Wang v Meng

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

JUDGMENT

MACFARLAN JA: I agree with White JA.
WHITE JA: This is an application for leave to appeal from orders of the Equity Division by which the respondent (plaintiff in the court below) was granted leave to amend her already amended statement of claim to claim damages for breach of contract after the judge had determined that her claim for equitable relief, by way of specific performance and related relief, should be dismissed (Meng v Wang [2022] NSWSC 833). For the reasons which follow I would refuse leave to appeal.
The respondent, Ms Zihui Meng, sued the applicant, Ms Binbin Wang, for specific performance of an agreement by which (as the judge found) Ms Wang agreed to purchase Ms Meng's shares in two proprietary companies (Comfort Zone Clinic Pty Ltd and Comfort Zone Spa Pty Ltd) for $378,000.
By her amended statement of claim filed on 7 September 2020, Ms Meng sought the following orders: "1. Judgment for the plaintiff against the defendant in the sum of $378,000. 2. An order that the defendant transfers her 55% ownership interest in the land comprised in folio identifier 13/SP77100, known as 13/1 Dixon Street, Sydney (Defendant's Dixon St Land Interest), to the plaintiff, in partial satisfaction of Order 1. 3. A declaration that, until the defendant complies with Order 2, the defendant holds the Defendant's Dixon St Land Interest on trust for the plaintiff. 4. A declaration that the agreed value of the Defendant's Dixon St Land Interest is, for the purposes of Order 2: (a) $335,500.00; or (b) in the alternative, $335,197.79. 5. Further or in the alternative, an order for specific performance of the Share Transfer Agreement of October 2019 between the plaintiff and the defendant. 6. A declaration that, from 12 August 2019 until the defendant fully complies with the above Orders, the defendant has held and holds 35% of the shares in Comfort Zone Spa Pty Ltd (ACN 155 581 043) on trust for the plaintiff. 7. Interest. 8. Costs."
The hearing before the primary judge commenced on 2 May 2022. Both parties sought to amend their pleadings. Some amendments were allowed and some disallowed. Ms Wang had pleaded that on 17 or 19 March 2020, Ms Meng attended the premises occupied by one of the companies and removed equipment, records (including customer lists and contact details), stock and other devices, and disabled Ms Wang's access to the company's email account used to contact suppliers and customers and, for those reasons, together with the COVID 19 pandemic which prevented trading, the contract was frustrated.
On 27 April 2022 Ms Wang foreshadowed a proposed amendment to the defence to abandon the defence founded on frustration, with that defence to be replaced, by reference to the same facts, with claims that Ms Meng had breached implied terms of cooperation and good faith, and was not entitled to relief by reason of her unclean hands.
On 3 May 2022 leave was given to Ms Wang to raise those defences. The defence of unclean hands, and that defence alone, succeeded.
The primary judge recorded that it was common ground that if the agreement between the parties was for the sale and purchase of Ms Meng's shares (as his Honour found to be the case) the purchase was to be completed within a reasonable time. Ms Meng had pleaded three alternative reasonable times for payment for the shares, the last being within six months of the agreement being made, that is by the end of April 2020 (J [15]-[16]).
The primary judge recorded: "[17] In the course of the hearing, counsel for Ms Meng sought to amend the statement of claim by adding two additional alternative contentions, namely, that a reasonable time had expired by the time of the commencement of the proceedings (21 July 2020), or had now expired. I refused leave because this would have introduced new factual issues which would have required an adjournment."
Prior to the hearing the parties served a summary of their respective claims. The claim summary prepared for Ms Meng dated 4 February 2022 included the following: "5. Claims: Meng makes three primary claims in the proceeding: a. Payment of $378,000: claim for the payment of the agreed purchase price of the shares in the two companies under the Share Transfer Agreement, being $378,000. b. Transfer of Wang's interest in the Dixon St Land: claim for the transfer to her of Wang's 55% interest in the Dixon St Land, in partial satisfaction of the purchase price; and c. Declaration as to agreed value: a declaration as to the agreed value of Wang's interest for that purpose. 6. Payment of $378,000: As to the claim for the payment of the agreed purchase price of $378,000, Meng claims: a. Due as a debt: that the purchase price is due and owing as a debt; b. Specific performance: alternatively, that specific performance of the Share Transfer Agreement should be ordered, in which case the purchase price will become due and payable by virtue of that order; c. Damages: alternatively, that the value of any damages for failure to perform the Share Transfer Agreement is equal to the purchase price."
One of the issues identified by Ms Meng in that document was: "Damages: If completion is overdue due to Wang's failure to complete, are any resulting damages equal to the purchase price?"
Reference was made to a share valuation report that Ms Meng had served.
A substantial part of the first day of hearing was taken up with Ms Meng's application to amend her statement of claim. In paragraph 47 she had pleaded that it was a term of the share transfer agreement that the time the plaintiff was required to transfer the shares to Ms Wang was the earlier of a time Ms Wang elected or the expiration of a reasonable time after the date of the Share Transfer Agreement. She also pleaded that, for the purposes of that paragraph, a reasonable time after the date of the Share Transfer Agreement was a period of no greater than three months or in the alternative a period of no greater than six months. In her opening submissions, counsel for Ms Meng submitted that there could be no doubt that, by the date of the hearing, a reasonable time had passed and that as Ms Wang had refused to perform the Share Transfer Agreement, Ms Meng was entitled to an order for specific performance (Turner v Bladin (1951) 82 CLR 463; [1951] HCA 13).
Counsel for Ms Wang submitted that a reasonable time for the purchase of the shares was at least a year after the agreement was made. He submitted that what is a reasonable time was not limited to what the parties had in contemplation at the time of entering into the contract but was a matter affected by subsequent events. These included Ms Wang's capacity to pay for the shares, as well as the COVID 19 pandemic.
Before the primary judge and counsel embarked on Ms Meng's application for leave to amend to add an alternative claim or claims as to when a reasonable time for performance of the agreement had occurred, the following exchange took place between the primary judge and counsel for Ms Wang: "HIS HONOUR: Mr Kabilafkas, I'm going to just come back to you. You'll have to see what the amendment says, I suppose. KABILAFKAS: Yes, your Honour. I expect that'll be opposed on the basis that my client could have put on evidence on both the points my friend wishes to amend. In particular, what is absent is the evidence from my client about her financial circumstances, the effect of COVID and the like. HIS HONOUR: if that's right, I would refuse the application for specific performance and the plaintiff would be remitted to her rights at law. She'd have to commence another action for damages. KABILAFKAS: Yes, your Honour, I thought that the damages are not pleaded. HIS HONOUR: Yes, because it's a specific performance suit, but if she can't specific performance, she can still sue your client for damages. KABILAFKAS: Yes, your Honour, quite."
Ms Meng sought to amend her statement of claim by alleging at paragraph 55A that a reasonable time after the date of the Share Transfer Agreement had expired was by the date of commencement of the proceedings or, alternatively, by the date of the proposed amendment. On the second day of the hearing the primary judge refused Ms Meng leave to make that amendment. His Honour said: "It's clear that under the earlier pleading the allegation was limited to an allegation that the reasonable time did not exceed six months. Now, what has emerged is that there's a lacuna in the plaintiff's case. Because the plaintiff hasn't covered at least in the period after six months, and before the commencement of proceedings. It might have been conventional to just plead that the plaintiff has not - to plead the claim as just the plaintiff hasn't, by the time the proceedings were commenced, complied with the obligation and a reasonable time has now expired. But, for whatever reason, the claim wasn't pleaded that way. And I accept what Mr Kabilafkas says, that it's not just a question of the plaintiffs evidence, there's a question of what the defendant might have said. The defendant hasn't been required up to this point to explain or to put anything before the Court to justify a failure to complete the purchase in the period after the expiry of six months. So, the amendment would introduce potentially new facts to the case. Now, that is inconvenient. Because, if the plaintiff succeeds in showing that there is no option, and that there is an obligation to purchase, but fails to show that there was a requirement to purchase at the latest, within a period of six months, then the plaintiff will be entitled a declaration for specific performance, but not entitled to any immediate orders for transfer. That is inconvenient, and it would be desirable if it could be dealt with in these proceedings. If that gap could be closed in these proceedings. But, it's not the end of the world, because any order for specific performance carries with it an ability on the part of the Court to make supplementary orders and directions. And, it seems to me, that it would be possible if we ended up in the way I've suggested, that is, as a possibility, that is that the plaintiff establishes an entitlement to specific performance, but fails to establish there was breach within a period of six months. That it would then be open to the plaintiff having obtained an order, a declaration of entitled for specific performance, it would then be open for the plaintiff to seek an order requiring performance now."
The primary judge found that the reasonable time for performance was not within the period of six months pleaded by Ms Meng but this would not prevent the court from declaring that the agreement was specifically enforceable so that an order for specific performance could be made when the time came for payment (J [75]). His Honour rejected Ms Wang's contention that on its proper construction the agreement gave her an option to acquire Ms Meng's shares but did not require her to do so (J [62]-[65]). As indicated above, his Honour upheld the defence of unclean hands.
At the conclusion of the fourth day of the hearing, the primary judge said that he was not in a position to deliver a full oral judgment but had reached conclusions on the issues that had been debated before him. He stated those conclusions. Relevantly for the present application, his Honour said: "The next question is what orders will be made now. As I have said, I would dismiss the application for specific performance, but I am inclined to think that s 63 of the Supreme Court Act means that I should not dismiss the proceedings completely, that is, dismiss the plaintiff's claims at law as well as her claims at equity. I'm inclined to think that what I should do, having dismissed the claim in equity and in effect remitted the plaintiff to her entitlements at law, I should allow her an opportunity to amend her statement of claim confined to advancing a pleaded case of law, consistent, of course, with the findings that I've already made about the terms of the contract. I recognise that that will involve a degree of bifurcation, and I emphasise that it may have costs consequences, but my thinking is that that is what I ought to do, and in saying that, I'm also influenced in part by the submission by counsel to the effect that the doctrine of unclean hands should only go so far as is necessary to deprive the plaintiff of benefit from her wrongdoing. I've already explained why I think it should result in the dismissal of the claim for equitable relief, but I think, in the circumstances, to throw the baby out with the bathwater, especially when, as the defendant is entitled to do, the defendant has held it open to argue that if fresh proceedings were begun, they would be the subject of an estoppel, would be to go too far."
In his published reasons, the primary judge said: "Judgment for purchase price at law [88] As mentioned, I have rejected Ms Meng's pleaded case on reasonable time. On my findings, the parties agreed in October 2019 that Ms Wang would not be obliged to pay in less than a year. [89] This issue had been debated in the course of the amendment application at the trial. Counsel for Ms Wang submitted that the Covid-19 pandemic, and Ms Wang's own financial circumstances, might have provided a justification for an extension of time beyond the twelve months. [90] Counsel for Ms Wang invited me in these circumstances to dismiss the proceedings in their entirety. When I asked whether that would prevent Ms Meng from bringing a further claim on the ground that the time for payment has now arisen, counsel replied that Ms Wang would rely on Anshun estoppel (see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) to say that it did. [91] I did not think it would be right to take this course. I referred the parties to s 63 of the Supreme Court Act 1970 which provides: 63 Final determination The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided. [92] In my view, rejection of the claim for specific performance meant that Ms Meng should be remitted to her claims at law. But, unlikely as it may seem that the time for completion has not now passed, I must give Ms Wang an opportunity to mount that defence if she chooses. Obviously she will be at risk as to costs. [93] It seemed to me that the appropriate course was to permit Ms Meng to amend her statement of claim so as to formulate an alternative claim for damages, rather than to dismiss the proceedings and require Ms Meng to institute separate proceedings which might give rise to a debate about Anshun estoppel. That has now been done and there is a timetable for Ms Wang to file a defence to the damages claim."
On 12 May 2022 the primary judge ordered that the claims for relief in paragraphs 2 to 6 of the further amended statement of claim filed 3 May 2022 be dismissed. The proceedings were adjourned for further directions. On 24 June 2022 the primary judge granted leave to Ms Meng to amend the statement of claim in accordance with a proposed third further amended statement of claim provided to the court that day. The amendments made by that document were relevantly:

The insertion of a claim for damages (para 6A under the heading "Relief Claimed"), the insertion of new para (c) to para 47 to plead that the purchase price under the Share Transfer Agreement was payable on the earlier of: "a. a time to be elected by the defendant; or b. the expiration of a reasonable time after the date of the share transfer agreement; and c. 12 months from the date of the Share Transfer Agreement."
The insertion of new paragraphs 47A and 47B as follows: "47A In the alternative to paragraph 47, it was a term of the Share Transfer Agreement that the purchase price under the Share Transfer Agreement was payable within a reasonable time. 47B For the purposes of paragraph 47A, a reasonable time: a. is 12 months from the date of the Share Transfer Agreement; or b. in the alternative, is a date between 12 months from the date of the Share Transfer Agreement and now; and c. in any event has now expired."
The insertion in paragraph 55 of the alternative period of not more than 12 months and the insertion of paragraph 66 as follows: "66. Further or in the alternative, by reason of the defendant's breaches, the plaintiff has suffered loss or damage."

The grounds of Ms Wang's proposed appeal are as follows: "1. It was an error of law to hold that section 63 of the Supreme Court Act 1970 (NSW) required the Court to grant the respondent leave to amend her statement of claim at the conclusion of the hearing. 2. It was an error of law, or alternatively an erroneous exercise of discretion, to grant the respondent leave to amend after the conclusion of the hearing which would require the parties to adduce further evidence and for a further hearing to be held. 3. It was an error of law, in exercising the discretion to permit an amendment at the conclusion of the hearing: a. to take into account the possibility of a multiplicity of proceedings; b. not to take into account the fact that no explanation had been provided by the respondent; c. not to take into account the considerations in ss 56, 57, and 58 of the Civil Procedure Act 2005 (NSW); d. not to take into account that an application to amend by the respondent had twice been rejected during the hearing, and in finding, in effect, that the rejection of the respondent's claim in equity at the conclusion of the hearing constituted a change in circumstances such that the amendment might then be permitted. 4. The Court ought to have held that the respondent ought not be granted leave to amend her claim after the conclusion of the hearing. 5. In the alternative to (3), the Court ought only have permitted leave to make the amendment on the condition that the respondent pay the appellant's costs of the proceedings to date, and the costs of the argument on the question of costs, forthwith and the proceedings be stayed until such costs are paid."
The decision to allow Ms Meng to amend her statement of claim was an interlocutory decision and leave to appeal is required. Leave is usually granted only where the proposed appeal raises an issue of principle, involves a question of general public importance, or where the applicant can point to a serious injustice which is more than merely arguable (The Age Company Ltd & Ors v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26; Young v Hones (No 2) [2014] NSWCA 338 at [14]). Moreover, the judge's decision was discretionary and the grounds for appellate review are as stated in House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40.
Ms Wang submitted that the application raised a question of principle, and a question of general importance regarding case management.
The issue of principle was said to be whether the primary judge misconstrued s 63 of the Supreme Court Act 1970 (NSW) by finding that the section required him to grant leave to Ms Meng to amend.
Particular emphasis was placed upon observations made by the primary judge during the course of counsel's submissions where his Honour said that "s 63 where it applies - I emphasise those words, 'where it applies' - is not discretionary, it's an obligation on the Court".
Neither in his summary of conclusions, nor in his published reasons, did the primary judge hold that s 63 required him to grant Ms Meng leave to amend. In his summary of conclusions quoted at [18] above, his Honour said "As I have said, I would dismiss the application for specific performance, but I am inclined to think that section 63 of the Supreme Court Act means that I should not [not "cannot"] dismiss the proceedings completely…". In his reasons, his Honour said (at [93]) that "it seemed to me that the appropriate course was to permit Ms Meng to amend her statement of claim…".

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