Zhu v Wang

The motion seeking a stay

1. On 2 December 2020, Rothman J delivered a judgment in which his Honour ordered Ms Zhu and four companies controlled by her (the appellants) to pay $230,473.90 in damages for breach of contract to the respondents. His Honour dismissed the appellants' cross-claim against the respondents: De Rucci International Pty Ltd v Zhu [2020] NSWSC 1720.
2. On 30 December 2020, the appellants filed a notice of intention to appeal. On 1 March 2021, the appellants filed a notice of appeal. The appeal was listed for hearing in this Court on 6 October 2021. Written submissions dated 5 July 2021 have been filed and served by the appellants.
3. By notice of motion filed 7 July 2021, the appellants sought an order for the stay of the enforcement of the primary judgment and the stay of execution of a writ for the levy of property dated 22 April 2021, pending determination of the appeal against the primary judgment.

The primary judgment

1. The proceedings before the primary judge concerned a claim by the respondents against the appellants for damages for breach of a Management Agreement. The appellants brought a cross-claim against the respondents alleging that the respondents had breached a series of oral and written agreements and/or resiled from certain representations, and that the appellants were thereby entitled to terminate the Management Agreement. The primary judge dismissed the cross-claim and found in favour of the respondents, ordering the appellants to pay damages of $230,473.90 plus costs.

Previous applications for a stay

1. From December 2020 to date, the respondents have taken steps to enforce the judgment debt, including by applying for garnishee orders in December 2020 and obtaining a writ for the levy of property in April 2021.
2. On 29 December 2020, the appellants filed a notice of motion seeking orders staying enforcement of the primary judgment. Cavanagh J dismissed the application with costs: De Rucci International Pty Ltd v Zhu [2020] NSWSC 1927.
3. On 11 May 2021, the appellants filed a second notice of motion seeking orders staying enforcement of the primary judgment. Wilson J gave an ex tempore judgment on that day dismissing the application with costs. Her Honour's revised judgment has not yet been published.

The evidence

1. There was a great deal of material put before me on this application by the appellants, most of which was of little, if any, assistance. When the matter was first before me in the referrals list on 12 July, three affidavits affirmed by Ms Zhu were read, being those of 6 July 2021, 9 May 2021 and 23 April 2021. All three contained repetitive, bare assertions about the issues but did not annexe relevant source documents, financial records or other corroborative material to establish those assertions.
2. In her affidavit affirmed 6 July 2021, Ms Zhu repeatedly asserted that the appellants have no financial capacity to meet the judgment debt and order for costs made by the primary judge: 1. Ms Zhu asserted that her personal assets are a fortnightly wage of $1,500 and credit cards totalling $70,000, which limit she has nearly reached. Ms Zhu also asserted that she has no other cash deposits, or any real estate, stocks, bonds or bullion. Ms Zhu did not provide any financial records at all in support of any of these assertions. 2. Ms Zhu also asserted that the appellants' trading operation at their store in the Moore Park Supa Centa will be disrupted by the respondents' enforcement of the judgment. Ms Zhu did not provide any financial statements, business records, or any other materials in support of these assertions.
3. The one thing that was established by Ms Zhu's evidence was the threat of enforcement action by the respondents. On 2 July 2021, Ms Zhu received an email from the solicitors for the respondents, advising that: "our client will be requesting the sheriff to continue the execution of the writ for levy of property unless the parties can otherwise agree on or before Wednesday 7 July 2021. For your information, we have also been instructed to consider other enforcement steps, which steps, may also be taken on or after Wednesday 7 July 2021 without further reference to you."
4. Two earlier affidavits, prepared for other applications, were also read. They contained little of relevance or assistance. The affidavit of Ms Zhu affirmed 9 May 2021, originally filed in response to the respondents' application for security for their costs of the appeal, essentially contained assertions amounting to submissions. I found it of no real assistance. Ms Zhu asserted that the appellants had lost all of their assets invested in the three De Rucci stores which were subject of their cross-claim in the primary proceeding, and rely on management income from their retail operations. She stated that the appellants have an "average daily bank account balance" of below $5,000, but did not provide any bank statements, income statements or other business records in support of these assertions.
5. The affidavit of Ms Zhu affirmed 23 April 2021 was also of very limited assistance. Ms Zhu asserted that the fifth appellant has "good cashflow" and generates "sufficient profit" to pay the costs of the appeal proceedings. The management income earned by the fifth appellant is the only source of income for the appellants, who have no other assets. Ms Zhu provided one page of interim management accounts for Australia Furnishing Pty Ltd (ACN 633 182 288) for the year to date as at 31 March 2021, and activity statements issued by the Australian Taxation Office for Australia Furnishing Pty Ltd for the two final quarters of calendar year 2020. Australia Furnishing Pty Ltd was formerly HQ Bedding Pty Ltd, which is the fifth appellant to this notice of motion. The one-page interim management accounts for Australia Furnishing Pty Ltd showed that: 1. In the year to 31 March 2021, the fifth appellant had an income of $957,992. Its gross profit from trading was $589,508. That profit was exceeded by its total expenditure, which was $709,852. However, due to other sources of income, predominantly government subsidies of $206,843, the fifth appellant's total profit was $86,499. 2. In the year 2020, the fifth appellant had an income of $1,109,680. Its gross profit from trading was $662,072. That profit was greater than its total expenditure, which was $632,390. With the addition of government subsidies of $46,000, the fifth appellant's total profit was $75,682.
6. The tax activity statements showed that: 1. In the period July 2020 to September 2020, the fifth appellant generated total sales of $385,138 and made salary and wage payments of $87,200. 2. In the period October 2020 to December 2020, the fifth appellant generated total sales of $429,103 and made salary and wage payments of $76,365.
7. On 12 July 2021 when this matter was first heard, following a complaint by Ms Zhu that she had been taken by surprise by the respondents' evidence (which included three affidavits read in earlier proceedings) I granted an adjournment and an interim stay for the purpose of allowing Ms Zhu to file further evidence.
8. That evidence comprised an affidavit of Ms Zhu affirmed 14 July 2021, which was read. For the most part, Ms Zhu repeated assertions made in her previous affidavits (and annexed the same evidence and earlier affidavits themselves in support of those assertions). Overall that evidence was of very limited assistance because: 1. documentary evidence was not provided in support of critical of assertions, such as that the appellants had been refused loans by commercial banks; 2. some of the annexed documents were cropped so that key details were omitted rendering them of little assistance; and 3. a number of the other documents merely set out the same assertions made in Ms Zhu's affidavit but in a different form.
9. In her affidavit, Ms Zhu asserted that she does not have any real estate or substantial personal assets. She said she had: 1. total weekly income of $600, consisting of income after tax from salary or wages; 2. total property of $31,000, consisting of $1,000 in bank funds, and $30,000 worth of household contents; 3. total liabilities of $451,000, consisting of $69,000 credit card debt and $382,000 judgment debt.
10. Ms Zhu gave evidence that she previously owned three real estate properties, shares and superannuation from her earlier banking career, but after moving into the furniture business had invested all of her assets to convert her furniture stores to sell De Rucci branded products. Ms Zhu claimed that she lost those assets due to "breaches of our multiple business agreements" by the respondents.
11. Ms Zhu also asserted that the four appellant companies do not have substantial assets and three of the four companies do not maintain an active business. This assertion was not entirely supported by the documentary evidence provided, which was: 1. an ANZ bank statement for "Sydney Furnishing Pty Ltd" showing a closing balance as at 11 June 2021 of $42,751.24DR. Sydney Furnishing Pty Ltd was formerly HQ Living Pty Ltd (second appellant); 2. an extract of an Agreement for the Sale and Purchase of a Business dated 26 October 2018 for the sale of the third appellant's store in Bundall to the second respondent. It is unclear how this Agreement is proof that the third appellant has no business activities; 3. affidavit of Vincent Zhi Qing Zhu affirmed 1 April 2021 (originally filed in support of the respondents' application for security for costs; not read in these proceedings) in which Mr Zhu gave evidence of real estate and PPSR searches for the corporate appellants which showed a small number of registered security interests and no property ownership. This is not definitive evidence that the appellants do not have substantial assets as PPSR searches only disclose security interests granted by the appellants, and not any interests granted in their favour; an absence of real property ownership also does not preclude ownership of other assets.
12. Ms Zhu also asserted that the fifth appellant has no substantial cash or tangible assets, and a "high level of trade creditors and debtors". The fifth appellant also has a high volume of unpaid orders which it has not yet fulfilled due to delays in stock. Ms Zhu annexed screenshots of correspondence referring to delays in receiving stock to fill orders. Those documents do not demonstrate that the fifth appellant has not received payments on those orders. Nor do they present close to a complete picture of the fifth appellant's financial position.
13. Ms Zhu asserted that the appellants will have little cashflow available to satisfy the judgment debt in the coming 6 months. The following documentary evidence was annexed in support: 1. Letter prepared by Leading Account Business Advisors (accountants for the fifth appellant) dated 14 July 2021 setting out forecast cashflow shortfall of $76,900.84 for the September quarter (assuming receipt of government support), forecast cashflow surplus of $47,955.98 [which is likely an error and should be $27,995.98] for the December quarter, and overall cashflow deficit of $47,034.42. The accountant said, somewhat vaguely and unhelpfully for the appellants, that: "The company will not be able to meet any other financial commitment, unless the director can seek external funding, or receive extended payment terms from landlord or suppliers." 1. Equally unhelpfully, the letter contained a disclaimer that the "Cashflow Forecast is prepared by [Ms Zhu]" and the accountant does "no[t] express audit opinion or review conclusion on these financial information"; 2. Cashflow forecast for "HQ Bedding Pty Ltd Ltd [sic] (Australia Furnishing Pty Ltd" for first half of FY2022 showing total cash inflow of $606,209, total cash outflow of $684,827.74 and net cash outflow of $48,002.88. Save for the possible error in the accountant's letter identified above, the figures in this statement accord with those in the accountant's letter; and 3. Trading, profit and loss statement for Australia Furnishing Pty Ltd for year to date as at 31 March 2021 and tax activity statements for September and December quarters 2020. These documents are the same documents referred to at [14]-[15] above, and show that the fifth appellant was profitable in the year to date as at 31 March 2020.
14. Ms Zhu gave evidence that the appellants have had difficulty obtaining funding. Ms Zhu annexed a screenshot of email correspondence with a Mr Lindsay Garhnam which stated that: "As discussed unfortunately we won't be able to offer any extra funding at the moment due to your sales in July being significantly affected by Covid. Hopefully Covid in Sydney won't affect your business for too long and once you are back up to trading 50k a month in sales we will be able to look at refinancing our loan."
15. The screenshot is cropped, and omits certain message details, including the sender's email signature and organisation and the precise timestamp.
16. No other documentary materials have been provided in support of the assertion that the appellants are unable to obtain funding from the major commercial banks due to the fifth appellant's "lack of trading history" and "no tangible security". For example, no correspondence with or applications to those banks have been provided.
17. Ms Zhu gave evidence that enforcement of the judgment will render the appeal nugatory because the appellants will lose their business and the respondents will not be able to restore the appellants' business. Ms Zhu relied on the following in support: 1. A "recent advertis[ement]" showing that De Rucci only has four locations in Sydney. This document is partly in Chinese and is cropped, and is thus unhelpful. In any case, it is not probative evidence as to De Rucci's absence from Australia generally, or that the respondents will not be able to restore the appellants in the event they succeed at appeal; 2. A screenshot of WeChat messages with "Jeff - De Rucci" (translated from Chinese into English by WeChat) in which "Jeff" sent on 12 January 2021: "I've just arrived in China, and there are a lot of things. If it comes to litigation, go straight to our lawyer, and now you have full authority over it to them. I basically work in China." 1. It is not clear how this supports Ms Zhu's assertion that Mr Wang (first respondent) resides in China outside the Court's jurisdiction, or that Mr Jeff Jia is "now situated in China". 2. Resolution of De Rucci International Pty Ltd (second respondent) dated 24 March 2021 engaging Auyeung Hencent & Day Lawyers and nominating Mr Jia Fu as instructor, signed by Mr Wang (first respondent) and Yi Yu. It is not clear how this resolution demonstrates Ms Zhu's assertion that "any payment from the [second respondent] needs to be co-signed by the new director Miss Yu Yi".
18. Finally, Ms Zhu asserted that there has been "a recent partnership breakdown" in De Rucci International Pty Ltd (second respondent). Much of that evidence was inadmissible. It is of little, if any, weight. For example, Ms Zhu gave hearsay evidence that Mr Andy Wang (former general manager of the second respondent) was owed money by the second respondent and had not been paid back. Other assertions (e.g. that Ms Yi Yu has full control of the second respondent, and that she is "unlikely … to make substantial payment to us" if the appellants succeed on appeal) are also made without any supporting evidence.

The respondents' evidence

1. At the hearing on 12 July 2021, the respondents read a number of affidavits originally filed in relation to other proceedings. A further affidavit affirmed on 15 July 2021 was read in response to the further evidence put on by Ms Zhu. That evidence was of some limited assistance.
2. The affidavit of Mr Vincent Zhi Qing Zhu, the solicitor for the respondents, affirmed 15 July 2021 demonstrated that Ms Zhu is the secretary of Premium Home Outlets Moore Park Pty Ltd (ACN 639 461 484) ("Premium Home Outlets"). The sole director and shareholder of Premium Home Outlets is Mr Zhu's husband, who was also a previous director and shareholder of the second appellant and a previous director of the fourth appellant. From 1 November 2020 Premium Home Outlets have conducted the business at the appellants' Moore Park premises, after having purchased it from the second appellant for a total sum of $285,000.
3. Mr Zhu gave evidence that: 1. The second respondent currently operates 4 stores in Sydney; 2. the first respondent, Mr Wang, is a Chinese citizen and a permanent resident in Australia, but predominantly resides in China. Mr Jeff Fu Jia, as general manager of the second respondent, is responsible for its Australian operations, but had also taken on additional duties based in China in early 2021.
4. Mr Zhu offered an undertaking in favour of the appellants not to transfer any proceeds of the judgment debt paid by the appellants to the respondents outside Australia. The respondents also gave their consent that any payment of the judgment debts by the appellants be held in a solicitor's trust account, pending determination of the appeal.
5. There were other affidavits read by the respondents, namely an affidavit of Simon Li affirmed 15 June and two further affidavits of Mr Zhu affirmed 8 July 2021 and 7 June 2021, but they do not take the matter any further.

Relevant principles

1. The general principles applicable in relation to an application for stay are not in dispute. It is not necessary for the grant of a stay that special or exceptional circumstances should be made out and it is sufficient that the appellants demonstrate a reason or an appropriate case to warrant the exercise of discretion in their favour: Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 694E ("Cambridge Credit"); Kalifair Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383. In Cambridge Credit this Court said at 694-5: The onus is upon the applicant to demonstrate a proper basis for a stay that will be fair to all parties: Trlin. The mere filing of an appeal will not, of itself, provide a reason or demonstrate an appropriate case, nor will it discharge the onus which the applicant bears: see Supreme Court Rules, Pt 51, r 10; Waller v Todorovic. The Court has a discretion whether or not to grant the stay and, if so, as to the terms that would be fair. In the exercise of its discretion, the Court will weigh considerations such as the balance of convenience and the competing rights of the parties before it: Attorney-General v Emerson (1889) 24 QBD 56. Where there is a risk that if a stay is granted, the assets of the applicant will be disposed of, the Court may, in the exercise of its discretion, refuse to grant a stay: cf Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857. Sometimes as a condition of the grant of a stay, where funds are available, a court will impose on the applicant the payment of the whole, or part, to the judgment creditor: Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184. Even where no order is made for the payment of part of a verdict, it is not at all unusual for the Court, in the exercise of its discretion, to grant a stay on terms that the appellant give to the judgment creditor security in terms defined by the Court as appropriate to the fair adjustment of the rights of the parties.

Consideration

1. I have concluded that the appellants' sole ground of appeal is reasonably arguable. In the Outline of Written Submissions dated 5 July 2021 the appellants submitted that: 1. The primary judge erred in finding that the appellants had repudiated the Management Agreement; and 2. The primary judge misconstrued the Management Agreement with the result that his Honour erred in assessing the damages to which the respondents were entitled by reason of the appellants' repudiation of the Management Agreement.
2. The question of whether a party has repudiated a contract can be a subject of some difficulty. As stated by the plurality in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12 at 432-3 (citations omitted): "No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. … on the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract. Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear (see Asprey J.A. in Satellite Estate Pty. Ltd. v. Jaquet). In these circumstances the Court is not justified in drawing an inference that the appellant intended not to perform the contract according to D. T. R its terms or that it repudiated the contract.
3. There was some limited evidence of a risk that the judgment sum might be irrecoverable if paid by the appellants to the respondents. If I were minded not to grant a stay, I would have accepted the respondents' undertaking to retain any part of the judgement amount which was recovered in their solicitors' trust account.
4. I am persuaded, by the barest of margins, that the balance of convenience favours the grant of a stay, but only on terms that the appeal is set down and determined with expedition. The appeal was originally set down to be heard in October before this stay application was made. Having succeeded on two occasions in the Common Law Division, the respondents cannot be criticised for acquiescing in the appellants' request for an October date. This application for a stay represents a significant change of circumstances.
5. Ms Zhu's assertions about the appellants' current "financial health" and the consequences for the parties if a stay is not granted were not persuasive. Having been granted an adjournment to put on evidence to support those assertions, very little was forthcoming. Nevertheless, and only on the basis that the appeal is heard with expedition, I was prepared to stay execution of the judgment and of the writ for levy of property until the appeal is determined. Whilst Ms Zhu's assertions that the corporate appellants risk insolvency if the judgement is not stayed were not supported by sufficient or credible evidence, I concluded that there was some risk that those assertions might prove correct if a stay were not granted.
6. I was, however, concerned that it appears that immediately prior to publication of the primary judgment the principal business of the appellants had been transferred to a related party. The business formerly conducted by the appellants at the Moore Park Supa Centa store is now owned by Premium Home Outlets. Premium Home Outlets is wholly owned and controlled by Ms Zhu's husband, and Ms Zhu is the secretary of that company. Premium Home Outlets apparently purchased the business for $285,000 and took over the lease of the Moore Park Supa Centa shop premises from the fourth appellant in November 2020. There was no evidence before me that this was an arms-length price. Ms Zhu asserted that since the month before the decision of the primary judge, the fifth appellant has merely "managed" the trade operations at the shop on behalf of the owner, Premium Home Outlets.
7. I was also concerned that there was no specific or probative evidence about the use to which the fourth appellant put the $285,000 it apparently obtained through the sale of its only business to Premium Home Outlets. Although Ms Zhu asserted that these funds were "applied to the operating cashflow of the business", she only provided evidence of the management accounts for the fifth appellant and bank statement for the brief period 1-14 July 2021 for the fifth appellant, neither of which throw any light on the cashflow decisions or financial position of the fourth appellant.
8. In those circumstances I was not prepared to grant a stay on the basis that the matter be heard in October 2021. After giving the parties an opportunity to be heard, I expedited the hearing to 26 August 2021 and made orders managing the preparation of the appeal. Liberty to apply was granted to ensure that if there is any slippage in the timetable it is brought to my attention forthwith.
9. Ms Zhu foreshadowed that the appellants may seek to amend their notice of appeal and revive grounds of appeal which her written submission made clear are not pressed. If any application is made, I expect the liberty to apply to be exercised immediately. Ms Zhu and the legal representatives she indicated may be contingently engaged on behalf of the appellants to conduct the appeal should be aware that if any application made might require me to vacate the urgent date fixed to hear the appeal, I will revisit the question of the stay as part of consideration of that question.
10. For the foregoing reasons I made the orders at [1] above.

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: 16 July 2021