Bai v Lightspeed Finance Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2021 0113

JUNPING BAI	Applicant
v
LIGHTSPEED FINANCE PTY LTD	Respondent

---

JUDGES:	EMERTON P, SIFRIS and WALKER JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	12 July 2022
DATE OF JUDGMENT:	10 November 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 242
JUDGMENT APPEALED FROM:	[2021] VSC 543 (Riordan J)

---

CONTRACT – Formation – Whether subsequent agreement superseded earlier agreement to which lender was not a party – Whether implied agreement to terminate earlier agreement – Subsequent agreement and earlier agreement inconsistent – Implied agreement to terminate earlier agreement – Leave to appeal refused.

Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499, Taylor v Johnson (1983) 151 CLR 422, Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149, Queensland Phosphate Pty Ltd v Korda (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487, discussed.

---

Counsel
Applicant:		Dr G Griffith KC and Mr M Gronow KC with Mr P Donovan
Respondent:		Mr JD McKay with Mr C Dobbs
Solicitors
Applicant:	Roberts Gray Lawyers
Respondent:	E C Legal

EMERTON P
SIFRIS JA
WALKER JA:

Introduction

The critical issue in this application for leave to appeal, as it was at trial, is whether an agreement made in August 2017 for the provision of finance (‘Funder Agreement’) replaced or superseded an agreement made earlier in time for the provision of finance that took the form of a deed of loan (‘Deed of Loan’).
The Deed of Loan was an agreement made in March 2017 between the applicant, Mr Junping Bai, as lender, and the respondent, Lightspeed Finance Pty Ltd,[1] as borrower. Under the Deed of Loan, Mr Bai lent Lightspeed $1,500,000 for the express purpose of that sum being on-lent to 462 Victoria Parade Pty Ltd (‘Victoria Parade’). In accordance with that agreement, Lightspeed entered into a separate loan agreement with Victoria Parade for the sum of $1,500,000 (‘Victoria Parade Loan’).
[1]Lightspeed Finance Pty Ltd is referred to in this judgment both as ‘Lightspeed’ and ‘LSF’.
It transpired that both Mr Bai and Lightspeed wished to depart from the terms that had been agreed in the Deed of Loan. Mr Bai wished to alter the arrangement so that a company he controlled — Haide Holdings Ltd (‘Haide’) — was the lender, instead of Mr Bai personally. Lightspeed wished to ensure that it was not the borrower of money from Mr Bai (or Haide); rather, it wished to ensure that it was a mortgage manager that would act as an intermediary to procure and manage loans made by Haide directly to third parties.
In August 2017, after considerable correspondence and negotiation, Haide and Lightspeed entered into the Funder Agreement, which identified Haide as the funder (ie the lender of money) and Lightspeed as a loan facilitator and manager, rather than as a borrower. Lightspeed was to refer loans to Haide and then manage any loans that Haide agreed to make. While much of the Funder Agreement plainly related to future loans referred to Haide by Lightspeed, a schedule to the Funder Agreement (Schedule 2(B)), entitled ‘Settled Loans’ included a reference to and information about the Victoria Parade Loan, which pre-dated the Funder Agreement. Other provisions of the Funder Agreement dealt with the manner in which interest payments under the Victoria Parade Loan would be applied. Mr Bai was not a party to the Funder Agreement. However, he signed it in his capacity as director of Haide.
Initially, Victoria Parade met its obligations to pay interest on the Victoria Parade Loan, but subsequently it defaulted.
Mr Bai brought proceedings against Lightspeed to enforce the Deed of Loan and recover the principal sum of $1,500,000 plus any outstanding interest payments. Lightspeed argued at trial that the Funder Agreement had supplanted the Deed of Loan, and that Mr Bai and Lightspeed had impliedly agreed that the Deed of Loan was terminated.
The central question at trial was whether Lightspeed was obliged under the Deed of Loan to repay to Mr Bai the principal sum, or whether the Funder Agreement governed the liability to repay the principal sum, in which case Victoria Parade was liable to repay the principal sum to Haide. The trial judge held that the two agreements were inconsistent and could not stand together, and that the Funder Agreement superseded the earlier Deed of Loan.[2]
[2]Bai v Lightspeed Finance PtyLtd [2021] VSC 543, [86]–[87] (Riordan J) (‘Reasons’). The Deed of Loan was referred to by the judge as the ‘Alleged First Contract’, because Lightspeed denied that it created binding contractual relations, Lightspeed never having executed it. The trial judge held that the parties had entered into a contract in the terms set out in the Deed of Loan, based on the provision of $1,500,000 by Bai to Lightspeed and the on-lending of that sum by Lightspeed to Victoria Parade. There is no challenge to that finding on the appeal.
The trial judge accepted Lightspeed’s submissions to the effect that, by the inclusion of Schedule 2(B) specifically dealing with the Victoria Parade Loan, and by recording the relationship between Haide and Lightspeed in relation to all loans, the Funder Agreement effectively replaced the Deed of Loan, notwithstanding that Mr Bai was not a party to the Funder Agreement.[3] His Honour found that the agreements were inconsistent and that Mr Bai had implicitly consented to the new arrangements in the Funder Agreement and the effective termination of the Deed of Loan.[4]
[3]Reasons, [102].
[4]Ibid [108].
Mr Bai now seeks to appeal from that decision, on the sole ground that the trial judge erred in so concluding. Mr Bai contends that his agreement with Lightspeed remains on foot, and seeks an order that Lightspeed pay him $1,500,000 plus any outstanding interest payments under the Deed of Loan.
The central question on the appeal is whether the Deed of Loan was impliedly terminated by Mr Bai and Lightspeed. If they had agreed to terminate the Deed of Loan, and re-constitute their arrangements utilising the Funder Agreement, with Haide as the lender, then Mr Bai cannot now recover any sums from Lightspeed based on the Deed of Loan. An important aspect of that question concerns the effect of the Funder Agreement, even though Mr Bai was not a party to that agreement. That is because the negotiation of, and the ultimate terms of, the Funder Agreement are part of the factual background relevant to determining whether, considered objectively, the parties to the Deed of Loan — Mr Bai and Lightspeed — had agreed to terminate that contract and replace it with the Funder Agreement.
In our opinion a reasonable observer, apprised of the conduct of the parties and the terms of the various documents they executed, would have concluded that Mr Bai and Lightspeed intended that the Funder Agreement was to replace the Deed of Loan, by placing Haide in the position of lender, instead of Mr Bai, and Lightspeed in the position of loan manager, instead of borrower; and that the Deed of Loan was terminated because it could not sit alongside the Funder Agreement. Thus the trial judge was correct to hold that the Funder Agreement replaced the Deed of Loan. The application for leave to appeal will be refused.

Background

(a) The agreements

It is convenient to set out the relevant contractual documents in further detail.

Deed of Loan

Pursuant to the Deed of Loan, Mr Bai (as lender) agreed to loan a principal sum of $1,500,000 to Lightspeed (as borrower) for the ‘authorised purpose’ of ‘on-lending to customers of the Borrower’.
The Deed also specified as follows:
(a)The interest rate for the loan was to be 24% per annum.
(b)The ‘advance date’ was to be the date that Lightspeed on-loaned the principal sum to Victoria Parade, which was to be not more than 14 days following the date the funds were deposited into the trust account of Lightspeed’s lawyers, Summer Lawyers.
(c)Lightspeed would pay interest on the debt on a monthly basis in arrears.
(d)The repayment date was to be a minimum of three months following the agreement date, plus ‘not less than [the] 120^th day; following receipt of written notification to terminate the agreement’.
(e)The loan was to be secured by means of a fixed charge granted by Lightspeed to Mr Bai, with the subject matter of the charge being the rights and interests of Lightspeed in:
(i)the loan advance from Lightspeed to Victoria Parade in the sum of $1,500,000; and
(ii)any and all securities granted to Lightspeed to secure the said loan advance.
By cl 3.3 of the Deed of Loan, Mr Bai was required to make available to Lightspeed the ‘Facility’ and advance the principal sum in accordance with the agreement. By cl 3.2, Lightspeed was required to use the principal sum for the ‘authorised purpose’ (that is, for on-lending to its customers) and no other purpose.
Clauses 4.1 and 5 required Lightspeed to repay the balance outstanding of the debt to Mr Bai on the repayment date, together with any accrued interest.
By cl 7.2, in the event of a default, the debt was expressed to be ‘immediately due and payable’ upon written demand by Mr Bai.
By cl 9, Lightspeed agreed to cause and procure the granting of each of the securities on the advance date to ‘secure or collaterally secure performance of [its] obligations’ under the agreement.
Clause 12.1 dealt with the issue of variations, as follows:
No variation of this Agreement nor consent to a departure by a party from a provision, shall be of effect unless it is in writing, signed by the parties or (in the case of a waiver) by the party giving it. Any such variation or consent shall be effective only to the extent to or for which it may be made or given.

Funder Agreement

The Funder Agreement was entered into between Haide (as ‘Funder’) and Lightspeed (referred to as LSF) on or about 17 August 2017.
Pursuant to cl 2 the Funder Agreement, Haide agreed to appoint Lightspeed, during the term of Funder Agreement, to ‘refer Loans to [Haide] for consideration and assessment by [Haide]’ at Lightspeed’s discretion.
There were further terms of the Funder Agreement as follows:
(a)Clause 1.1 included the following relevant definitions:
Loan Proceeds means any and all amounts received by any of the parties in relation to a Settled Loan, whether as a result of Recovery Proceedings or otherwise, and whether pursuant to a Loan Agreement or other Security Documents, including for the avoidance of doubt Interest Proceeds, payments of principal, payments of costs, or other amounts received as result of any Recovery Proceedings, but not including any Fees received by a LSF Party on or before commencement of the Settled Loan.
…
Settled Loans means Loans referred by LSF to the Funder under this agreement and which have been approved by the Funder and for which monies have been advanced to Borrower.
Settled Loan Schedule means a schedule in the form of Schedule 2 which when read together with this deed is an agreement by LSF with the Funder to the division of the Interest Proceeds for each individual Settled Loan. There may be more than one Schedule 2 which may also be amended from time to time.
(b)Clause 2.1 provided as follows:
The Funder appoints LSF, commencing on the Commencement Date, during the Term, to refer Loans to the Funder for consideration and assessment by the Funder.
(c)Clause 3.1 provided:
Except as otherwise provided in this agreement and subject to clauses 3.2 and 3.3, the rights and obligations under this agreement apply for a term beginning on the Commencement Date and ending on the date falling 24 calendar months after the Commencement Date (Initial Term) (unless terminated earlier in accordance with this agreement).
(d)Clause 6.3 provided:
LSF is to be a loan manager for the Funder at all times.
(e)Clause 7 provided:
The Funder appoints LSF as its agent to:
(a)establish any Settled Loans, and ensure the payment of the Loan Funds on behalf of the Funder … ;
(b)manage any Settled Loans;
(c)act as its authorised representative in dealing with any Borrowers;
(d)negotiate, liaise and communicate with any Borrowers;
…
(g)receipt in and distribute all Loan Proceeds in accordance with this agreement.
(f)Clause 9(g) provided:
The Funder acknowledges and agrees that it advances a Settled Loan at its own risk and LSF shall not be liable to the Funder in the event LSF is unable to recover the full amount owed by a defaulting Borrower.
(g)Clause 10.1 provided:
This agreement:
(a)constitutes the entire agreement and basis of the transaction between the parties in relation to its subject matter; and
(b)supersedes any other agreement, letter, correspondence (oral or written, express or implied) entered into prior to this agreement in respect of the matters dealt with in this agreement.
(h)Clause 8 provided that all ‘Loan Proceeds’ were to be paid to the parties in accordance with Schedule 1 to the Funder Agreement.
(i)Clause 1 of Schedule 1 provided that ‘Loan Proceeds’[5] received by Haide or Lightspeed were to be applied as follows:
(i)firstly, in payment of all amounts required by order of priority over the payments referred to below;
(ii) secondly, towards satisfaction of recovery costs;
(iii)thirdly, towards repayment of the loan funds; and
(iv)finally, as payment of ‘Interest Proceeds’ repayable by a borrower on a settled loan.
[5] See the definition set out at [22(a)] above.
As to the payment of ‘Interest Proceeds’ specifically, cl 1(d) of Schedule 1 provided that payments would be made in accordance with the ‘Settled Loan Schedule’ for each Settled Loan from time to time. Haide (as Funder) would be paid the ‘Funder’s Interest Return Lower Rate’ on any funds loaned, but if the borrower defaulted and Lightspeed charged a higher rate, then Haide (as Funder) would be paid the higher rate.
Schedules 2(A), 2(B), 2(C) and 2(D) to the Funder Agreement were each headed ‘Settled Loan Schedule’ and contained the details of four loans made by Lightspeed to different companies, all before the Funder Agreement was entered into. The Victoria Parade Loan is Schedule 2(B). It records the ‘Loan Funds’ as $1,500,000, the loan date as 28 April 2017, the loan repayment date as 28 April 2018, the security as ‘462 Victoria Parade, East Melbourne, VIC 3002’ and the following:
Funder’s Interest Return: Higher Rate 15% per annum
Lower Rate 11% per annum
The Funder Agreement, as drafted by Summer Lawyers, was accompanied by deeds of assignment in relation to interests under the four loans in the Settled Loans Schedules, including the Victoria Parade Loan.

Deed of Assignment

The Deed of Assignment for the Victoria Parade loan was expressed to be between Lightspeed (as assignor) and Haide (as assignee). The background to the Deed was recorded as follows:
A.By the Agreement the Assignor [Lightspeed] made available the Facility [$1,500,000] to the Debtors [Victoria Parade].
B.To secure the Debtor’s obligations, under the Agreement, the Debtors provided the Mortgage over the Property to the Assignor.
C.The Debt is guaranteed by the Guarantors and is secured by the Guarantee.
D.The Assignor has agreed with the Assignee to assign the Debt and the Transaction Documents on the terms contained in this deed.
The ‘Agreement’ was defined as:
the Schedule to Memorandum incorporating registered Victorian Memorandum of Common Provisions AA2769 between [Lightspeed] and [Victoria Parade] dated on or about 31 March 2017.
The ‘Debt’ was defined as:
All amounts owing by the Debtors [Victoria Parade] to the Assignors [Lightspeed] under, arising from and in connection with the Agreement and the Mortgage in so far as it relates to the Facility.
The ‘Facility’ was defined as the sum of $1,500,000.
By cl 2 of the Deed, Lightspeed, in consideration of the payment of $1,768,125 in cleared funds, purported to assign to Haide ‘absolutely all of [its] rights, title and interest in and to’:
(a)the Debt; and
(b)the Transaction Documents (ie the Victoria Parade Loan Agreement, the Mortgage and the Guarantee).
In turn, by cl 2.2, Haide purported to accept ‘the Assignment to it of all the Assignors’ rights, title and interests in and to … the Debt; and the Transaction Documents’.
By cl 7.1, Haide purported to agree to ‘unconditionally and irrevocably’ release Lightspeed from any future claims arising out of the Deed of Loan.
Despite the fact that he executed the Funder Agreement, Mr Bai declined to execute the Deed of Assignment.

(b) Communications relating to the Deed of Loan and Funder Agreement

The extensive communications between the parties and their representatives concerning the relationship between Mr Bai, as investor, and Lightspeed, as a procurer of investments for Mr Bai, were fully canvassed by the trial judge at [8]–[63] of the Reasons. We shall set out again only the communications that are most directly relevant to the question raised by the ground of appeal, which is whether the parties agreed that the Funder Agreement replaced the Deed of Loan.
On or about 16 February 2017, there was a meeting in Shanghai between Mr Bai and Mr Mark Fitzpatrick, the director of Lightspeed, who explained that Lightspeed could provide investment opportunities for Mr Bai in Australia. At the time, Mr Bai considered his ability to invest directly in property in Australia to be limited, as he was not a permanent resident and was in the process of applying for permanent residency. It is apparent that Mr Bai’s immigration status was influential in shaping the formal structures that were adopted for his investments.
The first loan proposal that was the subject of negotiations between Lightspeed and Mr Bai was a loan in relation to a company called Merchant Building Company Pty Ltd. That proposal was abandoned.
The next proposal was the Victoria Parade Loan, to which the Deed of Loan related. The Deed of Loan was executed by Mr Bai on 30 March 2017. Following execution by Mr Bai, there ensued a series of communications to which it is necessary to make particular reference. The parties to these communications were principally Mr Bai’s personal assistant, Mr Chunfeng (Joe) Zhao, and Ms Cindy Gu, a loan broker employed by Lightspeed whose father had known Mr Bai for some years. Also involved were Summer Lawyers who were responsible for drafting the agreements in question.
On 31 March 2017, the following emails were exchanged:
(a)At 3:06 pm, Mr Zhao sent an email to Ms Yulia Gurdina, a paralegal at Summer Lawyers, and Ms Gu, attaching a signed copy of pages 1 and 9 of the Deed of Loan signed by Mr Bai and dated 30 March 2017. The email was copied to Mr Bai and Mr Fitzpatrick.
(b)At 3:29 pm, Ms Gu informed Ms Gurdina that Mr Fitzpatrick wanted to discuss the Deed of Loan and requested that Ms Gurdina call him. Ms Gu deposed that after sending this email she rang Mr Bai to tell him that Lightspeed would not sign the deed and that the document needed to be re-drafted. Mr Bai told her that he still wished to advance money for the loan.[6]
[6]Reasons, [33]. Ms Gu did not give this evidence in the witness box and counsel for Lightspeed properly conceded that the Court could not be satisfied that the conversation occurred.
On the same day, Summer Lawyers acknowledged receipt of the sum of $478,220 from Mr Bai on behalf of their client, Lightspeed, with the description ‘Mortgage — 462 Victoria Parade Pty Ltd’. Together with the $1,021,780 that had already been placed in the trust account,[7] this made up the principal sum ($1,500,000) advanced by Mr Bai.[8]
[7]By trust account receipt dated 28 March 2017, Summer Lawyers acknowledged receipt of the sum of $1,021,780 from Mr Bai on behalf of their client, Lightspeed.
[8]Reasons, [34].

On 2 April 2017 Mr Fitzpatrick emailed Ms Gu and Ms Gurdina, suggesting that he and Ms Gurdina ‘chat on Monday’.[9] On 3 April 2017, there were the following relevant email communications:
(a)At 12:02 pm to Ms Gurdina, Mr Fitzpatrick wrote:
I am in the office and ok to chat about Schedule and commercial details of the agreement sent
Please call office anytime
(b)At 3:07 pm to Ms Gurdina, Ms Gu forwarded a disbursement schedule and invoice addressed to Victoria Parade for the first month’s interest and fees associated with setting up the loan. The settlement date is noted on the invoice as 3 April 2017.[10]
[9]Ibid [35].
[10]Ibid [36].
On 5 April 2017, Ms Gu forwarded to Mr Zhao, Mr Bai and Mr Fitzpatrick the mortgages and associated documents provided by Victoria Parade to secure the Victoria Parade Loan.[11]
[11]Ibid [37].
On 28 April and 1 May 2017, Summer Lawyers disbursed the principal sum received from Mr Bai.[12]
[12]Ibid [38].
Despite having executed the Deed of Loan in his own name, Mr Bai expressed a clear preference from early on in the relationship with Lightspeed that his investments be made in the name of a company.
As early as 1 March 2017, in an email to Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao asked:
Can the loan agreement for Uncle Bai lending to Lightspeed Finance be signed by [British Virgin Islands] Company, which is controlled by Uncle Bai alone?[13]
[13]Ibid [40].
Mr Bai deposed that when he met Mr Fitzpatrick in Shanghai in or around 2017, he asked him over dinner whether it would be possible to convert the identity of the lender in respect of all of his loans to Lightspeed from himself to Haide. Mr Fitzpatrick said that this could be done.
Summer Lawyers prepared the first draft of a funder agreement in or about early May 2017.[14] By email of 3 May 2017 to Ms Gu (copied to Mr Bai, Mr Zhao and Mr Fitzpatrick), Ms Gurdina attached a draft funder agreement with respect to a loan from Lightspeed to 230V Harvest Home Road Pty Ltd (‘Harvest Home’) using funds provided by Mr Bai. The loan to Harvest Home was one of the loans that appeared in in the Settled Loan Schedule: Schedule 2(C).[15] It is recorded as having been made by Lightspeed on 8 May 2017.
[14]Ibid [42].
[15]Ibid [43].
On 4 May 2017, Ms Gu sent an email to Ms Gurdina, attaching the funder agreement with respect to the Harvest Home loan, which had by then been executed by Mr Fitzpatrick. Ms Gu told Ms Gurdina that Mr Bai would send through his executed copy that day.[16]
[16]Ibid [44].
By WeChat messages of 4 May 2017 between Ms Gu and Mr Zhao:
(a)Mr Zhao asked:
About the agreement signed by Mr Bai yesterday, the lawyer asked why it was a ‘Funder Agreement’ instead of the original loan contract?
He believes the legal relationships involved in this contract are far more complicated than the loan contract we signed in March. Therefore, he dares not to verify it easily.
(b)Ms Gu replied:
I will speak to our lawyer tomorrow and get back to you.[17]
[17]Ibid [45].
By WeChat message to Mr Zhao on 10 May 2017, Ms Gu explained:
[W]hat is written in the original investment contract is that Uncle Xiaobai [Mr Bai] lends money to [Mr Fitzpatrick]. This investment relationship is not quite appropriate. What the new investment contract states is that Uncle Xiaobai is the investor and Lightspeed finance is the loan manager. Our job is to review loan requirements, complete due diligence reports and manage monthly loan trends.[18]
[18]Ibid [46].
In emails of 29 May 2017 to Mr Bai and Mr Zhao (copied to Mr Fitzpatrick), Ms Gu attached three draft funder agreements between Lightspeed and Haide in respect of loans to, respectively, Victoria Parade, Harvest Home and Ozkar Pty Ltd (‘Ozkar’).[19] The loan to Ozkar is recorded in Schedule 2(D) of the Funder Agreement.
[19]Ibid [47].
By WeChat message of 5 June 2017 to Ms Gu, Mr Zhao relayed comments on the draft funder agreements from Mr Bai’s legal department. On 6 June 2017, Summer Lawyers responded to the individual points that had been raised (with the responses shown in italics):
1.In the entire contract, there is no specific agreement on the applicable circumstances for indemnity and the amount and method of compensation. (That is to say, the default clauses in the entire contract do not outline specifics);
This is not a loan contract between LSF and Mr Bai. Mr Bai used LSF as a special carrier to borrow money (because PR status has not been confirmed).
2.When the borrower repays the loan and returns the principal and interest income to the company, it is unclear what expenses should be deducted before, or what expenses the company should pay to LSF.
When the borrower repays the loan, Mr Bai receives the principal and interest, and LSF will not charge Mr Bai any fees.
3.Renewal (Rollover) is mentioned on page four of the contract. It is stipulated that the agreement will be automatically renewed at the end of the first period, and the agreement will be automatically extended for 24 months unless both parties notify the other party to terminate the agreement at the end of the first period at least 30 days in advance. Firstly, the first phase (how long is the Initial Term stipulated for exactly); Secondly, we do not want it to extend automatically. Once the first phase is over, it’s over. If it needs to be renewed, the contract should be re-signed.
Once again, this is not a loan contract. The renewal mentioned here refers to the investment cooperation relationship between LSF and Mr Bai. It has nothing to do with the loan, any loan-related terms are mentioned in detail in the loan contract (please see the LSF example loan contract, which will be sent to Mr Bai when the transaction is completed)
…
5.When LSF is regarded as a borrower, is it possible this would have an adverse impact on the company’s repayment?
There will be no adverse situations, as Summer lawyer has the legal obligation to ensure that all loans are returned to LSF. Please see Schedule 1.[20]
[20]Ibid [48].
By WeChat messages of 13 June 2017 between Mr Zhao and Ms Gu:
(a)Mr Zhao told Ms Gu that his legal department had raised the following queries with respect to the draft funder agreements, being that:
(i)‘[T]he Funder agreement did not specify that in the event of bad debts, LSF will represent HAIDE in court and recover the debts on our behalf!’.
(ii)‘Article 8 on page 6 of the contract, Default of settle loan, outlines: LSF has full autonomy in debt recovery … and if we must pursue and LSF is not willing to do so, we will need to go to court’.
(b)Ms Gu said that she would discuss these queries with her lawyer the following day and get back to Mr Zhao.
(c)Mr Zhao responded:
I discussed the contract with the legal department and lawyer again yesterday. We believe that the loan relationship of the previous contract signed between Mr Bai and LSF is clear. The current Funder Agreement has made Mr Bai bear greater risk, as LSF only acts as the intermediary, all risks are transferred to Mr Bai, as such he is now taking on more risk compared to the original loan contract.
(d)Ms Gu replied:
Thank you for your response. The previous contract states that LSF is the borrower, but we are in no way the borrower, we are the facilitator. Therefore, the new contract is correct (investment contract). Can you explain what you meant by more risk?
(e)Mr Zhao:
Currently, we act as the fund lending party under HAIDE HOLDINGS. Can we still sign a loan contract with LSF?
(f)Ms Gu replied:
I think it would be better if our lawyer can talk to your lawyer directly.
(g)Mr Zhao (later):
As specified clearly under Section 8, Clause g: We, as the investors, understand and agree that we shall bear the loan risks. If LSF fails to recover all losses caused by the borrower’s default, LSF shall not bear any responsibility.
(h)Ms Gu again explained:
This is because we are not the borrower. We are a third party, but we would do our own due diligence to protect investors well. All the properties are in good locations. Regardless of what happens, all ratios are under 75%, giving us a cushion of at least 25%.[21]
[21]Ibid [49].
Further WeChat messages on 19 June 2017 between Ms Gu and Mr Zhao contained the following exchanges:
(a)Mr Zhao:
In addition, we need to ask the lawyer to be aware that when amending the project contract, to not forget the previous two projects that have been done. All need to be changed into HAIDE. Thank you!
(b)Mr Zhao again later:
As discussed in the morning, we talked about you arranging to have a lawyer draft up a Transfer Contract to further clarify that LSF will handle mortgage matters on behalf of Mr Bai, which we welcome. We would like to have it in writing in the contract that LSF will accept the loan collateral on behalf of Mr Bai. In the event of bad debts, LSF will take all actions, including but not limited to, appearing in court and disposing of collateral to minimise the loan losses on behalf of Mr Bai.
(c)Ms Gu:
Thank you for your time over the phone just now. I will give the lawyer instructions to further clarify LSF’s responsibilities in writing.[22]
[22]Ibid [50].
By email of 5 July 2017 to Ms Gu and Mr Zhao (copied to Mr Fitzpatrick), Summer Lawyers confirmed that they had drafted deeds of assignment and transfers of mortgages for the loans to Victoria Parade, Ozkar and Harvest Home.
By email of 27 July 2017 to Ms Gu (copied to Mr Fitzpatrick, and Ms Natalie Wendon and Ms Gurdina of Summer Lawyers), Mr Zhao identified the following legal issues and requested that Ms Gu or her lawyers explain them:
(a)With respect to the inclusion of Haide as a party to the various agreements:
One of the contracting parties in the FUNDER AGREEMENT and DEED OF ASSIGNMENT is Haide Holdings Limited
However, the property we want to mortgage will eventually be in Mr Bai’s personal name. Is this method legal and effective in Victoria/Australia?
(b)With respect to the deeds of assignment that had been drafted and forwarded by Summer Lawyers:
(3) What is the relationship between the Debtors lender (company) and Guarantors (two people) under this agreement? In case of default by Debtors, can we directly exercise the two guarantors’ mortgage rights for the property?
(4) After the guarantor’s real estate mortgage is registered in Mr Bai’s name, will Summer Lawyer exercise Mr Bai’s rights on his behalf and at his request?
(c)With respect to the funder agreements:
(1) Under this agreement ‘8. Default of Settled Loans’, when LSF doesn’t initiate Recovery Proceedings or decides to withdraw any Recovery Proceedings at anytime, as we are the funder, do we have the authority to instruct Summer Lawyer to exercise our rights on our behalf? How do you ensure that our Funder’s rights are protected in the event of a Default of Settled Loans?
(2) In addition, the right and obligations should be the same for both parties to the agreement. Under this agreement, if LSF makes various mistakes when recommending loan projects or regarding due diligence, or when a Default of Settled Loans occurs and LSF does not initiate Recovery Proceedings in a timely manner which leads to our losses, is there any relevant liability for breach of contract?[23]
[23]Ibid [52].
By email of 1 August 2017 to Ms Gu and Mr Zhao (copied to Mr Fitzpatrick), Ms Gurdina from Summer Lawyers responded to Mr Zhao’s questions as follows:
(a)With respect to the inclusion of Haide as a party to the various agreements, the method was legal and effective, provided that notice of the transfer and the details of the new mortgagee were provided to the borrower.
(b)With respect to the deeds of assignment, Summer Lawyers would be prepared to enforce the mortgage on instruction from Mr Bai, and the mortgage could be enforced by Haide or any other assignee.
(c)With respect to the funder agreements, Summer Lawyers would keep Mr Bai updated on any enforcement matters. Mr Bai was responsible for his own further research into loans but there may be an action against Lightspeed for misrepresentation.[24]
[24]Ibid [53].
By email of 8 August 2017 to Ms Gurdina (copied to Mr Zhao), Ms Gu asked whether items 7.1.2, 7.1.3, 7.2 and 7.3 in the deeds of assignment (which provided certain releases to Lightspeed) could be removed.[25]
[25]Ibid [54].
By email of 9 August 2017 to Ms Gu, Mr Evans and Mr Fitzpatrick, Ms Wendon of Summer Lawyers responded:
Further to my telephone conversation with Cindy [Gu], we have to make a distinction to Mr Bai between the funder agreement and the Deed of Assignment as they are substantially different documents.
The funder agreement is between the investor and the mortgage manager whereas the deed of assignment is between the old lender and the new lender.
When a deed of assignment is entered into, the assignee (Mr Bai) steps into the shoes of the assignor (LSF) and takes their role as lender to the borrower.
As a result, clause 7 cannot be removed as it releases LSF’s contractual rights and liability to Mr Bai and allows him to take over the mortgage.[26]
[26]Ibid [55].
By WeChat messages on 11 August 2017:
(a)Mr Zhao stated:
Our Legal Affairs has looked at the explanation sent by the LSF lawyer and is unwilling to delete the exemption clauses of 7.1.2/7.1.3 as well as 7.2 and 7.3. These exemptions have exempted LSF from any liabilities. LSF is only an agent and does not take any responsibility for the loan relationship between the Borrower and the Lender. We need to bear the risks and responsibilities by ourselves. Therefore, the latter Assignment Deed provides almost zero protection for us, instead, it has exempted LSF’s liabilities. Under this circumstance, we have no need to sign this at all. If we signed an agreement such as this, we would become fools. We are going to be laughed at by the other party. Because LSF bears no responsibility in the Assignment Deed, not even for the validity of the transfer. This kind of deed is too insincere. Legal Affairs suggested us to only sign the original Funder Agreement and that is it. The lawyer mentioned Mortgage Manager in the reply; the prerequisite of only signing the Funder Agreement is adding the responsibilities of the Mortgage Manager into it.
(b)Ms Gu replied:
Assignment Deed — the point is to transfer all the equities under LSF to Mr Bai. It has nothing to do with the roles and responsibilities of LSF. All of this can be solved in October.[27]
[27]Ibid [56].
By WeChat messages of 14 August 2017:
(a)Ms Gu told Mr Bai that she would ‘bring all the papers on Thursday night [being 17 August] for [him] to sign’.
(b)Ms Gu requested that Mr Zhao provide the funder agreements and assignment deeds for all four loans to Mr Bai for signature.
(c)Mr Zhao confirmed to Ms Gu to ‘[u]se the Funder Agreement under the name of Haide Holdings Ltd to replace the original loan contract signed by Mr Bai himself’.[28]
[28]Ibid [57].
By email of 17 August 2017 at 3:17 pm to Ms Gu (copied to Ms Wendon and Mr Fitzpatrick), Ms Gurdina attached, relevantly, the final draft of the Funder Agreement and deeds of assignment for the loans to Ozkar, Harvest Home, Victoria Parade and Timdanspi Pty Ltd.[29]
[29]Ibid [58]. It is common ground between the parties that the deeds of assignment were never executed.
As noted, the Deed of Assignment with respect to the Victoria Parade Loan provided for the assignment by Lightspeed to Haide of the amount owed by Victoria Parade to Lightspeed in connection with the mortgages executed by Victoria Parade.[30]
[30]Ibid [59].
On or about 17 August 2017, Mr Bai executed the Funder Agreement provided to him by Ms Gu after dinner. The Funder Agreement was executed by Mr Fitzpatrick on or about the same date.[31]
[31]Ibid [60].
By WeChat messages on 21 August 2017 between Ms Gu, Mr Bai and Mr Zhao:
(a)Mr Zhao asked: ‘Have both parties of the four projects completed the signing? If completed, please scan all of them and send to me’.
(b)Mr Bai replied: ‘I have got a copy in hand and will take it back to Shanghai’.
(c)Ms Gu added: ‘By the way, there is still the Assignment Deed. I will send it to uncle by express mail today’.
(d)By follow up messages, Ms Gu said:
(i)‘The boss missed a few signatures. Uncle needs to go to the lawyer to have it certified after receiving it’.
(ii)‘No problem. We can get the document directly from the lawyer, or [Mr Bai’s lawyer] can send it directly to our lawyer’.[32]
[32]Ibid [61].
By email of 25 August 2017 to Mr Zhao (copied to Mr Fitzpatrick and Ms Gurdina), Ms Gu attached a copy of the fully executed Funder Agreement.[33]
[33]Ibid [62].

The judge’s reasons

In determining whether Mr Bai was entitled to recover the principal sum from Lightspeed, the judge considered whether the Funder Agreement expressly or impliedly supplanted the Deed of Loan (referred to as the ‘Alleged First Contract’). This, he said, depended on whether Lightspeed had established that:
(a)the Funder Agreement, on its terms, was inconsistent with the Alleged First Contract so that both could not be performed; and
(b)Mr Bai implicitly agreed that, in consideration of Lightspeed assigning its rights under the Alleged First Contract and entering into the Funder Agreement, the Alleged First Contract would be terminated.[34]
[34]Ibid [93].
In relation to the first issue, the judge held as follows:
In my opinion, the Funder Agreement and the Alleged First Contract deal with the same subject matter, being the Victoria Parade loan, in inconsistent ways, such that it would be impossible for both to be performed, for the following reasons:
(a)Clause 10.1 of the Funder Agreement … specifically provided that it was to supersede any prior agreement in respect of the matters dealt with in the Funder Agreement. The Victoria Parade loan is specifically dealt with in the Funder Agreement.
(b)By including the Victoria Parade loan in the Settled Loan Schedule to the Funder Agreement, [Haide] and Lightspeed agreed that:
(i)Lightspeed was appointed as [Haide’s] agent to manage the Victoria Parade loan; and
(ii)Lightspeed would not be liable to [Haide] in the event that Lightspeed was unable to recover the full amount owing by the defaulting borrower.
(c)The ‘Loan Proceeds’, which were defined to include all amounts received in relation to the Victoria Parade loan, were to be applied as set out in clause 1 of Schedule 1 to the Funder Agreement. Under the Funder Agreement, the proceeds were invested at a different interest rate and on different terms to those agreed in the Alleged First Contract, and were payable to [Haide], rather than Mr Bai.
These clauses are irreconcilable with the terms of the Alleged First Contract.
I reject the following italicised contentions made by counsel for Mr Bai for the following reasons:
(a)On its terms, the Funder Agreement did not supplant the Alleged First Contract because its commencement date was August 2017, and it only relates to loans made by [Haide].
The fact that the Funder Agreement commenced in August 2017 is consistent with the parties’ intention to terminate the Alleged First Contract at that date, in consideration of Lightspeed assigning its rights under the Victoria Parade loan to Haide Holdings.
There is no clause in the Funder Agreement which would prevent it from applying to a loan assigned to Haide Holdings (rather than made by Haide Holdings), where such loan was included in the Settled Loan Schedule.
(b)The inclusion of the Victoria Parade loan in the Funder Agreement should be construed as limited to an intention to divide the interest proceeds on the loan.
This is inconsistent with each of the express terms of the Funder Agreement referred to in paragraph 102 above. In particular, such a limited construction would be inconsistent with the term of the Funder Agreement requiring ‘all amounts received’ in relation to the Victoria Parade loan to be distributed in accordance with clause 1 of Schedule 1.
(c)The alleged assignment of the Victoria Parade loan would be ineffective because no notice was given to the borrower, Victoria Parade.
The failure to give notice to the ultimate borrower does not affect an equitable assignment of a lender’s rights. In this case, the failure to give notice would be unremarkable because the Funder Agreement contemplated that Lightspeed, as the manager, would continue to collect the payments from Victoria Parade.[35]
[35]Ibid [102]–[103] (emphasis in original) (citations omitted).

In relation to the second question, the judge held that an objective observer would conclude that Mr Bai and Lightspeed had entered into a contract under which Mr Bai agreed to the termination of the Deed of Loan in consideration of Lightspeed assigning its rights under the Victoria Parade Loan to Haide and entering into the Funder Agreement. His Honour gave the following reasons:
(a)[Haide] is a company controlled by Mr Bai, and the Funder Agreement (including Schedule 2(B) of the Settled Loan Schedule relating to the Victoria Parade loan) was executed by Mr Bai on behalf of [Haide].
(b)For the reasons set out in paragraph 102 above, the inclusion of the Victoria Parade loan in the Settled Loan Schedule to the Funder Agreement could have no effect unless the Alleged First Contract was terminated and the Victoria Parade loan was assigned by Lightspeed to [Haide].
(c)The communications between the parties made it plain that it was intended that the Funder Agreement would substitute [Haide] for Mr Bai as the lender for the Victoria Parade loan (among others). In particular:
(i)The Funder Agreement was prepared after Mr Bai asked Mr Fitzpatrick ‘whether it would be possible to convert the identity of the lender in respect of all of my loans to Lightspeed Finance from myself to [Haide]’.
(ii)Prior to execution of the Funder Agreement, requests were made on behalf of Mr Bai to substitute [Haide] for Mr Bai. In particular:
(1)By WeChat message of 19 June 2017, Mr Zhao stated that: ‘we need to ask the lawyer to be aware that when amending the project contract, to not forget the previous two projects that have been done [at which time the two loans were the Victoria Parade loan and the Harvest Home loan] … need to be changed into HAIDE’.
(2)By WeChat message of 14 August 2017, Mr Zhao confirmed to Ms Gu to ‘[u]se the Funder Agreement under the name of [Haide] to replace the original loan contract signed by Mr Bai himself’.
(d)The communications between the parties made it plain that, under the Funder Agreement, Lightspeed would no longer be liable as the borrower, as it had been under the terms of the Alleged First Contract. In particular:
(i)With respect to the Harvest Home loan, in response to a WeChat message on 4 May 2017 from Mr Zhao stating that his ‘lawyer asked why it was a “Funder Agreement” instead of the original loan contract?’, Ms Gu made it clear that under the Funder Agreement, Lightspeed was not the borrower, stating:
[W]hat is written in the original investment contract is that Uncle Xiaobai lends money to [Mr Fitzpatrick]. This investment relationship is not quite appropriate. What the new investment contract states is that Uncle Xiaobai is the investor and Lightspeed finance is the loan manager. Our job is to review loan requirements, complete due diligence reports and manage monthly loan trends.
(ii)By email of 7 June 2017 to Mr Zhao and Mr Bai (copied to Mr Fitzpatrick and Mr Reese), Ms Gu relayed advice from Summer Lawyers which emphasised that the Funder Agreement was not a loan contract and Lightspeed was not the borrower.
(iii)By WeChat message of 13 June 2017, Mr Zhao made it plain that he understood that:
(1)‘[t]he current Funder Agreement has made Mr Bai bear greater risk, as LSF only acts as the intermediary, all risks are transferred to Mr Bai, as such he is now taking on more risk compared to the original loan contract’; and later the same day
(2)‘[w]e, as the investors, understand and agree that we shall bear the loan risks. If LSF fails to recover all losses caused by the borrower’s default, LSF shall not bear any responsibility’.
Ms Gu replied the same day stating: ‘This is because we are not the borrower. We are a third party, but we would do our own due diligence to protect investors well’.[36]
[36]Ibid [108].

The application for leave to appeal

The sole proposed ground of appeal is in the following terms:
His Honour erred in finding that the written agreement of August 2017 (‘the Funder Agreement’) between the Respondent and Haide Holdings Limited terminated and supplanted the loan agreement (‘the Alleged First Contract’) or loan (‘the Alleged Loan’) of March 2017 between the Respondent and the Applicant.

Mr Bai’s submissions

Mr Bai submitted that the Funder Agreement was not inconsistent with the Deed of Loan, with the result that both could be performed. He submitted that the Funder Agreement only applied as and from its commencement date, and did not regulate the same subject matter as the Deed of Loan. Mr Bai submitted further that the evidence fell well short of the level of satisfaction required to conclude there was an implied agreement by which Mr Bai terminated his rights under the Deed of Loan.
Mr Bai submitted that any agreement to terminate the Deed of Loan must be implied, as the Funder Agreement did not expressly terminate the Deed of Loan. However, a term cannot be implied in a contract if it would contradict an express term of that contract,[37] and a contract may not be implied that would contradict the terms of existing express contracts between the parties. The Funder Agreement contained express terms that:
(a)the parties to the Funder Agreement were Haide and Lightspeed;
(b)the rights and obligations under the Funder Agreement commenced on and from 17 August 2017; and
(c)the Funder Agreement applied to loans which had been referred to and approved by Haide under the Funder Agreement.
[37]Referring to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon for the Court); Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 347 (Mason J), 404 (Brennan J); [1982] HCA 24; Commonwealth Bank of Australia v Barker (2014) 253 CLR 169, 185–6 [21] (French CJ, Bell and Keane JJ); [2014] HCA 32; Workpac Pty Ltd v Rossato (2021) 271 CLR 456, 479–80 [65] (Kiefel CJ, Keane, Gordon, Edelman, Steward and Gleeson JJ); [2021] HCA 23.
According to Mr Bai, any implied term or contract to the effect that the Deed of Loan was terminated and supplanted by the Funder Agreement would impermissibly contradict these express terms because:
(a)Mr Bai and not Haide was the lender under the Deed of Loan;
(b)the Deed of Loan was made in March 2017 independently of the parties and prior to the commencement of the Funder Agreement; and
(c)the Victoria Parade Loan was made by Mr Bai in his own capacity and from his own funds, and was never made, advanced or approved by Haide, and nor was it part of any transaction between the parties to the Funder Agreement.
Mr Bai submitted that Lightspeed failed to discharge the onus of proving an implied term or contract. Quite apart from a want of privity between Mr Bai and the parties to the Funder Agreement, the whole of the evidence foreclosed the possibility of an implied agreement under which Mr Bai agreed to the termination of the Deed of Loan in consideration for Lightspeed assigning its rights as lender to Haide and entering into the Funder Agreement. Mr Bai submitted that the circumstances in which a contract may be inferred in the absence of a clearly identifiable offer and acceptance will be rare.[38] To found a contract from conduct in that way, the moving party ‘must point to conduct that positively and unambiguously demonstrates an agreement’.[39] The evidence must positively indicate that both parties considered themselves bound by that agreement.[40]
[38]Referring to P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42, [11] (Whelan JA, Ferguson JA agreeing at [105], Kaye JA agreeing at [107]) (‘P’Auer’).
[39]Referring to Danbol Pty Ltd v Swiss RE International SE [2020] VSCA 274, [80] (McLeish, Niall and Sifris JJA) (‘Danbol’).
[40]Referring to Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd [2009] FCA 499, [39] (Sundberg J) (‘Adnunat’).
In this context, Mr Bai referred to Mr Zhao’s reservations about the Funder Agreement in his WeChat message of 13 June 2017.[41] Moreover, Mr Bai did not execute the assignment to Haide of Lightspeed’s rights as lender under the Victoria Parade Loan deed. Mr Zhao made it plain to Ms Gu that Mr Bai had received legal advice not to do so, describing the Deed of Assignment as ‘too insincere’.
[41]See [52] above.
According to Mr Bai, it is not to the point that there may have been other communications between the parties consistent with the implied agreement found by the trial judge. Consistency is insufficient.[42] The evidence of prior events and communications excluded the possibility of Lightspeed discharging the onus that it bore.
[42]Referring to Danbol [2020] VSCA 274, [85] (McLeish, Niall and Sifris JJA).
In any event, Mr Bai submitted that the trial judge was in error, in circumstances where the parties were different, to conclude that the Funder Agreement by its terms was inconsistent with the Deed of Loan so that both could not be performed.
Specifically, Mr Bai submitted, cls 2.1 and 3.1 of the Funder Agreement made it plain that the rights and obligations under that agreement only applied as and from its commencement date, being 17 August 2017.[43] The Deed of Loan already existed and created rights and obligations in March 2017 as between different parties. The subject matter of the Funder Agreement was a relationship between its parties pursuant to which Lightspeed would, from the commencement date, refer proposed loans to Haide. If Haide approved, a loan contract would be drawn and Haide would advance funds to the relevant borrower. The Funder Agreement therefore only applied to loans advanced by Haide from August 2017 onwards and it provided for Lightspeed to manage those loans for Haide in accordance with the terms of the Funder Agreement. Accordingly, it was submitted, the Funder Agreement is a self-standing agreement to operate in futuro. It does not by its terms purport to ‘rope in’ or supersede the terms of existing loans (not made by Haide) such as the loan made by Mr Bai to Lightspeed in March 2017 pursuant to the Deed of Loan.
[43]See [22(b)]–[22(c)] above.
Mr Bai pointed to Schedule 1 of the Funder Agreement which is expressed to apply to ‘Loan Proceeds’. Loan Proceeds are defined as the proceeds of loans made by Haide under the Funder Agreement in accordance with the relationship described. Any loan made prior to 17 August 2017 was not affected by the terms of the Funder Agreement and would therefore continue to be governed by the contract that created that loan. Hence, each of the Funder Agreement and the Deed of Loan could both be performed by the respective parties.
As for the schedules making up Schedule 2 to the Funder Agreement which referred to loans made prior to 17 August 2017, including the Victoria Parade Loan, Mr Bai submitted that due to the definition of ‘Settled Loan Schedule’ in cl 1.1, each schedule was ‘an agreement by [Lightspeed] with [Haide] to the division of the interest proceeds for each individual Settled Loan’. ‘Interest Proceeds’ is defined in cl 1.1 to mean ‘the amount of interest’, not the principal, of each Settled Loan. Thus, neither the schedules nor any other provision of the Funder Agreement purported to assign an existing loan or affect the right to receive repayment of the principal of the loan.
Mr Bai conceded that Schedule 2 does not sit comfortably with the principal terms of the Funder Agreement, insofar as those terms (on his submission) apply only to future loans. He submitted, however, that whatever the infelicities of drafting, the purported inclusion in Schedule 2 of loans made prior to 17 August 2017 cannot constitute an assignment of the principal loan made to Lightspeed under the Deed of Loan in order to establish in its place a principal loan from Haide to Victoria Parade. Mr Bai submitted that such an assignment would be in plain contradiction of the express words of the Funder Agreement, the more so given the absence of an executed assignment of the rights and liabilities under the loans from Mr Bai as lender to Haide, and from Lightspeed as borrower to Victoria Parade. The circumstances of the non-execution of the assignments gives rise to a negative inference against Schedule 2 supporting the implied contracts that the primary judge found to have legal effect.
Finally, Mr Bai relied on the fact that he is a separate legal entity from Haide. He submitted that the fact that the Funder Agreement was signed by Mr Bai in his capacity as a director of Haide cannot give rise to a contract, whether express or implied, with Mr Bai personally, any more than had it been signed by some other director (had there been one).

Lightspeed’s submissions

Lightspeed submitted that Schedule 2(B) of the Funder Agreement expressly incorporated the Victoria Parade Loan, which was the subject of the Deed of Loan, into the Agreement. Accordingly, the Victoria Parade Loan was regulated under the Funder Agreement on and from the date the Funder Agreement commenced.
Lightspeed submitted further that by Mr Bai signing the Funder Agreement in his capacity as director of Haide, he impliedly agreed with Lightspeed to rescind the Deed of Loan and replace it with the Funder Agreement.

Discussion

Relevant principles

In determining whether the Funder Agreement superseded the Deed of Loan, and whether Mr Bai and Lightspeed had agreed to terminate the Deed of Loan, it is important to bear in mind that the law is concerned not with ‘the real intentions of the parties, but with the outward manifestations of those intentions’.[44] Thus what each party subjectively thought about the consequences of their dealings is irrelevant. The parties’ objective intentions are to be determined having regard to all of the surrounding circumstances, including ‘by drawing inferences from [the parties’] words and their conduct’[45] and from the terms of their correspondence, such correspondence to be read in the light of the surrounding circumstances and having regard to the commercial context in which they were exchanged.[46] What is critical is what each party, by their words or conduct, would have led a reasonable person in the position of the other party to believe. In that sense, references to the common intention of the parties are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.[47]
[44]Taylor v Johnson (1983) 151 CLR 422, 428 (Mason ACJ, Murphy and Deane JJ); [1983] HCA 5.
[45]Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149, [69] (Giles JA, Hodgson and Campbell JJA agreeing at [126]–[127]), quoting Allen v Carbone (1975) 132 CLR 528, 532 (Stephen, Mason and Murphy JJ); [1975] HCA 14.
[46]Queensland Phosphate Pty Ltd v Korda (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269, [37] (Tate and Beach JJA and Sifris AJA).
[47]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 52. See also PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd(2007) 20 VR 487, 489 [6] (Nettle JA); [2007] VSCA 310 (‘PRA Electrical’).
The trial judge approached the issues at trial on this basis, observing as follows:[48]
There is no document terminating the Alleged First Contract and a proposed deed of assignment was not executed for reasons that were not fully explored in the evidence. Accordingly, the question is whether the dealings between Mr Bai and Lightspeed ‘viewed as a whole and objectively from the point of view of reasonable persons on both sides, would be taken to bespeak a concluded bargain’ to terminate the Alleged First Contract.
[48]Reasons, [105] (citations omitted). His Honour referred to PRA Electrical (2007) 20 VR 487, 489 [6] (Nettle JA); [2007] VSCA 310 and Vroon BV v Foster’s Brewing Group Ltd[1994] 2 VR 32, 81–3 (Ormiston J).
Before this Court, both parties accepted that the question was an objective one. Both parties also accepted that this Court can consider the communications leading up to the execution of the Funder Agreement, and both parties relied on those communications in support of their respective cases, each emphasising different aspects of those communications.
As the trial judge observed, the circumstances in which a contract will be inferred were explained by Sundberg J in Adnunat:[49]
A contract may in certain circumstances be inferred from conduct, even where no offer and acceptance can be identified. However the existence or otherwise of an enforceable agreement depends ultimately on the manifest intention of the parties, objectively ascertained. Where mutual promises are sought to be inferred, the conduct relied upon must, on an objective assessment, evince a tacit agreement with sufficiently clear terms. It is not enough that the conduct is consistent with what are alleged to be the terms of a binding agreement. The evidence must positively indicate that both parties considered themselves bound by that agreement.
[49]Reasons, [106], quoting Adnunat [2009] FCA 499, [39] (emphasis added) (citations omitted), quoted with approval in P’Auer [2015] VSCA 42, [11] (Whelan JA, Ferguson JA agreeing at [105], Kaye JA agreeing at [107]).
Again, there was no dispute between the parties about the correctness of that analysis — to the contrary, both parties relied on Adnunat.

Did the Funder Agreement supplant the Deed of Loan?

It is convenient to deal first with the question whether the Funder Agreement was inconsistent with, and was intended to supersede, the Deed of Loan. That is not because the Funder Agreement itself, whether expressly or by way of an implied term, had any direct effect on the Deed of Loan between Mr Bai and Lightspeed. Plainly Haide and Lightspeed could not contract with each other to terminate Mr Bai’s contract with Lightspeed. Rather, the Funder Agreement is relevant because it is part of the factual matrix relevant to whether an objective observer would conclude that Mr Bai and Lightspeed had, separately from the Funder Agreement, agreed to terminate the Deed of Loan.
As discussed, the loan that was the subject of the Deed of Loan, namely the Victoria Parade Loan, is specifically referred to in the Funder Agreement. Schedule 2(B) is a ‘Settled Loan Schedule’ and it contains the following details:
Loan Lightspeed Finance Pty Ltd ACN 148 868 786 advance to 462 Victoria Parade Pty Ltd ACN 166 972 014
Loan Funds   $1,500,000.00
Loan Date  28 April 2017
Loan Repayment Date  28 April 2018
Security  462 Victoria Parade, East Melbourne VIC 3002
Funder’s Interest Return       Higher Rate  15% per annum  Lower Rate  11% per annum
As observed above, Mr Bai submitted that the Victoria Parade Loan was not a ‘Settled Loan’ because it was not a loan referred by Lightspeed to Haide under the Funder Agreement and thus it did not fall within the definition of ‘Settled Loans’ in cl 1. We do not accept that submission. In our opinion, the Victoria Parade Loan was a Settled Loan, notwithstanding the definition of ‘Settled Loans’ in the Funder Agreement. It is, of course, correct that the Victoria Parade Loan was originally referred by Lightspeed to Mr Bai rather than to Haide, and that it was not originally referred under the Funder Agreement, or approved by Haide at the time it was made. However, having regard to the Funder Agreement as a whole, the better view is that Settled Loans are not limited to those made after the commencement of the Funder Agreement. The fact that four ‘existing’ loans were included in the Settled Loan Schedule provides significant support for this view. The definition of ‘Settled Loan Schedule’, which is described as an agreement ‘to the division of the Interest Proceeds for each individual Settled Loan’, makes clear that the loans contained in Schedule 2 are Settled Loans. Once that is accepted, it follows from cl 8 and Schedule 1 that the proceeds from the four existing Settled Loans in Schedule 2 are to be distributed in the same way as the proceeds from future Settled Loans.

In any event, we consider that while the words in the definition of ‘Settled Loan’ would more comfortably apply to loans referred after the formation of the Funder Agreement, the language is sufficient to encompass a loan expressly incorporated into the Agreement in a schedule. Such a loan can be taken to have been ‘referred’ under the Funder Agreement and ‘approved’ by Haide by reason of Haide agreeing to its inclusion in Schedule 2.
In our view, there was no impediment to the Funder Agreement extending to loans that had been advanced prior to the formation of that agreement. Thus, while the Victoria Parade Loan occurred prior to the formation of the Funder Agreement, it was regulated under the Funder Agreement on and from the date the Funder Agreement commenced.
Accordingly, we reject the submissions that the Funder Agreement only applied to loans made by Haide after the execution of the Funder Agreement, and that the Victoria Parade Loan was only included in the Funder Agreement in order to divide up the interest proceeds on the loan.
In our view, the Victoria Parade Loan was, and was objectively intended by both Mr Bai and Lightspeed to be, subject to and specifically governed by the Funder Agreement. It was included in the Settled Loans Schedule not simply as a matter of historical record. To the contrary, it became a ‘Settled Loan’ by reason of its inclusion in the Settled Loan Schedule, which made specific provision for that loan, including as to the rate of interest that it attracts and the distribution of interest and principal.
Once it is accepted that the Victoria Parade Loan was a ‘Settled Loan’ under the Funder Agreement, it is then apparent that the Funder Agreement and the Deed of Loan each purported to deal with the Victoria Parade Loan in different, and inconsistent, manners. That is because the $1,500,000 in loan funds referred to in Schedule 2(B) is plainly the same advance that was the ‘Principal Sum’ in the Deed of Loan. The security for the advance is the same, as is the repayment date. However, the interest rate is markedly different: cl 1(d) of Schedule 1 of the Funder Agreement provides that the Funder — Haide — is entitled to the ‘Interest Return’ at the rates specified above; in contrast, the Deed of Loan provided for Lightspeed to pay Mr Bai interest on the same principal sum at the rate of 24% per annum.
In addition, cl 8 of the Funder Agreement provides that the ‘Loan Proceeds’ (ie amounts received in relation to a Settled Loan) are to be ‘paid to the parties in accordance with Schedule 1’. Schedule 1 then makes detailed provision for the distribution of the ‘Loan Proceeds’ received by Lightspeed (or Haide). ‘Loan Proceeds’ is defined to include payments of interest and / or principal. Thus, contrary to Mr Bai’s submissions, the Funder Agreement does not deal only with payments of interest in relation to the Victoria Parade Loan; it also deals with repayment of the principal.
In our opinion an objective bystander would not consider that, following the execution of the Funder Agreement, interest remitted to Lightspeed by Victoria Parade under the Victoria Parade Loan would be paid to Haide at the rate of 15% per annum under the Funder Agreement, and that Lightspeed would also retain a concurrent obligation under the Deed of Loan to pay Mr Bai interest at the rate of 24% per annum in respect of the same advance, let alone that there should be repayment of the same principal sum pursuant to the two agreements. Such an arrangement does not make commercial sense. While Mr Bai in oral argument eschewed the proposition that Lightspeed might have an obligation to pay twice, the plain effect of a conclusion that the Deed of Loan remained on foot after the execution of the Funder Agreement was that Lightspeed would owe two distinct debts, pursuant to two different contracts, to two different legal persons, namely Mr Bai and Haide.
As the trial judge observed,[50] by including the Victoria Parade Loan in the Settled Loan Schedule to the Funder Agreement, Haide and Lightspeed agreed that:
(a)Lightspeed was appointed as Haide’s agent to manage the Victoria Parade Loan (as set out in cls 6.3 and 7 of the Funder Agreement); and
(b)Lightspeed would not be liable to Haide in the event that Lightspeed was unable to recover the full amount owing by the defaulting borrower (as set out in cl 9(g)).
[50]Reasons, [102(b)].
This arrangement is cogent. It accorded not only with Lightspeed’s intention that it engage with the funder in its usual role as loan facilitator and manager, but also with Mr Bai’s desire that a company controlled by him stand as the entity providing the loan funds. The replacement of the Deed of Loan with the Funder Agreement suited both purposes.
As for Mr Bai’s refusal to execute the Deed of Assignment on behalf of Haide, upon which Mr Bai placed considerable weight, this appears to have arisen from a misunderstanding about either its legal effect or the legal effect of the Funder Agreement. It made no sense to execute the Funder Agreement and then to decline to take the securities for the Victoria Parade Loan under the Deed of Assignment. However, the question is not what Haide or Mr Bai thought they were achieving by Haide entering into the Funder Agreement, but what a reasonable person, informed of all of the facts, would have considered to be the effect of the conduct of Mr Bai and Lightspeed on the Deed of Loan. In any event, while Mr Bai expressed reservations about signing the Funder Agreement, and he did not sign the Deed of Assignment, the evidence demonstrates that he and his representatives carefully negotiated the Funder Agreement with full knowledge that it would apply to the Victoria Parade Loan, and that the new arrangement between Haide and Lightspeed would supplant the previous arrangement between Mr Bai and Lightspeed embodied in the Deed of Loan.
In our view, therefore, the Funder Agreement regulated the Victoria Parade Loan, and it did so by creating different (and to some extent inconsistent) rights and obligations from those contained in the Deed of Loan. The Funder Agreement effectively replaced the Deed of Loan, subject of course to Mr Bai consenting to the arrangements, which the evidence demonstrates that he clearly did (as we discuss in more detail below). In order for the Funder Agreement to operate according to its terms, including the terms specifically governing the Victoria Parade Loan, the Deed of Loan had to be supplanted. The Deed of Loan simply could not continue to operate according to its terms.
The trial judge also had regard to various cases concerning when a later contract is to be understood to replace an earlier contract between the same parties.[51] Mr Bai contended that his Honour erred in referring to those authorities, because they concerned two contracts between the same parties, but that was not this case — here, the two contracts were between different parties. So much may be accepted. But it does not follow that the trial judge erred. His Honour plainly understood that those cases were applicable to a contract involving the same parties. He observed that the fact that the Funder Agreement and the Deed of Loan were inconsistent was not sufficient to permit the conclusion that the Deed of Loan was supplanted by the Funder Agreement; rather it was necessary also to find that Mr Bai had agreed to the termination of the Deed of Loan.[52] It is to that question that we now turn.

Did Mr Bai agree to the termination of the Deed of Loan?

[51]Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35; Hillam v Iacullo (2015) 90 NSWLR 422, 434 [57] (Leeming JA, Basten and Ward JJA agreeing at 424–5 [1]–[2]); [2015] NSWCA 196; Schreuders v Grandiflora Nominees Pty Ltd[2016] VSCA 93, [18]–[19] (Kyrou, Ferguson and McLeish JJA); Balanced Securities Ltd v Dumayne Property Group Pty Ltd (2017) 53 VR 14, 30 [71] (Whelan and Ferguson JJA and Cameron AJA); [2017] VSCA 61.

[52]Reasons, [104].

The question whether Mr Bai and Lightspeed had agreed to terminate the Deed of Loan falls to be assessed in light of the entry by Haide into the Funder Agreement.
In our opinion there was plainly sufficient evidence before the trial judge to enable him to find that Mr Bai and Lightspeed had impliedly agreed to terminate the Loan Deed. Mr Bai has not discharged the onus of establishing error in the judge’s factual findings in this regard. To the contrary, the evidence discloses that Mr Bai and Lightspeed agreed by their conduct to terminate the Deed of Loan in consideration for Lightspeed and Haide entering the Funder Agreement.
The judge held that the conduct of Mr Bai and Lightspeed bespoke a concluded agreement to terminate the Deed of Loan. We agree, for the following reasons.
First, Mr Bai was aware of the terms of the Funder Agreement and, in particular, its inclusion and regulation of the Victoria Parade Loan. Most importantly, he was aware that, when repaid, the Loan Proceeds would be dealt with according to Schedule 1, a position entirely different from the position under the Deed of Loan, which provided that Mr Bai was personally entitled to the proceeds. Mr Bai knew and implicitly consented to the Loan Proceeds being paid to Haide.
It was not suggested that Mr Bai was unaware of the terms of the Funder Agreement. Such knowledge was conceded but, it was submitted, it could not be derived from the fact of Mr Bai’s execution of the Funder Agreement as a director of Haide. This was a matter of little consequence in light of the concession that was made.
Further, the communications between the parties made it plain that it was intended that the Funder Agreement would ensure that Lightspeed was not a borrower, and substitute Haide for Mr Bai as the lender for the Victoria Parade Loan. Importantly, as outlined earlier,[53] the following WeChat message was sent by Mr Zhao to Ms Gu on 4 May 2017:
[T]he lawyer asked why it was a ‘Funder Agreement’ instead of the original loan contract?
He believes the legal relationships involved in this contract are far more complicated than the loan contract we signed in March.
[53]See [48(a)] and [49] above.
To this Ms Gu responded (on 10 May 2017):
[W]hat is written in the original investment contract is that Uncle Xiaobai lends money to [Mr Fitzpatrick]. This investment relationship is not quite appropriate. What the new investment contract states is that Uncle Xiaobai is the investor and Lightspeed finance is the loan manager. Our job is to review loan requirements, complete due diligence reports and manage monthly loan trends.[54]
[54]Emphasis added.
Similarly, as noted earlier,[55] the following exchange took place between Mr Zhao and Ms Gu on 13 June 2017:
Mr Zhao:I discussed the contract with the legal department and lawyer again yesterday. We believe that the loan relationship of the previous contract signed between Mr Bai and LSF is clear. The current Funder Agreement has made Mr Bai bear greater risk, as LSF only acts as the intermediary, all risks are transferred to Mr Bai, as such he is now taking on more risk compared to the original loan contract.
Ms Gu:Thank you for your response. The previous contract states that LSF is the borrower, but we are in no way the borrower, we are the facilitator. Therefore, the new contract is correct …
…
Mr Zhao:As specified clearly under Section 8, Clause g: We, as the investors, understand and agree that we shall bear the loan risks. If LSF fails to recover all losses caused by the borrower’s default, LSF shall not bear any responsibility.
Ms Gu:This is because we are not the borrower. We are a third party, but we would do our own due diligence to protect investors well …[56]
[55]See [52] above.
[56]Emphasis added.
Those communications made it plain that, under the Funder Agreement, Lightspeed would no longer be liable as the borrower, as it had been under the terms of the Deed of Loan. Rather, it would be a facilitator or intermediary.
Importantly, a few days before the execution of the Funder Agreement by Mr Bai, Mr Zhao wrote to Ms Gu:[57]
Use the Funder Agreement under the name of Haide Holdings Ltd to replace the original loan contract signed by Mr Bai himself.
[57]See [60] above (emphasis added).
In our view, the communications between the parties clearly evidenced a common intention by Mr Bai and Lightspeed to reconstitute their arrangements in a number of critical respects, relating to both past and future loans. An integral part of this reconstitution was the agreement of Mr Bai, which can be clearly inferred from the facts and circumstances referred to.
This conclusion is not affected by Mr Bai’s refusal to execute the Deed of Assignment on behalf of Haide. Mr Bai submitted that his refusal supports his contention that there was no implied agreement to terminate the Deed of Loan. We do not accept that submission. As discussed above, Mr Bai might have misunderstood the effect of the Deed of Assignment and/or the Funder Agreement, but in the absence of a case based on mistake, the subjective views of Mr Bai are not relevant. The trial judge held that the assignment of the Victoria Parade Loan from Lightspeed to Haide was a necessary consequence of the arrangements in the Funder Agreement. No notice was given to Victoria Parade, thus the assignment was an equitable assignment.[58] We agree. In circumstances where Lightspeed had been the lender and held the securities, and Haide replaced Lightspeed as lender and was, therefore, the ultimate beneficiary of the securities, an assignment of the debt and the associated securities was implicit, logical and integral to the reconstituted arrangements.
[58]Reasons, [103(c)].
We also reject the submission by Mr Bai that there cannot have been a mutual intention to terminate the agreement reflected in the Deed of Loan because, at the time the Funder Agreement was executed, Lightspeed did not accept that there was any loan agreement between it and Mr Bai under which Lightspeed was a borrower.
(a)First, that proposition does not emerge from the evidence. True it is that in its Defence to the Statement of Claim, Lightspeed denied that the Deed of Loan was binding upon it; but that was a legal argument mounted after proceedings were instituted by Mr Bai. The contemporaneous communications between Mr Zhou and Ms Gu suggest that Lightspeed did accept that there was an agreement in place, which it was seeking to replace.[59]
(b)Secondly, that argument focuses on the subjective views of Lightspeed. But, as already explained, the correct analysis is to focus on what an objective observer would have considered, having regard to all the circumstances.
[59]See, eg, the communications extracted at [49] and [52]. We also accept Lightspeed’s alternative submission that a mutual intention can be found even if Lightspeed considered the existence of a contract in the terms set out in the Deed of Loan to be doubtful.
Finally, we reject the submission that the assignment of the Victoria Parade Loan from Lightspeed to Haide, necessarily implied by the parties’ conduct and the terms of the Funder Agreement, was ineffective because no notice was given to Victoria Parade. As the trial judge found, in the circumstances of this case, this was of no consequence to Victoria Parade or anyone else.

Disposition

The ground of appeal is not made out. Leave to appeal is refused.
---

[2022] VSCA 242

10 November 2022