Zhong v Loo
[2018] NZCA 178
•31 May 2018 at 12.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA425/2017 [2018] NZCA 178 |
| BETWEEN | TING LONG ZHONG |
| AND | STANLEY LOO |
| Hearing: | 12 April 2018 |
Court: | Winkelmann, Wylie and Thomas JJ |
Counsel: | R Reed and A Manuson for Appellant |
Judgment: | 31 May 2018 at 12.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Winkelmann J)
The appellant, Mr Zhong, and the respondent Mr Loo, bought a residential property together in 2008, with each acquiring an undivided 50 per cent ownership share. In 2013 they sold that same property for a considerable profit.
Mr Zhong and Mr Loo did not deal directly with each other to arrange the purchase. In fact, at the time they had no more than a passing acquaintance with each other. Instead both used Mr Michael Ong to facilitate the purchase. Mr Ong was a long-time friend and business associate of Mr Zhong, and the father-in-law of Mr Loo.
When the property was sold it emerged that Mr Ong had not been honest with either man. Both had paid Mr Ong money to be applied to the purchase which Mr Ong had misappropriated. Moreover, Mr Ong had agreed with Mr Zhong that Mr Zhong’s responsibility to repay a bank loan used to fund part of the purchase would be limited to 25 per cent of the loan’s value. But that agreement was inconsistent with the joint and several obligation recorded in bank documentation and Mr Loo was unaware of any such side agreement.
As a consequence, issues have arisen between Mr Zhong and Mr Loo over how the proceeds of sale of the property are to be distributed, leading to the issue of these proceedings by Mr Zhong.[1]
[1]Zhong v Ong [2017] NZHC 1537. Although several causes of action were pleaded in Mr Zhong’s statement of claim, he only pursued the breach of contract claim in the High Court.
Mr Zhong claims that Mr Loo is contractually bound by Mr Ong’s dealings with Mr Zhong, because Mr Ong was acting as Mr Loo’s agent. It follows, Mr Zhong says, that:
(a)Mr Zhong is entitled to be reimbursed for money paid to Mr Ong which Mr Ong, acting as Mr Loo’s agent, agreed would be applied as an equity contribution to the purchase but then misappropriated;
(b)By reason of the separate agreement entered into by Mr Ong with Mr Zhong, but by which Mr Loo is bound, Mr Zhong is responsible for less than half of the bank borrowings used to part fund the purchase; and
(c)Connected to this, Mr Zhong can recover as damages from Mr Loo the extent to which he overpaid his share of regular monthly mortgage repayments.
Courtney J accepted that Mr Zhong had suffered loss because of Mr Ong’s dishonesty, but found that Mr Loo was not bound by Mr Ong’s actions in that regard and not responsible for that loss.[2] Mr Zhong now appeals that decision.
Background
The basic structure of the transaction
[2]At [50].
The agreement for sale and purchase of the property, located in Godley Lane, Paremoremo, was entered into on 26 March 2007. The purchaser was recorded as Cheong Keow Sun and/or nominee. C K Sun is an associate of Mr Ong who does not feature in the critical narrative of events other than as the named purchaser on the agreement. It is not in dispute that Mr Ong was involved in obtaining the sale and purchase agreement.
The purchase price was $1.2 million, with a deposit of $120,000 payable once the agreement became unconditional, with settlement on 23 April 2008. The agreement was conditional only upon a satisfactory Land Information Memorandum. Brookfields Lawyers seem to have acted on the transaction for all parties other than the vendor.
In a letter dated 15 April 2007, C K Sun instructed Brookfields that the nominated purchasers would be Mr Loo as to an 80 per cent ownership interest and Mr Zhong as to 20 per cent. Brookfields then prepared a formal Deed of Nomination (“Nomination Agreement”) between C K Sun as purchaser of the property and Mr Loo and Mr Zhong as nominees. That document recorded Mr Loo as the nominee purchaser of an 80 per cent interest in the property, and Mr Zhong as the nominee purchaser of a 20 per cent interest. Although dated 16 April 2007, the evidence supports the conclusion that this agreement was not executed by the nominees until November 2007. Nevertheless, on 16 April 2007, Mr Zhong and Mr Loo each countersigned a direction to Brookfields to declare the agreement unconditional. Mr Loo and Mr Zhong each gave Mr Ong a cheque in part payment of the deposit to deliver to the real estate agent. Mr Zhong claims to have also made other payments to Mr Ong in respect of his equity contribution to the purchase, which we detail below at [19].
In November 2007, shortly before he left New Zealand to work overseas, Mr Loo executed a power of attorney conferring on Mr Ong the power:[3]
(a)to act in the name, on the behalf and in the interests of the Appointer in connection with all matters prior to and after the purchase of the Appointer’s 80% (4/5th) share of the property at 23 Godley Lane, Paremoremo, comprised in certificate of title NA 96D/144 described as Lot 1 on Deposited Plan 160996 (“Property”) including but not limited to purchasing, financing, managing, leasing, development, selling and other associated matters of the Property (“Specified Purpose”), as fully and effectually as the Appointer could;
(b)to use the name of the Appointer in any manner in any deed or other written instrument in connection with the Specified Purpose.
[3]Zhong v Ong, above n 1, at [32].
On 21 April 2008, two days before settlement was due, Mr Zhong and Mr Ong went to Brookfields’ offices to execute various documents. They each executed an agreement varying the Nomination Agreement to change Mr Zhong’s and Mr Loo’s respective shares to 50/50. They also executed bank loan documents recording borrowings of $960,000 for which Mr Zhong and Mr Loo were jointly and severally liable. Mr Ong was recorded as signing the documents as Mr Loo’s attorney. Around this time Mr Zhong made a further payment to Mr Ong, to reflect his increased ownership interest in the property.
On 23 April 2008, Mr Zhong and Mr Ong signed a further document, which this time was not prepared by Brookfields. It was entitled “Purchase Agreement” and stated as follows:
T.L Zhong purchase 23 Godley Lane, Paremoremo Albany.
The purchase covers a total of 50% shares.
Paid in cash 30%.
Borrowed from BNZ 20%
The document was signed by Mr Zhong as purchaser and Mr Ong as witness. Mr Zhong relies upon this document as evidence of an agreement that he was responsible to repay only 25 per cent of the bank loan (which equals 20 per cent of the purchase price — $240,000).
The purchase was settled on 24 April 2008. Mr Ong then acted for both parties in organising the renting out of the property. The rent received was used to repay the mortgage, but top up payments were required from both Mr Loo and Mr Zhong to meet the full extent of the repayment obligations. In 2009 Mr Zhong stopped those payments, as he claimed he was having to pay more than 25 per cent of the cost of the mortgage.
Mr Loo returned from overseas in late 2008 and took over management of the property. At some point he discovered that Mr Ong had acted for him to acquire a lesser share of the property than originally agreed. Mr Loo was content with this but had to reimburse Mr Ong for money he understood Mr Ong had paid on his behalf to make up the balance of his equity contribution.
The property was sold in late 2013. Again, Mr Ong took all the steps necessary to arrange and facilitate the sale. The parties could not agree how the sale proceeds were to be distributed and the dispute over that led to the present proceeding.
Mr Zhong’s evidence
Mr Zhong lives in Whangarei where he operates a bakery. He has very limited ability to speak or understand English. He met Mr Ong in 1991 and by 2005 they had become very good friends, in that they had invested in properties together over the years.
Mr Zhong described their way of doing business together as follows. Mr Ong was the driving force of the investments, organising the purchases and managing the properties. Mr Zhong provided capital contributions. Mr Ong often chose not to be registered as an owner of the property on the title, and instead used other people’s names to hold the property.
In early 2007, Mr Ong invited Mr Zhong to purchase a 20 per cent share in the Godley Lane property. Mr Zhong understood that would leave Mr Ong responsible for the other 80 per cent. Mr Zhong paid Mr Ong money to be applied as Mr Zhong’s equity contribution to the purchase. Payments he made in 2007 totalled $240,000 as follows:
First payment
18 March 2007
NZD 52,000 (cash)
NZD 48,000 (cheque for agent)
Second payment
21 May 2007
NZD 80,000 (cash)
Third payment
21 July 2007
NZD 60,000 (cash)
These payments were acknowledged in a single page undated document signed by Mr Ong and Mr Zhong — Mr Ong as “vendor”, Mr Zhong as “purchaser”. The document also recorded that “[a]ll bank mortgage belong to Michael Ong paid on this property”.
Mr Zhong recalled signing the formal Nomination Agreement sometime in late 2007. That accords with Mr Loo’s evidence of also having signed it sometime around then. Mr Zhong claimed that although he signed the Nomination Agreement, he did not understand its contents. Mr Ong brought it to him for signature, and its contents were not explained to Mr Zhong before he signed it. He still believed that he was purchasing the property with Mr Ong as his co-purchaser.
Just before settlement, Mr Ong told Mr Zhong that he could not afford his part of the purchase and asked Mr Zhong to pay more to increase his ownership to 50 per cent. Accordingly, Mr Zhong agreed to pay a further $120,000. Mr Zhong’s evidence was that with the $240,000 he had already paid, plus the additional $120,000, he had contributed 30 per cent of the purchase price. It was in this context Mr Ong agreed Mr Zhong would be responsible only for 25 per cent of the bank loan. Mr Zhong claims that this is the agreement reflected in the “Purchase Agreement”, referred to above.
Mr Zhong claimed it was only around the time that the sale was completed that he discovered that it was Mr Loo, rather than Mr Ong, who was his co-owner of the property.
After the purchase Mr Ong made all the arrangements regarding the property including insurance, arranging a property manager, and renting the property out. He told Mr Zhong he could not afford to make all repayments under the mortgage, and so Mr Zhong agreed to help him by paying more, but on the basis that Mr Ong would repay those additional sums. Mr Zhong said that at some point he discovered that the bank loan was for more than they had agreed, as along with his equity contribution of $360,000, only $840,000 was required for settlement — not the $960,000 that was borrowed. He asked Mr Ong to return the $120,000 and extra mortgage payments to him, but was told that it was not his money but Mr Loo’s.
It was around this time that he stopped the mortgage repayments. It was also around this time that he first discussed the property purchase with Mr Loo, visiting him at his house.
In 2009 Mr Zhong agreed with Mr Ong that the house should be sold but it was not sold until 2013. The bank was repaid at that time and the balance held in trust pending resolution of this dispute.
Mr Loo’s evidence
Mr Loo is a plastic surgeon. He speaks English and is not fluent in Mandarin, but his wife speaks Mandarin. Mr Ong speaks only broken English. When the two men discussed the purchase of Godley Lane, the conversation was in English which, on Mr Loo’s account, gave rise to difficulties in communication.
In March and April 2007, Mr Loo was in Auckland working as a doctor but planning to go overseas for a period to continue his training as a plastic surgeon. It was around that time Mr Ong approached him with a proposal that he contribute to the purchase of the Godley Lane property. The initial proposal was that Mr Loo would have a 30 per cent share in the ownership of property, Mr Zhong a 20 per cent share and Mr Ong a 50 per cent share. Mr Ong told him that BNZ were prepared to lend up to 80 per cent of the cost of the property, so that all that was needed was 20 per cent of the purchase price — namely $240,000.
Mr Loo agreed to pay part of the deposit in the sum of $72,000, which would also complete his 30 per cent contribution to the equity of $240,000. He gave Mr Ong a cheque made out to the real estate agents for $72,000 dated 14 April 2007 on the basis that Mr Ong would deliver the cheque to the agent.
Between April and November 2007, arrangements changed as to the proposed ownership shares. Mr Ong told Mr Loo he would no longer participate as purchaser, and Mr Loo agreed to the suggestion that he would be the purchaser as to 80 per cent of the property. This was the position at 30 November 2007, when Mr Loo signed the power of attorney at the offices of Brookfields just prior to his departure from New Zealand. Mr Loo believed this was also the time he signed the Nomination Agreement, as both documents were signed in the presence of Angela Wong of Brookfields, and he only recalled going to the offices of Brookfields on one occasion.
Mr Loo had no contact with Brookfields around the time of settlement. He subsequently became aware that the purchase had been completed on the basis that the BNZ advanced a mortgage of $960,000, and that ownership would be shared equally between Mr Zhong and he. He understood from the documents that as 50 per cent owners, they had entered into the mortgage on an equal basis. That was acceptable to him.
On his return to New Zealand in November 2008, Mr Loo learned that on the settlement date, Mr Ong had caused a transfer to be made from the BNZ to Brookfields of $121,738.66. Mr Ong told Mr Loo that he had made that payment on his behalf. Mr Ong asked to be repaid in cash and Mr Loo, assuming that this was a further contribution to the equity required of him, paid Mr Ong this amount.
Mr Loo disputed that all of the money paid by Mr Zhong made its way into the purchase of the Godley Lane property. He accepted only that the $48,000 deposit paid by Mr Zhong and the $120,000 which enabled the payment to be made to Brookfields, were used in the purchase. [4] He agreed these amounts should be repaid to Mr Zhong. As to the contributions Mr Loo made, he argued that the $72,000 should be repaid to him from the proceeds of sale, but not the $120,000. After those repayments, Mr Loo argued, the balance should be distributed equally.
High Court judgment
[4]Having viewed Mr Zhong’s evidence Mr Loo was satisfied, and did not dispute, that it was Mr Zhong’s money which made up that amount transferred to Brookfields upon settlement and not his own, and that the $121,000 he had paid to Mr Ong was misappropriated.
Mr Zhong’s claim was advanced before Courtney J, on the basis that there was a joint venture between Mr Zhong and Mr Loo, formed through the agency of Mr Ong, which obliged Mr Loo to disgorge the proceeds of sale in accordance with Mr Zhong’s claim.[5]
[5]Zhong v Ong, above n 1, at [2].
The Judge was satisfied that while Mr Ong had initially proposed a three-way split to Mr Loo, he did not tell Mr Zhong about Mr Loo’s involvement.[6] Mr Zhong believed he was providing finance for a transaction between himself and Mr Ong on one side, and the vendor on the other. The Judge concluded that because Mr Zhong and Mr Loo had each agreed to participate on different terms, that precluded a finding that a joint venture between them had come into existence at all.[7]
[6]At [16].
[7]At [17].
The Judge accepted that Mr Zhong had paid the following amounts to Mr Ong:
(a)a cheque for $48,000 made out to the estate agent;
(b)cash payments totalling $192,000 as set out in the document signed by Mr Ong, recording cash contributions by Mr Zhong (referred to in [17] above); and
(c)a payment of $120,000 made to Mr Ong on settlement.[8]
[8]We note that in a later judgment, Courtney J proceeded on the basis that Mr Zhong paid $123,000 rather than $120,000 in April 2008 when determining the parties’ entitlement to the proceeds of sale. $123,000 was the deposit made by Mr Ong into the partnership account prior to settlement. See Zhong v Ong [2017] NZHC 3242.
The Judge rejected Mr Zhong’s claim that Mr Ong had received the additional $192,000 as Mr Loo’s agent.[9] She found that Mr Zhong had paid the money in the terms of the agreement he had reached with Mr Ong — an agreement to which Mr Loo was not a party. While it was clear from the subsequent events that Mr Ong did not apply those amounts to Godley Lane, there was no basis on which Mr Loo could be liable for Mr Ong’s failing in that regard.
[9]Zhong v Ong, above n 1, at [20]–[25].
The Judge found that the Nomination Agreement was signed in November 2007, and accepted Mr Zhong’s evidence that he did not know that the other party to the document was Mr Loo.[10] She said that since Mr Zhong did not speak or read English, he could not have read cl 6 of the agreement, which specifically identified the nominees as Mr Loo for 80 per cent and Mr Zhong for 20 per cent. Moreover, although Mr Zhong had signed the document after Mr Loo, it was possible for him to sign it without seeing Mr Loo’s signature since Mr Zhong’s signature was the only one on the last page of the document. Nevertheless, because Mr Zhong correctly understood the nature of the document and the effect of signing it, which would have been the same irrespective of whether the other party was Mr Ong (as he thought) or Mr Loo, Mr Zhong was bound by that agreement. That agreement therefore created a contractual relationship between Mr Loo and Mr Zhong which she characterised as a joint venture, the terms of which were that the two men would purchase the property in the shares recorded in the Nomination Agreement.[11] Any other terms would fall to be determined by implication.
[10]At [29].
[11]At [30].
The Judge found that the act of entering into that agreement did not render Mr Loo liable for Mr Ong’s previous conduct. Mr Loo entered into the agreement under his own name, and Mr Ong was not acting as his agent at that point. Nor, the Judge said, did the fact that Mr Ong obtained a power of attorney from Mr Loo render Mr Loo liable for Mr Ong’s past conduct. The authority conferred was prospective, and only applied to acts done in Mr Loo’s name in connection with the purchase of Mr Loo’s 80 per cent interest in the property.
Accordingly, the Judge found that when Mr Ong varied Mr Loo’s ownership interest to 50 per cent, he was acting outside the authority conferred.[12] However, because Mr Loo subsequently ratified that variation he was thereafter bound by it.[13]
[12]At [47].
[13]At [48].
The Judge was satisfied that up until the time that Mr Zhong visited Brookfields’ offices to execute the bank documentation, he believed he was entering into the purchase agreement with Mr Ong. However, at that meeting, the nature and effect of the agreement varying the ownership percentages and the bank documents were explained to Mr Zhong in Mandarin by the legal executive who attended on execution.[14] She concluded that Mr Zhong must have learned at that point that Mr Loo was to be his co-purchaser, and of the amount being borrowed and the extent of liability for those borrowings.
[14]At [37]–[39].
As to the “Purchase Agreement” dated 23 April 2008, the Judge was satisfied that the only reason for this document to be executed was to record the basis on which that change was to be effected — it supplemented the formal variation of the Nomination Agreement. She was satisfied that the Purchase Agreement provided for the agreed increase in Mr Zhong’s cash contribution and a cap on his exposure for the bank loan as between him and Mr Loo. He would of course remain liable to the BNZ on a joint and several basis. However, despite Mr Ong holding Mr Loo’s power of attorney at the time, he did not have the authority to negotiate that change to Mr Zhong’s liability. She said:[15]
The terms of that agreement, particularly the cap on Mr Zhong’s liability for the bank loan, were not a necessary consequence of the change in the respective shares and not in Mr Loo’s interests. I am satisfied he knew nothing of it until much later and that he never said or did anything to indicate an intention to be bound by it. As a result, Mr Zhong cannot rely on the “purchase agreement” to limit his liability for the amounts paid to the BNZ.
[15]At [48].
Accordingly, the Judge concluded that the parties’ respective rights and obligations were limited to the express and implied rights arising under the Nomination Agreement as varied by the agreement dated 21 April 2008. She said:[16]
They held equal shares and in my view it was implied that they would be joint and severally liable for the expenses, including the bank loan, entitled to share equally in the rental income, entitled to receive their respective equity contributions (Mr Zhong $168,000 [made up of the $48,000 deposit and later payment of $120,000] and Mr Loo $72,000) from the proceeds of sale and would be equally entitled to the remaining balance.
Appellant’s argument
[16]At [49].
Mr Zhong argues that the Judge was wrong to find that the sum of $192,000 (beyond the $48,000 paid to the real estate agent and the $120,000 paid to Mr Ong) was not received by Mr Ong as Mr Loo’s agent. In particular, she was wrong to ask herself whether there was a joint venture established between Mr Loo and Mr Ong at the time of those payments because the real issue was whether Mr Loo was bound by Mr Ong’s actions in receiving the funds as a contribution to the Godley Lane property. The appellant also argues that Courtney J should have proceeded upon the basis that Mr Zhong was only liable for 25 per cent of the bank loan ($240,000 out of $960,000) as he agreed with Mr Ong. She should have held that Mr Loo was bound by that agreement made on his behalf by Mr Ong.
The issues that arise for determination are best addressed as follows:
(a)Was Mr Loo liable for the $192,000 paid by Mr Zhong as a contribution to the property but misapplied by Mr Ong?
(b)Was Mr Loo bound by Mr Ong’s agreement with Mr Zhong that Mr Zhong would be liable for 25 per cent only of the bank borrowings?
Mr Loo’s liability for the $192,000
It is true that Courtney J addressed the issue of whether there was a joint venture. But in doing so she responded to both the pleaded claim and, we are told, the claim as argued before her. As we have set out above, the Judge also addressed the broader issue of whether Mr Loo was bound by Mr Ong’s receipt of these funds on the basis that Mr Ong received them as his agent. The Judge was therefore not in error in failing to address an argument pleaded or advanced at hearing.
The next issue is whether she was correct in finding that Mr Ong was not acting as Mr Loo’s agent in receiving the three payments making up the $192,000.
It is common ground that Mr Zhong did not know of the involvement of Mr Loo. That was Mr Zhong’s evidence. Courtney J accepted Mr Zhong’s evidence that he did not learn of Mr Loo’s involvement in the transaction until the meeting at Brookfields on 21 April 2008.
At best then, on the appellant’s case, Mr Loo was an undisclosed principal in Mr Ong’s dealings with Mr Zhong prior to April 2008. Because Mr Zhong does not claim to have believed Mr Ong was acting as the agent of Mr Loo, he cannot, and does not, seek to invoke the doctrine of apparent authority.[17] The key principles governing the liability of undisclosed principals are succinctly stated in Bowstead and Reynolds on Agency as follows:[18]
An undisclosed principal may sue or be sued on a contract made on his behalf, or in respect of money paid or received on his behalf, by his agent acting within the scope of his actual authority. Where a contract is involved, the agent on entering into it must have intended to act on the principal’s behalf.
[17]The doctrine of apparent authority arises where a principal, by words or conduct, represents to a third party that another person has authority to act on their behalf, and is therefore bound by the acts of the other person that were not in fact authorised. See discussion in Peter Watts and F M B Reynolds (eds) Bowstead and Reynolds on Agency (20th ed, Thomson Reuters, London, 2014) at 380–381 [Bowstead and Reynolds on Agency].
[18]At 425, citing Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 (PC) at 207.
In accordance with the application of those principles, the critical issues are whether Mr Ong was in fact Mr Loo’s agent at the time these payments were made (March to July 2007), and if he was, whether he was acting within that authority when he received the three payments making up the $192,000.00. There is no evidence that Mr Loo expressly conferred such authority on Mr Ong. There is no evidence of an express conferral of authority until the execution of the Power of Attorney.
The appellant argues that agency can be implied from Mr Loo’s and Mr Ong’s conduct. Ms Reed, for the appellant, relies on the following to support the argument that Mr Loo intended for Mr Ong to act as his agent:
(a)Mr Loo said that he agreed for Mr Ong to arrange the purchase of the property.
(b)Mr Loo knew from the beginning that Mr Zhong would be a co‑purchaser, but left it to Mr Ong to deal with him. He also knew from the beginning that it was intended they share the property 80/20.
(c)Mr Loo used Mr Ong to deliver the cheque to the real estate agent.
(d)He left Mr Ong to deal with the bank.
(e)Mr Ong’s actions were consistent with him having such authority. In particular, throughout the relevant period Mr Ong dealt regularly with Brookfields, instructing them to prepare documents and take actions on behalf of the purchasers.
Analysis
We are not persuaded that Mr Ong had authority to act on Mr Loo’s behalf in connection with the purchase prior to Mr Loo’s execution of the Power of Attorney, or more particularly, to receive payments from Mr Zhong on behalf of Mr Loo. Ms Reed relies upon Mr Loo’s statement made in his evidence-in-chief that it was agreed Mr Ong would arrange the purchase of the Godfrey Lane property. But Mr Loo does not say that he authorised Mr Ong to act on his behalf in making that purchase. In this regard, we note that the agreement for sale and purchase was not entered into by Mr Ong as agent for the others. Mr Ong was not even the initial purchaser. Mr Zhong and Mr Loo agreed to take over an existing agreement as nominees from C K Sun.
It is true that both Mr Loo and Mr Zhong were happy for Mr Ong to do organisational tasks for them in the initial stages of the purchase. But that was as far as any authority Mr Loo conferred on Mr Ong seems to have gone. Prior to the execution of the Power of Attorney, Mr Loo acted on his own behalf in all matters of significance in connection with the purchase. He signed the deed of instruction to Brookfields directing that the agreement be made unconditional. He paid the deposit himself. Mr Ong’s role in the payment of the deposit was purely administrative, delivering the cheque to the real estate agents. Mr Loo also executed the Deed of Nomination himself.
After the agreement was made unconditional and the deposit paid, there were no steps to be taken in respect of the agreement for sale and purchase other than arranging the finance and settling the purchase, steps which were not required to be taken until 2008.
In November 2007, Mr Loo conferred express authority on Mr Ong to act in connection with the financing and settlement of the purchase on his behalf. We agree with Courtney J that the Power of Attorney did not, by its terms, purport to confer any retrospective authority on Mr Ong.
Even if we are wrong in our finding that Mr Loo had not conferred authority on Mr Ong to act for him in the purchase prior to executing the Power of Attorney, we are nevertheless satisfied that such authority would not extend to the receipt of the $192,000 on Mr Loo’s behalf. There was no evidence that Mr Loo had asked Mr Ong to act for him as the conduit for those payments. There was simply no reason for Mr Loo to be involved in handling Mr Zhong’s payments, personally or through an agent. In reality, it was Mr Zhong who chose to use Mr Ong as a conduit for his equity contribution to the purchase. Mr Loo should not bear the risk and cost of Mr Zhong’s choice in that regard.
As we have noted at [51] above, Ms Reed argues that Mr Loo knew as early as April 2007 that Mr Zhong was to be the only co-purchaser and that they were to share the property 80/20. That proposition is contrary to Courtney J’s finding that Mr Loo and Mr Zhong had committed to different versions of the agreement to purchase.[19] Ms Reed submits that the direction to Brookfields executed by Mr Loo on 16 April 2007 makes her case that Courtney J was wrong in this factual finding. This is because the letter of direction records just Mr Zhong and Mr Loo as purchasers, and it follows, she argues, Mr Loo must have known Mr Zhong was his only co-purchaser.
[19]Zhong v Ong, above n 1, at [17].
We do not consider this provides a proper basis to set aside Courtney J’s finding of fact. Mr Loo’s account as to the nature of the original agreement he reached with Mr Ong was never challenged, at least in this respect — it was never squarely put to Mr Loo that he agreed from the outset that he would take an 80 per cent interest and Mr Zhong would take a 20 per cent interest. In any case, the document does not bear the weight Ms Reed places upon it. While it shows only two purchasers, it does not show the proportions contended for by Ms Reed. And while it only shows Mr Loo and Mr Zhong as purchasers, it is to be remembered that Mr Ong dealt directly with Brookfields. If Mr Loo had been asked about this issue, he could well have responded that he thought Mr Ong would give his instructions direct. We will never know as Ms Reed’s proposition was not put to Mr Loo.
In any case, even if Mr Loo had known from as early as April 2007 that it was to be just him and Mr Zhong purchasing the property, that does not assist the appellant. It does not undermine our conclusion that, prior to November 2007, Mr Ong did not have authority from Mr Loo to act on his behalf in connection with the purchase of the Godfrey Lane property, and certainly no authority to receive payments from a co‑purchaser.
Is Mr Ong’s agreement limiting Mr Zhong’ s liability for the bank loan binding on Mr Loo?
Appellant’s argument
The appellant argues first that Courtney J was wrong to find that Mr Ong did not have authority to agree to the new ownership arrangements: the 50/50 split. This was because an implied agency existed and its scope was wider and to be more liberally interpreted than the Power of Attorney.[20] That is evidenced by Brookfields’ conduct in facilitating a transaction falling outside the scope of the express delegation. Ms Reed argues that this authority was broad enough to encompass the agreement to limit Mr Zhong’s liability to repay the bank loan to 25 per cent of the amount advanced and interest on that amount.
[20]This argument is advanced only on the basis of implied (actual) authority. The issue of apparent authority was not argued.
Ms Reed also says that it was not open to the Judge to find that Mr Loo had ratified the change in ownership split, while also finding that he was not bound by the related side agreement limiting Mr Zhong’s liability. Both were part of the same agreement and therefore not severable. Mr Zhong only agreed to increase his ownership share in the property to 50 per cent on the condition that he was liable only for that portion of the bank loan which was needed to fund the balance of his contribution — a further $240,000.
Ms Reed also submits that to say Mr Zhong obtained Mr Ong’s agreement to a cap on this liability is to mischaracterise the agreement. Rather, Mr Zhong agreed for the first time to be liable for a part of the borrowings. She submits that under the original agreement, Mr Zhong would have had no responsibility for the borrowings. On this basis, the Purchase Agreement executed on 23 April 2008 is not the agreement relied upon to limit Mr Zhong’s liability, but merely a record of the agreement consistent with it. That agreement had been reached before the meeting at Brookfields.
Analysis
We proceed on the basis that Mr Ong did agree with Mr Zhong that his liability would be limited to 25 per cent of the bank borrowings. Mr Wilson for Mr Loo has not asked us to revisit that finding.
We have already rejected Ms Reed’s argument that a broad authority can be implied from the facts of this case. The fact that Brookfields facilitated Mr Ong acting outside the powers conferred upon him cannot enlarge the authority actually conferred. It was only through the Power of Attorney that Mr Loo conferred authority on Mr Ong to act on his behalf. As Courtney J said, powers of attorney are strictly construed and are interpreted as giving only such authority as they confer expressly or by implication.[21] The Power of Attorney executed by Mr Loo did not confer authority on Mr Ong to agree with Mr Loo’s co‑purchasers a different division of ownership, or to reach any other agreement incidental to that change in ownership share.
[21]At [47]. See also Bowstead and Reynolds on Agency, above n 17, at 129.
It is not in dispute that Mr Loo subsequently adopted and ratified the variation to the Nomination Agreement effecting the change to a 50/50 ownership structure. He also ratified the loan agreements reached with the bank. But could he do that without also thereby ratifying the agreement limiting Mr Zhong’s liability to the bank? We are satisfied that he could.
Ms Reed now argues that Mr Zhong reached agreement with Mr Ong prior to visiting Brookfields’ offices, one which encompassed both the change in ownership share and also the extent of Mr Zhong’s liability to the Bank. That certainly seems to accord with the evidence Mr Zhong gave at trial. Nevertheless, prior to the visit to the offices of Brookfields, Mr Zhong knew nothing of Mr Loo’s involvement. He believed he was contracting with Mr Ong. At best Mr Loo was, so far as Mr Zhong was concerned at this point, an undisclosed principal. But in fact, Mr Ong did not have Mr Loo’s authority to agree these matters with Mr Zhong. In accordance with the principles we have set out above at [49], Mr Loo would not be bound by the agreement entered into by Mr Ong without Mr Loo’s authority unless Mr Loo later ratified that agreement.
When Mr Zhong went to Brookfields, he signed documents which had been properly explained to him in which he contracted with Mr Loo that each would purchase an undivided 50 per cent share in the property. He executed bank documents, also properly explained to him, in which he, along with Mr Loo, assumed joint and several liability to the BNZ. Again, because they were outside the scope of authority conferred by the Power of Attorney, Mr Loo was not bound by these agreements unless he ratified them. However, he did ratify them, and it is these agreements, and the rights that flow from them, he now enforces, rather than the earlier arrangements made by Mr Ong and without his authority.
We are satisfied that our analysis accords with the overall justice of the situation. When Mr Zhong learnt that the situation was not as he thought it, he could have questioned why the documents did not record his limited liability for the bank borrowings, and if not satisfied with the answers, he could have refused to sign the documents. Instead Mr Zhong proceeded to sign the documents. For this reason, we find Mr Zhong is bound by the terms of the agreements and, along with Mr Loo, is jointly and severally liable for the bank loan along with Mr Loo.
It follows that this ground of appeal must also fail.
Result
The appeal is dismissed.
The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Prestige Lawyers Limited, Auckland for Appellant
Wong & Bong Law Office, Manukau for Respondent
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