 26 May 2004 from Dorchester to CFL which Mr Ng signed as accepted.
[121] Mr Ng’s suggestions to the contrary were unconvincing. His suggestion was also inconsistent with the fact that he did not suggest that he had misunderstood the position when he subsequently received emails from Mr Jensen and Mr Wuu about the deposit with the HSBC and its withdrawal.
[122] On the other hand, Mr Jensen’s denial of telling Mr Ng that Dorchester had made a loan of $16.75 million to GT and that the money was in GT’s bank account was more likely to be truthful because it was consistent with the true position as reflected in the documents and because there was no reason for Mr Jensen to make a statement that was inconsistent with the true position. GT, Mr Ng and CFL have not therefore established, at least on the balance of probabilities, that Mr Jensen made the statement on which a significant part of their case rests.
[163] In considering the relevant circumstances of this case, it is important to remember that I have already made the following factual findings:
a) Dorchester had not lent GT either the sum of $25 million or the sum of $16.75 million. These funds were held on deposit by Dorchester in Dorchester’s “Global Trust New Zealand” accounts at the BNZ and HSBC respectively.
b) No loans would be made by Dorchester to GT unless and until GT
obtained adequate security for the loans to Dorchester’s satisfaction.
c) It was for GT to obtain security for the loans by way of bank guarantee. Dorchester would assist GT, but obtaining security was GT’s responsibility.
d)While on occasion Mr Wuu proposed alternative arrangements, none were accepted by Dorchester.
e) At all material times Mr Wuu knew what the true position was: there was no loan, the funds were held on deposit by Dorchester in Dorchester’s “Global Trust New Zealand” account and that without security, which he was to obtain, there would be no loan.
f) In order to obtain security for the loan of $16.75 million from Dorchester, it was necessary for GT to obtain a bank guarantee from Deustche Bank, the broker’s fee for which was $750,000.
g) Mr Wuu, who notwithstanding his Singaporean bankruptcy was a sophisticated and successful businessman, introduced his Singaporean business colleague, Mr Ng, to Dorchester for the purpose of borrowing $750,000 from Dorchester to pay the broker’s fee for the Deustche Bank bank guarantee.
h)Mr Ng, an even more sophisticated and successful businessman, agreed that he and CFL should borrow $785,000 from Dorchester on
26 May 2004 and provide a guarantee for GT’s then current indebtedness to Dorchester of $2,081,000.
i)Prior to agreeing to do so, Mr Ng had discussions with his colleague and existing debtor Mr Wuu in Singapore and had the opportunity to obtain all the information he needed about GT’s proposals in relation to the $16.75 million loan.
j)Mr Ng knew that there was no loan from Dorchester to GT without the provision of adequate security and that the purpose of the
$750,000 was to pay the broker’s fee for the Deustche Bank bank guarantee.
k)Mr Ng knew from the settlement statement how GT’s outstanding indebtedness to Dorchester of $2,081,020.98 as at 25 May 2005 had been calculated and that the $16.75 million was still held by Dorchester in an HSBC account.
l)Mr Ng knew about Mr Wuu’s financial difficulties. He was already an unsecured creditor of Mr Wuu and he knew that GT was indebted to Dorchester for $2,081,020.98 and that Mr Wuu could not afford the
$750,000 broker’s fee himself.
m)Before entering into the loan and guarantee transactions with Dorchester, CFL and Mr Ng were advised by Dorchester to obtain independent advice, including independent legal advice.
[164] In this context and in light of these circumstances, did Dorchester engage in misleading or deceptive conduct amounting to misrepresentation, breach of a creditor’s duties of disclosure and/or breach of s 9 of the Fair Trading Act 1986 in not providing Mr Ng or CFL with the mandate agreement for the $16.5 million loan and/or in not mentioning that:
a) there were two separate Global Trusts;
b)the $16.75 million was held on deposit by a Dorchester entity named “Global Trust New Zealand” in an HSBC account controlled by Dorchester;
c) a similar transaction involving $25 million had failed in 2003;
d) Dorchester had been sceptical about the $16.75 million transaction;
e) HSBC had previously expressed reservations;
f) the $16.75 million loan was to fund a hotel development, but that the property had been sold with a buy-back clause?
[165] The short answer is that none of these matters either on their own or taken together provides any support for the claims by CFL and Mr Ng.
[166] In not providing Mr Ng or CFL with the mandate agreement for the $16.75 million loan, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. Mr Ng and CFL knew that the loan offer was on hold pending the provision of security. Mr Ng and CFL did not suggest that there was anything in the mandate agreement of 5 December 2003 that was unusual or would have caused them to reconsider entering into the May 2004 loan and guarantee transactions. The information in the mandate agreement relating to the terms of the deposit of the
$16.75 million in the “Global Trust New Zealand” account pending receipt of securities to the satisfaction of Dorchester was known to Mr Ng and was reflected in the settlement statement of 25 May 2004 which he received from Dorchester.
[167] In not mentioning that there were two separate Global Trusts, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. Mr Ng and CFL knew that Mr Wuu’s GT would not receive the loan from Dorchester until security was provided. The existence of two separate trusts had no real relevance to the substance of the transactions. It was the means by which Dorchester held the funds on deposit for GT and was able to assist GT by confirming that on receipt of adequate security the funds would be able to be made available to GT.
[168] Similarly, in not mentioning that the $16.75 million was held on deposit by a Dorchester entity named “Global Trust New Zealand” in an HSBC account controlled by Dorchester, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. As confirmed by the settlement statement, Mr Ng and CFL knew that the funds were held on deposit by Dorchester in an HSBC account. The non-disclosure of the existence of the Dorchester entity named “Global Trust New Zealand” had no relevance to the substance of the transactions.
[169] In not mentioning that a similar transaction involving $25 million had failed in 2003, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. The $25 million transaction failed because GT was unable to obtain security for the loan. Disclosure of this information to Mr Ng and CFL would simply have confirmed what they already knew, namely that Dorchester would not lend without first obtaining adequate security.
[170] In not mentioning that it had been sceptical about the $16.75 million transaction, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. The fact that Mr Wuu was seeking to fund a $750,000 broker’s fee to procure the Deustche Bank bank guarantee so that the funds held on deposit at HSBC might be released to GT showed to Dorchester as well as Mr Ng that the transaction might well be able to proceed. In these circumstances earlier sceptism on the part of Dorchester did not need to be disclosed to Mr Ng, who as a sophisticated and successful businessman, was well able to make his own assessment of the proposed transaction.
[171] In not mentioning that HSBC had previously expressed reservations, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. Mr Steadman of HSBC in his email of 13 May 2004 sent to Mr Wuu and Mr Jensen had made it clear that HSBC had not wanted to be involved with a Banco de Finanzas guarantee and that HSBC’s London office would need to be involved, but there was no suggestion that HSBC would not accept a bank guarantee from Deustche Bank or that it had any other reservations with the proposed transaction. Mr Jensen also gave evidence that HSBC saw the transaction as “straightforward”. Once again Dorchester did not need to tell Mr Ng about HSBC’s previous
reservations which had no relevance to what was correctly described as a straightforward transaction from their perspective.
[172] In not mentioning that the $16.75 million loan was to fund a hotel development where the property had been sold with a buy-back clause, Dorchester did not breach its obligations or engage in misleading or deceptive conduct. In the circumstances of this case Dorchester was entitled to assume that Mr Ng, as surety, would have discussed the proposed hotel development with his debtor, Mr Wuu. Obviously, if security had been procured and the $16.75 million loan made available, Mr Wuu would have been able to have exercised his buy-back option and proceeded with the development. In this case it was for Mr Ng to satisfy himself about Mr Wuu’s proposals for the use of the loan.
[173] These answers to the specific matters raised by CFL and Mr Ng are also reinforced by the following further general points:
a) There was no evidence that Dorchester’s silence in respect of these matters materially induced Mr Ng and CFL to enter into the loan and guarantee transactions: cf Savill v NZI Finance Ltd.[26]
[26] Savill v NZI Finance Ltd [1990] 3 NZLR 135 (CA) at 146.
b)In the commercial context of this case, there was no obligation on Dorchester to volunteer information about the purpose of the $16.75 million loan or the ability of GT, as principal debtor, to meet its obligations: cf James O’Donovan and John Phillips The Modern Contract of Guarantee.[27] Dorchester was entitled to assume, because of the relationship between Mr Wuu and Mr Ng, that Mr Ng knew as much, if not more, about Mr Wuu’s business plans and financial position as it did.
[27] James O’Donovan and John Phillips The Modern Contract of Guarantee (English edition, Sweet & Maxwell, London 2003) at [5-015].
c) There were no unusual features involved in this case which were sufficient to impose any obligation on Dorchester to disclose these matters
d)It is not likely that a reasonable person in the position of Mr Ng and CFL would have been misled or deceived: cf Red Eagle Corporation Ltd v Ellis.[28]
[28] Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492 (SC).
[174] For these reasons I have concluded that CFL and Mr Ng have not established their claims under s 6(1) of the Contractual Remedies Act 1979 or s 9 of the Fair Trading Act 1986. This leaves for consideration CFL’s claims for mistake, breach of fiduciary duty and breach of mortgage contract.
Mistake?
[175] CFL’s claim under the Contractual Mistakes Act 1977 is based on the allegation that Mr Ng and CFL understood that there was already a loan to GT of
$16.75 million and that GT owned the HSBC bank account. As I have found as a matter of fact that Mr Ng knew that there was no loan until security had been provided and that Dorchester controlled the funds deposited in the HSBC account, there is no factual basis for this claim, which must therefore also fail.
Breach of fiduciary duty?
[176] For Mr Ng and Ms Goh as trustees of GT, it was submitted that, while the relationship between a bank and its customers does not usually impart fiduciary obligations, here the close relationship between Dorchester and Mr Wuu’s GT did so. Mr Wuu (and so GT) placed special trust, confidence and reliance in Dorchester. Messrs Jensen and King travelled overseas to meet Mr Wuu’s advisers. They worked with Mr Wuu from February 2002 to 2004 to develop the terms on which the funds would be placed on bank deposit. Dorchester acted as agent of GT in negotiating the best terms of interest for it for funds deposited in the BNZ and HSBC accounts. Dorchester’s representative was the signatory to the accounts. Dorchester agreed to arrange for letters to be provided by the BNZ and HSBC confirming that the $25 million and the $16.75 million had been “drawn down” and deposited into GT’s account, and Mr Jensen initiated contact with Clydesdale Bank PLC on 8 June
2003 and also held discussions with HSBC in April 2004 with respect to both of
those entities being involved in providing bank guarantees and being the issuing banks for the overseas transactions.
[177] An allegation by Mr Ng and Ms Goh that Dorchester had charged GT
excessive fees was not pursued.
[178] For Dorchester, it was submitted that no fiduciary duty arose because the relationship between Dorchester and Mr Wuu was an arms-length relationship between a lender and a borrower. There was no vulnerability, and no special relationship entitling Mr Wuu legitimately to expect that Dorchester would loyally advise on the wisdom of his transactions or otherwise protect and prefer his interests over Dorchester’s. Mr Wuu was a sophisticated, experienced and successful businessman who had his own advisers, including his lawyer, Mr Alloo, and his external agent or adviser, Mr Kung, as well as overseas advisers. Mr Jensen told Mr Wuu that the decision to sell the Dunedin Post Office site was his to make. The overseas travel was proposed by Mr Wuu to persuade Dorchester that it wasn’t wasting its time and to relieve PWC’s concerns about Dorchester’s ability to provide finance. Mr Jensen confirmed that the “golden rule” in his business was not to give financial advice because Dorchester’s borrowers were risk takers.
[179] I accept the submissions for Dorchester that the relationship between Dorchester and Mr Wuu was that of lender and borrower and that there was no special relationship of the nature suggested for Mr Ng and Ms Goh. The submissions for Mr Ng and Ms Goh were based largely on a view of the facts relating to the funds and their deposit in Dorchester’s account which I have already rejected. The other factors which they rely on are answered by the factual background summarised in the submissions for Dorchester to which I have referred.
[180] This conclusion means that there is no factual basis for finding a fiduciary relationship between Dorchester and Mr Wuu or the existence of any fiduciary duty. The relevant authorities referred to by the parties in their submissions support the view that the existence of a fiduciary relationship and fiduciary duties outside relationships which are inherently fiduciary is dependent on the facts of the
particular case: Arklow Investments Ltd v Maclean,[29] Chirnside v Fay,[30] and
Saunders v Houghton.[31]
[29] Arklow Investments Ltd v Maclean [2000] 2 NZLR 1 (PC) at 4–6.
[30] Chirnside v Fay [2007] 1 NZLR 433 (SC) at [79]–[80].
[31] Saunders v Houghton [2009] NZCA 610 (CA) at [100].
[181] The claim for breach of fiduciary duty by Mr Ng and Ms Goh as trustees of
GT therefore also fails.
Breach of mortgage contract
[182] The parties indicated at the trial that CFL’s claim for breach of the mortgage contract, which is relevant to Dorchester’s claim for indemnity costs, should be held over pending the determination of the other claims.
Dorchester’s limitation defence
[183] In view of the factual findings I have made which mean that GT’s claim against Dorchester for breach of the Fair Trading Act 1986 has failed, it is strictly speaking unnecessary for me to consider Dorchester’s limitation defence to that claim, but in case my decision on GT’s Fair Trading Act claim is held to be wrong I should give my view on the defence.
[184] For Dorchester, it was submitted that:
a) The three year limitation period under s 43(5) of the Fair Trading Act starts when a plaintiff “knew or ought reasonably to have known...that some person or persons were likely to have suffered loss or damage as a result of a probable contravention” of the Act: Commerce
Commission v Carter Holt Harvey Ltd.[32]
[32] Commerce Commission v Carter Holt Harvey Ltd [2010] 1 NZLR 379 (SC) at [39].
b)Assuming that Dorchester’s representations about the status of the $25 million and $16.75 million deposits constituted breaches of s 9 of the Fair Trading Act, the evidence showed that Mr Wuu knew on 6 June
2003 that the $25 million deposit was not and could not be a loan, by
December 2003 or February 2004 that there were two trusts and by
August 2004 that the $16.75 million deposit was not a loan. In relation to the December 2003/February 2004 transaction, GT’s alleged “loss” must have occurred immediately when GT committed to paying fees in December 2003 and in February 2004.
c) As Mr Ng and Ms Goh, as trustees of GT, did not issue their proceedings against Dorchester until 14 September 2007, they were time barred because their alleged loss or the likelihood of it was or ought reasonably to have been discovered before 14 September 2004.
d) The change in trustees did not stall or postpone the limitation period.
e) Equitable principles do not postpone a limitation period: Commerce
Commission v Roche Products (New Zealand) Ltd.[33]
[33] Commerce Commission v Roche Products (New Zealand) Ltd [2003] 2 NZLR 519 (HC).
[185] For GT, it was accepted that:
a) the claims under the Fair Trading Act against Dorchester Capital Limited were time barred because that company was not joined to the two sets of proceeding until November 2009; and
b)the change in trustees of GT made no difference, that is the commencement of the limitation period was not affected by the appointment of Mr Ng and Mr Goh as trustees on 24 February 2005. The knowledge of the original trustees was sufficient.
[186] In respect of the GT claim against Dorchester Finance Limited, it was submitted for GT that:
a) Mr Wuu was unaware that there was no loan and did not know there was a separate Dorchester “Global Trust” until non-party discovery from the BNZ during 2008.
b)Alternatively, Dorchester is estopped from arguing limitation as GT’s claim against Dorchester was filed on 10 November 2005 in the Christchurch proceeding. The subsequent striking out of that
proceeding and the filing of a separate proceeding in Auckland should not enable Dorchester to rely on a limitation defence when it had been put on notice of GT’s claim under the Fair Trading Act 1986 by the earlier Christchurch proceeding: Murray v Eliza Jane Holdings Ltd,[34]
[34] Murray v Eliza Jane Holdings Ltd (1993) 5 TCLR 272 (CA).
Anchorage Management Ltd v Oldham,[35] Laws of New Zealand
[35] Anchorage Management Ltd v Oldham (1997) 11 PRNZ 110 (HC).
Limitation of Civil Proceedings[36] and Andrew McGee, Limitation
Periods.[37]
[36] Laws of New Zealand Limitation of Civil Proceedings at [42].
[37] Andrew McGee, Limitation Periods (4th ed, Sweet & Maxwell, London, 2002) at [21.020].
[187] The answers to the submissions for GT are:
a) Mr Wuu was in no doubt by August 2004 at the latest, when the
$16.75 million was withdrawn from the HSBC account, that there had been no loan; and
b)GT’s original Christchurch proceeding against Dorchester was struck out on 6 April 2006. GT had until August 2007 to reissue their proceeding in Auckland before the limitation period expired, but did not do so until 14 September 2007. They, not Dorchester, must bear responsibility for their failure to reissue their proceeding before the expiration of the limitation period.
[188] For these reasons I would have decided that GT’s claim against Dorchester under s 9 of the Fair Trading Act 1986 was in any event precluded by the limitation period under s 43(5) of that Act.
Result
[189] As none of the claims by GT, CFL or Mr Ng has been established, there will be judgment for Dorchester.
[190] As already noted, the parties have asked that the claim for breach of mortgage contract, which is relevant to Dorchester’s claim for indemnity costs,
should be held over pending determination of the other claims. Now that the other claims have been determined, the parties may file memoranda relating to the claim for breach of mortgage contract and costs if they are unable to resolve these issues by agreement. As costs should follow the event, Dorchester should file and serve a memorandum within 14 days of this judgment and GT, CFL and Mr Ng should file
and serve their memorandum in response within a further 14 days.
D J White J
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