Bi v Wu

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2019 05902

BETWEEN:

HANJUN BI	First Plaintiff
and
ZHONGDA INVESTMENT PTY LTD (ACN 614 449 553)	Second Plaintiff
and
YONG CHAU WU	Defendant

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JUDGE:	M Osborne J
WHERE HELD:	Melbourne
DATE OF HEARING:	17, 18, 19 May 2021
DATE OF JUDGMENT:	3 August 2021
CASE MAY BE CITED AS:	Bi v Wu
MEDIUM NEUTRAL CITATION:	[2021] VSC 447

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CONTRACT – Agreement to repurchase shares – Whether text of contract identifying party is ambiguous – When ambiguity can be established by surrounding circumstances – Whether surrounding circumstances can be referred to in establishing commercial purpose - Whether party estopped from denying that corporate vehicle is party to contract – Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112; Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; Lopes v Taranto [2018] VSCA 288 considered.

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APPEARANCES:

Counsel

Solicitors

For the Plaintiff

Mr J Evans QC with

Mr I Hristovski

Eakin McCaffery Cox Lawyers

For the Defendant

In person

HIS HONOUR:

Introduction

This proceeding concerns a share subscription by the plaintiffs in the initial public offering (‘IPO’) of a company founded by the defendant. Broadly speaking, if the subscribed shares did not perform as expected after listing, the plaintiffs had an option to sell the subscribed shares back to the defendant at an agreed price which exceeded the subscription price. The shares did not perform as expected and the plaintiffs purported to exercise the option. In essence, the dispute before me concerns the exercise of that option and the proper interpretation of the agreement under which it arises.

The first plaintiff, Hanjun Bi (‘Ms Bi’), is the sole director and a 50% shareholder[1] of the second plaintiff, Zhongda Investment Pty Ltd (‘Zhongda’).[2]
[1]The remaining 50% of the shares in Zhongda are held by Ms Bi’s husband, Yan Liu (‘Mr Liu’).
[2]For convenience, and save where the context otherwise requires, the plaintiffs are referred to collectively as ‘Ms Bi’.

The defendant, Yong Chau Wu (‘Mr Wu’), is the former chief executive officer of Faster Enterprises Ltd (‘FEL’). FEL was listed on the Australian Stock Exchange (‘ASX’) in November 2016. Mr Wu was closely involved in the development of FEL’s business and in its preparation for listing. Prior to its listing, Coolyah Properties Pty Ltd (‘Coolyah’), a company controlled by Mr Wu, was the sole shareholder of FEL. As at 30 September 2020, Coolyah still held a 39.91% share of FEL and Mr Wu held a 5.79% share in his own name.

In the lead up to listing, FEL made public offers of shares to prospective investors. Relevantly, Ms Bi agreed to invest in FEL as part of a pre-listing public offering.

On 1 September 2016, Ms Bi and Mr Wu signed a document written in both Mandarin and English and entitled ‘Investment Agreement’ (‘the Investment Agreement’), by which Ms Bi agreed to invest $1,200,000 to subscribe for 6,000,000 shares in FEL (‘the FEL shares’). The subscription price was $0.20 per share. The term of the Investment Agreement was 36 months, commencing on 1 September 2016 and expiring on 31 August 2019.[3]
[3]The Mandarin text makes it clear that 1 September 2016 and 31 August 2019 were the relevant dates. However, the English text refers to a different period of 26 August 2016 to 27 August 2019; although nothing turns on this.

Under the terms of the Investment Agreement, Mr Wu agreed to buy-back the FEL shares at a price of $0.50 per share, if, at Ms Bi’s election and within a three month period ending on 31 May 2019, the average closing stock price for the FEL shares for a period of 45 consecutive trading days was less than $0.50 per share (‘the Buy-back Obligation’).

The shares were ultimately issued to Zhongda as an initial substantial shareholder in November 2016.

It is not in dispute that during the relevant three month period the average closing stock price for the FEL shares was less than $0.50 for a period of 45 consecutive trading days. In fact, the share price never closed at higher than $0.25 per share, which was the price it reached on listing. To say that the shares of FEL have been thinly traded is an understatement. The last trade occurred on 25 February 2021 at a price of $0.05 per share. This was the only trade to take place from 1 September 2020 to 17 May 2021.

Mr Wu has not bought back the FEL shares.

The parties made substantial amendments to the pleadings prior to the trial. Ultimately, the sole issue at trial was whether the fact that the shares were subscribed for by Zhongda, rather than by Ms Bi in her own name, prevents the Buy-back Obligation from arising.

Mr Wu contends that on the Investment Agreement’s proper interpretation the Buy-back Obligation does not arise, as that term strictly operates between Mr Wu and Ms Bi as natural persons. Accordingly, Mr Wu contends that the Buy-back Obligation does not require him to buy-back the FEL shares from Zhongda.

Ms Bi contends that on the Investment Agreement’s proper interpretation, Mr Wu was required to pay $3,000,000 for the FEL shares, representing a price of $0.50 per share; such obligation arising upon the election of Ms Bi on 27 August 2019. Ms Bi contends that the obligation properly arises and is binding on Mr Wu, notwithstanding that the FEL shares are registered in Zhongda’s name. Relevantly, Ms Bi claims an entitlement to damages in an amount referable to the $3,000,000 payable by Mr Wu, less the value of the FEL shares retained. Alternatively, Ms Bi contends that Mr Wu is estopped from denying that the Investment Agreement applies to the FEL shares on the ground that they are held in Zhongda’s name.

Interlocutory history

Although the dispute was narrowed by the time of trial, the interlocutory history of the proceeding has been circuitous and warrants setting out.

On 18 December 2019, Ms Bi commenced the proceeding by writ and an accompanying statement of claim.

On 24 April 2020, Mr Wu filed a defence.[4] In that defence, Mr Wu:
[4]Where these reasons refer to Mr Wu filing various court documents in the period up to 13 April 2021 (after which Mr Wu was unrepresented) it should be noted that they were filed by solicitors acting on behalf of Mr Wu.

(a) denied the pleaded allegation of entry into the written Investment Agreement and instead alleged that the agreement was both verbal and written, impliedly and expressly, albeit that insofar as it was in writing Mr Wu accepted that it comprised the Investment Agreement;

(b) referred to parts of the Investment Agreement headed ‘Cooperations’ and ‘Rights and Responsibilities’, contending that Ms Bi was obliged to make all efforts to co-operate and assist with the growth of the business and thereby increase the share price of FEL, though no accompanying breach of the contended term or consequence of such breach was alleged; and

(c) referred to a further agreement between Mr Wu, Ms Bi’s husband Yan Liu (‘Mr Liu’), and a Dongge Qin (‘Mr Qin’) (‘the Tripartite Agreement’), by which Mr Wu alleged that on or about 10 May 2018 he had been discharged from any liability to Ms Bi arising under the Buy-back Obligation.

On 15 June 2020, Ms Bi filed an amended writ and amended statement of claim which included a claim by Zhongda as the second plaintiff, and which cast the agreement in slightly different terms. The amended pleadings referred to an agreement which was partly oral and partly in writing, albeit that insofar as it was in writing it was accepted that it comprised the Investment Agreement. The gist of the amended claim was that the Investment Agreement and the associated Buy-back Obligation applied to the FEL shares, notwithstanding that the shares had been purchased in the name of Zhongda, either as a matter of the proper interpretation of the agreement, or because Mr Wu was estopped from denying that this was the case.

On 23 July 2020, Mr Wu served on the plaintiff, but did not file, a defence to the amended statement of claim and counterclaim. It was substantially similar in effect to his first defence.

On 17 August 2020, Ms Bi filed and served a witness statement. On 1 September 2020, Mr Wu filed and served a witness statement (‘the first Wu witness statement’). On 29 October 2020, Mr Wu filed an amended defence and counterclaim, alongside a further witness statement (‘the second Wu witness statement’).

The amended defence and counterclaim was signed by senior and junior counsel on Mr Wu’s behalf, and its factual basis was taken from the second Wu witness statement. The essence of the defence was that:

(a) Mr Wu asserted that the agreement was wholly in writing and was constituted by the signed Investment Agreement;

(b) Zhongda was not a party to it; and

(c) consequently as Zhongda had acquired the shares and not Ms Bi, the Buy-back Obligation did not apply.

Additionally, Mr Wu expanded upon his alternative defence and the nature of the Tripartite Agreement. Mr Wu alleged that the agreement had been entered into on or about 30 April 2018 between himself, Ms Bi’s husband Yan Liu (‘Mr Liu’), on behalf of Ms Bi and/or Zhongda, and Dongge Qin (‘Mr Qin’). The substance of that agreement was that:

(a) Mr Liu would borrow $1,200,000 from Mr Qin;

(b) Mr Wu, on Mr Liu’s behalf, would repay to Mr Qin the loan taken out by Mr Liu in two instalments, the second of which would be due at the end of June 2018;

(c) that upon Mr Wu’s repayment of Mr Liu’s loan to Mr Qin, Zhongda would transfer the FEL shares to Mr Wu and that all prior agreements, including the Investment Agreement, between Mr Liu and Mr Wu would cease to be in effect; and

(d) upon receipt of the $1,200,000 from Mr Qin, Ms Bi and/or Zhongda would release Mr Wu from all claims under the Investment Agreement, including the Buy-back Obligation.

Mr Wu further alleged that Mr Qin had paid RMB 6,000,000 to Mr Liu by way of a payment to Mr Liu’s company in China, Shenyang Zhongda Steel Structuring Co Ltd (‘Shengyang Zhongda’), which payment represented a $1,200,000 loan to Mr Liu. Accordingly, Mr Wu alleged that in those circumstances Ms Bi and Zhongda had released Mr Wu from any and all claims they had against him, including under the Investment Agreement and the Buy-back Obligation.

Although not entirely clear, both the amended defence and the second Wu witness statement appear to accept that Mr Wu had not made the relevant payment to Mr Qin by June 2018, or at all.

The amended defence contained no further reference to the ‘Cooperation’ or ‘Rights and Responsibilities’ terms in the Investment Agreement. That reference remained as no more than a particularisation of those terms of the Investment Agreement, with no breach or other consequence alleged.

Therefore, in essence Mr Wu advanced two defences. First, that the Investment Agreement did not apply because the FEL shares had been purchased in Zhongda’s name; and secondly, that any liability that Mr Wu would otherwise have to Ms Bi or Zhongda had been discharged insofar as Mr Wu had assumed an as-yet undischarged liability to Mr Qin. In effect, Mr Wu’s second defence was that he was now indebted to Mr Qin, and neither Ms Bi, Mr Liu nor Zhongda.

By notice from the Court given on 23 December 2020, the proceeding was set down for trial on 7 April 2021.

Mr Wu filed a further witness statement on 26 March 2021 (‘the third Wu witness statement’). In the third Wu witness statement, Mr Wu said that he had not paid Mr Qin as he was unable to do so. Mr Wu stated that approximately one year ago, Mr Qin had visited Mr Wu’s office and requested payment of the loan made to Mr Liu (liability for which Mr Wu now bore). Mr Wu stated that ‘due to Covid’ he had ‘limited cash flow’ which prevented him from making the payment. According to Mr Wu, Mr Qin said that he understood Mr Wu’s position. Mr Wu said that he had not heard from Mr Qin since.

In subsequent witness statements filed by Ms Bi, Mr Liu and Mr Qin, each denies entry into the Tripartite Agreement and any receipt of funds by Shenyang Zhongda from Mr Qin.

On 1 April 2021,[5] Mr Wu filed an outline of opening submissions signed by senior and junior counsel which recapitulated Mr Wu’s ‘primary contention’ that, even if Mr Wu was obliged to pay either of Ms Bi or Zhongda under the Buy-back Obligation, the sum owed had been repaid pursuant to the Tripartite Agreement. The outline also advanced the further defence that the shares were registered in Zhongda’s name and not that of Ms Bi.
[5]Maundy Thursday.

On the same day, Ms Bi issued a summons seeking leave to amend her statement of claim so as to provide for an alternative cause of action. In effect, Ms Bi sought to plead that if Mr Qin had made a payment to Mr Liu under the alleged Tripartite Agreement, such that Mr Wu was indebted to Mr Qin, then Ms Bi had obtained an assignment from Mr Qin of that alleged debt.

The application to amend was returnable on Tuesday 6 April 2021,[6] one day prior to trial. The only new fact alleged was the assignment of the alleged debt from Mr Qin to Ms Bi, in the event that such debt existed.
[6]This was the next sitting day following Good Friday and Easter Monday.

On that day, I heard the application by Ms Bi for leave to amend. After hearing submissions from both parties’ counsel, I gave leave to the plaintiffs to amend, but adjourned the trial for two weeks to 21 April 2021. The gist of the discussions at the hearing was that two weeks would be sufficient time for Mr Wu’s senior and junior counsel and solicitor to consider the significance of the newly amended claim and to obtain instructions and give advice accordingly.

Mr Wu’s counsel rightly accepted that the only new fact raised by the amendment was proof of the deed of assignment. Counsel also accepted, entirely appropriately, that the legal terrain of the case had changed significantly.

I made orders on that day for service of the amended statement of claim and adjourned the matter for further directions on Friday 9 April 2021. The further directions hearing was convened on the basis that in the meantime counsel could agree on the interlocutory steps following the amendment.

On Friday 9 April 2021, I heard directions in the matter. Senior and junior counsel for the defendants both appeared, as a courtesy, to advise that their instructions had been withdrawn. As a consequence, they were excused from the directions hearing.

Mr Wu was then represented at the directions hearing by his solicitor at the time, Madeleine Tran (‘Ms Tran’), principal at Family Law 4 Men, who had acted for him from the commencement of the proceeding. Directions made on that day required Mr Wu to file and serve a defence to the second further amended statement of claim, as well as to file and serve any supplementary witness statements, by 14 April 2021.

On 12 April 2021, Ms Tran filed an affidavit in support of an application for leave to cease to act. The affidavit referred to an ethical issue which had arisen between Ms Tran and Mr Wu and noted that Ms Tran had sought advice from the Law Institute of Victoria in connection with her capacity to continue to act.

On 13 April 2021, I granted leave to Ms Tran to file a notice of ceasing to act. As a consequence, Mr Wu was no longer legally represented.

On 15 April 2021, Mr Wu appeared on his own behalf to seek an adjournment of the trial, which was at that stage scheduled to commence on 21 April 2021. The grounds for the application were that Mr Wu was yet to engage new solicitors as well as because his mother had been hospitalised and Mr Wu was required to assist and attend to her.

I acceded to Mr Wu’s application and relisted the trial to commence on 17 May 2021. I encouraged Mr Wu to act with due dispatch to obtain further legal representation.

The matter returned for directions on 23 April 2021, at which time I enquired with Mr Wu as to his progress in finding new solicitors. Mr Wu informed me that he was still in the process of obtaining legal representation.

On 30 April 2021, the matter again returned for directions. Mr Wu again appeared in person. I made orders which, among other things, extended the time for Mr Wu to file and serve any defence to the second further amended statement of claim and any amended counterclaim to 10 May 2021.

On 12 May 2021, Mr Wu filed and served a defence to the second further amended statement of claim and amended counterclaim. That defence records that the document was filed by Mr Wu on his own behalf. That notwithstanding, it was obvious on its face that the document had been prepared with legal assistance. The new defence deleted any reference to the Tripartite Agreement and made no reliance on it. The sole matter now raised in defence was that the FEL shares were registered in Zhongda’s name, and not that of Ms Bi, such that the Buy-back Obligation did not arise.

Upon the application of Ms Bi, the matter was listed for directions on 14 May 2021, at which time Ms Bi sought to file an amended list of issues[7] reflecting the limited nature of the matters now raised in opposition to her claim, as a result of Mr Wu’s defence and counterclaim of 12 May 2021.
[7]The amended list of issues had been provided to the Court and to Mr Wu in advance of the directions hearing.

At the directions hearing on 14 May 2021 Mr Wu confirmed that he had benefitted from legal assistance in the preparation of the defence and counterclaim of 12 May 2021.

The trial commenced on 17 May 2021. Mr Wu appeared in person. Mr Wu speaks English fairly well and had not required an interpreter to assist him at the various directions hearings where he had represented himself. Understandably, Mr Wu considered that a heightened level of understanding would be beneficial at the trial, and as such he was assisted at trial by an interpreter.

Mr Wu conducted his defence diligently and competently, and in a courteous and respectful manner. To my observation, Mr Wu’s courtesy and respect in the conduct of his defence extended to his dealings with Ms Bi’s legal representatives. Although those matters are not relevant to the disposition of the issues before me, they reflect well on Mr Wu.

Relevant facts and circumstances

On 11 July 2016, FEL issued its prospectus to public investors with a view to raise between $5,000,000 and $10,000,000 by way of the issue of 25,000,000 to 50,000,000 shares at an issue price of $0.20 per share (‘the IPO’). The IPO was underwritten to a value of $5,000,000 by Sanston Securities Australia Pty Ltd (‘Sanston’), the lead manager of the IPO. In consideration of its management of the IPO, Sanston was to receive various fees.

FEL’s proposed business comprised the ownership of interests in seven properties in Victoria, located at, respectively:

(a) 78 Albion Road, Box Hill;

(b) G02, 8 Ellingworth Parade, Box Hill;

(c) 1-3 Rooks Road, Nunawading;

(d) 1-3/794 Burwood Highway;

(e) 4-7/1849 Ferntree Gully Road, Ferntree Gully;

(f) 1032 Dandenong Road, Carnegie; and

(g) 157-159 Springvale Road, Nunawading.

Each of those properties was owned or partly owned by entities associated with Mr Wu. Mr Wu had operated a family property development business via several companies and discretionary trusts since 2009.

The prospectus referred to a proposed restructure process which would transfer ownership of those real property assets to FEL. The prospectus anticipated that Mr Wu would hold directly or through associated entities between approximately 51% – 63% of the shares in FEL (to vary depending on the amount raised under the public offer).

The prospectus described an objective of FEL as ‘the establishment of a strong brand name for the development and management of quality residential and commercial property’. In addition, the prospectus referred to the company’s plans to ‘investigate and explore opportunities to invest in and collaborate with modular building services businesses which may be operating from China’. The prospectus noted an opening date for offers of 19 July 2016 and a closing date for offers of 1 August 2016, with an expected date for the shares to commence trading on the ASX of 18 August 2016. The minimum subscription for the IPO to proceed was $5,000,000.

On 2 August 2016, the company issued a replacement prospectus. Under the terms of the replacement prospectus, the offer was to no longer be underwritten by Sanston. The minimum subscription remained at $5,000,000 and a new timeline was proposed with a revised closing date for offers of 18 August 2016 and with a new expected date for the shares to commence trading on the ASX of 15 September 2016.

On 16 August 2016, Mr Wu was introduced to Ms Bi and her husband, Mr Liu, at the home of Mr Qin in Templestowe. Mr Wu gave evidence that after initial introductions, Ms Bi, Mr Liu and Mr Qin went out to a restaurant together where they discussed the IPO in general terms.

On 17 August 2016, Ms Bi arranged to attend at the offices of FEL the next day. At that meeting, on 18 August 2016, Mr Wu, Ms Bi and Mr Liu engaged in further discussion about Mr Wu’s previous property development projects. Soon after the meeting, Ms Bi asked Mr Wu for the telephone number of FEL’s accountant, Alex Huo (‘Mr Huo’), who spoke to Mr Liu and Ms Bi.

According to Mr Wu, Mr Huo said that Mr Liu and Ms Bi wanted to invest in the IPO but required a guarantee that they would get their money back. Mr Wu said that at the time of these negotiations with Ms Bi and Mr Liu, around $4,000,000 had been raised in subscriptions to date. He said that he was prepared to provide a guarantee to achieve an additional investment of at least $1,000,000 so that the minimum amount for the share subscription would be reached and the listing could proceed.

Mr Wu later found a precedent agreement in Mandarin and prepared a draft investment agreement based on it, which he refined with Mr Huo’s assistance. Although written in Mandarin, it is clear that the agreement had been prepared in Mr Liu’s name. According to Mr Wu, the original draft was in Mr Liu’s name as he had up to that point had a leading role in the negotiations. Mr Wu stated that he was later told that for the purposes of Ms Bi’s migration application the agreement should be in Ms Bi’s name and not that of Mr Liu. This was not disputed by Ms Bi or Mr Liu.

On 21 August 2016, Mr Wu’s wife, Penny Lu, sent a message to Ms Bi to the effect that an agreement had been prepared and that Ms Bi and Mr Liu ought come to the FEL office for further discussions.

Though the exact date is not clear, the next meeting occurred either on or shortly before 24 August 2016. Ms Bi stated that she attended this meeting alone, and Mr Liu implicitly corroborated her account. Mr Wu said in the second Wu witness statement that the meeting was attended by both Ms Bi and Mr Liu, although in cross-examination he did not expressly deny that the meeting was with Ms Bi alone. Little turns on the precise date of the meeting or the persons attending.

Mr Wu gave evidence that at one of the meetings where Ms Bi and Mr Liu came to FEL’s office to discuss the agreement, Ms Bi and Mr Liu sought to secure the performance by Mr Wu of his obligations under the Investment Agreement by placing a caveat on his house. Mr Wu said that he agreed to placing a provision in the Investment Agreement that his house would serve as security. In fact, the house referred to in the Investment Agreement is registered in the name of Mr Wu’s wife.

Ms Bi also gave evidence that during a discussion with Mr Wu at FEL’s office,[8] Mr Wu said words to the effect that there may be tax advantages if the shares were put in the name of a company either acting on its own behalf or as the trustee of a family trust, and offered to introduce Ms Bi to FEL’s accountant, Wing Qui Cheng (‘Mr Cheng’), who could set up a new company for Ms Bi.
[8]Likely the same discussion which took place on or shortly before 24 August 2016.

Mr Wu largely agreed with Ms Bi’s account. He accepted that he introduced Ms Bi to Mr Cheng and that he discussed tax with Ms Bi as well as the manner in which his family held shares in FEL (that is, via Coolyah). Mr Wu resiled from any suggestion that he had advised Ms Bi to effect her investment through a company. I doubt that much turns on this difference, which ultimately amounts to how the nature of the discussions should be described. At the very least, Mr Wu suggested that:

(a) the shares could be subscribed for in the name of a company;

(b) this was the manner in which he held his shares;

(c) there were tax advantages in doing so; and

to that end he introduced Ms Bi to Mr Cheng in order that Mr Cheng could arrange for a company to be set up for the purpose of effecting the investment.

To the extent to which anything turns on the correct description of these discussions, I find it likely that Mr Wu said that the subscription should proceed in this way. Such a characterisation is consistent with Ms Bi’s actions directly upon the conclusion of the discussions, and is consistent with how Mr Wu had structured his own affairs. Further, as the corporate tax rate is lower than the top marginal personal tax rate, such an approach would clearly be of commercial merit if the investment proved to be profitable, as Mr Wu believed it would.

However, there is one aspect of the discussions about which the parties disagree and which is arguably of more significance. Ms Bi says that at the meeting with Mr Wu on 24 August 2016, Ms Bi specifically raised with Mr Wu whether the Buy-back Obligation would still apply if the share purchase proceeded in the name of a company. According to Ms Bi, Mr Wu said that it would. Mr Wu maintains that this further matter was not discussed. I shall return to this later.

On 24 August 2016 at 1:13pm, Mr Wu emailed an agreement to Mr Liu and Ms Bi. The form of the attached agreement was not produced by any of the parties.

Also on 24 August 2016 at 2:40pm, Mr Cheng received an email from Shelcom Corporate Services (‘Shelcom’) confirming certain corporate information earlier provided by Mr Cheng to Shelcom, including the proposed company name (Zhongda) and details of its prospective directors and shareholders (Ms Bi and Mr Liu). Later that night, Mr Cheng enquired of Shelcom as to when a certificate of incorporation would be available, and also asked for advice on how the proposed company could apply for an ABN.

Mr Cheng arranged for the corporate documents for Zhongda to be sent to FEL’s offices at 8 Ellingworth Parade, Box Hill. A company search confirms that Zhongda was registered on 25 August 2016; that its initial shareholders were Ms Bi and Mr Liu; and that its initial directors were Ms Bi and Mr Liu. On 26 August 2016, the day after registration, Mr Cheng arranged for Mr Liu to resign as a director.[9] Shelcom advised that a Form 484 would have to be lodged recording Mr Liu’s resignation. Mr Cheng facilitated this and the search confirms that Mr Liu’s resignation was effected on 26 August 2016.
[9]Mr Liu appears to have been appointed as a director in error.

On 28 August 2016, Mr Wu forwarded a further copy of the Investment Agreement to Ms Bi and Mr Liu by email. Again, a copy of that draft of the Investment Agreement has not been produced.

However, Mr Wu gave evidence, which was not disputed, that Ms Bi and Mr Liu said that they were arranging a migration application and needed Ms Bi to be nominated as the purchaser instead of Mr Liu. Mr Wu says that accordingly the draft Investment Agreement was changed to reflect Ms Bi as purchaser.

Both Ms Bi and Mr Wu agree that the Investment Agreement was signed at FEL’s offices on 1 September 2016, the date the agreement bears.

The Investment Agreement

The agreement is written in both Mandarin and English in a parallel translation,[10] and has been signed by both Mr Wu (as ‘Party A’) and by Ms Bi (as ‘Party B’). Mr Wu gave evidence that he and Ms Bi agreed that the Mandarin version would have precedence in the event that there were any discrepancies between the texts. Although he was not challenged on this, and although it makes obvious sense that the parties would be bound by writing in the language with which they have the greatest facility, I have considerable doubt that the matter was specifically discussed. In any event, Ms Bi showed limited facility with spoken English and gave her evidence through an interpreter.
[10]In addition to the parallel translation in the text of the original document, at trial Mr Wu provided a certified translation of the Mandarin text. The parallel translation contains some obvious mistakes and in any event is not as clearly expressed as the certified translation. Accordingly, the certified translation is also quoted here, in underline.

In an opening section akin to a recital, the agreement records that:

Party A is the CEO of Faster Enterprises Ltd. His company is currently doing IPO and applying to be listed in the Australian Stock Exchange (ASX). In order to enhance the strength of funds to ensure the success of the listing application, and help the company could smoothly carry out the development the projects, after both parties made consulting and discussion, Party B agrees investing into the company to help accomplish these objectives.
Party A is the CEO of Faster Enterprises Ltd, which company is in the process of applying for listing at the ASX. In order to increase its financial strength to ensure successful listing of the Company of Party A and to smoothly carry out the development of the relevant projects after listing, after ample negotiations between Party A and Party B, Party B agrees to invest in the Company of Party A to help accomplish these objectives.

Under the subheading ‘Cooperation’ or ‘Mode of Collaboration’, the following three clauses appear:

1. Projects management
Party A will be responsible for the application of listing and the operation and management of development projects.
After the listing, party B or their representatives to be nominated to the board, to become a board member, and enjoy the same benefits and voting rights and the other Board members. During the Party in accordance with its proportion of shares held (to be more than 5%), in the part of the shares held by Party B, Party B or the motion on behalf of the Board vote in favour.

2. Management staff
The Board of the company is the highest authority to manage the investment funds under this Agreement. It is responsible for the decision-making and management of the company for the relevant development projects.

3. Cooperative nature
The collaborative nature is long term investment. Or referring to this agreement, the parties may choose to suspend this cooperation if Party B has such as motion after three years of listed.

1. Project management
Party A shall be responsible for the listing application and the operation
and management of project subsequently developed.
Following the listing of the Company, Party A shall nominate Party B or its representative to join the board of directors and become a member of the board of directors, enjoying the same level of benefit and voting rights as the other members of the board of directors. Party A shall, based on its shareholding (to be in excess of 5%), vote to agree to the motion of Party B or its representative joining the board of directors, during the time when Party B holds such stock right.

2. Composition of management personnel
Under this Agreement, the board of directors of the Company shall be the highest authority for the management of investment funds with full authority for the decision-making and management of various development projects of the Company.

3. Nature of Collaboration
The nature of collaboration is a long-term investment collaboration. Alternatively, based on this Agreement, if proposed by Party B three years after the listing, both parties may choose to terminate this collaboration.

Under the subheading ‘Investment amount, manner and time’ or ‘Investment Amount, Manner and Timing’, the following five clauses appear:

1.(Minimum AUS$1,200,000, has to be great than 5% of the total capital shares of the company.)
Investing amount: minimum $1.2 million Australian dollars (>AU $1,200,000).
Under the agreement party B will invest one million and two hundred thousand Australian dollars (AU $1,200,000) into Party A’s company (Faster Enterprises Ltd.) to purchase total of at least Six million shares of the company (6,000,000 shares) in AU $0.20 per share of the purchasing price.

2. Way of investment
Purchase shares in cash.

3. Funding schedule
Within 24 hours after signed this Agreement, Party B will deposit one hundred thousand Australian dollars ($100,000) into the nominated account. The company will refund the full amount of the deposit money to Party B after the company’s stock traded for 24 hours.
By 5 September 2016, Party B will transfer its one million two hundred thousand Australian dollars (AU $1,200,000) into the IPO Trust Account which specified in the prospectus.

4. Listing trust account information:
Please refer to the prospectus about the IPO trust account detail.

1.Amount of investment: No less than one million and two hundred thousand Australian dollars (must be greater than 5% of the total number of shares of the Company).
Based on the mutual agreement of both parties, Party B shall invest into the Company of Party A (Australia Faster Enterprises Ltd) by way of cash, in the amount of no less than one million and two hundred thousand Australian dollars (>AUS $1,200,000), in exchange for the ownership of stock right of no less than six million shares in Australia Faster Enterprises Ltd at the purchase price of AU$0.20 per share
2.Manner of investment
Purchase of shares by way of cash.

3.Funding schedule
Party B shall deposit one hundred thousand Australian dollars (AU$ 100,000) as earnest money for investment into the nominated account of the Company within 24 hours of the execution of this Agreement. The Company shall refund this earnest money in full to Party B within 24 hours of trading of the listed shares of the Company.
Party B shall deposit the agreed investment find of one million and two hundred thousand Australian dollars (AU$1,200,000) to the nominates shares listing trust account (IPO Trust Account) by 5^th September 2016.
4.Details of the IPO Trust Account
Please refer to the prospectus for the details of the IPO Trust Account.

Under the subheading ‘The term of the agreement’, the following clause appears:

The term of the Agreement is thirty-six months which is commencing from the date of signing this Agreement, that is, starting from 26 August 2016 [sic] and will be expired on 27 August 2019 [sic].[11] Both parties should earnestly perform the Agreement, unless the following conditions are met, the parties may terminate the agreement and refund the invested capital:
[11]These dates in the parallel translation are clearly incorrect; they do not match the certified translation nor the relevant Arabic numerals visible in the Mandarin text.
1.Geological or natural disasters or other events resulting in force majeure cannot be.
2.The IPO of the company has not yet completed by 15 December 2016, and cannot establish a clear completion date.

The term of this agreement commences from the date of its execution, namely 1st September 2016, for a period of 36 months, to 31^st August 2019. Both parties should conscientiously perform this Agreement and terminate the Agreement only under the following circumstances and have the invested capital refunded:
1.Geological or natural disaster, or other force majeure which causes non-performance.
2.The IPO of Company not having been completed by 15 December 2016 and a definite completion date cannot be established.

Under the subheading ‘Financial, accounting and Tax’, the following appears:

After Party B invest its funds in accordance with this Agreement, the Party A will be based on the provisions of the Australian accounting standards and tax laws, the tax expenditure by the company responsible for all the expenses of the party A items include profit. Party B will receive minimum of 5% company dividends income and the allowance as a board member which paid by the company. Party B will be responsible for the income tax expense and the related arrangements.
After Party B has invested its funds in accordance with this Agreement, Party A shall be responsible for all the expenses of the project payable by the Company including the tax expenditure for any profit in accordance with the relevant accounting principles and tax regulations in Australia. Party B shall receive a minimum of 5% dividend to be paid by the Company of Party A and other income including the benefit from being a member of the board of directors. Party B shall be responsible for its own tax expenditure and arrangement relating to this income.

Under the subheading ‘Rights and Responsibilities’, the following appears:

In accordance with the agreement, Party B is entitled to routine management and operation of the company as a director. All matters related to the right to know, Party A is obliged to provide to Party B about all directors within the scope of their duties could obtain all of the company’s affairs relevant documents and financial records.
As agreed, Party B is entitled to participate, in the capacity of a director of the Company, in the day-to-day operation and management of the Company of Party A and has right of knowledge to all such relevant matters. Party A is obliged to provide to Party B with all relevant documentations and financial records of all business of the Company that should be made accessible to it within its scope of duty as a director of the Company.

Under the heading ‘Investment Protection’, the following appears:

Party B in the period of the agreement, by mutual consent, Party B may have the right to sell part or all of the shares to a third party. Within three months before the expiry of the agreement, in line with the principles of fairness and protect the interests of both Parties, the party A and Party B will be in friendly and peaceful manner to reach the decision to continue to cooperate, or termination of this cooperation and commitment to the following guarantees:
•Within three months of expiry of the agreement, Party B has the rights to withdraw or continue the cooperation;
•Within three months before the expiry of the agreement, from May 31, 2019 if the average of closing stock price of 45 consecutive trading days is less than AU $0.50, then Party B could choose to withdraw the full amount, and the Party A will buy back all of the shares of Party B in the price of AU $0.50 per share by itself or through designated third parties to ensure Party B’s return on its investment;
•Party A will have its equivalent property as the security for the performance of investment of buying back shares of party B
(Property Address): 80 Albion Road, Box Hill, Victoria 3128;
•Within three months before the expiry of the Agreement, from May 31, 2019, if the average closing stock price of 45 consecutive trading days is higher than the AU $0.50 per share, if Party B chooses to quit, it needs to with manner of Party A agree to sell its shares, the Party A will fit or arrange a third party to purchase;

•Within three months before the expiry of the agreement, from 31 May 2019 if the average of closing stock price of 45 consecutive trading days is higher than the AU $0.50 per share, Party B could continue to choose long-term cooperation. If Party B choose to continue cooperation, then Party B is willing to take up 30% of book profits which is higher than AU $0.50 per share in the book value (the formula: B shares Number X (45 trading day closing average price – AU $0.50) * 30%) serving as the company’s management team reward (Party B can choose whether to perform).
•Within the first three months of expiry of the agreement, under any other circumstances, Party B can choose to continue cooperation; both parties may be agreed specific programs of cooperation.
•If the period of cooperation the company stock splits occur, partnership, bonus or other circumstances lead to changes in the number of shares, said the buyback price will be adjusted in accordance with the corresponding recovery of the right, that the original investment amount is calculated as the basis, in order to ensure both parties are fair.

Upon negotiations and agreement by both parties, Party B is entitled to sell its stock right in part or in full to any third party during the term of this Agreement. Within three months before the expiry of this Agreement, Party A and Party B may, on the basis of fairness and protection of their respective interests and in an amicable and peaceful manner, reach an agreement to continue or terminate this collaboration and commit to the following protection undertakings:
·Within three months before the expiry of this Agreement, Party B has the right to decide to withdraw or continue with this collaboration;
·Within three months before the expiry of this Agreement, from 31^st May 2019, where the average closing stock price of 45 consecutive trading days of the Company falls below AU $0.50, Party B may then choose to withdraw the full amount, in which case Party A shall, by itself or through a designated third party, buy back all of the shares of Party B at the price of AU $0.50 per share, in order to guarantee return for the investment made by Party B.
·Party A shall provide a real property of equivalent value under its name as the security for investment in the buy back from Party B.
Property Address: 80 Albion Road, Box Hill, Vic 3128
·Within three months before the expiry of this Agreement, from 31^st May 2019, where the average closing stock price of 45 consecutive trading days of the Company is higher than AU $0.50, in the case where Party B chooses to exit, Party B may sell its shares but in a manner agreed to by Party A and Party A shall cooperate or arrange for the purchase by a third party.
·Within three months before the expiry of this Agreement, from 31^st May 2019, where the average closing stock price of 45 consecutive trading days of the Company is higher than AU $0.50, Party B may choose to continue with the long-term collaboration. In the case where Party B choose to continue with the long-term collaboration, Party B shall be willing to offer 30% of the book profit from the value in excess of Au $0.50 per share (Formula of Calculation: shareholding held by Party B X (average closing stock value of 45 trading days – AU $0.50) * 30%) as a reward to the Company management (at the discretion of Party B);
·Within three months before the expiry of the Agreement, under any other circumstance, Party B may choose to continue with the collaboration, in which case both parties may enter into another agreement to set out the specific details of the agreement;
·In case of any division, joining of shares, bonus share or any other circumstance which will may lead to a change in the number of shares in the Company occurring during the collaboration period, the above-mentioned buy back price will be subject to shareholding recovery adjustment, to be calculated based on the original investment amount, in order to ensure fairness between both parties.

Under the subheading ‘Win-win cooperation’ or ‘Win-win collaboration’, the following appears:

This cooperation can achieve the following objectives:
1.Party B could find a safe and reliable platform and wedge point in Australia by investing in the company. Also immediately indirect access to quality investment projects in the popular areas of Melbourne, saving time, and get a higher return on investment.
2.Party A can use the funds to complete the listing application after party B invested and lay a good foundation for long-term development.
3.During the Agreement team, [sic] if Party B requires additional investment in Australian real estate, Party A is willing to provide various forms of assistance and full cooperation if it is not jeopardising the company and both parties equitable.
The objectives of this collaboration are as follows:
1.By investing in the Company of Party A, Party B can secure a safe and reliable platform and wedge-in point for investment in Australia, immediately gaining indirect access to a quality investment project in a popular area in Melbourne, saving time and effort and achieving relatively higher investment return.
2.After receiving the investment, Party A can utilize the invested fund to complete its listing application in order to lay a solid foundation for its long-term development.
3.If, during the Agreement period, Party B needs to undertake other real estate investment in Australia, Party A is willing to provide various forms of assistance and full cooperation on the premise that they will not jeopardize the interests of the Company and fairness to both parties.

Under the subheading ‘Representations and Warranties’, the following appears:

The signing of the agreement the parties made the following representations and warranties:
1.Both parties of the Agreement are natural person’s [sic] independent civil capacity, and have the legal right or authority to enter into this Agreement.

2. Party B’s investment funds is the lawful property owned by Party B.
3.Documents and all information submitted by the parties are true, accurate and legally valid.

Each of the signatories to this Agreement makes the following representations and warranties:
1.Both parties to this Agreement are natural persons with independent civil capacity and have the legal right or authority to enter into this Agreement.
2.The investment fund of Party B is the lawful property owned by Party B.
3.All documents and information provided by both parties are true, accurate and legally valid.

In addition, there is a subheading entitled ‘Change Agreement’ or ‘Amendment to Agreement’ which, in essence, requires the parties to notify each other in writing and then to enter into a written agreement to effect any desired changes.

Importantly, under the subheading ‘Settlement of Disputes’ or ‘Dispute Resolution’, the agreement records:

Disputes arising from the performance of this agreement, shall be settled through friendly consultations, to avoid any legal aspects of the solution.
Any dispute arising from the performance of this Agreement shall be resolved through amicable negotiations between the two parties in order to avoid resolution by any legal means.

Equally importantly, under the subheading ‘Interpretation of the Agreement’ the following appears:

In the terms of this Agreement, if the content of any outstanding issues is not clear, both parties would follow the principle of the agreement, trading habits and associated terms of the agreement to make a reasonable explanation. This interpretation is binding, unless the law or interpretation of this Agreement conflict.
In case of any matters unresolved by this Agreement or ambiguities of any content hereof, the parties to the Agreement shall seek a reasonable interpretation of it by applying common sense and basing on the principles of the Agreement, trading customs for agreements and the associated terms of the Agreement. Such interpretations shall be binding, unless it is in contravention of the laws and regulations or this Agreement.

It is not in dispute that Ms Bi effected payment of the deposit of $100,000 on 1 September 2016. Nor is it in dispute that Zhongda subscribed for and was subsequently issued 6,000,000 shares in FEL at an issue price of $0.20 per share. Mr Liu said that the funds for Zhongda’s purchase came from Shengyang Zhongda.

As noted above, the financial performance of the shares on listing was disappointing. It is not in dispute that in the 45 trading days from 31 May 2019 to 15 July 2019 the average closing share price for the shares was less than $0.50 per share. This period entitled Ms Bi to elect to exercise the Buy-back Obligation.

Accordingly, on 26 August 2019, Ms Bi’s solicitors wrote to Mr Wu demanding that he make immediate arrangements to buy-back the FEL shares for a value of $3,000,000, representing a purchase of the 6,000,000 FEL shares at a price of $0.50 per share.

As mentioned above, it is common ground that Mr Wu has not bought back the FEL shares and that Zhongda remains as their owner.

Again, as mentioned above, the sole remaining issue in dispute is whether the fact that the shares were acquired by Zhongda, and not by Ms Bi personally, means that the Buy-back Obligation does not arise.

Proper interpretation of the Investment Agreement

Mr Wu contends that the reference in the Investment Agreement to the ’shares of Party B’ (in the second bullet point, under the heading ‘Investment Protection’) must be strictly construed, and that on such construction it is confined to shares registered in the name of Party B - that is, Ms Bi, who personally signed the Investment Agreement as ‘Party B’. In other words, Mr Wu submits that because the shares are registered in the name of Zhongda, (being a company of which Ms Bi is the sole director and in which she owns half of the shareholding, with the remaining half owned by her husband Mr Liu), rather than Ms Bi herself, there are no ’shares of Party B’ in the relevant sense and that as such the Buy-back Obligation does not apply.

In contrast, Ms Bi argues that the proper interpretation of the phrase ‘shares of Party B’ extends to and includes shares registered in the name of Zhongda. Ms Bi states that Zhondga is a company controlled by Ms Bi and is effectively her alter ego. Further, she states that it was incorporated with Mr Wu’s knowledge and assent for the specific purpose of effecting the subscription of the FEL shares under the Investment Agreement.

Mr Wu does not dispute that prior to signing the Investment Agreement, Mr Wu and Ms Bi discussed, at Mr Wu’s suggestion or at the very least with his knowledge, Ms Bi effecting the share subscription in the name of a corporate entity. Further, any such entity was to be set up for Ms Bi by FEL’s accountant, Mr Cheng, who Mr Wu had introduced to Ms Bi for the very purpose of establishing such an entity.

Contracts wholly evidenced in writing are to be interpreted objectively, as a reasonable businessperson would have understood them.[12] Exactly when this objective interpretive approach allows the Court to have regard to surrounding circumstances is a topic of ongoing controversy. It is disputed whether surrounding circumstances known to both parties may be referred to:

(a) only to resolve an ambiguity that arises in the text of the contract (sometimes referred to as ‘the gateway requirement’[13]); or

(b) generally to raise an ambiguity in the text of the contract, as well as to resolve an ambiguity in the text of the contract.

[12]In their pleadings the parties held various positions on whether the contract was wholly in writing or not. Ms Bi initially said it was wholly in writing. Mr Wu said it was both written and oral; though by the time of trial, each had effectively adopted the opposite position. In my opinion it is clear that the parties intended to be bound by the written document.

[13]Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261, 270 [39] (McClure P).

Three High Court authorities are of particular relevance: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (‘Codelfa’);[14] Electricity Generation Corporation v Woodside Energy Ltd (‘Electricity Generation’);[15] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (‘Mount Bruce’).[16]
[14](1982) 149 CLR 337.
[15](2014) 251 CLR 640.
[16](2015) 256 CLR 104.

In Codelfa, a railway authority contracted a construction company to excavate a tunnel according to a certain schedule. Injunctions obtained by third parties in a separate proceeding prevented the company from undertaking work in hours required to meet that schedule. The High Court was required to consider whether there was an implied term in the contract obliging the authority to extend the time for completion or to indemnify the company against any loss suffered as a result of the grant of the injunctions. Ultimately, by a majority the High Court held that performance of the contract would be radically different from performance in the circumstances contemplated, and that accordingly the contract had been frustrated by the grant of the injunction.

In considering those matters, Mason J set out ‘the true rule’ with respect to the interpretation of contracts constituted wholly in writing:[17]

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed
…
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

[17]Codelfa (n 14) 352.

Subsequently, in Electricity Generation, the High Court affirmed an ‘objective approach’ to the construction of contracts. In that case, this ‘objective approach’ involved reference to the surrounding circumstances of the contract. The contract in question was a long-term gas supply contract. The clause to be construed was a ‘reasonable endeavours’ obligation. The majority, French CJ, Hayne, Crennan and Kiefel JJ, construed this clause by reference to the surrounding circumstances known to both parties at the time of entering a long-term supply contract. In the context of that interpretive exercise, the majority said:[18]

… this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
(citations omitted)

[18]Electricity Generation (n 15) 656-7 [35].

More recently, in Mount Bruce, the High Court was required to consider a contract for the payment of mining royalties by Mount Bruce Mining Pty Ltd (‘MBM’). Royalties were payable on any ’[o]re won by MBM from the MBM area’ and by ’all persons or corporations deriving title through or under’ MBM. The parties agreed that ‘MBM area’ and ’through or under’ were ambiguous, and it fell to the High Court to construe those phrases. French CJ, Nettle and Gordon JJ stated:[19]
[19]Ibid, 116-7 [46]–[52].

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties ... intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.
These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (‘Codelfa’) and Electricity Generation Corporation v Woodside Energy Ltd (‘Electricity Generation’).

(citations omitted; underline added)

Following Electricity Generation and Mount Bruce, there was some suggestion in intermediate appellate courts that the gateway requirement no longer applied.[20]
[20]See Technomin (n 13) and Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633 (‘Mainteck’).

In Apple and Pear Australia Ltd v Pink Lady America LLC,[21] the Court of Appeal of this Court considered the status of the gateway requirement in the wake of Electricity Generation and Mount Bruce. In the leading judgment, Tate JA concluded that the gateway requirement remained binding on intermediate appellate courts.
[21](2016) 343 ALR 112 (‘Apple and Pear’).

Turning to the judgment of French CJ, Hayne, Crennan and Kiefel JJ in Electricity Generation, Tate JA noted the passage of the majority extracted above.[22] Tate JA noted that in subsequent decisions of other intermediate appellate courts that passage, and Electricity Generation more generally, were understood to allow regard to the surrounding circumstances without a prior establishment of ambiguity. In particular, her Honour noted the judgment of Leeming JA of the Court of Appeal of the Supreme Court of New South Wales (Ward and Emmett JA agreeing) in Mainteck Services Pty Ltd v Stein Heurtey SA (‘Mainteck’);[23] where Leeming JA held that Electricity Generation ‘endorses and requires a contextual approach to the construction of commercial contracts’.[24] However, in contrast to Leeming JA, her Honour emphasised that the ‘reasonable endeavours’ obligation under consideration in Electricity Generation was an inherently malleable obligation. Her Honour suggested that it was this malleability, rather than any departure from the gateway requirement, which arguably permitted recourse to surrounding circumstances.[25]
[22]At [94].
[23]Mainteck (n 20); see also Technomin (n 13) 271 [41] (McClure P).
[24]Mainteck (n 20) [86].
[25]Apple and Pear (n 21), 148 [108].

Turning to the judgment of Kiefel and Keane JJ in Mount Bruce, Tate JA emphasised that their Honours’ judgment clarified that the ‘true rule’ as set out by Mason J in Codelfa remained binding authority.[26] Their Honours expressly stated that Mason J’s ‘true rule’ in Codelfa was directed to how ambiguity was to be resolved and not to how it was to be identified.
[26]Ibid, 150 [124].

Similarly, French CJ, Nettle and Gordon JJ in Mount Bruce stated that the phrase ‘through or under’ raised ‘a constructional choice’; which choice was to be resolved through a consideration of both the text of the agreement itself and of the surrounding circumstances in which the contract had been effected.[27] However, their Honours stated that ’the question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice’ did not arise in that case.[28]
[27]Ibid 154 [135]; citing Mount Bruce (n 16) 122 [74]. See also Mount Bruce (n 16) 117 [49]–[50].
[28]Ibid, 117 [49].

Tate JA stressed that the words of the High Court in Mount Bruce she extracted were not binding for the purposes of the gateway requirement, as that had not been a ‘live issue’ in in that case. As mentioned above, the parties had agreed that the term ‘through or under’ was ambiguous, such that the existence or non-existence of ambiguity in the contract was not an issue for the Court to resolve.[29] Importantly, her Honour stated that the fact that the High Court in Mount Bruce had considered the gateway requirement to be a live issue meant that the High Court did not consider Electricity Generation to have resolved the status of the gateway requirement in Australian law.[30]
[29]Ibid, 153-4 [131]-[136].
[30]Ibid, 154 [136].

Against the background of that authority, her Honour rejected the notion that, as the law then stood, it was permissible to have regard to surrounding circumstances in order to identify ambiguity or without identifying ambiguity.[31] Her Honour shied away from the reasons of Leeming JA in Mainteck, particularly insofar as that decision stood for a principle that evidence of surrounding circumstances can invariably be relied upon to assist construction.[32]
[31]Ibid, 157 [148].
[32]Ibid, 154-5 [136]–[137].

In their judgment in Apple and Pear, Ferguson JA and McLeish JA agreed that evidence of events, surrounding circumstances and things external to the contract was permissible where the contractual language was ambiguous or susceptible of more than one meaning.[33] Relevantly, they stated that it was not necessary in that case to address whether evidence of surrounding circumstances could be used to establish ambiguity, as the external material in that case did not in any event give rise to any relevant ambiguity.[34]
[33]Ibid, 178-9 [231].
[34]Ibid, 179 [232].

It is clear that in Victoria evidence of the surrounding circumstances cannot invariably be admitted to identify ambiguity in the text of a contract.

Putting the controversy surrounding the gateway requirement to one side, it is clear that the objective approach requires some, if limited, reference to factors external to the text of the contract. This much is necessitated by an examination of the text, context, and purpose of the contract, or, relatedly, by the process of the Court placing itself in the position of a reasonable businessperson so as to construe the objective meaning of the contract.

Importantly, in Apple and Pear Tate JA noted that French CJ, Nettle and Gordon JJ in Mount Bruce reaffirmed that the objective approach to contractual interpretation involves reference to ‘text, context (the entire text of the contract, as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’;[35] which approach her Honour proceeded to apply in the case at hand.[36]
[35]Ibid, 155 [137]; citing Mount Bruce (n 16) 116 [46] (French CJ, Nettle and Gordon JJ).
[36]Ibid 155 [139].

As cited above, in Electricity Generation, French CJ, Hayne, Crennan, and Kiefel JJ distinguished between a consideration of ‘surrounding circumstances known to the parties’ and a consideration of ’the commercial purposes or objects to be secured by the contract.’ As to the latter, their Honours stated that ’appreciation of the commercial purposes or objects is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating.’[37] Remarks to similar effect were made by Lord Wilberforce in Prenn v Simmonds (‘Prenn’)[38] and Reardon Smith v Hansen-Tangen (‘Reardon Smith’),[39] and by Mason, Stephen, and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (‘DTR’);[40] all of which were considered by Mason J in Codelfa.[41] It is convenient to extract Mason J’s account of those cases here:[42]
[37]Electricity Generation (n 15) [35].
[38][1971] 1 WLR 1381.
[39][1976] 1 WLR 989, 995-6.
[40](1978) 138 CLR 423, 429.
[41]See [93] above.
[42]Codelfa (n 14) 348-351.

The issue in Prenn was whether the word ‘profits’ meant the separate profits of R.T.T., a company controlled by the appellant, or the consolidated profits of the group of companies consisting of R.T.T. and its subsidiaries. It was held that, although evidence of prior negotiations and of the parties’ intentions, and a fortiori the intentions of one of the parties ought not to be received, evidence restricted to the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction was admissible. Considered in the light of this evidence “profits” meant “consolidated profits”.
Lord Wilberforce said:[43]
[43]Prenn (n 38) 1383-1384.
The time has long passed when agreements, even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguistic considerations. There is no need to appeal here to any modern, anti-literal, tendencies, for Lord Blackburn’s well-known judgment in River Wear Commissioners v Adamson [citation omitted] provides ample warrant for a liberal approach. We must, as he said, inquire beyond the language and see what the circumstances were with reference to which the words were used, and the object, appearing from those circumstances which the person using them had in view. Moreover at, any rate since 1859 (Macdonald v Longbottom[44]) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term.
[44][1877] 120 ER 1177.

In Macdonald it had been held that the defendant’s contract to buy “your wool” included not only wool which the plaintiffs had on their own farms, but also wool which they had brought in from other farms, one of the plaintiffs having stated before the contract in a conversation with the defendant’s agent that he had wool from those two sources. This decision was followed in Bank of New Zealand v Simpson.[45] Lord Davey quoted with approval the remarks of Lord Campbell in Macdonald:[46]
[45][1900] AC 182.
[46]Ibid, 188-189; citing Macdonald (n 44) 1179.
I am opinion that, when there is a contract for the sale of a specific subject matter, oral evidence may be received, for the purpose of shewing what that subject-matter was, of every fact within the knowledge of the parties before and at the time of the contract.

Lord Campbell, after referring to the conversation relating to the sources of the plaintiffs’ wool continued:
The two together constituted his wool; and, with the knowledge of these facts, the defendant contracts to buy ”your wool”. There cannot be the slightest objection to the admission of evidence of this previous conversation, which neither alters nor adds to the written contract, but merely enables us to ascertain what was the subject-matter referred to therein.

…
Lord Wilberforce returned to the same theme in Reardon Smith:[47]
[47]Reardon Smith (n 39) 996.
…
It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively – the parties cannot themselves give direct evidence of what their intention was – and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties.

In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, Stephen, Jacobs and [Mason JJ] following Prenn in a joint judgment said:[48]
A court may admit evidence of surrounding circumstances in the form of “mutually known facts” “to identify the meaning of a descriptive term” and it may admit evidence of the “genesis” and objectively the “aim” of a transaction to show that the attribution of a strict legal meaning would “make the transaction futile” …

(citations are the author’s; original citations omitted; underline added)

[48]DTR (n 40) 429.

Similarly, in Eureka Operations Pty Ltd v Viva Energy Australia Ltd (‘Eureka’),[49] a case decided by the Court of Appeal of this Court some 6 months prior to Apple and Pear, Santamaria, Ferguson and McLeish JJA referred to Electricity Generation and Mount Bruce and stated that:[50]

In the first place, the objective approach to contractual interpretation requires reference to the ‘text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’. It follows that the meaning of a word or clause cannot be determined by reference to its own text alone. As such, resort to the ‘ordinary meaning’ of the word or clause can be no more than a starting point in a process which in every case requires the reader of the contract to look further to context and purpose. Nor is it necessary that there be ambiguity, however understood, before undertaking that further process. Context (as defined above) and purpose are always relevant, no matter how clear the ‘ordinary meaning’ is said to be.
Secondly, the objective approach calls for the relevant provision to be interpreted as a reasonable businessperson would have understood it, which is revealed by considering the language used in the contract, the circumstances the contract addressed and the commercial purpose or objects to be secured by it, each of which is ordinarily able to be identified by reference to the contract alone. Again, the notion of ‘ordinary meaning’, while plainly a relevant aspect of this inquiry, cannot serve to foreclose consideration of these other elements. It is always possible that, despite the ‘ordinary meaning’, reference to context, the circumstances the contract addresses and its commercial purpose or objects will show that a reasonable businessperson would have understood a different meaning to apply. It is inherent in the test of the reasonable businessperson that he or she must be taken to be aware of more than just the text of the provision being construed.
Construction in the present case should therefore be approached on the basis that the ‘ordinary meaning’ of the relevant provisions is only one aspect of the wider inquiry, and that there is no need to establish any ambiguity arising from the text before undertaking that inquiry. It may be that no reason emerges to depart from the ordinary meaning of the words used. But the whole inquiry must be undertaken, whether or not the ordinary meaning can be described as unambiguous when read in isolation. Establishing ambiguity is not a threshold to be met before completing the inquiry.
(underline added)

[49][2016] VSCA 95.

[50]Ibid [45]-[47].

Similarly, as Kyrou, McLeish and Hargrave JJA in the Court of Appeal of this Court later stated in Lopes v Taranto:[51]

… there is a distinction between ‘context’ (being the entire context of the contract, as well as any contract, document or statutory provision referred to in the text of the contract) and ‘the circumstances the contract addresses in its commercial purpose or objects’. As to the latter, admissible evidence of mutually known objective background circumstances is always admissible no matter how clear the ordinary meaning of the words to be construed is said to be.

[51][2018] VSCA 288 [66]; citing Eureka (n 49) [46].

In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (‘Ecosse’),[52] Kiefel, Bell and Gordon JJ synthesised the previous High Court authority on the notion of commercial purpose as follows:[53]

It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
Clause 4 is to be construed by reference to the commercial purpose sought to be achieved by the terms of the lease. It follows, as was pointed out in the joint judgment in Electricity Generation Corporation v Woodside Energy Ltd, that the court is entitled to approach the task of construction of the clause on the basis that the parties intended to produce a commercial result, one which makes commercial sense. It goes without saying that this requires that the construction placed upon cl 4 be consistent with the commercial object of the agreement.

[52](2017) 261 CLR 544.

[53]Ibid 551 [16]-[17].

In Lopes v Taranto, after considering Electricity Generation and Mount Bruce, Kyrou, McLeish and Hargrave JJA stated that:[54]

The use of the words ‘in the position of the parties’ [in Ecosse] in this synthesis of principles of interpretation of commercial contracts, when read together with Electricity Generation, supports the statements in the above-quoted passage from Eureka that, in every case whether or not there is ambiguity in the language, the Court should have regard to objective evidence of facts known to both parties as to commercial purpose.

[54]Lopes v Taranto (n 51) [71].

It is important to note that the Court in Lopes v Taranto did not address, and that case is not at variance with, Apple and Pear and Tate JA’s discussion of the gateway requirement. The gateway requirement and the reference to surrounding circumstances it permits is separate from the objective approach and the reference to circumstances that such approach requires.

At least in this sense, then, to determine the context or purpose of the contract or to ascertain how a reasonable businessperson would have understood a provision of the contract, reference may be had to circumstances known to both parties. Regard to these factors is part of the process of giving the contract its objective meaning; this process may, in circumstances where the objective meaning arrived at is not plain or is otherwise unclear, result in an identification of ambiguity in the text.

In sum, assessing Ms Bi’s claim that ambiguity attends the phrase ‘shares of Party B’ requires me to:

(a) first, look to the text, context, and purpose of the contract (the latter of which involves a consideration of the circumstances known to both parties) to construe the contract’s objective meaning and/or construe the meaning of the contract by reference to what a reasonable businessperson in the position of the parties would have understood by its language; and

(b) secondly, if upon this first step the objective meaning of the contract is ambiguous, then have reference generally to the surrounding circumstances to clarify or determine the objective meaning.

Consistently with the above, identifying the parties to an agreement is such an exercise in construction of objective meaning. It is done by examining and construing any relevant documents and the factual matrix in which they were created, as well as ascertaining between whom the parties objectively intended to contract.[55] Where the documents are silent or ambiguous but there is undoubtedly a contract, the identity of the parties to the contract must be determined objectively from the surrounding circumstances.[56]
[55]Air Tahiti Nui Pty Ltd v McKenzie (2009) 77 NSWLR 299 (‘Air Tahiti’), 304 [28].
[56]Ibid 304 [28] and cases cited therein: Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170, 174; Protean (Holdings) Ltd v American Home Assurance Co (1985) 4 ANZ Insurance Cases, 60-683 at 74,055-6; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 at 477, 478-9, 486.

Key findings

Before turning to the application of the relevant principles to the interpretation of the phrase ‘shares of Party B’, it is appropriate to set out some key findings. Many of these were not in dispute between the parties.

First, it is clear that there was a dual commercial purpose which underpinned entry into the Investment Agreement.

Viewed from Mr Wu’s perspective, his purpose was to procure an investment, such that the minimum capital threshold for the IPO would be met and listing could proceed. Viewed from Ms Bi’s perspective, she sought the commercial comfort of knowing that if she invested, her investment would be underwritten by the Buy-back Obligation; indeed, this was the only circumstance in which she was willing to effect the subscription. Put another way, Ms Bi’s purpose was to make an investment that was at least partly secured. Mr Wu knew of Ms Bi’s commercial purpose and was willing to agree to the Buy-back Obligation because he was confident that FEL’s shares would perform well on listing, and because he sought to further his own commercial purpose of listing FEL. Having regard to Mr Wu’s commercial purpose, the identity of the holder of the shares was irrelevant, as evidenced in part by the fact that initial drafts of the agreement named Mr Liu as a party to the agreement, rather than Ms Bi.

Secondly, as noted above, Mr Wu suggested that Ms Bi effect the purchase in the name of a company, and to that end arranged for Ms Bi to be introduced to Mr Cheng, FEL’s accountant. Following the introduction, Mr Cheng duly arranged for the incorporation of a special purpose corporate vehicle, to be controlled by Ms Bi and which was to be the entity to subscribe for and receive the shares.

Ms Bi gave evidence that, prior to signing the Investment Agreement, she specifically raised with Mr Wu whether the Investment Agreement would still be effective if the share purchase proceeded in the name of a company. I am not satisfied that this discussion occurred. Mr Wu denied that it took place, and whilst it is plausible that Ms Bi may have raised it, there is no objective evidence which supports Ms Bi’s account. Ms Bi says that at the time the Investment Agreement was signed she did not have any details about Zhongda as she was waiting to receive the details from Mr Cheng.

I note that Zhongda was registered on 25 August 2016, six days prior to the signing of the Investment Agreement on 1 September 2016 and one day after the conversation likely occurred. Further, Mr Liu resigned as a director on 26 August 2016 leaving Ms Bi as the sole director. In light of these facts I find Ms Bi is mistaken in her recollection of the sequence of events. Obviously, on 24 August 2016, Ms Bi could not have known the name of the company. However, she would have known that a company would be proceeding with the subscription and its name by 26 August 2016 at the latest. Accordingly, Ms Bi would have known she would be effecting the share subscription through Zhongda before the further draft of the agreement was sent out on 28 August 2016, and before it was signed on 1 September 2016.

If Ms Bi had in fact turned her mind to the matter in the period between 24 August 2016 and 1 September 2016, the simplest way of dealing with any concern she had would have been to make Zhongda a party to the Investment Agreement,[57] or to expressly refer to the shares as Zhongda’s shares. The identity of the holder of the shares was completely immaterial to Mr Wu, and there may have been little difficulty in Ms Bi seeking such amendments to the Invest Agreement prior to signing. Of course, it is possible that Ms Bi did not raise it because of Mr Wu’s prior assurance; yet it is equally if not more possible that she did not raise it because she considered it was obvious when viewed in its proper context that the Buy-back Obligation would apply in any event.
[57]In fact, Ms Bi and Mr Liu had earlier asked for the agreement to be in Ms Bi’s name and not that of Mr Liu.

Notwithstanding that I have not accepted Ms Bi’s evidence on that aspect of the conversation, it is not disputed that:

(a) Mr Wu effected the introduction of Ms Bi to Mr Cheng;

(b) Ms Bi and Mr Wu had discussed tax issues that might be associated with Ms Bi’s planned acquisition of shares in FEL; and

(c) Mr Wu informed Ms Bi that his shareholding in FEL was in the name of a company or family trust, or said words to that effect.

At the very least, even on his own evidence from 24 August 2016 Mr Wu must have known, and I find that he did know, that there was a good possibility the shares would be subscribed for in the name of a company, to be incorporated for that purpose by Mr Cheng on Ms Bi’s behalf. To the extent to which anything turns on this, I would go further and find that Mr Wu recommended that the subscription be made in the name of company and therefore knew from 24 August 2016 that this was to occur, and that was why he introduced Mr Cheng to Ms Bi.

I consider it probable that neither Ms Bi nor Mr Wu turned their mind to, or were in any way troubled by, the fact that the shares would be subscribed for in the name of a special purpose corporate vehicle to be controlled by Ms Bi, rather than subscribed for by Ms Bi personally. To Ms Bi and Mr Wu, there was no material distinction between the assets they held personally and those held by companies which they controlled.

This unsophisticated understanding of legal personality is at least consistent with how Mr Wu perceived such matters. In the second Wu witness statement and in the context of his dealings with Mr Liu and Mr Qin concerning the alleged Tripartite Agreement, Mr Wu said he was not worried about contracting with Mr Liu rather than Ms Bi, stating that ‘in Chinese culture, we don’t think so much about which party should be involved. If the money is from a family, it doesn’t matter if it’s paid back in the wife’s name, husband’s name, son’s name, or company name, it’s paid back to the family.’

In that sense, Mr Wu and Ms Bi followed the habits referred to by Kourakis CJ in Davies v Apted.[58] In that case, his Honour observed:[59]

A principal who operates a business through a corporate vehicle, or vehicles, which he or she controls, is likely to use the personal pronoun in the course of contractual discussions.
[58][2013] SASCFC 92.
[59]Ibid [2], [4].

Conclusions as to Ms Bi’s claim

Ms Bi advances her case in three ways. First, she contends that, on its proper construction the phrase ‘shares of Party B’ extends to shares held by Zhongda. Secondly, she contends that the phrase ‘Party B’ extends to both Ms Bi and any corporate vehicle created for the purposes of purchasing the FEL shares. Thirdly, she contends that Mr Wu is estopped from denying his liability to buy-back the FEL shares from Zhongda.

In the present case, two issue of contract construction fall to be determined; namely:

(a) the meaning of the phrase ‘Party B’; and

(b) the meaning of the phrase ’shares of Party B’.

These issues overlap, though they are distinct. Importantly, if the phrase ’shares of Party B’ is found to extend to shares held by Zhongda, this does not of necessity mean that Zhongda is a party to the contract. However, if the phrase ‘Party B’ is found to extend to Zhongda is found to be a party to the contract, then this of necessity means that the shares held by it are ’shares of Party B’ in sense required by the Buy-back Obligation.

Further, both questions are to be resolved by an application of the objective approach to contract construction; that is, they require me to determine what a reasonable person in the position of the parties would have understood those elements of the contract to mean.

In my view, when construed in light of the text, context (the entire text of the contract, as well as any contract, document or statutory provision referred to in the text of the contract), and purpose of the contract, the phrase ‘shares of Party B’ is ambiguous or otherwise is susceptible of more than one meaning.

That Ms Bi and Mr Wu did not distinguish between themselves and the corporations they controlled is apparent from parts of the Investment Agreement itself. Under the heading ‘Investment amount, manner and time’, the Investment Agreement described FEL as ‘Party A’s company’. Such a statement is accurate in a colloquial sense, but ignores the fact that both Ms Bi and Mr Wu knew that Mr Wu’s investment in FEL was in fact in the name of a company which Mr Wu controlled. So too, under the heading ‘Win-win cooperation’ the Investment Agreement referred to Party A (that is, Mr Wu) using the funds to complete the listing application after Party B invested; of course, the funds were not to be paid to Mr Wu and used by him personally, but were to be paid to FEL and used by it.

The context also extends to the fact that although the agreement has some indicia of formality, it was at its core a document written in Mandarin and between persons with no legal training and who, by virtue of their cultural background, were not likely to ascribe significance to the concept of separate legal personality. This is not an agreement between sophisticated parties and negotiated by lawyers, and its interpretation by this Court is undertaken by reference to an unauthorised English translation penned personally by Mr Wu with Mr Huo’s assistance.

One thing that is clear however is that Ms Bi and Mr Wu agreed on a term providing:

In the terms of this Agreement, if the content of any outstanding issues is not clear, both parties would follow the principle of the agreement, trading habits and associated terms of the agreement to make a reasonable explanation.

Thus the interpretative task agreed to by the parties requires the identification of ‘the principle of the agreement [in order to] make a reasonable explanation’. In order to identify the principle of the agreement, it is necessary to have regard to the discussions which preceded the creation of the printed text. They reveal not only that Ms Bi wanted the comfort of knowing that the investment would be effectively guaranteed by the provision of the Buy-back Obligation, but that it was likely if not probable that the share purchase would be effected in the name of a company controlled by Ms Bi and set up for that very purpose by Mr Cheng.

In my opinion, the colloquialisms within the text and context of the contract as well as the mandated requirement to identify ‘the principle of the agreement’, establish ambiguity or raise a ’constructional choice’ in the phrase ’shares of Party B,’ and the phrases ’Party B’ more generally.

The ambiguity attending the phrase ‘shares of Party B’ can be resolved with reference to the discussion of 24 August 2016. I have found that Mr Wu encouraged Ms Bi to invest through a corporate vehicle. Taking that discussion into account, it is clear that a reasonable person in the position of Ms Bi and Mr Wu would have understood the phrase ‘shares of Party B’ to extend to shares to be acquired in the name of any special purpose corporate vehicle to be incorporated by Mr Cheng for Ms Bi for this purpose and controlled by her. Such an interpretation is assisted by reference to the objective circumstances known to both Ms Bi and Mr Wu; namely, that for commercial reasons the subscription for the shares would be effected in the name of a special purpose corporate vehicle to be controlled by Ms Bi. Such a construction is consistent with the observations of Kourakis CJ in Davies v Apted.

Further, such an interpretation is consistent with the dual commercial purposes which underpinned the Investment Agreement, insofar as it fulfilled Ms Bi’s interests in advancing her commercial objectives and Mr Wu’s interests in ensuring that the subscription was effected such that the listing of FEL could occur. The identity of the holder of the shares was utterly irrelevant to Mr Wu’s commercial purpose. The tax efficiency available to Ms Bi in effecting her share subscription through a corporate vehicle decreased her costs of the transaction at no expense to Mr Wu. Indeed, it is probably for this reason that Mr Wu encouraged Ms Bi to use a corporate vehicle, as this made the transaction more enticing for her, and thus assisted Mr Wu to achieve his purpose of ensuring the listing occurred.

This resolves the question of the meaning of the phrase ’shares of Party B’, and for all practical purposes resolves the case in a manner adverse to Mr Wu.

It remains for me to determine the related issue of whether the phrase ‘Party B’ extends to Zhongda, such that Zhongda is a party to the Investment Agreement itself in addition to Ms Bi. This issue turns on the question of whether Ms Bi entered into the agreement as:

(a) a principal; or

(b) an agent for Zhongda, the latter being the disclosed and ascertainable principal incorporated by Ms Bi to subscribe for and acquire the shares; or

(c) both.

In light of the above, the practical significance of this second issue is that its resolution determines whether Ms Bi or Zhongda is the proper object of an award of damages.

In this aspect of the interpretative exercise, it is necessary look at the terms of the Investment Agreement; taking into account that I have found that the phrase ’shares of Party B’ extends to shares held by Zhongda. When that exercise is undertaken, the better view is that both Ms Bi and Zhongda were principal parties to the agreement, and that any reference to ’Party B’ means either Ms Bi or Zhongda as the context requires. For example, the clauses under the subheading ‘Financial, accounting and tax’ refer to the receipt by Party B of dividends; in this context the reference to Party B must mean the holder of the shares, being Zhongda; so too, the terms that set out the Buy-back Obligation under the ‘Investment Protection’ section. Other parts of the agreement clearly refer to Ms Bi personally; for example, the section under the heading ‘Rights and Responsibilities’.

I therefore find that on the Investment Agreement’s proper construction, the beneficiary of the Buy-back Obligation was Zhongda, the actual shareholder. As required by the context of that provision, Zhongda was the shareholder and was the party who was to receive the $3,000,000 from Mr Wu, transferring its shares to him in return. Zhongda was the party who was to benefit from, and so lost the benefit of, the bargain. Accordingly, Zhongda is the appropriate object of an award of damages.

The alternative manner in which Ms Bi advances her claim is on the basis that Mr Wu is estopped from denying that the Investment Agreement applied to the purchase of shares in Zhongda’s name.

In support of the equitable estoppel claim, Ms Bi relied upon the well-cited statement in Waltons Stores (Interstate) Ltd v Maher[60] where Brennan J stated as follows:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

[60](1988) 164 CLR 387, 428-9.

Alternatively, and in the event that I am wrong as to my conclusion as to the meaning of the phrase ’Shares of Party B’, I also consider that Mr Wu is estopped from denying that Zhongda is entitled to enforce and benefit from the Buy-back Obligation or, alternatively, that Mr Wu is estopped from denying that the reference to the shares of Party B in the Investment Agreement extended to shares held in the name of a special purpose corporate vehicle established by Ms Bi.

In my opinion, the requisite elements of an equitable estoppel are readily established on the facts; even allowing for my rejection of Ms Bi’s evidence that Mr Wu had assured her that the Investment Agreement would still apply to the subscription for shares in Zhongda’s name.

I find that:

(a) Ms Bi assumed or expected that Mr Wu would buy-back the shares, on the basis set out in the Investment Agreement, if they were acquired in the name of any special purpose corporate vehicle;

(b) Mr Wu’s statements and conduct at the meeting which took place on or about 24 August 2016 induced Ms Bi to adopt that assumption or expectation;

(c) Ms Bi acted or abstained from acting in reliance on the assumption or expectation:

(i) by proceeding with the share subscription in Zhongda’s name, and not in her personal capacity; or,

(ii) alternatively, by not specifically ensuring that Zhongda was referred to in the Investment Agreement;

(d) Mr Wu knew that Ms Bi would not have effected the purchase in Zhongda’s name had she believed otherwise;

(e) Ms Bi’s actions in effecting the purchase in Zhongda’s name, or her inaction in failing to ensure that specific reference was made to Zhongda in the Investment Agreement, will occasion detriment if the assumption or expectation engendered by Mr Wu is not fulfilled, in that Ms Bi will neither directly or indirectly gain the benefit of the Buy-back Obligation; and

(f) finally, that Mr Wu has failed to act to avoid Ms Bi’s detriment, whether by fulfilling the assumption or expectation or otherwise, insofar as he now purports to not be bound by the Buy-back Obligation in respect of Zhongda.

In the circumstances, Zhongda is entitled to enforce the Buy-back Obligation in the Investment Agreement either because it is a party to the Investment Agreement; or alternatively because Mr Wu is estopped from denying that it is a party to the Investment Agreement. Alternatively, if I am wrong in my analysis of the parties to the contract and Ms Bi alone is entitled to enforce the Investment Agreement, then she may enforce the Investment Agreement on the basis that the phrase ’shares of Party B’ extends to any shares acquired in Zhongda’s name; or alternatively because Mr Wu is estopped from denying that the phrase ’shares of Party B’ extends to any shares acquired in Zhongda’s name.

Damages

Ms Bi claims damages calculated by reference to the amount that Ms Bi or Zhongda would have received had Mr Wu performed the obligations imposed upon him under the Investment Agreement. Relevantly, the terms of the Investment Agreement required him to pay the sum of $3,000,000 to Ms Bi or Zhongda in return for the FEL shares.

The object of an award of damages for breach of contract is compensatory; the award is designed to, as nearly as money can, put the plaintiff in the position it would occupy if the defendant had not breached the contract.

The general rule is that damages for breach of contract are assessed as at the date of breach, as that is when the cause of action arises.[61] In the present case, had Mr Wu performed the obligations imposed upon him under the Investment Agreement, he would have paid the sum of $3,000,000 to Ms Bi or Zhongda in return for a transfer of the 6,000,000 FEL shares held by Zhongda.
[61]Johnson v Perez (1988) 166 CLR 351, 357 (Mason CJ).

Ms Bi accepts that the value of the shares retained by Zhongda must be brought to account in the assessment of any award of damages resulting from Mr Wu’s breach of the Investment Agreement.

Ms Bi submits that that her damages are to be calculated in the sum of $3,000,000, less the value of the FEL shares as at the date of the breach. Ms Bi contends the date of breach is September 2019, shortly after the date of her original demand. At that date, the closing price for the shares on the ASX was $0.01 per share.

Ordinarily, a contract to sell shares in a publicly listed company will not be amenable to an order for specific performance.[62] This is because the existence of an available market in which the stock can be transferred makes damages at law an adequate remedy, such that equity will not intervene to provide specific performance. In the present case, Ms Bi initially sought an order for specific performance, on the basis that the FEL shares were thinly traded, in a manner similar to a case where a party seeks to enforce a contract to acquire shares in an unquoted company.[63] Ultimately, at trial Ms Bi only pressed a damages claim, to be assessed on the basis identified above.
[62]Nurisvan Investment Ltd & Anor v Anyoption Holdings Ltd [2017] VSCA 141, [127] (Osborn, Santamaria, and Kaye JJA).
[63]Ibid, [127].

Whilst in the ordinary course of events the date for the assessment of damages is the date of the breach, in particular cases that general rule may be displaced and give way to a solution best adapted to give the injured plaintiff an amount in damages which will most fairly compensate them.[64]
[64]Johnson v Agnew [1980] AC 367, 400-401.

Presently, Zhongda retains the 1,200,000 FEL shares. In those circumstances, the appropriate method for assessing damages is to deduct a sum representing the current market price of the shares retained by Zhongda from the sum of $3,000,000 payable by Mr Wu under the Buy-back Obligation. Whilst the limited trading history of the FEL shares makes it difficult to determine a market price, the closing date on the ASX throughout 2021 has been $0.049 (4.9 cents). In my opinion, this is the share price that should be used to determine the value of the shares retained by Zhongda and to calculate the sum to be offset against the $3,000,000 payable by Mr Wu.

In other words, the damages comprise the sum of $3,000,000 less the value of the shares retained by Zhongda. That value can be calculated by pricing Zhongda’s 1,200,000 shares at 4.9 cents per share, or $294,000. Had Mr Wu performed the agreement, Zhongda would have received the sum of $3,000,000and Mr Wu would have received the shares; instead, Zhongda did not receive the $3,000,000 but it has retained shares of value $294,000. Accordingly, Zhongda is entitled to damages in the amount of $2,706,000 and interest. Mr Wu’s counterclaim is dismissed.

Remaining matters

Mr Wu gave his evidence in chief by way of three witness statements. Those witness statements had been prepared on his behalf during the period where he had legal assistance. Ms Bi objected to a number of paragraphs in those witness statements. Most of the objections related to evidence concerning the Tripartite Agreement. Mr Wu did not seek to press those paragraphs.

However, Ms Bi also objected to certain paragraphs in Mr Wu’s second witness statement relating to the board meetings of FEL on 4 September 2017 and 12 September 2017 and FEL’s annual general meeting on 3 November 2017. The relevance of those paragraphs was not immediately apparent, either on the face of the witness statement itself or from any pleading filed on Mr Wu’s behalf. More particularly, the matters addressed in those paragraphs of Mr Wu’s witness statement were not relevant to any allegations made in Mr Wu’s defence to the second further amended statement of claim and amended counterclaim filed 10 May 2021.[65] Accordingly, I excluded those paragraphs.
[65]The amended list of issues was prepared in light of the limited issues which arose in light of the amended pleading of 10 May 2021.

In his closing submissions Mr Wu sought to tender minutes of meetings of directors at the board meetings of FEL held 9 August 2017 and 12 September 2017; along with a memorandum of understanding between FEL and Country Garden Australia Pty Ltd (‘CGA’), which memorandum was referred to in the minutes of FEL’s board meetings. It became apparent that Mr Wu wished to rely upon the minutes and the various documents referred to in support of a submission that Ms Bi had allied with the two other directors of FEL in the course of 2017 to remove Mr Wu as CEO, and that this had the flow-on effect of preventing the agreement between FEL and CGA in the memorandum of understanding from being performed. Mr Wu sought to submit that the consequent failure of this agreement to materialise contributed to or resulted in the share price for FEL not reaching the level of $0.50 required for the Buy-back Obligation to arise.

I indicated that I would receive those documents provisionally and then rule upon their reception into evidence in my reasons for judgment.

The paragraphs of Mr Wu’s second witness statement are not relevant to any pleaded issue. Nor are the matters referred to in the minutes or the associated documents.

Further and in any event, and putting the pleading to one side, the only conceivable relevance of the documents is if they could support an allegation that Ms Bi had breached a term of the Investment Agreement which had the effect of disentitling her or Zhongda from enforcing the Buy-back Obligation. Whilst the Investment Agreement did contain provisions which referred to the collaborative nature of the investment, on no proper reading of it did it impose an obligation on Ms Bi, when acting in her capacity as a board member, to act in accordance with Mr Wu’s wishes and expectations.

First, there is nothing in the Investment Agreement which would detract from Ms Bi otherwise being obliged to carry out her duties as a director of FEL in accordance with the ordinary obligations that would be imposed upon a director of a company, including those set out under the Corporations Act 2001 (Cth). The fact that Ms Bi may have acted as a director of FEL in a manner which displeased Mr Wu does not give rise to a breach by her of the Investment Agreement.

Secondly, and necessarily following from that conclusion, there is no basis to contend that any breach that may have occurred was of a term that would give Mr Wu an entitlement to terminate the agreement, or which breach otherwise would be regarded as a repudiation of the agreement by Ms Bi.

Thirdly, there is no evidence that Mr Wu either acted to terminate the agreement following a breach by Ms Bi of an essential term, or acted to terminate the Investment Agreement by accepting any repudiation by Ms Bi.

Fourthly, there is no evidence which would enable me to draw any conclusion as to the causative effect of removing Mr Wu as CEO. I note, in any event, that Mr Wu apparently returned as CEO of FEL in November 2017.

Conclusion

Accordingly, Zhongda is entitled to damages in the amount referred to above. Mr Wu’s counterclaim is dismissed. I will hear the parties further as to interest and costs.

[2021] VSC 447

3 August 2021