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High Court of New Zealand Decisions |
Last Updated: 23 May 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2016-404-416
[2018] NZHC 982 |
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BETWEEN
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HEMU TRADE COMPANY LIMITED
First Plaintiff
CHIN WEN LI
Second Plaintiff
CHING-CHI LI
Third Plaintiff
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AND
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CHUN MAO LE
Defendant
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Hearing:
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30, 31 October and 1 November 2017, further submissions
8 November 2017
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Counsel:
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R Reed and A Manuson for plaintiffs JA Wickes for defendant
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Judgment:
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8 May 2018
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JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 8 May 2018 at 4 pm], pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date...............
Solicitors: Prestige Lawyers Ltd, Auckland
Loo & Koo, Auckland
Hemu Trade Company Limited v Le [2018] NZHC 982 [8 May 2018]
The establishment of Wenheng and lead up to the Property’s purchase [8]
Events leading to settlement of the purchase [18]
Use of the Property — 1996 to 2008 [34]
The Taiwan civil and criminal proceedings [46]
The pleaded causes of action [49]
Did Wenheng fund the purchase of the Property? [65]
Did Wenheng fund the deposit? [76]
Does Hemu have “standing” to bring the resulting trust claim? [82]
Is Hemu Trade entitled to an account from the defendant for rent? [91]
What relief ought to be granted under the first cause of action? [99]
Breach of fiduciary duty [104]
Introduction
[1] This proceeding concerns the beneficial ownership of a property in Avondale Heights, Auckland (“Property”).
[2] The Property was purchased in 1996. The registered proprietors are the second plaintiff and the defendant, as tenants in common. The first plaintiff (“Hemu”) says that it (or more accurately, a predecessor company, Wenheng Enterprise Ltd (“Wenheng”)) funded the purchase of the Property. It says the funds were not advanced as a gift or a loan. The second plaintiff does not dispute this. On this basis, Hemu says that on orthodox resulting trust principles, it is the beneficial owner of the Property.
[3] The defendant denies this. He says that when the Property was purchased in 1996, it was his and his brother’s (the third plaintiff’s) intention that they would jointly purchase and own the Property. He says that consistent with that intention, he contributed 50 per cent of the purchase price of the Property. On that basis, he says he remains the legal and beneficial owner of a 50 per cent share in the Property.
[4] As will be appreciated, central to Hemu’s claim is the factual question of whether Wenheng did pay the full purchase price of the Property. A subsidiary issue is whether, if Wenheng did fund the purchase of the Property, Hemu can enforce its claim of resulting trust.
[5] One other matter is appropriate to mention by way of introduction. There was no dispute that the third plaintiff (the defendant’s older brother) was and remains a key figure in relation to both Hemu and Wenheng. The third plaintiff was due to give evidence in this proceeding. However, very shortly before the hearing, he became seriously ill and was hospitalised in China. He was thus unable to travel to New Zealand or otherwise give evidence.1
[6] For this reason, much of the evidence adduced by the plaintiffs comprised witnesses’ understandings or beliefs as to what had happened in and around 1996, based on what they say the third plaintiff had told them. Putting aside strict issues as to admissibility, I did not find this evidence compelling or reliable in any event, given the witnesses’ lack of personal involvement in the events in question. I have therefore formed my views based on evidence of events in which witnesses did have personal involvement, together with the (unfortunately limited) contemporaneous documentary materials.
Factual background
[7] In this section of my judgment, I summarise the factual background to the plaintiffs’ claims. Many peripheral and extraneous matters were raised and explored in evidence. I have confined this section to what I consider to be the key facts relevant to the issues requiring determination.
The establishment of Wenheng and lead up to the Property’s purchase
[8] Wenheng was first established as a Taiwanese company in December 1980. The plaintiffs say that Wenheng was established solely by the third plaintiff, and that he provided all its original capital. The defendant denies this and says he and his older brother (the third plaintiff) each contributed half of the costs of its establishment, including the purchase of an import/export licence. The defendant says his contribution came from savings he had accumulated to that point in time, working as an office assistant and teaching English on a part-time basis.
[9] In accordance with Taiwanese law, five shareholders were appointed to Wenheng, including the third plaintiff and the defendant. The plaintiffs say that other than the third plaintiff, the shareholders were simply “dummy” or “paper” shareholders, to comply with the local requirement for establishing a company. The defendant accepts this to be the case for three of the shareholders, but says that he and his brother were “real” shareholders. He accepts the third plaintiff was the sole director of Wenheng.
[10] During the late 1980s and early 1990s, the plaintiffs say that the defendant worked in Taiwan as a teacher at a technology school and was employed on a part- time basis by Wenheng. Mrs Yang (the third plaintiff’s wife) and the second plaintiff (the third plaintiff’s son) explained this was because as a matter of Chinese culture, it was expected the third plaintiff, as the older brother, would look out for his younger brother and provide him with work. They said that because the defendant had English language skills, he mainly looked after the international side of Wenheng’s business, including trading in international securities.
[11] The defendant says that he was more than a mere employee of Wenheng, and consistent with having jointly established Wenheng with his brother, he had an integral role in running the business. He says he worked at Wenheng during this period, fitting it around the work he also carried out teaching English at Cheng Shui University. He says he did not draw a salary from Wenheng, but rather had certain expenses reimbursed (such as petrol).
[12] Hemu (the first plaintiff) was established in 1991. Again, there is a dispute as to whether this was also by way of a joint enterprise between the brothers, or it was established solely by the third plaintiff. The defendant was a shareholder of Hemu and is registered as having a share capital of TWD 1,250,000 (out of a total share capital of TWD 5,000,000). He was also a director. There was no evidence of Hemu’s operations from its incorporation until 2001. I address Hemu’s operations from 2001 below, at [38].
[13] In the mid 1990s, the defendant obtained a general category visa for New Zealand for himself and his family. He and his family came to New Zealand in 1994 for a visit. It seems that over this period, the defendant and his family spent increasing time in New Zealand and ultimately decided to immigrate.
[14] In July 1996, the third plaintiff’s son (the second plaintiff) and his younger brother (Chao-Wen Li, known as Ethan) came to New Zealand to study. The third plaintiff and his wife, Mrs Yang, came to New Zealand in August 1996 to make sure their sons were settling in to their new life in New Zealand. The defendant and his family were also in New Zealand at that time for a period of six weeks, preparing for
their impending immigration. This included buying a car and looking for a house to purchase.
[15] Mrs Yang gave evidence that when she and her husband visited New Zealand in August 1996, they were not satisfied with the rental accommodation in which their sons were then living. She said that she and her husband accordingly decided it would be a good idea for Wenheng to invest in a property in New Zealand, for their sons’ use. The defendant, on the other hand, says that the third plaintiff and Mrs Yang were aware that he was already looking for a property in New Zealand, and decided to “join in” with him in the purchase of a local property.
[16] The defendant, his family, the third plaintiff and Mrs Yang attended an auction of the Property on 17 August 1996. Though it is not entirely clear who carried out the bidding, they were successful. A sale and purchase agreement was signed that day, by both the defendant and the third plaintiff. The purchase price was NZD 333,400 with a deposit of NZD 30,000. A photograph was produced in evidence of the family group at the Property, with the vendors, the following day.
[17] Mrs Yang said that as she and her husband had not been prepared for such a quick purchase, they did not have funds in New Zealand to pay the deposit. She said it was therefore agreed with the defendant that he would pay the deposit of NZD 30,000 and they would arrange for Wenheng to reimburse him when they returned to Taiwan. The defendant agrees that he paid the deposit, but denies it was on behalf of Wenheng, or that he was ever reimbursed for it.
Events leading to settlement of the purchase
[18] Contemporaneous documents show that at least the defendant and the third plaintiff attended the offices of Russell McVeagh on 20 August 1996, given that firm (and more specifically a solicitor, Ms Lim) was to act on the purchase.2 Ms Lim spoke fluent Chinese with the defendant and third plaintiff.
2 Ms Lim did not give evidence, apparently now residing in Singapore.
[19] A letter from Ms Lim dated 26 August 1996, addressed to the defendant and the third plaintiff, refers to the meeting on 20 August 1996. The letter stated:
We refer to the meeting held in our offices on 20 August 1996. We are pleased to accept your instructions to act for you in the purchase of the above property.
[20] The letter enclosed a number of documents, including the agreement for sale and purchase, and under the heading “Ownership” stated:
To prepare documents for registration of the title we require details of the correct spelling of your names and your present occupations. You will also need to decide how to take title. The options are:
(a) Joint tenants: Title would be registered in your joint names but you cannot deal independently of one another with your share in the property. On the death of either of you the survivor becomes the sole owner of the property.
(b) Tenants in common: Again title would be registered in your joint names but each of you owns an undivided share of the property and can dispose of that share without reference to the other. On death, the interest of the deceased passes in accordance with the terms of the will of the deceased.
(c) Joint tenancy by trustees: If a family trust is to be the purchaser, please provide details of each trustee’s name, address and occupation.
(Emphasis added)
[21] The defendant, who was by that time back in Taiwan, replied to Ms Lim’s letter by way of a facsimile dated 27 August 1996, on Wenheng letterhead, and said to be from “Chun Mao Le/Wenheng Enterprise Co Ltd”. The facsimile acknowledged receipt of Ms Lim’s letter dated 26 August 1996 and sought confirmation of the correct bank account number into which the settlement proceeds were to be paid.
[22] Ms Lim replied by way of letter dated 29 August 1996, addressed to “Wenheng Enterprise Co Ltd; For Mr CM Le”. She referred to recent telephone discussions in relation to the purchase and enclosed a settlement statement received from the vendors. She noted that the sum required to settle was NZD 303,324.58, but requested an additional NZD 1,000 to cover legal costs and other expenses on settlement.
[23] Ms Lim sent a further letter dated 3 September 1996, again addressed to “Wenheng Enterprise Co Ltd; for Mr CM Le”. That letter referred to recent telephone
discussions with the defendant. Ms Lim enclosed the Land Information Memorandum for the Property and stated:
We have spoken to Mr Simon Lee [the second plaintiff] today who has requested us to seek the vendor’s agreement in bringing settlement forward to early next week. We will make contact with the vendor’s solicitors today seeking their comments in this regard and we will keep you informed as to progress.
In the meantime, please advise as to how you wish to take title to the property. You need to advise the names, occupations, terms of reference and ownership share of each owner.
[24] The defendant responded by way of a facsimile dated 4 September 1996, again on Wenheng letterhead and said to be from himself/Wenheng Enterprise Co Ltd. In terms of title to the Property, the defendant, stated:
You are requested to put the ownership under [the defendant] and [the third plaintiff] with 50 per cent share respectively.
[25] The defendant gave his occupation as a teacher, and the third plaintiff’s as a trader.
[26] Ms Lim replied by way of a letter dated 6 September 1996, noting “your instructions as to how you and your brother wish to share the ownership of the property”. She again sought confirmation of whether the Property was to be registered in the defendant and the third plaintiff’s name as tenants in common or as joint tenants.
[27] The defendant replied by way of facsimile dated 13 September 1996, again on Wenheng letterhead and said to be from the defendant/Wenheng Enterprise Co. He stated that:
We confirm that we want the property to be registered in myself and “Mr Chin Wen Li” who is my brother’s son named Simon in Auckland. Therefore you are requested to have the property to be registered in myself and my nephew’s joint names as tenants in common, ... (shown on your fax dated 9 September 1996).
[28] Mrs Yang said that her and her husband’s intention at the time was that Wenheng would purchase the Property, but that it would be registered in the second plaintiff’s name. Several witnesses called on behalf of the plaintiffs (including the company accountant) said it was not unusual for Wenheng’s assets to be put in family
members’ or employees’ names, and it is a common practice in Taiwan. The Wenheng and Hemu internal accounts also record various assets with individual names noted next to them, for example local and foreign bank accounts, term deposits and other assets.
[29] Mrs Yang and the second plaintiff also said they were not aware that the defendant was instructing Ms Lim to include his name on the Property’s title as well. Mrs Yang said that the defendant had only been asked to assist with the purchase given that, unlike other family members, he had English language skills (having lived for a time in the United States).
[30] The defendant on the other hand says the communications he had with Ms Lim were consistent with the original intention that he and his brother would jointly purchase and own the Property.
[31] Settlement on the Property occurred on 27 September 1996. The defendant says he received a transfer of the third plaintiff’s share of the purchase price by way of a cash transfer, and combined that with his own funds to make up the balance of the purchase price, which he then transferred to Russell McVeagh. Bank records of any such transfers are no longer available.
[32] Mrs Yang, on the other hand, who was responsible for managing the day to day finances of Wenheng, says she arranged for Wenheng to fund the entirety of the purchase price, including by reimbursing the NZD 30,000 deposit originally paid the by defendant. In relation to the balance of the purchase price, she said that she arranged for term deposits belonging to Wenheng (but held in family members’ names) to be broken to fund the acquisition. She made arrangements for these funds to be transferred to a bank account, the details of which had been given to her by the defendant. Again, key banking records in relation to these transactions (such as the breaking of the term deposits) are no longer available. Mrs Yang also said that she told Wenheng’s accountant at the time that she had broken the term deposits and that the Property was to be acquired by Wenheng (although registered in the second defendant’s name).
[33] Wenheng’s accountant, Ms Tsai, also gave evidence at the hearing. She confirmed that she was told about the purchase by Mrs Yang and the third plaintiff at the time and that Wenheng’s term deposits were used to pay for the Property. She also referred to Wenheng’s accounts from 1997, in which she had recorded the Property as a fixed asset of Wenheng.3
Use of the Property — 1996 to 2008
[34] Following settlement of the Property’s purchase, the second plaintiff lived at the Property and the exterior sleep-out was rented to a tenant. The second plaintiff collected all rent and used it to pay the Property’s outgoings.
[35] In July 1997, the defendant and his family moved to New Zealand and lived with the second plaintiff at the Property. Upon his relocation to New Zealand, the defendant ceased to be a director of Hemu. The second plaintiff replaced him in that role.
[36] After the defendant and his family’s arrival at the Property, the sleep-out continued to be rented from time to time and the defendant took over responsibilities for collecting the rent. He said that he used the rent to pay all outgoings in relation to the Property.
[37] The Property also continued to be recorded as an asset in Wenheng’s internal accounts for the years 1998 to 2000 (though the defendant says he was unaware of this).
[38] Wenheng was dissolved as a company on 8 May 2001. Its certificate of registration records that from that point, the responsible person for the company was the liquidator. The following day, 9 May 2001, Hemu was granted a “change in company registration”. The related certificate records the second plaintiff as director. No evidence was adduced as to what the change related to.
[39] The plaintiffs say that from that point in time, Hemu “took over” Wenheng’s business, assets and liabilities. I address this matter further below. Hemu’s accounts for the year 2001 were unavailable. However, Hemu’s accounts for the 2002 year record the Property as a fixed asset. The same value was recorded as in the earlier Wenheng accounts. The Property also features as a fixed asset, at the same value, in Hemu’s accounts for the 2003, 2004, 2005, 2009 and 2010 years.4
[40] The second plaintiff’s brother, Ethan, lived at the Property from around 2002 to 2007. The second plaintiff returned to Taiwan in 2002. Mrs Yang spent some time in New Zealand living at the Property in 2002 and 2003 (with Ethan and the defendant’s children). During that time, she managed and collected rent when rooms and the sleepout were rented. Over this period, the defendant travelled between Taiwan and New Zealand. He lived at the Property while in New Zealand. He returned permanently to Taiwan in 2008. From that time, the Property has been occupied and managed by the defendant’s daughter. The defendant says that the Property’s outgoings, in terms of rates, water, power and so on, have been paid by his daughter out of rental income. In terms of any deficit or surplus of rent, he said that:
So, the family mode is that the maintenance and outgoings would be looked after by the family who is using the place, as to the surplus, at my daughter’s occupancy I’m not sure and probably she’s the person to be asked.
[41] The defendant’s daughter did not give evidence.
[42] In 2010, a rift developed between the third plaintiff and his brother, the defendant. The defendant says that while he was in New Zealand, the third plaintiff made withdrawals from the defendant’s personal bank accounts, over which the third plaintiff had authority. The defendant says that when he returned to Taiwan in 2008, he raised this with the third plaintiff, and queried what had happened to Wenheng and his share of its assets. The defendant said that he did not get satisfactory answers from the third plaintiff.
4 Accounts for the 2006 to 2008 years were not produced in evidence, nor any accounts after 2010.
[43] Matters came to a head at a meeting in 2010, at which the defendant told the third plaintiff that he needed to repay the monies withdrawn from the defendant’s accounts and account to the defendant for his share of the Wenheng assets. The defendant said the third plaintiff refused.
[44] As a result, the defendant accepts he sold a number of shares held in the name of the third plaintiff, but over which the defendant had authority. The second plaintiff says these shares in fact belonged to Hemu but, like many other company assets, were held in an individual’s name (for instance, the third plaintiff’s). The defendant kept the sales proceeds and told the third plaintiff that he would continue to keep the proceeds until he received a satisfactory accounting for the withdrawals from his accounts and the Wenheng assets.
[45] The second plaintiff gave evidence that in 2010, when these issues first arose, the third plaintiff had asked him to check that the defendant had not secretly sold the Property. The second plaintiff said that he made inquiries with Auckland Council at that time and found that it had not been sold, but that the defendant had some form of legal ownership in part of the Property. The second plaintiff accepted in cross examination that when he had lived at the Property from 1996 to 2002, he had seen rates notices sent to the Property in the name of both himself and the defendant. However, he said that at that time he did not realise this had anything to do with ownership, rather than simply referring to the nominated contact persons for the Property.
The Taiwan civil and criminal proceedings
[46] The defendant’s actions in selling the shares referred to at [44] above led to Hemu commencing civil proceedings against the defendant in Taiwan, on the basis the shares belonged to Hemu. The defendant won at first instance but Hemu successfully appealed. The defendant appealed the second judgment but his appeal was declined. The proceeds from the share sale (which had been paid into court in the interim) were paid over to Hemu.
[47] Hemu then brought criminal proceedings against the defendant, to which he pleaded not guilty. The defendant accepts he was found guilty of embezzlement and
his conviction was upheld on appeal. He was sentenced to two years’ imprisonment, serving 13 months of that sentence (from March 2014 to April 2015) in prison.
[48] In 2015, Hemu brought a further civil claim against the defendant in Taiwan, which was directed to mediation. The defendant confirmed that a settlement was reached by which he agreed to pay Hemu TWD 1 million and to relinquish his shares in Hemu. The dispute in relation to the Property did not form part of the settlement.
The pleaded causes of action
[49] There are three causes of action.
[50] The first is a resulting trust. The statement of claim alleges that the Property was acquired with funds supplied wholly by Wenheng, with the intention that the second plaintiff was to be the sole legal owner and was to hold the title of the Property as bare trustee for Wenheng. The claim alleges that while assisting the second plaintiff with the purchase, the defendant, without Wenheng’s knowledge or consent, registered himself as a joint owner of the Property.
[51] The claim pleads that immediately upon the acquisition of the Property using funds supplied wholly by Wenheng, a resulting trust arose, upon which the defendant held his legal share of the Property on trust for Wenheng. Given the second plaintiff does not dispute he held his share of the Property on trust for Wenheng, Hemu, as successor to Wenheng, claims 100 per cent beneficial ownership in the Property.
[52] The second cause of action is breach of fiduciary duty and trust.
[53] The claim alleges that Wenheng, through the third plaintiff, authorised and instructed the defendant to assist in the purchase of the Property. It pleads that at all material times, a fiduciary duty relationship of principal and agent existed between Wenheng and the defendant. It is alleged that in such circumstances, the defendant owed fiduciary duties to Wenheng and consequently to Hemu. The plaintiff claims the defendant breached his fiduciary duties by taking steps to arrange for his own name to appear on the Property’s legal title, without Wenheng’s consent.
[54] The third cause of action is in the tort of deceit.
[55] The claim pleads the defendant made false representations to the plaintiffs, including as to the ownership structure for the Property, in that he did not disclose he was a registered proprietor of the Property. It is alleged that when the defendant made the false representations, he knew they were untrue. The plaintiffs plead that they acted in reliance on the false representations by providing the full funds for the purchase of the Property. The plaintiffs claim they have suffered loss as a result, being the provision of the funds to purchase the Property.
[56] It was accepted during the hearing that the primary cause of action is resulting trust.
Resulting trust
[57] The legal principles are well settled.
[58] The circumstances in which a resulting trust of the type relied on in this case will arise were explained by Lord Browne-Wilkinson as follows:5
[W]here A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of A's intention to make an outright transfer...
[59] The majority of the House of Lords in Stack v Dowden limited the applicability of resulting trusts, at least in the context of contributions by an unmarried couple to the purchase of a property while they are living there.6 The New Zealand Court of Appeal has, however, more recently confined their Lordships’ observations, on the
6 Stack v Dowden [2007] UKHL 17, [2007] 2 AC 432.
continuing applicability (or otherwise) of resulting trusts in New Zealand, to the particular fact scenario in Stack v Dowden.7
[60] In New Zealand therefore, a resulting trust remains the orthodox response when a party has contributed to the purchase price of property which is then registered in the name (or names) of another (or others).8 If proved, a resulting trust establishes a proprietary interest or right in rem.9
[61] The Court of Appeal observed in Crampton-Smith v Crampton-Smith that where the presumption applies, it is “generally regarded as having dispositive effect unless the presumption is rebutted”.10 The Court in that case also referred (with approval) to academic commentary noting that where the presumption applies, “the burden then lies on the opposite party to adduce evidence to rebut the presumption.”11
[62] Nevertheless, the weight of the presumption and the nature of the evidence required to displace it differ according to the circumstances of the particular case. In Crampton-Smith, the Court of Appeal referred in this context to the following passage from the judgment of Mellish LJ in Fowkes v Pascoe:12
Now, the presumption must, beyond all question, be of very different weight in different cases. In some cases it would be very strong indeed. If, for instance, a man invested a sum of stock in the name of himself and his solicitor, the inference would be very strong indeed that it was intended solely for the purpose of a trust, and the Court would require very strong evidence on the part of the solicitor to prove that it was intended as a gift; and certainly his own evidence would not be sufficient. On the other hand, a man may make an investment of stock in the name of himself and some person, although not a child or wife, yet in such a position to him as to make it extremely probable that the investment was intended as a gift. In such a case, although the rule of law, if there was no evidence at all, would compel the Court to say that the presumption of trust must prevail, even if the Court might not believe that the fact was in accordance with the presumption, yet, if there is evidence to rebut the presumption, then, in my opinion, the Court must go into the actual facts. Accordingly, the first question for determination in a resulting trust claim is
7 Crampton-Smith v Crampton-Smith [2012] NZCA 308, [2012] 1 NZLR 5 at [36].
9 Potter v Potter [2003] NZCA 103; [2003] 3 NZLR 145 (CA) at [13].
10 Crampton-Smith v Crampton-Smith [2012] NZCA 308, [2012] 1 NZLR 5 at [37].
12 Crampton-Smith v Crampton-Smith [2012] NZCA 308, [2012] 1 NZLR 5 at [41] referring to
Fowkes v Pascoe (1875) LR 10 Ch App 343 at 352.
whether the plaintiff has demonstrated (on the balance of probabilities) that it paid for the relevant property. If so, the presumption of resulting trust applies. The question then becomes whether the defendant has adduced sufficient evidence to rebut the presumption.
[63] Accordingly, the first question for determination in a resulting trust claim is whether the plaintiff has demonstrated (on the balance of probabilities) that it paid for the relevant property. If so, the presumption of resulting trust applies. The question then becomes whether the defendant has adduced sufficient evidence to rebut the presumption.
[64] In this case, only the first issue requires determination: did Wenheng fund the purchase of the Property? If it did, there is no suggestion or, importantly, evidence, to rebut the presumption. Rather, the defendant simply says that Wenheng did not fund the full purchase of the Property, and that he advanced half of it.
Did Wenheng fund the purchase of the Property?
[65] The plaintiffs say the Court should accept the evidence of Mrs Yang and Ms Tsai as to the use of Wenheng’s funds to purchase the Property. They say this is consistent with Wenheng’s practice of holding investments in the name of family members or employees. They say this is also consistent with the contemporaneous accounts of Wenheng which show, from 1997 through to 2000, the Property as an asset of the company. The plaintiffs submit this contemporaneous material is compelling evidence that Wenheng funded the purchase of the Property and that its intention at the time was that it was to retain beneficial ownership of the Property.
[66] Ms Wickes, for the defendant, submits the defendant’s evidence as to his contribution to the purchase of the Property is credible and should be accepted. She submits it is consistent with the contemporaneous correspondence, in particular the communications between the defendant and Ms Lim of Russell McVeagh. She further submits while the Property is shown in Wenheng’s internal accounts, it is not shown in the external “official” accounts submitted to the relevant authorities in Taiwan. Further, she notes that the accounts for the year in which the property was purchased (1996) and the assets and liabilities of Wenheng apparently transferred to Hemu are not in evidence.
[67] I am satisfied on the balance of probabilities that, save for the payment of the original deposit, Wenheng funded the purchase of the Property. I say this for the following six reasons.
[68] First, while I accept that the initial correspondence from Ms Lim at Russell McVeagh is consistent with both the third plaintiff and the defendant jointly purchasing the Property, it is equally consistent with Wenheng itself providing the funds for that purchase and the asset being considered by all concerned to be Wenheng’s asset. This is particularly so in light of the defendant’s evidence that he jointly set up Wenheng with the third plaintiff and injected significant capital into it. If that is correct (and it is not necessary for me to determine the underlying ownership and original funding of Wenheng), then it would not have been illogical for the Property to have been purchased as an investment by and for a company in which the defendant says the two brothers were equally interested.
[69] Secondly, the defendant’s communications with Ms Lim at Russell McVeagh were all on Wenheng’s letterhead, and addressed from (and to) the defendant at Wenheng. While not determinative in and of itself (as the defendant may have simply used the company letterhead and facsimile machine for his own personal transaction), this is again consistent with the purchase being an investment by Wenheng, rather than by the brothers in their personal capacities. Further, I found aspects of the defendant’s evidence as to why he used the company letterhead and addressed the correspondence in the way he did, unconvincing. For example, he stated that it was because in his experience, Westerners were not able to distinguish between individuals’ Chinese names, hence it was easier to use the company name in correspondence. However, the defendant also confirmed that from the outset, Ms Lim had spoken fluent Chinese with him and his brother when discussing the purchase.
[70] Thirdly, both Ms Tsai and Mrs Yang confirmed that funds belonging to Wenheng had been used to pay the balance of the purchase of the Property. While at times Mrs Yang’s evidence was somewhat confused and internally inconsistent, in broad terms, I found them to be credible and reliable witnesses on this issue, Ms Tsai in particular.
[71] Fourthly, and related to the above point, Ms Tsai and Mrs Yang’s evidence is consistent with the only relevant contemporaneous documents, namely the Wenheng internal accounts. The Property features as an asset in the Wenheng accounts from 1997 (the 1996 and earlier accounts no longer available), until the accounts in 2000 (the 2001 accounts not available), and then again in the Hemu accounts from 2002 onwards. That the Property was included as an asset in Wenheng’s (internal) accounts is consistent with the asset belonging to Wenheng, as a result of its purchase having been funded by Wenheng. In this context, Ms Tsai confirmed that the third plaintiff and Mrs Yang had informed her that Wenheng had used company term deposits to fund the balance of the purchase of the Property and that she had seen the fund balance in the related account decrease.13 Ms Tsai explained that given the funds had been used to purchase the Property and the account balance had decreased as a result, from an accounting perspective, there needed to be a matching or balancing item, hence her inclusion of the Property in Wenheng’s accounts. There is no suggestion the accounts were not prepared on that basis at the time, which was well before the two brothers fell out.
[72] Fifthly, the fact the Property was registered in the second plaintiff and the defendant’s name is not inconsistent with Wenheng having funded that purchase and the Property being beneficially owned by Wenheng. The second plaintiff, the second plaintiff’s younger brother, Ms Tsai and Mrs Yang, all gave evidence that in the case of both Wenheng and later Hemu, company assets were often registered or held in the name of family members or employees, yet included in the internal company accounts, properly reflecting that those assets in fact belonged to the company. Ms Tsai explained that these assets would not, however, be shown in the company’s external accounts.14 Having reviewed the accounts in question, there is no doubt that many company assets shown in the internal accounts (for example, local and international bank accounts) have an individual’s name noted next to them.
13 Mrs Yang said term deposits of about TWD 5 million, being roughly equivalent to NZD 270,000, were used for this purpose.
14 Ms Tsai accepted that as a result of this approach, the company’s assets were understated in its external accounts. There was no information or evidence before me as to whether this practice (which, according to the evidence, is not uncommon in Taiwan) is unlawful in Taiwan. (See, for example, Fisher J’s observations (for the Court of Appeal) in Potter v Potter [2003] NZCA 103; [2003] 3 NZLR 145 at 153.) Nor is that question directly relevant to the factual question of whether Wenheng funded the purchase of the Property, being the central issue on the resulting trust claim.
[73] Sixthly, the defendant provided no compelling or clear evidence of where he had obtained the approximately NZD 150,000 in funds in 1996 (then a reasonably considerable sum) to personally fund a half share in the Property. The defendant said that the money came from accumulated savings. However, by that time, he was working part time as a lecturer at a university, and part time for Wenheng (but confirmed he did not receive any salary in the latter position). Further, in answer to interrogatories earlier in the proceedings, the defendant said that he “did not recall” how much he had contributed directly to the purchase price; or how much he had contributed indirectly to the purchase price; or which bank and country the funds originated from. Even taking into account the lengthy period of time since the Property’s purchase, such responses are somewhat unusual in the context of a reasonably significant purchase, and in the context of formal court proceedings on the issue. It is also unusual that the defendant would not have at least recalled that he contributed half the funds required to purchase the Property.
[74] Ultimately, the firm impression I gained was that the real dispute between the brothers was not in relation to ownership of the Property itself (which was purchased by and for Wenheng), but was in relation to the underlying ownership of and rights to Wenheng. As noted, it was partly his claim to a share of Wenheng’s assets which led the defendant to sell the shares referred to at [44] above, which in turn led to the various proceedings in Taiwan.
[75] For these reasons, I am satisfied that, other than the deposit (discussed below), Wenheng funded the purchase of the Property, such that the presumption of a resulting trust applies. As noted, no evidence was adduced by the defendant to rebut the presumption.
[76] The plaintiffs do not dispute that the defendant initially paid the NZD 30,000 deposit. As noted, Mrs Yang says that upon her return to Taiwan, she arranged for the defendant to be reimbursed for the deposit from Wenheng’s funds (and in fact that he was paid more, namely the equivalent of NZD 60,000). Ms Tsai, the accountant, did not give evidence about this matter.
[77] Mrs Yang says that shortly after returning to Taiwan in August 1996, she withdrew TWD 2.1 million from Wenheng (broadly the equivalent of NZD 60,000) and paid it in cash, in person, to the defendant. There is no documentary record of either the withdrawal from Wenheng or the payment to the defendant.
[78] There is, however, a documentary record of Mrs Yang arranging for the payment of exactly the same amount to the defendant a few months earlier (that is, before the Property was purchased), namely a payment of TWD 2.1 million on 7 March 1996. Bank documents in relation to this payment were produced in evidence.
[79] Mrs Yang’s evidence about the March 1996 payment was confused and unclear. She said the payment was in relation to suppliers who had been or needed to be paid. Despite the bank account to which the funds were paid being in the defendant’s name, Mrs Yang stated it was actually a company account used to pay suppliers. She said that after being paid into that account, the defendant had then transferred the money to his wife.15 If, however, the funds were to pay a supplier, it is not clear why the supplier was not simply paid directly.
[80] In the absence of any contemporaneous documentary evidence concerning the repayment of the deposit, I am not satisfied on the balance of probabilities that the deposit was reimbursed by Wenheng to the defendant. In my view, it is too much of a coincidence that exactly the same amount of money Mrs Yang says she paid to the defendant for the deposit was transferred to him only a few months earlier. I accordingly conclude that Mrs Yang has confused the two payments.
[81] The plaintiffs have therefore failed to prove that Wenheng paid the deposit for the Property.
Does Hemu have “standing” to bring the resulting trust claim?
[82] On a conventional resulting trust claim, there matters might end. However, in this case, a subsidiary issue arises, namely Hemu’s position as the first plaintiff seeking a declaration of a resulting trust.
[83] There is no suggestion that Hemu funded the Property’s purchase. The mere fact that (other than the deposit) Wenheng funded the purchase does not mean Hemu can automatically be treated as the funder.
[84] There was no evidence, expert or otherwise, as to precisely how Wenheng’s assets and liabilities (including its beneficial interest in the Property) came to be Hemu’s assets and liabilities. Despite this, I am nevertheless satisfied that Wenheng did transfer its beneficial interest in the Property to Hemu.
[85] The second plaintiff has been a director of Hemu since 1997 (replacing the defendant in that role). He explained that due to an industrial accident involving an employee of Wenheng in 2001, Wenheng had been dissolved and Hemu had taken over Wenheng’s business, acquiring all its assets and liabilities.
[86] Ms Tsai, who prepared the accounts for both Wenheng and Hemu, also addressed this in cross-examination. She accepted that Wenheng and Hemu had different corporate registration numbers, but explained:
Originally, we have two companies, one is called Wenheng one is called Hemu, the purpose of decrease the tax paying we used the two companies for import and export business but the account are the same within the same account book. That’s all, that’s why in the records the year Taiwanese year ’89 prior to that it was shown as Wenheng, but after that it was shown as Hemu. That’s all.
[87] She confirmed that the single book of accounts for both companies was the internal accounts— those which record the Property as a company asset.
[88] Ms Reed also submitted that the Taiwan Court found that the assets of Wenheng were the assets of Hemu. I was not taken to any particular passage in the Court’s decision, but I have studied the English translation of the judgment and do not read it as making any positive finding to that effect.
[89] Nevertheless, the Hemu internal accounts do record the Property as a company asset in precisely the same way (and amount) as it had been recorded in the Wenheng accounts. I am satisfied on the balance of probabilities that a transfer did occur, despite there being no direct evidence of the precise mechanics of how it came about. In addition, there was no suggestion or evidence that such transfer was ineffectual as a matter of Taiwanese law. 16
[90] Accordingly, the defendant holds his respective share of the Property on a resulting trust for Hemu.
Is Hemu Trade entitled to an account from the defendant for rent?
[91] The plaintiffs also plead that immediately upon the acquisition of the Property using funds provided by Wenheng, the defendant also held on trust the net (or surplus) rent received from letting the Property (or parts of it).
[92] The second plaintiff said that when he first lived in the Property in 1996 and until the defendant and his family arrived in 1997, he managed the renting of the Property and collected rent. He said that the rent was used to pay all outgoings and expenses in relation to the Property. He also said that if there was surplus rent at any point, his father (the third plaintiff) told him to keep that for general living expenses. The second plaintiff said that when the defendant arrived and lived at the Property from 1997, he took over managing the rental of the Property. The defendant accepted this, and also that the rent was used to fund the Property’s outgoings.
[93] Mrs Yang lived at the Property over the period 2002 to 2003 with her son Ethan and the defendant’s two children (the defendant was at that time back in Taiwan). Mrs Yang also arranged for the sleepout to be rented. Mrs Yang confirmed that any rent
16 Ms Wickes raised s 49A of the Property Law Act 1952 (since replaced by s 25 of the Property Law Act 2007), submitting that a beneficiary’s interest in land under an express trust can only be disposed of by a document in writing. However, this was with reference to the basis upon which the second plaintiff holds his share of the Property on trust for Hemu Trade. I have found the defendant’s share is held by him on a resulting trust. Further and in any event, equity will not allow statutory or common law requirements as to form to be used as an “instrument of fraud”, in the sense of defeating a known equitable interest. See, generally, Alistair Hudson Equity and Trusts (9th ed, Routledge, London, 2017) at 5.3.1–5.3.2 and Lynton Tucker, Nicholas Le Poidevin and James Brightwell (eds) Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [3-020].
collected was used to pay the outgoings and utilities in respect of the Property, and any surplus was used for general living expenses, in particular, meals for the family members then occupying the Property. She said she discussed this with her husband, the third plaintiff, and that she never remitted any surplus rental to Wenheng.
[94] After Mrs Yang left the Property, her son Ethan remained there until approximately 2007. The defendant lived there from time to time until about 2008. From that point, the defendant’s daughter has lived at the Property and managed any rentals.
[95] There is no evidence that, at any time since the Property’s purchase in 1996, any rent was paid to Wenheng. Nor is there any evidence that Wenheng, Hemu or the second or third plaintiffs ever asked the defendant, or any members of his family, about the rent position or what had become of any surplus rent, if any. If Wenheng’s intention had been that any surplus rent was to be paid by the defendant (or his family members) to Wenheng, it seems extraordinary that over approximately a decade, no requests or demands were ever made in this regard.
[96] I accordingly conclude that, despite the Property being (largely) funded by Wenheng, it was always understood and expected that family members could reside in the Property, rent out a room or rooms (including the sleepout) from time to time, with any rental income being applied against the Property’s outgoings and any surplus rent being applied to more general living expenses. As noted, this was the position from the outset, without objection, until the brothers fell out. I accordingly accept the defendant’s evidence (referred to at [40] above) that this was the “family mode”.
[97] This conclusion is also consistent with the fact that the purchase of a property such as this was a “one off” for Wenheng. As such, the company was not “in the business” of purchasing offshore properties with a view to making a profit from doing so (from either gains upon resale or surplus rental income).
[98] Accordingly, various family members’ actions (including those of the defendant) in renting out parts of the Property from time to time and using surplus rent (if any) for general living expenses, did not involve unauthorised use of Wenheng’s or
Hemu’s beneficial interest in property. The plaintiffs’ claims in relation to rent accordingly fail.
What relief ought to be granted under the first cause of action?
[99] In terms of relief in relation to the Property itself (as opposed to the rent), the plaintiffs (though in reality it can only be Hemu) seek the following:
[100] I do not consider it necessary or appropriate to grant all of the relief sought. For example, it was not in dispute that the second plaintiff holds his share of the Property on trust for Hemu. No relief in that context is accordingly required.
[101] I am minded to make the following declaration and order:
- (a) The defendant holds a 41 per cent share17 in the Property on a resulting trust for Hemu, to be secured by a notice of charge against the title; and
(b) The defendant is directed to transfer his 41 per cent share in the Property to the second plaintiff, with the result that the second plaintiff holds a 91 per cent share of the Property on trust for Hemu.
[102] The result of the above orders would be that Hemu and the defendant share the beneficial interest in the Property (91 per cent and 9 per cent respectively). I would expect that in light of the Court’s orders, the parties (with the assistance of their counsel) would be able to reach a concluded agreement as to the Property’s ownership going forward. However, if they were not, the appropriate outcome is likely to be a Court-ordered sale of the Property pursuant to s 339(1) of the Property Law Act 2007, and the division of the proceeds between Hemu and the defendant according to their respective shares.
[103] I am conscious however, that no party, in its written or oral submissions, addressed me on the particular form of relief, were Hemu’s primary claim to be made out. Before finalising the terms of the proposed orders, the parties ought to have an opportunity to briefly address those matters (if agreement cannot otherwise be reached). I make timetabling orders for that purpose at the conclusion of this judgment.
Breach of fiduciary duty
[104] As noted earlier in this judgment, the resulting trust claim was pursued as the primary claim. The fiduciary duty cause of action received scant attention in any party’s written or oral submissions. In addition, to the extent the defendant was the trustee to Wenheng (and then Hemu) under a resulting trust, he owed fiduciary duties to those entities in any event. Ms Reed accepted that the relief sought under this cause of action does not add to the relief sought under the resulting trust cause of action.
[105] I therefore make only some brief observations on the second cause of action.
17 Taking into account his payment of the deposit.
[106] First, the statement of claim pleads that in assisting with the Property’s purchase, the defendant was acting as Wenheng’s agent. It goes on to plead that the defendant accordingly owed Wenheng fiduciary duties, which were breached when putting half of the Property into his own name. Ms Reed’s submissions then simply assert that “the remedy of constructive trust and equitable compensation is available to the plaintiffs”.
[107] Wenheng is of course not a plaintiff in this proceeding. No submissions were advanced as to how a breach of a fiduciary duty owed to Wenheng translates to the remedies sought by the plaintiffs (including Hemu) on this cause of action.
[108] Given these matters were not explored at the hearing, and as noted, Ms Reed accepted that this cause of action does not add to the first, I say nothing further on it.
[109] The cause of action is dismissed.
Tort of deceit
[110] Again, this cause of action received little attention. Indeed, it was not addressed at all by counsel for the plaintiffs in their closing submissions. Given the seriousness of the allegations underlying a claim in deceit, it would have been appropriate for this matter to have been expressly addressed.
[111] I nevertheless flag some issues with this cause of action also.
[112] The statement of claim pleads that “at all material times the defendant made false representations to the plaintiffs”, knowing them to be false.
[113] The first representation pleaded is that the defendant did not disclose to the plaintiffs that he was listed as a registered proprietor of the Property. Putting aside for present purposes the fact that any such “representation” could only be by way of silence or omission, it is pleaded that “the plaintiffs acted in reliance on the false representations and provided the full funds for the purchase of [the Property]”. However, none of the plaintiffs acted in that way, and it could have only been Wenheng which acted in reliance on any such false representation. The claim also pleads that
“the first plaintiff company provided the funds” for the Property and thus suffered loss. However, as noted, the first plaintiff company, Hemu, did not provide the funds and therefore cannot have suffered the loss as pleaded.
[114] The second pleaded false representation is “the ability of the defendant to let the second dwelling [being the sleepout] and the occupation of the same by tenants and rental being received”. It is not at all clear how this is a “representation” as such, or why it might be false in any event. Further, the only reliance pleaded in relation to this second representation is also that the plaintiffs provided the full funds for the purchase of the Property. Again, none of the plaintiffs provided those funds and thus have again not suffered the loss which is pleaded.
[115] Accordingly, this cause of action must also be dismissed.
Result
[116] The defendant holds a 41 per cent share of the Property on a resulting trust for Hemu. As discussed at [103] above, in the absence of agreement between the parties as to the final form of the relief on the first cause of action:
(a) The plaintiffs may file supplementary submissions (not to exceed 10 pages in length) on the proposed orders set out at [101] above within 15 working days of the date of this judgment;
(b) The defendant may file supplementary submissions in response within a further five working days; and
(c) In the absence of a request for a hearing, I will thereafter finalise the terms of relief on the papers.
[117] Costs are reserved.
Fitzgerald J
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