BM Sydney Building Materials Pty Ltd v Awt Building Group (Aust) Pty Ltd; BM Sydney Building Materials Pty Ltd v Awt Building Pty Ltd

[2017] NSWCA 177

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	BM Sydney Building Materials Pty Ltd v AWT Building Group (AUST) Pty Ltd; BM Sydney Building Materials Pty Ltd v AWT Building Pty Ltd [2017] NSWCA 177
Hearing dates:	28 June 2017
Decision date:	24 July 2017
Before:	Beazley P at [1]; Ward JA at [2], Leeming JA at [3]
Decision:	In relation to proceeding 2017/85334: 1. Appeal allowed. 2. Set aside the orders made on 15 February 2017 in favour of AWT Building Group (AUST) Pty Ltd and Mr Teng. 3. Remit the proceeding to the District Court for a retrial. 4. AWT Building Group (AUST) Pty Ltd and Mr Teng to pay BM Sydney Pty Ltd’s costs of the appeal. 5. Costs of the new trial to be in the discretion of the judge before whom the new trial is conducted.  In relation to proceeding 2017/85330: 1. Appeal allowed. 2. Set aside the orders made on 15 February 2017 in favour of AWT Building Pty Ltd and Mr Teng. 3. Remit the proceeding to the District Court for a retrial. 4. AWT Building Pty Ltd and Mr Teng to pay BM Sydney Pty Ltd’s costs of the appeal. 5. Costs of the new trial to be in the discretion of the judge before whom the new trial is conducted.
Catchwords:	APPEAL - defendants admitted liability on claim for debt but relied on estoppel based on oral agreement - primary judge accepted defendants’ evidence and made adverse credit-based findings against plaintiff’s witness - whether primary judge failed to have regard to contemporaneous documents - whether primary judge misapprehended evidence said to corroborate oral agreement - whether this Court could give judgment in favour of plaintiff - appeal allowed and retrial ordered.
Legislation Cited:	Corporations Act 2001 (Cth), s 1308
Cases Cited:	Cook's Construction Pty Ltd v Brown [2004] NSWCA 105 Croucher v Cachia [2016] NSWCA 132 Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 Jones v Dunkel (1959) 101 CLR 298 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Category:	Principal judgment
Parties:	2017/85334 BM Sydney Building Materials Pty Ltd (Appellant) AWT Building Group (AUST) Pty Ltd (First respondent) Wenge Teng (Second Respondent)   2017/85330 BM Sydney Building Materials Pty Ltd (Appellant) AWT Building Group Pty Ltd (First respondent) Hui Li (Second Respondent) Wenge Teng (Third Respondent)
Representation:	Counsel: M P Cheshire SC, B K Nolan (Appellant) G W McGrath SC, A Norrie (Respondents excluding Mr Li)   Solicitors: Deutsch Partners (Appellant) Wang Lawyers (Respondents excluding Mr Li)
File Number(s):	2017/85334; 2017/85330
Decision under appeal	Court or tribunal: District Court of New South Wales Jurisdiction: Civil Date of Decision: 15 February 2017 Before: Curtis DCJ File Number(s): 2015/178811; 2015/178796

HEADNOTE

[This headnote is not to be read as part of the judgment]

The plaintiff/appellant (BM Sydney) supplied building materials to two related companies (AWT), which did not pay. AWT admitted the indebtedness, but said that there had been oral agreement between the companies’ directors giving rise to an estoppel preventing BM Sydney from bringing proceedings. The primary judge accepted that the conversation had occurred, rejected the evidence of BM Sydney’s director including because he was an evasive and inconsistent witness, and sought to reconcile that agreement with some of the contemporaneous documents. AWT appealed. The principal ground of appeal challenged the findings of primary fact.

Held, allowing the appeal and remitting the matter for retrial:

1. The primary judge had erred in failing to have regard to many contemporaneous documents, which were supportive of BM Sydney. The error was explicable due to the fact that most of those documents had been tendered at the end of the trial without objection and neither party made any oral or written submission in relation to them. That did not prevent BM Sydney relying on them in appeal: at [46]-[57].

2. The primary judge had erred in finding that AWT’s director’s evidence was corroborated: at [58]-[61].

3. The primary judge had erred in explaining some contemporaneous documents which were inconsistent with the alleged oral agreement by reference to a later meeting, insofar as his Honour had omitted to refer to correcting affidavits which accepted that the meeting had taken place many months earlier, prior to the alleged oral agreement: at [63].

BM Sydney’s submission that it was entitled to judgment because the evidence was incapable of sustaining an estoppel, or because the pleaded estoppel was bad in law, was rejected, in light of the impossibility of the apellate court making findings of primary fact and the width of the pleaded estoppel: at [70]-[81].

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Leeming JA. I agree with his Honour’s reasons and proposed orders.

2. WARD JA: I agree with Leeming JA’s reasons and the orders his Honour proposes.

3. LEEMING JA: The principal question in these appeals is whether the primary judge erred in upholding a defence of estoppel based on an asserted oral agreement between the parties and not otherwise recorded. His Honour’s finding turned in part upon a demeanour-based assessment of credit, and the challenge in this Court appropriately reflected the deference stated in Fox v Percy (2003) 214 CLR 118; [2003] HCA 22. Even so, for the reasons which follow, the findings of the primary judge must be set aside, and the proceedings remitted for a retrial.

Parties

4. The plaintiff/appellant, BM Sydney Building Materials Pty Ltd, commenced two proceedings in the District Court of New South Wales to recover amounts owed to it pursuant to the supply of building materials. In both cases, liability was admitted. The materials were supplied to separate but related companies: AWT Building Group (AUST) Pty Ltd and AWT Building Pty Ltd, in the amounts of some $503,000 and $308,000 respectively. Nothing turns upon the separate corporate identities of those companies, to which I shall refer collectively as “AWT”.

5. Mr Wenge Teng was a director of both AWT companies. He had guaranteed both companies’ obligations, and was joined to both proceedings. Mr Hui Li guaranteed the obligations of one of the companies and was the second defendant in one of the proceedings. However, he did not appear at the trial and indeed there was evidence that he had not been served.

6. In its defences, AWT relied upon either an estoppel or a set-off. It succeeded on estoppel, and the trial judge did not address set-off. In the absence of any notice of contention in relation to set-off, it is unnecessary to say anything about that aspect of the litigation.

7. The directors of BM Sydney were Mr Hui Binh Trieu and Mr Ming Lee. The same men were BM Sydney’s shareholders.

8. The witnesses who gave evidence at the trial were Mr Ming Lee, on behalf of the plaintiff/appellant, and Mr Teng and Mr Wenjun Lu (AWT’s General Manager) on behalf of the defendants/respondents. Mr Lee gave evidence in English, but the transcript records that he had significantly less than perfect command of it. Messrs Teng and Lu gave evidence with a Mandarin interpreter.

9. The estoppel was based on events surrounding another company, Harpro Group Pty Ltd (Harpro), in which Messrs Lee and Teng both had interests. Harpro was also in the building industry. It was involved in importing and distributing autoclaved aerated concrete (AAC) panels from China. Some of the documents tendered at trial refer to difficulties in obtaining certification so as to be compliant with the Building Code of Australia.

10. There were three ordinary shares in Harpro. Two were issued to Mr Teng, and he held one of those beneficially, and the other as trustee for Mr Lu. The other Harpro share was issued to a Ms Ngoc Anh Thu Le (known as Michelle), who held that share as trustee for Mr Lee.

11. The directors of Harpro were Ms Le and Mr Teng, but it appears to have been common ground that Ms Le was Mr Lee’s nominee.

The primary documents

12. The supplies of building materials which had created the debts owed by both AWT companies to BM Sydney had occurred between March 2014 and May 2015. By December 2014, the large majority of those debts had been incurred and were due.

The loan agreement dated 6 January 2014

13. Harpro was incorporated on 6 January 2014. A loan agreement dated 15 January 2014 between BM Sydney and Harpro was signed by Mr Trieu as a director of BM Sydney and Ms Le as a director of Harpro. The agreement made provision for what was described as a “temporary Loan facility of up to $700,000” and stated that the borrower agreed to use the loan for the purpose of “carrying its business” [sic]. The loan made express provision for drawdowns by the borrower, either in full or in tranches, “to, or for the account of, the Borrower”. Interest was chargeable at 7.65% per annum and the repayment schedule provided “the whole amount of loan shall be repaid before 21 December 2014 with the interest”. There were also some unusual features. The agreement provided that “the Lender is not obliged to monitor or verify how the Loan is used”. The loan was said to be governed by, construed and enforced in accordance with the law of England and Wales, to which jurisdiction the parties submitted. (There is no suggestion in the evidence of any link with the United Kingdom.)

14. To anticipate what follows, the primary judge did not accept that Harpro had borrowed any money from BM Sydney. This finding is challenged on appeal. Part of his Honour’s reasons turned upon cl 9.1, which provided that all communications by the parties about the loan shall be in writing and delivered by hand or sent by pre-paid post or sent by fax or email.

Documents recording payments made on account of Harpro

15. An email dated 15 January 2014 (tendered as part of PX 14 – see further below) recorded that Mr Bernard Reynauld, described as the Chief Executive Officer of Harpro, advised Mr Ming Lee and BM Sydney’s accountant, Mr Ketan Amin, that:

“As per our discussion, I approved following monthly & fortnightly payments for salary and management fees. As agreed, all this payment has to be made from BM Sydney first and treated as loan to Harpro. As and when we [receive] funds in Harpro we will repay to BM Sydney.”

16. The email identified “management services” from Mr Lee Blackbourne – “fortnightly payment of $4,583.33 incl GST”; “consultancy fees” for Mr Reynauld – “monthly payment of $10,000 incl GST plus car lease payment of $1,000 per month”; and “Zhao Hui Hao (sunny)” – “salary fortnightly payment of $1,974.00 net”.

17. In circumstances described below, this email (and hundreds of other pages) was tendered by BM Sydney at the conclusion of the hearing, without objection (and the transcript suggests further without even having been seen) from counsel for AWT, and without protest from the primary judge.

18. Mr Lee annexed to his second affidavit what was said to have been Harpro’s general ledger in respect of its loan from BM Sydney. The extract covered a period from 17 January 2014 to 17 February 2015. There were regular entries of wages for “Bernard” and “Sunny” in the amounts of $10,000 and $1,974 respectively. There were also regular entries for amounts described as “Bernard car lease”, and fortnightly payments of $4,583.33 for “AAC Technologies – Lee”. Other documents made it plain that Mr Lee Blackbourne was associated with AAC Technologies Pty Ltd.

19. Until July 2014, the ledger contained no credit entries at all, and in the period from 28 July to 3 September 2014, there were five credit entries, three of which are described as repayments and the other two are relatively small. There are entries on 29 September and 1 October 2014, each described as “RECD FRM HUME INV # HG017/14”. Those entries are credit amounts of $60,000 and $90,000. They correspond with what were said to be the only payments made pursuant to a highly contentious agreement between Harpro and Hume Plasterboard Pty Ltd dated 18 August 2014 (Hume Agreement), which was executed by Ms Le in the presence of Mr Reynauld on behalf of Harpro and Mr Nick Cai in the presence of Ms Cindy Williams on behalf of Hume Plasterboard.

The Hume Agreement

20. Pursuant to the Hume Agreement, Harpro promised to sell all of its stock of AAC panels at Kemps Creek, Hume, Sydney and Melbourne for a total amount of some $665,000. That amount was calculated on the basis of $22 per square metre free into store. Payment was to be made within seven days after final delivery. The agreement contained (in cll 3.1 and 3.2) a simple Romalpa clause in respect of which no submissions were made.

21. Hume also promised to make two cash payments described as follows:

“6.1 Hume agrees to reimburse Harpro with all costs provided by Lee Blackbourne to TZ [apparently, a Chinese supplier] for improving the production and quality of the AAC panels as listed in Annex 2

6.2 Hume further agrees to reimburse Harpro 50% of Bernard Reynauld’s costs incurred with market development activities in Australia as listed in Annex 2.”

22. Annex 2 stated that Lee Blackbourne’s consultancy fees from October-July 2014 were $100,000 and Bernard Reynauld’s consultancy costs from January-July 2014 were $50,000.

23. Clause 6.3 provided that Hume agreed to pay for the transaction under this agreement in full by 31 August 2014. There was no issue that Hume made the payment of $150,000 (albeit not within the time specified), but failed otherwise to pay for the building materials.

The documents lodged with ASIC on behalf of Ms Le

24. The principal reason for the controversy relating to the Hume Agreement was that on the afternoon of Thursday 14 August 2014, a “Change to Company Details” form was lodged electronically with ASIC by or on behalf of Ms Le. The document asked ASIC to change the records relating to Harpro by stating that Mr Teng ceased to be a director and secretary of the company on 12 August 2014, and that both of his shares were transferred to Ms Le on 14 August 2014. ASIC updated its records accordingly. Once that was done, ASIC’s records disclosed Ms Le as the sole director and shareholder of Harpro.

25. There was no evidence that Mr Teng’s shares had in fact been transferred, or that he had resigned as director. It is an offence knowingly to submit a false or misleading document to ASIC: Corporations Act 2001 (Cth), s 1308(2).

26. Ms Le was not called as a witness. Mr Lee stated in his second affidavit that “Michelle” [that is, Ms Le] “acts as my ‘proxy’”. No evidence was adduced on behalf of BM Sydney as to any falling out between Ms Le and Mr Lee or to explain Ms Le’s absence from the witness box, given the centrality to the litigation of the changes to the ASIC registers. Ms Le was evidently in BM Sydney’s “camp” for the purposes of the drawing of Jones v Dunkel inferences.

27. In general terms, Mr Teng said that he was unaware of the changes to the ASIC records until December 2014, and that it was in that context that he had a conversation with Mr Lee on or about 12 December 2014, which the primary judge accepted gave rise to the estoppel. The conversation, according to his second affidavit, was in the following terms:

“Teng: Why didn't you inform me before you removed me as a director and a shareholder of Harpro?

Lee: I am sorry. I was wrong to remove you as a director and as a shareholder. I will quit Harpro. I have organised for Harpro to enter into an agreement with Hume.

[Mr Teng said that he was then handed the Hume Agreement.]

Teng: You never told me that you had been selling Harpro stock. This is also my company. I was a director of Harpro and its majority shareholder before you had me removed without my prior knowledge. Is that why you had me removed as a director of Harpro. So you could sell its stock without my knowledge? I will report you to the police.

Lee: Please don't do that. I am currently supplying the building materials for AWT Building and AWT Building Group for the project with Parkview Construction. I can continue to supply your companies with the materials.

Teng: The Harpro stock which you sold has a market value of $33 per square metre. According to this document, you have sold almost $1 million dollars worth of Harpro stock to Hume. You also sold Harpro stock to another company in Adelaide. You also took more panels on two occasions from Harpro.

In total you have sold approximately $ 1.36 million worth of Harpro stock. You must return all the Harpro stock or reimburse Harpro $900,000.00. This is a reduced amount based on $22.00 per square metre instead of the market value amount of $33.00 per square metre. I am prepared to reduce this amount in order to avoid legal proceedings between us.

Lee: I agree.

Teng: I understand that you and BM Sydney have also received money from Hume. This must be returned to Harpro.

Lee: I agree. As I already stated, I will continue to supply your companies, AWT Building and AWT Building Group with the materials for Parkview Construction.

Teng: I am prepared to consider any materials supplied as being contributions towards the debt which must be repaid to Harpro. As long as this agreement is respected, I will not commence legal proceedings against you.

Lee: That is fine with me.”

28. Mr Teng’s second affidavit also stated that Ms Le was removed as a director of Harpro by resolution made on 16 June 2016. He annexed the minutes of an extraordinary general meeting of Harpro held at AWT’s solicitors’ offices on that day, at which that resolution was passed. Ms Le attended the meeting as a shareholder and the minutes record that she presented a statutory declaration denying allegations that she had caused Mr Teng to be removed and then entered into a contract where she had benefited personally or where some person other than Harpro had benefited. Her statutory declaration was annexed to the minutes. It stated:

“The removal of Mr Wenge Teng as director of Harpro Group Pty Ltd was a clerical error made by an ex-employee and Mr Teng was reinstated as director of Harpro Group Pty Ltd.

The agreement entered with Hume Plasterboard Pty Ltd was not entered as a sole director. My belief is that I have authority to sign agreements as director of Harpro Group Pty Ltd, which I have done in the past.

I have personally not retained funds from the transactions made with Hume Plasterboard Pty Ltd. The sum of $150,000 received was for payment of Bernard Reynauld’s costs incurred. My understanding is that no further payments have been received from Hume Plasterboard Pty Ltd whom I believe is still indebted to Harpro Group Pty Ltd for the stock they received between May 2014 and December 2014.

I have always acted honestly, with due diligence at all times and only for the best interests of Harpro Group Pty Ltd.”

The reasons of the primary judge

29. The reasons of the primary judge are very short, comprising 10 double-spaced pages containing 47 paragraphs. The majority of the paragraphs contain a single sentence. Given the nature of the challenge made by BM Sydney, it is necessary to summarise those reasons in some detail.

30. The judgment is divided into the following sections: Introduction, Background, The Agreement, Discussion, The Law, Conclusion and Orders. However, there are important findings of primary fact, challenged on appeal by BM Sydney, contained in the early sections of the reasons. In the section headed “Background”, the primary judge recorded at [10]-[11]:

“10. On 18 August 2014, again without the knowledge or consent of Mr Teng, Ms Le for Harpro contracted to sell its remaining stock to Hume Plasterboard Pty Ltd for the price of $665,260.20 reflecting a price of $22 per square metre. The market value was then $33 per square metre.

11. Neither the plaintiff nor Mr Lee accounted to Harpro for the monies generated by these sales.”

31. BM Sydney contended that (a) contemporaneous documents indicated that Mr Teng was aware of the sale, (b) to the extent that the 18 August 2014 contract generated amounts paid by Hume, those amounts were accounted to Harpro, and that to the extent that [10] implied that an amount of $665.260.20 was generated, it was common ground that Hume had failed to pay that amount to Harpro.

31. Secondly, under the heading “The Agreement”, the primary judge did not merely set out Mr Teng’s evidence of the conversation giving rise to the estoppel, but also included a finding that “in reliance upon this agreement [AWT] continued to order the further building materials from BM Sydney the subject of this claim”. The finding of reliance is challenged on appeal, and, in any event, the very large majority of building materials contributing to both claims for debt were ordered and supplied prior to the agreement.

32. Finally, also under the heading “The Agreement”, the primary judge found at [18] that the loan agreement dated 15 January 2014 had been “signed by Ms Le without the knowledge or consent of Mr Teng.” BM Sydney challenged the finding of absence of knowledge or consent.

33. Putting those matters to one side, the structure of the dispositive part of the reasons of the primary judge, under the heading “Discussion”, was as follows. First, his Honour rejected the evidence of Mr Lee, giving five reasons for doing so. Those reasons were as follows:

“20. First because the purported agreement dated 15 January 2014 does not include a term permitting BM Sydney to receive the proceeds of sales by Harpro.

21. Secondly, although the agreement required that ‘All communications

between the parties about the loan shall be in writing’, the defendant in its response to a Notice to Produce produced no records of any communications in respect of monies advanced by BM Sydney to Harpro.

22. Thirdly because Mr Lee and Ms Le concealed the document from Mr Teng, a director and the majority shareholder.

23. Fourthly because the account by Mr Teng of the conversations between himself and Mr Lee is broadly corroborated by Mr Lu.

24. Fifthly because Mr Lee presented as an evasive and inconsistent witness who gave no credible account as to why Mr Teng was removed as director and shareholder six days before his nominee, Ms Le, agreed to sell all remaining stock to Hume Plasterboard at an undervalue and why he produces no records of any loans by BM Sydney to Harpro. Where the evidence of Mr Lee is inconsistent with that of Mr Teng and Mr Lu I prefer the evidence of Mr Teng and Mr Lu.”

35. Secondly, the primary judge accepted Mr Teng and Mr Lu as truthful and reliable witnesses in relation to the conversations with Mr Lee to which they deposed.

36. Thirdly, his Honour observed that the agreement was a “sensible resolution of the dispute between the parties”: at [28].

37. Fourthly, his Honour addressed at [25]-[31] three matters which were inconsistent with the findings he had reached.

1. The primary judge noted that AWT had issued a cheque to BM Sydney on 16 April 2015 in the amount of $37,065. The cheque was dishonoured but its issue was accepted by his Honour to be inconsistent with an agreement being reached between Messrs Teng and Lee in 2014. At [26], his Honour reconciled the issue and subsequent dishonouring of the cheque with a meeting which his Honour said had occurred on or about 28 May 2015. He referred to a note at this meeting on which Mr Lee had written the word “agree” on a sheet of calculations.

2. The primary judge also addressed Mr Teng’s evidence relating to occasions when AWT paid moneys to BM Sydney after December 2014. His Honour referred to, and impliedly accepted, the evidence of Mr Teng that the payments were “in response to requests from Mr Lee for cash because he didn’t have enough money to operate”.

3. In relation to a “payment schedule” on AWT letterhead apparently signed by Mr Teng, providing for payments of $100,000 on 15 May, 15 June, 15 July and the balance on 15 August 2015, the primary judge accepted Mr Lu’s evidence that the document was created at the request of Mr Lee for the purpose of presentation to Boral, a supplier pressing BM Sydney for outstanding monies: at [30]-[31].

38. Fifthly, his Honour said that he drew “the strongest Jones v Dunkel inference” that Ms Le’s evidence would not assist BM Sydney in its case that Mr Teng’s removal as director and shareholder was a clerical error. His Honour addressed BM Sydney’s reliance upon Ms Le’s statutory declaration to that effect, observed that the ex-employee was not identified, nor called in BM Sydney’s case, and concluded that Ms Le’s statement “cannot stand with the circumstances that the ASIC document removing Mr Teng was on 14 August 2014 certified by Ms Le and the agreement with Hume Plasterboard Pty Ltd dated 18 August 2014 was signed by no director other than Ms Le”: at [37].

39. Sixthly, his Honour also inferred that BM Sydney’s accountant Mr Ketan Amin would not give evidence advancing its case that loan monies were advanced by BM Sydney to Harpro, and added that “that case is unsupported by documentary evidence”: at [38]. His Honour made further reference to Mr Amin attending the meeting of 28 May 2015.

40. Under the heading “The Law”, the primary judge reproduced the six elements of the estoppel identified by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and then stated at [42]-[43]:

“The evidence of the plaintiff satisfies these conditions.

The action of the corporate defendants in placing further orders with the plaintiff upon the expectation that they would have credit of $900,000 will have caused them detriment if the plaintiff is not held to its promise. The plaintiff created that expectation and intended that the defendants should rely upon it.”

41. In conclusion, the primary judge said at [44] that BM Sydney was estopped from bringing these proceedings and said that it was unnecessary to consider the alternative defence of equitable set-off.

Resolution of the appeal

42. The principal ground of appeal was a challenge to the credit-based findings of primary fact. The essential factual issue in the case was whether the conversation in December 2014 to which Messrs Teng and Lu deposed, but which Mr Lee denied, founding the alleged estoppel, occurred. Their evidence, of course, fell to be evaluated not merely in light of their testimony, but also in the context of the business relationship between them and their companies in the months preceding and following that conversation, as established by contemporaneous and incontrovertible evidence, as well as in light of the inherent probabilities of the case.

43. BM Sydney relied upon the formulation of principle in Croucher v Cachia [2016] NSWCA 132 at [124]-[125]:

“[W]here there is a real conflict in the evidence, it is necessary to ‘engage with, or grapple or wrestle with the cases presented by each party’: see for recent examples Keith v Gal [2013] NSWCA 339 at [109]-[119] and Murray v Sheldon Commercial Interiors Pty Ltd [2016] NSWCA 77 at [60]. The point of the metaphor is, as Ipp JA stated in Goodrich Aerospace Pty Ltd v Arsic [2006] NSWCA 187; 66 NSWLR 186 at [28], that it is not sufficient to set out the conflicting evidence and conclude, without analysis, that the judge prefers one body to another. As McColl JA said in Pollard v RRR Corporation Pty Ltd [2009] NSWCA 110 at [66]:

‘Where it is apparent from a judgment that no analysis was made of evidence competing with evidence apparently accepted and no explanation is given in the judgment for rejecting it, it is apparent that the process of fact finding miscarried.’

That said, the fact that some matters were not addressed at all, or that there were errors in the way in which other matters were addressed, is not of itself sufficient to establish error. Ultimately there must be a qualitative evaluation of what a primary judge has done, having regard to (a) the inherently incomplete nature of his or her reasons, (b) the advantages he or she enjoyed hearing the evidence as the trial unfolded, (c) the matters that were given emphasis at trial and (d) the number and nature of errors identified on appeal: see Murray v Sheldon Commercial Interiors Pty Ltd at [60]-[66].”

44. Senior counsel for BM Sydney (Mr A Cheshire SC, who had not appeared at trial) followed the approach recommended at [131] of Croucher v Cachia, which was to commence with the reasons given by the primary judge with a view to identifying error in accordance with the principles identified in Fox v Percy. It is convenient in these reasons to do the same.

Flaws in rejecting the loan from BM Sydney to Harpro

45. The first matter addressed in the “Discussion” section of the reasons of the primary judge is the loan agreement dated 15 January 2014, described by his Honour as a “purported” agreement: at [20]-[22]. With respect, little turns upon his Honour’s reliance upon cl 9.1, a “boilerplate” clause requiring communications to be in writing. Such a clause does not of itself bear upon whether or not a loan was made; that question is answered by reference to the evidence, notably, contemporaneous documents and transfers of funds.

46. Secondly, the statement in [21] about BM Sydney’s response to a notice to produce is incorrect. True it is that on the first day of the trial it appears (so far as the transcript records) that no documents answering that description had at that time been produced by BM Sydney. However, at the conclusion of the second (and final) day of the hearing, counsel for BM Sydney stated that she produced to the Court further documents in answer to the notice to produce in both proceedings. Her opponent advised that he had been told about the documents, but had not seen them. Counsel for BM Sydney stated that she proposed to tender all the documents belatedly produced, and that occurred without opposition from counsel for AWT. Those two folders of documents became labelled PX 14, which comprised some 400 pages (in fact the majority) of the blue book in this Court. So far as I can see, BM Sydney’s written submissions to the primary judge contained a single reference (in footnote 43) to one of those 400 pages of documents, and otherwise did not mention them. There were no submissions after the evidence had been adduced.

47. It may therefore easily be seen how the primary judge came to the conclusion stated at [21]. This difficulty would have been avoided had the primary judge required the documents to be tendered individually, or alternatively, if his Honour had ruled that documents not referred to by either party throughout the trial were excluded from the bundle provisionally admitted into evidence.

48. Those courses not having been taken, it was open for BM Sydney, on appeal, to make a series of submissions, none of which had been made before the primary judge (I shall return below to the possible costs consequences of that course).

49. Within PX 14 BM Sydney pointed to primary bank records dealing with the transfer of amounts of $60,000 and $90,000 on 29 September and 1 October 2014 from Harpro’s ANZ bank account to BM Sydney. BM Sydney also pointed to the extract from Harpro’s general ledger showing a series of entries reflecting, as noted above, payments of wages and consultancy fees to Messrs Reynauld, Blackbourne and Zhao (Sunny). The ledger also showed the payments of $60,000 and $90,000 on 29 September and 1 October 2014 and a further “repayment to BM” dated 15 December 2014 in the amount of $90,383.31. In relation to the latter amount, BM Sydney’s (ANZ) bank statement (also in PX 14) recorded a deposit of $90,383.31 on 15 December stating it was an internet transfer “FR HARPRO GROUP HARPRO GROUP PL”.

50. Thus, although to be fair, none of the foregoing was pointed out to the primary judge in oral submissions, and precious little in written submissions, there was a deal of contemporaneous documentary evidence wholly consistent with the loan agreement dated 15 January 2014.

51. The next reason given by the primary judge for rejecting the evidence of Mr Lee was his finding that Mr Lee and Ms Le had concealed the loan agreement from Mr Teng: at [22]. His Honour’s reasons contain no findings of primary fact explaining what the “concealment” was. The reasons go no further than to say that the loan agreement was signed “without the knowledge or consent of Mr Teng”.

52. True it is that Mr Teng affirmed that “no monies were loaned to Harpro”. Mr Teng did not elaborate as to what precisely he meant by that. One possibility is that he meant to convey only that there was no transfer of funds from BM Sydney’s bank account to Harpro’s bank account. If so, that appears to be true, but does not exclude the existence of a loan. A lender can and quite commonly in the case of construction finance does undertake to pay a borrower’s creditors directly.

53. Mr Teng did not explain whether he understood that Harpro’s employees and officers were being paid, and if so, where funds to pay them were coming from. Harpro commenced operations in January 2014 and, so far as the evidence discloses, had issued $30 of shares and had no funds available to it in its own right. The primary judge did not address any of these considerations.

54. Further, there were contemporaneous documents casting doubt on the finding that any loan was concealed from Mr Teng. From at least June 2014 until 2016, Mr Jeng Fong was the solicitor acting for AWT, Mr Teng and Mr Lu (he in fact witnessed Mr Teng’s and Mr Lu’s first affidavits; a different firm acted for AWT thereafter). He was present at a meeting on 24 June 2014 concerning the future shareholding and board composition of Harpro. He sent an email to Mr Tony Ren of BM Sydney the following day summarising the matters decided at that meeting and, more formally, on 27 June 2014, Mr Fong sent a memorandum of understanding recording what had occurred to, among others, Mr Lu and Mr Lee. Both his email and the memorandum of understanding referred to the loan from BM Sydney. The email stated:

“5. Add to company’s constitutions that 1. Ming’s loan and loans guaranteed by Ming must be paid first after day-to-day Harpro’s operation expenses are paid AND 2. after Ming’s loans and guaranteed loans were paid, Harpro must pay TZBM post expenses.”

55. The references to “Ming’s Loan” can only plausibly be references to a loan from BM Sydney to Harpro.

56. The memorandum of understanding included as a recital that the parties had discussed adding to Harpro’s constitution that “Direct and Indirect Loan from/by Ming Lee to be repaid in favour of all other debt liabilities” and as an “action item”:

“5. Add to the Harpro’s constitution that:

(a) Direct and Indirect Loan from/by Ming Lee to be repaid in favour of all other debt liabilities (excluding liabilities incurred during day to day operation);

(b) Subject to 5(a) costs of building materials supplied by Tian Zhu Building Material (TZBM) to be repaid after Ming Lee is fully repaid.”

57. The memorandum of understanding admitted into evidence was not executed. However, both it and the email sent by Mr Teng’s solicitor are inconsistent with the loan agreement being concealed from Mr Teng. The primary judge did not refer to these documents.

Flaws in findings based on corroboration by Mr Lu

58. The next matter relied upon by the primary judge was that Mr Teng’s account of the December 2014 conversation was “broadly corroborated by Mr Lu”. BM Sydney was critical of that proposition. The conversation between Messrs Li and Teng which the primary judge reproduced in his reasons and found had occurred, giving rise to the estoppel, was contained in Mr Teng’s second affidavit. His first affidavit was much briefer. He referred to the meeting at paragraphs 21-25. Those paragraphs made no reference to any conversation supporting an estoppel. They were, in their entirety, as follows:

“21. On or about 12 December 2014, Mr Lee and I had a meeting.

22. At the meeting, Mr Lee expressed his intention to quit Harpro.

23. I was then given a document entitled Distribution & Stock Transfer Agreement. I annex herewith a copy of the document and marked it as annexure C.

24. I had no knowledge of the arrangement of Distribution & Stock Transfer agreement until it was given to me.

25. Neither Harpro nor I had received any payment under the Distribution & Stock Transfer Agreement.”

59. Mr Lu’s first affidavit deposed to a conversation between him and Mr Lee in which he complained of the sale of Harpro’s stock to Hume without Mr Teng’s knowledge and the $150,000 paid by Hume plasterboard for the sale. The only conversation between Messrs Teng and Lee to which Mr Lu deposed in that affidavit as occurring in December 2014 was in paragraphs 3 and 4 as follows:

“3. Mr Teng said, ‘you owe me money regarding Harpro’s business affairs.’

4. Mr Lee said, ‘I will not sue you until we resolve Harpro’s matters.’

(The balance of the affidavit referred, in some detail, to conversations some six months later, in support of the defence of set-off.)

60. In Mr Lu’s second affidavit, Mr Lu said the following:

“7 I recall that Wenge Teng (Teng) and Ming Lee (Lee) had a detailed discussion between themselves during this meeting.

8. I do not specifically recall the details of this discussion other than as set out at paragraphs 3-4 of my first affidavit.

9 However, I recall that, after their discussion, Lee told us the following:

‘Ok it’s settled. Harpro will not sue me on the condition that my company … will continue to supply building materials to your companies for the Parkview Construction project. The supply of these materials will be considered contributions to the debt to be repaid to Harpro.’”

61. Accordingly, Mr Lu provided no corroboration to Mr Teng’s account of his conversation, which was only contained in his second affidavit, save for the two sentences reproduced above in Mr Lu’s first affidavit, and, perhaps, the self-serving statement after the event reproduced in Mr Lu’s second affidavit, to which objection does not appear to have been taken. Further, Mr Lu’s evidence was that “Mr Teng and Mr Lee had a detailed discussion between themselves”.

Documents inconsistent with the December 2014 conversation

62. The primary judge, entirely conventionally, was alert to contemporaneous documents which told against his findings of fact, and sought to reconcile them. However, there are substantial difficulties with the reconciliation offered by the primary judge.

63. I have referred above to his Honour’s rationalisation of the cheque issued on 16 April 2015, by reference to a meeting said to have taken place on 28 May 2015. Mr Lee had denied any such meeting, and indeed said that he was not in the country at the time. In impliedly rejecting that denial, his Honour failed to have regard to the second affidavits affirmed by each of Messrs Teng and Lu. Both men, responding to Mr Lee’s evidence, corrected their earlier evidence, and said that the meeting to which they had referred took place in August 2014 (in the case of Mr Teng) or May 2014 (in the case of Mr Lu). Both those dates precede the conversation founding the estoppel. Thus the evidence of all witnesses was that no meeting took place on that day.

64. The foregoing does not stand in the way of there being some explanation consistent with AWT’s case for the cheque being drawn and subsequently cancelled. But if there is such an explanation, it is not the one given by the primary judge.

65. A second inconsistency concerned the payment schedule signed by Mr Teng. The primary judge accepted Mr Lu’s evidence that the document had been created at the request of Mr Lee in order to be supplied to Boral. The payment schedule is, of course, entirely inconsistent with the estoppel on which AWT relied. That, of itself, does not exclude the possibility, accepted by the primary judge, that the document was brought into existence to create a particular impression in the mind of BM Sydney’s supplier Boral. That is to say, on AWT’s case, the purpose of the document was to deceive BM Sydney’s supplier Boral. Ordinarily, one would be reluctant to impute such a purpose to a party. However, putting that to one side, BM Sydney emphasised the circumstances in which the document came to be created. Mr Lee gave evidence that, following an email sent to Messrs Teng and Lu on 7 January 2015 (both in English and Mandarin) insisting that “AWT has to pay all debt to BM as soon as possible. This must be understood clearly”, Mr Lee required the payment schedule to be signed and sent. Mr Teng said nothing in his affidavits about the payment schedule. Mr Lu addressed it in terms. But his evidence was to the effect that Mr Lee asked for the schedule and that he would make sure that something would be sent through to him. There was nothing in his evidence dealing with the fact that the payment schedule that Mr Lee was asking Mr Lu to prepare and Mr Teng to sign was inconsistent with the agreement struck between the men in December 2014 for which AWT contended. This more important aspect of the circumstances surrounding the creation of the payment schedule was not considered by the primary judge at all.

Affirmation of the Hume Agreement

66. In January 2015, in circumstances where Hume had possession of the AAC panels but had not paid Harpro, Mr Fong wrote to Mr Reynauld including in the following terms:

“Nick Cai of Hume Plasterboards told me that Ming or yourself or someone under Ming’s direction contacted him regarding refunding him $150,000 and after which he would release Harpro’s stock in favour of the Payer.

2. As majority shareholder and director of Harpro, Jack

(a) does not agree to terminate this agreement;

(b) does not authorize the refund; and

(c) does not authorize the taking of stock from Nick.

3. As far as Jack and Wenjun are concerned, Harpro has an agreement with Hume Plasterboards under which Hume Plasterboards is bound to pay Harpro a further $662,260.20.”

67. It is difficult fully to understand the context in which that email was sent. However, BM Sydney correctly submitted that it was difficult to reconcile on the one hand Mr Teng being highly concerned by the sale of Harpro stock at an undervalue pursuant to the Hume Agreement, and on the other hand his affirmation of that agreement.

Conclusion

68. BM Sydney made further submissions critical of the way in which the primary judge reconciled the conflicting testimonial and documentary evidence before him. It is not necessary to summarise or resolve those submissions, and, in light of the orders I propose, involving a rehearing, it is inappropriate to do so. Enough has been said to demonstrate that there were highly material matters which the primary judge misapprehended or failed to have regard to in rejecting Mr Lee’s evidence.

69. AWT made no submissions undermining the force of the matters summarised above, no doubt for the good reason that there is no answer to them. Instead, AWT made submissions directed to other aspects of Mr Lee’s cross-examination, observing that there were more unsatisfactory aspects than had been mentioned by the primary judge. In light of what is to occur in the future, it is undesirable to address these matters. It suffices to say that it is no answer to the force of BM Sydney’s submissions to say that the primary judge’s adverse assessment of Mr Lee’s credit was capable of being sustained by matters on which the primary judge did not rely. This Court cannot reject the reasoning process adopted by the primary judge, but leave in place his Honour’s conclusion as to Mr Lee’s credit, based on the transcript alone. That is particularly so in the present case, where the transcript of Mr Lee’s imperfect English, and the translator’s evidence of what Messrs Teng and Lu had said in Mandarin, leave this Court in an acutely disadvantageous position to assess questions of credit. Senior Counsel for AWT also submitted that the finding of an estoppel was supportable by reference to the evidence of Mr Lu and Mr Teng in cross-examination, as well as the underlying commercial context. That may be so, but again, this Court cannot, based on the transcript alone, reconcile the inconsistent testimonial evidence of Mr Lee on the one hand and Messrs Teng and Lu and the other.

Can this Court order judgment in favour of BM Sydney without a retrial?

70. BM Sydney’s primary submission was that there should not be a rehearing but that the evidence taken at its highest could not establish the estoppel which was the only basis on which AWT defended the claims brought against it. The submission had two limbs. The first was that the evidence was irreconcilable with any estoppel falling within the case pleaded by AWT. The second was that the estoppel pleaded by AWT was bad in law because of the difference in parties, the absence of a clear and unequivocal representation, and the absence of reliance. I would not accept either aspect of this submission.

The evidence was capable of sustaining an estoppel

71. In relation to the facts, there remains the incontrovertible fact that Ms Le or someone on her behalf caused changes to be made to ASIC’s register so as to remove Mr Teng as both director and shareholder of Harpro. Ms Le’s statutory declaration that this was a “clerical error” made by an “ex-employee” is, with respect, uninformative. There was no attempt to explain what the clerical error was. Nor was there any indication of who the “ex-employee” was, or his or her motives. Mr Lee gave evidence that he “effectively operated Harpro using Ms Le” but despite the centrality of Ms Le in this litigation, said the following in cross-examination:

“Q. Is she in Australia or is she overseas?

A. I’m not sure.

Q. When was the last time you spoke to her?

A. I think she might know.

Q. Do I take it then, sir, that you would have last spoken with her in about September or October this year?

A. Yes, we meet then sometime, yes.”

72. Later in his cross-examination, Mr Lee said that he did not make any inquiries with Ms Le about Mr Teng being removed as a director. He added:

“We don’t know so we didn’t ask.”

73. The rest of Mr Lee’s evidence thereafter is that he was unaware that Mr Teng had been removed until Mr Teng told him so and that when he learned that Mr Teng had been removed, he immediately took steps to get him reappointed. (That is consistent with the fact that a summary of ASIC’s register shows that documents were lodged in December 2014. Those documents were not in evidence.)

74. Mr Lee denied having any involvement with Mr Teng having been removed as a director, but then gave this evidence:

“Q. Have you spoken to Ms Le about Mr Teng being removed as the director of Harpro?

A. No, I can’t remember.

Q. You can’t remember?

A. No, I can’t remember.”

75. The implausibility of the only explanation offered is remarkable. So too is the absence of any explanation for not calling Ms Le. I respectfully agree with Hodgson JA’s observations in Cook’s Construction Pty Ltd v Brown [2004] NSWCA 105 at [42] on the drawing of inferences in a case such as this:

“[W]here a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and second-hand evidence, when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation.”

76. Thirdly, there is the remarkable coincidence in timing that the removal of Mr Teng as director and shareholder in ASIC’s records was on the Thursday before the Monday on which the Hume Agreement was executed by Ms Le.

77. There is one other highly unusual circumstance. It seems that the entire stock of AAC materials owned by Harpro was sold to Hume pursuant to that agreement. The contemporaneous documents suggest that not only was the sale effected but that the stock was physically transported and stored on Hume premises. The fact that the stock was said to have been sold at a discount (at $22 per square metre rather than what was said to be the market price of $33 per square metre) may perhaps be attributable to the fact that certification had not at that stage been obtained. But it is difficult to understand why Harpro would divest itself of the entirety of its stock without at the same time ensuring it be paid in full by Hume.

78. What precisely were the circumstances leading to the forms lodged with ASIC and the execution of the Hume Agreement remain unclear. It is entirely possible that when Mr Teng learnt of this he had a conversation with the principal of AWT’s supplier, BM Sydney, Mr Lee, and elicited from him a representation that even though AWT was substantially indebted to BM Sydney, no steps would be taken to enforce that debt until there had been the full accounting of what had occurred in Harpro. If Mr Lee is to be believed, and he knew nothing as to what Ms Le (or some other officer or agent of Harpro) had done, then it is quite plausible that he would have sought some reconciliation with his fellow shareholder and director and long-time business colleague.

An estoppel is available at law

79. BM Sydney’s other submission was tied to the terms of the estoppel pleaded and the fact that the dispute relating to the affairs of Harpro was distinct from the undoubted indebtedness of AWT to BM Sydney. I do not consider that the fact that Mr Teng was concerned about what had happened to his interest in Harpro, and that he was promising not to sue in relation to the affairs of Harpro, inevitably stands in the way from Mr Lee’s statements founding an estoppel on which AWT could rely against BM Sydney. It is to be recalled that Mr Teng was a director of Harpro and AWT, while Mr Lee was a director of BM Sydney and a shadow director of Harpro.

80. Nor do I consider that the evidence precludes a clear and unequivocal representation being made sufficient to found an estoppel. At the time the men met, AWT owed a large amount of money to BM Sydney. There is nothing implausible in Mr Teng insisting, as the price for not taking further steps in relation to Harpro, with a clear undertaking that AWT be given extended credit.

81. BM Sydney submitted that there was no reasonable reliance on the representation. It is true that the finding by the primary judge that AWT placed further orders by way of reliance is problematic – AWT placed very few orders thereafter, and almost the entirety of the orders on which it was sued had been supplied before December 2014. However, I do not consider that this Court can comfortably conclude that a finding of reliance is unavailable at a retrial. The pleaded defence is broadly stated: “Believing in truth of Mr Lee’s representation and acting in reliance upon it, [AWT and Mr Teng] to their detriment took no further steps to hold Mr Lee accountable for loss and damages that Mr Teng suffered due to Mr Lee’s involvement in the operation of [Harpro]”.

Orders

82. For those reasons, I propose that each appeal be allowed, the orders made in each proceeding on 15 February 2017 be set aside, and the matter be returned to the District Court for a retrial. Costs in this Court must follow the event. The costs of the original trial should be in the discretion of the judge to whom the matter is remitted. Nothing in these reasons should be regarded as standing against a submission that some special costs order should be made having regard to the delayed production of documents by BM Sydney and the failure to make reference to most of them in written or oral submissions at the first trial.

83. The effect of those orders is to leave in place the judgment in favour of Mr Li in proceeding 2017/85330. It may be doubted whether the primary judge ought to have given judgment in favour of Mr Li, who was joined to the proceeding but never served. However, that is what occurred. Mr Li not having been served with BM Sydney's appeal, there is no occasion for this Court to alter the orders made insofar as they affect him. I propose these orders:

In relation to proceeding 2017/85334:

1. Appeal allowed.

2. Set aside the orders made on 15 February 2017 in favour of AWT Building Group (AUST) Pty Ltd and Mr Teng.

3. Remit the proceeding to the District Court for a retrial.

4. AWT Building Group (AUST) Pty Ltd and Mr Teng to pay BM Sydney Pty Ltd’s costs of the appeal.

5. Costs of the new trial to be in the discretion of the judge before whom the new trial is conducted.

In relation to proceeding 2017/85330:

6. Appeal allowed.

7. Set aside the orders made on 15 February 2017 in favour of AWT Building Pty Ltd and Mr Teng.

8. Remit the proceeding to the District Court for a retrial.

9. AWT Building Pty Ltd and Mr Teng to pay BM Sydney Pty Ltd’s costs of the appeal.

10. Costs of the new trial to be in the discretion of the judge before whom the new trial is conducted.

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Decision last updated: 24 July 2017