Nguyen v Kennedy [2018] NZHC 1845 (24 July 2018)

Last Updated: 18 August 2018

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2017-485-558 [2018] NZHC 1845

BETWEEN	ANH LAN NGUYEN Plaintiff
AND	REBECCA ANGE KENNEDY First Defendant YOUEN CHEN Second Defendant

Hearing:	19 July 2018
Appearances:	Mr G Bogiatto for the plaintiff
Judgment:	24 July 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1] This judgment is issued following a formal proof hearing, the defendants’ statements of defence having been struck out as a result of their non-compliance with unless orders.

[2] That being so, it is unnecessary to provide full reasons, though it remains necessary to describe something of the background and the bases upon which I am entering judgment for the plaintiff against both defendants.

Background and discussion

[3] The plaintiff, Anh Lan Nguyen, and her husband are the shareholders and directors of LA Nail Care Ltd which owns and operates a business in Cuba Street in

NGUYEN v KENNEDY [2018] NZHC 1845 [24 July 2018]

Wellington. The business is referred to in the evidence as a “nail bar”. Apparently, it offers manicure, pedicure and related services.

[4] During late 2015 and early 2016 one of the business’s customers, Rebecca Ange Kennedy, the first defendant, befriended the plaintiff. When Ms Nguyen learned that the owner of the building in which the business operated was selling the building, and became concerned about the nail bar’s security of tenure, Ms Kennedy proposed an arrangement whereby she and the plaintiff would purchase the building as an investment. The terms of the proposed arrangement are a little hazy but Ms Kennedy put herself forward to negotiate the acquisition of the building on behalf of the venture and it was understood that Ms Nguyen would contribute funds to the venture over a period of time.

[5] It turns out that Ms Kennedy was convicted of fraud in Australia in March 2010, that at all material times she was a bankrupt, having been adjudicated bankrupt in this Court on 11 August 2015 and that the whole venture proposed by her was a fraudulent scheme designed to dupe Ms Nguyen.

[6] Between March and August 2016 Ms Kennedy managed to persuade Ms Nguyen to part with a total of $653,000.27. More particularly between 31 March and 19 August 2016 Ms Nguyen paid a total of $135,869.31 directly to Ms Kennedy and between 29 March and 19 August 2016, at Ms Kennedy’s request, Ms Nguyen paid a further $517,130.96 into a bank account in the name of Ms Kennedy’s mother, Ms Youen Chen, the second defendant. When, as a result of what she was told by another customer of the nail bar about Ms Kennedy, Ms Nguyen finally realised that she had been defrauded, she and her husband confronted Ms Kennedy. The evidence is that Ms Kennedy acknowledged her obligation to repay the money to Ms Nguyen and promised to do so, though of course not a dollar has been repaid.

[7] In the meantime, Ms Chen had acquired a property at 8 Mewburn Rise, Karori, Wellington where Ms Kennedy lives. Mr Bogiatto submitted that on the evidence it was clear that Ms Nguyen’s funds were used for the purchase of the house. There is no direct evidence of this. But I accept that on the balance of probabilities Ms Chen was aware of the fraud and that the money that Ms Kennedy defrauded from
Ms Nguyen — or at least the vast bulk of it — was employed in the purchase of 8 Mewburn Rise.

[8] On that basis Ms Nguyen registered a caveat over the title to 8 Mewburn Rise. Her application to sustain that caveat was not opposed by Ms Chen. A final order sustaining the caveat was made on 12 June 2017.

[9] Against that background, Mr Bogiatto submitted on Ms Nguyen’s behalf that she had established claims against both defendants. Six causes of action are pleaded. In his written submissions filed prior to the hearing Mr Bogiatto carefully analysed each. The Court is grateful to him for his care and attention in doing so.

[10] In my view, the point has been reached in the development of the law of private obligations in New Zealand that it is unnecessary in awarding damages in favour of the plaintiff against the defendants in this case to say more than that I propose to do so on the basis that the plaintiff parted with the monies she did to the first defendant (I refer both to the monies paid directly to the first defendant and those paid into the second defendant’s bank account at the behest of the first defendant) on the basis of the first defendant’s fraud and that to allow the first defendant in respect of all of the monies involved, and the second defendant in respect of those monies paid into her bank account, to retain those monies would involve their unjust enrichment at the plaintiff’s expense. That, in my judgement, would be an unconscionable outcome.

[11] On that basis (which is well and truly captured by the pleadings and corresponding prayers for relief in this case) I am prepared to enter judgment for restitutional damages in favour of the plaintiff:

(a) against the first defendant for the full amount claimed of $653,000.27; and

(b) against the second defendant for the amount paid into her bank account of $517,130.96.
[12] Mr Bogiatto submits that I should go further. He submits that I should also impose a remedial constructive trust over 8 Mewburn Rise. He makes no bones about saying that this is to assist the plaintiff in enforcing the money judgment.

[13] Equitable remedies such as the imposition of a constructive trust are of course discretionary. And, as I have already said, there is no direct evidence before the Court that any of the monies out of which the plaintiff has been defrauded have been used by the first defendant or the second defendant in the acquisition of 8 Mewburn Rise. But as I have also said, there is strong inferential evidence to that effect.

[14] Mr Bogiatto refers me to the High Court’s judgment in Commonwealth Reserves 1 v Chodar [2001] 2 NZLR 374. There are a number of parallels between that case and the present. Both were claims which to one extent or another were based on fraud. Mr Bogiatto referred me to Glazebrook J’s analysis appearing under the heading “Remedial Constructive Trusts”. Rather than paraphrasing her Honour’s description of the circumstances in which the Court might properly consider imposing a remedial constructive trust I set out below the relevant section of the decision:

[40] The Court of Appeal in Fortex left open the question of whether a remedial constructive trust should be "confirmed" as a part of New Zealand law. This would imply that the doctrine has at the least a foot in the door. What was made clear in that case, however, was that there must be a principled basis for the imposition of such a remedy.

[41] In Fortex at p 175 Tipping J stated that there needs to be some asset or assets in the defendant's hands upon of which the Court considers it appropriate to impress a trust. He says that this must be on a principled basis vis-à-vis both the person owning the assets and any third party who has an interest in the assets. He went on to say:

"Equity intervenes to prevent those with rights at law from enforcing their rights when in the eyes of equity it would be unconscionable for them to do so."

A similar caveat is discernible in re Goldcorp Exchange Ltd (In Receivership) [1994] 3 NZLR 385 at p 404.

[42] The question that must be answered in this case is what that principled basis is. There appear to be two potential triggers for the exercise of the Court's discretion to grant a remedial constructive trust. One is unjust enrichment. The other is unconscionability.

[43] The approach based on unjust enrichment is substantially that developed in Canada. There it is apparent that a remedial constructive trust will be the normal response to an instance of unjust enrichment:

Rawluk v Rawluk (1990) 65 DLR (4th) 161 (SCC) at p 172 per Cory J. The remedial constructive trust as a remedial response for unjust enrichment seems to be accepted in principle by Henry J in Fortex at p 180. Based on the leading case of Pettkus v Becker (1980) 117 DLR (3 d) 257, the three elements of an unjust enrichment are: an enrichment of the defendant, to the detriment of the plaintiff, and in the absence of a juristic reason for the enrichment.

[44] The other potential trigger for imposing a remedial constructive trust is unconscionability. The constructive trust is often characterised as "the formula through which the conscience of equity finds expression:" Beatty v Guggenheim Exploration Co. 225 NY 380 (1919) at p 386 per Cardozo J, cited with approval by Cooke P in Elders Pastoral Ltd v. Bank of New Zealand [1989] 2 NZLR 180 at p 185. In Elders Pastoral, Cooke P then went on to find that a constructive trust existed, based on the dictum of Bingham J in Neste Oy v Lloyds Bank Plc [1983] 2 Lloyd’s Rep 658 at pp 665-666. He stated at p 186 that "[i]n short, I do not think that in conscience the stock agent can retain this money."

[45] It should be noted at this point that a fiduciary relationship does not appear to be necessary for a remedial constructive trust to be available. The second judgment in Elders Pastoral, that of Somers J, states that there was a relationship which was "fiduciary in character." It is unclear what this means: see Dixon, “The Remedial Constructive Trust based on Unconscionability in the New Zealand Commercial Environment” (1992) 7 AULR 147 at p 153. However, Somers J also cited similar statements to those reproduced above from the judgment of Cooke P, and so he can be taken as having at least accepted the possibility of a remedial constructive trust arising in the absence of a fiduciary relationship.

[15] It appears to me that this case is a classic example of a situation in which a remedial constructive trust is called for. The only question is the precise terms in which such a trust should be imposed.

[16] In the end I have concluded that I am prepared to make such an order in respect of any monies still held by the first defendant or the second defendant and, to the extent that it can be demonstrated that any of those monies can be traced into property acquired by the first defendant or the second defendant (including but not limited to 8 Mewburn Rise), over such property. I do not think it would be proper to go further than that and impose an unqualified remedial constructive trust over the 8 Mewburn Rise property having regard to the evidence before the Court at this stage.

The plaintiff’s right to sue the first defendant

[17] On initially reviewing the file I was concerned as to whether the plaintiff was entitled to proceed against the first defendant. As recorded earlier the first defendant was adjudicated bankrupt by this Court on 11 August 2015. My concern was whether, having regard to her status, the plaintiff was entitled to commence and prosecute this proceeding.

[18] I raised this matter with Mr Bogiatto at the outset of the hearing. He submitted that there was no bar to the plaintiff proceeding against the first defendant, and indicated that he would, following the hearing, file a memorandum in relation to the point. I have now received Mr Bogiatto’s memorandum dated 23 July 2018. Having considered that I am satisfied that my concern was misplaced and that the plaintiff was entitled to commence and prosecute this proceeding.

Conclusion

[19] For those reasons I enter judgment in the following terms.

(a) the plaintiff shall have judgment against the first defendant in the sum of $653,000.27 together with interest thereon pursuant to s 87 of the Judicature Act 1908 (repealed);

(b) the plaintiff shall have judgment against the second defendant in the sum of $517,130.96 together with interest thereon pursuant to s 87 of the Judicature Act 1908 (repealed);

(c) I make an order for a remedial constructive trust in favour of the plaintiff in respect of any monies paid to the first defendant or to the second defendant still retained by either of them, and in respect of any other asset or assets into which any of the monies paid by the plaintiff to the first defendant or the second defendant can be traced;
(d) the plaintiff is entitled to an award of costs against the first defendant and the second defendant. Costs are to be on a 2B basis together with disbursements to be fixed by the Registrar.





Associate Judge Johnston

Solicitors:

George Bogiatto, Auckland for plaintiff