Bai v Lightspeed Finance Pty Ltd
[2021] VSC 543
•3 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 03687
| JUNPING BAI | Plaintiff |
| v | |
| LIGHTSPEED FINANCE PTY LTD | First Defendant |
| SUMMER LAWYERS PTY LTD (ACN 161 361 931) | Second Defendant/Third Party |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 21-24 June 2021 1 July 2021 |
DATE OF JUDGMENT: | 3 September 2021 |
CASE MAY BE CITED AS: | Bai v Lightspeed Finance Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 543 |
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CONTRACT – Formation – Offer and acceptance – Form of loan deed signed by lender only – Whether provision of form of loan deed by borrower’s solicitor was an offer capable of acceptance by return of signed copy – Whether borrower’s conduct constituted acceptance of lender’s offer to lend on terms in form of loan deed.
CONTRACT – Whether earlier agreement was supplanted by subsequent agreement to which lender was not a party – Whether there was an implied agreement to terminate earlier agreement.
MISREPRESENTATION – Whether borrower represented that subsequent agreement would not supplant earlier agreement – Whether lender was induced to enter into subsequent agreement in reliance on a representation.
PROFESSIONAL LIABILITY – Whether solicitor breached its duty of care by failing to follow or verify instructions – Whether borrower suffered loss by entering into earlier agreement.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M G R Gronow QC with Mr P Donovan | Roberts Gray Lawyers |
| For the First Defendant | Mr J D McKay | E C Legal |
| For the Second Defendant/ Third Party | Mr D B Bongiorno | Gilchrist Connell |
Contents
Background
Merchant Building loan
Victoria Parade loan
Funder Agreement
Terms of the Funder Agreement
Issues for determination
Question 1 - Did Mr Bai and Lightspeed enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form?
Submissions
Mr Bai’s submissions
Lightspeed’s submissions
Conclusion
Was the emailing of the Victoria Parade Loan Deed Form by Summer Lawyers to Mr Bai an offer by Lightspeed to enter into legal relations?
Can Lightspeed’s acceptance of Mr Bai’s offer be inferred?
Question 2 - If no to question 1, did Mr Bai nevertheless lend Lightspeed the Principal Sum by the Alleged Loan?
Submissions
Mr Bai’s submissions
Lightspeed’s submissions
Conclusion
Question 3 - If yes to questions 1 or 2, did the Funder Agreement expressly or impliedly supplant the Alleged First Contract or the Alleged Loan?
Submissions
Lightspeed’s submissions
Mr Bai’s submissions
Conclusion
Was the Funder Agreement, on its terms, inconsistent with the Alleged First Contract?
Did Mr Bai implicitly agree to the termination of the Alleged First Contract?
Question 4 – If yes to question 3, did Ms Gu make the Alleged Representation and, if so, did Mr Bai rely on the Alleged Representation?
Submissions
Mr Bai’s submissions
Lightspeed’s submissions
Conclusion
Question 5 - If yes to questions 1 or 2, was Summer Lawyers in breach of its duty to Lightspeed?
Submissions
Mr Bai’s submissions
Lightspeed’s submissions
Summer Lawyers’ submissions
Conclusion
Question 6 - If yes to question 5, did such breach cause Lightspeed loss and damage, being its liability to Mr Bai under the Alleged First Contract or the Alleged Loan?
Submissions
Lightspeed’s submissions
Summer Lawyers’ submissions
Conclusion
Orders
Appendix
HIS HONOUR:
By amended writ filed 29 January 2021, the plaintiff (‘Mr Bai’)[1] claims $1.5 million (‘the Principal Sum’) plus interest pursuant to:
(a)a loan agreement (‘the Alleged First Contract’) between Mr Bai and the first defendant (‘Lightspeed’),[2] on the terms of a document entitled ‘Deed of Loan’ which was executed by Mr Bai on or about 30 March 2017 (‘the Victoria Parade Loan Deed Form’);[3] or alternatively
(b)a breach of trust by the second defendant (‘Summer Lawyers’)[4] in making unauthorised payments from the Principal Sum, which had been deposited into its trust account by Mr Bai in or about March 2017.[5]
[1]On occasion, Mr Bai is referred to as ‘Uncle’, ‘Uncle Bai’ or ‘Uncle Xiaobai’ in quotations.
[2]On occasion, Lightspeed is referred to as ‘LSF’ or ‘LS’ in quotations.
[3]The Victoria Parade Loan Deed Form was not executed by Lightspeed; but Mr Bai alleges the implied acceptance of the terms of the Victoria Parade Loan Deed Form constituted the Alleged First Contract.
[4]On occasion, Summer Lawyers is referred to as ‘SL’ in quotations.
[5]This claim was not pressed at trial. Accordingly, the only remaining claim against the second defendant/third party is that pressed by the first defendant.
By defence filed 7 November 2020, Lightspeed denies that it entered into the Alleged First Contract with Mr Bai, and claims that:
(a)it referred to Mr Bai a loan application from 462 Victoria Parade Pty Ltd (‘Victoria Parade’) for the Principal Sum; and/or
(b)it subsequently entered into a funder agreement (‘the Funder Agreement’) with respect to the Principal Sum, which was executed by Lightspeed and Mr Bai on behalf of a company controlled by Mr Bai, Haide Holdings Ltd (‘Haide Holdings’) in or about August 2017, and which supplanted[6] the Alleged First Contract.
[6]The submissions and authorities refer variously to ‘supersede’, ‘replace’ and/or ‘supplant’. As the first definition of ‘supplant’ in the Macquarie Dictionary is ‘to displace or supersede, as one thing does another’, I will use the word ‘supplant’ in these reasons: Macquarie Dictionary (online at 30 August 2021) ‘supplant’ (def 1).
By third party notice filed 24 December 2020, Lightspeed claims that, if it is liable to Mr Bai under the Alleged First Contract, such liability is the result of the negligence of the third party, Summer Lawyers, in failing to properly advise and in circulating the Victoria Parade Loan Deed Form without proper instructions.
Background
On or about 16 February 2017, there was a meeting in Shanghai between:
(a)Mr Bai (a Chinese resident and, at the relevant time, an applicant for permanent residency in Australia);
(b)Mr Mark Fitzpatrick (the sole director and 90% shareholder of Lightspeed); and
(c)Ms Cindy Gu (at the relevant time, a loan broker employed by Lightspeed), whose father had known Mr Bai for some years.
The precise content of the conversations at the meeting is disputed. However, it is common ground that, in substance, Mr Fitzpatrick, through the interpretation of Ms Gu, explained that Lightspeed could provide investment opportunities for Mr Bai in Australia.
In summary, Lightspeed and Mr Bai negotiated the following relevant loan proposals and agreements:
(a)a loan to Merchant Building Company Pty Ltd (‘Merchant Building’), which ultimately did not proceed;
(b)a loan to Victoria Parade, which is the loan the subject of the current dispute; and
(c)the Funder Agreement to govern the relationship between the two parties in relation to Mr Bai’s loan investments in Australia and, in particular, the four loans referred to in sub-paragraph 5(b) above and paragraph 6 below.
Lightspeed and Mr Bai also negotiated the following loans, which were incorporated in the Funder Agreement:
(a)a loan to 230V Harvest Home Road Pty Ltd (‘Harvest Home’);
(b)a loan to Ozkar Pty Ltd (‘Ozkar’); and
(c)a loan to Timdanspi Pty Ltd (‘Timdanspi’).
Merchant Building loan
The first loan proposal that was the subject of negotiations between Lightspeed and Mr Bai was a loan in relation to Merchant Building.
By letter of offer dated 23 February 2017 to Mr John Woods of Merchant Building, Mr Fitzpatrick stated:
Lightspeed Finance Pty Ltd … (‘the lender & or/its nominee’) is pleased to offer the Mandate & Letter of Offer upon the terms contained in the attached General Conditions.
The letter enclosed the following relevant documents, also dated 23 February 2017, and signed by Mr Woods on the same date:
(a)a Mandate to Act, by which Lightspeed was appointed ‘to obtain approval of a loan facility’ on certain terms; and
(b)a Conditional Approval for Finance, by which Lightspeed and/or its nominee lender offered a loan amount of $1,087,000 for a term of three months at an interest rate of 3% per month.
On 1 March 2017, there were the following relevant email communications between Ms Gu and Mr Chunfeng (Joe) Zhao (Mr Bai’s personal assistant), with respect to the proposed Merchant Building loan:
(a)At 1:00 pm[7] to Ms Gu (copied to Mr Bai), Mr Zhao stated:
[7]The email and WeChat communications set out in this judgment were tendered as exhibits showing either Melbourne time, Shanghai time, or both. Where the evidence as to the relevant time zone is clear, I have adopted Melbourne time. Where such evidence is unclear, I have included the time as displayed on the tendered document. In any event, the true chronological order of such communications is apparent from the order in the email or WeChat message chain and has been reflected in this judgment.
I’ve read the relevant materials of [Merchant Building], I want to reconfirm the legal relationship of a loan: Uncle Bai shall provide a loan to Lightspeed Finance, and then you will lend to [Merchant Building], including signing the loan contract and other legal documents in the future, right?
(b)At 1:16 pm to Mr Zhao (copied to Mr Bai and Mr Fitzpatrick), Ms Gu replied and stated:
Since Uncle Bai is not yet an Australian citizen, the lawyer will draft a Nominee contract between Lightspeed and Uncle Bai.
* Generally speaking, overseas citizens cannot make similar loans (anti-money laundering law)
Therefore, all loan contracts will include Uncle Bai’s name (unless Uncle wants to use the company name), it is just that our name will appear on the property certificate instead of Uncle Bai before he gets a green card.
* Our overseas investors are taking such steps.
(c)At 1:32 pm to Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao asked the following two questions and, at 1:38 pm, Ms Gu replied as shown in the italicised responses:
1. Regarding the total amount due from the borrower, have all other service fees been deducted. It’s now net income?
The Lender (Uncle Bai) doesn’t need to pay any fees, they are all borne by the borrower, correct, the total amount obtained is net income.
2. 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, and can the funds be transferred from his personal account in Australia?
Is Uncle’s company registered in Australia? If it is, it’s absolutely fine. If not, there are two options, 1. Personal name, 2, we can help you or your uncle’s lawyer in Australia can help you register the company name in Australia (we need the company name and ABN).
(d)At 2:03 pm to Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao stated:
Message received. Understood. Uncle Bai is still lending the money personally. Regarding timing for making the payment, what’s your requirement? We will consider asking a lawyer to review documents in relation to the loan contract. Soon, I will also confirm with the bank regarding preparation of documents for international money transfer. These all take time.
(e)At 2:43 pm to Mr Zhao (copied to Mr Bai and Mr Fitzpatrick), Ms Gu replied and provided the following timeline for the transaction:
1.Please ask Uncle Xiaobai to sign both in Chinese and English on page three (please scan and reply to us), Also, confirm the full name of Uncle Xiaobai and the Australian address as the borrower’s details
2.LIGHTSPEED confirms with lawyers; lawyers to draft the contract (The contract between LS and Uncle Xiaobai and the contract between the borrower and the lender)
3.The lawyer to send the contract to the lender and the borrower (normally the signature of the lender doesn’t require a lawyer), but the contract should be reviewed by a lawyer since it’s in English.
*The process for the lender to execute the document is very rigorous so please be assured.
4.After reviewing all the documents, the lawyers will notify Uncle Xiaobai to make payment to the lawyer’s trust account (Lightspeed won’t get involved).
5.Upon receipt, the lawyer will ask for your approval before releasing the funds
Ms Gu also attached copies of a due diligence report dated 28 February 2017 in both English and Chinese, which relevantly noted the loan details as being a principal of $1,087,000 for a period of three months at an interest rate of 2% per month with a default interest rate of 3% per month.
(f)At 2:51 pm to Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao replied and stated:
Message received. Understood! There are two attachments in the mail you just sent me - they are the confirmation of loan terms in English and Chinese respectively. So am I making arrangements for your uncle Bai to sign on page three of both documents and fill out names and address accordingly before scanning and sending them back?
(g)At 4:01 pm to Mr Zhao (copied to Mr Bai and Mr Fitzpatrick), Ms Gu confirmed that Mr Bai was to sign page 3 of both documents.
(h)At 9:34 pm to Ms Gu, Mr Zhao replied and attached ‘the loan confirmation document in both English and Chinese’, being the execution pages of the due diligence reports signed by Mr Bai and dated 1 March 2017.
On 2 March 2017, there were the following relevant email communications:
(a)At 9:25 am to Ms Yulia Gurdina (a paralegal at Summer Lawyers) (copied to Mr Fitzpatrick and Mr Chris Evans of Lightspeed), Ms Gu attached the letter of offer and Mandate to Act referred to in paragraphs 8 and 9 above. Ms Gu stated: ‘New deal for you’ and instructed as follows:
Could you please start commencing the following:
·Lodge the caveat
·Draft the loan agreement
*We will require a contract between Lightspeed & Mr Bai as Mr Bai is still in the process of getting the residency
*Is there a way to include Mr Bai’s name in the loan agreement even though we are representing him?
(b)At 11:03 am to Mr Zhao (copied to Mr Bai and Mr Fitzpatrick), Ms Gu acknowledged receipt of the signed loan confirmation documents and stated: ‘We will now advance to loan agreements’.
On 6 March 2017, there were the following relevant email communications between representatives of Summer Lawyers and Ms Gu with respect to the drafting of the loan documents for the proposed Merchant Building loan:
(a)At 8:36 am to Mr Paul Reese (a principal of Summer Lawyers), Ms Gurdina asked him to review the attached ‘SL Investor Loan Agreement – 2016’.
(b)At 8:51 am, Mr Reese replied and stated ‘just need interest rate’.
(c)At 9:12 am, Ms Gurdina replied and explained that the interest rate had been left blank because they ‘have their own personal interest rate agreement between each other’.
(d)At 9:15 am, Mr Reese authorised Ms Gurdina to send the document.
(e)At 9:18 am to Ms Gu and Mr Evans (copied to Mr Reese and Mr Fitzpatrick), Ms Gurdina attached a draft Merchant Building investor loan agreement in which:
(i)the execution page noted Mr Bai as the borrower and Lightspeed as the lender;
(ii)the interest rate was left blank; and
(iii)Lightspeed’s address was noted as ‘Level 2, 475 Flinders Lane Melbourne VIC 3000’.
(f)At 10:49 am to Ms Gurdina (copied to Mr Fitzpatrick), Ms Gu stated:
As per our conversation, please amend the following:
·Mr Bai is the Lender
·Lightspeed is the borrower in this instance.
(g)At 11:02 am to Ms Gu (copied to Mr Fitzpatrick), Ms Gurdina attached an amended draft Merchant Building investor loan agreement in which the execution page noted Mr Bai as the lender and Lightspeed as the borrower.
(h)A file note of a telephone conversation at 11:13 am recorded that Ms Gu had advised Ms Gurdina that the interest rate was to be 24% and she wanted Lightspeed’s address amended.
(i)At 11:19 am to Ms Gu (copied to Mr Fitzpatrick and Mr Reese), Ms Gurdina attached another amended Merchant Building investor loan agreement (‘the Merchant Building Loan Deed’), in which:
(i)the execution page noted Mr Bai as the lender and Lightspeed as the borrower;
(ii)the interest rate was noted as 24% per annum; and
(iii)Lightspeed’s address was noted as ‘Suite 202, Level 2, 25 Gipps Street, Collingwood VIC 3066’.
By email of 6 March 2017 at midday to Mr Zhao (copied to Mr Bai, Mr Fitzpatrick and Ms Gurdina), Ms Gu attached the relevant loan documents in relation to Merchant Building, being:
(a)a letter dated 6 March 2017 from Summer Lawyers to the borrower in which Lightspeed was shown as the ‘Credit Provider’; and
(b)the unexecuted Merchant Building Loan Deed.
In the email, Ms Gu stated as follows:
Please find the attached.
·SL Letter to borrowers – Doesn’t require Uncle’s signature
*To show Uncle the format of the contract from our lawyers
*Once PR is obtained, uncle needs to sign this document
*Before PR is obtained, our company will sign on your behalf
·SL Investor Loan agreement - The contract between Uncle and our company
*Page1, Please ask Uncle to fill in the Australian bank details
*Page9, Please ask Uncle to sign and then ask the witness to fill out their details
*After it’s signed, please scan and reply (to all) this email
Once signed, please make payment of $1,021,780 to the lawyer’s account …
By email of 13 March 2017 to Ms Gu (copied to Mr Fitzpatrick, Mr Bai and Ms Gurdina), Mr Zhao attached the Merchant Building Loan Deed, which had been executed by Mr Bai on 13 March 2017.
On 14 March 2017, the Merchant Building Loan Deed was executed by Mr Fitzpatrick on behalf of Lightspeed.
On 14 March 2017, there were the following relevant email communications:
(a)At 9:08 am to Mr Zhao (copied to Mr Bai, Mr Fitzpatrick and Ms Gurdina), Ms Gu requested the transfer of the sum of $1,021,780 to Summer Lawyers’ trust account and advised that, after receipt of the funds, Ms Gurdina would review the documents and seek approval to release the funds.
(b)At 3:05 pm to Ms Gurdina (copied to Mr Fitzpatrick and Mr Zhao), Ms Gu attached the execution pages of the Merchant Building Loan Deed and requested that Mr Zhao post the original signed documents to Ms Gurdina.
From 15 March 2017, as set out below, further negotiations took place in relation to the Merchant Building Loan Deed which led to the agreement ultimately not proceeding, despite having been executed by Mr Bai and Lightspeed.
On 15 March 2017, there were the following relevant WeChat messages between Mr Bai and Ms Gu with respect to the proposal that Mr Fitzpatrick provide a guarantee for the loan in relation to Merchant Building:
(a)Mr Bai said to Ms Gu:
My Australian lawyer just called me, mentioning that as all the collateral is under lightspeed finance’s name, it is recommended that Mark do the guarantee for the loan agreement between your company and I, don’t know if this is possible?
(b)Ms Gu replied and asked whether the lawyer was talking about Mr Fitzpatrick being an individual guarantor.
(c)Mr Bai replied and confirmed that was correct.
By email of 15 March 2017 at 3:35 pm to Ms Gurdina, Ms Gu requested that she contact Mr Bai’s lawyer, Ms Helen Xie of Wonders Legal, who had asked whether amendments could be made to the agreement between Lightspeed and Mr Bai.
On 16 March 2017, there were the following relevant email communications:
(a)At 12:14 pm to Ms Xie (copied to Mr Reese), Ms Gurdina referred to their telephone conversation that morning and attached an unexecuted Word version of the Merchant Building Loan Deed. Ms Gurdina further stated:
We advise that the proposed concept of including the investment property in the investor agreement would not grant your client, Mr Bai, sufficient rights to enforce the facility between Lightspeed Finance Pty Ltd and Merchant Building Company Pty Ltd.
Apart from signing the agreement as it stands, the only other possibilities are:
1.Mr Bai and Mr Fitzpatrick create a company, with Mr Fitzpatrick being the sole director and secretary and Mr Bai being the beneficiary of that entity and that company becomes the lender; or
2.Once Mr Bai becomes an Australian resident, the loan is transferred into his name.
(b)At 3:45 pm to Ms Gurdina (copied to Ms Gu and Mr Reese), Mr Fitzpatrick stated:
Lightspeed Finance (LSF) is to have the security
*in the event of a default or Death of Mr Fitzpatrick or the demise of the company then the security will then be assigned to another Nominee at the discretion of Mr Bai
*if and when Mr Bai becomes a resident then security will also be assigned at no fee to LSF
On 17 March 2017, there were the following relevant email communications:
(a)At 2:30 pm to Ms Gurdina (copied to Mr Reese and Ms Gu), Mr Fitzpatrick followed up on his email referred to in paragraph 0(b) above and stated: ‘My team tell me it was a constructive meeting all round and look forward to some new documents coming our way’.[8]
(b)At 4:32 pm to Ms Gurdina, Ms Xie stated that Mr Bai’s preference was for Mr Fitzpatrick to provide a personal guarantee for all of Lightspeed’s obligations under the Merchant Building Loan Deed.
[8]There was no evidence given as to what occurred at this meeting.
On 20 March 2017, there were the following relevant further communications with respect to the proposal that Mr Fitzpatrick provide a guarantee for the Merchant Building loan:
(a)By WeChat message at 7:54 am to Ms Gu, Mr Bai stated:
I recommend you communicate with your company’s lawyer, or get Mark to be the guarantor, this way it will be rather simple and convenient to operate, the way both parties’ lawyers are discussing is quite the hassle (e.g. setting up a joint venture company etc.), and most importantly it is causing delays.
(b)By email at 8:01 am to Mr Fitzpatrick (copied to Mr Reese and Ms Gu), Ms Gurdina stated:
We are able to amend the investment agreement to include the terms proposed by you below.
However, Mr Bai’s solicitor is still requesting a personal guarantee from you.
The ‘terms proposed by you below’ was a reference to the security arrangements proposed by Mr Fitzpatrick in his email referred to in paragraph 0(b) above.
(c)By email at 8:19 am to Ms Gurdina (copied to Mr Reese and Ms Gu), Mr Fitzpatrick replied and stated:
This is because Cindy brought this.
What is the personally [sic] Guarantee to cover
*it can only Guarantee that I transfer the ownership of the security in the event of death or company demise.
*we/I do not Guarantee loans
Is this the definition of a Guarantee?
(d)By email at 8:23 am to Mr Fitzpatrick and Ms Gurdina (copied to Ms Gu), Mr Reese replied and stated: ‘It means you will personally pay back the lender if their money is lost’.
(e)By email at 8:38 am, Mr Fitzpatrick replied and stated:
That cannot happen
Next time i [sic] go to the bank and borrow money for an investment I may ask the same thing, I wonder what they say
Thanks Cindy
That ask is absurd and simply ridiculous
Cindy will communicate with the Lender again today, Cindy started the conversation by using this term ‘guarantee’ this has now unfortunately permeated throughout the initial conversation and now has translated to this understanding to the lenders solicitor
Cindy please call Bai and explain your reference to the word ‘Guarantee’ you actually meant ‘security transfer’ and that Lightspeed would hold the security for and on behalf of Bai and in the event of Mr Fitzpatrick’s death or demise of Lightspeed then the security would simply transfer to a nominated entity or individual.
(f)By email at 8:48 am to Mr Fitzpatrick (copied to Mr Reese and Ms Gurdina), Ms Gu replied and stated that the guarantee was communicated by Mr Bai on the advice of his lawyer, and she had not agreed to it or said that Mr Fitzpatrick would agree to it. She stated that she would communicate with Mr Bai today about what Lightspeed was willing to do.
(g)By WeChat message at 9:05 am to Mr Bai, Ms Gu stated:
Uncle Xiaobai, looking at this over the long-term, if this will help put you at ease, Mark said, he can help you, register a company together. However, hoping to be able to do it together with this case. Because the other party has already signed a contract.
(h)By email at 10:04 am to Ms Gu (copied to Mr Fitzpatrick and Mr Reese), Ms Gurdina forwarded Ms Xie’s email referred to in paragraph 21(b) above and stated: ‘As per our telephone conversation, please find below email from Wonders Legal.’[9]
[9]There was no evidence given of this telephone conversation.
By email of 21 March 2017 to Ms Gurdina (copied to Mr Zhao, Mr Bai and Mr Fitzpatrick), Ms Gu confirmed that she had been informed by Mr Bai that the funds had been transferred yesterday morning and asked whether they had arrived at Summer Lawyers.
Mr Bai and Ms Gu’s evidence as to what occurred in or about late March 2017, was as follows:
(a)Ms Gu’s evidence was that she informed Mr Bai by telephone that Lightspeed was concerned about the security offered by Merchant Building, and Mr Bai decided not to proceed with the loan on Ms Gu’s advice; and
(b)Mr Bai’s evidence was that Ms Gu informed him that Lightspeed had decided not to proceed with the loan.
In any event, the Merchant Building loan did not proceed.
Victoria Parade loan
Prior to the decision not to proceed with the Merchant Building loan, Lightspeed and Mr Bai commenced negotiating a second loan proposal, to Victoria Parade.
By email of 15 March 2017 at 4:45 pm to Mr Bai (copied to Mr Fitzpatrick), Ms Gu proposed a new short-term loan project with respect to Victoria Parade in the following terms:
Client Name: 462 Victoria Parade Pty Ltd
Secondary Mortgage: 462 Victoria Parade East Melbourne Vic 3022 (there are 25 independent sub-contract ownership within, there are 25 apartments under its name)
Principal: $1,500,000*
Annual Interest Rate: 15% per annum (interest distributed monthly)
Annual Interest: $225,000
Period: 12 months
On 27 March 2017, there were the following relevant email communications:
(a)At 2:08 pm to Mr Bai (copied to Mr Fitzpatrick), Ms Gu attached copies of a due diligence report dated 27 March 2017 in both English and Chinese, together with supporting materials, and stated: ‘If you agree, please sign the third page’. The due diligence reports noted the loan details as follows:
(i)a principal of $1.5 million;
(ii)an interest rate of 15% per annum with a default interest rate of 24% per annum;
(iii)a period of 12 months; and
(iv)secured by a registered second mortgage over 462 Victoria Parade, East Melbourne (‘the Victoria Parade Property’).
(b)At 4:22 pm to Ms Gurdina (copied to Mr Fitzpatrick, Mr Evans and Mr Reese), Ms Gu stated ‘new deal for you’ and requested that Ms Gurdina ‘lodge the caveat’ and ‘draft the loan agreement’. The email attached the following relevant documents dated 16 March 2017 and signed on behalf of Victoria Parade on or about 20 March 2017:
(i)a letter of offer, by which Lightspeed and/or its nominated lender offered a loan on the same terms as described in paragraph 26 above, save for a new interest rate of 19.5% per annum if paid on time, and 24% per annum if not; and
(ii)a Mandate to Act, by which Lightspeed was appointed ‘exclusively solely to negotiate with funders/lenders and obtain approval for the Facility on a reasonable effort basis’.
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, with the description ‘Mortgage - Merchant Building Company’.
By letter dated 28 March 2017 to the solicitors for Victoria Parade, Summer Lawyers confirmed they acted for the ‘Credit Provider’, being Lightspeed, and enclosed certain documents including a mortgage over each of the 25 apartments at the Victoria Parade Property. The mortgage listed Lightspeed as mortgagee and Victoria Parade as mortgagor. The Schedule to the mortgage set out the loan details in the following terms:
(a)the borrower was Victoria Parade;
(b)the principal was $1.5 million;
(c)the loan period was from an unspecified date in March 2017 to another unspecified date in March 2018; and
(d)the interest rate was 2% per month with a discount interest rate of 0.375% per month.
By email of 29 March 2017 at 11:12 am to Ms Gu (copied to Mr Fitzpatrick and Mr Reese), Ms Gurdina attached the Victoria Parade Loan Deed Form. The Schedule relevantly contained the following terms:
(a)The lender was Mr Bai; and the borrower was Lightspeed.
(b)The principal sum of the loan was $1.5 million.
(c)The interest rate was 24% per annum.
(d)The authorised purpose of the loan was for on-lending to customers of Lightspeed.
(e)The security was a fixed charge over the rights and interests of Lightspeed in:
(i)the loan advanced from Lightspeed to Victoria Parade in the sum of $1.5 million; and
(ii)any and all securities granted to Lightspeed to secure such advance.
Later the same day, there were the following relevant email communications with respect to the execution of the Victoria Parade Loan Deed Form by Mr Bai (although each continued the subject line of ‘Merchant Building Company’):
(a)At 11:16 am to Ms Gu and Ms Gurdina (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao:
(i)stated that Mr Bai had signed the ‘letter of confirmation of borrowing for the Melbourne land project’ and attached the execution pages of the due diligence reports signed by Mr Bai and dated 28 March 2017;
(ii)stated that the receipt of Summer Lawyers for the sum of $1,021,780 had been received, ‘with the description noting the MBC project’;
(iii)queried whether the receipt should be updated because the Merchant Building project had been abandoned and in fact, the payment was for the Victoria Parade project; and
(iv)stated that the second payment of $478,220 would be organised that day.
(b)At 11:58 am to Mr Zhao, Ms Gu replied and stated that the funds received had been allocated to Victoria Parade and that Ms Gurdina would forward through the investment agreement between Lightspeed and Mr Bai shortly.
(c)At 12:31 pm to Mr Zhao and Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Ms Gurdina replied and attached the Victoria Parade Loan Deed Form.
(d)At 1:09 pm to Ms Gurdina, Mr Zhao replied and stated:
I got the agreement, thanks. So, Mr Bai should sign in P9 and fill in the account info on P1, and then scan back to you?
(e)At 4:17 pm, Ms Gurdina replied and stated: ‘Yes please’.
(f)At 4:40 pm, Ms Gu replied and changed the subject line from ‘Merchant Building Company’ to ‘462 Victoria Parade Pty Ltd’, stating: ‘For filing purpose, I have superseded the subject line’.
By email of 30 March 2017 at 8:00 pm to Ms Gu, Mr Zhao replied and stated that the ‘Investor Deed’ (being a reference to the Victoria Parade Loan Deed Form) had been signed by Mr Bai and was attached. In fact, Mr Zhao attached the execution pages of the due diligence reports. He stated that the funds transferred would be expected tomorrow.
On 31 March 2017, there were the following relevant email communications with respect to the execution of the Victoria Parade Loan Deed Form:
(a)At 6:35 am to Mr Zhao and Ms Gurdina (copied to Mr Bai and Mr Fitzpatrick), Ms Gu replied and confirmed that the document attached to Mr Zhao’s email was in fact the signed due diligence reports. She re-attached the Victoria Parade Loan Deed Form, which had been attached to the email referred to in paragraph 31(c) above, and requested a ‘signed page 9’ be forwarded to her.
(b)At 3:06 pm, Mr Zhao replied and apologised for the mistake and attached a signed copy of pages 1 and 9 of the Victoria Parade Loan Deed Form signed by Mr Bai and dated 30 March 2017.
(c)At 3:29 pm to Ms Gurdina (copied to Mr Fitzpatrick), Ms Gu stated that Mr Fitzpatrick wanted to discuss the agreement and requested that Ms Gurdina call him.
(d)Ms Gu deposed, in paragraph 28 of her witness statement dated 12 May 2021, that after sending this email:
I then rang the plaintiff to tell him that Lightspeed would not sign the deed and that the document needed to be re-drafted. The plaintiff indicated to me that he still wished to advance money for the loan.
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.
By Trust Account Receipt dated 31 March 2017, 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 sum of $1,021,780 referred to in paragraph 28 above, this constituted the Principal Sum (being $1.5 million) advanced by Mr Bai.
By email of 2 April 2017 to Ms Gu and Ms Gurdina, Mr Fitzpatrick suggested that he and Ms Gurdina ‘chat on Monday’.
On 3 April 2017, there were the following relevant email communications:
(a)At 12:02 pm to Ms Gurdina, Mr Fitzpatrick stated:
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 (copied to Mr Fitzpatrick), Ms Gu attached 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.
By four emails of 5 April 2017 to Mr Zhao, Mr Bai and Mr Fitzpatrick, Ms Gu respectively attached the mortgages and associated documents provided by Victoria Parade to secure the loan.
On 28 April and 1 May 2017, the Principal Sum received from Mr Bai was disbursed by Summer Lawyers.
Funder Agreement
Together with the Victoria Parade Loan Deed Form, the other key document relevant to the dispute between Mr Bai and Lightspeed is the Funder Agreement executed by Mr Fitzpatrick on behalf of Lightspeed and Mr Bai on behalf of Haide Holdings on or about 17 August 2017.
As early as 1 March 2017, by email at 1:32 pm to Ms Gu (copied to Mr Bai and Mr Fitzpatrick), Mr Zhao raised the question of ‘[c]an the loan agreement for Uncle Bai lending to Lightspeed Finance be signed by [British Virgin Islands] Company, which is controlled by Uncle Bai alone’.
Further, Mr Bai deposed that, after executing the Victoria Parade Loan Deed Form:
I recall there was an occasion in or about 2017, though I do not recall the exact date, when I met with Mr Mark Fitzpatrick the director of the first defendant Lightspeed Finance in Shanghai, China. Over dinner, I 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 Holdings Ltd. Mr Fitzpatrick said that this could be done.
Ms Gu’s evidence was that Summer Lawyers prepared the first draft of a funder agreement in or about early May 2017.
By email of 3 May 2017 to Ms Gu (copied to Mr Bai, Mr Zhao and Mr Fitzpatrick), Ms Gurdina attached a draft copy of a funder agreement just with respect to the Harvest Home loan.
By email of 4 May 2017 to Ms Gurdina (copied to Mr Fitzpatrick), Ms Gu attached a funder agreement just with respect to the Harvest Home loan, which had been executed by Mr Fitzpatrick. Ms Gu stated that Mr Bai would send through his executed document that day.
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 and stated: ‘I will speak to our lawyer tomorrow and get back to you’.
By WeChat message of 10 May 2017 to Mr Zhao, Ms Gu stated:
[W]hat is written in the original investment contract is that Uncle Xiaobai lends money to Mark. 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.
By three 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 Holdings in respect of the loans to each of Victoria Parade, Harvest Home and Ozkar.
By WeChat message of 5 June 2017 to Ms Gu, Mr Zhao relayed the response to the draft funder agreements from Mr Bai’s legal department. By email of 7 June 2017 to Mr Zhao and Mr Bai (copied to Mr Fitzpatrick and Mr Reese), Ms Gu forwarded an email of 6 June 2017 with Summer Lawyers’ responses (shown below in italics) to the comments from Mr Bai’s lawyer including, relevantly, as follows:
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.
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 replied and stated that she would discuss with her lawyer tomorrow and get back to Mr Zhao.
(c)Mr Zhao replied and stated:
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 and stated:
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 replied and stated: ‘Currently, we act as the fund lending party under HAIDE HOLDINGS. Can we still sign a loan contract with LSF?’.
(f)Ms Gu replied and stated: ‘I think it would be better if our lawyer can talk to your lawyer directly’.
(g)Mr Zhao later stated:
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 replied and stated:
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%.
By WeChat messages of 19 June 2017 between Ms Gu and Mr Zhao:
(a)Mr Zhao stated:
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 later stated:
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 replied and stated:
Thank you for your time over the phone just now. I will give the lawyer instructions to further clarify LSF’s responsibilities in writing,
By email of 5 July 2017 to Ms Gu and Mr Zhao (copied to Mr Fitzpatrick), Ms Gurdina stated that she had drafted the deeds of assignment and transfer of mortgages for the Victoria Parade, Ozkar and Harvest Home loans.
By email of 27 July 2017 to Ms Gu (copied to Mr Fitzpatrick, Ms Natalie Wendon of Summer Lawyers and Ms Gurdina), Mr Zhao identified the following legal problems and requested that Ms Gu or her lawyers explain them:
(a)With respect to the inclusion of Haide Holdings 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:
(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 any time, as our 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?
By email of 1 August 2017 to Ms Gu and Mr Zhao (copied to Mr Fitzpatrick and Ms Wendon), Ms Gurdina responded to Mr Zhao’s questions as follows:
(a)With respect to the inclusion of Haide Holdings as a party to the various agreements, Ms Gurdina confirmed that 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 should be enforced by Haide Holdings or any other assignee.
(c)With respect to the funder agreements, Summer Lawyers would keep Mr Bai updated on any enforcement matters and stated that Mr Bai was responsible for his own further research into loans but there may be an action against Lightspeed for misrepresentation.
By email of 8 August 2017 to Mr Zhao and Ms Gurdina (copied to Mr Fitzpatrick and Ms Wendon), Ms Gu asked whether items 7.1.2, 7.1.3, 7.2 and 7.3 (which provided for certain releases of Lightspeed), could be removed from the deeds of assignment.
By email of 9 August 2017 to Ms Gu, Mr Evans and Mr Fitzpatrick (copied to Ms Gurdina and Mr Reese), Ms Wendon stated:
Further to my telephone conversation with Cindy, 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.
By WeChat messages of 11 August 2017 between Ms Gu and Mr Zhao:
(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 and stated:
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.
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’.
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 Timdanspi, Ozkar, Harvest Home and Victoria Parade loans.[10]
[10]It is common ground between the parties that the deeds of assignment were never executed.
The form of the deed of assignment with respect to the Victoria Parade loan was an assignment from Lightspeed to Haide Holdings of the amount owed by Victoria Parade to Lightspeed in connection with the mortgages executed by Victoria Parade.
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.
By WeChat messages of 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 and stated: ‘I have got a copy in hand and will take it back to Shanghai’.
(c)Ms Gu replied and stated: ‘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 stated as follows:
(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 Helen can send it directly to our lawyer’.
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.
By email of 10 January 2018 to Mr Zhao and Mr Bai (copied to Mr Fitzpatrick), Ms Gu provided an update with respect to the Victoria Parade loan and, in particular, stated:
The first ranking mortgagee Equity One has conducted on 6 December an auction of the whole building, however, the owner didn’t attend, Subsequently, it was discovered that the borrower had escaped Australia together with their family members as was testified by the Australian Federal Police on 1 December, leaving behind a huge sum of debt (ranked after LSF) and assets.
It is common ground between the parties that the Victoria Parade loan has not been repaid.
Terms of the Funder Agreement
The executed Funder Agreement was between Haide Holdings as funder and Lightspeed. The background provided that Haide Holdings agreed to appoint Lightspeed to refer loans to it, and that the relationship would be subject to the terms and conditions of the agreement.
The terms of the Funder Agreement included, relevantly, the following:
(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 6.3 provided that: ‘LSF is to be a loan manager for the Funder at all times.’
(d)Clause 7 provided as follows:
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.
(e)Clause 8 provided that: ‘All Loan Proceeds will be paid to the parties in accordance with Schedule 1’.
(f)Clause 9(g) provided as follows:
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 as follows:
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)In summary, clause 1 of Schedule 1 to the Funder Agreement provided that Loan Proceeds 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 a payment of Interest Proceeds repayable by a borrower on a settled loan.
Schedules 2 (A) – (D) were each entitled ‘Settled Loan Schedule’ and included the four loans funded as at that time by Mr Bai.
Schedule 2 (B) related to the loan advance to Victoria Parade, which was recorded as follows:
Loan Lightspeed Finance Ply Ltd ACN 148 868 786 advance to 462 Victoria Parade Pty Ltd
ACN 166 972 014Loan 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
Issues for determination
For the purpose of determining the issues, the parties formulated the following questions:
1.Question 1 - Did Mr Bai and Lightspeed enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form?
a.Did Ms Gu and Mr Bai have the conversation as alleged in paragraph 28 of Ms Gu’s witness statement (‘the Alleged Conversation’)?
b. If yes to part (a), can question 1 be answered ‘Yes’?
c. If no to part (a), can question 1 be answered ‘No’?
2.Question 2 - If no to question 1, did Mr Bai nevertheless lend Lightspeed the Principal Sum by advancing the Principal Sum to Summer Lawyers’ trust account in or about March 2017 (‘the Alleged Loan’)?
3.Question 3 - If yes to questions 1 or 2, did the Funder Agreement expressly or impliedly supplant the Alleged First Contract or the Alleged Loan?
4. Question 4 - If yes to question 3:
a.Did Ms Gu represent that the Funder Agreement did not apply to the Alleged First Contract or alternatively the Alleged Loan (‘the Alleged Representation’)?
b.If yes to part (a), did Mr Bai rely on the Alleged Representation in deciding to enter into the Funder Agreement?
5.Question 5 - If yes to questions 1 or 2, was Summer Lawyers in breach of its duty to Lightspeed by:
a.drafting and circulating the Victoria Parade Loan Deed Form without instructions;
b.failing to confirm Lightspeed’s instructions in respect of the Victoria Parade Loan Deed Form and failing to ensure that the terms of the Victoria Parade Loan Deed Form reflected the contractual relations Lightspeed was prepared to enter into with Mr Bai; and
c.failing to warn Lightspeed that it would be liable to make the repayments under the Victoria Parade Loan Deed Form?
6.Question 6 - If yes to question 5, did such breach cause Lightspeed loss and damage, being its liability to Mr Bai under the Alleged First Contract or the Alleged Loan?
Question 1 - Did Mr Bai and Lightspeed enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form?
Submissions
Mr Bai’s submissions
Mr Bai submitted that he and Lightspeed entered into the Alleged First Contract, because there was a valid offer and acceptance, as constituted by the following:
(a)an offer from Lightspeed through Ms Gu’s emails of 29 and 31 March 2017 to Mr Zhao and Mr Bai attaching the Victoria Parade Loan Deed Form; and
(b)acceptance by Mr Bai through signing the Victoria Parade Loan Deed Form on 30 March 2021 and Mr Zhao returning the signed Victoria Parade Loan Deed Form to Ms Gu by email of 31 March 2017.
Mr Bai further submitted that the Alleged First Contract contained the terms set out in the Victoria Parade Loan Deed Form, for the following reasons:
(a)The Victoria Parade Loan Deed Form was a complete contract and contained all of the necessary terms for a clear and complete bargain.
(b)The email correspondence between 29 and 31 March 2017, as referred to above, included nothing that changed the fundamental nature of the Victoria Parade Loan Deed Form as a contract under which Mr Bai lent money to Lightspeed, who were to on-lend that money to their client.
(c)The due diligence reports signed on 28 March 2017 were not evidence of additional terms because they did not purport to contain such terms and were simply reports.
(d)Ms Gu never denied that the structure of the transaction was always intended to be a loan from Mr Bai to Lightspeed, and neither Ms Gu nor Mr Fitzpatrick responded to Mr Zhao’s comment to that effect.
(e)The Merchant Building Loan Deed, which was used as the basis for the Victoria Parade Loan Deed Form and was signed by Lightspeed, contained the same terms that clearly showed Mr Bai as the lender and Lightspeed as the borrower.
(f)Mr Bai was not privy to the dealings between Lightspeed and Victoria Parade and so any terms relating to interest between those two entities were a matter for them.
(g)Communications between Mr Bai and Lightspeed about interest rates would have no impact on the question of the identities of the lender and borrower.
Mr Bai further submitted that the Alleged Conversation did not take place, for the following reasons:
(a)Neither Ms Gu nor Mr Bai could recall such a conversation and it is clear that the transaction went ahead without anything being ‘redrawn’.
(b)Even if the Alleged Conversation did occur, the Alleged First Contract had already been formed. Accordingly, unless Mr Bai had agreed to a variation, abandonment or novation of that agreement, it remained binding.
Lightspeed’s submissions
Lightspeed submitted that it did not enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form, for the following reasons:
(a)The Victoria Parade Loan Deed Form was never signed by Lightspeed.
(b)The hypothetical ‘reasonable observer’ could not be satisfied that the parties intended to adopt the Victoria Parade Loan Deed Form as the instrument that governed their relations.
(c)Merely providing an unsigned copy of the Victoria Parade Loan Deed Form could not amount to an offer capable of acceptance by Mr Bai because the parties had chosen to transact through a formal deed to be executed by all parties, as was the case with the Merchant Building loan.
(d)Key terms of the agreement had not been agreed, including:
(i)the capacity in which Lightspeed was to act;
(ii)the interest payable to Mr Bai; and
(iii)the date on which the advance would be recoverable by Mr Bai.
(e)The terms set out in the due diligence reports and accompanying email of 27 March 2017 were different to those set out in the Victoria Parade Loan Deed Form (specifically, a different interest rate and loan period). This discrepancy was never addressed and shows that there were two radically different proposals for the loan that were never settled.
As set out at paragraph 33(d) above, Lightspeed conceded that the Court could not be satisfied that the Alleged Conversation occurred. However, Lightspeed submitted that nevertheless the written communications between the parties demonstrated that there was no agreement as to the terms of the Alleged First Contract.
Conclusion
Was the emailing of the Victoria Parade Loan Deed Form by Summer Lawyers to Mr Bai an offer by Lightspeed to enter into legal relations?
An issue commonly arises in proceedings as to whether parties intended to enter into a binding contract in circumstances where a subsequent formal contract is contemplated.
In Masters v Cameron, the High Court identified three categories of such cases being, in summary:
(a)where the parties intend to be immediately bound but propose a proper and more complete formal contract to a similar effect to the earlier agreement;
(b)where the parties intend to be immediately bound but require the execution of a formal document and intend no departure from the terms of the earlier agreement; or
(c)where the parties do not intend to be bound until they execute a formal contract.[11]
[11](1954) 91 CLR 353, 360 (Dixon CJ, McTiernan and Kitto JJ).
The present case does not fall into any of the above categories because the formal contract had been prepared by Summer Lawyers acting on behalf of Lightspeed, and signed by Mr Bai as the lender, and a subsequent formal contract was not contemplated.
However, senior counsel for Mr Bai contended that the parties’ intention was to conclude a bargain prior to Lightspeed’s execution of the formal contract, on the basis that:
(a)the emailing of the Victoria Parade Loan Deed Form by Summer Lawyers to Mr Zhao on 29 March 2017 was an offer to borrow from Mr Bai on the terms of the Victoria Parade Loan Deed Form; and
(b)Mr Bai accepted the offer by returning signed pages 1 and 9 of the Victoria Parade Loan Deed Form by email of 31 March 2017.
In determining this submission, the critical question is whether a reasonable person in the position of the parties would have understood that the emailing of the Victoria Parade Loan Deed Form by Summer Lawyers to Mr Zhao was, having regard to the circumstances in which it occurred,[12] the communication by Lightspeed of an offer to enter into legal relations capable of being accepted by the return of a signed copy of the Victoria Parade Loan Deed Form.[13]
[12]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105-6 [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[13]Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424, 457 (Dixon CJ, Williams, Webb, Fullagar and Kitto JJ); Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, 12-13 [22]-[23] (French CJ, Kiefel and Bell JJ), 59-60 [196] (Nettle J), 76 [242] (Gordon J).
In answering this question, the Court may have regard to whether it is common practice for parties to intend to be finally bound to agreements or deeds of the type in question, prior to the execution and exchange of the formal contract.[14]
[14]Liquorland (Australia) Pty Ltd v GYG Holdings Pty Ltd 29 (Supreme Court of New South Wales, Powell JA, 28 October 1994) 29. See, eg, with respect to the sale of real estate, Elgas Ltd v AJ Young Industries Pty Ltd (1986) 4 BPR 9329, 9335 (McHugh JA, with whom Mahoney and Priestley JJA agreed); Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd [2000] VSC 155, [29] (Mandie J).
In my opinion, an objective observer would not, in normal circumstances, consider that, by a party’s solicitor emailing a form of loan deed to the counterparty, such party was making an offer capable of acceptance by the other party unilaterally signing and returning the form of loan deed. On the contrary, as is usual, the Victoria Parade Loan Deed Form provided for signatures by both parties; and the common practice is for legal obligations to be concluded on the exchange of a deed signed by both parties. I do not consider there are any facts in this case that support a conclusion that, at the time the Victoria Parade Loan Deed Form was provided to Mr Bai, it was intended that legal obligations would arise prior to execution by both parties.
However, the matter does not end there. There is no doubt that the return of the signed Victoria Parade Loan Deed Form by Mr Bai was an offer by him to enter into legal relations on the terms of the Victoria Parade Loan Deed Form, which was capable of being accepted by Lightspeed executing and returning the completed Victoria Parade Loan Deed Form.
Although Lightspeed did not execute the Victoria Parade Loan Deed Form, acceptance may have occurred in any event because an offeree’s acceptance may be inferred from its conduct after receiving the offer.
Can Lightspeed’s acceptance of Mr Bai’s offer be inferred?
As the Court of Appeal observed in Woolcorp Pty Ltd v Rodger Constructions Pty Ltd, in the absence of an offeree’s express consent, acceptance of an offer may be inferred if an objective bystander would conclude from the offeree’s conduct, including its silence, that the offeree has accepted the offer and has signalled that acceptance to the offeror.[15] As the Court of Appeal said in Danbol Pty Ltd v Swiss Re International SE:
The conduct relied on must be objectively capable of constituting and conveying acceptance in the eyes of a reasonable person in the position of the offeror. It may be found where the offeree takes the benefit of the offer.[16]
[15][2017] VSCA 21, [9] (Santamaria, Kyrou JJA and Elliott AJA).
[16][2020] VSCA 274, [75] (McLeish, Niall and Sifris JJA) (citations omitted).
In summary, the principles to be applied in determining whether an offer has been accepted so as to form an enforceable contract are as follows:
(a)The test for finding offer and acceptance will be satisfied if there has been a ‘clear indication by one party of a willingness to be bound on certain terms, accompanied by an unqualified assent to that offer communicated by the other party’.[17]
(b)The test is objective and requires the Court to consider ‘the text of relevant documents, and also the surrounding circumstances known to participants, and the genesis, purpose and object of the transaction, but not the participants’ subjective beliefs’.[18] The Court may have regard to:
(i)the parties’ pre-contractual conduct on the issue of what each party, by their words and conduct, would have led a reasonable person in the position of the other party to believe;[19] and
(ii)the parties’ subsequent communications for the purpose of determining what terms were essential or important, whether there were admissions, and whether the parties intended their ‘agreement’ to be binding.[20]
(c)The absence of an essential term will render the ‘agreement’ incomplete; and, if the parties have not reached a consensus on important matters, it is less likely that they intended to be immediately bound.[21]
(d)The acceptance of an offer can be inferred if an objective bystander would conclude from the offeree’s conduct, including his or her silence, that the offeree has accepted the offer and has signalled that acceptance to the offeror.[22]
[17]JW Carter, E Peden and GJ Tolhurst, Contract Law in Australia (LexisNexis Butterworths, 5th ed, 2007) 37 [3-02], quoted with approval in Kriketos v Livschitz (2009) 14 BPR 26,717, 26,735 [110] (McColl JA, with whom Allsop P and Macfarlan JA agreed).
[18]Kriketos v Livschitz (2009) 14 BPR 26,717, 26,735 [108] (McColl JA, with whom Allsop P and Macfarlan JA agreed).
[19]Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd(as trustee for Jack Road Investments Unit Trust) [2019] VSCA 91, [46] (Kaye, McLeish and Hargrave JJA).
[20]Queensland Phosphate Pty Ltd v Korda(as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269, [37] (Tate, Beach JJA and Sifris AJA).
[21]Ibid.
[22]P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42, [9] (Whelan JA, with whom Ferguson and Kaye JJA agreed).
In my opinion, Lightspeed’s conduct, after receiving the signed Victoria Parade Loan Deed Form on 31 March 2017, would have caused a reasonable observer to conclude unequivocally that Lightspeed had accepted the terms of the Victoria Parade Loan Deed Form. In particular:
(a)By Trust Account Receipt dated 31 March 2017, Summer Lawyers, the solicitors for Lightspeed, acknowledged receipt of the sum of $478,220 from Mr Bai with the description ‘Mortgage – 462 Victoria Parade Pty Ltd’ which, together with the sum of $1,021,780 already paid by Mr Bai, constituted the Principal Sum to be loaned under the terms of the Victoria Parade Loan Deed Form. Of course, unless Lightspeed was proceeding with the proposed loan, this money should have been returned to Mr Bai.
(b)Lightspeed took the benefit of the offer. It proceeded to on-lend the Principal Sum to its customer, Victoria Parade, consistently with the ‘Authorised Purpose’ set out in the terms of the Victoria Parade Loan Deed Form. On 5 April 2017, Ms Gu sent Mr Zhao and Mr Bai copies of the mortgages securing the Victoria Parade loan in which Victoria Parade was the mortgagor and Lightspeed was the mortgagee. Subsequently, its solicitors disbursed the Principal Sum on 28 April and 1 May 2017.
(c)At no time did Lightspeed suggest to Mr Bai that the receipt of the Principal Sum and its on-lending to Victoria Parade was other than in accordance with the terms of the Victoria Parade Loan Deed Form. An objective observer would have expected that, if Lightspeed was not accepting the offer on the terms of the Victoria Parade Loan Deed Form executed by Mr Bai, it would have so informed Mr Bai. In fact, Lightspeed alleged that Ms Gu did inform Mr Bai that the terms of the Victoria Parade Loan Deed Form were not acceptable; but the evidence did not support this allegation and ultimately, it was not pressed on behalf of Lightspeed at trial.
(d)In subsequent correspondence, Lightspeed acknowledged that it was the borrower under the terms of the Victoria Parade Loan Deed Form. In particular:
(i)After the first funder agreement was prepared with respect to the Harvest Home loan, Mr Zhao said by WeChat message of 4 May 2017 that his ‘lawyer asked why it was a “Funder Agreement” instead of the original loan contract?’. By her WeChat message reply of 10 May 2017, Ms Gu conceded that under ‘the original investment contract … Uncle Xiaobai lends money to Mark [Fitzpatrick]’.
(ii)In a WeChat message exchange on 13 June 2017, Ms Gu conceded that the ‘previous contract states that LSF is the borrower’.
(e)Prior to the execution of the Funder Agreement, it was never denied by Lightspeed that the Victoria Parade Loan Deed Form was legally enforceable.
Accordingly, I find that Mr Bai and Lightspeed did enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form.
Question 2 - If no to question 1, did Mr Bai nevertheless lend Lightspeed the Principal Sum by the Alleged Loan?
Submissions
Mr Bai’s submissions
Mr Bai submitted that, even if Lightspeed did not enter into the Alleged First Contract, Mr Bai nevertheless lent Lightspeed the Principal Sum, for the following reasons:
(a)Summer Lawyers’ trust account records show that the Principal Sum was deposited by Mr Bai into Summer Lawyers’ trust account in two transactions, being:
(i)a deposit in the sum of $1,021,780 made on or about 20 March 2017; and
(ii)a further deposit of $478,220 made on 31 March 2017.
(b)The trust account records identify Lightspeed as Summer Lawyers’ client; and Mr Reese admitted in cross-examination that the Principal Sum was held by Summer Lawyers on behalf of Lightspeed.
(c)Accordingly, the Court should conclude that Mr Bai paid Lightspeed the Principal Sum by paying it into Summer Lawyers’ trust account, as directed by Lightspeed.
(d)If Lightspeed acted merely as a facilitator for the loan between Mr Bai and Victoria Parade, there would have been no need for the money to come within Lightspeed’s control. Rather, it would simply have been paid by Mr Bai directly to Victoria Parade or as directed by Victoria Parade.
(e)The evidence and, in particular, the communications between Lightspeed and Mr Bai during March 2017, clearly show that the purpose of the payment of the Principal Sum to Lightspeed was because Mr Bai had agreed to loan the Principal Sum to Lightspeed.
Lightspeed’s submissions
Lightspeed submitted that Mr Bai did not lend it the Principal Sum, for the following reasons:
(a)For the same reasons submitted with respect to question 1, no loan agreement was entered into because the terms of such an agreement were not finalised.
(b)The advance of funds itself cannot create an agreement where none had previously existed.
(c)If the advance of money was an acceptance of an offer, it is unclear which of the two different loan proposals was being accepted.
Conclusion
As the answer to question 1 is ‘Yes’, it is not necessary for me to answer question 2. Suffice to say that, after Lightspeed proceeded to apply the Principal Sum consistently with the terms of the Victoria Parade Loan Deed Form, there was no basis from which an objective observer could conclude that Lightspeed was doing so on any terms other than those contained in the Victoria Parade Loan Deed Form proffered by its solicitors.
Question 3 - If yes to questions 1 or 2, did the Funder Agreement expressly or impliedly supplant the Alleged First Contract or the Alleged Loan?
Submissions
Lightspeed’s submissions
Lightspeed submitted that the Funder Agreement supplanted the Alleged First Contract, and that by executing the Funder Agreement the parties impliedly revoked any earlier agreement, for the following reasons:
(a)Clause 10.1(b) of the Funder Agreement explicitly stated that it ‘supersedes any other agreement … in respect of the matters dealt with in this agreement’.
(b)The Funder Agreement laid down a carefully defined framework for the obligations of Lightspeed in relation to the advance of the Principal Sum to Victoria Parade and that framework differed radically from any prior loan agreement pursuant to which Lightspeed was liable to repay the advance to Mr Bai.
(c)The Funder Agreement applied to the same advance that Mr Bai seeks to recover, and laid down an entirely different arrangement where proceeds were to be paid:
(i)to a different lender (Haide Holdings);
(ii)at a different rate; and
(iii)on different terms.
The authorities establish that a later loan agreement dealing with an advance that was the subject of a prior agreement will supplant the earlier agreement.
(d)Lightspeed emphasised the relevance of the following further clauses of the Funder Agreement:
(i)Clause 6.3, which clearly defined Lightspeed’s role as a ‘loan manager’.
(ii)Clause 7, which appointed Lightspeed as an ‘agent’ to negotiate and manage loans on behalf of Haide Holdings.
(iii)Clause 9(g), which made it clear that Lightspeed was not responsible for the repayment of a ‘Settled Loan’ (as defined).
(iv)The ‘Settled Loan Schedule’, read together with the definition of ‘Settled Loan’, which clearly showed that the Funder Agreement operated with respect to loans, including the Victoria Parade loan.
(e)The above clauses cannot be reconciled with an alleged agreement for Lightspeed to be liable to repay the Principal Sum plus interest to Mr Bai and the parties could not rationally be taken to have intended to preserve an unconditional liability on Lightspeed to repay the loan amount to Mr Bai when Lightspeed was assuming a different set of obligations, now to Haide Holdings, in respect of the same sum of money.
(f)The Court should not accept Mr Bai’s privity argument because Mr Bai and Lightspeed implicitly agreed to cancel any prior loan agreement between them when they executed the Funder Agreement.
Mr Bai’s submissions
Mr Bai submitted that the Funder Agreement did not supplant the Alleged First Contract, for the following reasons:
(a)Mr Bai was not a party to the Funder Agreement and it did not apply to loans advanced by him or any loans made prior to its commencement date in August 2017.
(b)Mr Bai was a party to the Alleged First Contract, and any change to that contract would need to be done by an agreement to which Mr Bai was a party.
(c)Any alleged assignment of the Victoria Parade loan would be ineffective because no notice was given to Victoria Parade.
(d)The parties did negotiate a separate deed of assignment which would have affected the Alleged First Contract; but it was ultimately never executed.
(e)In any event, the terms of the Funder Agreement do not supplant the Alleged First Contract because:
(i)it expressly only applies for a term beginning in August 2017 and only to loans made by Haide Holdings; and
(ii)the inclusion of a reference to the Victoria Parade loan in the Funder Agreement should be construed as an intent as to the division of interest proceeds on the loan, and not as an intent to change the identity of the lender or the borrower in respect of the original transaction.
Conclusion
In the circumstances of this case, to establish that the Funder Agreement supplanted the Alleged First Contract, it is necessary for Lightspeed to prove 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.
Was the Funder Agreement, on its terms, inconsistent with the Alleged First Contract?
Principles
In Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd, the High Court considered the distinction between:
(a)a variation of a contract; and
(b)the replacement of a contract by a new contract without a change of parties.[23]
Gleeson CJ, Gaudron, McHugh and Hayne JJ said:
When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists.[24]
[23](2000) 201 CLR 520 (Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ).
[24]Ibid 533 [22].
In Hillam v Iacullo, the New South Wales Court of Appeal considered whether the lenders could enforce the second of three loan agreements which they had entered into with a borrower.[25] At first instance Ball J held that:
(a)the lenders could not insist upon a payment due under the third loan agreement because they had failed to perform their obligations under that agreement;[26] but
(b)the lenders could enforce the second loan agreement because it had remained on foot.[27]
[25](2015) 90 NSWLR 422 (Basten, Ward and Leeming JJA) (‘Hillam’).
[26]Iacullo v Hillam [2014] NSWSC 1021, [33]-[34].
[27]Ibid [38]-[40].
On appeal, Leeming JA said that the question of whether the lenders could enforce their rights under the second loan agreement depended on ‘discerning the (objective) intention of the parties’.[28] His Honour noted the difference in the provisions made under the third loan agreement and concluded that it fell within the following description given by Lord Dunedin in Morris v Baron & Co:
[T]he first contract is got rid of … because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed.[29]
[28]Hillam (2015) 90 NSWLR 422, 434 [57] (with whom Basten and Ward JJA agreed).
[29]Ibid 435 [62], quoting Morris v Baron & Co [1918] AC 1, 26.
Leeming JA concluded that the ultimate analysis was:
[W]hether the legal rights generated by the second loan agreement were inconsistent with those resulting from the third. The third loan agreement, being a more recent, formally executed distillation of the parties’ rights and obligations, which was inconsistent with those arising under the second loan agreement, brought the second loan agreement to an end.[30]
[30]Hillam (2015) 90 NSWLR 422, 437 [73].
In Schreuders v Grandiflora Nominees Pty Ltd, the Court of Appeal said that:
Where the parties enter into an agreement and then enter into a second agreement which varies the first agreement, it may be necessary for the court to determine whether the second agreement brings an end to the first agreement and replaces it with the second, or whether the effect is that the first agreement remains, subject to the variation.
The question whether an amending agreement supersedes rather than varies the principal agreement depends on the objective intention of the parties to the amending agreement as disclosed by the wording of that agreement.[31]
[31][2016] VSCA 93, [18]-[19] (Kyrou, Ferguson and McLeish JJA) (citations omitted).
As the Court of Appeal observed in Balanced Securities Ltd v Dumayne Property Group Pty Ltd:
The critical factor in determining that issue in Hillam v Iacullo was the fact that the third loan agreement expressly dealt with the very same advances for which provision had been made in the second loan agreement. The second loan agreement had to be treated as being discharged because the third agreement dealt with the same subject matter but in a different way and it was impossible that both should be performed. This conclusion was reached by consideration of the terms of the two agreements.[32]
[32](2017) 53 VR 14, 30 [71] (Whelan and Ferguson JJA and Cameron AJA) (citations omitted).
After reviewing the relevant authorities, the Court of Appeal set out the relevant principles as follows:
(1)The relevant issue is whether the subsequent agreement amends the earlier agreement or brings it to an end and replaces it.
(2)The earlier agreement may be brought to an end either expressly or by implication.
(3)The issue is to be resolved by ascertaining the manifest intention of the parties.
(4)The manifest intention of the parties is to be ascertained objectively by the construction of the subsequent agreement, having regard to the relevant context of that agreement where it is permissible to do so in accordance with the ordinary principles of contractual construction.
(5)A potentially critical factor militating in favour of a conclusion that the manifest intention of the parties, objectively ascertained, was to bring the earlier agreement to an end and replace it, is where the terms of the two relevant agreements deal with the same subject matter in different and inconsistent ways.[33]
[33]Ibid 31-2 [78] (citations omitted).
In summary, I consider the above authorities to stand for the proposition that, if two relevant agreements between the same parties deal with the same subject matter in inconsistent ways, such that it would be impossible for both be performed, it should be inferred that the latter was intended to supplant the former.
Conclusion
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, as set out in paragraph 66(g) above, 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 Holdings and Lightspeed agreed that:
(i)Lightspeed was appointed as Haide Holdings’ agent to manage the Victoria Parade loan; and
(ii)Lightspeed would not be liable to Haide Holdings in the event that Lightspeed was unable to recover the full amount owing by the defaulting borrower.
(c)The ‘Loan Proceeds’,[34] 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 Holdings, rather than Mr Bai.
These clauses are irreconcilable with the terms of the Alleged First Contract.
[34]See the definition set out in paragraph 66(a) above.
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 Holdings.
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.[35] 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]Alma Hill Constructions Pty Ltd v Onal (2007) 16 VR 190, 201-2 [37]-[38] (Kaye J).
Did Mr Bai implicitly agree to the termination of the Alleged First Contract?
The principles with respect to the supplanting of a contract are, as observed by the High Court in Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd, applicable when the new contract involves the same parties.[36] Accordingly, the fact that the Funder Agreement and the Alleged First Contract are inconsistent, in the sense that it would be impossible for both to be performed, is not sufficient to allow the Court to conclude that the Alleged First Contract was supplanted by the Funder Agreement. For the Alleged First Contract to be supplanted, the doctrine of privity requires that Mr Bai, who was not a party to the Funder Agreement, agreed to the termination of the Alleged First Contract.
Principles
[36](2000) 201 CLR 520, 533-4 [22].
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.[37] 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.[38]
[37]The WeChat message of 11 August 2017 from Mr Zhao, set out in full at pargraph 56(a) above, suggests it may have been the result of the advice to Mr Bai from ‘Legal Affairs … to only sign the original Funder Agreement and that is it’.
[38]PRA Electrical Pty Ltd v Perseverance Exploration Pty Ltd (2007) 20 VR 487, 489 [6] (Nettle JA). See also Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32, 81-3 (Ormiston J).
The circumstances in which a contract will be inferred were explained by Sundberg J in Adnunat Pty Ltd v ITW Construction Systems Australia Pty Ltd:
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.[39]
[39][2009] FCA 499, [39] (citations omitted), quoted with approval in P’Auer AG v Polybuild Technologies International Pty Ltd [2015] VSCA 42, [11] (Whelan JA, with whom Ferguson and Kaye JJA agreed).
As Whelan J explained in P’Auer AG v Polybuild Technologies International Pty Ltd:
It is important to emphasise that the circumstances in which a contract will be inferred, otherwise than by the traditional analysis of offer and acceptance, will be rare. …
In determining if an agreement has been made in this way regard must be had to the entirety of the relevant conduct. The precise point in time at which the agreement comes into existence may not be clear, and the relationship between the parties themselves may be dynamic in such a way that the terms of the agreement might be added to or superseded over time.[40]
Conclusion
[40][2015] VSCA 42, [11]-[12] (with whom Ferguson and Kaye JJA agreed).
In my opinion, 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 Alleged First Contract in consideration of Lightspeed assigning its rights under the Victoria Parade loan to Haide Holdings and entering into the Funder Agreement, for the following reasons:
(a)Haide Holdings 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 Holdings.
(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 Holdings.
(c)The communications between the parties made it plain that it was intended that the Funder Agreement would substitute Haide Holdings 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 Holdings Ltd’.
(ii)Prior to execution of the Funder Agreement, requests were made on behalf of Mr Bai to substitute Haide Holdings 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 Holdings Ltd 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 Mark. 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’.
Question 4 – If yes to question 3, did Ms Gu make the Alleged Representation and, if so, did Mr Bai rely on the Alleged Representation?
Submissions
Mr Bai’s submissions
Mr Bai submitted that Ms Gu made the Alleged Representation. Mr Bai gave evidence that, in the car following dinner at a Japanese restaurant in August 2017, Ms Gu made a statement to the effect that:
(a)after Mr Bai signed the Funder Agreement, and once he had received his Australian ‘green card’, he would be able to make loans to individuals or organisations in Australia; and
(b)the Funder Agreement applied to future investment projects.
In support of his submission, Mr Bai referred to:
(a)his evidence and the evidence of his wife, Ms Liqun Wang, that such a statement was made; and
(b)Ms Gu’s WeChat message of 11 August 2017 which contradicts her denial of the statement.
Mr Bai further submitted that he relied on the Alleged Representation because he was told that he would get permanent residency soon and that he needed to sign the Funder Agreement to help him operate his loan business, and that it would help with future loans.
Lightspeed’s submissions
Lightspeed submitted that Ms Gu did not make the Alleged Representation and that, even if she did, it was not relied upon by Mr Bai in deciding to enter into the Funder Agreement, for the following reasons:
(a)Mr Bai gave no evidence that he was told by Ms Gu that the Funder Agreement did not apply to existing loans. Rather, his evidence was that Ms Gu told him that after signing the Funder Agreement, Mr Bai could make loans within Australia.
(b)An allegation of misrepresentation is an allegation of fraud which must be proven by cogent evidence.
(c)Mr Bai’s evidence as to the contents of the Alleged Representation was inconsistent.
(d)The evidence of communications between the parties makes clear that everyone representing Mr Bai understood that the Funder Agreement would replace the existing arrangements with respect to the Victoria Parade loan and that those arrangements were for Lightspeed not to be the borrower liable to repay the principal.
(e)Even if Ms Gu did discuss the applicability of the Funder Agreement to future loans with Mr Bai, this was not a misrepresentation because the Funder Agreement did in fact apply to such loans.
(f)Mr Bai adduced no evidence that he relied on the Alleged Representation and he had lawyers engaged to scrutinise the Funder Agreement and provide advice as to its nature.
Conclusion
I reject Mr Bai’s allegation that Ms Gu told him, prior to signing the Funder Agreement in August 2017, that it would only apply to future loans, for the following reasons:
(a)The evidence extracted from the transcript on this issue is set out in the appendix to these reasons. Despite a number of opportunities, in examination in chief and re-examination, Mr Bai did not articulate such a representation. The only evidence of such a representation by Ms Gu was given by Mr Bai’s wife, Ms Wang, who, after giving no such evidence in examination in chief, said in cross-examination: ‘No, I felt this agreement applied to future investment projects, Cindy said that.’ I found this evidence to be very unconvincing. In the absence of such evidence from Mr Bai, and in the face of the denial by Ms Gu, I am unable to accept the evidence of Ms Wang.
(b)I consider that it is most unlikely such a conversation would have taken place, particularly in the car at that time, for the following reasons:
(i)The negotiation of the Funder Agreement had been completed between each party’s representatives, including lawyers, and there was no suggestion that any negotiation would occur in the car after dinner.
(ii)The proposition that the Funder Agreement would not apply to past transactions and, in particular, the Victoria Parade loan, was inconsistent with:
(1)the express terms of the Funder Agreement;
(2)the communications between the parties’ representatives including lawyers during negotiations; and
(3)the express request by Mr Bai and Mr Zhao that Haide Holdings should become the lender of the Victoria Parade loan, and that the Funder Agreement should apply to all loans.
Further, there was no evidence by Mr Bai of reliance on the Alleged Representation. He did not give evidence that, if the Alleged Representation had not been made, he would not have signed the Funder Agreement.
Accordingly, I reject Mr Bai’s allegation of an actionable misrepresentation.
Question 5 - If yes to questions 1 or 2, was Summer Lawyers in breach of its duty to Lightspeed?
Submissions
Mr Bai’s submissions
As Mr Bai did not press a claim against Summer Lawyers, Mr Bai made no submissions in relation to questions 5 and 6.
Lightspeed’s submissions
Lightspeed submitted that Summer Lawyers breached its contractual and common law duties of care to Lightspeed, for the following reasons:
(a)Summer Lawyers prepared and circulated the Victoria Parade Loan Deed Form without taking sufficient instructions to ensure that it accorded with Lightspeed’s intentions. For example, the Victoria Parade Loan Deed Form provided for Lightspeed to pay interest of 24% per annum instead of 15% which, if it had proceeded, would have resulted in Lightspeed losing money from the transaction. Any competent lawyer would have spotted this problem and rectified it.
(b)Lightspeed sent numerous emails to Summer Lawyers, including emails from Mr Fitzpatrick on 20 March 2017, that made clear its instructions that it did not intend to assume the ordinary responsibilities of a borrower under the agreement. Summer Lawyers failed to check that the Victoria Parade Loan Deed Form complied with these instructions.
(c)Summer Lawyers failed to warn Lightspeed that it would potentially be held liable to Mr Bai in the event that the loan was not repaid by Victoria Parade.
(d)Summer Lawyers should have inserted terms in the Victoria Parade Loan Deed Form to confirm that Lightspeed would act merely in a representative capacity and that Lightspeed would not be responsible to repay the loan in full.
Summer Lawyers’ submissions
Summer Lawyers submitted that it did not breach its duties to Lightspeed, for the following reasons:
(a)Summer Lawyers’ role in relation to Lightspeed was limited to drafting loan documents, and they did not involve themselves in the commercial dealings between Lightspeed and investors. In support of this submission, Summer Lawyers relied on Ms Gu’s email of 27 March 2017.
(b)Ms Gu and Mr Fitzpatrick understood the nature of the Merchant Building Loan Deed, and it was Mr Bai, not Lightspeed, who sought to renegotiate the Merchant Building Loan Deed after it was executed.
(c)On 29 March 2017, Ms Gu gave express instructions to amend the Merchant Building Loan Deed to name Victoria Parade as the borrower, and to circulate the Victoria Parade Loan Deed Form to Mr Zhao. Lightspeed is now complaining about Summer Lawyers’ prompt compliance with that direction.
(d)Summer Lawyers had no duty to take Lightspeed through the relevant parts of the Victoria Parade Loan Deed Form because Lightspeed was already familiar with its contents from the Merchant Building Loan Deed.
(e)Ms Gu and Mr Fitzpatrick gave no evidence as to how the Victoria Parade Loan Deed Form did not conform to their instructions, save for their request that they did not want Lightspeed to be liable to Mr Bai. However, because Lightspeed entered into the Merchant Building Loan Deed, and Ms Gu asked for the Victoria Parade Loan Deed Form to be circulated, it cannot be accepted that Lightspeed held this instruction at the time.
(f)In relation to Summer Lawyers’ alleged failure to:
(i)communicate to Mr Bai that Lightspeed did not intend to be bound by the Victoria Parade Loan Deed Form; and
(ii)warn Lightspeed that it would be liable to make the repayments under the Victoria Parade Loan Deed Form,
Lightspeed has not established the premise of the question, namely that it told Summer Lawyers that it did not intend to be bound by the Victoria Parade Loan Deed Form.
Conclusion
I do not accept that:
(a)Mr Fitzpatrick, as the director of Lightspeed, did not intend for Lightspeed to be the borrower under the Alleged First Contract; or
(b)Lightspeed gave any instructions to Summer Lawyers other than to prepare the Victoria Parade Loan Deed Form in the form of the Merchant Building Loan Deed (under which Lightspeed was the borrower).
This conclusion is based on the following findings:
(a)Negotiations between Mr Bai and Lightspeed with respect to the Merchant Building Loan Deed were that Lightspeed would borrow the money from Mr Bai.
(b)Lightspeed specifically instructed Summer Lawyers that Lightspeed was the borrower under the Merchant Building Loan Deed.
(c)The instruction to draw the loan agreement with respect to the Victoria Parade loan was, in substance, the same as the instruction with respect to the Merchant Building loan.
(d)After execution of the Merchant Building Loan Deed, Lightspeed acknowledged that it was the borrower under the Merchant Building Loan Deed.
I have found that negotiations between Mr Bai and Lightspeed with respect to the Merchant Building Loan Deed were consistent with Lightspeed borrowing the money from Mr Bai, on the basis of the following:
(a)By email of 1 March 2017 to Ms Gu, Mr Zhao said that ‘I want to reconfirm the legal relationship of a loan: Uncle Bai shall provide a loan to Lightspeed Finance, and then you will lend to [Merchant Building]’ to which Ms Gu replied and stated: ‘Since Uncle Bai is not yet an Australian citizen, the lawyer will draft a Nominee contract between Lightspeed and Uncle Bai.’[41]
(b)By email of the same day to Ms Gu, Mr Zhao said: ‘Can the loan agreement for Uncle Bai lending to Lightspeed Finance be signed by [British Virgin Islands] Company’. This email may demonstrate uncertainty as to who might be the lender, but Lightspeed is undoubtedly assumed to be the borrower.
[41]If by ‘Nominee contract’ it was intended to convey that the loan agreement would include Lightspeed as borrower, but it would not in fact be liable, that was not stated.
I have found that Lightspeed specifically instructed Summer Lawyers that Lightspeed was the borrower, on the basis of the following:
(a)By email of 2 March 2017 to Ms Gurdina (copied to Mr Fitzpatrick and Mr Evans), Ms Gu gave instructions for Summer Lawyers to draft the Merchant Building Loan Deed in the following terms:
Please see the attached Letter Of Offer & Mandate to Act.
Principal – $1,087,000
Initial contribution: $1,021,780
Term: 3‐month
Lender’s details are as below:
Name: Junping Bai
C/- 218 Kooyong Road, Toorak, VIC, 3142
Could you please start commencing the following:
·Lodge the caveat
·Draft the loan agreement
*We will require a contract between Lightspeed & Mr Bai as Mr Bai is still in the process of getting the residency
*Is there a way to include Mr Bai’s name in the loan agreement even though we are representing him?
Any questions please do not hesitate to contact myself.
(b)After receiving these instructions, on 6 March 2017, Ms Gurdina emailed a draft Merchant Building investor loan agreement with an execution page which incorrectly provided for Mr Bai as the borrower and Lightspeed as the lender. Ms Gu replied and stated specifically that ‘Mr Bai is the Lender’ and ‘Lightspeed is the borrower in this instance’.
(c)On the same day, Ms Gurdina emailed an amended draft Merchant Building investor loan agreement which, relevantly, amended the execution page to provide for Mr Bai as the lender and Lightspeed as the borrower.
(d)On 14 March 2017, the Merchant Building Loan Deed was executed by Mr Fitzpatrick on behalf of Lightspeed, which clearly provided for Lightspeed as the borrower.
I have found that the instruction to draw the Victoria Parade Loan Deed Form was substantially the same as the instruction with respect to the Merchant Building Loan Deed, on the basis of the following:
(a)By email of 27 March 2017 to Ms Gurdina (copied to Mr Fitzpatrick, Mr Evans and Mr Reese), Ms Gu gave instructions for Summer Lawyers to draft the Victoria Parade Loan Deed Form in the following terms:
Please see the attached Letter Of Offer & Mandate to Act.
Principal: $1,500,000
Initial contribution: $1,500,000
Term: 12‐month
…
Lender’s details are as below:
Name: Junping Bai
C/- 218 Kooyong Road, Toorak, VIC, 3142
…
Could you please start commencing the following:
·Lodge the caveat
·Draft the loan agreement
Any questions please do not hesitate to contact myself.
This instruction was identical to that which led to Summer Lawyers drafting the Merchant Building Loan Deed except for the ‘Principal’, the ‘Initial contribution’ and the ‘Term’.
(b)After the instruction, by email of 29 March 2017 to Ms Gu (copied to Mr Fitzpatrick and Mr Reese) Ms Gurdina attached the Victoria Parade Loan Deed Form, which was in substantially the same form as the Merchant Building Loan Deed that had been signed by Mr Fitzpatrick. Ms Gu then arranged for it to be executed by Mr Bai.
I have found that, after Mr Bai executed the Victoria Parade Loan Deed Form, Lightspeed acknowledged that it was the borrower, for the reasons set out in paragraph 86(d) above.
I reject Lightspeed’s submission that Mr Fitzpatrick’s refusal to provide a guarantee in emails of 20 March 2017 made clear its instructions that it did not intend to assume the ordinary responsibilities of a borrower. The fact that Mr Fitzpatrick refused to be a guarantor of Lightspeed under the Merchant Building Loan Deed is not inconsistent with Lightspeed being the borrower.
I also reject Lightspeed’s submission that the fact that the Victoria Parade Loan Deed Form provided for Lightspeed to pay interest of 24% per annum instead of 15% demonstrates that insufficient instructions were taken by Summer Lawyers to ensure that the Victoria Parade Loan Deed Form accorded with Lightspeed’s intentions. The circumstances that led to the incorrect interest rate in the Victoria Parade Loan Deed Form were not explained. However, any error by Summer Lawyers in this regard was not related to loss suffered by Lightspeed being the borrower under the Alleged First Contract.
In the circumstances, I am not satisfied that Summer Lawyers breached their duty of care to Lightspeed and I will dismiss Lightspeed’s claim against Summer Lawyers.
Question 6 - If yes to question 5, did such breach cause Lightspeed loss and damage, being its liability to Mr Bai under the Alleged First Contract or the Alleged Loan?
Submissions
Lightspeed’s submissions
Lightspeed submitted that, as a result of Summer Lawyers’ breaches of duty, it has suffered loss and damage in the form of its liability to Mr Bai under the Alleged First Contract, for the following reasons:
(a)Mr Fitzpatrick’s unchallenged evidence was that he would never have authorised the release of the Principal Sum from Summer Lawyers’ trust account had he understood that there was a risk Lightspeed might be liable to Mr Bai.
(b)If Summer Lawyers had taken proper instructions, Mr Fitzpatrick would have been warned of that risk, and any potential exposure to Mr Bai would have been avoided.
(c)Therefore, if Mr Bai is successful, Lightspeed will have suffered loss and damage that is co-extensive with its liability to Mr Bai and is entitled to recover that amount from Summer Lawyers.
Summer Lawyers’ submissions
Summer Lawyers submitted that, even if it has breached its duty to Lightspeed, Lightspeed has suffered no loss or damage, for the following reasons:
(a)If Lightspeed was content to accept liability to Mr Bai under the Victoria Parade Loan Deed Form, then any breach by Summer Lawyers cannot be causative of Lightspeed’s loss.
(b)If Lightspeed was not so content:
(i)in relation to the alleged circulation of the Victoria Parade Loan Deed Form without instructions, Lightspeed’s liability would still have arisen because it was Ms Gu’s circulation of the Victoria Parade Loan Deed Form that allowed Mr Bai to sign and return it;
(ii)in relation to the failure to ensure the Victoria Parade Loan Deed Form reflected Lightspeed’s instructions, no one from Lightspeed actually gave evidence as to what those instructions were, which makes the causal inquiry difficult; and
(iii)in relation to the failure to tell Mr Bai that Lightspeed did not intend to be bound and to warn Lightspeed that it would be liable to repay the sum under the Victoria Parade Loan Deed Form, Lightspeed did not give instructions to that effect, likely because it was content with being liable to Mr Bai.
(c)There is authority that, even though a strict ‘but for’ test might be satisfied, there is no causal connection between a solicitor’s negligence and the alleged loss if the subject of the negligent advice did not bear any relevant relationship to the type of loss suffered.
Conclusion
As I have found that the Alleged First Contract was supplanted by the Funder Agreement, and consequently Lightspeed is not liable to Mr Bai under the Alleged First Contract, any breach of duty by Summer Lawyers with respect to the Victoria Parade Loan Deed Form did not cause any damage to Lightspeed.
Orders
On the principal claim, I propose to enter judgment for the defendants and order that the plaintiff’s claims be dismissed.
On the third party claim, I propose to enter judgment for the third party and order that the first defendant’s claim be dismissed.
I will hear the parties on the form of orders and costs.
---
Appendix
Examination in chief of Mr Bai
And can you recall what Cindy Gu told you about the document when you signed it? --- There was one point that I am pretty clear, which is after the execution of this document and after I received my permanent residency status I can use the name of Haide Holdings to make loan within Australia.
And was that what Ms Gu told you? --- Yes.
…
Can you remember anything else that Ms Gu said to you when you signed this document? --- What I can recall is that after - she said after the completion, after the completion I can use my own name to make loan to an individual or an organisation in Australia.
…
And can you recall what was said? --- As I stated before, it was after I sign - after I signing this one, then in the future when I receive my Australian green card I will be able to make a loan to individual, to individuals or organisations in Australia.
And do you recall anything else said before you signed the agreement? --- I can’t recall, but all was said was about children’s study in Australia in the future and some family matters. Nothing about business.
Re–examination of Mr Bai
Yes. Do you remember signing this document? --- I remember.
Yes. Do you please tell His Honour why you signed the document? --- At that time I remember very clearly the reason that I signed this document was because I was informed I was going to get my permanent resident visa when soon, that is why I needed to sign this document, in order to help me to operate my loan business.
And can you recall any discussion about why you signed it at the time.
INTERPRETER: Sorry, one minute? --- On the day when we find the document, definitely no business was discussed. I remember I was told I need to sign this document because it’s going to help with my future loan business because as a result the security would be put under my name and it will help to make sure my rights will be - it will help me to access my rights.
Sorry, Your Honour, I should say, interpreter correct my own mistake, ‘Then my rights will be guaranteed’. There Mr Bai said, ‘I would like to emphasise one important point. Signing this is going to be helpful for my future loan business, it will be more convenient and it will help guarantee my rights’.
Examination in chief of Ms Wang
Do you recall signing the document in the car after you and your husband had driven Cindy Gu home? --- Correct, correct, yes.
Do you recall any discussion at that time when you signed? --- When we signed the document, it was about a matter about my husband's (indistinct) investment, roughly it is about that.
And do you recall anything else that was said? --- At that time, was saying sign this document then later on got PR then it was more convenient for the business, something like that.
Cross-examination of Ms Wang
Ms Gu did not say to your husband that the agreement didn’t apply to his previous investments, is that so? --- I think not because it applied to the – it applied to the future investment. I remember we would like to keep a relationship with Ms Gu for future so that is my understanding. Didn’t talk about apply to the previous ones.
…
I suggest to you that Ms Gu did not say to your husband that evening that the agreement applied to future loans? --- I felt this document did apply to the future loan.
…
You can’t recall exactly what Ms Gu said to you about the loan agreement that night, can you? --- No, I felt this agreement applied to future investment projects, Cindy said that.
I suggest to you that’s not the case and you can’t recall whether or what Ms Gu said about the terms of this agreement, that’s the case, isn’t it? --- Not right.
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