Fan v Yao
[2022] VCC 509
•29 April 2022
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-01242
| WUHUA FAN | Plaintiff |
| V | |
| YU YAO and | First defendant |
| YAMEI ZHI | Second defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 and 30 March 2022 | |
DATE OF JUDGMENT: | 29 April 2022 | |
CASE MAY BE CITED AS: | Fan v Yao | |
MEDIUM NEUTRAL CITATION: | [2022] VCC 509 | |
REASONS FOR JUDGMENT
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Subject:CONTRACT
Catchwords: Loan agreement – acknowledgment by the first defendant that part of the principal sum advanced by the plaintiff remains owing – whether interest payable – law of the forum to be applied or Chinese law
Legislation Cited: County Court Act 1958
Cases Cited:Bonython v Commonwealth of Australia [1951] AC 201; ITC Distribution Ltd v Filmpac Holdings Ltd (Unreported, VSC, 6 March 1990, Fullagar J); Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135; Weatherbeeta Ltd v Hammersmith Nominees Pty Ltd (No 2) [2019] VSC 713
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Thomas | Wan Lawyers Pty Ltd (trading as Herald Legal) |
| For the Defendant | In person |
HER HONOUR:
1By this proceeding, the plaintiff (“Fan”) seeks to recover monies he advanced to the first defendant (“Yao”) in November 2010, together with interest. Fan claims Yao agreed to pay him interest until such time as the debt was repaid.
2Fan also sued Yao’s former wife (“Zhi”), the second defendant for the same amounts. At the commencement of the trial, Counsel for Fan informed the Court that Zhi was no longer a party and that his client was not seeking judgment against her.
3Yao has made various admissions that he owes Fan some money but disputes the quantum payable. He also denied there was any agreement to charge interest.
Factual narrative
4Fan lives in Nanning City in the Guangxi region of China. He describes himself variously as a public servant or police officer. Yao is a chef by occupation. He is a New Zealand citizen but currently resides in Australia. Yao previously lived in the same region of China where Fan resides. The parties met socially for the first time in around August 2010 in China. Yao told Fan that he was very experienced in real estate development. Thereafter, they remained in contact and attended multiple social events together.
5On or about 1 November 2010, Fan agreed to lend the sum of RMB Yuan 1,300,000 (AUD 273,609)[1] to Yao on a short-term basis (“the loan agreement”). Yao asked Fan to assist him as he needed funds to proceed with one of his real estate projects. The loan agreement was oral. Whilst the parties agree on the sum that was advanced, they are in dispute about the terms of the loan agreement. Fan’s pleaded case is that the loan comprised the sum of RMB 1,300,000 as principal, together with an agreed sum of RMB 300,000 (AUD 63,141) for interest, being a total of RMB 1,600,000. The principal and the agreed interest sum were due to be repaid in full by 31 December 2010 (“the due date”).
[1]All conversions from RMB to AUD are extracted from Fan’s affidavit affirmed 28 February 2022 and Fan’s Counsel’s Outline of Closing Submissions dated 30 March 2022.
6In his Defence dated 21 July 2021, Yao pleads there was no discussion of any date by which the principal was to be repaid or for the charging of any interest.
7During November 2010, Fan paid sums totalling RMB 1,300,000 by way of electronic funds transfers into a Chinese bank account held in Yao’s name. Yao admits he received these funds.[2]
[2] Paragraph 7(a) of Yao’s Defence dated 21 July 2021
8Yao did not repay the monies on the due date.
9Since then, the parties entered into variations of the loan agreement. Fan alleges the loan agreement was first varied during telephone discussions on 5 January 2011 (“first varied loan agreement”). Fan claims it was agreed that the principal would be repaid within a reasonable period of time or on demand. Fan further claims the defendants agreed to pay interest on the principal owing by way of monthly instalments of RMB 30,000 (AUD 6,314) until the principal was repaid in full. Yao denies having any such discussions .
10Fan alleges there was a second variation to the loan agreement made during a meeting at Liuzhou City on 20 December 2011 (“the second varied loan agreement”). By that time, the principal of RMB 1,000,000 was still owing together with interest of RMB 450,000 (AUD 106,635.07). Fan claims Yao orally agreed that the defendants would pay a revised principal of RMB 1,000,000 and revised interest of RMB 300,000, and that the defendants would continue to pay the monthly instalments of interest due until the revised principal was repaid in full. Payments by the defendants were from then on to be paid into a bank account held in the name of Fan’s daughter with the St George Bank. Thereafter, Yao made some payments into Fan’s daughter’s bank account between May 2012 and 17 January 2017 which totalled AUD 25,400.
11In his Defence, Yao admits that the second varied loan agreement contained a term by which he would repay a revised principal in the sum of RMB 1,010,000,[3] although he claims this figure did not take into account any principal repayments prior to 5 January 2011 and between 5 January 2011 and 13 July 2011. The Defence however did not identify those repayments. Yao also admits in paragraph 14(a) of his Defence that the second varied loan agreement contained a term that he would pay interest in the sum of RMB 300,000 but says there were no discussions in relation to any ongoing interest payments.
[3]The discrepancy of RMB 10,000 for the revised principal appear to be due to Fan subsequently lending Yao an additional sum of RMB 10,000 although this sum is not claimed by Fan and he relies on the pleaded sum for principal due of RMB 1,000,000.
12The factual circumstances relating to this dispute are set out in Fan’s affidavit affirmed on 28 February 2022. Fan adopted the affidavit in his evidence-in-chief and confirmed that all the repayments made by the defendant were set out in his affidavit.
13Fan deposed that between 2 January 2011 and 17 January 2017, the defendants made the following repayments under the loan agreement:
Date of repayment
Amount repaid
5 January 2011
300,000 RMB (AUD $63,141)
29 January 2011
60,000 RMB (AUD $12,628)
2 April 2011
100,000 RMB (AUD $21,047)
13 July 2011
50,000 RMB (AUD $10,523)
May 2012 – June 2013
41,811 RMB (AUD $8,800)
March 2014 – 17 January 2017
78,872 RMB (AUD $16,600)
Total repayments by the defendants
630,683 RMB (AUD $132,739)
14Yao accepted in evidence that he had not made any further repayments since 17 January 2017. He also admitted that he owed Fan the sum of RMB 393,000 based on his calculations of the debt owed.[4]
[4] Transcript 16, lines 14-18
15In addition to the loan agreement as varied, Fan also relies upon the following acknowledgments which Yao conceded he had signed and/or dated. These are set out below:
(a) IOU for RMB 300,000 dated 20 December 2011 (“the first IOU”);
(b) loan acknowledgment for RMB 1,010,000 dated 20 December 2011 (“the loan acknowledgment”);
(c) IOU for RMB 630,000 dated 9 July 2013 (“the second IOU”).
16Fan deposed that the second IOU which was signed by Yao when the parties met in Melbourne in July 2013, represented a calculation of the amount of monthly interest owing from December 2011 to July 2013. Fan’s evidence was that this sum was agreed to by Yao as being owing, in addition to the principal of RMB 1,000,000 and fixed interest of RMB 300,000.
17On Fan’s case, it is said that the parties acknowledged there was a debt due and payable of RMB 1.3 million as of 20 December 2011, and that RMB 30,000 was to be payable per month until such time as the sum of RMB 1.3 million was repaid in full.
18In Fan’s outline of closing submissions, he claims the following amounts from Yao as of 31 March 2022:
Balance payable as at December 2011
1,300,000 RMB
Plus simple interest of 30,000 RMB per month for the period December 2011 to March 2022 (that is, 111 months)
3,690,000 RMB
Less repayments made by the first defendant since December 2011
120,683 RMB
Total claimed by the plaintiff
4,869,317 RMB
19Fan’s Counsel submitted the court should accept Fan’s cogent and consistent evidence that Yao had agreed to pay fixed interest of RMB 300,000 for the period to 31 December 2010, and later RMB 30,000 per month until the loan was repaid.
20Yao disputed a number of matters raised by Fan. Fan deposed that he agreed to advance the moneys on a short-term basis to enable Yao to invest in a real estate project. In contrast, Yao claimed the purpose of the loan was to assist him supporting his daughter’s education if he had cashflow problems.
21Later in his evidence, Yao said that at the time of entering into the loan agreement he was working with family members on projects in Nanning City in China and had used at least some of the loan proceeds in connection with these projects.
22Although there is a discrepancy between the parties as to the purpose of the loan, nothing turns on this. Yao accepted he received the sum of RMB 1,300,000 from Fan and is under an obligation to repay. This is confirmed in the Defence filed on his behalf and by him during his oral evidence.
23Yao challenged the figures alleged by the plaintiff in respect of repayments. His case was that he had made repayments totalling RMB 907,000 (that is, RMB 268,317 more than is accepted by Fan). At trial, Yao gave details of the payments alleged to have been made by him by way of bank transfers to Fan’s bank account in China, which were as follows:
· 13 March 2011 – 20,000 RMB
· 23 April 2011 – 50,000 RMB;
· 11 September 2011 – 70,000 RMB;
· 18 September 2011 – 20,000 RMB;
· 8 November 2011 – 31,000 RMB.
Yao went on to say that he made other payments to Fan as listed in the statement of claim being RMB 300,000, 100,000, 60,000 and another 50,000. The sums he identified do not add up to RMB 907,000.
24Yao was unable to provide any documentary evidence of these additional payments which he claimed to have made. His oral testimony was that he was unable to do so because evidence relating to the additional repayments was contained in his late father’s suitcase in China. Yao claimed that he had been unable to access the suitcase because he could not return to China. Another reason that he said he was unable to go back to China was because he claimed Fan was blackmailing him.
25As Fan’s Counsel noted, it is surprising that there would not be any banking records of these alleged further repayments which were made by way of funds transfers to Fan’s bank account. It was said that on that basis alone, the assertion that the records of payment only existed in a suitcase in China could not be sustained. No documents were produced or discovered by Yao in respect of these additional payments.
Whether interest was payable under the loan agreement
26Yao denied interest was payable, whether in the amount of RMB 300,000 for the initial period to 31 December 2011 or at any other time. It was put in cross-examination to Yao that his evidence that no interest was payable was untrue and inconsistent with the first IOU that he signed and fingerprinted on 20 December 2011. The first IOU stipulated that he owed 300,000 RMB specifically for “interest”.
27Yao’s evidence about this was that it was in respect of interest payable by him to Fan for other unrelated transactions. However, he did not provide any details of what these transactions were and why the figure claimed for interest was referable to these alleged transactions.
28Yao also claimed that although he had signed the first IOU on 20 December 2011, it was inaccurate because he was drunk when he signed it. Despite this, there was no allegation pleaded that the defendant lacked capacity or was unable to appreciate what he signed on 20 December 2011 or more importantly, that Fan was aware that Yao was labouring under any incapacity.
Law of the forum or Chinese law applicable
29In paragraph 2 of the Defence, an allegation was raised that this Court was an inappropriate forum for the matter to be heard and that the proceeding should be stayed or dismissed as a result. Despite this, no interlocutory application was made to stay or dismiss this proceeding on the grounds that another forum was more appropriate.
30Fan’s Counsel submitted that this court has jurisdiction to hear the matter under s36 of the County Court Act 1958 and was not an inappropriate forum. The matters relied upon to support this contention were set out in paragraph 2 of Fan’s Reply. There can be little doubt that the loan agreement was made in China given the evidence led and the breach occurred when Yao failed to pay the monies due to Fan in China. That being so, the cause of action arose outside Victoria but as the defendant resided in Victoria at the time of the service of the writ, the court has power to hear the proceeding under the second limb of s36 of the County Court Act. Further, I was not persuaded that the matters referred to in paragraph 2 of the Defence established that this court was an inappropriate forum for the dispute to be heard.
31Fan put his case on the basis that the question as to the terms of the loan agreement were to be decided by a conventional application of Australian contract law in accordance with the presumption that the law is the same as the law of the forum.[5]
[5]See Davies et al, “Nygh’s Conflict of Laws in Australia” (10th ed, LexisNexis Butterworths, 2020) pages 325-7
32Because of the choice of law issue raised in paragraph 2 of the Defence, Fan adduced expert evidence from Dr Colin Hawes, an academic and expert in Chinese corporate law. Dr Hawes was asked to give an opinion as to the enforceability of the loan agreement under Chinese law. For the reasons identified in his report dated 24 February 2022, Dr Hawes’s opinion was that the loan agreement and the two subsequent variations would be enforceable under Chinese law.
33Fan also asked Dr Hawes to give expert evidence regarding the rate of interest enforceable in China. His view was that if the Court were to find that Chinese law applied, then the position under Chinese law is that a maximum rate of interest is capped at 24 percent per annum. During his cross-examination, the proposition put to the expert by Yao that the relevant rate enforceable in China was 5 per cent was rejected by Dr Hawes.
34Fan’s Counsel prepared and submitted alternative forms of calculations of the amount payable by Yao in paragraph 28 of his Outline of Closing Submissions. The figures are calculated on the basis of interest being capped at 24 percent assuming Chinese law applied. The calculations are predicated on either a principal sum owing of RMB 1 million or RMB 1.3 million, based on the alternatives set out in Dr Hawes’s expert report. A copy of these submissions was provided to Yao prior to the commencement of the closing addresses on the second day of trial at 2.00pm. The closing submissions were translated to Yao by an interpreter before Court resumed that day so that he was aware of the submissions made on behalf of Fan and had the opportunity to consider them and respond.
35There is no express term or indeed any evidence that the parties turned their minds as to the law which would govern the loan agreement. Where there is no express choice or inferred choice of law, then the court should look for the system of law with which the transaction has its closest and most real connection.[6] In my view, I consider that the applicable law relating to the loan agreement is Chinese law, given the contract was negotiated and formed in China. I accept Dr Hawes’s expert evidence regarding the application of Chinese law relating to the capping of interest payable for commercial contracts at a maximum of 24 percent. I therefore find that the loan agreement was subject to this restriction and that Fan is prevented from charging more than the maximum cap. Fan’s Counsel conceded that the interest charged by Fan would exceed this cap and provided the Court with alternative calculations of interest payable with the cap being applied, which I refer to and adopt below.
[6]LexisNexis, Halsbury’s Laws of Australia (online, ed. as at 11 January 2016) “85 - Conflict of Laws” [85- 1195], citing Bonython v Commonwealth of Australia [1951] AC 201, 219
Analysis
36Given the various admissions in the Defence and those made by Yao in his oral evidence, there can be no dispute that Fao is still owed some money by Yao. The question is how much remains owing. The calculation of the debt must take into account the principal sum advanced, the repayments which have been made together with the calculation of interest payable (assuming there is an enforceable agreement relating to the charging of interest).
37The parties agree that Fan advanced the sum of RMB 1.3 million to Yao in November 2010. What remains in dispute is the quantum of the repayments made by Yao and whether there was an agreement made to charge interest in the terms alleged by Fan or at all. The resolution of these issues turns largely on my assessment of the credibility of each of the parties.
38I found Fan to be a credible witness on the whole. Having regard to his demeanour at trial, I found Yao was at times an unsatisfactory and unreliable witness. I formed the view that he was seeking to come up with any reason he could think of as to why the amounts claimed were not owing. Yao raised several new matters at trial which were not referred to in his Defence, which was prepared when he had lawyers acting for him. These included:
·the precise dates and amounts he said he had repaid;
·his claim that the acknowledgment he signed about interest was for some other unrelated transaction;
·his assertion that there were missing documents he could not access in China which would prove payment of the sums he allegedly repaid;
·the proposition he put to Fan in cross-examination that Fan had agreed not to charge him interest because they were friends; and
·the proposition he put to Fan’s expert witness that interest payable in China is restricted to 5 percent, without providing any evidentiary basis for that proposition.
39In the absence of any corroborating or supporting documentation that Yao repaid the sum of 907,000 RMB to Fan, I do not accept Yao’s oral evidence that he has repaid this sum to Fan. The explanation that the supporting evidence which would confirm these payments is in a suitcase and inaccessible in China is implausible. There should be no reason why bank statements from Yao’s bank account evidencing the transfer of funds to China could not have been produced and discovered. I accept and prefer Fan’s evidence about the repayments made by Yao pursuant to the loan agreement as set out in paragraphs 19, 21, and 37 of Fan’s affidavit sworn 28 February 2022.
40In respect of the two IOUs and loan acknowledgment signed by Yao, these documents set out the then outstanding debt, which was acknowledged as being owing by him. Although he claimed to have been drunk when he signed the first IOU, no such allegation was made in respect of the second IOU or the loan acknowledgment.
41Yao acknowledged and accepted that he owed 1,010,000 RMB to Fan for principal and RMB 300,000 for interest when he signed the acknowledgment and first IOU in December 2011. In the circumstances, I find that Yao is bound by the acknowledgments that he freely signed and is indebted to Fan for the amounts stated in the IOU dated 20 December 2011. Additionally, in his closing submission, Yao stated that he “would like to pay him (Fan) the remaining principal as soon as possible without interest.”
42I accept Fan’s evidence that when the funds were advanced in November 2010 Yao agreed to pay an amount of RMB 300,000 representing interest to be repaid in December 2010. This is reflected in the first IOU that Yao willingly signed. Although Yao claims that interest was never discussed, this is at odds with the IOU that he signed.
43Following Yao’s failure to pay on the due date, the remaining issue then is whether there was a binding agreement made whereby Fan could charge ongoing interest at the rate of RMB 30,000 per month until the debt was repaid.
44Fan deposed that the agreement to charge monthly interest in the sum of RMB 30,000 was made in December 2011. I accept and prefer Fan’s evidence on this issue and reject Yao’s evidence that there was no discussion about ongoing interest payable. The fact that ongoing interest was to be charged is also borne out by the second IOU which again Yao signed of his own free will in July 2013. The fact that Yao repaid the sum of RMB 60,000 in January 2011 is consistent with a payment representing two months interest for December 2010 and January 2011. In the circumstances, I find the parties agreed that interest would be paid at the rate of RMB 30,000 per month until the debt was repaid.
45In his oral evidence, Fan stated on a few occasions that the principal owed to him was RMB 1,000,000. This is consistent with the initial principal being RMB 1.3 million which was reduced by the payment by Yao of RMB 300,000 in January 2011. In paragraph 19 of the statement of claim, this sum is sought less repayments made by Yao of AUD 25,400. The break-up of this amount is set out in paragraph 15 of the statement of claim. The principal claimed in the prayer for relief is AUD 211,566.82, taking into account this part repayment. These figures were revised in the table set out on page 5 of the Outline of Closing Submissions filed on behalf of Fan and dated 30 March 2022 on the assumption that Chinese law applied, which I have found to be the case. The amount claimed for principal was RMB 1,000,000 (AUD 210,469). I am satisfied on the evidence that Yao should have judgment in the sum of RMB 1,000,000 representing the principal owed.
46The next issue is the proper calculation of monthly interest. I find that there was an agreement that Yao would pay RMB 30,000 monthly until the debt was repaid. This arrangement was confirmed in the second loan variation made in December 2011. Therefore, Fan is entitled to claim interest from that date onwards. I find that Chinese law does apply to the parties’ contract and that being so, the interest payable should be capped at 24 percent in line with Dr Hawes’s expert evidence. That amount is contained in the table on page 5 of the Outline of Closing Submissions filed on behalf of Fan. Therefore the total amount of interest payable per month from December 2011 to 29 March 2022 on the principal sum of RMB 1,000,000 is RMB 2,465,096 (AUD 518,826). It is accepted that from this sum the repayments of interest made by Yao from December 2011 to 29 March 2022 should be deducted. These payments totalled RMB 120,683 (AUD 25,400). As a result, the net amount of monthly interest owed is RMB 2,344,413.
47The final issue is whether Fan should recover an additional sum for interest fixed at RMB 300,000, which represented the initial sum agreed upon in November 2010. For the reasons already given, I find that Yao agreed to pay this sum to Fan, which he acknowledged was owing when he signed the first IOU in December 2011. He has admitted in his Defence that this was a term of the second varied loan agreement. Consequently, I find that Fan is also entitled to recover this sum pursuant to the agreement reached between the parties.
Conclusion
48Fan has succeeded in his debt claim. I will order that judgment be entered against Yao in the amount of RMB 1,000,000 being the principal debt, together with amounts for interest fixed in the sums of RMB 2,344,413 and RMB 300,000 respectively. Should Fan wish to enforce these amounts in AUD, then a calculation will need to be made to convert them from RMB into AUD when final orders are made.[7]
[7]Weatherbeeta Ltd v Hammersmith Nominees Pty Ltd (No 2) [2019] VSC 713, [10]; Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135; ITC Distribution Ltd v Filmpac Holdings Ltd (Unreported, VSC, 6 March 1990, Fullagar J)
49Having succeeded in his claim, Fan is entitled to recover his costs of the proceeding on a standard basis unless the parties bring to my attention any reason why the usual rule that costs should follow the event should not apply. I will hear from the parties regarding the form of orders to be made consequent upon these reasons, including costs.
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Certificate
I certify that these 13 pages are a true copy of the Reasons for Judgment of Her Honour Judge A Ryan delivered on 29 April 2022.
Dated: 29 April 2022
Associate to Her Honour Judge A Ryan
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