Mao v Bao (No 2) [2022] NSWSC 1699

Supreme Court New South Wales

Medium Neutral Citation: Mao v Bao (No 2) [2022] NSWSC 1699 Hearing dates: 7 September; 5 December 2022 Date of orders: 12 December 2022 Decision date: 12 December 2022 Jurisdiction: Equity Before: Parker J Decision: See [56]-[58] Catchwords: EQUITY – equitable set-off – property for beneficiary with mortgage funded by beneficiary – mortgagor borrows money on own account – mortgagor separately lends money to beneficiary – beneficiary ceases to make contributions to mortgage payments – mortgagee sells property – nature of mortgagor's liability – whether mortgagor's liability to be set off against beneficiary's liability to repay loan balance – date of set-off CONTRACT – loan – money of account – lender ordinarily resident in Australia – loan agreement made in Australia – lender advances Chinese currency – loan monies advanced in China – money of account is Chinese currency Legislation Cited: Conveyancing Act 1919, s 144(1) Civil Procedure Act 2005, ss 21, 100 Cases Cited: Mao v Bao [2021] NSWSC 1096 Category: Procedural rulings Parties: Duoxiang Mao (Plaintiff/Cross-Defendant) Linchun Bao (Defendant/Cross-Claimant) Representation: Counsel: M Condon SC/H Zhao (Plaintiff/Cross-Defendant) C Harris SC (Defendant/Cross-Claimant)

Solicitors: Juris Cor Legal (Plaintiff/Cross-Defendant) CKSD Lawyers (Defendant/Cross-Claimant) File Number(s): 2016/389706 Publication restriction: Nil

Judgment 1. I delivered my principal judgment in this matter in August last year: Mao v Bao [2021] NSWSC 1096. In order to give effect to my conclusions, accounting calculations had to be undertaken. Those have been completed and this judgment now deals with the remaining issues of quantification. This judgment assumes familiarity with my judgment of August last year, the paragraphs of which are referred to as "J1". 2. I set out the background to the proceedings at J1 [1]-[19] and the chronology of key events at J1 [36]-[87]. For the purposes of the present judgment, the relevant background and events may be summarised as follows. 3. Both of the parties are businessmen of Chinese origin. The plaintiff, Mao Duoxiang, has been an Australian citizen since 1998 and lives in Sydney. The defendant, Bao Linchun, obtained Australian permanent residency in 2009 and later lived for a time in Australia. Since April 2011, he appears to have been living back in China. 4. Mr Mao's claim as plaintiff arose out of a payment of ¥11 million which he made to Mr Bao in China in April 2011. Mr Mao claimed that the payment was a loan and sought judgment for the unpaid amount (it is agreed that a sum of $800,000 was paid off the loan in November 2011), together with interest. 5. Mr Bao made a cross-claim against Mr Mao. The cross-claim concerned a property at Vaucluse that Mr Mao bought in 2004 with money which had been provided by Mr Bao. The purchase was organised through Mr Mao's ex-wife, Zhang Xiaomei. The property was purchased with mortgage finance of $2.275 million from National Australia Bank ("NAB"). Ms Zhang's mother also lent $200,000 to enable the purchase to be completed. 6. The property, the loan, and the mortgage were all in Mr Mao's name. Following the purchase, the property was kept available for Mr Bao to use as a home in Sydney (although he seems not to have done so). Mr Bao made regular payments to Mr Mao toward the loan repayments and other costs associated with holding the property, such as Council rates. 7. In 2007 and 2008, Mr Mao drew sums totalling about $1.59 million down on the mortgage. He used $200,000 to repay Ms Zhang's mother, but applied the rest of the moneys largely for his own purposes. He did not tell Mr Bao about them. He did, however, undertake some calculations, to which I refer in more detail below, splitting the loan principal and interest between his share and Mr Bao's. A full calculation was undertaken up to January 2010, with some partial calculations extending to July 2011. 8. After November 2011, Mr Bao ceased to make his regular payments. After Mr Mao complained, Mr Bao lodged a caveat over the Vaucluse property claiming that Mr Mao held it on trust for him. But Mr Bao took no further action. 9. Mr Mao had let the property out, but the rent was insufficient to cover the whole of the loan repayments required by NAB. After a while, Mr Mao stopped making up the shortfall and the property was eventually sold by NAB in May 2014. NAB applied the proceeds of sale ($3.26 million) toward the loan, which then stood at approximately $3.6 million. So far, at least, NAB appears not to have pursued Mr Mao for the balance. 10. The contention for Mr Bao on his cross-claim (and this was not disputed) was that Mr Mao held the Vaucluse property as trustee for Mr Bao. Although no updated calculation had been done, on any view, the sale proceeds exceeded Mr Bao's share of the loan. To the extent that they did, moneys belonging to Mr Bao had gone to discharge personal liabilities of Mr Mao. Mr Bao sought an account, or equitable compensation, or restitution. 11. I found that the ¥11 million payment made in April 2011 was indeed, as Mr Mao claimed, a loan. As a result, Mr Bao was liable to Mr Mao for the unpaid principal, together with interest. The interest rate had been agreed at 2% per month. 12. In Mr Bao's cross-claim, it was alleged that some of the moneys provided in 2004 had been misappropriated. I rejected this claim, but I did conclude that Mr Bao was entitled to have Mr Mao account for the benefit he received from the discharge of the NAB mortgage in May 2014. The calculation of that benefit was to begin from February 2010. 13. The parties now agree that the amount calculated in accordance with the approach set out in my judgment results in Mr Mao having received a benefit of $2,050,084. Mr Bao, however, contends that he is entitled to judgment in a larger amount, about $3.3 million, said to be the loss suffered by him as a result of the forced sale of the property. 14. The outcome is that both Mr Mao's claim and Mr Bao's cross-claim have succeeded. The parties agree that there should be a single judgment in Australian Dollars, and, accordingly, that Mr Bao's liability under the loan agreement should be converted from Chinese Yuan to Australian Dollars and set off against Mr Mao's liability to Mr Bao under the mortgage. They are, however, at issue about when the currency conversion, and the set-off, should take place. There are also disputes about the calculation of interest.