Mansour v Jiang

[2017] FCCA 2098

FEDERAL CIRCUIT COURT OF AUSTRALIA

MANSOUR v JIANG & ANOR [2017] FCCA 2098

Catchwords:
PRACTICE AND PROCEDURE – Application for leave to amend application and statement of claim – whether the granting of leave will unreasonably expand the scope of the proceeding – leave granted.

Legislation:

Australian and Securities Investments Commission Act 2001 (Cth), s.12DA(1)
Australian Consumer Law, s.18
Federal Circuit Court Rules 2001 (Cth), r.7.01(1)

Cases cited:

Medich v Bentley-Smythe Pty Ltd [2010] FCA 494

Applicant: JOSEPH MANSOUR

First Respondent: YONG JIANG

Second Respondent: SUI (SHELLY) TONG NIU

File Number: SYG 2249 of 2016

Judgment of: Judge Manousaridis

Hearing date: 22 August 2017

Date of Last Submission: 22 August 2017

Delivered at: Sydney

Delivered on: 1 September 2017

REPRESENTATION

Counsel for the Applicant: Mr J Raftery

Solicitors for the Applicant: Mars Legal

Solicitors for the Respondents: Mr W Kozlowski of
Lou Baker & Associates

ORDERS

1. The applicant has leave to file an application in the form prescribed by the Federal Circuit Court Rules 2001 (Cth) seeking the orders claimed in the draft amended originating application annexed to the affidavit of Mr Samakeh affirmed on 14 August 2017.

2. The applicant have leave to file an amended statement of claim in the form of the draft amended statement of claim annexed to the affidavit of Mr Samakeh affirmed on 14 August 2017 except that:

   (a)paragraph 21(d) of the draft amended statement of claim is to be amended to read “agreed to become a director of Beihai”;

   (b)paragraph 21(e) of the draft amended statement of claim is to be amended to read “agreed to accept a 50% interest in Beihai”; and

   (c)the words “Winckelmans Group” are to replace the words “the Company” wherever those words appear.

3. By 8 September 2017 the applicant file and serve the application and amended statement of claim referred to in orders 1 and 2.

4. The costs of the application for leave to amend are reserved as are any costs which the respondents may be able to identify as having been thrown away by reason of orders 1 and 2.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2249 of 2016

JOSEPH MANSOUR

Applicant

And

YONG JIANG

First Respondent

SUI (SHELLY) TONG NIU

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. Before the Court is an application in a cased filed by the applicant, Mr Mansour, seeking leave to file an amended originating application and an amended statement of claim in the form of the draft amended originating application and the draft amended statement of claim that are annexed to the affidavit of Mr Samakeh affirmed on 14 August 2017.

The current statement of claim

1. In the current statement of claim Mr Mansour claims relief in relation to a number of amounts he alleges he paid to the respondents, and to Winckelmans Group Pty Limited (Winckelmans).

First Loan Agreement

1. The first amount in relation to which Mr Mansour claims relief is the balance of a $190,000 loan he alleges he made to the respondents on 6 September 2010 pursuant to a loan agreement Mr Mansour made with Mr Jiang on 23 August 2010 (First Loan Agreement). Mr Mansour alleges Mr Jiang entered into the First Loan Agreement on behalf of himself and Ms Niu, and that it was a term of that agreement that the respondents would pay interest at monthly intervals at the rate of 7% per annum. Mr Mansour alleges that $87,779.99 is outstanding under the First Loan Agreement.[1]

   [1] Statement of claim, [7]

Second Loan Agreement

1. The second amount in relation to which Mr Mansour claims relief is the balance of a $20,357.25 loan Mr Mansour alleges he made to Mr Jiang on 15 December 2011 (Second Loan Agreement). Mr Mansour alleges he lent the $20,357.25 to enable the respondents to meet an interest payment that was due under a home loan they had taken out. The Second Loan Agreement contained a term to the effect that Mr Jiang would pay interest at monthly intervals at the rate of 7% per annum. Mr Mansour alleges that $28,753.62 is outstanding under the Second Loan Agreement.[2]

   [2] Statement of claim, [13]

Money advanced under inducement of representations

1. Mr Mansour alleges he advanced a number of amounts to Winckelmans under the inducement of representations Mr Jiang made to Mr Mansour on or about 23 August 2010. Those representations were made in the course of negotiations relating to Mr Mansour investing or lending money to Winckelmans to enable it to commence the business of exporting goods to China. Mr Mansour alleges Mr Jiang made the following representations to him (the First Representations):

   a)Winckelmans had the opportunity to export goods from Australia to China and sell such goods to China for profit (Business);

   b)Winckelmans required an initial loan advance in the order of between $110,000 and $165,000 to purchase and ships goods from Australia to China, but might require further advances from time to time to assist with the costs associated with the Business;

   c)Winckelmans would repay the loans in full from the profits of the Business together with interest of 7% per annum; and

   d)in consideration for the loan advances, Mr Mansour would share in 50% of the profits of the Business.[3]

   [3] Statement of claim, [19]

2. Mr Mansour further alleges that, by making these representations, Mr Jiang impliedly made the following (Implied Representations):

   a)the Business would be operated honestly, properly, and in accordance with the law;

   b)Mr Jiang, as director of Winckelmans would comply with his duties under the Corporations Act 2001 (Cth);

   c)the income the Business would receive would be properly accounted for in the interests of Winckelmans and its shareholders;

   d)Mr Jiang would be responsible for accounting for the profits earned by Winckelmans.[4]

   [4] Statement of claim, [20]

3. At the time Mr Jiang made these representations, he was a director and shareholder of Winckelmans.

4. Mr Mansour alleges that, in reliance on the First Representations and the Implied Representations, he advanced to Winckelmans $110,000 and $55,000 on 6 September 2010 and 11 October 2010 respectively.

5. Mr Mansour further alleges that from January 2011 to late 2014 Winckelmans or Mr Jiang, or both represented to Mr Mansour that Winckelmans had not made any, or had made very little profit, and that the Business required further capital in order to return a profit (The Second Representations).[5] He alleges that, in reliance on the First Representations, the Implied Representations, and the Second Representations, he advanced to Winckelmans twelve amounts totalling $69,117.78

   [5] Statement of claim, [22]

6. Mr Mansour alleges that all representations were made in the course of trade and commerce; and that they were misleading or deceptive, and that by making these representations, Mr Jiang engaged in conduct that contravened s.18 of the Australian Consumer Law or, in the alternative, s.12DA(1) of the Australian and Securities Investments Commission Act 2001 (Cth). The representations were misleading or deceptive because:

   a)the Business was profitable or, alternatively, the profits the Business was earning were greater than what was being reported to Mr Mansour by Mr Jiang;

   b)not all of the income derived by the Business was properly brought to the account of Winckelmans;

   c)the profits of Winckelmans were not shared equally between Mr Mansour and Mr Jiang because Winckelmans was going to pay, and did pay to Mr Jiang, significant amounts by way of management fees that were not disclosed to Mr Mansour;

   d)profits were not being made or, in the alternative, they were being reduced because Winckelmans was paying amounts to Mr Jiang’s family or for Mr Jiang’s own benefit and use which were not disclosed to Mr Mansour; and

   e)Mr Jiang failed to comply with his duty to act in the best interest of the shareholders of Winckelmans.

Proposed amendments

1. The proposed amended statement of claim contains five amendments or sets of amendments. The first amendment, which is not opposed, is the removal of the allegations concerning the First Loan Agreement.

2. The second set of amendments is the addition of the allegation that Mr Jiang entered into the Second Loan Agreement on behalf of himself and Ms Niu.

3. The third amendment, or set of amendments, concerns the addition of allegations in relation to another company of which Mr Jiang is alleged to be a director, namely, Beihai Winckelmans (Beihai). The relevance of that amendment is that the proposed amended statement of claim defines Winckelmans and Beihai as “the Companies”, and the expression “the Companies” or “running of the Companies” are substituted for “Winckelmans” and “the Business” where they appear in the current statement of claim.

4. The fourth amendment, or set of amendments, is the addition of the following representations:

   a)the Companies would be would be profitable;

   b)Mr Mansour could trust Mr Jiang would operate the Companies honestly;

   c)Mr Mansour and Mr Jiang would share the profits from the Companies equally; and

   d)the Companies would be run together as one company.

5. The fifth, and final, proposed amendment is the addition of two things Mr Mansour alleges he was induced to do on the faith of the representations. The first is he “accepted the appointment of director to Behai” (sic), and the second is Mr Mansour “accepted a 50% interest in Behai” (sic). In the course of oral address, counsel for Mr Mansour said that that these additions should be read as “agreed to become a director to Behai” (sic), and “agreed to accept a 50% interest in Behai” (sic).

6. The applicant also seeks leave to amend the originating application. The form of that application is that provided for by the Federal Court Rules 2011. A document in that form initiated this proceeding because Mr Mansour commenced the proceeding in the Federal Court. The proceeding was transferred to this Court by order of Rares J. The proposed amended originating application has removed from it the claim in relation to money the current statement of claim alleges is owed under the First Loan Agreement, and it increased the amount Mr Mansour otherwise claims from $210,357.25 to $254,475.03.

Principles

1. Under r.7.01(1) of the Federal Circuit Court Rules 2001 (Cth), the Court has power to “allow or direct a party to amend a document (other than an affidavit) in the way and on the conditions the Court . . . thinks fit”; but the exercise of that power is within the discretion of the Court. In the case of applications to amend pleadings, the discretion is exercised according to the following principle:[6]

   [L]eave to amend should be granted unless the proposed amendment is obviously futile or would cause substantial prejudice or injustice which could not be compensated for. These considerations require the Court to take account of the nature of the proposed amendment, whether it is made in good faith, the stage in the proceedings at which leave is sought, the nature of the prejudice that may be caused and the means by which such prejudice might be redressed. The question of delay is relevant to these considerations however it is not the purpose of the Court to punish a party for delay in seeking an amendment.

   [6] Medich v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8] (Stone J)

Parties’ submissions

1. Counsel for Mr Mansour submits that all but one of the allegations are made to bring the statement of claim in line with the evidence that has already been filed by Mr Mansour. The exception related to Mr Mansour’s allegation that he agreed to become a director to Beihai, and agreed to accept a 50% interest in Beihai. Counsel further informed me that Mr Mansour may need to provide further evidence of conversations in relation to the proposed representations.

2. Mr Kozlowski, who appeared for the respondents, submitted that some of the proposed amendments will require the respondents to provide substantial additional evidence, including translations of documents. In particular:

   a)in relation to the inclusion of Beihai, Mr Kozlowski submitted that Mr Mansour is “[n]ow claiming against” Beihai and because Beihai is a company incorporated in China, expert evidence will now be required to translate documents;[7] and

   b)in relation to the inclusion of Ms Niu as a party to the Second Loan Agreement, that will require the taking of additional evidence from Mr Jiang and Ms Niu, as well as from accountants for Winckelmans and Beihai which will require evidence to be translated.[8]

   [7] Outline Submissions dated 22 August 2017

   [8] Outline Submissions dated 22 August 2017

3. In oral address, Mr Kozlowski submitted that the proposed allegation that Mr Mansour agreed to become a director and a shareholder of Beihai will require expert evidence about Chinese law regarding a non-national becoming a director of a Chinese company. Mr Kozlowski also submitted that leave should not be granted to Mr Mansour amending the originating application to the extent it seeks to amend the amount Mr Mansour claims.

4. There is another matter to note. In the current statement of claim Winckelmans is defined as “the Company”. In the proposed amended statement of claim, that definition is removed and there is instead the expression “the Companies” to denote Winckelmans and Beihai. The draft, however, uses the expression “Winckelmans Group” to refer to Winckelmans, yet still retains the words “the Company”. That appears to be an obvious omission. It is apparent that, where they appear, the words “the Company” are intended to refer to Winckelmans.

Should leave be granted?

1. In my opinion, leave should be granted to Mr Mansour to file an amended statement of claim in the form attached to the affidavit of Mr Samakeh affirmed on 14 August 2017.

2. The proposed amendments are relatively minor, and they largely reflect the evidence Mr Mansour has already filed. That is obviously so in that part of the statement of claim that proposes to claim that Ms Niu was a party to the Second Loan Agreement. In paragraph 67 of the affidavit Mr Mansour made on 27 February 2017, he deposes to a conversation with Mr Jiang in which Mr Jiang said “I agree, my wife and I will pay you back”. Further, it is not readily apparent that the amendment will require Mr Jiang or Ms Nui to consider revising their existing affidavits. Mr Jiang denies he had a conversation to which Mr Mansour deposes in his paragraph, and Ms Niu has deposed she has had no dealings with Mr Mansour, and is not indebted to him for any amount. It is also not apparent that it will be necessary for the respondents to put on evidence from an accountant to deal with the amendment.

3. Contrary to Mr Kozlowski’s submission, the proposed amended statement of claim does not make a claim against Bahei. The addition of that name reflects the evidence that has already been filed. In his affidavit, Mr Mansour refers to Beihai being a company in China of which Mr Jiang is the director, that during September 2010 to April 2013 Mr Mansour received financial reports from Beihai, on about 19 September 2010 Mr Mansour travelled to China to visit Beihai’s office where he met clients and inspected the warehouse facility, and Mr Jiang provided Mr Mansour with a business card that identified Mr Mansour as a director of both Winckelmans and Beihai. Mr Jiang responds to these matters in his affidavit.

4. Finally, I do not accept that the addition of the allegation that Mr Mansour agreed to become a director of Beihai and a 50% shareholder would require the respondents to put on any evidence of Chinese law. As I have already noted, Mr Mansour, in his affidavit, refers to Mr Jiang having provided him with a business card that identified Mr Mansour as a director of both Winckelmans and Beihai. Mr Jiang responded to this part of Mr Mansour’s affidavit by stating that due to Mr Jiang’s “haste to order cards”, he “omitted to ask the printer to remove the reference to Behai Winklemen” (sic).[9] Further, in paragraph 33 of his affidavit, Mr Mansour deposes that, as a result of his conversations with Mr Jiang and emails he received, Mr Mansour believed he was a director of Beihai. Mr Jiang responds to this part of Mr Mansour’s affidavit by stating Mr Mansour has no interest in Beihai.[10] The respondents have not filed any expert evidence of Chinese law, and it is unlikely they will file such expert evidence if I grant Mr Mansour leave to file the proposed amended statement of claim.

   [9] Affidavit of Y Jiang, [44]

   [10] Affidavit of Y Jiang, [39]

5. The respondents also rely on an affidavit made by Mr Kozlowski which relate to the history of the proceedings. Although the affidavit reveals an unhappy history, and the matters deposed in his affidavit may be relevant to the question of costs, those matters do not persuade me that Mr Mansour should not be granted leave to file the proposed amended statement of claim.

6. Finally, there is the question of whether I should grant Mr Mansour leave to file an amended originating application. The increased amount that is contained in the draft amended originating application is the increased amount stated in paragraph (i) of the particulars to paragraph 28 of the amended statement of claim, where it is alleged the amount represents the approximate amount of the unpaid interest and loans advanced to Winckelmans. I propose to allow the amendment.

Disposition

1. I propose, therefore, to order that Mr Mansour be granted leave to file an amended statement of claim in the form of the draft annexed to the affidavit of Mr Samakeh affirmed on 14 August 2017 except that:

   a)paragraph 21(d) is to be amended to read “agreed to become a director of Beihai”;

   b)paragraph 21(e) is to be amended to read “agreed to accept a 50% interest in Beihai”;

   c)the words “Winckelmans Group” are to replace the words “the Company” wherever those words appear.

2. I also propose to grant the applicant leave to file an application in the form prescribed by the Federal Circuit Court Rules 2001 (Cth) which seeks the orders sought in the draft originating application annexed to Mr Samakeh’s affidavit. Those orders should be set out in the prescribed form of application for commencing general federal law proceedings in this Court.

3. I propose to reserve the question of the costs of the application to amend, as well as any costs the respondents may be able to identify as having been thrown away because of my granting Mr Mansour leave to file an amended application and amended statement of claim.

I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date:  1 September 2017