These proceedings principally involve two written agreements, prepared in China by businesspeople. They were prepared without the benefit of legal assistance on either side, and in the Mandarin language.
The first agreement is dated 7 August 2013. It is a tripartite agreement ('First Agreement'). It identifies the parties to the agreement in the following fashion:
Party A: Australia Wangguo Capital Pty Ltd Chairman FANG Shiran
Legal Representative: FANG Shiran. The managing director of the said company. Passport number: [redacted]
Party B: XU Guoqing ID Number: [redacted]
Spouse: YANG Xia ID Number: [redacted]
Party C: YIN Xianxiang ID Number: [redacted]
In broad terms the First Agreement provides for the plaintiff to invest RMB 1.5 million into a reflexology business to be established in Australia. In consideration for this investment the plaintiff was to acquire a 30% equity in the business. It seems clear that the transaction was designed to facilitate the plaintiff and his wife obtaining 457 visas, which would allow them to settle in Australia.
I do not believe that it is necessary to go beyond this brief description of the First Agreement for present purposes.
On 9 August 2013 two of the parties to the First Agreement purported to vary that agreement. Party A was not a party to this purported variation ("the Second Agreement"). Neither party in the proceedings placed any reliance on the Second Agreement, both accepting that the Second Agreement was void by dint of the fact that Party A was not a party to it.
The third agreement, an agreement dated 24 October 2013, purported to provide additional terms to the First Agreement ("the Third Agreement"). Unlike the Second Agreement, this agreement was an agreement between all parties to the First Agreement.
The Third Agreement is not without its difficulties. It provides for a loan of RMB 1.5 million from the plaintiff (Party B) to Party A for the purposes of the business contemplated by the First Agreement. The Third Agreement, however, is wholly inadequate in explaining how it affects the rights and obligations of the parties under the First Agreement. The Third Agreement is said to be additional to the First Agreement, though it may well be that the parties were in fact intending to vary the First Agreement by the Third Agreement.
The fourth relevant written document is a document handwritten by the defendant, again in Mandarin. In one translation of the document in the evidence it was headed "IOU". In another, it was headed "Loan Acknowledgment". The parties were in agreement that nothing turns on the difference between the two translations. I shall refer to the document as "the Loan Acknowledgment".
The body of the document is in the following terms:
now borrowed from GUOQIN XU exactly 1,500,000 renminbi
It is signed by the defendant.
[2]
The Plaintiff's Case.
The plaintiff's case is that he contracted with the defendant (Mr Fang) in terms of the First Agreement. He says that the Third Agreement varied the First Agreement by effectively rewriting it, to convert what was his 1.5 million investment into the reflexology business, into a loan in that sum to the defendant. The term of this loan was said to be 30 months. The plaintiff says that he loaned the sum directly to the defendant in three tranches, and that this was confirmed by the Loan Acknowledgement.
As I have earlier indicated, the interaction between the First Agreement and the Third Agreement potentially involves difficult questions. These issues do not arise for determination in the proceedings, as I believe that the proceedings are to be determined by reference to the issue as to who were the parties to the First and Third Agreements and the Loan Acknowledgement.
[3]
The Defendant's Case
The defendant says that he was not a party to any of the relevant agreements. Rather, the party to each of them was his company Kingdom Capital Pty Limited ('KC'). KC was not joined in these proceedings. It was subsequently deregistered, and the plaintiff has taken no steps to cause it to be reregistered.
I turn then to what I consider to be the determining issue in the proceedings; namely, the identification of the parties to the various agreements.
[4]
The Applicable Legal Principles.
The parties were in agreement as to the relevant legal principles applicable to the task of identifying the parties to a contract. These can be summarised as follows.
The task of identification of the parties to a contract falls to be determined in accordance with the objective theory of contract (see Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [54]-[58]; Harold R Finger & Co v Karellas Investments Pty Ltd [2015] NSWSC 354 at [79]-[86], and the authorities cited therein). Subsequent conduct is available to the court in determining the identity of the parties to a contract, in contradistinction to the situation where the court is construing contractual terms where it is not (see Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [59]).
The objective theory of contract demands a focus on what was objectively communicated between the parties. As I have earlier mentioned, the parties' uncommunicated subjective intentions are irrelevant. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157 at [1312]-[1321], the Court of Appeal of Western Australia endorsed the trial judge's analysis in the following terms:
The first stage with an informal contract is to look for the "actual intention" of the parties. Consistently with the objective theory of contract, that is not a search for the subjective state of mind of each party, even if shared but not communicated. Rather it is a search for the "objective intention" of each party to be inferred from what is manifested by its communications and other conduct.
In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833, Allsop J stated that subjective intentions may be relevant only "so far as they are manifest and shared". His Honour stated (at [369]):
The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.
The principles relevant to the operation of the objective theory of contract for present purposes were also not in dispute.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 (at [40]), the High Court (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) said:
The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 (Woodside) (cited with approval by the High Court (Kiefel CJ, Gageler, Nettle and Gordon JJ) in Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13 (at [44])), the High Court (French CJ, Hayne, Crennan and Kiefel JJ (as her Honour then was)) held (at [35]):
… The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating".
[5]
Consideration
For the plaintiff it was contended that KC was not a party to any of the relevant agreements. This contention was put on the following bases:
1. The First Agreement was signed by the defendant in his personal capacity.
2. The First Agreement did not refer to KC's ABN or ACN.
3. That the reference in the agreement to KC was merely an attempt to identify the defendant. It was contended that the defendant was identified as being the person who controlled KC.
4. That the reference to the defendant's passport number demonstrated that he was contracting in his personal capacity.
5. That when the reflexology business was ultimately established, this was effected by the defendant personally who managed business, acquired its business name in his own name, and banked its takings into an account in his own name.
Mr Seow for the plaintiff resolutely advanced the case that the defendant was the relevant contracting party. In my opinion, however, that case was simply untenable.
In my view the hypothetical businessman observer of the First Agreement, with the knowledge of its commercial background, would have little difficulty in concluding that the First Agreement means what it says, namely, that the relevant party was KC.
The hypothetical businessman observer, in my opinion, would conclude that the references to the defendant Mr Fang in the First Agreement as a "legal representative" could only be understood as indicating that he was the legal representative of the corporate contracting party KC.
The plaintiff's contrary construction, to my mind, simply cannot stand. If Mr Fang, the defendant, was a party to the First Agreement, then the references in the agreement to KC were entirely otiose. Similarly, if the defendant was a party, then the reference to the defendant as a legal representative was also otiose. In that regard I am drawn to ask rhetorically why would Mr Fang be stated to be his own legal representative?
As to the submission that the reference to KC was included for the purposes of identifying Mr Fang, this contention can be readily disposed of by reference to the fact the parties were well aware of identifying Mr Fang, namely by reference to his passport number. This after all was the method by which they saw fit to identify him as KC's legal representative
To my mind the failure of the parties to include reference to either KC's ABN or ACN goes nowhere. This omission may well be a breach of the Corporation Law, but it does not bear on the task of identifying the parties to the contract.
The subsequent conduct of the defendant Mr Fang, being his involvement in the establishment and management of the Wollongong Reflexology business, also does not assist the plaintiff. It is trite to say that a corporation is an artificial construct, granted legal personality by the legislature. This artificial construct must undertake every action through some form of human agency. Thus, in my view, the activities undertaken by Mr Fang upon which the plaintiff relies could not be taken to be subsequent conduct relevant to determining the parties to the First Agreement.
Similarly, in my view, the placement of the business name in the defendant's name and the banking of the takings of business into an account in his name does not assist the plaintiff's case. The fiduciary duties owed by the defendant to KC would constitute the defendant as a constructive trustee of those assets for the benefit of the company.
The plaintiff's contention that the defendant signed the First Agreement in his name in his personal capacity, to my mind, begs the question. True it is that Mr Fang signed the agreement, but he was at the time both a director and company secretary of KC. As such, his signature was sufficient to bind the company (section 127(1)(b) of the Corporations Act 2001 (Cth)). It was not necessary to affix a common seal.
[6]
The May 2014 Payment of $50,000
The plaintiff also alleged that the payment by the defendant to the plaintiff of $50,000 made in May 2014 was post-contractual conduct capable of being taken into account in determining the parties to the transaction. In that regard he pointed to the fact that the payment was made after KC was deregistered. Thus it was put that the payment was evidence that the defendant, and not KC, was the contracting party.
I do not believe that this is so.
The plaintiff in his evidence in reply denied that the $50,000 advanced was made by way of loan. That evidence, however, was unsatisfactory.
In that affidavit, the plaintiff merely denied the conversation referred to by Mr Fang in which he alleged that the plaintiff sought, and he made, the $50,000 loan. He then went on to assert "I say that the transfer of $50,000 was a partial repayment of the debt owed by Mr Fang to me". This evidence is, in reality, an inadmissible conclusion as to law. It was a submission, not evidence. In my view, it does not provide a lawful evidentiary basis for the plaintiff's characterisation of the transaction (see Hughes v National Trustee and Executors and Agency Company of Australia Limited (1979) 143 CLR 134 at 153 per Gibbs J).
The plaintiff in his submissions suggested that the defendant's evidence in relation to the transaction should not be accepted. This conclusion, he submitted, should be drawn from the fact that the defendant suggested that the plaintiff sought the loan because he needed funds to settle a contract for the purchase of land. This, the plaintiff correctly submitted, was unlikely as he did not appear to be the purchaser of the relevant land to which the notice to complete was directed.
This contention, however, does not establish that the advance made was not in fact a loan. Rather, at best, it casts doubt on the defendant's memory as to the reason for the plaintiff requesting the loan, as distinct from the fact of the request. I should add that in the same paragraph of his affidavit the defendant also suggested that the loan was requested as the plaintiff had suffered significant casino gambling losses.
The plaintiff contended that in the circumstances, if I concluded that the advance of $50,000 was not by way of loan "the only plausible explanation for this payment is that it is a partial repayment of the (sum) loaned by the plaintiff to the defendant".
I do not accept this submission. As a matter of logic, it does not necessarily follow from the rejection of the assertion that the $50,000 advance was by way of loan, that it was a repayment of the sum personally borrowed by the defendant from the plaintiff. To my mind, there are available explanations for the payment other than the one asserted by the plaintiff.
At the end of the day, however, I do not believe that it is necessary to finally resolve the dispute as to the nature of the $50,000 advance. I take this view as any inference that may be available to be drawn from the payment, even on the plaintiff's construction of it, could not shift the overwhelming textual evidence, which in my view requires the conclusion that KC was the contract party.
Thus, for these reasons I conclude that KC and not the defendant was the relevant contracting party to both the First and Third agreements.
[7]
The Loan Acknowledgment
Mr Seow accepted that if I so found, then the Loan Acknowledgment must be construed as being provided by the defendant on behalf of KC. This concession was, with respect, well made. The Loan Acknowledgement did not constitute a freestanding agreement, rather it could only constitute an acknowledgement of indebtedness based elsewhere. In the present case the indebtedness the subject of the Loan Acknowledgment could only be derived from the First and Third Agreements. As the defendant was not party to these agreements, the Loan Acknowledgement could not be construed as being an acknowledgement by the defendant of a personal liability to the plaintiff. Rather, it must be construed as an acknowledgement of the liability of KC.
[8]
Conclusion
For these reasons the plaintiff's case must fail.
The defendant in his defence pleaded various matters by way of set off. As I have found no liability in the defendant, it is unnecessary to consider these issues.
Accordingly, I make the following orders:
1. that there be judgment and verdict for the defendant against the plaintiff
2. that the plaintiff pay the defendant's costs
[9]
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Decision last updated: 18 May 2022