Zhang v Harmstorf

The pleadings

1. The plaintiff filed a Statement of Claim dated 21 August 2017. The Statement of Claim pleads in summary: 1. That on or about 3 December 2013, the plaintiff and the defendant entered into an agreement to record the terms of their agreement to establish and run a business known as AXL International. The agreement is particularised as being in writing and entitled "Business Agreement between Alexander Harmstorf and Yuguo Zhang (Mark) 29 November 2013" and that it was signed by the parties on 3 December 2013; 2. AXL International was an Australian and Chinese owned company with a head office based in Hong Kong with branches in China and Australia. This pleading referred to Clause 3 of the agreement between the parties dated 3 December 2013 ("the Contract"); 3. Various terms of the Contract including, in substance, that the plaintiff was to be a 30% owner of AXL International by virtue of the payment of the sum of one million Chinese yuan, the defendant would act as the managing director of the company, the defendant would devote time to AXL International to conduct its business in a proper and efficient manner and be responsible for all matters relating to the conduct of the business, the defendant would account to the company at various times and the company would prepare financial documents and the plaintiff was to pay one million Chinese yuan to AXL Legal Solutions Pty Ltd by certain dates; 4. Under the Contract, the plaintiff made payments to the account of AXL Legal Solutions Pty Ltd with the Bank of China Ltd totalling one million Chinese yuan; 5. In breach of the Contract, the defendant has failed to provide financial documents and provide a quarterly account of all monies received and expended in AXL International to the plaintiff; 6. In breach of the Contract, the defendant has failed to establish branches of AXL International in mainland China; 7. In breach of the Contract, the defendant has continued to operate and run his own migration business through AXL Legal Solutions Pty Ltd; 8. As a result of the breaches of Contract referred to, the plaintiff suffered loss in the form of one million Chinese yuan; 9. The plaintiff sought the repayment of the one million Chinese yuan but has not received any payment from the defendant.
2. In paragraphs 26-31 of the Statement of Claim, a cause of action in restitution for unjust enrichment is pleaded. This was not pressed by the plaintiff at the trial.
3. A Defence was filed on 15 January 2018. The defendant, in substance, denied the allegations made by the plaintiff in the Statement of Claim and asserts that he has no liability to the plaintiff.

The issues

1. The plaintiff in a document headed "Plaintiff Statement of Facts and Issues" has submitted that the issues involved in the proceedings are as follows: 1. Has the defendant breached the terms of the Contract?; 2. Did the defendant commit an event of default under the Contract by failing to establish company branches in mainland China on or before 1 October 2014?; and 3. Is the plaintiff entitled to a refund of the one million Chinese yuan under the Contract or otherwise.
2. In his Schedule of Issues document, the defendant states that the issues to be determined by the court are as follows: 1. As concerns the claim under Clause 33 of the Contract, the issues to be determined are: 1. Whether there was a "Default" as defined in Clause 33(2) of the Contract enlivening the entitlement to issue a notice under Clause 33; 2. Whether the plaintiff ever in fact issued a notice under Clause 33; 3. Whether the Contract terminated pursuant to Clause 32 on 30 September 2016; 4. Whether any rights could exist or accrue after 30 September 2016 under Clause 33 of the Contract or otherwise.

The Contract

1. The plaintiff read an affidavit of his sworn 25 May 2018. Exhibited to the affidavit was a copy of the Contract. The issues in the case are to be determined in accordance with the terms of the Contract. There was no dispute that the document exhibited to the plaintiff's affidavit amounted to the contract between the parties.
2. The pages of the Contract are on the letterhead of AXL Legal Solutions Pty Ltd which the evidence establishes is a firm practising in New South Wales, at least as at May 2018. Despite the fact that it appears the Contract was prepared by lawyers, it is not a model document. In particular, there are inconsistencies between some of the clauses and a number of important terms, commencing with a capital letter, are not defined in the Contract. Accordingly, the court has the task of trying to determine the objective intention of the parties through construing the terms of a contract which has its difficulties.
3. The first page of the Contract is dated 29 November 2013. The plaintiff identified his signature on the last page of the Contract. It appears that the plaintiff and the defendant signed the Contract, despite the fact the Contract refers to the execution date as being 29 November 2013, on 3 December 2013. This is the date on the last page of the Contract.
4. Relevant parts of the Contract are as follows: "PREAMBLE INCORPORATED Whereas the parties have been since the 1st day of October 2013 conducting in partnership business under the business name of AXL International Limited (Hereinafter called "the Company"). Upon conditions orally agreed between them and they now wish to record such term and condition in writing. Now this agreement witnesses as follows: TERM 1. The partnership shall be deemed to have commenced from the 1st day of October 2013. PLACE OF BUSINESS 2. The partnership business shall be carried on at the land and premises situated at Room XXXX, XX/X, Tower X, China Hong Kong City, XX Canton Road, Tsimshatsui, Kowloon, Hong Kong. CAPITAL and SHARE 3. The Company is an Australian and Chinese owned company with head office based in Hong Kong, and branches in mainland China and Australia. This company is capitalized by two principal investors, Axel and Mark. 4. The total capital of the company is AU$667,000.00, as agreed, Axel will taking 70% ownership of the company by investing the business development and management skills, and Mark will taking 30% ownership of the company by investing RMB 1,000,000.00 cash. 5. Any profits from the company will be shared as 70/30 for both directors, and should be withdrawn at the end of the year, unless otherwise agreed from time to time. 6. The company appoints Axel as Managing Director of this New Company. … 9. To protect the new company, all partners will not directly or indirectly and whether solely or jointly with or as director, manager, agent or servant of any person or corporation, carry on, or be engaged or interested in any business of this nature of business hereby conducted or any component there of or permit their names or the names of any of them to be used in connection with any such business. Any such activity must approved by board. DUTIES OF PARTNERS 15. As a managing director, Axel shall devote so much of his time to the partnership business as shall be necessary in order to conduct the business in a proper and efficient manner and he shall be responsible for all matters relating to the conduct of the business and he will carry out his duties in a competent and diligent manner and to the greatest advantages of the partnership. 16. Axel shall have the right to make all necessary decisions without reference to or interference from Mark in the carrying out of the day to day operations of the partnership business including the power to employ all staff (excluding the key staff who has payroll over AU$50,000 per year, which must be approved by the board) as may from time to time be necessary in connection with the partnership business with power to dismiss such staff as circumstances may require. 17. Directors shall also keep proper books of account as shall be necessary in order to satisfy the requirements of the Australian Taxation Office and normal accountancy standards and shall record all transactions, matters and things as are usually recorded by persons engaged in such business. … 19. All outgoings of whatever kind and expenses incurred in connection with and incidental to the carrying on of the partnership business shall be paid in the first instances out of earnings of the business and if insufficient shall then be paid out of the capital of the partnership. The parties shall be entitled to share the profits of the business equally and they shall bear the losses in the same shares. Axel shall account to The Company on a quarterly basis from the date of commencement of the partnership business for all moneys received and expended in the partnership business and will produce all records and documentation as may be required by the company to substantiate such receipts and expenditure. Each partner may draw his share of any profits made at the end of each quarter but should a loss be made then the parties shall equally contribute any further capital required to meet such losses. ACCOUNTS 20. The company shall prepare as soon as practicable after 30th June in each year a Profit and Loss Statement of the partnership's trading during the year expired on 30th June and a Balance Sheet showing its assets and liabilities at that date. … PERSONAL RELATIONS 22. Each partner shall be just and faithful to the other partner in all transactions relating to the business of the partnership and shall give a just and true account of the same to the other partner when and as often as the same shall be reasonably required. … ADDITIONAL TERMS 30. To avoid any conflicts with this partnership business, any previous and present business in relation to the company's business must be ceased prior the date of the agreement, unless otherwise agreed from time to time. … 32. This agreement will be valued 3 years and will be reviewed at the end of the 3rd year, unless otherwise agreed from time to time. REMEDIES IN EVENT OF DEFAULT 33. In the event of "Default" as defined in sub-clause 33(1)-(2), Mark shall be entitled to forthwith terminate the Investment and facilities hereunder granted and demand immediate repayment of the Principal Sum and any and all interest then outstanding, upon the giving of 7 (seven) days written notice, requiring Axel to repay the Investment. 1) Axel must establish the company on or before the 31st October 2013. 2) Axel must establish the company branches in mainland China on or before the 1st October 2014. 34. In the event of "Default" as defined in sub-clause 34(1)-(4), Axel shall be entitled to forthwith terminate the Investment and cancel mark's share of the company hereunder granted, upon the giving of 7 (seven) days written notice to Mark. 1) Mark must pay the first instalment of RMB 300,000.00 on or before the 4th December 2013. 2) Mark must pay the second instalment of RMB 300,000.00 on or before the 16th December 2013. 3) Mark must pay the third instalment of RMB 400,000.00 on or before the 14th January 2014. 4) Mark will transfer the fund through AXL Legal to AXL International, and Mark has no interests or benefits whatsoever in AXL Legal. … NOTICE 36. Any Notice issued by one party to another shall be deemed as received 5 (five) working days after the date upon which the Notice is posted, provided it is addressed to the respective address of the party to whom it is addressed as is the same as that stated in this Agreement or to the then Registered Office of the respective party as may be then current as at the date of issuance of the Notice issued."
5. It is clear that this court has jurisdiction to determine the dispute between the parties: see Clause 38 of the Contract.

Affidavit of Yuguo Zhang sworn 25 May 2018

1. The plaintiff read an affidavit of his sworn 25 May 2018. An affidavit of an interpreter was also read. The plaintiff gave his oral evidence through an interpreter.
2. In the plaintiff's affidavit, he lists his occupation as "importer/exporter". In cross-examination, the plaintiff confirmed that he did not import any goods into Australia but exported grapes from Mildura, where he was based, to China.
3. In his affidavit, Mr Zhang gives evidence that he met the defendant in mid-2013 when he was helping some of his family members with a legal problem they were having. The plaintiff states that the defendant and he stayed in touch and spoke outside his dealings with the plaintiff's family's legal problem. The plaintiff states that at this time he was hoping he would be able to start a business in Australia to build a future for himself in Australia. The plaintiff states that during the conversations with the defendant, the defendant mentioned to him that he might be able to help him with business in Australia as he had a lot of connections. The plaintiff states that in the course of the conversations, the defendant said to him words to the effect that he could help him stay in Australia if they did business together. The plaintiff asserts that he said to the defendant words to the effect that he would be interested in investing in something that would give him a return. The plaintiff claims that the defendant said to him words to the effect that he thought there was a good future in the immigration business and that if he set up an immigration business he would need someone who could speak Chinese and English and who would be able to travel between Australia and China for business.
4. The parties agreed that it would be a good idea to run an immigration business together and that the defendant's qualifications and experience as a lawyer and an immigration agent plus the plaintiff's connections in China would allow them to run a successful immigration business together. The plaintiff states that from August 2013 the parties had a number of conversations about the terms of an agreement to run an immigration business together.
5. The plaintiff gives evidence of some pre-contractual discussions about general aspects of the agreement.
6. The plaintiff states that on 3 December 2013, he went to the defendant's law firm's office in Sydney and the defendant showed him a document entitled "Business Agreement". The plaintiff says that this was the first time that he had seen the document and that he signed the document in the presence of the defendant and one of his staff members. A copy of the document being the Contract is annexed to the plaintiff's affidavit.
7. The plaintiff says that in about early November 2013, the defendant provided him with bank account details to make the payments that he had to make to fund the business. The plaintiff gives evidence that he transferred the following amounts into the account, details of which were given to him by the defendant, which later evidence establishes to be the account of AXL Legal Solutions Pty Ltd: 1. The plaintiff transferred the sum of 24,000 Chinese yuan on 13 November 2013. Although this sum was transferred before the Contract was signed, there does not appear to be any dispute that it related to the Contract; 2. On 3 December 2013, the plaintiff transferred 276,000 Chinese yuan; 3. On 16 December 2013, the plaintiff transferred 300,000 Chinese yuan; 4. On 14 January 2014, the plaintiff transferred 400,000 Chinese yuan.
8. These transfers are established by the documents exhibited to the plaintiff's affidavit and also by the bank statements which are part of Exhibit A in the proceedings. The plaintiff gives evidence as to the value in Australian dollars of the Chinese currency transferred at the time of the transfers. The plaintiff claims that the total amount paid to the defendant by being deposited into the account of AXL Legal Solutions Pty Ltd was AUD$183,555.98. The plaintiff says that after he made the payments he tried to contact the defendant from time to time to ask how the business was going. On the occasions when he did speak to the defendant, he was told that the defendant was working very hard on the business and expected business to get "good soon". The plaintiff says that he was not given any information or money from the business.
9. In paragraphs 38 to 41 of his affidavit, the plaintiff states as follows: "38. In November 2014, I went to China with Axel for about five days. I had been asking Axel about how our business was going in China and I wanted to go and see it. 39. When we were in China, Axel and I went to an office at 2203 XXX Building, 1019 XXX Road, Futian District, Shenzhen City. 40. I did some work for Axel while we were in China, which was mainly translating documents from English to Chinese. 41. I did not visit any other offices with Axel when I was in China."
10. In paragraph 42 of his affidavit, the plaintiff states that at Tab 10 of the exhibit to his affidavit is an email that the defendant sent to him while they were in China together, attaching documents that the defendant wanted the plaintiff to translate. The plaintiff gave evidence that he sent those documents to a translating company for the purposes of translation.
11. The documents behind Tab 10 of the exhibit include an email sent on 4 November 2014 from the defendant to the plaintiff with the subject "AXL Group Holdings_Company Profile_Nov 2014" which provides: "Dear Mark Can you please send this to be translated to be ready by tomorrow."
12. The document attached is headed "AXL Group Holdings" with an address in Sydney which appears to be the Sydney office of AXL Legal Solutions Pty Ltd. The document continues with a heading "Corporate Profile". Various companies are referred to under the heading "Corporate Profile". Under the heading "AXL Legal Solutions Pty Ltd" there is mention of what appear to be offices in Sydney, Macau and three cities in mainland China. The addresses in China are in what appear to be Chinese characters. The address in Shenzhen includes the numbers 1019 and 2203.
13. Under the heading "AXL International Limited", the only reference is to an office in Kowloon in Hong Kong. In relation to other companies which appear to be in the AXL Group there are only references to offices in Australia. However, it should be noted that for at least one company there is a reference to two offices, one in Sydney and one on the Gold Coast. The document includes the following: "AXL Group Holdings was established to provide legal, financial, investment, property and immigration solutions to international and local Australian clients. Since its foundation AXL Group Holdings has grown to have a team of (14+3) professionals with offices in Sydney, Shenzhen, Macau, Shaoguan, and Jilin Yanbian. AXL Legal Solutions is considered one of Australia's leading firms in providing quality advice and services to many Chinese clients seeking investment and immigration opportunities in Australia."
14. The document then provides more information in relation to the AXL Group and refers to the management team as including the defendant. Under the defendant's name the following is stated: "Alexander is the Managing Director of AXL Legal Solutions Pty Ltd who specialise in commercial, property, contract and immigration law."
15. The plaintiff states in his affidavit that he returned to Australia after the visit to China in November 2014 and spent the rest of 2015 studying. He says that he did not receive any payments from the business or any information about the business in 2015 and, due to his poor financial position, he returned to China in about February 2016. He states that he contacted the defendant shortly before he returned to China to ask him if the business could pay him "some return on my investment". The plaintiff states in paragraph 47 of his affidavit that the defendant's reply was to the effect that "the business didn't have any money to give me". The defendant also said that he personally could not afford to provide any money to the plaintiff including by way of loan.
16. The plaintiff states that he instructed lawyers in Australia and that a letter of demand was sent to the defendant. The correspondence between the lawyers is exhibited to the plaintiff's affidavit. The plaintiff says he has not received any payments from AXL International.
17. The plaintiff was cross-examined by counsel for the defendant. Although the plaintiff had some difficulty remembering when he first met the defendant, he agreed that it was in mid to late 2013. He also agreed that he discussed establishing a potential business with the defendant. The plaintiff said the initial discussions in relation to a business were to establish a law firm in China that the defendant would run and to which the plaintiff would contribute money. He denied that the discussion was in relation to the operation of a law firm in conjunction with AXL International. He did not know whether the business was to operate within the group of the AXL group of companies.
18. The plaintiff confirmed that in late 2013 he approached the defendant in relation to running an immigration business together: cf affidavit paragraph 14. The plaintiff said that he did not know much about the details of a potential immigration business, only that he thought it would be a good opportunity. He said this was the result of discussions with friends who thought it was a good idea. The plaintiff said he thought it would be a good business as the defendant was a lawyer and was learning or spoke Chinese and often went to China for business. He did not know whether legal services were to be provided in China as part of the business.
19. The plaintiff confirmed that he would bring in connections as part of the business but said that he never heard from the defendant as he was always travelling for business and they could not coordinate their dealings. He accepted that he did not refer one client to the business in which he invested one million Chinese yuan. He also agreed that in 2016 he made no referrals to the business even when he was told the business was not making money. The plaintiff claimed that the defendant always said that the business was "about to make money".
20. The plaintiff accepted that he signed a document dated 30 October 2013 which became part of Exhibit 1. This document showed that the director of AXL International was to be the defendant and the founder members of AXL International were to be the defendant and the plaintiff. It seems that the document was a formal document under the Hong Kong companies' legislation. Also part of Exhibit 1 was a certificate of incorporation of AXL International issued on 30 October 2013 as well as share certificates issued to the plaintiff and the defendant that show that the plaintiff was issued 30 of 100 shares in AXL International and the defendant was issued 70 out of 100 shares in AXL International. The shares were fully paid shares of Hong Kong one dollar each. Although the plaintiff initially had some difficulty in conceding his signature on the document appointing him as a founding shareholder in AXL International, upon more carefully reviewing the document and having it translated, he agreed that it was his signature. The plaintiff also confirmed signing the Contract which is exhibited to his affidavit.
21. The plaintiff agreed that the purpose of the Contract was to establish AXL International. He said he did not recall whether AXL International had been incorporated before or after he signed the Contract. Exhibit 1 establishes that AXL International was incorporated prior to the plaintiff signing the Contract.
22. The plaintiff, after some cross-examination, agreed that the business to be established by AXL International was a business in relation to immigration at branches in China. He said that he understood the business was to refer Chinese clients to an Australian law firm in order to obtain a visa to Australia. The plaintiff said he did not remember that the law firm was AXL Legal Solutions Pty Ltd which was the company associated with the defendant. He said that he thought clients would be referred to AXL International and he did not know the law firm to which they would be referred for immigration law purposes. However, he accepted that it appeared that the law firm that would be involved would be AXL Legal Solutions Pty Ltd. The plaintiff said he had no involvement in any business in Australia including that of AXL Legal Solutions Pty Ltd. He accepted that he understood that AXL International would work with AXL Legal Solutions in relation to the immigration business.
23. The plaintiff was extensively cross-examined in relation to paragraphs 38 to 41 of his affidavit concerning his November 2014 visit to China. He confirmed that he went to China in November 2014 as he had been asking Axel, the defendant, about how the business was going in China and wanted to go and see it. He agreed that he went there to observe the operation of the business. The plaintiff also agreed that he went to an office in Shenzhen city in China as stated in paragraph 39 of his affidavit.
24. When it was put to the plaintiff that he observed that the business was operating at the Shenzhen office, the plaintiff said that he did not see any clients. He said that the defendant asked him to translate some documents and he did not see the documents as being relevant to the business that he was engaged in. The plaintiff said that the defendant was working in the office but what he was doing or whether it had any relevance to the business between them, he did not know.
25. The plaintiff confirmed that he went to China to see how the business was going in China. When it was put to the plaintiff that the business had a branch in Shenzhen city, the plaintiff said that he did not think that was the case. He agreed that he did not complain to anyone at the time that there was no business operating in mainland China.
26. It was put to the plaintiff that he did some translating work for the defendant in China in 2014 when he was there. The plaintiff said he sent off the documents the defendant wanted translated to a translating company. This was the work in relation to translating that he refers to in paragraph 40 of his affidavit. The plaintiff accepted that he may have had a limited understanding of the content of paragraph 40 of his affidavit.
27. The plaintiff was taken to the document behind Tab 10 of his affidavit which was the email from the defendant dated 4 November 2014 and its attachments which has been referred to above. The plaintiff confirmed that he read the documents. When it was put to him that the documents accurately recorded the details relating to AXL Group Holdings, the plaintiff was willing to accept that but said that AXL Group Holdings was not his business. The plaintiff noted the offices of AXL Legal Solutions Pty Ltd indicated in the Corporate Profile document.
28. It was put to the plaintiff that he had an understanding that AXL International Ltd was to be used to source customers for immigration purposes to be then provided to AXL Legal Solutions Pty Ltd for legal work. The plaintiff said that he understood that this was an idea but he did not know what happened. He said he trusted the defendant in relation to the business.
29. The plaintiff could not recall, when he was in the office in Shenzhen city, observing any reference to AXL. The plaintiff said that he did not know what was done in the office but the defendant said it was used to do immigration work. He said, however, that he did not believe that the office was used for AXL International work. The plaintiff accepted that he understood that the business of AXL International included an immigration business of some sort.
30. The plaintiff confirmed that when he was at the Shenzhen city office, he did not see any clients of the business and also saw no documents other than those which the defendant requested be translated. He conceded that maybe some immigration work was being done at the office that he did not know of at the time. He says he now believes that no immigration work was being done at the Shenzhen city office. Upon cross-examination, he agreed that he did not know one way or the other whether AXL International was operating an immigration business at the Shenzhen office.
31. The plaintiff said that while he was at the Shenzhen office, the defendant raised with him a lot of other business ideas.
32. The plaintiff said that he was in Shenzhen for about three days and accepted that he spent most of those days in the Shenzhen office. He agreed that he did not visit any other offices in China other than the Shenzhen office. He also agreed he did not know whether AXL International operated its business in any other place in mainland China.
33. The plaintiff appeared to me to have a poor recollection of the business ideas discussed with the defendant in the Shenzhen office. He said they related to a rich person from China undertaking investment in Australia probably in relation to aged care. The plaintiff said there was a discussion about the 13 Hong Macau Cultural Association and that its members could bring substantial business to Australia.
34. The plaintiff gave evidence that he was occupied in a number of tasks for the defendant whilst at the Shenzhen office including arranging the translation of the documents and arranging business cards for him. He said arranging the business cards took 6 to 7 hours as the defendant was not satisfied with the drafts of the documents. He did not know whether the business cards referred to AXL International. He agreed that the business cards which he assisted being prepared for the defendant were those attached to the letter from HWL Ebsworth lawyers dated 25 November 2016, which became Exhibit 2 in the proceedings. The majority of this business card appears to be in the Chinese language.
35. The plaintiff was asked questions about the delays in his solicitors responding to the letter from the defendant's solicitors dated 25 November 2016. He said that at the time his father was terminally ill and he did not do anything else for a long time.

Bank statements of AXL Legal Solutions Pty Ltd

1. The plaintiff tendered as Exhibit A in the proceedings a Notice to Produce dated 29 August 2018 and certain bank statements of AXL Legal Solutions Pty Ltd for 2013 and 2014.
2. These statements confirm deposits to the account of AXL Legal Solutions Pty Ltd of the amounts which the plaintiff claims that he transferred to the account he was provided.
3. The bank statements also show monies were not transferred from AXL Legal Solutions Pty Ltd to AXL International until July 2014 and that the amounts transferred were substantially less than one million Chinese yuan deposited by the plaintiff.

Notice to Produce dated 16 May 2018

1. There was tendered as Exhibit B in the proceedings a Notice to Produce dated 16 May 2018 directed to the defendant requiring the production of various financial statements, financial documents, profit and loss statements, balance sheets and bank accounts referred to in Clauses 17, 19 and 20-22 of the Contract. In addition, paragraph 7 of the Notice to Produce required the following: "All leases, rental agreements or other such documents evidencing the carrying on of the business from premises in mainland China and Australia pursuant to Clause 3 of the Contract".
2. A concession was made on behalf of the defendant that the only documents produced by him in answer to the Notice to Produce which is Exhibit B, were the documents in Exhibit 1 relating to the incorporation of AXL International and the Contract at Tab 4 of the plaintiff's affidavit.

Evidence for the defendant

1. I have already referred above to Exhibit 1 being the incorporation documents relating to AXL International dated 30 October 2013.
2. The defendant tendered as Exhibit 2 in the proceedings a letter dated 25 November 2016 from HWL Ebsworth Lawyers to the solicitors for the plaintiff, essentially denying the plaintiff's claims. The letter annexes what appears to be a copy of a business card for the defendant primarily in Chinese. The plaintiff confirmed that this was the business card he arranged for the defendant in 2014. Also included was a document headed "AXL China Expenses Budget" and a document headed "Remarks June & July @ 2500/mth" that appear to relate to rental payments and a deposit. A limiting order was made under s 136 of the Evidence Act 1995 (NSW) to the effect that these documents were admitted only as being annexures to the email dated 13 September 2014 which was part of Exhibit 2 and which was forwarded by the solicitors for the defendant to the solicitors for the plaintiff.

Submissions

1. The plaintiff made extensive oral submissions and handed up written submissions. The submissions, in general summary, were as follows: 1. There is a factual dispute as to whether the defendant established branches in mainland China of AXL International on or before 1 October 2014 as required under Clause 33 of the Contract. The court should find that the defendant failed to establish "company branches in mainland China" by 1 October 2014; 2. The plaintiff's oral evidence taken at its highest was that he attended an office in Shenzhen China in November 2014 and observed a business but did not know whether the business was being owned and operated by AXL International. The plaintiff's evidence did not establish that this was a company branch of AXL International; 3. The court should draw an adverse inference from the defendant's failure to produce any documents sought by the plaintiff in the Notice to Produce which is part of Exhibit B. The defendant is a party to the proceedings and the only person responsible for establishing "company branches" in mainland China under the Contract. The defendant was required to keep proper books of account. These could easily have demonstrated whether "company branches" in mainland China were ever established by 1 October 2014. No relevant documents as would be expected if branches were established as required under the Contract, were produced in response to the Notice to Produce, nor any explanation provided for non-production; 4. Whether or not "company branches" were established in mainland China by 1 October 2014, was a matter wholly within the knowledge of the defendant. In those circumstances even slight evidence on the issue adduced by the plaintiff would throw an evidentiary onus on to the defendant and the defendant has failed to satisfy that onus: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [121]; 5. No objective evidence whatsoever has been adduced to prove that "company branches" were established in mainland China for AXL International by 1 October 2014; 6. The Corporate Profile forwarded by the defendant to the plaintiff to translate, only provides addresses in mainland China connected to AXL Legal Solutions Pty Ltd. The only address provided that is referrable to the company AXL International, is an address in Hong Kong which is not in mainland China; 7. Clause 32 of the Contract when properly construed does not create a three year fixed term. Such an intention is not disclosed objectively in the clause and no other terms of the Contract give rise to an inference that the Contract was fixed-term in nature. The clause merely refers to a "review". Even if the Contract is for a fixed term, the expiration of that term occurred on 30 September 2016, after notice under Clause 33 of the Contract was issued on 2 September 2016. To the extent there is any ambiguity, it should be resolved in favour of the plaintiff in circumstances where the defendant prepared the document with no input whatsoever from the plaintiff. Further, Clause 33 survives termination as it is not a primary obligation when the Contract is properly construed as a whole; 8. Clause 33 of the Contract, when properly construed, does not place any obligation on the plaintiff to terminate the Contract in order to receive repayment of the one million Chinese yuan. The Clause refers to "terminate the Investment and facilities hereunder" not the Contract itself. A similar wording is used in Clause 34 of the Contract. The "Investment" must be a separate and distinct concept from the "Agreement" as they are separate and distinct terms as is obvious from the fact that Clauses 25-28 deal with the right to terminate. Further, the investment from each party differs. Clauses 33 and 34 provide the parties with the right to cancel each "Investment" they provide. Neither clause expressly states that termination of the Contract is required. Clause 19 of the Contract supports this construction as that clause places obligations on the defendant and confers potential benefits on the plaintiff that extend past the seven day notice period referred to in Clause 33. To the extent there is any ambiguity, it should be construed in favour of the plaintiff; 9. The plaintiff's accrued rights are preserved. Where a contract is terminated, the parties are not divested of such rights as they had already "unconditionally acquired". These are accrued rights and the contract is not regarded as being rescinded as from the beginning. The parties are only discharged from further performance of their obligations under the contract in the future; 10. The correspondence from the plaintiff's solicitors should be regarded as proper notice of the plaintiff seeking a termination of the "Investment" under Clause 33. In circumstances where there is no doubt that the defendant received the notice, nothing turns on the address or manner of service; 11. The plaintiff is entitled to an award of damages including in the Chinese currency. There should be no separate award for the other breaches in terms of an award for nominal damages.
2. The defendant submitted, in general summary, as follows: 1. Clause 32 of the Contract should be regarded as terminating the Contract as at 30 September 2016 when read with Clause 1 of the Contract; 2. The two letters from the solicitors for the plaintiffs are ambiguous and do not provide clear notice within Clause 33 of the Contract; 3. As the Contract has terminated under Clause 32, any rights of the plaintiff under Clause 33 were brought to an end. This is the clear intention of the parties objectively from a review of the Contract as a whole, particularly Clauses 32 and 33; 4. Clause 33 of the Contract requires the plaintiff, before he can exercise any rights under the Clause, to terminate the Contract. Merely purporting to terminate the "Investment" is not sufficient. The term "agreement" is the same as the term "Investment" despite some ambiguity as there is no definition clause. It is not in doubt that the plaintiff has not purported to terminate the Contract. Despite Clause 19 of the Contract, the plaintiff must make a decision whether he seeks to exercise the right under Clause 33 and terminate the Contract. If the plaintiff does that he has no accrued rights; 5. Whether there was a business of AXL International being operated at branches in mainland China is not peculiarly within the knowledge of the defendant. The plaintiff also visited the Shenzhen office in 2014; 6. The plaintiff's own evidence is that throughout about December 2013 to November 2014, the defendant confirmed that he was working very hard on the business of AXL International. The plaintiff travelled to China in November 2014 and visited the Shenzhen office for the express purpose of seeing how the business was going. He spent three days in the office with the defendant. The Company Profile showed group offices in a number of Chinese cities for AXL Legal Solutions Pty Ltd and AXL Group Holdings generally. This does not exclude AXL International immigration work being conducted at these offices; 7. At no time did the plaintiff question the establishment of AXL International or the lack of establishment of branches of the business in mainland China. The reason is because the plaintiff accepted that the Shenzhen office was a branch office of AXL International; 8. The plaintiff has not established to the requisite standard that the defendant had failed to establish branch offices of AXL International in mainland China; 9. There is no suggestion that the plaintiff purported to terminate the Contract pursuant to Clause 33 before he commenced proceedings; 10. The claim under Clause 33 fails as the plaintiff has never purported to or in fact terminated the Contract under Clause 33. Further no right to terminate the Contract could survive the termination by expiration of the Contract under Clause 32; 11. The oral and affidavit evidence of the plaintiff does not assist in establishing that no company branches in mainland China of AXL International were established.
3. No point was taken by the defendant that the branch of AXL International in Kowloon in Hong Kong was a branch in mainland China. It was accepted that this view was not available on a proper construction of the Contract.
4. In reply, the plaintiff submitted that although initially the idea might have been to establish legal offices of AXL Legal Solutions Pty Ltd in China, the business idea evolved to establishing offices dealing with migration work in mainland China for AXL International.

The plaintiff

1. The plaintiff gave his evidence through an interpreter.
2. It is accordingly necessary to exercise some caution in assessing his evidence because of the difficulties of giving evidence through an interpreter.
3. The plaintiff impressed the court as being a fairly unsophisticated and naive person. He seemed to have little knowledge or idea of the details of the business which was proposed to be undertaken with the defendant through the vehicle of AXL International. The plaintiff emphasised on a number of occasions in his cross-examination that he trusted the defendant.
4. The plaintiff appeared to have a poor recollection in relation to a number of matters. In particular, there was some ambiguity about the precise business to be established through AXL International. It seems that the plaintiff regarded his role primarily as to provide capital for AXL International for which he expected a return. It seems that he left the detail of running the business to the defendant as the director of AXL International: see Exhibit 1. The evidence established that the defendant was the director and shareholder of AXL Legal Solutions Pty Ltd.
5. To the extent of his recollection, the plaintiff appeared to be trying to give his evidence honestly. However, due to his apparent limited recollection, some caution should be exercised in relation to accepting his evidence.

Applicable contractual principles

1. The following general principles are applicable to the task of contractual construction facing the court.
2. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, the majority of the High Court said the following at paragraph [35]: "[35] Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"."
3. In Caringbah Investments Pty Ltd v Caringbah Business & Sports Club Ltd (in liquidation) [2016] NSWCA 165, Bathurst CJ (with whom McColl and Macfarlan JJA agreed) stated as follows at [93]: "[93] The relevant principles of construction are well established. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640, the plurality reaffirmed that the meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood them to mean. It requires consideration of the language used, the surrounding circumstances known to the parties and the commercial purposes or objects to be secured by the contract: at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 89 ALJR 990 at [46]-[52]."
4. In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty (2017) 261 CLR 544; [2017] HCA 12 the majority stated as follows at paragraphs [16]-[17]: [16] It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it. [17] Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement.
5. The courts will prefer a construction of a contract which provides "a congruent operation to the various components of the whole": Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16] approved by Leeming JA in LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 129 at [46] (with whom Payne and White JJA agreed).
6. See also Network 10 Pty Ltd v TX Australia Pty Ltd [2018] NSWCA 312 at [119] per Bathurst CJ (with whom Meagher and Gleeson JJA agreed).

Did the Contract terminate three years after it was executed or at some other time?

1. Clause 32 of the Contract provides as follows: "32. This agreement will be valued 3 years and will be reviewed at the end of the 3rd year, unless otherwise agreed from time to time."
2. It will be recalled that the Contract is dated 29 November 2013 on its cover page but was executed by the parties on 3 December 2013. Clause 1 of the Contract provides that the partnership shall be deemed to have commenced from 1 October 2013. This seems to mean that irrespective of when the Contract is executed it is deemed to commence from 1 October 2013. A different interpretation was not pressed by either party in submissions.
3. The defendant submits that the proper construction of Clause 32 is that the Contract terminates three years after it was to commence being, in light of Clause 1 of the Contract, 30 September 2016.
4. The plaintiff claims that that is not the proper effect of Clause 32 of the Contract. The plaintiff says that there is no termination date expressed in the Contract including in Clause 32.
5. The defendant submits that it was likely intended by the parties that there would be a termination date and this points to Clause 32 having the effect of terminating the Contract on 30 September 2016.
6. In my view, the defendant's construction should be rejected. There are no express words in Clause 32 of the Contract which provide that the Contract is to be terminated three years after its commencement or at any other time. Being "valued 3 years" and "reviewed" at the end of the third year does not constitute in my view a termination. A termination of a contract is a significant matter and clear words or a necessary implication must exist to indicate an objective intention to terminate as at a particular date. In my view, they are not present in Clause 32 when the Contract is reviewed as a whole. The parties can agree to review a contract at a set time without intending it to be terminated.

Whether any rights could exist or accrue under the Contract after 30 September 2016 pursuant to Clause 33 or otherwise.

1. The defendant submits that no contractual rights could exist or accrue to the plaintiff after 30 September 2016 under Clause 33 or otherwise.
2. As I have found that the Contract did not terminate on 30 September 2016, in my view it does not affect rights accrued under the Contract.
3. In any case, a termination of a contract is to be regarded as executory and accrued rights are preserved: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. Although Dixon J considered the position in relation to a breach of contract, in my view the position equally applies to any contract that is terminated through agreement, unless it is clear from the agreement, whether express or implied, that accrued rights are to come to an end. See also Naaman v Sleiman [2015] NSWCA 259 at [53]-[61].
4. There is nothing, in my view, in the Contract, which suggests expressly, or by necessary implication, that any accrued rights of a party are not preserved.
5. I will consider the defendant's argument that the plaintiff must first terminate the Contract before exercising the right to give a notice under Clause 33, further below.

Clause 33 - whether termination is necessary by the plaintiff and the notice issue

1. I have set out Clause 33 of the Contract above, I repeat it here for convenience: 33. In the event of "Default" as defined in sub-clause 33(1)-(2), Mark shall be entitled to forthwith terminate the Investment and facilities hereunder granted and demand immediate repayment of the Principal Sum and any and all interest then outstanding, upon the giving of 7 (seven) days written notice, requiring Axel to repay the Investment. 1) Axel must establish the company on or before the 31st October 2013. 2) Axel must establish the company branches in mainland China on or before the 1st October 2014.
2. Did the plaintiff first have to terminate the Contract before exercising any right under Clause 33 to demand immediate repayment of the "Principal Sum"? The defendant says he did. The plaintiff says he did not. It was common ground that at no stage did the plaintiff terminate the Contract.
3. The terms "agreement" (Clauses 30 and 31), "Investment" (Clauses 33 and 34) and "Principal Sum" (Clause 33) are not defined in the Contract. It seems from Clauses 4, 33 and 34 that the term "Principal Sum" refers to the amount of one million Chinese yuan to be paid by the plaintiff pursuant to Clause 34.
4. Does the term "Investment" refer to the agreement as the defendant submits or to the respective contributions of the parties as the plaintiff submits?
5. In my view, the plaintiff's "Investment" in Clause 33 does not refer to the agreement and therefore he was not obliged to terminate the Contract before he claimed the return of the one million yuan from the defendant for the following reasons: 1. The right to terminate is dealt with in Clauses 25-28 - see the heading before Clause 25; 2. Each party had a different investment. The plaintiff invested one million Chinese yuan (Clauses 4 and 34). The defendant invested his "business investment and management skills" (Clause 4). The term "Investment and facilities thereunder" as used in Clause 33 appears to refer to the investment of one million Chinese yuan (Clause 34) and the plaintiff's rights under clauses such as Clause 12; 3. As the investments are different, the word "Investment" in Clause 33 is not referring to the Contract; 4. This is confirmed by the use of the word "Investment" in the last line of Clause 33 which clearly refers to the one million Chinese yuan. It is assumed that words have the same meaning within a clause particularly when capitalised; 5. The plaintiff still retains rights such as under Clause 19. Let us assume the company AXL International made large profits in Hong Kong but the defendant made no effort to establish branches in mainland China. If the defendant was right in his construction, the plaintiff would have to terminate the Contract, lose any rights he had under the Contract (whether he was aware of the profits made or not) and be limited to his one million yuan plus interest even though the defendant had breached the Contract. That would be an unlikely intended result; 6. There are, in my view, no words in Clause 33 which point to "Investment" as used in Clause 33 being intended to be the same as the Contract. Clearer words would be needed; 7. Additionally, although it is unnecessary for my conclusion, the defendant prepared the Contract (plaintiff's affidavit paragraphs 19-20). In my view, any doubt should be construed against him in favour of the plaintiff under the contra proferentem principle.
6. Accordingly, there was no need for the plaintiff to terminate the Contract before he gave notice claiming his "Investment".
7. Did the plaintiff give seven days written notice requiring the defendant to repay the "Investment"?
8. As stated above, the word "Investment" is not defined in the Contract. However, in my view looking at the Contract as a whole, and particularly Clause 34, the Investment in Clause 33 refers to the one million Chinese yuan which the plaintiff was to pay to AXL Legal Solutions Pty Ltd to transfer to AXL International as his investment in AXL International. In my view, the two letters from the plaintiff's solicitors dated 2 September 2016 and 4 July 2017 satisfy the notice requirements in Clause 33 of the Contract.
9. Clause 33 of the Contract requires the plaintiff to give seven days written notice for the defendant to repay the money. No particular form of the notice is required in the Contract. There is nothing, in my view, to prevent that notice being given through an agent such as the plaintiff's solicitors.
10. In the 2 September 2016 letter from the plaintiff's solicitors to the defendant the following is stated: "To the extent that no company branches were established by 1 October 2014 in mainland China, we put you on notice that our client is giving written notice pursuant to Clause 33 of the Agreement that he requires repayment of his investment plus interest as identified within seven days."
11. In the letter dated 4 July 2017 the following is stated by the plaintiff's solicitors: "We note our client has already put your client on notice that he intends to recover his investment in the absence of provision of the above material".
12. The material referred to in the 4 July 2017 letter includes financial documentation which it is accepted was never provided by the defendant to the plaintiff.
13. The defendant submits that the letters are vague and equivocal.
14. In my view, the two letters from the solicitors clearly are sufficient to constitute notice within Clause 33 of the Contract.
15. That notice was, in my opinion, clearly given in the first letter. If I am wrong, it was given in the second letter. The letters must be given a sensible commercial construction. Their intention to give notice under Clause 33 of the Contract was apparent to a reasonable reader.

Was there a default by the defendant under Clause 33 of the Contract?

1. Clause 33(1) of the Contract requires the defendant to establish AXL International on or before 31 October 2013. In my view, the documents in Exhibit 1 establish that AXL International was established by being incorporated on or before 31 October 2013.
2. The second matter referred to in Clause 33 of the Contract is that the defendant must establish "the company branches in mainland China on or before the 1st October 2014."
3. The first question is whether the establishment of a branch in Hong Kong on Kowloon constituted the establishment of a branch of AXL "in mainland China".
4. The defendant conceded that establishing a branch in Hong Kong on Kowloon did not constitute a branch in mainland China within Clause 33. I agree with this submission.
5. First, Clause 2 of the Contract provides that the partnership business shall be carried on at the land and premises at offices in Kowloon in Hong Kong. It is clear that the branches to be established under Clause 33 are different to the office at Kowloon in Hong Kong as they are contemplated to be established in the future.
6. Secondly, Clause 3 of the Contract makes a distinction between the head office based in Hong Kong and "branches in mainland China and Australia". There is no definition of "mainland China" in the Contract which, as I have indicated above, is poorly drafted.
7. However, it seems clear that the branches contemplated in Clause 33(2) are contemplated by the parties as being new branches in mainland China.
8. The words "company branches in mainland China" in Clause 33(2) of the Contract appear to contemplate more than one branch. There is no evidence that any branch other than the one alleged by the defendant in Shenzhen had been established. The plaintiff clearly was not aware of any other branch. However, that does not establish that there was not one in existence.
9. In my view, having considered the parties' various submissions, the evidence establishes to my satisfaction that there were no branches of AXL International established in mainland China by it or by the defendant by 1 October 2014.
10. First, Exhibit B and the concession made by counsel for the defendant establish that no documents were produced by the defendant which one would expect such as invoices or receipts for rent for offices or contributions towards the rent of premises rented by other companies in the AXL group in mainland China. No documents were produced falling within Category 7 of the Notice to Produce which is as follows: "7. All leases, rental agreements or other such documents evidencing the carrying on of the business from premises in mainland China and Australia pursuant to Clause 3 of the Agreement".
11. The very limited production pursuant to the Notice to Produce dated 16 May 2018 establishes, in the absence of proper explanation, in my view that no company branches were established for AXL International by the defendant in mainland China on or before 1 October 2014.
12. Secondly, the document which the defendant asked the plaintiff to translate which was annexed to his 4 November 2014 email and which is exhibited behind Tab 10 of the plaintiff's affidavit, only refers to the Hong Kong office for AXL International. The only offices in mainland China are under the name AXL Legal Solutions Pty Ltd. On the second page of the document there are references to offices for AXL Group Holdings not AXL International.
13. Mr Harmstorf was the sole director of AXL International. He forwarded the document for translation to the plaintiff on 4 November 2014, which is a short period after 1 October 2014. In my view, it is proper to draw an inference that there were no company branches for AXL International in existence as at 1 October 2014 as otherwise they would be referred to in this document. There is no suggestion that the business of AXL International had altered in any way between 1 October 2014 and 4 November 2014. On the defendant's case there is nothing to suggest that AXL International had not established company branches for the business. As there is no evidence of any change between 1 October 2014 and 4 November 2014 in the business of AXL International, the proper inference to be drawn was that AXL International as at 1 October 2014 only had one branch, being the Kowloon Hong Kong branch.
14. This is reinforced by the fact that two branches of Pulse Markets Pty Ltd, another company in the AXL Group, are referred to in the Corporate Profile.
15. Thirdly, the evidence of the plaintiff was that he saw no clients in the Shenzhen office in his November 2014 visit or any documents referring to an immigration business of AXL International. The defendant says that according to paragraph 38 of the plaintiff's affidavit he went to China to see the business. He may have done so, but there is no evidence he saw that business, being the immigration business the parties had agreed to establish through AXL International. The defendant says a company can have a presence in a branch of another company. That is accepted but there is no evidence of that here.
16. Fourthly, although it is unnecessary for my conclusion, whether company branches of AXL International had been established in mainland China was peculiarly within the defendant's knowledge. He chose not to give evidence and in the light of the first three matters referred to, thus did not satisfy the evidential onus placed upon him: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [121]. I disagree with the defendant's submission that the plaintiff had any relevant knowledge.
17. In my view, the above matters clearly establish that the defendant as the director of AXL International did not establish company branches of AXL International in mainland China on or before 1 October 2014. Accordingly, there was a default and breach of Clause 33 of the Contract by the defendant.
18. As a result, the plaintiff was entitled to demand immediate repayment of the sum of one million Chinese Yuan in accordance with Clause 33 of the Contract. I have found that proper notice was given.
19. Clause 33 refers to interest by saying that the plaintiff can demand immediate repayment of the Principal Sum "and any and all interest then outstanding, upon the giving of 7 (seven) days' notice, requiring Axel to repay the Investment."

When does the interest obligation commence from?

1. In my view, it is from seven days after the giving of notice. In light of Clause 36 in the Contract, notice should be regarded as having been given under Clause 33 two weeks after the letter dated 2 September 2016 was sent by the plaintiff's solicitors.
2. Interest should be calculated by the parties from 16 September 2016 in accordance with the Civil Procedure Act 2005 and the Uniform Civil Procedure Rules.
3. The evidence also establishes breaches by the defendant of Clauses 17, 19 and 20 of the Contract. However, no loss has been established.

Determination

1. Accordingly, I make the following orders: 1. Judgment for the plaintiff. 2. The parties are to bring in Short Minutes of Order within seven days reflecting these reasons, including the claim for interest. 3. The defendant is to pay the costs of the plaintiff of the proceedings as agreed or assessed. 4. The parties have liberty to apply for a different costs order to that set out in (3) above. 5. Exhibits are to be returned in 28 days.

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: 12 March 2019