Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu

THE COURT: 1 Leave to appeal must be granted and the appeal must be allowed. The primary judge summarily dismissed the applicants' contractual claims under s 31A(2) of the Federal Court of Australia Act 1976 (Cth) on the basis that those claims had no reasonable prospects of success (Beijing Hua Xin Liu He Investment (Australia) Pty Ltd v Lu [2017] FCA 319). We consider that, in the circumstances, it could not be concluded that the contractual claims had no reasonable prospect of success. There were factual issues which could not be characterised as unanswerable or unanswered on the material before the primary judge and which, consistent with principle, must be permitted to go to trial. 2 The applicants claimed and the respondents admitted that the first respondent, Mr Lu, was the company secretary of the first applicant, Beijing Hua Xin Liu He Investment (Australia) Pty Ltd, and the sole director and company secretary of the second respondent, Zeus Technology HQB Pty Ltd. Mr Lu also admitted that he owned all 125 shares on registration of Zeus but transferred 25 shares each to the second and third applicants in 2007, retaining 75 shares himself. 3 The applicants claimed that in 2010 Beijing and Mr Lu agreed that Beijing would purchase Mr Lu's 75 shares in Zeus for $1.2 million, with Mr Lu holding the shares on trust for Beijing until Beijing requested a transfer of shares, with Mr Lu to provide an executed but undated transfer form to be held by Beijing. The applicants also claimed that under this agreement, by September 2011, Beijing paid Mr Lu directly or through Zeus the sum of $1.2 million and that Mr Lu delivered to Beijing an undated share transfer form signed by Mr Lu transferring Mr Lu's 75 shares in Zeus to Beijing and an undated memorandum of resolution of Zeus resolving to approve the share transfer also signed by Mr Lu. The particulars to the payment of $1.2 million referred to payments to Zeus "for use by Mr Lu" of $116,000 on 30 April 2011, $232,000 on 30 May 2011, $174,000 on 7 June 2011, $174,000 on 10 June 2011, $347,287 before 15 August 2011, and $156,713 on 12 September 2011. 4 The applicants also claimed that Mr Lu, without complying with the terms of s 254H of the Corporations Act 2001 (Cth), purported to subdivide the shares in Zeus by a resolution of 27 January 2015, the 75 shares being subdivided into 600,000 shares and the other two lots of 25 shares vested in the second and third applicants respectively being subdivided into 200,000 shares each. 5 The respondents admitted the subdivision of the shares but denied it was in breach of s 254H of the Corporations Act. They also admitted that there were discussions about Beijing acquiring Mr Lu's shares in Zeus in May 2011 but claimed that the discussions did not proceed to an agreement. In the discussions Mr Lu said he wanted $1.2 million for his shares in Zeus but further discussions needed to but did not occur. Mr Lu admitted he gave to Beijing an undated share transfer form, signed by him, showing a transfer of his 75 shares for $75 to Beijing and an undated Memorandum of Resolutions [sic] of the Directors of Zeus Technology Pty Ltd, also signed by him, approving the share transfer but said that the share transfer form "had no effect because it was given to the representatives of [Beijing] in good faith and in the expectation that any agreement would be established". Zeus Technology Pty Ltd is, it appears, one and the same as Zeus, given the admission made in the Defence at [6(c)]. The respondents also claimed that any money paid by Beijing to Zeus was paid "against invoices rendered by [Zeus] (payments 1-4 and 6) and that payment 5, in the sum of $347,287 was not paid, and that no payments were made "for the use of" Mr Lu. 6 The respondents applied for summary dismissal of the proceeding as a whole but, at the hearing of their application, confined the application for summary dismissal to the contractual claims (thus leaving to one side the claims that shares in Zeus had been subdivided in contravention of s 254H of the Corporations Act). 7 The application for summary dismissal was supported by an affidavit from Mr Lu in which he said that the discussions about Beijing purchasing his 75 shares in Zeus did not progress to a concluded agreement. He said he provided the signed but undated share transfer form as an act of good faith in anticipation of an agreement for the transfer of his shares being reached. Mr Lu also said that all of the claimed payments except the one for $347,287 were payments made by Beijing to Zeus for services rendered including human resource services, provision of infrastructure, maintaining debtor insurance arrangements, and operational support. Mr Lu annexed invoices rendered by Zeus to Apollo Solar, which he said was the business name of Beijing, and documents styled "Recipient Created Tax Invoice" for each such invoice bearing Beijing's name which are described as "purchase orders". Mr Lu also said that the respondents denied that any payment of $347,287 by Beijing had been made. According to Mr Lu the first he heard of Beijing's claim that it owned the 75 shares in Zeus was in April 2016 after which he arranged the subdivision of the shares. 8 Given that the application was for summary dismissal the applicants, as is proper, did not seek to cross-examine Mr Lu on his evidence. Rather, they tendered a series of emails. The first was an email from "Louis Lu", who is Mr Lu the first respondent, dated 15 August 2011. The subject line of the email is "Account Reconcile and Summary". The email states: Hello Chen Shan, Following our conversation here is the summary of the account about Zeus acquisition: • Zeus invoices $696,000.00 • Historic payment $347,287.00 • Balance to be transferred $156,713.00 … It concluded by asking Ms Chen to let him know if he could think of anything else. 9 Ms Chen replied: No more at his moment. …I mentioned to Cunzhang we could not purchase Zeus and put it aside. 10 Mr Lu replied on 17 August 2011: Yes, I totally agree. Zeus can add a lot of flexibility and stability to overall operation and accounting. … • Our group can use Zeus to channel funds to other destinations if it is required. • Our group can use Zeus to park or transfer part of the profit to balance the overall profit in the book. • … 11 Ms Chen replied to Mr Lu at : Another exciting field when organize Zeus well. .. It seems drunk already, dreams one by one. 12 Mr Lu, using the email address , replied: Yeah, future does look good. 13 This email shows two business logos at the bottom, being Zeus and Apollo Solar, with a reference to Beijing underneath both logos. 14 Mr Lu does not refer to these emails in his affidavit. He had an opportunity to do so because they were annexed to an affidavit from the respondents' solicitor filed on 28 February 2017, before the hearing of the interlocutory application on 8 March 2017. 15 Mr Lu also makes no reference to the Memorandum of Resolutions of Zeus which he signed and which approves the transfer of Mr Lu's 75 shares in Zeus to Beijing. 16 The applicants noted and it is apparent that: (1) The amount in the invoices annexed by Mr Lu to his affidavit adds up to the figure in Mr Lu's first email to Ms Chen which provides a "summary of the account about Zeus acquisition", being the $696,000 for "Zeus invoices". (2) Although Mr Lu denies the payment of $347,287 in his affidavit, this is the amount referred to in Mr Lu's first email to Ms Chen as an "historic payment". (3) The balance is said in Mr Lu's email to be $156,713. The email is dated 15 August 2011. On 12 September 2011 an invoice for goods totalling that amount, $156,713, was rendered plus GST giving an invoice total of $172,384.30. The "Recipient Created Tax Invoice", dated the same day, records payment of that amount. 17 The applicants also observed that there are any one of a number of reasons why Beijing and Mr Lu might have chosen for the consideration for Mr Lu's shares to be recorded as $75 on the share transfer form and for the consideration to be paid to Zeus rather than Mr Lu on apparent account of goods and services rendered by Zeus to Beijing. In circumstances where Mr Lu was the author of the 15 August 2011 email which refers to a summary of the "account about Zeus acquisition" and identifies each of the amounts which Beijing claims it paid as relating to the purchase of Mr Lu's shares in Zeus, the contractual claims, the applicants said, cannot be characterised as fanciful or lacking a real prospect of success. This was supported by the fact that it is apparent that: (1) Zeus and Beijing were in an ongoing commercial relationship, with Mr Lu being both the sole director and shareholder of Zeus but also the company secretary of Beijing. (2) The invoices show that Zeus and Beijing were located within the same office. (3) Each invoice from Zeus bears the same date as the "Recipient Created Tax Invoice" of Beijing. In other words, the invoice requiring payment and payment seem to have been made on the same day. (4) None of the invoices describe the date on which the services were provided or describe the goods and services provided. (5) Every invoice before that of 12 September 2011 is for a pre-GST amount which is a multiple of $63,800. The 12 September 2011 invoice for a pre-GST amount of $156,713 is the exact amount required to be make the total of $1.2 million, and is not a multiple of $63,800. (6) Mr Lu subdivided the shares immediately on hearing of Beijing's claim that it owned the 75 shares, the effect of which would be to ensure Mr Lu retained control of Zeus if Beijing was the owner of the 75 shares. 18 We agree that these circumstances mean that the contractual claims were not amenable to summary dismissal on the basis that the applicants had "no reasonable prospect of successfully prosecuting" those claims. 19 Contrary to the respondents' submissions, this is not a case of "unanswered evidence" as referred to in Spencer v the Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [22]. Nor was Mr Lu's evidence "unanswerable". To a sufficient extent for the purpose of an application for summary dismissal, Mr Lu's affidavit evidence was answered by Mr Lu's own email of 15 August 2011 and the ensuing chain of emails. Mr Lu made no attempt to explain the emails. He also made no attempt to explain the signed Memorandum of a Resolutions by Zeus approving the share transfer. 20 It may be accepted that the evidence is ambiguous. The meaning of the summary of the "account about Zeus acquisition" may not mean the acquisition of Mr Lu's 75 shares in Zeus. But there is no doubt that, when taken with the amounts referred to in the email, it may mean the purchase by Beijing of those shares. Further, Mr Lu may have signed and given the share transfer form and resolution of Zeus approving the share transfer to Beijing assuming an agreement would be reached which was not reached. But those documents may also evidence the existence of such an agreement. Similarly, it may be proved that the invoices do relate to services rendered and/or goods provided by Zeus to Beijing but, taken on their face and read with the email, they may also be evidence of the payment of consideration for the transfer of Mr Lu's shares to Beijing. The fact that the payments were to Zeus not Mr Lu may be explicable for a multiplicity of reasons but, for present purposes, all that need be noted is that Mr Lu was the sole director and controlling shareholder of Zeus which may explain the structure of the payments. It may also be the case that Mr Lu proves that there was no payment of $347,287 but his own email describes that as an "historical payment" which arguably indicates such a payment and at least calls for an explanation which Mr Lu did not give. Finally, the case for the respondents may ultimately be accepted including on grounds that the payments to Zeus included substantial GST amounts giving a total more than $1.2 million and no such money was for the use of Mr Lu. But that this may be so is not to the point. The point is that on the available material the applicants' case was arguable without the applicants having to depose to anything. 21 For these reasons this is a case as described in Spencer at [25]: Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue. 22 In circumstances where the respondents bore the persuasive onus as the moving party, the emails tendered by the applicants, together with the other circumstances they identified (as discussed above), mean that the contractual claims could not be characterised as having a mere "fanciful" prospect of success (Spencer at [25]). 23 To the extent that the primary judge considered that it was necessary that an officer of Beijing give evidence about the purpose of the payments, we are unable to agree. This might have been so but for the emails from and to Mr Lu because then Mr Lu's evidence would have been unanswered. Given that the key email of 15 August 2011 is from Mr Lu himself, it was for Mr Lu as the party seeking summary dismissal to explain away the terms of the email which are reasonably capable of being seen as supporting the applicants' case. It was also for Mr Lu to explain the resolution of Zeus approving the share transfer which he signed and gave to Beijing. Mr Lu gave no such explanation, thus leaving all ambiguities to be resolved in favour of the applicants. So resolved, we are unable to agree with the primary judge that the 15 August 2011 email says nothing about a purchase of Mr Lu's shares in Zeus. It is reasonably arguable that the email is concerned with such a sale. It is also reasonably arguable that the email evidences that the consideration would be paid by payments to Zeus as identified in the email. Finally, it is reasonably arguable that the email also evidences that a payment of $347,287 had been made before 15 August 2011, despite Mr Lu's denial of any such amount having been paid. 24 The material thus disclosed a sufficient evidentiary foundation about the existence of "specific factual or evidentiary disputes that make a trial necessary" (Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited [2008] FCAFC 60; (2008) 167 FCR 372 at [127]). 25 Mr Lu's evidence did not reasonably exclude the possibility that the applicants would be unable to establish the facts critical to the success of the contractual claims (Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 at [20]). To the contrary, knowing of the existence of the emails and the resolution approving the share transfer which he signed and gave to Beijing, Mr Lu left unexplained the significance of that evidence. In the context of the available material, these facts alone required the rejection of the respondents' summary dismissal application. Taken with the features of the invoices and payment records and of the amounts involved as discussed above, the contractual claims could not be characterised as lacking a reasonable prospect of success. The applicants are entitled to a trial of their contractual claims. The fact that it may be inferred to have been within the applicants' power to adduce more and better evidence in support of the contractual claims does not mean that, on an application for summary dismissal, they were bound to do so; at least not where contemporaneous emails from one of the respondents, who owned (or owns) the disputed shares, are reasonably open to be construed as supporting the applicants' case. 26 Subsequent to the hearing of the appeal the respondents filed an interlocutory application seeking leave to file further submissions. Paragraphs 9 to 11 of those further submissions clarified an exchange between Gilmour J and the respondents' counsel during the hearing of the appeal in which his Honour asked if the respondents had received the $347,287 or so-called "historical payment", to which the answer "yes" was given. The respondents wished to clarify that they concede only that the total amount set out in the email of 15 August 2011 had been received, not that the appellant paid that amount or that the amount was paid as consideration for the alleged sale of shares in Zeus. The appellants did not object to this clarification being made. 27 We are content to permit this further submission to be made by way of clarification. It does not affect our conclusions. The terms of the 15 August 201 email, on the face of the email, taken with the material to which we have referred, are sufficient to require this matter to go to trial. Otherwise, in a document dated 27 November 2017 the respondents sought to make further submissions about various matters of detail which arose during the hearing of the appeal. The appellants objected to that course. It appears that the respondents have scrutinised the transcript and decided to attempt to make further submissions about any matter that they perceive to be inaccurate. The attempt is inappropriate. The respondents had the opportunity during the hearing of the appeal to put their case. There is no explanation for the respondents' not having done so. The matters, in any event, involve quibbles about available inferences which are not material to the resolution of the appeal. Attempts such as this should be discouraged. Accordingly, apart from paragraphs 9 to 11 of the further submissions of 24 November 2017, leave to re-open should be refused and the respondents should pay the costs of the entirety of the interlocutory application for leave to re-open. 28 For the above reasons, leave to appeal must be granted, the appeal allowed, the application for summary dismissal must be dismissed, and the applicants should have their costs of the appeal and before the primary judge. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

At a glance

Court

Decision date

Before

Source

Judgment (2 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (6)

Cited By (4)