Soshi Gakuen New Zealand Incorporated v Vo

[2020] NZHC 470

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2019-454-72

[2020] NZHC 470

UNDER

section 145A of the Land Transfer Act 1952

IN THE MATTER

of an application to sustain a caveat

BETWEEN

SOSHI GAKUEN NEW ZEALAND INCORPORATED

Applicant

AND

KHIET THANH VO

First respondent

NHU THAO PHAM
Second respondent

LAND INFORMATION NEW ZEALAND

Third respondent

Hearing:

27 February 2020

Appearances:

S Iorns for applicant

P Drummond for first and second respondents

Judgment:

11 March 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]    The applicant, Soshi Gakuen New Zealand Inc, seeks an order sustaining a caveat lodged over the title to a property in Palmerston North which is owned and occupied by the first and second respondents, Khiet Thanh Vo and Nhu Thao Pham, who are a married couple.

SOSHI GAKUEN NEW ZEALAND INCORPORATED v VO [2020] NZHC 470

[2]    Soshi Gakuen’s application is opposed by Mr Vo and Ms Pham. The third respondent, Land Information New Zealand, has not entered a defence or taken any other step in the proceeding, and I am assuming that it is adopting a neutral position.

Background

[3]Soshi Gakuen is the parent organisation of at least two — and possibly more

—   private educational organisations that operate in New Zealand, one of which is International Education Foundation (NZ) Inc (‘IEF’).

[4]    Between January 2008 and September 2018, when he resigned to take up a position with Massey University, IEF employed Mr Vo in a managerial position.

[5]    An important aspect of the position in which IEF employed Mr Vo involved him travelling abroad, for the most part to Asian countries, to market IEF to potential students.

[6]    Obviously, such marketing trips had to be funded, and the parties’ arrangements as to funding are at the heart of the case.

[7]    To the extent that the terms of the contract of employment are relevant to these arrangements, I will come back to them.

[8]    A better starting point is to describe the arrangements in general terms. It is common ground that in relation to each trip a comprehensive proposal would be prepared. Although the evidence did not include an example of such a proposal, it is not hard to imagine what they might look like. I expect that at very least they outlined what the trip would involve, what the objectives were, how success would be measured and a budget. When the proposal was agreed and finalised, IEF advanced the budgeted amount to Mr Vo. Both parties accept that any funds so advanced by IEF to Mr Vo were advanced exclusively for the purpose of meeting the costs of the trip. In their affidavit evidence, and, indeed, in the contract of employment and correspondence, these arrangements were referred to as “ringis”. No-one explained to me the derivation or provenance of this term, but I will use it to describe proposals of the sort I have outlined and the advances by IEF to Mr Vo.

[9]    From the evidence before the Court it would appear that over the period of employment there were well over 20 ringis in relation to which IEF authorised Mr Vo to undertake marketing trips abroad.

[10]   The parties’ cases diverge in relation to the issue of reporting on these ringis, and more particularly accounting for advances. Soshi Gakeun’s case is that Mr Vo breached his contractual obligations to account in relation to eight ringis. It invites the Court to infer that some proportion of the funds advanced by it in relation to these ringis was diverted by Mr Vo and used by him to assist with the acquisition of the property purchased by him and Ms Pham shortly after he left the organisation’s employment. On that basis, IEF says that Mr Vo and Ms Pham are constructive trustees for it of some proportion of their equity in the property. Mr Vo’s case is that in relation to every ringi he complied with his obligations as to reporting and accounting. He says that the whole purpose of the ringi system was to establish a fixed budget in advance. He says that, therefore, the arrangement throughout was that if the costs involved were more or less on budget, his only obligation was to report as to the outcome of the trip which he did. However, if there was a material underspend or overspend against the budget, he was obliged to account for any underspend and entitled to claim for any overspend. That, Mr Vo explains, is why there were only eight ringis in relation to which he did not account against the budget for financial expenditure.

The applicable principles and the issue to be resolved

[11]I turn now to the basis for Soshi Gakuen’s application.

[12]   A preliminary point concerns Soshi Gakuen’s standing. As already outlined, whilst Soshi Gakuen is the parent organisation of the group, it was not Mr Vo’s employer. To the extent that the terms of the contract of employment are relevant, it is not immediately obvious to me that Soshi Gakuen is entitled to rely on or enforce them against him. Perhaps more fundamentally, it is not clear on the evidence whether funds advanced were those of Soshi Gakuen or IEF. If it was not Soshi Gakuen that advanced funds, then I am doubtful that it has any standing to make the application it

does. However, as these points were not raised in argument by counsel, and the case can be determined on other bases, I put them to one side.

[13]   Counsel were on common ground as to the principles applicable to applications such as this, if not as to their application in this case.

[14]The starting point is s 138 of the Land Transfer Act 2017 which provides:

(1)A person may lodge a caveat against dealings with an estate or interest in land (a caveat against dealings) on the basis that the person—

…

(b)has a beneficial estate or interest in the land under an express, implied, resulting, or constructive trust; or

…

[15]   In order to sustain a caveat pursuant to s 138(1)(b), the applicant must demonstrate that he, she or it has a reasonably arguable claim to such an estate or interest.1

[16]   Here, the interest that Soshi Gakuen claims is expressed as follows in the caveat.

Caveator claims an institutional constructive trust on the basis of a past and continuing failure to account. The Registered Proprietor VO was an employee of the Caveator from 2007–2018. During that time, significant sums of money were transferred to accounts associated with VO, including one in Vietnam to his father, with the surname PHAM. VO has failed to account for more than

$200,000.00, and purchased this property very shortly after resigning from his post. The co-owner shares a surname with one of the offshore recipients of significant funds of the Caveator. Caveator believes on reasonable grounds that this property was purchased with funds that have not been accounted for, creating  a  constructive  trust  on  the  basis  of   a   misappropriation. Trustee Executors Ltd v Eden Holdings 2010 Ltd [2020] NZCA  626;  Trustee Executors Ltd v Steve G Ltd [2013] NZHC 16. Section 138(1)(b).

[17]   Thus, what Soshi Gakuen says is that Mr Vo used its money in the acquisition of the property registered in his name and that of Ms Pham. Mr Drummond accepted that if that allegation could be established, it would entitle the applicant to assert an

1      New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA) at 43; and Coltart v Lepionka & Co Investments Ltd [2016] NZCA 102, [2016] 3 NZLR 36 at [30].

estate or interest in the property. I agree. The law, or, rather, equity, has long held that if A acquires property, real or personal, with B’s funds, then, prima facie at least, B has a beneficial interest in the property proportionate to his or her contribution to its acquisition.2

[18]   The dispositive issue, then, is whether the evidence that the applicant has put before the Court is sufficient to establish a reasonably arguable case that its resources were employed by Mr Vo and Ms Pham in the acquisition of the property.

The competing arguments

[19]   Mr Iorns submitted that the evidence “easily meets the threshold of arguable case” and that the “caveat ought to be sustained”.

[20]What then is the evidence on which Soshi Gakuen relies?

[21]   First, Soshi Gakuen contends that Mr Vo did not comply with the terms of his contract of employment in the manner that he accounted for expenditure. Mr Vo’s evidence is that he did. He says that the practice that developed was that he would report on every project at its completion, but that in respect of expenditure associated with a project he would only provide supporting financial documentation when there was a material under or over expenditure, in the process of accounting for the former or claiming for the latter.

[22]   The aspects of the contract of employment to which Soshi Gakuen points as being relevant are cl 7.3 which relates to accounting obligations; cl 5.1 which concerns adherence to policies; and the various policies concerning accounting which have existed over the years.

[23]Clause 7.3 provides:

If the Employee is required to travel within New Zealand or overseas on official College business, travelling and accommodation allowances will be paid at such rates as may from time to time be determined by the Employer.

2      See generally Fortex Group Ltd (in rec and liq) v MacIntosh [1998] 3 NZLR 171 (CA) at 171–

172 for an explanation of institutional  constructive  trusts;  and  Trustees  Executors  Ltd  v  Eden Holdings 2010 Ltd [2010] NZCA 626.

The Employee shall be entitled to reimbursement by the Employer of approved expenditure properly incurred by the Employee on the performance of their duties provided the Employer produces receipts appropriate to the Employer when requesting reimbursement.

[24]Clause 5.1 provides:

The Employer has adopted certain policies, procedures and regulations (“College policy”). The Employee acknowledges that the Employee is aware of college policy published in the College Handbook (available at the College Reception in the Administration building, or web site: and agrees that the Employee must follow and abide by College policy. The College policy may be amended from time to time by the Employer, at its sole discretion, and publication of the amendments in the College Handbook will constitute sufficient notice to the Employee of any change. The Employee agrees to abide by any College policy that the Employer may implement and amend from time to time.

[25]   As to the policy concerning travel, the affidavit evidence includes several policies that have applied during the period of the contract of employment. Typical of these is the policy approved on 10 September 2014 which would appear to be the last travel policy which operated during the period of employment. The material parts of the document are in these terms:

Allowances Per Day While Overseas

Travel to Destinations Other than Japan

The College will arrange and pay for all travel. Accommodation will be arranged by the College and, if possible, paid directly to the supplier. Otherwise the employee will be reimbursed upon production of valid receipts.

While travelling on College business, employees are entitled to be paid a   per diem allowance of NZ$50 for each night away from Palmerston North for the first week, $40 per night for the second week, and $25 per night for the third and fourth week. This shall cover meals, laundry and other personal incidental costs. The per diem allowance may be claimed as an advance prior to travel and paid in overseas currency along with other advances sufficient to cover expenses payable by the College, as approved in the Ringi.

Travel To Japan

International airfares and New Zealand accommodation en route will be booked and paid for by IPC Palmerston North.

While travelling on College business, employees will be paid a per diem allowance of 5,000Yen for each night spent in Japan for the first week away, 4,000Yen per night for the second week, and 2,500Yen per night for the third and fourth week. This will cover meals, laundry and other personal incidental

costs. The per diem allowance may be claimed prior to travel and paid in Japanese yen if required.

Whilst in Japan, accommodation, domestic transport and airport transfers will be booked and paid or reimbursed upon production of receipts. Any extra expenses incurred whilst on private business in Japan are the responsibility of the employee.

[26]   It appears to me that none of those provisions are determinative of the obligations the employer is imposing on the employee in terms of reporting or accounting in the circumstances of this case. All cl 7.3 says is that if at the employer’s behest the employee is required to incur costs these will be reimbursed on the production of receipts. Clause 5.1 simply provides that the employer will publish policies, identifies where these will be published and requires in effect that employees ensure that they are familiar with these and comply with them. There is an issue in this case as to whether Mr Vo was familiar with all relevant policies relating to travel. As to this, I accept Soshi Gakuen’s submission that it was Mr Vo’s responsibility to ensure that he was familiar with relevant policies and adhere to them. However, again, no iteration of the travel policy addresses the situation in this case in which the budget for a ringi has been adhered to and the employee did not underspend or overspend against that budget.

[27]   In short, I can see no obvious clash between any term of the contract of employment on which Soshi Gakuen relies and Mr Vo’s evidence as to the arrangements between the parties.

[28]   Furthermore, the eight ringis in respect of which Soshi Gakuen says that Mr Vo did not comply with his reporting or accounting obligations spanned the period from July 2010 to March 2018. If indeed the way in which he accounted at the conclusion of the trips involved did not comply with the employer’s requirements, I would have expected to see contemporaneous records of that issue having been raised with Mr Vo. No such records are before the Court.

[29]   Mr Iorns says that Mr Vo’s evidence in relation to this is directly contradicted by his supervisor, Mr Tomohito Mizuno. In his affidavit Mr Mizuno produces what he describes as “business records that [he] prepared concerning the need to account for expenditure” and that “Mr Vo was clearly reminded of the need to provide receipts

for all expenditure”. However, the “business records” he produces were prepared after Mr Vo had resigned. They are dated 1 October 2018 and 7 February 2020. They are not contemporaneous records evidencing the applicant’s insistence that Mr Vo comply with any particular standard in accounting for advances. In my view, Mr Mizuno’s evidence is simply an ex-post facto assertion that Mr Vo did not comply with the terms of the contract of employment.

[30]   The position is that from the outset Mr Vo appears to have accounted for expenditure in the manner already described, and the applicant has not produced any contemporaneous evidence of the issue having been raised with him at any stage over the eight year period involved.

[31]   Indeed, such evidence as there is appears to me to point in the other direction. I am satisfied that whether or not the system of accounting for expenditure provided for in the contract of employment was adhered to, the system employed and already described, became the convention between the parties.

[32]   In short, I am not satisfied that the applicant can make out a reasonably arguable case that Mr Vo breached the terms of the contract of employment, or failed to account in a way that was approved or sanctioned by it.

[33]   The second limb of Soshi Gakuen’s case concerns a series of ringis during 2016 and 2017 during which time Soshi Gakuen was apparently establishing an office in Vietnam. In connection with these trips, Mr Vo arranged for the monies that were to be advanced to him to be transferred by the employer to his father’s bank account in Vietnam. I do not see how this can be viewed as evidence of fraud or even give rise to suspicion. The ringi system as I have described it involved the employer advancing funds to the employee. On this occasion, Mr Vo, instead of arranging for the funds to be paid into a bank account of his own, arranged for them to be transferred to Vietnam into a bank account of his father. He did so entirely openly, the transfer being effected by the employer. It appears to me to have been a mere matter of convenience on his part, that avoided him having to open a Vietnamese bank account.

[34]   The final limb of Soshi Gakuen’s case relates to Mr Vo’s explanation as to how he and Ms Pham were able to acquire their property.

[35]   As already indicated, there is no contemporaneous documentary evidence that Soshi Gakuen raised any issue with Mr Vo relating to his approach to reporting or accounting until some time after he had left IEF’s employment. When, eventually, through their solicitors, they did so, what they asked him to do was to account in more detail for the expenditure in relation to the eight ringis about which they said they were concerned, and they tied this to the acquisition by Mr Vo and Ms Pham of their home in Palmerston North.

[36]   One possible response from Mr Vo might have been that, as he was no longer employed by IEF, he did not have access to the relevant records and could not do so in any detail without such access. Whilst he did not respond in those terms, through Mr Drummond, he explained where he and Ms Pham had obtained the money to acquire their house. Here is how Mr Vo put the matter in his affidavit in support of his opposition to this application:

PURCHASE OF 41 NEWCASTLE STREET, PALMERSTON NORTH

22.Prior to owning 41 Newcastle Street, Palmerston North, I was the sole owner of 20 Ilford Place, Palmerston North which I owned for 3 years. From the sale of that property, I had about $240,882.00 in equity. Attached and marked “D” is a copy of my then Solicitor’s report and settlement statement relating to this property. Of the $240,882.00, I sent $225,000.00 back to my family in Vietnam as an interest-free loan and retained the balance.

23.My wife and I purchased 41 Newcastle Street, Palmerston North on

25 January 2019. The agreed purchase price was $560,000.00. Attached and marked “E” is a copy of the Vendor’s Solicitor’s settlement statement confirming the purchase. The purchase price ($560,000.00) was funded by my wife and I as follows:

23.1A contribution of $20,000.00 deposit was made available from savings and from funds left over from the  sale  of Ilford Place.

23.2A gift was received from my wife’s sister of $320,000.00 of which $242,713.50 was applied to the purchase price and the balance was applied towards improvements to the property.

23.3That there was a shortfall of $300,000.00 which my wife and I loaned from the BNZ Bank, which was secured by way of first mortgage over the Newcastle Street property.

24.Attached and marked “F” is a copy of my Solicitor’s Trust Account settlement statement recording mine and my wife’s cash contribution which originated from my sister-in-law.

GIFT FROM MY SISTER-IN-LAW

25.Attached and marked “G” is a gift certificate from my sister-in-law, confirming the gift of NZ$320,000.00 to my wife and I to purchase 41 Newcastle Street, Palmerston North.

26.My sister-in-law (Thach Thao Pham) is the sole shareholder in a private Singaporean company, Machinery Enterprise Pte Ltd. Attached and marked “H” is a search copy of Machinery Enterprise Pte Ltd.

27.Attached and marked “I” is a copy of the joint bank account statement of my wife and I, confirming receipt of a deposit of $320,000.00 was received from Machinery Enterprise Pte ltd on 8 January 2019.

28.The above information was provided to the BNZ Bank to enable the BNZ loan to be approved to enable the purchase of 41 Newcastle Street, Palmerston North to proceed.

[37]   The $320,000 gift from Mr Vo’s sister-in-law is supported by her affidavit in which she confirms the gift and says:

4.I confirm that the source of the funds is Machinery Enterprises Pte Ltd. Attached and marked “A” is a copy of Machinery Enterprises Pte Ltd’s bank statement, recording the withdrawal of the funds on  8 January 2020 in the sum of US$217,920.00 (amounting to NZ$320,000.00).

5.I confirm the original source of these funds did not originate from either [Mr Vo] or my [Ms Thach Thao Pham’s] father (Pham Van Ly)

[38]   I have seen no evidence contradicting Mr Vo’s explanation as to how he and Ms Pham purchased the property.

[39]   Against that background, the applicant effectively asks the Court to infer that Mr Vo fraudulently failed to account for monies advanced to him by his employer, accumulated these funds with family abroad, arranged for them to be transmitted back when he needed them and used them to assist in the purchase of the home purchased by him and Ms Pham. That is a very serious allegation. In his affidavit evidence the applicant’s  principal  witness,  Mr  Tsumakura,  refers  to  it  as  a  “theory”.   As   Mr Drummond submitted, that description is entirely apt. Moreover, it is a theory that as far as I can see is unsupported by any probative evidence.

[40]   As stated earlier, the applicant bears the burden of establishing that it has a reasonably arguable case. The law recognises that the standard of proof in civil cases

—   the balance of probabilities — is a malleable one, the balancing exercise shifting depending on the nature of the allegation made.3 An allegation of fraud is perhaps the most serious allegation that can be made in civil proceedings. It therefore needs to be supported by some evidence.

Conclusion

[41]   I am far from satisfied that the applicant can establish — even to the point of having a seriously arguable case —fraud.

[42]The application is dismissed.

Costs

[43]I reserve costs, not having heard from counsel in relation to these.

[44]   Often it is appropriate to offer a preliminary view as to costs, in the expectation that this will assist counsel to deal with them. I refrain from doing so here as I apprehend that costs in this case may be more difficult than is ordinarily the case. If counsel are unable to resolve costs by agreement, then the respondent is to file a memorandum within 15 working days of the date of this judgment and the applicant is to respond within a further 10 working days.

Associate Judge Johnston

Solicitors:
Iorns Legal, Porirua for applicant
Alison Green Law, Palmerston North for first and second respondents

3      Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [112].