Tam v Z5 Venture Capital Pty Limited

Background facts

1. Ms Tam, who was living in Hong Kong, wanted to apply to the Australian Department of Immigration and Border Protection for a permanent residence visa. She was advised of a particular category of visa, "sub-class 132", known as the "Venture Capital Entrepreneur Visa Stream". Holders of this visa category were entitled to permanent residency in Australia if they made certain investments in Australia. The defendant proposed an investment which it represented would enable Ms Tam to apply for such a visa.
2. By letter dated 9 September 2015 (the Proposal Letter) the defendant proposed that the principal sum would be invested in a "sustainable technology business". The first project suggested was the proposed Oslo Development in Hamilton, Queensland (the Oslo Development). The proposal was that the investment would be for two years' duration and that the interest rate would be 10%. The letter continued as follows: " 5. Should you obtain your Federal Permanent Residency Visa, Z5VC will be entitled to a Performance Fee of 5% per annum on the initial investment. This is not deducted from your payments. 6. In the event that you do not obtain your Federal Permanent Residency Visa (a) no Performance Fee will be payable to us; and (b) the interest rate payable to you under the formula set out in paragraph 4 above, will increase from 10% per annum to 15% per annum. The Investment will be formalised by a documentation package to be provided to you shortly. To the extent that there is any disagreement between either the Engagement Letter or the VCFA Letter and this letter, the terms of this letter will prevail until the investment documents are executed. If the terms of this letter are acceptable to you, we ask that you sign the copy of this letter, where indicated, and return it to us, together with the acknowledgement and certification attached to this letter, as soon as practicable."
3. The letter was signed by Simon Robinson who was said to be a director of the defendant.
4. By letter dated 23 October 2015 (the Pamada Letter) the defendant wrote to Ms Tam, thanking her for her interest in investing in Z5 Venture Capital Series A Investment Fund. The letter continued: "As you are aware, you have agreed to invest funds with Z5VC Venture Capital Pty Limited (Z5VC) in the amount of A$1.1 million. Z5VC, through the Fund will then invest in a new sustainable development business opportunity (Oslo Project) as per the business plan accompanying your application for a Permanent Residency Visa in the Subclass 132 Venture Capital Entrepreneur Stream. The Oslo Project has received its major approvals and the services of a reputable builder are now being sought. It is forecast that the Oslo Project will be completed within approximately two years."
5. The letter described the "Early Investment Option" as follows: "Early Investment Option As you know, we are working to a very tight timeframe to take advantage of this business opportunity. We are concerned that if there is any unnecessary delay, the opportunity will be lost, as the Oslo Project developer will be forced to seek alternative sustainability advice and sources of funds from other parties. We also confirm that this is an important step in the structure which has been established so as to satisfy the business plan and legal requirements relating to your application for a Federal Permanent Residency Visa in the sub-class 132 Venture Capital Entrepreneur Visa Stream through the transactions with the Oslo Project developer. In order to ensure that we secure this opportunity, you or an entity with which you are associated (for example, a family trust) can invest with us on or before 31 October 2015. Should funds be transferred to us on or before 31 October 2015, we will characterise your investment as a separately documented temporary loan to Z5VC (with security from the Oslo Project developer) until such time as the investment steps are completed. Accordingly, in order to secure the opportunity, we ask that you consider the arrangements proposed below, under which you will provide funding at an attractive rate to Z5VC, ahead of the execution of the documents to establish the agreed investment structure. The proposed arrangements are as follows: 1. Funds of A$1.1 million are advanced to Z5VC (Bridge Loan). 2. Z5VC on-lends the funds to the Oslo Project developer under a secured loan, subject to the security being in place. The security is a second ranking mortgage over the site for the Oslo Project in favour of Z5VC. The Bridge Loan will be secured by an assignment of the security interest held by Z5VC. 3. Z5VC pays interest at the rate of 10.0% per annum per day on the Bridge Loan (being 10% from the Oslo Project developer). Z5VC is presently documenting the funding agreements for the Oslo Project, as described in the draft Information Memorandum. We expect that these documents will be completed in November 2015. On completion and execution of these documents, Z5VC will repay the Bridge Loan by applying the funds and interest towards subscription for loan notes from Z5VC under the Investment Agreement, as described in the draft Information Memorandum. The investment steps outlined in the schedule to this letter will then be completed." [Emphasis by underlining in the original; emphasis in bold added.]
6. On 23 October 2015 the Trust executed the Pamada Oslo Bridge Loan Facility Agreement (the Bridge Loan) with the defendant. The Bridge Loan provided that the Trust would lend $1.1m to the defendant for the following term (as provided for in the schedule): "The period commencing on the date that the Loan is made by the Lender to the Borrower and ending on the earlier of the Repayment Date or the second anniversary of the date that the Loan is made by the Lender to the Borrower."
7. Clause 2 of the Bridge Loan provided: "2. When Interest is Payable a) Interest is only due and payable by the Borrower to the Lender under the Bridge Loan Facility at the time of repayment of the Principal Amount. b) Interest is calculated on the Principal Amount at the Interest Rate calculated from the date on which the Loan is made by the Lender to the Borrower to the date when the Principal Amount is repaid."
8. Clause 3 of the Bridge Loan relevantly provided: "3. Repayment a) Subject to the direction contained in clause 6, repayment of the Principal Amount will occur on the Repayment Date when the Borrower will pay the Lender the aggregate of the Principal Amount and the Interest Amount."
9. Clause 13 of the Bridge Loan defined "Repayment Date" as meaning: "the first financial closing of the Z5 Venture Capital Series A Investment Fund as described in the Pamada Letter."
10. Clause 7 of the Bridge Loan provided: "7. Application of Agreement For the avoidance of doubt, this agreement and its terms apply only to the Bridge Loan Facility to be made by the Lender to the Borrower and not to any other contracts, arrangements or understandings made by the Lender and Borrower with regard to the provision of any other funding, including the arrangements the subject of the investment Steps as set out in the Pamada Letter."
11. According to Ms Tam's uncontested evidence, she was notified on 19 February 2016 by "Ms Wong and Mr Yau" (who appeared to be migration consultants) about the outcome of her visa application. Mr Yau presented her with a notification of refusal of application for a 132B visa from the Department of Immigration and Border Protection dated 19 February 2016. The letter is not in evidence but, as no objection was taken to this evidence, I accept that the letter said what it was reported as saying. After Mr Yau had given her the letter the following exchange occurred: Mr Yau: "One thing I can confirm is that this is 100% not your fault and we will work with Z5 to resolve the problems and do everything necessarily to remedy the application. The Australian government regarded Z5 as a small corporate and not the venture capital company category and therefore your investment in Z5 was not qualified investment for 132B visa. Simon is very angry with the decision made by the Australian government and we are now working to solve the problem." Ms Tam: "It is negligence on the part of your company and Z5 as I had done all you instructed me to do. What am I supposed to do now if I cannot obtain permanent residency through this 132B plan?"

The proceedings

1. Ms Tam commenced these proceedings by statement of claim filed on 20 October 2016. She sought judgment in the sum of $1.1m as a debt due to her. In the alternative, she sought damages for breach of contract. She sought interest under s 100 of the Civil Procedure Act at the rate of 15% per annum. Ms Tam alleged that her agreement with the defendant comprised the following: the Proposal Letter; the Pamada Letter and the Bridge Loan.
2. She also alleged in [8] of her statement of claim that, on its proper construction, the expression "'the first financial closing of the Z5 Venture Capital Series A Investment Fund as described in the Pamada Letter' referred to a date in November 2015 or within a reasonable period of time thereafter." Mr Junn, who appeared on the plaintiffs' behalf, submitted that this allegation was based on the portion of the Pamada Letter highlighted in bold above.
3. Ms Tam pleaded, in [9] of her statement of claim, that it was a term of the agreement that interest would be payable at 15% if her visa application was not successful and 10% if it was successful. She particularised cl 2 of the Bridge Loan and cl 6 of the Proposal Letter. She alleged that she had (through the Trust) advanced the sum of $1.1m to the defendant but had not been advised of any financial closing of the Z5 Venture Capital Series A Investment Fund. She also alleged that the time for repayment had passed and that the debt was due and payable.
4. The defendant filed a defence on 16 November 2016. It put several matters in issue both by way of denial and non-admission. It admitted that it had entered into the Bridge Loan and that the Trust had advanced $1.1m to it. It alleged that it had no obligation to repay the money as the time for repayment had not arisen.
5. Ms Tam amended her statement of claim in December 2016 to add the Trust (which had advanced the principal sum) as a party. The defendant filed an amended defence which did not materially differ from the original defence except that it contained consequential amendments referring to the two plaintiffs. It maintained its contention that it was not obliged to repay the debt "yet".
6. By letter dated 13 October 2017 the defendant wrote to Mr Yau, who was apparently Ms Tam's migration consultant, expressing concern that as her loan facility was due to expire on 23 October 2017, arrangements would have to be made to deal with her claim in this Court. The defendant said: "Unfortunately, the legal reality is that, if Ms. Tam is unwilling to compromise to enable an orderly realisation of the Oslo investment and continues to aggressively pursue Court action against the company, the directors of Z5VC will no option but to appoint a voluntary administrator. While this appointment would not prejudice the rights of any creditor of Z5VC, including the rights of any of your other clients, the outcome of a voluntary administration would most likely be that creditors would receive substantially less than 100 cents in the dollar compared to what they might expect to receive as a consequence of a properly managed exit process up to and after 30 June 2018, when Z5VC can formally exercise its security over the property."
7. Mr Junn, the plaintiffs' solicitor, received this letter on 17 October 2017.
8. On 18 October 2017 the matter was listed before the Registrar for directions. Ms Knight, solicitor, who appeared for the defendant, confirmed that the defendant did not intend to serve any evidence and that, given the admissions on the pleadings, it was open to the plaintiffs to apply for judgment. On 4 December 2017 the plaintiffs filed the notice of motion referred to above.

Consideration

1. As referred to above, the only outstanding matters are interest and costs. Although the plaintiffs sought interest under s 100 of the Civil Procedure Act, it was plain during the hearing of the motion that they claimed interest on the basis of an alleged agreement with the defendant, which included the Proposal Letter referred to above. As the motion was fought on that basis, I will determine it in accordance with the way it was argued. In substance, the parties agreed that, since the defendant did not propose to adduce any evidence, it was up to the plaintiffs to prove their entitlement, if any, to interest at a greater rate than the rate of 10% per annum which was admitted by the defendant. This is of significance as s 100(3) of the Civil Procedure Act specifically excludes authorisation of "the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise".
2. As referred to above, the plaintiffs contended that their agreement with the defendant comprised the three documents: the Proposal Letter, the Pamada Letter and the Bridge Loan, whereas the defendant submitted that the only relevant agreement was the Bridge Loan.
3. Ms Knight, who appeared for the defendants, did not contend that the Proposal Letter did not constitute an agreement. Rather, she submitted that it had been superseded by the Bridge Loan, which she alleged constituted the only agreement between the parties, being later in time.
4. I note that the Proposal Letter provided that Ms Tam sign and return a copy to the defendant. Her signed copy is not in evidence. However, as the defendant, in the paragraph set out above from the Pamada Letter, admitted that Ms Tam had agreed to invest the funds, I infer that the signed version of the Proposal Letter was sent to the defendant. In these circumstances, I am satisfied that there was an agreement between Ms Tam, or the plaintiffs, and the defendant which included cll 5 and 6 extracted from the Proposal Letter set out above. It was a contract since there was, in my view, an intention to create legal relations. The Proposal Letter provided that the terms of the letter would prevail over other specified documents "until the investment documents are executed".
5. The question is whether either or both the Pamada Letter or the Bridge Loan indicated a mutual intention to replace the Proposal Letter such that it ought be inferred that it had been superseded by the later documents. When all three documents are read together, it can be seen that the Proposal Letter makes provision for the visa application whereas the Bridge Loan does not touch on that issue at all. The Pamada Letter refers to the visa application in the terms set out above, and puts the visa application in the context of the loan of the principal sum. The effect of cll 5 and 6 of the Proposal Letter was to address the performance fee of 5% per annum and the additional interest of 5% per annum which were separate obligations to those imposed on the defendant under the Bridge Loan.
6. I discern no intention in the Bridge Loan to abrogate these obligations. Indeed, cl 7 of the Bridge Loan (set out above) is consistent with the parties' intention that the agreement constituted by the plaintiffs' acceptance of the Proposal Letter would remain unaffected by the Bridge Loan itself. While it is not necessarily the case that the Proposal Letter ought be regarded as a contract "with regard to the provision of any other funding", cl 7 expressly provides that the Bridge Loan and its terms apply only to the Bridge Loan Facility.
7. In these circumstances, I accept the plaintiffs' submission that cll 5 and 6 of the Proposal Letter were intended to operate in parallel to the Bridge Loan, which provided for the base figure of 10% per annum interest rate on the principal sum. The combined legal effect of the agreements was as follows: 1. Ms Tam would arrange for herself or her nominee, in this case the Trust, to advance the principal sum to the defendant; 2. the person advancing the money would be entitled to interest at 10% per annum under the Bridge Loan; 3. if Ms Tam's visa application on the basis of the advance under the Bridge Loan was successful, she would pay a performance fee to the defendant which amount to 5% per annum on the principal sum; 4. if Ms Tam's visa application on the basis of the advance under the Bridge Loan was unsuccessful, Ms Tam or her nominee lender would be entitled to additional interest of 5% per annum on the principal sum until the principal sum was repaid.
8. It is, accordingly, necessary to determine whether the evidence is sufficient to establish that Ms Tam did not obtain her Federal Permanent Residency Visa. In my view, the evidence of Ms Tam referred to above is sufficient, in the absence of any evidence to the contrary or any challenge to that evidence, to establish that Ms Tam did not obtain her visa. On this basis the defendant was obliged to pay an additional 5% per annum interest on the loan of the principal sum. Although the Proposal Letter was accepted by Ms Tam, it is clear from its terms, when read in the context of the Pamada Letter and the Bridge Loan that the additional 5% per annum interest did not depend on Ms Tam, advancing the money personally as distinct from through a nominee (in this case the Trust). Plainly the application for the visa was a matter that was personal to Ms Tam, which is why she was a necessary party to it.
9. No issue was raised by the defendant as to the beneficiary of the additional 5% per annum interest, if such entitlement was established. It was accepted that, if the 5% per annum interest was payable, it ought to be included in the judgment sum in favour of the Trust, the Trust apparently being for the benefit of Ms Tam and her family. Although the Trust was not a party to the agreement constituted by the Proposal Letter, the defendant's promise to Ms Tam was made for its benefit since the Trust advanced the money. This eventuality was specifically referred to in the portion which was underlined in the Pamada Letter, the extract from which is set out above. As both Ms Tam and the Trust are parties to the proceedings, and as consideration moved from both promisees (Ms Tam arranged for the loan and the Trust advanced the principal sum), there is no issue either of consideration or privity: Trident General Insurance Co Ltd v McNiece Bros. Pty Ltd (1988) 165 CLR 107 at 122-124 (Mason CJ and Wilson J); [1988] HCA 44.
10. Accordingly, for the reasons given above, the Trust is entitled to interest at 15% (10% plus the additional 5%) per annum on the principal sum from the 23 October 2015 to the date of judgment.

Costs

1. The defendant argued that the plaintiff was not entitled to any costs prior to 23 October 2017, that being the date on which the Bridge Loan became due and payable. In order to address this argument it is necessary to consider the definition of Repayment Date in the Bridge Loan.

The Repayment Date

1. Ms Knight contended that the proceedings were commenced prematurely because, on 20 October 2016, there had been no default as neither the principal nor the interest was due to be repaid. She argued that there had been no financial closing as provided for in the definition of Repayment Date and that, accordingly, the principal was to be repaid with interest on the second anniversary of the advance, being 23 October 2017.
2. Mr Junn submitted on behalf of the plaintiffs that the true construction of the Bridge Loan was that the financial closing was to occur in November 2015 or within a reasonable time of that date and that, accordingly, the Repayment Date, as defined in the Bridge Loan, was November or December 2015. He contended that, in these circumstances, the defendants had defaulted at that time and that the proceedings were properly commenced on 20 October 2016, a cause of action for breach of contract having accrued to the plaintiffs by the end of 2015.
3. I accept the defendant's submissions. The reference to the imminent closing date in the Pamada Letter (which is extracted in the passage highlighted above) was a statement of possibility or expectation. At most it was a representation. It was not, however, on its true construction promissory. It follows that the express terms of the Bridge Loan governed the determination of the Repayment Date. As there was no evidence that there had ever been a "financial closing of the Z5 Venture Capital Series A Investment Fund as described in the Pamada Letter", the date for repayment was, as provided for in the Bridge Loan, the second anniversary of the loan advance. As the principal sum was advanced on 23 October 2015, the Repayment Date (for both principal and interest) was 23 October 2017.
4. Notwithstanding the defendant's position that the proceedings had been commenced prematurely (which I consider, for the reasons given above, to be correct) the defendant did not move for dismissal of the statement of claim. There are provisions in the UCPR which would have entitled it to do so, such as UCPR 13.4 (no reasonable cause of action disclosed; or that the proceedings are an abuse of process of the court). Instead, the defendant admitted in its defence that the principal sum would become due at a later date. At the hearing of the plaintiffs' motion for summary judgment the defendant accepted that the statement of claim was an appropriate originating process to support the judgment for the principal sum from 23 October 2017. This approach is consistent with the provisions of Pt 6 of the Uniform Civil Procedure Act which provides, in s 56, that the overriding purpose of the Act and the UCPR is "to facilitate the just, quick and cheap resolution of the real issues in the proceedings".

The question of costs of the proceedings

1. As referred to above the defendant accepts that it ought be liable for the costs incurred by the plaintiffs after 23 October 2017, being the date on which the plaintiffs' cause of action accrued, but not before. The difficulty with the defendant's argument is that it would work an injustice if only the costs incurred after 23 October 2017 were allowed since it can be assumed from later events that the statement of claim would have had to be prepared in any event. I note the terms of the defendant's letter of 13 October 2017 which contain admissions that the defendant was not, as at that time, or on the due date of 23 October 2017, in a position to repay the principal sum. The affidavit of Ms Tam, which was sworn on 31 July 2017, would have had to be prepared in any event since the defendant denied that it was liable to pay the 5% interest. Mr Junn appeared to accept that the costs of the directions hearings before 23 October 2017 might not be recoverable.
2. I regard these matters as ordinarily within the province of a costs assessor. These circumstances may make it appropriate for an application for a gross sum costs order to be made. If such an application is made it would be appropriate that it be returnable before me. Provision for such an application will be made in the directions.
3. At the conclusion of the hearing I indicated that I would give the parties an opportunity to make submissions on costs once the reasons were published. However, I propose to make default costs orders in case the parties do not wish to avail themselves of the opportunity.

Orders

1. For the reasons set out above, I make the following orders: 1. Judgment for the second plaintiff in the sum of $1,454,411. 2. Subject to a written application for a different order being made to my Associate together with any evidence to be relied on in support by 29 January 2018, order the defendant to pay the plaintiffs' costs of the proceedings, such costs not to include directions hearings or appearances prior to 23 October 2017. 3. Grant liberty to any party to apply for a gross sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), such application to be made in writing to my Associate, together with any material relied on in support, by 29 January 2018. 4. Grant liberty to apply to re-list the matter before me on 3 days' notice.

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: 14 December 2017