Cai v Chen
[2024] QSC 148
•25 July 2024
SUPREME COURT OF QUEENSLAND
CITATION:
Cai v Chen [2024] QSC 148
PARTIES:
YINGJIE CAI
(first plaintiff)
XIAMEN AO ZHONG FORTUNE INVESTMENT LTD
(second plaintiff)
v
LIHUA CHEN(defendant)
FILE NO/S:
BS 10587 of 2022
DIVISION:
Trial Division
PROCEEDING:
Claim
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
Date of Orders: 9 July 2024
Date of Publication of Reasons: 25 July 2024
DELIVERED AT:
Brisbane
HEARING DATE:
8 and 9 July 2024
JUDGE:
Bradley J
ORDERS:
THE JUDGMENT OF THE COURT IS THAT:
1. the Defendant pay to the Second Plaintiff the amount of $330,276.50;
2. the Defendant pay the Plaintiffs’ costs of the proceeding up to and including 1 April 2024; and
3. the Plaintiffs jointly and severally pay the Defendant’s costs of the proceeding after 1 April 2024.
THE COURT ALSO ORDERS THAT:
4. the Defendant pay the Plaintiffs’ costs of the application filed 5 December 2022 (CFI 2); and
5. the Plaintiffs jointly and severally pay the Defendant’s costs of the applications filed 13 April 2023 (CFI 9 and CFI 10).
CATCHWORDS:
INTERPRETATION – GENERAL RULES OF CONSTRUCTION OF INSTRUMENTS – COMMERCIAL AND BUSINESS TRANSACTIONS – GENERALLY – where, by a property subscription agreement (PSA), the parties agreed that the second plaintiff would transfer ownership of certain land (the Property) to the defendant in exchange for an agreed amount – where, by the PSA, the parties also agreed they would sign a contract for the construction of a house on the Property – where, by a letter agreement (letter agreement), the parties agreed that the house to be constructed on the Property would be larger than originally intended and that the construction cost would likely be higher – where the parties later entered into a fixed price construction contract with a third party valued at $924,447 (construction contract) – where, by a later written agreement, the parties agreed to sell the Property and equally split the net profits from its sale – whether the construction costs to be deducted from the profit are those calculated in accordance with the letter agreement or are the difference between the value of the construction contract and the PSA amount
COUNSEL:
S J English for the plaintiffs
M E Clarke for the defendantSOLICITORS:
H&L Legal Group for the plaintiffs
Auslaw Partners for the defendant
On 9 July 2024, at the conclusion of the trial, judgment was pronounced. The parties then made short oral submissions on costs. Costs orders were then also pronounced. The following is an edited version of the reasons for judgment and for the costs orders given at that time.
The present dispute is about the parties’ respective entitlements to the proceeds of the sale of a residential property at Hope Island, following a series of dealings between about June 2014 and February 2023.
The first plaintiff (Mr Cai) was born in Xiamen, a port city in Fujian Province, China. Over the relevant time, he lived on the Gold Coast. Mr Cai was the sole director of the second plaintiff (XAZ), a company incorporated in China, with an address in Xiamen. He was also the sole director of Harbour Garden G.C Real Estate Pty Ltd ACN 602 676 326 (Harbour Garden), a company incorporated in Australia. Mr Cai was involved in residential property development in Australia. In 2014, he had a particular interest in land at Hope Island. His company, XAZ, was dealing with Malpha Sanctuary Cove (Development) Pte Ltd (Malpha). Malpha was the owner of several lots at Hope Island in which XAZ had an interest.
The defendant (Ms Chen) lives in Xiamen. Ms Chen is now retired. In the relevant period, she was involved in the business of design and renovation of properties in China. There, she purchased residential apartments and commercial properties. At that time, Ms Chen was unfamiliar with buying and selling property in Australia.
Both Mr Cai and Ms Chen are citizens of the People’s Republic of China. Neither reads English nor speaks it fluently. Each gave evidence at the trial in Mandarin. Their answers were translated by an interpreter. Their communications and most of the instruments they signed were in Mandarin. Agreed translations of these documents were admitted into evidence for the trial.
In May 2014, Ms Chen travelled to Australia for a holiday, accompanied by her daughter and two friends. They stayed with Mr Cai in his house at Sanctuary Cove. Mr Cai was known to another of Ms Chen’s friends. This is how they became acquainted.
While they were staying with him, Mr Cai showed Ms Chen and her companions several properties at Hope Island, including one at 1061 Edgecliff Drive (the Property). The property was then vacant land.
Between June 2014 and April 2016, the parties executed six instruments relating to the Property. It is convenient to deal with each of these in turn.
The property subscription agreement
On 4 June 2014, shortly after Ms Chen returned to China, Mr Cai visited her. There Mr Cai, on behalf of XAZ, and Ms Chen signed the property subscription agreement (the PSA). By the PSA, XAZ and Ms Chen agreed that XAZ would “withdraw from control of” the Property, “terminate the relevant contract” with Malpha, and “handle the land transfer contract” between Malpha and Ms Chen for a purchase price of $865,000.
By the PSA, XAZ and Ms Chen also agreed that XAZ (or a construction company it controlled) and Ms Chen would “sign the house construction contract” for $867,000. The parties agreed that the PSA “includes the land transfer contract and the house construction contract, which are inseparable.”
By the PSA, they also agreed that, on behalf of Ms Chen, XAZ would apply “successively” for loans from Australian banks for the land transfer contract and the house construction contract.
In the PSA, the parties stated that Ms Chen had paid Chinese yuan renminbi (CNY) 150,000 to XAZ as a “deposit”. Ms Chen agreed she would pay the “full amount” by a “mortgage payment method”. This method would require Ms Chen to pay:
(a)CNY 1,000,000 on or before 16 June 2014;
(b)CNY 1,000,000 on or before 16 January 2015;
(c)CNY 500,000 on or before 16 May 2015; and
(d)before “property settlement”, the “balance in a lump sum according to the total contract price minus the payment, bank loan and deposit”.
In the PSA, the parties also agreed that the construction of the house would be “subject to the floor plan approved by both parties” and that after “completion of land settlement” Ms Chen would be “allowed to modify the drawings.” They agreed that:
“Any additional expenses incurred shall be borne by [Ms Chen]. After negotiation and confirmation by both parties, the drawings shall come into force after signature. It will act as a supplement to this Contract.”
The land purchase contract
In July 2014, Ms Chen signed a contract with Malpha to purchase the Property for $865,000. Mr Cai engaged solicitors to act for Ms Chen in the purchase. He also assisted her in a loan application to Westpac Bank. Westpac approved a loan for part of the purchase price. Ms Chen says it was up to $610,000.
On 10 December 2014, Ms Chen settled the land purchase contract. By then Malpha’s solicitors held the $86,500 deposit (about 150,000 CNY). The balance to be paid to Malpha (or at its direction) was $778,543.34.[1] These figures are drawn from Malpha’s solicitors’ settlement statement.
[1]There was a rates adjustment, requiring Ms Chen to pay Malpha $43.34.
The trust statement from Ms Chen’s solicitors shows that $172,589.34 was paid from their trust account to Malpha. I infer the balance of $605,954 was advanced by Westpac.
The trust statement shows four other payments associated with the settlement of the land purchase contract. $31,959.33 was paid to the Commissioner of State Revenue for transfer duty. $3,300 was paid to Ms Chen’s solicitors, I infer for their legal fees. $38.50 was paid to a settlement agent. $10 was paid to the Commonwealth Bank for a bank cheque fee. It follows that a total of $207,897.17 was paid out of the trust account in respect of the settlement. There remained a balance of $532.83 in the account.
The funds in the trust account came from three sources. Malpha’s solicitors had refunded $35, as an overpayment of the deposit. Ms Chen had deposited $142,590. Mr Cai had deposited $65,805.
Ms Chen says Mr Cai alerted her to the “shortfall” of $65,805 about three business days before settlement. Both agreed that Mr Cai would cover the shortfall and that Ms Chen would reimburse him. Ms Chen says the agreed amount of reimbursement was CNY 330,000. Mr Cai accepted that this was about the equivalent of $65,000. A translation of WeChat messages passing between Mr Cai and Ms Chen’s daughter between 5 December 2014 and 4 January 2015 include acknowledgements by Mr Cai that he received a total of CNY330,000 into his account, at his request, in two tranches. Mr Cai says this was a repayment for the transfer duty on the purchase contract. According to the trust statement, the transfer duty was about half the sum Ms Chen’s daughter deposited into Mr Cai’s account. Both witnesses lack clear recollections of the relevant events. In the circumstances, I prefer Ms Chen’s recollection over Mr Cai’s because it accords with the contemporaneous documentary evidence.
First supplementary agreement
On 15 January 2015, XAZ sealed and Ms Chen signed a supplementary agreement (the first supplementary agreement).
In respect of Ms Chen, the first supplementary agreement varied the PSA by changing the date for her to pay the second instalment (CNY 1,000,000) from 16 January 2015 (see [12](b) above) to 16 April 2015, and by setting CNY 80,000 as the agreed amount of interest payable on that amount for the four month extension period. It also provided for the parties to agree on a new start date for construction.
Ms Chen’s daughter Shuya Shao also executed the first supplementary agreement. It appears she agreed to become the purchaser of neighbouring land (Lot No. 77) at Hope Island. By the first supplementary agreement, XAZ agreed to defer a second instalment of CNY 1,000,000 that was also due on Lot No. 77 on 16 January 2015. XAZ, Ms Chen and Ms Shao agreed that as Lot No. 77 and the Property “are connected”, the commencement of construction and the handover date adjustments made for the Property “shall apply concurrently to both properties” and “Payment methods will be synchronized”.
Second supplementary agreement
On 17 October 2015, XAZ and Ms Chen executed another supplementary agreement (the second supplementary agreement). This is the instrument upon which XAZ relies to make its claim and on which Ms Chen relies to make her defence. It is convenient to set out its terms in full:
“Party A: [XAZ] (hereinafter referred to as Party A)
Party B: [Ms Chen]
ID card No.: 350204195909174029 (hereinafter referred to as Party B)
After negotiation, Parties A and B reached a supplementary agreement as follows:
1.Shenxian Wan[2] land lot No. 77 will be built at the fastest speed in accordance with the original contract standards.
2.After the completion of the construction, the two parties will jointly sell the [Property] as soon as possible. The net profit above the main contract amount of $1.732 million will be split 50/50 between A and B.
3.In order to sell the [Property] at a higher price after building, the original standard drawings may need to be changed to a larger set, with the extra construction costs deducted from the profit, referring to the standard drawings and quotations (Shaobao Chen No. 67). The extension plan is an annex to this agreement, which will take effect after both parties confirm it.
4.About 40% of the construction cost in the early stage will be paid by [XAZ], and about 60% of the latter amount of the construction cost still remains with [Ms Chen] applying for a loan. From the date of the occurrence of the interest on the loan, to the date of the sale of the property, the interest of the construction loan shall be paid by [XAZ] (the interest of the land loan is still paid by Part B in accordance with the original contract). The final net profit will be split 50/50 between A and B.
5.After the property is sold, the sales channel party can get a total sales commission of $60,000.
6.The final settlement net profit is spit within a week.”
[2]I understood this to be a Mandarin expression for “Sanctuary Cove”, used to describe the land to be purchased by Ms Shao (Ms Chen’s daughter). Nothing turns on this assumption.
Ms Shao did not execute the second supplementary agreement. However, in it, XAZ and Ms Chen referred to Lot No. 77, as well as to the Property. Its limited relevance may be that Ms Shao’s property was to “be built at the fastest speed”. Nothing turns on this.
The confirmation letter
On 15 March 2016, Mr Cai signed a confirmation letter as company representative of Harbour Garden. Ms Chen also signed on her own behalf. By it, they confirmed that the “building area” for the house to be constructed on the Property “has been redesigned” to be 191.97 square metres larger than the “original size”. Harbour Garden and Ms Chen also confirmed that:
“The construction cost per square metre is calculated at a standard rate of AUD 2,000, with a 15% discount applied, resulting in a price of AUD 1,700 per square metre.”
The construction contract
The last instrument was the Queensland New Homes Construction Contract (the construction contract) made between Ms Chen and Allwood Contractors Pty Ltd (Allwood). Ms Chen signed this as the owner. Mr Cai signed as a guarantor of Ms Chen’s obligations under the construction contract.
By the construction contract, Ms Chen, Allwood and Mr Cai agreed on a contract price $924,447. This consisted entirely of fixed price components. Ms Chen agreed to pay the contract price according to the progress payment schedule set out in Part A of Schedule 2 of the construction contract:
Stage
Percent
Amount
Deposit
5.00%
$46,222.35
Base
15.00%
$138,667.05
Frame (See Special Conditions)
20.00%
$184,889.40
Enclosed
25.00%
$231,111.75
Fixing
20.00%
$184,889.40
Practical Completion
15.00%
$138,667.05
Total
100.00%
$924,447.00
The construction contract included a special condition as an “addendum”. By it, the parties agreed that:
“The construction of the home is to proceed to frame stage only as defined under schedule 2 of this contract under part A of the progress payment schedule and schedule 4 under special conditions. The person nominated in schedule 1 under item 7 “Owner’s Guarantors” and under the deed of guarantee on page 12 of this contract shall be liable to make all payments to the builder until frame stage is reached.
When [finance] is confirmed to be available to the builder as per the clauses of this contract to fund the enclosed, fixing and practical completion stages as set out under part A of the progress payment schedule the works shall then [proceed] to practical [completion] but not before.”
Ms Chen did not obtain a construction loan to finance the payments to Allwood under the construction contract. Ms Chen paid none of the progress payments to Allwood. XAZ or Mr Cai or an associated entity made all the payments.
Sale of the Property
On 22 December 2022, Ms Chen executed a contract to sell the Property for $2,500,000. In the settlement statement, the purchaser is noted only as “Chen”. The sale price was later adjusted downward by $50,000 to $2,450,000.
On 20 February 2023, Ms Chen settled the contract to sell the Property.
The parties agree that XAZ is entitled to 50% of the “net profit” under cl 2 of the second supplementary agreement. They also agree that “the extra construction costs” are to be “deducted from the profit” under cl 3.
When the PSA was executed, the land cost was $865,000 and the construction costs were estimated to be $867,000. The sum of these figures is the $1,732,000 specified in cl 2 of the second supplementary agreement.
By the construction contract, the parties agreed with Allwood to fix the construction costs at $924,447. On the morning of the first day of the trial, Ms Chen admitted certain matters Mr Cai and XAZ had pleaded about “the total price of the Property and construction of the Dwelling”. This included an admission that the “construction (including agreed variations)” were $924,447. This accords with the construction contract. This admission was the basis on which Ms Chen succeeded in excluding much of the evidence in Mr Cai’s affidavit about the costs of construction, as it was relevant only to matters no longer in issue.
It follows that the construction costs were $57,447 more than the figure in the PSA. Plainly, this amount represents “extra construction costs” to be deducted from the profit.
Ms Chen says more than this should be deducted. She submits that the estimated additional construction costs that can be calculated by reference to the confirmation letter should be deducted from the profit instead of the additional amount paid by XAZ under the construction contract. Calculated in this way, her alternative “extra construction costs” are about $386,500.
I reject that submission for the following reasons.
The confirmation letter records the additional costs Ms Chen and XAZ anticipated would be incurred in constructing a larger house on the land. As events transpired, according to the evidence, the additional costs were not so high. The plain language of the parties in the second supplementary agreement is “the extra construction costs”. The parties’ agreement makes commercial sense using this ordinary meaning of the words. I see no warrant to interpolate the word “anticipated” in a clause about what the parties agree is to be done after the house has been constructed. Although Ms Chen’s alternative interpretation would have given the parties greater certainty about the notional cost base of the venture, it would have departed from the repeated terms of the second supplementary agreement that the “net profit” be “split 50/50” and the “final net profit will be split 50/50” between them. In this way, it would not be consistent with the instrument as a whole.
If Ms Chen’s submission were to be accepted, the agreement would be unlikely to give effect to the “50/50 split”. Unless the actual construction costs were exactly as estimated, there would be either additional funds available after the sale of the Property or a shortfall. Where, as here, the actual construction costs were less than anticipated, the second supplementary agreement is silent about what should occur. If the actual costs were more than the anticipated costs, then the agreement would not deal with who was to pay the shortfall. It would not make commercial sense. Some other agreement would be required to deal with any surplus or any shortfall.
I infer that by the second supplementary agreement, the parties intended to deal completely with their commercial relationship.
In addition to reaching this conclusion on the ordinary meaning of the instrument, its consistency and its commercial sense, I am conscious that the parties’ actual written agreement was made in another language. It has been translated into English. The translation is agreed. These circumstances make it less appropriate to depart from the parties’ actual words by more narrowly defining their expressions or by interpolating additional words in the English translation.
It follows that the net profit on the sale of the Property was $660,553. This is $2,450,000 less $865,000 (being the purchase price for the land) and less $924,447 (being the construction costs). XAZ is entitled to 50% of this amount, which is $330,276.50.
By cl 5 of the second supplementary agreement, the parties made provision for a sales commission of $60,000. As the seller, Ms Chen was uniquely placed to prove if any sales commission was paid and, if so, the amount. Ms Chen led no evidence that any sales commission was paid. The settlement statement exhibited to her affidavit noted this amount was “TBA”. In the circumstances, no amount should be deducted for any sales commission in the calculation of the net profit.
Other matters raised on the plaintiff’s pleadings
XAZ does not pursue any claim to be reimbursed for any progress payments it made to Allwood under the construction contract. It is not necessary to deal with that matter. Nor does it claim any loss or damage for breach of any agreement by Ms Chen. Although the prayer for relief includes other matters, it does not appear they are pursued.
Mesne rents
In closing submissions, counsel for Ms Chen advanced a claim for mesne rents for the use and occupation of the Property after XAZ ceased to rent it from Ms Chen. There is no counterclaim for such relief. It seems to feature incidentally in Ms Chen’s defence. In any event, such a claim must fail. Mr Cai gave evidence that neither he nor XAZ occupied and used the Property after XAZ ceased to rent it from Ms Chen. Ms Chen has no personal knowledge of any such use or occupation. Her assertion to the contrary cannot rise above a suspicion.
Counsel for Ms Chen relied on a company search of Harbour Garden made in August 2022. It specified the Property as the registered office and principal place of business of Harbour Garden. It also listed the Property as the address of Mr Cai, in his capacity as a director and shareholder of Harbour Garden.
By the date of the company search, Ms Chen had changed the locks to the house on the Property. Mr Cai did not have access to keys. Neither he nor any of the companies with which he was associated could have occupied or used the Property at that time. Plainly, the address noted in the company search was from an earlier time. Likely, it was during the 10-12 month period before the COVID-19 pandemic, when Ms Chen rented the Property to Harbour Garden.
Leave to add a counterclaim
At the outset of the trial, Counsel for Ms Chen sought the Court’s leave to amend her defence to add a claim for a “set off”. On further examination, this would be a “counterclaim” against Mr Cai under s 130 of the Land Title Act 1994 (Qld). It was described as a counterclaim for damages for lodging a caveat over the title to the Property when, it would be alleged, Mr Cai did not have an interest that would support the caveat.
XAZ and Mr Cai opposed leave to amend. Mr English, who appeared for them, said they were taken by surprise at Ms Chen’s application for leave.
I refused to give Ms Chen leave to make this amendment. I did so for the following reasons.
In 2022, Ms Chen filed an application seeking the removal of the caveat. The application was adjourned as part of an agreement that Mr Cai would withdraw the caveat, Ms Chen would sell the property, and the sale proceeds would be held in a solicitor’s trust account pending the outcome of this proceeding. In December 2022, Mr Cai withdrew the caveat as agreed and Ms Chen contracted to sell the Property. The application may have been abandoned. Ms Chen did not ask for it to be listed for hearing together with the trial.
The facts necessary to establish the proposed counterclaim have not been pleaded. There is only an incidental reference to it in the present pleadings. No loss or damage is pleaded. No proposed pleading has been produced.
The proceeding has been on foot more than two years. Ms Chen’s solicitors averted to the possibility of a claim in a letter in December 2022. No step to advance such a claim was taken. The first notice of a set off or counterclaim appears in two paragraphs of an amended outline sent by Ms Chen’s solicitors to the plaintiffs’ solicitors at about 5pm on the last working day before the trial commenced. No explanation was offered as to the lateness of the application to add the counterclaim.
The application for leave to amend took Counsel for XAZ and Mr Cai by surprise.
No evidence has been adduced in support of such a counterclaim. The principal witnesses do not speak or read English. Their evidence in chief has been prepared in written form and translated into Mandarin for them to affirm, well in advance of the trial. The trial was expected to last only two days. Any new evidence could not be adduced conveniently in that way. It would be necessary to adjourn the trial. All parties resisted that course.
Costs and form of order
On 9 July 2024, I invited the parties to make any submissions on costs, based on a draft of these reasons and to.
Ms Chen placed evidence before the Court that the parties engaged in a mediation in March 2024. On 1 April 2024, Ms Chen made an offer to resolve all claims in accordance with the principles in Calderbank v Calderbank.[3] This offer was made in the form of a deed of settlement and release executed by Ms Chen. The settlement amount payable by Ms Chen to the plaintiffs under the offer would be $750,000. This offer to settle was not accepted by the plaintiffs.
[3][1975] 3 All ER 333.
As indicated at paragraph [42] above, XAZ is entitled to the significantly lesser sum of $330,276.50.
The offer of settlement made by Ms Chen would have encompassed all the claims that the parties may have against each other, including those litigated in this trial.
Counsel for the plaintiffs, Mr English, submitted that the plaintiffs, or one of them, still has a claim against Ms Chen to recover the 60% of construction costs payable by her under the second supplementary agreement. It appears the plaintiffs, or their associated entities, paid these costs to the builder. It also appears that Ms Chen did not borrow any necessary funds to pay those construction costs.
It is not possible to reach any definitive conclusion as to the merit of a claim by XAZ to recover 60% of the construction costs from Ms Chen. It seems unlikely that such a claim would succeed to that full extent.
Under the second supplementary agreement, Ms Chen’s obligation was to apply for a loan to cover 60% of the construction costs. The interest on that loan to the date of the sale of the Property was to be paid by XAZ. The loan would then be repaid from the proceeds of the sale of the Property. If, as it appears, Ms Chen failed to obtain a loan to cover 60% of the construction costs, then the plaintiffs would likely have incurred the cost of sourcing those funds. The cost is likely to have been close to the interest that would have been payable by XAZ had Ms Chen obtained the loan.
Any damage the plaintiffs might have suffered, because Ms Chen failed to obtain a loan for 60% of the construction costs, is likely to be a relatively small sum. If the plaintiffs have a more valuable claim, they have not advanced it.
Mr English also submitted that, if the plaintiffs had accepted Ms Chen’s offer, they would have compromised any right to recover any reserved costs in respect of three interlocutory applications mentioned below.
Taking into account the $330,276.50 judgment sum, the potential damages claim and the right to seek reserved costs, I am satisfied that the plaintiff’s failure to accept Ms Chen’s offer was not reasonable in the circumstances.
It follows that Ms Chen should pay the plaintiffs’ costs of the proceeding up to and including 1 April 2024, and the plaintiffs should pay Ms Chen’s costs of the proceeding after that date.
The costs reserved from Ms Chen’s application filed 5 December 2022 to remove a caveat over the Property, in my view, should follow the outcome of the proceeding. As they were incurred before 1 April 2024, Ms Chen should pay the plaintiffs’ costs of that application.
In respect of the costs reserved from Ms Chen’s applications filed 13 April 2023 to join XAZ to the proceeding, and to serve the proceedings on XAZ, the position is slightly different. XAZ was a necessary party to this proceeding for the Court to determine Ms Chen’s rights. Mr Cai declined to join XAZ. He unsuccessfully resisted Ms Chen’s application to do so. So, the two applications became necessary. The plaintiffs should pay Ms Chen’s costs of those applications.
It follows that:
(a)the judgment of the Court will be that:
(i)Ms Chen pay XAZ the amount of $330,276.50;
(ii)Ms Chen pay the plaintiffs’ costs of the proceeding up to and including 1 April 2024;
(iii)the plaintiffs jointly and severally pay Ms Chen’s costs of the proceeding after 1 April 2024;
(b)the Court will order that:
(i)Ms Chen pay the plaintiffs’ costs of the application filed 5 December 2022; and
(ii)the plaintiffs jointly and severally pay Ms Chen’s costs of the applications filed 13 April 2023.
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