Mayrin DM Pty Ltd v Kaiyu Deng

1. [1]

   The Plaintiff (“Mayrin”) is a property developer. In April 2017 Mayrin retained Mr Kaiyu Deng (“Deng”) under a contract of employment as “Property Acquisition Specialist” to help Mayrin locate and purchase suitable properties for investment and development. In September 2018 Mayrin entered into a similar agreement with Mr Younes (“Younes”) but through the vehicle of a company called Trademark Group Pty Ltd (“TGP”). Mr Younes was to help Mayrin find development sites and buyers for projects undertaken by Mayrin.

2. [2]

   Deng left Mayrin’s employ on 22 January 2019 and Younes left on 15 March 2019.

3. [3]

   An area of particular interest for projects, so far as Mayrin was concerned, was Westmead and suburbs adjoining the Sydney Metro West transport development, and there is material which demonstrates that Deng and Younes were involved in searching and assessing properties in and near Westmead.

4. [4]

   On 31 January 2019 and 7 March 2019 Deng became the registered proprietor of two properties in Westmead (“the properties”).

5. [5]

   After discovering these purchases, Mayrin lodged caveats on the respective titles of the two properties on 25 June 2019.

6. [6]

   The caveats contained the following description of the “estate or interest claimed”:

7. [7]

   On 17 April 2019 Mr Wu (“Wu”), the general manager of Mayrin, received an email from Younes to Deng’s email address at Mayrin. The email was almost certainly sent by mistake to that address, but it was that email which caused Wu to investigate the matter and discover the purchase of the properties. The email attached a draft joint venture deed between Deng and Younes: see pp. 71-83 of the documents annexed to Wu’s Affidavit of 13 September 2019.

8. [8]

   In September 2019 Mayrin filed a Summons seeking preliminary discovery from Deng, Younes and TGP in relation to the purchase of the properties. This was after Mayrin’s solicitor had sent a letter demanding provision of documents in connection with the properties but in response to which the documents were not provided. On 3 October 2019 solicitors acting for Deng, Fortis Law Group, served a lapsing notice in respect of the caveats which Mayrin had lodged.

9. [9]

   Mayrin by Notice of Motion seeks orders that the caveats be extended until at least after it has obtained the documents it seeks by its Summons. The caveats were to expire on 24 October 2019. I heard this matter on 23 October 2019 in the Duty List and, by consent, extended the caveats until 31 October 2019 to enable counsel to provide me with further written submissions (which they have done) and to consider the arguments which were advanced, both at the hearing and in the written submissions.

10. [10]

    Ms M. Cairns and Ms A. Cameron of Counsel appear for Mayrin. Mr M. Fernandes of Counsel appears for the Defendants.

11. [11]

    Mr Fernandes puts his clients’ opposition to the extension of the caveats on two bases:

    1. (1)

       That the caveats are not supported by a caveatable interest;

    2. (2)

       That the form of the caveats is defective.

12. [12]

    Initially, Mr Fernandes placed reliance on a further alleged deficit in Mayrin’s claim which was the asserted inconsistency between the preliminary discovery proceedings commenced by Mayrin and the claimed interest by the caveats linked to the absence of any claim for final relief. Ms Cairns relied on a number of decisions which supported the proposition that a party is entitled to seek material that will assist it to determine whether or not to commence proceedings (see Hatfield v TCN Channel Nine Pty Ltd [2010] NSWCA 69; (2010) 77 NSWLR 506 at [45]-[52] and O’Connor v O’Connor [2018] NSWCA 214 at [27]-[30]) and cases in which it has been recognised that caveats can be maintained pending discovery: see Jensen v Giugni (1994) 6 BPR 97,495 at p. 2 and Makrypodis v Eleisawy [2014] NSWSC 1429 at [36]-[40]. In the course of submissions, Mr Fernandes conceded that there is a serious question to be tried as to whether the Defendants breached duties owed to Mayrin and that the balance of convenience favours the grant of injunctive relief, limiting his arguments against extension of the caveats to those identified at [11] above: see T21.1-6.

The no caveatable interest point

1. [13]

   Mayrin’s claim is that the Defendants have, in breach of their fiduciary duties, contractual duties and obligations imposed by ss 182-184 of the Corporations Act 2001 (Cth), wrongly appropriated the opportunity to purchase the properties that was an opportunity available to and exercisable by Mayrin. Mayrin claims that the circumstances give rise to a constructive trust and that Deng holds these properties on trust for Mayrin. This is territory covered by cases such as Furs Ltd v Tomkies (1936) 54 CLR 583, Warman International Ltd v Dwyer (1995) 182 CLR 544, Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 and see also Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 in which the managing director of a company claimed ill-health and resigned, but then entered into a contract with a third party that had previously been in negotiations with the company. In that case it was held that he was in breach of his fiduciary duty and that he should not be allowed to keep the profits earned by reason of his breach.

2. [14]

   Mr Fernandes maintains that the claim that a property is held on constructive trust gives rise to no caveatable interest in land because a constructive trust is only imposed as a remedial measure. He described the interest as “completely hypothetical and future”: T2.10-12. He relies on a decision of Choi v Kim [2013] NSWSC 1774 per White J (as His Honour then was) and L J Carroll v L T Carroll [2016] NSWSC 390 per Black J.

3. [15]

   Ms Cairns relies on what was said by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 614:

4. [16]

   I set out the provisions of ss 74F(1) and (5) and 74K(1)-(2) of the Real Property Act 1900 (NSW) (the “RPA”):

5. [17]

   It will be observed that s 74F(1) provides that a person who claims “a legal or equitable estate or interest in land” may lodge a caveat and s 74K(2) refers to the Court being satisfied that the “claim has or may have substance”.

6. [18]

   In Choi v Kim, White J applied an earlier decision of Brereton J (as his Honour then was) that a claim for orders under s 79 of the Family Law Act 1975 (Cth) was not itself a basis for the existence of an estate or interest in land. His Honour referred to the plaintiff’s claim that she would have a beneficial interest in the land by reason of the imposition of a constructive trust on the principles in Baumgartner v Baumgartner (1987) 164 CLR 137. His Honour held at [5] that:

7. [19]

   His Honour then noted at [7]:

8. [20]

   In Carroll, Black J noted that a constructive trust arising under Baumgartner was not the interest claimed in the caveat, but his Honour went on to say:

9. [21]

   In Shannon Lindsay, Caveats Against Dealings in Australia and New Zealand (The Federation Press, 1995), the learned author notes that:

10. [22]

    In Surfers Paradise, Ambrose J rejected the approach for which the Defendants here contend, saying:

11. [23]

    In Surfers Paradise, the plaintiff alleged that United Investments Pty Ltd and other defendants had acted to deprive the third defendant of an interest in land that the third defendant would have had but for their intervention, and in which the plaintiff had an interest by reason of its purchase of 50% of the shares in the third defendant.

12. [24]

    In Mijo, a caveat case dealing with the Land Title Act 1994 (Qld), Hammerschlag J referred to Surfers Paradise and said:

13. [25]

    In his judgement in Surfers Paradise, Ambrose J refers to the decision in Re Pile’s Caveats (1981) Qd R 81 in which Dunn J held (in Ambrose J’s words) that:

14. [26]

    Although neither party drew attention to it, reference can also be made to Wickham Developments Ltd v Parker (unreported SC of Qld, No 1172 of 1994, Mackenzie J) referred to in Stephen Colbran and Sheryl Jackson, Caveats (Thomson Reuters, 1996) pp. 238-241, a text cited in Surfers Paradise in support of the conclusion reached in Surfers Paradise, in which a company was held to have a caveatable interest as a beneficiary under a constructive trust arising over property improved through misuse and misappropriation of company funds by an employee. The present case involves a claim of misappropriation of confidential information and, effectively, of the opportunity to invest in the properties.

15. [27]

    In Muschinski, Deane J noted that the constructive trust can be described as

16. [28]

    The statement that there “does not need to have been a curial declaration or order before equity will recognise the prior existence of a constructive trust” was relied on by Ambrose J in Surfers Paradise and Hammerschlag J in Mijo.

17. [29]

    I note that in J. D. Heydon, M. J. Leeming and P. G. Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (LexisNexis Butterworths, 2015) at 4-240, the learned authors state in relation to RPA land that equitable claims and interests are not excluded and “the equitable interests in question include constructive trusts which have arisen to bind the registered proprietor”.

18. [30]

    Mr Fernandes drew attention to the fact that the Court might not in a case brought on the basis of a constructive trust order transfer of the property to the Plaintiff, relying on the following passages of high authority:

    1. (1)

       Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [200]:

    2. (2)

       Giumelli v Giumelli (1999) 196 CLR 101 at [10]:

    3. (3)

       John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at [128]:

    4. (4)

       Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [183]:

19. [31]

    I do not accept that Grimaldi, John Alexander’s Clubs, Farah or Giumelli in the passages identified by Mr Fernandes are saying anything that undermines what was said by Deane J in Muschinski (with whom Mason J, as his Honour then was, agreed); see, also, Sze Tu v Lowe [2014] NSWCA 462; (2014) 89 NSWLR 317 at [1], [3] and [150], in which Gleeson JA said at [150]:

20. [32]

    Mr Fernandes drew attention to the categorisation of “substantive or institutional” and “remedial” constructive trusts discussed in P. Young, C. Croft and M. Smith, On Equity (Thomson Reuters, 2009) at 6.690, and the reference to Ford and Lees’ statement in H. Ford, W. A. Lee et al, Principles of the Law of Trusts (Thomson, subscription service) at 22.160:

21. [33]

    The learned authors of On Equity give as one of the examples of a substantive constructive trust those arising from the operation of the rule in Keech v Sandford (1726) Sel Cas Ch 61; 25 ER 223 (that trustees must not use their position as trustee to make a gain for themselves) or where a fiduciary has received a bribe, such as in A-G for Hong Kong.

22. [34]

    In the passage in Grimaldi upon which Mr Fernandes relied (and which I have set out above), the Full Court seems to treat breaches of fiduciary duty as giving rise to a substantive constructive trust. On Equity treats a breach of the principle in Keech v Sandford as that kind of constructive trust, although it gives as an example of a remedial constructive trust “where a breach of fiduciary duty has occurred” citing Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 108 and Muschinski.

23. [35]

    It seems to me that if the Plaintiff is successful in establishing the breach of fiduciary duty that it relies on there is a strong prospect that it will be held entitled to transfer of the property (with all due allowances), i.e. that, using the taxonomy advanced by Mr Fernandes, this is a case in the substantive category.

24. [36]

    I take White J to have accepted in Choi v Kim that a constructive trust could give rise to a caveatable interest, and his Honour was not dealing with a case of the present kind (and nor was Black J in Carroll).

25. [37]

    Ms Cairns accepts that a court retains a discretion as to whether or not to impose upon the Defendants a constructive trust (see Muschinski itself at 614) but that does not mean that a party who has a valid claim to such relief cannot have an interest in land for the purpose of lodgement of a caveat.

26. [38]

    I mentioned in the course of submissions my concern that even if the Defendants were held to be correct in their contention that there was no caveatable interest, the matter calls out as one appropriate for injunctive relief, an approach which, as I have noted, was taken in Re Pile’s Caveat.

27. [39]

    In Jensen, Young J (as his Honour then was) said:

28. [40]

    In Gerard v Jacquin [2011] NSWSC 913 at [15] per Slattery J pointed out:

29. [41]

    Mr Fernandes emphasises the fact that until the Court imposes a constructive trust over the property no proprietary interest in the land exists, but the question is not what rights has the Plaintiff now established but what rights it claims to have and its claim is that by reason of the facts asserted it is entitled to the property or an interest in it.

30. [42]

    I acknowledge that there is some uncertainty created around the extent to which a claim for a constructive trust can found a caveat but the two cases relied upon by the Defendants are dealing with a different class of case and those which come closest to the present case factually, i.e. Surfers Paradise, Mijo and (it would seem from the summary in Colbran and Jackson) Wickham, support the conclusion that it does. In my view, the approach in Surfers Paradise, Mijo and Wickham should be followed.

31. [43]

    The lodgement of the caveat does not require that the claimant prove that it must succeed on its claim but rather that it claims to be entitled to an interest in land and, as I have noted, the Defendants have conceded that there is a serious issue to be tried as to whether the Defendants have breached duties owed to Mayrin and this must include an issue as to the remedy to which it will be held entitled.

The form point

1. [44]

   Section 74F(5)(b)(v) of the RPA requires a caveat to specify:

2. [45]

   Mr Fernandes claimed that the caveats were defective because they did not state that the Plaintiff claims a constructive trust. He relied on Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880; (2005) 12 BPR 23,355 in which the claim contained in the caveat was described as “an equitable interest” with nothing more, and Campbell J ( as his Honour then was) said at [29]-[30]:

3. [46]

   Ms Cairns pointed to the difference between the very short and uninformative description in Vimwise and the detailed description in this case, and she also relied on s 74L of the RPA which provides that the Court shall disregard any failure of the caveator to comply strictly with the requirements as to form.

4. [47]

   Whilst the basis of the claim might have been made clearer by a reference to constructive trust, the caveats here state that the Plaintiff claims a beneficial interest in the properties arising out of the alleged breach of fiduciary, contractual and statutory duties owed by Deng and, in my view, there is sufficient identification of the basis of the claimed interest. By the caveats, Deng would be on notice of the basis of the interest claimed, as would anyone searching the register. I do not need to consider the effect of s 74L.

Conclusion

1. [48]

   For the reasons given above, in my view, on an appropriate undertaking as to damages being given, the caveats should be extended until after the outcome of the preliminary discovery application is known and Mayrin has had a reasonable opportunity to decide whether to commence substantive proceedings.

2. [49]

   The Defendants should pay the Plaintiff’s costs of this application.