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22 April 2024
KEY QUESTIONS
- What happens if you sign a document under duress?
- What happens if you pay money under duress?
- Can you still be under duress years after the initial incident giving rise to the duress?
- What conduct can amount to duress?
- What happens if you engage in conduct affirming the transaction that was entered into under duress?
WANG V YU [2023] NSWSC 1182
In the recent decision of Wang v Yu [2023] NSWSC 1182[1] (Wang v Yu), the Honourable Meek J thoroughly fleshed out the principles governing duress and rescission of contract.
The plaintiff in the proceedings was Dr. Lu Wang (Dr Wang). Kammoun Sukari Lawyers acted for the Defendants in the proceedings, Mr Jiayi Yu (Mr Yu), STYU Pty Ltd (STYU) and Auslon Property Group Pty Ltd (APG). Kammoun Sukari Lawyers also acted for Mr Yu in the cross-proceedings which he brought against Dr Wang.
BACKGROUND TO THE PROCEEDINGS AND CROSS-PROCEEDINGS
The proceedings involved a dispute arising from a property development arrangement among the parties. Dr Wang introduced her former school friend and acquaintance, Mr Yu, to her then-boyfriend, Toshiyuki Yamaguchi (Mr Yamaguchi) for investment partnership purposes. The property development project involved the construction of 30 residential apartments and a single retail shop in Meadowbank, NSW. The arrangement was structured through a unit trust (the Trust) in which a company of which Mr Yu was the sole director and shareholder, namely the second defendant (STYU), and Mr Yamaguchi held an equal number of its units. The third defendant, APG, was the trustee of the Trust.
The property development arrangement was informal and lacked documentation. This led to disagreements between the parties over respective financial contributions and responsibilities. At the outset, Dr Wang assumed the role of a supervisor or ‘gatekeeper’ of investment funds which were paid by Mr Yamaguchi. The nature of Dr Wang’s role in the arrangement became more ambiguous when she began making payments to APG. Ultimately, the informality of the arrangements between Mr Yu and Mr Yamaguchi compounded into a complete failure when Dr Wang sought to formalise a document with Mr Yu and APG which set out the basis on which she had been making payments to APG. Mr Yu did not directly recognise such payments, partly because he regarded it as a matter to be dealt with between Dr Wang and Mr Yamaguchi.
On 11 May 2015, Mr Yu claimed he was assaulted by Dr Wang’s boyfriend, the second cross-defendant, Song Allen Yang (Mr Yang). On 28 June 2016, Mr Yu claimed he was pressured to enter into a deed of settlement and release (the Deed) due to duress from fear of Mr Yang. Mr Yu claimed that he paid monies to Mr Yang immediately after the assault and also paid monies to Mr Yang for Dr Wang prior to entry into the Deed at the request of and under the threat of violence from Mr Yang. On 13 April 2021, Mr Yu and STYU claimed to have elected to ‘void’ the Deed by reason of duress.
In the proceedings, Dr Wang claimed specific performance of the Deed and sought, amongst other things, orders that STYU transfer its beneficial interest in Class B Units under the Trust to her. In the cross-proceedings, Mr Yu sought declarations that the agreements to pay monies to Dr Wang and Mr Yang were void and of no effect and sought repayment of the funds he paid and judgment for $210,000.
ISSUES IN THE PROCEEDINGS AND CROSS-PROCEEDINGS
Some of the issues to be determined by the Court were:
- What was the nature of the arrangement between Mr Yu and Mr Yamaguchi regarding the property development project?
- Was Mr Yu assaulted by Mr Yang? If so, was Mr Yang acting under the authority of Dr Wang or did Dr Wang procure the assault by Mr Yang on Mr Yu?
- Did Mr Yu sign the Deed under duress?
- Did Mr Yu/STYU affirm the Deed by correspondence on 22 December 2017 and 13 August 2018? Was there an affirmation of the Deed on these dates? Was the duress still operative on these dates?
- Is Mr Yu estopped by deed or other conduct from claiming the sum of $200,000?
- Should the Court grant specific performance of the Deed?
- If specific performance is denied what, if any, relief should be given in relation to the Deed including an account and damages?
FINDINGS OF THE COURT AND CONSIDERATION OF CASE LAW
What was the nature of the arrangement between Mr Yu and Mr Yamaguchi regarding the property development project?
The Court found that Mr Yu and Mr Yamaguchi entered into an agreement in about mid-2014 to establish a unit trust for the purposes of a property development project. Some of the terms of the agreement were that: Mr Yamaguchi would provide the initial funding required for property acquisition and development; Mr Yu would contribute his expertise, time, resources, and office space; and Mr Yu and Mr Yamaguchi were to split the profits equally as 50/50 unitholders. The Deed was executed on 18 July 2014 and established STYU as the initial unit holder and APG as the trustee. Mr Yu’s responsibilities in the arrangement were to source the property, organise funding, and oversee project development. Mr Yamaguchi’s investment was seen as a capital contribution, while Mr Yu’s contribution was focused on the operational aspects of the project. Despite some ambiguity regarding future funding arrangements, particularly regarding Mr Yamaguchi’s potential additional contributions, the Deed and initial agreement formed the foundation of their partnership throughout the property development project.
Was Mr Yu assaulted by Mr Yang? If so, was Mr Yang acting under the authority of Dr Wang or did Dr Wang procure the assault by Mr Yang on Mr Yu?
Despite inconsistencies in Mr Yu’s accounts of the assault on 11 May 2015 and attempts to discredit his testimony, the Court accepted that he was assaulted by Mr Yang and his accomplices. The occurrence of the assault was corroborated by emails, photographs of injuries, and witness testimony. Further, the Court acknowledged Mr Yu’s fear of reprisal in light of his reluctance to involve the police immediately following the assault incident. Although Dr Wang denied any knowledge of the assault, evidence adduced during the trial suggested otherwise, including, amongst other things: Dr Wang having invited Mr Yu to the dinner; Mr Yu’s evidence regarding Mr Yang and Dr Wang’s statements implying their willingness to resort to violence to obtain money from him; and an admission from Dr Wang that she treated Mr Yu ‘too nice before’, serving as an admission that she had adopted a different strategy to deal with Mr Yu. Ultimately, the Court found that Dr Wang had instructed Mr Yang to threaten Mr Yu.
Did Mr Yu sign the Deed under duress?
Ultimately, the Court found that the Deed was entered into under duress, which only added to the complexity of the proceedings. Although Mr Yu denied being threatened with violence by Dr Wang or Mr Yang in June 2016, the court accepted his evidence that he was under duress at the time of signing the Deed as he feared that Mr Yang would harm him and his family at Dr Wang’s command. The Court also found that Mr Yu signed the Deed because he was concerned about the risk of a statutory demand and then winding up application being commenced against STYU, which would ultimately have halted funding to the construction and thus ended that development project altogether.
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Did Mr Yu/STYU affirm the Deed by correspondence on 22 December 2017 and 13 August 2018? Was there an affirmation of the Deed on these dates? Was the duress still operative on these dates?
It was alleged by Dr Wang that Mr Yu affirmed the Deed through an email that was sent by his solicitor on 22 December 2017 which, amongst other things, commented on the rights and obligations of the parties under the Deed. The Court found that the 22 December 2017 email amounted to an affirmation of the Deed on Mr Yu’s part, subject to the question as to whether the duress remained operative on that date. The Court examined this question by noting that a period of 2.5 years had lapsed since the assault on 11 May 2015. Evidence was submitted that on or about 22 December 2015, Mr Yang posted a copy of his firearms license to WeChat, which was received by Mr Yu in about August 2016. Mr Yu explained in cross-examination that the 22 December 2017 email was an attempt to buy time as he was seeking to avoid being assaulted again, which he believed was imminent, and to prevent damage to the construction site of the project. Mr Yu further explained that there would be no benefit to him from the Deed which gave away his units for no consideration and therefore, it did not make sense that he would affirm the same. Considering this explanation, the Court found that the duress was still operative at the time that the 22 December 2017 email was sent.
Additionally, Dr Wang alleged that Mr Yu affirmed the Deed through an email from his then solicitor on 13 August 2018 wherein it was stated that the transfer under the Deed had not yet been enlivened as the project was not complete at that point in time. The Court found that the 13 August 2018 email amounted to an affirmation of the Deed on Mr Yu’s part but that the duress remained operative at that time because, as before, Mr Yu was attempting to buy time as he was seeking to avoid being assaulted again.
SUBSTANTIVE ORDERS AND COSTS OF THE PROCEEDINGS AND CROSS-PROCEEDINGS
The Court made the following substantive orders on the main claim and cross-claim:
- Judgment in favour of Mr Yu, STYU and APG on the main claim.
- Judgment in favour of Mr Yu against Dr Wang on the cross-claim in the sum of $200,000.
- Judgment in favour of Mr Yu against Mr Yang on the cross-claim in the sum of $10,000.
- Declaration that Mr Yu and STYA avoided the Deed on 13 April 2021.
- Ordered Dr Wang to deliver up to the Court the Deed for its cancellation.
COSTS OF THE PROCEEDINGS AND CROSS-PROCEEDINGS
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The costs of the proceedings and cross-proceedings were subsequently dealt with in Wang v Yu (No 2) [2024] NSWSC 4.[2] In that decision, the Court ordered, amongst other things:
- Dr Wang to pay Mr Yu’s costs on her claim on an ordinary basis up to 15 September 2022 (being the date on which Mr Yu made an offer of compromise) and on an indemnity basis thereafter as agreed or assessed.
- Dr Wang to pay the Mr Yu’s in respect of the claim against Dr Wang in relation to the $200,000 amount on the cross-claim on an ordinary basis up to 15 September 2022 and on an indemnity basis thereafter as agreed or assessed.
- Mr Yu to pay the Mr Yang’s costs in respect of the costs on the cross-claim against the Mr Yang referable to the claim for the $200,000 amount, on the ordinary basis as agreed or assessed.
- Mr Yang to pay Mr Yu’s costs in respect of the costs on the cross-claim against Mr Yang referable to the claim for the $10,000 amount, on the ordinary basis as agreed or assessed.
- That the costs the subject of orders (3) and (4) whether quantified by agreement or by assessment be set off against each other.
KEY TAKEAWAYS
Although not a novel case, Wang v Yu is a prime example of the approach that the Court will take when there are allegations that a deed or another transaction was entered into under duress. This case unequivocally demonstrates that the Court will have measured and thorough consideration for several key issues including, amongst others: whether there was duress at the time the deed or transaction was entered into; whether the parties affirmed the deed or transaction following the duress and if so, whether the duress was still operative at the time of the affirmation; whether restitution is required or available in the circumstances; and whether it is appropriate to grant specific performance of the subject deed.
RELEVANT LINKS
- The judgment dated 5 October 2023 is accessible on New South Wales Caselaw at the following URL: https://www.caselaw.nsw.gov.au/decision/18af43d5bd4266544c054e90.
- The costs judgment dated 17 January 2024 is accessible on New South Wales Caselaw at the following URL: https://www.caselaw.nsw.gov.au/decision/18c6b0fbd00c66ac30c851a3.
[1] Wang v Yu [2023] NSWSC 1182 (5 October 2023).
[2] Wang v Yu (No 2) [2024] NSWSC 4 (17 January 2024).