Li v Rapp - [2005] SASC 133

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
LI v RAPP & ORS
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Besanko and The Honourable Justice White)
8 April 2005
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - CONTRACT IMPLIED FROM CONDUCT OF PARTIES
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSIDERATION - NECESSITY FOR CONSIDERATION
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - HARSH AND UNCONSCIONABLE CONTRACTS AND STATUTORY REMEDIES
Appellant and respondents contemplated purchase of shares from respondents by appellant - Agreement to be signed by appellant in Adelaide but, following an argument between appellant and her husband, appellant departed Adelaide before the documents were signed - Appellant's husband agreed with respondents to enter the contract in lieu of appellant - Appellant's husband, in his own right, executed contract to purchase shares from respondent, including a Share Mortgage Agreement - Appellant, respondents and appellant's husband later decided that appellant rather than husband should become the owner of the shares - Appellant's name added to documents, including Share Mortgage Agreement, and documents sent to her for signature - Appellant added her signature to documents - Trial Judge found that appellant had entered into fresh agreement with respondents, the terms of which included that the appellant would purchase shares from the respondents and that the respondents would deliver them to the appellant - Trial Judge correct in finding a fresh agreement, constituted by appellant's acceptance of respondents' offer - Fresh agreement was for consideration - Assuming that fresh agreement was subject to a condition precedent that appellant's husband trasfer shares back to respondents, that condition was met - No prejudice to appellant arising from respondents' failure to plead explicitly the existence of a fresh agreement - Fresh Share Mortgage Agreement not vitiated by mistake - Appellant understood effect of signing documents - Agreement not unconscionable - Appeal dismissed.
Law of Property Act 1936 (SA), s 41, referred to.
Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104; S P Hywood Pty Ltd v Standard Chartered Bank Ltd (Supreme Court of South Australia, Perry J, 21 December 1992, Jdgt S3764, Unreported), applied.
Reark Group Pty Ltd v Data Connection Pty Ltd (Supreme Court of Victoria, Hayne J, 25 May 1995, Unreported), discussed.
Rapp v Li [2004] SADC 27; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 79 ALJR 206; Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Pao On v Lau Yiu Long [1980] AC 614; Mischkulnig v Berger (Supreme Court of Victoria, Coldrey J, 14 December 1995, Unreported); L'Estrange v F Graucob Ltd [1934] 2 KB 394, considered.

LI v RAPP & ORS
[2005] SASC 133
Full Court: Duggan, Besanko and White JJ

DUGGAN J. I agree that the appeal should be dismissed for the reasons given by White J.
BESANKO J: In my opinion, this appeal should be dismissed. I agree with the reasons for judgment of White J.
WHITE J:
Introduction
A District Court Judge found the appellant liable to pay to the respondents the sum of $377,500 pursuant to an agreement (“the Share Mortgage Agreement”) entered into between the parties and bearing the date 19 February 1999.[1]
[1] [2004] SADC 27.
I propose in these reasons to refer to the parties by their description in the proceedings below, ie, the appellant as defendant, and the respondents as plaintiffs. The plaintiffs’ claim was that the defendant had defaulted in making repayment of a loan of $377,500 advanced by them to her.
By her amended defence, the defendant admitted that she had, on 19 February 1999, signed a written agreement by which the plaintiffs “purported” to advance a loan of $377,500 to her, but denied that she had in fact been advanced any sum by the plaintiffs, and alleged that at the time she signed the document, she had believed it to be of a fundamentally different character. The defendant contended that she had not received from the plaintiffs any consideration for her obligations pursuant to the Share Mortgage Agreement. The defendant also pleaded a number of additional matters to the effect that she was either not bound by the Share Mortgage Agreement, or that it should not be enforced against her. I will return to the defences relied upon by the defendant later in these reasons.
The defendant’s claims with respect to the execution and enforceability of the Share Mortgage Agreement were, in substance, rejected by the trial Judge.
In order to understand the trial Judge’s findings and the issues argued on appeal, it is first necessary to say much more about the circumstances which occurred both before and after the execution of the Share Mortgage Agreement.
The Parties
The plaintiffs owned the shares in two companies, Ocean Foods Pty Ltd and South Australian Lobster Exporters Pty Ltd (“the companies”) which carried on seafood processing and exporting businesses (“the businesses”)[2]. In 1998 they wished to sell the shares or the businesses or both.
[2]One share in South Australian Lobster Exporters Pty Ltd was owned by another person, Helen Bourne. This share, too, was sold as part of the transaction which was the subject of the litigation but Ms Bourne played no part in the litigation, and her involvement can, for present purposes, be ignored.
The first plaintiff, Milan Rapp, was involved in negotiations for the sale. He also gave evidence at the trial. Neither of the other two plaintiffs appears to have been involved actively in the negotiations and neither gave evidence.
The defendant was a Chinese national who, with her husband, was a successful business proprietor in Hong Kong and Singapore. The defendant wished to qualify as a business migrant to Australia. She negotiated to purchase the businesses. In the course of the negotiations the defendant was assisted by a Sydney solicitor, Mr Velik, and by Mr Kevin Lee, an employee of Pearl Orchid (Singapore) Pty Ltd, a company based in Singapore of which the defendant was Managing Director. The plaintiffs were assisted by a solicitor, Mr Ouwens, and by their accountants, KPMG.
The defendant lodged her application for a permanent entry visa in July 1998. Initially, the defendant sought to bring herself within the category of a business owner, but later converted that to another category relying on her previous business experience. Mr Velik also assisted the defendant with her application for migration approval.
In her application for migration, the defendant described herself as having two occupations. The first was as a business manager of Pearl Orchid Company Limited. This company was based in Hong Kong and engaged in fabric and garment trading. The defendant described herself as having the responsibility for financial control and expenditure.
Her second occupation was that of Managing Director of Pearl Orchid (Singapore) Pty Ltd. This company was said to be engaged in “import/export and business finance”. The defendant said that she had overall and daily operational management of this company. The two businesses were said to have had a combined turnover in 1997 of the order of AUD $61m.
The trial Judge was not impressed with the defendant’s evidence generally. He described her evidence on some topics as “rambling, contradictory and vague” and, in relation to another topic, described the defendant as having been less than frank.
Events Prior to 19 February 1999
The trial Judge found that in April 1998, the defendant had executed separate Heads of Agreement which contemplated the purchase by her of the shares in both companies. Drafts of the Heads of Agreement had been prepared by Mr Velik in March 1998. In the Heads of Agreement, the defendant agreed in principle to acquire the shares in Ocean Foods Pty Ltd for $410,000 and the shares of SA Lobster Exporters for $390,000.
On 15 May 1998, the defendant, by executing a power of attorney, appointed her husband, Kevin Cheung, as her attorney. The defendant said in evidence that she had signed the power of attorney at the request of her husband who had told her that he was going to Australia to buy the factory (at which the business of the company was conducted) and because he asked her to sign the power of attorney so that he could act on her behalf.
In the latter half of 1998, negotiations with respect to the sale continued. In particular, there were negotiations as to the requirement of the plaintiffs, as vendors, for some security in respect of the vendor finance which it was proposed they would provide. The respective solicitors were involved in the drafting of the sale contracts and of the related documents.
The defendant was interviewed by an Immigration official in connection with her application for migration on 28 October 1998. She told the interviewer that she had acquired all the shares of Ocean Foods Pty Ltd by paying AUD $410,000. The defendant also gave the interviewer details of how she intended to manage and develop the business of Ocean Foods.
Share Sale Agreements in respect of the businesses were actually executed by all parties, including the defendant, in November 1998. However, the plaintiffs, who executed the documents after the defendant, made some alterations which were unacceptable to the defendant (or at least to her solicitor Mr Velik). Those sale agreements did not therefore proceed to completion. Thereafter further negotiations occurred.
On 20 January 1999 a meeting occurred in Sydney at which the negotiations were finalised. Agreement was reached. There followed a luncheon in Sydney attended by Mr Milan Rapp and Mr Ouwens on the one hand, and the defendant, Kevin Cheung, Kevin Lee and Mr Velik on the other. Despite the defendant’s denial that she had been present at this luncheon, the trial Judge found that she was present.
Following that meeting, the terms of the share sale agreements were finalised and a time for the execution of the various agreements and completion was arranged.
The Events of February 1999
The defendant and her husband (but not Mr Velik) came to Adelaide on 18 February 1999. An amicable lunch, attended by the various persons involved in the transactions, occurred that day. The trial Judge made no finding as to whether the defendant was present at that lunch.
The parties were to meet the following morning at 9.00 am at the office of KPMG to sign the contract documents and to complete the transaction. However, the defendant did not attend that meeting. Overnight, she and her husband had a disagreement with the consequence that the defendant made a sudden departure for Sydney.
Those present at the meeting on 19 February 1999 were Milan Rapp, Mr Ouwens and Mr Jenkins from KPMG on the one hand, and Kevin Cheung on the other. Of those persons, only Milan Rapp and Mr Ouwens gave evidence. Mr Jenkins was overseas at the time of the trial. Mr Cheung, who has since separated from the defendant, did not give evidence.
Following communication of the departure of the defendant, various discussions took place including telephone discussions with Mr Velik in Sydney. Kevin Cheung wished to proceed with the transaction, saying that he would buy the shares for his wife. Mr Ouwens spoke with Mr Velik who told Mr Ouwens that he had obtained instructions from the defendant to the effect that she no longer wished to be the purchaser and that it was in order for Kevin Cheung himself to acquire the shares. The plaintiffs were willing to proceed with the sale, provided that they received part payment of the overall purchase price which the sale agreements contemplated and that the balance was secured in the way contemplated by the Ocean Foods Pty Ltd Share Sale Agreement, ie, by a Share Mortgage Agreement. On Mr Ouwen’s advice, Mr Rapp, on behalf of the plaintiffs, declined to permit the sale to proceed in the name of the defendant with Kevin Cheung executing the documents pursuant to the Power of Attorney which he held, as Kevin Cheung was not then able to produce the Power of Attorney.
It was then agreed that Kevin Cheung would contract in his own right. The typed Share Sale Agreements which had contemplated a sale to the defendant of the shares in Ocean Foods Pty Ltd and South Australian Lobster Exporters Pty Ltd, respectively, were each amended by crossing out the typed name of the defendant on the face page and entering in handwriting the name Kevin Sy Cheung, by crossing out the typed name and address of the defendant in the statement of the parties to the contract on page one of the agreement and substituting in handwriting the name Kevin Sy Cheung and his address, and by crossing out the typed name of the defendant on the execution page and substituting in handwriting the name Kevin Sy Cheung. The amended Share Sale Agreement was then signed by the plaintiffs as vendors and by Kevin Cheung as purchaser.[3] Although one of the plaintiffs’ submissions at trial was that Kevin Cheung had signed as agent for the defendant, this contention was rejected by the trial judge, who found that:
“Kevin Cheung was the contracting party and [the defendant] did not incur any liability by reason of the documents signed by Kevin Cheung in Adelaide on 19 February 1999”.
[3]The evidence does not disclose how those plaintiffs who were not present at the meeting came to sign the Share Sale Agreements but nothing turns on that presently.
Only the Share Sale Agreement relating to Ocean Foods Pty Ltd was tendered at trial. The Appeal Books also contained the Share Sale Agreement relating to South Australian Lobster Exporters Pty Ltd, but this was in error.
The trial Judge found that the Share Sale Agreement relating to Ocean Foods Pty Ltd had been prepared by Mr Velik’s firm in Sydney.
The definitions in the Share Sale Agreement identified the purchaser as the defendant. Clause 2.1 of the agreement provided for the sale of the shares by the vendor and the purchase of the shares by the purchaser. Clause 2.2 provided for the payment of a deposit on or prior to the making of the agreement and the balance on or prior to completion. By clause 2.3, the title to the shareholding was to pass to the purchaser on and from completion. The completion date was identified as 10 February 1999 “or as agreed otherwise by the parties”. 10 February had already passed by the time the Share Sale Agreement was signed. There was no evidence of any other date having been agreed. Mr Ouwen’s evidence was that completion occurred on the same day that the agreement was signed, namely, 19 February 1999. Clause 6.3 provided that on completion, and as a condition of completion, the vendor should deliver to the purchaser transfers and share certificates in respect of the shareholding. Clause 6.4 provided that, on completion and as a condition of completion, meetings of directors and members of the company be held to approve the share transfers, to appoint Milan Rapp, Kevin Lee and the defendant as directors of the company, Kevin Lee as secretary and KPMG as accountants for the company. Clause 6.5 required the purchaser to pay the purchase price on completion. The Share Sale Agreement did not contain any express reference to vendor finance but clause 7.3 required the purchaser, on completion, to grant to the mortgagees (in effect the plaintiffs) a mortgage over the shares in Ocean Foods Pty Ltd in the form of a draft agreement annexed as Schedule 16 to the Share Sale Agreement. That draft was in the same form as ultimately executed by the defendant to which reference will be made later. It contemplated a loan from the vendors to the purchaser. There was thus an inconsistency between Clause 2.2 and Clause 7.3. Clause 7.1 provided, amongst other things, that, with effect from completion, Milan Rapp, Kevin Lee and the defendant should be the initial directors of the company, that Velik Solicitors should be the solicitors for the company, and that KPMG should continued to be the accountants for the company, and provided for the continued employment or engagement of the first and third plaintiffs.
Prior to the Share Sale Agreement being signed, no alterations were made in the body of the document to specific references to the defendant (in the definition of purchaser, and to the requirement that the defendant be appointed a director of the company). Thus, as the trial Judge found, although Kevin Cheung was substituted as the main contracting party and he signed the document, the benefits created by the contract were, strictly speaking, to pass to the defendant. The Judge was unable to determine whether that was an intended consequence or whether it was a consequence of haste surrounding the last minute substitution of Kevin Cheung for the defendant on 19 February 1999 but he did find that it was Kevin Cheung who, by reason of the amendment and execution of the documents on 19 February 1999, acquired the shares.[4]
[4] Although as will be seen below, the legal interest in the shares did not ever pass to him.
The plaintiffs executed Share Transfer Forms in favour of Kevin Cheung. I will return later to more detail regarding the Share Transfer Forms. Although the trial Judge made no specific finding to this effect, it seems likely that it was on 19 February 1999 that the Share Transfer Forms were executed in favour of Kevin Cheung. It is unclear whether the Share Transfer Forms were actually delivered to Kevin Cheung on that day. KPMG may have continued to hold them on his behalf, or on behalf of the plaintiffs.
There was also evidence that at the meeting on 19 February 1999 Kevin Cheung executed a Share Mortgage Agreement but that document was not tendered at trial.
As already noted, the trial Judge found that the effect of the events at the meeting on 19 February 1999 was that the plaintiffs entered into and completed Share Sale Agreements with Kevin Cheung who acquired the shares in the two companies. He found that as at 19 February 1999 it was Kevin Cheung and not the defendant who owed the balance of the purchase price for the shares to the plaintiffs, which was secured by the Share Mortgage Agreement executed by Kevin Cheung. The evidence did not permit a finding that all of the events required by clause 6 of the Share Sale Agreement to occur on completion did in fact occur on 19 February 1999.
Events after 19 February 1999
Within a few weeks of 19 February 1999, Mr Ouwens was approached by Kevin Cheung and Milan Rapp. Mr Ouwens gave evidence that Kevin Cheung said that he still wished his wife to buy the shares because of the requirements for her immigration application. Initially he asked Mr Ouwens to prepare a nomination form for signature by his wife by which she nominated him as her agent for the purposes of the purchase. Mr Ouwens did not do so. The trial Judge made no specific finding as to what was said or agreed in the discussion, but it seems likely that Kevin Cheung was, at the least, given to understand that if he wished the defendant to be the purchaser, the plaintiffs were willing to assist in some way in having the defendant take the place of Kevin Cheung as purchaser. Mr Ouwens said that he was told by Kevin Cheung that a Mr Rico Chan, from his office in Hong Kong, would contact him to make the necessary arrangements.
There were some obvious difficulties in simply having the defendant substituted as purchaser. As the trial Judge found, after 19 February 1999, the plaintiffs were no longer in a position to sell the shares to the defendant, at least without coming to some arrangement with Kevin Cheung. The defendant did ultimately become registered in the records of each of the two companies as the owner of the shares which had been the subject of the agreements between the plaintiffs as vendors and Kevin Cheung as purchaser. The trial Judge found that the way in which that had occurred was not fully explained by the evidence.

Relevant events included the following. Rico Chan did contact Mr Ouwens. He asked for “Share Transfer Forms, a fresh Share Mortgage document and other agreements for ratification” by the defendant.
Rico Chan also sent a facsimile transmission to Mr Ouwens dated 22 March 1999 in which, having identified the subject matter of the facsimile as “Re: Sales & Purchase Agreement” he said:
“Regarding the ‘Purchaser’ of the Agreement. Kevin Cheung finally decided that [the defendant] should be the purchaser in order to satisfy the original negotiation of the take-over for Immigration purpose [sic]. It would be very kind of you to prepare the said documentation with [the defendant] as the purchaser. When the documentation is ready, please advise me by fax so that I would advise you what place the document should be courier [sic] to such as H.K. China or if possible [the defendant] would go to Adelaide for signature. As such, I would not ask our lawyer in Sydney to courier the application documents for your review at this moment. Your attention & cooperation to the matter is much appreciated.”
Mr Ouwens responded to that facsimile by a letter dated 14 April 1999 to Mr Chan in which he said:
“I enclose agreements and share transfers for signature by [the defendant] where indicated. I look forward to the return of all documents so that I can arrange for the stamping thereof.”
The trial Judge did not make an express finding as to which documents were sent under cover of Mr Ouwen’s letter. Mr Ouwens did not give any express evidence on this topic. However, when each of the communications between Mr Chan and Mr Ouwens are read together, and in the light of the content of those documents to which reference will be made later, it seems likely that Mr Ouwens provided, under cover of his letter of 14 April 1999, the two Share Sale Agreements which had been executed on 19 February 1999, a fresh Share Mortgage Agreement in which the defendant was named as mortgagor (but otherwise identical to the Share Mortgage Agreement executed by Kevin Cheung on 19 February 1999) and the share transfers which had been executed by the vendors and Kevin Cheung on 19 February 1999. The defendant’s submissions on appeal proceeded on the basis that the Share Sale Agreement in relation to at least Ocean Foods Pty Ltd had been sent under cover of Mr Ouwen’s letter of 14 April 1999.
The trial Judge found that the documents sent to Mr Chan were eventually presented to the defendant by Kevin Cheung for signature. The trial Judge found, in particular, that the Share Mortgage Agreement was signed by the defendant in Hong Kong some time between 14 April 1999 and 23 July 1999. This was so even though the Share Mortgage Agreement signed by the defendant bore the date 19 February 1999. The trial Judge was unable to make a finding as to how that date came to be placed on the Share Mortgage Agreement. For convenience, the trial Judge referred to the Share Mortgage Agreement as having been entered into “in or about April 1999”. In these reasons I will do likewise.
The Share Mortgage Agreement recited that the plaintiffs had agreed to advance to the defendant the sum of $377,500 and that they required security by way of charge over the shares of the defendant in Ocean Foods Pty Ltd. The first two clauses of the operative part of the Share Mortgage Agreement provided as follows:
“1. The Mortgagees shall advance by way of loan [to the Mortgagor] on the date of this agreement the Principal Sum.
2.In consideration of the Principal Sum now lent by the Mortgagees to the Mortgagor (the receipt of which Principal Sum is hereby acknowledged) and for better securing to the Mortgagees the repayment in the manner herein set forth of the Principal Sum the Mortgagor DOES HEREBY MORTGAGE AND CHARGE to the Mortgagees all the Mortgagor’s estate and interest in the said shares in the Company.”
The Share Mortgage Agreement provided for repayment of the sum advanced on the earlier of two dates, one of which was the date 18 months after the date of the Agreement. Finally, the Share Mortgage Agreement provided that the plaintiffs were entitled to hold and retain transfers executed by the mortgagor as transferor in blank as well as the relevant share certificates. There was no evidence that any such transfers had been executed either by Kevin Cheung or by the defendant.
The defendant also signed the Share Sale Agreement relating to Ocean Foods Pty Ltd by entering her signature underneath that of her husband on the execution page. No other alterations were made or signatures entered by her on that Share Sale Agreement. As the Share Sale Agreement relating to South Australian Lobster Exporters Pty Ltd was not tendered it is unclear whether the defendant entered her signature on the Share Sale Agreement relating to that company.
The trial Judge made no finding as to when the defendant did enter her signature on the Share Sale Agreement but an extract from an affidavit sworn by the defendant in which she admitted signing the two Share Sale Agreements at the same time as the Share Mortgage Agreement was in evidence. It is likely that the defendant entered her signature on the Share Sale Agreement relating to Ocean Foods Pty Ltd some time between 14 April 1999 and 23 July 1999 and at the same time that she signed the Share Mortgage Agreement.
The Share Transfers
The trial Judge, at [33], made the following findings with respect to the four Share Transfer Forms relating to Ocean Foods Pty Ltd.
“… Each of the Share Transfer Forms is dated 19 February 1999. In each case, the name ‘Li Ping’ had initially been inserted in the space provided for the name of the transferees but was crossed out. The name ‘Kevin Sy Cheung’ was then written in the space. To the right of that, the name ‘Li Ping’ was written again in each of the forms. The crossing out of the name ‘Li Ping’ where it first occurred and the insertion of the name ‘Kevin Sy Cheung’ was made in black ink. Where the name ‘Li Ping’ is written again to the right of the name ‘Kevin Sy Cheung’, it is written in blue ink. One can assume that the names were written on the forms on three separate occasions but, as I have mentioned, the evidence does not explain the circumstances in which the endorsements were made. Each of the forms was signed by the vendors as transferors and by Kevin Cheung and ‘Catherine Li’ (the style in which the defendant signs her name) as transferees. Although the documents purport to have been signed by the transferees/buyers on 19 February 1999, other evidence makes it clear that Ping Li did not sign the transfer forms on that day. Ping Li gave evidence that when she signed the transfer forms she did not know what the documents were for. She said her husband brought them with other documents and she did not look at them when she signed. …”
In relation to the share certificates, the trial Judge found that the defendant’s name had been typed in each share certificate but crossed out and in its place the words “Li Ping by her Attorney Kevin Sy Cheung” were entered in handwriting. The certificates are dated 19 February 1999 and are signed by Kevin Cheung purportedly as Director and Kevin Lee as Secretary. The trial Judge considered that the handwritten entry had comprised two parts made at different times. The first part comprised the entry of the name Kevin Sy Cheung, when the name Li Ping had been crossed out. The second part involved the addition of the words “Li Ping by her Attorney” preceding the name Kevin Sy Cheung. The first entry is consistent with having been made on 19 February 1999. The second entry is consistent with having been made at or about the time of the signature of the documents by the defendant in or about April 1999.
In relation to the Register of Members of Ocean Foods Pty Ltd, the trial Judge noted that the shares were transferred from the name of the plaintiffs and registered in the name of the defendant on 6 January 2000 and that there had been no intervening registration of Kevin Cheung as owner. This had the effect, as the trial Judge found, that Kevin Cheung never became the legal owner of the shares.[5]
[5] Maddocks v DJE Constructions Pty Ltd (1982) 148 CLR 104 at 117.
The Pleadings
Originally the plaintiffs simply pleaded the Share Mortgage Agreement and pleaded default by the defendant in repaying the sum of $377,500 to which it referred.
Although admitting that she had signed the Share Mortgage Agreement, the defendant denied that she had been advanced any sum at all by the plaintiffs; alleged that at the time she signed the Share Mortgage Agreement she had believed it to be of a fundamentally different character (and thus invoked the doctrine of non est factum); alleged that it was her husband who was liable to pay the outstanding purchase price; alleged that the Share Mortgage Agreement constituted her a guarantor of his liability without her knowledge or consent; alleged that her husband had been the agent of the plaintiffs for the purposes of the transaction; and pleaded that the Share Mortgage Agreement should not be enforced on the grounds that it was unconscionable. At the trial, the defendant was granted leave to amend her defence to plead that the Share Mortgage Agreement had been entered into by the parties under a common mistake, namely, that the defendant could acquire from the plaintiffs all the issued shares in Ocean Foods Pty Ltd.
By their Reply (also amended at trial), the plaintiffs pleaded that the Share Mortgage Agreement had been signed as part of a single transaction for the purchase of the business of the companies. They pleaded (as I understand the effect of the pleading) that the Share Sale Agreements and the Share Mortgage Agreement had been executed on behalf of the defendant by her agent Kevin Cheung on 19 February 1999, or, in the alternative, those Agreements were novated to the defendant on or about 14 April 1999, or, in the alternative, that a tripartite agreement by which the defendant agreed to accept the rights, benefits and obligations initially undertaken by Kevin Cheung under the Agreements in his own right on 19 February 1999 had been reached on or about 14 April 1999.
The Decision of the Trial Judge
The trial Judge found that, by virtue of the express terms of the Share Mortgage Agreement signed by the defendant, she had a “prima facie liability to the plaintiffs”. It is evident that the Judge was applying the long-standing rule that a party is ordinarily bound by the terms of a written contract executed by that party.[6] Absent defences of misrepresentation, non est factum or rectification,[7] or circumstances making the contract unenforceable, the defendant was bound by her signature to the Share Mortgage Agreement. The Judge therefore approached the matter by considering whether any of the defences raised by the defendant had the effect of “exonerating” her from liability. He found that none of those defences relieved her of liability.
[6] L’Estrange v F Graucob Ltd [1934] 2 KB 394.
[7]Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 79 ALJR 206 at 211 [33].
The trial Judge found that in the circumstances as found by him the plaintiffs and the defendant had, in or about April 1999, entered into a fresh agreement which was partly in writing, partly oral and partly to be implied, the relevant terms of which were that the defendant would purchase the shares from the plaintiffs on the terms set out in the Share Sale Agreement relating to Ocean Foods Pty Ltd. He found that the sale of the shares to the defendant was the consideration for the Share Mortgage Agreement. The trial Judge found that, in addition to reaching the fresh agreement with the defendant, the plaintiffs had come to an arrangement with Kevin Cheung by which the settlement of 19 February 1999 was reversed. Thus the plaintiffs were able to perform the Share Sale Agreement and to deliver the shares to the defendant. The trial Judge found specifically that the “principal sum” referred to in clause 2 of the Share Mortgage Agreement was a reference to the provision of vendor finance by the plaintiffs to the defendant. The trial Judge rejected the claims of the defendant with respect to common mistake, unconscionability, non est factum, guarantee and agency of Kevin Cheung.
The Appeal
The Notice of Appeal contains some 45 separate grounds of appeal. However, on appeal, Mr Simpkins SC, who appeared for the defendant, identified six issues as arising on the appeal and addressed his submissions to those issues only. Those six issues are identified in the headings which appear later in these reasons. Mr Simpkins informed the Court that the defendant abandoned those grounds of appeal which challenged the conclusion of the trial Judge with respect to the defence of non est factum.
Two propositions lay at the heart of the defendant’s submissions on appeal. The first was that the trial Judge was in error in finding that the plaintiffs and the defendant had entered into a fresh agreement in or about April 1999. The second was that, even if the parties had entered into such an agreement, it failed for want of consideration moving from the plaintiffs to the defendant. All but one of the defendant’s submissions on appeal depended for their success on one or other of these two central propositions being accepted. It is convenient to address these two propositions in the order in which they have just been stated. I do not overlook, however, that the first proposition has significance only because of the second. Faced with the defendant’s plea that the Share Mortgage Agreement failed for want of consideration, the plaintiffs alleged that the Share Mortgage Agreement formed part of a wider transaction by which they had sold the shares in the two companies to the defendant. The defendant denied the existence of that wider transaction. As already noted, the trial Judge found against the defendant on this point.
Did the Parties enter into a Fresh Agreement?
The question of whether persons have entered into contract is to be determined objectively.[8]
[8]Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 549 per Gleeson CJ; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 79 ALJR 206 at 211 [34].
In my opinion, the conclusion of the trial Judge that the plaintiffs and the defendant did, in or about April 1999, reach a fresh agreement to transfer the shares in the companies to the defendant has not been shown to be wrong. On the contrary, there is a good deal of evidence to support it.
The despatch by the plaintiffs’ solicitor on 14 April 1999 of the Share Sale Agreements, a fresh Share Mortgage Agreement and the Share Transfer Forms was an offer by the plaintiffs to sell to the defendants the shares the subject of the Share Sale Agreement on the terms set out in that Agreement. The defendant was being invited to do that which she had declined, by her conduct, to do on 19 February 1999. The defendant was being invited to become the purchaser of the shares and to accept the benefits and obligation arising under the Share Sale Agreement. The defendant entered her signature to the Share Sale Agreement relating to Ocean Foods Pty Ltd. It is probable that she also added her signature to the Share Sale Agreement relating to South Australian Lobster Exporters Pty Ltd but as that agreement was not tendered at trial, no finding about that can be made. It is reasonable to construe the entry by the defendant of her signature as an acceptance of the plaintiffs’ offer. This was the conclusion of the trial Judge. The plaintiffs’ offer included an offer of vendor finance on the terms set out in the Schedule 16 to the Share Sale Agreement. The defendant’s acceptance included an acceptance of the obligations on her as purchaser contained in clause 7.3 to grant to the plaintiffs a mortgage over the shares in consideration of the grant of vendor finance. This analysis was the most obvious inference to be drawn from the parties’ conduct.
The defendant’s signatures on the Share Transfer Forms as transferee, and on the Share Mortgage Agreement, apparently entered at the same time, are further evidence of the entry into the contract by her for the purchase of the shares.
The position would have been clearer if, prior to or at the same time as the defendant entered her signature, the names and signature of Kevin Cheung which had been inserted on 19 February 1999 had been deleted. However, the omission to do those things was not critical. The trial Judge made no finding as to why those deletions were not made. It is explicable on the basis of a lack of attention to detail, which inattention had also been evident when the documents were signed on 19 February 1999.
It is true that the fact that the plaintiffs had executed the Share Transfer Forms on 19 February 1999 and had, apparently, delivered them to Kevin Cheung meant that it was not possible for them to transfer the shares to the defendant without first having the shares transferred back to them. As the trial Judge found, that was not impossible. Mr Simpkins accepted that the plaintiffs and Kevin Cheung could agree to reverse the settlement of 19 February 1999.
The trial Judge found that such a re-transfer had occurred. The evidence did not enable him to make a finding as to the precise means by which that occurred.
The submissions of both parties before the trial Judge, and on appeal, proceeded on the basis that reference could be made by the Court to extrinsic evidence, and in particular the conduct of the parties prior to the defendant’s signing of the Share Mortgage Agreement, in determining whether or not the parties had entered into a fresh agreement. There is authority which supports the correctness of that view.[9]
[9]Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-3 per Mahoney JA and at 335-6 per McHugh JA.
Reference to the surrounding circumstances in this case, in my opinion, serves only to support the finding of the trial Judge.
The extrinsic evidence led by the parties made the context plain. Up until the time of the matrimonial disagreement between the defendant her husband on 19 February 1999, the defendant had intended to purchase the shares in the two companies. She had entered into the Heads of Agreement for that purpose in April 1998. She had, by her solicitor, negotiated the terms of the Share Sale Agreements and of the Share Mortgage Agreement which were to be signed on 19 February 1999. The provision of vendor finance, and the provision of a Share Mortgage to secure that finance, was expressly contemplated by clause 7.3 of the Share Sale Agreement in relation to Ocean Foods Pty Ltd. A draft of the Share Mortgage Agreement containing the terms of the Share Mortgage Agreement, ultimately signed by the defendant, comprised Schedule 16 to the Share Sale Agreement relating to Ocean Foods Pty Ltd.
The contemplated sale to the defendant did not take place on 19 February 1999 because of the defendant’s sudden departure from Adelaide and her refusal to participate in the meeting on 19 February 1999.
It is also plain that within a few weeks of 19 February 1999, the parties, including the defendant, had a change of heart. It was thought that one of the original aims of the purchase of the business, namely, the facilitating of the defendant’s immigration application, could occur only if the defendant did purchase the businesses. Mr Simpkins acknowledged that the parties intended, within a few weeks of 19 February 1999, that the defendant should become the purchaser of the shares.
The context in which the Share Mortgage Agreement was signed was therefore a context in which the parties were attempting to bring about the position which would have pertained had it not been for the defendant’s last minute withdrawal from the transactions proposed on 10 February 1999. Although different strategies to achieve this had been put forward, ie, nomination by the defendant of her husband as her agent and ratification of the contract by the defendant, these strategies had not been pursued. The facsimile from Rico Chan of 22 March 1999 spoke of a decision that the defendant should be the purchaser and requested preparation of documents with the defendant as purchaser. This suggests to my mind that the parties were contemplating a new transaction. It appears that it was thought that because the documents had been prepared initially in the defendant’s name, the intended purpose could be achieved by having the defendant execute the Share Sale Agreement without any alteration to it, as well as a fresh Share Mortgage Agreement and the Share Transfer Forms.

The submissions of the parties at trial and on appeal also assumed that reference could be made to the conduct of the parties subsequent to the formation of the putative contract to assist in determining whether the parties had reached a concluded agreement. No authority was cited for that proposition. The question of whether conduct of parties subsequent to the alleged formation of a contract is admissible to show that parties have entered into a contractual relationship is, on my understanding, still unresolved. In Reark Group Pty Ltd v Data Connection Pty Ltd (Supreme Court of Victoria, 25 May 1995, unreported), Hayne J said that “it may well be” that, in determining whether the parties are to be taken to have intended to make a concluded agreement, regard may be had to communications between the parties after the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered, for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. Reference was made by Hayne J to Australian Broadcasting Commission v XIVth Commonwealth Games Ltd.[10] Given the way in which the appeal was conducted this case does not provide an appropriate occasion for consideration of the question. It is appropriate, in the circumstances of this case, to determine the appeal on the basis that the assumption made by the parties is correct.
[10] (1988) 18 NSWLR 540 at 550.
A number of events occurred after the signing of the documents by the defendant which indicate a belief by the parties that the plaintiffs were now bound to transfer the shares to the defendant. The trial Judge referred in particular to events associated with the stamping of the documents and the registration of the defendant in the share register of the companies. On 3 May 1999 (at about the same time that the defendant was signing the documents) Mr Jenkins of KPMG lodged an application for opinion with the State Taxation office relating to the stamp duty liability. The instrument to which the application related was the Share Sale Agreement dated 19 February 1999 entered into on 19 February 1999. On 18 June 1999, a further application for opinion was lodged in respect of the Share Mortgage Agreement dated 19 February 1999. Each of these were the documents signed by Kevin Cheung and the request for opinion assumed that he would be the purchaser. However, on 23 July 1999, the Share Mortgage Agreement signed by the defendant, and not the Share Mortgage Agreement signed by Kevin Cheung in February 1999, was stamped as security for $377,500. Furthermore, on 26 January 2000, two Share Transfer forms in respect of the shares in Ocean Foods Pty Ltd were stamped. The defendant, and not Kevin Cheung, was shown as the transferee on those forms. On 6 January 2000, the Share Sale Agreement signed by Kevin Cheung on 19 February 1999, to which the defendant had subsequently entered her signature, was stamped. Thus, although the precise manner and circumstances in which the changes occurred were not explained in evidence, it seems that at least after 18 June 1999 the parties were implementing a transaction which was different from that entered into on 10 February 1999. That supports the conclusion of the trial Judge that a fresh agreement was entered into at some time between 14 April 1999 and 23 July 1999.
The trial Judge also referred to the acceptance by the defendant of monthly remuneration from Ocean Foods Pty Ltd. The evidence about the circumstances of the payment of that remuneration is somewhat equivocal. The defendant was critical of the trial Judge’s reliance on this evidence. It is unnecessary in these reasons to address that criticism as there was, as already outlined, a considerable amount of other evidence justifying the conclusion of the trial Judge that a fresh agreement had been reached.
The trial Judge found that the fresh contract was partly in writing, partly oral and partly to be implied. This led to a complaint on appeal that the trial Judge had not identified the conversation or conversations or the conduct said to give rise to the oral and implied terms. There is substance in that complaint but it does not affect the validity of the trial Judge’s conclusion that the fresh agreement was constituted by the defendant’s acceptance, by signature of the Share Sale Agreement, of the offer made by the plaintiffs. Further, the plaintiffs did not rely on any oral or implied term for their claim.
Other than his submission with respect to a mistaken belief by the parties, to which I will return below, Mr Simpkins proffered no alternative explanation for the significance of the plaintiffs’ conduct in sending the documents to Hong Kong for the defendant’s signature and her signing of the documents.
I would reject the submission of the defendant that the trial Judge was in error in finding that the parties had entered into a fresh agreement in or about April 1999.
Was there Consideration for the Share Mortgage Agreement?
The defendant submitted that the parties had not entered into a binding contract because there was no consideration moving from the plaintiffs to the defendant. In the first place, it was submitted that although the Share Mortgage Agreement referred to an advance of $377,500, there had in fact been no such advance. In the alternative, it was submitted that even if the consideration was the entry by the plaintiffs into the Share Sale Agreement (or Agreements) then there was still no consideration moving from the plaintiffs. This was so in the defendant’s submission because, following the completion of the Share Sale Agreements entered into on 19 February 1999, the plaintiffs no longer owned the shares in the companies and were not in a position to transfer those shares to the defendant. The plaintiffs had performed completely their obligations under the Share Sale Agreement signed on 19 February 1999. Alternatively, if there were any remaining obligations to be performed by the plaintiffs and to which the defendant could be substituted as the recipient, there was no unequivocal evidence that those obligations had been performed. Thus it was submitted that each of the events which occurred after the entry by the defendant into the Share Mortgage Agreement and into the Share Sale Agreement concerning Ocean Foods Pty Ltd was explicable as part of the carrying into effect of the contracts entered into by Kevin Cheung on 19 February 1999. Accordingly, the submission was that no consideration had or could move from the plaintiffs to the defendant pursuant to the Share Sale Agreement and no further consideration could move from the plaintiffs to Kevin Cheung.[11]
[11] Cf Pao On v Lau Yiu Long [1980] AC 614.
It might have been contended that the presence or absence of consideration moving from the plaintiffs to the defendant was immaterial, at least with respect to the issues other than mistake. The Share Mortgage Agreement stated explicitly that it was “Executed as a Deed”. On the assumption that the Law of Property Act 1936 (SA) was applicable,[12] it was therefore enforceable even in the absence of consideration. Section 41(1) of the Law of Property Act provides that a natural person may execute a deed by signing the deed. Delivery and indenting are not necessary (s 41(3)). An instrument executed in accordance with s 41 is a deed if the instrument is expressed to be a deed (s 41(5)). Thus it was not necessary for the Share Mortgage Agreement to be sealed by the parties nor for delivery or indenting. It is true that the signature of the defendant (and for that matter the plaintiffs also) was not witnessed but this would not have affected the validity of the Deed if it appeared from evidence external to the Share Mortgage Agreement that the defendant intended to be bound by it (s 41(4)). However, the plaintiffs did not rely on the status of the Share Mortgage Agreement as a deed and accepted that consideration was required for its enforceability. It is not necessary therefore to consider any further the significance of the document having been executed as a deed.
[12]If this assumption was critical, it would be necessary to consider in this context the significance, if any, of the fact that the Share Mortgage Agreement was executed by the defendant in Hong Kong.
At the trial, both parties accepted that extrinsic evidence was admissible to prove an absence of, or the existence of, consideration.[13] The defendant relied on extrinsic evidence to show that there had been no actual advance of a sum of money by the plaintiffs when the Share Mortgage Agreement was signed. The plaintiffs relied on extrinsic evidence to show the wider transactions of which the Share Mortgage Agreement formed part. Both parties referred to events which occurred subsequent to the execution of the Share Mortgage Agreement. It is unnecessary therefore to consider in this case the circumstances in which extrinsic evidence is admissible to show an absence of consideration for a contract which, on its face, identifies the consideration passing between the parties.
[13]It is clear enough that extrinsic evidence is admissible to show the existence of consideration, or a greater consideration where there is none or only partial consideration stated in the written contract: Pao On v Lau Yiu Long [1980] AC 614 at 631; Mischkulnig v Berger (Supreme Court of Victoria, Coldrey J, 14 December 1995, unreported) but it is not so clear that extrinsic evidence may be used to contradict the express words of a contract so as to show that there is an absence of consideration.
The defendant’s first submission can be dealt with quite shortly. The defendant’s submission was that as the Share Mortgage Agreement referred to “the principal sum now lent by the mortgagees to the mortgagor” and because the extrinsic evidence showed that there had been no actual advance of money at the time it was signed, the agreement failed because of an absence of the stated consideration. It is true that the Share Mortgage Agreement is expressed in terms more suited to a contemporaneous advance of a sum of money, rather than the provision of vendor finance. However, the words in clause 1 of the Share Mortgage Agreement, “the Mortgagees shall advance by way of loan to the Mortgagor on the date of this agreement the Principal Sum”, are capable of including the balance of the purchase price, identified as $377,500, which the plaintiffs, as vendors, were making available to the defendant by way of vendor finance. The words “advance by way of loan” are capable of including the creation of a debt by the actions of the vendors in forbearing from insisting on immediate payment. Those words do not bear only the very narrow meaning for which the defendant contends.
If it be the case, as the trial Judge held, that the entry by the defendant of her signature on the Share Sale Agreement in or about April 1999 constituted an acceptance by her of the offer of the plaintiffs to sell to her the shares in Ocean Foods Pty Ltd and to provide to her vendor finance for that purpose, there was a contractual promise capable of providing consideration from the plaintiffs for the Share Mortgage Agreement. That is to say, the plaintiffs bound themselves to transfer the shares to the defendant and to do the other things necessary to complete the contract.
In my opinion therefore, it is not to the point that the evidence as to the means by which the plaintiffs and Kevin Cheung reversed the Agreements entered into on 19 February 1999 is somewhat scant. One may accept that the reversal of the 19 February 1999 Agreement was essential before the plaintiffs could perform their obligations to the defendant under the fresh contract. But the means by which the plaintiffs were to fulfil the contractual obligation was not critical to the existence of consideration of the Share Mortgage Agreement. As I say, that consideration was provided by the contractual promise of the plaintiffs to transfer the shares to the defendant.
Accordingly, I would reject the submission of the defendant that there was no consideration by the plaintiffs for her obligation under the Share Mortgage Agreement.
Conditions Precedent
The defendant submitted that if a fresh Agreement was found by the trial Judge to have been entered into, it “must be” subject to an implied term that the Agreement entered into on 19 February 1999 would be rescinded so that the Ocean Food shares could be transferred back to the plaintiffs and an implied term that the plaintiffs would then transfer the shares in Ocean Foods Pty Ltd to the defendant. Such implied terms were necessary, it was said, so as to give the Share Sale Agreement business efficacy because it was not reasonable to suppose that the plaintiffs had agreed unconditionally to sell to the defendant shares which they did not have.
The defendant then argued that the Agreements entered into on 19 February 1999 with Kevin Cheung were never rescinded and had there never been a transfer back to the plaintiffs of the shares in Ocean Foods Pty Ltd. Thus, as I understood the argument, the defendant’s submission was that the conditions precedent had not been fulfilled and there had not been a transfer of the shares to the defendant.
I am prepared to assume that the fresh agreement was subject to implied terms of the kind submitted by the defendant, so that settlement of the Agreement was conditional upon the plaintiffs coming to some agreement with Kevin Cheung, and perhaps conditional upon them exercising their best endeavours to do so. However that does not assist the defendant. The submission assumes that it was an established fact that the Agreements entered into on 19 February 1999 had not been rescinded or reversed. No such finding of fact was made by the trial Judge. On the contrary, as already noted, the trial Judge accepted that the plaintiffs and Kevin Cheung had come to some “arrangement” enabling the plaintiffs to perform their obligations to the defendant even though the evidence did not fully explain that arrangement.
The Absence of Pleading of the Fresh Agreement
The defendant submitted that the finding that the parties had entered into a fresh Agreement between April and July 1999 was not open because it had not been pleaded.
The trial Judge accepted that the existence of a fresh Agreement had not been pleaded but considered that the Court was required to grant all such relief on any cause of action to which the parties may be entitled on the evidence.[14]
[14]S P Hywood Pty Ltd v Standard Chartered Bank Ltd (Supreme Court of South Australia, Perry J, 21 December 1992, Jdgt S3764, Unreported)
In my opinion, there is no substance in this complaint of the defendant. The plaintiffs had pleaded, in the alternative, a tripartite Agreement. The Judge found that instead of a tripartite agreement involving the plaintiffs, the defendant and Kevin Cheung, the plaintiffs had entered into two Agreements: the fresh agreement with the defendant and an arrangement between themselves and Kevin Cheung which enabled them to perform their obligations under the fresh Agreement with the defendant. The difference between the single tripartite agreement pleaded by the plaintiffs and the fresh agreement and an agreement found by the Judge is not of substance. Further, the submissions made by Mr Simpkins at trial indicate an awareness by the defendant that the plaintiffs were alleging, as part of the tripartite agreement, an arrangement between themselves and Kevin Cheung by which the defendant was to be given the benefit of the Agreements which had been executed on 19 February 1999. On appeal, Mr Simpkins accepted that the defendant knew, at trial, that she was dealing with the possibility that there could be a finding of an agreement made in or about April 1999 and further, that the plaintiff’s claim of a fresh agreement in April 1999 necessarily involved an implied agreement between the plaintiffs and Kevin Cheung.
If there was evidence of prejudice to the defendant as a result of the trial Judge making a finding of an agreement which had not been explicitly pleaded then there may have been some substance in the defendant’s complaint. I am not satisfied that there was such prejudice. This ground of appeal is not made out.
Was the Share Mortgage Agreement Vitiated by Mistake?
The defendant submitted that the assumption underlying the Share Mortgage Agreement was that the defendant had acquired the shares in Ocean Foods Pty Ltd from the plaintiffs and that she owed the plaintiffs $377,500 in relation to the vendor finance provided in relation to that acquisition. It was submitted that those assumptions were mistaken.
The trial Judge rejected the defendant’s claim of mistake. The defendant accepted that that rejection followed because of the trial Judge’s finding of a fresh Agreement between the plaintiffs and the defendant and the separate arrangement between the plaintiffs and Kevin Cheung. The defendant argued on appeal that if the trial Judge was in error in that finding then relevant mistake was established. The defendant’s approach to the matter makes it unnecessary to consider the defence of common mistake in any detail. For reasons already given, I am not satisfied that the trial Judge was in error in his finding of the fresh Agreement or of the arrangement between the plaintiffs and Kevin Cheung.
Was the Share Mortgage Agreement Unconscionable?
The defendant’s submissions on this point were quite short. It was submitted that as the defendant could not acquire shares in Ocean Foods Pty Ltd from the plaintiffs, the Share Mortgage Agreement was unconscionable. This submission was hardly developed on appeal. For the reasons already given, the premise relied upon by the defendant for the argument is not established. This makes it unnecessary to consider the claim of unconscionability in any detail. The trial Judge was satisfied that the defendant had a proper understanding of the true nature and extent of the Share Mortgage Agreement. He considered that her evidence demonstrated an actual ability to read and understand documents in English. He noted that she was the Manager of a substantial business, with a large turnover. A solicitor had represented her during the negotiations for the contract. The trial Judge found that if she did not understand any documents she had the resources to have it explained to her. The transaction into which she entered was one which had a long gestation period and one with which she was well familiar.
It was not suggested that any of those findings by the trial Judge were in error. In my opinion, this ground of appeal is not made out.
Conclusion
For the reasons given, in my opinion, the appeal should be dismissed.