These proceedings arise from circumstances of the failure of a joint venture for the development of land. By Statement of Claim filed 1 September 2017 the plaintiff sues the defendant personally on his acknowledgement of liability to pay her according to the terms of a document dated 20 December 2016; which the plaintiff says recorded an accord and satisfaction reached between them. The plaintiff also sues for interest at a contracted default rate of 15% p.a., at the contracted repayment rate of 10% p.a. or, in the third alternative, at the Schedule rate under ss 100 and 101 Civil Procedure Act 2005 (NSW).
There is very little factual contest engaged in the pleadings and only the plaintiff gave evidence. The plaintiff was cross examined on her affidavit made 10 July 2019.
The defendant denies the personal acknowledgement of liability he gave the plaintiff is enforceable, protesting that there was no consideration for it, there being no bona fide dispute between the plaintiff and defendant personally. Fundamentally, he argues that not he himself but his alter ego company, YC Australia Pty Ltd ('YCA') entered into the joint venture agreement with the plaintiff on 13 August 2015 ('JVA').
During the hearing the defendant, with change of barrister, from Mr Polese to Mr Lee, abandoned parts of his defence to the plaintiff's action. At all times the plaintiff proceeded on his original Statement of Claim filed 1 September 2017. Until that change of course, the defence was fundamentally both that the several acknowledgments given by him to the plaintiff were unenforceable for lack of consideration ((Defence paragraphs 13(b), 14(b) and 16(b)); and that enforcement of the acknowledgments should be refused pursuant to s 7 Contracts Review Act 1980 (NSW) or refused on the basis that the plaintiff engaged in unconscionable conduct pursuant to s 20 of the Competition and Consumer Act 2010 (Cth) (Schedule 2) (the 'ACL') pursuant to s 243 of that Act (Defence paragraphs 23 to 26). By First Cross-Claim/Amended Statement of Cross-Claim filed 22 August 2019 the defendant sought the recovery of monies paid by him to the plaintiff "Further and in the alternative" to the relief sought pursuant to s 7 of the Contracts Review Act and s 243 of the ACL. The defendant abandoned those claims for relief from enforcement of the acknowledgements. Whereas to that point in the hearing the defendant had read his affidavit; with the consent of the plaintiff, the defendant elected not to rely on his evidence. The case proceeded on the evidence of the plaintiff alone.
The issues for determination in this Judgment are encapsulated in the following passage of the defendant's written closing submission dated 4 December 2019:
"[11] This case [will] turn upon whether there was any claim which the plaintiff could have made against the defendant as at 16 June 2016 and, even if there was, whether there was any consideration given to validly form a contract.
[12] Although the third acknowledgement is sued upon, the first and second Acknowledgement[s] are relevant and determinative, to the validity of the Third. That is because, if the first and second Acknowledgements were not enforceable, consideration cannot have passed in relation to the third, and there was nothing to forebear against suing on by the plaintiff.
[14] The starting point is to determine 'whether the plaintiff had a bona fide claim' against the defendant as at 16 June 2016…
[18] The next step is to consider whether any consideration passed for the plaintiff 'accepting the acknowledgment in satisfaction of her loan debt'. The loan debt is the sum of $50,000.00 said to have been lent on 9 March 2016 for a period of 6 months, being repayable on 9 September 2016. No consideration could have passed. The loan wasn't due to be paid. The first acknowledgement was signed on 16 June 2016. More importantly, no reference at all was made in the first acknowledgement to the loan of $50,000.00. It cannot be implied into the agreement.
From this point, the first, second and third Acknowledgements will be described as Acknowledgements 1, 2 and 3 respectively. Acknowledgement 1 was given and is dated 16 June 2016, this is the significance of that date in the defendant's above quoted submissions.
The purpose of the joint venture was the purchase of 244-246 Parramatta Road, Ashfield NSW (hereafter referred to as the 'Hotel') for investment and development. Sydney Development Group Pty Ltd ('SDG') was the developer. From 5 March 2015 the plaintiff and the defendant were directors, the defendant was secretary and they acquired shareholdings of 48 shares to the plaintiff and 52 shares to YCA of the 100 issued shares in SDG.
[2]
FACTS
The plaintiff, at the time of the relevant events, was a little over 60 years of age. She was born in Guangzhou, China and obtained a degree from Beijing University of Post and Telecommunications as a service engineer. She then worked in that technical profession in China before migrating to Australia in 1989. In Australia, until May 2014, the plaintiff worked for an electronic device manufacturer as Procurement Manager. She was not a person experienced in business management or the business of property development to that point.
In May 2014 she commenced working for a large Chinese property investment corporation called R&F Properties. That company was owned by her relative. Operating locally, the position she took was as a business development manager but she was being trained on the job, acquiring responsibility for finding project opportunities and maintaining relationships with client investors. She left that employment with R&F Properties only 8 months later, in January 2015, when the company asked her to relocate to Brisbane and she chose not to.
On 10 December 2014 the plaintiff first met the defendant and Mr Run Wen Xu, who used the English language name 'Raymond'. At that time, the defendant was the sole director, secretary and shareholder of YCA. Raymond was the General Manager of YCA. In the course of her employment with R&F Properties, the three of them met with a third party in relation to a potential business project. After the meeting, the defendant contacted the plaintiff several times expressing his desire to do development projects with her, asking her to use her connections with R&F Properties and investors. Raymond also contacted the plaintiff encouraging her to become involved in the business of property development with the defendant.
In February 2015 the defendant informed the plaintiff that he had found a new project that they should "do together". He introduced the Hotel project. In cross examination it was put to the plaintiff that Raymond and not the defendant introduced her to the project. No doubt that was put in order to contest the plaintiff's complaints of personal conduct by the defendant in place of the plaintiff having dealt with YCA. This occurred at several points in the evidence and on each occasion the plaintiff was unshaken in her evidence of the conversations and descriptions of dealings attributed in her affidavit to the defendant. I found the plaintiff to be a witness not shown by cross examination to be inaccurate or untruthful.
The defendant told her that "we should be able to" negotiate a long settlement of the land contract whilst simultaneously preparing and lodging a Development Application ('DA') with council for the site. He said words to the effect:
"Once we turn this raw site into a site with DA approval for a Hotel, we can either sell it for immediate profit or invite some investors to fund the construction of the hotel."
The plaintiff responded that she was interested in order to add some security for her retirement because she was unemployed but did have savings. The defendant informed her in words of the effect:
"I will be responsible for managing everything and you can utilise your connections and contacts gained through R&F Properties Group. We both invest funds and use that amount to leverage this project for a fortune. As you know, I am very experienced in sourcing and selling such kinds of property projects. What we can do is that I will approach the owner of the [Hotel] and try to secure a long settlement period before we make plans."
It was put to the plaintiff, particularly in regard to this conversation, that she was experienced in business management. The suggestion was that she was a sophisticated investor. The plaintiff denied that she was possessed of that expertise. Her employment history, as I have described it, is consistent with her denial.
On 28 February 2015, at the defendant's suggestion, the parties agreed that the project should proceed through a corporate vehicle. Again, the plaintiff denied the suggestion that this conversation was had with Raymond and not with the defendant (Transcript page 76 line 35) and there is no evidence to the contrary. The defendant suggested that the new company have a name beginning with 'YCA ' but the plaintiff preferred a different name, as she put it "… this is our company", to which suggestion the defendant agreed.
At the meeting on 28 February 2015 the defendant informed the plaintiff of his feasibility assessment and stated that he believed that once the DA was approved, they could make at least $1,000,000.00 profit just by re-selling the site. To this the plaintiff responded that she would do her best to get an investor to buy it and then enquired of the financial contributions required. The defendant responded in words to the effect:
"I have talked to Perry Properties Pty Ltd, the owner of the [Hotel], and they have agreed to sell for $4,658,888.00 with a 10% deposit. According to my calculations, we will only need to put $600,000.00 in equity to cover the 10% of the purchase price and other fees including fees for the design consultant reports, DA lodgement and legal work. I will work out when the initial contribution is required after I secure the purchase from the vendor. In relation to the contribution, I will put in 45% and you should cover the other 55%. In relation to the proportion of the profits, I will be entitled to 60% and you have 40%, I believe I am entitled to more than a half share of the profits in this project, because I will manage all affairs of the company here."
The plaintiff agreed and asked the defendant to prepare a contract. In cross examination it was put to the plaintiff that this conversation never occurred. She denied that suggestion. Not only did I find the plaintiff to be a convincing witness but the contributions are those eventually set out in the JVA at clause III.
On 5 March 2015 the defendant said to the plaintiff that he needed to have the controlling interest in the development company because the plaintiff would be spending so much time overseas sourcing investors and in that regard also it was important that he have the majority of the company so he could run it.
On 24 March 2015 Westpac accounts were opened in the name of SDG and the plaintiff signed forms authorising the defendant to operate them without her signature. Initially, on 24 March 2015, the plaintiff transferred $430,000.00 into the SDG Westpac savings account at the request of the defendant but that sum was later transferred back to her at her request on 13 April 2015. The plaintiff had been informed by the defendant that he needed to show the vendor that SDG was able to fund the deposit in order to secure the right of negotiation and that "I do not have enough money at the moment".
Clause V (4) of the JVA provided:
"YCA, as the major shareholder and investor who controls the shares of [SDG] in Australia, shall enjoy the complete decision making rights of the project.
YCA, as the actual responsible person and the trader of [SDG], shall be responsible for all the shareholders of [SDG], and its functions shall include:
4.1 As the first provider and initiator of the project, provide Income Statement and Feasibility Analysis Report of the project investment - coordinate all negotiations about the purchase of the property
4.2 Carry out project research and planning with Urban Planning Department and the Company, negotiate with the local Council to apply for DA until it is approved, make sure that the development application can be approved as soon as possible."
Clause V (5) of the JVA described the plaintiff's responsibilities and rights as follows:
"5.1 [the plaintiff] as the shareholder and investor of [SDG] in Australia shall enjoy the rights of decision and supervision.
5.2 [the plaintiff] shall make use of its own advantages to seek for the domestic and foreign investors and buyers of the project. During the application phase of the project, both parties shall jointly implement the receiving buyer of the project."
Pursuant to the JVA the plaintiff and YCA agreed to make payments to SDG for the purpose of its acquisition of the Hotel as follows:
1. $330,000.00 by the plaintiff on or before 13 August 2015;
2. $270,000.00 by YCA on or before 13 August 2015;
3. $258,500.00 by the plaintiff on or before 13 November 2015;
4. $211,500.00 by YCA no later than 13 November 2015; and
5. In the event that YCA failed to make contribution for some reason and the plaintiff agreed to pay the amount of contribution for YCA; then YCA agreed that the plaintiff shall be entitled to interest for the amount of the contribution invested at 5% per annum: Statement of Claim [3]; Defence [2] and [3].
A couple of days prior to 13 August 2015 the defendant told the plaintiff that he was close to final terms of contract to buy the Hotel ('Land Contract') and that the vendor had agreed to a 9 month settlement period on a contract requiring 10% deposit on exchange. He further advised her: "we may also need to prepare a second stage contribution by December this year". When the plaintiff questioned the defendant about the second contribution, he informed her that he was "not saying that an additional 10% is a must; it is just something the vendor is asking for at the moment. We are still in the process of the negotiation." The plaintiff informed the defendant that the further contribution of 10% was beyond her capacity to make; to which the defendant responded: "understood. Do not worry, because I can take care of the second stage contribution, if we have to do that." In the same conversation the defendant requested the plaintiff to make an additional contribution of $170,000.00 because he was unable to make the YCA contribution at the time. The conversation set out in paragraph 16 of the plaintiff's affidavit included:
"[Defendant]: How about this? Just lend me $170,000.00 and I will take care of the other $100,000.00. I will repay you the $170,000.00 at the time we are going to make the second instalment of investment funds if the vendor insists on asking for an additional 10%, and 10% equals $465,888.80, so lets say $470,000.00. Based on our agreed proportions of contributions, I will be liable for 45% of this second instalment which is $211,500.00 and you will be contributing $258,500.00. I will also take care of the balance of your second instalment of $88,500.00 after deduction of the $170,000.00 repayment. I just do not want to lose this opportunity, so can you please help me? I am also willing to pay you 5% annual interest accrued on that $170,000.00."
The plaintiff agreed.
On 13 August 2015 the plaintiff contributed to the joint venture by payment to SDG of $500,000.00, made up of the agreed contribution of $330,000.00 plus an additional sum of $170,000.00 being part of YCA's agreed contribution and the plaintiff was entitled to 5% interest per annum on that make up sum: JVA clause IV.4; Statement of Claim [5]; Defence [2][c].
In August 2015 the plaintiff travelled to China attempting to interest investors to fund the future construction and purchase of the Hotel once the DA was approved.
On 2 September 2015 SDG contracted with the vendor to purchase the Hotel. The Land Contract required 10% ($465,888.80) deposit on exchange and by Special Condition 25, required a second payment in the same amount by 2 January 2016.
At paragraph 22 of her affidavit the plaintiff deposed that she was not informed by the defendant that it was a term and condition of the land contract that SDG was required to make the second payment of 10% of the purchase price by 2 January 2016 and in particular, that if SDG failed to pay that 10% instalment, the contract could be terminated and the deposit paid on exchange would be forfeited. In cross examination, the plaintiff agreed that she was content for there to be such a term in the contract because she was relying on the defendant's representation "that he'd take care of the payment of that amount": see Transcript page 88 line 38 to page 89 line 47. The fact is however that the defendant did not inform the plaintiff that the second 10% payment became a term of the Land Contract with those consequences for failure to pay pursuant to Special Condition 25. The plaintiff was unaware of the provision as the Project proceeded.
The plaintiff was only ever shown the front page of the Land Contract. In a discussion between them in November 2015 the defendant assured the plaintiff that she need not worry about the second instalment and that he was organising it. In December 2015 the plaintiff had a telephone discussion with Raymond who also assured her that she need not worry about the second instalment because "we will handle the payment".
On 29 December 2015 the plaintiff transferred $50,000.00 to the account of SDG in response to Raymond's request that SDG be placed in funds to cover the drawing fees, planning fees, and other consulting fees for the DA submission on the understanding that the defendant was organising the same amount for that purpose.
The defendant failed to cause SDG to make the second instalment of 10% of the purchase price on 2 January 2016. The defendant failed to disclose to the plaintiff the vendor's termination of the Land Contract in consequence of the breach of Special Condition 25 and of the forfeiture of the "first deposit".
The defendant failed to disclose to the plaintiff that he caused SDG to commence Supreme Court proceedings (Land Contract Proceedings) against the vendor of the Hotel, seeking relief against termination and forfeiture of deposit: Statement of Claim [9]; admitted Defence [9].
On 9 March 2016, being still unaware of the vendor's termination of the Land Contract and of the Land Contract Proceedings, the plaintiff lent the defendant personally $50,000.00 on terms that it be repaid by 9 September 2016 with interest at the rate of 8% per annum.
The Land Contract Proceedings brought by SDG were dismissed with costs on 28 April 2016. The defendant, YCA and SDG had continued to deal with the plaintiff on the basis that the development of the Hotel in accordance with the joint venture was going ahead and without reference whatsoever to the vendor's termination of the Land Contract, as follows:
On 23 February 2016 the defendant discussed resale of the developed Hotel including responding to the plaintiff's enquiry "how are you progressing with the Ashfield property" by answering "we have established a minimum possible resale price of $5.35 m. I will have the information sent to you";
An email from the defendant to the plaintiff of 23 February 2016 informing: "For Ashfield Project, it can be considered sold when the price raises by 16-20% and the price would be around $5.40-5.58 m. The purchase has relations with Mupha and Mr Jason Wu. It's the most urgent one!!!";
On 26 February 2016 Raymond WeChat messaged the plaintiff seeking $50,000.00 "by next week" contribution to the total $110,000.00 plus GST for design fees and consultation fees required for the joint venture. The plaintiff did not make this contribution;
On 4 March 2016 the plaintiff sent a WeChat message to the defendant in relation to her meeting a potential investor in the joint venture development, requesting he send her copies of all relevant reports and drawings submitted for the DA;
The plaintiff's WeChat at 8:24pm 8 March 2016 to the defendant included "Anthony, can you send me the documents lodged with the DA? You should have all these documents, or you don't? You should have all document submitted with DA lodgement, right? Can you send them to me right now?" to which the defendant responded with a WeChat message: "Sure, will provide to you as soon as possible. I just finished work with Ray after attending to the urban planning seminar";
On 9 March 2016 the plaintiff made an appointment to meet with the defendant at 2pm for collection of copies of the DA related documents and when she met him at his office and informed him that the potential investor wanted to review them, the defendant responded: "Mei, sorry about that. We are very busy working on this project, and we have not submitted the application for DA because we have not paid the fees to those consultants, so they did not release the documents to us nor submit the DA application to us." In order to facilitate the completion of the DA, on the request of the defendant, the plaintiff agreed to lend him a further $50,000.00 at 8% interest, for 6 months and the defendant agreed to provide her with the consultants documents as soon as possible and ask them to lodge the DA. Exhibit MZ-1 page 21 is the defendant's handwritten and signed note of this transaction which reads: "Anthony Yei Cheng DL12936244 Loan $50,000.00 (fifty thousand dollars) From Mei Zhang From 9/3/2016 - 9/9/2016 yearly Interest Rate is 8%". The plaintiff loaned the defendant that sum on 9 March 2016;
In late March 2016 the plaintiff again asked the defendant to provide copies of the documents lodged in the DA application to enable her to provide them to a potential investor;
On 1 April 2016 Mr Jack Lin of Ronghai Property Group, a friend of the plaintiff who was helping her resell the Hotel as an alternative to developing it, emailed Raymond requesting a contract for sale of the Hotel, proposing an agency agreement be signed with YCA, with escalating agent commissions commencing from a bottom price of $5.35m in advance of a meeting with developers in China on 9 April 2016;
The preceding assurance by Raymond was contrary to the result of judgment in the Land Contract Proceedings delivered the preceding day. Nevertheless, the defendant maintained the failure to disclose termination of the Land Contract when on 2 May 2016 he responded to the plaintiff's expressed concern that they still had not committed investors or buyers in place, with the assurance that the vendor would allow one month and that settlement was postponed to the end of June. On 4 May 2016 the plaintiff again travelled to Guangzhou for the purpose of sourcing potential investors from China and returned on 11 June 2016 to Sydney.
Eventually on 15 June 2016 circumstances forced the defendant to inform the plaintiff that the land contract was terminated. The circumstances were that on the plaintiff recommending to the defendant that William Tong of LJ Hooker Commercial, be engaged to promote the property by advertising online, the defendant responded that they could not sell the property through an agent "Because we cannot let the vendor know, and if it is available online the vendor will know."
This curious response concerned the plaintiff. She met the defendant at his office and demanded to see the Land Contract. The defendant showed her the front page of the Land Contract only but when the plaintiff said that she would engage a lawyer to advise her as to what was going on, the defendant said: "The contract has been terminated by the vendor and we are not allowed to resell the property." To the plaintiff's further enquiries, the defendant then revealed, the failure to make the second instalment, of the vendor's termination, of the Supreme Court proceedings challenging the vendor's termination and that the proceedings had been lost, and that they had until the end of June to determine whether or not to appeal. The defendant informed the plaintiff that William Roberts Lawyers had been engaged on behalf of SDG.
When the plaintiff challenged the defendant as to his prior assurances that "everything was fine" and as to why he didn't make the payment; he responded: "It is all my fault and I will repay all the money you paid back to you and I won't let you suffer any loss." The plaintiff responded with words including: "You are a liar and what you have done is fraud."
The defendant said that he could not immediately pay but that he would be able to pay in future out of the proceeds from other projects. He said he could pay the first $300,000.00 in around mid-December of 2016 and another $300,000.00 in mid-June 2017. The defendant invited the plaintiff to write down his promise.
The plaintiff sent a WeChat to Jack Lin at 3:17pm, 15 June 2016 informing him "the project in Ashfield cannot be sold anymore. The contract we have the vendor is not valid anymore."
There is no evidence contrary to the plaintiff's version of these events. The above history including WeChat communications is corroborative of the plaintiff's version of events that the defendant withheld, and caused YCA and SDG to withhold, from her the whole of the circumstances of the failure to make the second instalment, termination of contract, and proceedings in the Supreme Court of NSW.
[3]
CONSIDERATION
Plainly the English language used reveals imperfections of it not being the first language of the draftsperson but in my opinion each Acknowledgement is clear in its meaning.
At SOC [12] the plaintiff pleaded: "subsequent to the termination of the Land Contract and dismissal of the Land Contract Proceedings, the Plaintiff made a bona fide claim upon the Defendant, that he was responsible for the loss of her monies invested in SDG."
The plaintiff in fact did complain to the defendant that he was responsible for her loss of monies in this way. It is the "bona fide[s]" of her claim which the defendant disputes.
In closing oral submissions counsel for the plaintiff summarised the plaintiff's case and I reduce that to point form as follows:
The plaintiff sues on Acknowledgement 3;
The principal debt of $600,000.00 stated in each of Acknowledgements 1, 2 and 3 combines the $550,000.00 contributed to the joint venture by the plaintiff and the $50,000.00 loaned by the plaintiff personally to the defendant on the 9th of March 2016;
The consideration flowing from the plaintiff to the defendant in the making of the Acknowledgement 3 included both her forbearance from prosecuting her bona fide claim based on the defendant's wrongful conduct and her clear entitlement to repayment by the defendant of that $50,000.00 personal loan.
I accept the argument put by counsel for the plaintiff in closing submissions in regard to my last dot point of his argument above. The Court will not enquire into the commercial adequacy of the consideration for the defendant's promise to pay the principal sum of $600,000.00 in the circumstances of this case where amongst the dealings at the heart of the dispute between the parties was the real and admitted personal debt of $50,000.00. When the Court is to determine whether or not there was consideration for Acknowledgement 3 such that it is enforceable at law, the Court must not seek to measure the comparative value of the defendant's promise and the promise given by the plaintiff to forbear from suit in exchange for it, "nor will the court denounce the agreement merely because it seems to be unfair": Cheshire and Fifoot Law of Contract 11th Australian Edition [4.12]. This point, made by the plaintiff, completely prevails over the defence of failure of consideration to validly form a contract set out in the defendant's written closing submissions dated 4 December 2019 at [11], [12], [14] and [18] quoted in the early part of these reasons.
Although the defendant makes the point that as at the dates on which Acknowledgements 1 and 2 were made, the personal loan had not fallen due: it did fall due on 9 September 2016 and was therefore outstanding for in excess of 3 months at the time of the making of Acknowledgement 3 on the 20th of December 2016.
In a written reply dated 5 December 2019 to the defendant's closing submissions at [2] the plaintiff stated that each of the Acknowledgements of Debt were given in satisfaction of bona fide claims, loan debts, and forbearance to sue on those claims and on the preceding Acknowledgements. At [11] to [18] the plaintiff identified her potential personal causes of action at law based on the defendant's wrongful conduct. For the reasons given under specific consideration below of the question of "bona fide claims", in my opinion it was not necessary for the plaintiff to prove successful legal causes of action and therefore in these reasons I do not deal with that topic further.
Defendant closing written submission [12] whilst conceding that the plaintiff sued on Acknowledgment 3, argued that consideration could not have passed to Acknowledgment 3 if Acknowledgments 1 and 2 were not enforceable.
The argument as put in paragraphs 11 to 20 of the defendant's closing submission is that the consideration for Acknowledgment 3 was forbearance to sue on the defendant's failure to comply with Acknowledgements 1 and 2: paragraph 20. This argument ignores that the plaintiff case as pleaded and as was run at the hearing identified the defendant's wrongful conduct which preceded any of the Acknowledgments to be consideration for Acknowledgment 3. Nevertheless, in order to give the defendant submission full consideration, these reasons proceed with consideration of the earlier Acknowledgments 1 and 2.
Nor is the defendant's argument available from the wording of Acknowledgement 3. It is dated 20 December 2016 and records a separate arrangement to Acknowledgement 1 dated 16 June 2016 and Acknowledgement 2 dated 6 July 2016. Acknowledgement 3 does not refer to forbearance to sue on the defendant's failure to perform under Acknowledgements 1 and 2. It describes the defendant's wrongful conduct as the basis of the plaintiff's claim, with the words: "I Ye Cheng …, because failed to fulfil a written business agreement… Cause loss of total $600,000.00". With those words, it implicitly identifies the subject of the consideration of forbearance to be from advancing the plaintiff's claims based on the defendant's wrongful conduct. It describes that the defendant's personal failure was to achieve fulfilment of the business agreement being "The agreement has involved YCA Investment Pty Ltd (Ye Cheng), Mei Zhang and Raymond Xu (Chinese name: Run Wen Xu)".That the defendant's name is within parenthesis in that description of the parties making the agreement is an acknowledgment of the reality of his role as the controller of his alter ego company YCA Investment Pty Ltd. The quoted passage describes the defendant's failure of personal performance as the cause of the plaintiff's loss. In this way the document describes the defendant's acknowledgement of his failure in real and personal terms and not as committed by YCA.
The defendant submissions at [15], [16], and [17] seek to limit the plaintiff's action on bona fide dispute to causes of action for breach of the joint venture agreement, the loan of $170,000.00 by the plaintiff to YCA and the plaintiff's rights of action against the defendant for breach of fiduciary duty, if any, as a director of SDG. In my opinion, restriction of the plaintiff's claim in this way is misconceived on the basis of the following reasons dealing with the question of whether or not there was a "bona fide dispute".
Acknowledgement 2 opens with "additional conditions and explanation for money return agreement with Ye Cheng." These words describe the Acknowledgment 2 as providing additional terms for repayment of the debt acknowledged in Acknowledgment 1 dated 16 June 2016. Plainly, Acknowledgments 1 and 2 are to be read together. In Acknowledgment 1, the defendant agreed to "return" back the $600,000.00 within 12 months by two equal instalments of $300,000.00 on 15 December 2016 and 15 June 2017. Acknowledgment 1 did not state any consequence for non-payment. The first line of Acknowledgment 2, just quoted, describes its purpose as providing additional conditions to provide an "explanation" for how the "agreement" for "return" of money was to be made. The dates for the first and second instalments and the equal amounts of the instalments are identical to those in Acknowledgment 1. The $600,000.00 is explained as incorporating both the $550,000.00 that the plaintiff contributed to SDG's account plus the $50,000.00 she loaned to the defendant personally. Then repeating reference to "return" and "return agreement" at the second dot point, Acknowledgment 2 describes the consequence of the event of non-payment by those dates, with the words "if not return the money on time as the return agreement". The consequence is that the defendant pay 20% per annum interest on the outstanding balance running from due date of each instalment. The last part of the document in accordance with its description of being an "explanation" describes the defendant's plan to source each instalment from the sale of an identified property and to make payments within 36 hours after settlement of those sales.
In oral submissions the defendant added a further argument for his point of absence of the consideration of forbearance. In this argument, he referred to the word "any" which appears in each of Acknowledgment 2 and Acknowledgment 3 where the respective provisions describe the plaintiff's right to take legal actions. The defendant argument was that those provisions in each of those Acknowledgments meant that no consideration flowed from the plaintiff to the defendant because having reserved "any" rights to sue, she was not forbearing from advancing the claim.
I set out the relevant provisions in Acknowledgment 2 and Acknowledgment 3 for consideration:
Acknowledgment 2
"However, Mei Zhang reserves the right to do any further legal actions"; and
Acknowledgment 3
"I Ye Cheng has also agreed, if Ye Cheng failed to return the loan on time as mention above [the consequence of interest is expressed] … . Also Mei Zhang has the right to do any legal action".
In my opinion, the defendant's submission wrongly fails to recognise the qualifying adjective "further" in Acknowledgement 2 in the expression "any further legal actions". Use of the adjective "further", placed as it is following the defendant's Acknowledgment of the debt and promise to pay instalments by certain dates, reading Acknowledgment 2 as a whole; reserved to the plaintiff the right to take legal action on the defendant's failure to satisfy his obligation to make instalments. This construction is consistent with the preceding words "after due day" timing the entitlements to interest and to bring legal action to commence upon the defendant's breach by failure to pay. The word "However" has the conjunctive meaning of: in addition to interest.
The above quoted passage from Acknowledgement 3 plainly expressed both interest and the plaintiff's right to take legal action only in the event of the defendant's failure to pay the instalments on time as planned. The word "if", meaning the conjunction "in case that" or "on condition that" assures this construction.
In both Acknowledgements 2 and 3 the word "any" adjectivally refers to the range of legal actions. It does not mean legal action at any time, including before the defendant's breach by failure to pay. In so doing, it shows that the plaintiff's promise to forbear from progressing her claim was implicit. The promise to forbear need not be express: McDermott v Black (1940) 63 CLR 161.
The interpretation I have preferred, is on the whole of the evidence, that which the reasonable and objective reader standing in the shoes of the plaintiff and the defendant, armed with their common knowledge of the surrounding circumstances, would give the document: Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 541; [2004] HCA 35 at 22. In Paribas the Court approved what was said by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350; [1982] HCA 24 setting out with evident approval the statements of Lord Wilberforce in Reardon Smith Line Limited v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 AllER 570 at 574:
"In a commercial transaction it is certainly right that the Court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
Here, the knowledge was of the plaintiff's claims of wrongful conduct and the knowledge that the defendant did not want the plaintiff to take any action because of his want to protect his personal reputation generally within the community of his Chinese clientele investors from dissemination of information of his wrongful conduct. That was the purpose of his personally acknowledging the debt and promising to pay, whilst expressly recording his not being a party to the joint venture agreement, in exchange for the plaintiff's expression of forbearance.
Further, in my view this construction meets the objective meaning of Acknowledgement 3 when its terms are considered in the context of the commonly known background of the making of all three Acknowledgments. The commonly known commercial objective of the defendant was to avoid dissemination of his failure to achieve the joint venture purpose as the principal person directing the corporate entities and in whom the plaintiff had placed her trust. The commercial objective of the plaintiff accepting Acknowledgments 1, 2 and 3 was to recover her lost investment by forbearing from complaint or action against the defendant whilst he satisfied his promise to pay. True it is that the plaintiff had not investigated, for instance by the obtaining of legal advice, the avenues which might have been available to her to advance such complaint or suit against the defendant personally or against YCA and SDG. Acknowledgement 3 is to be read to give it that joint commercial objective and the Court must not "use a finely tuned linguistic fork" as the defence construction argument seeks the Court to do: Banque Brussels Lambert SA v Australian National Industries Limited (1989) 21 NSWLR 502 at 524.
The above interpretation is also consistent with application of the ejusdem generis rule. The express words providing for the defendant to have time to pay the principal debt by instalments over one year constitute the generis of the agreement, and the general word "any" should not be interpreted other than as limited to further legal actions available to the plaintiff on the defendant's failure to satisfy the particular provisions for instalment of payments. In Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 639 Starke J said:
"… where there are general words following particular or specific words the general words should be confined to things of the same kind as those specified."
Dixon J (as his Honour then was) at 647 said that the maxim ejusdem generis relates "to the context and subject matter in which indications of narrower meaning may be seen". In Acknowledgements 2 and 3, the passages reserving the rights to take legal action stand as separate paragraphs following the specific provisions of acknowledgment of personal debt, and prescribing instalments for payment. In oral submissions counsel for the defendant referred specifically to the word "any" without reference to where the use of the word appears in the order of expression within the document and without reference to the surrounding circumstances known to each of the parties at the time of the making of the document: Transcript page 99 lines 25-27. In the context of the subject matter of each document being the payment over time of an acknowledged personal debt in exchange for forbearance, the provisions described the plaintiff's right to take legal action on that personal debt in the event of the defendant's breach of the promise to pay. I reject that limiting approach to construction.
[4]
BONA FIDE DISPUTE
The learned authors of Cheshire and Fifoot, Law of Contract (11th ed, Australia) at [4.24] make the following observation of the common law's recognition that compromise of a claim, settlement of a dispute, or a forbearance to sue will provide good consideration for a legally enforceable contract:
"These cases have sometimes been classed into two groups: those where the party threatened admits liability, but offers some promise to postpone litigation; and those where he or she denies liability but prefers to settle rather than to fight. In the first class, it is said, there is a 'forbearance to sue', in the second a 'compromise (or settlement) of the suit'… Perhaps the point should be emphasised that a threat to sue is not necessary in these cases. Any settlement of an actual or potential dispute is sufficient to provide a consideration because it is always a benefit to the party against whom a complaint has been made to be rid of the complaint."
The plaintiff sues on Acknowledgement 3 dated 20 December 2016. Acknowledgement 3 expressly acknowledges the JVA to have not been between the plaintiff and the defendant but rather between the plaintiff and YCA. I have already quoted above words which express the defendant's acknowledgement of his personal failure "to fulfil" that contracted business venture. The words in the third paragraph, immediately after acknowledgment of YCA being the contracting party, "I, Ye Cheng has agreed return back total of $600,000.00 dollars plus 10% interest per year (say six hundred thousand dollars) to Mei Zhang …" also express that personal acceptance of responsibility.
The defendant challenged the notion that Acknowledgment 3 expressed accord and satisfaction on two bases:
1. Firstly, for the reason which I have rejected, being that Acknowledgement 2 was not an enforceable contract for failure of consideration because the plaintiff's reserving of rights to sue equated to there being no consideration for contract and therefore there was no consideration for Acknowledgement 3. I have rejected that argument on both bases that Acknowledgement 3 on which the plaintiff sues is an independent agreement and that the reservation of rights to sue is conditioned on the defendant's failure to pay as promised;
2. Secondly, that there was no "bona fide" dispute which could have been compromised because none is pleaded in the Statement of Claim (specific reference was made to paragraphs 7 and 12). This is because the defendant, not being a party to the joint venture agreement could not have breached that agreement, breach of the joint venture contract was not pleaded against him, because breach of fiduciary duties as a director of SDG would be a cause of action to be brought against that company and not the defendant personally ((s 237 Corporations Act 2001 (Cth)), and the bringing of any such claim against the defendant personally would be contrary to the principles of reflective loss.
For the reasons given, the defendant's second (above) submission fails to meet both the fact of the personal debt for $50,000.00 and the defendant's personally expressed acknowledgment of debt. Acknowledgement 3, upon which the plaintiff sues, clearly acknowledges the plaintiff's claim and expresses personal liability for the defendant's part in the failure to fulfil the written business agreement made between his company YCA and SDG and the plaintiff.
It is the latter of these Acknowledgements; personal liability for the defendant's wrongful conduct and for his lack of success in achieving the joint venture purpose while effectively having the controlling hand to which these reasons now turn. The above quoted passage from Cheshire and Fifoot states, the potential for suit on the basis of his personal liability was sufficient consideration. The plaintiff bears the onus of proving that the plaintiff replaced her original claim, which may or may not have succeeded, with an enforceable contract.
In the case of Butler v Fairclough (1917) 23 CLR 78 a conveyance of land was complicated by a claim of equitable mortgage in satisfaction of a debt by the plaintiff who was a stranger to the transfer and had not maintained a caveat of that interest. The conveyance was paused when the mortgagee said in effect "I shall sue unless you withdraw" and the plaintiff transferee responded in effect "wait till I consider" and the mortgagee waited. The majority found no promise to withdraw in that exchange; but rather, that the waiting was voluntary and in any case extended only up to the time of notification of whether the transferee intended to withdraw or not. At page 95, Isaacs J, in the majority, summarised that:
"but in the end the transferee withdrew. The moment he did that the litigation [previously threatened by the mortgagee] was impossible because there was nothing in contest, and, as soon as withdrawal was promised and on its way, no injunction could possibly have been obtained, and no action effecting the transfer or based on that caveat could have been maintained by the caveator."
In those circumstances, Isaacs J said:
"It must not be assumed - as the appellant's argument undoubtedly assumed - that a promise to abstain from issuing a writ is always a valuable consideration. The position may, I think, be classified thus (at page 96):
A promise not to sue for a limited period, definite or indefinite, is a valuable consideration where the substantive claim is one for which the other party is liable (authorities cited);
A promise not to sue at all, that is, an abandonment of a substantive claim is a valuable consideration, if there be either liability or a bona fide belief of liability (authorities cited);
A promise to abandon a suit in whole or part already commenced is a valuable consideration where there is a bona fide claim (ibid);
Mere temporary forbearance to sue where there is no liability is no consideration (authorities cited), even if the claim be disputed (authorities cited)."
His Honour found the claim in that case to fall under the fourth category.
What the defendant argues, in essence, is that Acknowledgement 3 on which the plaintiff sues, falls in the fourth category.
Acknowledgement 3 was made in the surrounding circumstances of the defendant having informed the plaintiff on 9 December 2016 that he could not make the instalment payment due 15 December 2016 pursuant to Acknowledgements 1 and 2; and of the plaintiff having forborne proceeding against him with her complaints. The parties agreed that the plaintiff would forbear from progressing her complaints by legal action or otherwise so long as the defendant complied with his promises to pay.
In Acknowledgement 3 the final paragraph describing the deal, above the sub-heading "Waivers", shows that the agreement did not promise mere temporary forbearance. This is the full wording of the provision, part of which was considered earlier on the question of reserving the plaintiff's right to sue. That paragraph read:
"I, Ye Cheng, has also agreed, if Ye Cheng failed to return the loan on time as mentioned above, the interest rate will increase to 15% per year by first of due day. Also Mei Zhang has the right to do any legal action."
In this provision, the defendant agreed to consequential action that the plaintiff could take in the event that the defendant failed to make payments of instalments. It expressed the plaintiff's promise not to sue at all on condition that the defendant complied with the terms of Acknowledgement 3.
In order to fall within the second category of Butler v Fairclough, there must have been either a liability or a bona fide belief of liability. The learned authors of Cheshire and Fifoot 'Law of Contract' at [4.25] conclude with the statement:
"In the modern law the consideration in such cases is said to be the surrender, not of a legal right, which may or may not exist and whose existence, at the time of the compromise, remains untested, but of the claim to such right." (emphasis added)
There is substantial judicial reasoning and case law favouring the proposition that settlements of disputes, even where the claim settled would not be enforced by any Judge, are enforceable and do not fail for lack of consideration: See dissenting judgment of Dixon CJ in Ballantyne v Phillott (1961) 105 CLR 379; [1961] HCA 17; Woolworths Limited v Kelly (1991) 22 NSWLR 189; Eastland Technology Australia Pty Ltd v Whisson (2005) 223 ALR 123; [2005] WASCA 144.
In the following quoted passage from Ballantyne v Phillott supra at page 390, Dixon CJ reasoned that considerations of personal reputation and even of the potential for dealings external to the immediate relationship between the parties amounted to sufficient consideration for the accord and satisfaction reached:
"It is a question whether the statement of the defendant Roberta Ballantyne that she had no right or claim against the plaintiff amounts to a present enunciation of anything of appreciable value or significance and was taken in exchange by the plaintiff. In the course of the cross examination of the defendant, the emptiness of her claims was put to her. Her answers were what might be expected from a former mistress who though liberally supplied with money had been engaged in ventures with the man who kept her. She said she had told him that if they went into the details he owed her money too. There was a £1,000 of which he took £500 back and often, when at the hotel, he had different things. To a question whether she suggested there was a balance in her favour she said 'Really if I had not met him I would be a lot better off today. I would not be sitting here.' She would have been in a business. He had got quite a lot back going to the races and helping himself out of the safe (scil at the hotel). There was no accurate account taken of the monies. Counsel said 'Let us make it clear' and thereby evoked the response 'He did owe me money'. 'For?' 'Everything'. One might readily say a 'of course she had no claim which a Judge would enforce' but there remains the question whether the disclaimer or renunciation on her side of all rights against him had no value or import. His was by no means an unprecedented situation. He had mortified a woman with whom he had lived and had put her aside. Many men who have so behaved have failed to escape the natural consequences. Unless they 'composed their differences' trouble might be expected. He had moreover been reproached for suing her by the man who now lent her his aid and he wished to borrow money from the latter. But no aid would be forthcoming until there were mutual guarantees of future amity… Odd as the documents are and slight as, in a legal point of view, might be the assessment given to the consideration she could exchange with his, yet it was something and I think in the circumstances it should be deemed enough. It is a result that accords with their mutual intentions and I think that it is authorised by this particular branch of the law."
Menzies and Windeyer JJ, on the other hand, held that there was no contractual accord and satisfaction because the mistress's acknowledgment that she had no right or claim was inconsistent with the implication of a promise. However, at page 397 Menzies J acknowledged that in a case where the parties were "composing their differences" it would not matter that the language of the acknowledgment was expressed in promissory terms or not in order for a binding promise to be found: see discussion in the El-Mir case supra by McColl JA at [57]-[59].
The construction of Acknowledgment 3 at which I have arrived means that if the defendant failed to perform his promise to make payment by the instalments, the plaintiff's remedy is to sue for breach of the promise, as she does in these proceedings. This is characteristic of there being accord and satisfaction: El-Mir & 1 Or v Risk [2005] NSWCA 215 at [52] and [54] per McColl JA (Handley and Ipp JJA agreeing).
In the present case, the Statement of Claim and the plaintiff's evidence describe wrongful conduct by the defendant and the plaintiff has not run her case by seeking to prove or plead with their legal identification, causes of action such as conduct outside of the defendant's authority as director of SDG, personal misrepresentation, or breach of duty. Applying Ballantyne v Philott supra, the plaintiff here does not have to plead and prove winnable causes of action. That cased turned on the particular fact that the acknowledgment there expressly recorded that Ms Ballantyne had no claim against Mr Philott. That is not the fact in the present case. In the Ballantyne Case Menzies J said at page 398 "here, [Ms Ballantyne] failed to obtain a finding that she had a genuine claim against the respondent or had even made a claim…. There was nothing beyond an acknowledgment that no right or claim existed" [and therefore Ms Ballantyne was not]…"making any promise". His Honour continued that whilst the promise may be express, it may also be implied from "something either in the context of the document or in the surrounding circumstances."
The defendant's submissions that the Statement of Claim, and with specific reference to SOC [7] and [12], is deficient because it fails to identify the specific legal causes of action which in proceedings prosecuting her claim the plaintiff might have otherwise pleaded; is misconceived against the above stated principles.
In this case what was required of the Statement of Claim was that it be capable of conveying a representation that the facts asserted may be construed, that the parties when making Acknowledgement 3 intended to compose their differences believing that a claim might be expected: Ballantyne v Philott supra particularly per Menzies J at 398 and Dixon CJ at 390; Spies v Commonwealth Bank of Australia (1991) 24 NSWLR 691 per Handley JA at 697F-G. As Handley JA said in Spies v Commonwealth Bank of Australia supra at 698A:
"It is well established that the compromise of a bona fide claim is sufficient consideration to support a contract, even if it later appears that the claim could not have succeeded."
His Honour quoted at 698B-C from Cockburn CJ in Callisher v Bischoffsheim (1870) LR 5 QB 449 at 452 the following passage:
"…Everyday a compromise is effected on the ground that the party making it has a chance of succeeding in it, and if he bona fide believes he has a fair chance of success, he has a reasonable ground for suing, and his forbearance to sue will constitute a good consideration.
It would be another matter if a person made a claim which he knew to be unfounded, and via a compromise, derived an advantage under it: In that case his conduct would be fraudulent. If the plea had alleged that the plaintiff knew he had no real claim… that would have been an answer to the action."
And from Blackburn J at the same reference his Honour quoted:
"…If we are to infer that the plaintiff believed that some money was due to him, his claim was honest and the compromise of that claim would be binding… If the plaintiff's claim… was not bona fide, this ought to have been alleged in the plea; but no such allegation appears."
Handley JA at 698D applied the principle from Wiggin v Edwards (1973) 47 ALJR 586 in which the High Court held that the compromise of a claim which though invalid at law [the plaintiff] genuinely thought was good (at 588) and "which was honestly or bona fide made" (at 595) was supported by consideration and valid. His Honour referred with approval to the discussion in Greig and Davis, the Law of Contract (1987) at pages 93-98. Having examined the substantial case authorities, the learned authors at p 96 concluded that "the most that can be said [of the question of bona fide claim] is that, in exceptional circumstances, a court might be prepared to insist on this additional element being satisfied". The authors were referring to those cases in which the claim was not "serious" but rather "frivolous or vexatious". At p 98, the learned authors observed that whilst there is much to be said for linking the adequacy of the consideration to the conscionability of the bargain and even on that basis, the court will usually not be prepared to set aside the transaction.
The defendant relied on Amos v Citibank Ltd [1996] QCA 129. In a joint judgment of McPherson JA and Ambrose J it was held that the appellant failed because of the absence of consideration for the promise said to constitute the accord. Davies JA agreed with them that the appeal must be dismissed but did so on other grounds and without considering the point. That case is easily distinguished from the present, on the facts. There, the appellant (defendant below) was sued by the bank under a loan to purchase a vehicle, for default of instalments totalling $4,866.31. When sued, the appellant wrote to the bank complaining firstly that the transaction was not secured by a bill of sale as alleged by the bank but rather was a hire purchase agreement and because of late delivery to him of a "signed copy" he was not in default of the total of the payments pleaded in the Statement of Claim but rather for a lesser sum of $1,200.00. He attached to his correspondence a cheque drawn for $1,200.00 "in full and final settlement of payment in the sum of $4,866.31". The bank cashed the cheque. The appellant argued that the bank's action of cashing the cheque on receipt of his correspondence was acceptance of its terms and therefore the bank was bound by the agreement of "accord" reached. It was not shown that Citicorp had authority to vary the terms of the bill of sale but the cheque was banked without Citibank being aware of or intending to accept the offer to settle. Their Honours did not vary the trial judge's finding that the "accord" had been deliberately reached by a "ploy" or "rouse" invented by the appellant to avoid his contractual obligation in that he was endeavouring to inconspicuously proceed to put Citibank off-guard, knowing in advance that Citibank had no intention of accepting the cheque in full and final settlement and so lured Citibank into banking it without it first having adverted to the accompanying correspondence expressing the offer. Because, for those reasons, their Honours found there to be no agreement or "accord" arising by offer and acceptance, it was only in obiter that their Honour's considered the question of whether the valid indebtedness of $4,866.31, on the facts had been settled by the payment of only $1,200.00. Because, in that case, the appellant's claims expressed in the letter were a "ploy" or "rouse" and "had no substance" and "that the appellant knew that was so", the Court held that it was not possible for the appellant to maintain that he held an honest belief in the claim to be compromised. Absent that belief, the lesser sum could not discharge the liability because it was not adequate consideration to do so. As their Honours stated:
"holding that in law the consideration for discharging an indebtedness in a particular sum cannot consist of a promise to pay, or the payment of, a lesser amount of money"
In my opinion, the Amos case is distinguishable on the facts and not of assistance.
In the present case, the defendant points to the evidence of the plaintiff in cross examination at Transcript page 89. I prefer to read the passage commencing from Transcript page 88 line 04. The plaintiff said that before SDG entered into the contract for sale of land, the defendant had informed her that the terms of the contract proposed by the vendor included the second instalment be paid on 22 December 2016. The plaintiff agreed that the defendant had told her that it was possible that SDG may need to make that payment, that he would continue negotiation, "but we need to prepare for that" and that the defendant had told her "that he'd take care of that second instalment". The plaintiff conceded that on the basis of the defendant's assurance he would take care of that payment, she was content for the second instalment provision to be a term of the contract entered into by SDG for the purchase of the land. The plaintiff agreed that she was aware of these facts at the time of the making Acknowledgement 1.
None of those candid concessions against interest by the plaintiff can, in my opinion, be reasonably found to amount to her having no honest belief that she had claims against the defendant at the time of the making Acknowledgement 3. The facts of the defendant's wrongful conduct remain, he did not inform her that the second instalment in fact became a special condition of the contract, he did not take care of the second instalment as he promised to do, did not alert the plaintiff to SDG's inability to achieve payment of the second instalment and did not disclose to the plaintiff the termination of the contract. Instead, he falsely represented that the joint venture purpose of development of the land was proceeding without disclosing the fact of the vendor's termination of the contract, SDG's commencement of proceedings to defeat the vendor's termination, the Judgment against SDG confirming that the contract was terminated validly or even the incurring of legal costs in that process.
[5]
THE DEFENDANT'S PLEADING SUBMISSION
For completeness, I now deal with the defendant's submission that the plaintiff's reference to "deposit" at SOC [7] was misconceived because Clause [25] of the Land Contract did not provide for payment of what is properly termed at law a "deposit". I reject the defendant's submission.
The word "deposit" was used not just in SOC [7] but in SOC [8] and in Defence [7] and [8]. In other words, the parties mutually employed the word "deposit" not engaging it as precise legal terminology; but rather commonly and as descriptive reference to Special Condition 25 of the Land Contract. Indeed, Defence [8][a] "admits the second deposit under the contract… was not paid, the contract was terminated and the deposit forfeited".
In my opinion, the plaintiff pleaded her case with sufficient particularity for the defendant to be able to traverse it as to law and fact. Nor do I agree with the defendant's submissions that the plaintiff be held strictly to its pleading that the sole misleading and deceptive conduct case is that pleaded in SOC [7] that the defendant failed to disclose to the plaintiff or seek her authority to enter into the Land Contract with a term requiring a deposit of more than 10% of the purchase price. The SOC at [8][a] pleaded YCA's failure to make payments required of it by the JVA which failure is particularised in the plaintiff's affidavit and SOC [8][b] and [9] specifically pleaded 4 events of the defendant's wrongful conduct:
1. Failure to disclose the terms of the contract;
2. Failure to disclose that SDG was in fact unable to pay the instalment; and
3. Failure to disclose the land contract was terminated and that the first deposit was forfeited.
4. Failure to disclose or to obtain the plaintiff's authority for SDG's commencement and conduct of Supreme Court proceedings against the vendor's termination of the land contract and forfeiture of the deposit.
[6]
INTEREST
At SOC [1][ii] the plaintiff claims interest calculated at the contracted default rate of 15% p.a.. At SOC [2][a] the plaintiff claims interest at the contracted repayment rate of 10% p.a.. In the final alternative, at SOC [2][b] the plaintiff claims interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) to the date of judgment. Interest is to be calculated on the amount outstanding from time to time on each of the 1st and 2nd instalments. The instalments were in the sums of $350,000.00 due on 28 February 2017 and $360,000.00 due on 30 June 2017. The defendant paid to the plaintiff $40,000.00 on 4 July 2017.
Counsel for the plaintiff conceded that there was no other evidence that either of those rates of interest is a "genuine estimate of damage likely to result": Transcript page 95 lines 27 to 37. However, the plaintiff presses that the onus of establishing that an agreed damages clause provides for a penalty rate of interest rests upon the defence: plaintiff's closing written submission 5 December 2019 at [22] and authorities there referred to. As he put it during oral submissions at the aforementioned transcript reference on 4 December 2019, "you have no evidence to suggest that it isn't" a genuine estimate of damage. Counsel also referred to evidence that the plaintiff had advanced monies from her home equity and retirement funds. He did not caval with my observation that in 2016 interest on home mortgages and earnings in super funds were, on worldly knowledge, usually well below 10% and rarely 15%.
In my view, it is appropriate to focus on the fact that interest payable by YCA to the plaintiff for her contributing into YCA's agreed contribution under the JVA was 5%; but agreed interest on the personal loan made 9 March 2016 was 8%. Acknowledgement 3 expressed the agreement between the parties as follows: "I, Ye Cheng has agreed return back total of $600,000.00 dollars plus 10% interest per year ... to Mei Zhang by two lots of $300,000.00 plus 10% interest per year … ." On 4 July the parties met at Top Ryde Shopping Centre and their conversation at that time, set out in the plaintiff's affidavit at [93] and documents made at that meeting, in particular a handwritten document at Exhibit MZ-1 page 275, provide evidence after the fact of contract confirming the parties' agreement to deal on the basis of interest as contracted in Acknowledgement 3.
In my opinion, that the parties previously contracted at rates of interest of 5% p.a. in the corporate business lending and 8% p.a. in the personal lending; means that after holding the defendant to the obligation of Acknowledgement 3 and the commercial efficacy of the agreed damages terms; the 15% default interest is disproportionate such that it is a penalty. On the other hand, the rate of 10% p.a. to which the parties agreed when making Acknowledgement 3 is not disproportionate in circumstances of their prior dealing with personal liability at 8%. In coming to this conclusion I am mindful that on the making of Acknowledgement 3 the parties were aware of the increased risk to the plaintiff relying on promises to cause payment to be made voiced to her by the defendant, based on the history of his failure to pay in their 'prior' dealings.
In my opinion, the plaintiff is entitled to succeed in her claim for interest at the contract rate of 10% p.a..
[7]
CONCLUSIONS IN SUMMARY
On the totality of the evidence, it is clear that reasonable and objective persons, standing in the shoes of the plaintiff and defendant and armed with knowledge of their objectives and circumstances would understand the Acknowledgements as involving the payment of a self-acknowledged personal debt in return for forbearance to sue on the defendant's wrongful conduct. Accordingly, the defence of failure of consideration to validly form a contact is not available to the defendant.
Further, in circumstances of the defendant's admitted liability for the personal debt of $50,000.00 there was consideration for Acknowledgement 3. The Court does not inquire into adequacy of consideration for the bargain; but in any event, I am satisfied that consideration for Acknowledgement 3 included accord and satisfaction of a bona fide dispute.
The plaintiff's reserving of rights to sue does not impair this conclusion. Acknowledgement 3 was a separate agreement between the plaintiff and the defendant expressing the defendant's personal failure "to fulfil" his personal performance responsibilities in the joint venture arrangements. The plaintiff's reservation is preconditioned on the defendant's failure to pay as contractually promised.
Nor is the defendant's argument that there was no "bona fide" dispute pleaded convincing. The plaintiff's consideration amounted to more than a mere temporary forbearance to sue, as there is nothing to suggest her claim was not genuine and upon failure of the defendant to fulfil his promise to pay his debt by instalments, the plaintiff was able to sue for breach of promise.
The defendant's submission regarding the word "deposit" in SOC [7] should be rejected. Both parties utilised the word with the intention that it be construed with its common meaning, as opposed to its precise legal meaning.
The plaintiff should not be held solely to her misleading and deceptive conduct case pleaded at SOC [7], as the plaintiff's SOC at [8][a], [8][b] and [9] sufficiently pleads and particularises the defendant's wrongful conduct.
Having regard to the circumstances, interest at the agreed contract rate of 10% p.a. on the outstanding contracted debt is not disproportionate such that it is a penalty.
In the calculation of quantum, I have allowed for the defendant's payment of $40,000.00 to the plaintiff made 4 July 2017.
Total interest calculated at the rate of 10% p.a. amounts to the sum of $189,679.45.
[8]
ORDERS
The orders of the Court are:
1. Judgment for the plaintiff against the defendant in the sum of $859,679.45.
2. Defendant to pay the plaintiff's costs of the proceedings.
3. Exhibits to be returned.
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: 09 March 2020
In early April, on information provided to the plaintiff by a potential investor, when she was unable to contact the defendant, she asked Raymond why there was no lodgement detail on the DA documents. Raymond then informed the plaintiff that the DA had not been lodged with council. The conversation continued in the following effect:
[Plaintiff] "Why is it not lodged? Did you guys not tell me it was lodged after I made the last loan to [the defendant]? Did you guys even pay the second instalment to the vendor"
Raymond did not make comment or respond to the plaintiff's question
[Plaintiff] "Okay, so you acknowledge it? Will the Ashfield Property still be settled?"
[Raymond] "Yes, because the vendor agrees that we continue the deal and settle the Ashfield property."
[Plaintiff] "Thank god, so I can continue getting the investors to buy this?"
[Raymond] "Yes, of course."
On the same day, the plaintiff spoke with the defendant who conceded that the second instalment due under the contract had not been paid. The conversation continued of the following effect:
[Plaintiff] "Why did you not make the second instalment? Wasn't it you who told me that you would arrange all the payments, including my balance of the second investment? Why not tell me?"
[Defendant] "Mei, do not be angry. The vendor will continue to deal with us, and you are right, it is my fault and responsibility that I did not raise enough funds for the second investment, but everything is still moving forward, as we expected. We are still going to buy this Ashfield property, and I still owe you that money and the interest is still rolling, don't worry. You have been trusting me for so long, and I will never do anything bad to you."
[Plaintiff] "So is it still to be sold to us? I mean I am just worried, worried about my retirement money."
[Defendant] "Yes. This has not changed, and the vendor has been very reasonable. That's why I did not tell you or burden you with too many details and why I said I would arrange the second investment, because nothing in essence has changed. Everything is still going as planned, apart from the second investment for the second deposit payment."
[Plaintiff] "Okay, so I can continue sourcing the investors."
[Defendant] "Yes, don't worry, and I will meet those potential investors with you."
In mid-April 2016, the defendant and the plaintiff in Guangzhou, China, met several potential investors and the plaintiff invited the defendant to dinner with her Chinese relatives. On the return flight from China the defendant again assured the plaintiff not to worry in terms of "I won't let you suffer any loss";
Following their return to Sydney the plaintiff and the defendant had further meetings at which they discussed potential investors that she had found; and
On 29 April 2016 by WeChat, the plaintiff asked Raymond when final settlement of the land contract would occur and he replied: "1 June 2016".
In these reasons the defendant's conduct set out between paragraphs 26-34 is summarily referred to as the "defendant's wrongful conduct".
When they met on 16 June 2016 the plaintiff presented the defendant with Acknowledgment 1 (MZ-1 page 150). The defendant read it before signing. The plaintiff's state of mind then was that the defendant was showing responsibility for what had happened and she felt comforted by his attitude and the remedial actions he promised.
The next day the plaintiff met Mr Ding Pan, special counsel at William Roberts Lawyers. To her enquiry, whether or not it was possible to sell the Ashfield Property for the vendor and recover the forfeited 10% deposit, Mr Ding Pan advised that the vendor was currently asking $5.5m. In response to her request, Messrs William Roberts Lawyers provided the plaintiff with the file of SDG's solicitors on the purchase of the Hotel.
The plaintiff ultimately did not instruct solicitors to proceed with the appeal, in part because she forbore and relied on Acknowledgement 1 given by the defendant on 16 June 2016.
In early July 2016 the plaintiff realised that the Acknowledgment 1 did not include any consequence in the event of the defendant's default. The plaintiff drew "Additional Conditions and Explanation for Money Return Agreement with Yei Cheng". This is Acknowledgment 2 and appears at Exhibit MZ-1 page 224. The defendant signed it on the 6th of July 2016 after they discussed its terms.
On 9 December 2016 the defendant informed the plaintiff that he did not have the money to make the first instalment payment due on 15 December 2016 pursuant to Acknowledgments 1 and 2. The reason which he gave was that other shareholders in his other projects did not agree and that he did not otherwise have the personal resource to repay.
The parties further discussed arrangements by which the defendant might come into funds to pay the plaintiff the amounts acknowledged in Acknowledgments 1 and 2.
On 20 December 2016 the parties met in a café in North Ryde and the plaintiff presented Acknowledgement 3 to the defendant. The defendant read the document, corrected a typographical error and then signed it. Acknowledgment 3 appears at Exhibit MZ-1 page 246. Pursuant to Acknowledgment 3, the defendant promised to "return back total of $600,000.00 plus 10% interest per year" by way of first instalment of $350,000.00 on or before 28 February 2017 and a second instalment of $360,000.00 on or before 30 June 2017. Further, that in the event of his failure to "return the loan on time as mentioned above" interest would be increased to 15% per annum from the first due date. Acknowledgment 3 specifically provided "Also [the plaintiff] has the right to do any legal action."
Neither party raised any issue with accuracy of calculation of interest included in the aforementioned instalment amounts and these reasons do not deal with that topic further.
The defendant failed to make the first instalment and before the second instalment was due, on 21 May 2017 the plaintiff sent him a WeChat message in part containing the following statement, which in submissions the defendant described as a threat:
"Either you pay the money right now, or I will get a lawyer right away. These are the options for you. If I do not receive the phone call from you in the next 24 hours, I will go get a lawyer on Monday and sue you. Once you have records of the litigation, I don't think anyone will do business with you. I will also take this matter to the court after I find the lawyer. I will disclose this matter on the newspaper and disclose the fact that you cheated me and my $600,000.00 with your deceptive conduct, and you don't repay, you are extremely unreasonable. I want to see who dares to do business with you in the future."
On 23 May 2017, at North Ryde Shopping Centre, the defendant handed the plaintiff a SDG cheque in the sum of $150,000.00 which, the defendant informed the plaintiff was the interest on the principle of $600,000.00 owing. As he handed over the cheque, he said "I will transfer the money into the SDG account within 2 days, so you can deposit it after that time." After two days, the defendant informed the plaintiff that he did not have the money.
Over time negotiations between the plaintiff and the defendant continued. On 9 June 2017 the defendant informed the plaintiff that his wife had agreed to guarantee his liability. Still, he did not make the payment. The defendant, having first obtained legal advice, refused to enter into a Deed of Acknowledgment of Debt presented to him by the plaintiff and drawn by her solicitors, which Deed included the defendant's wife as "Grantor" and provided for their joint and several liability to repay the debt to the plaintiff.
On 4 July 2017 the defendant transferred $40,000.00 to the plaintiff's account, saying it was on account of interest. Subsequent draft Deeds acknowledging the debt were drawn but likewise they were not entered, including on 20 July 2017 when the defendant took the third edition Deed with him to speak to his lawyer and subsequently informed the plaintiff that his solicitors had advised him not to sign. Nevertheless, he repeated to the plaintiff his personal obligation to pay.