Kang v Yao

[2024] NSWSC 361

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Kang v Yao [2024] NSWSC 361

Hearing dates:

2 and 3 April 2024

Date of orders:

3 April 2024

Decision date:

08 April 2024

Jurisdiction:

Equity

Before:

Pike J

Decision:

(1) The hearing commencing 8 April 2024 be vacated.

(2) The costs occasioned by reason of the vacation of the hearing date be costs in the cause.

(3) The matter of Li v Wise Investments International Pty Ltd & Ors 2024/00122564 be heard and case managed concurrently with the substantive proceedings, being Kang & Ors v Yao & Ors 2021/00195910.

Catchwords:

PRACTICE AND PROCEDURE – pleadings – amendment of defence – late application of second defendant seeking leave to amend defence and adduce further evidence – necessity to vacate final hearing dates in the interests of justice – no question of principle

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Cases Cited:

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175

Drabsch v Switzerland General Insurance Co. Limited (Supreme Court (NSW), Santow J, 16 October 1996, unreported)

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Yuanyuan Kang (First Plaintiff)
Yucheng Xinye Investment Pty Ltd ACN 629 869 206 (Second Plaintiff)
Guangyuan Trading Pty Ltd ACN 631 298 685 (Third Plaintiff)
Wenliang Yao (First Defendant)
Quiyue Li (Second Defendant)
Coal Creek Angus Australia Pty Ltd ACN 626 250 351 (Third Defendant)

Representation:

Counsel:
T. Bors (Plaintiffs)
E. Holmes with H. Cooper (First and Third Defendants)
A. Munro with J. Buncle (Second Defendant)

Solicitors:
Colin Biggers & Paisley Lawyers (Plaintiffs)
Bartley Cohen Law (First and Third Defendants)
Enyo Lawyers (Second Defendant)

File Number(s):

2021/00195910

Publication restriction:

Nil

JUDGMENT

Introduction

1. These proceedings were commenced as long ago as 8 July 2021 and they were to be heard by me commencing on 8 April 2024. On 3 April 2024, I ordered that the hearing be vacated. These are my reasons for vacating the hearing.

Overview of the proceedings

2. Stated at a very general level, the proceedings involve the dealings between the first plaintiff (Mr Kang) and the first defendant (Mr Yao) between the period from about May 2017 to some time in 2021.

3. Mr Yao provided migration agent services to Mr Kang, a Chinese national who wished to migrate to Australia. Mr Yao facilitated and assisted Mr Kang in making multiple investments in Australia.

4. Mr Kang alleges that Mr Yao made various misrepresentations to him, in reliance on which Mr Kang, either personally or through a corporate vehicle, agreed to invest in Australia and also to provide other monies to Mr Yao for him to invest on Mr Kang’s behalf, such as for the purchase of a half-share of the real estate of a vineyard located near Tenterfield in New South Wales and the associated vineyard business (the Vineyard Purchase), the investment in a cattle project in Queensland operated by the third defendant, and other real estate and business investment opportunities as and if they became available and were suitable.

5. The statement of claim seeks relief for misleading or deceptive conduct in breach of the Australian Consumer Law contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth) and breaches of equitable duties. Orders are sought for Mr Yao account to Mr Kang or the second plaintiff in respect of all dealings, transactions, payments and disbursements of funds advanced. It is contended that the plaintiffs advanced in excess of $9 million to Mr Yao. The plaintiff also seeks that the third defendant repay a further $1.2million, which was paid in connection with the Cattle Project (as defined in the statement of claim).

6. The second defendant, who is the now former wife of Mr Yao, is alleged to be knowingly concerned in the breaches by Mr Yao.

7. A defence was filed on behalf of the first and third defendants on 21 December 2021. A defence was filed on behalf of the second defendant on 11 February 2022.

8. On 31 May 2023, the proceedings were listed for hearing to commence on 8 April 2024 for a period of seven or eight days.

Recent events

9. On 30 March 2024, the first and third defendants filed a motion seeking that a notice to produce served by the plaintiff on the first and third defendants dated 22 March 2024 be set aside and, perhaps more importantly, seeking an order that the hearing be vacated.

10. On 31 March 2024, the solicitors for the second defendant served a motion, pursuant to s 64 of the Civil Procedure Act 2005 (NSW) (CPA) to file and serve an amended defence.

11. On 28 March 2024, the solicitors for the second defendant also approached the Corporations List Duty Judge on an urgent basis seeking to commence new proceedings which seek the reinstatement of various companies, purportedly associated with the second defendant, and seek declaratory final relief that the second defendant was not appointed as a director of those companies. This is in circumstances where the ASIC records are to the effect that she was a director and company secretary of each of those companies. The Corporations List Duty Judge referred that matter to me.

12. The companies the subject of these proceedings are:

1. Wise Investments International Pty Limited;

2. Wise Property Investment Group Pty Limited;

3. Wise Business Group Pty Limited; and

4. Wise Investment Holdings Pty Limited.

(together, the Wise Companies).

13. I describe in more detail below the interaction between these new proceedings and the existing proceedings.

14. On 2 April 2024, I gave leave to the second defendant to file in Court the originating process and supporting evidence to commence these proceedings, bearing number 2024/00122564 (Corporations Act Proceedings) and also made orders for the reinstatement of the Wise Companies.

15. At the time of filing of the defences in late 2021 and early 2022, the defendants were all represented by the same solicitor. That is no longer the case.

16. On 17 October 2023, the first and third defendants retained their present solicitors. On or about 12 January 2024 the second defendant retained her present solicitors. It would appear that a mediation was held in Sydney on 19 March 2024, which was not successful.

17. Counsel was retained for the second defendant on 8 March 2024. Counsel was retained for the first and third defendants on 26 March 2024.

18. As set out above, the proceedings were listed for hearing by the Registrar in Equity on 31 May 2023. The Registrar no doubt thought at that time that the proceedings were otherwise ready for hearing, or at least would be ready for hearing by 8 April 2024. Evidence in chief – being an affidavit of the first plaintiff and an affidavit of a translator – was served in late July 2022. The defendants served affidavits from the first and second defendants in early February 2023 and evidence in reply was served as long ago as 14 April 2023.

19. Notwithstanding that the evidence had been served, it would appear that other preparation for the hearing did not commence in earnest until after the mediation had failed.

20. A flurry of activity appears to have occurred thereafter.

21. On 22 March 2024, the solicitors for the second defendant foreshadowed an application by the second defendant to adjourn the trial and to seek leave to withdraw certain admissions made in her defence.

22. On 22 March 2024, the solicitors for the plaintiff served a notice to produce on the first and third defendants purportedly issued under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 34.1 seeking production of some 33 “categories” of documents. The notice to produce was stated to be returnable on the first day of the hearing. Three substantial subpoenas were also issued to third parties on 22 March 2024, also returnable on the first day of the hearing.

23. On 25 March 2024, the solicitors for the defendants each separately sent to the solicitors for the plaintiff a lengthy request for further and better particulars of the statement of claim.

24. On 25 March 2024, the solicitors for the second defendant sent further correspondence to the effect that the second defendant would no longer seek to adjourn the trial but that they still held instructions to file a notice of motion seeking leave to withdraw admissions.

25. On 27 March 2024, an amended defence was circulated by the second defendant to the solicitors for the other parties.

26. On 28 March 2024, the solicitors for the plaintiff provided a response to the requests for further and better particulars. It was on that day that the solicitors for the second defendant sought to commence the new proceedings for the reinstatement of the Wise Companies and the correction of the record as to whether the second defendant was properly a director and company secretary of the Wise Companies.

The second defendant’s application to amend her defence and adduce further evidence

27. The position of the second defendant is important in the present context and a little more detail therefore needs to be provided.

28. The statement of claim alleges that the second defendant was knowingly concerned in the breaches alleged against Mr Yao. In this regard, it is alleged that the second defendant was the sole director and controlling mind of each of the Wise Companies and a further company, Cici International Pty Limited (Cici), in circumstances where:

1. the alleged Kurrajong Downs Deceit (as defined in the statement of claim) involved some of the Wise Companies purchasing Kurrajong Downs and then transferring them to the second plaintiff (YXI) at a profit without Mr Kang’s knowledge; and

2. One Step Consulting (a business owned by Cici of which the second defendant is alleged to be the sole director and controlling mind) was arranged by Mr Yao to be the accountant and bookkeeper for YXI and which was then the vehicle used for Mr Kang to provide funds for Mr Yao to invest on behalf of Mr Kang.

29. The second defendant’s directorship of, and involvement in, the Wise Companies and Cici is an important issue in the case.

30. In her defence filed 11 February 2022, the second defendant admits she was a director of each of the Wise Companies although she denies she was the controlling mind of each of those companies. She also admits that she is the sole director and shareholder of Cici, although there appears to be a non-admission that she was the controlling mind of Cici. As set out above, this defence was filed at a time when the second defendant and the first defendant were represented by the same solicitors.

31. The second defendant made an affidavit dated 3 February 2023 that was served on her behalf and set out the evidence in chief that she wished to give in the proceedings. At the time that it was served, the first defendant and second defendant continued to be represented by one firm of solicitors, however this was a different firm from that which was responsible for filing the defences of the first and second defendants in late September 2021 and February 2022, respectively.

32. In her affidavit of 3 February 2023, the second defendant deposes to having business dealings with her husband in that they purchase businesses together, often through a corporate vehicle, where one or both of them would be a director and/or shareholder and that “as husband and wife” the first defendant and second defended trusted “each other with decisions of this nature.”

33. In that same affidavit in relation to the Vineyard Purchase, which is at issue in the proceedings, the second defendant gives evidence that:

One of the businesses that William purchased through a company that I am a director of was the Kurrajong Downs winery. I was not involved in the negotiations for the purchase of the winery, nor was I involved in the negotiations for the sale of the winery to Mr Kang.

34. The second defendant gives evidence of signing some documents presented to her by her husband in relation to the Vineyard Purchase, which she signed without asking him any questions about the content. This was said to be not unusual in their relationship where there was trust between the two.

35. In support of the application to file and serve an amended defence, the second defendant has provided a further affidavit of the second defendant, made on 31 March 2024, in which she deposes to matters which necessitate the filing of an amended defence (March affidavit). Counsel for the second defendant also made it clear that the second defendant would seek to read this affidavit in the substantive proceedings. In a number of respects, this new affidavit seeks to give evidence which is different to that given by the second defendant in her affidavit made 3 February 2023, principally as to her knowledge of, and involvement in, the Wise Companies and Cici.

36. The second defendant, by her March affidavit, seeks to retract aspects of her evidence in her first affidavit. This new evidence founds the basis for the amended defence which is proposed to be relied upon. As set out above, the second defendant changed lawyers in January 2024 and ceased to be represented by the same firm as was acting for the first and third defendants.

37. The substance of the evidence which the second defendant now wishes to give is that she had no knowledge of the Wise Companies until the commencement of these proceedings and did not give any instructions or otherwise consent to being made a director of the Wise Companies, and further that she had nothing to do with them. She deposes, as I understand it, that in respect of all of the documents in relation to the Vineyard, save for one, the signatures on those documents which purport to be hers are not in fact hers. In relation to the other document being the Contract for Sale and Purchase of Land, the second defendant says that she does not recall signing the document and that if she signed it, she did not know what it was that she was signing.

38. The second defendant also deposes to not having any business dealings with her husband, save for selling a house to Mr Kang’s wife and some minor dealings in relation to another client. The picture she seeks to paint in her March affidavit is that, contrary to what she said in her first affidavit, she did not have any business dealings with her husband.

39. The second defendant also deposes in her March affidavit to certain matters which, at the very least, cast some doubt upon whether she understood the content of her defence filed February 2022 and what she was deposing to in her first affidavit. It is not necessary, on this application, to descend into the detail of that evidence, save to say that, as I have said above, it casts some doubt on whether the second defendant understood what she was doing.

40. The proposed amended defence now alleges that the second defendant was listed in the ASIC Register as the director of the Wise Companies and Cici, that she never consented to being appointed a director of any of the Wise Companies and Cici, and never participated in the affairs of, nor ever had any knowledge of, the Wise Companies.

41. The Corporations Act Proceedings, reliant upon what is said in the March affidavit, seek declarations that the second defendant was not appointed as a director of the Wise Companies and Cici.

Necessity to vacate the hearing

42. Putting to one side, for present purposes, the application for leave to amend her defence, it seems to me that the evidence contained in the March affidavit is quite relevant to the substantive matter in issue even on the present pleadings, namely whether the second defendant was knowingly concerned in the breaches alleged against the first defendant. That is not a matter that was admitted in the original defence, and it is a live issue in the proceedings.

43. Having regard to the contents of the March affidavit as to the dealings which the second defendant had with her then solicitors in relation to the preparation of the original defence and her first affidavit, it seems to me that it would not be in the interests of justice to shut the second defendant out from now seeking to give the evidence that she wishes to give in her March affidavit.

44. It was not in dispute that the other parties to the proceedings, and in particular Mr Yao, should be given an opportunity to respond to this new evidence. The new evidence now sought to be given by the second defendant goes to the heart of the business relationship between Mr Yao and the second defendant and represents quite a fundamental shift in the evidence of the second defendant. I do not think that it would be fair or reasonable to expect Mr Yao to be able to deal with and adequately respond to the new evidence in the time between when it was first notified (31 March 2024) and the commencement of the hearing on 8 April 2024. The substance of the evidence now to be given by the second defendant is not something that can be responded to on the run. It raises at least the spectre that signatures have been forged. It may well be that Mr Yao wishes to seek some form of disclosure from the second defendant in relation to the matters now raised in the new affidavit. The position is further complicated by the fact that there is evidence that Mr Yao is presently unwell, being treated for pancreatic cancer in China, and that this is causing some delay in the provision of instructions. If the matter was otherwise to proceed on and from 8 April 2024, Mr Yao proposed that his evidence be given by video link and the plaintiff did not oppose this.

45. The plaintiffs might also wish to file evidence in reply or at least obtain material to test the new evidence of the second defendant as it goes to the second defendants’ knowledge and thus whether she was knowingly concerned in any breaches by Mr Yao.

46. The short point for present purposes is that it would not be it the interests of justice to shut the second defendant out, in the circumstances of this case, from giving the evidence which she now wishes to give. The nature of that evidence, including the circumstances in which her defence and first affidavit were apparently prepared, and the difficulties in responding to the new evidence in a timely way, provide a basis in and of themselves, to vacate the hearing on 8 April 2024.

47. In any event, there are a number of other matters that have been raised by the parties as impacting the ability of the matter to be heard on and from 8 April 2024.

48. The most important of these matters is the lack of any disclosure in the proceedings. It would appear that none of the parties turned their mind to whether disclosure was required until after the failed mediation. The Registrar appears to have made an order at or about the time that the matter was listed for hearing for notices to produce to be issued, although whether that was as a substitute for disclosure was not explained before me. Be that as it may, it was not until 22 March 2024 that the solicitors for the plaintiff served a notice to produce on the first and third defendants.

49. The notice to produce purported to be issued under UCPR r 34.1, although it did not identify particular documents for production, but rather was framed more in terms of categories for discovery. The first and third defendants sought to set the notice to produce aside and, in response, the plaintiff sought to narrow the notice to produce. The solicitors for the first and third defendants also gave evidence that it would take a number of weeks to produce the documents requested and, as such, the documents could not be produced until after the hearing concluded.

50. The plaintiffs did not suggest that the time estimate for production was unreasonable. A cursory review of the categories demonstrates that production of the requested documents would likely take several weeks.

51. The issues in the proceedings are such that it is likely that there would be documents in the possession of all parties that would bear on the issues and it is difficult to understand why no application for disclosure was made after the close of evidence. In circumstances where the hearing date has now been vacated, this is a matter that should be addressed by the parties, which I will case manage to ensure compliance with Practice Note SC Eq 11.

42. Complaint was also made in relation to the lack of particularisation of the allegations made in the statement of claim. The first and third defendants made the point that the allegations made in the statement of claim were serious and that, as such, they were entitled to proper particulars. I may have had greater sympathy for this point had the application for further and better particulars been made shortly after the service of the statement of claim in July 2021. It was not until, however, late March 2024 that the defendants separately made requests for further and better particulars. It appears that there was obviously no difficulty in the defendants each filing a defence to the allegations in the statement of claim and also putting on responsive evidence to that served by the plaintiffs. There does not appear to have been any difficulty in understanding the case that was being put.

43. This matter would not, in my view, have provided a basis to vacate the hearing date. In circumstances, however, where the hearing date is to be vacated then it is important that, in my view, if there are any lingering issues with the statement of claim, they should be dealt with now and I propose to case manage this aspect of the proceedings.

44. In relation to the second defendant’s application to amend her defence, it seems to me that there is little utility in debating whether the second defendant seeks leave to withdraw an admission within UCPR r 12.6 or whether she simply seeks leave to file an amended defence, which would be subject to s 64 CPA. In either case, the interests of justice would be paramount (see s 58 CPA). What was said in authorities such as Drabsch v Switzerland General Insurance Co. Limited (Supreme Court (NSW), Santow J, 16 October 1996, unreported, 7-8) obviously needs to be updated in light of what the High Court has said in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175, but the interests of justice remain paramount.

45. There also seems to me, in circumstances where the evidence which the second defendant now wishes to give in her March affidavit is relevant on the pleadings as they presently stand, and it is in the interests of justice that she be permitted to give that evidence with the result that the hearing date must be vacated, to be little utility in engaging in a substantive hearing on whether the second defendant should be granted leave to amend her defence, which would involve examining the circumstances in which the defence came to be prepared, including evidence from the solicitors who were retained on her behalf at that time. Those matters can all be tested by the other parties to the proceedings, and in particular the first plaintiff, in the substantive hearing. Counsel for the plaintiffs has not yet indicated whether the plaintiff will continue to oppose leave to amend now that the hearing date has been vacated. This is a matter that will be addressed at the forthcoming directions hearing.

Conclusion

56. In the circumstances set out above, there was no alternative in my view but for the hearing date to be vacated. Whilst it is regrettable that this has occurred at such a late stage and will no doubt cause some disruption to other litigants and the Court, proceeding to a hearing on 8 April 2024 could only be achieved by denying to the second defendant the opportunity to rely upon the evidence upon which she now wishes to rely. That would not be in the interests of justice. It would also involve the parties going to a hearing without the benefit of any disclosure.

57. It must be recorded, however, that the matter has not been prepared in such a way as would be expected. Counsel for the defendants cannot be criticised in this regard as they have only recently been retained in the matter.

58. It is for these reasons that on 3 April 2024, I made orders vacating the hearing date. I also made orders that the costs occasioned by reason of the vacation of the hearing date be costs in the cause. It seems to me that each party is at least partly responsible for the circumstances that necessitate the vacation of the hearing date and that in these circumstances, the fairest outcome is that the costs be costs in the cause so that they will ultimately abide the outcome of the substantive hearing.

59. I propose to use some of the period that was otherwise allocated to the hearing of the matter to case manage it with the assistance of the parties to allow it to be heard as soon as is possible, although it is difficult to see why, given the conduct of the proceedings to date, they would have any particular claim to urgency over other matters in this division.

Case management of the Corporations Act Proceedings

60. The Corporations Act Proceedings raise the same issues as are sought to be raised by the second defendant in her proposed amended defence and in the March affidavit – namely whether she was validly appointed a director of the Wise Companies and Cici.

61. Assuming leave to amend the defence is granted – a matter that will be addressed promptly – it seems sensible for the Corporations Act Proceedings to be heard at the same time as the substantive proceedings. The two proceedings should be case managed together. I made an order to this effect on 3 April 2024.

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Amendments

29 August 2024 - Correct error to date in paragraph 8

02 September 2024 - Correct case title (remove "Ors)

Decision last updated: 02 September 2024