CLGC Pty Limited v Zhang - [2021] NSWSC 946

Supreme Court

New South Wales

Medium Neutral Citation: CLGC Pty Limited v Zhang [2021] NSWSC 946
Hearing dates: 31 March; 1, 8, 9 April; further written submissions ending 4 May 2021
Date of orders: 30 July 2021
Decision date: 30 July 2021
Jurisdiction: Equity
Before: Parker J
Decision:
See [203]-[207]

Catchwords:
LEGAL PROFESSION – civil liability – solicitor and client – incorporated legal practice – loans by plaintiff companies to individual principal of firm and company associated with him – borrowers unable to repay –purchase of interest in unit trust by way of equitable assignment – vendor remains registered owner of units and sells them for vendor’s own benefit – scope of retainer – duty of care – fiduciary duty – liability of individual principal – claim against professional indemnity underwriter – whether liabilities of corporate solicitor or individual principal arose in the course of legal practice

Legislation Cited:
Competition and Consumer Act 2010 (Cth) Sch 2 – Australian Consumer Law, s 4
Legal Profession Uniform Law 2014 (NSW), ss 6, 33

Cases Cited:
Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5
Barnes v Addy (1874) LR 9 Ch App 244
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Graham Barclay Oysters Pty Ltd v Ryan S258/2001 [2003] HCATrans 648
Malouf v Constantinou [2017] NSWSC 923
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579

Texts Cited:
Heydon, J D, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths)

Category: Principal judgment
Parties:
CLGC Pty Limited (First Plaintiff)
CLGC Australia Pty Limited (Second Plaintiff)
CLGC Investment Pty Limited (Third Plaintiff)
CLGC Investment Holdings Pty Limited (Fourth Plaintiff)
Ronglai (Martin) Zhang (First Defendant)
W&H Lawyers Australia Pty Limited (Second Defendant)
RZ Consulting Services Pty Limited (Third Defendant)
WH Investment Holdings Pty Limited (Fourth Defendant)
SEP Asset Management Pty Limited (Fifth Defendant)
Smart Education Program Pty Limited (Seventh Defendant)
Cross-Claim
Ronglai (Martin) Zhang (First Cross-Claimant)
W&H Lawyers Australia Pty Limited (Second Cross-claimant)
Lawcover Insurance Pty Limited (First Cross-Defendant)
Representation:
Counsel:
C Webster SC/T Cleary (Plaintiffs)
G Stapleton (Defendants/Cross-Claimants)
J Sexton SC/ T Harris-Roxas (Cross-Defendant)
Solicitors:
Luminous Legal (Plaintiffs)
Summit Legal (Defendants/Cross-Claimants)
KL Gates (Cross-Defendant)

File Number(s): 2018/110428
Publication restriction: Nil

Judgment

The first defendant in these proceedings, Zhang Ronglai, is also known as Martin Zhang. Originally from China, he graduated with an Australian law degree in 2007. Initially he worked in China for a Chinese law firm called Beijing W&H Law Firm (“WH Beijing”). In 2011 he returned to Australia to practise here. I will refer to him in this judgment as “Mr Zhang”.
The proceedings arise out of the business and professional dealings between Mr Zhang and Zhang Peiliang (no relation). Zhang Peiliang is a Chinese businessman. He is the chairman of a substantial Chinese company called Conglin (pronounced “Chong Lin”) Group Co Limited (“Conglin Group”). I will refer to him in this judgment (as he was referred to during the proceedings) as “Chairman…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] NSWSC 946
Decision Date: 30 July 2021

CaseChat Overview and Summary

The matter before the Court of Appeal involved CLGC Pty Limited and Zhang, a dispute regarding loans made by plaintiff companies to the individual principal of an incorporated legal practice and a company associated with him. The borrowers were unable to repay the loans, leading to the plaintiffs pursuing claims for damages and other remedies against Zhang, the individual principal, and his professional indemnity insurer. The plaintiffs argued that Zhang had breached his duty of care and fiduciary duty, and that his actions fell within the scope of his retainer as a solicitor.

The primary legal issues were whether the individual principal's liabilities arose in the course of his legal practice and, if so, whether those liabilities were covered by the professional indemnity insurance policy. The plaintiffs contended that Zhang's actions, including the purchase of an interest in a unit trust through an equitable assignment, constituted a breach of his duty of care and fiduciary duty. The defendants, including Zhang and the insurer, argued that the liabilities did not arise in the course of legal practice and thus were not covered by the policy.

The Court of Appeal held that the individual principal's liabilities did not arise in the course of his legal practice. The Court found that the purchase of the interest in the unit trust, while involving legal advice, was a personal transaction and not part of his professional duties. Consequently, the Court held that the liabilities did not fall within the scope of the professional indemnity insurance policy, and the insurer was not liable to indemnify Zhang or the plaintiffs. The Court also found that the individual principal was not vicariously liable for the actions of the incorporated legal practice.

The Court of Appeal dismissed the appeal, affirming the trial judge's decision that the individual principal was not liable for the plaintiffs' losses and that the professional indemnity insurer was not obligated to indemnify the plaintiffs. The Court ordered that the plaintiffs pay the costs of the appeal.

Orders