Guojin Huang v Jinghong Wei (No 3)

The Court delivered its principal judgment in these proceedings on 20 April 2022: Guojin Huang v Jinghong Wei (No 2) [2022] NSWSC 473 (the Principal Judgment). These reasons assume familiarity, and should be read with, the Principal Judgment. Defined terms in the Principal Judgment have the same meaning in these reasons.

In the Principal Judgment, Guojin was completely successful against Jinghong in establishing Guojin’s entitlement to the whole of the Property. Moreover, as will become significant in considering Guojin’s application for indemnity costs, the Court concluded in the Principal Judgment (at [59]) that “The Court has come to the firm view, on the Briginshaw standard, that Jinghong’s case is built on a lie, assisted by his mother, Chunhua”.

The parties agreed that two outstanding matters could be resolved by the Court on the papers:

The legal representatives remain the same as at the hearing. Guojin’s submissions were prepared by Mr C H Withers of Senior Counsel with Mr N D Riordan of Counsel. Jinghong’s submissions were prepared by Mr J Foley of Counsel.

During the course of the litigation, each party made an offer to the other in accordance with the principles set out in Calderbank v Calberbank [1975] 3 All ER 333; [1975] 3 WLR 586.

On 26 March 2021, Jinghong’s solicitors wrote to Guojin’s solicitors making such an offer (the terms of which are no longer relevant), but which included:

In response to that letter, Guojin’s solicitors wrote to Jinghong’s solicitors on 15 April 2021 (the Calderbank Offer):

There was no dispute between the parties as to the applicable principles, including that the Court had to be satisfied that the Calderbank Offer represented a genuine compromise and that it fell to Guojin to satisfy the Court that Jinghong’s failure to accept the Calderbank Offer was unreasonable. The essential dispute between the parties focused on the first of these propositions.

Two matters may not be doubted. First, in the final result Guojin has done better than what was proposed in the Calderbank Offer. This is because Guojin has obtained the declarations and consequential orders that he sought to the effect of those referred to in the Calderbank offer, an order for his costs and an order for an account in relation to rent. Second, the reasons advanced by Guojin’s solicitors in the Calderbank Offer as to why their client would be successful are substantially to the effect of the dispositive reasons in the Principal Judgment.

Jinghong’s response is that the Calderbank Offer was not a genuine offer of compromise because while the Calderbank Offer could have made some concession as to Guojin’s costs, it did not do so. The only purported concession was in relation to the claim for account in relation to rent, which Jinghong’s counsel submits was vague and unquantifiable at the time of the Calderbank Offer and will remain so until the result of the reference which the Court will order.

Furthermore, the Calderbank Offer’s reference to all the evidence having been served, while correct at the time it was made, was not what ultimately happened. Mr Foley, for Jinghong, places considerable emphasis on the fact that at the time of the Calderbank Offer, there was nothing in Guojin’s evidence that supported the action for account in relation to rent or any other benefit that Guojin might have received. That evidence did not come until several months after the Calderbank Offer, when Guojin served the affidavit of Pavlos Stavropoulos on or about 27 September 2021. As is apparent from the Principal Judgment at [42]-[43], it is that evidence which satisfied the Court (Principal Judgment at [71]) that Jinghong received rent from tenants during the period he had exclusive use of the Property and that there should be an inquiry as to the amount for which Jinghong must account to Guojin.

Reduced to its essentials, it was submitted for Jinghong that the Calderbank Offer was not a genuine offer of compromise because it only compromised on an aspect of the claim that was unquantifiable and in respect of which there was no admissible evidence while the Calderbank Offer was open. These same features supported the further conclusion that Jinghong’s failure to accept the Calderbank Offer was not unreasonable.

Whether any informal offer to compromise litigation represents a genuine compromise will depend upon the nature of the litigation and the relief sought. As I pointed out more than once to the parties during the course of the hearing, and as is reflected in the Principal Judgment, the case was a binary one. Only one side or the other could be right and, given the evidence and the way in which the case was presented, the party that was not right had to be lying. Guojin was either entitled to the declarations and costs order which he sought, or he was not. The order for an account in respect of benefits Jinghong may have received by reason of his occupation of the Property was consequential upon Guojin succeeding in his fundamental claim.

While it is true that Guojin could have made some compromise in relation to costs in the Calderbank Offer, the fact that he did not do so does not demonstrate the Calderbank Offer was not a genuine compromise when it is read as a whole. The Calderbank Offer contained a cogent account of why Guojin considered he would succeed which the Principal Judgment has demonstrated was entirely prescient. Read as a whole, it did not bespeak a lack of genuine compromise because it failed to make an offer in relation to costs to which Guojin would otherwise be entitled upon such success. That is because there was another potentially substantive part of the claim which could be conceded, being the claim for an account. That concession was made in the context of the point which the proceedings had reached, the identification of the issues and the arguments made in the Calderbank Offer. In that context, that concession was sufficient to make the Calderbank Offer a genuine compromise.

However, that is not the end of the matter. The terms of any compromise are themselves one of the factors which the Court must take into account in determining whether Jinghong’s failure to accept the Calderbank Offer was unreasonable. This is why Jingong’s submissions make the same points concerning lack of a genuine compromise in support of the proposition that his failure to accept the Calderbank Offer was not unreasonable.

It is at this point that Jinghong’s resistance to the present application fails. That is because, as I have set out in [2] above, the Court was well satisfied that Jinghong’s defence of these proceedings was based upon a deliberate lie. Furthermore, the Court was satisfied that Jinghong had in fact received rent. Putting it shortly, the Court is satisfied to the Briginshaw standard that Jinghong must have known at the time of the Calderbank Offer that his defence was built upon a lie and that he had in fact received rent. Knowing those matters, it was unreasonable of him to persist in the litigation. Had he accepted the Calderbank Offer, the incurring of further costs by the parties and the taking up of public resources in the Court’s time and the time required to prepare the judgment would have been avoided.

I am fortified in this conclusion by the fact that where a case has been brought on a fraudulent basis, that in and of itself may be sufficient to order the unsuccessful party that has propounded that basis to pay costs on the indemnity basis, even in the absence of a Calderbank letter. For example, such an order was made by Habersberger J in the Supreme Court of Victoria in Li v Xin (No 2) [2013] VSC 139. This extract from his Honour’s reasons demonstrates the remarkable similarity between the case before his Honour and the present proceedings (emphases added):

In that case, Habersberger J ordered the unsuccessful defendant to pay some of the costs of those proceedings on the indemnity basis. The Court has no doubt that is what should occur in these proceedings by reference to the Calderbank Offer.

There is only one slight variation which the Court will introduce to the orders proposed for Guojin. Guojin’s draft order has the indemnity costs period running from the date of the Calderbank Offer. However, the Calderbank Offer was open for acceptance at any time up to and including 14 May 2021. This means that the indemnity costs period should commence on and from 15 May 2021 and conclude with the date of Jinghong’s most recent submissions dated 23 May 2022. Thereafter, while the further costs of the parties will be incurred in respect of the proceedings, they will be directed to the reference which the Court will order. As I will next explain, the costs of the reference will be a matter to be determined in the light of its outcome.

There were three areas of difference in the respective orders proposed by the parties concerning the terms of the reference to give effect to Guojin’s entitlement to an account from Jinghong:

I will deal with each of these in turn.

In relation to the fundamental subject matter of the reference, Guojin’s draft order referred to a “report into the value of the benefit” that Jinghong received in respect of the Property. It was put for Jinghong that the term “benefit” was unclear and that in the Principal Judgment the Court had found that the evidence demonstrated an entitlement to an accounting only in relation to any rent Jinghong may have received.

For his part, Jinghong also submitted that the subject matter of the inquiry should be the “Net Rent”, which was defined in Jinghong’s proposed orders as “the total rental income received by Mr Jinghong Wei in respect of the [Property], less the total expenses incurred and paid by Mr Jinghong Wei in respect of the [Property]”.

The second issue was the period in respect of which the inquiry should be conducted. It was submitted for Guojin that because the Court found that Guojin had returned to Australia without Manjing and their child in late 2014 and that thereafter Jinghong had enjoyed exclusive use of the Property, the starting point should be 1 January 2015. This submission also took into account the Court’s finding that the relationship between Jinghong and Manjing broke down and the couple separated in February 2015, thereby ending any justification for Jinghong remaining on the title to the Property.

Jinghong’s submission was that the period of the inquiry should commence from the date Guojin demanded that Jinghong should reconvey his interest in the Property, being 20 August 2019. This submission drew attention to the Court’s conclusion in the Principal Judgment at [69] that “the arrangement was to convey only a legal interest to Jinghong to assist with his residency application and that once that was achieved it was always open [to] Guojin to call for a reconveyance”. It was submitted that it was not part of the arrangement that Jinghong had to account for rent and that, in light of the Court’s conclusions in the Principal Judgment, there was nothing wrongful about his occupation of the Property before the demand for a reconveyance was made.

Finally, Guojin’s proposed form of reference included an order that Jinghong pay the costs of the reference.

In response, Jinghong submitted that while, in the first instance, the parties should be jointly and severally liable to the referee for her costs, how the costs of the reference should ultimately be borne should abide the outcome of the reference. It was submitted that at this stage there was no basis for concluding, one way or the other, whether an amount would be payable to Guojin as an outcome of the reference and, in any event, Jinghong might make an offer during the course of the reference that could be relevant to the question of the costs of the reference.

In relation to the subject matter of the reference, the Court accepts Jinghong’s criticism of the expression “the value of the benefit”. The Court’s findings in the Principal Judgment dictate that the fundamental subject matter of any inquiry is what amount of rent received by Jinghong in respect of the Property should be accounted to Guojin.

However, that being said, I do not accept Jinghong’s attempt to confine the subject of the inquiry to “Net Rent”. The remedy of account is a flexible one, intended ultimately to achieve a fair and just result between the parties, noting that a party which seeks equity must also do equity.

Questions such as what expenses Jinghong incurred in relation to the Property, the extent to which Guojin must make allowance for those expenses in seeking an account for rent, and any other matters which one side may have to allow to the other to achieve a fair and just outcome in accordance with the relevant principles, have not been litigated in the proceedings to date. They are all matters properly for the reference. There may be others. The orders which the Court will make are intended to give the parties the widest latitude to put any matters before the referee which they may wish to submit ought properly be taken into consideration in determining the final figure (assuming it to be a positive one) for which Jinghong is liable to account to Guojin in respect of rent received for the Property.

In relation to the question of the period of any inquiry, the Court accepts the submissions put on behalf of Guojin. With respect, the submission made for Jinghong is based on a misconception. By its orders on 29 April 2022, the Court declared that at all material times Jinghong held his interest in the Property on trust for Guojin. The request for a reconveyance is the means by which Guojin could bring Jinghong’s trusteeship to an end, but did not end the trust. As a bare trustee, Jinghong is required to account to the beneficial owner for any rent which Jinghong may have received in respect of the Property. His trust obligations to account for rent were in relation to rent received until the trust came to an end. That would only occur upon reconveyance of his legal interest in the Property. The trust was not brought to an end by the demand for reconveyance.

Finally, in relation to the costs of the reference, the Court accepts Jinghong’s submissions. The Court can and should make an order in relation to the costs of the substantive hearing to date. The next stage of the litigation will be the reference. The costs of that stage, for the reasons advanced for Jinghong, cannot be determined until the results of the reference are known.

In the first instance, the best person to determine which party should bear the costs of the reference is the referee, although the parties will be free to argue whether or not that part of the referee’s report (or any other part), should be adopted by the Court. In the meantime, the only order the Court should make as to costs is that the parties are jointly and severally liable to the referee for her fees of conducting the reference. How those costs should ultimately fall between the parties will be a matter, in the first instance, for the referee.

The orders of the Court are: