Say Chong Lim & Ors. v Chee Kong Ong & Ors.

A defendant debarred from defending does not suffer automatic judgment in default. The court must still determine whether the claimant has established entitlement to judgment, while the defence may remain relevant to the ambit of the dispute and admissions.

Where money is transferred for a specific purpose, a Quistclose trust may arise. Mixing the money with other funds and failing to provide evidence of its application may justify an inference that it was not used for the specified purpose.

An accounting party must prove expenditure claimed in an account. A common account is based on property actually received; an account on the footing of wilful default requires a specifically pleaded and proved case. A conspiracy claim requires evidence of deliberate combination or concerted action, not merely similar wrongdoing by companies under common control.

The claimants, Mr Say Chong Lim and associated companies, brought fraud, breach of fiduciary duty, trust, knowing receipt, accounting, contractual, information and unlawful means conspiracy claims against Mr Chee Kong Ong and companies within the Greenacre group.

Several defendants were debarred from defending after failing to comply with unless orders. The court nevertheless considered the claims on their merits. The dispute concerned the use of investment and loan funds in property projects, the ownership and distribution arrangements under a shareholders’ agreement, and the defendants’ obligations to account and provide information.

The central issues were whether funds had been misapplied, whether constructive or Quistclose trusts arose, how the GCPL shareholders’ agreement should be construed, what sums were recoverable on the accounts, and whether the alleged wrongdoing established an unlawful means conspiracy.

1. The claims for fraudulent breach of director’s duties and knowing receipt concerning the Hyson House loan succeeded. Mr Ong had transferred the loan monies to himself, GCL and GPL contrary to Hyson House’s interests and in breach of the duties in ss 171, 172, 174 and 175 of the Companies Act. The recipients knew that the monies were Hyson House property transferred in breach of fiduciary duty. Hyson House was entitled to equitable compensation and restitution, without double recovery.

2. Debarring orders did not entitle the claimants to judgment automatically. The court retained its judicial function and had to be satisfied that the claims were established. The defendants’ pleadings could also be considered to identify the scope of the dispute and admissions. However, Mr Ong could not represent GCPL at trial under CPR r 39.6 because there was no evidence that GCPL had authorised him to do so.

3. The £1.2m transferred for investment in the CGW portfolio was held on a Quistclose trust. GCL mixed the money with other funds and spent substantially more than that sum on general expenditure before the properties were acquired. In the absence of records or contrary evidence, the court inferred that none of the investment was used for the specified purpose. GCL therefore breached trust, and Mr Ong dishonestly assisted that breach.

4. GPL failed to prove development expenditure claimed in the Lapland account. An accounting party must document each item and bears the evidential burden of justifying claimed costs. The common account required GPL to account for rental sums actually received, producing a starting figure of net receipts after third-party management deductions. A wilful-default account, which could have supported a claim based on sums that should have been received, had not been pleaded. GPL also had no entitlement to a separate management fee because its remuneration was represented by the agreed profit share.

5. The GCPL shareholders’ agreement was construed as requiring CSI to receive 50% of GCPL, GCPL to own the relevant SPV interests, and CSI and Mr Ong to fund GCPL equally. An implied term required GCL to transfer its SPV interests to GCPL. It was unconscionable for GCL to assert beneficial ownership of those interests or proceeds, so constructive trusts arose. The distribution waterfall was applied by reference to the parties’ proven initial contributions in the ratio 3,573,500:231,360, approximately 94:6.

6. Mr Ong owed a personal contractual obligation to provide information about the Bermondsey, Dublin and Cooks Road projects. No separate obligation by GC180 was established. The unlawful means conspiracy claims failed. Even assuming that a director could conspire with companies under his sole control, the evidence did not establish deliberate combination or concerted action directed to a common end.

Orders were made for compensation, restitution, payment of rental and development sums, specific performance, constructive trusts and further information. Further submissions were directed to the date on which the GCPL trusts arose and interest.