Shao v Crown Global Capital Pty Ltd

Background

1. Ms Shao married Mr Peng in October 2013.

The Facility Agreement

1. The Facility Agreement is dated 18 February 2015 and was signed by Crown on 23 February 2015 ([17]). On 6 March 2015, Ms Shao arranged for $1 million of her own money to be paid to Crown by two bank cheques drawn from two of her accounts. The bank cheques were provided by Mr Peng to Crown ([18]). It was common ground that Crown was unaware of the provenance of the funds.
2. The letter from Crown to Ms Shao and Mr Peng which comprises the Facility Agreement commences with the following words: "We confirm that Qian Peng and Yakun Shao (Lender) has agreed to make available this facility on the following terms and conditions."
3. The Facility Agreement relevantly provides: "3. Limit The maximum principal amount of cash advances to be made available under this facility is AUD1,000,000 or such other amount as agreed between the parties (Limit). … 7. Notes (a) The Borrower must issue Notes to the Lender upon settlement of each cash advance made available under this facility pursuant to a Drawdown Notice. The Borrower must provide to the Lender a certificate substantially in the form of Annexure B upon the issue of the Notes. (b) The Borrower must establish and maintain a register of Note holders. In the register of note holders there must be entered the names and addresses of the Note holders whose Notes are carried on that register of Note holders, the number of the Notes held by each Note holder, the date of issue, transfer of such Notes and (as regards Notes no longer outstanding) particulars of redemption by the Borrower, and such other particulars as the Borrower thinks fit. 8. Repayment Drawings made available under this facility are repayable by redemption of Notes at any time in accordance with their terms and otherwise on the Expiry Date."
4. "Notes" are defined to mean "notes issued, or to be issued, by the Borrower in accordance with the terms set out in Annexure B". "Expiry Date" is defined to mean the date set out in the terms and conditions of the Notes in Annexure B to the Facility Agreement, which contained the form of the Note Certificate. Annexure B initially defined the Expiry Date as 26 February 2016 but that was amended to 5 March 2016 ([15]).
5. Annexure B (in the terms and conditions of the Note Certificate) also included the drawdown amount ($1 million); the interest rate per annum (12%); and the dates for interest payment (quarterly).
6. The Note Certificate also contained the following terms: "3. Redemption (a) The Borrower may at any time by issuing a Redemption Notice to the Lender redeem any Notes, and on the Expiry Date must redeem all Notes, which have not previously been redeemed for cash at their Face Value and repay the Face Value and all interest accrued but unpaid on the Note to the date of payment. (b) If the Borrower redeems any Notes before the Expiry Date, the Borrower must issue to the Lender a new Note Certificate in respect of the remaining Notes held by the Lender. 4. Payment of money All money payable by the Borrower to the Lender under the Notes must be paid by cheque drawn by the Borrower and either delivered personally to the Lender on the due date for payment or deposited into the Lender's bank account as notified by the Lender to the Borrower from time to time."
7. The Facility Agreement defines "Redemption Notice" as "a notice substantially in the form of Annexure C duly completed and signed by or on behalf of the Borrower or in any other form (including verbal) as the Lender in its absolute discretion accepts".
8. Annexure A to the Facility Agreement contained the form of a drawdown notice. Annexure B contained the form of the Note Certificate and Annexure C, a possible form of Redemption Notice.
9. On 16 March 2015, Prisca Edwards, an employee of Crown, spoke to Mr Peng to ask him into which account he wished the interest payments to be deposited. He nominated an account which he held jointly with Ms Shao (the joint account) ([19]). On 31 March 2015, Crown made the first interest payment into that account. It continued to do so for the next two interest payments.
10. On 23 June 2015, Ms Shao introduced herself to Ms Edwards and enquired about a development at Ashfield with which Crown was associated (Crown Ashfield) ([22]). On 2 July 2015, Ms Shao met with Ms Edwards to arrange a possible investment in Crown Ashfield. In WeChat messages between Ms Edwards and Ms Shao on 6 July 2015, Ms Shao told Ms Edwards that she and Mr Peng were not speaking and he was ignoring her.

Discord between Ms Shao and Mr Peng and the 2015 proceedings

1. On about 5 August 2015, Ms Shao discovered that Mr Peng had misappropriated $600,000 of her money (unrelated to the Facility Agreement) by drawing that amount from an account they held jointly without her permission. On 7 August 2015, she commenced proceedings in the Supreme Court against Mr Peng (the 2015 proceedings) in which she obtained freezing orders. Over the next few days, Mr Peng repaid $460,000 of the $600,000 ([28]) The balance was never repaid (other than partially though small dividends in his later bankruptcy).
2. On 24 August 2015, in the course of communicating with Ms Edwards over WeChat, Ms Shao told her that she had separated from Mr Peng, was not speaking to him, intended to divorce him and that he had transferred her money to make her angry (a reference to the 2015 proceedings) ([28]-[29]). Ms Shao also told Ms Edwards that she was interested in a Crown development at Green Square. They arranged to meet the following day to look at the display for the development. Ms Shao wanted to purchase one of the units in the development, but it was unclear whether Mr Peng would also be a party to the sale ([29]). Ultimately, on 26 August 2015, Mr Peng agreed to transfer to Ms Shao one of the Expressions of Interest which he had signed ([29]) and on 29 August 2015, Ms Shao signed a contract to buy one of the units in the Green Square development in her own name ([29]).

Redemption of notes under the Facility Agreement

1. On 17 February 2016, Ms Edwards emailed Mr Peng to remind him that the Facility Agreement was due to expire on 26 February 2016 (which date was incorrect as it had been amended to 5 March 2016) and to ask him whether he would like the proceeds of the Facility Agreement (the proceeds) to be paid by cheque or transfer and, if by transfer, into which account ([31]). He responded on the same day: "Thanks for the reminder. It would be good to receive the repayment via transfer, the account detail is provided below. Bank: ANZ BSB: [XXX] Account number: [XXXX] Account name: QIAN PENG Please let me know if you have any questions."
2. This account was solely in Mr Peng's name and was not the joint account, into which the quarterly interest payments had been made during the term of the Facility Agreement.
3. On 25 February 2016, Crown paid the proceeds (amounting to $1,018,740) into Mr Peng's nominated account ([32]). In the course of the next few days, Mr Peng transferred almost the entire proceeds to his parents in China.
4. On 3 March 2016, Ms Shao phoned Ms Edwards about the imminent expiry of the loan notes issued under the Facility Agreement only to learn that Mr Peng had purported to redeem them and that Crown had paid the proceeds into the account nominated by Mr Peng ([33]).

The 2016 proceedings

1. On that day, 3 March 2016, Ms Shao again commenced proceedings in the Supreme Court and sought freezing orders against Mr Peng (the 2016 proceedings). Black J made freezing orders against Mr Peng on that date, but by that time Mr Peng had already transferred the money to accounts in China ([34]).
2. The defendants to the 2016 proceedings were, in order, Mr Peng, the Australia and New Zealand Banking Group Limited, the Commonwealth Bank of Australia, Commonwealth Securities Limited and Crown (the same two entities who are the respondents in the appeal). On 10 March 2016, Ms Shao sought leave to discontinue the proceedings as against Crown, which had not yet been served. Black J granted the leave sought.
3. On 18 March 2016, Ms Shao filed an amended summons in the 2016 proceedings seeking damages from Mr Peng in the amount of $1,158,740, for the $140,000 which remained outstanding following his misappropriation of $600,000 from her in August 2015 and for the proceeds of the Facility Agreement. On 24 March 2016, she filed a statement of claim in the 2016 proceedings. By that time, Mr Peng was the only defendant, leave to discontinue having been granted against every other defendant. The statement of claim contained the following allegations: "39. On 17 February 2016, without notifying Shao, Peng directed Crown to pay the proceeds of the expiring Facility into an ANZ bank account in Peng's name only ("Direction"). Particulars Email from Peng to Prisca Edwards sent on 17 February 2016 at 12.00pm. 40. Peng was not authorised by Shao to make the Direction. 41. On 25 February 2016, pursuant to the Direction, Crown paid the sum of $1,018,740 into the ANZ bank account specified by Peng. 42. The sum of $1,018,740 paid by Crown to Peng was beneficially owned by Shao." (Emphasis added to indicate the allegation which Crown contended in this Court was critical on the basis that it was consistent only with the propositions that the notes had been redeemed (implicitly following the service of valid Redemption Notice) and that the monies had been repaid by Crown.)
4. In an affidavit filed on 8 July 2016 in the 2016 proceedings, Ms Shao deposed that her assets included "[t]he sum of $1,000,000, being monies I invested with [Crown] on 6 March 2015 which were redeemed by [Mr Peng] without my authority on or around 25 February 2016" ([35]).
5. Mr Peng filed a cross-claim in the 2016 proceedings which raised property and money claims under the Family Law Act 1975 (Cth). Ms Shao expended money defending the cross-claim (which she claimed as damages in the Court below).
6. On 8 August 2016, Ms Shao and Mr Peng were divorced ([2]).
7. On 7 October 2016, written submissions were filed on behalf of Ms Shao in the 2016 proceedings which said, in part: "…when Mr Peng received from Crown $1 million plus interest, he held those funds on trust, if not for Ms Shao alone …, then at least on trust for himself and Ms Shao." ([35])
8. On 10 October 2016, the 2016 proceedings were heard by Sackar J. Mr Peng's solicitor withdrew before the substantive hearing began, with the result that Mr Peng neither defended Ms Shao's claims nor pressed his cross-claim. Sackar J made declarations and orders which included the following: "A declaration that the amount of AUD $1 million (Fund) which formed part of the sum of AUD $1,018,740 paid by [Crown] on 25 February 2016 to the first defendant's account with Australia and New Zealand Banking Group, account number [XXXXX] was received and held by the first defendant on trust for the plaintiff." ([36])

The Bankruptcy proceedings

1. On 23 January 2019, Ms Shao caused a bankruptcy notice to be served on Mr Peng. He failed to comply with payment and committed an act of bankruptcy on 13 February 2019. On 2 May 2019, Ms Shao filed a creditor's petition in the Federal Circuit Court, relying on the judgment she had obtained in the 2015 proceedings for a judgment debt of $153,877.12 ($140,000 plus interest). On 19 September 2019, Ms Shao obtained judgment in the 2016 proceedings for $1,156,828.77. These two judgment debts were included in her affidavit of debt filed in the bankruptcy proceedings on 10 December 2019. Mr Peng was made bankrupt on 12 December 2019. Ms Shao received two dividends from Mr Peng's bankruptcy, which totalled approximately $17,000.

The proceedings in the Court below

1. On 18 February 2022, Ms Shao commenced the proceedings in the Court below against Crown. In addition to the principal sum and interest, she claimed $314,398.35 in legal costs and disbursements in relation to the 2016 proceedings and the bankruptcy proceedings ([5]).
2. The primary judge dismissed Ms Shao's summons with costs. His Honour found at [40]: "The relationship between Ms Shao and Mr Peng on the one hand and Crown on the other was that of creditor and debtor governed by the terms of the contract between them. The terms of the Facility Agreement, and clauses 3 and 4 of the Note Certificate in particular, set out how repayment of the debt was to be made for Crown to obtain a good discharge for it. They do not set out obligations that Crown owed in relation to a sum of money in respect of which Ms Shao and Mr Peng had any pre-existing rights. It was not a breach by Crown of the Facility Agreement for it to pay away its own money in any way it considered appropriate. However, the risk it ran in making a payment that was not in accordance with the Facility Agreement was that it would not receive a good discharge for the debt it owed to Mr Peng and Ms Shao."
3. The primary judge found that service of the Redemption Notice on Mr Peng alone (being Crown's email to Mr Peng on 17 February 2016) was valid, did not amount to a breach of the Note Certificate and was sufficient to constitute service on both lenders ([56], [68], [69]) because notice to one of the lenders, in this context, was sufficient.
4. However, his Honour found that notice of the account into which the monies were to be paid had to be given by both lenders (or one, if the one had authority, whether actual or ostensible, to act on behalf of the other) ([56]). Crown was not entitled to act on a nomination by Mr Peng of a different account to which the payment ought be made for the purposes of cl 4 of the Note Certificate ([56]). His Honour found that by at least 24 August 2015, Crown could not reasonably have regarded Mr Peng as having authority to act on behalf of Ms Shao (because it knew through Ms Edwards that they were not talking and were contemplating divorce). Accordingly, the primary judge found that Mr Peng had neither Ms Shao's actual nor ostensible authority to nominate his own account for the payment of monies for the purposes of cl 4 of the Note Certificate.
5. Further, the primary judge found that, while Crown was entitled to pay the proceeds of the Note Facility into the account nominated by Mr Peng (because it was Crown's own money that was being paid), this payment was insufficient to amount to good discharge of the debt owed by Crown to Mr Peng and Ms Shao jointly ([69]).
6. The primary judge explained the reason why the Redemption Notice could be given to Mr Peng alone but that Crown could not get a good discharge of the debt it owed to Ms Shao and Mr Peng by paying the proceeds into the account nominated by Mr Peng alone in the following passage at [56]: "In my opinion, the question is not to be resolved by asking whether 'Lender' means either or both Mr Peng and Ms Shao. It is apparent that 'Lender' is defined to mean both - it is defined as 'Qian Peng and Yakun Shao' (emphasis added). The question is how a specific right or obligation in relation to both of them jointly is to be discharged or exercised. That depends on the precise right or obligation. Where the relevant right or obligation is a right or obligation on the part of the Lender to give notice of an account, it seems to me the notice must be given by both of them. If it were otherwise, there is a risk that Crown would be given inconsistent directions. It should not be up to Crown to resolve which direction it should follow. There is no mechanism by which it could do so. Rather, it should be up to Mr Peng and Ms Shao to resolve what direction should be given. The resolution of that issue would depend on the rights and obligations between them. It follows that Mr Peng alone was not entitled to give an effective notice nominating a different account to which the payment was to be made. The position is different in the case of the form of the Redemption Notice and service of it. It is apparent from the definition of 'Redemption Notice' that the form of the notice is determined by Crown and the question is whether that form is accepted by the 'Lender'. Acceptance by one joint lender appears to be sufficient just as payment to one joint lender is sufficient to discharge the debt. For similar reasons, service of the Redemption Notice on one joint lender is sufficient."
7. In light of these findings, the question remained whether Ms Shao was entitled to sue Crown for her debt given her earlier suit against Mr Peng. The primary judge found that when Ms Shao learned that Mr Peng had applied the proceeds of the Note Facility to his own use, she had a choice between: 1. suing Crown for recovery of the proceeds on the ground that its payment to Mr Peng did not validly discharge the debt owed by Crown to her and Mr Peng jointly; or 2. accepting that the payment to Mr Peng validly discharged the debt owed by Crown to Mr Peng and Ms Shao and suing Mr Peng ([79]).
8. The primary judge found that by suing Mr Peng in the 2016 proceedings, Ms Shao had elected for option (2) above and had thereby ratified the otherwise unauthorised acts of Mr Peng. His Honour said at [78]: "In the present case, Ms Shao's claim against Mr Peng depended on acceptance of the proposition that she had rights in respect of the $1,018,740 that had been paid to Mr Peng. Ms Shao's rights to the money depended on her establishing that the money represented the repayment of a debt to which she was entitled. Consequently, by making the claim, obtaining judgment against Mr Peng and seeking to enforce that judgment, Ms Shao ratified those acts of Mr Peng that had that consequence."
9. The primary judge also addressed Ms Shao's claim for damages and quantified the amount of damages to which she would have been entitled had she succeeded in her claim, which did not arise in light of the finding made in [78].

The grounds of appeal

1. Ms Shao appeals on the following grounds (as set out in the Amended Notice of Appeal filed on 22 November 2024): "1. The primary judge erred in holding that the requirement to issue a 'Redemption Notice' to the 'Lender' pursuant to cl. 3(a) of the Note Certificate could be satisfied by issuing a Redemption Notice to one of two joint lenders alone, in circumstances where 'Lender' was defined in the Facility Agreement to mean both joint lenders (Judgment at [56]). 2. The primary judge erred in holding that an alternative form of Redemption Notice was capable of being accepted by one of two joint lenders alone, in circumstances where the Facility Agreement provided that acceptance of an alternative form of Redemption Notice was in the absolute discretion of the 'Lender', and 'Lender' was defined in the Facility Agreement to mean both joint lenders (Judgment at [561]). 3. The primary judge ought to have held that: (a) the Respondents breached the Facility Agreement by failing to issue a Redemption Notice to the Lender pursuant to cl. 3(a) of the Note Certificate; and (b) as a result of the Respondents' breach, the Appellant suffered damages in the amount of $1,298,098.78. 3A. The primary judge ought to have found that, had a Redemption Notice been issued to the Appellant (as well as Qian Peng), the proceeds of the Facility Agreement would not have been paid into Peng 's bank account. 4. The primary judge erred in holding that the Appellant ratified Qian Peng's conduct in: (a) directing the Respondents to pay the proceeds of the Facility Agreement (Proceeds) into his bank account; and (b) receiving the Proceeds in his bank account; by suing Peng for the Proceeds in 2016, in circumstances where the 2016 proceedings were brought on the premise that Peng did not have the Appellant's authority to act as he did (Judgment at [78]). 5. The primary judge erred in holding that, had the Appellant succeeded on her claim against the Respondents, she would only have been entitled to recover $113,567.04 of her costs of pursuing Peng to recover the Proceeds (Judgment at [88]). 6. The primary judge ought to have held that the Appellant was entitled to recover $289,075.26 of her costs of pursuing Peng to recover the Proceeds."
2. Grounds 1-3A can be conveniently addressed together as they concern the efficacy of the Redemption Notice; ground 4 concerns ratification; and grounds 5 and 6 concern damages and arise only if Ms Shao is successful on her other grounds.

Principles of construction

1. The relevant principle which applies to determine whether an obligation is owed to parties jointly was articulated by Gaudron J in Federation Insurance Limited v Wasson (1987) 163 CLR 303 at 317; [1987] HCA 34: "Where a promise is made to two or more parties the question whether the obligation thereby created is owed to the parties jointly or severally is primarily a matter of construction … Where the obligation is capable of being construed either as one owed jointly or one owed severally, the rule of construction is that laid down in Slingsby's Case. … It was expressed by Parke B. in Sorsbie v. Park as follows: 'That rule is, that a covenant will be construed to be joint or several according to the interest of the parties.'" (Footnotes omitted.)
2. Accordingly, when construing a promise made to two parties jointly, it is necessary to ascertain "the interest of the parties", including whether the promise is objectively intended to protect one or the other party or both, to determine whether performance to one is performance to the other or whether both must be included.

The relationship between a debtor and joint creditors

1. At law, a payment to one joint creditor discharges a debt owed to them jointly: McIntyre v Gye (1994) 51 FCR 472 at 479. However, the parties can alter the legal position by contract: in other words, they can agree on a method by which the obligation to pay must be performed: Mizzi v Reliance Financial Services Pty Ltd [2007] NSWSC 37 at [84] (Brereton J). If the borrower does not comply with the agreed method when purporting to repay the debt, the borrower does not obtain good discharge of the debt and may expose itself to a claim for damages.
2. In McKenzie v Albany Finance Ltd [2004] WASCA 301, the appellant investors made interest-bearing deposits with the respondent financier which could be rolled over until the maturity date. It was held that the relationship between the parties in relation to a deposit of $64,000 was analogous to that of banker and customer and that therefore the deposit was repayable on demand for the whole of the term, at the expiry of which the whole of the principal and accrued interest would become due and payable. The respondent financier repaid part of the funds without demand and prior to the maturity date.
3. E M Heenan J said at [106]: "… Repayment of any or all of the deposit by the respondent, without demand being made or without interest being paid, would not be a payment made in conformity with the terms of the deposit. Unless accepted at the time such repayment was offered, or subsequently ratified, such a repayment would be in breach of the terms of the contract of deposit and could expose the respondent to a claim for damages, if the appellants were only able to reinvest the principal for the remainder of the term or terms at lower interest rates. Such a premature or part payment of principal could be made and accepted, but would still entitle the appellant to bring a claim for damages for loss of interest if reinvestment on comparable terms was not possible. Alternatively, if a premature repayment or partial repayment had been offered, the appellants would have been entitled to refuse to accept payment and to insist on the investment continuing until maturity and then to require full repayment plus interest on the maturity date. …"

Ratification

1. If a debtor has failed to obtain good discharge of a debt because the terms of the contract as to the creditors' demand or instructions have not been complied with due to one creditor acting without the authority of the other, the debtor can nonetheless obtain good discharge of the debt from the time at which the other creditor ratifies the act of the first creditor.
2. Ratification will not be available if the agent (the rogue creditor) has purported to act on their own behalf and not on behalf of the principal (the wronged party): Howard Smith and Company Limited v Varawa (1907) 5 CLR 68; [1907] HCA 38 (Varawa).

Inconsistent positions taken in subsequent proceedings

1. A plaintiff is not entitled to take a position in proceedings which is inconsistent with its prior conduct in endorsing the validity of a transaction or taking the benefit of conduct which it subsequently seeks to disavow. As Scrutton LJ said in Verschures Creameries Limited v Hull and Netherlands Steamship Company Limited [1921] 2 KB 608 (Verschures) (a decision relied on by the primary judge at [77]) at 611-612: " … A plaintiff is not permitted to 'approbate and reprobate.' … A person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage. That is to approbate and reprobate the transaction."
2. In Verschures, the plaintiff sued the recipients of a number of cases of margarine for goods sold and delivered. It then brought proceedings against the carriers alleging misdelivery, which were dismissed for the reasons given by Atkin LJ at 612: "The owners treated the goods as having rightly come to his hands; they sued him for the price of them, recovered judgment against him, and made him a bankrupt. Thereby they affirmed and ratified the act of their forwarding agents. Having done that, they cannot afterwards sue the agents as having acted in breach of their mandate. Their attempted reservation of rights against the agents was ineffective. They were renouncing by their act the rights they were attempting to reserve."
3. This principle is not limited to agency cases but applies generally and has been treated as synonymous with the equitable doctrine of election: Lissenden v C.A.V. Bosch Ltd [1940] AC 412 at 417 (Viscount Maugham). The test is an objective one and depends on the objective quality of the putative principal's actions and not on their subjective intentions: Lamshed v Lamshed (1963) 109 CLR 440 at 448; [1963] HCA 60.

Cases relied on by Ms Shao by analogy

1. Mr Horowitz, who appeared with Mr Hazan on behalf of Ms Shao, relied, by analogy, on authorities which address different situations to the one arising in the present case. The primary judge was not referred to these authorities and, accordingly, did not address them. However, in order to address Mr Horowitz's submissions, it is necessary to state the relevant principles which were applied in the relevant authorities to which he referred.

The customers' mandate to the bank where the account is held jointly

1. In Ardern v Bank of New South Wales [1956] VLR 569 (Ardern), Mr Ardern, and Mr Brookes had a joint account with the defendant bank. The terms of the arrangement were that the bank would honour only cheques signed by both account holders. The bank honoured several cheques which had been signed by Mr Brookes but not by Mr Ardern, whose signature had been forged by Mr Brookes. Mr Ardern successfully sued the bank to recover the monies lost. Martin J held that the condition of the mandate, that the bank was only obliged to honour cheques signed by both account holders, "was obviously inserted for the benefit of each partner, to prevent any dishonest drawings of the other" (573). His Honour continued, at 573-574: "Accordingly, the contract was not merely one that defendant should receive and hold money on a joint account which is a joint contract, but also an agreement with each partner that it would not honour cheques unless in the form authorized which entails obligations to each of them severally. … … the undertaking of the bank not to honour cheques unless they were signed by both partners was a condition which inured for the benefit of each partner …"
2. In Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 (Vella), the plaintiff's signature was forged on mortgages which were ultimately registered. The money from the three mortgages and a further amount were paid into an account held jointly by the plaintiff and Mr Caradonna, the fraudster. The plaintiff's signature was also forged on cheques signed by Mr Caradonna, in circumstances where the ANZ was obliged to pay only on cheques signed by both the plaintiff and Mr Caradonna. The plaintiff sued various parties including the mortgagee, the bank, Mr Caradonna and his trustee in bankruptcy. Young CJ in Eq held that the damages recoverable by the plaintiff should reflect only the plaintiff's proportional interest in the property and not the whole of the moneys wrongly paid out. There was no inconsistency in Vella because Vella sought to recover from all parties in the same proceedings (the fraudster's trustee in bankruptcy asserted no entitlement to the fund).
3. Mr Horowitz also relied on cases concerning the sale of goods and misdelivery. None of these authorities were put to the primary judge and none, in my view, have any material bearing on any of the grounds of appeal. Accordingly I do not propose to address them.

Grounds 1-3A: whether the Redemption Notice given by Crown was in accordance with its contract with Ms Shao and Mr Peng

1. Mr Horowitz submitted that Crown's obligation to issue a redemption notice was, like its obligation not to pay out the proceeds of the notes to any account other than one which had been nominated by both joint lenders, a "several obligation". He submitted that the trial judge's finding to the contrary was "inherently contradictory".
2. Although the opening words of the Facility Agreement indicate that "Lender" is a reference to Ms Shao and Mr Peng, the meaning of "Lender" throughout the agreement (whether it means, in any given context, either Ms Shao or Mr Peng or both of them) is, ultimately, a question of construction. The answer to this question depends on the language and purpose of the clause in which the word "Lender" is to be found.
3. I accept the submission put by Mr Lawrance SC, who appeared for Crown with Ms Ernst, that the purpose of the Redemption Notice is to communicate to the lenders Crown's irrevocable exercise of its unilateral right to repay early (the right to repay early being conditional on Crown having issued a valid Redemption Notice). The definition of Redemption Notice in the Facility Agreement (set out above) indicates that it can be given in any form, including verbal, "as the Lender in its absolute discretion accepts". A Redemption Notice has no protective purpose. For this reason, the primary judge was correct to conclude that "Lender", in this context, means either Ms Shao or Mr Peng (or both of them).
4. By contrast, the reference to "Lender" in cl 4 of the Note Certificate must mean both of them jointly to fulfil the purpose of protecting each of the lenders as well as Crown. It protects each of the lenders from the other nominating an account to which the other lender has sole access and it protects Crown by providing that it is entitled to receive one direction from both lenders (rather potentially inconsistent directions from each), as the primary judge explained at [56]. For this reason, the primary judge was correct to find that cl 4 of the Note Certificate requires the joint lenders to give a single direction to Crown nominating the account into which the proceeds are to be paid, but a Redemption Notice need not be served on both lenders.
5. Accordingly, grounds 1, 2 and 3 have not been made out.
6. The redemption notice was valid because it was given to Mr Peng who was one of the lenders. Accordingly ground 3A does not arise.

Ground 4: whether Ms Shao ratified Mr Peng's conduct and, if so, the ambit of the ratification

1. As referred to above, the primary judge found that the payment by Crown to the account nominated by Mr Peng without Ms Shao's authority was not in accordance with the agreed method because cl 4 required notice of the account to be given by each of the joint lenders (or one authorised by the other to give the notice).
2. Mr Horowitz challenged the primary judge's finding that, because Ms Shao had ratified Mr Peng's acceptance of the redemption notice and nomination of his account, Crown had received good discharge of the debt with the consequence that she could not sue Crown. He submitted, in summary,: 1. there was nothing for Ms Shao to ratify as Crown obtained a good discharge of debt by paying Mr Peng in full on the basis of the common law principle that a debt is discharged once one joint creditor has been paid; 2. in the alternative, if the Facility Agreement modified the common law, Ms Shao was entitled to sue Crown for damages because she did not ratify Mr Peng's acceptance of the payment (as she claimed in the 2016 proceedings that he was not authorised to accept it); 3. the present case was analogous to Ardern, with the consequence that Ms Shao could sue Crown for damages notwithstanding that good discharge had been given for the debt; and 4. Mr Peng was purporting to act only on his own behalf and not on behalf of Ms Shao when he sent the letter to Crown on 17 February 2016.

Whether and when the debt was discharged by Crown

1. As to (1), the common law principle that payment to one joint creditor is sufficient to give good discharge of a debt is subject to agreement to the contrary. Mr Horowitz argued that it is not possible for a contract to alter the common law position, submitting that to so allow could potentially transform a joint obligation into a several one. I reject that submission. A contract may require the consent or written authority of two joint creditors before payment may be made to them, without converting their joint debt into a several one. It is still the case that payment to one discharges the debt to both, but only if the contractual preconditions to payment are satisfied. The proper construction of the Facility Agreement required Crown to give a Redemption Notice before early repayment and required it to pay out the debt only when both joint creditors, Ms Shao and Mr Peng, had nominated an account into which the monies could be paid. As Crown did not abide by the method prescribed in the Facility Agreement when it paid the money to Mr Peng alone, it did not thereby obtain good discharge of the debt.

Whether Ms Shao ratified Mr Peng's acts so as to give Crown good discharge

1. In order to address (2), it is necessary to determine the extent of Ms Shao's ratification of Mr Peng's acts. Mr Horowitz submitted, in reliance upon Harrisons & Crossfield Ltd v London North Western Railway Company [1917] 2 KB 755, that Ms Shao's proceedings against Mr Peng and his subsequent bankruptcy would only amount to ratification to the minimum extent necessary. Assuming in Ms Shao's favour that that is so, it is evident from Ms Shao's pleading in the 2016 proceedings that the basis of her claim against Mr Peng was that the monies paid by Crown to him were monies paid in discharge of the debt created by the redemption of the notes under the Facility Agreement. She sued him for the money on the basis that the "sum of $1,018,740 paid by Crown to Peng was beneficially owned by Shao". That necessarily involved her ratification of the notice given by Mr Peng nominating his account (which would only have been valid if it had been authorised by both her and Mr Peng) which in turn required her to accept that the redemption notice given by Crown to Mr Peng was a valid notice under cl 3 of the Note Certificate. If followed that she could not bring proceedings for damages or debt against Crown arguing that it had not obtained good discharge of the debt since this would be entirely inconsistent with the stance she took in the 2016 proceedings.

Whether Ms Shao's right to claim damages survives her ratification of Mr Peng's acts

1. As to (3), Mr Horowitz relied on Ardern to submit that because a debt can be discharged contrary to a mandate specifying how payment is to be made, one of two joint creditors is able to sue for damages as a result of the discharge in breach of the mandate although the debt has been discharged. He submitted that, by analogy, even if the debt owed by Crown to Ms Shao and Mr Peng was validly discharged, Ms Shao was still entitled to sue Crown for damages as a result of the discharge of the debt in breach of the terms of the Facility Agreement.
2. Mr Horowitz also sought to draw a distinction between Ms Shao's ratification of Mr Peng's acceptance of payment (which he accepted) and her ratification of his nomination of a bank account (which he rejected). He submitted that just as Mr Ardern, who ratified Mr Brookes' acceptance of payment when he sued the bank for damages, was not precluded from suing for damages for breaches of other obligations, Ms Shao's ratification of Mr Peng's acceptance of payment by Crown was not a bar to her damages claim against Crown. He submitted that her suit for Crown's "defective performance" of their payment obligation remains intact.
3. One of the difficulties with this argument is that it fails to take account of the difference between the present case and that of a customer who operates a cheque account and thereby gives a mandate to the bank to honour cheques presented to the bank. The bank's obligation to honour a cheque only when the conditions of the mandate have been fulfilled is conceptually different from the debtor/creditor relationship which otherwise exists between banker and customer. In the former case, a putative third party (the payee or endorsee of the cheque) is involved.
4. Another difficulty is that it fails to take account of the forensic inconsistency between Ms Shao's conduct in accepting the discharge for the purposes of the 2016 proceedings and denying the discharge in the proceedings in the Court below. In the Court below, Ms Shao's case was that Crown was not authorised to discharge the debt because it had not issued a valid redemption notice to her as well as Mr Peng or obtained a nominated account from her as well as Mr Peng and that it was, accordingly, liable to her for the whole of the debt as well as damages. As the primary judge found, these positions were entirely inconsistent, which meant that she ought not be permitted to maintain the proceedings. Since she had, by her earlier conduct, ratified the deficiencies in Mr Peng's authority to nominate the account, Crown had received good discharge of the debt from the time of her ratification. Thus, she had no claim for damages against Crown.

Whether Mr Peng was purporting to act on behalf of Ms Shao or only on his own behalf when he nominated his account in the email to Crown dated 17 February 2016

1. As to (4), Mr Horowitz submitted that, in nominating his bank account, Mr Peng purported to act only on his own behalf and therefore ratification was not available on the authority of Varawa. I do not accept that Mr Peng was not purporting to act on behalf of Ms Shao when he wrote to Crown on 17 February 2016. The implicit effect of the communication was that this was the account nominated by the joint lenders in answer to Crown's request. Having regard to the course of prior dealing, Mr Peng may have had ostensible authority to make such a nomination but for the marital discord and prospect of divorce which Ms Shao had communicated to Ms Edwards.
2. Accordingly, ground 4 is not made out.

Conclusion on grounds 1, 2, 3, 3A and 4

1. None of the matters raised by Mr Horowitz provides any basis for doubting the correctness of the primary judge's analysis that the Redemption Notice was validly given to Mr Peng or that Ms Shao, by the 2016 proceedings, had ratified the nomination of the account by Mr Peng to Crown, with the result that, from the time of that ratification, Crown obtained good discharge for the debt. Having elected to sue Mr Peng, Ms Shao has foregone the right which she would otherwise have had to sue Crown in debt or for damages.

Grounds 5 and 6: alleged error in the assessment of damages

1. These grounds do not arise. It is sufficient to say that, save for one matter, I agree with the primary judge's assessment for the reasons his Honour gave. The only exception to that statement is that Ms Ernst, who made submissions on behalf of Crown on grounds 5 and 6, accepted that there had been double counting of $25,000 and that the figures would need to be amended to correct that error. She submitted that, if that adjustment were made, the final figure would be $131,793.95.

Crown's notice of contention

1. Crown filed a notice of contention in which it alleged the following grounds: "1 If the redemption notice was not validly issued, the appellant nevertheless ratified Mr [Peng's] acceptance of it. 2 The learned trial judge should have found that the proceedings were an abuse of process."
2. For the reasons given above, the primary judge was correct to find that the redemption notice was validly issued, for the reasons his Honour gave. As I propose that the appeal be dismissed, the question whether the proceedings before the primary judge amounted to an abuse of process in accordance with the principles in UBS AG v Tyne (2018) 265 CLR 77; [2018] HCA 45 at [45]-[46] (Kiefel CJ, Bell and Keane JJ) need not be addressed.

Proposed orders

1. For the reasons given above, I propose the following orders: 1. Dismiss the appeal. 2. Order the appellant to pay the respondents' costs of the appeal.

Amendments 19 December 2024 - "18 December 2024" replaced with "19 December 2024" - coversheet, Date of Decision 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: 19 December 2024