In the matter of Ji Woo International Education Centre Pty Ltd [2016] NSWSC 1060

Supreme Court of NSW|2015-04-23|Before: Brereton J

Solicitors: Koffels (plaintiff in 2014/145716; defendants in 2014/218404) Hans Kim Lawyer (defendants in 2014/145716; plaintiffs in 2014/218404) File Number(s): 2014/145716; 2014/218404

Judgment

In November 2012, Jehun Hwang and Bo Hyun Lee were the directors of Ji Woo International Education Centre Pty Ltd ("Ji Woo"), [1] in which Mr Hwang held nine of the ten issued shares, and the other was held by Mr Chihoon Choi. Mr Hwang and Mr Lee were also the directors of IBN College Pty Ltd ("IBN"), in which each of them held 63,000 of the 180,000 issued shares, the other 54,000 being held by Ms Ye (Annie) Jin. Between 21 and 26 November 2012, Mr Hwang and Mr Lee negotiated an agreement for the separation of their affairs. In proceeding 2014/145716 ("the Corporations proceeding"), by originating process filed on 14 May 2014, Mr Hwang as plaintiff sought declaratory relief to the effect that he is and remains a director of, and the holder of nine issued shares in, the first defendant Ji Woo, and rectification of the register maintained by ASIC to that effect (thus reversing the effect of a Form 484 that he says was incorrectly lodged, on the instructions of Mr Lee, purporting to record his cessation as a director and shareholder). Chihoon Choi, Hae Young Han, and Myounghwa Yeo, who since 30 November 2012 have been registered as holders respectively of four, three and three shares, are the second, third and fourth defendants. In proceeding 2014/218404 ("the Equity proceeding"), by statement of claim filed on 24 June 2014, Mr Lee and Ji Woo as plaintiffs sued Mr Hwang and IBN as defendants for breach of contract, claiming $180,000 said to be owed by Mr Hwang and/or IBN to Mr Lee in respect of moneys invested by him in IBN; $100,000 from IBN in respect of dividends or profit; $63,000 from Mr Hwang being the alleged unpaid consideration for the sale of Mr Lee's shares in IBN to Mr Hwang; an accounting of the contents of a safety deposit box; a declaration that as at 26 November 2012 Mr Hwang had no rights either as a member or as a director of Ji Woo; and payment of dividends said to be due to Mr Lee for the period 25 September to 26 November 2012.

Background

Ji Woo operated an educational consulting business, providing referral services for overseas students who wished to study in Australia, deriving its revenue by way of commission from the educational institutions to which it referred students. It was registered as a company at the instance of Mr Lee on 7 July 2003, with Mr Lee its sole director, and its ten issued ordinary shares were allotted five to Mr Lee and five to his then wife Ki Suk Moon.
In about 2003, Mr Hwang established a free website forum called 'My Hoju', through which overseas students could share information about study in Australia. Presumably as a result of this, Mr Hwang met Mr Lee in late 2003. In about mid-2004, Mr Lee asked Mr Hwang to work with him, and in about late September 2004, Mr Hwang agreed to do so, on the basis that he would be a 50% shareholder and would receive 50% of the company's profits. From about late 2004, Mr Lee and Mr Hwang worked together in Ji Woo's business. Mr Hwang was appointed a director of Ji Woo on 23 May 2005.
By July 2010, Mr Lee had transferred all the shares he had held in Ji Woo to Mr Hwang, for no consideration. In the course of the evidence, it emerged that this was apparently to avoid a family law claim by Mr Lee's wife, and was on the understanding that Mr Hwang would account to Mr Lee for half the profits of the company. Mr Lee remained a director, and Mr Hwang considered him to remain an equal beneficial shareholder. In March 2011, Mr Lee instructed Mr Hwang to transfer one share to Mr Chihoon Choi, in recognition of Choi's loyal service to the Company, and on 7 March 2011, ASIC was notified that Mr Hwang held nine shares and Mr Choi held one share in Ji Woo.
IBN carries on business as an educational and training college. It was registered as a company on 12 August 2009 (under its former name), in pursuance of a decision by Mr Lee and Mr Hwang to establish a college to offer academic courses for overseas students. Initially, Mr Hwang was its sole director; Mr Lee became a director on 15 September 2009. Its members were Mr Lee (63,000 shares, or 35%), Mr Hwang (also 63,000 shares, or 35%) and Ms Ye (Annie) Jin (54,000 shares, or 30%). In May 2010, Mr Hwang and Mr Lee each contributed $150,000 to fund IBN; Ms Jin did not herself pay for her shares, but Messrs Hwang and Lee funded them out of their contributions, as part of their arrangements with her. In about March 2011, a further $100,000 was contributed by Mr Hwang, Mr Lee and Ms Jin in amounts proportionate to their shareholdings ($35,000, $35,000 and $30,000 respectively). Thus by about March 2011, each of Mr Hwang and Mr Lee had contributed a total of $185,000 to IBN. IBN had its first intake, of a small number of students, in September 2011.
The financial statements of IBN for the year ended 30 June 2011 recorded net assets of $56,513, reflecting paid-up equity capital of $180,000, and loan capital (shareholder loans) of $227,219. Mr Hwang and Mr Lee had therefore each contributed $90,000 of the equity capital of $180,000 (although $54,000 was referable to Ms Jin's shareholding), [2] and a further $95,000 each by way of shareholder loans. With the $30,000 contributed by Ms Jin, the contributions by way of loan total $220,000, which broadly corresponds with the $227,219 referred to in the financial statements; the difference of $7,219 is immaterial for present purposes.

Events leading to the breakdown

In about November 2011, Mr Hwang agreed to lend Mr Lee $50,000 to fund the acquisition of a property, and on 5 December 2011, Mr Hwang transferred $50,000 to Mr Lee's bank account by electronic funds transfer. In January 2012, Mr Lee asked Mr Hwang for a loan of a further $150,000, and provided Mr Hwang with a 'Personal Guarantee' document, by which he guaranteed the repayment to Mr Hwang of $200,000 by no later than 30 June 2012, with interest of $1,200 per month. Between 12 and 17 January 2012, Mr Hwang transferred a further $150,000 to Mr Lee's bank account by electronic funds transfer. Mr Lee repaid $50,000 to Mr Hwang on or about 24 April 2012, and a further $100,000 on or about 18 June 2012. Mr Lee agreed that he had borrowed $200,000 from Mr Hwang on the terms of the January 2012 'Personal Guarantee' document, and had repaid $150,000 as at November 2012. The loan had thus not been fully repaid by 30 June 2012, as Mr Lee had promised.
In the course of 2012, for this and other reasons, Mr Hwang became increasingly dubious as to whether he wanted to continue to work with Mr Lee. In about mid-November 2012, Mr Lee attended a conference in Kuala Lumpur. While he was away, Mr Hwang composed a letter to Mr Lee, proposing that they separate their affairs. After recounting the background to Mr Hwang's decision to separate, his resolve to do so and his hope to achieve it on good terms, the draft (6-page) letter proceeded to propose that they divide the business of Ji Woo, with part to be transferred to a new company to be owned by Mr Hwang, called Uhakstation Pty Ltd (emphasis added): Plan to divide school contracts Currently the majority of the contracts for universities or TAFEs are in the name of Jiwoo International Education Pty Ltd so I will give this portion of the company to Lee and I will start again with Uhakstation Pty Ltd. I wish some contracts that are presently with Jiwoo International Education Pty Ltd to be transferred to Uhakstation Pty Ltd, as shown in the table below. What I am asking for is four university contracts and three other contracts. When we compare the future commissions and marketing support, you will be getting much more than I am. I hope you understand this. As you can see, the schools I have chosen provide very little marketing support. For universities, I do not know whether they will allow this kind of changes. But if you agree, I will prosecute the changes with them. I will take the university contracts and change the bank account details. Commission in respect of students referred by subcontractors will be paid to the subcontractors, and then I hope that the subcontractors will arrange payments from the student commissions received by them of the full commissions. I understand that most UWS and RMIT contract have sub-contract arrangements so I will get profit only in respect of UTS. I know that only about 30% of the total number of students are our students so it will not be much. Once we receive payment from those students who have not yet paid their tuition fees we can make claims for our commissions from each other by mutual subcontract arrangement. Otherwise, new contracts will have to be negotiated and the agents changed. The four universities I would like to keep will easily give us the contracts if you, Lee, contact them.
The letter then set out a table of educational institutions, by category and state, showing their proposed allocation. Of universities in New South Wales, it allocated UTS and UWS to Mr Hwang, and ten others (including Macquarie) to Mr Lee. In Victoria, it allocated RMIT to Mr Hwang, and four others (including Monash) to Mr Lee. One university in each of South Australia, Queensland, the ACT and Tasmania were allocated to Mr Lee, and none to Mr Hwang. In Western Australia, UWA was allocated to Mr Hwang, and another institution to Mr Lee. Of colleges in New South Wales, Insearch UTS was allocated to Mr Hwang, and all others to Mr Lee. All colleges in Victoria, South Australia, Queensland, Western Australia, the ACT and Tasmania were allocated to Mr Lee. Of the "English Colleges", Insearch UTS in New South Wales was allocated to Mr Hwang, and all others across the nation to Mr Lee. Of the schools contracts, Mr Hwang was allocated Insearch UTS in NSW, and Victorian Government Schools; all others nation-wide were allocated to Mr Lee.
Mr Hwang also proposed that, in Australia, he would take the Melbourne branch office, while Mr Lee would have the Sydney head office; in South Korea, he would take the Gangnam 2 branch in the Daesung Building, while Mr Lee would take the Gangnam 2 Philippines branch, the Jongro branch and the Busan branch, and the Daegu branch franchise. Finally, Mr Lee would receive the company names Jiwoo and IBN, while Mr Hwang would take Uhakstation and its Korean equivalent.
The draft letter then continued (emphasis added): In exchange for giving up most of the contracts and marketing income and commissions (which would be about $1 million over two years, if we take into consideration only major universities like ICMS, LeCordon, Navitas, MQ, etc), [3] I would like to use the company name, Uhakstation. It was me who came up with the name and it was me who added the meaning to the name. To do this, I will need its email address and homepage. I will transfer the current homepage to another domain. Then you can use it as it is, just by changing the logo. I will make a new homepage for myself and will forward any emails addressed to you if I receive them to uhakstation.com. As soon as I get a new office, I will put out a new advertisement to announce that Uhakstation is now independent from Jiwoo International Education that once it was merged with and encourage, the current students to go to Jiwoo International (or another name). I am not sure if any of the current staff would follow me. It is possible that there might be some empty offices even if I were to manage the Gangnam and Melbourne offices. I will accept whatever eventuates, although I do not have high expectations as I heard that you have obtained pledges from people to work with you. Once all the above matters settle, I will transfer the rights of Ji Woo International to you and I will leave Ji Woo International once and for all. Thank you very much for what you did.
After another table, setting out the proposed distribution of "Other Schools" - in Australia, IBN College to Mr Hwang; in the Philippines, Best Celler to Mr Lee; and in Korea, Korean University project to Mr Lee - the letter continued (emphasis added): Would you like me to reimburse the money you had invested in IBN College? Presently there is some money that you have not paid me back. I could offset the invested money from that money. I can pay you the balance and take over the shares. This part ought to be discussed separate from Education Consulting business but as we are separating I don't feel comfortable sharing another business with you. As you already know, due to regulations, the School (IBN College) situation is that it is not run normally but barely making even, so I hope we resolve the matter this way. Presently, Best Celler schools enrolments are filled up for over 6 months. The school is run more than normally. I hope you continue to run the School. As partners we were to run the business as about $6,000 a month in rent for Korean Office for Philippine School were paid by Uhakstation. So I should have rights to it, but it doesn't seem right to me to have a dispute about it with you. As for IBN, I would like to reimburse your invested money and receive shares from you. Also for Philippine Celler, I would like to clear it without any separate discussion. And you said the Korean University program has almost ended. I hope it goes well. If what you said is right, the program would make you hundreds of thousands of dollars per year.
The letter concluded: I wish you success. So long.
On 20 November 2012, Mr Hwang sent copies of his draft letter to Chihoon Choi and Myounghwa Yeo, employees of Ji Woo, to ascertain their thoughts, and he also exchanged MSN messages with another employee, Hyun Sik Choi, whom he told about the letter he was preparing. Hyun Sik Choi requested a meeting with Mr Hwang after work that day, and that evening they went to a restaurant in Sydney, where Hyun Sik Choi told Mr Hwang that Mr Lee had been using significant amounts of Ji Woo's money for his personal benefit.

21 November 2012

The following day, 21 November 2012, Hyun Sik Choi gave Mr Hwang a copy of a document he had been preparing, said to record payments to or for the benefit of each of Messrs Hwang and Lee for the period June to November 2012. The document showed payments of $78,000 against the name "Jason" (being Jehun Hwang), and other payments (presumably to Mr Lee) of $394,960.53.
Also on 21 November 2012, Mr Lee returned from Malaysia to Sydney, and proceeded to his home at Collaroy. He and Mr Hwang then had a telephone conversation, in which Mr Hwang said that he had found out that Mr Lee had been taking large sums of money from Ji Woo without Mr Hwang's knowledge; Mr Lee said "so what" and that he deserved the money; Mr Hwang told Mr Lee that he would have to leave Ji Woo or return the money; and Mr Lee told Mr Hwang to wait at the office, and that he was coming in. Mr Lee was angry, and at times shouting, during the conversation.
According to Mr Lee, Mr Hwang also told him that he had decided to open a new company and had let some Ji Woo employees go, and that he had left a letter and proposed agreement on Mr Lee's desk and sent the same to him by email; and suggested that they meet at a coffee shop the following morning. Mr Lee says that when he got into the office later that day, he found the (6-page) letter and a draft agreement on his desk. According to Mr Hwang, as a result of the angry telephone conversation, he became concerned for his safety if he were to have a face-to-face meeting with Mr Lee that day, and decided not to wait at the office for his arrival. He emailed a copy of his draft (6-page) letter to his own private email address, and told the three Ji Woo employees in the office about his conversation with Mr Lee and his decision not to wait around for his arrival. The employees responded to the effect that they did also not want to be there when Mr Lee arrived, and so they all left, Mr Hwang locking the office on the way out. He denies that he left a copy of the letter, or any draft agreement, for Mr Lee.
Following the telephone conversation, Mr Hwang and Mr Lee exchanged a series of text messages and, at about 5:10 pm, Mr Hwang sent an email to Mr Lee, from his private email address, attaching a (5-page) version of his draft letter, amended by omitting the part that is described in [12] above. The covering email included the following: I feel sorry that things have turned out like this. In fact I was writing this sort of letter just before I was talking to you over the phone. Now that I am thinking back, it is funny. Wouldn't it be like the mouse being considerate of a cat … While I was talking to you on the phone, I felt myself such a pathetic human being because I was writing this letter. However, I am sending the letter just because I feel that you should know how I felt Now I do not think this way but I hope that you know that I felt that way while I have been going through difficulties and getting hurt. Things would probably have ended like in the above letter if there had only been a sincere word like 'sorry' and 'I did it wrong'.
Mr Hwang and Mr Lee exchanged a further series of text messages, in the course of which Mr Hwang sent "Yes please check your mail" and "Initially my thoughts were like that" - apparently referring to the draft letter. Mr Lee replied "I read your mail. Let's meet up and resolve. Please ring me. I am in the city". Mr Lee understood from Mr Hwang's email that he was saying that the attached (5-page) letter no longer reflected his thinking; in what respect it no longer did so is not entirely clear, as much came to be reflected in their later negotiations, but it was probably in that whereas the letter contemplated Mr Lee retaining the ownership of Ji Woo, Mr Hwang now insisted that Mr Lee must leave Ji Woo, as he had conveyed in the telephone conversation.
Mr Lee sent two further text messages, pressing for a meeting. Mr Hwang did not respond until about 9:08 am on 22 November 2012, when he replied: I will visit your office this afternoon. Still my mind is not quite settled yet so I am not very confident about talking to you in person but I know we should meet up somehow.
Mr Hwang's version of what transpired in the office was substantially corroborated by Hyun Sik Choi. I do not accept that Mr Hwang in the course of the telephone conversation with Mr Lee proposed a meeting on the morning of 22 November; the SMS messages show that it was Mr Lee who was pressing for a meeting. That Mr Hwang was concerned about meeting with Mr Lee at that stage is consistent with the trepidation reflected in his tentative acceptance the following morning that they would have to "meet up somehow", although he was "not very confident about talking to you in person". I do not accept that there was any proposed agreement left on Mr Lee's desk; the events of 22 November strongly point to none having been prepared at that stage. There is nothing to support the suggestion that Mr Hwang had "let some employees go", and no apparent reason why he would say so to Mr Lee. In the light of his subsequently forwarding an amended (5-page) version of his letter to Mr Lee, it is improbable, and I do not accept, that he would have left the unamended 6-page version on Mr Lee's desk. While Mr Lee at some stage came into possession of the 6-page version, it could well have been provided to him by Chihoon Choi or Myounghwa Yeo (to whom it had been sent for comment by Mr Hwang).

22 November 2012

Following the message of 9:08 am, [4] and some further messages about meeting arrangements, Mr Lee responded: "Let's meet at the coffee shop downstairs".
Mr Hwang and Mr Lee then met in a coffee shop, at 309 Pitt Street, Sydney. Mr Lee accepted that Mr Hwang wanted to "kick him out" of Ji Woo; that Mr Hwang gave him the option of repaying the money he had taken to Ji Woo, or giving up his rights in relation to IBN College; and that he agreed to give up those rights because he did not have the money to repay Ji Woo.
Mr Lee says that at this meeting, Mr Hwang showed him copies of the (6-page) letter and the 2-page agreement document that he says had been left on his desk the previous day, and various forms and documents relating to his shares and directorship in IBN, including minutes of a meeting of shareholders, an instrument of transfer, a sold/bought note, and a notice of resignation as a director.
The conversation addressed the future ownership of Ji Woo and IBN. According to Mr Hwang, towards the end of the meeting, there was a discussion to the following effect (emphasis added): Hwang: Why don't you transfer your shares in IBN College to me? I will not pursue further about the money you have taken from Ji Woo and also the outstanding $50,000 which you still owe me. This should still be more than what you have invested in the college business. Lee: Is that the only way? Hwang: If you don't want to then please return the money you took. If you are not willing to return the money or to transfer your shares in IBN College what do you suggest we do now? Lee: Okay, if that is the only way I will transfer the IBN College shares. What about Ji Woo? Remember how we discussed in the past about leaving Ji Woo to Myounghwa [Yeo], Chihoon [Choi] and Sun Ah? We should both leave the operation of the company to Myounghwa [Yeo], Chihoon [Choi], Sun Ah and Hye Young [Han]. We can still take our profit shares in the future. Hwang: Hye Young [Han]? Are you kidding me? I will only leave Ji Woo if you agree to my terms. You will have to leave too. We will have to sort out how the benefits of the contracts would be divided. Lee: It will be hard for the others to run the business themselves. I will help till next June. Hwang: Okay, I understand that. Lee: Why don't you draft the terms you wish and we will discuss it. Hwang: Okay, instead of telling the schools about the dispute, why don't we tell the schools that the company has been changed from Ji Woo to Uhakstation Pty Limited? Once those contracts have been updated then we can let the rest of the schools know about the arrangements or update the details as required. Lee: Okay.
Mr Hwang's view that the moneys Mr Lee had taken from Ji Woo plus the outstanding $50,000 exceeded his investment in IBN was founded on the belief that Mr Lee had drawn in the order of $300,000 more than he had from Ji Woo; that he was entitled to half that amount ($150,000); and that this plus the outstanding home loan debt ($50,000) exceeded the amount (about $185,000) which Mr Lee invested in IBN.
Mr Lee says that Mr Hwang agreed to divide his shares between the employees of Ji Woo [5] and, in respect of IBN, that the conversation was as follows: Hwang: In relation to the IBN College Pty Ltd, I will pay you back all the money you put in IBN College. So please transfer over all your shares to me. Lee: If you are going to return the money then I am willing to transfer the shares.
The dispute in respect of this conversation is central to the resolution of the main issues in the case, and I address it in the context of those issues below. However, following the meeting, Mr Hwang asked Ms Jin to have IBN's accountant prepare documents for Mr Lee to transfer his shares in IBN to Mr Hwang, and to resign as director. Ms Jin instructed IBN's accountant, Eric Ip, to prepare those documents. At 7:44 pm on 22 November, Ms Jin received an email from Mr Ip, attaching forms of notice of resignation as director of IBN, an instrument of transfer of shares in IBN, a sold note/bought note for shares in IBN, a draft Form 484 "Change to company details", and minutes of a meeting of shareholders of IBN. Mr Hwang did not obtain copies of them until the following day, 23 November 2012. They were not prepared until after the 22 November meeting, and could not have been shown to Mr Lee on 22 November. It is consistent with this that Mr Hwang did not prepare the draft form of agreement until after the meeting on 22 November 2012. The 6-page letter - which Mr Lee asserts had been left on his desk - was more favourable to Mr Lee than the 5-page version which Mr Hwang had emailed to him the previous day: unlike the 5-page version, it proposed repayment of Mr Lee's investment in IBN, which Mr Hwang was no longer contemplating when he sent the 5-page letter the previous evening. It is improbable, and I do not accept, that Mr Hwang had changed his position in this way overnight. Thus, I do not accept that any of these documents (including the 6-page letter) were provided to Mr Lee by Mr Hwang on 22 November 2012, and Mr Lee's version is erroneous at least to that extent. In Mr Lee's recollection, the events of 22 November may have become confused or combined with the 23 November meeting, referred to below, and the fact that some of the documents have been dated 22 November (the date of their preparation) may have contributed to this. [6]
Also on 22 November 2012, Mr Lee called Ms Jin and told her that he had moved money in Uhakstation (Ji Woo's trading name) without Mr Hwang's permission. He asked if she could persuade Mr Hwang not to go through with the separation. Ms Jin said that she did not think she could help. The significance of this undisputed conversation is that it confirms that Mr Lee accepted that he had taken money from Ji Woo without Mr Hwang's agreement.

23 November 2012

According to Mr Hwang, on 23 November 2012, he collected from Ms Jin the documents that Eric Ip had prepared, and again met Mr Lee at a coffee shop, following which he left the documents, and a draft typewritten agreement, with Mr Lee. Mr Lee asked for a little more time and took the documents away. Mr Lee did not accept that such a meeting occurred, but seemed unsure of the exact dates of events. Having regard to the evidence as to the preparation and provision of the IBN documents late on 22 November, and the fact that the sold note/bought note produced by Mr Lee is signed by Mr Hwang and dated 23 November 2012, I find that there was such a meeting on 23 November 2012, to which Mr Hwang took the documents prepared by the accountant and the draft form of agreement.
As originally prepared and provided to Mr Lee, the typewritten agreement was as follows: Agreement I, Bohyun (Scott) Lee (DOB: 10/June/1974 NSW Driver License No: ), pledge to Jehun (Jasons) Hwang (20/July/1976 NSW Driver License No:15659353), to adhere to the following conditions with respect to the divisions of the ownership of the companies Jiwoo International Education Pty Ltd (Suite 902, Level 9, 309 Pitt Street, Sydney) and IBN College Pty Ltd. By 30 November 2012, Bohyun Lee is to transfer all shares he owns in IBN College Pty Ltd (Level 5, 56-58 York Street, Sydney) and all rights to it to Jehun Hwang. Also, Bohyun Lee is to resign from the directorship of IBN College Pty Ltd and transfer Bohyun Lee's authority and rights in IBN College bank account to Jehun Hwang. Jiwoo International Education Centre Pty Ltd has agency agreements with the various institutions. Bohyun Lee and Jiwoo International Education Centre Pty Ltd are to transfer to Uhakstation Pty Ltd (owned by Jehun Hwang) all future marketing expenses, commissions, and all sales and entitlements associated with the following institutions. Further, all the procedures required to implement the transfers are to be completed by 7 December 2012. University of Technology Sydney (UTS) University of Western Sydney (UWS) RMIT University of Western Australia (UWA) Le Cordon Bleu Study Group (Embassy CES, Martin College, CSU, Taylors College) Insearch UTS Victorian Government Schools Bohyun Lee and Jiwoo International Education Centre Pty Ltd are to transfer all rights to Jehun Hwang of the names of "UHAK STATION" (English) [and its Korean equivalent] and associated domain names and domain addresses including "uhakstation.com", "uhakstation.co.ky" and "uhakstation". Bohyun Lee and Jiwoo International Education Centre Pty Ltd are not to use any of the abovementioned names in future.
Bohyun Lee and Jiwoo International Education Centre Pty Ltd are to transfer all rights to the offices in Jongno Korea (1408 Official Bldg Sinmunro 1-ga Jongno-gu Seoul) and Melbourne, Victoria (Suite 211, 221-227 Collins Street, Melbourne, VIC) to Jehun Hwang. All necessary procedures to the transfer are to be completed by 7 December 2013. I, Bo Hyun Lee, pledge to adhere to the above conditions. Lee Bo Hyun (Signature) Date: I, Je Hun Hwang, agree to the above conditions. Je Hun Hwang (Signature) Date: Witness evidences the above agreed facts Witness (Name /Date of Birth ) (Signature) Date:
Thus, in respect of the allocation of the contracts for the schools and universities, the terms of the agreement as drafted - although there would later be some amendments - largely conformed with the terms of Mr Hwang's letter. It allocated to Mr Hwang the six contracts he had proposed in his letter (UTS, UWS, RMIT, UWA, Insearch UTS and Victorian Government Schools), plus Le Cordon Bleu and Study Group. Conformably with the draft letter, the agreement provided for the transfer to Mr Hwang of the names "Uhakstation" and its Korean equivalent, and associated domain names and domain addresses. Whereas in the draft letter Mr Hwang had proposed transfer to him of the Melbourne and Daesung Building offices, the agreement provided for the transfer to him of the offices in Melbourne and Jongno Korea.

26 November 2012

On 26 November 2012, Mr Hwang and Mr Lee met again in a Sydney coffee shop. The terms of the typewritten agreement were amended, in respect of the list of institutions to be transferred to Uhakstation: "University of Technology Sydney (UTS)" was struck through and replaced by "Monash"; "University of Western Sydney (UWS)" was similarly struck through and replaced by "MQ" (a reference to Macquarie University); and "Le Cordon Bleu" and "Insearch UTS" were also struck through. These alterations were made in handwriting, and each was initialled by both parties. Thus while as originally drafted, the agreement would have allocated to Mr Hwang the six contracts he had proposed in his letter (UTS, UWS, RMIT, UWA, Insearch UTS and VGS), plus Le Cordon Bleu and Study Group, as altered and executed, Monash and MQ were substituted for UTS and UWS, and Le Cordon Bleu and Insearch UTS were deleted.
Mr Lee then wrote out the following document, in handwriting: Agreement From the date of 26 November 2012, neither party shall demand any monetary compensation with respect to the agreement relating to the schools or the business. (On the condition of giving up shares in IBN) Both parties must not slander each other. Not to spread internal secrets of Ji Woo International PL (accounts/staff). Each party will be responsible for the acts of its respective employees. (Hyun Sik Choi) With the exception of all already agreed school students, both parties are to concede to each other (illegible) [7]
Mr Lee and Mr Hwang then signed the typewritten 'Agreement' document, with its handwritten amendments; the handwritten 'Agreement' document written out by Mr Lee at the meeting; the sold note/bought note for shares in IBN; a notice of resignation by Mr Lee as a director of IBN; the minutes of the meeting of shareholders; an instrument of transfer in respect of shares in IBN; and letters to various educational institutions to assign the contracts to Uhakstation. [8] Mr Lee instructed the accountant, Eric Ip, to lodge the necessary documents relating to his cessation of directorship of IBN with ASIC, and to transfer all his shares in IBN to Mr Hwang. Although the typewritten agreement contained provision for attestation by a witness, there was none. Thereafter, ASIC was notified that Mr Lee had ceased to be a director of and shareholder in IBN.

Subsequent events

On 28 November 2012, Mr Lee signed a document purporting to be "Minutes of Meeting of Directors" of Ji Woo, stating that he was the sole attendee, and recording resolutions accepting Mr Hwang's resignation as a "Director & Member…(Refer to company asset division agreement)", and approving transfers of shares from Mr Hwang to Chihoon Choi (three shares), Hye Young Han (three shares) and Myounghwa Yeo (three shares). The same day, Mr Lee instructed Steven Lee of Hansol Accounting, Ji Woo's agent for the lodgement of forms with ASIC, to alter the shareholder register of Ji Woo by redistributing Hwang's nine shares in Ji Woo between Choi, Han and Yeo, and to remove Mr Hwang as a director. Mr Lee signed a Form 484 to that effect and, on 30 November 2012, ASIC was notified that Mr Hwang had ceased to be a director and shareholder of Ji Woo, and that his shares had been transferred to Chihoon Choi, Hye Young Han and Myounghwa Yeo. In fact, Mr Hwang had not given notice of resignation, nor executed any share transfer.
As a consequence of some concerns about what the university clients - including Monash University - referred to in the November agreement were being told, on 29 November 2012 at 12.22 pm, Mr Hwang sent an email to Jack Johnston of Monash University, in which he explained his position, as follows: … I think [Mr Lee] told you the thing incorrectly and I should correct that to you. I have been working with [Mr Lee] for last 8 years as a partner (50%/50% shareholders) and now I have 90% of Ji Woo … (though it does not mean anything to me as I always consider him as equal). He made a mistake to me and it made us break the relationship. I cannot explain in detail for the mistake as it is a part of the agreement we made for the separation. As he announced that he will resign from the company and give his right to Kelly [Yeo], Hayley [Han], Daniel [Chihoon Choi] and Lisa [Sun Ah Kim], I decided to give them most of the university and college contract. … We have key [counsellors] and here is the list of who worked for who.
Myself2. [Mr Lee] (Resigned)3. Hayley [Han] (25% Share after it is finalized)4. Hunzy [Hyun Sik Choi) (Branch Director - Jongro) - With Me5. Alex [Oh] … - With Me6. Lisa [Sun Ah Kim] (25% Share after it is finalized)7. Jame … - With Me8. Daniel [Chihoon Choi] … (25% Share after it is finalized)9. Kelly [Yeo] … (25% Share after it is finalized) If he did not tell me that he would resign from his position and give the share of the company to the staffs, I would not sign on the agreement. I only choose Monash University, RMIT, Macquarie University as most of the numbers recruited for this universities were mine and I am planning to give my share (90% of the company) as a rewards for them who have been working for us. Please understand us. As I am still owner of Ji Woo … and director of the company, I can still send you students with old name until this is finalized as it is the agreement signed by me and Scott.
From 1:25 pm on 29 November 2012, Mr Lee and Mr Hwang exchanged text messages. In relation to the vacation of one of Jiwoo's offices, Mr Hwang sent: The title transfer was supposed to be done by then. The office has to be vacated immediately. Our contract is from 26, right. From that day, no monetary demand, right.
At about 2:27 pm, Mr Lee sent to Mr Hwang: I did everything that Hwang asked me to do. I signed it all.
Later messages on the same day concerned disclosure of information. Mr Hwang wrote: Even students are contacting me so I figure that it is not a secret anymore but I have not disclosed the details.
Mr Lee responded "Me, too". Mr Hwang replied: People who know the situation are those who left and Jinkyung, Chihoon and Myounghwa whom I consulted in an effort to understand what was going on.
Mr Lee next voiced a suspicion that Hyun Sik Choi had been disclosing information (emphasis added): Everybody knows because of Hyunshik. I don't care. I gave up on the school and it was the price for the wrong thing. I now want to carry on quietly with Hwang.
On or about 3 December 2012, Mr Lee sent a letter to Macquarie University, advising that Jiwoo had changed its trading name to IBN Education with effect from 1 December 2012; that the branch office managers were going to be the shareholders; that Mr Hwang (and two others) had left to open a new agency; and that the legal entity remained Jiwoo, which had made the contract. He conceded that he was making similar statements to Monash University, University of Western Australia and RMIT. Mr Lee maintained that the contracts had already been assigned to Uhakstation (by the letters of 26 November), and that the 3 December letter was sent in response to assertions allegedly made by Mr Lee that Jiwoo had closed.
During December 2012, Mr Lee transferred the Ji Woo lease in Melbourne to Uhakstation.
On 10 December 2012, Mr Hwang discovered that ASIC had been notified that he was no longer a director or shareholder of Ji Woo. On 11 December, he sent an email to the accountant Steven Lee, asking why he had notified ASIC of those changes. Mr Hwang and Steven Lee spoke that day, when Mr Hwang told Steven Lee that the change needed to be fixed.
On 14 January 2013, Steven Lee emailed Messrs Lee and Hwang, asking to be supplied with copies of appropriate documents signed by both Mr Lee and Mr Hwang in respect of Mr Hwang's alleged transfers of shares and resignation as a director, and stating that unless such documents were received by him by 10 January 2013, he would reverse the form lodged with ASIC.
On the same day, in an email to Mr Hwang, Mr Lee wrote: Like you said, Mr Hwang, return the money to JIWOO or give up IBN College, it is on the agreement and on the email but giving up IBN ownership is not only for the money. The content about giving up all the rights of JIWOO existed when discussing the separation through email. I highlighted on it and gave it to Alex. … I did not tell Hoanyoung to stop you. I will tell you as exactly as I said: "Now Mr Hwang says he did not give up JIWOO, then I will say I did not give up IBN. We did not have witness, and we did not pay stamp duty". Then you will say "Embezzlement" but I will say I spent the money as a director for the business.
On 17 January 2013, Steven Lee emailed Messrs Lee and Hwang that his previous email should have stated '17 January' rather than '10 January'. On 22 January 2013, Steven Lee emailed Messrs Lee and Hwang that he had not received the requested documents and would be contacting ASIC to withdraw the form lodged and seeking its guidance. On 8 March 2013, ASIC wrote to Mr Hwang on the subject "Ji Woo …, Hansol Accounting … and [Mr] Lee", stating that it would not take further action in respect of the matter, and explaining what was required to rectify the register.

Contentions, issues and credit

The respective contentions of the parties in the two proceedings, and the issues to which they give rise, may be summarised as follows.

Corporations proceeding

Mr Hwang claims a declaration that he is and remains a director of and shareholder in Ji Woo, and an order, under (CTH) Corporations Act 2001, s 1322(4)(b), that ASIC rectify its register accordingly. He contends that there was no exercise of any available power to remove him as a director of Ji Woo, nor did he give any written notice of his resignation, and thus that he did not cease to hold office as a director of Ji Woo in November 2012. Further, as he did not sign any written instrument of transfer of his nine shares in Ji Woo, those shares were not transferred by him.
Mr Lee contends that, even if the means by which the cessation of Mr Hwang as a director and shareholder of Ji Woo were recorded with ASIC were irregular, relief should be refused as, pursuant to the November agreement, Mr Hwang had agreed to relinquish any interest in Ji Woo.

Equity proceeding

Mr Lee did not press his claim for $63,000 consideration in respect of the transfer of his shares in IBN, apparently accepting that the share transfer was in consideration of the release of any claim against him for recovery of the moneys he had allegedly abstracted. Nor did he press the claim in respect of the safety deposit box. The relief for which he pressed was: 1. a declaration that Mr Hwang has no rights, either as a shareholder or director, in Ji Woo; 2. repayment of $135,000.00 (being the amount he had invested in IBN, less the $50,000 that remained outstanding to Mr Hwang in respect of the personal loan), said to be repayable to him by Mr Hwang and/or IBN pursuant to the November agreement; and 3. payment in respect of dividends on his shares in IBN while he was a member.
The claim for a declaration that Mr Hwang has no rights as either a shareholder or director in Ji Woo is the mirror image of the claim in the Corporations proceeding, and gives rise to the same issues.
As to the claim for $135,000, Mr Lee contends that the November agreement included a term by which Mr Hwang agreed to reimburse him the amount he had invested in IBN, or alternatively that IBN remained indebted to him for that amount. Mr Hwang does not admit that Mr Lee had provided loan capital in that amount (although the financial statements of IBN record that some of the capital contributed by shareholders was treated as loan capital), denies that he agreed to reimburse Mr Lee in respect of his investment in IBN, and says that in any event Mr Lee agreed to assign to Mr Hwang all his rights in relation to IBN including any right to be repaid his investment.
As to the claim in respect of dividends, the evidence did not establish that IBN had declared any dividend, and consequently none could have been due to Mr Lee at the time of the agreement. This claim was without substance; no submissions were ultimately made in support of it, and it requires no further consideration.

Issues

Accordingly, the issues which require consideration are: 1. Whether Mr Hwang agreed to relinquish his shareholdings in Ji Woo and to resign as a director (and if so, whether any conditions to which such agreement was subject have been satisfied); and 2. Whether Mr Hwang agreed to reimburse Mr Lee the moneys he had invested in IBN, or whether Mr Lee agreed to release or assign any right to them.
All these issues depend upon the terms of the 26 November agreement. The 26 November agreement
Because it is common ground that the agreement was partly written and partly oral, the parole evidence rule does not operate to preclude receipt and use of material other than the written terms. Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances, as a matter of fact, and surrounding circumstances may be used as an aid to finding what the terms are. If it is possible to make a finding as to the words the parties spoke to each other, the meaning of those words is ascertained in the light of the surrounding circumstances; and if it is not possible to make a finding about the particular words used (as is sometimes the case when a contract is partly written, partly oral and partly inferred from conduct), the surrounding circumstances can be looked at to find what in substance the parties agreed. [9]
In so far as the agreement was written, it comprises the typewritten document in the Korean language, headed 'Agreement', dated 26 November 2012 and signed by Mr Lee and Mr Hwang, [10] and the additional handwritten document, also entitled 'Agreement', in Korean and signed by each of them. [11] The typewritten document was prepared by Mr Hwang, and the handwritten document by Mr Lee; there is no hint of the involvement of any lawyer.
The effect of the typewritten agreement (as amended and executed) was that: 1. by 30 November 2012, Mr Lee would transfer all his shares in IBN and "all rights to it" to Mr Hwang (clause 1); 2. also by 30 November 2012, Mr Lee would resign as a director of IBN and transfer his authority and rights in respect of IBN's bank account to Mr Hwang (clause 1); 3. Mr Lee and Ji Woo would transfer to Uhakstation Pty Ltd all future marketing expenses, commissions and all sales and entitlements associated with Ji Woo's agency agreements with Monash, Macquarie, RMIT, University of Western Australia, Study Group and Victorian Government Schools, and would complete the procedures required to implement those transfers by 7 December 2012 (clause 2); 4. Mr Lee and Ji Woo would transfer to Mr Hwang all rights to 'UHAK STATION' and associated domain names and addresses (including "uhakstation.com", "uhakstation.co.ky" and "uhakstation"), and would not use any of them in the future (clause 3); and 5. Mr Lee and Ji Woo would transfer to Mr Hwang all rights to the offices in Jongro Korea and Melbourne Australia, with all necessary procedures for those transfers to be completed by 7 December 2012 (clause 4).
The effect of the handwritten document was that: 1. upon condition that Mr Lee relinquish his shares in IBN, from 26 November 2012, neither party would demand any monetary compensation with respect to the agreement relating to the schools or the business; 2. each party agreed not to slander the other; and 3. each party agreed not to disseminate internal secrets of Ji Woo relating to its accounts and its staff, and in this respect each would be responsible for the acts of its respective employees, including in particular Hyun Sik Choi.
No term making explicit provision in respect of Mr Hwang's shareholding in or directorship of Ji Woo, nor in respect of Mr Lee's investment in IBN, is to be found in the written terms.
As to the oral terms, it is common ground that it was agreed that Mr Hwang would not pursue Mr Lee for the $50,000 which Mr Lee owed him, or in respect of any claims he might have against Mr Lee in connection with any misuse by Mr Lee of Ji Woo's funds (although this latter aspect may be included in the first clause of the handwritten terms). Mr Hwang agrees that these terms were agreed in their discussions on 22 and 23 November. However, Mr Lee alleges (while Mr Hwang denies) that Mr Hwang orally agreed to resign as a director of Ji Woo and to relinquish all his shares in Ji Woo, and to reimburse Mr Lee's investment in IBN; while Mr Hwang alleges (and Mr Lee denies) that Mr Lee agreed to assign to Mr Hwang or release all rights in respect of his investment in IBN.

The witness and their credit

While, as will appear, I have resolved these issues by no means exclusively by reference to the general credibility of the witnesses, it is necessary to make some observations on that topic. As a witness, Mr Lee admittedly sought to advance what was necessary or helpful for his case, and to offer nothing that might assist the other side. His answers were not infrequently non-responsive, or argumentative. His affidavit evidence of the events of 21 November 2012 bore little resemblance to the version he accepted in cross-examination, and was conspicuous for its omission of any reference to any allegation that he had taken funds from Ji Woo as part of the context of the November negotiations - even though this was the main catalyst for them - or to Mr Hwang's email of 21 November 2012; the result was a very incomplete picture of the events. Mr Hwang, on the other hand, appeared to give his evidence carefully, and was prepared to concede matters appropriately. His evidence is consistent with the contemporaneous communications, all of which were produced by him. To his credit, Mr Hwang consistently accepted that he also gave up the $50,000 which remained outstanding, although there is no reference to it in the documentation. Accordingly, Mr Hwang was the more credible witness.

Does Mr Hwang remain a shareholder in and director of Ji Woo?

The submissions for Mr Hwang, that there was no exercise of any available power to remove him as a director of Ji Woo, nor did he give any written notice of his resignation, and thus that he did not cease to hold office as a director of Ji Woo in November 2012; and further, that as he did not sign any written instrument of transfer of his nine shares in Ji Woo, it must be accepted that those shares were not transferred by him. As to the directorship, the replaceable rule in Corporations Act, s 203A (that a director of a company may resign by giving a written notice of resignation to the company at its registered office) was, in respect of Ji Woo, excluded by the constitution of Ji Woo, cl 8.6 of which relevantly provides that directors hold office until removed by ordinary resolution of the company passed in a general meeting, or until their office becomes vacant pursuant to the constitution or the Corporations Act. There is no suggestion, let alone evidence, that the power of removal of directors by ordinary resolution was formally exercised in relation to Mr Hwang. Clause 10.1(d) of the constitution provides that the office of director becomes vacant if the director resigns his office by notice in writing to the company at its registered office, and it is common ground that Mr Hwang did not give any written notice of his resignation as a director of Ji Woo. It was not suggested that there was any other basis for contending that he had been removed or had vacated the office. It follows that Mr Hwang did not cease to hold office as a director of Ji Woo in November 2012.
As to the shareholding, under Corporations Act, s 1070A(1)(b), shares in a company are transferable in accordance with its constitution. Clause 26.1 of the constitution of Ji Woo provides that shares in the company shall be transferable by written instrument in such form as the directors may in the circumstances accept; every such transfer shall be signed by both the transferor and the transferee; and the transferee shall be deemed to remain the holder of the shares until the name of the transferee is entered in the Register of members in respect thereof. It is common ground that Mr Hwang did not sign any written instrument for the transfer of the nine shares in Ji Woo held in his name as at November 2012, and it follows that those shares were not transferred by him, at least at law.
However, it does not follow that there should be a declaration to the effect that Mr Hwang is and remains a shareholder and director. While the steps that were taken to procure the recording of his cessation as such may have been irregular, Ji Woo and its registered shareholders Choi, Han and Yeo contend that, Mr Hwang having orally agreed to exit Ji Woo completely upon implementation of the November agreement, the agreement having been implemented, he has no right to remain a shareholder or director. This question depends on whether there was a term of the November agreement to the effect that Mr Hwang would exit Ji Woo (and relinquish his shareholding and directorship), and if so, whether any conditions attached to it have been performed. In my judgment, for the reasons that follow, when the written terms are seen in the context of the surrounding circumstances and communications, the conclusion that there was such a term is inescapable.
First, the only sensible explanation for the negotiations, and the written terms in which they culminated, involving as they did the allocation of client contracts between Uhakstation on the one hand and Ji Woo on the other, is that there was a common assumption that Mr Hwang would relinquish his interest in Ji Woo. It is inconceivable that the parties negotiated the allocation of client contracts on the basis that Mr Hwang would retain nine of the ten shares in Ji Woo, as well as the benefit of the contracts that were to be assigned to Uhakstation. The purpose of the agreement, according to its preamble, was to effect the 'division of ownership of the companies …'. Its underlying rationale was that certain clients would be transferred to Uhakstation, which was to become Mr Hwang's entity, while the others would remain with Ji Woo. The negotiations in respect of which clients would be transferred to Uhakstation involved amendments to what Mr Hwang initially proposed in his letters and in the draft of the typewritten agreement as first prepared - so that there must have been some toing and froing over who would retain which clients. There was no purpose in this if Mr Hwang were to retain nine of the ten shares in Ji Woo as well as being solely entitled to Uhakstation. Mr Hwang's purpose was to separate his affairs from Mr Lee, for reasons that included discomfort about being in business with Mr Lee and feeling "in the dark" about some of Ji Woo's ventures; he did not wish to be part of any company or venture with Mr Lee; he did not want to owe money to Mr Lee; and he did not want Mr Lee to owe money to him. Mr Hwang did not dispute that there was to be a split between Uhakstation (to be operated by him), and Ji Woo (from which he was moving away, although he qualified this concession as "sort of"). It was suggested that his shareholding in Ji Woo would remain subject to the personal obligation to pay half the profits to Mr Lee, but this would not sit at all well with Mr Hwang's insistence on a complete separation, with each going their own way, and neither having ongoing obligations to the other. And it would be an extraordinary outcome if, in addition to receiving the whole of the benefit of the assigned clients, he were also to retain half of the benefit of those that were not assigned.
Secondly, that there was such a common assumption is supported by contemporaneous material. Both versions of Mr Hwang's draft letter included words to the effect that he would transfer his rights in Ji Woo to Mr Lee once his conditions were satisfied and exit Ji Woo "once and for all". While the letter is not itself a contractual document, it provides context to the negotiations that followed it, and illuminates Mr Hwang's intent, and at least the 5-page letter, which was sent to Mr Lee, forms part of the matrix against the background which the ensuing agreement was made. While much was made of the statement in Mr Hwang's 21 November email to Mr Lee attaching the draft letter, "Now I do not think this way", it is not clear that this referred to Mr Hwang's intent to exit Ji Woo, as distinct from the proposal to transfer his interest to Mr Lee. It is not correct that for Mr Hwang to agree to relinquish his shareholding in Ji Woo involved a "reversal of course", as was submitted; it was his original course, and it is not apparent that he ever departed from it.
Thirdly, Mr Lee's evidence that Mr Hwang had agreed to divide his shares between employees of Ji Woo is supported by Mr Hwang's own evidence. On Mr Hwang's own affidavit evidence, [12] after Mr Lee raised the prospect of the shareholding in Ji Woo being transferred to the staff (Myounghwa Yeo, Chihoon Choi, Sun Ah and Hye Young Han), Mr Hwang said "I will only leave Ji Woo if you agree to my terms. You will have to leave too. We will have to sort out how the benefits of the contracts would be divided." Thus on Mr Hwang's version, after proposing that Mr Lee transfer to him his shares in IBN (which transpired) and that he would not pursue Mr Lee for the outstanding $50,000 (which is common ground), Mr Hwang on his own version said that he would leave Ji Woo, if Mr Lee agreed to his terms - which terms apparently included that Mr Lee would leave too, leaving the business to the employees. Although it is not apparent from Mr Hwang's version that there was then complete consensus as to which employees, and in particular whether Han was to be included, such consensus emerges from later communications.
Fourthly, in his email of 29 November 2012 to Jack Johnston of Monash University, Mr Hwang stated that if Mr Lee had not said that he would resign from the company and give his right to Kelly, Hayley, Daniel and Lisa, he would not have signed the agreement. The references to Kelly, Hayley, Daniel and Lisa are references to Myounghwa Yeo (Kelly), Hae Young Han (Hayley), Chihoon Choi (Daniel) and Sun Ah Kim (Lisa) - the very same persons who, according to Mr Hwang, had been nominated by Mr Lee on 22 November. The statement "I decided to give them most of the…contracts" bespeaks a distinction between the contracts that he was to retain through Uhakstation, and those that he was giving to the employees who were to be the future owners of Ji Woo, to the exclusion of Mr Hwang.
Fifthly, Mr Hwang agreed that it was his intention to give his shares away, once the conditions of the November agreement were fulfilled, to Choi, Yeo, Sun ah Kim and Han, though he said that there was no actual agreement to that effect. However, his email to Monash is suggestive that there was indeed agreement to that effect. The assertion "I am still owner…and director of the company, I can still send you students with old name until this is finalised" is suggestive of no more than an interim status as shareholder pending finalisation of the separation, but not an enduring entitlement to share in the equity and profits.
Sixthly, consistently with having agreed to relinquish his interest in Ji Woo upon implementation of the agreement, Mr Hwang did not, after the end of November 2012, participate in the management of Ji Woo.
Accordingly, in my judgment, the November agreement included, or was founded on, the mutual understanding or assumption that Mr Hwang would relinquish his rights in respect of Ji Woo, and that his shares would be transferred to the staff - Myounghwa Yeo, Hae Young Han, Chihoon Choi and Sun Ah Kim. While the typewritten agreement and its handwritten supplement made no express provision in this respect, that is because the typewritten agreement was drafted by Mr Hwang, and was intended to and did set out only the undertakings of Mr Lee; it did not purport to set out the other side of the arrangement, being any obligations of Mr Hwang. By accepting the typewritten agreement, albeit with some amendments and additions, Mr Lee agreed to Mr Hwang's terms, and thereby fulfilled the condition upon which Mr Hwang had said, in the 22 November conversation, [13] that he would leave Ji Woo. The conclusion that there was such a term does not necessitate acceptance of the oral evidence of Mr Lee in preference to that of Mr Hwang, but is supported by the evidence of Mr Hwang.
I do not accept that the agreement contemplated that Mr Hwang was entitled to remain a shareholder and director until the agreement had been "finalised", if that means any more than that it was interdependent with performance by Mr Lee; the only suggestion to this effect appears in Mr Hwang's email to Monash, which is post-contractual. The contractual discussion involved Mr Hwang agreeing to exit Ji Woo if Mr Lee accepted his terms. However, insofar as (contrary to my opinion) Mr Hwang's agreement to exit from Ji Woo was conditioned upon fulfilment by Mr Lee of the conditions of the November agreement, Mr Lee signed a resignation as director of IBN, and an instrument of transfer of his 63,000 shares in IBN to Mr Hwang, on 26 November. Letters were sent to the clients whose contracts were to be assigned - Monash, Macquarie, RMIT, UWA, Study Group and Victorian Government Schools - as required. While Mr Lee's 3 December communications may have undermined the practical effectiveness of the assignment of some of the university contracts to Uhakstation, he had executed letters (on 26 November) which effectively directed the assignment, and neither the evidence nor submissions took this matter any further. It was not disputed that Mr Lee transferred the domain names as required, and permitted Mr Hwang to take over the Jongno and Melbourne branch offices. I am not satisfied that after 7 December anything remained to be performed on the part of Mr Lee, and ultimately no submission was made to that effect.
Accordingly, the conditions of the November agreement having been fulfilled, Mr Hwang had no right to remain a shareholder in, or director of, Ji Woo. While the steps taken by Mr Lee to give effect to Mr Hwang's cessation as a director of Ji Woo and the transfer of his shares were irregular, they reflected his (correct) understanding that Mr Hwang would exit Ji Woo upon completion of the transaction.
It follows that Mr Hwang has no surviving beneficial claim to a shareholding in Ji Woo. The current shareholders - being three of the four employees referred to in their conversations, plainly and unanimously do not wish Mr Hwang to remain a director. In those circumstances, the declaratory relief that Mr Hwang seeks should be declined.
It does not necessarily follow that the declaratory relief sought by Mr Lee and Ji Woo, which is a negative declaration, should be granted. Mr Hwang's claim has been formulated and stated, and to that extent the conditions for a negative declaration [14] are satisfied. However, although I have declined to grant the relief sought by Mr Hwang because I have concluded that he has no subsisting beneficial interest, and it would serve no purpose to require him to be reinstated as mere legal owner when those beneficially entitled could immediately call upon him to transfer his shares and remove him as a director, he has not transferred his shareholding at law, and he has not resigned as a director, though he is bound to do so. In my view, the appropriate way to regularise the position is not to make the declaration sought by Mr Lee and Ji Woo, but rather to order that Mr Hwang execute and deliver a transfer of his shares in, and a resignation as director of, Ji Woo.

Is Mr Lee entitled to recover his IBN investment?

The issue is whether as part of the agreement, Mr Hwang agreed that in consideration for Mr Lee transferring his shares in IBN and resigning as a director, he would, in addition to a release from any claims arising from use of Ji Woo funds, be reimbursed his investment in IBN, or whether he agreed to assign to Mr Hwang or release all rights to his investment.
As has been mentioned, Mr Lee invested a total of $185,000 in IBN. Although the parties may not have recognised the distinction, for accounting purposes, it seems to me $63,000 was attributed to equity; $27,000 to Annie Jin's equity, and the balance ($95,000) on loan account. Mr Lee did not ultimately press his claim for the $63,000 which was the nominal consideration for the transfer of his shares in IBN. He also acknowledged that the $50,000 balance of the personal loan from Mr Hwang was to be set-off against the loan account, leaving $45,000.
In the first (6-page) version of Mr Hwang's letter, he proposed reimbursing the money Mr Lee had invested in IBN. In cross-examination, Mr Hwang was asked: Q. So when you drafted this letter, at least at that time you were of the mind to pay back Mr Lee money he invested in IBN College? A. Yes. To replace all the rights of him about IBN College.
Thus, when initially contemplating their separation, Mr Hwang was intending to propose reimbursing all the money Mr Lee had invested in IBN, in return for taking over the shares. He explained that these were his thoughts when he first drafted his letter to Mr Lee, "because at that time I didn't know he took company money, that much". It is noteworthy that the letter refers to "the money you invested in IBN College", and does not distinguish between equity and loan capital.
However, he never sent that version to Mr Lee, although Mr Lee eventually obtained it, probably from Myounghwa Yeo or Chihoon Choi. The only significant difference between the first version of the letter and the second version - which Mr Hwang did send to Mr Lee under cover of his email of 21 November - was that the second version contained no proposal for repayment of Mr Lee's investment in IBN. This bespeaks a change of mind on that topic on the part of Mr Hwang, between the preparation of the first draft and the dispatch of the second. Such a change of mind was apparently - and entirely logically - provoked by the discovery that Mr Lee had abstracted moneys from Ji Woo.
The evidence of any discussion or negotiation about the loan account is in narrow scope, and turns on the 22 November coffee shop meeting. Mr Hwang says that he offered to accept a transfer of Mr Lee's shares in IBN in return for a release in respect of the money Mr Lee had taken from Ji Woo and the outstanding $50,000 personal loan, and that Mr Lee accepted that proposal. [15] In cross-examination, he was asked: Q. I'm suggesting to you that in a conversation on or about 21 or 22 November you said to Mr Lee, "I will pay you back all the money you put into IBN, but please transfer all the shares to me". A. Which one? Q. I'm putting to you that you had a conversation with Mr Lee where you said words to that effect. A. The conversation was exactly as I said, instead of the money he took out … Q. Mr Hwang, if you go to page 59 of the court book, Mr Lee says there was a conversation. Page 59? A. yeah, 59. Q. And you say, "In relation to IBN College Pty Limited, I will pay back all the money you put in IBN College, so please transfer all you shares to me". A. I didn't say that. Q. I'm putting to you that Mr Lee said, "If you're going to return the money, then I'm willing to transfer the shares". A. No, there was not this kind of conversation.
Mr Lee's version [16] is that Mr Hwang offered to reimburse all the money Mr Lee had put into IBN in return for a transfer of his shares, which Mr Lee accepted. In cross-examination, he was asked: Q. You agreed to give up your shares in IBN College in exchange for Mr Hwang agreeing not to make claims or demands against you. That's right, isn't it? A. WITNESS: You mean like I transfer to $63,000. That's why I didn't ask any more money. Right. You mean that? INTERPRETER: Do you mean that? WITNESS: Because the reason I just transfer this much money. Your question is that? Q. My question, Mr Lee, was that you agreed to give up your shares in IBN College in exchange for Mr Hwang agreeing not to make claims or demands against you. That's right, isn't it? A. WITNESS: I don't think so … (not transcribable)… if I really stealing the money why he didn't go to police station straightaway … (not transcribable)… $63,000. You know how many students are studying the college. Because 400 students at 2.5 million a yearly profit.
While there were difficulties of language and transcription, Mr Lee's answers hardly rejected the propositions that were put to him.
Although the agreement was drafted without the assistance of lawyers, the words "and all rights to it" were presumably intended to add something to "all his shares in", and the most likely explanation is that it was to make clear that Mr Lee was relinquishing all rights of any kind in respect of IBN. While the typewritten agreement was prepared by Mr Hwang, to record the undertakings and obligations of Mr Lee, Mr Lee was the author of the handwritten terms, which were intended to record aspects of the agreement that benefitted or protected him. In that context, it would be extraordinary if he did not record, in the handwritten terms, an agreement that he be repaid his investment in IBN, if there were such an agreement. The parties did not distinguish between equity and loan capital in the treatment of their contributions, as the accountants did; thus, Mr Lee's agreement to transfer "all shares he owns" in IBN to Mr Hwang would not have been contemplated by either of them to preserve his right to the loan account but not to equity.
The share transfer signed by Mr Lee on 26 November acknowledged receipt of the nominal consideration of $63,000 (which, it is common ground, was not paid). Mr Lee admittedly understood that the transfer stated that he had received $63,000 for his shares in IBN, but he disputed that he was content to sign those documents because Mr Hwang did not need to pay him anything for those shares, maintaining that there was an oral agreement for reimbursement of the money he had invested. However, he ultimately did not press the claim for the $63,000 consideration, apparently accepting that it formed part of the consideration for the release of any claim against him in respect of the moneys he had taken from Ji Woo.
In a text message to Mr Hwang on 29 November, Mr Lee stated: "I gave up on the school and it was the price for the wrong thing". [17] His explanation of this in cross-examination - that he was saying that he relinquished IBN (the school) because they could not work together any more, is not credible; he was acknowledging that he had given up his rights in respect of IBN as the price for his wrong doing, that is to say, taking Ji Woo funds.
In an email to Mr Hwang on 14 January 2013, [18] Mr Lee acknowledged that Mr Hwang had said "return the money to Ji Woo or give up IBN". In this correspondence, Mr Lee was rejecting Mr Hwang's assertion that he had ongoing rights in respect of Ji Woo, by asserting, in effect, that Mr Hwang gave up his rights in Ji Woo, just as Mr Lee had relinquished his in IBN. In the course of it, he referred to his shares and investment in IBN and asked rhetorically "how much is it worth", but then observed "It is a question we don't have to bother asking". The question did not have to be asked, because he had relinquished it - just as Mr Hwang had relinquished all interest in Ji Woo.
Notably, Mr Lee made no request or demand for payment in respect of the loan account until 30 December 2013, when his solicitor sent a letter demanding reimbursement of the sum of $180,000, said to represent his initial investment in the company, and to be reimbursable in consideration of Mr Lee's agreement to transfer his shareholding to Mr Hwang. It did not distinguish between equity and loan capital. In circumstances where they were in dispute from January that year as to whether Mr Hwang remained a shareholder and director in Ji Woo, it is remarkable that such a debt would have been overlooked for that length of time. The demand of 30 December 2013 was made after Mr Hwang's solicitors had themselves sent a letter of demand, and savours of an opportunistic response, just as had been foreshadowed in Mr Lee's email to Mr Hwang of 14 January.
Although it was submitted for Mr Hwang that he would not likely have agreed to pay Mr Lee 100 cents in the dollar on his shareholder loan, in circumstances where the directors were having to contribute funds to prop up the company, there is nothing to suggest that this was a consideration in the mind of either party at the time of the negotiations, and I give this argument no significance.
For Mr Lee, it was submitted that unless he were to receive reimbursement of the loan account, the effect of the entire bargain would be that he would cease to have any shares in Ji Woo or be its director (although he founded the company and it bears his daughter's name); he would cease to have any interest in or be a director of IBN College (a company he, Hwang and Annie Yin formed); he would forego all the money he invested in IBN; he would have no interest in Uhakstation Pty Ltd; and he would still owe Hwang $50,000 for the personal loan; that would represent not a division, but rather a decimation of Lee. There are a number of flaws with that analysis. First, Mr Hwang never suggested that Mr Lee would still owe him the $50,000; he always accepted that that was forgiven as part of the bargain. Secondly, it overlooks that Mr Lee would be permitted to retain the excess of moneys he had abstracted from Ji Woo - believed by Mr Hwang to be in the order of $150,000. Thirdly, the notion that neither would retain an interest in Ji Woo was one which he shared with Mr Hwang. Fourthly, the idea that he would have no interest in Uhakstation was common ground. Fifthly, it became common ground that he was not entitled to recoup his investment of equity capital ($63,000) in IBN. Thus, I find this analysis of no assistance in deciding whether or not he was to be reimbursed his loan account.
Ultimately, I accept that when Mr Hwang embarked on negotiations with Mr Lee, he had abandoned the idea of repaying Mr Lee's investment in IBN. His position was that either Mr Lee must repay the money taken, or he must exit IBN. Mr Hwang's explanation of the reasoning process underlying this - that Mr Lee's perceived liability of approximately $200,000 (comprising half of the $300,000 he was said to have taken, plus the outstanding balance of $50,000 in respect of the personal loan) substantially exceeded his total investment in IBN of around $180,000 - is rational. Mr Hwang would not in those circumstances have offered to repay Mr Lee's investment in IBN, as Mr Lee asserts. The absence from the handwritten terms, drafted by Mr Lee for his benefit and protection, of any reference to his entitlement to be repaid his investment in IBN, tells against there being any such term. Mr Hwang's credibility in this respect is supported by his concession from the outset that he agreed to forgive the outstanding $50,000, though it is documented nowhere; while the credibility of Mr Lee's version is affected by the general observations I have made as to his evidence, and in particular by the circumstance that no demand for payment was made until December 2013, when it savours of an opportunistic response to Mr Hwang's claims. On no view did the parties distinguish, during the negotiations or subsequently, Mr Lee's loan capital from his share capital; and Mr Lee did not do so in his solicitor's demand of 30 December 2013. Although in evidence he did not distinctly accept it, Mr Lee's abandonment of any claim for the consideration in respect of his equity capital of $63,000 represents some acknowledgement that exiting from IBN was the consideration for not having to repay the moneys he had taken. That this was so is reinforced by Mr Lee's 29 November text message, and his 14 January email.
For those reasons, I accept Mr Hwang's version. Mr Lee's undertaking in cl 1 of the typewritten agreement to transfer his shares in IBN and "all rights to it" to Mr Hwang was given in return for Mr Hwang not pursuing him for the money he had taken from Ji Woo and the outstanding $50,000, and involved Mr Lee relinquishing all claims to the money he had invested in IBN, whether it was treated as equity or loan. It follows that Mr Lee is not now entitled to recover the moneys advanced by him to IBN, either from IBN or from Mr Hwang.

Conclusion

My conclusions may be summarised as follows.
The only sensible explanation for the negotiations and their outcome is that there was a common assumption that Mr Hwang would have no further interest or entitlement in Ji Woo. I do not accept that the agreement contemplated that Mr Hwang was entitled to remain a shareholder and director until the agreement had been "finalised", whatever that might mean; however, insofar as Mr Hwang's agreement to exit from Ji Woo was conditioned upon fulfilment by Mr Lee of the conditions of the November agreement, I am not satisfied that after 7 December anything remained to be performed on the part of Mr Lee. While the steps taken by Mr Lee to give effect to Mr Hwang's cessation as a director of Ji Woo and the transfer of his shares were irregular, they reflected his (correct) understanding that Mr Hwang would exit Ji Woo upon completion of the transaction. It follows that Mr Hwang has no surviving beneficial claim to a shareholding in Ji Woo, and that his claims in the Corporations proceeding must fail. To regularise the position, he should execute and deliver a transfer of his shares and a resignation as director.
Mr Lee's undertaking in cl 1 of the typewritten agreement to transfer his shares in IBN and "all rights to it" to Mr Hwang was given in return for Mr Hwang not pursuing him for the money he had taken from Ji Woo and the outstanding $50,000, and involved Mr Lee relinquishing all claims to the money he had invested in IBN, whether it was treated as equity or loan. It follows that Mr Lee is not now entitled to recover the moneys advanced by him to IBN, either from IBN or from Mr Hwang.
There were two main issues in the case; each party has in substance succeeded on one and failed on the other. Rather than creating the complexities and potential for further disputation that arise from offsetting costs orders, it seems to me, prima facie, that justice will be done if each party is to bear its own costs of the whole of the proceedings. However, I will reserve leave to apply for a different costs order lest either party wish to do so.
Accordingly, in proceedings 2014/145716, the Court orders that: 1. the proceedings be amended so as to record the correct name of the first defendant as "Ji Woo International Education Centre Pty Ltd"; 2. the proceedings be dismissed; 3. there be no order as to costs, to the intent that each party bear its own costs; 4. there be liberty to apply, within 7 days, to set aside or vary order 3 and for some different costs order.
In proceedings 2014/218404, the Court orders that: 1. the proceedings be amended so as to record the correct name of the second plaintiff as "Ji Woo International Education Centre Pty Ltd"; 2. the first defendant Jehun Hwang execute and deliver to the plaintiffs' solicitors a transfer of his nine shares in Ji Woo International Education Centre Pty Ltd; 3. the first defendant Jehun Hwang execute and deliver to the plaintiffs' solicitors a resignation as director of Ji Woo International Education Centre Pty Ltd; 4. the proceedings be otherwise dismissed; 5. there be no order as to costs, to the intent that each party bear its own costs; 6. there be liberty to apply, within 7 days, to set aside or vary order 5 and for some different costs order.

Endnotes

Although in both proceedings the initiating process incorrectly names Ji Woo as 'Ji Woo International Education Pty Ltd', rather than by its correct name 'Ji Woo International Education Centre Pty Ltd', in each case the company is identified by its correct ACN, and there is no doubt as to the entity concerned; to regularise this, an order will be made amending both proceedings to record its correct name.
$63,000 + $27,000 (50% of Ms Jin's paid up shares) = $90,000.
All of which were, in the draft letter, allocated to Mr Lee.
See [20] above.
T77.36
The typewritten date '22 November 2012' was not altered when the documents were signed. Mr Hwang explained that some of documents were hand-dated '22 November 2012' so as to be consistent with the others, on which that date had been inserted in type when they were prepared.
Although at one point Mr Lee sought, in his cross-examination, to draw attention to the fourth point, neither party sought to clarify it.
Although in his affidavit evidence Mr Lee accepted that the documents were signed on 26 November, in his oral evidence, he appeared to assert that the IBN forms dated '22 November 2012' were signed on the date they bear. As the documents that had been prepared by Mr Ip were not available until the evening of 22 November, that could not be correct.
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at 401-403 [90] (Campbell JA; Allsop P and Basten JA agreeing).
See [31] and [34] above.
See [35] above.
See [25] above.
See [25] above.
See Hume v Monro (No 2) (1943) 67 CLR 461 at 474 (Latham CJ), 478-9 (Starke J).
See [25] above.
See [27] above.
See [42] above.
See [47] above. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 August 2016

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