JH7 Holdings Pty Ltd v Chung

[2020] NSWSC 985

Supreme Court

New South Wales

Medium Neutral Citation:

JH7 Holdings Pty Ltd v Chung [2020] NSWSC 985

Hearing dates:

28 July 2020

Date of orders:

28 July 2020

Decision date:

28 July 2020

Jurisdiction:

Equity

Before:

Henry J

Decision:

(1) Pursuant to s 5(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), the proceedings be transferred to the Supreme Court of Queensland.

(2)   Other than the costs of the defendants’ motion filed on 24 June 2020, the costs of the proceedings in this Court be costs of the proceedings in the Supreme Court of Queensland.

(3)   The plaintiff to pay the defendants’ costs of its notice of motion filed on 24 June 2020.

Catchwords:

CIVIL PROCEDURE – Cross-vesting – Transfer to other Supreme Court – where joint venture between parties to develop land in Queensland – where plaintiff alleged defendant breached loan agreement – where defendant purported to terminate joint venture agreement – where plaintiff seeks declaration of an equitable interest and possession of land in Queensland and rectification of loan agreement – where majority of likely witnesses located in Queensland – where joint venture and loan agreements contains choice of forum clauses in favour of Queensland courts – whether it is in the interests of justice to transfer proceedings – proceedings transferred to Supreme Court of Queensland

Legislation Cited:

Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), s 5(2)(b)(iii)

Jurisdiction of Courts (Foreign Land) Act 1989 (NSW), s 3

Land Title Act 1994 (Qld), ss 122(1), 126(2)

Service and Execution of Process Act 1992 (Cth)

Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Asciano Services Pty Ltd v Australian Rail Track Corp Ltd [2008] NSWSC 652

Bankinvest AG v Seabrook (1988) 14 NSWLR 711

BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61

FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 117

Greater Bank Ltd v Official Trustee in Bankruptcy and Marteene [2017] NSWSC 1496

James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357; [2000] NSWCA 353

Patrick Badges Pty Ltd v Commonwealth of Australia [2002] NSWSC 221

Starr-Diamond v Diamond (No 3) [2013] NSWSC 351

Taurus Funds Management Pty Ltd v Aurox Resources Ltd [2010] NSWSC 1223

Texts Cited:

Nil

Category:

Procedural and other rulings

Parties:

JH7 Holdings Pty Ltd (Plaintiff)
Kuo-Jen Chung (First Defendant)
Kuo-Jen Chung as trustee for the Chung Family Trust (Second Defendant)

Representation:

Solicitor:
I Benson (Plaintiff)
Counsel:
D Robertson (First and Second Defendant)

Solicitors:
AR Conolly & Company Lawyers (Plaintiff)
NXT Legal (First and Second Defendant)

File Number(s):

2020/119016

Publication restriction:

Nil

Judgment Ex tempore (revised)

1. By notice of motion filed on 24 June 2020, Kuo-Jen Chung, in his personal capacity as first defendant and in his capacity as trustee for the Chung Family Trust as second defendant (defendants), seeks an order pursuant to s 5(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW) (Cross-vesting Act) that these proceedings be transferred to the Supreme Court of Queensland.

2. The plaintiff, JH7 Holdings Pty Ltd, opposes the motion.

3. For the reasons that follow, I have concluded that it is in the interests of justice that these proceedings should be transferred to the Supreme Court of Queensland.

Background

4. Mr Chung is a resident of Queensland and the registered proprietor of a unit at Tarcoola Drive, Surfers Paradise (Unit 2).

5. In or about 2015, Mr Chung became aware of an opportunity to amalgamate and develop Unit 2 with two adjoining parcels of land, namely unit 1 at Tarcoola Drive (Unit 1) and a property at Thomas Drive (Thomas Drive property).

6. Sometime in 2017, Mr Chung met with Mr Liming Hu to discuss whether Mr Hu was interested in developing the three parcels of land. Mr Hu is married to Zhou Li, a resident of Sydney and JH7 Holdings’ sole director. Ms Li's evidence is that Mr Chung told Mr Hu that he did not have the money to buy Unit 1, but if Mr Hu and Ms Li were willing to lend him the funds to buy it, they could develop the properties together.

7. Following their discussion, Mr Chung and Mr Hu and/or Ms Li agreed to form a joint venture to amalgamate and develop the three parcels of land and JH7 Holdings purchased the Thomas Drive property.

8. On or about 31 July 2017, Mr Chung, in his capacity as trustee for the Chung Family Trust, JH7 Holdings and JH3 Holdings Pty Ltd entered into a Joint Venture Agreement to develop, and then sell, Unit 1, Unit 2 and the Thomas Road property as residential lots (JV Agreement). According to the recitals of the JV Agreement, JH3 Holdings’ sole director is Mr Hu and JH7 Holdings holds 80% of the shares, with the remaining 20% held by the Chung Family Trust.

9. Also on or about 31 July 2017, Mr Chung and JH7 Holdings entered into a Loan Agreement pursuant to which JH7 Holdings lent $850,000 to Mr Chung as trustee for the Chung Family Trust (Loan Agreement).

10. The JV Agreement and the Loan Agreement were both drafted by Longton Legal, the then solicitors for JH7 Holdings and Mr Hu.

11. The JV Agreement contains the following:

Governing Law

7.   The applicable Law for the constructions or interpretation of this Agreement shall be the Law of the State of Queensland or (where applicable) the Law of the Commonwealth of Australia and the parties agree to submit to the Jurisdiction of the appropriate Court of that State or the Commonwealth.

12. The Loan Agreement contains the following:

Governing Law

11.6   This document is governed by and construed in accordance with the law for the time being in force in the place specified in Item 8 and the Borrower agrees to submit to the non-exclusive jurisdiction of the courts of that place.

13. Item 8 of the schedule to the Loan Agreement specifies the State of Queensland for the purposes of cl 11.6. The schedule also identifies Mr Chung as trustee for the Chung Family Trust as the Borrower.

14. According to JH7 Holdings, it advanced the loan funds to Mr Chung by 1 August 2017. Mr Chung then purchased Unit 1 (although it is not precisely clear when) and granted a mortgage in favour of JH7 Holdings, which was registered on 18 August 2017 and released on 22 December 2017.

15. Subsequently, the relationship between the joint venture parties broke down. JH7 Holdings claims that Mr Chung has failed to pay back the loan funds and, without its knowledge, arranged for the discharge of a later mortgage over Unit 1 which had been held by JH7 Holdings as security for the loan. Mr Chung contends that JH7 Holdings has failed to pay for costs associated with the joint venture.

16. On or about 5 February 2020, JH7 Holdings lodged a caveat on the title to Unit 1 pursuant to s 122(1) of the Land Title Act 1994 (Qld) (Land Title Act).

17. On or about 7 April 2020, Mr Chung served on JH7 Holdings a notice pursuant to s 126(2) of the Land Title Act which required JH7 Holdings to start a proceeding in a Court with competent jurisdiction to establish the interest claimed under the caveat within 14 days of service of the notice, otherwise the caveat would lapse.

18. On 21 April 2020, and in response to the notice, JH7 Holdings commenced these proceedings.

19. In these proceedings, JH7 Holdings claims that Mr Chung has breached the Loan Agreement by failing to repay monthly interest and the balance of the loan as required by the Loan Agreement. It seeks a declaration that it has an equitable interest in Unit 1 and orders for possession of Units 1 and 2, relying on what it asserts to be an equitable interest over Unit 1 and a second ranking registered mortgage over Unit 2. JH7 Holdings also seeks an order for rectification of the Loan Agreement and, in the alternative, recovery of the amount of around $2.829 million outstanding under the Loan Agreement.

20. At the hearing, defendants’ counsel informed the Court that there is no contest that the Loan Agreement requires rectification in the manner contended for by JH7 Holdings.

21. On 14 July 2020, Mr Chung served on JH7 Holdings a notice terminating the JV Agreement on the grounds that JH7 Holdings breached the JV Agreement by failing to pay various costs of the development pursuant to its obligations under cls 1.2 to 1.8 of the JV Agreement.

22. While the defendants have not yet filed a commercial list response, Mr Chung has instructed his lawyer to file a cross-claim in the proceedings seeking damages from JH7 Holdings for breach of the JV Agreement, including for loss of the defendants’ share of expected profits from the joint venture projects. According to evidence from Mr Chung's lawyer, the defendants’ cross-claim will likely require evidence from ten identified lay and expert witnesses, all of whom reside in Queensland.

Legal principles

23. Section 5(2) of the Cross-vesting Act provides:

(2)   Where:

(a)   a proceeding (in this subsection referred to as the relevant proceeding) is pending in the Supreme Court (in this subsection referred to as the first court), and

(b)   it appears to the first court that:

(iii)   it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of another State or of a Territory,

the first court shall transfer the relevant proceeding to that other Supreme Court.

24. There was no dispute as to the legal principles to be applied when considering whether proceedings should be transferred under s 5(2)(b)(iii) of the Cross-vesting Act. The section does not confer a discretion but requires this Court to transfer proceedings to another Supreme Court if it appears to be in the interests of justice to do so: BHP Billiton Ltd v Schultz (2004) 221 CLR 400; [2004] HCA 61 at [14] (Gleeson CJ, McHugh and Heydon JJ), [62], [63] (Gummow J) (BHP Billiton).

25. The interests of justice are not the same as the interests of one party. They include matters relevant to both parties, such as the costs and efficient management of the proceedings, and a consideration of the connecting factors with one forum which might make it the most appropriate or natural forum for the dispute: BHP Billiton at [15], [18], [19] (Gleeson CJ, McHugh and Heydon JJ).

26. The following factors are relevant to determining where the interests of justice may lie:

1. the application of substantive law;

2. any forensic advantage or detriment conferred by procedural law;

3. the choice made by a plaintiff of a forum and the reasons for that choice;

4. any substantive connections with the forum;

5. the balance of convenience to the parties and witnesses; and

6. the convenience to the court system.

See: James Hardie & Coy Pty Ltd v Barry (2000) 50 NSWLR 357; [2000] NSWCA 353 at [95] (James Hardie).

27. A choice of law and exclusive jurisdiction clause carries great weight in determining the appropriate forum because it records the bargain between the parties that litigation arising from their agreement will be resolved by the courts of a specified forum in accordance with the substantive law of that forum and is particularly persuasive where the clause appears in a contract between commercial parties well able to protect their respective interests: Asciano Services Pty Ltd v Australian Rail Track Corp Ltd [2008] NSWSC 652 at [18] (Asciano Services). See also Taurus Funds Management Pty Ltd v Aurox Resources Ltd [2010] NSWSC 1223 at [38].

28. No weight is to be given to the fact that a plaintiff regularly invoked the jurisdiction of the first court when the proceedings were commenced: BHP Billiton at [25], [72]-[77], [258].

29. It is not necessary that it should appear that the first court is a “clearly inappropriate” forum. It is both necessary and sufficient that, in the interests of justice, the other Supreme Court is more appropriate: BHP Billiton at [14].

30. Finally, an applicant bears the persuasive onus of showing that the transfer to the other Supreme Court is appropriate in all the circumstances: James Hardie at [100].

Consideration

31. The defendants submit that this Court should conclude that the Supreme Court of Queensland is the most appropriate forum for these proceedings and the issues in dispute for a number of reasons.

32. First, they contend that doing so reflects the agreement between the parties to submit to the jurisdiction of the Queensland Courts to resolve any disputes arising under the commercial contracts entered between them, as evidenced by cl 7 of the JV Agreement and cl 11.6 of the Loan Agreement.

33. Second, the defendants submit that the subject matter of the disputes have minimal connection with New South Wales and that all the substantive connections are with Queensland, particularly as the subject matter of the joint venture concerns three parcels of land in Queensland. The defendants also note that, but for s 3 of the Jurisdiction of Courts (Foreign Land) Act 1989 (NSW), those parcels of land would be “foreign land” in the eyes of the New South Wales Courts.

34. Third, the defendants say that no compelling reason has been given by Ms Li as to why she chose to commence these proceedings in New South Wales rather than Queensland. They say that her evidence that they were commenced in this Court because JH7 Holdings was served with the lapsing notice just prior to the Easter holidays and Ms Li considered the application to be an urgent one best dealt with by this "Honourable Court in New South Wales" goes only to convenience. They also submit, and I accept, that, in so far that this Court's jurisdiction was regularly invoked by Ms Li, no weight should be given to that factor on this application.

35. As to Ms Li’s justification that she cannot travel to Queensland and instruct lawyers there because of the current Covid-19 pandemic, the defendants submit that, as the border closure has since been lifted, that matter no longer has any weight as to whether this Court is the more appropriate forum.

36. I accept that the Covid-19 pandemic has the potential to impact the parties and their representatives in the running of these proceedings, wherever they are located. That said, the Courts have accommodated issues related to Covid-19 as needed, including by running hearings via virtual courtroom facilities, as this hearing was run. There is no reason to think that the Supreme Courts in New South Wales and Queensland will not continue to take into account the impact of the pandemic on the parties and their location going forward.

37. Fourth, the defendants submit that balance of convenience considerations favour the Supreme Court of Queensland when regard is had to the location of the land the subject of the dispute and the location of the parties' likely witnesses, particularly when one takes into account those that will be called in support of the defendants’ cross-claim.

38. Finally, they contend that, as the land in dispute is located in Queensland, there may be some advantages if orders were made by the Supreme Court in Queensland rather than the Supreme Court of New South Wales, particularly if they need to be lodged in registrable form at the Queensland Land Titles Office. I am not persuaded by that submission. There is no evidence before the Court, and I do not accept it to be a matter of “common experience”, that there would be any particular difficulty or inconvenience from having to lodge orders made by this Court in the Queensland Land Titles Office. As to the submission that an extra step would be required under the Service and Execution of Process Act 1992 (Cth) to enforce any orders, as JH7 Holdings’ solicitor submitted at the hearing, the burden from any extra step (to the extent any arise) would fall on JH7 Holdings. JH7 Holdings accepts any inconvenience that might follow from having commenced proceedings in this Court.

39. While accepting that cls 7 and 11.6 of the JV and Loan Agreements are relevant to this application, JH7 Holdings submits that little weight should be given to them as they are non-exclusive jurisdiction clauses and there is no evidence that they reflect an agreement by "commercial parties" that were able to protect their own interests. JH7 Holdings points to its Loan Agreement rectification claim as evidence of the doubt as to the ability of JH7 Holdings’ then solicitor to protect its interests in that respect.

40. JH7 Holdings also submits that this Court should have no difficulty enforcing the Queensland real property regime insofar as the claim seeks possession orders. I accept that submission for the reasons referred to at [38]. Further, and as acknowledged by defendants’ counsel, this Court has jurisdiction to make orders for possession for land situated in Queensland by virtue of s 3 of the Jurisdiction of Courts (Foreign Land) Act 1989 (NSW) and has made orders in respect of land in other States in other cases: see, for example, Greater Bank Ltd v Official Trustee in Bankruptcy and Marteene [2017] NSWSC 1496; Starr-Diamond v Diamond (No 3) [2013] NSWSC 351 (Starr-Diamond).

41. As Slattery J observed in Starr-Diamond, Courts in all Australian states and territories have well established jurisdiction to make orders in respect of land outside the state or territory and in accordance with the law of the state or territory where the land is situated: Starr-Diamond at [6].

42. There is also force to JH7 Holdings’ submission that the issues in these proceedings, as currently pleaded, do not raise any aspect of Queensland law that is in any substantive way different to New South Wales law such as to make one forum more appropriate than the other.

43. In essence, JH7 Holdings’ claim is to enforce the terms of the Loan Agreement and a secured debt, including by having the Court recognise it has an equitable and legal interest in the defendants’ land. Those claims do not raise any particular questions of Queensland law.

44. Similarly, the issues which, on the defendants’ evidence, are likely to be raised by their cross-claim involve general contract claims under the JV Agreement which do not raise any substantive legal issues arising out of Queensland law.

45. I also accept that there is also no forensic advantage or detriment conferred by the procedural law of either jurisdiction which makes either one a more natural forum.

46. JH7 Holdings submits that it is premature for this Court to determine whether Queensland is a more appropriate forum or more convenient to the parties in circumstances where the defendants’ foreshadowed cross-claim has not yet been pleaded and there are obvious difficulties with the claims the defendants seeks to advance, as Mr Chung is clearly in breach of the Loan Agreement.

47. It also submits that any cross-claim is likely to result in a further claim for rectification and a possible claim in professional negligence against JH7 Holdings' former solicitors, which would require witnesses to give evidence from New South Wales and would result in these proceedings having further connections to this state. Presumably, these would be the two witnesses Ms Li referred to in her evidence, namely the previous lawyer who drafted the JV and Loan Agreements and one of his staff members. No other witnesses were identified.

48. I do not accept JH7 Holdings' submission that it is premature for the defendants to have brought this application or for this Court to determine this application. In my view, an application to transfer should be made promptly, early in the proceedings. As defendants’ counsel submitted, taking steps in and advancing proceedings might be seen as a submission to jurisdiction and a relevant factor militating against the conclusion that it is in the interests of justice to transfer proceedings.

49. The convenience to the parties and witnesses seems to me to be finely balanced in this case, insofar as the current claims advanced by JH7 Holdings. The location of JH7 Holdings (and Ms Li) and Mr Chung and their legal advisors are in New South Wales and Queensland respectively. Although there was no evidence of the likely witnesses, I have proceeded on the basis that Ms Li and Mr Chung would likely give evidence.

31. While JH7 Holdings has only recently retained new lawyers in New South Wales, I am not persuaded by the defendants’ submission that it would not suffer any prejudice or disadvantage by instructing new solicitors in Queensland. Any change of solicitors would involve some cost and delay to JH7 Holdings. That said, it does not seem to me to be inevitable that new solicitors would have to be retained by either party if these proceedings were transferred to Queensland or remained here in New South Wales.

32. As to the defendants’ cross-claim, the evidence on this application indicates that the defendants will advance a cross-claim and they have identified, by name, each of the ten lay and expert witnesses they intend to rely on, all of whom are resident in Queensland. Whether those witnesses will ultimately give evidence or be required to attend a hearing is unknown and there is also always the prospect that evidence could be given by video link, if needed. However, it seems to me that the existence of the cross-claim and the number and location of the defendants’ witnesses are relevant factors to be taken into account and given some weight in circumstances where the Court is required to undertake a predictive exercise on the available materials, requiring a “nuts and bolts” management decision as to which Court is the most appropriate forum: Bankinvest AG v Seabrook (1988) 14 NSWLR 711 at 714.

33. There are also substantive connections between the issues raised by the disputes and Queensland. The JV Agreement relates to three parcels of land situated in Queensland and the Loan Agreement was made for the purposes of acquisition of one of those parcels. The evidence suggests that the agreements were, at least in part, negotiated in Queensland. Presumably, for the purposes of the cross-claims, some of the experts will be required to physically inspect the land in Queensland in order to provide valuation evidence.

34. That leaves the choice of forum and governing law clauses of the JV and the Loan Agreements.

35. There was no evidence led as to the reason why Queensland was chosen as the choice of law and jurisdiction under cl 7 of the JV Agreement and cl 11.6 of the Loan Agreement. I would infer that the Courts of Queensland were chosen because of the location of the land, the domicile of the defendants and the recognition by the parties of the connecting factors to that state.

36. As to whether they are exclusive jurisdiction clauses, I do not consider it necessary to come to a concluded view. Regardless of whether they are “exclusive” or not, an agreement between parties in a commercial contract which provides for disputes to be resolved by the courts of a specified forum is a relevant factor on an application such as this: Asciano Services at [18]; Patrick Badges Pty Ltd v Commonwealth of Australia [2002] NSWSC 221 at [23].

37. The authorities also recognise that the word "exclusive" is not determinative and a clause may be held to be an exclusive jurisdiction clause notwithstanding the absence of that word: FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 117 at 126.

38. In this case, I tend to the view that cl 7 of the JV Agreement might be construed as an exclusive jurisdiction clause, given it states that the parties agree to submit to the jurisdiction of the Queensland Courts and cl 11.6 of the Loan Agreement, by comparison, refers to the non-exclusive jurisdiction of that Court.

39. In addition to referring to non-exclusive, the forum part of cl 11.6 of the Loan Agreement only operates on the Borrower which, in this case, is Mr Chung as trustee for the Chung Family Trust. There is, therefore, some tension between cl 11.6 and cl 7 of the JV Agreement. This raises the question of whether the Court should give weight to one clause over the other.

40. At the hearing, the solicitor for JH7 Holdings and defendants’ counsel both contended that the JV and Loan Agreements are inextricably linked and operate together. In my view, when considered together, the indications provided by cls 7 and 11.6 are that the parties contemplated that the Courts in Queensland would be the forum for disputes and accepted any inconvenience that would likely result.

41. The agreements in issue relate to commercial transactions. While perhaps not sophisticated commercial parties, this is not a case where there is a significant disparity between their size and strength. In those circumstances, and particularly as they were drafted by JH7 Holdings' then solicitors, I see no reason why the choices made by the parties as evidenced by those clauses should not be given weight in this case. No evidence was led by JH7 Holdings that Ms Li did not read or understand that what was intended by those clauses was for the parties to submit their disputes to the Courts in Queensland, rather than in New South Wales.

42. It follows that I consider the existence of cl 7 of the JV Agreement and cl 11.6 of the Loan Agreement are terms that should be taken into account and given some weight as to what is the more appropriate forum in this case. In my view, they also militate against the asserted right of Ms Li to determine that this Court was the appropriate jurisdiction in which to commence these proceedings.

43. While not on their own determinative, the existence of cl 7 of the JV Agreement and cl 11.6 of the Loan Agreement, together with the number and location of the witnesses in respect of the defendants’ anticipated cross-claim and the substantive connections between the issues raised by the disputes and Queensland, have led me to be satisfied that it is in the interests of justice for the Court to make an order to transfer these proceedings from the Supreme Court of New South Wales to the Supreme Court of Queensland pursuant to s 5(2)(b)(iii) of the Cross-vesting Act.

Costs and orders

63. As to costs, I am not persuaded by JH7 Holdings’ submission that the defendants’ concession made during the course of the hearing that the Loan Agreement requires rectification justifies making an order that costs of the motion be costs in the cause. I do not consider the rectification concession to be of significance to the issue of costs, particularly as JH7 Holdings’ written submissions were only provided to the defendants on the morning of the hearing.

64. The motion relates to a discrete issue in respect of which the defendants have had success. In my view, that success should be recognised. I will, therefore, order JH7 Holdings to pay the defendants’ costs, in accordance with the usual rule that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

65. For these reasons, I make the following orders:

1. Pursuant to s 5(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW), the proceedings be transferred to the Supreme Court of Queensland.

2. Other than the costs of the defendants’ motion filed on 24 June 2020, the costs of the proceedings in this Court be costs of the proceedings in the Supreme Court of Queensland.

3. The plaintiff to pay the defendants’ costs of its notice of motion filed on 24 June 2020.

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Decision last updated: 31 July 2020